Charities and the need to meet governance standards

In the 2020 Federal Budget, eagle-eyed charities and advisers may have noticed that the Federal Government has allocated $2.9 million over three financial years to the Australian Charities and Not-for-Profits Commission (“ACNC”) to conduct risk reviews of charities.

The ACNC has confirmed that it will use this funding to “undertake field-based compliance reviews to assess risk in the sector, intervene with charities before significant issues arise, and where possible and appropriate, provide assurance to the public to maintain confidence in the sector.” The reviews will focus on charities who are at risk of failing to meet the Governance Standards.

This announcement serves as a timely reminder of the importance of charities adhering to the ACNC’s Governance Standards, which is a key requirement to be registered and remain registered with the ACNC.

What are the ACNC Governance Standards?

Broadly, the ACNC Governance Standards are described as a set of core, minimum standards regarding how charities are to be run. The Governance Standards are high-level principles (instead of being prescriptive rules) and it is up to each charity how they will comply with each standard, taking into account factors such as the charity’s size, purpose and activities.

The five Governance Standards are as follows:

1. Purposes and not-for-profit nature: this Standard requires charities to demonstrate that they are not-for-profit and have a charitable purpose that they are working towards. For further information regarding this Standard, please refer here.
2. Accountability to members: this Standard requires charities to take reasonable steps to be accountable to their members and provide members with the ability to raise any concerns they may have about the operation of the charity. We note that this Standard only applies to charities with members such as incorporated associations, companies and unincorporated associations. For further information regarding this Standard, please refer here.
3. Compliance with Australian laws: this Standard requires charities to not act in a way that could be an indictable offence or a breach of Commonwealth, State or Territory law that has a civil penalty of at least 60 penalty units. For further information regarding this Standard, please refer here.
4. Suitability of Responsible Persons: this Standard requires charities to take reasonable steps to be satisfied that its Responsible Persons (i.e. its board, committee members, trustees etc.) have not been disqualified from managing a corporation under the Corporations Act 2001, or being a Responsible Person by the ACNC Commissioner, within the prior 12 months. Should a charity discover that their Responsible Person has been so disqualified after they have been appointed, the charity is expected to take steps to remove them. For further information regarding this Standard, please refer here.
5. Duties of Responsible Persons: this Standard requires charities to take reasonable steps to ensure that their Responsible Persons are aware of and comply with certain duties. These duties aim to ensure that the Responsible Persons act with integrity, common sense and in the best interest of the charity. For further information regarding this Standard, please refer here.

The Governance Standards apply to all charities except the limited category of charities called ‘Basic Religious Charities’. We note that not all religious charities qualify as Basic Religious Charities, as confirmed in the ACNC’s ‘myth’-busting guidance (refer here).

For all charities that must comply with the Governance Standards, it is worth noting that there is no requirement to submit anything to the ACNC to prove that they meet the Standards unless this has been requested. However, as a matter of course, charities should be keeping such evidence in case that ‘knock on the door’ comes.

Where to from here?

The focus of the Federal Government and the ACNC on conducting risk reviews is a timely reminder for all charities to ensure that their compliance with the Governance Standards is up to scratch.

As a starting point, the ACNC has provided a self-evaluation tool to help charities assess if they are meeting their obligations and identify any issues they may have. The ACNC does mention in relation to the tool that “while answering ‘no’ to a single question doesn’t necessarily indicate that your charity is not complying, it should prompt you to consider whether this affects its compliance with its obligations.” Interested parties can find the ACNC self-evaluation tool here.

This article provides a general summary of the subject covered as at the date it is published. It cannot be relied upon in relation to any specific instance. TaxEd Pty Ltd and any person connected with its production disclaim any liability in connection with any use. It is not intended to be, nor should it be relied upon as, a substitute for professional advice.