Proposing to pay your responsible persons? Important considerations for charities & not-for-profits

13 January 2020

The recent publicity around payments to directors of the Freemason's charitable arm in Queensland is a timely reminder to charities and not-for-profits to proceed with caution when making payments to responsible persons.

In particular, it is important to ensure that any payment made to responsible persons is:

  1. Consistent with your organisation's purpose

    Charities and not-for-profits have an overriding obligation to ensure that their resources are directed towards their purpose. Your organisation's purpose is usually set out in its  governing document (which may be a Constitution, Rules or a Deed of Trust) - this purpose should guide all your organisation's decisions, including expenditure. 
     
  2. Not a private benefit

    For purpose organisations are required to operate on a not-for-profit basis - that is, they can't operate for the profit, personal gain or other benefit of particular individuals.  Excessive payments or payments that cannot be reasonably justified to responsible persons will undermine your organisation's not-for-profit status.
     
  3. Not expressly prohibited

    There may be an express prohibition against the payment your organisation proposes to make. Consider (for example): any restrictions on payments to responsible persons in your organisation's governing document; relevant legislation (such as the Related Party Transactions provisions in the Corporations Act); the conditions of any fundraising licence; and the requirements of any funding agreement.
     
  4. Agreed on through a proper process

    How your organisation decides to make a payment to responsible persons is just as important as the decision itself. All too often For Purpose organisations fail to properly manage the inherent conflict of interest in decisions of this kind. This undermines the integrity of the decision, risks the organisation's reputation and may result in compliance action by regulators (including the ACNC).

Although there is no blanket prohibition on payments to responsible persons, any decision to make a payment must be carefully considered and documented. It may be appropriate to seek advice on the legal framework within which your organisation operates, relevant considerations and an appropriate process through which any proposal to make a payment can be considered.

For more information or expert guidance, please contact Rebecca Lambert Smith from Moores' dedicated For Purpose team on (03) 9843 2124 or by filling out the enquiry form below.

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