Notwithstanding the implementation of the new business systems, the ATO should ensure that all business lines implement appropriate quality assurance reviews and reconciliation checks to ensure that results reported in the Performance Against Plan reports reflect the compliance data contained in supporting systems and work papers.
ATO response: Agreed
These requirements will be the subject of specific internal assurance processes and will be incorporated into standard business line governance arrangements.
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We recommend that reporting units retain sufficient manual and/or electronic records of source data and calculations that support the results reported in the Performance Against Plan reports. This is particularly relevant for the June (year end) results, as these are more likely to be subject to external scrutiny.
ATO response: Agreed
These requirements will be the subject of specific internal assurance processes and will be incorporated into standard business line governance arrangements.
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Until the new business systems have been implemented, we recommend that:
- Any new information requests are discussed with the business lines to ensure that the costs of obtaining additional information, and/or the limitations on the integrity of the information, does not outweigh the benefits that the information will provide;
- Appropriate reconciliation controls are in place to ensure that data is accurately recorded in the various systems;
- Additional controls and checks continue to be implemented to identify and adjust for any duplicate recording or overstatement; and
- Changes to existing systems are only implemented where careful judgement is exercised based on an assessment of the potential benefits of change against the assessed costs and the timeframe for implementation of the new case management system.
ATO response: Agreed
Pending the introduction of the ATO's new systems, the ATO will ensure that any new requests for information and/or systems changes are assessed on a cost/benefit basis and, if the changes are pursued, that appropriate controls and checks are in place. Reviews of existing reporting processes will also be conducted to avoid any potential duplications or overstatements.
The results reported in the Compliance Program publication are preliminary and are intended to be indicative in nature only. In future Compliance Program publications we will make this clearer and will include indicative charts and graphs rather than detailed tables to avoid creating any undue impression of precision in relation to what are extrapolations of part year results.
Our Annual Report to the Parliament will continue to represent the definitive record of our performance for the particular financial year.
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To ensure that ATO Compliance results are complete and accurate, we recommend that business lines continue to enforce the recording of cases in the core case management systems and ensure that all cases, regardless of access restrictions, are included in the Compliance Program results.
ATO response: Agreed
All cases will now be recorded in the case management system. This requirement will be the subject of specific internal assurance processes and will be incorporated into standard business line governance arrangements.
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With the introduction of Shortfall Interest Charge (SIC), we recommend that the ATO clarify the process for determining and reporting the attribution of SIC and General Interest Charge (GIC) to compliance activity, and ensure that all business lines are reporting interest in a consistent manner that complies with the ATO's definition of active compliance.
ATO response - Agreed
Changes to the ATO's administration of SIC and GIC have been developed, including those recommended by external scrutineers. These new arrangements will apply from July 2006.
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We recommend that the ATO should either review their approach to calculating collection rates with a view to achieving a rate that can be used consistently in all of its publications, or ensure that there is full and clear disclosure around the basis of the collection rates that are used to produce the results that are published in the respective documents.
ATO response: Agreed
The ATO is committed to open and transparent communication of its compliance activities. The results reported in the Compliance Program publication are preliminary and are intended to be indicative in nature only. In future, Compliance Program publications will make this clearer and will include indicative charts and graphs rather than detailed tables to avoid creating any undue impression of precision.
Our Annual Report to the Parliament will continue to represent the definitive record of our performance for the particular financial year.
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We recommend that the ATO ensure that reporting processes, assumptions and calculations are clearly documented for each business line. Clear, tailored, rules and processes should be communicated to all staff involved in the reporting process and should be readily accessible to existing and new members of each reporting team.
ATO response: Agreed
These requirements will be the subject of specific internal assurance processes and will be incorporated into standard business line governance arrangements.
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The ATO should reconsider its current approach of establishing cash collection targets for reporting areas. In particular:
- The Executive should assess the relevance of reporting actual against planned collection amounts when differences will simply reflect performance against planned liabilities and any movement in the collection rate;
- Consider removing Planned Collections as a performance measure for the business lines and replacing it with a more relevant target that is controllable by the business lines; and
- More appropriate business line targets might relate to the percentage of compliance generated liabilities that are not adjusted for objections or the calculated collection rate where non collection is attributable to successful disputes rather than recoverability from the taxpayer.
ATO response: Agreed in part
The ATO does not allocate specific 'revenue targets' at a team or individual officer level in our active compliance program. The ATO agrees that such an approach would create potential integrity issues and notes that KPMG did not see any evidence of the inappropriate use of the planned aggregate collections figure in our current approach.
However, the ATO disagrees with the recommendation to remove planned (aggregate) collections as a performance measure because the ATO is required to monitor and report to government on cash collections related to specifically funded compliance improvement initiatives. Our formal performance agreement on the administration of the GST with the States and Territories also requires us to report on cash collections. Further, the ATO monitors cash collections at an aggregate level to ensure that our compliance activities are appropriately targeted, achieve a balance across the full range of compliance risks, and reflect a reasonable return on investment.
For these reasons, the ATO will continue to monitor collections related to active compliance activities at an aggregate level.
Separate reporting of the results of disputed assessments is considered under Recommendation 10.
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Given the ATO's focus on transparency, we recommend that the ATO should consider reporting the results of compliance activity more transparently by separately reporting the results of compliance activity that has generated refunds to that which has generated additional liabilities for the taxpayer.
However, the system limitations discussed at 3.2.3 9 (of the report) may make it more appropriate to implement this change when the new case management system has been implemented across the ATO.
ATO response: Agreed in part
The ATO acknowledges that its current approach to reporting active compliance results represents a conservative picture in some areas by effectively netting off credit adjustments made in favour of the taxpayer. The ATO's guidelines to active compliance staff require them to bring to a taxpayer's attention clear instances of material errors in the taxpayer's favour. Often these are 'netted off' in any amended assessments raised by the ATO. However, changes to our legacy systems to accommodate this recommendation are not considered justified at this time on a cost-benefit basis (see Recommendation 3). The ATO agrees to reconsider this issue once our new systems have been implemented and bedded down.
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We recommend that the ATO review the definition of liabilities and collections with particular regard to the impact of objections and disputes and consider implementing a reporting regime that provides greater transparency around the extent to which liabilities and/or collections are impacted by objections or disputes.
ATO response: Agreed
The ATO will review its approach to reporting on the results of finalised objections and disputes as part of the work to upgrade its reporting systems. In the interim, the 2005-06 Annual Report will include details of the number and value of significant audit related disputes finalised during the year in the large business market.
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Given the uncertainties that exist around pre-issue compliance activity, we recommend that the ATO develop a menu of potential pre-issue compliance activity that clarifies the 'Active Compliance' and 'Liabilities raised' status. This will supplement the definitional guidance that already exists.
A formal process should also be developed and communicated to business lines to ensure that any pre-issue work that is not specified on the 'menu' receives appropriate consideration and approval, before it is reported.
ATO response: Agreed
The ATO is currently reviewing the specific items that are listed as pre-issue active compliance activities. However, any major changes to the basis of reporting are likely to require system changes and will be considered as part of our longer term systems improvement program. As a transitional measure, we will investigate whether we can report separately on pre-issue activity undertaken to prevent the issue of incorrect refunds.
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Last Modified: Thursday, 8 June 2006