Press Release - HM Customs & Excise Appropriation Accounts
1999 - 2000
9 February 2001
The National Audit Office today reported the results of their
examination of HM Customs and Excise’s systems to ensure the
systems provide an effective check on the assessment, collection
and allocation of tax revenue during the year ending 31 March 2000.
The report includes details of a serious breakdown of controls in
Customs which contributed to over £600 million being lost through
fraudulent diversion of alcohol onto the UK market.
According to the report to Parliament by the head of the NAO,
Sir John Bourn:
- alcohol destined for export was fraudulently diverted from the
warehouses where it was held into the UK market (so called ‘Outward
Excise Diversion’ fraud), leading to a net loss of duty estimated
at £620 million over a period of 4 years; and a further £216
million was lost from diversion onto overseas markets where duty
would have been due in the country of import had the goods not been
fraudulently diverted;
- Customs became aware of the threat of this fraudulent movement
of goods where duty had not been paid as early as 1994, but did not
take effective action to curtail these frauds until 1998;
- it is estimated that about one half of the revenue would not
have been lost if Customs had decided to intercept the fraudulent
consignments, rather than seeking to obtain sufficient evidence to
prosecute those involved by allowing the goods to be diverted to
the home market and letting the investigations continue; or if
other effective action had been taken earlier; and
- senior management did not take appropriate action until 2000 to
inform ministers of the scale of the problem or write off the
losses as required by government accounting rules;
As a result of an internal review by Customs, the Paymaster
General was not convinced that sufficient action had been taken.
She announced that an independent investigation, headed by John
Roques, former senior partner of Deloitte and Touche, had been
commissioned to look into the matter.
Sir John Bourn said today:
"Because of serious failings by HM Customs and Excise,
revenue of over £600 million has been lost from the diversion of
alcohol onto the UK market. I am concerned about these substantial
losses and I will be making a further report to Parliament on the
causes of the diversion fraud, the lessons to be learned and the
action planned by Customs."
In reviewing Customs’ systems, Sir John also reported on the
operation of the Landfill Tax Credit Scheme which
permits landfill site operators to reclaim contributions towards
environmental projects under the Landfill Tax Regulations.
The regulations and the workings of the scheme itself are
complex; and payments for projects that fall within the scheme's
rules are not public expenditure because decisions to contribute to
environmental projects are made by landfill site operators. This
makes external examination of the value-for-money achieved by the
scheme difficult for anyone to assess. Sir John concludes among
other things that:
- this complexity may can lead people to suspect that there are
irregularities in the operation of the scheme; Customs should
therefore look at whether the organisational responsibilities could
be more clearly separated to avoid any concerns over conflicts of
interest; and
- complexity may also result in high transaction costs.
Administration costs are borne by all the participants in the
scheme, including Customs and the landfill site operators, which in
total could be considerable. Customs should examine whether the
scheme could be simplified without losing key controls over tax
credits and expenditure on projects.
In other parts of his report, Sir John recorded the results of
his examination of a variety of key systems operated by the
Department. Work on import controls highlighted the need to improve
checks by Customs at Belfast docks on consignments imported from
outside the European Union which ensure that the correct amount of
duties has been paid by importers. Sir John concluded that both
risk assessment and control over movements were weak, and that
significant reliance was placed on importers to pay the correct
amount of duty.
Notes for Editors
Outward Excise Diversion frauds involve the diversion from
bonded warehouses to the home market of duty suspended goods which
are destined for export. Duty suspended revenue goods are goods
such as alcohol and tobacco where the payment of duty is postponed
until they are released onto the UK market for consumption. Revenue
losses arise where Customs raise an assessment for duty on a trader
or an individual but the amounts cannot, or will not, be collected
by Customs.
Section 2 of the Exchequer and Audit Departments Act 1921
requires the Comptroller and Auditor General to establish that the
Revenue Departments’ systems provide an effective check on the
assessment, collection and allocation of tax revenue and to report
the results of his work to the House of Commons.
This report sets out the results of the National Audit Office’s
examination of HM Customs and Excise during the year ending 31
March 2000. The examination included reviews of both new and
existing systems, progress on corporate governance, the
Department’s quality assurance work, its information technology
installations and systems, and test checks on individual
transactions and balances.
In 1999/2000 HM Customs and Excise collected over £97 billion in
taxes and duties (Unaudited).
The Comptroller and Auditor General also examines HM Customs and
Excise’s Trust Statement which provides an account of the tax
collected during the year and paid over to the Consolidated Fund.
The account was approved by the Accounting Officer on 29 January
2001.
Press notices and reports are available from the date of
publication on the NAO website at http://www.nao.org.uk/ Hard
copies can be obtained from The Stationery Office on 0845 702
3474.
The Comptroller and Auditor General, Sir John Bourn, is the head
of the National Audit Office employing some 750 staff. He and the
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 authority to report to
Parliament on the economy, efficiency and effectiveness with which
departments and other bodies have used their resources.
Press Notice 12/01
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