By Andrew Egri, Associate

Earlier this year, the NSW State Government released the Report of the Inquiry under the Charitable Fundraising Act 1991 (NSW) led by former Supreme Court Patricia Bergin.

The report followed a year-long independent inquiry into the RSL NSW Branch, RSL Welfare and Benevolent Institution and RSL LifeCare. The report was scathing on the systematic governance failures across the three organisations. Among the many incidences of misconduct, the inquiry heard evidence that the former President of RSL NSW, Mr Donald Rowe, spent $465,376 on his RSL credit card between 2009 and 2014. Further, Mr Rowe allowed his son to stay, rent-free, in RSL owned accommodation in the Sydney CBD for seven years.

What happened?

The Bergin report totalled some 705 pages and extensively scrutinised the failures of each of the organisations. The report’s key findings revealed, amongst other things, ongoing organisational failures of governance. Some of the key issues identified in the report are summarised below.

NSW RSL

During his term as President, Mr Rowe misused the funds of RSL NSW and improperly managed expenses. Mr Rowe’s misuse of funds included using his corporate credit card to cover mortgage repayments and flights for family members.

When the State Council became aware of Mr Rowe’s misuse of funds, it failed to properly investigate and did not report the allegations to the police. Instead, the State Council provided Mr Rowe with the option of resigning rather than undergoing an investigation. When Mr Rowe resigned, the State Council made misleading statements regarding the circumstances of the resignation by indicating that it was due to health reasons.

RSL LifeCare

The directors of RSL LifeCare approved and received substantial remuneration and allowances, breaching their obligations to the charity. Further, the charity’s funds were being used to pay directors, staff and others to attend functions linked to the Liberal Party of Australia without consideration as to whether attendance was compatible with RSL LifeCare’s charitable purposes. As a result, the report revealed RSL LifeCare’s non-compliance with its charitable fundraising authority under the Charitable Fundraising Act 1991 (NSW).

Why did it happen and why was it only detected in 2014?

The inquiry revealed many instances of poor governance practices creating a culture in which bad behaviour became tolerated. The report found a “widespread belief that the President would do the right thing”. In relation to the former President’s misuse of funds, the report said that “no one appears to have recognised the absurdity of having the President approve his own expenses”.

The report reveals some key themes in respect of matters which, if not appropriately addressed, can create a culture whereby bad behaviour (whether by governing body members or staff) is allowed to fester.

1. Failure to refresh

The report commented on the failure of the organisations to refresh the membership of the governing bodies. Rather, “the same group, Messrs Rowe, White, Perrin (and Ms Mulliner), managed, or more accurately mismanaged, the affairs of RSL NSW, using the same processes and systems that had been in place for many years”.

However, the failure to refresh was not limited to the organisations’ governing bodies. During the same decade, RSL NSW had the same legal adviser and the same auditors.

The report determined that the failure to refresh the roles of those in power contributed to the situation. When considering that Ms Mulliner had been at the financial helm of RSL NSW for the thirty-eight years prior to 2014, the report found that “the financial systems and records that were in place were quite inadequate and there was a complete lack of rigour at the Finance Department level when it came to checking the Presidential spending”.

There is a clear benefit in establishing processes which allow for the measured and intentional transfer of power in an organisation.
Governing bodies are encouraged to stagger the appointment of their members to allow for a gradual transition. The report also highlights the importance of reviewing the contribution of long-term accountants and other advisers, and whether it is in the organisation’s interests to obtain a new and independent perspective.

2. Failure to ask questions

The poor governance of RSL NSW was allowed to fester due to a culture which discouraged the asking of tough or probing questions. In relation to the mismanagement of funds by the former President, the report found that “those who were courageous enough to ask quite proper questions about the level of the President’s expenses were inappropriately rebuffed by the CEO with the rather glib retort that ‘a man’s got to live'”.

The report found that a culture existed of “not questioning superiors and in this instance delayed the exposure of the problems that led to Mr Rowe’s resignation. Had the culture been different and the concern about the level of spending been dealt with earlier when it was raised, at least some of the awful consequences of what has now happened may have been avoided or not been so engraved”.

Governing body members who do not ask the tough questions put themselves at risk of failing to uphold their duty to act with care and diligence. The inquiry is a clear example of the problems that can be allowed to linger as a result of a failure to challenge the status quo.

Responses to the report

The release of the report has led the organisations to take a number of steps to address the governance failures, including the following:

• RSL NSW has committed to 15 measures to demonstrate improved governance, transparency, and financial management;
• RSL LifeCare has committed to measures to demonstrate improved board governance:
  • addressing issues relating to board remuneration and risk management; and
  • adherence to its political advocacy policy; and
• both have taken on enforceable undertakings that cover a three-year period.

Undertakings

The organisations were also obliged to provide undertakings which require:

• RSL NSW to:
  • ensure all state councillors complete a course with the AICD within six months of their appointment;
  • maintain a conflicts of interest policy;
  • maintain an externally-managed whisteblower hotline; and
  • maintain expenses policies and procedures; and
• RSL LifeCare to comply with Governance Standards 1 and 5.

Summary

Much can be learned from the many failures of the RSL entities. In relation to the governance of not-for-profit organisations, we encourage them to:

• put in place processes which require gradual “turnover” of those in positions of power, such as those members of the organisation’s governing body; and
• ask questions of the governing body and senior management as to its practices and policies, even when such questions may not be received positively.

Failure by the RSL entities to enact these steps allowed a culture to become embedded in the entities which allowed bad behaviour by those in senior positions to go unrectified for too long. Not-for-profit organisations are encouraged to remain vigilant in this regard, to protect against such a toxic culture taking hold.