Compliance reviews

In this review, we focused on safeguarding, which can be defined as protecting the welfare and human rights of people that are, in some way, connected with a charity or its work – particularly people that may be at risk of abuse, neglect, or exploitation.

Best practice for safeguarding is not limited to a charity's beneficiaries or the uses of its services; it can include a charity’s staff, volunteers, and third parties connected to the charity, such as suppliers and partners.

Safeguarding is an important focus area for the ACNC because ineffective safeguards can result in an increased risk of harm to people.

Review focus

We reviewed charities that faced safeguarding risks. Our review focused on how charities:

1. ensure people are suitable to be involved with the charity
2. identify and manage safeguarding risks
3. ensure their Responsible People understand and meet legal obligations to safeguard its people
4. allow people to raise concerns and report incidents and allegations of wrongdoing.

Key findings

The key lessons from the review were:

• Charities that engaged with the wider charity sector, or their specific sector (e.g., the disability sector) were able to share knowledge and resources. This reduced the individual burden on each charity.
• Strong safeguarding requires charities to take the time to establish appropriate processes, systems and procedures. The ACNC has existing resources, including templates and guidance, to help charities meet their safeguarding obligations. Smaller charities may also benefit from working with larger, more experienced charities and peak bodies.
• The charity sector acknowledges the importance of safeguarding and understands the risks of poor safeguarding.
• Safeguarding was often reflected in a charity’s culture but was not always documented in formal policies and procedures. This resulted in inconsistency in addressing safeguarding risks.
• Most charities were aware of their various legal obligations in relation to safeguarding. However, these obligations were rarely collected in a single place, such as a ‘legal obligations register’. This made it difficult to keep on top of changes to relevant legislation.

Safeguarding is part of a charity’s primary duty of care. To learn more about your charity's obligations, see our Governance Toolkit: Safeguarding vulnerable people.

Founders often bring great passion and drive to a charity and improve its ability to achieve its mission. But if a founder maintains disproportionate power and influence over a charity and its board, our review shows it can create a governance risk for that associated charity.

The authority for a charity’s governance should rest with the entire board, which should act in the best interests of the charity.

Power and influence should not be weighted strongly towards a particular individual.

Governance problems can arise when a charity’s people place a disproportionate amount of trust in, and reliance on, a founder – for example, allowing them to control the direction of a charity and make all the decisions without any formal processes or input from others. This is sometimes called ‘Founder’s Syndrome.’

Our review into charities where founders maintain key roles focused on three areas:

1. the role of the founder, and how that role has changed over time
2. the charity’s financial management, as well as how it ensures its operational decision-making is in its best interests (for its particular charitable purpose), and
3. how the charity manages conflicts of interest and related party transactions.

Our compliance reviews identified areas of concern in relation to governance experienced by some charities with founders who maintained key roles:

• financial management
• conflicts of interest and related party management
• independent oversight and decision-making
• record-keeping.

These issues can more commonly occur in smaller charities that have an overreliance on the founder being ‘hands on’ in their day-to-day activities, and that did not demonstrate good governance and robust decision-making processes.

During our compliance review we identified more specific issues that could cause risks for charities. They included:

• the founder appointing friends and family to boards, rather than making appointments based on charity needs and skills required for good governance
• charity activities evolving over time and not being aligned to the charitable purpose for which the charity is registered
• poor financial management practices, including a lack of independent and proper financial oversight, especially in the areas of charity income and expenditure
• a failure to have, or adhere to, decision-making policies and procedures
• a lack of objective and independent decision-making to ensure the charity’s best interests were maintained
• a failure to recognise and manage conflicts of interest and related party transactions where the founder had a relationship with people and businesses connected to the charity
• decisions about remuneration paid to founders in paid positions lacked evidence of objective and independent decision-making
• a failure to keep proper records.

In a few cases, charities used family connections to source services that were then provided to the charity for a fee.

While charities felt this provided an efficient and cost-effective solution for the charity, they were unable to demonstrate measures that showed transparent and independent decision-making, and that the charity’s best interests were being considered and maintained through the arrangement.

Such measures could include proper tendering processes or obtaining independent quotes for services, rather than automatically awarding contracts to related parties.

We were pleased that some charities had already taken steps to mitigate risks associated with retaining a founder on their board well beyond the start-up phase. In some cases, the founders themselves identified risks and took steps to recruit the right people with appropriate skills to the board.

Where improvements were required, we encouraged charities and their board members to complete relevant ACNC online learning modules. These modules help charities understand their obligations and provide guidance on steps they can take to ensure good governance practices.

Below are steps a charity can take to ensure good governance while a founder remains in a key leadership role:

• Engage a diverse and appropriately skilled board, with skills and experience appropriate to charity needs. This includes ensuring a majority of charity board members are not related to the founder through family or personal relationships.
• Have robust policies, procedures and processes to ensure good governance. Any policies, procedures and processes should also provide charities with guidance on what to do in circumstances where people – including founders – are not doing the right thing.
• Ensure robust strategic planning processes.
• Establish clear succession planning processes which sees a charity envisaging what it will be like without its founder and then putting in place strategies to ensure continuity and viability.
• Establish strategies to identify and protect intellectual property of high value, or critical to the charity.
• Ensure any decisions about contracts awarded to, or remuneration paid to, founders or their family members, are made transparently by people not related to founders or their family members.
• Ensure steps are taken to appropriately manage conflicts of interest, and ensure that founders do not improperly influence decisions.
• Ensure independent people manage any founder that might be in a paid position with a charity. This includes ensuring a founder is accountable for their performance through the use of documented performance measures and expectations.
• Ensure someone other than a founder is responsible for oversight of expenditure, and that expenditure is reviewed by independent people with relevant skills – for example, the treasurer.

