6.1 This chapter considers the ATO processes and procedures on case management and also relevant relationship management aspects. It sets out the issues and concerns raised by stakeholders regarding the ATO's management of risk reviews and audits and outlines a number of recommendations that seek to strengthen transparent leadership, accountability and communication in the context of ATO project management.
6.2 Chapter 7 of this report considers in greater detail a number of key aspects linked to the project management of risk reviews and audits including timeframes and taxpayer engagement.
ATO Roles and responsibilities
6.3 The ATO adopted a new management structure for Large Business and Tax Compliance (LB&I) during the course of this review. The new structure is outlined in summary below and shown in diagrammatic form at Appendix 1.
6.4 The former ATO LB&I management structure was raised both in consultation and in submission by stakeholders. Accordingly, to facilitate aspects of the discussion in this context the former LBI structure is described below for reference.
6.5 Segment Leaders played an important role as a link between the large business taxpayers and LB&I senior management. Specifically, they managed large business taxpayer relationships, and conveyed ATO views, addressed issues and concerns including conflicts and disputes and complex technical issues.
6.6 Formerly, the Special Adviser role reported to the Deputy Commissioner LB&I Operations. Their primary role was to support Segment Leaders by providing senior leadership to industry segments on key cases and issues. This was achieved in a number of ways including:
- case level — making specific interventions from an early stage in some of the more complex, sensitive and potentially difficult cases or issues and conducting independent six monthly call-over of cases; and
- building capability — attending workshops for selected cases including initial workshops for new risk reviews and audits and providing guidance on areas for overall improvement.
6.7 Special Advisers operated with a high degree of flexibility in terms of the nature and extent of the interventions they made in specific cases.
6.8 Importantly, the Special Advisers did not take on the role of Team Leaders. Rather, they provided guidance, counsel and leadership in managing the technical issues and the case to ensure that it was progressing appropriately. Where Special Advisers did intervene in a risk review or audit they could assume the role of the Segment Leader.
6.9 Special Advisers may be engaged by Segment Leaders at any stage of a risk review or audit. Interventions varied from short term guidance or intervention to longer term detailed and ongoing involvement. However, very detailed ongoing intervention was limited to ensure that Special Advisers had an appropriately broad coverage of cases and issues, maintained an appropriate strategic focus and had availability for more urgent issues or cases. Some examples of specific activities that Special Advisers may undertake to provide assistance include:
- workshop cases to help teams understand complex issues, identify more specific information requirements and develop more detailed case plans;
- work closely over extended periods with teams to help them develop and implement appropriate strategies to manage the resolution of the technical issues and risk;
- assist teams to ensure that appropriate technical and other specialists (including external specialists) are engaged and to make best use of that specialist knowledge;
- provide detailed input to the development of information requests, position papers and briefings; and
- mentor teams and case managers to develop their technical, case planning and case management capability.
6.10 The ATO also established a small number of Case Leadership positions that intervene primarily in cases from a pool of work identified by a set of criteria. The Case Leadership positions are corporate roles that report directly to the Commissioner of Taxation.
ATO Lead Relationship Manager
6.11 In June 2009 the Commissioner of Taxation announced that the ATO was to provide a Lead Relationship Manager (LRM) role for the largest businesses who make a significant contribution to Australia's tax revenue and who demonstrate a willingness to work collaboratively with the ATO.
6.12 The aim of the LRM role is to build relationships and trust in order to facilitate voluntary compliance, improve client service and reduce compliance costs. It seeks to better enable large businesses to manage their taxation, employer and superannuation obligations through cooperative and purposeful relationships. It is also intended to provide the 'cut through' to achieve more timely resolution of tax issues by:
- facilitating, coordinating and prioritising high level engagement across the ATO;
- fast-tracking critical technical decisions and the resolution of escalated issues, blockers and irritants;
- involving taxpayers early in planning and scheduling of compliance activities; and
- arranging access to technical specialists and decision makers for significant issues.
6.13 The ATO offered an LRM on a priority basis to large businesses that showed a genuine desire to work collaboratively with the ATO, made a significant contribution to the Australian economy (turnover, contribution to revenue and the effective running of the tax system) and had complex taxation, employer and superannuation obligations. Alternatively, an LRM role may have been put in place for a specific period of time or circumstance, such as for a major transaction or joint venture.
