5.1 As described in Chapter 1, the ATO engages a panel of EDCAs to assist with resolving lower value debt cases that would otherwise have received no further action.450 There are a range of stakeholder concerns in this regard.

Summary of stakeholder concerns

5.2 Stakeholders' views and concerns with the ATO's use of EDCAs include:

  • whether the ATO should use EDCAs as a matter of principle;
  • the ATO should refer only the more egregious cases to EDCAs;
  • EDCAs operate inflexibly and inconsistently with ATO guidelines and taxpayers may not engage with the ATO once debts are referred to EDCAs;
  • debt recovery activities being referred to EDCAs where debts were paid completely or reduced as per agreed payment arrangements; and
  • inappropriate EDCA conduct and methods of communicating with taxpayers and their representatives.

Use of EDCAs as a matter of principle

5.3 Stakeholders had mixed views on whether, as a matter of principle, the ATO should use EDCAs to collect tax debts. Some stakeholders who supported their use considered tax debts to be no different to commercial debts and that EDCAs provide a flexible resourcing option for the ATO to recover debts. However, others were fundamentally opposed to the use of EDCAs as they believed that:

  • EDCAs are not part of the ATO but a business which seeks to profit from tax debts which the ATO 'sells';
  • the ATO can recover tax debts at a lower cost than EDCAs; and
  • taxpayers' sensitive financial information, which the ATO provides to EDCAs, was not secure and may be misused.

ATO information

5.4 The ATO believes the use of EDCAs to recover tax debt, on its behalf, is in accordance with section 8(1) of the TAA 1953. Under this provision, the Commissioner has delegated to the Deputy Commissioner a wide range of powers, including those under Schedule 1 to the TAA 1953 which relates to the collection and recovery of taxes. Pursuant to these delegated powers, the Deputy Commissioner has authorised EDCA employees to exercise these powers on the ATO's behalf451 and advises taxpayers of this in the 'privacy statement' contained in the relevant letter that is issued to them.452

5.5 The ATO also states that the tax law453 enables the Commissioner to disclose taxpayer information to third parties who have been appointed to carry out a duty or function under a tax law.454

5.6 Furthermore, the ATO has publicly stated that it does not 'sell' taxpayers' debt to EDCAs and any uncollected debt remains the ATO's responsibility to collect.455 In this respect, the ATO pays EDCAs on a 'per case' basis using progressive rates which depend upon the volume of cases actioned each financial year and the type of service rendered, for example, various communication (such as reminders), securing payment in full or by arrangement or undertaking tracing.456 Additionally, EDCAs do not receive payments of the debts they pursue. Any such payments are made through the ATO's existing payment channels.457

5.7 The ATO has also stated that it uses EDCAs to complement its debt management strategies and to support the optimisation of voluntary payments by freeing up the ATO's experienced debt recovery resources to focus on more difficult recovery cases. The ATO also asserts that the use of EDCAs increases the number of lower risk taxpayers contacted and provides more opportunities to re–engage for those who have not responded to previous demands for payment.458

5.8 The ANAO has reviewed the efficiency of the ATO's EDCA program and noted that, between October 2007 and 31 December 2011, the ATO had referred approximately 1.8 million debt cases to EDCAs valued at approximately $7 billion. The EDCAs had prompted the payment of approximately $2 billion (29.1 per cent) at a cost of $54 million to the ATO.459 More recent ATO data was described in Chapter 1.460

5.9 At the time of the ANAO's report in mid–2012, the ATO did not assess the impact of the EDCA program with broader debt management measures, such as the reduction in the overall level of debt holdings and changes in taxpayers' compliance behaviour. For example, in the 2010–11 financial year, the level of total collectable debt had reduced by 4 per cent (from $14.7 billion in 2009–10 to $14.1 billion in 2010–11)461 for which the ATO considered the EDCA program and other measures contributed, such as the ATO writing-off $3.8 billion in debt for that year. However, the ATO did not quantify the EDCA's contribution to the overall reduction.462 As a result, the ANAO recommended the ATO 'establish the relative costs of the use of [EDCAs] and the ATO's internal processes'463. It was also considered that such comparison would support better selection of debt cases for referral and the management of those that are unresolved by EDCA action.464 In this respect, the ATO has advised that it has since:

  • conducted a study to track the collection outcomes on a sample of cases across the four contracted EDCAs and the EI approach;
  • tracked collection outcomes across a sample of case groups to establish the indicative value of the Pre–Referral Warning Letter (PRWL) within the EI approach;
  • conducted a cost per call analysis comparing EDCAs and the ATO's CS&S Outsource and Early Collections team processes; and
  • determined the cost for EDCAs to collect $1,000 (which has reduced from $9.13 in 2012–13 to $7.64 in 2013–14).465

5.10 As a result of these analyses the ATO found that the relative costs of using EDCAs are generally on par or slightly below the ATO's internal cost.466

5.11 In relation to the information that the ATO provides to EDCAs, such information can be grouped into four categories:

  • client data — mostly identifying information, such as personal information, case identifiers as well as any tax agent details;
  • contact data — taxpayer contact details;
  • address data — taxpayers' addresses; and
  • postings data — details of taxpayers' debts, such as dates debts were created and due as well as the composition of the debt, such as the primary amount, interest and penalties.

5.12 Although the ATO makes such information available to EDCAs, the EDCAs currently do not have access to ATO systems.467 Rather, EDCAs use their own systems to manage the cases which the ATO refers to them.468 However, the ATO is trialling the provision of an ATO terminal to EDCAs which is discussed in the later section on information accuracy.

