Select Committee on Public Accounts Minutes of Evidence

Further supplementary memorandum submitted by HM Customs and Excise

Question 104 (Mr Davidson): Can you give me any indication of the scale of over-payment?

  The Report refers to research Customs has undertaken as part of the Compliance Testing Programme. The programme is designed to provide year-on-year comparisons of certain compliance factors and also produce a trend analysis of results that will inform the risk process. It showed that about one third (31%) of the 1.7 million VAT-registered traders may be misdeclaring their VAT liability. Of these, around 28% of errors relate to underdeclarations and 3% are overdeclarations.

  Across the scope of the VAT business, declaration errors are brought to Customs' attention in two ways; firstly as a result of our own intervention resulting in an assessment and secondly as a result of a voluntary disclosure by the registered business. During the last three years the value of overpayments and underpayments in those categories can be broken down as follows:
Overpayments 2001-022002-032003-04
Total value of overpayments (inc Officer assessments and voluntary disclosures £1.1bn£1.2bn £1.1bn
Total value of Officers' assessments (overdeclarations) £0.15bn (value)
18,114 (no)
£0.2bn (value)
14,520 (no)
£0.1bn (value)
11,469 (no)
Total value of voluntary disclosures (overdeclarations) £0.95bn (value)
17,162 (no)
£1.0bn (value)
21,662 (no)
£1.0bn (value)
20,430 (no)

Underpayments 2001-02 2002-032003-04
Total value of underdeclarations from Officers' assessments £2.5bn (value)
107,002 (no)
£3.2bn (value)
103,031 (no)
£3.0bn (value)
84,362 (no)
Total value of voluntary disclosures (underdeclarations) £0.52bn (value)
13,245 (no)
£0.61bn (value)
14,631 (no)
£0.67bn (value)
14,780 (no)

  The total value of repayments made to businesses which includes the amount of overpayments is shown below, together with the percentage of assessment and disclosure errors resulting in overpayments.

2001-02 2002-032003-04
Total value of repayments £43.8bn £44.7bn£44.5bn
Percentage of all errors resulting in overpayment (by value) 25%25%25%
Percentage of all errors resulting in overpayment (by numbers) 23%23%24%

Question 125 (Mr Davidson): Action taken against professional advisors

  The Number of Investigation cases undertaken where accountants and legal representatives and tax advisors have been involved in a professional context
Year Criminal investigations Civil evasion

  Of these 37 investigations

    —  24 involved VAT offences,

    —  11 money laundering, and

    —  2 excise offences.

  The criminal cases lead to custodial sentences of over 41 years and confiscation orders of £8.7 million and in the civil cases civil evasion penalties of over £200,000.

Question 126 (Mr Field): Accreditation of officers involved in anti-fraud work

  All our internal investigators undertake professional training to achieve status as an Accredited Counter Fraud Specialist (ACFS) in association with Portsmouth University and the NHS Counter Fraud & Security management Service.

  During early 2001 our Internal Investigation Division negotiated with the NHS Counter Fraud & Security Management Service (as is now) for our investigators to undertake its formally accredited training. This covers "Investigation Law and Procedures", "Principles of Good Practice", "Investigative Interviewing", and "Proactive Evidence Gathering" and supplements our internal training. We use the accreditation route to ensure our overall professionalism, and to identifying and reflect good practice.

  There are two levels of certification. Award of ACFS is achieved through formal classroom and practical training. Working towards an advanced level of certification is optional and follows a course of academic study (distance learning) with Portsmouth University. This achieves status as a "Certified Counter Fraud Specialist" (CCFS) together with the academic award of a "Certificate of Higher Education in Counter Fraud & Criminal Justice Studies".

  Currently all our internal investigators undertake training to ACFS accreditation level. Since 2001:

    —  22 staff have been awarded ACFS.

    —  2 staff have been awarded CCFS and the Certificate in Higher Education and further 6 staff are nearing the end of their academic study towards it.

    —  We also have one investigator who is in the second year of a full degree programme[13]

  Since 2003 all our Intelligence staff follow the same route of accreditation and professional award.

Question 127 (Mr Field): Accreditation of officers involved in anti-fraud work

  Following the Butterfield Review of investigations and prosecutions undertaken by HM Customs, Customs has accepted and is implementing all of the recommendations made, including those relating to investigation training. These concluded that while the Basic Investigation Training (BITs) provided to investigators is reasonably thorough and is regularly updated, it needed supplementing with:

    —  Regular refresher training for investigators every five years.

    —  Specific training geared to particular key jobs within investigation, to include a written test before an officer is allowed to take up the new post.

    —  Training to reflect changes in the criminal justice system.

  To address these recommendations Customs is developing professional skills that build on the Police Skills and Standards Organisation (PSSO) National Occupational Standards. We joined the community of police and law enforcement forces covered by the scope of the PSSO in August 2003.

  PSSO are not themselves an accreditation body, but have assumed the role of Standards Setting Body by developing a comprehensive development programme to establish a suite of National Occupational Standards covering all policing roles. In the Police Services of England, Wales and Northern Ireland the suite of National Occupational Standards is being used as the basis for the development of nationally recognised qualifications, and perhaps the development of a scheme of Professional Registers, led by the Police Training Development Board.

  At the present time we do not have any accredited external fraud investigation training or accredited external fraud investigators. We do have a small number of officers who have completed an investigation NVQ. We are however, looking to obtain external accreditation of training and externally recognised qualifications for all our external investigation staff. We aim to achieve this by selecting, through open tender, an accreditation body approved by PSSO to cover Investigation training, most likely a University.

