Governance Standard 5 is one of the most important ACNC Governance Standards for charity boards and committees to understand.
It explains the duties of a charity’s Responsible People. In plain English, this means the people who are responsible for governing the charity need to act carefully, honestly and in the charity’s best interests.
For many board members, committee members and trustees, the wording can feel formal. Terms like “reasonable care and diligence”, “responsible financial management” and “insolvent” may sound legal or technical.
But the practical meaning is straightforward: if you are helping govern a charity, you need to take the role seriously, make decisions for the right reasons, manage conflicts properly, and make sure the charity’s money and resources are handled responsibly.
This article breaks down Governance Standard 5 in simple language and explains what boards need to know.
What is Governance Standard 5?
Governance Standard 5 is part of the ACNC Governance Standards. These standards apply to registered charities, except for Basic Religious Charities.
The ACNC Governance Standards are designed to help charities operate lawfully, remain charitable, be accountable and be run responsibly. They also help maintain public trust in charities.
Governance Standard 5 focuses on the duties of Responsible People.
Under this standard, charities must take reasonable steps to make sure their Responsible People understand and follow certain duties.
This does not mean every board member needs to become a lawyer or accountant. It does mean the charity needs to make sure its governing people know what is expected of them and are supported to meet those expectations.
Who are Responsible People?
Responsible People are the people responsible for governing a charity.
Depending on the charity’s structure, they may be called:
- board members
- committee members
- directors
- trustees
- council members
- Responsible Persons
The title may change, but the idea is the same. These are the people who make, oversee or guide important decisions about how the charity is run.
For example, a Responsible Person may help approve the budget, set strategic direction, review financial reports, manage risk, appoint the CEO, approve policies or make decisions about major programs.
Responsible People do not usually manage every day-to-day activity. But they are responsible for governance. They need to make sure the charity is being run properly and in line with its purpose.
This is why Governance Standard 5 connects closely with board financial responsibilities. The board does not need to do every finance task, but it does need enough oversight to govern responsibly.
What Governance Standard 5 means in plain English
Governance Standard 5 says charities must take reasonable steps to make sure their Responsible People meet key duties.
In plain English, this means a charity should not simply appoint people to the board and hope they know what to do.
The charity should help them understand their responsibilities, give them the right information, and create systems that support good decisions.
For example, a charity might meet Governance Standard 5 by:
- giving new board members a clear induction
- providing a letter of appointment
- explaining the charity’s purpose, rules and legal structure
- sharing financial reports in a format board members can understand
- keeping a conflicts of interest register
- making sure board minutes record key decisions
- having clear financial policies and approval limits
- reviewing whether the charity can pay its debts as they fall due
- encouraging board members to ask questions before approving decisions
The standard is not about perfection. It is about reasonable, active governance.
The main duties under Governance Standard 5
The ACNC summarises the duties under Governance Standard 5 as several key responsibilities. Each one is practical once it is translated into everyday board behaviour.
Act with reasonable care and diligence
This means Responsible People need to take the role seriously.
They should prepare for meetings, read board papers, ask questions, understand major decisions and take reasonable steps to stay informed.
Acting with care and diligence does not mean knowing everything. It means paying attention and making an honest effort to understand what is being decided.
For example, if the board is asked to approve a new program, a Responsible Person should understand:
- why the program is being proposed
- how it supports the charity’s purpose
- how it will be funded
- what risks are involved
- whether the organisation has the capacity to deliver it
A board member does not need to prepare the financial model themselves. But they should not approve the decision without understanding the basics.
Act honestly and fairly in the charity’s best interests
This duty means Responsible People must make decisions for the charity and its charitable purposes, not for personal benefit or outside interests.
In practice, this means asking:
- Is this decision good for the charity?
- Does it support our purpose?
- Are we treating people fairly?
- Are we using the charity’s resources properly?
- Would we be comfortable explaining this decision to members, funders, donors or the public?
This is especially important when a decision involves money, staff, contracts, grants, services or relationships with related parties.
