An update on the regulatory reform of the not-for-profit sector

To recall: On 10 May 2011, following preparatory steps such as a Productivity Commission report on its status (see here), and a Consultation paper based on it (see here), the government announced its intention to reform the Not-for-Profit (NfP) sector in Australia (see here for a quick overview of that sector, one of the largest service sectors in Australia and one that has outstanding importance for the social fabric of the country). I have previously blogged on these and related developments (see here and here). There is no doubt in my mind that the Gillard government ought to be lauded for its initiative. It was overdue.

Putting its money where its mouth is, the government has budgeted more than $ 50 million over four years for a range of measures which prominently include the establishment of an Australian Charities and Not-for-Profits Commission (ACNC, see here). The government also established the ACNC Implementation Taskforce (see here) which is charged, during the current start-up year, to build the foundation of the ACNC (including making many of the key personnel decisions).

The ACNC Implementation Taskforce, headed by Susan Pascoe AM (see here) and assisted by David Locke (see here), who is on secondment from the Charity Commission of England and Wales, started its work soon after Shorten’s announcement and has initiated a process now well on its way: four by-invitation-only roundtables towards the end of last year, as well as two discussion papers in November (on the functions and operations of the ACNC, see here) and December (on governance arrangements, see here), will in early February be followed by an ACNC road-show through capital cities (see here for the schedule) before the actual set-up will be finalized in March through June of this year (see here).

There are interesting questions to be asked, also for economists, about the incentive-compatible design of this new organization, as well as the whole design and implementation process itself. It is an interesting question, for example, to determine which interests are to be taken into account. That of NfPs, and/or that of their peak bodies, and/or that of those working in NfPs, and/or that of the government, and/or that of consumers’ of NFP services, or that of the country at large? It is also an interesting question how to take them into account.

The “MudMap” to be found on the ACNC site (see here) illustrates a fraction of the myriad interests that have to be negotiated in the process. My first reaction to this map was, too many cooks have to spoil the broth. Having followed the process over the last few months (and having participated in one of the roundtables), it seems that the process is well managed and reasonably transparent although it is not clear that to me that it will lead to the optimal outcome, or even a good one. Consumers, for example, seem awfully under-represented. And from what I have observed so far, way too many lawyers and lobbyists seem to get their say too often. It will be interesting to see whether the crew that will be on board in mid-year (when the ACNC is taking over from the Implementation Taskforce) is really independent of ATO and other parties with very vested interests that currently seem to have a prominent voice.

As mentioned, the government has issued two working papers (on the functions and operations of the ACNC and on governance arrangements), with consultation deadlines set for Feb 27 for the former and January 27 (yes, coming very soon indeed ? ) for the latter. By and far it seems fair to say that many of insights reflected in the discussion paper are informed by the experience of the Charity Commission of England and New Wales (no surprise here, given David Locke’s prominent role); I am on record having my doubts about this model (see my comment on the Productivity Commission report here). I continue to believe that a hybrid model of compliance – the kind of things that the ACNC Implementation Taskforce is considering implementing and on top of it certification for the few hundred nationally acting not-for-profits – is a better way to go. As detailed in my comment on the Productivity Commission report, there is certainly considerable evidence on the efficacy of some such model.

In the discussion papers that the ACNC Implementation Taskforce has issued, I have read many things that sound right. Yes, it’d be wonderful to have “validated data” (p. 7, discussion paper on Implementation Design) but how do we validate them when the data apparently will be self-reported? And, yes, I like to have an “open data” facility so that researchers can develop their own analytical material (p. 18, discussion paper on Implementation Design). As a matter of fact, that kind of data base would be an effective means for researchers and press and other interested parties to smoke out those that have an insufficient understanding of the fiduciary duty that comes with public monies. It will be interesting to see what exactly this data base will contain. Whatever it is; it will be undoubtedly be self-reported data which are notoriously problematic (see here).

Nevermind that it is currently unclear to what extent this reporting will indeed reduce red tape, and reporting required by other entities. It will take a lot of persistence and negotiation for this data collection to be allowed to substitute for other such efforts. Both the Implementation Taskforce, and its successor, have their work cut out for them.

It is encouraging that the ACNC Implementation Taskforce acknowledges that there is considerable potential for various forms of corruption (e.g., false acquittal of a government grant, or its expenditure on purposes it was not intended for), fraud, mission drift, and so on (see pp. 9 – 10 dp on Governance Arrangements). But again, here, too, the devil is in the detail and it will be interesting to see what effective means the ACNC will end up having and implementing.

The ACNC Implementation Taskforce provides a useful discussion of principles that ought to guide the implementation of appropriate governance mechanisms (pp. 15 – 29). It is heartening to see that it realizes that not-for-profits have multiple stakeholders of which many are unlikely to be properly represented and that therefore “responsible individuals must exercise at least the same degree of care, diligence and skill that a prudent individual would exercise in managing the affairs of others.” (p. 16, no. 87, see also no. 89). All that is fine and dandy, as is the lengthy discussion (and as are the consultation questions) regarding conflict of interest; nevermind the question what exactly constitutes material personal interests, I have to wonder though what the consequences of violations of some such requirement are. My experience in Australia (e.g., being the Treasurer of an owners’ corporation) is that there are lots of well-intentioned laws and regulations and guidelines but they can, more often than not, be violated with impunity because consequences are either not attached to start with, or not imposed, if indeed they exist.

Overall, I fear that we might end up with a lot of new wordage and reporting requirements that will have little bite when all is said and done.

I would not mind being wrong on this one.


2 thoughts on “An update on the regulatory reform of the not-for-profit sector”

  1. Overall, I fear that we might end up with a lot of new wordage and reporting requirements that will have little bite when all is said and done.

    Which is pretty much what much of the sector wants. The big beef of the national ones is the burden of 8 State/Territory compliance regimes, so the paperwork will actually be a lot less for them. And of course no-one likes to be held properly accountable.

    The words “industry capture” come to mind.


  2. Maybe so, dd (great moniker, incidentally). I try not to be too cynical about the process and what I have seen so far (e.g., the seriousness of purpose, and depth of understanding of issues, of people like Pascoe and Shorten) gives me some hope. In fact, I thought the discussion papers got many things right (e.g., about the potentially more dramatic reputational consequences of non-compliance in the nfp sector.) I guess the question I have is: in light of the vested interests that you talk about, how much will the Pascoes and Shortens of this world manage to implement what they understand is optimal. And how much will they (have to) compromise. There seem to be armies of lawyers and lobbyists involved in the process. Not exactly encouraging news that is.


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