Auditor-General's overview

Inland Revenue Department: Governance of the Business Transformation programme.

Effective tax collection is crucial to New Zealanders. The work of the Inland Revenue Department (Inland Revenue) is important to the Government being able to provide the wide range of support that New Zealanders receive and expect. This support includes providing services such as health, education, and law and order and infrastructure such as hospitals, prisons, and roads. If Inland Revenue did not collect taxes effectively, the Government would be unable to provide these services and infrastructure.

Inland Revenue works with individual and institutional taxpayers, who collectively pay more than $50 billion tax a year.

The systems and processes that Inland Revenue uses to collect tax and to implement government initiatives, such as KiwiSaver, were introduced in the early 1990s and are complex and expensive to maintain. They need updating. To maintain and upgrade the current systems would be difficult and expensive.

In response to this, Inland Revenue has begun a significant Business Transformation programme (the programme) to build a "modern revenue system". Inland Revenue hopes that a modern revenue system will make it easier for taxpayers to pay their tax.

Inland Revenue also wants the modern revenue system to cost less to look after, to use more reliable information technology, and to be able to accommodate government policy changes in a timely and cost-effective way.

The programme is important to all New Zealanders. I decided to look at how Inland Revenue is governing the programme to deliver a modern revenue system. Good governance is important in ensuring that we end up with an effective and efficient new revenue system. Governance is about the arrangements and practices that allow a public entity to set its direction and manage operations to achieve the outcomes expected and to fulfil accountability obligations.

The programme has been operating for about four years and has an anticipated further 8-10 years to go. It involves significant public spending (estimated to be between $1.3 billion and $1.9 billion, dependent on decisions to be made by Ministers and by Cabinet), with $83 million spent as at the end of November 2014. The programme includes a large information technology component.

We have found that Inland Revenue's governance of the programme has provided clear direction, and supported clear and effective decisions. However, Inland Revenue needs to watch and carefully manage specific risks to effective governance. Inland Revenue is aware of these risks.

Inland Revenue will also need to continue to adapt the programme's governance arrangements to be fit for purpose at any point in the programme's life. Without this ongoing adaptation, the governance arrangements may stop being effective.

Strengths of Inland Revenue's governance of the programme include a comprehensive and clear governance structure, an established methodology, and an advanced approach to managing risks.

Having the right senior staff and appropriate external specialist staff involved in the programme's governance has also been a strength. Involving members of the executive team in governance is common in public entities without governing boards. The people involved must be disciplined in separating their governance and management roles.

Managing the risks also includes ensuring that reviews of governance structures are scheduled and take place, and that the right balance is achieved in balancing executive time between programme governance and managing the current tax system.

Inland Revenue needs to carefully manage several risks to good governance. This includes ensuring that independent quality assurance reviews of the programme coincide with times of high risk to the programme; that longer-term people capability, capacity, and succession management is in place; and that specialist skills are transferred appropriately between governance personnel within the programme.

We have made two recommendations to help ensure that governance arrangements remain fit for purpose over the life of the programme and that the main risks to good governance are managed well. Auditing of the programme will be an ongoing piece of work for us.

I thank Inland Revenue's staff for their help, co-operation, and openness when working with my staff. I also thank those people external to Inland Revenue who met my audit team.

Signature - LP

Lyn Provost
Controller and Auditor-General

24 April 2015

Photo acknowledgement: mychillybin © Niels Schipper

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