Not for Profit Sector: (Give More) Time For Change

While the Federal Government’s reform proposals for the Not for Profit sector are commendable, the manner in which the Government has set out to ‘operationalise’ these proposals is concerning, says Alex Malley the CEO of international accounting body, CPA Australia.

OPINION: Australia is one of the most charitable countries in the world, coming in at number three, according to a recently-released World Giving Index, which compares the ‘giving’ activities of people in 153 countries. This ‘giving’ score averages ‘giving money’, ‘giving time’ and ‘helping a stranger’ in arriving at the rankings.

When it comes to ‘giving money’, the global financial crisis has caused a tightening of the purse-strings; in spite of this, Australia continues to be a world leader in providing overall support to the charity sector. This enviable position renders oversight of this sector even more critical. The robustness of the regulatory framework for the 600,000 plus Not for Profits in Australia that undertake a range of philanthropic activities and deliver community-based services is crucial to ensure the public benefit of this sector is not compromised.

The good news for Australia is the establishment of the Australian Charities and Not-for-profits Commission, which heralds a new era of federal oversight for the charities and Not for Profit sector. Current regulation of this sector is largely through various state and territories legislation, and at the national level by regulators, including the Australian Taxation Office and the Australian Securities and Investments Commission. The introduction of this new national regulator, and accompanying legislation to unify what is essentially a collection of disparate regulations that vary from state to state, are welcome proposals for much-needed reform in this sector.

The not-so-good news is that while the Government’s reform proposals are commendable, the manner in which the Government has set out to operationalise these proposals is concerning. After waiting this long for reform, it is now simply in too much of a hurry. Recently the government announced a three-month extension of its original commencement of the Australian Charities and Not-for-profits Commission from 1 July to 1 October, but this does not buy enough time to get things right. With less than eight months to go, much still needs to be achieved in establishing the new regulator and attendant legislation.

Of particular concern is the Government’s methodology; since it adopted a high level principles-based approach to the reforms, logic would suggest the formulation of these overarching principles first, followed by the supporting rules and legislation. Instead, the approach has been to consult stakeholders on what the high level principles should be, while simultaneously consulting on the rules and legislation that will be based on these high level principles.

Another issue is that due to the short timeframe, only certain aspects of the framework are being subject to open public consultation, with many elements of legislation and regulations, such as the establishment of duties and the powers of the officers of registered entities, expected to be excluded from this process. Many of the organisations that will be affected are not being afforded an adequate chance to participate in the formation of this national regulatory framework.

The government has stated that the Commission’s objective will be to focus on education and support, with enforcement for non-compliance only being resorted to in rare circumstances.

However, it is unlikely to work this way once in law when the usual regulatory bureaucracy takes over, and trustees and others responsible for compliance with the new regulations will have to implement systems and policies within very tight timeframes in preparation for the new requirements in October. They will also have an obligation to familiarise themselves with the requirements of the new framework – a framework that is not yet developed. The Commission taskforce is attempting to address some of these issues and is undertaking a series of community consultations, but the fact that the regulatory framework is not yet complete will mean that those affected will run the risk of receiving insufficient education and training.

One of the objectives of the new national regulator is to act as a “one stop shop” so that registered entities won’t have to duplicate their efforts in regulatory filings and other obligations. In theory, this is an excellent proposition that should substantially reduce bureaucracy and red tape. However, for the “one stop shop” approach to work successfully, the cooperation of the states and territories is essential.

Treasury is involved in negotiations with state regulators for the transfer of power to the national regulator, but given the significant intricacies involved in this exercise, it seems highly unlikely that this will be completed by the beginning of October. This leaves charities with the prospect of having to, at least initially, double up their efforts to comply with the existing state based regulatory requirements and the requirements imposed by the new national regulator. Surely this sector should be concentrating on their primary function of delivering much-needed services to the community?

While the time extension may help, there is still a high risk of additional regulatory burden from rushing through reform proposals that lack clarity and completeness. Delaying implementation further will ensure adequate consultation and input from sector stakeholders, and education and training for those affected. It will also allow for cooperation from other regulators who currently have responsibility for oversight of the sector.

As we’ve seen with other government initiatives, there is nothing worse than good policy intentions being derailed by well-meaning but ineffective implementation. Building encouragement and support for the reforms through a sound governance framework ultimately will ensure adequate assistance for those in the community sorely in need of it.

Alex Malley FCPA is the CEO of CPA Australia, one of the world's largest accounting bodies with a membership of more than 139,000 finance, accounting and business professionals across the globe.