How to Prepare Your Charity for an ACNC Compliance Review

Introduction

Meeting obligations under the Australian Charities and Not-for-profits Commission Act 2012 (Cth) is essential for all registered charities in Australia. Effective Australian Charities and Not-for-profits Commission (ACNC) compliance helps maintain public trust and ensures your charity or not-for-profit (NFP) operates effectively and ethically.

An ACNC compliance review is a key activity the regulator uses to check if charities meet their obligations under the Australian Charities and Not-for-profits Commission Act 2012 (Cth). This guide offers practical insights charities must know to proactively prepare for a potential compliance review, helping your NFP understand the process and strengthen its governance.

Understanding ACNC Compliance Reviews

An ACNC compliance review is a process used by the regulator to examine a charity’s general level of compliance with the Australian Charities and Not-for-profits Commission Act 2012 (Cth). These reviews typically focus on a specific issue or risk identified within the charity’s operations or governance, forming part of the ACNC’s broader regulatory approach aimed at ensuring registered charities meet their obligations.

The primary purpose of these reviews is to proactively address potential compliance issues early on. By engaging with charities through reviews, the ACNC aims to:

• Support good governance practices
• Help organisations respond effectively to emerging risks
• Maintain public trust and confidence in the charity sector

This proactive approach helps sustain the sector and ensures charities operate effectively towards their charitable purposes.

ACNC compliance reviews differ from other regulatory activities undertaken by the Commission. Key distinctions include:

• Compliance Review vs. Investigation: A compliance review is generally a shorter engagement focused on a particular risk or issue to check a charity’s adherence to specific requirements. In contrast, an investigation is reserved for higher-risk or more complex cases and involves a formal assessment of the charity’s governance against its full obligations under the Australian Charities and Not-for-profits Commission Act 2012 (Cth) and Australian Charities and Not-for-profits Commission Regulations 2022 (Cth).
• Compliance Review vs. Self-Audit: While a compliance review is initiated by the ACNC, a self-audit is a tool the ACNC encourages charities to use proactively. Self-audits help charities identify and rectify potential governance problems themselves, fostering a culture of continuous improvement and compliance.

Why the ACNC Initiates Compliance Reviews for Registered Charities

The ACNC initiates compliance reviews when serious concerns arise regarding a registered charity’s adherence to its obligations. These reviews are a key part of the ACNC’s regulatory approach, designed to help charities meet their obligations and maintain public trust in the NFP sector.

The ACNC compliance team investigates potential breaches of the Australian Charities and Not-for-profits Commission Act 2012 (Cth). Concerns prompting a compliance review can originate from several sources, including:

• Information submitted by the charity itself, such as through its Annual Information Statement
• Complaints received from members of the public or other stakeholders
• Information shared by other government agencies at the state, territory, or federal level
• Issues identified through the ACNC’s own internal analysis and risk assessment processes

The ACNC focuses its compliance reviews on charities considered at risk of failing to meet their obligations under the ACNC Governance Standards or External Conduct Standards. This proactive approach allows the ACNC to address potential issues early and respond effectively to emerging risks within the charity sector.

The goal is often to work collaboratively with the charity or NFP to resolve any identified compliance issues. However, the ACNC will act swiftly and decisively in situations involving:

• Evidence of serious mismanagement or misappropriation of funds
• A serious or deliberate breach of the Australian Charities and Not-for-profits Commission Act 2012 (Cth)
• Significant risk to vulnerable people connected with the charity
• Substantial charitable assets being placed at risk

Ultimately, a compliance review may be initiated if there are grounds to believe a charity is not meeting its obligations under the Australian Charities and Not-for-profits Commission Act 2012 (Cth), failing to adhere to the minimum Governance Standards and External Conduct Standards, or if its circumstances suggest it may no longer be eligible for registration as a charity. These reviews help ensure charities meet their obligations and support the overall integrity of the sector.

Proactive Steps for ACNC Compliance Review Readiness

Conduct a Charity Self-Evaluation

Undertaking a self-evaluation is a proactive step your charity can take to prepare for a potential ACNC compliance review. This process helps assess whether your charity is meeting its obligations under the Australian Charities and Not-for-profits Commission Act 2012 (Cth).

Regular self-assessment offers several benefits:

• It allows your charity to pinpoint potential compliance issues
• It identifies areas needing improvement before external review
• It demonstrates good governance and commitment to meeting obligations

Using tools like the ACNC’s self-evaluation resource can assist in identifying areas that may require attention. Common issues often relate to governance, financial management, and adherence to standards.

Review Key Charity Governance Documents

Regularly reviewing your charity’s key governance documents is essential for ACNC compliance readiness. This internal review helps identify if documents are outdated or contain issues that could attract ACNC scrutiny.

