Transcript

Matt

Hello and welcome to today’s ACNC webinar. Today’s topic, as you can see on your screen – Staying out of trouble: avoiding charity pitfalls.

My name is Matt Crichton and presenting this webinar with me today is Ian Parry who is the Senior Manager of the Compliance area here at the ACNC.

Hello Ian.

Ian

Hello Matt and welcome everyone who is participating in the webinar.

Matt

Before we do get into the topic today, just a few housekeeping things to cover. First, if you’re having trouble with the audio, one of the options is to call in, using your phone, to call into the webinar and you should have received some details about that in the confirmation email which has a phone number and access code to be able to access the webinar – so that’s often a way to fix any audio troubles you’re having.

Also, if you have any questions throughout the webinar, feel free to send them through via text. The go-to webinar control panel should an option for you there to send through some questions. We’ve some colleagues standing by ready to answer all your questions.

We’ve got Chris, April, Beth and Jenny, so if you’ve got any questions, shoot them through as soon as you can. But if you’d rather watch the whole presentation first and then save your question for later, that’s fine too. We’ll have a Q&A session for the last 10, 15 or 20 minutes or so. Also if you miss parts of it, don’t worry, or if you have to leave early, don’t worry.

We do record all of our webinars and then publish them on the website later. So if you want to watch it again later, that’s something you can do as well. It will be on our website.

We’ll send an email to everyone who registered to let you know when it has been published and then you can get a copy of the slides and the recording of the webinar then.

So it will save you taking lots and lots and lots of note and writing down all the URLs for the websites we present; you can save that. Just pay attention and you can wait for the email for many of those resources.

OK, now getting into the topic for today’s webinar. There’s quite a bit here: Staying out of trouble: avoiding charity pitfalls, we’ll cover some of the main aspects of managing a charity and making sure that you do it well, but we’ve highlighted a few of the real main areas that people involved in charities should focus on.

And you can see them on your screen here. We’ve got: Financial Controls; Managing Conflicts of Interest which is a really common query we get; Due Diligence with Staff Volunteers and Partners, so that includes employing people and choosing all the processes by which you get volunteers in; Handling Complaints Effectively; Transparency in all its forms I guess, and finally Record Keeping – a pretty important one that often gets charities in trouble. It’s one that many charities think is really easy and they can do without any problems, but there are some aspects to that that people really need to bear in mind.

Enough from me today, or not today totally, but enough from me, for the time being. I’ll pass over to Ian who will take us through some of these aspects of charity management.

So the first one Ian – Financial Controls, obviously a really important one for people involved in charities.

Ian

Absolutely, yeah. Effective financial management is essential for charities. With the ACNC, we have registered a broad range of charities. We have large charities, charities that are medium-sized and also smaller, and regardless of the charity size, it’s imperative that charities invest in good governance to have sound financial management so that they can actually make decisions in the best interests of the charity.

One of the things that we often see with charities is that they do have a focus on their charitable purpose and providing those services to beneficiaries. They sometimes see that, you know, how you balance your resources and if you are investing in governance, does that detract from the work that you try to do with your beneficiaries.

Matt

Right.

Ian

But what I would say to that is: long-term, the importance of investing in governance will reap those rewards and it will actually provide a stronger charity that’s able to effectively provide services to beneficiaries if you have a charity that is well run and has very strong effective governance in place.

And that’s true of financial management of course. The other thing I would say as well is the importance of investing in strong governance around financial management, is the public perception and the risks that charities run if they don’t have that sound financial management.

The charities need to be diligent on this front and ensure that they have effective management, because they are open to scrutiny because they are seen to be using public funds to run charities, so it’s very important that they have effective financial management to counter this.

So I think the way to implement effective financial controls is to have very strong policies and processes around financial management. It’s not only a piece of paper that actually documents what charities should be doing, but it’s important that they are actually living documents that are utilised in charities and often reviewed and updated as appropriate.

So charities that are doing this for the first time and are thinking “That sounds like a great idea. Let’s implement a policy around financial management,” actually take the time to document that, but once it’s documented, don’t just file it away, actually bring it out and utilise it and continually ask those questions about what is in the best interests of the charity.

Matt

And when they’re making such a document, it’s important to think about how this will work in practice; not just in the abstract about having good management – that’s all well and good, but also the practical steps that a charity should take in managing their finances.

Ian

That’s exactly right and that’s where responsible persons can actually use their knowledge of the individual circumstances of a charity to make those decisions about how this will apply in practice to result in decisions that are in the charity’s best interests.

The other thing with policies and processes, it avoids those circumstances where financial controls are heavily reliant on individuals.

We often see that that can be the case, not always, but often with the smaller charities, that you have an individual who knows how to run things. And a lot of the knowledge is invested with that person, but it runs the risk that if that person moves on, a lot of that knowledge is lost. But if you have those strong governance and the financial policies and processes in place, then if there is a transition of employees or responsible persons, then those processes are in place so that the strength of the charity can continue, regardless of who is actually making those decisions.

Matt

That’s a really important point. When writing a policy or having a procedure, we’ve got a few dot points here on the screen that are important aspects of this step or implementing these sorts of controls. We’ve got access to bank accounts here, is that something that you as… it seems pretty obvious, but it’s something that charities maybe overlook sometimes?

