2.1 The ATO is the principal administrator of Australia's taxation and superannuation systems. In 2008-09, this involved employing around 22,400 ATO officers, obtaining $265.4 billion in net cash collections, making almost $17 billion in payments and transfers, as well as interacting with over 20 million taxpayers and payment recipients. To a significant extent, the ATO relies on substantial information and communication technology (ICT) to effectively administer these systems.
2.2 In the late 1990s and early 2000s, the ATO became increasingly concerned that it could not continue to effectively administer the taxation and superannuation systems into the future without making major changes to its ICT.
2.3 The ATO's management decided that the core tax systems had to be replaced. As a consequence, on 2 December 2003, the ATO entered into a head agreement with Accenture to deliver products and services for the Change Program. A number of work orders were placed with Accenture for phase 1 and 2 of the program including design, management arrangements and environments. In December 2004, a contract was entered into for phase 3 with Accenture for a fixed price not to exceed $230.7 million (exclusive of GST) to deliver certain outcomes when replacing a range of ICT systems. The ATO business case estimated total costs for the Change Program, including Accenture's fees, to be $445 million.
2.4 The contract (and an ATO publication, The Australian Taxation Office: Change Program) gives a definition of the 'Change Program', which is reproduced in Appendix 1.
2.5 Initially, the contract was intended to be completed by June 2008. As at September 2010, although the contract had formally finished on 30 June 2010, warranty work under the contract was still ongoing and expected to finish in June 2011. Significant changes in scope have occurred and the total ICT business case, as at 31 July 2010 cost $756.7 million, including Accenture's fees of around $677 million.3
2.6 The Change Program arose following the community's reaction to the ATO's implementation of the GST in 2000. In response, the ATO sought to better understand the underlying reasons for the difficulties it had in implementing the new policy, the frustrations expressed by the broader tax community, as well as determine what the community wanted in their interactions with the tax administration system.
2.7 As this ATO enquiry progressed, it discovered through its interactions with tax practitioners that it was able to deliver significant improvements to the system by building an online 'portal'. This also facilitated a discussion with tax practitioners on the broader design of the tax administration system.
2.8 In early 2002, the ATO commissioned further work, such as the Listening to the Community Program, to understand the expectations of a variety of stakeholders in dealing with the ATO. This work culminated in the ATO's Easier Cheaper More Personalised Program that identified key irritants and impediments to ideal tax administration.
2.9 In July 2003, the ATO published a document, Making it easier to comply. It proposed a three-year program outlining how the ATO would provide easier, cheaper and more personalised interactions, information and advice for individuals, business and tax practitioners. It aspired to deliver a 'user-based system' and set out key principles to guide the design and development of the new products and services.
01 — You will be able to do business with us online — whether through our services or your commercial services
02 — You will have online access to information that is personal to your dealings with us
03 — You will deal with a tax officer who has an understanding of your dealings with us and, in some cases, your industry
04 — You will receive notices and forms that make sense in your terms and that reflect your personal dealings with the revenue system
05 — You will receive high quality responses to your issues and interactions along with quick turnaround times
06 — We will be reasonable about the level of record keeping required that is necessary for you to practically comply with your tax obligations
07 — We will facilitate the use of commercial services developed to ease the cost of your record keeping and compliance with the law
08 — You will experience compliance action which takes into account your compliance behaviour, personal circumstances and level of risk in the system.
If you are a tax agent we will also acknowledge the important role you play in the administration of our revenue laws and will develop an open and constructive relationship with you, recognising your practice management issues in our administrative design.4
2.10 The ATO was aware at that time that its existing ICT systems (or legacy systems) were outmoded and inadequate for the purpose of delivering these principles. The legacy systems were very inflexible in their design structure. For example, it was difficult and costly to make even small changes, such as changing the names of the Deputy Commissioners in standard correspondence, which required changes to the underlying software. In short, a large range of problems had been identified with the ATO's existing ICT systems, as a result of which the ATO management considered a broader initiative for changes to them.
2.11 In December 2003, the ATO formally decided to embark on a major program of ICT changes to replace its front-end systems (such as online external interfaces, telephony services and internal case management systems), back-end systems (involving integration of its accounting engines) and other systems (such as the various and disparate mainframe systems) with systems such as the tax agents' portal, a single case management system and an integrated core processing (ICP) system.
2.12 The ATO sought contractors to deliver its Change Program in 2003. There were three main bidders: American Management Systems (AMS), Booz Allen Hamilton and Accenture. AMS had implemented a system in the USA but did not offer in-country support to Australia. Booz Allen proposed to map the ATO's business processes and then subcontract to software developers to build systems to suit those processes. Accenture proposed to deliver a similar system to that which they had implemented in other countries, such as their recent implementation of the Tax Administration System (TAS) in Singapore.
