Process and progress
Introduction
2.1
The Australian Taxation Office’s Reinvention Program is ‘a broad transformational change program focused on achieving the [ATO’s] vision of being a contemporary service oriented organisation.’ The Tax Commissioner’s annual report for 2016–17 sets out the following mission and objectives:
The ATO’s purpose is to contribute to the economic and social wellbeing of Australians by fostering willing participation in our tax and superannuation systems [through]:
making it easier for people to participate
delivering a contemporary and tailored service
ensuring purposeful and respectful relationships
[being] a professional and productive organisation.
2.2
The Committee’s review of the ATO’s 2016 annual report documented a sequence of milestones for people and systems achieved under the Reinvention program. Tax professional and the small business representatives were overall positive about progress during the period, considering concerns expressed during the previous review had ‘largely been addressed’.
2.3
The 2016–17 reporting period, by contrast, bought new challenges for the ATO. The Tax Commissioner Mr Chris Jordan referred to challenges during the period—the ‘hardware failures and service disruptions’ of late 2016 and early 2107 and, then in May 2017 the revelations of Operation Elbrus, which resulted in internal and external reviews of the ATO’s fraud control management performance.
2.4
Despite these setbacks, the ATO had delivered on its core commitment to improve willing compliance over the period. As the Commissioner phrased it, 2017 had been a ‘bumper’ tax year for the ATO; with confidence restored as total lodgements were up on the previous period and there were 26 per cent fewer complaints made than in tax time 2015.
2.5
This chapter considers the Reinvention of the ATO’s internal service culture and its ‘people to people’ performance. It also considers progress under the ATO’s digital transformation, and whether the two processes are sufficiently well integrated to meet core service commitments to build trust and confidence in the ATO.
2.6
This analysis draws on major audits conducted by the Australian National Audit Office (ANAO), which reviewed ATO performance during the period:
The ‘Costs and Benefits of the Reinventing the ATO Program, Australian Taxation Office’, 22 November 2017; and
Unscheduled Taxation System Outages, Australian Taxation Office, 20 February 2018.
Transforming the ATO’s service culture
2.7
Australia has a self-assessment tax system. Phased in for all taxpayers from 1986, it was refined from the early 1990s to better support voluntary compliance. Under this system, the ATO’s task is to build taxpayer confidence in the tax system and the regulator by providing user friendly systems and services within a consistently applied and robust compliance framework.
2.8
Professor Valerie Braithwaite was involved in a research partnership with the Tax Office between 1999 and 2006 to set up the Centre for Tax System Integrity to improve the voluntary compliance system. At hearings, the Professor discussed the role of the Taxpayers’ Charter to build taxpayer certainty and trust under the voluntary compliance model. She advised:
The charter was really part of an OECD move to make government in democracies more sensitive to and more aware of the needs of electors—to introduce procedural justice, if you like, not just in the legal sense of administrative law but also in the sense that people felt that they were respected, that they were listened to and that they have a say. There is a huge body of research in the social sciences that says if you want cooperation, if you want people to go with you, if you want your institution to be seen as legitimate then you have to offer procedural justice. People need to feel respected and then they will work with you. If you don’t communicate that respect through your actions and what you say then you are likely to get defiance.
2.9
The ATO Reinvention Blue Print (2015) articulates the ATO’s commitment to transforming its internal culture and service model to cultivate this taxpayer trust:
To achieve our vision of being a contemporary, service-oriented organisation, we are transforming how our clients experience the tax and superannuation systems. We will underpin this transformation through significant cultural change and improvements for our staff.
2.10
Principal 1 of the Reinvention Blueprint sets out the ATO’s tandem commitment to make things ‘easy to get right’, using sophisticated digital tools and services:
Contemporary digital experiences provided in the way people expect.
Strong relationships support the right outcomes.
Integrated with natural systems used in day-to-day life and red tape is minimised.
Emphasis on prevention before correction.
Design of the system is agile and responsive to change and demonstrates our commitment to continuous improvement.
Right information and services at the right time. Answers are easy to find and understand.
2.11
The following sections provide an overview of the ATO’s investment in its people over the reporting period, before considering progress under the digital transition.
Investment in people and systems
2.12
As set out above the ATO’s Reinvention aims to cultivate confidence in the tax system and the regulator through provision of tailored advice and assistance, whether through technical means or person to person.
2.13
Reporting on its investment in ‘people, systems and operations’ during 2016–17, the ATO records progress over a period which ‘focused on building and sustaining a professional, accountable and responsive workforce’, noting that:
Having the right culture is crucial to this, ensuring a positive experience for staff so they can deliver the best possible experience for our clients.
2.14
At hearings in August 2018, the Commissioner reported that the Reinvention principles are being embedded in the daily practice of ATO staff, which is yielding positive results for both the staff and taxpayers:
We’re here to contribute to the economic and social wellbeing of Australians by fostering willing participation in the tax and super systems.’ What does ‘focus on fostering will and participation’ mean? If you make it simpler, make it easier, people are more likely to comply. If people have confidence that others are complying, they are more likely to do so. That gives rise to a whole lot of initiatives for people. We are talking about: how can you in your day-to-day work feel better about your job? Because if you feel better about your job, you are more likely to feel more interactive, empathetic with the people that you’re dealing with. It is all about having a goal as to where you want to go, not over complicating the matter, stick with it without changing and explain to people the benefits of doing this.
Integrated and client focussed
2.15
The annual report records a number of initiatives specifically designed to drive the type of cultural change envisioned by the Commissioner at service level and achieve a more client focussed, integrated, and committed engagement response from staff.
2.16
The ATO Chief Operating Officer Ms Jaqui Curtis explained how the ATO has invested in a top down/bottom up strategic integration of programs and reforms to manifest this ‘cultural transformation’ across the agency:
…our philosophy around reinvention was that, as well as that top-down strategic deliberate approach, we were looking at the whole way the organisation went about its business—everything from policies to procedures. Were they streamlined? Were they simple? Were they effective to drive efficiency? Did they make the interaction with clients better and the staff experience better? Did we go about our business in a way that was client focused? It included a very significant piece around cultural change and the experience for our staff.
2.17
Bottom up initiatives included the continuation of the ‘What does this mean to you’ campaign and a survey to promote staff endorsement of these core cultural transformation principles. Meanwhile, training to strengthen the ATO’s leadership for culture change—from SES master classes to development programs aimed at strengthening leadership capability across the agency at all levels have been advanced.
2.18
Another important initiative over the period was the trialling of multidisciplinary teams to promote a ‘whole of client perspective’ for staff dealing with small businesses. The report advises:
Our workforce and enabling processes and tools are designed to ensure an integrated approach. For example, we are trialling multidisciplinary teams to take a whole of client perspective when dealing with small businesses. The aim is to improve the client experience and debt performance, and prompt positive shifts in future compliance behaviour. Multidisciplinary teams comprise staff with the necessary skills and knowledge in income tax, superannuation and indirect taxes, to provide a full service to clients for all tax and super obligations, without the need to refer them to other areas of the ATO.
2.19
In support of this approach, the ATO has introduced a ‘professional stream’ training initiative designed to broaden the ‘organisational view of capability, highlights the depth, breadth and importance of each profession in the ATO’. The report explains:
The initiative focuses on 11 core professions, including accounting and finance, and analytics, risk and intelligence. Employees receive learning toolkits tailored for their specific professional stream to identify the professional development opportunities relevant to them. This approach, combined with our short sharp learning sessions—Learning Express—has seen staff perceptions of learning and development in the ATO increase by 11 percentage points compared to the 2016 APSC Census results.
