Australia's charities watchdog has taken action against RSL Queensland over serious governance failures and an inability to meet record-keeping obligations, including not being able to account for how $400,000 in charitable funds were spent.

A direction published today sets out the findings of the Australian Charities and Not-for-profits Commission's (ACNC) investigation, and warns the RSL has not been fast enough to address its breaches.

The ACNC probe was triggered by a fringe benefits tax liability of more than $321,000 disclosed in September 2016, owed by RSL to the Australian Taxation Office.

It looked at the resources RSL Queensland gave to its directors, which included monthly payments for out-of-pocket expenses.

The ACNC said because RSL Queensland did not have appropriate controls in place, it was unable to demonstrate how charitable funds equating to more than $400,000 over the period of the investigation were expended.

ACNC commissioner Gary Johns said the RSL would have to address a number of serious issues if it wanted to keep its charity registration.

"Our investigation found RSL Queensland has breached Governance Standard 5, which requires the charity's board to manage its financial affairs responsibly, and act in the best interests of the charity," he said.

RSL Queensland said it has been modernising and transforming its services but conceded there was still work to be done. ( Nic MacBean: ABC News )

"The investigation also found that the charity has not met financial and operational record-keeping obligations."

Commissioner Johns said the ACNC and RSL Queensland have been working together over the past year.

"In late 2017, RSL Queensland developed a governance plan in response to the ACNC's concerns," he said.

"This was a step in the right direction, however, we are concerned about the lack of progress in implementing key aspects of the governance plan.

"Therefore we have issued this direction, which is a formal enforcement power, to outline several actions RSL Queensland must take to address the breaches and get back on track," commissioner Johns added.

"To their credit, RSL Queensland have unanimously accepted the terms of the direction, and have committed to implementing the reforms."

He said if there was not progress the "next step would be to revoke its charity registration".

"The reason we don't like to go there is because we actually want the RSL Queensland to succeed, because it looks after a lot of needy ex-servicemen and women," he said.

"So to revoke a charity's status is a serious matter, we don't do it very often, but clearly this group has to begin to govern responsibly and professionally."

RSL Queensland chief executive Luke Traini said the charity had been modernising and transforming its services but noted that there was still work to be done.

"We remain committed to building a strong, transparent organisation," he said.

"The actions contained in the ACNC's direction will be implemented as soon as possible and the RSL Queensland board is currently revising its constitution to pave the way for a skills-based Board."