2.13 The ATO was impressed with aspects of the TAS' design. The system was based on categories of functionality that employed a form design structure, requiring changes only within the form design structure architecture to the business specifications (and not the hard code) for different revenue products. The Singapore tax administration agency was willing to share its design documentation with the ATO. Accenture also undertook to bring the same key personnel that had implemented Singapore's system to Australia to design and build a similar system adapted for Australia's tax administration system.
2.14 Significant improvements were required to the ATO's existing ICT legacy systems. By way of example, new 'slices' of hard code had to be written to update changes to the system for each year's — TaxTime5. For core legacy systems, such as the ATO's National Taxpayer System (NTS), this has accumulated over the years to over 7.5 million lines of code. This is pictorially represented in the diagram below.
The ATO's National Taxpayer System (NTS)
Source: CPT Global, Release 3—Income Tax Implementation Review, report to the Australian Taxation Office, August 2010, p. 13.
2.15 However, the architecture for the new system, as depicted below, would rely on a combination of a 'code library' that would perform certain functionalities (such as registration, assessments, etc.) and a configuration based on the business requirements for the particular revenue products. This meant that the new system would avoid the need for new code to be written if the design of new tax policies was consistent with the administrative delivery of current policies. In these circumstances, only changes to the configuration based on changed business requirements, would be needed.
The ATO's Integrated Core Processing System (ICP)
Source: CPT Global, Release 3 — Income Tax Implementation Review, report to the Australian Taxation Office, August 2010, p. 13.
2.16 The ATO considered that it could minimise the technological and execution risk by contracting a party with proven ability to deliver a system that had worked elsewhere, rather than starting with a 'blank sheet'.
2.17 In negotiating the contract, the ATO also considered that it had taken steps to minimise the contractual risks of overspend by requiring Accenture to deliver defined outcomes (rather than a set of system specifications) for a fixed price not to exceed $230.7 million. These outcomes were:
- An integrated processing system (people/process/technology) for all ATO products
- An effective active compliance and advice capability
- Effective, improved client service
- Improved enterprise-wide outcome management of work
- Delivery of ATO business
- A system with integrity and performance
- Productivity and sustainability benefits
- The program delivered effectively and professionally.
2.18 The fixed price contract was aimed at giving the ATO more certainty around the cost of the program. Therefore, if the outcomes took more work than previously thought, the contractor would bear that cost. However, any approved changes to the contract (Change Requests) were at an additional cost to the ATO.
2.19 The form of the contract was a combination of a 'head of agreement', or a standing offer, setting out overarching terms and conditions with 'Work Orders' that specified contractual performance in relation to certain products, including more clearly defining the outcomes as they related to the Work Orders' subject matter.
2.20 The contract payment or reward structure had various aspects incorporated to provide incentives to deliver the required outcomes. Specific payments were tied to satisfactory completion of certain milestones and warranty periods. Any variations to the contract were to be negotiated through a 'Change Order' and given effect through a Change Request.
2.21 The scope of the contract was to deliver, amongst other things:
- case and management systems, and
- a single ICP system for a range of revenue products.
2.22 At the outset, the replacement of the superannuation systems was specifically excluded from the scope of the contract. These systems were intended to be replaced after the finalisation of the Change Program.
2.23 The ATO intended to progressively implement the components of the Change Program, starting with the relatively easier deliverables that would have a larger beneficial impact in the community. It was intended that this approach would also allow the ATO and Accenture to 'build upon success'.
Initial costs and expected benefits
2.24 The initial total cost for the Change Program business case (including the contract with Accenture) was approximately $445 million. The ATO was to fund this from its own budget. No new Government funding was to be provided.
2.25 The total cost for the business case included funding for around 250 ATO staff, dedicated to implementing the Change Program, at a cost of around $30 million per year.
2.26 The overall expected benefits of the Change Program initially were worth $70 million in 2007-08 with additional benefits worth approximately $130-170 million for each year thereafter. The ATO also considered that there would be other less visible benefits that would extend many years into the future. The ATO's actual costs and benefits analysis has been the subject of further consideration more recently. This is discussed later in the report.
2.27 It should be noted that until August 2006, Government agencies were not obliged to subject certain ICT projects to independent Government gateway review. Such reviews require a person independent from the Government agency to assess at critical stages whether the performance of the contract is on track to deliver the original business case.
