Refunds postponed as VAT fraud investigation continues
Over €10 million in VAT refunds are being held back because of the major investigation into fraud at the VAT office, The Sunday Times reports today.
Sources said the investigation had so far revealed that a web of criminals, acting as middlemen, were receiving the lion’s share of a three-way scam involving VAT department staff and businessmen.
It is understood that one individual told investigators that he had been involved in the fraudulent practice for a number of years, though it appears that for others the period can be measured in months. It is still too early to establish how much revenue the department has lost as a result of the scam, but it is known that the amount runs into millions.
Six VAT department employees have so far been suspended on half pay in line with public service regulations.
Some details of how the fraud was carried out have also emerged. It appears that intermediaries would approach businessmen and inform them that they could dodge paying VAT and pocket thousands in the process.
After assuring the businessmen that they could not be caught because they were in cahoots with department staff, it would be established how much each party would receive.
The businessmen would file their VAT return normally, but at a later stage, the staff involved would alter the return, change the figures and issue refunds and receipts.
It appears that in practice only refunds that exceeded €50,000 were queried and verified by more senior officials within the department and therefore the reimbursements were issued in figures of less than that in the knowledge that the possibility of ever being checked was negligible. Some businessmen are believed to have received illegal refunds of up to €250,000.
A number of companies are also being investigated, and it appears that the police already have sufficient evidence to proceed against some of those under investigation.
The crime only came to light after a businessman who had been approached with the plan decided to pass on the information to Finance Minister Tonio Fenech last December.
Police raided the VAT offices in Birkirkara last week and confiscated a number of computers.
The Finance Ministry is planning a full-blown review of the systems used at the VAT department, to weed out any traces of corruption and restore faith in one of the government’s major financial resources.
When contacted yesterday and asked why it took so long for this fraud to come to light, Mr Fenech said it was difficult to establish at this stage.
“I would prefer to see the outcome of the police investigation. However, when a fraudulent practice involves the collusion of a number of individuals from within the organisation then this becomes harder to detect. On the other hand, one would have expected that sufficient controls are in place in the department capable of identifying any wrongdoing taking place particularly on a regular basis.
“In this case it seems these have failed and after the police investigations are carried out, the ministry will conduct a detailed internal review to establish the weaknesses of the current system, whether proper control procedures were in place and whether management carried out appropriately their responsibilities.”
Asked whether he was certain that the fraud had been stopped, the minister said that all refunds had been withheld to ensure they were appropriately verified and legitimately due. The refunds were meant to be issued at the end of March.
Only adequate checks and balances and internal controls could ensure that the risk of fraud was minimised – and clearly these had become “faulty”, Mr Fenech said.
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Vince Agius
Apr 14th 2009, 21:53
It looks like tomorrow the VAT officials involved in the scam are to be arraigned in court.
I guess the middlemen and the businessmen will follow. But what about the auditors of the companies involved? It is shameful and also criminal to close an eye to these abuses. We are all eagerly waiting for developments and expect ALL to be arraigned.
J S Borg
Apr 14th 2009, 21:43
I am very sorry to say that some of the contributors do not understand the arguments brought over. It is a fact that all of us have to pay taxes and contribute one way or another to the nation.
The message is that manytimes we do our best to catch little mice but do not bother to catch fully fledged elephants and dinasaurs.
Vince Agius
Apr 14th 2009, 19:04
What has been going on in Malta re the VAT Fraud is nothing else but Organized Crime. In other countries if such crime takes place they may refer to it as Mafia practice. To have the guts to just re invent the numbers and have your mind at rest because under 50,000 no audit is carried out shows the easiness and abuse of power of such people. Who did the crime would have never done it unless everything was well organized and safe. But never say never.
And what about @Angelica. What is this with the winning VAT receipt not being exposed in public? Was this a public lottery or was it the VAT Ltd., Lottery?
Can anybody explain to me why such practices are not investigated?
Minister keep it up seize them all.
Francis Pullicino
Apr 13th 2009, 22:13
@J S Borg: We are talking about a value added tax. Even if you have something for free you created a taxable value. The only difference it that you paid it out of YOUR pocket. So legally it is 100% correct. Still so it is questionable if 5c should lead to such a penalty.
@Paul Debono: Are you dreaming? Nothing will happen. Some years ago there have been some people arrested because of some fraud in the VAT Lottery. Did you every hear something about the outcome? There was another issue of a court case were someone NEVER got her price. The VAT argued someone else won it. Well strictly speaking the price should then have been divided. But not only that that was not done. The VAT even REFUSED to show the winning receipt and the Ombudsman even agreed that a winning receipt does not need to be shown. Now that we all know that the VAT produces receipts I really pitty the lady which never got her share.
It would be so easy to avoid those types of forgery if we would finally manage to get an electronic ID card. But....
