1. Overview of Australia's Tax System
1.1 History of taxes in Australia
1.2 Types of taxes administered by the ATO
1.3 ATO structure
2. Management, Governance and Scrutiny
2.1 Appointment of Commissioner/Second
2.2 Corporate Governance
2.3 Accountability and scrutiny
2.4 Relationship with Treasury and Office of Parliamentary Counsel
2.5 External input to planning and administration
3.2 Pressure for change
3.3 Programme management
3.4 Modernisation agreement
3.5 Efficiencies achieved
3.6 Future directions
4.1 Structure review
4.2 Reasons for change
5.1 Staff skilling
6. Tax Administration - today and future directions
6.2 Service delivery to corporate clients
6.3 Achieving excellence and consistency in technical decision making
6.4 Continuing and enhancing our communication with the community
6.5 Increasing service through technology
6.6 Bringing our service initiatives together under the Taxpayer Charter
6.7 Tax return preparers
7. Future Plans
1 - Overview of the Australian Tax
Appendix 2 - Funding
Appendix 3 - Consultative Committees
Appendix 4 - Modernisation Plans/Systems Developed
Appendix 5 - ATO Organisational Structure
Appendix 6 - Staff Development
Appendix 7 - Compliance Strategies
Appendix 8 - Role of the Tax Return Preparer
Appendix 9 - Systems to support tax return lodgments
Messrs Chairman, Members,
I am very pleased to be invited to appear today.
Over the years, we in the Australian Taxation Office (ATO) have learnt an enormous amount from the IRS - they have always been open and frank with us and worked with us with a real spirit of co-operation. It is, therefore, good to have the opportunity to return that assistance by sharing with you some of our experiences in striving to be a world class tax administration.
Naturally, ATO operations cannot be compared with the magnitude of the IRS client base and task but many of the issues we face are the same.
I understand that the Commission is particularly interested in learning about our management structure, re-organisation and modernisation programmes, and how we have achieved these things. Of course time precludes us from going into a great deal of detail on any one of these issues in this session. That being the case, I hope that some of the background material we have sent you has been of use, and perhaps there will be opportunities in question time and in other forums today to focus on particular issues of interest.
Perhaps, right at the outset, I should say that I believe it doesn't so much matter what the structure of the organisation is - we all need to work out what is best for us - the critical thing is having the basic infrastructure in place which allows for leadership and direction. Strong, stable leadership has got the ATO where it is today.
1. OVERVIEW OF AUSTRALIA'S TAX SYSTEM
1.1 History of taxes in Australia
Australia is a relatively young country - we are little more than 200 years old. We have a history similar to the United States, and like you have emerged from essentially European stock and have adopted many of the practices and structures of our European forefathers.
We have, similar to the US, a federation of states. It was the states in Australia which first imposed taxes - starting with the State of South Australia back in 1884. By 1907, every State in the Commonwealth levied an income tax.
The Commonwealth entered the income tax arena in 1915. By 1936 an agreement between the Commonwealth and the States, saw federal taxes collected by the State administrations. A joint Commonwealth/State income tax return was also adopted at this time. It was not until 1942, as a temporary war time measure, that the Commonwealth took over the income tax field and complex arrangements for revenue sharing were established. Over time several States have threatened to change this continuing arrangement, but none has done so - none wants to be the first to reimpose State income tax.
In a statutory sense the ATO is 80 years old. For almost 30 years most federal taxes were collected by the States. Each of the State institutions built up its own culture - I know I don't have to talk to you about institutions developing their own cultures quite apart from those acquired at birth.
Naturally enough when the Commonwealth took over these bodies, that brought with it its own set of issues to deal with.
With the Commonwealth solely responsible for income taxes, aside from grants made by the Commonwealth to the States under the revenue sharing system, the States are heavily reliant on franchise and transaction taxes for revenue. Payroll and Financial institution duties have also been taken up as the Commonwealth has vacated these fields.
1.2 Types of taxes administered by the ATO
With the passage of time other taxes and charges have been imposed by the Federal government and collected by the ATO. In all, there are now 21 different taxes and charges - everything from sales tax and fringe benefits tax to the Superannuation Guarantee Charge, Higher Education Charge and medicare levy. The Commissioner, as Child Support Registrar, is also responsible for child support collections.
(Details on taxes administered are attached at Appendix 1)
We've got these things because we are seen to be the logical, and are expected to be the most efficient, Agency to manage them. And while we haven't studied the matter in any detailed way as yet, we also believe that proper administration of these functions can improve the efficiency of our overall operations. At the same time, however, some argue that some of these functions adversely impact on tax compliance.
1.3 ATO structure
The modern ATO is operated out of 25 branch offices around the country, with headquarters in the Federal capital, Canberra.
Until recently, administration was built around functions ie, revenue collection, debt collection, return processing, advisings, audit, and appeals etc. With few exceptions each branch office dealt with all taxpaying entities in its 'patch', with responsibility for all of these functions. We have recently re-organised around client groupings such as large business, small business, individuals/non-business etc with National Program Managers, previously responsible for functional management, now taking responsibility for a particular group of clients. I will discuss this in a little bit more detail later.
(Also more details on organisational structure are at Appendix 2)
2. MANAGEMENT, GOVERNANCE AND SCRUTINY
2.1 Appointment and roles of Commissioner/Second Commissioners
The Commissioner has the responsibility for general administration of all the tax and various other laws imposing charges. He is also responsible, as Child Support Registrar, for the administration of the child support laws. The authority of the Commissioner to administer each levy is written into the laws relating to that levy, as are his general responsibilities, discretionary powers and rights. The Second Commissioners, of which there are three, have all the powers and functions of the Commissioner (apart from the power to delegate the Commissioner's powers or the requirement to furnish Parliament with an annual report).
While the ATO comes under the Treasury portfolio, and the Treasurer is responsible for tax policy and administration and for ATO funding, the Commissioner is entirely independent and not subject to ministerial direction. He is accountable directly to the Parliament for the general administration of the laws for which he is responsible, and for the general working of the ATO. Successive governments have been quite strong in arguing that the Commissioner's independence in this way is crucial in the administration of the Australian taxation system
The Commissioner and Second Commissioners are statutory officers appointed by our Head of State - the Governor-General representing the Queen. To date the Government has been prepared to listen to advice from the Commissioner, who consults with the Secretary of the Treasury, about the medium and long term needs of the organisation, and will also consider issues such as succession planning before making a recommendation to the Governor-General on any new appointment. As one of our Second Commissioners has just been appointed as the new Privacy Commissioner, the Government is currently considering a new second Commissioner appointment.
One could glibly say that these appointments are a key issue for tax administration, but there is much foundation for this statement. To date the Commissioner has always come from within the organisation, and notably, the majority have come with a high level of experience in tax administration, and in particular, direct experience in tax policy and legislation. In recent times, however, some Second Commissioner appointments have reflected some different skill sets. This flexibility has facilitated a higher profile in major change areas, eg Human Resource Management and child support responsibilities.
There has also been a bit of a push, primarily of a political nature, to make changes to this system. And while there have been attempts to find a Commissioner from the 'external environment', at the end of the day the Government has always come back to the home grown model.
The Joint Committee of Public Accounts (JCPA) Inquiry into the Australian Taxation Office in its report 'An Assessment of Tax', Report 326 (a copy of the Committee's report has been sent to you), challenged the ATO management structure and proposed that an Australian Taxation Commission be established. Underlying this recommendation were Committee concerns that there be greater opportunity to bring in externals as Commissioners to inject 'opinions and strategies developed externally to the culture of the ATO' The Government of the day was strongly against the recommendations on a number of grounds:
* many of the Committee's concerns were already being addressed
administratively, in particular, private sector recruitment and
enhanced consultative processes,
* the Commissioner was already accountable to the Parliament and subject to Parliamentary scrutiny on an ongoing basis, and
* the creation of a Commission could compromise the Commissioner's fundamental independence
The current government, when in opposition, had also talked about appointing a board of management, but we are not aware of anything on the horizon indicating change. Indeed, it too, has recently come out in strong support of the Commissioner. Nevertheless, the upcoming appointment of a new Second Commissioner noted earlier will be the real indicator.
2.2 Corporate Governance
Corporate Governance was first introduced into the ATO for the 1995/96 financial year. It involves National Program Managers demonstrating the management of their portion of the business of the ATO by reference to a list of management disciplines, risk management behaviours and representations around internal controls and specific financial statement issues.
The framework we have used is consistent with those used in the UK, USA and Canada and follows the work associated with the Cadbury Committee in the UK.
The Cadbury Committee identified the analysis of five key matters as being essential to the effectiveness of corporate governance within organisations. These matters are:
* Is there an appropriate management environment?
* Is there an identification and evaluation of risks and management objectives?
* Is there appropriate information and communication?
* Are there adequate control processes and procedures in place?
* Does effective monitoring and corrective action take place?
The Management Environment
The Commissioner provides overall leadership of the ATO and undertakes all high level public relations.
The four Commissioners meet together on a regular basis as an ATO Executive. At these meetings, the Commissioners consider:
* Strategic directions for the ATO;
* Corporate Governance issues, with special emphasis on programme performance reporting;
* Senior Executive management (eg. resource allocation, performance agreements) and succession planning.
At both a collective and individual level, the Commissioners take overall responsibility for a range of strategic management issues including continuous improvement, external relationships, corporate planning and corporate governance, high profile business issues and major corporate initiatives such as the Charters and Information Technology.
My own area of responsibility includes driving tax technical excellence across the ATO.
I have given some details of our funding arrangements in Appendix 2. What I would like to focus on, is how we actually manage our resources and commitments.
The ATO has a changing but structured management environment that is designed to support the Commissioners in achieving the planned objectives of the organisation within the accountability process imposed upon a public sector agency. The Commissioners are assisted by the ATO Management Board, which helps to establish the strategic direction and priorities of the ATO and to provide the financial and policy framework for achieving the ATO's purpose and challenge as set out in the ATO Corporate Plan.
Membership of the Board currently includes the Commissioner, Second Commissioners, all National Program Managers, three Deputy Commissioners representing the branch offices, and a representative of the Community and Public Sector Union. A limited number of sub-committees of the Board focus on high level issues, eg Audit and Security, HRM, Finance and Resource, Business Systems.
Resources have generally been dispersed to Business and Services Lines in accordance with the activities they undertake. This is subject to an overview of priorities assessed within each Business and Service Line and between competing Business and Service Line activities. The original functional/geographic arrangement of the management structure is now being rapidly replaced in a number of the Business and Service Lines by arrangements oriented towards activities or process streams taking place within these Lines. These arrangements are emerging as the ATO responds to balancing external factors such as contestability and outsourcing and changing taxpayer behaviour, and matters with an internal focus including reduced funding, changing technological capabilities and competency profiles. The increasing recognition and measurement of major risks to ATO business activities has also influenced the change in structures. These matters are discussed in more detail later.
The management structure now emerging will promote and strengthen accountability for outputs and outcomes of activities the ATO performs. There is scope for increased emphasis on the education of managers and supervisors as to the nature of their role in an ATO that will continue to change its strategic focus in response to the demands placed upon the organisation. There is a need to embrace better performance management across the ATO while retaining integrity and enhancing ethical behaviours in the organisation. While there has been significant investment in training programmes and management education, the competency profile of staff needs to be further aligned to meet the changing business needs of the ATO.
The Corporate Plan and subsidiary Business and Service Lines plans are the main vehicle for aligning ATO objectives to specific outputs and outcomes. Business and Service Lines plans are approved by the Commissioners as part of the Corporate Governance process. Within their plans the Lines can respond to changing priorities and emerging risks by redefining resource usage.
A refocusing and repositioning of both Corporate Services and IT Services is being undertaken to provide services to the other Lines on a needs basis and to respond to issues of contestability and possible outsourcing. These changes represent opportunities for improved outputs and outcomes associated with any level of resource inputs. But we are also conscious that they also represent a source of possible confusion and conflict unless the changed structure and objectives of these service lines are clearly understood and accepted within the ATO. We still need to ensure that there are agreed procedures governing the new Line relationships that will result from these changes.
Identification and evaluation of risks and management objectives
The ATO is in the process of implementing a comprehensive risk management process that has the objective of ensuring that key business risks are recognised in a timely manner. The HOTSA (Health of the System Analysis) reporting conducted in 1994/5 and, to a lesser extent in 1995/6 was designed to identify emerging risks to ATO business activities and in particular, compliance risks. HOTSA outcomes and priorities were carried into the objectives of the Corporate Plan and associated resource allocation processes. Additional to the HOTSA process some Lines have also adopted a risk based approach to their business responsibilities and activities in an effort to better detect and react to emerging trends and risks.
Information and communication
The ATO has two strategic assets that determine the boundaries of its capabilities; firstly the competence, integrity and ethical behaviour of its employees, and secondly, the reliability and relevance of its data bases and management information systems.
Information systems utilised by the Lines are generally regarded as reliable.
They provide the basic information to run the business and are not subject to systemic failure. However, in some cases the systems are old and increasingly difficult to maintain and support. These systems need upgrading or replacement to meet new organisational structures or information needs. Lines have noted the need for improved information systems to provide better financial and non financial data that aligns to their activities and business needs. The Lines are also cognisant of the issues of data quality. The restructuring of the IT Services group and the associated business systems group is still being developed. A number of risks may emerge within the ATO in the process of adopting the proposed new structure.
The ATO, through its Lines, has utilised the information systems to develop a range of measurement indicators to monitor key performance objectives. These operational performance measurements and other key indicators cascade down to activities and are reported and examined on a continuing basis by the executive management of the Business or Service Line
In the changing business and operational environment of the ATO there is a concern that operating performance standards may be inappropriate as measures of performance and not correctly aligned to changing business objectives. These matters are being addressed each time there is a change in the activities or structure of a Line.
We also recognise that the financial information systems of the ATO need to be upgraded and improved with the capacity to provide more relevant and timely information to the Lines. The ATO, through Financial Services, is committed to a programme embracing accrual accounting and reporting by Lines on a regular basis. This will underpin specific management accounting practices that will allow the ATO to measure operational efficiency and demonstrate contestability where required.
Control processes and procedures
The ATO is mindful of its public sector accountability and the need to comply with laws and regulations. Control processes and procedures in place generally ensure complete and accurate accounting, appropriate authorisation limits and reliable data processing, limit exposure to loss, ensure compliance with laws and regulations, and encompass a review process to validate that this is occurring. Commissioner's Directions and other policy and procedural initiatives support finance directions and regulations aimed at promulgating service wide control processes and accountabilities.
