Reducing red tape, Red Tape Forum Report and Myles McGregor Lowndes guest editorial

The Commissioner's Column - 25 February 2014

Susan Pascoe, Our Commissioner

Red tape is a hot topic of discussion at present and, while many of you will have heard and seen our recent announcements across the media, I am pleased to be able to expand on these a little more here in the Column.

Accepting state and territory reports

Last week, I used my Commissioner discretion to accept financial reports lodged with states and territories by incorporated associations, cooperatives and charities who undertake fundraising and charitable collections. This is for the 2014 reporting period and means that charities will not have to duplicate financial reporting to the ACNC and to States and Territories. When completing the 2014 Annual Information Statement, charities will be able to electronically submit the same financial reports which they provide to their state and territory regulators.

Over the coming weeks we will provide detailed information on that will illustrate which reports are relevant from each jurisdiction in relation to this discretion.

Red tape reduction Forum Report

We have recently published and distributed the report on the December 2013 ACNC forum, ‘Measuring and Reducing Red Tape in the Not-for-profit Sector’. The Report is available online at and also has links to the presentations made on the day of the Forum.

You will see from the style and structure of the report that we chose to remain faithful to what was contributed by the forum participants. Quotes from the forum have been incorporated verbatim wherever possible (all anonymously).

The recommendations developed have been drawn into five themes:

  • national approach
  • risk
  • outcomes
  • funding agreements and reporting and
  • sector capacity.

We believe that the recommendations are practical and achievable. ACNC red tape reduction initiatives (past and future) outlined in the report demonstrate this.

I encourage you to remain engaged with the ACNC about the not-for-profit sector red tape reduction you want to see and to continue to provide your input and feedback.

Ernst and Young research project

Building upon the discussions and recommendations of the red tape reduction forum, the ACNC has commissioned Ernst and Young (EY) to conduct research on the regulatory and reporting burden on charities in Australia.

The research includes a conceptual framework, case studies and red tape mapping and costing consistent with the Government’s deregulation costing methodology. It will provide baseline information about the extent of reporting and regulatory obligations on Australian charities and identify target areas for reducing the burden.

The research is an important part of the ACNC’s ongoing efforts to promote the reduction of unnecessary regulatory obligations on the not-for-profit sector and is a valuable contribution to the Government’s deregulation agenda.

As part of the project, EY, in the next week, will commence a survey of charities to collect high level information on regulatory burden. Charities wishing to participate in the research can do so through this online survey. Links and further information will be made available shortly.

This project also supports the ACNC’s commitment to providing information and data back to the sector in the form of informed analysis and reporting.

Reminder to complete 2013 Annual Information Statement

A reminder that the deadline (31 March 2014) for the 2013 Annual Information Statement (for charities using the standard 1 July to 30 June financial year) is fast approaching.

Currently around 20,000 charities have either commenced or submitted their Annual Information Statement out of an estimated 30,000 charities who need to report by 31 March.

The ACNC is also sending out email and letter reminders to those charities that are still to lodge their 2013 Annual Information Statement.

Guest editorial

Professor Myles McGregor Lowndes OAM is a member of the ACNC Advisory Board and also Director of the Australian Centre of Philanthropy and Nonprofit Studies at Queensland University of Technology.  He is a much respected researcher and academic with a wealth of experience with and in the Not-for-profit sector. He is the writer of our guest editorial this fortnight and provides his thoughts on good regulatory practice. This follows the release last week of the ACNC Advisory Board’s Principles of good charity regulation.

Another recent publication on charity regulation is the Charities Aid Foundation (CAF) January 2014 International Report Future World Giving, Building Trust in Charitable Giving. This provides a useful overview of international regulatory practice which supports philanthropic endeavour. The CAF Report uses Australia as one of its case studies.

Good wishes

Susan Pascoe AM
Australian Charities and Not-for-profits Commission

Guest editorial by Professor Myles McGregor-Lowndes, ACNC Advisory Board Member & Director, Australian Centre for Philanthropy and Nonprofit Studies, QUT

Too much regulation not too little?

A recent paper published by the Centre for Independent Studies Ltd (CIS) (an ACNC-registered charity no less) makes the case that ‘the problem facing the NFP sector in Australia is one of too much regulation, not too little’. It argues that the ACNC should be abolished and non-government means, such as US-style charity ratings agencies, should be used to regulate behaviours. It claims that this would not only save taxpayers money, but also preserve the independence of the NFP sector.

While spurring on debate over regulation of the NFP sector is always commendable, the starting point must be ‘what is the best mix of regulatory tools or strategies?’ underpinned by a strong understanding of the Australian regulatory environment. The CIS paper adopts a simplistic approach to the issue and its conclusions will not deliver the desired outcome. In my view, the paper’s research question ‘too much or too little regulation’ is not the most productive approach to take. For example, in Australia we have one state jurisdiction with over 123 pages, nearly 30,000 words, of legislation to regulate fundraising activities, and another with none. Neither jurisdiction has a regulation which is fit for purpose.