  The Counter Fraud qualification referred to by Mr Field is a Government sponsored accreditation programme set up by the NHS and DWP in association with Portsmouth University to be an Accredited Counter Fraud Specialist (ACFS). All our Internal Investigation and Intelligence staff undergo this accreditation process (see supplementary note to Question 126).

Question 128 (Mr Field): Referring accountants to their professional bodies

  In line with the current data protection legislation the Department has adopted strict guidelines relating to disclosure of such information. Under these guidelines, it is possible for breaches of professional ethics by accountants and other professionals such as lawyers and insolvency practitioners to be reported to their parent regulating bodies. In general terms, such disclosures will only be made where:

    —  specific professional ethics or conduct have been seriously breached; and

    —  there is sufficient evidence to substantiate the breach; and

    —  there is an overriding public interest for making the disclosure;

  Under these guidelines, Customs has reported three accountants to their professional bodies. In one case the accountant was struck off by the Institute of Chartered Accountants. In the second the accountant was cited, reprimanded and fined by his professional body. In the third case the accountant, a trainee passing himself off as a qualified accountant, became involved in a money laundering fraud. Following criminal proceedings, the accountancy firm employing the trainee was reported to the ACCA in relation to the trainee's conduct and lack of supervision by the firm.

  In addition, we have an agreement with the Insolvency Practioners Control Unit (IPCU), part of the DTI based in London, that we will submit a detailed report to them on any Insolvency Practitioner (IP) whose professional conduct we deem to be unsatisfactory, and who has not satisfactorily responded to our requests to bring their conduct up to an acceptable level. The IPCU will then pass on the report to the licensing body of the particular IP involved. By this method, a central record of any complaints, and their outcome, is kept both here and at the DTI. "Unsatisfactory conduct" in this context is defined by a set of criteria that was agreed with stakeholders, including the IPCU, when this system was set up.

  To date, we have only one completed case, with another ongoing. In the one completed case, the IP was reprimanded and fined £8,000 by his licensing body.

  While it may seem surprising that so few professional practitioners and advisors have been referred to their professional body, it should be remembered that such action is only taken when all other attempts to improve performance has failed, or the actions of the practitioner constitute a serious breach of professional ethics.

  These disclosures are in addition to action taken against professional advisors involved in criminal activities (see supplementary note to Question 125)

Question 137 (Mr Field): The bonus system

  The main method for recognising and rewarding performance in Customs and Excise is through our performance pay system. We also have a `manager's reward' system and have recently trialled team bonus payments. These are described below together with the considerations that led to our current policies.


  We have a performance pay system that is based on an annual assessment of an officer's achievement against a set of mainly operational objectives. The objectives are standard for each grade and work area, and are described in a series of "role profiles", which set out the role and responsibilities of each job, together with the operational objectives and the key competencies required for the work. These are qualified by performance indicators that adapt the objectives by setting specific targets that take account of an individual's levels of training and experience.

  Staff who perform well against their operational objectives, observe certain behavioural standards and also achieve any personal development objectives set for them, receive a "Top" or "Good" marking and, as a result, are awarded an annual performance pay increase. This includes a progression payment that moves them up their pay range to the pay range maximum. The top 10% of performers receive an additional bonus. Last year this was 2.5% of their salary.

  Our pay system includes a means by which staff that fail to achieve their objectives or only just do so, may receive a smaller pay increase than those who perform in line with expectation.

A key challenge in designing these arrangements is to find the appropriate financial balance, within available funding, between the level of performance payments made to top and good performers. We reward, in a meaningful way, the work achievements of the vast majority of our staff who deliver the Department's PSA objectives whilst also acknowledging the greater contribution made by those whose performance significantly exceeds expectations.


  The Manager's Reward Scheme provides managers with a facility to acknowledge particular achievements as they occur during the course of the year by making a relatively small payment to staff (£100) and publicising this. The scheme allows awards to be made at the time of the achievement and is primarily about recognition rather than reward. The aim is to enable managers to recognise a specific job well done that might otherwise be lost in the year as a whole. Payment can be to individuals or a team.


  A report "Incentives for change" produced by John Makinson for the Government's Public Services Productivity Panel, called for pilot trials of a team bonus system by Customs and two other departments. These were held in Customs in 2001-02 and 2002-03. We concluded that while the system produced some positive benefits, the particular arrangements for team bonuses that were trialled did not fit with our current organisation and structure, and were costly to administer. The Inland Revenue use Team Bonus arrangements but have a different system from the one we were asked to trial. Our intention is to look at the team bonus concept in the context of setting up HM Revenue and Customs.


  Our current performance pay system, which looks at an officer's whole year performance, avoids arguments about an officer's impartiality when implementing customs and taxation policies. Our systems will be reviewed when HM Revenue and Customs is set up.

  Supplementary information for the Public Accounts Committee in response to Question 138 concerning legal fees in prosecution cases

Question 138 (Chairman): How much paid out in legal fees to independent barristers and solicitors for the 69 prosecutions that were secured last year?

Year Total
Total over 3 years£8,225,075.23

    —  The figures relate to VAT Prosecutions only.

    —  The figures included all ongoing or completed case during this three-year period. (eg in 2002-03 this equaled 377 VAT prosecutions).

    —  All fees paid between 1st April- 31st March in each financial year were included for this purpose.

2 June 2004

13   Portsmouth University recently developed a degree course-Bsc (Hons) in Counter Fraud & Criminal Justice Studies. The ACFS award constitutes foundation level training and allows automatic entry on to the "optional" degree programme. Back

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