The objective of the audit was to assess the effectiveness of the Tax Practitioners Board's implementation and administration of the regulatory arrangements for tax practitioners under the Tax Agent Services Act 2009.

Summary

Introduction

1. The self-assessment taxation regime, introduced by the Government between 1986 and 1990, and changes to the tax system have meant that taxpayers are now placing greater reliance on tax practitioners.1 In 1980, only some 20 per cent of individuals used tax practitioners to lodge their tax returns.2 By 2011–12, tax practitioners lodged over 70 per cent of individual income tax returns and over 90 per cent of business tax returns.3

2. On 26 March 2009, recognising the importance of consumer confidence in tax practitioners, the Commonwealth Parliament passed the Tax Agent Services Act 2009 (the TAS Act) to establish a new national regulatory regime for tax practitioners. Prior to 2010, six independent statutory bodies, the state Tax Agents Boards, were responsible for registering and regulating tax agents.

3. The TAS Act established the Tax Practitioners Board as the national independent statutory authority responsible for the general administration of the TAS Act.4 The objectives of the new regime are to provide consumer protection and assurance that practitioners are meeting appropriate standards of competence, and professional and ethical conduct. The regime: applies to a broader range of service providers than in the past; introduced a Code of Professional Conduct (the Code) to govern tax practitioners; provided for the imposition of administrative sanctions; and replaced criminal penalties for certain misconduct by practitioners and unregistered entities with civil penalties and injunctions.

4. In 2009–10, under the previous regulatory regime, there were around 26 000 registered tax agents and 12 000 nominees.5 Registration under the new regime applies to professionals who provide tax agent services for a fee. These are known as tax practitioners, and are differentiated between two types: tax agents, who can provide a full range of services related to an entity’s tax affairs; and Business Activity Statement (BAS) agents6, who can only provide services related to an entity’s BAS. In 2011–12, there were around 52 000 registered tax practitioners, made up of 38 000 tax agents and 14 000 BAS agents. Tax practitioners can encompass a range of occupations and professional groups including accountants, lawyers, solicitors, specific tax specialists, quantity surveyors, and bookkeepers. From 1 July 2013, financial planners who provide tax agent services for a fee will also be subject to the TAS Act.7

Policy development and implementation of the new regime

5. In 2002, the Department of the Treasury (Treasury) became responsible for developing the new regulatory regime’s policy and legislation. The Treasury consulted with tax practitioner professional associations, government departments and taxpayers, and issued four exposure drafts of legislative packages between 2007 and 2009.8

6. In the May 2006 Budget, the Government provided $57.5 million9 to the Australian Taxation Office (ATO) for the implementation of the new ‘Tax Practitioner Legislative Framework’, which was the basis for the TAS Act. The new regulatory regime was given effect by the TAS Act, the Tax Agent Services Regulations 2009 (TAS Regulations), and the Tax Agent Services (Transitional Provisions and Consequential Amendments) Act 2009. The TAS Act received Royal Assent on 26 March 2009, although most sections did not take full effect until 1 March 2010.10

7. Under the TAS Act, the appointed members of the Board are responsible for making decisions that relate to statutory functions.11 These appointed members are supported by a Secretary and administrative staff. For operational purposes, the appointed members are referred to as ‘the Board’ and collectively, the Board and supporting staff are known as the Tax Practitioners Board (TPB).

8. Key statutory functions are to: administer a single national system for the registration of tax practitioners; assess applications for registration; and investigate and impose sanctions for breaches of the Code and other provisions of the TAS Act, where necessary. In addition, the Board may issue binding written guidelines for the interpretation and application of topics such as the Code.12 The Board also works with stakeholders, including the ATO, tax practitioners, professional associations, other industry and government bodies and the public, to promote compliance with the Code, registration requirements and the TAS Act more generally.

9. In November 2009, the inaugural Board, which included 10 part-time members and a full-time chair, began its three-year term. The Assistant Treasurer subsequently extended this term to January 2013. A new Board was appointed in January 2013 for a term of three years and includes eight part‑time members and a part-time chair. Five board members were reappointed.