6.14 Eight large businesses participated in an ATO pilot to co-design the LRM role, from July 2009 to April 2010. The Large Business Advisory Group and a range of ATO stakeholders were also consulted.
6.15 The ATO advises that the pilot was an investment in continuing to develop whole-of-client and whole-of-ATO approaches. It also supported the ATO's strategic shift to working in real time and encouraging early and open engagement. A key element of the role was the early and timely access to interpretative advice and coordination of review and audit activity to reduce compliance costs.
6.16 The ATO advises that benchmark surveys undertaken at the start of the pilot and follow-up surveys indicate improvements in key deliverables such as coordination of ATO activity, access to decision makers and the timely resolution of technical issues.
6.17 In June 2010 the Commissioner announced the expansion of the LRM service to up to 20 large businesses. The ATO has stated that it remains a challenge and a priority to become more consistent in the way that it engages with large businesses so as to bring to life the ATO's organisational and relationship principles. One way of doing this was to involve a broader group of compliance staff in the next implementation phase of the LRM rollout.
ATO processes and procedures
6.18 The ATO's LB&I Compliance Manual has two chapters dedicated to planning a risk review and audit. It states that planning and actively managing a case is the key to completing the case effectively and in a timely manner.1
6.19 The Compliance Manual recognises the importance of planning and stresses that Team Leaders are required to play a vital role in the planning of risk reviews and audits, including signing off on a case plan and bearing ultimate responsibility for the plan being effective.2 The ATO has indicated that a range of skilling and capability initiatives directed towards improving case management and planning have been effected or are in progress.
6.20 As a way to ensure that compliance work is well planned, it is mandatory at the commencement of an audit that the case officer prepares an Audit Management Plan (AMP) and that this is discussed with the taxpayer by a senior tax officer at the preliminary audit interview. The purpose of the AMP is to provide taxpayers with a clear understanding of the scope of the audit, the tax risks being examined, the audit process and the proposed audit project plan timelines. It is highly recommended that the senior tax officer that attends the preliminary audit interview also participates in the audit planning workshop.3
6.21 The ATO also advises that active case management is achieved through monthly case reviews and call-overs.
6.22 The purpose of monthly case reviews is to facilitate the timely management of risk reviews and audits so as to achieve the planned outcomes. This involves the identification of issues that may delay case progression and to advance those issues to a resolution. Monthly case reviews involve:
- monitoring case progression to case plan;
- supporting critical case events;
- reviewing and updating the expected case outcomes;
- providing timely and regular review and support;
- identifying and implementing interventions; and
- regular review to determine if a case warrants early exit.4
6.23 The Compliance Manual states that the monthly case review is a pivotal governance point that supports the delivery of LB&I's compliance program and must be conducted in a purposeful, rigorous and disciplined manner. The outcome of the monthly case review is intended to provide segment and line management with assurance that the appropriate outcomes for each compliance case are being achieved by pro-active case management such as appropriate resources and capabilities being allocated to the case, consultation with other stakeholders and subject experts and ensuring that all aspects of the case adhere to established work practices.5
6.24 The ATO also uses case call-overs for significant audits, risk reviews and objections that are conducted by senior technical officers such as LB&I Case Leaders. As part of the call-over process an audit team must document the key issues, identify any blockers and review findings.
6.25 The ATO has advised IGT that where monthly reviews are conducted in line with management's intent, cases will be actively managed and teams should be able to progress the majority of casework in appropriate timeframes and in line with the commitments made in the Large Business and Tax Compliance (LBTC) booklet.
6.26 The ATO uses call-overs (or case governance panels) as one of its assurance mechanisms around the effectiveness of teams in actively managing their cases through day-to-day activities and monthly reviews.
6.27 Call-overs occur three times a year and involve a review of the stock of casework with certain cases selected for an in-depth panel discussion. Senior and experienced officers take part in these panel discussions and provide direction to teams on the case direction, including around managing any need for escalation or plans to resolve blockers.
