NOT FOR PROFIT NEWSLETTER

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1 INSIDE THIS ISSUE NOT FOR PROFIT NEWSLETTER December 2014 GOVERNANCE NFP Governance and Performance Study released Australian charities operating in more than 100 countries Is your charity complying? Governing documents templates release AGM considerations and new resources 2000 charities might lose their status Lodge your 2013 Annual Information Statement Deadline for 2014 AIS extended ACNC ACTIVITIES Annual report showcases ACNC achievements Provision of housing by charities an interpretation Completing your 2014 AIS Public documents approved wording Fact sheet published to help charities operating overseas Hundreds complain about charities Raising a concern about a registered charity FINANCIAL REPORTING INSIGHTS Aged-care general-purpose financial reporting Consolidation reminder for 31 December year-ends ACNC FUTURE IN FOCUS ACNC Repeal Bill an uncertain outcome Drafts of new financial-reporting standards imminent New audit rules imminent APRA releases draft guide on super fraud risks Associations bill tabled in WA parliament. GOVERNANCE NFP Governance and Performance Study released More than 30 per cent of Australia s Not-For-Profit organisations (NFPs) have discussed mergers in the past year as the NFP sector seeks to improve its efficiency and expand its services. This is one of the key findings of the latest NFP Governance and Performance Study released by the Australian Institute of Company Directors. More than 2700 NFP directors with a combined income of $15 billion in 2013/14 participated in the study, making it the largest survey of NFP governance in Australia. The respondents included directors from a wide range of organisations, including educational institutions, agedcare facilities, charities, recreational organisations and social-service providers.

2 The push for consolidation is greatest among NFPs with incomes above $10 million or those operating in social services. Around a quarter of boards that have discussed a merger believe the process would be complete within two years, setting the scene for a new round of consolidation in the sector. The results of the study show that NFP boards have extremely high standards of governance that allow directors to pursue the strategies that will achieve the best outcomes for their organisations and stakeholders. Around 80 per cent of non-executive directors who took part in the study believe the quality of governance in the sector is better than it was three years ago. Other key findings of the survey include: Many NFPs are struggling to determine the impact of reforms, or proposed reforms, to government policy and legislation. Seventy eight per cent of respondents called on the government to clarify its direction and create stability in operating environments as a matter of priority in the next three years; Only 50 per cent of non-executive directors believe their organisations measure overall performance effectively. Many would like more non-financial information to determine if an organisation is achieving its mission or purpose; Sixty two per cent of respondents identify maintaining or building income as a high priority in the next 12 months as they seek to diversify their organisations income streams and reduce their reliance on government funding; Uncertainty about government funding is ranked as the second most important challenge for school boards in the next three years, behind only the need to maintain or enhance a school s reputation; Directors of aged-care facilities nominate financial sustainability as their biggest challenge over the next three years, followed by compliance with government requirements. Australian charities operating in more than 100 countries The Curtin Australian Charities 2013 Report has revealed that 17 per cent of registered charities are involved overseas they either operate in more than 100 countries or help people outside Australia. In 2013, Australian charities were most involved in India, the Philippines, New Zealand, Papua New Guinea and Indonesia. Charities were also operating in areas of conflict such as Syria and Iraq. The Australian Charities and Not-for-profits Commission (ACNC) said that it and other charity regulators needed to reduce the risk of misuse of funds sent overseas, including through charities. The ACNC works with the Australian Federal Police and other intelligence and enforcement agencies to share intelligence and referrals on these issues. The Australian Transaction Reports and Analysis Centre (AUSTRAC) has stated that charities

