Superannuation Pensions – Implications of not playing by the rules

Many Australians who are either approaching retirement or have permanently retired from the workforce are running ‘Account Based Pensions’ through their superannuation structures. It is important to understand the rules of running an Account Based Pension in order to avoid potential taxation penalties in the future.

Under the current legislation it is a requirement for individuals to make a minimum drawdown payment from their pension account each financial year. This minimum payment is calculated based on two factors, firstly a percentage factor which is dependent on the member’s age (as detailed in the table below) and secondly the persons account balance.

Age at start of account based pension (and 1 July each year)                      

Minimum Drawdown

Minimum Drawdown

Under 65





















The current tax rate that applies to investment income derived from superannuation assets is 15% and the tax rate for realised capital gains is 10% to 15% (depending on whether the asset has been held for more than 12 months).

Once a superannuation fund commences to pay an Account Based Pension, the fund maybe entitled to an exemption on the payment of tax for the investment income and realised capital gains derived from fund assets backing the Account Based Pension. This income is referred to as ‘exempt current pension income’.

For trustees running Self-Managed Superannuation Fund (SMSF), these rules are particularly important given that the ultimate responsibility for making the minimum pension payment each year lies with the trustees.

So what are the implications under the current superannuation regulations if the trustee of the superannuation fund fails to pay the minimum pension?

The pension will be deemed to have ceased for income tax purposes at the start of the financial year (or the start date of the pension if it’s a new pension). As a result, the superannuation fund will not be entitled to treat any investment income or realised capital gains as ‘exempt current pension income’ for that year. Also any payments made to the member during the financial year will be treated as superannuation lump sum payments for both taxation and superannuation purposes.

Under what circumstances will the Australian Taxation Office (ATO) exercise discretion to allow an SMSF to continue to claim the tax exemption on pension income even if the minimum pension payment is not met?

  1. If the SMSF has failed to pay the minimum pension amount due to a trustee error or honest mistake that has resulted in a small underpayment (i.e. is less than one twelfth of the annual minimum payment); and
  2. The entitlement to exempt pension income would have continued but for the trustees failing to make the minimum payment; and
  3. The SMSF endeavours to make a catch up payment as soon as possible (within 28 days of the trustee becoming aware of the underpayment) in the following financial year which would has resulted in the minimum payment being satisfied in the previous financial year; and
  4. The SMSF treats the catch up payment as if it was made in the prior financial year.

Does a superannuation income stream cease in the event of a member’s death if the account based pension does not automatically revert to a dependent beneficiary?

In August 2011 the ATO released a draft tax ruling (TR 2011/D3). The purpose of this ruling was to address ‘when a superannuation pension commences and ceases’. This ruling indicated that superannuation pensions cease as soon as a member dies unless the member had in place a reversionary pension nomination (which means that the pension automatically reverts to a dependent beneficiary upon death). Therefore, in the event that the member did not have a reversionary beneficiary in place, then the member’s assets would revert back to superannuation phase and subsequently loose the tax exempt pension income status. Therefore, should these assets be disposed of, then capital gains tax maybe applicable upon sale at the rate of 10% to 15%. This draft ruling resulted in confusion amongst superannuation advisers.

As a result of this confusion the Government released amendments to the regulations on 29 January 2013 which aimed to clarify that if a superannuation fund member was receiving a pension and then died, the superannuation fund will continue to be entitled to the earnings tax exemption in the period from the members date of death until their benefit is paid out by the fund. This amendment will  be a welcome relief for beneficiaries of death benefits as no capital gains tax will be payable from the superannuation fund when the pension assets are sold or transferred to fund the payment of death benefits.


Superannuation earnings tax announced – good investment performance punished

“Stockholm syndrome is the psychological phenomenon where hostages express empathy and sympathy and have positive feelings toward their captors.  These feelings are generally considered irrational in light of the danger or risk endured by the victims, who essentially mistake a lack of abuse from their captors for an act of kindness” (Wikipedia).

