How do I start a charity? Our Charity and Not for Profit Guide
How do I set up a charity? Read our guide below
Have you wondered how do I set up a charity? Have you considered whether you should start up a charity or join forces with an existing charity?
Charities and not-for-profits are accountable to the Australian Charities and Not-for-profit Commission (ACNC) and must follow the guidelines in order to maintain a current registration with the Commission.
Tisher Liner FC Law works with charities and not-for-profits of all shapes and sizes. The demand on charities and not-for-profits is higher than ever with recent changes in legislation and regulations.
Ensuring that you receive appropriate Charity Law advice from experts in the industry can help you to minimise costs, resources and time in order to maximise the scope and effect of your operations.
We have vast experience in charity law providing charities and not-for-profits with a range of legal services. Our team includes Charity Law experts who sit on the Law Institute of Victoria’s Charities and Not-For-Profits Law Committee. This combines seamlessly with our 45 years of commercial and legal experience allows our team of lawyers to provide advice on all aspects of their operations.
We advise our clients in relation to a broad range of charity and not-for-profit matters, including:
- charitable trusts and ancillary funds;
- charity registration with the Australian Charities and Not-for-Profits Commission (‘ACNC’);
- policies and governance;
- audits and investigations;
- tax deductible status (‘DGR’);
- income tax exemptions;
- mergers and re-structuring;
- distribution of funds overseas; and
- fundraising licensing.
What is a charity?
The phrase ‘charity’ is used widely in society, but it actually has a defined legal meaning too. Pursuant to the Charities Act 2013 (Cth), the legal meaning of charity is defined as an organisation that:
- is not-for profit;
- has only charitable purposes that are for the public benefit;
- does not have a disqualifying purpose; and
- is not an individual, political party or government entity.
What does ‘not-for-profit’ mean?
Broadly, a not-for-profit is an organisation that does not act in order to generate profit or personal gain, rather it attempts to achieve a purpose or a group aim. Generally, all profits obtained by an organisation are fed back in to the organisation to further promote the objects of the organisation. An organisation can demonstrate that it is a not-for-profit, by having rules in its constitution or governing documents setting out how the assets and income of the organisation are used and distributed. Additionally, it must be clear about what happens to the assets of the organisation if it winds up or ceases operating. Generally, to be a not-for-profit, the assets cannot be distributed directly or indirectly to members except as genuine compensation for costs or expenses incurred.
How do you define a ‘charitable purpose’?
Prior to 2014, per the 1891 case of Commissioners for Special Purposes of Income Tax v Pemsel, to be considered a ‘charitable purpose’, a cause must have fallen within one of the four “heads” of charity, namely:
- the relief of poverty;
- the advancement of education;
- the advancement of religion; or
- other purposes beneficial to the community.
On 1 January 2014, the Charities Act 2013 (Cth) commenced. The Charities Act introduced statutory definitions of ‘charity’ and ‘charitable purpose’ and, in doing so, provided a much needed modernised response to the outdated common law definition.
The meaning of a ‘charitable purpose’ expanded to mean any of the following:
(a) the purpose of advancing health;
(b) the purpose of advancing education;
(c) the purpose of advancing social or public welfare;
(d) the purpose of advancing religion;
(e) the purpose of advancing culture;
(f) the purpose of promoting reconciliation, mutual respect and tolerance between groups of individuals that are in Australia;
(g) the purpose of promoting or protecting human rights;
(h) the purpose of advancing the security or safety of Australia or the Australian public;
(i) the purpose of preventing or relieving the suffering of animals;
(j) the purpose of advancing the natural environment;
(k) any other purpose beneficial to the general public that may reasonably be regarded; as analogous to, or within the spirit of, any of the purposes mentioned in paragraphs (a) to (j);
Accordingly, an organisation must have one or more of the above purposes to qualify as a charity.
Can you have a sports charity?
A common argument for the advancement of sport being a charitable purpose is that it leads to a happier, healthier community, takes pressure off of our healthcare system, and is therefore beneficial to the general public.