Do not misuse your position
Responsible People must not use their position for the wrong reasons.
This means they should not use their role to gain an unfair advantage for themselves, their business, their family, their employer or another organisation.
Examples of misusing a position could include:
- pushing the charity to buy services from a related business without proper process
- using board influence to secure personal benefits
- pressuring staff to make decisions outside approved policy
- using charity resources for private purposes
- taking opportunities that should belong to the charity
Most board members do not set out to misuse their position. Problems often arise when boundaries are unclear. That is why policies, declarations and transparent decision-making matter.
Do not misuse information
Board members and committee members often receive sensitive information.
This may include financial results, staff matters, funding negotiations, legal advice, donor information, service data, commercial arrangements or confidential board discussions.
Responsible People should not use this information for personal benefit or share it inappropriately.
Good charity governance includes clear expectations about confidentiality, records and communication.
Disclose conflicts of interest
A conflict of interest happens when a Responsible Person’s personal interests, relationships or other roles could influence their decision-making, or appear to influence it.
Conflicts are not always wrong. In community organisations, they are often unavoidable. A board member may also be a volunteer, donor, service user, supplier, employee of a partner organisation or member of another local group.
The key is to disclose and manage the conflict properly.
For example, a board member should declare a conflict if:
- their business is being considered as a supplier
- a family member is applying for a paid role
- they sit on the board of a partner or competing organisation
- they may personally benefit from a decision
- they have a close relationship with someone involved in a decision
A good process may include recording the conflict, deciding whether the person should leave the room for discussion, and noting the decision in the minutes.
Make sure the charity’s financial affairs are managed responsibly
This duty is especially important for boards, Treasurers, Finance Managers and CEOs.
Responsible financial management does not mean every board member needs to understand every accounting detail. It does mean the board needs to be satisfied that the charity’s money is being managed properly.
Responsible People should be able to understand:
- how the charity is funded
- whether income and expenses are tracking to budget
- how much cash is available
- whether the charity can meet upcoming commitments
- whether restricted funds are being used correctly
- what major financial risks exist
- whether financial records are accurate and up to date
- whether appropriate internal controls are in place
This is where useful NFP compliance and reporting becomes important. A board cannot manage financial responsibility well if reports are unclear, late or too technical to use.
Do not allow the charity to operate while insolvent
Insolvency means the charity cannot pay its debts as and when they fall due.
In plain English: if bills, wages, tax, rent, loan payments or supplier invoices are due, and the charity cannot pay them, there may be a serious problem.
Responsible People need to pay attention to cash flow and financial warning signs.
Warning signs may include:
- regular difficulty paying bills on time
- delayed wages or superannuation payments
- using restricted grant funds to cover general expenses
- relying on uncertain future income to meet current costs
- not knowing the true cash position
- large unpaid debts
- no realistic plan to manage funding gaps
Boards should not wait until the bank account is empty before acting. If the charity is under financial pressure, Responsible People should seek advice early and make sure decisions are based on current information.
Why Governance Standard 5 matters
Governance Standard 5 matters because it turns charity governance into practical behaviour.
It is not enough for a charity to have a worthy purpose. It also needs people who govern carefully, act honestly and protect the organisation’s resources.
Strong charity governance helps:
- protect public trust
- support better decision-making
- reduce the risk of conflicts being mishandled
- improve financial oversight
- protect charity assets
- support compliance with ACNC expectations
- give funders, donors and members greater confidence
- help the charity continue delivering its purpose
For board members, Governance Standard 5 is also a useful reminder that governance is active. Responsible People need to participate, understand and question. They should not approve decisions without enough information.
What boards should have in place
A board does not need overly complex systems to support Governance Standard 5. But it should have practical tools that help Responsible People meet their duties.