Linked up systems
2.20
In terms of technical supports, the ATO reports on investment in systems and tools to enhance staff capability to deliver a more ‘consistent and adaptive view of the tax and superannuation position of our clients’.
2.21
A key initiative in March 2017 was the roll out to staff working with individual clients of the Enterprise Client Profile system. This system aims to ‘provide a whole‑of‑client view of personal, obligation and risk information’ and a more ‘coordinated and tailored approach to engagement (across all taxes and obligations) based on client choices, behaviour, circumstances and risk’. The annual report advises that other technical supports introduced over 2016–17 include:
access to the client view of myTax when providing assistance to taxpayers over the phone or via web chat
a stand-alone toolbar to enable staff to move between systems and channels when assisting clients
the myATO app, which provides staff with the ability to view, project and convert their leave balances, apply for leave, and view, download and print their payslips and payment summaries
telepresence facilities, providing greater interaction between staff across sites.
2.22
The Committee notes that these measures build on commitments to upgrade and improve client relationships and case management systems initiated during the previous reporting period.
Outcomes for staff
2.23
According to the ATO, the initiatives described in the annual report have led to a measurable improvement in the morale and performance of ATO staff. The report advises that progress under the Reinvention throughout 2016–17, for example, is reflected by increased levels of employee engagement, attendance, and workplace health and safety, over the period. In particular:
Employee engagement has improved since the previous year, with ‘job’ and ‘team’ engagement tracking higher and ‘supervisor’ and ‘agency’ engagement remaining steady.
Average unplanned leave fell during 2016–17 to 13.2 days per full‑time equivalent, compared with last year’s result of 14.4 days.
Workers compensation premiums reduced down 40 per cent to $11.2 million for 2017–18, from $18.6 million.
2.24
Data on engagement is also quoted in the 2017 report to indicate that ATO investment in culture and leadership strategies has resulted in progress on the measure in the Australian Public Service Commission’s (APSC) June 2017 Census.
2.25
According to the performance results in the report, the ATO achieved its highest rating on staff engagement since 2012—up slightly from 6.5 out of 10 in 2015–16 to 6.8 out of 10 in 2016–17. While this is a very moderate increase, the ATO notes that other comparable large agencies made no progress against the measure over the period. In a further comparison, the Committee also observes that the overall engagement rate during the previous reporting period increased by only point one of a per cent, a very slight incremental improvement on the measure for the agency.
2.26
While it is not articulated how staff engagement is measured, the report references staff training initiatives, and as noted above, a decrease in absenteeism, a decreased incidence of compensation claims, as well through progress in the digital enhancements of tools and systems. It is not clear whether the measure indicates enhanced ‘performance’ or whether it indicates improved staff satisfaction. This could be significant given that the last reporting period saw the ATO reduce staff significantly—ongoing, non-ongoing and casual workforce were cut by 17 per cent, with a 29 per cent reduction in executive level and SES staff.
Staff diversity measures
2.27
The annual report for this year highlights measures to diversify staff composition, as recommended in the 2016 APS Unlocking Potential report. The ATO advises:
We continue to reshape our workforce, using a mix of employment arrangements, to align with evolving business priorities. The goal is to ensure we have a flexible, responsive and high‑performing workforce that adapts easily to changes in business requirements. The focus is on modernising human resource management activities, attracting the best people through easier recruitment and implementing flexible solutions that drive high performance.
2.28
The ATO report highlights, for example, the success of the Evergreen program which attracted Aboriginal and Torres Strait Islander staff—with 120 recruits over the period. The ATO also highlighted the inclusion of 640 ATSI people for the year under its successful Graduate Administration Program.
2.29
Another initiative was the ATO’s Opening Doors recruitment drive, which targeted talented people in under-represented groups, including ‘refugees, armed services veterans and high calibre professionals, including women and carers, who require flexible working conditions’. Other work focussed on gender equality, mature age people and lesbian, gay, bisexual, transgender and intersex (LGBTI) people, with performance criteria and targets established for each group.
2.30
Gender parity in ATO staffing was further investigated by the Committee at hearings. Commissioner Jordan advised that 58 per cent of all ATO employees are female; and 49 per cent of executive level staff, just under the ATO target of 50 per cent. The executive team, meanwhile, has gender parity in membership—three males, three females with Mr Jordan as chair.
Outsourcing
2.31
In previous annual report reviews the Committee has called on the ATO to provide a breakdown of staff deployment in various aspects of ATO business, its investment in training, and it employment of outsourced or contract and volunteer staff, their training and contracts of appointment. The Committee has also asked for a costs benefits analysis of staff across service bands and any comparative analysis of outsourcing benefits.
2.32
It was considered that this information could be usefully deployed by the ATO itself to better determine outcomes and organisation resourcing needs, following the very significant reductions in staff made over 2015–16. The ATO’s response indicated only a limited commitment to deliver information ‘to the extent that it is possible based on the data that we collect’ on these matters.
2.33
The Committee notes that the 2017 Annual Report provides a percentage break down of operating expenditure which indicates that 52.7 per cent of funds were spent on ‘Labour’ and 10 per cent on ‘Consultants and contractors’ over the period. This of course does not indicate numbers of staff in each category, but only relative investment in each. Further, the index in the annual report was not helpful in directing the Committee to the detail requested.
2.34
At hearings during this review, the Committee pursued again the subject of outsourcing and performance of outsourced staff. Asked about the cost efficiencies to be achieved by outsourcing, the ATO Chief Financial Officer Ms Frances Cawthra advised:
There are some costs that are naturally cheaper that have been done by the outsourcers. Some of those are things like us not having to hold massive amounts of property to be able to ramp up and ramp down for tax time. That’s a saving for us. In the environments they have they have a ready workforce on tap, so their recruitment costs are cheaper. There’s their ability, their training. We have access, through them, to best-of-breed technology et cetera. So there is some analysis about the work that they provide in terms of work to us.
2.35
The Committee investigated a range of qualitative matters about the standard of service offered by outsourced staff, the measurement of outcomes for taxpayers, as well the conditions of employment for these contractors, including adherence to ATO standards for gender parity and training. Ms Cawthra advised that lower level less complex work is done by outsourced staff. Ms Melinda Smith, Chief Services Delivery Officer, reported that complaints are monitored for both internal and external staff, with overall complaints against staff dropping 30 per cent over the period.
2.36
Written responses to questions on notice indicated that from 1 July to 31 December 2017 there were 11 055 complaints overall. Although percentages were relatively low given the volume of taxpayers assisted, twice the number of complaints were lodged against outsourced (call centre) compared with internal staff. It is also notable that the percentage of complaints against External Debt Collection staff was equivalent to that made against all internal ATO staff, indicating a disproportionate level of concern associated with outsourcing of debt collection services, as highlighted in the IGT’s review of ATO debt collection practices in 2015.
2.37
The Committee also investigated gender parity and wage equality requirements in labour hire firms used by the ATO. The Committee was told that some suppliers conduct annual remuneration reviews based on performance and report to the Workplace Gender Equality Agency, and that in two out of four labour suppliers 50 per cent of executive staff were female. Further ATO assessment later revealed that company structures may determine whether the suppliers are required to report gender outcomes, so there was no consistent standard applied.
2.38
The Committee was advised that all outsourced staff are held accountable to the ATO’s Taxpayers’ Charter and are monitored on their compliance with it against the Service Delivery Quality Framework. Additional coaching and performance management is also applied in case of breaches. The Inspector‑General of Taxation (IGT), however, considered that the accountability of outsourced staff is limited, and that complaints would not be a reliable indicator of any issues associated with outsourcing as taxpayers are not aware of the distinction between internal or external staff.
