Auckland Regional Amenities Funding Amendment Bill

Look, like a good suspense author, I foreshadowed that I was quite interested in making a contribution on this clause earlier on. That was in the debate on the preamble, which was very engaging, and I spoke about the submission of Julia Durkin that was received at that point and foreshadowed that I’d be keen to get a little bit more into the issues that she raised.

As I said, Julia Durkin’s submission was a very substantial one. I’m not particularly familiar with Ms Durkin, but in her submission she makes it clear that she has significant knowledge about how Auckland’s cultural sector works, clearly has a broader perspective about the funding model and is critical of it, but has engaged in a rational and constructive way in terms of her feedback on this particular piece of legislation.

Now, in respect of clause 5, she has quite a bit to say, and there’s quite a substantial issue here that I do think the committee needs to examine, and I really, really do want to hear from the member in the chair, Dr Parmjeet Parmar, about this, because what clause 5 does is amend section 39—it, specifically, replaces section 39(2)(b). Now, the critique and the issue that is raised by Julia Durkin—and, you know, I at this point haven’t settled on a firm view on this, but I want to hear from the member her views on it—the point that Ms Durkin raises, is that she believes that the changes to section 39(2)(b), effectively, reduce the reporting requirements, and therefore the transparency, that is applied across these organisations—which, as we’ve said, have taken around about $14 million of public money in Auckland. So we need a high level of transparency.

The other thing I’ll just say on this—and again, it’s raised in Ms Durkin’s submission—is that this is quite an unusual piece of legislation in which it lists a schedule of organisations, effectively, to whom this publicly appropriated money applies to. This goes to why it’s important that the financial reporting standards are appropriate, because these organisations, to some extent, are privileged. I’m not saying that in a pejorative way. I’m not saying that they shouldn’t be there. But there are other organisations outside the tent who don’t get publicly appropriated money to support their organisation, who do provide regional services. So the point that Ms Durkin raises is that you have to have a high level of probity and transparency about the funding that these organisations are getting and about the decisions that the funding board itself is making, because it’s the allocations body, effectively.

So if we actually go to the text here, Ms Durkin points out that the text in the current piece of legislation is bigger and broader. Let me just go through this—I’m reading from section 39(2)(b) here, in the original legislation: there has to be an assessment “of the amenity’s application of the funding against the matters specified in the amenity’s annual plan for the year under section 23(4); and (b) contains financial statements for the year consisting of—”, and this is where the difference kicks in, “(i) a statement of financial position prepared in accordance with the New Zealand International Financial Reporting Standards; and (ii) an overall operating statement; and (iii) a statement of cash flows; and (iv) any other statements necessary to fairly reflect the amenity’s financial position, the resources available to it, and the financial results of its operations; and (v) any other information reasonably necessary to enable the Funding Board to make an informed assessment of the amenity’s operations for the financial year as set out in its annual plan.”

So that’s what we currently have. What Ms Durkin points out to us is that that is replaced with wording which is a bit more limited. We replace section 39(2)(b), which I’ve just gone through, with this: It must contain financial statements for the year, prepared in accordance with the generally accepted accounting practice (GAAP). So, OK, we understand there that we’re shifting from the New Zealand International Financial Reporting Standards (IFRS) to GAAP. We get that. That’s clean; that’s done. Secondly, it must contain any other information reasonably necessary to enable the funding board to make an informed assessment of amenity’s operation for the year as set out in its annual plan. So that’s, effectively, the same as subparagraph (v) in the current legislation.

So what we’re missing from the current legislation, transferring across to the new bill, is the second point, which is that it must include an overall operating statement; thirdly, a statement of cash flows; and fourthly—I think this is probably the most important one—any other statements necessary to fairly reflect the amenity’s financial position, the resources available to it, and the financial results of its operations.

So that’s in the current legislation; it’s not in the bill which is being presented by the member. I think we really do need to understand what the rationale is for removing these quite important requirements in terms of the reporting standards, because this goes to the heart of Ms Durkin’s concerns in her submission that the reporting standards are actually being lowered. At face value, she’s got a point, because we are reducing the number of things that must be reported on. This is really important because of those points that I’ve made and that Ms Durkin’s made about public money involved and about the fact that these organisations to some extent are privileged, so we need to have a high level of probity.