Major business systems within the ATO have been developed through ATO Integrated Systems Development Methodologies (ISDM) and have been managed and monitored by the Business Systems Management Committee, a sub-committee of the ATO Management Board. As part of the design process, procedures are embedded in the system to ensure complete and accurate data. Comprehensive reconciliation processes have been adopted to supplement system controls that ensure completeness and accuracy. Input controls are designed to ensure complete data and exception reports are generated for data outside certain specific ranges. For major business systems systemic failure is a rare event - they are reliable given the limitations within which the systems were designed to function. However, problems arise where control processes associated with input quality are weak or do not exist, and other controls around the system itself are ignored or are not completed in a timely fashion. Business and Service Line operational priorities sometimes overlook the importance of these controls and the level of resources and competence needed to consistently apply them - although the problem may be partly resolved by more advanced technologies and associated systems that the ATO is acquiring.
The Lines have developed a range of auxiliary information systems to support and supplement their special business needs. These systems are often relied upon by staff to complete important activities and are utilised to measure and control certain key matters. However they are not always aligned or reconciled to existing systems or processes, or constructed and maintained with a rigorous regard to the need for control processes and procedures that will ensure completeness and accuracy of the systems. Again, we are looking at how we ensure there is a better understanding of the linkages to other systems and of the essential need for controls within such systems.
We have found that the structure of the ATO, its size and the complexity of its functions does create practical problems for ensuring proper authorisations and delegations are in place at all times. This problem is currently accentuated by the changing roles and responsibilities of Lines and employees. Despite authorisations and delegations being regularly revised and revisited it is inevitable that occasional difficulties will arise in this matter. Officers are often unaware of the authorisations and delegations that go with their position and the circumstances under which they should exercise them. This is a matter of continuous education. The ATO has provided staff with widespread delegations but these are subject by guidelines as to the level of delegation officers should exercise. Introduction of a proposed Financial Management Act will assist the ATO to better manage this matter. However constant reassessment of the level and value of delegations and authorisations will continue to be necessary.
ATO systems and procedures generally specify controls that limit exposure to loss of assets and/or records to fraud. The nature of the secure environment within which the ATO operates is not conducive to significant loss of assets or records. There is some doubt about the veracity of historic records associated with assets which could mask other problems associated with particular categories of assets. This matter is being investigated at this time. An education programme relating to the control and management of assets is planned.
The ATO Internal Assurance function includes both internal audit and security functions. The activities of this group are guided and directed by the Management Board Audit Subcommittee. Internal Security operates to provide effective fraud control responses when alerted by system controls or other non system information as to possible fraud or unauthorised activities. Internal Audit provides a review function over all ATO business systems, policies and procedures. Notwithstanding the activity of Internal Assurance, the ATO is only now developing an integrated fraud control plan.
The ATO is implementing enhanced quality assurance and continuous improvement processes. It is not possible to indicate what significant results have come from these processes at this time. However, over time such initiatives will be of significant benefit to the promulgation and promotion of control processes and procedures.
Monitoring and corrective action
The Commissioners are supported by the Management Board and its sub committees in the monitoring of organisational and financial performance of the ATO. The functionality of sub committees allows for close scrutiny of particular issues within their charter. All bodies meet regularly throughout the year. Each Business and Service Line has an executive board or committee who, along with the National Program Manager, oversee the activity of the Line. These boards meet on a regular basis and are responsible for the Line achieving its corporate goals and business plan objectives. Cascading below each Line committee or board is a variety of sub committees, groups or working parties charged with specific responsibilities, with some mirroring the sub-committees of othe ATO Management Board.
The Corporate Plan
The 1995-98 Corporate Plan sought to provide a clear sense of direction and framework for improving our performance by establishing broad approaches for getting from where we are to where we want to be. 1995 also provided greater opportunity for people to plan their activities as this was the first year we were able to provide for three-year budgets for each of the Business and Service Lines.
The plan includes a range of initiatives designed to respond to the environment in which we operate and documents what the organisation sees as crucial to remaining successful. In particular, we identified the need to be open and dynamic - an organisation open in its relationship with the community and in our relationships with each other, and open to innovation and change. We also recognised the need to ensure that we had a co-operative management style where we supported each other with a clear and shared focus on how we are managing the tax, child support and superannuation systems for which we were responsible.
The focus of activities was outlined to staff and the community as:
* to improve compliance with the various laws we administer -
because improved compliance means more effective collection of
revenue properly payable and greater success in meeting policy
objectives in areas such as superannuation and support for children
of separated parents;
* to reduce the cost to the community of meeting their obligations - because addressing concerns about compliance costs means that compliance will improve and community co-operation will increase;
* to act fairly and professionally - because acting fairly and professionally will increase the community's willingness to comply and create a positive attitude to our operations; and
* to achieve a committed and productive workforce - because only committed and productive staff will achieve our objectives.
These focus areas have been reinforced in our 1996-99 Corporate Plan ( a copy was sent to you). You will see that this plan focuses even more attention on understanding and meeting future challenges and I will talk more about this a little later.
2.3 Accountability and Scrutiny
I mentioned earlier that the Commissioner is directly accountable to Parliament and is subject to Parliamentary scrutiny on an ongoing basis. The Commissioner presents Parliament with an Annual Report detailing the year’s administration under the tax, child support, and superannuation guarantee laws, and more general information regarding the departmental management. At Budget time the Treasurer presents to Parliament what are known as Portfolio Budget Statements to Parliament. ATO information, included in the Treasury Portfolio Budget Statement, includes:
* summary of outlays, including budgeted and actual running costs
(salary and administration);
* major vaiations in expenditure over the previous year;
* a summary of the related budget measures; and
* the performance outcomes for the previous year and performance forecasts for the next year by Business and Service Line.
The Senate Economics Legislation Committee sits soon after the Budget at hearings we refer to as ‘Senate Estimates’. Through Senate Estimates the Parliament reviews the Budget Statements, our Annual Report, and any other material Committee members have regarding tax administration, including everything from new legislation and media comments, to constituents’ complaints, and at Public Hearings question the Commissioners and other senior staff on any issues they want clarified or areas of concern.
From time-to-time Parliament will, through special purpose Committees, such as the Joint Committee of Public Accounts (JCPA), the Senate Economics References Committee, and the Finance and Public Administrative References Committee, undertake more detailed inquiries into aspects of administration. Of considerable significance, has been the 1993 JCPA inquiry into all aspects of ATO administration (a copy of Report No. 326 : An Assessment of Tax was sent to you).
The Parliament also looks to the Auditor-General for assurances that government agencies present financial statements which fairly represent their financial position and which comply with relevant laws and standards, and that they perform their functions efficiently and effectively.
The two most recent reviews into ATO operations undertaken by the Auditor-General related to client service and debt collection activities. (I have sent copies of these reports to you so that you can see the nature of this type of scrutiny.) In essence, it is similar to the scrutiny undertaken by your General Accounting Office.
The Commonwealth Ombudsman has always played a role in investigating and resolving complaints taxpayers have made against the ATO.
Following on from recommendations of the JCPA Inquiry, the Commonwealth Ombudsman established a position known as Special Advisor on Taxation with expertise and resources dedicated to taxation complaints - everything from technical legal issues, to the fairness of ATO actions and procedures.
Over the last financial year the number of complaints the Ombudsman's Office received rose. We believe that part of this is due to the improved public awareness of the Special Tax Advisor and his role as an external review of problems taxpayers and others experience in their dealings with the ATO.
The number of complaints to the Ombudsman about both the ATO and CSA are small when compared to the total number of clients; however, we are concerned about the rising trend, and, as part of our effort to be fair and professional, we are implementing strategies to reduce the volume of complaints.
I shall talk more about some of these strategies later.
I am happy to note, however, that in a recent Ombudsman's review into actions by the ATO, which criticised ATO processes in a particular case, the Ombudsman noted the Commissioner's willingness to act upon her recommendations, highlighting the ATO's capacity to follow through on its commitments to client service through the upcoming Taxpayers' Charter.
Aside from investigating particular complaints, the Special Advisor has been assisting the ATO in the development of improved work practices and procedures. He has, for example, been actively involved with us in developing the Taxpayers' Charter and helping the ATO develop an effective internal mechanism for reviewing complaints. He is also reviewing arrangements for recording and monitoring private rulings.
The Child Support Clients' Charter and the Taxpayers’ Charter, when finalised, are seen as important vehicles for accountability to the community. Through these Charters, the ATO will be committing itself to Parliament and the community in respect of published service standards, and our performance against those standards will be presented to Parliament in the Annual Report - I will talk more about the Charter when I get to service initiatives.
2.4 Relationship with Treasury and Office of Parliamentary Counsel
We seem to be a bit unique in the way we are structured for handling legislative work. There is a split between ATO, Treasury and Office of Parliamentary Counsel responsibilities.
Treasury is responsible for macro policy and we work closely with them. In addition to providing technical advice to Treasury and Government, our responsibility is to consider policy from an administrative perspective and have particular regard to compliance cost impacts of proposals. Treasury and the ATO meet regularly to discuss tax policy development and consider options for Government consideration.
The Office of Parliamentary Counsel (OPC) reports to the Attorney-General. It has responsibility for drafting all Federal (including tax) legislation. We also work closely with OPC, providing drafting instructions and working through the draft legislation, and preparing explanatory memoranda and other material for the Parliament.
We believe this arrangement works well - it allows for the development of high levels of specialist expertise.
Our Tax Law Improvement Project is looking at best practice for law development. The current model has Tax, Treasury and OPC staff, together with externals, working together in the same office - still specialising in their respective fields but focusing on matters as a close team. Aside from the obvious benefits a team approach can provide, another major advantage this way of working has over the normal system is that resources, in particular OPC resources, are being dedicated to the job at hand. The normal arrangements see the ATO competing against other government agencies for scarce drafting resources, especially when there are limited numbers with the highly specialist knowledge of tax law.
At another practical level, where once legislative development was the ambit of a small band of staff in the Legislative Services Group, located in our National Office in Canberra, (and now part of Tax Law Services), Business Line staff around the country are now being included in what we refer to as the 'law improvement loop'. The new programme structure enables staff at the 'frontline' to get to know the client needs, and to also develop a greater understanding of compliance and risk factors. They are, therefore, in a very good position to advise on the legislative requirements needed to support compliance. And in working more closely with the legislators they gain a much greater understanding of the policy and purpose of the laws.
2.5 External input to planning and administration
It is not sufficient for us to rely on what we think we know about clients or clients needs. I cannot overstate the importance we place on consultation with the community.
The ATO sees appropriate, effective and efficient consultation with key players in the tax, industry and other arenas as an essential element of its strategies for the future. Open and effective consultation will continue to be a cornerstone of the ATO's future plans for tax administration, with liaison forums being a major means of facilitating that consultation. To develop even stronger strategic alliances with the community the ATO now sponsors over 50 joint consultative forums which include taxpayers, business and community groups, and representatives of the various tax, legal and accounting bodies. (Details on Consultative Committees are at Appendix 3.)
A little more than 10 years ago our tax administration was built on a system of full assessment. The focus was on processing, but we couldn’t keep up. In 1986, the Auditor General noted that the ATO had got itself and its computer systems into a time warp. Knowing the benefits the introduction of computers had made, we first saw the answer simply in the building of a bigger computer. It didn’t take long for us to realise we had to modernise our whole administration. Taking advantage of advances in computer technology was only one aspect of this. We needed to upgrade our accommodation to house new equipment, work practices and business systems needed to be re-designed, and staff skilling needed to be re-focused to meet these changes.
It also became apparent that we also needed to move the organisational culture from that of a paper processing factory environment towards one of a professionally oriented, knowledge based service provider. It was probably about then that we first started to focus on the different needs of different clients, initially through decentralisation and then through market segmentation.
In 1987, the Joint Committee of Public Accounts gave in principle endorsement to costly remedial action - the ATO’s modernisation programme. Spurred on by these and other influences, the ATO set course on a 10 year programme to build the modern, world class, ATO.
It may help the Commission if I set the scene with a little more detail of the ATO environment that existed in the mid 1980’s, which led to the modernisation programme and the associated massive change that has since occurred.
3.2 Pressure for change
ATO culture in the mid-1980’s, like that of other large organisations, was conservative, command and control based, and traditional. It was highly ethical and built around secrecy, with extreme loyalty to the ATO leading to very much a ‘them and us’ attitude to taxpayers generally.
ATO staff tended to resist admitting to others that they were tax collectors. There was no broadly perceived link between taxes and their uses by Government for provision of services for the community.
Managerial style was predominantly hierarchical, and managerial and supervisory behaviour revolved largely around checking the work of subordinates, with managers not exhibiting trust in their staff. Once again, this was symptomatic of the power culture which had existed in many organisations until this time.
In line with the predominant industrial culture, relationships between ATO management and unions were poor.
Business as usual required emphasis on a range of tax avoidance schemes while still maintaining our revenue collection mission, leaving little or no time to progress with the new management approaches which began to evolve.
We were under utilising our people resources in that many of the professionals were involved in the factory line work of assessing and processing tax returns. Staff were encouraged to do what they were told. This did not include thinking or looking for better ways of doing things. For many staff, jobs were fairly narrowly defined.
To a large extent, the ATO was process oriented, exhausting much of its resources on scrutinising taxpayer’s returns and issuing formal assessments - often a long while after returns were lodged. Service tended to be reactive and focused around general enquiries, advisory tours to outlying regions, a limited amount of printed material, some generated as a result of taxpayer objections or appeals. Even advisory material, such as our tax form guides, designed to assist taxpayers provide us with detail so we could assist them, were difficult to follow compared with the information we now provide.
In the service ‘game’ however, we were probably not so different to large financial businesses like banks and insurance companies.
Little consultation occurred with external taxpayer groups to ascertain the level of service they required in order to comply with the law.
In short, improving service received limited attention from the viewpoint of improving voluntary compliance.
The pervading attitude during these times was that ‘everyone’s a tax cheat’. The tax avoidance years in the late 1970s had been a searing experience contributing to this.
Audit activity was largely reactive with case selection being based on return information only, rather than data from external sources. Few activities focused on promoting voluntary compliance, with large numbers of resources being devoted to tax avoidance schemes.