10. Although the Board has general administration of the TAS Act, for the purposes of the Financial Management and Accountability Act 1997 (FMA Act), the Board is considered to be part of the ATO. The ATO provides general corporate support to the Board and administrative support staff, which totalled 136 in 2011–12. The budget allocation for the operations of the TPB was $16.36 million in 2011–12, and $15.95 million in 2012–13.

11. In 2011–12, the TPB:

  • received 22 366 applications for registration, and finalised 18 786 applications13;
  • received 1293 complaints and referrals against registered and unregistered practitioners; and
  • finalised 725 compliance cases.14

12. For the 2011–12 compliance cases where the Board made a formal determination under the TAS Act, seven registrations were terminated, and three written cautions and one order were issued. In 2011–12, the Board applied to the Federal Court of Australia for a civil penalty order in four cases, with all cases subsequently being concluded in the Board’s favour.15

Audit objective, criteria and scope

13. The objective of the audit was to assess the effectiveness of the Tax Practitioners Board’s implementation and administration of the regulatory arrangements for tax practitioners under the Tax Agent Services Act 2009.

14. The audit examined whether:

  • management and governance arrangements for the TPB are in place and support the effective implementation and administration of the TAS Act;
  • arrangements for tax practitioner registration by the TPB have been established, meet legislative requirements and operate effectively; and
  • the TPB’s regulatory assurance activities are appropriate and effective.

15. The Explanatory Memorandum to the TAS Bill notes that the Government may conduct a post-implementation review of the TAS Act and the TPB during 2013.16 For this reason, the audit excluded matters that are likely to be included in such a review, including the operation of the legislation, and consideration of the appropriateness of the ATO’s administrative support.

Overall conclusion

16. Taxpayers make extensive use of the services offered by tax practitioners. In 2011–12, tax practitioners lodged over 70 per cent of individual income tax returns and over 90 per cent of business tax returns. Accordingly, the effective regulation of tax practitioners is a critical element of Australia’s taxation regime. In 2010, after an extended period of policy and legislative development, the Tax Agent Services Act 2009 (TAS Act) established a new national regime for the regulation of tax practitioners. The new regime applies to all professionals who provide tax agent services for a fee and includes Business Activity Statement (BAS) agents as well as tax service providers. In 2011–12, there were around 52 000 registered tax practitioners. The TAS Act also established the Tax Practitioners Board, an independent statutory authority that is responsible for the new regulatory regime. For operational purposes, the appointed members are known as ‘the Board’ and collectively the Board and its supporting staff are known as the Tax Practitioners Board (TPB). The inaugural Board was constituted in November 2009 and the regulation of tax practitioners under the TAS Act commenced on 1 March 2010.

17. In its first three years of operation the Board has established an appropriate governance framework, introduced an effective national registration system for tax practitioners, and is developing a regulatory assurance function to ensure compliance with the provisions of the TAS Act. The Board initially focussed on clarifying its legislated powers under the TAS Act and establishing key policies for registering and regulating tax practitioners. Nevertheless, intense periods of registration activity17 have tested the TPB’s processes and there have been considerable delays in dealing with applications, prompting concerns being raised by stakeholders.18 In response, the TPB streamlined registration processes and has largely overcome the registration backlog. In a similar vein, the new regulatory assurance arrangements established by the TAS Act, which require the Board to administer a Code of Professional Conduct and civil penalties regime, have taken time to implement. The Board is still refining its approach and processes for some regulatory arrangements.

18. By way of background, upon appointment in November 2009 the Board determined its priorities, noting that it had less than four months to develop policy, procedures and systems to commence registration of tax practitioners on 1 March 2010. The approach taken by the Board in setting its priorities demonstrated an awareness of the key issues it faced in implementing the new regulatory regime. These included bringing new groups of tax practitioners (notably BAS agents) within the regulatory ambit and publishing draft policies on a number of important aspects of the new requirements. By 1 March 2010, the Board had a new national registration system functioning, albeit still requiring further development, and had begun to develop registration policies, established a committee structure and undertaken extensive stakeholder consultation. Notwithstanding these achievements, there would have been benefits in the Board formalising its implementation strategy and monitoring its progress against defined outcomes and timeframes. It would also have assisted the Board to prioritise administrative arrangements and determine timeframes for making the transition from implementation to a business‑as‑usual state.