Despite this, the Explanatory Memorandum of the Bill that becomes the Charities Act specifies that:
‘[a] purpose that is essentially… sporting is not charitable regardless of motivation or the benefits to the general public that can result’. However, if ‘sporting activities… are incidental to a charitable purpose and further or aid that purpose, such as health or education, [they] do not necessarily prevent that purpose from being charitable’. [emphasis added]
Therefore, sport, or specifically a ‘sports charity’, is explicitly excluded from falling within the definition of a charitable purpose. But all is not lost. A charitable purpose can include sporting activities without rendering that purpose non-charitable if such activities are utilised to achieve the broader charitable purpose. The Law Institute of Victoria provides the example that:
‘a club whose purpose is to support participation by people living with disability in sport to improve their quality of life may be a charity’.
It will be interesting to see how charities attempt to incorporate sport to satisfy the wants and needs of society. Interestingly, there is one sports charity that has been allowed as an exception to the rule: the Australian Sports Foundation (ASF). The ASF was established in 1986 alongside the Australian Sports Commission. The Foundation is privately funded and allows a number of sporting bookies to register with it to fundraise via its platform in exchange for a small administration fee.
Although it is helpful to have a dedicated organisation like the ASF, given the enormous benefits ongoing, exercise can deliver for any individual, in our opinion sports should certainly be able to enjoy a simpler fundraising and tax deductibility model than currently exists.
Some purposes have been deliberately disqualified from being charitable.
- Unlawful activities such as a charity engaging in tax evasion, criminal activities or being set up to hide or launder funds;
- It is not uncharitable to have a purpose of promoting or advocating for change in society or government policy. However, activities against public policy are disqualified from being charitable – this would include matter such as educating about terrorism (even though education is deemed to be charitable) or promoting health practices that have been deemed harmful to individuals; and
- Promoting or opposing political parties or candidates (though engaging in political debates or advocacy is allowed in the right circumstances).
What is a not for profit?
Although the Australian Charities and Not for Profit Commission (ACNC) mentions the word “not for profit” in its title, not all not for profits are actually governed by the Australian Charities and Not for Profit Commission and not all charities are governed by the Australian Charities and Not for Profit Commission either!
According to the Australian Charities and Not for Profit Commission, a not for profit is defined as an organisation that does not operate for the profit, personal gain or other benefit of particular people (for example, its members, the people who run it or their friends or relatives). The definition of not-for-profit applies both while the organisation is operating and if it ‘winds up’ (closes down).
A charity is a sub category and one type of not for profit organisation. A charity is generally there to “do good” and provide public benefit, whereas a not for profit is simply defined by the way in which its profits are distributed – i.e. generally, not for the benefit of a private individual.
The not for profits that come under the auspices of the Australian Charities and Not for Profit Commission are those that identify as being a charity. Not for profits designated as a charity by the Australian Charities and Not for Profit Commission can gain income tax exemption and other tax concessions if they have an ABN and have received endorsement from the Australian Taxation Office. If a not-for-profit is registered to pay income tax, endorsement reduces the amount of tax payable.
Not for profits that are not charities do not have to be endorsed to access a tax exemption; instead, if they have qualifying purposes, they can self-assess their entitlement to tax concessions on an annual basis against a standard set of tests and rules.
When a not for profit is not a charity it is because it has a purpose other than what the legislature sees as being “charitable”. This sort of activity includes things like sporting clubs, recreational clubs, community service organisations, professional and business associations and social organisations.
What structure should I use for a charity or not for profit?
- Incorporated Associations
- Company limited by guarantee
- Non trading co-operatives
- Indigenous corporations
- Un-incorporated structures such as a trust
The structure you use will depend on what you plan to do, whom you are trying to benefit, where you propose to operate from and what assets you intend to own. For example, associations can only operate in a particular state, where as a company limited by guarantee can operate across Australia. If you intend to own a property such as a community centre then you may wish to establish a trust to attempt to offer greater protection to that asset.
How do I set up a Charity?
