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Part 3: Summary Assessment

The ATO's vision is for Australians to value the tax and superannuation systems as community assets, where willing participation is recognised as good citizenship. These five strategic themes support the achievement of this vision:

Encourage Support Protect Enhance Champion
People support and understand the benefits of participation—they are engaged and willingly participate. We help and assist people to understand their rights and responsibilities so they are able to fulfil their obligations easily at minimum cost. We protect people and the community by deterring, detecing and dealing with those who have not compiled. We are passionate about improving our capabilities to be more innovative, agile and responsive to challenges and opportunities. We champion the interests of both individual taxpayers and the community, advising government on ways to improve the operation of Australia's tax and superannuation systems.

A firm foundation

The ATO has a strong track record of delivering its core business of tax and superannuation administration and is focused on delivering its commitments to the Australian Government. It is the Government's principal revenue collection agency and receives the majority of tax revenue on time, voluntarily
and without complaint. All interlocutors from across the APS commented favourably on the ATO's capabilities in public administration and willingness to collaborate.

The degree of commitment and engagement of staff at all levels is commendable, and a credit to the work done to date in developing and promoting the ATO's corporate vision and strategic themes.

These achievements are significant for such a large, geographically dispersed organisation dealing with complex matters.

The ATO's many strengths provide it with a firm foundation for building capability that will increase its capacity to get ahead of the game and drive agility, responsiveness and improved performance.

The review team was impressed by the clear intent of the Commissioner of Taxation, and his Second Commissioners, to lead reform of the ATO. In reaching the conclusions made within this report, we note that much depends on the leadership's ability to further articulate the future direction of this reform,
and the organisation's ability to deliver upon it.

The need for transformational change and cultural shifts

The ATO's people are rightly proud of their capacity to deliver the government's legislative program and act as committed and effective stewards of the nation's taxation and superannuation systems. However, for the ATO to continue to be a high-performing organisation, it needs to undergo transformational
change. The taxpayer community will demand greater access to improved services in a digital world, including a single point of access for engaging with government. The policy agenda will continue to challenge existing resources, and there will be an ongoing expectation that scarce resources be used more
efficiently. Tax avoidance efforts will continue to become more sophisticated. Expectations are growing for a whole-of-government approach to problem solving. The challenge for the ATO is to transform its existing processes, systems, culture and its highly capable workforce to be more agile, responsive,
efficient and effective.

In its 100-plus year history, the ATO has invested heavily in developing its people, processes and systems. It has historically been considered a world leader, innovating in many areas, such as:

  • developing e-tax and pre-filling tax returns
  • developing the tax practitioners' portal
  • introducing the compliance model and risk differentiation framework to differentiate engagement with taxpayers based on an assessment of likelihood and consequences of non- compliance
  • implementing Annual Compliance Arrangements with large business to exchange information and provide practical certainty about tax outcomes that underpin commercial decisions.

However, its vision and strategic themes alone have not provided the ATO with sufficient impetus to continuously progress major innovations. Its capability to progress transformational innovation has slowed. A top-down, longer-term, enterprise-wide strategy is needed to take the ATO forward to achieve
its vision by directing innovative efforts, and guiding workforce development and future ICT capabilities.

While many internal stakeholders still perceive the ATO as a world-leading tax administrator, other internal and external stakeholders consider that other administrations have caught up and overtaken the ATO in a number of areas, particularly in the provision of electronic services. A challenge facing
all revenue authorities is the ability to make use of natural systems to fully pre-fill individuals' tax returns. Denmark is the most advanced country, with 78 per cent of individuals' tax returns completely pre-filled. The ATO is some way off on delivering these types of changes. Another challenge is
for APS agencies to provide a single entry point for citizens and businesses to access government services and meet reporting obligations. The ATO has built the technology to achieve this for businesses through its Standard Business Reporting initiative. Take-up for the initiative by other agencies and
businesses has been limited, but is growing. Denmark, Ireland, Norway and the United Kingdom are the most advanced here, with digital and eGovernment strategies now in place.

The ATO is proud to call itself a 'can do' organisation and has been widely acknowledged internally and externally for its ability to deliver under pressure, particularly when set clearly defined stretch targets by government. However, this pride—coupled with the way people think about stretch
targets as 'crises' rather than part of business-as-usual—results in behavioural norms that are not entirely healthy for the organisation. The ATO is able to respond to a crisis
in an agile way by establishing a task force to overcome usual processes (moving resources where they are needed, bringing together decision makers and streamlining reporting and control structures). However, it is unable to bring this approach to internally-driven change and business-as-usual
activities in the absence of an externally mandated stretch target.

