NATIONAL AUDIT OFFICE

REPORT BY THE COMPTROLLER AND AUDITOR GENERAL

Change Management in the Inland Revenue

ORDERED BY THE HOUSE OF COMMONS TO BE PRINTED 15 FEBRUARY 1996

1“ LONDON: HMSO HC 140 Session 1995-96 Published 21 February 1996 E1O.75 -, CUANGE WAGEMENT IN THE lNWD REVENUE

This report has been prepared under Section 6 of the National Audit Act, 1983 for presentation to the House of Commons in accordance with Section 9 of the Act.

John Bourn National Audit Office Comptroller and Auditor General 28 December 1995

The Comptroller and Auditor General is the head of the National Audit Ofice employing some 750 staff. He, and tbe NAO, are totally independent of Government. He certifies the accounts of all Government departments and a wide range of other public sector bodies; and he has statutory authori@ to report to Parhament on the economy, efficiency and effectiveness with which departments and other bodies have used their resources. CHANGE MANAGEMENT IN THE INWD REVENUE

Contents

Page

Executive summary 1

Part 1: Introduction 8

Part 2: The Change Programme 14

Part 3: DeEvering the strategy 23

Part 4: Assessing the impact of the Change Programme 39

Appen&ces:

1: Good practices in managing change 58

2: Orgatisations contacted by the National Audit Office 59 for views on managing change

3: Illustrations of change initiatives undertaken by 60 other countries’ revenue departments

4: Management of change: critical success factors 64

5: Good practice in project management: examples from 67 National Audit Office and Committee of Public Accounts’ Reports CWNGE WNAGEMENT IN THE lNMND REVENUE

Executive summary

The Change Programme

1 In 1991 the Board of Inland Revenue commissioned two major reviews to take a fundamental look at the way the Department was organised and managed. It had brought under control the high levels of work arrears that had prevailed in the mid-1980’s. hticipating future change pressure for increased efficiency and other likely challenges facing government departments such as Next Steps, Competing for Quality and Market Testing - the Department concluded that radical change to the structure and processes of the Inland Revenue was required (paragraphs 1.4 and 1.5). In this respect the Board’s initiative exemplifies the wider process of fundamental change which is now under way in many other government departments.

2 In 1992 the detailed recommendations of these reviews were taken forward in a 10 year programme of change affecting every aspect of the Department’s work. The Change Programme seeks improvements in four key areas, known as the “Four Cs” (paragraph 1.8):

. Customer service - togain a significant improvement in customer service by getting people’s tax affairs right first time;

. Compliance to gain a steady improvement in comphance; to get the right amount of tax paid at the right time;

. Cost efficiency - to gain a significant reduction in costs; to provide value for money in everything the Department does;

. Caring for etaff -to recognise that people are the Department’s most important asset.

3 Focused on these key areas for improvement, the Department drew up a detailed programme of action based on four broad themes for change (paragraph 1.9):

. reorganizing the office structure;

. simphfying and streamlining work processes;

. making better use of information technology;

. changing the Department’s culture in the way people and work are managed.

1 CHANGE MANAGEMENT IN THE INWD REVENUE

4 The Change Programme is a substantial undertaking affecting au the Deparlmenl’s starf and many of the country’s taxpayers. By March 1995, over 20 major projects had been approved under tbe Change Programme at an estimated total cost of S753 million, with net yearly benefits of f104 mihon. The Department has forecast that by 2002 it will employ some 42,000 to 44,000 staff, a reduction of some 22,000 over the period of the Change Programme (paragraph 1.10].

5 Through the Change Programme the Department has sought to assimilate and react to a succession of central government initiatives, such as the Citizen’s Charter and Competing for Quahty (paragraph 1.12).

Implementing the Change Programme

6 Undertaking major change in any organisation, particularly one the size of the Inland Revenue, is a formidable challenge, Achieving significant long term benefits runs the risk of dislocating current business, worrying and remotivating staff and incurring significant short term costs, Successfti change must therefore be carefully designed and actively managed. Afthough there are no guarantees of success, the Inland Revenue, Eke any organisation making such changes, needs to make good use of certain key mechanisms to implement its Change Programme successfully.

7 The National Audit Office has used as benchmarks, a number of key factors that, in its view constitute good practice in the management of change (para~aph 1.18):

. a clear vision of where the organisation is going;

. a definition in the form of strate~c objectives of bow tbe vision will be achieved;

. targets to allow the achievement of objectives to be monitored;

9 a coherent,centralprocesstoevaluateandmanagechangeprojects;

. consultation and involvement of staff;

. tie development of new skills;

. reward and recognition for achievement

. clear, regular and consistent communication,

8 Tbe Inland Revenue bas developed and is implementing a number of strategies and processes which incorporate these key factors. Ofparticular importance is the need for a coherent, central process to evaluate and manage change projects, To meet this, the Department has allocated responsibilities so that the most senior managers take ownership of strate~c issues concerning the Change

. Programme. Progress is closely monitored by the Board and other senior managers, both at Departmental level and, where relevant through the key targets of Executive Offlcee,As far as possible, day to day management of individual projects is delegated to others in the Department (paragraphs 3.2 to 3.12).

9 Other good change management practices adopted by the Department include:

. a 10 year development plan, issued at the launch of the Change Programme, to identify long term aims (paragraph 1.9);

. a structured and open approach to identifying and facing up to problem areas (or risks) that pose a significant threat to the successful dehve~ of the Change Programme (para~aphs 3.37 to 3.39);

. a human resource strategy to address issues such as skills development, reward, recognition and motivation (paragraph 3.5 1);

. a radically different approach to internal communication of Change Programme activities, encouraging staff to discuss their opinions and concerns about the Programme and providing a formal channel for responding to those views (paragraph 3.50).

10 The Inland Revenue has created an infraskucture to support and enhance the management of projects based on a new project management methodology, The methodology sets out the principles and standards to be fo~owed, including the regular review of project performance, and how suitable skl~s shmdd be developed (para~aph 3.13).

11 The National Audit Officereviewed a sample of 12 projects. This found eight actively foUowing the methodology, two applying an earfier methodology and tie, run by relatively inexperienced project managers, not using any particdar formal guidance, although they comptied with the Departmental approvals process, as set out in the methodology (paragraph 3.15),

12 The Department’s methodology for managing projects folows recognised good practice and the National Audit Office recommends that this should continue to be used, with particular emphasis on:

● following defined financial monitoring and reporting arrangements (paragraphs 3.16,3.28 to 3.31, 3.34);

. implementing risk and q]ality assessment methods (para~aphs 3.24 to 3.27);

. learning from post implementation reviews of completed projects (paragraphs 3.32 and 3.33);

. selecting and training project managers (paragraphs 3.35 and 3.36):

3 CWGE WAGEMENT IN THE INtAND REVENUE

. identifying and resolving external project dependencies, partictiarly important for tie WOlarger projects self assessment and new office structure - which tiect many parts of the Department (paragraphs 3.41 and 3.42).

Prowess to date and future plans

13 Some of the main projects which make up the Change Programme are stiU in their early stages, so it is not yet possible to arrive at conclusions on the overall outcome of the Programme. Nevertheless, by March 1995, three years into the Change Programme, the Department had made progress under all four themes for change:

Reorganizing the office structure

● just over 20 per cent of local offices have been reorganised into a new o~ce structure. By April 1998 the Department expects to create a further 100 new style offices. By then, over half of all district offices will have been converted, at a cost of S80 million (excluding information technolo~ costs). In total, these changes should generate net staff savings of shout 1,900, e~ivalent to approximately S36 milhon a year, and estimated accommodation savings of shout El 2.5 milhon a year (para~aph 2.6);

. in line with the Next Steps initiative, executive offices have been set up and considerable responsibility and accountability devolved to them. Of5ces set up so far cover all tbe Department’s regions and 20 per cent of its non-re@onal operations, including training, legal services and the Stamp Office (paragraphs 1.6 and 2.7);

Simplifying and streamlining work processes

. Corporation Tax pay and file was introduced in 1993, marking an important step in the simphfication of the tax system (paragraph 2.10);

. a self assessment system for personal taxes is planned to be introduced in 1997,directlyaffectingupto 9millionindividualswhomaketaxreturns.The Finance Acts of 1994 and 1995 put the main legislative framework for seE assessment in place. A S25 million pubhcity campaign began in June 1995 to raise awareness of these changes. Staff training, education of tax agents and employers, testing of new forms and development of new computer systems are undemay. And the Department has pubhshed a comphance cost assessment which estimated a net reduction of some El 25 mition to ~250 million a year in compliance cost to businesses (paragraphs 2.13 to 2.18, 2.23, 3.45 to 3.48, 3.56 and 3.57,4.44 to 4.50);

Making better use of information technology

. the Department drew up a new information technology strategy in 1993 to split major computer projects into smaller, more manageable units (paragraph 2.23); !

4 CHANGE WNAGEMENT IN THE INMND REVENUE

. in 1994/95, 8,500 replacement computer teminals were introduced into local offices. At March 1995 there were over 52,000 computer terminals in use in local offices. The Department has introduced a system so that staff with these terminals can get online access to tax instructions (paragraphs 2.24 and 2.25);

. in May 1994 the Department signed a 10 year contract with Electronic Data Systems to supply information technology services. Some 1,900 staff from the Department’s Information Technology Officewill transfer to Electronic Data Systems, The first transfer of 1,100 staff took place on 1 July 1994 (paragraph 2.26);

Changing the Department’s culture in the way people and work are managed

. in October 1992 the Depatiment introduced a new performance management system. In April 1993 some 120 staff wades were abo~shed and replaced with five broad pay bands. At the same time, wade related job titles were replaced with new functional job titles to reflect the nature of the work carried out by the jobholder (paragraph 2.32 and 2.33);

. the Department set up a Quality Development Division in 1993 to promote a quahty approach to all work (paragraphs 2,28 to 2.30);

. a new internal communications strategy was launched in December 1993 (paragaphs 2.35 and 3.50);

. new management training programmed have been introduced to encourage more open, participative and consultative management style placing greater emphasis on team work, leadership and empowerment (para~aph 3.55);

. in November 1994 the Department produced a detailed human resource strategy to pull together a range of existing initiatives concerning the management and development of staff and to provide a focus for the human resowce issues raised by the Change Pro~amme (paragraph 3.51).

Measuring the impact of the Change Programme

14 The National Audit Office considers that it is impotiant for the Depatiment to have performance measues to assess the impact of the Change Programme as a whole. The Department also needs, as far as possible, measures to assess the impact of the Programmers constituent projects on the level of customer service, compliance, cost efficiency and caring for staff,

15 The Depatiment has a wide range of performance measures and management information available. These include swveys of customer satisfaction, executive offices’ performance against key targets, yielWcost figures for compliance work, the amount of tax assessed and collected each year, and tbe coverage of investigation and review work. However, such measures pre-dated the Change

5 CHANGE WAGEMENT IN THE INND REVENUE

Programme and were not therefore designed to fine up with the Four Cs. Though the Department is working to estabtish Klgh level performance measures for each of the Fou Cs, these will not be available until 1996/97 at the earHest, some four years after the Change Programme began (paragraph 4.2 and 4.3, 4.30).

16 When taken together, and with tbe exception of the caring for staff objective where no existing measures exist, lower level performance meas~es provide a measure of reassurance that the planned improvements sought under the Change Programme are being reahsed (paragraph 4.30):

On customer service

● surveys of different taxpayer groups conducted since 1992 show generaUy high levels of satisfaction -87 per cent of pensioners, 84 per cent of employers, 75 per cent of professional advisers and 65 per cent of employees and the self-employed were satisfied with the service provided. Md there have been perceived improvements over earlier years (paraWaphs 4.4 and 4.5);

. internal measures on the quahty of service provided to tapayers - including the time taken to respond to postal queries and measures of the accuracy of clerical work also point to a year on year improvement in customer setice (paragraphs 4.8 to 4.12);

On compliance

● although the Department does not target yield from its comphance activities, because its objective is to collect the right amount of tax due by law, comphance yield has steadily increased over the past five years (paragraphs 4.20 and 4.21);

On cost efficiency . the cost per taxpayer of co~ecting the main taxes feUin the second year of theChangeProgramme(paragraph4.25).

17 The move to self assessment from 1996/97 will change the relationship between the Department and many of its tmpayers. Though some of its lower level indicators may no longer he appropriate, there will he scope for generating a better picture of the extent of non-complimce (or the tax gap) through the use of randomly selected investigations (paraWaphs 4.14 to 4.16).

18 The Department has made it a priority to develop a more systematic approach to assessing the risk of non-comphance, and so decide which cases to investigate. The wider objective of this work is to be able to measure the change in the level of voluntary compliance before and after the introduction of se~ assessment. The new system puts greater responsibility on individual t=payers to complete their tax return fully and accurately, exposing the Department to the risk of lost revenue as a result of non-compliance (paragraphs 4.18 and 4.19).

6 CHANGE MANAGEMENT IN THE INWD REVENUE

19 In the National Audit Office’sview the Department is right to give work to develop measures of non-compliance high priority. However, as well as measures of comphance, it is important that the Department aims to provide more comprehensive measures of changes in cost efficiency, customer service and caring for staff.

20 There is a risk that Change Programme activity in one area of the Department’s work may succeed at the expense of other work. Existing lower level iudlcators therefore have an important role to play in providing an assurance that the Department’s overall performance does not suffer as the Change Programme is implemented. It is important therefore that the Department continues to report on these indicators throughout the implementation of the Change Programme (para~aphs 4,26 and 4.30).

21 In the National Audit Office’sview, the Department should where possible set high level, measurable targets for the improvements sought under au of the Four Cs - customer service, comphance, cost efficiency and caring for staff. This will only be possible when the Department estabEshes rehable high level performance indicators in areas where it is practicable to do so.

Factors which may influence the future of the Change Programme

22 With so many major projects under way at the same time, and with such a high degree of interdependency between the projects, there are inevitably risks that the Change Programme may fail, in some way, to meet its objectives. The Inland Revenue has identified what it sees as the main risks which need to be monitored (paragraph 4.31):

● the Change Programme may be too large and complex to manage effectively;

. resources may constrain the Department’s abiHty to deliver the required benefits;

● programme components maybe unable to detiver products to cost, quality and timescale;

● taxpayers may not accept the changes being made;

. Inland Revenue staff may not accept the changes being made

23 The Department re@arly assesses the probabihty of the identified risks occurring and the possible effects on the Change Programme. These high level risk assessments are used to guide changes in approach, to develop mitigation and contingency strate~es and to inform major decisions as the Programme rolls forward. At this stage in the Change Programme, tbe Department is reacting quickly to correct problems as they arise. It will need to continue to do so if it is to rea~se the Programmers full benefits (paragraph 4.32).

