As an auditor, an area of concern is when should I lodge a contravention report and could I be regarded as an auditor who under reports or over reports. In the process of this how do you eliminate human error and strike the right balance for your SMSF client. At SMSF Super Auditors our approach is to have a strong understanding on what a contravention is and what does and does not need to be reported.
A contravention mainly takes place when the trustee performs an action that is prohibited under the SIS act or regulations, for example prohibited SMSF borrowing (s. 67) or lending to a related party (s.65).
Contraventions also commonly occur through the inaction of the trustee, whereby they fail in meeting their obligations under the SIS act or regulations. Consider a common failure is not withdrawing the minimum pension amount (s 1.06) or failure to add as a member to the fund a director of the corporate trustee. As part of our audit process we use audit programs that encompass compliance with the 18 sections of the SIS act and a further regulations. We look at everything from whether the SMSF fits 17A definition of a complying self managed superannuation fund, through to whether it meets the sole purpose test (s. 62) and compliance with the in house asset rules (s. 69-71E, 73-75, 80-85).
At SMSF Super Auditors our audit programs takes into consideration everything from pension conditions (s.1.06(9A)), whether benefits have been paid as per regulations and trust deed (6.17), whether assets are valued market value (s. 8.02B) through to whether investments have been held as per rules (s.13.18AA). Our audit program covers a list of areas that is comprehensive, with nothing being overlooked, no matter how minor. We then judge if the ATO is going to be the slightest bit interested in the contraventions uncovered and what you should do as trustees about it.
As an auditor we will not be too disturbed if an audit does uncover contraventions. We view reporting the contraventions as the opportunity for the trustees to take corrective action. After all it is up to the ATO to consider if the issue is serious and they will take further action. Based on ATO statistics the major areas of Self Managed Superannuation Fund compliance weakness:
- Contraventions of 20.9% were for loans / financial assistance to members (s.65)
- Contraventions of 27.2% were attributed to in house assets.
- Contravention of 26.2% were attributed to separation of assets.
- The bulk of the remaining balance of contraventions could be attributed to administrative functions.
As an auditor we must report contraventions and other matters arising from an event. The contravention report must be lodged within 28 days of completion of the audit and must meet the ATO’s reporting criteria.
DISCLAIMER: The above is general advice only, you should not act on this advice without consulting a professional adviser to discuss your personal circumstances.