Chapter 5 – Governance, structure and oversight for managing internal fraud risk
5.1 Pursuant to the PGPA Act, the Commissioner, as the CEO of a Commonwealth agency, is personally accountable for the exercise of his powers and those exercised by his staff by virtue of a series of cascading delegations and authorisations. The exercise of these powers is subject to governance arrangements which consist of a system of risk oversight and management as well as internal controls which include measures directed at ensuring compliance with relevant legislation and related policies, including the Fraud Rule and the Fraud Policy. Effective governance is vital in creating an environment of trust, transparency, integrity and accountability necessary for the administration of government programs as well as eliciting voluntary compliance from the community.
Governance arrangements, integrity framework & reporting
5.2 In submissions to the review, stakeholders have raised concerns that the ATO’s overall corporate governance framework and emphasis on ethical behaviour does not appear to be as robust as it was previously. They recalled, for example, the ATO’s previous Integrity Reporting System which provided visibility to the Commissioner on the progress against each integrity indicator and allowed the Commissioner to directly query the responsible senior officer to discuss issues of concern.
5.3 Stakeholders were of the view that the ATO’s performance against its integrity indicators should be more visible to the public as well as to the Commissioners and the ARC. In particular, some stakeholders believed that:
- the ARC should maintain focus on risks that have a high capacity to damage the reputation of the ATO, including the internal fraud risk;
- the FPII unit should be required to report directly to a Second Commissioner on fraud and misconduct issues;
- the ATO’s performance against its integrity indicators should be made public; and
- the robustness of internal fraud controls should be proactively tested by the IA unit.
5.4 Stakeholders were also concerned about the removal of the ATO’s Integrity Adviser who had played an important role by participating in key ATO Committee meetings and ensuring appropriate systems and controls were in place to alert the senior executive of acts of impropriety. Some have mentioned that even when the ATO had an Integrity Adviser, they were not always provided with sufficient independent support and experienced challenges where staff were not comfortable raising concerns or where managers were not receptive to quantifying, reporting and addressing identified risks. For example, a stakeholder recounted an integrity advisor no longer being required to participate in an ATO committee after raising concerns about a number of unreported breaches.
5.5 Some stakeholders raised concerns with the increasing number of private sector candidates being appointed to ATO SES positions. In particular, they were of the view that they may not be as familiar with or appreciate the governance requirements in the public service, the value of these processes and the broader consequences of decisions made in the public administration context. For example, stakeholders were of the view that before reducing ‘red tape’, there must be an examination of the reasons for their existence and whether their reduction would expose the ATO to serious risks.
Current governance arrangements
5.6 As mentioned in earlier chapters, the ATO’s governance arrangements, includes:
- the Commonwealth Fraud Control Framework;
- the ATO Enterprise Risk Management Framework;
- the ATO Fraud and Corruption Control Plan; and
- the ATO CEIs.
5.7 The FPII unit, IA unit and ARC have key responsibilities in giving effect to the above governance arrangements. Unlike the FPII and IA units which consist solely of ATO officers, the ARC has five members, comprising of the Chair who is an ATO Second Commissioner, Deputy Chair who is an ATO Assistant Commissioner and three independent members.527 The ARC is also supported by ATO officers who provide advice on various matters and includes the ATO’s Chief Financial Officer (CFO), Chief Internal Auditor and the FPII Assistant Commissioner. The ARC sub-committee’s membership is the same as the ARC itself, with the exception of the Second Commissioner.
5.8 In addition to the above governance arrangements to manage internal fraud risks, the ATO applies the ‘Three Lines of Defence’ model for risk management and internal control:528
1. Senior managers of different business areas own and manage risks and are responsible for operationalising governance controls and implementing corrective actions to address process and control deficiencies.
2. Corporate functional areas, such as Risk and Assurance, facilitate, monitor and provide assurance on implementation of effective risk management practices by the business areas.
3. Internal audit, through a risk-based approach, provides independent assurance and advice to the ATOs Audit and Risk Committees and management, on how effectively the ATO assesses and manages its risks.
5.9 The above model corresponds with the guidance issued by the Department of Finance to assist agencies in implementing the Commonwealth Risk Management Policy.529 In accordance with this model, the ATO allocates responsibility to:
- the Deputy Commissioner of ATOC, for monitoring and providing assurance on the effectiveness of internal fraud controls as well as preparing conformance statements and integrity indicator reports530; and
- the FPII unit which supports the Commissioner with respect to obligations set out in the Commonwealth Fraud Control Framework and implements strategies to prevent, detect and deal with internal fraud and corruption.