Ian

Yeah, that’s right. I mean a lot of it, if it’s not documented, it can be open to abuse. That’s not always going to be the case. I’m sure that in many cases, people act with the best intentions and actually do that role well, but to actually provide a strong and robust process around effective financial management, it is important to have policies in place around access to bank accounts; having multiple signatories for example, similar to permissions to spend and acquittal of accounts and those kind of things. We talk about separation of duties as being important.

Matt

What does that mean?

Ian

So that means that you don’t have one individual controlling all of those functions of financial management, so they have the controls in place to receive the monies spent and actually distribute it.

There’s no oversight and we’ll talk about transparency a little bit later, but when you have multiple people involved in financial management, then it adds to the strength of the governance.

Matt

Yep.

Ian

Very important in terms of prevention of fraud or wrongdoing in the most serious cases.

Matt

Yes.

Ian

The other thing I’d say in terms of the ACNC requirements; that’s actually mentioned there on the PowerPoint, it is an ACNC requirement in terms of the duties of responsible persons under our Governance Standards. And that Governance Standard is to ensure that the registered entities or the charities’ financial affairs are managed in a responsible manner.

Matt

Right.

Ian

So those charities that are non-compliant with that requirement, can actually be in breach of the ACNC regulation.

Matt

Yep.

Ian

So of course making decisions in the best interests of the charity to provide that charitable purpose, but if you need another incentive, it’s to make sure that you are compliant with the ACNC’s regulations.

Matt

OK, so any charity looking to make a policy or write up some procedures for financial control should really consider these five, and amongst other things, but these five aspects as being pretty critical in having a good policy and a good procedure for financial control?

Ian

That’s right. I guess the other thing I would say is there is [inaudible] maybe with financial management, a little bit of a focus on charitable monies and I think that’s by and large true, but I wouldn’t put out of the equation charitable assets also.

Matt

OK.

Ian

If you think of the example of vehicles that are purchased by charities and just ensuring that that’s managed effectively. So that any purchase or sale of assets such as charity vehicles are done in a manner that is responsible and actually ensures that it’s done so in the best interests of the charity.

Matt

So putting some time into thinking about the financial controls is critical and as Ian said at the beginning, taking time to invest in procedures and board knowledge really, is pretty critical to make sure that you’ve got the foundations on which to build a good charity that can then achieve its purposes and deal with its beneficiaries in a more responsible way.

Ian

That’s right. You want charities to have that strong governance so that they do have the ability to focus on their charitable purpose, rather than trying to deal with administrative concerns that often result; if you don’t have that effective financial management.

Matt

Conflicts of interest is another one that pops up quite a bit. We often hear queries about this at the ACNC, sometimes advice on how to deal with conflicts of interests or ways in which you can prevent conflicts of interests.

I think before we get into some of the details, can you just give us an overview of what a conflict of interest is?

Ian

I would say a conflict of interest is a situation, where a responsible person of a board, has a responsibility to make decisions on behalf of the charity, but also by virtue of circumstances where they may have an interest in another organisation; another entity; it may even be their personal interests, they will be making decisions that cover both of those areas. And that’s where the conflict occurs.

Matt

Right.

Ian

You’re making decisions on behalf of the charity, but that charity may have a contract in place with another business of which the responsible person has a financial stake.

So how do they ensure that the decisions are made so that it doesn’t benefit that other organisation and disadvantage the charity? So that’s one example of a conflict of interest.

There can be various forms of conflicts of interests, but that’s a common scenario that we often see with conflicts of interests, which is referred to as Related Party Transactions.

Matt

OK. This means a conflict of interest in itself is not necessarily a bad thing, is it?

It may just come up, as you describe, the circumstances in which someone happens to be on a board of a charity and also have their own business; it may just be that a conflict of interest will arise, so it’s not necessarily a bad thing, but the way in which a charity deals with it is important.

Ian

That’s right. So we often find that charities work in sectors that are often … they can actually be in things like health and education, working with vulnerable beneficiaries, and it’s quite common for people who are on Boards of charities who are making decisions, to actually be involved in the sector in other areas beyond the charity, so conflicts of interests will arise.

And like you said, it’s not necessarily a bad thing but it does need to be managed effectively. If it’s not managed effectively, whether it’s an actual or perceived conflict of interest, that’s where circumstances can arise where the charities are being disadvantaged because of the conflicts, and if those decisions aren’t declared and there’s no transparency around that, that’s where the problems can arise, so we need to avoid those circumstances.

Matt

You mentioned there “perceived” or “actual” and we’ve got this on the screen as well, so conflicts of interests can be perceived or actual. What do we mean by this?

I think this may confuse some people that are listening today. What's the difference between a perceived conflict of interest and an actual conflict of interest?

Ian

An actual conflict of interest will occur when decisions are made that actually have an impact on the charity and also have an impact on the other related party for example.

So that can be a contract in place, where you’re negotiating a contract with an organisation and the terms and conditions that are being negotiated of course, there’s actually a conflict there, because the person that is conflicted is wearing both hats at the same time.

Matt

OK. What about a perceived conflict of interest?

Ian

A perceived conflict of interest is where there is the potential for that to occur. So just by virtue of a person being in a position on the board of a charity, there may be some expectations from … it could be the community; the public; it could be other members of the board of the charity who actually says “Well, I understand that this person is making decisions on behalf of the charity but I do know that they have involvement with other areas that we are working with, so how do they actually distance themselves from that so that the perceived conflict of interest is being managed effectively?”

Often we will see situations not directly with the individual, but there may be relationships between family members and those things that also need to be managed effectively as well, because that can lead to a perceived conflict of interest.

Matt

Right.

