Review Reveals Boards That ‘Fall Asleep at Wheel’
22 April 2014 at 11:20 am
The latest review of complaint investigations by the Australian charity regulator reveals that some Not for Profit boards have “fallen asleep at the wheel” or engaged in wilful or deliberate wrongdoing, while Governance is an area of concern for new charities.
The review, by the Australian Charities and Not-for-profits Commission, examined 15 of the most significant current compliance cases and found that every case involved governance issues.
One third of the cases involved charities less than five years old, all were charities of varying size, and they were from every state except the Northern Territory. However, the ACNC has not named any of the charities it has investigated even where police have been called in.
In one case, the ACNC received information that a staff member of a children’s charity was using the charity’s credit card for private purchases.
The ACNC claims the Board worked closely with the regulator to identify the extent of the theft and the failures of governance that had allowed it to occur unnoticed for several years.
“On the recommendation of the ACNC, the Board: stood down the employee and report the matter to police; advised the charity’s stakeholders, and used independent external advice to address its failures of governance by introducing policies and procedures to ensure transparency and accountability,” the ACNC said.
Another case involved allegations of large scale theft were made against a school principal who was on the board of a charity closely associated with the school.
“After contact from the ACNC, the charity stood down the principal as a director. Shortly after this, the principal tried to withdraw a large sum from the charity’s bank account but was unable to do so. This attempt was reported to police,” the ACNC said.
“With the assistance of the ACNC, the charity introduced financial management policies and procedures to improve its financial governance and to reduce or eliminate the risk of fraud.”
ACNC Director of Compliance, Stewart Donaldson, said the Commission’s most common source of reliable information was from the public, followed by former charity employees or board members, and referrals from other agencies.
“So far, we have already encountered a wide range of governance issues. The most common problem is when charities use funds inappropriately, in ways which do not comply with the charity’s Not for Profit purposes such as using charitable funds to purchase private assets for board members,” he said.
“We have also seen a number of cases where there is a lack of accountability to members. In some cases charities have failed to convene meetings as required in their constitution or have failed to follow the appropriate process to amend constitutions.
“The third most common theme is where responsible persons fail in their duties. This includes failing to declare conflicts of interest, not maintaining accurate records or operating while insolvent.
“Finally, at the extreme end, we have investigated charities where allegations have been made of criminal activity.”
Donaldson said the ACNC worked closely with the relevant state, territories or other Commonwealth agencies to determine who the best regulator to act was.
“Every action we take is proportionate. We always take the minimum action required to address an issue. Engaging with charities and other regulators, and working together on solutions, is a big part of what we do.”
ACNC Assistant Commissioner (General Counsel) Murray Baird said governance issues usually arose through a charity board’s inexperience or understanding of good governance.
He said at times, it had been clear a board has “fallen asleep at the wheel” or engaged in wilful and deliberate wrong doing.
“The ACNC acts firmly and quickly where there is a likelihood of serious mismanagement and misappropriation,” Baird said.
“As the regulator, what has been pleasing is charities under investigation, for most part, have worked cooperatively with the ACNC to comply with requests for information and changes to governance practices.”
The ACNC is responsible for regulating about 60,000 charities that operate locally, nationally and overseas. Since commencing as the national charity regulator 15 months ago, the ACNC says it has received 500 complaints, of which more than 240 have warranted an investigation or review by the ACNC’s 12-person compliance team.
Baird said ensuring compliant and solid governance within the sector was a common theme for charity regulators around the world when they met for the seventh International charity regulators meeting, held in Melbourne recently.
“Among the discussion at this international conference was the question ‘What makes effective charity regulation?’,” Baird said.
“Our counterparts from Canada, Singapore, Ireland, the UK and New Zealand spoke of their experience that most charities want to do the right thing and understand the importance of public trust and confidence.
“The big question was how much of their role needed to be supervisor, and how much was educator. In Canada, the regulator focuses compliance activity on deliberate non-compliers; in the UK, governance of charities was important to ensure terrorism, money laundering and abuse of beneficiaries did not arise; Ireland is in the process of establishing a regulator following scandals within the sector; and Scotland takes the approach ‘prevention is better than cure’ and regulation is done for the public and in the public interest,” Baird said.
Legislation to abolish the charity regulator is currently before Federal Parliament.