7 CHANGE MANAGEMENTINTHEINtAND REVENUE

Part 1: Introduction

The Inland Revenue

1.1 The Inland Revenue is responsible for the efficient administration of Income Tax, Corporation Tax, Capital Gains Tax, Inheritance Tax, Petroleum Revenue Tax, and Stamp Duties. At March 1995, the Department, excluding the Valuation OfficeAgency, employed around 58,000 permanent staff (54,500 fun time equivalents) and had a ne~ork of some 700 local offices across the United Kingdom.

1.2 In 1994/95. the Inland Revenue:

. raised around S87 biltion of taxes from 26 milhrm individual and corporate taxpayers;

. collected some S40 biltion in National Insurance Contributions (on beha~ of the Depatiment of Social Securi@);

. spent about f 1.6 billion (net of receipts) running the Department;

. issued around 10 minion tax returns and made some 13 milhon tax assessments

1.3 Across all taxes, but excluding National Insurance Conhibutions, every El raised cost about 1.8 pence,

Origins of the Change Programme

1.4 In 1985 the Inland Revenue was faced with hea~ arrears of work caused by a combinationoffactors,someoriginatingin theDepartmentandothersover which they had no control, To tac~e this problem the Department launched a workstate initiative involving new working methods and substantial overtime.

1.5 By 1991 the workstate initiative had substantia~y reduced the bactiog of work, without requiring radical change to the structure and processes of the Depatiment. The Depatiment therefore commissioned WO retiews (one of its organisation and structure, the other of its management and Wading) to take a fundamental look at the way it was organised, carried out its functions and managed its people. The Inland Revenue also recognized that to continue to reduce costs and improve efficiency year by year, and to be in a position to respond to wider government initiatives such as Next Steps, the Citizen’s Chafler and Competing for Quahty (paragraph 1.12), a step-change in performance would be needed.

8 CWGE WAGEMENT IN THE INMD REVENUE

1.6 mile these reviews were underway, the Department carried out a separate review under the Next Steps initiative. The Next Steps review led to the creation of 34 executive offices from April 1992. These offices covered the bdk of the Department’s operational and internal services. The new arrangements also provided a framework of delegation, responsibihty and accountability within which further changes could be carried forward,

1.7 The reviews of organisation and management reported in March 1992. They recommended that the Department’s priorities shodd be:

. to improve significantly the ~ahty and value for money of the service provided to the pubEc;

. to make a steady improvement in its comphance activity;

. underpinning these two initiatives, to identify ways of looking after the interests of all staff.

The reviews identified a number of changes to personnel methods, process, organisation and information technology which would, in general terms, be needed to dehver these improvements.

1.8 The Inland Revenue accepted the reviews’ recommendations and, fo~owing wider discussion within the Department, set out what became the main objectives of the Change Programme, known as the Four Cs:

. Customer sertice - to gain a significant improvement in customer service by getilng people’s tax affairs right first time;

. CompHance - to gain a steady improvement in compliance; to get the right amount oft= paid at the right time;

. Cost efficiency - to gain a significant reduction in costs; to provide value for money in everything the Department does;

. Caring for staff - to recognise that people are the Department’s most important asset,

Design of the Change Programme

1.9 To convert these high level objectives into a practical programme of change the Department pubfished a 10 year development plan in January 1993, constructed around four broad themes:

. reorganizing the office structure;

. simphfying and streamhning work processes;

. making better use of information technology;

Y CHANGE WAGEMENT IN THE lNMD REVENUE

. changing the Department’s culture in the way people and work are managed.

1.10 Though the key objectives of the Programme improvements in the Four Cs - have remained the same, the scope of the Programme has, as intended, been constantly reviewed and refined. At March 1995, the Programme included over 20 approved projects with an estimated total implementation cost of f753 million, and post implementation net yearly benefits of E104 mi~on. The Department has forecast that hy 2002 it will employ some 42,000 to 44,000 staff, a reduction of some 22,000 over the period of the Change PrOgramme.

1.11 Since the development plan was pubhshed, the Department has put further key elements of its strategic approach in place:

. a statement of its job and aims following consultation with staff at aHlevels. This statement is sometimes referred to in other organisations as a mission and vision statement

. a statement of Inland Revenue values, following constitatimr with staff;

. a programme to improve the quahty of the Department’s work, led by a new Quali~ Development Division.

1.12 Through its integrated programme of change, the Department has sought to react to and assimilate a succession of central government initiatives:

. the Citizen’s Charter initiative, which aims to encourage government departments to focus more on the needs of their customers. Tbe Inland Revenue published a taxpayer’s charter in 1986, before the charter initiative was established:

. the Competing for Quahty initiative, which requires departments to achieve good value for money hy testing themselves against the private sector, and where appropriate contracting out work which is better done outside;

. the Deregulation initiative, which seeks to minimise the impact of re@ations on business;

. &Fmld&mental Expenditure Review, conducted during 1994, which examined the Department’s work in depth to find ways of improving value for money and increasing yield;

. the White Paper on the future of the Civil Semite;

● a series of tight public expenditure rounds which have exerted continuing downward pressure on resources.

1.13 The Inland Revenue is not alone in facing pressures to change. Tax organisations around the world have been revising their organisation and re-examining systems in response to demands to reduce cost and improve the

10 CWGE MANAGEMENTIN THE INMND REVENUE

~ahty of service. Some countries, such as Canada and Denmark, have recently merged their departments of taxation, customs and excise into single organisations, providing staff savings and a single point of contact for taxpayers.

1.14 In other countiles, such as the United States and New Zealand, revenue departments have been replacing their old computer systems to take advantage of newer information technology. The United States Internal Revenue Service, Eke the Inland Revenue, was among the first to computerise its systems. However, these computers can now be replaced by systems offering better performance at reduced cost.

1.15 In designing the Change Programme the Inland Revenue sought the advice of a wide range of outside organisations with relevant experience. The organisations consulted included:

. national revenue departments, such as the United States Internal Revenue Service and the Australian Taxation Office;

. private sector organisations, such as British Airways and Abbey National;

. change management constants, such as PE International and Computer Science Consultants;

. other government departments, such as the Benefits Agency; and

. on projects reforming the operation of the tax system such as Corporation Tax Pay and File and SeKAssessment, taxpaye~s and tieir profes~ional advisers, and bodies such as the CBI, the Institute of Directors, the Chartered Institute of Taxation, representatives of the major accounting firms, the Law Socie@,the Institute of Fiscal Studies, and the National Association of Citizens Advice Bureaux.

1.16 The Department sought advice on good practice in different ways. In some cases, it visited the organisations, to speak directly to those managing with change. In one case, the Department sent a member of staff to spend several weeks working in the organisation concerned, hd, for specific areas of the Change Programme, such as commmications, the Department employed expert consultants to give advice. It also obtained input from taxpayers, businesses and tie tax profession through consultation exercises and test pilots, for example of the new tax return to be used for self assessment.

Scope of the National Audit Office examination

1,17 Given the importance of the Change Programme to the Inland Revenue, the National Audit Office undertook an early review of its background, its main features and the detailed mechanisms set up to manage it. The review covered:

. the Programmers main features, benefits expected and progress to date (Part 2);

11 CHANGE WAGEMENT IN THE INWND REVENUE

● the adequacy of mechanisms adopted for managing the changes sought (Part 3);

. how the Department is assessing the impact of the Change Programme and dea~ng with factors which may influence the Programmers dehvery (Part 4).

1.18 The National Audit O~ce drew up a list of good practices in managing change (Appendix 1) based on the experiences of other organisations (Appendices 2 and 3) and advice from external consultants on critical success factors in the management of change (Appendix 4). The practices identified were:

. a clear vision of where the organisation is going,

. a definition in the form of strategic objectives of how the vision witi be achieved;

● targets to allow the achievement of objectives to be monitored;

✎ a coherent, central process to evaluate and manage change projects;

✎ consultation and involvement of staff;

✎ the development of new skills;

✎ reward and recognition for achievement

✎ clear, regular and consistent communication.

1.19 These practices are used as benchmarks throughout the report. Append& 1 hsts examples of the action taken by the Inland Revenue for each element of good practice identified.

1.20 The National Audit Office examined papers and interviewed off]cials at the Inland Revenue and reviewed 12 of the Department’s change projects. At the Department’s request the National Audit Office seconded a member of staff to work in tbe Division managing the Programme. To form a view on good practice in managing change, the review included visits to other organisations involved in implementing major change, including the revenue collection services of other Governments (Appendices 2 and 3).

1.21 The fieldwork was carried out between May and November 1994. Since then, the National Audit Office has continued to monitor tbe progress of the Change Programme. Unless otherwise stated, figures in the Report are correct as at March 1995.

1.22 The Report focuses on the Department’s high level strate~ for the Change Pro~amme and the methods used to bring about change. However, the Programme is only three years into its projected 10 year cycle and the Report does not, therefore, draw a final conclusion on the hkely success of the Programme. Key Change Programme projects, such as self assessment and the

12 CHANGE MANAGEMENT IN THE INMND REVENUE

new office structure, are not examined in detail in this Report, mere appropriate. tie National Audit office will examine the detail of such projects as part of its future work.

1.23 This Report does not deal with the Valuation OfficeAgency which has a separate programme of change in hand.

13 CWGE WAGEMENTIN THE INMD REVENUE

Part 2: The Change Programme

2.1 This part of the Report considers the main featores (or themes) of the Change Programme (Figure 1 opposite), the benefits expected and progress to date.

Reorganizing the office structure

2.2 In Fehmary 1993, the Inland Revenue announced a programme to bring together work handled by 760 local tax and collection offices into some 380 new style offices:

. taxpayer semice offices combining assessment with prehminary coUection work and providing a single point of contact for most taxpayers;

. tax district offices - locally based to handle investigation and comphance work;

. tax enquiry centres offering on the spot information and assistance for taxpayers and a range of services including accepting payment over the counter.

The programme also includes some integrated offices - single offices setup outside large centres of population to cover all of the services offered by the taxpayer service and tax district offices. In addition, all integrated offices have a tax enquiry centre.

2.3 The goal is for all Inland Revenue offices to come within the new arrangements by 2002. Smaller and remote o~ces wi~ generally be the last to be taken into thenewstructure, to ensure thatallcustomerserviceissues,andstating and operational needs, have been fully considered.

2.4 The Department considers that the benefits of the new office structure will accrue across all the Four Cs:

. on customer service - by bringing together related work and protiding enhanced tax enquiry centres, the Department aims to give taxpayers a more efficient and modern service;

. on comphance - by bringing together in single offices expertise in t=es, collection and audit work the Department aims to make compliance activities more efficient and effective;

14 CWGE MANAGEMENT IN THE INMND REVENUE

I

‘ 1..

● helping people get their tax fight first time and on timq . detecting and deterring people who do not voluntarily compl~ ● and approaching all our work in a manner that demonstrates best customer service and value for money I ! AIMS (VISION) Tobe respected as the best organisation in the public sectoc ● one which the public feel they can approach for help, guidance, and fair treatment e one which is professional in all its dealings; . one in which our people are properly trained, involved, and motivated, and to which they are proud to belong. I .. OBJECTIVES - AIM TO MAKE A MAJOR IMPROVEMENT IN EACH OF;THE FOUR CS

CUSTOMER COST COMPLIANCE CARING FOR SERVICE EFFICIENCY STAFF

THEMES FOR PROJECTS TO OELIVER THE IMPROVEMENTS

CHANGE THE WAY SIMPLIFY ANO MAKE BETTER USE REORGANISE ~ WE MANAGE OUR STREAMLINE OF INFORMATION OUR OFFICE WORK ANO OUR OUR WORK TECHNOLOGY STRUCTURE PEOPLE I EXAMPLES OF I

, ,=.wiytii AND

15 CWGE WAGEMENT IN THE INMD REVENUE

● on cost efficiency by combining offices, the Department aims to generate cost savings through more efficient staffing, accommodation and suppoti requirements;

. on caring for staff the Department aims to provide opportunities for developing new management skills, improving the working environment and introducing new methods of working, including improved communications, greater empowerment and involvement of staff.

2.5 The move to a new office structure meets concerns expressed by the Committee of Pubhc Accounts (39th Repoti, 1989/90) fiat inefficiencies may have arisen from the continued operation of separate networks for the assessment and collection of tax. The Committee welcomed the pilot experiments for mer~ng the two networks that the Department had then been undertaking. The Committee considered that the pilots should be evaluated by the end of 1991 and that the new arrangements should be introduced as soon as possible thereafter.

Pro~ess to date

2.6 By 31 March 1995, 63 new style offices had been created, incorporating 147 old style offices. By April 1998 the Department expects to create a further 100 new style offices. By then, over half of all district offices will have been converted, at a cost of S80 milhon (excluding information technology costs). In total, these changes will have generated net staff savings of about 1,900, the equivalent of approximately f36 million a year, and estimated accommodation savings of about 812.5 million a year.

2,7 The Depatiment has setup 10 regional and 17 non-regional executive offices. This has meant devolving considerable responsibility and accountabihty. ReQonal executive offices are responsible for assessing and collecting tax for individuals and most companies. There is a specialist non-regional office which deals with the tax affairs of the largest and most complex companies. Other non-regional offices cover operations such as training, legal semices and the Stamp Office.

Simplifying and streamlining work processes

2.8 The arrangements under which the Inland Revenue carries out its statuto~ responsibihty to assess and collect tax on tbe income and gains of companies and individuals can be:

. complex - for taxpayers to understand and hence comply with;

. inefficient in that 2.6 milhon self-employed taxpayers receive assessments that have to be estimated and must be subsequently revised;

. expensive for the Department to administer and for taxpayers and their professional advisers to comply with;

16 CHANGE MANAGEMENT IN THE INMD REVENUE

● confrontational - in that these arrangements can lead to disputes between the Department, taxpayers and their professional advisers, in particular, over whether appeals against tax assessments, and applications to postpone payment of tax, can be accepted and whether the Department has vahd grounds to take up a particular case for investigation.

