26 January 2012

The Manager
Philanthropy and Exemptions Unit
Personal and retirement Income Division
The Treasury
Langton Crescent
Parkes ACT 2000

Sent by email to: nfpreform@treasury.gov.au

Re: Submission on the Review of Not-for-Profit Governance Arrangements: Consultation Paper

The Association of Independent Schools of South Australia (AISSA) represents the interests of all 94 South Australian Independent schools with an enrolment in excess of 44,500. The South Australian non-government school sector educates over one-third of all school-age students in South Australia and the SA Independent sector is now the second largest provider of senior secondary school education in South Australia. 

The AISSA welcomes the opportunity to comment on the Review of not-for-profit governance arrangements: Consultation paper. We have contributed to the submission presented by the Independent Schools Council of Australia (ISCA). The AISSA submission has been prepared on that basis.

South Australian Independent schools educate students within a curriculum underpinned by a diverse range of religious beliefs (Anglican, Baptist, Christian, Christadelphian, Orthodox, Islamic, Lutheran, Seventh-day Adventist, Uniting) and educational philosophies (Burc, Montessori, Waldorf Steiner). The sector also includes a number of secular schools and a special school which educates students with severe disabilities.  Some Independent schools are also members of a system, for example, the Lutheran Schools Association and Adventist Schools Australia.

Individual schools vary in size from 35 students to 3,500 students. The significant majority of schools in South Australia are incorporated under the Associations Incorporation Act 1985. 

The AISSA supports a principles based-core rules approach to governance, but share the concerns of other organisations in the NFP sector in relation to the negative implications of an overly prescriptive approach to regulation of governance. 

Given the diversity in the profile of schools within the Independent school sector in terms of size, access to expertise and resources within each school community, (See ISCA submission), the AISSA also supports the position that governance rules should take into account these characteristics when applying compliance requirements on NFP institutions. However further analysis of the proposal to include the level of government funding as one of the variables to determine the application of the governance rules should be undertaken. Many Independent schools are located in relatively disadvantaged communities which therefore receive the higher levels of government funding on the basis of a needs funding formula. They are likely to be the least able to establish administrative procedures and have the expertise to meet complicated governance rules.

We agree that current governance compliance arrangements are complex and adhoc, especially across government portfolios.  This situation has increased substantially due to the increased compliance requirements introduced by government regulators and departments. There is no evidence that this increased burden has value added to the quality of services by NFP's.

The intention to streamline governance arrangements into one framework and reduce red tape is strongly supported. However this is not our experience in other areas where the Australian government is attempting to harmonise legislation and regulation across States and Territories. Implementation of this strategy in other areas (such as OHS&W, industrial relations, early childhood services) where the Australian government has attempted to harmonize regulation and centralize administration has not led to less compliance and burdensome administrative arrangements. 

In addition every Funding Agreement between Independent schools and governments contain financial and non financial accountability requirements. This adds to the complexity and duplication of the compliance environment in which schools operate.

Recent State government legislation such as the Education and Early Childhood Services (Registration and Standards) Regulations 2011 in South Australia contains compliance requirements for school boards. This enabling legislation will guide the registration of schools and accreditation of early childhood services. It is possible there will be duplication of compliance and administrative procedures across the registration authority and the new ACNC.

The AISSA is also undertaking a review of its constitution and governance arrangements with the assistance of legal advice to ensure it complies with the requirements to be a registered organisation under Fair Work Act. This is further illustration of the breadth of portfolios that impinge on the governance and management of some NFP’s.

Therefore the proposed governance compliance proposals cannot be considered in isolation to the broader agenda across portfolios. The broad application of regulation and compliance across portfolios and via government departments does not support a strong philanthropic engagement of the community. Our greatest concern is that this widespread regulatory agenda (including governance of NFP’s) will result in reduced volunteerism and willingness of the community to engage in supporting NFP organisations, resulting in a reduction in the investment in building social capital across communities.

The above cumulative effect is redirecting valuable resources away from core purposes, stifling innovation and embedding a low risk management approach to service provisions across the NFP sector.

It is therefore disappointing the Australian Government intends to implement legislation without substantially progressing negotiations with State and Territories to eliminate duplication of existing governance requirements, including across legislation in other portfolios. (See Point 23 in consultation paper)

We therefore have little confidence in the one-stop shop strategy, via a national regulator, bringing about efficiencies in compliance requirements for Independent schools given the complexity of current regulatory context within which they now operate.