2.28 For independence reasons, as well as for effective management of the Change Program, the ATO engaged an independent assurer, Capgemini, who had systems integration experience matching that of the contractor, to assist the ATO recognise and address risks and issues. A condition of the independent assurer's contract was that the assurer could play no further part in the Change Program and therefore could not compete with the contractor for delivery of the systems.
2.29 The ATO also established an internal governance arrangement under the oversight of the Change Program Steering Committee (CPSC), chaired by the Commissioner, which met at least monthly. Underneath this steering committee were a number of other committees and groups that brought together a whole range of ATO officers across the operational areas, compliance areas and people working on the Change Program. The details of the governance arrangements set up by the contract are set out in Appendix 4.
2.30 From June 2008, the ATO also contracted an additional independent assurer, Aquitaine Consulting (Aquitaine), to assist with the Change Program.
Timeframes for ATO Change Program completion
2.31 The ATO had initially intended to complete the Change Program within three years. This was to minimise the risk of Government implementing new policy which would force the ATO to reallocate resources away from the Change Program.
2.32 At the outset, Capgemini identified that the three-year period for the design, build and implementation of the program was optimistic. It believed that delivery of the program over four years was more realistic, on the assumption that during that period there was no need to implement any major, new or changed Government policy.
2.33 The ATO initially intended to complete the Change Program by June 2008 by introducing the new system in three scheduled releases:
- Release 1 — intended completion was June 2005, but was fully implemented in April 2006. This release involved the installation of an ATO-wide client relationship management system, the upgrade of tax agent and business online portals and the installation of an improved correspondence system.
- Release 2 — intended completion was September 2006, but was fully implemented in March 2007. This release involved the installation of a case and work management system (Siebel) and analytical models, as well as the improvement of the client relationship management systems and online portals.
- Release 3 — intended completion was June 2008, but was implemented by July 2010, with warranty work expected to be finally completed by June 2011. This release involved the installation of a single ICP system for all of the taxation systems that the ATO administers, as well as the enhancement of other aspects of the ATO's ICT. This release comprised the most substantial part of the Change Program and the bulk of the cost of the program — Work Order 9, which was executed on 13 December 2004.
Changes to the initial schedule
2.34 As work on the Change Program progressed a number of changes were made, especially to the scheduling of Release 3.
2.35 First, the Government's new policy measures, such as the superannuation simplification measures, were added to the scope of the Change Program from early 2007. Amongst other things, this placed an emphasis on replacing the superannuation systems sooner than the ATO had previously planned. As previously stated, the ATO had initially excluded the replacement of the superannuation systems from the scope of the Change Program. At the time that the Government announced the new superannuation measures, the ATO was designing and building the Change Program ICP system. The ATO has advised that this new policy announcement required it to reallocate resources that were involved in the design and build of the ICP system, such as the chief designer for the Fringe Benefits Tax (FBT) and income tax release builds.
2.36 Second, the ATO decided in December 2007 to deploy Release 3 in several stages due to a number of problems, including difficulties in locking down design and substantial slippage of the schedule.
2.37 Finally, the ATO again rescheduled Release 3 to be deployed in smaller releases as follows:
- Release 3.0 (deployed in January 2008) which enabled the ICP system and Siebel system to synchronise and data share, amongst other things
- the FBT release (deployed on 1 April 2008) which was the ATO's 'proof of concept' for the ICP system
- the First Home Savers release (deployed in July 2009)
- the Super A and Super B releases (to be deployed in January and June 2009 respectively)
- the income tax release (deployed in January 2010)
- the Business Activity Statement (BAS) release (which was initially intended to be deployed in July 2010).
2.38 The ATO has since decided not to proceed with this BAS release6. The superannuation guarantee release was also excluded from the contract scope.
2.39 The changes to the scheduling outlined above, as well as the general delays in deploying the first two releases, extended the timeframes for the Change Program's delivery by two years, with the BAS and Superannuation Guarantee releases excluded from the scope of the contract.
2.40 A diagram that compares the intended initial scheduling and the actual scheduling is reproduced in Appendix 5.
2.41 These changes to scheduling are discussed in more detail in Chapter 3.
Key release elements
2.42 Set out below are key elements from each Change Program release considered or referenced in this report.
The Case and Work Management Systems (CWMS) release — Release 2 element
2.43 The Case and Work Management Systems (CWMS) replaced around 180 different ATO case and work management systems with a single ATO-wide CWMS. The ATO considered that this fundamentally changed the way that ATO staff carried out their work, including:
- improving the planning, prediction and tracking of work more effectively
- providing officers with a more complete understanding of taxpayers' interactions with the ATO
- improving online, phone and paper products and services.