2.39
Mr Ali Noroozi, then Inspector-General, recommended the Committee request his Office to undertake a review of outsourcing in the next financial year. Deputy Inspector Andrew McLoughlin suggested that review could also consider the ‘control environment ‘and quality issues such as adherence to the Taxpayers’ Charter.
Staff integrity review
2.40
As previously noted, a major setback for the ATO over the reporting period were the revelations of Operation Elbrus in May 2017.
2.41
Operation Elbrus was a joint operation between the ATO and the Australian Federal Police (AFP) assisted by the Australian Criminal Intelligence Commission. The operation proceeded from allegations of tax fraud, later potentially linked to abuse of position by a public official. The specific details of the case were widely covered by the media, with the focus on internal integrity issues within the ATO. In response, the Senate Economic References Committee requested the IGT to undertake a review of the ATO’s fraud control management strategies and frameworks.
2.42
In its submission, the ATO acknowledged that the revelations of Operation Elbrus had raised doubts about the effectiveness of the ATO’s internal fraud management mechanisms, and moreover, the ‘ATO’s integrity, its people, processes and culture’. The submission advised of a range of measures undertaken to address potential risks, including appointment of an independent Integrity Commissioner. The ATO also sought to promote confidence in the agency’s overall management of staff integrity, advising:
We have an extremely low incidence of fraud by ATO staff and it is rare for there to be any doubt about the honesty of the people in the ATO. We have robust frameworks, policies and procedures in place to support a culture of professionalism and high ethical standards, and our procedures, controls and monitoring systems work well and worked well in this case. But of course where people are involved, you cannot completely eliminate risk and no system is infallible.
2.43
In answer to a Question on Notice, the ATO provided detailed reportage on internal fraud incidences among staff over the period 2014–17. This indicated a rising trend in the total number of fraud cases recorded—from 295 in 2014–15, to 319 in 2015–16, and 404 in 2016–17. Overall, the 2016–17 increase appeared to be attributable to a new measurement on fraud associated with ‘misuse of facilities’ not previously recorded. A significant increase in unauthorised access allegations, up to 210, compared with 137 in the previous period, was attributed by the ATO to improvements in its automated detection capability and proactive integrity scanning.
2.44
The ATO further documented training materials and supports provided to raise staff awareness of their obligations in the area of security, fraud and risk. During the 2016–17 period, for example, the ATO held a ‘Security and Fraud Awareness week’ during which training was provided on relevant topics during 31 sessions delivered agency wide.
2.45
The annual report provided additional information on the development of self-help material and products to support staff to comply with the ATO’s ‘Conformance with Obligations’ program. This program requires all ATO business lines to identify and manage potential risks and instances of regulatory non-compliance, and to report findings to the ATO’s Audit and Risk Committee on a quarterly basis.
2.46
Further discussion of the IGT’s review of fraud management controls and implications for ATO governance is discussed later in this report.
Efficiency of the transformation
2.47
The ATO is responsible for the management of substantial Commonwealth funds and is required to demonstrate sound financial management that accords with the Australian Government’s policies—including open and transparent transactions, and meeting the requirements of other agencies, such as the ANAO.
2.48
In 2017 the ANAO conducted a costs benefits audit of the ATO’s Reinvention Program. The audit’s objective was to assess the efficiency and effectiveness of the ATO’s processes for estimating and monitoring the costs, savings and benefits associated with the program. The audit criteria for assessment were that:
sound processes were in place for estimating the potential costs, savings and benefits associated with the Reinventing the ATO program; and
actual costs, savings and benefits associated with the Reinventing the ATO program are measured and monitored.
2.49
At hearings the ANAO’s Mr Andrew Morris, Executive Director, Performance Audit Services Group, further advised that while the audit referenced the Reinvention Program’s key objective to improve willing participation, the program’s scope is broader than that. As discussed further later, the ANAO also indicated that its audit did not include evaluation of digital delivery as part of its review of the Reinvention.
2.50
Instead, the ANAO’s audit focussed on the ATO’s internal transformation of its service culture, and whether it met the ATO’s own expectations for project management and reportage. Introducing the context and scope of its audit, the ANAO advised:
The Reinventing the ATO program formally commenced in 2015 with the release of a ‘blueprint’ that outlined experience shifts for key stakeholders, such as staff and taxpayers, as a result of implementation of the program. The program consists of behavioural and cultural elements, locally managed change and continuous improvement initiatives, as well as six strategic programs that oversee 100 projects. These projects are required to apply the ATO’s corporate project management framework, which was revised in July 2016 to provide a greater focus on the value proposition of projects, including costs and savings.
Benchmarking the costs and benefits
2.51
The ANAO’s conclusions about the ATO’s administration of its internal Reinvention were not positive overall, but they were significant. Mr Morris advised:
This audit was important because it considered a major investment of taxpayer funds into the reform of the ATO and the ATO’s measurement of the costs and benefits from the investment. The audit concluded that the ATO had sound systems and guidance for estimating and monitoring the costs and benefits associated with the projects but that the effectiveness of the processes had been compromised by low levels of conformance. As a result, the costs, savings and benefits from these projects cannot be calculated
2.52
Mr Morris went on to provide details of the audit findings:
Of the 100 Reinventing the ATO projects, 56 had expected benefits outlined in project preapproval documentation and 25 had final project plans that included estimated project costs. Eight projects included actual costs in status reports in the context that, for the 67 Reinventing the ATO projects where data was available, costs were estimated at $300 million from 2013–14 to 2018–19. Of 57 closed, cancelled or transferred to business-as-usual projects, 21 had closure reports that indicated whether project outcomes had been achieved.
2.53
The Committee’s review of the ANAO report further revealed:
On qualitative benefits, while there were a number of positive changes to business and corporate benefits projects and programs, the ATO had not identified performance indicators to measure the impact of the program or a baseline to systematically measure anticipated benefits.
On costs, while the ATO has a cost estimation tool to estimate costs in pre-approval documentation, of 100 Reinventing projects only 62 had utilised the tool and only 34 were cost assured by the ATO’s finance team.
Savings estimates were infrequently included in the Reinventing the ATO project pre‑approval documentation as required by the ATO’s project management procedures.
On documentation, only 56 of the 100 Reinventing the ATO projects outlined expected benefits in project pre-approval documentation, including non-financial benefits and productivity improvements.
On delivery outcomes, monitoring and reporting was deficient—of 57 projects closed, cancelled or transferred to ‘business as usual’, only 21 had closure reports indicating whether objectives had been achieved.
2.54
In consideration of evidence, the Committee took the view that 56 per cent compliance with reportage requirements was not good enough—the ATO should be expected to meet standards for comprehensive reporting it imposes on taxpayers.The Committee also asked for more details of the projects listed as cancelled in the audit report, and on the cost of those projects.
2.56
The ANAO in a written response indicated that all available information on the costs of cancelled Reinventing the ATO projects had been provided in the audit report, and that, ‘for 11 cancelled projects only two had expected costs reported and none had actual costs reported because in the majority of cases there was no project closure report documentation’. The ANAO had concluded: ‘It was therefore not possible to ascertain the costs incurred on any of the cancelled projects’. The ANAO also attached a spreadsheet that included some additional project detail, in particular the reason for cancellation and the (very high level) intent of the project where it had been documented.
