What is it that prompts people to work in the charity sector? After all, they are paid less than their counterparts in government or business – or nothing at all if they are one of the three million volunteers in Australia. And they work under considerable public visibility, scrutiny and red tape. Yet they number in the millions and are scattered around our vast land mass contributing inestimably to local communities, as well as to people and habitats in remote settings around the world alleviating the impacts of natural disasters, humanitarian crises and military conflict.
Overwhelmingly, charity workers are motivated to do good for others. Whether they are providing assistance to vulnerable members of Australian and international communities, advocating on human rights or environmental issues, fundraising for the arts or medical research, or providing spiritual support, these tireless workers generally see a gap, deficit or area for enrichment, and commit their energies, intellects and personal resources to making their communities better places.
Do such altruistic people and enterprises need government oversight? Do we really need a charity regulator? Should charities be left to operate within civil society unfettered by state regulation?
Unsurprisingly, as inaugural Commissioner for the Australian Charities and Not-for-profits Commission, I believe that the case was well made for regulation of the charity sector, and the first five years of the ACNC has confirmed that. In 2011, Australia took the first steps to create a fit-for-purpose charity regulator, and in 2012 passed legislation to create the ACNC.
This paper will provide a personal view of that journey, reflect on achievements to date and consider challenges for charity regulation for the future. Fuller accounts can be found in chapters in recent publications.
Foundations of Charity Regulation
Our antecedents lie in Common Law, in the Statute of Elizabeth, 1601 – an Act to provide guidance to an early form of charity commissioners. In an era where there was no state service provision it was left to people of good will to assist the poor and needy. The Statue of Elizabeth identified the 'four heads of charity' – relief for the poor, ill or marginalised; the advancement of religion; the advancement of education; and other purposes beneficial to the community. A fundamental element to charitable endeavour is that it is for public, not private, benefit.
England and Wales created the first charity commission in 1853, following scandals about the use of church funds and a series of parliamentary commissions from 1818. There had been several earlier attempts in the UK at reforming charities before this, but these had been opposed by various interest groups including the church, the courts, companies and the universities. A number of other common law countries have drawn from the institutional experience of England and Wales and our shared legal heritage. Australia was relatively late to the regulatory field at the national level, and only got there after decades of lobbying from the sector itself. Indeed, the Australian charity sector stands out amongst other enterprises, industries and professions in seeking its own regulatory oversight. And in the end it took charity peak bodies and opinion leaders two decades to convince the political establishment that a national charity regulator was warranted.
But it was not only lobbying that got us here. There were six Parliamentary inquiries along the way (listed in Appendix 1), inquiries by both the Industry Commission (1995)  and the Productivity Commission.(2010) , and an investigation by Treasury (2011)  All concluded that a national charity agency would improve the regulatory environment of Australia’s charities.
The Rudd and Gillard Governments were elected with a plan of phased improvement for the regulatory environment of the NFP sector. The Government created an Office of the Not-for-profit Sector with the innovative appointment of a non-bureaucrat, Paul Ronalds, Deputy CEO from World Vision, a capable administrator and skilled negotiator. To develop the policy case, Ronalds engaged Sue Woodward from the Public Interest Law Clearing House (PILCH) (later renamed Justice Connect), who had recently completed a major study comparing NFP legal forms.
Arguments for and against the creation of a national charity regulator
From the early 1990s many voices in the sector argued that they wanted an operating environment comparable to that of government and business – clear rules of conduct, accountability to stakeholders and some means of dealing with mischief. As the 'third sector', charities were tired of the perception they were economically irrelevant, dogged by amateur governance and operating with lower professional standards than their counterparts in other sectors. In addition to this, many believed that the Australian Taxation Office (ATO) was conflicted in its dual roles as assigner of charity status for tax concessions and protector of the country's revenue base.
Academics such as Prof Mark Lyons of the University of Technology Sydney and Prof Myles McGregor-Lowndes, founder of the Queensland University of Technology’s (QUT) Centre for Philanthropy and Nonprofit Studies (CPNS), and Ann O’Connell, Professor of Law at the University of Melbourne, were vocal supporters of creating a national NFP regulator in Australia. Opinion leaders such as Rev Tim Costello of World Vision and the Community Council for Australia lent their gravitas to the academic arguments, and leaders of peak bodies such as Dr Cassandra Goldie and Dr Tessa Boyd-Caine of the Australian Council for Social Services (ACOSS), and David Crosbie of the Community Council for Australia (CCA) advocated both publicly and privately for NFP regulation. Other voices such as Fr Brian Lucas, then General Secretary of the Australian Catholic Bishops Conference, and Joe Zabar, Policy Manager from UnitingCare were more circumspect in support, arguing for caution lest the new regulator create an unnecessary administrative burden. Charity lawyers were also actively involved, with respected professionals such as Anne Robinson, then President of the Australian Charity Law Association, adding weight to arguments for charity regulation. And there was widespread support from charities large and small, who took the time to write a submission and contribute to the shape of a fit-for-purpose national charity regulator.
This campaign fell on fertile ground in 2010 with the then Minister, Sen. Ursula Stephens, and later with the then Assistant Treasurer, the Hon. Bill Shorten MP, who was persuaded and in 2011 asked Treasury to investigate. The Assistant Treasurer’s able Chief of Staff, Mat Tinkler, oversaw this process. For their part, Treasury staff wrote a discussion paper on the need for a national charity regulator, called for submissions, and then followed up with a scoping study. This study uncovered onerous, complex and duplicated reporting for charities across jurisdictions, and proposed simplification and streamlining through measured national oversight.