Regulation comes in two colours, white and red, and it depends who is doing the assessing what colour is attributed to the tape.  White-tape regulation is the good regulation necessary to facilitate enterprise, protect the public interest and maintain good government while any regulation viewed as red-tape is seen as a compliance burden. Governments will argue one set of regulations are white-tape, yet at the coalface the white can quickly take on a reddish tint. Getting the right balance can be rather difficult often compounded by a shifting operating environment, requiring re-balancing from time to time.

So, what is the best mix of regulatory tools or strategies?

One form of regulation rarely hits the bullseye in any area of endeavour, so I am sceptical of those who advocate the ideal silver bullet solution, whether it is a central government regulator, the markets, or self-regulation. Rather we need to ask what mix of regulatory tools can be used to achieve acceptable behaviours, at an appropriate cost to whoever is bearing the costs, be they the taxpayer, charity, donors or beneficiaries.

Charity rating agencies can play a part in the mix by informing donors and engaging with the sector. But even in the US’s regulatory environment, they only play a part, indirectly supported by government. As other commentators have pointed out recently, the business model of those US enterprises depends mainly on receiving free data from taxation authorities. By contrast, the ATO collects financial information from a select few foundations which it is bound by law to keep secret. Without financial returns lodged with and published by the ACNC, charity ratings agencies will need a new business model to be sustainable. Those who have been around the sector for the last 20 years will remember numerous attempts to create an Australian ratings agency (one was funded generously by the Howard government). None has lasted the distance, and some have not even made one rating before disappearing.

A rating agency model can appear particularly attractive, being supposedly ‘free’ and no direct cost to government or charity organisations – a magic pudding in fact. However, closer scrutiny reveals hidden costs in the cut-and-come-again recipe. The data is actually paid for by the organisations that have to prepare it and taxpayers, who fund the government for tax administration in collecting, storing and transmitting the information. It is well to remember that charities can’t pass on costs as firms usually can to end customers, as beneficiaries usually can’t pay – a market failure. In the end, it is the beneficiaries who receive fewer services. Further, as mentioned in the CIS paper, there have been some damaging side-effects, such as the self-imposed ‘starvation cycle’ for fundraising and administrative overheads, which are ultimately debilitating for charities’ resilience.

It’s ironic that cash-strapped US State Attorneys General collectively decided early this year to ask philanthropic backers and academic institutions to build them a single electronic portal, to allow once only entry of fundraising returns for multiple state regulators, in order to reduce red tape for charities, and to improve their ability to detect fundraising fraud. This demonstrates to me that the ratings agency model is not a silver bullet, but a niche player.

There are other self-regulatory tools that could have been explored in the paper including the fundraising club models that appear to be having some traction in Europe, particularly the Netherlands, with a business model featuring good housekeeping seals and peer review, in return for a membership fee. In Australia, we also have the example of FIA and ACFID Codes of Conduct, which are world standard, but too often taken for granted.

The Australian regulatory environment for charities and NFP organisations currently has many parts and, like most other regulatory environments, will continue to be this way. There are market forces such as donors exercising choice about which bodies to support, and self-regulatory style clubs and codes endorsed by FIA, ACFID and other peaks. Then there are state regulators with responsibilities from incorporation to fundraising and charity gambling, plus Commonwealth regulatory players. Not to be overlooked are the volunteer governors at the front line of charitable entities – in prime position to regulate the behaviours of their organisations directly, cheaply and in a timely fashion, often responsible to their members in open meetings.

During its short history, the ACNC has played a positive role in the overall regulatory environment of charities, and it is well-placed to continue that role. In the short term, it provides the infrastructure for a ‘one stop shop’ for Commonwealth regulatory requirements, and a dedicated force to work with other Commonwealth agencies to streamline their present arrangements. Its stellar improvement in terms of timeliness, consistency of decision making and responsiveness to emerging issues of previous ATO functions, surpasses the sector’s original high expectations. At a meta-level, it is the missing link set to drive the long term reconfiguration of Australian regulation for the better.

If there is one point of consensus in the debate over the last couple of decades it has been that inconsistent and duplicative state and territory regulation is hindering charitable enterprise, particularly with barriers to new entries and restructuring. Governments of all hues recognised the business sector’s arguments along exactly those lines, and we are now reaping the productivity benefits of reform initiatives, much of it white tape. The ACNC with its specialised charity gateway assessment and central database offers significant benefits to state and territory regulators, other Commonwealth agencies, charities themselves, and their donors and supporters. As reform of business regulation has done, this is a medium to long term strategy which must proceed through the consultation and political compromises necessary in a federation.

It is not about too much or too little regulation. It is not about silver bullet solutions. It is about the best regulatory mix that delivers benefits for Australians. The ACNC can and should play a critical role in that mix.

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