Not for Profit News Summer Edition 2018

The federal government has released terms of reference for a review of the legislation governing the ACNC.

Patrick McClure AO has been appointed to chair the review panel and will be joined by Su McCluskey, Matthew Turnour and Greg Hammond OAM.

The commission is responsible for maintaining, protecting and enhancing public trust and confidence in the charities and not-for-profits sector.  It supports the sector’s accountability and transparency and promotes the reduction of unnecessary regulatory obligations.

The Australian Charities and Not for profits Commission Act 2012 and the Australian Charities and Not-for-profits Commission (Consequential and Transitional) Act 2012 were gazetted in December 2012.  The legislation requires a review after five years of operation.

The panel will inquire into and make recommendations on appropriate reforms to ensure that the Acts’ regulatory environment remains contemporary, that they deliver on policy objectives and enhance the commission’s work.

The review will:

• Examine the extent to which the Acts continue to be relevant
• Assess the Acts’ effectiveness
• Consider whether the powers and the functions of the ACNC commissioner are sufficient to enable these objectives to be met, and
• Consider whether any amendments to the Acts are required.

Submissions from interested parties in response to the terms of reference are due by 28 February.  The panel must provide a report to government by 31 May.

Boards of charities and stakeholders should take the opportunity to submit and participate in the panel’s forums.

A new guide will provide charities, fundraisers and not-for-profits much-needed clarity on how Australian consumer law applies to fundraising activities, minister for small business Michael McCormack says.

‘The guidance … contains a simple message for the sector: be transparent, truthful and fair when fundraising,’ Mr McCormack said. ‘If you are upfront and honest, then your fundraising activities are unlikely to raise concerns under […] Australian Consumer Law (ACL).’

‘When charities, fundraisers and not-for-profits better understand their obligations in providing goods and services this gives consumers confidence.’

A guide to Australian consumer law – For fundraising and other activities of charities clarifies that if fundraising and other activities are carried out in a business-like way obligations not to mislead or to act unconscionably will apply.

Mr McCormack said that the guide, which state and federal regulators developed as a priority at the request of consumer-affairs ministers, followed a recent review of ACL.

Legislation will be introduced into parliament early in 2018 to increase maximum financial penalties available under ACL from $1.1 million for companies to the greater of $10 million, three times the value of the benefit from breaching the law, or 10 per cent of the company’s turnover in the year preceding the breach.

The guide is available at https://consumerlaw.gov.au/.

The ACNC can access financial information provided by non-government schools to the federal Department of Education and Training, significantly reducing red tape for schools registered with the ACNC.

More information may be found on the ACNC website at acnc.gov.au/nongovschools

The ACNC has launched a new online toolkit to help charities and their local MPs connect and discuss important issues.

The MP Charity Toolkit allows searches by federal electorate, and a series of 20 factsheets cover topical charity-sector issues, including fundraising, tax concessions, and safe giving.  The ACNC will add state electorates at a later date.
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The toolkit was developed in partnership with the assistant minister to the Treasurer Michael Sukkar.

Mr Sukkar welcomed the toolkit’s launching, describing it as a valuable resource for MPs and their staff.

‘[It] will help my colleagues in the federal parliament continue to engage with their local charities and support them in their charitable endeavours.’

The sector and the public would also benefit, he said, enabling them to quickly and easily find nearby charities.

‘Registered charities looking to collaborate with another similar charity, or reach out to discuss local issues, will also be able to use the new search function.  Similarly, members of the public looking to donate their time, or goods and services, […] will now be able to find charities of all sizes in their federal electorate.’

The search function is simple to use and links direct to the ACNC’s charity register – Australia’s first online database of charities.

The toolkit is available at acnc.gov.au/mp

A new ACNC factsheet – Charities and Corporate Partnerships – provides advice on how charities can work with businesses and corporates to develop a relationship that helps the charity achieve its goals and benefit the wider community.

Charities often contact the ACNC about wanting to foster partnerships with business.  Some do this extremely well and have long-standing and highly successful arrangements.

But the commission warned in a statement: ‘We do see examples […] where charities have entered into arrangements where they are receiving very little benefit in return for “giving away” their brand.  Many other organisations are not sure where to start.’

The factsheet looks at:

• Why charities should be interested in corporate partnerships
• The types of partnerships available, and why charities should consider a wide variety of partnership options
• Researching local businesses and corporates when thinking about a partnership
• The work charities need to do before entering a partnership and how they should approach a prospective corporate partner, and
• Risk management, due diligence and the steps involved in maintaining a healthy partnership.

