Part 1: Introduction

Inland Revenue Department: Procurement for the Business Transformation programme.

In this Part, we set out:

Why we did our audit

New Zealanders collectively pay about $70 billion in tax each year. The Inland Revenue Department (Inland Revenue) is responsible for collecting and managing tax. Effective tax collection allows the Government to provide New Zealanders with a wide range of services and support.

To collect taxes efficiently, Inland Revenue needs robust and up-to-date systems and processes. About seven years ago, Inland Revenue began a significant Business Transformation programme (the programme) to simplify and streamline its business processes, policies, and customer services and upgrade its technology platform. Inland Revenue wants to create a "modern revenue system" that makes it easier for taxpayers to pay their taxes.

Inland Revenue estimates the total cost of the programme to be between $1.5 and $1.69 billion and expects it to be completed by 2021. Stage 1 of the programme went "live" in February 2017, two months ahead of schedule.

Stage 1 introduced new online services for Goods and Services Tax and made it possible for new businesses to register online for an Inland Revenue Department number. At that point, Inland Revenue had spent about $190 million on the programme.

Stage 2 of the programme involves streamlining personal and business income taxes. Inland Revenue expects stage 2 to be completed by 2019.

The changes and cost involved in the programme are significant. It is also an important project for New Zealanders because it will introduce new and modern processes and technologies for collecting tax and paying entitlements. For these reasons, we have decided to report from time to time on aspects of the programme for its duration.

Our first report on the programme, published in April 2015, looked at the way the programme was governed.1 The programme had several strengths, including a comprehensive and clear governance structure, an established methodology, and an advanced approach to managing risks.

The programme's governance arrangements largely met our expectations. The governance was providing clear direction to the programme. We recommended that Inland Revenue continue to adapt the programme's governance arrangements for the programme's duration.

This is our second report on the programme. For this audit, we decided to look at procurement. Procurement is much more than just a purchasing process. When we talk about procurement, we are talking about an end-to-end process that involves:

  • deciding which goods and services need to be procured to enable the entity to do its job and do it better;
  • going through a sound sourcing process that is founded on the principles of good procurement practice;
  • ensuring that delivery against the contract, and the relationships that underpin it, are well managed and that the procurement delivers what is needed and the intended benefits; through to
  • evaluating the results and lessons from the procurement and either disposing of or terminating or replacing those goods and services.

Inland Revenue is spending millions of dollars on goods and services for the programme. It is important that Inland Revenue procure these goods and services effectively and efficiently so it can deliver the programme's objectives and achieve value for money.

We looked at whether procurement for the programme is well managed and whether it complies with relevant rules and requirements.

Scope of our audit

For this audit, we looked at two parts of the procurement process:

  • how Inland Revenue sources goods and services, focusing on compliance with applicable rules and policies; and
  • how Inland Revenue manages its relationships with suppliers.

We also looked at Inland Revenue's overall approach to procurement. Inland Revenue has recently changed its approach to procurement. We wanted to see whether the new approach has been implemented effectively and whether it is helping Inland Revenue to improve the way it procures goods and services.

We did not look at policy decisions about the programme or whether the programme is achieving its intended outcomes.

How we carried out our audit

To carry out our audit, we:

  • reviewed and analysed relevant documents from Inland Revenue;
  • interviewed staff from Inland Revenue, including staff in the Commercial and Procurement team and staff in the programme;
  • spoke to people from the Ministry of Business, Innovation and Employment, the office of the Government Chief Digital Officer, and some of the programme's suppliers;
  • viewed systems and tools used by Commercial and Procurement staff;
  • reviewed information and data from five procurements that were valued at $100,000 or more to check that they complied with government rules and Inland Revenue's policies and good practice; and
  • reviewed information and data from seven procurements that were valued at less than $100,000 to check that they complied with government rules, Inland Revenue's policies, and good practice.

Structure of this report

In Part 2, we describe how procurement works in the public sector and Inland Revenue's Business Transformation programme.

In Part 3, we describe Inland Revenue's new approach to procurement.

In Part 4, we discuss whether Inland Revenue is following relevant rules and processes for procurement.

1: Office of the Auditor-General (2015), Inland Revenue Department: Governance of the Business Transformation programme, Wellington.