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I'm currently auditing a fund and the fund has started share trading but accidentally started trading in their own individual name instead of the super fund. All statements and the HIN number for some of the shares have the individuals name and don't mention the super fund. The accountant has provided a statutory declaration which states that the shares and income were exclusively for the super fund and not the individual. But is this suitable evidence? I feel like it's not enough to prove ownership because it's contradicted by the statements. The member is a trustee but so is his partner and she isn't listed on the shares as an owner. Do these shares and any related capital gains or dividends need to be excluded from the super fund and any amounts taken out treated as a contravention?
Also, they use a trading account which incorrectly is again in the member's name, not the super funds. They have it sitting on the trial balance as a bank account for the super fund. Should this be made a Sundry Debtor and the fund contravened?
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I have had a few of these over the years and found that the declaration of trust is a useful stop gap while the trustee gets the very necessary transfers done. The declaration has a salutary effect in that the JP signatory must be from a JP with a valid number, who is willing to put their names to the document, (ie. with that responsibility then being taken).
While the bank and shares are in the personal names there is always a chance of personal usage, with the need for closer scrutiny by the accountant and auditor, with possible extra costs.
The transfer costs with the shares should be able to be negotiated with a chess provider.
If the shares are issuer provided than I always recommend transferring to a chess provider. and that can be a good negotiating strategy.
All of the above would be handled in first instance by a management letter.
If there is an unwillingness to take action such as the above I would contravene with no reservations.
If there is some acceptance of the above action the contravention report enables the auditor to make that comment, with a time frame to complete.
Hi Robert
This is a similar issue to what has been raised this week.
Re the share ownership Regulation 4.09A of SIS requires that:
"A trustee of a regulated superannuation fund that is a self managed superannuation fund must keep the money and other assets of the fund separate from any money and assets, respectively:
(a) that are held by the trustee personally; or
(b) that are money or assets, as the case may be, of a standard employer-sponsor, or an associate of a standard employer-sponsor, of the fund."
My view is that if the investments are in the name of an individual and not in the name of the Fund then this is a breach of Regulation 4.09A as the assets have not been kept separate from any personal assets. Assuming it meets the reporting criteria you should also lodge an auditor contravention report (ACR) re the breach.
My view is also that the shares should be reported in the financial statements as being owned by the Fund and that you should request the trustees to rectify the ownership of the shares / trading account to be in the name of the Fund.
The ATO gives guidance on Regulation 4.09A of SIS & states at:
https://www.ato.gov.au/super/self-managed-super-funds/smsf-auditors/auditing-an-smsf/compliance-audit/
"The auditor should obtain evidence that the fund’s money and assets are held separately from money and assets held personally by the trustees or a standard employer-sponsor by:
· sighting asset ownership documents, including bank statements, to verify SMSF assets are held in the name of trustees on behalf of the fund (for example, R & J Smith as trustees for the Smith SMSF or R Smith Pty Ltd as trustee for the Smith SMSF) and not in the name of the trustees alone
· where State law prevents ownership in the SMSF’s name, checking for alternative documentation that protects the fund’s assets (for example, a valid declaration of trust)
· reviewing transactions on bank statements to ensure fund money is not mixed with money belonging to related parties of the SMSF.
Where there has been a change in trustees, the auditor should obtain evidence that ownership documents reflect the change."
Thanks
SMSF AAA