The Australian Charities and Not-for-profits Commission (ACNC) has substantial powers of investigation in support of its compliance functions. Outcomes of investigations can include revocation of charity status or the charity entering into a compliance agreement with the ACNC concerning the future conduct of the charity. In August 2019 , the charity status of five organisations was revoked, while another charity entered into a compliance agreement with the ACNC. With a broad range of enforcement powers available to the ACNC, how should a charity facing investigation respond to ensure the best outcome for that charity and its beneficiaries?
Understand the framework
All charities are required to comply with the ACNC Governance Standards and, if the charity has overseas operations, the External Conduct Standards (the Standards) in order to remain registered as charities and eligible to receive charity tax concessions. If the ACNC becomes aware of a potential failure to comply with these Standards, it may carry out an investigation. The purpose of the investigation is to obtain and critically review information and documentation from the charity to assess whether the Standards have been breached. If the ACNC finds that there has been a breach of the Standards, it may exercise its compliance powers – including, in the most serious cases, revocation of charity registration – in accordance with the ACNC’s Regulatory Approach.
Take it to the top
Compliance with the Standards is a governance matter, not an operational matter. A charity’s responsible persons (the Board, Committee or Trustees) should be immediately informed of any ACNC compliance action. Any notice of investigation should be circulated to all responsible persons and a meeting convened as soon as possible. A charity’s responsible persons should be actively involved in determining how the charity will respond to an investigation and settling any formal written response to the ACNC.
An ACNC notice of investigation typically includes a request for the provision of a detailed and extensive range of documents and information. The deadline for providing this documentation and information is usually short – a matter of weeks – and the ACNC may refuse to grant an extension. It is prudent to instruct trusted administrative staff, professional advisers or volunteers to begin collating this material immediately, even if the charity’s responsible persons have not yet been able to meet.
Due to secrecy provisions, there is limited information available about how the ACNC has managed compliance actions in the past. This can create some uncertainty about how the ACNC will respond to a particular compliance matter. One thing is certain, however – ignore the ACNC investigation, obfuscate or fail to cooperate and the ACNC’s response will escalate. It is critical that a charity facing investigation communicates with the ACNC, meets deadlines (or seeks extensions if absolutely necessary) and provides the information sought in a clear and comprehensive format. Don’t put your head in the sand – an ACNC investigation won’t go away if you don’t address it.
Tell your story
Compliance is, in part, a question of context. There is no universal way to apply the Standards. The Standards are, broadly, principles based. This means that each charity must determine how it should apply the principles set out in the Standards in its particular context, including its purpose, size, operations, beneficiaries and other stakeholders. When responding to an ACNC investigation, the charity’s story and context may be critical to explaining conduct that might otherwise appear to be a breach of the Standards.
Get on the front foot
Most charities that assess their governance and operations closely against the Standards will identify areas for improvement. A prudent charity will proactively make improvements in the course of an investigation. Improvements made can be communicated to the ACNC as part of the response to the investigation, rather than waiting until the ACNC identifies the organisation’s shortcomings and requires them to be addressed.
Involve advisers early
A lot is at stake in an ACNC investigation. An experienced charity lawyer can assist throughout the process – from understanding the scope of any request for documents and information, to assisting the organisation to articulate and explain its context, identifying areas of non-compliance and recommending improvements. For this reason, it’s important to bring any advisers on board early.
A silver lining
An ACNC compliance investigation usually requires a significant investment in terms of time spent collating documents, reviewing an organisation’s operations and governance and preparing a response. Nothing focuses the collective minds of a charity’s responsible persons and executive team quite like an ACNC investigation. When done well, however, a considered and strategic response to an ACNC investigation will not only mitigate the risk of ACNC compliance action, it will result in improvements to the charity that will ensure its good governance well into the future.
How Moores can help
Moores’ For Purpose team provides strategic and practical advice to charities experiencing change and crisis. To find out more, please do not hesitate to contact us.
 [see section 70-1 ACNC Act 2012]