Home / Not-For-Profits / Articles / Cutting red tape for community organisations
Important: This article contains information that may be superseded. It should be used for historical reference only. Use our Search to read other articles with the latest information.

The previous Victorian State Government implemented a programme to reduce red tape for not-for-profit community organisations structured as incorporated associations in Victoria and to streamline organisations’ interaction with government.

There are significant changes to the Associations Incorporation Act 1981, the law that regulates associations, and these will come into effect on 1 December 2011. The key changes are outlined below.

Statement of purpose

The requirement to have a separate statement of purpose no longer applies. The Association’s purposes can be incorporated into their rules. Transitional provisions ensure that current arrangements are valid.

This will represent an opportunity for existing incorporated associations to review their rules (or other constituent documents) and incorporate the statement of purpose into the rules.

Association reporting and assurance obligations

Presently, incorporated associations are considered to be the prescribed or non-prescribed based on their level of gross receipts or the total assets. Under the amendments to the Act the prescribed terminology has been removed and a new three tier approach has been inserted. The gross receipts threshold has been increased (from $200,000) and the $500,000 total assets threshold has been removed.

Definitions of the various association tiers have changed to reduce the financial reporting obligations for many small associations. Note that there is no longer a total assets test. The revised tiers are:

 Tier 1:  Revenue to $250,000 p.a. No external reporting or audit obligations.
 Tier 2:  Revenue $250,000-$1M p.a. No longer required to have an audit; a review by an independent accountant will be required.
 Tier 3:  Revenue greater than $1M p.a. An audit is still required and the annual report must be prepared in accordance with the requirements of the Australian accounting standards.

Revenue

Incorporated Associations will need to review their revenue level in order to determine which reporting Tier they will fit into. Revenue is defined as the total income of the Incorporated Association during the last financial year from all activities before expenses; it excludes any income received as capital. It is important to note that revenue from the previous financial year will determine the reporting requirements for the following financial year.

Incorporated Associations should discuss the calculation of their revenue with the auditor to ensure they are not in breach of the requirements of the Act.

Audit or review

A review is an assurance process which provides less assurance than an audit. The Auditor expresses a negative assurance report to the effect that “nothing has come to their attention that would indicate the accounts are materially misstated".

Tier 2 Incorporated Associations will be able to have their financial report reviewed by an independent accountant rather than having its accounts audited.

An audit will be required for Tier 1 or Tier 2 associations on an opt-in basis.

Office holder duties

The definition of “office holder” has been expanded to include employees who affect significant decisions. It previously just included committee members. The following new duties have been introduced and penalties on office holders of up to $20,000 may apply if breaches occur:

Duty of care and diligence: This requires that decisions are made in good faith, not in self interest, and made after being reasonably informed. The office holder must also believe that the decision is in the best interest of the association.
Duty of good faith and proper purpose: Office holders must exercise power in the best interests of, and for the purposes of, the association.
Duty to avoid trading while insolvent: This applies where the decision to take on a debt makes the association insolvent or where the association is already insolvent when taking on a debt, and the decision maker was aware of the potential problem.

There are also new provisions that make current or former office holders liable for civil penalties if:

they used information gained by their office to gain personal advantage or to cause detriment to the association or
they use their position to gain advantage for themselves or to cause detriment to the association.

Officeholders, including key management personnel, will need to be aware of their obligations and implement processes to ensure that they satisfy their duties.

Trading in support of purposes

The restriction on associations trading in support of their purposes has been removed.

This amendment will allow organisations operating trading activities such as bookshops, opportunity shops and other fundraisers to legitimately undertake them within their incorporation.

Register of members

An association will now be required to maintain a register of members that includes each member's name and postal address, his or her e-mail address (if any) and the date on which the member's name was entered into the register.

Grievance and dispute resolution

A greater emphasis on natural justice has been implemented to deal with discipline and grievance procedures. Members will have better access to documentation in disputes.

It will be important for incorporated associations to ensure that the membership register is kept up-to-date, minutes are kept for meetings and that meeting attendance and voting procedures are well-documented.

Saward Dawson welcomes many of the changes as they attempt to reduce the administrative burden on Incorporated Associations. Some of the changes also make the rules more equitable and appropriate to the administrative structures of modern organisations.

All Incorporated Associations operating in Victoria will need to consider the effect of these amendments on their rules. We would be pleased to discuss how these changes may your organisation and any action you should take in preparing for these changes when they come into affect. 

Joshua Morse

New to Saward Dawson? Book a free 30 minute consultation

We happily spend 30 minutes without charge with new contacts to explore relevant issues and outline how we can assist. Let us know your area of interest and we will arrange a specialist to meet with you.

Subscribe to e-bulletins

Subscribe Now

Stay Connected