Recent research from KPMG has revealed an increase in fraudulent crime within Australia’s superannuation industry. Between September 2015 and March 2016, 116 frauds were committed, up from 91 in the previous 6 month period.*
On the surface, these numbers don’t sound very significant. However, the September-March period produced a financial loss of $381.1 million, compared to $128.4 million for the previous period.
Now that sounds like a lot.
The increase of superannuation fraud should be particularly concerning to those in the SMSF industry. The total amount of super assets in Australia totalled almost $2 trillion at the end of March 2016**, around a third of this is held in SMSFs and this is expected to rise. SMSF trustees should be wary, as current regulations around theft and fraud aren’t as protective for SMSFs as they are for other types of super funds. A majority won’t be compensated if either of these events occur.
A well-known example of this came about in 2009 at the hands of Trio Capital, where around $176 million was lost through fraudulent investment schemes. The Australian Government provided compensation to those who’d invested through Government funds, but around 1,000 individuals who’d invested through SMSFs or with their own money received nothing.***
It’s easy to assume the cause of fraud lies with the increase of technology within the super industry, yet only 26% of these frauds used a technology-based method (such as online identity theft and spoof emails).
If only 26% of fraud stems from technology-based methods, then how is the rest being achieved? KPMG’s research reveals something a little more close to home – in this case, the office. The report indicates a high number of these fraud crimes are committed by business ‘insiders’, with around 32% being employees and another 37% being managers. This should be of particular importance to SMSF trustees.
A previous survey from Bentleys revealed that around a third of trustees weren’t fully aware of their compliance obligations, and viewed their SMSF as a ‘set and forget’ fund that can be left in someone else’s hands. Add to this the increase of work being outsourced to third party administrators and it’s not hard to imagine where the bulk of fraud is taking place.
In 2015, ASIC received 367 reports about possible scams. These included overseas cold-calling about investment opportunities, overseas calls offering loans and credit, and money transfer schemes. While most of us could pick out someone trying to pull a dodgy from a mile off, not everyone is immune. We’re all aware of the importance of protecting our bank accounts – but do we always protect our super funds with the same kind of vigilance?
SMSF trustees need to be more aware about who handles their information and their fund if they want to keep themselves protected, as not all professionals are alike. And SMSF professionals need to be very careful who and how they outsource their client work. The risk of fraud – or any financial crime – can be mitigated with heightened awareness. You need to know who you’re dealing with, and whether or not they’re accredited or licensed. This needs to happen across the board, there’s no one person or area that’s solely responsible for information security. This is where building solid, trusted relationships is worth its weight in gold.
Money talks. So it pays to be more aware.
*Source: KPMG, Fraud Barometer: October 2015-March 2016, June 2016
**Source: ASFA, Superannuation Statistics, May 2016
***Source: SMH, No more taxpayer support for victims of Trio collapse, April 2016