Internal Criminal Conduct in Not-for-Profits: Legal Steps & Dispute Management

Introduction

Suspected criminal conduct inside a not-for-profit or incorporated association can lead to a serious internal dispute. These situations, which may involve anything from fraud to harassment, require a structured approach to protect the organisation and its members from legal and reputational harm.

This guide explains the essential steps for effective dispute resolution when faced with such allegations. It covers how to investigate the conduct properly, manage the internal dispute, and navigate the necessary legal and reporting obligations to achieve a fair settlement and ensure compliance.

Interactive Tool: See Your Next Steps for Internal Criminal Conduct & Disputes

How to Identify Criminal Conduct & Internal Disputes in a NFP

Definition of Criminal Conduct for a NSW Incorporated Association

Criminal conduct involves any action that breaks a law for which a criminal penalty can be applied. For a not-for-profit or an incorporated association, such conduct can create a serious internal dispute that requires a formal resolution process—a situation often requiring legal advice for an incorporated association.

In addition, it is important to recognise that some actions, or even failures to act, can constitute both a crime and a separate civil matter. This dual nature can potentially lead to claims for damages or compensation.

Common Types of Criminal Offences & Disputes

Various types of criminal conduct can occur within a not-for-profit organisation, often leading to a complex internal dispute. Consequently, the effective management of such a dispute is critical for the organisation’s stability and legal compliance.

Common offences that may arise include:

• Fraud, stealing, and embezzlement, which involves the dishonest appropriation of funds or assets, such as an employee authorising fraudulent payments to themselves or a committee member misusing organisational funds.
• Criminal damage to property, referring to the intentional or reckless destruction of or damage to the organisation’s property.
• Assaults, including sexual assaults, which are serious offences involving physical harm or unwanted sexual contact, creating an unsafe environment and a significant internal dispute.
• Stalking and harassment, including behaviour that causes fear or distress to another person, such as repeated unwanted contact or threats.
• Failures to report incidents, where an organisation or its officers may commit a crime by failing to report certain incidents as required by law, such as child abuse or notifiable issues under work health and safety laws.

Immediate Steps to Resolve an Internal Dispute Over Suspected Crime

Fact Assessment & Evidence Preservation

When an internal dispute arises from suspected criminal conduct, a not-for-profit organisation should begin with initial fact-finding steps. This preliminary review is essential to understand the situation before taking further action, with the primary goals being to:

• Aim to gather information objectively to properly assess the situation.
• Take steps to secure any relevant materials that may be needed later.

Important actions during this phase include:

• Documenting concerns: It is important to create file notes of conversations or incidents related to the dispute, and ask relevant individuals to provide written accounts of what happened in their words.
• Reviewing records: Examine financial statements or other documents to see if they support the suspicions, such as checking for missing funds or inappropriate reimbursement claims.
• Securing evidence: Take steps to preserve any evidence related to the allegations to ensure it is not lost or altered during the dispute resolution process.
• Assessing immediate risk: Determine if there is any immediate risk of harm to individuals or the organisation and act accordingly.

Internal Policy Review for Dispute Resolution

An organisation must review its existing policies and procedures to guide the dispute resolution process. If the not-for-profit has a harassment or whistle-blower policy, it is critical to follow the steps outlined for reporting and investigating a complaint.

In essence, these policies are designed to ensure fair treatment and protection for everyone involved in the internal dispute. For instance, a whistle-blower policy may require the organisation to protect the identity of the person who reported the conduct and shield them from any negative consequences.

Failing to follow established procedures can lead to serious concerns, as affected parties might:

• Question the procedural fairness of the entire process.
• Challenge the impartiality of the investigation regarding the dispute.
• Raise potential privacy issues concerning the individuals involved.

Conducting an Investigation for a NSW Incorporated Association

The Appropriate Investigation Approach

The process for investigating alleged criminal misconduct is not uniform for every internal dispute; it should be proportionate to the conduct in question. 

An incorporated association may find it appropriate for an impartial person within the organisation to conduct the investigation. In other situations, particularly for a serious dispute, engaging an independent external party is the necessary path for dispute resolution.

When deciding on the right approach for your not-for-profit, consider these factors:

• Existing policies: Review any internal policies to see what procedures they mandate for investigations.
• Seriousness and complexity: The more severe and intricate the allegations, the more likely an external investigation will be required to properly resolve the dispute.
• Internal impartiality: Assess whether there is someone within the objective organisation, has the right training, and can conduct the investigation without bias.
• Seniority of the individual: If the person being investigated is a senior employee or committee member, an external investigator is often more appropriate to ensure fairness and objectivity in the dispute settlement.

