Archived: Barnabas Fund (Australia) Ltd, charity review

This is a review, for donors, of the Australian charity Barnabas Fund (Australia) Ltd (BFA).   It is structured according to the charity’s entry on the ACNC^[i] Register, and its purpose is to supply some information extra to what is there, information that may be helpful in your giving decision.

It is up to you to decide whether any or all of the information presented here is what you need in order to make that decision, and whether you to seek any other information, either from the charity itself or from other sources.

Organisation of this review:

1. This review is organised according to the headings in the register entry. This is how to use this section of the review:
   • For each heading in the register entry, first read the information under that heading.
   • Then check if that heading is included below. (Headings for which there is no comment are not included.)
2. There is then a more detailed comment on the Financial Report.
3. Lastly, there is a section Membership of accountability organisations claimed.

Sources:

• ACNC Register (including links)
• Internet search on ‘Barnabas Fund (Australia) Limited’.
• Barnabas Fund (Australia) Ltd website.   For social media – not the Australian office though – see here.
• State government fundraising licence registers.
• Email response, on 16 and 20 July 2015, from Colin Johnston, Managing Director, to an invitation to BFA to comment on my observations in preparation for this post.
• www.glassdoor.com (No reviews).
• www.greatnonprofits.org (for the US organisation)
• www.guidestar.org (for the US organisation)
• https://www.gov.uk/government/organisations/charity-commission (for the UK organisation)
• https://www.register.charities.govt.nz/CharitiesRegister/Search (for the NZ organisation)

CHARITY DETAILS

Legal Name

• They also have another charity, The Trustee For The Barnabas Relief Education and Development Fund (BREAD). This charity is operating but had almost no transactions[ii].
• Not to be confused with Barnabas Ministries Incorporated, an ACT deliverer of training.
• BFA can use the name ‘Barnabas’ only so long as it has an ‘affiliation agreement’ with Barnabas Fund UK [The Governing Document, below, clause 85].
  • During the year BFA entered a new agreement with Barnabas UK and the other Barnabas organisations[iii].

Charity ABN

• Tax deductibility: No tax deduction can be claimed for a donation to BFA.

Charity Street Address

• Postal address: PO Box 3527 Loganholme QLD 4129

Email

• Delivery to this address failed.
• If Colin should move on, there’s bfaustralia@barnabasfund.org.

Phone

• From the website, 1300 365 799

Website

• https://www.barnabasfund.org/?audience=AU

Registration Details

Entity Subtype (‘charitable purposes’)

• This had to be notified to the ACNC by 30 June 2015.

ANNUAL REPORTING

• Basic financial information is shown in the AIS 2014. If you think that’s all you need then note that Total revenue is understated by the $309K of ‘Reimbursements from BF UK’ (see Latest Financial Report, below), and Other Income corresponding overstated.
  • The distinction is important because revenue comes from a charity’s ordinary activities, other income doesn’t.[iv]
• The coverage of finances in this review is left until the financial report proper (below).

CHARITY’S DOCUMENTS

Financial Report

• This report can be opened either from here or from within AIS 2014 under Annual Reporting (above).
• The report was completed four months after year end, and submitted the next month – 4½ months into six month period normally allowed for submission.
• The ACNC allows charities to put their Annual Report or similar on the Register. BFA has not taken advantage of this, nor is there one on their website or an invitation there to request one.

ABOUT THE CHARITY

Who the Charity Benefits

Mission/vision

• The header on every website page: ‘hope and aid for the persecuted church’

Activities

• Despite the description under ‘Principal Activities’ in the Directors’ Report (see below), and a ‘Main activity’ in the AIS 2014 of ‘Emergency and relief’, the ‘objectives’ in the Directors’ Report make it clear that the principal activity in Australia is fundraising for Barnabas Fund UK.
  • This is confirmed under ‘Description of activities and outcomes in the AIS 2014:

Barnabas Fund Australia continues to raise funds from its Australian supporters (Churches, individuals, businesses) to assist fellow brothers and sisters in Christ who have been persecuted for their faith. Funds raised in Australia anr (sic) sent to the Barnabas Fund Uk (sic) office where it is held and finally distributed to projects around the world….

