Background

1. The operations and performance of the Australian Taxation Office (ATO) are subject to external scrutiny from parliamentary committees and the Australian National Audit Office (ANAO). Recommendations made by parliamentary committees and performance audits identify risks to the successful delivery of outcomes. The implementation of recommendations agreed to by the ATO will provide the most benefit when the actions taken are timely and adequately address the recommendation.

2. The ATO’s purpose is to contribute to the economic and social wellbeing of Australians by fostering willing participation in the tax and superannuation systems.¹ In 2015–16, with approximately 20 700 staff and an operating expense budget of $3.44 billion, the ATO collected $342.6 billion in net tax.² From 2011–12 to 2014–15, the ANAO made 39 performance audit recommendations to the ATO and parliamentary committees made 37 recommendations.

3. The audit objective was to examine the effectiveness of the ATO’s monitoring and implementation of recommendations about its administration made by the ANAO and parliamentary committees. To form a conclusion against the audit objective, the ANAO adopted the following high-level criteria:

• the ATO’s implementation of ANAO and parliamentary committee recommendations has been adequate and timely; and
• the ATO has effectively reviewed, monitored and reported on the implementation of ANAO and parliamentary committee recommendations.

Conclusion

4. In the four years from 2011–12 to 2014–15, the Australian Taxation Office effectively monitored and implemented recommendations about its administration made by the Australian National Audit Office and parliamentary committees.

5. The Australian Taxation Office adequately implemented the vast majority of Australian National Audit Office performance audit and parliamentary committee recommendations. The Australian Taxation Office responded to parliamentary committee reports in a timely manner, however it could implement Australian National Audit Office recommendations in a more timely manner.

6. The Australian Taxation Office’s processes and systems supported effective monitoring of the implementation of Australian National Audit Office performance audit and parliamentary committee recommendations. The Australian Taxation Office Audit and Risk Committee received sufficient information to perform its monitoring function for recommendations. Significant changes are being made in 2016–17 to the Australian Taxation Office’s future governance arrangements for managing the implementation of recommendations.

Supporting findings

Implementation of recommendations

7. The ATO has adequately implemented ANAO performance audit and parliamentary committee recommendations. In total, 36 of the 39 recommendations examined were implemented (92 per cent), as there was sufficient evidence that the actions taken met the intent of the recommendation. Of the three remaining recommendations, two recommendations (five per cent) were partially implemented, with some required actions not having been taken and one recommendation (three per cent) was not implemented. Compared to nine other entities recently audited by the ANAO, the ATO was the best performing entity in terms of the percentage of recommendations implemented.

8. The ANAO’s analysis of the ATO’s implementation of ANAO recommendations demonstrates that the ATO could implement recommendations in a more timely manner. The ATO:

• took 432 days, on average, to implement ANAO recommendations; and
• implemented 92 per cent of ANAO recommendations after the original target implementation date.

9. The ATO has responded to parliamentary committee reports in a timely manner, as all five reports were responded to within the required six month timeframe. Of the relevant 37 parliamentary committee recommendations made between 2011–12 and 2014–15, the ATO implemented all nine with specified implementation timing requirements on time—the other 28 recommendations did not have timing requirements.

Governance arrangements

10. During the four years 2011–12 to 2014–15, the ATO’s implementation of recommendations from ANAO performance audits and two parliamentary committees was soundly based and consisted of:

• clearly defined roles being performed by central coordination areas and business areas having responsibility for implementing recommendations;
• established policies and processes that were adequate for the activity and consistently applied; and
• staff meeting the requirements for accurate information to be entered and maintained in corporate systems.

11. The ATO’s arrangements for internal monitoring of the implementation of performance audit and parliamentary committee recommendations were appropriate. Adequate support was provided to the Audit and Risk Committee to conduct its monitoring and review function for recommendations. There is scope to improve the recommendations part of the content of the committee’s annual report to the Commissioner of Taxation. In three of the four years assessed during the audit, the report did not address the charter requirement that the committee monitor the ATO’s progress in implementing recommendations, and therefore did not provide reasonable assurance that this function was performed effectively.

12. Separately, the ATO appropriately monitored the implementation of nine recommendations made by the ANAO in annual audits of the financial statements from 2011–12 to 2014–15.

13. External reporting by the ATO in its annual report and on its website is limited as the amount of detail provided varied during the period and some information on the website is dated.

