Last month, the ATO announced it would be emailing SMSF auditors with a list of funds that have quoted their auditor number to enable auditors to identify any funds that have misused it.
The misuse of SMSF auditor numbers has been an ongoing concern for the ATO and auditor community for some time, with the ATO singling out 100 SMSFs last financial year for reportedly using an SMSF auditor number without the authority of the auditor.
The ATO has already started emailing SMSF auditors with their list of funds this month and will continue the process over April and May.
Tactical Super director Deanne Firth said after receiving the list on Tuesday, she has only cross-checked half of the SMSFs that lodged in 2017 using her number so far, but has already found five SMSFs that she never audited.
This is not the first time that her auditor number has been misused, she said, with a tax agent previously using her auditor number without her authority.
Ms Firth said she became aware that the tax agent was misusing her number after receiving a number of letters from other auditors asking for ethical clearance for funds she had never audited.
“The tax agent who had been fraudulently using my auditor number had been charged with other tax related offences and so the clients had all moved to various accountants and I got a flood of ethical letters and calls,” she said.
“In this instance I was very concerned about my reputation damage. Someone who ripped off clients and the taxation office had been telling their clients I was independently auditing their work, charging these clients an audit fee that I never charged to them, pocketing that fee and giving their clients a sense of security around the independence of my audit.”
While Ms Firth said she is grateful that she can now verify if her auditor number is being fraudulently used, she believes there needs to be improvements to the system to better protect auditors from the misuse of their auditor number.
“In the past there was talk about the auditor notifying the ATO when they lodge an audit report through eSAT. This would not be ideal as it is a clunky and time-consuming program,” she said.
“What I believe could be a solution is the accountants finalises the financial statements and tax returns with just the auditors name. Then on completion of the audit the accountant lodges the tax return and we lodge the audit report and date electronically from our audit software.”
Ms Firth said this way the ATO would be able to data match the two together.
“This would prevent any misuse of auditor numbers and simplify the signing process for accountants as well,” she said.
“It would also save auditors from spending significant amounts of time checking lists to confirm there is no fraudulent use of their number.”
Surely the ATO has the capability to instantly notify an auditor when a return is lodged using their number. ie a system generated confirmation email with fund name, ABN, year lodged and a qualified/unqualified marker. The auditor can then notify of any misuse instantly.
The ATO can’t even get tax correspondence delivered to tax agents when clients have signed up to MyGov. How on earth do you expect them to do this?
What about an alternative: when an auditor is appointed to a Fund, they lodge an appointment form with the ATO (similar to a tax agent adding a client to their portal); when the Fund ITR is lodged, the auditor number is matched with the number on file as part of the ITR validation; no match = no validation = no lodgement. Should be pretty simple……..
With the rapid sophistication of data analytics, the Tax Office should have greater capability to focus on ‘exception identification’, The system of contacting SMSF Auditors directly may be the best approach. At present, they are sending through the entire client list for the Auditor to review. This should form the baseline data for future years with only exceptions to that list brought to the Auditor’s attention in subsequent years. The Auditor is engaged by the SMSF Trustee (not the ATO) and, the Agent lodging the Annual Return must wait until the Audit Report is completed to lodge. Making direct reporting to the ATO a feature of the system should not be necessary. Each year the SMSF Auditor needs to declare the number of funds audited between their review period so there is a raw number. This coupled with the baseline database for each registered Auditor should be enough info for the Tax Office to identify irregularities.
Deanne’s comments are a good start to this ongoing debate, but in my mind the process needs to go further. While I do use cloud-based audit software and do lodge an audit complete report for every audit completed (including sending a copy to the accountant so they know the ATO has been advised), there would still be possible flaws. Firstly, I am aware of some auditors that do not use audit software. While many would be smaller firms, it does still include some larger ones. This means a manual system would still be required, so leaving a possible hole in security. I believe the system suggested by Deanne should progress further. Firstly, the advice to the ATO should include an advice as to whether the audit is qualified, even if no Contravention Report is required. At the moment, there is no evidence available to the auditor that the ATO has been correctly advised. Secondly. develop a system where not only audit complete details can be submitted to the ATO via audit software, but also the lodgement of Contravention Reports, so where audit software is used, there would be no need to use eSat at all. Further, develop a Portal style access for auditors where we can confirm audited fund details. There has been arguments about privacy & confidentiality, but there is no need for issues there. Data can be limited to what is relevant, such as the fund’s name, ABN and audit status. This may also be able to reconcile audited funds back to the software quickly. This may be a long-term project to implement, but if both the ATO and auditors are looking for a workable system, it needs to be thorough from the start.