Treasury then developed a National Policy Proposal (NPP) for Cabinet which proposed the establishment of a charity regulator to 'promote and enhance public trust and confidence' in the Australian Not-for-profit (NFP) sector. The Government agreed to the proposal, including the formation of a taskforce to establish the ACNC. I was asked to lead the ACNC Taskforce and began work with a team of nine seconded from Treasury, the ATO, and the Department of Prime Minister and Cabinet (PMC).
For completeness, we should consider the arguments opposed to the creation of a national charity regulator. The Coalition Parties at the time were volubly against charity regulation. Their proponent, the Hon. Kevin Andrews MP, put the view that charities were a core part of civil society, that they should be unfettered by the potentially stifling grip of government oversight, and that insufficient mischief had been identified to warrant the unprecedented intervention into their operations that a national charity regulator would present.
In addition, the Coalition Parties supported lean, small government, and an enabling of business and civil society. Which also meant a preference for decision-making by elected representatives and fewer arms-length agencies with statutory powers.
Both perspectives on charity regulation have solid foundations in political philosophy and public administration theory, but the realisation of each was irreconcilable with the other – fertile ground for policy and political contest! The Greens supported the establishment of the ACNC, along with some of the independent senators such as Sen. Nick Xenophon.
This policy backdrop played out amidst great instability in Australian politics with leadership tensions and unprecedented ministerial and Prime Ministerial changes. In six years, the ACNC (and the ACNC Taskforce) has had ten responsible Ministers (see Appendix 2 ).
The work of the ACNC Taskforce
The ACNC Taskforce was hosted by Treasury and overseen by the ATO. From the outset, it was decided that the ACNC would be an independent agency but take its back office services from the ATO on a fee-for-service basis. There were considerable efficiencies for a small agency of 100 staff operating in this relationship and I pay tribute to the many senior staff in the ATO, in particular Commissioner Chris Jordan, who welcomed the ACNC and collaborated with goodwill and cooperation. However, there was tension between the policy intent of an independent ACNC and the reality of it being locked in a relationship with a much larger agency responsible for employing its staff and overseeing its finances. This tension has had to be managed over the life of the ACNC. And, subsequently, with the implementation of the Public Governance, Performance and Accountability Act 2013 (Cth) (PGPA Act), the ATO Commissioner has become the accountable authority for the ACNC’s finances – likely an unintended consequence of the PGPA Act.
From the outset, the ACNC Taskforce decided it would take a consultative approach. To identify important issues and priorities, the Taskforce sought involvement from experts, opinion leaders, peak bodies and government agencies. It held roundtables and consultations, circulated papers, and solicited feedback. There was some apprehension from the States and Territories, who did not feel they were equal partners, but creativity and enthusiasm from most charities.
For my part, I was approached to lead the ACNC Taskforce for what was estimated to be 12 months from July 2011 until July 2012 when it was planned that the ACNC legislation would be passed and the new agency in place. I was hesitant at first, knowing from experience that it was likely to be a contentious move within and beyond government. And this proved to be the case! However, I have never shirked a challenge if it is for a worthy cause, and there could be few more beneficial undertakings than establishing the regulator sought by Australia’s charity sector.
Enablers and barriers to the establishment of the ACNC
There were two main reasons the ACNC was not established by the planned date of 1 July 2012. One was the protracted time required for consultation; the other was the degree of policy contest.
During 2011, Treasury was responsible for developing the drafting instructions for the Office of the Parliamentary Counsel. In the process of developing these instructions they devoted considerable time drawing from the existing legislation in comparable common law countries leaving limited time for sector and stakeholder engagement. The draft Australian Charities and Not-for-profits Commission Bill 2012 (ACNC Bill) was released for consultation in mid-December with a deadline for response of mid-January. Sector groups protested this timing – one representative making the point that he was not going to review the Bill in shorts and thongs over Christmas and New Year! The Minister provided an initial extension, followed by another extension, giving the sector until late March 2012 to respond. Given the investment that many in the sector had put into lobbying for a regulator, it is unsurprising that they wanted sufficient time to scrutinise the draft Bill.
Following scrutiny of the draft Bill, there was a range of views on the benefits of regulatory oversight within the sector, with three main concerns expressed:
- The regulator would increase rather than reduce red tape.
- The scope and range of enforcement powers could result in a heavy-handed regulator.
- The media could mischievously and destructively use data on the Register.
The NFP adviser to the then Assistant Treasurer, the Hon. David Bradbury MP, Krystian Seibert, became involved in the negotiations with peak NFP bodies and influential opinion leaders to resolve unease on aspects of the draft Bill and to broker resolutions with Treasury. Sector representatives lobbied successfully for an expansion to the objects in the draft Bill. The initial version circulated on 9 December 2011 had only a single object: “to protect and enhance public trust and confidence in the not-for-profit sector.”
The Cabinet had agreed to this single object and a budget for the agency was allocated accordingly. (I will return to this matter under ongoing challenges.) However, sector advocates believed that this single object assumed a deficit of trust and confidence in the sector and successfully lobbied to add the word “maintain”. In addition, they successfully lobbied to add two more objects to the Bill. The single object presented in the initial draft became three:
- to maintain, protect, and enhance public trust and confidence in the Australian not-for-profit sector;
- to support and sustain a robust, vibrant, independent, and innovative Australian not-for-profit sector; and
- to promote the reduction of unnecessary regulatory obligations on the Australian not-for-profit sector.
Once the revised Bill reached the House of Representatives, the Government's strategy and Opposition objections resulted in three Parliamentary inquiries. This unusual level of scrutiny took the draft legislation well beyond the original starting date of 1 July 2012. The normal sequencing of Bills then resulted in further delays. However, late as it was, the Australian Charities and Not-for-profits Commission Act 2012 (Cth) (ACNC Act) was finally passed on 1 November 2012 and the ACNC began its life as a regulator on 3 December 2012. (See Appendix 3 for a more detailed account of the passage of the legislation.)