5.10 As mentioned earlier, a significant part of the above governance arrangements is demonstrating conformance with legislative obligations and relevant policies through a number of reporting programs such as the conformance with obligations program and the corporate integrity indicators reports, both of which are provided to the ARC and the Deputy Commissioner of ATOC.
5.11 In Corporate Integrity Indicator reports to the ARC, the ATO uses four of the seven indicators for risks of internal fraud and corruption:531
- mandatory training;
- unauthorised access to taxpayer records;
- conflicting access roles; and
- security incidents.
5.12 There is an indicator for unauthorised access to taxpayer records in these reports although the ATO considers it to be ‘generally a lower level risk than fraud on the revenue or fraud administration’532. The FPII unit is responsible for providing the measurement of this indicator. FPII provides the number of substantiated cases of unauthorised access, the trends, treatments and actions taken to address the risks such as targeted communication from FPII and regular integrity scans of ATO systems for access of high profile Tax File Numbers (TFNs) amongst other things.533
5.13 With respect to the other indicators, the ATO has advised that they are ‘periodically reviewed by ATO Corporate to ensure integrity indicators focus on areas of high risk, priority or where the ATO needs to improve’. The relevant business lines in the ATO are expected to ‘monitor results, take action where improvement is needed, report any significant matters to the relevant executives and report any exceptions to the ATO Executive as required’.534
5.14 Reviews of the indicators may also be undertaken at the request of the ARC. For example, in 2015, the ATO reviewed them as part of its internal review of the integrity framework. At that time, there was an additional indicator for ‘bullying, harassment and discrimination’ which was discontinued soon after the internal review.535
5.15 The internal review had also observed that the integrity reporting was needed to be enhanced to include ‘an annual snapshot summary of the health of the ATO’s integrity arrangements’ which would be provided to the ARC and senior management.536 Consequently, the ATO’s 2015–16537 and 2016–17538 corporate integrity indicator reports included results of the previous quarters as well as the prior year. The ATO has advised that corporate integrity indicator reports are now incorporated into its ‘ATO Executive report’, which includes broader ATO measurements which are reported in its Annual Performance Statement, such as lodgments by taxpayers.539
ATO’s Integrity Advisory Committee, Integrity Advisor and Integrity Framework
5.16 In 2000–01, the ATO established an Integrity Advisory Committee whose role was to advise the ATO Executive on how the ATO could remain, and be seen to remain, as an ‘integrity based organisation’.540 In performing this role, the Committee had advised on issues such as:
…activities concerned with upholding and fostering APS values, promoting compliance with the Code of Conduct, preventing fraud, managing ethical challenges associated with relationships, and emerging issues relevant to sustaining an integrity based organisation…541
5.17 The Committee’s membership was comprised of senior officers from the APSC, Commonwealth Ombudsman and the AFP as well as the ATO’s Integrity Advisor whose role was to act as:
…an independent adviser to the Commissioner…. The advisor provides high level support on integrity issues (such as the integrity of processes and systems), assists in promoting corporate values and appropriate standards of behaviour, coordinates processes to ensure that integrity risks and issues are identified and/or resolved, and helps monitor the organisation’s level of integrity.542
5.18 The ATO’s inaugural Integrity Adviser was appointed in 2001. Since 2001, the ATO had engaged the following three Integrity Advisers:
- Dr Peter Kennedy (2001–2006);
- Professor Robyn Creyke (2006–2010); and
- Damien Bugg AM QC (2010–2015).543
5.19 The Integrity Advisory Committee was decommissioned in September 2008 and replaced with a future focused-strategy committee to oversee the development of the ATO’s workplace ‘People’ strategy, namely the ‘People Committee’.544 The ATO also formalised its integrity framework which identified issues to be addressed in the ATO’s plans, specific measures to indicate whether the ATO was appropriately focused on integrity issues and associated governance arrangements to ensure conformance with the framework.545
5.20 In 2015, the ATO conducted an internal review into its integrity framework, (2015 Integrity Framework Review), including the role of the Integrity Adviser, the Integrity Advisory Committee and the other oversight arrangements, ‘to determine an appropriate set of integrity arrangements for the ATO in the context of the ATO reinvention’.546
5.21 The 2015 Integrity Framework Review found that the Integrity Adviser had provided benefits such as provision of independent advice and perspective on specialist legal, integrity and reputation matters as well as an internal escalation point for internal integrity matters. However, due to the ‘nature and pace’ of the work environment, the view was formed that it was not feasible for one Integrity Adviser to provide the breadth and range of advice required and hence the role should be discontinued. It was considered that the ATO needed ‘more flexible integrity arrangements’ and a recommendation was made to establish an ‘Integrity Panel’, with members from differing backgrounds to provide integrity advice on an ‘as-needed basis’, and to be supported by ‘regular monitoring and integrity reporting’.547
