Super Void: what super funds are telling regulators is not what they are telling customers

by | Mar 6, 2020 | Finance

Compare the pair. Thulaisi Sivapalan is Australia’s most prolific super fund investor. The PhD candidate with the Accounting Discipline Group at the UTS Business School tried to join 41 super funds just to get their financial statements. It was a tough journey; navigating mystified admin staff, unhelpful regulators at APRA, even an abattoir. On a mission to find out how much tax super funds pay, Thulaisi discovered billions of dollars in discrepancies between what Australia’s super funds were telling their investors and what they were reporting to APRA. Callum Foote reports on a peculiar road-trip.

In March 2017, PhD candidate Thulaisi Sivapalan under the supervision of Professors Peter Wells and Roman Lanis and Dr Brett Govendir set out to study the effective tax rate of Australia’s industry super funds. He first noticed the lack of any literature which “assessed the accounting aspects of the superannuation landscape such as tax, financial reporting, and disclosure”. Bad news as his study hinged upon acquiring and analysing tax notes in the unabridged audited financial statements.

There is presently a dearth of transparency. Thulaisi was unable to obtain financial reporting data from Australia’s super funds easily. This is due to a lack of legislation requiring superannuation funds to lodge audited financial statements to any of the regulative authorities, including APRA. Not good for a $3 trillion industry.

When asked why he and his team chose to analyse industry super funds and not retail super funds, Thulaisi said “retail super funds were a different beast. There are so many products that it’s difficult to understand their financials… and because they have a profit orientation, you really can’t tell which assets belong to which fund”.

Industry funds, on the other hand, have a consistent structure and are “the best performing funds”, says Thulaisi.

NO INFORMATION AVAILABLE

Unfazed, Thulaisi first trawled through the usual government resources looking for the superfund tax notes. Nothing was found searching through the Australian Bureau of Statistics, the Australian Tax Office, and the Australian Securities & Investments Commission. However, APRA had some information which caught Thulaisi’s eye. APRA requires superannuation funds to adhere to the Superannuation Reporting Framework (SRF) for their prudential and oversight functions.

Yet the information provided in the SRF does not contain audited tax notes, which is the accounting industry gold standard and according to APRA “may not be suitable for another purpose.”

However, Thulaisi knew that the superannuation funds were required, under the Superannuation Industry (Supervision) (SIS) Act, 1993 “to prepare an annual report to members” but these reports only provide an abridged financial report. A few of the funds did provide their unabridged financial statements online to the public, yet “they were quite hard to find and usually only available for two to three years,” he says. In this, the disclosures in the super industry are similar to the disclosures in Australia’s biggest poker machines sector, the NSW Clubs industry.

APRA’S ACCOUNTING BLACK HOLE

Not being a member of the super funds Thulaisi collected all the unabridged tax notes he could find online; still not enough for his primary study, and decided to compare the non-audited statements found in APRA’s database earlier and these new audited financial statements.

He found significant discrepancies between what super funds reported to their members and what they told APRA.

For reasons of research integrity, the names of specific funds cannot be named. However, in 2015 certain large industry super funds under-reported their total investments to APRA by up to $1.9 billion whilst other super funds over-reported their total assets or investments by up to $600 million.

Accounting information is meant to be accurate, so the key question is: why are billions of dollars either over or under-stated for in APRA’s reporting framework? Why the billions in discrepancies.

Thulaisi called APRA. Unfortunately, APRA could not provide a reason and rebuffed Thulaisi when asked if they kept unabridged financial statements with a reference to the section 56 of the APRA act concerning secrecy.

Thulaisi notes APRA’s own language in specifying that it “generally expects superannuation entities to report in accordance with Australian Accounting Standards” gives super funds significant leeway in their reporting duties and also makes it doubtful whether APRA is even analysing audited, unabridged accounts. This calls into question APRA’s capacity to regulate effectively. Are they collecting accurate information?

“Are any of these fund’s financial statements read by anyone?” asks Thulaisi.

MOST DIVERSIFIED SUPERFUND INVESTOR IN AUSTRALIA

Whilst reading through the Superannuation Industry (Supervision) Act and regulations, something occurred to Thulaisi. “I realised that if I become a paid member of the superannuation funds then they are required by law and the trust deed to provide me with the unabridged statements”.

In order to get the data he needed, Thulaisi attempted to join each of Australia’s 41 industry super funds; a task made difficult by the closed nature of some of the funds. Many industry super funds require their members to prove that they work in the industry which the fund oversees. This led to a little bit of hustle on Thulaisi’s part.

One example: “I went down to the abattoir to try and join up with the meat industry super” AMIST Super. After convincing the manager that he wasn’t after anyone’s retirement fund, he explained the reason behind his study and was given the appropriate joining forms.

After joining as many as he could, around 30 of the 41 in all, Thulaisi still had to work to get the unabridged financial accounts which he was now entitled to as a member of the funds.

“Even after you become a member, they” the admin staff over the phone “don’t even know what unabridged audited financial statement are.” Thulaisi says “Super funds assume that no one will call for financial statements” and so they are sometimes impossible to get.

NO ONE HAS CAPTURED THIS MUCH INFORMATION BEFORE

Eventually, administrators caught onto what Thulaisi was up to and he was denied access to further financial statements. However, in around a year’s time, he had managed to obtain approximately 30 full sets of audited tax notes for years 2014 – 2016.

According to Thulaisi, this is the “first time you get to look at the financial information of the superannuation funds. No one has captured this much information before”. Thulaisi notes that even the Productivity Commission finds it difficult to attain accurate information from the funds which begs the question, “Why isn’t there this data? Why is it so secret?” Because after all “this is everyone’s money. This is every working Australian’s capital”.

Thulaisi asks everyone to try an experiment. Call your super fund and simply ask for them to provide you with a full set of unabridged audited financial statements and see how you go. This is your money, not theirs, and you are guaranteed the right to this information. You might find it may be harder then you expect.

How much tax do they actually pay? Our next article in this series details the findings of Thulaisi and the Accounting Discipline Group at the UTS Business School’s study, which reveals the effective tax rate of Australia’s industry super funds.

Thulaisi Sivapalan

Thulaisi Sivapalan, PhD, CA Accounting Discipline Group, University of Technology, Sydney.

ABOUT THE AUTHOR

Callum Foote

Callum Foote

Callum Foote is our Revolving Doors editor exposing the links between the highest level of business and government. These links provide well-resourced private interests with significant influence over Australia's policymaking process. Callum has studied the impact of corporate influence over policy decisions and the impact this has for popular interests. He believes that the more awareness this phenomenon receives the more accountable our representatives will be.

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