Welcome to the Autumn edition of NFP News. It is hard to believe that the year is nearly one third over already. I hope that you all had an enjoyable Easter and had an opportunity to enjoy some time with your family and friends. In this edition of NFP News we have a number of topical issues to report on. The ACNC has recently released its Charity Compliance 2015 and 2016 report. This report contains highly relevant information and statistics about the charitable sector and a link is provided for you to download it should you wish. From a financial reporting perspective we have some articles including the release of an issues paper debating how financial reporting and accountability in the not-for-profit sector can be improved and enhancements to the reduced disclosure regime is also discussed.
We very much hope that you enjoy the contents of this newsletter and your thoughts and comments are always welcome.
Governance Institute call for single whistleblowing law
The Governance Institute has called for a stand-alone ‘one-stop-shop’ Act to protect corporate whistleblowers, saying that regulator-specific provisions across many pieces of legislation fail to provide the best protection for those exposing misconduct.
In a submission lodged with Treasury, the institute says that whistleblower provisions in the Corporations Act are very narrowly focused and require whistleblowers to have a detailed understanding of whether the misconduct they are reporting is covered by corporate law or might relate to competition, tax, workplace health and safety, bribery or corruption or industrial relations, all of which are covered by different legislation and regulators.
It argues that a whistleblower should be protected, irrespective of the regulator or agency initially approached and whether the allegation is referred to another body to investigate. Disclosures within the corporate sector should not be confined to the Australian Securities and Investments Commission and the tax office.
‘We do not believe that a whistleblower should be required to have a nuanced knowledge of legislation to know which regulator or law enforcement agency [to] approach to qualify for protection,’ said the institute’s chief executive Steve Burrell.
‘It is a strong disincentive to making disclosures if employees or concerned members of the public feel that they require legal advice before making any such disclosure.
‘A stand-alone Act that covers disclosure of any sort of misconduct – not just financial misconduct – and that provides protection regardless of which regulator the whistleblower discloses to is what we need. Australia should follow the lead of the United States and United Kingdom where there are general provisions for allegations of misconduct made in good faith, and which do not attract retribution. This is a much better option than one which mandates the same provision in multiple pieces of legislation.’
The institute believes that it is important to distinguish between protecting the whistleblower who has acted in good faith and any subsequent action taken.
Mr Burrell said, ‘If a whistleblower talks to a regulator such as ASIC or a law-enforcement agency which believes it is not the appropriate body to investigate the allegation, [the] regulator should be able refer it to the appropriate body.
‘Whistleblowers should have protection providing it concerns disclosure of potentially illegal activities that ASIC or another regulator or law-enforcement agency can investigate. Nor should disclosures of unlawful activity be confined to ASIC. Importantly, if this cross-referral recommendation is accepted, it is critical that the whistleblower has the same confidentiality protection they had when they first made the disclosure.
‘Regulators and policy-makers have quite rightly homed in on the important link between a good corporate culture and ethical corporate conduct. A robust and independent whistleblowing process that makes employees feel comfortable about fearlessly reporting wrongdoing is a critical asset in building the kind of positive, ethical culture that supports strong corporate outcomes.’
Managing charity money
The Australian Charities and Not-for-profits Commission has released Managing charity money – a guide for board members on managing finances and meeting ACNC duties.
It provides insights into good practice in financial management, focusing on practical steps that charities can take to ensure that their finances are used appropriately and protected from misuse.
It also explains the obligations that charities have to the ACNC, such as providing financial reports and ensuring that they operate profit-free.
Charity Compliance 2015 and 2016 report
The ACNC has launched its Charity Compliance 2015 and 2016 report, which shows that the vast majority of registered charities are run by dedicated and honest people.
Bad behaviour by a small number of individuals, though, damages trust and confidence in the sector.
The ACNC investigates concerns and takes strong action where required. In most cases, the commission is able to resolve issues by providing regulatory advice and guidance, suggesting that most charities are receptive when contacted.
Commissioner Pascoe said, ‘However, where we find serious misconduct and mismanagement, the ACNC will take firm action, including revocation of charity status.
‘Over the two-year period of the report, the ACNC revoked the status of 28 charities. A further nine had their registrations revoked following a review of their entitlement to charity status.
