He required the Wellington trust to close the loan with the balance paid in full by the end of October. This deadline was met, and the loan repaid.
Wootton said since 2017 the Wellington trust had loaned approximately $40,000 to a company owned by a former trustee at an interest rate below the market rate.
“Lending money to a related party below the market interest rate has led to ... receiving a pecuniary private benefit from the use of the trust’s funds,” he said.
“Charities Services considers this to be an unlawful use of the trust’s funds.”
Its investigation found the former trustee benefited from the related party loan by avoiding bank fees and having access to a lower interest rate and the ability to repay and draw down as it suited - like a revolving credit facility with a favourable interest rate.
Wellington Kidz Need Dadz’s own rules state its income and property cannot be used “for the private pecuniary advantage of any individual”.
Wootton said the loans constitute a private benefit to those individuals, which constitutes serious wrongdoing as defined in the Charities Act 2005.
He said the Wellington trust had poor financial controls and had not adequately managed the conflict of interest.
“We have noted the loan agreement dated 30 October 2017 was solely signed by related parties of [the former trustee] including the witness who was an employee of [the former trustee],” Wootton said.
“It also appears the trust transferred cash to [the former trustee] before the loan arrangement(s) were proposed to and accepted by the board on 11 November 2017 and 8 July 2018.”
Wootton said there was no record of the loan arrangement in the Wellington trust’s annual financial statements, as is required.
“When we queried the omission, the trust advised the reason for this was each year as at 31 March the loan balance was nil and as this treatment had been acceptable to the preparer and reviewer of the accounts, Community Capacity Accounting and no disclosure was made.”
He said offsetting of amounts was not allowed, and it was not sufficient or appropriate to only record balances only at year-end.
“We consider this action prevented users of the financial information from identifying the loan to a related party, which is contrary to the objective of transparency.”
Wootton said the Wellington trust also failed to disclose the loan as a related party transaction.
“We also note that the trust was declaring in their annual returns that they do not lend money in their ordinary course of business despite the fact this arrangement has been ongoing for a number of years.”
The former trustee who received the loans has not responded to RNZ’s request for comment.
The Charities Service also requires the Wellington trust board to complete trustee governance training from an independent provider and provide corrected financial statements for the year ended March 2021, disclosing all cash movements related to the loan and the related party transaction.
If Kids Need Dadz Charitable Trust Wellington does not meet the October 2023 deadline for those remedies, the charity can be removed from the Charities Register.
