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Audit focus
In determining the 2019–20 audit work program, the ANAO considers prior-year audit and other review findings and what these indicate about entity risks and areas for improvement, as well as emerging risks from new investments, reforms or operating environment changes. In the ATO, considerations predominantly relate to its regulatory responsibilities to ensure high levels of compliance with tax and superannuation obligations. This creates specific risks in stakeholder communication, information technology systems and compliance controls. These risks need to be managed through systems and frameworks to support taxpayers gather information and undertake financial transactions in a timely, accurate and secure way.
Regulation
In administering the tax and superannuation systems, previous audits have found that, while the ATO generally has sound administration arrangements in place, there is room for improvement in education and compliance processes.
An ongoing risk for the ATO is to have arrangements in place to ensure taxation is paid in accordance with legislation. This includes reducing the incidence of taxpayers avoiding taxation responsibilities, whether through specific tax avoidance schemes or through unpaid debts.
The ATO faces ongoing scrutiny about the application of its powers to enforce taxation and superannuation obligations, and whether these powers have been applied fairly and consistently. An area where the ATO can demonstrate integrity of its practices and approaches is to be a model litigant in the judicial system.
Governance
The ATO receives a considerable proportion of its annual funding from specific budget measures (such as $679 million over four years to 2019–20 for the Tax Avoidance Taskforce). In a previous audit, the ANAO found that it was unclear if the ATO had achieved the planned revenue increases outlined in budget measures over the period 2010–11 to 2014–15, and that the main shortcoming was the absence of accurate measures of business-as-usual baseline revenues.
Financial management
Risks in the preparation of financial statements arise from the significant value of tax revenue, specifically the accuracy of administered income and expenses, valuation of tax receivables (including tax debt provisions), and completeness and accuracy of tax revenue from compliance activities.
Portfolio overview
As a Commonwealth entity within the Treasury portfolio, the Australian Taxation Office (ATO) is the Australian Government’s principal revenue collection agency. Its role is to administer Australia’s tax system and significant aspects of Australia’s superannuation system. The ATO has a single outcome delivered through 18 programs. In addition, the ATO provides support to the Tax Practitioners Board, the Australian Business Register and the Australian Charities and Not-for-profits Commission. Further information is available from the ATO’s website at www.ato.gov.au.
In the 2019–20 Portfolio Budget Statements (PBS) for the ATO, the aggregated budgeted expenses for 2019–20 total $23.55 billion. The PBS contain budgets for those entities in the general government sector (GGS) that receive appropriations directly or indirectly through the annual appropriation acts.
The level of budgeted departmental and administered expenses and the average staffing level for the ATO, which is part of the GGS, are shown in Figure 1. Administered expenses represent the largest proportion of the ATO’s total budgeted expenses.
Figure 1: Australian Taxation Office — total expenses and average staffing level
Source: ANAO analysis of PBS 2019–20 Budget related papers pre–machinery-of-government changes announced on 29 May 2019.
The ATO is responsible for administering the tax and superannuation systems and the delivery of programs. The ATO is continuing to reform its administration of the tax and superannuation systems under its reinvention program, with the aim to improve client experience and reinforce a service culture. The ATO is focusing on its data and analytics, as well as strategies for maintaining and improving its technology and services, as a way to achieve its longer term strategic intent.
Financial statements and other audit engagements
Overview
The risk profile of the ATO is shown in Table 1.
Table 1: Australian Taxation Office risk profile
|
Type of entity |
Risk of material misstatement |
Number of higher risks |
Number of moderate risks |
Material entities |
||||
Australian Taxation Office |
Non-corporate |
High |
3 |
3 |
Other audit engagements (including Auditor-General Act 1997 section 20 engagements) |
||||
Australian Taxation Office — GST Cost Statement |
||||
Australian Taxation Office — GST Controls Statement |
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Material entities
Australian Taxation Office
The ATO’s core areas of responsibility are managing and shaping tax, excise and superannuation systems that fund services for Australians, together with the provision of support to the Tax Practitioners Board, the Australian Business Register and the Australian Charities and Not-for-profits Commission.
The ATO’s budgeted expenses for 2019–20 total $23.55 billion, with 51 per cent of these expenses attributable to subsidies and supplier expenses, as shown in Figure 2.
Figure 2: Australian Taxation Office’s total budgeted expenses by category ($’000)
Source: ANAO analysis of PBS 2019–20 Budget related papers pre–machinery-of-government changes announced on 29 May 2019.
The six key risks for the ATO’s 2018–19 financial statements that the ANAO has highlighted for specific audit coverage in 2019–20, including those that the ANAO considers potential Key Audit Matters (KAM) by the ANAO, are the:
- estimation and allocation processes associated with the reporting of taxation revenue, given the value of transactions subject to estimation that involve the application of significant judgement and specialist knowledge (KAM – Accuracy of administered income and expenses);
- processes for estimating debt provisions and adjustments to client accounts, including settlement adjustments and the allowance for credit amendments and impairment losses associated with taxation receivable balances at year end. This is due to the complexity of the ATO’s debt management and settlement processes and the volume of transactions subject to estimation (KAM – Valuation of taxation receivables);
- compliance program relating to the collection of taxation revenues, particularly the ATO’s risk management approach to compliance activities in a self-assessment and voluntary compliance regime (KAM – Completeness and accuracy of taxation revenue);
- application of various types of penalties and interest charges imposed by legislative requirements and the application of judgement in the decision-making processes surrounding the cancellation or remission of these penalties and interest charges on unpaid or amended taxation liabilities;
- complex manual data compilation processes required for financial reporting that increase the risk of error or misstatement; and
- complexity and reliance on IT business systems and other technology for the processing of taxpayer returns and statements.
Potential performance audits
Potential Performance audit: 2019-20
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Potential Performance audit: 2019-20
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Potential Performance audit: 2019-20
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Potential Performance audit: 2019-20
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