2.1 It is generally acknowledged that to foster community confidence in the ATO's activities in the SME market segment, SME officers need to discharge their duties confidently, expeditiously, equitably and accurately. Such community confidence is critical to voluntary compliance with the taxation laws.

2.2 Overwhelmingly, however, submissions to the review raised the technical capability of SME officers as the main issue of concern. A number of examples were provided of SME officers failing to detect main areas of risk which appeared to be obvious to taxpayers and their advisers. Many submissions also expressed concern that much time and expense was spent in 'training up' SME officers so that the officers could understand sufficient commercial, accounting and tax technical concepts to conduct the compliance activity.

2.3 It should also be noted that submissions also provided examples of capable SME officers who conducted audits professionally, quickly and resolved disagreements fairly and effectively. These examples were, however, provided for the purpose of contrasting the examples of staff with purported lesser capability to deal with complex technical work.

2.4 Compliance work in the S4, HWI and WA areas can involve very complex technical work. Stakeholders have expressed the view that some larger SME cases may be more complex than large business compliance cases. This is because larger SME cases may have similar issues to large business cases as well as other complex matters, such as trust and Division 7A issues or they may not have access to exclusions or carve outs that are available to public company groups.

2.5 During the review, the ATO acknowledged that some SME compliance areas were still building their capability. The ATO advised that further work was underway to improve capability — for example, ATO capability development initiatives, such as the Integrated Capability Development Framework, the learning curriculum, the learning pathway and performance development agreements provide a structure to deliver and develop much needed content for capability development programs.

2.6 The IGT has observed a number of other substantial steps the ATO is taking to improve levels of staff capability such as the SME business line's focus on training and development, assessing the effectiveness of capability development measures and setting the aspirational measure of staff being capable of doing the most complex work (with appropriate support) within 3 years. These are positive moves which should direct the focus of the SME business line towards improving staff capability.

2.7 The IGT believes that improving staff capability as quickly as possible will resolve many of the issues observed in this review. There are lead times required in developing capability and there is a need to maintain that capability once developed.

2.8 The ATO itself recognised that the SME business line will face significant staff capability challenges in the next few years. As such, the ATO has given significant attention to structures that should support the development and maintenance of staff capability, including:

  • staff capability development which is intended to have a 'line of sight' with the ATO's business intent;
  • a business intent which considers that taxpayers' perceptions of SME staff capability are important;
  • a capability development framework and structure which supports SME staff to develop the skills and knowledge that the SME business line expects those staff to possess; and
  • monitoring a range of indicators to assess whether the capability development framework was effective in developing staff.

2.9 The IGT considers that the abovementioned ATO work is a positive step and that there is scope to take further steps to improve the overall capability of SME officers, including through retention, training, development, mentoring and the like. These areas are discussed in more detail below.

Complexity of case work in the S4 market segment

2.10 Case work in the S4 market segment involves large businesses that were previously dealt with by the LBI business line. Most of these taxpayers are part of CHPGs that are linked to HWIs. They involve issues as complex as that seen in the HWI area. Another large proportion of these S4 cases involve public companies where the issues encountered may be as technically challenging as any other large case dealt with by the LBI business line, although the materiality of risks is likely to be lower in groups with lower turnover.

2.11 An ATO internal report also observed that work in the HWI market is becoming more complex, having impact on the ATO's compliance activities in these market segments:

... the complexity of the work is clearly shifting, such that S&ME has acknowledged that the high volume and medium complexity work is becoming lower volume and more complex. This is also supported by staff assertions during interviews carried out during this review.

The complexity and intensity of the work program is articulated in the ATO Compliance Program. It would appear that there is a continued focus (albeit with an intensified coverage) of Private Equity Groups, Wealthy Australians, HWI and the $100-$250 [S4] Market Segment.

However, the intensity is more than simply increasing coverage and involves a properly considered risk assessment of the patch (through a risk differentiated approach). Accordingly, the issues being identified will necessarily be most likely the higher risks.

... Indeed, the S&ME compliance plan already identifies the increasing emergence of ... complex areas (which are complex from both a factual and legal perspective) ...

This presents the S&ME Executive with a new set of challenges — including how to position it to deal with increasing complexity of work along the compliance pipeline.11

2.12 During the IGT's review, submissions from some ATO staff indicated that senior SME business line officers did not believe work in the S4 or HWI market segments was of a particularly complex nature. The ATO internal report considered this issue and observed that:

It was claimed that Senior Managers (at the director level and above) do not appear to appreciate the complexity of the work in IA [the Interpretative Assistance area of the SME business line]. The claims suggest that there is a lack of proper management of the work because they expect staff to process all objections as if they were of equal complexity. This was an issue that was unique to Box Hill site. There was no evidence to suggest that management lacked appreciation of the work complexity. On face value, the complexity of cases is being considered by managers (as illustrated by the way in which planning documents are developed and monitored). However, it is apparent, that the views of managers in relation to the relative complexity of work were not aligned with the views of some staff. Moreover, from discussions with staff, it appeared that some staff felt there was a 'delineation' or 'split' between senior leaders who could provide technical leadership on casework and those who were administrators. Accordingly, the accusation that managers consciously ignored the complexity of case work in their plans cannot be sustained. However, there clearly is a concern that management need to revise their assessment on the complexity of casework under the current environment because cases are becoming increasingly complex.12

2.13 In relation to better identifying the complexity of work, during the review the ATO stated that it would take certain action:

... We will design and build a 'complexity measure and indicator' into our case selection process to enable us to better understand the nature of case work we plan to undertake. The indicator will also provide us with a better basis for planning our resource needs and allocation of the correct resources to match the case work. We plan to have this in place for the 2012/13 year.13

2.14 In the IGT's view, SME cases may be as complex as LBI cases, if not more so, because similar issues to LBI cases may be encountered as well as other complex technical issues such as those relating to trusts and Division 7A. The ATO is increasing its focus on more complex work in the S4 and HWI market segments while maintaining its focus on higher volume and less complex cases of lower turnover SMEs. Given the comparative difference in capability needed, assessing cases according to their complexity and resourcing them accordingly is critical to the success of the ATO's commitment to Government and affected taxpayers.

Recommendation 2.1

When selecting SME (including S4, HWI and Wealthy Australian) cases for compliance activity, the ATO should determine the overall complexity for the cases and resource those cases accordingly.

ATO response: Agree

We will be implementing a case complexity indicator into our case selection processes for review and audit case work.

Staff understanding of the end-to-end process

2.15 ATO officer understanding of the end-to-end process improves awareness of the impact that audit work may have on downstream events in the process (such as objections and litigation). Awareness of these impacts helps ATO officers to make balanced decisions in the best interests of the system as a whole. It is critical to view the compliance plan as a single end-to-end process, rather than separate functions.

2.16 In this respect, an ATO internal report also observed that improved understanding of the roles and responsibilities would address ATO staff concerns with the differing views on the roles of different ATO officers:

The IA and AC areas are committed to building a [sic] better and closer working relationships that will increase the quality of the end to end process and produce efficiencies in the end.

Indeed, S&ME is working closely with LB&I on a number of fronts — including the Early Engagement Model, Siebel systems and technical capability.

However, concerns were often raised about the role of different stakeholders in the end to end process. In particular, there were many differing views on the role of case officers, objection officers, STL [Senior Technical Leadership area of the SME business line — discussed further below] and case leaders in the compliance pipeline. The concept of independence was often raised and there were different views as to whether STL officers or case leaders involved in AC work could also be involved in the objection. The concept of Independence has been thoroughly considered as part of the processes in the Early Engagement Model and also as part of the Dispute Resolution Strategy. Accordingly, any recommendations made in this paper are subject to any finding arising from the above models.

