Select Committee on Public Accounts Ninth Report


The Committee of Public Accounts has agreed to the following Report:—




1. The Inland Revenue's Special Compliance Office is a specialist unit responsible for the investigation of significant cases of tax fraud, evasion and avoidance outside the scope of local tax offices. These include sensitive, high-profile cases where large sums are at stake, for example involving wealthy individuals from overseas, and 'ghosts', individuals who are resident for tax purposes in the United Kingdom, but who have not declared their activities to the Inland Revenue.

2. In February 1997, Michael Allcock, a senior tax inspector in the Special Compliance Office, was convicted on six counts of corruptly accepting money and other benefits from taxpayers, between 1987 and 1992, in return for favourable treatment of their tax affairs. He was sentenced to five years imprisonment.

3. The investigation of Mr Allcock also revealed that the conduct of five of his former colleagues had fallen below the standards expected of civil servants. Following disciplinary hearings, three members of staff were each demoted by one grade, involving reductions in annual salary of between £4,000 and £8,000. They were also fined amounts ranging from £1,800 to £3,750 deductible from salary over two years. Another two were given, respectively, a formal admonishment and reprimand.

4. On the basis of a report from the Comptroller and Auditor General,[1] the Committee examined the action taken against Mr Allcock and his colleagues, the weaknesses which provided opportunities for corruption in the Special Compliance Office, and the steps taken by the Department to reduce the risk of corruption in future.

5. While we recognise that the Department has taken action in response to this disturbing case, we have the following main concerns.

  • The Department rightly relies on the honesty and integrity of the great majority of its staff. Such confidence should not extend, however, to a naïve or unquestioning trust which, in Mr Allcock's case, meant that he was allowed to exercise almost total control over his work, with minimal oversight from senior management.

  • We note the Department's explanation that the disciplinary penalties imposed against Mr Allcock's former colleagues were determined in the light of employment law and mitigating circumstances. We believe, however, that penalties should also reflect the high standards of behaviour expected of civil servants and should signal the Department's refusal to tolerate departures from those standards.

  • The Department depends on the whole-hearted commitment of its staff and is rightly concerned to treat them fairly and well. Nevertheless, the Department's first responsibility must be to maintain full public confidence in the integrity of the Inland Revenue in all aspects of its work.

6. Our specific conclusions and recommendations are as follows:

On Mr Allcock's corruption

  (i)  The Department's subsequent examination of more than two-thirds of Mr Allcock's cases has so far found none where the settlement figure agreed by Mr Allcock was wrong. However, in many of these cases, it is difficult to arrive at a "right answer" in terms of the amount of tax due, and there are risks that the documentation may be incomplete or that Mr Allcock did not register all of the cases that he was working on. We conclude, therefore, that it is unlikely that the full extent of Mr Allcock's corrupt activities will ever be known (paragraph 26).

  (ii)  Between September 1992 and January 1994, Mr Allcock was paid some £58,000 in salary whilst under suspension. From April 1994 until December 1996, when he was suspended without pay, the Department made discretionary hardship payments of some £35,000, but attached no repayment conditions. If there is any doubt about the information on which these payments were based, the Department should examine the possibility of recovering them. In future, the Department should consider the scope for attaching repayment conditions to such payments (paragraph 27).

  (iii)  The Department is taking action through the courts to recover the £148,700 and US $23,300 which Mr Allcock was convicted of receiving in bribes, and the Cabinet Office is to decide whether he should forfeit his pension entitlement. We shall wish to be informed of the outcome in due course (paragraph 28).

  (iv)  None of the five staff who were disciplined are now working in the Special Compliance Office. We note the Department's assurance that their performance in their present posts has been entirely satisfactory (paragraph 29).

On the failure to detect Mr Allcock's corruption

  (v)  Mr Allcock's apparent success as an investigator appears to have led to an uncritical acceptance of his methods and approach. While complaints about Mr Allcock contained no direct suggestions of corruption, the Department's failure to investigate matters thoroughly may have encouraged Mr Allcock's pursuit of corrupt activities (paragraph 36).

  (vi)  We note the reasons for the delay in investigating the two complaints against Mr Allcock, received after his suspension. We look to the Department to investigate these matters fully and to bring them to a conclusion as soon as possible (paragraph 37).

  (vii)  The Department has acknowledged that its policy of allowing investigators to travel abroad at the expense of the taxpayer under investigation was misguided. We are gravely disturbed that the Department failed to appreciate the risks involved in this practice, which promoted unhealthy relationships between tax inspectors and the people they were supposed to be investigating. In view of the risks involved, we expect the Department to police the new arrangements for approving overseas travel rigorously (paragraph 38).

  (viii)  We endorse the Department's view that gifts from taxpayers are unacceptable. We look to the Department to take firm action against any member of staff who breaches this important rule (paragraph 39).

On the action taken to strengthen control in the Special Compliance Office

  (ix)  The effectiveness of the new arrangements at the Special Compliance Office depends on them being applied actively and consistently, and on firm management alert to the potential risks. We note that additional senior managers have been appointed to help ensure adequate supervision. We expect the Department to continue to maintain close watch over the areas of high risk within the Special Compliance Office and to take further action to improve supervision, should it prove necessary (paragraph 48).

  (x)  We note the steps taken by the Department to introduce a register of high risk cases which require senior management involvement and the extension of the quality monitoring arrangements to include compliance with the Special Compliance Office manual. We look to the Department to monitor the results of this work and to take remedial action, if these show that essential controls are not being applied (paragraph 49).

  (xi)  The risk of corruption underlines the importance of internal audit keeping a regular watch on the handling of Special Compliance Office tax investigations. We note the Accounting Officer's assurance that he is taking a personal interest in the management of the Special Compliance Office and we look to the Department to maintain close oversight of progress (paragraph 50).

On wider measures to deter and detect corruption

  (xii)  We are disturbed that one in ten staff employed by the Inland Revenue are unaware of the standards of behaviour expected of them. We note the steps that are being taken to raise staff awareness, and we look to the Department to conduct regular reviews to assess awareness of its code of conduct and to take further action as required (paragraph 57).

  (xiii)  While we note the Department's arguments, we continue to see a case for financial vetting and annual declarations by staff that they have complied with its code of conduct. The Department's first priority must be to maintain public confidence in the integrity of the service. We expect the Department to keep these options under review in the light of the results of the steps it has taken to deter collusion and corruption (paragraph 58).

  (xiv)  We note the Department's assurances regarding the existing complaints procedures. The Department should review these procedures regularly to confirm that they provide assurance that complaints are investigated thoroughly (paragraph 59).

  (xv)  We are concerned that the Department's current complaints procedures do not appear to include any formal provisions for taxpayers or their agents to report concerns about the honesty or conduct of Inland Revenue staff on a confidential basis without fear of being victimised. We look to the Department to consider introducing such arrangements as soon as possible (paragraph 60).

1  C&AG's report (HC 1058 of Session 1997-98) Back

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