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ATO, Auditing

High-risk contraventions on rise

High-risk contraventions

The proportion of auditor contravention reports compared to SMSFs remained low over the 2020 financial year, but a rise in the number of high-risk and unrectified reports is cause for concern, the ATO says.

An increase in the percentage of high-risk and unrectified compliance contraventions for SMSFs over the 2020 financial year is part of a worrying trend, the ATO has said.

Highlighting unrectified regulatory contraventions as the most significant factor contributing to non-lodgement, ATO SMSF segment assistant commissioner Justin Micale said the proportion of auditor contravention reports (ACR) compared to SMSFs had remained low over 2019/20, but an increase in the number of high-risk and unrectified reports was cause for concern.

“In the 2020 financial year, the percentage of ACRs as compared to the number of SMSFs pleasingly remains at a relatively low level at around 2 per cent,” Micale said earlier this week at the Chartered Accountants Australia and New Zealand National SMSF Conference Online 2020.

“However, we are concerned about the 22 per cent increase in the number of reports that we are receiving for auditors and the increasing trends in high-risk and unrectified reports, which now sit at 28 per cent and 55 per cent respectively.”

Three common contraventions that had been reported during the year were loans, in-house assets and separation of assets, he noted.

“A behaviour we’re seeing with loans is that money has been released to members usually recorded as a loan, but on further investigation we discover that it’s not legitimate and the retirement funds are being accessed by the members early,” he noted.

“One example of what we see with in-house asset contraventions is that some trustees are leasing an asset of their fund into a related party.

“Regarding separation of assets, we observed some SMSFs failed to manage their fund investments separately from the personal or business investments of the members. For example, they fail to ensure the assets are held in the fund name.”

During the conference, he also revealed an ATO review of SMSFs registered during the 2020 financial year had stopped almost $130 million from leaving the superannuation system due to illegal access.

In September, the ATO changed its stance on auditors reporting contraventions within an SMSF that occurred due to COVID-19-related relief, noting it would require auditors to include those contraventions in their independent reports.

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