Part 1: Introduction

Background

1.1
The Inland Revenue Department (IRD) provides a range of services that enable taxpayers to comply with tax law, and undertakes enforcement action to encourage taxpayers to comply. One of these activities is to audit taxpayers. This function is carried out by a group of staff known as taxpayer audit. In 2006-07, the IRD expects to assess $828 million of additional tax as a result of audits conducted across all taxpayer groups. The IRD has a budget of $124 million to spend on taxpayer audit in 2006-07. This is 23% of the IRD’s total appropriation for the year.

The scope of our follow-up audit

1.2
In 2006 we assessed the progress made since our 2003 audit, by examining whether the IRD had implemented the recommendations made in our report.

1.3
During our audit, we briefly reviewed the project documents for the new taxpayer audit methodology that the IRD has devised. However, our follow-up audit did not include a complete examination of these new arrangements.

1.4
We previously recommended that the IRD identify its requirements for case management of taxpayer audit, purchase or create tools to improve the timeliness of taxpayer audits, and actively monitor the progress made on each audit. The IRD is currently working on an organisation-wide solution to manage taxpayer cases across all internal departments. Our audit of case management was limited to a review of the processes used to identify the initial requirements and to purchase the relevant tools.

How we conducted our follow-up audit

1.5
In conducting our 2006 follow-up audit, we reviewed a number of documents relating to the changes made by the IRD, including a small number of taxpayer audit files.

1.6
We spoke to IRD Investigators and Compliance Risk Analysts at offices in Manukau, Takapuna, and Christchurch. We spoke to a number of managers in those offices and in Wellington, including team leaders, area managers, and managers with portfolio responsibility for particular topics, such as tax evasion.