At $64b, charity coffers are running over

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From part-time hobbies run by a sole volunteer from home, to iwi and church organisations managing hundreds of staff and hundreds of millions of dollars in assets, the spread of New Zealand's charitable sector is vast.

And the sector's scale is significant - and growing. In the year to June 2016, the register swelled by nearly 1000 new charities, taking the total number of entities to nearly 30,000 - although nearly a third recorded less than $10,000 in annual revenue.

According to the most recent annual returns provided to the Charities Service, registered charities employ nearly 100,000 people - comparable to the agriculture, forestry and fishing industries combined.

The Herald's Inside the Charity Box series is taking a deeper look at the risks and challenges facing a sector that collectively manages $64b in assets.

A series of investigation reports prepared by the Charities Service, and obtained under the Official Information Act, show charities occasionally have trouble following rules about who is qualified to manage them (those convicted of dishonesty offences are not), and sometimes they fail to be sufficiently transparent.

These failings raise the risk of funds going missing, and in several cases investigators found evidence that charities were being run for personal gain, not for charitable purposes.

And the Charities Service's Operation Timepiece raised concerns about the risk to both the local charitable sector and the tax base over "complex structure[s] that appeared to be designed to obscure the origin of funds."

Maria Robertson, the deputy chief executive at Internal Affairs who has responsibility for the Charities Service, oversees the sector with a comparatively small team - 38 staff - and says New Zealand needs to look at the bad apples in context of the whole orchard.

With recent examples of wrongdoing, can New Zealanders trust their local charities? "Yes. Yes, I think so," Robertson says.

More than 28,000 charities are on the register and Robertson says only one was deregistered for serious wrongdoing over the past year. Another handful received formal warnings, with some of those voluntarily deregistering.

But this reassurance comes with a caveat.

"People will prey on the generosity of others," says Robertson. "It's part of the human condition and New Zealanders are well known for our generosity. What we should not do is be complacent. We should never look at these numbers and thing things are all sweet."

Carolyn Cordery, an associate professor specialising in charities at Victoria University, says rorting and abuse of charities has been around as long as charities themselves.

"Reading back to the 18th century, it's been going on for hundreds of years. It's a little bit worrying when you look at what happened with Henry VIII - self-dealing, frittering away assets which should be held in trust, not complying with what's required. It's pretty much been par for the course," she says.

Cordery has studied charities regulation throughout the Commonwealth, and says New Zealand has moved with developments and now registers and regulates charities. (She does say, however, the 2012 move to fold the independent Charities Commission into Internal Affairs was a "disappointing move".)

She says the New Zealand experience has recently seen charities that want to be registered - entitling them to tax-free status and donors to tax credits - grappling with reporting requirements. "You need a standard of accountability for the fact of these tax rebates, fiduciary responsibilities. People can't say 'I'm a volunteer, I can't do this.'"

But the extent to which caveat emptor works in helping regulate the sector - whether people take advantage of financial disclosures to conduct due diligence - is an open question.

Cordery says she is about to publish research showing that despite people saying they want information and reports to help decide whether to donate, in practice people tend to be guided by emotion.

"We've asked them [survey participants] 'do you look at charity websites before you donate?' And only a quarter would say yes."

"You just need to look at the Manchester bombing - people don't conduct due diligence, because they think it's a good cause. But what's going to happen to that money?"

Regulation of the sector is largely driven by public complaints, which are looked into by a small team of six investigators working for Internal Affairs' Robertson. "The best we can do is hold charities to account," she says.

"Most charities make information freely available because they want people to understand the work they do and support them."

Where public understanding is tested is in cases at the edge, particularly over drawing lines between charity and business, and between charitable work and political lobbying. Robertson acknowledges it's a "grey" area and often subject to court action to clarify definitions.

Weet-Bix maker Sanitarium is run as a charity by the Seventh Day Adventist Church and often attracts critics, particularly among rival breakfast cereal makers who see its tax-free status as a competitive advantage.

Without directly addressing Sanitarium, Robertson says the charity-as-business test comes down to the purpose of the commercial activity.

According to statistics from the charities register, only around 20 per cent of all charities; income comes from donations - the vast bulk is from investments and activity that could be considered businesslike.

"You can categorise almost anything as a business. What's important is the purpose for which the business exists: If it's a private business, it's shareholders. In the case of a registered charity, there can't be that private benefit, " she says.

Conservative Christian advocacy group Family First has been tagged for deregistration, and its director Bob McCoskrie has flagged an appeal through the courts.

Environmental group Greenpeace wages a similar battle - ultimately fruitless -battle in 2014.

Robertson acknowledges this area is the most contentious ground she has to protect.

"The issue isn't just lobbying - the issue is political advocacy," she says. Again, the purpose of the organisation comes to the fore with a requirement to meet a public benefit test.

"The grey area is whether there's benefit to the wider community from political activity. The questions that the courts ask - and it's grey and it's a difficult one in the legislation - comes back to whether there's political benefit that's derived from this activity."