The objective of the audit was to assess the effectiveness of the management of community intelligence by the Tax Office.



1. The role of the Australian Taxation Office (the Tax Office) is to manage and shape taxation, excise and superannuation administrative systems that fund services for Australians, giving effect to social and economic policy. In fulfilling this role, the main task of the Tax Office is to administer legislation governing taxes, excise and superannuation.

2. In 2008–09 the Tax Office collected tax and excise revenues of $264.5 billion, and provided transfers and payments of $17 billion. The Australian tax system is based on self assessment and places responsibility on taxpayers to declare all assessable income and claim only deductions and offsets to which they are entitled. However, a number of taxpayers deliberately abuse the tax, excise and superannuation systems to evade their obligations or otherwise attempt to defraud the Commonwealth.

3. The Tax Office has mechanisms in place to deter, detect and deal with non-compliant taxpayers. The Tax Office defines tax evasion as ‘when someone has deliberately lied to us about their activities to reduce their tax liability, or have not paid tax that is due.'

4. The community expects the Tax Office to maintain the integrity of Australia's taxation system. The Tax Office has stated that encouraging members of the community to report suspicions of tax evasion can both deter people from taking part in these activities and strengthen shared community support for the integrity of the tax system.

5. While the Tax Office is increasingly using data matching as a tool for detecting tax evasion and fraud, it also acknowledges that ‘as consumers, members of the community are in a good position to provide us with information about suspect interactions they may have with businesses'. Community intelligence has been identified as one of the Tax Office's methods for selecting cases, particularly for its cash economy compliance work.

6. To manage community intelligence (‘tip-offs') received from members of the public, the Tax Office operates the Tax Evasion Referral Centre (TERC). The broader processes of receiving and acting on community intelligence are carried out in a range of Tax Office business lines, including in Customer Services and Solutions (CS&S), and in compliance areas such Serious Non-Compliance, Small and Medium Enterprises, and Aggressive Tax Planning.

7. The Tax Office receives up to 60 000 contacts per year relating to possible tax evasion, and can accept information via telephone, email, online form, letter, facsimile and from other government agencies. The Tax Office's CS&S business line operates the Tax Evasion Hotline service—telephone number 1800 060 062—which takes calls from the public and records information for examination by TERC. Other contact channels are sent directly to TERC.

8. TERC is responsible for recording tip-off information, applying a rating, and referring reports to the relevant business line. Business lines then examine the information using a range of case selection methods to determine which referrals they will investigate further. In addition, business lines will sometimes request categories of information from TERC, such as all allegations received about an industry sector, to support particular compliance projects.

9. The Tax Office established its community intelligence hotline in 1998, to better assist members of the community to provide information about tax evasion and to assist in the management of this information. It has since made improvements to the service. These have included commissioning a purpose-built database to capture and communicate community intelligence. More recently, the Tax Office has more closely aligned the community intelligence function to other business areas by incorporating its activities into mainstream call centres and the new correspondence, work management and case management (CWC) system.

Audit objective and scope

10. The objective of the audit was to assess the effectiveness of the management of community intelligence by the Tax Office.

11. The Australian National Audit Office (ANAO) identified four key areas for review. In particular, it examined whether the Tax Office had effective approaches for:

  • the governance of the community intelligence function;
  • maximising information quality and protecting privacy during the receipt of community intelligence;
  • assessing and referring community intelligence within the Tax Office and externally; and
  • monitoring and assessing the costs and benefits of community intelligence.

12. The audit focused on community intelligence received via TERC, but did not examine in detail the ways that other areas of the Tax Office conduct investigations and audits using community intelligence. The Tax Office's processes for carrying out compliance audits and fraud investigations have been recently examined in the ANAO's Report No.34 of 2008–09 The Australian Taxation Office's Management of Serious Non-Compliance.

13. The audit did not cover community intelligence sourced through the more recently established Tax Practitioner Integrity Service. This service has a remit to ‘address industry concerns about the incidence of unregistered tax return preparers.' The ANAO reviewed the Tax Office's relationship with tax agents in 2007. During fieldwork for this audit, it was noted that the Tax Office's Superannuation Employer Notification process is an additional source of community intelligence for the Tax Office. This process was also outside the scope of this audit.

14. The ANAO conducted fieldwork for this audit in a number of Tax Office locations between October 2009 and February 2010. This included a review of relevant documentation, observation of staff in the TERC and CS&S areas and interviews with Tax Office staff in a range of business and service lines.


15. Australia's self-assessment system of tax administration involves inherent risks of taxpayers not complying with registration, lodgement, reporting and payment obligations. The Tax Office's response involves weighing competing risks to make decisions about the best use of resources to address non-compliance. Community intelligence is just one element of the compliance framework. The Tax Office has stated that encouraging members of the community to report suspicions of tax evasion can both deter people from taking part in these activities and strengthen shared community support for the integrity of the tax system.