5.22 It was intended that the membership of the Integrity Panel would comprise of ‘appropriately eminent and qualified people’ such as ‘ex-High Court judges, IT system experts and other specialists across a broader range of disciplines’ to provide advice on the integrity of the taxation and superannuation systems, including IT and governance systems, taxpayer matters, cultural matters, emerging integrity issues including fraud and corruption, ethics and reputation.548
5.23 The 2015 Integrity Framework Review also recommended that the Integrity Framework be updated to provide clear advice on integrity arrangements and obtaining access and advice from the Integrity Panel. It was expected that requests for advice from the Integrity Panel would require sponsorship by the First Assistant Commissioner of ATOC and to be endorsed by the Chair of the ARC, a Second Commissioner. Administrative support for the Integrity Panel would be provided by the External Relations and Conformance Branch in ATOC.549
5.24 It was also proposed that the independent internal escalation channel to resolve internal integrity matters, that had been performed by the Integrity Adviser, be performed by a Deputy Commissioner for serious internal matters and that the Deputy Chair of the ARC be informed. It was considered that the new internal escalation channel would ‘not need to be used very often’ as the ‘provision of this mechanism alone can be enough to ensure the right setting’.550
5.25 Later in 2015, the ATO engaged the services of RSM Bird Cameron to undertake Quality Assurance Reviews of the IA and FPII functions.551 The RSM report found that:
FPII currently has a direct reporting line to the Deputy Commissioner ATO Corporate and a matrix of ‘dotted line’ reporting line to the Chair of the ATO Audit and Risk Committee. However, even though the Deputy Commissioner has FPII as a direct report, there is little direct oversight on FPII’s operations with deferral to reporting to the Chair of the ATO Audit and Risk Committee who may not be aware that direct day-to-day oversight of FPII is being deferred to the Chair. For example, the Deputy Commissioner ATO Corporate stated that it is currently unclear who is accountable for the performance of the FPII, the reporting lines are undefined and appear to be decided on an ad hoc basis, and that this ambiguity creates a risk in the oversight of FPII and their functions where the risk of something improper within FPII may be overlooked…552
5.26 Accordingly it was recommended that:
…this dual reporting [to the Deputy Commissioner of ATO Corporate and the Chair of the ATO Audit and Risk Committee] continue but that there is a more transparent and formalised reporting of all strategic and operational matters to FPII’s direct superior of the Deputy Commissioner ATO Corporate, as well as matrix or ‘dotted line’ reporting to the Chair of the ATO Audit and Risk Committee. On some highly confidential matters there may be a need to report only to the ATO Audit and Risk Committee but the majority of the strategic and operational reporting, management and supervision can be achieved, and is appropriate through, the Deputy Commissioner ATO Corporate…553
5.27 In response to the above recommendation, the ATO agreed to clearly set out responsibilities of the Deputy Commissioner of ATOC with respect to its oversight of FPII’s strategic and operational matters and for FPII to provide regular reports to him or her.554
5.28 At the commencement of this IGT review, the ATO had no plans for any changes to its integrity framework including whether an Integrity Adviser would be reinstated or a new Integrity Panel would be established.555 However in December 2017, the ATO announced that it would appoint Dr Simon Longstaff AO as its new Integrity Adviser for a term of one year to:
…provide education, support and advise to leaders and staff across the ATO, and help to reinforce a culture that personifies and values integrity. Different to how the role roles has been done in the past (with a focus primarily on conformance and governance), Simon will focus on how we can embed integrity awareness in a practical way into the day-to-day decisions and operations of the ATO.556
Senior officers appointed from the private sector
5.29 The ATO has advised that since 2014, of the 85 new SES officers appointed, 35 have been external hires — 15 have directly come from the private sector, another 15 have public service backgrounds whilst the remainder were not employed at the time of recruitment.557
5.30 The ATO has also advised that, on commencement, the new SES officers attended a series of introductory meetings, over the course of a few weeks, with key senior ATO staff from relevant business lines to help them understand the different areas of the ATO.558 They also receive an induction pack which contains links to employment conditions, mandatory training programs, such as Security, Privacy and Fraud as well as the ATO’s leadership and culture strategy to support the ATO’s ‘reinvention’. The SES officers are also enrolled in the APSC’s SES Orientation Program for assisting new recruits ‘understand Australian Government processes, standards and principles’.559
5.31 In earlier chapters, the Commonwealth Fraud Control Framework component of the ATO governance arrangement has been explored and scrutinised in detail. Its broader governance arrangements have been described earlier in this chapter and appear appropriate, however, there is room for improvement.