Accommodation in the ATO had generally been poor, especially when compared with standards and facilities across the Australian Public Service. Typically, branch offices were very large, few in number, located in multiple buildings and suffering from poor standards of fit out and facilities - and they were incapable of accommodating the new technology that was so clearly to become central to our operations.
The ATO commenced major usage of computer equipment in 1966.
By 1976 a National Taxpayer System had been implemented. The development of this system, using structured design techniques, was considered at the time to be a world-leading example of the use of modern development techniques. The implementation provided the ATO with increased processing capability and reduced costs of collection.
However, the design of the National Taxpayer System was carried out in an environment where -
* the major concern was processing efficiency, to achieve client
service of an assessment kind only;
* general purpose data base management systems were in their infancy;
* large systems development techniques were also in their infancy;
* the potential of major new government initiatives requiring systems support was not a consideration; and
* the cost of storing data on electronic storage devices was high.
These factors resulted in -
* a batch processing environment that did not allow on-line
updating of files - hence the constant resubmission of returns
through returns processing staff where computer errors occurred;
* high reverse workflows resulting from systems constraints that did not allow the correction of errors on-line;
* an inflexible system that made it difficult to integrate new tax system requirements;
* file designs that were difficult to enhance - file reorganisations were costly and a major task.
* a high dependence on data entry operators for input, and pools of clerical staff for the distribution and processing of output; and
* until a limited on-line enquiry facility was developed, current taxpayer details were not readily available when needed.
The infrastructure put in place in the mid 70s was upgraded several times, and the computer systems were further developed and expanded over the years.
During the early 1980s, rapid advances were taking place in the computer industry. Developments were occurring in equipment architecture, general purpose data base management systems and systems development techniques that could provide the tools necessary to build flexible systems that would meet the needs of users and clients.
However, the ATO with its largely internal focus, was still preoccupied with maintaining business as usual while coping with tax avoidance schemes. Inadequate resources were invested in the investigation of evolving technologies.
When it became apparent in the mid 80s that the ATO’s computing systems were no longer meeting the needs of the users and that they were incapable of being changed to do so, the opportunity of updating the existing technology had been lost.
In 1985 the ATO concluded that there was a need to change its whole approach to the use of technology, and this required a total re-equipment programme that would support the redevelopment of ATO business systems, along with the automation of administrative functions.
External Pressures for Change
At this time, the ATO also became more aware of the environment in which it was placed, progressively realising it could no longer ignore the impact of societal change on the organisation. Staff being recruited were different. Women had re-entered the workforce in large numbers, Australia’s education system encouraged people to question the status quo and equipped them to do so, and mass telecommunications supported an information explosion. These developments switched people on to political issues and processes, offering them alternative perspectives and new ways of doing things.
As a result, people became more aware of their rights both inside and outside the ATO and they demanded the rationale and motivation of management action. The Australian public were expecting quality service and more accountability and openness from the Government.
In short, there was enormous pressure on the ATO to change on a number of fronts -
* the ATO was entering a period of dramatic reform of the taxation system following years of legislation of essentially an anti-avoidance kind. The schemes era was at the forefront of everyone’s mind and the backlogs that it had generated were both large and evident;
* the ATO found itself subject to a degree of criticism from the tax professionals and other external groups. We were seen as something of a closed shop and that sort of criticism was to remain until we opened our doors;
* the ATO was subjected to an extensive external scrutiny of our administration by the Australian National Audit Office (ANAO) leading to acceptance of a recommendation that there be a Programme Performance Review; and
* the 1984 Australian Public Service (APS) reform agenda required the ATO to implement Equal Employment Opportunity (EEO), Industrial Democracy (ID) and Financial Management Improvement Plans (FMIP). We were also required to implement flatter structures and amalgamate clerical and professional staff into a single classification division of eight levels.
Adopting Modern Management Theories
Equally important to the APS reforms and the pressures they brought to bear on the ATO was the general management scene where management practices during the 1980s saw a growing focus on people. Consultation became more important as a way of engendering ownership of the many organisational changes occurring.
So by the mid 1980s the ATO had started a process of challenging what we did and why, in order to ensure that we made the most efficient use of resources. The ATO modernisation programme was thus born.
Details of some of the studies, plans, and systems developed are at Appendix 4. What I briefly want to touch on is the management of the programme and the future directions.
3.3 Programme Management
Our systems redevelopment philosophy was simple - to ensure that our redeveloped systems support achievement of the key elements of our mission and vision. As such our systems development work focuses on outcomes - what difference will they make -
* to the efficiency and effectiveness of the ATO’s revenue
* for clients (e.g. timeliness, accuracy and convenience of services and reduction in compliance costs); and
* for staff (e.g. improved support tools and work and job design).
Corporate management approaches also apply equally to the way we go about developing our systems so that, for example, there is a clear commitment to the involvement of clients and staff in the development process.
Establishing the Management Processes
The initial management focus was in drawing together and planning the numerous activities required to achieve a successful outcome for the modernisation programme. To assist in this coordination effort, a ‘Project Office’ was set up and overall responsibility for overseeing the programme was, after an initial period, assigned to a Second Commissioner. That initial work saw -
* development and implementation of project structures and
* development of overall project plans including establishment of the systems redevelopment schedule, initiation of a wide range of support activities categorised as enabling projects and plans for the major accommodation programme necessary to ensure that our buildings were suitable for the introduction of new technology. This accommodation programme was aligned with our decentralisation programme to further enhance the effectiveness of our operations;
* establishment of project reporting arrangements and financial controls;
* negotiation of the modernisation agreement with Unions; and
* negotiating ground rules for the management of the approved funding envelope with the Department of Finance.
The funding envelope approved by Government was based on estimates of required expenditure by appropriation, by year, over the 10 year life of the project. The cost effectiveness of the project was based on the delivery of the modernisation dividend under which the equivalent of 3000 less staff would be employed by the ATO by 1997-98 than would otherwise be the case. (At the time, this represented an overall reduction of around 20 percent of ATO staff.)
It was recognised early on that, given the extended life of the project, there was a need for flexibility in the management of the funding envelope to ensure that money could be spent most effectively in achieving outcomes. For this purpose, arrangements were negotiated with the Department of Finance to enable movement of funds between appropriations and, as necessary, between years. Similarly, the agreement provided for deferral or advancement of payment of the modernisation dividend. To ensure the continued cost effectiveness of the project a system of interest debits and credits applies to any movement of funds or of the dividend between years.
ATO management was obligated to report every six months on progress with the project, as well as conducting an extensive mid-term evaluation in 1994.
3.4 The Modernisation Agreement
The Industrial Relations Act 1988 in force at the time made provision for agreements between unions and employers to be certified and formally recognised in the Industrial Relations framework. The ATO and the Public Sector Union had the first such agreement in the public sector - the ATO Modernisation Agreement - endorsed by the Industrial Relations Commission on 23 March 1990.
This agreement was developed following the recommendation by the Joint Committee of Public Accounts who reviewed the then proposed computer system re-equipment and redevelopment programme of the ATO in 1987 (Report No. 287)
The Committee expressed concern that industrial relations difficulties experienced with the implementation of other large ADP projects should not be repeated with the ATO’s re-equipment and redevelopment project. Moreover, the Committee believed the ATO should be fully prepared for contingencies that may arise in the industrial relations area. The Committee also stated that the ATO should continue to give careful consideration toward the achievement of an agreement between itself and unions and to the ramifications of this not occurring.
One of the key elements of the Agreement was the degree of staff involvement in the process via both union representation and direct staff involvement. We anticipated that the likelihood of disputes over implementation of the Modernisation Programme would be greatly reduced by such involvement as well as a number of protective measures included in the Agreement.
The ATO Modernisation Agreement also covered agreements on realisation of staff savings; no compulsory redundancies; use of contractors, consultants and temporary staff; movement and relocation of staff; recruitment mix in the ATO; staff training and development; accommodation standards and fit out; occupational health and safety; equal employment opportunity; facilities for unions; and union involvement in the Modernisation Programme.
The Agreement was a significant occurrence in union and management relations in the public sector in Australia and was widely seen as a landmark in this field. Its making and interpretation rested heavily on already established patterns of management/union trust and cooperation.
And I might just mention that following on from this successful union agreement, the ATO was one of the first agencies in Australia to enter into a more general Agency Bargaining Agreement which recognises the role of unions in the success of the ATO. ( I believe you have a copy of the current ATO Agency Bargaining Agreement.)
3.5 Efficiencies Achieved
Improved service delivery, increased compliance, some reduction in compliance costs and tax administration efficiencies have resulted from modernisation of the ATO’s business systems.
As noted earlier, a condition of receiving the funds for this major modernisation initiative from Government was that the ATO return staff savings to the Government, equivalent to 3000 staff, in accordance with an agreed schedule. This has been done and, along with other efficiency dividends that have been delivered to Government, sees the ATO with around 25-30% less staff than it might otherwise have needed.
The introduction of the Electronic Lodgment Service (ELS) has reaped substantial benefits in terms of improvements in efficiency (staff savings from reduction in error rates and rework and reductions in costs associated with paper handling and storage, printing and distribution of forms). In 1995, 71% of ELS returns were processed without any manual intervention. Prior to the introduction of ELS, 80% of individual ELS taxpayers returns were processed within 10 weeks of receipt. A performance objective of processing at least 80% of individual tax returns within 14 days was originally established. This level of performance was exceeded in the first year of operation. The standard has now been set at 90%, with almost 95% of returns currently being processed within a 14 day period. ELS has achieved a fivefold reduction in the time to process returns. At the same time, the cost of processing returns has also been reduced by a factor of five.
The Automated Document Dispatch (ADD) centres have produced staff savings, postal discounts (through pre-sorting of notices by postcode), reduced stationery costs and a better quality product.
Pre-modernisation (1989/90), the cost of taxation revenue collection was $1.04 per $100 revenue raised. This rose to around $1.26 per $100 revenue collected in 1991/92. Largely due to compliance improvement and efficiency gains in administration, for which technology has been a major contributor, it is projected that this cost will decrease to around $0.80-85 per $100 revenue collected by 2000.
Benefits to clients from the ATO Integrated Systems (AIS) include improved co-ordination of internal actions, clearer communications with clients, easier enquiries, a simplified registration process, earlier crediting of payments to taxpayers’ accounts and faster processing of returns. Clients have also benefited from more uniform and consistent treatment of issues through AIS and in terms of technical advice provided though the use of the Tax Technical Database.
3.6 Future Directions
Taking advantage of opportunities arising from emerging technologies will be the next significant change in the way the ATO makes use of technology for the administration of the Australian taxation system. Such technologies have the potential to transform the way government business is conducted. Electronic service delivery to homes, businesses and other points of contact, will enable improved customer service and accessibility to services, at the same time as reducing administration costs for the organisation.
Specifically, delivery of information to ATO clients is being examined using the Internet and other communication networks such as the ELS network for tax agents. The ATO has established a presence on the Internet and is publishing taxation rulings and other static information through this medium. As a next step electronic commerce, electronic forms and Email capabilities with clients are being explored. In the longer term, the developing multimedia technologies are seen as providing new opportunities such as interactive provision of taxation advice.
The Australian Federal Government is currently investigating options around improving service delivery to the Australian community and streamlining government administration through adoption of ‘whole of government’ approaches to service delivery. This is likely to see the creation of one stop shops and electronic interfaces such as kiosks delivering services seamlessly on a whole of government basis. The ATO anticipates being actively involved in these whole-of-government projects (with the AIS supporting such future directions).
To facilitate electronic transfer of data the ATO has been involved with other Government agencies and Standards Australia in the development of an Australian Data Standard. Adoption of this standard will result in decreased compliance costs for clients, improved data quality and the ability of agencies to share information.
Looking back, I guess this was also the period when we first started to look at taxpayers as clients or at least from a client perspective - stepping outside the organisation and asking ourselves "well, if they were clients, what are the things we need to do to help them meet their obligations". And as we had to break up our bigger offices - decentralise - what better way of doing it but to consider where our 'clients' were.
As we progressed we focussed on market segments and started to recognise that the needs of different taxpayers were quite different.
4.1 Structure Review
In 1993, the ATO Management Board decided that, in view of the rapidly changing world in which we were operating our organisational structure should be examined:
* does it work?
* is it current?
* is it flexible?
* will it serve us well through the rest of the decade?
Significant changes had occurred since our last review in 1986 when a structure along functional lines was implemented. Changes have been:
* decentralising - moving from 12 to 25 Branch Offices;
* acquiring new work - including Child Support, Training Guarantee (currently suspended), Higher Education Contribution Scheme, Superannuation, etc.
* moving to Self Assessment; and
* new technology/systems - such as the Electronic Lodgment Service, Automated Dispatch, Collection System Modernisation.
We set up a team including staff, union representatives and external consultants - the Boston Consulting Group. Their task was to analyse the role and effect the organisational structure had in achieving corporate goals and directions and to make recommendations on their findings.
The direction established for the organisation can be summarised in the use of the term ‘client focus’, which is in turn reflected in the key strategy developed for the organisation. This strategy looks to establish a holistic approach to our central role of improving compliance starting with understanding taxpayers’ needs and behaviour and the reasons for compliance or non-compliance, and then determining the appropriate strategy for improving compliance through enforcement, changes to the law to improve collection systems, or a mix of those.
The Review Team found that the current structure had some strengths that should be preserved. These included the Child Support Agency with its client focus and record of compliance achievement; our ability to effectively implement new Policy, and the commitment of our staff to achieving corporate goals.
The main weakness of the structure was that grouping of tasks based on similarity of function failed to reflect our key strategies. Compliance improvement is the core of our business. Our strategies had evolved to a holistic approach to particular taxpayer or client groups but our structure largely ignored that approach by organising around individual functional elements.
What was happening was that a lot of energy was being expended in attempting to implement and co-ordinate compliance improvement initiatives working across functional groups, programmes and Branch boundaries. Accountabilities for achievement of ATO objectives were fragmented across these boundaries and led to conflicting demands and priorities. Issues quite often ‘fell through the cracks’. Decision making was also complicated as problems seldom had a clear owner and their resolution often required a number of stakeholders to participate in the process. Trevor Boucher, our previous Commissioner, was often heard to say "Just once, when I have a problem, I would like to see the whites of one pair of eyes, not twenty pairs of heels". Exceedingly also functions were being performed regardless of whether they were addressing the highest risks, or even whether they were adding any value at all.
4.2 Reasons For Change
The specific reasons for change encompassed a number of elements/themes which were common to each Functional group.
