Auditor-General’s overview

Inland Revenue Department: Benefits management for the Business Transformation programme.

E ngā mana, e ngā reo, e ngā karangarangatanga maha o te motu, tēnā koutou.

Collectively, New Zealanders pay about $80 billion in tax each year. The Inland Revenue Department (Inland Revenue) is responsible for collecting that tax and for supporting other important government services, such as Working for Families tax credits, child support, KiwiSaver, student loans, and paid parental leave. It is critical for Inland Revenue and the taxpayer that it collects the taxes due by law and supports those services effectively and efficiently.

In 2011, Inland Revenue began a significant programme to modernise New Zealand’s revenue system and address the underlying risks in its technology infrastructure. This programme is known as the Business Transformation programme.

The Business Transformation programme is expected to cost up to $1.7 billion1 and is due to be completed in the 2021/22 financial year. Inland Revenue reports that it is currently on track to complete the programme within budget and on time.

The Business Transformation programme will have a wide effect on Inland Revenue and taxpayers. It will change how Inland Revenue carries out its taxation functions, including the policy, processes, technology, and information it uses to deliver taxation services.

The changes Inland Revenue is making affect the people who administer the revenue system and those who rely on the revenue system for information to do business. The changes are designed to improve how New Zealanders interact with the revenue system.

In New Zealand and other countries, significant programmes of change have a poor track record for fully realising their proposed benefits. We wanted to provide Parliament and the public with assurance about the expected benefits of the Business Transformation programme, including its progress to date. We wanted to do this because of the significant change that is expected, the substantial amount of financial benefits that are yet to be realised, the importance of taxation to government revenue, and the considerable costs of the transformation.

We also wanted to assess how well placed Inland Revenue is to manage, measure, and monitor the benefits of the programme in the future. These benefits include making technology systems more resilient, increased Crown revenue, a reduction in the cost for small to medium businesses to comply with their tax obligations, a reduction in administration costs to Inland Revenue, and making it easier for customers by, for example, automatically calculating individuals’ income tax.

We expected Inland Revenue’s framework for measuring benefits and its benefits management practices to be:

  • appropriate, reliable, and relevant; and
  • effective in assisting it to achieve its investment objectives.

What we found

Inland Revenue appears well positioned to realise the benefits of the Business Transformation programme. However, there are a significant amount of financial benefits to achieve between now and 2023/24, when its monitoring of the programme’s benefits is due to finish.

Although the level of change involved might adversely affect some people’s interactions with the system, in 2018/19 Inland Revenue had met all but one of the indicators of progress (“percentage of customers who find it easy to comply”) it uses to demonstrate that it is on track to achieving the programme’s intended benefits.

Inland Revenue’s reporting of the programme’s benefits is reliable. Inland Revenue’s reporting against its indicators of progress shows that, as at the end of the 2018/19 financial year:

  • The programme has resulted in a $90 million increase in Crown revenue. At its current rate, the increase in Crown revenue will equate to $540 million by 2023/24. However, Inland Revenue has committed to a cumulative increase of $2.88 billion by 2023/24.
  • It has cumulatively reduced administration costs by $60 million since 2017, against its overall target of $495 million by 2023/24.
  • The effort for small to medium enterprises to comply with their tax obligations has reduced by nine hours a year. The target for the end of the programme is to reduce this time by 18 hours.

Inland Revenue estimates that the value for small to medium enterprises of this time saved to date is $280 million. Inland Revenue has committed to making cumulative savings of $1.33 billion for these businesses by 2023/24.

Although this progress is positive, and largely on track with expectations at this point of the programme, the gap between benefits achieved to date and benefits sought by 2023/24 is significant.

We will not be able to say with certainty that the significant investment in the programme represents value for money until the benefits from the completed project are measured.

However, in my view, Inland Revenue is well positioned to continue managing, measuring, and monitoring the programme’s intended benefits. This is because it:

  • took the time and invested in external expertise to help gain clarity about the vision and purpose of the programme;
  • placed a strong focus on benefits management from the beginning, which included generating reliable baseline data and supporting information; and
  • demonstrated a commitment to learning and continuous improvement about benefits realisation and management.

Given the programme’s scale and complexity, Inland Revenue’s investment to gain clarity of its vision, purpose, and benefits is entirely appropriate.

This audit has reinforced my view that successfully delivering outcomes depends on systematically monitoring and tracking benefits for a programme’s duration. Simply establishing benefit targets at the beginning and measuring progress against them at the end is unlikely to be an effective approach.

This is especially so when baseline data is hard to establish and measure, and effects occur throughout the programme’s duration. To be successful, public organisations must understand their current state at the start of a programme, monitor progress at every step of implementation, and be prepared to make continuous improvements in benefits management.

Even though Inland Revenue has been managing benefits well, there are still significant risks to it successfully delivering the programme and fully realising its benefits. These include balancing the achievement of benefits with delivering business as usual. To embed the changes arising from the programme and realise its benefits, Inland Revenue must continue to monitor and mitigate those risks.

We completed the fieldwork for this audit before the Covid-19 lockdown. We acknowledge that this may affect the programme’s costs and timing in the future.

I thank Inland Revenue staff for their co-operation with our audit. I also thank those we talked to from the Treasury, KPMG, and the Gateway review team.

Nāku noa, nā

Signature - JR

John Ryan
Controller and Auditor-General

31 July 2020

1: This is a 10-year estimate of cost (to 2023/24) that includes ongoing costs. The amount excludes inflation, depreciation, and capital charge.