Improving Governance and Transparency

Good governance is vital for transparency and ongoing public support for the charity and Not-for-profit sector. It is important that boards are aware of recent regulatory changes and ACNC innovations that will bolster governance and transparency.

Our latest official data shows Australians donated $12.7 billion to charities in the 2020 reporting period, up from $11.8 billion in the previous period. Transparency and accountability underpin that strong level of trust and confidence.

Enhanced transparency on the Charity Register

The ACNC strives to support charities and we are always looking for new ways to promote transparency in the broader sector.

There is growing awareness that the Charity Register¹ is an important, trusted, official data source. Last year it was searched close to five million times. We recently transformed the Register, making it a more effective way to communicate an organisation’s good governance and good work, and for supporters to undertake due diligence.

It now contains the details of about 80,000 programs, and new search features allow anyone to look up the kind of program they would like to support anywhere in Australia. There are hundreds of categories – everything from arts and culture to zoos and wildlife. Search results can be refined by specifying a location; a town, suburb or region.

Each charity decides how best to describe its programs and beneficiaries. Program data appears on its Register record, along with standard details that verify a charity is real and accountable, such as its ABN, the names of its leaders and whether its ACNC reporting is up to date. As program details change, data can be updated.

Strategically, it is important for organisations to scan the environment, to understand where their organisation fits and identify whether others are doing similar or complementary work. They may wish to differentiate their organisation or explore how collaboration could deliver efficiencies or better outcomes. New sector entrants can reach out for advice from established organisations.

Boards and those responsible for running charities should consider the new opportunities that arise from this innovation, to promote their organisation, collaborate with others and be more fully transparent.

There is more information about the enhanced Register here.²

Transparency on remuneration

Charities are not-for-profits that particularly rely on public trust and, by law, must meet a high standard of transparency and accountability. They must consider measures to ensure they are accountable and transparent in board members’ remuneration, and inform donors, volunteers and the wider public about the decision to do so. People want to know how the sector spends funds.

Under amended regulations passed late last year, thousands of charities, mostly large, are required to report remuneration that they provide to key management personnel — senior decision makers responsible for planning, directing and controlling operations. This includes members of the board or committee and trustees, as well as senior staff such the CEOs or chief financial officers.

Remuneration can encompass financial items – wages, salaries and bonuses – and non-financial items like free or subsidised goods and services. For example, use of a car.

New key management personnel remuneration reporting requirement apply when submitting the 2022 Annual Information Statement to the ACNC. All large charities (revenue of $3 million or more) must report. Medium charities (revenue of $500,000 - $2,999,999) which prepare General Purpose Financial Statements must also report, while for those that prepare Special Purpose Financial Statements it is optional. Small charities (revenue below $500,000) are exempt.

There is more information in our guide on the key management personnel remuneration reporting changes.³

Transparency on related party transactions

Under the same amended regulations, there are new requirements to disclose related party transactions. A related party transaction is a transfer of resources, services, or obligations between related parties. It does not have to be financial payment, and can include things like goods, services or property.

Such transactions are common. They are not necessarily a problem, and indeed can bring benefits. But they can give rise to conflicts of interest and the risk that they may not be in the best interests of an organisation.

All charities, except Basic Religious Charities, will be required to report related party transactions in the 2023 Annual Information Statement. For many though, they will need to keep records from 1 July 2022. Medium and large charities also need to disclose these transactions in financial reports. This guide has more detail.⁴

While each of these changes apply to charities, it is in the interests of all NFPs to be transparent about remuneration and have rigorous processes to manage related party transactions.

New online Governing Charities program to improve leadership and transparency

Boards and other leaders of NFPs must be aware of their obligations, take their responsibilities seriously and be proactively engaged in oversight of their organisation. Board members are not mere figureheads. Being ultimately responsible for managing an organisation’s finances, operations, staff and volunteers, it is critical that boards ensure they have the right skills and knowledge to execute their roles.

NFPs must align their work with their stated purpose. As a NFP evolves, its activities can change. A good board, however, will manage this. The board will ensure a NFPs activities stay true to its stated purpose, or will amend its governing document to ensure any new activities are in line with its purpose.

Additionally, board oversight is critical when a charity or NFP is involved in advocacy. A registered charity is free to advocate as long as the advocacy helps achieve its charitable purpose —the reason it operates and is granted charitable status (and access to relevant tax concessions). However, a charity’s advocacy cannot cross the line and promote or oppose a political party or electoral candidate. This is deemed a disqualifying purpose, and we pursue compliance action if a purpose is not charitable. Of equal concern are the risks to reputation if advocacy is out of sync with its values or purpose.

This illustrates the high level of complexity and responsibility involved in being an NFP Board member. We have just launched a new, free online Governing Charities program, which will be immensely useful for NFP boards. The new e-learning program will benefit anyone seeking to improve their leadership and governance of an Australian NFP. It is a highly valuable resource for new board members, covering the foundations of how to run an NFP successfully. Board members with more experience will benefit from consolidating their knowledge and skills.

The e-learning program will allow board members to acquire the relevant knowledge and skills to undertake their roles effectively. This knowledge will support their organisation to stay true to its purpose and its mission, even as it grows.

Links to the e-learning governance program can be found on the ACNC website⁵. We believe it will fill an important training gap and prove to be a valuable resource for charity and NFP boards.

This article was first published in the 2022 Better Boards Conference Magazine.

Further Resources

What is the difference between a non-profit organisation and a charity?

Who regulates the governance of Not-for-Profits in Australia?

Risky Business: Risk Management and the Not-for-Profit