Regulators are increasingly using data in innovative ways to support both improved compliance outcomes and better client experiences. This includes:
- simplifying the client experience by providing online application processes, as well as in-built help including validations, tools and calculations
- reducing the reporting and compliance burden by pre-filling responses from internal and external sources and by ‘piggybacking’ on accounting software solutions
- using real-time compliance ‘nudges’ based on analytics and risk models to prompt clients to review and revise their information to minimise inadvertent errors
- using data for risk profiling, including ranking entities by potential risk
- providing personalised data and insights ‘back’ to regulated entities on their individual business performance and/or local customer profile, including ‘nearest neighbour’ benchmark comparator data
- publishing analysis and insights including performance reports enabling businesses to compare their outcomes against their peers, mitigate safety risks and improve market access.
Real time ‘nudges’ can prompt clients to review and correct information before lodging forms, while more streamlined processes, such as pre-filling forms and surveys, can reduce compliance costs and simplify interactions with regulatory systems.
Giving data ‘back’ in the form of insights and performance information can offer incentives for regulated entities to regularly report and share data, as it can provide insights into the strength of the business relative to competition. Receiving information back can also help overcome the ‘perception of compliance burden’.
Set out below are case studies from the Australian Bureau of Statistics, Australian Financial Security Authority, the Australian Taxation Office and the Department of Agriculture, Water and the Environment.
Australian Bureau of Statistics (ABS): Streamlining ABS survey reporting for small to medium enterprises
The small to medium enterprises (SME) Burden Reduction project aims to reduce the burden on SMEs by leveraging the use of accounting software platforms to pre‑fill ABS survey responses through a new ABS app. The project also aims to provide participating SMEs with the opportunity to get personalised data and insights back on their business performance.
Burden reduction in filling out surveys
SMEs spend an estimated 87,500 hours each year completing the three most common ABS business surveys. The surveys are time consuming, complex, manual and duplicative.
By using the ABS App and the data in a SMEs accounting software, SMEs are estimated to experience an 85% reduction in the time completing the Quarterly Business Indicators Survey (QBIS). Depending on the size and type of business, this equates to a reduction per QBIS survey of approximately 50-110 minutes.
By piggybacking on accounting software solutions and taking the ‘search’ challenge out of reporting, the new app will also be ‘easy to use’. A simpler, quicker task reduces inconvenience for the user to a bare minimum.
Personalised data and insights
Businesses also will have the opportunity of ‘getting data and insights back’. The ABS will introduce an option of providing a personalised insights report into their business performance and/or a local customer profile as an incentive to utilise the app. Instead of obligation, mutual benefit will underpin providing the information.
Based on our industry consultation program, there is a demand for useful benchmark-type comparator data. To hit the mark, a product would need to be timely, granular and customised. It should report performance ranges (such as quartiles), not just averages. It is evident that SMEs and their advisors could use benchmark data and insights to evaluate their performance relative to other like businesses in their industry and/or region and make better, more informed decisions about their business.
With a growing reporting base of SME’s, ABS is uniquely positioned to produce timely benchmark indicators comparing performance of a reporting business with industry ranges and peer groups. These benchmarks would be based on data provided in QBIS reporting as well as drawing on other big data and administrative sources such as STP.
Comparative data produced by ABS could initially be provided at the Industry Division and State level but as participant numbers grow into the tens of thousands, more granular presentation of benchmarks would be possible as specific cohort groups become large enough. More granular data comparison could also be linked to the frequency at which a business reports, so that, for example, a monthly reporter might receive more detailed benchmarks than a quarterly reporter.
Providing data back to participants does not need to be limited to benchmarks. A second option would be to provide a participant with a localised profile of their customer base.
It is intended that the final shape of these products will be co-designed with user input and road tested before firming on implementation. Over time their content and focus is expected to evolve as features are tweaked and user feedback grows.
The purpose of this activity is not just about creating an incentive for ongoing participation, but to help overcome the ‘perception of burden’. It should be thought of not as a ‘freebie’, but as an acknowledgement of the effort put into reporting data to the ABS and connecting users with an output related to that effort. In respect of ABS, it is also a tangible sign that is taking up a sense of ‘mutual’ obligation.
