“What is sufficient is a title search. Do a title search and you’ll sleep well at night.”

The case dealt with Murphy who had been disqualified from being an approved auditor of SMSFs due to his failure to comply with conditions imposed by ASIC including his failure to comply with applicable auditing standards and reporting requirements.

The tribunal heard that between 5 June 2013 and 22 December 2023, Murphy was an approved SMSF auditor under section 128B of the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act).

On 27 February 2024, a delegate of ASIC confirmed the decision made by ASIC under s.130F(2) of the SIS Act on 15 December 2023 to disqualify Murphy from being an approved SMSF auditor.

On 5 March 2024, Murphy made an application to the Administrative Review Tribunal for a review of the reviewable decision.

On 20 April 2022, an ATO review of SMSF audit files by Murphy resulted in a referral to ASIC, which resulted in the identification of breaches of auditing and independence standards.

In accordance with the Review Conditions of the Conditions Decision, ASIC conducted a peer review of three audit files for the financial year ending 30 June 2021 (2021 financial year). These three audit files were for Stephen Hess Superfund (Hess Fund), David Malcolm Superannuation Fund (Malcolm Fund) and the trustee for Shaurya and Samar Superannuation Fund (S&S Fund) respectively.

On 1 March 2023, ASIC notified Murphy by “show cause” correspondence that it had concerns that he had failed to comply with the Conditions Decision. Those concerns included his non-compliance with the competency exam condition or the three audit file requirements of the review conditions.

ASIC further indicated to Murphy that, as a result of those concerns, it was considering whether to disqualify or suspend him as an approved SMSF auditor under s.130F(2) of the SIS Act.

Figot said although the case contains many elements, it is the audit of the Hess Fund that highlights the importance of adequate documentation regarding establishing ownership in compliance with SMSF regulations.

The tribunal stated that the principal areas of concern for ASIC in relation to the quality of the audit by Murphy of the Hess Fund were:

(a) Murphy’s failure to identify that there was inadequate evidence of the ownership of the 17 Clearwater Street, Bethania property by the SMSF (Hess property ownership concern).

(b) Murphy’s failure to determine whether a borrowing from La Trobe Financial of $466,095.41 was the subject of a relevant exception so as to enable compliance by the SMSF with s.67 of the SIS Act (Hess compliant borrowing concern).

(c) Deficiencies in the engagement letter issued by Murphy for the audit of the Hess Fund (Hess engagement letter concern).

Murphy relied on three documents to support his conclusion as to ownership:

(a) A rate notice addressed to “STEPHEN HESS PTY LTD (TRUSTEE)” with “Property location: 17 Clearwater Street, BETHANIA, QLD 4205”.

(b) A La Trobe Financial Loan Activity Statement addressed to “Stephen Hess Pty Ltd II OR and ATF Hess H”, which referred in its “Security Documents in Custody & Insurance Summary” to 17 Clearwater Street BETHANIA”.

(c) A rental agent statement addressed to “STEPHEN HESS SUPER FUND” which referred to “17A Clearwater Street, Bethania, 4205” and “17B Clearwater Street, Bethania, 4205”.

Murphy contended that together the three documents were more than sufficient to prove the ownership of 17 Clearwater Street by the Hess Fund.

ASIC rejected this and said Murphy showed a lack of “understanding of probability and audit judgement on these three documents, maybe attack one but together as three it leans strongly to ownership ... I dismiss ASIC [c]oncern on grounds it ignores cumulative proof and is not independent".

Murphy maintained the position under cross-examination that the cumulative effect of the three documents established the ownership of 17 Clearwater Street by the Hess Fund.

The tribunal stated that although Murphy was cross-examined in relation to the details of each of the three documents, his answers did not establish that reliance on those three documents (even cumulatively) was sufficient to establish ownership.

“This case is a timely reminder that a rates notice, loan notice and rental statement are not sufficient to prove ownership, even the cumulative effect of those is not sufficient,” Figot said.

“Moving forward, one thing that we can say based on the Murphy case is that an auditor would be foolish to rely on the cumulative effect of documentation. It is not enough. Do the title search, which you should be doing anyway.”