Charities and not-for-profit organisations are within many industry sectors, and come in all shapes and sizes in Australia, from small local charities operated by volunteers to large national organisations employing dozens of staff.
In Australia, the Australian Charities and Not-for-profits Commission (ACNC) plays a crucial role in overseeing and regulating charities and not-for-profit entities to ensure transparency, accountability, and responsible management. For some the compliance requirements might feel daunting and unnecessary. So why does the ACNC exist, and why is it important to comply with their rules and frameworks?
This article explores the fundamentals of governance for ACNC-registered entities, why it matters, and how adopting strong governance practices safeguards an organisation’s future while building trust with the communities it serves.
What Does Governance Mean For ACNC Entities?
In essence, governance is about how an organisation is directed, controlled, and held to account. For ACNC entities, it means implementing systems and processes that ensure decisions are made ethically, resources are managed responsibly, and compliance obligations are met.
Governance within ACNC-registered entities typically involves:
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Leadership and Accountability: Establishing a Board or governing body with clear roles and responsibilities. This body is responsible and accountable for strategic decision-making, overseeing operations, and ensuring the organisation’s goals align with its charitable purpose. A cognitively diverse board, with appropriate skills will greatly enhance the operational effectiveness of your organisation.
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Financial Management: Ensuring that financial resources are used efficiently, transparently, and in line with the charity’s purpose. This includes maintaining sound financial controls, auditing practices, and budgeting procedures to ensure the organisation isn’t operating insolvent and is able to continue operating in the future.
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Risk Management: Not-for-profits and charities should have a clear understanding of their risk appetite and should revisit their risk appetite statement at regular intervals. They should identify and manage risks to the organisation’s operations, reputation, and long-term sustainability.
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Compliance and Legal Responsibilities: Ensuring adherence to relevant laws, regulations, and reporting requirements, particularly those outlined by the ACNC.
Why is Governance Critical for ACNC Entities?
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Ensures Legal and Regulatory Compliance
ACNC-registered entities are required to comply with a range of legal and regulatory obligations under Australian law, including the ACNC Act, the Australian Charities and Not-for-profits Commission Regulation, and other relevant industry, state and federal laws. Governance frameworks help ensure compliance with these requirements and prevent legal breaches that could lead to penalties or even loss of ACNC registration. Not following appropriate governance frameworks could lead to serious reputational damage.
Non-compliance can result in serious consequences, such as:
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Revocation of ACNC Registration: If an entity fails to meet the ACNC’s governance standards, it risks losing its registered status. This not only affects the entity’s ability to operate as a charity, but it could also lead to the loss of tax concessions and eligibility for government funding.
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Financial Penalties: Violations of the law can result in financial penalties or disqualification of Directors from serving on the board.
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Damage to Reputation: Non-compliance can damage the entity’s reputation with donors, volunteers, and the broader community. Trust is essential for charities, and any failure in governance can undermine public confidence.
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Improves Operational Efficiency
Effective governance ensures that an organisation has the right structures and processes in place to manage its operations efficiently. Strong governance frameworks provide clear guidelines for decision-making, conflict resolution, and the division of responsibilities. This clarity helps prevent mismanagement, miscommunication, reduces internal confusion, and improves overall effectiveness.
For example, a well-functioning governance system can prevent resource misallocation, ensure programs are delivered on time and within budget, and safeguard the organisation’s mission and values. It also fosters transparency, which builds trust among stakeholders.
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Supports Financial Accountability
Financial management is a cornerstone of governance, and the ACNC has stringent reporting requirements to ensure that charities and not-for-profits are transparent about how they use funds. Governance structures within an entity help ensure that:
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Financial reports are accurate and filed in a timely manner with the ACNC.
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Funds are used exclusively for charitable purposes and not for private benefit.
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Financial audits are conducted regularly to detect and prevent fraud or misuse of resources.
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Maintains Public Trust and Confidence
Charities are accountable to the communities they serve. Transparent governance fosters trust by showing donors, volunteers, beneficiaries and the community that funds are used responsibly and that the organisation operates ethically.
Sound governance practices also make organisations more appealing to potential funders, government grant programs, and other supporters.
ACNC Governance Standards and Compliance Requirements
The ACNC sets out several key governance standards that ACNC-registered entities must meet. These standards are designed to ensure that charities are well-managed and accountable. They include:
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Purpose and Not-for-Profit Nature (Standard 1)
A charity must be not-for-profit and work towards its charitable purpose. It must be able to demonstrate this and provide information about its purposes to the public.
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Accountability to Members (Standard 2)
A charity that has members must take reasonable steps to be accountable to its members and provide them with adequate opportunity to raise concerns about how the charity is governed.
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Compliance with Australian Laws (Standard 3)
A charity must not commit a serious offence (such as fraud) under any Australian law or breach a law that may result in a penalty.
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Suitability of Responsible People
A charity must take reasonable steps to:
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be satisfied that its Responsible People (such as Board or Committee members or Trustees) are not disqualified from managing a corporation under the Corporations Act 2001 or disqualified from being a Responsible Person of a registered charity by the ACNC Commissioner, and
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remove any Responsible Person who does not meet these requirements.
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Duties of Responsible People
A charity must take reasonable steps to make sure that its Responsible People are subject to, understand, and carry out the duties set out in Governance Standard 5. These duties include:
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to act with reasonable care and diligence
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to act honestly and fairly in the best interests of the charity and for its charitable purposes.
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not to misuse their position or information they gain as a Responsible Person
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to disclose conflicts of interest
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to ensure that the financial affairs of the charity are managed responsibly, and
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not to allow the charity to operate while it is insolvent.
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Maintaining and enhancing public trust and confidence in the Australian not-for-profit sector.
A charity must take reasonable steps to become a participating non-government institution of the National Redress Scheme if the charity is, or is likely to be, identified as being involved in the abuse of a person either:
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in an application for redress made under section 19 of the National Redress Scheme for Institutional Child Sexual Abuse Act 2018 (Cth) (Redress Act), or
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in information given in response to a request from the National Redress Scheme Operator (Secretary of the Department of Social Services) under section 24 or 25 of the Redress Act.
How Moore Australia Can Help
At Moore Australia, we understand the unique opportunities and challenges faced by ACNC-registered entities. Our Governance and Risk Advisory professionals can help your organisation strengthen governance frameworks, navigate compliance requirements, and to maintain trust with your stakeholders.
We also offer an ACNC Governance and Compliance Health Checklist to assist charities in evaluating their governance practices and identifying areas for improvement. Regular self-assessments and independent reviews can help safeguard your organisation’s reputation and ensure ongoing compliance with ACNC standards. Reach out to your Governance and Risk Advisory Team Member for specific advice.
Conclusion
Strong governance is more than a regulatory requirement. It is vital for achieving your organisation’s mission, purpose and maintaining the trust of key stakeholders.
It ensures that organisations remain compliant with the ACNC’s regulatory framework, maintain accountability and transparency, and effectively manage their resources and risks. By prioritising governance best practices, ACNC-registered charities and not-for-profits can build trust with the public, safeguard their reputation, and ensure that they are well-equipped to achieve their mission. Compliance with the ACNC’s governance standards is not just a legal requirement—it is a moral imperative that upholds the integrity and purpose of the sector as a whole.
If your organisation needs guidance on governance best practices or compliance, reach out to Moore Australia’s Governance and Risk Advisory team. Together, we’ll help you thrive in a changing world.