• Improving integrity of income tax refunds

    Our ongoing focus in detecting fraud in annual income tax returns has resulted in significant savings for the Australian community. While extra scrutiny has an impact on processing times, we balance our assurance activities with the need to ensure returns and refund payments are processed in a timely manner.

    In 2012–13 we issued 13.7 million income tax refunds totalling $40.6 billion. We stopped less than 1% or around 100,000 returns resulting in compliance action undertaken in 71,690 cases. By preventing fraudulent refunds and over-claims we safeguarded around $189.5 million in revenue, compared with 79,000 compliance actions safeguarding around $200 million in 2011–12.

    On guard for refund fraud

    Maintaining the integrity of our tax and superannuation systems is a key priority. Providing a level playing field for all taxpayers fosters community confidence and encourages willing compliance with our tax and superannuation laws.

    We use a wide range of sophisticated fraud detection techniques to protect the integrity of the system by preventing over-claims and fraudulent income tax return refunds. Recent improvements in technology and data-analysis tools have greatly enhanced our ability to do this.

    Some incorrect claims for refunds are due to an honest mistake or a misunderstanding of the law. Others are deliberate attempts to defraud the Australian community. Fraudulent refund claims are lodged by both self-preparers and through tax agents.

    We undertake systematic checks across income tax returns – e-tax, paper returns and tax agent lodgments. We review and amend claims where a discrepancy or anomaly is identified.

    35% of the income tax returns held for full review in 2012–13 were lodged by tax agents. However this represents only 0.25% of the total number of income tax returns lodged by tax agents.

    Although this is a relatively small number, we partner with the tax agent population to raise their awareness of fraudulent activity among individual taxpayers. Tax Agents also provide vital intelligence to us. We encourage them to report suspected fraud as early as possible.

    Where we detect refund fraud, we apply the law to amend the assessment and apply appropriate interest and penalties. In some cases, we will prosecute taxpayers and tax agents who have behaved fraudulently. Our response to managing fraud ensures we maintain a fair system for everyone.

    Preventing identity crime

    Internationally there are concerns about the rise in identity crime. Criminal use of online systems has evolved to a sophisticated standard.

    Criminal groups are using a range of strategies to access tax file numbers (TFNs). They target vulnerable people in order to use their TFNs. For example, organised crime groups use TFNs that are stolen, bought, or belonged to deceased persons, those new to the tax system or short-term visitors to Australia.

    We respond to their attacks with robust and adaptive detection models. We first introduced an identity crime detection model for 2008–09 income tax returns lodged via e-tax. The model has now been expanded to check income tax returns across all lodgment channels. We regularly review and adapt the model to match changing fraud behaviours.

    We find that people engaging in fraud in this area generally do it in multiples rather than one-offs. As well as identifying individual cases of potential fraud, the model identifies groups of returns that are likely to have been lodged by the same criminal group.

    In 2012–13, we stopped 15,700 income tax refunds, totalling $68.5 million in revenue (37% of total revenue protected), relating to identity crime. This is an increase from 2011–12 when we stopped 7,900 returns, totalling $39.9 million in revenue.

    Our ongoing attention in this area is critical and the increasing effectiveness of our detection strategies is encouraging.

    Reducing refund delays

    While our priority is protecting the revenue, we are also focused on ensuring refunds are not held unnecessarily. We pay continual attention to the refinement of our risk-assessment strategies and in the past year, we have seen a decrease in the number of returns held for review and action.

    Early on in the application of our detection models, the additional checks on returns held caused delays that led to a spike in complaints from both taxpayers and tax practitioners.

    We responded to this feedback in a number of ways.

    • We set out to reduce the time spent in processing legitimate refunds.
    • We reviewed our risk-identification processes, and we expect these changes to reduce the number of manual reviews by around 40,000 in 2013–14.
    • We reduced our processing times for stopped refunds by amending our case-selection techniques and business processes.

    In 2012–13 we completed 75% of selected cases within 90 days, compared to just 37% in 2011–12. Only 10% of refunds held for review in 2012–13 took more than 120 days, while in 2011–12 the figure was 54% (see Figure 1).

    Figure 1: Income tax refunds held for review, by processing time

    Figure 1 compares the processing time for income tax refunds held for review from 2011-12 and 2012-13.

    We have also launched a new individuals' portal that allows individuals to check the progress of their returns, update their contact details and enter payment arrangements online.

    Where we hold a refund for review, we have improved our notification process and we now provide people with specific timeframes and more information about the review process.

    The combination of these improvements saw a 78% reduction in complaints and refund progress enquiries in 2012–13 for an individual's return held for review (see Figure 2).

    Figure 2: Refund progress enquiries and refund complaints

    Figure 2 compares the refund progress enquires and refund complaints for 2011-12 and 2012-13. It shows the decrease of both in 2012-13.

    Last modified: 07 Mar 2016QC 37652