14. In 2016–17, the ATO is continuing to implement changes to its review and monitoring arrangements for both performance audit and parliamentary committee recommendations. The changes are consistent with suggestions from the ATO Audit and Risk Committee aimed at achieving more efficient monitoring and review processes and streamlined reporting about the implementation status of recommendations. Due to the ongoing nature of the work, the ANAO could not assess the impact of the changes to roles and processes. Changing an important internal control that provides assurance to the ATO’s Audit and Risk Committee could improve the time taken to close recommendations, but lessen the assurance provided about the adequate implementation of performance audit recommendations.

Summary of entity response

15. The Australian Taxation Office’s summary response to the report is provided below, while its response is at Appendix 1.

The ATO welcomes this review and considers the monitoring and implementation of recommendations important to addressing risks and ensuring the successful delivery of outcomes in our administration of the tax and superannuation systems. This audit recognises the sound processes and systems the ATO has in place to effectively monitor the implementation of Australian National Audit Office (ANAO) and parliamentary committee recommendations. We were pleased with the finding that the ATO was the best performing entity, compared to nine other entities recently audited by the ANAO, in terms of the percentage of ANAO performance audit recommendations implemented. The ATO is continuing to address the timeliness of implementing recommendations while maintaining adequate assurance of implementation to ensure the full intended benefit of each recommendation is realised.

Introduction

1.1 Performance audits can stimulate improvements in the administration and management of public sector entities as well as provide independent assurance to Parliament on the administration of programs.³ Parliamentary committees investigate specific matters of policy, government administration or performance and make recommendations to government.

1.2 Recommendations from performance audits and parliamentary committees identify risks to the successful delivery of outcomes. Recommendations can specify actions aimed at addressing those risks and identify opportunities for improving entity administration. The adequate and timely implementation of recommendations agreed to by an entity’s management is an important element of realising the full benefit of those recommendations.

1.3 Successful implementation of recommendations requires an adequate level of senior management oversight and implementation planning to set clear responsibilities and timeframes for addressing the required actions. Implementation should involve key stakeholders. Audit committees, through their position in an entity’s governance framework, also have an important role in monitoring and assuring the implementation of recommendations.

Australian Taxation Office

1.4 The Australian Taxation Office (ATO) administers the tax and superannuation systems that support and fund services to Australians. The ATO’s purpose is to contribute to the economic and social wellbeing of Australians by fostering willing participation in the tax and superannuation systems.⁴ Its responsibilities include: collecting revenue; administering the goods and services tax on behalf of the Australian states and territories; managing a range of programs that result in transfers and benefits to the community; regulating major aspects of Australia’s superannuation system; and custodianship of the Australian Business Register. In 2015–16, with approximately 20 700 staff and an operating expense budget of $3.44 billion, the ATO collected $342.6 billion in net tax.⁵

1.5 The ATO’s administration is subject to external scrutiny from:

• the Australian National Audit Office (ANAO); and
• parliamentary committees, in particular:
  • Joint Committee of Public Accounts and Audit (JCPAA); House of Representatives Standing Committee on Tax and Revenue; and two Senate Standing Committees on Economics (Legislation and References).

The ATO is also subject to scrutiny from the Inspector-General of Taxation who undertakes broad reviews of the ATO’s administration and makes recommendations to the ATO and Government.

1.6 The ANAO conducts both financial statement and performance audits annually in the ATO. The JCPAA⁶ and Standing Committee on Tax and Revenue⁷ undertake regular or specific investigations of the ATO’s administration.

1.7 This audit examines the ATO’s implementation of ANAO performance audit and parliamentary committee recommendations made during the period 1 July 2011 and 30 June 2015 (that is, 2011–12 to 2014–15). As shown in Table 1.1, the ATO received a total of 76 recommendations in the four-year period from the ANAO, JCPAA and Standing Committee on Tax and Revenue.

Table 1.1: Number of recommendations to the ATO, 2011–12 to 2014–15

Source: ANAO analysis of ANAO performance audits and parliamentary committee reports.

Implementing recommendations: parliamentary interest and previous audits

1.8 In recent years, the JCPAA and other parliamentary committees have expressed interest in the performance of Australian Government entities in relation to implementing audit recommendations.⁸ The ANAO has conducted a series of performance audits on the implementation of audit recommendations (Table 1.2).⁹

Table 1.2: Recent ANAO audits of the implementation of recommendations

Note a: Entities included in the audit were the: Department of Education, Employment and Workplace Relations; Department of Families, Housing, Community Services and Indigenous Affairs; Department of Finance and Deregulation; and Department of Infrastructure and Transport.

Source: ANAO analysis of previous audit reports.

