If you thought the dust had settled on the Netstrata schemozzle, think again. The strata management giant is currently reaching the end of what can only be described as a truly forensic review of their business structures.

And while Netstrata has agreed to pay costs of the review of up to $300,000, the investigation by McGrath Nichol Advisory Partnership appears to be totally independent.

The review follows an ABC investigation earlier this year – and follow-up reports – which alleged that Netstrata was using subsidiary companies to hide payment of commissions on insurance premiums, while funnelling strata owners’ funds into preferred service companies.

The word is that Netstrata has been cooperating fully and the final report is expected to be submitted to Fair Trading within weeks, rather than months. The investigation has involved detailed interviews with about 50 strata schemes and numerous local strata managers.

Meanwhile, NSW Fair Trading has already made moves to improve consumer protections across the industry with proposed new laws that will improve transparency and combat conflicts of interest.

Among these is a proposal that strata managers can’t claim commissions on insurances unless they can prove that they were instrumental in negotiating better deals for the strata owners.

As far as the current investigation goes, as well as those issues, questions around large companies amortising costs and increasing profits by going for quantity of clients over quality of service have surfaced.

A NSW Fair Trading website says the review covers the period from January 2022 to 27 March 2024 and has been looking into:

• The business structure of Netstrata and its related entities.
• Processes, policies, procedures, practices and systems of Netstrata in relation to relevant statutory functions.
• Matters related to brokering of strata insurance, to third party contractors and to promotions and incentives to engage third party contract and suppliers.
• Matters relating to the general operation of Netstrata, including whether there are sufficient systems, processes and procedures to ensure statutory compliance, whether there is appropriate supervision and whether there are other consumer interest matters.
• Any recommendations arising.

But it’s the nitty-gritty detail of the scope of the forensically detailed review, reproduced below from a Fair Trading document, that justifies the “no stone unturned” claims.

McGrathNicol will present the report to Fair Trading and it will offer Netstrata a chance to comment before the document will be published.  Meanwhile the Owners Corporation Network (OCN) and Strata Community Association (the strata managers’ professional body) will confer with Customer Services on what the new laws will be.

Now that WILL take months rather than weeks, but all the indications are that the reforms will be worth waiting for.

While you’re waiting for that to drop, here’s the whole scope of the Netstrata inquiry, as published by Fair Trading.  Now, ask yourself if your strata managers would stand up to this level of scrutiny.

Netstrata inquiry: Scope of Review

1. Netstrata Group:

• a. Business structure of Netstrata and its related entities including all parent and all subsidiary entities and key personnel.
• b. Processes, policies, procedures, practices and systems of Netstrata in relation tothe statutory functions applicable to Netstrata under the Property Stock and Agents Act2002 (NSW) (PSAA) and the Strata Schemes Management Act 2015 (NSW)(collectively, Applicable legislation) including but not limited to compliance withdisclosure obligations and conflicts of interest.

2. Strata Insurance Services (SIS)

• a. What is the relationship between SIS and Netstrata?
• b. What are the arrangements in place between SIS and Netstrata for the brokering of strata insurance?
• c. How is strata insurance brokered by SIS for its clients?
• d. What is the process that Netstrata follows when arranging strata insurance for an owners’ corporation that it manages?
• e. What are the total insurance costs charged for strata insurance? How are these calculated?
• f. What was the disclosure of the total insurance costs referred to in 2(e)?
• g. Whether the total insurance costs generally reflected market costs for the services provided.

3. Contractors and suppliers

• a. Were third party contractors and suppliers engaged by Netstrata when exercising delegated functions of owners corporations?
• b. Were there terms of engagement or other contractual arrangements between Netstrata and each of the third party contractors and other suppliers?
• c. Where third party contractors and/or suppliers were engaged, did Netstrata disclose any related party nature of the engagement?
• d. Did Netstrata receive any payment (including but not limited to fees, charges, discounts and rebates, commissions or gifts) from third party contractors or suppliers it engaged to undertake work for owners’ corporations?
• e. Were any payments referred to in 3(d) disclosed to the associated owners’ corporations? If so, what was the mechanism of disclosure?
• f. The saturation rate of engagement of strata contractors and suppliers for Netstrata’s clients.
• g. Whether the rates charged generally reflect market costs for the goods and services provided.

4. Promotions and incentives

• a. Did Netstrata reward staff financially for promoting the engagement of third-party contractors and suppliers? If so, when and in what circumstances and to what value?
• b. Did Netstrata reward staff for promoting the engagement of third-party contractors and suppliers by giving gift vouchers to staff? If so, when and in what circumstances and to what value?
• c. Did Netstrata reward any other person, entity or body for promoting the engagement of third party contractors and suppliers? If so, when and in what circumstances and to what value?

5. General operation of Netstrata

• a. Does Netstrata have in place sufficient systems, processes and procedures to ensure statutory compliance? If the answer is no, what deficiencies are identified and why does the expert consider these matters to be deficiencies?
• b. Does Netstrata have in place appropriate supervision in accordance with section 32 of the PSA? If the answer is no, please specify why?
• c. Are there any other conflicts of interest, financial management, compliance, governance or consumer interest issues raised by the answers to questions 1 to 5(b)? If yes, please specify.

6. Recommendations

If deemed appropriate and acting reasonably, provide any:

• a. observations on any matters within the scope of the review;
• b. recommendations:
  • i. concerning the undertaking of any additional review together with the scope and estimate of costs and time of that additional review; and/or
  • ii. relating to the manner in which Netstrata undertakes its functions under the license.

Notes:

“third party contractors and suppliers” as used in this letter is defined to include Strata Insurance Services, Winfire, Resolute, Maintenance Group and PG Martin Plumbing as well as any other third-party contractors and/or suppliers engaged by Netstrata.

Items 2e to g and 3a to e to be based on a sample of properties managed by Netstrata, as chosen by the Expert (and ensuring that stratas that were referred to in the Allegations and stratas that are associated with complaints made to New South Wales Fair Trading about Netstrata are included in the sample).

For avoidance of doubt, the other matters within the Scope of Review are not to be assessed only by reference to the sample, unless McGrathNicol considers that to be appropriate.