NSW Audit Office - Financial Reports – 2002 - Volume 5 – Compliance Review of Donations and Bequests

The Audit Office Of New South Wales

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Auditor-General’s Report to Parliament 2002 Volume Five 5 Compliance Review of Donations and Bequests The review was conducted to gauge how each agency accounts for donations and bequests received and the level of compliance with its policies and procedures, where they exist. The review was conducted at five universities, seven agencies in the health portfolio and three agencies in the arts portfolio. In value, agencies in the health sector were the major beneficiaries of donations and bequests. For further information on what this review covered, see Background at the end of this commentary. KEY FINDINGS There were instances among the agencies reviewed where: ¤ conditional donations or bequests were: • retained by the agency even though the donor’s instructions could not or would not be followed • treated inconsistently as to whether interest earned should be credited to each donation received • held but due to poor record keeping the donor’s wishes were not known ¤ funding appeals were conducted and the agency: • gave incorrect taxation advice regarding the donation • failed to spend the funds in line with the promotional material used to attract the donations ¤ their policy and procedure manuals did not cover procedures for accounting for donations and bequests. A number of universities have established fund raising entities to receive and spend donations and bequests. One university maintains that it does not control the entity it ...

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• Publié par: Orgio
• Nombre de lectures: 11
• Langue: English

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Auditor-General’s Report to Parliament 2002 Volume Five

5

Compliance Review of Donations and Bequests

Compliance Review of Donations and Bequests

The review was conducted to gauge how each agency accounts for donations and bequests received

and the level of compliance with its policies and procedures, where they exist. The review was

conducted at five universities, seven agencies in the health portfolio and three agencies in the arts

portfolio. In value, agencies in the health sector were the major beneficiaries of donations and

bequests. For further information on what this review covered, see Background at the end of this

commentary.

KEY FINDINGS

There were instances among the agencies reviewed where:

♦

conditional donations or bequests were:

•

retained by the agency even though the donor’s instructions could not or would not be

followed

•

treated inconsistently as to whether interest earned should be credited to each donation

received

•

held but due to poor record keeping the donor’s wishes were not known

♦

funding appeals were conducted and the agency:

•

gave incorrect taxation advice regarding the donation

•

failed to spend the funds in line with the promotional material used to attract the

donations

♦

their policy and procedure manuals did not cover procedures for accounting for donations and

bequests.

A number of universities have established fund raising entities to receive and spend donations and

bequests. One university maintains that it does not control the entity it established. Hence the entity

does not regard the Auditor-General as its auditor and we could not review its handling of donations

and bequests.

Agencies receiving bequests do not generally seek a copy of the will to confirm the amount of the

bequest.

RECOMMENDATIONS

Treasury should consider issuing best practice guidelines to all agencies on all aspects of accepting,

accounting for and expending donations and bequests.

DETAILED FINDINGS

We reviewed a sample of transactions in each agency. A summary of what we found follows. Unless

the sector is named, the comments relate to all three sectors – health, arts and universities. The

agencies concerned have been notified of their specific deficiencies.

Conditional Donations

Agencies often receive conditional donations where the donor specifies how the donation is to be

spent.

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Auditor-General’s Report to Parliament 2002 Volume Five

Compliance Review of Donations and Bequests

Nature of Conditions

Sometimes a donation is for a study or research project that the agency cannot or does not wish to

undertake. Our view is that under such circumstances, agencies should consult the donor or estate as

to other possible uses for the funds. The agency should return the donation or bequest if no other use

is agreed upon.

Ten of the agencies in this review do not have this procedure as policy. We found five agencies in the

health sector had accepted conditional donations, but at least a year after receipt had not yet used or

committed them.

One agency told us they were not planning any research in the donor’s specified

area, but would hold the funds in case they choose to research the relevant area in the future.

Bank Interest

With the exception of three agencies, conditional donations were each credited with a proportion of

the interest generated by the special bank account maintained for such purposes or from the agency’s

main account.

Unspent Moneys

Another agency has $545,000 remaining from donations received for a nursing home that it

previously controlled, but which was closed in May 1999. We were told that the agency has

approached the Commissioner for Dormant Funds for approval to use the funds for other purposes. If

approved, they propose to ask the Minister to redirect the money to other projects.

Record-keeping

In two agencies there is a need for improved record-keeping. We noted instances where neither can

find the donor’s directions regarding the use of the funds. In one of these instances the agency’s

management re-allocated the money to a project of its own choosing. Generally, this agency does not

return donations unless the donor specifically directs that this should happen if the research is not

possible.

