• Review arrangements

    There are a number of advantages for entities that use formal review arrangements to continually improve the effectiveness of their FBT administration. For example, entities that formally review their prior year FBT return and processes can:

    • use the information gathered to assist with continuous improvement activity (that is, where risks or issues are identified their cause can often be determined and remedial action taken)
    • refine their processes to become more efficient and cost effective, reducing the need for subsequent review activity
    • reflect as necessary the outcome of the assessment of the integrity and effectiveness of FBT processes in the broader risk management activities of the entity.

    The following information outlines how entities might implement this better practice by undertaking both internal and independent review activities.

    Responsibility for review activity

    As with other better practices outlined, the starting point for implementing an effective review regime of FBT administration is to ensure that the people responsible for the review(s) have a good knowledge of FBT.

    In some entities, the responsibility for review arrangements will be assigned to the FBT Manager, while in others, the CFO or the Finance Manager will be given oversight responsibility. Reviews of FBT administration may be undertaken as a separate exercise or as part of a program of periodically reviewing legislative compliance and other business processes.

    Internal reviews

    There are a number of review activities that can assist in identifying areas of potential improvement in FBT processing including:

    • regular reviews of relevant general ledger codes
    • preparation of a mid-year return or quarterly or mid-year data integrity reviews, particularly of those transactions that have a significant FBT impact
    • a pre-lodgment review that examines FBT return data and calculations
    • a post-lodgment review that examines FBT return data, calculations and processes.

    The overall effectiveness of FBT review activity depends in a large part on an entity's commitment to correct errors and implement opportunities for process improvements identified by the review.

    Review general ledger transactions

    A review of general ledger transactions should be undertaken to provide entities with assurance that all fringe benefits have been captured.

    As a minimum, the following general ledger codes should be reviewed at year end to determine whether there are any fringe benefits that have been provided but have not been captured by other processes:

    • entertainment expenses
    • food expenses (for example, sustenance, morning teas, food and beverage)
    • staff awards
    • any codes with 'FBT' or 'no FBT' in the title
    • other administrative expenses
    • miscellaneous expenses
    • HECS/HELP
    • study expenses
    • any travel or LAFHA codes (for example, overseas living allowance and post adjustment allowance).

    Some accounting software packages enable general ledger codes to be created with an FBT flag in the account code information. This flag makes it mandatory for personnel details to be included when entering data. Such information makes the review of general ledger codes at year end easier.

    Preparation of a mid-year return and data integrity reviews

    Better practice entities may find it useful to prepare a quarterly or mid-year FBT return to enable all processes and controls to be effectively tested and to help ensure that yearend data is accurate and complete.

    As part of the same process, or as a separate process, entities should consider the benefits of undertaking quarterly or mid-year FBT data integrity reviews. Such reviews help identify system and control weaknesses and, where possible, allow them to be rectified in an accurate and timely manner. The frequency of data integrity reviews will depend on such things as the size of the entity, the number and types of benefits provided and the maturity of FBT controls and processes.

    Data integrity reviews are particularly important for car fringe benefits. If systems are not in place to collect car data and other relevant information such as details of employees who home-garaged a vehicle, it will be difficult to collate car fringe benefit data and to calculate RFBAs for relevant employees.

    Pre-lodgment and post-lodgment reviews

    Better practice is to perform both pre-lodgment and post-lodgment reviews. The extent and nature of reviews will depend on such things as the size and complexity of the entity's FBT environment and the level of assurance sought by the entity about its compliance with its FBT obligations.

    The outcomes of pre-lodgment and postlodgment reviews should be documented and used in identifying FBT risks.

    Pre-lodgment review

    Pre-lodgment reviews should be undertaken as soon as all information is collated and prior to the return being lodged. Pre-lodgment reviews can be undertaken as a staged approach as information relating to certain benefit types is finalised or, as many entities do, completed when the FBT return has been prepared but not yet lodged.

    Such a review should include the following steps:

    • Compare the current year return to prior year returns and investigate any significant discrepancies (if the benefit types provided in the current year are similar to those provided in prior years, this process will help identify benefits that have not been reported or that may have been reported twice).
    • Review data provided by third parties, including salary packaging providers and fleet providers to ensure that it has been accurately processed.
    • Review a sample of transactions to check that they have been correctly reported.
    • Perform a review of calculations to check that any formulas used are correct.
    • Perform an overall 'reasonableness' review of the return, including a high-level review of all working papers.

    These tasks do not have to be performed by the same person, although better practice is for one person to oversee the whole process. Where possible, the oversight of the pre-lodgment review should be undertaken by someone who was not involved in preparing the return but has sufficient FBT knowledge to be able to identify errors or discrepancies.

    This process should be documented and signed off by the person performing each task.

    The checklist available in the section titled Review checklist can be used as a basis for completing a pre-lodgment review.

    Post-lodgment reviews

    A properly conducted post-lodgment review provides greater assurance to the Chief Executive that the entity is meeting its FBT obligations in a cost effective and efficient manner.

    Post-lodgment reviews should be undertaken after the FBT return has been lodged but while the process is still fresh in the minds of those staff who prepared the return.

    The post-lodgment review should address two main questions:

    • What aspects of the process went well?
    • What aspects of the process require improvement?

    The outcomes of the review should be fully documented and used as a basis for implementing process improvements where necessary. The post-lodgment review documentation can also be used as a reference point for the preparation of the following year's FBT return, or as a basis for a handover to new staff.

    The checklist available in the section titled Review checklist can also be used to help complete a post-lodgment review.

    Issues log

    Some entities find maintaining a central issues log a useful tool to enable issues arising from review activities to be appropriately recorded, addressed and communicated. For an issue log to be useful, all substantive issues and errors must be captured. The log itself should be reviewed periodically to ensure that, where necessary, corrective action has been taken.

    The issues log can be used as an information resource for the entity. If the resolution of the issue is clearly explained in the log, it can be used as an information and education tool for FBT staff, as well as an information source for other staff in the entity.

      Last modified: 23 Jul 2015QC 18627