As I read through today’s superannuation announcements I experienced a moment of deep gratitude that the Federal Government had been generous enough not to proceed with the most medieval of the options that had been on the table.  I then began to calculate the material disadvantage that will affect families to which these rules apply.  I realised that in my momentary relief, I had forgotten that surely every family in our democracy is entitled to have certainty of outcome under the set of rules that were represented by the Government of the day to apply to their self-funded retirement.  The more I considered the rules, the more I realised how poorly these rules will operate in practice.  Many other ordinary people will innocently get caught in the clutches of these rules at some point.  Make no mistake, as the compulsory Superannuation Guarantee charge increases from 9% to 12% some ordinary individuals will become hostage to these rules.

Superannuation pension earnings tax

From 1 July 2014, future earnings (such as dividends and interest) on assets supporting income streams will be tax free up to $100,000 a year (indexed in $10,000 increments), the balance of earnings will be taxed at 15%.  Remarkably, these rules punish good investment performance.  For example, the Government announcement points out that “(a)assuming a conservative estimated rate of return of 5%, earnings of $100,000 would be derived from individuals with around $2 million in superannuation.  Ergo, if my fund earns 10%, I will be subject to tax once my assets are at the $1 million level.  While the announcement is silent on this point, heaven help me if after 1 July 2014 I buy a capital asset and sit on it for 10 years and then realise a $1 million gain to fund my pension as a one-off.  How does this get taxed?  Will we be averaging over 10 years to $100,000 per year (safe) or is $900,000 of that gain fair game in the year of sale for the higher tax rate.  What about the small business owners that the Government encourages to put their business property into superannuation.  Is that an extra 10% clip of the ticket now when you make a gain on the sale of your warehouse?  Small business already has it hard enough.  If I held that business asset for 15 years outside of superannuation I would pay no tax.  Surely it was not intended that the superannuation system would be an inferior option.

Has the Government forgotten the GFC when there were double digit annual declines in return which depressed superannuation balances and for which superannuation pensioners were not compensated by the tax system.  Now if there is a 20-30% surge forward in one year do people who should not be punished by this system suddenly find they are subject to the system just as they earn their losses back?  Surely not.

I see the need for averaging, as well as extension of small business relief, as items that will rapidly get on the drafting agenda.

Pension withdrawals themselves will not be taxed.

Special transitional rules for capital gains

  • Special arrangements will apply for capital gains on assets purchased before 1 July 2014:For assets that were purchased before 5 April 2013, the reform will only apply to capital gains that accrue after 1 July 2024;
  • For assets that are purchased from 5 April 2013 to 30 June 2014, individuals will have the choice of applying the reform to the entire capital gain, or only that part that accrues after 1 July 2014; and
  • For assets that are purchased from 1 July 2014, the reform will apply to the entire capital gain.

Common sense arrives for “excessive contributions”

Many innocent people have been subject to a punitive rate of tax if they accidentally exceed their concessional contributions threshold.  They get taxed at 46.5% even if their personal tax rate is lower.  Moreover, if the excessive contribution was accidental, it has not been possible to withdraw the excess contribution and correct the error.  Pleasingly from 1 July 2013, it will be possible to withdraw the excessive contributions, be taxed at your ordinary rate with an interest charge on the benefit of a tax timing difference that arises because of the different tax payment dates of the superannuation fund.

In closing, the Government’s announced superannuation reforms are “less bad” than expected. Are we grateful that they are less bad?  Yes.  Can they unfairly single out and materially change the expected retirement income projections for taxpayers who have retired and generated asset balances around $1 million?  Yes, but only if they invest well.  Do they potentially punish people who have balances well under $1 million if they have a good year?  Yes.  Is mediocre performance more likely to avoid the tax than good performance?  Yes.  Oh dear.

Could this year’s federal budget really be Swan’s song?