Results/outcomes/impacts:

• BFA (MD email) argue that the sending of the funds to the UK is the outcome for Australian donors.
• I could not find neither an Annual Report/Review, nor a description of impacts on the website[v].

Size of Charity

• 2013-14 ‘Revenue’ was $6.1 m, easily exceeding the $1 m threshold for the top size of charity.

Financial Year End

• This means that the next financial report is due by 31 December 2015. Before that the financial information on the Register will be up to 18 months out-of-date[vi].

WHERE THE CHARITY OPERATES

Operating State(s) [vii]

• It operates in all eight yet no licence to fundraise is held in the seven that have a system of licensing.

Operates in (Countries)[viii]

• MD comment: “We have sometimes sent funds to Barnabas Fund partners in the Asian region because it is easier for us to do that from here. We have also recently sent some funds to a Sri Lanka partner direct from here….”

RESPONSIBLE PERSONS

• There were seven directors at the time of the Financial Report; now Patrick Sookhdeo – perhaps because of this[ix] – and Mark Green are no longer directors.
• To see all their positions in Australia, search here.

No. of Australian governing body memberships

John Arnold                            5[x]

Peter Brain                             2

Colin Johnston                     10[xi]

Caroline Kerslake                    1 (She is also the Director of Projects/Senior Editor for Barnabas Fund UK)

Rosemary Sookhdeo               1 (She is also the Financial Director of Barnabas Fund UK)

• Barnabas Relief Education and Development Fund:

        John Arnold                            see above

                Colin Johnston                       see above

Patrick Sookhdeo                   1 (see first point above)

• Both a Chairperson and a Deputy Chairperson are required by the constitution. They are not shown here[xii].

(End of review of the ACNC Register information)

 Latest financial report – detail

Cover page: it’s a special purpose report

• As opposed to a general purpose report, one that is designed for those people who rely on BFA’s financial statements as their major source of financial information.
• For an organisation that had $6.1 m of donations from 32,000 supporters (see later), you may find it difficult to understand how the directors concluded that all donors, both current and prospective, have the capacity to command BFA to prepare for them financial statements tailored to their needs.
• This decision to produce special purpose financial statements meant that BFA could produce financial statements that did not need to comply with all the Australian Accounting Standards, and therefore produce statements that the Australian standard setters have deemed not suitable for those people who depend on those financial statements to make decisions.
• An example of the information that you might not get as a consequence is the relationship that BFA has with the other BFA organisations around the world[xiii]
  • For instance the fact that the $568K loan is from a related party, there are cross-directorships, and the organisation receiving your donations is related to the lender of that loan.

• MD comment:

Every year, the Directors assess whether we will produce a SPFR or a GPFR with the decision based on whom we think the report will be used by. The bulk of information requests from donors are based on the following information:

*  Can BFA confirm that the donor’s gift will get into the hands of persecuted Christian’s? Yes because we only work through Christian Churches and their leaders; we do not employ staff in the countries we work in:

*  What reporting will I receive? Donors want to make sure they have evidence that their funds have been used correctly. BFA produces a bi-monthly magazine ‘Barnabas Aid’ which provides an update on existing projects  ($$$ spent and success stories) and requests for new projects. For major projects we send out 6 monthly newsletters.

*  How much of my gift will get to the project? When I advise that our overheads are running at 14%, 99.5% of donors will normally give. We have over 32,000 supporters and 99.9% of them make a decision to give based on projects that are advertised in our magazine and via weekly e-mail alerts.  

Therefore the board feels that a SPFR is sufficient for our ministry. We will be discussing this with the board and auditors again for the 2015 financial year. Our auditors have indicated that changing to a GPFR will increase our audit fees and accounting time because of additional reporting disclosures. We will assess this in due course.  

 Reviewer comment: The criterion for deciding between the two types of report is not whether or not donors’ questions can be satisfactorily answered without the financial statements.

