Simply performing HIN searches on share investments (and not blindly relying on reports provided by Caddick) could have quickly identified a problem and could have saved millions of dollars of retirement savings. However, it seems that her cunning may be so sophisticated, she may have fabricated HINs to pass them off as real investments.

On 27 October 2023, the renowned journalist Kate McClymont, published an article titled “Melissa Caddick’s victims launch class action against super fund auditors”.

This followed the lawsuit filed by a Melbourne Law Firm (“Mackay Chapman”) for 24 impacted investors who allege multiple SMSF auditors were negligent, engaged in misleading conduct and breached the Corporations Act.

Over the years 2012 to 2020, it appears that Melissa Caddick falsely presented herself as a licensed financial advisor and fraudulently produced CommSec documents to paint a picture of financial health for investors, including self-managed super funds (“SMSFs”).

The law requires an SMSF to have an annual audit to confirm the validity and accuracy of financial reports, as well as its compliance with the Superannuation Industry (Supervision) Act 1993 & Regulations (“SIS”). Not only is “an audit required,” but it must be independent.

Unarguably, a quality audit is a financial health check for the SMSF and the protection for the weakest members of any SMSF.

The lawsuit alleges the SMSF auditors engaged to review the annual financial reports for the SMSFs, “failed to identify fraudulent documents prepared by Caddick, and that they failed to confirm the shares held (in the SMSFs) actually existed “(Kate McClymont, 27 October 2023).

With the rise of AI, smart technology, and plenty of willing virtual players “ready to create” fraudulent documents with astonishing authenticity, it is no wonder we are facing a world of increased risk regardless of how secure an SMSF’s investments may appear to be.

One only needs to think of examples, like the Centra Tech case (as documented in “Bitconned” by Brian Storkel, Netflix). To quote a principal participant (Ray Trapani):

“We didn’t know anything about this f*****g business. But it didn’t matter at all … We lied, we cheated, we made millions of dollars.”

I am not without a some empathy for the position of the auditors now entangled in the class action.

As raised by Shelly Banton, in Todd Will’s article of 20 December 2023 (“Caddick Case Not Just a Lesson for Auditors”), there were opportunities to identify potential compliance issues before reaching the audit stage.

 For example, why didn’t investors check her AFSL number? Was there even a ready means (between 2012 and 2020) for investors to check Caddick’s AFSL number?

There is also the possibility of Superannuation Auditor Number (SAN) misuse. Which means the professional auditor registration numbers of auditor have been illegally used on Superannuation Annual Returns to record Part A and Part B Unqualified – without the knowledge of the auditor.

We must not rush to judgement about the auditors and let the case run its path.

Any SMSF auditor knows there are fundamentals that underpin every audit.

These include EXISTENCE, VALUATION, COMPLETENESS, MARKET VALUE and RECOVERABILITY. The auditor has an obligation to maintain evidence of procedures performed and how they arrived at their ‘Clean Bill of Health Opinion.’

For example, performing HIN searches on share investments can quickly identify whether investments are really owned by the fund or not.

The last few years has seen big increases in the cost of living, so it is no wonder firms and clients are trying to trim costs in every area – including the cost of an SMSF audit. This is an extremely dangerous practice.

The need to carefully choose a quality auditor is essential and should be seen a value add and compliment to the brand of the Accountant, Administrator and Financial Planner.

Too often the SMSF audit is regarded as an inconvenience or a commodity to be carved up like sponge cake. But in reality, we are talking about real people and their retirement savings. In other words “their retirement dreams” – which is very personal to them.

The whole Caddick affair has reminded me of the importance of having a quality SMSF Auditor.

David Saul

Saul SMSF

www.saulsmsf.com.au

David Saul is the principal of Saul SMSF which provides independent SMSF auditing services. With over two decades of experience as an SMSF Auditor, Advisor and Administrator, David is committed to delivering best practice in the provision of SMSF audit services. David has earned a reputation in the marketplace as a trusted, independent SMSF auditor.