Fundraising Advice

FUNDRAISING: STATUTORY REQUIREMENTS FOR PROPRIETORS AND BOARDS OF TRUSTEES OF INTEGRATED SCHOOLS

A report from the Office of the Controller and Auditor-General released in 2005 highlighted a number of inadvertent breaches of law among integrated schools, which have occurred in previous years. These findings have given rise to some concerns about the financial relationships that exist between some proprietors and Boards of Trustees of integrated schools. The Auditor-General's findings also highlight a need for greater clarity in relation to how the funds of proprietors and Boards need to be kept separate when common interests, such as the purchase of new property, are involved.¹

The following advice has been prepared by the Ministry of Education in response to these developments, and to bring greater clarity to the governance responsibilities of proprietors and Boards as these apply specifically to fundraising. This advice discusses the legal framework within which fundraising can be carried out, identifying the statutory requirements for both proprietors and Boards, and the key differences between these requirements for each audience. It provides general guidelines that should be applied, as appropriate, to any future fundraising decisions and used as the basis for determining where the responsibility for the holding of any locally-raised funds should lie.

Statutory roles and responsibilities

The provisions relating to the proprietors and Boards of integrated schools are spread across three separate Acts: the roles and responsibilities of proprietors are outlined in the Private Schools Conditional Integration Act ("the PSCI Act"), while the responsibilities of Boards are contained in the Education Act 1989 and the Crown Entities Act. This dual legislative framework differentiates the roles, responsibilities and status of proprietors and Boards.

The PSCI Act established a regime whereby proprietors are recognised both as the owners, lessees or guardians of the school premises and as private entities with an interest in the governance and character of the school. To this end, proprietors are entitled to exercise all the responsibilities and powers specified in their individual integration agreements as well as those contained in the PSCI Act. These rights ensure that proprietors hold the primary responsibility for the safeguarding of their school's special character and for the condition of the school premises. They also ensure that proprietors have a statutory role in the governance of the school. Within the scope of the Act, this is expressed as a participatory role in the control and management of the school, with all the powers of access and representation that this necessitates.²

In all other respects, the control and management of the school is vested in the Board, which is designated as both a body corporate under the Education Act 1989 and a specific category of Crown entity under the Crown Entities Act. As such, Boards are subject to a separate accountability and governance regime from proprietors. As Crown entities, Boards hold explicit accountabilities to the Crown, including adherence to a rules-based financial framework that specifies how their funds must be held and maintained.

In general, the separation of the roles and responsibilities of proprietors and Boards is well understood and works to everyone's advantage. However, the Auditor-General did raise some specific concerns about the operational understanding of this separation among some integrated schools. One area in which the respective roles and responsibilities of proprietors and Boards converge is property, where proprietors and Boards have a shared interest but different legislative responsibilities - proprietors as the owner, lessee or guardian of the property asset and Boards as the occupants of the property and recipients of property maintenance and minor capital works funding. In these circumstances, the exact division of responsibilities needs to be carefully observed.

This same need for role clarity is also potentially present in the area of fundraising. Both proprietors and Boards are entitled to carry out fundraising, but must do so separately and within the appropriate legislative framework. The provisions of the PSCI Act that relate to fundraising are discussed in detail below, as are the associated provisions in the Crown Entities Act, which underpin the management of all Board funds.

Fundraising

The PSCI Act allows for fundraising to be carried out by both proprietors and Boards on an optional basis and in accordance with the separate responsibilities of each party - proprietors may raise funds for the private interests they represent in relation to school property, while Boards may raise funds to supplement the Crown funds they receive for the benefit of their students. For this reason, it is essential that the purpose and beneficiary of any fundraising is specified from the outset, as this will determine which party should be responsible for the collection and subsequent holding of any locally-raised funds.

Proprietors

Section 37 of the PSCI Act allows proprietors to raise funds in addition to compulsory attendance dues, which may be charged under section 36. The general purpose of section 37 is to enable the proprietor to fund further investment in school capital projects. This may include, for example, the servicing of a mortgage or other charge against the proprietor's property.

Under section 37, the proprietor may:

• conduct fundraising activities within the school;
• inform parents of the financial obligations of the proprietor through school publications, such as the prospectus; and
• request that parents make regular financial contributions, which must be of a voluntary nature, for the purpose of servicing debt repayments in relation to school land and/or buildings or other buildings associated with the school.