5.13 In handling taxpayer information, EDCAs are required to meet the same Commonwealth privacy and security requirements which apply to the ATO, such as the Privacy Act 1988 and section 16 of ITAA 1936, as they are performing a tax law function under authorisation by the ATO. The EDCA personnel are also subject to the same scrutiny as ATO employees, such as undergoing external police checks, and are also required to sign a secrecy declaration that sets out their responsibilities and obligations to safeguard information disclosed to them. The ATO also assures itself of the security of taxpayer information held by EDCAs through contractual terms which imposes obligations to protect this information at all times and only use it in relation to rendering services to the ATO. Before referring cases to EDCAs, the ATO also completes physical and technology security audits on each EDCA to ensure that all privacy and security requirements are in place.469

5.14 Additionally, EDCAs are open to scrutiny and audit processes from a number of the ATO's external scrutineers. For example, the ANAO found no known breaches in the security of taxpayers' data during their 2012 review.470 Notwithstanding this finding, the ANAO observed that, whilst the ATO had developed a data security framework, it lacked clearly defined roles and responsibilities of key ATO Information and Communication Technology (ICT), physical security and debt staff in implementing the requirements of the framework which reduced the assurance that taxpayers' data was being adequately protected. As a result, the ANAO recommended that the ATO:

  • clearly defines the respective roles and responsibilities of the Debt business line and the Trusted Access branch and the Security Policy and Services branch; and
  • implements all elements of the security framework, particularly the scheduling of reviews, and the completion of Certificates of Assurance and other requirements as set out in the Deeds of Standing Offer with the [EDCAs].471

5.15 In response to this recommendation the ATO has advised that it had developed an Information Security Framework which contains four key plans that together form a governance framework for information security management for EDCAs. These plans are:

  • the Service Level Agreement (SLA) — defines roles and responsibilities for the three areas responsible for the ICT and physical security governance namely, ATO Trusted Access, Security Policy & Services and EDCA Management;
  • an assurance activity schedule — includes the 'role, responsibilities and delivery dates';
  • a Certificate of Assurance — requires evidence to support that key operational, ICT and physical security requirements have been met; and
  • a Certificate of Assurance Measurement document — outlines how the ongoing review of evidence provided via the Certificate of Assurance will occur.472

IGT observations

5.16 Although the ATO may legally engage EDCAs to assist with the recovery of tax debts, stakeholders who oppose such engagement, do so on a number of grounds. Whilst these concerns are valid, the IGT believes they may be largely mitigated.

5.17 Before discussing these grounds it should be recognised that the ATO does not 'sell' tax debts to EDCAs as they are not paid by reference to the amount of debts recovered as is the case in some countries. For example, in the United Kingdom, EDCAs are 'paid commission only on successful recoveries',473 and in the United States, when EDCAs were engaged by the IRS, they were paid on the basis of 'extracting the maximum amount with respect to a fixed liability'.474 The ATO's agreements with EDCAs show that they are paid depending on the number of cases they action each year and the type of work performed.

5.18 However, due to the commercial nature of EDCAs there may be a misalignment in how they approach work to satisfy performance obligations compared to the ATO. For example, it has been alleged that EDCAs may pressure taxpayers, who are likely to be lower income taxpayers with less financial knowledge, into unaffordable payment arrangements which can adversely impact their welfare and ability to access payment assistance in future. Such an approach may be inconsistent with the values contained in the Taxpayers' Charter and the conduct expected in the APS. Whilst EDCAs are required to adhere to these values as part of their contracts with the ATO, the requirements are only meaningful to the extent there are consequences for any breaches. This issue is related to, more broadly, taxpayer protections for which the IGT has announced a review as part of his 2014 work program.

5.19 It should be noted that the ATO's data suggests that EDCAs prompt the recovery of a substantial proportion of collectable debt which the ATO has been unable to collect at a cost largely comparable to the cost that the ATO would have incurred if they carried out the same work. Additionally, the use of EDCAs provides the ATO with flexibility in resourcing.

5.20 On the other hand, it may be argued that the above efficiencies may be gained at the expense of undesired taxpayer experience, such as unsustainable payment arrangements, which may adversely impact long–term behaviours. However, these factors have not been verified or measured by the ATO.

5.21 Accordingly, it would be prudent for the ATO to measure all impacts of the use of EDCAs and share them with the public to either assuage their concerns or for a more informed debate to take place. The publication of such material should be transparent and useful for users but it is recognised that certain disclosures may need to take account of sensitive commercial information. The outsourcing of a given activity provides a useful benchmarking opportunity to assess service and performance delivery which is discussed later in this chapter.

5.22 The IGT believes that the ATO should also consider other options to more effectively engage with taxpayers at earlier points in time and further encourage longer term payment behaviour. Such an option involves the ATO working closer with tax agents and, for example, giving them some ability to discuss payment arrangements with their clients for low value, low risk cases. This option would enable more timely engagement with taxpayers on their tax debts and secure improved outcomes due to the infancy of the debt and contemporaneous involvement of a trusted adviser. Such an option may also benefit tax agents by providing them with an incentive for more responsive client engagement. However, this option could only be pursued if any potential conflicts of interest could be addressed through such means as setting out appropriate parameters within which tax agents could operate and retaining the right to dissolve any of their actions if strict guidelines were not observed.475

5.23 In relation to the security of taxpayer information, EDCAs must meet the same obligations as the ATO. The ATO has in place a system to periodically test EDCAs, as mentioned in the section above, and has taken action to implement the recommendations of the ANAO to improve its information security framework. As the ATO's physical and ICT security requirements of EDCAs have recently been reviewed, the IGT considers this area may be better examined after the resulting changes have had time to be implemented.

5.24 However, the IGT believes that the ATO could assuage many stakeholder concerns in relation to the security of information, if TFN information was not provided to EDCAs unless it is absolutely necessary to perform their function. In these cases, the IGT believes that EDCAs could seek specific information from the ATO with TFNs being made available to them in exceptional cases.

