Welcome to the January Edition of Not For Profit News
This quarter’s NFP News contains a number of interesting articles, including the ACNC’s release of the Australian Charities Report 2015, the release of the new accounting standard on Income of Not-for-Profit Entities and the ACNC’s launch of the “registered charity tick”.
We very much hope that you enjoy the contents of this newsletter and your thoughts and comments are always welcome.
Protecting whistleblowers gains momentum
The federal government has committed to extending to the private sector whistleblower protections in the Fair Work (Registered Organisations) Act.
It will also support a parliamentary inquiry into whistleblower laws, set up an ‘expert advisory panel’ to develop draft legislation to act on the inquiry’s report and introduce legislation into parliament by December.
The Senate referred an inquiry into whistleblower protections in the corporate, public and not-for profit (NFP) sectors to the Joint Parliamentary Committee on Corporations and Financial Services for reporting by 30 June. Submissions are due by 10 February.
The terms of reference are:
- The development and implementation in the corporate, public and NFP sectors of whistleblower protections, taking into account the substance and detail contained in the Registered Organisation Commission (ROC) legislation passed by parliament in November
- The types of wrongdoing to which a comprehensive whistleblower-protection regime for the corporate, public and NFP should apply
- The most effective ways of integrating whistleblower-protection requirements for the corporate, public and NFP sectors into Commonwealth law
- Compensation arrangements in whistleblower legislation across different jurisdictions, including the bounty systems used in the United States of America
- Measures needed to ensure effective access to justice, including legal services, for persons who make or may make disclosures and require access to protection as whistleblowers
- The definition of detrimental action and reprisal, and the interaction between, and, if necessary, separation of criminal and civil liability
- The obligations on corporate, NFP and public-sector organisations to prepare, publish and apply procedures to support and protect persons who make or may make disclosures, and their liability if they fail to do so or fail to ensure that the procedures are followed
- The obligations on independent regulatory and law-enforcement agencies to ensure the proper protection of whistleblowers and investigation of whistleblower disclosures
- The circumstances in which public interest disclosures to third parties and the media should attract protection
- Any other matters relating to the enhancement of protections and the type and availability of remedies for whistleblowers in the corporate, not-for-profit and public sectors, and
- Any related matters.
Other commitments include that the government will:
- Set up an ‘expert advisory panel’ to develop draft legislation to act on the report
- Introduce legislation into parliament by December with the support of, at a minimum, the standards now set in the Act, and
- Commit to supporting enhancements to whistleblower protections and commit to a parliamentary vote on the legislation no later than 30 June 2018.
School funding revoked
The Administrative Appeals Tribunal has affirmed a Federal Department of Education and Training decision to revoke government funding of Malek Fahd Islamic School Limited.
The AAT decided that the school authority was unable to satisfy the requirements of the Education Act or be able to do so in the foreseeable future.
Concerns centred on the school’s independence, financial management and governance.
Education minister Simon Birmingham noted that the tribunal referred ‘in particular to the ongoing burden of the uncommercial arrangements with the Australian Federation of Islamic Councils’ and that ‘findings make it clear that, at a minimum, MFISL continues to be operated for profit.’
The Australian Education Act 2013 requires school authorities to operate on a NFP basis, be financially viable, be ‘fit and proper’, and ensure that funding provided is used only for school education. Schools must meet the requirements to receive federal funding.
ACNC releases cash reserves guidance
The Australian Charities and Not-for-Profits Commission (ACNC) has released Charity reserve: financial stability and sustainability, which encourages charities to maintain cash reserves to ensure financial stability.
The fact sheet provides general guidance on reserves, covering:
- What reserves are and where they come from
- Why it is important to have reserves
- Appropriate levels of reserves, and
- Who has responsibility for reserves?
ACNC commissioner Susan Pascoe said that the myth that charities should not make a profit or have money in reserve damaged the sector. She hoped that the guidance’s release would help to correct misinformation.
Reserves play an important role in the financial stability and long-term sustainability of a charity, and managing them is an important part of a charity’s overall financial management, a crucial element of good governance.
