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I am currently auditing a Fund for the 2020 to 2022 financial years. The total assets of the Fund at 30 June 2020 was $138,000 which included an unsecured loan to a member of $120,000. The loan was made on 19 May 2020.
At this stage I have requested a loan agreement but to date no agreement has been provided (I suspect that the accountants are obtaining an agreement).
The accountants have put through a journal entry at the end of June 2020 using the statutory benchmark interest rate of 5.39%.
The $120,000 amount was repaid on 24/06/2022
Interest in each year was made by book entry in each financial year and always at the benchmark interest rate.
I realise that the Fund is in breach of Sect 62, Sect 65, Sects 82-85 and Sect 109. It is also in breach of a clause in the trust deed which forbids loans to members.
Additionally, there is no mention of Loans made in the Fund's Investment Strategy.
My issue is with the interest rate charged on the loan (which I consider should be in the vicinity of 14%) as well as the fact that the interest charged was merely recorded as a book entry in the financial statements of the Fund.
I welcome any comments
I was using 10% aorund this time as this is what I would find when googling such as WBC had an unsecured loan rate of this, however now it has gone up so in my view it coudl be 14% now but lower back then. I think the ATO would also be ok with 8%.
Hi Ronald
Thanks, yes, I agree with the sections you have raised re to qualify on and lodge an audit contravention report on.
As you note you may also need to qualify / report re Regulation 4.09 of SIS in that the investment strategy does not specifically allow the loan.
I would also consider qualifying / reporting re Regulation 5.08 of SIS in that member's minimum benefits have not been maintained.
The statutory rate that you refer to at 5.39% is based on the bank variable housing loan rate so I agree that this rate should not be used. My view is that a rate of 14% is too high and