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Legal governance, management and relationship issues affecting the (ACNC)

Demonstrate upon the existence of the legal and regulatory environment in relation to the chosen organization. In this regard, the report highlights the issues regarding legal governance, management and relationship issues that widely affect the organization.

From the very beginning, the Australian Charities and Not-for-profits Commission (ACNC) has been regulating as an independent organization by focusing upon the operations of charities throughout Australia. In this regard, it is worth mentioning that, for the purpose of maintaining and protecting public trust by enhancing its confidence throughout the sector, the Australian Charities and Not-for-profits Commission (ACNC) has emphasized in increasing the transparency and accountability in the process ("Australian Charities and Not-for-Profits Commission", 2018). However, the Australian Charities and Not-for-profits Commission (ACNC) has been working as a statutory body and the national regulator as well for the purpose of regulating the day to day operations of the voluntary sectors, non-profit organizations and charitable organizations. The Australian Charities and Not-for-profits Commission (ACNC) has been supporting and sustaining strong, prosperous, active and independent decisions in order to regulate the activities of the non-profit sectors ("Australian Charities and Not-for-Profits Commission", 2018). However, the most important activity in which the ACNC is involved is regarding the promotion of other regulatory activities and at the same time enhancing reduction of superfluous regulatory obligations within such sector.

In order to achieve the aims and objectives, the Australian Charities and Not-for-profits Commission (ACNC) has been involved in the registration of various organizations as charities. In this regard, it is worth examining that, the Commission has been providing active support to the charities in order to make them aware of the kind of work they are involved in. in such process, the ACNC has been assisting the charities in meeting the obligations arising in their way by providing appropriate information, advice, guidance and constant support. In this regard, it is noteworthy to mention here that, the Commission has been providing appropriate information to the general public so that they could gain sufficient knowledge regarding the nature of the work in which the non-profit organizations are involved in. It is worth noting that, in order to provide better access to the general public in regard to collection of appropriate information, the Australian Charities and Not-for-profits Commission (ACNC) has been maintaining a register which can be easily accessed by the general public for the purpose of obtaining relevant information regarding the activities of the registered charities (Arshad et al., 2015). Since its establishment, the (ACNC) has been operating in collaboration with the agencies of the state and territorial governments for the purpose of developing appropriate reporting structure for the charitable activities.

Issues regarding legal governance

It is evident that any organization, while operating the day to day activities might face issues regarding legal governance, management and relationships (Artiach et al., 2016). Therefore, for the purpose of outlining the kinds of issues related to legal governance, management and relationships, it is worth examining the standards of governance, its activities and relations. 

The most important issue faced by the Australian Charities and Not-for-profits Commission is regarding the compliance with the Australian laws. In this regard, it is worth noting that, according to the standards of legal governance, it is important on the part of the charities to act in the way as prescribed by the Commonwealth, state and territorial laws (Barnes & Howson, 2017). Therefore, it can be stated that the issues faced by the ACNC in relation to legal governance can be emphasized as a serious criminal offence which has been decided by a trial judge (Bennett et al., 2015). The issues regarding legal governance can be emphasized as the breach of civil laws comprising of penalty having 60 penalty units. In this context, it is worthwhile to refer here that, it is important on the part of an organization to gain sufficient knowledge regarding the existing legal obligations within the charity and also regarding the obligations which the concerned organization has with the ACNC (Chai-Aun, Hooy & Zulkafli, 2016). In such process, it is worth noting that, any breach of the standards of legal governance and failure to comply with the existing laws, the organization may end up being reviewed by the regulators of ACNC.

The functioning of any non-profit organizations often faces significant issues in relation to management. In this regard, mention can be made about the concept of private benefit, in which, most of the resources are utilized for the purpose of benefiting the ones close to the charitable organization other than that of the beneficiaries. In such process, the purpose of charity ceases to exist (Chelliah, Boersma & Klettner, 2015). The managerial issues can create unfavorable impact upon the financial structure and strategies of the charity. Therefore, it can be noted that, it is essential on the part of the charities to gain sufficient knowledge regarding the existence of certain standards and at the same time needs to be aware of the issues in relation to private benefit (Furneaux & Ryan, 2014).  However, it is required on the part of ACNC to take part in the process of implementation of policies and procedures for the purpose of managing them.