The second agency correctly sets aside conditional grants in its accounting records. However, as they

cannot locate the records, the specific wishes of the some donors are unknown.

At the time of the audit, one hospital had unspent conditional donations of $1.1 million. In line with

its policy, it commenced a review of the wishes of the donors of this money, but the review stalled.

The hospital should complete the review.

Spending the Donations

Our review indicated that expenditure of conditional donations and bequests generally accords with

the conditions laid down. However, in two of the arts agencies, systems do not exist to account for

expenditure against the donation received. Because of this, they were unable to establish whether such

donations had been fully spent. The level of activity for conditional donations in both agencies is,

however, not high.

In a health agency, expenditure against conditional donations is only updated on an annual basis. This

procedure does not allow it to progressively track the extent of expenditure as it occurs.

Use of Funds Raised by Appeals

To supplement donated funds, about half the agencies we reviewed engage in fund raising activities

such as appeals, dinners, art unions and auctions. In some instances, the advertising of these activities

states that the money raised will be used for certain purposes.

Auditor-General’s Report to Parliament 2002 Volume Five

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Compliance Review of Donations and Bequests

Health Sector

In one of the health agencies, this did not happen. The funds were used for various purposes, but not

the research promoted. Since this deficiency was highlighted, the agency has adjusted its procedures

to ensure its advertising commitments are met.

The internal auditors in one area health service noted that the information in their promotional

material regarding the tax deductibility of donations was wrong.

Policies and Procedures Manuals

Health Sector

Each of the seven health agencies reviewed from the sector had written policies and procedures for

the accounting of donations and bequests received by them.

However, one manual had a serious

deficiency in that it did not address procedures for accounting for and expending conditional

donations.

University and Arts Sectors

Only two of the eight agencies had policies and procedures manuals that addressed the accounting

procedures for donations and bequests. However, one of these was not kept up to date and did not deal

with conditional donations. Agencies should have procedure manuals for this high-risk activity.

Establishment of Fund-raising Entities

University Sector

Three of the five universities have established entities to receive and expend amounts donated. The

Audit Office audits two of the controlled entities and their financial transactions are consolidated into

the financial reports of the two universities.

However, the third university maintains that it does not control the entity. The entity does not submit

its financial report is not submitted to the Audit Office for audit. We were not able to review its

transactions relating to donations and bequests.

Health and Arts Sectors

Seven of these ten agencies use a controlled entity to receive and spend donations and bequests. Each

agency consolidates all of the financial transactions of the controlled entity into its financial report.

The Audit Office audits each controlled entity.

Bequests

Agencies accept on face value the amount of a bequest received by them. They should confirm the

accuracy of the amount received. Agencies can do this by obtaining a full or extract copy of the will

from solicitors or administrators.

Non-cash Donations

Each agency should recognise goods and services donated to it at fair value. This is necessary for tax

and financia l reporting reasons. The use of independent valuers is one way to resolve the question of

value.

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Auditor-General’s Report to Parliament 2002 Volume Five

Compliance Review of Donations and Bequests

Health and Arts Sectors

In the sample of transactions tested, non-cash donations occurred in only two of the agencies

reviewed. Both dealt with the question of fair value differently. In a hospital, an auction was used to

establish the value. The agency in the arts sector established fair value by averaging the valuations of

two independent valuers. Both approaches are satisfactory.

BACKGROUND

Government agencies, particularly those in the arts, education and health areas, often receive

donations or bequests from members of the public or from charitable organisations. At any point in

time, unspent funds of this nature amount to hundreds of millions of dollars. Hospitals are the major

beneficiaries.

Usually, the donations and bequests are in the form of cash.

However, sometimes the donation is in

the form of goods or services. An example may be a painting given to a gallery, library or museum or

a car donated to a hospital for an art union. Such goods and services must be recognised by the agency

at fair value. Because there may be some tax benefits to the donor in making a donation or bequest,

donors may maintain that donated goods and services are worth more than the fair value. Independent

valuers can resolve the matter.

It is also common for a donor to request that the money be used for a specific purpose. This is a

conditional donation/bequest. The donor may stipulate that the funds are for a study into a particular

medical condition or for a particular research project. Unrestricted donations received are referred to

as being unconditional. These allow the agency to determine how the money is to be spent.

RESPONSE FROM TREASURY

Treasury will discuss detailed findings referred to in this Report with the Audit Office. Following

these discussions, Treasury will remind the appropriate agencies of their responsibilities for

administration of donations and bequests.