2.9 To address these difficulties, steps are being taken to allow taxpayers to take more responsibihty for their own tax affairs and to streamline and simphfy the Department’s work processes, to reduce its costs.

Progess to date - Corporation Tax pay and file 2.10 Animportant step in the simphfication of work was tbe implementation in 1993 of Corporation Tax pay and file. This required companies to make payments of tax based on their own calculation of liabifi~ and file the tax return on fixed dates. Pay and file was approved in 1991, before the Change Programme, and cost E60 million to develop.

2,11 In its Report on matters arising from the Inland Revenue Accounts (2nd Report, 1990/91), the Committee of Pubhc Accounts noted that the introduction of pay and file for Corporation Tax should reduce the major problem of delays in the payment of Corporation Tax. This should result in earher recovery of tax and avoid the need for estimated assessments,

2.12 Pay and file is not self assessment because the Department still agrees the figures on the tax return before making an assessment, asking for payment of any further tax due or making a repayment. However, pay and file has many of the characteristics of self assessment systems. The Government intends to move towards full self assessment for companies at a date to be announced, following the implementation of self assessment for personal taxes.

Prowess to date - self assessment 2,13 In the March 1993 budget, the Chancellor of the Exchequer announced that a self assessment system for personal taxes would be introduced in 1997. This will affect up to 9 million individuals who make tax returns - all of the self-employed and be~een 4 milhon and 5 milhon pay as you earn taxpayers (mainly directors and others with the most complex tax affairs), The Finance Acts of 1994 and 1995 put the main legislative framework for self assessment in place.

2,14 Self assessment is central to the Change Programme. The Department expects self assessment to enable it over time to dehver significant improvements in customer service, cost efficiency, comphance performance and caring for staff. The Department is currently revising its estimate of the hkely cost and longer term savings of the move to self assessment. Figure 2 shows the key features of sek assessment.

t7 CWGE WAGEMENT IN THE IN~D REVENUE

FROM TO

. the existing mix of current year and previous . current year basis of assessment on all sources year bases of assessment

. separate assessments for each different type of . one calculation covering all types of income income

. different due dates for different sources of . a single date for titing tax returns and one set of income payment dates for all aoumes of income

. calculation of tax UaMliW by the Inland Revenue ● the option of self calculation

. check now, process later . process now, check later

. employers provide information directly to the . employers to provide their employees with Revenue information thev need to self aaseas

2.15 Self assessment will mean a fundamental change to the way the Department handles tax returns. Tax returns will continue to he checked to deter and detect non-compliance. But tax returns (and payments) will be processed on receipt, subject to any “repairs” necessary to enable processing to take place - such as correcting arithmetical or transcription errors. Returns will then bc subject to risk assessment (paragraph 4.19). Where appropriate the Department may make enquiries into any return at any time within 12 months of tbe relevant filing date. Enquiries can commence outside this time if the taxpayer has been fraudulent or negtigent, or has failed to disclose all the relevant information.

2.16 Self assessment will offer taxpayers the opportunity to calculate their own tax Labitity, but this will not be compulsory; taxpayers who prefer the Inland Revenue to continue to calculate liability must file their returns by 30 September after the end of the tax year. To deter abuse of the system there wi~ be penalties for late filing of returns, and interest, surcharges and penalties on late paid and under-declared tax.

2.17 The changes will place greater emphasis on the existing responsibfities of the Departmenttoprovidetaxpayerswithhelpto understandthe taxsystem(so that they can comply voluntarily with their obligations and get their tax affairs right first time); and to check the data provided by the taxpayer with information akeady held by the Department.

2.18 As early as 1980, the Committee of Public Accounts had Drged the Department to consider adopting a current year basis of assessing Schedule D t=payers. The main simplification brought about by self assessment is the move to the current year basis for calculating profits from self-employment. In future all income and capital gains will be taxed on the current year basis. In its Report on matters arising from the Inland Revenue Accounts (43rd Report, 1990/91) the Committee noted that lengthy consultation would be required to reform Schedule D. The Committee reiterated its support for the Department continuing to secure a better basis for assessing Schedule D.

18 CWGE WAGEMENT IN THE INWD REVENUE

2.19 The Department is considering ways in which the pay as you earn system, including its computer support, can be modernised, subject to Ministers’ agreement, in tbe latter half of tbe Change Programme.

Mating better use of information technolo~

2.20 In the 1980s, when the Inland Revenue first computerised its main business systems (principally those to support pay as you earn and the assessing regime for unincorporated businesses), the technology used was generally regarded to beat the limit of what was then technicaHy possible. Since then those systems, though still providing good service, have become more complex over the years, They cannot now be enhanced to provide the functionahty needed to support au the changes the Department wants to make,

2.21 Major advances in information technolo~ offer the Department the prospect of supporting its business processes more effectively and at relatively lower cost. New information technology provides opportunities to improve customer service and compliance work, by redeploying staff who have been freed from manually routine and repetitive work.

2.22 To exploit these opportunities fully, the Department determined that it needed to redesign its information technology infrastructure so that it could implement corporation tax and personal tax reforms sequentially. This provided OppOfiunities for other facihties such as the electronic fifing of tax returns, wider access to taxpayer information and computer based training. The Department aims to achieve these changes hy automating more processes, finking computer systems and wherever possible avoiding the current duphcation of basic taxpayer data.

Pro~ess to date 2.23 The Department drew up a new information technology strategy in 1993 which includes sphtting major computer projects into smaller, more manageable units. This new approach aims to reduce complexity and risk, and allow a quicker response to changing needs, The design of the self assessment infrastructure is one of tbe first projects to use this new approach.

2.24 In 1994/95, 8,500 replacement computer terminals were introduced into local offices as part of the Inland Revenue office of the nineties project. At March 1995 there were over 52,000 computer terminals in use in local offices. Staff in 27 district offices were given access to tax instructions via their computer terminals in March 1994. This pilot having proved successful, the system has been extended and is now available to all staff who have new terminals. This should help keep instructions up to date and reduce the cost of paper amendments.

2.25 As new computer terminals are installed, increasingly Inland Revenue staff are able to caU up on a single terminal aU of the information the Department holds on its systems for a particular taxpayer a key step in providing taxpayers and CHANGE WAGEMENT IN THE INMND REVENUE

their professional advisers with a focal point of contact. In addition staff now have on line support tools such as office automation facilities, computer based training packages, and technical support systems.

2.26 In May 1994 a 10 year contract was si~ed with Electronic Data Systems to supply information technology sewices. The Department expects Wls partnership to provide it with access to up to date technology. It should also secure significant reductions in the time and cost of developing new systems and of maintaining existing systems. Some 1,900 staff from the Department’s Information Technology Officewill transfer to Electronic Data Systems. The first transfer of 1,100 staff took place on 1 July 1994. The National Audit Office examined the market testing processes and the contractual arrangements in a Report published in March 1995 (HC 245)1.

Changing the Department’s culture in the way people and work are managed

2.27 In 1992, the Inland Revenue concluded that it needed to change its style of management. It envisaged a shift of responsibility away from the centre and a movement away from its hierarchical system of command and control. The new approach would aim to give greater empowerment, where managers would place more emphasis on leadership and coaching, and staff would have greater responsihihty and accountabihty for their work. To meet this aim, the Department has introduced various measures to improve quahty, management, individual performance, communication and to increase delegation. The human resource strategy produced in November 1994 provides the main focus for activity in this area (paragraph 3.52].

Pro~ess to date - improving quality

2.28 In the Inland Revenue’s 1993/94 Aunual Report, the Chairman stated that the Department’s top priority was to improve the qoahty of its work and to assist taxpayers to get their tax right first time whenever possible. This drive for quahty led the Department to set up a Quality Development Division in the summer of 1993 to promote a quality approach to all work.

2.29 Regular taxpayer surveys will tell the Department what taxpayers require for a quality service. And, possibly from 1996, staff attitude surveys will provide information about the support needed by staff to help them perform well and provide a quality service.

2.30 Improvements in quahty should come both from better central processes and local initiatives. The celltre is playing a key role ill botb promoting quahty improvements and in introducing national performance standards. Further

Note1: National Audit Ofice Report “Inland Revenue: Market Testing the Information Technolom Ofice”, 1994/95, HC 245

20 CWGE WNAGEMENT IN THE INMND REVENUE

advances should come from the operational offices’ quality improvement plans, For maximum benefits, these initiatives need to align with the Departmental quality development programme.

Progress to date - improving management

2.31 The Department has set up a new programme to strengthen management through structural change and through training and development (paragraph 3.56). The need for improved management arises from the greater emphasis now being placed by the Inland Revenue on team work, leadership and empowerment. The Department is encouraging a more open, participative and consultative management style.

Progress to date - improving individual performance

2.32 To encourage staff to focus on the Departmental priorities, and to reward them for their achievements, the Inland Revenue introduced a new performance management system in October 1992. This requires tbe jobholder and the manager to agree what the jobbolder shmdd achieve over the year. At the end of the year the jobholder is assessed against tbe agreement and the outcome is reflected in the jobholder’s pay award.

2.33 In April 1993 the Department abolished approximately 120 staff grades, replacing these with five broad pay bands and new functional job titles to reflect the nature of the work carried out by the jobholder, Tbe Department regard this as a major step in removing the old distinctions be~een tax assessing and collecting staff, and be~een these and administrative staff. Supported by changes in training, o~ce structure and more open competition for new posts in new-style offices, the Department considers that the new system provides greater flexibility to match people to jobs.

2.34 To achieve improved performance the Department needs to provide OPPOrtuni~es tOdevelop peOple’s skillsi knOwledge and attributes. In 1994 the Inland Revenue introduced a personal development review. The review seeks to help staff to identify their training and development needs and to plan how these needs are to be met.

Progress to date - improving communication

2.35 The Department has given high priority to improving communications. A new internal communications strategy was launched in December 1993 (paragraph 3.49).

Progress to date - increasing delegation

2,36 An important way to improve management is to aUow decisions to be taken, where possible, by those responsible for the results. This means delegating responsibihties and giving greater flexibihty to those in operational areas.

21 CMGE WAGEMENT IN THE IN~D REVENUE

Managers must be told clearly what they must achieve (including tiescale, resources and standards) and have sufficient freedom to decide how to achieve it.

2.37 The Inland Revenue is working towards delegating more to its executive offices, and within executive off]ces to the front-hne managers and staff where appropriate. It is reducing the centre’s involvement in routine operational decisions. It is moving away from a hierarchy of command and control to management through contracts and service level agreements. hd, in implementing a culture of empowerment, it is seeking to do so witiln a clearly defined framework of authorities and responsibilities which distinguish clearly between instructions necessary for the national tax system and optional guidance.

22 CHANGE MANAGEMENT IN THE INWD REVENUE

Part 3: Delivering the strate~

3.1 The National Audit Of5ce reviewed the mechanisms that the Depatiment is using to deliver its Change Programme, asking in pafiicular:

. Is there a mechanism to manage and allocate responsibihty for tbe successfd achievement of the aims of the Change Programme?

● Is there a method for managing individual projects?

,?:.).:.: ,:;.,;...... ’,~:.”.~.,..,~.:,,;:,’: :.: ,.:!:.,:..: ..:.:.. : f... ..’ ,...,... : .PrOjectman&gement:i:.i rnpotiantbeLaus: the sheer size of major :ha:;e .“’ “: projects can make them ‘“d~~c~tto”m’inige effectively. Good project management re@es an a~eed method for managing projects and providing suppoti for project managers. A project manager shodd be responsible for ensting that, at eve~ stage, the output is produced as cheaply as possible, on time and with appropriate ~ahty.

. Is there a means to identify and manage risks which threaten the successful dehve~ of the Change Programme?

an organisation’s objectives, To overcome this, an organisation needs to ident&, assess and con&ol potential fisks.

● Is there a means to identify and manage dependencies between individual projects, to ensure Change Programme aims are achieved?

immediate control. Such dependencies WU be cmcial to the success of some projects and must be managed carefdy.

23 CWGE WAGEMENT IN THE IN~D REVENUE

. Is there a means to monitor the quahty of Change Programme actiti~ and provide assurance that standards are being met?

● ISthere a means to communicate the aims of tbe Change Programme to taxpayers and staffl

. Is there a human resource strategy?

motivated and we~ trained.

Is there a mechanism to manage and allocate responsibility for the successful achievement of the aims of the Change Programme?

3.2 The Department has allocated responsibiUties for the Change Programme across three broad levels (Figure 3 opposite). This ensures that the most senior managers take ownership of the strategic issues concerning the Change Programme; as far as possible, day to day management of individual projects and the development of project management methodology are delegated to others in the Department.

3.3 The Change Steering Group sets the business objectives and priorities for the Change Programme, in accordance with the policy determined hy the Board of Inland Revenue. The Group is responsible for major decisions affecting the Change Programme and meets monthly to consider progress on the main change projects and to approve new projects. The Group bas tbe titimate responsibility for setting strategic and financial priorities and implementing the Change Programme.

3.4 The Group is chaired by one of tie Department’s two deputy chairmen (the board member responsible for change]. Senior managers, representing the Department’s central functions, make up the seven other core members of tbe Group. These include the Director General, the head of Change Management Division, the Directors of Self Assessment and Quali@ Development, and two

24 CHANGE MANAGEMENT IN THE INWD REVENUE

Chaired by Board Member for change,

Role: to set the business objectives and + priorities for the Change Programme including a subarouo soecificallv to orovide overall guida~ce {o tie Self A~seskment project. J

The Head of the Division reports directly The Director reports directly to to the Board Member for change, the Board Member for change. + Role: to plan, manage and co-ordinate the Role: to manage the implementation Depaflmenfs programme of change, of a number of key strategic .-.— projects: A ● New otice structure ● 5A business systems ● 5A computer systems

+

Each project has a project manager who reports to Change Management Division.

Role: to plan, report progress, identify and resolve issues, in order to deliver a project to time, within budget and with appropriate quality. ~

operational controllers. Because of the size and importance of the self assessment project, there is a separate sub-group to oversee its progress, chaired by the board member responsible for change.