1.9 This series of ANAO performance audits has highlighted that a structured and planned approach to the oversight and implementation of audit recommendations assists entities to manage timeliness, completeness and adequacy of implementation, by allowing progress to be clearly targeted and monitored.

Audit approach

1.10 The audit objective was to examine the effectiveness of the ATO’s monitoring and implementation of recommendations about its administration made by the ANAO and parliamentary committees.

1.11 To form a conclusion against the audit objective, the ANAO adopted the following high-level criteria:

• the ATO’s implementation of ANAO and parliamentary committee recommendations has been adequate and timely; and
• the ATO has effectively reviewed, monitored and reported on the implementation of ANAO and parliamentary committee recommendations.

1.12 In 2016, fieldwork for the audit involved:

• selecting and testing a sample of recommendations for the adequacy and timeliness of their implementation;
• examining the governance arrangements for monitoring and reporting on the implementation of recommendations; and
• reviewing documents and interviewing key ATO staff.

1.13 The audit was conducted in accordance with the ANAO Auditing Standards at a cost to the ANAO of approximately $185 000.

Has the Australian Taxation Office adequately implemented recommendations?

2.1 To assess the adequacy of the ATO’s implementation of recommendations, the ANAO selected a sample of recommendations directed to the ATO between 2011–12 and 2014–15. As shown in Table 2.1, the ANAO’s sample included:

• 23 performance audit recommendations, representing 59 per cent of the performance audit recommendations made to the ATO during this period. The ANAO selected the sample of performance audit recommendations to give coverage to financial years, areas of administration and market segments; and
• 21 parliamentary committee recommendations, representing 57 per cent of the parliamentary committee recommendations made by the Joint Committee of Public Accounts and Audit (JCPAA) and Standing Committee on Tax and Revenue to the ATO during this period. Similarly, the selection of the sample of recommendations from parliamentary committee reports aimed to give coverage to financial years, committees and types of recommendations.

Table 2.1: Number of recommendations assessed for adequacy of implementation

Source: ANAO.

2.2 The categories used by the ANAO to assess the extent to which recommendations were adequately implemented are provided in Table 2.2.

Table 2.2: ANAO’s categorisation of implementation

Source: ANAO.

2.3 Figure 2.1 provides a summary of the ANAO’s assessment of the implementation of recommendations.

Figure 2.1: Overview of ANAO’s assessment of adequacy of implementation

Source: ANAO assessment of ATO implementation of recommendations.

Performance audit recommendations

2.4 The ATO agreed with all 23 ANAO performance audit recommendations included in the sample for this audit. The recommendations included in the ANAO’s sample and the ANAO’s assessment of implementation against each recommendation is provided at Appendix 2. The ANAO assessed the implementation of recommendations at a point in time (when closed by the ATO), however, it is possible that recommendations and associated actions may be superseded over time. For example, recommendations directed towards the ATO’s former website may no longer be applicable following an ATO initiative to rationalise website content.

2.5 As shown in Figure 2.1, the ATO had implemented the majority of recommendations assessed by the ANAO (18 recommendations or 86 per cent of the 21 closed recommendations¹⁰ were implemented). The ANAO assessed three recommendations as not adequately implemented—two were partially implemented and one was not implemented. For one recommendation assessed by the ANAO as partially implemented, the ATO and ANAO implementation statuses were consistent (see Box 1 below).¹¹ For the remaining two recommendations assessed by the ANAO as partially implemented and not implemented, the ANAO’s implementation assessment differed from the ATO’s implementation status (see Box 2 and Box 3 below).

ANAO performance audit recommendations not fully implemented

Parliamentary committee recommendations

2.6 Of the 21 parliamentary committee recommendations included in the ANAO’s sample, the ATO fully agreed with 17, partially agreed with two and disagreed with two. The ANAO assessed whether the ATO:

• adequately implemented the recommendations it agreed to; and
• undertook the range of activities that it committed to in response to those recommendations to which it partially or fully disagreed.

2.7 As at 31 October 2016, the ANAO found that the ATO had adequately implemented 18 of 19 parliamentary committee recommendations (or parts of recommendations) that it agreed to implement. For the remaining recommendation¹², the ATO was implementing the recommendation with a due date of 2017. Recommendations and the ANAO’s assessment against each recommendation are provided at Appendix 2.

