Empart Inc, charity review

This is a review, for donors, of the Australian charity Empart Inc (Empart).   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 should seek any other information, either from the charity itself or from other sources.

Ministry response

Prior to publishing this review, I sent, on 2 September 2015, my observations to the charity and invited them to comment.  On 26 September, Ian Lucas, Director – International Operations, after arranging an extension to the publication date, sent the following response:

Thank you for sending your draft review to us. 

As a Christian movement, we understand that we are accountable not only to our donors and partners, but also to God.

We recognise that our finances are gifts sent by loving people who have sacrificed to make their donations possible.

Our obligation, therefore is to operate with accountability, wisdom and integrity, responding to Gods (sic) leading as we focus on building His Kingdom.

We do not think however that it is appropriate for us to respond in detail to your draft report as it contains so many wrong assumptions and drawn conclusions, that we would need to correct, including your incorrect assumption that we have a legal connection with the organisations in Asia rather than partnership relationships with multiple organisations who share our vision, values, aims and objectives. 

We believe that our multiple accountability and governance processes including a strong experienced Board, Eldership, Advisory Council, Internal and External Audits, provide our current or prospective partners with sufficient confidence and trust in this (sic)

Reviewer’s response:

1. I have changed my second reference to the relationship between Empart and EDF to be consistent with the first, i.e. ‘it appears that’.
2. I cannot find any ‘assumptions’, only inferences based on evidence.
3. I have checked my ‘conclusions’, and am happy that they are soundly based.
4. However, if somebody were to show where I have erred, in either ‘assumptions’ or ‘conclusions’, I am happy to make the necessary change(s).
5. Contrary to Ian’s assertion, I do not say that Empart has “a legal connection with the organisations in Asia rather than partnership”. See the last point under ‘Legal name’.

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 the names under Legal Name (see below).
• Empart websites (see Website, below), and social media and LinkedIn on the right hand side here.
• State government fundraising licence registers.
• Comments, via email on 26 September, to my draft review.  See Ministry Response, above.
• www.glassdoor.com

REGISTRATION DETAILS

Entity Subtype (‘charitable purposes’)

• A primary sub-type consistent with sharing the Gospel.
• And that is consistent with the purpose clause in the governing document:

The purpose for which the Association is established is to be an international interdenominational partnership of Christians whose mission is to follow Jesus Christ as Lord and Saviour to make Him known, to show the compassion of Christ to the poor and oppressed, to promote human transformation, to see justice for all and to bear witness to the good news of the Kingdom of God in India.

• Note the restriction to India.
• With an organisation that is required to model Jesus as Lord and Saviour to the poor and oppressed of India, it would be legitimate to question why the group of which it is part has $3.5 m in the bank in that country (see …Balance Sheet, below.)

CHARITY DETAILS

Legal name

• Empart is a Victorian incorporated association.
• Not to be confused with the charity Empart Development Fund Inc. (EDF)
  • Although a separate organisation, it is has the same address as Empart, and, with a swap of Peter Sypkes for Jennifer Chacko, the same Responsible Persons (see below). It would therefore appear to be controlled by Empart (or vice versa).
    • However, neither charity has produced consolidated statements.
  • EDF has recorded Empower Australia Overseas Aid Fund Inc under Other Name(s) on the Register.
    • This is a Victorian incorporated association (A0047253K), but it is not a charity. It doesn’t even have an ABN.
    • Plus an internet search gives only one result, a bank account name for giving to Empart (see Charity ABN, below).
    • Its governing document
      • Gives no objects or purposes.
      • Has ‘Empart Development Gift Fund’ in the table of contents (‘Index’) when the title in the body of the Rules is ‘Empower Australia Overseas Aid Gift Fund’.
  • EDF has submitted the governing document for the Overseas Aid Fund instead of its own.
• It appears that Empart is a subsidiary of ‘Empart International’:

Empart is registered in each country according to the laws of the nation.  In each country, Empart is managed by a Board which is accountable to the Empart International Board.

