Not for Profit News Autumn 2018

Government

Notifiable Data Breaches scheme begins operation

The Notifiable Data Breaches (NDB) scheme under Part IIIC of the Privacy Act has mandated how to respond to data breaches from 22 February.

Companies must notify a breach that is likely to result in serious harm to people whose personal information is involved.

When an entity experiences an eligible data breach, it must provide a statement to the commissioner, and notify individuals at risk of serious harm from the contents of the statement.

The NDB scheme applies to agencies and organisations that must take steps to secure certain types of personal information.  They include federal agencies, businesses and not-for-profit organisations with an annual turnover of $3 million or more, credit-reporting bodies, health-service providers, and tax-file-number recipients, among others.

Further information can be found at www.oaic.gov.au.

Report backs M As in the NFP sector

RMIT University & CPA Australia have released Mergers, Amalgamations & Acquisitions in the Australian Not-For-Profit Human Services Sector.

The report aims to identify and assess the dynamics of motivations, risks, barriers and opportunities associated with mergers and acquisitions in the Australian NFP human-services sector.

Data for the study came from 21 interviews conducted in 2017 of board members, CEOs, and senior management and finance officers of NFP entities, including four who were specialist NFP governance consultants.  Lawyers with M&A experience were also consulted.

Annual reports and media coverage of M&As were also reviewed.

The findings support increased M&A activity as an effective strategy for organisational growth, gaining scale efficiencies and enhancing service choice and quality.  The M&A process itself, however, is often complex, time-consuming and can be costly.

Some M&A advantages included improved board and CEO leadership, clarity of social missions and goals, well-designed merger plans, and improved communications and stakeholder engagement.  The report recommends a range of good-practice guidelines for M&A success.

ACNC

Charity concerns increasing

Almost 1700 concerns were raised about charities in 2017 – up from 1192 complaints in 2016 – according to ACNC’s The Charity Compliance Report 2017.

The report found that the 42 per cent increase was probably due to rising awareness of the national charity regulator and media coverage of charity misconduct.

New ACNC commissioner Gary Johns said: ‘As awareness of the ACNC has grown over the last five years, we have seen a steady increase in the number of concerns raised about the activities and operations of charities.

‘Members of the public remain a valuable source of information, as they contributed 23 per cent of the concerns that our compliance team assessed in 2017.’

The commission last year investigated 202 charities, 82 of them finalised.  Twenty-six charities lost their charity registration as a result, and a further 16 charities entered into compliance agreements.

The latter controlled more than $5.9 billion of assets.

Poor governance was a common theme to emerge from the ACNC’s investigations.  The most common issues identified were poor financial controls, inadequate due-diligence, and a failure by charities’ responsible persons to act in a charity’s best interests.  These issues, in addition to fraud, terrorism, harm to beneficiaries and disqualifying purposes, will be areas of focus for the ACNC this year.

The full report is available on the ACNC website at acnc.gov.au/compliancereport.

Charity revocations hit record high in 2017

Charity compliance revocations have risen by 30 per cent, according to new figures released by the ACNC.

Four revocations were announced before Christmas, a fifth early in the new year.

A total of 26 organisations were stripped of their charity status in 2017 following investigations into misconduct and mismanagement.

The five most recent revocations – Pathways to Leadership, Synergy Active, Fitzroy Basin Elders Committee, Childs Vision, and the Australian Council on Alcoholism and Drug Dependence – were found to have breached the ACNC Act or governance standards.

Working with RSLs to restore confidence

The ACNC is working with several RSL charities to rectify serious governance failures and to restore confidence.

ACNC commissioner Gary Johns said that the commission’s own investigations and the Bergin inquiry had detailed serious governance and accountability issues.  The ACNC provided information to the inquiry.

‘Unfortunately, poor governance practices and misconduct have been far too common in the past, and this has damaged the reputation of one of Australia’s most well-known charities,’ Dr Johns said.

‘The RSLs must now improve their governance and accountability to regain trust and ensure our veterans and their families are getting the best possible support and care.’

Dr Johns said: ‘In August 2017 we completed an investigation into RSL SA, which resulted in the charity entering into a compliance agreement with the ACNC.  We have opened investigations into both RSL NSW and RSL LifeCare, and we will progress these now that the Bergin inquiry has published its findings.  We are issuing a direction to RSL National after our investigation found a number of governance failures.’

The ACNC’s compliance powers include providing regulatory advice, enforceable undertakings, directions, suspending or removing board members, and, ultimately, revoking charity status. Revocation of charity status removes an organisation’s entitlement to commonwealth charity tax concessions.

RSL QLD commits to rectifying serious failures

The ACNC has issued a direction to RSL Queensland after an investigation into the charity uncovered serious governance failures.

The direction – a formal enforcement – sets out the commission’s findings, actions RSL Queensland must take, and possible regulatory action if the breaches are not addressed.

Dr Johns said that the direction required the charity to address several serious issues.

The commission found that RSL Queensland did not take reasonable steps to ensure that its directors managed charitable funds in a responsible manner.  A long-established practice, RSL Queensland made monthly payments to its directors to cover ‘out of pocket’ expenses.  However, the charity did not have appropriate policies, guidelines and agreements to govern the payments.

