In June 2023, the Australian Charities and Not-for-profits Commission (ACNC) released the Australian Charities Report 9th edition (the Report). According to the report, from 1 July 2021 to 30 June 2022, the ACNC revoked charity registration of 1,699 entities (15 of which were revoked due to compliance issues).
If a charity’s registration is revoked, the ACNC will no longer regulate the charity. Of the 1,684 voluntary revocations, 54 per cent were approved on the basis that the charity was no longer operating and 13 per cent were due to mergers.
When comparing the current report to previous edition (from 1 July 2020 to July 2021), the number of charities that ceased operating through voluntary revocations increased by 39 per cent.
The ACNC’s report also noted expenditure increased by 4.2 per cent and employment rose by 2.8 per cent yet the number of volunteers that helped deliver services dropped by nearly 6 per cent.
What does it mean?
The outcomes of the report, coincide with the rise in inflation and increased cost-of-living pressures. Since early 2022, charities have experienced an increase in demand for services while donations and access to volunteers have decreased.
These conditions have added pressure to boards, committee members, directors and trustees who are charged with managing the compliance, operations and financial health of the charities they govern.
In order to carry out duties, especially in relation to financial affairs and ensuring the charity can continue as a going concern, those in charge of governance, with the support of management, are recommended to meet regularly and review financial and non-financial information of a charity.
Outlined below are examples of common financial and non-financial information they should regularly review.
- Deficit for the year
- Negative trends in operating results, such as a series of losses
- Net current assets deficiency (net current liabilities) at balance sheet date
- Net assets deficiency at balance sheet date
- Net cash outflow from operating activities
- Uneconomical long-term commitments
- Adverse key financial ratios
- Fixed-term borrowings approaching maturity without realistic prospects of renewal or repayment; or excessive reliance on short-term borrowings to finance long-term assets
- Loss of major funding or donation
- Changes in law or regulation or government policy expected to adversely affect the entity
- Loss of key management personnel without replacement
- Unusual high turnover of staff and or labour difficulties
- Legal proceedings against
- Emergence of a highly successful competitor
- Uninsured or underinsured catastrophes when they occur
- Non-compliance with capital or other statutory or regulatory requirements
When preparing annual financial statements for a reporting period, management and those in charge of governance, should evaluate whether any of the above conditions or events raise substantial doubt about the entity’s ability to continue as a going concern.
If there are concerns, we encourage management and those in charge of governance to reach out to their accountants or advisers, auditors, or relevant regulators for more information and guidance.