Compliance Reviews Report

A review is a short engagement with a charity in which we examine a particular issue or risk that they may be experiencing.

This contrasts with an investigation, in which we assess a charity’s governance against its full obligations under the ACNC Act and Regulations.

We conduct reviews in cohorts of charities with similar risks to establish whether an issue is widespread. If we find that many charities are experiencing an issue, we may provide information or guidance for those charities and the public to support better understanding and improvements to charity practices.

To date, we have completed or are in the process of finalising four cohorts of reviews:

• Charities’ responses to the 2019-20 bushfire season
• Governance risks associated with large boards
• Charities’ governance of overseas programs working with vulnerable children
• Risks to charity sustainability.

2019-20 bushfire season reviews

We assessed how charities that responded to the bushfires were directing their resources to support affected Australians.

We chose this cohort because of the significance of the disaster and the public criticism of the response of charities.

We initially reviewed three high-profile charities that received large amounts of donations.

Our reviews found that the responses of the three charities were appropriate because they:

• set aside funds specifically for the response to the disaster
• effectively planned their response and the use of funds
• prepared for a long-term response to address the ongoing effect of the bushfires
• had processes to prevent fraud.

We detailed these reviews in our public report Bushfire Response 2019-20 - Reviews of three Australian charities.

The key lessons were:

• Despite pressure to act quickly during a disaster, a charity must plan the allocation of its resources to provide funds for both immediate and long-term community needs
• A charity must keep donors informed about how it is using donated funds
• A charity must use donated funds only for the charitable purposes stated in its constitution
• Before donating, people should check the ACNC Charity Register to see if an organisation is a registered charity
• Third-party fundraising campaigns are often not controlled by charities; people should check that the charity they want to support endorses a campaign before donating to it
• Significant increases in donations often require a charity to scale up its operations. It needs to be prepared to bring in support to manage these changes and to ensure adequate financial and governance controls are in place
• Reasonable costs associated with delivering services are legitimate
• Before using donated funds, a charity needs to conduct appropriate checks to protect from fraud.

Our findings were communicated through a promotional campaign that included a nationally syndicated media release and radio grabs. The Commissioner wrote an opinion piece published in The Australian and a column outlining the findings and key lessons that was sent to all charities. We also produced a webinar and three podcast episodes.

Subsequently, we reviewed five more charities’ responses to the 2019-20 bushfires. We were similarly satisfied that they responded appropriately and used donated funds effectively. Because there were no significant new findings, we did not publish an additional report. However, we did provide public comment on the outcome of these reviews.

Our findings can be applied to any charity involved in any disaster response, such as the 2022 floods in New South Wales and Queensland. The need for a charity to act diligently, to plan and target its response remains relevant. By doing so, a charity involved in disaster response will be able to help affected communities more effectively and work to maintain public confidence in its capabilities. These lessons have been incorporated into all our advice and support messaging on disaster relief and recovery.

We continue to see the value of this report through ongoing citation in media discussion of charity disaster response. It has helped the public better understand how charities work and has helped support public confidence in charity disaster responses and recovery.

Governance risks associated with large boards

We regularly analyse data to identify risks in the charity sector and target our compliance work to the highest risks.
Our analysis indicated that charities with large boards were more likely to face issues of non compliance; however, the finding of our data analysis did not match our experience regulating the sector.

To test the finding, we reviewed a selection of charities with large boards. Our reviews found that, despite the finding of the data analysis, in practice there was no correlation between large board size and non-compliance.

Consequently, we changed our risk profiling method to improve the way we select cases for investigation or other compliance work. This will ensure we only select charities for compliance activities that are at risk of not meeting their obligations.

Investigations are our key mechanism for addressing non-compliance and it is important that we direct our resources for use in the right areas. Addressing non-compliance helps to maintain public trust and confidence in charities, so it is crucial that we maximise the effectiveness of this work.

Charity governance of overseas programs working with vulnerable children reviews

Australian charities help vulnerable children in overseas countries in a variety of ways, including supporting orphanages and other institutions, and running programs focused on health, education and protection.

This work creates an obligation on an Australian charity to ensure its funds are used appropriately and vulnerable children are protected.

We reviewed 17 charities identified as helping vulnerable children overseas, 10 of which supported orphanages or similar institutions.

Our reviews found most had satisfactory governance, but there could be improvement. We assessed 3 charities as having inadequate governance and have since provided them with guidance on addressing their specific issues.

Key findings:

• Charities are largely aware of the significant safeguarding risks and manage them effectively.
• Charities rely heavily on the governance practices of the overseas partner charities that implement programs. While this can be satisfactory, Australian charities can improve risk management and safeguarding by having their own processes to review the performances of the overseas partner charities.
• Some charities engaged a large Australian charity that is a member of the Australian Council for International Development (ACFID) to implement their programs. This provided levels of governance that they could not deliver themselves.
• Charities usually controlled their funds well.

We developed and delivered a communications strategy for the hundreds of Australian charities that support children overseas.

This included:

• updates to guidance to include relevant case studies
• a direct mail campaign to remind charities of their obligations and the guidance available to them
• a charity campaign to promote the findings of our reviews and support best practice.

Key lessons:

• A charity that works with vulnerable children overseas should understand the needs of its beneficiaries and ensure its programs protect them.
• A charity that works with partner organisations overseas must ensure that it has oversight of the partner’s activities, including measures to protect beneficiaries, to account for funds and to document outcomes.
• A charity must assess the risks associated with overseas activities and implement appropriate policies and processes for managing the risks.

Risks to charity sustainability and compliance

Our data analysis indicates that problems with sustainability or non-compliance first emerge in charities after 3 or 4 years of establishment.

We identified the following warning signs:

• declining revenue
• reduced volunteer support
• failing to submit Annual Information Statements to us.

Our reviews focused on charities that were registered in the past 4 years and whose revenue had recently declined.

At the time of writing, we are finalising these reviews to identify any underlying factors that might lead to poor outcomes in charities after 3 or 4 years of establishment.

The findings will dictate the information and guidance we provide to charities in 2022-23.

The program of reviews provided an opportunity for us to engage with charities at risk of non-compliance more regularly, quickly and in a way that was less resource intensive for us and charities than investigations. This approach allows us to gather evidence quickly and helps us to improve our processes, support compliance outcomes and maintain public trust and confidence in the charity sector.

Initially, the reviews were intended to be conducted in person on the premises of charities, but due to COVID-19 this was not possible. Instead, most of our engagement with charities was via videoconferencing. While this was successful, we anticipate that future reviews will be in person which will increase their effectiveness and efficiency.

Most reviews resulted in us providing charities with regulatory advice to improve their practices.

By gathering evidence from a range of charities, we could identify systemic issues and share our findings, lessons and identified best practices within the charity sector. Without this program, we would not have been able to gain these insights.

We know that the charity sector is diverse with different challenges and risks that affect sub sectors uniquely. The program of reviews enabled us to interrogate a variety of issues in a timely manner, to gather evidence and to support individual charities. It enabled us to provide targeted, effective guidance to charities.

In addition, strengthening our risk profiling tools has enabled us to be more proactive in our compliance work. These review cohorts have enabled us to reach a much greater number of charities at risk of non-compliance and assist them to strengthen their governance. They have also helped target our compliance efforts where they will have the most impact.