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JOINT COMMITTEE OF PUBLIC ACCOUNTS AND AUDIT
22/04/2010
Auditor-General's reports Nos 4 to 21 (2009-10)

CHAIR (Ms Grierson) —I open today’s public hearing, which examines the Auditor-General’s Report No. 8 of 2009-10, The Australian Taxation Office’s Implementation of the Change Program, and I welcome representatives from the ANAO and the Australian Taxation Office. To explain today’s proceedings, we will first hold this public hearing to specifically examine the audit of the change program, which we understand is based on data from 12 months prior to today. At 11 am we will move to the bi-annual hearing, which will canvass the wider issues with the Commissioner and his staff. Participants are asked to remember that only members of the committee can put questions to witnesses if this hearing is to constitute formal proceedings of the parliament and thereby attract parliamentary privilege. If other participants wish to raise issues for discussion, they should direct comments to the chair and to the committee. It will not be possible for participants to directly respond to each other.

Given the short time available, we do ask everyone to be mindful of the time. The hearings are legal proceedings of the parliament and warrant the same respect as proceedings in the House and the Senate. The giving of false or misleading evidence is a serious matter and may be regarded as contempt of parliament. The evidence given today will be recorded by Hansard and will attract parliamentary privilege. Commissioner, before I begin, on behalf of the committee I extend to you our congratulations on receiving the Order of Australia since we last met. I invite the Audit Office and the ATO to make brief opening statements before we proceed to questions.

Mr Chapman —I do have a brief opening statement, but in the interests of time I might just table it.

CHAIR —Thank you. A member of the committee has moved that it be received as a formal submission and that motion has been seconded. Mr D’Ascenzo.

Mr D’Ascenzo —I will ask Second Commissioner Butler to lead.

Mr Butler —Madam Chair, I would like some guidance to start with, if I may. There is the formal ANAO report, which I can give some comments on, but I also expect there is a lot interest in the income tax release. I am not sure how you would like to deal with that. Should I just go through them both now?

CHAIR —Thank you for raising that. We would like to deal with the report and the issues that it highlighted. Then, if we get through that comprehensively, we will be very happy to move onto this next phase which we know has been troublesome. So, if you can start with the audit report and what evidence, recommendations and guidance it gave to you and how you have responded to it, that would be excellent.

Mr Butler —I just have a few comments to set the scene, in a sense. We believe that the report rightly recognises the scale of complexity and challenge of the change program. As you would know, the change program has been underway since 2004. It is a fundamental shift in how we do our work in the tax office. It is not just about our IT systems; it actually changes the way we interact with our clients and also the way our staff go about their work. It also includes a lot of work around new data warehouse with the ATO approaches being much more able to understand risks and deal with them. In its report the ANAO noted that the ATO really had no other choice than to undertake this work. The ANAO commented that there are limited viable options available to the ATO other than to go down this pathway, particularly with some of our ageing legacy mainframe systems.

We believe that there are already a range of benefits available to the community because of the work we have put in place around the change program. We have also been able to improve the efficiency of our work and reduce our training costs. The report itself does note that key aspects of the ATO work have been improved and transformed. For instance, we now have one case management system for all of our people across the whole of Australia, whereas before we had 180 different case management systems.

The report also notes that, as would be expected, governments change the law as time goes on—and there has been quite a lot of media attention about the time the work has taken and the cost of it—and that during the course of this particular work the law has been changed. The most significant changes were the superannuation simplification changes, which added quite a lot of time and cost to the overall work. The report has a pie graph that sets out the changes that have been made as a result of law changes on an ongoing basis. We could not have anticipated these when we started the program in 2004. We were not, of course, able to anticipate what would happen each year. The report notes that the increase in time and scope has largely been due to law changes.

The report has four recommendations. We agree with all of them. The process the ATO uses to have implementation of the recommendations signed off is to have our internal audit area look at what has happened. They then go to our audit committee, which has a number of external members on it. Next month, the audit committee will consider the view put forward that we have implemented all four recommendations. We have put those changes in place already and we have actioned the things that the Audit Office suggested.

CHAIR —Thank you, Mr Butler. Mr Chapman, would you agree with the statement Mr Butler just made that changes in expansion of scope and therefore slippage have been linked to change, or are there some internal factors influencing that as well?

