There are two groups that want the charities regulator and its oversights scuppered: the financial services industry and the Catholic Church. They have a friend in the government. By Mike Seccombe.

Andrews leads fight to abolish charities commission

Dead people are very important to Australian charities. From beyond the grave, through the trustees of their estates, they give tens and probably hundreds of millions of dollars to charitable causes every year. Exactly how much they give is hard to say, for reasons that will become obvious later.

We can say, however, that dead people account for most of the 2100-odd charitable trusts or foundations that exist in Australia, which hold total assets of about $3.2 billion.

Being dead, these people cannot have any strongly held views on the subject of the Australian Charities and Not-For-Profits Commission (ACNC), set up less than 18 months ago by the federal government to regulate the charitable sector.

But the private companies that administer those charitable trusts do have strongly held views on the ACNC. They hate it.

Among the distinct minority of players in the $60 billion charitable sector who oppose the greater transparency the new commission brings, those trust companies are probably the most vehement. More vehement even than the Catholic Church, which is another major opponent. Possibly even more vehement than the minister for social services, Kevin Andrews, who is leading the Abbott government’s charge to kill off the ACNC.

The move to abolish it was introduced among the raft of trivial acts and regulations scrapped during the Abbott government’s “repeal day” last week, and is one of those demanding close scrutiny. Andrews presents the quite false pretext that it will spare charities the burden of “red tape”. He has given no clear indication of what, if anything, might replace it.

1 . Why the Commission frightened the trust companies

The trust companies provide a case study of the conflict between greed and altruism.

In a media release last week, they repeated their long-standing desire to see the “abolishment” (sic) of the new charities commission, and claimed benevolent motives. They claim their opposition is based on the cost of complying with its financial disclosure requirements, which they estimate at $2 million.

The release quoted John Brogden, the former leader of the NSW Liberal Party, now CEO of the financial sector peak body, the Financial Services Council (FSC), which encompasses the private trust companies.

“This is money which can be allocated to charitable areas where it is most needed,” he said.

A number of Australia’s biggest charitable donors, and biggest charitable recipients, not to mention a recent inquiry into the administration of charitable trusts, would suggest the motives of Brogden, the FSC and the trust companies are far from the claimed altruism.

One of the agents for those big donors is Peter Winneke who, as head of philanthropic services for the Myer Family Company, is an expert in the area of large-scale philanthropy and the trusts and foundations through which it is distributed.

He found the FSC press release “breathtaking” in its disingenuousness. The real concern of the trust companies, he says, is not the $2 million in compliance costs. “There’s a bigger agenda here.”

Much bigger. The real concern the companies have about the ACNC, according to Winneke, is that its scrutiny of their presently opaque administration of those charitable trusts will reveal the grossly excessive fees they take for looking after the bequests of philanthropists, most of them dead.

He describes as “a national scandal” the situation in which tens of millions of dollars each year are being siphoned off to pad the bottom lines of the for-profit companies, instead of going to the charitable purposes for which they were intended.

The law relating to trusts has changed a lot since the 1900s, when trustee companies were essentially publicly owned companies whose sole function was to guard assets left on behalf of those in need. Today they are almost all stock exchange-listed, profit-driven financial service companies.

Their fee structures, long excessive in the view of Winneke and many others, have inflated vastly more since amendments to the corporations law in 2009 allowed them to change the basis for charging fees.

“It’s complex legally, but the point is it made things worse,” says Winneke. “In the past, fees were charged on a percentage of income. The changes made it chargeable on a percentage of capital. In many cases that meant the fees could increase substantially.”

By “substantially”, he means hundreds of per cent in some cases. He cites an example in which 40 per cent of the earnings of a trust can be siphoned off in fees.

A couple of years ago, Winneke was among a collection of major donors and charities, which, under the name the Charitable Alliance, began pushing the then Labor government for an inquiry into the administration of these charitable trusts.

They got one, conducted by a body called the Corporations and Markets Advisory Committee (CAMAC), a small but high-powered independent committee of experts set up to advise government on matters financial. Its membership includes the head of ASIC, Greg Medcraft.

The alliance put together a comprehensive submission, including a raft of case studies.

“Of course,” says Winneke, “we could only collect case studies where there are family co-trustees. In most cases the company is the sole trustee, so nobody’s got any idea what is happening.”

The submission went up on the CAMAC website, but only lasted a couple of days before the trustee companies demanded it be pulled down.

At the end of the inquiry, though, the committee found real problems with the way these trustees operated: their lack of transparency, the level of their fees and charges, and their unaccountability, even to co-trustees who were family members of the deceased.