2.8 For one of the recommendations the ATO disagreed with, it undertook some action against this recommendation—Recommendation 4 of the Standing Committee on Tax and Revenue’s inquiry, Tax Disputes.¹³ In response to this recommendation, the ATO committed to review its existing guidance material and work through how best to provide further clarity for its staff about the responsibilities and necessary conditions for an allegation or finding of fraud or evasion. The ANAO found evidence that this had been done. For the remaining recommendation disagreed to, the Government disagreed with the recommendation and the ATO did not commit to any action. As discussed in Chapter 3, parliamentary committees can seek details of the implementation status of recommendations from entities in subsequent hearings. Where the response to a parliamentary committee is considered inadequate, the committee may follow-up with the entity and may decide to reopen its inquiry.

How the Australian Taxation Office compares with other entities

2.9 In recent years, the ANAO has conducted a series of five performance audits that have assessed the implementation of audit recommendations by nine entities (Table 1.2). While recognising that individual audit recommendations may vary in their scope and complexity, the ANAO’s findings from these audits provide a basis for comparative assessment of entity performance.

2.10 Figure 2.2 compares the ATO’s performance in adequately implementing ANAO recommendations to the other entities audited by the ANAO in recent years. The ATO’s performance in implementing recommendations compares very well to the nine entities recently audited by the ANAO (the ATO was the best performing entity in terms of the percentage of recommendations implemented).

Figure 2.2: Adequate implementation of ANAO recommendations—ATO compared to other Australian Government entities

Note: ATO total does not equal 100 per cent due to rounding.

Source: ANAO analysis.

2.11 As outlined in Chapter 1, the ANAO’s series of performance audits has not included recommendations from parliamentary committees and, as such, there is no basis on which to compare the adequacy of implementation across entities.

Impact of recommendations

2.12 Up until September 2014, the ATO’s Implementation Plans for performance audit recommendations (see Chapter 3) required business areas to identify only what would have changed after implementation.¹⁴ The ANAO’s sample of 23 performance audit recommendations confirmed that there was no structured approach to measuring the impact of recommendations. There was no equivalent requirement for parliamentary committee recommendations.

2.13 The ANAO suggests that the ATO consider, on a case-by-case basis¹⁵, the likely impact of recommendations being implemented—for specific business areas and ATO wide—before providing a management response to any performance audit or parliamentary committee recommendation. This would ensure that the ATO considers impact before agreeing to a recommendation and developing an Implementation Plan.

Has the Australian Taxation Office’s implementation of recommendations been timely?

2.14 The timely implementation of a recommendation assists an entity to realise the full benefits of the recommendation. Audit recommendations can vary in scope and complexity and may require coordination across business areas within an entity. As shown in Table 2.3, the ANAO assessed the timeliness of the ATO’s implementation of recommendations made between 2011–12 and 2014–15 by: ANAO performance audit and closed as at 31 October 2016¹⁶; and whether the ATO had responded in a timely manner to recommendations made by parliamentary committees.

Table 2.3: Number of recommendations assessed for timeliness

Source: ANAO.

Performance audit recommendations

2.15 It is the responsibility of the relevant business area implementing a recommendation to set out the planned implementation timeframe. This timeframe is set out in an Implementation Plan for each recommendation and is approved by an appropriate senior manager within the business area.

2.16 Table 2.4 provides a summary of the ANAO’s assessment of the timeliness of implementation of recommendations. The ANAO assessed the time taken to implement recommendations from the date the audit was tabled to the date the audit was closed in the ATO’s recommendations database.

Table 2.4: Timeliness of the ATO in implementing ANAO performance audit recommendations

Source: ANAO analysis of ATO data on the implementation of 36 ANAO recommendations.

2.17 The average number of days to implement the 36 ANAO recommendations was 432 days (approximately 14 months). The time taken to implement recommendations ranged from 178 days (approximately six months) to 869 days (approximately 2.5 years). One recommendation took 869 days to implement because the ANAO recommended the ATO conduct a post implementation review after the scheduled completion of project funding. The funding for this project ended approximately 1.5 years after the recommendation was made.

2.18 Figure 2.3 categorises recommendations by the range of days taken to implement. The majority of recommendations (29 of 36 recommendations) were implemented between 181 days and 540 days (six months and 1.5 years).

Figure 2.3: Number of days to implement ANAO recommendations by 180 day range

Source: ANAO analysis of ATO data on the implementation of 36 ANAO recommendations.

2.19 Of the 36 recommendations fully implemented as at 31 October 2016, 33 (92 per cent) were implemented after the original ATO target implementation date. As shown in Figure 2.4, half (18 recommendations) were implemented up to 90 days after the target implementation date (the Audit and Risk Committee’s monitoring of overdue recommendations is discussed in Chapter 3).

