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Conflicts of interest and related party transactions remain among the most common issues charities encounter, with the ACNC often providing information to help guide charities through dealing with the issue.

This webinar examined in detail the issues of conflict of interest and related party transactions, and provided meaningful advice and strategies to address them.

Webinar transcript

Chris Riches
Hello everyone. Good morning. Good afternoon. How are you? Hope you're traveling all well. Welcome to the ACNC's March webinar.

We are looking today at conflicts of interest and related party transactions. These issues remain among the most problematic and commonly encountered for charities of all shapes and sizes.

My name is Chris Riches. I'm part of the ACNC's Education team. Joining us today is Peter McKerrow. He is part of the ACNC's Compliance team. Hi Peter, how are you doing?

Peter McKerrow
Very well, thanks, Chris, and hello to everyone joining us today.

Chris Riches
Look, it's good to have someone with us from Compliance as well, given that conflicts of interest are something that they often encounter and hear about during their role with the ACNC.

It is a really common issue that charities encounter, isn't it, Peter?

Peter McKerrow
It certainly is, Chris, and, from the compliance side of the ACNC, we often find that, when a charity goes off track, it's due to its failure to manage conflicts of interests of its Responsible Persons or, in other words, board members or committee members.

That can also lead to problems with its financial management and ultimately damage to its reputation. So it's critically important for a charity's board to make sure that they have effective policies and processes to identify, record and manage conflicts of interest and that each board member understands what they have to do.

Chris Riches
Definitely, and look, these are some of the things we're going to be going through and detailing today, so our aim will be, obviously, to help charities do the right thing in this area and go through the processes that they require.

Before we launch in, a couple of housekeeping points, as is the usual. If you've got any issues with the webinar audio, you can go and have a listen through your phone. You can call the number listed in the email you'll have received during sign-up, put in the access code and listen to the webinar that way.

During proceedings today, you can type a question at any time. We have Bree, Matt and Michael helping us out and responding.

One thing we will say, though, in our session today, if your charity or yourself has a specific question very specific to your charity, your organisation, we probably are not going to be able to answer it today just in our general chat.

Best bet would be to get in touch with us directly through 132262 - which is 13ACNC; give us a call - clearly because then you can go through some more detail with our staff, who would be able to, I guess, guide you in the right direction.

Also, if you do have a general question and it isn't answered today, feel free to email us afterwards - is the address to go to.

We're recording this webinar, as we always do. The recording as well as the slides, they'll be published on the ACNC website within the next day or so.

Our presentation has been included as a handout to those who have registered. We'll send an email out afterwards with links to the presentation as well as to relevant websites around the ACNC site as well, so relevant web pages.

We've also made available a handout with a list of some of those spots on the site that are most appropriate.

So again, access the handouts through the GoToWebinar interface and you'll be able to have a look at them.

And finally, too, we value feedback, as always. If you have any suggestions for ways that we can improve our webinars, let us know in the short survey at the end of today's proceedings.

So now - there we go. We slide on through to the next slide. What's on the agenda? As you can see, there's a quick rundown of some of the general areas we'll be covering.

We're going to start with the basic question of what is a conflict of interest and endeavour to explain it in pretty clear and concise terms. Our focus today is, of course, on conflicts of interest relating to charity Responsible People and the impacts they can have.

As we've said before, these conflicts can be relatively common.

We'll also look at different types of conflicts of interest - there's financial, non-financial, personal - and we're also going to look at some of the stages of conflicts of interest - actual, potential and perceived - what they mean and some of the differences between them.

We'll work some coverage of related-party transactions into proceedings as well and we're going to provide some reference to the ACNC's Governance Standards and how they relate to conflicts of interest, with Governance Standard 5 particularly relevant here.

What else are we up to today, Peter?

Peter McKerrow
Well, the rest of the main content of today's webinar, Chris, will focus on some very practical things that your charity can do in this area.

We'll look at how charities can identify conflicts of interest as well as some of the common problem areas and issues that we at the ACNC see in this area.

And finally, to finish up, we'll examine the ways charities can properly and meaningfully manage conflicts of interest so they don't become a bigger issue than what they should be.

Chris Riches
Definitely. Now, before we launch in, a quick little mention here of our guide, "Managing Conflicts of Interest". It's a really good guide. There's the link there on your screen.

Importantly, we will endeavour to try and - in the chat today, we will try and get those links put into the chat as well throughout so that you can access them and you have access to them, but obviously links are all going to be included in the bits and pieces that we'll be giving out to you after the webinar's done.

This guide is a very practical guide and helps you, I guess, approach identifying conflicts of interest and managing them in the best possible way. If you haven't had a look, have a look. It's well worth bookmarking, well worth keeping handy.

Let's start with a basic question: what is a conflict of interest? What's a conflict of interest, Peter?

Peter McKerrow
Well, a conflict of interest, in the charity context at least, occurs when a board member's personal interests are in conflict with their ability to act in the best interests of the charity which they are a part of, and look, I think a good way to think about it is like a Venn diagram, and there you can see one on the screen, where a person's charity life and their normal or personal life cross over.

Where those circles intersect, that's where a conflict of interest can occur.

Chris Riches
Yeah, and look, what's important to note here is that the idea of an interest isn't necessarily just one that an individual may have themselves. An interest may also involve, for example, family, friends, other organisations they are involved with. It might include people that you work for or work with, or even another charity or community organisation you are part of.

