Charity regulatory reform gains momentum

A health worker talks to visitors at a COVID-19 testing centre in Sydney. Australia’s unemployment benefit offices and charities face pressure amid fears of an economic crisis akin to the Great Depression.

Statutory reporting by Australia's charity sector is changing. The end goal is a more streamlined reporting system to improve transparency and good governance to facilitate the vital functioning of charities.

At a glance

  • Support of an effective regulator involves enhancing the powers of the regulator to ensure charities are well governed.
  • Improved principles around the transparency and accountability of charity activities will strengthen trust and confidence in the sector.
  • A balanced approach to compliance through streamlined reporting requirements will help reduce red tape.

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The challenges brought about by the COVID-19 pandemic shine a light on many of our vulnerabilities and the support networks that we lean on in difficult times.

Charities are an important part of our coping mechanism, with many charities delivering vital support to the most vulnerable. Charities rely on private philanthropy and financial support from the government through grants and tax concessions.

As a result, there are high expectations placed on the sector – to be accountable and transparent about how appropriately, efficiently and effectively resources are allocated.

Since opening its doors in late 2012, the Australian Charities and Not-for-profits Commission (ACNC) has established itself as the primary Commonwealth regulator, tasked with ensuring a well-run charities sector in Australia. In 2018, an independent review panel (required by the legislation underpinning the ACNC) made 30 recommendations to the government to improve charity regulation. The government responded to these recommendations in March 2020, acknowledging what is required of an effective regulator: a balance between reducing red tape and building public trust and confidence.

Regulatory burden in the sector

A perennial bugbear of the sector has been excessive reporting and compliance requirements imposed by numerous Commonwealth and state and territory regulators. This is something the ACNC was set up to address, and it has made significant progress by negotiating more streamlined reporting requirements.

CPA Australia made several recommendations during the review. Picking up on some of the key responses on reporting obligations and what they might mean for charities and their advisers in the future, we are encouraged by the government’s ongoing commitment to bring tangible benefits to the sector and its beneficiaries through a further streamlining of charity reporting requirements.

We are also pleased to note the support of many of the recommendations made by CPA Australia. These include:

  • increasing the financial reporting thresholds for small, medium and large charities
  • simplified financial reporting by small charities
  • differential reporting of related-party transactions modulated by charity size
  • aggregated remuneration disclosures for board and committee members and senior staff by large charities

The review panel recommended raising reporting thresholds to less than A$1 million for small charities, A$1 million to A$5 million for medium-sized charities and more than A$5 million or more for large charities. In supporting this, the government notes that to avoid unintended consequences by raising thresholds, it is consulting with states and territories before proceeding.

This is a necessary step. Although most states and territories have provided exemptions from their reporting requirements for registered charities, Queensland and Western Australia are yet to commit to financial reporting exemptions for ACNC-registered charities. Any raising of thresholds should reflect ongoing endeavours to establish the ACNC as the sole regulatory repository of the financial reports of charities.

Charities are an important part of our coping mechanism, with many charities delivering vital support to the most vulnerable.

Reporting thresholds for public companies limited by guarantee under the Corporations Act are closely aligned with the ACNC reporting thresholds, and this would be a timely opportunity to consider these thresholds also. Similar considerations may arise for other reporting thresholds that are closely aligned, including those applicable to incorporated associations in Victoria and Western Australia.

The government responses to the proposed changes do not explicitly consider the applicable financial reporting framework. The Australian Accounting Standards Board (AASB) is overhauling its financial reporting framework, including the framework as it applies to private sector not-for-profit organisations (NFPs). This project will have implications for any legislative change brought about to charity reporting through this review.

Government support of the recommendations for board remuneration disclosures by large charities and related-party disclosures is likely to result in better information to stakeholders on how well a charity is governed. As noted in the government response to these recommendations, any requirements around related party disclosures will need to be scaled according to the size of a charity to avoid unnecessary compliance burden.

Further reading: Read more about the AASB’s efforts towards streamlining its financial reporting framework and the impact on special purpose financial statements

The #fixfundraising initiative

Turning briefly to some of the other aspects of the government’s response, nine panel recommendations were rejected. This includes a recommendation that CPA Australia considers important: the introduction of a national fundraising regime through amendments to the Australian Consumer Law (ACL). This recommendation is part of the #fixfundraising initiative, which includes other sector stakeholders.

In rejecting this recommendation, the government indicates continued support of the efforts of states and territories to harmonise fundraising laws. CPA Australia will continue to work closely with its #fixfundraising partners and other stakeholders in continuing to advocate for a nationally consistent fundraising regulation regime.

A single, national scheme for charities and NFPs

CPA Australia also supported the recommendation of a single, national scheme for charities and NFPs. After all, the N in ACNC was included with the expectation that ultimately there would be regulatory oversight of Australia’s broader NFP sector by the ACNC.

The government’s response notes this point, but highlights a significant hurdle, namely a need for referral of powers by the states. The government indicates that it will continue to work with states and territories to harmonise charity regulation in streamlining reporting requirements, explore options to further reduce regulatory burden on the sector, and develop a common statutory definition of charity across jurisdictions.

There is clearly a need for multi-agency and multi-jurisdictional cooperation to progress many of the government-supported recommendations to improve charity regulation. The ACNC, Australian Treasury, the AASB and many other parts of government machinery at the Commonwealth and state and territory levels will be instrumental in assisting the government to implement the changes being considered following the independent review.

CPA Australia’s policy team welcomes feedback and comments. Visit the policy pages for more details about our submissions, plus information about open consultations and the latest policy bulletins and newsletters.

Read next: When the giving gets tough: Donations shortfall puts charities on life support

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