Australian Financial Security Authority (AFSA): Regulatory use of data and intelligence
As AFSA continues our digital transformation journey, we are increasingly focused on using data and intelligence to inform our regulatory approach. We have always collected data from stakeholders and through our statutory reporting requirements, and we now also focus on environmental monitoring including court decisions, media reports, tip-offs and intelligence shared by co-regulators.
Like many regulators, we have experienced challenges in interpreting, connecting and using this data to address non-compliance. It has been particularly challenging to use administrative data for a regulatory purpose so, in addition, we focus on designing methodologies that enable us to capture behavioural data. Development of these methodologies helps guide investment planning and refines our areas of focus to gather regulatory intelligence. We have also changed the way we analyse data to understand more about our regulated individuals and entities. This helps us understand the risks and harms that currently exist and enables us to implement changes that address potential non-compliance and focus our attention on the greatest risks and potential harms.
Practitioner risk profiling
In our personal insolvency operations, we introduced practitioner risk profiling – a scoring system that draws on our data to rank regulated practitioners by level of potential risk. Each profession/industry and its areas of risk evolve over time, requiring us to continuously scan for behaviours that may predict a future harm. This risk profiling is a live system to which we have recently incorporated qualitative data. By aligning and analysing all the data we hold, we can focus our attention and allocate our limited resources to areas which pose the greatest risk.
Bankruptcy and non-compliance
Independently, and in collaboration with the Australian Government’s Behavioural Economics Team, we researched the underlying issues that cause non-compliance in a bankruptcy. The evidence gathered pointed to two issues underpinning non‑compliance: lack of awareness and the complexity of information.
Consequently, we released new resources in a variety of formats to raise awareness among those considering bankruptcy as well as professional groups, like accountants, that do not specialise in insolvency. We also developed an online interactive tool outlining the consequences of bankruptcy, which has been well received by both the insolvency sector and public. We continue to simplify our information resources and are undertaking a wholesale review of the terminology we use and introducing plain English into all our public facing communications. We believe this proactive approach to providing accessible and engaging information will result in greater compliance from the outset.
As a dynamic agency, AFSA uses data and intelligence to ensure we are an effective, best-practice regulator. Last year we introduced an online bankruptcy application process – a very successful initiative which significantly reduced errors and incomplete forms being submitted.
Our recently published Regulatory Charter also references our use of data and intelligence to underpin our approach to regulation. We are now in the process of redesigning our services informed by user experiences and journeys, which we believe will not only improve our services, but will also lead to increased compliance.
Australian Taxation Office (ATO): Designing a tax system that makes it easier for taxpayers to comply
Advancements in digitisation and data have completely transformed the ways Australians manage and interact with their tax and super system. The ATO is recognised as a world leader in this regard.
The ATO is making the most of these advancements to ensure that, for the vast majority of Australians who want to do the right thing, their interactions with the tax and super system are as simple and painless as possible. This includes significant investments in strategies to improve client interfaces, particularly ensuring that its technology interfaces are better and easier to use as well as leveraging technology and data to drive compliance at the ATO leading to significant improvements in tax performance.
The ATO is supporting individuals, small business and large corporate groups in various ways as set out below.
Individual income tax returns – pre-fill and compliance
The ATO supports clients and their representatives to report information correctly in their tax return to influence voluntary compliance. A key contributing factor to Australia’s high compliance rate is third-party data, which we use to pre-fill information in a client’s tax return.
- 180 million records enter the system via pre-fill services every year. This assures $564 billion in Individuals’ income
- 1.1 million reporters report data for pre-fill
- Ongoing engagement with key third party data reporters facilitates opportunities for earlier lodgement of pre-fill data, whilst ensuring quality and integrity are maintained
- Clients who lodge before their pre-fill information is available have a 20% chance of not reporting accurately compared to 5% of those who do wait.
MyTax – Using data to support self-preparers
The ATO’s online individual income tax return is available for all individual clients. It uses a range of different methods to ensure good quality data is received, supports users to correctly complete their return, and provides additional assistance to support compliance.
- automatically pre-filling information from ATO systems (internal and external sources) into the right question
- showing clients any partial information we have that can assist with completing calculations
- real-time alerts, validations and calculations to simplify the client experience
- in-built help including tools/calculators – using data already entered into the tax return
- incorporating rules from the ATO’s processing system to ensure only valid and complete returns are lodged
Real-time compliance nudges
The real-time analytics system analyses information the taxpayer has included on their return and prompts them to review if we think there may be an error.
