Illegal early access remains common issue

Trustees withdrawing funds illegally from their SMSF was a top recurring trend throughout last year and was expected to continue in 2016, according to an SMSF auditor.

“During 2015, the same issue has cropped up: trustees taking money out of the account, usually for their business because they have cash-flow issues, or trustees inadvertently taking money out of an account because they have multiple bank accounts and they’ve clicked on the wrong one,” SuperAuditors director Shelley Banton told selfmanagedsuper.

“Even if they may have corrected it, was it in a timely manner?

“Also, there needs to be some explanation and information about why that transaction has happened because once the money comes in, it’s quarantined as a contribution and once it goes out, if it doesn’t meet a condition of release, then it is illegal early access.

“We’ve seen people paying for expenses for the fund out of their own pocket several times and then had the fund repay them and if they’re doing that on their credit card, for example, you’d have to question whether they’re getting reward points, et cetera.”

Banton stressed it was up to trustees to use extreme caution as she did not believe stricter regulations would solve the problem.

“While you’ve got several accounts with the one financial institution or bank, there’s always a possibility that you’re going to click on the wrong one – that’s just a fact of online life,” she said.

“You can’t get to the point where you mandate trustees to have a separate account entirely which is not linked to any other account online.

“I don’t know how that would be regulated and it wouldn’t be something that I’d want to look at come audit time. And it would be more red tape instead of less.”

She said she believed the combination of an auditor, an adviser or administrator was a powerful tool for trustees to get back on the right track following those types of fund breaches.

“Depending on the auditor they go to, they may or may not get any feedback that they’re doing the wrong thing,” she said.

“For example, if their account has gone into a debit balance at some point during the year, with all due respect, an auditor doing a $200 audit may not necessarily pick that up because of time constraints and if it’s a complex fund, you wouldn’t have the time to pick up everything.

“At SuperAuditors, we would put out a management letter and point out that the account has gone into debit balance and [emphasise that it can’t] happen again.

“We would talk to the accountant who would then have a meeting with the trustees and the issue would [be addressed] at that point, so between the joint relationship that the auditor and the accountant has, that has more impact on the trustees and we’re fairly sure that they’re not going to come back next year.”

Trustees choosing to operate their fund without the help of an adviser were more likely to miss those mistakes, she added.

“One of the problems why trustees are disengaged is because there’s so much information out there on the internet,” she said.

“But just because they can access all that information, doesn’t mean that they’ll necessarily know how to apply it correctly.”

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