Recommendation 5.1

The IGT recommends that the ATO measure and publish information relating to the performance of External Debt Collection Agencies, including the use of benchmarking, on aspects such as the:

  1. efficiency of the pursuit of collectable debt;
  2. sustainability of payment arrangements; and
  3. impact on taxpayers and their long–term payment compliance behaviour.

ATO response: Agree In Principle

The ATO commits to providing a more comprehensive view of the effectiveness of the ATO's debt management strategies, including those using our External Debt Collection Agency (EDCA) partners, in future annual reports. The information will be published at an external partners' strategy level, with no reference to individual agency results.

The amount of information that we can publish relating to the performance of EDCAs is impacted by the commercially sensitive nature of our contracts with those agencies.

Referral to EDCAs

5.25 Stakeholders generally expect the ATO to refer more egregious cases to EDCAs for recovery rather than lower value and lower risk cases.Stakeholders have said that the misalignment in expectations can result in future non–compliance as taxpayers believe they are being treated too harshly.

5.26 Stakeholders have also said that an uncertain volume of referred cases creates an inability for EDCAs to effectively plan for resourcing which can adversely impact their ability to collect tax debts in a timely manner.

ATO materials

5.27 The ATO has stated on its website that it only refers to EDCAs those debts that are 'low value' and 'non–complex'.476

5.28 Furthermore, the debt cases, which the ATO refers to EDCAs, are contractually defined and include:

  • income tax and activity statement debts;
  • superannuation guarantee debts; and
  • other debts owed to the Commonwealth.477

5.29 The above debts must also be:

  • in relation to 'active cases' which are not affected by the taxpayer's ability or requirement to resolve the debt, such as taxpayers with disputed debts or who are insolvent or deceased/deregistered; and
  • 'within the potential project and dollar ranges for external referral'.478

5.30 The system processes for referral to EDCAs were described in Chapter 1.479 Additionally, the ATO sends PRWLs at least 14 days before the cases are referred to EDCAs to give taxpayers another opportunity to contact the ATO.480 If taxpayers do not respond to the letter within a specified time, or if the taxpayer has had a warning letter issued previously, the case may be referred.481 It should be noted that some taxpayers may not receive a PRWL at all if they have previously had a case referred to EDCAs before PRWLs were developed.482

5.31 In relation to the number of cases referred to EDCAs, the ANAO had observed that this varies as a result of the fluctuating nature of ATO funding and that the ATO had not determined an allocation method for sharing work across its panel of EDCAs.483

5.32 The ATO, however, has advised that EDCAs are provided a referral forecast on a quarterly basis. Furthermore, the ATO's EDCA Management unit has recently developed a Performance Base Referral (PBR) allocation model that determines referral numbers and is reviewed on a monthly basis. The PBR is divided into two defined metrics:

  • financial metric comparison — based on a 3, 6 and 12 month 'rolling recovery rate' which is intended to provide the ATO with assurance that the EDCAs are effectively managing case referrals in the short, medium and long term; and
  • non–financial (contractual obligations) — focused on 'delivery, customer satisfaction and relationship'.484

5.33 The tables below show the ATO's relative distribution of work to its different EDCAs.

Table 5.1: Distribution of work to EDCAs from July 2012 to December 2014
Years Probe Recoveries Dun & Bradstreet Baycorp Totals
2014–15 80,002 55,104 63,265 48,680 247,051
2013–14 176,856 114,112 127,847 95,693 514,508
2012–13 118,356 151,291 173,214 95,519 538,380

Source: ATO.

Table 5.2: Distribution of work to EDCAs over 2010–11 to 2011–12
Years National Credit Management Ltd (NCML) Recoveries Dun & Bradstreet Baycorp Totals
2011–12 10,667 110,089 100,055 79,209 300,020
2010–11 104,033 104,946 101,786 103,447 414,212

Source: ATO.

5.34 The tables above show that there can be a large variation in the number of cases that are referred to different EDCAs.

IGT observations

5.35 At a strategic level, the ATO needs to ensure that the EDCA program is integrated with its broader approach to debt management to ensure that the ATO takes the most effective action in the first instance for every case.

5.36 The ATO's work to identify 'next best treatments', discussed in Chapter 2, should allow the ATO to identify those cases that are more likely to respond to an EDCA.485 This work could then improve the effectiveness of EDCA referrals as a treatment strategy.

5.37 However, whilst the ATO has a debt referral process to ensure the consistency of selecting and referring debt cases to EDCAs, stakeholders expect different types of cases to be referred despite the ATO's public statements.486 The ATO, however, does not publish a comprehensive description of the referral process. The IGT believes that a more detailed disclosure of the referral process to EDCAs may help to realign community expectations and, therefore, mitigate any perverse taxpayer behaviours which may result due to misconceptions.

5.38 Furthermore, whilst the ATO's contracts (Deeds of Standing Offer or DOSO) with its EDCAs provide the ATO with flexibility in relation to the volume of cases it refers to EDCAs, the IGT considers that sufficient warning should be given of changes and unexpected increases in numbers of case referrals to EDCAs. This would better allow EDCAs to effectively plan their resourcing to meet their performance obligations. Accordingly, the current quarterly estimates of the volume of cases to be referred, should be made and provided to EDCAs more frequently, such as on a monthly basis.

Recommendation 5.2

The IGT recommends the ATO:

  1. publish the types of debt collection work for which it engages External Debt Collection Agencies and the types of cases referred to them; and
  2. provide External Debt Collection Agencies with more frequent estimates of the volume of cases to be referred so that they can better manage resources and meet performance obligations.

