Shane Warne Foundation under investigation

The financial practices of The Shane Warne Foundation are under investigation by Consumer Affairs Victoria.

The Foundation is listed on the Australian Charities and Not-for-profits Commission register as a public ancillary fund that is a deductible gift recipient entitled to GST and FBT concessions and is exempt from income tax. Established in 2003, the Foundation has the charity subtype of advancing social or public welfare, lists its beneficiaries as youth with chronic illness and disabilities. It has revenue of $250,000 to $999,999 per year putting it in the medium sized charity category.

A spokesperson from Consumer Affairs has stated that it is “concerned about a number of inconsistencies in The Shane Warne Foundation’s reporting and accounting practices and is looking into this matter”. It is seeking further information in relation to recent staffing changes, as well as how the Foundation is meeting its fundraising and record keeping obligations.

Aspects of the Foundation’s financial practices that are receiving particular attention are the amounts which are being passed on to the Foundation’s beneficiaries as well as the amount of its income spent on operational and fundraising expenses.

It has been alleged that the bulk of the money raised by the Foundation is being used to pay for events, as income to Shane Warne’s brother, as well as rent to his parents and an entity connected to a director of the Foundation. It has also been alleged that the Foundation has inaccurately reported the amount of money passed on to its nominated charities. The Foundation recently claimed that 30 cents per dollar have been passed on to its nominated charities, however the Foundation’s 2014 financial report indicates it donated as little as 11 cents per dollar.

The Foundation reported to the ACNC in its 2014 financial statements that it received revenue of $452,711 of which $279,198 came from fundraising. The Foundation spent $281,434 on fundraising, resulting in an overall ‘cost ratio’ of approximately 62% (the cost of fundraising against the funds raised).

Consequences for the Foundation could be dire as it may face penalties from Consumer Affairs as well as the ACNC for breach of governance standards, financial reporting requirements, fundraising laws and public ancillary fund requirements.

This is a timely reminder for charities to ensure that their processes and procedures adhere to all the obligations imposed on them.

Governance standards

The governance standards to which all charities must adhere are administered by the ACNC and set out in the Australian Charities and Not-for-Profits Commission Regulation 2013 as follows:

• Governance Standard 1 - charities must commit to a charitable purpose and act for that charitable purpose
• Governance Standard 2 - charities must take reasonable steps to ensure that the entity is accountable to its members
• Governance Standard 3 -charities must comply with Australian laws
• Governance Standard 4 – charities must ensure that each of its responsible entities (such as directors) are not disqualified from managing a corporation or otherwise be disqualified as a responsible entity by the Commissioner
• Governance Standard 5 – charities must keep up the standards of certain duties: to exercise powers reasonably and responsibly; to act in good faith in the best interests of the entity; to not misuse the entity’s position; to not misuse information; to disclose perceived or material conflicts of interest, to ensure that financial matters are managed responsibly; and not to operate whilst insolvent.

If a charity does not meet the governance standards, the ACNC has a variety of actions open to it including imposing administrative penalties and revoking the organisation’s charity status with the effect of a loss of tax exemptions available to it on the basis of its charity status.

For more information on the governance standards follow this link to the ACNC website.

Financial reporting requirements

Charities must adhere to strict financial reporting and fundraising requirements.

Financial reporting requirements are outlined in the Australian Charities and Not-for-Profits Commission Act 2012 (Cth). 

The ACNC Act requires charities to keep written financial records that correctly record and explain its transactions and financial position and performance, and enable true and fair financial statements to be prepared. Further, it requires charities to report financial information annually to the ACNC by completing and submitting an Annual Information Statement.  The detail required to be provided depends on the size of the charity.

Fundraising laws
Failure to comply with fundraising requirements may give rise to the involvement of Consumer Affairs which administers the Fundraising Act 1998 (Vic).

The Fundraising Act states that if an organisation wishes to participate in a fundraising appeal, it must not make or give any representation, or oral or written statement to another person that misleads or deceives or is likely to mislead or deceive any person who comes into contact with that representation or information. If charities do not comply with this requirement they could face a penalty of up to $37,800 (240 penalty units).

For more information about fundraising laws, visit the Consumer Affairs website. 

Public ancillary fund requirements
For charities structured as a public ancillary fund, similar financial reporting requirements exist as outlined above. The Public Ancillary Fund Guidelines 2011 set out these requirements. PAFs have a minimum annual distribution requirement, and must distribute at least 4% of the market value of the fund’s net assets. The penalty for failing to do so is up to $4,530 (30 penalty units) if the shortfall is greater than $1,000.

PAFs must also keep proper accounts in respect of all receipts and payments of the fund and all financial dealings connected with the fund, and must retain those accounts for a period of at least 5 years after the completion of the transactions or acts to which they relate. The penalty for failing to do so can be up to $1,500 (10 penalty units).

These financial reporting requirements make it clear that charities should ensure that their spending is for proper purposes and is reflected in their financial reports.

For further information about PAFs, follow this link.

Further Information

The investigations by Consumer Affairs into the Shane Warne Foundation highlights the complex regulatory environment in which charities operate. They are also a cautionary reminder of the obligations that responsible entities have in managing charitable organisations and their accountability for any breach of those obligations.

If your organisation has any concerns about meeting any of the obligations discussed above, we recommend you seek legal advice.  For further information, contact:

Ashleigh Wall
Senior Associate
T: 03 5226 8559
E:awall@harwoodandrews.com.au

Dianne Sisak Penjalov
Senior Associate
T: 03 5226 8582
E: diannes@harwoodandrews.com.au

Ella Vines
Lawyer
T: 03 5225 5216
E: evines@harwoodandrews.com.au