New External Conduct Standards for Australian Charities and Not-for-profits
21 Aug 19
On 23 July 2019, new regulations came into effect governing the ways in which a registered Australian charity or not-for-profit may operate overseas. Entitled the External Conduct Standards, these measures were introduced by the Australian Charities and Not-for-profits Commission (‘ACNC’) to ensure these organisations maintain minimum standards of behaviour, governance and oversight in their cross-border activities. This development comes after a series of ongoing concerns were raised concerning the risks of overseas operations including the potential for connection with illegal activities. Accordingly, as an initiative, the External Conduct Standards seek to improve transparency, accountability and overall public confidence in the Australian not-for-profit sector.
Who will they apply to?
The External Conduct Standards will apply to all entities registered with the ACNC that fund or participate in overseas activities. Notably, this includes charitable organisations with a relatively minor involvement and also those who conduct operations indirectly through a third party. To clarify, the ACNC has listed the following examples of international circumstances which would attract the External Conduct Standards:
- Funding overseas work;
- Sending donations to an overseas organisation;
- Managing overseas projects from Australia;
- Conducting activities online for people overseas;
- Working both in Australia and overseas; or
- Sending Australia-based beneficiaries overseas.
However, a registered entity’s overseas activities may be exempt if they are secondary and directly related to a purpose which is beneficial to the people of Australia. For instance, if a charitable organisation sent its Australian staff to an overseas conference or if it acquired foreign goods for a local project.
The External Conduct Standards at a glance
The new External Conduct Standards currently cover four key areas of:
- Activities and control of resources (including funds);
- Annual review of overseas activities and record keeping;
- Anti-fraud and anti-corruptions; and
- Protection of vulnerable individuals.
They operate in in a similar way to the existing ACNC Governance Standards in that both impose reasonable levels of oversight and standards of governance rather than specific steps for charities to take.
Activities and control of resources (including funds).
The first of the External Conduct Standards covers how entities manage their overseas activities and control the underlying resources. For instance, a charity or not-for-profit will now be required to:
- Ensure their overseas activities are in-line with their charitable purpose and character;
- Create and maintain internal procedures to ensure resources are used correctly;
- Minimise the risks created when resources are given to third parties; and
- Comply with a variety of different Australian laws concerning illegal activity such as money laundering, human trafficking and bribery.
As the broadest regulation, this External Conduct Standard was introduced to give the public confidence that registered charities and not-for-profits are operating correctly and with purpose.
Annual review of overseas activities and record-keeping
The second External Conduct Standard creates ongoing record-keeping obligations covering the following information on a country-by-country basis:
- The types of activities conducted outside Australia;
- How overseas activities achieve the purpose of charities and not-for-profits;
- Any and all foreign expenditures;
- Internal processes and procedures;
- Overseas third parties; and
- Documented claims of inappropriate behaviour by stakeholders.
By implementing this requirement, the ACNC is ensuring that charities and not-for-profits conduct their overseas operations with transparency.
Anti-fraud and anti-corruption
To target overseas financial wrongdoing, the third External Conduct Standard will require charities and not-for-profits to establish clear policies and procedures covering:
- Ethical financial management;
- Recruitment of staff and volunteers;
- Conflicts of interest; and
- Third-party due diligence.
In doing so, the entity will be taking reasonable steps to minimise the risk of fraud, corruption, bribery and other issues arising in the course of overseas activities. Furthermore, the new standard will ensure that these charities and not-for-profits remain accountable for the actions of their stakeholders.
Protection of vulnerable individuals
The final External Conduct standard covers how affected charities and not-for-profits deal with ‘vulnerable individuals’ overseas. The ACNC defines a ‘vulnerable individual’ as a person under the age of 18, or someone who may be unable to take care of themselves due to age, illness, trauma, disability or some other disadvantage including an inability to avoid harm or exploitation.
Where a vulnerable individual is being provided with services, accessing benefits or collaborating with an affected entity, the entity must now ensure that it has identified and assessed the risks involved and developed an effective plan to manage those risks. Some examples of this area of risk management include:
- Protection of a vulnerable individual’s privacy;
- Codes of conduct for appropriate behaviour; and
- Frameworks for reporting and complaints.
Overall, the purpose of this standard is to ensure that charities and not-for-profits are operating overseas in a manner that is consistent with community expectations.
Takeaway – how they affect charities and not-for-profits
For charities and not-for-profits, the new External Conduct Standards bring about an additional layer of compliance alongside the existing ACNC Governance Standards. In the short term, this development may create an administrative burden for these organisations, however, the extent of this will largely depend upon the size and scope of their overseas activities. Nonetheless, as compliance with the External Conduct Standards is now required in order for registered charities to remain registered, any charity or not-for-profit operating overseas should now begin reviewing their internal policies to discover what changes need to be made going forward.
This article was written by William Buisman and Stephen Etkind of Salvos Legal. Salvos Legal is an award-winning social enterprise that is experienced in not-for-profit, all areas of commercial, property and migration law. All of its profits from its commercial legal services are used to fund Salvos Legal (Humanitarian) which provides pro bono services to the disadvantaged community.