Fair Work Commission

The regulation of registered organisations involves administering the provisions of the Registered Organisations Act that deal with registration and accountability of unions and employer associations. In particular, it involves regulating the finances, financial affairs, rules, elections and the conduct of officers of Australia's 110 federally registered organisations. Reports lodged with the Commission indicate that there are more than 2 million members of federally registered organisations. They also indicate control of more than $2.5 billion in total assets and combined annual revenue in the order of $1.5 billion (see Table 63 in Appendix E).

The Regulatory Compliance Branch (Regulatory Compliance) of the Commission assists the General Manager to administer the Registered Organisations Act and regulate organisations registered under it. Regulatory Compliance also administers the entry permit provisions of the Fair Work Act on behalf of the President of the Commission. This task involves ensuring that the Act's fit and proper person test is appropriately applied to the trade union employees and officials on whose behalf applications are made. The Commission receives between 1,500 and 1,700 applications for entry permits annually.

The Commission's achievements in its regulation of registered organisations during 2015–2016 included:

• Commencing, conducting and completing a complex investigation involving multiple parties in less than three months
• Maintaining or improving compliance levels of organisations in key reporting areas compared to last year's record levels (see Table 40, Table 41, Figure 12 and Figure 13)
• Embedding a risk-based approach to its regulatory functions
• Rolling out a comprehensive, automated election advisory system, resulting in increased compliance with legislative requirements to lodge prescribed information
• Contributing to the Australian Government's policy of regulatory reform by reviewing all election-related exemptions issued since the 1980s and considering whether to revoke exemptions either no longer being used or not being used in accordance with legislative requirements
• Enhancing stakeholder engagement by forming a stakeholder-based Regulatory Compliance Advisory Group and targeted engagement with auditors and training providers
• Reviewing the membership data reported by all federally registered unions using a range of different methods, from data analysis to site visits
• Improving transparency through prompt publication of annual returns, financial returns and decisions in relation to elections and rules
• Making significant progress in responding to work referred to the General Manager by the Trade Union Royal Commission
• Issuing and publishing an average of 6.1 entry permits and 1.2 formal decisions each working day (see Table 64 and Table 65)

Building capabilities

Historically, the Commission operated more as a registry than a regulator in relation to registered organisations. Prior to the commencement of the Thomson/Health Services Union (HSU) matter in 2009, only one investigation had been conducted by the Commission and its predecessors. This investigation concluded in 1998 with no action taken.

The length of time taken to complete Thomson/HSU investigation (three years in total) led to a fundamental shift of the Commission's regulatory approach towards that of a proactive and strategic regulator. The Commission also began work to develop its organisational capabilities.

The regulatory strategy the Commission has developed and implemented since 2012 is based on:

• educating registered organisations in order to promote high levels of voluntary compliance
• auditing registered organisations so as to track compliance levels
• enforcing compliance obligations where appropriate

This strategy is underpinned by:

• engaging with registered organisations to better understand inhibitors to and motivators for their compliance, to increase compliance; and
• adopting a risk-based approach to regulation in order to ensure the Commission focuses on organisations and areas where the risks of non-compliance are greatest

Building staff capability

To deliver its regulatory function, Regulatory Compliance has also focused on increasing its staff capabilities. During 2015–16, the branch built on and consolidated training undertaken since 2012. Several members of Regulatory Compliance undertook an advanced best-practice investigation interviewing course conducted by an RMIT University academic with extensive experience in interviewing techniques.

Training initiatives since 2012 have included the completion by Regulatory Compliance branch members of a Certificate IV in Government (Investigations); and further training in contemporary investigative and interview techniques; and a tertiary-level forensic interviewing master class by a respected academic.

Demonstrating organisational capability

The measures undertaken to increase organisational and staff capabilities are proving effective. Since 2012, the Commission has commenced and completed 29 formal investigations and inquiries.

The following example demonstrates the increased organisational capability of Regulatory Compliance. In the three months from April 2016, Regulatory Compliance:

• commenced a formal investigation that had been referred from the Trade Union Royal Commission
• analysed more than 6000 pages of complex, supporting material, including assessing which material, if any, was admissible in civil proceedings
• interviewed a range of witnesses and completed the investigation
• made formal findings concerning multiple contraventions
• obtained legal advice about the prospects of the case being successful in the Federal Court
• provided a detailed report, following which the General Manager made formal findings leading to the commencement of civil penalty proceedings in the Federal Court against a number of former trade union officials

Building networks

In 2015–16, the Commission continued to build its external networks to further enhance its effectiveness as a regulator.

