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How repeated IT outages saw the tax profession go sour on the ATO

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Australia’s 12th Tax Commissioner, Chris Jordan, has been on the defence.

At nearly every public forum he’s recently appeared at, Jordan has tried to give an uneasy community – including concerned politicians in Canberra – assurances things aren’t as bad as they seem.

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From repeated IT outages sending the community into a frenzy in the lead up to tax time, to the fall of one of the ATO’s highest-ranking officers Michael Cranston for alleged abuse of his position, Jordan understands “only too well that we have ground to make up”.

“There is no getting away from the fact that these two matters have had a negative impact on the ATO’s standing in the community,” Jordan said a July speech to the National Press Club, a few hours after which another ATO IT outage occurred.

Tax commissioner Chris Jordan addressed the National Press Club in July saying he understands "only too well that we ... Tax commissioner Chris Jordan addressed the National Press Club in July saying he understands “only too well that we have ground to make up”.  Photo: Alex Ellinghausen

A flying start?

Despite this uncomfortable picture, ‘she’ll be right’, continues to be the unofficial ATO line. Just last week Jordan, who in April was reappointed by Treasurer Scott Morrison two years ahead of the Commissioner’s term expiring, stated in ATO media release that tax time 2017 was “off to a flying start”.

Four million tax returns had been lodged successfully, Jordan said, which is an increase of about 350,000 returns compared with the same time last year. This includes about 72,000 more returns lodged through tax agents, he said.

“After the systems issues we experienced in December last year and in February this year, we knew we had a lot of work to do to restore community confidence,” Jordan said. “Our people worked around the clock to ensure our systems were ready to cope with the surge of returns from 1 July – and the hard work has paid off.”

But as the former cop and KPMG partner works to change community perceptions, rebuilding love with tax professionals amid repeated technology failures is proving a tough ask.

There's a sense of irritation and fatigue with the ATO featuring in most submissions to the Inspector-General of ... There’s a sense of irritation and fatigue with the ATO featuring in most submissions to the Inspector-General of Taxation Ali Noroozi’s review. Photo: Nic Walker

Not-so-rosy picture

There’s a sense of irritation and fatigue with the ATO featuring in most submissions to the Inspector-General of Taxation Ali Noroozi’s review into the future of the tax profession. (Noroozi has also been called on by a Senate committee to do another separate wide-ranging review of the agency post the Cranston affair).

While the profession commends the ATO for undertaking a digital transformation journey, H&R Block’s Mark Chapman says “most tax agents won’t quite recognise the rosy picture that the Commissioner paints, particularly in relation to ATO systems”.

H&R Block's Mark Chapman says "most tax agents won't quite recognise the rosy picture that the commissioner [Chris ... H&R Block’s Mark Chapman says “most tax agents won’t quite recognise the rosy picture that the commissioner [Chris Jordan] paints”. Photo: Supplied

“We continue to have reservations,” Chapman says. “[ATO] outages negatively impact the ability of tax agents to service clients and cast a particularly poor light on the Commissioner’s decision to give myTax another burst of free marketing in [the August 9] release.”

H&R Block is protecting its turf. It wants the ATO to stop fiercely pushing taxpayers to lodge their own returns without a tax agent – it says about 74 per cent of individuals and over 95 per cent of businesses still use an agent to lodge their returns.

The only predictability about the [ATO’s] system is that it offers spasmodic service levels

Matthew Tol, accountant

Superficial love

Chapman says while the ATO revamped its marketing to “now explicitly acknowledge that taxpayers have a choice to use tax agents, a belief persists that this acceptance is superficial and not shared across the organisation”.

“Most concerning for the profession, the Commissioner of Taxation [Jordan] has used public forums to either question the role of agents or to promote the role of the ATO as a competitor to agents.”

Historically when tax agents have had IT issues, the ATO hasn't been forgiving, some accountants say, but the agency has ... Historically when tax agents have had IT issues, the ATO hasn’t been forgiving, some accountants say, but the agency has tried to be more communicative about its own IT outages. Photo: Eddie Jim

H&R Block isn’t the only stakeholder to express annoyance with the ATO.

Jordan says “overall our systems are performing strongly, better than they were last year. We’re also receiving fewer complaints – nearly 30 per cent less than at the same time last year.”

The ATO imposes strict deadlines on agents and their clients. The ATO imposes strict deadlines on agents and their clients. Photo: Louie Douvis

Takers, not givers

But Ballarat-based accountant Matthew Tol says “if the ATO’s systems actually worked, they’d be even more ahead of their self-proclaimed marvellous performance. The only predictability about the [ATO’s] system is that it offers spasmodic service levels.”

He says the ATO imposes strict deadlines on agents and their clients and is “strident in enforcing those”, at times with penalties. Historically when agents have had IT issues, the ATO hasn’t been forgiving, Tol says.

