The Inspector-General of Taxation's (IGT's) review into the Australian Taxation Office's (ATO's) large business risk review and audit policies, procedures and practices was prompted by concerns raised by large business taxpayers and their advisers in relation to the ATO's efficiency and effectiveness in managing these risk reviews and audits.

A particular concern raised by large business stakeholders in developing the terms of reference for this review was risk review and audit timeframes. The original ATO policy announcement that it aspired to resolve risk reviews within six months and large business audits within two years was welcomed by many stakeholders including the IGT. The concern was the manner in which the ATO had been managing the fulfilment of this goal.

The IGT received a large number of submissions from stakeholders in the conduct of the review. The key underlying theme was the significant unnecessary compliance costs and disputes as well as the lack of due process arising from the ATO's self-imposed timeframes for completing risk reviews and audits.

To enhance the review process, the IGT convened a consultation forum consisting of large business representatives and ATO management to provide for direct and candid exchange of issues and concerns.

In completing the review, the IGT has formulated a range of recommendations directed at improving the ATO's compliance approaches, risk hypothesis identification, project management and accountability, information gathering approaches, audit and risk review processes, position paper processes and interest and penalties treatments. A separate chapter is devoted to each of these areas with IGT recommendations included. All recommendations also appear in Chapter 3 for ease of reference.

The ATO has undertaken a range of initiatives both during this review and in the adoption of IGT recommendations which seek to address concerns raised by stakeholders. The ATO has launched a number of initiatives in recent years to improve risk review and audit procedures including an updated Large Business and Tax Compliance booklet, an internal LB&I Compliance Manual, Annual Compliance Arrangements, Lead Relationship Managers and Client Feedback Questionnaires.

The IGT is pleased to see that the ATO has acknowledged that there is always room for improvement, in its formal response to this IGT report. The IGT believes that acknowledgement of problems and the need for improvements is an important guard against hubris or group think.

The IGT in setting certain recommendations in this report sought to provide a framework where individual recommendations link or integrate with other related recommendations. The purpose in doing so was to ensure the ATO management process is transparent, accountable, considered and understood by all stakeholders. As the ATO has not agreed to certain recommendations the full benefit of the integrated outcome intended may not be realised.

Whilst the ATO has provided reasoning for disagreeing with some of my recommendations, I remain concerned particularly where I have sought to introduce benchmarks and milestones in the audit process to assist the ATO in achieving its goal of completing audits within its set timeframes whilst affording taxpayers due process.

The ATO in this review and in other contexts has drawn certain conclusions about the comfort and direction it receives from its Client Feedback Questionnaire (CFQ) responses. As noted in this report, the IGT has not had an opportunity to review this CFQ process. The IGT considers that this is an area that is ripening for review, given the stakeholder feedback that the IGT receives often differs from the CFQ results and the implications that CFQ results have for ATO management direction.

The IGT also made certain observations about the future practice and policy. Where the IGT report recommendations are appropriately adopted by the ATO, the tax administration is expected to be enhanced. Once the ATO has implemented the agreed recommendations and sufficient time has elapsed, if significant concerns continue to arise, it may be necessary to investigate policy and legislative options.