• Large fund diagnostic report: April 2017 webinar transcript

     

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    Questions and answers

    This document provides answers to frequently asked questions (FAQs) about the large fund differentiation framework, large fund industry and diagnostic reports for 2017.

    These FAQ’s have been prepared to assist large funds with answers to questions we received through the LargeFundDiagnostic@ato.gov.au mailbox and our interaction with fund trustees and Administrators.

    The FAQ’s will be updated and published on our website following the large fund diagnostic report webinar.

    What is the Risk Differentiation Framework?

    The risk differentiation framework (RDF) assist large funds assess how well they are meeting their superannuation reporting obligations to the ATO.

    The framework gives large funds an overall risk categorisation based on the consequence and likelihood of their compliance with superannuation reporting obligations:

    • the consequence rating is based on your fund's relative ranking on a number of key indicators, such as the number of members, value of contributions and number/value of lost accounts
    • the likelihood rating is based on your fund's performance against a series of benchmarks across a range of super-related obligations.

    The RDF program is now on its third iteration and is run on an annual basis with super reporting data extracted from our systems as at 31st December and fund income tax return data extracted as at 18th January of each year. These extraction dates allow for most of the lodgments to occur and provide the most accurate data for the Diagnostic Reports.

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    Will Diagnostic Reports still be issued after the new member account reporting services are in place?

    Diagnostic reports have been delivered annually for the last 2 years to large funds to encourage early treatment of reporting issues and have become a cornerstone of our early engagement and assurance approach. The response from funds has been positive and there is evidence of productive behaviour change and improvement in reporting results.

    The new Member Account Attributes Service (MAAS) and the Member Account Transaction Service (MATS) (formerly known as the Member information eXchange (MIX) project) will allow for more regular member account reporting.

    The new 'more regular' reporting solution will be released in 2018. We will be redesigning the diagnostic reporting process this year in consultation with the industry.

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    What enhancements were made to this year’s Diagnostic Report?

    We have made several enhancements to this year’s RDF process and to the diagnostic report as a result of industry feedback. You will notice that the colour scheme and layout has changed to make it easier to read. There were also some changes to the content and the indicators.

    Based on industry feedback, this year we made the following changes to the report:

    • we enhanced the text, calculations and visual design of the reports improving the look and feel
    • we enhanced the layout to improve readability and added commentary on results, where needed
    • we included the results and scores from 2014 and 2015 on the 2016 diagnostic report and compared the results over the three years
    • we provided more tailored information in fund's individual reports and where possible we provided the formulas used for determining scores
    • we changed the formula for calculating the open and lost Member Contribution Statement (MCS) accounts to make it fairer
    • based on industry feedback we have changed the formula for calculating the 'completeness of MCS' indicator to include closed pension accounts
    • this year we also provided tailored reports to some of the largest external administrators.

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    Can administrators access the Diagnostic Reports for the funds which they administer?

    The Diagnostic Report is built on data reported by the fund, and as such we provide the report to the authorised contact for the Trustee of the fund. You may share your Diagnostic Report with your administrator, should you desire.

    This year for the first time we have also provided a report to a small number of large fund administrators. Refer to the 'what is an administrator report' for more information.

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    What is an Administrator report?

    This year for the first time we have also provided a report to a small number of large fund administrators. The report provides an administrator level view of their compliance with super reporting obligations for all the large funds they administer.

    The report is based on the data lodged by the administrator for the period ended 30 June 2016 and shows where the administrator sits within the super industry compared to their peers. The administrator report also shows how each of the administrator’s funds are performing from a super reporting perspective.

    Administrators are encouraged to use this report as a tool to assess their performance and identify priorities for improvement, as well as to voluntarily disclose any material errors in past reporting.

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    What is the difference between each RDF category?

    The purpose of the RDF is to assign funds into one of four risk categories, based on the likelihood and consequences of any potential non-compliant behaviour.

    These categories provide a guide to the ATO’s interactions with the fund population:

    • higher risk (higher consequence, higher likelihood)

    For higher risk funds, we assign appropriate resources to allow for continuous review. Our activities may include comprehensive audit and other intensive risk analysis approaches. This will enable us to identify and understand risks as they arise and provide information about our possible concerns, allowing the fund to make a more informed choice about their compliance approach.

    • key client (higher consequence, lower likelihood)

    If you are identified as a key client, we take a particularly close interest in your risk management and governance frameworks to mitigate compliance risks.

