Part 4: Performance reporting

Inland Revenue Department: Managing tax debt.

In this Part, we set out our findings about Inland Revenue's:

In 2008, the Auditor-General observed that:

A core purpose of performance reporting is to provide for public accountability for the responsible use of public resources and regulatory powers, including demonstrating that public services are being delivered effectively and efficiently. Entities can be truly accountable only if they are transparent about both their financial and non-financial performance and the relationship between the two.1

We examined Inland Revenue's reporting of its performance in managing tax debt, and found that its external and internal reporting could be improved. We consider these improvements would provide for better transparency, as well as help Inland Revenue better understand how to improve its tax debt performance.

External reporting of tax debt

Inland Revenue's external performance reporting provides only a partial view of its performance in managing overall tax debt.

For the 2007/08 financial year, Inland Revenue's external performance standards were to:

  • ensure that the number of new debt cases was less than 575,000;
  • ensure that at least 95% of all work was completed in a correct, complete, clear, timely, and appropriately referenced manner that also showed an understanding of the environment;
  • resolve 500,000 to 550,000 debt cases by the end of the financial year; and
  • resolve at least 85% of all new debt cases within 12 months of the due date for payment.

Inland Revenue's external performance standards focus on the number of new debt cases and the resolution of tax debt cases. Inland Revenue's 2008 annual report includes this information as well as information on the amount of outstanding tax debt and outstanding tax debt analysed by tax type. Inland Revenue's annual reports state the total amount of outstanding tax debt.

Inland Revenue's 2008 annual report does not contain information about the total number or age of debt cases that Inland Revenue has to manage. Highlighting trends in the number of unresolved cases would indicate whether Inland Revenue is keeping the overall number of debt cases under control. Highlighting trends in the age of tax debt cases would also indicate whether Inland Revenue is keeping debt growth under control.

We note that Inland Revenue's internal reporting does record the age of debt and the total number of debt cases it is managing. In our view, this is useful information for Parliament and the public that Inland Revenue should report externally.

Inland Revenue reports on how many debt cases it resolves in a year, but does not note how those cases are resolved. Tax debts may be resolved by a variety of methods, some of which include:

  • taxpayers contacting Inland Revenue to work out a debt;
  • taxpayers paying in response to automated actions;
  • Inland Revenue taking manual measures to actively collect a debt; and
  • Inland Revenue resolving debts by account maintenance (that is, correcting inaccurate information in Inland Revenue's system that has given rise to debt that does not actually exist).

In our view, aggregating these as "Cases resolved by Inland Revenue" fails to give a clear view of the results of Inland Revenue's active debt management work.

Recommendation 3
We recommend that the Inland Revenue Department include in its external reporting the total number of outstanding tax debt cases (by the age of tax debt) and the methods used to resolve tax debt cases.

Inland Revenue has acknowledged that this type of information would enhance its external reporting, and is already reported in its existing internal management information.

Inland Review has also told us that its debt management system limits its ability to report on the actual methods it uses to resolve debt cases. Our view is that this information is critical to selecting the most effective and efficient set of actions for managing tax debt within the available resources.

Internal reporting of tax debt

Variations in Inland Revenue's internal performance reporting make it difficult to monitor the effectiveness and efficiency of its tax debt collection activities.

Inland Revenue uses a set of internal performance standards to monitor tax debt collection. Performance standards vary between the NCE group and the Receivables group, based on the responsibilities of each group. Receivables sections are each given a particular type of debt to focus on. Reporting within the Receivables group is less detailed than within the NCE group, and this makes it difficult to compare the effectiveness and efficiency of the different sections within the Receivables group. In our view, more comprehensive performance monitoring would help Inland Revenue to monitor the performance of the Receivables group, the sections within it, and the usefulness of the different work streams.

The types of cases that the NCE group focuses on are well defined. The NCE group's regular internal performance reports align well to its responsibilities, and provide an effective view of its performance. It produces performance reports for each manager's area of responsibility that provide an overview of how a manager's staff collectively perform.

Reporting varies because the Receivables group deals with a wider range of debt cases and is involved in more reactive work, responding to inbound telephone calls from taxpayers. This makes reporting more difficult.

We consider that Inland Revenue could expand its internal reporting to better monitor the effectiveness and efficiency of its different debt teams, and the approaches they are using to resolve tax debt cases.

Expanded internal reporting would help Inland Revenue to better monitor its ongoing activities, identify where efficiencies could be made, and help it to have more specific discussions with the Government about the level and kind of resources needed to collect any given amount of tax debt. Having a good understanding of the effectiveness and efficiency of the techniques it uses to collect tax debt is also important for Inland Revenue as it prepares its new tax debt strategy.

Recommendation 4
We recommend that the Inland Revenue Department improve the information used to monitor the effectiveness and efficiency of its tax debt collection work and to prepare its tax debt strategy.

Inland Revenue has told is that it supports this recommendation. It has noted that the proposed changes to its tax debt strategy will facilitate its ability to monitor the effectiveness of its debt collection activities. We have not audited these proposed changes.

Consistency of reporting

Inland Revenue's external and internal reports could be more consistent.

Inland Revenue's 2008 annual report explains that debt is increasing because of external pressures and that Inland Revenue is improving its efficiency in collecting debt. No other challenges are noted in the Debt Portfolio section of the annual report.

In contrast, Inland Revenue's internal reports cite a wider range of challenges that it is facing in managing its debt portfolio. Although we do not expect Inland Revenue to report everything externally that it reports internally, we expect Inland Revenue to more clearly note some of these challenges in external reports. For example, Inland Revenue's internal reports note that it needs to change its approach to keep up with rising debt. We would expect to see this clearly stated in external reports.

We expect that what is reported internally and externally will vary to accommodate the needs of different audiences. However, we also expect Inland Revenue to present essentially the same high-level information in both kinds of reports.

Recommendation 5
We recommend that the Inland Revenue Department closely align its internal and external tax debt reporting.

Inland Revenue has told us that it agrees with this recommendation and that its staff involved with debt management will be working with other parts of Inland Revenue to ensure that internal and external reporting are more closely aligned.

1: The Auditor-General's observations on the quality of performance reporting, page 4.

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