What to do when asked to run a charity?
Australia has over 50,000 charities; 87% of Australians donate yearly, and 2.9M volunteer. Charity directors should understand their role, liabilities and governance standards.
There are over 50,000 registered charities in Australia today, with hundreds being registered each month. Charities are an integral public of the Australian social fabric, as demonstrated by statistics published by the Australian Charities and Not-for-profits Commission (ACNC) such as:
- At least 87% of Australians make some form of contribution to charities each year.
- Over 10% of Australians are employed by charities; and
- Over 2.9 million Australians volunteer for charities.
With the current regulatory systems in place, becoming involved with charities by donating or volunteering is increasingly easier and safer to do.
However, the same is not necessarily true for those people who agree to become board members or directors of charities. If you have been asked by a charity to assume a governance position, then you should be aware of all your responsibilities, obligations and potential liabilities.
This article does not provide for a comprehensive checklist but will cover some of the key questions that you should be asking before you agree to assume any position of governance within a charity and will explain some of the important responsibilities and obligations.
- Know your structure
- Understand your responsibilities
- Be aware of your liabilities
- Ensure that there are systems for compliance in place
- Deductible Gift Recipients?
- Not-for-profits?
1. Know your structure
There are different requirements for people governing different types of charitable structures. Typically, charities are associations (incorporated or unincorporated), companies limited by guarantee or trusts. Before you assume any responsibility, it is crucial that you understand the structure of the charity, that you have reviewed the governing documents and that you understand the nature of the role that you are assuming. Information on a charity’s structure can be found online on the ACNC’s register (including the governing documents) or via the Australian Business Register
2. Understand your responsibilities
The primary job of any charity board member is to further the charitable purpose of your organisation. Depending on the size and nature of your charity, you may not need to be involved in day-to-day operations (the charity may have employees to do such) but you are required to drive the strategy of the charity, oversee and manage the operations and ensure that the finances are in order.
You are required to ensure that the charity adheres to the ACNC’s five governance standards, namely that:
- The charity works towards its purpose and acts on a not-for-profit basis;
- There is accountability to members and stakeholders, who are given opportunities to raise concerns about governance and be notified about finances and operations;
- The charity complies with all Australian laws;
- There are suitable responsible persons managing the charity who are not legally disqualified; and
- The responsible persons managing the charity are aware of their duties and obligations and can comply with or follow them.
Pursuant to governance standard 5, the ACNC has set out several duties for the responsible persons managing charities. The following is a brief summary of each duty:
- To act with reasonable care and diligence and ensure that the responsible person is able to manage the charity effectively and be informed about the operations and finances.
- To act honestly and in the best interests of the charity and to always act for the advancement of the charity’s purposes
- Not to misuse the position of responsibility and to avoid situations of fraud, personal gain and undisclosed actual or perceived conflicts of interest. Responsible persons must also be aware of their responsibilities with regards to confidential information.
- To ensure that the finances are managed responsibly and effectively and to prevent a charity from operating whilst insolvent.
You need to familiarise yourself with the terms of the governing documents (such as the constitution, memorandum or articles of associations or trust deed) as these will define the scope of your powers. These documents create and limit your responsibilities and obligations towards the charity. In addition to the governing documents, any policies or procedures that are in place are likely to affect your role and to specifically define the actions that you are required to take in certain circumstances.
A key requirement for responsible persons of charities is to submit annual reports to the ACNC. The contents of the report will differ depending on the size of your charity and it is always recommended to engage an accountant or auditor to assist you with this process. Charities can face fines, penalties and even de-registration if they do not comply with the ACNC’s reporting requirements. If you are operating an incorporated association, then it is likely that you will also have to report annually to your local State or Territory authority.
3. Be aware of your liabilities
Although charities are separate legal entities from their members, directors or board members, there are several situations wherein the people in charge may be personally liable for their actions.
Members of the governing body of a charity may be personally liable for debts that are incurred if the company has become insolvent or if there is a risk that the company may become insolvent at the time that the debt is incurred. There needs to be checks and balances in place so that responsible persons are aware, at all material times, of the financial state of the charity and can determine whether the charity is able to pay off its debts when they become due.
There is also potential personal liability if harm is caused through a breach of the ACNC’s duties or if a responsible person has acted dishonestly, fraudulently or has committed a crime.
If the charity has employees, then the persons responsible for oversight of the employees must comply with all relevant work health and safety laws. The people in charge of charities have several duties for which they can be held personally liable. These include:
- The duty of care in the management of risks to employees (this duty is non-delegable); and
- The primary duty of care to employees to provide a work environment that is free of risks to health and safety.
Employers also need to be aware of their obligations with regards to PAYG withholding and superannuation payments. There are a range of penalties for non-compliance with these taxation regimes that can be attributed to directors or board members personally.
4. Ensure that there are systems for compliance in place
If you are aware of all of your duties, obligations and responsibilities, you ensure that there are adequate systems in place for compliance. This could involve the drafting and implementation of a range of company policies or procedures, regular checks and audits and having systems in place that promote communication, accountability and transparency. You should not shy away from seeking external legal or accounting advice if there are any concerns at all about compliance or if you need assistance of a systematic nature.
It is always preferable if members of the governing body are able to meet regularly to discuss the charity’s operations and to ensure that solutions are quickly implemented for any issues at hand.
5. Deductible Gift Recipients?
If your charity has obtained Deductible Gift Recipient (DGR) status, then there are likely to be several additional reporting and compliance responsibilities. There are many different categories for DGR status, and each requires differing reporting and compliance commitments. You should ensure that you are following the provisions of your governing documents with regards to the DGR status so that funds are handled and applied correctly and that the charity is complying with taxation regulations. You should strongly consider engaging an accountant who works regularly with charities to oversee the handling of the tax-deductible funds.
In addition to the annual reporting to the ACNC, your charity is likely to have to report to other authorities such as the ATO or a government department. Furthermore, there are a suite of additional requirements if your charity operates a tax-deductible public fund.
6. Not-for-profits?
If your organisation is a not-for-profit company or association and you are not a registered charity then you will have a number of differing obligations. The governing authority which will regulate your organisation will be dependent on the structure of your organisation. You must we aware of which authority governs your organisation, how often you have to report to them and which specific legislation or regulations applies to you.
Running a charitable organisation is risky business. There are many responsibilities, duties and obligations that may be unknown to people who are not experienced in the industry. If you have been asked to run a charitable organisation, do not hesitate to contact a member of our charity and not-for-profit law team to discuss how we can best assist you in being protected from liability.
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