19. The Board takes an active role in setting the direction for TPB operations and has implemented governance arrangements including business planning, risk management and performance monitoring. These are at various stages of maturity and, in some respects, have taken longer to establish than might be expected. The TPB’s Portfolio Budget Statements key performance indicators (KPIs) are activity measures without any associated performance targets. An important area for attention in the near future is developing appropriate KPIs for measuring the effectiveness of the program in achieving its objective, and reporting achievements against these KPIs and deliverables, including associated service standards.

20. The registration of tax practitioners is a key responsibility of the Board. The standard registration requirements of the TAS Act and transitional arrangements created large workload peaks often outside the control of the TPB. This situation, and the volume of applications received, challenged the registration system capability and the capacity of the TPB to process applications in a timely way. The time taken, and information systems problems, created dissatisfaction among stakeholders. From a peak in August 2010 of 18 000 applications (an existing backlog of about 8000 applications and 10 000 applications being received), the backlog at the beginning of 2013 was less than 2000 applications and continues to diminish with the introduction of streamlined applications processing and improved system capability. Of some concern though, is that the proposed quality assurance framework has not been finalised and implemented, and a number of important draft registration procedures have yet to be finalised and approved.

21. A key objective of the new regulatory regime is to provide assurance that tax practitioners meet appropriate standards of professional and ethical conduct. The Board has civil penalty and injunction options and may apply a range of administrative sanctions for misconduct. In the last three years, the TPB has actioned over 5090 complaints against tax practitioners, including four cases where a civil penalty was imposed by the Federal Court of Australia.

22. In 2011, the Board established a policy framework to guide its regulatory assurance activities, but the constituent documents were developed progressively and many of the principles, objectives, workload estimates and performance measures in the various documents do not align. The Board has adopted a risk-based approach to compliance but current compliance risks do not reflect the TPB’s strategic risks, or those outlined in other compliance documents. There are also a number of areas that still require further development, particularly building a compliance intelligence capability and implementing a formal regulatory quality assurance process. In addition, a number of key regulatory assurance procedures were still in draft form as at January 2013.

23. The ANAO has made three recommendations aimed at improving the TPB’s administrative arrangements and regulatory assurance function. These include: developing and reporting against KPIs and the TPB’s service standards; aligning compliance risks and streamlining the TPB’s compliance framework; and developing an intelligence gathering and analysis capability.

Key findings by chapter

Implementation of the Tax Practitioners Board (Chapter 2)

24. In 2005, the ATO developed a new policy proposal for consideration by government outlining the work required to prepare for the new regime and Board, anticipating that the legislation could be given effect at the end of 2007. In May 2006, the ATO was allocated $57.5 million over four years, for the implementation of the Tax Practitioner Legislative Framework.19 The ATO prepared a number of proposed strategies and procedures for the new Board and an interim website. It also consulted extensively with the previous state boards, but was not able to finalise development of the registration system. The legislative process also took longer than originally anticipated, and the ATO was awaiting the appointment of the new Board for advice of (rather than to anticipate) their preferred administrative arrangements. Consequently, at 30 June 2010, the ATO’s project budget was underspent by $11.1 million in operating expenditure and the $7.2 million budgeted capital expenditure.

25. The TAS Act specified that the new regulatory arrangements for tax practitioners would commence on 1 January 2010, and the Board was established in early November 2009 with the appointment of the Chair and Board members. The commencement date of the new regime was delayed to 1 March 2010, to allow more time for industry to prepare for the new regulatory approach.