ATO response: Agree

The ATO advises these matters will be negotiated in future commercial in-confidence contracts between the ATO and individual EDCA partners.

Oversight and scope of authority of EDCAs

5.39 Stakeholders question how the ATO ensures EDCAs act in accordance with the required guidelines as they have observed that some EDCAs:

  • have been inflexible and inconsistent in their approach to collecting tax debts; and
  • do not appear to have authority to enter into payment arrangements, remit interest or negotiate disputed debts, whilst other EDCAs can do so to a limited extent.

5.40 Stakeholders also raised concerns that taxpayers cannot speak with the ATO once debts are referred to EDCAsas such a requirement creates unnecessary additional work.

ATO materials

5.41 The ATO's EDCAs are required to provide debt collection services in accordance with the:

  • Australian Competition and Consumer Commission and ASIC Debt Collection Guideline for Collectors and Creditors;
  • terms of the DOSO with the ATO;
  • APS Code of Conduct within the Public Service Act 1999;
  • ATO Ethical Business Relationships Statement; and
  • ATO collection guidelines (including debtor contact/proof of identify, Taxpayers' Charter, Compliance Model and Privacy, Complaints Procedures, Collection Instructions, Payment Guidelines and Authorisations).487

5.42 In providing collection services, the ATO has authorised EDCAs to, amongst other things:

  • secure payment in full;
  • enter into payment arrangements for liabilities which are no greater than $500,000 and do not exceed a term of 36 months;
  • remit GIC amounts no greater than $25,000; and
  • refer certain cases back to the ATO for action.488

5.43 When initially contacting taxpayers, the ATO's collection guidelines state that EDCAs must request payment in full and obtain details of how payment will be made.489 However, these guidelines acknowledge that there may be circumstances which prevent a taxpayer from paying their debt in full. In such cases, EDCAs are to attempt to gain an upfront payment and negotiate payment of the remaining debt over the shortest possible timeframe taking into account the taxpayer's personal circumstances. The ATO also requires EDCAs to make payment arrangement decisions in accordance with Practice Statement PS LA 2011/14. In limited situations, EDCAs may also, with the ATO's approval, enter into interest free arrangements with small business taxpayers.490

5.44 The ATO believes that the authority granted to EDCAs to enter payment arrangements should cover the majority of cases referred to them. Where EDCAs cannot negotiate a payment arrangement due to authorisation limitations, the cases will be referred back to the ATO for action.491

5.45 EDCAs are also not required to accept taxpayers' payment proposals as matter of course and are authorised by the ATO to refuse payment arrangements. In doing so, EDCAs will provide reasons verbally for their decisions as well as advise the taxpayer of their rights of review.492

5.46 In relation to remitting GIC, where a taxpayer has requested remission, EDCAs are to:

  • assess the taxpayer's financial situation;
  • identify the reasons which contributed to the non or late payment of liabilities; and
  • ensure that all lodgments are up to date.493

5.47 The EDCAs must then contact the ATO to ascertain the taxpayer's compliance history and the total amount of GIC to be remitted. For low risk cases, where GIC is not more than $2,500, EDCAs may immediately remit the GIC if the taxpayer has a good compliance history or may consider whether remission would be appropriate under PS LA 2011/12 if the taxpayer does not have a good compliance history. Where GIC is between $2,500 and $10,000, EDCAs must consider whether remission is appropriate pursuant to PS LA 2011/12 regardless of a taxpayer's compliance history. In making these decisions, the ATO has stated that EDCAs are required to follow the same guidelines as its own staff.494

5.48 Cases involving the remission of GIC amounts greater than $10,000 must be referred to the ATO for a decision.495

5.49 Where a taxpayer's debt is disputed, EDCAs are directed to establish the amount which the taxpayer is disputing. If the taxpayer is disputing the full amount, the EDCA must advise the taxpayer to contact the ATO and then cease action on the case for 30 days to allow the taxpayer time to lodge their dispute. Once a dispute is received by the ATO, taxpayers will then receive a formal notification from the ATO and the case will be withdrawn from the EDCA.496 If no dispute has been lodged, EDCAs are directed to continue with their collection activity.497

5.50 If the taxpayer is only disputing part of their debt, EDCAs are directed to attempt to collect the undisputed amount.498

5.51 A dedicated email address has been established by the ATO for EDCAs to refer cases to the ATO for action, advice or information. If matters are urgent, EDCAs may also phone the ATO. However, the ATO expects EDCAs to resolve issues internally where possible before escalating the matter.499 The ATO also expects that once a case is referred to an EDCA, it remains under their management and they are responsible for the collection and monitoring of the debt until it is withdrawn by the ATO. Furthermore, where the ATO receives calls in relation to referred cases, ATO staff are instructed to transfer taxpayers' calls to the relevant EDCA.500

5.52 To help ensure that EDCAs are adhering to the above expectations, the ATO has in place SLAs, with its EDCAs, which sets out a 'performance management framework', including performance measures and minimum expected standards. The SLAs also establish a formal process to regularly assess and review EDCA performance as well as to identify, document and resolve potential and emerging issues that may inhibit EDCA performance.501 Some of the key measures and associated reporting requirements outlined in the SLAs are described below:

  • certificate of assurance — includes an 'Exception report' for all unmet controls;
  • collection performance — assesses EDCAs performance in line with the minimum standards as well as benchmarking;
  • debt case action — sets key benchmarks for referred cases, such as requiring 100 per cent of all cases to be actioned in accordance with the DOSOs and
    45 per cent of all payment arrangements entered into by EDCAs to not be defaulted;
  • incident and complaint management — requires EDCAs to maintain an 'issues register' to record progress of all issues and problems, including service problems and complaints that arise and provide that register to the ATO; and
  • quality standards — states that the ATO may conduct 'floor walking' at the EDCA's premises as well as review quarterly a sample of 30 referred debt cases, which are selected by EDCAs themselves, to assess performance in relation to the guidelines for which the ATO sets a 95 per cent benchmark.502