2.57
At hearings, Mr Morris was explicit about the ANAO’s ‘surprise’ at the ATO’s failure to comply with its own compliance and reporting measures. Based on the ATO’s otherwise strong compliance record on administration of older, more established programs previously audited, he said that the ANAO had expected ‘greater inclusion of benefits and outcomes in both planning docs, and greater monitoring of costs and benefits’ for Reinvention initiatives:
Often we look at the administration of compliance elements of the tax, like the cash economy and capital gains tax. Those ones where it’s a priority for the ATO and they have long-established processes. They are the ones where they often come out relatively better. With this one I think it’s fair to say we were surprised. We thought that there would have been higher levels of compliance with the projects.
2.58
Moreover, Mr Morris admitted on questioning that the ATO’s performance in this particular audit was a blot on its otherwise strong record. Compared with other Commonwealth agency audits—the results of the ATO’s Reinvention audit rated it at ‘middle or maybe below middle’, instead of at top. He concluded that given the ATO had good guidance for internal guidance for staff, and even with changes during the Reinvention for cost and benefits reporting(with frameworks in place from 2013–14, improvements in 2016, and in 2017 for costs and benefits in savings) there was ‘still no reason’ why these frameworks should not be followed
Measuring cultural change
2.59
In its audit of the ATO’s benefits model the ANAO analysed the effectiveness of the ATO’s Connected Benefits Management System which was introduced in July 2016 to link project and program outcomes to link corporate benefits categories and ATO corporate impact areas.
2.60
The system identifies 21 benefit categories, of which 18 have benefits measurement methods, which leverage off existing tools and processes such as surveys, as shown on the pie graph following at Figure 2.1.
2.61
The ANAO advised that the system is meant to link functions beyond the scope of the Reinvention and measure enterprise wide investment. The four corporate impact areas for 2015‑16—integrity; willing participation; revenue; and productivity—are shown on the inner circle of the figure. The middle circle illustrates how the ATO intends to achieve its corporate impact areas and the outer circle defines the associated benefits categories and is illustrated by the inner circle of the figure.
2.62
In review of the benefits categories the ANAO found that those that had the largest number of contributing project outcomes indicated were:
perception of ease to access services and information (56 project outcomes);
community satisfaction with ATO performance (44 project outcomes);
level of employee engagement (39 project outcomes); and
cost per transaction (26 project outcomes).
2.63
In summary of the outcomes on a benefits assessment the ANAO concluded:
There was a general improvement across the ATO’s corporate benefits categories from 2013–14 to 2015–16, particularly relating to the corporate impact areas of willing participation and revenue. Further, the ATO advised of a number of positive business changes, including improved employee engagement, as a result of the Reinventing the ATO program. However, there would have been a higher level of assurance of the benefits from the Reinventing the ATO program if the ATO had identified performance indicators to measure the impact of the program or established a baseline to systematically measure anticipated benefits.
2.64
At hearings, the Committee further explored ANAO views about the effectiveness of Reinvention Program initiatives to develop a service culture in support of ‘willing compliance’ and to build taxpayer trust in the ATO. Mr Morris compared the outcomes of the ANAO audit on willing participation with those recorded in the annual report, observing:
It’s interesting: overall we’d say that the annual report shows some moderate improvements overall. Reinventing seems to have contributed to some of those in the area of willing participation, but just in moderate amounts—incremental rather than in any major, exponential way. It’s interesting. One of the things we read in the blueprint was that, at the end of the day, maybe reinventing would be measured by improvements in participation in the tax and superannuation system and in the client experience. To that extent, we’re saying that that’s been moderately positive, but we don’t know [the] reinvention’s contribution to that and we don’t really know the costs involved in coming to those outcomes.
2.65
Accordingly, the ANAO’s report had concluded that the capacity to evaluate real change under the Reinvention Program was most weak when it came to cultural and behavioural transition within the organisation. This, as Mr Morris explained, was because the measurements were not there to demonstrate change on any specific feature:
We know that it was a very strong focus of the commissioner and the tax office. All the time he’s been there, it has been about improving participation, being more digitally advanced and making it a bit easier for the taxpayer. They’re sort of one and the same. I think it’s reasonable to say that the reinvention has contributed to some of those improvements, but it wasn’t clear exactly what the reinvention was. We had a look at the 100 projects, and that’s part of it. Then there was the part outside of it, in terms of the culture and behavioural change. But, because it wasn’t bounded, it’s hard to attribute.
Capturing the benefits—lessons from the ANAO audit
2.66
In its review, the ANAO highlighted the following lessons from the audit—
that investing in processes to ensure high levels of conformance with project management requirements can be as important as investing in the methodologies, and that
adequate incentives also need to be in place to encourage managers and executives to comply, including through clear accountabilities, compliance checks and consequences for noncompliance.
2.67
At hearings, the Committee investigated the first observation, asking about measurement of the range of improvements to the ATO’s project management framework since the ANAO’s review in 2017.
2.68
The ANAO had found that one of the obstacles for accurate reportage on financial outcomes under the Reinvention Program over time was the change in the ATO’s assessment methodologies. From 2016, outcomes and benefits were no longer related to financial and non-financial categories but instead to corporate priorities. Further, there was ‘no distinct measurement of financials’ before early 2017, when the ATO implemented a methodology with verification checking to strengthen the measurement of financial savings from projects.
2.69
At hearings, Mr Morris explained that while benchmarking against corporate priorities had some benefits, for example for projects where it was difficult to define success measures, it did mean the goal posts of merit were frequently shifted:
I think their measures change—the extent of their views of taxpayers’ experience and how they measure them. If you look at their corporate benefits, they had 21 corporate benefit categories here. If you look at the next year, they change a little bit and then change a little bit again. So I think the experience is changing incrementally. The ATO’s measurement of that and its emphasis changes. This is one of the trade-offs. You want a consistent trend of information over time, but you also want the ATO to have indicators that are as relevant as possible.
2.70
The ANAO audit report made two recommendations to the ATO to address these concerns:
Recommendation 1—The Australian Taxation Office mandates and monitors the recording and reporting of actual project costs for all corporate projects.
Recommendation 2—The Australian Taxation Office enforces the mandating of status reports and governance gate assurance activities to support assessment of the ongoing viability of projects including delivery of expected benefits.
2.71
In its response to the ANAO, the ATO had ‘partially’ agreed’ to the two recommendations, with the caveat that:
The review recognises the overall intent of the Reinventing the ATO program was to transform our internal culture, providing a stronger connection to the community and an openness and willingness to change in order to maximise willing participation in the tax and superannuation systems. Although some elements were delivered through formally recognised programs of work and projects, a large proportion of the Reinvention Program was driven through localised action in teams, branches and business lines.
2.72
While the ANAO appeared to accept the ATO’s position that the ‘local level’ of program delivery could limit detailed performance reportage on costs and benefits, it did push for greater conformance in performance reporting.
2.73
Mr Morris considered that without measurable outcomes the trajectory and achievements of the Reinvention would remain unclear, and future directions uncertain, observing:
I’m not sure what the future of reinventing is going to be. It hasn’t been clear to us. At some stage, these change programs run their course and turn into something else. So I think we’d have to be looking at what the ATO’s doing.
2.74
In his submission to the Treasury’s review of ATO fairness practices and frameworks, the Inspector-General of Taxation expressed similar concerns, highlighting a lack of a definitive connection between program objectives and the benefits to taxpayers under the program, stating at hearings:
The broad scope of the Reinvention program, and the length of time that it has taken, may have created challenges for the ATO in demonstrating the benefits to the client experience for many taxpayers. Furthermore, it is difficult to keep the public and its own staff fully engaged and enthused about the program. A better approach may have been the adoption of shorter term goals that could be measured and reported to the public.
ATO in response—Committee’s review
2.75
At hearings the Committee asked the ATO about its response to the ANAO and its findings, in particular, its ‘partial adoption’ of what the Committee considered to be fundamentally sound recommendations.