Getting the ACNC up and running
The ATO worked with the ACNC Taskforce to establish the ACNC, with Second Commissioner of the ATO Bruce Quigley initially taking financial responsibility as the ACNC apparatus had not yet been established. Given that the ACNC would be required to take its office services from the ATO, this was unproblematic for most operational matters, except for external contracts such as IT procurement. In managing this arrangement, the ATO established an oversight committee with senior members and representation from the ACNC Taskforce and Treasury.
Time was spent to develop Memoranda of Understanding (MOUs) for the services the ACNC would purchase from the ATO, and to formalise delegations in areas such as recruitment and financial management. The only area which proved to be problematic over the long term was the IT infrastructure. However, this is now being rebuilt to better serve the needs of a small regulator.
I was appointed as inaugural ACNC Commissioner after an open competitive process. Recruitment for other roles was managed by the ACNC Taskforce and cascaded from senior roles down. For the Assistant Commissioners, recruitment panels included the new Commissioner, senior personnel from the ATO and Treasury and a NFP representative. The Assistant Commissioners then had a hand in appointing Directors, who in turn sat on panels to recruit their own teams. There was a conscious effort to appoint from a mix of government, NFP and commercial backgrounds, and to choose staff with an interest in (and, preferably, a passion for) the sector. The final mix of staff included some 25 per cent who moved across from the ATO.
Due to the delayed introduction of the new regulator, the ACNC Taskforce operated in a hybrid manner with the ATO on core tasks such as assigning charitable status. The ATO retained responsibility for such matters until the passage of the ACNC legislation, and used this time to offer extended training in technical interpretation of charity law.
Coping with uncertainty
It was impossible to ignore the contested political backdrop. As Commissioner, I was responsible for a start-up venture that was threatened with immediate abolition should the government change. During the caretaker period in August 2013 I sought advice from the Australian Government Solicitor. The advice was unambiguous: as a statutory office-holder, I was legally required to implement the ACNC Act until Parliament repealed or modified the legislation. As an independent officer of the Parliament, not an appointee of the government of the day, I could only be removed with parliamentary approval.
Of course, this put me at loggerheads with the newly elected Government in September 2013. Once the Administrative Orders were published we noted that the ACNC Act sat within the Treasury portfolio alongside the other financial regulators, and the Charities Act sat between Treasury and Social Services, as the Minister for Social Services had responsibility for civil society. We met with our substantive Minister, the Assistant Treasurer, Sen. Arthur Sinodinos, in November 2013. He courteously explained the government’s preference for Ministerial decision-making rather than arms-length bodies, and further communicated that he was deferring to the Hon. Kevin Andrews MP, Minister for Social Services, on policy leadership in the charities area.
We had a follow-up meeting that month with Minister Andrews – our only meeting during his term as Minster for Social Services. It was a cordial meeting with the Minister agreeing to the Charity Passport, including retaining its nomenclature.
Establishing a digital regulator
From the outset, the ACNC decided that it would operate in digital-by-default mode. There were three main reasons – we had a modest budget, we were national in remit but physically located on a single site, and we saw the benefits of embracing digital technologies.
The ATO provided us with a paper-based list of approximately 56,000 charities at establishment. It had been decided that the entities deemed to be charitable by the ATO would be grandfathered across to the ACNC and we would check their entitlement to charity status. Because the ATO had not been required to create a public register, nor to mandate annual reporting from charities to keep it up to date, it was likely there were many charities that were inoperative or, with their current practices and activities, no longer eligible for maintaining charitable status.
The ACNC was able to begin assembling its own data set with the first year of Annual Information Statements required from charities for the 2013 reporting period. But to do this, we had to inform, educate, guide and coax many charities that were reporting for the first time. For many charities, it was a great challenge to engage with us online, and we put considerable resources into our Advice Services area so that ACNC staff could individually guide volunteers and paid charity workers through the steps of submitting their first statements. These time-consuming and resource-intensive approaches have paid off as we quickly moved from a situation of charities previously submitting information to the ATO on paper to 99 per cent submitting their Annual Information Statements to the ACNC online last year. Our frontline staff on the phones and email, went the extra mile to assist inquirers, and to support those struggling with their new obligations, and their first of IT!
Assuring the integrity of data on the register
In addition to the resources required to support charities with their first submissions of an Annual Information Statement, we soon learned that we would need to put comparable resources into verifying the data. This was less of a problem for the first reporting period than the second, as the establishment Minister, the Hon. David Bradbury MP, had agreed that for the first reports, financial information would not be required.
For the 2014 reporting period charities had to provide financial information for the first time. As these statements started coming in, we checked the data and identified a range of common errors – from charities wrongly assessing themselves to be a Basic Religious Charity, to omitting required audited accounts, and submitting incorrect financial calculations.
To fix these errors and cleanse the data we received from charities, we worked closely with the Centre for Social Impact at the University of New South Wales, who had won the second contract to analyse the data from the charities’ annual reporting. We shared a commitment to the data being accurate and worked diligently on correcting the errors we identified. A further benefit of being a digital regulator was realised as we able to use software to sweep through the data and identify errors. We sent emails notifying charities of errors and asking that they correct them. In the first year, some $17 billion worth of reported assets and $3.4 billion worth of reported charity income was corrected. We had similar error rates in subsequent years, but improved software for the 2017 Annual Information Statement has already seen a dramatic reduction in the error rates this year.
In addition to this electronic checking for reporting errors in Annual Information Statements, the ACNC routinely checks the data entries and audited accounts of the top 1,500 charities by size in Australia manually, as they represent 80 per cent of the resources in the sector. We are committed to maintaining an accurate and up-to-date Register so the community can make informed choices when considering donating resources or time to a charity. The data on the Register also provide the basis for the ACNC to realise the policy intent that the national charity regulator becomes a ‘one stop shop’ for the charity sector and the community.
