The Government has released a consultation paper on governance standards for the Not For Profit sector for public comment until 15 February 2013.

The governance standards are intended to be principles-based in that they reflect a minimum set of outcomes for registered charities, rather than mandate ‘best practice governance’ or detailed procedures and requirements.

Six draft governance standards have been put forward, including:

  1. purposes and NFP character of a charity: the registered entity must be able to demonstrate its purposes and character as a not-for profit entity, make information about its purposes available to the public and comply with its purposes and its character as a not-for-profit entity.
  2. accountability to members: the registered entity must take reasonable steps to ensure that it is accountable to its members and its members have an adequate opportunity to raise concerns about the governance of the registered entity.
  3. compliance with Australian laws: the registered entity must not engage in conduct that may be dealt with as an indictable offence under Australian law or by way of a civil penalty of $6,600 or more.
  4. responsible management of financial affairs: the registered entity must take reasonable steps to manage its financial affairs in a responsible manner.
  5. suitability of responsible entities: the registered entity must take reasonable steps to ensure that its responsible entities are not disqualified from managing a corporation or disqualified by the Commissioner during the preceding 12 months from being a responsible entity of a registered entity. After taking those steps, the registered entity must be and remain satisfied that each responsible entity meets those requirements, or if it is unable to be or remain so satisfied, take reasonable steps to remove that responsible entity.
  6. duties of responsible entities: the registered entity must take reasonable steps to ensure that its responsible entities are subject to, and comply with, the following duties:
  • to exercise the responsible entity’s powers and discharge the responsible entity’s duties with the degree of care and diligence that a reasonable individual would exercise if they were a responsible entity of the registered entity;
  • to act in good faith in the best interests of the registered entity, to further the purposes of the registered entity;
  • not to misuse the responsible entity’s position;
  • not to misuse information obtained in the performance of the responsible entity’s duties as a responsible entity of the registered entity;
  • to disclose perceived or actual material conflicts of interest of the responsible entity;
  • not to allow the registered entity to operate while insolvent.

The registered entity is taken to have taken all reasonable steps to ensure that its responsible entities have complied with the duties if:

  • Protection 1: the responsible entity, in the exercise of the responsible entity’s duties, relies, on certain information, in good faith, and after the responsible entity has made an independent assessment of the information.
  • Protection 2: the responsible entity made a business judgement decision in relation to the registered entity.
  • Protection 3: in relation to the duty not to allow the registered entity to operate while insolvent, the responsible entity had reasonable grounds to expect, and did expect, that the registered entity was solvent or the responsible entity took all reasonable steps to prevent the registered entity from incurring the debt.
  • Protection 4: the responsible entity could not take part in the management of the registered entity at the relevant time because of illness or for some other good reason.

The Government is seeking feedback on the content and application of the standards.

The closing date for submissions: Friday, 15 February 2013

Further details on the consultation paper and submission are at:
http://www.treasury.gov.au/ConsultationsandReviews/Submissions/2012/Governance-Standards-for-the-Not-for-profit-Sector