Melissa Caddick class action to ‘shine a light’ on SMSF audit failures

Melissa Caddick pictured in 2004. Picture: Andy Baker

An unprecedented move to launch a class action against the auditors linked with fraudster Melissa Caddick could mark a turning point for investors in Self Managed Super Funds.

Michael Chapman of Mackay Chapman, which is taking the fully funded action to court, says the case is “going to shine a light on deteriorating conditions in the audit sector for SMSFs”.

The class action follows a rocky year for SMSF auditing after a spike in regulatory action against auditors and an exodus of personnel from the sector.

More than a million SMSF investors could be affected by the case, as every single SMSF must be audited each year and many investors will seek to find a competitive rate for what is an unavoidable cost.

But low-cost auditors promising to swiftly sign off on SMSF funds will now come under scrutiny. Shelley Banton of ASF Audits, a superannuation specialist, claims: “It is simply not possible to do an audit for less than $300.”

Recent ATO statistics indicate the median SMSF audit costs closer to $550.

Mackay Chapman has taken the action against five auditors who had signed off on the SMSFs belonging to clients of Melissa Caddick. It is understood capital losses of around $12m are claimed, relating to 24 funds representing around 50 investors.

SMSF audit fees are often described as a “grudge purchase”, which adds to the total running costs of the funds where financial advice already costs around $3500 per annum.

Banton says the SMSF audit sector is not deteriorating. Rather, she explains the sector had to reset after regulatory changes in recent times. It is estimated that one in five auditors left the sector in recent years.

The family home in Sydney where Melissa Caddick was last seen, in November 2020. Picture: NCA NewsWire/Joel Carrett

With about 4000 active auditors now in practice, Banton suggests there is no lack of professional capacity across the sector.

“We have more than enough auditors, and people underestimate the power of technology here – the problem is auditors who do a handful of funds each year cannot keep up with the standards and issues in the industry.”

The issue of audit quality and the feasibility of low fees is certain to emerge as a key element in the Caddick auditors class action. Caddick, who posed as an adviser, allegedly defrauded 74 investors out of some $24m through her company, Maliver.

Insolvency specialist Jones Partners has also been working separately on the Caddick case.

According to Mackay Chapman: “Bruce Gleeson (of Jones Partners), one of the receivers appointed to the property of Ms Caddick, has stated following his investigations that he could not identify a single genuine document that Ms Caddick provided to her investors, and he could not identify any circumstances in which any of the CommSec account statements provided by Ms Caddick to her clients were found to have been true.”

The class action alleges that auditors were negligent, engaged in misleading or deceptive conduct and/or representations, and breached the Corporations Act and the ASIC Act.

As multiple related legal actions continue, the Caddick case is a spectacular example of the failings in the industry where the victims of the alleged fraudster had their accounts signed off by auditors each year. It later transpired that Caddick was not a qualified adviser and the accounts she presented to clients were substantially fictitious.

In a case which has now been the subject of wide media attention, Caddick was last seen at her home in Dover Heights, Sydney, on the evening of Wednesday, November 11, 2020, and was reported missing two days later.

Earlier this year, the NSW deputy state coroner Elizabeth Ryan ruled that Caddick is dead, yet the precise circumstances surrounding her death remain a mystery.