A major project to update the Inland Revenue Department reaches a key stage next month

It's bigger than Ben-Hur and will affect all of us, but so far has been fairly low profile.

That's probably about to change, however.

A major overhaul - particularly around computer systems - have been in the wind at the Inland Revenue Department since about 2008 and more definitively since 2010 with the formation of a "transformation" committee.

Since then a lot of background work has been under way and now the Government has green-lit the first concrete stages of a "transformation" programme with a cost that has been put as at much as $1.5 billion over a 10-year timeframe.

Inland Revenue collects approximately 80% of core Crown revenue (or approximately $49 billion) and says it "reaches" more New Zealanders than any other agency. As at 30 June 2012, Inland Revenue employed 5301 (full-time equivalent) staff across New Zealand. Inland Revenue is organised into nine business groups. Inland Revenue’s infrastructure spans 28 sites across New Zealand. 

But the bad news is it has a 20-year-old computer system.

IRD's proposed transformation programme incorporates changes in processes, skills and capabilities, and IT to deliver a modern, fit-for-purpose tax system. Inland Revenue’s role had grown over the past 20 years from administering nine tax products to managing 42 services on a range of social policies such as KiwiSaver, student loans, child support and Working for Families.

Expressing interest

So, next month, October 3 in fact,  the IRD will be inviting "the market" to respond to an Expression of Interest. In other words they are seeking contractors to carry out various of the numerous projects required within the "transformation".

Last month the IRD put out a "Transformation Market Brief", which gives details of the shape of the IRD and its systems at the moment and what, in broad terms is required for the future.

Commissioner of Inland Revenue Naomi Ferguson said in the document that technology alone won’t achieve the modernisation of the department.

"It is more than just replacing a 20-year old computer system. Transformation means a shift in how Inland Revenue works, including changes to policies, processes, platforms and service delivery," she said.

The "Expression of Interest" stage aims to, according to IRD "verify whether potential service provider(s) have the capability and capacity required to meet Inland Revenue’s needs. An expected outcome of the EOI stage is a shortlist of service providers to be invited to participate in the Competitive Dialogue stage".

What's planned is for the expression of interest period to take about three months, the "competitive dialogue" stage to take two to four months and then parties that are still in the running for the IRD work at that stage will go into the "request for proposal and negotiation" phase.

"Each stage of the Procurement Process will inform the next, and each stage may take several months. Typically, the overall process may last a year or more in total," IRD said. 

The IRD document is short on figures of how much any of this work will cost, but given the overall suggestion of as much as $1.5 billion talked about by the Government, presumably the contracts will be financially chunky.

Number of stages

IRD says its "transformation" will be separated into a number of stages and delivered over several years.

"To mitigate some of the risks of a large-scale transformation programme, it is currently envisaged that each stage will consist of a number of smaller, discrete projects. The scope of the transformation will likely evolve over time and will be subject to on-going Ministerial approval," it says.

"Over the course of the programme, we expect to identify additional opportunities that require specialist expertise from the market, and will develop procurement approaches for those depending on the nature of goods and services required."

“It is envisaged that the capability and capacity required will come from both New Zealand and overseas. There will be short and longer term opportunities for the New Zealand market to participate in designing and building significant parts of the process.”

Scale and complexity

In announcing the release of the IRD document late last month, Revenue Minister Todd McClay said that over the course of a few weeks IRD would be holding meetings in Christchurch, Wellington and Auckland to "engage with the tax and IT sectors" to explain the scale and complexity of the transformation and to provide details about the proposed process.

"The scale of this transformation is huge, and this is only the first step of a long-term and multiple stage process. Inland Revenue is working hard to ensure these changes will deliver real benefits to New Zealanders," McClay said.

Back in May when announcing Cabinet sign-off in principle for the transformation programme the then Revenue Minister Peter Dunne said the project would be "a substantial and complex project on a very large scale".

"The department’s revenue system began simply as a tax system, but over the years it has had to take on everything from child support, to student loans, to KiwiSaver and Working for Families," he said.

Kiwi ingenuity

"Basically, system modifications, manual interventions and workarounds have spoken volumes for Kiwi ingenuity, but have resulted in layers of complexity for government and customers alike.