The role of Change Management Division 3.5 Tbe Department’s Change Management Division plays a major role in the Change Programme. The Board of Inland Revenue setup tbe Change Management Division in August 1992 to help it consult on, formulate,

25 CHANGE MANAGEMENT IN THE INWND REVENUE

implement and manage an integrated proWamme of change. Change Management Division has set up specific mechanisms to ensme that, where necessary, reviews and projects are estabhshed and follow proper project control arrangements. The aim of these mechanisms is to ensue that au change projects contribute to the wider aims of the Department and to highhght projects experiencing problems. The Division consists of around 20 people and its head reports direcfly to the board member responsible for change.

3.6 Change Management Division is responsible for authorizing the a~ocation of Change ProWamme capital funds between projects, within a strategic framework set by the Change Steering Group. Individual projects, with hfetime costs of up to E2 million can be authorised by the Division’s project board. Projects with lifetime costs be~een f 2 million and El Omillion need to be approved by Change Steering Group. Projects above fil Omilhon require Treasury approval.

3.7 Where appropriate, the Division makes recommendations to the Change Steering Group on relative priorities for projects competing for the same resource. By identifying problems at an early stage the Department is well placed to take remedial action where necessa~ and, ultimately, end work on a project if it will not provide good value for money. For example, a project to test the feasibility of a type of data capture was ended when rehabihty did not meet expectations. An initiative to update computer facihties for wider access, included in a series of projects within a strategic wider access pro~amme, was cancelled during the investigation stage, This initiative was cance~ed because it would have consumed resources that were required for self assessment, which is regarded as a higher priority.

3.8 The scope of Change Management Division’s work, and its influence on Depafimental activity, have expanded considerably since the Change ProWamme began in 1992 (Fi~e 4 opposite), When it was set up, the Division was responsible for planning the Department’s strategy, and ensuring that the projects and reviews that aimed to bring about improvements in the Fow Cs were properly managed and co-ordinated. Other aspects of the Department’s activity, such as efficiency scrutinies and the market testing proWamme, remained outside the formal scope of Change Management Division’s responsibility, although from a Departmental perspective these aspects were part of the Change Programme as a whole.

3.9 The Inland Revenue’s Fundamental Expenditure Review in 1994 drew together all Departmental change activity and new work commissioned by the retiew was incorporated into the Change ProWamme. The Department, therefore, widened tbe Division’s responsibihties to include all change projects.

3.10 The Depaflment’s Personnel Division, which is responsible for the human resources strategy, has worked closely with Change Management Division to ensure that tbe Change Programme is fully underpinned by “people” stiate@es and policies.

26 C~GE WAGEMENT IN THE INND REVENUE

The Change Programme in 1992

m . 0 u .

1

Change Management Division The Change Responsible for PrOgramme Depafimental strateg~ allocation of change funds, oversight and co-ordination in 1995 of strategic reviews; ensuring all Inland Revenue change activi~, as set out in the Fundamental Expenditure Review, is properly co-erdinated. The Division continues to use the Chanoe Management mechanisms set uo in 1992.

Source: /n/an kvenue

Figure j shows that the responsibihties of Change Management Di”isiOn have ex~anded cOnsiderablv since it was setup in 1992. Change Management Division is now responsible for ensuring that all Inland Revenue change activity is co-ordinated.

3.11 The Director of the Self &sessment Project (who reports directly to the board member responsible for change) manages the implementation of a number of key strate~c projects. These projects cover the infrastructure of the Department, as well as the dehvery of the sef assessment business and computer systems. Given the pivotal nature of self assessment and associated infrastructure projects to the Change Programme, Change Management Division and the se~ assessment team work closely together and are co-located.

3.12 Examples of key change projects critical to the success of the Programme, for which the Director of Self Assessment is responsible, include:

. introducing self assessment its eMfor up to 9 mfihon taxpayers in 1996/97;

. the new office structure, which combines the assessment and collection of tax functions;

. a new computer infrastructure to support seK assessment. The computer terminals being put in place in local offices for sef assessment are also used to support applications such as access to instructions, training and technical support systems. CWGE WAGEMENT IN THE IN~D REVENUE

changes.

Is there a method for managing individual projects?

3.13 [n February 1994, the Departnleut published a project management methodology, with a set of principles and standards to indicate good practice. The key elements of the methodology are shown in Figure 5 opposite. A standard, formalised approach to project management, other than for information technology projects, is relatively new to the Department. The methodology builds on the Department’s previous experience, such as its methodolo~ for system development and its computer project management methodology. All new projects whose hfetime costs exceed f250,000 must now follow the methodology. Projects which began before the methodology was launched must apply it to the extent possible given the stage they have reached in the project Iifecycle.

3.14 The Department is planning to update the methodology during 1995. The revised version will be supplemented hy a series of handhooks providing more comprehensive advice and practical guidance on specific areas of proWamme and project management. In the meantime, the existing guidance has been revised to reflect the requirements arising from the strate~c partnership between the Department and Electronic Data Systems.

3.15 To see how the methodology was working in practice, the National Audit OffIce examined a sample of 12 projects. The results of this review are summarised in Figure 6 on page 30. Of the projects examined, eight were actively folowing the methodology (Projects B, C, D, F, H, J, K and L, Figure 6 on page 30). Two others were applying the earher Information Technology Office methodology (Projects A and G, Figure 6). The remaining two projects (Projects E and I, Figure 6, run by relatively inexperienced project managers) were not using any particular formal guidance to assist them in the day to day management of their projects; however, they did comply with the Departmental approvals process as set out in the methodology.

3.16 The National Audit Office considers that, to help make good use of the Department’s project methodology, project managers should consult the programme management team, at the approval stage, to agree what parts of the

28 C~NGE MANAGEMENT IN THE INMND REVENUE

If iriveitigition i$ipprovkd: 2) Develop detailed requirements —> Business Requirements Specification 3) Following consideration of options, costs and benefits, prepare a Project Justification Case 4) Draft Project Management Plan 5) Seek approval from appropflate approval authori~, 6) On approval, the project basehne of de[verables, timescales, costs and benefits are recorded, Any changea to this basefine have to be approved as the project progresses. Planning 1) Complete a Project Management Plan including; a Work Breakdown Structure to show the component pais of the project - an Organiaafion Breakdown Structure defining responsibilfies and Iinea of communication - critical success factors for the project key milestones 2) ldenti~, asseas and analyse risks and mitigation strategies in a Risk Management Plan 3) Prepare a QuaKfy Management Plan, specifying quatify assurance and qual~ control, Reporffng and Review 1) Provide monthly project repotis in a standard format to aid decision making and keep interested managers informed, 2) Co-operate with and participate in project audits, 3) The project maybe reviewed regularly by the Project Sponsor and Project Board, and Iese frequently the Change Steering Group, 4) Following project completion, a Post4mplementation review should be carried out, to analyse project problems, to ensure that lessons learned are communicated, and to assess the success of the project. Financial Management 1) Monitor costs against the agreed project budget 2) Investigate vatiances, 3) Initiate corrective action, Training The reaponsi~lifies of project sponsors and project managers are complex and damanding. These are documented in the methodology, and training is available to ensure that project staff have the necessary skills and qualifies to peflorm their jobs effectively,

methodology should be followed. The Department agrees and arrangements for this are now being formalised to re-emphasise that the extent to which projects need to comply with the methodolo~ depends on their size and importance. Details of any dispensations from the methodology will be required in the project investigation brief and when the project is formally approved. Aud these new arrangements will be pubficised in the Department’s methodology, which it is currently updating (paragraph 3.14).

3.17 In addition, the National Audit Office considers that, to help project managers, the programme management team should publicise contact names and numbers for advice on each section of the methodology. The Department agrees and intends to give greater pubficity on how to contact tbe project management team in the updated methodology handhooks. Each of these handbooks will

29 CWGE WAGEMENT IN THE INND REVENUE

Elements reviewed Results

Use of methodology 10/12

Proect management plan 7110

High level project plan 11/12

Risk management plan 9/12

QuaHfy management plan 4[11

Progress reporting 11/12

Project reviewlaudit 9/12

Project management 8/1 2 training

Number of requirements met

Key K- Comptiant x - non-comphard ● - not required Notes:(1)thisprojectwasin theprocessofpreparinga riskmanagementplananda qualitymanagementplan. (2)thispmjecthadnotproduceda QualiVManagemenfPlanasit wasat a V8Vearksfagein theprojectlife-cycle

have a contact name and number for dealing with queries or supplying further information. Contact points will also be pubhcised in a future issue of the Change Programme management bulletin.

3.18 The following aspects of the Department’s project management metiodoloW were assessed for the sample of projects examined (see FiWre 5 for details of the methodolo~):

● approval;

. planning;

● reporting and review;

. financial managemenfi

. training.

Project approval 3.19 The approvals process allows the Department to:

. assess whether aproject fitswitbt beDepartment'sa ims;

. decide whetber there are funds available forthe project

30 CHANGE MANAGEMENT IN THE INMD REVENUE

. setarepofiing baseline toensure effective monitoring of the project.

3.20 Themajori@ ofprojects examined were approved before the Department's methodology was introduced and, therefore, the content and presentation of documentation varied. However, the basic components of the approvals process - investigation repoti, project justification case (with investment appraisal), business re~irements specification and investigation study report for information technology projects - were present. Inallcases approval was given at the appropriate level,

Project planning

3.21 Effective project management needs good planning. The Depatiment's methodology requires projects to have a project management plan containing 23 mandato~ sections. It acknowledges that low cost or straightforward projects need less documentation than large complex projects. Exceptionally, the early new office structure projects were not required to produce a project management plan, The methodology also requires all projects to have a high level project plan (which details who wi~ do what work, when and at what cost in order to meet the project’s objectives), a risk plan and a quality plan.

3.22 OfthelZ projects examined, seven hadaproject management plan(Figure 6). Ofthe five which did not, two were not required to have them (as they were early new office structure projects) and of the remaining three, &o managers were unaware of therequirement (Projects Eand I, Figure 6)andthe third was aware but, with Emited resources, gave priority to achieving the project’s objectives rather than preparing a management plan.

3.23 Eleven of theprojects examined hadahigh level project plan, although the level of detail varied. On the largest projects, the work bad been split into cost accounts - a lower level project with clearly defined tasks and budgets. Three of the smaller projects had set up implementation groups to decide action plans and allocate tasks for the next period.

3.24 Eight of the12projects examined hadproduced ariskassessment and one project was about to produce one. The other three bad not documented any risk assessment.

3.25 Only four projects hadcompleted aquah~management plan, with another under development. However, project managers who had not prepared a quafity management plan hadnotbeen reminded todosoby the Depatiment, not least because quahty asswance procedures are still being developed. In the view of the National Audit Office, this was the weakest area of project planning.

3.26 ~ilstthere is Htilepoint increasing management plans retrospectively, quality and risk management are on-going activities. The National Audit Office recommends, therefore, that the Department requires project managers to provide evidence that quahty and risk have been considered.

31 CWGE MANAGEMENT IN THE INWD REVENUE

3.27 The Department has re-emphasised this by including quahty as an integral part of the recommended project plan for all projects. The Department is considering changing the project approvals process to include risk and quali@ assessments in all cases. This will be incorporated in the updated methodology due in 1995 (paragraph 3.14).

Project reporting and review 3.28 Project reporting is particularly important because it gives the information which the Department, via tbe Change Steering Group, uses to manage the Change Programme as a whole.

3.29 The normal reporting requirement is a monthly progress repofi. Ten of the 12 projects met their monthly reporting requirement, providing the key information requested, although notalways inthestandard format. One project reported more intermittently (Project I) and one project failed to report (Project E).

3.30 In August 1994, the Department issued new guidance for the monthly reports. Tbe Widance places more emphasis on reporting proWess against milestones and on resource usage against budgets. This information should enable earher identification of slippages or overspends.

3.31 In addition to monthly reporting, projects may be audited or reviewed during their lifecycle by various bodies. Of tbe 12 projects reviewed by the National Audit Office, nine had input from either internal audit or, for those projects which had one, from the project board.

3.32 A further check is provided by a post implementation review, to assess quali~ andidentify examples ofgood practice. Such reviews areusually requested ifa project hashadproblems. Two of the 12projects examined had been completed, with post implementation reviews due to be made. Across the Department, 17postimplementation reviews had been made by December 1994.

3.33 [nSeptember1994,thepro~ammemanagementteamstarteda hi-monthly newsletter to inform project managers about lessons to be learnt from post implementation reviews, project audits andother aspects ofprogramme management of wider relevance. Amongst the points higbligbted in the September issue were:

. the importance of adequate and early user involvement in project activity;

. the need to consider the appropriate timing for training to ensure that when a system is released all users are adequately trained to operate it efficiently

. advice on bow to handle the pubhcity aspects of a project.

,.

32 CWGE MANAGEMENT IN THE INMND REVENUE

Financial management

3.34 Once approved, the degree of financial management practised by project managers varied from maintaining a cumulative fist of invoices, in some of the smaller projects, to a detailed, monthly profile of spend against budget, in the larger projects. The compilation of a monthly budget profile is mandatory for all projects and the Department informed the National Audit Office that it is actively monitoring this requirement.

Project management training

3.35 For projects to be well managed, managers need to be suitably trained. In April 1994, the Department introduced a modular project management training programme to supplement the methodology introduced in February 1994, Project Management Services (part of the Business Services Office)co-ordinate the 14 module programme. The Department considers that these speciahst courses are of limited relevance to the majority of the its staff, Publicity for the programme is therefore targeted at regions and head office divisions,

3.36 In eight of the projects reviewed, managers had received training. Their previous experience of project management ranged from managing several earlier projects to none at all. The National Audit Officerecommends that before appointing Project managers to posts, their previous experience and relevant training should be assessed against the requirements of the post. Managers who lack project experience or training should be required to complete relevant training before taking up their appointment. The Department is working on ways to improve its project management capability.

Is there a means to identify and manage risks which threaten the successful delivery of the Change Programme?

3.37 The Department has drawn up a risk management plan to assess the risks that pose a significant threat to the successful delivery of the Change Programme. The plan assesses the probability of the risks occurring and the potential impact.

3.38 The plan tackles the risks on WO fronts, Firstly, it tries to minimise the chance of the risk occurring. It does this by identifying the most likely risks to the Change Programme and detailing preventative strategies. Secondly, the risk plan seeks to minimise the impact, should the identified risks occur. Contingent strategies have been drawn up for each eventuah@. Responsibihty for these strategies is assigned to named individuals. A risk manager monitors progress regularly.