Since participating in an investigations forum hosted by the Australian Federal Police (AFP) in 2013, Regulatory Compliance staff have continued to build relationships with the AFP and state-based law enforcement agencies in addition to Commonwealth agencies, such as the Fair Work Ombudsman, Fair Work Building and Construction, the Australian Electoral Commission and the Australian Taxation Office. Staff participate in a regulators' 'Community of Practice', a forum in which Commonwealth and state regulators share ideas and promote whole of government approaches.

In addition, Regulatory Compliance engaged with and seconded staff from the Australian Bureau of Statistics and specialist lawyers from a variety of firms to develop in-house legal capability in its niche regulatory field.

Engagement

As noted, engagement with stakeholders underpins the Commission's regulatory strategy. One of the measures undertaken in 2015–16 to enhance stakeholder engagement was establishing a Regulatory Compliance Advisory Group. The group comprises representatives from peak employer and employee organisations as well as regulators, the Fair Work Ombudsman and Fair Work Building and Construction. The Commission has sought feedback from the group on the recommendations of an external review of right of entry training courses. The group's responses will inform steps the Commission takes to enhance training packages.

The Commission regularly engages on a one-to-one basis with registered organisations about compliance requirements. In 2015–2016 the Commission consulted in relation to proposed alterations to rules, financial reporting requirements and election obligations. Staff regularly communicate with registered organisations on the need to safeguard entry permits, ensure the timely return of such permits and provide for appropriate right of entry training. Regulatory Compliance conducted webinars in 2015–2016 on financial reporting and auditing, elections and website changes, thereby providing participants with the opportunity to hear the regulator's perspectives on compliance and provide feedback. Further webinars are planned for 2016–17.

Trade Union Royal Commission referrals

The Trade Union Royal Commission resulted in an unprecedented body of work being referred to the General Manager in 2015–16. There were 30 referrals in total, concerning 16 current and former officials from eight separate trade unions, dealing with matters covering a 10-year period. Trade Union Royal Commission referrals to the Commission represented approximately 60 per cent of all civil referrals from the Trade Union Royal Commission, with the remaining 40 per cent divided among nine other agencies.

The referrals were accompanied by more than 200,000 pages of supporting material, none of which were admissible, on receipt, in any civil or other proceedings the General Manager may initiate.

To assist in its response, Regulatory Compliance recruited specialist legal staff. Due to both this external assistance and improving internal capability, significant progress on this body of work has been made by Regulatory Compliance while simultaneously matching or exceeding performance benchmarks for its other regulatory functions.

Inquiries & investigations

Sections 330 and 331 of the Registered Organisations Act empower the General Manager to conduct inquiries and investigations.

Under s.330, the General Manager may initiate a formal inquiry in relation to Part 3 of Chapter 8 of the Registered Organisations Act (which deals with records, accounts and audit), the associated regulations and reporting guidelines, and the rules of a reporting unit relating to finances or financial administration. The General Manager may also conduct inquiries as to whether a civil penalty provision in the Act has been breached (for example, in relation to the duties of office-bearers).

Under s.331, the General Manager may conduct an investigation into such matters if satisfied that there are reasonable grounds for doing so. An investigation brings with it additional powers to require information to be provided.

In addition to the work referred from the Trade Union Royal Commission, in 2015–16, the Commission initiated four inquiries and three investigations. It concluded a further seven inquiries and three investigations. As at 30 June 2016, three inquiries and four investigations were ongoing.

Each inquiry or investigation is considered on its merits, in accordance with publicly available compliance and litigation policies. The seriousness and risks associated with the alleged contraventions are taken into account, along with the organisation's response, including any remedial action taken, and the public interest. Table 39 details formal inquiries and investigations undertaken since December 2011, and the issues and the outcomes of each. Matters that were the subject of both an investigation and an inquiry are listed only once.

At the conclusion of a formal investigation under s.331 of the Registered Organisations Act the General Manager, if satisfied that there have been contraventions of the Registered Organisations Act, assesses the appropriate action to take from the options available under the legislation, weighing up the public interest in each case. The options available to the General Manager are to commence proceedings in the Federal Court of Australia, issue a notice to the organisation to take specified steps to rectify the contraventions, or refer possible criminal offences to the appropriate authority. The General Manager may make findings that contraventions have occurred but may decide that it is not in the public interest to take any further action. For example, where the nature of the breach would be outweighed by the time and resources required to pursue litigation and/or where the steps that the organisation has taken have adequately addressed the issue.

As noted, the Commission determines each inquiry or investigation on its merits. For example, court action taken against the Transport Workers Union of Australia (TWU) over its membership data contrasts with the Commission's response to concerns raised about membership data reported by the Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia (CEPU). Upon being advised of the Commission's concerns, the CEPU voluntarily implemented a range of compliance measures. The Commission continues to assess the implementation of those measures and associated risks. The CEPU's ongoing voluntary measures include appointing a former Commission Member to review its data, appointing a national compliance officer, and changing its rules allowing the CEPU national office to require branches and divisions to lodge audited data with the national office.