The timing of the intervention is key – we prompt taxpayers just before they lodge, when it’s easy for them to check their information.
- Several different risk models operate across different income and deductions types to identify which taxpayers to nudge. The dominant one uses statistically sophisticated ‘nearest neighbour’ techniques to identify where someone’s work-related expenses claims are unexpected compared with others like them.
- Real-time analytics operates in myTax, and is also available for tax agent software developers to access.
In Tax Time 2020, we nudged 340,000 taxpayers. 45% went back to check their return before lodging, and two-thirds of these made a change. The revenue implication of the changes was around $38 million.
Small business benchmarks
The ATO’s small business benchmarks are a guide to help businesses compare their business's performance against similar businesses in the same industry. The ATO releases updated benchmark ratios each year, with the most recent data from 2018-19.
A number of measures need to be met to ensure a small business benchmark is relevant and statistically viable. For this reason, there is only a limited number of label level data and industries available. The methodology used to develop them has been reviewed and assured by an independent third party.
The ATO’s business performance check tool also uses benchmark data and is available by downloading the ATO app. This provides clients with an easy-to-use interface where they can input their own business figures and calculate where they sit based on the benchmarks. This helps the business quickly gauge the strength of their business and keep an eye on their competition. It also encourages self-revision and correction of lodged tax returns and Business Activity Statements.
With advances in technology, the ATO has improved the basic benchmarks to deliver enhanced case selection methodologies and expanded the suite of differentiated compliance products and newer services aimed primarily at helping clients get it right. We have explored how to better group ‘like for like’ clients and compare them through the use of ’nearest neighbour’ benchmarking.
In effect, you could say that rather than looking at the entire fruit bowl, the ATO is now comparing similar-sized apples that are of the same variety. Used in combination with other case selection risk models, the benchmarks through the ‘nearest neighbour’ method have enhanced the ATO’s ability to detect and target behaviours of concern and use their resources more efficiently.
The ATO is trialling a new feature for businesses when they lodge their tax returns to help them comply with their tax obligations. If there is an anomaly based on benchmarks, the system will prompt the client to double-check their figures before submitting their tax return. This feature is currently only available via the myGov platform which limits the population to sole traders who are self-preparing their tax return.
However, even with this limited trial, the ATO has observed around one in four clients who have received a nudge message go back and make adjustments to their tax return before they finalise the lodgement. This has resulted in savings to the client and the ATO through the prevention of subsequent compliance activity and providing an overall better client experience.
Large market taxpayers – the ATO’s Justified Trust Initiative
Australia has a high reliance on corporate taxation. Large corporate groups contribute around 60% of all reported corporate income tax. To have an effective tax system, a high level of willing participation is critical. This is built on the community having confidence that taxpayers are paying the right amount of tax. Large corporate groups play a critical role as community perceptions of their compliance unpin willing participation in other taxpayer populations.
The ATO’s incentives and metrics have been evolving in view of the increased focus on the tax paid by large corporates from Government and the community. This has forced us to think deeply about how we communicate to the public on how well the tax system is working. Whilst traditional strategies and metrics (such as revenue collections, audit yield and efficiency measures) continue to be critical, the ATO has developed other strategies and metrics focused on the reporting of tax system health.
The ATO’s “justified trust” initiative involves annual comprehensive assurance reviews of the top 100 largest public and multi-national corporate groups and periodic comprehensive assurance reviews of the next 1,000 corporate groups with respect to their income tax affairs. Additional funding to the ATO has enabled the expansion of the initiative for a further three years, as well its extension to cover GST and large private and wealthy groups.
Using the justified trust approach to obtain assurance
To achieve justified trust, the ATO seeks objective evidence that would lead a reasonable person to conclude a particular taxpayer paid the right amount of tax. This is a higher level of assurance than confirming certain risks do not arise. The ATO considers four focus areas:
- the taxpayer’s tax risk management and governance framework
- whether the taxpayer is involved in any arrangements we have indicated to the market that we are concerned about or consider high risk
- the tax impacts of current business activities, particularly any significant or new transactions the taxpayer has entered into, and
- why the accounting and tax results vary.
