Our guests continue discussing their TADAT experiences. In this second part, we focus on collaboration, integration, and organizational risk management. A key question is whether, in their own experience, tax administrations are operating as a cohesive community.
Hello and welcome back. I am Annette Schmitz from the TADAT Secretariat. In our previous episode, TADAT and Tax Administration Linkages, Tracey-Ann, Gord, Khwaja, and Simon discussed the value of the TADAT methodology and how they have used it in their professional engagements. They also shared with us insights on the importance of TADAT training and how it can catalyze collaboration within a tax administration. Today’s episode picks up where they left off.
Here’s part two:
So we're talking about collaboration and horizontality. But how can the extent of interaction or collaboration between these domains be measured?
Simon Peter Kiyingi
Well, for me, the extent of interaction and collaboration, I would really look at the level of process and system integration, things like unified compliance improvement plans, capacity building programs that are looking at the entire picture. You're looking at different domains during the training programs and letting everyone know how their work affects the other particular domains.
Yeah. So, what the TAJ facilitates and a lot of the tax administrations that I’ve had experience to be part of their assessment, they facilitate the interaction internally via their strategic division. Their strategic plans, their strategic services division, and the planning division where they will record quarterly reviews, giving the opportunity for different divisions to come together and share the limitations and the constraints that they're having, both internal and external.
I think measurement is a difficult concept here. It’s not easy and I think it really is predicated on what happens before you even want to look at measurement; and collaboration and interaction you have to ask, what for? Is it with respect to an outcome? And if it's with respect to an outcome, I think it's a matter of making each party recognize their role within the achievement of the outcomes.
So first you start off with who are the implicated parties and what are their particular roles in that outcome? And what do they do? Like what do each of the areas do in contributing to that outcome or that problem or to whatever it might be? You need to get them to see themselves in that outcome.
So maybe you need to help develop a logic model that really helps to allow them appreciate and understand their interaction, their role in the outcome that they're trying to achieve. And then when you get there, you start to have buy-in because people then start to recognize ‘I do have some responsibility for this, or I do have some accountability for this.
And flowing from that responsibility, maybe they develop this responsibility charter, and accountability charter, with agreed-upon measures so they determine what measures they need within the charter to demonstrate that they're equal in meeting that outcome or whatever that the problem is that they're trying to achieve.
And from that flows the need for interaction and collaboration. So, it's one of those things where measurement is absolutely essential, but maybe measurement is too far down the spectrum. Maybe what we really need to focus on are all the elements that build the collaboration, that build the interaction. And then, by the very fact that you've done these things, that measurement will then flow from that.
That's a very good point. I think we don't have to measure everything. There are certain things that we first need to build a culture for in the sense that to build a culture of cooperation, making people in other departments understand what people in your department are doing and vice versa, because it's a highly specialized function.
So if you're doing transfer pricing, you may not be knowing how enforced collections are done. So, having a kind of regular interaction between the same groups is something that is very useful and doesn't have to be measured. Maybe over time, when things become more interactive then measurement would be a way forward.
What are the implications of tax administration organizational complexity on risk management?
Based on what we've discussed so far, what I'm seeing is that for risk management, it now has to be championed and initiated at the strategic level, need to look at a more integrated approach with risk management, not only focusing on compliance risks but also focusing on operational risk, business continuity, human capital risk being two of the big-ticket items as well.
We also have to look at dedicating resources for risk management. Resources such as I.T. solutions, risk management specialists as well. We're looking at conducting more in-depth analytics, utilizing empirical data, and ensuring that you have collaboration in managing cross-cutting risks. Risk that affects compliance, that affects business continuity, risks that affect human capital as well.
You know, looking at all of those together and impact each other and managing them in a more corporate-integrated approach, because there are times when management in one area may be a positive. Managing or taking advantage of the risk in one area may negatively impact another area. So, for example, disaster recovery, where business continuity’s concerned.
If you decide that, your backup measure is going to be to shut down the tax administration for a day, so, you know, now it is going to impact compliance, and payments may become delayed. Right? So, you know, that corporate approach to risk management becomes at the forefront as tax administration operations become more complex.
And we're also looking at, and TADAT has included that and it has always been a big-ticket item for me, is evaluating and establishing our risk appetite and tolerance levels, because you're not going to be able to take advantage of all the opportunities out there and you're not going to be able to manage all of the risks out there, but you'll be able to lower them to a minimum as possible.
And based on your resources, based on your capacity to take risk, then you can make a decision on which risk you go after, which risk you manage, and your risk management strategies become more focused. Right? And effective as well, because that's what risk management is really about, to be proactive and to be resourceful and economic in your operations as well. So, in summary, the three main lines of defense as far as organizational risk management is concerned would have to be strengthened.