In particular, a fully integrated process map is usually a good guide to assist staff to understand their role within the business model. It would be useful to commence work on developing such a process map.

Recommendation 9

Use the SNC [Serious Non-Compliance area of the ATO] template (on end to end process) to develop clear guidelines on the roles and responsibilities of key stakeholders in SME pipeline work and what type of work should take priority.

The concept of independent review and how objection officers should use STL and case leaders in objection work should be clearly spelt out.14

2.17 This ATO internal report also observed that guidelines should be developed to improve understanding of the roles and responsibilities of ATO officers involved in SME compliance work:

The document [a draft document spelling out the approach taken by the SME business line to incorporate the principles of 'Early Dispute Resolution' into its work practices and to enhance the interaction between IA and AC staff as part of the end to end process] is presented as Guidelines and therefore provides staff with clear direction on their roles and responsibilities in the end to end process. The guidelines compliment this paper and address many of the concerns raised here in relation to the clarification of the roles of key stakeholders. Accordingly these guidelines should be endorsed and marketed in S&ME. Moreover, consideration should be given to presenting these guidelines in the form of a template .

Recommendation 8

The end to end guidelines paper be developed further and presented in a template format ... that sets out the roles and responsibilities of all stakeholders in the S&ME compliance pipeline — including risk officers, case officers, advice officers, objection officers, STL and case leaders etc15

2.18 In accordance with recommendations 8-9 of the ATO internal report, 'Review of interpretative advice as part of the SM&E pipeline', the IGT considers that improved understanding of the roles and responsibilities of different ATO staff involved in compliance activities will go some way to addressing some of the underlying concerns raised by submissions to this review.

Recommendation 2.2

The ATO should improve understanding of the roles, responsibilities and accountabilities of the different staff involved in the end-to-end process of SME cases:

  1. by ensuring clear guidelines on the roles and responsibilities of key ATO stakeholders in the end-to-end SME case process and the priority associated with them are available; and
  2. including in those guidelines, the specific roles, responsibilities and accountabilities of:
    1. SME officers, such as risk officers, case officers, advice officers, objection officers, Senior Technical Leadership officers, case leaders, senior management officers; and
    2. non-SME officers, such as COE and TCN officers.

ATO response: Agree

We will review and as necessary update our procedural instructions and documentation to ensure roles and responsibilities of the S&ME officers involved in the end to end case processes are clear.

The current corporate 'Transforming Tax Technical Decision Making' (TTTDM) project will provide clear roles and responsibilities of CoEs and TCN staff.

Level of staff capability

2.19 Many private sector submissions to the IGT commented that, in risk reviews of S4 taxpayers, they observed a lack of technical knowledge and skills (accounting and tax law) and relevant commercial expertise. Some commented that this led to the SME officer missing key technical risks in risk reviews which should have been obvious on the information available. In one extreme example, an S4 taxpayer claims that they paid approximately $500,000 in fees to their tax adviser during a risk review primarily because of lack of understanding by the SME officer of the taxpayer's business and the technical issues around the business. They say that throughout the course of this risk review, the taxpayer's advisers were required to explain to the SME officer the technical issues across a number of meetings — essentially providing lessons in the accounting and tax treatment of the areas under review.

2.20 The SME business line is also aware of lower level of current staff capability in risk assessments in the S4 market segment. An ATO SME business line draft report entitled, Segment 4, Risk Scan, Report 2: Risks and Drivers,16 identified that officer skills and knowledge are sometimes poor with the impact that some staff are missing significant risks to revenue. The draft report also observed that the support given to compliance officers may not be of the same level as that given to other areas that deal with cases of similar complexity.

2.21 In this respect, a recently commissioned ATO internal report also observed that poor quality audits were a common complaint among SME IA officers and that guidelines should be developed to address those complaints:

In many ways, the guidelines cover the issues or risks raised by staff in [another part] of this paper. That is, the guidelines address some of the common complaints in relation [to] poor quality audits;

  • lack of evidence;
  • no statement of facts;
  • poor document management; and
  • lack of properly consider[ed] position — protective assessments due to time constraints and assessment issued while audit still underway.17

2.22 The ATO advises the IGT that it relies on its collective capability as no one staff member has all the requisite skills and experience to appropriately deal with all issues that they may encounter. The ATO also advises the IGT that the collective capability is seen as a means to build individual staff capability.

Collective capability

2.23 The SME business line's model of collective capability is based on the ATO's model and comprises a number of elements. These elements are set out in the figure on the following page.

Figure 2: The SME business line's collective capability

Graphic setting out the SME business line's collective capability.

Source: Australian Taxation Office

View image enlarged

2.24 The most significant elements of this collective capability are:

  • team leaders/mentors;
  • technical excellence (now subsumed into the Senior Technical Leadership area) — a network of approximately 60 Executive Level officers that act as technical specialists and are embedded within compliance teams across the SME business line. Each person also has a number of subject specialities;
  • case leadership — 5 Senior Executive Staff that, in addition to assisting case teams with their Active Compliance and Provision of Advice work, also build the technical and case management skills in order to support the organisational development of SME compliance officers; and
  • the priority technical issue escalation system and access to the COEs and TCN for the resolution of major, complex issues.

2.25 Submissions raised specific concerns with elements of the collective capability. These are discussed below.

Team leaders

2.26 The ATO advises the IGT that SME business line team leaders remain accountable and responsible for developing and maintaining the technical capability of their staff. In terms of allocating work, the team leader will also discuss work allocation with the regional directors with the aim of matching the allocated work to the best matched available resources.

2.27 The ATO expresses its expectations of officers' training standards through its internal documentation, such as its Integrated Capability Development Framework learning pathway (this documentation sets out the expected knowledge and skills for compliance officers according to the time spent in the role — discussed further below). However, there is no formal footprint of each officers' skills and experience to facilitate team leaders' allocation of work to officers with the required skills set. This work allocation relies on team leaders' perceptions and their available resources.

2.28 The SME business line also expects team leaders to allocate more experienced officers to mentor other officers.

2.29 However, a SME business line draft report observed that several staff members and managers expressed that it was the first time that they had done certain types of cases, such as large multinational groups, large CHPGs and large investment funds:

Whilst team leaders had concerns, given workloads, they often had little choice but to allocate complex cases to relatively inexperienced staff and provide support as best they could by providing mentoring from more experienced team members (who often had there [sic] own products), and by seeking support from TEP [Technical Excellence Practice, now subsumed into the Senior Technical Leadership area]. Case allocation was further complicated due to cycle times being based on calendar days. Case allocation when there were public holidays or when staff were part time, added additional pressure.18

2.30 Additionally, the level of capability in one region may not be of the same level as that in another area, even though they may be tasked to do work of the same complexity, as a recently commissioned ATO internal report observed:

... it is notable that the capability assessment of Box Hill and Sydney IA sites are markedly different even though they are required to undertake similar work. Both areas are responsible for HWI objections and occasionally undertake other matters such as international, trust or CGT issues.

… On the presumption that the capability report accurately reflects the capability levels across the line, consideration needs to be given to the means by which work is allocated to ensure complex work is allocated to teams most capable of performing the work. Alternatively, the capability levels within the teams needs to be supported and enhanced so they can all competently perform complex work.19

2.31 Among other things, the ATO internal review urged the assessment of staff capability and the use of that information to manage workflows:

… Profiling capability levels of teams and allocating work appropriately — it is important that the capability and experience of IA and Objection teams are properly assessed and that this information is used to manage workflow.