Issues regarding management

One of the main relationship issue faced by the ACNC is regarding its collaboration with the departments of government. Most of the time, it can be observed that, the government authorities do not provide active support in organizing funds for chartable purpose. However, in order to address this issue, the ACNC has been delivering training to charities in free of cost. In recent era, the ACNC has laid emphasis in supporting improved governance and the regulation of financial management (Chelliah, Boersma & Klettner, 2015).  It is worthwhile to refer here that, over the last few years, the ACNC faced media scrutiny in relation to government issues, and cost of administration, fundraising and legal issues (Furneaux & Ryan, 2014).  As a result of such problems, the potential damage to public trust and confidence increased considerably in the charitable sectors of Australia.

The Australian Charities and Not-for-profits Commission Regulation 2013 (Cth) has been regulating the functioning of the ACNC for a long time. It is noteworthy to mention here that, the Australian Charities and Not-for-profits Commission Regulation 2013 legislation has been presenting opportunities for the stakeholders from time to time for the purpose of presenting views regarding the role of the ACNC in relation to the regulation of the charitable sectors within the nation (Heesh & Lobow, 2015).  In this context, the Australian Charities and Not-for-profits Commission Regulation 2013 (Cth) has taken into consideration that how the regulatory provisions can be improved by modifying the existing legislations. In this regard, the Australian Charities and Not-for-profits Commission Regulation 2013 (Cth) has provided active support towards the incorporation of the ACNC. In such process, the legislation helped to shape the ACNC as a national regulator for charitable purposes (Jones, 2018). The legislation has proved to be beneficial in creating favorable effects upon the functioning of the charitable sectors and increasing the scope of public confidence within it (Khanna & Irvine, 2018). It is worthwhile to refer here that, the Australian Charities and Not-for-profits Commission Regulation 2013 (Cth) been involved in the process in the reduction of unnecessary red tape. However, the government authorities did not provide support in order to reduce the impact of red tape (Kordík & Kurilovská, 2017). As a result of which the initiatives regarding red tape reduction were largely affected.

The Australian Charities and Not-for-profits Commission Act 2012 (Cth) (ACNC Act), is the general legislation that has been setting out the objectives and functions of the ACNC. The legislation is also involved in the process of development of framework for registration and in regulating the charities (McDonald et al., 2015). It is known to all that, the regulation of charity requires balance however; it is important such regulation should ensure benefits to the organization. Over-regulation is strictly restricted as it will bring discrepancies and uncertainty within the sector. It is worth stating that, so far the process of regulation and reporting in relation to the nature of complexity of charity has been a major issue as complained by the individuals of the concerned sectors. However, the fundraising legislation has been a matter of concern till date. The aim of the Australian Charities and Not-for-profits Commission Act 2012 (Cth) in regard to the establishment of the ACNC is concerned with the promotion of the reduction of unnecessary regulatory obligations in case of Australian non-profit organizational sectors (McGregor-Lowndes, 2016). It is worthwhile to examine the significance of the Australian Charities and Not-for-profits Commission Act 2012 (Cth) (ACNC Act), which has established a national regulator for the purpose of regulating the activities of the non-profit entities. The regulator can be termed as the Commissioner of the Australian Charities and not?for?profits Commission (ACNC). The (ACNC) Act has been regulating the day to day functioning of the Australian Charities and Not-for-profits Commission in regards to its registration formalities of the non-profit entities (McGregor-Lowndes & Crittall, 2015). This Act has created favorable impact upon the operations of the Commission and its cooperation with the other government authorities in order to emphasize upon a simplified and streamlined regulatory structural framework. 

Relationship issues

It can be emphasized that, the risk of money laundering and misuse of terrorism financing has posed to be the major legal risks for the organization. It can be observed that, the threat of money laundering in regard to criminal misuse in the non-profit sectors of Australia has been evaluated as high (Michaelsen & Goldbarsht, 2018). Therefore, it can be rightly commented that, the key legal risks faced by the organization is associated with fraud and theft of resources which is often concerned with tax evasion (Omar et al., 2015). In this regard, in-depth analysis would be conducted for the purpose of determining the extent of the illicit activity involved.

