Small Not For Profit With Big Problem

Hi,

I really hope somebody here can at least point me in the right direction.

I am on the board of a an incorporated association, NFP in WA. We recently ran into severe financial difficulties due to one of our major funders making changes to the application process leaving us with a three month gap in funding.

As it happens it was a good thing because it forced us to look very carefully at our finances and we uncovered something that had gone unnoticed by the board and the annual auditor for the last three years.

The founder and day to day manager had decided not to pay their own super for three years and had decided not to pay super for any staff for the last six months. They also decided not to pay the PAYG for the last quarter.

The board were never informed about this. The board were also under the impression that a CPA,was overseeing the accounts so everything was being done properly and while the financial position was tight it was manageable.

We now have a large debt to the ATO. We don't think it was done for personal gain, this person works incredibly hard for the members of the NFP and thought her own super was less important than their welfare, she also thought that the PAYG would be caught up after the next funding came in.

I'm expecting that the board are responsible because we did not notice these liabilities were missing on the quarterly statement of accounts and even if we are novices it probably is not an excuse.

Where do I go for help? I need to know what my personal liability could be and what I should do to minimise the impact on my personal wealth if the organisation goes insolvent.

I am very very appreciative of any advice. Sorry I can not use my real name but I don't want to expose the organisation.

CP

 

hi CP

is the association a company and are you a director?

this could be very serious and you could be personally liable for any unpaidnsuper and paye taxes and gst too. youcould also be personally liable for any of the company debts if it is trading while insolvent. i wouldsuggest you see a solicitor asap and make sure the companypays these debts quickly.

 

Thank you Terry, I was reading the amendments to the Tax Administration Act 1953 (Cth). And it is very alarming! The organisation is an incorporated association. I am a member of the board so I am a director but I do not hold one of the offices i.e. I am not chair, secretary or treasurer.

We already took steps to prevent trading insolvent and got advice on that. We are making a payment plan with the ATO (now our only creditor).

Of course it will all depend on whether the organisation can meet the payments AND its day to day costs so we are working very hard on attracting grants and fundraising. I'll have to get personal advice from a lawyer because I believe that the board acted responsibly but was misled by an employee.

Thanks for responding.
CP

 

CP,
Being a director places you with responsibilities that you may not have control over, as you have found out. It is always wise for a director to distance personal assets from personal ownership - house in spouse name, assets in a trust etc.
You then have control of the assets but not ownership so if worse comes, you have no assets for a liquidator to recover. They then will tend not to pursue any action against such a director as it is a cost to them with no possible gain.

You may have an action against your auditor but the end of day, the directors signed off on the accounts.
Good luck with it.
GregR