Figure 2.4: Number of ANAO recommendations implemented before and after original target implementation date

Source: ANAO analysis of ATO data on the implementation of 36 ANAO recommendations.

2.20 Of the 32 recommendations reviewed by ATO Internal Audit, 16 (50 per cent) were rejected at least once prior to closure. One recommendation submitted for closure was rejected three times, and took a total of 178 days to implement. Internal Audit’s verification activities and subsequent business area follow-up work to adequately implement the recommendations took, on average, 58 days. While Internal Audit’s verification activities have added time to the implementation process, these activities were an important internal control that provided assurance to the ATO’s Audit and Risk Committee.

2.21 As part of planning for the implementation of ANAO recommendations, business areas are required to assign an implementation priority of low, medium or high. As shown in Table 2.5, most ANAO performance audit recommendations (31 of 39) directed to the ATO from 2012–13 to 2014–15 were categorised as medium priority. There was no apparent relationship between the average number of days to implement recommendations and the implementation priority. Recommendations with a low implementation priority were implemented in the shortest number of days, on average.

Table 2.5: The ATO’s implementation priority classification

Note a: As at 31 October 2016, 36 recommendations had implementation completed dates.

Source: ATO Implementation Plan and ANAO analysis of records in ATO’s recommendation database.

2.22 In light of the findings relating to implementation priorities, the ANAO suggests that the ATO reviews the guidance for each implementation priority and considers the benefit of setting timeliness targets (in days or months) for implementing recommendations against the implementation priorities.

How the Australian Taxation Office compares with other entities

2.23 The ANAO’s recent series of performance audits has assessed the timeliness of entities’ implementation of recommendations. Individual recommendations are likely to vary in their scope and complexity and the circumstances of individual entities will also vary. Entities can also have varied implementation processes that impact on the time taken to implement recommendations and the recording of implementation dates. Nevertheless, the ANAO’s published findings provide some basis for a comparative assessment of entity performance. These findings indicate that the ATO has been relatively slow in implementing ANAO performance audit recommendations—averaging 432 days to implement the recommendations compared to 388 days by the other entities. Figure 2.5 compares the ATO to other entities, where data is available on those entities’ performance.

Figure 2.5: Average number of days to implement ANAO performance audit recommendations compared to other entities audited by ANAO

Source: ANAO analysis of ATO data and results from recent ANAO audits.

Parliamentary committee recommendations

2.24 The JCPAA and Standing Committee on Tax and Revenue require that government responses and executive minutes in response to committee reports should be provided within six months of a committee report being tabled in the Parliament. If a government response is provided more than six months after the tabling of the report, the response is considered to be overdue.

2.25 For the five parliamentary committee reports assessed as part of this audit, the ATO responded to all five within the required six month timeframe. Response times ranged from 50 days to 183 days (approximately six months).

2.26 Unless specified by a parliamentary committee, there are no parliamentary or ATO requirements relating to the priority or timing for implementing committee recommendations. Of the 37 recommendations directed to the ATO by the two parliamentary committees from 2011–12 and 2014–15:

• nine recommendations requested that the ATO include certain information in its next submission to the committee. For these recommendations, the response to the committee was timely and the response date was also the implementation date; and
• 28 recommendations requested that the ATO undertake an action, but not within a specified timeframe. Unlike ANAO performance audit recommendations, the ATO does not have a structured process to close parliamentary committee recommendations when they have been implemented. While the ANAO assessed whether recommendations had been adequately implemented, data for the final implementation date was not routinely collected by the ATO for these parliamentary committee recommendations.

Does the Australian Taxation Office have sound processes and systems for the implementation of recommendations?

Roles and responsibilities

3.1 The ATO has clearly specified the roles and responsibilities of coordination and business areas that manage recommendations from ANAO performance audits and parliamentary committees. An overview of the ATO’s arrangements in place for the four years 2011–12 to 2014–15 (the years in scope for this audit) is set out in Figure 3.1. The ATO’s future arrangements for managing the implementation of performance audit and parliamentary committee recommendations made in and beyond 2016–17 are discussed at paragraph 3.26.

3.2 The ATO’s arrangements for managing the implementation of performance audit and parliamentary committee recommendations from 2011–12 to 2014–15 were similar (Figure 3.1). The key difference in the governance arrangements was the role of Internal Audit and the ATO’s Audit and Risk Committee in reviewing and monitoring performance audit recommendations.¹⁷

Figure 3.1: Roles and responsibilities of ATO coordination and business areas for implementing performance audit and parliamentary committee recommendations, 2011–12 to 2014–15

Source: ANAO analysis of ATO documents.

