Thursday, February 15, 2024

ATO needs active monitoring by oversight board - ATO defends ‘strong’ GST fraud controls against ANAO criticism 


ATO needs active monitoring by oversight board: IPA 


External supervision by a Tax Advisory Board is essential in the wake of the GST fraud response, says the accounting body.

The IPA ( Institute of Public Accountants) has doubled down on calls for an oversight board to monitor the ATO following its failed response to widespread GST fraud during 2021-23 that cost $2 billion in revenue.
The accounting body said a Tax Advisory Board would provide external supervision of the tax office and identify potential risks after the ATO’s handling of the GST fraud came in for scathing criticism from the Australian National Audit Office this week.
IPA general manager of technical policy Tony Greco said a Tax Advisory Board would supplement existing oversight bodies and draw Australia into line with international best practice for a vital arm of government.
“The ATO can have a big impact on its dealings with the wider community and therefore better external governance of our tax administrator is critical to the community’s confidence in Australia’s Public Service,” he said.
“Despite its size and impact on the community, the ATO does not have contemporaneous independent expertise and oversight consistent with other jurisdictions that have some form of governance oversight such as Canada, the UK and US.
“We acknowledge that there is already external oversight of the ATO by parliament (the senate estimates), Inspector General of Taxation and Taxation Ombudsman reviews, external consultation forums and the Australian National Audit Office. These external scrutineers, generally focus on issues (policy, administrative or behavioural) that have happened.
“Whilst this level of oversight is extensive, there lacks any continuous contemporary supervision from outside the bureaucracy. The benefit of a Tax Advisory Board is that it would take a preventative real-time approach by identifying potential operational risks.”
An ANAO report this week criticised the ATO’s framework for fraud detection and said it was unprepared for a large-scale fraud event. The ATO set up Operation Protego after social media had circulated the potential for GST scams and 57,000 people had become involved.
Mr Greco admitted the current Commissioner, Chris Jordan, opposed a Tax Advisory Board but with his replacement starting next month said it was a good time to re-examine the proposal.
“A new Commissioner of Taxation starts from 1 March 2024, presenting a perfect time for the government to reconsider this long outstanding recommendation,” he said.
“It aligns with the government’s other recent announcement strengthening governance arrangements for other key agencies such as RBA.”
An oversight board could also help steer the ATO’s strategic direction, which was largely set and assessed by the Commissioner and executive, and ensure the ATO adhered to the recently revised Taxpayers Charter.
“The guiding principles in the charter dictate how the ATO goes about its day-to-day interactions with taxpayers so it’s an all-important way for the community to have confidence that the ATO is living up to its commitments.”
The IPA’s recent budget submission highlighted previous recommendations that improvements be made to the ATO’s governance and accountability, including by the Henry review in 2010 and a report to the Gillard government the following year.
It also cited a Deakin University study, commissioned by the IPA, that concluded that the governance and accountability of the tax system could be significantly improved by adopting an advisory board.
“[The] creation of an Australian Tax System Advisory Board would not only improve the oversight and strategic functioning of the ATO, but it would significantly improve the transparency and adherence to the Taxpayer Charter,” it said.

ATO defends ‘strong’ GST fraud controls against ANAO criticism 


The Tax Office says it is equipped to respond to fraud despite a critical report released by the national audit office on Tuesday.

The ATO has come out in defence of its “strong” fraud controls and ability to manage GST rorts in response to the audit office calling them “not fit for purpose” or operating as intended.
In a statement released yesterday, the ATO said its controls struck a balance between reducing GST fraud attempts and the need to allow small businesses to claim legitimate refunds easily.
“The ATO’s fraud detection controls are strong, and there is the need to balance making the systems easy to access for the majority of taxpayers, while preventing those who deliberately attempt to commit fraud,” it said.
“We take all fraud attempts seriously, and with continued investment in the Serious Financial Crime Taskforce, the ATO, along with our partner agencies, is equipped to take strong action against individuals suspected of being involved in tax fraud,” it said.
The ATO’s rebuttal follows damning findings from a report into its GST fraud controls released on Tuesday by auditor-general Grant Hehir from the Australian National Audit Office.
It called the ATO’s ability to prevent fraud only “partly” effective, “not fit for purpose and is not operating as intended”.
ATO officers unsure of their roles and responsibilities, inadequate assurance requirements and the absence of an overall view of the risk environment also undermined the ATO’s fraud response, it said.
It also found the ATO investigated 150 of its own workers as part of Operation Protego, a multi-agency response to GST rorts that proliferated in late 2021 due to their promotion on social media platforms like TikTok.
According to the ANAO, more than 57,000 people participated in the scheme between April 2022 to June 2023. They claimed $2 billion in bogus refunds and the ATO stopped a further $2.7 billion from being paid out.
The ATO said the scheme spread at an “unprecedented rate” but that it acted “swiftly and decisively” through Operation Protego. “Our strategies have driven a continuous reduction in GST fraud attempts,” it said.
The ATO also sacked or prosecuted 12 of its employees who participated in the scheme. The remaining people out of the 150 investigated were ex-employees and some were victims of identity theft, it said.
“As a result of our actions, we are not aware of anyone currently working at the ATO who is suspected of committing the fraud,” it said.
“The ATO continues to hold to account those people who chose to get involved in the refund fraud activity.”
The ATO said it strengthened its fraud management systems due to “heightened GST fraud risks” in the wake of Operation Protego, including establishing a fraud and criminal behaviours business line and implementing a “range of additional fraud defences”.
“We continue to strengthen our GST analytical risk models and use technology to improve our risk identification procedures and streamline processes for managing high-risk refunds,” it said.
It also agreed to all five recommendations made by the ANAO, such as clarifying officers’ roles in managing fraud, ensuring it has a “contemporary and holistic view of its GST fraud risks”, improving its ability to detect warning signs before large-scale fraud events and developing an alternative benchmark for fraud indicators.
“The ATO welcomes all suggestions for improvement to combat fraud. We will continue to implement and build on the recommendations identified by the ANAO, which we consider will support the already improved management and assurance of fraud control arrangements for the GST,” it said.

