Beware

*BEWARE* Low Cost Providers

We have had several discussions with clients, and other professionals within the self-managed superannuation fund (SMSF) industry, about low cost providers of accounting and audit work. The ATO have commenced targeting low cost auditors and suppliers.

Kasey Macfarlane, the ATO SMSF Segment Assistant Commissioner said during theinterview with the SMSF Association that low-cost audit problems discovered included the failure to confirm fund assets and not reviewing the terms and structures of Limited Recourse Borrowing Arrangements. Kasey continues “In another case, there was an auditor who failed to retain documentation in accordance with the auditing standards and had failed to identify and report two material real contraventions that the ATO had required.[1]”

The ATO are also using various ways to gain additional information on these providers, such as social media, websites, suggestions from individuals and even information supplied in your annual fund tax return. Kasey advised that it was likely more low quality; low cost and non-independent SMSF auditors will be reviewed and forwarded to the Australian Securities and Investments Commission (ASIC)[2].

One, but not exclusively, of the ATOs concerns are that low cost providers are turning out these audits, or accounts, in a ‘one size fits all’ approach and that your Fund’s individual circumstances are not being actively reviewed or considered, you are but a number. The ATO also now have monetary administrative penalties in place for each Trustee, if individuals, or for the Corporate Trustee, as a single entity. Since 1st July 2017 each penalty unit will be $210, some of these include, but not limited to:

Provision SISA* Description Administrative penalty
Subsection 34(1) Operating standards 20 penalty units at $210:

·         $4,200 per individual trustee

·         $4,200 per corporate trustee
Subsection 35B(1) Accounts and statements 10 penalty units at $210:

·         $2,100 per individual trustee

·         $2,100 per corporate trustee
Subsection 65(1) Lending to members and relatives 60 penalty units at $210:

·         $12,600 per individual trustee

·         $12,600 per corporate trustee

 

Provision SISA* Description Administrative penalty
Subsection 67(1) Borrowings 60 penalty units at $210:

·         $12,600 per individual trustee

·         $12,600 per corporate trustee
Subsection 84(1) In house assets 60 penalty units at $210:

·         $12,600 per individual trustee

·         $12,600 per corporate trustee
Subsection 103(1) Duty to keep minutes 10 penalty units at $210:

·         $2,100 per individual trustee

·         $2,100 per corporate trustee
Subsection 103(2) Duty to keep minutes of meetings 10 penalty units at $210:

·         $2,100 per individual trustee

·         $2,100 per corporate trustee
Subsection 104(1) Duty to keep records of changes of trustees 10 penalty units at $210:

·         $2,100 per individual trustee

·         $2,100 per corporate trustee
Subsection 104A(2) Declaration of recognition of obligations and responsibilities 10 penalty units at $210:

·         $2,100 per individual trustee

·         $2,100 per corporate trustee
Subsection 105(1) Duty to keep and retain member or beneficiary reports 10 penalty units at $210:

·         $2,100 per individual trustee

·         $2,100 per corporate trustee
Subsection 106(1) Duty to notify of significant adverse events 60 penalty units at $210:

·         $12,600 per individual trustee

·         $12,600 per corporate trustee
Subsection 254(1) Information to be given to the Regulator 5 penalty units at $210:

·         $1,050 per individual trustee

·         $1,050 per corporate trustee

* SISA – Superannuation Industry (Supervision) Act 1993

There are also companies that outsource both the accounting and the audits overseas. They can keep their charges low as they are paying considerable less hourly rates overseas, to their employees/contractors. The work can be done by employees that are unaware of our complex rules  There are also potential issues with auditor independence and audit quality.

[1] http://www.smsmagazine.com.au/articles/problems-with-low-cost-audits-pinpointed-1

[2] http://www.smsmagazine.com.au/articles/problems-with-low-cost-audits-pinpointed-1