Below is a summary of the registration process for a charity:
(a) drafting a constitution, governing documents and forms;
(b) establishing a board of directors and conducting an inaugural meeting of directors;
(c) incorporation (i.e. as a company limited by guarantee with the Australian Securities and Investments Commission (‘ASIC’));
(d) ABN application;
(e) preparation and submission of the charity registration application to the Australian Charities and Not-for-profit Commission;
(f) supplementary submissions (including business plan and policies as relevant) to the Australian Charities and Not-for-profit Commission;
(g) charity approval by the Australian Charities and Not-for-profit Commission; and
(h) endorsement of tax concessions by the Australian Taxation Office (‘ATO’).
If you are applying for DGR status as well then the applications are usually submitted along with the charity registration application to the Australian Charities and Not-for-profit Commission. After the Australian Charities and Not-for-profit Commission approves the charity status then the Australian Taxation Office often automatically applies the DGR status.
If you are applying for DGR status for a fund or for part of your charity’s operations (such as, for example, a school building fund, a necessitous circumstances fund or a public library or museum) then the application for DGR status is generally made directly to the Australian Taxation Office.
If you are apply for certain categories of DGR status such as a cultural organisation, environmental organisation or as a harm prevention charity then the application for DGR status is made directly to the relevant Commonwealth Department with oversight of the DGR register for that category.
Typically, when a donor donates more than $2 to an entity that is endorsed as a tax-deductible gift recipient (DGR), the donor is entitled to receive in return a tax-deductible receipt for the amount of the donation. The donor can submit this receipt to the Australian Taxation Office (ATO) to reduce the donor’s personal taxable income for the given financial year, by the amount of the donation.
Broadly, the above applies, where a donation is made entirely as a gift, with no advantage or benefit flowing to the donor (other than the right to a tax-deductible receipt). In Leary v Federal Commissioner of Taxation (1980) 11 ATR 145 (“Leary”), the Federal Court of Australia stated that a donation or gift must be given in a spirit of “detached and disinterested generosity”.
Fundraising events/auction items – minor benefits and tax-deductible contributions
Donors can still receive tax-deductions to a certain extent if they receive minor benefits in return for their contributions to the DGR endorsed organisation. Such situations regular occur at fundraising or gala events where a donor can receive a tax-deduction for part of what they contribute. For a donor to claim a tax-deductible contribution they must be an individual (i.e. not a company or another organisation), the amount paid must be more than $150 and the benefit received must be:
- Less than (or equal to) $150; and
- Less than (or equal to) 20% of the amount contributed.
The value of the benefit can be worked out via a price/market comparison or via a costs-based approach if an independent value cannot be obtained.
The person will be able to claim a tax-deduction for what is called the ‘minor benefit’ – the difference between the value and the amount actually paid (i.e. if an item is worth $100, then, based on the above rules, a person would have to pay at least $500. They could claim a tax-deduction for $400.)
Tax deductions and public recognition
Sometimes, donors donate or gift funds to DGRs and receive some form of public recognition as a result. This often takes the form of a plaque, sign or notice acknowledging a donor’s generosity, or buildings, campuses and projects named after donors or family members of donors.
Do these forms of public recognition constitute an advantage or benefit to the donor that would set aside that donor’s right to receive a tax-deductible receipt for their donation?
Again, in Leary, the Federal Court noted (in obiter) that “a man may, by his gifts, gain fame or formal honours without losing his tax deductions”.
This position is further reinforced by the following example contained in the ATO Tax Ruling 2005/13:
“S, a wealthy businessman decides to make a gift of $5 million to the public hospital (a DGR) in his area for the purpose of building a new wing to treat people suffering from alcoholism. S stipulates that the new wing should be named the ‘Frederick S Wing’. In order to recognise S’s generosity, the hospital will name the new wing in his honour. It will also acknowledge the gift by placing a plaque acknowledging his generosity in the foyer of the new building. The naming is not a material benefit, and paragraph 78A(2)(c) of the ITAA 1936 will not apply. The obligation he imposed does not detract from a finding that the transfer was by way of benefaction on the hospital. On the other hand, recognition accorded to the giver for purposes of commercial advertising is a material benefit. Sponsorships of DGRs by commercial entities generally fall into this category. Such outgoings, however, may be income tax deductible as business expenses.”
