Not for Profit News January 2016

Welcome to the January Edition of Not For Profit News

Packed full of useful information covering specific updates on financial reporting, education and tax as far as they affect the NFP sector as well as the latest on what the Australian Charities and Not-for-profits Commission has been up to.

We very much hope that you enjoy the contents of this newsletter and your thoughts and comments are always welcome.

Company directors release NFP study

The Australian Institute of Company Directors (AICD) has released its sixth study of not-for-profits’ governance and performance.

Conducted by research firm Baxter Lawley on behalf of the AICD and sponsored by the Commonwealth Bank, the study highlights many of the challenges and priorities facing the NFP sector, including financial sustainability, mergers and collaborations, and NFPs’ relationships with governments.

For the first time, the study also shines a light on governance practices and challenges of arts and cultural organisations and the complexities of federated structures.

More than 2900 directors from a diverse range of NFPs participated in the study, making it the largest survey of NFP governance in Australia.

Key findings included:

  • Close to a third of NFPs had discussed mergers in the past year. Seven per cent had merged and a further 7 per cent were in the process of merging.  The push for consolidation was greatest among NFPs with incomes above $10 million or those operating in social services and development. Only 15 per cent of NFPs with annual incomes of less than $250,000 had considered a merger, and entities in the arts, philanthropy, and sports and recreation were least likely to have discussed it
  • Financial stability remained the major concern for most NFP directors: four of the six highest priorities for directors related to financial health. These included maintaining or building income, diversifying income sources and managing costs
  • Directors involved in international activities (34 per cent) were far more likely to rate their efficiency as high compared with directors working in professional associations (17 per cent), religious activities (15 per cent) and in sport, recreation and social clubs (11 per cent)
  • Eight per cent of NFP directors discussed over the past year the closure of their organisations
  • On average, directors gave the federal government a score of 4.6 out of 10 for understanding the NFP sector. The reasons given for the low scores included the recent drawn-out consideration of the future of the Australian Charities and Not-for-profits Commission (ACNC), the reduction of funding to the sector and reforms in procurement
  • Eighty-seven per cent of NFP directors were volunteers. Among those who were paid, the average remuneration was $25,700 and the median $17,000, and
  • On average, survey respondents spent 24 hours a month working as directors.


Check out this study and others profiled below. They provide valuable insights into the sector. Include them on your agendas for future governance meetings. For the larger charities, the studies and reports provide ideal material for a governance retreat.

Community directors release survey on NFP governance

The Institute of Community Directors Australia has released the results of a survey on NFP governance and financial oversight.  The survey was conducted earlier in 2015 and asked questions of 845 senior NFP representatives.  The results are presented in a report that offers interesting insights into governance and financial oversight.

Ten key findings are listed below.

Topic  Finding 
Understanding finances Fifty-six per cent of respondents agreed that most board members had a good understanding of their organisations’ finances. Only 16 per cent believed that all members of the board had a good understanding of the finances of the organisation they were governing
Treasurers Fifty-three per cent of community groups had difficulty recruiting treasurers to oversee their finances, 5 per cent of NFPs paying their treasurers (traditionally an honorary position), rising to 11per cent for larger NFPs
Fraud Six per cent of organisations surveyed had experienced fraud in the past three years, 60 per cent of them unreported to police. The bigger the organisation, the higher the rate of fraud. It was estimated that Australian NFPs could be losing up to $38 million to fraud each year.
Risk Management Thirty-one per cent of organisations believed that they didn’t need any formal risk-management processes because they trusted their staff. Nonetheless, 79 per cent of reported frauds were perpetrated by trusted insiders.
Funding sources Sixty-three per cent of large NFPs relied primarily on government contracts and grants for funding, while almost one in five sourced the largest part of their income from trading activities or service provision.
Cyber-crime Twenty-nine per cent of respondents said that their organisation wasn’t doing enough to protect against cyber-crime, while a further 39 per cent were not sure if their organisation was doing enough.
Funding continuity Eighty-five per cent said it was becoming harder to find consistent and regular funding. But despite the challenges, NFPs continued to expand their operations
Raising revenue Twenty per cent of organisations said that the past year had been the most challenging for raising revenue
Mergers Fifteen per cent of respondents said they expected to take part in a merger in the next 12 months
Overheads Fifty-six per cent of organisations were feeling pressure to reduce overheads.  Half of these said that most of the pressure was coming from their own board

Visit www.ourcommunity.com.au/nfpinsights to view the report in full and find out how your organisation compares.