‘Revocation is the most serious enforcement action taken by the ACNC and results in the loss of Commonwealth charity tax concessions.
‘We have published this report as we believe that there are many lessons registered charities can learn from compliance matters. We also feel it’s important that we, as the charity national regulator, are transparent and accountable to the sector and the public and hold ourselves to the same standards that we hold charities to.
‘Our secrecy and privacy provisions limit the information that can be publicly released, however, we are able to release aggregated data and de-identified case studies to provide insights into the ACNC’s compliance work. The case studies in particular give the sector and the public an insight into the kinds of issues we find when investigating concerns, and how we work with charities to resolve them.
‘We have also included lessons for other charities in the case studies so that they can use this information to improve their own organisation’s governance.’
The report also sets out the ACNC’s areas of focus for the next 12 months.
‘The ACNC will continue to investigate concerns that could significantly [affect] public trust and confidence in the not-for-profit sector,’ Ms Pascoe said.
‘Public trust and confidence is vital to the long-term sustainably of the sector, and we are hoping that by publishing this report, members of the public feel assured that there is a “cop on the beat”.
‘Similarly, we want to make charities aware of the common issues we have found over the past two years so they can self-assess their governance and process to ensure they are on the right track.
‘[We] will be focusing on five key areas of compliance: fraud and financial mismanagement; terrorism; harm to beneficiaries; political activities; and lodgement and accuracy of annual information statements.’
To read the full report visit acnc.gov.au/compliancereport.
The must have guide for aged care directors
With profitability, return on assets and equity under pressure in what is soon to be the largest employer in the country, the Governance Institute’s Adding value to governance in aged care is a ‘must have’ for the sector’s directors and senior management.
Aged care is a major part of the Australian economy. About 2000 providers employ some 350,000 staff.
Increasing Choice in Home Care reforms changed the regulatory framework as of 27 February, and the new guide addresses a broad range of issues, including the sector’s unique challenges.
Among topics are factors to consider before taking a board position, what a board should consider before appointing a new member, the relationship between board and management, interaction with stakeholders, volunteer management, and risk-management responsibilities.
Adding value to governance in aged care is the definitive guide for directors committed to dealing with the high regulatory burden, increasing consumer choice and changes to funding.
‘Boards of aged care providers will be subject to increasing scrutiny and pressures as the forces of demographics press up against the issues of affordability and sustainability in the sector. Boards will need to ensure that they are capable of making informed and effective decisions and have in place governance frameworks to enable this,’ said the institute’s Steve Burrell.
‘A lot of boards, particularly not-for-profits, may not be prepared for the regulatory change sweeping the sector and the demands this brings. Boards need to have a designated skillset to overcome the multiple challenges their organisations are facing.’
Adding value to governance in aged care is a practical guide for anyone involved in aged care because large-scale organisational change will be required in terms of workplace arrangements, staff roles, IT, business processes and capital expenditure to deliver the best consumer-driven care.
‘Importantly, the guide does not tell boards how to run their organisations. But it does step directors through the issues that they should consider in terms of their governance responsibilities,’ said Mr Burrell.
ACNC revokes status of hundreds of charities
The ACNC has revoked the registration of 590 charities that have failed to submit annual reports two years running.
In February, commissioner Susan Pascoe warned more than 1300 registered charities that failing to submit outstanding annual information statements would result in the loss of charity status.
‘As the national charity regulator, it is important that we provide the Australian community with accurate and up-to-date information on the charity register,’ Ms Pascoe said.
‘This information is largely collected from the annual information statements required from charities to meet their basic requirements to retain charitable status.
‘The organisations that have lost their charity status were warned multiple times to submit their outstanding reports.
‘Pleasingly, more than 700 charities – over 55 per cent – that were initially at risk of revocation have recognised the importance of being accountable and transparent in their operations, and have submitted their outstanding statements. This group have retained their registration with the ACNC and will continue to access Commonwealth charity tax concessions.
‘This is a positive outcome for these charities. Revocation for failing to report is always a last resort for the ACNC, and we prefer to work with charities to get them back on track.’
Revoked charities will no longer be able to display the ACNC’s tick on the register.
‘Revoking charities that fail to meet their obligations is an important part of maintaining trust and confidence in the not-for-profit sector,’ said Ms Pascoe. ‘The public need to be confident that the national regulator is displaying only eligible charities on the register.
