Report finds cost blowouts, conflict of interest in ATO’s procurement processes

A new report by the Australian National Audit Office (ANAO) into the Australian Taxation Office’s (ATO) IT managed service procurement process has uncovered flaws with conflicts of interest and a cost blowout on external advisors.

ANAO’s findings, which it released via a performance audit report, determined that while the ATO’s IT procurement process with its IT Strategic Sourcing Program (ITSSP) was “largely effective”, there were some shortcomings in its process.

The ITSSP was formed in February 2021 to plan how the ATO would procure services to replace five contracts, worth an estimated $3.8 billion, from DXC Enterprise Australia, Leidos Australia, Probe Contact Solutions Australia and Epicon IT Solutions.

ANAO said these contracts “provided and operated the technology that underpinned the ATO’s core business of revenue collection, superannuation systems, future business registry services and staff access”.

The initial cost of external advisors for the ITSSP, covering a technical advisor, sourcing partner, probity advisor, financial assurance provider, project manager and legal advisor held an initial contract value of $8.6 million in July 2021, with the total forecast maximum contract value being more than double, at $19.1 million, in October 2021.

The actual value for these contracts was close to ten times higher than the initial contract value and 362 per cent more than the forecast maximum, at $88.1 million as of February 2025.

Another key flaw highlighted by the report was around the ATO’s procurement for legal services in particular, with ANAO finding that it was not properly adhering to Commonwealth Procurement Rules (CPR).

“The legal services advisor procurement did not demonstrate good practice as the ATO approached one supplier to quote for services and did not include evaluation criteria, with costs increasing from an initial quote of $665,500 to $10.9 million,” the report said.

In addition, the probity advisor was brought on board to develop a plan and protocols and maintained a probity register, related briefings and a register of cleared personnel. However, there were elements that were missing.

“Some probity requirements, such as approval and review of incumbent provider management plans, were not fully implemented and records in registers were incomplete, impacting the ATO’s ability to manage probity, including conflicts of interest,” the report noted.

It should be noted however that this does not concern the actual managed IT services, as ANAO found the ATO’s procurement activities for IT managed services were “largely in line with the CPRs, including market engagement and soundings and demonstrating value for money”. In fact, the audit did not examine the ATO’s administration or management of its IT or advisor contracts.

Conflicts of interest

The ATO has processes in place for the management of conflict of interests, with additional measures introduced for the ITSSP. However, not all elements were followed, the report noted, especially those around individuals with delegation powers.

“During planning, the program governance arrangements did not sufficiently distinguish endorsement and decision-making roles when seeking approvals,” the report said.

“There were instances where the delegate, who was also the chair of the steering committee, provided approval to procurement planning related documentation and not separate delegate approval.”

In particular, the ITSSP’s probity plan was approved by the ATO’s then-chief information officer Ramez Katf, to which the report highlights he was a former managing director of Accenture and held shares in the company during the procurements. This is noteworthy as Accenture was an incumbent IT provider to the ATO at the start of the ITSSP.

Accenture also was involved in the initial market sounding exercise in July to August 2021, yet the potential conflict of interest wasn’t reported as a perceived conflict until February 2022 and record keeping was incomplete.

The ANAO’s audit of the ATO comes following a investigation into the Department of Foreign Affairs and Trade (DFAT), which found significant cost underestimations in November last year. In one case, a contract with Datacom totalled $91.2 million as of 31 December 2023, which was nearly seven times the estimated total costs.

The contract also had options for extensions, which had been utilised; an amendment published on AusTender in July 2024 increased its value to $133 million for the first three years and two months, 10 times the five-year estimate of $13.2 million.