Compliance Improvement/Client Focus/Business Direction
Functional groupings promoted a focus on performing a single function, overlooking the process as a whole and the client with whom we are dealing. The ATO’s objective was to ensure that the new structure reflected and supported a broad direction of compliance improvement and allowed work to be organised in such a way that we could continually learn more about our clients and their behaviour. We recognised that we needed to gain a better understanding of all aspects of our clients - what they have to do for us in ‘total’ and what we have to do for them to enable us to meet our corporate objectives. There had to be clear lines of responsibility and accountability for outcomes leading to more productive use of senior management.
Inconsistency in tax technical advice is perceived as a major problem by taxpayers. Structure was an important factor contributing to inconsistency in tax technical advice. (A case of the left hand not knowing what the right hand was doing because they are not sufficiently connected?) Decentralisation also contributed significantly to the dispersal of technical services. As staff moved into smaller workgroups spread over a number of different geographical locations, loss of critical mass impacted on tax technical service response time leading to markedly variable levels of service between Branches.
Career Paths/Mobile Work Force
Technology has and will continue to have a significant impact on our processing areas. Many positions which currently exist will become obsolete with the introduction of new technology, yet staff performing those duties do not identify with any area outside of their traditional processing unit and have failed to broaden their skill base to enable integration into other areas. Staff were focusing on the skills and abilities they required to perform their immediate duties without considering the links between work they were doing and work performed in other groups.
Our ideal is to create a learning culture in which all staff understand and accept both their role in their own learning and the training and development of their colleagues. An environment where learning and work are integrated. The narrow functional boundaries of the former structure impeded this and reduced our ability to be flexible and responsive.
With 25 Branch Offices there was a definite need to develop a regional focus and foster co-operation between Branches. The former structure made it difficult to obtain resources across programmes and branches which had the potential for issues to get ‘lost’ in the structure or result in duplication of effort. The role of the Deputy Commissioner and senior staff needed to be redefined to reflect a shift from programme/geographic focus to reflect the concept of a single ATO whose primary focus is compliance improvement. By improving links, we could effectively optimise information sharing and use what we learn about our clients in a timely manner to maximise compliance.
The span of control was too wide to ensure effective decision making. Lines of communication failed to achieve consistency of ATO culture, strategies, business priorities and customer service.
By identifying ‘natural’ groupings of clients or client responsibilities by reference to commonality of issues, approaches, needs, concerns, and problems we have aligned our structures along client segments. Market analysis and research over the previous five years had helped define market segments. So, the decision to realign our business along client groups based on this market segment approach was made. (Details of the Business and Service Line Structure is at Appendix 5.) As a result we are able to focus on divergent needs and fully address end to end customer needs. In time, it will enable us to establish standards/changes appropriate to customer categories within clearly defined lines of responsibility thereby increasing accountability. In addition, it provides a focus on costs and enables the cost of service provision to be readily quantified for each client segment. Most important, each Business Line was given the resources to address all of the needs of its clients, and was made accountable to manage those resources to achieve that outcome.
Other aspects of quality have been mentioned elsewhere, and I would like to now focus briefly on the issue of staff skilling which is critical to quality outcomes.
5.1 Staff Skilling
Quality technical decision making is fundamental to our business. Accurate and consistent decisions and their timely delivery are essential and equally important in achieving technical excellence and meeting the needs of our clients. The ATO recognises that we need to be responsive to the needs of our various clients for quality technical advice. The new structure, in particular the establishment of a tax counsel network, changed work practices and upgraded technological support provide a good foundation for improvements. An ongoing focus on staff skilling is also vital.
It is no secret that the ATO has suffered a significant loss of technical expertise over recent years, especially following major reforms in the tax and Public Service arenas. Our modernisation process also resulted in some technically skilled officers moving on to other work, although many of these are now more widely skilled ATO leaders. An added difficulty came from our inability to recruit for the first five years of this decade - one of the worst decisions we ever made.
The ATO is undertaking a major programme to address the imbalance in skills caused by these factors and achieve excellence in technical decision making. The challenge ahead will require a stronger focus on refreshing a range of technical skills that already exist in the organisation, complemented by development of wider skills in areas such as taxpayer contact, mediation, commercial and economic awareness, including international transactions. Although we already have some of the best tax technical people available in our country we will need many more into the future. In pursuit of this we will continue to strengthen our skills development programmes and next week will see the arrival of new staff under a major graduate recruitment programme.
Also crucial, will be our ability to keep these people and attract other highly skilled professionals - changes to our work practices to provide strong career paths, and the flexibility in salary structures envisaged by public service reforms should help. Other strategies to support a continuing supply of suitably trained and educated staff are described at Appendix 6.
When you stand back from all of these things, you understand that the ATO runs the biggest tax practice in Australia, and it must be driven by best practice - best practice in recruitment, in having a dynamic, flexible workforce, staff with appropriate qualifications, and with the opportunity for, and commitment to ongoing professional development. These things are critical, and in recent times, they have been a major focus of the ATO Management Board. As I mentioned earlier my own responsibility has been take these issues forward.
6. TAX ADMINISTRATION - TODAY AND FUTURE DIRECTIONS
So far today, I have outlined the foundations of our tax administration through developments in our management and programme structure, the impact of modernisation and reorganisation, and issues around achieving quality. It may be useful if I now touch on what that means in practical terms - how we operate, our future directions and how this all impacts on our service to clients. In the time available, I thought this could best be done by illustrating the directions being taken in one of our business lines, Large Business Income, which is responsible for large corporates.
6.2 Service delivery to corporate clients
Again, let me take you back in time, to reflect on the way in which corporate taxpayers dealt with us five years ago.
A system of full self assessment was operating. Nevertheless, for lodgments and extensions of time the client had to write to a particular area of the ATO for various approvals. If the client wanted technical advice in writing it then wrote to our Advisings area. Audit issues were dealt by a separate Audit section, and if it challenged an assessment this was dealt with in another area, Appeals and Review. Yet other people dealt with collection issues. I am here only talking about income tax and the situation was even more cumbersome when issues on other taxes had to be dealt with as well.
While the functional programme structure that drove these arrangements served the office well in its time it had two very major drawbacks. Firstly, it would never be conducive to good client service. The arrangements were more often than not ATO rather than client focused, and tended to produce inconsistent treatments between corporates within an industry, and across industries. And as not one area had a complete understanding of the operations of any client, it was virtually impossible to develop the commercial awareness and seamless operations needed to determine the most appropriate response to meet clients needs with the most efficient use of ATO resources. Functions were being performed regardless of whether they were addressing the highest risks or even whether they were adding any value at all.
Moreover, activities were centred on what was the then 'flavour of the day'. In the height of the large case programme, it was audits and their associated activities. The focus was on enforcement of the laws, and there was little consultation in those days. This pendulum later swung over to ‘help’ initiatives, particularly around the further self assessment measures that came into effect in 1992.
As noted earlier these arrangements were also creating their own problems in the ATO as the demand grew for us to significantly lift the quality of our service to assist taxpayers deal with rapidly increasing complexity and compliance burdens. Suddenly, cracks were appearing everywhere in our ability to meet taxpayer needs - the major one being that whenever a problem arose, it was seldom that any one area owned it. And as more and more things started to fall through these cracks, we began addressing problems in the classic way. With committees. Well, that was okay for a while, everyone felt good because they had talked about the problem and gained a better understanding of the issues - but it did more to convince people that the problem wasn’t theirs’ to fix. That is the so-called organisational chimney-stack dilemma which Rummler and Brache highlighted in their book about improving performance by including in its title the words ‘Managing the White Space on Your Organisation Chart’. Trevor Boucher, our former Tax Commissioner, put it another way when he said ‘Just once, when I have a problem, I would like to see the whites of one pair of eyes, not twenty pairs of heels’.
The ‘market segment’ approach has been carried down another layer in LBI for its large corporate clients who have been allocated to industry segments (headed by a Senior Executive Officer) responsible for ensuring that all matters relating to their clients are dealt with by the appropriate area. These industry segment teams are supported by a number of subject specialisation teams.
These arrangements will change the way in which large corporates deal with the ATO. In the future, each corporate will do business - whether in relation to a matter of interpretation, litigation, lodgment, or a collection or audit issue - with a single co-ordinating point in the ATO to obtain the service or advice it seeks.
Our Industry teams, with their emerging detailed knowledge of their industry, will gain the respect and confidence of taxpayers, the industry and professional bodies. As I have said, our large corporate clients will have an identified team to attend to their affairs, and for our largest corporate clients their Key Client Managers will continue to be part of that team. The Key Client Manager is another service initiative that was begun before our new arrangements were put in place and feedback received indicates overwhelming support, not only for the convenience it offers but also for the savings it achieves in costs of compliance.
It is impossible in the time available for me to talk in more detail about our compliance strategies. To assist the Commission, I have included at Appendix 7 some examples of how the Business Lines are approaching this.
Peak bodies will also have a reference point through the segment leader for their major industry issues where priorities can be agreed and solutions developed. I will discuss our community consultation in a moment.
The move to industry segments in the large business income market has enabled the ATO to further differentiate its approaches to match the particular characteristics of each of the segments. Our study of industries is also conducted on a risk assessment basis which allows us to compare the risks posed by each industry segment, and by different groups within it, against those of other industries. As a result we will be paying greater attention to those industries that exhibit the highest risk.
What this means is that these industries will receive more focused service to ensure that corporations within them understand and maintain their level of compliance. It also means that greater attention can and will be paid to cases where there is non compliance.
At the heart of our move to industry segments is the desire to become much more up-to-date with current issues, to refine our compliance strategies so that we identify and are aware of emerging risks and issues, and can quickly express the ATO view on them in a timely way. Where possible, we want to be in a position to ensure that people entering into business transactions know and understand the ATO view of the law applying to these transactions.
The ATO recognises that corporate Australia will, at an increasing rate, continue to deal internationally. These dealings will not be confined to the largest corporates - increasingly they will extend to small and medium business. Dealings will not only be in goods and services but also in financial products. Global trading will be a reality and overseas structures will become more prominent in tax planning. One only needs to consider the Internet and the manner in which it has opened doors to international transactions to understand this, even at the most elementary level.
Developments in electronic commerce have enormous potential to challenge international tax concepts such as source, residency and permanent establishments. It threatens to erode traditional tax bases and audit approaches and will require maximum flexibility and adaptability from tax administrations in dealing with it.
As with other developments in international tax the ATO recognises that solutions to the broad policy and administrative issues that electronic commerce raise can only be achieved through co-operation with other tax administrators.
The ATO has, for some time, been working with other tax authorities, including the IRS, and through international forums such as the OECD to develop the broad consensus that is necessary to resolve international tax issues. Indeed, the OECD is pre-eminent in providing tax officials with a forum in which international tax issues can be aired. Its meetings allow member countries to develop and adopt best practice.
The future will see an increase in exchanges and work being done in conjunction with the taxation authorities in other jurisdictions. The APEC - OECD International Tax Symposium held in Sydney late last year indicates the level of cooperation between us and our international partners. And while that Symposium obviously focused on potential threats to the revenue, it also spent time identifying emerging issues for the business sector, with the Australian Assistant Treasurer, business, corporate and professional representatives and government officials engaging in an exchange of views in a frank and open way that I am sure we will see more of in the future.
We see our work at the international level as having two main benefits; firstly it helps us become a more efficient and effective tax administration and, secondly, it helps to improve the way we work with clients. An example of the latter is Advance Pricing Arrangements which we would like to see more of in the future as they provide the best prospects for an open sharing of information, greater certainty for businesses, and an ATO that is better informed and able to serve its corporate clients.
6.3 Achieving excellence and consistency in technical decision making
The LBI Industry segments will, through new work practices involving specialisation of staff and tighter control of issues, promote accuracy and consistency of technical advice to corporate clients. LBI has also introduced escalation processes which ensure that complex technical issues are managed and resolved with the assistance of the ATO’s most senior technical officers.
All of these activities will be supported by technology that will provide staff with improved access to interpretational and precedent material including issues currently being addressed in private rulings and other technical advice. It will not be long before clients are able to lodge ruling requests electronically and access our own research facilities.
Other arrangements to support tax technical decision making include the Tax Law Services line which works in partnership with business lines to clarify the law, develop policy and implement the Government's legislative programme, and to create and maintain the ATO tax practice. Through these processes we are also developing a much more strategic focus on litigation as a means of clarifying significant issues of tax law, and expect in the near future to announce details of a committee with external representation to ensure we maximise that outcome. To this end also, the ATO Test Case Programme has been established to provide financial assistance to taxpayers involved in litigation likely to resolve taxation issues which are important to the general administration of the tax system.
The ATO will also continue building on the success of the rulings programme with the ongoing issue of quality and timely public rulings on major issues. The rulings will continue to reflect the rigorous testing of the ATO views during their formulation, and their enhancement through consultative processes and review by the Public Rulings Panel. A new International Tax Rulings Panel will bring the same disciplines and quality approaches to rulings on international issues.
All of the initiatives I have mentioned are aimed at improving the quality of our technical work and can only be enhanced by opportunities for ATO staff to improve their commercial awareness through greater exposure to the business sector. Our interchange programme is designed to facilitate this and results to date have been to the mutual benefit of both the host organisation and the ATO.
6.4 Continuing and enhancing our communication with the community
To better understand our corporate clients, LBI has established the Corporate Consultative Committee which comprises representatives of peak industry organisations and other bodies who are helping us develop working arrangements and co-operative approaches with industry. This committee will continue to have an influence in the way our overall approach to corporate clients is developed, and will be supported by building closer links with business and industry associations through the LBI industry segmentation structure I mentioned earlier.
Increasingly, corporate clients will join with the ATO in a strategic alliance to develop improvements on a range of issues. The area of International double tax agreements is one where we continue to seek views either on aspects of our treaties that can be improved, or on cases of their terms not being followed by other jurisdictions.
The Rulings Panels I mentioned earlier, which include leading external tax professionals, are another important means of ensuring ongoing consultation with taxpayers, industry, professional groups and the community.
Finally in this context I should again mention the Tax Law Improvement Project (TLIP) which has enabled members of the community, through industry and professional associations, as well as individually, to contribute to the rewrite of Australia’s income tax laws. The contributions that have been made so far have been most valuable and I believe we can all look forward with confidence to a law that will be easier to read and understand, and to comply with.
