Auditor nags at ATO: super issues rate highly on risk radar

The Australian Taxation Office (ATO) has shown up on the Australian National Audit Office (ANAO) radar as having three superannuation-related issues which rate as so-called “Category A” significant risk matters.

An ANAO report on financial reports of Australian Government Entities, tabled in Parliament last month, specifically pointed to the ATO’s handling of Superannuation Surcharge Exceptions, the monitoring of Unfunded Defined Benefit Superannuation Funds and the implementation of the new Superannuation Guarantee Charge regime as being “Category A” issues.

Each of these issues have been previously covered in ANAO reports, but this represents the first occasion on which they have been categorised as posing a significant risk in the context of the ATO’s financial reporting obligations.

The ATO has previously made clear that it is moving to address each of the issues.

Dealing with the Superannuation Surcharge Exception issue, the ANAO said its audit opinion on the ATO financial statements was qualified in 2003-04 due to uncertainties over the estimated balance for superannuation surcharge exceptions.

It said the ATO had a significant backlog of exceptions that required action through manual or electronic intervention, with the backlog having built up over the last eight years, reaching 10.4 million as at 30 June 2004.“A significant amount of surcharge revenue will not be collected until the exceptions are cleared through the surcharge assessment process,” the ANAO report said.

“It is acknowledged that action is in progress to clear the backlogs. The ATO has sought and received legal advice on whether it can in certain circumstances decide not to issue superannuation surcharge assessments. The correct application of this advice is being reviewed by the ANAO, as this impacts on the amount of revenue to be collected,” the report said.

Dealing with the monitoring of Unfunded Defined Benefit Superannuation Funds, the ANAO said the ATO issued superannuation surcharge assessments to all members of Unfunded Defined Benefit (UDB) superannuation funds.

“For those assessments that are deferred, the superannuation funds are required to maintain a surcharge debt account for each member, collect the surcharge, and remit collections to the ATO. One of the reasons for qualification of the 2003-04 ATO financial statements was due to the fact that the portion of the receivables balance relating to the superannuation surcharge - UDB could not be confirmed,” it said.

“As was the case in 2002-03, a comparison of the UDB receivable as per the ATO records with the information received from the UDB superannuation funds identified a number of variance,” the report said.

It said the ATO had advised the ANAO that the UDB superannuation funds’ compliance with legislation had been noted as a concern and action would be taken to establish processes to ensure that the debts were, managed appropriately.

On the question of the new Superannuation Guarantee Charge regime, the audit report said that as a result of major errors in the new superannuation guarantee system introduced in November 2003, the ATO had been unable to either issue superannuation guarantee assessments since February 2004 or make superannuation guarantee payments to employees’ superannuation funds since November 2003.

It said the ATO developed a methodology to estimate the revenue and payments for 2003—04 financial statements that would have been raised if there had not been any system problems.

However, the report said uncertainty relating to the completeness and accuracy of data used in calculating the revenue and payment estimates resulted in the qualification of the audit opinion on the 2003-04 financial statements.

It said the ATO had advised that the superannuation guarantee system was now appropriately processing current transactions.

“The ANAO is in the process of reviewing this system and related controls,” the report said. “The ATO acknowledges that there may still be some backlogs in processing superannuation guarantee assessments. The ATO is in the process of developing methodologies for quantification of the residual backlog and determination of compensation.”