Ian

It’s that expectation about what we call the “impartial observer test”. What would that expectation be if you were negotiating a contract with another business and you had a brother or a family member or a sister who was working with that organisation?

I think the impartial observer test would be that you stand back from those decisions, so that even if there is no actual conflict of interest but it could be perceived, that you actually stand back and allow the decisions to be made without conflict of interest.

Matt

Right. That’s a really good piece of practical advice, I guess, to bear in mind that idea of the impartial observer test – does this look bad, pretty much, if someone was to look at this and even if there isn’t an actual conflict of interest, how does it look to an outsider and making sure that a charity is capable of managing even the perception, even if there isn’t an actual conflict.

Ian

Yeah and the other thing I would say with conflicts of interests is if there is an effective management of conflicts of interests and if it isn’t declared, the poor management can result in reputational risk for charities, which can be damaging to charities’ brands and also result in loss of trust and confidence in charities. So it can have some significant impacts on charities; if they don’t manage conflicts of interests well.

Matt

Yeah sure. It doesn’t take much for people to label an organisation dodgy on the basis of the impartial observer test if it’s not managed well and you don’t want that for your charity’s reputation.

Ian

That’s right. I think it’s one of the things that will probably be mentioned and people may already have an awareness of it, but the ACNC website has some useful resources around conflicts of interests policies, and I think there’s even a template policy which if charities haven’t taken that step, to think about what policies they would implement around conflict of interest – that template would be a good starting point that can be tailored to the individual circumstances of a charity.

Matt

It’s a pretty common one and it’s something that charities should be able to manage confidently, and it’s not necessarily a difficult thing to manage confidently; provided that there is some time and effort put into things such as a policy of procedures, and the board or the Responsible Persons’ collective knowledge about conflicts of interests – if you’re confident that the people that are running a charity, are aware of what they are; how they can be managed and what the processes and policies for the charity are, then they should be able to confidently deal with any conflict of interest that arises.

Ian

Yeah, absolutely. It’s all about that preparation and having policies in place so they can deal with it effectively.

One further thing I would say is that ACNC Regulations do require, as part of the duties of responsible persons, that actual or perceived conflicts of interests are declared.

Matt

OK.

Ian

So one thing that can be actually used effectively by charities is a Conflicts of Interest Register where it actually is part of board meetings and minutes, they can actually record any actual or perceived conflicts of interests in the register.

Matt

OK, so if it pops up, they put it down in this register, so everyone knows that it’s come up; it’s been dealt with; everyone knows about it and it can be referred to later on?

Ian

Absolutely. It’s a record that aids accountability, and if there are questions asked, which may occur, then you can actually reference that conflict of interest and you can actually reference that and say “It was handled effectively. We were transparent. It was acknowledged and appropriate decisions were made as a result of it.”

Matt

OK. Moving on – Know Your Staff is the next one and it looks a little bit broad, but there’s a lot to this and it’s a really important one for charities to make sure that they, as the title of the webinar suggests, avoid any pitfalls, as they do their work.

So knowing your staff Ian, what would you say for charities – engaging volunteers or employing staff, what are the things they need to look out for?

Ian

Yeah absolutely. Well firstly, I think I’ll reference the visual there by saying Governance Standards for charities must ensure that the suitability of their responsible persons… I’ll just explain that a little bit, if that’s OK?

Matt

Yeah sure.

Ian

By actually saying the governance standard is specific to responsible persons that have been disqualified by ASIC or the ACNC. However beyond that, I’ve already mentioned today about the duties of responsible persons – Governance Standard 5, that’s where the idea of due diligence comes in.

Governance Standard 5 – the duties of responsible persons requires that responsible persons discharge their duties with a degree of care and diligence that is considered reasonable.

Matt

Yep.

Ian

So that’s when we think about due diligence covering all staff, volunteers and employees, not just responsible persons.

And depending on the circumstances that a charity is involved in, there would be an expectation that the charity makes decisions around recruitment that considers about what is appropriate in terms of background checks or working with children checks that would be suitable for the situation that the charity is in.

I mean one example is that we find that some charities would be undertaking activities where they provide services directly to vulnerable beneficiaries… people often think of that as young children, but it also includes young adults.

So in that situation, there would be an expectation to implement due diligence and that the charities actually implement those additional checks such as police checks; Working With Children Checks. And that’s where there’s a little bit of overlap with other regulators as well.

Matt

OK, yep.

Ian

You know nationally, there’s the idea of child safe standards being rolled out and organisations need to comply with those requirements also.

Matt

Right and it is an important point that it’s not a one size fits all. It does depend on the situation of the charity; the nature of their work; the beneficiaries and the extent to which they need to have a look at these sorts of checks or these sorts of procedures in place, because it will be more onerous for some and less for others and more needed for some and less so for others.

It’s about making sure that you know what your charity is doing and the best ways to ensure that the people working for your charity; you’ve taken reasonable steps to ensure that they are suitable.

Ian

That’s exactly right. In terms of the due diligence and what background checks you should be performing when you’re recruiting staff; volunteers and employees, it would be dependent on the circumstances of that charity about whether certain checks are needed to employ people in positions where they will be working with beneficiaries.

I would say that’s the due diligence side of it. So just to go back to the Governance Standard 4 where people are disqualified by ASIC or the ACNC, that is a more black and white approach, so to speak.

With Governance Standard 4, if a person has been disqualified by ASIC or the ACNC, then the responsible persons need to actually ensure that they have measures in place so that those persons aren’t fulfilling positions on the board; otherwise they would be non-compliant with that governance standard.

