The introduction of direct bank feeds into SMSF platforms has been both a blessing and a curse for SMSF auditors and advisers.
Direct bank feeds can provide time-saving benefits because they eliminate trawling through pages of disorganised statements. However, depending on the status of the feed, a raft of new issues emerge that can throw any real time-savings out the window.
Contrary to popular belief, an SMSF auditor doesn’t stop looking at the bank account just because a direct feed is in place.
The auditor’s obligations under the auditing standards are still the same. ASA 500 and ASAE 3100 continue to require the auditor to obtain sufficient and appropriate audit evidence on which to base their opinion.
The SMSF auditor is obligated to confirm the cash exists, the bank account is in the correct name and all transactions have been recorded correctly.
Cash and cash equivalents are an SMSF’s most liquid assets as they carry a high risk of fraud. In recent times, SMSF auditors would send a bank audit confirmation to the SMSF’s bank to provide independent confirmation.
With SMSF auditors now shying away from requesting bank audit certificates due to high fees and red tape imposed by online bank confirmation service providers, it’s important they scrutinise data feeds more carefully.
As a result, new questions arise during an audit that both the SMSF auditor and adviser have to consider. Here are five ways direct bank feeds impact on SMSFs.
What’s the start date of the feed?
The SMSF auditor must review the data feed console to identify when the feed first started. Manual bank account entries cannot be relied upon before the feed commenced.
To confirm that transactions have been entered correctly, all bank statements must be requested from 1 July up until the start date of the feed.
Obtaining missing statements is onerous and time-consuming for everyone.
Has the feed dropped out?
Direct feeds have an uncanny ability to drop out when you least expect it. There’s no rhyme or reason as to why a feed drops out, but it happens.
That’s why it’s important SMSF auditors have a sound understanding of how each SMSF administrator flags their data feeds.
Again, where the feed has dropped out, the auditor can only meet their audit obligations by requesting bank statements that cover the missing period(s).
Is the 30 June balance correct?
With bank audit certificates becoming a thing of the past, SMSF auditors and advisers are opening themselves to future litigation by not checking the closing bank balance, particularly in the case of fraud or a relationship breakdown.
Obtaining a copy of the 30 June bank statement is an acceptable substitute for bank confirmation when the feed is working.
However, many SMSF trustees and their advisers are pushing back on providing these in the mistaken belief the data feed itself is sufficient.
As the account number is the only common denominator identifying the data feed, it’s vital to match the closing balance in the feed to the 30 June bank statement.
Is the bank account held in the correct name?
Before activating the feed, the bank account must be set up in the SMSF platform by manually entering information such as the full account name.
Given this situation, there’s no way to check a bank account was established in the correct name, for example, a fund with a corporate trustee should be identifiable as ABC Pty Ltd ATF The ABC Super Fund.
SMSF auditors must review a copy of the bank statement to confirm there’s not a breach of the separation of assets.
Is there a third-party upload?
Bank data that’s uploaded from third-party sources, such as BankLink, provides a risk for SMSF auditors. That’s because the data is manually downloaded from the source to a CSV file, then uploaded into the SMSF platform.
This sequence of events opens up an opportunity (however remote) of manipulating the CSV file before uploading it.
To ensure all entries in the SMSF platform are correct, the auditor will request a copy of the original transaction listing from the source as a cross-check.
While assets such as cash, listed shares and managed funds are capable of being set up with direct data feeds, some assets will never be able to have direct feeds.
These include property, related trusts, limited recourse loan borrowing arrangements and personal use items, which have to follow standard auditing procedures.
There’s no doubt technology provides time and cost savings across some, but not all, fund investments.
The anomaly is that technology can’t mitigate the compliance obligations imposed on SMSF auditors and advisers by their professional bodies.
Engaging with an SMSF professional who understands the limitations of technology is critical to future fund compliance.