New Zealand Customs Service: Managing Trade Assurance capability risks

Introduction

1.1
In 2011, we carried out a performance audit to assess how effectively the New Zealand Customs Service (Customs) plans and supports its revenue assurance work. We found that:

• Customs had most of the planning and supporting systems and structures it needed to effectively provide revenue assurance;
• Customs risked losing staff capability in its Trade Assurance business unit; and
• Customs did not have sufficiently clear, consistent, and up-to-date written guidance to help Trade Assurance staff carry out their audit work.

1.2
Customs collects about 15% of the Government’s total revenue. In 2012/13, this was about $11.2 billion. Customs’ approach to collecting revenue is based on voluntary compliance, relying on traders correctly declaring the amount that they owe in goods and services tax on imports, customs duty on imported goods, and excise duty on alcohol, tobacco, and petroleum products made in New Zealand.

1.3
Trade Assurance is responsible for providing assurance that traders comply with requirements. Each year, Trade Assurance carries out thousands of audits to check whether traders have correctly declared how much they owe.

1.4
In July 2013, we began work to see what progress Customs had made with our 2011 recommendations about staff capability and written guidance. Our 2011 audit focused on Trade Assurance’s revenue assurance activities. We did not examine the activities of other Customs business units as part of our follow-up work.

1.5
In our view, Customs has produced clear and consistent manuals to support Trade Assurance’s auditing work. However, although Customs has undertaken capability-related reviews and prepared other relevant documents, it has made limited progress with risk mitigation initiatives.

1.6
Since our audit, Customs has carried out capability-related reviews and prepared other documents relevant to Trade Assurance’s capability but this work has resulted in limited action. Trade Assurance has also moved to a more intelligence-led, risk-based approach to audits through its Trade Assurance Strategy and Work Programme 2012/13 (the new model). Customs told us that its new approach means that Trade Assurance can operate with fewer staff .

1.7
It is too soon to tell whether these changes have mitigated capability risks and Trade Assurance’s capability can effectively support the new model. The work involved in each audit under the new operating model has increased in complexity and there has been a reduction in staffing levels (reportedly enabled by the new operating model).

1.8
In our view, Trade Assurance’s capability risks concerning the age of its staff and the time it takes to train new staff are still significant.

Support materials for staff

1.9
In our view, Customs now has a wider range of better quality written guidance for Trade Assurance staff . After we published our 2011 report, Customs began a project to create audit user manuals (the manuals) for Trade Assurance staff . The manuals are designed to support Trade Assurance staff in completing and reporting on audit activity.

1.10
The manuals project started in 2011 and was completed in 2013, when Customs released the manuals to staff in hard copy and online formats. The manuals took two years to produce because they were written by one part-time person and because of the detailed nature of creating the manuals.

1.11
Customs took a thorough approach in creating the manuals. The manuals were written by a retired former senior Trade Assurance staff member with significant audit experience. Senior staff peer reviewed the work. Customs also held a round of consultation with staff who are regarded internally as subject-matter experts.

1.12
In our view, the manuals are clear and consistent. They identify the information that Trade Assurance staff need to collect and understand during an audit, as well as the steps needed to carry out the audit. They cover the full range of Trade Assurance compliance activity.

1.13
Customs has two ways to update the manuals. Urgent changes can be made immediately by a restricted number of staff with administration rights. More routine amendments or updates can be incorporated during an annual review.

Trade Assurance’s staff capability risks

1.14
Trade Assurance’s work is complex. It takes at least four to five years for staff to become fully competent in carrying out the work. Developing and retaining people with high-level skills is critical to the unit’s success. We recognised this as a capability risk for Customs in our 2011 report.

1.15
At the time of our 2011 audit, the risk was compounded by the number of experienced staff who had recently retired or were approaching retirement age. The skills held by these long-serving Trade Assurance staff would be lost once these staff moved on.

Trade Assurance’s capability risks are still significant

1.16
Trade Assurance still faces significant capability risks. Trade Assurance has lost a number of long-serving experienced staff since our 2011 audit. Trade Assurance still has an ageing workforce. Figure 1 shows that almost 30% of Trade Assurance staff have worked for Customs for more than 30 years, and another nearly 30% for 10-15 years. Many of these very experienced staff are approaching retirement age. More than a third of Trade Assurance’s workforce is aged 55 years and over.

Figure 1
Percentage of Trade Assurance staff by length of service, 2012 and 2013

Source: Customs.

1.17
This means that Trade Assurance will continue to lose people with extensive experience of the business. Also, the time it takes for Trade Assurance staff to become fully competent has not changed. This is similar to the situation we found in 2011, when Customs had an ageing workforce and work that requires many years to master.

The context for assessing Customs’ progress in managing Trade Assurance’s capability risks

1.18
It is important to consider Customs’ progress with our recommendations against the background of the public sector environment since our 2011 audit. Customs told us that in line with other public sector agencies, and because of the fiscal environment, it has been looking for efficiencies.

1.19
The Trade Assurance Strategy and Work Programme noted that a Trade Assurance Succession Plan was designed to overcome concerns expressed by our Office that Customs needed to recognise and address a “pending capability problem”.

1.20
We looked at the implementation of initiatives identified in this Succession Plan and the difference that this has made. The Succession Plan initiatives were discussed in a Trade Assurance Review carried out in 2012. Although this review was superseded by Project Compass (an organisation-wide change programme), we also looked at the implementation of relevant recommendations from this review. Customs’ progress in managing Trade Assurance’s capability risks.

1.21
Building capability takes time, and it needs a robust plan and targeted action. Since our July 2011 report, Customs has carried out capability-related reviews and prepared other relevant documents (the reviews). Figure 2 outlines the reviews.

Figure 2
Customs’ initiatives relating to Trade Assurance capability since September 2011

1.22
Some of the reviews were organisation-wide and some were restricted to Trade Assurance. Although each review was different, most restated the risks that Trade Assurance faces from capability loss and proposed similar actions to address those risks. To date, each review has been followed by only limited action regarding Trade Assurance’s capability risks.

1.23
The appendix shows the initiatives that Customs identified in 2011 and 2012 (through the Succession Plan and Trade Assurance Review) to address Trade Assurance’s capability risks and the progress that Customs has made with each initiative. Overall, limited progress has been made against these initiatives. The effectiveness of this progress, especially in ensuring that Trade Assurance has the capability needed to deliver Trade Assurance’s new operating model, will only become apparent with time.

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