3.39 The Change Programme risk assessment plan appraises the main risks which threaten the achievement of the Programme. Risk management will continue throughout the fife of the Change Programme. The main risks are considered in detail in Part 4 (paragraphs 4.31 to 4.57).

33 CWGE MANAGEMENTIN THE INMD REVENUE

Is there a means to identify and manage dependencies between individual projects, to ensure Change Programme aims are achieved?

3.40 The Department set up a central database early in 1994 to monitor au notiled project dependencies and to manage them at the Change Pro~amme level. Subsequently the Department reviewed the value of its central dependency database and concluded that the resources required to maintain it did not produce compensato~ benefits. Effectively, the model became outdated almost as soon as it was produced.

3.41 The Department has since revised its approach to dependency management, placing the responsibility at the individual project level. Project managers are required to identify key internal and external dependencies those actions or activities on wbicb their project depends. Managers should identify the risks affecting their projects and ways of deahng with these risks, based on the Hkelihood of the products on which they depend being dehvered as planned. Project managers are expected to liaise with the appropriate parties to monitor proWess of external dependencies.

3.42 Where issues arise on a dependency wbicb cotid affect tbe cost, timing or quahty of a project, managers are required to report this to the Change ProWamme management team. The team are cmrently considering the best form for presenting information on dependencies to the Change Steering Group.

Is there a means to monitor the quality of Change Programme activity and provide assurance that standards are being met?

3.43 Tbe Department setup formal quality assurance procedwes in May 1994. Athough reviews have been slow to commence, starting two years after the Change ProWamme began, there is now a planned and co-ordinated effort to provide quahty assurance. The quahty reviews cover: \

● the conformity of project management plans with the departmental methodology, in particular, quau~ and risk managemen~

. project standards, procedures and tasks,

3.44 The Department conducted six reviews between September and December 1994. It plans to continue at the same rate to examine eventua~y all key aspects of the Change ProWamme. In addition, quahty managers have been appointed within the major projects, such as se~ assessment. Further checks on quahty are provided by post implementation reviews (paragraph 3.32).

34 CWGE WAGEMENT IN THE lNMD REVENUE

Is there a means to communicate the aims of the Change Programme to taxpayers and staffl

Communications tith taxpayers

3.45 The project with the biggest impact on taxpayers in the near future is sek assessment. The Department has designed a strategy for pubhcising the changes to external audiences. Tbe strategy includes specific pubhcity milestones marking major stages in the implementation of self assessment.

3.46 The strate~ aims to raise taxpayers’ awareness of se~ assessment, build up their acceptance of it and encourage them (and their professional advisers) to comply with the new requirements voluntarily, accurately and tith as Httle difficul& as possible. A campaign was launched in June 1995 with five weeks of television advertising aimed at the whole of the Revenue’s target audience of up to 9 milhon taxpayers. After the first two weeks, the campaign was supported by press adverts which continued beyond the television pubficity. As well as raising awareness, the advertising was designed to direct taxpayers to a helpline where they could obtain additional information.

3.47 The Department’s strategy for external audiences is supplemented and supported by local office action throughout the country, including seminars with professional advisers and employers, and outreach programmed to the general pubfic. During the television campaign suppofilng hterature was made available to taxpayers who called tbe helpline, to each Inland Revenue office and to tax agents and employers.

3.48 The other major project affecting taxpayers is the new office structure. On this project, because the main impact is local, responsibility for external communications for new offices has been devolved largely to regional offices. The project is being rolled out over 10 years, in a number of stages. For the first two stages, the Department arranged national press releases, as well as local press releases. Since the former attracted relatively little interest, the Department decided that regional offices should be left to decide the pubhcity needed for each local scheme. This wil vary as some schemes consist of mergers tithin the same location and will have little immediate impact on the taxpayer.

Communications tith Departmental staff

3.49 The need to improve internal communication was recognised progressively throughout 1993, when tbe Industrial Society conducted a communications review and PE International reported on people and communications issues in the Department. The Department drew up a staff communications strategy in 1993 with three main components:

35 CHANGE WAGEMENT IN THE IN~D REVENUE

. a new monthly journal (Insight) to give staff a single source of business information from top management; this aims to put across what the Department is seeking to do, provide background and explanation on why it is doing it, and try to anticipate and answer initial concerns it is hkely to raise;

. a new briefing system - team Ustening - to allow staff to discuss issues raised in Insight with managers, to share management’s responses to questions raised at local, regional and national levels and to feed their views back to managers at all levels;

● communication improvement workshops to give managers a better understanding of communication processes and practices, as well as how to hold team hstenings.

3.50 By September 1994, after wide consultation across the Department, the project team had developed a new communications strategy. Following a pilot exercise in the autumn of 1994, the team hstening approach was recommended to executive offices. It has been introduced progressively, on a timescale decided hy individual offices. The Insight magazine was distributed nationwide from April 1995.

Is there a human resource strate~?

3.51 The Department drew up a human resource strategy in November 1994. The strategy pulls together existing initiatives (including caring for staff projects) and gives a focus for all human resource issues. The strategy covers six key areas:

. Organisation, management ad work: promoting ways of working and managing people which support, motivate and improve productivity: , . Staffing ensuring that the Department’s needs are met by selecting and having staff at the right levels with the right capahihties in the context of a department which is reducing in size; 1

. Development: improving the Department’s effectiveness by developing the competence and capahihty of its people in a focused and cost effective way;

. Reward and recognition: ensuring that the Department can recruit, retain and motivate the people it needs to meet its aims; I . Communication: promoting greater understanding of Departmental aims .I and staff involvement in achieving them;

. The Inland Revenue as employe~ matching the Department’s business aims with the need to be a responsible employer

36 CHWGE MANAGEMENT IN THE lNMD REVENUE

3.52 Over the period of the Change Programme, the Department plans a significant reduction in jobs (paragraph 1.10). The staff who remain wi~ need training and development to equip them for future changes to their work. Though all the areas of the human resource strategy are important, the National Audit Office focused on the hand~ng of the staff run down and development of remaining staff as being particularly relevant to the Change Programme.

Staffing 3.53 The Department has created a redeployment and rundown unit to advise management and individuals on staff reductions. The unit has pubhshed a detailed guide explaining the procedures to be followed when a staff surplus has been identified. The options available include: reducing or restricting recruitment and promotion; stopping or reducing overtime; asking people to move to other jobs; using different working patterns such as job sharing, moving to a lower band or span; and severance.

3.54 The Department intends to achieve staff savings through natural wastage and voluntary severance as far as possible, using compulsory redundancy only as e very last resort. Over the three years to April 1995, the Department excluding the Valuation OfficeAgency has seen a net reduction of approximately 10,000 staff. Figure 7 shows how those reductions have been achieved.

Development

3.55 The Inland Revenue’s theme of improving the way it manages its work and people places new emphasis on team working, increased empowerment, management delay ering, stronger management skills and improved customer service (paragraph 2.31). A full training needs analysis was carried out in early 1991 by outside consultants with Departmental support. As a resuft the number of courses on offer has increased from eight in April 1992 to around 100 including: three management training programmed (foundation, middle management and senior management); and a series of change related courses, such as managing change and stress management. Through the human resource strategy the Department has adopted a training and development strategy, overseen by a steering group which seeks tOensure qualiv and value for money on training and development programmed. CWGE MANAGEMENT IN THE INMD REVENUE

~~ustratlon:changem;.''x:;;:::i::3z-:;$3:T:mw.mlN3-m:$ii:`:::::J'f$:J3f2:Jsypport::rnech@srnsavafl@le to:t?~~.t~e !qtezn* ~~ ,Revenue,...... ~e&ce:’ ...,..... :<,...... ,,.,..,’:,,.:..::..,,,.:,.:.’.:....,::,:,.,..,...... ,,.....:,,:, ~ .:.,,..,,,,:,,,~, ,.,,;.,.,.;:.,:.. ~‘: ‘.:. .:

The Internal Revenue Sertice in”’theUnited States recognised the &pbrt&ie of providing staff with support mechanisms, including training, to help them cope with the changes being asked of them. It has developed some usefuf services to help managers and other employees to implement staff changes, and manage business and personal transitions. The Service set up an office of employee research and change assistance which offered: experiential change management workshops; a conflict management initiative; and pwtnerstips with other offices to ensure better integration of change management information, messages and guidance to common audiences.

3.56 Training needs arising from individual change projects should be identified, in the first instance, by the project manager, who is required to draw up a training strategy for the project. Self assessment is an example of a project with significant training requirements. The Department has set up a national training focus group, including interested parties from head office, regional offices and representatives from the Department’s major trade unions, to inform the training strategy for self assessment.

3.57 Al tax office staff received an introduction to self assessment between April and October 1994. The nature and content of further training will be determined by each individual’s job role. On current plans, each staff member will receive on average 14 days of training for self assessment, The National Audh Office recommends that the Department ensures that staff take up the training on offer in good time, to maximise effectiveness.

38 CHANGE MANAGEMENT IN THE INMND REVENUE

Part 4: Assessing the impact of the Change Programme

4.1 This part of the Report examines how the Department is seeking to assess the impact of the Change Programme and how it is dealing with factors which may influence the Programmers de~ve~.

Assessing the impact of the Change Programme

4.2 Mthough the Department is seeking to gain a significant improvement in customer service, compliance, cost efficiency and caring for staff, it has not yet set high level, ~antifiable targets for the level of improvement sought. The Department, however, has various performance measures and management information at its disposal including

. customer surveys of self-employed taxpayers, employees, employers, pensioners and professional advisers;

. data on the accuracy with which regional executive offices have dealt with the assessment of Schedule E and Schedule D taxpayers;

● figures for the proportions of correspondence dealt with within 28 days or less, and in more than 28 days;

● YielticOst figures for au compliance work;

. data on the amount of tax assessed and coUected each yeau

. data on investigation and review coverage and on the quahty of investigation work;

. a wide range of unit cost data for partictiar activities.

4,3 The Department’s existing measures pre-dated the Change Programme and were not specifica~y designed to Enc up with each of the Four Cs. However, work is in hand to develop better Klgh level performance measures that do so. The following paragraphs consider, for each of the Four Cs, the Klgh level indicators planned for the future and whether, in the meanwhile, the Department’s existing lower level indicators provide a measure of assurance that the Change Programme is meeting its objectives.

i

39 CWGE MANAGEMENT IN TtIE IN~ND REVENUE

Customer service Aim: to gain a significant improvement in customer seruice bg getting people k tax affairs right first time

Planned high level indicators 4.4 The Department recognises that it needs to be able to track improvements in customer service arising from the Change Programme. It proposes to measure improvements in customer service through opinion surveys of taxpayers. It is working with external consultants to devise such an indicator and a pilot is planned for the autumn of 1995. Until a high level measure of customer service is developed, the Department will rely on existing internal measures on the quality of service provided to taxpayers.

Existing performance measures 4.5 The Department has progressively obtained the views of key tupayer groups by survey since 1992. It considers, however, that the existing suweys do not provide a benchmark from which to track changes in customer semice brought about by the Change Programme. This is because the questions asked in the earher surveys, in accordance with Citizen’s Charter principles, focussed on asking the Department’s external customers what was important to them, so the the Revenue could prioritise areas for quality improvement.

4.6 The first national survey in 1992 covered individuals who pay tax as employees or self employed. This was followed in 1993 with a survey of employers, in 1994 with a survey of pensioners and in 1995 with a survey of professional advisers. The surveys indicated the level of customer satisfaction generally: 65 per cent of employees and the self-employed, 84 per cent of employers, 87 per cent of pensioners, and 75 per cent of professional advisers were satisfied with the service provided (Figure 8). The 1995 survey of professional advisers also asked if they thought the service bad improved or deteriorated over the last WO years. Some 58 per cent said they thought it had improved, while only 14 per cent thought it had deteriorated in that time.

100 r 1 1 ,. —- -1 ! 1 No Opinion Dissatisfied

Satisfied

SeIt-employed Employees Employers Pensioners Professional agents ,

Source: Inland Revenue

Hgure 8 shows the degree of satisfaction expressed by the self-employed, employees, employers, pensioners and professional agents with the overall service they received from the Inland Revenue.

40 CHANGE ~NAGEMENT IN THE INUND REVENUE

4.7 The surveys have also helped to identify the relative importance of different aspects of customer service. ARgroups, for example, place getting tax right first time as their top priority. Information from the surveys will be useful in implementing service improvements and will help the Department to prepare for self assessment.

4.8 In addition to surveys the Department has a number of internal measures of the quahty of service provided to taxpayers. Since 1992, the Department has been measuring the time taken to respond to correspondence through its “dealing with post” initiative. Under this initiative, the Department aims to respond to all letters within 28 days, and in at least 90 per cent of cases provide a substantive reply within that timescale. Before the initiative, the Department reheal on internal measurements, taken on a @ven day each month, of amounts of post then awaiting attention for more than 14 days.

4,9 In 1992/93, local offices reported that 98.8 per cent of post was dealt with in 28 days or less. From 1993/94 onwards, targets have been set for each regional office and for other operational executive offices in tbe Department. In 1994/95 targets were, in all hut one case, achieved (see Figures 9 overleaf and 10 on page 43).

4.10 In addition to post, the Department has had, from 1992/93, new measures which assess the extent to which all clerical work on a tax case, over a 12 month period, is right first time. This quafity monitoring system covers the accuracy of Schedule D and Schedule E cases. A similar measure covering work relating to the collection of taxes is being trialled, with a view to wider introduction from 1995/96. QuaHty monitoring exercises are also being introduced in the Accounts Offices and the Enforcement Office.

4.11 The results of these measures of quahty show that nine out of the 10 regions involved improved the accuracy of Schedule E work in 1994/95 (Figure 11 on page 44). Eight of 11 regions involved improved the accuracy of their Schedute D work (Figure 12 on page 45). In some cases, the improvement in accuracy was significant, and where it fe~, the reduction tended to be small. Nationally, 92.3 per cent of Schedule E cases and 82 per cent of Schedule D cases were “right in every respect first time”. The National Audit Office recently examined the quahty of service provided by the Inland Revenue in getting tax right first time, and in deahng with more complex postal queries for income taxpayers with more complex tax affairs 2.

4.12 Figures of waiting times in tax enquiry centres are available for 1992/93 onwards. From 1994/95, the Department will also have measures of the response times for telephone calls.