The front line, which is the owners of the risk; the middle line, which is the specialized person that you will have to oversee a risk management both on the operational side and the compliance side and having collaboration there as well; and also the third line of defense, which is corporate governance, accountability, and transparency, where internal audit now becomes a key role in that area.
Absolutely. I think you have hit the nail on the head for the last question because the last question was about, is there in practice a whole-of-agency approach.
And here transparency and accountability, are the key cornerstones for that because if you have transparency in your organization, if you have accountability, then you can carry the message much more effectively on what you are doing, what you have not been able to do and create the kind of discussion forum within the organization to help.
One of the things that the TADAT secretariat did a couple of years ago was to have a survey of not the senior management of tax administrations, and Simon may remember that, but of functional staff within the tax administration, because very often we don't get to hear their voice and they know where the shoe pinches. The senior management may not.
So TADAT did a very good job at doing that. And when it was brought to the senior management, they were shocked. They didn't know that these were the things that were causing problems. So, a whole-of-administration approach would require to go deep down and discuss the problems fearlessly.
Simon Peter Kiyingi
With the risk management, a number of people think that everyone in the organization is kind of a risk manager. Yes and no. And like Tracey-Ann said, it's very important to have that specialized unit that is handling the strategy and the risk. And they definitely need tools that look at the organization-wide perspective of risk.
And I think it's awareness, too. I think awareness plays a key role in this. I definitely agree with the transparency and accountability, but there has to be broader awareness across the organization. I think, again, it's so fundamental because it's that lack of awareness that really seems to where you say the shoe pinches seems to be where things get pinched.
And if we can, broaden appreciation and awareness and maybe some of that requires us to be a little more understanding of what the other areas are about, then we can start to better identify the complexity. The areas where the pinch occurs and then collaboratively, collectively start to address those elements.
And that, to me, then starts to develop that whole-of-agency approach, because now you're developing a community, right? It's a culture and that community within the organization. And really, until the tax administration really develops itself as a community, I think there's always going to be some issues.
I think it really does help an organization recognize that we're looking at the health of the tax system, which is the community, the tax community. And so, we recognize, the TADAT recognizes that, you know, we can't look at elements, although it does in part looks at areas within isolation, we try to bring all those aspects together to really get that full appreciation.
And that's really what we want to do; to make the tax administrations themselves more cognizant of is that we're a community and we all are working towards the same outcome, the same goal. And we have to start to break down, going back to the silos.
I may be being repetitive here but break down those silos and really from that point of appreciation, start to make ourselves aware, and have more cognizance of our role within the organization.
That's a good point Gord. I can relate to that point, because in back in 2012, when we just started developing a more integrated approach in tax administration for risk management, awareness was the first road we took. You know, that's where we were guided. So, we were doing awareness across all locations.
And what we found is that when they become more aware of what this risk management is all about, and how it was packaged as well, it's showing the importance to them how the staff at large benefit and how their role impacts the organizational view the way forward for the organization.
They started to see themselves more in the operations of the organization. So, these are location-wide sensitization sessions as we called them at the time—they really had an impact on awareness mainly because persons started, you know, thinking more risk-based, the language, the culture started to change at the time.
Starting to break down the silos. We went to sessions where persons were saying, it has nothing to do with me. And I said, ‘OK.’ Don't you think safety is a risk? You know, coming to work with the building in which you occupy? Don't you think safety is a risk? And this is the part you play in safety, the management of risk.
So it also has to do with how you package in the change and how you package what we need to do to break down the silos that exist.
I just think this has been absolutely excellent. And, you know, I think these are very the topics that we've covered are just really quite at the fore at this point in time. And I love this discussion. It's been very good.
Yes. It has been a very informative and fruitful discussion.
Simon Peter Kiyingi
It was a very fruitful discussion.
Thank you for listening. Next time on the TADAT podcast:
There should always be a free market for good ideas on how to assess, support, and improve performance in tax administrations.
You've just heard Fröde Lindseth, Senior Advisor in the Capacity Building Unit of the Norwegian Tax Administration. Frode and the TADAT podcast kick off a special series of podcast episodes where we ask; “What’s in your toolbox?” In this first episode of the series, Frode discusses his mapping exercise of select analytical tools and frameworks published in the July 2020 report. If you’ve wondered about the OECD’s Maturity Models, Tax DIAMOND, ISORA, RA-GAP, ATO or CDT – to name but a few – you won’t want to miss it.
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