… it is important to recognise that objections that originate from HWI or the $100 — $250 million [S4] market will be more complex than other objections.

Accordingly, HWI objections should be allocated to teams who have capable and experienced staff. If teams are made up of new and inexperienced staff, then work should be allocated appropriate to their level of capability.

Currently, it would appear that HWI objections are allocated principally on a site basis. For example, most HWI Objection work is handled in Box Hill or Sydney. This appears to be a historical factor, and something that has been traditionally accepted because of the close proximity of compliance officers and easy access to case files. It is acknowledged that these are important factors in deciding where objections should be handled but they are not the only factors. Consideration must be afforded to the complexity of cases, the capability of staff, the capacity to handle the work, the access to senior technical leadership etc. It is acknowledged that co-location of compliance and objection officers is one of the important factors, but it is not something that is not insurmountable.

It is understood that S&ME has completed capability evaluations of their staff, so it should not be too difficult to assess the capability of teams by site and allocate work accordingly.20

2.32 In the IGT's view, there is room to better support team leaders and regional directors in matching case work with the best fit of skills and experience, such as obtaining and maintaining a formal footprint of each officer's skills and experience and allocating work according to that footprint.

Recommendation 2.3

To strengthen and better match individual SME business line staff capability for specific cases, the ATO should:

  1. obtain and maintain a formal footprint of each officer's training and experience to identify gaps when compared to the expected knowledge, skills and experience;
  2. ensure all SME compliance, interpretative assistance and technical officers have a current learning and development plan that includes skills and knowledge development contributing to the delivery of business outcomes; and
  3. allocate work to officers according to their footprint and their learning and development plan.

ATO response: Agree

With respect to 2.3a our annual S&ME technical capability snapshot process was undertaken in November 2011 with the outcomes expected to be available by around mid December 2011.

With respect to 2.3c we generally allocate work on this basis.

Senior Technical Leadership

2.33 The Senior Technical Leadership (STL) area was established on 1 July 2010 to provide technical support to all areas of the SME business line other than the Not For Profit area. It was formed by consolidating the technical support areas of HWI and the Technical Excellence Practice who provided support to the General Compliance (GC) area of the SME business line. One of the aims was to provide technical support to case officers when confronted with complexity that they were not in a position to deal with either as an individual or as a team. A key priority for the STL is to build the technical capability of the SME business line by a mix of on-the-job training and preparing and delivering technical resources.

2.34 In late 2010, there were around 65 STL officers comprising of around 53 at the Executive Level 2 (EL2) level and the remaining at lower levels. Over two-thirds of STL officers have over 10 years of ATO experience.

2.35 The STL area has provided a technical specialist directory for SME officers. However, some private sector submissions to the IGT also observed that in some cases the STL officer involved in reviews, although knowledgeable in some areas of the law, did not have the requisite technical expertise in relation to the particular area under review.

2.36 In the IGT's view, the decision to involve any particular STL officer in resolving technical issues in a particular case should be made on the basis of the STL officer's speciality and that speciality's relationship to the issues under review.

Recommendation 2.4

The ATO should involve Senior Technical Leadership (STL) officers in resolving technical issues on the basis of the STL officer's area of speciality or expertise.

ATO response: Agree

Senior Technical Leadership (STL) staff involved in case work will have the expertise and skill to provide appropriate support to case officers.

STL will continue to be a flexible workforce who can apply their high level technical skills across a range of case work as priorities and workloads require.

2.37 Submissions received from certain ATO staff indicate that the SME business line's collective capability is conceptually sound but relies on the goodwill of technical officers as there is no minimum expectation on the quality and level of support given by them to compliance officers. These staff comment that the express role of STL officers (and the TCN/COEs) is that they are merely advisory and that the compliance officer is the one who must make the decision. They argue that this causes a disconnect between the technical officer and the compliance officer because some technical officers ask inexperienced compliance officers to develop views in a case so that the technical officer can merely check the work, rather than assist them in developing views on the technical issues.

2.38 During the review, the IGT also received submissions from certain ATO staff that were concerned with the technical leadership of managers and directors in the IA area and their interaction with the STL area. A recently commissioned ATO report observed that the underlying issue may relate to accountability and responsibility of technical decision making when issues need to be escalated:

There were concerns raised about the technical competence of managers and directors of the IA team within a structure that has senior technical leaders removed from the functional area and placed in a separate structure (that is, the STL group). Due to the increase in the complexity of work, staff claimed that the managers needed to be technically competent at the EL2 level. However, there was no evidence to suggest that mangers or directors were not competent to perform their roles. It is possible that managers and directors may intentionally delegate the technical leadership of cases to the STLs, so the real issue here may relate to accountability and responsibility of technical decision making when issues need to be escalated. In particular, all sites made comments about the STL structure and whether it was optimal to have technical leadership restricted to access to STL. In other words, it was debateable whether technical leadership was something that should be made available to staff only where referral guidelines were met — or whether technical leadership should be available on all complex cases.

... All Directors and Team Leaders in the IA area of S&ME are technical and are selected pursuant to technical criteria. Case officers are encouraged to escalate issues through their Managers and Directors if they need assistance. S&ME also have callovers with the National Directors to review aged and ugly cases. Staff know that they can escalate cases at any time to the National Director level or ask managers to intervene when COE's or TCN are a bit slow. It is understood that this has occurred on numerous occasions. It is also understood that IA staff are encouraged to use the resources provided by STL.

However, the issue appears to be the actual level of technical leadership that can be provided by managers and directors who are primarily responsible for administrative matters. Although it was not explicit in interviews, there were implications that managers and directors were not responsible for technical leadership and the STL officers provide technical advice (as apposed to technical leadership) and the case remained the responsibility of the team. As cases become more complicated, the role of objection officer may also become more demanding and it is likely that the job size would, in many cases, be equivalent to an EL2. Consideration may need to be given to whether the IA function needs to be job sized.

Moreover, when pressed during interviews, there was a general consensus from IA staff that the interaction with STL officers could be better. Staff conceded 'it goes both ways' and they don't readily approach STL. This issue touches on the adequacy of technical leadership in S&ME.21

2.39 Whilst, generally, it is not unusual for junior officers to desire more assistance, in these cases, the inexperienced SME compliance officers feel that the technical officer did not guide or mentor them on completing research or determining the relevant evidence needed, resulting in extended delays and missed opportunities. Whether this experience is broader or not, the risk could be minimised by ensuring that compliance and technical staff have shared expectations on the type and level of support to be provided in cases and the specific responsibilities of each party. The SME Executive's June 2010 discussion of case callovers,22 where isolated instances of friction with technical leaders were raised, also indicate that establishing clear lines of communication and work responsibility would improve the quality of technical support to active compliance cases.

2.40 Relevantly, the SME business line advises that a STL officer is embedded in every AC team. An ATO internal report observed that this placement appears to have contributed to an ATO staff perception that should be addressed:

The perception that STL officers are predominately AC focused and the fact that all STL officers have an AC background is a serious concern that needs to be addressed.

... The STL group report to an Assistant Commissioner who, in turn, reports directly to the ADC (Active Compliance).

Notwithstanding that the management/reporting structure appears to be working effectively, the structure has all STL officers forming part of the Active Compliance line. Prima facie, this creates a misconception that STL's have a principle focus on Active Compliance work. Indeed, this misconception is was manifest in discussions with staff ... Moreover, the SES responsibility or linkages to various corporate capabilities and market segments is incorrectly documented in the S&ME Business Line Plan (Part 2). This inadvertently exacerbates this misconception and needs to be rectified. ...