RSL Queensland was unable to demonstrate to the ACNC how charitable funds of more than $400,000 over the period of the investigation were expended.

The charity failed to take reasonable steps to ensure that its directors identified and mitigated the financial risk of attracting a taxation liability due to the type and treatment of entitlements provided to its Directors.  RSL Queensland failed to have appropriate controls in place, such as tailored financial systems, policies and procedures to manage responsibly its taxation obligations.

Commissioner Johns said: ‘Our investigation found RSL Queensland has breached governance standard 5.  This standard requires charities to take reasonable steps to make sure that the following duties apply to responsible persons and that they follow them.  The duties can be summarised as:

  • To act with reasonable care and diligence
  • To act honestly and fairly in the best interests of the charity and for its charitable purposes
  • Not to misuse their position or information they gain as a responsible person
  • To disclose conflicts of interest
  • To ensure that the financial affairs of the charity are managed responsibly, and
  • Not to allow the charity to operate while it is insolvent.

‘The investigation also found that the charity has not met financial and operational record-keeping obligations.’

The commission found that RSL Queensland had breached:

  • Financial record-keeping obligations by failing to retain financial records pertaining to the majority of transactions covered by payments to directors for ‘out of pocket’ expenses, for example, receipts and a robust acquittal process, and
  • Operational record-keeping obligations by failing to retain records of directors’ operational use of RSL Queensland vehicles, for example, log books.

Commissioner Johns confirmed that the ACNC and RSL Queensland have been working together over the past year to improve governance.

‘In late 2017, RSL Queensland developed a governance plan in response to the ACNC’s concerns.  This was a step in the right direction, however we are concerned about the lack of progress in implementing key aspects of the […] plan,’ he said.

‘To their credit, RSL Queensland have unanimously accepted the terms of the direction and have committed to implementing the reforms.  This includes engaging a governance expert to oversee the implementation of a Good Governance Guide, as set out under the charity’s governance plan, and to conduct a review of the board’s performance and effectiveness.’

‘There is a great deal of work to be done to ensure that RSL Queensland can resolve these significant governance issues.  However, I am encouraged by RSL Queensland’s response to this Direction, and I am hopeful that we can continue to work with them to improve and strengthen the charity’s governance.’

RSL Queensland CEO Luke Traini said that the charity had been modernising and transforming its services but noted that there was still work to be done.

Mr Traini said: ‘Over the past year, we have worked closely with the ACNC to improve and upgrade the board’s governance and compliance policies and we remain committed to building a strong, transparent organisation.

‘The actions contained in the ACNC’s direction will be implemented as soon as possible, and the RSL Queensland board is currently revising its constitution to pave the way for a skills-based board.’

The ACNC will monitor RSL Queensland’s progress over the next 12-months.

ACNC slams RSL National

The ACNC has issued a direction to RSL National after its investigation uncovered several governance failures.

The direction requires RSL National to take specific actions to address non-compliance with the ACNC’s governance standards, including a review of the charity’s board and governance practices.

The scope of the investigation included a review of gifts made by RSL National to the outgoing RSL national president in June 2016.  The president was given a vehicle worth about $27,434 and a set of books worth $3600.

The commissioner considered that the gifts were inconsistent with RSL National’s not-for-profit character and therefore a breach of governance standard 1.
In the commissioner’s view, RSL National did not take reasonable steps to ensure that its responsible persons exercised the duty under governance standard 5.  The charity also failed to ensure that its responsible persons had an adequate and consistent understanding of their responsibilities and expectations.

RSL National had failed to take reasonable steps – such as implementing tailored financial management policies, procedures and financial delegations – to ensure that expenditure was properly considered, authorised and documented in line with its constitution and not-for-profit character.

More than 100 charities face deregistration

The ACNC has issued a direction to RSL National after its investigation uncovered several governance failures.

The direction requires RSL National to take specific actions to address non-compliance with the ACNC’s governance standards, including a review of the charity’s board and governance practices.

The scope of the investigation included a review of gifts made by RSL National to the outgoing RSL national president in June 2016.  The president was given a vehicle worth about $27,434 and a set of books worth $3600.

The commissioner considered that the gifts were inconsistent with RSL National’s not-for-profit character and therefore a breach of governance standard 1.
In the commissioner’s view, RSL National did not take reasonable steps to ensure that its responsible persons exercised the duty under governance standard 5.  The charity also failed to ensure that its responsible persons had an adequate and consistent understanding of their responsibilities and expectations.

RSL National had failed to take reasonable steps – such as implementing tailored financial management policies, procedures and financial delegations – to ensure that expenditure was properly considered, authorised and documented in line with its constitution and not-for-profit character.

ACNC submits key recommendations on its legislation

The federal government announced in December terms of reference for a legislated five-year review of the Australian Charities and Not-for-profits Commission Act 2012 and the Australian Charities and Not-for-profits Commission (Consequential and Transitional) Act 2012.

The ACNC’s submission on the review of its legislation focused on what the commission has learned over the past five years of operation as Australia’s national charity regulator and provided suggestions and recommendations.