The prevailing culture in the ATO is one of collaboration, professionalism, technical accuracy and integrity of process. When taken to the extreme, this culture results in what review participants almost universally described as risk aversion. A cultural predisposition to avoid rather than appropriately
manage risk manifests as:

  • elevation of decision making
  • protracted processes of internal consultation and debate that delay outcomes
  • a feeling of disempowerment at all levels
  • perceived lack of support for staff if a mistake is made.

Over the last decade or so, the ATO has struggled to embed certain concepts and approaches, particularly those of an enterprise nature, in a way that realises efficiencies and achieves demonstrable behavioural change within. One such example is the work to date on effectiveness measures, introduced
as 'a quantum shift'[3] in the approach taken to evaluating organisational performance. While the review has achieved some success in refining key performance indicators, it has not yet been able to:

  • streamline and simplify organisational reporting, through a single and independent business area, to more effectively support executive decision making
  • address some of the more challenging effectiveness questions, such as how to identify early gaps in revenue collection to thereby better influence tax design.

The executive needs to drive initiatives such as this by harnessing the experience, knowledge and significant authority of senior managers, particularly at the Band 2 level. In addition to collaborating on business-as-usual these senior managers must be charged with progressing agreed strategic changes,
and measuring and reporting performance, knowing they will be held accountable for that performance and progress achieved. A reorganisation of internal committees, so they focus on the delivery of strategy, not debating it, is also critical.

The ATO is a service organisation. A service culture is strong in the operational areas of processing and call centres, but a paradigm shift is needed in other areas that struggle to reconcile their role as regulator and service provider. For example, Compliance and Law areas would benefit from greater
recognition of timeliness as an integral part of delivering a quality result. Similarly, some Corporate Services areas need greater recognition of the needs of internal clients.

Further, in designing ongoing improvements in service delivery, the ATO would benefit from a greater understanding of, and willingness to, embrace community feedback, even where this challenges existing assumptions about ATO performance or client expectations.

The ATO has acknowledged its need to design and implement a transformational service agenda. The review team considers that priority areas for attention in driving the ATO of the future are:

  1. developing a forward-looking, enterprise-wide strategy
  2. developing ICT efficiency and agility
  3. building the future workforce
  4. streamlining governance arrangements and structures
  5. improving external connectedness.


Driving the ATO of the future

It has been widely acknowledged throughout the review that the ATO is facing a period of transformation. Internal and external stakeholders are looking to the ATO's executive for leadership and coherent and cohesive direction and guidance from an enterprise perspective to ensure momentum for strategic
shifts is maintained. To date, the ATO's vision and strategic themes have not readily transferred into new ways of improving the taxpayer experience and increasing compliance. The executive needs to consider how the vision and themes will be achieved by:

  • clearly articulating what the ATO of the future should look like
  • detailing how the organisation will go about achieving it
  • ensuring senior managers are held accountable for meeting these requirements.
Forward-looking, enterprise-wide strategy

There have been almost unanimous reports that the ATO's vision and strategic themes are well understood and supported by staff at all levels. While the ATO is starting to position itself for the future, it is yet to define a unified, strategic, transformational plan that details what the ATO will look
like in the future and how it will achieve its vision. For example, other leading revenue raising agencies in OECD countries are committing to achieving in the next few years:

  • joined-up government through a single point of access to government
  • single capture of core data and sharing across government
  • common secure electronic identifiers
  • digitalisation of all transactions, other than in exceptional circumstances
  • single account for taxpayers covering multiple taxes
  • fully pre-filled tax returns using natural systems in real time to be accessible online to reduce the cost of compliance and improve that compliance.

In the absence of a strategic plan, the ATO's present corporate strategies and business line plans are largely not integrated and have to some extent been retro-fitted to accord with the vision. At least until very recently, most strategies and plans (with the exception of the Operations sub-plan)
have had a strong focus on business-as-usual, with required strategic shifts in these documents difficult to determine.

The executive needs to drive the development of a top-down, longer-term, enterprise-wide strategy and embrace innovative thinking that is aligned to the strategy. The strategy must include not only business-as-usual activities but the strategic shifts needed for the future. The next level plans (for
example, investment, ICT, workforce and risk management) should then link directly to the enterprise strategy and cover how specified outcomes at least three years ahead will be achieved, rather than being limited to a list of tasks for the following year. They should also be integrated where necessary
(including across sub-plans) and include timelines, targets, measures of success and accountability mechanisms to ensure that business lines remain focused on the enterprise goals.