One of the areas of high legal risk to the Australian Charities and Not-for-profits Commission (ACNC) involves money laundering. Money laundering has been identified as the major risk to the ACNC because from the very beginning, it posed as a key risk to the economic structure and tax revenue in Australia (Phillips & Blumberg, 2016).  It is evident that the process of money laundering entrusts rights upon criminals for the purpose of legitimizing proceeds from committing crimes. In this regard, the process of money laundering has been enabling offenders to engage themselves in the accumulation and hiding of wealth by avoiding prosecution, evading taxes, increasing profits with the process of reinvestment. In this way further criminal activities are encouraged (Rice & Rahman, 2015).  In this context, it is worth emphasizing that, the process of money laundering involves three stages-

  • Placement:The process takes place with the introduction of the illicit funds or assets into the formal financial system.
  • Layering:The process is concerned with the movement and dispersion of illegal funds and assets for the purpose of concealing the true source of origin.
  • Integration:This process is associated with the movement of illegal funds back into the original source i.e. the legitimate economy.

In case of Australian Charities and Not-for-profits Commission (ACNC), it can be observed that the first two stages are involved i.e. the placement and the layering. In this regard, it can be stated that, the resources of Australian Charities and Not-for-profits Commission (ACNC) has been utilized for the purpose of placing illegal funds into the financial system and thereafter the illegal funds are being layered with the application of multiple financial transactions (Romaniuk & Keatinge, 2017).  The concept of money laundering has been defined in the Division 400 of the Criminal Code Act 1995.

The risk of terrorism financing in case of non-profit organizations is assessed to be medium. This is due to the reason that, non-profit organizations have not been considered as a major source terrorism financing (Simnett, Carson & Vanstraelen 2016). In few suspected cases, it has been observed that, the non-profit organizations were involved in raising funds for the purpose of promoting domestic terrorist activities within Australia (Seymour & Nehme 2015).  In such process, it has been observed that, non-profit organizations were also involved in transferring offshore money for the purpose of providing active assistance to individuals engaged in foreign conflict (Smith-Ruig, 2018).  However, in case of Australian Charities and Not-for-profits Commission (ACNC), is medium.

Legislation in relation to the regulation of the organization

The concept of terrorism financing is associated with three different stages which can be emphasized as-

  • The process of fund raising with the involvement of donations, self-funding activities and legitimate business or criminal activities.
  • The transfer of funds from an organization to any terrorist network.
  • The individuals involved in the process of fund transferring and associated with terrorist groups.

It is worthwhile to refer here that, the most serious consequences of terrorism financing are directly experienced by the non-profit organizations and in such process the intended beneficiaries do not receive any funds that has been raised because they are transferred to criminal operations (Tweedie, 2016). It is worth noting that, in recent era, the security impact can be emphasized as the most serious consequences of the misuse of terrorism financing. This is due to the reason that, as a result of the practice of terrorism financing, revenues and diminished which takes place through diversion of funds (Vaughan-Williams, 2016).  In this way, the operation of the Australian Charities and Not-for-profits Commission (ACNC) has been disrupted to the large extent. In this regard, it can be observed that there has been serious flow of impact on the part of the beneficiaries as they have not received any vital supplies or funds as a result of the practice of terrorism financing (Wilkins & Gilchrist, 2016). 


It can be rightly commented that, the possible threats of terrorism financing are higher than that of money laundering as a result of the existing national and international security impacts. It can be stated that the funds that has been utilized for the purpose of terrorism financing is difficult to trace (Tweedie, 2016).  In this regard, mention can be made about the existence of the NPO funds, which ends up getting into terrorist activities and as a result of it, this forms the main concern for conflict in the countries of Middle East where most of the funds are utilized for military and operational activities. The ACNC also faced reputational harm with the occurrence of suspected or actual event of terrorism financing (Romaniuk & Keatinge, 2017).  However, in spite of all these, the ACNC has lessened the threat of money laundering and terrorism financing in its sector because it has created unfavorable impact upon the reputation and the operations of various other entities like financial institutions and banks which are closely associated with it.