Mr Chapman —In a broad statement, we would agree with that position. Certainly, the superannuation changes and a number of other policy changes by government over time have prompted a review of the priorities and direction within the change program, and that is part of the tax office administration, as I think Mr Butler has indicated. The challenge within those circumstances is how well those changes are responded to and adopted, and that the implementation arrangements be given the—

CHAIR —At the time of the report you were satisfied with the governance arrangements. Mr Butler, could you expand on the government’s arrangements again in terms of continuity over time, project management and therefore knowing that there has been clear control over the change program?

Mr Butler —Starting from the top, so to speak, there is a change program steering committee which the Commissioner chairs. That has met monthly throughout the duration of the change program. We have engaged two independent assurers, Capgemini and Aquitaine Consulting. Capgemini are a multinational corporation that have been involved since the start of the change program in an assurance role. They attend and give monthly reports to the change program steering committee. Richard Tait is the key principal of Aquitaine Consulting. He is an expert in the information technology area. He also provides monthly reports. He was involved more at the beginning of the change program in design and helping us to get it going. More recently, in the last two years, he has been heavily involved in giving independent assurance. Those companies come forward, they are independent, they give us their views and they make recommendations. We have tracked all of those recommendations very carefully. We do not always agree with them, and if we do not agree with them we will discuss it. But we agree with the vast majority of recommendations and we are tracking the implementation of those recommendations.

Beneath the change program steering committee is the committee which I chaired, which brings together a whole range of senior people in the ATO across the operational areas, our compliance area and people working on the program. We go through the particular issues in a bit more detail than the steering committee. The independent assurers attend those meetings, give their reports and things like that. We have had very rigorous processes to manage the program right from the start of the program. We have an area that is dedicated to ensuring that there is good reporting of all things. This is a very significant undertaking. It is clearly the biggest thing we have ever done in the ATO. The release we put in place in January this year is the biggest IT release we have ever put in place. Our independent assurers tell us it is amongst the biggest ever put in place in Australia. It is very significant.

CHAIR —And currently you are at the final stage of implementation—or is there another stage to follow?

Mr Butler —The change program itself has one area around our accounting system that we are not going to progress further with at the moment, because we are waiting to see the government’s response to the Henry review. We clearly need to take that into account, and I think the Audit Office recognised that in their report as well. We have finished the vast amount of the work that we need to do to finish the change program.

CHAIR —You assure us there has been no complacency as we have moved through and felt we were getting closer to the end than the beginning?

Mr D’Ascenzo —I think there has been an increase in activity, because the conversion to the new integrated core processing system was by far the most complex. In fact, of all the costs associated with the change program, the conversion to the income tax system is something in the order of $400 million of that wider pie. It has been the highest risk and most critical part of the administration. It is where we convert 32 million accounts over from an old system that, as David said, has been there for 30 years. It is doing well but is on its last legs, as was found by the ANAO report. We have increased it. We had one independent assurer, Capgemini. We put Aquitaine on that process as well. I think we increased high-level focus and the amount of energy that went into the income tax review by all areas of the organisation. It was a notch up from what we did on some of the others. I am very pleased with all the ways that we have been able to deliver what has been a very major endeavour and one that most other tax administrations only aspire to.

CHAIR —That gives us a context and an overview. We will find out more about the current phase after 11 o’clock.

Ms LEY —Commissioner, I am not sure that the tax agents and families waiting for returns right here and now would be assured by your last few words—that you are pleased with the system and the system is working well—because quite clearly it is not. On the subject of the changes to the law regarding the super simplification stream and the first home owners grant, which you and the auditors have reflected on, are you confident that, with this remaining module that is yet to be rolled out, the changes that may come out of the Henry review can be absorbed and that your new system can cope with those changes?

Mr D’Ascenzo —The new system certainly provides a lot more flexibility because it is on documented, modular architecture. The old system we had goes through a whole lot of spaghetti-type work. It links bits and pieces onto an old system over 30 years, so to make one change you have to flow through all the other changes for its impacts. The more recent system has a much more documented and modular approach, so I think it will provide flexibility. The ANAO report pointed out benefits of the system going forward. It is a more modern system and one that can change a little quicker. But legislative changes will have to be in pattern. The system can cope with certain things that fit within the pattern of the overall design. If you work outside the pattern then we will have to build a new system. All I am saying is that, at the moment, the current system is more flexible and agile in incorporating legislative changes than the old system.