All these things are interests and they have the potential to be in conflict with the best interests of the charity that you are responsible for or you're a Responsible Person on or serve.

Peter McKerrow
That's right, and to follow this up - and this is something that's important to emphasise - conflicts of interest in and of themselves are neither positive nor negative.

So often the phrase, "That person has a conflict of interest," is added and the instant connotation is a negative one, but, when that phrase is said, what's usually meant is a little bit more involved than that.

It might be that person has a conflict of interest and something else, for example, and is letting it influence their decision making, or they haven't declared it or dealt with it, or they're still involved in the decision when they shouldn't be.

What we are getting at here is this. A conflict of interest is itself neither positive nor negative.

The important part is how it affects the charity and how you deal with it, and what makes a conflict of interest potentially a problem is when it's not managed properly, when there are not proper procedures, policies and processes to address it.

Chris Riches
Yeah, this is definitely something to emphasise here, and it's not necessarily the conflict of interest, as Peter explains; it's how it's managed and how it's, I guess, overseen that can make it into an issue.

And look, as we know, conflicts of interest are pretty common. Most of us have got a conflict of interest at some point somewhere in our lives, I suppose.

In a charity sense, you might have, say, people in small towns, rural, regional areas, where there are simply fewer people, and they can often run into conflicts of interest because they might have roles or responsibilities in a variety of organisations.

They might be involved in a charity, in a community organisation, in business, all of those sorts of things. They have fingers in quite a few pies, I suppose you would say.

Another example might be in a field or maybe a specialist area where there's a smaller pool of involved people, meaning that simply just odds are that you're going to have some crossovers between people's interests.

Again, conflicts of interest don't have to be a problem as long as your charity has ways to manage and address them properly.

Peter McKerrow
That's right, Chris, and look, there are obviously different ways that these crossovers between different parts of our lives can cause issues, and let's go through some of the major ones.

The first is a conflict due to a direct financial interest. This is probably the most obvious one that people are familiar with and that most people think about when a phrase like "conflict of interest" is mentioned.

It's when a person might receive a direct financial benefit as a result of a decision or action by the board of your charity.

And look, a simple example might be the charity choosing to use a company that one of its Responsible People or its directors has a financial interest in for some work. That director then benefits from the decision to use that company for the work.

And look, we've got a little bit of an example here.

Let's say Sally is on the committee of Community Helps, a charity that works with local youth. She's also a freelance web developer in her professional life, and Community Helps needs a new website.

So she does a bit of lobbying and she convinces the rest of the committee to engage her professional services for the new website.

And I guess with my compliance hat on, Chris, I would say that procurement or employment decisions like Community Helps' decision to employ Sally and her company are one of the high-risk areas for conflicts of interest.

Chris Riches
Yeah, definitely, definitely. Now, we've looked at direct financial interest and there was a little bit of an example there, so that's excellent.

Now we look at an indirect financial interest. Now, it's similar to the first one but the financial benefit may not necessarily just go to the involved individual. It might go to a family friend, family member, another organisation that you're linked to or friends with, I suppose.

Now, we've got a little bit of an example here and we'll go through.

This is drawn from our conflicts of interest guide that we mentioned earlier on. As you can see, South School, it's a small private girls' school. Last year, the school board decided to open a canteen at the school's campus. All normal, all usual.

Jenny is a director of South School. She told the board that she'd heard of a cheap wholesaler called Food For Less which could stock the canteen with healthy and cost-effective, low-cost, food.

Now, Jenny's sister owns a share in Food For Less. As a result, Jenny has an indirect financial interest in South School's contract or its decision to go with Food For Less.

So this is a conflict of interest but one that's indirect. Now, Jenny isn't benefiting directly in this situation but her family and her sister is, so this is an indirect conflict of interest. Still a conflict of interest but a different type.

Now, we've got another one here, Peter. What's that one?

Peter McKerrow
Yes, Chris, look, the third type of conflict is a non-financial or personal conflict, and not all conflicts and interests are about money.

Arguably the more obvious ones are but not all of them are. This type of non-financial or personal conflict might arise where, say, a proposed board decision of a charity you are involved in sees family or friends receive a non-financial benefit they wouldn't otherwise be entitled to receive.

For example, they might get some good publicity for their business or perhaps a bit of a boost to their reputation. It could be something significant. It might be something that would be deemed a simple favour. Either way, it is a conflict.

Chris Riches
Yeah, and again, this idea that it might just be something small. It's still a conflict and it's important to note that. So that's the third one.

Fourth one: conflict of loyalties. Now, we know - clearly we know through the ACNC that a lot of people who are on charity boards, who are Responsible People with charities, are on boards or are part of, I guess, other charities, and a conflict of loyalties can occur when two sets of loyalties - two different organisations or different charities - intersect.

Now, we've got another example here, Peter. I'll throw to you to go through this one.

Peter McKerrow
Yes, Chris, this is an example of conflict of loyalties. We look at Mental Health Advocates.

It's a charity with the purpose to improve the quality of mental health services and the charity is considering funding 10 practitioner positions at hospitals, and one of the candidate hospitals for the funded position is the Central Children's Hospital, and Nellie, who's a board member of Mental Health Advocates, is also a board member at Central Children's Hospital.

Now, in this little scenario, you can see the quandary that Nellie might be in, with split loyalties in her duties to Mental Health Advocates toward the funding or subsidy to the most in-need hospital and her duties to the Children's Hospital and improving its services.