3 working overseas are especially vulnerable to exploitation by terrorist supporters. AUSTRAC says that money raised legitimately to help people suffering in conflict zones can get mixed up with funds raised specifically to finance terrorism. The ACNC s advice is to send money only to trusted family and friends or to reputable humanitarian organisations. Always research humanitarian organisations and other potential recipients before sending money, it advises. If the humanitarian organisation is a charity, the ACNC recommends that you check its register and find out where the funds will go and how they will be used. The ACNC s work in building a register improves the visibility of charities operating overseas. Prospective donors and volunteers can search it to find charities that operate in particular countries. They can also uncover detailed information about a charity and ensure that it is meeting its obligations. The ACNC has published information on its website to support overseas giving and explain how charities can lower the risk of financing terrorism. In addition to the register, charities can ensure that their overseas donations are not being misused through the commission s surveillance of charities compliance with good-governance standards. The standards play a role in improving the governance of all registered charities. The commission has joined with the Australian Council for International Development (ACFID), the peak body for Australian not-for-profit and development organisations, to make compliance with ACNC governance standards easier for organisations. (Ninety-seven per cent of ACFID members are also registered with the ACNC). The ACNC website outlines principles and obligations charities must comply with in order to meet both the ACNC and ACFID requirements. Is your charity complying? A guide to the ACNC regulatory approach and self-assessment compliance test are the latest tools available from the regulator. Its aim is to help charities stay on track. Your charity and ACNC Compliance helps to demystify the role of the ACNC s compliance team, which investigates concerns it receives about charities. Take the ACNC compliance test: is your charity complying? enables charities to do a quick health check to see how well they are meeting their obligations. Your charity and ACNC Compliance explains the defined process concerning how and when investigations and reviews are conducted, when charities may be notified, and what information can be shared and disclosed. It also provides advice on actions charities should take if they find that they are not meeting their obligations.

4 The compliance test is quick and easy to do, allowing charities to make periodic checks. It has five simple questions, and no and not sure answers to any of them should alert an organisation to investigate further or take remedial action. Use the questions to assess how well your charity is meeting its obligations, and whether it is taking the right steps to comply with the ACNC Act. Step Question Explanation 1 Is your charity working towards its charitable purpose? A purpose is the reason your charity was set up its mission. Charities and their responsible persons (such as boards, committee members and trustees) must work toward this charitable purpose, make information about this purpose available to the public, and be able to show how it is trying to achieve this purpose. 2 Is your charity using its profits and assets only for its charitable purpose? 3 Is your charity meeting its reporting obligations? Charities and their responsible persons (such as boards, committee members and trustees) must work toward this charitable purpose, make information about this purpose available to the public, and be able to show how it is trying to achieve this purpose. Every charity must lodge an Annual Information Statement (AIS). For the 2014 AIS, most medium and large charities must also lodge annual financial reports. If your charity has made a material error in its AIS or financial report, you must correct it as soon as possible. Every charity must notify the ACNC of changes to its name, address for service, responsible persons and governing documents, as well as if it has significantly contravened the ACNC Act and may no longer be entitled to registration 4 Is your charity meeting its recordkeeping obligations? 5 Is your charity meeting all five governance standards, showing it has met minimum requirements for governance? Every charity must keep written records that correctly record and explain its operations, transactions and financial position and performance. In most cases, charities must retain these records for seven years. Apart from basic religious charities, all charities must meet governance standards under the ACNC Act and ACNC regulations before applying to register and to maintain registration. These standards set out a principles-based, minimum standard of governance and are designed to help promote public trust and confidence in charities.

5 Governing documents templates released The ACNC has developed a constitution template to help small charitable companies limited by guarantee. It s supported by a detailed clause-by-clause guide, a quick checklist for completing it, and a table that sets out which sections of the Corporations Act 2001 (Cth) may be relevant to clauses in the template. Specifically, the template is designed to help: An NFP that wants to incorporate as a company limited by guarantee and register as a charity with the ACNC; A company limited by guarantee that wishes to become a charity registered with the ACNC; A company limited by guarantee that is a registered charity and wants to update its constitution. The NFP sector has supported the template and its supporting materials, which are available at acnc.gov.au/clgconstitution. Charities will also find the following templates helpful in revising their governance requirements: Template-governing documents: Information about template-governing documents available for charities, such as model rules from states and territory incorporating regulators; Examples of charitable purposes: Contains examples of charitable-purpose clauses that a charity can use as a guide. AGM considerations and new resources The ACNC has developed a dedicated resource page resources page to help charities to understand their obligations in relation to AGMs. An AGM is a meeting held once a year that a charity s members are invited to attend. Its purpose is to give members a report on the charity s activities and finances for the previous year, to allow time for them to ask questions, and to elect a board and committee members. AGMs are among the most important events in a charity s annual calendar. They provide an opportunity for members to gather and participate in governance. Holding an AGM is one of the key ways a charity can demonstrate accountability, celebrate achievements and focus on the year ahead. The ACNC encourages charities to use their AGMs to review activities and finances from the previous year. At AGMs, charities should also remind themselves of the ACNC governance standards and consider how they can demonstrate that they are meeting them. For example, holding an AGM is one of the ways that a charity can demonstrate that it is accountable to its members, required under governance standard two. The standards also require charities to take reasonable steps to ensure that their board and committee members (responsible persons) are suitable for their roles (governance standard four) and that these people understand and are

