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  • Risk and Compliance the ATO's perspective

    Deputy Commissioner James O'Halloran, Superannuation

    Speech to the ASFA National Superannuation Conference

    Gold Coast, 10 November 2016


    I am delighted to be here today to represent the ATO at the ASFA National Superannuation Conference.

    ASFA have been a key partner in working with us across a range of endeavours – in particular the implementation of SuperStream, and ongoing advice both about the industry and in their role in support on a range of ATO engagement forums and discussion groups.

    The theme of this conference is ‘Measuring Up’. Indeed a focus on measuring up is always something we need to be conscious of as we work together across the Superannuation industry.

    For the ATO I would express we have a focus on:

    ‘…how we (the ATO) measure up in the eyes of the community

    fund members, fellow regulators and the government.’

    Like you, the community gains its sense of confidence and performance from many indicators and the current public discussion on the objectives of superannuation adds another dimension for us all.

    But to some degree I think we have a way to go as we move to appreciate the ‘collective dependence’ we have on each other and the increasing ‘blurring’ of various ‘business and services’ offerings seeking to ensure they complement each other for a better superannuation industry and the benefit of members.

    Recent developments

    Federal Government's legislative changes

    Of course of key interest currently, are the changes as a result of the announced package of superannuation reforms in the May 2016–17 Budget, which were introduced into the lower house yesterday.

    I recognise that you expect us to bring forward a focus on the provision of early advice for the administrative aspects and obligations that arise leading into 1 July 2017 and beyond.

    Specifically, we are working to be able to provide you an early sense of the expectations of the Commissioner, as to the application of the law.

    Implementing the new measures

    In the last week we have provided advice to the software industry and funds details of the reporting obligations and possible systems changes that may be required for reporting to the ATO.

    While this reporting information will allow for some scoping work, any final system changes will need to be checked against the final legislation.

    We will also progressively release some information, planned for release shortly after the Bill received Royal Assent, in the form of Draft Law Companion Guidelines and will provide guidelines on the application of key terminology and definitions.

    Through feedback these guidelines will then be finalised and used to produce targeted communication and advice and perhaps calculators for you and your clients.

    Our risk and compliance approach and diagnostic reports

    More broadly, from the ATO’s perspective, the accuracy of client accounts and registry information are central to how we work with you to manage risk and compliance in our role as a co regulator and administrator and is an ongoing focus.

    We recognise that the vast majority of ASFA members actively manage and have in place a good level of risk mitigation systems and processes, supported by ‘best endeavours’ technical expertise that balance regulatory compliance in a commercial environment.

    We also recognise the broader challenge faced by funds operating in the current economic environment such as: the ageing population putting demands on funds and through a prolonged low interest rate environment testing funds ability to balance investment risk with meaningful investment returns. Indeed we have heard discussion on this at this conference.

    So what risks are we seeking to mitigate through early engagement and behavioural changes? Firstly, there is a risk that super funds fail to fulfil their reporting obligations causing delays and incorrect ATO assessments, culminating in both reduced individual benefits and government revenue.

    Secondly, poor or outdated information increases the risk that accounts will become lost or unclaimed; and the third risk area is the risk to member benefits, and their correct calculations and obligations, be it in the application of superannuation law or income tax law.

    In 2015 we sought to move from an approach based on auditing to one of sharing our observations on the accuracy of fund-held data. With the introduction of Fund Diagnostic Reports we provided a detailed and personalised report which measures 13 benchmarks for 261 large superannuation funds. This was followed-up this year by an enhanced Diagnostic Report that incorporated industry feedback.

    The main purpose of these reports is to promote improved internal governance, systems investments and voluntary reporting of incorrect reporting to the ATO, rather than us auditing funds and increasing the costs to funds of compliance.

    We see that Diagnostic Reports are in themselves a risk mitigation tool, consistent with the importance of managing risk in a transparent and preventative way.

    Pleasingly, these reports have produced measurable fund improvements this year, alongside an increasing willingness to voluntarily disclose reporting errors.

    Two highlights of this year’s results are:

    • 55 per cent of funds improved their own diagnostic benchmarks results compared with 2015, and
    • two high-risk funds actively engaged with us to reduce their categorisation to being a key client that demonstrates a willing participation and good governance.