The capability of individual schools to comply with new governance rules will vary with the availability of resources (physical and human) within school communities across the Independent sector in South Australia. We have concern about the proposal to include the level of government support an NFP receives in determining the level of compliance with national governance principles. The compliance requirements associated with the receipt of government funding received by Independent schools are outlined in existing Funding Agreements with the Australian and State governments. In addition, the schools receiving a high proportion of their income from governments support communities that in many cases do not have the resources and the social capital within their communities to effectively meet yet more compliance requirements.

Section four of the consultation paper rightly identifies the tension between engaging volunteers (members of school boards) in the governance and provision of services of an NFP organisation and meeting regulatory obligations and accountability requirements for the use of public funds

Where government funds are allocated to Independent schools compliance requirements are outlined in the Funding Agreements; there is often duplication of requirements across levels of government. This is another illustration of potential duplication of compliance requirements across portfolios. 

It is essential that all government departments are made aware of the role of the proposed Australian Charities and Not-for-Profit Commission (ACNC) and governance principles/rules to avoid duplication and additional administration burden on volunteers and NFP organisations.

 We acknowledge Point 61 in the consultation paper which refers to a ‘...balance...between rules to deter malfeasance with a culture which promotes compliance, self regulation and transparency and the compliance burden placed on NFP entities.’ The ‘balance’ strategy should also enable NFP’s to respond to opportunities and undertake their mission and objectives. Too often government compliance requirements have generated a culture of low risk management which has compromised the ability of schools to undertake some elements of their education programs, such as school camps and other recreational activities. 

The key message should be about good governance to maximize effective and efficient services rather than a deficit message relating to corruption, fraud etc. 

The consultation paper questions (4) raise the matter of whether there should be differences in the minimum standard of care required of employees and volunteers. The Education and Early Childhood Services Act 2011 does include a limitation of liability clause for volunteer members of governing authorities which states the following:

Despite any other provision of this Act, a volunteer member of the governing authority of a school can only be guilty of a prescribed offence against this act if the prosecution proves that-

a)	the volunteer member knew, or ought reasonably to have known that there was a significant risk that such an offence would be committed; and

b)	the volunteer member was in a position to influence the conduct of the governing authority in relation to the commission of such an offence; and

c)	the volunteer member failed to exercise due diligence to prevent the commission of the offence. {See Part 1 7(1) (a)}
 
The NFP consultation paper also raises the question of higher standard of care being applied to some NFP’s. In the case of education and early childhood services there should be consistent application of child protection procedures (e.g. police screening checks).  

The qualifications, skills and experience of responsible individuals should be a matter for each NFP. Consideration should be given to including in the governance principles/rules the need for governing authorities to ensure responsible individuals receive the appropriate professional development associated with their duties.

The section of the consultation paper that relates to risk management (6.3) paper is predominantly about the negative risks associated with the NFP sector. This deficit approach to compliance is again a common element of government regulation. The governance principles established by the national regulator should be predominantly based on guiding the NFP to explore opportunities and minimize the negative impact of risk and to establish and maintain an organizational culture of on-going improvement.

Apart from the rationale provided in support of risk management in the text it is also good practice for risk management to be associated with the services provided by NFP organisations and to manage risks associated with new opportunities.

We propose that the governance principles/rules should include the requirement to develop and monitor a risk management plan and procedures. 

The consultation paper raises questions, (See questions 18 and 19) about the level and responsibility for indemnity insurance. All Funding Agreements with governments and AISSA and/or individual Independent schools contain requirements about the level of indemnity insurance. Insisting that responsible individuals have indemnity insurance will only further erode volunteerism. It should be the responsibility of the NFP to cover indemnity insurance costs.

All boards that rely heavily on volunteers especially in disadvantaged communities will need on-going assistance via professional development programs to comply with any new governance principles/rules.

In summary the simplification of compliance and the establishment of core governance principles is a worthy and essential objective. It will only be achieved when the government departments and regulators can implement efficient administrative procedures and processes. It is the administration procedures across a large number of government portfolios and the accompanying compliance that currently is complex and inefficient.

We have included a copy of Governance Benchmarks for South Australian Independent School Boards   for consideration in developing governance principles/ rules for the NFP sector.

Yours Sincerely

Garry Le Duff
Chief Executive
AISSA