ACNC and New Standards: Overhauling the Not-For-Profit Sector

ACNC and new standards: overhauling the not-for-profit sector.

Background

On 3 December 2012, the Australian Charities and Not-for-Profit Commission (‘ACNC’) was established under the Australian Charities and Not-for-Profits Commission Act 2012 (‘the Act’).  Headed by an independent statutory officer called the ACNC Commissioner, this new national independent regulator of charities aims to maintain, protect and enhance public trust and confidence in charities and the not-for-profit sector.

The ACNC assumes the role of the Australian Tax Office (ATO) in registering organisations as charities, will provide guidance and advice to registered entities on their obligations and will collect information on their activities and finances. While the ATO will still determine an entity’s eligibility for charity tax concessions, registration with the ACNC is necessary to access these.

It should also be noted that the ACNC will not regulate the fundraising activities of charities (this role lies with state and territory laws) although complaints about misuse of funds or misconduct can be made to the ACNC.

Requirements for registration.

An organization can only be registered with the ACNC if:

• It is not automatically registered. Organizations previously (before 3 December 2012) endorsed as a charity with the ATO for charity tax concessions will be automatically registered with the ACNC.
• It constitutes a charity. A statutory definition of charity is expected by July 2013 however in the meantime, an organisation must satisfy the following criteria to be a charity:

(a)   It is a not-for-profit. A charity is not-for-profit if its governing rules provide that it cannot distribute profits to benefit particular persons such as members.

(b)   It has a charitable purpose. The organisation’s purpose must be charitable, that is, for the purpose of relieving poverty, sickness or needs of the aged, advancing religion, education or other purposes beneficial to the community. The ACNC provides for 7 categories of charities that can be registered.

(c)    It operates for the public benefit. The organization must work for the benefit of the general community or a sufficient section of it.

• It complies with governance and external conduct standards from 1 July 2013. We have provided further details on this below.
• It has an Australian Business Number (ABN); and
• It is not involved in terrorist or criminal activity.

The obligations of registered charities.

Registered charities are required to notify the ACNC of changes, keep records, report to the ACNC yearly and comply with the governance and external conduct standards.

External conduct standards are a set of requirements that registered charities must meet if they send funds outside Australia or engage in activities outside Australia. The aim is to give the public confidence that funds sent outside Australia by registered charities are reaching legitimate beneficiaries and being used for legitimate purposes and that funds sent and activities engaged in outside Australia are not contributing to terrorist or other criminal activities. These are still in development and will be the subject of consultation before their introduction.

The five new governance standards come into effect on 1 July 2013.  Finalized on 1 March 2013 after a lengthy consultation process, they can be found in the Australian Charities and Not-for-profits Commission Amendment Regulations 2003 (No. 1) and provide a minimum level of assurance that charities will meet community expectations. They are largely principle based and outcome driven and therefore afford registered entities a level of flexibility for entities in choosing steps to comply. Transitional arrangements allow entities to comply before 1 July 2017 should their governing rules prevent them from doing so.

The standards are to be enforced by the ACNC Commissioner who has the power to issue warnings, written directions and suspensions on registered entities failing to comply.

How do they operate?

The new governance and external conduct standards are to be interpreted having regards to the objects of the Act.

These include:

• to maintain, protect and enhance public trust and confidence in the Australian not-for-profit sector;
• to support and sustain a robust, vibrant, independent and innovative Australian not-for-profit sector; and
• to promote the reduction of unnecessary obligations in the Australian not-for-profit sector.

The Act also provides for certain matters the ACNC Commissioner must consider when interpreting the standards. These include:

• the principles of regulatory necessity
• reflecting risk and proportionate regulation;
• the unique nature and diversity of not-for-profit entities and the distinctive role that they play in Australia.

What are they?

1.     Purposes and not-for-profit nature of a registered entity:

A registered entity must commit to and demonstrate its purposes and character as a not-for-profit entity through its governance rules and must make information on these publicly available. Information will be deemed to be available to the public if recorded in Australian law, made available on request or accessible on a new free and searchable Australian Charities and Not-for-profits register.

2.     Accountability to members:

A registered entity must take reasonable steps to ensure it is accountable to members and that members have an adequate opportunity to raise concerns about its governance. Steps may include holding annual general meetings; providing annual reports to members; elections for responsible entities; holding meetings with question and answer sessions or giving members the opportunity to propose and vote upon resolutions.

3.     Compliance with Australian laws:

A registered entity must not or omit to engage in conduct if such conduct or omission would be dealt with by an indictable offence under an Australian law or by way of a civil penalty of 60 penalty units or more. A serious infringement of an Australian law allows the Commissioner to exercise enforcement powers under the Act.

4.     Suitability of responsible entities:

A registered entity must take reasonable steps to ensure its responsible entities such as directors or trustees have not been disqualified from managing a corporation or have been disqualified by the Commissioner at any time during the preceding 12 months. Steps may include searching public registers on appointment and seeking a commitment from responsible entities that they will advise if their circumstances change.

5.     Duties of responsible entities:

A registered entity must take reasonable steps to ensure its responsible entities such as directors and trustees:

• exercise their powers and discharge their duties with the degree of care and diligence a reasonable individual would exercise if they were the responsible entity of the registered entity;
• act in good faith and in the registered entity’s best interests and to further its purposes;
• not misuse the responsible entity’s position;
• not misuse information obtained in the performance of the responsible entities duties;
• disclose perceived or actual material conflicts of interest of the responsible entity;
• ensure the registered entities financial affairs are managed in a responsible manner;  and
• not allow the registered entity to operate whilst insolvent.

Interaction with ASIC

ASIC organizations may also be registered with the ACNC. In fact, of the 1.9m companies registered with ASIC, about 6,000 are expected to be registered with the ACNC.  Companies registered with the ACNC may now therefore be relieved of some of their reporting obligations to ASIC under the Corporations Act 2001. For example, some common notification and reporting obligations required by ASIC will no longer apply. Instead, they must notify and report to the ACNC.

Conclusion

Essentially the emergence of these new standards and the establishment of the ACNC serve as a wakeup call to charities, particularly those seeking tax concessions, to assess their governing rules to ensure they are aligned with these obligations. They should also ensure that their purposes are clear and available to the public, that they have policies and procedures in place to ensure responsible entities meet their duties and that they remain accountable to their members.

It is hoped that this new regulatory framework will ensure that organisations established for the public benefit will simplify the regulatory burden applying to charities and not-for-profit organizations.

If you have any queries regarding the operation of the ACNC and its new governance and external conduct standards, please contact Michael Bishop of this office on 03 9614 7707.

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