Useful governance documents and processes include:
- a board or committee induction process
- letters of appointment for Responsible People
- a current constitution or governing rules
- a conflict of interest policy
- a conflict of interest register
- clear board meeting agendas and minutes
- financial reports with plain-English commentary
- a budget approved by the board
- a cash flow report or forecast
- financial delegations and approval limits
- internal controls for payments and spending
- a risk register
- a board calendar for key compliance dates
- regular review of policies and reporting quality
These tools help make good governance repeatable. They also help new board members understand the role faster.
For many charities, strengthening these tools starts with better not-for-profit accounting support and financial reports that help Responsible People understand what is happening, not just what has been recorded.
Common mistakes with Governance Standard 5
Many charities want to do the right thing but still make governance mistakes because responsibilities are unclear or assumed.
Mistake 1: Assuming board members already understand their duties
Some people join a charity board because they care about the cause, not because they have governance experience.
A simple induction can make a big difference. New Responsible People should understand the charity’s purpose, structure, finances, risks, policies and ACNC obligations.
Mistake 2: Treating conflicts of interest as a personal issue
Declaring a conflict is not an accusation. It is a normal governance process.
Boards should create a culture where conflicts are declared early and managed consistently.
Mistake 3: Receiving financial reports without understanding them
If board members do not understand the financial reports, the reports are not doing their job.
Responsible People should ask for clearer commentary, summaries or training if needed. Financial oversight is part of Governance Standard 5.
Mistake 4: Not recording decisions properly
Minutes help show how decisions were made. They should record key decisions, major risks considered, conflicts declared and actions agreed.
Good minutes do not need to capture every word. They should clearly show that the board considered the right issues.
Mistake 5: Ignoring cash flow
A charity may have funding agreements or grants in progress but still face cash pressure. Boards need to know whether the charity can pay its debts on time.
Cash flow reporting is not just an accounting task. It is a governance tool.
A practical Governance Standard 5 checklist
Boards can use this checklist to test whether they are supporting Responsible People properly.
For new Responsible People:
- Do they receive an induction?
- Do they understand the charity’s purpose and governing rules?
- Do they know their duties under Governance Standard 5?
- Do they understand the charity’s current financial position?
- Have they been asked to declare conflicts of interest?
- Do they know where to find key policies and reports?
At board meetings:
- Are conflicts of interest asked about and recorded?
- Are financial reports reviewed and explained clearly?
- Are major risks discussed before decisions are made?
- Are decisions linked back to the charity’s purpose?
- Are questions encouraged?
- Are actions and approvals recorded in the minutes?
Throughout the year:
- Is the budget reviewed against actual results?
- Is cash flow being monitored?
- Are financial delegations being followed?
- Are internal controls working in practice?
- Are conflicts kept in an up-to-date register?
- Are board members given training or support where needed?
- Are policies reviewed when the charity grows or changes?
How Governance Standard 5 connects to financial governance
Governance Standard 5 is not only about conduct. It is also about financial oversight.
Responsible People have a duty to make sure the charity’s financial affairs are managed responsibly. This links directly to board reporting, internal controls, budgeting, cash flow and risk management.
For example, a board should be able to answer questions such as:
- Are we financially sustainable?
- Can we pay our debts as they fall due?
- Are restricted funds being used correctly?
- Are we relying too heavily on one income source?
- Do we have clear approval limits?
- Are there checks in place to reduce the risk of error or fraud?
- Do our reports give us enough information to make decisions?
If the answer to these questions is unclear, the issue may not be the board members’ financial knowledge. It may be that the board reporting and finance systems need to be improved.
Practical budgeting and funding support can also help boards understand future commitments, funding gaps and whether decisions are financially sustainable.
Final thoughts
Governance Standard 5 can sound formal, but its purpose is practical. It helps make sure the people governing a charity act with care, honesty and accountability.
For boards and committees, the standard is a reminder that good charity governance depends on clear responsibilities, useful information and responsible decision-making.
Responsible People do not need to know everything. But they do need to understand their role, ask questions, manage conflicts, monitor finances and act in the charity’s best interests.
If your board wants clearer financial reporting, stronger governance processes or practical support to help Responsible People meet their duties, Hopscotch can help turn complex obligations into clear, confident action.