5.53 Additionally, EDCAs are required to actively and accurately monitor, measure and record other performance indicators that would reasonably assist the ATO in benchmarking, improving processes or measuring the level of value delivered by EDCAs amongst other things.503

5.54 Where an EDCA is failing to achieve a required minimum performance standard, the EDCA is required to document and report the default to the ATO, investigate the issue and take remedial action to prevent it from reoccurring.504 The ATO also has in place a 'service rebate and credit scheme'. Under this scheme, the ATO may, in its discretion and depending on the severity of any default, deduct amounts otherwise payable to EDCAs. However, EDCAs are able to regain any deducted amount by implementing remedies within a timeframe agreed with the ATO.505

5.55 It should be noted that the above scheme does not inhibit any other rights that the ATO may have under its contracts with the EDCAs.506

IGT observations

5.56 As stakeholders are concerned with the ATO's use of EDCAs generally, it is important that taxpayers are made fully aware of the scope of EDCA authority so that expectations are appropriately managed. Whilst the ATO's internal documents set out the activities that EDCAs may undertake, including where matters should be referred to the ATO, it appears that such information is not made publicly available. The IGT believes that better appreciation of EDCA's authority and the ATO's collection guidelines would clarify, for stakeholders, the limited actions that EDCAs may take in relation to payment arrangements, remission of interest and disputed debts.

5.57 It follows that those cases which are referred to EDCAs for resolution should be within their authority to resolve. For example, if it is expected that a taxpayer may require a payment arrangement which is beyond the authority of EDCAs, such cases should not be referred, but rather managed by the ATO itself. Whilst the ATO expects the majority of cases referred to be within the EDCA's authority to resolve, an inability to resolve cases may frustrate taxpayers and contribute to an inefficient process. The IGT notes that there is also a discrepancy between the ATO's guidelines to EDCAs (as well as public statements) and EDCA authorisations which provide that they can remit interest up to $10,000 and $25,000 respectively.507Accordingly, the IGT believes that the ATO should better align its referral criteria with the authority granted to EDCAs.

5.58 Where a case is referred to an EDCA and it subsequently becomes apparent that resolution is outside the scope of the EDCA's authority, the system relies on the discretion of EDCAs to escalate the matter to the ATO. However, if an EDCA does not refer the matter and persists with its course of action, a taxpayer may become unsatisfied. In these circumstances, the ATO expects EDCAs to resolve complaints at first instance and only escalate those where resolution was not successful. It is only where complaints remain unresolved that EDCAs must disclose to taxpayers their right to lodge a formal complaint directly with the ATO.508 The IGT is of the view that delaying the disclosure of this right risks unnecessary escalation of taxpayer resistance and risks their disengagement from recovery processes.

5.59 The IGT considers that this risk could be avoided by disclosing at the outset, the taxpayers' rights to complain, however, that the ATO expects taxpayers to engage EDCAs to resolve their debt in the first instance. This information could form part of the letter which informs taxpayers that their debt has been referred to an EDCA. The IGT also observes that, as the ATO captures complaints made to EDCAs, this could be a source of valuable feedback to assess performance and maintain oversight of its EDCAs.

5.60 Maintaining sufficient oversight of EDCAs is required to provide assurance to the ATO that its expectations are being met. In addition to the complaints system above, the ATO's collection guidelines provides oversight of EDCAs by requiring ATO input into certain decisions made by EDCAs as well as other decisions which first require ATO authorisation before they may be made. The guidelines also provide a system for EDCAs to seek advice or escalate certain matters to the ATO. Limiting ATO involvement to more serious issues appears appropriate, otherwise it would assume the role for which EDCAs have been contracted.

5.61 EDCA performance on meeting the ATO's expectations is measured and reported pursuant to the SLA, such as conducting reviews of a sample of referred debt cases totalling 120 annually. In the IGT's view, reviewing 120 cases in a high–volume area (up to 176,000 cases), which are selected by the EDCAs themselves, may be insufficient to ensure expectations are being met as well as ensuring consistency. Even in circumstances where it is considered not feasible to conduct a review of a larger random sample, there may be scope to conduct more targeted reviews of certain cases. For example, such reviews could be conducted in relation to cases which have generated common complaints as well as in relation to the key performance measures, such as cases where payment arrangements were defaulted. The IGT also recognises that monitoring the consistency of EDCA decisions comes at a cost to the ATO. Accordingly, limited monitoring could be accompanied by a more cost effective approach of ensuring EDCA personnel receive relevant and periodical training in relation to the ATO's specific expectations.

5.62 Furthermore, whilst contractual performance measures define the paramount objectives and behaviours expected of contractors, the IGT is concerned that two of the ATO's performance measures, 'collection performance' and 'debt case action', may encourage EDCAs to focus on recovering debts with less regard for taxpayers' circumstances or the sustainability of payment arrangements despite guidance to do so. This is because the ATO requires EDCAs to enter into payment arrangements with 'kept rates' of only 45 per cent (not defaulted). It is also uncertain how EDCAs determine the affordability of payment arrangements or whether they use the ATO's BVAT and DST in setting the parameters of payment arrangements. Accordingly, the IGT believes that the performance measures for EDCAs should include more consideration of the impact on taxpayers, providing them, for example with the streamlined BVAT recommended earlier in the report, DST or similar tools to consider taxpayers' circumstances.

