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Charities stumble on pay disclosure rules, watchdog finds

Regulation

Nearly a third of large charities misreported executive pay under new transparency requirements, according to the ACNC.

By Christine Chen 12 minute read

Larger charities are struggling to adjust to new financial reporting requirements with nearly a third making mistakes when reporting the pay of senior staff, a review has found.

According to the Australian Charities and Not-for-profits Commission (ACNC), 28 per cent of large charities made material errors in reporting management personnel remuneration in the 2022 reporting year.

One-fifth (24 per cent) also failed to lodge a complete set of financial statements.

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“Transparency and accountability in financial disclosures are crucial, as they reflect charities’ commitment to manage resources responsibly, and maintain public trust and confidence,” commissioner Sue Woodward said.

The charity watchdog reviewed 250 medium and large charities’ annual information statements (AIS) and annual financial reports (AFR) after new disclosure rules were introduced in 2022.

The rules require larger charities (annual revenue of $3 million or more) with two or more key management personnel (KMP) to disclose their remuneration including salaries, benefits and post-employment compensation.

Accounting standards define KMP as “people with authority and responsibility for planning, directing and controlling the activities of an entity”. They include board members, trustees, and senior C-suite staff.

The rule change means that charities must still report KMP remuneration if services are provided by separate management entities, such as accounting firms supplying CFO services.

Rules may also vary based on charity size and whether they prepare general purpose or special purpose financial statements.

“The aim is to ensure that salaries and other payments made to KMP are transparent, with the public interest in organisations spending money wisely and being accountable for how funds are used to pursue their charitable purpose,” Woodward said.

She said the most common mistakes were where “charities said that they only had one or no remunerated KMPs, when the AFR showed otherwise, or that they entered the total KMP remuneration figures incorrectly in the AIS”.

Other errors involved charities choosing the wrong type of financial statement to prepare.

“The most common error identified involved charities that prepared special purpose financial statements incorrectly selecting general purpose financial statements,” it said, with 36 per cent of charities selecting the incorrect financial statement in their AIS.

The ACNC also saw positive trends, finding 93 per cent of large charities complied with KMP disclosure requirements in their financial statement notes, and 73 per cent submitted their Annual Information Statements on time.

The findings come as the sector prepares for additional requirements in related party transaction reporting for the 2023 reporting period.

Woodward said the ACNC would be committed to supporting charities to meet their obligations. “We know most charities want to do the right thing.”

“When we identify an error we reach out to and work with the charity to resolve the issue. Our reviews play an important role in improving compliance by supporting charities to stay on track.”

Christine Chen

Christine Chen

AUTHOR

Christine Chen is a graduate journalist at Accountants Daily and Accounting Times, the leading sources of news, insight, and educational content for professionals in the accounting sector.

Previously, Christine has written for City Hub, the South Sydney Herald and Honi Soit. She has also produced online content for LegalVision and completed internships at EY and Deloitte.

Christine has a commerce degree from the University of Western Australia and is studying a Juris Doctor degree at the University of Sydney. 

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