Negotiating red tape reduction for charities
As noted, key sector representatives used the consultation period on the draft ACNC Bill to ensure they got the kind of regulator they thought was best suited to the sector. And red tape reduction was high on their agenda. They envisaged a ‘report once, use often’ mechanism that would relieve charities from repeatedly providing the same information to various governments, and departments within governments. Many charities that supported the establishment of a charity regulator did so believing they had entered into an informal compact where the increase in accountability and transparency was offset by a reduction in red tape.
A problem for the ACNC lay in having the statutory object ‘to promote the reduction of unnecessary regulatory obligations on the Australian NFP sector’, but in being given neither explicit powers nor the budget to achieve administrative simplification. As noted, the second two objects were added to the ACNC Bill after Cabinet had approved the NFP policy proposal and budget. So, the ACNC, as the new regulator, had the statutory object to reduce red tape for the sector, but limited leverage with Commonwealth agencies, and none at all with state and territory governments. Moreover, research from Ernst & Young commissioned by the ACNC in 2013 provided evidence that the overwhelming red tape impost was from governments’ tendering, contracting, monitoring and acquittal requirements. The ACNC contributed just 0.01% of the regulatory burden  . In fact, the ACNC had alleviated potential reporting duplication by accepting reports developed for states and territories as meeting its own requirements for the first three years of operation.
Undeterred, the ACNC developed a ‘Charity Passport’, an electronic compilation of key corporate data required by governments in their dealings with charities drawn from the information charities had provided at the point of registration or in their Annual Information Statements. This information is freely available to government agencies in all jurisdictions to ensure that the data, provided once, is used often. Government agencies that use the Charity Passport simply need a charity’s legal name or unique identifier to access the information they need, which avoids the need to repeatedly request the same information from charities. The uncertainty regarding the ACNC’s future slowed implementation, but after five years the number of agencies signed up has grown to 20, with 59 delegated office-holders – progress, albeit modest.
Similarly, work with the states and territories to reduce reporting duplication by harmonising requirements with those of the ACNC slowed dramatically with the change of government in September 2013. The ACNC suspended talks with the states and territories on harmonisation after the election as the policy intent of the new government was to abolish us. Indeed, the first Bill on the Abbott Government’s first Repeal Day in March 2014 was the Australian Charities and Not-for-profits Commission (Repeal) (No.1) Bill 2014. It was a slim document foreshadowing that Repeal Bill (No. 2) would be brought forward on the Government’s second Repeal Day in October 2014. However, the ACNC Repeal Bill (No. 2) did not materialise. Thirteen months had passed since the September 2013 election. The ACNC had to decide whether to re-engage with the states and territories or to continue to wait.
In many ways, the decision was made elsewhere, with South Australia taking the view that the repeal was unlikely to happen and it was worth progressing with their promised harmonisation with the ACNC. They continued developing legislation which was passed in May 2016. Other states followed and there is now a commitment from all jurisdictions to harmonise reporting by the 2017 reporting period – 30 June 2018. (A full outline of the progress with the states and territories on all elements of red tape reduction is available on the ACNC website. Considering the uncertainty regarding the future of the ACNC, the lack of a dedicated budget for the work of reducing red tape, and the challenges of achieving policy consensus in a federation, this is solid progress on harmonisation.
Reducing the administrative burden
Providing a public-facing Register for the Australian community was core business for the new national regulator. The Register is at the heart of the ACNC, and its elements are set in legislation. There is no ACNC without a Register, and conversely there is no Register without a regulator.
Decisions of eligibility for registration are drawn from both the ACNC Act and Charities Act 2013 (Cth) (the Charities Act). The Charities Act is based on the heritage of the Statute of Elizabeth (The Charitable Uses Act of 1601 [UK] (1601)) and Pemsel’s Case(Commissioners for Special Purposes of Income Tax v. Pemsel [UK] (1891)), and is informed by recent Australian High Court cases. The Charities Act came into effect on 1 January 2014, and affirms that a charity must have charitable purposes that are for the public benefit. Any other purposes must be incidental or ancillary to, and in furtherance or in aid of, these charitable purposes. The Charities Act requires a charity to be not-for-profit, and to not have a disqualifying purpose, or not be an individual, a political party or a government entity. Setting the eligibility criteria for registration as a charity so definitively in legislation has been a significant step. It has clarified the law, making it easier for organisations to understand eligibility, easier for ACNC staff to assess applications according to the law, and is beneficial for the public more broadly.
The idea of the ACNC being a ‘one stop shop’ rested on it being the single site that allowed free access to key information for community members, government agencies, journalists, researchers and others. It enables stakeholders to make informed choices. While we often measure the reduction in administrative burdens by its effect on community, business or government entities, the effect can be as dramatic for individual members of the public. Providing free, accessible, up-to-date information about charities on a credible register has dramatically reduced the time required for individuals to undertake their due diligence when considering donations or volunteering. And after five years there have been around two million hits on the ACNC Register.
Contributing to the sustainability of charities
It is unusual for a regulator to have a requirement to support the sustainability of a robust, vibrant, independent and innovative, sector. Unsurprisingly, there were few models within Australia or internationally for the ACNC to adopt, and, as I have mentioned, no additional budget for this object. However, as with the object to reduce red tape, we stretched our budget to ensure the sustainability object was not ignored. We took the view that we could support the sustainability of the sector by building the evidence base on which it would operate, and sharing that knowledge broadly to strengthen the understanding of this economically and socially significant sector.
