The Waikato Rugby Union was booted from the register of incorporated societies after failing to file financial statements in an “administrative glitch” it has blamed on Covid-19 disruption.
The rugby union, the governing body for rugby in the Waikato province and part-owner of the Chiefs super rugby franchise, was removed as an incorporated society in July after it didn’t update financial information for a number of years.
Under current legislation most of New Zealand’s estimated 24,000 incorporated societies are meant to file financial statements every year. Many sports clubs like the rugby union are incorporated societies, with NZ Rugby itself an incorporated society. To be an incorporated society a club or group needs at least 15 members, and to have a purpose other than running a business for profit.
Because the union didn’t update its financial information it was removed from the register, which is one way the regulator judges whether or not a society is still active.
The union was placed back on the register in August and it provided three years of statements, for the 2019, 2020 and 2021 financial years. Its 2021 filing showed the union had received $4.6 million in income and spent $4.4m on expenses. NZ Rugby, the peak body for the sport in New Zealand, had income of $188m for its 2021 financial year.
Waikato Rugby Union accountant Blair Astwood said the union had been faced with disruption in 2020 with personnel changes, Covid, and other “bits and pieces” which saw the union’s obligations to file drop off “the admin list”.
“It was nothing intentional or anything like that.”
The union was not alone in being removed from the register. Like Waikato, the South Canterbury Rugby Football Union also saw its status as an incorporated society revoked and then reinstated this year after it filed accounts.
Royalist group Monarchy NZ, which boasts National MP Simon O’Connor as a prominent member, was also kicked off the register after it didn’t file financial statements since 2016. It appears from its sparse filings O’Connor was an officer of Monarchy NZ when it was removed in 2019. It was then put back on in June this year after it uploaded a dump of outstanding financial statements.
Monarchy New Zealand’s current officer, Sean Palmer, said Monarchy NZ was a “little bit disorganised and ended up falling short” of the requirements.
He said its financial movements were “quite tiny” and because it relied on a small group of volunteers “unfortunately other aspects of life get in the way”.
Monarchy NZ took in $720.77, its 2021 financial statement showed.
Similarly, the Waterproofing Membrane Association, which represents the interests of its industry, was thrown off the register in March and then placed back on it in April. It filed accounts for two years that were overdue, but didn’t upload one missing set of its accounts.
There is no requirement under the existing act for a society to file all outstanding financial statements before it can get back on the register.
Data from the Ministry of Business, Innovation and Employment (MBIE) showed 880 societies had been removed from the register so far in 2022 for failing to upload financial statements. In 2021 that number totalled 1101, and in 2020 more than 260 were kicked off the register for not updating financial information – but the registrar halted the removal of societies from the register for a time in 2020 due to the pandemic.
MBIE said more than 1000 incorporated societies had been removed from the register so far in 2022. In 2021 it said 1338 societies were dissolved and in 2020 that number was far lower at 520.
It was unable to say how many incorporated societies fail to file their financial statements on time.
While it is a breach of the Incorporated Societies Act not to file financial statements, MBIE national manager of business registries, Bolen Ng, said the registrar “encourages compliance” as opposed to filing penalties and taking enforcement action.
Ringing in the changes
The law governing incorporated societies is getting a shakeup for the first time since 1908.
The Incorporated Societies Act 2022 changes the rules for how and when some incorporated societies file financial statements, with tighter timeframes and higher accounting standards for larger societies.
Under the new law, which comes into effect on October 23 of next year, larger incorporated societies will need to use more detailed External Reporting Board accounting standards depending on how much money they handle, and to file within six months of a financial year balance date.
Parry Field Lawyers partner Steven Moe said societies who don’t file their accounts on time under the new law will face an infringement fee or potentially a fine imposed by the courts.
It will also be grounds for removal from the register, he said.
"It's about being transparent and open with what's actually going on with the money."
He said there are still grey areas in the legislation, with regulations to be fleshed out in the coming months but said the changes were positive for the sector.
Small societies will be defined under the new act as those who had spent less than $50,000 in the two preceding financial years, have liquid assets of less than $50,000 at the end of those preceding financial years and are not a registered charity or a "donee organisation” for tax purposes. These societies can file their accounts using generally accepted accounting principles.
The law changes also mean incorporated societies need to have a documented disputes resolution service and it also puts in place rules for officers of a society, which law firm Buddle Findlay has described as making an officer’s duties similar to those of a company director.
The new legislation says officers must act in good faith and in the best interests of the society.
It also introduces offences for officers who dishonestly use their position, or provide false and misleading statements, or fraudulently use property owned by the society or falsify records.
Societies will need a committee, and a conflict of interest disclosure process. It also drops the number of members needed, from 15 to 10.
The law allows a period for societies to fall into line with its new demands. After the act comes into force in October next year, Companies Office guidance says incorporated societies will have two-and-a half years to re-register. Once they have re-registered they will then have to adhere to the new rules.
A report by consultancy firm Grant Thornton published earlier this year found the legislative changes would affect 62% of the 174 organisations it surveyed.
The report, Here for good, found almost 25% of respondents hadn’t considered the impacts of the new act, 29% hadn’t considered the new level of reporting obligations, and 25% had reviewed their constitution.
Grant Thornton partner Barry Baker said most incorporated societies are small and won’t be captured by the new financial requirements, but even for larger organisations the changes could come as a shock.
He pointed to similar changes brought in for the charitable sector which he said had caught many “on the hop”. Baker said he hoped the registrar was adequately funded to do the compliance education that was needed for the change. Incorporated societies were “not very sexy” but if the changes weren’t enforced and backed up with good education, it was going to be a long process, he said.
Transparency was important if societies were taking money from their members, or funding from the government and the changes would help to identify societies that were “going off the tracks”.
Baker said another key change is bringing in thresholds for when a society needs to have an audit. At present all societies need to have their accounts audited which he said can be onerous for small groups. He said auditors are also wary of auditing the books of very small organisations because it was too risky.
For Waikato Rugby, Astwood said the new law will have no impact at all.
“It’s just part of the standard process now. We will update the procedures immediately following the AGM and within three months of balance date. There won’t be any future issues with that.”
Astwood said the union was just happy to have a normal season and get back to business as usual.
3 Comments
My impression is that small incorporated societies are not viewed as a high priority customer class for our commercial banks. Last year I volunteered to be treasurer of a very small sports incorporated society and needed to access the account which is with a bank I do not use.
A whole 2 step process where the people in the society with current access grant me permission and I establish my identity with the bank. 3 attempts and 10 months later (during Covid19 the sport administered shut down), the bank has provided me with a customer ID it no longer recognises and us 2 different ID numbers for the incorporated society. And is now instructing me that there is a simple 2 step process (i.e. the same one).
Oh-ho, been there, done that. Sounds very much like Westpac, where no 2 members of staff share the same understanding of the proceedures for changing signatories.
As for the original article, I fear for these changes. Amateur volunteer treasurers like myself will not enjoy these reporting changes, and this will result in struggling organisations having to waste more money on accountants and audits for their compliance BS.
Hey there - assuming the audit requirements review follows the charities framework - if your spend is under $500k a year then no need for audit or review.
The reduced financial reporting for entities with under $50k are really basic - suspect, same as you use already.
For the small societies , not a lot would change in the audit / reporting area.
(check your rules for what they say about an audit and maybe change...)
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