Introduction

The Australian Taxation Office (Tax Office) is the principal revenue collection agency in Australia. It has authority under the Income Tax Assessment Act (ITAA) 1936 to exercise broad powers in collecting revenue. In 1993, the Committee of Public Accounts (now the Joint Committee of Public Accounts and Audit (JCPAA)) reviewed the ITAA 1936, and highlighted concerns about an imbalance of power between the Tax Office and taxpayers.¹ The JCPAA recommended the Tax Office adopt a Taxpayers' Charter (the Charter).²

Since its first release, the Tax Office has reviewed the Taxpayers' Charter twice, and made changes to the Charter's presentation;³ however the underlying themes and commitments remain the same as they were in 1997. The current revised version of the Charter consists of two overview booklets⁴ and nine supporting booklets.⁵

The Taxpayers' Charter Team, which is part of the Marketing Communications Business Line, manages the Charter and the Compliance Model⁶ within the Tax Office. Its role includes contributing to the Tax Office:

• meeting the commitments made to the community under the Charter; and
• applying the compliance model in its dealings with the community.

The Australian Government's Client Service Charter Principles (2000), maintained by the Australian Public Service Commission (APSC), provides guidance to all Australian Government agencies in the implementation of their charters, and assists those with charters in place to ensure that their charter is a strategic tool for shaping service delivery. All agencies delivering services directly to the public are required to prepare and implement a charter. In addition, agencies with policy development functions are encouraged to develop charters. The APSC has reported that in 2006–07, all agencies that had public contact reported having either quantifiable performance indicators or service standards for the quality of services provided to the public in place or being developed.

The Tax Office was the first Australian Government agency to publish a charter of rights and responsibilities for its clients. In this context, a 2004 survey of Organisation for Economic Co-operation and Development (OECD) countries reports that approximately two thirds of all revenue agencies had taxpayers' Charters or statements of service standards.

The Tax Office considers its Taxpayers' Charter, Brand, and Compliance Model to be the three pillars of its communications with taxpayers. These pillars form the key relationship tools used to build community confidence, which is essential in a self-assessment taxation system. Given the close linkage of Taxpayers' Charter, Brand and Compliance Model, and their importance to developing community confidence in the tax system, it is essential that the Tax Office ensures that each of these pillars combine and integrate effectively.

During 2004–05 the ANAO completed an audit of the Tax Office‘s performance in meeting its Taxpayers' Charter responsibilities. This first Charter audit concluded the Tax Office was managing its responsibilities under the Charter, and had systems and processes to develop, maintain and review the Charter. In addition, the audit concluded that the Tax Office had shown its commitment to the Charter principles at the strategic level, and was working to fully integrate these principles with its business processes.

Audit scope and objective

The objective of this audit was to assess the Tax Office's implementation of the nine recommendations of Audit Report No.19 2004–05 Taxpayers' Charter, having regard to any changed circumstances affecting the implementation of the recommendations. This involved an examination of the Tax Office's:

• systems and processes used to develop, maintain and update the Charter;
• strategic commitment to implementing the principles of the Charter;
• integration of Charter principles with its business processes;
• systems for resolving disputes according to Charter principles; and
• monitoring and reporting of its performance against commitments in the Charter.

The audit also considered trends in the development of charters by revenue agencies of other countries.
As with the previous audit, this audit did not examine the Tax Office's strategies to monitor taxpayers' conformance with their obligations stated in the Charter. These strategies are included in the Tax Office's Compliance Program.

Conclusion

The Tax Office has progressed well in implementing the recommendations made in the first audit, implementing all recommendations in full or part. A summary of the Tax Office's progress in implementing the recommendations from the first Charter audit is presented in Appendix 1 of the report.

The Tax Office has also undertaken two reviews of the Taxpayers' Charter since its implementation, with the second in 2005–06 providing information to inform the management of the Charter, and in several cases the broader management of the Tax Office. The Tax Office's commitment to the Charter is now being demonstrated through explicit references to the Charter in its strategic planning processes. New and updated practice statements provide staff with practical guidance on how to meet Charter commitments. In addition, processes are planned which will assist information and guidance products, as well as advice, issued by the Tax Office to comply with Charter principles. Complaints information is now analysed and coordinated between ATO Complaints and the Charter Team, to help identify issues relating to Charter performance. Further, the Tax Office now effectively monitors and reports on its performance against the Charter.

