There is certainly a reportable breach here – or potentially multiple reportable breaches.
Whilst a prompt repayment of the amount described as a ‘Sundry Debtor’ may or may not be feasible, it would be best to complete and lodge the Auditor Contravention Report as soon as possible. It has been nearly 30 months since the end of the 30 June 2021 income year.
As you suggest, this scenario could potentially be a breach of Section 65 of the SIS Act, providing financial assistance to a member and/or their relatives. Alternatively, it could be a breach of Regulation 6.17A of the Regulations to the SIS Act, where there is a payment of member benefits where no condition of release has been satisfied.
Given, based on the information at hand so far, it is not known with certainty where the money ended up, the ACR can explain that on the basis of the information at hand there is likely to be a breach of either/or both of Section 65 and Reg 17A.
The fund may have breached the sole purpose test (section 62) if it is not being carried on for the purpose of providing for retirement benefits for its members.
It is possible that there has also been a breach of the in-house asset rules (sections 82 and 84) if the sundry debtor represents a loan to a member of the fund, (or a relative or a related party of member or relative).
One would assume that none of these potential serious breaches is a surprise to the accountant of the fund.