Matt

Another aspect of charity management that I think many may overlook or take the view that “It’s not going to happen to my charity. It’s not going to involve my organisation,” is dealing with complaints and how a charity, effectively, deal with complaints.

This is something that you recommend the responsible persons of a charity really think about and put some measures in place to ensure that they are confidently dealing with?

Ian

Absolutely Matt. Disputes can be very challenging for organisations and I agree with what you said.

Everyone has that kind of approach where “It’s not going to happen to our charity. It won’t happen to our organisation.”

Matt

Of course.

Ian

But invariably, when it does happen, and those policies and processes haven’t been put in place to effectively deal with it, they can actually lead to situations where they are very difficult to resolve, because you don’t have that framework to deal with it effectively.

So they can take up valuable resources for charities. We see it time and again where charities are there with a charitable purpose to provide services for their beneficiaries, but the disputes, whether they’re internal disputes or disputes from complaints from beneficiaries themselves, they end up detracting from the work that charities are trying to do and they’re spending a lot of their time as responsible persons trying to resolve these issues of disputes.

So that in itself provides a very strong incentive for responsible persons of charities to invest that time at the frontend to have strong policies in place around complaints handling, so that when those circumstances do arise, and they will arise, that charities can actually have processes in place where they can manage them effectively; deal with them efficiently; deal with them in the best interests of the charity but not disregarding the complaints, so that they’re actually balancing that situation, so that they can actually act in the best interests of the charity and manage complaints so they can be resolved in the interests of all parties.

Matt

Yeah and having a policy means that, as you mention, instead of taking up time dealing with the mess that a dispute can become, just getting it sorted early is much better and in the interests of the charity, obviously, and you can easily do this by having a clear policy and procedures that everyone within the charity knows; has read and understands and can follow.

Ian

Yes.

Matt

One of the points we’ve got there is Be Open, Responsive and Consistent. Obviously, and you alluded to it, is not to just ignore it.

It’s not going to go away. That’s not a way of dealing with it. So being open and responsive is the key aspect of that dot point. Respond to these complaints and whether they’re internal or from external stakeholders or beneficiaries or donors even, it’s important to be responsive.

Ian

Absolutely, yeah. We find that things can escalate if charities aren’t responsive to complaints, so it is important to actually acknowledge that there is a grievance that needs to be address, and if you manage that effectively, then that can often lead to a resolution of the matter so that you can actually learn some lessons from that, if it’s appropriate to do that, and then move on with the charitable work that you’re undertaking.

But certainly, those circumstances where an internal dispute is festering and you’re leaving it to the side, then that can actually just become a larger issue that the charity has to deal with and ignoring it won’t make it go away.

Matt

It definitely won’t work. And just to reiterate this point that complaints handling, often a lot of people think that it means dealing with the complaints that may pop up from members of the public, and that leads to that idea “Well, it’s not going to happen to my charity. We do things really well. No one’s going to complain about us. We don’t need to worry about this.”

Of course it includes people from members of the public but it’s not only members of the public; it could be the people that you’re working with who are not happy with something you’ve done or a service, or it could be internally; it may be a few volunteers or staff members that have an internal dispute.

So a complaints handling policy and steps to deal with complaints really needs to think about all of those streams – dealing with complaints from the public and the internal complaints.

Ian

That’s exactly right.

So when we talk about complaints handling, we’re not only talking about complaints about the service that a charity is providing; we’re also talking about internal disputes where … we understand that people are passionate about the service that they’re providing; their charitable purpose, so a situation that can arise from that is if people have differences of opinion about how that service could be provided to beneficiaries, than you have those internal disputes that can generate.

So having procedures in place about how to manage that effectively; often if it is possible, distancing the person who is the subject of the complaint from the complaint management – that kind of makes sense, so that can actually effectively lead to a resolution.

Matt

And it’s again, it’s one of these things that sort’ve has underpinned much of what we’ve said so far is that – take the time to think about this and draw up a document that actually covers this effectively, at the outset, so you’re not chasing your tail later on; you’ve got the procedures in place to be able to deal with that as they come up.

Ian

Yeah that’s right. If people have those procedures in place, then they have confidence that they can deal with it well. If those procedures are lacking or if they’re not there at all, then people will be a little bit lost in that situation and that’s where we said that it’s seen that the charity has a willingness to ignore the complaint, and that’s where things can escalate quickly.

So it’s better to have an effective policy in place so people know what steps to take to be able to manage the complaint effectively.

Matt

Yep. And of course, as the last dot point says there, regularly review and update policies and procedures, so it’s no good to just write something. Put it on the shelf and just know that you’ve got a policy.

If no one’s ever read it; no one knows what’s in it; no one knows even where to find it – it’s got to be something that everyone knows about and has read.

Ian

That’s right. Policies are only valuable if they’re used effectively.

Matt

Yep. Transparency – this is obviously a principle that would underpin all the charity operations, I would guess, and as it says on the slide here, it can cover quite a range of areas.

So what would you recommend for charities when thinking about best practice of management when considering the principle of transparency?

Ian

So transparency or you may think of it as accountability, it covers a range of issues that we are discussing today. You know, there’s an expectation of having transparency around financial management, which we’ve already discussed, around conflicts of interests.

We spoke about the transparency in terms of having a Register for accountability. We’ll talk about record-keeping a little bit later and the idea about having transparency around record-keeping. So it is very essential that charities are not only making decisions that are good but they’re actually documenting those decisions.

