Does our spending fit our stated purpose?

Borthwick Chris Jul2019lg

In this help sheet series, Our Community’s resident agony uncle, Chris Borthwick, offers answers to frequently asked questions about issues not-for-profits are facing.

Dear Agony Uncle,

I have just been elected as secretary of my local neighbourhood centre in New South Wales. It is a not-for-profit incorporated association and a registered charity.

I have reviewed the purpose of the organisation as outlined in the constitution, which is based on the model rules, and as stated in the ACNC register. I have noticed in the previous year’s annual report a large expenditure which does not seem to fit with the stated purpose of the organisation. Is this an offence, and if so where can I find some information and advice on this?

Agony Uncle's answer

It's not an offence, but that doesn't mean it’s okay.

It's not an offence because constitutional issues are generally matters of private law, not public law. Unless the payment was actually criminal – paying of the chair’s gambling debts, say, to choose an unlikely example – then the only people who have a right to complain are the members (you). Nobody else is interested.

A payment that falls outside the purposes of the organisation would be ultra vires, or outside powers, and shouldn't be done, certainly. That said, the powers of a not-for-profit board are considerable, and are generally interpreted widely. If your stated purpose is to organise an annual performance of Handel’s Messiah, for instance, you're not only allowed to do that but you’re also allowed to run training courses for singers, to put on performances of Oklahoma to assist in that training, to buy a hall in which to stage your productions, to invest (or not) in coal mines to raise the money for the hall – you could basically run BHP without falling outside the broadly interpreted scope of that mandate.

Perhaps for that reason, I know of almost no cases (where no fraud is involved) where any external body has intervened over ultra vires matters, so if you're worried about that you shouldn't be. I do know cases where the issue has come up, but it's generally in the context of cleaning up after the total collapse of an organisation, which may not be as reassuring as all that.

Leaving aside, then, the strict legal view, the real issue is probably to do with your organisation's priorities. If the payment means your organisation is moving in a new direction that you see as a distraction from your core mission, then get that sorted out with a discussion in the board.

Oh, and even if the payment is ultra vires that doesn't mean you have a chance of getting the money back. Third parties are entitled to assume that not-for-profits have sorted these things out before handing over the cheque.

If you think the payment was misguided, or wrong, you can try to identify the people who authorised it, and you may want to vote them off at the next elections, but that's about the limit of your possible interventions.

Best wishes,
Agony Uncle.

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