26. The Board had less than four months to prepare for the commencement of the new regime on 1 March 2010, and faced a number of challenges. The Board had to finalise organisational arrangements, including information and communication technology (ICT) systems for registration, and develop policies and explanatory material on the provisions of the TAS Act. In early December 2009, the Board set five goals for the TPB’s 2010 operations, covering: registrations; stakeholder communication; ensuring high standards of the tax practitioners’ profession; designing and implementing a compliance regime; and ensuring new groups such as BAS agents were effectively incorporated into the regime.

27. The Board’s approach demonstrated an awareness of the new regulatory arrangements, and was responsive to stakeholder groups. A national registration system began functioning on 1 March 2010, albeit still requiring further development. By the end of 2010, the Board had finalised seven major policies relating to registering and regulating tax practitioners, and also developed policies and released exposure drafts on educational requirements for BAS agents and course approval processes. Elements of implementation planning existed, but there would have been benefits in formalising an implementation strategy and monitoring progress against defined outcomes and timeframes.

28. The TAS Act and Regulations establish the basic framework for the organisation and operation of the TPB. The Board may establish committees, delegate some of its functions and powers, and authorise administrative support staff to assist. In late 2009 and early 2010, the Board established a stakeholder consultative committee, policy committees to provide guidance on developing board policies, and operational committees to make reviewable decisions.

29. Some non-reviewable registration and regulatory assurance powers were delegated to staff during 2010.20 However, staff did not use these powers in the formative year as the Board considered it needed to develop policies and procedures, assess the training needs of staff and clarify the application of those powers under the new legislation.21 This approach had the potential to contribute to delays in processing registration applications, and the TPB received complaints from stakeholders about these delays.22

Management Arrangements Supporting the Tax Practitioners Board (Chapter 3)

30. The TPB has established a governance framework that includes business planning, risk management and performance monitoring. The TPB 2011–13 Strategic Plan sets out strategies and activities for the upcoming year, but would benefit from the better alignment between high-level strategies and activities, and the inclusion of performance measures (performance indicators, service standards and targets) in all key business area plans. The TPB’s Risk Management Policy and Framework was finalised in August 2011, and a six monthly review cycle of the risk register and associated treatment strategies has been instigated.

31. The TPB’s Portfolio Budget Statements KPIs are activity measures without any associated performance targets and do not enable the TPB to determine the extent to which the program objective is being achieved. The TPB’s three service standards for processing registrations, responding to enquiries, and resolving complaints were not reported against publicly until 2011–12, and then only for the registrations service standard. Formal internal reporting on performance occurs through the monthly Secretary’s report to the Board and, since early 2012, monthly reports on the registrations and regulatory assurance functions. However, there has been no formal review of performance against the strategic plan or business area plans.

32. The Memorandum of Understanding between the Board and the ATO states that the ATO will allocate an annual direct cost budget of $13.534 million for each of the financial years 2010–11, 2011–12 and 2012–13 to cover direct employee and supplier costs (including legal costs). The Board can seek agreement from the ATO for an increase if it is unable to deliver its core operations, and the actual allocation to the TPB was revised upwards in 2010–11 to $17.06 million and in 2011–12 to $16.36 million for this reason.

33. The Board has ongoing concerns about its budget and ability to deliver on responsibilities under the TAS Act, but it has not conducted a budget review to determine its existing or future budgetary needs. It was only during the course of this audit that the TPB was made aware that the total amount of capital funding available was $7.2 million. There would be benefits in the Board conducting an internal budget and expenditure review to better understand the costs of its various functions.

34. The TPB’s general ICT infrastructure is provided and managed by the ATO, but the TPB’s website, online registration capability and registration/case management system (iMIS) are supplied by a third party provider. Reviews commissioned by the TPB (and the ANAO’s testing) of its external ICT support arrangements identified the lack of some security, system and business continuity documentation. In November 2012, the TPB finalised a request for tender to deliver a new ICT environment, and advised that its ICT governance framework, and associated policy and procedural documents, will be completed once the new provider was established. Data quality is also problematic for the TPB in terms of analysing registration and regulatory assurance data and for management reporting and decision-making. Data quality will potentially be improved through ongoing system enhancements and the redesign of online application forms for registration.