• The ‘International Director of Empart’ is Jossy Chacko, the Founder of Empart (see the right hand side of every main webpage, for example ‘Resources’).[ii]
• Although “The Empart International coordinating office is located in Melbourne Australia’ – see the .pdf available here[iii] – Empart International is not registered in Australia.
  • Nor, according to a general internet search, anywhere else.
  • The only contact information I can find is this invitation to complete a contact form.
• Besides the various Empart entities Jossy Chacko has his own ministry. It’s most likely the charity The Trustee for Jc (sic) Ministries – it has jenni.c@empart.org for its email address.

• Due to lack of the required governing document and Responsible Persons on the Register, the connection cannot be checked.
  • The charity also has a prominent warning on the Register for being six months overdue with its AIS 2014.
• It appears that Empart (or one of the other Empart entities) also has (owns or controls) two organisations in India for the receipt of overseas donations, CFI Charitable Trust and CFI Ministries. See What was earned, what was consumed…, below.
  • Is it this CFI Ministries, or this US one operating in India?

Charity ABN

• Empart says here that you can get a tax deduction. But this is not through Empart – you can confirm this by clicking on the ABN number then checking down towards the bottom.
• The tax deduction is through
  • EDF (mentioned incidentally at the bottom of the form).
    • The only problem is that EDF is also ‘Not entitled to receive tax deductible gifts’,
  • or Empower Australia Overseas Aid Fund Inc if you are giving for the ‘Nepal Earthquake’ campaign.
    • The only problem is that the Fund doesn’t even have an ABN.
    • There is a fund with a similar name – Empower Overseas Aid Gift and Relief Fund – but it belongs to a completely different charity (Empower Projects Limited).

Charity Street Address

• Postal address, from the website: PO Box 980 Croydon VIC 3136

Phone

• From the website: 1300 EMPART or 03 9723 9989

Website

• http://au.empart.org/Welcome
• http://empart4women.org/empart
• http://empart.info/
• http://jossychacko.org/about-jossy/empart/
• http://empart.net/
• http://www.cfitrust.in/index.php

ANNUAL REPORTING

• AIS 2014:
  • This is the Annual Information Statement.
  • It includes basic financial information. If you think that’s all you need then you should note that
    • The financial statements are not general purpose financial statements as it says in the AIS 2014, but special purpose.
    • The breakup of Income does not match the financial statements.
    • Total expenses is overstated by $8,623.
    • Because of a different classification scheme the expenses cannot be checked against the financial statements.
    • Although Total assets is correct, there a number of mistakes within the asset lines.
    • $267,826 should be moved from Other non-current liabilities to Non-current loans.
• Financial Report 2014:
  • This report can also be opened from within the AIS 2014, above.
  • The Financial Report wasn’t completed until nearly four months after the year end. It was then another four months before it was lodged on the Register. (This was one and half months after the final day for lodgement.)
  • The coverage of finances in this review is left until the section Latest financial report – detail, below.

ABOUT THE CHARITY

Date Established

• Empart recounts its history on its website.
• For the fuller version you can buy the book, written by the founder.
• There are a few references on the internet to Empart previously being called Compassion for India. Here’s one.
  • From this it appears that the ‘CFI’ in the two current Indian Empart organisations – see What was earned, what was consumed, below – comes from the name Compassion for India.

Who the Charity Benefits

• Vision, mission, and goals are half way down this website page. These are for all the Empart organisations combined, not Empart in Australia.

• Vision
  • ‘Empart exists to bring holistic transformation to individuals and communities in Asia.’

• Goals
  • ‘Our primary goal is to see communities transformed among unreached people in Asia by the planting of 100,000 churches by 2030.’
• Activities (What does Empart do?)
  • The ‘activities and outcomes’ reported by Empart in the AIS 2014 again are not for Empart in Australia, but for Empart globally:

Indigenous church planters, pastors and leaders are trained to have a holistic approach to ministry by providing social development programs that meet spiritual and practical needs.