Staff were not critical of the STL officers — on the contrary, they were very supportive of the STL concept and believed that most STL staff were helpful and accessible. However, the concern with the STL structure was the real perception among staff that STL officers focused predominately on AC work. Staff indicated that they felt reluctant to engage STL officers because they feared the STL would not think they had done enough work on the case to warrant their advice, or that the relevant STL officer was too busy working on other issues. Most sites agreed that it works well if the specific case officer knows the STL personally, or has worked with the STL before.23

2.41 The report also recounted other ATO staff observations of the STL area:

During interviews with IA staff (in relation to the STL group) there were six key themes that arose in the course of the discussion:

By way of summary, the themes relate to;

  1. Perception that STL officers were mainly focused on Active Compliance [discussed above]
  2. STL officers not proactive in engagement with IA
  3. historical factors that need to be overcome
  4. 'trade off' leadership and accountability and mentoring
  5. the level of comfort staff have in regard to the location of STL across the patch
  6. the STL role in managing capability levels.24

2.42 In relation to the STL area, the report made a number of recommendations, including:

Recommendation 1

The table at Part Two of the Line Plan is corrected to align the roles of STL and Case leaders to the IA Capability.

Recommendation 10

The STL structure and engagement processes are reviewed and updated if necessary. It may be necessary to market the STL group — by providing an updated communication of their roles, responsibilities and how to engage.

Recommendation 11

STL officers need to be more proactive in their involvement in IA and objection work. One or more of the following recommendations should be considered.

  • Nominate STL officers in IA sites to be allocated directly to IA teams and to provide high level support and direction on technical casework, and / or
  • Amend STL performance agreements to clarify their role in IA and objection, and / or
  • Appoint 'floating STL' who would be available to be used specifically in IA and Objection work as needed.

Recommendation 12

STL to be involved in strategy or planning for resources and capability in S&ME (either through committee memberships or exception reports to executive).25

2.43 In line with these recommendations of the ATO's internal report, the ATO should ensure that the STL area is more involved in the SME business line's capability development and objection work.

Recommendation 2.5

To improve the Senior Technical Leadership's (STL) contribution to the SME business line's objectives, the ATO should:

  1. ensure the STL engages with both Active Compliance and Interpretative Assistance officers, in particular objection officers; and
  2. involve the STL in the SME Executive's planning for resources and capability development.

ATO response: Agree

STL officers are applying around 25per cent of their total capacity to objection case work.

We currently have 5 STL officers directly allocated to manage a number of High Wealth Individual objections.

Case leadership

2.44 Since the start of the IGT's review on ATO audits in 2005,26 the ATO redeployed senior officers to help quickly resolve complex aged cases and model expert case management — Case Leadership. This redeployment was in response to the IGT views that engendering confidence in senior audit staff to make timely and well-reasoned decisions in uncertain situations is an area that can be improved and that, in the more complex cases, early intervention to identify and resolve technical issues by drawing together the right people at the right time to focus on the issues could provide real benefits.

2.45 Some private sector stakeholder submissions to this IGT review observe that Case Leadership's involvement is generally beneficial. However, they believe that their involvement occurs too late in the process to avoid the compliance activity 'going off the rails'.

2.46 The ATO is currently examining opportunities to involve its more senior staff earlier in compliance processes — the TTTDM project, as described in chapter 1. The IGT may re-examine the Case Leadership engagement in compliance cases after the TTTDM project has been implemented.

2.47 Some submissions also questioned the nature and involvement of the Case Leadership area. In some cases, they perceived that the area was an underlying reason for the delayed resolution of issues and observed that SME compliance officers appeared unable to progress cases where Case Leadership was intractable. In the IGT's view this indicates that greater clarity is needed in relation to the Case Leadership's role, responsibility and accountability in its involvement with SME cases.

2.48 As discussed in chapter 5, the ATO has agreed to extend the scope of its Wealthy and wise booklet to the entire SME market segment. This will provide an opportunity to give greater clarity to the involvement of Case Leadership in SME cases.

Recommendation 2.6

In the new booklet (which will replace the 'Wealthy and wise' booklet, as set out in recommendation 5.1), the role, responsibilities and accountability of the Case Leadership area should be clearly explained.

ATO response:

Agree

Tax Counsel Network (TCN)

2.49 The ATO's TCN is not within the SME business line and is responsible for developing the ATO view. Collectively, the TCN represents the ATO's most senior technical officers.

2.50 In relation to SME cases referred to the TCN, the SME business line has identified a number of trends, including TCN capacity and capability concerns by reason of a small number of TCN officers dealing with a large number of highly technical cases:

It was noted that it was often the same Senior Tax Counsel (STC) that were involved in the same types of issues. This raises both a capacity and a capability concern for the ATO.

In terms of capacity, overloading a small number of STC with responsibility for a large number of highly technical cases ... places increased pressure on those STC and reduces the capacity they have to deal with each case. In terms of capability, continually returning to the same STC reduces the opportunity for other Tax Counsel to build their skills and knowledge. There is also the risk that vital experience will be lost when STC leave the ATO if that experience has not been adequately passed on.

Case Leadership is of the view that an opportunity exists for case teams to have wider involvement from a pool of Tax Counsel as opposed to one dedicated person (especially on GAAR matters). This allows new Tax Counsel to gain relevant hands-on experience with complex issues and allows the business line to access a wider pool of available expertise. It is recommended that access to a wider pool of Tax Counsel be approved and carried out under the guidance of an STC who is able to pass on their experience and knowledge. This arrangement would help to fully develop the STC's of the future.27

2.51 In relation to these capacity and capability concerns, the IGT expects that these issues will be considered and addressed in the ATO's TTTDM project.

The characteristics of expert compliance officers

2.52 The SME business line commissioned a researcher, Inside Story, to provide insights into, and guidance on, accelerating the development of expertise in less experienced compliance officers. The research drew from common themes in literature, opinions of experienced ATO officers and observations of a number of expert and less experienced compliance officers. The research examined SME officers' dealings in compliance cases to identify and capture the characteristics of expert officers' thinking, decision making and processes and the difference in these characteristics to those of less experienced officers. In July 2010, Inside Story presented its report, S&ME Compliance Officer Research, which identified the characteristics of expert compliance officers in five core areas and created an 'Expertise Assessment Tool' from these areas:

  1. strategic thinking, including investigative ability, critical thinking and diagnostic ability;
  2. draws from previous experience, including the application of knowledge of an industry;
  3. confidence, including being able to maintain momentum on a case when faced with uncertainty;
  4. productive working relationships, including the ability to seek cooperative solutions and avoid confrontation, and communicate processes and keep taxpayers informed of progress; and
  5. negotiation skills.28

2.53 The full extract of these characteristics is reproduced in appendix 4.

2.54 The researcher made a number of recommendations, including the following:

  • Recruitment and selection

Review standard selection criteria for recruitment of compliance officers to confirm key components of expertise are addressed. Draft new criteria to fill gaps

Integrate new criteria into recruitment questions, skills tests, practical exercises and reference checks

  • Learning and development

Strengthen relevant existing learning pathway disciplines which align more closely to the competencies in the Expertise Assessment Tool. For example, Communications and Relationship Management, Commercial Industry and Client Knowledge and Case Management and Work Practice.

Develop learning modules to address strategic thinking sub component competencies in Expertise Assessment Tool. Use a staged learning approach appropriate to experience and competency level to fast track development of these skills from the beginning.

Develop a new learning module with a basis in Creative Problem Solving techniques to bring together competencies in Strategic Thinking competency. This could form a capstone learning module once a solid grounding from the Strategic Thinking modules has been achieved.

