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The COVID-19 pandemic is affecting charity operations in several ways.

Domestic charities face:

  • increased demand for their services in the health, childcare, education and care sectors in both the health impact phase and ensuring economic recession; 
  • hampered fundraising efforts and distribution of services to those most in need; and
  • additional demands on charity management and compliance arrangements to maintain effective supervision of staff and volunteers working remotely.

Charities providing aid overseas may find it increasingly difficult to:

  • oversee and monitor overseas operations due to travel restrictions and direct health impacts on staff and volunteers in their partner organisations around the globe;
  • protect vulnerable persons including clients, staff and volunteers overseas; and
  • maintain accurate and timely records of overseas operations.

International aid groups have made dire predictions that demand for food aid will more than double as the world’s food shortage is exacerbated because of the pandemic.

Temporary compliance relief

The Australian Charities and Not-for-profits Commission (ACNC) has announced some limited relief for charities from certain compliance requirements during the pandemic.

The Commissioner has announced the ACNC will not investigate certain breaches of the Governance Standards and the External Conduct Standards that occur from 25 March until 25 September 2020. It is important to note that this does not include breaches that harm the public trust and confidence in the sector by:

  • putting vulnerable people or significant charity assets are at risk,
  • serious mismanagement or misappropriation, or
  • serious or deliberate breaches of the ACNC Act or ACNC Regulation.

The changes are presented below:

Governance Standard 1/External Conduct Standard 1: Charities cannot operate outside of their charitable purposes

Under this standard, a charity must not operate outside its charitable purposes as identified in its governing documents.

However, ACNC is providing limited relief from this obligation, for charitable activity conducted in good faith in response to the COVID-19 pandemic between 25 March 2020 until 25 September 2020.

During this period, a charity may temporarily operate outside of its charitable purposes to assist with the response to COVID-19, provided:

  • the activity aligns with charity’s existing charitable purpose, or is incidental to an existing purpose(s); or
  • if the activity is not so aligned:
    • the charity reasonably shows that its members would approve of the activity; and
    • the charity documents how it believes the new activity assists in the response to COVID-19 and aligns with its purpose(s).

The relief provided by ACNC is quite limited and your organisation’s charitable purpose(s) can be complex to interpret.

We recommend that you get in touch with the Birchgrove Legal NFP Team if you are contemplating any new activity because of COVID-19.

Governance Standard 5: A charity requires its Responsible People to ensure it does not operate while insolvent

This standard requires the charity’s Responsible People to ensure it does not operate while its insolvent.

The Commonwealth Government has legislated temporary amendments to the Corporations Act 2001 (Cth) by the Coronavirus Economic Response Package Omnibus Act 2020 (Cth). These amendments provide some limited temporary relief during the COVID-19 period, for directors from the director’s personal duty to prevent insolvent trading.

The ACNC has moved to ensure this limited relief extends to charities which are constituted as a company limited by guarantee, as well as all other types of charities.

This means that in some limited circumstances, the charity’s directors or other responsible persons will be temporarily relieved of the obligation in Governance Standard 5 in respect of debts incurred by the charity during the period 25 March 2020 to 25 September 2020, provided the debt is incurred:

  • in the ordinary course of business
  • during the period of 25 March until 25 September 2020, and
  • before any appointment of an administrator or liquidator

Some other specific conditions apply.

So, if you are a director or responsible person for a charity, we recommend you get in touch with the Birchgrove Legal NFP, your charity’s Accountant or Auditor if your charity board or other responsible body is contemplating incurring a debt during this period that could have the effect of the charity trading whilst insolvent.

External Conduct Standard 2: A charity is required to obtain and keep records for its operations outside Australia

This standard requires a charity providing overseas aid to obtain and keep records for its operations outside Australia.

This standard applies to charities which raise money in Australia to provide aid overseas through overseas partners, as well as to charities which distribute aid overseas directly.

The records must include information necessary for a charity to be able to prepare a summary of its activities and related expenditure outside Australia on a country-by-country basis. They must be available to be produced on request.

Again the ACNC has advised it will give limited temporary relief from this External Conduct Standard.

ACNC will not investigate breaches of this record keeping standard by overseas aid charities where the breach occurs during the period between 25 March 2020 and 25 September 2020, provided

  • The charity records the reasons it cannot obtain records; and
  • The charity obtains any outstanding records from its overseas operations and partners as soon as practicable.

Please note

ACNC has not provided any relief from External Conduct Standards 3 and 4 which continue to require that the charity adheres to Anti-fraud and Anti-corruption and Anti-Money Laundering and Counter-Terrorism Financing laws and have arrangements in place to protect vulnerable persons during the period of the COVID-19 pandemic.

If you are unsure of whether your charity could gain temporary relief from External Conduct Standard 2, or need assistance to prepare the required evidence, please do not hesitate to contact us.

Birchgrove Legal is a boutique Sydney law firm that specialises in the not-for-practice sector. Its market-leading practice is at the cutting edge of innovative approaches to serving NFP sector organisations across the spectrum of entity types. Get in touch with one of our authors to discuss your needs further.

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