Agent engagement activities of the ATO
6 November, 2019 | Steve Burnham
Agent engagement activities of the ATO
Steve Burnham: Welcome to Tax & Super Australia’s podcast, Tax Wrap, where we share developments, news and insights for all tax practitioners and SMSF professionals. If you like what you hear, please rate us on iTunes and share. We’d love to hear back from you, so send questions and comments, even suggestions for guest speakers to firstname.lastname@example.org.
Hello, thanks for joining us, I’m your host, Steve Burnham. Tax Wrap had the pleasure of chatting to the ATO’s Tim Roach, who is Assistant Commissioner Agent Engagement and Assurance. Now, Tim has filled this role at the ATO for about five and half years, he tells me, but he’s an accountant by profession and a CPA, and in the past has been a CFO in the WA government, and he actually was the Executive Director of West Australia’s Department of Indigenous Affairs.
So he’s definitely not a typical career public servant, and has not been an ‘ATO lifer’ as they put it, but has come from very hands-on roles in business, and tells me he actually thinks of himself primarily as an accountant. However, as Assistant Commissioner Agent Engagement and Assurance, I was very interested to get a grip on what practitioners can expect from the ATO in this regard.
Hi Tim. Thanks for joining us.
Tim Roach: Hi, Steve.
Steve Burnham: It’s a pleasure to have you on the Tax Wrap podcast. Now, your title, Assistant Commissioner at the ATO, Agent Engagement and Assurance, perhaps if you could just explain what that covers to our listeners.
Tim Roach: Thanks, Steve. Yeah. Look, my responsibility is working right across the agent population, but focusing pretty strongly on agents where we’re actually seeing problems.
Steve Burnham: All right.
Tim Roach: So I work pretty closely with our audit staff, right across the ATO, but also, I’ve got a good relationship with the TPP. But dealing with areas where we’re actually seeing some behavioural concerns …
Steve Burnham: Right…
Tim Roach: … and stepping in and we’ve got a program of interventions and a program of interaction with the agent community. I spend a lot of time actually dealing with the professional associations as well and working with the professional associations to make sure that we’re all on the same page.
Steve Burnham: Yeah. The bodies who represent the practitioners throughout the country.
Tim Roach: Correct.
Steve Burnham: It’s interesting how you say that because I recently read about, there’s a plan, the ATO is going to start paying visits to practitioners across the country. I think I read somewhere, there’s about 8,000 agents to be visited over the next four years. So 2000 per year, I assume. Can you tell me a little bit about that program?
Tim Roach: Yeah. So, that came through from the recent black economy funding measures that came through in the federal budget.
Steve Burnham: Right.
Tim Roach: Michael Andrew, who headed that black economy task force, you might recall, was really strong on saying, look, tax agents are a way of addressing the black economy problem as well as it’s sometimes part of the problem themselves. So Michael Andrew’s big sort of push was that we need to create a level playing field so that there can’t be an unfair advantage accruing to tax agents who are encouraging bad behaviour.
Steve Burnham: No. No, of course.
Tim Roach: We want to be supporting the tax agents who are really helping their clients to do the right thing and to clear all their income and accurately record and claim all their expenses.
Steve Burnham: I suppose when practitioners are at the forefront of the people behind them who are hopefully doing the right thing, but as you said, some of them don’t. In that report that I was reading about the 8,000 agents to be visited over four years, it was emphasizing I think, that the visits would be paid to practitioners who are committing quote, “avoidable mistakes.”
Tim Roach: So what we’re doing, Steve is we’ve got a range of indicators. So we’re not like picking out 2000 agents who are acting highly unprofessionally …
Steve Burnham: Right.
Tim Roach: … but we’re picking out each year, as you say, so it is 8,000 in total. Each year we’re picking out around 2000 who we’ve identified as potentially starting to run into problems.
Steve Burnham: All right.
Tim Roach: And we’ve got a range of indicators.
Steve Burnham: I just wonder if you can go through that range of indicators for us.