Ms LEY —What do you mean ‘in pattern’?

Mr D’Ascenzo —Systems work on software language. Software language is almost mathematical. You say, ‘One plus one plus one makes three.’ On the other hand, if you want a system that says, ‘One plus five minus three’, you might have to change the configuration of the software.

Ms LEY —Can you guarantee that the remaining module has some of the $895 million price tag set aside to process that remaining module or will more money need to be sought?

Mr D’Ascenzo —I am not sure what our finances are.

Mr Butler —On the cost side we have a business case we have been tracking actively. Up to 30 June this year, we expect the actual expenditure to be $824 million. That is for the whole program since 2004. That is actual expenditure. Some of that is more current than the figures in the Audit Office report. Our main contract provider is Accenture, and we have had negotiations with them to finalise the current contract. That is completed. We wanted to finish that contract. Any further work we do will be on the basis of a new contract, and that will clearly need to incorporate whatever may come out of the Henry review and other things we see as important. In a contract sense, the contract comes to an end but the work needs to continue. We are rethinking our approach. We started with the goal of having a fully integrated IT system for everything. What we have now is an integrated tax system for everything except our accounting. We can make that work quite efficiently. We are challenging ourselves: do we actually want to go to that extra step and put accounting into the system? The ideas were developed back in 2004, so I think it is absolutely appropriate that we now pause and rethink those ideas.

Ms LEY —So will the remaining module require funds in addition to the $824 million that have already been spent?

Mr Butler —If we were to do that work, it would, yes.

Ms LEY —Commissioner, can you guarantee that that will cope with the significant changes? I understand we do not know what the policy changes are, but I ask you in the sense of the IT architecture that may be required with significant new policy changes.

Mr D’Ascenzo —The architecture cannot in any way be generic to whatever the policy parameters are, but if the changes to the tax system are similar to the types of changes that we have had in the past then the system can cope with them.

Mr Butler —I think we are in a much better position now to respond to the law change than we would have been if we had not undertaken a change program. That is quite clear. A key outcome which we are confident is there is that it will be a bit quicker for us to respond to a policy change, which, therefore, will have lower cost and higher speed to market. We are in a better position than we were before doing the work.

Mr D’Ascenzo —Every year, apart from the change program, which is setting up a much more modern IT platform for us, we go through tax time. After every budget every year we have to make a whole range of systems changes to cope with whatever the laws might be. To the extent to which we can provide input—saying, ‘We can deliver a system by 30 June’ or ‘by the following year’—we do that in terms of governments of the day. The idea of legislative change is one we have to cope with every year. Sometimes our systems can be adapted; sometimes we have to build new systems. This new platform is more adaptable than our past platform, but it is still dependent on the nature of the proposals.

CHAIR —At every hearing, including the last one, we have asked you about your resource level being adequate to cope. Up to that stage in some hearings and at the last stage of the last hearing, you said resources were matching your demands, although there were some extra challenges. What is the situation at the moment with regard to your resource level?

Mr D’Ascenzo —Overall, or in relation to IT?

CHAIR —Overall, and then in relation to IT.

Mr D’Ascenzo —Overall we are planning to operate and come within budget this year. That has required some difficult choices to be made. It is not as if it was easy or just something that we were able to skim off the top. There were real choices about what had to be delayed, what we could do more of and what we could do less of. But, still, we are running within budget. We have a very wide range of responsibilities.

CHAIR —And we can go to that in more detail in the appropriate section.

Mr D’Ascenzo —We do go regularly to government and suggest where we are at in our funding position, and we have done that. To pick up some of the comments of Ms Ley, in terms of our IT we are putting on more temporary staff at this point in time to try to speed up the release of refunds as quickly as we can. We are trying to be flexible in that sense, and I do not see the resourcing issue as necessarily the bar. But, if there are new policy changes that require a new systems build, I would require some further funds for that.

Ms LEY —Leading on from what the chair has said, is it not the case that the IT module of the existing system has cost $400 million and that it is not working particularly well at the moment; although, we note that it may at some point in the future? That is half the total budget of the change program. There are no funds allocated from that for anything that may come up as a result of the Henry review or for any changes post-budget. That module has not been budgeted for and resources will have to be sought from government should something, and obviously something will, eventuate after this budget?

