Is Your Charity Ready for the External Conduct Standards?
For registered charities operating overseas or working with a third party overseas, there is a new set of standards that they must comply with in addition to the existing ACNC Governance Standards in this new financial year.
This set of new standards commonly referred to as “External Conduct Standards” are contained in the Australian Charities and Not-for-profits Commission Amendment (2018 Measures No. 2) Regulations 2018 that were tabled in the Parliament late November 2018.
On 22 July 2019, the External Conduct Standards officially came into effect and became the new Division 50 of the Australian Charities and Not-for-profits Commission Regulation 2013 (ACNC Regulation).
What are the External Conducts Standards?
The External Conduct Standards are a set of standards that govern how a registered charity must manage its activities and resources outside Australia.
They are intended to support registered charities in fulfilling their objectives, by providing a minimum level of assurance that they meet public expectations in relation to their conduct when they undertake activities and send resources (including funds), or otherwise support activities, outside Australia.
It is well recognised that when operating outside Australia or working with a third party outside Australia, a registered charity may face risks that will vary according to its particular circumstances, such as its size, the sources of its funding, the nature of its activities (including the extent and importance of its activities outside Australia and resources given to parties outside Australia) and the needs of the public (including members, donors, employees, volunteers and benefit recipients of the registered entity).
Therefore, the External Conduct Standards do not mandate detailed procedures and requirements that registered charities must follow.
Instead, the External Conduct Standards are principles-based minimum standards and only require registered charities to take reasonable steps to ensure appropriate standards of behaviour, governance and oversight in relation to:
- controlling their activities, funds, goods and other resources sent overseas
- conducting an annual review of overseas activities and keeping necessary record;
- taking anti-fraud and anti-corruption measures; and
- taking measures aimed at protecting vulnerable individuals
Is your charity affected by the External Conduct Standards
Before you go through the trouble of assessing the implications of the External Conduct Standards that might have on your charity, we recommend that you first determine if the External Conduct Standards apply to your charity.
The External Conduct Standards apply to all registered charities that either:
- operate outside Australia; or
- work with a third party operating outside Australia,
regardless of the size, scale or significance of their work or operations outside Australia.
It is also worth noting that registered charities that are exempted from the ACNC Governance Standards for being Basic Religious Charities will also be subject to the External Conduct Standards if they operate outside Australia or work with a third party operating outside Australia.
What is "operating outside Australia"?
Pursuant to reg 50.4(1) of the ACNC Regulation,
"…a registered entity, or a third party, operates outside Australia if it operates outside Australia in whole or in part."
The term 'operate' is not given a legal definition in the ACNC Regulation and is intended to have its ordinary meaning. In context, the term 'operate' has the eleventh meaning given in the Macquarie Dictionary, namely "to bring about, effect, or produce, as by action or the exertion of force or influence". For a registered charity or a third party to operate outside Australia, it means taking actions to fulfill its objects, including but not limited to:
- carrying out activities outside Australia; and
- sending resources (including funds) to be used outside Australia.
In accordance with the guidelines published on the ACNC website, activities that may be considered operating outside Australia include:
- sending money overseas
- sending resources overseas
- sending staff, volunteers, members or beneficiaries overseas
- conducting activities or working overseas
- buying goods and services from overseas suppliers (including online purchases) in some circumstances
- working with individuals or organisations located overseas
This list is definitely not intended to be exhaustive. We have observed the vast complexity and diversity in our charity clients' activities. There are numerous borderline cases such as conducting activities purely online that are open to both people in and outside Australia. We encourage you to contact us for detailed advice if you are unsure whether all or part of your charity's activities are captured by the External Conduct Standards.
What is "working with a third party operating outside Australia"?
Pursuant to reg 4 of the ACNC Regulation,
"A third party, in relation to a registered entity, means an entity (other than a registered entity) that formally or informally collaborates with the registered entity for the purpose of advancing the registered entity’s purpose or purposes, and includes:
(a) an entity with which the registered entity has some form of membership, association or alliance; and
(b) an entity that has an arrangement with the registered entity."
An arrangement means any arrangement, agreement, understanding, promise or undertaking, whether express or implied, and whether or not enforceable (or intended to be enforceable) by legal proceedings.
A third party is required to collaborate with a registered charity for the purpose of advancing the charity's purposes. This means certain types of service provision to a registered charity will not be sufficient to make that entity a third party. For example, if an entity provides information technology support to a registered charity, the entity is not collaborating with the charity to advance its charitable objects, and is therefore not a third party.
A registered charity working with a third party outside Australia must comply with the External Conduct Standards for its own activities overseas. The extent of oversight and responsibilities the charity has over the activities of the third party is a question that will be addressed when we look further into the specific requirements of each individual External Conduct Standard in our upcoming article "Risk Based Approach – a reasonable starting point to comply with the External Conduct Standards".
Are there any exemptions?
The only exemption is overseas activities that are directly related to the charity’s purposes in Australia, namely beneficiaries in Australia and these activities also need to be merely incidental to its operations in Australia.
Reg 50.4(2) of the ACNC Regulation sets out the only exemption from the External Conduct Standards:
"However, a registered entity does not operate outside Australia only because it carries out activities outside Australia (including providing funds to be used outside Australia) that are directly related to the pursuit of the registered entity’s purposes in Australia and merely incidental to its operations in Australia."
To qualify for the incidental exemption, the activities outside Australia must be:
- ‘directly related’ to the pursuit of a charity's purposes in Australia, for example, beneficiaries located in Australia; and
- not more than incidental when those activities are compared to the charity’s operations in Australia.
These requirements render the incidental exemption only applicable under very limited circumstances. If you are unsure whether your charity's overseas activities fall under this exemption, please contact us for detailed advice.
The ACNC regulates the External Conduct Standards in a similar way to their regulatory approach for the ACNC Governance Standards. If your charity is already complying with the ACNC Governance Standards and also conducts or intends to conduct activities outside Australia or work with a third party outside Australia, the External Conduct Standards might mean additional compliance obligations for your charity as well because the External Conduct Standards specify some unique requirements to regulate overseas activities.
All registered charities operating outside Australia or working with a third party operating outside Australia should take time to understand the External Conduct Standards and how they affect their operation, and devise and implement an action plan to ensure they comply with the External Conduct Standards. This is likely to be a challenging and whole new experience for all registered charities, in particular, Basic Religious Charities that are used to being exempted from the ACNC Governance Standards.
To assist your charity to be External Conduct Standards ready, we will be publishing more articles on the External Conduct Standards and their compliance requirements shortly.
In the meanwhile, if you require further information or specific advice in relation to your charity’s activities and operation outside Australia, please do not hesitate to contact us.