It made a number of recommendations, including changes to the relevant part of the Corporations Act, to rein in fees. It also, most relevantly here, recommended that a series of “stewardship audits” be carried out, to ensure those licensed trust companies were fairly administering the money they were supposed to be managing for charitable purposes.

The suggestion was that the new regulator, the Australian Charities and Not-For-Profits Commission, be the body to carry out those audits.

This looked very bad for the trustee companies.

They hadn’t liked the idea of a new regulator of charities to begin with. In 2010, before the legislation creating the ACNC even came in, the Financial Services Council lobbied hard to be excluded from its purview, on the basis that “the trustees of a charitable fund cannot properly be described as an organisation that is operating in the NFP [not-for-profit] sector”.

That argument didn’t wash, notwithstanding the fact that these trust companies are for-profit, listed companies, in the business to make a buck out of it. The fact is, the trusts they administer were set up to support charitable causes. And so they were required to report – just like other charitable concerns – their revenue, assets, expenses, grants – a whole lot of stuff that had not before been public.

As if that wasn’t bad enough, now CAMAC was recommending the government sool the new regulator onto them, to audit them to see if they were siphoning off excessive amounts from the estates of the dead.

Fortunately for the trustee companies, the report from the CAMAC only came out in the dying months of the Labor government. No action was taken; Labor probably had other things to worry about, such as whether Kevin Rudd or Julia Gillard was more likely to minimise its electoral defeat.

And the then opposition had already signalled, well before the election, that it was not keen on the ACNC.

2 . Wielding the government's axe

No surprise, then, that the new government has not acted on the CAMAC recommendations and instead wants to axe the charities commission. It has already shown, in its intent to water down Future of Financial Advice legislation so that financial advisers would not be required to act in the best interests of their clients, that it is amenable to the wishes of big finance.

That is not to suggest the Liberal Party is acting at the behest of the finance sector. Indeed, Kevin Andrews, who is running the whole show – technically, it should be the responsibility of the assistant treasurer – is widely considered to have other motives.

Still, the FSC must feel that its generous political donations have not been entirely wasted.

A quick search of the Australian Electoral Commission database on political donations shows that in the past two financial years, 2011-12 and 2012-13, the FSC kicked in $22,000 to the North Sydney Forum.

Close observers of politics will recognise this as a fundraising vehicle for Treasurer Joe Hockey; the same one that received (and repaid) $33,000 from Australian Water Holdings, the company at the centre of a current investigation by the NSW Independent Commission Against Corruption.

The FSC also gave $10,000 towards the campaign of the minister for finance, Mathias Cormann, in 2012-13, and $20,000 to the Liberals’ senate campaign in Cormann’s home state, Western Australia, in 2011-12.

Labor got some, too, although not as much. Former assistant treasurer David Bradbury received $11,700 over the two years; the current shadow treasurer, Chris Bowen, received $3600. A number of backbenchers, from both major parties, also had donations directed towards their personal campaigns. In every case, they were members of parliament’s financial services committee.

Most political donors give direct to party headquarters. The FSC did that, too, but its overall pattern of donations was exceptional because it was so closely targeted to people who might have influence on financial regulation.

Whatever might be made of this, the fact is the government is intent on knocking off a regulator that has long been demanded and that is increasingly strongly supported by the charitable sector.

“There was about two decades of lobbying for a regulator, and six formal inquiries, bookended by the Industry Commission inquiry of 1995 and the 2010 Productivity Commission inquiry, chaired by Robert FitzGerald, which produced quite an influential report,” says the Australian Charities and Not-For-Profits Commission’s head, Susan Pascoe.

“It had a protracted period of development, which began with a single object, which was to promote public trust and confidence in the sector. The sector felt this implied there was a deficit, and lobbied for two extra objectives: to get an independent and innovative regulator and reduction in red tape.”

3 . The "red tape" furphy

Currently, charities must report to a host of different agencies. A national charity, for example, has to satisfy the requirements of each state. The benefit of setting up the ACNC as a single national regulator is that once registered with it, charities get a “charity passport”, which frees them of the obligation to establish their bona fides repeatedly with other Commonwealth and state agencies. Those other agencies have simply to check with the ACNC database. “Report once, use often” is the mantra.

The first reporting deadline is imminent, and about 20,000 of 30,000 charities have got their data in.

“The central reason it was set up was not to add layers but to reduce the worst thing charities have to face, which is the mishmash of so-called regulation of charitable fundraising,” says Anne Robinson, chairman of the Australian Law Association, and principal of the largest law firm in Australia dealing exclusively with charities and non-profits.

“It’s just disgraceful that in this day and age you cannot do charitable fundraising across state borders without having to go through ridiculous multiple regimes of regulation.”

