Publications / Nonprofit
Each person who is responsible for directing a charity, or who is a member of the governing body (including directors, committee members or trustees) falls within the definition of a ‘responsible entity’ under the Australian Charities and Not-for-Profit Commission Act 2012 (Cth) (ACNC Act).
Each of these people, identified as a ‘Responsible Person’ by the ACNC, is bound to ensure that the charity complies with the requirements imposed on it by the ACNC Act and, since 1 July 2013, is bound by the governance standards imposed by the ACNC Act.
The governance standards are outlined below.
Standard 1: Purposes and not-for-profit nature of a registered entity
Charities must be not-for-profit and work towards their charitable purpose. They must be able to demonstrate this and provide information about their purpose to the public.
Standard 2: Accountability to members
Charities that have members must take reasonable steps to be accountable to their members and provide adequate opportunity for members to raise concerns about how the charity is governed.
Standard 3: Compliance with Australian laws
Charities must not commit a serious offence (such as fraud) under any Australian law or breach a law that may result in a penalty of 60 penalty units (currently $10,200) or more.
Standard 4: Suitability of responsible persons
Charities must check that their Responsible Persons are not disqualified from managing a corporation under the Corporations Act 2001 (Cth) (Corporations Act) or disqualified from being a responsible person of a registered charity by the ACNC Commissioner. Charities must take reasonable steps to remove any Responsible Person who does not meet these requirements.
Standard 5: Duties of responsible persons
Charities must take reasonable steps to make sure that Responsible Persons understand and carry out the duties set out in this standard.
The standards imposed on all ‘Responsible Persons’ by virtue of Standard 5 are to:
- act with reasonable care and diligence
- ensure that financial affairs are managed responsibly
- act honestly in the best interests of the charity and for its purpose
- not misuse their position or information
- disclose any actual or perceived conflict of interest, and
- not allow a charity to operate while insolvent.
These governance standards:
- differ from the obligations imposed on Directors under the Corporations Act
- provide a legislative code for duties of management committee members (of incorporated associations) and boards of Letters Patents and some statutory bodies, and
- apply to trustees.
Failure to comply with the governance standards may result in a charity being removed from the Charity Register, losing its tax concessions, and if an offence, can lead to prosecution. The ACNC may also remove a person from a board or as a trustee and place the person on a list of disqualified persons. Importantly, there are some provisions, which if breached, could lead to the Responsible Person being personally liable for a civil penalty.
As a part of the process of briefing a board, management committee or trustee, a charity should:
- provide clear advice about their role and responsibility, and
- provide due diligence to enable them to fulfil their role and to meet their responsibilities.
We recommend charities review their governance documents, including board charters and policies, to ensure ongoing compliance with governance standards.
The ACNC’s Guide to the ACNC Act may assist a Responsible Person to satisfy ACNCs’ requirements. The Australian Institute of Company Directors (AICD) has also released a publication called ‘Good Governance Principles and Guidance for NFP Organisations’. Both guidelines may help inform the boards.
Focus covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. Focus is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.