What a difference a week makes in politics.  A little over a week ago the more radical and negative federal budget measures looked to be under containment.  Following the Government’s self immolation last week, atreasure chest of the better performing, experienced and more pro “business and aspiration” ministers went to the back bench and were replaced by less experienced and potentially more left leaning replacements.
The exiting ministers raised concerns over a planned strategy of class warfare, looming policy faux pas and hinted at sinister plans that may be hatching to make an all out appeal to marginal electorates by launching a budget attack on those voters that Labor has already lost to pay for the election pork barrel.It appears now that the first thing the Government must do is survive a no confidence motion in Parliament. Then to succeed with any substantive budget measure, it must align to the Independents and Greens to get the crucial majority to carry its measures through.In this volatile environment, almost anything could happen. We could have an early election, we could have a toothless budget where no substantive measures get through the House of Representatives or we could have a leap to the left and an attack on the wealthy with the gloves off. My bet is for the Government to play for support from the Greens and Independents in a bid to retain legislative power (as for the policy backflip on the Carbon Tax). This means the top end of town and the wealthy (which now includes the middle class) need to brace for impact.Here are some of the possible measures that may emerge in the budget and preparatory action pre- budget night.


Higher taxes for superannuation account balances greater than say $700-$800,000.  There are enough superannuation accounts at this level to raise some decent revenue.  Taxes on accumulation earnings were proposed to raise from 15% to say 30%.  This appears to have been a planned budget measure.  There were leaks to the press which highlighted massive voter resistance to the idea.  The Government appears to have ruled out taxation on superannuation withdrawals but not earnings.  There are suggestions this week that the new “war cabinet” may put the entire issue back on the table because it may only affect voters who have deserted Labor.

Some in the market have suggested cashing out your superannuation prior to budget night if you are in pension phase.  I think you would be foolish to do this.  The Liberals have stated they will repeal this measure in Government.  Even should it get through and stand I suspect leaving the money in super will outperform, you will just get ahead slower.

Deductible superannuation contributions being taxed in the fund at say 30% or the marginal tax rate of the member, or a new  general rate greater than the current 15%.  This one does not appear to have been ruled out.  Presently a 30% rule affects people with adjusted incomes of more than $300,000, but expect this to creep down to $180,000 or a bit lower where such a measure can raise some decent revenue. There have been suggestions contributions should be taxed at marginal tax rates (long ago this was a Hewson Liberal policy, it did not work too well for him).

Bring your deductible superannuation contributions forward to pre budget night if you want to lock in the 15% rate.  It will be hard for the Government to make this retrospective.  If there is no action on this measure on budget night, bringing forward the contribution does not harm you.

Transition to retirement pensions:  At age 60 retirees can access their superannuation benefits.  To assist people in the process of transitioning to retirement, it is possible to commence a “transition to retirement pension” from age 55 which changes the rate of taxation on assets funding the pension to 0%.  The Government could remove this concession, locking in super money at a potentially new higher tax rate for longer.  If you are 55 or over, it might make sense to commence a transition to retirement pension prior to budget night.


The Greens want a war on negative gearing.  A week ago I would have said no Government is foolish enough to remove the benefits of negative gearing, but in a fight for survival to 14 September, perhaps some change of position may emerge to get the numbers.  The Government could introduce loss quarantining for individuals with adjusted incomes of around $180,000 or their higher benchmark of $300,000.  This requirement could for example say that you can have the loss on gearing on a rental property, but only offset it from future income of the same class.  This would destroy the tax timing benefit created by negative gearing.  It would also create a tax fiction, you would have a real cash loss, but the government would not allow this outflow to reduce the tax you pay while gearing produces a negative result.  You may recall the Hawke/ Keating government had a crack at this decades ago and the response was so damaging to property prices and voters, they had to repeal it.  Officially, gearing is on the Governments’ promise list to retain.

My bet is that the Government will attack gearing at the big end of town for international businesses.  It is likely that the Government will further limit tax deductions for interest on borrowings paid offshore – the so called thin capitalisation rules.  Such a move would massively prejudice Australia’s standing as an importer of investment capital and a place to headquarter international business, but it may be a vote winner in the marginals.

