Technical Decisions - Quality Reviews

Each business line is required to report on the quality of its written interpretative decision making to the Corporate Assurer, Technical Quality, in Law and Practice (L&P).

To do this each line conducts a Technical Quality Review (TQR).

TQRs are conducted biannually, for decisions finalised during the periods 1 August to 31 January and 1 February to 31 July. The TQR reports are to be with the Law Infrastructure Branch (LIB) of L&P by 2 April and 2 October respectively.

The following steps are undertaken when conducting a TQR: • LIB will: • Identify the decision populations for review (paragraphs 21 - 29) • Select a valid random sample of decisions from each population (paragraphs 31 - 34) • Prepare the Corporate Assurer's report on technical quality. • Business lines will: • Form the review panel (paragraphs 11 - 15) • Review and rate each decision using the Judgment Model (paragraphs 9 - 10) • Use a moderation process where members of a review panel differ on the rating of a particular decision (paragraphs 16 - 17) • Assess each decision for compliance with a number of processes and procedures (paragraph 37) • Tabulate the results, complete the reporting template (paragraphs 35 - 36), attach the community representative's report (paragraphs 19 & 41), and input the results to the TQR Database (paragraph 39) • Obtain sign off for business line TQR report by an SES officer, and forward the report to LIB (paragraph 40) • Provide constructive timely feedback to every decision-maker whose decision is examined and to other relevant staff (paragraphs 43 - 45).

A TQR is an examination of a random sample of written decisions (eg private rulings) provided to our clients on the interpretation and application of the laws administered by the Commissioner. It is also an examination of some internal Tax Office decisions such as ATO Interpretative Decisions (ATO IDs) to assess their quality.

To comply with the tax laws the community needs to understand them. One way to gain this understanding is through written advice provided by the Tax Office. We aim to provide advice that is accurate, consistent, relevant and clearly explained.

We need to know how well we are doing this. TQR is one means of assessing our performance.

TQR is also necessary to: • Identify systemic issues that may need to be addressed to continue to improve the quality of decisions, eg Information Technology systems, work practices and staff skilling needs • Provide input into the determination of remuneration for Tax Office staff, and • Assess the level of compliance with mandatory work practices and procedures.

Each business line is to use the Judgment Model in conducting TQRs (a link to this document is available in the Other References section at the conclusion of this practice statement).

Each decision, other than Code of Settlement Practice Agreements (Settlements), is to be rated 'A', 'B', 'C' or Fail, (ie 'D' or 'E') in accordance with the Judgment Model. Decisions selected for review are to be rated as a 'Fail' if any of the following apply: • Failure to understand clients' questions • Failure to accurately identify and/or address all issues • Incorrect decision • Insufficient evidence (eg lack of documentation) in the decision report to arrive at the correct decision • Insufficient evidence from the taxpayer to support assumptions made, or • Incorrect application of the penalty provisions.

A review panel is to consist of at least four members, comprising: • one person external to the Tax Office (known as the community representative) • one LIB representative (if none available from LIB then one person from another business line with TQR experience can be used as a substitute) (paragraph 12), and • two people from the business line undertaking the review. There is an expectation that the business line's senior technical staff will actively participate in the review process.

A LIB representative will participate in each business line's TQR process. This person's role is to contribute to the corporate consistency of the process, provide process guidance, facilitate moderation where necessary, and to provide a conduit for feedback to enable further improvement of the process. If a LIB person is unavailable a person from another business line must participate.

A business line may decide to have more than one panel operating concurrently to complete a review. If so, the additional panel(s) may consist entirely of people from the business line undertaking the review. However, the LIB and community representatives must rotate between the panels.

Members of review panels are to possess appropriate technical expertise and security clearance relevant to the decisions under review. However, where a panel's expertise does not cover a particular matter, or it cannot reach a majority view on a rating for a decision, the panel is to seek specialist advice, for example, from a Centre of Expertise.

All reviewers are to have a sound understanding of the use of the Judgment Model. Business lines are to ensure continuity in membership of the review panels by including some members who participated in the previous review.

If a panel cannot reach agreement on a rating, the decision is to be moderated by members of another panel from that particular business line. The moderation process enables a final rating to be determined.

Where the moderation process has been used, the number of decisions moderated and the outcomes must be included in the business line TQR report.

At least one member of the review panel is to be from outside the Tax Office. The inclusion of external representation adds to the credibility and integrity of the results. This is enhanced through rotation of external members. Accordingly, a community representative must not serve on more than two consecutive review panels within the same business line.

Each community representative is to prepare a report, which is to be attached to the business line TQR report.

The community representative's report is to: • include the representative's name and qualifications/expertise • comment on the accuracy of the results including areas of disagreement • suggest areas for improvement, and processes to achieve improvements • make observations on the TQR process, including whether it was sufficiently independent from the original decision making process.

LIB, with the assistance of the business lines, is to determine the following decision populations for each business line for the review period: • All finalised decisions • Settlements, and • Penalty decisions.