During the course of conducting the current audit, the ANAO made four recommendations to improve the Tax Office's management of its responsibilities under the Charter. These involve:

• using future reviews of the Charter to target feedback from specific categories of taxpayers;
• implementing procedures to align future training programs with Charter principles;
• expanding the current complaints reporting and trend analysis function to benchmark current performance; and
• improving the required system functionality for complaints reporting and analysis.

Key findings by chapter

Development and Review of the Charter (Chapter 2)

When the Charter was launched in 1997 the Tax Office committed to independently reviewing the Charter every three years. Due to the implementation of A New Tax System, the first independent review was delayed until 2002–03.

The second independent review was conducted in 2005–06. In line with a recommendation made in the first Charter audit, the review was completed in a timely manner, and covered the Charter Principles and the Client Service Standards. The results of the review have been extensively used by the Taxpayers' Charter Team to inform decisions about the management of the Charter. The Tax Office had also developed a Charter measurement strategy, as proposed in its response to the original audit.
The ANAO considers that improvements to the administration of the Charter would be assisted if the Tax Office determines the extent to which particular categories of taxpayers are aware of their rights and obligations under the Charter, and whether the Charter is appropriately applied to them. This could be determined when the Tax Office conducts its next review of the Taxpayers' Charter, by seeking feedback from the particular categories of taxpayers.

Internationally, revenue agencies have been recognising, either in tax legislation or in administrative documents such as charters, the benefits of explicitly acknowledging the rights and obligations of taxpayers. Revenue agencies such as the New Zealand Inland Revenue agency have a taxpayers' charter; the Canadian Revenue Agency and the USA Inland Revenue Service have developed a Taxpayers' Bill of Rights; and Her Majesty's Revenue and Customs Department in the United Kingdom is currently in the process of developing a new Taxpayers' Charter.⁷ The OECD's Comparative Information Series on Tax Administration in OECD and Selected Non-OECD Countries (2006) reports that in a 2004 survey of OECD countries, approximately two thirds of all revenue agencies had taxpayers' charters or statements of service standards in place. Approximately 80 per cent of revenue agencies had published specific timeliness indicators for service delivery.

The Taxpayers' Charter Team informally monitors the charters of other similar agencies. This examination of charters in other countries has revealed ways of improving the Tax Office's Charter, and enables the Tax Office to incorporate better practice from other agencies when updating and managing the Charter. Other revenue agencies have used the Australian Taxation Office's Charter as the basis for developing their own charters, and have sought advice from the Charter Team on consultation processes and the lessons learnt from developing the Charter.

The most current guidance available to Australian Government agencies on Charter implementation is the Client Service Charter Principles issued by the APSC. Since publication in 2000, the guidelines have not been reviewed to determine whether an update or enhancement is necessary to meet current needs. Given the importance of charters in shaping the culture of an organisation, and to improve service delivery to clients, the ANAO considers there would be benefits if the Client Service Charter Principles were reviewed to ensure currency, and promote greater awareness of service charter principles.

The ANAO suggests that there could be benefit in the Tax Office, having regard to its experience in this area, offering assistance to the APSC to undertake a review, and subject to competing priorities, update the Client Service Charter Principles.

Strategic Commitment (Chapter 3)

The success of the Charter depends on commitment and support at the strategic level. The ANAO examined the Tax Office's strategic commitment to the Charter and its principles.

The Tax Office's 2006–07 Annual Report acknowledges the Taxpayers' Charter as a key corporate document. The Tax Office's Strategic Statement and Strategic Statement Overview are the Tax Office's highest level planning documents, and give staff and stakeholders a clear sense of the Tax Offices' strategic direction. As recommended in the original Charter audit, these Strategic Statements explicitly recognise the importance of the Charter principles, as do the Tax Office Sub-Plans. While the Corporate Plan does not refer to the Charter, it does outline Tax Office Values, which are consistent with the principles of the Taxpayers' Charter.

The Tax Office has developed a system of Corporate Management Practice Statements to provide guidance for each Charter principle. The Tax Office has developed procedures for writing Corporate Management Practice Statements, which includes consultation with the Taxpayers' Charter Team as mandatory stakeholders. The ANAO reviewed the input provided by the Charter Team for a number of Corporate Management Practice Statements, and notes the Team was able to recommend improvements in order to ensure consistency with Charter principles.

The Tax Office advised that it is currently working towards becoming a values based organisation. The Tax Office Corporate Plan 2007–08 lists the Tax Office ‘Values'. These Values are designed to underpin all Tax Office interactions with the community, stakeholders, scrutineers, government and Tax Office staff. The Values are consistent with the Taxpayers' Charter.