35. The TPB’s stakeholder engagement strategy includes a stakeholder consultative forum, website and information and guidance material. At the time of the audit, the TPB did not have a client service charter. The inaugural Board advised that, because it needed to give attention to other priorities, this would be for the new Board to progress. Stakeholder feedback received by the ANAO was positive about the TPB’s stakeholder consultation and communication methods. Complaints about the website were addressed by the TPB with the launch of a new version in September 2012. A large range of information is on the TPB website that includes the Board’s position on key aspects of the TAS Act, general guidance, and instructions on how to register as a tax practitioner. Additionally, during the course of this audit a system for the online recording and reporting of complaints against the TPB was established.

Registrations (Chapter 4)

36. The TAS Act requires the Board to register tax practitioners if satisfied that an entity meets certain registration requirements. This includes a fit and proper person test23, and prescribed qualifications and experience requirements. Developing the registrations function was a priority for the Board, and it consulted on and implemented policies for minimum registration criteria (qualifications, membership of recognised professional associations, and eligible experience) for both tax and BAS agents. In particular, the Board has invested considerable effort in determining the educational requirements for these agents. It is also working with the Treasury to prepare policies for the upcoming registration of financial advisors.24

37. The TPB has processes and procedures in place to accept registration applications, and has been developing procedures for staff to follow in each aspect of the registration process. Of 21 procedures covering important functions for processing applications, seven were still in draft form as at 31 January 2013.25

38. Transitional arrangements in the TAS Act allow for different types of applications to be made at particular times. Consequently, there have been substantial peaks in the registrations workload. These included 8280 legacy applications on hand at the time of transition from the state boards, 11 500 ‘triennial’ registrations of those agents registered prior to 1988, and 12 094 BAS agent ‘notifiers’.26 This created challenges in making adequate resources available at peak times, and in planning for future workloads. In February 2012, there was another peak of over 12 000 applications received, but by January 2013 the applications on hand had reduced to around 2000.

39. Stakeholders expressed concerns about delays in processing, both to the TPB and during ANAO consultations. These concerns related to the design and efficiency of the registration process, as well as the need for better communication from the TPB about the causes of delays and the status of practitioners’ applications. The Board acknowledged these delays and introduced changes to the registration process such as improved online forms and particularly from the beginning of 2012, streamlined processing. These initiatives were successful in reducing the time taken to process an application and the number of applications on hand.

40. Service standards for processing registration applications are: process complete and accurate new applications and notify applicants within one month; and process complete renewal applications and notify applicants within three months. In 2011–12, 51.4 per cent of new applications were finalised within 30 days, and 58.3 per cent of renewals within 90 days.27 The TPB has a goal to improve this performance to 80 per cent of valid new applications processed within 30 days by 1 March 2013. The TPB advised that as at January 2013, 73 per cent of valid new applications were being processed within 30 days.

41. The TPB has a draft quality assurance framework for the registration function, and in January to March 2012 conducted a review using the process.28 The TPB advised that, as at January 2013, no other quality assurance reviews have been undertaken as neither time nor resources were available. As resourcing is a limiting factor to the conduct of quality assurance reviews, the TPB could consider these reviews at six monthly intervals rather than every two months as currently proposed.

42. The ANAO examined 306 records for registration in the iMIS system.29 Results of this testing confirmed there are issues with the quality and consistency of data. For example, documentation from applicants in support of claims for eligibility (such as educational qualifications or proof of voting membership of a professional association) was inconsistently labelled, attached in emails which were not logically titled, stored in different locations within the record, or not attached.

Developing the Regulatory Assurance Function (Chapter 5)

43. A key objective of the new regime is to provide assurance that tax practitioners meet appropriate standards of professional and ethical conduct. The new principles-based statutory Code and other provisions of the TAS Act establish the standards tax practitioners are to meet. The inaugural Board advised the ANAO that the regulatory assurance function is still being refined and key elements developed.