It seems clear from this example that a private donor can generally receive public recognition without losing their right to a tax deduction. Otherwise a business donating for commercial advertising purposes may need to claim their tax deduction as a business expense rather than as a tax-deductible donation.
Notwithstanding, the case law and tax rulings do not seem to cover a scenario where a donation by a private (non-business) donor is made conditional on a certain form of public recognition to the extent that the donor will only gift the funds if they receive a specified type of public recognition in return (e.g. a name on a building or project). In this situation, we would encourage donors and/or recipients of funds to seek a private ruling from the ATO, to confirm that the donor is entitled to a tax deduction on the facts of the particular case.
Should I start a charity?
With the current regulatory systems in place, becoming involved with charities by donating or volunteering is increasingly easier and safer to do. However, the same is not necessarily true for those people who agree to become board members or directors of charities.
If you have been asked by a charity to assume a governance position or if you are interested in establishing your own charity, then you should definitely be aware of all of your responsibilities, obligations and potential liabilities. You should also be aware of who must be involved in the governance of your charity.
Some charity statistics
There are over 50,000 registered charities in Australia today, with hundreds being registered each month. Charities are an integral public of the Australian social fabric, as demonstrated by recent statistics published by the Australian Charities and Not-for-profits Commission (ACNC).
- At least 87% of Australians make some form of contribution to charities each year;
- Over 10% of Australians are employed by charities; and
- Over 2.9 million Australians volunteer for charities.
Know your structure
There are different requirements for people governing different types of charitable structures. Typically, charities are associations (incorporated or unincorporated), companies limited by guarantee or trusts. Before you assume any responsibility, it is crucial that you understand the structure of the charity, that you have reviewed the governing documents and that you understand the nature of the role that you are assuming. Information on a charity’s structure can be found online on the Australian Charities and Not-for-profit Commission’s register (including the governing documents) or via the Australian Business Register.
Board members – who needs to be involved?
The amount of board members required to run your charity will depend on the rules in your governing documents and the type of entity that you are seeking to register. As a minimum, you generally need at least three individuals to govern a charity. Some structures will require at least five board members.
The board members must qualify and understand their obligations as responsible persons for a charity. This has differing requirements and may mean that, depending on the structure and type of charity, a majority of board members must live in Australia, not be family members or come from professional backgrounds.
Understand your responsibilities and Governance Standards
As a board member of a charity, your primary job is to further the charitable purpose of your organisation. Depending on the size and nature of your charity, you may not need to be involved in day-to-day operations (the charity may have employees to do such) but you are required to drive the strategy of the charity, oversee and manage the operations and ensure that the finances are in order.
You are required to ensure that the charity adheres to the Australian Charities and Not-for-profit Commission’s five governance standards, namely that:
- The charity works towards its purpose and acts on a not-for-profit basis;
- There is accountability to members and stakeholders, who are given opportunities to raise concerns about governance and be notified about finances and operations;
- The charity complies with all Australian laws;
- There are suitable responsible persons managing the charity who are not legally disqualified; and
- The responsible persons managing the charity are aware of their duties and obligations and are able to comply with or follow them.
Pursuant to governance standard 5, the Australian Charities and Not-for-profit Commission has set out a number of duties for the responsible persons managing charities. The following is a brief summary of each duty:
- To act with reasonable care and diligence and ensure that the responsible person is in a position to manage the charity effectively and be informed about the operations and finances;
- To Act honestly and in the best interests of the charity and to always act for the advancement of the charity’s purposes;
- Not to misuse the position of responsibility and to avoid situations of fraud, personal gain and undisclosed actual or perceived conflicts of interest. Responsible persons must also be aware of their responsibilities with regards to confidential information;
- To ensure that the finances are managed responsibly and effectively and to prevent a charity from operating whilst insolvent.
