Charities regulator flags focus on fraud

The ACNC 2023-2024 Annual Report tabled in federal parliament revealed more than a quarter (26%) of concerns related to using a charity’s money for private gain.

More than one in five (21%) related to mismanagement of charity funds.

In her forward to the report, Commissioner Sue Woodward said stopping financial mismanagement in charities, including issues of fraud and private benefit was one of the regulators key priorities in the year ahead.

“Consistent with our conversations with other Australian-based regulators and international colleagues, we are concerned about the use of complex structures to either hide what charitable funds are being used for, or to conceal significant private benefit or other serious non-compliance,” she said.

The crackdown follows several instances of charity fraud to hit the headlines recently, including:

• a guilty verdict (now subject to an appeal) in the case of South Australian MP Troy Bell who had been accused of stealing more than $436,000 from an educational NFP to fund property investments and pay off debts
• a Melbourne woman found guilty of stealing almost $500,000 from a community charity to splurge on overseas holidays and shopping

Concerns reported to the ACNC are assessed to determine their significance and whether they fall within the regulator's jurisdiction.

The number of concerns referred by other government agencies increased by 25 to 77 compared to the previous year, while more than 1,000 concerns were reported by the public.

“By analysing our data, considering concerns raised with us from the public and others, working with other agencies, and monitoring the media, we are able to identify charities that could fall into this category,” said Ms Woodward.

“Using our risk-based approach, we will investigate to ensure charity assets are protected and used for charitable purposes.”

The report revealed that in 2023–2024 the ACNC also:

• revoked the charity status of 190 organisations, the oldest of which had been operating for 23 years
  

• completed 59 investigations
  

• referred 36 charities to other government agencies for action

The report outlined that revoking a charity’s registration is the most serious step that the ACNC can take, affecting a charity’s eligibility for tax concessions as well as other government benefits, concessions, or exemptions.

The report revealed that where a charity was notified of an investigation, 97% resulted in regulatory action, which can range from revocation of charity status to a requirement for a charity to improve its management practices and advice related to improving record keeping or financial management.

“We are committed to an effective risk-profiling approach that ensures that we only notify charities of investigations where we suspect there is either serious non-compliance, deliberate non-compliance, or both (rather than investigations that result in no outcome as there was no issue).”

While the regulator hit most of its benchmarks, the report found it only managed to register 74% of the 3,014 charities who applied within 15 business days - well below the target rate of 90%.

The ACNC said a surge in new charity applications sparked by the introduction of new NFP self-review return requirements by the Australian Taxation Office (ATO) were a factor in the failure to meet its own charity registration targets.

The report revealed the average application rate for May and June 2023 was 31.5% higher than for the entire 2021–2022 year.

“Many of these applications were unable to be assessed during 2022–2023 and were ‘carried over’ into 2023–2024, affecting our ability to meet this measure during the first few months of 2023–2024,” the report found.

The situation was compounded in early 2024 with a surge in charity applications driven by the ATO self-review changes introduced in the 2021–22 Federal Budget.

Charities are exempt from the changes, which require NFPs with an Australian Business Number (ABN) to lodge an annual self-review return or risk losing their income tax exemption.

The new guidelines accounted for more than 44% of applications for charity registration between April and June 2024. The 931 applications received by the ACNC in May 2024 was a record for a single month.

“For the 2023–24 year, we received 6,286 registration applications, an increase of 751 (14%) compared to 2022–23 and the highest number received since our establishment in 2012.”

Commissioner Woodward acknowledged the ATO changes have had a big impact on the regulator’s operations.

“A significant part of our work this year relates to changes that affect not-for-profit organisations that self-assess as income tax exempt,” she said.

“If an existing not-for-profit has charitable purposes, it will need to register with the ACNC to retain income tax exemption. As a result, thousands of mostly small organisations have been prompted to consider charity registration.”

To cope with the significant increase in applications, the ACNC said it responded by:

• reviewing and refining its processes to improve efficiency

• employing more staff, with extra support from the ATO

• meeting with not-for-profit peak bodies to ensure new registration applications were ‘grouped’ via a bulk registration application process to help streamline their assessment

• developing guidance and tools to help NFPs identify if they were charitable

However, the report said the tight labour market and staff recruitment timeframes had a detrimental impact on the regulators ability to quickly employ new staff.

“It takes about six months for a registration analyst to be fully trained in the complexities of charity law.

“While we cannot control the number of applications we receive, we are confident that the strategies we have employed will help us improve our performance in 2024–25.”

More information

Charity regulator investigations increasingly complex: ACNC report

Charity fraud cases highlight risks to sector's reputation