It may make sense to bring forward interest prepayments to prior to budget night to lock in a deduction under the existing rules.

If gearing is “grandfathered” to pre-budget night investments, planned investments may best be locked in prior to budget night.


The top end of town will lose concessions and smaller enterprises may have access to an innovation fund.  We are short on the detail, but expect to see more in the budget and a lot of noise about this.  Smaller enterprises may be unexpected winners, but the pool of real available funds looked small in the announcement, so you may need to get in quick.


The so called Division 7A rules which tax amounts owing by shareholders or their associated family trusts to a private company as unfranked dividends have been largely criticized as punitive and ripe for reasonable reform this year.  In a normal year, sensible reform would be a great positive to introduce to ease the pain on small business.  I cannot see this getting up this year, as such favorable reforms are likely to be seen as concessions to the “wealthy” and therefore unlikely to win votes in the right seats.


In a moment of budget surplus desperation (several Assistant Treasurers ago), legislation was created to massively expand the general tax anti avoidance provision.  The motivation was that the tax office was losing too many big cases to the taxpayer and Treasury lobbied that this was a threat to the budget.  The draft legislation is a monster.  It may force you to look at the simplest way you could have effected a transaction, ignoring how you actually effected the transaction, and force you to take the less favourable tax result of the transaction you did not do.  Yes, read that sentence again.  It is self evidently ridiculous and is testimony to the state of Government in this country.

This may re-emerge packaged as a Robin Hood weapon against evil wealthy wrong doers threatening marginal voters.  These measures could really mess up typical, legitimate and appropriate planning techniques and change the way you invest in the future paying more tax. 


You have heard the rhetoric.  Google, Apple etc don’t pay much tax in Australia because they are structured to locate the taxable source of profits in low tax jurisdictions.  Expect a tax measure to get these “baddies”.  You may not have picked this up from the media reports, but they have not done anything wrong.  They are simply applying the tax rules and often with the ATO’s sanction.  The problem is that this is not just an Australian issue, it is a global issue.  These businesses are eminently capable of turning on a coin to change operations for any change in tax laws across the globe.  Why set up your server in high cost Australia when you can set it up anywhere in the world.

The top end of town have the resources to adjust/ defend against the impact of a new tax.  My fear is that small Australian IT start ups and IP commercialisation businesses may find that the tax rules that helped larger competitors become globally great may not be available to them.  At the end of the day, if Australians bring the money home, Australia will eventually be in a position to tax it.  If the Government frightens all our innovators into relocating offshore, another country will be the long term winner. 


The mining tax was a disaster.  They are not off the hook yet.  Expect new lines of attack to raise more revenue from miners.  Options are reductions in the diesel fuel rebate, which will be popular with the Greens.  Further tweaks to depreciation rules to make them less favourable may also be fertile ground.

Stephen Cribb is a Director of Prosperity Advisers Group.  

Succession Planning for Professional Services Firms

It takes years to build up a strong, partner-led professional firm, but many businesses can destroy this value quickly by failing to plan for the succession of senior staff.

What is your plan?

Have you considered how you will exit your firm or manage the exit of one of your partners should they get ill, seek retirement, or face an unexpected change of life?

Have you identified the likely successors for your role? What is in place if one of the principals is removed by illness or death? Will your business have ongoing viability if you are no longer part of the team?  Do you know what your firm is worth?  What will be the taxation consequences of a sale of your equity?

If you can’t answer these questions you could be exposing your business to risk should you have a principal of the business retire, resign or confront health issues.

Often professionals are so busy working in the business they don’t work on the business and succession usually isn’t an urgent consideration. It is, however, important to work through the process and develop a plan that will deal with the succession of your business in all circumstances, including an unplanned exit.

Considering your succession options

Consideration should be given to the outcomes for your business if you were to get ill or have to step away from the front line.  Then, once understanding the impact, you should consider the options available for succession and the issues and merits of each option.

