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.

In September 2018, the NSW ICAC released its report into Operation Tarlo, an investigation that illustrates corruption risks arising from government funding of CSOs delivering human services.

Ms Eman Sharobeem was CEO of the Immigrant Women’s Health Service (IWHS) and the former chair of the Non-English Speaking Housing Women’s Scheme Inc (NESH). These two organisations were funded by the NSW Department of Family and Community Services and the South West Sydney Local Health District. The IWHS also received funds from the Smith Family to conduct multicultural parenting and employment projects. The Smith Family is funded for this program by the Commonwealth Government.

The investigation identified theft, fraudulent invoicing, favouritism (nepotism) and misuse of resources by Ms Sharobeem. Specifically, Ms Sharobeem improperly used funds through reimbursement, bank transfers, and misuse of credit cards for personal goods and services. Further, Ms Sharobeem’s sons worked under various aliases to claim as facilitators of non-existent programs and group activities. ICAC found Ms Sharobeem misused up to $773,000 of public funds.

IWHS operated from a property in Fairfield, NSW, which it leased from 2004. In 2011, Ms Sharobeem purchased that property for $660,000, and between 2011 and 2016, she leased it back to IWHS. She claimed $60,000 of work and repairs to the property despite being legally responsible for these costs. Further, in 2014, Ms Sharobeem fraudulently obtained a $60,000 NSW Community Building Partnership grant to renovate the property. She sold the property in 2016 for $1.3 million.

Ms Sharobeem also falsely represented herself as a psychologist and provided psychological treatment to clients, arranged for her son to be employed by NESH, and submitted falsified academic qualifications to be appointed to paid roles at the Community Relations Commission (CRC).

The NSW ICAC found that Ms Sharobeem falsified statistics and arranged for false information to be provided to funding bodies when reporting on the activities for which the IWHS was funded by the NSW and Commonwealth (via the Smith Family) governments. Ms Sharobeem did this by creating ghost identities within reporting systems, and instructing and manipulating staff responsible for preparing reports.

Red flags identified through this investigation included:

the CEO’s active involvement in the reimbursement process and exerting pressure over the IWHS bookkeeper
CEO access to the CSOs’ online banking systems
that receipts submitted for reimbursement were cropped to remove the identity of the vendor and obfuscate whether the purchase was work-related or personal.

(Source: Corruption risks associated with government-funded human services delivered by community service organisations, IBAC report, September 2021, Creative Commons Attribution 4.0 licence)

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.