Property gamble leaves charity short
Two million dollars of charity money was gambled in risky business ventures, leaving services slashed for those in need. James Baker reports.
The former board of one of the country’s richest charities, tasked with helping those with cerebral palsy, loaned millions of dollars to property companies that have failed to provide a return for the charity despite using the money to invest in Auckland’s red-hot housing market.
Questions are being raised by charity members and experts over the deals, which saw the former Cerebral Palsy Society president and a colleague paid tens of thousands of dollars in fees for masterminding and managing the arrangement, which appears to have left a $2 million hole in the society’s finances with services cut to those most in need.
When it comes to non-government funded disability charities, the Cerebral Palsy Society (CPS) is one of the richest in New Zealand, with a total financial equity of $32.6m.
But in May, both its staff and members began to question what exactly was being done with the organisation’s money.
The scrutiny came in response to an announcement that the then-board intended to cut voucher programmes by half and remove staff responsible for providing services – a move that would significantly affect the quality of life for its 1700 members.
According to internal documents, the reason given was financial – the result of a bad fundraising year.
And thanks to Covid-19, the former board said it had been given a dire financial forecast predicting a 60 per cent drop in their investment portfolio by 2021.
Cuts had to be made, staff and members were told.
But an examination of the society’s annual consolidated accounts, available through Charity Services suggests there may be another explanation.
At first glance, 2020 was a bad year for the charities’ financial holdings, with $569,409 more spent than it made.
But turning the page paints a bigger picture – over the past five years, CPS has increased its total equity by $3.9m, that figure was $2.7m in 2019 alone.
Most of this lies in $30.6m worth of managed investments, which can be withdrawn at any time.
The bottom line is, long term, when combined with grants and donations it appears there is more than enough there to keep the charity running without cuts. One bad year in 2020 would not make a serious dent.
Looking closer, the fine print reveals something else.
In May 2016, $2m of charity money was provided from the Cerebral Palsy Society of New Zealand Inc in the form of an interest-free loan to create a high-stakes, high-return business named Cerebral Investments Ltd (CIL), that was aimed at purchasing, renovating and selling houses.
The business is controlled by two directors: Anthony Smith, who was CPS president when the arrangement was made, and Brian Yee. In return for their part in running the businesses, the pair were paid a yearly fee of $50,000 between them.
This figure increased to $96,720 in 2017 and was $97,700 in 2020. And over five years, the two directors were put in charge of three new sub-companies, CIL Landscaping Ltd, CIL Concretes Ltd and CIL Aircon Ltd.
Documents reveal one of the company headquarters is adjacent to Smith’s personal address.
Smith and Yee declined to answer detailed written questions from Stuff.
Yee declined to be interviewed when contacted by phone and numerous attempts to contact Smith elicited no response.
As a result of the charity’s annual election in October, six of the seven members of the former board have been replaced.
While Smith remains on the board, and director of the four CIL companies, he was replaced by Emma Lovett as the president of CPS.
The current board said it could not comment in detail but questions asked by Stuff were around complex issues ‘‘that have been subject to review and consideration by the Cerebral Palsy Society over the past 12 months or so.’’
Members recently voted for change at board level and the new board is working through a process to determine the best way to move forward in the current best interests of its membership.’’
‘‘It would be premature for us to respond publicly to your various assertions before concluding our own review of information and managing internally with our members.’’
In an email to members, the current board said the charity was in a ‘‘period of transition’’ as a result of the election.
‘‘We recognise that the society and the membership have had many challenges in recent months,’’ the board wrote.
‘‘It will take some time for the new board to work through issues and to determine our future strategy for the society, and we will be seeking member input into that.’’
In 2017, Stuff covered the charity’s attempts to sell a renovated Monyash Rd property. Smith at the time called the project a reflection of the charity’s ‘‘hardy culture of self-sufficiency.’’
‘‘It is a long-term strategy. We saw property as something that was logical to be part of and we are looking to add value, not just to buy a property and sell it the next day,’’ he said.
The property was both bought and renovated by the companies directed by Smith and owned by the charity, which improved the 1980s brick and plaster three-bedroom house, and added a fourth bedroom and master ensuite.
At the time Darren Grant, of Bayleys Whangaparaoa, estimated the property’s new value was sitting at roughly $900,000.
While the Monyash property has been sold, none of the $2m loaned by the Cerebral Palsy Society of New Zealand Inc has been paid back, and no revenue generated by the four companies has flowed into CPS coffers. At the 2020 CPS annual general meeting, former treasurer Dave Thomas was recorded telling members the deficit in 2020 was ‘‘probably’’ as a result of these companies.
Michael Gousmett, an adjunct fellow in the school of humanities at Canterbury University who also acts as a consultant for charity and not-forprofit organisations, labelled the use of the funds ‘‘unusual’’.
‘‘Flipping heck ... this certainly raises alarm bells straight away, the whole idea of the Charities and Societies Act is there cannot be a private benefit for what is supposed to be a volunteer position.’’
Gousmett described the annual reports CPS provided to Charity Services as the ‘‘minimum amount of reporting you have got to provide’’.
‘‘The problem is they are all merged into one big pot so you can’t make heads or tails ... it could be that [Smith] is receiving not much of anything.
‘‘But the fact that it is not known raises eyebrows ... it definitely does not live up to the principle of transparency under the Charities Act.’’
Gousmett said there were also the issues around the use of donated money to run a high-stakes high-return taxexempt business that does not directly improve the lives of those with cerebral palsy.
‘‘Tell me how landscaping and concreting benefits them ... that is the idea behind the tax-exempt status.
‘‘There is also the issue that you are putting charitable funds at risk with your own private venture ... what happens if the company falls over and goes broke? That is donated money you have lost.’’
Charity Services, of the Department of Internal Affairs, said it had been given information about CPS finances in June which it was ‘‘currently assessing’’ but it could not provide further comment.
‘‘The fact that it is not known raises eyebrows ... it definitely does not live up to the principle of transparency under the Charities Act.’’ Michael Gousmett Consultant