J S Borg
Apr 13th 2009, 19:45
@K vassallo Mr Vassallo if you will be so kind to leave your address with the editor, and even if you are not so hard up to carry on with your life I am willing to provide you with excellent service for free. The editor has all my details. Some of my clients could vouch for my claim.
Paul Debono
Apr 13th 2009, 18:12
I hope that the companies which were involved in this fraud are prosecuted - not just the VAT department employees. Several years ago we had the scandal of the kerosene being sold as diesel fuel by a major company in Malta. For some reason this company was never charged in court but got away with fines paid to Enemalta. Hope the same does not happen this time.....but that Justice is seen to be done....even if it takes years in court.
Bernice Bruno
Apr 13th 2009, 05:46
Real justice is done not by sending those responsable to jail or by sacking them from work as the state will have to make good for their families if they don't work or end in prison but justice is done only if those responsable refund all that they have taken. Unjustice is presently being done to all VAT employees with a clean sheet as they had their Vacation leave withdrawn!
Markus Azzopardi
Apr 13th 2009, 02:54
More important than the 6 VAT people it would be interesting to see the network behind those 6 people. Maybe justice should offer the involved business men a deal. Instead of jail they get only a hefty money penalty if they reveal the network behind the scam. What about all the auditors which conducted audits and never reported anything? How can the government ever trust those auditors again?
K.Vassallo
Apr 12th 2009, 23:02
JS Borg Since when photocopies are given out for free ? Please tell us where your charity shop is, so we'll start coming to you for photocopies. You do realise that, this lame excuse (I did not charge for the service / product) has been used and re-used by hundreds of business people to avoid being fined, do you ? It never works, trust me, you get fined just the same.
J S Borg
Apr 12th 2009, 21:35
I had never studied accounts nor auditing, but luckily I have some logic in my reasoning. So these people completed the VAT forms and one way or another got a refund which had to be deposited or audited into their business also they had to complete the IT forms with audited accounts which had to tally with the VAT compilation. So who is not doing his job the VAT dept or the IT.
One time a smart VAT lady insisted that I did not give a receipt for 5c to a little girl to whom I made a photocopy without charging but the girl left a 5c coin on the desk. Penalty? LM50. 5c was fully traced millions of Euro, never mind, these are only few millions.
t. borg
Apr 12th 2009, 20:38
Our mother died more than six months ago and we are still waiting for the funeral refund. I want to ask two questions to the vat department who I know will not answer. Is this decision is going to affect all those that are waiting for the funeral refunds? Secondly can the department or the minister assure me, and the public, that the funeral refunds are being refunded according to the deaths of our loved ones. If not, this will only mean that in the vat department there is hbieb tal-hbieb and this should be investigated. Thanks for the times for giving me the opportunity to express my rights.
P.Zammit
Apr 12th 2009, 20:15
@Joseph Micallef. I can't stop laughing at your comment. YOU BREAK THE LAW - YOU PAY DEARLY. You comment can never serve as an excuse. Heavy handedness has nothing to do with this. Ask youself... Did I BREAK the law ? YES ? Then you pay for it, without prejudice to other cases. Two wrongs will never make a right.
What you did not pay as taxes, I, the common worker, has to make good through my taxes, so that you can buy you lavish cars, villas, etc.. u jien insaffar l-Aida !!!!!!!!!!!!!!
Let us all hope that the VAT people get 10 times more what they STOLE + Jail time would give the correct message that you don't mess with taxes. It's up to the LAW now - give out a good example!
R Calleja
Apr 12th 2009, 20:06
I guess that ths is why you and your Government state you shall not refund the discriminate VAT you imposed since 2004 on vehicle registration Mr. Finance Minister ! Truly a farce ! I have lost all my trust in you, your Government and irresponsible administration. If it was not for a honest business man, I guess this would have lingered on and on...... makes me think how credible your budget predictions are and on what basis. VAT officials remain arrogant and I guess the appropriate saying goes.. the pot calling the kettle black !
c.camilleri
Apr 12th 2009, 19:52
I always thought that internal audit was there to prevent such things from happening. Now as the Minister of Finance has said a thorough review of the whole system is called for. This should be complimented by review of the punishment for such crimes. Millions of Euros were stolen from the public. Perhaps this is only a tip of the iceberg. What about the Inland Revenue Dept.? Is the Minister sure that everything there is fine? Or shall we know when it is too late? Heavy penalties should be introduced for such abuses to serve as a deterrent.
Frank Buhagiar
Apr 12th 2009, 19:52
@Julian Gatt some possible answers
1. The statistics cannot show the missing millions since they forged also the missing receipts. But that also means that the calculation of GDP, growth, etc might be wrong and has to be fixed.
2. That is a very, very valid question. Every auditor MUST see that a company got VAT reimbursed which was never paid!
3. Well, since they produced the missing receipts in this case it would have been very easy for them to produce also receipts to win the VAT Lottery. I suggest all the past cases are being reviewed!