Note 2: National Audit Ofice Repoti “Inland Rsvenue: Getting T= Right First Time, and Deafing with ‘\, More Complex Postal Queries”, 1993/94, HC 442

41 CMGE MANAGEMENT IN THE INMD REVENUE

Target I Result

South East

London

Wales and Midlands

Greater Manchester

Scotland

Notihern Ireland

South West

North

East

North West

South Yorkshire

9n. . 95 100 Extent to which achievement exceeded target (percentage)

Source: Inland Revenue

In 1994/95, all Regional Executive Offices exceeded their target for percentage of post dealt with within 28 daya. Internal vahdation work suggeata marginal overstatement of results.

4.13 The National Audit Office notes that existing internal measures point to an improvement in customer service in the early years of the Programme, The existing measures will provide a means to monitor whether this service is maintained during the implementation of the Change Programme. However, though these internal measmes are important, the Department beheves (paragraph 4.4 above) that there is no suhsti~te for an external assessment of the customers’ perception of the level of service provided.

42 CUANGE MAGEMENT IN THE INND REVENUE

Target Result

Capital Taxes Office

Pension Schemes Officel

.,-.~.~..,,,....~..., ...... ‘,, ..,., ,,::.,,.x,, Oil Taxation Otttce 95

Specisl Comphance Office 97.5

financial [ntermedisfles ,,‘....,.,’,.,,,.-...... ,’.,.’-.’~:,,~.:,...... ”....,,-....~...,..’,:...:: :,’:,. , and Claims OfOce 92.5

Large Groups Office 98

Enforcement OtOce 99.4

,’,,,.,,,.,,.,,,.,,,.,,,,;,,,,..~:,,;i:$,::: ;. .,,< >,:.; X:.,,; ...... ,.. ., J.,,...,,.., . .:. ,. .,.,, ... ,,, ,, ...... ,,, .,,. . <,! ?:,.,,.,,.:”. ,.., ...... Accounts Office (Shipley) 98.3

Accounts Office (Cumbernauid) 99.7

‘::2i::;i;:’i2k-&+i;::::<:i;.:!<.;:+!:;:.:2::\ 98.5 The Stamp 0ftice2 98.2

70 80 90 100 110 Achievement against target (percentage)

1. Percentage dealt with within 1 month. 2. Percentage dealt with within 5 worting days,

Source: inland Revenue

In 1994/95, all non-regional Executive Offices bar one achieved or exceededtheirtargetfor percentage of post dealt with within 28 days.

Compliance Aim: to gain a steady im.pro[]ement in.compliance; to get the right amount of tax paid at the right time

Planned high level indicators 4.14 The Inland Revenue’s main compliance objective is to encourage taxpayers to pay volmtarily the right amount of tax due by law, The ultimate indicator of the Department’s success in achieving this objective would be one which measured the tax gap the difference betieen the total tax that would be due if taxpayers

43 CHANGE MAGEMENT IN THE INWD REVENUE

1993/94 1994/95

IR Nomh West

IR South West

IR South East

60 70 80 90 Percentage of cases wholly tight first time ‘ performance level fell betwaen 1993/94 and 1994/95

Schedule E Cases 1993/94 1 994/95 Result Result Executive OfOce IR Greater Manchester 76.3 80.5 IR Ninth West 76.9 81.9 IR South West 77.2 83.0 IR South East 79,4 80.9 IRWalesand Mdlands 79.5 81.3 IR Ninth 80.5 83.2 IR East 81,2 83.4 IR Scotland 81.8 80.8’ IR South Yorkahhe 82.4 85.7 IR Nmthern Ireland 83.2 84.3

Source: Inland Revenue

Hgure 11 shows that 9 outof the 10 regions involved improved the accuracy of Schedule E work in 1994/95.

were fully compliant and the total actually collected. M accurate measme of the tax gap is however inherently difficult to achieve and the Department does not have such a measure.

44 1993/94 1994/95

: Y.,..? :., ,.:!; ‘. ~~:. ~~~+ IR South West

IR Scotland

IR London

IR Greater Manchester

IR South East

IR Wales and Midlands

IR Notih West

60 70 80 90 Percentage of cases wholly fight first time “ Performance level fell between 1993/94 and 1994/95

Schedule D Cases 1993/94 1994/95 ,.. Result Result

IR South West 73.7 81.4 IR Scotland 77.2 84.7 .IR London ~~~~~ 77.8 80.7 IR Greater Manchester 78.1 81.5 IR South East 78.2 79.1 IR Wales and Midlands 78,6 82.5 IR Notih West 81.3 84.4 IR East 81.9 81.4* IR Notih 82.0 82.4 [R South Yorkshhe 84.0 83.9 ‘ [R Notihern Ireland 84.2 80.9 “

Source:Inland Revenue

figure 12 Shows that 8 out of 11 regions improved the accuracy of their Schedule D work in 1994/95.

45 CMGE HAGEMENT IN THE INMD REVENUE

4.15 The Internal Revenue Service of the United States has developed measures of the tax gap, which it also uses in setting future targets. These are based on the detailed investigation of a large random sample of taxpayers records and an extrapolation of the results to give a national estimate of nm-comphance. But it should be recognised that there are difficulties in producing such targets and questions over their reliability. The Inland Revenue does not have random powers to check tax returns at present but will have under self assessment. Subject to resource constraints, it intends to develop a random audit proWamme once self assessment is in place. Once the results of this programme are available, the Department should be in a better position to decide whether a rehahle indicator of the tax gap can be produced.

4.16 For the present, therefore, the Department has to find other ways of monitoring the impact of the Change Pro~amme, and in particular self assessment, on comphance. This will involve both developing new approaches and relying on existing performance measures.

New approaches to measuring the tax gap 4.17 Two main new approaches are being developed. The first aims to assess taxpayers’ perceptions of the effectiveness of compliance work through questions included in customer surveys. The 1995 sumey of taxpayers’ professional advisers included questions on these hnes.

4.18 The second new approach is to assess, without carrying out a random audit, the current level of risk of non-compliance in tax returns and compare it with the level present in self assessment returns. To do this tie Department is introducing in 1995/96 a system of monitoring quality in technical review work which asks Inspectors to evaluate risks tackled and untackled in a representative sample of cases. This new quality monitoring system will continue to run under self assessment and should provide a basis for comparison.

4.19 In addition to the quality monitoring system, the Department has setup a project to develop rules to enable risks inherent in tax retwns to be identified andweighedusingcomputersupport.Thisprojectis knownas the proto~e retuns initial screening exercise. The rules developed will be tested against a sample of pre-self assessment returns and this will provide a basis for comparison when the system is used on self assessment returns.

Existing performance measures 4.20 The Department has monitored the yield from, and cost of, its comphance work for many years. It also has a range of internal indicators to monitor the quantity . and quafity of work done by its inspectors in generating additional tax field. The Depatiment does not set targets for compliance yield because its prdicy is to collect the right amount of tax due by law and to maintain an active comphance presence across all areas of its business. It does however set targets to determine the quantity and influence the quality of investigative work. ,; {

46 CWGE MAGEMENT IN THE INMD REVENUE

4.21 The yielticost indicators in Figure 13 shows fiat comphance work is akeady ve~ cost effective - in 1993/94 the yielticost ratio was 22:1. hd it has become more cost effective in the past five years the ratio in 1989/90 was 18:1. In real terms, compliance yield increased from 83.5 bilhon in 1989/90 to E5.3 bi~ion in 1991/92, but fefl to E4.7 bi~on in 1993/94. Tbe Department has identified a number of reasons for the levelhng off of compliance yield: fewer cases now go back to years when tax rates were higher, while depressed economic conditions resulted in lower levels of profits generally.

175~“””--”- I I 1989-90= 100 I I L— 150 Meld /

125

.—. cost

3 s 1989-90 1990-91 1991-92 1992-93 1993-94

Nnancial Year 1989-90 1990-91 1991-92 1992-93 1993-94 Weld: GDPdeflated (f million) 3541 4428 5260 4721 4698 Costs GOPdeflated (f million) 194 207 222 231 212 Meld:Cost Ratio 161 21:1 241 201 22:1

Source: Inland Revenue Annual Report and Depatimentai Management Plan

Note 1: figure 13 excludes all capital costs which in 1993-94 were f173 milhon; and head office costs (fl 86 million in 1993-94) which, under the present coating arrangements, cannot be accurately attflbuted to specific operational functions.

2 to provide consistency with previous years, the 1993-94 data in figure 13 exclude superannuation costs. (Previously these were not a direct charge on the Department).

4.22 The Department recognises that there is a link between better customer service, in terms of making it easier for taxpayers to understand and comply with the law, and the level of voluntary compliance, If the Department was able to develop a reliable measure of the tax gap, it would be possible to assess the importance of an increase, or reduction, in tax yield arising from comphance work. Md comphance yield may also reflect factors outside the Department’s direct control.

47 CWGE MANAGEMENT IN THE INND REVENUE

Cost efficiency

Aim: to gain a significant reduction in costs; to provide ualuefor money in everything the Department does

Development of high level indicators based on existing performance measures

4.23 Eve~ year, the Department pubhshes the cost of collecting taxes as a percentage of net tax receipts. The cost of co~ection is a broad indicator of the cost efficiency of tax collection. However, it will be influenced in particular years by factors which have nothing to do with administrative cost efficiency, such as tie tax rates in force or the general level of economic activi~.

4.24 To give an indication of administrative cost efficiency the Department measures unit costs for each of its functions, the cost per taxpayer, the cost per transaction (e.g. completed case or claim) or the yield/cost ratio, as appropriate. This produces a wide range of information on tbe unit costs of bandhng work in all the Department’s operational executive offices. This information is included in the Department’s Annual Reports and its management plan, which includes forecasts for the next three years.

4.25 In its Report on the 1993/94 accounts (Inland Revenue Accounts, 1993/94, HC 100), the National Audit Office showed the Department’s unit costs for each type of taxpayer for the main network taxes. The Report showed that, over the last four years, unit costs rose by 18 per cent in real terms (Figure 14 opposite). Costs were broadly stable for the first two years. Rises after that were due to the introduction of independent taxation and other changes to the tax system. In the second year of the Change Programme unit costs fell slightly.

4.26 The Department should continue to pubHsh and explain its low level unit cost figures to monitor improvements in cost efficiency achieved by its executive offices. However, the Department also needs to be able to show whether the Change Programme as a whole has resulted in a significant improvement in cost efficiency. To do this, the Department will continue to produce unit cost figures for the main types of taxpayer and an overall index.

4.27 For years before 1994/95, the Department’s unit cost figures excluded the cost of both central administration and capital expenditure. Given the importance of capital investment to the Change Programme, the National Audit Office considers that including the effect of capital spending in unit costs is necessaW to reflect the full range of Departmental expenditure. For 1994/95 the Department has refined its unit costs by including central administration costs and depreciation; it plans to include capital charges as part of the move to resource accounting. CHGE WAGEMENT IN THE lNWND REVENUE

Corp~ration Tax t

1989-90 1990-91 1991-92 1992-93 1993-94

~gure 14 shows that, over the last four years, overall unit costs rose by 18 per cent in real terms.

UnitCosts in HnancialYear 1989-90 1990-91 1991-92 1992-93 1993-94 IncomeTax(Schedule O)(f per tax payer) 55,9 58.7 72.2 71.3 74.3 IncomeTax(Schedule E (f per tax payer) 16,0 15.9 i 7.9 19.2 18.2 CorporationTM (f per tax payer) 47.9 47.9 49.9 37,7 35,3 Overall(f per tax payer) 24.4 24,8 27.5 29.1 28.9

Source: Inland RevenueDepatimerdal Management Plan Notes 1: figure 14 excludes all capital costs which in 1993-94 were fi 73 milhon; and head ofice costs (fl 86million in 1993-94) which, under the present costing arrangements, cannot be accurately afttibuted to specific operational functions.

Z To provide consistency with previous yeare, the 1993-94 data in figure 14 exclude superannuation costs. (Previously these were not a direct charge on the DepanMent).

3: The overall unit cost figure includes costs (fl O1.6 million in 1993-94) which are not reflected in the figures for the three main taxes, Income Tax Schedule O and E Unit costs include the cost of processing Capital Gaina Tax except for the cost of the Capital Gains Tax work done by Shares Valuation Division which is included in the overall cost figure.

Caring for staff

Aim: to recognise that people are the Department most important asset

Planned high level indicators 4.28 The Inland Revenue considers the best way to measure caring for staff is through a survey of the Department’s workforce. The Department is considering proposals for a survey, in 1996. The survey could he used to set benchmarks against which future surveys could track changes in performance. h earher staff survey, carried out in 1991/92, did not provide a suitable benchmark

49 CHANGE WAGEMENT IN THE INWD REVENUE

against which to measure progress because the questions asked did not focus on the main aims of tbe Change Programme, which at that time had not been launched.

Existing performance measures 4.29 There are no existing performance measures relating to caring for staff.

The overall position

4.30 Across the Four Cs as a whole, the Department is working to enhance existing performance measures and to develop new ones which ti~, in future, provide a better overview of the extent to which improvements have been reahsed. However, discrete high level performance measures for each of the Four Cs wiU not he available until 1996/97 at the earhest. By then, the Change Programme will have been underway for four years. In the meantime the Department wiU rely on a wide range of lower level indicators. Taken together, these lower level indicators do provide a measure of reassurance that planned improvements are being reaEsed.

Rhcstrationperformauce”fificators ksedby the’”Roy~”Ma~

In this country the Royal Mail has successfdly implemented one of the largest and most significant change prograrnmes ever undert~en among the major private and pubtic utiEties. In less than 18 months, the Royal Mafi restructured from 64 districts to nine divisions, 12,000 staff were transferred into new posts and a headquarters of 1,700 was reduced to 162, giving cost savtigs of 565 mi~lon a year.

The Royal Mail was aware that the impact of previous organisation reviews had been lessened because of poor measures of performance. A critical success factor was the importance of measuring performance at the start of the project so that achievement of the project’s aims cmdd be assessed at the end. To prevent these problems, the development team set a precise standard to allow comparison once the changes had been implemented.

Main risks to the successful delivery of the Change Programme identified by the Department ‘/

4.31 Good quality risk management is considered to be one of the critical success factors in managing change. A key part of the Department’s management of change has heen to assess the risks that the Programme will not dehver its intended impacts.

50 CWGE WAGEMENT IN THE INWD REVENUE

resources and itiormation to achieve measurable progress towards programme outcomes related to programme goals.