A grid analysis can be utilised to plot expertise competencies on axes of 'Extent of expertise gap' and 'Importance of expertise gap to outcomes' to establish an order of priority for the program of works to adapt and develop new learning modules for compliance officers.

  • On the job training

Provide compliance officers with work placements across 2 or more compliance areas to build a broad range of experience, strategies and approaches that they can draw on. This will help to establish personal networks and supports collaboration across S&ME Active Compliance teams

  • Mentoring

… Provide a broad structure for mentoring aligned to competencies in Expertise Assessment Tool

  • Expertise Assessment Tool

Utilise the Expertise Assessment Tool to identify development needs across S&ME and within specific teams.

A pilot with a select group of compliance officers is recommended prior to rolling out the Expertise Assessment Tool more broadly within S&ME. This will enable the identification of:

    • Motivating factors and potential barriers to use that can be leveraged or mitigated;
    • Training needs of managers using the Expertise Assessment Tool;
    • Communication priorities for competent use and encouraging adoption; and
    • Further refinement if necessary to the components and sub components of the Expertise Assessment Tool based on learnings from the pilot.
  • Team environment and communications

Develop a specific KPI for team managers to ensure that they adopt a consistent 'open-door' policy for staff. With the aim of increasing communications between compliance officers and their managers to aid faster development of expertise and their level of performance on compliance work.29

2.55 The SME Executive agreed that a 'next steps' document that considered the impact of the recommendations should be drafted.

2.56 In the IGT's view, the findings of the Inside Story research should be used to assist in the recruitment of SME compliance officers, their training, development, assessment and to inform the basis on which work should be allocated to compliance officers.

Recommendation 2.7

With the aim of developing highly capable SME compliance officers, the ATO should refine its approaches to recruiting and developing its compliance officers by using the Expertise Assessment Tool developed by Inside Story to:

  1. identify development needs across the SME business line;
  2. align recruitment and selection criteria with the identified characteristics of 'expert' compliance officers;
  3. align learning and development programs more closely with the identified characteristics;
  4. improve on-the-job training and mentoring; and
  5. measure the capability development of compliance officers.

ATO response: Agree

We will implement all aspects of the corporate 'Expertise Assessment Tool' framework (the People System Integration Initiative (PSII) which is currently in development.

We continue our ongoing focus on staff capability build both in terms of formal and on the job training.

SME business line's three-year capability aspirational target

2.57 On 30 April 2010, the SME Executive supported four aspirational measures. Aspirational measures:

are intended to challenge the [SME business] line in particular ways in order to motivate and drive performance and outcome improvement without specifically stating what has to happen, the approaches to be taken to achieve the measure or who is responsible for achieving the measure.

... Good aspirational measures appear to exhibit a number of common characteristics. They:-

  1. Operate across more than one area of our business;
  2. Are easily understood by all affected staff;
  3. Are directly measurable as an outcome;
  4. Represent a genuine challenge to achieve that is, they are not easy to achieve;
  5. Do not duplicate or otherwise replace or conflict with other existing performance measures; and
  6. Are motivational in their impact and assist to drive improvement in both the business and the client experience.30

2.58 Among the four aspirational measures, one is that within three years of moving into the SME business line, staff will be capable (with appropriate support) of doing the most complex work.

2.59 The SME Executive is aware that 'previous quick analysis, both quantitative and qualitative has pointed out that it takes six to seven years to develop a graduate to the level of a departing officer with 15-20 years of ATO service'.31

2.60 The IGT believes that improving staff capability quickly will resolve many of the issues observed in this review. It is a positive step to set an aspirational measure of staff being capable of doing the most complex work (with appropriate support) within three years, as this aspiration should direct business focus towards achieving this aim.

Specialisation

2.61 Taxpayers and issues in the SME business line are diverse. Even within the S4 market segment of the SME business line's work, there are a variety of taxpayers. Around 50 per cent of the S4 market segment is part of a CHPG, around 30 per cent are foreign controlled groups, around 15 per cent are public groups, around six per cent are other widely held groups (such as limited partnerships, managed investment schemes, etc.) and around two per cent are non-profit making groups.

2.62 At present, the SME business line's work is a mixture of specialist teams and general compliance (GC) teams. Specialist teams only deal with specific risks (such as Phoenix and Internationals, HWIs and WAs). Whereas GC teams are expected to work on different clients in different segments opening up a much broader range of activity.

2.63 The SME business line is in the process of integrating certain work. Post-integration HWI and WA work will not be dealt with in specialised teams but by 'Active Compliance Integrated' teams. At the team level, work will involve WA, HWI and GC (including S4) work, but work will be allocated by the team leader according to their perception of staff capability.

2.64 The ATO has advised the IGT that:

The upcoming (October 2011) integration of our active compliance workforce's from high wealth individuals (HWI), general compliance and wealthy Australians (WA) will provide us with further opportunities to enhance capability as we will have EL2s leading each of the active compliance teams and a mix of skilled and experienced staff from HWI and general compliance in each team.32

2.65 In the IGT's view, whilst officers would benefit from exposure to a wide group of taxpayers and industries, there is merit in some level of specialisation. Such specialisation would allow the officers to be better acquainted with the affairs of taxpayers and industries as well as the issues commonly encountered.

Recommendation 2.8

The ATO should facilitate a degree of SME compliance officer specialisation by taxpayer type or industry to better equip them for conducting compliance activities and become better acquainted with the common arrangements of taxpayer types and industries.

ATO response: Agree

Where we see specific risks, issues or business processes in an industry or taxpayer type we will provide compliance officers with additional technical support and/or industry knowledge to ensure they fully understand these matters in the context of the review or audit they are engaged in.

Numbers of staff turnover

2.66 Annual turnover of staff in the SME business line has averaged around 20 per cent over the last three years. This is not to say that all staff leaving are the most experienced and all new staff entering have no experience in tax. There are likely to be a variety of skills sets and experience. However, this turnover of staff does present additional risk to the retention of overall corporate knowledge and experience in relation to the S4 and HWI market segments. This risk is highlighted in the SME business line's 2010 Health of the System Assessment (HOTSA):

  • Recent moves of experienced staff out of S&ME arising from workforce shifts required at the beginning of 2010-11 also represent a significant on-going challenge to our capability. Whilst new staff will join S&ME from other parts of the office including ME&I and LB&I, it needs to be recognised that the skills gap between those leaving and those joining is, in many cases, substantial and will take several years to close.

… What are the key risks to our internal capability?

… Workforce shifts — In addition to the above recruitment issues, we are also managing the shift of staff between ME&I, S&ME and LB&I in line with ITI requirements. At the beginning of 2010-11, 44 staff will move from S&ME to LB&I, and we will gain 6 from LB&I and 22 from ME&I. This will result in experienced staff moving out of S&ME and inexperienced staff moving in.

  • Increasing compliance commitments — Related to the above point, there is escalating pressure to balance our formal capability development with increasing compliance commitments associated with HWI, Income Tax Investment and 'Wealthy Australians' projects. Having appropriate numbers of the right staff in place this year will be crucial to meeting our commitments over the next three years.
  • Recruitment and retention of staff — In previous years, we identified risks associated in not being able to attract and retain staff with appropriate skills. While attrition rates have dropped due to the current economic climate, we still have around one third of our workforce over fifty years of age. Where possible, we will seek to recruit externally to attract new expertise by taking advantage of labour shedding in the private sector.33

2.67 Annual turnover of roles within the SME business line (that is, including people promoted within the SME business line) averaged higher, at around 27 per cent. The ATO expects that this percentage of turnover of staff will likely persist into the foreseeable future.