16. To facilitate such reporting by the community, the Tax Office has in place a structured tip-off program for collecting and managing community intelligence. This program enabled the handling of almost 60 000 tip-offs from the community in
2008–09. These tip-offs reported suspicious activities which related to the whole range of the Tax Office's responsibilities, including dealings in the cash economy, tax return lodgement issues and unpaid tax and superannuation.

17. Information received from the community is used by areas of the Tax Office to inform compliance activities, and contributed to the collection of additional taxes, penalties and interest. In 2008–09 the Tax Office estimated this amounted to some $13 million. The availability of the community intelligence program also assists in providing a visible deterrent to abuse of the tax system. Nevertheless, the Tax Office could more effectively manage this program by evaluating the risks and benefits of accepting community intelligence. A clearer understanding of these risks and benefits would assist the Tax Office to allocate resources to manage and use community intelligence in a manner that best matches limited resources with appropriate outcomes.

18. In encouraging members of the community to report suspicions of tax evasion, the Tax Office has a responsibility to effectively and sensitively manage the information it receives from the public. It must also protect the privacy of members of the community who volunteer information, or who are the subject of allegations of tax evasion. To do otherwise would increase the risk of undermining community confidence in the Tax Office and its administration of Australia's taxation system.

19. There are a range of potential consequences and risks associated with the collection, processing, storing and use of sensitive information about businesses and individuals, which may or may not in the end be factually correct. The Tax Office needs to identify and quantify these risks to enable them to be mitigated and managed at an appropriate level within the organisation. More specifically, risks to individual privacy may be posed in the way the Tax Office elicits and retains tax evasion information.

20. TERC has in place processes for assessing community intelligence, but these are not clearly understood by other areas of the Tax Office. Because end-to-end processes are not documented, there is not a full appreciation of this information capability and hence there is no reporting system to readily identify the outcomes of community tip-off activities. In addition, TERC is not provided with appropriate feedback from other areas on how its assessments add value or produce results that satisfy end users.

21. The costs of collecting and managing this information are incurred in many parts of the organisation. For example, telephone calls reporting possible tax evasion are initially documented in CS&S, and then passed to TERC for processing. Following this, business lines may conduct further processing of allegations before a decision is made to conduct a compliance audit.

22. Similarly, the compliance benefits provided by community intelligence are accrued in relation to many different Tax Office products and business areas. The available results of audits that have investigated community tip-offs indicate that the information they provide can be an important and valuable intelligence resource for the Tax Office. However, these organisation-wide costs and benefits have not been quantified, making it difficult for the Tax Office to determine the overall costs and benefits of community information. The Tax Office could make more effective use of this resource by identifying the use of community intelligence across organisational structures and periodically assessing its costs, benefits, risks, processes and outcomes in that context.

23. The ANAO made one recommendation aimed at ensuring the Tax Office adopts a more strategic approach to the management of community intelligence by:

  • assessing the risks to the Tax Office, taxpayers against whom allegations have been made, and informants arising from the community intelligence function;
  • identifying and monitoring appropriate quality standards for the collection and processing of community intelligence; and
  • more closely aligning the management of community intelligence across the organisation so that resources are used efficiently.

Key findings by chapter

Governance arrangements (Chapter 2)

24. The Tax Office has an established framework for governance of its business activities, particularly in relation to products that are managed across business lines. This governance framework incorporates organisational structures (including cross-organisation committees), planning, risk management and performance monitoring.

25. Community intelligence is a function spanning most business lines that have a compliance focus within the Tax Office. It also relies substantially on customer contact services provided through CS&S. The role of community intelligence in the overall compliance framework is small. However community intelligence has a key role to play both in deterring taxpayers from avoiding tax and in strengthening community support for the integrity of the tax system. Conversely, poor management of community intelligence may damage such community support.

26. There is scope for greater alignment between the Tax Office's high-level plans and the operational plans for action by TERC. The Tax Office has substantially modified the role of the TERC unit in recent times by removing its responsibility for the Tax Evasion Hotline. This change has not, however, been followed by an updated statement of responsibility for the unit. As a result, performance targets for individual staff, for TERC, and for the use of community intelligence organisationally, continue to reflect outdated arrangements.

27. This absence of an agreed organisational understanding for the role TERC plays in the compliance framework has made it difficult for the Tax Office to develop plans to utilise community intelligence effectively. Planning for technological and administrative changes in the unit has concentrated on business-as-usual operations, and has not successfully grasped opportunities for refocusing the operational role of the unit or making more strategic use of the intelligence it gathers and manages.

