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Governance: Responsible Financial Management

ACNC Governance Standard 5 includes among the duties of board members a requirement to ensure that the financial affairs of the charity are managed responsibly. Far too many board members are content to leave the finances to the Treasurer or the Board Finance Committee. Such a laissez-faire attitude constitutes a failure of duty. Board members must hone in on financial information but, at the same time, interpret that information and monitor the general direction and objects of their school by adopting a broad perspective.

Not all board members have to have financial qualifications but all must have an understanding of the school’s financial affairs. In one notable case, a board member of a not-for-profit organisation denied on oath that he had ever learned how to read a balance sheet or a profit and loss statement. This remarkable confession did not absolve him from liability for the debts of the organisation following fraud by the CEO.

There are many resources available for board members who do not have a professional financial background. For example, the Commonwealth Bank of Australia and the University of Western Australia have recently produced The Not-for-Profit Balance Sheet: A resource for Directors and CEOs by David Gilchrist and Dane Etheridge. Requiring non-financially literate board members to read this 30 page booklet would be a sensible first step to ensuring that board members had at least a minimum degree of understanding of the school’s financial affairs.

In the case mentioned above, the judge observed that the board member did not have to be professionally qualified in financial affairs to suspect that something was amiss. Sadly, we are seeing far too often cases where something is amiss. Fortunately, we have been able to assist schools to recover money that has been fraudulently taken by non-teaching employees. In the recent Supreme Court of New South Wales case of Moriah War Memorial College Association v Nosti, the judgment began ominously: “Augustine (Gus) Robert Nosti, the first defendant, is a thief.” For 15 years, he was employed by the College as financial controller and financial manager. During that period, undetected, he stole over $7 million from the school and judgment was entered against him for that amount. While there is no suggestion that the College Board had failed in its duties, the case is a sad example of what can happen in independent schools.

If you know of or suspect fraudulent conduct by an employee, please contact David Ford or Daniel O’Brien as soon as possible.

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