The factsheet is available on the ACNC website at acnc.gov.au/corporatepartnerships. 

The ACNC has tabled its 2016–17 annual report, its fifth to parliament since it was established in December 2012.

Acting ACNC commissioner David Locke revealed that more and more Australians were accessing the ACNC’s charity register – Australia’s first searchable database of charities.

‘In 2016–17, searches of the ACNC [register] jumped by 37 per cent compared [with] last year.  We have now had over two million searches […] and this is increasing all the time’.

He added: ‘We’re pleased that members of the public and donors are increasingly using the [register] to ensure that charities are registered with the ACNC and to find out information about their governance and financials.’

Commenting on the first anniversary of the registered charity tick, Mr Locke said: ‘(It) is a simple, attractive logo that registered charities can use to show their charity status.  Over 10,000 charities have downloaded their copy of the logo, including some of Australia’s [best-known] charities.  We are seeing the [tick] displayed in all kinds of places, from fundraising brochures to mini vans.’

More than 2800 new charities were added to the register, bringing the number of registered charities to more than 55,000.

Disappointingly, the ACNC data-integrity project team also reviewed the records of more than 42,000 charities and worked with them to correct almost 7000 errors.

The ACNC’s work to ensure registered charities are complying with the ACNC Act also remained a strong focus for the regulator in 2016–17.

‘This year the ACNC addressed more public concerns about charities than ever before.  The ACNC is […] also working proactively with a wide range of federal and state agencies to identify misconduct and mismanagement in the administration of charities,’ Mr Locke said.

‘Our compliance work has changed from predominantly reacting to concerns, to proactively identifying risk and undertaking targeted investigations and enforcement action.

‘In 2016–17, we managed 18 per cent more compliance cases than we did the previous year and took more enforcement action. The registrations of 22 charities were revoked following compliance investigations – more than double the number in 2015–16.’

Charities need to comply with the ACNC Act and governance standards.  These are legal obligations, and, where there are serious breaches, the ACNC will take firm but fair action.

Red-tape reduction was a priority for the ACNC in 2016–17, as it will be again in 2017–18.  Significant progress was made towards reducing red tape for charities in 2016–17; legislation has been passed in South Australia, Tasmania and the Australian Capital Territory, resulting in streamlined reporting requirements and saving thousands of charities vital resources.

Use of the charity passport, the ACNC’s data-sharing portal, has also increased; 20 government agencies use it to access charity data.

The ACNC’s 2016–17 annual report is available at acnc.gov.au/annualreport

Australian charities have reported $142.8 billion in revenue in the past year, according to new research launched by assistant minister Michael Sukkar.

The Australian Charities Report 2016 examined the 2016 annual reports to the ACNC of more than 52,000 charities.

Key findings were:

• Registered charities had a total revenue of $142.82 billion
• Charities that provided education services, such as universities and non-government schools, had the largest annual revenue.  The group made up 18.6 per cent of the total number of charities but accounted for 45 per cent of the sector’s total revenue
• Charity revenue was generated through membership fees, user-pays services, and other income sources (49.7 per cent), government grants and contract payments (43 per cent), and donations and bequests (7.3 per cent)
• The most common charity type is religious (31 per cent).  However, the group takes in on 6.6 per cent of the sector’s total revenue
• Most (67 per cent) of registered charities are small, their annual revenues less than $250,000
• Big charites with revenue of a million dollars and more make up 17 per cent of charities, medium-sized ($250,000 – $1 million) 16 per cent, and small ($50,000 – $250,000) 67 per cent
• Charities employ 10.6per cent of Australian workers
• 49.6 per cent of charities have no paid staff
• On average, each charity has 58 volunteers; in total, there are 2.9 million volunteers
• Over half of all charities operate in either New South Wales (39.7 per cent) or Victoria (31.1 per cent)
• Only a small number (8.4 per cent) of charities help communities overseas. The top 10 countries in which charities assist are: India, the Philippines, New Zealand, Indonesia, Papua New Guinea, Cambodia, United States, Thailand, Fiji and Nepal.

The Australian Charities Report was produced by the ACNC and the Centre for Social Impact and the Social Policy Research Centre at the University of New South Wales.  The full report and an interactive data cube can be found at australiancharities.acnc.gov.au.

