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About the organisation

An organisation working with Indigenous and Torres Strait Islander peoples applied to the ACNC for charity registration. The organisation’s governing document stated that its purpose was to relieve the poverty, distress, or disadvantage of Aboriginal and Torres Strait Islander peoples by supporting social and economic development.

To achieve its purpose, the organisation stated it would provide vocational training and training in core life skills to Indigenous peoples.

Additionally, the organisation stated it would promote Australian Indigenous culture and encourage participation in the arts – including literature, music, the performing arts, and visual arts.

About the application

The organisation applied to be registered with the following subtypes:

  • advancing education
  • advancing social or public welfare, and
  • advancing culture.

The organisation’s governing document contained clauses requiring it to operate on a not-for-profit basis, and to provide surplus assets to a charity upon winding up.

Its governing document and associated submissions demonstrated that it complied with the ACNC Governance Standards.

About the registration process

The ACNC was satisfied that the organisation:

  • had charitable purposes for the public benefit,
  • was a not-for-profit entity, and
  • complied with the Governance Standards.

However, other aspects of the application raised potential concerns. We needed more information about these before we could register the organisation as a charity.

Our concerns

The organisation stated that it planned to work with, and ultimately purchase, another business in order to carry out its activities. The business manufactured cultural items and artwork and was owned by one of the organisation’s Responsible People.

This raised concerns that the Responsible Person may receive private benefits in the form of financial gain either via referrals from the organisation, or from the purchase of the business.

Private benefits occur when a charity's resources are used to benefit people other than the charity’s beneficiaries.

Private benefits can be obtained through money, goods, services or anything else a charity has or provides.

Charities must be for the public benefit, meaning they must benefit the general community or a section of the general community. A charity may only confer private benefits if those benefits are incidental or ancillary to achieving its charitable purpose.

An organisation that exists solely for private benefit cannot be a charity.

Discussions with the organisation

We sought more information from the organisation about how it planned to work with the business to deliver programs, and how it planned to purchase the business on an arms-length basis, considering the business was owned by one of the organisation’s Responsible People.

We asked the organisation to explain:

  • how it intended to address any potential related party transactions between itself and the business, and
  • how it was going to disclose and manage any conflicts of interest that may arise due to the business being owned by one of the organisation’s Responsible People.

For small charities, a related party is generally a person or organisation that is connected to the charity and has significant influence over it.

For medium and large charities, a related party is more formally defined through Australian Accounting Standards. That definition is a broader one encompassing individuals and organisations that have links to the charity in question.

For charities of all sizes, a related party transaction is a transfer of resources, services, or obligations between related parties.

For a charity's Responsible People, a conflict of interest occurs when their personal interests conflict with their responsibility to act in the best interests of their charity.

ACNC Governance Standard 5 requires charities to take reasonable steps to ensure their Responsible People comply with a range of duties. These include acting honestly and in the best interests of the charity, and disclosing conflicts of interest.

Through email and telephone communication, it became clear that the organisation’s Responsible People were unsure how to identify and manage conflicts of interest.

We provided guidance to the organisation regarding how to identify a conflict of interest and appropriate measures for managing different kinds of conflicts of interest, including related party transactions.

We also provided information about how the organisation could ensure that any private benefits that occurred were incidental to achieving the charity’s purposes.

The outcome

Following our discussions with the organisation, it advised us it no longer planned to purchase the business.

The organisation also confirmed that it would not collaborate with the business, or any other private businesses belonging to its Responsible People, to deliver its programs.

We accepted that these actions addressed our concerns and registered the organisation as a charity.