I’ve got to say, knowing a little bit and being a bit involved in Auckland politics, that this is not entirely uncontentious. There are organisations who are not included and are not funded through the amenities board who think they should be. There are some people in the cultural sector who think that the way in which funding decisions are made is not quite right and should be done in a different way and different things should be weighted and it’s too much this way and not enough that way. Now, I’m not expressing a particular view on those things, but what I am saying is that given it is public money, given that there are those different views out there, the reporting processes that we have when that money is allocated have to be watertight and the public and the sectors that are involved and the people that are missing out need to be able to have confidence in that as well.

So let’s just go through those again. An overall operating statement—that has to be reported on at the moment. It’s not included in the new legislation, so let’s hear about why an overall operating statement has been removed. Now, there might be a really good reason. I do note that my colleague Dr Deborah Russell has asked for some detailed explanation about the differences between the two accounting standards. We haven’t yet heard that detail in the committee. Now, it might be that the answer’s within that. Perhaps a shift from one accounting standard to another means you get that information anyway. I don’t know that; I’m not an expert in these affairs, but I do know that the member—and the chair who’s overseeing this legislation, Dr Parmjeet Parmar, she will have read up. She will know the difference between IFRS and GAAP. She’ll have the detail at her fingertips. So she’ll be able to tell us whether the removal of an overall operating statement as a reporting requirement can be accounted for by the fact that we have moved from one accounting standard to another. Maybe that accounts for it.

The same goes for a statement of cash flows. There’s a point I make here, which is that the reporting statements of large organisations are often exceptionally complicated. Here we have organisations which do take in public money—it’s publicly appropriated—and some of these simpler documents, like an operating statement and a statement of cash flows, are far more accessible for the average Auckland ratepayer, who, ultimately, is paying to support these organisations. So I want to have assurance that the average Auckland ratepayer who wants to know how this money is being spent doesn’t have to wade through a 150-page document that they can’t make head or tail of and that there’s some good, simple, transparent information that they can get to—and, at face value, an overall operating statement and a statement of cash flows would really help with that. But we’ve removed that through this legislation, so we do need to hear from the member in the chair who’s overseeing this bill why that is, why that’s being removed, and her level of confidence that we’re still going to have reporting that’s done in a really accessible way, and her response to Julia Durkin’s assertion that we’re, effectively, lowering the reporting standards here, when, in fact, we should have higher reporting standards.

I’ve left what I think is the most significant one for last and that’s section 39(2)(b)(iv) of the Act. This is the one that’s missing, and, again, it says, “any other statements necessary to fairly reflect the amenity’s financial position, the resources available to it, and the financial results of its operations;” It seems to me to be quite substantial that that is being removed, because that really goes to the core activities of many of these organisations. So, for example, let’s take an organisation like the Auckland Regional Rescue Helicopter Trust and the resources available to it. It has financial resources. It has resources in terms of a physical base—I’ve visited it to see the great work of the men and women in that incredible service. They have a volunteer base that’s an important resource for them. They have a significant fundraising organisation. They have significant goodwill. They have this wide range of resources available to them. At the moment, that is included in the legislation as something that is reported on, and we are removing the wording that ensures that that continues to be reported on. So we do need to understand why that is, and I hope there’s a really good reason. I hope it hasn’t just slipped through and that we can have confidence that the people of Auckland, who are paying for this stuff, can continue to have transparency and good oversight of these organisations.

So I would ask the member in the chair to address those questions and give us some satisfaction that there’s a good reason behind these very significant changes that are raised in Julia Durkin’s submission. Thank you.

I would like to clarify to the member Michael Wood that the funding board is established exclusively for charitable purposes. So what we are doing here, because these amenities are already complying with the Charities Act, is we want to see that it’s the same standard in the Auckland Regional Amenities Funding Act, because the main purpose of this board is to support charitable purposes. So I hope that clarifies the question that the member has asked.

There’s a big difference in accounting standards for profit-making entities versus non-profitmaking entities. These entities are not profit-making entities, and it’s important for them to comply with the Charities Act. As the funding board’s main purpose is to support services that are, basically, charitable kinds of services, it makes no sense to keep this extra layer of compliance on them, which is just adding to their work and not adding any value or efficiency to anybody there.

