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Grant Thornton New Zealand’s latest survey of IA leaders demonstrates that while changes throughout the public sector continue to increase the pressure on services, systems, processes, people and budgets, they are leveraging every opportunity available to overcome these challenges.

According to the Association of Certified Fraud Examiners (“ACFE”), NFPs lose about 5% of revenue annually to fraud, and small businesses globally have an annual median loss to fraud of $200,000.

Only 5% of businesses have cyber insurance, even though everyone is at risk of a cyberattack – and the cost of an incident can sink your entire organisation.

During conversations we have with businesses about risk, it’s eye-opening to see how many aren’t really making it a priority.

Becoming a trustee for a local charity is a wonderful step to take. You’re doing something meaningful for an excellent cause and you’re helping make the world a better place. However, if you are considering becoming a trustee of a charity, go in with your eyes wide open. It’s vital to understand these roles come with certain responsibilities and duties. Although trustees generally have the very best intentions, some inadvertently don’t follow the rules. These issues are particularly common with new trustees, or people who don’t have any experience with governance or running an organisation. People are enthusiastic about becoming a trustee, but don’t fully grasp the obligations that come with their new role. Five mission-critical areas of focus for trustees Do you know how to play by the rules? Every charitable trust has a board of trustees, comprised of at least two trustees. The board will likely operate under a Trust Deed. The Trust Deed typically sets out the following rules and guidelines including, but not limited to: the organisation’s charitable purpose the structure of the board how to appoint and remove trustees trustee duties and obligations how the board will operate how trust assets will be managed. As a trustee, it’s your responsibility to make yourself familiar with the Trust Deed and ensure the rules are being adhered to. Don’t assume that what the trustees have done in the past is compliant, or that trustees who have been on the board longer than you have this under control. The charity rules are readily available to trustees and to the public on the Charities Services website. Do you understand the sector’s legal and regulatory environment? When you become a trustee, you may be signing up to legal obligations such as becoming an employer, being party to contracts for services, as well as needing to lease property, plant and equipment. You need to be aware of what you are signing, and how these obligations impact you as a trustee, or even how you can become personally liable under these contracts. For example, if you sign a long-term lease and the trust cashflow is insufficient, are you liable for this cost as a trustee? There will be certain laws and regulations that apply to your charity, and you must be across all of these to avoid the financial and reputational risks of non-compliance. For example, our latest research report about the sector revealed that while 90% of charities surveyed are aware of the Privacy Act 2020, over a third hadn’t aligned their policies with the new legislation, and only 22% had reviewed third-party contractual agreements with providers who store or process personal information they receive from these organisations. A further 40% didn’t have a suitable privacy officer in place – a key requirement for any organisation that holds personal information and data about people. It is important that you understand and comply with your obligations under the Charities Act 2005, Trusts Act 2019 and the Charitable Trusts Act 1957 where relevant. I don’t need to worry about tax – do I? This is a big yes for all trustees. Many tend to know charities are exempt from tax provided the charity has met the requirements of the tax exemption process, but they don’t always understand this is only limited to income tax – it’s not a blanket exemption. Trustees must continue to consider and comply with other indirect taxes such as Goods and Services Tax (GST), and Employee Deductions (PAYE). Why does my charity need to confirm how it spends money? If your trust applies for grants, these often come with obligations to undertake accountability reporting. When you apply for these grants, they are normally tagged to cover a very specific type of expenditure, and declarations are often required at the end of the funding period to confirm the money was spent in accordance with the conditions of the grant. There’s also a flipside to each coin a charity has to spend – and this involves demonstrating funds are invested in advancing the cause of the organisation. Our research contained a word of caution for charities carrying large reserves, as this requires the need to articulate to all stakeholders and funders why the reserve are being held and what they’re going to be used for. In fact, last year’s Charities Act review recommended organisations with annual operating expenses over $140,000 will be required to disclose information about the reserves they hold, and why they hold them. This information will also be available to the media and general public. Are you confident around finances and understand your reporting requirements? From time to time we see challenges arising from trustees who lack confidence when it comes to finances including year-end reporting. This could include not having an audit when required by legislation or your own deed. The trustees must understand their charity’s financial metrics, how they align with their charity’s strategy and goals, and how they link this information through into the statement of service performance. Charities are obliged to file an annual return with Charities Services. This is due six months after balance date. These disclosures will include: Ensuring the charity’s contact details, purpose, structure, and officers’ details are up to date, and providing details of paid and unpaid work undertaken for the charity. The trustees must present the charity’s financial statements which must be compliant with the relevant reporting requirements. There are different tiers of reporting which are fit for purpose depending on the size of the charity. You must confirm you have prepared the financial statements according to the required reporting tier. Some charities will require these financial statements to be audited. This may be governed by the Trust Deed rules, it may be a requirement of the funders of the charity, or it may be a legislative requirement due to the size of the charity. The financial statements will likely need to include a Statement of Service Performance, a report which uses both written and numerical information to demonstrate what were the outcomes of the trust’s activities for the year. What are the potential outcomes of getting it wrong? Your organisation could be the subject of a Charities Services review. Much like a tax audit, this would be a fairly labour-intensive and costly process. You certainly want to avoid this if you can. You could also potentially lose your charitable status. This would be catastrophic, as your entity is then liable for income tax and donations would no longer be tax deductible to your donors. Even minor mismanagement by trustees can lead to reputational damage. People like to donate to well-managed charities, because it gives them confidence their funds are being put to good use. If the community loses faith in your organisation, it could lead to a major reduction in funding, donations and volunteers, and other organisations may no longer wish to be affiliated with yours. Financial reporting compliance is not only a problem for charities, but will increasingly be a concern for incorporated societies under the new requirements. You should by no means be discouraged from becoming a trustee of a charity. You just need to ensure you know what the obligations of your new role are, so your efforts strengthen the organisation rather than steering it into choppy waters.

