What’s emerging? Auditor-General report on SG administration - ATO response and what employers should expect
12 May 2022
Share this article
On 28 April 2022, the Auditor-General released his report - Addressing Superannuation Guarantee Non-Compliance - assessing the effectiveness of the Australian Taxation Office (ATO)’s activities at mitigating and dealing with Superannuation Guarantee (SG) non-compliance.
Background
Unlike most other taxes that the ATO administers, the SG system is one that predominantly operates with little regulatory intervention (e.g., in contrast to other taxes, there is no annual or periodic return filing explicitly outlining an employer’s “taxable” position).
Notwithstanding, the ATO is tasked with the function of encouraging voluntary employer compliance and also addressing instances of non-compliance. In the context of superannuation representing an employee entitlement, ultimately affecting Australians’ retirement incomes, the Federal Government has increasingly seen this to be a critical function, highlighted in recent times through the ongoing Wage Theft narrative.
The Australian National Audit Office (ANAO)’s audit of the ATO’s performance as SG administrator was undertaken as a result of the topic being identified as a Parliamentary priority in 2019-20, and comes on the back of the Senate Economics References Committee’s Unlawful underpayment of employees' remuneration report, released in March 2022 - that report recommended, amongst other measures, that the Australian Government review the current compliance and recovery activities related to unpaid SG contributions (including determining if responsibility should be transferred to or shared with the Fair Work Ombudsman (or another body), from the ATO).
On the downswing from an SG Amnesty that yielded almost $1 billion in disclosures ($911.5m), and with the current ATO reports, for 2018-19, indicating a $2.5 billion SG gap (i.e. between payments versus SG required to be paid) for that year alone, there is increased pressure on the regulator to reframe its compliance approach and better utilise its enforcement (and recovery) capabilities.
Audit Findings
The audit found that, overall, the ATO’s risk-based SG compliance framework is only partly effective; in particular the audit identified that the ATO’s risk rating for SG non-compliance was lower than merited and also, mechanisms to identify and escalate risks were still being developed, operating in a largely reactive (rather than proactive) manner.
Further, the audit concluded that, in addressing non-compliance, ATO activities were only partly effective. In particular, the ATO did not consistently meet service standards for reactive compliance (i.e. follow-ups from employee/other complaints), and the ATO’s proactive compliance activities had reduced post the introduction of the SG Taskforce, with a particular note that that Taskforce had not achieved its objectives of utilising Single Touch Payroll (STP) filings as a foundation for proactive measures.
Finally, the Auditor-General also identified that the ATO’s compliance activities are only partly effective at actually achieving greater employer compliance, with the annual net SG gap not having materially narrowed and the ATO acknowledging that it has only had a small influence on this compliance indicator.
Recommendations and ATO response
The Auditor-General made three recommendations to the ATO:
- To implement a preventative approach to SG compliance activity.
- To assess its performance against public accountability standards, introduce assessment targets (including against the SG gap), and explanations for performance results.
- To maximise benefit to employees’ superannuation funds, making more use of their enforcement (and debt recovery) powers, including developing performance measures and prioritisations.
The ATO agreed with recommendations 1 and 3, and agreed, with qualifications, to recommendation 2.
In particular, in providing its summary response to the ANAO, whilst emphasising its commitment to reactive compliance activity (“we continue to investigate every complaint received in relation to the non-payment of SG as we work to reduce the overall SG Gap”), the ATO also acknowledged the need to move to a more preventative and proactive approach (“(w)ith access to greater levels of real time payroll data through Single Touch payroll, (we have a) challenge … to effectively utilise these large volumes of data in real time to proactively improve compliance”).
Of further note, within the ANAO report, the ATO also provided a high-level outline of some of the “preventative”/”proactive” compliance initiatives planned and already in train. In particular, it was provided that the ATO is planning a pilot SG compliance effort targeting the hospitality sector (cafes, fast food) where about 500 employers would be identified using data analytics tools; additionally, the ATO noted a “Stratified Sampling Nearest Neighbour” model that has been developed, using statistics to create a notional “peer” group for employer comparison (using occupation and number of employees, and similar remuneration).
What does this mean for employers?
The key takeaway for employers is that the ATO have committed to adopting a more preventative and proactive approach in dealing with SG compliance matters, and the specific call-out of Single Touch Payroll (STP) highlights the key role it has to play in any reframed approach. Some of the “preventative”/“proactive” initiative callouts, including sector targeting under a pilot data-analytics program and “peer” comparative modelling, further illustrate the ATO’s intended future direction with respect to compliance activities. In particular, the commencement of STP Phase 2 reporting (pending deferrals in place), with its granular reporting predominantly framed around SG obligations (see our previous article here), will have a significant impact.
If not previously apparent, on the back of increasing Government pressure to enhance its impact, the ATO’s summary response to the ANAO audit all but confirms that STP lodgments will be used to profile an employer’s SG-risk, and employers can (should?) expect that they will be subject to greater scrutiny with respect to their employees’ SG entitlements. This commitment was also previously directly advanced by the ATO in its finalised Practice Statement dealing with the 200% Additional SG Charge penalty regime (see our previous article here), where STP filings was again a specific compliance call-out.
With respect to the preventative/proactive approach committed to, whether this takes the form of low-touch nudges or resource-intensive audits will only be determined in due course, however, it is more paramount than ever that employers critically review their SG governance and control mechanisms, particularly in the payroll migration to STP phase 2.
This includes ensuring that payroll system pay codes are appropriately configured for superannuation and further, that each pay code is correctly mapped to the STP phase 2 reporting category (where pay elements now fall into one of the 30 (approx.) disaggregated categories previously reported as “gross” in STP phase 1). Separately, data analysis, both at a payroll level and projected STP2 reporting, should be considered to ensure that, in addition to technical configurations/mappings, any inadvertent issues (arising from manual intervention and/or system limitations) are identified and addressed.
If you have any questions or concerns about these developments and how they could impact you, please get in touch with your PwC representative.
