Superannuation fund trustees who splash out on unnecessary travel, or raid members’ savings to pay for their spouse to tag along on work trips, have drawn the ire of the prudential regulator.
That was just one example cited by Australian Prudential Regulation Authority deputy chair Helen Rowell when she was asked to detail what examples of lax governance standards around expense management her office had observed in the super fund industry.
Rowell highlighted other areas of concern related to super funds as well, including a lack of discipline in advertising and marketing decisions, and failures to properly disclose and manage potential conflicts of interest when authorising related-party transactions.
She made the comments at the Australian Institute of Superannuation Trustees’ Conference of Major Superannuation Funds, which took place on the Gold Coast, March 22-24.
“At an operational level, we have observed some laxity of governance and oversight practices by boards in relation to their business operations, particularly in relation to board and fund expenditure and also related-party arrangements,” Rowell said.
When one of the delegates asked her to elaborate on some of the types of expenditure that were concerning the regulator, she said it was questionable expenditure on things like “travel, conferences, meeting the costs of spouses” to attend conferences.
“I always sort of raise an eyebrow when the full board travels overseas to talk with investment experts, especially given the frequency with which investment experts come down here – is it actually the full board that needs to go?”
Rowell said she was not ruling out that it might sometimes be appropriate for an entire board to travel together, but also noted a disturbing lack of due process around such decisions at some funds.
“I don’t think there is always adequate questioning and challenge around, ‘Is that appropriate expenditure and what are the implications of that over the long term in the interests of members?’ ” she said.
It’s important that all super fund trustees ensure transparent decision-making processes about all expenditure decisions, Rowell warned.
“APRA supervisors closely review the appropriateness of decision-making processes, effectiveness of oversight of all aspects of fund operations (including conflicts management), responsiveness to challenges in the operating environment and demonstrated focus on all aspects of meeting member best-interest obligations,” she said.
Rowell said a combination of poor processes and oversight – and slowness or failure to take action when issues are identified – was leading to inappropriate costs being incurred that would lead to members being worse off.
“Even small amounts of inappropriate expenditure can have a big impact over time,” she said. “We expect trustees to have processes in place to ensure rigorous decision-making, monitoring and oversight, and transparency around how members’ money is used.”
That includes an ongoing focus on ensuring that all expenditure has a clear purpose or objective, with appropriate assessment and monitoring of whether or not that expenditure has achieved the intended objectives and appropriate outcomes for members.
“Sometimes it might be relatively small things but it is about where the link is between marketing and ad campaigns and sponsorships,” she said.
Funds need to be clear about what their objective is in brand, advertising, marketing and sponsorship arrangements, she said, adding that they need to put processes in place to monitor how programs are meeting these objectives, and take a different course of action if there is evidence they are not meeting members’ best interests.
Rowell said that, in the regulator’s view, good governance cannot be assessed solely in terms of investment outcomes.
“Trustees today are running more complex financial services businesses and, accordingly, they need to adopt the sound governance and business-management practices that are expected of such businesses by financial sector stakeholders and the wider community,” she said.
“Doing ‘just enough’ is not good enough to meet member and community expectations. And there is no room for complacency. All trustees need to review and enhance their operations and practices on an ongoing basis.”
To read all our coverage from the final day of CMSF 2017, click here.