It is evident that, there is ability on the part of not-for –profit organizations to raise funds for the purpose of transferring them to offshore. However, in such process, it is essential that the not-so-profit organizations to ensure that they have developed strategies in order to mitigate risks concerned with terrorism financing (Heesh & Lobow, 2015). It is true that charities can be utilized as channels in order to raise and distribute funds for terrorism financing. It is essential on the part of the charities to undertake reasonable precautions by exercising in due diligence for the purpose of reducing risk especially in cases while working with non-profit organizations. In this way, it can be ensured that the funds are not inappropriately used to promote terrorism financing. Building appropriate governance structures will reduce the impact of terrorism financing in both the short and long term.

It is worth mentioning that, various reasons and implications are associated with the risk of terrorism financing which can affect the ACNC in the short term and long term (Furneaux & Ryan, 2014). It can be rightly stated that, there are various ways in which the funds of the charities are misused for the purpose of promoting terrorist activities. The reasons can be emphasized as-

  • Inappropriate use of funds and assets of charity: In most of the time, it can be seen that organizations having a close relationship with a charitable organization often transfers the funds and assets of the charity in order to promote terrorism. However, in case of ACNC, such activities are not encouraged at all.
  • Inappropriate use of premises:Some of the not- for- profit organizations are involved in utilizing the premises of the charity for storing different weapons for terrorism activities.
  • Inappropriate use of the name of the charity: In most of the cases, the not-for- profit organizations are involved in fundraising activities for the purpose of carrying on activities of terrorism without prior knowledge and consent of the charities. In case of ACNC, it is not involved in such illegal activities.

It is noteworthy to mention here that, reserves plays significantly in promoting financing stability and achieving both short and long term sustainability of charity. Therefore, efficient management of reserves is essential in order to promote charity of good governance. In this context, in relation with good governance and the evaluation of proper risk management in association of the responsible persons of the charity, should take into consideration appropriate strategies in order to build and spend the reserves for the relevant purpose (Simnett, Carson & Vanstraelen 2016). Reserves are considered as the unrestricted funds which are available to a charity for the purpose of spending them for an appropriate purpose. In most of the cases, charities receive special donations which can be for the purpose of making profit and ensuring financial stability (Khanna & Irvine, 2018).  In case when unexpected costs and benefits arise in the way of charities, it is important to make appropriate use of the reserves wherever necessary.

Therefore, it can be rightly mentioned that reserves can be utilized to denote the reasons and implications of legal risk of the organization in the short and long-run. This is due to the reason that, in most of the cases, it may occur on the part of the charities to depend upon reserves for the purpose of covering unexpected funds, events, costs and expenditures. However, it is essential to maintain a healthy level of reserves which signifies a sign of good governance. Therefore, in such cases maintaining reserves is necessary which will help to curb the legal risks for the AGNC in both long and short-term basis (Bennett et al., 2015).  For the purpose of achieving long-term benefits, it is important to have sufficient reserves in order to address the situation in a relevant way. This is because low level of reserves or having no reserve at all may prove to be detrimental to the charity and as a result of this, the charity may not be able to face sudden outcome of unexpected legal costs. However, the accumulation of high level of reserves on the funds of charity without appropriate justification affects the perception of the public in regard to the charity (Seymour & Nehme 2015).  In such way, the reputation of the charity faces a major set-back which creates unfavorable impact in the short and long-term.

It is worthwhile to mention here that, organized crimes and activities associated with terrorism financing by means of complicated corporate and trust structures can cause decline to the revenue levels. However, in the perspective of the management, various strategic options are available for the purpose of evaluating the risk in terms of costs and benefits (Rice & Rahman, 2015). It is worth stating that, with increased levels of the abuse of terrorism financing, it has formulated potential distort to markets which promoted the creation of illegitimate competitive advantages to a considerable extent. Increased levels of terrorism financing abuse have created unfavorable impact upon the international reputation of Australia which in the process has caused substantial damage by increasing the cost of business. In this regard, it can be observed that the compliance costs can increase considerably, if ACNC are not aligned with the international standards (Romaniuk & Keatinge, 2017).  However, the primary impact of costs can be related to the implications of the international reputation for ACNC and also in case of social and economic impacts in relation to the vulnerability to serious crimes in relation to terrorism financing. Terrorism financing is a transnational crime which is considered as a major legal risk to the management.

