Discussion paper

Independent charities, independent regulators: the future of not-for-profit regulation

6 Feb 2014

Executive summary: At a National Press Club forum held 15 days before the federal elections of 7 September 2013, Liberal MP Kevin Andrews pledged that a Coalition government would abolish the Australian Charities and Not-for-Profits Commission (ACNC), a new regulatory body for the not-for-profit (NFP) sector that the Gillard government established in late 2012. When it was announced after the election that Andrews would be Minister for Social Affairs in the Abbott government, the commissioner of the ACNC, Susan Pascoe, quickly reassured the press and the public that the ACNC ‘is very much alive and implementing its statutory obligations,’ and would continue to do so until an Act of Parliament formally abolished the commission. By late October, NFP-sector observers were already beginning to speculate that ‘the ACNC is likely to survive due to the complexity in unwinding the legislation connected with it.’

Abolishing the ACNC should not be allowed to fall by the wayside. Even with an annual budget close to $15 million, it is unlikely that the ACNC will make significant progress on any of the three objectives it was created to address: improving public trust in the NFP sector; reducing the burden of red tape that charities now face; and policing fraud and wrongdoing in the sector. The commission’s record during its first year has only confirmed this scepticism.
Other countries that have established their own charities commissions have realised that these commissions are not an effective way to regulate the NFP sector. The New Zealand Charities Commission (NZCC) was abolished only six months before the ACNC was launched because the Key government did not think the commission was providing value for money. In Britain, the Charities Commission for England and Wales has come under fire in the past couple of years and is the subject of a parliamentary inquiry into whether it is ‘fit for purpose’ at all.

Two recent developments in NFP regulation in Australia offer strong encouragement to the idea that the sector can have adequate oversight without a federal regulator. The first is the growth of independent charity watchdogs such as Charity Navigator, GiveWell and GuideStar. These groups conduct research into charities’ activities and finances, and then award each charity a rating based on this data. These ratings are collected into an online database and made available to the public, free of charge. Each evaluator has a different method for calculating these ratings, but all of them emphasise transparency, credibility and efficiency. Many of them are also beginning to offer more advanced services that government regulators are not well suited to provide, such as systems for measuring a charity’s social impact.

The second development is the increasing importance of wealthy and ultra-wealthy donors in Australia’s donation market. Howard-era reforms made it easier for high-net-worth philanthropists to conduct their giving on a large and long-term scale through personal foundations. Rather than relying on charity watchdogs, most high-wealth philanthropists now evaluate charities themselves, both before and after making donations. These private means of imposing oversight have proven to be at least as effective as government regulation at no cost to the taxpayer. The Coalition should welcome these two developments, not discourage them by continuing the failed charity-commission model of NFP regulation.

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