Thank you, Madam Chair. Look, I take the member Dr Parmjeet Parmar’s point that the change that this bill proposes would be removing that additional layer of compliance and not, in effect, requiring these specified amenities to report against two separate standards. I think, by this point, all of us in the committee get that that’s the difference that this bill seeks to make. However, I don’t think, actually, some of the points that Michael Wood raised were addressed.

I too went back to the principal Act to look at the changes that clause 5 proposes, the replacement section 39(2)(b) that is proposed in this bill, and how that compares to section 39(2)(b) that is in the principal Act. My reading of this is that it’s really only section 39(2)(b)(i) and (v) that are, in effect, retained in the replacement section. I say “in effect” because section 39(2)(b)(i), of course, relates to “a statement of financial position prepared in accordance with the New Zealand International Financial Reporting Standards;”, and that is, of course, what we’re replacing with generally accepted accounting practice. So I get that. I get that the first part that section 39(2)(b)—the first bit deals with the replacement of that, and that’s fine. I have no issue with that. I support it.

Section 39(2)(b)(v), though, is exactly the same, as far as I can see, as replacement section 39(2)(c). But the bits in between are the bits that I have some questions about, and I, with due respect, don’t think that there was an actual response that would allay our fears that the standard hasn’t been lowered, and I think that’s the point that the submitter Julia Durkin was making as well, which Michael Wood relayed to the House. That is the removal of those three bits in between, and the requirement for an overall operating statement, a statement of cash flows, and any other statements necessary to fairly reflect the amenity’s financial position, the resources available to it, and the financial results of its operation.

Again, I take the member’s point that she made that there are different standards that we should require of for-profit entities and not-for-profit perhaps, but, having been in the NGO sector myself for many years and knowing that these organisations are also entrusted with money, I think it’s a fair point to raise that people should be confident in the fact that those moneys are being used in a way—and I’m not in any way trying to cast aspersions upon these charities, but I do think it’s a fair point that we have a reasonable standard of financial reporting. With due respect, I think that was the point that Michael Wood was trying to make as well. So the response that I would seek from the member in the chair, then, is that those three bits that are now, effectively, removed by replacement section 39(2)(b) still give us confidence that the intent of those three bits will still be kept, in a sense, or, if not, why not. Thank you.

Thank you. I understand what the member Priyanca Radhakrishnan was trying to say, but, by saying that, what the member is saying is that all the charities that are registered according to the Charities Act 2005 should be actually having this extra layer of work to prepare their financial statements, which I don’t agree with, because this is one of the legislations where we want to make sure they don’t have the duplication of work—continue doing the duplication of financial statements they have been doing until now. Some of them, I know, since 2014-2015 have not been complying. We don’t want them to go back and actually comply, which we will talk about later on. But, by saying that, the member is saying that all organisations that have charitable status according to the Charities Act 2005 should also be adding this extra layer of work for their financial statements, which I don’t agree with. This is actually to make their life easier, not to make their life difficult. So this is not about the Charities Act; this is about the funding Act 2008. Thank you, Madam Chair.

I’m just going to very briefly have one further go at this, because I think possibly members on this side and the member in the chair are talking at cross-purposes. So, for absolute clarity, I would say that members here understand and support the point that the member in the chair has just made—that we want to see this issue fixed whereby these organisations have been told that they, effectively, have to report according to two different sets of financial standards. That’s the core purpose of this legislation. We support that. No one wants that extra burden to be placed upon them, which also puts them in a precarious probity position.

The specific point that both Ms Radhakrishnan and I have been making in respect of section 39(2)(b) is why have we also changed the wording in terms of some of the reporting standards to seemingly lessen what has to be reported on—OK? We could do what the member in the chair, Ms Parmar, has said and not do that, and have a slightly smaller bill. We could simply change it to make sure that they had to report according to the generally accepted accounting standards. Fine—we can do that. But we don’t also need to change the wording in section 39(2)(b), which has been pointed out in Julia Durkin’s submission and was pointed out in my comments before, and Ms Radhakrishnan has also touched upon it. So that is a specific question and concern that we’re coming to.

To put it really crisply: why have we made those other changes to section 39(2)(b)? If the member could satisfy us on that, then I think we would be very pleased with that, and it will enable us to proceed.

Clause 5 agreed to.

Clause 6 Section 40 amended (Funding Board does annual report)