You need to familiarise yourself with the terms of the governing documents (such as the constitution, memorandum or articles of associations or trust deed) as these will define the scope of your powers. These documents create and limit your responsibilities and obligations towards the charity. In addition to the governing documents, any policies or procedures that are in place are likely to affect your role and to specifically define the actions that you are required to take in certain circumstances.
A key requirement for responsible persons of charities is to submit annual reports to the Australian Charities and Not-for-profit Commission. The contents of the report will differ depending on the size of your charity and it is always recommended to engage an accountant or auditor to assist you with this process. Charities can face fines, penalties and even de-registration if they do not comply with the Australian Charities and Not-for-profit Commission’s reporting requirements. If you are operating an incorporated association, then it is likely that you will also have to report annually to your local State or Territory authority.
Be aware of your liabilities
Although charities are separate legal entities from their members, directors or board members, there are a number of situations wherein the people in charge may be personally liable for their actions.
Members of the governing body of a charity may be personally liable for debts that are incurred if the company has become insolvent or if there is a risk that the company may become insolvent at the time that the debt is incurred. There needs to be checks and balances in place so that responsible persons are aware, at all material times, of the financial state of the charity and are able to determine whether the charity is able to pay off its debts when they become due.
There is also potential personal liability if harm is caused through a breach of the Australian Charities and Not-for-profit Commission’s duties or if a responsible person has acted dishonestly, fraudulently or has committed a crime.
If the charity has employees, then the persons responsible for oversight of the employees must comply with all relevant work health and safety laws. The people in charge of charities have a number of duties for which they can be held personally liable. These include:
- The duty of care in the management of risks to employees (this duty is non-delegable); and
- The primary duty of care to employees to provide a work environment that is free of risks to health and safety.
Employers also need to be aware of their obligations with regards to PAYG withholding and superannuation payments. There are a range of penalties for non-compliance with these taxation regimes that can be attributed to directors or board members personally.
Large charities that are companies limited by guarantee may also need to have an adequate whistle-blower policy in place.
Ensure that there are systems for compliance in place
If you are aware of all of your duties, obligations and responsibilities, you must ensure that there are adequate systems in place for compliance. This could involve the drafting and implementation of a range of company policies or procedures, regular checks and audits and having systems in place that promote communication, accountability and transparency. You should not shy away from seeking external legal or accounting advice if there are any concerns at all about compliance or if you need assistance of a systematic nature.
It is always preferable if members of the governing body are able to meet regularly to discuss the charity’s operations and to ensure that solutions are quickly implemented for any issues at hand.
Reporting and Deductible Gift Recipients?
If your charity has obtained Deductible Gift Recipient (DGR) status via an application to the Australian Charities and Not-for-profit Commission or the Australian Taxation Office (ATO) then there are likely to be a number of additional reporting and compliance responsibilities. There are many different categories for DGR status and each requires differing reporting and compliance commitments. You should ensure that you are following the provisions of your governing documents with regards to the DGR status so that funds are handled and applied correctly and that the charity is complying with taxation regulations. You should strongly consider engaging an accountant who works regularly with charities to oversee the handling of the tax-deductible funds.
In addition to the annual reporting to the Australian Charities and Not-for-profit Commission, your charity is likely to have to report to other authorities such as the Australian Taxation Office or a government department. Furthermore, there are a suite of additional requirements if your charity operates a tax-deductible public fund.
If your organisation is a not-for-profit company or association and you are not a registered charity then you will have a number of differing obligations. The governing authority which will regulate your organisation will be dependent on the structure of your organisation. You must we aware of which authority governs your organisation, how often you have to report to them and which specific legislation or regulations applies to you.
Running a charitable organisation is risky business. There are many responsibilities, duties and obligations that may be unknown to people who are not experienced in the industry. If you have been asked to run a charitable organisation, do not hesitate to contact a member of our charity and not-for-profit law team to discuss how we can best assist you in being protected from liability.