Submissions and consultations
6.28 The issues and concerns raised by stakeholders in the course of this review are outlined in this section.
6.29 Some advisers and taxpayers have complained of ineffective and inefficient decision-making processes with audit teams struggling to progress issues or remove blockers due to a clear absence of strategic direction and leadership.
6.30 Others have suggested that it is often unclear who the decision-maker is given the large number of tax officers that are involved in a risk review or audit. In addition, tax officers that are ultimately responsible for a decision do not always have direct contact with the taxpayer and also initiate audit processes that are perceived to be unnecessary or did not have a clear purpose.
6.31 A number of taxpayers and tax advisers submitted that without this direct contact, tax officers may often not be aware of the consequences of their decision (such as a taxpayer experiencing unnecessary delay and incurring significant costs). If the 'real' decision maker was directly engaged then other viable alternatives would be better understood, appreciated and considered and there would be greater accountability.
6.32 Others have remarked that even where there is direct contact with these relevant tax officers, it is often unclear what their role is and taxpayers and advisers believe that they are not able to provide an adequate explanation of the ATO audit processes or the status of particular matters.
6.33 A number of taxpayers and advisers also raised concerns with certain aspects of the ATO's audit plans, including:
- audit plans being extremely general in nature and often involving unrealistic timeframes (in one example raised with the IGT, the ATO committed to an audit plan but on the same day issued information requests and section 264 notices to third parties that would make it impossible to adhere to the plan);
- multiple revisions of audit plans, departure from agreed case plans and processes, inconsistency between agreed process and subsequent ATO action;
- lack of transparency from audit teams (for example, not keeping taxpayers informed of the escalation of technical issues within the ATO); and
- no updates during the audit with no clear timetable or guidance around risk review and audit outcomes, with some taxpayers receiving information requests 15 months after the start of an audit.
6.34 Advisers and taxpayers believed there to be a disconnect between auditors, senior management and technical areas leading to time delays and uncertainty. This has been attributed to the segregation of responsibilities (such as technical decision making and information gathering) across various parts of the ATO. Further, they have a clear impression that no one person is responsible or has sufficient authority for bringing these functions together, which can lead to the inefficient handling of risk reviews and audits.
6.35 Others suggested that the organisational shift in the ATO from functional groups (such as audit and appeals) to a market segment approach has meant that it is very important to ensure that the appropriate technical and legal resources and expertise are directly available during a risk review and audit.
6.36 A number of taxpayers and advisers pointed to the case leadership role and noted that it had evolved to allow greater oversight around key issues and provided dedicated senior management time and energy to resolve these issues.
6.37 While there was ready acknowledgement that the involvement of case leaders has led to the resolution of some outstanding audits, a number of taxpayers and advisers have expressed the view that the LB&I case leadership initiative is not achieving optimal results.
6.38 Other advisers and taxpayers believed that case leaders are not always taking an active role in managing the audit process and are not acting as an appropriate escalation point. Advisers are frustrated that they often get push back from case leaders whenever they seek to escalate an issue or concern. Where case leaders are becoming involved, taxpayers believe that they are not looking to resolve the audit but rather are prolonging the process by exploring new issues, arguments, positions and issuing further information requests.
6.39 A number of problems that arose in this context were demonstrated by way of examples provided by taxpayers and advisers. The ATO also raised with the IGT certain examples where the information gathering with the taxpayer was a very difficult process, where in their view the delay and need for further information was due in no small part to taxpayer actions. In this regard it may be helpful to look at some examples that test the extremities of application.
6.40 One such example raised by a taxpayer with the IGT referred to an audit where after 12 months of dealing with the Case Officer and providing a significant amount of information to the ATO, a Case Leader became involved resulting in a change of direction with further information requests and additional costs for taxpayers with no appreciation of the prior audit history. Another taxpayer referred to an audit where they had provided the ATO with a voluntary information paper as well as approximately 65 lever arch folders of information and source materials. Following the involvement of a senior ATO officer, the taxpayer was advised that the ATO did not have a sufficient understanding of the facts to finalise its technical position and the audit team embarked on a new round of information gathering to address the technical issues raised by the senior ATO officer. This led to the taxpayer providing an additional 23 lever arch folders of information and source materials and the ATO interviewing 14 former employees. The taxpayer asserts that this highlights that the activities of the audit team prior to the appointment of the senior ATO officer did very little to assist the ATO to finalise its position.
