Charities regulator reprieve

Assistant Treasurer Josh Frydenberg has now confirmed what most in the not-for-profit sector have long suspected: the Australian Charities and Not-for-Profits Commission is here to stay.

Social Services Minister Scott Morrison had already given indications that he was unlikely to follow through on his predecessor Kevin Andrews’s commitment to the abolition of the ACNC, and now the assistant treasurer has expressly reassured the commission and the sector that “it is not a priority for us to proceed with it at this time.”

To start with the upside: This backdown will bring some much-needed stability to the NFP sector, which has been justifiably uncertain about what sort of regulatory regime it will face in six, twelve, or eighteen months’ time.

However, the concerns that led Kevin Andrews to press for the ACNC’s abolition in the first place—that the commission is a solution in search of a problem, for example, or that other Commonwealth countries have discovered problems with this model of charities regulation—remain valid.

Now that the ACNC is safe, it should focus on making sure that its critics’ worst predictions do not end up coming true.

The first piece of advice that the ACNC should keep in mind is: Don’t let the enforcement side of your mission come into conflict with the advisory side, or vice versa. This concern isn’t speculative—it is based on the experience of the Charity Commission for England and Wales, which has been slammed as a poor performer by report after report from such bodies as the National Audit Office and the parliamentary Committee of Public Accounts. The latter went so far as to call the commission “not fit for purpose” in 2013.

The UK charities commission, like the ACNC, was designed with multiple purposes in mind. The first was enforcement—busting fraudsters, tax scams, and the like. The second was more advisory in nature. Many charity operators are volunteers, part-timers, or just dedicated amateurs, and many charities—small ones especially—lack the budget to hire outside advisors to help them navigate the complexities of incorporating, getting a license to fundraise, striking the correct legal balance between commercial activities and charitable expenditure, and other regulatory challenges. The idea was that a charities commission could help answer these kinds of inquiries.

In practice, these two missions worked at cross purposes. British charities were reluctant to approach the commission for advice, for fear that well-intentioned inquiries would invite an official investigation. As one think tank report put it: “If a member of the public wished to seek advice about the legality of an activity, he would go to a lawyer rather than to the police.” This was one reason why Kevin Andrews favoured replacing the ACNC with a centre of excellence, which could concentrate on advising charities and leave enforcement to other government agencies.

The ACNC has done a good job so far of making clear to Australian charities that, when a problem arises, its first preference is for collaborative solutions—as in the case of the Yipirinya School in Alice Springs. The commission ought to guard this reputation, because if charities start to fear it more than they trust it, its advisory mission will become impossible.

The second thing that the ACNC should keep in mind is not to start deregistering charities just for the sake of giving itself work to do. This was one of the criticisms that led the Key government to close down the New Zealand Charities Commission and hand its responsibilities to another agency. The NZCC, to put it bluntly, had made a nuisance of itself. Highly respected charities like Business Mentors NZ and a branch of the Rotary Club found themselves abruptly deregistered, not for any malfeasance but over niggling quibbles about whether their activities fit the technical definition of “charitable purpose.” The commission had to spend over $100,000 defending these controversial deregistration decisions, often unsuccessfully.

The truth is that charity fraud is very rare, and it is entirely likely that only a tiny handful of charities per year will need to be deregistered for reasons of fraud. Labor assistant treasurer Andrew Leigh has credited the ACNC with “protect[ing] Australians from scammers,” but charities simply don’t fit the criminological profile for a successful scam. A good scam involves big sums from a small number of marks, not small sums from many marks, because the wider the net is cast, the more likely a scammer is to get caught. The big fields for scams are those where it is easy to make the mark feel desperate, like online dating and get-rich-quick schemes—not charitable donations.

The ACNC has so far been quite aggressive in deregistering charities. Perhaps it wanted to demonstrate its value by deregistering several charities, in order to persuade the government that it was too important an agency to abolish. If so, the ACNC should ease up now that its position is more secure.

The last item for the ACNC to remember is: Don’t let the red-tape-cutting part of your mission fall by the wayside. Supporters of the ACNC often cite the survey conducted by Pro Bono Australia showing 80 percent support for the ACNC among sector respondents. This support is likely attributable, in large part, to the ACNC’s promise that it will cut red tape, since an earlier Pro Bono survey showed that 93 percent of respondents ranked “the reduction in government red tape and compliance costs” as the most important initiative in the sector.

But so far, the ACNC-mandated “Annual Information Statement” that charities now have to fill out has gotten longer, not shorter, and the flagship project of the ACNC has been its online Charity Register, not the Charity Passport. Now that the uncertainty about its future has finally been dispelled, the ACNC should refocus its efforts on the aspect of its mission that charities themselves consider most important—cutting red tape and freeing up time and effort for charities to focus on doing good.

Helen Andrews is a Policy Analyst at the Centre for Independent Studies