Court matters

During the 12 months, the General Manager notified the relevant organisations of its intention to commence four separate Federal Court proceedings.

The first matter deals with a formal investigation into two former officers of the Western Australian Branch of the TWU. In its statement of claim, the General Manager alleged the two former officers breached the Registered Organisations Act by arranging for the purchase with union funds of two customised $150,000 Ford F-350 utility vehicles for their personal benefit as opposed to standard issue motor vehicles; and by their involvement in the Branch Committee of Management's adoption of a redundancy policy, the result of which one former officer ultimately benefited on his departure from the TWU.

The second matter also involved the TWU. The General Manager alleged the TWU breached the Registered Organisations Act in several ways: by failing to remove from its register the names and postal addresses of more than 20,000 New South Wales (NSW) Branch members; failing to keep a register of NSW Branch members between 2009 and 2012 and Western Australian Branch members in 2013; and failing to keep a copy of the register of members for a Queensland Branch election.

The third matter pertains to the Flight Attendants' Association of Australia (FAAA). In this case, the General Manager notified the FAAA of its intention to commence Federal Court proceedings against the former secretary of its International Division. The former secretary is alleged to have breached the Registered Organisations Act by failing to discharge his duties with care and diligence; failing to provide annual budgets as required under the FAAA's rules; and improperly using his position to gain advantage in approving more than 12 weeks back-pay for himself in 2011. (The FAAA was issued with a rectification notice in relation to its records but no court action was taken against it).

The fourth Federal Court matter involves the Australian Nursing and Midwifery Federation and its Western Australian Branch secretary. The Commission is alleging that the Branch failed to comply with its financial reporting obligations for the 2009–10, 2010–11 and 2011–12 financial years.

In other relevant developments in 2015–16, the Federal Court:

• handed down its penalty decision in the Craig Thomson matter in December 2015, ordering Mr Thompson to pay $231,234 compensation and $146,937 interest to the HSU, and imposing a minimum of $80,050 in penalties to the Commission
• handed down its decision on Commission proceedings in March 2016 against the Musicians' Union of Australia (MUA) and its former secretary for failing to prepare, lodge and provide to members the MUA's financial reports over a number of financial years. The Court imposed penalties of $76,500 on the MUA and $17,000 on the former secretary

Membership data integrity

The Commission initiated a comprehensive review of membership data reported by all federally registered unions in 2014–15, and continued this work in 2015–16. The review involved surveying unions on their membership record-keeping systems and data collection methodologies; conducting site visits; interviewing key staff; and analysing data lodged in annual returns and financial reports in order to identify relevant trends and patterns.

This work has informed the assessment of reported membership data, and increased the Regulatory Compliance's capacity to detect any potential irregularities. It has also facilitated a working relationship with organisations to enhance membership reporting. For example, it was this initiative that enabled the Commission to identify irregularities in the CEPU's data, as detailed above.

Registered organisations' timeliness compliance rates

In 2015–16, for the second year in a row, and for the second time since reporting against this measure, registered organisations achieved 100 per cent voluntary compliance in lodging their annual returns on time. These returns provide information on officials, requirements for elections and membership. This is a significant improvement from four years ago, when only 76 per cent of registered organisations lodged their annual returns on time. (see Figure 12 and Table 40).

Figure 12: Annual returns lodged within statutory timelines

Figure 12 shows data in Table 40.

Also in 2015–16, the previous year's record 95 per cent compliance rate for lodgment of financial returns within the statutory timeframe was further exceeded, with 96 per cent lodged on time. This increased to 99 per cent following Commission's intervention (up from 98 per cent in 2014–15). Four years ago, the on-time lodgment rate for financial returns was 80 per cent per cent (see Figure 13 and Table 41).

Also in 2015–16, the previous year's record 95 per cent compliance rate for lodgment of financial returns within the statutory timeframe was further exceeded, with 96 per cent lodged on time. This increased to 99 per cent following Commission's intervention (up from 98 per cent in 2014–15). Four years ago, the on-time lodgment rate for financial returns was 80 per cent per cent (see Figure 13 and Table 41).

Separate reporting units within registered organisations (such as Branches or Divisions) are required to lodge financial reports with the Commission, unless they successfully apply for an exemption. Financial returns of registered organisations include both financial reports lodged as well as applications for exemptions from financial reporting.

Regulatory Compliance proactively reminds every reporting unit of its obligation before its report is due.

A risk-based approach to the regulation of registered organisations' financial reporting was introduced in 2013. Each financial year, about 20 to 25 per cent of financial reports lodged by reporting units are subject to advanced assessment. All reporting units are subject to an advanced assessment at least once every five years.