The ACNC has announced the revocation of the following organisations after investigations into their activities and operations.

They are:

• City of Wollongong Aerial Patrol Inc – the decision to revoke status was backdated to 1 July 2013
• Australian Multicultural Christian Society Incorporated – the decision to revoke charity status was backdated to 21 June
• GLCS Group Incorporated – the decision to revoke charity status was backdated to 1 July 2013.

The ACNC has recently revoked the statuses of the Australian Council on Alcoholism and Drug Dependence, Childs Vision Pty Ltd, Cm & Ja Whitehouse Foundation, Guardian Youth Care Limited and Guardian Disability Services Limited following investigations.

As a result, they lost the GST concession, income-tax exemption, and FBT rebate, and those holding DGR status lost it as well.

The ACNC is prevented from disclosing further details due to secrecy provisions in its Act.  However, the ACNC publishes on the charity register instances where it uses its formal powers, including revocation.

For more information about the ACNC’s compliance activity, including the full list of charities that have had their registrations revoked following compliance investigations, visit acnc.gov.au/compliancedecisions.

Acting commissioner Locke said that the ACNC takes a proportionate approach to compliance.

‘In instances where our investigations find minor breaches of the ACNC Act or Governance Standards […], we work with the charity to resolve [them through] education, guidance and support,’ Mr Locke said.

‘However, when we find serious breaches […] or mismanagement we will take firm action, including revocation […]

‘Revoking a charity’s status is reserved for the most serious of cases and results in the loss of generous Commonwealth charity tax concessions. Revoked charities are also no longer able to display the ACNC’s [tick].’

Commissioner Locke encouraged members of the public to raise concerns about charities with the ACNC.

‘We receive over 100 concerns about charities each month,’ Mr Locke said.

‘Many of [them] are raised by members of the public and provide the [commission] with vital information to help us with our enquires.

Mr Locke encouraged people to raise concerns by calling 13 ACNC or by visiting acnc.gov.au/raiseaconcern.

The ACNC has also revoked the registration of 86 charities for twice failing to submit their annual information statements.  These organisations will lose access to tax concessions.

Assistant minister Sukkar has announced that Gary Johns has been appointed as full-time ACNC commissioner for five years.

Dr Johns is a director of the Australian Institute for Progress and an adjunct professor at the Queensland University of Technology Business School.

He is a respected leader in the charities and not-for-profits sector, having served as a member of the prime minister’s community-business partnership, advising the government on practical strategies to foster a culture of philanthropic giving, volunteering and investment in Australia.

He is also a columnist at The Australian and has written several books on the charities and not-for-profits sectors.

Dr Johns has wide-ranging experience in regulation, public service and policy, serving as an associate commissioner of the Productivity Commission, a senior consultant at ACIL Tasman and an associate professor at the Australian Catholic University.

He served in the House of Representatives from 1987-1996, representing the electorate of Petrie and holding several roles in the Keating government, including parliamentary secretary to the deputy prime minister and the treasurer, and special minister of state and assistant minister for industrial relations.

An AASB discussion paper Improving Financial Reporting for Australian Charities presents options to improve financial reporting.  They are intended to be talking points (rather than recommendations) for stakeholder discussions that might be useful in the ACNC legislative review.

The AASB has proposed the following.

Australian charities are burdened with a financial reporting regime that is overly complex and inconsistent, according to AASB research report number 5, Financial Reporting Requirements Applicable to Charities.

The regime fails to promote the sector’s accountability and efficiency, says the report.

The ACNC was set up to promote the reduction of unnecessary regulatory obligations.  While the commission has succeeded in harmonising financial reporting across some states and territories, the AASB contends that an underlying issue is the reporting framework within which charities are required to lodge.

In reviewing charities’ financial-reporting requirements in Australia, New Zealand, the United Kingdom, Hong Kong, Singapore, South Africa and Canada, the board’s research found that Australian charities have the most complex regulatory environment.

‘Australian charities are covered by at least 18 sets of regulation and 10 regulators at federal and state level,’ said AASB chair Kris Peach.

‘Very little of that regulation is consistent, and much of it involves different reporting thresholds and requirements.

‘There is no level playing field for charities,’ said Ms Peach.  ‘[Similar] charities have to produce different reports depending on their location, entity type and historic reporting choices.  As a result, reports are unnecessarily complex and potentially irrelevant to donors and other stakeholders.’

