The federal Government has just released its response to the Australian Charities and Not-for-profits Commission (ACNC) legislation review. The ACNC legislation provided for a mandatory review of the ACNC’s objects, functions, powers, regulatory framework, and sector red tape. The review report was released in 2018 and made 30 recommendations. The Government response supports 18 of the recommendations.
Many of the proposed changes will require legislative amendment or are subject to consultation. We’ll keep you up to date as they progress. Our comments on the key recommendations supported by the Government - and some that were not supported - are set out below.
Financial reporting – a big win for small charities
The revenue thresholds that determine charities’ reporting obligations will be raised (based on average revenue over a rolling three-year period). The revenue thresholds will be subject to consultation - those recommended in the report were:
- Small entity – less than $1 million;
- Medium entity - $1 million to $5 million; and
- Large entity - $5 million or more.
This will mean fewer charities are required to provide financial reports, a welcome reduction in red tape for small charities.
Other supported changes to financial reporting include:
- amending the Annual Information Statement (AIS) requirements for small charities so that they can provide a simplified balance sheet or statement of resources; and
- requiring large charities to disclose how much they pay their responsible persons and senior executives on an aggregated basis. Charities with only one remunerated responsible person or senior executive will be exempt from this requirement.
Widening Related Party Transactions obligations
The Government supports all charities being required to disclose related party transactions in their financial reports – a requirement that currently only applies to charities preparing general purpose financial reports. Related party transactions are contracts, sales, loans and other agreements between a charity and a “related party” – a defined term that includes the Board and their family members, subsidiaries, management and their family and other associates.
Small charities will be permitted to make simplified disclosure. These changes will align with changes to financial reporting thresholds.
Keeping responsible persons responsible
A number of recommendations supported by the Government will enhance the ACNC’s ability to monitor and regulate the conduct of responsible persons, including:
- authorising the ACNC to request details on the criminal records of responsible persons; and
- disqualifying individuals from being a responsible person if they have a terrorism, money laundering, fraud, illegal drug importation/distribution, or child sexual offence conviction.
The Government also proposed to release a consultation paper in response to a recommendation that directors’ duties under the Corporations Act be switched back on for the responsible persons of charitable companies.
Importantly, the Government did not support the recommendation to remove the Commissioner’s power to remove or replace a responsible person. However, the Government indicated it would “mandate additional criteria” and “broaden the power of appeal” to introduce safeguards to the process.
Rejection of #FixFundraising
Many in the sector will be disappointed by the Government’s rejection of recommendations stemming from the #FixFundraising campaign. These included calls for the Australian Consumer Law to be amended to clarify its application to charitable and not-for-profit fundraising as well as for the development of a mandatory Code of Conduct for fundraising activities.
Instead, the Government says it will continue to support efforts by states and territories to harmonise fundraising laws.
Loosening of secrecy provisions
Since its inception, the ACNC has been bound by secrecy provisions that prevent it from publicising the details of its compliance activities (except in very limited circumstances). The Government has supported a recommendation to give discretion to the ACNC Commissioner to release public interest information about compliance activities.
The Government will consult on details – including triggers and boundaries to the Commissioner’s discretion. Additional information about compliance activities may give helpful guidance to the sector about how the ACNC applies the Governance Standards and External Conduct Standards in practice.
No change for Basic Religious Charities
Finally, the Government did not support a recommendation to review the exemptions for Basic Religious Charities from financial reporting and from the ACNC Governance Standards.