The public consultation for this review opened in mid-December 2017 and our submission can be found here.

The Review Panel comprised Mr Patrick McClure AO, Mr Greg Hammond OAM, Ms Su McCluskey, and Dr Matthew Turnour. 

The Panel's full report can be found here.

A valued & healthy regulator

The report notes that there is strong support for the ACNC as a regulator of the sector, and its accomplishments over the past 5 years. It indicated the collaborative and educative approach of the ACNC over the past 5 years has been effective and should continue. In doing so, the Panel also noted that "there is an opportunity to broaden the use of incentives to encourage good behaviour and use powers available to enforce the law in matters of misconduct".

The key reform proposals

In evaluating the effectiveness of the ACNC, the Panel was conscious of the need to find a balance between red tape reduction, supporting a vibrant and innovative sector, and public expectations of transparency, accountability and good governance.  The 30 recommendations of the Panel range across these considerations. In our view, the majority of the recommendations are sensible.  In the main, they are consistent with our submission.

Some of the most notable recommendations are:

Retain the current objects of the ACNC

Like us, the Panel are of the view that the three objects of the ACNC Act do not require change. In effect, the Panel the does not agree with the ACNC’s own submission for additional objects relating to the accountability and efficiency of charities.

However, the Panel does recommend that the ACNC’s functions should be amended to better align with the objects of the ACNC Act, and pleasingly, that the ACNC should continue to prioritise its education and research functions.

Extend the ACNC remit to large not-for-profit organisations with over $5m revenue

The ACNC currently only regulates registered charities.  The Report, citing the proposal in our submission, recommends that larger not-for-profits with annual revenue of $5m or more be invited to register under the ACNC Act, and that this be a requirement in order for such organisations to access Commonwealth tax concessions. This is a sensible approach as it enables the ACNC’s regulatory oversight to be gradually extended beyond charities to include other organisations in the not-for-profit sector, as was originally intended when the ACNC was proposed.

Create a national regulatory scheme to reduce red tape and provide uniformity

The Panel calls for the creation of a single national regulatory scheme for charities and not-for-profits. . We strongly support this, as there is a clear need for a national approach to enable the ACNC to effectively regulate the sector, protect charitable assets and reduce unnecessary red tape arising from the various inconsistent laws applying at the State and Commonwealth levels (including in relation to fundraising). 

In relation to fundraising reform, the Panel recommends that the Australian Consumer Law be amended to clarify its application to fundraising and for a code of conduct to be developed.  This is good news to those, including ourselves, who have sought reform in this area over many years.  In terms of the code of conduct, the Panel proposes two alternatives: that responsibility for such a code be retained by States or Territories or alternatively be prescribed under the Australian Competition and Consumer Act, either as a voluntary or mandatory code, regulated by the ACCC.  The Panel sees fundraising reforms as part of the creation of a broader national regulatory scheme.

Achieving reform in this area will require referral of powers from the States to the Commonwealth, an exercise that will no doubt be fraught but is necessary nonetheless.

The Panel also recommends that the use of the Charity Passport by Commonwealth departments and agencies be mandatory.  This would be welcomed by many in the sector who engage with government regularly

Modify and clarify governance obligations for charities

The Panel recommends that the following changes, which we agree with:

• the abolition of Governance Standard 3 (which requires charities to comply with Australian laws which impose significant penalties).
• the amendment of Governance Standard 5 to remove reference to ‘perceived’ conflicts of interest as this term is unclear;
• that registered charities be presumed to comply with the ACNC Governance Standards if they comply with comparable governance standards; and
• the interaction between the ACNC Act and the Corporations Act be reviewed, and the Corporations Act be amended so that the directors’ duties under that Act are “switched-back-on” for charities that are companies.

Strip the ACNC of power to replace responsible persons of charities

The Panel recommends that the power to replace a responsible person of a charity be removed due to this power being out of step with the powers of other regulators.  We agree with this recommendation. 

Enable the ACNC to more effectively clarify advocacy and other areas of public interest and to engage in test cases

The Panel calls for test case funding to clarify the law on advocacy by charities and other areas of public interest.  We agree with this. In this regard, we have recently published an opinion piece on advocacy by charities and the legal position under Australian law on our website here. 

Our views on advocacy by charities in the context of the proposals to reform the Commonwealth Electoral Act can be found here.  As the proposed reforms to the Commonwealth Electoral Act are not yet finalised, the sector remains concerned - notwithstanding some helpful recommendations from the Joint Standing Committee on Electoral Matters on the proposed reform.

Relaxation of secrecy provisions

The Panel also calls for a relaxations of the unduly restrictive secrecy provisions that gag the ACNC and preventing it from informing the public of its work.  In our submission to the Panel we supported this on the basis that it would serve public interest if the ACNC is able to publish its enforcement action and reasons for its registration decisions.

Modify reporting thresholds and requirements

As a practical matter, many charities will be directly affected by the Panel’s recommendations in relation to reporting requirements, which include: 

• modifying the reporting thresholds, so that they are increased as follows: small
• charities (less than $1m), medium ($1m-$5m) and large (over $5m), based on annual revenue averaged over 3 years. This enables more charities to fall within the small category, with less onerous reporting requirements.
• requiring large charities to disclose board and senior executives remuneration on aggregated basis; and
• requiring charities to disclose related party transactions.

Strengthen governance and operational arrangements at the ACNC

The report recommends both internal and external changes to the ACNC’s own governance and operations, including that:

• an Executive Committee be established within the ACNC;
• the Commissioner be given broader powers to delegate functions to ACNC staff; and
• the ACNC Advisory Committee be given broader powers to consult with the sector and report directly to the Minister on its own initiative.

In our view, this is a sensible and balanced set of recommendations. It remains to be seen wherther or nor they will be implemented before or after the next federal election.

For specific advice on any aspect of the Report, and the implications for your organisation, please contact your Prolegis partner or email us at info@prolegis.com.au.