Where the firm has multiple principals there should be equity/shareholder agreements in place which identify the roles and responsibilities of the parties can also identify the steps to follow to buy out an exiting party.

It should also outline the method to value the equity interest and what terms will apply to the payment.

A buy/sell agreement that deals with unplanned exits is often funded by an underlying insurance policy that is triggered when the events in the buy/sell occur.

It is better to put these documents in place when there is no immediate requirement to negotiate an exit as they can then be done with no specific agenda in mind.

Business Structure

Other considerations for the succession plan is reviewing your business structure to allow for easy entry and exit of parties and access to any asset protection and taxation concessions where available during operation of the business and in the event of sale.

Financial Review and Improvement

There should also be a financial due diligence to identify the areas for improvement in the practice, including financial reporting programs, growth planning, profitability improvement, systems development and risk management.

When these areas are improved they enhance the value of any business and will result in greater profitability of the business and a smoother transition.

Identifying your successor

It is also important to consider whether there will be an external sale of the business or whether a potential leader can be identified within the current team.

The knowledge and experience that resides in a principal often forms a substantial proportion of the firm’s intellectual property and capital. That knowledge and experience needs to be passed on to potential successors.

Internal succession may also need to be backed by appropriate recruitment of staff who aspire to being a principal, leadership and management programs to provide development, and growth in the practice that facilitates progression of team members to principal.

Well planned succession

Ultimately succession of a principal can be best managed where the business is transition ready, there is a process in place to manage an exit and the process is clear for all parties involved.  That way, when succession becomes an issue, it is not a reason for unnecessary conflict or stress.


Debbie Matthews is an Associate Director of Business Services and Taxation at Prosperity Advisers. 


Lessons From Rinehart

As published on

Regardless of where fault lies, you have to feel for the Rinehart family.  All families have conflict from time to time behind the privacy of closed doors.  Wealth creates a platform that allows individuals to “shout louder” through the courts and the media. 

The Rinehart family dispute reminds us that we are in the early days of the largest generational wealth transfer in Australian history.  Here are some sobering facts history offers.  Only 30% of businesses make it to the second generation (3% profitable by the third). In wealth terms, the second generation loses 65% of family wealth, increasing to 90% by the third.  Wealthy families often manage inheritance badly.

Here are 5 things that could have assisted in preventing the conflict we have seen played out in the courts and on the public stage.

(1)    Prevent vesting by using perpetual structures

“Bankrupting” tax liabilities when a trust ends or “vests” makes for great headlines, but this is serious news for anyone with a trust.  Most family trusts have a lifecycle of about 80 years, sometimes less.  The consequences of vesting are appalling.  On a good run, a family loses about 24% of the growth in its wealth as tax.  Unmanaged, I have seen rescue missions to prevent liabilities of more than 60%.  Either you sell the asset to pay the tax or if the asset is illiquid, the family is placed in significant debt.  Neither option appeals.   Yet the tragedy is that is possible to set up perpetual structures which remove the issue.

(2)    Split assets into separated structures

Arguments between adult children can destroy family unity for generations annihilating not only wealth, but a family legacy.  As unbelievable as it might sound, I regularly see battle lines drawn by adult children around who was the favoured child and who has the higher “entitlement”.

At an adult level, these conversations manifest themselves as disputes over who gets the low yield second tier commercial property assets and who gets the high yield blue chip growth stocks.  Put 3 adult children in control of a single pool of assets in a structure and voting can be used by two against one, or one attempts to dominate.  The simple solution is to progressively separate assets into separate structures.  Choose which asset goes to who.  Perhaps get the adult children involved in the choice.  This leaves children with nothing to dispute and removes a key obstacle to family unity

(3)    Choose the right assets to pass to future generations

It is extremely difficult to leave management of an active business to adult children but put ownership of part of the equity in a structure for the benefit of grandchildren.  If the business comes to a substantial “fork in the road” (a certainty across the span of 2-3 generations) and the children choose one path, it is always possible to use the benefit of hindsight to say that the better decision for the grandchildren would have been to take the other path.  Personal, business and lifestyle needs of the adult children may be in complete conflict with the objective of growing equity for the grandchildren.  One solution can be to change the nature of the grandchildren’s interest to a non-equity interest.  For example, using a secured loan into the business which can be repaid to the grandchildren’s structure if the business is sold, merged or restructured without dispute over the “value”.

