Third Dimension – Annual Information Statements: What Does The Future Hold?

March, 2016

By John Vaughan-Williams, Lawyer

The future of the Australian Charities and Not-for-profits Commission (ACNC) has been an uncertain and much debated topic in the entity’s short lifespan, with the Coalition Government having moved to abolish it in 2014, shortly after its establishment in 2012.

Some level of comfort in its continued existence has since been provided through the suspension of the Bill moving its repeal, and the ACNC has also recently unveiled its plan for the next three years. Nonetheless, the future for the body remains somewhat unclear.

The then-Minister for Social Services, Scott Morrison, had announced in February 2015 that the abolition of the ACNC was not a priority in his portfolio, yet Social Services Minister Christian Porter stated in December 2015 that the Government was continuing to evaluate the ACNC and its role. In spite of this, only weeks later the Turnbull government proposed amendments to the way that ancillary funds will operate, and these amendments included new reference to the ACNC, providing some indication that the ACNC has a future.

This uncertainty has negated the clear, cohesive structure of charity regulation that the ACNC aimed to provide for the sector. As well as the degree of uncertainty regarding the ACNC’s future existence, the ACNC has also proposed, and is currently considering, changes to the Annual Information Statement (AIS) that charities must submit.

This article will consider the AIS, possible changes to it, and what the future may hold for annual charity reporting.

Overview of Status Quo of AIS

All charities registered with the ACNC keep the public apprised of their operations through the submission of the AIS to the ACNC. The AIS can be viewed by potential donors and general supporters via the ACNC’s public charity register (ACNC Register) (unless an exception applies for a particular charity).

The maintenance of the ACNC Register is a vital function of the ACNC, as there was no such central source of charitable information before the ACNC’s formation in 2012. The increased transparency of charities, brought about by the Register, plays a key role in the object of maintaining, protecting and enhancing public trust and confidence in the Australian not-for-profit sector, an object of the statute establishing the ACNC.

With the importance of the Register in mind, it is imperative that the questions asked in the AIS provide an appropriate picture and level of detail about a charity’s functions. In order to address this, the ACNC has proposed some changes to the AIS, and opened a public consultation for stakeholders, which closed on 27 November 2015.

The level and type of reporting that must be met by a charity in its AIS depends on its size, and which tier it falls in. The tiers are defined as the following:

a) Small charities – charities with annual revenue of less than $250,000;

b) Medium charities – charities with annual revenue of $250,000 or more but less than $1 million; and

c) Large charities – charities with annual revenue of $1 million or more.

Medium charities and large charities must provide financial reports to the ACNC as part of the AIS. The report of a medium charity must be at least reviewed, and a large charity’s report must be audited.

Small charities do not need their financial information to be audited or reviewed, but they must provide an income and balance sheet. Some charities are, however, exempt from providing financial information if they meet certain legislative exceptions.

The ACNC has reported in its quarterly publication of Spring 2015 that 99 per cent of registered charities completed their AIS in 2013, and 81 per cent completed theirs in 2014. As well as its utility in providing information to the public, the AIS also serves a function in addressing regulatory overlap. The ACNC’s ‘Charity Passport’ is used for sharing information with other government departments, as part of its goal of a ‘report once, use often’ framework. Information provided in the AIS is used to form the Charity Passport – currently, only publicly available AIS information is shared, but the ACNC plans to use further AIS information in the Charity Passport in the future.

State jurisdictions are also working toward streamlining their reporting requirements with those of the ACNC, to reduce dual regulation. Victoria and Western Australia have both introduced bills to streamline financial report auditing with the ACNC’s requirements, and South Australia has also made steps towards such a process. In addition to this, the ACT has announced intentions to amend its incorporated associations and charitable collections legislation, to harmonise with the ACNC.

If the AIS is to have such wide ranging use, it should incorporate questions that have support from both the sector and its regulators; this is a reason that the consultation process is important.

Possible Changes

The current consultation on the AIS is the first review of it as a whole, since its commencement in 2013. This period has allowed the review to be conducted in the context of both feedback from the sector, as well as gaps that the ACNC has identified in the AIS.

Some of the more significant proposed changes to the AIS include the following:

(a) Removing optional questions

Removing three previous optional questions, which pertained to reporting to other regulators, as this information has already provided a good statistical reference and is now believed by the ACNC to be unnecessary.

(b) Amending questions

The questions pertaining to the beneficiaries of the charity, and the types of activities the charity conducts, would be amended. Under the proposed new model, several categories may be selected, to recognise the broad scope of activities undertaken by charities.

(c) Adding questions

Adding further questions regarding the finances of charities, in order to give a better picture of how a charity’s funds are used, and what types of funds are received. This will also allow the ACNC to be more meticulous in its regulation.

One example provided by the ACNC of the utility of this extra information is identifying whether a charity has been involved with any related party transactions, through the additional financial questions. If a charity provides a financial benefit to a related party outside of its charitable purpose, it may no longer be eligible to maintain its charitable status.

Impact of Non-Compliance

Charities are expected to meet reporting obligations in order to uphold their charitable registration. If a charity does not complete its AIS following warnings, it will attract penalties and, if it continues, eventually lose its charitable status.

The due date of a charity’s AIS will depend on its financial year – it will be due within six months of the end of the financial year. As a consequence of the due date varying across charities, it is imperative that charities be aware of when their Statements must be submitted, particularly in charities with numerous State branches that may have different financial years.

As well as a charity attracting penalties for not completing the AIS on time, its entry on the ACNC Register will publicly state that it has not been submitted. Given the ACNC Register is important in upholding public faith in the sector, this could have consequences for levels of community support for that charity.

In light of the significant ramifications of non-compliance, charities should ensure they keep abreast of any changes that are incorporated into the AIS, and continue to submit their Statements on time. Charities should bear in mind the requirements of the AIS throughout the yearly reporting period, and not only near the time the report is due. Having proper record keeping structures in place will help to ensure that accurate information is provided, and that the completion of the AIS is a less onerous task.

This article originally appeared in Third Dimension – Summer 2016

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E: vvisevic@millsoakley.com.au

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