ACNC Compliance for Australian Charities: Poor Governance & Minute Keeping Failures

Introduction

For Australian charities, maintaining effective record-keeping is a fundamental aspect of good governance practices and a core legal obligation. Failures in this area can signal wider governance problems and attract the attention of the Australian Charities and Not-for-profits Commission (ACNC), which views proper records as a key indicator of a charity’s overall compliance culture.

Consequently, when significant governance failures are identified, a charity may face serious compliance action from the ACNC, including the possibility of an enforceable undertaking. This guide explores the ACNC’s expectations for governance, details common pitfalls related to minute-keeping, and explains how not-for-profit organisations can strengthen their practices to protect themselves from regulatory action.

Interactive Tool: Check Your Charity’s Governance & ACNC Compliance Risk

Why the ACNC Prioritises Effective Record Keeping

A Key Indicator of Good Governance

The ACNC considers appropriate and effective record-keeping to be a reflection of a charity’s overall governance practices.

Strong records management is generally an indicator of:

• Sound decision-making
• Financial management
• Risk management

Conversely, charities that fail to maintain proper records often exhibit other significant governance failures.

The ACNC has observed that poor record-keeping can be linked to more serious issues, including:

• Inadequate management practices that lead to broader governance problems
• Poor management of conflicts of interest, resulting in decisions that do not serve the charity’s best interests
• Instances of fraud or financial misconduct, where charity funds are used for private benefit
• A failure to adequately safeguard vulnerable people connected to the charity’s work

The First Step in ACNC Scrutiny

When the ACNC receives a concern about a registered charity, assessing its records is a crucial first step in their regulatory work.

Well-maintained financial and operational records allow a charity to demonstrate its compliance with:

• ACNC requirements
• Other legal obligations

Having organised and thorough records enables the ACNC to quickly assess whether further regulatory action is needed.

This transparency can help the charity resolve issues efficiently, whether the outcome is simply:

• Providing education and guidance
• Addressing more significant compliance matters

Understanding ACNC Enforcement Powers

The ACNC’s Regulatory Pyramid & Proportionality

The ACNC uses a proportionate, risk-based approach to regulation. This method is often visualised as a regulatory pyramid, where the response matches the seriousness of the compliance issue.

The ACNC’s actions range from:

• Providing education and guidance for minor issues.
• Taking strong enforcement action for the most severe matters.

The ACNC’s regulatory responses are designed to be proportionate to the harm it seeks to address. This means that for less serious concerns, the ACNC will often work collaboratively with a charity to help it get back on track.

However, for significant, deliberate, or persistent non-compliance, the ACNC will use its stronger powers.

Enforceable Undertakings vs Litigation

An enforceable undertaking is a formal, court-enforceable agreement between the ACNC and a charity. By entering into an undertaking, a charity that is facing an ACNC investigation commits to taking specific actions to rectify non-compliance and meet its obligations.

This regulatory tool allows the ACNC to reform a charity’s governance practices and procedures without resorting to more severe actions like revoking its registration.

This approach is distinct from formal court litigation. An enforceable undertaking is a way for a charity to avoid the costs and potential penalties of further investigation or litigation by proactively agreeing to a remediation plan.

It serves as a reformative measure, whereas commercial litigation involves formal court proceedings to resolve a dispute or enforce a penalty.

Consequences of Breaching an Undertaking

Failing to comply with the terms of an enforceable undertaking carries serious consequences. If a charity breaches the agreement, the ACNC Commissioner has the power to apply to a court to enforce its terms.

Should the court issue an order compelling the charity to comply, any subsequent failure to follow that court order may be treated as a criminal offence.

This “sting in the tail” makes an enforceable undertaking a significant regulatory tool with substantial legal weight.

Common Governance Failures That Attract ACNC Scrutiny

Inadequate Minute Keeping & Meeting Procedures

Inadequate record-keeping is a significant governance failure that frequently attracts the attention of the ACNC.

For charities structured as companies limited by guarantee, the Corporations Act 2001 (Cth) requires them to keep minute books that record the proceedings and resolutions of their meetings.

The ACNC views these records as a critical indicator of a charity’s operational health and compliance.

Recent ACNC enforcement actions have set a clear benchmark for what constitutes adequate minutes. To demonstrate good governance, board and committee minutes should meticulously record key details:

• Meeting details – the name of the board or committee, plus the time, date and location of the meeting.
• Attendance and quorum – a list of all attendees, their roles and any apologies, together with confirmation that a quorum was met.
• Conflicts of interest – every actual or perceived conflict declared by directors, demonstrating compliance with ACNC Governance Standard 5.
• Decisions and discussions – a concise summary of the key discussion points that influenced each decision, showing directors acted with due care and diligence.
• Transfer of resources – the precise reasons for any decision to move funds, assets or other resources to another entity, especially a related party.
• Formal items – confirmation that previous minutes were reviewed and accepted, a list of current action items, details of the next meeting and the chairperson’s signature.

Mismanaging Conflicts of Interest & Related Party Transactions

Under ACNC Governance Standard 5, directors have a duty to disclose and focus on managing conflicts of interest.

A conflict arises when a director’s personal interests, or those of a related party, could improperly influence their decisions regarding the charity.

Proper management of these situations is essential for transparency and public trust.

