This guide has been developed to help charities understand their obligations to the ACNC regarding financial management, reporting on transactions and the use charity funds.
It looks at the main reporting and record-keeping obligations, as well as what the term ‘not‑for‑profit’ means in practice.
It also explains charities’ obligations to the ACNC when it comes to finances – including the provision of financial reports and ensuring that they operate as not-for-profits – and focuses on practical steps charities can take to ensure their finances are used appropriately and protected from misuse.
This guide is particularly aimed at those people who are, or who are thinking about becoming, Responsible People of a registered charity. Responsible People are those on a charity’s governing body. In your charity, these people may be called board or committee members, directors, trustees or members of the management committee.
Responsible People and charity money
The responsible management of a charity’s financial affairs is vital to good charity governance, and charities’ Responsible People have a key role in ensuring this occurs.
Duties of Responsible People
Under Governance Standard 5, Responsible People have duties to:
- act with reasonable care and diligence
- act honestly and fairly in the best interests of the charity and for its charitable purposes
- not misuse their position or information they gain as a Responsible Person
- disclose conflicts of interest
- ensure that the financial affairs of the charity are managed responsibly
- not allow the charity to operate while it is insolvent.
Level of financial understanding Responsible People require
Responsible People must have a level of financial understanding that will enable them to make informed decisions about their charity’s finances.
While many boards appoint treasurers and board members with financial expertise, every board member must be able to read and understand a charity’s financial information. Responsible People need to be appropriately informed about the matters on which they may make a decision.
It is a good idea to participate in training to improve your understanding of finances as part of your role because you cannot make informed decisions about your charity’s finances without a basic understanding of the concepts.
At the very least, you should be able to determine whether your charity is solvent and what the impact of any decision you make will be on your charity’s financial health.
Managing money and other resources
An important responsibility for a charity’s board is to ensure the charity has the resources it needs to carry out its work and fulfil its charitable purpose.
Responsible People have an important role in gaining and maintaining charity funds, as well as in ensuring those funds are protected from abuse and used in an efficient and lawful way.
As part of the duties outlined in Governance Standard 5, Responsible People must ensure that a charity’s financial affairs are managed responsibly – including not allowing the charity to operate while insolvent. Responsible People also have a related duty to disclose any conflicts of interest.
Responsible People need to ensure their own accountability, as well as implementing structures and processes to guarantee accountability throughout the charity.
This accountability must also extend to any arrangements the charity has with other organisations, such as ‘third-party’ agencies that fundraise or deliver services.
Responsible People must be able to identify major strategic risks – for example, fraud – and ensure there are systems in place so the charity can identify, manage and respond to them.
Fundraising can be undertaken in a variety of ways, such as:
- seeking public donations (such as through door knock appeals or highway collections)
- holding public events for which you charge an admission fee
- running fundraising events (including events in partnership with others)
- running raffles (or other games, such as bingo)
- raising money via online appeals or through crowdfunding.
Charities also raise money in other ways, including through:
- charging membership fees
- charging for services
- operating an opportunity shop or holding a bake sale
- receiving funding from government.
However a charity raises money, it is important its Responsible People understand the obligations that come with raising and having this money.
Responsible People must have a clear understanding of how their charity raises funds, including any money raised through fundraising operations.
They must ensure there are appropriate and lawful processes in place to manage any money raised. Any fundraising must occur in a way that is in the charity’s best interests. This includes considering the charity’s charitable purpose, its beneficiaries, public perception, and the impact on potential donors.
The Responsible People must ensure that charity money, less reasonable expenses, is put towards pursuing the charity’s charitable purpose.
In addition to managing funds responsibly, charities must also ensure they appropriately store any information collected from donors. Use of this information must comply with any relevant privacy laws. For more information, see our guide on managing people's information and data.
Outsourcing fundraising does not allow Responsible People to outsource their responsibilities. The charity’s Responsible People still carry the ultimate responsibility.
If Responsible People are not clear about how funds are raised or are to be used, they must be diligent and seek further information.
The ACNC does not have responsibility for fundraising regulation – fundraising is regulated at the state and territory level.
If your charity conducts fundraising activities, it must comply with any relevant state or territory fundraising legislation. View more information on the relevant state and territory regulators of charity fundraising.
Generally, you will need to register your charity to fundraise. This may mean your charity will need a fundraising permit. You may also need to provide a report on any funds raised to your state or territory government regulator.
In some states and territories, special arrangements apply to charities that undertake fundraising through gaming activities such as raffles or bingo. Make sure you understand any special requirements associated with this kind of fundraising.
If your charity is endorsed as a deductible gift recipient (DGR), it will also have requirements with the Australian Taxation Office (ATO). See our list of regulators for more information.