6.5 Increasing service through technology
As noted earlier, advances in technology such as the Internet clearly pose threats to our revenue and to compliance. But they also provide new opportunities to improve our service to clients and to bring our services closer to them. The Commissioner has proposed to professional bodies and others that we work together to shape the future and develop a better understanding of the impacts of technology.
We envisage corporate clients undertaking an increasing number of transactions with the ATO electronically. Initiatives such as electronic funds transfer, phone banking, interactive messaging and the ability to electronically register and lodge returns and forms will become part of an integrated package which will include lodgment of ruling requests and electronic payments.
The ATO is already working on providing an integrated package to enable employers to meet superannuation and group tax (Pay As You Earn) registration, payment, and form lodgment responsibilities.
Through technology the ATO will be able to make information more accessible to clients, helping them to better understand the tax laws and their responsibilities under them, including through access to our own interpretation and precedent material.
Technology will also allow the ATO to achieve efficiencies through electronically handling most of our current processing and general information dissemination. These efficiencies present the opportunity for converting the resources that are freed up into jobs that interact more directly with the community and in increasing our service level and reducing compliance costs.
More widely, corporates will be able to not only transact business electronically with the ATO but also with other federal and state agencies. Increasingly, there will be a whole of government focus on meeting clients’ needs. If these developments result in integration of reporting and payment responsibilities to various government agencies there will be substantial benefits to the business sector and to the community.
The ATO will be working with other Government departments to remove technical and bureaucratic barriers to a whole of Government approach. We will also develop ATO / Government / Industry alliances aimed at supporting Australian business at home and overseas. This will involve the ATO in working more closely with Australian business to achieve these outcomes, while still ensuring that the correct amount of tax is paid.
6.6 Bringing our service initiatives together under the Taxpayers' Charter
Finally, I would like to say a little more about the Taxpayers' Charter and its importance as a catalyst for change and as a means of bringing together our service commitments. The Charter is an important element in defining and setting in place the relationship we seek with the community - one that is based on mutual trust and respect.
As it is presently drafted, the Charter is premised on an open relationship with the community where the basis for our decisions is clearly understood, where the ATO commits to treat people fairly and professionally, and where accountability and review mechanisms are available. Importantly, it is also premised on recognising peoples' circumstances as individuals, and distinguishing between those who are seeking to do the right thing and those who are not.
The Charter will establish an extensive set of commitments to the community and Parliament in relation to the service and other standards which can be expected of the Tax Office. Importantly, it will also provide a readily accessible and responsive internal review mechanism with direct access to the Commissioners to help taxpayers obtain a review and have their complaints addressed. The Charter will also clearly articulate a taxpayer's rights to an external, independent review.
The Charter will be referred to Government for consideration in the near future. I expect its implementation to be the major focus of the ATO in 1997.
Along with a number of other initiatives, the Taxpayer’s Charter came out of recommendations of the JCPA.
It is another example of the means by which the operations of the ATO are continuously subjected to wide ranging scrutiny which we welcome as a significant part of the mechanisms by which we are ultimately accountable to the community.
6.7 Tax return preparers
Before closing off on tax administrative issues, I understand that the Commission is also interested in understanding a little more about our relationship with tax return preparers - tax agents - and systems to support tax return lodgments. The time is too short for me to go over this now, but I have provided some information in Apendices 8 and 9. One thing I will say in relation to tax agents, is how fortunate we are in having a system of registration for tax return preparers.
7. FUTURE PLANS
We have gone through, and continue to go through major change - the more you do the more you see needs doing. I have touched on several of these things here today not least of which includes, greater community expectations, growing availability and use of electronic communications, globalisation, tax reform, and public service reforms, including greater demands for efficiency at reduced cost, which bring with it such issues as outsourcing and contestability, and flexibility in the way we structure and use our resources.
The current corporate plan (and I believe you have a copy) highlights these issues and how we propose to tackle them.
As we bed down the re-organisation, we need to focus on achieving quality by building on new re-skilling and professional development initiatives.
We also need to ensure that:
* we take full advantage of technology, including electronic communication initiatives and business systems; and
* deliver on our commitments to the community in terms of the Taxpayers' Charter, our efforts to reduce the costs of compliance, and increased accountability in the use of resources.
Reflecting these considerations, and as part of our recent review of business directions, known as ATO- Business 2000, we have also reviewed our accommodation holdings around the country. Branch Offices will no longer be the dominant service delivery site for face to face contact with the community, as service delivery is now done down business lines rather than functional lines. As a result, we are trialing new approaches to part-time and home based work, and to fieldwork and other public contact which will distribute our services more widely than our present Office locations. The future will see an increased visibility. Our officers will be supported by technology to work mainly in the field and this will assist them in identifying issues as they emerge and in being able to provide the ATO view on the law in a timely and consistent manner.
On the increasingly important international front we are strengthening our ties with the OECD which, to my mind, is clearly the pre-eminent body on tax issues confronting governments today. Last week with strong support from the United States, and a number of other countries, I was successful in having the OECD adopt an agenda to deal with strategic tax management issues. This work will give tax administrators the opportunity to meet and learn from one another and develop a best practice model for dealing with the various strategic management issues identified by members as being a priority for the future. Of course, this work will proceed along with work on the communications revolution, transfer pricing, the OECD Model Double Tax Convention and exchange of information.
In closing, might I say that, while there are always areas of administration that we can improve on, we feel pretty satisfied with how we are doing in the ATO. We are certainly confident that we can meet the challenges of the future. As I said at the beginning though, this confidence stems from having a stable leadership to facilitate the vision and the commitment to see this through.
I trust that my presentation on tax administration and developments in the ATO are of some use to the Commission as you explore options to better support for IRS.
Again, thank you for inviting me to appear here today. I would be happy to try and answer any questions you might have.
Appendix 1 - Overview of the Australian Tax System
Taxes collected by ATO include
* Income tax
* Fringe Benefits Tax
* Capital Gains Tax
* Sales tax; and
* Medicare(or health) levy.
There are several different systems of collecting tax:
* The pay-as-you-earn(PAYE) system
* The prescribed payments system(PPS)
* The provisional tax system
Is for salary and wage earners. An employer withholds tax instalment deductions(incl Medicare levy) out of each pay, sending them to the ATO. At the end of the year when a return(file) is lodged, there is usually enough credit to cover tax assessed. Any excess paid during the year is refunded.
Is similar to PAYE, and applies to sub-contractors in a number of industries.
Provisional tax system
Is used by those with income of more than A$1000 from investments, business, primary production, etc. People make provision for current year's tax at the same time as they account for last year's income.
Residents, including companies and trustees of some trusts, must lodge a return and pay tax on taxable income above a threshold. Income includes income sourced from outside Australia. Non-residents pay tax on any Australian-source taxable income.
Double Tax Agreements
Australia has comprehensive tax agreements with many countries, including United States of America, to avoid double taxation.
Tax File Number
A unique and confidential 9-digit number is issued to each income tax payer, and is used to identify tax returns and some sources of income. Salary/wage earners need to quote the number to their employer, or tax deductions will be made at a higher rate.
Averaging of tax
Is allowed for people whose income can vary widely from year to year, such as primary producers, artists, sports people, etc.
Are entities who hold property or income in trust for the benefit of others, sometimes including the trustee. the trustee can make either current or deferred distributions to beneficiaries according to the terms of the trust.
The tax year is usually 1 July to 30 June, although some firms are allowed a substituted accounting period. Returns are lodged on a self assessment basis, with ATO no longer checking every return before issuing an assessment. Taxpayers are required to keep sufficient records in English for a period of years. ATO targets various sources of income information on a risk management basis, and can then verify taxpayers' records. Amended assessments can be issued as necessary.
Fringe Benefits tax
Is a tax paid by employers on benefits, other than salary and wages, which they give to employees and people associated with employees.
Is a tax imposed on goods produced in, or imported into, Australia for use. It is imposed once only, and is designed to apply at the wholesale level.
Capital Gains tax
May apply to real capital gains on assets disposed. The tax applies to many assets, no matter where they are located, of residents, and only to taxable Australian assets for non-residents.
In 1995/96, in excess of $A98 billion taxation revenue was collected from a variety of tax revenue regimes. The ATO’s taxation client base encompasses approximately 11 million individuals, businesses and public sector agencies.
The Australian Taxation Office (ATO) currently employs around 18,000 staff, located in 25 branch offices, with a national headquarters in Canberra. Staffing levels over time will be influenced by Government decisions and profile changes brought about by technology and other developments.
A recent review of accommodation holdings of the ATO, future business directions and work practices has led to decisions to close some branch offices over the next few years, to conduct trials in new accommodation layouts and work practices (eg, extended operating hours) and regionalisation/national management of work.
The ATO’s planned running costs for 1996/97 are $1,269 million, with total appropriations of approximately $1,327 million. The net cost of collection of tax revenue is currently running at $1.03 per $100 of tax collected.
Appendix 2 - Funding
Department of Finance has recently introduced new funding arrangements known as "Running Costs Arrangements". These arrangements
* provide agencies with considerable flexibility in the planning of funding for up to 4 years
* provide incentives to agencies to improve public sector efficiency and effectiveness by allowing them to retain the majority of savings arising from increased efficiency
* permit the raising of resource agreements with additional resourcing flexibility outside the confines of the regular budget process in order to achieve some stated objective.
* allow for changes in the volume of workload in existing programmes.
The Federal Budget
The Federal Budget is usually delivered in early May with the appropriation bills passed in late June - for the financial year commencing on 1 July, covering 4 years.
The Budget process is based on a system of rolling forward estimates - each time the Budget is bought down it is accompanied by estimates of outlays for the next three years.
In short, agencies have some certainty surrounding their budgets for up to 4 years, save the impact of new policy proposals and any new service wide 'efficiency dividends' that might be required by the Government of the day.
A set of appropriation bills is introduced into Parliament, in October of each year, which provide for corrections to the Budget. These may only include adjustments for carryover and borrowing, salary supplementation permitted under wage fixing arrangements and matters specifically agreed by Cabinet.
All new policy proposals are considered at Budget time. They are subject to substantial parliamentary debate and scrutiny by the Senate Legislation Committees.
Running Costs Arrangements
Running costs are the full current costs of providing the government services and programmes for which an agency is responsible. From 1995/96 onwards there are two broad categories of notional Running Cost items:
* Senior Executive (SES) Salaries;
* Other Running Costs (includes non-SES salaries, Superannuation Payments, administrative expenses, Property & Operating Expenses(POE) and Legal Services - AG's).
The ATO is able to spend funds against non-SES salaries (including ComSuper), administrative expenses, POE and legal services up to the allocation of the Funds Allocation Authority for 'Other Running Costs' without needing to seek agreement from Department of Finance to a transfer.
Transfers to and from the SES Salaries notional item are subject to Minister for Finance directions under section 29 of the Audit Act 1901 and are allowed only with approval of the Secretary of the Department of Finance.
Transfers between running costs and non-running cost appropriations require the approval of the Secretary of the Department of Finance.
To balance the increased emphasis on cash limiting of running costs budgets it has been agreed that the amounts that may be carried over between years will be increased to 10% of the current running costs budget. In accordance with the devolution of running costs flexibilities, the Management Board has decided to give Business & Service Lines the ability to carryover up to 10% of their current running costs budget. The Lines will determine the extent to which this flexibility is devolved down the line.
Borrowings allow agencies to bring forward some future years appropriation to be spent in an earlier year.
Department of Finance has agreed that the amounts that may be borrowed by the ATO without the need for a resource agreement is 6% of the running costs budget from any one year. In accordance with the devolution of running costs flexibilities, the Management Board has decided to give Business & Service Lines the ability to borrow up to 10% of their running costs budget from any one year. In the early stages of the devolution of running costs flexibilities, the Board Resources and Finance Sub-committee have requested that they themselves endorse Line plans to exercise this flexibility. Lines will determine the extent to which this flexibility is devolved down the line.
The current efficiency dividend rate applying to running costs agencies is 1% per annum. This is applied to the total net running costs (ie excludes receipts through section 35 net annotated appropriations).
During the 1994 Budget, the Government reaffirmed the continuing Public Service obligation to generate efficiency gains, and its prerogative to allocate a share of those gains. The efficiency dividend is the means by which these gains are realised and made visible. The efficiency dividend was reviewed by a sub committee of the House of Representatives committee on Banking, Finance & Public Administration and they concluded in a report 'Stand and Deliver' March 1994 that the 1% would be reviewed at the end of the 1995/96 financial year.
The efficiency dividend intends to clearly demonstrate Public Service efficiencies resulting from improvements in management and administrative practices, use of human resources, and from investment in advanced technology. The efficiency dividend also avoids the need for Department of Finance to identify detailed savings resulting from efficiency improvements.
Appendix 3 - Consultative committees
The ATO has a number of measures in place to involve private sector tax professionals directly in key areas of tax administration, including interpretation of the tax laws.
The ATO consults widely and regularly with a large number of representatives from industry, community and taxpayer organisations and the tax, legal and accounting professional bodies. An important part of this consultation is conducted using liaison forums at national and regional levels across Australia.
The key national forums include:
* the National Tax Liaison Group and its subcommittees:
* Fringe Benefits Tax
* Capital Gains Tax
* Foreign Source Income
* Transfer pricing
* ATO/Tax Practitioner Forum;
* the Corporate Consultative Committee (for Large Business);
* the Commissioner's Small Business Consultative Group;
* the National Sales Tax Liaison Committee; and
* the Child Support Agency Registrar's Advisory Panel.
Special purpose committees
The ATO also sets up special purpose consultative forums as required. Examples of these include the Commissioner's Advisory Panel on the Taxpayers' Charter and the TaxPack Advisory Panel.
A key ATO strategy during 1995-96 was to work more closely with the community on identifying and understanding compliance issues to facilitate improved service delivery. One of the ways this was done was through the rulings process, and the Rulings Panel in particular.
The ATO Rulings Panel was established in 1994 and is chaired by the Chief Tax Counsel. Its membership includes two community representatives, Mr Tom Magney and Mr Ian Phillips. Both have wide commercial experience in the practical application of the tax law. Through the Rulings Panel, they now have a direct input into determining the ATO's position on the law.
All major rulings are reviewed by this panel after a comprehensive process of external consultation with industry and professional groups. During 1995-96, the Rulings Panel reviewed between 40 and 50 rulings. While the tax professionals do not always agree with the ATO's rulings, the rulings and the processes used to develop them are being viewed with new-found respect, reflecting the rigorous testing during their formulation. The fact that final rulings are also being delivered according to agreed time frames demonstrates our strong commitment to community and tax professional consultation.