Poor minute-keeping makes it extremely difficult for a charity to prove that conflicts were handled appropriately. Without a clear record showing that a conflicted director disclosed their interest and was excluded from the relevant discussion and vote, the ACNC may find that the board failed in its governance duties.

The risk is significantly heightened for charities operating within complex structures that involve multiple related entities. These structures increase the likelihood of related party transactions—where the charity provides a financial benefit to a director, their relative, or another organisation they control. Such transactions must be managed with extreme care to ensure they are in the best interests of the charity.

The risk escalates when:

• Complex structures involve several related entities under common control.
• Related party transactions deliver financial benefits to directors, relatives or entities they influence.

Failure to Separate Meetings for Related Charities

A common but problematic practice for group-structured charities is holding a single joint meeting to discuss the business of multiple related entities.

The ACNC has clearly indicated that it expects separate and independent board meetings for each registered charity, even if the same people sit on every board.

This separation allows directors to properly consider their duties to each individual charity.

When discussions for multiple entities are combined, it becomes difficult for directors to focus on the specific best interests of each charity and to identify and manage distinct conflicts of interest that may exist between them.

For example, a school board that also governs separate charitable entities—such as a building fund and a scholarship fund—must hold separate, minuted meetings for each one.

This practice ensures that decisions made for the building fund are solely for its benefit and are not improperly influenced by the needs of the main school or the scholarship fund.

Case Study: The Hillsong Enforceable Undertaking

Background to the ACNC’s Investigation

A recent enforceable undertaking between the Hillsong College Limited (ABN: 84 617 111 592) (Hillsong College) offers a clear example of the regulator’s expectations for good governance. The ACNC’s investigation into the charity was prompted by concerns regarding its meeting procedures and record-keeping.

The specific issues identified by the ACNC included the handling of:

• Board meeting minutes
• In-camera meetings where sensitive matters are discussed
• Meetings involving related parties

By entering into the undertaking, the charity committed to rectifying these issues to avoid further investigation or more severe compliance action.

Key Terms of the Undertaking

The enforceable undertaking required the charity to implement specific changes to its governance practices, particularly concerning how it conducts meetings and records minutes. These terms provide a practical benchmark for other Australian charities.

A key requirement was that board meetings for the charity must be held independently of meetings for any related parties. This condemns the common practice of discussing business for multiple related charities in a single joint meeting, even if the same people sit on each board.

For example, a school board that also governs a separate building fund and scholarship fund must ensure that they:

• Hold and minute separate meetings for each entity.
• Enable directors to properly consider their duties and manage conflicts of interest for each individual charity.

The undertaking also set a clear standard for record-keeping. The charity must ensure that all board and committee minutes, including those for in-camera meetings, include the following details:

• Meeting Information: The name of the board or committee, along with the time, date, and location of the meeting.
• Attendance: A list of all attendees, their positions, any apologies, and confirmation that a quorum was met.
• Conflicts of Interest: A record of all declared conflicts of interest.
• Procedural Items: Confirmation that previous minutes were reviewed and accepted, a list of current action items, and the signature of the chairperson.
• Discussions and Decisions: A summary of the key discussion points that influenced each decision.
• Resource Transfers: The specific reasons for any decision to transfer funds, assets, or other resources to another entity, particularly related parties.

Director Liability & How Charity Should Respond to ACNC Action

Understanding Director Liability Exposure

Every Australian charity must ensure its directors understand and carry out their duties under ACNC Governance Standard 5. These responsibilities are designed to ensure the charity is managed effectively and transparently.

The core duties directors must uphold include:

• Acting with reasonable care and diligence.
• Acting in good faith in the charity’s best interests.
• Managing the charity’s financial affairs responsibly.
• Disclosing any actual or perceived conflicts of interest.
• Not misusing their position or information.
• Ensuring the charity does not operate while insolvent.

If a director breaches these duties, the ACNC has the authority to take action. The ACNC can suspend, remove, or disqualify directors for non-compliance, which can significantly impact the charity’s operations.

Generally, directors are not personally liable for a charity’s debts. However, personal liability can arise in specific situations, such as allowing the charity to continue incurring debts while it is insolvent.

Preparing Evidence & Remediation Plans

When a charity faces scrutiny from the ACNC, having well-kept operational and financial records is essential. These documents serve as the primary evidence to demonstrate that the organisation has been managed responsibly and in compliance with its legal obligations.

Responding to ACNC compliance action often involves developing a remediation plan to address any identified governance failures. This plan outlines the specific steps the charity will take to correct its course and prevent future non-compliance.

This remediation plan can be formalised through a compliance agreement or an enforceable undertaking. In these agreements, the charity commits to:

• Taking specific actions to rectify the issues.
• Working collaboratively with the ACNC to improve its governance practices.
• Avoiding more severe penalties.

Conclusion

For Australian charities, diligent record-keeping and proper meeting procedures are fundamental components of good governance that are closely scrutinised by the ACNC. Failures in these areas, such as inadequate minutes or mismanaged conflicts of interest, can expose a charity and its directors to serious compliance action, including enforceable undertakings.

To ensure your organisation’s governance practices meet ACNC expectations and avoid potential compliance action, it is crucial to act proactively. For tailored advice on strengthening your record-keeping procedures and director duties, contact LawBridge’s experienced not-for-profit lawyers today to protect your organisation and its mission.

Frequently Asked Questions