5.32 First, there is scope to increase the independence of the ARC. Private sector entities as well as government bodies overseas have a requirement for the committee membership to be independent of the organisation.560 It is also generally accepted that whilst the CEO and CFO of the organisation and other experts are not members of the committee, it is helpful for them to attend the meetings from time to time.561 Ensuring that no staff, including the CEO and CFO, are members of the ARC avoids any conflict of interest that may arise from the latter’s oversight role and the functions performed by the staff by virtue of their employment.
5.33 It could be argued that the ATO is such a large and complex organisation that a truly independent chair may not have the requisite knowledge and understanding of the organisation.562 However, such concern could be addressed by having specialist ATO officers attend ARC meetings and provide the relevant information, data and reports as required.
5.34 The IGT had previously outlined options for the ATO’s governance arrangements, including the option to improve the independent operation of the ARC with members drawn exclusively from outside the ATO.563 The IGT remains of the view that the ATO’s ARC should be comprised entirely of non-executive directors and draw on relevant ATO officers for information and advice.
5.35 Secondly, the IGT believes that the role of the Integrity Adviser should be maintained and its purpose and function better understood and promoted within the ATO. In doing so, consideration should be given to providing him or her with unfettered access to internal information and decision-making forums as well as appropriate support from the Commissioners and the ARC.
5.36 One of the key benefits that Integrity Advisers had previously provided was to assist in overcoming a culture of ‘only good news going up the line’564 which increased the risk of ATO senior management not being made aware of integrity issues until it was too late to effectively address them.
5.37 The cumulative work of Integrity Advisers had also assisted the ATO in establishing an integrity framework which had identified the range of specific ATO legal obligations and publicly expected responsibilities as well as an assurance process which required operational staff to provide certificates of compliance with respect to identified risks. Through this process, operational staff were also required to take ownership in addressing the particular integrity risks which arose in their work area.
5.38 Furthermore, it would be beneficial for ATO officers to have access to a source of advice and guidance on ethics and integrity, beyond their business line managers. In light of the recent events related to Operation Elbrus565, a function of the Integrity Adviser could also allow ATO officers to discuss fraud and corruption concerns if they do not feel comfortable with reporting the issue via other internal channels. The ATO is working towards this outcome. In February 2018, it had advised all SES officers that they could seek independent advice on workplace ethical issues from the current Integrity Adviser.566
5.39 Thirdly, the IGT believes that the Commissioners and the other ATO Executives would benefit from receiving periodic reports from the FPII Assistant Commissioner on internal fraud risks, trends and potential issues of concern. As previously mentioned, the FPII Assistant Commissioner is the responsible senior officer with the detail of all operational knowledge and is best placed to alert senior management to issues as soon as they arise. Such reporting also demonstrates the seriousness with which senior management consider such fraud risks.
5.40 Fourthly, the IGT is of the view that the ATO should formalise a regular review of its corporate integrity indicators in order to be responsive to emerging risks by ensuring that it continues to measure performance against the most appropriate indicators. The ATO has not conducted such reviews since 2015.
5.41 The above reviews may be informed by the findings of the OBA such that any relevant identified behaviours are addressed by a corresponding indicator or by other measures. The result of these reviews and actions arising from them should be made available to the Commissioners and the other ATO Executives.
5.42 Lastly, the IGT believes that induction for new SES officers, recruited from outside of the ATO, should be bolstered with specific training about APS standards as well as ATO policies, values and culture with a focus on the ethical standards and highest levels of integrity that an organisation such as the ATO must exemplify. Presentations from one or more of the Commissioners may be included to reinforce their expectations of senior officers in this regard. Such training may be supplemented by similar messaging in SES forums throughout each year.