International Rulings Panel
As a result of the success of the Rulings Panel, which ensures that commercial and independent views are taken into account before public rulings are finalised, the ATO has now also established a special panel to deal with international rulings. Among other things, this panel will finalise the draft rulings on transfer pricing as well as the draft ruling on mutual agreement procedures.
Appendix 4 - Modernisation Plans/Systems Developed
1984 Technical Strategy Plan: At the end of 1984 the ATO commissioned an independent analysis of our Technical Strategy Plan.
The independent analysis was the critical feature, reflecting the new management thinking and corporate/business directions for the ATO. It attempted to ensure that the Information Technology resources were applied in the most appropriate directions. The philosophy was to become users of technology rather than inventors of technology. The ATO was a large business organisation with similar problems to other large business organisations; the ATO wanted to learn from others and not ‘re-invent the wheel’.
1985 ADP Strategic Plan: The new ADP Strategic Plan was developed internally during 1985 and three major strategies were identified -
* The ATO needed to enter a major era of redevelopment of existing applications to meet the new structure and charter for the ATO.
* The existing technology base was recognised as inadequate to meet applications redevelopment requirements and the new business needs of the organisation.
* The ATO needed to acquire technology that was proven in the market place and which would satisfy our future business needs.
1985 Capacity Planning Study: In September 1985, a major Capacity Planning Study was commissioned to quantify the mainframe capacity required for converted and redeveloped systems.
It should be acknowledged the study established the base information on the capacity required to support the conversion, and redevelopment of applications as well as the plans for the development of new applications. It defined requirements that would apply across a variety of vendor equipment and services. This study provided the basis for the Cost Effectiveness Analysis that was used in the submission to Government seeking ‘in principle’ agreement for the Redevelopment, Re-equipment and Conversion elements of the Modernisation Programme.
1985/86 Office Information Systems Study: A study was commissioned with Coopers Lybrand W.D. Scott in 1985 to determine the volume and type of communications traffic occurring within and between existing and proposed ATO offices. It considered all communication media including electronic, voice and paper communication.
The information was used to determine the terminal coverage that would be required under the Modernisation project for Office Automation.
January 1987 Costing Exercise: The cost effectiveness analysis was the basis for the ‘in principle’ Cabinet Submission to Government, seeking approval (4 February 1987) for the Re-equipment project, and was developed internally.
It provided an analysis and comparison of the costs of the proposed comprehensive redevelopment and re-equipment option and the alternative of continuing in the existing environment. Costing estimates were based on the reports of previous consultant investigations commissioned by the ATO and internal ATO studies.
1987 Telecommunications Strategic Plan: A study was commissioned with Lane Telecommunications Pty Ltd in 1987 to develop a strategic plan for the expansion of the ATO’s telecommunications network. This involved a review of the data communications facilities, and the networking of PABX facilities and upgrades to existing equipment to provide compatibility of all equipment within the expanded network.
1986-89 Re-equipment Project: In 1986, a tender process to acquire all the Information Technology to support the Modernisation Programme was commenced. The ATO undertook extensive research of the IT market to determine the general industry capability. Based on this research, a functional specification of the ATO’s requirements was issued enabling the computer industry to present a wide range of products from which the ATO was able to select products that best met its business needs. The Re-equipment Request For Tender (RFT) was issued in August 1987 and closed in November 1987.
The Re-equipment tender evaluation was directed by a Steering Committee comprising representatives from the ATO, Department of Administrative Services, Department of Industry Technology and Commerce, and the Public Sector Union. The process was monitored by the ATO’s Management Advisory Committee, chaired by the Commissioner of Taxation.
Throughout the Re-equipment project we were conscious of the need to be fully accountable for the process and the outcome. Although this required implementing time consuming processes the ATO was able to achieve a favourable outcome in a timeframe comparable to other major government IT re-equipment projects. The testimonials received by the ATO at debriefing sessions are an indication of the success we achieved in establishing and implementing an accountable process with high integrity.
The aim of the project was to put in place an IT infrastructure to support our business activities and to enable the goals and objectives of the Modernisation project to be satisfied within the specified timeframe.
It was critical to develop a simple means of acquiring a comprehensive package of equipment covering Hardware, Software, Systems Software, Communications, Data Base, Imaging, Office Automation, and Administrative Systems to cover a manageable 5 year period (1989-1993).
To minimise the risk involved in using new technology, the ATO chose a deliberate policy of acquiring only proven technology. This policy was a major factor in the successful installation of the new technical environment, including two mainframes, a nationwide backbone communications network and the Tax Local Area Network (TaxLAN).
A Coordinating Contract was established to meet the aim of a total solution, which was seen as critical for the ATO’s successful management of the project. The ATO required to work on a one on one basis with a single contractor, not one to many contractors.
1987 High Level Integrated Design: A project was commissioned in February 1987 to develop a corporate view of the new data and applications requirements for the ATO. The primary aim was to have a single view of the individual tax client.
The firm, Arthur Andersen, was selected by open tender for the provision and installation of a systems development methodology for the ATO. As part of the installation consultancy Arthur Andersen helped develop our first Information Systems Plan. The need for a High Level Integrated Design project was identified in this process.
The major outcomes of the study were -
* a description of each new system for redevelopment;
* an integrated data analysis;
* an implementation schedule and estimates of resource requirements; and
* computer systems performance requirements.
Use of Technology Today
Key features of the ATO’s modernised systems
Automated Data Capture: The ATO has a data capture strategy focusing on Electronic Data Interchange (EDI) as the primary method for collection of external information (e.g. tax returns) from clients. Capturing data in this way offers substantial reductions in internal labour costs over other methods, as well as offering numerous other efficiencies. Electronic Funds Transfer (EFT) is similarly intended to be the major means by which payments are collected.
An early success story for tax modernisation was the introduction of the Electronic Lodgment Service (ELS), for income tax returns. Using this system, professional tax return preparers known as "tax agents" use special tax return preparation software (developed by external software providers in accordance with ATO specifications provided annually) and modem links to capture and transfer their clients’ return form information to the ATO via telecommunication lines (using an X.25 network), or provide the information on floppy disk.
Usage of ELS has grown rapidly since its introduction in 1990. In 1995/96, almost 7 million of the 9.5 million individual taxpayers, along with a further 1.1 million corporates, trusts and partnerships submitted returns via ELS, with 9,500 tax agents in Australia currently registered on the system. In terms of its coverage and efficiency, we believe it is the most successful of any such system for tax administration in the developed world.
Three features relevant to the significant success of ELS are:
* an ATO commitment to fully process in excess of 90% of all ELS
tax returns within 14 days - we now, in fact, achieve around 95%;
* ATO’s willingness to streamline tax return information requirements to a level readily manageable via electronic transmission; and
* the high usage of tax agents by taxpayers in Australia.
Electronic data capture is also a key feature of our collection of tax payments.
The ATO received approximately 12 million payments in 1995/96, with five different payment methods being available to clients. Mail payments are processed at bulk processing centres using modern cheque processing equipment (Mail Pay). Alternatively, for those preferring to pay personally counter service is available at 4000 Australia Post outlets (Agency Billpay), which transfer payment data direct to ATO systems, or at each of the 25 branch offices. EFT is also available and encouraged. The two methods used are Direct Debit (a form of electronic funds transfer where the ATO has permission to withdraw funds from a taxpayer’s bank account ) and EFT-In (used mainly by large business, a form of electronic funds transfer where the taxpayer sends a payment to the ATO using software provided by their bank). Refunds can similarly be provided through direct EFT to taxpayers’ accounts or by cheque.
Imaging and character recognition technology is currently being evaluated for use for the capture, storage and retrieval of information from paper documents.
ATO Integrated System (AIS): At the core of the redeveloped ATO business systems is the AIS, which when completed will contain a single national client register and integrated client accounts. These will enable a single view of a client’s tax affairs across revenue lines, providing a picture of a taxpayer’s full accounting position. In comparison to systems in use in the ATO prior to modernisation, the AIS offers core functionality that supports a number of business systems. Core functional components (across business lines) include the client register, client accounts, client communications and workflow management.
The client register maintains the details of each client’s roles with the ATO (across the various revenue lines), along with registration data such as name, address, contact details and relationships to other taxpayers. The ability to identify on-line all the various roles of a taxpayer and relate them to a single client is the key for client integration of AIS components. While all components of AIS are interconnected in some way, some components are specific to business lines.
The client accounting component allows for primary taxation liabilities and penalties to be raised, adjusted, amended or cancelled on clients’ accounts. All incoming payments and most self assessed liabilities, are processed from the various payment systems, with receipt information sent for printing and dispatch at the Automated Document and Dispatch (ADD) centres.
At this stage, accounting modules for three taxes (Sales Tax, PAYE and Prescribed Payments System) have been implemented in AIS, with the major Income Tax component for individuals and corporations currently under development and some other minor taxes to follow.
The AIS has work management functionality to select, measure, allocate and prioritise workload. ATO officers are provided with an electronic in-tray of "action items" of system identified exception situations. Built around the ATO organisational structure of client based teams there are individual and team electronic in-trays, with individuals able to reallocate items to a team’s in-tray and use an item resubmit facility (which allows subsequent follow-up for unresolved items).
Issue of personalised stationery (eg PAYE) to business clients is managed through AIS, with output files produced for mailing houses. Ad hoc requests, automatic system generated issue for new/changes to registrations as well as annual issues are catered for.
A correspondence output facility manages notices, prior to passing them to ADD. The two national centres - known as Automated Document Dispatch (ADD) are employed for handling high volume printing and enveloping of notices to taxpayers. The ADD database provides on-line access to all taxpayer-generated notices. It interfaces to the ATO’s financial management system, recording the value of all AIS generated cheques, and to the Department of Finance’s systems.
For Debt Collection activity a case management and actioning system is used, with cases accessed on-line. This system is capable of automatically monitoring cases where arrangements to pay have been negotiated. If arrangements are adhered to the system will finalise the cases. Where arrangements are not completed, the system places the case into a worklist for an officer to follow up. This system receives data from, and transmits data to, the AIS.
While I should acknowledge that there remains fair scope to improve our systems and performance on Debt Collection work, improved systems and work practices have enabled the ATO to achieve a generally downwards trend in its debt collection inventory over the last 6 years.
A file location system maintains an on-line central database of taxation files and other paper location details. It uses bar coding and optical character recognition to simplify and improve the process of recording and retrieving the location of paper based tax returns.
A storage and access system has been developed for the long term storage of tax return data, providing on-line access to all income tax return form data (with overnight retrieval of archived information), enabling paper returns to be effectively dispensed with after initial processing.
Business Support Systems: A number of systems are maintained to support technical decision-making and audit operations.
To improve the consistency and accuracy of tax technical information, while reducing research time across the ATO, a Tax Technical Database has been developed (on CD Rom) containing legal information such as tax rulings, tax acts and cases with hypertext access to textual information. A Groupware product (Grapevine) has also been developed whereby officers enter an interest profile on the system and are then alerted when new documents are entered into the database that matches their interest profile. Cases and rulings are added to this system weekly. A case reports system is being implemented for private rulings and other technical advisings. A Thesaurus has been developed to support these systems, and staff are encouraged to use these keywords in case reports.
A number of systems are maintained to support audit operations. These cover:
* Audit Case Selection - the SCORE system is used by auditors to
select cases for audit based on parameters they choose from most data
fields of tax returns, accessing data from the corporate tax return
* Income Matching - a variety of systems are used to capture, validate and match large volumes (around 36 million transactions annually) of externally-gathered income data (eg wages, interest, pensions, dividends) with taxpayers’ records to detect omissions of income and return non-lodgment. Identified discrepancies are handled by a number of case management systems that provide for automated letter generation and amended assessments.
* Auditor Workbench - a set of case actioning tools (eg covering tax and penalty calculations, transaction analysis, audit reports) to assist in the completion of audit cases.
Corporate Administrative Systems: Internal administration of the ATO is greatly assisted by a range of systems for personnel, finance, assets and library operations.
A human resource management system (NOMAD) processes establishment, personnel and recruitment information, and provides support for staff development and training, improved management reporting, security, delegations and remote electronic input. NOMAD is a proprietary software product used across several Australian Government agencies. It has allowed the ATO to devolve responsibility for significant amounts of personnel management functions to the business lines and, in some cases, to transactions between a member of staff and his or her supervisor.
A financial management system (FMIS) records all ATO expenditure and revenue. The packaged Millennium system has been modified to ATO requirements. ATO officers are allocated budgets and use the system to monitor expenditure of funds, and to reallocate funds within their budget. Authorised officers can produce purchase orders, record the details of purchases and process invoices. This system interfaces with the payments systems for details of revenue received and with the accounting modules of the AIS as previously mentioned, to capture details of refunds issued to taxpayers.
The ATO is implementing an asset, problem and change management system (SOLVE) in 1996. This is a mainframe product, customised by the ATO. The Assets component is used as the ATO’s assets register and enables financial reporting. Bar code scanners have also been introduced to make stocktaking of assets more accurate and easier. The problem management component reports, tracks and monitors hardware, TaxLAN and other problems. The change management component records and manages applications development and maintenance work.
Appendix 5 - ATO Organisational Structure
The current ATO organisational structure business lines focus on our operations with external clients, while the service lines provide the necessary internal support to staff.
Business Lines Service Lines
Child Support Agency (CSA)
On 1 June 1988, The Commissioner of Taxation became responsible, as Registrar of Child Support, for collecting certain child maintenance payments. The CSA was established within the ATO to administer the Child Support Scheme that is reflected in the Child Support (Registration and Collection) Act 1988. Under the Scheme, maintenance payable to spouses and children, under court orders or maintenance agreements, is deducted from an employee’s salary or wages, where appropriate. Others pay directly to the CSA. These orders or agreements are registered with the Registrar of Child Support.
From 1 October 1989, when the Child Support (Assessment) Act 1989 came into effect, the CASE has also been assessing the amount of child support payable and then seeking to collect these amounts.
To support this process CSA does the following:
* assesses the amount of child support payable using an administrative formula embodied in legislation;
* registers maintenance liabilities in the Child Support Register and considers objections against registration or variations to the register;
* collects maintenance payments, places maintenance collected into Child Support Trust Account and notifies the Department of Social Security (DSS) which then pays the equivalent amount to the custodial parent;
* enforces maintenance liabilities through tracing action and penalties for defaults in payments;
* provides legal and policy advice on the legislation administered by the CAS;
* consults with DSS about Child Support Scheme policy;
* develops proposals and administrative procedures for the practical administration of child support legislation; and
* liaises with the Family Court.