Documents requiring regular examination include:

• Governing documents (constitution or rules)
• Policies and procedures
• Delegation protocols
• Board charters

The aim is to ensure these documents are current, adequate, and effectively address potential risks. Keeping these foundational documents up-to-date ensures they accurately reflect your charity’s operations and compliance with the Australian Charities and Not-for-profits Commission Act 2012 (Cth).

Strengthen Financial Controls and Record Keeping

Establishing and maintaining robust internal financial controls is fundamental for any registered charity. These controls are the policies and procedures ensuring financial transactions are properly authorised, accurately recorded, and correctly reported.

Strong financial controls serve multiple purposes:

• They help safeguard charity assets
• They ensure accountability and transparency
• They demonstrate responsible management

Accurate and complete record-keeping is also a core requirement and often a focus during ACNC compliance reviews. Charities must maintain financial records that correctly record and explain their transactions and financial position. Poor record-keeping was identified as a concern in ACNC reviews, particularly regarding financial management and independent oversight.

Manage Conflicts of Interest Effectively

Effectively managing conflicts of interest and related party transactions is a critical aspect of good governance and ACNC compliance. Charities must have clear policies and transparent processes for identifying, disclosing, and managing situations where personal interests could improperly influence decisions.

ACNC reviews have highlighted failures to recognise and manage conflicts of interest as a common issue, especially where founders or their families are involved in transactions with the charity. This is particularly important when dealing with related party transactions, which involve transfers between the charity and individuals or entities closely connected to it.

Best practices for managing conflicts include:

• Implementing tendering processes
• Obtaining independent quotes rather than automatically awarding contracts to related parties
• Maintaining detailed documentation of decision-making processes

These measures demonstrate transparent and independent decision-making focused on the charity’s best interests.

Ensure Compliance with ACNC Standards

Fundamentally, charities must understand and consistently meet their obligations under the Australian Charities and Not-for-profits Commission Act 2012 (Cth). This includes adhering to the minimum requirements set out in the ACNC Governance Standards and, where applicable, the External Conduct Standards.

These standards cover critical aspects such as:

• Working towards charitable purposes
• Accountability to members and stakeholders
• Responsible resource management

The ACNC initiates compliance reviews or investigations when serious concerns arise about a charity’s adherence to these obligations. Charities must ensure they are not only aware of these standards but actively implementing practices to comply with them. Failure to meet these standards can lead to various ACNC actions, ranging from regulatory advice to enforcement measures.

The ACNC Compliance Review Process Explained

Receiving the ACNC Review Notification

If the ACNC decides to conduct a compliance review of your charity or NFP, the process typically begins with formal notification. The ACNC will send your charity a written notice, usually a letter.

This initial communication serves two important purposes:

• Informing your organisation that it is subject to a compliance review
• Outlining the scope of the review, indicating the specific areas or issues the ACNC intends to examine regarding whether your charity meets its obligations

Cooperating with ACNC Information Requests

Following the initial notification, the ACNC compliance review involves a period of information gathering. During this stage, the ACNC may request further information or specific documents relevant to the review’s scope.

The ACNC might also seek to meet with representatives from the charity. Throughout this process, it is crucial for your charity or NFP to:

• Cooperate fully with all requests
• Respond within the specified timeframes
• Provide honest reasoning and supporting evidence

Understanding Potential Review Outcomes

Once the ACNC completes its compliance review, there are several potential outcomes depending on the findings. The ACNC will make a decision based on whether the charity meets its obligations under the Australian Charities and Not-for-profits Commission Act 2012 (Cth).

Possible actions the ACNC may take include:

• Providing regulatory advice to guide the charity towards better compliance
• Recommending specific steps the charity should implement to address identified issues
• Requiring the charity to undertake actions like having its accounts audited or lodging additional reports
• Using formal enforcement powers, which can range from warnings and directions to enforceable undertakings or injunctions
• Imposing administrative penalties
• In more serious cases involving significant breaches or risks, suspending or removing responsible persons or even revoking the charity’s registration
• Referring the concern to another relevant government agency
• Deciding that no further action is necessary if compliance is satisfactory

Conclusion

Understanding the purpose and process of an ACNC compliance review, along with the triggers for initiation, is crucial for every registered charity or NFP seeking to meet their obligations. Proactive preparation through robust governance and sound financial management ensures charities meet ACNC requirements and maintain public trust.

To ensure your charity or NFP is fully prepared for a potential ACNC compliance review and meets its obligations effectively, contact Lawbridge today. Our expert not-for-profit lawyers offer specialised guidance tailored to help organisations navigate ACNC requirements and strengthen their governance framework.

Frequently Asked Questions