The IGT recommends the ATO strengthen its oversight of internal fraud risks by:
- bolstering the independence of its Audit and Risk Committee by ensuring that, at the very least, the majority of its members, including the chair, are external to and independent of the ATO;
- maintaining the role of the Integrity Advisor and providing him or her with all necessary access and support as well as enabling ATO staff to discuss ethical or fraud related concerns with him or her;
- requiring the Assistant Commissioner of Fraud Prevention and Internal Investigations to regularly report internal fraud risk trends and issues to the Commissioners and other ATO Executives;
- conducting periodic reviews of the ATO’s corporate integrity indicators and providing the results and actions arising from them to the Commissioners and other ATO Executives; and
- augmenting the existing induction program for new SES officers, recruited from outside the ATO, with specific training on ethical standards and the highest level of integrity expected at such an organisation.
The ATO will periodically review the effectiveness of the role of Integrity Advisor as part of our ongoing integrity assurance activities.
The ATO notes the Audit and Risk Committee already provides assurance to the Commissioner that the ATO has processes and systems in place to detect, capture and respond to fraud and corruption risk. The ATO will strengthen our current reporting processes for the Assistant Commissioner, Fraud Prevention and Internal Investigations to inform the ATO Executive of key fraud risk issues and insights.
Expansion of the Private Groups & High Wealth Individuals business line
5.43 Stakeholders have questioned the expansion of the PGH business line to include the SNC and Aggressive Tax Planning (ATP) business lines. In particular, stakeholders were concerned that having these three key areas report to a single Deputy Commissioner in PGH was ‘too much to be led by one person,’ noting that the expanded PGH business line has responsibilities such as the investigation and prosecution of external fraud and tax crime, managing the ATO’s participation in multi-agency taskforces as well as leading major programs such as the Project DO IT567 tax amnesty.
5.44 The amalgamation of SNC, ATP and PGH into a single business line occurred on 1 July 2014 as part of the broader Compliance Group restructure. The intent of the amalgamation, which was designed in alignment with the Commissioner’s Statement and the ATO’s 2020 Vision, was to ‘achieve efficiencies in areas where [the ATO’s] collective work [was] duplicated or even triplicated’.568
5.45 Prior to the amalgamation, PGH569, SNC570 and ATP571 were separate business lines led by different Deputy Commissioners. While the Deputy Commissioners of SNC and ATP maintained direct oversight over their respective areas after the amalgamation, they reported directly to the Deputy Commissioner of PGH, who became the head of the amalgamated business line.572 By 2015, the amount of Deputy Commissioners within the amalgamated business line had reduced to two, as oversight for tax crime, which was previously under the purview of the Deputy Commissioner of SNC, was transferred to the Deputy Commissioner of PGH.573 The structure of the PGH business line as at July 2017 only contained one Deputy Commissioner. The areas of ATP and TEC (formerly SNC), as well as four other areas, are now headed by Assistant Commissioners who report directly to the Deputy Commissioner.574
5.46 In 2013–14, the financial year immediately prior to the amalgamation, the PGH, SNC and ATP business lines had average staffing levels equivalent to 1376, 528 and 223 full-time equivalent (FTE) employees respectively. The combined total for the three business lines was 2,127 FTE employees, of which 513 worked in a dedicated tax evasion and crime active compliance role. By comparison, in October 2017, the amalgamated PGH business line had the equivalent of 1,911 FTE employees, of which 541 worked in a dedicated tax evasion and crime active compliance role.575
5.47 A comparison of average staffing levels and deliverables for the 2013–14 and 2016–17 financial years is provided in the table below.
Table 5.1: Average PGH staff levels and deliverables, 2013–14 and 2016–17
|SNC/TEC active compliance staff numbers (in FTE)||ATP, SNC, PGH (incl. TEC active compliance) staff numbers (in FTE)||Audits and reviews completed||Investigations and prosecutions completed||Liabilities raised ($billion)||Cash collected ($billion)|
Source: ATO 576
5.48 Decisions within the PGH business line are typically made collectively by groups of senior officers participating in panels and forums. There are separate panels to ‘determine case selection, allocation and progress, the resolution of complex technical issues, the issue of position papers, fraud or evasion determination and settlements, and escalation of matters to’ the Serious Financial Crime Taskforce (SFCT). In light of this governance structure, the ATO considers ‘that no individual, no matter how senior, can unduly or unilaterally influence the selection or outcome of a case’.577
5.49 Currently, the Deputy Commissioner of PGH is on several, but not all, of the internal PGH forums.578 For example, the Deputy Commissioner of PGH acts as the chair for the PGH Strategic Management Committee, which is responsible for strategy development, setting priorities and allocating resources.579 However, he does not participate in other forums such as the Tax Crime Referral Panel580, the Case Escalation Forum581 or the Tax Crime Forum582, which are the forums that have the primary responsibility for selecting and approving the commencement of audits, reviews and investigations within the business line.583 He does, however, represent the PGH business line in internal ATO forums, as well as the ATO in external forums. An example of the former would be the ATO’s Tax Crime and Account Integrity Steering Committee584 while an example of the latter would be the SFCT CEO Steering Group.585
5.50 A direct comparison between the position of the Deputy Commissioner of PGH before the amalgamation and the position after the amalgamation leads to the observation that whilst he may have more responsibility, there is also a corresponding increase in his accountability. Effectively, the Deputy Commissioner is currently accountable for how the ATO responds to three risk areas, as opposed to one, as well as being accountable for more than 500 additional FTE employees.