Policies and processes

3.3 The ATO maintains an internal instruction for staff that sets out the policy and guidelines for working with external scrutineers, including the ANAO. The policy states that Internal Audit’s role is to monitor, confirm the implementation status of recommendations, and report to the Audit and Risk Committee (see paragraphs 3.13–3.15 for details of the reports).

3.4 In addition to the policy for all staff, Internal Audit provides detailed written guidance and templates to assist ATO staff to manage the implementation of recommendations. The documentation includes templates and guidelines relating to: the development of Implementation Plans for recommendations; providing implementation status updates; and satisfying evidence requirements and the approval process required to close recommendations. The ANAO’s sample of performance audit recommendations showed that the guidance and templates were sufficient to enable staff in the ATO business areas to have fulfilled their reporting requirements.

3.5 ATO responses to parliamentary committee recommendations from the Joint Committee of Public Accounts and Audit (JCPAA), from 2011–13, were consistent with the guidelines issued by the Department of Finance.¹⁸ For example, the guidelines address the processes for entities to respond to recommendations that are either policy or administrative in nature, and states that all responses to recommendations must be provided within six months of the date of tabling of the report. A similar process was followed by the ATO for responses to recommendations made by the Standing Committee on Tax and Revenue from 2014–15.

3.6 The Parliamentary Services area provides the relevant ATO business area lead with details of specific parliamentary recommendations, timing for a status update and the required approval process for finalising recommendations. For the four years in scope for the audit, the ATO also provided an adequate level of general advice to staff about the: operation and processes (submission and inquiry) of parliamentary committees; requirements for responding to Questions on Notice received from the Parliament; and clearance and approval process for responses. The guidance was sufficient to manage the implementation of the parliamentary committee recommendations in the ANAO’s sample of recommendations.

Systems and information requirements

3.7 The ATO used various corporate electronic systems and applications for managing performance audit and parliamentary committee recommendations. The systems in use were TeamCentral (part of the TeamMate audit management system), Microsoft Excel and ATO share drives. The ATO was able to provide the ANAO with access to TeamCentral and/or provide documents showing approvals and evidence provided by the business areas as part of the workflow for managing both types of recommendations.

3.8 The information recorded in ATO systems is initially entered by a coordination area (Internal Audit or Parliamentary Services in Figure 3.1) and status updates are provided by business areas either on request or when the recommendation has been implemented. Business areas are also responsible for providing supporting evidence and undertaking approval processes.

3.9 As part of the ANAO’s sampling of recommendations, key elements of the implementation process for performance audit recommendations were examined for compliance with ATO requirements. Table 3.1 shows that all of the implementation requirements for the sampled recommendations were met on an ATO-wide basis, which provided assurance around the successful operation of the systems and processes that were in place to manage the implementation of recommendations by a range of business areas.

Table 3.1: Audit sample results of compliance with ATO implementation requirements for performance audit recommendations, 2011–12 to 2014–15

Note a: Not a requirement included in all of the Implementation Plan templates during the period.

Note b: Two recommendations still in progress.

Note c: Two recommendations still in progress and two recommendations finalised that did not require a review because of a change in process.

Source: ANAO analysis of a sample of performance audit recommendations stored in the ATO’s TeamCentral database.

3.10 An important requirement was for ATO business areas to develop an Implementation Plan for performance audit recommendations that the ATO had agreed to implement. The plan was required by the Audit and Risk Committee for the purpose of transparently managing and implementing recommendations, which would provide assurance to the committee about ATO internal controls and risk management.¹⁹ The completed plans were a sufficiently comprehensive planning tool for use by ATO staff at all levels.

3.11 From 2011–12 to 2014–15, a formal approval process was also in place for finalising the implementation of recommendations made to the ATO by the Joint Committee of Public Accounts and Audit and Standing Committee on Tax and Revenue. The ANAO’s sample of recommendations from that period confirmed that in all instances (21 recommendations) the ATO’s response to the relevant committee was approved by the appropriate senior ATO staff member and/or the Commissioner of Taxation. A detailed Implementation Plan was not required for the management of parliamentary committee recommendations and the regular reporting cycle was from one committee hearing to the next.

Does the Australian Taxation Office have effective arrangements for monitoring the timely and adequate implementation of recommendations?