2.44 Since its implementation, the CWMS has been subject to a number of ATO staff concerns and external review, including:
- a Comcare review of the CWMS' compliance with occupational health and safety requirements
- an Australian National Audit Office (ANAO) performance audit to determine the level of success and benefits of the CWMS' introduction.
2.45 Comcare started an investigation of the occupational health and safety risks relating to the ATO's implementation of the CWMS (the Siebel system) on 28 October 2009. Comcare concluded that the ATO had failed to comply with the provisions of the Occupational Health and Safety Act 1991 in relation to the font size of that system. It intended to continue to work with the ATO to ensure that identified risks were addressed.
2.46 The ANAO audit report on the CWMS matter, Audit Report No. 6 2010-11 Performance Audit, The Tax Office's Implementation of the Client Contact — Work Management — Case Management System, was tabled in Parliament on 21 September 2010. The ANAO found that overall the implementation of the CWMS improved and transformed key aspects of ATO activity that supports tax administration. The implementation of the CWMS achieved six of the eight objectives of the Change Program's original business case, with the two remaining objectives expected to be reached once the ICP system achieved full functionality. The report also noted, amongst other things, that:
... the Tax Office continues to explore scope for further gains to be made in the area of casework, reflecting the procedural differences between 'high volume,' as distinct from 'complex' casework.7
2.47 The ANAO made three recommendations directed towards achieving:
- further productivity and efficiency gains from the Client Contact — Work Management — Case Management system
- improvements in the consistency and efficiency of the administration of compliance risks
- improved management of scheduled case cycle times.
The FBT release — Release 3 element
2.48 The FBT release was intended to be the 'proof of concept' release for the ICP system. The release affected around 70,000 taxpayers and was seen as a lower risk to deploy first than other releases.
2.49 The ANAO released an audit report, The Australian Taxation Office's Implementation of the Change Program: a strategic overview, in October 2009.8 This audit provided a strategic review of the ATO's progress on the implementation of the Change Program to that date. At the time of the completion of the ANAO's review, the ATO had implemented the FBT release but not yet implemented the income tax release. The audit made recommendations aimed at improving governance, strategic management, the management framework and management of risks of the Change Program.
2.50 The FBT release is considered further in Chapter 3.
The Income Tax Release — Release 3 element
2.51 Broadly, the key aspect within the income tax release was the development of an ICP system that could receive, assess and issue various notifications of liabilities and payments. This required interaction with a number of other systems, including the systems of external agencies such as Centrelink and the Child Support Agency and other ATO internal systems, including the Higher Education Contributions Scheme and Superannuation.
2.52 The ICP system itself is made up of the following components which are visually represented in Appendix 6:
- an inbound component which captures and validates the payments and forms sent to the ATO or input into the system by ATO officers
- an 'EAI integration layer' component which transfers these payments and forms to the forms and processing module
- a forms and processing component which performs a series of checks and, if successful, transfers the data to the accounting module
- an accounting component which posts the transaction to the taxpayer's account as a first step (Other aspects of the taxpayer's account are also calculated in this module, including the running of credit risk assessments, offsetting amounts against amounts in other systems (internal and external to the ATO), triggering of refunds and correspondence and writing information to the tax return database.)
- an outbound component which organises the printing of the relevant correspondence if a correspondence item or refund is triggered.
2.53 The income tax release is the main focus of this review. Chapter 3 outlines its history and various stakeholder responses. Initially, the events leading up to the income tax release's deployment are outlined. Thereafter, attention is turned to the deployment itself and the community response to that deployment.
3 Note that the program would have cost more if the Business Activity Statement and Superannuation Guarantee builds were not excluded from the scope of the project in 2010.
4 Australian Taxation Office, Making it easier to comply, Canberra, July 2003, pp. 6-7.
5 'TaxTime' is an expression the ATO uses to denote the individual income tax lodgement period (July-October) and the work done in preparation for that period.
6 In October 2009, the ATO noted that the previous plan to implement the BAS release was 'not doable' and developed a new plan to deploy the BAS release in 5 smaller releases. This plan meant that the ATO would continue to use legacy systems until late 2011. Since implementing the income tax release the ATO has decided not to proceed in implementing the BAS release under the Change Program banner. The ATO negotiated a credit from Accenture in relation to this sub-release.
7 Australian National Audit Office, Audit Report No. 6 2010-11 Performance Audit, The Tax Office's Implementation of the Client Contact — Work Management — Case Management System, Canberra, 21 September 2010, p. 16.
8 Australian National Audit Office, The Australian Taxation Office's Implementation of the Change Program: a strategic overview, Canberra, October 2009.