What if the Children's Hospital isn't in the most need category and others should be in front of it for funding? Well, Nellie has here some divided loyalties. Her duties to two different organisations have come together and clashed, creating a conflict of interest that needs to be addressed.

Chris Riches
Definitely, definitely. Now, we've gone through the four different types of conflict of interest here.

There are also some different stages of conflicts of interest as well. We at the ACNC like to distinguish between these different forms, different stages, and we look at them as actual, potential and perceived.

Now, to illustrate these, again we're going to go through some examples and some scenarios and we'll start with an actual conflict of interest, which, again, is the one that's familiar to, I guess, most people.

It's when a person actually is being influenced by a competing interest when in a role with their charity.

For example, your charity might be considering some contracts for some work. One of the potential service providers is run by the family of a committee member. A committee member is going to be involved in the process to decide who gets the contract, the decision-making process.

That's pretty obvious. That's, for the most part, very clear. The conflict of interest is clear and it is actual. The charity's Responsible Person helping make a decision on a contract that could go to a company run by their own family is a pretty clear conflict and it's right in front of people's face.

It really questions the ability of the person in question to, I guess, act impartially in the decision-making process.

Now, the next stage of conflict is the potential one, isn't it, Peter?

Peter McKerrow
Yes, Chris. This is where there's the possibility, the potential, if you like, that a person could be influenced by a conflicting or competing interest.

Again, we've got another example. John, who's a Responsible Person at Charity A, takes on a job in a professional capacity with another charity, Charity B, which provides similar services to Charity A.

Now, Charity B is having some issues with its IT systems and John is asked to oversee a contract to sort out these problems.

Now look, on the surface, this situation may not be a massive red flag in itself but John's knowledge of Charity B's infrastructure and work could lead to a conflict with his role in Charity A.

There's a potential for this situation to lead to a conflict. And that's the important thing here: the potential of there being a conflict. It could turn into an actual conflict of interest quickly. So this potential conflict needs to be identified and addressed.

Chris Riches
Yeah, definitely. And the third stage of conflicts of interest is a perceived one, perceived conflict of interest that someone could appear to be influenced by a conflicting interest. It may not be an actual conflict of interest. It may never even become a conflict of interest, but, to someone looking in from the outside looking through the window, there is a perception, and a very real perception perhaps, that there is a conflicting interest at play in a certain situation, and this perception is important to consider just in itself.

Now, again, we have another example, and I've pre-empted the next slide, but we have another example. Peter, did you want to fill us in on that one?

Peter McKerrow
Yes. Look, these sorts are quite challenging but let's give an example. A charity's Responsible People are making a decision on an organisation to partner with to deliver a program.

The charity has five Responsible People that will meet and vote on a partner organisation. The charity has a specially appointed group that is responsible for looking at each organisation's proposals and making a recommendation that will go to the Responsible People for voting on.

Now, while the Responsible People themselves are not directly evaluating the proposals, one of them has a son in a prominent position in one of the organisations being considered.

The Responsible Person in question, of course, has only one vote out of five and the decision is being made by others, but what if it turns out that the recommendation is to go with their son's organisation and they have to vote to approve the recommendation?

From the outside perspective, the first impression, or perception, if you like, might be that something isn't quite right, that there might be influence being wielded due to the conflict of interest involved.

It isn't a good look and, even if there are no actual issues, the perception is there. That's a perceived conflict of interest and it, too, needs to be addressed.

And Chris, if I can just say with my compliance hat on, perceived conflicts of interest can be quite challenging for charities to identify and manage and I guess in this case they've done the right thing, but some people might not see it that way, so it's important to sort of think about those risks and how people look at things or how they perceive them.

Chris Riches
Yeah, and look, we will be, in a second, launching into some of the ways and some of the techniques and bits and pieces where charities can manage and identify and work through some of these issues and particularly these perceived ones, and, I guess, the disclosure of these sorts of issues is a key step in that.

So look, we've looked at actual and potential and perceived, the three types of conflicts of interest. As you can see through some of the examples, while you might believe there's no danger of you, say, making a decision based on your own personal interest rather than the charity's best interests, this doesn't mean the conflict of interest should be disregarded, and it's important to take all conflicts of interest seriously.

Now, this leads us into a quick look at related parties - there's the correct slide at the correct time - related party transactions.

Here's a quick overview of what these terms mean and a quick little look at an example. Interestingly, the terms aren't actually defined in the legislation that established the ACNC.

The definition we use comes through the Australian Accounting Standards Board, the AASB. In a charity context, a related party is something (a person, a group, organisation) that has a pre-existing relationship with the charity. Now, what is a related party transaction, Peter?

Peter McKerrow
Well look, a related party transaction occurs when there are dealings or, if you like, transactions between parties that have a pre-existing relationship, and I think we've got an example on the next slide, or we'll talk about it, and look, there are some very good examples of related party transactions on the related party page of our website but perhaps the most common example in this context is when a charity Responsible Person has ties to another business or organisation, either directly or through family perhaps.

So this means the business or organisation is a related party to the charity, and obviously a related party transaction is one that occurs when there are dealings between related parties.

Chris Riches
That's exactly right, and, I mean, we've hinted and mentioned this already about ties between a charity and, say, a Responsible Person's business or that sort of thing, and look, an example here.

A charity is planning to establish a new facility for its services. One of the companies being considered for work on the new facility is managed by the daughter of a director of the charity. This service has been identified as a potential related party transaction and a conflict of interest.

