Part 3: Operation of the Industry Partnership programme

3.1
In this Part, we outline:

• how the programme operated;
• our expectations of effective programme operation; and
• our findings.

How the Industry Partnership programme operated

3.2
The programme involved IRD building relationships with selected industries by understanding and consulting with the industry, identifying any barriers to tax compliance for the industry, and educating the industry where necessary.

3.3
A critical component of the programme was encouraging and supporting industries to voluntarily meet their tax obligations. This is known as a voluntary compliance approach. At the same time, IRD wanted to ensure that people who voluntarily met their tax obligations were not commercially disadvantaged for doing so.

3.4
As well as helping people to comply, the programme was intended to include targeted tax enforcement action based on improved intelligence about, and case selection of, taxpayers.

Operating policies and procedures

3.5
IRD staff working in field teams generally carried out their existing roles and functions, but in relation only to clients covered by the programme. This work was supported by established processes and procedures for the audit, return and debt collection, child support and services functions, tax education material, job descriptions for the different functional roles, and staff training material.

3.6
Specific programme work processes were limited. They included a guide for referring taxpayer cases to other functional staff, and a checksheet for staff making programme-related visits. At least one regional office (the South Island office) developed its own guidelines for field teams.

3.7
Differences in how the programme operated were reflected in the structure of field teams, the allocation of portfolios, and the mix and emphasis of activities carried out. In one team, for example, programme staff acted as account managers, dealing with the full range of tax matters associated with IRD clients. Other field teams were less integrated, and staff continued to carry out their separate functions in relation to Industry Partnership clients.

Relationships and information

3.8
IRD used its design and communications capability to enhance industry members’ understanding of their tax obligations. Material published and used to support the relationship and promotional work of Industry Partnership teams included:

• simplified tax brochures and booklets;
• tax material tailored to the needs of specific industry groups;
• templates for use at specific events and for specific initiatives;
• explanatory material in electronic format for publication on the websites of industry groups; and
• articles for publication in industry newsletters or reports or on industry websites.

3.9
The programme gave industry members direct access to a range of IRD services to help meet the needs of small- and medium-sized businesses, covering overdue returns and taxes, audits, child support, family assistance, student loans, and employer obligations.

3.10
Industry relationships also provided an important channel for communicating information about other services delivered by IRD, increasing awareness of a variety of business and personal tax matters faced by industry members (such as meeting child support obligations), and understanding the implications of the Government’s Kiwisaver scheme.

3.11
IRD set up a dedicated free telephone number, 0800 TAXTALK, for industry members seeking advice on tax matters. This service was seen as useful, with field team staff providing industry members with direct assistance related to their tax affairs. Call volumes varied according to the different initiatives being run, and varied over time, as shown in Figure 4. The total number of calls to the 0800 telephone number was relatively low.

Planning and reporting

3.12
IRD produced a variety of strategic and operational planning documents for the programme. These included:

• a project initiation paper that defined key milestones up to September 2004;
• return and debt collection, services, and child support plans (2003);
• a Tactical and Operational Plan for Audit Field Delivery (2003);
• an Industry Partnership Project Communications Strategy and Plan (2003);
• an Industry Partnership Business Plan (2004/05); and
• an Industry Partnership Operational Plan (2005/06).

Figure 4
Call volumes to the 0800 number for industry partners, 2002 to 2005

Source: Inland Revenue Department.

3.13
Each field team was expected to spend a specified number of hours on programme work. Hours coded for different types of activity carried out by the teams were tracked. This enabled staff to report on time spent on programme-related activity, and on numbers of advisory initiatives taken.

3.14
Investigations and audit staff in field teams were expected to achieve revenue targets consistent with IRD’s goal of bringing about higher compliance in the selected industry groups. An internal benchmark rate of return was set at $365 for each hour for audits of industries covered by the programme. IRD recognised that cases associated with the programme were likely to result in a lower return on investment than that prescribed by IRD’s standard output measures. This was reflected in the $365 hourly return rate target (the hourly return rate target for IRD’s other audit work is $600).

3.15
End-of-month field team reports provided information about a variety of activities and their impact, including evidence of positive outcomes and evidence of successful models. These reports were typically free-format descriptive reports.

3.16
The results of programme investigations and audits from the field teams were collated monthly in national reports. This data was analysed to show trends in compliance for different industry groups, which was able to be fed back to industry representatives as appropriate.

3.17
The format of reporting changed during the life of the programme, moving from a template aligned with IRD’s standard reporting framework to a stronger focus on analysis that was tailored to the specific nature of the programme.

