Effective FBT control environments

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Are you effectively managing your FBT risk? It’s an opportune time to review your processes.

With the 2020 FBT return lodgment now behind you and with your organisation’s FBT processes and protocols still at the forefront of your mind, there couldn’t be a better time to undertake a review of the system for the management of your FBT obligations. This will allow for the identification and rectification of any systemic shortcomings to ensure the next return preparation is even smoother and less stressful.

The Importance of an Effective FBT Control Environment

To ensure your organisation is adequately managing its FBT obligations and risks, the implementation and maintenance of an effective FBT control environment is imperative. The fundamental aim of which is to ensure that all benefits provided by your organisation are:

  • identified,
  • accurately valued, and
  • supported by the necessary documentation/elections.

The benefits of an effective control environment are that your organisation should be more efficient in preparing its next FBT return, be better placed to respond to an ATO review or audit and, if subject to reviews/audits, reduce the risk of negative outcomes.

Steps in Implementing and Maintaining an Effective FBT Control Environment

It is appreciated that organisational size will dictate the level of sophistication in establishing an effective control environment. The aim of this article is to present some key ideas as a starting point.

Personnel & Responsibility

When it comes to FBT, who is responsible, what are they responsible for, are they aware they are responsible?

The first step in implementing an effective FBT control environment is to identify all roles involved in the provision, administration and reporting of benefits and document the person’s responsibilities in the administration process. The various roles, depending on the size of your organisation, may include:

  • Employees receiving benefits
  • Work area managers
  • Human resource managers
  • External salary packaging providers
  • Fleet providers
  • Data entry manager
  • Internal auditors
  • FBT manager
  • Finance manager
  • CFO

For each of the above positions within your organisation, their FBT administration responsibilities should be formally recorded in their position/role description.

Procedures and Policies

Are responsible persons adequately briefed on what they need to do?

Staff members involved in the collection, processing and production of FBT information, no matter how small the role, should be provided with instructions on the FBT information they are to collect and the manner/form in which it is to be processed or produced. These instructions should be clearly and concisely documented in procedure and policy manuals outlining not only what is to be collected, but also how it is to be collected, when the information is to be collected and why the information is required.

Remember, as persons join your organisation or change their roles, they will need assistance and a ready source of guidance. Unlike FBT specialists, responsible staff will likely have a different mainstream work focus or multiple work tasks demanding their attention.

At a minimum, your organisation’s policy and procedure manuals should include the following:

  • A general overview of the FBT regime:
    • Overview of the different categories of benefits;
    • Examples of the typical benefits provided by your organisation that falls within those categories;
    • The general treatment of the benefit (taxable, concessionally taxed or exempt);
    • The type of information required to be collected to value those benefits typically provided by your organisation; and
    • Implications for staff receiving benefits (i.e. the impact of a reportable fringe benefits amount disclosed in their tax return, the possible impacts of making or not making employee contributions, whether employees will bear the cost of FBT for certain benefits provided and whether there are options for reducing this cost – such as keeping log books for cars provided).
  • Detailed FBT information:
    • A description of each benefit type and relevant legislative references;
    • Details of any internally prepared position papers;
    • Details of any external advice received;
    • Details of any ATO issued rulings (i.e. private binding rulings, public rulings or class rulings); and
    • Details of your organisation’s procedures for collecting and collating FBT data.
  • Procedures:
    • How and when to record FBT information in financial management information systems;
    • How to identify record and calculate any FBT liability;
    • FBT implications of decisions regarding staff benefits, allowances, remuneration packages etc.
    • How to plan for the preparation of the FBT return;
    • How to prepare the FBT return with in depth detail on the items specifically relevant to your organisation; and
    • Details of potential FBT implications to consider when making decisions regarding staff benefits, allowances, remuneration packages, certified agreements and Australian workplace agreements.
  • Policy manuals:
    • Benefits that the organisation offers and any benefits that are restricted from being offered;
    • Responsibilities of various staff members in the administration process for:
      • Approval of the provision of benefits;
      • Inputting data into financial management information systems;
      • Signing-off on (i.e. approval of) the provision of benefits, signing-off on data from various work areas, signing-off on supporting information and signing-off the completed FBT return;
    • When to seek advice from expert advisors (internal or external); and
    • When to seek advice from the ATO including private binding rules.
  • Details of additional resources:
    • Where to access current FBT legislation;
    • ATO/external providers’ databases of public and private rulings; and
    • Subscriptions to external content providers (i.e. TaxEd Q&A).