So you can see how related party transactions are, in this way, clearly linked to conflicts of interest, and, like the other types, like conflicts of interest clearly, this must be addressed. Now, got our lovely little cogs here. One of them does say "Rules" and another one says "Compliance".

The ACNC's Governance Standards do directly refer to conflicts of interest. We mentioned that related parties weren't directly referred to but conflicts of interest are, and that is done, I guess, most specifically through Governance Standard 5, which we'll get to in a second.

The charities registered with the ACNC must adhere to our Governance Standards, so that means that the proper identification, disclosure and management of conflicts of interest is a must. And I mentioned Governance Standard 5. Peter, if you could just maybe go through and provide a couple of details about what Governance Standard 5 says.

Peter McKerrow
Yes. Look, Chris, this is a critical Governance Standard and it covers what Responsible Persons must do and what their duties are and that includes to act with reasonable care and diligence; not to misuse their position as Responsible Person; not to misuse information obtained while performing their duties; act honestly in the best interests of the charity and for its purposes; and then we go disclose any actual or perceive conflict of interest, and it's the last point where we have a direct reference to disclosing actual or perceived conflicts.

But any of these five points can be related back to disclosing and managing conflicts of interest properly. Properly doing so means Responsible People are acting with reasonable care and diligence.

So, for example, you have a Conflict of Interest Policy. That's part of your duty to act with care and diligence and you're taking steps towards not misusing their position and are acting honestly in the best interests of the charity or its purposes. This, again, is really coming back to the whole point about putting the charity's interests and purposes first above personal interests.

Chris Riches
Yeah, yeah, and look, as we've said, conflicts of interest are among the most common issues we see affecting charities and they have the potential to cause a lot of damage to individual charities, to their people, to beneficiaries, to the sector even as a whole.

Now, what are some of these threats? I'll throw to you for the first couple, Peter?

Peter McKerrow
Yes. Look, Chris, the most significant threat's the risk of damaging a charity's good governance and the most important responsibility of any board and responsible members on the board is to ensure that it always acts in the interests of the organisation it governs, and the failure to manage conflicts of interest indicates that the charity's board or some members of it are not acting in the charity's best interest.

If a charity's Responsible People let conflict of interest sway their decision making and actions, if they are putting their own interests ahead of the charity's, then that can mean decisions aren't in the charity's best interests and can really start to compromise its sustainability and future direction.

Chris Riches
Yeah, and if a board or committee has some people that are not acting in the best interests of the charity, not making decisions in the charity's best interests, the board and its dynamics are affected, no doubt.

Board and committee decision making relies on open, honest, impartial discussions, and that leads to impartial and informed decisions.

Board members should be able to rely on their colleagues always acting in the best interests of the charity and should be able to rely on them in the way of, I guess, participating in open and honest discussion based on this assumption.

Having a conflict of interest that influences these things, and, for example, not declaring and managing the conflict, it risks the integrity and the effectiveness of the collective decision-making process that a board or a committee goes through, and improperly managed conflicts of interest can undermine the confidence of board members, and look, it can be damaging to trust between them, definitely.

What else have you got, Peter?

Peter McKerrow
Look, that's right, Chris, and look, charity transparency and accountability are key components of good governance, and again, conflicts of interest can cause problems here.

When an organisation demonstrates transparency, it's being open and honest about its work, including about its decisions, its operations and transactions, and you can't have accountability without transparency.

If a charity board member doesn't disclose a conflict of interest, they're not being open, frank and honest about their personal interest in a decision before the board. There's no transparency there.

And this, in turn, prevents interested stakeholders, such as members of the charity or even other people on the board, from being able to scrutinise the decision and hold people accountable. This means there's no accountability.

Board members being held responsible by the people who have an interest in the charity, its staff, members, beneficiaries, funders and the general community.

Well, how can people (charity members, for example) have confidence in decisions being made when there is a lack of transparency about conflicts of interest and their possible influence on those making the decisions?

That's why appropriately identifying and managing conflicts of interest is essential in promoting accountability and transparency in your charity.

And in a few minutes we'll explore ways to do that. Chris.

Chris Riches
Yeah, look, we will, yeah. There's two of the keywords there: identifying and managing in terms of conflicts of interest.

In these ways, as you've seen here some of these threats, that conflicts of interest pose a very real risk to the reputation of the charity.

If a charity doesn't manage conflicts of interest properly and transparently, where does that mean charity stakeholders - I guess, what does it mean for members, for donors, supporters, volunteers? Where does that leave them? What do they end up thinking?

Maybe that decisions are not being made in the best interests of the charity. That Responsible People are not acting in a proper manner, perhaps, or with due diligence, with expertise, or that maybe, to put it a bit more bluntly, there might be something dodgy happening.

So the potential hit on your charity's reputation can have some very real impacts on the support you have in the community.

Now, we do have, again, a bit of an example to talk through here, which we've peppered throughout our proceedings today.

I guess, what are some of the real-life issues and common problems we at the ACNC see in relation to conflicts of interest? Peter, these are the sorts of things that yourself with your compliance hat on might see when we're looking into a concern about a charity, aren't they?

Peter McKerrow
That's right, Chris, and look, it's interesting. The ACNC's not the only organisation concerned about how charities manage conflicts of interest.

Nowadays, many government funding and accreditation bodies are requiring charities to show they have good governance processes, including processes to identify and manage conflicts of interest, and we often come across situations where a charity's funding or accreditation is endangered because they don't have their governance, they don't have their conflicts of interest in order, and that can be a real risk to a charity's funding and ability to carry on its work.