Corporate Services (CS)
CS provides a significant part of the ATO’s internal infrastructure and support. Its primary purpose is to support the ATO in achieving its business objectives.
CS currently provides services in the following eight functional areas.
* Corporate Directions and Executive Support: provides services
that support ATO management processes, and ensure ATO corporate
obligations are met in this area.
* Continuous Improvement: provides services that support ATO continuous improvement processes including research, strategy development, marketing and coordination.
* Internal Assurance: establishes and monitors policies and programmes that ensure the ATO meets its obligations in relation to the security and safety of its people, the integrity and privacy of its information holdings, the security and accountability of its assets and the accuracy of its Financial Statements. It serves the Audit and Security sub-committees of the Board.
* Human Resource Management: provides services that support a professional and effective ATO workforce, and ensure ATO obligations are met in this area.
* Human Resource Development: provides services that support a professional and effective ATO workforce, and ensure ATO obligations are met in this area.
* Facilities and Services: provides services that enable the ATO to carry out its business, and ensure ATO obligations are met in doing so.
* Communication, Public Relations and Marketing: supports business lines in coordinated public education and information programmes, and provides internal communication services.
* Library and Information Services: provides professional and automated library and information services for all offices, supporting the professionalism of ATO staff, and authority of their advice and decisions.
In most cases the services are delivered in all offices, with national policy and direction coming from national office.
Financial Services (FS)
FS has overall responsibility for the effectiveness and efficiency of financial management and accountability systems in the ATO. The Chief Finance Officer, as head of FS, promotes a corporate focus on management of revenue, financial expenditure, data coordination and accommodation.
The group is made up of three elements:
* Financial Management (FM): provides financial accounting
services, enables internal controls, and ensures that appropriate
accounting and statutory requirements are applied to the financial
affairs of the organisation. The role of FM is to support managements
by the provision of policies and advice on accounting processes and
* Revenue Analysis Branch (RAB): assists in the preparation of official Government revenue estimates and monitors taxation revenue. It also provides advice on proposals to alter tax laws in relation to revenue.
* Decentralisation and Accommodation Unit (DAU): is responsible for developing a more efficient organisation by ensuring that offices of manageable size are in convenient locations for taxpayers. This requires that the ATO’s decentralisation programme is implemented in accordance with agreed standards.
Individual Non Business (INB)
Client base responsibilities for INB include establishing client liabilities, securing lodgment of income tax returns and payment of taxes from non-complying clients. INB also has many major corporate functions and roles: Tax Agents, General Enquiries, Returns Processing/ELS, Income tax refunds, TFN, Postage, Dispatch and Income Matching.
INB is continuing to improve compliance by increasing client focus through public education and through automated matching of information with subsequent adjustment activity. INB is also monitoring the taxation system to identify opportunities for simplification and will advise the Government and other agencies as appropriate.
Information Technology Services (ITS)
ITS provides the ATO with a wide range of computing services. It plans, designs, acquires, installs and operates information technology facilities throughout Australia.
Large Business Income (LBI)
LBI is responsible for administering the Income Tax System for taxpayers with gross turnover in excess of $10 million.
Management of our business
LBI’s focus is to improve future levels of compliance, and to ensure that there is integrated and balanced activity on international issues, with increasing emphasis on international tax arrangement issues critical to the Australian tax system.
LBI is structured along industry lines. It has formed itself into industry based teams broadly in line with the Australian New Zealand Standard Industrial Classification (ANZSIC) classifications. All LBI taxpayers are allocated to these industry segments. These industry teams are supported by teams specialising in key subject or topic areas and include the following areas:
* Compliance Improvement (CI): CI teams have an integrated
approach to improving compliance through research, improving our
knowledge of taxpayers, cell and Key Client Management, meeting
compliance enforcement strategy obligations, identifying significant
issues, developing technical policy and risk assessment. This is done
through law improvement, rulings, litigation, enforcement action,
legislative change, taxpayer service and education, and
administrative changes. Another important focus for this team is the
management in national office of LBI’s tax technical interface with
other business and service lines, including TLS.
* International Tax Division (ITD): is managed nationally and has teams based in national office, Sydney, Brisbane and Melbourne. The ITD team in national office has a key technical support and legislative role with respect to international issues for all ATO business and service lines. It is responsible for negotiating Australia’s tax treaties and developing the legislation for their implementation.
* Strategic Research & Analysis (SRA): is a high level research function looking at trend issues in the economy with a view to identifying those matters that will impact on the compliance levels within the taxpayer population. It also researches latest tax strategies that are being developed to reduce the overall level of tax properly payable by companies or individuals.
* Business Management (BM): The focus of this area is performance management, management information systems, corporate and business planning, financial accounting, resource management, workforce planning, service agreements for cross business and service lines dependencies, and parliamentary matters.
* Work Practices (WP): is involved with blueprint development, work and job design matters, and HRM including technical training, cultural change issues, and productivity matters. It has involvement with guidelines and codes of conduct, and check and balances to assist LBI staff (and taxpayers) in the operation of ATO powers and obligations. This area is also involved with identifying LBI’s business systems requirements and interfacing with other business and service lines on design, build and implementation issues.
Small Business Income (SBI)
SBI is responsible for administering the income tax system for all business taxpayers with annual gross turnovers of less than $10 million. It is also responsible for fringe benefits tax matters for all taxpayers.
The aim of SBI is to ensure that small business participants and taxpayers with FBT responsibilities are complying with the tax laws at minimum cost to their businesses.
To do this SBI has set itself four focus areas within the context of the ATO goals of improving compliance, reducing costs of compliance, acting fairly and professionally and seeking productivity improvements through our people.
The focus areas are:
* enforcing the basic responsibilities of lodgment of tax returns
and payment of tax debts;
* ensuring that small business participants have the correct information they need to meet their obligations;
* developing information checking arrangements to support the self assessment system; and
* developing our internal working arrangements to best suit the achievement of our objectives.
SBI is structured into eleven national compliance improvement portfolios which are focused on identifying and analysing particular industry or issue based segments of the SBI client population and developing strategies and tactics to manage the risks within those segments. Work is carried out within the portfolios by project teams which undertake a range of compliance improvement activities as appropriate for the specific project (e.g. education, litigation, rulings, enforcement, prosecutions and technological functions). SBI also undertakes a wide range of work to maintain the health of the tax system in relation to the small business community by:
* providing advice to taxpayers about their income tax liabilities
through answering enquiries, providing rulings, publishing
information and participating in seminars;
* reviewing the records kept by small business participants to help the small business community to adopt better record keeping practices;
* ensuring tax returns are lodged and liabilities are paid on time and taking appropriate action to obtain outstanding returns and debts;
* resolving disputes and working to minimise the level of unnecessary disputes;
* consulting with professional, industry and trade groups on education needs, such as costs of compliance and compliance behaviours;
* investigating offences against the tax laws before referring cases to the Director of Public Prosecutions for decisions on prosecution action; and
* scrutinising those persons engaged in criminal business pursuits which generate assessable income, including participation in joint law enforcement task forces.
Tax Law Services (TLS)
TLS exists to provide advice to Government and implement its legislative programmes, to manage and develop public rulings, and to provide tax technical leadership in the ATO to facilitate quality advice to taxpayers.
Tax Law Services has three arms:
* Legislative Services provides policy advice to Government and
implements its legislative programme (other than international and
child support matters). It does this by working with business lines.
In conjunction with the Tax Counsel Network, Legislative Services
provides tax technical leadership in the ATO, and is the ATO's link
with Government. The Parliamentary Business Unit is responsible for
ensuring that the ATO services the Parliament and the Government by
providing a focal point for Ministers and Parliamentary Committees to
seek advice and information from the ATO;
* The Tax Counsel Network delivers tax technical leadership in the ATO by working with business lines and Legislative Services to settle the considered ATO position on questions of tax law and litigation. The Chief Tax Counsel (subject to the Commissioner) has ultimate responsibility for the resolution of interpretation issues. In addition, the Chief Tax Counsel has overall responsibility for the delivery of the ATO's Taxation Rulings Programme and National Litigation Strategy; and
* Practice Management and Development supports the Commissioner by providing a corporate focus on professionalism in delivery of technical work associated with the laws we administer. This includes provision to staff of technical education, training and development, graduate recruitment and development, litigation support, development and maintenance of business support and research facilities, as well as involvement in improvement initiatives and review of work practices.
Tax Law Services works with the business lines to:
* clarify and develop the law and make it more understandable and
* make the law less costly to comply with;
* communicate the law to others through rulings, publications, advice and litigation; and
* implement a major programme over the next few years to improve the quality of technical decision making across the ATO.
The role of the business lines is to identify and prioritise technical issues and:
* where the proposed solution requires a ruling (or other
publication) or litigation - work with the Tax Counsel Network to
have it resolved; and.
* where the proposed solution requires legislation - work with Legislative Services to develop the legislation.
Withholding and Indirect Taxes (WHT)
WHT is responsible for managing the PAYE and Prescribed Payments collection systems; and administering sales tax, wool tax, non-resident interest, dividend and royalty tax, resident and mining withholding tax, and tobacco charge.
To do this, WHT carries out a range of functions, including:
* cash processing and banking;
* client account management;
* debt collection;
* enquiries and advisings/rulings;
* audits and prosecutions;
* public education and publications; and
* dispute resolution.
Within the overall ATO goals of improving compliance, reducing the costs of compliance, acting fairly and professionally and seeking productivity improvements through our people, WHT has concentrated on achieving high standards of business performance and planning for the future. WHT priorities include:
* following through on identified risk areas for PPS;
* improving debt collection performance through the Debt Management Improvement Strategy;
* following up PAYE non-remitters through the PAYE Reconciliation Project;
* enhancing the consistency and quality of advice given to taxpayers through the public rulings programme and liaison with the tax professions and industry associations; and
* developing, in consultation with the Community and Public Sector Union, new organisational arrangements to better support the needs of clients, particularly larger and new clients.
WHT is committed to improving compliance and a new Ensure Compliance Branch was created to further develop strategies to measure compliance levels. WHT implemented a range of compliance improvement activities which included system changes, risk analyses, improved data quality, delivery of improved and new electronic services, improved dispute resolution procedures and practice, client education and liaison with the taxpaying community and tax industry practitioners. This allowed us to better understand our taxpaying clients while providing them with the information to understand their lawful obligations and the facilities to fulfil them. We believe that these activities allowed us to be strategically placed to continue to focus and meet the needs of Government and taxpayers.
During 1995-96 the Superannuation group operated within WHT. The group was responsible for administering the SG, RBL, and SHAR, Superannuation Community Education Campaign. It was also responsible for relevant ATO superannuation policy, and improving the ATO's client focus in superannuation matters.
The functions undertaken by the Superannuation group became part of the Superannuation business line from 1 July 1996.
Appendix 6 - Staff development
The following outlines some of the ATO initiatives aimed at ensuring ongoing technical excellence within the ATO by helping people keep up-to-date with changes and developments in taxation law and administration. The development of these programmes is part of the organisation's drive to ensure that its people are able to provide timely, accurate, ethical and consistent advice.
A decision was taken at the May 1996 Management Board meeting for a four year recruitment programme of graduates from selected disciplines, Law, Accounting, Commerce and Economics. Parallel to this recruitment exercise a small number of graduates from other disciplines are also being recruited where there has been a specific need identified by the work area. A graduate programme will commence in 1997 and all graduates will take part. The Programme consists of a five week induction programme followed by one day a week technical training* for two years. During the first year each graduate will undertake three rotations of approximately four months duration, one of the three rotations will concentrate on income tax matters, one non-income tax matters (eg Fringe Benefits Tax) and one where there is extensive public contact.
It is expected that at the end of the two years the graduates will have the skills and knowledge necessary to occupy higher level technical positions within the ATO and will improve the ATO's future management and leadership capability.
* The material used in this training has been used in the ATO for a period of up to five years through the Tax Officer Development (TOD) Programme and the TechASSIST Programme.
Technical Training and Development in the ATO
A continuum of training and development courses for staff either already in the Tax Technical areas of the ATO or wishing to move to those areas is available. Tax Law Services is responsible for tax technical excellence within the ATO and within this line the Practice Management and Development (PM&D) area is responsible for the achievement of accurate, timely and consistent tax technical training and continuing professional development activities. PM&D also has responsibility for the administration within the ATO of the ATAX Programme (see below).
THE PROGRAMME THE TARGET AUDIENCE
TOD ASO 1s, 2s, and 3s
TechASSIST ASO 4s and above
Continuing Professional Development ASO 5s and above
ATAX All staff
TOD 1, 2 and 3
The TOD 1, 2 and 3 Programme commenced in 1991 with the intention of raising the level of skill and knowledge of staff within the ATO. The Programme was set up under the auspices of the Modernisation Agreement with the unions and is now embodied within the 1996 Agency Agreement. It was recognised that the jobs in the ATO at the levels ASO 1-3 were changing from basically procedural jobs to those where more contact with taxpayers would be the norm. Staff needed to be trained to be able to cope with the new positions. At the same time the office was coming under more intense scrutiny about the quality of advice which was given to taxpayers.
The TOD Programme has two streams, Public Administration and Tax Technical. This programme has been instrumental in changing the focus of technical training away from lectures to a self paced approach where staff are expected to take responsibility for their own learning and then, following some pre-reading, attend tutorials or discussion groups on the topic area. When the Programme was developed one of its stated objectives was to ensure a basic level of skills in both technical and public administration and to develop 'well rounded' tax officers. All modules are thoroughly assessed.
The level at which the coursework was set was determined by using several bases:
* a set of development competencies established after extensive
job analysis and followed by a 'Q Sort' process. This process
involved a wide coverage of staff in many technical positions at the
* the level of skill and knowledge required for our peers in private practice
* the level of skill and knowledge the ATO desired for its staff when they entered the tax technical areas and the competence to think and apply the legislation to different fact situations
The philosophy of the Programme is that as our staff become more accountable for advice which they give and the public scrutiny of that advice is increasing, the ATO has a responsibility to give staff the wherewithal to make the right decisions and 'give the right advice the first time'. A basic premise of the Programme is that all TOD Graduates would have sound research and analytical skills when they completed the Programme.