6.41 More generally, taxpayers and advisers also believed there is a lack of clarity around the role of Case Leaders. Many believe that the ad-hoc involvement of Case Leaders, where they can seemingly drop-in and drop-out of an audit, creates significant delays, uncertain and contentious positions, an overly secretive and aggressive approach and in certain instances excessive resort to formal information powers. Some advisers and taxpayers have suggested that these negative impacts arise due to the Case Leaders wanting to take an audit in another direction notwithstanding the significant amount of time and resources already incurred by the taxpayer. Others have asserted that there is often a lack of dialogue with these officers because they act from behind the scenes and exercise their influence and decisions without direct engagement with the taxpayer.
6.42 The IGT observed that there was significant stakeholder confusion and uncertainty about the Case Leader role under the former LB&I management structure in terms of authority and application both formally and in practice.
Taxpayer and adviser expectations
6.43 Taxpayers and advisers broadly want greater transparency, accountability and improved communication in the audit and decision-making process (with particular emphasis on personal accountability, delegation of decision-making power and senior officer involvement and responsiveness).
6.44 Advisers and taxpayers strongly believe that there is a need to have a single senior executive ATO officer who is ultimately responsible for a risk review or audit and identified to them as such. The role of such officers would be to provide end-to-end leadership and accountability, ensure that there is proper dialogue and engagement with the taxpayer, be the key escalation point and ensure that due process is being followed in the conduct of a risk review or audit.
6.45 These senior tax officers should also be responsible for ensuring that the various aspects of the ATO audit process (such as technical decision-making and information gathering) are well-coordinated, and be able to cut through both internal and external blockers to ensure the timely conduct of a risk review or audit.
6.46 Taxpayers and advisers would also like to see more active management and leadership of the risk review and audit processes by the various Team Leaders, with adequate oversight by the senior executive officers to ensure that Team Leaders are conducting the risk review or audit in a manner that is consistent with the spirit of the LBTC booklet.
Senior leadership and accountability
6.47 The IGT has found that the ATO's processes, procedures and audit teams do place an importance on ensuring that case plans are prepared and followed, with evidence of case plans on the Siebel case management system. In addition, the IGT has found that the ATO does seek to actively manage risk reviews and audits through monthly case reviews and call-overs.
6.48 The ATO Compliance Manual acknowledges that the risk assessment of 'higher risk' and 'key' taxpayers requires proactive management and that project management is a skill in its own right. The IGT believes that pro-active management in an LB&I environment requires an officer with sufficient clout, technical expertise and leadership qualities to ensure that risk reviews and audits are being conducted in a manner consistent with the LBTC booklet.
6.49 Under the previous ATO management structure , there were a large number of tax officers who could be involved in a risk review or audit ranging from Segment Directors, Segment Leaders, Special Advisers, Case Leaders, Team Leaders and Technical Leaders along with the potential involvement of technical decision-making areas (Tax Counsel Network (TCN) and the Centres of Expertise (CoE)). The IGT has found that executive level officers (such as Special Advisers, Case Leaders and Segment Leaders) have significant input in developing strategies to manage and resolve technical issues and risks, identifying information requirements and providing direction on case plans and position papers.
6.50 However, the IGT has also found that it is often unclear what the roles and responsibilities of each of these officers are in the context of managing a risk review or audit. Feedback from a range of stakeholders suggests that it is often left to the case officer to manage these internal interactions and relationships when it would appear that these officers are the least empowered to do so.
6.51 The IGT agrees with taxpayers and advisers that there is a need for transparent leadership and accountability around the risk review and audit processes. While it is important that executive level officers be actively involved in risk review or audit cases, the IGT believes that the high degree of flexibility in terms of the nature and extent of this involvement has brought about uncertainty. It is difficult for taxpayers and advisers to identify a tax officer with overall responsibility and authority for a risk review or audit to act as a single point of contact. In certain cases, this can have a detrimental impact on the ATO's efforts to move towards early engagement and to engender greater trust.