In keeping with our ‘report once, use often’ commitment, we have used the information that charities provide in their Annual Information Statements to create the first comprehensive analysis of charities in Australia. The ACNC commissioned Curtin University to analyse the data from the 2013 Annual Information Statements, and the resulting report, Australian Charities 2013,was very positively received. We commissioned Curtin University to undertake further analysis on religious organisations and overseas aid organisations. Importantly, charities themselves quickly saw the utility of the data – a peak body in one state analysed the data and immediately used it in its budget negotiations with government. Others have followed.
The Centre for Social Impact and Social Policy Research Centre at the University of New South Wales won the contract to analyse the data in the 2014 Annual Information Statements. With financial information included for the first time, the Centre for Social Impact and Social Policy Research Centre’s research report, Australian Charities Report 2014 constitutes Australia’s first authoritative and comprehensive analysis of charities’ finances.Importantly, as a way of giving back to the sector and the public that supports charities, the research data is also available on a dedicated website and is free to browse, manipulate and interpret in multiple ways, such as by location, activity and size.
The ACNC has also actively promoted and commissioned research to provide an empirical base for our work. A research project undertaken in 2015 by Deloitte Access Economics investigated the material benefits to the states and territories of aligning with the ACNC. This followed the earlier research from Ernst & Young on the administrative requirements of Commonwealth agencies, and provided a solid base on which to build the case for alignment in discussions with states and territories. Further to this, we have been active participants in the key academic researchers group, spoken at academic and professional conferences, provided a research award and commissioned surveys into public trust in charities.
The ACNC is committed to giving data back to charities and the Australian community. There has never before been a census analysis of charities in Australia, and we see great value in making this information widely available. The ACNC’s data is available to the general public at data.gov.au and australiancharities.acnc.gov.au. This use of data acts as a model of good practice to the sector, and provides information that can be used for advocacy, planning, and program development.
The regulator at work
As a new regulator, the ACNC was able to take the work of the ACNC Taskforce as the foundation for its regulatory approach. A great deal of sector engagement underpinned the draft Regulatory Approach Statement. In a forthcoming publication, I have described the tasks of regulators broadly, and the ACNC in particular:
The core tasks of regulators are to define, monitor, and enforce behaviours which enhance fairness, integrity, security, and safety. Charity and NFP regulators are fundamental to maintaining trust and confidence in the sector, and are entrusted with establishing regimes of transparency and accountability, generally through the development of a publicly accessible register, and the capability to investigate and resolve complaints. Unlike other regulated communities and activities, the charity and NFP sector has mission-driven purposes, high levels of volunteerism, and a significant reliance on donations and tax concessions. Both public and community purses support most charities and NFPs, and the public maintains an interest in their oversight as well as the work of the agency that regulates them.
The ACNC was conscious of the need to manage the tension between its keenness to engage with and support the sector, and its responsibility to supervise and regulate it. Rather than subscribing to the common ‘police or friend’ dichotomy for a regulator, the ACNC sees regulatory practice as involving meaningful, respectful engagement where the regulator understands the needs and constraints of the regulated entities, and the entities understand the interest of government and the community for good governance and greater transparency and accountability.
The ACNC’s Regulatory Approach Statement notes the core functions of the regulator as registering charities, maintaining the freely accessible ACNC Register, reducing red tape for charities, providing education and advice, and monitoring and managing compliance.
The ACNC’s five values underpin the regulatory approach – fairness, accountability and transparency, independence, integrity, and respect. These values are, in turn, underpinned by the regulatory principles of necessity, risk management, and proportionality.
We believe the regulator has an obligation to provide adequate education and guidance for volunteers, Responsible Persons, and paid staff to meet their regulatory requirements. Therefore, the ACNC has a strong focus on education and communication. The ACNC website is replete with education and guidance materials, and regular communications alert charities to their obligations. The ACNC’s Advice Services team also provides a high-quality service over the phone and via email.
The Regulatory Approach Statement specifies that the ACNC will take action when charities do not meet their basic reporting obligations, when they do not meet minimum standards of governance, and they are no longer eligible to be registered. A risk-based approach is used to assess concerns and we consider a range of factors, including the nature of the concern, the persistence of the action, the potential harm to the NFP sector, and factors specific to the complaint and the charity itself.
The ACNC receives approximately 100 concerns a month about charities. Many of them can be handled with guidance and regulatory advice, or through referral to a relevant agency. However, about one-third are referred to our Compliance area for examination. It has been our experience over the past five years that when complaints are raised with charities, overwhelmingly they will move to rectify the situation or to improve their practice. The more serious or persistent cases move to investigation, often with the involvement of other regulatory intelligence or security agencies. We have made judicious use of our enforcement powers and, to date, revoked the charity status of 48 charities.
Due to the secrecy provisions in the ACNC Act, we are not able to communicate the context or the rationale for our enforcement decisions. To ensure the sector is able to learn from the responses of the regulator to the illegal, negligent or improper actions of the very small minority of charities subject to investigation, we publish consolidated reports on our compliance action.
How is the ACNC faring after five years?
The announcement on 4 March 2016 that the Turnbull Government would retain the ACNC provided the certainty we needed to get on with the job. A calm descended, and the regular Friday staff morning teas – where we provided staff with frank accounts of our situation – became less about how the ACNC would survive and more about how it will thrive.
Self-eulogising is a fraught task, and I am not one to indulge in it here. When the announcement was made in early June that I would finish as inaugural Commissioner at the end of my five-year term, the Chair of the ACNC Advisory Board issued a media statement which summarised some of the major achievements of the ACNC in its establishment phase (see Appendix 4).
I will, however, refer back to the key issues that troubled some of the early supporters, and detractors, of the ACNC – that we would increase red tape, that we would be heavy-handed, and that increased transparency would invite mischievous critique of the sector.
