Under Governance Standard 5 your charity must take reasonable steps to make sure its responsible persons meet certain duties. The following is a general summary of what each duty requires.
1. Act with reasonable care and diligence
Responsible persons are in a position to guide and monitor the management of the charity. They need to understand and keep informed about the charity’s activities and finances. For example, it may be a breach of this duty if a responsible person failed to attend several board meetings in a row. However, this duty is not breached if a person cannot take part in managing the charity at the time (for example, because of illness). As well, a responsible person can rely on the special knowledge or expertise of another responsible person, adviser or expert, as long as they adequately inform themselves and make an independent assessment of that information or advice.
2. Act honestly in the best interests of the charity and for its purposes
Responsible persons make decisions by honestly considering what would be in the best interests of the charity, and would further its charitable purposes (as set out in the charity’s governing documents). For example, this duty is breached if a responsible person uses the charity’s property to benefit another organisation, where there was no real benefit to the charity or it didn't further its charitable purposes.
3. Not misuse the position of responsible person
An example of misusing position is where a responsible person is involved in paying another company owned or controlled by a friend or relative (when it is not reasonable payment for the goods or services provided).
4. Not to misuse information obtained in performing duties
An example of misusing information is if a responsible person gives confidential information about the charity’s operations (that they have gained because of their role) to another person or organisation (even if it is to another charity).
5. Disclose any actual or perceived conflict of interest
Responsible persons should disclose any situation where they may appear to have a conflict between their duty to act and a personal (private) interest, and should not discuss or vote on any matter where there is such a conflict. For example, if a charity is considering which company to buy its stationery from, a responsible person should declare an interest if one of the companies is owned by his relative. This is true even if there is no actual conflict.
A conflict should be disclosed whenever an independent observer could doubt that a responsible person is acting in the best interests of the charity. In general, the responsible person should disclose the conflict of interest to the other responsible persons. If there is only one responsible person or all of them have a conflict, then the conflict of interest should be disclosed to the members of the charity (if any). If none of these situations apply, contact the ACNC.
Read our guide Managing conflicts of interest.
6. Ensure that the charity's financial affairs are managed responsibly
As a minimum, responsible persons should have good processes to prevent problems and to manage money responsibly. This includes reading financial statements and having a process to ask questions if they don’t understand.
Read our tips on having strong financial controls at your charity and our guide Protect your charity from fraud.
7. Not allow a charity to operate while insolvent
If a responsible person reasonably suspects that the charity cannot pay all of its debts when they become due, then the responsible person should take all reasonable steps to prevent a charity from taking on more debt. The governing body should regularly review the financial position and ensure there is enough money to pay for its activities.
When appointing a new responsible person, charities can use the ACNC's suggested letter of appointment, which sets out the duties under Governance Standard 5.