Over 2020 – 2022 the Australian Charities and Not-for-profits Commission (ACNC) reviewed a number of charities which were assessed as being at risk of failing to meet their obligations under the ACNC Governance Standards and/or the External Conduct Standards. Funded by the Federal Government, the intent behind the reviews were to allow the ACNC to work directly with charities to proactively address issues and respond to emerging risks as a part of good governance.
Compliance and good governance are crucial elements to the sustainability of the charity sector and the industry more broadly.
The ACNC reviewed four cohorts of issues being:
- Charities’ responses to the 2019-20 bushfire season
- Governance risks associated with large boards
- Charities’ governance of overseas programs working with vulnerable children
- Risks to charity sustainability
The top 5 take-aways from the compliance reviews are set out below:
- Increases in donations which flow in response to events like natural disasters may require charities to scale up operations. Charities should be prepared to ensure financial and governance controls are in place to support these changes.
- While there is pressure to act quickly during a disaster, charities must plan the allocation of their resources to ensure funds can be provided in both the immediate and long-term.
- After review of a selection of charities with large boards, the ACNC found no correlation between large board size and non-compliance. ACNC amended its risk profiling method for investigating charities at risk of non-compliance.
- Charities undertaking work with partner organisations overseas should ensure they have oversight of the partner’s activities, including measures to protect beneficiaries to account for funds and to document outcomes.
- The warning signs for charities which may be in jeopardy of experiencing sustainability and non-compliance risk include declining revenue, reduced volunteer support and failing to submit Annual Information Statements to the ACNC.
Charities response to the 2019 – 2020 bushfire season
The ACNC reviewed 3 high profile charities which received a large amount of donations, in part as a result of their roles in response to the 2019 – 2020 bushfires. A more detailed report part of this review is linked here.
The ACNC found charities responded appropriately by:
- Setting aside funds specifically for the response of the disaster;
- Preparing for a long-term response to address the ongoing effect of the bushfires;
- Planning their response and the use of funds; and
- Putting processes in place to prevent fraud.
Key lessons to take away from this review were:
- Increases in donations may require charities to scale up operations. Charities should be prepared to ensure financial and governance controls are in place to support these changes.
- While there is pressure to act quickly during a disaster, a charity must plan the allocation of its resources to ensure funds can be provided in the immediate and long-term.
Governance risks associated with large boards
The ACNC regularly use data analysis to identify issues in the charity sector. Analysis of data found charities with large boards were more likely to face issues of non-compliance. However, on review of a selection of charities with large boards, the ACNC found no correlation between large board size and non-compliance.
As a result of this review is the ACNC has amended its risk profiling method for investigating charities at risk of non-compliance.
Charity governance of overseas programs working with vulnerable children reviews
On review of 17 charities identified as helping vulnerable children overseas, the ACNC found most had satisfactory governance, but there was room for improvement. While charities were controlling their funds well and were aware of the significant safeguarding risks and managing them effectively, charities relied heavily on the governance practices of the overseas partner charities implementing programs.
Charities could improve risk management and safeguarding by having their own processes to review the performances of the overseas partner charities.
Risks to charity sustainability and compliance
The ACNC found problems with a charity’s sustainability and non-compliance first emerge three to four years after the charity is established. The ACNC identify three warning signs for charities struggling with compliance and sustainability, those being:
- Declining revenue
- Reduced volunteer support
- Failing to submit Annual Information Statements to the ACNC
Identifying these warning signs early can be paramount for the long-term success of a charity. If you believe your organisation may be at risk, please feel free to contact our specialist Charities + Social Sector Lawyers who would be happy to assist with any queries you may have.