IPA's Tony Greco has called on the ATO to pay accountants penalties for loss of functionality. IPA’s Tony Greco has called on the ATO to pay accountants penalties for loss of functionality. Photo: Peter Braig

“They take, but they don’t give,” he says, although he notes in recent months the agency has been more communicative with the profession and more willing to extend deadlines when systems go down.

Asked whether the IT debacle got the tax community offside, Tol says: “To be honest, in some of the smaller firms, it [the ATO] is looked on as a bit of a joke. If any other business operated with the same service standard, they’d be out of business. And these are the guys collecting revenue for the government.”

Chartered Accountants national tax leader Michael Croker also wants the ATO to publish a minimum service standard, ... Chartered Accountants national tax leader Michael Croker also wants the ATO to publish a minimum service standard, which, if breached results in compensation. Photo: Supplied

Stability not assured

Lobby groups are also voicing concerns. Tony Greco, from the Institute of Public Accountants (IPA), which represents mostly smaller accounting firms, has called on the ATO to pay accountants penalties for loss of functionality.

The ATO doesn’t believe it needs to adhere to commercial service standards. Greco says in the submission that if that’s the case, “future stability is not assured”. “If the ATO cannot meet an agreed service standard, the concept of imposing a financial penalty should be considered,” he says.

CPA Australia's Stuart Dignam also advocates financial penalties on the ATO when systems cause "serious disruption to a ... CPA Australia’s Stuart Dignam also advocates financial penalties on the ATO when systems cause “serious disruption to a tax agent’s business”. Photo: DEAN LEWINS

Chartered Accountants national tax leader Michael Croker also wants the ATO to publish a minimum service standard, which, “if breached by the ATO, triggers automatic ‘no detriment’ procedures and – in extreme cases – monetary compensation”.

Its submission also notes the not-so-rosy current state of affairs between the ATO and some of its members. The submission quotes Chartered Accountants members venting their frustration, such as “the ATO calls us clients only when it suits them”.

The Financial Planning Association says tax financial advisers "are largely invisible to the ATO". The Financial Planning Association says tax financial advisers “are largely invisible to the ATO”. Photo: Andrew Quilty

“To put it mildly, the ATO has a delicate path to tread in its relationship with tax and BAS agents,” Croker says in the submission. “In recent months, the importance of the agent community has been a regular theme in the Commissioner’s speeches and conversations with professional bodies. But the technology tide is turning, and much harder conversations lay ahead.”

Ineffective compensation

CPA Australia’s corporate affairs manager Stuart Dignam also advocates financial penalties on the ATO when systems cause “serious disruption to a tax agent’s business” that result in “distress and economic loss”.

The big four firms have also weighed into the debate, and raise questions about whether the ATO is sufficiently resourced. The big four firms have also weighed into the debate, and raise questions about whether the ATO is sufficiently resourced. Photo: Ryan Stuart

“While the ATO has a compensation mechanism … members of the profession have found these to be inadequate, with few businesses ever qualifying for compensation in circumstances where there has been a government agency IT failure,” he says in the submission, adding it needs to develop a support service to help practitioners, including those suffering mental health issues, through tough times.

The Financial Planning Association’s policy manager Heather McEvoy says tax financial advisers “are largely invisible to the ATO”. While the ATO’s digital transformation process received recommendations that they be included within the ATO’s system, their members were still not able to access the client data held by the ATO.

Tax software developers often experience a significant delays, PwC said in its submission. Tax software developers often experience a significant delays, PwC said in its submission. Photo: Supplied

“There have been many incidents where the information provided to tax financial advisers by super funds and other product providers has been inaccurate, creating a liability for financial planners and clients,” she says in the submission.

Rethink projects

The big four accounting firms have also weighed in. PwC enterprise digital partner Charmaine Chalmers says in her firm’s submission the ATO is not sufficiently resourced which means “tax software developers often experience a significant delay to obtain simple and essential information, such as access certificates”.

KPMG's Grant Wardell-Johnson says "contingency arrangements should be priortised before the roll out of further system ... KPMG’s Grant Wardell-Johnson says “contingency arrangements should be priortised before the roll out of further system changes”  Photo: Daniel Munoz

It recommends the ATO endorse certain software developers , and allow a “moratorium period for taxpayers who improve their compliance process by implementing ATO validated solutions”.

KPMG’s submission says “contingency arrangements should be prioritised before the roll-out of further system changes” and “the timing and resourcing of current and future projects should be re-evaluated”. It also calls for “a clear policy” on extensions of time for lodgement and remittance of penalties.

“They [the ATO] can say, ‘she’ll be right'”, says KPMG tax partner Grant Wardell-Johnson. But rather than say “she’ll be right”, it needs to say how it will be, he says.

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