Alegatos de los querellantes

8.9 A system is only as good as the inputs that go into it. Relevant and effective inputs are vital for risk identification and capture. It facilitates the direction of limited resources to areas that most warrant it.

8.10 It is important to clearly articulate the risk hypothesis to ensure risk inputs are relevant to the risk being identified. In the LBTC booklet, the risk event, for example, is the taxpayer having a tax position with which the ATO disagrees or the taxpayer through error or omission has misreported their obligations.369

8.11 In this case, there are two types of risk events and it is important to ensure that the ATO does not attribute one risk factor against the wrong risk event. For example, a taxpayer may undertake transactions in an uncertain area of the law. To infer that this indicates a higher likelihood of ‘non-compliance’ (that is error or omission) is not appropriate. It is important that risks be more specifically identified and the expected remediation or action required more carefully targeted.

8.12 This report recognises that the ATO uses a combination of quantitative and qualitative inputs. Quantitative data has the benefit of being perceived as objective fact. Furthermore, quantitative data lends itself well to analysis by computerised methods rather than manual analysis. This means a great deal of analysis can be performed at a high volume at relatively low cost to the ATO.

8.13 The application of quantitative approaches in certain situations need little qualitative inputs where there is objective, verifiable and direct evidence of non-compliance, such as those used in data-matching of interest income disclosures in income tax assessments.

8.14 In the absence of quantitative inputs, the IGT recognises the need to employ qualitative inputs. The small business benchmarks provide a good example of where both these types of input need to be used to arrive at an appropriate outcome.

8.15 The benchmarks are derived from taxpayer income tax returns and activity statements from statistically valid populations of similar businesses. Whether a particular taxpayer’s cost of sales to turnover ratio is different to the benchmark range is also objectively verifiable. However, a departure from the benchmark hypothesises an increased risk of underreported income. Therefore, as set out in the IGT’s Review

into the ATO’s Use of Benchmarking to Target the Cash Economy (Benchmarking Review),

ATO officers also need to examine qualitative inputs, including a better understanding of the taxpayer’s business and the consideration of other qualitative risk factors, such as the nature of the business, cash controls and its business mix and record keeping management.

8.16 The ATO should ensure that qualitative information is considered in an objective and non-arbitrary manner. Adopting appropriate governance arrangements should assist in this regard. In the Large Business and International (LB&I) business line, the adoption of the risk template, which lists specific risk factors to consider, and the moderation panel, which subjects the risk factors to peer review and collective decision making, are helpful measures in ensuring the integrity of the use of qualitative inputs. The LB&I approach is designed to ensure that evidence is tested consistently across the risk population.

8.17 The ATO should also ensure that there are processes in place to refine the accuracy of their risk inputs. In the IGT’s Benchmarking Review, the ATO agreed to examine the results of the completed audits to identify any other risk factors which may assist in better targeting likely non-compliant taxpayers.

8.18 In the SME business line, risk managers have responsibility for the regular review of the risk rules under their ownership. This business line has also agreed to previous ANAO recommendations to review their risk rules.

8.19 In LB&I, it is noted that the risk filters are currently generating many false positives that are subsequently filtered out by risk managers. This represents an opportunity to review the risk filters with a view to ensuring they are generating more useful output and reducing the need for risk managers to do this filtering.

8.20 Risk managers play an important role in all business lines. They identify potential risks, develop rules to detect those risks, and develop risk treatment strategies. The ATO should ensure that risk managers have an adequate understanding of the business and economic environment pertaining to the risk over which they have responsibility. This ensures that risk managers can identify potential risks in a timely manner.

8.21 The ATO should also ensure that risk managers are adequately supported in their role. This includes ensuring they have the adequate skills to identify and analyse risk as well as develop guidance for active compliance officers on the indicators and evidence of non-compliance to test the risk hypothesis.

8.22 Risk managers should also be able to articulate what evidence active compliance officers can rely upon to confirm compliance and close the review or audit as soon as practicable. Risk managers should also have regular contact with compliance officers as an additional source of risk intelligence.

8.23 The ATO’s Compliance Effectiveness Methodology provides guidance to ATO officers who are developing risk treatment strategies. One aspect of this guidance is that processes should be in place to gather evidence to indicate whether the ATO’s intervention was effective in changing compliance behaviour.

8.24 From a risk assessment perspective, the IGT is of the view that the ATO should also consider how to measure the effectiveness of their risk assessment approaches in detecting non-compliance and not just the effectiveness of the compliance activities themselves.

8.25 One such way of evaluating the accuracy of risk assessment methods is through the examination of strike rates and audit yields. Both of these measures provide useful information in more accurately determining the probability and consequence aspects of a risk rating for a population.