Governance — Australia

On 17 September 2021 the Australian Government registered the Australian Charities and Not-for-profits Commission Amendment (Governance) Regulations 2021. The instrument introduces Governance Standard 6, obliging charities to take reasonable steps to ensure their responsible persons are accountable and to manage risks of fraud and misuse. This new governance standard completes the ACNC's regulatory framework for charity governance, addressing accountability and serious wrongdoing concerns that previous standards did not comprehensively cover. The approximately 60,000 registered charities in Australia must evaluate their governance arrangements against the new requirements and implement necessary improvements.

Regulatory Context and Purpose

The Australian Charities and Not-for-profits Commission established governance standards as a condition of charitable registration, setting baseline expectations for board conduct, financial management, and regulatory compliance. Governance Standards 1-5 address charitable purposes, accountability to members, compliance with Australian law, reasonable financial management, and provision of information to the ACNC.

Governance Standard 6 fills a gap by explicitly addressing internal accountability mechanisms and fraud prevention. The standard responds to incidents where charity funds were misappropriated, responsible persons failed to exercise adequate oversight, or organizations lacked mechanisms to detect and address serious wrongdoing. By establishing clear expectations, the standard helps charities protect their assets and maintain public trust in the sector.

Accountability Systems Requirements

Registered charities must maintain policies and procedures that hold responsible persons to account, document duties, and enable removal for serious misconduct. Accountability systems should clearly define responsible persons' roles, duties, and decision-making authorities. Performance expectations should be documented and periodically reviewed, with mechanisms for addressing underperformance.

Removal procedures should enable charities to act when responsible persons breach their duties, subject to constitutional requirements and natural justice principles. Meeting procedures should ensure appropriate documentation of deliberations and decisions. Delegation frameworks should specify what authorities can be delegated and to whom, with appropriate oversight mechanisms.

Serious Wrongdoing Controls

Boards need controls to detect and address fraud, negligence, or breaches of duty, including whistleblowing channels and escalation paths. Fraud prevention begins with risk assessment identifying the charity's vulnerability to various fraud types including misappropriation of assets, fraudulent disbursements, corruption, and financial statement fraud. Controls should address segregation of duties, authorization limits, reconciliation procedures, and physical safeguards over assets.

Detection mechanisms include internal audit activities, management review of financial reports, and anomaly monitoring. Whistleblowing channels enable staff, volunteers, beneficiaries, and others to report suspected wrongdoing without fear of retaliation. Investigation procedures should address how reports are received, assessed, investigated, and resolved, with appropriate confidentiality protections. Remediation should address immediate harm, prevent recurrence, and consider reporting obligations to ACNC and other authorities.

Documentation and Evidence Requirements

Charities should maintain evidence demonstrating compliance with Governance Standard 6 for potential ACNC review. Governance policies and procedures should be documented, approved by the board, and regularly reviewed. Risk assessment documentation should show that the charity has identified and evaluated fraud and misconduct risks.

Control documentation should show that appropriate preventive and detective controls exist. Training records should evidence that responsible persons understand their duties and accountability arrangements. Incident records should document any serious wrongdoing incidents, investigations, and outcomes. Annual governance reviews provide opportunity to assess whether accountability systems remain effective and appropriate for the charity's current operations.

Integration with Existing Standards

Governance Standard 6 applies in addition to existing ACNC reporting tiers, reinforcing expectations for transparent annual reporting and recordkeeping. Charities should integrate Standard 6 compliance with existing governance, risk management, and compliance frameworks rather than treating it as a standalone requirement. Financial management policies under Standard 4 should incorporate fraud prevention controls.

Compliance monitoring under Standard 3 should address whistleblowing and misconduct reporting. Annual reporting should include governance disclosures appropriate to the charity's size and complexity. Internal audit functions where they exist should include accountability and fraud controls within their scope.

Practical guidance

Update governance manuals to incorporate accountability provisions, disciplinary processes, and performance review cycles for responsible persons. Board charters or constitutions may require amendment to ensure adequate removal powers and accountability mechanisms. Conduct fraud risk assessments and implement controls covering segregation of duties, financial monitoring, and whistleblower protections.

Risk assessments should consider the charity's funding sources, operational activities, geographic footprint, and volunteer reliance. Train boards and senior management on Governance Standard 6 obligations and evidence expectations for ACNC compliance reviews. Training should cover responsible persons' legal duties, fraud risk indicators, and procedures for handling suspected misconduct.

ACNC Oversight and Enforcement

The ACNC monitors charity compliance through annual information statement review, targeted compliance activities, and response to complaints and referrals. Non-compliance with governance standards may result in education and guidance, formal warnings, enforceable doings, compliance directions, or revocation of charitable registration.

The ACNC publishes guidance materials helping charities understand and implement governance standard requirements. Charities experiencing governance challenges should seek ACNC guidance early rather than waiting for regulatory intervention. Strong governance practices support public confidence in the charity sector and individual organizations' ability to pursue their charitable purposes effectively.