Departments of the Chancellor of the Exchequer: HM Customs and Excise Appropriation Account 1999 – 2000

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.

"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:

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.

Sir John Bourn, 9 February 2001

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 https://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.

PN: 12/01