The Risk & Control Series | Part 2 of 3

Governance Risk: When Good Intentions Are Not Enough

Not-for-profit boards are overwhelmingly made up of people who care deeply about their organisation’s mission. Many serve as volunteers, giving their time and expertise to causes they believe in.

But commitment alone does not constitute good governance. And across the sector, the data suggests that too many boards are operating without the foundational knowledge and structures they need.

The Governance Gap

Not-for-profit boards have traditionally drawn their directors from membership and stakeholder groups. While this ensures a connection to the organisation’s purpose, it also means that a significant proportion of directors may not have business, financial, or directorship experience. This is not a criticism of intent, but rather flagging a structural risk.

Research into small charities found that 62% have never received risk and governance training. When the people responsible for guiding an organisation’s strategic direction, managing compliance, and overseeing financial performance have not been equipped to do so, governance gaps are inevitable.

The ACNC’s most recent review of 250 Annual Information Statements and Annual Financial Reports revealed frequent compliance issues, including:

• Missing elements in reports, such as cash flow statements or notes
• Discrepancies between audited financial statements and Annual Information Statements
• Incorrect identification of financial reporting frameworks

These are not trivial administrative errors. They represent a breakdown in the governance processes that should catch them.

In 2023–24, 778 charities had their registration revoked due to ACNC action, including 22 revocations resulting directly from compliance enforcement. Behind each of those numbers is an organisation that failed to meet its regulatory obligations – and a community that lost access to a service.

The Legal Reality

• The duty to act with care and diligence
• The duty to act in good faith and in the best interests of the organisation
• The duty to not misuse position or information
• The duty to disclose and manage conflicts of interest

For volunteer directors without a governance background, these obligations can come as a surprise – often only becoming apparent when something goes wrong.

• The importance of properly documented procedures, policies, and record keeping to minimise the risk of performance failure and to defend against any actions taken against the organisation
• The necessity of director training, particularly where board members are volunteers without business or financial backgrounds
• The need for appropriate communication with stakeholders and donors to ensure accountability
• The importance of Directors & Officers (D&O) insurance to protect individuals in the event of claims

The Control: Structured Governance Frameworks

• Board induction programs that clearly outline director duties, legal obligations, and organisational expectations
• Annual governance training aligned to the ACNC Governance Standards and relevant legislation
• Regular board evaluations to identify skills gaps, succession needs, and areas for improvement
• A documented code of ethics that sets behavioural expectations for all board members
• Policies covering conflicts of interest, delegations, and decision-making protocols
• Board papers distributed with adequate lead time to allow for proper preparation and informed discussion

The Operational Connection

• Strategic plans are vague or absent
• Risk management is reactive rather than proactive
• Crisis response plans do not exist until a crisis arrives
• Succession planning is neglected
• Meeting processes are inefficient, with agendas running over time and key decisions deferred

Where to Start

1. Audit your board’s skills and experience – do you have the governance, financial, and strategic capability you need?
2. Implement a formal induction program for all new directors
3. Schedule annual governance training – the AICD offers programs specifically designed for not-for-profit directors
4. Review your policy framework – are your policies current, accessible, and understood?
5. Conduct an annual board evaluation – identify gaps before they become problems
6. Confirm D&O insurance is in place and that coverage is adequate

This is Part 2 of The Risk & Control Series from The Breakthrough Office – practical guidance to support not-for-profits to identify, understand, and manage organisational risk.

If you would like support in managing or assessing the governance controls of your organisation, reach out to us at: [email protected]

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