Better risk awareness at VAT Department

Three years after a fraud scandal at the VAT Department rocked the country, a systems audit report found lack of accountability and of risk awareness in the department’s management at all levels. This was immediately denied by the VAT director general, leaving the taxpayer wondering how the fraud could have possibly taken place had there been a keen sense of risk awareness and thorough monitoring of operations by the Finance Ministry. There might have been a measure of risk awareness at some levels but surely this was not spread widely enough within the department to ensure the avoidance of fraud of the scale that had taken place.

But before going into the findings of the audit itself, what stands out in the first place is the delay by the government in publishing a report that was completed in February last year. The reasons given by the minister for the delay are correct in that publication might have jeopardised operations but taking 15 months to correct shortcomings in such a key department is far too long. Going into the audit report proper, and to the reaction to it by the VAT director general, there is no doubt that the department’s responsibilities have increased considerably since Malta joined the European Union but this in no way justified the series of shortcomings in the department’s operations.

The director general made a case for the recruitment of more staff to cope with the increased workload, saying, for instance, that the department had no fewer than 21 vacancies for inspectors. In Parliament, the Finance Minister said that a call for applications had been issued and 10 other inspectors were employed, including three accountants. That still leaves the complement required short. Surely this is one department where any exercise of undue economy in staff recruitment is counterproductive, unless the ministry is convinced the department can make do with fewer inspectors.

According to the audit report, there had been complaints from certain areas of management that they had had no time for supervision of staff within their areas of responsibility. Even worse is that there was hardly any supervision of their work. How could have this been allowed to go on undetected?

This is why the board set up to carry out the audit said that all this showed a lack of accountability in certain areas of management as well as lack of risk awareness, especially with regard to insider fraud. “This poses a grave risk to a department where fraud can come in many guises and where vectors of fraud keep changing. Effective monitoring right across the department is a must in order to instil awareness and dissuade any attempts at insider fraud.”

Was the Finance Ministry, which is responsible for the VAT Department, unaware of such lack of risk awareness? The minister was of course right in referring to the police the allegations of abuse the minute he had received them but the extent of the fraud that had taken place shows there was great laxity in supervision. The minister is now said to be satisfied that corrective measures have been taken to check the shortcomings. Security in the department has been stepped up and a new unit set up to carry out controls and internal audits to make sure regulations and procedures were followed.

What is important now is that there will be no relaxation in the constant supervision and monitoring required to check abuses and fraud.