The $1.7 Billion "Flush", of Tax and Superannuation members dollars..

Like one of the silent "majority" of tax payers, it is with some despair, that one watches tax money being flushed down the drain.

A few facts to start with, which politicians seem to miss:

• politics is not the best way to pick market, or technology winners or losers
• political interference, be it well intentioned, almost always distorts markets, and can actually destroy existing market participants (pink bats, solar energy)
• government departments with unlimited tax payer funding, should not compete with commercial entities on an non-commercial basis. A level playing field must actually be level.
• if a specific technology needs to be "mandated" to get anyone to use it, should sound alarm bells.

The programs in question are the Standard Business Reporting (SBR), and more recently Superstream.

These government run program names, are always interesting, SBR is anything but "standards" based, and superstream is only "super" in its ability to spend tax payers and superannuation members money.

The first look

This particular SBR program is quite strange, some obvious aspects:

• run by treasury, actually a front for the ATO, obviously some internal political issue?
• no review or accountability on any aspect of the project to-date
• after many years, and millions of $$$ already spent, almost zero adoption by any commercial organisations
• unknown millions wasted by commercial organisations, when promised returns are never realised.
• after many years, still cannot process a basic "Individual Tax Return"
• recently closed down for 4 days for "updates".. this is simply not commercially viable.
• use of ATO propriety technologies, that have never been deployed anywhere in the world, for this type of application, the sole country with limited usage, is Denmark, and they could not get any commercial take up
• technologies that any competent technologist, would advise again using, as simply not fit for purpose.

Yet it continues... and in fact this year..
To overcome the almost zero adoption of the program, the current government has decided to mandate usage, rather than doing a traditional review of the BC, this is after an expenditure in excess of $400 Million to date.

If it looks like a dodo, acts like a dodo, it is likely to actually be extinct.
Bit like John Cleese's "parrot" it is only on the perch because it is nailed there, it is actually deceased.

Superstream is a good example, of something gone amiss.
"The main purpose of SuperStream is to ensure employer contributions are paid in a consistent, timely and efficient manner to a member’s account."

Today, and for the last 15 years to my knowledge, employers of all sizes have been paying and reporting member payments to superannuation funds via their payroll system, and BECS for almost zero additional cost. All banks are capable of passing member data though to funds, via their existing bank data feeds.
The Problem to be solved as identified above, simply does not exist...

For anyone involved in rollovers of members superannuation funds, knows it is the Superannuation fund "hoops"  that is always the issue, not the transfer technologies.

Technologies are never good at solving "people" or "business process" issues.
Hence to suggest that something which is not broken, requires $1.2 Billion to be spent, could only exist inside a tax payer funded, government department, perhaps looking at building a "Yes Minister" empire?


So what went wrong?

• why is treasury doing commercial software development?
• why is there zero accountability for any deliverables under the program?
• why is a basic Individual Tax Returns not supported after many years?
• why is a working ELS system being trashed? rather than replacing the antiquated ATO proprietary bits with commercial technologies?.
• why are their zero client deliverables, all are internal?
• why does the system need to be closed down completely, for up to 4 days at a time, just to "update"
• why is there no review of the past $400+ million expenditure?
• when was the original BC reviewed?
• why is no common sense or normal business accountability being applied to this program?
• why would anyone invest an additional $1.2 Billion to achieve a saving of less than a cup of coffee?
• why is there a mandatory levy, to pay for the program which no-one wants (other than those with a financial gain from the program) that can be done today, using existing commercial infrastructure, for almost zero additional cost.

This program is technically flawed, would not make it past the "initial" gating process in any commercial organisation, yet has spent in excess of ~$400M (no-one has an actual figure, even treasury) to date, with zero return or quantified savings over existing systems. Plus has had a  "negative affect" on Australian Developers (the ATO paying millions to overseas companies is not developing jobs for Australians, just like we funded 100+ of factories in china to make pink bats, and sent local Australian companies broke), and is planning to spend $1.2 Billion to solve a problem that does not exist..

The technical issues are very straight forward, the politics seems confused at best..

Bottom line, after almost 10 years (2005), not a single cent has been quantified as actual savings, which is a direct result of SBR, and yet without any review another $1.2 Billion is planned to be wasted..