In line with good governance and proper risk-management, a charities’ boards, committees and governing bodies should consider an appropriate level of reserves and a strategy for building or spending them that is consistent with its purpose.
‘Charities are often trying to get by on very little and sometimes are worried that if they build up healthy reserves, they’ll struggle to secure funding. We need to explain to the public that charities need to operate on a sustainable footing to be able to continue their work from one year to the next. Making a profit allows a charity to build reserves and become sustainable,’ Ms Pascoe said.
‘Charities should have reserves set aside to cover unexpected events or costs – a fund set aside for a rainy day. Even small charities would benefit from a small reserve.
‘Maintaining an appropriate level of reserves is responsible financial management. It is important that charity boards properly consider maintaining and managing reserves. This guidance outlines the key considerations for developing a good reserves policy.
‘It is important for charities to be transparent about finances. Charity boards should make an effort to explain to funders, donors and the public why they need reserves and the justifications for the decisions they make.’
The guidance document can be found on the ACNC website at acnc.gov.au/charityreserves.
If a charity is a private ancillary fund or a public ancillary fund, it will have different obligations concerning accumulating and distributing reserves.
ACNC releases fundraising agencies guidance
Working with fundraising agencies helps charities manage their links with fundraisers and enter into new agreements while ensuring that they meet their charity-status obligations.
Recent media reports have alleged that some agencies have used inappropriate workplace practices and might have broken Australian employment laws. The allegations undoubtedly damage public trust and confidence in Australia’s charity sector.
The guidance addresses:
- Fundraising and charity governance
- Working with fundraising agencies
- Considerations for working with a fundraising agency
- Practical steps for ensuring good governance, and
- Taking fundraising governance seriously.
ACNC commissioner Susan Pascoe highlighted the risk to public trust and confidence as the impetus for releasing the guidance.
‘Charity boards cannot outsource their responsibilities,’ Ms Pascoe said.
‘Charities run the real risk of damaging public trust and confidence in both their brand and the sector more widely if they are being inappropriately represented by third-party fundraisers in the community.
‘The board should be satisfied that the fundraising agency they have contracted is aware of its legal obligations, has appropriate policies and processes to ensure compliance, and also shares the values of the charity. A charity must have appropriate oversight of all of the activities conducted by a fundraising agency in the name of the charity.’
Paul Tavatgis, chief executive of the PFRA – a self-regulatory body for face-to-face fundraising in Australia – welcomed the guidance and encouraged charities to consider committing to the associations rules that define how face-to-face fundraisers should behave.
FIA chief executive Rob Edwards welcomed the ACNC’s position on governance practices for charities that used fundraising agencies.
‘As the national peak body representing professional fundraising in Australia, FIA believes that the fundraising sector can only remain sustainable when there is strong public trust. The FIA’s Principles & Standards of Fundraising Practice are the professional fundraiser’s guide to ethical, accountable and transparent fundraising. [It is] critical to how the fundraising profession is viewed by donors, government and the community”.
Other ACNC resources on fundraising are ACNC Governance Standards, Fundraising: engaging people in vulnerable circumstances, and Charities and fundraising: FAQs.
The ACNC has launched a ‘tick of charity recognition’, also known as the ‘registered charity tick’, which allows donors to identify quickly and easily a registered charity.
Displaying the tick is optional, however nearly 2000 registered charities have already logged into their portals to download it.
Many have used it on their websites, and the ACNC is encouraging them to link the image to their listing on the charity register, giving donors immediate access to a wealth of information.
For more information about the tick, visit acnc.gov.au/registeredcharitytick.
Avoid making mistakes in your 2016 AIS
Charities that report using the standard 1 July to 30 June financial year are required to submit their 2016 annual information statements (AIS) before 31 January.