As part of tbe General Accounting Office’sstatutory role in assessing the implementation of the Government Performance and Resnfts Act, they have developed a framework for restits-orientated management. This conceptual framework identifies the key attributes that appear to be essential to introducing res@ts-orientated management into government agencies. In patilctiar, it highhghts the need for Mgb level performance measures finked to the Department’s objectives.

Framework for resdts-orfented management

1 Prepare1,, res”lt$-orientedmanagement d * 2 Definemission goals,andobjectives ““’’’’’;’’:’P m.’ ! {.?:::’.:,,;: :.:,,;:,:;:’ ‘. : : 3 ..,.:..?,. , .;.:,,.,.,: ...... ,, ,.. ,,.,= q unlcate 4 Collect 1s ,’.’ ‘n, . ...., petiarmancedata ;:,,: ..,,;.:;.,.., :riqe Semte has “sevenmain performance goals finked to their three main’busiiess ‘objectives. Progress in moving towards and achieting these goals is clearly observable by using absolute and percentage meashes of performance. For example the Internal Revenue Service aims to:

. coDect at least 90 per cent of the total tax doUars due and owing by the year 2001. This long term target is finked to incremental annual targets which, in turn, are supported by 56 lower level performance measures which au contribute to the achievement of the main objective; and

. reduce the burden taxpayers experience in ftifi~lng au their tax responsibihties by 1 per cent in time and 0.5 per cent in expense each year. In 1993 the time spent was estimated at 5.1 bifhon hours and $4.4 bimon. These targets are supported by 17 lower level performance measures.

51 CHANGE WAGEMENT IN THE INMD REVENUE

The main risks that the Department has identified are:

. the Change Programme may be too large and complex to manage effectively

. resources may constrain the Department’s abitity to dehver the required benefits;

. programme components maybe unable to deliver products to cost, quahty and timescale;

. taxpayers may not accept the changes being made;

. Inland Revenue staff may not accept the changes being made.

4.32 Each month the Department assesses the probability of the identified risks occurring and the possible effects on the Change Programme. These high level risk assessments are used to guide changes in approach, to develop mitigation and contingency strate@es and to inform major decisions as the Programme rolls foward. The ways in which the Department has responded to these risks are outlined below.

Risk: the Change Programme maybe too large and complex to manage effectively

4.33 In general this risk can only be addressed by good programme and project management (see Part 3 of this Report). By comparison with other revenue organisations, the Inland Revenue is undertaking change on a very wide front. The Danish revenue service, for example, took a strate@c decision to tackle a major organisational change over a @o year period before tackhng changes required in underlying computer systems. Tbe Inland Revenue, which has 10 times as many staff, is seeking to do both concurrently.

4.34 The monthly reports required from all projects (paragraph 3.29) are summarised in a monthly information pack for the Change Steering Group. This includes a project status report which, for March 1995, showed that of the 20 projects over S2 milhon:

● 18 were proceeding to plan;

. one had indications of problems or had issues which were being addressed:

. one was unlikely to de~ver planned benefits within the current basehne alerting management to the need to take appropriate action.

52 CHANGE MANAGEMENT IN THE INMD REVENUE

Risk: resources may constrain the Department’s ability to deliver the required benefits 4.35 The Department has prepared a discmmted cash flow analysis for each change project, comparing the yearly recurring costs with the planned benefits. At March 1995, the Department had identified a total implementation cost for approved projects of E753 miUion, with net yearly benefits of E104 million.

4.36 The Department has a centrally controlled capital fund for change projects of around S300 million to spend beween 1995/96 and 1998/99. The capital fund for implementing the Change Programme is constrained by tbe resources made available tothe Department intheannual public expenditwe rounds. Given the restricted financing available to the Department, it needs to ensure that it has mechanisms in place to identify and prioritise resource requirements, to control the use of resources through strong project management, and to monitor spend against approved funds to ensure effective use is being made of resources.

4.37 In general, the revenue costs of implementing the change programme are controlled through the normal internal budget setting and monitoring processes rather than through a separate centrally managed fmd (though some large projects, for example self assessment, have a centrally managed fund). Typically, projects have costs in their early stages and give rise to savings later. These costs and savings are taken into account in the Department’s normal public expenditure processes. With tight constraints on expenditure, achieving the forecast savings from projects is necessary to help to provide for further investment.

4.38 The Department bas reduced staff numbers significantly during tie 1980s - 15,000 fewer between 1978 and 1992. It has achieved further staff savings of 10,000 between 1992 and April 1995 (Figwe 7- page 37) and has announced plans for a further 6,000 by April 1998. Tbe staff reductions over the next three years will be broadly accounted for by various initiatives as shown in Figure 15. A further saving of 3,000 people is anticipated from self assessment, but this will not be fully realised until 1999/2000.

Regional oflce mergers 100 Non-network rationaflaation 300 Computeti5ation projects 750 Improvements in qualiu and petiormance 1,100 Other reviews 950 Total 6,000

4.39 Whilst reducing the total number of staff the Department must ensure that sufficient staff of the right calibre are available to manage the Change Programme and operate the new systems, and generally to meet all of the

53 CHANGE WAGEMENT IN THE IN~D REVENUE

Department’s requirements in administering the tax system. To do this, the Department must guard against losing valuable staff with relevant skills during the run down period.

4.40 &other risk is that although the level of staff may match the resource requirements, the skills base may not. The move to se~ assessment will create a change in work for some staff who will require training to equip them with the necessary skills for the new work. These needs are being addressed by the national training focus group (paragraph 3.56).

4.41 To address these risks, the Department is enhancing its present personnel planning by preparing a plan of staff numbers, grades and skiUs required in the period to 1997. The Department plans to use this as a base from which to compile a skills gap analysis. The results will feed into recruitment and training strategies, toensure tbegaps are filled. The Depatiment's human resource strategy aims to ensure that the skills available match up to those needed (paragraph 3.52).

Risk: progamme components maybe unable to dehver products to costs, quality and timescale 4.42 A number of programme components involve the development of new information technology. Time and cost overruns are common when developing new computer systems, particularly where they use state of the art technology. Tbe Committee of Public Accounts has, on many occasions in the past, drawn attention to difficulties faced by pubhc sector organisations in implementing information technology projects totime and cost, most recentIy inits Report on the Proper Conduct of Puhlic Business (8th Report, 1993/94 and AppendN 5).

4.43 The Department is seeking to minimise such risks in three ways:

. byamove away from thedevelopment of bespoke computer systems for particular tax processes to an approach using “off-the-shel~ products where possible. In this way the Department hopes to hmit the use of unproven technology to the minimum necessary to meet its business requirements;

. fundamentally changing thewayit delivers computer support througha strategic partnership with an outside company (Electronic Data Systems). Through this the Department is seeking to benefit from substantial improvements in cost effectiveness and speed of response in the development ofsystems andhave rapid access to 1990sskills, tools and technologies;

. more rigorous project management ofcomputer issues in the systems changes sought. The new project methodolo~ (paragraph 3.13) requires au projects to adopt the standards that have previously only been apphed to computer based projects.

54 C~NGE WAGEMENT IN THE lNMND REVENUE

Risk: taxpayers may not accept the changes being made 4.44 Within the Change Programme, the project with the greatest impact on most taxpayers is the move to self assessment. If many taxpayers fail to accept the new system, either from alackof understanding orthrough choosing not to comply, there could be a significant reduction in the flow of funds to the Exchequer. The Department’s main compliance objective is to encourage as high a level of voluntary compliance as possible. To achieve this, the Department recognises that it must both promote changes in the way of assessing and collecting taxes and make the new processes easier for taxpayers to understand and comply with.

4.45 The Committee of Public Accounts (Inland Revenue: Getting Tax Right First Time and Dealing with More Complex Postal Enquiries, 4th Report, 1994/95) considered it was important that clear guidance be given to taxpayers to help them complete forms fully and accurately, and recommended that the Department consults widely with all interested parties to ensure that forms are clear and understandable.

4.46 The Department has set out 13 critical success factors for the launch of self assessment to be successful. These factors cover cost efficiency, comphance and customer service. The customer service factors include, for example the proportion of forms to be returned by the due date and the quanti~ that need to be returned to the taxpayer because they are incomplete.

4.47 The Department is testing the new forms with taxpayers and their professional advisers to estabhsh whether the success criteria are hkely to be met. The results of tbe trials are encouraging and suggest that the new schedular return is a viable option for self assessment. The customer strategy for self assessment also includes:

. an education programme tailored to different taxpayer groups;

. responding to queries from individuals with information, advice and help in connection with the completion of tax returns;

. setting national minimum service standards so that taxpayers know what they are entitled to expect.

4.48 The Committee of PubEc Accounts (Inland Revenue: Account Matters, 28th Report, 1993/94) noted that sek assessment was expected to cost the Department less to collect. Since the changes could mean that taxpayers incurred additional comphance costs, the Committee recommended that the Department should evaluate such costs and take appropriate steps to minimise them.

4.49 The Inland Revenue is aware that it needs to identify and minimise, wherever ,.7 possible, taxpayer compHance costs. In November 1994 it pubHshed a compliance cost assessment which measured the fikely impact on business of

55 CHANGE MANAGEMENT IN THE INWND REVENUE

the move to sek assessment. It did not consider the costs for employees in complying with self assessment and the equivalent non-business costs of the self-employed. The key conclusions were:

. self assessment creates a large recurrent comphance saving for businesses of some E125 million to t250 million a year

. the main source of the recurrent saving is abolition of estimated assessments, postponement applications and routine appeals for the self-employed;

. the non-recurrent compliance costs of self assessment are estimated at fl 00 million to S200 million:

. the recurrent saving from self assessment would more than offset the non-recurrent cost in a single year.

4.50 The Department’s aim throughout bas been to implement change in the least burdensome way to business. The compliance cost assessment demonstrated a net reduction in the compliance cost to business. The Department attributes this, in part, to its extensive consultation process. The Department considers that the trials of the new forms for self assessment should further refine the estimated cost of taxpayer comphance.

Risk: Inland Revenue staff may not accept the changes being made 4.51 The Department’s Human Resource strategy (paragraph 3,51) is its response to this risk. BYacting in all the key areas including staff motivation, development, sensitive handling of the reduc~mr in the Department’s size and communication it seeks to minimise the risk of staff not accepting the changes. Communication with staff is an important element in this strategy and the Department recognised at the start of the Change Programme that it had to inform staff of the changes that were planned, the reasons for them and the benefits that would result. It has faced WO distinct problems:

. promulgating a clear picture of its goals and the way in which it is to achieve them;

. establishing a suitable medium for responding to the views of staff, particularly when some changes will result in job losses and movement

4.52 Initially the Department issued its development plan, which set out its longer term view of the Inland Revenue. To assess staff views on the Change Programme, the Department commissioned the Industrial Society to review internal communications. The report, produced in May 1993, showed that staff were generally satisfied with the technical information received. Staff were less satisfied with information about Departmental issues, with only a third feehng well informed. hd the amount and detail of information provided about the

56 CWGE MANAGEMENT IN THE INMD REVENUE

changes was considered largely unsatisfacto~. A further review, by the Department’s consultants (PE International) in August 1993, found similar results.

4.53 Staff felt that part of the problem with internal communications was that the information on change was not co-ordinated or brought together in a single place and did not take into account sufficiently their needs for information. Information on change came from a number of pubhcations (Figure 16 below), and there was no effective mechanism to receive staff feedback,

4.54 Change is often seen by staff as a threat to the securi~ of their jobs. It was, perhaps, understandable that internal reviews also showed that staff morale was low. However, the Department was concerned that tbe reviews suggested that ownership of tie Change Programme did not lie with those staff responsible for delivering the change.

ReveNews Monthly Changs BflsfingPack Quarterly Chairman’s Newsletter Occasional Caring for Staff Newsletter Occasional New Otice Structure Leaflets Series Self Assessment Leaflets Seties

4.55 The Department sponsored futiher research in December 1993 to suggest solutions to the problems identified. A major conclusion was that, in tbe minds of staff and managers, the change message needed greater clarity and cohesion, and a clearer goal. The research could not quantify the effects on the business of the way that people may have reacted, but felt that this could have been significant.

4.56 To address the problems with communications identified, the Department established a new WO way communication system in December 1993. This combines a unified source of information on change (lrtsiy/tL)with a structured briefing sYstem (team Estening) (paragraph 3.49). The Department has also promulgated a single statement of its vision for the future within which the Fow Cs sit (Figure 1- page 15). Pilot work on the new approach in 1994 showed that 50 per cent of those surveyed felt well informed about changes in the Department, an improvement of some 17 per cent. And of those surveyed, around 65 per cent considered the new written communications to be effective.

4.57 The pilot identified some further areas for improvement. The Department therefore decided to phase in the new approach by extending team listening to those staff that had heen trained in the new methods and by introducing Insiyht in conjunction, From April 1995, Insight bas been distributed nationally to all staff. This replaces many of the separate publications which used to exist.

57 CHANGE WAGEMENT IN THE INCAND REVENUE

Appendix 1

Good practices in managing change

The National Audit OffIcedrew up a list of good practices in mana@ng change based on the experiences of other organisations (Appendices 2 and 3) and advice from external consultants on critical success factors in the management of change (Appendix 4). These practices are considered throughout the repoti. Append& 1 fists examples of the action taken hy the Inland Revenue for each element of good practice identified.

