Understandability and Transparency of the Financial Statements of ...

The fourth level of independent examination, introduced by the Department of Internal
Affairs (2006), is that of „independent verification‟. This is performed by someone who
is independent of the charity and has a reasonable understanding of accounting, such as
a bank manager. This form of verification is considered sufficient for smaller
community groups, i.e. with less than $40,000 total annual turnover, where their
rules/constitution does not specify any requirement for an audit (Department of Internal
Affairs, 2006). The concern with „independent verification‟ is that of quality - who
assesses that the bank manager has a reasonable knowledge of accounting?
Eisenberg (2005, p. 153) states “The Buck Stops with the Board” which, is the next
accountability mechanism that will be examined here.
5.4.2.4 Charities Boards
The introduction of the Charities Register in New Zealand has seen an increased
visibility on who are the „officers‟ of the charity. „Officers‟ include board members and
are those involved in how the charity is governed. As Eisenberg (2005, p. 153)
highlights they “are the first and last line of defense against poor performance,
corruption, and lack of accountability”. So it is all the more disappointing that charities
can often be let down by the very people who mean well i.e. the people sitting round the
„table‟ (Siveter, 2004).
This was seen in the case of Corran School, a New Zealand Anglican girls‟ school,
which was also a registered charity. Due to financial difficulties Corran‟s Board
incorporated the school into St Kentigern, a Presbyterian school of different religious
faith. What particularly upset the parents was the school Board‟s electing not to reveal
the extent of the school's dire financial situation so that something could be done about
it before announcing the „merger‟ (Smith, 2009). ``The Board has let us down, there's
no question the damage is done, and we cannot reverse that'' (Rushworth, 2009, p. 21).
A postscript to this situation was that the Charities Commission has now deregistered
the school, due to its inability to file Annual Returns which would have illuminated
their financial affairs. In this example the school Board had not exercised care, by
neither communicating to their key stakeholders, including parents, nor ensuring proper
financial management of the school. It is hoped that the increased exposure of charities‟
details on the register will, in future, limit these occurrences and lead to an improvement
in Boards‟ performance to enhance their use as an effective mechanism to discharge
accountability.
117