It is quite common for charities to provide gifts or honorariums to individuals who are important to their organisations as a gesture to express their gratitude and appreciation. However, as registered entities with the Australian Charities and Not-for-profits Commission (ACNC), charities are required to comply with the ACNC’s Governance Standards when applying its resources. Therefore, careful consideration should be given to certain potential legal issues and financial reporting requirements when making the decision to provide gifts or honorariums.
The question whether it is appropriate for a charity to provide gifts or honorariums under certain circumstances should be determined on a case-by-case basis. To discharge their duties to act in good faith in the charity’s best interest and to further its purposes, a charity’s Responsible Persons must properly consider the issues and concerns with providing gifts or honorariums and adopt a formal policy on their provision where necessary.
The ACNC has released a guide to explain its expectations on this issue, which also recommends 10 questions for charities to ask themselves before providing a gift or honorarium (please be aware that this does not constitute an exhaustive list of legal issues):
- Do the charity’s governing rules allow it to provide gifts or honorariums?
- Who receives a gift or honorarium and why?
- How should the charity determine the value of the gift or honorarium? It may be through a discussion among the Responsible Persons or at the management level. It may be by consulting with other similar charities.
- Will the payment of a gift or honorarium affect any current funding arrangements? For example, schools receiving funding from the Government are subject to legal obligations to ensure that funds must be used in a particular way.
- What will supporters or the public think of the charity providing a gift or honorarium? For example, it could pose a risk to the charity’s reputation and its donations especially if the gift or honorarium is of significant value?
- Is the gift or honorarium going to be a once-off occurrence? If not, it might not be a true gift or honorarium, especially if recipients are expected to do something in return, or if it is made in exchange for services. There may be implications for this under employment and tax law.
- Is the charity considering the gift or honorarium because its rules prevent it from offering remuneration? If so, the charity may not be taking reasonable steps to ensure that its Responsible Persons are acting in good faith and in the charity’s best interests, particularly if the person receiving the gift or honorarium is likely to be regarded as an employee or contractor.
- Is the charity considering making a gift or honorarium to cover the out-of-pocket expenses incurred by individuals – for example, travel costs to attend a board meeting? If so, the charity should consider reimbursing those individuals for the actual costs incurred instead, if allowed by its governing rules.
- Is the charity providing a gift or honorarium on a regular basis to recognise an individual for their services? If so, the charity should consider if it is more appropriate to recognise them as an employee or contractor instead.
- Is the charity providing a gift or honorarium to a Responsible Person? If so, the charity should make sure there is a proper process for making a decision and determining a reasonable value. To avoid any conflict of interest, a Responsible Person should not participate in any decision about a gift or honorarium to themselves. The charity should further consider: How will the charity’s Responsible Persons be accountable for and transparent about the gift or honorarium and will the charity consult with its members or put the decision to its members?
Please don’t hesitate to contact us if you require further information or specific advice in relation to your charity’s practice and policy for gifts and honorariums.