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This month’s column is a reproduction of an opinion piece by ACNC Commissioner Sue Woodward AM as published in Accountants Daily on 3 May 2024.

National charity regulator concerned about misuse of complex corporate structures

The misuse of complex structures is an emerging focus for the Australian Charities and Not-for-profits Commission in its compliance activities.

As the regulator of the nation’s 60,000 registered charities, we are becoming increasingly concerned about charities using complex corporate structures to hide serious wrongdoing. We have just announced our compliance and enforcement focus 2024-25 so the sector and the public know where our efforts will be directed. The misuse of complex structures is an emerging focus area for the Australian Charities and Not-for-profits Commission (ACNC).

While the vast majority of registered charities are small, with more than half totally reliant on volunteers, there are also a number of very large charities. Around half a per cent have revenue in excess of $100 million per annum.

For some larger charities, complexity in their structure has evolved over time. An organisation may have extended or changed the types of programs it offers over a 20-year period, for example, and set up separate entities to run different aspects of their operations. Charities are free to use a variety of structures to suit their purpose, and we acknowledge there are often sound reasons for this. Sometimes there is unwittingly creep, where structural complexity grows yet more robust and sophisticated governance does not develop in parallel. In these cases, we can often support those charities who want to get back on track with their governance.

But, in a few cases, there seems to be intentional obfuscation. Using complex structures and related party arrangements, sometimes with a mix of charities (companies, trusts, unincorporated bodies) and ‘for profit’ (business) entities. These arrangements are put in place to avoid transparency and to enable non-compliance. We have identified these types of cases as a serious concern. There can be relationships with related parties that are designed for the private benefit of those parties, not the charity, and in the most egregious cases, are constructed to obscure criminal activity.

Along with our own intelligence gathering (which includes concerns raised with us by the public), we work closely with other government agencies to identify trends and emerging issues. Ongoing registration with the ACNC requires compliance with Australian laws and our collaborative regulatory approach with cross agency referrals helps make sure suspected breaches of our Act, and also breaches of criminal and other laws by registered charities don’t go unnoticed.

Our compliance work is critical to our key object of maintaining and protecting public trust in Australia’s multibillion dollar charity sector. There is a lot at stake. Data we comprehensively analysed for the 9th edition of our Australian Charities Report showed the sector generated $190 billion in revenue, employed 10.5 % of the workforce and attracted donations of $13.4 billion.

At the start of April, there were about 250,000 people (directors and committee members) involved in the governance of Australian registered charities. We have comprehensive guidance and education resources to support these people and charity staff (paid and unpaid). Ours has always been, and continues to be, an education first approach to help charities understand and meet their obligations for charity registration. It’s through this ongoing registration that registered charities have access to Commonwealth charity tax concessions and benefits such as donations to them being tax deductible.

More than a decade of regulatory experience shows us that it is only a small percentage who are deliberately acting unlawfully. While there may be a small number that fall in this category, the scale and seriousness of the conduct can still be significant. As the public would expect, we are directing our resources more sharply to this area to protect the reputation of the broader sector. If the sector’s reputation is tarnished then donations and volunteering are jeopardised – risking harm to the engine room of so many charities.

So our message is that it is not complexity per se that is the problem, but complexity used to hide non-compliance, such as using funds for a non-charitable purposes or private benefit. It’s a golden rule that charitable funds must be used for the charitable purpose that each charity is registered for.

Our compliance work complements our broader Register integrity work − work we do to help ensure the ACNC’s free, searchable online Register is accurate so people looking to donate or volunteer can go to the Register and have confidence they will find up-to-date information about verified charities. The Charity Register is searched millions of times each year.

We will continue to take action when there is a risk that an entity is no longer eligible to be registered as a charity, and all the benefits that brings, including tax concessions. For us, it’s all about public trust and confidence so registered charities can connect and support the community in the myriad of ways that they do every day of the year.

Sue Woodward AM Commissioner, Australian Charities and Not-for-profits Commission

See the column as published by Accountants Daily.