In 2021, Destiny Church leader and self-appointed bishop, Brian Tamaki, was marching in the streets of Auckland, vociferously protesting against vaccine mandates with thousands of loyal followers. In response, tens of thousands of people signed a petition calling for Destiny Church and its various entities to lose their charitable status.
A handful went further and lodged their concerns with Charities Services, a business unit within the Department of Internal Affairs (DIA) charged with promoting public trust in the charitable sector and administering the relevant law.
So how are they doing?
New Zealand has more than 28,000 registered charities, among the most in the world on a per capita basis, but as a regulator, Charities Services is relatively scant on staff. There are just eight people in its investigations team.
Complaints, investigations and other compliance data obtained by BusinessDesk using the Official Information Act (OIA) suggests Charities Services takes a relatively hands-off approach, opting more for education over enforcement.
Stephen Reilly, regulatory manager at Charities Services, describes it as supportive.
“People start up charities for good reasons,” he says.
“If they come a bit unstuck every now and again we’ll help them along the way and they can get on with what they’re doing that’s ultimately going to benefit communities.”
Charities Services received $5.8 million in funding from the crown in the 12 months to June 2021, and close to $900,000 in revenue from filing fees. It spent $6.4m, mostly on staff and overheads.
The OIA data shows the regulator receives hundreds of complaints about charities each year, peaking at 222 in 2020/21 (similar complaints, like the ones the regulator received about Destiny, are sometimes grouped together).
But the number of case inquiries, essentially a stress test to see if there’s evidence of serious wrongdoing, and completed investigations are far lower. From a high of 24 closed investigations in 2018/19, Charities Services closed just four each in 2019/20 and 2020/21.
“Complaints don’t necessarily translate into investigations,” Reilly says. “Quite often it’s because two people disagree about the direction of the charity, and we’ll turn around and say ‘you’re a self-governing entity, you need to sort this out yourselves’.”
As for the number of investigations, Reilly says Charities Services focuses on instances where there may have been serious wrongdoing, a definition which includes the corrupt use of funds, gross mismanagement, or behaviour constituting an offence.
“We concentrate on the areas that we think are probably the greatest risk to public trust and confidence,” he says. “The lower level stuff, we try and take an educative approach.”
Being a registered charity in NZ comes with benefits, including tax-exempt status and the ability for donors to claim tax credits on their donations. But as Reilly says, it also comes with obligations like filing financial returns to the charities register, which is public.
Andrew Phillips, engagement and business improvement manager at Charities Services, says the general public doesn’t always understand what constitutes a charity in NZ. This results in periodic outrage at companies like Sanitarium, a business run by the Seventh Day Adventist Church, being deemed charitable.
“People associate charity with the relief of poverty,” Phillips says. But as it's defined in the act (which itself draws from longstanding English law), there are four heads of charity: the relief of poverty, the advancement of either education or religion, or any other matter beneficial to the community.
There are also no requirements that charities distribute a set amount of their revenue.
“If they’re clearly not advancing their charitable purpose, we will ask questions when it comes to our attention,” Reilly says. “But there’s no brightline test.”
Sanctions, penalties and deregistration
Sitting alongside Charities Services is an independent three-person board, Te Rātā Atawhai, which is responsible for registering and deregistering charities. In practice, Charities Services makes most decisions under the formal delegation of the board, but board members deal with serious wrongdoing cases, novel registration cases and cases where organisations disagree with decisions made by Charities Services.
The OIA data shows serious wrongdoing leading to deregistration is exceedingly rare. Between 2016/17 and 2021/22, the board deregistered just four charities and disqualified four people as officers of a charity, meaning they can’t be involved in governing a charity for a specified period.
The most recent case involved the Samoan Independent Seventh Day Adventist Church, which was deregistered by the board in late 2020 for serious wrongdoing. Two officers of the charity, including pastor Willie Papu, were disqualified for four years.
Employees of the church, which operates 10 churches in Auckland, stole millions of dollars and funnelled millions more into dubious investments, including the OneCoin cryptocurrency. As a result of a Serious Fraud Office (SFO) investigation triggered by an initial Charities Services probe in 2013, the former financial administrator Elizabeth Papu was convicted of stealing more than $1.6m.
When it made the deregistration order in 2020, the charities board ruled the church couldn’t reapply for registration for six months. It was registered again in February this year.
Under the Charities Act, Charities Services can take prosecutions for offences under the law, including knowingly failing to comply with reporting standards, or failing to comply with a duty to assist notice.
Despite these powers, the regulator hasn’t taken any prosecutions in the past five years. Phillips says the powers have been used twice, including action against an organisation that presented itself as a registered charity despite being deregistered.
Going to court is not a favoured course of action.
“I think our ultimate sanction would be deregistration,” Reilly says.
“We stick to our Charities Act lane. If it’s serious fraud or criminal activity, we’ll refer it to another agency.”
Failing to file
By far the most common reasons charities are deregistered is for serious and persistent failure to file their annual returns. Charities have to file within six months of their year-end balance date. If they don’t do so twice in the space of seven years, they can be deregistered.
Charities Services deregistered 396 charities in 2020/21 for failing to file, down from a high of 682 in 2018/19, the OIA data shows. But that’s just a drop in the bucket when it comes to the number filing late or not filing at all in any given year.
In 2020/21, 16,136 charities filed on time, 8,473 filed late and 1,057 didn’t file. Under the act, Charities Services can ping charities with an administrative penalty for failing to file, but the OIA shows the regulator has never considered it worthwhile.
“50% of the register have under $50,000 turnover, so you’re talking about very small entities,” Phillips says. “If we were to start leveraging $200 fines, we just don’t think it’s a proportionate use of our resources as a regulator.”
With more than 28,000 charities, it’s impossible for Charities Services to vet every annual return for irregularities.
Each year, it checks a representative sample of 500 returns from charities across the four size tiers (based on expenses), plus others where the auditor and charity haven’t fully agreed.
In 2020/21, charities in the top three tiers were almost always or always applying the correct reporting standards, but just 61% of those looked at in tier 4 (the smallest and most numerous charities), were applying the standards.
Reilly says Charities Services tries to support charities to adhere to the standards through things like Zoom clinics.
Like many in the sector, he and the rest of the regulatory team are waiting for the government to introduce a bill amending the Charities Act – the outcome of a contentious review that some in the sector think was too limited in its scope.
Despite criticisms that the current regulatory approach is too onerous, Reilly believes Charities Services has the balance right.
“I think the fundamentals of what we’ve got there are pretty much right: registration, monitoring and compliance with support systems,” he says.
“It’s just how we work with the sector to deliver that.”