(4)    Address independence and control issues up-front

Where control of assets and the intended beneficiaries are not in complete alignment, conflict occurs.  A classic example is where grandchildren are due to inherit at a certain age, but parents who have control defer this inheritance due to concerns about “readiness”.

Time poor parents may confront an affluenza affliction that often faces the younger generations in wealthy families – heirs lacking a purposeful pursuit in life develop personal character issues such as a false sense of entitlement, a desire for instant gratification – fast cars, boats and big houses – without the self control to moderate consumption.

You can remove conflict and control issues by putting clear and unambiguous rules in place from the outset.  Involvement of independent and experienced professionals in the management of the asset base and the resolution of issues such as suitability to inherit, can take the heat out of family dispute.  The art of doing this is another article in itself on governance.

(5)    Build character, teach and live enduring family values

If your parent is the richest person in Australia, how do you develop a sense of achievement and identity that is not dwarfed by them?  This may seem to be an impossible challenge without the right support structures.

To be a member of a Family means something, whether it is written or unwritten.  Big Families are a big business.  The controllers of wealth can often be so busy in the management of the family business that they lack the time to coach the next generations.  Transfer of values from parent to child to grandchild can be difficult if contact is limited. Clear communication of what the family is, what it stands for, and what conventions of behaviour are appropriate is critical.  Engaging family members in business with aligned leaders and can deepen engagement.  Philanthropy can be another mechanism which teaches key skills.  How families use tools like family constitutions and governance structures will be the subject of another article.

Universal principles

Most people would say “all of this does not apply to me and my family, I’m too small to care”.  But I disagree.  The legacy of any family is worth preserving.  The steps outlined above are as relevant to a family with $1.5 million in assets to pass to the next generation as they are to a family with $1.5 billion.  Disputes still arise.  Things may be much less complex to manage but the principles have broad application.

Derisking your Business Partnership – Some simple but important steps

Running a business with others whether through a company, trust or partnership is not something that many people step into lightly.  Most get to know their business partners for months or years before they go into business, building trust, rapport and structure around them as they go. 

So it makes sense that many partnerships are now insuring against the unexpected exit of a partner from the business  with Buy/Sell insurance that allows remaining stakeholders to buy a partner out in the event of specific events like death and disability.  

It is an important element of succession planning in partnerships, where individuals rely on each other to run their business and deliver their services or products to the market.

Take for instance the business run by Mark, Jeff and Drew, partners in a firm that sold high profile residential property.  The real estate agency had a premium referral based clientele and a superb reputation that enabled them to live a good life.  Despite their success, the partners had never taken the time out to build a succession plan, put business agreements or insurances in place.

Sadly, Jeff’s lifestyle got the better of him, and he died suddenly and unexpectedly from a heart attack.  His wife, Kathy, who had never really been interested in the business since she left to have children 10 years ago decided return to work again, demanding to be treated like and equal partner by the other two as she was a beneficiary of Jeff’s 33% shareholding.

It soon became obvious to Mark and Drew that Kathy was out of her depth.  Clients who had previously worked with the agency were complaining, two of their best staff resigned and the agency was denied an important regional contract they had held for 12 years.

The hostility and resentment between Kathy  and Mark and Drew grew to the point where Lawyers became their best way of communicating.

The situation was stressful for everyone in the office, and it had virtually destroyed the value of their once buoyant and successful business to the point where it was virtually worthless.  When one of the senior staff left and set up an agency down the road in competition with them, they knew their run was over.