44. In the period to June 2011, the Board worked with industry to develop policies relating to the new regulatory regime, including publishing detailed information on the application of the Code to tax practitioners. The Board also began to provide training and disseminate compliance framework documents for Regulatory Assurance staff. In December 2011, an internal audit requested by the Board concluded that the regulatory assurance function was not working well as staff were unfamiliar with the new legislation and needed skills development, a compliance framework and consistent procedural documents.

45. In response, the TPB progressively developed additional compliance framework documents (the Compliance Model, Compliance Strategy and Compliance Roadmap) to provide the policy framework for compliance activities, including a Risk Assessment Guide (that provides instruction on allocating a low, medium or high risk rating to complaints received). Many of the objectives, risks, activities and service standards do not align between the framework documents, or the Regulatory Assurance Business Plan. Additionally, the risks identified in the Risk Assessment Guide do not align with the relevant compliance risks in the TPB’s corporate-level risk register. There would be benefit in simplifying and better coordinating these documents.

46. In March 2012, an internal audit found that procedural documentation was in place for all key regulatory assurance activities but that none of the procedures had been reviewed and approved by the Board. In late 2012, key procedural documents were approved for activities such as conducting initial complaints assessment, preliminary enquiries, and procedures for referring cases to the Board Conduct Committee. However, as at 31 January 2013, important procedures for conducting investigations still had not been finalised and approved.

47. The TPB receives complaints against registered and unregistered tax practitioners from members of the public and registered tax practitioners, and referrals from other entities. The TPB actions all complaints, and there were in excess of 5090 complaints against tax practitioners and other work items actioned by the TPB between March 2010 and January 2013. In:

  • 2011–12, there were 1293 complaints received, resulting in 781 cases being created, and 725 cases finalised; and
  • 2012–13 (up to January 2013), there were 1356 complaints received, resulting in 997 cases being created and 825 cases finalised.

48. Prior to 2012–13, externally generated complaints formed the majority (93 per cent) of compliance cases that were conducted. In 2012–13, the TPB began generating more cases using its own internal processes, with 30 per cent of cases coming from internal sources. Many of these cases have been generated from the targeted compliance initiatives that align with three major areas of risk in its Compliance Strategy: civil penalties; professional indemnity insurance; and agent’s personal tax obligations.

49. The TPB’s targeted compliance initiatives are seen as an important aspect of developing its compliance intelligence capability. The development of external data sources and analysing the results of compliance activities and recent initiatives will be important early steps in this process.

50. The TPB has process controls for the individual phases of compliance cases, but no quality assurance framework. Three case management ICT systems have been progressively used, the current being iMIS. The ANAO examined a sample of 296 (22 per cent) of finalised preliminary enquiry cases.30 There are significant difficulties in saving documents in iMIS, and consequently documents have been stored on a combination of paper files, in legacy case systems, in iMIS and in TPB computer share drives. The ANAO found that 15 per cent of cases did not have a completed profiling document, 19 per cent of cases did not have a completed risk assessment, and 14 per cent of cases did not have a finalisation submission. The ANAO’s assessment of finalisation letters to complainants and tax practitioners found that case outcomes were clearly communicated in only 58 per cent of cases. The TPB reviewed its finalisation letters following feedback from the Commonwealth Ombudsman in 2011–12, and improved letters have been in use since August 2012.

51. The ANAO also examined the 33 investigations conducted between March 2010 and August 2012. Of these, two cases did not have a case finalisation submission, and six cases did not record the Board Conduct Committee’s decision regarding the case. Record keeping for regulatory assurance cases has improved over time, particularly in 2012, mirroring improvements to the ICT environment and staff training. The TPB has advised that a document storage solution will be part of the new ICT environment being delivered in 2013.

Summary of responses to the proposed report

52. The TPB and the ATO provided the following summary responses.

Tax Practitioners Board

53. The TPB provided the following summary response, with the formal response at Appendix 1:

The Tax Practitioners Board (TPB) welcomes this, its inaugural ANAO review and considers the report generally supportive of the effectiveness of the TPB’s implementation and administration to date of the regulatory arrangements for tax practitioners under the Tax Agent Services Act 2009.