As noted above, although red tape reduction has not progressed at the pace envisaged, we have been able to make modest progress with the use of the Charity Passport, and solid progress with harmonisation with the states and territories. And this has been achieved with no explicit powers, no dedicated budget, and uncertainty regarding our future for the first three years.
The fears that we would use our enforcement powers in a heavy-handed manner have not been realised as we begin from the natural justice basis of presumption of innocence, and have implemented a proportionate, risk-based approach. We are developing a data analysis capability, and cooperating with other agencies to be able to detect wrongdoing, rather than reacting to a complaint.
Largely due to the professionalism of journalism in Australia, the early worry that the data on the Register would be used to unfairly denigrate charities has not materialised. Indeed, the increased transparency has provided real benefits to charities meeting their obligations – such as increased visibility to donors for the very small charities, and an assurance of quality for funders and grant-makers.
These achievements are a testament to the dedication, professionalism and hard work of the ACNC’s staff. Those on the phones and email strove to be helpful, timely and courteous. We chose staff carefully and worked to establish and maintain an enabling and supportive culture. Our two Assistant Commissioners – General Counsel, Murray Baird, and Charity Services, David Locke – have been particularly important. Baird brought with him an impressive reputation as a practicing charity lawyer. Indeed, many regarded his appointment as 'poacher turned gamekeeper', given his role as a lawyer advising charities in several leading cases. He also brings with him Christian goodness, affability and a commitment to community. Locke arrived as a gift from the Charity Commission of England and Wales during our Taskforce days and never left! He successfully applied for his current role and relocated family to Australia. He brought international experience, professionalism, passion for the role of regulating charities and a slightly naughty sense of humour that helped us through the dark days.
Murray Baird, David Locke and I formed the Executive and my style of leadership is to work 'primus inter pares' - the first among equals. There is no doubt that we bonded during the uncertainty of the early days. We were all committed to this model of charity regulation and we told staff we would remain until the political end – whatever the outcome. In fact, I said I would personally take down the shingle if it came to that! When I was awarded the Leadership in Government award last year, in recognition of our shared leadership approach, I shared the professional development prize money with them.
We are fortunate that the leadership culture and practice runs deeper at the ACNC. The Directors have played a powerful role employing their staff and managing the implementation of the regulatory practice envisaged in the legislation. They are an outstanding bunch of professionals – currently Rachel Smith (Corporate Services), Prue Monument (Compliance), Mel Yates (Reporting and Red Tape Reduction), Ben Rashid (Information Technology), Sallyann Stonier (Registration) Annie Keely (Legal and Policy) and Sean Lounder (Acting in Susie Cotterill's role in Education and Public Affairs while she is on maternity leave). The ACNC and charities have benefitted from their dedication, hard work and professionalism. I have greatly value their personal support and professional contributions.
Finally, the ACNC has had the inestimable benefit of the deliberations and good counsel of the Advisory Board. The inaugural board was chaired by Robert Fitzgerald AM, who had led the influential 2010 Productivity Commission inquiry, ‘Contribution of the Not-for-profit Sector’. Fitzgerald and the inaugural Advisory Board members provided strategic advice and good counsel through the uncertain days of our establishment.
The second Advisory Board comprises some members of the original Board with new members appointed in May 2016 and August 2017. Tony Stuart, the second Advisory Board chair has brought impressive corporate and NFP knowledge and experience to the role, and a commitment to improving the circumstances of Australia’s charities. As Commissioner, I continue to value this source of sound judgement and strategic guidance. I trust my successor will find the Advisory Board model of equal value as I have.
Challenges for the incoming Commissioner
I've had the opportunity, as inaugural ACNC Commissioner, to work with others to build Australia's first national charity commission from the ground up. Inevitably there will be unfinished business, or ongoing challenges. This closing section will outline the more pressing of these as I see them.
The May 2011 Budget contained a National Policy Proposal to establish the ACNC. Cabinet agreed to establish a national charity regulator with a single object 'to promote and maintain public trust and confidence in the Australian NFP sector'. The ACNC was funded accordingly – to do the work in pursuit of a single object.
As noted, when the draft ACNC Bill was released for consultation in December 2011 the sector successfully negotiated to have two further objects added – the sustainability and red tape reduction objects. The problem is that the budget set in the forward estimates to 2018-2019 was not revised. Nor was the political climate of our establishment period conducive to securing an increase.
We have managed so far due to a number of factors, but primarily due to the foresight of the designers of the ACNC legislation who put into regulation that the ACNC would have its own appropriation and that this would be kept in a special account. There are rules that govern a special account, and of particular benefit for the ACNC is the rule that monies unspent in a particular year are rolled over into subsequent years. Because of the delayed introduction of the ACNC, the Abbott Government's initial reductions on staffing and then hiring freeze, the attrition in the early years due to uncertainty, the significant recruitment time lags, and the slower-than-expected IT build, we have carried over monies each year, and this has enabled us to cope with our inadequate budget.
However, we reach a budget cliff this year, in 2017-18, where unspent monies from the special account dry up, and the total budget allocation shrinks by almost $1m, from $14.8m to $14.0m. We have already made some difficult staffing decisions, and have very tight financial management to remain within budget.
This will be a crucial matter for my successor as we have insufficient budget for core tasks and are spending more on compliance than projected. Compliance action has increased in strategic importance as data analytics have highlighted instances where vulnerable beneficiaries could be at risk and examples of serious malfeasance (including money laundering and terrorism financing), and we have little choice but to allocate resources to these critical areas.
No doubt, those assigned the role of reviewing the ACNC Act will need to consider whether the regulator has sufficient resources to administer its legislation.
2. Review of the legislation
The Charities (Consequential Amendments and Transitional Provisions) Act 2013 (Cth) sets a requirement that the ACNC Act be reviewed at five years, that a report be provided to the Minister within six months of the review, and that the report be tabled in the House within 15 sitting days of its completion. These mandated requirements are specific regarding timelines but not process.
