External Conduct Standard 1: Activities and control of resources

External Conduct Standard 1 requires a charity to:

• take reasonable steps to ensure its activities outside Australia are consistent with its purpose and character as a not-for-profit
• maintain reasonable internal control procedures to ensure that funds, equipment, supplies and other resources are used outside Australia in a way that is consistent with the charity’s not-for-profit purpose and character, and
• take reasonable steps to ensure that funds, equipment, supplies and other resources provided to third parties outside Australia (or within Australia for use outside Australia) are applied:
  • in accordance with the charity’s not-for-profit purpose and character, and
  • with reasonable controls and risk management processes in place.

It also requires charities comply with Australian laws in the following areas while operating overseas:

• money laundering
• financing of terrorism
• sexual offences against children
• slavery and slavery-like conditions
• trafficking in individuals and debt bondage
• people smuggling
• international sanctions
• taxation, and
• bribery.

A charity must maintain reasonable internal control procedures to ensure compliance with these laws.

Purpose of the standard

The purpose of this standard is to give the public confidence that a registered charity is managed in a way that ensures:

• it remains solvent
• any risks to its assets are minimised
• the charity and its resources further its purposes, and
• its operations are consistent with its purpose and character as a not-for-profit.

The standard is intended to promote legitimacy and transparency and ensure a registered charity and its resources are not misused for non-charitable or illegal purposes overseas.

Reasonable steps

The ACNC does not prescribe what a charity must do to meet External Conduct Standard 1. Based on its own circumstances, each charity must decide the appropriate action required.

The ACNC expects a charity to have considered the risks associated with its overseas activities and funding – including those done in collaboration with a third party – when making decisions.

The reasonable steps that a charity must take, and the reasonable procedures it must maintain, will depend on its particular circumstances and the associated risks. These considerations will be different for each charity.

To decide these steps, a charity should consider:

• the nature, scale and complexity of its overseas activities or funding
• the locations in which it operates
• its work with third parties
• its size and the number of staff and volunteers it has
• its level of knowledge and experience in managing similar projects or activities
• the effectiveness of current policies and procedures that govern its activities or funding
• any issues or difficulties it has experienced with previous overseas activities or funding

Ways to meet the standard

The ACNC does not prescribe what a charity must do to meet External Conduct Standard 1. The actions your charity takes will depend on its individual circumstances.

As a first step, a charity should identify how its overseas activities or funding could be at risk of misuse. It can then develop a plan to manage these risks.

The reasonable steps to manage the risks of activities outside Australia may include some of the following:

• Ensure all overseas activities and funding requests are properly approved. Have clear policies outlining the approval process and keep records of decisions.
• Make sure the charity's funds and projects are approved by more than a single person.
• Use secure, monitored services when transferring funds – for example, formal banking systems – and ask recipients to confirm receipt of the funds.
• Check the reputation and experience of third parties to decide whether they are suitable and whether they share the charity's values.
• Make sure third parties have appropriate management policies and procedures.
• Have written agreements with third parties that clearly set out the functions and responsibilities of everyone involved.
• Have thorough recruitment procedures for staff and volunteers that include appropriate background checks.
• Monitor overseas projects – including those undertaken by third parties – and ask for regular reports on progress and finances. Review the progress reports at each board meeting.
• Establish procedures to detect wrongdoing – keep records of transactions and review them to ensure they're accurate and consistent with approved funding levels.
• Keep a register of the charity’s equipment and monitor its use. Make sure the equipment is stored securely.
• Monitor the continued eligibility of the charity’s beneficiaries.
• Develop a procedure used when approving all new projects, as well as when conducting regular reviews of existing projects, to ensure they are aligned with charitable purpose.

Ensure the charity has a process that allows people to report suspected wrongdoing without fear, recrimination or disadvantage.

Taking action if something goes wrong

While good planning and the presence of good policies and procedures will reduce the chances of something going wrong, they will not entirely eliminate the risk.

A charity might have a plan to help manage the consequences of something going wrong. But if not, it should act to:

• prevent or minimise any further loss or damage
• report the incident to the responsible authority (for example, the police) if required
• plan any statements to the media, the public or its own staff and volunteers
• update its risk management plan and take reasonable steps to prevent the incident from re-occurring.