Directors’ Report (page 2 of the Financial Report)

• Note: as the ACNC does not require a charity to submit a Directors’ Report, no comment is made on what is omitted from this report compared to what would be required under the Corporations Act.
• Principal Activities:
  • The strategies: see Cash and cash equivalents, below.
  • Operations: see Revenue, below.
  • Meetings of Directors:
    • Although it is not normal for a charity to have only one board meeting during the year, especially without the help of board committees, it is permitted by BFA’s Constitution.
      • It does, however, unless decisions are also made by flying minute, imply that the Managing Director, Colin Johnston, makes most of the formal decisions.

What was earned, what was consumed during the year – the Statement of Comprehensive Income (page 6 of the Financial Report)

Revenue $6.1 m (including Note 2)

• There is a choice of no less than 147 funds on the website for your donation; however, the result for the year is reported as a single figure.
  • MD comment:

Our auditors are quite happy with this. In our bi-monthly magazine and specifically the November/December 2014 issue we showed a pie chart giving a breakdown of our major project income. We have over 32,000 supporters receiving this magazine so why would we need to show this in an ACNC document? This is also consistent with the accounting standards. The other important consideration is that in some of the countries we work in, our partners are very sensitive to any public information on the projects we are working on with them ie in some countries you cannot mention the word ‘Christianity’ for fear of repercussion.

 Reimbursements from BF UK $329K

• Revenue is overstated by this amount – reimbursements should be deducted from the expense(s) that are being reimbursed.  (The MD disagrees.)
• There is no Note to explain the source or reason for these reimbursements.
  • MD comment: “Why do we need to show a note for every item? Our auditors are quite happy with the accounts as presented. Note 1(a) explains the policy for 94% of revenue so no further disclosure is considered necessary.”
    • Reviewer response: Because materiality is not only quantitative but also qualitative and ‘reimbursements’ is not a typical revenue item; plus they are 53% of non-‘Charitable expenditure’.
  • Some information about these reimbursements is under ‘Operations’ in the Directors’ Report:

The organisation works closely with Barnabas Fund (BF), a charity established in the United Kingdom whose objectives are very similar to those of the organisation and distributes the majority of contributions received to the that charity for onward transmission to beneficiaries in over 60 different countries[xv]. Barnabas Fund supports the work of this organisation by way of reimbursements which are shown separately in these financial statements.

• Note that this charity shares a name and similar objectives with BFA, not a legal connection.
• These reimbursements represent 53% of non-‘Charitable expenditure’, but we don’t know how these reimbursements are calculated,
• nor the strength of BFA’s entitlement to them.
• The MD says that these reimbursements don’t mean the return of a portion of your donation o Australia because they “come from another entity in the UK”. (Presumably a Barnabas entity.)

Other Income $70K (including Note 3)

• This is the result of the directors revaluing the property. As they had previously recognised a $95K reduction in the value, it should be shown as a ‘Reversal of impairment losses’.

‘Expenditure’

• Even if ‘Charitable projects worldwide’ is a classification by nature, the other ‘Charitable Expenditure’, ‘Education/Prayer’ is a classification by function; this clashes therefore with the ‘by nature’ classification used for ‘Other Expenditure’.
  • MD comment: “Do not agree – charitable is the nature of the expenditure.  Consistent with overseas disclosures.”

Charitable projects worldwide $5.1 m

• Despite the size of this item, there is no Note.
• All we can say from the Financial Report is that this money was transferred to an independent charity in the UK with the same name, which then ‘channels aid to projects run by national Christians in more than 60 countries (Directors’ Report, above).
  • And up until recent changes to the governance of the Barnabas Fund, BFA had no say in the selection of countries or projects.
• From the UK charity’s 2014 accounts, available from the UK equivalent to the ACNC, the Charity Commission, we know that £2.2 m was received from ‘Associated Overseas Charities – of which BFA was one – in the year ended 31 August 2013.   After that a new Barnabas entity took over the receipt and distribution of donations, so the amount received in the next year (the bulk of the BFA financial year) by Barnabas Fund UK was zero.

 Fundraising expenses $118K

• There is no industry agreement on what this encompasses, yet there is no Note.
  • MD comment: “This is not material and consists of printing and postage for specific appeals. Auditors happy with presentation.”
    • Reviewer response: Materiality is about more than the amount – fundraising cost is a key thing for many donors.