2.76
The ATO’s Chief Financial Officer Ms Cawthra advised that the ATO’s commitment to ‘partial adoption’ of ANAO recommendations was reflective of its ‘risk-based approach to projects’. She explained that small locally managed projects, under $3000‑$4000, would have less governance compared with a large investment like myTax which has ‘very high levels of governance’ in place.
2.77
Ms Curtis, the ATO’s Chief Operating Officer, further explained that the ATO’s operating model had high level ‘Capstone’ projects in the Blueprint for Reinvention which were well managed. The ‘bottom-up’ projects were part of the ATO’s review of the ‘whole way the organisation went about its business’:
…What we said is that for us to truly transform, not only do we need what you would traditionally have in a change program, which are key projects, but you would allow a sort of bottom-up approach of asking people in teams to think about the way they went about their business and to align it around those principles that the Commissioner talked about. I think it’s those projects in particular that the ANAO called out.
2.78
Ms Cawthra noted that the ANAO had recognised advances the ATO had made over 2013–17 in ‘maturing up the capability to manage those projects from the grassroots versus from the top down’. She advised:
We’ve taken a very strong approach to how we now do project management inside the ATO. One of the first things that we do with every project—there are some mandatory pieces to it. One is that it has to align to our corporate plan, to our objectives and to our way forward to 2020. Then, in addition to that, we’ve taken about five key themes and we have implemented a whole range of initiatives in order to firm up the way that we do that.
2.79
She went on to explain how these measures are tested both for quality and risk assurance:
It’s all about the strategy of ‘scale fast or fail fast’—make sure that you know you’re on the right journey. The second piece we’ve undertaken is a piece around assurance. The program office that was previously in two parts—EST and business—has been brought together into one part. We have also established an independent assurance capability, which assists the second line of defence around how the projects are actually tracking, the cost of the projects, and whether the benefits are being realised—and if there is slippage, what are we going to do about that slippage? Is it acceptable and where does it lay that?
2.80
The Tax Commissioner Mr Jordan recapped on the Reinvention’s successes over the reporting period, expressing reservations at the ANAO’s negative assessment of the Reinvention, which he said was only ‘one program’, in the ATO’s broad portfolio of work. He also suggested that the Reinvention is a unique project, and that potentially the ANAO has not audited another similar program, maintaining:
There’s never been a transformation project I think of this size in government agencies before. For us it was obviously new, and I think for the Audit Office, in terms of their traditional type of overview and audit it’s maybe a bit different. I just mention that it is a new world. We’ve tried pretty hard to make this work, and I think we’re getting good feedback.
2.81
The Reinvention program, he indicated, continues its trajectory and is now being refined for ‘next stage’ under the ATO’s 2024 vision:
So what we’re doing now is refining the next stage of reinvention. We think it’s been very successful in the clarity of people understanding the service culture—when to let go, time costs money, put yourself in the shoes of your client, get out of your office, have early intervention, actually sit in front of people and explain why you are there and, if you can’t, you shouldn’t be there.
… We’re launching towards 2024 because we had this 2020 vision…we’re refining the vision, the mission, the values… to be more around trust and confidence in the system and more about being streamlined, integrated, and a truly data-driven organisation because people expect us to use the data to give a tailored experience to them, an integrated one… So that’s the next wave that we’re in the process of releasing.
Committee comment
2.82
The Committee has so far focussed on assessment of the ATO’s internal transformation under the Reinvention Program without discussing the obvious external corollary—the improvement to the taxpayer’s experience of engagement with the tax system.
2.83
The Commissioner has presented the ATO’s investment in internal cultural transformation as a way of improving the experiences and outlook of ATO staff, and has foreshadowed a new focus on trust and confidence in the tax system in the next phase of the ATO’s Reinvention. Improvements to measures have been reported on the projected impacts, primarily in terms of the reduction in the number of complaints. As discussed in later chapters, there has also been more detailed reporting against fairness measures, as recommended by the Committee in the previous annual report review.
2.84
In regard to the agency’s transformation in the wake of very significant staff cuts in the previous reporting period, the Committee commends the ATO’s record of improvement under ‘staff engagement’, although the drivers and components of this are unclear. It was also uncertain as to what the impact of outsourcing has been on ATO services standards. The ATO’s breakdown showed twice as many complaints, although the IGT considered that the reporting could not be definitive.
2.85
The Committee notes in this regard the Inspector-General’s recommendation that the ATO’s use of outsourcing should be referred to his Office for review under the IGT’s forthcoming work program. The Committee considers that in the light of the ongoing lack of clarity about performance outcomes for cultural change under the Reinvention program, the IGT may consider conducting a broader review of the role of outsourcing in the transformation of the agency’s performance and culture.
2.86
The Committee recommends the Inspector-General of Taxation should conduct a review of the role of outsourcing in the transformation of the ATO’s performance and culture.
This could include a costs versus benefits review of outsourcing in terms of the Reinvention of the ATO’s service culture in particular, and consider:
the effectiveness of measures for assessment of the value and risks in terms of the Reinvention of the ATO’s service culture.
adherence to ATO values in provision of advice, such as required under the Taxpayers’ Charter, and for staffing standards, including staff diversity, training and conditions for outsourced staff; and
the appropriate balance of ATO permanent versus contract staff and adequacy of resourcing under a self-assessment system.
2.87
In regard to the scale and scope of the ATO’s projected transformation of its service culture to be ‘more around trust and confidence in the system and more about being streamlined, integrated’, the Committee recognises the magnitude and significance of this vision, and its ongoing importance.
2.88
For a revenue agency, cultural change is not just a catch cry for improved efficiency. As discussed in the Committee’s recent major review of tax engagement, Australia’s tax system is relatively onerous for taxpayers compared with non-lodgement systems adopted in comparable nations. Australia’s self-assessment system places high expectations on taxpayers to ‘get it right’ upfront and hence, as next discussed, the importance of the ATO’s digital reinvention of its lodgement and advice systems. The onus on ATO staff is to back up this service in a manner that genuinely commits to ATO values and service standards, and is respectful of taxpayers—this is a vital support to voluntary compliance.
2.89
As the ANAO has acknowledged, measurement of cultural change is not necessarily reducible to a costs and benefits assessment, although having performance and management measures aligning with meaningful benchmarks is critical. The Tax Commissioner has also indicated that he regards the principal test for the effectiveness of the ATO’s Reinvention Program to be an improvement in the taxpayers’ experience of engagement, and their trust and confidence in the system.
2.90
The implications of these commitments are the focus of the Committee’s review and are considered in detail in the body of this report.
Reporting on the digital transformation
2.91
The Committee has conducted a detailed assessment of the ATO’s digital reinvention of services in each of its past annual report reviews, with regular input from tax professionals and small business bodies as well as the ATO and its scrutineers.
2.92
In its review of the 2015–16 annual report, for example, the Committee recorded milestones for the ATO with improved numbers of taxpayers interacting with digital system. As noted in this chapter, tax professionals were also positive about the ATO’s progress compared with the previous reviews. Nevertheless there were ongoing reservations about the calibrations within the Reinvention of services; the constant iteration of new features and updates which continued to disrupt their businesses.
2.93
Since that review, the Committee has delivered a comprehensive progress report on ATO service developments and frameworks in the context of its inquiry into taxpayer engagement in the tax system. That report, tabled in August 2018, addressed some ongoing service challenges under the Reinvention Program. These included those associated with delivery of core digital products such as the Standard Business Reporting (SBR) enabled Practitioner Lodgement System (PLS), as well as policy-related matters such as the balance of ATO investment in digital services for taxpayers versus tax professionals, and their effective and appropriate integration with private sector products to support ‘end to end solutions’.