Where changes to your organisation’s policies and procedures are made, they should be communicated to all affected staff promptly.

Review & Monitoring

Be proactive – formal review is only part of the process, encourage identification and communication of shortcomings observed by any personnel in day to day practices – ensure appropriate responsible personnel will be alerted to (and will respond) to changes in FBT obligations that occur during the FBT year – create checks and balances to test the integrity of information gathered – build this constructive approach into your FBT management system.

An important aspect of maintaining an effective FBT control environment is the continual review and monitoring of the control environment, including the information systems and record-keeping requirements.

Reviewing and monitoring the control environment allows not only for the identification of weak points, failures and areas where efficiency can be improved, but also provides confidence in the integrity of the FBT information for those whose responsibility it is to sign-off on certain aspects of the information or the return itself. Best practice is for the review and monitoring process to take a proactive approach throughout the FBT year in order to ensure that any issues detected can be rectified as quickly as possible.

Reviewing of the policy and procedures will typically be undertaken to ensure that they remain up to date following:

  • Legislative changes;
  • New judicial interpretations;
  • Issuance of public, class or private rulings by the ATO;
  • New or changed ATO views (including ‘Taxpayer Alerts’);
  • External expert advice received;
  • Changes to, or implementation of, new information systems;
  • Changes to organisational structures and reporting chain of responsibility.

Depending upon the size of your organisation, you may use one or more of a variety of information systems to record FBT information and produce FBT returns. These information systems can range from the use of Excel spreadsheets to commercially offered FBT products.

Commercial software providers regularly update their products to incorporate changes to the law. However, commercial software may not cater for some of the more complex nuances in FBT law. Therefore, ongoing sampling of calculations and inputs should be undertaken to ensure that outputs are correct, along with sampling of documentation and inputs into financial management information systems.

Where possible, systems should be designed to remove the possibility of human error, either by way of automation or additional checks and balances and increased reviews of manual processes.

Training of Staff

Are staff provided with access to training and adequate opportunity to seek clarification of FBT issues which they encounter?

To ensure that your organisation is across any technical changes that may impact on procedures and policies and that staff maintain their FBT skill-sets/knowledge, it is important  to ensure that all staff involved in the FBT control environment are adequately trained commensurate with their level of responsibility and the complexity of your organisation’s FBT environment. Training should not be limited to technical FBT knowledge but should also extend to policies and procedures. Examples of how training may be undertaken include:

  • External training and updates (e.g. TaxEd can help through its annual FBT roadshow or tailored training);
  • External curated news providers (e.g. TaxEd can help through its monthly newsletter and bi-monthly webinar presentations);
  • Structured internal training;
  • On the job training – need for suitable resources such as access to FBT expertise (e.g. TaxEd can help through its Q&A service).

Training should cover both new developments and refresher training – there is a need to stay up to date on developments and to refresh on matters that some organisations may only deal with once a year.

Conclusion

Whilst the size of your organisation and the benefits it provides to its employees will dictate the size and complexity of your FBT control environment it is still imperative that every organisation maintains an effective FBT control environment to ensure FBT risks are managed and to maintain confidence in the integrity and accuracy of your organisation’s FBT information.

Further information on maintaining effective FBT control environments can be found on the ATO website.

This article provides a general summary of the subject covered and cannot be relied upon in relation to any specific instance. It is not intended to be, nor should it be relied upon as, a substitute for professional advice. TaxEd Pty Ltd and any person connected with its production disclaim any liability in connection with any use.