Section 37 of the PSCI Act states that the Board of Trustees, staff or students of an integrated school cannot take part in any fundraising for the benefit of the proprietor during normal school hours.³ However, the Board, staff or students of integrated schools may choose to participate in fundraising carried out by (or on behalf of) the proprietor outside of school hours.

Boards

A Board may carry out fundraising on its own account for the benefit of the students of an integrated school. These funds, however, are Crown funds and should not be confused with funds owned by the proprietor.

Best practice

Because fundraising in integrated schools can involve both proprietors and Boards, and therefore two different beneficiaries, the party that is responsible for the fundraising must ensure that the purpose and intended beneficiary of the fundraising is clearly identified and communicated to parents and the wider school community. Parents and other members of the school community should be given full information about the intended purpose and beneficiary of any fundraising they are invited to contribute to, and have a reasonable expectation that their contribution will be used only for that purpose or beneficiary, or both.

This advice applies irrespective of the party that is conducting the fundraising.

Holding of funds

There are different accounting requirements for locally-raised funds or voluntary contributions depending on whether the fundraising has been carried out by the proprietor or the Board. The requirements for each party are outlined in detail below.

Proprietors

Section 37(4) of the PSCI Act states that where any fundraising is carried out by proprietors, or where any voluntary contributions toward proprietor costs are received, it is the proprietor's responsibility to keep accounts of this money. This requirement also applies to any funds raised by Board members, staff or students of integrated schools where they have chosen to take part in fundraising carried out by (or on behalf of) the proprietor outside of normal school hours. In each of the above scenarios, the locally-raised funds are private and belong to the proprietor.

All accounts of fundraising and voluntary contributions maintained by proprietors must be audited by a chartered accountant at least once every 12 months. Proprietors must also ensure that these accounts (and the auditor's report on them) are made available to any parents or other contributors who request to see them.

Boards

Under section 158 of the Crown Entities Act, any funds derived from Board fundraising activities must be deposited as soon as practicable into an account in the name of the school, which can be opened and used only by the Board. The Crown Entities Act restricts Boards to depositing funds in registered banks or building societies that either meet a minimum credit test or are approved by the Minister of Finance.⁴

Although neither the PSCI Act nor the Education Act 1989 distinguish between locally-raised funds and Crown funds, it is important to note that locally-raised funds take on the status of Crown funds from the point at which the Board decides to seek collection. This means that any funds collected through fundraising undertaken by and for the Board are considered Crown funds.

Boards have no authority to operate accounts in the name of third parties, such as proprietors, or to manage any funds raised by (or on behalf of) proprietors, which remain private and must be managed accordingly.

Section 161(3) of the Crown Entities Act allows a Board to hold money on trust for any purpose or for another person, which means that funds belonging to a proprietor derived through fundraising or through voluntary contributions, may be held on a temporary basis only in the school's bank account.

Best practice

Although the Crown Entities Act allows a Board to hold proprietor funds on trust,⁵ it is recommended that, where this does occur, any such funds are transferred within 10 working days to prevent the blending of proprietor and Board funds and the associated risk of the Board assuming the functions of the proprietor in respect of the funds it holds on trust.

It is also recommended that Boards establish a separate bank account for the purpose of holding the proprietor funds. This bank account must still be in the name of the school and is subject to all the requirements set out in section 158 of the Crown Entities Act discussed above.

Further information

For further information about how to apply this advice to individual circumstances, please contact either the New Zealand School Trustees Association or one of the Ministry of Education's regional financial advisers (see contact details below).

1 See the Ministry's annual reporting circular for 2005 (circular 2005/20) for information about Board investment in proprietor property, or refer to www.minedu.govt.nz/goto/schoolfinances for a copy of the advice on the regularisation of capital works expenditure issued to all integrated Boards in February 2005.

2 The proprietor's participatory role in the control and management of the school includes representation on the Board of Trustees, which is an area where conflicts of interest (between the respective roles of the proprietor and the Board) may occur in some circumstances. The Crown Entities Act has broadened the definition of conflict of interest to include "any interest that may reasonably be regarded as likely to influence" a person's ability to carry out his or her duties and responsibilities as a trustee. In response to this, the Ministry issued comprehensive advice in Term 1 2006 to all schools, including integrated schools, about how to avoid conflicts of interest in the future.

3 "Normal school hours" are defined as the hours that the school is open for instruction.

4 See Circular 2005/16 for further details about the operation of school bank accounts.

5 The phrase "hold on trust" means "to set aside" and should not be confused with the term "trust account."