Below are some issues on SMSF compliance which the Commissioner Michael D'Ascenzo spoke about in his address to the SMSF Professionals Association of Australia (SPAA) 2011 National Conference, Brisbane on Wednesday 23 February 2011
For full speech click here
Major issues are marked in RED
The requirement for approved auditors to conduct an annual financial and compliance audit, and to report associated breaches via auditor contravention reports (ACRs), is fundamental to the health of the SMSF system. Competent professionals in this field also inspire community confidence that the considerable tax concessions provided to super are appropriately applied ........
In many ways, approved auditors are our 'eyes and ears' for the SMSF market. Their annual audits provide a key measure of overall SMSF compliance levels and thus a good indicator of the health of the sector. That is why any conflict of interest issues undermine their important contribution to the integrity of the system.
We have also increased our compliance coverage of the SMSF and auditor population from the very low numbers before 2006 (400 cases) to an annual coverage of close to 4% of funds through our compliance and general early intervention activities (approximately 16,000 compliance activities) and 7.1% of approved auditors (990 cases/compliance activities).
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We will be looking very closely at loan cases this year. We have 300 audits planned together with 200 reviews, 1,600 mail-out cases and a follow-up program relating to the mail-out cases we conducted in 2008-09. Mail-out cases are for funds with loans below the risk thresholds for audit/review - we ask trustees to consider whether their reported loan is in line with SISA provisions and whether they have implemented reasonable safeguards to protect the fund's assets.
Breaches of the in-house asset (IHA) rules will also feature prominently in our program this year. Where we have followed up reported breaches of IHA rules in the past, we have found in most instances that trustees have effectively been using their retirement benefits to support their related businesses and are clearly exceeding the 5% limit. While we will often work with these trustees to get them back on track, where the breaches are significant we have been imposing serious sanctions such as making the fund non-complying.
A significant number of the 185 funds we made non-complying in the 2009-10 financial year had breached IHA rules. This is not a decision we take lightly, but in the majority of cases the significance and length of the breaches (often multiple), the level of carelessness or recklessness shown by the trustees towards their obligations, and their attitudes towards addressing their compliance problems have led us to conclude that this was the most appropriate course of action to take.
We believe it is important to address any compliance problems sooner rather than later. As a result we have a specific early intervention strategy where we focus on at-risk new funds, particularly in the context of addressing risks of illegal early release schemes (see below). When funds lodge their first return we assess whether there are any apparent compliance issues that may concern us. Where we do detect an issue is found we withhold the notice of compliance until we are satisfied that everything is in order. This happens in only a small minority of cases, with the remainder of funds receiving their notice of compliance shortly after lodging their first return. Where the notice is withheld and follow up with trustees occurs, it usually takes three months from lodgement before the notice is issued.
It is well documented that the SMSF market continues to grow strongly, at about 5-10% per annum, following the peak of 2007 which saw a 20% growth spike. With such a large population it is difficult to generalise, but our indicators tell us that things are trending in the right direction.
While we receive an increased number of ACRs each year, when compared with growth in the sector the ratio of ACRs to the number of SMSFs has remained relatively stable and the proportion quite small - about 2% of all funds or about 8000-9000 each year. And this is in a more stringent reporting environment for new funds.
Sent by :-
Manoj Abichandani SSA SSAud
SMSF Specialist Advisor
SMSF Specialist Auditor
Team Leader
