• Large fund diagnostic report: August 2015 webinar transcript

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    Introduction – slide 1

    Good morning everyone, my name is John Shepherd and I’m an Assistant Commissioner in Superannuation at the ATO, responsible for the ATO’s interaction with individuals and funds. With me are Ian Morgan, Michael Cooper and Louise Elliott to assist with the presentation and in answering your questions during the webinar.

    I understand we have about 80 registrations for today’s webinar about the Large Fund Diagnostic Report. Welcome and thanks for joining me.

    Overview – slide 2

    I will cover four topics today, with questions and answers at the end and we will finish promptly at 11am. On your screen you can see the agenda and an indication of the time I will spend on each topic.

    First, I will give some context about our compliance approach and the risk differentiation framework which underpins the diagnostic reports.

    Then I’ll give you a sneak peek into the overall industry results and key focus areas, which we will make public next week on ato.gov.au

    Then I’ll pass over to Ian Morgan who will take you through how to interpret the report, followed by the Q&A. I’m assuming you have a copy of your own report in front of you.

    You can send me questions at any time during the webinar. I will answer as many as possible but I may take some on notice. We will publish a recording of this webinar plus the slides, speaking notes and Q&As after the webinar.

    We will also hold six short polls during the webinar to find out more about you and to get your feedback.

    Now we have the first poll to find out who is here. You should see the poll on your screen now; we’ll give you 20 seconds to click your response.

    Poll

    Where do you work?

    1. Large fund or trustee 58%

    2. Administrator 22%

    3. Software developer 0%

    4. ATO 12%

    5. Other 8%

    The large fund compliance approach – slide 3

    When I started in this role about 2 years ago, I announced a shift away from our traditional audit program to a ‘help and assist’ approach. It’s fair to say we have had a positive response.

    Today we’re at another watershed moment. In 2014 we trialled and tested a new risk differentiation approach with an extensive pilot group of funds and it’s pleasing to now be at the ‘real deal’. For the first time we have provided diagnostic reports to the large funds.

    This is our latest step in building on the partnership we have with you, to help you meet your super reporting obligations to the ATO. Our intent is to be open about what our systems are telling us about how well you are reporting – and enable you to assess your own performance and factor that into your business priorities.

    After all, the quality of the data in your member registry systems and the timeliness and completeness of your reporting is essential to our ability to correctly administer government super payments and collections. It also lets people view and manage all of their super accounts on myGov.

    We’ve had some really positive feedback from our consultative forums, including the Superannuation Administration Stakeholder Group or SASG. Thanks, we will continue to test and consult about our approach and I’d like to hear from everyone attending the webinar. I’ll give you a contact email at the end.

    As you may be aware, the ATO has a big push at the moment to reinvent the client experience of the tax and super systems. Some of you may have had an opportunity to participate in one of consultative forums about how to improve the fund interaction with the ATO and we have heard some good suggestions about service that we are taking on board. I’ll talk more about that later.

    Last year we were able to assist funds in several focus areas, for example:

    • We released guidance to help funds deal with involuntary super account transfers, which often arise during mergers and acquisitions. Once again, we received a lot of input from industry representatives to the ISAT protocol, thanks for that.
    • Our reviews resulted in about 54,000 members and $123.5 million being removed from the Lost Members Register. Plus, more than $26.8 million was paid as Unclaimed Super Monies for 28,000 members.
    • We were able to assist funds to action compulsory release authorities.
    • We also assisted funds in a pragmatic way to resolve voluntary disclosures about past reporting errors.

    Going forward, we aim to work with you in a more flexible and timely way to improve your reporting. For example:

    • Our Accuracy and Completeness team is available to help you fix any problems with your reporting or data and to resolve any voluntary disclosures.
    • We have a virtual team of experts available to provide practical assistance to funds and administrations who are undergoing a merger or major system upgrade and would like help with system or data integrity.
    • We will also have a smaller program of compliance reviews where there are ongoing issues.

    2nd poll

    To what degree have you noticed a positive shift in the ATO’s approach to supporting funds and administrators to meet their super reporting obligations?

    1. A big shift 23%

    2. A moderate shift 57%

    3. A minor shift 14%

    4. No or negligible shift 6%

    A risk differentiation approach – slide 4

    The ATO has been using a risk differentiation framework for some years for income and indirect taxes and we’re now applying it in super.