If the current Government was actually interested in reducing waste, they would start by looking inside the Treasurers own department..

Litmus Test
1. Google Standard Business Report or SBR, and look for any independent support, i.e not from a government department?
2. Look for any expenditure reporting and qualified savings for this program?
3. Look for any factual basis for the "potential" savings of $800 Million anywhere?
4. Look for a comparison of SBR with the existing ELS and other existing electronic programs?
5. Look for any accountable "person", political or otherwise.

This is a "Yes Minister" program, worthy of its own episode.


-- Links and additional information.
1. Extract of email to Joe Hockey, April 2015.
To: Joe Hockey
Treasurer
CC: Chris.Bowen, Wayne Swan, Emily Devine (SBR)

Dear Joe  Hockey,

Within your department there is an planned expenditure which is seriously flawed in both design and implementation, this program is a legacy from the previous Government, but has the potential to exceed the likes of the "Pink Bats" and  "School Sheds" programs.
 ...
I don't get involved in politics, I am part of the silent majority..
       But wasting $1.7 Billion to get a  return of less than a cup of coffee, is just too much to sit by and let happen.
...
Australian Software developers are one of the few areas that Australia does better than anyone else in the world today, and most likely into the future, it has the potential to replace the old world jobs rapidly disappearing in Australian..
But all of this is in jeopardy, in the same manner as poor government decisions destroyed the "home instillation", zero jobs today,and it looks like the same with the Solar Industry.."
-- end snip

2. The objective of the SBR Program in Australia is to reduce the cost of reporting for business by A$800 million over six years at a cost of A$320 million over the same period.^[5]

In October 2005 the Australian government commissioned the "Task force on Reducing Regulatory Burdens on Business," known as the Banks Review. Recommendation 6.3 called for the development and adoption of a business reporting standard, which became "Standard Business Reporting."

The SBR strategic plan was approved with a Commonwealth commitment of $243 million over four years.
On 3 July 2008 COAG endorsed Standard Business Reporting as one of nine additions to the regulation reform agenda (COAG Communique, 2008).

The business case developed by the Australian Treasury estimates that the average costs of implementing SBR by businesses will be $403 per business.

3. The costs associated with the implementation of the Super Stream measures will be collected as part of the superannuation industry levies.
The levies will recover the full cost of the implementation of SuperStream reforms and will be imposed as a temporary levy on APRA-regulated superannuation funds from 2012-13 to 2017-18 inclusive.
The amount of levy payable is subjected to the Minister’s determination.
The costs associated with the implementation of the SuperStream reforms are $121.5 million in 2012-13, $111.1 million in 2013-14, $83.1 million in 2014-15, $69.3 million in 2015-16, $41.2 million in 2016-17 and $40.9 million in 2017-18.

4. No SuperStream silver bullet: Bravura

5. Funds deeply unprepared for SuperStream

6. Using Tax File Numbers as the primary superannuation identifier

7. SuperStream working group· Tax File Numbers and account consolidation

8. The Tax File Number Scheme:  A Case Study of Political Assurances and Function Creep

Disclaimer The contents of this site should not be understood to be accounting, taxation or investment advice but rather as general product related educational information that may or may not meet your specific requirements.

The New breed of Accountants

The new breed of accountants

There’s a new breed of younger practitioners coming through that understand technology, and see the benefits, but a lot of it will be driven by the clients too.
We see these practices, picking up clients at the moment, from their current accountant, who doesn’t know Xero, doesn’t understand it and doesn’t want to understand it.

The client says: ‘I want to use Xero, it suits my business. 
But..if I have to print out my reports to give it to you, I don’t see the benefit'.
I need you to help me with the compliance stuff like BAS, Company Tax returns, and provide me timely advice on my business.'

They demand an Accountant who 'gets it'..

The Technology Revolution..

Cloud Technology is revolutionising how accountants work. The major driver of this change is elastic cloud computing, and storage; which is enabling not only companies, but their accountants with better and faster access to business intelligence that they can then use to advise clients. Cloud computing allows a company or a practice to access applications from an offsite cloud provider via the internet, rather than from company-owned and maintained hardware and software.
This provides 'software as a service', which in turn allows businesses to pick and choose best of breed software, bringing together online accounting, inventory, business intelligence, CRM, payroll, Jobs, Client billing, online Tax form processing, and many other packages.