An Embedding ATO Effectiveness Steering Committee has been driving a project to embed effectiveness measurement across the ATO. However, it has not yet been able to achieve serious monitoring of strategic outcomes, for example monitoring program effectiveness against outcomes to allow earlier identification
of threats to revenue collection, the core responsibility of the ATO.

The ATO has an enterprise performance management framework for planning and reporting, which could usefully be improved to support the executive by making better use of the talent in the Office of the Chief Knowledge Officer to coordinate, consolidate, analyse and impartially report on performance
information to better measure effectiveness and better organise and monitor business-as-usual performance.

The absence of an enterprise strategy, combined with the commitment of staff to achieving the vision, presents a risk that staff will interpret the vision in their own way and delivery could be inconsistent and not integrated across the ATO. This represents an opportunity lost as the ATO is failing
to fully harness staff enthusiasm for the vision by channelling their enthusiasm toward an enterprise-wide, agreed strategy.

ICT efficiency and agility

Along with its people, ICT is the lifeblood of the ATO. It underpins most, if not all, of the work the ATO performs and has an impact on its ability to be agile, responsive and ultimately perform to meet service delivery and stakeholder expectations.

ICT was an area of frustration often mentioned by staff and the community throughout the review. Internal stakeholders feel that all too often, the ability to progress aspects of their business is stifled by a lack of capacity in the ICT forward work plan to accommodate demand. This affects immediate
needs and future-focused innovation. External stakeholders have commented that the ATO is falling behind community expectations and forward-thinking overseas revenue agencies with its electronic service offerings.

To better support the delivery of ICT services into the future, the ATO needs to increase its capability to:

  1. manage and prioritise demand for ICT services
  2. consider options to enhance the supply of ICT service.

The ATO has a significant investment in ICT—$759 million for 2012–13 (Figure 3). Most of this investment is allocated to keeping systems and infrastructure running ($558 million), with the remainder ($201 million) allocated to new work. The ATO defines 'new work' as a combination of non-discretionary
(specific government initiatives and legislative change) and discretionary initiatives. After catering for non-discretionary work ($168 million), a disproportionately small percentage of the ICT budget (4 per cent) is available for discretionary initiatives. Currently, this discretionary work is not
managed with an enterprise approach, but rather through a process of bottom-up planning whereby each sub-plan submits its desired list of new initiatives for consideration by the Business Solutions business line. This results in Enterprise Solutions and Technology attempting to manage large (potentially)
disparate 'wish lists' in a first-in-best-dressed fashion, without sufficient consideration of strategic value-add to the ATO as a whole.

 

Figure 3 ICT expenditure break-down


Not surprisingly given these ratios, despite Business Solutions' remit to lead, design and deliver innovative, future-focused solutions, its attention has been largely on non-discretionary work.

In recognition of these problems, an investment fund of $70 million over two years ($30 million in 2012–13 and $40 million in 2013–14) has recently been established to invest in the ATO's transformational service agenda, predominantly in the ICT space. By comparison to external benchmarks[4], this amount does not appear to be sufficient to deliver the required transformation.

The Enterprise Solutions and Technology sub-plan is aware of, and actively planning to ameliorate, the challenges presented by the need to run and maintain ICT core business, manage ever-increasing demand for services and create the space to implement the changes needed. It acknowledges that the same
approaches used in the past to deliver its programs of work are unlikely to ensure success in meeting future ICT challenges and is drafting an ICT strategy to better manage demand and improve supply.

Without wanting to pre-empt the content of the finalised ICT strategy, the review team considers it is heading in the right direction and must progress as a matter of priority because legislative imperatives are unlikely to diminish. The future ICT requirements of the ATO need o be strongly led by
the executive's strategic direction and determined as a result of a symbiotic relationship between Enterprise Solutions and Technology and business lines. ICT priorities must be set through a whole-of-system and whole-of-organisation approach. Efficiencies in running costs need to be found to balance
the delivery of commitments to government and changes identified as part of a transformational service agenda. Better management of demand and capacity is needed, and back-end and corporate systems need to be refreshed to align with contemporary better practice.

Building the future workforce

The ATO's people are its greatest asset. They are committed to and proud of the organisation, and are enthusiastic about their work and its value to the Australian community. The environment in which the ATO operates is rapidly evolving, with legislative change and pressure to keep pace with technological
advances presenting a constant challenge. The capabilities of the ATO's people are critical to its ability to operate as an agile, responsive and high-performing organisation. These capabilities must continue to evolve to deliver the vision and develop the organisation to become a modern tax administration
in an increasingly complex and digitised environment.