6 carrying out their duties (governance standard five). Although the ACNC does not usually require charities to hold an AGM, they should check rules and legislation applying to them to find out whether they are required to do so. If charities make certain changes at their AGM (such as to their names, responsible persons or governing documents), they must notify the ACNC. The ACNC will be developing further resources such as template minutes, agendas and notices for AGMs over the next months to support charities wanting to hold annual meetings charities might lose their status The ACNC is revoking the charity status of hundreds of organisations it believes are no longer operating. They have failed to contact the ACNC since its inception on 3 December 2012 and failed to respond to letters and calls. They have also failed to complete their 2013 Annual Information Statement (AIS). The ACNC was also unable to uncover evidence that the charities were still operating. There may be many reasons for these charities to have gone missing. In many cases, they decide to operate under a different name or ABN, or might have merged with another charity and failed to advise the ACNC. The project to clean up the ACNC s register began earlier this year, when around 6000 charities were found to be missing. The commission has subsequently been able to account for around 4000 charities that have updated their contact details, confirmed that they were no longer operating, sought voluntary revocation, or were identified by the ACNC as not requiring registration. So far, more than 1500 of the 2000 missing charities have been revoked after an extensive ACNC search that failed to find proof of life. The ACNC has published a list of a further 403 charities whose registration it intends to revoke on 19 January 2015 unless they make contact. Of these, 19 are based in the ACT, 114 in NSW, seven in the Northern Territory, 66 in Queensland, 31 in South Australia, six in Tasmania, 82 in Victoria, and 79 in Western Australia. The full list of charities marked for revocation and information on how charities can contact the ACNC is available at Each quarter, the commission will publish an intention-to-revoke registration of listed charities not in contact with the ACNC. A spreadsheet of them will be searchable. The ACNC s official register lists the names of Australia s registered charities and includes details of their activities, areas of operation and size. It allows potential donors to check charities credentials. The register has been viewed more than 500,000 times online and is increasingly

7 seen as a valuable community resource. Lodge your 2013 Annual Information Statement An estimated 7000 charities face penalties and having a red mark against their name for not filing their 2013 AIS, which was due by 31 October. The ACNC will publish the names of overdue charities and issue penalties to charities that are found to be deliberately avoiding their obligations. If the ACNC finds evidence that charities are intentionally not submitting, it will apply penalties. Maximum penalties for non-compliance are up to $4260 for big charities. Charities that also fail to submit their 2014 AIS will have their status revoked, and lose their entitlements to Commonwealth tax concessions. Deadline for 2014 AIS extended The ACNC will for the first time make financial information from Australia s registered charities available to the public free of charge. An estimated 35,000 charities report on a standard financial year (1 July to 30 June) and are required to submit their 2014 AIS by 31 January 2015, an extension of a month from the date has been recently announced gazetted earlier. ACNC ACTIVITIES Annual report showcases ACNC achievements Progress in improving the data of Australia s first free, national publicly-available charity register and helping to free charities from unnecessary reporting burdens are among the significant achievements reported in the national charity regulator s annual report. The ACNC regulates approximately 60,000 Australian charities that are eligible for Commonwealth tax concessions. The commission s legislative objectives include maintaining and enhancing public trust and confidence in the sector, supporting and sustaining it and promoting the reduction of unnecessary regulatory obligations. The recently released Australian Bureau of Statistics Satellite Account revealed that in the charity and not-for-profit sector contributed almost $58 billion (4 per cent of the GDP). It is growing at a rate of 6 per cent a year and employs just over a million Australians. The account also revealed that charities and not-for-profits held $176 billion of assets and received income of $107.5 billion.