We advise the taxpayer of their review outcomes
The outcomes of our justified trust assurance reviews are discussed with taxpayers including detailed tax assurance reports. These reports use a traffic light rating system to communicate the review’s outcomes and whether the taxpayer is considered to have paid the right amount of tax.
The use of a high-level summary with colours has proven to be more effective in communicating outcomes than relying on a detailed narrative.
We encourage taxpayers to take steps to improve their compliance
The tax assurance report discusses the areas where we obtained assurance that the taxpayer has reported the right amount of tax, as well as any identified tax risks.
Where an area is not assured, we recommend specific next steps to improve their compliance processes and follow up on these recommendations. Where we have significant concerns around the taxpayer’s compliance, including deliberate tax avoidance, the taxpayer is comprehensively reviewed.
Each year we publish our findings from each of the justified trust assurance programs, enabling each taxpayer to compare their outcomes against their peers and track how assurance ratings are improving over time. This encourages taxpayers to continue to take steps to improve their compliance processes.
The ATO has also started to publish the aggregated disclosures made by companies in their Reportable tax position schedules. These disclosures provide insights as to whether Taxpayer Alert arrangements have been entered into, and the “risk zone” of transfer pricing positions. These reports allow companies to understand how they stand relative to their peers. We are told that many Boards and directors find this information extremely useful.
Benefits of the justified trust initiative
Taxpayers, shareholders, other key stakeholders and the wider community benefit as the initiative:
- provides certainty about their tax outcomes and the effectiveness of tax governance processes
- ensures Boards can be confident they are aware of, and understand, the ATO’s assessment of the tax profile of their organisations
- provides an objective mechanism to understand how the ATO’s assessment of the tax profile of their organisation compares to their peers and others in the market, and
- provides shareholders and the community with insights and confidence about Australian tax outcomes and the tax contribution of the organisation where a taxpayer chooses to publicly disclose their assurance ratings.
Over the last two years, we have seen a significant shift in the number of taxpayers attaining overall high assurance and justified trust. We have also seen a positive shift in the market’s perception of justified trust and the ‘currency’ of the ATO’s assurance ratings is becoming highly regarded. In addition to the increasing number of taxpayers who are publicly disclosing their assurance ratings, we are also seeing the ATO’s justified trust rating increasingly used as a KPI of tax functions.
The outcomes of these reviews contribute to the tax assured results published in the ATO annual report. The tax assured results also play an important role in estimating the tax gaps. The tax gap is an estimate of the difference between the amount the ATO collects and what we would have collected if every taxpayer was fully compliant with the law.
- For large market corporate tax, our income tax gap estimate is that large corporates paid about 92% of their tax due at lodgement and 96% after compliance activity.
- Our ambition is to move this to 96% at lodgement and 98% after compliance activity.
The tax gap estimate is an important whole of system measurement and together with tax assured, these metrics provide the community with a deeper understanding of large corporate tax compliance, and our performance as an administrator.
Individual taxpayer communication, tax assurance reports and large market communication
For some of the large corporate population that we manage, the ATO conducts periodic assurance reviews that usually cover a 4-year reporting period. Through this program, we gather and capture data which is used to analyse and communicate with the market to assist in increasing voluntary compliance.
Individual taxpayer communication
The tools we use message directly to our taxpayers but also more broadly to the market, including their advisors. These include:
- comprehensive online guidance and support to prepare for a review, including the questions asked in a review and what the ATO looks for to obtain high assurance
- publishing and advising the market on what attracts our attention (i.e. higher risk areas)
- early notification letters to give taxpayers advance notice of their review. We encourage them to self-review and to make voluntary disclosures if they have made errors.
Large market communication
We gather large amounts of data from the reviews to analyse and gain insights. These insights are shared with the market through various means including publishing our findings reports which capture a collective picture of the assurance reviews from our programs. We publish a report for each of our assurance programs. This enables taxpayers to compare their results with their peers. Our reports include statistics for each area we review and industry groups and key insights.
Individual Tax Assurance Reports
At the end of every assurance review, we issue a detailed report to the taxpayer covering each area reviewed and our assessment (based on the evidence) of their tax affairs. This assessment uses a standard rating system using traffic lights. The larger the traffic light, the more material the risk or issue.
An Executive Summary is commonly provided to the company’s board or senior decision makers. A standard ratings guide provides consistency across the market.
