Segregation of Duties: The Missing Safeguard

Background 

A strata manager in NSW has been permanently banned from the industry after allegedly defrauding more than $2 million from 66 strata schemes. According to NSW Fair Trading, the individual funnelled trust funds into a personal account through 398 separate transactions between February and December 2024.

This case is not simply about misconduct by one person. It is a systemic failure, marked by a breakdown in oversight, governance, and process discipline. It highlights exactly why segregation of duties, transparent reporting, and strong governance frameworks are essential in strata management.

But it also exposes a deeper truth: legislation alone is not enough. The Strata Titles Act outlines the role of a strata manager, but it does not prescribe the internal controls an agency must implement. That responsibility sits squarely with the agency itself.

Strata management businesses must take initiative to ensure that:

• Employees handling trust funds are properly trained and qualified,
• Internal policies and procedures exist and are enforced,
• Access to financial systems is controlled and monitored
• Responsibilities are clearly separated to prevent misuse of authority.

Without these foundations, even the most well‑intentioned agency becomes vulnerable.

The Pattern: Small, Repeated Transactions That Escaped Detection

The alleged fraud involved nearly 400 transactions, averaging around $5,000 each. This pattern is typical of trust account misappropriation:

• Transactions were small enough to avoid immediate suspicion
• They occurred frequently enough to accumulate into significant losses
• They were spread across multiple schemes to dilute visibility

Fraud of this nature rarely succeeds because someone is sophisticated. It succeeds because systems are weak, controls are not enforced, and oversight becomes passive instead of active.

The Governance Safeguards That Should Have Prevented This

Segregation of Duties: The First Line of Defense

No single person should ever be able to:

• initiate a payment,
• process it, and
• reconcile the account.

When one individual has control over too many steps, the system becomes vulnerable. Segregation of duties is one of the most effective fraud‑prevention mechanisms in any financial environment.

This is why the Trust Accountant must have a clearly defined set of responsibilities that are separate from those of the Strata Managers. Strata Managers should not have unrestricted access to add or change supplier bank details, as this is a high-risk function that must be tightly controlled in any strata management agency.

Clear Operational Responsibilities That Strengthen Internal Controls

A well-designed governance framework assigns responsibilities deliberately, ensuring no single person can manipulate the entire process. A robust structure should include:

Administration Team

• Load invoices into the system
• Maintain a clear trail of where each invoice originates, including who submitted it and through what channel
• Verify supplier details when required – confirming ABNs, matching contact information, and ensuring the supplier is legitimately associated with the work performed
• Create new suppliers (but no access to update bank account)
• Ensure all new suppliers have a valid ABN
• Suppliers without an ABN must be escalated to a Council Member or Head of Department for approval

Strata Manager

• Ensure all non-routine invoices are supported by a work order
• Review and approve supplier transactions
• Verify that the correct strata company is charged, correct supplier is used, and the supplier’s bank details are correct and unchanged

Strata Managers must not approve invoices without reviewing them thoroughly. This is a common but serious mistake. Even routine utility invoices, such as water, can reveal important issues when reviewed properly. Regular, timely invoice review (rather than last-minute approvals) gives the Strata Manager enough time to assess accuracy, compare against historical patterns, and ensure the invoice genuinely relates to the scheme. It allows the Strata Manager to follow up with suppliers if there are discrepancies, missing information, or concerns about the charges. When invoices are reviewed early, there is sufficient time to clarify issues before payment is due, instead of being rushed into approving a transaction simply to meet a deadline. Rushed approvals increase the risk of errors, missed red flags, and financial loss.

When an owner seeks reimbursement from the Strata Company, the claim must be supported by a valid receipt showing proof of payment and valid tax invoice. The Strata Manager must verify that the expense relates to the Strata Company and the amount claimed matches the receipt & tax invoice. For higher-value reimbursements, a policy should be set requiring external approval from a Committee Member before the reimbursement is processed. This ensures that owner reimbursements receive the same level of oversight as supplier invoices.

The Strata Manager must query suppliers directly when invoices contain vague, incomplete, or unclear descriptions. Because the Strata Manager is responsible for coordinating maintenance, issuing work orders, and understanding the scheme’s operational needs, they are the only role equipped to confirm whether the work was required and whether the invoice aligns with what was authorized.

All communication relating to invoice approvals, reimbursement approvals, supplier queries, and Committee escalations must be in writing. Written communication provides a clear audit trail, prevents misunderstandings, and ensures that every financial decision is transparent, traceable, and properly documented.

Trust Accountant

• Process supplier payments by uploading payment files from the strata system into the bank. The Trust Accountant’s role is limited to preparing and uploading payments, not authorizing them.
• Maintain responsibility for updating supplier bank details
• Verify high-value transactions (above a set policy threshold) by phoning the supplier and confirming bank details
• Conduct regular internal checks to ensure data integrity

Trust Accountants do not manage the Strata Company’s day-to-day activities. They are not involved in arranging maintenance, issuing work orders, or coordinating suppliers. Because they are removed from operational decision-making, they are less likely to know whether work was required or whether an invoice aligns with what was organized by the Strata Manager. This is precisely why Trust Accountants should only process payments, not approve invoices, and why operational verification must sit with the Strata Manager.