THE HOW: Establish Education Centres and Schools Education Centres and Schools provide literacy and numeracy programs to disadvantaged children to break the cycle of illiteracy, poverty and despair. Under Indian law it is required that every child under the age of five attend school. In practice, this is impossible to enforce by the government, and many children work to help provide for their families.

Currently Empart has six Education Centres and sixteen Schools. The schools range from kindergarten to equivalent Year 10 Vocational Skills Training Program Empart’s vocational skill training is presently centred on the ‘Sew & Sow’ Project.

Currently there are 17 training venues, with 801 women having graduated, and a further 216 in training. Empart estimates that further 5,000-7,000 women will graduate over the next 15 years. The program provides a 6-month diploma course where poor women are taught to make traditional Indian clothes as well as embroidery and soft toys. At the end of the course, each woman is presented with a treadle or hand operated sewing machine (locally made) at a graduation service. With the ability to generate an income, these women gain dignity and status in the community, along with the security of knowing that they can provide nourishing food, a good education and (sic)

• Outcomes (What was delivered?)
  • http://au.empart.org/KPI?
  • http://www.andmakedisciples.com/american-missionary-cost-effectiveness-in-india/

• Impacts (How were people’s lives improved?)
  • Nothing specific, but see Outcomes above.

Size of Charity

• 2013-14 ‘Revenue’ was $1.8 million, easily exceeding the $1 million threshold for the top size of charity.

Financial Year End

• This means that the next financial report is due by 30 June 2016. Before that the financial information on the Register will be up to 18 months out-of-date.

WHERE THE CHARITY OPERATES

Operating State(s) [iv]

• Empart operated in only the five largest states in the period covered by its AIS 2104.
• Empart has a fundraising licence in only one – its home state – of the seven states that have a licensing regime[v].
• As an association Empart is a registrable Australian body. If its disclosure here that it operates outside Victoria means that it is carrying on business outside Victoria, then it needs to register under Part 5B.2 of the i Corporations Act 2001. The lack of an ARBN shows that it has not so registered.

Operates in (Countries)

• ‘Nepal’, both here, and in the AIS 2014, matches neither
  • Where we work on the website, India, Nepal and Bhutan, or
  • The fact that they have ‘offices in seven countries’.

• Even if the Register and AIS 2014 are about Empart, not the worldwide organisation, money is sent to India, not Nepal (and the Overseas Aid Fund is not registered, even with an ABN.
• see Legal Name, above.
  • You can see the countries that have Empart websites above Chacko’s photo on every main webpage.

RESPONSIBLE PERSONS

No. of Australian charity governing body memberships

Kevin BAILEY                      12[vi] (including three duplicates)

Jan de BRUYN                     4 (two x Jan and two x Jan de, both duplicates)

Jossy CHACKO                       4 (including two duplicates)

Paul LAMBERT                    6 (including three duplicates)

Ian LUCAS                            4 (including one duplicate)

John SIKKEMA                    4 (including two duplicates)

Peter SYPKES                       2 (including one duplicate)

• In having seven Committee members rather than six, Empart is contravening its governing document.
• There is no Secretary identified. (The governing document provides that the Secretary is a member of the committee.)

(End of review of the ACNC Register information)

Latest financial report – detail

• Even though it appears that Empart controls EDF (or vice versa), there is no mention of EDF in this report.

The auditor’s post-audit letter to the Committee – the front page of the Financial Report

• An unusual, but illuminating inclusion.
• You might wonder how, with gaps and lax procedures with so many of the items in the financial statements, the auditor could still give a clean audit opinion. The answer is here.

The auditor’s invoice – the second page of the Financial Report

• Note that it is addressed not only to Empart but also to ‘Empart International’.
  • But there is no mention of Empart International in the Financial Report.

• His work included ‘Preparation and review of annual report.’ The independence of the auditor is crucial to donor confidence, so the auditor can only legitimately do this work if two conditions are met: (a) it is ‘routine and mechanical in nature’, and (b) he reduces the self-review threat to an acceptable level [APES 110.290].

