Whistleblowing laws and guidance
ASIC has released new guidance for companies on whistleblower policies, accessible here.
Notably, ASIC has relieved public companies limited by guarantee that are NFPs or charities, and have an annual consolidated revenue of less than $1 million, from the Corporations Act requirement to have a whistleblowing policy. In doing so, ASIC recognises that these entities may face a compliance burden that outweighs the benefits that a policy might otherwise offer. The relief only extends to the requirement to have a policy - the substantive whistleblowing protections provided by the Act still apply. Refer here for more information about the protections.
NFPs and charities will need to consider their position in light of the relief granted by ASIC. Those companies exempted from the legislative requirement may nevertheless still wish to implement a whistleblower policy, particularly given the substantive whistleblower protections will still apply. The AICD’s Not-For-Profit Governance Principles (accessible here) recognise that whistleblowers are an important line of defence against wrongdoing, and encourage entities to establish whistleblower policies.
Modern slavery laws
The Commonwealth Modern Slavery laws have been in force since 1 January 2019 and apply to Australian entities with annual consolidated revenue of $100 million or more. Statements must be submitted annually, with first statements due next year. If your organisation is required to comply, please refer to the AICD’s practical tool (accessible here) that is designed to assist directors with their oversight role of modern slavery risk in their operations and supply chains. It also sets out timelines for reporting.
By way of update, the NSW Modern Slavery Act 2018 remains on hold pending the outcome of a parliamentary inquiry. The AICD appeared at a hearing of the Committee earlier this month and has advocated for an exemption for NFPs and charities due to the lower monetary threshold and application of penalties for entities (up to $1.1m).
The Australian Accounting Standards Board (AASB) has released an amending standard requiring additional disclosures for non-government NFP entities preparing Special Purpose Financial Statements (SPFS).
NFPs are currently defined as an entity “whose principal objective is not the generation of profit…”; this is a fairly narrow definition of a NFP, narrower than that applied by the ACNC or the ATO. It means an entity can be treated as an NFP for regulatory and tax purposes and a for-profit for accounting and reporting purposes. The AASB is currently consulting on an amendment to this definition and the AICD is closely involved in those discussions.
The new standard requires an entity to disclose the basis on which the decision to prepare the SPFS was made.
For each material accounting policy applied and disclosed in the SPFS that does not comply with the recognition and measurement (R&M) requirements in Australian Accounting Standards (AAS), the entity must disclose either where it does not comply or that the entity does not know and whether the SPFS overall complies with the R&M requirements in AAS or whether the entity does not know.
If an NFP entity has determined that its interests in other entities give rise to interests in subsidiaries, associates or joint ventures, the entity must disclose whether it has consolidated or equity accounted for those interests in a manner consistent with the AAS requirements. If it has not, it shall disclose that fact and the reasons why, or if the NFP entity has not made this assessment and was not required by legislation to do so, it shall instead disclose that no assessment has been made.
The new standard affects charities registered with the ACNC that have annual revenues of $250,000 or more (i.e. medium and large charities), that prepare SPFS and are required to comply with the ACNC reporting requirements, and NFP entities not registered with the ACNC that are lodging SPFS with ASIC, for example companies limited by guarantee.
The new standard applies for annual reporting periods ending on or after 30 June 2020.
ACNC Charities Marketplace
Earlier this year, the ACNC Commissioner announced the launch of the Charities Marketplace. The aim of the initiative is to increase the amount of information to help people who want to support charities to understand what each charity does and to make it easier to search charities on the register.
From July next year, when charities complete their annual information statement, they will be given the option to include a more accurate description of what they do at a program level.
ACNC will provide guidance to charities in time as to what information should be provided.
Underpayment of employees
The ACNC has highlighted that underpayment of employees is an issue in the NFP and charities sector. In fact, PwC identified in its report, Australia Matters, that one of the key risks facing organisations today is ensuring employees are being accurately paid for the work they do.
The report suggests that “the vast majority of employers do the right thing by employees, but the chances of inadvertently making a mistake are extremely high and, as we are witnessing, small mistakes made across large workforces over several years add up to very large numbers”.
PwC notes that the healthcare and social assistance sector is one of the most at risk, which captures many NFPs and charities.
Directors should seek appropriate management assurances that employees are being paid appropriately and that there are systems and processes in place to ensure that the correct rules and laws are applied.
HR information systems, time and attendance systems, and payroll systems should also be regularly updated.
Aged care sector
It is also worth noting that the Aged Care Royal Commission has turned its focus to governance in aged care, the links between governance and outcomes and how the Commission may look to improve governance in the sector. The Commission has examined two case studies in Tasmanian care homes hearing evidence about breakdowns in communication between senior management, the board, and employees running the facilities. Reports and internal audit outcomes that should have raised red flags did not make their way to decision-makers. This was compounded by significant turnover in staff, including management.
The Commission hearings are a timely reminder for directors in the aged care sector – and in other sectors that care for vulnerable people – to test whether legal, risk and compliance systems are being implemented in practice. Boards also need to ask questions regarding information flows and whether they are being advised of the practical consequences of key decisions. As with the Financial Services Royal Commission, this inquiry has also highlighted the importance of culture, and the board’s role in overseeing this important part of governance. The AICD has released a practical tool to help shape the approach to governing organisational culture that is accessible here.
The AICD offers a tailored course dealing with governing for vulnerable people that is focused on safeguarding the interests of those under care, including children, the aged, the disabled, the homeless, the mentally unwell and many more. Further details on the course, including how to register can be found here.
Government response to ACNC review
Finally, by way of update, we understand that the Government’s response to the ACNC review is due early next year. We will keep members updated on the outcome of the review.