Federal government response to ACNC review - unpacked by Sue Woodward

I’ve read the report and unpacked the key changes that are proposed by the Federal Government, grouping them according to whether they can happen (now-ish) by the ACNC changing its regulatory approach, whether changes will involve further consultation, or whether they will involve legislative change or new regulations. I have also outlined key recommendations that have not been accepted by the Government. Along the way, I have included some of my views.

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What report? What ACNC Review?

It’s been a while since you’ll have heard of this topic so here’s a refresher:

December 2017 - the Federal (Coalition) Government commissioned an independent panel (headed by Patrick McClure AO (Chair), Greg Hammond OAM, Su McCluskey and Dr Matthew Turnour) to conduct the 5-year review of the Australian Charities and Not-for-profit Commission (ACNC) that is mandated by the ACNC Act

• the review panel received 107 submissions and met with 215 stakeholders
• May 2018 - the review panel Report received by Government in May 2018 (on time)
• August 2018 - the Report was tabled in parliament (as required by the Act)
• 6 March 2020 - Zed Seselja, Assistant Minister for Finance, Charities and Electoral Matters releases the government’s response

Changes likely to happen soon (no legislation required)

1.     Simplified financial reporting for small charities

The Government supports small charities providing ‘a statement of resources’ to the ACNC (recommendation 13). By their estimates, the Government believes this will reduce the regulatory burden for over 18,000 charities that currently use cash accounting. 

As far as I know the concept of a ‘statement of resources’ is not one used by accountants in Australia (although it’s used in New Zealand). But, with good education and templates from the ACNC, this simplified type of financial reporting could help very small (micro) charities who often don’t have an accountant doing their books.

Because the ACNC has the power to make this change by altering what it requires for its Annual Information Statement, we can expect this change to be happen quickly – logically, from 1 July 2020. UPDATE (23 March, 2020): I have spoken with the ACNC and they have advised that this change will NOT happen in 2020 - ie, the next Annual Information Statement will NOT allow for a statement of resources.

2.     Accessing criminal records

The Government supports the ACNC being able to request details on the criminal records of responsible persons (Recommendation 18). Interestingly the response doesn’t refer to any legislative amendment or regulation to allow this to happen. This suggests they believe the current ACNC Act would allow the Commissioner to do this. I wonder how this power sits with the various State legislative spent conviction schemes? Will it be any criminal record? (Note - the Government has supported changing the legislation to disqualify people with certain serious convictions from being responsible persons – see below, recommendation 23.)

3.     Greater cooperation between intelligence agencies and their databases

The Government supports the ACNC ‘actively building its partnership with ACIC [Australian Criminal Intelligence Commission] and AUSTRAC’ and notes that the ACNC has recently been given direct access to AUSTRAC information by its listing as a designated agency under the relevant Act (recommendation 21).

The Government also ‘supports the ACNC engaging with ACIC to enhance cooperation and integration’ of criminal intelligence databases, but stopped short of offering additional resourcing to do so (as the Panel recommended), and leaving the ACNC to consider an Memorandum of Understanding with ACIC around sharing data (recommendation 22).

4.     Charity passport (‘report once, use often’)

The Government says it ‘supports the ACNC working with Commonwealth agencies to increase the take up of the Charity Passport‘(recommendation 26). This is disappointingly shy of the actual recommendation which was for it to be mandated for these agencies.

Changes the Government will consult on

 One of the bug bears of the transition to the ACNC regime has been the ambiguity surrounding how directors’ duties can be enforced ─ the duties under the Corporations Law were ‘switched off’ for ACNC charities, but governance standard 5 (duties of responsible persons) only applies to the charity (as an entity) rather than applying the duties to the individual directors (responsible persons) themselves. The Government has responded to the recommendation to ‘turn’ the duties back on by saying it will release a consultation paper seeking the views of the sector. Get your pens ready – in my view they need to be switched back on.

Changes supported, but needing legislation (some important ones here!)

 I was once advised by a wise peer ‘not to get out of bed’ for anything less than a Bill actually before the Parliament. That said, the following changes are worth noting as the Government has now committed to:

• retaining the Commissioner’s power to remove a responsible person but with new additional criteria that the Commissioner must consider when making a decision to remove someone (recommendation 5). I know this a hot topic for many, especially faith-based groups concerned about the Commissioner using the existing power to remove a religious leader ─ the Government will consult on the on the criteria
• increasing the reporting thresholds so that ‘small’ will increase from less than $250,000 to under $1 million, medium will increase to $1 million to under $5 million and large will be over $5 million, based on rolling 3-year revenue. To ‘avoid any unintended consequences’ the Government will consult with the States and Territories before proceeding with legislative change – diplomatic given several jurisdictions have just aligned with the existing levels!
•  requiring disclosure of related party transactions (for example, where a family member of a director gets paid for consultancy services) ─ recommendation 14. There will be ‘simplified disclosure involving a brief description’ for small charities, with the changes being introduced to align with the new reporting thresholds (see above, $1 million for smalls)
• disclosure of aggregated remuneration of senior staff and any responsible person (people on the governing body) who are paid, where there are at least two ‘key management personnel’ (recommendation 15). Again, the start will be aligned with changes to reporting thresholds
• allowing the ACNC Commissioner to disclose information about regulatory (enforcement activities) that are ‘in the public interest’ (recommendation 17). This is aimed at overcoming the ACNC secrecy provisions ─ there has been concern that these restrictions make it harder for the public to have faith that the Commissioner is taking action when needed (for example, the concerns about the NSW RSL). There will be consultation on the change – including what the bounds and triggers for use of the discretion will be
• disqualification of people with certain serious convictions from being on governing bodies (recommendation 23). The convictions include terrorism, child sexual offences and distribution of illicit drugs. The last category may have implications for support groups and should be considered in light of spent conviction legislation that exists in most States (and has recently been foreshadowed for Victoria)
• removing technical issues between ACNC Act and Corporations Law (recommendation 29). While supported ‘in principle’ it is also stated as not being a priority compared with other reforms. To me this is an odd response – surely you only want one reform Act, and these very important ‘technical issues’ should be included.

Recommendations not supported (ie, no change)

Ten out of the 30 recommendations that have not been supported, with a couple of others just 'noted'. This is surprising given it was a report commissioned by the Government.

Fundraising

In my view, the most disappointing of the rejected recommendations is the refusal to provide any support for using an amended Australian Consumer Law, backed by a mandatory code of conduct, as the vehicle to drive a nationally consistent regime for not-for-profit fundraising regime. The Government’s intention (expressed in recommendation 28, below) to work closely with the States and Territories on harmonising charities regulation is perhaps a glimmer of hope for reform to reduce this huge red tape burden.

Why is this so disappointing?

Fundraising was its own chapter in the Review Report with the Panel noting that it was an issue raised by the sector in nearly even consultation and submission. During the recent bushfires it was the ACCC who was most prominent in warning about scam charities (even the ACNC Commissioner directed people to the ACCC warning). With a quickly dwindling percentage of donations coming via ‘coins in tins’, it’s the Federal Government’s telecommunications power that is most relevant – with donations made by phone, credit card, post or online. The #FixFundraising campaign coalition (for which I am the lead contact) issued a press release on 6 March 2020 and Pro Bono News published an article commenting that the Government ‘won’t budge on fundraising reform’.

Other recommendations that didn’t get up

The most noteworthy of the other recommendations the Government has not supported include:

• changes to the ACNC’s objects, functions or duties (recommendations 1 and 2)
• repeal of governance standard 3, compliance with Australian Laws (recommendation 9)
• removing the word ‘perceived’ from governance standard 5 (conflicts of interest duty) (recommendation 9)
• presuming compliance with the ACNC governance standards if the charity already complies with other comparable governance standards (recommendation 10)
• changes to the religious charity exemption (recommendation 16)
• test case funding (recommendation 20) although the response says they ‘will explore legislative options to address uncertainty in the law’ which might cause those wary of moves to curtail the right of charities to advocate even more concerned; for example, does this mean changing the Charities Act 2013 Cth?
• extending ACNC registration to include not-for-profits with annual revenue of more than $5 million (recommendation 24)
• moving the responsibility for incorporation and all other aspects of charitable company regulation to the ACNC from ASIC (recommendation 27)
• consolidating the ACNC Act and providing ongoing 5 year reviews of the ACNC (recommendation 30).

The Government ‘noted’ the recommendation (recommendation 28) for a single national scheme for charities and not-for-profits (ie, making the ‘N’ in ACNC meaningful!). It says it will continue to ‘work closely with states and territories (via the relevant cross-jurisdictional fora) to streamline and harmonise charities regulation in three important areas’ – streamlining reporting, reducing the regulatory burden (including ‘possibly cross-border recognition arrangements for charitable fundraisers’) and consulting on a common statutory definition of charity (to replace the 45 existing definitions).

Let’s hope this ‘note’ becomes a high priority, with all Australian Governments collaborating to deliver a modern, tailored regime to support Australia’s charitable and broader not-for-profit sector, including those who donate time and money to it.

www.nfplaw.org.au

Sue Woodward is Head of Justice Connect’s Not-for-Profit-Law.

Follow Sue @nfp_nerd on Twitter