Confidentiality During the Dispute Settlement

Investigations into suspected criminal conduct must be handled with strict confidentiality. This is a critical component of the dispute resolution process for any not-for-profit.

The board or committee of management should be kept informed about the internal dispute, but it is wise to seek legal advice on the timing and extent of this communication. General staff and volunteers should not be told about the investigation. Informing them could jeopardise the entire process and expose the incorporated association to significant legal risk.

Legal & Insurance Actions for Dispute Resolution

Contacting the Police & Insurers

If a situation within the not-for-profit is an emergency or there is a risk of harm, call 000 immediately. Alternatively, for non-emergency police assistance related to the internal dispute, the correct number to call is 131 444.

It is also a critical step in the dispute resolution process to contact the organisation’s insurer. An incorporated association may have policies that cover criminal conduct, such as:

• Fidelity or fraud insurance.
• Directors’ and officers’ insurance.

The insurer must be notified immediately when an incident occurs, as a delay could result in the claim being denied. Moreover, it is essential not to admit liability for the matter to anyone outside the organisation without first consulting a lawyer and the insurer, as this could also lead to coverage being refused.

Seeking Legal Advice to Resolve the Dispute

Engaging lawyers early in an internal dispute is highly advisable to ensure the matter is handled correctly. Ultimately, legal advice helps an organisation manage the dispute resolution process while complying with privacy obligations and procedural fairness requirements.

A lawyer can also confirm the not-for-profit’s reporting obligations. For example, charities registered with the Australian Charities and Not-for-profits Commission (ACNC) must notify the ACNC if they believe there has been:

• A significant breach of the Australian Charities and Not-for-profits Commission Act 2012 (Cth) (‘ACNC Act’).
• A failure to comply with ACNC Governance or External Conduct Standards.

Additionally, other reporting duties may also exist under different laws or to other regulators.

Case Studies of Fraud & Dispute Settlement in Charities

Misuse of Funds & Failure to Investigate at RSL NSW

An independent inquiry into the RSL NSW Branch revealed significant misconduct by its former President, Mr Donald Rowe. Specifically, his actions included:

• Misusing over $465,000 on an RSL credit card for personal expenses, including mortgage repayments and flights for his family.
• Permitting his son to live in RSL-owned accommodation rent-free for seven years.

When the RSL NSW State Council became aware of the misuse of funds, it failed to conduct a proper investigation into the internal dispute. Consequently, the council’s mishandling of the situation involved:

• Failing to report the matter to the police.
• Allowing Mr Rowe to resign without pursuing a formal dispute resolution process, misleadingly citing health reasons for his departure.

In practice, this failure to act led to enforcement undertakings to improve governance and financial management.

Unauthorised Payments by the CEO of Katungul

In the case of Aboriginal and Torres Strait Islander Corporations v Damien Matcham (No 2) [2014] FCA 27, the CEO of Katungul Aboriginal Corporation, Mr Matcham, made unauthorised payments to himself exceeding $700,000.

This misconduct was uncovered after a board member raised concerns, which led to an audit by a government funder. During the investigation, several alarming details emerged:

• The finance manager had failed to verify Mr Matcham’s timesheets.
• At one point, these timesheets claimed he worked more than 24 hours a day.

The court found that Mr Matcham had abused his position of trust, which had a severe financial impact on the not-for-profit organisation and deprived the community of essential health services. As a result of the dispute settlement, the court ordered him to:

• Repay $705,905.07 to the corporation.
• Pay a penalty of $500,000 to the Commonwealth.
• Be disqualified from managing Aboriginal and Torres Strait Islander corporations for 15 years.

Conclusion

When an internal dispute arises from suspected criminal conduct, a not-for-profit must take structured steps, including identifying the issue, securing evidence, and conducting a fair investigation. Properly managing the dispute resolution process also involves notifying insurers, seeking legal advice, and fulfilling reporting obligations to protect the incorporated association.

If your not-for-profit is facing a complex internal dispute, contact Law Bridge’s experienced not-for-profit lawyers for tailored legal guidance. Our Legal Team provides practical support to help your incorporated association navigate the dispute resolution process and protect your organisation from legal and reputational harm.

Frequently Asked Questions