What are the Reporting Requirements for charities and not for profits?
Your charity’s financial reporting requirements and other obligations to the Australian Charities and Not-for-profit Commission depend on whether it is considered a small, medium or large charity.
Reporting Requirements by Size of Charity
The size of your charity is based on its total annual revenue for the period upon which it is reporting. The current definitions are as follows:
- Small charities have annual revenue under $250,000
- Medium charities have annual revenue over $250,000 but under $1 million
- Large charities have annual revenue of $1 million or more.
Small charities must submit an Annual Information Statement, and have the option to submit a financial report (although it is not required). If they do so, they can submit either a special purpose financial statement or a general purpose financial statement. They further have the option of choosing between cash or accrual accounting methods. They financial statements do not need to be reviewed or audited for Australian Charities and Not-for-profit Commission purposes.
Medium charities also need to submit an Annual Information Statement. The Annual Information Statement includes financial questions and charities are required to submit a financial report that is either reviewed or audited. Charities can submit either a special purpose financial statement or a general purpose financial statement to this effect, with the option to use transitional reporting arrangements. The medium charity’s financial statement must either be reviewed or audited before submitting.
Large charities also need to submit an Annual Information Statement and they are also required to submit audited financial reports.
What are the Financial Reporting Requirements of the Australian Charities and Not-for-Profits Commission (ACNC)
Registered charities must submit the Annual Information Statement to the Australian Charities and Not-for-profit Commission no later than 31 December in the following financial year. For medium and large charities that are required to submit a financial report, there are further obligations under the legislation that must be complied with.
A registered charity’s financial report for a financial year consists of:
(a) the registered charity’s financial statements for the year (see section 60.10); and
(b) the notes to the financial statements (see section 60.10); and
(c) the responsible entities’ (being responsible officers of the charity) declaration about the statements and notes (see section 60.15).
The financial statements and notes:
(a) must give a true and fair view of the financial position and performance of the registered charity; and
(b) subject to Subdivision 60-C, must comply with the accounting standards.
The notes to the financial statements must further consist of:
(a) notes required by the accounting standards; and
(b) any other information necessary to give a true and fair view of the financial position and performance of the registered charity.
The responsible entities’ declaration is a declaration by the responsible entities of the registered charity that states:
(a) whether, in their opinion, there are reasonable grounds to believe that the registered charity is able to pay all of its debts, as and when they become due and payable; and
(b) whether, in their opinion, the financial statements and notes satisfy the requirements of the Act.
The declaration must be signed by a responsible entity that is authorised to do so.
How to Submit the Annual Information Statement
The Annual Information Statement is to be completed online through the Australian Charities and Not-for-Profits Commission portal. Each charity will need to login with their details and follow the steps shown to lodge their Statement.
In preparation for lodgement, each charity should consider each of the following points below and ensure that they have the requisite information and documents to satisfy the lodgement process:
- Confirm that their charity’s reporting is up to date and has completed its past Annual Information Statements (if applicable);
- Confirm their reporting period (financial year period or end of year period);
- Confirm charity size based off of revenue;
- Annual reports and project reports (regarding activities, beneficiaries, employees, volunteers, etc);
- PAYG payment summaries;
- Funder/donor/grant acquittal reports;
- The charity’s Incorporated Association Number (if the charity is an incorporated association), as well information about their annual general meeting, membership and fundraising (including any fundraising licence numbers);
- Balance sheet or statement of financial position, and statement of profit or loss and other comprehensive income for the reporting period;
What are the auditing requirements of charities and not for profits?
Very often we get asked what reporting responsibilities a charity will have once registered. The short answer is: keep all paperwork and keep your accounts in as meticulous order as possible.
Large charities must have their financial report audited, and then must submit both the financial report and auditor’s report to the Australian Charities and Not-for-Profits Commission. Medium-sized charities must also submit a financial report, but can choose to have it either reviewed or audited unless the charity:
- must have audited financial reports due to other requirements, for example, as directed by the charity’s Governing Documents or a funding agreement; or
- has received a written notice from the Australian Charities and Not-for-Profits Commission Commissioner stating it must provide audited reports.