 ATO mulls delaying GST refunds to weed out bogus claims

Commissioner Chris Jordan has told Senate estimates that tight turnaround times hamper the Tax Office’s ability to prevent fraud.

The ATO is considering extending the time it takes to process GST refunds to help weed out bogus claims, but experts warn a “knee-jerk” reaction to delay lawful returns could cause distress to businesses that need cash flow.
During a Senate estimates hearing on Wednesday, ATO officials faced questions over their ability to manage GST fraud in light of widespread schemes that rorted $2 billion between 2022 and 2023.
Commissioner Chris Jordan blamed the current 14-day turnaround period to issue GST refunds and said it was "just not enough” time to apply adequate scrutiny.
“That 14 days converts to about eight days to make a decision on whether to pay that refund or not,” he told members of the Economics Legislation Committee.
“It's something we are seeking to change, I probably shouldn’t say that, but I wanted to assure you that we are, that it is done,” he said.
The concerns raised by senators over the ATO's fraud controls comes after a scathing report by the auditor-general’s office, which found its strategies were only “partly” effective, “not fit for purpose and is not operating as intended”.
The Australian National Audit Office's report, released on Tuesday, said the lack of a “contemporary and holistic view of GST fraud risks” and insufficient detection systems meant the ATO played catch up through Operation Protego as more than 57,000 people, including 150 ATO workers, participated in infamous "TikTok" GST scams.
Second Commissioner Jeremy Hirschhorn said the ATO’s approach to processing GST refunds attempted to strike a balance between “stopping lots of refunds and hurting a lot of businesses, or stopping fewer refunds and cleaning up the mess of the ones you should have stopped”.
Before Operation Protego, he said the ATO “generally trusted people and got them their refunds quickly” under the self-assessment system.
“The balance has clearly been in favour of getting refunds to legitimate business and cleaning up the fraud after,” he said, meaning most GST fraud compliance actions happened after refunds were paid.
No timeframe is mandated under the GST Act and the Commissioner must make refunds "within a time which is reasonable in the circumstances", the Federal Court ruled in the Multiplex case.
A slowdown would give the ATO more time to decide whether claims should be withheld on the grounds of suspected fraud, but the ATO did not specify how much additional time it would need.
Leading GST expert Kevin O’Rourke said the ATO’s balancing act was a “delicate” one that could be disrupted if businesses experienced unreasonable delays.
“It is a delicate balancing act between preventing fraud on the system but also having regard to the cash flow of businesses,” he said.
“It's not the role of business to fund government or to be in a negative cash flow situation. There's a point at which that if the Commissioner needs more time, he will have to start paying interest on the accounts. But none of that addresses the immediate cash flow issues.”
Mr O’Rourke, a tax lawyer who has published extensively on the ATO’s administration of GST, said a “couple of extra days” to process refunds would be a reasonable response.
"But if they start to hold up refunds for weeks at a time, that would be an unreasonable response because of the adverse consequences for cash flow," he said.
Chartered accountant Joe Kaleb, founder of tax network AustralianBiz, opposed the extension entirely.
“The ATO should not delay all GST refunds in the wake of the GST fraud. This would be a knee-jerk reaction and likely to impact on the cash flow of struggling small businesses,” he said. “Cash flow is king.”
Businesses’ delayed refunds could also reflect poorly on their accountants, he said. “We won’t look good in front of our clients, if we’re perceived to be inefficient because they're not getting their refunds.”
The ANAO report made no reference to the extension of refund turnaround times as a means of improving the ATO’s fraud systems.
Instead, recommendations focussed on clarifying officers’ roles in managing fraud, ensuring it has a “contemporary and holistic view of its GST fraud risks”, improving its ability to detect warning signs before large-scale fraud events and developing an alternative benchmark for fraud indicators.
The ATO has since agreed to all five recommendations to support “the already improved management and assurance of fraud control arrangements for the GST”.