6.52 It is clear from submissions and consultations that taxpayers and advisers want an executive level officer who is ultimately responsible and can bring together key components of a risk review or audit (such as the technical decision-making and information gathering). The role of such officers would be to provide end-to-end transparent leadership and accountability, ensure that there is proper dialogue and engagement with the taxpayer and be the key escalation point. In addition, these officers should be responsible for the technical component of the audit so as to ensure that critical technical decisions are made and escalated issues, blockers and irritants are addressed.
6.53 The IGT also believes that it is important to have senior executive level officers maintaining adequate oversight of key aspects of a risk review or audit, especially where they may impact upon the ATO-taxpayer relationship. Where there are a number of different people or areas involved in a risk review or audit (such as TCN, COE or other LB&I specialists) it should be possible to readily identify on the ATO's Siebel case management system who is involved, the nature and extent of their involvement and the expected timeframes.
To provide greater leadership, transparency and accountability involving higher consequence taxpayers, the ATO should allocate a tax officer of executive level or higher as Team Leader with sufficient authority, technical expertise and leadership qualities to ensure there is a strong project management focus and that due process is followed in the conduct of any risk review and audit.
The Team Leader role should have the following responsibilities and expectations:
- end-to-end accountability for a risk review and audit including ensuring that key stages of a risk review or audit (such as technical decision-making and information gathering) are well-coordinated, timely and effective. This will necessarily involve being responsible for the technical components of the audit to ensure that critical technical decisions and the resolution of escalated issues, blockers and irritants are managed effectively;
- effective oversight of Case Officers and active management of other ATO officers involved in the process, to ensure the consistent and proportionate delivery of a risk review and audit in keeping with the ATO LBTC booklet requirements and the ATO's Risk Differentiation Framework; and
- ensuring that there is proper dialogue and engagement with the taxpayer by actively participating in key workshops and meetings.
The Team Leader should also work closely with their senior executive officer to ensure the latter is regularly appraised of case progress and emerging risks for the case plan, so they can develop and implement strategies to mitigate those risks.
The senior executive officer will also:
- act as the key escalation point for taxpayer concerns with the conduct, progress or direction of a risk review or audit; and
- consider and decide whether alternative dispute resolution is appropriate and ensure that genuine steps are taken to resolve potential disputes.
All our team leaders in the large market are executive level officers.
The LB&I Compliance Manual identifies who is responsible for different aspects of active compliance casework. In our response to Recommendation 4.3, we noted that we are updating the manual prior to its public release. We will develop clearer statements of roles and responsibilities for our senior officers in the updated manual.
We will evaluate how senior officers are meeting these expectations through annual performance reviews; feedback from our internal assurance processes (such as callovers); as well as external feedback from Client Feedback Questionnaires (CFQs), client visits and consultative forums.
6.54 In the context of managing a risk review or audit, the IGT believes that there are a range of options that could be considered in implementing this recommendation. One option could be to rationalise the various pre-existing senior roles and responsibilities as they relate to risk review and audits (such as Case Leaders, Special Advisers, Segment Leaders and Segment Directors) and build them into the current LRM role. The LRM role should be expanded to include all 'high risk' and 'key' taxpayers that are subject to a risk review or audit. Given the nature and importance of these taxpayers to the operation of the tax system, it is important that risk reviews and audits have a strong and effective project management focus so as to minimise delay and taxpayer compliance costs.
6.55 In relation to the LRM role, discussions with taxpayers and advisers that were part of the LRM pilot indicated that the role normally formalised a pre-existing strong working relationship with the ATO. While the overall consensus was that the LRM role had great potential and had led to improvements in the ATO-taxpayer relationship, feedback also suggested some uncertainty regarding the extent of responsibility and authority of the LRM in the context of a risk review or audit.
6.56 In one case the LRM was quite active in seeking to resolve a blocker and bring together the taxpayer and ATO technical specialists. In other instances taxpayers were left with the impression that the LRM did not see it as their role or responsibility to be involved in the risk review or audit and that some appeared reluctant to escalate or resolve blockers in the audit.
6.57 A number of taxpayers suggested that they did not want to see the LRM lead the audit team or have carriage of the day-to-day management of a risk review or audit. It was considered important to have a senior tax officer who can objectively review and resolve taxpayer concerns with the conduct, progress or direction of a risk review or audit.