Audits of a financial report must be conducted by one of the following:
- Registered company auditor (RCA);
- A firm with at least one member who is an RCA; or
- An authorised audit company (AAC).
An audit must be conducted in accordance with Australian Standards of Auditing (ASA) issued by the Australian Auditing and Assurance Standards Board (AUASB). In conducting the audit, and preparing the audit report, the auditor must form an opinion as to whether:
- the financial report satisfies the requirements of Division 60 (Reporting) of the ACNC Act; and
- the auditor has been given all information, explanation and assistance necessary to conduct the audit; and
- the charity has kept financial records sufficient to enable a financial report to be prepared and audited; and
- the charity has kept other records as required by Part 3-2 (Record keeping and reporting) of the ACNC Act.
The auditor’s report must describe any material defect or irregularity in the financial report and any deficiency, failure or shortcoming in respect of the above.
The auditor must also sign a written declaration that, to the best of the auditor’s knowledge and belief, there have been no contraventions of any applicable code of professional conduct in relation to the audit or otherwise list out such contraventions in the written declaration.
An auditor’s report must include statements and disclosures required by the ASA and contain a statement from the auditor that it was prepared in accordance with the reporting requirements of the ACNC Act. If the auditor has formed an opinion that the financial report has not been prepared in such accordance, the auditor’s report is required to state why, and the auditor must, to the extent practicable, quantify the effect of non-compliance on the financial report. If the auditor is unable to fully quantify non-compliance, the audit report must state the reasons for not being able to do so.
In having an audit conducted of its financial report, the charity must ensure that the auditor:
- has access at all reasonable times to the books of the registered entity; and
- is given all requested information, explanations or other assistance for the purposes of the audit or review.
A request for information, explanations and other assistance by the auditor must be a reasonable request.
In addition to the above, many charities who hold fundraising licence in various State and Territories need to submit annual audited accounts to the State authority.
Additionally, where a charity proposes to operate or send money overseas, there are further auditing requirements that need to be complied with. Where a charity proposes to operate outside Australia, the Australian Charities and Not-for-Profits Commission has External Conduct Standards which now apply. These are a set of four standards that govern how charities operating overseas must manage their resources and activities, with the standards being:
- Management of activities and control of resources overseas;
- Annual review of overseas activities and diligent record-keeping;
- Anti-fraud and anti-corruption processed and procedures;
- Protection of vulnerable individuals.
The Australian Charities and Not-for-Profits Commission may choose to investigate any charity at any time. While not all charities have strict auditing and record-keeping requirements, it is safe to conclude that the best policy is to be diligent in the charity’s record-keeping practices and maintain proper and accurate financial records at all times, so as to ensure that it does not risk any adverse action from the Australian Charities and Not-for-Profits Commission in this respect. Hence why, even if your charity does not have onerous reporting requirements, the best way forward is to act as if it does.
External Conduct Standards – can you operate your charity outside of Australia or send money from Australia overseas?
Are you involved with a charity that operates or sends money from Australia overseas? If so, it is important that you take note of the external conduct standards that could re-define how your operations will be governed.
The standards came into effect from 1 July 2019 and are binding upon all charities operating overseas or working with third parties that are operating overseas. It is important to create and implement processes and procedures now in order to avoid incurring penalties in the future for non-compliance.
The purpose of the standards is to provide confidence to the public that are carrying out their operations in a manner that is consistent with their purposes. These standards promote transparency and accountability to the public and focus upon ensuring that charities operating overseas act responsibly and in a manner that reduces the risk of any harm occurring.
To assist you in understanding what changes you may need to make, we have provided a brief overview of each standard:
Standard 1 – activities and control of resources
Your charity will need to take steps to ensure that its overseas activities are carried out in a way that is consistent with your charity’s purposes. In pursuing this standard, you must maintain policies and procedures about the use and control of funds and resources. In providing funds or resources to third parties operating overseas, you must take steps to ensure that the third party is acting consistently with your charity’s purposes and character as well.