The types of decisions to be included in the 'All finalised' population for each business line are: all written interpretative decisions such as private rulings, administratively binding advice, Class Rulings, Product Rulings, disputes, litigation, interpretative decisions arising from active compliance activities and other interpretative advice.

For Centres of Expertise, all published ATO IDs are also to be included in the 'All finalised decisions' population.

The decisions to be included in the Settlements population are all agreements which have been finalised in accordance with the Code of Settlement Practice (a link to this document is available in the Other References section at the conclusion of this practice statement).

In exceptional circumstances it may be necessary to exclude a settlement agreement from TQR examination (eg the settlement contains highly sensitive material).

Any such exclusion is to be approved, in writing, by the relevant National Program Manager. The approved statement of reasons for exclusion is to be attached to the business line report and tabled as part of the TQR Corporate Assurer's report.

A settlement agreement will not be excluded merely because it concerns a High Wealth Individual or a Restricted Access Client (refer paragraph 14).

A sample of penalty decisions is to be selected for review. This gives effect to recommendations outlined in the Australian National Audit Office report No.31 Administration of Tax Penalties . LIB is to forward the results of the penalty decisions to Compliance Penalty and Interest Team for review and follow up action.

The population is to consist of all decisions finalised, where penalties should have been considered. For example, the following are included in the population: audits where adjustments have been made, objections against decisions where penalties have been applied, decisions which apply or remit Failure to Lodge Penalty, Tax Shortfall Penalty, Shortfall Interest Charge and the General Interest Charge.

For each decision the review panel is to have access to all documentation necessary to review the decision. This is vital for an accurate assessment to occur under the Judgment Model.

LIB, with the assistance of the business line, selects a valid random sample of decisions from each of the populations outlined above.

The number of decisions to be reviewed for each population is determined by reference to Attachment A.

The sample is to be chosen using either a computer based random number generator or a book of random numbers.

A decision is not to be rejected as part of the sample simply because documentation is incomplete. These decisions are to be reviewed even though they may fail.

Each business line is to complete a TQR report template and send it to LIB by the due date (refer to paragraph 3).

The TQR report is to include: • The 'A' and 'pass' rating percentages for the 'All Finalised' decision sample • The 'A' and 'pass' rating percentages for the 'Penalty' decisions sample • A comparison of these percentages with those awarded in the previous period, and commentary on trends overall • An explanation where there is a variation of 5 or more percentage points from the previous period's results • The main reasons for the 'Fail' ratings (ie 'D' and 'E' ratings) • The moderation process used where there was disagreement on a particular rating including the number of decisions moderated and the final outcomes • Proposed mitigation strategies to address areas of concern • The effectiveness of previous mitigation strategies where undertaken • An explanation of any systemic issues affecting the quality of interpretative decision making • Commentary on the LIB and community representative reports, and • Where applicable, separate commentary on, and ratings for, Code of Settlement Practice Agreements.

Each business line's TQR report must include a report on conformance with the list of Law Administration Practice Statements at Attachment B.

LIB is to populate the TQR database with the samples to be reviewed by the sixth working day after the end of the review period.

Each business line is to update the TQR database with the results of their work items reviewed within two months of the TQR period ending (ie by 31 March and 30 September).

The business line TQR report is to be signed by the Senior Executive Service officer responsible for management of interpretative advice within the business line. The officer is to state whether, in their judgment, there has been an increase or decrease in the quality of written decisions when compared to the previous reporting period.

The report of the community representative must be attached to the business line TQR report.

During a TQR, interpretative errors may be detected in advice provided to clients. Where the tax laws permit, action is to be taken to rectify such errors.

The results of the TQR need to be promulgated widely in each business line, (eg Connect or Intranet business line site), and must include details of mitigation strategies to rectify any deficiencies identified.

Constructive timely feedback is to be provided to every decision-maker whose decision is examined and to other relevant staff, including authorising officers. To ensure that the feedback has current effect, it is to be provided within six weeks of finalisation of the relevant business line report. To acknowledge and reinforce proficient and excellent work, feedback is to be given to those decision-makers whose cases are rated 'Pass' or 'A' as well as to those whose cases are rated 'fail'. A random sample of cases is to be spot checked by corporate assurers subsequent to each TQR process to enable assurance that feedback has been given. Individual feedback must include: • Rating and TQR panel's comments, including the reasons for the rating in terms of the Judgment Model • Results of conformance checks • Any particular corrective action required.

Business lines must provide an undertaking in their TQR report that all necessary feedback will be provided by 14 May and 13 November.

The Integrated Quality Framework (IQF) will incrementally replace the TQR process as the Tax Office's corporate technical quality improvement and assurance process. Implementation of the IQF began in 2008; and completion during 2009 is expected. To reduce duplication of effort during the transition period: for business lines and products in respect of which the IQF has been implemented, individual decisions will be subject to the IQF only. Stipulated TQR sample sizes will be varied to account for business lines and products covered by the IQF.