And look, Chris, I guess I'm no expert but I would have thought that you're bidding for corporate sponsorship these days. If you have your governance and you have your conflicts of interest tied down and compliant, then you've got a much better chance, I would have thought, of getting the money from those big donors that'll have confidence in you, and that's a very important factor as well.

Chris Riches
Yeah, and I'm nodding vigorously here.

In my experience, I agree with you 100%. When you're looking and applying for grants, looking for funding and sponsorships, increasingly, and perhaps rightly so, these funders, these organisations, are looking not only at your proposal, obviously, but at your organisation as a whole and are looking to see well, you know, what processes do you have in place?

Are you well run? We're not just going to throw you some money and have you run with it and not do things properly.

So there's that responsibility there and things like conflicts of interest and the processes that a charity has, as you say, Peter, are not only crucial in terms of ACNC but crucial in terms of a whole heap of other charity operations and approaches for funding and support and all of that sort of stuff.

So look here on the screen. We've got some, I guess, a few bullet points there of some of the common problems that we see at the ACNC.

The first one here is firms or companies linked to a charity's Responsible People who might be providing goods or services to that charity.

Now, there's an issue there if the processes that the charity has gone through to procure those services aren't transparent, and I mean, Peter, you mentioned this a few minutes ago, this being a common issue.

Peter McKerrow
Yes, Chris, this is one of the probably more common issues, the procurement of goods or services from relatives or friends of the charity's Responsible Persons, the sort of related party transactions we spoke about earlier, and this is where a charity can go off track for a few reasons.

First one - the charity doesn't test the market for the goods or services so there's no way of knowing if the arrangement is actually in the charity's financial interest. Could they have got a better deal, better qualified person elsewhere?

And the second reason, of course, is conflict of interest. Other board members may be uneasy about the arrangement. If there's no Conflict of Interest Policy or procedure, it may be difficult to challenge the Responsible Person whose relative is getting the contract.

And when we [go to] ask a charity how it came to a decision like this, there may be no records or board minutes of any discussion to show that they acted with care and diligence, thought about conflicts of interest or what the best interests of the charity were.

Chris Riches
Yes, and you mentioned records there and minutes and those sorts of things and this is something that we'll get to in the next 20 to 25 minutes.

Look, the next, I guess, bullet point here is that Responsible People themselves or family members of Responsible People are actually employed by the charity. It's another one that we see a bit of.

Again, Peter, what are some of the issues here in relation to conflict of interest?

Peter McKerrow
Yes, look, it's not uncommon to see some charities employing Responsible Persons' family members and look, there's nothing to prevent that, but there are big risks, not the least of which is managing that conflict of interest and making sure that the recruitment process is fair and transparent, and this is definitely a case where a Responsible Person who's involved or has a family member applying for a job should immediately disclose that conflict, and sometimes we also see Responsible Persons' family members being remunerated, perhaps quite generously, but no clear evidence of how those pay and conditions were appropriate.

So this lack of transparency is a bit of a recipe for poor governance, unmanaged conflicts of interest and ultimately reputational risk.

Chris Riches
Yeah. Now, the third point here is two words here: mixing money, as we call it. Now, this is something that, again, can become problematic for charities.

From an ACNC perspective, what do we see here, Peter?

Peter McKerrow
Well look, sometimes we see charity Responsible Persons mixing their personal funds with the charity's by purchasing items for the charity on their own personal credit card or using the charity's card to buy items for their personal use, and there's a clear conflict of interest in using charity funds for personal purposes, and using personal credit cards for charity purchases can also result in quite significant benefits to the cardholder through accumulating reward points and other benefits, not to mention the challenges of recording, documenting and acquitting those sorts of transactions.

So the lesson there is always keep charity money and accounts entirely separate from personal funds and have a strict policy on how you reimburse people if they do spend money.

Chris Riches
Yeah. And the last one in this section, again sort of financially related, where Responsible People might, perhaps, loan money to the charity.

Where can the conflict of interest issues turn to or occur here, Peter?

Peter McKerrow
Yes. Look, this is not uncommon but certainly not particularly desirable.

What tends to happen is that a Responsible Person may loan some money to the charity and then, at a time of their own choosing it tends to be, not necessarily when it suits the charity or when it's in the charity's interests, they arrange for those funds to be repaid to them, and rarely do we find that these sort of arrangements, that conflicts of interest are documented or disclosed and there's often no formal agreement to protect the charity's interests, and these sort of loose, informal loan arrangements between a Responsible Person and a charity also give rise to issues about management of financial affairs as well, so not one to be encouraged.

Chris Riches
Now we've gone through, so far - looked at some basics, discussed some real-life examples, looked at the different types, the different stages of conflicts of interest that we've come across in the role of the ACNC, but how do charities identify conflicts of interest?

What are some of the practical methods charities can use to look at the situation?

Now, this identification of conflicts of interest is clearly a first key step in ensuring that you are addressing these issues in relation to conflicts of interest.

So the first, I guess, couple of ways that you can, or a charity can look at conflicts of interest and identifying them is to be clear about your charity's purpose and your role in the charity.

Now, if you're clear on your charity's purpose or mission, it provides a pretty useful starting point on whether an interest that you have as an individual might be in conflict with your duty to act in the best interests of your charity, and, if you're clear on your role within the charity and the duties it entails - now, that includes those that are spelled out in Governance Standard 5 - you'll, again, have a greater context on whether any other interest that you might have conflicts with those duties.