    A key part of our intent remains to increase the ability for funds to see how they compare to other funds on their reporting obligations. Trustees, administrators and management therefore have an evidence-based review from which they can take action or seek internal support for improvements.

    We have also heard that some funds are using the diagnostic results to have discussions with their administrator about their service standards.

    We would like to continue to improve the report so it can be increasingly used to compare and measure industry performance.

    Last year we published the ATO Tax Risk Management and Governance Review Guide that provides clear views on what we believe better tax corporate governance practices look like at the board and managerial level. While not specific to super funds, this guide is a good reference point, so I would encourage trustees to review their own governance and assurance processes against this guide. Indeed in December we will add two new additional documents for Public Officers.

    Of course the challenge now is to remain focussed on these matters in a year of reform.

    At the same time, ATO assurance work in relation to aspects of income tax law will continue in the area of the correct application of Foreign Income Tax Offset (FITO) claims with a specific focus on, but not limited to, TR2014/7. In particular, characterisation of income; nature of deductions for FITO; and claims of FITO (including apportionment).

    To this end, a second series of reviews of FITO claims has now commenced, with more funds being contacted soon. There will be an expanded range of questions testing FITO calculations and foreign taxes reclaimed or refunded as well as information relied upon by funds. Even in such a complex area as claiming FITO, some of the risks we identify still come down to questions of governance.

    We are monitoring the level of the adoption of segregation and the movement of assets into the pension phase. Therefore we propose to release some practical compliance guidance on these issues to give industry guidance on where the risk flags are set and where compliance resources will be allocated for follow-up with funds. These should be released in early 2017.

    In such a dynamic commercial environment, Successor Fund Transfers (SFTs) have long posed particular challenges for funds around data integrity and reporting.

    Since 2015, we have had an Involuntary Superannuation Account Transfer (ISAT) Protocol to assist industry.

    Last month we refreshed the protocol which now sets out a guiding principle for the ATO in its approach to the merging of funds. Wherever possible we will interpret the law we administer consistently with the funds duty to confer equivalent rights on members to those they had under the original fund. This is important because such transfers are generally without the members consent. We also identified some changes to Member Contribution Statement arrangements and no TFN arrangements.


    Working with industry is not a new feature for the ATO and SuperStream is a key case in point. The standardisation of electronic messaging and sharing services is a key change for the relationship across funds and with government and businesses.

    Looking ahead, work is in progress that involves funds preparing to receive and support rollovers of Unclaimed Super Monies (USM) through the data standard from mid-November 2016.

    From there, we will bring into the system Government Contributions in the data standard format from May 2017 to support an additional exchange of 4.4 million transactions totalling $1.4 billion annually.

    We also continue to drive towards the redesign to improve how APRA funds report member information to the ATO. The first component is towards a timelier reporting of open and closed accounts through SuperTICK version 3.

    It was planned to mandate reporting of ‘open’ and ‘closed’ accounts from January 2017 but I can confirm today that we will defer mandatory reporting until the end of March 2017.

    Mindful of the overlay of the new Superannuation measures, it is clear that the need for real-time information is an increasingly necessary expectation and will no doubt continue to demand all of our attention.

    Perhaps not unlike other service expectations, including the government’s digital agenda, we need to strive to not just improve processes but to transform services to allow transparency and self-service, much quicker than perhaps any of us anticipated.


    To conclude, I want to mention that the ATO is on a journey to be a responsive and client-focused organisation.

    An important element of this transformation is in our risk and compliance approach. It is underpinned by a desire for strong partnerships to promote early engagement - striving to solve issues rather than identify problems.

    Across the broader environment, including the strong interest in measurement as exampled by the Productivity Commission enquiry, I think we need to keep the lines of communication open and seek to solve issues rather than just identify problems.

    I think measurement and performance is as much about sharing emerging and common ways to mitigate risks often influenced by behaviour and attitude. This also applies to the ATO.

    No doubt we all need to think about what will be the next innovation, especially around interactions between government and industry, and innovative, strategic ways of working together.

    It may be that behavioural drivers and related influencers may change, but from our perspective a hallmark of success will continue to be built on:

    • early engagement
    • an appreciation of diverse perspectives, and
    • the active management of emerging risks through early identification.

    Thank you.

      Last modified: 16 Nov 2016QC 50528