This article about misappropriated funds in strata has been supplied by Tyrone Shandiman, Strata Insurance Solutions.
Strata insurers are now starting to receive embezzlement claims, following a recent case where a director of a strata management company allegedly misappropriated funds of up to $750,000 from various bodies corporate.
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Most strata insurance policies will provide cover for fidelity breaches, including embezzlement and misappropriation. Fidelity is designed to cover both the actual losses as well as the costs associated with preparing a claim.
The director has appeared in court on charges including fraud. It is alleged the director removed funds from various clients’ accounts and, even after these accounts had been closed, still maintained the money had not been taken.
The alleged fraud highlights the added risks with not dealing directly with a licenced insurance broker or adviser when placing strata insurance.
Licenced insurance brokers and advisers are closely regulated by the Australian Prudential Regulatory Authority (APRA) and by the Australian Securities and Investments Commission (ASIC).
On the other hand, Queensland’s strata managers are not subject to these, or even similar, statutory controls.
The Chairperson of one of the properties now making a claim for ‘breach of fidelity’ by the strata manager has told Strata Insurance Solutions:
“The unlicensed and poorly regulated environment of strata management in Queensland is atrocious. No training or qualifications, no licence, no licence fees and hence no statutory indemnity fund to protect victims of strata management dishonesty.”
Where would the owners be, for example, if their strata manager was to arrange and pay for their strata insurance policy out of the owners’ funds, then cancel the policy and pocket the refunded premium? The owners could find themselves in a very precarious situation.
Even when misconduct is detected, there is no regulatory authority which can step in and ensure restitution of any losses caused by the strata manager’s misconduct. In the absence of this regulatory authority, the strata manager “may be able to select his own liquidator and then improperly control the documents, reports, and records provided by his firm to the liquidator. This would mean that, even when the fraud is known, neither the liquidator nor the QLD Police Fraud Squad may have full and proper access to all documents and records.”
Bodies corporate who suspect they may have been defrauded should contact their insurer immediately, and lodge a notification. If the policy has been arranged by their strata manager, the body corporate should contact the insurer directly. Affected owners can also contact Strata Insurance Solutions, for advice on how to pursue these claims.
This post appears in Strata News #113
This information is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. Shandit Pty Ltd T/as Strata Insurance Solutions strongly suggests that no person should act specifically on the basis of the information in this document, but should obtain appropriate professional advice based on their own personal circumstances. Shandit Pty Ltd T/As Strata Insurance Solutions is a Corporate Authorised Representative (No. 404246) of Insurance Advisernet Australia AFSL No 240549, ABN 15 003 886 687.
For more information about misappropriated funds or other details concerning strata insurance, visit our FactSheets: Strata Insurance, FactSheets: Strata Committee Concerns OR Strata FactSheets by State
The photo associated with this post has been supplied by Flickr: Lenny K Photography – Brisbane City by Night.