Inspector General of Taxation report lifts lid on ATO’s chaos
AUSTRALIAN BUSINESS REVIEW March 14, 2019 Robert Gottleibsen
ATO whistleblower Richard Boyle could face a lengthy prison sentence. Picture: AAP
The Inspector General of Taxation (IGT) has uncovered deep flaws in the operation of the Australian Taxation Office. Unless rectified, the revenue base of the nation is endangered.
Unfortunately, the summary of the report — which most media used — paints a very different picture. It is only when you delve into the detail of the report that you discover that, if anything, The Australian, Four Corners and Nine understated the chaotic situation in the ATO.
Fortunately, the ABC uncovered a whistleblower, Richard Boyle and his revelations led to this much needed Inspector General’s examination of the ATO. We all owe a debt to Richard Boyle.
The IGT recommendations reveal that the ATO requires fundamental management change. It took a 200-page report to show the chaos that is created when rudimentary management procedures are not followed.
Yet there is no other money collection operation in the land the size of the ATO. In the 2016—17 financial year, taxpayers made approximately 20 million payments to the ATO in relation to $455 billion of tax liabilities. Our nation is lucky because approximately 88 per cent ($416 billion in 15.8 million payments) was paid by the due date.
It’s that high level of voluntary payment that enables the government of Australia to function.
It is in collecting the remaining 12 per cent, or $39 billion involving some 4 million payments, that the ATO hits basic management difficulties. The bulk of those payments will come from people and enterprises that are doing the wrong thing, or require more time to pay. But a large number of honest tax payers, usually small enterprises, are destroyed by the ATO management failings.
And there is urgency in the ATO’s management rectification task because we will need small enterprises to generate a bigger share of employment as larger enterprises slash their staff using the new technologies.
The IGT’s first recommendation is just plain common sense. The ATO debt collection operation should have contingency plans should new systems not deliver as expected. I reckon just about every one of the taxpaying small enterprises could have told the ATO that.
In 2016-17 with flow through to 2017-18 and beyond the ATO assumed the new systems would deliver. When they failed, and there were existing systems break downs, the ATO was in chaos because it had promised to deliver the government the revenue. At the other end if that chaos were the unfortunate taxpayers.
The second recommendation is even more chilling: “Improve the candidate-selection models for potential officer garnishee action”.
When a tax officer decides to garnishee a small enterprise’s bank account it very often deprives the enterprise of bank credit and is the first step in driving the business to the wall. The ATO gave the task to people who not only did not have the skills, but the situation was made worse by the fact that they were part of an automated process.
The IGT explains the process in the following words, under the heading “ATO approach to debt collection”:
“Automated decision-making assists the ATO to improve the efficiency of dealing with large numbers of overdue accounts. However, human officers are needed to make decisions on actions that can have adverse financial impact on taxpayers, for example, issuing a garnishee notice.
“The Early intervention (EI) unit staff work in a scheduled environment. Work activities are planned for them through sophisticated processes and allocated to them for action from particular candidate pools (a ‘bucket’ based approach).
“The daily work of an EI unit staff member can involve a variety of different activities in unrelated accounts. This atomised approach does not allow the officer to see more of a taxpayer’s case than that provided through the window of the activity before them. However, the approach has increased the number of accounts that the ATO can manage”.
I suggest readers re-read those words, which diplomatically describe chaos.
From that chaotic situation came a bizarre debate in the ATO as to how many garnishee notices should be issued per hour by each person. An early target was two per hour, but the staff could not achieve that rate. The systems breakdowns further reduced the rate of garnishee notices. One email went to the Adelaide office mentioning that the two per hour target might be more than doubled.
At the time the ATO was under pressure, because the number of garnishee notices, and therefore revenue, had fallen below the target. The inexperience of staff compounded the problem.
When whistle blower Richard Boyle told the ATO what was happening it did not listen. The Inspector General recommends that the ATO to develop “a communication strategy for the debt business line local site management and staff”.
The staff communication strategy should include “a facility for direct communication from the debt executive for critical or complex messages where major changes to personnel resource deployment occur, particularly where personnel are new or are undertaking new work or expected to carry out work, they have not engaged in for a period”.
Richard Boyle faces the prospect of spending the rest of his life in jail, but his courage led to this recommendation, which the ATO has agreed to
The IGT also recommends fundamental training of staff. Another absolutely basic pillar of running any organisation.
So, we had chaos at the lower levels, with staff not trained to cope, under pressure to meet quotes and systems that were failing. Communication between the bottom and the top was at best grossly inadequate and at worst non-existent.
While the IGT report concentrates on the management mistakes out there in small business land there was carnage. And of course, that is what I saw. There is an incredible amount of work and cultural change required to enable the ATO to be a modern tax collecting unit and to restore confidence in the system.