Uncharitable cut? Aust’s not-for-profits regulator stands tough

By Jason Whittaker

Friday October 24, 2014

Susan Pascoe
Susan Pascoe

Susan Pascoe’s Docklands office at the Australian Charities and Not-for-profits Commission in Melbourne overlooks a humble brick warehouse that houses one of Australia’s richest car collections. Lindsay Fox’s 50-odd prestige vehicles can be viewed for a few hours three times a week — with the $10 entry fee distributed to charities.

Fox probably doesn’t know the commissioner of Australia’s philanthropic sector looks down on his unlikely charitable venture. Most Australians might be surprised Fox’s shrine to his wealth would be under her purview, among some 60,000 charities listed on the ACNC database.

So what is a charity? “There’s a few basic criteria,” Pascoe told The Mandarin in an interview earlier this month:

“You must have a charitable purpose. You must operate on a not-for-profit basis. You must operate in the public benefit, so you can’t be operating for any private [means]. You can’t be a government body and, in fact, you can’t be an individual … You must have some kind of institution or status.

“But the interesting thing is, when you look at the Charities Act, is that it’s made it much more contemporary. Under the former statute of Elizabeth, there were so-called four heads of charity. So if you operated for the advancement of religion, the advancement of education, to assist people in necessitous circumstances, or a broad category, if you operated in the public benefit, then you can be deemed to be charitable. Now, there are 12 sub-categories of charity that include things like human rights organisations, environmental organisations and so on. And there’s also a switch in thinking that you’re not there just to remediate problems. You can be there for advocacy to prevent problems.”

Australians, by any recent measure, are a generous lot. Pascoe — with a background in the education sector and a recent history reviewing charities for the Victorian government and on the Commonwealth taskforce that set up the ACNC — reckons it’s innate. “I was brought up Catholic and so it’s certainly pretty much in your DNA,” she said. Our richest aren’t as generous, but she says that’s changing.

“Under the Howard government, they introduced a legal structure called a private ancillary fund which enables, it’s usually a family, to set aside a sum of money and have some direction where it’s distributed and it’s got to be distributed for other charitable purposes. Quite often, families want to have some control about the purposes for which the money is used. When the government’s community business partnership gets under way, I suspect we’ll see further initiatives in that area in the future.”

And while there are few global benchmarks, Pascoe’s experience is that the charities sector is in good shape. The public trust and confidence in charitable organisations — which the ACNC was partly designed to enshrine, alongside its role in building sustainability and reducing the regulatory burden — is already high, she says. The ACNC’s work in building a public register of charities — “we’re working really hard at the moment to make sure that the data on that registry is credible” — and handling public complaints (more than 1000 since the body was established in December 2012 — have enhanced that.

“So I think that for the first time it does give a really good oversight of the sector, and the profile of the sector. From next year, when all of the financials will be in and all of the governing documents will be in, then you’ll have an incredibly rich data set. Again, that’s for the first time. The ABS [Australian Bureau of Statistics] in the past has done its satellite account, and that’s been really useful, but that’s by necessity been a sample. And it’s been of economically significant organisations. When you look at the charity sector, 70% are small.”

For a sector that operates on trust, the ACNC has become an important flag for charities. The lobbying for their own regulator took two decades; six formal inquiries and a 2010 Productivity Commission report all called for the establishment of an independent regulator. When Labor set up the body, siphoning responsibility from the Australian Tax Office, the sector declared victory.

Now there is legislation before the Senate to abolish it. The Abbott government believes it’s a red tape burden for the sector; Social Services Minister Kevin Andrews told Parliament this week he wants to “break the shackles of red tape around the ankles of these agencies”.

Opposing or reducing the burden?

In fact, Pascoe says the opposite is true. An Ernst and Young report commissioned by the ACNC found the regulator is only responsible for 0.1% of the overall red tape burden. And Pascoe told a Senate estimates committee the regulator is saving charities $120 million a year by reducing compliance costs:

“If they had to self-report, not only do you have to add the cost of that reporting, but only 7% of charities have a website. So there would be a significant cost to them financially, and then the administration of a website, the IT systems required and the in-house expertise in small volunteer-based organisations would be considerable … in the consultation sessions we have done there is a generalised fear amongst the small charities that this impost could be coming.”