    Fundamentally, the framework is an investment model that enables us to tailor our approach and target our resources based on a risk assessment. Let me explain:

    • In super, we developed a series of indicators to assess the likelihood that a fund will or will not meet its reporting obligations. That is the rating on the x or horizontal axis in the diagram. We are using a 1 to 5 scale. If you have a relatively lower risk of non-compliance, you will be categorised key client or lower risk. If it is relatively higher, you will be categorised as higher or medium risk.
    • We also assess the consequence of the fund meeting or not meeting its reporting obligations, which is plotted on the y or vertical axis. Again, a 1 to 5 scale. This assesses the fund’s significance in the market – based on factors like number of members, value of contributions and member account balances.
    • Where the fund sits on the graph will influence our engagement strategy. If the fund has a low likelihood score, we will take a service focus. If it is has a high likelihood score, we will take an enforcement or audit focus. As you will see shortly, this industry as a whole is relatively low risk and therefore we have a strong service focus backed up by a light touch compliance program.
    • In addition, funds with a high consequence rating in the key client or higher risk categories will receive more personalised engagement. For example, we are organising for a senior executive to meet with these funds (or their administrator) to discuss their diagnostic results. However, our Accuracy and Completeness team is available to all funds by phone and email.

    During the recent consultation about our service framework we heard that you would like a client relationship manager (CRM), as well as the ability to self-help. It is a challenge for us to resource a CRM model and we’re working through the best way to balance our operating costs and the service we provide.

    The other important feature of the way we are using this model is that it enables you to self-assess and act on the information before we select cases for review in the coming year. For the first time, you have a view about where the fund sits in the industry. That comparison should also assist in prioritising your own investment and resources.

    We hope you will ask questions of your own systems and processes, just as we are taking another look at how well our systems are performing and how we can improve our service.

    As I said before, the super report is a bit different to the income tax and indirect tax approaches. Ours is a quantitative report based on data in our systems. It needs interpretation and has some benefits and limitations. The diagnostic report is private to each fund and will not be made public.

    3rd Poll

    Should the ATO provide Diagnostic Reports again next year?

    1. Yes 85%

    2. No 4%

    3. Undecided 11%

    Overall industry results – slide 5

    Moving on to the overall industry results.

    The 265 large super funds were rated using a common set of indicators and plotted on the graph you can see.

    Note: 16 funds were unable to be rated because they wound up during the year or don’t have some of the obligations. So actual number plotted was 249.

    Each dot represents a fund and as you can see they are clustered in the lower risk category (in green), with 14 key client, 2 higher risk and 10 medium risk.

    The stand out result is that 95% of funds have a lower likelihood of non-compliance. For example:

    • 90% are categorised as lower risk and 5% as key client.
    • Only 5% of funds have a relatively high or higher likelihood of non-compliance.
    • 4% are categorised as medium risk and two funds (1%) are higher risk.

    The other high level results are:

    • 100 per cent of APRA funds are SuperStream ready for sending contributions and rollovers – all reaching this by the 30 June 2015 deadline.
    • TFN quality is improving following expanded reporting, with correct TFN quotation increasing from 92% to 95% since December 2013.
    • From our previous monitoring, we are seeing a marked improvement in the timeliness of MCS reporting.

    In addition, we have observed higher levels of reporting errors when funds or administrators have multiple registry platforms and legacy products. We are prepared to show some flexibility where funds are making an obvious effort to address this. And supporting funds and administrators going through a merger or acquisition is a priority for us in the coming year.

    The top three areas for reporting improvement we have identified are:

    • We would like to see a reduction in volume of lost members over 65 years of age - 24% of funds are not meeting the expected standard.
    • We would like to see a reduction in volume of lost accounts under $2,000 - 56% of funds are not meeting the expected standard. While we recognise that the Lost Member Register full re-report in April 2016 will improve these areas. However, we encourage funds to be proactive regarding their lost members and to participate in the provision of address program for example.
    • The 3rd area for improvement is, the timeliness of remittance payment variation advices (PVAs) - only 80% of super co-contribution and 75% of low income super contribution (LISC) PVAs were lodged on time.

    Now I will hand over to Ian Morgan who will take you through how to interpret your report.

    Understanding your report page 1 – slide 6

    I will give an overview of the report layout using a sample report, but you can look at your own report as we go along.

    • Page 1 is title page with an introduction from John about the purpose of the report. It’s also a cover page so that the results are not displayed if the printed report is sitting on a desk.
    • Name of the fund and its ABN sit front and centre. This is a sample for a fictitious fund Wayne Enterprises.
    • Page 2 gives you the actual fund results in graphic and table format.
    • Page 3 is a reference table of key data about the fund drawn from APRA and ATO statistics.
    • Page 4 is the description of indicators and the definition of terms, plus the key data sources.