Head of Department

• Authorize bank transactions within the banking platform after the Trust Accountant has uploaded the payment file. The Head of Department is responsible for the final approval of all payments, ensuring an independent review before funds are released
• Co-approve changes to supplier bank details
• Approve suppliers without ABNs
• Request and conduct spot checks on high-value transactions, verifying supplier legitimacy and confirming bank information directly with the supplier when required
• Approve the authorization of high-value transactions, providing an additional layer of oversight.

Strata Company (Optional but highly recommended)

Strata Companies should also set a policy threshold for high-value invoices or owner reimbursement that require external approval from an appointed Committee Member. This ensures that significant expenditures receive an additional layer of independent oversight. Any invoice above the approved limit must be escalated to the Committee before the Strata Manager proceeds with approval.

This structure ensures that no single person can create a supplier, approve an invoice, update bank details, and process a payment. Each step requires a different set of eyes, and that is how fraud can be prevented.

Preventing Invoice Scams and Supplier Impersonation

Invoice scams are becoming increasingly sophisticated, and strata companies are prime targets because they process large volumes of payments across multiple suppliers. Strong governance must include measures to prevent scammers from impersonating suppliers or sending fraudulent invoices.

Key controls include:

• Never rely solely on the contact details printed on an invoice.
• Independently search for supplier contact details online when verifying invoices or bank detail changes.
• Query vague or unclear invoices using independently sourced contact information.
• Treat any request to change bank details as a high‑risk event requiring mandatory verification.
• Document all verification in writing to maintain a clear audit trail.

These controls significantly reduce the risk of paying fraudulent invoices or being misled by supplier impersonation scams.

Mandatory Reporting and Active Oversight

Strata committee treasurers must receive financial reports every month. This requirement exists to:

• detect anomalies early,
• identify unusual spending patterns,
• ensure transparency,
• provide committees with oversight of trust funds.

If hundreds of improper transactions occurred across dozens of schemes, then either:

• reports were not issued,
• reports were issued but not reviewed, or
• reports were reviewed without sufficient financial literacy to identify red flags.

Each possibility signals a governance gap.

Supporting Documentation and Audit Trails

Every transaction should be backed by:

• a valid invoice,
• clear purpose,
• supporting evidence,
• a traceable audit trail.

Weak documentation makes fraud easier and detection harder.

How Weak Processes Enable Fraud

Fraud thrives in environments where:

• One person controls too many steps
  This is the single biggest enabler of financial misconduct.
• Oversight becomes symbolic rather than substantive
  Processes exist, but no one is actively checking.
• Documentation is not verified
  Missing invoices or vague descriptions go unquestioned.
• Workloads are high and teams are stretched
  Fraudsters exploit fatigue, backlogs, and trust.
• Committees rely on trust instead of verification
  Trust is important, but in financial governance, trust must be supported by evidence.

The Real Cost of Governance Failure

The financial loss of more than $2 million is only the beginning.

The broader impacts include:

• Loss of confidence in the strata management profession
• Increased insurance premiums
• Higher audit and compliance costs
• Reputational damage for agencies
• Emotional distress for owners
• Administrative burden of reconstructing accounts

These consequences ripple through the sector long after the individual is banned.

What Good Governance Looks Like

This case reinforces that governance is not paperwork, it is behavior, culture, and accountability.

• Segregation of Duties
  At least two independent people must be involved in every financial process.
• Mandatory Supporting Documentation
  Every transaction must have a clear, verifiable purpose.
• Regular Committee Oversight
  Treasurers and committees must read reports, ask questions, compare trends, and flag anomalies.
• Regular Internal Audits
  Spot checks detect issues early and reinforce accountability.
• Transparent Communication
  Owners who understand the process are better equipped to identify when something feels “off”.
• Clear internal policies and trained staff
  Agencies must ensure that employees handling trust funds are qualified, trained, and supported by strong procedures.

Lessons for the Strata Sector

This incident is not an isolated failure, it is a systemic warning.

The key lessons:

• Controls only work when they are followed.
• Segregation of duties is essential, not optional.
• Governance is everyone’s responsibility. Admin loads → Strata Manager verifies → Committee approves high‑value → Trust Accountant processes → Head of Department authorizes.
• Small anomalies matter.
• Regular reporting is a protective mechanism, not a formality.
• Agencies must design internal controls that go beyond legislative minimums.

Strata schemes manage millions in trust funds. The sector cannot rely on goodwill alone. It must rely on robust systems, transparent processes, and a culture that values accountability over convenience.

Conclusion: Prevention Is Always Cheaper Than Recovery

The alleged $2 million siphoned across 398 transactions is a stark illustration of what happens when governance frameworks are not actively enforced.

But it is also an opportunity, a catalyst for the industry to strengthen its processes, reinforce its culture of accountability, and ensure that every strata community is protected by systems that work as intended.

Good governance is not about compliance. It is about protecting people, property, and trust.