External Conduct Standard 3: Anti-fraud and anti-corruption

External Conduct Standard 3 requires a charity to take reasonable steps to:

• minimise any risk of corruption, fraud, bribery or other financial impropriety by its Responsible People, employees, volunteers and third parties outside Australia, and
• identify and document any perceived or actual material conflicts of interest for its employees, volunteers, third parties and Responsible People outside Australia.

Purpose of this standard

The purpose of External Conduct Standard 3 is to give the public confidence that a registered charity with operations outside Australia is managed in a way that ensures:

• it is solvent
• risks to its assets are minimised
• the charity and its resources are furthering its purposes
• it is operating in a way consistent with its purpose and nature as a not-for-profit.

This standard is intended to ensure a charity takes steps to minimise the risks that come with operating outside Australia, and particularly the risk of resources being stolen or misused for illicit or illegal purposes.

Fraud, corruption and bribery

Fraud occurs when someone acts in a dishonest or deceptive way to gain a benefit, or so that someone else experiences a loss. Fraud can occur when:

• making decisions
• handling information
• managing and using funds
• managing property and other assets.

Corruption refers to dishonest or illegal behaviour for private gain, especially by people with power or influence. Some charities may operate in countries or regions with a high degree of corruption.

For the External Conduct Standards, bribery occurs when someone offers money or something of value to a public official to persuade them to do something in their official duties that they would not otherwise do for an advantage. See the definition of bribery as used in the Criminal Code Act 1995 (Cth).

Fraud, corruption and bribery can occur in any organisation, including a charity.

Having suitable policies and procedures to combat these threats will help a charity reduce the chance of:

• losing money through fraud or other financial misconduct
• contributing payments or other gifts, knowingly or unknowingly, to corrupt people or organisations
• damaging its reputation and losing funding
• regulatory action being taken against the charity.

Conflict of interest

Conflict of interest occurs when someone’s personal interests conflict with their responsibility to act in the best interests of their charity.

A conflict of interest in a charity can involve Responsible People, employees, volunteers or third parties working with the charity.

A conflict of interest may be actual, potential or perceived, and may be financial or non-financial.

Governance Standard 5 requires a registered charity to take reasonable steps to ensure its Responsible People disclose any perceived or actual conflicts of interest.

Some conflicts of interest are unavoidable, especially in situations where activities are carried out within a small community.

This standard does not require a charity to completely avoid or remove conflicts of interest. Each charity should identify and document conflicts of interest, and then manage the issue so it does not affect the charity’s decision-making.

For more information, see our guide on managing conflicts of interest.

Reasonable steps to meet this standard

The ACNC does not prescribe what a charity must do to meet External Conduct Standard 3. Based on its own circumstances, each charity must decide the appropriate action required.

The ACNC expects each charity to consider the risks of fraud and other financial impropriety associated with its overseas activities – including those conducted in collaboration with a third party.

The reasonable steps that a charity takes, and the procedures it maintains, 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:

• its size and the number of staff and volunteers it has
• the effectiveness of policies and procedures that govern its activities
• the nature, scale and complexity of its overseas activities or funding
• its level of knowledge and experience in managing similar projects or activities
• the location of its activities, and actual or perceived corruption levels in those regions
• its need for permissions, licenses or other approvals from overseas government bodies
• its work with third parties, particularly arrangements for third party payments
• how it identifies and manages conflicts of interest
• issues with previous overseas activities.

Ways to meet this standard

The actions a charity takes to meet External Conduct Standard 3 will depend on its individual circumstances.

As a first step, a charity should identify and assess the risks of fraud or other financial impropriety it faces when carrying out its work overseas, and develop a plan to manage these risks. Some things that a charity can do to manage risks include:

• having clear policies and adequate controls for proper and ethical financial management
• ensuring staff, volunteers and others that work with the charity are familiar with the policies
• establishing thorough and appropriate recruitment procedures for staff and volunteers, particularly for anyone with financial or project oversight
• supervising staff involved in fundraising, managing money or financial reporting
• keeping detailed financial records and regularly check financial statements for any signs of financial wrongdoing
• having a way for staff, volunteers and others that work with the charity to report suspected wrongdoing without fear, recrimination or disadvantage
• implementing a clear conflicts of interest policy, and keep an updated conflicts of interest register
• addressing any conflicts of interest when selecting third parties
• thoroughly checking a third party's reputation and experience before choosing to work with them
• making ethical conduct and good financial oversight key criteria when selecting partners
• ensuring there is a clear written agreement with each third party that sets out the functions and responsibilities of the people involved, and properly monitors activities.

Most of these actions are simple and, where appropriate, most charities will be able to do them. But if you think your charity doesn’t have anyone available with enough knowledge and experience, it is a good idea to seek expert help or advice.