As well as having the most complex regulatory environment, Australia is the only jurisdiction that requires charities to ‘self-assess’ on whether they need to produce full financial reports or ‘special purpose’ financial reports.  If they opt for special-purpose reports, the information required varies depending on which regulations apply.

‘The community isn’t getting clear and comparable financial information, and charities are having to spend time and money navigating a maze of onerous and inconsistent requirements,’ Ms Peach said.

Undertaken with the Auditing and Assurance Standards Board, the research is the first part of an AASB project aiming to achieve clear, objective and comparable Australian charity-sector financial reports.

‘Financial reporting requirements must balance the objectives of improving trust and transparency with the preparers’ costs and be easy to implement,’ said Ms Peach.

Coupled with a forthcoming consultation paper, the report will encourage discussion within the charity sector and is designed to inform stakeholders in their responses to the ACNC legislative review.

‘This is a tremendous opportunity for […] charity stakeholders to have their say on how to improve financial reporting in their sector.  I encourage everyone to get involved,’ Ms Peach said.

Three new complex accounting standards arrive next year, and one is operable from 1 January.

They are:

• AASB 9 Financial Instruments (applies from years commencing 1 January 2018)
• AASB 15 Revenue from Contracts with Customers and AASB 1058 Income of Not-For-Profit Entities (applies from years commencing 1 January 2019), and
• AASB 16 Leases (applies from years commencing 1 January 2019).

You need to plan them now.

Fraud is a problem across all areas of the economy, including the NFP sector.

Protecting yourself against fraud and reacting effectively to fraud has never been more important. Fraud can lead to significant losses, reputational damage and – in the case of big frauds – sometimes the collapse of an organisation.

Effective fraud advice can help you significantly reduce costs and enable you to spend more of your resources on outcomes that matter.

Here are six tips on how NFPs can tackle fraud:

• Strengthen your culture – An anti-fraud culture needs senior management support and has to be led from the top.  Introduce a fraud policy, incorporate an external whistleblowing service (such as www.reportfraud.org.au) and a fraud-response plan.  Place fraud as a repeat agenda item at regular management meetings; this will focus your thinking on the constant threat to your organisation.  Train your staff to look out for fraud indicators.
• Prevention is better than cure – Spending relatively small amounts of time and money on fraud prevention and detection could save you significant amounts of time and money in the future.  Remember, the biggest threat to your organisation is not always a financial one – the reputational damage caused by fraud, especially if it is shown that you made no attempt to minimise the risk.
• Look for weaknesses – There are many red flags that can give you an indication that all is not well.  You are particularly vulnerable when cash payments are involved, so try to reduce these to a minimum.  Always ask for evidence of expenses and periodically check a random sample in detail to make sure all is well.  Internal fraud may be small in value but over time these small amounts could represent a significant loss.
• Keep monitoring – Tackling fraud is an ongoing challenge.  Fraud monitoring should not be something that is reviewed once a year on a tick sheet; it needs constant review.  If you want your organisation to become more fraud resilient, you need to continually work at reducing the threats.
• Audit – External auditors have specific fraud responsibilities under auditing standard ASA 240 The Auditor’s Responsibility Relating to Fraud in Audit of a Financial Report.  Engage your auditor about fraud.  Consider using external auditors to provide your board with additional assurance on such issues as credit-card expenditure and key internal controls.
• Don’t bury your head in the sand – Fraud opportunities exist in organisations big and small.  It’s not good enough to say, ‘We don’t have a fraud problem in our organisation’.  The fact is that you have probably not yet uncovered it.  Don’t wait for fraud to deliver a knockout punch; think about what preventative measures you could introduce.  If you spot that something is amiss, get help sooner rather than later.

Members of CA ANZ, CPA Australia and IPA are reminded that their new responsibilities for non-compliance with laws and regulations (NOCLAR) under APES 110 Code of Ethics for Professional Accountants apply from 1 January.

The responsibilities differ depending on whether an accountant is employed by an entity, in a management or governance position, or engaged by an entity to provide professional accounting services.

All entities, including NFPs, need to be aware of NOCLAR rules and how they affect an entity’s business risks and professional relationships with accounting firms.  A NOCLAR policy is highly desirable.

Auditors also have new responsibilities for reporting NOCLAR under auditing standard ASA 250 Consideration of Laws and Regulations in an Audit of a Financial Report.