A Discussion Paper for Developing a Regulatory Framework for Not-For-Profits

Abstract

Regulation refers to the steps taken to steer the flow of events and necessarily involves contributions from many sectors including government, charities, not-for-profits, business and individuals. All of these groups constitute a regulatory community. This paper is written for the Australian Charities and Not-for-profits Commission (ACNC) to discuss and develop with the regulatory community. It is a framework that integrates the commitments and hopes that have been articulated so far with a proposal for future regulatory practice. 2.The framework is developed within the context of the needs of the NFP (not-for-profit) sector and the values and principles espoused by the regulator. 3.The needs that are considered as most important from a regulatory perspective are threefold. First, the regulatory framework must accommodate the diversity of the sector and monitor the impact of regulation diligently. Second, in the process of regulating NFPs, steps must be taken to ensure that trust building with the public can take place. Third, regulatory reform must be undertaken with the intention of supporting, not undermining the sustainability, effectiveness and morale of the sector. 4.The ACNC Taskforce has promoted the values of (a) Independence; (b) Integrity; (c) Respect; (d) Fairness; and (e) Accountability in its operations. The proposed principles to guide the ACNC's regulatory approach are: (a) Transparency; (b) Fairness; (c) Timeliness; (d) Proportionality; and (e) Consistency. The expectation shared by the regulatory community is that regulatory reform will give NFPs a corporate and financial health check that will be known to the public. In so doing, NFPs will benefit from a lower reporting burden in the long term. They should also benefit from a raised public profile that will contribute to building trust with the Australian community and strengthen networks of practical help and support. 6.The benefits that are to be delivered to the sector are expected to come about through compliance with regulatory purposes defined within the legislation. Government's intent for the ACNC is to deliver registration, education, reporting and maintaining a public register. Registration and reporting will provide data for the accessible, searchable register on the public portal. 7.The regulatory framework encompasses purposes expressed in the legislation and the meanings that are attached to these purposes in the minds of the regulatory community. Legitimacy for a regulatory framework comes about through anchoring legislated purposes to desirable and highly valued practices in the charities and not-for-profit sector. The regulatory community as a whole has come together to ascribe meaningfulness to the legislation through talk of reducing red tape, harmonizing laws and rules, and creating opportunities for social innovation. When legislated purposes lock in with the vision for change shared within the regulatory community, commitment from regulated actors to the regulation emerges. This only occurs, however, when everyone is assured of the authenticity of the other. Commitment requires dialogue, communication and contestation of ideas, and willingness to be responsive to evidence of unexpected and undesirable effects. 8.The purpose of investment by all parties in communication and dialogue is to prevent a descent into game playing. Game playing finds its way into regulatory activity when authenticity and goodwill are depleted. Game playing wastes everyone's resources because its purpose is simply to dominate and win against the other. 9.Responsive regulation is proposed as a framework that will allow the simultaneous achievement of regulatory purposes and a shared vision for the sector, while respecting the needs of the sector and being true to the regulator's values and principles. Responsive regulation means regulation that is responsive to the context, the environment and the compliance behaviour of the regulated entity. It is particularly suited to regulatory reform in a sector where diversity means that capacity to comply and capacity to mainstream compliance activities vary enormously. 11.Practicing responsive regulation involves two mutually reinforcing sets of activities: a pyramid of escalating sanctions for dealing with non-compliance and a pyramid of supports that rewards entities that are making positive contributions to raising the corporate and financial health of the sector. 12.Common to both the sanctions and supports pyramids is respect for the contribution that NFP entities make to the public good. A pyramid of escalating sanctions gently puts pressure on an organization to comply, with awareness that non-compliance may reflect lack of capacity and can be readily turned into compliance with advice and assistance. When lack of capacity is ruled out as an explanation of non-compliance, gently increasing sanctioning signals the seriousness of non-compliance and the intent of the regulator to follow through on regulatory interventions until compliance is forthcoming or the entity is de-registered. 13.A pyramid of escalating rewards respects the contribution that NFP entities make to ensuring that a high bar is set for the health of the sector and for assisting and guiding other entities in achieving high standards of governance and financial management. A pyramid of supports provides recognition of entities that are leaders in the regulatory reform process and sets benchmarks that others in the sector should strive for. 14.Sanctions and supports are not opposite or competing regulatory activities. An entity that disagrees with the reporting framework might initially express defiance through not complying. The same entity may be working on a reporting process that could lighten the burden of everyone in the sector. In times of regulatory reform, contributions from all parts of the regulatory community are valuable and may come from the most unlikely of sources. For these reasons, the regulatory framework presented in this report asks the regulatory community to be open to the best that can be put forward by all parties to make regulatory reform work, while putting in place safeguards for the protection of the community. Regulatory frameworks must provide protection from the minority who wish to exploit others, perpetrate harm, or otherwise abuse the system. In a bid to prevent damage, however, a regulatory framework that concentrates on enforcement rather than on building strengths exposes a regulator to considerable risks. The regulator risks destroying the goodwill and cooperation that has converged around the reform agenda for NFPs