Lower level staff complete the whole Programme, this will ensure that we have staff who are mobile and who have a good base of technical knowledge on which to build.
The TOD Programme is accredited at the Associate Diploma level. This level is higher than that of other agencies within the Australian Public Service as the TOD Programme has such a strong technical stream. Accreditation carries with it certain responsibilities such as security of assessment and sound assessment methods and items.
The brief for the TechASSIST Programme is that it should cater for all technical training needs which are common across the ATO, this means that topics such as Administrative Law, Research and Interpretation, The Legal System and Accounting and Business Practice form part of the Programme along with more traditional tax topics.
A basic premise of the TechASSIST Programme is that all participants should be assessed against the TOD 3 Tax Technical competencies. These competencies involve, knowledge and the application of that knowledge of, Income, Deductions, Primary Production, Foreign Tax Credit System, Eligible Termination Payments, Capital Gains Tax, Taxation of Business Structures, Child Support, Sales Tax and Fringe Benefits Tax. This will give the ATO a basis to measure the skills and knowledge of staff in the tax technical areas.
Both the TechASSIST Programme and the TOD Programme are competency based with assessment being an essential element. All technical material is presented using the TOD template, now the endorsed template for all tax training. This is then supported by discussion groups and tutorials. A favoured approach, following an Appeals model, is to use a case as the basis for the discussion or if this is not possible a case study. This enables staff to practice the transfer of the theoretical knowledge to a practical work place example in the safe environment of the training room. Subject experts and managers are being used to facilitate these discussion groups.
Another aspect of the May Management Board decision was the recognition that all managers and team leaders in technical areas of the office should have a knowledge of the work of those areas. This has lead to an increased enrolment in the TechASSIST Programme.
Staff who work through the modules in the TechASSIST Programme are assessed to determine that they not only have the knowledge of the subject matter but that there research and decision making processes are sound.
Continuing Professional Development (CPD)
In 1990 the ATO became a signatory to the Modernisation Agreement which, encompasses certain obligations in relation to CPD. In particular it provides that:
* By 1992, all staff at or above ASO 5 or equivalent will be
allowed 40 hours during work time for approved Continuing
Professional Development (par. 16(i)), and
* The ATO will meet the cost of approved CPD courses (par. 16(ii)).
CPD programmes are in place in our branch offices and include lectures, seminars, workshops, discussion groups and videos. Although we have a significant number of employees who are accounting and/or law graduates, only approximately 1700 - 1800 people belong to professional accounting and law bodies. Consequently, the ATO CPD programmes not only assist those ATO people with professional qualifications to meet mandatory CPD requirements, but also provides professional level CPD for our people who would not otherwise be exposed to CPD.
CPD programmes cover areas that cannot be dealt with or effectively covered by structured training packages, and can reflect the dynamics of tax law. The CPD programmes are vehicles with which to address the following broad content areas:
* instances identified where staff need updating or specialised
* recent changes to law and policy;
* current professional/expert thinking, internal and external, on specified topics;
* commercial awareness; and
* ethics and the professional standards relevant to the tax industry at large.
Liaison and co-operation with accounting and law professional bodies, external organisations and government agencies has been pursued at both National and Branch Office levels. The major purpose of this strategy is to jointly develop, organise and deliver joint CPD activities that are mutually beneficial to ATO people and members of the participating professional body or organisation and others working in the tax industry. In addition, access to current professional expert thinking and subject expertise external to the ATO is obtained to provide an appropriate mix of CPD activities for ATO people.
Australian Taxatioin Studies Programme (ATAX)
ATAX commenced in 1991 to fill an industry wide tertiary educational gap identified by the ATO. Although ATAX is offered to both the ATO and the professions it has been sponsored extensively by the ATO in its formative years and the ATO has a contract with The University of New South Wales (UNSW) until 2005.
ATAX offers tertiary educational opportunities to ATO staff as opposed to training or development. However the taxation nature of the curricula ensures that ATO students develop skills appropriate to taxation technical work in a context that is also taxation in nature. The skills and knowledge developed draw on taxation, law, accounting, economics and computing.
The Programme is now at a mature stage for the postgraduate courses and rapidly approaching the same stage for the Bachelor of Tax. Feedback from students and some supervisors indicates that the skills developed are highly relevant not only to tax technical work but also to wider areas of the ATO, including the Child Support Agency. The knowledge gained is not always of immediate direct benefit but feedback indicates that it provides a good contextual basis for understanding tax in its broader form as well as a detailed insight into the complexities of various areas of taxation law and the views and constraints of business and the professions. All material developed by UNSW for ATAX is used by ATO as the basis for TOD, TechASSIST and other technical training courses.
Other Training initiatives
The ATO also has a range of other training and development initiatives. Prominent amongst these is the manager development programme known as MIN the Next Phase. The benefits to the ATO as a result of manager's participation in this programme are seen to be:
* improved productivity through managers and teams that are client
* improved staff commitment to the ATO with staff acknowledging that they are involved in participative management and are more confident about undertaking higher levels of work, and
* ongoing workplace reform through continuous improvement leading, where appropriate, to joint action by technical and non technical areas.
Appendix 7 - Compliance Strategies
Each Business Line is focussing on the development and implementation of an integrated approach to improving the compliance level of the segment of taxpayers for which it has responsibility. The audit function is now only one aspect of achieving improved compliance strategies and of ensuring the integrity of the taxation revenue base is maintained. These strategies include taxpayer service and education, clarification of the law through Rulings, information matching and enforcement action (including through audits), litigation and legislative development.
Individuals Non Business (INB)
INB, for example, is focussing on improving compliance by increasing client focus-encouraging people to comply voluntarily with the tax laws through a balance of education and enforcement activities. Major "help" programmes, such as the Tax Time Information Programme, TaxPack, TaxHelp, Work Related Expenses Rulings programme etc. have been matched with compliance programmes like the income matching programme.
For all Lines, decisions as to where to focus specific audit activities emanate from risk assessment processes. In INB, the risk assessment process is based upon a systematic review of tax return items or issues related to the correct disclosure of income and the correct claiming of deductions and rebates by taxpayers.
Every year the ATO conducts an income matching programme which matches data supplied by external agencies (mainly financial institutions) to ATO data to detect those taxpayers who may not have declared all of their income. INB also undertakes other audit activities looking at deductions and rebates to assess levels of risk and to enforce the law where this is considered necessary. These programmes vary from year to year depending upon levels of risk to revenue and the availability of resources.
Audit staff will be involved in income matching work, other audit programmes related to work related deductions, and specific programmes in relation to eligible termination payments, self education deductions, rental deductions and other deductions. Checks by audit staff are also conducted prior to the issue of assessments on apparent anomalies contained in tax returns. In addition specific audit based initiatives are directed towards the activities of unregistered tax agents.
Small Business Income (SBI)
In SBI, while the total number of individual traditional audits of small businesses has fallen over recent years, there are now more people directly affected by our compliance improvement strategies and activities than in the past. The Record Keeping Review Programme (a programme designed to help taxpayers keep sound business records and so make it easier to comply with the tax laws) resulted in about 26,000 small businesses having direct contact with the ATO in 1995/96. A further 60,000 small businesses were the subject of individually focussed compliance improvement activities.
SBI is focussing on understanding the characteristics, behaviour and obligations of the small business community and assessing the risks for particular industries and issues, including:
- Transport, Communications, Construction and Entertainment
- Finance and Insurance, Health and Education
- Manufacturing, Wholesale and Retail
- Share Trading and Business Services, Mining, Primary Production
More specifically, during 1996-97 we have a particular focus on:
- Taxi Industry
- Performers and Sportsperson
- International Issues
- Clothing Industry
- Primary Production
- Non-commercial/non-profit small medium enterprises
- Fruit and Vegetable Industry
- Shareholder and Beneficiary Loans
- Scrap Metal Industry
- Film Schemes
- Capital Gains Tax
- Fringe Benefits Tax
Serious evasion SBI also operates a serious evasion programme. This programme has overall responsibility for ensuring that those people who will not pay their tax in response to normal ATO encouragement and general compliance improvement activity are dealt with appropriately and that prosecution action is taken wherever possible. The primary intent is to ensure that people who deliberately evade their tax are brought to account.
Special investigation In addition to the above, SBI has in place a programme of special investigations which focuses on persons engaged in criminal business pursuits and high profile persons requiring special or discreet attention. The programme addresses the least compliant taxpayers and seeks to provide a balance between encouragement to comply with the tax laws and enforcement of them.
Large Business Income (LBI)
LBI's compliance improvement activities are implemented through:
* improving our knowledge of taxpayers;
* Key Client Management;
* managing and resolving significant issues;
* developing technical policy; and
* risk assessment.
Audits are undertaken from time to time in accordance with LBI's risk assessment process and the identification of audit as the appropriate strategy for improving compliance.
For the 1996-97 year, LBI is in the process of completing the remaining nine large case programme audits as well as a number of general and specific audits conducted by segment teams. The number of audits to be undertaken after 1996-97 will depend of the results of the risk assessment process and the identification of audit as the appropriate strategy to improve compliance.
As LBI's compliance improvement activities are achieved through the provision of help, enforcement or changes to the law to improve compliance, it is difficult to estimate the likely revenue raised directly from audit activity, however, it is expected to exceed $120 million for 1996-97.
LBI manages its clients through multi-functional teams which exist in industry and subject specialisations. These teams are responsible for dealing with the income tax affairs of their clients. This includes determining whether the appropriate strategy for improving compliance should be in the form of help, enforcement or changes to the law, or a mix of these. LBI officers are therefore not devoted specifically to audit teams, however audits may be conducted by each segment team.
Where audits are conducted they range from general audits to specific issue audits in domestic and international areas.
In LBI, multi-functional teams manage the compliance improvement activities through the ongoing risk assessment process and the application of a number of compliance improvement strategies. It is therefore not possible to determine the specific percentage of resources devoted to audit. Resources have been allocated to the highest revenue risk areas and these risks are then addressed through a number of compliance improvement strategies.
The number of large case programme audits being undertaken has reduced since the previous year, but there has been increased activity in other areas of compliance improvement such as rulings, legislation and taxpayer service and education.
Appendix 8 - Role of the Tax Return Preparer
* Australia has seen a significant increase in the usage of tax
agents over the past 18 years, from an estimated 39% to approximately
75%. The ATO perceives opportunity for the quality (correctness) of
returns to be improved and sustained through its support of the
setting and maintenance of professional standards within the tax
* As at 30 June 1996, there were 34 357 persons and 4 494 entities registered as tax agents (or nominees) in Australia. For the year ending 30 June 1996, 8.36 million returns had been lodged by agents, of which 7.67 million were lodged electronically. Total lodgment at 30 June 1996 was 11.07 million.
* The term tax agent is not defined in legislation. The Income Tax Assessment Act (the Act) implies, however, (at s.251J) that a tax agent is a person who prepares income tax returns and transacts business on behalf of taxpayers in income tax matters. The Act stipulates (at s.251L) that only registered tax agents (or persons exempted, such as executors of deceased estates) may demand or receive a fee for preparing an income tax return or objection, and/or transacting business on behalf of a taxpayer, in income tax matters.
* That the agent acts on behalf of taxpayers and not the ATO or the Government is of fundamental importance, but is not universally understood. We are aware that members of some ethnic groups tend incorrectly to conclude tax agents are agents of the Government, and that some people shy away from going to them for this reason.
* Tax agents in Australia are required to obtain a licence to practice within a particular state, this licence taking the form of registration of the agent by a Tax Agents' Board. There are six Tax Agents' Boards (one per state) which are part-time Commonwealth panels comprising three members, one being an accountant, one a legal practitioner, and the other a senior ATO officer or executive. A recommendation that these six Federal boards be replaced by a single National Tax Agent Board has been accepted by the Commissioner and is to be put to Government.
* By definition, this requirement for tax agents to be registered constitutes a restriction on competition, as registration is available only to those agents who satisfy eligibility criteria set out in the Act. This issue was the key principle considered by the National Review of Standards for the Tax Profession (the National Review), which was a two-and-a-half year project conducted by a joint steering committee of tax professionals, the majority of whom were non-government tax agent, accounting, legal, and community representatives. It had several aims including improving tax agent services to the public and improving the standard of tax returns lodged with the ATO, and reported in November 1994.
* The National Review concluded there to be a public interest, both in terms of achieving public confidence in the professionalism of tax agents and in terms of lowered community compliance costs, to be served by retaining regulation and, indeed, upgrading the consistency, effectiveness and sanctioning powers of the regulatory authority.
* The project was the first major review of the tax agent registration regime since it was introduced in 1943. The National Review had wide-ranging terms of reference and focused on considering changes in tax administration arising from the introduction of self-assessment approaches.
* 135 of the recommendations have been accepted by the Commissioner and the ATO Management Board for implementation or recommendation to Government for legislation. Amongst these was a proposed Code of Practice for Tax Agents for legislation. The National Review's public report Tax Services for the Public has been sent to you.
Appendix 9 - Systems to support tax return lodgments
Staggered Filing Details
* Income tax returns(or files) for individuals, partnerships,
trusts, companies and superannuation funds are lodged generally on
the basis of prior year (Jul 1 to Jun 30) accrued income.
* Returns can be lodged individually or by tax agents(tax return preparers).
* Individuals' returns are generally due by Oct 31 in the current year.
* Tax agents have an ATO granted lodgment programme(staggered filing) allowing certain categories(classes) of returns, to be lodged over the balance of the current year. Individual taxpayers can choose to lodge through tax agents, and enjoy later lodgment, and usually, payment, dates.
Tools to assist tax practitioners
Agents are offered the following tools to assist them meet their obligations to ATO:
* Portfolio. This electronic tool contains administrative and
* Electronic Lodgment Service(ELS) - income tax information is lodged electronically. Agents are required to keep a taxpayer signed paper document. In the future, ATO aims to gain legislative support for ELS, so that information lodged electronically is accepted as the return by the Courts..
* Electronic Funds Transfer - with permission, allowing refunds to be made to, or debits withdrawn from, taxpayers' accounts. ATO aims that in future, legislation will allow payment of refunds to third parties, allowing tax agents to readily obtain their fees from clients
* Faxback - the facsimile service between ATO and agents for information products.
* Internet - information products are available
* Electronic Communication - ELS will soon be enhanced allowing both inbound and outbound communication between agents and ATO
* Electronic Forms - Pilot to be conducted in March 97