2.68 The SME business line is working to understand the staff turnover, from which areas SME staff have left, where they have come from and the impact on workforce management. The following table sets out the detailed figures over the period March 2010 to February 2011.

Table 4: SME staff losses over March 2010 to February 2011

Image of a table detailing SME staff losses over March 2010 to February 2011.

Source: Australian Taxation Office

View image enlarged

Table 5: SME staff gains over March 2010 to February 2011

Image of a table detailing SME staff gains over March 2010 to February 2011.

Source: Australian Taxation Office

View image enlarged

2.69 In terms of the 'churn' of staff, the ATO considers that the SME business line is the 'feeder group' for other areas of the ATO, such as the LBI business line and that this 'churn' is part of the design of the ITI by having a 'pull through' of resources from the MEI business line, through the SME business line to the LBI business line. The ATO also considers that the churn comprises of staff of differing capability — that is, it is not only experienced staff leaving and only inexperienced staff entering the SME line.

2.70 On 30 April 2010, the SME Executive were made aware that the LBI business line were looking for approximately 70-109 FTE staff from the SME business line (including 46 EL2s and 1s) by 1 July 2010 to work on the Strategic Compliance Initiative. The LBI business line requested staff with expertise in specific areas, such as transfer pricing, CGT, losses, etc. There were also a number of MEI business line staff that were to be transferred to the SME business line.

2.71 Comments from some SME officers have suggested that the LBI business line has recruited many experienced SME officers to replace their retiring staff — a trend that they expect to continue for at least two years.

2.72 Of the SME business line's areas, Interpretative Assistance, Active Compliance and Risk & Intelligence, around one-third (439 of 1299) were over 50 years old, and just over half (696 of 1299) were over 45 years old. At the 18 November 2010 SME Executive meeting, the SME Executive stated that there were 'some significant future workforce planning issues around age demographics that SME needs to address'.

2.73 The IGT observed that there is a general perception that the LBI business line employs more capable staff than the SME business line because of the greater quantum of revenue involved. In the IGT's view, it is an important aim to ensure that more capable staff deal with areas of higher risk and consequence. However, a balance should be struck between this aim and ensuring that the SME business line retains enough of its workforce capability to perform its function effectively. The ATO should carefully consider whether the LBI business line could use more staff from business lines other than SME. Additionally, it should also consider whether the SME business line could use more capable staff from other areas, including the LBI business line, COE and TCN.

Recommendation 2.9

In balancing the need for more capable staff to deal with areas of higher risk and consequence with the need of the SME business line to retain enough of its workforce capability, the ATO should ensure that:

  1. the LBI business line recruits staff from all business lines including the SME business line; and
  2. the SME business line recruits capable staff from all areas including the LBI business line, COE and TCN.

ATO response: Agree

Our current corporate recruitment process facilitates this approach to recruitment for both internal and external recruitment.

2.74 There are no exit interviews with staff moving to other areas of the ATO, but the SME business line assumes the main reasons for staff leaving the SME business line is promotion or retirement.

2.75 In the IGT's view, it is important to conduct exit interviews for staff moving to other areas of the ATO irrespective of the reason why a staff member is leaving from the SME business line. These departures are a good opportunity to gather information which could assist it in improving staff retention.

Recommendation 2.10

The SME business line should conduct exit interviews for staff leaving to other areas of the ATO irrespective of the reason why a staff member is moving.

ATO response: Agree

We will re invigorate the process of undertaking exit interviews of staff leaving S&ME to other business lines. Participation by staff will be voluntary.

Staff engagement

2.76 On the basis of the ATO's November 2009 staff engagement survey, it is unlikely that the level of staff engagement plays a substantial role in the level of staff churn. The survey concludes that SME staff engagement is high at 82 per cent. Overall, this is higher than other areas in the ATO, the public sector and other Australian based peers. It observed that the SME business line's key strengths were pay & performance management, immediate managers, and values (on par with the norm). The identified areas for significant opportunities were efficiency, training & career development, senior leadership and image.

2.77 These surveys provide an overall picture on Staff engagement. However, during the review the IGT received submissions from a number of current and previous SME AC and IA officers. These submissions indicated dissatisfaction with aspects of the SME business line and, in some cases, were the purported reason for leaving the area.

2.78 The ATO recently commissioned an internal report which included consideration of selected IA teams' views on their engagement with the SME business line. It observed that many issues have been raised by other parts of the SME business line before but remain unresolved:

Notably, many of the issues (but not all) were identified in the 3-1 Leadership Workshops conducted in September and October 2010. ... However, it would appear that many of these issues ... remain unresolved notwithstanding the specific action plans that were agreed to address them. Some action plans may have progressed but it was not communicated for the purposes of this review.

The issues raised during these interviews are summarised below [that is, Resourcing; Complexity of work acknowledged by senior managers; Technical competence of

Managers; STL technical leadership; Capability of staff; Quality of audits; Roles and responsibilities and independent review; Location of objection work].34

2.79 In the IGT's view, the ATO could improve its staff engagement in seeking to understand and appropriately respond to their concerns.

Recommendation 2.11

To address SME staff concerns in relation to their work, sufficiently senior ATO staff, who are not the subject of the concerns, should:

  1. conduct open and frank consultation with the relevant staff;
  2. seek to understand the concerns and their underlying causes;
  3. communicate consideration of those concerns including what action will be taken; and
  4. periodically communicate the status of the remedial action.

ATO response: Agree

We require our managers to deal with staff concerns about their work as a routine part of their leadership role.

Where the manager is the subject of the concern we allocate another suitable officer to deal with the matter.

Recruitment — perceptions of SME business line positions

2.80 The 2010 SME business line's HOTSA details that 'recruitment is continually problematic for the line'. At the 22 September 2010 SME Executive meeting, it was agreed that the SME business line needed 'strategies to actively recruit new staff to the line, such as line workforce planning'.

2.81 Discussion with staff provides some insight into staff's perceptions of the recruitment processes. At the senior executive site visits in the ATO's National Office in September 2010, one of the concerns raised was in relation to recruitment, particularly the length of time to fill positions, that those performing higher duties may be disadvantaged in future recruitment processes, the length of time spent in higher duties and mechanisms to support mobility. At the Parramatta September 2010 site visit, although generally positive in nature, some comments were received about the perceived anomalous nature of recruitment processes (for example, 'not suitable for an APS 5 but judged suitable for an APS6 role') and lack of development opportunities (particularly compliance work) for call centre staff.

2.82 In the IGT's view, more could be done to understand perceptions of the positions in the SME business line and the recruitment processes. The SME business line should take action to address those concerns to make the SME business line a more attractive choice for potential applicants.

Recommendation 2.12

In the SME business line recruitment processes, the ATO should emphasise the attractive aspects of the work of this business line such as its complexity, variety and development opportunities.

ATO response: Disagree

We do not see the need to implement this recommendation with respect to recruitment in S&ME.

We remain committed to the current compliance recruitment processes and are of the view that it provides S&ME with the same number and quality of staff as it does for other compliance business lines.

The bulk of the new recruitment into S&ME is through the broader compliance sub plan recruitment program. This program seeks to attract internal and external applicants who have strong tax technical skills and who can adapt to technical work in various parts of the compliance sub plan.

To the extent that we may have any specific SM&E recruitment processes for any specialist positions in the future, we will highlight the attractiveness of the work.