    We will assign the necessary resources to ensure a good working relationship and increase our understanding of your reporting obligations.

    If a potentially contestable matter is identified, we will work with the fund to resolve the matter and evaluate their compliance with the law. We are less likely to use our formal powers of access and questioning for additional information, although we will escalate matters if we are unable to obtain the information and evidence needed to form a view in a timely manner.

    • medium risk (lower consequence, higher likelihood)

    For taxpayers identified as medium risk, we will undertake targeted activities to deal with tax compliance concerns. These activities are more likely to be reviews and audits. We may contact you to seek assurance that a particular transaction has been treated correctly.

    To achieve greater consistency in the way we address specific issues, we may use project-based approaches that group large businesses with similar tax risks. These risks are normally identified in our compliance program.

    • lower risk (lower consequence, lower likelihood).

    The majority of funds have a lower risk categorisation. For these funds, we monitor intelligence to confirm their lower risk categorisation and provide a light touch approach as required.

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    How are the benchmarks determined?

    The likelihood indicators were developed in consultation with subject matter experts, covering different superannuation products and compliance obligations.

    The benchmarks (and weightings) for these indicators were developed through a series of workshops (and with some fund consultation) on the basis that they are fair, equitable and in line with ATO guidelines.

    We have considered funds’ feedback on the “Completeness of MCS lodgment” formula and made changes to it in consultation with subject matter experts. Refer to 'what changes were made to the ‘completeness of MCS’ formula this year' for further explanation of the changes.

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    If you have a rating higher or lower than the benchmark will this mean increased ATO vigilance?

    If a fund is rated poorly against a particular indicator/ benchmark this will not on its own result in increased ATO scrutiny. We encourage funds to investigate areas for improvement and contact our Fund Engagement team (via the LargeFundDiagnostic@ato.gov.au mailbox) for further assistance.

    We will focus more on funds’ overall likelihood scores; if a fund has a low likelihood score we will take a ‘light touch’ or service focus, such as communication or education activities. If a fund has a high likelihood score we may increase our engagement by taking a ‘firmer’ approach.

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    What is the 'duplicate TFN' indicator and how did the ATO extract duplicate TFNs from the MCS lodgment?

    TFNs are considered duplicate when the same TFN is reported by the fund for members with a different Surname, First name or Date of birth (DOB).

    Duplicate TFN population is extracted from the fund’s lodgment and includes:

    • TFNs with different Surname and DOB or TFNs with different First Name and DOB
    • TFNs that didn’t match to ATO derived TFN.

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    What is ‘mismatched TFN’ and how does it affect the ‘correct TFN quoted’ indicator?

    Where a TFN reported by the fund in the Member Contribution Statement (MCS) for a member does not match the TFN held by the ATO for that particular member, it is considered as ‘mismatched TFN’. The higher the volume of quoted TFNs that are ‘mismatched TFN’, the higher the likelihood of the fund not meeting the benchmark for ‘Correct TFN quoted’.

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    What is the definition of ‘correct TFN quoted’ indicator?

    The ‘correct TFN quoted’ indicator is more accurately described as the percentage of Member Contributions Statements (MCS) with a correct TFN quoted.

    While we acknowledge a number of funds may hold accounts for which the account holder has no legal obligation to provide their TFN (and in some cases, consciously elects to not provide their TFN), increased TFN quotation is a cornerstone of the superannuation framework. Using the TFN as a primary identifier helps reduce the volume of lost (and subsequently unclaimed) accounts, and ensures members’ accounts will be accurately displayed on MyGov.

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    How can a fund identify if a TFN held on file is incorrect?

    We understand that incorrect TFNs are generally quoted by the member (or employer), and often a fund may not be able to determine whether a TFN (that meets the algorithm) is genuine or not. However, there are some steps funds can take to improve their TFN integrity:

    • prioritise the processing of any section 299TA or TC notices (named after section 299TC of the SISA) to improve member records
    • investigate duplicate TFNs across different members
    • look out for the use of exempt or test TFNs (such as 123 456 782 or 111 111 111)
    • consider using the SuperTICK service to validate or obtain TFNs for legacy accounts.

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    Will the ATO provide funds with details of incorrect TFNs to enable errors to be rectified?

    The ATO has a range of programs in place to increase TFN integrity, these include:

    • section 299TA/TC
    • please resolve (PR)) notifications
    • the SuperTICK service.

