Case 1

Contributions were wrongly allocated to another member’s account and, prior to the error being identified, the other member rolled over the misallocated contributions to his new fund. Could the trustee get this money back and credit it to the correct member?

This is one of those cases where mistake after mistake occurred before the alarm bell was raised. In short, the employer in December 2006 switched the match key of two employees. (The match key linked an employee to an account number within the fund). This resulted in the complainant member’s employer contributions being allocated to another employee’s super account. In August the following year, the other employee left his job but the employer never advised the trustee of this occurring. The other employee left his super in the fund for the next three years before rolling out $17,245.12 to another fund of which approximately $12,000 was not his money.

In October 2014, the complainant member notified the trustee of the error in the allocation of his contributions. A few days later, the employer advised the trustee of the date the other employee member had left the company. Armed with this information, the trustee was able to correct the match key error and properly allocate $27,453.81 to the complainant member’s account. This amount was still in the fund as the contributions had continued to be credited to the other member’s account, notwithstanding the rollover that had occurred a few years prior.

In March 2015, the trustee wrote to the trustee of the other fund and requested the wrongly allocated outstanding contributions be returned to its fund. The trustee of the other fund refused this request because it was unable to get permission from its member.

The trustee in its submission to the Tribunal pointed out that for eight years the member had received biannual statements that showed ‘nil’ employer contributions being made. If the member had read these statements he would have been made aware of the error. Additionally, if the employer had run a reconciliation report it would have been able to identify the error. The employer super product disclosure statement pointed out employers were required to tell the trustee within 30 days of an employee leaving so the trustee could transfer the member to its personal division in the fund. If any of these rational steps had occurred the error would have been identified and the loss not incurred.

The trustee argued that it was unfair and unreasonable to hold the trustee responsible for the missing contributions. The loss was caused by the employer’s error and neither the employer nor the member had taken steps to mitigate the loss over a number of years. Interestingly, the trustee also told the Tribunal it cannot force the other trustee to hand over the money wrongly sent to its fund and it had suggested the member and employer obtain legal advice. (The authors find this submission surprising, but more on that later).

The Tribunal found, as a matter of fact, that if the error had been identified prior to the rollover occurring the loss would have been adverted as the trustee would have been able to correct its own accounts. The Tribunal also accepted, as a matter of fact, that the transfer of funds could not be rectified by the trustee as the other member had not provided his trustee with the requisite authorisation for repayment. On this basis, the Tribunal held the trustee’s decision to not compensate the member for the wrongly allocated contributions now transferred to another fund was fair and reasonable in the circumstances.

The authors note the Tribunal did not consider the potential application of the rules of tracing in equity. These may have allowed for the tracing of monies wrongly rolled over to the other fund. Could it be argued that the trustee should have exercised its legal rights according to its duty to administer the fund with care, skill and diligence and in the best interests of the members? It is an interesting question to ponder – how much should a trustee, as a fiduciary running the fund in a way that complies with trust law and the Superannuation Industry (Supervision) Act 1993, spend to recover $12,000? Court proceedings pursuing legitimate legal rights can be very expensive. Could the complainant member now commence civil proceedings against the trustee for failing to pursue legal avenues available to it which have caused him to suffer a loss? Notwithstanding the answers to these questions, this Tribunal case appears to traverse an area where the superannuation industry may not be meeting the average Australian’s expectations of how the compulsory retirement savings system should work.

D18-1905

Case 2

The member claimed that her superannuation account balance was inappropriately paid out pursuant to a fraudulent Departing Australia Superannuation Payment (DASP) application. She wanted her account balance of $7,086.10 reinstated. The trustee refused to do so and it was this decision that was being reviewed by the Tribunal

In September 2015, the trustee received an online DASP request, together with a certified copy of the member’s passport. Interestingly, the member’s postal and email address had been changed from those originally loaded onto the administration system six weeks before the DASP request. That change of address may also have been part of the fraud.

The trustee followed its standard process, including that the signature on the DASP request matched the signature on the passport and that the tax file number quoted on the on-line application matched that recorded on the trustee’s system. With the checking completed, the trustee wrote to the complainant at the address on its system and enclosed a cheque for the full entitlement of $7,086.10 together with a member statement and DASP Payment Summary.

While the trustee was sympathetic to the member’s situation, its position was that if fraud had occurred the member should pursue that with the relevant legal authority in her home country. The trustee was also unable to confirm whether fraud had, or had not, incurred. It wrote to the Tribunal:

“Our concern is another person was able to have access to [the Complainant’s] personal information, including her passport and TFN, how did this occur? We did not provide any personal information to any party including [the Complainant].”

In the Tribunal’s deliberations it pointed out that APRA’s Prudential Practice Guide SPG 280 – Payment standards for regulated superannuation funds and approved deposit funds requires trustees to be suspicious if members’ details such as an address change just prior to a request for a rollover or transfer. APRA expects trustees to include provisions in their risk management frameworks that establish appropriate, robust systems and procedures that substantially mitigate the risk of fraud. Similarly, AUSTRAC has issued warnings in relation to possible indicators of fraud and noted superannuation funds can be targeted.

The Tribunal then went on to make the following findings of fact:

  • It is not the role of the trustee to contact any bank to investigate alleged fraud.
  • There was no objective and independent evidence of the fraud having taken place, noting there was no submission from the member that the police in her home country had investigated the alleged fraud.
  • The DASP application details matched the fund’s records, albeit that the address details were changed close to six weeks before the transfer.
  • The trustee followed its procedures, including checking signatures.
  • There appears to have been an elaborate fraud.

In these circumstances, the Tribunal held that the trustee was not required to compromise the member’s claim for reinstatement of her account balance. Accordingly, the trustee’s decision was fair and reasonable in the circumstances.

D18-19/006