Background

In accordance with the requirements of the Australian Charities & Not-for-Profits Commission Act (Act), the Act was reviewed by a government appointed panel in early 2018.

In May 2018 the review panel delivered its review to the responsible Minister and that review was tabled in the federal Parliament in August 2018.

On 6 March 2020, the Hon Zed Seselja, Assistant Minister for Finance, Charities & Electoral Matters, released the government’s response to the 2018 legislation review.

There were some 30 recommendations in the review of which the government has indicated it will support approximately half. Some recommendations which have been accepted will require further legislative amendment.  Others can be adopted relatively quickly by regulation change to the Act.

Recommendations accepted by government

Of those recommendations that the government has supported, some of the more important recommendations, where we are likely to see change, are:

  • Recommendation 14: registered entities should be required to disclose related party transactions.
    • The review panel found that currently only registered charities preparing general purpose financial reports are required to comply with the relevant accounting standard on related party disclosures (AASB124 Related Party Disclosures). In 2016 the ACNC introduced additional questions into the annual AIS to ask whether registered entities had related party transactions and whether registered entities had documented policies and processes for related party transactions. The review panel supported the ACNC’s approach that all registered entities should be required to disclose related party transactions in their AIS and that all medium and large entities be required to comply with AASB124.
    • In its response, the government agreed with the review panel recommendation but has said that in order to minimise the compliance burden on small charities, the government will require small registered entities to make a simplified disclosure involving a brief description of a related party transaction.
    • The start date for such change will coincide with any change to revenue thresholds for financial reporting requirements.
  • Recommendation 15: large registered entities should be required to disclose the remuneration paid to responsible persons and senior executives on an aggregated basis.
    • The review panel found that all large registered entities should disclose the remuneration of responsible persons and senior executives to align ACNC reporting requirements with Australian Accounting Standards Board requirements.
    • The recommendation is aimed at providing greater accountability to donors, beneficiaries and the public by requiring charities to be transparent about remuneration of key management personnel.
    • The government has said in its response that large registered charities will only be required to make the disclosure where there 2 or more key management personnel to accommodate privacy concerns.
    • Again, the start date will align with any change to revenue thresholds for minimum reporting requirements.
  • Recommendation 17: the Commissioner should be given a discretion to disclose information about regulatory activities (including investigations) when it is necessary to protect public interest and confidence in the sector.
    • The secrecy provisions of the Act prevent the ACNC Commissioner from making information public about the ACNC’s regulatory activities (even if an investigation is under way).
    • The exception to this is where the ACNC is responding to clarify issues that have already been raised in the public domain by a charity.
    • The review panel found that an expansion of the powers to disclose information would increase public confidence that the regulator is actively pursuing misconduct. It also took the view that disclosure of this nature would provide guidance to other charities about poor behaviour.
    • In supporting the recommendation the government has said that the change will allow the Commissioner to release information about ACNC regulatory activities in the public interest. The aim is to strengthen public trust and confidence in both the sector and the regulator.
    • The government has said it will be consulting on the detail around the change, including the triggers for and bounds of the Commissioner’s discretion. Change will be implemented by legislative amendment to the Act.
  • Recommendation 18: the Commissioner should be authorised to collect the personal details of responsible persons involved in unlawful activity.
    • The panel found that the ACNC should be able to request details on the criminal record of responsible persons to allow it to detect unlawful behaviour and contraventions of the Act.
    • In supporting the recommendation the government has said that this power will enhance the ACNC’s capacity to detect breaches of its governance standards and the external conduct standards.
  • Recommendation 19: the ACNC should be resourced to enable the Commissioner to enforce and develop the law where registered entities engage in disqualifying purposes (within the meaning of the Charities Act 2013 (Cth)).
    • The review panel found that the ACNC must be well resourced so that it can enforce the law and prevent the misapplication of charitable assets.
    • The review panel also considered there to be benefit in further case law on entities engaged in disqualifying purposes.
    • In supporting the recommendation the government noted that it had provided the ACNC with $1M of additional litigation funding in the 2018-2019 budget. This funding will enable the Commissioner to enforce and develop the law where ambiguity exists.
  • Recommendation 23: the Australian Charities & Not-for-Profits Commission Regulation 2013 should be changed to disqualify a person from being a responsible person if they have a conviction for terrorism, terrorism financing, money laundering, fraud, importation or distribution of illicit drugs or a child sexual offence under Commonwealth, State or Territory law.
    • The review panel found that the current disqualifying criteria for responsible persons is too narrow and does not extend to the mischief identified in the recommendation.
    • In supporting the recommendation the government noted that while proven instances of criminal misconduct in the sector are low, illicit activity could severely damage public trust and confidence in the sector and harm the communities they are working to assist.
    • The government maintains that the recommendation will enhance the accountability of responsible persons, thereby reducing the risk of charities becoming involved in serious criminal misconduct.
    • This change will be effected by amendment to the Act.

Important recommendation not accepted (fundraising reform)

Recommendation 25 was that the “Australian Consumer Law should be amended to clarify its application to charitable and not-for-profit fundraising and a mandatory code of conduct for fundraising activities be developed“.

The review panel had found that there are substantial inconsistencies across State and Territory licensing and reporting requirements for charitable fundraising and strongly recommended the need for reduction of red tape for charitable fundraising. This has been an issue for the sector for some years.

Unfortunately the government has not supported the recommendation and noted the findings of the Senate Select Committee Report on Charity Fundraising in the 21st Century which considered, but did not endorse, Recommendation 25 of the review panel. That said, the government has said that it will continue to support efforts by the States and Territories to harmonise State and Territory fundraising laws.

The government went on to say that the Australian Consumer Law (ACL) is not an appropriate mechanism to harmonise laws in the not-for-profit sector which is a view contrary to the strong recommendations from many practitioners and academics in the sector. The government has said that the ACL provides broad economy-wide protections and is not designed to impose detailed licensing, reporting and conduct requirements in specified sectors.  This is an unfortunate approach but is consistent with the views expressed by the ACCC.

So, it would seem we are still no further advanced for charitable fundraising law reform so it is to be hoped that States and Territories attack this issue of harmonisation with considerable fervour over coming months. The need for reform is quite important for the sector.

An equivocal response from government

Recommendation 11 provides:

The Corporations Act 2001 (Cth) should be amended to ‘turn on’ the duties and other provisions previously ‘turned off'”.

The panel had found that an amendment to the Corporations Act would reduce the ambiguity about whether directors’ duties for charitable companies applied to individual directors and so strengthen the rights of members to take action against directors in the case of a breach of duties.

Whilst noting the recommendation, the government said that it would release a consultation paper seeking the views of the sector on the merits and risks of “turning on” the directors’ duties under the Corporations Act for charitable companies. This is a “watch this space” issue.

Conclusion

For those who are interested in the panel review 2018 document and the government’s response, they can be found at:

Whilst the government’s response has, pleasingly, addressed many of the issues raised by the review panel there are still a number that have not been accepted. The position flags the need for fundraising reform as a very important priority for the sector still to be addressed – presumably at State level now.