Deloitte Cbus review lifts union funding veil

ANALYSIS

The major industry superannuation funds will not be pleased by Deloitte’s independent review findings of the fitness and propriety of Cbus’ responsible persons and the fund’s expenditure and management because it poses as many questions as it does answers.

The unhappiness of industry funds at the Deloitte review is because Cbus is not alone in directing money towards sponsoring trade unions with the objective of gaining and retaining members.

Nor is the Australian Prudential Regulation Authority (APRA) likely to be entirely comfortable with the Deloitte review because it raises questions for the regulator not just about best financial interests (BFI) but about APRA’s long-standing attitude towards industry fund expenditures.

Cbus is clearly satisfied that, at its essence, the Deloitte review “concluded that all the current and nominated Directors on the Cbus Board meet the ‘fit and proper’ test at the date of the report.

However, Cbus and other similar funds cannot be happy with the review’s findings with respect to its expenditure decisions around so-called “partnership agreements”.

Those “partnership agreements” have seen millions of dollars a year channelled to the trade union sponsors of Cbus including the Construction, Forestry and Maritime Employees Union (CFMEU) aimed at “supporting the growth, acquisition and retention of members” of the fund while strengthening the brand and building trust with employers.

Deloitte says it was asked to review whether Expenditure Decisions were made for the sound and prudent management of the Trustee’s business operations, including whether the:

• Stated benefit of any arrangement or contract was obtained by the Trustee;
• Expenditure achieved its intended purpose;
• Goods or services to be delivered were obtained by the Trustee;
• Expenditure provided fair value for beneficiaries of the Fund; and
• Stated metrics, if any, set during the BFID assessment were met.

The review finding was as follows:

“While it is clear that the Trustee has made decisions regarding the expenditures in scope of this Review, and that there are frameworks, processes, and tools to varying degrees of efficacy in place, there are deficiencies in governance and in operationalising the BFID requirements.

“These deficiencies were such that there was insufficient information available to Deloitte to conclude whether the Expenditure Decisions were made for the sound and prudent management of the Trustee’s business operations and achieved intended purpose and stated benefit.”

Elsewhere, the Deloitte review said of the partnership agreements that: “There is a focus on the qualitative assessment of the ability of the industry partnership program to support with the growth, acquisition and retention of Members, strengthening the brand, building trust with employers and Members, etc. However, the lack of requisite quantitative metrics and the tangible financial member outcomes results in insufficient information to enable the MEGC to decide whether the Trustee’s strategic objectives, and outcomes to Members, were achieved”.

In other words, properly examined, Deloitte believes that APRA might find reason to determine that Cbus had failed to appropriately define how the arrangements met members’ best financial interests.

It is worth remembering that nearly a decade ago, before BFID became a legislated factor, APRA largely dismissed concerns that industry funds who sponsored the controversial “compare the pair” multi-million dollar television advertising campaign had breached the sole purpose test.

APRA took the view in 2015 that given that the compare the pair campaign was orchestrated through Industry Super Australia (ISA) and that the industry funds merely funded ISA as shareholders no breach of the sole purpose test had occurred.

A decade later, convenient corporate structures cannot obscure the requirements of best financial interests.