Giving charity schemes a second look: A review of the ACNC, Australia’s charities and not-for-profits regulator, calls for a national scheme for the charity sector.
There is strong support for the Australian Charities and Not-for-profits Commission
(ACNC) and its accomplishment in the first five years, with the sector acknowledging the ollaborative and educative approach taken by the ACNC,” says the independent panel that reviewed the charity regulator.
It’s not often that a regulator enjoys unambiguous support from the sector it oversees, but the ACNC’s light-touch approach has struck a chord with a sector that has struggled for decades with unnecessary and excessive regulatory burden.
Mel Yates FCPA, ACNC director of reporting and red tape reduction, considers the report an important step in further strengthening the integrity of the sector.
“The ACNC welcomes the ACNC Legislative Review report and the insights into the charity sector in Australia,” Yates says.
“The report made 30 recommendations to strengthen the ACNC’s legislative framework.”
Focus on red tape reduction in the not-for-profit space
A common theme emerging from the report is a long-term goal for a national scheme for charities and ultimately the not-for-profit (NFP) sector, requiring a referral of powers from the states and territories to the Commonwealth Government. The review panel believes a national scheme is the best option to address what it considers an “unacceptable level of unnecessary red tape”.
The report acknowledges that any attempts to deal with red tape must address the excessive burden around fundraising laws and regulations. It recommends amending consumer law to clarify its application to charitable and NFP fundraising. It also recommends a mandatory code of conduct be developed.
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“I was excited to see recommendations to further reduce unnecessary regulatory obligations on charities such as mandating the ACNC Charity Passport across the Commonwealth and calls for further reform to fundraising regulation,” Yates says.
The review calls for migrating a small number of income tax-exempt NFPs with annual revenue of A$5 million or more to the ACNC register, and transferring responsibility for the incorporation and all aspects, except criminal offences, of the regulation of companies which are registered charities from the Australian Securities and Investments Commission (ASIC) to the ACNC.
Recommendations to improve the regulatory framework for charities
Other than a recommendation to repeal Governance Standard 3: Compliance with Australian Laws, the review panel recommends no major changes to the governance standards charities must follow. The recommendation to repeal Governance Standard 3 seems sensible, as there already exists a requirement for all charities to comply with applicable Australian laws.
Another recommendation is to raise the revenue thresholds for financial reporting for small charities from A$250,000 to A$1 million, and for medium and large charities from A$1 million to A$5 million. The size assessment would be based on a rolling three-year revenue figure, rather than an annual basis.
According to Andrew Marks, audit director and NFP specialist at William Buck, “recommending raising the thresholds for small charities is a sensible move, [as] the smaller charities in particular are struggling to comply with financial reporting obligations at present”. However, he is not sure whether this would mean more medium-size charities would opt for a review, rather than audit.
“It still remains a practical matter,” Marks says. “There is not going to be a great reduction in the work effort for a review compared to an audit, so I’m not sure that a change to the thresholds is going to increase the number of medium charities opting for a review instead of an audit.”
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“In many cases, the Constitution might require the charity to get an audit done anyway,” says Eric Passaris, audit partner at Grant Thornton.
Says Yates: “In relation to financial reporting, one recommendation the ACNC sought was mandating compliance with AASB 124 Related Party Disclosures, which the review panel also recommended.” Other recommendations could change reporting thresholds and how they are assessed, as well as reporting of remuneration, which are highly relevant to professionals supporting the sector.
“I am fully in favour of the recommendation for charities to disclose related party transactions in accordance with AASB 124,” Passaris says.
In the context of financial reporting requirements, the Australian Accounting Standards Board (AASB) has commenced a major project to overhaul the Australian financial reporting framework, including that which applies to NFPs. The AASB has indicated that it will await the outcome of the government’s response to the review panel recommendations and some ongoing discussions with other NFP regulators, before further developing its proposals for NFP financial reporting.
The report’s recommendations are not the only changes that could impact the ACNC and its operations. Other reforms include external conduct standards affecting charities with overseas operations and reforms to deductible gift recipient regulations. Many of these proposals are aimed at improving the integrity, effectiveness and efficiency of Australia’s charity sector, but also mean the ACNC will need more resources.
The report highlights the limited resourcing available to the ACNC: A$14.6 million in the 2016-2017 budget cycle. Compare this to the budget allocations in the same period to ASIC (A$342 million).
It will be important to resource the ACNC to implement and operationalise any improvements that arise out of the review and reforms process.
CPA Australia looks forward to actively participating in any further consultations that may arise as part of the review process.
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The CPA Australia policy team welcomes your feedback and comments. Visit the policy page at cpaaustralia.com.au/policy for more details about our submissions, plus information about open consultations and the latest policy bulletins and newsletters.
ACNC review: National solution to charities and not-for-profits regulation is welcomed