So there's two key starting points there. What else have we got, Peter?

Peter McKerrow
Well, I think charity Responsible Persons should also be clear on their personal interests as well and not just their personal interests but those interests of those connected to them - friends, relatives - and how these things might have the potential to influence them in their role with the charity, and your interests.

Of course - no one's interests are set in stone, they can change over time, and some of the things that people should think about are, for example, current and previous paid or volunteer work; whether you're a board member of any other organisation (we've had a discussion about an example of that earlier); whether you own a business or a share in a business; membership of other organisations you hold and any similar interests of your family or friends.

And if there's a chance that these interests may conflict with the interests of the charity, either now or at some point in the future, you need to be aware of them and note them in what we call a Register of Interests, which we'll go into detail about in a few minutes, Chris.

Chris Riches
Yeah, definitely, yeah. Register of Interests is something that we'll be discussing pretty soon, actually.

Look, another way to examine the situation is the question that we've got here. What would a reasonable person think? If a reasonable person looked at a situation and had a bit of an examination of it, would they believe that you are being influenced by a personal interest when making decisions on behalf of the charity?

That's pretty much, I guess, the test there, in a way.

The second test here is, as we've labelled it here, taking a step back.

Consider stepping outside your organisation and taking a step back and doing things from a different perspective.

Maybe the perspective of the outsider looking in through the window. You might think there is no conflict of interest but, if you take that step back and look at the situation as an outsider, that different perspective might prove to be very enlightening.

It might become very clear that there's an issue and an issue that does need to be managed.

So these two tests, I guess, as we call them, are pretty important, they're good ways of looking as well, and people should remember to put on their charity hat rather than their individual or personal hat and examine the situation using perhaps these approaches as well.

Now we're onto disclosure, aren't we?

Peter McKerrow
Yeah, we're onto disclosure and this is the key thing, this is what charity Responsible Persons must do if they have a conflict, and I guess how do we go about doing this?

Well, look, the most important thing is to have a Conflict of Interest Policy and this has to be a policy that clearly addresses conflicts of interest, how they're declared, how they're disclosed, how they're recorded and where they're recorded, and, as is the way with all policies, a Conflict of Interest Policy needs to be a living document.

It needs to be kept up-to-date, so make sure you have a review date to have another look at it. People need to know that it exists and are aware of how it applies.

It should be part of an induction program for any new board member and even your existing Responsible People probably might need to refresh their memory from time to time, and it needs to be practical so that people can easily take up the steps to comply through doing that disclosure.

So don't put it away in a drawer. Keep it handy at your committee meetings because sometimes you might need to refer to it.

Chris Riches
Yeah, definitely. Now, we'll go slightly away from the slides for one second. We did have a query that has come through that's probably appropriate to perhaps have a look at at this stage of our webinar.

Someone has asked us about pro bono arrangements, where there is clearly no money being exchanged, but those pro bono arrangements may cause a little bit of an issue in terms of who they're with.

They might be with the Responsible Person's family members, for example. Now, even if there's no money being exchanged, you still have to declare this.

I hope I'm not speaking out of turn here, Peter. You still do have to declare this, don't you? This is still something that you should declare and you should identify and disclose just to be safe?

Peter McKerrow
I agree. I don't think there's any reason why you wouldn't. Doing pro bono work possibly gets you some kudos in the community, some advantage. It may be work that somehow impinges on the charity as well.

I don't think there's any danger in being open and transparent, even if it is voluntary or pro bono work.

Chris Riches
It's just a matter of, I guess, identifying it, and look, obviously the person who's asked the question here has identified it as a possible issue.

So, I mean, that's the massive first step. To disclose it is something where you're just doing the right thing. You're just being safe. You're just making sure you're going down the right path.

So most definitely that's the approach that should be taken here.

Peter McKerrow
Yes Chris, and also, I think, not everyone may know it's pro bono, so getting it down registered with the charity, make sure there's a record there, and, if anyone comes in and makes any comments or criticism, there you have it, it's been disclosed.

Chris Riches
Yeah, that's a very good point again. That's that "looking in from the outside, taking a step back, at what other people might see" approach that comes into play here.

Now, we mentioned a Conflict of Interest Policy. Hand in hand with that is a Register of Interests.

Register of Interests or an Interests Register, depending on how you wish to phrase it, it's a place where all interests, be they actual, perceived or potential, they are formally noted and they're placed on the record, really.

The Register of Interest is the place to do this. Now, again, the Register needs to be kept up-to-date and the charity needs to decide who has access to this Register and who can update it.

Now, that's important. You can't just have any old person coming in and updating it.

There needs to be a bit of a process there that one or two people have access to the Register, that any issues that need to be put on the Register are put on by those people and that there might be some process of discussion as to what needs to go on the Register and how someone declares it and puts it on the Register, that sort of thing. So it's not unfettered access.

There should be a little bit of a limit on that sort of stuff.

Now, this point here - disclosure at board level - is key - I guess, board or committee level.

Now, many charities might ask those with conflicts of interest to ensure that the board is aware of them as well. This is in addition to them being on that Interests Register, and a great way to achieve this is to go through and make sure that any declaration of interests or that sort of thing is a regular item on a meeting agenda - board meeting, committee meeting agenda.