Department of Agriculture, Water and the Environment (DAWE): Export Meat Program – Analysis and reporting of red meat processor performance data, and improving regulatory and market access outcomes
The Australian red meat production system is Australia’s largest manufacturing sector. Australia exports red meat to over 100 countries, representing over 60% of the industry's total production. In 2020-21, the value of red meat exports was $12.3 billion.
From farmers through to processors, the department both interacts with, and regulates, a variety of industry participants.
The export meat program within DAWE, delivers a range of regulatory activities to certify that meat and meat products for export, meets Australian export and importing country requirements.
In partnership with the red meat industry, the department is 12 months into an ambitious modernisation agenda – transforming Australia’s regulatory approach to enable the export meat sector to be more competitive in international markets while maintaining our reputation as a producer of high quality, safe meat.
One of the key pillars in modernising our regulatory approach is ensuring that timely and high-quality information is available to the red meat processing sector to assist the sector, and the department, embed a risk-based regulatory approach. With this in mind, the department has developed its Product Hygiene Indicator (PHI) Report, aimed at delivering interactive, benchmarked and meaningful establishment hygiene performance reports, based on data collected through the Meat Export Data Collection system.
The provision of these reports enables a stronger, proactive regulatory position and, as a consequence, improved market access.
- An emerging issue relating to food safety can be identified earlier, meaning these risks can be mitigated before they materialise.
- Our trading partners can be assured that the department, as competent authority, have real time systems in place to ensure they are receiving product that meets food safety requirements – we can show national performance data
- Our state and territory counterparts can be assured that the department, in undertaking regulatory activities on their behalf for the domestic market, have real time systems in place, ensuring all food safety requirements are met.
The first iteration of the PHI reporting tool has been rolled out to both departmental regulatory staff in addition to regulated red meat export establishments. Key to the success of the project is ensuring information asymmetry between the regulator and the regulated is minimised.
By ensuring the red meat export establishments have the same view of data to that of the regulator enables proactive discussions, based on fact, to be had, improving both regulatory outcomes in addition to promoting a proactive, transparent relationship between the parties.
This reform is central to the introduction of a risk-based auditing regime. From 30 September 2021 high performing export red meat establishments are able to transition to annual rather than six monthly audits, saving approximately $13,500 in departmental audit charges annually.
This approach aligns with the department’s Regulatory Practice Statement and the Future Department Blueprint in using data and analytics to make evidence-based, transparent and timely regulatory decisions, and to regulate in a cost-effective manner.
The department has also been working with our trading partners on several information sharing strategies. Australia’s efforts in these areas will be greatly enhanced by improvements in our data reporting capacity. These initiatives include:
- Working with the Strategic Food Safety Dialogue (SFSD), a group of senior food regulators from Australia, Canada, the European Union, New Zealand, the United Kingdom and the Unites States, to explore new ways to share data and other food regulatory information. The aim is to enhance mutual confidence in the food regulatory systems among member countries and other trading partners, potentially leading to reduced regulatory measures such as in-country audits, and border inspection and testing.
- Developing a pilot information sharing arrangement with the Canadian Food Inspection Agency, which aims to be a practical output from SFSD discussions. The intent is to develop an information sharing framework, using meat as an example, which can be expanded to other commodities and trading partners in the future.
- Working with a consultant to do a stocktake of food regulatory data and other information for food in international trade. This involves talking to Commonwealth, State and Territory food regulatory agencies about the information that they hold, as well as talking to a number of key international trading partners about the ways they use food regulatory information. This will inform the pilot work with Canada, as well as input into the division’s ‘Advancing Market Access’ project on food regulatory information sharing.
Our next key areas of focus will include:
- Working with industry to integrate meat processor databases with the department’s MEDC system to remove the need for manual data entry and to improve timeliness of performance reporting.
- Sharing meat processor performance data with regulatory stakeholders in states and territories to improve regulatory outcomes for domestic producers.
Our aim is to not only reduce our regulatory burden and costs on Australia’s meat export industry, but to also enhance our market access opportunities and reduce regulatory measures imposed by trading partners such as in-country audits, and border inspection and testing.
The work being undertaken by the department to modernise our data reporting framework will greatly assist to demonstrate in real-time the high performance of our industry in our day-to-day interaction with our trading partners. It will also be crucial in developing new information sharing arrangements with some of our key trading partners.