Australia: Treasury submission on scoping study for a NFP regulator consultation paper (Part 1)

Last Updated: 1 March 2011
Article by Katrina Daly

See also Treasury submission on scoping study for a NFP regulator consultation paper (Part 2)

Dear Sir or Madam

Scoping study for a national not-for-profit regulator – Consultation paper

We welcome the opportunity to express our views in relation to the scoping study for a national not-for-profit regulator.

Moore Stephens currently services a diverse range of entities in the not for profit sector. Moore Stephens have been advising the not for profit sector in relation to financial reporting, taxation, corporate governance and general advice for over 50 years. Our involvement with these entities encompasses a diverse range of operations and structures.

In our experience working with the sector as professional advisors, the sector as a whole has achieved a high level of awareness of their compliance and reporting obligations and actively supports the need for appropriate levels of regulation.  The introduction of a National Regulator with the stated objectives in the scoping study would provide a clearly defined and simplified regulatory environment and which could enhance the sector's ability to focus its resources and efforts more towards its mission. The NFP sector provides a significant contribution to the Australian community as a whole and has an increasing role to play in assisting all levels of government in a range of activities through the outsourcing of social services. Paramount to the continuing support of this sector by the public, government and other key stakeholders is the level of confidence and trust in the appropriate management and application of funds and resources to the beneficiaries of these activities.

It is in this context that a clear distinction should be made regarding the objectives of National regulation of this sector compared with regulation of commercial or for profit industries etc. in its application and the bearing of its associated costs.

We detail below our comments in relation to certain questions raised in the consultation paper. We have only commented on those aspects of the paper which we believe our comments can assist in the scoping study. We have not considered any constitutional or tiered governmental aspects as we are not in a position to appropriately comment. Our comments are based on our experience in dealing with our diverse client base.

We trust that our submission provides Treasury with our views in relation thereto. We welcome any opportunity to assist Treasury further if required.

Yours faithfully

Moore Stephens Australia Pty Ltd

Katrina Daly                                            Spiro Tzannes       
Partner                                                    Partner
Assurance and Business Advisory            Audit and Assurance
Moore Stephens Sydney West                Moore Stephens Sydney

The goals of NFP regulation

Consultation questions

Q1    Are these goals appropriate and adequate for national regulation? Which of these are most important?

We note and support the goals identified in the consultation paper.  Generally, these goals are appropriate for national regulation. We recommend that further review be undertaken in relation to the direct relationship identified between the level of regulation and the size and complexity of NFP entities in determining the level of regulation.

For example, the sector includes a range of heterogeneous organisations which could be seen to suit a high level of regulation. However, these entities are combinations of distinct sub entities or operations of which are relatively small, non complex or for which only mutual funds are received.  In these cases, the goal of the regulator should also include a determination of the public benefit of all or part of these entities being subject to regulation and the degree of regulation.
We would consider the removal of current regulatory duplication and streamlining of requirements to be the most important goal of the regulation

Q2    Are there any other goals for national regulation?

It is in the best interests of the sector for all stakeholders to have a clear understanding of the regulatory environment in which NFPs operate. The 2005 report Giving Australia: Research on Philanthropy in Australia indicated that just over 25% of givers surveyed nominated respect for or trust in a non for profit organisation as a motivation for giving. By providing awareness and education regarding the NFP sector including its regulatory environment would support the widening of the potential revenue base of the Sector.

A key aspect of the ongoing support for NFPs is for the NFPs to maintain their identity as individual organisations and not be perceived as merely an agency of government. Furthermore we are of the view that any Regulation should assist and promote the NFP sector as separate and distinct from the government and private sectors.

We also believe that the goals of the national regulator should include the following:

  • Setting parameters and guidelines for best practice; and
  • Promoting the principals of good corporate governance

The benefit of the inclusion of these within the goals would be to enhance the quality of the Sector's governance and practices.

We note that increasingly overseas (particularly UK) there has been a movement towards the establishment of a range of activities or organisations which are in essence a hybrid of for-profit and not-for profit objectives in part allowing equity investment to support funding of an NFP objective. These arrangements have been commonly described as Social Enterprises and sometimes incorporate key elements of the philosophy of Social Corporate Responsibility.

