Commissioner's Policy Statement: Penalties for false or misleading statements

This Commissioner’s Policy Statement is issued under the authority of the Commissioner and should be read together with the ACNC Policy Framework, which sets out the scope, content and definitions common to our policies.

Policy Statement

1. This Commissioner’s Policy Statement sets out the Commissioner’s policy approach to imposing and remitting administrative penalties for false or misleading statements under Subdivision 175-B of the ACNC Act. In particular, it explains when the Commissioner may impose penalties, what level of penalty can apply in different circumstances, and when the penalty will be increased, decreased or remitted.
2. This policy statement does not deal with the application of administrative penalties for failing to lodge documents on time under Subdivision 175-C of the ACNC Act. The policy statement explaining the Commissioner’s approach to these penalties is Commissioner’s Policy Statement 2014/02: Penalties for failing to lodge documents on time.
3. A charity’s registration can be revoked if they provided information that was false or misleading in a material particular in their application for registration. The Commissioner’s approach to revocation of charities is addressed in Commissioner’s Policy Statement 2014/03: Revocation by the ACNC.
4. Charities are also required to give a corrected Annual Information Statement or financial report to the Commissioner within 60 days (for small charities) or 28 days (for other charities), if they become aware of a material error in an Annual Information Statement or financial report that they have previously given to the ACNC.

Legislative context

5. Under section 175-10 of the ACNC Act, entities (including charities, complainants and representatives) are liable to an administrative penalty if they or their agent:
   • make a false or misleading statement to the Commissioner or any staff and ACNC Advisory Board members assisting the Commissioner, or
   • make a false or misleading statement to an entity other than the Commissioner or any staff and ACNC Advisory Board members assisting the Commissioner, where that statement is, or purports to be, one required or permitted under the ACNC Act.
6. Under s 175-10(3), an entity is not liable to a penalty if the entity or its agent took reasonable care when making the false or misleading statement.
7. The penalty amount is calculated under s 175-15, and includes circumstances that the penalty may be increased (s 175-25), or decreased (s 175-20(3) and s 175-30).
8. Subdivision 175-D sets out how the penalty is to be notified (s 175-50) and collected (ss 175-55, 175-65, 175-70), as well as allowing the Commissioner a discretion to remit all or part of the penalty (s 175-60)

When a penalty may be imposed

9. A penalty is imposed on an entity, and entities are liable to pay the penalty, if the Commissioner issues a penalty notice after they have made a false or misleading statement in a material particular.
10. Where the Commissioner becomes aware that an entity has made a statement that may be false or misleading, the ACNC will examine the statement to determine whether a penalty should be imposed and a penalty notice should be issued.
11. The Commissioner will decide whether a penalty should be imposed using a risk-based approach, which means a penalty notice will not be issued for every statement which is false or misleading in a material particular.
12. Generally, the ACNC will make the decision to issue a penalty notice based on a consideration of the nature of potential harm arising from the statement, the charity’s past behaviour (such as history of non-compliance), and the likelihood of the charity making future false or misleading statements.

What is a statement?

13. A statement is anything disclosed, and may be made or given orally or in any other way, including electronically.
14. Statements may be made in correspondence, registration or other forms (whether online or paper), responses to requests for information, as part of an Annual Information Statement, in connection with a compliance review, or in any other communication for a purpose connected to the ACNC Act.

When is a statement false or misleading in a material particular?

15. A statement is false if it is contrary to fact or wrong, irrespective of whether or not it was made with the knowledge that it was false. It may be false because of something contained in the statement or because something is omitted from the statement.
16. A statement is misleading if it creates a false impression, even if the statement is true. It may be misleading because of something contained in the statement or because something is omitted from the statement. Even if it is literally true, it may be misleading because it is uninformative, unclear or deceptive.
17. A statement is false or misleading in a ‘material particular’ if it is substantial or significant, and directly relevant to the purpose of making the statement. For example, if the false or misleading statement relates directly to the ACNC deciding to register a charity, or may lead to a situation causing harm to a charity’s members or beneficiaries.
18. Whether or not a statement is ‘material’ is determined at the time that it is made.

Who must pay the penalty?

19. If the penalty is imposed on an individual or organisation that is not associated with a charity (for example, a complainant), the penalty will generally be paid by the person or organisation to whom the notice is issued.
20. The responsibility for meeting charities’ liabilities are set out in division 180 of the ACNC Act.
21. For charities that are unincorporated associations, the directors (including committee members) are jointly and severally liable and may be required to pay the penalty amount in full or in part. Directors may split the payment equally, one director may pay the entire penalty, or each director may pay a percentage of the penalty. However, until full payment is made, each director remains liable for the outstanding amount. The penalty generally cannot be paid using the charity’s funds.
22. For charities that are trusts, all of the trustees are jointly and severally liable to pay the penalty. If any of the trust’s trustees are corporate trustees, the directors of the corporate trustees may also be jointly and severally liable if the false or misleading statement was made because of a deliberate act or omission of the director that involves dishonesty, gross negligence or recklessness. The penalty generally cannot be paid using the trust funds.
23. In the case of charities that are incorporated (such as companies or incorporated associations), the charity itself is liable. Directors of the charity may also be jointly and severally liable (with the charity) if the false or misleading statement was made because of a deliberate act or omission of the director that involves dishonesty, gross negligence or recklessness.
24. If directors may be personally liable to pay the penalty, the ACNC will advise the charity and directors accordingly.

