ACNC review reveals charities’ most concerning governance gaps

Good governance in newer charities has emerged as an area of concern in a recent review by the Australian Charities and Not-for-profits Commission (ACNC).

In examining its 15 most significant current compliance cases, the ACNC found that every case involved governance issues.  One-third of these cases involved charities less than five years old, all were charities of varying size and they occurred in every state of Australia, except the Northern Territory.

ACNC Assistant Commissioner (General Counsel) Murray Baird says governance issues usually arose through a charity board’s inexperience or understanding of good governance. At times, it was clear a board had “fallen asleep at the wheel” or engaged in wilful and deliberate wrong doing.

Since it began operating as the national charity regulator 15 months ago, the ACNC has received 500 complaints, of which more than 240 have warranted an investigation or review by the ACNC’s 12-person compliance team.

ACNC director of compliance Stewart Donaldson says the ACNC’s most common source of reliable information was from the public, followed by former charity employees or board members, and referrals from other agencies.

“So far, we have already encountered a wide range of governance issues. The most common problem is when charities use funds inappropriately, in ways which do not comply with the charity’s not-for-profit (NFP) purposes, such as using charitable funds to purchase private assets for board members.

“We have also seen a number of cases where there is a lack of accountability to members. In some cases, charities have failed to convene meetings as required in their constitution or have failed to follow the appropriate process to amend constitutions.

“The third most common theme is where responsible persons fail in their duties.  This includes failing to declare conflicts of interest, not maintaining accurate records or operating while insolvent.

“Finally, at the extreme end, we have investigated charities where allegations have been made of criminal activity.”

However, Baird notes: “As the regulator, what has been pleasing is charities under investigation, for most part, have worked cooperatively with the ACNC to comply with requests for information and changes to governance practices.”

ACNC Acting Commissioner David Locke adds the best way to protect your charity from any failings is to review your processes and policies and ensure that your board members understand their roles and responsibilities.

“Issues with governance usually arise through a charity board’s inexperience or understanding of good governance.”

 The ACNC has a series of free governance guides available, including Governance for Good and Protecting your Charity from Fraud.

Cyber attacks