The National Audit Office Report
10. The Comptroller and Auditor General published
his report on HM Customs and Excise's appropriation accounts,
under section 2 of the Exchequer and Audit Act 1921, on 9 February.[26]
He was unable to certify that "adequate regulations and procedures
have been framed to secure an effective check on the assessment,
collection, and proper allocation of revenue" or that "the
sums brought to account in respect of such revenue are correct",
because of the problems with the collection of excise duties.[27]
The National Audit Office (NAO) estimated that, since 1993-94,
£668.0 million of excise and VAT revenue had been lost as
a result of the diversion onto the UK market of bonded goods (such
as spirits) which were intended for export and on which UK duty
had not been paid. A further £216.0 million revenue was lost
as a result of diversion onto overseas markets where duty would
have been due in the country of import had the goods not been
fraudulently diverted. Most of the revenue loss occurred in the
period between 1996 and 1998. £48 million has been recovered
by Customs and Excise. In its accounts for 1999-2000, the department
has written off £500 million and indicated that it is attempting
to recover the remaining £336 million.[28]
We believe that Customs and Excise should demonstrate that
adequate regulations and procedures are now in place to provide
an effective check on the assessment, collection and proper allocation
of revenue.
11. The NAO attributed the revenue loss to "weak
controls over the movement of alcohol", something to which
we drew attention in our earlier report on HM Customs and Excise,[29]
and the way in which the department investigated excise fraud.
The NAO reported that around one-half of the revenue loss occurred
because "suspect consignments of goods were allowed to leave
warehouses under observation, in some cases over a period of months,
in order to gather sufficient evidence to support prosecutions".[30]
As a result "substantial amounts of duty-suspended goods
were allowed to leave warehouse premises which then made their
way onto the home market".[31]
This not only damaged revenues. It also damaged legitimate commerce
and all those taking part in it. Customs and Excise did not make
an assessment of the costs and benefits of this approach and,
when the scale of the losses became apparent, there was a failure
to inform senior management and Ministers.[32]
We believe that the extent of the knowledge of senior Customs
and Excise officials about the scale of diversion fraud must be
made clear. We also believe that the department must demonstrate
that internal procedures and protocols are in place to ensure
proper information reaches senior management and Ministers.
12. The Comptroller and Auditor General is preparing
a more detailed report to Parliament on the causes of the problems
with the collection of excise duties and the lessons which need
to be learnt. We look forward to this report and the Committee
of Public Accounts' scrutiny of it.
Conclusion
13. Significant revenue losses began to build
up as a result of the conduct of excise fraud investigations from
1994. Ministers of the previous Administration do not appear to
have been informed. Customs and Excise had identified these problems
by 1998. Yet it was not until June 2000 that Ministers of the
present Administration were informed. By then, losses had mounted
to several hundred million pounds. We commend Ministers for commissioning
the Rocques inquiry. But there can be no excuses for either losses
on this scale, or for failure to report them to Ministers.
14. One focus of our inquiries into Customs and Excise
has been the management of the organisation. In December 2000
we welcomed the new approach to management being taken by Mr Broadbent,
who in oral evidence described the department he took over as
"under managed", "slow to react, to learn"
and exhibiting a "lack of clear strategic direction".[33]
Since then, Mr Broadbent has announced a reorganisation of the
department into two core units focusing on business services and
taxes and law enforcement.[34]
The recent problems with the collection of excise duties show
that the need for Customs and Excise to be better managed is greater
than ever. We hope that the forthcoming reorganisation of Customs
and Excise will deliver the improvements forecast by the department
and the Minister.[35]
We intend to continue with our regular scrutiny of Customs and
Excise so that we can draw the progress made by the department
to the attention of Parliament in future.
2 Treasury Committee, First Report, 1998-99, Office
for National Statistics, HC43 and Second Report, 2000-01,
National Statistics, HC137 Back
3
Treasury Committee, Sixth Report, 1998-99, Inland Revenue,
HC199 Back
4
Treasury Committee, Tenth Report, 1998-99, Valuation Office
Agency, HC420 Back
5
Treasury Committee, Second Report, 1999-2000, HM Customs and
Excise, HC53 (hereafter HMCE Report) Back
6
Treasury Committee, Sixth Report, 1999-2000, Government's Cash
and Debt Management, HC154 Back
7
Treasury Committee, Third Report, 2000-01, HM Treasury,
HC73-I Back
8
Treasury Committee, Seventh Report, 2000-01, Government Actuary's
Department, HC236 Back
9
Treasury Committee, Eighth Report, 2000-01, Royal Mint,
HC239 Back
10
Liaison Committee, First Report, 1999-2000, Shifting the Balance:
Select Committees and the Executive, HC300 Back
11
Treasury Committee, First Report, 2000-01, Work of the Treasury
Committee and Treasury Sub-committee, HC41, (hereafter referred
to as Work of the Committee) Back
12
Treasury Committee, Minutes of Evidence, 1999-2000, HM Customs
and Excise and Inland Revenue: Progress Reports, HC953 Back
13
The Chancellor of the Exchequer also answered questions on this
issue when he appeared before the Treasury Committee on 20 March
in connection with its inquiry into the 2001 Budget (Qq436-9) Back
14
Work of the Committee, paragraphs 47-58 Back
15
All quotes from HM Customs and Excise press notice 26/2000, 30
Jun 00, entitled "Paymaster General Announces Independent
Investigation into Excise Control Regimes" Back
16
HM Customs and Excise press notice 28/2000, 7 Jul 00, entitled
"Independent Investigation Head Appointed to Check Excise
Control Regimes" Back
17
HC Deb, 6 Jul 00, cc438-76 Back
18
Financial Times, 7 Jul 00 Back
19
HC Deb, 6 Jul 00, c474 Back
20
Ev, pp1, 5 Back
21
Financial Times, 5 Feb 01, report entitled "Demand
Grows for Release of Excise Report" Back
22
Q5 Back
23
Q3 Back
24
Q4 Back
25
See paragraph 10 Back
26
HM Customs and Excise: Appropriation Accounts 1999-2000,
National Audit Office, Feb 01, HC25XVI (hereafter Appropriation
Accounts) Back
27
Ibid, page R2 Back
28
Ibid, tables 10, 11 and 12 Back
29
HMCE Report, paragraphs 62-3 Back
30
Appropriation Accounts, paragraphs 5.7, 5.10 Back
31
Ibid, paragraph 5.7 Back
32
Ibid, paragraph 5.8 Back
33
Work of the Committee, paragraph 49 Back
34
HM Customs and Excise press release 4/2001, 17 Jan 01, entitled
"Customs and Excise Reorganisation" and Treasury Committee,
First Special Report, 2000-01, Work of the Treasury Committee
and Treasury Sub-committee: the Government's Response to the Committee's
First Report of Session 2000-01, HC351, p v. Back
35
Q19 Back