Had Mark, Jeff and Drew sought advice on succession planning their partnership and implemented buy/sell agreements and insurance this situation could have been avoided altogether.  When Jeff died, funding would have immediately triggered to buy Jeff’s ownership share from his estate.  The inclusion of staff incentives schemes in their succession plans may also have kept staff in the business, minimizing the risk of them setting up in competition with the firm.

Are you in a business with others?  What should you do?

  • Seek professional advice to draft a buy/sell agreement
  • Put in place buy/sell insurance
  • Draw up an effective succession plan that take into consideration sudden and planned exits
  • Ensure your buy/sell agreement is regularly revised and amended as circumstances change.
Image source: Flickr: o5com

Kickbacks – Are they a problem in your Department?

Disciplinary action from the investigations into corruption in our State and Local Governments littered the press recently, with many Councils and State Government Departments now under increasing internal and external scrutiny over contracts awarded and gifts received.

So we thought it was timely to look at what constitutes a kickback, fraud or inappropriate acceptance of gifts, and offer you some tips into how you can reduce the incidence of fraud in your organisation.

Occupational fraud is defined as ‘The use of ones occupation for personal enrichment through the deliberate misuse or misapplication of the employing organisation’s resources or assets’.

It covers a wide range of potential misconduct by employees, managers and executives, but the three most common are:

Asset misappropriation:

The misuse or theft of assets belonging to an organisation. In the real world this can be as simple as the inappropriate expensing of funds, theft of items from the office, or skimming of money being paid to the organisation.

By and large asset misappropriation is the most common type of occupational fraud.

Corruption and bribery:

The use of legitimate power for illegitimate private gain. In real world application, corruption is seen often as bribery, the inappropriate request for, or receipt of gifts as kickbacks for contracts awarded or decisions made, or coercive acts like extortion, where threats of violence are used to make somebody endure or do something they otherwise would not do.

Fraudulent statements:

The deliberate creation of false statements and documents that substantially affect a business’ or persons’ decision to enter into a contract or pursue a particular course of action. In business and Government this is seen in the calculated dishonesty of those submitting for a tender or contract, misstating their financial strength; or by concealing something that should have been disclosed in the application for credit, finance or similar.

So how can you minimise the risk of occupational fraud in your organisation?

Fraud, corruption and bribery are an enormous concern for both Government and business in our modern society. Dishonesty in the awarding of contracts and the delivery of services and monies have the capacity to disarm whole divisions of Government, and retard the legitimate business development efforts of honest product and services providers.

Paul Horne, the Director of our Government Audit Division suggests these eight steps:

Prepare and publicise a written code of conduct that makes sure management knows it is their job to understand risk areas for fraud, and play an important role in reporting inappropriate behaviour.

Educate employees about what constitutes fraudulent behavior and how they can prevent and detect it in their division.

Train and motivate management to lead with incredible integrity and honesty, setting a solid example for the organisation.

Set up an anonymous fraud hotline where staff, suppliers and customers can report inappropriate activity.

Reduce the opportunity for fraud to be committed without detection by holding regular audits, and putting in place diligent internal control systems that require signoff and oversight from peers and managers.

Divide up the financial tasks that can be performed by any one individual to avoid one person being completely responsible for all financial elements.

Carefully selecting and screening employees that work in areas of concern or risk, like procurement, finance and project management.

If it all gets messy, and fraud has been found, don’t be afraid to visibly prosecute those who perpetrate it. A public prosecution increases the understanding of the risks associated with inappropriate behaviour and hopefully discourages anyone who might have been thinking it was a smart idea.

Government Fraud Prevention Program

Our Government Fraud Prevention Program takes an in-depth look into the systems, processes and the operations of your department, and prepares a plan to tackle all points of weakness. Our comprehensive audit ensures that you completely understand your fraud risks and develops a tactical implementation plan to roll out risk mitigation strategies that are specific to your requirements. It is our role to make your procurement, management and governance completely transparent.