The Holidays Act 2003 is one of the most difficult pieces of legislation for Kiwi businesses to comply with. In fact, it is so tricky, that one of the first major entities to be caught out for non-compliance was MBIE – the regulator in charge of Holidays Act compliance. This complexity has seen the Act continue to be in the news over the past few years for all the wrong reasons; three of the biggest stories to hit the headlines include: • The Auditor-General has estimated a $2.1 billion dollar holiday pay liability for the Government • McDonalds has been remediating its holiday pay non-compliance since 2019 • The former District Health Boards have become a “$1 billion nightmare” of Holidays Act non-compliance But the damage isn’t limited to the large end of town either – in fact, we are seeing the Labour Inspectorate pursue small to medium sized enterprises with greater frequency and more rigour, meaning compliance with the Act is essential for businesses of all sizes. What drives non-compliance in the aged care and retirement villages (RV) sector? The holiday pay calculation is straight-forward for organisations where team members consistently work 9-to-5, especially when they don’t have allowances, commissions, or bonuses. Underpayments in those situations are unlikely or immaterial. But this is where the simplicity stops. Where employee work patterns vary - as is the case throughout the aged care and RV sectors - the calculation becomes harder, and non-compliance is much more likely. Support staff often have variable work patterns, including work on weekends and public holidays, as well as complex remuneration structures that include a variety of allowances. The problem doesn’t end there though – bonuses are often common for senior leaders, and this can also contribute to potential non-compliance. Casual staff arrangements are common and we have started to see more pressure from the Labour Inspectorate on correct determination of employee entitlements (casual or otherwise). It is vital operators get these classifications correct to ensure compliance with the Act. These are just a few examples of the specific issues that apply to the sector, but there are almost certainly many other drivers of non-compliance that could apply to operators depending on their payroll system setup and internal payroll processes. Common red flags to look out for While we can’t provide an exhaustive list of what causes non-compliance, here are some of the more common red flags to look for, which might indicate you are inadvertently non-compliant with the requirements set out in the Act. 1. Recording leave balances in hourly or daily units: The Holidays Act defines leave entitlement in weeks, making it difficult to remain compliant when recording leave in hours or days. This is particularly true when employee work patterns change. 2. Complex or variable remuneration structures: The more pay components employees have, the more likely it is that there is non-compliance. Many allowances and bonuses that should be included in gross earnings calculations often aren’t. Examples of these include payments such as allowances or overtime rates that kick in when an employee works more than fifty hours, or daily allowances for long 12 hour shifts. 3. Variable work patterns: These often result in payroll systems inaccurately calculating an employee’s work pattern at any given time. This is a significant driver of non-compliance. 4. Weekend shifts and working public holidays: Many companies struggle to accurately determine statutory holiday and alternate day entitlements. 5. Incorrect identification of casual employees: Some companies fail to identify when their employees should no longer be classified as “casual”, meaning they aren’t awarded the annual leave they are entitled to. “But I have a compliant payroll system!” We often hear from clients that thought they were compliant with the law because their payroll provider said they were. Sadly though, using a major system or outsourcing the payroll function entirely does not necessarily guarantee compliance. As mentioned at the beginning of this article, even some of our largest organisations aren’t immune to slip-ups that snowball into very expensive remediations. So, what does this all mean for me? Although changes to the Act are in draft, they will not immediately guarantee compliance for those with non-compliant payroll systems, nor remove the requirement to address historic non-compliance. To ensure current and future compliance with the law, it is vital that you take a proactive approach in dealing with any possible holiday pay issues. This can limit the extent of any potential financial or reputational fallout.

In February we launched a bi-annual research initiative to track business sentiment and explore where New Zealand businesses are succeeding, and where they’re feeling pain.

Increasing insurance premiums should prompt all business owners to review the level and extent of insurance cover for their organisations. But the question is – where do you start? Are you aware of all of your business risks? Is insurance the best way to mitigate all risks? Which risks does insurance cover? Should you self-insure? Greg Thompson answers these questions and provides some insights into how you can take a risk-based, structured approach to protecting your business.

If you’re looking to ease the pressure on your operating costs, investing in electronic invoicing (e-invoicing) is a great place to start.

A thorough financial risk management plan should include protection against financial loss due to the illness, injury, disability, or death of a working owner or ‘key person’. The financial impacts of these scenarios can be instant, long-lasting and in the worst-cases, terminal for your business and potentially your personal assets.

Businesses will continue to experience persistent material and wage price inflation as they have over the past two years, ongoing supply frustrations set against the current backdrop of tightening monetary policy, rising interest rates, the cooling of property prices, and access to credit. Read more to find out how to protect your business on new projects and weather the current storm.

Our specialist payroll assurance team can conduct a review of your payroll system configuration and processes, and then help you and your team to implement any necessary recalculations.

Mandatory climate related reporting on the way for some NZ businesses. The Government is establishing a standardised approach to climate-related reporting for certain entities to disclose their progress on emission reduction in a way that’s transparent and consistent.

When uncertainty is the new normal, standing still isn’t an option. From cashflow management to supply chain, when major events or market changes cause disruption, it’s critical that organisations continuously strategise against their unique level of vulnerability in order to keep moving forward.