To help charities avoid making mistakes, the ACNC has published 10 top tips:
- Make sure that your address for service email is not your personal email
- Will you report as a basic religious charity? Know the requirements
- Make sure you select the right activities for your charity
- Remember to provide financial information
- Check that the financial information you enter is correct
- Know your financial report type
- Will you provide a consolidated financial report? Consolidated financial reports are accepted, but don’t forget that financial-information questions are only for registered charities and not entire groups
- Make sure you attach all required documents. For medium and large charities these include : statements of profit or loss and other comprehensive income, statements of financial positions, statements of changes in equity, statements of cash flows, notes to the financial statements, reviewer’s report/auditor’s report signed and dated, and signed and dated responsible persons’ declarations about the statements and notes
- Preparing a special purpose financial statement? Remember the accounting standards. You need to comply and state that the financial statement is prepared in accordance with the six mandatory accounting standards, and
- Preparing a general-purpose financial statement? Check the completeness and quality of the related-party disclosures. Make sure you comply with all relevant accounting standards and provide sufficient detail of transactions between related parties and key management personnel compensation.
The ACNC has also released a series of instructional videos to help charities to complete their statements. The screencasts take viewers step-by-step through several obligations.
A checklist covers everything.
Third charity report released
Recently released, the Australian Charities Report 2015 contains new information about the size, activities and impact of Australia’s charities.
The third edition, it is the first to compare findings with those of previous years.
The report amounts to the ACNC’s annual flagship research and is essentially a charity-sector census. Produced by the Centre for Social Impact in partnership with the Social Policy Research Centre at the University of New South Wales, it analyses data submitted in 2015 annual information statements by almost 51,000 registered charities.
The report found that:
- Total income had grown 2 per cent to more than $134 billion
- Donations and bequests grew 2.4 per cent to $11.2 billion
- There were nearly three million volunteers
- Nearly half of all charities were run solely by volunteers
- 1.2 million Australians were employed by a registered charity (around 10 per cent of the total workforce), and
- The majority (67 per cent) of charities were small, with annual revenue of $250,000 or less.
The report is a valuable resource for charities, donors, governments, researchers and the community to understand better the sector.
It and shorter summary reports as well as an interactive data cube are available at acnc.gov.au.
Six charities lose status after investigations
The ACNC has revoked the charity status of six organisations following compliance investigations. They are:
- Shaolin Temple Foundation (Australia) Ltd: Status revoked on 8 December, with the effective date of revocation 2 December 2015. It has been operating since 2006 and is based in New South Wales. The Shaolin Temple Foundation was endorsed by the ATO to access the following Commonwealth charity tax concessions – GST, income-tax exemption, and FBT rebate
- Camp Gallipoli Foundation Incorporated: Status revoked on 15 December, with the effective date of revocation 10 February 2014. Camp Gallipoli Foundation Incorporated has been operating since 2014 and is based in South Australia. It was endorsed by the ATO to access the following Commonwealth concessions – GST and income-tax exemption
- International Development Organisation: It has been operating since 2013 and is based in New South Wales. It was endorsed by the ATO to access GST concession, income-tax exemption, and FBT rebate
- Islamic Development Organisation Inc: It has been operating since 2011 and is based in New South Wales. It was endorsed by the ATO to access GST concession, income-tax exemption, and FBT rebate
- Diamond’s House of Faith: Diamond’s House of Faith has been operating since 2001 and is based in New South Wales. It was endorsed by the ATO to access GST concession, income tax exemption, and FBT rebate, and
- Village Green Community Foundation: Revoked the organisation’s charity status on 12 October following a compliance investigation, and backdated the revocation date to 1 July 2013. The organisation will lose access to federal tax concessions.
Commissioner Susan Pascoe said that while the ACNC could not provide further details due to secrecy provisions in its Act, the commission’s approach to compliance activity was proportionate. ‘Members of the public can be assured that compliance revocations are reserved for the most serious of cases,’ she said.
ACNC issues penalty notices
The ACNC has issued several penalty notices to charities for failing to lodge outstanding AISs.
Notices have been sent to 40 large charities with annual revenue of $1 million or more, and combined assets of more than $70,000,000. The charities’ statements were more than eight months overdue.
They were given multiple reminders, including a final warning letter. Penalised charities might be fined up to $4500.
AASB 1058 Income of Not for Profit Entities issued
Under the new AASB 1058 Income of Not-for-Profit Entities, revenue from grants and donations will be recognised when any associated performance obligation to provide goods or services is satisfied, and not immediately upon receipt as currently occurs.