Matt

Right.

Ian

So they’d actually have those records to be able to say “Here’s what the charity’s been doing,” and it’s open to scrutiny. Charities should have a willingness to be open to scrutiny and be transparent and accountable. That engenders public trust and confidence in the work that they are doing which is very important in the sector where charities are working in.

The other thing I would say about the importance of transparency is that there is a risk that charities that do lack transparency, they may be more vulnerable to fraud or wrongdoing, as individuals may look to exploit charities, if they see there are vulnerabilities or an opportunity to hide or disguise fraudulent activities and transactions, because of that lack of transparency.

Matt

OK, yep. Well, if there are dark places to hide, then it may cover some nefarious…

Ian

Absolutely, yeah. So it’s more the serious end of the scale around consequences, I would say, but something to be aware of because it’s certainly something that you don’t want happening to your charity in terms of fraud.

And it does happen that fraud will occur in charities; as it does with other organisations. So having strong policies in place and transparency and accountability will be a means to actually deter people from committing fraud.

Matt

So just having a look at some of these dot points here, the first one – How Funds are Raised, Used and Distributed.

So that’s making sure that the charity is open about these processes and the actions taken and that they’re not keeping anything from their members or their supporters or their donors; just being open about the way they spend money is an important principle.

Ian

That’s right, yeah. So how funds are raised, used and distributed, and ideally, this would be in a policy where the charity can point to the policy and say “Well this decision was made because it was in line with our policy and it represents the best interests of the charity to make these decisions and spend these funds these ways.”

Matt

Yep.

Ian

So absolutely having those policies around that, is essential.

Matt

And having the documentation to show that “This is what we spend money on. This is how much was spent for these reasons.”

Ian

Absolutely.

Matt

And the second one – Criteria for Beneficiaries to Access Services. This is one that I think some people may overlook – just to be clear, open and transparent about what the charity is providing; to whom and under what circumstances.

Ian

Yes. So charities need to make decisions about how they provide their services, and I’m sure that all charities that work in the sector, they don’t have unlimited resources, so they do need to make decisions about how they distribute their services to the beneficiaries.

So having policies in place and transparency around how these decisions are made, often are a way to deal with any complaints that may arise.

If someone is denied services, charities can actually point to this policy or the process they have in place and say “Well, we understand that you would like to access these funds or this service, but as per our policy, we actually make these decisions,” so that’s the transparency and accountability.

If it’s lacking and it’s not there, then people will reach their own conclusions, so it’s important that you’re actually able to document this and have transparency around the decisions, so people can understand the “why” of the decisions.

Matt

Yep and similarly with internal issues too. So it’s not just about being transparent to those on the outside and showing how your charity is being run and how the funds are being managed.

The third dot point here – Good Governance. So if you’ve got a Board of Directors or a Committee or whoever’s in charge of the organisation, how the decisions are being made and how the issues are being discussed, also should fall under the principle of transparency too.

Ian

Absolutely. We talk about annual general meetings and Board elections, often when there are internal disputes, if there is no transparency about how elections may occur or how people can even nominate to be elected for a Board, then it’s only going to make matters worse.

But if there is transparency in the organisation and they’re very upfront and open about how these processes occur; how decisions are made, in terms of governance across of range of issues, then that instils confidence in the people that they’re’ not being sidelined or restricted from the charity, that they’re actually able to access the charity and the charity is being fair and reasonable in those matters.

Matt

And we’ve spoken about how transparency can help you manage conflicts of interests, both actual and perceived, and also reporting.

So if you’ve got this underlying principle of transparency running through all your operations, reporting to regulators or different agencies; whoever you have to report to, and even to the general public, becomes much, much easier.

Ian

That’s correct. In terms of a charity’s financial statement and audited records, if they are transparent with those reports, then it instils confidence in the general public that the charity is actually spending those public monies wisely and actually doing so without any sense of fraud or private benefit that may be being obtained.

Matt

Yep, which brings us to record-keeping. Again, it’s something that can get pushed to the side, I think, because it’s paperwork; it’s admin; it’s the sort’ve stuff, well frankly, can be boring, but is pretty important.

Ian

Absolutely. I would say it’s similar to financial management that we actually started the conversation with – an investment in strong governance around record-keeping will result in benefits for the charity in the long term.

And charities shouldn’t see this as something that’s detracting from their ability to pursue their charitable purpose – that actually having strong record-keeping policies will actually benefit the charity and actually enable it to meet its charitable purpose.

Matt

And it’s not only financial records. I think when we say record-keeping, a lot of people think “Oh, it’s just my financial statements,” and they sit in a folder on a shelf. It’s also operational records.

Ian

That’s right. So a lot of people equate record-keeping to dollars and cents, but you are right; it’s also operational records as well in terms of keeping those records … a little bit unique to the individual circumstances of each charity, but it could be records of housing for beneficiaries in some situations or care that’s provided to people who need medical treatment, those kinds of situations.

Matt

Basically the stuff that charities have done really – the activities, yeah.

Ian

Absolutely, yeah. Record-keeping is essential. It goes back to transparency which we were talking about before. The other thing I would say about record-keeping is it is something that charities do struggle with, we see from time to time.

So where policies are inadequate, it can lead to charities being in a position where they’re unable to effectively manage the charity finances.

Matt

Right.