Recommendation 5.3

The IGT recommends the ATO:

  1. better inform the public about External Debt Collection Agencies' role particularly in relation to how they are required to act with respect to disputed debts, enter into payment arrangements and remit interest;
  2. increase taxpayer awareness on how they can make complaints about the actions of External Debt Collection Agencies from the outset; and
  3. assist External Debt Collection Agencies to give more consideration to taxpayers' circumstances.

ATO response: Agree in Principle

As part of our communication and collaboration program we will continue to raise awareness of our strategies to collect debt including the use of our external partners.

We agree with the intent of (b) and note this will be covered in our broad communication and collaboration program.

We will continue to work in partnership with the External Debt Collection Agencies (EDCAs) to ensure consistency of approach for taxpayers regardless of whether they are interacting with the ATO or an EDCA.

Accuracy of information provided to EDCAs

5.63 Concerns in relation to the accuracy of information relied upon by the ATO when it undertakes debt recovery activities were discussed in Chapter 4. This section focuses on the accuracy of information provided by the ATO to EDCAs on referred debts.

5.64 Many stakeholders have observed instances which suggest that the ATO has given EDCAs inaccurate information,such as recovery activity commencing where debts have been paid completely,reduced as agreed under payment arrangements, before debts were due and where refunds were due.

5.65 Stakeholders have also made general observations that letters are sent to tax agents who no longer represent the taxpayer, EDCAs not knowing the debtor reference number quoted to them when taxpayers return their calls and issuing letters with names missing. Stakeholders have said these issues result in extra costs and time in trying to determine why such correspondence was sent.

5.66 Some stakeholders, however, have commented that information accuracy issues are currently mitigated by EDCAs communicating with the ATO's Debt Support Recovery Team (DSRT) to clarify information where necessary. These stakeholders believe that whilst such channels may be effective, they are inefficient. They have suggested that there needs to be investment in automation of the data interface between the ATO and EDCAs to provide updated information more frequently.

ATO materials

5.67 While a referred case remains active with an EDCA, the ATO's Operations Sub–plan Enterprise Reporting Team extracts relevant case data from the ATO's systems and transmits any information to be updated to EDCAs via the Corporate Exchange Gateway.509 Chapter 1 described this weekly transmission process.510 It includes:

  • cases referred (or re–referred) to EDCAs;
  • updated information for cases currently referred, including changes to addresses, contacts and debt values; and
  • details of cases that have become ineligible for referral and have been retrieved by the ATO.511

5.68 The ATO has stated that due to its current system limitations, a more frequent transfer of information is not possible.512 Therefore, to accommodate any changes to information which occur during the week, EDCA demand letters advise taxpayers to ignore the demand if payment had been made within the last seven days.513 Additionally, where taxpayers call EDCAs with respect to having made payments, EDCAs are required to phone the ATO to confirm the payment. If the payment is not recorded as being received, the EDCA will place a hold on the case and check with the ATO again after one week to allow for any processing delays.514

5.69 As indicated earlier, the ATO is currently trialling providing EDCAs with an ATO terminal to enable access to updated information in real–time which is expected to alleviate many of the concerns with the accuracy of information. The ATO has advised that the impetus for this trial was that EDCAs make a large number of calls to the ATO which are primarily to confirm taxpayer account balances (for example, during the 2013–14 financial year, EDCAs made 48,000 calls to the ATO's DSRT, of which, approximately 90 per cent were to check taxpayer account balances). To support this project, the ATO has developed a Fraud & Corruption Risk assessment plan which, amongst other things, includes random checks of physical security, additional training for EDCA staff as well as limiting access to information (including read only access) and internet connectivity.515

IGT observations

5.70 It is important that EDCAs take action based on accurate and complete information to ensure that recovery activity is efficient and that taxpayers and their advisers are not subjected to unnecessary costs. When outdated information is used by EDCAs it may also reduce taxpayers' confidence in the authenticity of the EDCA and the expected standard of service.516

5.71 Although, the ATO has a weekly process to update the information provided to EDCAs, there remains a margin for action to be taken on outdated information.

5.72 Ideally, real–time updates would reduce the risk of EDCAs actioning cases based on outdated information. However, such updates are currently not possible due to system limitations. As an alternative, the ATO is considering providing EDCAs with access to an ATO terminal. Whilst, such access will provide EDCAs with real–time access to ATO information, it may also create perceptions of inappropriate private sector access to sensitive taxpayer information. The IGT believes that if appropriate security safeguards are taken to reduce the risk of inappropriate access, the provision of an ATO terminal may be a feasible option to help reduce instances of recovery action taken on the basis of inaccurate information. Accordingly, the IGT believes that the ATO's Fraud & Corruption Risk assessment plan may be appropriate.

5.73 The ATO also has a responsibility to ensure that EDCAs maintain the accuracy of information provided to them as well as the information that EDCAs provide to taxpayers or their advisers, such as debt reference numbers. However, it appears that the ATO does not have such requirements of EDCAs nor are requirements outlined in the collection guidelines for EDCAs. The IGT believes that such requirements are necessary to ensure that EDCAs appropriately manage their own internal systems with regards to the accuracy of information.

EDCA communication

5.74 Stakeholders consider that some of the methods used by EDCAs to communicate with taxpayers and their representatives are inappropriate, such as using automated phone diallers and sending text messages which ask the recipient to call them. Stakeholders have also noted that tax agents are often contacted outside of standard business hoursand some of their clients are being contacted directly.Furthermore, stakeholders have said that they need proof that EDCAs are acting on behalf of the ATO.

5.75 Submissions indicated that some taxpayers have refused to communicate with EDCAs because they have not given authority to the ATO to give their information to EDCAs.Similarly, some tax agents have also refused to communicate with EDCAs as they have not been given authority by their clients to do so.

