ATO needs to lift game collecting unpaid superannuation, audit finds

ANAO says the Tax Office’s compliance activities are only partly effective. Photo: File.

The Australian Taxation Office (ATO) has been urged to increase its enforcement, take more of an industry-based and preventative approach and set performance targets to improve its collection of workers’ unpaid superannuation from employers.

The Australian National Audit Office (ANAO) has found that the ATO has only been partially effective in identifying and dealing with employers who try to avoid paying the Superannuation Guarantee (SG) introduced in 1992.

Employer SG contributions in 2020/21 were $74.1 billion. The amount of SG debt was $2.7 billion.

The audit found that the ATO had not fully implemented its risk-based compliance strategy, which is designed to shift the focus from a reactive approach through enforcement to a preventative approach that encourages voluntary compliance.

It found compliance activities were still largely reactive. Furhter, the preventative approach depended on being able to match data but technology issues had limited the use of real-time data-driven analysis.

The ATO did not specifically target higher-risk industry sectors but selected cases where the greatest debt could be recovered and there was a greater likelihood of a higher strike rate.

In 2016 the ATO began to develop a high-risk industry strategy that would target three industries – cafés and restaurants, hairdressing and beauty services and investigation and security services – but it was not pursued.

The ATO told the ANAO in February that a pilot program targeting the café and fast food industry, identifying about 500 employers using existing data analytic tools, would be finalised by the end of April 2022.

The ATO’s top-down approach to measuring the SG gap or percentage of employers not paying up does not provide risk intelligence by market segment or industry sector. The audit says a bottom-up approach using tax and superannuation data at the individual employer and employee level has the potential to provide this information.

The audit says it was hard to measure the success of the ATO’s compliance activities due to a lack of information.

“While there is some evidence that the ATO’s compliance activities are improving employer compliance, the extent of improvement cannot be reliably assessed,” the audit says.

“Public reporting of performance does not provide adequate information to evaluate the effectiveness of the ATO’s SG compliance activities.”

The audit found that the 2019/20 bushfires and COVID-19 pandemic impacted debt recovery but compared to the increase in total ATO debt during 2020/21, SG debt increased disproportionately.

It says stronger enforcement powers received in January 2019 have gone largely unused, firm compliance activity was less frequent during 2019/20 and 2020/21 and elements of new systems were turned off.

“Pauses in enforcement were intended not to apply to egregious and criminal cases but enforcement against phoenix operators through Director Penalty Notices also decreased from 2018/19,” the audit says.

The audit urged the ATO to make greater use of its enforcement and debt recovery powers and develop performance measures for evaluating the effectiveness of debt recovery.

The ATO agreed to all recommendations.