4. In fact I am a bit confused that this hot story is not reported by all papers.
5. LOL, that is a funny question. If they manage to get the defrauded money back they could consider to invest it like that. But I suggest the defrauded millions go into the health and education sector!
6/7. I am not technically enough. But I think the government looks into that for several years now and might now speed up!
Joseph Brincat
Apr 12th 2009, 18:54
Come on, why is everybody surprised about this scandal?
If my memory serves me right, the last chief auditor exposed many other scandals. Which one of them has been solved to date?
Laissez faire...............that's easy for the Minisiters, directors and all.
Julian Gatt
Apr 12th 2009, 18:29
This all leads to various questions.
1. How can it be that the statistics never showed the mission millions?
2. How can it be that the auditors of the involved companies never reported anything even though they are bound to do it? Every Auditor must see if a company receives a cheque of 50k instead of one k.
3. Are the VAT people involved the same people involved in the various VAT lottery cases?
4. Why are other newspapers not reporting? Are they trying keep everything under the carpet?
5. Do we have to build new prisons considering the amount of people involved?
6. In other countries receipts have to be digitally signed. Why not in Malta? We are talking about the digital ID card for years now but have not even a normal valid ID card.
7. Why not submitting returns electronically AND in paper form? Like that numbers cannot be changed afterwards!
etc.....
Vincent Galea
Apr 12th 2009, 15:12
This story reminds me of the community where everyone was employed as a chimney sweeps. Each day they weni to work and got dirty. But they had one rule : One person from the group had to stay at home each day - so that when the others would return and see his clean face they'd been able to gauge how dirty they had become.
However what's frightening about these people is that they are not much different from many of us, madly believing that :
" Whatever I do, I'm still a good person."
J Martinelli
Apr 12th 2009, 13:01
@ Anthony Farrugia
...for the same reason why political crimes, including murder and attempted murder, have never been solved. It is the reluctance of individuals eye witnessing a crime, and not come forward and report it to the police for fear, Malta being a small country, that the criminals would take revenge.
It is for this reason that the businessman who tipped Minister Tonio Fenech should be applauded because without the information he volunteered, Malta would have lost millions upon millions in future fraudulent VAT refunds.
Those responsible should not only be charged with fraud and the companies made to pay back what they legitimately owe, but the guilty staff in the VAT department should be further charged with conspiracy to commit fraud. These individuals cannot possibly restitute what has been lost, so life in jail would serve as a deterrent to others.
In the meantime, let us not forget that those suspended, followed most probably by a few more, are presumed innocent until proven guilty.
victor vella
Apr 12th 2009, 12:49
There must have been prominent businessman involved in this scam I do hope that we don't get another scam now to save some people from prosecution,and by the way, has the department sequestered the assets of all those involved like they did to people who owed VAT?Come on show some stamina in the face of this national scandal.Close down buisnesses and companies there are others ready to take their place in a clean and orderly manner.Let's face it these companies could compete against anyone no wonder we used to see quotations which could never leave contractors any profit and yet these contractors kept on going and getting stronger.
Colin Camilleri
Apr 12th 2009, 12:44
What a disgraceful country we are living in. So now after years robbing the tax payers it comes out about these frauds. What is the government doing NOW to ensure that the perpetrators are heavily punished and extending the controls over other departments like:
a) customs
b) income tax
c) ADT
d) MEPA
e) Public Registry etc.?
Now that this huge scandal has surfaced, investigations, audits and controls should start in other departments too. Where are the precautions?
Adrian Cardona
Apr 12th 2009, 12:07
I do hope the businessmen who participated in this fraud are investigated as well....
David Galea
Apr 12th 2009, 11:20
@Paul Barrett who watches the watchers? BIG BROTHER i would imagine who else.
Anthony Farrugia
Apr 12th 2009, 11:15
Why did it take so so long in a small country such as Malta/Gozo to come to light,now the innocent who are due for their refunds will either have to wait for a long time yet or loose out altogether. A big Scandel and a Shame on the people responsible, where is their Christian up bringing? is all been a waste of time., it always the same old story, money and more money which in turn is called GREED>. nice turn out for this Easter i must say.
Paul Barrett
Apr 12th 2009, 09:52
As in any set up the question is:
Who watches the watchers?
J Azzopardi
Apr 12th 2009, 09:15
It is totally unacceptable and incomprehensible how such fraud could have gone on for years undetected. Where are the checks and controls expected of an entity that handles money? It is hard to believe how internal and external audits have not discovered the fraud at all although it has been going on for a number of years.
Joseph Micallef
Apr 12th 2009, 08:29
....and just cos I did not give a VAT receipt for services rendered amounting to just Lm150, I had to pay a fine of Lm350! The usual heavy handed with the small and lenient with the strong attitude!
Ronald Gauci
Apr 12th 2009, 08:15
I hope that people will serve time in jail here and not the usual fines which normally leaves the perpetrator with a profit when compared with what he/she defrauded, this has to serve as a deterrent for other officers round the island.