Now more than ever, private organisations relying on public funds, including tax exempted charities, are facing growing cost pressures from emerging regulations and greater corporate governance requirements. This means they must now have a greater focus on their prudential, risk management and compliance obligations.
This trend is seen most clearly in organisations providing services where there is a strong public interest. The result has been increasing costs of regulatory compliance for privately owned health, aged care and education service entities whether they are operating as not-for-profit or for private gain.
How Does This Compare To Other Countries?
In comparable foreign jurisdictions this trend has included the creation of Government bodies specifically focused on the regulation of charities including those operating in the above sectors. The standards of governance and financial reporting requirements set by these regulatory bodies mean that the obligations of such entities in these jurisdictions are more akin to large listed public companies than a private organisation.
With the increasing requirements and costs involved it is incumbent on any organisation in receipt of substantial public funds to maintain a high standard of governance as this may lower the risk of further costly compliance being imposed. At the same time peak bodies need to continue to assist in reducing the cost impact of obligations where possible.
What Is The Impact Of These Developments For Directors?
These increased governance and accountability obligations will require directors and executives to maintain a transparent process, tied in with their strategic objectives, in respect to areas such as:
risk management and procedures;
prudential policies and liquidity management;
balance sheet and asset management;
investment policies and authorities;
arms-length nature of transactions within procurement policies;
fraud and whistleblower policies;
security of information and disaster recovery;
recruitment and performance practices;
accountability of compliance with policies and procedures;
compliance with Australian financial reporting standards;
corporate structure and liability issues;
assurance procedures and reporting, including audit; and
corporate social responsibility policies and practices.
Where Has This Impacted Significantly?
These issues have required specific focus in recent times for the aged care and education sectors with the introduction of important new Commonwealth and State legislation in some jurisdictions. New funding models and regulations mean that a far greater focus is now required by directors in ensuring the proper governance of these matters, whatever the structure of the organisation.
With changes in Australia’s demographics and increasing wealth, the resulting increases in government funding will mean that these obligations will continue as an onerous and costly element for any private operator within these sectors. These issues can best be governed by having appropriate policies and practices in place that are transparent for those with implementation responsibilities. Such enhanced practices provide the best opportunity of avoiding more onerous future obligations.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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