Governance key to NFPs managing nefarious risk

As the RAA ad says, trust is a must.

And so it is the country’s Not-For-Profit (NFP) sector which stands to be tarred, albeit unfairly, by a sweeping brush if it’s governance isn’t tightened up and moved towards best practice.

That’s the message I take from a recent report, the first of its kind in Australia, that found that good governance is the sector’s best ally if it’s to counter the risk of money laundering and terrorism financing.

Commissioned by our financial intelligence agency, AUSTRAC, and the Australian Charities and Not-for-profits Commission (ACNC) and entitled ‘ Australia’s Non-Profit Organisation Sector: Money Laundering and Financing Risk Assessment’, the report does stress that the risk is ‘medium level’ and proven instances remain low so it’s both unwise and erroneous to be alarmist.
What is concerning, though, is the view that many NFPs don’t seem to fully comprehend the risk or have measures in place to counter it.

You could say we’ve managed to remain ‘low’ by accident rather than design.

That’s worrying because on the one hand the sector doesn’t seem to appreciate that it needs to get its house in order if its to stand the best chance of thwarting these nefarious activities. And on the other, the sector doesn’t seem to comprehend that achieving best – or at least better – practice governance will shore up the donating public’s trust in the sector and confidence that their contributions are going where intended.

Yes, I accept this is a sweeping statement as the sector is vast and diverse, with the strong and established living alongside the new and less well-resourced, but sadly the illicit activity of one risks casting a pall over all and eroding public trust across the entire sector.

So with the call going out for Australian NFPs to better manage the money laundering and terrorism financing risks through good governance, how do we help the more vulnerable, those lacking strong financial and governance controls and open to exploitation, to establish and maintain high integrity standards?

It starts with an understanding of the risks and goes on to ensure there are strong internal controls and good accountability.

These NFPs need, as a minimum:

 – Clear governance structures, particularly as they pertain to the role of the board and its separation from management; and
 – Board charters, with basic responsibilities, and the powers and duties of board members and the Board documented; terms of reference for Board committees, clear Board member election procedures, records of board meeting minutes and the like.

There’s also a need for sound financial management systems that allow for a full and accurate audit trail of funds transferred out of the NFP jurisdiction or country.

This is but a start. It is, however, in the interests of the sector itself and the vital role and enormous contribution it makes to society – that issues related to governance and corruption, if any, should be confronted head-on.

Governance Matters’ Board Minded series and its modules tailored specifically for NFPs is just one avenue for the sector to follow if it’s to improve its accountability, transparency and good governance – and so be seen for what it largely is – a collection of organisations run by honest, well-intentioned individuals.

Until next time,
Kate.

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