Employee benefit expenses $315K

• Staffing information:
  • Section A of the AIS 2014: ‘4 staff and occasionally casual staff’
  • Section C: two full time, three part time and three casuals in the last week of June 2014.

Depreciation expenses $18,442

• It is not possible to reconcile this with the Note on Property, plant & equipment because the usual reconciliation is not there.
• This amount is understated by the amount by which buildings should have been depreciated.
• There are intangibles, so there should be amortization here as well – or, if it is included then it is usual to say that in a Note.

What’s left at the end of the year – Statement of Financial Position (page 7 of the Financial Report)

Cash and cash equivalents $239K (including Note 4)

• The Directors’ Report (above) tells us that ‘cash reserves’ (presumably the above figure), are set at a level ‘sufficient to cover a minimum of three months of projected cash operating expenses’.
  • ‘Cash operating expenses’ are not identified in the Statement of Cash Flows, but the accrual equivalent is presumably approximately one quarter of all the expenses except ‘Charitable projects worldwide’ (the money sent to the Barnabas Fund UK) and depreciation, i.e. $216K.

Trade and other receivables $65K (including Note 5)

• This is almost entirely ‘Other debtors’. These have risen 270% and elsewhere BFA questions whether it is a going concern, yet there is no explanation of these amounts owed.
  • MD comment: These are amounts owing from the ATO for GST and reimbursement from Barnabas Fund UK. Auditors do not see a need to put in a note. It would not be usual to include any further explanation and is not required.
    • Reviewer comment: It might not be usual in normal circumstances; however questioning whether you are a going concern is not normal.
• No possible impairment is mentioned.

Inventories

• ‘Resources’ were sold but no inventories are held.
  • MD comment: “Because our stock of books is sent to us FOC from Barnabas USA we do not need to place a value of books in the balance sheet. Again, the auditors are happy.”
    • Reviewer comment: The Australian Accounting Standard for inventories requires that such stocks be valued at current replacement cost’ – auditors notwithstanding [AASB 102].

 Property, plant and equipment $547K (including Note 6)

• Land and buildings should be separate. (MD agrees.)
• Despite Note 1 saying that land and buildings are shown at fair value, they are described here as ‘At cost’.
  • MD comment: “The first line is shown at cost but then there is an impairment charge that brings the whole classification down to ‘net carrying value’.”
    • Reviewer comment: An impairment charge is not a point of difference between the cost model and the revaluation model [AASB 116.29-31].
• Despite Note 1 saying that buildings are depreciated, here it is reported that this is too hard to do: “Buildings have not been depreciated due to the difficulty of segregating the components at the date of acquisition.”
  • There should be enough publicly available information to make a good estimate. And accountants and directors are making estimates all the time.
    • MD comment: “We have discussed this with our auditors every year and they are quite happy to accept that as a charity we need to keep all our expenses down to a minimum.  The decision is based on the fact that why spend donor’s funds on breaking down an asset when the whole asset is going to be written down or up to a current market valuation ie it’s a waste of funds and time; it doesn’t achieve any useful purpose. In the end the method adopted ensures that the net book value is fairly stated.”
      • Reviewer comment: There would be minimal cost to an estimate by an executive of BFA.

Borrowings $568K (including Note 9)

• This loan is ‘not due to be called withing (sic) the next 12 months’. It is not clear whether this means that they have a maturity beyond 12 months, or that they are due on demand but that repayment is not expected to be demanded within the next 12 months. If it is the latter, then it may be that these borrowings should be classified as current. (This would that the current ratio would drop from 3.7 to 0.5 and require a reassessment of the validity of the going concern assumption.)
  • MD comment: “The lender has confirmed that the loan is non-current.  It has been correctly classified because there is no immediate demand to repay the loan.”
    • Reviewer comment: The current-non-current distinction is not about what the lender says; a liability has to be classified as non-current if BFA ‘does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period’ [AASB 101.69].
• The loan is from a related party, one of the members of the Barnabas Family [Barnabas Fund 2014 accounts].

Essential information to go with the figures: Notes to the Financial Statements

Note 1 Summary of Significant Accounting Policies

Basis of Preparation

• See Cover Page, above, for comment on the directors belief that BFA is not a reporting entity.