Ian

That’s focusing on the financial aspect of record-keeping, but that strong record-keeping actually allows charities to make decisions that are sound decisions; reflecting on the work that they’ve been doing and how they can actually make improvements in the work that they’re doing.

Matt

That’s a really good point. If there’s any sort of improvement or desire to improve or even expand the charity.

In some cases, charities may want to start something else; something new, having a good thorough comprehensive backlog of records can really help and inform the board when making decisions on future activities or future investments.

Ian

Yep, that’s correct. And I don’t want to focus on this too much because again, it is kind’ve like a minor proportion of what occurs, but individuals looking to commit fraud or gain a private benefit, will exploit situations where there is poor record-keeping.

Matt

Yeah, right.

Ian

Records can be lost, stolen or manipulated if those strong policies aren’t in place around effective record-keeping.

The other situation we see from time to time is in situations where there are internal disputes – paper records can be misappropriated, and it’s recommended that secure electronic records be used to prevent this from occurring.

So just being proactive and thinking about those circumstances so that ideally that circumstance wouldn’t occur where there was an internal dispute and records were misappropriated, but how would you actually mitigate that from being a risk; how would you have electronic records with backup procedures to prevent that from occurring?

Because it will be a major disruption to charities if records are misappropriated, stolen or lost. It can have a very significant impact on a charity’s ability to pursue their charitable purpose.

Matt

Again, so record-keeping isn’t just the boring aspect of filling in paperwork and storing it in the right files and filing cabinets. It really underpins much of the strength of an organisation’s governance?

Ian

Absolutely, yeah. Again, investing in those procedures around record-keeping will strengthen a charity and enable it to work effectively.

Matt

OK, we have a few links there to specific resources on our website. Again, as I mentioned at the beginning, these will all be included in the email that goes out in the next day or two to all who registered for the webinar.

But if you wanted to get some issue-specific resources, they’re the URLs that you want to follow.

It brings us to the end of the formal presentation, but we do have some time for questions right now, and we have had a few questions come through.

So Ian, if you don’t mind, I will throw a few questions your way, and if you are out there and you’ve got a few questions now that you’ve’ seen the formal presentation, feel free to shoot them through.

We’ve still got April, Chris, Beth and Jenny answering questions and if there are some that come through that we think will be useful for the wider audience, which many of them will be, we’ll try and get to them now.

OK, just bear with me a moment. OK, we’ve had a question about record-keeping – we’ve just finished that slide. Do charities need to provide the ACNC with a copy of records?

Ian

No, they don’t. So the expectation is that charities do obviously keep records, what we were discussing, but there is no onus on charities to provide those records to the ACNC, unless it’s requested by the ACNC to support our regulatory work.

So in some circumstances, we will request charities to provide those records to the ACNC, and the requirement is that charities keep records for a period of seven years, so the ACNC can request records for that period of seven years.

Again, we would expect the charity to have effective record-keeping practices so that they are actually able to access those records, if requested, to provide them properly.

Matt

Ideally, it wouldn’t require a bit long search to find the records, if you’ve got good practices of record-keeping.

Ian

Absolutely and there’s the benefit there in spending a little bit of time thinking about how you effectively keep your records and access them because when they are requested, we do find that charities with poor policies around record-keeping, find it difficult to access those records.

So investing that time at the frontend about how you store your records and what records you keep is very important.

Matt

Yeah, if anyone’s tried to find an old bill from something sometime once before, it’s a nightmare to try and find pieces of paper that you thought were long gone from years ago.

I really need to implement one for my own personal life I think, but if you’ve got a really clear record-keeping system, it makes things so much easier.

Ian

Absolutely, yeah. And in terms of record-keeping, where we’re talking about a range of records… so we spoke about not only financial records but operational records including minutes of board meetings; very important that charities are accountable and transparent around the decision-making in board meetings and they keep those in official minutes.

The other thing I would say, kind’ve going back just broadening on that question a little bit – the importance of record keeping, transition of staff.

Again, if you’re keeping poor records and you’ve got a new staff member coming in, they will look at the organisation and find it very difficult to understand what’s occurring.

But if good record-keeping is in place, then they’ll be able to move into that position and transition into the role and be able to quickly adapt to the role and understanding what’s happening with the organisation.

Matt

Another question here and I think you touched on it before about the people that may be ineligible to be on a charity’s board or with a charity, the question is: can an undischarged bankrupt be on the board of a charity?

Ian

Yeah, so that’s right. So we were talking about that in terms the context of background checks that charities should undertake for their employee staff and volunteers.

With responsible persons, it is a requirement as per one of our governance standards – Governance Standard 4, that they are not disqualified by ASIC. If they are disqualified by ASIC and that includes people who are disqualified by virtue of the fact that they’re an undisclosed bankrupt or undischarged bankrupt, then that would rule out that person from being able to be a responsible person for a charity board.

We see some circumstances where the actual decision by ASIC occur while the person is actually already on the Board.

Matt

OK.

Ian

In those situations, there would be an expectation that the charity board deals with that promptly in a prompt manner and actually makes decisions to remove that person from the board in a process that is not unduly delayed.

Matt

OK, right. Does the ACNC require board members or directors to undergo a police check? And actually, just before you get to the answer there, I think we may have inadvertently been a little bit confusing for a lot of people in our references to boards; board members; directors; committees; responsible persons, pretty much they all mean the same thing.

It would depend on the organisation and some structures call their board “the Board” or some call it “the Committee” or whatever, but when we say these words, we’re using them interchangeably to mean what the ACNC generally refers to as a responsible person, which is a member of the charity’s governing body – that collective group that is responsible for directing the charity in the organisation.