6.58 The ATO's former management structure had Segment Leaders and Directors with general management responsibilities, but Special Advisers were allowed to intervene and assume decision-making responsibilities in certain circumstances.
6.59 Another suggestion would be for these senior tax officers to be separate from the LRM role and only involved in risk reviews and audits. A number of taxpayers and advisers noted that given the ATO's current LB&I resourcing it may be difficult to allocate such a large number of senior tax officers to large businesses and believed there were benefits in reinforcing the responsibilities and expectations in the LRM role.
Team Leader roles
6.60 It is important that Team Leaders continue to have carriage of the day-to-day management of a risk review or audit. However, the IGT believes that greater emphasis should be placed on the responsibility of Team Leaders to ensure they actively manage key aspects of a risk review or audit. This requires greater guidance on the role and expectations of Team Leaders as well as effective assurance mechanisms (such as oversight and guidance from senior tax officers) to ensure that risk reviews and audits are conducted in a manner in line with the LBTC booklet and the ATO's Risk Differentiation Framework.
6.61 This should be supplemented with appropriate skilling and training to ensure that Team Leaders can provide effective leadership and mentoring and ensure that the values and relationship principles embedded in the LBTC booklet are consistently brought to life. On this front the ATO has advised the IGT that it is working through a program of capability enhancement including various training packages for LBI&I staff to support them in carrying out both the Team Leader roles and other responsibilities.
The ATO should provide greater guidance on the Team Leader's role and its responsibilities and expectations in the conduct of a risk review or audit, to better support consistent and proportionate delivery of the processes in conformity with the requirements of the LBTC booklet.
As noted in our response to Recommendation 6.1, this will be achieved through updated guidance on roles & responsibilities in the LB&I Compliance Manual and associated training and dialogue.
Monthly case reviews
6.62 The IGT observed audit teams completing the monthly case review template. The IGT considers that monthly case reviews represent an important governance process by promoting a regular discussion between Team Leaders and Case Officers on the progress of the case.
6.63 The IGT believes that there is scope to build on these templates so as to provide greater assurance that key aspects of a risk review or audit are being effectively and efficiently managed. Currently, the monthly case reviews seem to place emphasis on identifying issues that are causing or will cause case delays. In addition, a number of the questions in the monthly case review template lend themselves to simple yes or no answers with a risk that the monthly case review process becomes a 'tick and flick' exercise.
6.64 The IGT agrees that identifying such issues and blockers is an important facet of managing a risk review or audit. However, the IGT also believes that there is scope for the monthly case review process to be used as an assurance tool around other important relationship aspects of a risk review and audit.
6.65 These aspects could include assurance around the refinement and communication of the risk hypothesis, the nature and quality of the engagement around the facts, issues, evidence and guidance around information requests and the cooperative development of position papers.
6.66 The IGT believes that a more targeted monthly case review process will also ensure that Team Leaders better actively manage these key aspects of risk review or audit.
The ATO should revise its monthly case management review practices to capture a more diverse range of activities so as to ensure that all aspects of a case are adhering to established work practices and the expectations set out in the LBTC booklet. This should include revising the case review template to develop more targeted questions addressing audit teams regarding:
- frequency, mode and content of communication with the taxpayer during the month;
- risk hypothesis discussions with the taxpayer, including communication of material changes to the existing hypothesis or any new risk hypothesis raised during that month; and
- extent of engagement with the taxpayer to:
- explain information requirements;
- identify relevant information; and
- develop a plan for information delivery to the ATO.
We are updating our assurance processes to reflect the expectations set out in the LBTC booklet. As part of this process, we are developing and testing new questions for the monthly review template. These will include a specific focus on the quality and nature of the team's communication and engagement with the taxpayer and its effectiveness.
1 LB&I Compliance Manual, Chapter 2, p 3.
2 LB&I Compliance Manual, Chapter 2, p 4.
3 LB&I Compliance Manual, Chapter 10, p 16.
4 LB&I Compliance Manual, Chapter 10, Appendix 8 (p 48).
5 LB&I Compliance Manual, Chapter 10, Appendix 8 (p 48).