ATO Superannuation Audit
Shortly after taking on a new client the ATO contacted us regarding a superannuation audit that was already in progress. The data that the ATO had received from the former bookkeeping was insufficient to prove that the client had met their superannuation obligations. In the ATO’s own words, the data “didn’t add up”. The audit had commenced a few months earlier and the ATO was pressing to have the whole thing done and dusted by Christmas, which was only a month away.
What We Did
We sought permission from the client to start the enormous task of reconciling superannuation covering a three-year period. This involved exporting all transactions from the superannuation liability account into a spreadsheet. We started by assigning each line to a column representing a financial quarter. It was easy enough to assign the payroll transactions to a column, but posting the payments of super to a quarter was more challenging.
Thankfully payment data for the last two years of the three-year audit period was detailed in Xero due to the use of the Xero Auto Super clearing house feature. The first year wasn’t however. We liaised with the client’s administrator to find out where these payments went. The super funds were called and a detailed breakdown was obtained for each payment including which quarter the funds were for and which employees they belonged to. Along the way we discovered a manual journal entry writing off some of this unpaid super, which was done in an attempt to make things balance. This was just a band-aid masking the real issue.
Once we had allocated all of this data in columns by quarter, we knew how much super had been short-paid in total, but not exactly which employees. We then created individual worksheets for each quarter and commenced breaking it down further at an employee and pay run level. We needed to work out how much each employee had been paid and whether it matched up to the individual super amounts on each pay run. In some cases, employee super had actually been paid twice by accident.
Once we had ascertained exactly how much each employee had been over- and under-paid in each quarter, we had a total that agreed with our out of balance amount from our master worksheet.
Paying Overdue Amounts
The under-paid amounts were paid promptly and most people would hope that this is where this sorry tale ended. Unfortunately, we were only about half-way there.
Proving Payment to the ATO
The ATO then required evidence via the supply of bank statements that all super payments had been made. This required us to obtain PDF copies of all bank statements relevant to payments for the three-year audit period. These statements, along with our multi-worksheet spreadsheet were sent to the ATO.
Calculating Penalties & Interest
Once they were satisfied that all superannuation for the three-year period had been paid, we now needed to go back to our spreadsheet and recalculate superannuation on all pay items. Superannuation is usually only calculated on ordinary times earnings. Pay items such as overtime, certain allowances, parental leave and annual leave on termination are normally exempt from superannuation. In the event of an audit, superannuation must be calculated on all pay items. We then needed to calculate interest and with the assistance of our client’s administrator, complete PDF forms for each employee for each quarter detailing the super owing including this additional penalty super, super paid late, interest and administration charges.
The Impact on the Client
The figures ended up looking like this. (Please note that the client has consented to the release of this data.)
- Total superannuation owing for the three-year audit period: $337,348
- Super identified as unpaid at the time of the audit: $63,706
- Super identified as having been paid twice by accident: $4,298
- Penalty super (in addition to super on ordinary times earnings): $27,777
- Interest charges on all super paid late: $29,220
- ATO administration fees: $3,280
As you can see from the figures provided, the additional costs to our client, even after paying outstanding superannuation, was quite significant. After paying out $63,706 in late superannuation, the client had an additional $60,277 to pay that would not have been necessary if the bookkeeping had been done properly and the superannuation had been paid on time. The client had previously been of the opinion that the only superannuation outstanding was to the Directors of the business but this turned out not to be the case. Remember that it’s not your tax agent’s job to ensure that you’ve paid all of your superannuation obligations. This responsibility rests with the bookkeeper and the owner of the business.