"It is fair to say the revenue system is at capacity, and the Government recognises the need for a substantive transformation programme to shape Inland Revenue to best serve New Zealand in the future."

The IRD says it will need skills and capabilities across many areas, including project management, change management, strategy and business analysis, business process reengineering, solution architecture and design, and software development.

"While we have some of these capabilities, we will need to work with service providers in many areas over the duration of Inland Revenue’s transformation. This is a large and complex programme that will run through a number of stages over a period of years. We will be looking for providers with the appropriate skills, track record and expertise to support us at various stages on the journey." 

Combination of packages

IRD says its "current application environment" consists of a combination of enterprise packages from major service providers, technology platforms and bespoke solutions. "These systems and solutions have often been implemented at speed to meet new demands and, as a result, are less cohesive." There are 12 application "groups".

Central to Inland Revenue’s "current state application architecture" is the FIRST system. That stands for Future Inland Revenue Systems and Technology.

"FIRST is an integrated and generic tax processing engine which is function (rather than modular or services) based," IRD says.

"The FIRST system is a complex mainframe system built on Unisys COBOL 74. It has been developed and extended over the last 20 years." 

The "core" FIRST platform consists of approximately 6000 programs and 50 million lines of code.

IRD says in 2012 there were over 1 million registered e-services customers, which was a 30% increase from 2011.

It says there are over 5.5 million online transactions per day, with over 8 million payments (62% electronic) and over 8 million tax returns (47% electronic) processed per year. There are over 16 million self-help service inquiries.

In terms of the goals and the sought-after outcomes through the transformation programme, the IRD document lays out the following:

Transformation goals

• Inland Revenue’s transformation will build the capabilities required to deliver the goals set out in IR for the future, our strategic vision for Inland Revenue:
• Efficient self-management options for customers that provide speed and certainty
• A broader approach to compliance based on smarter use of information and a wider range of interventions
• A range of different working relationships with other organisations, including strategic partnerships across Government to deliver some services
• Less transactional work and less direct contact with customers
• Excellence in complex technical work
• More automation and streamlined information flows
• Greater use of commercial IT products in our systems and services
• A healthy culture which our people value and thrive in. 

Desired outcomes

To enable Inland Revenue to become a world-class revenue organisation, fundamental transformation of our operating model is required across the following areas:

• Customer: simple, clear and integrated delivery of services to customers across channels and products. Smarter use of data and intelligence to enable earlier interventions by Inland Revenue and greater self-management by customers
• Information: increased information and intelligence sharing with other agencies while protecting privacy, to enable increased cross-agency collaboration and better public service
• Process: customer-centric, seamless and streamlined processes including more automation, greater standardisation and better monitoring. Processes will optimise the use of technology as part of the all-of-government ICT strategy.
• Policy: improved ability to respond to and implement policy changes and requirements in a timely manner
• People: Inland Revenue people will have the broad capabilities needed to deliver business objectives and meet customer expectations. Our people will be adept in re-using common processes, services and applications, and be comfortable working across organisational and sector boundaries
• Platform: a technology platform that is flexible, scalable and reliable. Inland Revenue’s technology approach will mark it as a leader within government and create a secure foundation for on-demand data sharing and collaboration across agencies and with third parties.

Benefits for New Zealand

In line with Government’s Better Public Services objectives, the broad benefit areas of transformation are improving customer experience across government, increasing net revenue collection and disbursements, and reducing costs. Elements of these include:

• Improve customer experience: provide certainty to customers that they have met obligations, significantly simplify customer requirements, and improve customers’ experience with Inland Revenue and government
• Economic benefits to New Zealand: reduce customer compliance costs associated with meeting tax and social policy obligations by reducing the time businesses and other customers spend on tax compliance
• Improve revenue system integrity: encourage voluntary compliance through simpler systems; reduce fraud associated with filing incorrect tax information, not filing required obligations, or obtaining social entitlements fraudulently
• Reduce time to implement policy initiatives: greater speed and less cost in introducing and implementing policy changes within Inland Revenue
• Financial benefits to the Crown: increasing Crown revenue through increased compliance, improved accuracy of tax assessments, reduced numbers of customers in debt, and productivity savings for Inland Revenue
• Reduce risk of operational failure: reduce risk of a technology or process-failure limiting Inland Revenue’s ability to collect obligations or disburse entitlements.