So what’s going on? Pascoe believes it comes down to political philosophy.

“There’s a preference for ministerial decision-making rather than statutory entities. There’s a preference for small government and, explicitly in relation to civil society, there’s a preference for government getting out of the way. There’s a view that charitable entities are inherently good, that they operate altruistically and that there’s no need for government oversight.”

Labor stands against abolishing the body it set up, and crossbenchers are jittery. Pascoe also points to another “significant development”: the ACNC has been able to help counter-terrorism efforts in monitoring the overseas activities of Australian-registered charities (17% of organisations have operations offshore). “I do think that that’s perhaps an element in the environment that wasn’t there,” Pascoe told The Mandarin of the politics around the organisation’s future.

Under the government’s plan, the ATO would resume compliance of the sector. That’s a problem, Pascoe says, because of an inherent conflict in the relationship.

“The primary purpose of the ATO is to protect the revenue base. Each time it assigns charitable status then a small bit of that revenue base is given away through tax concessions. Fairly or not, there’s a very strong perception that it’s conflicted in the work that it had been doing as the de facto regulator …

“Now if you fold the function back into an entity that has a very broad remit, I think it’s much harder to get that fit-for-purpose service that you can get in a small regulator. I think that that would be a concern.”

The ACNC has invested significantly in its database build — “and I wouldn’t say we’re there yet” — and interface for charities to register and everyone else to check the status of companies they may want to donate to or work for (about 1000 visits a day are recorded). The ATO handed the regulator 56,000 entries but the data was old. The cross-checking process — 44,000 have now lodged their 2013 annual information statements — continues. “There’s months still in that,” Pascoe said.

Importantly, the process is weeding out inactive and unlawful entities. Earlier this month the ACNC revoked the charity status of 388 organisations and published another list of 400 charities that face the same treatment if they don’t report in by November 24.

Under the government proposal, the register will be “archived”. “We think that would be quite unfortunate,” Pascoe said as diplomatically as possible.

What’s more, the ACNC has built a staff of around 100 specialists in Melbourne (it rents space from the ATO under a service agreement). “If that’s dispersed,” Pascoe said, “it’s going to be very hard at any time in the future to get it back.”

Pascoe says she’s given staff the commitment that “we would be here, if this is what it ends up being, until the end”. “I’ve said to the staff, ‘if we have to take down the shingle, I’ll take it down’. I think that gives the staff a sense of stability.” Weekly Friday meetings update the workforce on the latest political developments.

“The other thing is that we’ve said to them … the one thing that we can all do is do a good job. I think that keeps them focused … We began with this ethos of having a really client-centred approach anyway and a personalised service so that means they can keep doing that.”

Meanwhile, Pascoe is “literally planning for our own demise” in a “curious duality”. “We’re working with the ATO to plan for an ordinary transfer should the repeal bill be passed. But we have to be able to handle both … We try to keep a sense of solidarity.”

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Ted Flack
Ted Flack
6 years ago

Whilst the ACNC Register is a start, it’s a long way short of some of the claims made for it. It’s important to recognise that charities in Australia do not have to register with the ACNC to be legally recognised charities. Should they choose, they can continue to register only with their State and Territory charity regulators (it is a State responsibility under our Constitution) and it is only when they want to access Commonwealth tax concessions that they need to register with the ACNC. It it also possible for charities that are not registered with the ACNC to obtain the advantages of being able to offer donors tax-deductibility of donations (DGR status) by having a “partner” charity who is registered with the ACNC. This is not disclosed on the ACNC register.

The sensible process of reform of charity law in Australia (including transfer of regulatory powers to the Commonwealth) has been spoiled by failure to start with the transfer of the powers and then build a single national regulator. Instead what we now have is both State and Commonwealth regulation of charities. So far only South Australia and ACT have cooperated with the ACNC in red tape reduction (not elimination) of the duplication caused by charities having to register at both Commonwealth and State level.