QueenslandLaw Society

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Office of the President

24 July 2019

Our ref: NFP WD

Dr Gary Johns CommissionerAustralian Charities and Not-for-Profits Commission

By email: research@acnc.qov.au

Dear Dr Johns

Measures in Support of the not-for-profit sector - Indicators of Object 1(b) of the Australian Charities and Not-for-profits Commission Act 2012 and Consultation Paper “Public consultation - additional insight into the charity sector”Thank you for the opportunity to contribute to the Australian Charities and Not-for-Profits Commission’s (ACNC) consultation paper “Public consultation - additional insight into the charity sector* (Consultation Paper).

The Queensland Law Society (QLS) appreciates the opportunity to participate in this important process.

QLS is the peak professional body for the State’s legal practitioners. We represent and promote over 13,000 legal professionals, increase community understanding of the law and help protect the rights of individuals. QLS also assists the public by advising government on improvements to laws affecting Queenslanders and working to improve their access to thelaw.

This response has been compiled by the QLS Not for Profit Law Committee who have substantial expertise in this area.

Error in description of the objects in the legislation in the first version of the Consultation Paper (and associated media release)

The current consultation is being undertaken in the context of the literature review commissioned in late 2018, resulting in the report “Measures in support of the not-for-profit sector- Indicators of Object 1(b) ACNC Act'.

The consultation relates to the proposed publication by the ACNC of additional information that tracks progress on the four attributes in Object 1(b) as part of the annual Australian Charities Report.

Law CouncilOF AUSTRALIAQueensland Law Society is a constituent member of the Law Council of Australia

t of the not-for-profit sector - Indicators of Object 1(b) of the Australian Charities and Not-for-profits Commission Act 2012 and Consultation Paper "Public consultation - additional insight into the charity sector”

Measures in bupp

The Australian Charities and Not-for-profits Commission Act 2012 (Cth) (the ACNC Act) provides for the following objects:

15-5 Objects of this Act

(1) The objects of this Act are:

(a) to maintain, protect and enhance public trust and confidence in the Australian not-for-profit sector; and

(b) to support and sustain a robust, vibrant, independent and innovative Australian not-for-profit sector; and

(c) to promote the reduction of unnecessary regulatory obligations on the Australian not-for-profit sector.

It is noted that the first version of the Consultation Paper inaccurately describes the objects as follows:

• maintain, protect and enhance public trust and confidence in the sector through increased accountability and transparency

• support and sustain a robust, vibrant, independent and innovative not-for-profit sector

• promote the reduction of unnecessary regulatory obligations on the sector.

The italicised and bold words do not appear in the ACNC Act.

QLS is concerned that the error inaccurately represents the scope of the objects of the ACNC Act and suggests a purpose or limitation to the first object which is clearly not evident from words enacted by Parliament.

This error was repeated on the website seeking contributions to this consultation process and can still be viewed on the ACNC web site in the media release in relation to the Consultation Paper.

QLS urges the ACNC to immediately correct this error and let those who have made a submission prior to the error being corrected know of the error, as failure to do so runs the risk of improperly influencing the public contributions to this process and the wider debate about the objects.

This error may discourage consideration of other methods of achieving this object and may colour the context for understanding Object 1(b).

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1 https://www.acnc.qov.au/media/news/second-obiect-acnc-act and in the corporate media policy of the ACNC https://www.acnc.qov.au/about/corporate-information/corporate- pol icies/cor porate-pol icv-med ia

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QLS notes that the current consultation does not mention section 110-10 of the ACNC Act which may be a better guide as to understanding the Commissioner's functions in relation to such measures.

The Commissioner’s functions are set out in section 110-5. They include the general administration of the Act and functions specifically given to the Commissioner.

Section 110-10 (2) gives the following specific function to the Commissioner:

The Commissioner also has the function of assisting the public in understanding the work of the not-for-profit sector, in order to improve the transparency and accountability of the sector, by giving the public relevant information on the Commission’s website.

This statutory function of the Commissioner (rather than an object of the ACNC Act) might be better suited to guiding the publishing measures and indicators that the ACNC uses to assist the public in understanding the “work of the not-for-profit sector”. QLS submits that the “work of the not-for-profit” sector has significantly broader meaning than the additional information proposed to be included in the Australian Charities Report by the Consultation Paper. QLS is of course not opposed to additional information on the “work of the not-for-profit sector” being made available to the public as this is a function of the Commissioner, rather that that information measures the health of the not-for-profit sector (not just charities) more holistically than what is currently proposed. Examples of alternate approaches being taken internationally are provided later in this letter.

QLS further submits that it is perhaps the scope of the Commissioner’s function set out in section 110-10(2) that perhaps the ACNC includes in a new round of consultation.

