How ACNC's External Conduct Standards affect your charity

24 September 2019

Leah Russell , Partner, Audit & Assurance |

Does your Australian charity undertake activities overseas?

If so, you must now comply with four new external conduct standards, to ensure activities and funds sent overseas are used for legitimate charitable purposes; whilst also seeking to protect vulnerable people.

This is because major reform to the operation of charities came into effect on July 2019. The external conduct standards will operate alongside existing Australian Charities and Not-for-Profits Commission (ACNC) Governance Standards.

Charities should be taking steps to ensure they are compliant, by updating their policies and procedures for use of funds. In particular, they should be demonstrating an evidenced approach to how reasonable standards of behaviour, governance and oversight are being applied to the use and acquisition of your charity’s funds.

Why is it important?

The external conduct standards have been developed by the ACNC to promote transparency and confidence in the not-for-profit sector, as well as assist Australia to meet obligations under international treaties.

The standards will help charities address:

  • Money laundering
  • Financing of terrorism
  • Sexual offences against children
  • Slavery and slavery-like conditions
  • Trafficking in individuals, debt bondage, people smuggling
  • Bribery.

Who does it affect and what should you be doing?

The new ACNC External Conduct Suite of Standards applies to charities that are undertaking activities overseas or providing funding overseas, including through third party operators - even when they are minor or small dollar values.

Whilst they are principle based minimum standards, rather than mandating detailed procedures, all charities need to be asking themselves the following questions:

‘Have we assessed whether the standards apply to our charity?’

And if so, ‘have we developed appropriate standards of behaviour, governance and oversight?’

To assist, we have summarised the four external conduct standards, along with some example compliance steps. However, these are not exhaustive - each charity will be required to establish policy and procedures that are relevant for their individual activities and size.

External Conduct Standard 1: activities and control of resources

This standard outlines how finances and other resources are controlled overseas. It also requires that charities comply with Australian laws in key areas while operating overseas, such as tax, terrorism and money laundering.

Overall, as outlined by ACNC, a charity must:

  • Demonstrate reasonable steps taken to ensure activities outside Australia are consistent with not-for-profit purpose and character
  • Maintain reasonable internal control procedures to ensure funds, equipment, supplies and other resources are used outside Australia in a way that is consistent with the not-for-profit purpose and character
  • 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.

A key risk area for this standard is that not all overseas activities are identified, or incorrectly identifying activities as incidental - therefore controls may not have been put in place.

Controls need to be relevant to ensure that the funds used have been for the charitable purpose. Therefore, charities should be assessing whether there is a reporting mechanism and reviewing process to assess if the overseas organisation has used the funds in accordance with their charities charitable purpose.

External conduct standard 2: annual review of overseas activities and record keeping

This standard requires charities obtain and keep sufficient records for its operations outside Australia. Significantly, a charity must now prepare a summary of its activities and related expenditure outside Australia on a country by country basis.

Risk factors with this standard is that systems can’t easily identify activities conducted outside Australia by country – such as accounting software that is not set up to report country by country expenditure.

A charity can meet this standard by having controls such as:

  • Approval process for activities to be conducted overseas
  • A list maintained of activities conducted overseas
  • Policy and procedures documented for monitoring operations and activities outside Australia, country by country
  • A process to manage inappropriate behaviour and complaints.

External Conduct Standard 3: anti-fraud and anti-corruption

This standard outlines how a charity must take reasonable steps to minimise risks of corruption and fraud, specifically:

  • Minimise any risk of corruption, fraud, bribery or other financial impropriety by its Responsible Persons, employees, volunteers and third parties outside Australia
  • Identify and document any perceived or actual material conflicts of interest for its employees, volunteers, third parties and Responsible Persons outside Australia.

The biggest risk for a charity is where corruption, fraud and misbehaviour is not identified or perceived; or actual material conflicts of interest are not identified.

Therefore, charities should be setting up controls such as:

  • A conflict of interest policy be developed and then reviewed regularly
  • A training program be developed, explaining concepts and examples of conflict of interest
  • The charity introduces a whistle-blowing system.

External conduct Standard 4: protection of vulnerable individuals

This standard ensures the safety of vulnerable individuals overseas who are receiving services or benefits provided by the charity; or are engaged by the charity to provide the services (including third party providers).

Vulnerable people may include children, disabled people, and elderly people. The risk here is that these individuals are harmed.

Therefore, controls that could be put in place are:

  • Working With Children Checks (WWCC) be completed appropriately
  • Training programs rolled out, which give examples of identifying grooming or inappropriate behaviour
  • The charity introduces a whistle-blowing system.

Are you compliant?

While there are simple steps you can take to ensure you comply with the standard, if you believe your charity is at-risk or may not have the knowledge or experience to implement policies and procedures.

BDOs audit team can assist you with:

  • Reviewing processes for dealing with the laws regarding, 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
  • Developing a risk assessment for each project and or country
  • Review controls for proper ethical financial management, including selection of third party providers, and employees
  • Conduct interviews with staff to assess whether they are aware of fraud and whistle blowing procedures
  • Assess conflict of interest policies for completeness
  • Review procedures for recruitment of staff, code of conduct, confidential complaints procedures.

BDO’s forensic team can help you with:

  • Develop whistle-blower policy and procedures
  • Training nominated people within your organisation to administer new systems, policies and procedures
  • Review any existing whistle-blower policies and procedures
  • Independent investigation of any whistle-blower reports.

Do you need help reviewing your internal controls? Call Leah Russell or your local BDO adviser today to discuss if you are compliant.