It is the role of Treasury to advise the Minister on the conduct of the review, including the terms of reference, the review mode, personnel and budget. The Minister is likely to announce these matters in the near future.
In my view, the ACNC has been well served by its foundation legislation. The staff in Treasury led by Martin Jacobs, with technical advice from Chris Leggett, drew the best from the legislation of charity commissions and directorates in common law jurisdictions. Of course, no Act attains perfection in its first iteration, and there are some gaps, omissions and unintended consequences which the review will attend to.
There are matters already being discussed, including:
- whether the secrecy provisions prevent the ACNC from having an educative and deterrent effect in its compliance work;
- whether more of the information we gather should be displayed on the register;
- whether the enforcement powers are pitched correctly for this sector; and
- whether the ACNC should cover all NFPs and not just charities.
No doubt these matters will be the subject of many consultations and submissions. Staff at the ACNC are preparing to provide advice as required by the review.
However, there are storm clouds brewing around a matter more properly the province of the Charities Act – political advocacy. This seems to have been aroused following the 2015 Parliamentary Inquiry into Environmental Organisations, and the recent deliberations of the Joint Parliamentary Committee into Electoral Matters on issues such as the suitability of any Australian organisation receiving funding for advocacy. Battle lines have been drawn, and it may be difficult for the government to ignore this matter when the legislation is under review.
It has been a privilege to work as inaugural ACNC Commissioner. This brief account of our establishment is the first page in what should be a long narrative of good regulatory oversight and strong corporate governance in a sector that gives so much to the Australian economy, and to our national and international communities.
It is worth recalling that when the ACNC was established, charities were not required to report annually, there were no governance standards they had to meet, there was little guidance and advice, there was no Register for quality assurance for donors and grant-makers, there was nowhere to take complaints, there was no database on charities’ finances and activities, and there were complex and duplicated regulatory and reporting arrangements. How things have changed.
With the establishment of the ACNC, we now have a supported, supervised and more savvy sector:
- charities report annually and the information is publicly available on the ACNC Register and in consolidated form at data.gov.au and australiancharities.acnc.gov.au;
- annual reports on the status of the sector are published and independent research is commissioned;
- mischief is dealt with – charities must meet the governance standards or face compliance action;
- there is freely available guidance and advice on the ACNC website, and professional bodies provide support to charities to help them meet their regulatory and reporting obligations; and
- progress has been made with other Commonwealth and state and territory agencies to reduce red tape.
As outgoing Commissioner, I can say with confidence, that the overwhelming majority of Australian charities are well-governed, operate with sound financial management, and are worthy of the trust and confidence of the Australian community. Long may they thrive!
Appendix 1: Enquiries into the not-for-profit sector in Australia
Six national inquiries stretching over 15 years:
- 1995 Industry Commission Report, Charitable Organisations in Australia
- 2001 Report of the Inquiry into the Definition of Charities and Related Organisations (Charities Definition Inquiry)
- 2008 Senate Standing Committee on Economics, Disclosure Regime for Charities and Not-for-Profit Organisations
- 2010 Productivity Commission Report, Contribution of the Not-for-Profit Sector
- 2010 Australia’s Future Tax System (the Henry Review)
- 2010 Senate Economics Legislation Committee, Inquiry into Tax Laws Amendments (Public Benefit Test) Bill
- The Hon. Bill Shorten MP
- Sen. Mark Arbib
- The Hon. David Bradbury MP
- Sen. Arthur Sinodinos
- The Hon. Kevin Andrews MP
- The Hon. Scott Morrison MP
- The Hon. Christian Porter MP
- The Hon. Kelly O’Dwyer MP
- The Hon. Michael McCormack MP
- The Hon. Michael Sukkar MP
Appendix 3: Details of the origins and passage of the ACNC Act
Three Bills were introduced into the House of Representatives and read a first time on 23 August 2012:
- Australian Charities and Not-for-profits Commission Bill 2012;
- Australian Charities and Not-for-profits Commission (Consequential and Transitional) Bill 2012; and
- Tax Laws Amendment (Special Conditions for Not-for-profit Concessions) Bill 2012
An Exposure Draft (3) of the ACNC Bill was referred to the House of Representatives Economics Committee on 5 July 2012 for inquiry over the Winter Recess. Its report was tabled in the House of Representatives on 14 August 2012.
The ACNC Bills were immediately referred to two Parliamentary Committees:
- Senate Community Affairs Committee (SCAC) to report by 10 September 2012
- House of Representatives Joint Committee on Corporations and Financial Services to report by 12 September 2012
- The ACNC was scheduled to open for service on 1 October 2012.
The Second reading debate on 17-18 September 2012:
- The ACNC Bill passed at 9.30pm after a gag motion supported by Independents
- The ACNC Bill introduced and read a first time in the Senate on 20 September 2012; the second reading was moved.
- The second reading was scheduled but not heard in the next sitting week of 9-11 October 2012. It was then scheduled for the next sitting week of 29 October 2012.
The opening of the ACNC was delayed until 3 December 2012.
Rationale in the Regulatory Impact Statements (RIS) for the creation of a national charity regulator
- “Public transparency over the activities of charities and other concessionally taxed entities is lacking… The lack of a single source of public information makes it difficult for members of the community seeking access to reliable information on charities and DGRs.” RIS, ACNC Bill Ch 17, p. 231
- “At the Commonwealth level regulatory oversight is spread across multiple government agencies which increases compliance costs and complexity.” RIS, ACNC Bill Ch 17, p. 227
- “Existing reporting arrangements for NFP entities are uncoordinated and complex, and do not take into account the differing size, risks and access to public monies on NFP entities.” RIS, ACNC Bill Ch 17, p. 228
Details of Australian Charities and Not-for-profits Commission Act 2012 (Cth) (the ACNC Act)
The Act established a new regulatory framework for the charity sector, with the ACNC as the responsible regulator. It established the ACNC and gave it the responsibility for registering charities and administering the national regulatory framework, as well as assisting registered charities to comply with and understand their regulatory obligations.
