ATO website returns. But should outages count as ‘defective administration’?

By Stephen Easton

Wednesday December 14, 2016

Agencies like the Tax Office should anticipate the possibility of major IT failures and be prepared to compensate citizens for losses that result, according to an uncannily timely report from the Inspector-General of Taxation, Ali Noroozi.

The Tax Office website is back up now after about three days offline — a ‘catastrophic’ hardware failure wearing the technical blame — but a large number of citizens, businesses and tax agents were surely inconvenienced by the outage. The agency’s various online services continue to be slowly restored to full functionality, with updates appearing on the website regularly.

Hardware failures like the one the ATO blames for its crippled website can happen to the best of us. One like this has never happened anywhere in the world before, according to the agency’s chief information officer — suggesting this is more bad luck than bad administration.

But should the bar be higher in a digital age? Noroozi believes the potential for website outages to impact on taxpayers and tax practitioners is a foreseeable risk and that Tax should bank on the possibility of paying out compensation for losses that result.

By sheer coincidence, his report dropped yesterday while the ATO was still in the middle of the surprisingly long period of down-time.

The IGT considered the issue of IT system outages affecting consumers and stakeholders in a review of the Taxpayers Charter and the operation of protections like the Compensation for Detriment caused by Defective Administration (CDDA) scheme.

The official taxpayer advocate had already heard complaints that “large scale IT upgrades undertaken by the ATO had resulted in significant delays in the processing of tax returns leading to dissatisfaction for both taxpayers and tax practitioners” in the context of the agency’s change program, Reinventing the ATO, which involves various IT upgrades to improve services.

Noting a potential difference of opinion over what kinds of non-economic loss are compensable under the CDDA scheme, Noroozi reports tax agents “have met with significant difficulty in seeking compensation for losses of this kind” that arguably resulted from previous outages to the Tax Agents Portal. According to the report:

“The IGT remains of the view that, where the ATO undertakes large scale projects, such as those relating to significant IT upgrades, it should as a matter of risk assessment and good governance, particularly in the light of the requirements under the PGPA Act, consider catering for potential outages and teething issues which may lead to unintended delays and outcomes.”

Contingencies for outages, Noroozi suggests, could include “setting aside appropriate portions of the budget to account for potential compensatory payments as well as other measures such as expedited processes for investigation, escalation and communication with those affected” and his report adds:

“A similar approach may be necessary where existing systems suffer frequent failures over a significant period of time and effective remedial action which adequately deals with the issues cannot be taken in a reasonable timeframe.”

Ali Noroozi
Ali Noroozi

The ATO informed the IGT that its in-house lawyer already has a centrally managed budget for compensation and “asserted that there have been no identified instances where budgetary constraints have resulted in compensation not being paid”.

Noroozi points out the standard for “defective administration” is “not an easily understood concept” as it requires more than a mistake or accident, but doesn’t quite have to amount to deliberate or conscious maladministration. Any “unreasonable” lapse in normal procedure can qualify but, as the IGT states:

“Measurements of standards of reasonableness can be problematic, especially given the range of interactions between the ATO and taxpayers. Moreover, it can give rise to markedly different perspectives between the ATO officers charged with making the assessment and the taxpayer who has been affected.”

But based on the IGT’s report, it sounds like anyone wanting to claim compensation for this week’s website meltdown will be fighting an uphill battle. First, Noroozi’s report suggests the ATO makes it hard to even find out about the existence of the CDDA scheme, let alone up-to-date information on how it works and when it might apply. He reports:

“There is limited public information through the ATO’s website, or elsewhere, which provides a more detailed definition or illustration of the concept in practice. Therefore, an effective yardstick is not available to taxpayers or tax practitioners and they effectively have to lodge an application to find out whether the ‘defective administration’ standard has been met.

“It should be noted that the ATO may provide guidance in this regard through its assistance phone line or via a dedicated email inbox. The IGT understands that more tailored guidance, including the likelihood of compensation being payable, is available through these channels.”

Submissions also reflect “perceptions of bias and lack of independence” in how the Tax Office in particular administers the CDDA scheme:

“This perception stems from having the ATO form its own opinion as to whether its actions amount to defective administration and deciding the appropriate quantum of compensation for taxpayers. There is a strong view that having the ATO review and decide on the outcome of matters that it has purportedly mismanaged is lacking in basic procedural fairness.”

While the scheme applies across government, taxpayers and tax agents who responded to Noroozi’s review believe the ATO’s national reach and transaction volume make it unique among federal agencies, with some suggesting the IGT could take over its CDDA applications.

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