Hot SMSF Audit Issues grabbing our attention early this year - Assurance & Advisory Blog | Deloitte Australia has been saved
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One thing we can all agree on is that the SMSF industry is constantly changing. After 20 years as an SMSF audit specialist, it still surprises me how often new strategies emerge which keep my role interesting.
Change and innovation in SMSF compliance and advice mean that the hot audit issues on my radar are always changing, and this year is as interesting as ever.
These are the five audit issues grabbing our attention early this year:
1. Limited Recourse Borrowing Arrangements
The popularity of borrowing in SMSFs continues to grow, and overall this is a very positive story. The vast majority of LRBAs that cross my desk are well structured, and provide excellent opportunities for diversification and growth for members.
There are however those cases where genuine mistakes, or much worse deliberate strategies, cause major concern. Some of the tricks and traps we are noticing in our 2015 audits include:
2. Rollovers Out & Wind Ups
The number of SMSFs with large member balances being wound up appears to be rising, and many of these involve members under preservation age who are rolling their large balances into industry/retail funds.
Two high audit risks we have identified:
We are finding that the common practice with SMSF rollovers if for a member to request a rollover and the administrator simply prepares a draft rollover form and sends it to the member.
Where the member arranges the payment from the super fund’s bank account, and the unsigned rollover form is handled by the member (presumably to be signed and forwarded to the receiving fund), the administrator is not receiving any communication from the receiving fund that the rollover was actually received.
3. Lending by SMSFs
Lending by SMSFs appears to be on the rise as well. Typically these are unsecured private loans to either related parties or genuine arms-length loans.
4. Overseas Travel Claims
Overseas travel expenses are high on the ATO’s hit list for 2015. This follows a number of high profile cases where the ATO targeted advisers actively promoting overseas SMSF Trustee conferences paid for using SMSF funds (resulting in the disqualification of Trustees).
Any overseas travel claims, including visits to overseas rental properties, will be heavily scrutinized for compliance with the sole purpose test. Documentation is critical as the risks are high any time SMSF money is used for overseas flights and accommodation.
5. A decline in record keeping
With increasing reliance on data feeds and digital record keeping, the days of Trustees being swamped with piles of paperwork are (thankfully) long gone. What the SMSF industry needs to be careful of is that the quality and accuracy of record keeping is IMPROVED by technology, and not reduced through poor systems and controls.
We are finding major gaps in document storage and online digital signing processes that can really hold up the audit process. Investment strategies, Trustee minutes, pension documents, trust deeds, ATO trustee declarations, and documents that build the SMSF’s investment story, are critical – digitizing these documents is perfect, eliminating them is bad practice!
The great news is that overall the number of breaches appears to be declining, and the resources available to Trustees to be better educated on what it takes to run an SMSF are definitely making a positive difference.
This blog was originally authored by Jo Heighway.