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Compliance Issues for Charities

Compliance Issues for Charities. Uniting Church of Australia Investment Conference 25 May 2006 John R Rappell Director. Background. Emergence Consulting a specialised compliance firm.

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Compliance Issues for Charities

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  1. Compliance Issues for Charities Uniting Church of Australia Investment Conference 25 May 2006 John R Rappell Director

  2. Background • Emergence Consulting • a specialised compliance firm. • Our aim is to be part of the ongoing compliance management within pro-compliance organisations – particularly NFP, govt, financial sector. • We like to develop compliance systems with sufficient feedback to be self-correcting and sustainable • John Rappell • 10 years in financial markets • 10 years in industry policy, issues mgmt, govt advocacy • 5 years in consulting

  3. “HOW TO FIX THE NFP SECTOR”BRW 24-30 Mar 2005 • Set up a charities commission • Introduce new accounting standards to … recognise the three key business segments: producing funds, administering funds, spending funds • Amend the Corporations Act so that religious groups investment schemes are subject to full regulation • Force religious groups to pay tax on ventures outside charitable work • Introduce compulsory corporate governance guidelines for the NFP sector • Introduce laws that force companies to disclose their donations

  4. AGENDA • Compliance (LOL!) • AS 3806 – 2006 (Zzzz!) • NZ Charities Act 2005 • Tax Rulings – open discussion • Session finish 

  5. Compliance = Risk = Time • Costs of a clean-up outweigh costs of compliance 20:1 • Utah hospitals system • legal framework: • bare minimum, prescriptive, flawed, “last option”, opaque • Benefits of a compliance culture • moral framework: • aspirational, seeking “best practice” • Industry codes, good governance, codes of ethics & conduct, community expectations

  6. Compliance: Systems • Effective systems demonstrate effective management • Feedback loop (ie early reporting), self-correcting • Compliance Software • usually a document diary with reporting and escalation • Human systems • integrated or arms length? • Integrated into overall operations, not standalone, but independent; reporting lines • Internal (depth) vs external (width) • Australian AS 3806 -2006 (9 March 2006)

  7. AS 3806 – 2006:Released 9 March 2006 • Longer and more detailed than previous standard (1998) • 12 principles with dot point explanations • Very “linear” & one way • Responsibilities to cut & paste to job descriptions: • “Top management” • Compliance manager • Line manager • employee • Removed very useful Appendix A “Guidance for Small Business”  • Useful Handbook HB133-1999 no longer applicable 

  8. AS 3806 – 2006:COMMITMENT • Principle 1: Commitment by the governing body and top management to effective compliance that permeates the whole organisation • Principle 2: Compliance Policy aligned to the organization’s strategy and business objectives, and is endorsed by the governing body • Principle 3: Appropriate resources are allocated to develop, implement, maintain and improve the compliance plan • Principle 4: The objectives and strategy of the compliance program are endorsed by the governing body and top mgmt • Principle 5: Compliance objectives are identified and assessed

  9. AS 3806 – 2006:IMPLEMENTATION • Principle 6: Responsibility for compliant outcomes is clearly articulated & assigned (AS details minimum responsibilities) • Principle 7: Competence and training needs are identified and addressed to enable employees to fulfil their compliance obligations • Principle 8: Behaviours that create and support compliance are encouraged and behaviours that compromise compliance are not tolerated • Principle 9: Controls are in place to manage the identified compliance obligations and achieve desired behaviours

  10. AS 3806 – 2006:MONITORING & MEASUREMENT • Principle 10: Performance of the compliance program is monitored, measured and reported • Principle 11: The organisation is able to demonstrate its compliance program through both documentation and practice

  11. AS 3806 – 2006:CONTINUAL IMPROVEMENT • Principle 12: The compliance program is regularly reviewed and continually improved: • Particularly through compliance program review (ie audits)

  12. NZ CHARITIES ACT 2005Charities Commission (1 July 2005) • Promote public trust and confidence in charities • will register charities starting mid 2006 (to keep tax exemption) on an entity or group basis • Will assist charities to register & create a public access register • will monitor charities & enforce registration requirements • Annual returns incl reporting against charitable purposes • educate & provide guidelines on good governance and mgmt (eg “Keep it Legal” Dec 05) • Report to government & make recommendations

  13. NZ CHARITIES ACT 2005Common Law ‘Charitable Purpose’ Test A charitable organisation will have to have a purpose that either: • advances education; • advances religion; • relieves poverty; or, • Is otherwise beneficial to the community The charitable organisations objects must also be of benefit to the public. The benefit must be available to a large part of the community and must not result in the private benefit of an individual.

  14. NZ CHARITIES • Accounting • NZ has established and is updating GAAP for NFPs under IFRS – due late 2006 • NZ charities must also comply with Financial Reporting Act1993 if they are an issuer of securities (ie debentures)

  15. ONE SOLUTION: Industry training & accreditation • Concept of a Compliance Profession • Develop an industry standard for charitable compliance management derived perhaps from 3806 • Work with ACI? • Provide uniform & consistent training • Helps with recruitment • Problem solving network with the same framework • Include Anti-Money Laundering?

  16. OPEN DISCUSSIONTax Rulings: TR 2005/21 • Must be ITEC to access ASIC PS 87 (licensing & disclosure) TR 2005/21 • Sets out the terms for being considered a charity incl: • Charities operate for the public benefit • Charitable purpose includes: relief of poverty; advancement of education; advancement of religion; and other purposes beneficial to the community including child care provided on a non-profit basis • Charities can have incidental non-charitable purposes, but not independent non-charitable purposes • Charities can undertake commercial, political, or recreational activities only in furtherance of their charitable purposes

  17. OPEN DISCUSSIONTax Rulings: TR 2005/22 TR 2005/22 • Released 20 December 2005, Commences 1 July 2006 • Companies that are controlled by exempt entities aren't automatically exempt themselves • Each entity must meet the exemption requirements • Providing surpluses to an exempt associate doesn’t automatically meet the threshold • Ss 82 -96: “commercial enterprise” test: • Dominant purpose test • entities undertaking commercial activities with clients that are also carrying on charitable activities

  18. Discussion

  19. Thank you! John R Rappell Director, Emergence Consulting +612 9777 1501 +61411 234 164 jrappell@emergenceconsulting.com.au

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