NFPs Tied Up in Costly Funding Agreements: Report

The national charity regulator, the ACNC, has come out fighting for its future releasing a new report that shows Commonwealth funding agreement obligations are imposing a greater burden on charities than legislative obligations.

The report, Research into Commonwealth Regulatory and Reporting Burdens on the Charity Sector, by Ernst & Young (EY), claims there is significant scope for improvement of the regulatory and reporting environment faced by charities and Not for Profits.

The Australian Charities and Not-for-profits Commission (ACNC) said it commissioned the EY study to provide the national regulator with an independent empirical insight into the reporting and regulatory burden imposed on charities by the Commonwealth.

The report said the average Commonwealth burden was $18,000 for small charities (charities with revenue less than $250,000 per annum) and $235,000 for large charities (charities with revenue over $1 million per annum).

However, the EY report estimated the average annual burden imposed by ACNC reporting obligations was $150, or 0.1 per cent of total annual burden.

ACNC Commissioner Susan Pascoe AM said the report demonstrates that the ACNC is not the red tape problem.

“It is part of the solution. ACNC is the only Government agency required by its Act to promote the reduction of unnecessary regulatory obligations on the Not for Profit sector. We are doing that,” Pascoe said.

EY examined the experiences of 15 case study charities drawn from subsectors in which there was anecdotal evidence of significant red tape and where research on the burdens imposed was lacking: social welfare, other education (excluding schools and universities) and health/aged care.

They also estimated that the Commonwealth reporting burden on the 15 case study charities averaged $108,000 for the 2012-13 year, with between $27,000 and $38,000 constituting red tape.

EY said it also surveyed nearly 400 charities and analysed publicly available data.

Research into Commonwealth Regulatory and Reporting Burdens on the Charity Sector concluded that of the key sources of regulatory and reporting obligations faced by charities, fulfilling Commonwealth funding agreements imposed a far greater burden on charities than legislative requirements.

The report recommended that Commonwealth funding agencies and departments ensure their reporting and acquittal requirements align with the Commonwealth Grants Rules and Guidelines, and use key tools to reduce red tape, such as the ACNC’s Charity Passport and National Standard Chart of Accounts (NSCOA).

EY defined ‘red tape’ as regulatory and reporting obligations that are excessive, unnecessary or confusing.

The report estimated that 25 to 35 per cent of Commonwealth obligations constituted red tape, with funding agreement obligations being the key source.

The report also found:

Common sources of red tape for charities include:

• – overly-frequent reporting and excessive information requirements under funding programs

• – duplication of information required under multiple funding programs and across different levels of government

• – inconsistency in financial reporting requirements and processes across government; and

• – inconsistencies in key regulatory frameworks across the states and territories, particularly with fundraising and incorporated associations regulations.

• The Commonwealth burden is impacting on charities’ ability to achieve charitable outcomes.

• The ACNC should consider adopting an ‘honest-broker’ role to drive Government reforms to further reduce burden.

Susan Pascoe said EY was commissioned after the charitable sector asked for research into the sector’s reporting obligations.

“This research provides an evidence base to assist the ACNC to understand the source and scale of administrative requirements imposed on charities by government, and to clarify which of these requirements constitute red tape,” she said.

“One of the objects of the ACNC Act is to contribute to the reduction of unnecessary regulation on the sector, and we now have an empirical base on which to proceed,” Pascoe said.”  

The EY findings affirm the results of the recent Curtin University analysis of nearly 40,000 Annual Information Statements lodged by charities with the ACNC.

“The Curtin report found that of charities that said they had reporting obligations to Commonwealth agencies, most of these charities report in the areas of education, health or human services,” Pascoe said.

“The Curtin report also found that reporting obligations affect charities differently, with 10 per cent of registered charities experiencing about 80 per cent of the total reporting burden.

“The ACNC’s approach to red-tape reduction is two-fold: minimising our own regulatory requirements to those necessary to promote public trust and confidence in the sector and to support a robust and innovative sector; and working with other agencies to reduce unnecessary or duplicative administrative requirements imposed on the sector under the principle of ‘report once, use often’.

“In June, the ACNC launched our Charity Passport, which can be of particular value in reducing duplication associated with government grants.  

“In addition, as Commissioner, I have used my discretion and agreed to accept charities’ financial reports submitted to State and Territory regulators in place of ACNC annual financial reports for the 2014 reporting period. We also have arrangements for non-government schools and higher education providers to minimise their reporting.

“The ACNC will accept financial reporting provided to the Department of Education or Tertiary Education Quality and Standards Agency (TEQSA) as satisfying ACNC requirements for annual financial reports until at least 2014-15.

“The ACNC has also made available the National Standard Chart of Accounts (NSCOA), a data entry tool and data dictionary developed specifically for not-for-profits, providing a common approach to the recording and reporting accounting information, reducing the time and cost of preparing financial reports.

“Australian Governments have agreed to accept NSCOA when requesting information from Not for Profit and MYOB has given approval for its accounts and descriptions to be included in NSCOA.”