While the ACNC does not directly regulate fundraising, registered charities must comply with the ACNC Governance Standards, ACNC External Conduct Standards if operating overseas, and any relevant legal or other obligations they may have. They must ensure they have appropriate record-keeping and reporting in relation to their activities – including their fundraising.
Keeping your finances secure
Understanding and securing your charity’s finances is essential to ensuring your charity has access to the resources it needs to do its work.
One way of doing this is to establish a sub-committee of your governing body with responsibility for overseeing your charity’s financial performance and controls. Often these are known as finance committees or finance sub-committees. This sub-committee could review financial reports in greater detail and provide advice to the charity about the organisation’s financial position.
You may even consider including one or two people on this sub-committee who are not on the charity’s board. This can provide an extra level of accountability when examining your charity’s finances.
Fraud occurs when someone acts in a dishonest way so that they receive a benefit or someone else experiences a loss.
People can commit fraud in a variety of ways, including by:
- making false representations
- abusing their position
- failing to disclose information
- using other forms of deception.
Fraud does happen in charities, but taking a few simple steps can help prevent problems. These steps include having comprehensive money-handling processes in place.
For more information, see our guide on protecting your charity from fraud.
Charities can be potential channels for raising and distributing funds for terrorism financing.
Because of this, charities must take all reasonable precautions and exercise due diligence to ensure that funds are not inadvertently directed towards terrorism.
Charities need to take proportionate action to reduce risk, particularly when working with other people or organisations.
Strong financial controls, as well as robust and appropriate governance arrangements can reduce the risk of your charity being used for terrorism financing.
There may be serious consequences for charities if they are used as a channel for terrorism financing (even if the charity is not aware). This includes criminal penalties.
For more information, see our guide on protecting your charity from terrorism financing.
Strong financial systems and controls are very important in helping protect you and your charity.
Charities can establish several different financial controls, and the ones your charity uses will depend on the complexity and size of your charity’s resources.
Some examples include:
- Requiring multiple signatures on payments and receipts – with any money leaving the charity or coming into it subject to more than one person authorising and completing the transaction.
- Keeping a budget and tracking your performance against it – establishing an annual budget and tracking your charity’s performance against it throughout the year is vital. Any significant variations that turn up should be investigated.
- Providing regular and up-to-date financial reports to the board – the charity’s board has ultimate responsibility for the financial health.
- Establishing clear financial delegations – for those in your charity who are authorised to approve purchases and transactions, ensure your policies establish how much they are permitted to spend without seeking approval.
- Securing your account information – this includes everything from bank account passwords to the keys to the petty cash tin.
Charities should also look to constantly review and strengthen their financial controls.
ACNC obligations relating to money
Your charity must meet several obligations to remain registered with the ACNC. If your charity fails to comply with these obligations, we may revoke its registration.
The ACNC obligations that relate to managing and using money include duties to:
- record information (retain financial records)
- report annually
- maintain eligibility for registration (including remaining not-for-profit and pursuing charitable purposes)
- notify us of certain changes
- meet the Governance Standards (including Governance Standard 5: Duties of Responsible People to manage the charity’s finances responsibly and not allow the charity to operate while insolvent)
- meet the External Conduct Standards if operating overseas (including External Conduct Standard 1: Activities and control of resources, including funds).
The ACNC has more information about charities’ ongoing obligations in relation to money.
Obligations to other agencies that may relate to money
Unless we tell you otherwise, these obligations are in addition to any other obligations your charity has under other laws or to other Commonwealth, state and territory governments.
Your charity might have obligations because of:
- concessions, exemptions or other benefits it may receive from other government agencies (for example, for certain Commonwealth, territory and local government taxes)
- its legal structure (for example, as an incorporated association or company limited by guarantee) – your charity’s governing document may also have obligations relating to money
- the way it raises money (for example, grants or fundraising such as street collections or raffles)
- how it operates and what it does (for example, specific sectors such as aged care, housing, childcare and education have other reporting requirements, as do charities who receive grants from the government).
Some charities also choose to meet voluntary standards such as codes of conduct or codes of ethical practice set by professional associations, peak bodies or other agencies.
- Charities that are aid and international development organisations may be members of the Australian Council for International Development (ACFID), and follow the ACFID Code of Conduct.
- Charities that fundraise may be members of the Fundraising Institute of Australia, and must comply with the FIA Code.
- Charity money myths
- Charity reserves: financial stability and sustainability
- Charities and insolvency
- Our Community: Damn good advice for treasurers and Damn good advice for board members
- Institute of Community Directors: Financial management
- CPA Australia: Guide for not-for-profits
- Business Victoria: Cash flow forcasting template
- Davidson Institute: Guide for community board members
- Accounting for Good
- Australian Taxation Office (ATO)