So if we say board member or committee of director or responsible person, just know that we’re using these words interchangeably.

Ian

Yeah, we do tend to use them interchangeably and that’s by virtue of the fact that the charities themselves will often use them interchangeably, so we do cater to that flexibility a little bit.

But in terms of going back to the question: Does the ACNC require board members or directors to undergo a police check? The strict answer is no. It’s not a requirement as per the ACNC, but there is an expectation as per our Governance Standard 4 – the suitability of Responsible Persons and Governance Standard 5 – the duties of Responsible Persons, that charities actually implement that due diligence to ensure that the persons who are filling those roles, on a charity board as Responsible Persons, are actually appropriate to do so.

Matt

Right.

Ian

Again, I’ll try to make that point and if it is a little bit confusing, because we are talking about legislation, I’d refer people to the website where there is some very good guidance around it.

But with Governance Standard 4, if people are disqualified from ASIC, then they are unable to fill a position of a Responsible Person on a board.

Matt

So even if the strict answer to this question in particular is no, the ACNC doesn’t require a police check for a new board member or a responsible person, it doesn’t mean that a charity can’t do that, if they think that this is in the best interests of their organisation in selecting new board members, or even employees and volunteers, then they can conduct or ask for a police check on the background of anyone that they would like?

Ian

That’s right. So I guess you could see this appropriate decision-making regardless of whether an organisation is a charity or any other business.

If they feel it’s appropriate to undertake those police checks to have an understanding of the person who is filling that role and that’s actually an effective risk management strategy in terms of recruitment, then they should be doing so, if that’s in the bests interests of the charity.

And particularly around charities where we see that it is important in certain situations when you’re working directly with vulnerable beneficiaries as well about risks that are inherent in those situations.

Matt

Right.

Ian

One thing I would say about the disqualification, and I’ve spoken about Governance Standard 4 already, so this will be the last time I raise this, but there may be particular situations where charities can apply to the Commissioner, where people are disqualified.

Matt

OK.

Ian

So just being aware of that if you do find that you’re in that situation. It’s something to be aware of.

Matt

OK. Here’s a question… touching on board members again – Responsible Persons, as we often refer to them, can charities pay or employ board members?

Ian

Yeah, it’s a question that often arises in the sector about remuneration of board members. The first thing I would say is: do the rules of the charity, often recorded in the constitution, do they allow for payment of board members?

So that’s the first thing to consider because you need to abide by the charity’s governing rules when you’re considering remuneration of board members. The next question after that has been answered and would be: is it in the best interests of the charity to remunerate board members?

For example, rather than actually remunerating board members, would it be more appropriate to employ actually paid staff who aren’t members of the Board to undertake those services where it is seen to be appropriate to get remuneration for the duties that are being undertaken?

The other thing to consider and I won’t go into too much detail, but different State and Territory requirements may have an influence on whether board members can be remunerated and charities would need to check with their State and Territory rules around incorporated associations, for example, around responsibilities of remunerating board members.

What I would say if a charity is considering making decisions around remuneration of Board members, there’s some very good guidance on the ACNC website about remuneration of board members, and that would cover the full range of issues that need to be considered when you are remunerating board members; if that’s a decision that is made.

It’s one of those things where you want to get it right before the decisions are made. You don’t want to make the decision and then start thinking about “Did we do the right thing?” because that’s when problems start to arise.

Matt

Yes. We don’t actually have the link to that one here on the screen at the moment, but if you’ve got a pen handy and you wanted to jot it down, it is acnc.gov.au/boardremuneration. But we will include in the follow-up email that goes out in the next day or two.

Ian

Yes.

Matt

OK and a question about record-keeping again – I know you’ve gone to quite a bit depth on record-keeping today, but there’s an appetite for it out there.

Well first, I’ll expand on this question for them, but is it a requirement that records are kept in a particular way or a particular form? And then, is there a way that they should be kept?

Ian

So records need to be able to be produced to the ACNC when they are requested. So the records would need to be kept in a format that assists that.

They can be written paper records; they can be electronic records, as long as they can be produced to the ACNC as the regulator, when they are requested. I guess if you think of the situation of records being verbal, then that’s a situation that can lead to concerns in terms of record-keepings.

Matt

Yep.

Ian

What I’d say on top of that is there is a bit of flexibility there around records being able to be kept in paper format; electronic format, but making those decisions around… well, both are possible but what’s in the best interests of the charity and what is effective record-keeping?

Keeping records in a secure format that is easily accessible – they’re the kind of things that charities should be thinking about when they’re thinking about storing records.

Matt

Yep. One question and going right back to the start of today’s presentation when we spoke about financial management, a question about the need to have a financial professional on the board.

Is that a requirement for charities? And if it’s not a requirement, is it a recommendation? I think the person asking this question might be thinking of someone like an accountant or a professional financial advisor.

Should a charity seek the participation of that sort of professional for their board?

Ian

Look, I would say that it’s probably a good idea if there is capacity to recruit board members to a charity that have financial expertise, and often expertise in financial areas come with other areas where they can add value in terms of governance. So I would say certainly that’s the case.

I am aware that charities of different sizes have different capacity to recruit board members with those specific skills. So on one end of the scale we’re talking about very large charities where they will have specific resources dedicated to financial management and risk management and those kind of issues, as opposed to the other end of the scale where you’ve got your smaller charities which are operating in perhaps a little bit of a niche, they might not have the resources to bring those board members into the charity.