2.94
The taxpayer engagement report also reviewed the ATO’s performance in service delivery against comparable nations which revealed that the ATO is following OECD best practice in delivery of a modern tax administration service, albeit within the limits of a relatively complex tax system which complicates digitalisation in some areas. It was also noted that the ATO is nevertheless on par with many other nations in use of prefilling for example, and is advanced in its use of Application Programming Interfaces (APIs) to support development of a ‘tax eco-system’ of partners, including the private sector.
2.95
With digital transition accepted as the foundation for service transition internationally, the Committee determined to review the mainframe Reinvention of ATO services before making concluding observations on how these correspond to the expectations of stakeholders.
Digital transition—the costs and the benefits
2.96
As discussed in the first part of this chapter, a core commitment of the ATO’s Reinvention Program is to support self-assessment by making tax compliance as easy possible, and hence the digital points of engagement must be efficient reliable and user friendly. Commenting on this the ANAO noted that integration of cultural change with technical transition to improve taxpayer experience was the priority, and not cost savings:
The [Reinvention] program was initiated partly in response to the Australian Public Service Commission’s capability review in 2013, which outlined the challenge for the ATO to transform its existing processes, systems, culture and workforce to be more agile, responsive, efficient and effective. At a high level, implementation of the program was expected to better position the ATO to be more contemporary, innovate with technology and meet taxpayer expectations. While productivity benefits and operational savings are expected from the program, they were not a key driver for its implementation.
2.97
The ATO’s ‘Blueprint for change’ was therefore couched as a response to ‘what the community wants from the ATO—the kind of experience they want to have when they participate in the tax and super systems’, and not as a service decision by government. In October 2018, the ATO published an addendum to the blueprint which advised:
Since launching our blueprint for change in March 2015, we’ve focused on the things you’ve told us are important:
expanding our range of online services
providing the community with more certainty about their tax and super position.
2.98
For tax professionals, the dialogue with the ATO over their expectations of the digital reinvention has been ongoing. At this review Mr Tony Greco, General Manager of Technical Policy at the Institute of Public Accountants (IPA), indicated that the problems associated with the digital transition are far from resolved:
The biggest issue that we have regarding the ATO is systems and how they support the tax profession. The implementation of a lot of systems is pretty chequered, which has caused our members a lot of grief. We understand that digital is the way forward. Unfortunately, as the ATO goes down that digital path it creates unpleasant experiences for our members. Our members are very much focused on that direction, but they have got to get there in a way that does not upset their natural processes. At the end of the day, they are small businesses themselves. We sort of fail to realise that. They are trying to service, in the main, small businesses themselves but they are a small business. And any hiccups that they experience in relation to service delivery is a big deal for our members.
2.99
Ms Susan Franks, Senior Tax Advocate, Chartered Accountants Australia and New Zealand (CAANZ) also expressed frustration with the slow progress of digitisation, requesting the Committee to adopt a more rigorous process of review:
We represent chartered accountants in Australia and New Zealand. We have over 117,000 members and are linked to international organisations. Our submission raises a number of issues, but the link between them all is the impact of digitalisation. Digitalisation has affected business models, the composition of our tax base, ATO audit models and modes of operating. Our submission suggests that this committee explore the possibility of asking the key revenue authorities to put out every five years a report about the status of the Australian tax base and tax administration system.
2.100
During its discussion with the ANAO, the Committee asked the ANAO why the ATO’s digitisation of its lodgement and information services and systems was not part of its costs and benefits review of the Reinvention Program (given its criticality to the overall transformation of the taxpayers’ experience).
2.101
Mr Morris advised that the ANAO considered the Reinvention to be separate to obligations to provide a level of digital service, although he later recognised that ‘they’re sort of one and the same thing’ in terms of customer service. His key observation, as noted previously, was that outcomes for improved participation, enhanced digital service and ease for the taxpayer could not be directly attributed to the Reinvention Program without measurements to prove it.
2.102
Mr Morris did consider, however, in explanation of the benefits assessment, that: ‘the benefits to the ATO in meeting their corporate priorities, which are things like improving productivity and improving ease of access for the taxpayer…do go to the taxpayer experience’. He also conceded that there may be a need to conduct a cost/ benefit audit to assess whether taxpayers were getting value for money under the digital reinvention focus, given innovation in the private sector. The ANAO could potentially assist, he advised, with the caveat that a more specialist knowledge of technical innovation may be required for such a project.
ATO service outages under review
2.103
During the 2016–17 reporting period, a sequence of sustained digital service outages brought into focus some more fundamental concerns about the overriding ethos of the ATO’s digital transformation, in particular the problems and risks associated with arrangements for the external management and storage of taxpayer information.
2.104
The Commissioner, in his forward to the ATO submission to this review, reflected back on the period’s problems through the lens of recovery over Tax Time 2017, reporting:
And while this Committee’s inquiry is focused on 2016–17, we are pleased to let you know that Tax Time 2017 was even more successful than 2016 — in terms of ease of experience, speed of return, client satisfaction and number of complaints. Despite the setback of the Storage Area Network (SAN) failure and the consequential outages, we were able to recover, rebuild, reprioritise and deliver Tax Time 2017 to even better levels than 2016…
We are now embarked on an IT Systems Improvement Program to build resilience, capability and performance of our IT systems – to ensure we reduce the risks of unplanned degradation or interruptions and to be fit and secure for the increased provision and use of digital services and the rising volume of data.
2.105
However, the IGT’s submission referred to the ongoing concerns of taxpayers, and as indicated above, tax professionals in particular, about the reliability of ATO systems. With respect to the major ATO systems outages which had occurred in December 2016 and February 2017, the IGT noted that a number of reviews had been conducted, one by the ATO—the ATO System Report and two others by the PwC and Hewlett-Packard Enterprises respectively.
2.106
The ATO Systems Report (June 2017) outlined the causes of the system failures at the Hewlett Packard Enterprises (HPE) operated SAN storage facility in Sydney. The report advised that when designing the Sydney SAN, HPE’s focus in design had been on performance, with stability, resilience and cost factors in balance. The report found that, as a consequence, while some resilience features were incorporated in the system, the specific combination of events that resulted in the SAN failure had not been contemplated.
2.107
The first outage, which occurred late on 11 December and early on 12 December 2016, had therefore resulted from the ‘compound impact’ of:
multiple SAN component failures on the Sydney SAN, which included failures associated with stressed fibre optic cabling
subsequent unsuccessful attempts for the system to auto‑recover in response to the component failures (consequently the SAN was unable to provide read/write services to the applications it supported)
control, management and monitoring systems being placed ‘in‑band’, that is, these systems relied on the same data pathways as the production systems that were supporting impacted services.
2.108
The second outage on 2 February 2017 was attributed to mistakes made during further remedial work by HPE on these SAN fibre optic cables, when data cards were dislodged.
2.109
In February 2018 the ANAO presented its ‘Unscheduled Taxation System Outages’ performance audit to Parliament. This report assessed the effectiveness of the ATO’s responses to the system failures, including to what extent the ATO had implemented the 14 recommendations made in its Systems Report.
2.110
The ANAO report noted that, at November 2017, the ATO had implemented four recommendations, mainly relating to technical solutions, and partly implemented the remaining 10 recommendation which related to ‘broader initiatives to strengthen ICT governance and processes’. The ANAO review, in summary, concluded:
The ATO’s responses to the system failures and unscheduled outages were largely effective, despite inadequacies in business continuity management planning relating to critical infrastructure. The post-incident reviews commissioned and conducted by the ATO have informed the ongoing management of its ICT environment, including through strategies and actions to improve ICT governance, strengthen business continuity processes and address availability and resilience gaps in systems infrastructure.