Committee’s Report (page 1 of the Financial Report)

• The report is unsigned.
• It appears that Ian Lucas (see Responsible Persons, below) has replaced the founder’s wife on the Committee since the date of this report.
• The contents of this report are not specified in Empart’s enabling legislation, but they are less than industry expectations (for instance, this guide).
  • Missing are sections on officers, objectives (split between short-term and long-term), the strategy for achieving those objectives, and the performance measures used by Empart.

What was earned, what was consumed during the year – the Income Statement (page 2 of the Financial Report)

• This statement uses a format that has been out-of-date for a while now.
  • The ordinary’ tag (and by implication, ‘extraordinary’) has been superseded.
  • An ‘Other comprehensive income’ section is needed. 
• Revenue from ordinary activities $1.8 m (including Note 2)
  • The Note does not use the usual categories of revenue, and meanings are not given for the items presented in the Note.
  • Tax-deductible donations are sought on the Empart website, but given the low correspondence between the revenue items below, and the fact that EDF is a separate charity, it appears that EDF is using Empact’s website to receive donations.

• Training Centres and Children’s Homes $177K (2013: $177K)

• Church Planting $626K (2013:$614K)

• Transformation Centres $138K (2013: $171K)

• Other Sponsorship $33K (2013: 196K)

• Partnerships $145K $2013: $155K)
  • Presumably all five items above are money from donors.
  • If so, the 16 donation options on the website have been collapsed into these five, but is not clear how.

• Infrastructure $(zero) (2013: $47K)
  • This revenue, along with the first four above, has a corresponding item of expense (see below). However, ‘Partnerships’ doesn’t.
  • So you can compare, roughly, what came in to what went out.

• Staff Support $8K
  • There is no explanation of this item.
• Other Income $650K
  • At 37% of revenue, it is far too much to leave unexplained.
• Employee benefits expense and missionary support $349K (2013: $475K)
  • What ‘missionary support’ adds to the standard term ‘employee benefits expense’ is not explained.

• Training Centres and Children’s Homes $142K (2013: 137K)

• Church Planting $511K (2013: $498k)

• Transformation Centres $130K (2013: $143K)

• Other Sponsorship $86K (2013: $326K)
  • As is the case for the equivalent revenue items, there is no explanation of the above four expenses.
  • Presumably it is the money sent to India. This is how that works:

Because of traditional hostility toward those who share the Gospel in this part of the world, Empart works through a local organization called Compassion for India (CFI). The CFI name is publicly identified with programs that support and enhance each local community through education, medical care and family services.  CFI is a necessary pseudonym. Operating under the radar, the public CFI identity helps protect church planting local leaders who are subject to persecution from political and religious interests threatened by the empowerment and conversion of the local people from a caste system that rejects social mobility and a religious monopoly that seeks to maintain fidelity and power, at any cost. [source].

• From internet research I found (including here), that the money sent to India could have been received by one or more of the following Indian Empart (International?) organisations:
  • Compassion for India
  • CFI Ministries
  • CFI Charitable Trust
• From a search here, we can see that Australian donors money was received by the last two of these: CFI Ministries in Chandigarh and CFI Charitable Trust in Orissa.
• The returns submitted by these two organisations, when combined, show that the Australian dollars received in India in the year ended 31 March 2014 were for the following purposes:
  • $392K  Maintenance of priests/preachers/other religious functionaries[vii]                                             
  • $241K   Construction and maintenance of school/college                                                             
  • ‘$52K    Welfare of the aged/widows                                                                                                        
  • ‘$42K    Welfare/empowerment of women                                                                                                    
  • ‘$17K     Non-formal education projects/coaching classes                                                                             
  • ‘$17K     Grant of stipend/scholarship/assistance in cash and kind to poor/deserving children         
  • ‘$9K       Supply of free medicine, and medical aid, including hearing aids, visual aids, family pla (sic)
  • Total           $770
• This is the third different listing of the use of Australian donors’ money, adding to the donation options on the website and the revenue and expense items above.
• Matching the above list with what Empart shows as being sent – see Expenses above – is not possible because the Indian returns for the year ended 31 March 2015 have yet to be lodged.