It believed that the review needed to address three major areas.

First was the ACNC’s secrecy provisions.  The commission is unable to publish information about its decisions on application for registration or the reasons why it decides to revoke a charity’s registration.

The ACNC submitted that the ability to disclose information where it was in the public interest was important.

It could disclose if an investigation had begun, if the commission had acted against a registered charity, and publish a reason for a decision to revoke a charity’s registration.  Donors had a right to know whether a charity was involved in an investigation, the commission submitted.  This level of transparency was critical in building trust.

The second recommendation was to broaden publication of information the ACNC collected.

While information about registered charities was published on the ACNC charity register, more could be done to highlight the depth, diversity and achievements of the charity sector.  Changes to the legislation should allow further information to be displayed and publicised, which would benefit stakeholders.

The third recommendation added two objectives to the ACNC Act – to promote the effective use of the resources of not-for-profit entities and to enhance the accountability of not-for-profit entities to donors, beneficiaries and the public.

The submission is available to download at https://acnc.gov.au/ACNC/Comms/LN/LN_20180119.aspx

A review panel will report its findings and recommendations by 31 May.

Grant making charities provide 4 billion annually

Grant-making charities donate and grant more than $4 billion annually and hold more than $56 billion in assets, according to Australia’s Grant-making Charities in 2016, released by the ACNC.

Grant-making charities distribute grants and donations to other charities and charitable causes.  Grants are mainly used to build the capacity and capabilities of a charity, to provide support services or advocate for or against an issue.

The ACNC paper assessed the activities of 10,398 grant-making charities in the 2016 reporting period.  Key findings were:

  • Grant-making charities provided $4 billion in grants and donations in 2016
  • Combined, they had total revenue of $16.5 billion in 2016
  • They controlled $56.5 billion in total assets
  • They employed 103,211 staff
  • 80.8 per cent per cent of charities operated with no paid staff and were supported by 337,288 volunteers, and
  • 20.9 per cent distributed a major share of grant funds through multi-year grants.

Australia’s Grant-making Charities in 2016 is available for download at australiancharities.acnc.gov.au, along with the full Australian Charities Report 2016 and an interactive data cube.

Financial Reporting

Moves to replace special purpose statements

The Australian Accounting Standards Board (AASB) is to consult in May on the ending of special-purpose financial statements for entities complying with Australian accounting standards.

The AASB’s international counterpart’s revised Conceptual Framework includes a definition of ‘reporting entity’ that conflicts with the counterpart Australian concept used to determine when an entity should prepare general-purpose financial statements.

According to the AASB, the conflict must be resolved to avoid confusion, non-compliance with international reporting standards and directors’ potential liability.

The AASB proposes to:

Make the revised framework applicable to entities required to prepare financial statements in accordance with Australian standards
Remove the current definition of reporting entity from Australian accounting requirements, effectively removing the option to prepare special-purpose financial statements, if entities are required by legislation or otherwise to comply with Australian standards, and
Provide an alternative Tier 2 general-purpose financial-statement framework ‘specified disclosure requirements’ that requires only four incremental disclosures to those currently required under current ASIC regulatory guidance for entities preparing special-purpose financial statements.

The move would have important consequences for some entities, effectively removing the option to prepare special-purpose statements (if they are required by legislation or otherwise to comply with Australian standards).

The proposals will be discussed in an AASB consultation paper, which will be released shortly.

The AASB wants to hear your views on:

The effect of removing the ability to prepare special-purpose financial statements
The usefulness of related-party, revenue, impairment and tax disclosures, and
The effect of consolidation and equity accounting requirements.

Consultation sessions are in Melbourne (14 May), Sydney (17 May), Brisbane (18 May), Adelaide (21 May) and Perth (22 May).  Register at www.aasb.gov.au.

The GAAP Consulting team would also like to hear your views.  We will be there.  Please provide your comments to colin@gaap.com.au.

Transitional reporting arrangements

Assistant minister to the Treasurer Michael Sukkar has announced that the government would extend the ACNC transitional-reporting arrangements for two years, comprising the 2017-18 and 2018-19 financial years.

The arrangements would give discretion to the ACNC commissioner to accept documents prepared for other commonwealth (ORIC, DET, ATO), state and territory government agencies as satisfying ACNC reporting requirements.

You can find information about the transitional reporting arrangements on the ACNC website at acnc.gov.au/transitionalreporting.

Fraud and NOCLAR

Our Community releases cyber safety guide

Our Community has released an excellent guide on cyber safety designed specifically for charities and NFPs.

Damn Good Advice on Cyber-safety and Fraud Prevention highlights the importance of cyber security, providing advice and recommendations on topics including data security, identifying vulnerabilities, and preventing data loss.

An emphasis on the importance of cyber security is growing, and the charity sector is as threatened by cyber crime as any industry.

Charities should consider carefully their approach to cyber security, conducting regular risk assessments and ensuring that their systems and procedures are up to date.

Damn Good Advice on Cyber-safety and Fraud Prevention is available at www.ourcommunity.com.au.