    In addition, we are happy to work with funds on an individual basis. Email LargeFundDiagnostic@ato.gov.au if you would like us to work with you regarding your TFN integrity.

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    What changes were made to the ‘completeness of MCS’ formula this year?

    This benchmark measures the volume of distinct Member Contribution Statements (MCS) as a percentage of the number of members on the fund income tax return (ITR). With the expansion of MCS reporting to all members who held an interest in the fund during the year, it was assumed that there would be some correlation between the number of original MCSs lodged and the number of members identified on the fund’s income tax return.

    As an MCS is required even for members who have left the fund during the year, it is expected that most funds’ MCS volume would exceed their ITR membership figure.

    A result below 100% could indicate a fund has not lodged an MCS for each member. Any score above 90% will result in the fund passing this benchmark and also compensates for ITR and MCS lodgment timing difference.

    This year we modified the formula to include distinct MCS accounts in pension phase that are closed for contributions. This means only exited members are excluded from the calculation and all distinct individual accounts that remain in the fund are measured for the purposes of ‘completeness of MCS’.

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    What changes were made to the ‘open and lost’ formula this year?

    This benchmark measures the volume of ‘lost uncontactable’ members in the Lost Member Report (LMR) (total fund holdings, not the most recent lost member statement) as a percentage of the number of members with an account status of ‘open and lost’ in the MCS.

    A result below 100% may indicate not all lost members have been reported as such to the ATO (in the fund’s lost member reporting). A result over 100% could indicate funds are under reporting their open and lost accounts, or are not removing members from the LMR who are no longer lost.

    Lost member reporting is done at member level and the MCS reporting is done at account level. To align the measurement at member level, this year we modified the formula and extracted the volume of distinct members with account status of ‘open and lost’ in the MCS.

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    How is the timeliness of MCS and USM lodgments calculated?

    The timeliness indicator for Member contributions Statement (MCS) and Unclaimed Super Money (USM) lodgments assesses the volume of original MCSs or USMs lodged by the due date of 31 October 2016 (unless there is an approved deferred date) and lodged after the due date in the prescribed timeframes.

    The score for this indicator is based on the percentage of lodgments accumulated within the prescribed timeframes as per the table below.

    The result for this indicator means that for a fund to get a score of 1', 85% of your lodgments were received by the due date.

    Example: The fund lodged 10,000 original MCS with the ATO. The percentage of lodgments reported is calculated using this formula:

    Percentage of lodgment = Number of original MCSs lodged within the prescribed timeframe X 100

    Total number of original MCSs lodged

    Out of 10,000 lodgments, 70% were lodged on time, 10% up to 3 days late, 15% up to 7 days late and 5% up to 30 days late.

    The percentages are accumulated until it reaches the prescribed percentage in the table below.

    Percentage lodged

    85%

    90%

    95%

    99%

    99%

    Timeframe

    On time

    up to 3 days late

    up to 7 days late

    up to 30 days late

    after 30 days

    Score

    1

    2

    3

    4

    5

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    Over which period is the timeliness of lodgments measured?

    The large fund Risk Differentiation Framework (RDF) seeks to evaluate fund performance during (or in relation to) the respective financial year. From a timeliness perspective the following were taken into account for various lodgment obligations:

    MCS

    All MCSs lodged in relation to the financial year ended 30 June 2016

    LMS

    Timeliness of the first lodgment (either a lost member statement (LMS) or non lodgment advice) in relation to the 1 January 2016 to 30 June 2016 period

    USM

    All unclaimed super money statements (USMS) lodged in relation to the 1 January 2016 to 30 June 2016 period

    PVA

    All payment variation advice (PVA) remittance forms lodged during the 1 July 2015 to 31 December 2016 period.

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    Are approved lodgment deferrals taken into account when calculating the timeliness of lodgments?

    Approved deferrals are taken into account when calculating the timeliness of lodgments.

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    How is the timeliness of co-contributions and LISC remittance PVA calculated?

    Co-contribution and Low Income Super Contribution (LISC) remittance Payment Variation Advice (PVA) need to be lodged within 35 days from the day after the remittance advice was received from the ATO.

    This indicator is based on the timeframe (as prescribed in the table below) during which a fund reaches a total of 98% of co-contributions or LISC remittance PVAs lodged.

    The result for this indicator means that 98% of your remittance PVAs would be received within 14 days of the due date to get a score of '3'.

