Letter to the Clerk of the Committee from
the Head of the Parliamentary Relations and Devolution Team, FCO,
dated 5 June 2006
FRAUD IN
ULAANBAATAR
Dear Steve,
On 24 May the British Embassy in Ulaanbaatar,
Mongolia, dismissed 11 of the 12 locally engaged (LE) staff employed
there. An investigation carried out by the FCO's Financial Compliance
Unit (FCU) concluded that the local staff had colluded, without
the knowledge or participation of any of the three UK based diplomatic
staff, to under-declare their Social Insurance (SI) contributions.
They did this by using Embassy stamps without authority on a letter
sent to the Mongolian authorities purporting to be from the Embassy.
Although the Mongolian SI office was no doubt the intended victim
of this deception, the Embassy as the employer is liable to make
good the £12,500 shortfall in employee contributions: the
employer has a legal responsibility to remit employee contributions
to the authorities, whether or not they have been deducted from
the staff's pay. This has resulted in a total loss to the FCO
of approx £20,500 (£12,500 underpayment and £8,000
penalties). The FCO is investigating legal action to recover these
losses from the former staff of the Embassy.
The deception came to light when the Embassy
reviewed its procedures for payment of SI contributions. This
followed on from a review of Income Tax deductions. This earlier
review arose from routine request, in December 2004, from the
FCO to all diplomatic posts requesting them to ensure that they
were following local regulations in regard to the deduction of
LE staff Income Tax. Discussions between the Embassy and the Mongolian
authorities took place, and by May/June 2005 it was apparent that
the method by which LE staff Income Tax and SI contributions were
paid was not in accordance with local regulations. This was rectified
in September 2005. The Embassy has no liability under local law
for past income tax due but not paid by the staff, should the
tax office conclude that was the case prior to September. A liability
does however arise in respect of employees' SI contributions due.
The Embassy after September began a review of SI payments, during
the course of which the above deception was discovered.
In the course of discussions with the SI office,
the SI office asked the Embassy to provide salary details dating
back to January 2003 to enable them to review contributions. As
a result of this request, Embassy diplomatic staff discovered
that monthly reports had been sent, purporting to be from the
Embassy, to the SI office showing falsified staff salaries and
SI contributions.
FCU have established through interviews with
all LE staff that in January 2003 the LE staff held a meeting
(without the participation or knowledge of UK based staff) to
discuss SI contributions. At this meeting the LE staff agreed
to make it appear to the SI office that the 19% employers' contribution
was in fact a 29% contribution comprising the 19% employers' SI
contribution and the 10% employees' contribution. Correspondence
was fraudulently sent to the local SI office by an unknown member
of the LE staff to give effect to this deception.
Mongolian employment law allows the Embassy
to dismiss staff for such an offence, both in respect of willful
misconduct and for committing a criminal act. In line with the
FCO's zero tolerance policy, the Embassy therefore proceeded to
do so in respect of the 11 staff who had participated in the deception.
Local law also requires that the Embassy should report any criminal
action to the competent local authorities. This has been done.
The FCO has the intention to pursue civil actions to recover the
losses from the former staff, and the practicability of doing
so is currently being investigated.
I am copying this letter to Nick Wright at the
Public Accounts Committee, and to Martin Daynes at the NAO.
Chris Stanton
Parliamentary Relations and Devolution Team
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