Comments on Object 1(b)

QLS makes the following overall observations:

1. Object 1 (b) (Object 2) contained in section 15-5 of the ACNC Act relates to the "Act”, not the "ACNC”. The relevant title of the Part, Division, and section are all "objects of the Act”, not the ACNC. This is further underlined by the section itself beginning with “The objects of this Act are:”

2. QLS believes that a reasonable interpretation of the provision is that the object is an aspiration for the legislation generally as opposed to be a function of the Commissioner.

3. This view is consistent with the recent submission of QLS to the ACNC Review that contended that the object was a late addition to the drafting and consequently, bespoke policy levers or tools were not provided for its implementation and there was no specific budgetary allocation for this object. We note the observations of Krystian

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Siebert (a ministerial staffer at the time) about the genesis of the provision which aligns with the understanding of our members who were involved in the drafting.2

4. Further, the language of the section is noteworthy in that it is expressed:

a. in terms of the wider “not-for-profit sector”, not only charities; and

b. in terms of "robust, vibrant, independent and innovative” which are not defined and so take their ordinary meaning. The ordinary meaning given to those words by The Macquarie Dictionary in summary are as follows:

robust - strong and healthy, hardy, or vigorous

vibrant - full or vigour

independent - not influenced by others .... sufficient to support....

innovative [innovate] - to bring in something new

Such ordinary meanings seem not confined to economic measures or descriptions, indicating broad societal measures (if these words imply measures at all) were intended by the Parliament.

5. The implications from this interpretation along with section 110-10(2), for the current proposal are twofold, being:

a. The proposal to publish additional information as part of the Annual Charities Report will necessarily only be in relation to the charities segment of the sector (which of course is the current remit of the ACNC), not the wider not-for-profit sector. This is acknowledged at page 6 of the Consultation Paper (paragraph 15) and QLS supports the call for further research into the sector generally.We note that it is not proposed to require charities to provide additional information to their current Annual Information Statement (paragraph 11 of the Consultation Paper). However, the proposal to publish additional information about charities has the consequence of providing an incomplete picture of the health of the wider not-for-profit sector in Australia. We have proposed a broader alternative approach below that acknowledges the wider scope of Object 1 (b); and

b. If the proposal proceeds, the scope of measures should not be merely economic/financial, but be multi-disciplinary to embrace wider concepts of civil society and social capital as understood in sociology and associated disciplines. It is noted that the Consultation Paper has a significant focus on economic factors.

6. In this regard, the QLS commends to the Commissioner the research outlined below, including the work of a US group which is developing a Nonprofit Health Index as

2 https://probonoaustralia.com.au/news/2019/02/second-obiect-acnc-act-mean/

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indicating a possible way forward which meets these issues3 (see further discussion below regarding "An alternative approach”).

Comments on the Consultation Paper

Introductory paragraphs (pages 1-2):

7. Paragraph 3 - While the initial report did contain a literature review, it also clearly was set the task of proposing measures of non-profit performance against the objectives. In this regard, we refer to para 1-1.2 of the Tulipwood Economics report which seem to be economic at their heart (which was the expertise of the reviewer). Based on the comments below, QLS submits that a much broader literature review is required.

8. At paragraph 5, the Consultation Paper indicates that the ACNC “is not seeking to define what it means to be robust, vibrant, independent or innovative”.

9. QLS queries how it is proposed to "publish information in the annual Australian Charities Report... that tracks progress on the four attributes" as proposed in paragraph 5 of the Consultation Paper. If the concepts are not properly defined, QLS queries how the relevant information will be identified. In any case we argue that the phrase should be taken as a whole and what is required is an indication of the health of Australian civil society (or the not-for-profit sector as a whole).

10. Paragraph 9 - The Consultation Paper indicates that the information will be collected on an aggregate basis, not at the individual charity level, to ensure that individual charities cannot be identified. Much of the information will be published according to charity subtype (refer to Appendix A) and charity size (refer to Appendix B). However, it is noted that most charities have multiple sub-types and there does not appear to be any ranking of the different sub-types. QLS queries how an organisation with multiple sub types will be reported on?

11. Paragraph 11 - QLS agrees with the approach of not requiring charities to provide additional information in the Annual Information Statement (AIS), given the legislative limits in the ACNC Act on what the AIS may call for.4

Comments on table “Additional information that the ACNC intends to publish from the Australian Charities Report 2018/2019”:

12. Row 1 - Average percentage breakdown of each relevant revenue element of the AIS

a. Average refers to the mean and is obtained by summing all data points and dividing by the number of data points. The median number is the middle number when all values are aligned in numerical order.