Doing so means that they can be declared publicly to others and made known, they can be noted down in the minutes that are taken, and again, it can be updated on your charity's Interests Register.

There's some templates in the templates area of our website for a Register of Interests and for a Conflict of Interest Policy. I could read out the web addresses. I'm not going to. What I will do is, and what we will do is, we will ensure that the handout that will be in the email that will be coming out after this webinar will have links to those. Go and have a bit of a look at those templates. They are very useful.

There are obviously other templates around the website and around the worldwide web as well. Go and have a bit of a look at them and, if you need to use one of those templates, then most definitely go for it.

Now, we've got just a couple more bullet points here and we're looking at, I guess, organisational culture here, aren't we, Peter?

Peter McKerrow
Absolutely, Chris, and this is critical, this is the key to successfully governing a charity and managing conflicts of interest.

Having an attitude that welcomes and encourages disclosure is a priority and, when you bring a new board member on, make sure that they disclose those conflicts, they put it in that Register when they join, and explain also that it's not just a one-off thing, it has to be looked at virtually every time you have a meeting where you've got something on the agenda.

Have a look to see whether you might have a conflict.

And again, as we've said before, having a conflict of interest isn't a bad thing. People shouldn't be embarrassed to declare a conflict of interest. In fact, they have to.

As we have explained, most members of a board will encounter a conflict of interest or maybe one or more, at some point and should feel confident to declare and manage it responsibly.

And I guess, again, where I've seen this working very well, Chris, is where the chair of a charity really takes on that responsibility of setting that tone and setting that open and transparent atmosphere and culture and setting those expectations about disclosure of conflicts.

Chris Riches
Yeah, that sort of leadership and that sort of tone setting is something that's very important, and it's not only in words and saying it but also by example as well.

To see that sort of thing in action is something that can make a lot of difference to other people on a board or a committee or in a charity, I suppose.

Now, we've looked at identifying (first step), disclosing (as a second step). Third step: managing. So where you identify and disclose conflicts of interest, you also need to manage it.

So again, there's a few ways this can be done.

Now, this one we've touched on already. Your charity's normal meetings are a very effective, very visible way for conflicts of interest to be managed and to show publicly your charity's attitude towards disclosing conflicts of interest.

At the start of your regular board or committee meeting, you could ask if anyone has any conflicts of interest to declare, and that would be, I guess, linked to any items on the agenda.

As an aside, this is another reason why it's important to get your meeting agendas organised and out to members and board members well before scheduled meetings.

It allows people to have a look at what's on the agenda and have a bit of a think, do I have a conflict of interest with this item or that item? And it just gives people that bit of time to reflect. It's very, very important.

The request to declare conflicts of interest as regards any items on the agenda should be something that occurs at the top of each meeting. It's also a good idea for anyone with any conflicts of interest to again declare them immediately before the item is discussed.

In a past life as a journalist, I saw councils do this and councillors do this. They would declare an item at the top of the meeting, and then, when the agenda rolled around to that item maybe 45 minutes later, they'd stick their hand up again and say, "Yep, I've got a conflict of interest here. I need to just declare it again."

Transparency. Double lot of transparency. It's a good thing.

Some organisations, some charities, are comfortable having people with the conflict of interest take part in the discussion about the relevant item and only have them leave the room while a decision or a vote occurs.

Other organisations might prefer that person who has declared the conflict leave the room for both the discussion and the decision. Now, that's up to you. As a charity, your way forward is your way forward. Maybe having them leave the room for both might be an option.

If they believe or if there is a belief in the charity that an input to discussion might still be useful, you can maybe do that, but that's up to a charity to decide on that one.

But these actions, and they've got to be backed up by good minute taking and that should note any conflict of interest declarations, who has voted, who's not voted on certain items, all of that sort of stuff.

These are very public shows of transparency and they're a massive way of showing how you are managing and dealing with conflicts of interest.

Peter McKerrow
Yeah, look, Chris, that's right, your last point. I mean, certainly from a compliance point of view. When we see board minutes where people have obviously declared conflicts of interest, they've been properly recorded, that gives us a lot more confidence that the charity is on the right track and doing the right thing, so it's very important to keep those records.

And I guess having a good policy on conflicts, spelling out how people can comply and what non-compliance might look like and the consequences of not complying are also important.

And we have, even if I say so myself, a very good template Conflict of Interest Policy on the ACNC website. It's very simple and it states that if the board has a reason to believe that a person subject to the policy has failed to comply with it, it will investigate the circumstances.

If it has found that this person has failed to disclose a conflict of interest, the board may take action against them, and there should be a clear set of actions the charity's board can take to follow up non-compliance, and your policy should also make clear what happens if a person suspects that a board member has failed to disclose a conflict of interest.

And I must say I've observed often where there are obviously conflicts of interest by one Responsible Person and perhaps the other four or five board members have sat silent throughout the process, and I know it can be awkward if you're a new board member to sort of challenge people in these circumstances but it is your duty as a Responsible Person to act in the best interests of the charity and with care and diligence, and you'll be doing the right thing by alerting the charity to the risk of a conflict not being disclosed, so speak up.

Chris Riches
Definitely. And just another point that's been raised by one of our attendees today, it's well worth emphasising, too.

When we talk conflicts of interest and all of these issues that we've discussed, should they apply beyond the board? Oh yeah, definitely they should apply beyond the board. All of these things. All of these things should. This sort of stuff needs to be implemented.

