Review of the Australian Charities and Not-for-profits Commission Acts Commences: Could Schools be Subject to Greater Scrutiny?

Not For Profit Commission Acts

A review of the Australian Charities and Not-for-profits Commission Act 2012 and the Australian Charities and Not-for-profits Commission (Consequential and Transitional) Act 2012 (together, the ACNC Acts) must be undertaken after the first five years of their operation. Submissions closed on the review of the ACNC Acts (the Review) on 28 February 2018, and review results and suggestions will be available in a report to the Federal Government by 31 May 2018.

Background to the Review

Charities have annual revenue of $143 billion, or over 8 per cent of Australia’s GDP.  They employ more than 1.3 million people and engage 3 million Australians who volunteer their time and effort to helping others. This number could increase to 6 million volunteers when the broader not for-profit (NFP) sector is considered. A recent assessment identified approximately 257,000 NFP organisations operating in Australia.

Australia’s 55,000 registered charities are regulated by the Australian Charities and Not for Profits Commission (ACNC), as set up by the ACNC Acts. While the legislation was originally designed to cover all NFPs, so far the ACNC has been dealing principally with those organisations which are registered charities including Deductible Gift Recipients (DGR). The ACNC regulatory framework coverage includes organisations which are corporations under the Federal Corporations Act as well as those which are incorporated associations under state and territory legislation, as well as other types of organisations that seek tax benefits as charities.

Under the ACNC Act, the Federal Government is legally required to conduct a review of  the ACNC Acts after their first five years of operation. The ACNC Acts commenced in December 2012 and the Review was announced in December 2017.

Terms of Reference for the Review

The objects of the Australian Charities and Not-for-profits Commission Act 2012 include to:

  • maintain, protect and enhance public trust and confidence in the Australian NFP sector,
  • support and sustain a robust, vibrant, independent and innovative Australian NFP sector, and
  • promote the reduction of unnecessary regulatory obligations on the Australian NFP sector.

The terms of reference for the Review include an evaluation by the Panel of the suitability and effectiveness of the ACNC Acts, including:

  1. Examining the extent to which the objects of the ACNC Acts continue to be relevant.
  2. Assessing the effectiveness of the provisions and the regulatory framework established by the ACNC Acts to achieve the objects.
  3. Considering whether the powers and the functions of the ACNC Commissioner are sufficient to enable these objects to be met.
  4. Considering whether any amendments to the ACNC Acts are required to enable the achievement of the objects and to equip the ACNC Commissioner to respond to both known and emerging issues.

The Review Panel is using the public submissions to the Review to also answer more specific questions to shed further insight, including

  • Whether to expand the regulatory framework beyond just registered charities to cover other classes of NFPs.
  • Identifying the activities or behaviours by charities and NFPs which have the greatest ability to erode public trust and confidence in the sector.
  • Querying whether there is sufficient transparency to inform the ACNC and the public more broadly that funds are being used for the purpose they are being given.
  • Whether the ACNC legislation and the ACNC itself has appropriately addressed  the risks of misconduct by charities.
  • Assessing whether the ACNC legislation has been successful in reducing any duplication in reporting and identifying opportunities to further reduce the regulatory burden.

Over 149 public submissions were received by the closing date of 28 February 2018, with the report currently being prepared by a team at PricewaterhouseCoopers who were appointed as the Review Secretariat.

Future Impact on Schools

Even without the ACNC, schools are already subject to heavy reporting and regulation under state and territory education legislation. The ACNC burden was lightened to some extent with an agreement in place that schools that are registered with the ACNC have a reduced reporting regime as the ACNC is sharing schools information held by Federal Government departments.

However, the ACNC Governance Standards also apply in an area where school registration requirements have been gradually developing, such as the stricter conflict of interest requirements in a number of states. As with any areas which are developed on a state/territory level, this means that there will be discrepancies and variations.  This is an area that the Review could consider for improving consistency and removal of obvious duplication, although the obvious answer of the ACNC Governance Standards prevailing over state/territory legislation is a constitutional “bridge too far” .

One of the submissions received by the Review which has caused considerable backlash from the NFP sector, has been from the ACNC itself, which has recommended the addition of two more objects to the ACNC Act: “to promote the effective use of the resources of NFP entities” and “to enhance the accountability of NFP entities to donors, beneficiaries and the public”.

This has the potential to result in a far more intrusive ACNC, looking at not just misconduct but actual inefficiencies and ineffectiveness. While this is likely to have less of an impact on schools and more of an impact on charities which spend more on conducting lavish balls for fundraising than on actual charitable works,  the point is made by Justice Connect acting CEO Sue Woodward, in Pro Bono News that “It’s not that the effective use of resources of NFP entities isn’t something that everyone would want, it’s simply that it’s not the role of the regulator to oversee that. It’s the role of the governing body of the not for profit…It’s for the donors, members, stakeholders and other funders to determine if the organisation is using its resources effectively or not, and whether people want to support it or not.”

What should schools do now?

In recommendations from the recent ACNC Charity Compliance Report, as discussed in our recent School Governance article, and submissions to the current Review, it seems that the accountability and financial management of NFPs and their boards seem to be at the forefront of discussion. Schools should ensure their boards are proactively identifying and assessing risks to accountability and financial management, especially those in relation to conflicts of interest, and ensuring that their decision-making will withstand external scrutiny.

 

About the Authors

Lauren Osbich is a Legal Research Consultant and School Governance reporter.  Svetlana Pozydajew is a Senior Consultant working with NFPs. They can be contacted here.

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