Our data analysis indicated that problems with sustainability or compliance can first emerge three or four years after a charity’s establishment.

We identified several warning signs among charities:

• a decline in revenue
• reduced volunteer support
• failure to submit Annual Information Statements.

Our review work focused on charities registered in the previous four years, and whose revenue had recently declined.

These findings are informing the guidance we provide to charities.

There are many ways Australian charities help vulnerable children in overseas countries. These include supporting orphanages and other institutions, as well as running programs focused on health, education and protection.

But undertaking this work creates an obligation on these charities to ensure their funds are used appropriately, and that vulnerable children are protected.

We reviewed 17 charities identified as helping vulnerable children overseas, 10 of which supported orphanages or similar institutions. And we found that while most had satisfactory governance, there was room for improvement.

We assessed three charities as having inadequate governance, and have since provided them with guidance on addressing their specific issues.

The key findings were that:

• most charities were not only aware of the significant safeguarding risks that went with their work, but also managed them effectively
• charities relied heavily on overseas partner charities’ governance practices. While this reliance can produce satisfactory outcomes, Australian charities can improve risk management and safeguarding by having their own processes to review the performance of overseas partner charities
• some charities had other, larger Australian charities that were members of the Australian Council for International Development (ACFID) implement their programs. Doing so provided levels of governance they could not deliver themselves
• charities usually exhibited responsible financial management.

We developed and delivered a communications strategy for those Australian charities that supported children overseas.

The strategy included:

• updates to guidance, with the addition of relevant case studies
• a direct mail campaign to remind charities of their obligations, and to encourage them to read the guidance the ACNC had available
• a campaign aimed at promoting our findings to charities, as well as promoting best practice.

Key lessons from the review were that:

• charities that worked with vulnerable children overseas should understand beneficiaries’ needs and ensure their programs protect them
• charities that worked with partner organisations overseas must ensure they have oversight of the partner’s activities. This includes ensuring there are measures to protect beneficiaries, to account for funds, and to document outcomes
• charities must assess risks associated with overseas activities and implement appropriate policies and processes for managing those risks.

We regularly analyse data to identify risks in the charity sector. This is turn helps us focus our compliance work on areas of highest risk.

Our analysis indicated that charities with large boards were more likely to face issues of non-compliance. However, this finding did not match our experience regulating the sector.

To test the finding drawn from our data analysis, we reviewed a selection of charities with large boards. And counter to our analysis, the review concluded that there was no correlation between large board size and non-compliance.

This saw us change our risk profiling method to improve how we selected cases for investigation or other compliance work.

Investigations are our key mechanism for addressing non-compliance – and help us maintain public trust and confidence in charities – so it is crucial that we maximise the effectiveness of this work.

In this review, we assessed how charities that responded to the 2019-20 bushfires directed their resources to help support affected Australians.

We examined this group of charities because of both the significance of the disaster, and the public criticism of charities’ response.

We initially reviewed three high-profile charities that received significant levels of donations. The reviews found that these charities’ responses had been appropriate because they had:

• specifically set aside funds for disaster response
• effectively planned their response and the use of funds
• prepared for a long-term response to address the ongoing effect of the bushfires
• put processes in place to prevent fraud.

We detailed these reviews in our public report Bushfire Response 2019-20 – Reviews of three Australian charities.

The key lessons were that:

• despite pressure to act quickly during a disaster, charities must plan the allocation of their resources so they can provide funds both immediately and then respond to longer-term community needs
• charities must keep donors informed about how they are using donated funds
• charities must use donated funds only for the charitable purposes stated in their constitutions
• members of the public should check the ACNC Charity Register to see if an organisation is a registered charity before making a donation
• because third-party fundraising campaigns are often not controlled by charities, members of the public should check that the charity they want to support endorses a campaign before they donate
• significant increases in donations often require charities to scale up operations. If this occurs, charities should be prepared to bring in support to manage these changes, and to ensure adequate financial and governance controls are in place
• it is legitimate for charities to incur reasonable costs associated with delivering services
• charities must conduct appropriate fraud-prevention checks before using donated funds.

Our findings were communicated through a promotional campaign that included a nationally syndicated media release and radio grabs.

The ACNC Commissioner wrote an opinion piece published in The Australian, as well as a column outlining the findings and key lessons that was then sent to all charities.

We also produced a webinar and three podcast episodes on the topic.

Subsequently, we reviewed five more charities’ responses to the 2019-20 bushfires. We were similarly satisfied that they responded appropriately and used donated funds effectively.

Because there were no significant new findings, we did not publish an additional report. However, we did provide public comment on the outcome of this set of reviews.

Our findings can be applied to any charity involved in any disaster response, such as the 2022 floods in New South Wales and Queensland.

The need for charities to act diligently and to plan and target their response remains relevant. By doing so, those charities involved in disaster response will be able to better help affected communities and work to maintain public confidence in their capabilities.

These lessons have been incorporated into our guidance, and into our advice and support messaging on disaster relief and recovery.

We continue to see the value of this report through its ongoing citation in media discussion of charity disaster response. It has helped the public better understand how charities work and has helped support public confidence in charities that engage in disaster response and recovery.