€10 million in VAT refunds are being held back because of the major investigation into fraud at the VAT office

€10 million in VAT refunds are being held back because of the major investigation into fraud at the VAT office, The Sunday Times reports today.Sources said the investigation had so far revealed that a web of criminals, acting as middlemen, were receiving the lion’s share of a three-way scam involving VAT department staff and businessmen.It is understood that one individual told investigators that he had been involved in the fraudulent practice for a number of years, though it appears that for others the period can be measured in months. It is still too early to establish how much revenue the department has lost as a result of the scam, but it is known that the amount runs into millions.Six VAT department employees have so far been suspended on half pay in line with public service regulations.Some details of how the fraud was carried out have also emerged. It appears that intermediaries would approach businessmen and inform them that they could dodge paying VAT and pocket thousands in the process.After assuring the businessmen that they could not be caught because they were in cahoots with department staff, it would be established how much each party would receive.The businessmen would file their VAT return normally, but at a later stage, the staff involved would alter the return, change the figures and issue refunds and receipts.
It appears that in practice only refunds that exceeded €50,000 were queried and verified by more senior officials within the department and therefore the reimbursements were issued in figures of less than that in the knowledge that the possibility of ever being checked was negligible. Some businessmen are believed to have received illegal refunds of up to €250,000.A number of companies are also being investigated, and it appears that the police already have sufficient evidence to proceed against some of those under investigation.The crime only came to light after a businessman who had been approached with the plan decided to pass on the information to Finance Minister Tonio Fenech last December.Police raided the VAT offices in Birkirkara last week and confiscated a number of computers.The Finance Ministry is planning a full-blown review of the systems used at the VAT department, to weed out any traces of corruption and restore faith in one of the government’s major financial resources.When contacted yesterday and asked why it took so long for this fraud to come to light, Mr Fenech said it was difficult to establish at this stage.“I would prefer to see the outcome of the police investigation. However, when a fraudulent practice involves the collusion of a number of individuals from within the organisation then this becomes harder to detect. On the other hand, one would have expected that sufficient controls are in place in the department capable of identifying any wrongdoing taking place particularly on a regular basis.“In this case it seems these have failed and after the police investigations are carried out, the ministry will conduct a detailed internal review to establish the weaknesses of the current system, whether proper control procedures were in place and whether management carried out appropriately their responsibilities.”Asked whether he was certain that the fraud had been stopped, the minister said that all refunds had been withheld to ensure they were appropriately verified and legitimately due. The refunds were meant to be issued at the end of March.Only adequate checks and balances and internal controls could ensure that the risk of fraud was minimised – and clearly these had become “faulty”, Mr Fenech said