Do auditors verify payments made directly to the strata manager during a strata audit?

Does the auditor need to cross-check strata trust bank statements?

Cross-checking strata trust bank statements is a fundamental part of our audit process. We obtain bank statements directly from financial institutions like Macquarie Bank to ensure the accuracy and completeness of the records. This allows us to verify that the transactions recorded by the strata management match the actual movements in the bank accounts.

When payments are made directly to the strata manager, what action does the auditor take?

If we observe payments such as a $1,000 repair invoice paid directly to the strata manager instead of the contractor, it would warrant further investigation. Here's how we approach such situations:

• Investigate the transaction flow: Examine why the payment was routed through the strata manager. There might be legitimate reasons, such as the manager paying the contractor upfront due to an urgent repair and then seeking reimbursement. However, this should be clearly documented and authorised.
• Verify supporting documentation: Check invoices, receipts, and any correspondence related to the transaction. Comparing the repairer's invoice with the payment records helps ensure that funds are used appropriately.
• Assess compliance with policies: Review whether the transaction adheres to the owners corporation's approved financial procedures. Any deviations might indicate a lapse in internal controls or potential mismanagement.
• Consider potential red flags: Consistent patterns of payments to the strata manager matching contractor invoices could suggest issues like misappropriation of funds or conflicts of interest, especially if not adequately justified.

Are pooled trust accounts a cause for concern regarding strata fraud?

Yes, many strata fraud cases involve pooled accounts. Pooled accounts aggregate funds from multiple strata schemes. This can increase the risk of errors or intentional misallocation due to the complexity of tracking individual contributions and expenditures.

What is Tinworth & Co's audit approach for pooled accounts?

When auditing pooled accounts, we take additional steps to ensure thoroughness:

• Direct bank confirmation: Obtain statements and confirmations directly from the bank to verify that all recorded transactions and balances are accurate.
• Detailed reconciliation: Perform meticulous reconciliations for each strata plan within the pooled account to ensure that funds are correctly allocated and there's no cross-subsidisation between schemes.
• Enhanced transaction testing: Given the higher risk, we increase the sample size of transactions tested, focusing on unusual or large payments.
• Review of internal controls: Assess the effectiveness of the strata management's internal controls over pooled funds, including authorisation processes and segregation of duties.

What process do auditors use to identify irregularities?

Industry regulators and professionals have highlighted concerns about irregularities in pooled accounts. Staying informed about these issues allows us to adjust audit procedures accordingly. If irregularities are detected:

• Investigate the cause: Determine whether discrepancies are due to errors, oversight, or intentional misconduct.
• Report findings promptly: Communicate any significant issues to the owners corporation and, if necessary, relevant regulatory bodies.
• Recommend remedial actions: Provide actionable recommendations to strengthen financial controls and prevent future issues.

What documentation is used when conducting strata financial statement audits?

A comprehensive audit requires a variety of documents:

• Strata management records: Including financial statements, general ledgers, and transaction listings.
• Bank statements: Sourced directly from the bank to ensure independence and accuracy.
• Invoices and contracts: To substantiate expenditures and confirm that services were received as billed.
• Meeting minutes and approvals: To verify that expenditures were authorised by the owners corporation.
• Correspondence and emails: For additional context on transactions and decisions made.