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ACNC Governance Standard 3 amendments

The purpose of Governance Standard 3 (Compliance with Australian laws), as set out in the Australian Charities and Not-for-profits Commission Regulation 2013 (Cth) (ACNC Regulation), is to give the public confidence that a registered charity is governed in a sustainable way, which is consistent with its purposes, and protects its assets, reputation and the people it works with. Currently, Governance Standard 3 prohibits registered charities from engaging in conduct that may be dealt with as an indictable offence or a breach of law that has a civil penalty of 60 penalty units or more. 

On 28 June 2021, the Australian Government registered the Australian Charities and Not-for-profits Commission Amendment (2021 Measures No 2) Regulations 2021 (Cth) to amend the ACNC Regulation. These provisions will not commence until this instrument or a provision of this instrument is approved by Parliament.

The measures add a new section 45.15(2) (aa) to Governance Standard 3, under which a registered charity:

  • must not engage in conduct that may be dealt with as a summary offence relating to real property, personal property or persons under an Australian law; and
  • must take reasonable steps to ensure their resources are not used, nor continued to be used, to promote or support any entity to engage in unlawful activities prohibited under the standard.

This was despite recommendation 9 of the Strengthening for Purpose: Australian Charities and Not-for-profits Commission Legislation Review 2018 (ACNC Review), released on 6 March 2020, stating that Governance Standard 3 should be repealed: 

“Governance standard 3 is not appropriate as a governance standard. Registered entities must comply with all applicable laws. It is not the function of the ACNC to force registered entities to enquire whether they may or may not have committed an offence (unrelated to the ACNC’s regulatory obligations), advise the Commissioner of that offence and for the ACNC to advise the relevant authority regarding the offence” (p. 47).

However, the Explanatory Statement to the amendment refers to recommendation 20 of the ACNC Review as the basis for amending the standard. The changes are intended to clarify this regulation as currently defined does not enable the ACNC Commissioner to investigate potentially serious breaches of the law by a charity. This is due to differences between states and territories around whether specific unlawful activities such as vandalism are ”indictable” or ”summary” offences.  

Further, the changes are intended to ensure that Governance Standard 3 is more consistent with the disqualifying purposes set out in section 11 of the Charities Act 2013 (Cth). As such, these changes are important because under section 35-10 of the ACNC Act, the ACNC Commissioner is empowered to deregister a charity if they reasonably believe:

  • a charity has not complied with a governance standard; or
  • it is more likely than not that the charity will not comply with a governance standard.

Some parts of the charity sector have expressed their concerns that the changes to Governance Standard 3 is aimed at stopping charities from engaging in lawful advocacy in pursuit of their charitable purpose. However, it should be noted that section 45-10(6) of the Australian Charities and Not-for-profits Commission Act 2012 (Act), as set out below, protects the right of charities to undertake political advocacy:

“(6) The regulations must not require an entity not to comment on, or advocate support for, a change to any matter established by law, policy or practice in the Commonwealth, a State, a Territory or another country, if:

(a)    the comment or advocacy furthers, or is in aid of, the purpose of the entity; and
(b)    the comment or advocacy is lawful.”

A second complaint is the revised standard would impose a huge administrative burden on charities, requiring them to “maintain reasonable internal control procedures” to ensure their resources are not misused. This will depend on the individual circumstances of the charity, but having appropriate processes, procedures and controls on who can access and use the charity’s funds, and ensuring responsible persons and employees understand their legal obligations, should already be in place by a well-run charity. 

Whether the proposed regulations are adopted by the House of Representatives and Senate in their August sittings has yet to be decided. If approved, the new Governance Standard 3 will commence on the day for commencement specified in section 45-20 of the ACNC Act. That is, the day after the earlier of:

  • the day both Houses of Parliament pass a resolution approving the Regulations; and
  • the last day on which the Regulations could be disallowed in either House of Parliament, unless the Regulations are disallowed or either House passes a resolution disapproving the Regulations before that day.

For more information, feel free to contact us

Authors
Stephen Howell
Director and Principal Advisor
Stephen is the Principal Advisor for Effective Governance Pty Ltd, a corporate governance consultant, forensic accountant, company director and former company secretary, external auditor, corporate regulator and CFO with a focus on contributing to the...