Five years of the ACNC

Since its establishment, the Australian Charities and Not-for-profits Commission (ACNC) has worked hard to demonstrate the value of a national independent regulator of charities, most of that time in a context of uncertainty as to its continued existence.

On 3 December 2017, the ACNC turned five years old. Its establishment followed almost two decades of lobbying from the sector, six government inquiries and extensive consultation.

Embedded in the ACNC’s enabling legislation is a requirement that a review be undertaken of the ACNC and its operations after five years. This review provides the sector, and the government, with opportunity to pause and reflect on the question: are we getting what we want out of charity regulation?

Review process

The government has appointed an expert panel to lead the review chaired by Patrick McClure AO and including Su McCluskey MACID, Greg Hammond OAM MAICD and Dr Matthew Turnour FAICD. PricewaterhouseCoopers has been appointed to act as its secretariat.

The terms of the review are broad. The government has not proposed any specific changes to the regulation of charities, but rather is administering a ‘pulse check’ on whether the ACNC is discharging its responsibilities appropriately. It considers issues such as whether the reporting framework is sufficient and whether the ACNC has sufficient powers to fulfil its role.

The review panel sought public submissions between December 2016 and February 2017. The AICD has provided a submission to the public consultation process and was invited to make a private representation to the review panel.

The findings and recommendations of the review must be provided to the responsible minister by 31 May 2018 and tabled in the parliament within 15 sitting days of that date.

AICD's position on the review

The AICD supports the continued existence of the ACNC.

In our submission, we have put forward the view that the ACNC’s regulatory framework is operating well on balance and that there is no need for significant revision to its legislation, purpose or activities.

However, there are several areas where minor improvements could be made to the framework, including:

Refining the ACNC’s statutory objects to clarify that the first object (which concerns promoting public trust in the NFP sector) is its dominant object;

Undertaking a review of the reporting framework (such as revising the reporting tiers and the use of special purpose financial statements);

Increasing disclosure of related party transactions through requiring that reporting entities comply with the relevant accounting standard and requiring non-reporting entities to disclose such transactions through the Annual Information Statement;

Providing the ACNC with the ability to disclose the context and rationale for its enforcement decisions (currently prevented through secrecy provisions in the ACNC’s legislation); and

Undertaking a review of the ACNC Register to ensure it meets the needs of users.

Application of directors’ duties

Since the establishment of the ACNC, charities must meet a set of five core, minimum standards of governance called the ‘governance standards’.

The framing of the governance standards places all obligations on the charity itself rather than the individuals involved with it. As such, governance standard five (which sets out directors’ duties) only requires that a charity take reasonable steps to ensure that its directors meet the duties set out under this standard.

Directors as individuals do not have duties under the ACNC legislation. For directors of charities that are incorporated as companies, the duties under section 180 – 183 of the Corporations Act 2001 no longer apply. This means some directors of charities do not have statutory duties at all, although their common law duties remain.

This is a quirk of the framework likely owing to the constitutional limits of the ACNC as a Commonwealth regulator.

As a matter of principle, the AICD supports applying duties to individual directors of charities. However, in light of the constitutional limits present in this issue, the AICD has recommended that:

The government should promote a dialogue about referral of powers; and

The ACNC should promote awareness of the governance standard and directors’ duties and expectations more broadly.

In our submission, we have also raised the point that many directors of charities are not remunerated for their work and a recognition of this must be accommodated in the formulation of any change to directors’ duties for charity board members.