‘Do not destabilise VAT Department’

Finance Minister Tonio Fenech has appealed for sensitivity in the opposition’s criticism of the VAT Department not to destabilise it for the sake of someone wanting heads to roll after the audit report published a fortnight ago.

Answering a series of parliamentary questions by Labour MP Leo Brincat, Mr Fenech pointed out that the VAT Department collected about a third of government revenue and such destabilisation would lead to a gaping hole in the nation’s coffers, which would not enable it to pay salaries and pensions.

Mr Brincat referred to yesterday’s edition of The Times which reported that VAT Commissioner Joseph Sammut’s contract had been temporarily renewed and that the incumbent had, for at least two years, received a performance bonus of almost €5,000.

The commissioner came under fire in an audit report that was published recently, 15 months after it was concluded in February 2010. It said the department was at grave risk of insider fraud due to lack of accountability.

The Labour MP asked whether the granting of the bonus confirmed the government’s decision that Mr Sammut had not been found guilty of any administrative shortcoming.

Mr Fenech reiterated that from the police investigation into the case, it was clear that fraud was committed by a number of persons plotting together and was not the result of management shortcomings, such as lack of supervision. The director-general of the VAT Department had cooperated fully with the police investigations and it was under his responsibility that a detailed review had been carried out to strengthen the department. Mr Sammut was responsible for its implementation.

The minister said he could not understand why Mr Sammut was being singled out, because nowhere had the investigation pointed out that fraud was related to the individual. Mr Brincat retorted that the audit report pointed out a number of administrative shortcomings in the VAT system, independently of fraud or otherwise. Did not the minister think that in such cases there should be full administrative and political accountability?

Mr Fenech said that this was not the first review that had been carried out at the VAT Department or any other government entity. It was the department’s responsibility to address identified shortcomings. He said that the audit report also highlighted shortcomings which were the result of the government’s recruiting system, and this did not help for the department to be up to the level of the needed staff complement.

Mr Sammut had seen to it that the suggested measures had been implemented, including changes in methodology. He had done the good job that was expected of him.

Mr Brincat asked whether the minister thought that the VAT fraud was not just a flash in the pan but the result of a series of defects in the system which had been left to persist through a number of years, and which had led to millions of taxpayers’ money being lost which had not been recouped.

Mr Fenech denied abdicating his political responsibility, saying that he had personally gone to the Police Commissioner and asked him to start investigating and insisted with the individual to give the police all relevant information. He said this was not always easy because many informants would not want to be identified. He had managed to convince many to cooperate.

In their exhaustive investigation, the police had downloaded all the department’s data and all input returns. A number of manual returns had been changed in a way that those who owed VAT were ending up receiving refunds. The police had gone into minute details – even identifying handwriting – to arraign the conspirators. It was through this exercise that they had managed to identify entities or companies that were involved.

Mr Fenech said that the amount of VAT at risk was about €2 million. More controls were now in place and the department was moving to electronic filing to further eliminate risks.

Mr Brincat asked whether the Risk Management Directorate recommended in the report had been appointed. Mr Fenech said that the report by the VAT Commissioner laid on the Table of the House spoke of a risk committee which had been formed. This had input from the Tax Compliance Unit and the department. These would be analysing and investigating risk assessments. This was creating problems with operators who had received refunds as these were being checked again to ensure there was nothing abnormal.

Mr Brincat asked why a KPMG report, annexed to the audit report, had not been laid on the Table of the House. The minister said this was a working document and could not be made public because it contained flow charts and technical aspects which, if published, could put the department at risk by those studying the areas which would be attacked. However, its conclusions had all been taken up by the review committee.