Where do the External Conduct Standards come from and what is their purpose?
The Australian Charities and Not-for-Profits Commission Act 2012 requires that all not-for-profit entities comply with the Governance Standards and External Conduct Standards introduced under the Act in order to obtain and maintain their ACNC registration. While the Governance Standards have been in place since July 2013, the External Conduct Standards only came into force on 23 July 2019.
The External Conduct Standards operate to regulate the conduct of Australian not-for-profits or charities when operating external to, or in connection with activities operating external to, Australia. Not only is compliance with these standards important for obtaining and maintaining ACNC registration but, in our view, the standards articulate important issues that all charities need to be aware of and manage in their support of charitable work taking place overseas, to ensure that their financial and other resources are being used properly and effectively for the purposes for which they are intended, and to prevent misuse and abuse not only of those resources but also of the persons or objects which the charity aims to assist or otherwise effects.
What are the External Conduct Standards and how do they apply?
There are four External Conduct Standards provided for in the Australian Charities and Not-for-Profits Commission Regulation 2013. These standards came into force on 23 July 2019 and apply to all registered charities regardless of structure or type.
Unlike the ACNC Governance Standards, the External Conduct Standards also apply to basic religious charities, including churches.
The External Conduct Standards require charities to take reasonable steps to ensure appropriate standards of behaviour, governance and oversight when undertaking activities or providing funding or other resources (including people) overseas.
A charity will generally be considered to operate outside Australia even if its overseas activities are just a minor part of its work or if it only sends a small amount of money overseas. This is true even when such activities are conducted through a third party, so long as there is some kind of arrangement between the Australian charity and the end project. An example of such an arrangement might be sufficiently established, for example, where a not-for-profit commissions volunteers for an overseas project, refers to the end project in minutes or other charity records and/or promotes the end project to independent donors.
If the third party carrying out or responsible for the overseas activities is itself a registered charity, the donor charity cannot rely on that alone and must still take the reasonable steps required. This could include verifying that the third party charity has appropriate policies and procedures in place, and checks or audits for implementation.
What is considered to be reasonable steps will vary depending on a charity’s particular circumstances, such as its size, the sources of its funding, the nature of its activities and the needs of members, donors, employees, volunteers and recipients.
Risks of not complying
A charity risks losing registered charity status with the ACNC and the funding and taxation benefits that come from that if it does not comply with the External Conduct Standards. It also risks exposure to other civil or criminal laws for negligent or reckless indifference to likely outcomes of the charity’s failure to put safeguards in place and for causing or allowing the very harms to take place that these standards are developed to prevent.
Related provisions under the ACNC legislation
Charities will need to consider the effect of the commencement of these standards for their record keeping obligations to show compliance, their Annual Information Statements and their notification duties under the Act.
If you are involved in the running of a registered charity with any kind of overseas activities or support for overseas activities, we recommend that you assume that the standards apply, ensure that your charity informs itself of the external conduct requirements and determines and implements steps as may be reasonable to the circumstance of your charity and those activities.
Content of External Conduct Standards
Standard 1: Activities and control of resources (including funds):
- take reasonable steps to ensure activities are consistent with the charity’s purpose and character as a not-for-profit
- maintain reasonable internal control procedures to ensure that funds, equipment, supplies and other resources are used consistently with the charity’s not-for-profit purpose and character, and
- take reasonable steps to ensure that funds, equipment, supplies and other resources provided to third parties outside Australia (or within Australia for use outside Australia) are applied:
- in accordance with the charity’s not-for-profit purpose and character, and
- with reasonable controls and risk management processes in place.
- comply with Australian laws in the following areas while operating overseas: money laundering, financing of terrorism, sexual offences against children, slavery and slavery-like conditions, trafficking in individuals and debt bondage, people smuggling, international sanctions, taxation, and bribery.
Standard 2: Annual review of overseas activities and record-keeping:
- obtain and keep records for operations outside Australia, with information necessary to be able to prepare a summary of activities and related expenditure outside Australia on a country-by-country basis
- keep records for each financial year in which the charity:
- operates outside of Australia, or
- gives funds or other resources to third parties for use outside Australia
Standard 3: Anti-fraud and anti-corruption
- take reasonable steps to:
- minimise any risk of corruption, fraud, bribery or other financial impropriety by Responsible Persons, employees, volunteers and third parties outside Australia, and
- identify and document any perceived or actual material conflicts of interest for employees, volunteers, third parties and Responsible Persons outside Australia (note: material conflicts of interest must be disclosed under the Governance Standards).
Standard 4: Protection of vulnerable individuals
- take reasonable steps to ensure the safety of vulnerable individuals overseas, where the individuals are:
- being provided with services or accessing benefits under programs provided by the charity (whether directly or through collaboration with a third party); or
- engaged by the charity, or a third party in collaboration with the charity, to provide services or benefits on behalf of the charity or third party.
- “vulnerable individuals” include children and other individuals who are unable to take care of themselves, or to protect themselves against harm or exploitation (permanently or temporarily)
This client briefing is not legal advice but for information only.
If the information contained in this client briefing has raised some concerns about your current arrangements and you would like legal advice, please contact our office on (08) 7120 9000 and ask to speak to Geoff Adams (Director).
We look forward to being of assistance to you.