The TPB also appreciates the recognition by the ANAO of the evolving nature of the TPB as a government regulatory authority.

Since commencement on 1 March 2010, the TPB has established a national regulatory framework and registration system and achieved a strong awareness in the tax profession of the new regime.

The TPB agrees with the three recommendations contained in the review.

The TPB recognises that the TPB’s Portfolio Budget Statements key performance indicators are currently without associated performance targets and hence do not readily enable the measurement of effectiveness of its programs. The TPB has begun to address this matter and expects to include performance targets in the TPB’s Portfolio Budget Statements for the 2013/14 financial year.

It is acknowledged that the TPB’s current compliance framework documents need revision with a view to consolidating and streamlining content contained therein. The TPB expects these documents will be reviewed in May 2013 and updated in readiness for the commencement of the 2013/14 financial year.

The TPB also recognises that to improve the TPB’s regulatory assurance capability, a compliance intelligence capability which collects external data and analyses results of compliance activities undertaken would benefit planning for future activities. In the last 12 months the TPB has redeveloped its compliance system to better capture the outcomes of compliance cases and also commenced gathering relevant external data. The TPB expects its compliance intelligence capability to be fully functional in the 2013/14 financial year.

The TPB is committed to continuous improvement and recognises the review highlights several opportunities to strengthen and further improve the management of the program and enhance our decision making processes.

Australian Taxation Office

54. The ATO provided the following summary response, with the formal response at Appendix 1:

We note the three recommendations directed to the Tax Practitioners Board.

55. The ANAO also provided all or part of the proposed report to other parties whom it was determined had a special interest in the report. Comments received from these parties are also required to be included in full in the report and are set out in Appendix 2. The comments of these parties cover a wide range of issues and perspectives and were considered by the ANAO in finalising this audit report.

Recommendations

Recommendation
No. 1

Para 3.66

To better measure and report the performance of the Tax Practitioners Board (TPB), the ANAO recommends that the TPB:

  • (a) develops key performance indicators (KPIs) for the Portfolio Budget Statements that allow for the assessment of the TPB objective; and
  • (b) reports performance against KPIs and service standards through reports to the Board as well as externally through the Annual Report.

TPB response: Agreed ATO response: Noted

Recommendation
No. 2

Para 5.59

To provide a consistent compliance framework, the ANAO recommends that the Tax Practitioners Board:

  • (a) aligns compliance risks outlined in the compliance framework documents with those in the corporate risk register; and
  • (b) reviews compliance framework documents with a view to consolidating and streamlining their content.

TPB response: Agreed ATO response: Noted

Recommendation
No. 3

Para 5.64

To improve the regulatory assurance function of the Tax Practitioners Board (TPB), the ANAO recommends that the TPB:

  • (a) develops a compliance intelligence capability that considers information collected from appropriate external data sources; and
  • (b) analyses the results of compliance activities and initiatives, and incorporates this analysis into the planning of future compliance activities.

TPB response: Agreed ATO response: Noted

Footnotes

[1] M D’Ascenzo, Second Commissioner of Taxation, Relationships between Tax Administrations and Tax Agents/Taxpayers (speech), November 2005, <http://www.ato.gov.au/corporate/content.aspx?doc=/content/66215.htm> [Accessed 26 February 2013].

[2] Explanatory Memorandum, Tax Agent Services Bill 2008, p. 124.

[3] Australian Taxation Office, Compliance Program 2012–13, ATO, Canberra, 2012, p. 12.

[4] In accordance with s1–15 of the TAS Act.

[5] A registered agent could nominate a partner or employee to sign income tax returns and provide supervision to staff on the tax agent’s behalf.

[6] Business Activity Statements are used by businesses to report various tax obligations and entitlements to the Australian Taxation Office, and by individuals who are required to pay quarterly ‘pay as you go’ instalments.

