ACNC Approach to Governance Under Scrutiny

A lawyer that specialises in Not for Profit and charity law has questioned the role and approach of the Australian Charities and Not-for-profits Commission to governance issues in a case involving ‘rogue’ charity directors and allegations of financial mismanagement.

Derek Mortimer, the Principal at DF Mortimer & Associates, has written an occasional paper on governance for charitable institutions based on a case in which an honourary life member and former president of a disability support charity was facing “chronic generic allegations of financial mismanagement” by a fellow board member.

According to the paper, a group of “rogue directors” at the charity formed an “executive director” group, resolved to abolish the vice president position under the charity’s constitution, and suspended the aggrieved member as a director and as a member.

The paper said the rogue directors later purported to expel the aggrieved member entirely from the charity.

However according to Mortimer, despite the rogue director’s decision breaching, on plain reading, section 203E of the Corporations Act and the ACNC acknowledging that the issue was in its jurisdiction – the ACNC did not confirm whether it would address the issue.

Mortimer said the issue soon escalated when two weeks after a proposed meeting was organised and was to be convened by other members of the charity on the issue, the “aggrieved member” noticed their name as a “responsible person” had been removed from the charity’s web page at the ACNC.

“An inquiry to the ACNC by the aggrieved member, querying the integrity of the ACNC’s systems was acknowledged,” the paper said.

“The ACNC again stated it could not confirm how it would respond to this issue.”

“It’s not for me to tell the ACNC how to do their job however the opportunity was there to be grasped, if they had stepped in, to convene a meeting for all involved in this dispute,” Mortimer said.

“It doesn’t seem to have happened… This is not necessarily the ACNC’s fault but a consequence of them not stepping in.”

Mortimer also stated in his paper that the case was hardly a shining example of charity self-management as being promoted by Social Services Minister Kevin Andrews, who is leading the push for the removal of the ACNC.

“People within charities are very passionate about purpose and why they are there, which can spill over into different points of view, and ownership, and they can get a bit possessive,” he said.

“I am not convinced that Minister Andrews understands and appreciates internal disputes [within a Not for Profit] without proper guidance and mediation.”

An ACNC spokesperson told Pro Bono Australia News that its evaluation of this case was ongoing and it continued to receive and consider information from the disputing parties.

“We have applied our policies and procedures consistently in dealing with this case and we will continue to do so,” the spokesperson said.

“The ACNC has evaluated the case on which the paper is based. It concerned a dispute over who comprises the board of the charity.

“Generally, the ACNC does not have authority to resolve internal disputes. This is consistent with the powers of other regulators such as ASIC or Incorporated Associations Registrars.

“Our role is to ensure that the charity continues to carry out its charitable purpose and complies with the requirements of the ACNC Act.

“As a result of the dispute, we have withheld the names of the responsible persons on the ACNC Register until we can confirm who the correct responsible persons are. Both parties to the dispute have been advised of this.”

The spokesperson said that when an internal governance issue came to the ACNC’s attention, it assessed whether it relates to the charity’s obligations under the ACNC Act.

“Normally internal disputes fall outside of our jurisdiction and charities must resolve internal disputes themselves,” the spokesperson said.

“However charity governance is relevant to the ACNC Act because all registered charities (apart from basic religious charities) must meet five governance standards to maintain registration.  

“Charities must also ensure their officers, or ‘responsible persons’, comply with seven specific duties under our governance standards.

“The ACNC’s compliance team has reviewed over 300 charities in the last 18 months.  Almost all of our compliance cases involve governance issues.  

“The most common problem is when charities use funds inappropriately, and the second most common problem is when there is a lack of accountability to members, often because the constitution is not being followed.

“When the ACNC receives concerns relating to a charity’s governance we assess how significant the issue is and whether we, or another regulator, are best placed to take action.  

“Often we will provide regulatory advice and refer charities to our publications on good governance and published advice for meeting the governance standards.  

“However, if the governance issues appear to have caused serious mismanagement or misappropriation, a serious or deliberate breach of the ACNC Act, or if vulnerable people or significant charitable assets are at risk, then we will step in.”

To read Derek Mortimer’s occasional paper on governance for charitable institutions, see link below.