Question: Our strata manager has transferred funds from our maintenance fund to cover admin fund deficits. It appears that the manager has paid some invoices into their account without a clear audit trail. How concerning is this?
After concerns about our strata manager, I asked my accountant to review our finances and contract of appointment. The accountant is concerned that the strata manager has excessive control over our finances. They transfer funds from our maintenance fund to cover admin fund deficits, and despite levy income, the maintenance account continues to fund the shortfall, including the insurance renewal payment.
My accountant also pointed out that our strata manager pays invoices into their own account without a clear audit trail of payments. Am I correct to find this very concerning?
Answer: Routine transfers to cover admin fund deficits are a likely breach, and the invoice irregularities warrant investigation.
The Victorian Owners Corporations Act 2006 (the Act) deals with payments from the maintenance fund under sections 43 to 45. Whilst payments from the maintenance fund are required to follow the approved maintenance plan, section 45 of the Act allows exemptions for payments from the maintenance fund, one of which relates to insurance and reads:
“to enable the owners corporation to obtain adequate insurance for the property that the owners corporation is required to insure.”
On that basis, the single use of the maintenance fund to cover the insurance shortfall appears to fall within the section 45 exemption and is arguably within the law. However, it is important to distinguish this from the broader pattern of ongoing transfers from the maintenance fund to cover deficits in the admin fund. The Act requires two separately maintained funds applied to their respective purposes. Routine transfers from the maintenance fund to address admin fund shortfalls are not sanctioned by section 45 or any other exemption. They are likely to constitute a breach of the manager’s duties and, potentially, of the Act itself.
The maintenance fund exists to ensure the owners corporation (OC) can meet its future capital replacement obligations. The ongoing erosion of this fund through under-budgeting of the administrative fund is concerning for two reasons:
- The building’s long-term capital replacement reserves are being depleted; and
- Continued practice could result in insufficient funds when major assets need replacement. This outcome usually leads to large special levies or delayed replacements, causing service disruptions. This ongoing practice is likely to constitute a breach of the Act and may expose the OC to legal action by lot owners.
Regarding the manager paying invoices into their own account, this requires careful analysis. It is a legitimate and expected transaction for the manager to pay their own management fees and remit the amounts to their account. However, if the manager receives payments for third-party contractor invoices into its own account and then on-pays those contractors, this is a serious concern and creates an opportunity to present the OC with inflated invoices and retain the difference. Investigate this concern by cross-referencing invoices submitted to the OC against the amounts received by the relevant contractors.
Inflated invoices or misappropriated funds would potentially constitute a breach of section 122 of the Act, which governs the manager’s duties in handling and accounting for trust money and the matter should be referred to Consumer Affairs Victoria, which regulates OC managers in Victoria, and if warranted, to Victoria Police. The OC may have an action against the manager at VCAT.
This post appears in the July 2026 edition of The VIC Strata Magazine.
Colin Won
Forensic Auditors Melbourne
E: colin@forensicauditorsmelbourne.com.au
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