ACNC Assistant Commissioner, Anna Longley explores the legal limitations on charities.
Landmark ACNC reviews highlight legal limitations on charities
Legally, there are limitations on how charities can spend their funds. Our recent report, ‘Bushfire Response 2019-20: Reviews of Three Australian Charities’ highlights that a charity can only use donated funds for activities that advance its charitable purpose. In the case of one of the charities, that was confirmed in the NSW Supreme Court.
The ACNC conducted reviews of the Australian Red Cross Society, the Trustee for NSW Rural Fire Services & Brigades Donations Fund (NSW RFS Trust) and NSW Wildlife Information Rescue and Education Service Incorporated (WIRES). We decided to conduct the reviews and publish a report after identifying a gap between the public’s expectations of charities and the reality of responding to last summer’s catastrophic bushfires.
Our report outlines that all three charities acted legally and responsibly, allocating funds to bushfire response programs and their delivery, and protecting donations from fraud. The charities balanced immediate relief with the need to supply funds for the long-term recovery phase. The massive increase in funds also saw the charities implement greater planning and stricter governance processes, as well as enhanced fraud protection measures.
We reviewed the actual and planned expenditure of the charities and found that they allocated donations in line with their legal obligations, and that all funded programs relate to the bushfire response.
Importantly, the report also highlights that a charity can only use donated funds for activities that advance its charitable purpose. Despite charities wanting to honour the intentions of all donors, legally, there are limitations on how they can spend their funds.
All three charities received significant amounts from generous donors worldwide. How the charities could spend funds was determined by their governing rules. This cannot be altered by donor expectations.
As an example, a very successful social media fundraising campaign was run to ultimately benefit the NSW RFS Trust. It nominated activities that the Trust could not deliver. A number of donors indicated in comments that they wanted to assist people who’d lost homes, animals and fire fighters nationally.
However, the trust deed of NSW RFS Trust limits its activities to supporting rural NSW fire brigades and assisting them to meet the costs of fire-fighting equipment, training and other administrative expenses. This limits its use of bushfire donations to these activities.
To clarify its position, NSW RFS Trust sought a ruling from the Supreme Court of NSW to determine whether it could deliver activities that more completely reflected donor expectations. The court confirmed the relatively narrow scope of the activities NSW RFS Trust could legally undertake.
In contrast, WIRES’s trust deed allows it to engage in a range of activities including rescuing and caring for sick, injured or orphaned native wildlife, training, and supporting research. It does not have a state-based limitation on its activities.
As such, WIRES has greater legal flexibility to expand its programs and the locations in which it operates, although it must work within its governing rules. WIRES advised it now intends to work nationally and to support other organisations, whereas its funding constraints previously limited its activities to NSW.
The three charities we reviewed experienced different legal limitations and operational realities. It is important for donors to understand that all charities work within legal and practical boundaries and the best way to determine how a charity will spend funds is to contact it directly or look it up on the ACNC Charity Register.
My hope is that the outcome of this review will give the people in the community who will generously donate to future bushfire appeals and the charities that will provide relief and recovery, comfort that charities are operating as they should.