Governance of Not-for-Profits, NGOs, Cooperatives and the Third Sector
What the exam tests
This domain tests governance where mission, donor trust and member ownership replace ordinary shareholder profit. It covers trustee duties, restricted funds, conflicts and cooperative principles.
Core rules
- NGO boards and trustees must act in furtherance of the mission, manage funds prudently and avoid private benefit. Incorporation and reporting usually run through the Corporate Affairs Commission and relevant sector regulators.
- Donor restrictions create restricted funds: money may be used only for the agreed purpose. Unrestricted reserves support core costs but still need a reserves policy.
- Conflicts of interest are acute in small NGO boards. A trustee whose company bids for an NGO contract must disclose, recuse and leave the decision to disinterested trustees.
- Cooperatives follow member-ownership principles: democratic control, often one member one vote, and surplus distribution by patronage rather than capital alone. A supervisory committee checks the board and accounts.
Worked example
An NGO receives a grant restricted to school books. The finance officer uses part of it to pay head-office salaries because cash is tight. Reasoning: this is a breach of the restricted purpose and donor terms. The board must restore the funds, disclose the breach to the donor, strengthen project accounting and separate restricted from unrestricted cash.
Traps
Treating an NGO surplus as profit for insiders; assuming small boards need no conflict policy; using restricted funds for overheads; confusing cooperative surplus with company dividend; and letting the board audit itself without a supervisory or audit committee.