‘The [register] provides the public and donors with accurate and up-to-date information about Australia’s 54,000 charities. Since it was launched in late 2012, it has been searched over 1.7 million times.’
Charities risk consequences of overdue reporting
More than 4000 charities risk sanctions after missing the deadline for their annual reporting to the ACNC.
Registered charities that report on a standard 30-June financial year were required to submit their annual information statements by 31 January.
Ms Pascoe said charities that have failed to submit their statements were encouraged to do so immediately to avoid sanctions and possible status revocation.
‘The Australian public value transparency in the charity sector, and meeting ACNC obligations is a simple and effective way to achieve this,’ she said.
Registered charities that fail to meet their obligations may face financial penalties, and will lose the right to display the ACNC’s tick. Ultimately, they risk revocation.
Commissioner Pascoe said that most charities have had several years to familiarise themselves with the ACNC’s annual-reporting requirements.
‘The 2016 [statement] is the fourth annual report that registered charities have been required to submit … ,’ she said.
‘Each year we send charities multiple reminders to ensure they know when their reporting is due, and how they can access our range of guidance materials and support services.
‘Since the ACNC was established in December 2012, financial penalties have been used sparingly. Issuing financial penalties to charities is not something we take lightly. However, if deemed appropriate we will penalise those who are wilfully avoiding their reporting obligations.’
Fines may be up to $4500, depending on the size of the charity.
For charities that have double-defaulted, failing to submit two statements, the risk grows. ‘Failing to submit two [statements] is grounds for revocation … ,’ Ms Pascoe said.
Resources to help charities complete their 2016 statements, including a checklist, worksheet and a step-by-step guide, can be found at acnc.gov.au/2016AIS.
2017 Annual Information Statement
The 2017 Annual Information Statement is set to be released in late July and will be accompanied by a range of resources and a redesigned online guide for easier use.
Several improvements to the 2017 online form have been made, including improved auto-calculation and the ability to update responsible-persons’ information.
Charities in Tasmania and South Australia will benefit from streamlined reporting arrangements, other states likely to benefit in coming months.
ACNC releases screencasts
The ACNC has released two new screencasts to help charities use key functions of the charity portal.
The step-by-step videos walk through the processes of Changing a responsible person and Changing your charity’s sub-type.
The commission has also published a range of information on the obligations charities have to state and territory regulators. You can access this information and a range of general advice on fundraising at acnc.gov.au/fundraising.
Issues paper asks big questions
A new issues paper asks big questions aimed at firing up debate on how financial reporting and accountability in the not-for-profit and charitable sectors can be improved.
Launched by Anglicare Australia, the ACNC and the Australian Accounting Standards Board, the paper responds to calls for improved reporting by NFPs and charities.
David Gilchrist, the paper’s author and a director of the management consultancy Baxter-Lawley, said that to pin down how better reporting in the sectors should look is problematic.
‘This report is the first step in developing an understanding of how we might move forward,’ said Dr Gilchrist.
Better Financial Reporting for Australian NFPs focuses on the transaction-neutral framework of the AASB. It asks whether the framework meets the needs of financial-information users and whether there needs to be a more nuanced, sector-specific path.
The paper notes that it is difficult to identify users of NFP and charity financial reports and equally difficult to identify their information needs.
The paper’s aim is to start developing a reporting framework that is fit-for-purpose, resource efficient (meets a cost-benefit test), and sensitive to the relative financial risks of organisations involved.
The paper doesn’t aim to provide answers but raises a set of 13 core questions intended to facilitate discussion.
The questions are:
- Who are the users of NFP and charitable organisations’ financial reports?
- What are their financial reporting needs?
- Do standards support the provision of high-quality financial information to users of NFP financial reports?
- Do reporting arrangements allow NFPs and charities to meet their obligations in a cost-effective manner?
- Should volunteer time be allowed and donated assets be required to be reported in financial reports as in AASB1058; in some different way or not at all?
- If volunteer time and donated assets should be reported, how should they be valued and reported?
- Should restricted assets be separated from unrestricted assets in the statement of financial positions for NFPs?
- Regardless of the answer to question 7, how should restricted assets be valued?
- Should capital grant income be reported in the statement of financial performance?
