The national charity regulator, the Australian Charities and Not-for-profits Commission (the “ACNC”), has recently revoked the charity status of a NSW charity following an investigation into the activities and operations of the organisation.
The implications of this revocation are significant. Notably, the organisation’s Commonwealth charity tax concessions have been removed, being the fringe benefits tax rebate, income tax exemption and the goods and services tax concession.
From December 2012, every charity on the ACNC Register must adhere to certain obligations and responsibilities in accordance with the Australian Charities and Not-for-profits Commission Act 2012 (Cth) (the “ACNC Act”).
Every month, the ACNC, the authoritative body for charity compliance, receives over 150 concerns regarding the operations and eligibility of charities registered in Australia, and the actions of their governors.
Whilst revocation of a charitable status is a final and drastic course of action, the ACNC, possesses a range of formal penalties and powers it can use in the regulation of charities.
Such powers include:
- Enforceable undertakings;
- Suspension and removal from the ACNC register;
- Disqualification of responsible persons; and
- Administrative penalties.
So what does this mean for your charity, and how can you implement good governance principles to comply with ACNC requirements?
Purpose of the ACNC
Firstly, it is important to understand the threefold purpose of the ACNC, to:
- Maintain, protect and enhance public trust and confidence in the sector through increased accountability and transparency;
- Support and sustain a robust, vibrant, independent and innovative not-for-profit sector; and
- Promote the reduction of unnecessary regulatory obligations on the sector.
To achieve these objectives, the ACNC has developed the ACNC Governance Standards, a set of core, minimum standards which all ACNC registered charities (with the exception of Basic Religious Charities ) must adhere to.
These Standards can be summarised as follows:
- A charity must pursue its charitable purpose and must be non-for-profit in nature;
- A charity must work to establish and maintain accountability to its members;
- A charity must comply with all Australian laws;
- A charity must work to ensure the suitability of its Responsible Persons (such as the Board); and
- A charity must work to ensure the Responsible Persons know and adhere to their duties as Responsible Persons.
When such Standards are seriously breached by ACNC Registered charities, the ACNC will exercise its compliance powers to rectify the offending act and ensure public confidence and trust is maintained. Although the Standards do not currently apply to Basic Religious Charities, it is prudent for such charities to nevertheless seek to understand and comply with the Standards.
In determining the extent to which the Governance Standards have been breached, the ACNC take into account three regulatory factors:
- regulatory necessity,
- reflecting risk, and
- proportionate regulation.
Consequently, the ACNC will focus its resources on investigating credible concerns that pose the most serious consequences. This risk and the ensuing response are determined by conducting a risk assessment.
By assessing the information received from and about charities as well as any concerns raised by the community against these high-level principles, the ACNC endeavours to employ a proactive, rather than reactive approach to compliance. In instances of minor incompliance, a co-operative and educational approach is used to provide guidance to not-for-profit organisations in order to quickly remedy the situation. Substantial and significant breaches that pose a serious risk to the public image of the non-for-profit sector will be dealt with swiftly and severely.
So What Acts Constitute a Serious or Significant Breach?
There are a range of situations in which the ACNC will consider the Governance Standards to have been contravened.
Examples of such situations include:
- Diversion of money to non-charitable purposes;
- Gross negligence with finance;
- Serious mismanagement or misappropriation;
- Failure to disclose significant conflicts of interest;
- Posing a considerable risk to vulnerable people or significant charity assets; and
- Deliberate breaches of the ACNC Act or ACNC Regulations.
What Acts Do Not Fall Within the ACNC Jurisdiction?
However, it is important to note that it is not the responsibility of the ACNC to run charities. Common examples of where the ACNC will not intervene include:
- Differences of opinions of board members about a non-governance-related issue;
- To regulate the quality of services provided; and
- Employment disputes in charities.
These types of matters may still cause headaches and drain charity resources if they are left unaddressed, and it is always in the best interests of the charity to take timely legal advice on serious interpersonal or employment issues to seek a resolution as early as possible.
So What Can Your Charity Do to Avoid Compliance Actions?
- Have good governance policies and procedures in place which:
- Ensure Responsible Persons promote safe work practices and appropriately manage financial resources;
- Protect children and vulnerable individuals (if applicable);
- Ensure overseas operations and distributions comply with Australian legal requirements (if applicable);
- Allow Responsible Persons to disclose perceived or actual conflicts of interests; and
- Manage conflicts of interest.
- Notify ACNC of changes to details (responsible persons and governing documents):
- 28 days for medium and large charities; and
- 60 days for small charities.
- Ensure the actions and undertakings of your charity adhere to the objects set forth in your governing document(s).
- Keep financial records that correctly record and explain your transactions and financial position.
- Submit an Annual Information Statement (and a financial report for medium and large charities,).
- Be aware of and comply with ACNC Governance Standards.