Monitoring and reporting of implementation of recommendations to senior tax office management
10.1 Monitoring of the progress of recommendations from all external scrutineers, including those of the IGT, is undertaken by the ATO's Audit Committee. Reports to this Committee are co-ordinated by the ATO's Internal Audit group (Internal Audit) via the following steps:
- On a quarterly basis, all business lines with active recommendations are required to provide Internal Audit with a written report detailing:
- responsibility for a recommendation;
- description of the progress made during the quarter;
- a target completion date; and
- a likely implementation date (if the recommendation is overdue).
- The responses are then entered into a database and Internal Audit undertakes a quality review of the information.1
- Based on the above information, Internal Audit determines the issues or reasons for the incomplete implementation and prepares a final report for the quarterly Audit Committee meeting.2
10.2 The ATO Audit Committee meeting is held and recommendations requiring attention are then referred to either the ATO's Chief Internal Auditor (attached to Internal Audit) or other senior ATO staff for action.
10.3 A review by the IGT of copies of the above mentioned quarterly Audit Committee reports for 2009 revealed some inaccuracy, incompleteness and a need for further detail to better equip the Audit Committee to determine the status of recommendations. A clear example demonstrating the IGT's concerns involves the lack of reference in the September or December 2009 quarterly reports regarding the status of recommendation 1 from the LAFHA case study review3 or recommendation E from the fourth report4 — with both recommendations still not implemented.
10.4 In October 2009, the ATO's Internal Audit group completed a review of the timeliness of the implementation of recommendations issued by external scrutineers. The report also identified some points for consideration relating to both initial ATO responses to issued recommendations and subsequent status updates provided by ATO business lines to the ATO's Internal Audit group. The review sample focussed on eleven recommendations from external scrutineers5 with just one was from the IGT. It was found that although processes were managed appropriately, there was a need for incremental improvements in the way business lines manage their responses to Internal Audit. The review noted that 50% of initial responses to Internal Audit lacked sufficient information and returned to business lines for further detail and clarification.6 It was also found that status updates for a number of recommendations were reiterated the following quarter thereby not allowing the Audit Committee to accurately and appropriately assess progress against the recommendations.7
10.5 The final report from the review was tabled before the ATO Audit Committee in February 2010 and suggested a number of areas for improvement including:
- the creation of a centralised database to aid the effective implementation of recommendations
- a requirement that business lines provide Internal Audit with an implementation plan for each recommendation8
- each individual point forming a recommendation is to be separately acknowledged and addressed.
10.6 The report concluded that implementation of improvements to the way management responses are developed, should assist in the provision of more comprehensive responses to recommendations which in turn would better equip the ATO's Audit Committee and external scrutineers to make an assessment against progress.9
10.7 The sampling of quarterly ATO Audit Committee reports undertaken by the IGT indicated some inaccuracy, incompleteness and a need for further detail. It is hoped that suggestions arising from an internal ATO review, which is currently before the Audit Committee, will increase both the level and accuracy of information provided.
Communication to taxpayers of the changes brought about by the implementation of recommendations
10.8 The level of change associated with the recommendations that have been implemented by the ATO has necessitated a pro-active approach in communicating with taxpayers. A number of methods have been used to complete this which reflects the ATO's continuing efforts to improve its interactions with the tax community. A few examples of how the ATO has undertaken this for the purposes of this review are outlined below.
i) GST audits for large taxpayers
10.9 This was particularly the case in the area of the ATO's management of GST audits for large taxpayers. For example, the ATO has provided taxpayers with a consolidated guide on the manner in which voluntary disclosures can be made, the type of information to be provided by a taxpayer and the resultant effect on tax, penalties and interest charges. Also, the ATO has clarified via a law administration practice statement10 its position on when a GST audit has started and the circumstances in which this will occur orally or by letter.
ii) Entering litigation with the ATO through the test case program
10.10 The ATO has also been proactive in updating taxpayers about the availability of test case funding with the release in 2009 of a revised booklet on the ATO's test case litigation program. A dedicated webpage on the ATO website was established for booklet. A number of changes were incorporated into the booklet to provide further clarity for taxpayers about the criteria of cases eligible for funding and included more comprehensive guidance on the process involved with cases taken to the High Court. A flow chart describing the test case funding process was also included following representations from a leading professional association to provide further clarity for taxpayers.
10.11 The IGT recognises the efforts undertaken by the ATO in advising taxpayers of the changes following on from IGT reviews. The level of information communicated has on the whole been done in a practical and accessible manner via a range of approaches. It is important for these efforts to continue as further changes arise in connection with the recommendations.
1 Business Lines are reminded each quarter that adequate records must be kept to substantiate all status updates.
2 Note that the February and August reports only contain detail of any change in the status of implementation that has occurred since the last report (that is, they are on an 'exception reporting' basis).
3 Review of Tax Office's management of complex issues - Case study on living-away-from-home allowances (April 2007).
4 Improvement to tax administration arising from the Inspector-General's case study reviews of the Tax Office's management of major, complex issues (October 2008).
5 In respect of reviews between 30 June 2006 and 30 June 2008.
6 Follow-up: External Scrutineer Recommendations (Final Report, page 5).
7 Ibid, page 15.
8 Also, to incorporate this requirement into the corporate practice management statement between the ATO and IGT — namely PS CM 2005/1.
9 Follow-up: External Scrutineer Recommendations (Final Report, page 10). A further report regarding these processes has been prepared just prior to the conclusion of this review by the ATO's Chief Internal Auditor
10 Although practice statements are designed for use by ATO staff, they are publicly available and provide a considerable level of information about the Tax Office approach.