3 Nonprofit Policy Forum Volume 9 Issue 3 https://www.deqruvter.eom/view/i/npf.2018.9.issue-3/npf- 2018-0045/npf-2018-0045.xml?format=INT

4 Section 60.5(3) and 55.10 of the ACNC Act.

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b. Given the nature of the significant spread of income and assets of charities, utilising the mean may assist in interpretation of data.

c. QLS suggests that the ACNC consider using revenue and/or asset bands of charities to provide a greater level of explanation.

d. Regarding the reference to "total revenue” in the "Description” column:

i. The Accounting Standards permit charities to elect to use different standards that may result in comparing apples and oranges depending on the Standards chosen.

13. Row 3 - Average asset ration

a. Assets are likely to be understated in current value (because of use of historical cost measures) whereas liabilities should be in current dollars. Further there are complex valuation issues, for example how do you value a cathedral or other specific use asset where there is not a market of willing sellers and buyers? This has the potential to mislead. See also comment below in relation to Row 4.

14. Row 4 - Average asset holdings

a. A large number of charities hold land at historical cost and thus this will understate the current market value and lead to misleading results

15. Row 6 - Percentage of charities that are 'highly regulated’

a. There is no reference in the “description" column to a charity's significant reporting and compliance obligations with respect to fundraising at a State and Territory level. This should be included to generate an accurate picture of a charity’s regulatory burden.

16. Row 7 - Percentage of charities with an online presence

a. QLS suggests replacing the word "electronic” with "digital”.

17. Row 9 - Reasons charities have their registration revoked

a. While QLS considers this data would be informative, we query if there have not been many revocations for a particular reason whether identification may in fact be able to be determined. Perhaps there should be a caveat in this regard.

An alternative approach - the challenge of measuring the health of the not-for-profit sector

Our initial comment was that Object 2 has to be appreciated as an aspirational focus of the Act and requires a reflection on the health of Australian civil society.

Consideration should also be given to more specific provisions of the Act.

The method of using the current Annual Information Statement to capture the measures is at best only one source of data for an assessment of whether the Act is meeting Object 2.

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Reference to other sources of data would need to be contemplated to capture non-financial data.

The question is then, how should the health of Australian civil society be measured?

The only quantitative aspect of civil society which has been covered by largescale international surveys for several decades is the extent of the population’s participation in voluntary organizations.

However, over the last couple of decades there has been the establishment of a substantive number of international research projects on civil society and related issues. This has been accompanied by a vibrant debate about how to conceptualize, operationalize, and measure civil society (e.g., Heinrich, 2005; Anheier, 2005; Sokolowski & Salamon, 2005; Howard, 2005; Kubik, 2005).

The following projects are the most widely known:

• Johns Hopkins Comparative Nonprofit Sector Project (http://www.ihu.edu/cnp/). which analyses the scope and economic contributions of the nonprofit sector in more than 40 countries. The project is also working with the UN statistical division to introduce basic indicators on the nonprofit sector in the official reporting system of national statistical agencies.

• CIVICUS Civil Society Index Project (www.civicus.org) - a participatory and multi­method approach to assess the state of civil society in more than 50 countries.

• Global Civil Society Yearbook (http://www.lse.ac.uk/international-development/conflict- and-civil-societv/past-proqrammes/qlobal-civil-societv-vearbook), published by the London School of Economics, charts key themes and challenges for global civil society in an annual publication.

• Civil Society and Governance Programme at the Institute for Development Studies, University of Sussex (https://www.ids.ac.uk/proiects/civil-societv-and-qovernance- proqramme/). which from 1998 to 2001 examined civil society’s relations with government in 22 predominantly developing countries.

• Citizens and Governance Project, run by the Commonwealth Foundation in 2000 (http://www. commonwealthfoundation.com/uploads/documents/ cg_global_synthesis.pdf), which used a participatory methodology to investigate people’s conceptions of a good society and the role of civil society in governance in Commonwealth countries, https://commonwealthfoundation.com/wp- content/uploads/2012/12/Governance in the Commonwealth current debates.pdf

. ARVIN Tool(http://lnweb18.worldbank.org/ESSD/sdvext.nsf/PrintFriendly/C386845885F530EB852 56 EA700 64EB14?Opendocument) developed by the World Bank, which seeks to

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assess the enabling environment for civic engagement and has been applied in a number of developing countries.5

• USAID NGO Sustainability Index for Eastern Europe and Eurasia (https://www.usaid.qov/europe-eurasia-civil-societv). which has been generated annually since 1998 by USAID to assess the sustainability of the NGO sector in the region.

• World Values Survey (www.worldvaluessurvev.org). a large-scale international public opinion survey, which includes questions on civic participation. The survey data forms the basis for a number of cross-national indices on civil society and social capital (e.g., Norris, 2002; Howard, 2003).

