Community organisations are vulnerable to corruption: watchdog

Posted on 10 Apr 2024

By Matthew Schulz, journalist, Institute of Community Directors Australia

Bribe Corruption shutterstock 1901873602
Victoria's corruption watchdog has released guidance for government-funded NFPs wanting to avoid integrity issues.

A detailed study into the corruption risks faced by government-funded community organisations has uncovered several weaknesses that leaders should be aware of.

At the last count, Victoria’s Independent Broad-based Anti-corruption Commission (IBAC) examination had investigated eight cases of alleged corruption in NFPs between 2013 and 2020 in response to 109 allegations.

As part of its examination of the corruption threat, IBAC highlighted investigations by the Victorian Ombudsman in 2017 which found significant deficiencies in out-of-home care and disability servicescare. About the same time, the Ombudsman received a string of complaints about NFPs, such as allegations of:

  • serious financial misconduct, such as allocating work to family/friends, forged documents, questionable audit and financial controls, board members getting kick-backs during the selling of assets, and board members approving substantial pay rises for themselves
  • the failure of a provider to deliver a funded service
  • the lack of accountability of a community service organisation (CSO) to clients or their advocates about how the funded package/service was delivered
  • the ‘unfair’ allocation of resources in an organisation
  • poor governance processes (including nepotism at board level)
  • conflicts of interest/favouritism in employment
IBAC report
Tap on the cover to access the full report and summaries.

The study also referenced NSW Independent Commission Against Corruption (ICAC) studies in 2012 and 2018, and an investigation into relations between government departments and not-for-profits in Queensland. The NSW studies uncovered instances of CSOs or their staff:

  • using government money and resources for their own benefit
  • using funds to deliver a different service from the one agreed with the government agency
  • obtaining funding for the same service from multiple programs, agencies and jurisdictions
  • obtaining funding for capital works but delaying construction in order to bank the funds and earn interest
  • stealing government-funded assets or, in one case, using them to run a private business
  • colluding with government frontline staff either to obtain funding or to agree to weak or minimally specified delivery outcomes in return for funding
  • falsely reporting that services had been delivered when they had not, or delivering at a lower quality than required.

Several in-depth case studies in the report – mostly Victorian and NSW cases – highlight the challenges for NFPs.

Key corruption risks for government-funded organisations

While the IBAC study did not focus on the extent of corruption involving Victorian community service organisations, the research and analysis found:

  • a lack of awareness of enduring corruption risks
  • vulnerabilities in how departments and CSO boards oversee service delivery
  • false or inaccurate reporting due to “limited” reporting systems
  • misuse of sensitive information
  • overlap and duplication of regulatory activity
  • a lack of capability and resources in CSOs’ governance and corruption prevention frameworks.

The research found that risks arose as a result of the nature of the NFP sector, complex regulatory and funding arrangements, and outsourcing processes for service delivery.

The study suggested community organisations needed to better understand corruption risks and their drivers, “to develop tailored strategies to detect and prevent corruption”.

The IBAC study drew on talks with public sector agencies, sector experts and a review of existing intelligence, investigations and complaints.

NFPs must act to mitigate corruption risks

The study highlighted the following prevention measures that community organisations and their leaders should implement:

  • strong conflict of interest frameworks
  • information security management
  • training on the identification and reporting of corruption risks
  • strengthened procurement practices
  • development of profiles to assess and manage corruption risks
  • proactive governance, auditing and corruption prevention strategies that identify potential corrupt behaviour.

A spokesperson for IBAC said that since the release of the research report in late 2021, “IBAC has been engaging with the [Victorian] Department of Families, Fairness and Housing (DFFH) and the [Victorian] Department of Health (DH) to work on ways to mitigate corruption risks and implement prevention activities.”

Both IBAC and DFFH were continuing to develop prevention resources for Victorian community service organisations, the spokesperson said.

The report also highlighted existing resources such as government service agreement requirements and the Community Services Quality Governance Framework, which give advice to funded agencies on addressing vulnerabilities and risks.

More information

ICDA tools and resources: Insurance and risk

IBAC: Corruption risks associated with government-funded community organisations | Corruption risks associated with public sector boards

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