Mr D’Ascenzo —We are starting from a proposition that the IT integrated system is quite a significant achievement in where we are at. Any systems changes of that order would require a range of issues in terms of their bedding down. A lot of the issues associated with people indicating delays were advised to tax agents before Christmas. We said: ‘We have to close the system down. This is not the system not working. This is closing down the system while we convert.’ Some people heard that, and some people did not or chose not to act on it. We had a five per cent spike in terms of increased claims for refunds before December. That was probably not as high as it could have been to try to lessen the impact later on in the year.

Issues of bedding down are of a level that I do not think you can justifiably say that the system is not working. The system is working very well. I am sure that if you get expert opinion about the complexity of what an implementation of this size means and the sorts of issues we have had, you will see that they are the sorts of issues that you would expect from this sort of implementation. I was very concerned with the conversion in January because, if the conversion failed, that would be the system not working, and that would be quite catastrophic in the scheme of things. We have not had that catastrophic failure. We have had expected delays while we implement the new system. We have had, I think, two glitches that have impacted on that, and Mr Dark is happy to talk further about those.

Ms LEY —Commissioner, there is something almost Monty Pythonesque about you telling us that the system is working well. I just want to reflect to you the enormous frustration of tax agents and constituents who have been in contact with me and members and senators across Australia. They are not isolated instances. People have described it as a debacle and a disaster, and as being unmanageable. Only yesterday I spoke with tax agents who have had refunds put into their trust accounts that they cannot find. They have had two refunds paid to taxpayers who have had refunds promised that have not arrived. We are talking about large numbers, in the order of large amounts. I am sorry, but the system is not working well.

CHAIR —Commissioner, we will get to that, because we do have a hearing after this.

Mr BRADBURY —One of the recommendations of the ANAO report is in relation to the FBT rollout. One of the criticisms was that perhaps insufficient end-to-end testing had not occurred in relation to that release. Could you provide us with an update of the extent to which that recommendation has been taken on board in the lead-up to future rollouts?

Mr D’Ascenzo —I will just put our part in context. What we found was that the amount of testing, with hindsight, was not sufficient for FBT and we tried to do more testing in terms of the income tax system.

Mr Butler —The FBT release back in March 2008 put the platform in place for the integrated system, but we now use the fringe benefits tax part of it. We did that deliberately because there are about 70,000 fringe benefit tax payers, a small number. As the commissioner just noted, yes, with the benefit of hindsight we should have done more testing of that. Since then we have put in place some superannuation and first home saver changes on that same integrated platform. The income tax release is the biggest one, so I can talk about what we have done there around testing.

I have had over 20 years experience with the delivery of information technology in various places, and our independent assurers have said we have done an unprecedented level of testing of the system in a very comprehensive way. We had, I think, 3,000 test scripts that went through and tested all the scenarios we could think of. We did things like a parallel run. We took a whole day’s worth of returns that had been through the old national taxpayer system and put them through the new system, not to go out to taxpayers but to test that the amounts that came out were correct. That is part of the more comprehensive approach. Also, when we first started to use the income tax system we had a thing called a run ahead. Each day, before we issued anything out of the office, we put all the assessments through to make sure they all looked right, that the numbers were right, and then we put them through to issue to taxpayers. So we spent, absolutely, months and months on testing, because it is such a significant release.

Yes, there have been concerns about delays—we can talk about that later—but on the other hand it is pleasing that we have had only a very small number of suggestions that the calculations in assessments are wrong. Two million returns have gone through this new system. There have been a couple of occasions when agents have said they thought there might be something wrong in the calculations. We have explored that with them and it has turned out that there was not anything wrong. Just last night I received a letter from the CPA which suggested that one agent thought there may be some areas around the Medicare levy and the baby bonus. No-one has ever raised that before, so we are quite surprised. We are working that through today. But we are not aware of anything in the system that is making a calculation error. I think that is significantly important, but it is also a result of the quite robust testing we have put in place.

In our testing in an end-to-end sense we certainly did a lot of work with Centrelink and the Child Support Agency because we provide a lot of information to them, and that was part of it too. We did a lot of work with the Reserve Bank. We cannot send test data to the Reserve Bank—they cannot cope with test data and they have to generate payments and things—but to the extent that we could we tested that. We have an outsourced printing arrangement, so we absolutely tested that. We had our people at the printers all weekend looking at the material that was printed to make sure it was right. So we have put a huge effort into getting it right and, apart from those very minor examples, there is no suggestion that we are getting the numbers wrong, which is really important for our tax administration.

