NINTH REPORT
The Committee of Public Accounts has agreed to
the following Report:—
INLAND REVENUE SPECIAL COMPLIANCE OFFICE:
PREVENTION OF CORRUPTION
INTRODUCTION AND SUMMARY OF CONCLUSIONS AND RECOMMENDATIONS
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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