Procedures must also be put in place to ensure that your charity does not engage in money laundering, terrorism financing, sexual offences against children, slavery, human trafficking, people smuggling, breaches of sanctions, taxation fraud and bribery.
Standard 2 – annual reviews
Your charity will need to keep records of its overseas activities on a country by country basis. The records will need to include details about third party partners, expenditure, policies and procedures and will need to detail about how those have been followed.
Standard 3 – anti-fraud and anti-corruption
Your charity will need to take steps to minimize any risk that many exist of corruption, fraud, bribery or financial impropriety by anyone associated with it, including by third parties outside of Australia. Your charity must also actively identify, document and appropriately deal with any perceived or actual conflicts of interest.
Standard 4 – protection of vulnerable persons
Your charity will need to take steps to ensure the safety of vulnerable individuals, if it is providing services or programs to those individuals (either directly or via a third party) or those individuals are engaged by the charity to provide services (either directly or via a third party).
What charities should do
- download a copy of the standards and familiarise itself closely with each of them;
- analyse current policies and procedures with regards to overseas operations;
- identify any gaps that may exist and any potential issues for compliance;
- review any agreements that you may have in place with overseas service providers; and
- draft and put in place any relevant policies and procedures.
It is imperative that before any agreement is entered into with third party service providers overseas, your charity should conduct extensive due diligence to ensure that the third party has the capacity and willingness to comply with these standards as well.
Can volunteers in Charities and not for profits be liable?
Whether it be an unincorporated association or a company limited by guarantee, not-for-profit organisations have obligations to their stakeholders.
Often though, the volunteer nature of these organisations may contribute to a failure by the organisation, its’ controllers or members to take decisive action to address important issues which may arise during the normal course of business.
Some factors contributing to this include the absence of a personal financial benefit to the members and decision makers, the costs of obtaining profession advice and lack of experience or knowledge in managing company and business affairs.
With volunteers often taking on the role of decision makers in not-for-profit groups, the question of –“How much do I have to do?” may arise. Legally, the volunteer nature of a position does not negate its obligations. The answer is not always clear and is influenced by the type of organisation involved.
Some common examples include:
- Organisations registered with the Australian Not-for-Profits Commission (ACNC). The Australian Charities and Not-for-Profits Commission has introduced its own Governance Standards (https://www.acnc.gov.au/tools/topic-guides/governance-standards), which for the most part, replace the obligations otherwise imposed on a director of a Corporate not-for-profit.
- Corporations not registered with the Australian Charities and Not-for-Profits Commission – standard director and officer obligations under the Corporations Act will apply.
- Incorporated Association – the laws of the relevant state relating to Associations will apply. If the Association has registered with the Australian Charities and Not-for-Profits Commission, the Governance Standards may take precedence.
Even in a volunteer position, it is important to ensure basic obligations are met and the organisation is operating in accordance with its’ own rules and any legislative framework which applies as well as the expectations of its stakeholders. In determining whether a volunteer has eet their obligations, the finances and resources available, representations made and expectations of members should all be taken into account.
Some of the Issues which may arise within a not-for-profit organisation include:
- When is expert legal or accounting advice required?
- What are the implications for members not paying their fees upon their due date?
- When and how can ‘non-financial’ members be excluded/removed from decision making?
- The extent to which the organisation is required to comply with the principals of natural justice in its dealings with members.
- Taxation implications for the organisation: ranging from income tax, stamp duty and other tax exemptions through to full charitable status (where appropriate).
- Dispute resolution amongst members and/or directors.
- Process for nomination, approval and remuneration of directors or committees of management (if any).
- Updating of registers, whether with ASIC, the Australian Charities and Not-for-Profits Commission, Consumer Affairs (in the applicable state), along with the organisation’s internal record keeping.
- Who can initiate action, and at whose cost, to hold the organisation accountable and ensure it complies with its own rules and regulations?