Staff retention strategies

2.83 At the 19 January 2011 SME Executive meeting, a 'talent management' strategy document was circulated and it was agreed to send the proposal for further work in the SME business line's Business Operations & Integration Business Management Committee. The strategy aimed at retaining and developing talent as an interim measure pending the roll out over the next 2-3 years of the ATO's corporate strategy. The SME business line strategy document noted that the SME business line has not undertaken actual work to identify people demonstrating high performance and high aspirations. The strategy will be based on the ATO's Indirect Tax area's recent pilot.

2.84 Also relevant is the career and development path within the SME business line. A significant driver for the recent expansion of campaign teams is to assist in recruitment and development of staff. It offers higher volume but lower complexity compliance work, with teams intended to be regularly exposed to new aspects of tax compliance and develop their client interaction and project management skills. It is said to offer a good entry point into compliance work for those staff that are new to the ATO. This work, however, is mainly targeted at the lower end of the SME market segment. The existing campaign team was recruited from the SME call centre and had relevant skills and knowledge.

2.85 In the IGT's view, more could be done to retain staff, such as establishing a clearer career pathway for existing staff to progress along and deal with more complex work.

Recommendation 2.13

The SME business line should take action to retain staff, including establishing a clearer career pathway for existing staff to progress along and deal with more complex work.

ATO response: Agree

S&ME will manage our staff levels and capability in line with the broader strategic priorities and focus areas of the ATO and the Compliance sub plan.

A clearer career pathway is now available to staff following our recent move to an integrated active compliance workforce where opportunity to undertake a broader range of case work will be available within teams.

Staff training and capability development

The Integrated Capability Development Framework

2.86 In 2009, the ATO designed and implemented an Integrated Capability Development Framework for delivering training and development to SME officers. The framework aims, amongst other things, to help officers build their professional capability as a compliance officer. It also aims to align staff learning and development with corporate outcomes and that the training curriculum supports the development of skills and knowledge that the ATO expects of officers according to the time spent in the role.

2.87 Team leaders and managers are responsible to ensure that the learning and development plans, as part of officers' performance development agreements (PDA), are in place and include plans to acquire skills and knowledge that would improve the officer's contribution to delivering business outcomes. The skills and knowledge is assessed by reference to the learning curriculum, which comprises a large amount of tax technical and accounting training.

2.88 As at May 2010, the SME business line reported that 92 per cent of all SME officers had a PDA in place. As at November 2010, 99.3 per cent of SME's technical staff had a learning and development plan in place.

2.89 In the IGT's view, the Integrated Capability Development Framework, the learning curriculum and pathway and PDAs provide a structure to develop and deliver much needed content for capability development programs.

Content of training and development on commercial issues

2.90 The content of the learning curriculum comprises of a significant number of tax technical topics. The Learning Handbook for compliance officers sets out the different topics offered in the Compliance sub-plan's curriculum, this comprises:

  • 31 modules in the audit and accounting discipline;
  • 64 modules in the case management and work practice discipline;
  • 27 modules in the communication and relationship management discipline;
  • 21 modules in the corporate discipline;
  • 70 modules in the leadership and management discipline;
  • 17 modules in the risk and intelligence discipline;
  • 52 modules in the systems discipline;
  • 272 modules in the tax technical discipline; and
  • 12 modules in the client knowledge, commercial and industry focus disciplines.

2.91 The numbers of modules that appear to deal with the commercial or business environment (that is, more than merely outlining legal requirements of particular structures or regulatory requirements defining the entity) affecting taxpayers is comparatively less than the number of tax technical modules to a significant extent.

2.92 In its 2010 HOTSA, the SME business line provided an overview of how it equips its staff with the capabilities needed:

  • We are equipping staff with the capabilities they need but recognise that comprehensive skilling takes time. We are committed to developing the skills and confidence of our staff. We have implemented an Integrated Capability Development System including two externally recognised courses (the Vocational Graduate Certificate and Vocational Graduate Diploma of Taxation Compliance) to incrementally develop capability in technical and leadership skills.
  • We have also implemented the S&ME Compliance Officer Research project to provide a framework to develop the skills of less experienced compliance officers as quickly as possible. This project will inform people management strategies in S&ME, including recruitment, selection, induction, learning and development.
  • Structured learning pathways are currently available in our Active Compliance, Interpretive Assistance and Risk and Intelligence capabilities. All 14 modules of our Complex Compliance Curriculum have been rolled out with 490 staff attending 54 events across 14 sites.

… A recommendation from a report from the HWI case call-over process suggested that staff need more awareness of behavioural drivers as well as a technical understanding of risks. This is particularly relevant as we make the shift to 'Private Wealth' approaches across the line.

  • Several learning products have been developed to support our shift to private wealth, including a foundation level product focussing on complex business structures and an intermediate product focussing on behaviours of Wealthy Australians. These products have been delivered to our initial Wealthy Australians teams in 2009/10 and are planned for further roll out across the S&ME workforce in 2010-11.35

2.93 The SME business line determines the needed skills and knowledge through its business management committee. Prior to February 2011, information about training needs had been obtained from managers and then collated into spreadsheets. In February 2011, the SME business line adopted a different approach by engaging in conversations with the SME business line's business leaders to identify business priorities.

2.94 The SME business line also stated that it uses external trainers, such as Certified Practicing Accountants, to provide staff with broader commercial understanding. In 2010, the SME business line stated that it spent around $1 million on external training providers. The Learning and Development area of the SME business line indicates that heavy reliance on external presenters to deliver this material is not a long term strategy and that in the long term such presentations will be required to be delivered by in-house presenters.

2.95 In the IGT's view, there appears to be little systematic external input into identifying areas for training or in developing training packages, and more could be done in this area. Drawing on Inside Story's research and recommendations (outlined above), training modules that are more specific to particular industries and taxpayer types may be developed, drawing on senior expertise (including observations by relevant Senior Tax Counsel, executive ATO management and external experts) and provide a more thorough understanding of the business environment and related decision-making in particular taxpayer or industry groups that are the subject of compliance action.

Recommendation 2.14

With the aim of improving SME business line understanding of commercial and business issues, the ATO should:

  1. develop programs that provide SME officers with a strong understanding of the business environment and related decision making in taxpayer or industry groups that are the subject of compliance action — such programs should be developed by drawing on:
    1. input from key tax professional and industry stakeholders;
    2. expertise of Senior Tax Counsel personnel, ATO executive management and external experts;
    3. complaints relating to potential shortfalls in officer training or capability; and
  2. ensure that before SME officers review/audit taxpayers within a particular industry these officers should have completed, or be accompanied by an officer who has completed, the relevant program of the type outlined in 'a.' above.

ATO response: Agree

Depending on the issue a 'program' might include research, additional support from a specialist officer or additional training.

Delivery of staff training and development

2.96 The SME business line advises that it has delivered about 2482 hours of training to its staff over the last 21 months through 378 training sessions involving 8350 attendances (staff have attended multiple training sessions).

2.97 At the 16 February 2011 SME Executive meeting, the Executive asked for an initial picture of capability gaps based on learning summaries by workforce and matched against the training that the Learning & Development area indicated that it would deliver. There is no formal footprint which assesses a compliance officer's completed training against those skills that are expected of them according to the three-year learning pathway (discussed above).