CHAIR —Could I put a question back to officers from the ANAO. Given what Mr Butler has just said and given the recommendation that was handed down in relation to end-to-end testing, is the sort of approach that Mr Butler has outlined consistent with what your recommendation would have envisaged?

Mr Chapman —Yes, if I can be quite unequivocal about it. Mr Butler was describing the situation for the current release that occurred in January this year. Our review was predominantly focused on the FBT release, which was around 12 months ago, for the year ending 31 March 2009. As Mr Butler and Mr D’Ascenzo mentioned, there was an acknowledgement that the testing at that time perhaps was not as robust as the ATO would have liked, and we did highlight that issue in our report. Testing arrangements are fairly well established in an IT development release arrangement. The features one would expect to see around parallel processing, for instance, or development of test logs and test programs, are the sorts of things that the ATO over many years would be very experienced with. One would hope that the FBT issue was perhaps more an aberration prompted by the circumstances of the time. We have not looked at the current release of January this year, but from the anecdotal information we have received it seems to contain the features we would be expecting to see.

Mr BRADBURY —Okay.

Senator MARK BISHOP —This is probably for you, Mr Butler or Mr Ryan. On the lack of testing of the FBT functionality, how did that lack of testing come about? Was it is a decision made by the committee not to do the end user testing? Was it an oversight or was it incorrect advice that came up through the system? How was the original mistake made?

Mr Dark —The essential problem we had with FBT was that we used manufactured data in the test scripts as opposed to production data. Because it was the first of the releases, we had not yet developed a mature data conversion regime. So we were building the data conversion code at the same time that we were building the system itself. In order to test the system, we were using manufactured data as opposed to real data, and that is primarily, I believe, where our shortfall happened.

Senator MARK BISHOP —That manufactured data was inadequate in terms of the eventual outcome?

Mr Dark —Yes.

Mr Ryan —It is probably fair to say that it reflected how we thought things would be as opposed to reflecting the actual examples of what happens in a day-to-day sense. Mr Dark’s point was that, in particular, it was testing on converted production data, where you actually take some of the current information, convert it and then use that as a basis for your testing. That is an issue that we have addressed going forward.

Senator MARK BISHOP —As you used either that flawed process or that inadequate data and did your part testing through the introduction, its flaws did not become apparent at an early or a middle stage?

Mr Butler —I was not with the ATO when it was put in place, but my understanding of it is that the testing was undertaken, the system was implemented and we quickly saw that things were coming up that we had not anticipated. So we had to manually help the returns through the system more than we otherwise would have had to. I can say that we are now on our third year of processing FBT returns. It was 2008 that we implemented FBT. This year and last year there were no problems. You always get some sort of problems, but there were no problems of any significance whatsoever.

CHAIR —That is important. Audit Office, you actually stated in your report that:

… the ICP will only be shown to be free from serious defects when it fully processes the March 2009 FBT returns.

Mr Butler, are you telling us that there were no problems from that?

Mr Butler —I will not say there were no problems. There are always issues with a big system; that is the reality of life. But there were no problems of any sort of magnitude that would concern us.

CHAIR —So it was free from serious defects at the time?

Mr Butler —Absolutely. And again this year. We are in the course of processing the 2010 FBT returns now and it is the same situation. There are no serious concerns.

CHAIR —That will help us to really find out what went wrong with the next system.

Mr Ryan —We deployed the changes for the 2010 FBT returns on 26 March. We have already processed 258 returns and no issues have been raised. The thing with the pattern—

CHAIR —Is the fringe benefit tax program a huge program? How many recipients would there be?

Mr Butler —There are 75,000 fringe benefits tax payers. As I mentioned before, that is why we used the platform for the FBT part first of all. It gave us a chance to test the whole platform but with less risk because there were not millions of clients.

Senator KROGER —I was wanting to ask you about Accenture and the contract itself and whether there was anything that could be learnt from the installation of the system that they developed and installed in Singapore, which you obviously were impressed with and is presumably one of the main reasons why they received the contract here, in relation to these ongoing difficulties that have been experienced?

