Question: Our owners corporation received a qualified audit report, and since then we’ve found inconsistencies we can’t explain. Does the committee have authority to commission a forensic audit?
We sit on the committee of a 42-lot owners corporation (OC). At our last AGM, we received a qualified audit report, and the auditor noted incomplete documentation, saying this isn’t unusual for OCs our size. A few of us went through the financials closely and found several unexplained inconsistencies. We are waiting on more information from our OC manager.
We’re concerned this goes beyond what a standard audit would catch. What does a forensic audit actually involve, and under the Owners Corporations Act 2006 (the Act), does the committee have authority to appoint one independently?
Answer: A committee generally has authority to commission a defined-scope forensic review without a full owners corporation vote.
A 42-lot owners corporation is classified as a Tier 3 OC under the Act and is not required to have its financial statements audited annually. However, under section 35(4), a Tier 3 OC may resolve at its AGM to have its financial statements audited or independently reviewed.
A qualified audit report is something the committee should take seriously, particularly where the qualification arose from incomplete supporting documentation, and the committee has subsequently identified further unexplained inconsistencies. A qualification does not necessarily indicate financial mismanagement or wrongdoing. Rather, it means the auditor was unable to obtain sufficient evidence to support certain aspects of the financial statements.
There is also an important distinction between a standard financial statement audit and a forensic accounting investigation.
A standard audit is principally directed toward expressing an opinion on the financial statements as a whole. It is not designed to identify or investigate every individual anomaly, transaction or suspected irregularity.
A forensic accounting engagement is generally more targeted. It starts with a defined concern or objective, e.g., unexplained expenditure, discrepancies between invoices and accounting records, unusual related-party transactions, unreconciled balances, missing documentation or concerns regarding the administration of owners corporation funds. It examines the relevant transactions and source documentation in greater detail.
Importantly, I would generally recommend a defined-scope forensic review rather than an unrestricted forensic audit. The committee should identify the specific anomalies or concerns and engage a forensic accountant to investigate them. This usually produces a more useful and cost-effective outcome than simply asking someone to re-audit the entire financial statements.
Before commencing, access to source documentation is important. Section 146 of the Act requires the OC, on request by an entitled person such as a lot owner, to make records required to be kept under the Act available for inspection at any reasonable time. Where those records are held or administered by the owners corporation manager, the committee should request that they be produced. Continued inability to obtain relevant OC records should itself be documented and may warrant further advice regarding the OC manager’s obligations from a solicitor or Consumer Affairs Victoria as the body overseeing the OC manager registration.
Committee authority
A distinction should again be drawn between commissioning the statutory audit or review contemplated by section 35 and engaging an accountant or forensic specialist as a consultant to investigate particular financial concerns.
Section 11 of the Act provides for powers and functions of the OC to be delegated to its committee. Where no specific delegation to the committee is in force, section 11(5) generally delegates to the committee the powers and functions of the OC other than matters which must be determined by unanimous or special resolution or at a general meeting.
Accordingly, in our view, a committee would ordinarily be capable of resolving to engage an independent forensic accountant or consultant to investigate defined financial concerns without waiting for the next AGM, provided the engagement falls within the committee’s delegated powers. It is not being undertaken as the statutory audit or review under section 35. The committee should also check for any existing restrictions on its delegated authority or on its expenditure limits.
Given the circumstances described, my suggested first step would therefore be to document the specific inconsistencies identified, formally request the outstanding source records and set a reasonable timeframe for their production. If the matters remain unexplained, those issues can then form the scope of a targeted forensic accounting engagement. Alternatively, the committee could initially engage the forensic accountant to assist in defining the scope and identifying the required records.
Assistance
A specialist auditor could assist OCs and committees by:
- Defining the scope of review based on the specific concerns identified by the OC, including advising on the records and supporting documentation required; and
- Undertaking a targeted forensic review or investigation of the identified matters to assist the committee in understanding and resolving its concerns.
This post appears in the September 2026 edition of The VIC Strata Magazine.
Colin Won
Forensic Auditors Melbourne
E: colin@forensicauditorsmelbourne.com.au
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