- Should income relating to contracts for outcomes delivery over more than one financial period be matched to expenses incurred on an annual basis if the income is not at risk?
- Should a different test be applied to NFP and charitable organisations to determine whether consolidation should be undertaken?
- Are the income levels appropriate segregation points for differentiating reporting requirements?
- Should there be more tiers added? If so, how should they be segregated and what should they be required to report?
NFPs need more AASB help
An Australian Accounting Standards Board report finds that Australia’s adoption of International Financial Reporting Standards (IFRS) has been relatively smooth for most Australian businesses.
Extra support, however, is warranted for not-for-profits, including public-sector entities, charities and incorporated associations, to meet user needs and to reduce costs associated with preparing financial information.
Review of Adoption of International Financial Standards in Australia sets out responses from Australian stakeholders from all sectors that, through interviews and forums conducted by the AASB, shared their views and experiences of the past 10 years – since Australia adopted IFRS.
AASB chair Kris Peach said, ‘The research report finds that while IFRS standards are currently appropriate as a base, extra modifications and guidance for specific standards are needed to support the NFP sector. The AASB is undertaking and considering projects specifically to meet this need.’
The projects include:
- Exposure draft 277 Reduced Disclosure Requirements for Tier 2 Entities
- Benchmarking AASB standards against International Public Sector Accounting Standards Board standards to identify further areas that might warrant modification, and
- Reshaping the Australian Financial Reporting Framework – leading and working with key regulators and policy-makers to simplify and clarify reporting requirements.
Projects being considered are:
- Fair-value guidance for the NFP public sector
- Accounting for volunteer services
- Review of Australian-specific disclosure paragraphs in AASB standards, and
- Definition of contributions by owners.
‘The [report] has provided important feedback and proves again how vital consultation with all sectors is when developing and maintaining world-class accounting standards,’ Ms Peach said.
Improving reduced disclosure
Financial reports are set to become more relevant and concise for many not-for-profit and non-listed entities under changes proposed by the AASB.
The board has reviewed standards specifying information to be disclosed in financial reports of entities eligible to use the reduced-disclosure regime (RDR).
Proposals in exposure draft 277 Reduced Disclosure Requirements for Tier 2 Entities aim to address concerns about the length and relevance of reports produced under the regime.
Kris Peach said, ‘We are keenly aware of the need to cut unnecessary or overly detailed disclosures and to increase the relevance of required disclosures. These proposals strike a good balance between preparer effort and user needs.’
In practice, few entities that may adopt RDR have done so, many instead issuing ‘special purpose’ reports.
Kris Peach said, ‘With increasing concern from regulators, investors and the broader community about the transparency and comparability of special-purpose financial reports, it is our hope that these proposals will encourage more entities to adopt general-purpose financial reports using the RDR regime.’
In particular, the AASB is proposing to reduce the disclosures required around financial instruments and interests in other entities based on feedback from constituents that these disclosures were too detailed and of little interest to users.
Closing date for feedback is 26 May.
Changes for residential and home care providers
The Federal Department of Health is making changes to financial-reporting requirements for residential aged care and home-care package providers.
A single template called the Aged Care Financial Report (ACFR) will consolidate the:
- Annual Prudential Compliance Statement (APCS)
- Building activity component of the Survey of Aged Care Homes (SACH), and
- Home Care Financial Report (HCFR).
A general-purpose financial report will continue to be required, and the ACFR will need to be submitted with the general-purpose report.
Providers are not required to submit an audit opinion with their ACFR.
Providers of home care that do not also provide residential care will not be required to submit a general-purpose report, needing only to complete the home-care section of the ACFR.
Under the new arrangements, the residential-segment format will be replaced by mandated line items at both the approved provider and residential-segment level. However, providers will be able to include mandated line items in their general-purpose report or ACFR.
The new arrangements are mandatory for all residential and packaged home-care providers in the 2016-17 financial year. Providers who report on 30 June will submit their new reports by 31 October.
Providers will complete the ACFR online, data to be entered into a new portal. Residential aged care providers will also upload and submit their audited GPFR through the portal.
Introducing the ACFR will require changes to the Accountability Principles 2014 and the Fees and Payments Principles 2014 (No. 2). Details of the changes will be available shortly.