Mr Butler —Just by way of background, Accenture have been working with tax administrations for a long time. The integrated system they have called TAS, which is what we have been looking at putting in place, actually started in New Zealand back in the eighties. My understanding it was then used in various parts of the United States, then in Ireland and Singapore, and then in Australia. There is quite a long history of their work. Some of their people have moved around the world to each of those countries.

Before we signed the contract, though I was not with the ATO, my briefings are that we had people travel to Singapore, Ireland and New Zealand. I was the commissioner in New Zealand for more than six years, so I am aware of that. The ATO had lot of engagement with those bodies. The Gartner group gave us a lot of professional advice about the size of the program and how to do it because you have to do it in steps. You cannot do these things all at once. We sought a lot of professional advice from other organisations in setting up the contract initially.  But, yes, we saw the experience of Singapore, and we had the Singaporean commissioner in Canberra just two weeks ago. We have had discussions with him on various occasions on how they have gone with their most recent implementation and that sort of thing.

Senator KROGER —Were you the commissioner in New Zealand when it was implemented there?

Mr Butler —No, I moved there at the end of 2001. It was during 1984-85.

Senator KROGER —Can you give us an assurance that you think everything that could have been done testing-wise was done, notwithstanding the people we know of who were really upset about the way things have been handled?

Mr Butler —Before the most recent release?

Senator KROGER —Yes.

Mr Butler —I would like to explain that in more detail when I have a chance to make a general comment. I think that with the fringe benefits tax we accept, as Mr Dark explained, we used data that was not really appropriate for what we were trying to do and that that led to problems. We actually learnt from that and changed our approach. It is important to have an overview of the income tax release and the testing. I have described the testing in a broad sense.

Senator KROGER —In relation to that data, given that systems have been introduced in other countries very successfully, were any problems identified in the rollout of those systems that were built in to the way in which this was introduced?

Mr Butler —Again, I was not with the ATO at the time. My understanding is that the ATO had extensive experience of other countries implementing this. I have also worked for the OECD in Paris where my role was the head of tax administration. As the commissioner said earlier, despite the concerns raised by tax practitioners about the most recent thing in a timeliness sense, not about the accuracy of the assessments, it is the one of the biggest things ever done in Australia. It is not surprising there has not been any problems. We certainly learnt as much as we could from others.

CHAIR —Can I ask something very specific that the Audit Office raised. They did note that the Change Program Steering Committee, which we have here, currently:

... does not receive periodic reports providing synoptic overviews of the impacts of the Change Program on the Tax Office or the community—

although this information may be available in disparate reports. It recommend that the steering committee would benefit from:

... receiving additional, periodic, high level reports that address factors broader than those in the Change Program’s business case.

And said that this would allow the steering committee to develop a better perception of the impacts of the on tax office operations, activities and the services to clients. What have you actually done to make sure that those additional reports on the impacts of the change program—not just what is happening but the impacts and the costs of those as well—are prepared and that the data are prepared, considered and responded to?

Mr Butler —The two key areas are the costs and benefits attributable to the change program and the progress in achieving the strategic goals. In the past, we looked at those on more of a separated basis. We have now brought that together and are doing that for the first quarter of this year, though we actually have a formal report coming to The Change Program Steering Committee—coincidentally, that is this afternoon. That report is coming up for the first quarter of this year.

CHAIR —A quarter seems a long time when a problem could have emerged very quickly. I caught it is a long time to wait for some response.

Mr Butler —To be clear, these are more the strategic goals. Absolutely, every month we have had very detailed reports on client experience—

CHAIR —And then the steering committee makes the higher level decisions.

Mr Butler —And this is more along the lines of: here are the broader long-term goals and how you are tracking towards that—the detailed stuff that has been there every month for a long, long time.

CHAIR —Are you telling me the steering committee has just sat back and watched all this over the last few months?

Mr Butler —No, no.

CHAIR —Good. I am just waiting for its meeting this afternoon.

Mr Butler —Every month we have had detailed reports on what is happening. We have had the independent assurer’s reports. This particular recommendation does talk about costs and benefits and the strategic goal. That is not the sort of thing you would review every month. We have looked at that and said that every quarter we will look at that and assess that. We believe we were doing it in a separate sense, and now it is bringing it together.