To argue, as Kevin Andrews does, that abolishing the ACNC will cut regulation is an “absolute nonsense”, she says.

To the extent that there is any truth in what Andrews says, it is only because most of the states have not yet signed up to the idea of ceding regulatory power to the nascent federal body. The government, and the FSC, are using its as yet incomplete form to argue that the ACNC is adding a layer of red tape, when in fact it will streamline the existing multiple regulations once the states get on board. 

4 . Andrews and the Church vs the Commission

Ann O’Connell, an academic who has worked in the area of charities for more than a decade, and who established the Not-for-Profit Project at Melbourne Law School, is another who argues the establishment of the regulator was long overdue, and is not particularly onerous for most charities.

“To me, reporting [to the ACNC] is just the obligation you pay if you want the tax concessions,” she says.

The reporting requirements vary depending on the size of the charity. For most, she says, it amounts to answering fewer than 20 “very basic” questions.

“Seventy-eight per cent of charities – the small ones – have no other reporting obligations. They don’t have to provide financial reports.

“Only charities that have revenue of more than $250,000 a year – medium charities – and charities that have more than $1 million a year, have to provide financial reports, as they would for a corporate regulator,” says O’Connell.

“Andrews’ given reason is that it’s about the abolition of red tape, that he’s in it to help the sector.”

But, she notes, surveys of charities have shown about 80 per cent support the ACNC.

“So he’s not doing it for the sector broadly.”

So what is driving Andrews’ fierce determination to kill the commission?

“Well,” O’Connell says, “Andrews and George Pell are very close and Pell is on the record saying he didn’t like the ACNC, quite early on.”

As anyone who has paid any attention to the child abuse royal commission, and in particular Cardinal Pell’s evidence, will be aware, the church does not readily reveal details of its financial affairs to anybody. 

O’Connell says that despite Andrews’ promise to consult widely on the subject of charity regulation, this hasn’t happened.

“It was advertised on the department’s website that they would be carrying out consultations, and that a consultation document would be available at the end of January. Well it never came. Then we were told there wouldn’t be one. I can confidently say there has been consultation with representatives of the Catholic Church. They have told me they’ve had detailed discussions. Nobody else has been consulted.”

Andrews’ office denies this. In response to questions from The Saturday Paper, requesting detail on those alleged consultations, and in particular whether those consultations had included the FSC, his office said:

“The minister has met with more than 200 stakeholders re: the Coalition’s pre-election commitment to abolish the ACNC, however he chooses not to identify them, as the consultations have been private.”

His office did, however, nominate some groups that claimed to be opposed to the ACNC.

Some of these cited examples are quite misleading. Andrews’ office pointed to “particularly critical” comments regarding the reporting requirements of the commission by probably the largest general welfare and aged-care charity provider, the Uniting Church’s UnitingCare, which has some 38,000 employees and another 27,000 volunteers working in the sector.

In fact, UnitingCare has long since come to an accommodation with the ACNC, and strongly supports its mission.

“The ACNC has lifted red tape already,” says Tim Costello, chairman of the Community Council for Australia, which recently organised an open letter of support for the commission from a large number of charitable interests.

“It’s so much simpler for the sector to have the ACNC as a one-stop shop. And it’s certainly much better for transparency for donors, who are justifiably confused. There’s about one charity for every 350 Australians.

“It’s pretty apparent there are only two main groups that are strongly opposed,” he says.

“The trustees, who handle dead people’s money, are a major source of opposition because they don’t want transparency about what they charge. The other is the Catholics, even though some Catholic organisations signed our letter.”

Costello concedes that: “Kevin Andrews might have been right about two-and-a-half years ago, when it started. There were a lot of us grumbling then about transferring our data to the ACNC. But now it’s actually set up and functioning and resolving issues for charities … the sector has come to see the Productivity Commission got it right. It’s going will be grieved, if it goes.”

And that is the big open question now. The government appears to have no chance of getting repeal legislation through the current senate. It is likely that when the new senate comes in, in July, the fate of the regulator might depend on the view of Clive Palmer.

Says David Crosbie, CEO of the Community Council: “I would be very surprised if Clive Palmer, who I know works within his own electorate with a number of charitable organisations and who is himself a supporter of the philanthropic sector, would look at this and say, ‘All these leaders in the charities sector and all these surveys don’t mean anything.’”

For now, for all Kevin Andrews’ zealous determination to kill the ACNC, it is not yet in the position of those 2000-odd generous souls who contribute so much to charity in Australia: dead.

This article was first published in the print edition of The Saturday Paper on Mar 29, 2014 as "Christian charity".

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Mike Seccombe is The Saturday Paper’s national correspondent.