Emil Ford Lawyers

How to serve our ex-servicemen and women more honourably

Australia’s charities watchdog, the ACNC, has taken action against RSL Queensland over governance failures and non-compliance with its financial and operational record-keeping obligations, including not being able to demonstrate how over $400,000 in charitable funds were spent. This follows the NSW Government’s inquiry into the “abysmal failures” in charitable fundraising and use of funds by the three arms of the RSL in NSW.

Why the matter arose

It came to the attention of the ACNC in September 2016 that RSL Queensland owed the ATO over $321,000 in fringe benefits tax. This prompted the ACNC to start an investigation of RSL Queensland’s compliance with the ACNC Act and Regulation. The ACNC was particularly concerned about the adequacy of RSL Queensland’s financial management policies and procedures.

Governance standard 5

There are five governance standards which deal with how charities are run (that is, their processes, activities and relationships). Governance standard 5 requires a charity to take reasonable steps to ensure its directors meet certain duties. These duties are discussed in greater detail in an earlier series of articles. Amongst other things, the duties require directors to:

  1. act with reasonable care and diligence;
  2. act honestly and fairly in the best interests of the charity and for its charitable purposes; and
  3. ensure that the financial affairs of the charity are managed responsibly.
  4. Additionally, the ACNC Act requires that a charity keeps certain written financial and operational records.

What the investigation found

The ACNC’s investigation found that there was a long-established practice whereby RSL Queensland would make monthly payments to its directors to cover ‘out of pocket’ expenses. This practice led the ACNC to believe that RSL Queensland breached the above listed duties imposed by governance standard 5 for the following reasons:

  1. By using charitable funds and assets to remunerate, and not reimburse, directors for out of pocket expenses, RSL Queensland did not take sufficient steps to ensure its directors exercised the required care and diligence. This remuneration was in breach of not only governance standard 5 but also of the RSL Constitution. Additionally, in November 2017 RSL Queensland developed a Governance Plan in response to the ACNC’s concerns about the historic payments made to directors. It outlined a framework for RSL Queensland to improve governance, including a detailed proactive action plan together with a reporting structure and resource requirements. However, the ACNC was unimpressed by RSL Queensland’s “lack of progress” by March 2018. In the ACNC’s opinion, the directors of RSL Queensland also breached their duty to act with reasonable care and diligence because of their failure to implement key aspects of the Governance Plan.
  2. As to the duty to act honestly and fairly and for a proper purpose, by making regular payments to themselves to cover out of pocket expenses in a way that was inconsistent with the charity’s Constitution and By-Laws, the Board of Directors did not act in RSL Queensland’s best interests.
  3. By not having appropriate controls in place, such as a tailored policy to govern these payments, RSL Queensland did not take reasonable steps to ensure its directors managed charitable funds in a responsible manner. This resulted in RSL Queensland being unable to show how charitable funds of over $400,000 were spent. The absence of tailored financial systems to manage its taxation obligations also meant that the directors failed to identify that FBT was payable (due to the type and treatment of their entitlements). In doing so, they failed to mitigate the financial risk of attracting a taxation liability.

The ACNC also believes that, by failing to keep financial records, such as receipts, relating to most of the transactions covered by ‘payments to directors’, RSL Queensland breached its financial record-keeping obligations. It also breached its operational record-keeping obligations by failing to retain records of directors’ operational use of RSL Queensland vehicles, for example, by way of log books. 

What does RSL Queensland have to do?

The ACNC may give a charity a written direction if it reasonably believes that the charity has contravened the ACNC Act or a governance standard. The direction the ACNC issued on 28 March 2018 to RSL Queensland is a good demonstration of the ACNC’s power and the consequences of non-compliance with the legislation. The ACNC has directed RSL Queensland to:  

  1. engage a governance expert skilled and experienced in not-for-profit entities to provide independent evaluation and monitor implementation of the Governance Plan;
  2. submit to the ACNC a Board Resources Policy which clearly explains the scope and limitations of director entitlements and which has been reviewed by the governance expert;
  3. submit to the ACNC a Board Meeting Standard which sets out specified procedural and conduct requirements for Board Meetings and has been reviewed by the governance expert;
  4. engage a second independent governance expert who is suitability qualified to conduct an evaluation of the Board’s performance and effectiveness in order to determine what training is required for the Board;
  5. take action to comply with aspects of the Governance Plan;
  6. ensure all directors undertake within a 12 month period a diploma course in corporate governance; and
  7. communicate with RSL Queensland members about how the ATO characterises payments made to directors.

But it is not all bad news for RSL Queensland. If it had wanted to, the ACNC could have used its power to deregister the charity. But the direction shows that the ACNC values the work of RSL Queensland in looking after needy ex-servicemen and women and it wants to see it continue, provided that it takes steps to ensure it is fully compliant with its obligations under the ACNC legislation. If you would like to know more about the ACNC governance standards and what they mean for your charity, please contact or

 

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