Introduction
A branch of the Health Services Union failed to prepare accurate financial reports, disclose related party transactions, and keep proper financial records.
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Content
Case name
General Manager of Fair Work Australia v Health Services Union and Others [2014] FCA 970
The issues
A branch of the Health Services Union failed to prepare accurate financial reports, disclose related party transactions, and keep proper financial records.
Three officers also breached officers duties owed to the branch to ensure important financial controls around branch expenses were followed.
Two of the officers also breached their duties when they improperly used the branch’s funds for their own benefit or the benefit of others. One of the two officers was ordered to pay substantial compensation to the HSU for unaccounted benefits they received.
What happened
The Health Services Union (HSU) admitted eight civil penalty breaches of the Fair Work (Registered Organisations) Act 2009 by its Victoria No 1 Branch (Branch), including:
- failing in two financial reports to disclose related party transactions between the Branch and a business operated by the Branch President’s domestic partner
- failing to prepare a financial report which complied with Australian Accounting Standards
- failing to present to its members and lodge with the regulator its financial report and loans, grants and donations statement, which were lodged at least 9 months and 5 months late respectively.
The HSU also admitted that the Branch failed to keep financial records that correctly recorded and explained the Branch’s transactions to allow their accounts to be properly audited.
The Branch President, Secretary and Assistant Secretary also admitted breaches of their officers’ duties.
Each of the officers breached their duty of care and diligence by allowing a branch employee to incur expenses without following proper authorisation procedures. They did so by signing blank cheques and providing their bank PINs to the office manager to allow payments to be made without the officers’ further involvement. This bypassed important safeguards intended to ensure the secure financial administration of the Branch.
The Branch’s Secretary and Assistant Secretary also acted improperly and without good faith by allowing the Branch to pay travel expenses for the officers and their spouses to attend the interstate wedding of a Branch organiser. Each officer admitted to misusing their position within the branch and receiving a personal financial advantage at the expense of the Branch.
The Branch President sought to be excused from liability on the basis that the conduct was honest, and did not result in loss or damage to the organisation. The Branch President had trusted the office manager, and adopted an existing practice which was convenient for making prompt payments. The Court rejected this argument. It found that it was not appropriate for a senior official, by ignoring the financial controls in place, to send a message to other officials and staff that it was acceptable to ignore the rules if they were inconvenient.
A similar argument was made by the Assistant Secretary and this was also rejected on similar grounds, noting that it was even more difficult to excuse breaches which involved personal advantage to the detriment of the Branch members.
What organisations can learn from this case
Organisations must prepare financial reports in a timely manner and ensure that they include all disclosures of related party transactions and comply with the Australian Accounting Standards. Organisations must also keep financial records which correctly explain their transactions and their financial position.
Rules and processes that ensure the secure financial administration of the organisation are important and must be followed, even if they may be inconvenient. Officers must not sign blank cheques or provide banking codes to other persons which bypass these requirements.
Officers cannot receive personal benefits like personal travel for themselves or their spouse, or unauthorised additional salary payments.
What the judge said
In relation to the HSU’s failure to disclose related party transactions between the Branch and a business operated by the Branch President’s spouse, Justice North at [59] referred to the importance of disclosure:
The requirement for disclosure goes to the heart of the ability of members to control their organisation. Without knowledge of the administration they are powerless to exercise their right to control.
In relation to the use of Branch funds by the Secretary and their spouse to attend a wedding, Justice North at [166] said:
There is a particularly serious aspect to these contraventions in that they involved a misuse of the third respondent’s position as Branch Secretary to obtain a private benefit for himself and his spouse to the detriment of the Branch. There is a strong need for the Court to express disapproval of these contraventions in order to send a clear message to deter others from engaging in similar conduct.
The outcome and the penalty
The HSU was ordered to pay penalties totaling $38,500. The Branch President was ordered to pay a penalty of $4,505, the Secretary penalties of $18,265.50 and the Assistant Secretary penalties of $6,720. All penalties were reduced because of early admissions and cooperation.
In addition, the Branch Secretary was also ordered to pay compensation of $16,569.88 plus interest of $10,229.52 to the HSU for losses suffered by the HSU as a result of improper personal benefits he received that had not been reimbursed.
Court reference
VID 380 of 2012