Given the importance of the three pillars (Taxpayers' Charter, Brand, and Compliance Model) in shaping the broader relationship and communication approach to taxpayers, there may be benefit in the Tax Office including a consideration of these three matters in the next review of the Taxpayers' Charter. This would provide reassurance that all three pillars were appropriately integrated.

Charter Support Mechanisms (Chapter 4)

At the time of the previous audit, the ANAO sought to determine whether the Tax Office's strategic commitment to the Charter was reflected in its business processes. The ANAO considered the Tax Office had implemented a coordinated approach to increasing staff awareness of the Charter and its principles, and the Tax Office had systematic processes in place to provide assurance that advice, information and products issued by the Tax Office complied with the Charter principles. However, the ANAO noted the Tax Office's draft Law Administration Practice Statement on the technical clearance of Tax Office publications did not contain explicit references to the Charter. The ANAO recommended that the Tax Office provide assurance that technical documents published by the Tax Office take into account Charter principles. The Tax Office is still in the process of finalising the Law Administration Practice Statement that takes into account the Charter principles. The ANAO considers that the publication of the proposed Law Administration Practice Statement will achieve the intent of this recommendation.

For the Charter to be effective in influencing compliance behaviour, taxpayers should be aware of their rights, obligations and the complaint resolution mechanisms under the Charter. The Tax Office has refined the approach to make sure that Charter principles (e.g. providing avenues for further contact) are adhered to in all client interactions, and to advise taxpayers of relevant rights at the time a decision is made (e.g. providing information on review avenues when an audit is completed). This strategy was explained in the Tax Office response to the original audit.

Further, there are Corporate Management Practice Statements, which provide guidance to staff on putting the Charter principles into practice, and additional information is available on the Tax Office Intranet. The Tax Office has indicated that a focus of the ATO Communications Strategy is to reinvigorate the Charter internally.

The ANAO considers that there is scope for the Tax Office to ensure the development of future training programs align with the Charter principles, thereby assisting staff to put Charter principles into practice.

Quality Assurance (Chapter 5)

Quality assurance processes are designed to provide assurance that business processes conform to an organisation's endorsed policies, procedures and practices.

At the time of the initial Charter audit, the Tax Office was conducting quality assurance at two levels: whole-of-Tax-Office quality assurance, and supplementary quality assurance processes at the business line level. The previous audit recommended that the Tax Office implement a systematic approach to its supplementary quality assurance processes. The Tax Office has not implemented this recommended approach. Instead, it has developed a new Integrated Quality Framework (IQF) to manage and continuously improve the quality of its technical processes, products and decisions. The IQF will be applied at the whole-of-Tax-Office and business line level. Business Lines and the Charter Team were consulted during the design of the IQF, to ensure Charter principles were incorporated. The IQF is currently being implemented in a staged process, and when fully operational, will replace the previous quality assurance process. The ANAO considers this new approach to quality assurance mitigates the need to develop supplementary quality assurance processes as previously recommended.

Complaint Handling (Chapter 6)

The Tax Office has committed under the Charter to respect a taxpayer's right to make a complaint. This commitment is designed to improve the Tax Office's relationship with taxpayers and provide an assurance that aggrieved taxpayers will not be subject to discrimination. An effective complaints handling process is a useful tool for monitoring and reporting the Tax Office's performance against the Charter. It can serve as a sound mechanism for monitoring reputation risks, as well as contribute to the Tax Office's continuous improvement process.

The Tax Office adapted a component of its Technical Decision Making System (TDMS), as a solution to case-managing complaints across the office,⁸ instead of implementing a specific Tax Office wide complaints management information system. The Tax Office anticipates replacing TDMS in July 2009 with the case management component of the new system, currently being developed by the Easier, Cheaper and More Personalised (ECMP) Change Program.

The ATO Complaints area produces monthly, quarterly, and ad-hoc reports on complaints and systemic issues. Quality assurance reports regarding the complaints process are produced quarterly. The ATO Complaints area reports analyse monthly and year-to-date trends and performance indicators, including aspects such as finalised cases and common issues. The complaints case-management and reporting systems have been in operation for three years, and it may be timely to expand the complaints reporting and analysis function, to provide for the option of benchmarking performance. The Society of Consumer Affairs Professionals (SOCAP) benchmarking program may provide a useful model. This would allow the Tax Office to determine the effectiveness and efficiency of its complaints handling processes and procedures, and identify potential improvement. The understanding gained through benchmarking could be used to inform future decisions in areas such as the potential negative impacts of implementing legislative change, or to facilitate the effective tax administration of particular market segments.