Senator LUNDY —I would just like to go back to some of the broader principles driving the change program. My first question is about to what extent the Australian tax office has applied or required the use of open standards in your ICT systems going forward, given that open standards in themselves offer efficiencies through interoperability and guarantees against some of the legacy lockdown implications that you are trying to mitigate through the change program.

Mr Gibson —The change program has been basically architected on service oriented architecture principles. We talk about open standards. The use of those SOA principles has an alignment with that.

Senator LUNDY —So, yes, you are applying open standards as you invest in new technology systems?

Mr Gibson —In the way that I have just said, yes.

Senator LUNDY —With regard to the older databases—that again you are trying to deal with and remove because of the associated costs of maintaining a raft of proprietary legacy systems—at what point do you think that you will be able to report that those older mainframe databases are effectively able to be switched off and the efficiency savings gleaned?

Mr Gibson —’Older’ is a rather subjective term. We are looking at the data platforms and the processing platforms that we are using to form the foundation of the system as it is operating today. Are they fit for purpose and are they extensible? We use COBOL. Some people would say COBOL is a very old language. In fact, COBOL has been, on an iterative basis, brought right up to current programming standards and is quite widely used for the type of processing that we require.

Senator LUNDY —We have heard that the concept of one source of data in the ATO is a key part of obtaining efficiency. How do those legacy systems and databases relate to that unified source of data as far as managing accounts goes in the ATO?

Mr Gibson —I will start, but probably Mr Dark could better answer that. Some of the underlying principles in terms of outcomes that we were looking for from this program embrace, for example, a single client account and the use, universally through the office, of single processes, enterprise processes. We are true to that at the moment and that is the way that we have moved from what were previously some disconnected processes and data into this. The change program has been true to that design principle. Mr Butler mentioned early on that, for example, we have now one case management system where previously we had 180 or so. That is now universally used consistently through the office with a range of case types. That is just an example of how we are ensuring that alignment occurs.

Mr Dark —I guess another feature would be that in the past we have had multiple client registers and we now have a single logical client register. There are multiple physical ones but there is only one master register and the subservient ones read from the master.

Senator LUNDY —Thank you. As a result of the changed program can you describe to the committee how it will affect the tax office’s capacity to innovate with new services and changes in legislation because of this new architecture that you have invested so heavily in? Can you describe how those efficiencies will be not just improved but through innovation within the tax office the system will change?

Mr Gibson —I will give you one example which may help you come to an understanding there. At the heart of the change program we have introduced an architecture that is around forms processing. Right in the heart of that processing we have a forms processing engine and, unless there are some basic business process changes, we will not need to make changes to that engine. We will be introducing variations to our new forms and that will feed through. Previously, we would have had to spend many, many months in detailed processing logic and code changing all of that just to make a relatively minor change. That is a huge step forward in terms of agility and cost-effectiveness. It is really unique.

Senator LUNDY —Congratulations for that. How are you structuring your contracts with your IT service providers and hardware providers to ensure that you optimise your ability to innovate without having to subject the tax office to expensive contract variations to achieve changes and innovations like the one you just described?

Mr Gibson —We are currently in a refresh of our existing infrastructure service contracts—we are about a quarter of the way through that at the moment. In there we make very clear that we are looking for outcomes and there are principles around business architecture and so on that we are saying they will comply with and support us here. Being overly specific in some of the more technical areas stifles innovation as well.

CHAIR —In concluding, I say to the Audit Office that we have seen your audit reports on many implementations of major ICT change programs and they have certainly had some continuing trends. Are these lessons that are being learned being documented by any central body and therefore able to be accessed when change programs like this are rolled out?

Mr Chapman —Thank you—and I will take it as a compliment on the stream of audit reports that we have presented.

CHAIR —These ones were good.

Mr Chapman —I think the main approach that we are taking to try to share experiences here is through the production and distribution of our better practice guides. Indeed, we will be releasing very shortly one on the design of project management and system design. I am not aware of central agencies having a particular approach to it, but obviously there were initiatives that came into the Gershon review, gateway reviews and a broader role of Department of Finance to have a greater insight into some of the change programs that are occurring.

CHAIR —I agree with you on that. Thank you very much. That concludes our hearing on the Auditor-General’s review of the change program.

Committee adjourned at 11.09 am