Workforce development

To date, the process of prioritising workforce development initiatives has largely been driven by the priorities identified in performance appraisal discussions between individuals and their immediate supervisors. Moving forward, the ATO's strategic plan needs to identify the future skills and workforce
capabilities it will require as the basis for determining workforce development priorities. Following on from this, people frameworks, strategies and tools to build workforce capability need to be better integrated with each other and with the ATO's strategic direction.

A comprehensive, agency-wide job profiling exercise was recently completed, with the required capabilities for each role articulated. The ATO is now mapping individual capabilities against these profiles through a process of self-assessment and manager approval. Results will be validated against other
mechanisms already in place, such as a manager survey, quality assurance mechanisms and reviewing service standards performance. As part of this validation, consideration is needed for a 'manager's manager" sign-off process, to mitigate the risk of potential biases in individual joint assessments with
their immediate supervisor. This will allow the executive to assess the ATO's overall capability strength and to inform decisions about where capabilities need to be augmented to deliver the vision and strategy. Once this exercise is complete, the challenge for the ATO will be to fully exploit and proactively
use this valuable information and keep it up to date and relevant to address longer-term capability issues.

Pressing development needs

The ATO's current workforce development is heavily skewed towards technical capability.
Given the requirement for transformational change, it is critical that greater focus and increased resources be allocated to developing 'softer' capabilities such as strategic thinking, leadership and management skills (including the ability to lead and manage change), communicating effectively
and building relationships.

The graduate program has been cited almost universally as the ATO's strategy to develop its future leadership cohort. While some managers actively extend the principles of regular rotation and talent management to other classification levels in the agency, this is not universal.

Increasing mobility in this way, including further secondments to and from other government agencies, the private sector and industry groups would provide a broader level of understanding and interaction between the ATO and its stakeholders. External stakeholders have strongly argued that the
ATO would benefit from broadening its employee skill base and experience of government and business in this way.

Streamlining governance arrangements and structures

The ATO has invested heavily in developing and embedding a robust internal governance framework and acknowledges that maintaining an appropriate governance system that is fit-for-purpose and effectively manages risks is a challenge. Throughout the review, internal stakeholders consistently agreed with
this position, regularly expressing concern about the:

  • efficacy of internal committees
  • elaborate nature of corporate management practice statements and instructions
  • need for greater integration between various governance mechanisms to better inform strategic planning and decision making.

Further embedding of the site leadership[5] model to achieve improved business performance, and rationalisation of some functions across regional sites has also been suggested.

Flexibility and efficiency of governance arrangements

While internal committees currently provide opportunities for communication and information sharing across sub-plans and business lines, it was regularly reported to the review team that there is a need to review the purpose, functionality, effectiveness and accountability of these committees. Internal
stakeholders have commented that not all committees have sufficient authority for their decisions to remain binding, with implementation of initiatives sometimes resisted later on by internal parties. When operating effectively, internal committees will have a clear mandate and instruction from the executive
to progress the implementation of the strategic plan, not debate its premises.

The current rules-driven governance framework, including corporate management practice statements and instructions, is elaborate and formulaic. It can be difficult for staff to sort through the plethora of rules to locate and understand what is important to guide their behaviour. This presents risks
to the ATO that:

  • employees, either unable or unwilling to sift through the array of information to locate what they need, will act regardless of the required enterprise approach
  • employee behaviour is so heavily prescribed that they will struggle to make decisions in situations where the rules are not apparent or where judgement needs to be applied.

To support organisational agility, the ATO would benefit from streamlining its governance arrangements and adopting a principles-based model, pushing delegations down by developing employees in principles-based decision making and empowering them to make decisions and develop their capability in applying
judgement.

Notwithstanding this, the ATO's approach to business continuity planning and quality assurance is excellent and provides examples of very good practice that could be shared internally and across the APS. A pragmatic approach to embedding the enterprise framework has been used to good effect, and has
been tested and refined following disasters and test scenarios.

Integrating governance mechanisms

The ATO has made a significant investment in its intelligence, corporate governance, risk management, planning, measurement and reporting functions and is in the fortunate position of receiving extensive external scrutiny. However, these functions have not yet achieved the desired results as they do
not yet operate as an effective, fully integrated system. The ATO acknowledges that this as an ongoing challenge. The review team considers that this challenge is one that should be actively pursued.