Due to improved data availability, there are a growing number of composite indicators on civil society. The following indices are available for a substantive number of countries:

1. The Global Civil Society Index developed by the Comparative Nonprofit Sector Project at Johns Hopkins University (Salamon & Sokolowski, 2004)

2. The Civil Society Strength Index developed on the basis of the CIVICUS Civil Society Index data (Heinrich, 2008)

3. LSE’s Global Civil Society Index (Anheier & Stares, 2002), which measures the extent to which a country’s civil society participates in global civil society

4. USAID’s NGO Sustainability Index for post-Communist Europe and Eurasia

5. Marc Howard’s measure of organizational memberships (Howard, 2003)

6. Pippa Norris’ Social Capital Index (Norris, 2002: 150-151)

QLS recommends that consideration be given to a recent special issue of an academic policy journal about how to go about gauging the vitality of the nonprofit sector in the U.S. by developing a nonprofit sector “health index". The editor describes the collection in these terms:

“Like four blind men trying to identify an elephant by touching its different parts, the authors here examine four different aspects and possible approaches to the challenge of constructing a measure, or set of measures, of nonprofit sector health. One paper explores how the political culture of a state may signal the health of the sector within that jurisdiction; a second paper explores how assessment of social capital may lead to useful indicators of nonprofit sector health; and a third paper expands more broadly on the notion of capital by developing a “capacities” approach to account for multiple types of nonprofit sector capital - human, economic, and social. A fourth paper, drawing on previous research on a national index for the arts, views a nonprofit sector health index as a tool to inform public policy. Together, these very thoughtful papers just manage to scratch the hide of a very large but important conceptual elephant,

5 Anheier, H. K. (2005). Measure for measure: A commentary on Heinrich and the state of civil society indicators research. Journal of Civil Society, 1(3), 241-246 at pages 242-245

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leaving much more to be discovered under the skin. In the longer term we hope that efforts such as these will stimulate significant follow up research and development so that society can ultimately gauge the performance and vitality of the nonprofit sector with the same kind of robust measurements now available to policymakers for evaluating and managing the business and government sectors."6

The clear take away is that financial metrics is only one part of the measurement of the health of a sector and other measures such as social, intellectual, political, and reputational capital, altruism and voluntary contributions must be in play to obtain an accurate understanding.

QLS supports further research of this nature and would be pleased to participate in a further discussion about the interpretation of Object 2 of the ACNC Act in this context, with a view to ensuring that the legislative and legal framework does "support and sustain a robust, vibrant, independent and innovative not-for-profit sector."

If you have any queries regarding the contents of this letter, please do not hesitate to contact our Legal Policy Team, by phone on (07) 3842 5930 or by email to policv@qls.com.au.

Yours faithfully

Bill PottsPresident

Annexure - References

https://www.deqruvter.eom/view/i/npf.2018.9.issue-3/npf-2018-0045/npf-2018-0045. xml?format=INT

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Annexure: References

Anheier, H., & Stares, S. (2002). Introducing the global civil society index. In H. Anheier, M. Glasius, & M. Kaldor (Eds.), Global civil society yearbook (pp. 241-254). Oxford: Oxford University Press.

Anheier, H. K. (2005). Measure for measure: A commentary on Heinrich and the state of civil society indicators research. Journal of Civil Society, 1(3), 241-246.

Heinrich, V. F. (2005). Studying civil society across the world. Exploring the thorny issues of conceptualization and measurement. Journal of Civil Society, 1(3), 211-228.

Heinrich, V. F. (2008). What makes civil society strong? Measuring and analysing the strength of civil society across the world. Ph.D. thesis.

Howard, M. M. (2003). The weakness of civil society in post-Communist Europe. Cambridge: Cambridge University Press.

Howard, M. M. (2005). Conceptual and methodological suggestions for improving cross­national measures of civil society: Commentary on Heinrich. Journal of Civil Society, 1(3), 229-234.

Kubik, J. (2005). How to study civil society: The state of the art and what to do next. East European Politics & Societies, 19, 105-30.

Norris, P. (2002). Democratic Phoenix. Reinventing political activism. Cambridge: Cambridge University Press.

Salamon, L. M., & Sokolowski, S. W. (2004). Measuring civil society: The Johns Hopkins Global Civil Society Index. In: M. Salamon & S. W. Sokolowski (Eds.), Global civil society. Volume 2. Dimensions of the nonprofit sector (pp. 61-92). Bloomfield: Kumarian Press.

Sokolowski, W., & Salamon, L. (2005). Mirror, mirror on the wall? Commentary on Heinrich. Journal of Civil Society, 1(3), 235-240.

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