The Australian Charities and Not-for-profits Commission (ACNC) governance standard 5 sets out a number of duties that aim to ensure the responsible persons within charities act with standards of integrity and common sense.

One of the duties states that ‘a charity should not be allowed to operate whilst it is insolvent’.

If a charity that is a company continues to operate while insolvent, its directors may be subject to legal action. Charities incorporated as associates may also have responsibilities to their state and territory regulators.

The ACNC has published a list of warning signs charities and the board should be aware of which may indicate financial trouble.

The warning signs include:

• difficulty in paying bills
• history of financial losses in consecutive periods
• trouble producing accurate and timely information about performance and position
• overdue tax debts
• late payments to creditors
• payments being declined
• loan applications being declined
• trouble paying staff on time
• loss of major income source/funding
• relying on funding from unreliable sources
• noticeable increase in costs or decrease in income compared to budget
• creditors threatening or commencing legal action for unpaid debts
• board members or staff raising concerns about the charity’s financial position.

If your charity is experiencing any of these warnings signs, it is important that directors take appropriate steps to ensure the charity is not operating while insolvent.

If you have concerns or would like further advice, please contact Amy Alexander on 03 5443 0344 or email afs@afsbendigo.com.au