The Australian Charities and Not-for-Profits Commission (ACNC) has implemented its new Governance Standards, effective from 1 July 2013.
All charities (except basic religious charities) must comply with the Governance Standards to become registered and to maintain their registration with the ACNC.
The Governance Standards set out minimum standards of governance, to help promote public trust and confidence in charities. The Governance Standards also allow greater flexibility in terms of how charities operate.
We set out below a brief summary of each of the Governance Standards* and take a look at examples of what charities could do to ensure they comply with the Governance Standards. This is not a comprehensive list, and we suggest you seek further advice before implementing any changes to the manner in which your charity operates. Please keep in mind that some changes may require you to amend your constitution.
Please note the following:
• The ACNC Act and the Governance Standards refer to a charity as a “registered entity” and a director as a “responsible entity”. We have used the terms “charity” and “director” respectively for ease.
• A charity has until 1 July 2017 to make any necessary changes if there is a specific part of its governing document that prevents it from complying with any of the Governance Standards.
• If a charity is an incorporated association, the charity will be deemed to have complied with Governance Standard 5 if its relevant legislation sets out committee member duties and those duties are being complied with by the charity.
Governance Standard 1 requires that charities must be not-for-profit and work towards their charitable purpose. They must be able to demonstrate this and provide information about their purpose to the public.
Most existing charities will already be complying with Governance Standard 1 and will not need to do anything further.
Examples of what a charity could do to comply with Governance Standard 1 include:
• including the following clauses in its constitution:
o an objects clause setting out its charitable purpose; and
o the not-for-profit clauses required by the Australian Taxation Office for a charity to obtain charitable tax concessions.
• ensuring it undertakes activities which progress its charitable purpose.
• providing a copy of the constitution to the ACNC to be included on the ACNC’s online register.
• including information about its purpose and activities on its website or in distribution material.
Governance Standard 2 requires that charities must take reasonable steps to be accountable to their members and provide their members adequate opportunity to raise concerns about how the charity is governed.
Incorporated associations are generally required by their relevant legislation to be accountable to their members by holding an AGM. Up until 1 July 2013, pursuant to the Corporations Act 2001 (Cth), companies were also required to hold an AGM.
However, for companies, the introduction of Governance Standard 2 provides charities with the opportunity to review whether holding an AGM (and the process and requirements that come with holding an AGM) is the most suitable way to be accountable to their members. (Please note that incorporated associations must still hold an AGM if required by their relevant legislation.)
Examples of what a charity could do to comply with Governance Standard 2 include:
• Regardless of the process, as a minimum, a charity should always provide members with:
o financial information and/or an annual report about the organisation to explain its operations;
o an opportunity for concerns/issues about governance to be raised;
o an opportunity for voting and resolutions to be passed; and
o an opportunity to elect directors.
• With regard to how a charity could organise for the above to occur in a manner which is effective and cost efficient, a charity could implement one of the following options:
o continue holding an AGM if it is effective for that charity;
o convene an AGM, but via teleconference;
o instead of holding an AGM, a charity could be accountable to its members “on the papers”, that is, circulate information, require feedback by a specific time and have circulating resolutions. Directors could be elected by postal ballot or online voting; or
o create a virtual meeting where members could converse with each other and the management of the organisation through, say, a chat room.
Charities must not commit a serious offence (such as fraud) under any Australian law or breach a law.
We consider that it is imperative that all charities use their best endeavours not to breach any laws.
Charities must ensure that their directors are not disqualified from managing a corporation under the Corporations Act 2001 (Cth), or disqualified from being a director of a registered charity by the ACNC Commissioner. Charities must take reasonable steps to remove any responsible person who does not satisfy these requirements.
Examples of what a charity could do to comply with Governance Standard 4 include:
• As a minimum, include a clause in its constitution stating that all directors will meet Governance Standard 4 at all times.
• Search public registers before a director is elected/appointed, and annually thereafter, and keep a record of the searches it has undertaken.
• Have each candidate for directorship answer a questionnaire where the various disqualifying events are listed, and the candidate has to disclose if any of those events have occurred in the twelve month period prior to his/her appointment/election to the board.
• Have each director sign a declaration when he/she is elected/appointed regarding Governance Standard 4.
Charities must take reasonable steps to make sure that responsible persons understand and carry out the duties set out in this standard.
Examples of what a charity could do to comply with Governance Standard 5 include:
• As a minimum, insert a clause in its constitution stating that the directors will comply with the duties at all times.
• Include a list of all the duties, and the consequence(s) for non-compliance, in the letter of appointment of each director.
• Establish board policies/charters which support and enable the directors to comply with this governance standard.
• Arrange training for the directors on directors’ duties generally.
*Source of summaries of Governance Standards: ACNC website www.acnc.gov.au.
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