5.51 An examination of the panels in which the Deputy Commissioner participates shows that he is not involved in the making of any case specific decisions. For example, as mentioned above, the Deputy Commissioner does not participate in either the Tax Crime Referral Panel or the Case Escalation Forum. In addition, he is not a member of the Tax Crime Forum, which is the panel responsible for assessing and approving all ATO referrals to law enforcement agencies and joint agency taskforces.
5.52 Even where the Deputy Commissioner represents the ATO in external panels with other agencies, it is not for the purpose of making case specific decisions. For example, within the SFCT, the Deputy Commissioner is a member of the CEO Steering Group and the Senior Officer Group, which are responsible for providing executive oversight and setting the strategic direction of the SFCT. By contrast, the Deputy Commissioner does not participate in either the SFCT Joint Management Committee or the SFCT Treatment Forum, which are responsible for the approval and implementation of treatment strategies respectively.
5.53 Accordingly, while the Deputy Commissioner of PGH can exercise strategic decision-making powers, the ability to exert influence on individual cases or operational matters, through his involvement in the above forums, is minimal. Furthermore, where the Deputy Commissioner makes strategic decisions, they would be made after consultation and discussion in the relevant forums with input from other business lines or other agencies.
5.54 The Deputy Commissioner of PGH, however, may be tasked to become directly involved in making decisions in highly sensitive cases. In such circumstances, implementation of recommendation 3.5 of this report would provide transparency and integrity safeguard regarding any such involvement.
5.55 On the basis of the above information, the amalgamation of the SNC, ATP and PGH business lines has not resulted in less accountability. However, the role of the Deputy Commissioner of the expanded PGH business line is a high risk role and the IGT is of the view that the most appropriate way to address stakeholder concerns and the level of risk is by limiting the period of time within which any one person can occupy this role. The broader issue of staff rotation and associated recommendation is set out in Chapter 3.
5.56 Some stakeholders are of the view that the ATO should be subject to oversight by a specialist anti-corruption scrutineer, such as ACLEI. Their reasons are that the ATO is effectively a law enforcement agency by virtue of some of its high risk functions including those of the TEC area within its PGH business line as well as its active participation in joint operations such as the SFCT.
5.57 The responsibility for preventing, detecting and investigating corruption in the public sector rests with ACLEI and the Fraud and Anti-Corruption Centre (FAC Centre) which comprise multiple Commonwealth agencies led by the AFP.586 In performing its role, ACLEI has strong investigatory powers, including:
- telecommunications interception and data access;
- compulsory information gathering hearings and related directions that prevent disclosure of the nature and existence of those hearings; and
- integrity testing which authorises ACLEI to test whether an officer of ‘target agencies’587 will engage in illegal or unethical conduct in response to a controlled situation.588
5.58 Agencies under ACLEI’s jurisdiction include the ACIC, AFP, Department of Home Affairs (including the Australian Border Force), AUSTRAC and prescribed aspects of the Department of Agriculture and Water Resources.589 Any member of the community or government agency, such as the ATO, may voluntarily refer matters to ACLEI for investigation.