    First, I will outline some features of the diagnostic report:

    • They are based on data extracted from ATO systems as at 31 December 2014.
    • The data relates to the reporting period ending 30 June 2014.

    We anticipate running the reports again next year and that will be based on data as at 31 December 2015.

    We wanted to provide you with these reports earlier in the year, to give you more time to act on the information before the next round of reporting but we went to a lot of effort to assure the results of each report and fine tune some of the indicators as a result of early feedback.

    We acknowledge the earlier we can get this out, the greater the benefit will be. There are always challenges when to cut off reporting but we figure two months after the 31 October lodgment date allows for the majority of lodgments.

    The reports are limited by the quality of the data. What we put to you is only as good as the data we’re given.

    Where possible, we took into account extensions of time to lodge so you weren’t penalised.

    Understanding your report page 2 – slide 7

    Moving to page 2, this is the heart of the report and gives you the fund’s results.

    The key things to note to ‘get into it’ are:

    • Essential fund information – the fund name, ABN and the report date at the top.
    • Fund background information – administrator details, the fund’s main software, location of head office, fund type and benefit structure. This information is sourced for your super fund income tax return and MCS.
    • A brief introduction to the risk differentiation model.
    • The fund’s categorisation
      • If the fund is big, they will be high consequence (above 4), if small, then it will be low consequence (1 to 4).
      • If the fund has a high likelihood the score will be above 3, if low likelihood, the score will be 1 to 3.
      • The overall categorisation is worked out by a combination of consequence and likelihood.
      • The overall ranking is determined firstly by category then likelihood, for example the number 1 ranked fund will be the highest likelihood fund in the higher risk category.
       
    • The graph shows the fund’s relative position
      • For Wayne Enterprises they are reasonably high for consequence at 4.25 but quite low for likelihood at 1.98.
      • This indicates they are a big player in the industry and generally doing well as far as their super obligations are concerned.
       
    • Table of results against the indicators
      • There are 13 likelihood indicators, each with a benchmark, a result score and a ranking.
      • Green amber and red text shows how well fund is performing on each indicator – a quick, easy reference.
      • It states how many benchmarks were met or exceeded.
      • These findings are quantitative only and are a starting point to help you prioritise and review findings
      • In the last column, ranking by likelihood, the denominator measures the population of funds ranked for each indicator, this changes as not all funds could be ranked against each indicators.
      • The indicators have been weighted to give a more equitable outcome – to give a fairer outcome.
       

    Poll 4

    How easy are the results to understand?

    1. Very easy to understand 4%

    2. Easy to understand 60%

    3. Not easy to understand 36%

    Interpreting your report page 3 – slide 8

    Page 3 is provided for information only and is data extracted from our systems and the published APRA report called the Superannuation Fund-level Profiles and Financial PerformanceExternal Link.

    It is another view that shows the fund’s position in the industry and it provides you with the data that was reported by the fund and recorded on ATO and APRA systems, this also helps us understand your business.

    It’s an opportunity to tell us if it’s correct and how to fix it if not. Please note that this data comes from a number of reporting channels including the super fund income tax return, MCS, etc.

    Please note these tables are not part of the risk differentiation results so they do not impact or affect your rating.

    Interpreting your fund report page 4 – slide 9

    Page 4, packs in a lot of explanatory information and is very important because it’s the detail about how we define our terms, the description of each indicator and how we calculated the scores for each indicator.

    Please take some time to go through this page as you may find it answers a lot of your questions.

    We chose these indicators and scores after lengthy discussions with our product experts and some funds as to what was a reasonable expectation.

    We were limited by space on this page so will provide more detail online in the form of a FAQ document.

    Poll 5

    Please rate the report in terms of its usefulness to your business.

    1. Extremely useful 6%

    2. Very useful 43%

    3. Moderately useful 39%

    4. Somewhat useful 6%

    5. Not at all useful 6%

    For more information – slide 10

    Feedback poll

    Poll 6

    How useful did you find this webinar?

    a) Very useful 22%

    b) Somewhat useful 59%

    c) Neutral 15%

    d) Not very useful 2%

    e) Not at all useful 2%

    Once you’ve had a chance to go through your report, I’d like to hear about how you are using the report in your business and how useful it has been – using the Large Fund Diagnostic email address on screen.

    You can also use that email address to talk to my Accuracy and Completeness team if you have any questions about the Diagnostic Report.

    Also, if you’d like to give us feedback about the webinar, send your comments to the SPR webinars address on the slide.

      Last modified: 03 Sep 2015QC 46864