On 30 June 2021, the Australian Government announced further reporting obligations for registered charities. The reporting obligations are expected to provide greater accountability to donors, beneficiaries and the public by requiring:
- large charities to report remuneration paid to responsible persons (such as directors, committee members or trustees) and senior executives; and
- all charities to report related party transactions.
Please note the thresholds that apply to small, medium and large charities will change from 1 July 2022 (taking effect against the 21/22 financial year). For further information on those changes, please see Part 1 – Financial Reporting.
Reporting remuneration to responsible persons
Large charities with two or more key management personnel will be required to report remuneration paid to responsible persons and senior executives on an aggregated basis in their Annual Information Statement. This requirement will apply from 1 July 2022 (reporting against the 2021-22 financial year).
Charities should take particular care with payments to responsible persons. In addition to reimbursing responsible persons for reasonable expenses incurred in performing their duties, some charities may pay responsible persons for their services (such as attendance at meetings). Payments made to responsible persons must be in the best interests of the charity, reflect responsible financial management, be permissible under their rules and otherwise be properly authorised.
In respect of all remuneration paid, charities should ensure that:
- payments to responsible persons and senior executives are not excessive (industry benchmarking may assist here);
- payments to responsible persons are consistent with the charity’s funding arrangements and any fundraising authorisation in their state or territory of incorporation;
- the charity’s governing document allows for payments to responsible persons;
- the charity has a process in place to determine which responsible persons should be paid and what constitutes a reasonable payment (this process should also provide for management of conflicts of interest); and
- the charity is accountable and transparent to members, donors, beneficiaries and the public at large.
Note that if the charity is a company limited by guarantee that does not use the term “Limited” in its name payments may not be made to directors.
Reporting related party transactions
All charities will be required to report related party transactions in their 2023 and later Annual Information Statements. This will take effect from 1 July 2023 (reporting against the 2022-23 financial year).
The Australian Accounting Standards Board (AASB) defines a related party transaction under AASB 124 as ‘a transfer of resources, services or obligations between a reporting entity and a related party, regardless of whether a price is charged’.
Relevantly:
- reporting entities include registered charities of all sizes and corporate structures; and
- a related party is a person (or a close family member of a person) who has control or joint control of a reporting entity, significant influence over a reporting entity or is a member of the key management personnel of a reporting entity.
Related party transactions are of interest to the Australian Charities and Not-for-profit Commission (ACNC) because they may impact a responsible person’s ability to act in the best interests of the charity. Medium and large charities are already required to disclose related party transactions in accordance with AASB 124 in their annual financial report to the ACNC. From 1 July 2023 these transactions will also be more prominently disclosed in the Annual Information Statement itself. Small charities have not previously been required to disclose related party transactions in their financial reports or in the Annual Information Statement.
Charities structured as public companies are already subject to related party provisions under the Corporations Act 2001 (Cth) (Act). This includes a requirement to obtain to approval of the members before giving a financial benefit to a related party (unless one of the exceptions under the Act applies). Responsible persons should ensure they are aware of and comply with the Corporations Act requirements.
How we can help
It is timely for registered charities of all structures to review related party relationships and transactions. All charities should ensure that they have an appropriate related party policy and procedure in place (related party transactions may also be addressed within a conflicts of interest policy) and that they are complying with their financial reporting obligations and (for corporations) the requirements of the Act. This will assist to confirm that related party transactions are properly considered and approved.
Large charities should also review their arrangements in relation to responsible person and senior executive remuneration to ensure that the quantum is reasonable, the approval process was appropriate and (in respect of payments to responsible persons) the payment is not prohibited and conflicts of interest are properly managed.
For more information or guidance regarding any of the above, please do not hesitate to contact us.