Obviously the board, the Responsible People, the decision makers, it's that very clear, visible sort of thing but if there are people in a charity that do have conflicts and they're not Responsible People, they're not on the board or committee, yeah, they need to declare them.

They should be identifying them and they should be disclosing them. It should be on the record. That's what it's about. It's about transparency. It's about being on the record about these things, and again, taking that view of what a reasonable person would think standing outside your organisation.

If you didn't do it, if you didn't declare it, if you didn't note it down, again, to use the old saying, someone might think there's something dodgy happening, and you don't want that.

So yeah, we obviously here are talking very much Responsible People, decision makers and all that but very much so throughout an organisation these sorts of things should be occurring as well.

Peter McKerrow
That's right, Chris, and look, I've just thought that - I'll mention another thing some charities do is to have an overarching Code of Conduct that binds not only the Responsible People but all employees and volunteers, and that requires people to be ethical and to be transparent and to identify conflicts, whether it's part of being a Responsible Person or being an employee or a volunteer, so it's really important for the whole organisation, as you've said.

Chris Riches
Definitely. Now, we've got - apart from the fact that it's getting close to the hour mark - we have got one last example or case study to illustrate some of the steps in dealing with the conflict of interest.

Now what we'll do is we'll endeavour to get through this relatively quickly so that we don't hold you up too much but it's well worth having a bit of a look at this example, and I've given you a pre-empting of the next slide again.

Our case study. Monica is a member of the board of Arts Plus. Now, Arts Plus is an organisation that promotes the arts in the suburbs of Darwin. These are mythical organisations, by the way. These aren't real, so we emphasise that at this point.

Now, Arts Plus's board is meeting to discuss the awarding of three scholarships for some talented young artists to attend a prestigious course all the way over in Perth. Now, here's the thing. Monica's stepson is one of the candidates for the scholarship. So what are we looking at here, Peter?

Peter McKerrow
Well, pretty clear, Chris. This is an actual conflict of interest, although a non-financial one, perhaps more a personal one.

What should Monica do? Well, she firstly identifies the conflict of interest is an issue. That's the first great step. Then she immediately discloses this to the rest of the board before the start of their next meeting, explaining that, while she believes her son is talented and has a lot of potential, she couldn't objectively decide on whether he should receive the scholarship. That's excellent. Exactly the way to do it. Textbook disclosure.

Chris Riches
Yeah, and look, now, there's the disclosure.

Now, how does the board react? The board decides that when it's discussing candidates for the scholarship, Monica should leave the room. That way they can discuss candidates, including her stepson, openly and honestly. Now, again, this is good management of the situation.

Now, further to that, once the candidates have been selected, Monica is invited to return to the room and she's informed of the outcome of the decision making or, I guess, the discussion and the decision.

Now, final important step here. The conflict of interest and the action taken to address it are recorded in Arts Plus's Register of Interests. Also again, we look at minutes as well. Meeting minutes. Who has declared the conflict of interest? Who is in the room when the discussion was being made? Who's not in the room? Transparency, record keeping, all of those sorts of things.

These are good. These are very good. This is a conflict of interest being identified, disclosed and managed. There's clear communication throughout, there's transparency and there's accountability. So this is sort of the way to do. This is a bit of a model towards what we should be doing when it comes to conflicts of interest.

So with that example out of the way, some helpful tips just to take with you, to finish up today's session, I suppose. What are the first couple we've got here, Peter?

Peter McKerrow
Well look, conflicts of interest can take many forms and can be actual, potential or perceived, but it can be non-financial as well.

So be aware of the different types of conflicts of interest so that you can more readily identify issues. And, of course, conflicts of interest can cause reputational, operational and governance-related risks if they're not disclosed properly or managed adequately.

And what else, Chris?

Chris Riches
We've mentioned these three steps: identification, disclosure and management. These are the three key steps in dealing with conflicts of interest. We've gone through them throughout this webinar. Take them as the three keywords, almost, in many ways.

Fourth one: consider both the reasonable person test or that stepping back outside your organisation test, I suppose, when weighing up whether something might be a conflict of interest.

What would a reasonable person think? What would an unbiased outsider think?

And a couple more, Peter?

Peter McKerrow
Yes, look, have a clear Conflict of Interest Policy that details how these issues are disclosure and managed. Have clear disclosure policies and methods for managing conflicts of interest, and this should definitely include an Interests Register which formally records interests, whether they be potential perceived and actual, and make sure the handling of conflict of interest is a key regular routine part of charity board meetings and decision making.
So open, transparent and accountable and you can't go wrong.

Chris Riches
Yep, definitely, definitely. Now, normally here we'd say we might grab a couple of questions. Now, we've covered a couple of questions during today's proceedings and we've just reached the hour mark, so what we might do today is we might just skip over the questions, and apologies.

As we've said, if you do have a pressing question in relation specifically to your charity, it's probably best to get in touch with the ACNC directly. If you have a more general question about where things are at, is the email address.

Feel free to get in touch, and I know that Bree and Matt and Michael have been answering quite a few queries there in the background, so thank you also to them.

Look, we've got to wrap up. We don't want to keep you from the rest of your days. Thank you very much for attending. Thank you very much for sticking with us for just over an hour. On screen are some of the ways you can stay in touch with us.

We've got a whole heap of guidance publications.

Thanks again. Thanks to Peter as well.

Peter McKerrow
Thank you.

Chris Riches
Thanks again, and we’ll catch up soon. Bye.