Infrastructure Expense $(zero)

• What is included in this item such that it went from $53K last year to zero this year?

Other expenses from ordinary activities $505k

• At 29% of expenses this is far too large to be left unexplained.

Total expenses from ordinary activities $1.7 m

• Without further explanation – there are no Notes – the expenses present as a mixture of the two permissible classifications.
• The following expenses are not disclosed:
  • finance expenses
  • fundraising expenses
  • superannuation expense
  • administration exenses

Surplus (Deficit) from ordinary activities $52K (including Note 3)

• The reason for zero depreciation is given in Note 1 (see below)
  • The auditor did not agree with this decision [The auditor’s post-audit ‘communication…’, above].

What’s left at the end of the year – the Balance Sheet (page 3 of Financial Report

• Although he assessed that the going concern assumption was valid, the auditor was sufficiently concerned so as to include a warning in his post audit letter [The auditor’s post-audit ‘communication…’, above].
• If a re-examination of the distinctions made between current and non-current items, for instance the loans, reduced the ratio of current assets to current liabilities, then this warning would become even more significant. 

Cash and cash equivalents $77K

• This amount is very modest compared to the amount of cash that is held by the two Empart/Empart International organisations in India; at 31 March 2014 this was approximately $3.5 m.
• There is no explanation for continuing to ask for donations in Australia when so much sits in a bank account.

Investments – Shares $3K

• This is not a classification that is consistent with the Accounting Standards.
• The auditor noted that the valuation was not current [The auditor’s post-audit ‘communication…’, above].

 Inventory $6K

• The auditor noted that no stocktake had been performed [The auditor’s post-audit ‘communication…’, above].

Trade and other receivables $371K (including Note 4)

• There is no explanation of either the nature of the ‘Business Debtors’, or why the amount is identical to last year.
• There is no explanation of what is included in ‘Sundry Debtors’, why the balance is so large, or why it has increased so much this year.
• There is no mention of the collectability of this $371K, i.e., impairment.

 Fixed assets $1.0 m (including Note 5)

• Unless there is very good reason otherwise, the correct term is ‘Property, plant and equipment’.
• The auditor couldn’t check this figure against the asset register because it was not up-to-date [The auditor’s post-audit ‘communication…’, above].
• According to the auditor the valuation of the buildings is overdue by at least two years [The auditor’s post-audit ‘communication…’, above].
• The motor vehicles should have been written out of the books this year.
• The decrease in Office Equipment does not match what is shown in the Statements.
• Contrary to the Accounting Standards, buildings have never been depreciated.

 Liabilities

• Unless there is very good reason otherwise, the line items here should be
  • Trade and other payables
  • Provisions
  • Financial liabilities

Amounts Received in Advance $457K (including Note 6)

• There is no explanation for why ‘Designated Giving’ is a liability.

• There is no explanation of ‘Prepaid Income’.

Provision for Employee Entitlements $35K

• The auditor noted that this amount did not match the payroll system amount [The auditor’s post-audit ‘communication…’, above].

Loans $453K (including Note 1(l)

• The repayment terms are not disclosed.
• The absence of a current liability for these loans implies that no repayments are due within the next twelve months. That is not a typical bank loan, and nor is it consistent with the reduction in the balance from last year.

• The auditor noted that the account had not been reconciled, and interest paid was understated.

Private Loans $268K (including Note 1(l)

• The repayment terms are not disclosed.
  • If repayable on demand then it should be classified as a current liability.
• The auditor noted that the documentation for the loans was out-of-date [The auditor’s post-audit ‘communication…’, above].

Total Non Current (sic) Liabilities $721K

• Empart says that no employee entitlements or other provisions are due beyond 12 months.

 Movements in the net wealth of the charity – the Statement of Changes in Equity – page 4 of the Financial Report

• The Asset Revaluation Reserve has been omitted.
  • It appears that the ‘Transfers from reserve’ last year were from this reserve. That is not a permissible use of the Reserve.