Going Concern

• The directors’ confidence of financial support from Barnabas Fund UK is, based on the Trustees’ Report in that charity’s 2014 accounts, well placed:

Under the terms of the Barnabas Covenant[xvi], this charity would consider extending support to any member of the Barnabas Family to bridge either a short term income deficit or to assist with supporting actions to grow and develop the charity.

• This is in return for Family members forwarding all legacies to the UK.

 (a) Revenue

• Designated donations and bequests are recognised as ‘prepaid income’, not revenue, but there is no such item in the Statement of Financial Position.

Missing Notes:

• Inventories
• Significant management judgement in applying accounting policies.
  • MD said they will look at this for 2015.
• Contingent assets and contingent liabilities.
  • MD said they didn’t have any so there was no need for a note. However, where there are none it is usual to say so.
• Capital commitments.
  • MD said they didn’t have any so there was no need for a note. However, where there are none it is usual to say so.

An independent opinion on the financial statements: Independent Auditor’s Report

• See ’Directors’ declaration, next.   The auditor, in accepting the engagement, has implicitly agreed with the directors’ decision to produce special purpose rather than general purpose financial statements. 

Membership of accountability organisations, claimed

• None claimed.

(End of review)

[i] Australian Charities and Not-for-profits Commission, Australia’s national regulator of charities.

[ii] MD’s comment: “This entity has been established to offer tax deductibility for donors. However, no projects have been identified to date that would meet the ATO requirements of non-discrimination according to ‘religion’. “

[iii] From the Barnabas Fund UK annual report:

The Barnabas Family

        There are 7 organisations bound by the Barnabas Covenant which defines their interrelationship and mutual arrangements for working. These organisations share similar objects to the UK charity and the relationship between Barnabas Fund and the other organisations, which was hitherto maintained formally by the presence of some staff and trustees from the charity on the boards of the other organisations, and informally by visits to and from the charity and the other organisations, is now further maintained through shared governance of Barnabas Aid International [the new organisation to deliver Barnabas project].         

[iv] MD comment: “I agree as the classification in the AIS is different from the financial report.”

[v] MD comment: “We have not published this in the past on our website but will consider this for the year ended 30 June 2015.”

[vi] MD comment: “Yes I agree but this is the deadline set by the ACNC. Our accounts are audited and signed off by the board before the end of October, which is actually well in advance of the ACNC deadline and lodged annually about the same time each year.”

[vii] This is how the ACNC explains ‘operating locations’ in their application guide: ‘You need to give details about where in Australia your organisation conducts (or plans to conduct) its activities.’

[viii] A listing here can be a consequence of a charity following the ACNC’s advice to include any country to which a grant or donation has been made [2014 Annual Information Guide, page 18].

[ix] MD comment: “In June 2015 Patrick Sookhdeo was reappointed to the International Board after long discussions with the UK Charities Commission. Patrick’s sentence was the lightest possible for the type of alleged assault; he has completed his 3 months of home detention and as such there are no legal reasons for him to be disqualified as a director”.

[x] Because of the possibility of two (or more) directors having the same name on the register of responsible persons, it is not possible to be definitive about the number of directorships held. MD says that three of these belong to another John Arnold.

[xi] MD comment: “7  I am Treasurer for several small charities, not a director. You have also included another Colin Johnston.”

[xii] MD comment: “This can change according to individuals situations (travel, sickness) and don’t see it necessary to update here.” However, this confuses the function of chairing a meeting with the holder of these offices.

[xiii] The Directors’ Report has an acknowledgement of the closeness of the relationship between, at least, the Australian and US organisations:

The surplus for the financial year was $221,603 compared to a deficit of $142,685 in the previous year, with the increase predominantly due to a significant US donor deciding to donate through their Australian arm to The A21 Campaign in Australia instead of The A21 Campaign in the USA.          

[xv] Actually, according to the Barnabas Fund (UK) Trustees’ Report and Financial Statements, available here, it was another member of the Barnabas Family who received the donations from 1 September 2013.

[xvi] A Memorandum of Understanding signed by all the organisations in the Barnabas Family on 30 October 2013.