Figure 13: Financial returns lodged within the statutory timeframe

Figure 13 shows data in Table 41.

Improving the quality of financial reporting

In 2014–2015 Regulatory Compliance commenced a program aimed at improving the quality of content of financial reports. It began an education campaign in the current reporting period focusing on improving identified areas of weakness. The campaign commenced with an information session and webinar for auditors of financial reports (see the case study on p.106). Measures of quality include whether the reporting unit has appropriately disclosed if it is a going concern; whether all statutory timeframes have been met; whether required documents have been lodged; and whether appropriate notes regarding the preparation of the accounts have been made.

Timeliness benchmarks

In addition to matching or exceeding benchmarks for external compliance, Regulatory Compliance in 2015–16 met or exceeded its own benchmarks for timeliness. For the first time since reporting against this target, Regulatory compliance assessed 100 per cent of financial reports for compliance within 40 working days of lodgment. This compares with 96 per cent last year, and exceeds the KPI benchmark of 95 per cent of reports assessed within 40 days (see Figure 14 and Table 42).

The Commission also exceeded its benchmark of 95 per cent in 40 days in relation to:

• finalising routine entry permit applications
• finalising registered organisation elections
• assessing annual returns
• assessing rule alterations under s.159 of the Registered Organisations Act

It did not meet its internal KPI of finalising 95 per cent of work, health and safety (WHS) permit applications within 40 days, with 91 per cent finalised within that timeframe.

These timeliness measures demonstrate the considerable improvements Regulatory Compliance has made over the last three years, moving from a position of not being able to meet any of the timeliness measures to meeting or exceeding all but one measure.

Finalisation of a matter occurs when the matter is finalised with the relevant external parties. This is distinguished from clearance rate measures which measure the time taken to close a matter, that is when it is finalised with external parties and the various internal procedures are concluded.

Figure 14: Regulatory Compliance Branch performance against timeliness benchmark targets

Figure 14 shows data in Table 42.

Regulator Performance Framework benchmarks

This year, the Commission measured its performance as a regulator as required under the Australian Government's Regulator Performance Framework, released in October 2014.

The framework aims to reduce unnecessary or inefficient regulation, including of registered organisations. The government set six KPIs against which regulators had to develop their own performance benchmarks, for implementation from 1 July 2015. The framework's KPIs deal with reducing regulatory burden, communications, risk-based and proportionate approaches, efficient and coordinated monitoring, transparency, and continuous improvement.

The Commission developed 13 performance measures which are detailed on the Commission's website. It will publish its results against those measures on its website by December 31 2016, as required under the framework.

Entry permits

During 2015–16 the Commission continued to improve its administration of entry permits. Specifically, the Commission:

• increased the frequency of training required and the requirement for it to be recent as part of the 'fit and proper person' test
• commissioned an external review of all previously approved entry permit training course
• increased the accountability of entry permit holders by requiring broadened disclosure concerning the 'fit and proper person' test in the application process
• required organisations to develop enhanced systems designed to increase compliance with the Fair Work Act

In 2015–16, the Commission received 1,628 applications for entry permits, compared with 1,481 in 2014–15. It issued 1,518, and refused nine, taking an average of 17 days to issue a permit. A total of 63 applications were withdrawn for various reasons, most commonly after the applicant was informed that additional disclosure or further information was required. (See Table 43 and Figure 15).

1 The number of permits issued and refused does not equal the number of applications received in the reporting period because some applications were not finalised until after the reporting period.

Figure 15: Entry permits issued

Figure 15 shows data in Table 64, Appendix E.

Organisations Panel's jurisdiction

The Commission's Organisations Panel deals with various types of applications made by registered organisations, including applications for registration, changes to eligibility rules and cancellation of registration. The Panel also considers non-routine applications for entry permits.

During the year the Panel finalised 13 matters. Six of these related to changes to eligibility rules, and three related to the cancellation of registered organisations' registration.

Total matters dealt with

Regulatory Compliance continued to deliver high clearance rates across 2015–16. It closed 3,232 matters, which exceeded the 3,143 matters lodged with it in the same period (see Table 45 and Figure 16). A matter is closed when it is finalised with the relevant parties and when various internal procedures have been concluded. This is distinguished from timeliness measures (see Figure 14 and Table 42). Timeliness is measured as time taken to finalise with relevant parties.

The data in Table 45 summarises Regulatory Compliance's clearance rate of all registered organisations' matters. In last year's annual report the Commission reported clearance rates for three specific matters – annual returns, financial returns (including exemptions from financial reporting), and requests for advice and alterations to rules. This data is included in Table 66 in Appendix E.

Figure 16: Regulatory Compliance matters lodged and closed 1 July 2015 – 30 June 2016

Figure 16 represents data in Table 45.