2.98 At the May 2010 Newcastle SME senior executive site visit, positive comments were received from SME officers. It was suggested that 'technical capability can be built through training but staff need to acquire a higher level of confidence in dealing with tax agents and more experienced representatives. Not just training but practical application needs consideration as well'.36

2.99 In March and April 2010, the SME business line conducted feedback sessions with its officers, with 85-90 per cent of staff attending. Among the comments that were 'consistently raised across various sites and sessions', SME officers commented that:

  • Need further advanced technical training. Lots of foundation training available, but a lack of advanced. Maybe produce some internal DVDs using internal experts to talk about specific issues and risks.
  • It can be difficult to manage L&D [the Learning and Development area of the SME business line] activities against case targets.
  • Frequency and timing of L&D in some sites is an issue (particularly regional sites).
  • Suggestion that a 'resource library' of training be developed over time to provide 'just in time' training and ability to refresh and update on specific topics. This could be DVDs of training delivered live in another site and pod casts (as per the delivery of many uni courses these days).
  • Use more technology to support delivery of packages via net meetings, video conferences etc.37

2.100 In the IGT's view, the SME business line should consider a broader range of ways to deliver training so that officers have access to information when needed, including a resource library training suite. In relation to the external training already provided, it does not seem to have been captured in a way that allows it to be disseminated more broadly than those who did not attend, or to be reviewed by those that did attend. The SME business line should also consider engaging tax practitioners, academics, business and client management experts to deliver training.

Recommendation 2.15

In seeking to improve SME business line staff training, the ATO should:

  1. provide a broader range of ways to deliver training so that officers have access to information when needed, including a resource library training suite;
  2. in relation to the external training provided, capture that training in a way that allows it to be disseminated more broadly than those who did not attend and to be reviewed by those that did attend; and
  3. engage tax practitioners, academics, and business and client management experts to deliver training on a regular basis.

ATO response: Agree

S&ME will ensure our training activities make use of the broad range of methods of delivery in line with the current ATO work looking at expanding the methods of delivery of training and development.

We will also make use of externals to develop and deliver training in line with the ATOs Tertiary Education Initiative (TER).

Capability development effectiveness measures

2.101 Since November 2010, the SME business line has determined and assessed the effectiveness of its capability development measures through a range of indicators, outlined below:

  1. upward shift in staff and team leader confidence;
  2. build capability to deliver training in a sustainable way;
  3. measurement of skilling delivery against plan;
  4. learning pathways available to all staff;
  5. deliver on commitments;
  6. meet/exceed IQF [Integrated Quality Framework] results;
  7. contribute to improved cycle times;
  8. attract new work to the line;
  9. increased staff retention rates;
  10. improved strike rates; and
  11. improved productivity (quality, cost and through put).38

2.102 The SME business line has advised IGT staff that it intends to continue measuring these performance indicators on a six-monthly basis.

Recommendation 2.16

The ATO should continue measuring the performance indicators for the effectiveness of its training and development activities.

ATO response: Agree

2.103 Of these performance indicators, none appear to consider taxpayer or adviser views on ATO officer conduct or knowledge.

2.104 Credible compliance (which is seen by the SME business line as an essential pre-requisite to achieving the ATO's business intent) exists if 'taxpayers perceive [that the ATO] can identify risk cases and have the resources, including people with the necessary skills, to address those cases'.39

2.105 In the IGT's view, routine and systematic capture of external views on staff capability should be obtained as a capability development effectiveness measure. Taxpayers and their advisers are best placed to test whether SME officers have used in their work the needed training and skills.

2.106 The SME business line obtains a measure of external satisfaction with its performances through the Staff Professionalism Survey and Client Feedback Questionnaires. The results of the Staff Professionalism Survey show that the criteria 'sufficient understanding of issue' and 'understood needs' as having the worst performance and having the highest impact on externals' perceptions of ATO staff professionalism. Only a small number of taxpayers respond to the Client Feedback Questionnaires and no non-bias response testing is carried out.

2.107 In the IGT's view, the Staff Professionalism Survey and small response rate for Client Feedback Questionnaires indicate that the SME business line could take more proactive measures to obtain externals' perceptions of SME officers' capability (such as conducting key client visits) and more could be done to understand those perceptions.

Recommendation 2.17

With the aim of improving the assessment of staff capability development effectiveness measures, the ATO should:

  1. routinely and systematically capture external views on staff capability as a factor in assessing capability development effectiveness measures;
  2. take more proactive measures (other than the Staff Professionalism Survey and Client Feedback Questionnaires) to obtain and understand externals stakeholders' perceptions of SME officers' capability (such as conducting key client visits); and
  3. work with private sector stakeholders to improve SME officers' ability to understand their needs and demonstrate sufficient understanding of the relevant issues.

ATO response:

Agree


11 'Review of interpretative advice as part of the SM&E pipeline', a report commissioned by and prepared for the ATO's SME Executive, June 2011, pp. 12-13.

12 Ibid, p. 21.

13 Australian Taxation Office, written communication to the IGT, 23 September 2011.

14 'Review of interpretative advice as part of the SM&E pipeline', a report commissioned by and prepared for the ATO's SME Executive, June 2011, pp.28-30.

15 Ibid, p. 29.

16 'Segment 4, Risk Scan, Report 2: Risks and Drivers', a draft report prepared by the SME business line's Active Compliance Risk and Intelligence area, 26 February 2010.

17 'Review of interpretative advice as part of the SM&E pipeline', a report commissioned by and prepared for the ATO's SME Executive, June 2011, p. 23.

18 'Segment 4, Risk Scan, Report 2: Risks and Drivers', a draft report prepared by the SME business line's Active Compliance Risk and Intelligence area, 26 February 2010, pp. 17-18.

19 'Review of interpretative advice as part of the SM&E pipeline', a report commissioned by and prepared for the ATO's SME Executive, June 2011, pp. 33-34.

20 Ibid, pp. 15-19.

21 Ibid, pp. 22, 28.

22 Minutes of the 30 June 2010 SME Executive meeting, p. 2.

23 'Review of interpretative advice as part of the SM&E pipeline', a report commissioned by and prepared for the ATO's SME Executive, June 2011, pp. 22, 32.

24 Ibid, pp. 31-33.

25 Ibid, pp. 31-33.

26 Review into the Length of Time to Complete Tax Office Active Compliance Activities, July 2005, Sydney.

27 'Summary note on S&ME Case Leadership Case Callovers', document attached to the agenda for the 30 June 2010 SME Executive meeting.

28 'S&ME Compliance Officer Research', a report commissioned by and prepared for the SME Executive, July 2010.

29 Ibid.

30 'The proposed aspirational measures', document attached to the Minutes of the 30 April 2010 SME Executive meeting.

31 'SME Succession Planning', p.4, document attached to the agenda for the 22 September 2010 SME Executive meeting.

32 Australian Taxation Office, written communication to the IGT, 23 September 2011.

33 'S&ME Income Tax HOTSA 2010 - Compliance Sub-plan Health of the System Assessment (HOTSA)', pp. 28-30, document attached to the minutes of the 16 September 2010 Risk Management Committee meeting.

34 'Review of interpretative advice as part of the SM&E pipeline', a report commissioned by and prepared for the ATO's SME Executive, June 2011, p. 20.

35 'S&ME Income Tax HOTSA 2010 — Compliance Sub-plan Health of the System Assessment (HOTSA)', pp. 28-29, document attached to the minutes of the 16 September 2010 Risk Management Committee meeting.

36 'Supportive Site Visit report', p. 7, document attached to the minutes of the 25 August 2010 SME Executive meeting.

37 'Feedback from SME Information Sessions March/ April 2010', p. 1, document attached to the agenda for the 12 May 2010 SME Executive meeting.

38 'S&ME Integrated Capability Development — performance indicators', 29 November 2010, pp. 5-6.

39 SME Aspirations Statement 2010-11; Note: Submissions also strongly indicated that ATO staff completing work in such a way on a timely basis was a significant factor in establishing 'credible compliance'.