A well-articulated, enterprise-wide strategy should drive this integration. The ATO may wish to consider the structural arrangements to best support this, for example an enhanced unit that coordinates and analyses over-the-horizon planning and performance information for the ATO as a whole.

Site leadership

The shift from a regional to a national business operating model has been well supported by the site leadership initiative. There is no sense of a national office and regional office divide so often prevalent in other such large, geographically dispersed organisations. This is a testament to site leadership's
success. However, sites are at different levels of maturity and the ATO needs to ensure that each one continues to move through implementation from a mechanism to improve social cohesion to a mechanism that improves business cohesion and goes on to drive productivity benefits.

Location strategy

The ATO's location strategy does not appear to have clearly identified parameters to guide which functions would best be performed in which locations. Therefore, a situation has arisen where staff can be located in a site with few or even no other officers from their business area. The term "orphans"
is used to describe these officers, indicating cultural acceptance of the issue without acknowledging the associated problems. This has cost implications for the ATO, as compensatory structures (such as increased travel) are put in place to administer this highly distributed model. Staff performance
management and mentoring presents particular challenges. The ATO needs to assess what critical mass of co-located staff is needed for each function to drive improved business outcomes.

Summary

In summary, the ATO needs to review and rationalise its internal governance arrangements and structure to ensure the best features are preserved, while:

  • rationalising internal committees to improve their purpose, functionality and accountability
  • streamlining corporate management practice statements and instructions
  • integrating intelligence, risk, evaluation, planning and reporting
  • increasing site leadership's contribution to productivity improvements within sites
  • reducing the spread of staff across locations where a critical mass is needed to improve business outcomes.
External connectedness
Consultation

The ATO's staff is committed to the principles of consultation, collaboration and co-design, and consulting with the community is an ATO priority. Notwithstanding the investment in its consultation program, there is mixed feedback from stakeholders on the extent the ATO acts on feedback. This presents
an opportunity for more consistent consideration, action and response to the feedback gained through consultation forums, community surveys and complaints mechanisms. The current review of external consultation is welcomed, as the number of committees, their structures and mandates could be rationalised
to improve their effectiveness.

Relationships within government and with other jurisdictions

Representatives of government who participated in the review presented a generally positive view about the ATO's ability to deliver its commitments to government. Relationships with APS agencies and international tax administrations are effective. While there was an unsatisfactory period in the most
important relationship between the ATO and the Treasury, where communication between them was not fully effective, this relationship continues to strengthen through the steps taken in both agencies; namely a recently updated protocol providing for early involvement by the ATO in policy development, and
structural changes to ensure closer partnership.

To achieve maximum benefit from these changes, the ATO has recognised the need to increase its policy advising capabilities and bring a solutions-based approach to achieving intended policy outcomes and addressing existing unintended consequences. This is being addressed through the ATO's new Integrated
Tax Design business line.

Strategic relationship management

In response to feedback from the large business sector, the ATO has made progress on a number of initiatives. These include Annual Compliance Arrangements, pre-assessment reviews, use of alternative dispute resolution and the establishment of an independent appeals function for large business income
tax audit positions. The Annual Compliance Arrangements have been particularly useful in transforming relationships by giving taxpayers more certainty and increasing compliance. Notwithstanding these advancements, some matters still require attention. While the review recognises that the ATO will always
need to defend against aggressive tax positions, more is needed to:

  • better understand the commercial environment and practices
  • improve the timeliness of advice
  • consult more openly.
The way forward

The ATO is at a turning point. It can choose to try to maintain stasis, with the risk of slipping backwards, or transform. Transformational changes, such as those suggested throughout this review, will increase the ATO's capacity to get ahead of the game and drive agility, responsiveness and improved
performance. Strong, top-down leadership along with a long-term, enterprise-wide strategy is necessary to guide this transformation. Effective leadership, starting from the executive and cascading throughout every level of leadership is critical. Assigning accountability to senior tax officers for the
success of strategy implementation will create ownership and maintain focus.


[3] 'Embedding ATO Effectiveness Steering Committee Charter'

[4] Gartner IT Key Metrics Data—2012 IT Enterprise Summary Report indicates that participants in the IT Key Metrics Data Survey invest in ICT as follows: 'Run the business' 66%; 'Grow the business' 20%; 'Transform the business' 14%. ATO's $33 million investment in transformation
for 2012–13 equates to 4%.

[5] The ATO utilises a 'Site Leadership' model including site leaders and champions to enhance staff engagement through facilitating community spirit, social cohesion and collaboration across the business in the site.