. Have a clear vision of where the organisation is going, Rgure 1 Inland Revenue’s vision expressed simply, clearly and memorably

Define how the vision is going to be achieved in the form of 1.8 The Four Cs strategic OMectives or goals 1.9 Development plan 2.1 to 2.37 Main features of the Change Program me

- Set targets to allow the achievement of objectives to be 4.2 to 4.3D Assessing the impact of the monitored Change Programme

- Have a coherent, central process to evaluate and manage 3.2 The management levels of change projects Change Programme 3.3 Change Steering Group 3.5 to 3.12 Change Management Division

. Evaluate how each project fits within the conteti of the whole 3.3 Choosing projects pmgramme and its cmdtibufion to it 3.19 Project approval

. Identify and reduce rkks 3.37 to 3.39 Nsk management 4.31 to 4.57 Main tisks to the successful dehveW of the Change Programme

. Consult and involve staff 3.49 Team hstening

. Develop new sk81a 3,55 to 3.57 Staff development and training

. Reward and recognise achievement 2.32 Petiormance management system

. Communicate clearly, regularly, and consistently 3.49 to 3.50 Communications with staff

- Notify what is going on and why, to all affected 4.51 to 4.57 Keeping staff informed

58 Appendix 2

Organisations contacted by the National Audit Office for tiews on managing change

In the UK:

British Gas

British Telecom

Portsmouth Ci~ Council

The Post Office

Overseas:

Canada - Revenue Canada

Denmark - Minist~ of Taxation

Netherlands - Ministm of Finance

New Zealand - Inland Revenue

USA Internal Revenue Semite - General Accounting Office

59 CWGE WAGEMENTINTHEINMND REVENUE

Appendix 3

Illustrations of change initiatives undertaken by other countries’ revenue departments

New Zealand I In 1988/89, the New Zealand Inland Revenue Department began a major $ change process. At the start of this process, the Department asked itsek some fundamental questions, in particular what was its basic purpose and long term vision, how could it achieve that vision and how could it measure progress. FoUowing this, the Department defined its basic purpose as closing the tax gap over time, whilst simultaneously reducing its own costs and the compliance costs of taxpayers. The Department found that encoura~ng voluntary compliance was the best way to close the tax gap. And the Department identified two particular issues that helped to achieve its aims - modernised information technology and a resource linked corporate plan.

New Zealand’s Inland Revenue Department has recently introduced a new computer system encompassing all types of tax revenues and expendltue managed by the Department, as part of a five year modernisation and automation plan. The Department is currently in the detailed planning and design stage of a fundamental organisational review. This has recommended changes to its primary objective, to the law on handling disputes, to improve technical skills and to the organisational structure.

The Netherlands The Dutch Revenue Department has, for a number of years, been undertaking a programme of change to working methods and management culture since the decision to restructure was taken in 1988. The drivers for change were various, but were firmly rooted in the need of the Revenue Department b adapt ~icMy and flexibly to future developments.

A critical factor for the success of the restructuring was the decentratisation of authority. Other comments made by an independent reviewer were that internal communication was one sided and too optimistic in tone, and leadership was sometimes unsatisfactory, but there was broad agreement with the objectives of the restructuring among staff.

Canada The Departments of Taxation and Customs and Excise in Canada were amalgamated in 1994 into a single organisation called Revenue Canada. The consolidation of the administrations of the former departments is proceeding through several phases, beginning at the macro level of organisation design

60 CWGE MANAGEMENT IN THE lNWD REVENUE

down to the district and division design stages. At each phase, executives are assigned to provide the direction necessary to sustain effective programme delive~. They also provide the leadership required to move ahead with the next steps in building a unified Revenue Canada.

Tbe results of these change processes are measured in several ways, For example, internal audit conducts reviews to identify how local managers can better implement their quahty and change objectives. Internal audit also examines systems under development to identify potential problems which may arise as the system is being built. In addition, programme evaluators assess whether change programmed are meeting desired goals and effecting the desired changes, Lastly, staff workshops assess the progress made and set the stage for further improvements.

Prior to 1994, both the Departments of Taxation and Customs and Excise had initiated change programmed, as part of a programme launched hy the Prime Minister to renew the Canadian pubhc service. The Department of Taxation developed a number of initiatives leading to the creation of a new, client orientated, team based organisation. Customs and Excise similarly launched initiatives including the use of new technologies to re-engineer the Department’s business, the creation of quality teams, and staff groups whose goal was to identify actions that could he taken in response to employee comments.

Denmark The Danish Revenue and Customs and Excise Departments merged in 1990 to become the MinistW of Taxation. The merger realised staff savings of 2,100 (about one third) and was accomplished in about six months. The success of the merger was attributed to the appointment of a new Director General, from outside the wo Departments, who was experienced in managing change, possessed excellent leadership quahties and who was totally impartial.

Another critical factor in the success of the change programme was the speed of the decision making and implementation of those decisions. And to involve taxation staff in the new organisation everyone was invited to participate in the creation of the corporate objectives. About 1,000 staff were involved in 100 working groups, The Ministry responded individua~y to over 2,000 proposals, giving reasons for those which were rejected.

Productivity was maintained during the merger despite the reduction in resources. Productive@ is measured from the compilation of 11 performance indicators of which tax collection is just one. The performance of each region is assessed by adding productivity to the number of errors found by internal audit and to the results of a satisfaction survey of taxpayers. Future productivity is targeted to rise at between two and three per cent each year, Each regional office must bid for resources on the basis of their target productivity,

61 CWGE WAGEMENTINTHEINMD REVENUE

United States of herica

The United States Internal Revenue Service has identified several factors which have contributed to the need to change the way it does business including: the workload demands of a complex tax statute; a changing popdation with heightened customer service expectations; comphance problems that demand innovative solutions; and technological advances in information processing systems.

Since the late 1980s, the Internal Revenue Service has been working towards positioning itsef for the future through its technology modernization effort, known as tax systems modernization. It has now acknowledged that up~adlng information systems alone is not sufficient. The new plan to re-invent the Internal Revenue Service involves changes to its operations, its organisational structure, itstechnology, andtheway ittieat sitsstaff.

Operational changes The Internal Revenue Service has stieamhned and reorganised its &adltional business functions into six core business systems that inteWate related activities, and emphasise dehveryofpmducts andsewices to its customers. The core systems are: value tracking (customer sueys); informing and educating (to enable taxpayers to comply); managing accounts; ensuring compliance; resourcing, and developing and maintaining systems.

Organisational changes The Internal Revenue Service is changing its organisational stmctwe to meet the demands of its workload and to take advantage of the technology which it will install. Itsnational offlceis to bestreamhned andreorganised aromd the following structure: taxpayer sewices; compliance; information; stiategic planning and communications; finances; and management and administration.

In the field, it plans to consohdate 44 telephone operations into 23 customer semicecentres, reduce thenumber ofprocessing centres from 10 to five, cut the number ofcomputer centres from 12tothree, andmove from seven down to five re~onal offices.

Changes in technolo~ The Internal Revenue Semite’s current systems and antiWated technology are roadblocks to delivering the services that its customers expect. The t= systems modernisation effort will change how the Internal Revenue Semite receives, processes, stores and retrieves au information necessary to its tax administration system. ltwilalso change howtaxpayers interact with the Internal Revenue Service, including how they file their tax returns (moving from paper based to electronic fihng) and get their ~estions answered (one stop service with online access to taxpayer accounts and information).

62 CHANGE MANAGEMENT IN THE INMD REVENUE

Recognizing the impact of change on employees The Internal Revenue Semite has recognised the importance of enhsting the ideas and commitment of its employees in order to achieve these changes. For example: ithascreated acentrahsed redeploy mentproject office which is working on a Servicewide approach for the optimum placement of its workforce for the futme; it has made a commitment to its workforce to provide the opportuniv for appropriate retraining and continued employment to permanent employees whose jobs are substantially affected by new technology; and it has developed a Servicewide communications strategy to ensure that its employees ftily understand the changes it is making and have input to the process.

63 CHANGEMANAGEMENT IN THE lNWD REVENUE

Appendix 4

Management of change: critical success factors

1 Consistenttop level snpport

. active and visible role by top managers in sponsoring change

. demonstrate need for change

. build sense of direction

. recognise success

. challenge status quo

. identify and manage key stakeholders

2 A hmited nnmber of strate~c goals or objectives

. hnk change objectives to key business goals

. establish performance measures or indicators for each key objective at the start of the programme

. ensure measures are manageable in number, yet reflect the range of processes under change

. benchmark and track performance

3 Coherent management of the change process as a whole

. appoint top level change director

. orchestrate key roles such as change agents and project managers

. decide on change strategy, for example directive or collaborative

. use a mechanism such as a timetable to sustain momentum

. recognise need to change systems to underpin new ways of working

. manage interfaces ,

. understand that the change process will be continuous and not a series of “one off events

64 CMGE MANAGEMENT IN THE INMD REVENUE

4 Involve managers dowu the tiue

. encourage managers to help set the agenda

. involve managers in all project teams

. focus on “real” business issues as perceived by managers

. give managers the authority to act

5 Understand importance of culture

. re-examine values of organisation

. recognise need to manage on emotional level as weti as rational level

. align changes in culture with direction of organisation

. recognise importance of team work

6 Marry top dow pressure and bottom up concerns

. address one or two key business issues of concern to managers first

. look for an early “win”

. allow time and space for staff concerns to be ventilated

7 Develop new SWS

. address need for training or development in skills early

. identify any skills gaps

. understand distinction between skills and attitudes in improving performance

. ensure that coaching and support is available

. raise awareness of need for continuous updating of skills

8 Reward and reco~ition

. adapt reward and reco~ition policies and systems to reward “new” ways of working and achievement

. identify innovative non-pay forms of reward

65 CWGE WAGEMENT IN THE INMD REVENUE

9 Mana@g expectations

. allow flexibility

. be realistic about outcomes and the time needed to change cultme

10 Communications

. communicate and “sel~ the need for change

. clatify how change will affect people and what their new role wi~ be

. encomage upward communications

● ensure a mix of methods is used, including face to face communications

. provide information as early as possible

Source: The Development Partnership

66 CMGE MANAGEMENT IN THE IN~ND REVENUE

Appendix 5

Good practice in project management: examples from National Audit Office and Committee of Public Accounts’ Reports

Examples of good practice in project management, from a wide range of government departments, are shown below. They have been pubhshed previously, either in reports of the National Audit Office or of the Committee of PubHc Accounts.

The examples shown support the basic principles of good project management practice listed in this Report and examined in operation (paragraphs 3.1 and 3.13 to 3.36), Good project management practice covers five key areas:

. approval

. planning c reporting and review

. financial management

. training

These basic principles have been set out in the Inland Revenue’s project management methodology and apphed in its Change Programme projects

67 CHANGE WAGEMENT IN THE INMD REVENUE

Good project management practice identified in reports of the National Audit Office

Improving Social Security Services in London: Management and Implementation of the Benefits Centre Project

13 July 1994 (HC 526)

The National Audit Officeidentified three key aspects of project management

. the presence of an adequately resourced implementation team from an early stage;

. the adoption of sound project control arrangements;

. testing the vahdity of estimates of future costs and savings, when compihng project proposals.

Relocation of the Patent Office 23 February 1994 (HC228)

This Report defines tie aim of post project evaluation: to identify lessons which will improve project appraisal, design management and implementation. This requires a clear definition of objectives at the outset and co~ection of relevant information during the project.

British htarctic Survey Management of Major Capital Projects and Scientific Programmed

31 March 1993 (HC 572)

The National Audit Office evaluated the Survey’s management and control of major capital projects against good practice guidance issued by the Central Purchasing Unit. The areas covered were:

setting up a programme

. set up reporting, communications and control systems

. identify management resources required

. commission professional services, if required, and obtain suitable project management staff;

pre-contract consideration: deciding what to build

. state requirements

. evaluate options

68 CHANGE MANAGEMENT IN THE INMND REVENUE

. identify hfetime costs

● prepare a risk analysis

. carry out pre-contract feasibihty work;

contract strategy . decide level of organisational input

. select contractors best capable of dehvering the service

. aim to avoid design changes

. validate critical assumptions made in preparing initial estimates;

employment of consultants . decide their role and relationship with the project manager

. select them on technical merit

. draw up appropriate agreement

project build . draw up contract documents for the construction phase

. award the construction contract after a review of suitable contractors and a check of their experience and capabih~ to execute the contract

. ensure contract conditions are appropriate and suitable e.g. ascribe responsibihty for cost overrun risk, qnahty assurance;

evaluation . an evaluation at the end of a project should measure the success of the project and define and record the lessons learnt, in order to improve performance on subsequent projects.

Ministry of Defence: Support Information Technolo~

25 July 1991 (HC 644)

The National Audit Officefound that, for au information technology projects, organisations should have a structured project management methodolo~, covering planning, monitoring of progress; and quahty control. Well managed projects reduce the risk of cost or time overruns.

,.. ,.” “’

69 CHANGE WAGEMENT IN THE INMD REVENUE

Office Automation in Government Departments

14 March 1991 (HC 314)

The National Audit Office concluded that diffictities in implementing systems could sometimes be due to inadequate preparation, for example through:

. the absence of a formal methodolo~ for managing tbe implementation of a system, resulting in a lack of clear and measurable objectives;

. insufficient integration of training and support facilities;

. underestimating the dlfficnfties arising from the Klgh technical content of the work;

. inadeWate progress and reporting mechanisms, with the risk that problems are not identified at an early stage.

Good project management practice identified in reports of the Committee of Public Accounts

The Proper Conduct of Public Business

8th Report, 1993/94

The Committee drew attention to a number of faihngs in key areas of financial control, compliance with roles, tbe stewardship of pnbhc money and assets, and generally getting value for the taxpayer’s money. It also set out a checWst of points to help public bodies guard against the risk of such lapses in the proper conduct of business. Some of the points regarding the failure to provide value for money were:

● Inadequate management of mior builting . Project management needs should be carefully projects, contributing to overspends and failure assessed and met throughout the hfetime of the to identify and address problems ss they arise. projsct

● EmbarWng on amtitious computer projects on . Sigorous financial and ~sk appraisal should be ths basis of inadequate appraisal, and faiting to carried out before computer projects are ensure that the system detivers what is required. approved, care should be taken to ensure that users are fully consulted, and the system thoroughly tested, at each stage.

. Inadequate ri-appraisal of computer projects in ● Project managers should carefully re-appraise response to changing circumstances and the continuing validiv of the project, when requirements. change occurs.

70 CHANGE MAGEMENT IN THE INMND REVENUE

Ministry of Defence: Support Information Technolo~ 13th Report, 1991/92

The Committee drew attention to the importance of user involvement in technology planning.

The Committee emphasised tie need for the Department to exercise firm management control over projects, including continued efforts to break down projects into shorter tranches, and applying strict control over requirement changes during development stages.

The Commitiee asked the Department to ensure that increased delegation, under its new management strategy, did not lead to failure to adopt best practice.

The Committee stated that it places great emphasis on departments systematically comparing the achievements of expenditure against objectives. It regards post implementation reviews as crucial in ensuring that expected benefits have been achieved, and in identifying lessons for the future.

A New Btilding for the British Library 18th Report, 1990/91

The Committee stressed the importance of estabhshing yardsticks for measuring the cost and efficiency implications of changes in long term projects.

71