The Tax Office decided to turn on its new income tax processing system over the Australia Day long weekend in 2010 knowing it was “virtually certain that significant errors will emerge as processing ramps up”.
The internal advice, detailed in the Inspector General of Taxation report released yesterday was that many of the defects could only be fixed when the system was live, meaning taxpayers would effectively used as guinea pigs to bed down the system.
Aware that if they didn’t take the system live in January 2010 they would have to wait until January 2011 after the 2010 tax year to try again, the Tax Office went ahead in part because of the high risk of losing key staff if they waited another year.
Two years late and $300 million over the $445 million budget the Tax Office felt that if it waited the new system would cost them an extra $200 million. It also wasn’t sure it would be any better prepared.
An external investigation had found morale low, the development team “somewhat dysfunctional” and the quality assurance process promised by the contractor Accenture “not being followed in practice.”
Over the Australia Day long weekend 27 million taxpayer records were transferred to the new system. On February 2 it was impossible to go back...
By May 5 Tax Office staff had applied 395 e-fixes or workarounds, an average of 30 per week.
Some were as simple as manually turning on and off parts of the system.
Negative taxable income figures sent to Centrelink were being read as positive and Centrelink was demanding repayment of benefits. Refund letters were being set out without refund cheques and as many as one million tax returns were held up.
The ATO diverted 1200 staff from other duties to answer phones and process forms.
The number of staff manually processing urgent hardship payments swelled form the usual four to 200. Tax officers had to manually input information into the old computer system, email the result to other parts of the government to check whether there was an outstanding debt, and then type the assessment into a Microsoft Word document which was then double checked by another officer. If a refund was due the case was referred to another officer for approval and a hardcopy cheque manually prepared on different computer system.
Taxation Inspector General Ali Noroozi believes the Tax Office probably had little choice but to bring the imperfect system on line in January 2010 and saves his criticism for its approach to communication and compensation.
An update on the Tax Office website on March 2 referred to the problems holding up returns as “minor” when it was likely they would have been classified as Severity 1 defects were it not the presence of a “safety net” that withheld returns from processing.
Mr Noroozi recommended the Office communicate more openly with taxpayers and its staff and improve the process for offering compensation. Tax Commissioner Michael D'Ascenzo has accepted the recommendations about communication but has not agreed to reassess the rules for compensation. As of November it had received only 94 claims for compensation.
The Inspector General’s report has been with the government since December. His chief recommendation is that in future such projects the government avoid over-reliance on one contractor and introduce the new system in modules rather than in one hit.
Published in today's SMH and Age
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