2.111
The ANAO made three recommendations in the audit, all of which were supported by the ATO:
to improve Business and IT Continuity Management and risk management frameworks to better integrate and risks to critical infrastructure;
to develop a performance standard for availability of IT services and for reportage on this, and
to ensure ATO ICT service contracts align with these service standards.
2.112
In response, the ATO agreed to these recommendations also advising on progress in implementation of its reform plan since the ANAO review was commenced.
Measuring outage impacts and outcomes
2.113
In its review of the 2016 Annual Report the Committee asked the ATO to tabulate progress on the digitisation of services, and to track these against original delivery targets. Presaging the ANAO outage recommendation (no. 2 above), the Committee had also called on the ATO to develop ‘best practice’ measures to benchmark the security and functionality of online systems and to report on outcomes. The ATO agreed to provide this information in its 2017–18 Annual Report.
2.114
In response to the ANAO’s recommendations on these matters in February 2018, the ATO was, however, more circumspect:
An IT Systems Improvement Program is currently underway, and will continue over the next few years, to address the priority investment areas identified in this review.
In relation to service commitments that we will identify for the availability of services associated with ICT systems, as contemplated by recommendation 2 in the report, our intention is that we will manage the consequences associated with our performance against these commitments in the same way we do for our current service commitments. A range of existing mechanisms (such as Parliamentary scrutiny) already exist to hold the ATO accountable for performance against our service commitments, and we consider these mechanisms would be equally applicable in this case.
2.115
In August 2018, the Committee asked the ANAO about the ATO’s potential to strengthen business continuity and reporting on it. Referring to data in the ANAO outage audit, Mr Morris noted the frequency of ATO outages (based on ANAO data reproduced as Figure 2.2, overleaf) to support the need for the ATO to adopt more detailed service standards for outage reporting, and equivalent measures to assess compliance under contracts with ICT Service providers.
2.116
In examination of the reduction in number of priority incidents shown on the table over 2016–17, the Committee questioned the ANAO about the appropriateness of the ATO’s current benchmark for priority status at above four hours.
2.117
The ANAO considered this was a matter for the ATO, however it did see merit in a potential audit of the ‘trade off’ of digital outsourcing—to improve digital delivery to citizens and business as part of the reinventing of the ATO. Referring to the benchmarking of an acceptable service, Mr Morris elaborated:
When they set an outage duration, they should have regard to the costs borne by themselves and others, including opportunity costs borne by business. If we looked at that, we would look at how they weigh that up, which is one of the reasons our recommendation in that report was for the ATO to determine an acceptable level of outage for them to report against, which could be part of the service commitments.
2.118
The Committee noted on review of the 2017–18 reportage on service availability that the ATO has, rather than refining outage measures as requested, provided a performance rating based on monitored increases in inbound services, for example, in lodgement returns, activity statements and so on, which clearly does not indicate non-service periods.
2.119
The report also advised however that work on performance targets for availability of digital services started in 2017, and reporting thereof, will be based on the ‘comparison between the planned availability’ with the actual availability of a system for users’.
2.120
The Committee recommends that the ATO provide to the Committee a clear explanation of its methodology for measurement of digital availability and report the information in a clear tabular format showing actual periods of down time (separately outages and maintenance in hours) versus availability for key services.
The Committee further recommends that the ATO should review and report on its measurement thresholds for priority incidents to improve accountability to stakeholders and to Government.
Investment in digital services
2.121
During this review, there were continuing concerns about a perceived mismatch between ATO systems and user expectations, and a need for recognition of this at senior executive and policy design levels under the ATO’s Reinvention process.
2.122
At the hearing in May 2018, Mr Greco of IPA referred to the ‘disproportionate spend on myTax, while the businesses of tax professionals floundered during outages and the regular three or four day maintenance downtimes’. He described the current Practitioner Lodgement Service (PLS) as ‘the dinosaur’, complaining that there was still ‘no definitive date for better systems’. Mr Alex Polglaze in his submission had a similar view about the PLS and the new ‘simplified’ BAS, with he considered was neither as simple nor functional as the former ECI platform. He also noted the timing of the rollout meant he had to install a new computer system at his business peak time.
2.123
The Committee noted that the ATO website now provides dates for transition of forms and reports and services from the ELS to the PLS, with Direct Debit to transition on 28 February 2019, and activity statements, reports, and request practice management reports to transition from 31 March 2019.
2.124
The Small Business Superannuation Clearing House was another problem raised. The Committee was advised that while the previous DHS (Department of Human Services) operating system had been easy for users, the ATO system requires authentication through AUSKey, which the Commissioner himself described as a ‘terrible, outdated, clunky identifier’ in the ‘old whole-of-government system’. Commenting further on this, Mr Peter Strong of the Council of Small Business of Australia (COSBOA) added that: ‘The Tax Office is quite good in consulting. Treasury has this habit of not listening. They say, ‘No, you have a conflict of interest’, hence the superannuation system, for example, is ‘designed by people…who don’t use the system’.
2.125
The Committee noted that as the relocation was a MOG (Machinery of Government) decision, this product was not ‘part of the Reinvention’ but, as Commissioner advised, improvements are reliant on finalisation of Government’s new ‘two-factor authentication process for businesses’, so again it appeared that commitments to provide a user friendly product for superannuation payments could be uncertain in the short to medium term.
2.126
Service outages and system inefficiencies not only affect taxpayers they also affect the ATO’s ability to carry out its core functions effectively. The 2015‑16 Annual Report highlighted the impacts of the hardware failures as a factor in the ATO not achieving its collectible debt target over the period. It further noted that due to an ATO and Government decision, the ATO’s capital budget was reduced by $4.7 million, with corresponding reductions in investment in hardware and IT infrastructure.
2.127
At the same time, the ATO announced that it had increased expenditure on internally produced software by $10 million, while the budget for external purchased software decreased by nearly $20 million in 2015–16 to 6.3 million over 2016–17.
2.128
The Committee has considered in a number of contexts the correct calibration of investment between internal product development and external resourcing of digital storage and products, with the focus being both on providing efficiencies for the ATO, and for taxpayers and tax professionals during the long process of digital transition.
2.129
The ATO’s position on its digital reinvention has been consistent: the ATO is in partnership with the private sector to deliver services and products to which meet the expectations of a digitally enabled society. At this review the ATO’s Second Commissioner, Client Engagement Group, Mr Neil Oleson revisited the theme:
It’s worth saying that we’re not seeking to compete with [the private sector]. There is a kind of philosophical boundary about what your average citizen expects to get in self-service from a public agency like us as opposed to what they might expect to get in a more elaborate service, say provided through a software developer. Our standard philosophy at the moment is: we will make current services available through digital channels, but new services, by and large, unless we think they trip over that public expectation that people can just self-serve from a big public agency, mostly we’ll make that available through what we call APIs, for consumption by software developers, for them to incorporate into their products. That’s a kind of a standing philosophy. It’s not a hard and fast boundary. We have to keep looking at that boundary carefully.
Outsourcing and data security
2.130
Another concern was the security and privacy of taxpayers’ personal information under contracted arrangements. The Committee investigated the ATO’s arrangements for outsourced staff, the risk management for the outsourced SAN systems and the contracting of cloud storage services. The Committee also asked the ATO for more information about data breaches and to what extent those received are disaggregated between internal and external staff.
