How to make sure your organisation operates within the law.
Ultimately, the board has legal responsibility for the organisation it governs.
All directors, even volunteers in tiny not-for-profit organisations, must comply with the relevant state and national laws. If you are a director of an organisation that is not compliant with these laws, you could be legally responsible and may be penalised.
The board must ensure that the organisation is governed according to its constitution and complies with the law in relation to its operations, finances and reporting including ensuring the safety and wellbeing of its people.
While the board will appoint a senior staff person (usually called an executive officer or similar title) to manage the organisation, the board is remains responsible for ensuring that the executive officer is complying with all relevant laws and standards.
Understand the rules
Make sure that all directors, members and staff have access to, and understand, your organisation’s constitution.
Also see - How to write a constitution for your organisation.
Have good practices, processes, policies and procedures
Here are some good practices that will help protect your organisation against fraud or poor decision making that might be in breach of the law.
- Appoint the right people to your board. Under the Corporations Act 2001, you must appoint directors who are over 18 and not disqualified from directing companies, bankrupt or insolvent.
- Appoint responsible officers of the board such as a chair, treasurer and secretary who will ensure there are good financial and operational records, meeting minutes, a members’ register and regular reports to the board.
- Have position descriptions (PDs) for directors, responsible officers, and staff. These PDs should outline the roles, responsibilities and accountability of each role. Some organisations are using Consent (or Agreement) to Act forms instead. These also outline the roles and responsibilities of directors. There is a downloadable word template on the Institute of Company Directors Office-holders responsibilities page that includes position descriptions for board office holders.
- Have all directors sign a confidentiality agreement. The confidentiality agreement should say that the directors will comply with the Commonwealth Privacy Act 1998 and the Tasmanian Personal Information and Protection Act 2004 by not storing, sharing, publishing or disclosing information gained through their role inappropriately, for personal or commercial gain, or to the detriment of others.
- Monitor conflicts of interest. Have a policy on conflict of interest. When directors declare a conflict of interest, have them sign a Conflict of Interest Declaration and keep a Conflict of interest register. The register should be used whenever new funding, contracts and decisions about allocating resources are made. Here is a Sample Conflict of Interest Policy and Procedure, Declaration, and Register to help you get started.
- Be aware of contractual and reporting obligations to funders, the ACNC and other regulators and understand the consequences for directors and the organisation if these are not met. The board is usually the entity that enters into a contractual arrangement for funding. Even though the executive officer manages the day to day work that has been agreed to in the contract, it is the board who is responsible for overall compliance with the contract.
- Make sure that annual audited financial statements are submitted on time. Also refer to How to ensure your organisation has good financial management.
- Make sure your organisation operates a safe and healthy workplace. Under the Commonwealth Work Health and Safety Act 2011 and the Tasmanian Work Health and Safety Act 2012, this is the board’s responsibility. Boards must make sure that the organisation has satisfactory operational policies and procedures and implements them. Incident reporting and workplace health and safety checks should be part of regular reporting to the board to enable the board to monitor organisational compliance.
- Meet regularly. If incorporated, boards must hold regular meetings and an annual general meeting (AGM). Click here for How to organise an AGM.
Minimise the risk of things going wrong
If you are unsure, ask questions. As a director you are obliged to get whatever information you need to fully understand your organisation and to make decisions. You are required to be active in the business of your board.
A director’s fundamental role is to make sure the board, and the organisation, are legally compliant and that every effort is made to reduce risk to the organisation and its people (members, staff, volunteers, contractors, etc). You need to be constantly questioning and checking to ensure that your organisation is operating legally. Failure to be legally compliant means you have not acted with the appropriate care and diligence required of you by both common law and by the Corporations Act 2001.
Examples of unacceptable defences which will not be allowed by a court:
- I am a new director and I don’t have much experience
- I didn’t understand what was going on at meetings
- I didn’t agree with the decision but I didn’t say anything about it
- I am just a volunteer
- I didn’t even want to be on the board in the first place
- I was invited to join the board
- I wasn’t told that there were problems
Community organisations are full of good people working to achieve good things in their community. Active directors, who ask probing questions, will understand their organisation better and help it to become more professional, efficient and responsive. They can then achieve better outcomes for their members, clients and communities.
Not for Profit Law - Duties Guide - Guide to the legal duties of not-for-profit committee members, directors and office holders.
Australian Charities and Not-for-profits Commission - Meet Governance Standards