Cloud computing has driven a proliferation of high quality software packages, available on a monthly or yearly subscription basis. This is particularly beneficial for businesses in the SME sector. Previously, the world class functionality available with some of this software was too expensive to be economic for SME’s, whereas today, the entry cost is very low, a typical accounting practice solution is currently sub $2000 per year, for a complete practice solution.

With the introduction of online accounting software, such as Xero,Quickbooks Online, SMSF365 and Simple Fund 360, ect..; accountants can now access client information on-line in real-time. This has made the accounts preparation process more timely and efficient, as well as opening up access to more up-to-date and detailed business information.

The benefits of having your financial statements prepared sooner are numerous. Whether it is managing cash flows, meeting banking covenants, understanding how a business has truly traded, or assisting with forecast preparations.

Less time taken preparing accounts also leaves an accountant with time to spend more time on understanding  the client business and providing insightful advice, enter the age of the Virtual CFO, for even small SME's. Access to the information online also means that this advice is based on real-time information. On-line access has the added benefit of encouraging greater collaboration between businesses and their advisors which in turn leads to better governance. It is well documented that good governance is crucial to the SME sector. So while there is still a need for great people on your board, that are willing to challenge and bring their experience to bear, technology is playing an increasingly important role in assisting more effective governance. 

But...

When we look at the typical suburban Accounting Practice, which are SME's, they are mostly "back in the dark ages". The concept of "eating ones own cooking" is a truism..

Many accounting practices, don't use online accounting services for their own practice client billing. In the rare case, when they do, this system is not linked or integrated with the Practice Management, or even their SMSF Administration system, so each exists as independent islands.. never to communicate or share data.

And yes each of these separate applications has their own fees..

The fact ... a typical suburban accounting practice, has many of the same drivers as their client companies.

The New Practice
The changes to the accounting landscape, by the arrival of cloud technology, cannot be underestimated. Cloud accounting, championed by a wide range of technology providers, does away with the old business model, and has the capability to make a range of existing accounting services obsolete, especially the low value services..
This change, is normal, and no different to the demise of the typist, travel agent, or corner shop in recent years.

The economics
With a Cloud based solution, the practice is purchasing the utilisation of a fully hosted and managed Practice Management service, via an online service provider. There is no software updates, no power outages, and no initial capital expenditure, and it’s all paid by a single yearly fee.

We have found the usual decision point for change, comes when a practice receives the quote for the "upgrade of existing servers", or the partner looks at the "current fees" being paid to older desktop Practice Management Software, which typically have not been updated in years.

A modern Cloud based Practice Management solution, can be as little as $2000 per year for up to 25 employees... this is probably less than the cost of electricity, to run the existing servers.

The costs
At the same time, the focus on costs is creating more outsourcing of work to locations around the world.
We are seeing a lot of  practices off-shoring work, especially SMSF related activities, to places like the Philippines, Malaysia, India. These countries are creating centres of excellence, with highly qualified staff and pushing the mundane work into even lower cost jurisdictions.

Over the last couple of years we have seen more of the higher value activity, such as SMSF compliance, also being pushed into those low cost jurisdictions. Previously it was processing work like invoicing, data entry, very much back office functions and data gathering, but we’re now seeing more value add, more strategic work, work that needs a better knowledge of accounting or tax rules.

We see this as an interim stage, the true Cloud Practice replaces routine work with automation, and concentrates its staff on high value add, activities like virtual CFO's ect..

The recent privacy laws on 'cross-border disclosure of personal information' while they do not prohibit outsourcing to overseas countries, simply make it a more onerous task, for any Australian Practice; as the Practice is now responsible for the client data if it is "disclosed" overseas.
See Does your data still call Australia Home

The Agile Practice
Because it is accessed online, the software is Mac or PC, mobile phone, tablets of almost any type compatible, well almost all.