    Example: The fund receives 1,000 remittances from the ATO. Out of 1,000 remittances, 200 were lodged as PVAs.

    Out of 200 PVAs, 80% were lodged on time, 10% up to 7 days late, 5% up to 14 days late and 5% up to 28 days late. The percentages are accumulated until it reaches the prescribed percentage in the table below.

    Percentage lodged

    98%

    98%

    98%

    98%

    98%

    Timeframe

    On time

    Up to 7 days late

    Up to 14 days late

    Up to 28 days late

    after 28 days

    Score

    1

    2

    3

    4

    5

    In the above example 100% lodgment was received up to 28 days late therefore a score of '4' is recorded against the timeliness indicator.

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    What should funds do if they not meet the benchmark for an indicator?

    We encourage funds to review their results and let us know as soon as possible if an error was made or if they are unsure about a compliance matter. We will then work with the fund to resolve any past reporting issues in a way that minimises cost while meeting their obligations.

    Refer to making a voluntary disclosures for guidance to expedite a resolution.

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    How are the ratings used to rank funds?

    The rankings are not necessarily intended to be interpreted as an ordering of ‘best’ to ‘worst’ (or vice versa). Generally they have been provided for reference purposes only and to provide some context to funds as to where they sit in the industry on a certain criteria.

    Example: A fund rank 13/265 for consequence is (according to our methodology) the largest fund. This is a statement of fact (based on our data) rather than a measure of performance/quality of the fund.

    For the indicator results rankings however, generally funds are ranked in terms of their likelihood for that particular indicator (low likelihood of non-compliance, low ranking).

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    Are these ratings derived using the original data, amendments or both?

    Generally speaking, those indicators looking at the timeliness of lodgments are concerned only with the original lodgments, whereas indicators concerned with the content of the lodgments will incorporate any amendments (made up to 31 December).

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    What data source is the MCS statistics ‘number of prior year amended MCS’ derived from?

    The ‘number of prior year amended Member Contribution Statement (MCS)’ for 2016 represents the number of amended MCS lodged for 2015 as at 31 December 2016. The ‘Number of prior year amended MCS’ for 2015 represents the number of amended MCS lodged for 2014 as at 31 December 2015. This statistic is not provided in the Diagnostic Report for 2014 and is shown as ‘Not Assessed’.

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    Why do some formulas refer to the total fund holding on the LMR while others used the number of LMS and USM lodged?

    Generally speaking, the large fund risk differentiation process examines funds’ activity during the relevant financial year.

    From a timeliness perspective, we only look at lodgment of funds’ lost/unclaimed reporting for the period ended 30 June 2016 rather than also considering lodgments for the period ended 31 December 2015, as this was seen to be more consistent with other timeliness indicators.

    For the other indicators referencing lost member reporting(comparison with open and lost Member Contribution Statements (MCS), members over 65 years of age and accounts under $4,000) we look at the total fund holdings on the Lost Member Register (LMR). This provides us with a more complete and accurate account of funds’ lost member reporting:

    • as funds now lodge an MCS for all accounts, the number of MCSs with an account status of ‘open and lost’ should, in theory, show some alignment with the fund’s current membership based on the lost member register
    • by looking at the total fund holdings on the lost member register we’re not only taking into account the previously ‘lost’ accounts funds have since reported as either found or transferred, but attempting to examine where they have not done so but should have.

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    What is the difference between a lost uncontactable account and a lost inactive account?

    For further information regarding the different types of lost members please refer to the LMR protocol document.

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    What SuperStream statistics are included in this year’s report and how did the ATO calculate the quartiles?

    In 2014, the SuperStream statistics were measured against the 'cross-certification status' on the Fund Validation Register. All funds have now received cross-certification therefore this information will no longer be reported.

    In 2015 and 2016, we included statistics for complying transactions and non-complying transactions.

    Complying transactions are those transactions where the funds have either used channel A or channel B solution to send and receive SuperStream transactions, and non-complying transactions are those that do not conform to the SuperStream Standard.

    Quartiles 1, 2, 3 and 4 are based on the percentage of complying transactions.

    The quartiles divide the set of measurements into four equal parts:

    • 25% are less than the lower quartile (Q4)
    • 50% are less than the median (Q3)
    • 75% are less than the upper quartile (Q2)
    • 25% are above the upper quartile (Q1).

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      Last modified: 21 Apr 2017QC 51864