Overview

This project is the first known study to examine self-managed superannuation funds (SMSFs) and their vulnerability to fraud. Using the combination of an online survey and interviews, the project will establish a baseline of data on the levels of financial literacy, awareness of fraud, and victimisation experiences of SMSF holders to fraud. These results will form the evidence base for targeted interventions aimed at both improving the financial literacy of SMSF holders and strengthening SMSFs against fraud.

Background

There is currently no known research that has explored the vulnerability of SMSFs to fraud, either in Australia or overseas. Previous research on fraud has explored the ways in which victims are targeted, the impacts of fraud, the reporting experience and the support services available to assist with recovery (Button et al., 2009; Button and Cross, 2017; Cross et al. 2016).

Investment fraud and romance fraud have been the top two categories for financial loss from fraud in Australia for the past decade (ACCC, 2018). In 2017, $62 million was lost to investment fraud with a further $42 million lost to romance fraud (ACCC, 2018). Given that fraud has one of the lowest reporting rates (Cross, 2018), this is likely to represent a minority of actual losses incurred. Further, this does not account for the large range of non-financial harms experienced as a result of fraud (Cross et al., 2016).

Older victims, while not necessarily more prone to victimisation, are certainly attractive targets as a result of their financial wealth (Cross, 2016). Further, the financial loss incurred through fraud for older people is particularly devastating. Many older victims are unable to recover financially, and find themselves relying on the government funded Age Pension for essential living costs.

In 2017, Australians reported losses to fraud of over $340 million (ACCC, 2018). While fraud targets all demographics, those aged 45-64 are the largest category of fraud victims reporting financial loss. Older victims, while not necessarily more prone to victimisation, are certainly attractive targets as a result of their financial wealth (Cross, 2016). Many have access to life savings, strong credit lines and importantly for this research, access to superannuation.

A large number of Australians in the 45-64 age range privately manage their investments in the form of SMSFs. As of June 2017, the Australian Tax Office (ATO) reported that there were over 1.1 million SMSF members across 597,000 distinct funds. SMSFs are currently worth AUD$697 billion, which is a significant share of the superannuation market.

Since members of SMSFs have access to their funds (unlike members of public superannuation funds), they are likely to be attractive targets for perpetrators of fraud. Anecdotal evidence suggests that many of the victims have indeed sent money from their SMSFs to offenders. Surprisingly, there is currently no research that examines the vulnerability of SMSFs to frauds.

This project will be the first known research to explore the vulnerability of SMSFs to fraud, with the overall aim of strengthening both the SMSF trustees’ financial literacy and knowledge of frauds. Offenders are highly skilled, tech savvy individuals, who are expert in deception and manipulation. They are well versed in social engineering techniques that target individuals who they believe will comply with their requests for money. SMSFs represent a serious potential vulnerability and it is of utmost importance to understand whether SMSF trustees’ level of financial literacy and knowledge of frauds are adequate to protect them against such risk.

In order to explore the issue of SMSFs and their vulnerability to fraud, the proposed project uses a mixed methods approach. This application applies to both the online survey of self-managed superannuation holders and telephone interviews of those who have illegally accessed their superannuation, as a result of fraud or other circumstances.