8 Charities receive billions of dollars of tax concessions from both state and federal governments as well as direct financial support from millions of donors. Among the ACNC s highlights and achievements were: Improving the national register by including advanced-search techniques and identifying and removing hundreds of inactive charities; Registering 3141 new charities; Launching a charity passport to reduce red tape (It provides government agencies with ACNC information.); Launching the self-service charity portal, which reduces paperwork and allows charities to update their information online; Taking over maintenance and updating of the National Standard Chart of Accounts, which provides a common approach to capturing accounting information. Provision of housing by charities an interpretation The ACNC has published a Commissioner s Interpretation Statement (CIS) on the Provision of housing by charities. Its purpose is to provide guidance on the application of charity law to housing providers. The statement addresses the following issues: What charitable purposes may be fulfilled through the provision of housing? To whom can charitable housing be provided? What kinds of housing can be deemed charitable? How does commercial activity fit with the provision of charitable housing? What kind of interaction can occur between government and charitable-housing providers? Other CISs concern: The Hunger Project Case, which provides guidance to ACNC staff, charities and the public on the application of the law as set out in Commissioner of Taxation v Hunger Project Australia [2014] FCAFC 69; Indigenous charities, which provides guidance to ACNC staff on how charity law applies to indigenous charities, including the recognition of indigenous disadvantage and applying a public-interest test. The commission has also issued for public discussion a draft of a Commissioner s Interpretation Statement on health-promotion charities. The draft aims to provide guidance on the meaning and scope of health-promotion charities (HPCs). Comments are sought by 15 February CISs provide guidance to ACNC staff, charities and the public on how the ACNC understands the law that applies to charities. The statements are binding on ACNC staff. While the ACNC does not have the power to produce binding rulings in the same way as the

9 ATO s tax rulings, it will ensure that organisations that rely on the Interpretation Statements are treated fairly, consistent with objectives and regulations. If the law or statement changes, the ACNC will apply the new position from the date of the change, not retrospectively in a way that could disadvantage a charity. In most cases, the ACNC will also allow time for charities to respond to changes. Completing your 2014 AIS The ACNC will, for the first time, make financial information from Australia s registered charities available to the public free of charge. An estimated 35,000 charities report on a standard financial year (1 July to 30 June); 8000 voluntary financial statements were lodged for 30 June As part of the 2014 Annual Information Statement (AIS), all charities except for basic religious charities and those registered with the Office of the Registrar of Indigenous Corporations (ORIC) are required to provide financial information. Financial statements, which are required for medium and large charities, and financial information that charities provide as part of their 2014 AIS, will be published on the ACNC register at acnc.gov.au/findacharity. The ACNC has begun contacting charities to offer guidance and support. If charities using a standard financial year do not hear from the ACNC by early December, they are encouraged to log into their portals (charity.acnc.gov.au) to check their contact details. Charities are able to submit their 2014 AIS and financial reports online at charity.acnc.gov. au. By reporting online, they will benefit from having their 2013 information already entered. This should save significant time and effort. Guidance on 2014 AIS is available at acnc.gov. au/2014ais. Some tips for submitting your 2014 AIS For all charities Update/upload your responsible persons details and governing documents. Refer to the 2014 AIS guide, which includes definitions of all the financial terms mentioned in the AIS. The guide is available at acnc.gov.au/2014ais. Refer to your charity s financial records when filling in the financial questions. For medium and large charities The financial information in your 2014 AIS should match the financial report that you lodge. Check transitional arrangements to see if you are able to upload financial reports you have already submitted to a state or territory regulator. If you are a medium charity ensure that you attach a review or audit report of your financial