Tim Roach: Yeah, sure. Yeah. I mean, the sort of things are, we’ve got a lot of data on work correlated expenditure for individual clients for example. So if we’ve got an agent that we’re starting to see a trend that one particular agent in an area is claiming their clients are climbing much greater work-related expenditure than a similar agent in the same geographical location and a similar agent with similar clients, then that’s a bit of a flag. Similarly, you’d be familiar I’m sure, with the cash economy benchmarks that we put out that have a range of ratios in relation to small businesses. So we can look at that data and we do look at the data across tax agent practices and if we go, “Hmm, Sharon, the tax agent in Dandenong, her clients are well outside or much, much further to the right,” if you can imagine in analysing the benchmarks, “than the other agents in Dandenong with a similar client patch.” It raises a flag to us.
Steve Burnham: All right, yep
Tim Roach: One of the others ones we’re looking at as well is that traditionally we’ve seen where agents grow rapidly, there can be some problems. If you’ve got an agent who starts out as a sole practitioner or maybe one or two agents together acquiring fees and growing fast, often you can see that some problems start to arise.
Steve Burnham: Sorry about interrupting, Tim. So now you just reminded me of a case that I was reading about, about a tax agent in Queensland. I think he was working next to a mining area and a lot of the claims were coming in for travel costs, an exponential growth in these claims and I think he got into trouble for that. So you’ve just reminded me about that case.
Tim Roach: Look, we’ve got what we call analytics.
Steve Burnham: Yep.
Tim Roach: Data crunching capacity that the ATO has got, has been improving hugely over the past four to five years. And we’ve got some pretty sophisticated machines that really identify and show us trends, both large trends but also right down to the individual agent level and right down to the individual tax payer level and we can pick up all sorts of…
Steve Burnham: Anomalies.
Tim Roach: … that’s probably the way to put it.
Steve Burnham: Yeah. Okay. When you mentioned data, again, you might be able to clarify this. There were some reports that some of the blame, if you like, for say the tax gap, there was some blamed sheeted home, some prefilled data anomalies. Is that something that is a reality?
Tim Roach: I think what you’re sort of talking about probably is that we’ve recently corrected a whole load of tax returns, so I think it was 112,000. Around 112,000 tax returns in the first couple of months of last tax time. And what we found there was that the proportion of… (now these were collected from largely on prefilled data) … and what we were seeing was that the proportion of returns that were prepared by agents that had things wrong were about the same as the proportion of returns prepared by individuals themselves had things wrong. But that sort of stuff, I probably wouldn’t link that with the tax gap so much at the moment because what that is is those returns are essentially, they’re corrected on the basis of prefilled data.
And some examples of the prefilled data, the big errors that we are seeing, is that where people don’t include salary and wages, don’t include banking interest, it’s that sort of thing. So I wouldn’t necessarily say that’s the tax gap because it’s a particular slice of prefilled data that we’re looking at, and through the correction process.
Steve Burnham: Okay. If that was a misconception out there, it’s good to have that clarified then actually, Tim. That’s good. So, there can’t be that large a slice of shady agents, is there? I mean we’re not talking many people are we?
Tim Roach: I’d steer away from the term shady.
Steve Burnham: Okay, good. Good.
Tim Roach: But we are definitely seeing that the majority of, certainly in relation to the individual returns, the majority of individual returns that we look at are prepared by agents. And majority, certainly more than 50%, there are errors.
Steve Burnham: Okay.
Tim Roach: Errors of enough magnitude that when we look at them, it needs correction. So we’re seeing a lot of errors. Yeah.
Steve Burnham: Sorry, yeah, go on.
Tim Roach: Yeah, well, it’s just… I mean, you don’t want to jump to the conclusion necessarily that this is shady agents. From what we’re seeing is that it’s a combination of a few things. Some of it is deliberate. Definitely, some of it’s deliberate. We’re also seeing that the information that taxpayers provide to tax agents is deficient. And then of course there’s the question of did the tax agent ask enough of the tax payer to say, “Have you given me everything? Have you given me everything accurately?” So we’re seeing, I think what you’d call lack of controls in looking at the information provided by the tax payer to the tax agent.
Steve Burnham: Yeah. Yeah, I see
Tim Roach: And then at the other end, we’re also seeing a bit of… And I mentioned earlier firms growing rapidly, but we’re seeing issues where you have a principal, and you have a principal tax agent and a number of staff working in the practice. And over time, sometimes, particularly where there’s rapid growth, the level of checking of those less experienced people who are working in the practice can fall away. So we’re seeing an issue there. We’re also seeing, though, to be totally honest, and I’m an accountant, so I’ve got a great level of sympathy and empathy for people out there, and I know how tough it is to keep up with the tax law. But we are also seeing tax agents whose capability needs to be lifted and just understanding of the latest tax law and the changes. And it’s a tough job keeping up. I know …
Steve Burnham: … oh, it changes all the time. Exactly…
Tim Roach: … yeah. Yeah. So they’re probably the three big things that we’re seeing at the amount, lack of control over what the client is telling the agent, lack of control over employees in the practice, and lack of capability, lack of understanding about tax law.