5.76 Stakeholders have also raised a number of concerns with the effectiveness of EDCAs' communication during recovery activities, including:

  • not providing sufficient information in voice messages for recipients to return phone callswho must then wait for the EDCA to call again;
  • attempting to pass themselves off as being from the ATO and wielding ATO powers; and
  • being aggressive, rude and abrupt in conversations with tax agents and taxpayers, for example, in one case despite a taxpayer agreeing to a payment arrangement with the EDCA, it charged the full amount of the debt to the taxpayer's credit card and threatened them when they called about the error.

ATO materials

5.77 As part of the ATO's DOSOs with EDCAs, it expects EDCA negotiations with taxpayers to be of the highest quality517 and, as mentioned earlier in this chapter, pursuant to the APS Code of Conduct, Taxpayers' Charter and the ATO's debt collection guidelines, amongst other things. The ATO also has in place a complaints system in relation to its EDCAs.518

5.78 EDCAs use a range of methods to collect debt, including initial contact by letter, followed by subsequent telephone and additional letter contact.519 The ATO's guidelines are silent on the use of automated phone diallers but they do state that SMS may be used where approval has been granted by the ATO.520

5.79 The ATO has stated that whilst the EDCA's contracts allow for weekday and weekend contact, they currently only operate on weekdays. The use of after-hours contact (until 9.00pm on weeknights) by EDCAs is also consistent with the ATO debt collection practices. After hours contact is said to enable increased coverage of taxpayers as well as better contact with small business owners and operators who are generally busy during the day.521

5.80 In making calls after hours, EDCAs specifically exclude identified tax agent phone numbers, who should only be called between 9:00AM and 5:00PM unless otherwise stated by the tax agent. The ATO accepts there may be some instances where a tax agent number is not identified and is called after hours in error.522

5.81 The ATO directs EDCAs to contact taxpayers' tax agents in the first instance, where such information is registered, to first determine if they are still representing the taxpayer.523 EDCAs may only call taxpayers or other authorised contacts directly where the tax agent either:

  • does not return calls within a reasonable timeframe;
  • does not respond within the agreed timeframe;
  • advises the EDCA to speak directly with the taxpayer or authorised contact; or
  • advises the EDCA that they no longer represent the taxpayer.524

5.82 In making contact by phone, EDCA staff are required to identify themselves and their agency. They have also been provided with appropriate scripting to address concerns of taxpayers and tax agents about debts being referred to an external collection agency.525

IGT observations

5.83 The ATO allows EDCAs to use a variety of communication channels to improve contact with taxpayers and their advisers, including SMS messages.

5.84 Such communication is used after PRWLs have been sent to taxpayers or their agents. The IGT acknowledges that not all taxpayers may prefer the same forms of communication or be available to talk during business hours. However, the use of automated diallers and SMS once the initial letters have been sent are a less intrusive means by which to attempt contact with taxpayers as well as being a quick and cheap way to prompt taxpayers to call when they have time.

5.85 Furthermore, the ATO's guidelines do not permit EDCAs to contact tax agents outside of standard business hours unless advised by tax agents otherwise. The ATO acknowledges that such contact may occur in error where phone number data does not indicate the contact number is for a tax agent. The IGT believes that the current ATO guidelines, which allow tax agents to request EDCAs to call them during business hours, is sufficient. Where it is found that there are errors in phone number data, it should be properly referred to the ATO to update their systems. The IGT notes that the ATO has guidelines to make such updates.526

5.86 The ATO's guidelines for EDCAs also generally do not permit EDCAs to contact taxpayers directly but for certain limited situations. Such contact is uncontroversial where EDCAs are directed by the tax agent to call the taxpayer directly or where they no longer act for the taxpayer. However, the issue is where EDCAs contact taxpayers directly due to tax agents not responding. The IGT believes that sufficient latitude is afforded in the ATO's guidelines to allow tax agents to engage with EDCAs and it may be appropriate that the taxpayer is contacted directly to avoid any potential escalation to firmer debt recovery action, particularly where it may be through no fault of the taxpayer. As mentioned above, where such contact is made in error, EDCAs should update information as per the ATO's guidelines and taxpayers should be permitted to refer the call to their tax agent should they wish.

5.87 In relation to providing assurance that EDCAs are acting on the ATO's behalf, the ATO has in place two methods. One is a list on its website disclosing the panel of EDCAs and the other is a mechanism for taxpayers or the advisers to call back EDCAs using their main phone number which is disclosed on the ATO's website.527 The IGT believes these mechanisms may assuage concerns as to whether EDCAs are acting on behalf of the ATO. However, the IGT observes that details of the specific EDCA to which a taxpayer's debt is referred is not disclosed in any letter sent by the ATO to taxpayers. Accordingly, the IGT believes that including such information as well as reference and contact numbers for the specific EDCA may also help alleviate stakeholders' concerns about the authenticity of EDCAs.

5.88 In relation to EDCA staff behaviour, they are required to be professional in their conduct and the DOSOs provides for a complaints system. The ATO accepts that complaints serve as important feedback and help it to identify improvement opportunities and specifically directs EDCAs to recognise a person's right to complain.528 As mentioned earlier, the ATO expects EDCAs to take all reasonable steps to resolve complaints within ATO policy but also to inform taxpayers of their right to make a formal complaint directly to the ATO. The ATO also monitors EDCAs incident and complaint management, amongst other things, and for which the 'service rebate and credit scheme' operates. The IGT believes this scheme may be sufficient if it effectively encourages EDCAs to address particular complaints.

450 The current panel of ATO EDCAs are: Baycorp Collection Services Pty Ltd; Dun and Bradstreet; Probe Group Pty Ltd; and Recoveries Corporation Group Limited.