5.59 In 2014, the Parliamentary Joint Committee on the ACLEI (the ACLEI Committee) initiated an inquiry (the ACLEI Inquiry) into the possible expansion of ACLEI’s jurisdiction to other agencies, including the ATO. During the ACLEI Inquiry, ACLEI noted that there is a strong case for the ATO’s inclusion under its jurisdiction due to the ATO being ‘both a user and contributor of law enforcement related information, and a primary partner in joint law enforcement activities, such as Project Wickenby’ and would ‘add significantly to the law enforcement anti-corruption system’.590 Furthermore, the then Australian Crime Commission (ACC)591 observed that the ATO ‘contains high risk areas that would be susceptible to corruption’.592
5.60 The ATO, in its evidence to the ACLEI Committee, stated that whilst its FPII unit:
…has no statutory powers, it has the capability to conduct most facets of a criminal investigation, including the submission of briefs of evidence to the Commonwealth Director of Public Prosecutions. Several of these investigations have resulted in successful prosecutions and lengthy terms of imprisonment for those employees found to have acted corruptly.593
5.61 As an alternative to expanding ACLEI’s jurisdiction to include the ATO, the ATO proposed a ‘tier 2 arrangement’ in which the ATO could ‘call on ACLEI in certain circumstances’. However, the ACLEI Committee noted that this model was not likely to be implemented in the near future594 and recommended that:
…the Government initiate an independent assessment of the Australian Taxation Office’s corruption risk profile, together with an examination of the feasibility of including the Australian Taxation Office within ACLEI’s jurisdiction.595
5.62 The ACLEI Committee was of the view that such an assessment should examine ‘the likelihood of corrupt conduct within the ATO, its potential consequences for the organisation, the government and the economy, and the resourcing implications of inclusion’.596 The Government has not formally responded to the Committee’s recommendation.
5.63 As noted earlier, following the events of Operation Elbrus, the ATO engaged an external contractor to conduct the 2017 Corruption Risk Review597 the main findings of which are discussed in Chapter 3.
5.64 It should also be noted that after the ACLEI Committee had made its recommendation, the Australian Government had become a member of the ‘Open Government Partnership’ which is a multilateral initiative which aims ‘to secure concrete commitments from governments to promote transparency, empower citizens, fight corruption and harness new technologies to strengthen governance’.598 One of the commitments in this Partnership is for the co-creation of a National Action Plan every two years which outlines the steps it will take to improve and build confidence in Australian institutions.599
5.65 The first such Action Plan was issued by the Government in December 2016600 and had identified the integrity of the public sector as one of five important areas for improvement. Commitment 4.2 of this Action Plan aims to strengthen Australia’s ‘National Integrity Framework’ through its ability to prevent, detect and respond to corruption in the public sector, including ‘review [of] the jurisdiction and capabilities of ACLEI and [the FAC Centre] with the development of each National Action Plan to ensure they can focus on protecting Commonwealth agencies from risks of corruption’.601 A review was scheduled to take place in the first half of 2018.602
5.66 As mentioned earlier, the ATO appears to have appropriate governance arrangements in place for managing risks of internal fraud and corruption although some improvements have been recommended. However, as indicated by the ACLEI Committee, the IGT is of the view that such governance arrangements and internal controls are not a substitute for a level of external scrutiny performed by an agency such as ACLEI.
5.67 The Government is currently considering its response to the recommendation of the ACLEI Committee and has other related processes in progress which would examine the broader issue of the extent of external scrutiny required.
527 Commissioner of Taxation, Annual Report 2015–16 (2016); ATO, ‘ARC and ARSC membership’ (Internal ATO document, undated).
528 Above n 7, p 134.
529 Department of Finance, Resource Management Guide 211 – Implementing the Commonwealth Risk Management Policy – Guidance (2016) p 27.
530 ATO, ‘Risk Management CEI Guidelines’ (Internal ATO document, 16 March 2015); Above n 105; Above n 101.
531 See for example, above n 11, p 4.
532 Above n 404.
533 ATO, ‘Corporate Integrity Indicator Report – March Quarter 2017 results’ (Internal ATO document, undated).
534 Above n 101.
535 ATO, ‘Corporate Integrity Indicator Enhancements’ (Internal ATO document submitted to the Audit and Risk Sub-Committee on 13 October 2015).
536 Above n 95, p 11.
537 ATO, ‘Executive report, Quarter 3, 2015–16 – ATO Integrity Status Report’ (Internal ATO document, 2016).
538 ATO, ‘Executive report, Quarter 1, 2016–17 – ATO Integrity Status Report’ (Internal ATO document, 2017).
539 ATO, ‘Executive report, Quarter 3, 2016–17’ (Internal ATO document, May 2017).
540 ATO ‘Integrity Framework – how we ensure we are an integrity-based organisation’ (Internal ATO document, January 2006) p 9; Commissioner of Taxation, Annual Report 2000–01 (2001).