It can be noted that, there is no additional incremental benefits to the organization in terms of costs. The efforts on the part of law enforcers shall be limited to a considerable extent which can be achieved with the application of existing tools in relation to the potential increase in levels of crime. However, in respect to the organization, there are benefits of maintaining costs which would not incur the cost of implementation in the future (Kordík & Kurilovská, 2017).  It can be mentioned that the organization shall incur further additional compliance costs. Therefore, the strategic options available for the management for the purpose of mitigating legal risk in relation to terrorism financing in terms of cost and benefits has been rightly emphasized (Chelliah, Boersma & Klettner, 2015). 

It is important on the part of the government authorities to make efforts in order to counter practices of terrorism financing. The need of countering terrorism financing can be considered as an urgent need in relation to deeper intelligence corporation, strengthening of the existing domestic and international structural frameworks for the purpose of understanding the high-risk terrorism financing channels in a better way (Chelliah, Boersma & Klettner, 2015).  Therefore a number of recommendations can be given to the government in this regard-

  1. There is a scope on the part of the government to improve the governance standards and the existing provisions in relation to the ACNC legislation for the purpose of reinforcing the responsibilities and obligations on the part of the entities and persons.
  2. It is essential to make improvements in order to create transparency to the ACNC legislation.
  3. In order to extend the regulatory oversight of the ACNC beyond the current scope of charities; it is important to increase the activities of charitable fundraising which at present is vested on the State regulators.
  4. There is an authority on the part of the government to improve the requirements of financial reporting. As a result of such expansion, the state and territorial regulators would actively cooperate.
  5. It is also essential for the government to initiate favorable steps for the purpose of improving the structural framework of financial reporting which would be applicable to the charities.
  6. However, it is important for the ACNC in association with the Australian Accounting Standards Board (AASB) and Auditing and Assurance Standards Board (AUASB) to implement suitable solutions in regard to the identified areas of improvement.

It is worthwhile to mention in this regard, that the ACNC has successfully achieved red tape reduction in case of financial reporting while cooperating with the regulators of the State and Territory (Michaelsen & Goldbarsht, 2018). In this regard, it is noteworthy to mention here that, in spite of various improvements, there still remains a work in progress because of the existence of duplicate reporting requirements 

References:

Arshad, R., Asyiqin, W. A., Razali, W. M., & Bakar, N. A. (2015). Catch the “warning signals”: The fight against fraud and abuse in non-profit Organisations. Procedia Economics and Finance, 28, 114-120.

Artiach, T., Irvine, H., Mack, J., & Ryan, C. (2016). The legitimising processes of a new regulator: The case of the Australian Charities and Not-for-profits Commission. Accounting, Auditing & Accountability Journal, 29(5), 802-827.

Australian Charities and Not-for-Profits Commission. (2018). Retrieved from https://acnc.gov.au/ACNC/About_ACNC/Regulatory_app/ACNC/Regulatory/Reg_approach.aspx?hkey=8251156f-f3c9-41bb-800a-304c2485be09.

Barnes, L., & Howson, K. (2017). Board Governance in the Not-for-Profit Sector: The" GOLDEN" Rule Model for Recruitment and Retention of Voluntary Boards of Directors.

Bennett, K., Ingleton, D., Nah, A. M., & Savage, J. (2015). Critical perspectives on the security and protection of human rights defenders. The International Journal of Human Rights, 19(7), 883-895.

Chai-Aun, O., Hooy, C. W., & Zulkafli, A. (2016). Does Revising the National Codes of Corporate Governance Matter? An Empirical Study on Worldwide Evidences.

Chelliah, J., Boersma, M., & Klettner, A. (2015). The role of a national regulator in developing solutions to governance challenges in the not-for-profit sector. The Journal of Developing Areas, 49(6), 449-458.

Chelliah, J., Boersma, M., & Klettner, A. (2015, January). Governance Challenges for Not-for-Profit Organisations: Empirical Evidence in Support of A Contingency Approach. In Australasian Conference on Business and Social Sciences 2015, Sydney.

