A recent governance review of Cbus, conducted by Deloitte on account of APRA’s concerns, has brought to light the complexities surrounding the fit and proper requirements for board members and the fund’s adherence to the best financial interests duty (BFID).
Having interviewed all existing directors, two of the three CFMEU directors who resigned when the embattled union was placed into administration, and the directors nominated to the board by the new CFMEU administration, Deloitte said all directors met the “fit and proper person test”.
The review praised the board’s cooperation and the professionalism of its directors, noting that individual and collective technical skills were robust.
Reflecting on the scrutiny facing Cbus in recent months, Deloitte highlighted that a focus on the individual and collective skills and experience of board members provides a more rigorous and consistent measure of fit and proper governance than reliance on a simplistic “pub test”.
Moreover, the professional services firm said that while the equal representation model of governance has faced scrutiny over its ability to balance representation with necessary skills, “robust mechanisms” put in place by organisations, such as Cbus, ensure board members are well-qualified while safeguarding both member and employer interests.
But Deloitte issued eight key recommendations to help Cbus refine its fit and proper arrangements, including revising the board skills assessment to prioritise practical experience, adding more nuanced rating options, and offering clearer guidance on required expertise. It also urged the fund to adopt a “standing declaration” for member affiliations – union or employer – to boost transparency while maintaining governance consistency.
“Through our review, it was apparent that the board was well-versed in the questions of conflict of interest, had procedures in place to manage this, and held each other in good regard with respect to the approach to being a board member,” Deloitte said.
“Rather uniquely, and not surprising given the representative model, board members had strong philosophical differences in the industrial arena but had very strong positive reflections on each other in terms of focus and commitment to the board and the best interests of members”.
Deloitte also identified areas for improvement in governance processes and documentation, particularly regarding the BFID compliance.
Namely, the professional services firm said: “It is clear in our review that Cbus has failings in the design and operation of its BFID arrangements.”
“This assessment is not an assessment of the individual cases we looked at, nor a legal review, but on the process and governance of complying with BFID,” it elaborated.
“It is our assessment that lack of consistency, appropriate process, appropriate governance, and necessary rigour, are all areas for improvement and currently lacking for the determination as to whether expenditure decisions have been made in the best financial interests of members.”
Deloitte emphasised that while it does not question the intent or whether decisions ultimately align with members’ best financial interests, the lack of clear documentation, systems, and processes prevents a definitive conclusion on these decisions.
“As a result, we were unable to conclude whether the expenditure decisions were made for the sound and prudent management of the trustee’s business operations or if they achieved the intended purpose and stated benefit,” Deloitte said.
As such, the firm made a number of recommendations with respect to the design and operation of the BFID arrangements, including that a consistent, non-piecemeal approach to assessing BFID compliance be implemented to ensure member benefits are clearly demonstrated.
Responding to the review, Cbus said in a statement that it has accepted in principle all 26 recommendations made by Deloitte.
“Cbus will now work with Deloitte, as required by the licence conditions to develop an action plan to address each of the recommendations in the review to be approved by APRA,” the fund said.
Moreover, the fund said it “acknowledges the seriousness and importance of the work required to strengthen the fund’s systems design, frameworks, policies, processes, governance and reporting as identified in the independent review to become a better, stronger fund for our members”.
“Cbus has already begun this important work, including to develop improvements in the way the fund documents the value that industry partnership arrangements generate for the fund and our members,” it said.
“Cbus will continue to work closely with APRA during the next stage of the process and remains focused on generating strong, long-term returns for its hardworking members.”
