Governance beyond listed companies — study companion

Accounting Ahead | Original study resource | accountingahead.com.au

Governance beyond listed companies

MODULE 3 | PART E.1 | STUDENT COMPANION

The same idea applies everywhere: whenever people manage resources for others, they need direction, control

and accountability. What changes is who is trusting whom, and which risks matter most.

Family business and SME Not-for-profit and charity Public sector

Who trusts them Family owners, lenders, staff Donors, members, clients,

volunteers, funders

Citizens, parliament, the minister

Main governance risk Family conflict; growth beyond

the family's capacity

Misused funds; skills gaps;

founder succession

Misuse of public money and public

power; unclear roles

Key tools and

guidance

Family council; board with

outside directors; external

accountants

ACNC Governance Standards;

AICD not-for-profit principles;

committees

Economy, efficiency,

effectiveness; public sector

governance principles; integrity

bodies

Family council or board? A family council handles family questions: who may work in the business, the

dividend policy, succession. A board, ideally with outside directors, makes business decisions. Separating

them moves the firm from family relationships to business relationships.

The six ACNC Governance Standards

1 Purposes and not-for-profit nature

Genuinely pursue the charitable purpose, and show it

2 Accountability to members

Give members a real chance to raise concerns

3 Compliance with Australian laws

No serious offences, such as fraud

4 Suitability of responsible people

Check they are not disqualified; remove any who are

5

Duties of responsible people

Care, honesty, no misuse, disclose conflicts, sound

finances, no insolvent trading

6 Public trust and confidence

Join the National Redress Scheme where required

ETHICS & GOVERNANCE | M3 PART E.1 | STUDENT COMPANION

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Standard 5 and directors' duties

MODULE 3 | PART E.1 | THE DUTIES OF RESPONSIBLE PEOPLE

ACNC Standard 5 duty Matching directors' duty from Part A

Act with reasonable care and diligence Duty 5: care and diligence

Be honest and fair, acting in the charity's best interests and

for its purposes

Duties 2 and 3: good faith and proper purposes

Don't misuse position or information Duty 1: no improper use of position or information

Disclose conflicts of interest Duty 1: avoid, disclose and manage conflicts

Manage the financial affairs responsibly Duties 5 and 6: care and diligence; remain informed

Don't let the charity operate while insolvent Duty 7: prevent insolvent trading

Charities working overseas also meet four External Conduct Standards: control of activities and resources;

annual review and records for each country; anti-fraud and anti-corruption; protection of vulnerable people.

Public sector governance

Economy

Spend less for the inputs: cheaper e-book licences

Efficiency

More output per input: more loans per dollar

Effectiveness

Achieve the outcome: better reading among targeted

children

Parliament and the minister

Department and its secretary

Entity board and chief

executive

Managers and staff

Integrity bodies

Auditor-general,

ombudsman,

anti-corruption

commission

Australian Public Service Commission guidance frames public sector governance as performance plus

conformance, built on six principles: accountability, transparency, integrity, stewardship, efficiency and

leadership.

Real case - Robodebt. An automated debt recovery scheme (about 2015 to 2019) used averaged income

data to raise debts against people who had received welfare payments. In 2021 the Federal Court

approved a class action settlement including $112 million, on top of refunds and the cancellation of debts.

The Royal Commission's final report (7 July 2023, 57 recommendations) found the scheme unfair and

unlawful. Lawfulness and fairness are not optional when using public power.

ETHICS & GOVERNANCE | M3 PART E.1 | STUDENT COMPANION

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Accounting Ahead | Original study resource | accountingahead.com.au

Practice questions

MODULE 3 | PART E.1 | TRY THESE BEFORE THE WORKED ANSWERS

Question 1 - Rossi Fresh Pasta Pty Ltd

Using the lesson's facts (founder deciding informally, two children working in the business, two cousins owning

shares but not working there, a dividend dispute and no succession plan), recommend four governance changes

and explain how each helps.

Question 2 - Northside Food Rescue

The treasurer's catering business supplies every fundraising event without the committee being told, and the

committee keeps running a loss-making gala program while unpaid bills pile up. Which Standard 5 duties are

under strain, and what should happen next?

Question 3 - economy, efficiency or effectiveness?

Library service measure E? Library service measure E?

(a) Each e-book licence costs 12% less after

renegotiation

(d) Processing time per new book fell from

five days to two

(b) Loans per dollar of operating cost rose this

year

(e) A cheaper supplier provides shelving of

the same quality

(c) Reading results improved among children

in targeted suburbs

(f) Adults say job-skills workshops helped

them find work

ETHICS & GOVERNANCE | M3 PART E.1 | STUDENT COMPANION

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Accounting Ahead | Original study resource | accountingahead.com.au

Worked answers

MODULE 3 | PART E.1 | WORKED ANSWERS - ATTEMPT THE QUESTIONS FIRST

Question 1 - Rossi Fresh Pasta

Family council: a forum for family questions such as who may work in the business, family employment

rules and expectations, so disputes don't spill into operations.

Dividend policy: an agreed, written policy balancing payouts to non-working owners with reinvestment,

removing an annual argument.

A formal board with outside directors: business decisions such as the new factory made at minuted board

meetings, with fresh experience and independent challenge.

Succession plan: identify and develop future leaders, family or professional, before Maria retires.

External accountant support: risk management, internal controls and reliable financial reporting suited to

the company's size.

Question 2 - Northside Food Rescue

Treasurer: failed to disclose a conflict of interest, may be misusing his position, and isn't acting solely in the

charity's best interests. Committee: isn't managing the financial affairs responsibly or with reasonable care and

diligence, and risks letting the charity operate while insolvent.

Next steps: the treasurer discloses the interest and steps out of related decisions; supply is put to a fair

comparison; the committee reviews the gala program with a cash flow forecast, stops incurring debts it may not

pay, and seeks professional advice if insolvency is a risk.

Question 3

(a) Economy | (b) Efficiency | (c) Effectiveness | (d) Efficiency | (e) Economy | (f) Effectiveness

Rossi Fresh Pasta, Northside Food Rescue and the library service are imagined examples. Real case sources: Prygodicz v

Commonwealth of Australia (No 2) [2021] FCA 634; Royal Commission into the Robodebt Scheme, final report (7 July 2023). Study guide

reference: Module 3, Part E, sections 3.12 to 3.15.

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