New report shows charity sectors size

Australia’s charity sector has a combined income of $103 billion, according to a new ACNC report.

The Australian Charities Report 2014, produced in collaboration with the Centre for Social Impact and the Social Policy Research Centre at the University of New South Wales, is the first in-depth analysis of the Australian charity sector’s financial situation.

It will help us to understand more about the sector’s needs, concerns and challenges.  It also provides a rich source of data for new lines of research and analysis.

Almost $7 billion of charities’ total income comes from donations and bequests.  The top 5 per cent of charities by size received 80 per cent of the sector’s total take.  Charities spent $95 billion pursuing their purposes, the remaining $8 billion set aside for future charitable investment.

The report also found that Australian charities employ more than a million people – a large part of the work force.  When considered alongside the numbers of volunteers – around two million – you begin to get a well-rounded picture of the sector’s size.

The report also focuses on what charities do.  The most common activities are religion, education and research, and health.  Education and research was the biggest activity in terms of income, followed by health, and development and housing.

In addition to the full report, the ACNC, the Centre For Social Impact, and the Social Policy Research Centre will publish summary reports by sector.

The Australian Charities Report 2014 and the sector summary reports are available free of charge at australiancharities.acnc.gov.au.

Good governance guides for NFPs

Managing real, potential and perceived conflicts of interest is essential for charities if they are to protect their reputations.  Conflicts of interest – both perceived and real – are common but problem-free if properly managed.

To help charities handle potential problems, the ACNC has launched a new guide, Managing conflicts of interest.

The guide provides practical advice and case studies.  It defines conflicts of interest and the steps charities can take to identify, prevent and manage them.

It explores board members’ disclosure duties and answers some of the sector’s most frequent questions on the topic.  It also provides a template policy and a register of interests to help charities manage conflicts of interest.

While written in the context of charities, the guide’s principles have application to all NFPs.

Managing conflicts of interest – a guide for charity board members is available for download at acnc.gov.au/conflictsofinterest.

The Governance Institute Australia makes available the following good-governance guides to help the NFP sector:

  • Board structure
  • Separation of authority between board (council) and management
  • Stewardship and social responsibility
  • Volunteer management
  • Conflicts of interest, and
  • Risk-management policy.

The institute has also issued three good-governance guides applicable to all entities.  They are:

  • Issues to consider when developing a policy on delegations of authority
  • Issues to consider in board evaluations, and
  • Issues to consider when developing a policy on bribery and corruption.

The ACNC’s guide and the Governance Institute’s good-governance guides provide NFPs with a good basis from which to develop their own internal policies and procedures.  The guides also provide benchmarks for internal audit engagements.

Thousands of charities on notice / de-listing of charities

The ACNC has warned 8000 charities that they will soon be at risk of revocation if they don’t submit overdue reporting. Their 2014 annual information statements (AIS) are almost a year overdue.

The charities already have red marks against their names on the charity register, telling the general public that they have not met their obligations. If they miss the deadline for submitting the 2015 statement they will lose their charity status.

To maintain registration with the ACNC, charities with overdue 2014 statements should submit them as soon as possible.

The ACNC will soon be reminding charities to submit their 2015 statements.

Check to see that you have lodged your 2014 statement.

The ACNC recently revoked the status of more than 350 charities, which will lose commonwealth tax concessions. The charities failed to complete their 2013 and 2014 AIS despite many reminders.

Only charities registered with the ACNC receive tax concessions. ACNC registration is required to access several commonwealth concessions, including income-tax exemption, fringe benefit rebates and exemptions, and GST rebates. Some deductible-gift-recipient (DGR) categories also require charities to be registered with the ACNC.

The ACNC will notify the ATO of the revocations.

