A board set up to conduct a systems audit of the VAT Department has found a lack of accountability and risk awareness in the management of the department at all levels.

The audit was carried out in the wake of allegations of fraud. The purpose of the audit was to identify the strengths and weaknesses of the systems in place at the VAT Department and to review policies.

The board, in a report tabled in Parliament, said that there were complaints from certain areas of management that they had no time for supervision of staff within their area of responsibility. Staff members also said there was hardly any supervision of their work.

"All this shows a lack of accountability in certain areas of management, as well as a lack of risk awareness, especially with regards to insider fraud," the board said.

"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 to dissuade any attempts at insider fraud."

The board said that staff levels in supervisory positions need to be raised and the responsibilities of management needed to e clearly defined and communicated. .

The board said that while long-serving VAT inspectors had received formal training,  others who joined more recently had not.

It said that methodologies in investigations, coupled with better targeting and better preventive methods, needed to be enforced. 

VAT INSPECTORS DISMISSED

It noted that the number of VAT inspectors in the Operations Directorate had diminished in recent years. Some were dismissed after the recent cases of fraud while others were moved to other areas within the department.

VAT Inspectors recently also started conducting their work in pairs. This, the board said, was a measure which should be continued, but it also meant that more inspectors were needed.

The board also called for the engagement of more auditors and accountants by the department.

RISK MANAGEMENT AND INVESTIGATIONS

The board stressed that the VAT Department needed a Risk Management Directorate which would include within its area of responsibilities the Analysis and Control Unit set up in 2009.

The board also called for a restructuring of the VAT Department's registry  and better communication between the Central Liaison Office and the unit which verified transactions and acquisitions.

With regard to investigations, the board noted that all files were being distributed among inspectors, resulting in a number of files lying on desks awaiting attention.

"Taxpayers who are expecting a refund, are contacting the inspectors, putting them under pressure by asking for favours to have their file dealt with early," the board said.

"On the other hand, in cases where fraud is suspected, the favour asked may be to place the file at the bottom of the pile. This system may lead to collusion."

It recommended that inspectors should be handed only those files with which they could deal at any one time.

In order to avoid files being lost when the inspector was absent from the desk, these files were to be locked in small lockers provided for the purpose.

DE-REGISTRATIONS

The board said it was disturbed by the fact that the number of monthly de-registrations amounted to 500, "especially in the light of allegations made of cases where taxpayers were de-registered in order to hide cases of fraud."

The board said the department should conduct more checks before de-registering taxpayers, irrespective of whether they were in a credit or debit position.

'UNDER-DECLARATIONS ARE RIFE'

The board said that the number of taxpayers registered under Register B -  36% of the total taxpayers - was also worrying when considering the low thresholds applicable to this category of taxpayers.

"This indicates that under-declarations are rife."

"In order to stem loss of revenue for the economy and ensure a level playing field for all, the board recommends that a number of investigations be targeted at this category of taxpayers," the report said.

The board was composed of Herbert Agius, Cynthia Scerri-Debono and Joseph Croker. Their report was tabled by Finance Minister Tonio Fenech.

See Director-General's reaction at

http://www.timesofmalta.com/articles/view/20110509/local/director-denies-there-is-lack-of-accountability-at-vat-department.364513