Where the cash came from and went to – the Statement of Cash Flows (page 5 of the Financial Report)

Receipts from debtors $1.7 m

• With ‘debtors being the result of sales on credit, ‘debtors’ is meant to be ‘customers’ – or better still, ‘donors’.

Interest Received $23K

• With an average bank balance of only $153K during the year, some of which would have been earning very little interest, how was so much interest earned?

Amounts written back equity $22K in 2013

• This is the same amount that is shown as ‘Transfers from reserve’ in the Statement of Changes in Equity (above). It is not a cash transfer, so why is it in the Statement of Cash Flows?

Essential information to go with the figures – the Notes to the Financial Statements – page 6 of the financial report

Note 1: Statement of Significant Accounting Policies

• The directors say the company is a ‘not a reporting entity’. But they don’t say why.
  • They are in effect saying that anybody who is interested in this company has the power to contact the company and request a report tailored to their particular needs.
  • The result of the decision is that the accounts don’t comply with the Australian Accounting Standards, and can disclose considerably less than that required for a general purpose report, a report designed for those people who are dependent on the charity’s report for the information they need.
  • You can compare the directors’ decision to this advice from the ACNC:
  • If people use and rely on your charity’s financial statements to help them make decisions (for example, about how to spend money) then your charity is most likely a reporting entity.
  • Although not clear from this, the directors should also consider prospective users.
• The directors say that the report is ‘prepared on a cash basis’, but then present accrual based reports. There is a big difference.

• (b) Fixed assets
  • The first statement (cost) is contradicted by the second (historical fair value).
  • The Board’s decision to suspend depreciation is not consistent with AASB 116, one of the Standards they say they followed.
    • The usual policy note on reviewing the factors in depreciation (e.g. residual value) is missing.
  • The auditor has accepted this statement, yet doesn’t talk about it when writing about depreciation in the management letter (see above).
  • There is no information on the board’s asset derecognition policy
  • Depreciation rates are disclosed even though there is no depreciation.
• (c) Leases
  • A comprehensive note, yet there is no evidence that Empart has either kind of leases.
• (d) Unearned Revenue
  • There is no such item in the Balance Sheet.
  • The first sentence is not an explanation of unearned revenue.
    • There are no ‘events’ shown under revenue.
    • There is no “administrative levy” shown under revenue.
      • There is no information in the report suggesting that Empart does the administration for any other entity.
• (f) Revenue
  • The types here don’t match the dollars shown in the Income Statement.
• (j) Financial Assets
  • The practice doesn’t match the policy described here.
• (k) Investments
  • This is referring to the same item in the Balance Sheet as Note (j).
  • It appears that the policy has not been followed.
• (l) Loans
  • Missing information:
    • The interest rates
    • Repayment arrangements
    • Split between interest-free and interest bearing.

• Missing policy Notes:

• Cash and cash equivalents
• Trade and other payables
• Employee beneftis
• Contingent liabilities
• Commitments
• New and revised standards…
• Current versus non-current classification
• Trade and other receivables
• Fair value measurement
• New accounting standards
• Critical accounting judgments and estimates
• Incomplete Notes
  • No reconciliation for ‘fixed assets’

Where the board members put their name behind the report – the Statement by Members of the Committee – page 11 of the Financial Report

• The Statement is unsigned.

• The Statement does not match that shown in Schedule 1 to the Associations Incorporations Reform Regulations 2012.

An independent opinion on the financial statements – the Independent Auditor’s Report (the last page of the Financial Report)

• The Report does not make the statement required by section 99(4) (b) of the enabling legislation.

Membership of accountability organisations claimed

• Missions Interlink. Although they say that their membership list is not publicly available I came across this one on the internet. It shows Empart as a member as at 3 August 2015.

(End of review)

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

[ii] This Chacko used to work for ‘CFI Ministries’. The same CFI Ministries that is an Empart organisation? Any relation?

[iii] Presumably the same address as on the Register.

[iv] 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.’

[v] It had one in NSW, but it expired 23 April 2015.

[vi] 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.

[vii] Translated at the rate given by this service for the day that the return says the money was received, then rounded.