451 ATO, Referral of Debt to External Collection Agencies (13 June 2013).

452 Ibid.

453 Taxation Administration Act 1953 s 8WB(1A).

454 ATO, 'Referral to EDCAs', above n 451.

455 Ibid.

456 ATO, Communication to the IGT, 11 July 2014.

457 ATO, 'Referral to EDCAs', above n 451.

458 Ibid.

459 ANAO, The Engagement of External Debt Collection Agencies: Australian Taxation Office (2012) p 16.

460 ATO, Communication to the IGT, 11 July 2014.

461 Commissioner of Taxation, Annual Report 2009-10 (2010) p 50; Commissioner of Taxation, Annual Report 2010-11 (2011) p 50.

462 ANAO, above n 259, p 18.

463 Ibid, p 27.

464 Ibid, p 17-18.

465 ATO, Communication to the IGT, 29 January 2015.

466 Ibid.

467 ATO, Communication to the IGT, 11 July 2014; ATO, 'Referral to EDCAs', above n 451.

468 ATO, 'Referral to EDCAs', above n 451.

469 ATO, External Collection Agencies (26 August 2013); ATO, Communication to the IGT, 11 July 2014.

470 ANAO, above n 259, p 16-17.

471 Ibid, p 26.

472 ATO, Communication to the IGT, 29 January 2015.

473 OECD, 'Tax Debt Management', above n 45, p 75.

474 National Taxpayer Advocate, 'Letter to Congress' above n 135, pp 3, 7.

475 ATO, Letter to the editor of The Sydney Morning Herald and The Age (2014).

476 ATO, Debt Collection – What to Expect (20 May 2014).

477 ATO, Communication to the IGT, 11 July 2014.

478 Ibid.

479 Ibid.

480 ATO, 'Debt Collection – What to Expect', above n 476.

481 ATO, Communication to the IGT, 11 July 2014.

482 Ibid; ATO, Communication to the IGT, 29 January 2015.

483 ANAO, above n 259, p 21.

484 ATO, Communication to the IGT, 29 January 2015.

485 ANAO, above n 259, p 17-18.

486 ATO, 'Debt Collection – What to Expect', above n 476; ATO, 'Referral to EDCAs', above n 451.

487 ATO, Communication to the IGT, 11 July 2014; ATO, 'Referral to EDCAs', above n 451.

488 ATO, 'Instrument of Authorisation: Dun & Bradstreet (Australia)' (Internal ATO document, 2014); ATO, 'Instrument of Authorisation: Recoveries Corporation' (Internal ATO document, 2014); ATO, Instrument of Authorisation: Probe Group (Australia) (Internal ATO document, 2014); ATO, 'Debt Collection Services: Collection guidelines for external collection agencies working on behalf of the ATO in line with their Deed of Standing Offer' (Internal ATO document, 2013) p 27.

489 ATO, 'Guidelines for EDCAs', above n 488, p28; ATO, 'Referral to EDCAs', above n 451.

490 ATO, 'Guidelines for EDCAs', above n 488, p28, 32; ATO, 'Referral to EDCAs', above n 451.

491 ATO, 'Guidelines for EDCAs', above n 488, p28, 32.

492 Ibid, p 34; ATO, 'Referral to EDCAs', above n 451.

493 ATO, 'Guidelines for EDCAs', above n 488, pp 38-39.

494 ATO, 'Referral to EDCAs', above n 451.

495 ATO, 'Guidelines for EDCAs', above n 488, pp 38-39, apps L, M O; ATO, 'Referral to EDCAs', above n 451.

496 ATO, 'Guidelines for EDCAs', above n 488, p 46.

497 Ibid.

498 Ibid.

499 Ibid, pp 56-57.

500 Ibid, pp 57-58; ATO, 'Referral to EDCAs', above n 451.

501 ATO, 'Service Level Agreement (SLA): For the provision of debt collection services to the Australian Taxation Office' (ATO) (Internal ATO document, 2013) p 3.

502 Ibid, pp 5-10; ATO, Communication to the IGT, 29 January 2015.

503 ATO, 'EDCA SLA', above n 501, p 14.

504 Ibid.

505 Ibid, pp 14-15.

506 Ibid pp 15.

507 ATO, 'Guidelines for EDCAs', above n 488, pp 38-39, Appendices L, M O; ATO, 'Referral to EDCAs', above n 451; ATO, 'D&B Authorisation', above n 488; ATO, 'Recoveries Corporation Authorisation', above n 488; ATO, 'Probe Group Authorisation', above n 488.

508 ATO, 'Guidelines for EDCAs', above n 488, p 53.

509 ATO, 'The Debt Referral Process', above n 141, pp 4, 9; ATO, ATO, 'Referral to EDCAs', above n 451.

510 ATO, 'The Debt Referral Process', above n 141, pp 4, 9.

511 Ibid, p 9.

512 ATO, 'Referral to EDCAs', above n 451.

513 Ibid.

514 Ibid.

515 ATO, Communication to the IGT, 29 January 2015.

516 ANAO, above n 259, p 21-22, 91.

517 ATO, 'External Collection Agencies', above n 469.

518 ATO, 'Referral to EDCAs', above n 451; ATO, Communication to the IGT, 11 July 2014.

519 ATO, 'Referral to EDCAs', above n 451.

520 ATO, 'Guidelines for EDCAs', above n 488, p 25.

521 ATO, 'Referral to EDCAs', above n 451.

522 ATO, 'Guidelines for EDCAs', above n 488, p 19.

523 Ibid.

524 Ibid.

525 ATO, 'Referral to EDCAs', above n 451.

526 ATO, 'Guidelines for EDCAs', above n 488, pp 20-21.

527 Ibid, pp 22, 47.

528 Ibid.