[7] The Hon. Bill Shorten MP, Assistant Treasurer and Minister for Financial Services & Superannuation, Media Release No. 49, Future Regulation of Financial Planners Providing Tax Advice, 7 April 2011.

[8] Explanatory Memorandum, Tax Agent Services Bill 2008, p. 140 and <http://archive.treasury.gov.au/content/ consultations.asp?ContentID=1013&titl=Reviews,Inquiries%26Consultations> [Accessed 28 September 2012].

[9] Funding was over four years, and commenced in 2006–07.

[10] Only the provisions relating to the establishment of the Board commenced on the day on which the Bill received Royal Assent.

[11] The TAS Act provides the framework for the Board’s formal decision-making processes. The Board has some power to delegate its powers and functions but there are limitations in what can be delegated and to whom.

[12] These guidelines become legislative instruments once tabled in both houses of the Australian Parliament.

[13] 18 037 applications were approved, 88 applications were rejected, and 661 applications were withdrawn by the applicants.

[14] A compliance case may involve more than one complaint, and may be started or finalised in the year(s) after it was received.

[15] The four cases were each for operating as an unregistered tax practitioner.

[16] Explanatory Memorandum, Tax Agent Services Bill 2008, pp. 97 and 143.

[17] Transitional arrangements in the Tax Agent Services (Transitional Provisions and Consequential Amendments) Act 2009 provided for the registration of eligible previously registered practitioners, and for the registration of those not previously required to be registered. This created deadlines by which different application types were due.

[18] The TPB did not record or report its registration processing times for the first two years of operations, but advised stakeholders via its website that it could take up to six months to process a new application. Applications for a renewal of registration could take longer, but these practitioners remained registered until their application was processed. In 2011–12, when the TPB began to record processing times, only 51.4 per cent of new applications were processed within the 30 day service standard.

[19] This funding was for preparing the ATO’s administration for the start of the new regime, as well as for preparing systems and administrative processes for the new Board.

[20] Delegated powers included approving applications for registration in specific circumstances, and finalising low risk compliance cases.

[21] In March 2010, the Board delegated some non-reviewable compliance powers and functions to the Secretary and staff but decided that staff would not exercise these delegated powers pending legal advice from the Australian Government Solicitor on the operation of the TAS Act. Also in March 2010, the Board delegated non-reviewable registration powers to the Secretary, and in June 2010 the Secretary authorised TPB staff to act in his name, subject to Board approval. TPB staff first exercised these powers in January 2011 for tax agent applications that met all requirements for registration, with different types of applications or renewals being progressively exercised from this date.

[22] As the TPB did not record or report its registration processing times, or the decision-maker, for the first two years of operations, it was not possible to determine the reasons for the delays in registration processing. The TPB advised stakeholders via its website that it could take up to six months to process a new application.

[23] Part 2 Division 20 of the TAS Act (ss 20–15 and 20–45), specifies that the individual must be of good fame, integrity and character, and not have been convicted of a serious taxation offence during the previous five years or is not under a sentence of imprisonment for a serious taxation offence.

[24] The TPB is planning for the regulation from 1 July 2013 of financial advisers who provide tax advice, with transitional registration arrangements including an extended notification phase, to manage anticipated workload increases.

[25] Procedures still unapproved included those for new tax agent applications (both for individuals and partnerships/companies).

[26] Eligible BAS service providers were taken to be registered under the TAS Act if they notified the TPB by 31 August 2010.

[27] A practitioner applying to renew their registration remains registered until the TPB determines their application.

[28] Of the 41 cases tested: three did not properly document all actions taken; five had errors in recording practitioner details and the outcomes of cases; and in 11 cases there was a failure to contact the practitioner in a timely manner.

[29] The applications spanned the date range 30 November 2009 to 24 October 2012.

[30] A preliminary enquiry gathers information and evidence to determine whether a complaint warrants an investigation. Cases tested spanned the period 1 March 2010 to 15 October 2012 and were selected to represent all three case management systems.