There’s unlimited data storage, as the practice information is not held on the internal network. As a result, the business is not constrained to the storage, or memory on its desktop computer; as data is securely held in the cloud. And most importantly, it can be securely accessed from anywhere. This provides convenience and enhanced business agility. The only thing the firm, or any of its employees need is an internet connection, anywhere, anytime.

This approach gives a practice, the flexibility to adapt very quickly to the changing needs of an organisation, or the accounting market in general. We see a future that for some client companies,  it allows the Practice to better embed themselves into the client organisation, this is our vision of the next generation "in-sourced" accounting practice.

The level of compliance work, as a proportion of a practice business will reduce. What is holding many Australian firms back from the cloud are fears of security, with sensitive data moving out of a company’s local premise into "the cloud".  Many worry, with good reason, that the information might be accessed by un-authorised individuals. An example, is practices using insecure, USA located, free services to transfer client files...
This, in turn, creates great concern over practice governance, risk and controls.
Many of the more recent providers, are starting to ensure only authorised individuals can access data in the cloud, but many of these are located outside of Australia; Xero accounting and their WFM, is an obvious example. This is a bit like allowing anyone to logon to your internal system today, one needs to be sure your provider has a lot of Cloud operational experience, most of these providers did not even exist a few years ago. VillageMall has been providing Cloud based services since 1999..

To address these concerns, the leading software cloud providers, offer a practice" the option" of a cost effective 'Private Cloud' solution, where the practice retains ownership and control of the Cloud Practice, in a manner similar to their existing on-site services.

Today, there is simply no reason, that Client or Practice data, should leave the legal jurisdiction of Australia.

There is no compelling reason, that a Cloud solution, should require a fundamental change to your existing on-site compliance environment today, you simply don't need the hassles..

The barriers
One of the biggest hurdles to moving a Practice to the Cloud has been ATO tax form support, most cloud based practice solutions have been short of delivery in this area, it is "always next year".
But in 2014, this barrier has been removed by the Industry leading solution providers.

The old world Desktop Software Lockin
One would hope that a practice would move towards being "completely paperless", so that the many associated efficiencies can be realised, and also move to a subscription-based service offering.

Within the next few years, all practices will be able to jettison the license fees for there "old world" (read way to expensive...) software; they’re locked in at the moment. It’s all about timing the escape from the locking contracts, and additionally offers a practice the ability to move from one software support product to another more nimbly.

Compliance
There is a wide range of privacy,and compliance issues being faced by a practice.
At a minimum the following should be addressed by all Practice Management Solutions:

• Integrated, secure (100% Encrypted, and located in Australia) Records Management System.
• Registered against Taxation Ruling TR 2005/9 requirements
• Storage designed to meet Australian Privacy principle APP 8 (March 2014)
• Corporations Act in s286(1)
• X509 Signed Digital Timestamp, to meet legal filing date, and integrity requirements
• Implements an out-of-box "Standard Business Classification Scheme"

The Future practice
The key to the new cloud practice is the "automation" of  low value process intensive tasks..
At VillageMall, within our Practice Manager, we are getting close to a total automation of Activity Statements, via our unique Cloud SBR Tax modules.

The actual process..
1. Setup the client record with ABN and check Activity Statement
2. On the first week of each month, our Automation robot, will use the Practice Device Auskey, to pre-fill  the Client Activity Statement, from all of the clients enabled above, and the ATO has generated a AS for this period.
3. The automation robot will also create a Practice Job, using the Practice specific job template, and mark it as active, plus set the due date to match the data extracted from the ATO Activity Statement.
4. The Job is assigned to a staff member (manual bit)
5. Staff member reviews the ATO pre-filled form, and fills the form from the linked client Xero accounting package, yes just a single click (the high value bit)
6. Subject to authorisation, the Activity Statement can be submitted directly to the ATO in real-time.
7. Job is closed and Client invoice generated from job details, directly inside Practice Xero account.

It done..

Note, that Staff do not need to leave the Practice Manager application, everything comes to the staff member as they need it. Also they do not need access to the Practice Xero accounting system at all.


The Future is here Today..

See  Practice Manager for details.

Disclaimer The contents of this site should not be understood to be accounting, taxation or investment advice but rather as general product related educational information that may or may not meet your specific requirements.