Our expectations

3.18
We expected the programme to:

• have policies and procedures to guide staff;
• have effective relationships with industry partners;
• produce effective information for industry partners;
• have sufficient capacity, including resources; and
• have effective planning and performance management systems.

3.19
With responsibility for maintenance of the Industry Partnership approach passing to the Customer Insight Group, we expected that:

• lessons about the operation of the programme, and the gains made in understanding the benefits of different relationship methodologies and communication models in promoting compliance, would be appropriately captured and accessible; and
• policies and procedures would be in place to ensure a continued focus on the cash economy within the work of the Customer Insight Group.

Summary of our findings

3.20
The multi-functional field teams provided a single point of contact for Industry Partnership clients, and enabled staff to readily select from a range of knowledge and compliance approaches.

3.21
Loose performance management arrangements for staff and the absence of standardised processes or guidance gave field teams the flexibility to try fresh approaches to compliance.

3.22
Staffing arrangements for the programme created dual accountabilities for seconded staff and their managers.

3.23
The programme lacked a single, cohesive planning framework to ensure consistent implementation and focus.

3.24
Aspects of the programme were being implemented in the Customer Insight Group – the operational role definitions, information requirements, reporting templates, support services, performance measures, and working relationships needed for an effective transition to the Customer Insight Group were not fully in place at the time of our audit.

Policies and procedures

3.25
We expected Industry Partnership operations to be governed by policies and procedures to promote the most effective use of resources and targeting of effort, coverage of the selected industries, and to facilitate consistent meaningful analysis of results. We considered IRD’s objective of giving field teams the operational autonomy necessary to test and evaluate a range of service delivery options.

3.26
We concluded that the absence of standardised policies and procedures gave field teams flexibility to try fresh approaches to compliance. However, it also led to a fragmented approach to best practice.

Planning and reporting

3.27
IRD produced a variety of plans as the programme evolved. However, the programme overall lacked a single, cohesive planning framework to ensure consistent implementation and focus. This contributed to the lack of consistency – particularly in the early stages of programme implementation – in the approach to testing new initiatives, and the capacity of the programme to identify and reach businesses not registered with IRD and outside industry associations.

3.28
Disjointed planning also reflected the evolution of the programme and IRD’s deliberate “test bed” approach. In an assessment of lessons learned from delivering the programme, IRD noted that field teams needed clear, step-by-step instructions and ongoing guidance. IRD has recognised that the programme suffered from a lack of the strategic and operational planning and direction necessary to promote standardisation of processes, so we have not made any recommendations about planning.

Relationships and information

3.29
Industry groups responded positively to IRD’s relationship-based approach, and were receptive to the use of explanatory material for their members about meeting tax obligations. Most communications attention was given to those industry groups with which IRD had formed relationships, and IRD recognised that more effort was needed to reach taxpayers not affiliated to an industry association.

3.30
The feedback we received about IRD’s explanatory material was positive from both staff and the industry representatives we interviewed. Industry bodies were receptive to using IRD-designed communications products.

Capacity

3.31
The varied tax backgrounds of the programme’s field teams provided a single point of contact for Industry Partnership clients, and enabled staff to readily select from a range of knowledge and compliance approaches. This was a fresh approach to organising work in IRD, and had various operational benefits for the programme. These included:

• the ability to offer a variety of tax-related services to individual taxpayers and industry groups, through a single point of contact, and to address a wide range of tax issues;
• a means for IRD to follow a logical and systematic sequence of interventions with its clients, and to use various tools to encourage compliance, from education and assistance (seen as the preferred initial approach to dealing with outstanding tax issues) to more enforcement-focused actions; and
• the ability to draw on a variety of perspectives and contributions from staff with different business knowledge from different functional groups within IRD, and therefore to readily refer tax cases across the team.

3.32
The IRD staff we spoke with were positive about the benefits of learning about other tax types and functions, bringing together different strengths and perspectives from across the organisation. Co-location of team members with different tax backgrounds was seen as promoting joint working, effective communication, and ease of referring tax cases to other functional staff for further action. Staff also told us that their experience with programme work exposed them to a fresh way of working with taxpayers, which they were able to take with them when their secondment ended.

3.33
In our view, national office leadership and direction was a valuable component of the programme, providing important focus and direction.

3.34
The ability of the programme to achieve the objective of bringing industry members into the tax system relied on IRD having the capacity to access third-party or anonymous information, voluntary disclosures, and other information leading to the identification of businesses not paying tax. IRD anticipated that this information was most likely to come from people within industry, the community, and business intelligence. IRD noted that only limited information was available or passed to its programme staff from those sources. IRD has told us that it now has a more formal process, agreed with the Privacy Commissioner, for using third-party data.