We note that the scoping study has not addressed these types of activities or entities. We recommend that Treasury consider how the emergence of this part of sector may have an impact on the role of a National Regulator and its impact overall on the wider sector.

The scope of the national regulator

Entities receiving public or government support

Consultation questions

Q3    What should the scope of a national NFP regulator be? What types of entities should be regulated by a national NFP regulator?

Whilst we believe all NFP entities should be 'registered' under a national NFP regulator, in accordance with one of the goals outlined in Paragraph 38 of the Consultation Paper, regulation should be proportional to the size and complexity of NFP entities, and to the public monies and risks associated with NFP entities.

It is important to note that there are some organisations within the NFP sector that whilst large in terms of revenue etc, are essentially private organisations and provide services within their limited community without external government or non government funding. On the other hand, there are organisations which are fully funded by Government or public funds therefore could be perceived to have an obligation to report fully their financial circumstances.

Therefore the reporting model developed should enable these organisations to be dealt with on the basis of their public interest as opposed to simply their revenue levels.

Where a NFP entity:

  • a.    has little or no government funding;
  • b.    is of little or no public interest; or
  • c.    deals with members own income (mutual organisations), the level of regulation should be minimal.

Q4    Should some legal forms be treated differently? If so why?

As with the for profit sector, the NFP sector has developed over time with a framework of structures to address the diversity of the objects of the organisations.  We note that previous inquiries have proposed a single legal structure and we have supported this in principle for new organisations which will undertake non-complex activities.  However, there are a number of types of legal forms which have been utilised specifically to meet the needs of the members of the organisation and as such we would support differential regulations of these entities for reasons similar to those outlined above in Question 3.

Charitable trusts

Consultation question

Q5    Should the supervision of charitable trusts be moved from the state Attorney General's to a national regulator?

Whilst we are not in a position to comment on the matters of the distinction of State and Federal powers, we would be supportive of the movement of the supervision of charitable trusts from the state Attorney-General's to a national regulator on the following basis:

  • a)    The transfer does not negatively impact on the rights, obligations, duties and responsibilities of the Trustee/s
  • b)    The regulation of such Trusts is consistent with the previously outlined goals of NFP regulation including consistency, transparency and simplicity.
  • c)    That consideration be given to providing an effective remedy mechanism that enable disputes to be addressed in a more efficient and effective manner than under the existing mechanism. This should include the opportunity for review of decisions such as through an Ombudsman or the Administrative Appeals Tribunal.

Incorporated associations

Consultation question

Q6    Should regulation of incorporated associations (including reporting and governance) be moved to a national regulator? Should there be a residual role of the states in regulating incorporated associations?

Regulation of incorporated associations (including reporting and governance) should be moved to a national regulator to achieve three (3) of the goals in paragraph 38 of the Consultation Paper (i.e. remove current regulatory duplication, streamline requirements and provide a 'one-stop shop' for NFP entities).  This should be done through the transfer of all such responsibilities from the state/territorial level. In this way incorporated associations will have uniform regulation across Australia providing greater clarity for such organisations, particularly those who wish to operate across state/territory borders who currently may have to deal with differences in regulations. A uniform governance and reporting framework will result in more efficient process.

See also Treasury submission on scoping study for a NFP regulator consultation paper (Part 2)

This publication is issued by Moore Stephens Australia Pty Limited ACN 062 181 846 (Moore Stephens Australia) exclusively for the general information of clients and staff of Moore Stephens Australia and the clients and staff of all affiliated independent accounting firms (and their related service entities) licensed to operate under the name Moore Stephens within Australia (Australian Member). The material contained in this publication is in the nature of general comment and information only and is not advice. The material should not be relied upon. Moore Stephens Australia, any Australian Member, any related entity of those persons, or any of their officers employees or representatives, will not be liable for any loss or damage arising out of or in connection with the material contained in this publication. Copyright © 2009 Moore Stephens Australia Pty Limited. All rights reserved.

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This article is part of a series: Click Treasury submission on scoping study for a NFP regulator consultation paper (Part 2) for the next article.
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