Recommendation monitoring arrangements within the Australian Taxation Office

3.12 The ATO’s Audit and Risk Committee is required to satisfy itself that the entity has appropriate mechanisms in place to review and implement relevant performance audit and parliamentary committee recommendations. This requirement was an ongoing function under all versions of the committee’s charter from 2011–12 to 2014–15.

3.13 From 2011–12 to 2014–15, the Audit and Risk Committee met quarterly and considered reports at each meeting about the implementation status of performance audit and parliamentary committee recommendations.²⁰ For performance audit recommendations, the updates were based on information provided by the business areas in quarterly progress reports entered in TeamCentral.

3.14 While the format of reports to the Audit and Risk Committee differed slightly over time, the focus remained on providing the committee with advice about the timely and adequate implementation of recommendations. The reports contained: summary tables, similar to Table 3.2; charts that presented trends over time; and the use of colours (red and amber) to highlight delays in implementation.

Table 3.2: Example of a summary table for monitoring recommendations

Source: ANAO analysis of Audit and Risk Committee meeting papers, 2011–12 to 2014–15.

3.15 Audit and Risk Committee (and Sub-Committee) members regularly asked questions about the content of reports and processes, and made suggestions for improvements in the reports. For example, committee members discussed the:

• implementation status and age of recommendations;
• number of overdue recommendations and whether implementation dates set by the business areas were realistic;
• implementation priority (low, medium, high) of overdue recommendations; and
• ongoing management and tracking of Implementation Plans.

3.16 Since 2012, the final stage in monitoring the implementation of performance audits has occurred at Audit and Risk Committee meetings. After the business area has submitted a recommendation for closure, Internal Audit assesses and accepts or rejects the evidence provided. Half of the recommendations in the ANAO’s sample that were reviewed by ATO Internal Audit were rejected at least once prior to closure (as discussed in Chapter 2). Following tabling and discussion by the committee, the recommendation is classified as being ‘implemented’ and closed in TeamCentral.

3.17 In July 2014, members of the Audit and Risk Sub-Committee agreed that for recommendations highlighted as ‘on watch’ (overdue for implementation) the responsible actioning officer for each overdue action or recommendation should attend the next Audit and Risk Committee meeting to explain the reason for the delay.²¹ However, no representatives from a business area were required to attend an Audit and Risk Committee meeting before 30 June 2015 to discuss overdue recommendations, which was the end of the four-year period assessed by the ANAO.

3.18 The Audit and Risk Committee (and Sub-Committee) has been provided with sufficient information to fulfil their monitoring function for recommendations made by performance audits and parliamentary committees from 2011–12 to 2014–15. The ATO has responded to requests from the committees for amendments to two key reports so as to increase the reports’ transparency and usefulness for monitoring purposes, for example, by highlighting exceptions more clearly.

3.19 To satisfy a charter requirement, the Audit and Risk Committee’s annual report to the Commissioner of Taxation should have explicitly addressed the committee’s monitoring function for performance audit and parliamentary committee recommendations. Aside from the 2011–12 annual report, insufficient detail was provided in the following three years to afford assurance that the committee was satisfactorily undertaking its monitoring function, including summarising the ATO’s progress in implementing recommendations. While the committee’s annual reports have become more concise over time, the content should still be consistent with the requirements contained in the committee’s charter for monitoring recommendations.²²

Financial statement audit recommendations

3.20 From 2011–12 to 2014–15, the functions of the Audit and Risk Committee included reviewing: the ATO’s financial statements for adequacy and compliance; and whether appropriate management action had been taken in response to any issues raised by the ANAO, as the external auditor.

3.21 The ANAO’s annual financial statement audits for the ATO identify audit issues that are categorised and reported to the ATO, and depending on the category, the Minister and the Parliament.²³ At the interim and final audit phases of the financial statement audit, the ANAO issues a letter to the ATO with details of the audit issues identified and recommendations for action. These letters also report on the status of previously identified audit issues and incorporate management responses from the ATO to the audit issues and the recommendations for action.

3.22 Unlike performance audit and parliamentary committee recommendations, financial statement recommendations for action are not published. The Audit and Risk Committee monitors the implementation of those recommendations and the ANAO determines when an audit issue has been resolved. During this audit, the ANAO reviewed the relevant committee meeting papers for the Audit and Risk Committee and Audit and Risk Sub-Committee, and ANAO interim and closing audit letters to the ATO. For the four-year period, the ATO, supported by its Audit and Risk Committee, appropriately monitored the implementation of nine financial statement recommendations for action.