28. TERC data represents a very small proportion of the compliance cases each business line pursues. As a result, the risks presented to the Tax Office by gathering this information do not feature in organisational risk assessments. Taken as a whole, however, the gathering, processing, use and retention of tax evasion information supplied by the community is likely to present risks which are different to the normal operational risks, and which have not been assessed by the organisation.

Receiving community intelligence (Chapter 3)

29. The Tax Office receives up to 60 000 tax evasion tip-offs in a year. Of these, less than half will ultimately be referred to business lines for further action. Collecting sufficient and relevant information at the initial point of tip-off recording is fundamental for the progression and outcome of a tip-off. There is, however, an inherent tension between obtaining sufficient information to pursue an allegation and maintaining the privacy of taxpayers and informants. Consequently, Tax Office Customer Service Representatives (CSRs) need to be able to identify and record the relevant information required for review and investigation purposes.

30. The Tax Office's online tax evasion reporting form encourages informants to provide as much information as possible. This could encourage informants to include allegations of behaviour that is not related to tax evasion. Recording such irrelevant personal information could put the Tax Office in conflict with Information Privacy Principle 1: ‘an organisation must not collect personal information unless the information is necessary for one or more of its functions or activities'. Similarly, without adequate training in what behaviour constitutes tax evasion, CSRs may also elicit and record irrelevant information in conflict with information privacy principles.

31. The Tax Office does not currently delete any information from its Community Information Storage, Communication and Observation (CISCO) database. This means that allegations—including unsubstantiated allegations—against individuals from as far back as 1998 can still be retrieved and referred for investigation. The Privacy Commissioner advises that agencies should not keep personal information which they no longer need and are no longer required to retain.

32. Some methods of receiving an allegation are more likely than others to result in an allegation being referred to compliance areas. Greater efficiency and effectiveness in collecting and using TERC information is likely if TERC assesses the methods of receiving allegations to ensure that across communication channels, the quality of information is uniform as far as possible. Increasing the feedback from business lines would also assist in the updating of scripting, training and other guidance for tip-off line call centre operators.

Processing and referral (Chapter 4)

33. The Tax Office relies on risk-based choices regarding where best to concentrate its efforts and resources. Risk assessment is used throughout the organisation to inform management decisions and to assist in meeting business outcomes. The Tax Office has in place a policy for the effective escalation, documentation and communication of risks and issues.

34. TERC has historically provided a ‘confidence' rating to the information it receives, intended to assist business lines in making decisions about the reliability of the intelligence that is provided to them. Over time, a desire to align more clearly with the Tax Office's risk management approach has led to this rating being referred to as a ‘risk rating'. This implies that the rating assesses the level of risk to revenue or community confidence in the tax system represented in the allegation. The criteria used to determine the TERC rating rely on assessing elements of both confidence and risk, with the result that it often does not reliably rate either element, and may not adequately take into account the priorities of Tax Office business lines. There are also inconsistencies in the application of existing tools used by TERC staff to determine these ratings. TERC does, however, have in place quality assurance measures designed to reduce these inconsistencies.

35. Following the introduction of the CWC system to TERC, between October 2009 and January 2010 TERC had a limited ability to refer the allegations it had processed to other parts of the Tax Office for action. This is because the CWC system was unable to retrieve data about allegations in a form that would allow business lines to make effective use of the information. An interim solution was put in place in January 2010. However, until a permanent solution is implemented the efficiency of the process for referring community intelligence to other areas of the Tax Office remains reduced.

Evaluation of costs and benefits (Chapter 5)

36. TERC calls have not been included in all of the usual quality assurance processes applied in Tax Office call centres. Tracking and monitoring the level of information being recorded by tip-off line operators would help to improve consistency and increase the usefulness of community intelligence in combating tax evasion.

37. The Tax Office also does not have an organisation-wide process for assessing the contribution community intelligence might make in controlling compliance risks. However, feedback from some business lines indicates that community intelligence can lead to improved compliance and substantial returns in additional taxes, penalties and interest. The lack of an ability to report on the outcomes of TERC referrals means that the Tax Office does not have an understanding of the relationship between TERC ratings and compliance audit outcomes. The extent to which community intelligence can contribute to additional taxes and penalties raised, improved voluntary compliance, or community confidence in the integrity of the tax system has not been analysed.

Summary of agency response

38. The Tax Office welcomes the ANAO's recommendation in relation to improving the effectiveness of our community intelligence activities.

39. As noted in the report, community intelligence has a key role to play both in deterring taxpayers from avoiding tax and in strengthening community support for the integrity of the Tax system. The report and recommendation will assist us in our progress toward an efficient and effective community intelligence system.