Compliance for not-for-profit organisations

As a not-for-profit organisation you are governed by laws and must comply with them.

There are two kinds of laws -- those that deal specifically with not-for-profits, and those that apply to all enterprises.

Not-for-profit law

You have to observe
  • the requirements of incorporation in your state (if you're an incorporated association)
    These vary from state to state, but they're not particularly taxing; in most states all you have to do is have an official contact point, hold annual meetings, and submit annual reports.
  • the requirements of fundraising in your state (if you're raising funds from the public)
    You'll need to register with the relevant authority in your state, and there will be certain rules about what you can and can't do, but as you're a bona fide organisation that actually does wish to raise funds for a good cause these rules aren't likely to interfere with your operations very much.
  • the requirements of Tax Office status (if your organisation is eligible for any not-for-profit or charity tax breaks).

Standard law

You have, of course, to observe all the usual prohibitions in the criminal law -- don't cheat, steal, or drive recklessly, for example -- but these are in the main applicable to you and your colleagues personally. As an organisation, however, you also have to observe (among other things)
  • Occupational health and safety legislation
    Without getting into the details, you're obliged to provide a safe working environment for your workers (and your volunteers)
  • Anti-discrimination legislation  
    In general, and with a few exceptions, you're obliged to avoid any bias  --  in recruitment, or employment, or service delivery, or in your public statements - against the groups specified in Federal and State laws.
  • Tax legislation  
    Whatever your legal form, you need to find out what taxes you're liable for and pay them. Think particularly of GST and FBT.
  • Financial probity
    You need to ensure that your organisation's assets are protected, that its liabilities can be met, and that your dealings with it are at arm's length. You must have provisions in your rules to cover potential and actual conflicts of interest (see the example below).
  • Privacy legislation
    You must have a system for ensuring the privacy of personal information held by your organisation.
Your Board is responsible for seeing that the law is observed. There's an awful lot of law out there, and a surprisingly large amount of it applies to not-for-profit groups like you. And one of the basic principles of Australian law is that ignorance of the law is no excuse, whether you're a good cause or not (There is no excuse for running an insolvent enterprise. It's true that one of the basic principles of capitalism is that if your liabilities are greater than your assets it also doesn't matter whether you're a good cause or not; you're still busted).

More specifically, the Board is responsible for taking all reasonable steps to ensure that the law is observed. The law doesn't ask that every member of the Board sits where he or she can look over the shoulder of every employee all the time; all it asks is that
(a) the Board establish proper procedures that, if everybody followed them, would be effective in preventing legal breaches
(b) the Board have a monitoring system that would tell it if its procedures were being defied or disregarded.

The Board has, of course, its own interest in seeing that the organisation's employees follow official procedures and do as they're told, so some form of monitoring system would be necessary in any case  --  particularly as both procedures and monitoring are needed to ward off  the possibility of civil suits by any third party who claims to have suffered injury or loss at the hands of the organisation. While compliance with the law will not provide you with immunity from civil suits, disregard of the law will very probably attract civil suits.

The development of adequate and efficient procedures and monitoring systems will probably provide evidence of reasonable care both for the purposes of legislative compliance and for the purposes of avoiding civil liability.  Procedures and monitoring are an essential part of your organisation's risk management program (along with insurance).

The individual members of the Board need to be able to say that they have made reasonable enquiries as to what the law is and how well the organisation is observing them (it should be remembered that while incorporation protects Board members from the consequences of poor decisions, it does not necessarily provide a total protection against accusations of recklessness, and it certainly does not protect you against the consequences of any actual wrongdoing).

In most cases, and for most organisations, you will be required to demonstrate that you have made reasonable enquiries and that you are able to show that you know that all the issues touched on above are covered in the organisation's policy and procedures manual and that the Board's supervision of the organisation's management through the CEO is adequate.

It is also important that Board members show that their decisions are made in the best interests of the organisation - and not in the best interests of the Board members. It is important that there is a strong stance taken on recognising any conflicts of interests and reacting accordingly.

Sample Conflict of Interest Policy
  • A Board member should avoid any conflict arising between their personal interests (or the interests of any other related person or body) and their duties to the organisation.
  • A Board member must not take advantage of their position on the Board to gain, directly or indirectly, a personal benefit, or an benefit for any associated person (their wife, say, or a commercial organisation).
  • A Board member shall not make use of inside information.
  • The personal interests of a Board member, and those of associated persons, must not be allowed to take precedence over those of the organisation generally.
  • A Board member should seek to avoid conflicts of interest wherever possible. Full and prior disclosure of any conflict, or potential conflict, or the appearance of potential conflict, must be made to the Board. Once the conflict has been declared to the Board, the Board must decide whether the Board member should
    • Refrain from voting (this is a minimum)
    • Refrain from participating in the debate
    • Withdraw from the Boardroom during the debate and the voting
    • Suggest that the Board member consider resigning from the Board
  • Where possible, the Board should develop guidelines on what kinds of appearance of conflict call for what level of care.

(Please note; this helpsheet is intended as an introductory discussion of the issue of compliance, and is neither exhaustive in its coverage nor should be taken as legal advice. It has been written as a prompt to signal some of the areas of concern for not-for-profit groups and we recommend that each organisation seek their own legal or professional advice in all matters of compliance specific to your group.)