The Board of a small sports club recently resolved not to appoint auditors to audit the annual financial statements for the organisation.  It seemed to them to be an unnecessary cost, given their size.

As a New Zealand registered charity with a total operating expenditure of less than $500,000 it was not required by law to have an audit or review. However, the Board was surprised to learn that the registered Rules for the organisation did require the Board to have its annual financial statements audited.  Therefore, by choosing not to do so the Board was in breach of its organisation’s Rules.

Given the size of its total operating expenditure the Board decided to amend its Rules to remove the expensive auditing requirement. 

Board members need to be aware of and up to date with the founding document or charter from which they obtain their authority to act.  Whether that is the Constitution of a company, a Trust Deed for an incorporated body or by Statute or Regulation for a public body.  Board members need to be familiar with the objectives, rules and procedures that govern the operation of the Board.  Decisions made by a Board outside its charter or as a result of faulty procedure are open to challenge.

Peter Johnston
Māori Issues Lawyer