External reporting

3.23 ATO written submissions that include responses to recommendations made by parliamentary committees are published on the Parliament of Australia website.²⁴ A committee can subsequently ask follow-up questions at a later hearing or seek details of the implementation status of recommendations in subsequent hearings. During the four-year period assessed by the ANAO, the JCPAA commented positively in 2011 about the ATO’s implementation of its recommendations.²⁵ While a parliamentary committee may follow-up with an entity and may decide to re-open its inquiry if a response to a recommendation is considered to be inadequate, this has not happened for the Standing Committee on Tax and Revenue’s inquiry into Tax Disputes.²⁶

3.24 In annual reports from 2011–12 to 2014–15, the ATO reported on performance audit reports and recommendations, and parliamentary committee hearings and recommendations, in varying degrees of detail. Annual reports published in the last two years of the period did not include the number of recommendations made by parliamentary committees or the ATO’s response.

3.25 In 2013, in response to a recommendation of the JCPAA, the ATO advised that it would publish information about the implementation of the committee’s recommendations on its website. In December 2016, the ATO website provided details of performance audit recommendations and their implementation status (as assessed by the ATO) for five of the six performance audit reports available from 2011 and 2013. The ATO’s website also directed viewers to the Parliament of Australia website for the details of committee recommendations and provided a general link to the ANAO website. The ATO advised that it intends to investigate alternative options—other than its website—for efficiently publishing information about recommendations made to it and ATO responses.

What are the future directions for the Australian Taxation Office’s arrangements for managing the implementation of recommendations?

3.26 In 2016–17, the ATO is making changes to the governance arrangements for managing the implementation of recommendations, which will impact on performance audit and parliamentary committee recommendations. Table 3.3 shows recent changes to the ATO’s review process for performance audit recommendations, which were instigated by the ATO Audit and Risk Committee. The changes are designed to make the central coordination and monitoring processes more efficient and to use a risk based approach to sampling the recommendations closed by business areas.

Table 3.3: ATO Internal Audit reviews of closed performance audit recommendations

Source: ANAO analysis of ATO documents.

3.27 In 2016–17, a review of a sample of the performance audit recommendations that have been closed by a business area, before going to the Audit and Risk Committee for consideration, will be conducted as an internal audit. The audit is currently scheduled to commence in February 2017 and a report is to be presented to the Audit and Risk Committee in September 2017.

3.28 The timeliness of implementing performance audit recommendations and rejection rate after reviews by the ATO’s Internal Audit function of recommendations closed by a business area were discussed in Chapter 2. New processes for reviewing the implementation status of performance audit recommendations should take into account historical performance information and ensure the Audit and Risk Committee is provided with sufficient support to perform its monitoring function for performance audit recommendations. There is the potential for less scrutiny to result in less assurance of the adequate implementation of performance audit recommendations in the future. The ANAO suggests that the ATO establish a baseline or indicators to measure the impact of new review arrangements being introduced in 2016–17 to provide assurance about the adequate implementation of ANAO performance audit recommendations by business areas.

3.29 As part of a whole-of-government project, the ATO is implementing a Parliamentary Workflow Solution. The shared service aims to provide cost efficiencies and improved record keeping for managing a range of parliamentary documents. The new electronic workflow system will support the central monitoring of parliamentary committee recommendations. The ATO advised that a new guide for staff working with parliamentary recommendations is being developed that will address: governance arrangements; roles and responsibilities; and procedures. The workflow system will also be used for quarterly reports to the Audit and Risk Committee in 2016–17 about the implementation status of parliamentary committee recommendations.

3.30 The quarterly reporting on parliamentary committee recommendations to the Audit and Risk Committee will assist the ATO to compile an annual update for the ANAO.

3.31 In 2015, the Audit and Risk Committee suggested that reporting on performance audit recommendations could be coordinated by the ATO External Scrutineers Unit to allow ATO Internal Audit complete independence from the monitoring and review process. In 2016–17, the ATO has been preparing to move the central monitoring function for performance audit recommendations to the External Scrutineers Unit, including developing a new electronic database for monitoring recommendations. The ATO advised that the Audit and Risk Committee will continue to receive quarterly updates on the implementation status of performance audit and other scrutineer recommendations.

Appendix 1 Entity response

Appendix 2 The Australian National Audit Office’s assessment of implementation

Note a: The ATO partially agreed to this recommendation. The ANAO assessed the ATO against the elements of the recommendation that it agreed to implement.

Source: ANAO analysis of ANAO audit reports and ATO and parliamentary committee documents.