Amount of the penalty

25. The penalty amount depends on whether the entity or its agent made a false or misleading statement because of:
    • failure by the entity or its agent to take reasonable care to comply with the ACNC Act,
    • recklessness by the entity or its agent as to the operation of the ACNC Act, or
    • intentional disregard of the ACNC Act by the entity or its agent.
26. The Commissioner will make a decision about what kind of behaviour led to the false or misleading statement depending on all the circumstances of the case.
27. The initial penalty ranges from 20 penalty units to a maximum of 60 penalty units – see Attachment 1.
28. This initial penalty will be increased by 20% if the entity:
    • has previously been liable for a penalty for making a false or misleading statement,
    • took steps to prevent or obstruct the Commissioner from finding out about the false or misleading nature of the statement, or
    • became aware of the false or misleading nature of the statement after it was made but didn’t tell the Commissioner about it within a reasonable time.
29. The initial penalty will be reduced by 20% if, after the Commissioner has notified the entity that a review or investigation is going to be carried out:
    • the entity voluntarily tells the Commissioner about the false or misleading nature of the statement, and
    • telling the Commissioner saved the Commissioner a significant amount of time or significant resources in the review or investigation.
30. Where an entity makes a voluntary disclosure within a reasonable period of time after being notified of a review or investigation, the Commissioner will generally accept that the disclosure saved the Commissioner time and resources.
31. The initial penalty will be reduced to nil if the entity voluntarily tells the Commissioner about the false or misleading statement before either:
    • the day that the Commissioner tells the entity that there is going to be a review or investigation of their affairs, or
    • an earlier date, if the Commissioner has made a public statement asking charities to make a voluntary disclosure by that date about a matter that relates to the charities’ affairs.
32. If the initial penalty is reduced to nil, the effect is that no penalty is imposed.
33. Even if an entity voluntarily tells the Commissioner about a false or misleading statement after they have been notified that they are under review or investigation, the Commissioner can treat the disclosure as if it had been made before the review or investigation started. The Commissioner will usually only consider this approach if the disclosure is made at the early stages of a compliance review or investigation.
34. Voluntary disclosures must be made using Form 5B: Report false or misleading statement made to the ACNC or another form approved by the Commissioner.
35. The initial penalty amount will also be reduced to the extent that the penalty amount was caused by an entity treating the ACNC Act as applying in a way that agreed with:
    • advice that they or their agent were given by the Commissioner, or
    • general administrative practice under the ACNC Act, or
    • a statement approved in writing by the Commissioner.

Failure to take reasonable care to comply with the ACNC Act

36. All registered charities are expected to take reasonable care to comply with the ACNC Act. Similarly, all organisations applying for registration are expected to comply with the ACNC Act’s registration requirements. A failure to take reasonable care occurs where the charity has acted in a way that falls short of what would reasonably be expected of it. Whether a charity has failed to take reasonable care would depend on the circumstances.
37. Errors do not always indicate a lack of reasonable care. However, if an entity or their agent makes an erroneous statement that could easily have been prevented, it may indicate that the entity or agent has failed to take reasonable care.

Recklessness as to the operation of the ACNC Act

38. Recklessness involves willfully engaging in conduct that could lead to a foreseeable risk of harmful consequences. It does not require an intention to cause a particular result, but the consequences must be foreseeable by the entity or its agent. For example, a statement made by an entity where the entity can foresee that it could be misleading but makes the statement anyway.

Intentional disregard of the ACNC Act

39. Intentional disregard of the ACNC Act involves deliberately acting in a way that ignores the requirements under the ACNC Act. For example, a statement made that is knowingly false so as not to comply with the charity’s obligations.

Notification of the penalty

40. If a penalty is imposed, a penalty notice will be given to an entity under subdivision 175-D of the ACNC Act. The notice will detail the reasons for imposing the penalty, the amount of penalty to be paid and the date for payment of the penalty.
41. The due date to pay the penalty will be at least 14 days after the notice is given to an entity. While the penalty notice is issued by the ACNC, the collector of the penalty is the Australian Taxation Office (ATO). The ATO will treat the penalty as a primary tax debt, which means that a general interest charge will accrue on any overdue amount and the ATO may take action to recover the debt if it is not paid.

Remission of penalties

42. The Commissioner may remit all or part of an administrative penalty for making a false or misleading statement under section 175-60 of the ACNC Act. That is, the Commissioner can decide to cancel all or part of the penalty.
43. The Commissioner will generally consider the following factors when deciding whether to remit all or part of a penalty:
    • the potential detriment to a charity’s members or beneficiaries,
    • any action the entity took to correct the false or misleading statement, and
    • any other relevant factors.
44. If the Commissioner decides not to remit a penalty imposed for a false or misleading statement, and the remaining penalty is more than 2 penalty units, an entity can object to the decision within 60 days of being sent the penalty notice. For more information, see Commissioner’s Policy Statement 2013/04: Reviews and appeals.

References

• Australian Charities and Not-for-profits Commission Act 2012
• Australian Charities and Not-for-profits Commission Regulation 2013
• Charities Act 2013
• ACNC Regulatory Approach
• Commissioner's Policy Statement: Decision-making
• Commissioner's Policy Statement: Annual Information Statements
• Commissioner's Policy Statement: Voluntary revocation
• Commissioner's Policy Statement: Revocation by ACNC
• Commissioner's Policy Statement: Review and appeals
• Commissioner’s Policy Statement 2014/02: Penalties for failing to lodge documents on time

Attachment 1 – Penalty amounts (current as at August 2015)

The value of a penalty unit is determined under section 4AA of the Crimes Act 1914 (Cth).