ATO Complaints uses TDMS, two databases, and spreadsheets to produce the information used in its complaints, systemic issues and quality assurance reports. There is significant manual work involved in the production of these reports, and the ability to analyse the content of the cases (through the case text descriptions) is severely limited. Due to the small size of the team, the skills required to produce the reports reside with individuals. Members of the ATO Complaints Team also experience difficulties accessing some systems due to network connectivity issues.

The ANAO considers there is scope for the Tax Office to improve the system used for complaints reporting and analysis.

Monitoring and Reporting (Chapter 7)

Fully informed decisions to improve the Tax Office's Charter system require the timely collection and analysis of performance information. At the time of the previous audit, the ANAO noted that the Tax Office did not have a strategy or a systematic approach to measure its performance against Charter principles. The Tax Office also had limited reporting arrangements on achievements in meeting its Charter responsibilities.

A Taxpayers' Charter Performance Report is now prepared semi-annually and provided to the Tax Office Executive. This report includes work-in-progress for Charter activities, select quantitative and qualitative measures of Charter performance, and highlights issues and areas of concern. In gathering the internal data used to prepare the Taxpayers' Charter Performance Report, the Charter Team draws upon the additional qualitative performance indicators suggested in Audit Report No.19 2004–05, Taxpayers' Charter.⁹ The report also uses external data collected from the triennial Taxpayers' Charter research, the semi-annual Professionalism and Business Perceptions Surveys, and the annual Community Perceptions Survey.¹⁰ These external surveys are conducted by private sector research organisations, which have been selected through a competitive tendering process.

The internal and external data sources used to produce the Taxpayers' Charter Performance Report are comprehensive in providing the Tax Office Executive with assurance on the performance of the Taxpayers' Charter.

Summary of agency response

We are pleased that the Australian National Audit Office report recognises the work that we have done to implement the nine recommendations made in the first audit and our ongoing commitment to the Charter and its effective operation. Our Charter is the way we put our values into meaningful and practical terms for the community. It sets out the relationship we want to have with them – one based on mutual trust and respect.

We will continue to review and refine the Charter and its operation. Also, as noted in your report, we are currently working on a more integrated approach, bringing together our three communication pillars being our Charter, Compliance Model and ATO Brand. These pillars working together will help to ensure that we maintain and improve community confidence in our administration of Australia's revenue and superannuation systems and keep the ATO at the leading edge in these areas.

We agree with all of your recommendations as suggested improvements to our current practices in relation to the Charter and our approach to complaints handling, although we have qualifications on three. The qualification regarding the Charter research relates to not categorising taxpayers but instead looking at those who are impacted by our compliance activities. And in relation to qualifications for complaints handling, they relate in the main to tools, technology and current organisational priorities implementing our Change Program.

Footnotes

^{1 Joint Committee of Public Accounts Report No.326, November 1993, An Assessment of Tax – An Inquiry into the Australian Taxation Office.}

^{2 A charter is a short publication that describes the service experience a client can expect from an agency.}

^{3 The Tax Office revised and republished the Charter in November 2003 and January 2007.}

^{4 These are Taxpayers' Charter—what you need to know, and Taxpayers' Charter—Expanded version.}

^{5 The supporting booklets address and provide further explanation about the Charter's principles.}

^{6 The Compliance Model (see Fig 1.2 of this Report) summarises a considerable body of knowledge about the reasons why people function the way they do in relation to society's institutional arrangements. The Model shows the most cost-effective compliance strategy that the Tax Office should adopt for a particular group of taxpayers. The Model provides a knowledge based framework for determining the most appropriate strategy to take in relation to a compliance problem, given what is known about taxpayers, their situation, circumstances, and lines of business. The Model was first presented in 1998 in the Second Report of the Cash Economy Task Force, Improving Tax Compliance in the Cash Economy; ATO April 1998.}

^{7 The Centre for Tax System Integrity's Working Paper No. 62 The Taxpayers' Charter: A case study in tax administration (2005). This paper traces the development of modern charters, and then specifically the development of tax charters internationally and within Australia.}

^{8 TDMS is a workflow system, which electronically routes information according to a process. It was implemented in 2002 in order to achieve consistency in the administration of advice (e.g. private rulings) to taxpayers. It has been adapted for use by a number of areas within the Tax Office, including compliance, disputes (objections), appeals and general correspondence.}

^{9 See Audit Report No.19 2004–05, Appendix 7: Charter Measures for the list of performance measures the ANAO recommended the Tax Office used to monitor Charter performance.}

^{10 The results from these surveys are available from <www.ato.gov.au&gt;.}