ACNC governance standards in force

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Governance standards commence 1 July 2013

Update: the Standards have now come into force as of 1 July 2013 as expected. 

The uncertainty surrounding the introduction of governance standards for charities registered with the Australian Charities and Not-for-Profits Commission (ACNC) looks to have been resolved yesterday, at least for the time being. The Senate agreed to a notice approving the governance standards and the notices to disallow have been withdrawn. Until yesterday it has not been possible to tell whether the Government would succeed in bringing the standards into force.

It now appears that the standards will come into effect on 1 July 2013.

Accordingly, it would be prudent for ACNC-registered charities to ensure that they are able to comply with the standards from 1 July 2013. It appears that full compliance, to extent consistent with a charity’s existing governing rules, would be legally required from that date.

‘Basic religious charities (BRCs)’ do not need to comply with the governance standards.  Religious charities are not automatically considered BRCs. A charity must be registered as a BRC with the ACNC.

 

What are the governance standards?

The governance standards are a set of ‘minimum’ requirements for how the ACNC will expect registered charities to be run. The standards do not replace charities’ other legal obligations (with some exceptions for duties owed under the Corporations Act).

There are five standards which charities must meet:

  • Demonstrating and adhering to their stated purposes and not-for-profit status
  • Being accountable to members
  • Complying with Australian laws
  • Having ‘responsible entities’ (governing body members and people who control the charity) who are suitable people/organisations to be running a charity
  • Ensuring that the responsible entities behave as if they were a ‘fiduciary’ of the charity (a legal relationship where a person has power over another, involving important and strict duties for the fiduciary).

The standards are longer and more detailed than the above summary. You should read the standards in full. 

 

What do I have to do to make sure my charity is complying?

The ACNC has said it will produce a guide for charities to use in complying with the governance standards. The ACNC has advised us that the guide will be issued shortly after the standards are approved by both Houses of Parliament.

The ACNC has also stated in the past that charities which are already complying with the requirements of the Corporations Act 2001 are not likely have problems complying with the governance standards. This does not mean that all charities need to adopt Corporations Act type policies in order to comply. The governance standards are intended to apply proportionately, with the ACNC taking a charity’s size, complexity and level of donations and grants, for example, into account when evaluating whether its operations meet the standards.

Your charity’s governing documents, such as a constitution or articles of association, may not allow your charity to comply with some of the standards. If this applies to you, there are special transitional rules which give your charity four years from 1 July 2013 to amend the governing documents to allow your charity to comply. This is not an excuse for delay, but a recognition that it takes time for organisations to agree on important changes to their rules. Your charity must still comply with the standards to the full extent it is able to under the existing governing documents.

The ACNC and the standards are both very new and it is difficult to predict at this stage how they will work in practice.  You may like to consider:

  • whether your charity’s rules and policies would give your charity the necessary power to remove responsible entities and people who control the charity if their behaviour endangered the charity’s ability to comply with standard five;
  • obtaining contractual undertakings from responsible entities to ensure your charity has the above power;
  • creating procedures to check whether responsible entities are ‘suitable’ as required by standard four, both at the beginning of their tenure and on an ongoing basis;
  • reviewing how your charity engages its members;
  • whether your charity’s governing documents accurately reflect its current purposes;
  • whether any changes will be needed to your charity’s governing documents.

 

What happens if my charity does not comply with the governance standards?

Compliance with the governance standards is a condition of ongoing registration with the ACNC, and charities which do not comply with the standards will not be meeting this requirement. Under section 35-10 of the ACNC Act 2012, the Commissioner has the power to revoke a charity’s ACNC registration if they reasonably believe the charity has not complied with the governance standards.

In the case of charities which are corporations or in a Territory (‘federally regulated entity’), the Commissioner also has the power to remove members of the governing body (‘responsible entities’) if they believe it is necessary to address non-compliance with the standards.

The ACNC has stated that in the first two years of the governance standards, it will concentrate on serious  and deliberate breaches, especially those relating to financial mismanagement. Its stated policy is, where the public interest is not being endangered, to address breaches of the Act or standards by helping charities to comply, rather than acting to punish charities.

DISCLAIMER:

This update provides an overview only of the governance standards and possible responses charities may wish to take, and is not all inclusive. It should not be considered to be legal advice. Each charity needs to consider its response to the governance standards in the context of its individual circumstances. You should obtain legal advice for your specific circumstances before relying on general information.