Compliance Audits
The compliance audit process involves testing internal controls, IT security, and adherence to standards while gathering documentation and evidence to maintain a clear audit trail.
We can help with a scope of works to ensure compliance with regulatory standards as those related to an Australian Financial Service License (AFSL), a Real Estate Trust account, a Legal Practice Trust Account and a Settlement Agent Trust Account .
Compliance Audit Process for Australian Charities
Step-by-Step Compliance Audit Process
1. Identify the Charity’s Legal Structure
The charity’s legal structure determines which laws apply and how governance is tested.
Common structures:
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Company limited by guarantee (Corporations Act 2001)
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Incorporated association (state/territory legislation)
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Charitable trust
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Unincorporated association
Structure affects:
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Director or trustee duties
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Member reporting
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Regulatory oversight
2. Confirm ACNC Registration and Charity Size
All registered charities are regulated by the Australian Charities and Not-for-profits Commission (ACNC).
Charity size (based on annual revenue):
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Small: under $500,000
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Medium: $500,000 – under $3 million
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Large: $3 million or more
Size determines:
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Financial reporting requirements
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Whether a review or audit is required
ACNC guidance:
https://www.acnc.gov.au/for-charities/manage-your-charity/reporting
3. Review ACNC Governance Standards (All Charities)
Every registered charity must comply with the ACNC Governance Standards, regardless of size or structure.
Audits review whether the charity:
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Is properly governed
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Manages finances responsibly
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Complies with Australian laws
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Is accountable to members and the public
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Manages conflicts of interest and complaints
Failure to meet these standards risks loss of charity registration.
ACNC Governance Standards:
https://www.acnc.gov.au/for-charities/manage-your-charity/governance-standards
Compliance Audit Process for Australian Charities
4. Confirm Financial Reporting Requirements by Size
Small charities
No financial statements lodged with ACNC
Must keep accurate financial records
Audit focuses on basic controls and record-keeping
Medium charities
Financial statements required
Must have an independent review or audit
Audit confirms accuracy and compliance
Large charities
Financial statements required
Audit is mandatory
Full financial statement audit and control testing
CPA Australia guidance:
https://www.cpaaustralia.com.au/professional-resources/not-for-profit
5. Test Financial Controls and Fund Management
Auditors assess whether the charity has appropriate controls for its size and risk profile, including:
Bank reconciliations
Approval and delegation controls
Segregation of duties
Restricted and unrestricted fund tracking
Grant and donor compliance
Larger or more complex charities are expected to have stronger, more formal controls.
6. Review Payroll and Employment Compliance
Where applicable, audits confirm compliance with:
PAYG withholding
Superannuation guarantee
Single Touch Payroll (STP)
Correct employee vs contractor treatment
ATO payroll obligations overview:
https://www.ato.gov.au/business/payg-withholding/
7. Check ATO Endorsements and Tax Obligations
Audits confirm the charity remains eligible for:
Income tax exemption
GST concessions (if registered)
Fringe Benefits Tax (FBT) concessions
Deductible Gift Recipient (DGR) status (if applicable)
This includes verifying activities align with endorsed charitable purposes.
ATO charity guidance:
https://www.ato.gov.au/non-profit/charities/
8. Verify ACNC Annual Reporting
The audit confirms:
Annual Information Statement (AIS) was lodged
Financial statements attached where required
Audit or review report included for medium and large charities
ACNC reporting overview:
https://www.acnc.gov.au/for-charities/manage-your-charity/reporting/annual-information-statement
Compliance Audit Process for Australian Charities
9. External Audit or Review (Where Required)
For medium and large charities:
Engagement must be independent and qualified
Scope must meet ACNC requirements
Results are publicly visible on the ACNC Charity Register
CPA Australia audit guidance:
https://www.cpaaustralia.com.au/professional-resources/audit-and-assurance
10. Board / Trustee Reporting
Audit findings are reported to the Board or trustees, covering:
Compliance status
Financial risks
Control weaknesses
Required corrective actions and timelines
Boards are responsible for oversight and ensuring issues are addressed.
11. Remediation and Ongoing Compliance
After the audit:
Issues are corrected
Policies and controls updated
Follow-up checks completed
Best practice is continuous compliance, not once-a-year checking.
Key Takeaways
All charities, regardless of size, must meet ACNC Governance Standards
Charity size determines financial reporting and audit requirements
Legal structure determines governance rules and regulator involvement
Audits protect donors, beneficiaries, boards, and the charity itself
