Part 2: Designing the governance arrangements

Inland Revenue Department: Governance of the Business Transformation programme.

In this Part, we look at the extent to which design of the programme's governance arrangements are consistent with our principles of good governance.

We found that the programme's governance has largely met what we expect of good governance design.

We found that the programme's governance included:

  • depth of information and reporting;
  • clearly defined roles and responsibilities; and
  • plans to regularly review the design.

Depth of information and reporting

The programme has a comprehensive, well-defined governance structure. In our view, some complexity is required because of the complexity of tax collection and the programme's size, length, and uniqueness. We described the governance structure in paragraph 1.18 and Appendices 1 and 2.

Although the governance structure is complicated, there are clear accountabilities for decision-making embedded in the structure, with clarity about which governance groups make which types of decision about which subject matter. Comprehensive documents support this. For example, the Programme Charter clearly describes the roles and responsibilities for main governance groups. Although we observed a small amount of confusion about roles and responsibilities, this was not systemic. Most of the staff we spoke to said that they knew who they were accountable to and what they were responsible for individually and collectively as part of a governance group.

Business Owner Forums (BOFs) provide discussion opportunities for different functions in Inland Revenue to directly inform governance groups of the programme feature in the design. We received generally positive feedback from interviewees about the BOF approach.

An established methodology is being used by Inland Revenue to manage the programme. The methodology is consistent with the Managing Successful Programmes methodology developed by the United Kingdom's Office of Government Commerce. As with any structured process, ongoing scrutiny is required to ensure that the process is appropriate to the given set of circumstances. Managing Successful Programmes is the programme equivalent of the PRINCE25 project methodology.

Strengths of the programme include a strong risk identification and management focus. The risk management culture appears to be mature and there is a good risk management framework and associated reporting structure built into the design.

Decision-making has been deliberately centralised in the current governance arrangements in place with the Portfolio Governance Authority and the Investment Board making the main decisions. Members of Inland Revenue's executive, senior programme managers and some external representatives are members of these groups. The benefit of this approach is that there is direct senior oversight of governance decisions, and the people making those decisions are well informed about the potential effect of the decisions on Inland Revenue's wider business.

There is a challenge with a long-term programme of this nature to determine when the main benefits of the programme will be delivered. This is because the uncertainties and length of the programme mean that prescription of those benefits and when they will be delivered is necessarily difficult early in the programme and will become clearer as the programme progresses. In our view, management of the realisation of the benefits needs to be in place from the beginning of a programme. There is no doubt that there has been a commitment within the programme to doing this. At a high level, the benefits of the programme are based on six benefit areas. These are:

  • easier for customers – this refers to simplifying customer requirements and improving their experience with Inland Revenue;
  • reduced risk of operational failure;
  • reduced time to implement policy initiatives;
  • economic benefits to New Zealand;
  • improving tax integrity; and
  • financial benefits to the Crown.

The benefits realisation framework and management are still in their infancy, as the programme is yet to deliver any of the key benefits. Positively, the intended profile of delivery of benefits from the programme has become clearer over the course of the programme to date, with delivery of benefits being staggered throughout the life of the programme. This gives programme sponsors and funders some flexibility by not committing them to the full programme funding before any benefits are delivered, and making it possible for them to stop the programme at a given stage. We described the programme stages and phases in paragraph 1.14 and Figure 2.

Over the life of the programme, Inland Revenue will provide the opportunity for Ministers to make stop/start decisions on the programme through regular revision of the programme business case, and business cases on specific deliverables of the programme. This approach allows Cabinet to make investment decisions based on the costs and benefits of each deliverable, and the overall programme.

Accountability arrangements

Although many separate groups have governance roles, each of these groups has clear terms of reference and clearly defined accountabilities. This is a strength.

Another strength in the design of the governance arrangements is that the results of assurance review work are shared with the main governance groups and with the Commissioner of Inland Revenue. This approach helps reduce the risk of filtering of the findings and ensures that a wide range of perspectives are brought to bear on those findings.

Capability and participation

Inland Revenue has deliberately recruited external specialist and resources to assist with the programme, including with the governance of the programme. Recognising that specialist skills are required and that these do not reside in Inland Revenue is a mature approach.

Inland Revenue has supplemented the specialist externally sourced resources with internal resources, including the involvement of most members of its executive team in the governance of the programme. The design of the governance arrangements has supported the right people being involved in programme governance.

As well as specialist external resources, Inland Revenue has recognised the need for completely independent membership on two of the main governance groups. There is an external member of the Portfolio Governance Authority and an external member of the Investment Board. A second external member has also been recently appointed to the Portfolio Governance Authority. In our view, this is good practice.

Because of the nature and size of the programme, ensuring that there is independent input at a governance level is an important check on programme and business perspectives. It is an important feature of the programme design.

The support available to service governance groups is a strength of the programme. This support includes a programme office within the programme team.