2.131
In regard to the latter, the ATO’s Mr Ramez Katf, Chief Information Officer, referred to the controls used to ensure ATO and outsourced staff obey frameworks which protect against information breaches. Chief Services Delivery Officer Ms Smith elaborated—these include ATO systems which monitor and control access, and staff selection and training processes which all staff know their obligations. Additionally restrictions on access can be subject to external scrutiny including by the IGT and ANAO, and internal review in meetings with ATO.
2.132
In the broader context, Commissioner Jordan referred to the growing risk of external cybersecurity threats, including tax-related hacking threats. He reassured that the ATO systems management is ‘very strong’ with a ‘clear focus on cybersecurity’, while also observing that there is a necessary ‘balance between ease of service versus security’. In this regard, Mr Jordan acknowledged that there is a risk of breaches through software providers: ‘So we have to work very closely with them to make sure their authentication procedures for their clients are effective, because they’re actually coming through the agents into our systems’. He advised that the ATO’s goal was to meet the Essential Eight requirements for cybersecurity of the Australian Signals Directorate, with four for these recently for the first time obtained.
2.133
The ANAO in evidence to the Committee discussed associated risks with cloud storage arrangements, noting that the ATO had formerly not used cloud services ‘because of security concerns’. The ATO, however, is now reliant on a suite of service providers, including Amazon Web services, Azure, Macquarie telecom. Mr Morris agreed that the agency’s deployment of these services could be a subject for an ANAO audit.
2.134
The Committee notes that the ATO announced late last year (December 2018) that its major IT contracts, or bundles, will expire this year. These are currently held by Leidos (end user computing), HPE Services (centralised computing) and Optus (managed network services). A fourth managed services bundle was kept in-house by the ATO.
2.135
In a news report, ATO’s Chief Information Officer Mr Katf was cited to indicate that the ATO would move to contracts that are ‘more granular and potentially shorter in duration’ and potentially covering a ‘much smaller scope of services’. This follows from the Federal Government’s announcement that it will cap letting of ICT contracts at $100 million or three years duration.
Committee comment
2.136
In view of ongoing concerns about system reliability and erosion of trust following the ATO’s IT outages, and the potential to let smaller contracts, the Committee considers the ATO should review its ICT contacting and procurement frameworks to include requirements for a contractor to benchmark service levels—for example, reporting functional and non‑functional hours, and report this to the ATO on a regular basis. Such information should be used by the ATO to monitor and report on performance in its Annual Report and to direct system refinements identified by ATO business and design lines.
2.137
The Committee recommends that the ATO should review its ICT contacting and procurement frameworks to include requirements for a contractor to benchmark service functionality levels and report to the ATO on a regular basis.
Such information should be used by the ATO to monitor and report on system performance in its Annual Report and to direct systemic refinements identified by ATO business lines and internal ICT design and capability functions.
2.138
In this context, the Committee also recommends that the ATO should report to the Committee on standards and implementation plans for ATO Systems Report recommendation 3.3:
Recommendation 3.3—Improve the analytics function of the ATO’s centralised logging capability…to balance of performance, stability, resilience and cost factors:
early detection, fault finding and proactive problem management
resolution approaches, including active monitoring, analysing issue trends and response evaluation.
Committee conclusion
2.139
The ATO’s transformation under the Reinvention Program involves a push for cultural change within the ATO to support taxpayer confidence and willing engagement, along with the provision of digital outreach services to taxpayers and tax professionals.
2.140
In its past reviews the Committee has monitored progress of the ATO’s Reinvention by noting incremental change on each measure or service from year to year. In the light of the setbacks discussed in this chapter, and the insights provided from taxpayers later in this report, the Committee has determined this time to conduct a broader framework review of agency‑wide change.
2.141
At the Committee’s hearing for this review in June 2018, the then Inspector‑General Mr Noroozi spoke of the complexity and scale of the ATO’s reform program since the 1990s—through design and review of the self-assessment compliance model, and then in the wholesale reform of ATO services both in terms of culture and technology under the Commissioner’s Reinvention Program:
The comments I’ve made about this is it is a very big thing that seems to be going on forever. It’s not something that’s well defined with short-term and long-term goals that can be easily measured. We even notice, in talking with some tax officers, that there is almost reinvention fatigue—reinvention on top of reinvention. What does it all mean? It was initially announced and then things have been added on to it.
2.142
As discussed in this chapter, while the ANAO accepted explanations for limited reporting on the cultural Reinvention of smaller ATO programs at the ‘local level’, it demanded more in terms of measurement of the broader impact on taxpayer engagement:
The Reinventing the ATO program is supported by a suite of articulated outcomes that include both financial and non-financial benefits arising from Reinventing the ATO projects. While outcomes from these projects have been monitored, the success of the Reinventing the ATO program needs to consider other elements including the cultural and experience changes from less formal and continuous improvement initiatives.
2.143
Evidence from stakeholders in this review supported that opinion. As discussed at the beginning of the chapter a foundation for voluntary compliance is that taxpayers believe that the regulator is listening and working to make the process easier for them. With online lodgements increasing each year that measure would appear to be met. But the other side of self-assessment is that the onus of guilt, and the compliance impact, falls on the taxpayer if they should make an error. As Professor Braithwaite advised, under Australia’s self-assessment system:
The compliance model is all about maximum freedom. Yes, the law is there so that’s going to frame what I do, but you have maximum freedom in actually obeying that law, and if you don’t I will, as a regulator, increasingly intrude upon your freedom, and I will take that away in order to enforce the law.
2.144
In this context, the Professor reiterated the need for checks and balances to modulate the Tax Office’s ‘enormous power’, and particularly as it has evolved under digitisation. She highlighted the importance of the cultural transformation of the ATO, with informed staff realising a ‘co-operative interaction’ between the ATO’s Taxpayers’ Charter and its compliance model, and emphasising that: ‘Law-setting a standard that everyone agrees to abide by is incredibly important’.
2.145
Professor Miranda Stewart, Professor of the Tax Group, Melbourne Law School, and fellow at the Crawford School of Public Policy, ANU, supported this view, citing the IGT’s recommendation to upgrade commitments under the Taxpayers’ Charter to support protections for taxpayers under the Reinvention:
In November 2015 the IGT published its Review into the Taxpayers’ Charter and Taxpayer Protections. The Review noted that there were conflicting perceptions about the status of the Charter between taxpayers and the ATO, giving rise to a lack of stakeholder confidence in the Charter. The IGT critiqued the ATO for setting out ‘taxpayer rights’ in the Charter, on the one hand, while arguing against the conferral of any rights under the Charter in litigation. The IGT recommended, among other things, that the Charter be updated to reflect the higher standards of the Reinvention program. To the extent that the standards in the Reinvention Program were higher than those in the Charter, the IGT went on to say that ‘the ATO cannot be in a perpetual state of ‘Reinvention’ and such higher standards should be captured in an enduring and fundamental document such as the Charter.’
2.146
The Committee recommends that the Taxpayers’ Charter better reflect the higher level goals and objectives of the Reinvention Program including by:
establishing standards consistent with the Reinvention Program’s evolving focus on improving taxpayer confidence through provision of fairer and better integrated digital and people-based supports;
containing benchmarks that are calibrated to chart actual performance against these standards as the Reinvention continues over time.
2.147
The Committee notes that the ATO has recently reviewed the Taxpayers’ Charter over 2018 and issued a revised Charter document late in that year. Chapter 5 reviews the current document against these considerations and makes recommendations for improvements.
2.148
Following chapters consider evidence of the taxpayers’ experience of the ATO’s compliance culture and its operations in more detail.