541 ATO ‘Integrity Framework – how we ensure we are an integrity-based organisation’ (Internal ATO document, January 2006) p 9.
542 ibid., p 7.
543 ATO, ‘ATO Extra – The importance of openness and transparency’ (Internal ATO document, 2006); Commissioner of Taxation communication to the Joint Committee of Public Accounts and Audit, 17 April 2007; Commissioner of Taxation, Annual Report 2010–11 (2011) p 20.
544 ATO communication to the IGT, 8 December 2017; ATO, ‘Integrity Adviser Report’ (Internal ATO document, 1 September 2008).
545 Commissioner of Taxation, Annual Report 2002–03, pp 134 and 193–194.
546 Above n 95.
547 ibid., pp 3, 5 and 8.
548 ibid., pp 3 and 10.
549 ibid., p 10.
550 ibid., p 11.
551 ATO, ‘Minutes to the 30 July 2015 Audit and Risk Sub-Committee’ (Internal ATO document, 30 July 2015) para .
552 Above n 94, p 35.
555 ATO communication to the IGT, 29 September 2017.
556 ATO communication to the IGT, 11 December 2017.
557 ATO communication to the IGT, 13 November 2017.
558 ibid.; ATO, ‘Example of on boarding program for external SES’ (Internal ATO document, undated).
560 Governance Institute of Australia, Good governance guide – issues to consider when constituting audit and risk committees (2014).
561 Australian Institute of Company Directors, Role of the Audit Committee (2016).
562 ATO, ‘Exit e-mail from the Integrity Adviser to the Commissioner of Taxation’ (Internal ATO document, 3 July 2014).
563 IGT, Submission to the Treasury, Tax Forum – next steps for Australia, September 2011, p 15.
564 Above n 95, p 10.
565 See Appendix B para [A2.60]
566 ATO communication to the IGT, 20 February 2017.
567 ATO, ‘Project DO IT – the time to act is now’ (Media Release, QC 42925, 23 October 2014).
572 ATO, ‘Private Groups and High Wealth Individuals’ (Internal ATO document, June 2014).
573 ATO, ‘PGH organisational structure’ (Internal ATO document, 17 September 2015).
574 ATO, ‘PGH organisational structure’ (Internal ATO document, 19 July 2017).
575 ATO, ATO,’PGH Senate Estimates Deputy Commissioner brief October 2017′ (Internal ATO document, October 2017).
578 ATO, ‘PGH Forums Events and Meetings Register’ (Internal ATO document, undated).
579 ATO, ‘PGH Strategic Management Committee Charter’ (Internal ATO document, 1 July 2015).
580 ATO, ‘PGH Tax Crime Referral Panel Charter’ (Internal ATO document, undated).
581 ATO, ‘Case Escalation Forum’ (Internal ATO document, undated).
582 ATO, ‘Charter Tax Crime Forum 2017’ (Internal ATO document, July 2017).
583 Above n 578.
584 ATO, ‘Committee Charter Tax Crime and Account Integrity Steering Committee’ (Internal ATO document, November 2015); Note that in December 2017, the Tax Crime and Account Integrity Steering Committee was renamed to the ‘Crime and Account Integrity Steering Committee (CAISC)’.
585 ATO, ‘PGH TEC Governance Forums’ (Internal ATO document, undated).
587 ‘Target agencies’ include the ACIC, AFP and the Department of Home Affairs: Crimes Act 1914 s 15JC.
588 Explanatory Memorandum, House of Representatives, Law Enforcement Integrity Legislation Amendment Bill 2012.
589 Law Enforcement Integrity Commissioner Act 2006 s 10.
590 Above n 17, paras [4.19] and [4.21].
591 The then Australian Crime Commission merged with Crimtrac on 1 July 2016 to form the Australian Criminal Intelligence Commission.
592 Above n 17, para [4.22].
593 ibid., para [4.17] (Assistant Commissioner, ATO).
594 ibid., paras [4.23]–[4.24].
595 ibid., para [4.28] rec 2.
596 ibid., para [4.26].
597 ATO, ‘Commonwealth Contract – consultancy services’ (Internal ATO document, undated); Above n 10.
598 Australian Government, Australia’s First Open Government National Action Plan 2016–18 (2016) p 5; Note: the Australian Government joined the Open Government Partnership in November 2015.
599 ibid., p 6.
601 Above n 598, pp 44 and 49.