It’s something that can potentially be outsourced as part of the governance of a charity, where the use of an external accountant to assist with record-keeping and financial management may be appropriate in some circumstances.

Matt

Again, depends on the charity, its circumstances and what it’s capable of doing.

Ian

Yeah that’s right. And the important thing is that charities actually take the time to consider those implications and what's in the best interests of the charity.

The charities that we sometimes see as getting into situations where they are non-compliant with their responsibilities around effective financial management for example, they’re the ones who are primarily focused on their charitable purpose and aren’t thinking about governance.

Matt

OK, yep.

Ian

I mean the fact that we’ve got people participating in a webinar today, shows that they’ve got that incentive to improve their governance, so in that sense, we have people who have already taken that step, but certainly the message that I would have for the sector as a whole is take that time to think about governance and don’t be solely focused on the charitable purpose.

Matt

Right, and we’ve got time for a couple more, but I think this question be of interest to a lot of people. It’s touching on what we just mentioned there about the size and the nature of organisations.

What you recommend for organisations that are small and don’t have the capacity to employ an accountant or to encourage a professional financial advisor to get on to the board and that sort’ve thing – the really small organisations that want to avoid these charity pitfalls and want to have the best processes in place, but they are really small and just simply don’t have the resources to be able to do it?

What would you say to those organisations?

Ian

Well, I’d say to those organisations that although it may seem like a daunting task initially, to actually provide an overview of your charity and think about what governance and policies and procedures are required to actually have effective and strong governance, it’s important to take that step.

As I said, initially it will seem like it’s detracting from the charitable purpose, but coming out the other end, if a charity does go through that process and invests that time into to governance, it’s going to make the charity that much stronger and actually lead to better outcomes for the charitable purpose and beneficiaries.

With the smaller charities, I think a lot of work has been done by the ACNC to provide tips sheets and facts sheets on our website which can be the starting point for charities. I’m not sure if it’s going to be the answer.

I’m not making any promises that people are going to download one PDF and their problems are solved. It is often the starting point to allow charities to understand what the issue is and what they need to do to implement strong governance.

But for those charities are very small and they’re coming to the sector without that background of being experienced in governance, that would be a very good starting point for them to understand what the common issues are – a little bit similar to what we’ve been talking about today in the webinar about what are the common issues that they need to address and how they can go about addressing that with good governance.

Matt

Maybe that can be a starting point. So rather than thinking about governance and the policies and the procedures that come with it, as this large abstract esoteric notion of something that on one understands or wants to really think about, just breaking it up into the practical elements of say finances; volunteers; complaints handling… these sorts of things.

And then just taking the time, whether it be an extra meeting or an addendum to a meeting that’s already long-standing, to just think about “Right – Finances. What do we need to improve or implement or write in a policy that is suitable for our organisation?” and then doing the same with other important issues as the ones that we’ve gone over today.

So breaking the big scary notion of governance, into its constituent parts, is probably a really good step.

And don’t underestimate the importance of just taking the time to think about it. I know as Ian as has mentioned, it may seem like you’re ripping time off your charity from dealing with the frontend beneficiary work, but we can’t really reiterate this enough – it’s that taking the time to think about the support and the structures that go into pursuing these charitable purposes, is really critical in getting it all right.

Ian

Yeah and having that governance in terms of processes and policies in place, is a very effective preventative measure.

Those charities that find themselves in situations where they don’t have the governance, and problems have arisen, they can be very difficult to resolve and end up taking far more resources than would’ve taken if they had those policies and procedures in place initially.

Matt

Yep, OK. I think that brings us almost 1 o’clock and the end of today’s webinar. If we didn’t get to your question, we will be able to get into touch with you via email later and answer your question, if we can.

Sometimes questions are a little bit too specific for us to answer on the webinar about your organisation and the details of your organisation. In those cases, we probably recommend giving our Advice team call on 132262 and they will be able to talk you through whatever the issues you’re dealing with and provide some really good advice. But for those that we weren’t able to get to, we will respond via email later.

And of course, as I mentioned, we will send an email follow-up with a link to the recording of this webinar and the webinar slides and all the resources.

Of course, you can always stay in touch with us in other ways. We have the Commissioners’ Column which goes out fortnightly and regular email updates and you can subscribe to that online; on our homepage.

Also, there’s lots of web guidance, we’ve touched on much of it today and we have podcasts; video content and webinars such as this – all recorded versions as well that you can go back and have a look at, and the number there – 132262 is our Advice team and they’re happy to help you with any queries you may have or email us at advice@acnc.gov.au and we’re pretty active on social media as well.

Thank very much for participating today. Thank you Ian.

Ian

Thank you Matt.

Matt

We hope you found this useful and we really thank you for your attendance. And if you have any further questions, we’ll stay on the line to try and answer the last remaining questions that come through. But otherwise, we will endeavour to get to your issue via email.

And just finally, if you have any questions, comments or some feedback for us about the webinars in particular, and this is separate from questions about your organisation and best ways to manage it, but just about the webinars or any other guidance in particular, send us an email to education@acnc.gov.au.

We love receiving the feedback and looking at ways to improve.

Thanks once again for joining in to this webinar over your lunch break. If everyone else’s stomachs are rumbling as much as mine is, then they’re pretty keen to get to lunch.

So thanks very much everyone and we’ll be in touch via email if we haven’t got around to your question. Thank you.

Ian

Thank you.