Examination of Witness (Questions 1 -
WEDNESDAY 14 NOVEMBER 2001
1. May I welcome you Mr Roques to the Treasury
Sub-committee. Would you for the benefit of the shorthand writer
introduce yourself please?
(Mr Roques) My name is John Roques.
2. May I begin by questioning you in very general
terms on your report? The £670 million was lost. Customs
were clearly investigating a fraud and chasing a fraud. Was it
inevitable in very broad terms that this happened and that only
with hindsight can we see the need for significant changes?
(Mr Roques) I do not think it was inevitable. It is
important to remember that the £670 million was the loss
in respect of the cases they were examining. The actual losses
were almost certainly much, much larger than that. I estimated
an order of magnitude of £500 million a year. The £670
million was for losses actually identified specifically on the
cases which were subject to investigation. In terms of the £500
million a year, I would say that not enough thought was given
to the control regime and not enough thought was given to the
audit regime. I will bore you with the fact that I am an accountant,
but the concept of risk in accountant's jargon means you are only
supposed to have a risk approach to audit where you are satisfied
the controls are strong. You are also supposed only to have a
risk approach to audit that when you start your audit it confirms
the adequacy of the controls and that was also not true. I would
have said much earlier that they should have abandoned the risk
approach to audit when they identified the control systems were
inadequate and returned to rather more old fashioned physical
control. Sadly none of the people were there to have carried out
that task when that might have been discovered.
3. But the money need not have been lost.
(Mr Roques) I do not believe anything like the amounts
of money that were lost should have been lost. To look at the
other side of the coin, I do not believe you can have a system
where there are no losses. In all aspects of Excise the perfect
system would be unmanageable, would stop trade and therefore there
will be losses. However, I do not believe the losses should have
been anything like the magnitude they were.
4. The National Audit Office report concludes
that the balance between revenue protection through disruption
activity and prosecution was not properly assessed, but says "even
with the benefit of hindsight, it is difficult to determine whether
a policy of greater disruption would have led to a lower level
of revenue losses". What is your view on that?
(Mr Roques) There are three elements. There is the
control element, that is improving systems of control. I am absolutely
satisfied that they could have reacted much more quickly to improve
the control regime. The second element was disruption. I do not
think disruption was heard of as a strategy until drugs in circa
1998-99, whereas any strategic approach would at least have thought
of the concept of disruption. It was not thought of at all in
respect of Excise. In my judgement better controls and a disruption
activity would have reduced the quantum of those losses. How much
they would have reduced them by is impossible to speculate on.
5. Nonetheless you slightly disagree then with
the National Audit Office.
(Mr Roques) I think the losses should have been reduced
and that disruption would have been effective, as it is proving
to be effective in the drugs arena. It would also have been as
effective in the alcohol and spirits area. . . . One of the points
which is very important is once you allow a trade to be created,
you have created your customer base, you have created your distribution
systems and I believe then supply will always follow one way or
another. That is why the fraud moves around because the market
is there, the distribution system is there and they will be satisfied.
If the market, the distribution system, had not been created in
1993-94, then the consequences would be different.
Chairman: That is very helpful. Can we turn
now to the conduct of the inquiry itself?
6. You were appointed by the Paymaster General
on 30 June 2000 and you were asked to complete your review by
30 November of the same year. Some people go on for years and
years with their inquiries. You had about five months. Did you
have the resources to do a proper job of this and the time to
do a proper job?
(Mr Roques) In my judgement, yes. Firstly, as you
will know, I effectively had three teams. I had a team of people
from Customs who were working directly for me. I had a team of
people from my old firm, Deloitte & Touche, who were working
for me and I had a team of people from the lawyers, Linklaters.
I had a lot more people than just me. Secondly, I have to say
I was pleased to have the time constraint which was put upon me.
It makes for a more effective use of your time, you become focused
much earlier in the process because you know there are time constraints
and in my judgement it is unlikely that additional amounts of
time would have improved the quality of my work. I was quite content
with the time I was allowed. My only disappointment was that I
delivered my report on about 7 December, whereas I had been very
ambitious to meet the 30 November requirement.
7. I shall not probe you too much on missing
the deadline by a week. You did note in your report, "I have
not in all cases been able to develop my recommendations for change
in sufficient detail for implementation to be practicable without
further analysis and consideration by Customs and Excise".
Presumably because of the time deadlines.
(Mr Roques) Clearly time had an impact, but I felt
that once I had developed the outline of a recommendation, the
nuts and bolts of it would be much more successively developed
by internal teams from Customs. It was much better to pass the
ball along to them.
8. You do not feel that had you had more time
your recommendations might have developed in a slightly different
way than they have in practice.
(Mr Roques) No.
9. You submitted the report on 7 December.
(Mr Roques) I think that was the date.
10. It was then published in July 2001.
(Mr Roques) I believe so.
11. Do you know what the reason for the delay
was and whether there were any amendments to the report you submitted
prior to publication?
(Mr Roques) There were no amendments other than the
crossings out which you can see in the report which are rather
limited. There were no changes, no deletions other than those.
12. In your report you mention your thanks to
the Chairman and others who helped in the process of the inquiry.
You did, however, say, "In almost all cases I have found
them open and responsive to the idea that change is necessary
to improve the effectiveness of the Department". That hints
that maybe not everybody was. Are there particular layers perhaps
of management or staff you think are resistant to some of the
changes you have suggested?
(Mr Roques) There were some people in management at
the time and some people who had management roles during the period
of the investigation who had moved on, who were not as enthusiastic
about some of the changes I thought were necessary.
13. Who were they?
(Mr Roques) I have no memory of which particular names.
14. Not senior people then.
(Mr Roques) No. The new management team which the
new Chairman has assembled are more prepared to see change.
15. Than the previous senior managers.
(Mr Roques) The Chairman as an outsider, as I would
call him, has a tough job in creating a cultural change to try
to run the Department as I would see it in a more businesslike
way rather than as an advisory Department of State of the Civil
Service. You do need different processes.
16. Do you feel perhaps that previously it was
not being run along sufficiently business-type lines?
(Mr Roques) I do not. One example I give is that there
is a much greater admiration for those who work in policy than
those who work in operations. I understand why people have that
view if you are talking about a government department, but if
you are talking about an enterprise like Customs & Excise
operations, which is about what the people actually do, it is
at least as important, maybe often more important I would say,
than policy matters. Cultural changes of that sort are tough to
17. Did you receive full co-operation from those
people whom you spoke to or sought to speak to during the course
of your inquiry?
(Mr Roques) The way I would put it is that by the
time I had finished, yes.
18. There is one individual in particularand
I do not want to go after particular individuals too ardentlywhom
you name in your report, a Mr McGregor. You said, "During
the course of this enquiry, I interviewed the senior National
Investigation . . . staff to obtain views on a number of issues
in relation to excise diversion fraud . . . Jim McGregor was appointed
as Deputy Chief Investigation Officer, Commercial Fraud in 1996.
Following a year in this position, he was promoted . . . Unfortunately,
I have not had the opportunity to speak to Mr McGregor".
That does seem quite odd, given his key role in this area. What
were the reasons for that?
(Mr Roques) I thought it was odd. We had manyI
must not exaggerate, severalpieces of correspondence between
us as we tried to find dates and at various times he was abroad,
unavailable, sick and therefore we failed to meet. He would say,
if he were here, that right at the end, he knowing that I was
going to finish on 30 November, he thought he might be able to
make himself available in December or January. I declined to see
him at that time.
19. What conclusions do you draw from his lack
of enthusiasm to meet you?
(Mr Roques) I drew a conclusion that he was not enthusiastic
to meet me.