Anything but Friends after audit concerns Ousted: Elinor Wrobel headed the Friends before the disputed meeting. The association dedicated to preserving NSW's most precious colonial houses is in crisis after an audit into its financial management, with two well-known people claiming to be the rightfully elected chair and its licence to raise funds in jeopardy. A confidential audit by Deloitte Australia warned the Friends of the Historic Houses Trust of NSW (the Friends) could lose its licence to raise funds because its net losses on fund-raising exceeded net profits. The Friends was formed in 1988 to help the Historic Houses Trust preserve 12 of Sydney's most historic properties, including The Mint and Hyde Park Barracks. Claiming the chair: Tim Duddy was elected by the breakaway group. Photo: Paul Mathews Out of the Friends' income of $700,908 for the year to June, only $67,000 was handed to the Trust. The previous year, it donated $27,000 out of total income of $596,766. Following the audit, the Friends' financial operations are being managed by an independent consultant. Events for the 5000 members are on hold, and the annual Christmas party with NSW Governor Marie Bashir may be cancelled. Supported by the Friends: The Hyde Park Barracks. Photo: Robert Pearce Its leadership is in disarray. Two people, curator and art collector Elinor Wrobel and farmer and anti-gas seam activist Tim Duddy, claim to be the rightfully elected chairperson, supported by two identical committees, except for the presence of Mr Duddy on one. Even the organisation it is supposed to support, the Trust, has distanced itself. The relationship between the two groups deteriorated this year when the Trust rebranded itself as Sydney Living Museums, a move opposed by many Friends members. Last week, the Trust director Mark Goggin resigned his seat on the Friends' executive committee, saying he would re-engage only after it resolved its leadership dispute and undertook to implement Deloitte's recommendations. Far from the $151,144 net profit reported to members, the Deloitte audit found the Friends made a net loss on its charitable fund-raising of $103,745 for the year to June. The audit found it had been averaging an annual net loss of more than $100,000, going back to 2009, instead of the average annual $100,000 net profit on fund-raising prepared by members. Organisations with a charitable licence have to ensure expenses don't exceed a "fair and reasonable proportion of gross proceeds," usually about 50 per cent. They have to report anything of an "adverse nature such as an operating loss from fund-raising appeals." Deloitte found the Friends had not included $270,000 in costs, including 75 per cent of indirect costs such as a portion of salaries, in its fund-raising accounts. "Non-compliance may lead to loss of licence - permanent and temporary - monetary fines and reputational damage," said Deloitte. Deloitte also claimed the Friends "risked monetary fines" by operating as a travel agent - offering tours to Europe, for example - without a licence, in breach of NSW Fair Trading guidelines. The audit found the Friends' staff performed regular bank reconciliations, and they were passionate and committed to the organisation, but it did recommend that approval processes be improved and formalised so they weren't so "ad hoc." It noted that Friends' manager Judy Pittaway had exceeded her financial delegation of $10,000 on four occasions - when she made deposits for accommodation for members' overseas tours - without executive approval. Deloitte said it was unclear "what this limit [the delegation] relates to." Ms Pittaway is understood to have minutes showing that she did gain executive committee approval. She said these issues demonstrated mismanagement by the executive committee and the need to tighten its oversight. All fund-raising had been done "strictly in accordance with the Charitable Fundraising Act, and the association's official authority conditions," she said. After receiving a copy of the audit in September, Mrs Wrobel cancelled the annual general meeting at the last minute although catering had been organised and invitations sent to members. In a letter to members, she wrote that she had made this decision because of the "severity of the risks" identified by Deloitte. But a breakaway group refused to accept that she could cancel the meeting at such short notice without full executive committee approval. Locked out of The Mint, where the meeting had been scheduled to take place, 35 members including Mr Duddy met at a cafe nearby where Peter Watts, a former director of the Trust, chaired the meeting in Mrs Wrobel's absence. Together they appointed a new executive committee, which subsequently dumped Mrs Wrobel and appointed Mr Duddy as chairman. Mrs Wrobel has disputed the meeting's authority to replace her, while Mr Watts said it was constitutional, pointing out that he wrote the constitution. Mr Duddy has received legal advice confirming his appointment was constitutional, and he has alleged that Mrs Wrobel and Mr Goggin (as the committee's delegate) exceeded their authority in appointing the independent consultant Bruce Napthali to administer the Friends' finances and recommend ways to implement the findings of the Deloitte report, after he had been elected. Mr Goggin told Fairfax Media that the audit did not find evidence of fraud, but it did identify governance irregularities and a lack of procedural compliance. These findings needed to be addressed by the executive committee. He said the Trust didn't have a view over who was legitimately the proper executive. "What is important," he said, "is that the Friends executive committee, whomever it is, is prepared to act on the recommendations of the audit findings and, the consultant's subsequent report." It was clear that the executive committee should consider an election to resolve the dispute, he said. Despite some "inaccuracies" in the Deloitte report, Mr Duddy said, it contained some "very clear and useful guidance for the executive committee to implement improvements to the governance of the association, which the committee would implement in a measured and responsible fashion." He disputed Mr Goggin's claims, including in a letter to staff on Friday, that there were two chairpersons and two executive committees. So who is the chairperson? "I am," said Mr Duddy. "I am," said Mrs Wrobel. Email jpower@fairfaxmedia.com.au