Clearly defining roles and responsibilities

As we have noted in paragraphs 2.5 and 2.13, the clear definition of the roles and responsibilities of the various groups involved in the governance of the programme is a strength of the programme. The programme documents also indicate an intention to update the roles and responsibilities for the design workstream of the programme, and to support board member training. These are positive design features.

Because of the need to protect the integrity of the tax system and progress the programme, one of the strengths of the governance design is that the Portfolio Governance Authority and the Investment Board are able to consider governance of the programme and the wider governance of Inland Revenue.

The roles and responsibilities, as defined at the time of our audit work, were consistent with the governance structure. We observed no inconsistencies where the roles and responsibilities appeared at odds with a governance group's position in the structure.

Reviewing the design regularly

The current governance structure is centralised and significantly different from the governance arrangements for the early stages of the programme. This shows that Inland Revenue has adapted the governance arrangements over time.

Evolution of the design of the programme's governance arrangements is inevitable, because of the nature of the programme and uncertainties that will be resolved only as the programme progresses. Senior Inland Revenue staff we spoke with, including the Commissioner of Inland Revenue, accept and expect dynamic governance and operation of the programme.

Unless the governance arrangements continue to adapt, the governance systems and processes might become inappropriate for the stage of the programme, the risks at that time, the available resources, and the public sector environment.

Inland Revenue needs to pay ongoing attention to reviewing the governance design, based on the programme stage, phase, and risks. The Programme Charter document commits to reviewing governance structures. We observed examples of reviews of aspects of governance taking place. For example, the Organisational Design Council reviewed its terms of reference. The Programme Director also carries out regular "health check assessments" of the programme. In addition, the methodology used in the programme involves reviewing governance at key points and a review of the governance arrangements for the design workstream has already been completed.

Matters to watch

We identified some matters that Inland Revenue needs to watch closely, concerning design of the governance of the programme. We discuss these matters in paragraphs 2.28-2.37. Inland Revenue is aware of these matters.

Timing and design of quality assurance reviews

The timing of independent quality assurance reviews of the programme has been mainly based on phase or stage changes as is the standard approach to programme methodology Inland Revenue is using. In our view, Inland Revenue needs to be open to having additional independent quality assurance reviews at other times where the level of risk warrants this.

Although the sharing of assurance review work with the main governance groups is a strength of the programme design, those same groups are not involved in approving the terms of reference for the individual assurance reviews. In our view, there is an ongoing independence risk if the governance groups are not actively approving the terms of reference for independent quality assurance reviews.

Important skills risks

Because of the programme's long life and heavy reliance on contracted personnel, many staff are likely to leave Inland Revenue before the programme is complete. This presents longer-term capability, capacity, and succession risks that are not as apparent in a shorter project and need to be watched and managed. In our view, the transfer of specialist governance skills between governance personnel within the programme has been limited to date.

Getting the balance right between programme governance and managing business as usual is difficult, requiring careful judgement about how best to use limited senior resources.

Heavily involving senior staff in governance of the programme is an important and deliberate positive design feature.

However, overuse of those staff risks those members not being able to give enough attention to their "day" jobs – operating and protecting the integrity of the tax system. We discuss this capacity constraint further in Part 3.

Review of governance

We found that programme design documents show that Inland Revenue is committed to reviewing governance structures. Inland Revenue has told us that it is "a given" that the governance arrangements will be reviewed as part of updating the programme documentation at the end of each stage of the programme.

Recommendation 1
We recommend that the Inland Revenue Department continue to ensure that governance of the Business Transformation programme is fit for purpose by:
  • periodically reviewing the governance of the Business Transformation programme (including the roles, responsibilities, and membership of the various groups that are part of the governance structure); and
  • using the results of reviews when making changes to the programme's governance.

As a general rule, governance groups understood their decision-making roles and responsibilities, but we did see some examples where groups needed additional clarity on those roles and responsibilities. For example:

  • clarification was needed on the Technical Architecture Design Council's role in non-programme projects;
  • a Portfolio Governance Authority meeting needed clarification about how to return unspent funds from a project; and
  • the Analytics, Insights, and Metrics Business Owner Forum needed clarification about the process for signing off strategy documents.

Because of the complexity of the governance arrangements, we expected that there would be examples of roles and responsibilities having to be clarified.

There is some variation in the training and induction that members of the governance groups receive. The Information Management, and the Analytics, Insights, and Metrics Business Owner Forums had some early set-up problems because of a lack of context being provided. This might indicate that governance group members need training and induction. However, we also saw an induction pack that members of the Enterprise Support Services Business Owner Forum received. Training and inducting governance group members helps to ensure that roles and responsibilities are clear.

We have noted some of the aspects of paragraphs 2.28-2.37 in our recommendation (Recommendation 2) about key risks that Inland Revenue needs to continue to manage over the life of the programme.

5: PRINCE2 is an acronym for Projects in controlled environments, Version 2. It is a project management methodology. The methodology encompasses the high level management, control and organisation of a project.

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