Transparency and accountability are vital in ensuring public trust and confidence in the charity sector.
Given the significant contribution from taxpayers, it is natural, even expected, for people to want to know where charities spend funds, as well as how much they spend. And the reporting required of charities helps achieve this.
In a recent column I discussed important changes to charity size thresholds that will come into force for the 2022 Annual Information Statement, and which will see the reporting requirements for several thousand of Australia’s registered charities change.
But this isn’t the only impending change that will have an impact on the way many charities report to the ACNC. Thousands of charities, mostly large, will soon be required to report remuneration they provide their Responsible People and other selected organisational leaders – their ‘key management personnel’.
These changes, which also come into force from the 2022 Annual Information Statement reporting period, are in line with guidelines set down by the Australian Accounting Standards Board (AASB).
The changes will see mostly large charities required to disclose remuneration provided to their ‘key management personnel’ in their reporting to the ACNC. This will be through the Annual Information Statement and annual financial report.
Remuneration and ‘key management personnel’
When we talk about key management personnel, we are generally referring to the people in a charity that have the authority and responsibility for planning, directing and controlling the charity’s activities – the senior decision makers in a charity.
A common example of a charity’s key management personnel is its Responsible People – board or committee members, or trustees. Another example is a charity’s senior staff - its CEO, chief financial officer or chief operating officer.
Remuneration can encompass financial items – wages, salaries and bonuses – as well as non-financial items like the provision of free or subsidised goods and services. For example, some charities provide benefits like a car as part of a remuneration package they offer.
Even items like paid long-service leave or a post-employment pension come under the heading of remuneration.
Transparency and accountability on remuneration
The ACNC has long held the position that charities can offer remuneration to board members. But, in doing so, each charity has to be careful in deciding:
- whether it is reasonable to offer remuneration, and
- what reasonable remuneration might be.
A charity should think about the measures it will take to ensure it is accountable and transparent in offering remuneration to board members, and in informing its supporters, volunteers and the wider public about the decision to do so.
We have a great guide on remunerating charity board members that looks at some of the considerations for charities thinking about this decision.
The remuneration of other key management personnel such as senior staff is often of public interest.
Of course it is right for a charity to pay its senior staff. They often are highly skilled, experienced and responsible for complex operations. They should be paid for their work. But being transparent about this is crucial in reassuring donors, supporters and the public that a charity is well run and uses its funds responsibly.
In both situations, these new reporting requirements can help. The changes improve transparency and accountability by providing important details about where charity funds are spent, which, in turn, helps uphold public trust and confidence in the sector and its people.
We have detailed guidance on the reporting changes for key management personnel remuneration aimed at helping charities understand their obligations. I recommend charities and their Responsible People take the time to read it.
The Hon Dr Gary Johns