10 report. If you are a large charity ensure that you attach an audit report with your financial report. The ACNC has published the following templates, which help charities complete their 2014 requirements: Transitional financial report template large charity: The template includes financial information questions in the 2014 AIS and notes to take to an auditor either to review or audit; Transitional financial report template medium charity: The template includes financial information questions in the 2014 AIS and notes to take to an auditor either to review or audit; Responsible entities declaration: A declaration to be signed by the responsible people of the charity under section of the ACNC regulation 2013; Audit and review reports templates: These templates are designed for auditors. Public documents approved wording Charities may use the following wording on public documents (such as letterhead, s and websites) to demonstrate their registration with the ACNC: [insert charity name] is registered as a charity with the Australian Charities and Not-for-profits Commission ABN [insert 11 digit ABN]. Note that a registered charity cannot use the ACNC logo. Factsheet published to help charities operating overseas The ACNC has published a factsheet advising overseas-aid and development charities on matters such as how to register with the ACNC, their ongoing obligations, the risks of operating overseas and links to external resources. Overseas-aid and development organisations those with overseas beneficiaries or activities, or that send money overseas are able to apply to become a registered charity. There are, however, conditions that must be met in applying for registration. Organisations must: Fit the legal meaning of charity; Have an Australian Business Number (ABN); Meet the ACNC s minimum governance standards; Must not engage in or support terrorist or other criminal activities. Don t donate to non-registered charities The ACNC is reminding donors to check its register before donating. Concerns have been raised about both the nature of Melbourne-based Voithame Tin Ellada (VTE) and the intended use of funds donated to it. The commission has confirmed that VTE is not listed on its register and reminded donors that it was always a good idea to check the register before donating.

11 Some media have raised concerns about the Mothers and Children Fundraiser for Syria. The ACNC has confirmed that the organisation is not a registered charity. The register is available at acnc.gov.au/findacharity Donors can also take other steps to ensure that they are giving to legitimate charities. They should ask for identification from door-to-door and street-based charity collectors, be wary of online requests for donations (be mindful of suspicious s and links), and ask for tax receipts, which should show a charity s details, including an ABN. Donors should provide credit-card details only to trusted sources and research online and in annual reports how charities use their donations. If you think that a charity collector is suspicious, or you receive an you re not sure about, contact the charity to let it know. For more information on safe giving, visit acnc.gov.au or call 13 ACNC ( ). The Australian Competition and Consumer Commission also has useful information about safe giving. Visit accc.gov.au Hundreds complain about charities The ACNC has received 639 complaints about charities in 12 months to 30 June The regulator s advice services resolved almost 400. Others were assessed by compliance services, 42 needing a formal review or investigation. In , the commission revoked a charity s status after an investigation had determined that its purpose was not solely charitable. It issued a warning and a direction to another charity during the year. Most concerns about charities fell into three categories: governance (48 per cent) fraudulent or criminal activity (24 per cent), and private benefit (28 per cent). Ninety per cent of complaints came from the public, government agencies contributed 8 per cent, and other 2 per cent. Four breaches of the ACNC Act stood out in : Inappropriate use of charitable funds: The most common problem was charities using funds inappropriately in ways that did not comply with their NFP purposes. For example, charitable funds that were used to purchase private assets for responsible persons; Lack of accountability to members: In several cases there was a lack of accountability to members. Charities failed to convene meetings as required in their constitutions or they failed to follow the appropriate processes to amend constitutions; Responsible persons failing in their duties: Several responsible persons failed to declare

12 conflicts of interest, did not maintain accurate records or allowed a charity to operate while insolvent; Involvement with criminal activity: Employee theft had occurred due to a charity s governance failures. Raising a concern about a registered charity The ACNC assumes honesty in regulating charities. Most people involved with charities are, indeed, honest, act in good faith and try to do the right thing. When concerns are raised about charities, the ACNC takes them seriously. Since the ACNC was established, it has received more than 900 concerns and complaints, resulting in more than 400 formal investigations. Investigations have led to the protection of $68 million in charitable funds. The commission has simplified the process by which the public and the charity sector can raise concerns. They may visit acnc.gov.au/charityconcern, complete Form 6A: Raise a concern with a charity and the completed form to charityconcern@acnc.gov.au. The commission details the kind of complaints and concerns it can act on. Once the ACNC receives a completed form, it will send a confirmation outlining what will happen next and privacy restrictions under the ACNC Act. To find out more or to raise a concern, visit acnc.gov.au/charityconcern. FINANCIAL REPORTING INSIGHTS Aged-care general-purpose financial reporting The Department of Social Services recently received several submissions from aged-care providers raising concerns about their ability to comply with the 31 October 2014 reporting date for general-purpose financial reports. The department has given an undertaking not to initiate compliance action against approved providers that submit a compliant General Purpose Financial Reporting (GPFR) by 30 November 2014, for those providers that report on a normal financial-year basis. The department and the Aged Care Financing Authority are reviewing financial-reporting requirements for aged-care providers with a view to streamlining processes. Consolidation reminder for 31 December year-ends Australian Accounting Standard AASB Amendments to Australian Accounting Standards