Audit guidance affects 31 December acquittals

The Auditing and Assurance Standards Board (AUASB) last year issued guidance statement GS 022 ‘Grant Acquittals and Multi-Scope Engagements’, recognising that a single-subject grant acquittal and a multi-scope engagement may give rise to several practical application problems.

The guidance will affect 31 December acquittals for the first-time.

The issues the statement addresses include:

  • Determining which AUASB standards and requirements are relevant and how to apply them
  • Planning and performing these types of engagements effectively and efficiently to address multiple objectives, including multiple subject matters and different levels of assurance
  • Reporting appropriately in accordance with AUASB standards and engagement mandates, especially when an auditor seeks to release a single-tailored report
  • Demands for the use of prescribed auditor’s reports, and
  • Engagements that require both assurance and agreed-upon procedures.

Controls assurance standard effective 1 January

The new standard on assurance engagements ASAE 3150 ‘Assurance Engagements on Controls’ is operative for assurance engagements commencing on or after 1 January. It is expected that the audit approach to assurance engagements on internal control will require reconfirmation with governance and management.

ASAE 3150 gives requirements, their application and other explanatory material for the acceptance, planning, conduct and reporting of assurance engagements on controls other than those to which ASAE 3402 is applicable. ASAE 3402 applies to assurance engagements on controls at a service organisation that are likely to be relevant to user entities’ internal control as it relates to financial reporting.

The ASAE 3150 replaces existing standard AUS 810 ‘Special Purpose Reports on the Effectiveness of Control Procedures’, last revised in 2002.

The requirements and application material ASAE 3150 provides are additional to those contained in ASAE 3000 ‘Engagements Other than Audits or Reviews of Historical Financial Information’. ASAE 3150 is therefore required to be applied in conjunction with ASAE 3000.

ASAE 3150 applies to both reasonable and limited assurance engagements, as well as both direct engagements, where the assurance practitioner evaluates the controls, and attestation engagements, where the responsible party, usually on behalf of the entity, evaluates the controls and makes a statement on the outcome of the evaluation.

ASAE 3150 requires the assurance practitioner to draw conclusions on the suitability of the design of controls to achieve identified control objectives for every engagement. In addition, the assurance practitioner may be engaged to conclude either at a specified date on the fair presentation of the description of the system and/or implementation of controls as designed or throughout the period on the fair presentation of the description of the system and/or operating effectiveness of controls as designed.

Lodgement Dates 2015 AIS's due date extended to 31 January

Registered charities that use a 1 July-30 June reporting period can log into the ACNC’s charity portal, and lodge their 2015 AISs. These charities will have until 31 January, instead of 31 December, to submit their 2015 statements, a one-month extension.

Charities that use a different reporting period are required to submit their AISs within six months. Registered charities that report on a calendar-year basis, for example, will be required to submit by 30 June.

The ACNC has published guidance to help registered charities meet their reporting obligations. Visit acnc.gov.au/2015AIS or call 13 ACNC or email advice@acnc.gov.au.

Ancillary-funds returns need lodging by 26 February

Ancillary funds are reminded that they need to lodge their 2015 returns with the ATO by 26 February.

The tax office recently sent a letter to organisations endorsed as public and private ancillary funds to advise them of their obligations.

ACNCs strategic plan for 2015/18

The ACNC has launched a strategic plan for 2015-2018. The commission’s priorities are:

  • Maintaining and enhancing public trust and confidence in charities
  • Supporting charities to be healthy and sustainable
  • To make it easier for charities by driving regulatory and reporting simplification, and
  • Sustaining an independent, transparent and well-governed ACNC with a positive culture and a strong customer-service focus.

The commission will continue working with other commonwealth, state and territory regulators, and take a leadership role in best-practice charity regulation nationally and internationally.  Red-tape reduction is a key focus.

Highlights of the strategic plan are to:

  • Develop a fully populated charity register with usable, accessible and accurate data
  • Analyse and report on charity data to demonstrate the contribution of the sector to the Australian community and identify sector trends
  • Ensure a high take-up by government departments of the charity passport to drive red-tape reduction
  • Develop and maintain a high-calibre workforce that can effectively deliver the ACNC’s strategic priorities.

The 2015-18 plan is available at acnc.gov.au/strategicplan