The Australian Charities and Not-for-profits Commission (ACNC) has released new guidance on the External Conduct Standards (ECS). Effective since late July, these standards impose additional governance, recordkeeping and oversight obligations on registered charities with activities outside Australia.
The standards cover:
- how charities control their funds, goods and other resources
- the need for an annual review of overseas activities and record keeping
- anti-fraud and anti-corruption guidelines
- measures aimed at protecting vulnerable people.
Here are five things registered charities need to know about the new guidance.
1. Even minor activities and small amounts of money may be subject to the standards.
Many of our clients have inquired about whether minor activities are subject to the ECS. The guidance confirms that a charity "is generally considered to operate outside Australia even if its overseas activities are just a minor part of its work or if it only sends a small amount of money overseas. This is true even when such activities are conducted through a third party".
This means that the standard applies to minor activities and small amounts of money unless these overseas operations are "merely incidental" to a charity's Australian operations.
Whether operations are "merely incidental" is a critical issue that is not explored in the ACNC guidelines, but it is addressed in an explanatory statement issued by the Assistant Minister for Treasury and Finance. This contains examples of activities that would not be subject to the new standard, as well as activities that would be.
2. Charities need to consider what is "reasonable".
The ECS are expressed as high-level principles rather than precise rules. In particular, the ECS require charities to take "reasonable steps" or maintain "reasonable procedures". This means that each registered charity must consider various factors, including the context in which it is operating overseas and the scale and nature of its overseas operations, to determine how to comply with the ECS.
The guidelines include factors that charities should consider when determining what might be "reasonable". They also include examples of ways to meet each of the four standards. However, each charity must consider what response to each standard is reasonable in light of its own circumstances.
Rebecca Lambert-Smith and Jacob Woods have cast their eyes over the effect of the new external conduct standards issued by the ACNC and what it means for organisations.
3. Charities need to consider a number of Australian laws.
ECS 1 includes a requirement for charities to comply with Australian laws relating to areas such as money laundering and slavery. The guidance includes a helpful (but not exhaustive) list of legislation that "may be relevant", highlighting provisions to which charities may wish to pay particular attention.
4. Template policies and procedures are not provided.
Many small charities and charities whose overseas operations are minor were hoping for template policies and procedures to help them to comply with the ECS. But there is no such luck, apart from a link from the ACNC's guidance to an existing guide to managing conflicts of interest.
All charities will need to develop their own policies and procedures in response to the ECS. For charities that are not members of the Australian Council for International Development (ACFID), this is likely to require a detailed and careful review of their overseas operations in light of each of the ECS.
5. Compliance and enforcement measures may come quickly.
The ACNC Governance Standards were in place for quite some time before the ACNC began to undertake significant, proactive compliance activity. We anticipate that any grace period in respect of the ECS will be much shorter, because:
- the ACNC already has compliance infrastructure in place
- the media and the public are increasingly keen to hold charities to account, particularly where vulnerable people are involved
- the sector is much more aware now of the ACNC's role and its obligations.
The ACNC states that it will follow its existing regulatory approach, and will "take action if [it has] information that indicates a charity has seriously or deliberately breached the External Conduct Standards". In practice, secrecy provisions continue to make it difficult to get a clear picture of how and when the ACNC uses its enforcement powers.
The onus remains on charities to determine what might be considered "reasonable steps" to comply with the ECS. Each charity will need to consider its size (turnover and workers), the nature, scale and complexity of its overseas operations, whether the region it is operating in has particular risks, and the capability of third parties it works with to meet the ECS. It may then need to review or develop its policies and procedures to ensure compliance.