The legislation provides for a process of registration, bringing certain types of entities within the regulatory framework. At the time of writing, charities are the only type of entity eligible for registration. There is scope within the ACNC Act to include additional entity types (including all NFPs), but the Government has no policy to extend the ACNC's regulatory remit beyond charities.
Registering with the ACNC is not compulsory, but organisations must be registered to access certain Commonwealth taxation concessions. Once registered, charities receive the benefits of registration, but also take on the obligations under the ACNC Act that apply to registered charities. Charities are entitled to be registered if they meet the requirements of the ACNC Act, which includes being a NFP and having only charitable purposes according to the definition in the Charities Act. Under the Act, charities register as one or more charitable subtype, which correspond to the charitable purposes in the Charities Act, with the additional subtypes of health promotion charities and public benevolent institutions.
Obligations imposed by the ACNC Act
Registered charities have ongoing obligations to notify the ACNC of their organisational details, which includes providing an Annual Information Statement and, in some cases, a financial report. The Commissioner is empowered to use the Annual Information Statement to collect information that is required by the ACNC Act or Regulations, as well as any other information that is required for the purpose of a recognised assessment activity. The ACNC Act requires the ACNC to publish much of the information that it collects on the public ACNC Register.
Charities are also required to comply with the ACNC Governance Standards. These are minimum standards that require charities to operate as a NFP and work towards their purposes, to remain accountable to their members, to remain compliant with Australian laws, and to engage suitable board members who understand and carry out their duties.
The ACNC has the power to investigate and enforce compliance with the ACNC Act and ACNC Regulations, and can take a range of actions, including imposing penalties, issuing warnings, and revoking charity registration where necessary. However, the ACNC Act provides that the ACNC must exercise its compliance powers according to the principles of proportionate regulation, reflecting risk and regulatory necessity. The ACNC also carries out its functions in recognition of the unique nature and diversity of NFP entities and the distinctive role they play in Australia.
Statutory objects of the ACNC Act
The ACNC Act is a purpose-based Act and includes three statutory objects:
- To maintain, protect and enhance public trust and confidence in the Australian not-for-profit sector,
- To support and sustain a robust, vibrant, independent and innovative Australian not-for-profit sector, and
- To promote the reduction of unnecessary regulatory obligations on the Australian not-for-profit sector.
The ACNC exercises its powers and fulfils its responsibilities in furtherance of these objects, and achieving them is central to the ACNC's Regulatory Approach and Strategic Plan.
Regulations established by the ACNC Act
The Government also established the ACNC Regulations, which describe additional information that must be included on the ACNC Register, information that must be withheld from the ACNC Register, the ACNC Governance Standards, transitional reporting arrangements, and additional requirements for entities submitting annual financial reports.
Constitutional basis of the ACNC Act
Constitutionally, the Commonwealth does not have any explicit legislative power to regulate the charity or NFP sector. However, the taxation power (paragraph 51(ii)) allows the Commonwealth to make laws with respect to taxation. Because registration with the ACNC is a pre-requisite to accessing Commonwealth charity tax concessions, the taxation power effectively supports provisions that enable the ACNC to ensure ongoing entitlement for registration, including the power to require registered entities to report, and powers to conduct compliance investigations.
Enabled by the constitutional power for the Commonwealth to make laws with respect to corporations and territories, the ACNC Act gives the ACNC additional compliance powers regarding 'federally regulated entities'. These include powers to give warnings and directions, accept and seek Court enforcement of undertakings, seek injunctions, and to suspend, remove and appoint acting responsible persons.
Statement from the ACNC Advisory Board Chair, Tony Stuart, 1 June 2017
The Australian Charities and Not-for-profits Commission (ACNC) Advisory Board Chair, Mr Tony Stuart, has confirmed the inaugural Commissioner, Susan Pascoe AM, will finish her five-year contractual term on 30 September 2017 . Read the full media release here.
 See Pascoe, S. (2017). The Digital Regulator. In M. McGregor-Lowndes & B. Wyatt (eds.), Regulating Charities: The Inside Story (pp. 211–232). New York: Routledge; and Pascoe, S. (forthcoming) A Regulator’s View. In M. Harding (eds.), Research Handbook on Not-for-Profit Law. Cheltenham: Edward Elgar.
 The Treasury. (2011). Final Report: Scoping study for a National Not-for-profit Regulator. Canberra. Accessed online:
 Australian Charities and Not-for-profits Commission. (2016). ACNC Annual Report 2015-16. Melbourne: Australian Government.
 Ernst & Young. (2014). Research into Commonwealth Regulatory and Reporting Burdens on the Charity Sector. A Report prepared for the Australian Charities and Not-For-Profits Commission, September 30, 2014. Accessed online: here.
.Deloitte Access Economics. (2016). Australian Charities and Not-For-Profits Commission, Cutting Red Tape: Options to align state, territory and Commonwealth charity regulation (Final Report). February 23, 2016. Accessed online: here.
 Pascoe, S. (forthcoming) A Regulator’s View. In M. Harding (eds.), Research Handbook on Not-for-Profit Law. Cheltenham: Edward Elgar.
 The ACNC has produced three consolidated reports on compliance action since 2012: ACNC Compliance – an overview of the first year (2014), Charity compliance report: December 2012–December 2014 and beyond (2015), and Charity Compliance Report 2015 and 2016 (2017). All are available at here.