Furneaux, C., & Ryan, N. (2014). Modelling NPO–government relations: Australian case studies. Public Management Review, 16(8), 1113-1140.

Heesh, J., & Lobow, J. (2015). Uncertain times for volunteer directors. Governance Directions, 67(4), 236.

Jones, S. (2018). Stakeholder Partnerships and the Delivery of Services. In Transformational Leadership and Not for Profits and Social Enterprises (pp. 73-92). Routledge.

Jones, S. (2018). Stakeholder Partnerships and the Delivery of Services. In Transformational Leadership and Not for Profits and Social Enterprises (pp. 73-92). Routledge.

Khanna, K., & Irvine, H. (2018). Communicating the Impact of the Global Financial Crisis in Annual Reports: A Study of Australian NGOs. Australian Accounting Review, 28(1), 109-126.

Kordík, M., & Kurilovská, L. (2017). Protection of the national financial system from the money laundering and terrorism financing. Entrepreneurship and Sustainability Issues, 5(2), 243-262.

McDonald, R. E., Weerawardena, J., Madhavaram, S., & Sullivan Mort, G. (2015). From “virtuous” to “pragmatic” pursuit of social mission: A sustainability-based typology of nonprofit organizations and corresponding strategies. Management Research Review, 38(9), 970-991.

McGregor-Lowndes, M. (2016). Australia-Two political narratives and one charity regulator caught in the middle. Chi.-Kent L. Rev., 91, 1021.

McGregor-Lowndes, M., & Crittall, M. (2015). Community Service Charities. ACPNS Current Issues Information Sheet 2015/6.

Michaelsen, C., & Goldbarsht, D. (2018). Legal and Regulatory Approaches to Counter-Terrorist Financing: The Case of Australia. In The Palgrave Handbook of Criminal and Terrorism Financing Law (pp. 807-833). Palgrave Macmillan, Cham.

Michaelsen, C., & Goldbarsht, D. (2018). Legal and Regulatory Approaches to Counter-Terrorist Financing: The Case of Australia. In The Palgrave Handbook of Criminal and Terrorism Financing Law (pp. 807-833). Palgrave Macmillan, Cham.

Omar, N., Johari, R. J., Sukir, S. S. B., & Said, J. (2015). Money Laundering and Terrorist Financing: Real Global Cases, Behavioural Theories and Internal Control Mechanism. In A New Paradigm for International Business (pp. 295-308). Springer.

Phillips, S. D., & Blumberg, M. (2016). International trends in Government-Nonprofit relations. Nonprofits and Government: Collaboration and Conflict, 313.

Rice, L., & Rahman, S. (2015). Non-profit Organizations' Need to Address Security for Effective Government Contacting. arXiv preprint arXiv:1512.00067.

Romaniuk, P., & Keatinge, T. (2017). Protecting charities from terrorists… and counterterrorists: FATF and the global effort to prevent terrorist financing through the non-profit sector. Crime, Law and Social Change, 1-18.

Seymour, E., & Nehme, M. (2015). The ACNC, the senate, the commission of audit and the not-for-profit sector. UNSWLJ, 38, 1186.

Simnett, R., Carson, E., & Vanstraelen, A. (2016). International archival auditing and assurance research: Trends, methodological issues, and opportunities. Auditing: A Journal of Practice & Theory, 35(3), 1-32.

Smith-Ruig, T. (2018). Champions for Charities: Exploring Inclusive Leadership in the Non-profit Sector in Australia. In Inclusive Leadership (pp. 21-42). Palgrave Macmillan, Cham.

Tweedie, D. (2016). Addressing practical barriers to not-for-profit accountability. Governance Directions, 68(9), 522.

Vaughan-Williams, J. (2016). The future of charity regulation in Australia: Complexities of change. Adel. L. Rev., 37, 219.

Wilkins, P., & Gilchrist, D. (2016). Accountability for the Public Policy Contribution of Not-for-Profit Organizations: Who is Accountable to Whom, and for What?. In Doing Good: Rationalities, Resolutions and Results of Non-statutory Contributions to Public Services. Transaction Publishing.

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