Steve Burnham: Right, okay. But what’s the approach? How do you handle these situations where those three occurrences happen? What’s the ideal approach?
Tim Roach: What put a real range of approaches and it links very much with… If we see X happening, we’ll do Y. So for example, if we are seeing… when we go out and we see the really good agents that are really capable, basically our interaction with those agents is about supporting them as much as possible. And I have to make the point, yeah, we’re talking here. My focus is largely in fixing up problems that we’re seeing with agents, but the vast majority of the ATO is investment in the agent spaces supportive. It’s about PLS, it’s about seminars and education and assistance. But for good agents, we’ve got this huge education and assistance programs happening both face-to-face and phone lines and webinars-
Steve Burnham: And the forums and things. Yeah.
Tim Roach: Forums, open forums yeah, all that sort of stuff. And then as we sort of move up and we start to see bigger problems, then we start to have interventionist interactions, for one of a better way to put it, where we actually go out and we sit down with them. And some of the stuff, I talked earlier about, I’ll use the example of if we’re seeing a tax agent where a large number of their clients are outside the cash economy benchmarks, for example, we’ll actually go out and we’ll sit down with the agent and say, “This is what we’re seeing.” And this is part of the 2000 visits. We’re going out there and sitting down and saying, “Sharon, we have seen this. What’s happening?”
Steve Burnham: “What’s going on?” Yeah.
Tim Roach: So we’ve been quite transparent with what we’re seeing and depending on how that conversation goes, it might be that we walk away and go, “Yep, okay, we see in your particular geographic location, we can see that coffee shop ratios are like they are because of the cost of transport,” or something like that. And we’ll walk away or it might be, “Look, we can see an issue in that your staff perhaps don’t have a really good understanding of the way to deal with small business deductions. We recommend that you put your staff through some sort of training program.”
Steve Burnham: And suggest some training program or…
Tim Roach: We don’t tend to suggest them at this stage, but we’ll point out the areas where they might need to learn more.
Steve Burnham: Okay.
Tim Roach: We’re conscious that each of the professional associations have got their own training programs and there’s a broad range of providers. So [crosstalk 00:13:48] away from recommending anyone. But yeah, if you’re a member of a professional association, we might say, “Come talk to your professional association and see if they’ve got a program.” [crosstalk 00:00:14:00]-
Steve Burnham: Okay. So it sounds to me like there’s… When you use the word intervention, I tend to think of auditing and raids by men in black suits and things. But it sounds like you’re talking… Well, that’s a negative intervention, but there’s possibly… you could just say a positive intervention intention as well.
Tim Roach: Yeah, absolutely. And sort of… Look, it ramps up and there’s this real link between, the worse the behaviour is the stronger the intervention is. So we save the black suits and the black sunglasses for the really bad. And you read in the paper about we do some access visits where we go out, but they are the very bad ones that we’re involved. For example, criminal [crosstalk 00:14:43]-
Steve Burnham: But that is up your sleave. That is a card you could play?
Tim Roach: It is, definitely. And there is, if you look at the slice, that is where the behaviour is, is very bad and I talk a bit here about the behaviour determines the intervention. So the behaviour determines the interaction. So yeah, we’re seeing a very small number of agents that are involved in fraud, for example, or involved in promoting phoenix operations. Promote things-
Steve Burnham: That’s the bad end of the scale, though, isn’t it?
Tim Roach: The really bad end. And then we’ve got interventions such as, for example, we’ll take away access to systems.
Steve Burnham: Oh, really?
Tim Roach: If we think that there is some behaviour out there that is a real risk to the tax system or a real risk to the clients, remembering that the clients can really suffer from this behaviour. We have a process where we review it. We don’t do it unless it’s really bad and we’re very careful in how we do this because we’re conscious of the impact on practices and on the businesses. But yeah, from time to time we can, and we do from time to time remove systems access and of course we refer the very worst to the TPB and work with the TPB on looking at those tax agents. But I do stress this behaviour, this stuff that I’m talking about, removing systems and referring to the TPB, that’s a pretty small slice but we are there.