Resourcing

3.35
The staffing arrangements for the programme created dual accountabilities for seconded staff and their managers. These continued when the programme became a mainstream activity.

3.36
Staff told us about the tension this arrangement created in some circumstances, with programme expenditure at a field level being effectively controlled by the much larger Service Delivery Group, unclear accountabilities for the results of the programme, and difficulties in measuring staff performance.

3.37
A few staff assigned to the programme, mostly in the national office, remained on secondment for the entire duration of the programme. With no defined timeframe for the programme, this temporary staffing arrangement created ongoing uncertainty. The necessary Industry Partnership-specific performance management arrangements, training, support structures, established procedures and processes, and operational tools were not put in place as the programme was extended.

3.38
IRD has identified that the secondment arrangements created some instability, because staff may have come and gone from the project more frequently than if they were permanently appointed. We were also told by staff that some secondees were not replaced after they returned to their original roles. This increased the workload for the remaining team members.

3.39
IRD has noted the instability resulting from its practice of filling programme posts with staff on secondment. In addition, IRD has told us that, after its experience with long-term secondments to the programme, ”the Department has since developed a secondment policy which clearly addresses the length of time that people are able to be on a secondment”.

Performance management systems

3.40
The need for a degree of standardisation in staffing arrangements was recognised in a draft strategic direction programme document for 2006 to 2009. This noted the priority of defining and reviewing job descriptions for staff carrying out programme work.

3.41
There was regular reporting by field teams on their activities to the national office team, enabling analysis and evaluation of results at a national level. These results showed variations in the mix of activities and in the effect on compliance across regions.

3.42
The programme focused on assistance rather than more easily measurable activities such as audit and investigation. This, and the different types of activities carried out locally by the individual field teams, made the results difficult to quantify.

Transition to the Customer Insight Group

Planning

3.43
A paper prepared by IRD in February 2007 made recommendations for completing the transition process from the programme to the Customer Insight Group. The paper included the following matters for action:

• sharing the lessons learned with all business units for informing future cash economy activities;
• providing industry knowledge and intelligence to identify future activities;
• enhancing the industry profiles; and
• capturing, documenting, and making knowledge available to all IRD staff about programme learning and initiatives in readily understandable and accessible forms.

3.44
The paper identified the main transitional risks as:

• the loss of Industry Partnership focus and lessons learned, and organisational knowledge; and
• a failure to honour commitments made to industries.

3.45
The operational role definitions, information requirements, reporting templates, support services, performance measures, and working relationships needed for an effective transition to the Customer Insight Group were not fully in place at the time of our audit.

3.46
Some staff told us this had led to an uncertain direction, fragmented working relationships, the absence of a structure for activity reporting, and unclear role definitions. Some also expressed concern about a lack of ongoing access to design and communications resources, outside the Customer Insight Group, to effectively support continuing relationship activities with industry partners.

Tools, resources, and guidance

3.47
In our view, Customer Insight staff assigned to work with the partner industries and target the hidden economy would benefit if the lessons learned from the programme were captured, analysed, and documented. IRD advised us that the lessons were shared through weekly conversations between field Team Leaders and national office staff.

3.48
It was not clear to what extent relationships with industry bodies were being actively maintained at national, regional, and local levels in the new structure. There remains a need to support IRD staff with appropriate communications material tailored to the needs of industry groups and their members.

3.49
Industry profiles were an important and well-used source of information for Industry Partnership staff and a tool for analysing taxpayer behaviour. They could be updated to meet the purposes of Customer Insight staff.

The Community Compliance Advisor role

3.50
The role of the CCA reflects the recognition by IRD of the importance of addressing the hidden economy. It provides IRD with a significant opportunity to increase compliance, and broaden the taxpayer base. This role was explained in paragraph 1.21. The role needs to be defined and supported by national training, appropriate decision-making authorities, a clear mandate, impact evaluation criteria, and operating procedures. Work was continuing to define the framework and context for this role at the time of our audit.

3.51
The necessary planning framework was not in place for the systematic transfer of information and intelligence from field teams to CCAs. This is important to provide continuity and record best practice for staff working in the new structure.

3.52
IRD has recognised, in its planning for the Customer Insight Group, the uncertainties and lack of necessary support associated with the ongoing secondment arrangements for staff to carry out CCA roles. IRD’s customer relations business plan identifies a programme to deliver the required training (including new skills sets, and an induction package).