More assets will be recognised in the financial-position statement under the new requirements, including leases with significantly below-market terms and conditions.
In addition to AASB 1058, two related amending standards are AASB 2016-7 Amendments to Australian Accounting Standards – Deferral of AASE 15 for Not-for-Profit Entities, and AASB 2016-8 Amendments to Australian Accounting Standards – Australian Implementation Guidance for Not-for-Profit Entities.
AASB 1058 establishes principles for NFPs that apply to transactions where the consideration to acquire an asset is significantly less than fair value principally to enable an NFP to further its objectives, and the receipt of volunteer services.
AASB 1058 applies for annual reporting periods beginning on or after 1 January 2019. Earlier application is permitted provided that entities apply AASB 15 Revenue from Contracts with Customers in the same period.
AASB 1058 clarifies and simplifies income-recognition requirements that apply to NFPs in conjunction with AASB 15. The standards supersede income-recognition requirements private-sector
NFPs and most of the income-recognition requirements for public-sector NFPs previously in AASB 1004 Contributions.
The requirements of AASB 1058 address transactions that are not contracts with customers. The timing of income recognition depends on whether such a transaction gives rise to a liability or other performance obligation (a promise to transfer a good or service), or a contribution by owners, related to an asset (such as cash or another asset).
AASB 1058 applies when an NFP receives volunteer services or enters into other transactions where the consideration to acquire an asset is significantly less than the fair value of the asset, principally to enable the entity to further its objectives. In the latter case, the entity recognises and measures the asset at fair value in accordance with an applicable Australian accounting standard, for instance, AASB 116 Property, Plant and Equipment.
Upon initial recognition of the asset, AASB 1058 requires NFPs to consider whether any other financial-statement elements (called ‘related amounts’) should be recognised, such as contributions by owners, revenue, or a contract liability arising from a contract with a customer, a lease liability, a financial instrument, or a provision. Related amounts are accounted for in line with applicable standards.
If a transaction is a transfer of a financial asset to enable an entity to acquire or construct a recognisable non-financial asset to be controlled by the entity (that is, an in-substance acquisition of a non-financial asset), the entity recognises a liability for the excess of the fair value of the transfer over any related amounts recognised.
The entity recognises income as it satisfies its obligations under the transfer similarly to income recognition on performance obligations under AASB 15. If the transaction does not enable an entity to acquire or construct a recognisable non-financial asset to be controlled by the entity, then any excess of the initial carrying amount of the recognised asset over the related amounts is recognised as income.
When an entity receives volunteer services and can reliably measure the fair value of those services, it may elect to recognise the services as an asset (provided the relevant asset-recognition criteria are met) or an expense. Local governments, government departments, general government sectors (GGSs) and the whole of governments are required to recognise volunteer services if they would have been purchased if not provided voluntarily and the fair value of those services can be measured reliably.
Significant transitional relief has been provided as well as numerous illustrative examples.
AASB 2016-7 Amendments to Australian Accounting Standards – Deferral of AASE 15 for Not-for Profit Entities amends the mandatory effective date (application date) of AASB 15 Revenue from Contracts with Customers for NFPs so that AASB 15 is required to be applied by such entities for annual reporting periods beginning on or after 1 January 2019 instead of 1 January 2018.
Earlier application of AASB 15 is permitted by NFPs for annual reporting periods beginning before 1 January 2019 provided AASB 1058 is also applied.
AASB 2016-8 Amendments to Australian Accounting Standards -Australian Implementation Guidance for Not-for-Profit Entities inserts Australian requirements and authoritative implementation guidance for not-for-profit entities into AASB 9 Financial Instruments and AASB 15.
The amendments Appendix C Australian implementation guidance for not-for-profit entities, to AASB 9 address the initial measurement and recognition of non-contractual receivables arising from statutory requirements. They include taxes, rates and fines.
The amendments Appendix F Australian implementation guidance for not-for-profit entities, to AASB 15 address identifying a contract with a customer, identifying performance obligations, and allocating a transaction price to performance obligations.