13 Australian Implementation Guidance for Not-for-Profit Entities Control and Structured Entities applies in 2014 to a 31 December balance date for the first time. Schools, churches and charities are likely to be affected. The amendments provide significant guidance to assist not-for-profit entities in private and public sectors to apply AASB 10 Consolidated Financial Statements and AASB 12 Disclosure of Interests in Other Entities. FUTURE IN FOCUS ACNC Repeal Bill an uncertain outcome In early December, the second reading debate in the House of Representatives adjourned with no vote taken on the ACNC Repeal Bill. The debate will continue at some stage in the new year. The first parliamentary sitting week is the last week of February. The bill to abolish the commission was not accompanied by alternative arrangements for regulating charities. The federal government s plan to abolish the ACNC faces an uphill battle, the Senate unlikely to support the repeal. A Pro-Bono Australia survey has shown that four out of five charities support keeping the ACNC, and more than 40 charities have signed an open letter to the prime minister urging him to retain it. More than 80 per cent of submissions to a Senate inquiry supported keeping it, and lobbying is expected to intensify next year. Drafts of new financial-reporting standards imminent The Australian Accounting Standards Board (AASB) has made decisions about how to determine when a contract with a customer includes a donation that should be accounted for separately. It expects that an exposure draft will be issued in the first quarter of next year. The AASB has also made decisions about service-performance reporting and expects an exposure draft to be issued in the fourth quarter of New audit rules imminent The Auditing and Assurance Standards Board will in the first quarter of 2015 approve a guidance statement on grant acquittals, multi-scope engagements, and revised standard ASAE 34XX Assurance Engagements on Controls, an operating date for engagements commencing on or after 1 January 2016.

14 APRA releases draft guide on super fraud risks The Australian Prudential Regulation Authority (APRA) has released for consultation a draft guide on good fraud-risk management practices for Registrable Superannuation Entity (RSE) licensees. Prudential Practice Guide SPG 223 Fraud Risk Management (SPG 223) outlines prudent practices on managing fraud risk, and focusing on current and emerging fraud-risk factors affecting the superannuation industry. The draft is to be read with APRA s prudential standards and other guides relevant to fraud risk management in particular, prudential standard SPS 220 Risk Management and prudential practice guide SPG 220 Risk Management. It addresses the development and implementation of a fraud-risk management framework including planning and resourcing, fraud prevention, fraud detection, fraud response, and monitoring and review and superannuation-specific fraud risks (investment and outsourcing risks). The guide includes two appendices addressing fraud risks and fraud controls. Associations bill tabled in WA parliament Revised legislation introducing financial-reporting obligations for incorporated associations has been tabled in the Western Australian parliament. The Associations Incorporations Bill 2014 will replace the Associations Incorporation Act (1987) and introduces a three-tiered structure for annual reporting and assurance obligations based on an association s size. The legislation is similar to counterparts in other Australian states. The new legislation will modernise administrative processes for associations, including setting out clearer explanations of committee members duties and revised rules for dispute resolution and association trading. The bill also includes a three-year transition period to allow associations time to amend their constitutions. Model rules will be released for comment. The new reporting obligations require: Tier 1 entities with revenues of less than $250,000 to prepare financial statements on either a cash or accrual basis. The financial statements need be audited or reviewed only if required by a member vote or at the commissioner s direction; Tier 2 entities with revenues between $250,000 and $1,000,000 must prepare financial statements in accordance with accounting standards and have these reviewed or audited if required by member vote or the commissioner s direction; Tier 3 entities with revenues of more than $1,000,000 must have their financial reports audited. GAAP.com.au Pty Ltd