In a series of articles, we have outlined some of the things you should know – or might like to know – regarding superannuation fund audits.
So far, we have looked at why your fund needs an audit (here), who can be an auditor (here) and what happens to get your audit done (here).
In this article, we look at what happens if the audit uncovers a breach of the laws.
What the SMSF auditor does (once he or she has all your relevant information)
Once you have given the auditor the information requested, the SMSF auditor will examine the fund’s financial reports, and gather evidence that the fund’s financial statements are supported by the balances shown.
The compliance audit will look at a number of things, but will focus principally on whether the:
- Fund meets the definition of an SMSF and is maintained solely to provide benefits to members on their retirement
- Trustees have a compliant investment strategy
- Trustees are carrying out their administrative obligations, and are adhering to operating standards regarding investments, contributions and benefit payments. This is where things can go off the rails.
What happens next?
When the audit is completed, the auditor should provide the trustees of the SMSF with a letter (often called a management letter), detailing the findings and implications of the audit. This should include:
- Details of any contraventions of the rules
- Recommendations for courses of action by the trustees
As well as providing a report to the trustees, the auditor is also obliged to report in writing to the ATO if:
- the financial position of the SMSF is unsatisfactory or
- a contravention of the rules has occurred or may be about to occur.
If this is the case, you will need to take further action, and likely engage with the ATO to determine the severity of the breach and the next steps that you’ll need to take.
This could include such things as:
- selling fund assets that may have caused the breach.
- attending an education course
- paying a fine (called an administrative penalty).
Do I have to manage all of this myself?
The short answer is, no.
A good SMSF accountant or SMSF financial planner will understand the compliance and administrative obligations around these annual audits.
They’ll also have all your records and the very nature of their work involves properly collating and archiving this material. So your Melbourne SMSF tax accountant or financial planner will be well placed to outsource the work to, leaving you free to enjoy the flexibility and control that an SMSF provides – and presumably that is why you set it up in the first place.
If you would like to discuss what happens if a breach of the rules occurs, or think your fund may have a breach or could have a breach, give us a call for a chat, we want to work with you from our SMSF Ivanhoe practice, and solve the breach and get you back on track.
GNS Group registered SMSF auditor Philip Ruth is available on 03 9499 7444 to answer your questions.
Next time – current audit target areas in the sights of the ATO