Steve Burnham: Yeah, but it is there.
Tim Roach: And I think with the vast majority of your listeners, that’s probably good news because I think we are very active and becoming more active in addressing the really bad behaviour as much as anything to create a level playing field. Those bad eggs are taking away clients and, again I talk about my own profession, I think my profession as being an accountant, not casting a dark cloud over our accounting profession.
Steve Burnham: No, no. Can I just ask, suppose… put to you a scenario that I’ve heard anecdotally though, I just wondered what the ATO’s view would be on this scenario where clients come to a practitioner and I say, “Come on, I want to claim this. Come on, come on, let’s do this.” And the practitioner thinks, “Hang on, I don’t think that’s quite right,” but is under some pressure to make a claim that’s possibly not completely kosher. Especially younger practitioners when they’re starting out, they want to build their client base. You might have a change of circumstances, you might leave a partnership and go off on your own and you want to build up that client base. What would your advice be to practitioners who are having some client pressure put upon them?
Tim Roach: And look, it’s a really interesting question, Steve, because I go out and do a lot of open forums and the situation that you’re talking about where the client comes along and puts the pressure on the agent, it definitely happens. I think probably one way to address it is to actually point out to them that the ATO is really ramping up our activities in looking at work-related expenditure for example, cash economy activity, and pointing out the fact that the ATO has got some pretty powerful tools now as well.
Steve Burnham: As on data matching, all that sort of thing that you mentioned.
Tim Roach: Absolutely. The power of the data matching software is incredibly impressive. And one of the things as well to point out to clients, I think, in that circumstance is that if we find an issue in this year’s return, we’re highly likely to then go back and look at past year returns.
Steve Burnham: Of course. Yeah.
Tim Roach: So it’s not a wise move. I think also from the practitioner’s perspective as well, you need to be looking at your long-term future and going, “Do I really want this client?” When you start to look at, okay, if you want to be a tax practitioner for the long haul… If you give that client what they want and place your own professionalism under a cloud this year, they’re going to come back next year and want the time thing again.
Steve Burnham: Well, and they’ll tell their friends about it and they’ll want the same dodgy deal I suppose.
Tim Roach: Yeah, that’s a good point, Steve. Actually, yeah. You go down a slippery slope, a Santa slippery slope. It’s just really not worth it.
Steve Burnham: You’ll be picking up all sorts of things on the way. It’s interesting, I was speaking to one of our members just last week. Shout out to Mark Leveson up in Queensland, MJL Accounting, and he’s been in practice many years and he’s actually said to me, he’s got to a stage where he can actually weed out and let go the clients he doesn’t want to keep and keep the ones that will keep him in business. And that was a good point. That’s kind of why I asked the question actually, because he was under some pressure from clients that he just didn’t want to cooperate and let them go. And he was glad he did it.
Tim Roach: I think part of it, Steve, is like, how well do you want to sleep at night as well?
Steve Burnham: That’s right.
Tim Roach: And I actually, I use that line with tax payers generally. If I’m talking to my family, my family will often say, “Oh, can I do this?” And I’ll say, “Well, how well do you want to sleep at night?” And I think probably from a tax professional’s point of view, the same thing applies. Do you really want those clients that are going to keep… and you’re going to be lying awake at night going, “What’s the chance of getting an audit after what we’ve just submitted?” So I think, how well do you want to sleep at night? And generally most of us, I think, would much rather have a good night’s sleep and not have to worry, then pick up that extra thousand dollars or so in a questionable fee.
Steve Burnham: Yeah, exactly. Yeah. All right, Tim. Look, it’s very enlightening and I’m glad we had a chance to chat to you. I’m sure our listeners will have gained a lot from that little exchange.
Tim Roach: That’s great, Steve. Thank you very much for the opportunity to be part of the podcast. So, speak to you again.
Steve Burnham: Thanks Tim, that’d be great.
So just to recap, we just heard from Tim Roach, ATO System Commissioner Agent Engagement and Assurance and that was an enlightening chat, I think.
Tax Wrap chats with the ATO’s Assistant Commissioner, Agent Engagement & Assurance, Tim Roach, on the agency’s activities and approaches to the tax practitioner community.