Tuesday, February 13, 2024

At least 150 ATO staff implicated in TikTok GST fraud

Tony Harris’s protege, Grant Hehir,  is tabling last few ANAO fearless reports before his well deserved retirement 150 ATO officials investigated in GST fraud scheme that was promoted via TikTok

Australian Taxation Office’s Management and Oversight of Fraud Control Arrangements for the Goods and Services Tax

150 tax officials swept up in GST fraud probe

No one is responsible for $2b GST debacle

Two years of committee meetings, $2 billion lost and still the ATO doesn’t know who should have picked up the fraud.

Despite all the resources the Tax Office has thrown into pursuing the 57,000 fraudsters behind the $2 billion Protego GST loss, the investigators have never worked out just whose fault this disaster movie was.
The auditor-general’s report delicately refers to “a lack of clarity” about who is accountable for GST fraud control and notes that “after two years of committee discussions this issue remains unresolved”. Others might call it a fog.
ATO deputy commissioner Will Day.  
The warning signs were there. From August 2021, the number of tip-offs about GST refund fraud had rocketed. By November that year, the number of Australian Business Numbers being issued was exploding. In January 2022, risk models were finding the rise of GST refunds was “high risk” and “clearly apparent”.
Banks such as Westpac had been warning of suspicious GST payments for months. And it wasn’t until the banks shared their concerns with the Reserve Bank in February 2022, and the RBA warned Treasury, that the Tax Office launched Operation Protego to fix the mess, led by deputy commissioner Will Day.
The GST system was wide open to anyone with a MyGov account to secure an ABN, register for GST then claim a refund. Tens of thousands claimed without documentation that they had just spent $500,000 or so setting up a new business, so could they have $50,000 in GST payments back immediately, please.
In all, about 57,000 people made $4.7 billion in fraudulent claims for GST refunds, with $2.7 billion of the claims stopped, and $123 million recovered. It cost taxpayers almost $1.9 billion.
And that’s just part of the Tax Office’s GST problem. From 2018 to 2023, the ATO’s uncollected debt jumped $26.4 billion to reach $50.2billion. Commissioner Chris Jordan has attributed much of this to the $16.9 billion rise in small business debt.
In fact, $17.6 billion of the rise has come from unpaid GST debt owed by small businesses. To be clear, while this includes some Protego numbers, most of this total is not fraud.

‘A position title that does not exist’

With GST overseen by the ATO’s small business line, the business registry and compliance, who should have been picking up this problem?
The ATO’s approach to external and internal fraud is organised around two Chief Executive Instructions (CEI). But the auditor-general’s report says these CEIs put the responsibility for handling fraud on “a position title that does not exist within the ATO” and does not say who is responsible for reviewing internal fraud.
In 2018, the ATO assessed the risk of external fraud as severe. Two years later, the Tax Office reduced this risk to low, and one of the mysteries in the auditor-general’s report is that no one could say why the risk assessment was changed. Indeed, “the ATO has been unable to locate any detailed written explanation for the change in risk level”.
Coincidentally, the Tax Office was dropping the estimated tax gap for GST from 8.8 per cent in 2016 to 5.9 per cent in 2021. The tax gap is an estimate of how much tax escaped the ATO’s net, and the ATO was saying that figure had dropped by $1.25 billion.
Hurrahs all round. Except that fraud was about to explode, and uncollected GST debt would jump by $17.6 billion.
And the ATO still hasn’t worked out who’s to blame.
Blame? The ATO put its hand out for an award. It was a finalist in the Institute of Public Administration Australia’s Spirit of Service awards last year for the success of Operation Protego.
They came close, but they didn’t win the gong.
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Neil Chenoweth is an investigative reporter for The Australian Financial Review. He is based in Sydney and has won multiple Walkley Awards. Connect with Neil on Twitter.Email Neil at nchenoweth@afr.com.au

At least 150 ATO staff implicated in TikTok GST fraud

At least 150 Australian Taxation Office officials have been investigated over a far-reaching GST fraud scheme, with 12 terminated or facing criminal prosecution.

The extraordinary figure was revealed in an auditor-general’s report that found the ATO’s management and oversight of fraud control arrangements for GST is lacking, while its internal risk framework is not fit for purpose.

TikTok says it co-operated with the Tax Office to permanently ban more than 60 accounts that promoted GST fraud.  (CDPP)

Outside the ATO, at least 100 arrests have taken place and so far at least 16 people have received a criminal conviction. Authorities estimate there have been more than 57,000 perpetrators of a TikTok GST fraud scheme, promoted on the popular social media app as a way to get a “loan” from the government. Individuals register a fake business, get an ABN, register for GST and then immediately file a Business Activity Statement claiming credit for previous, but not legitimate, GST payments.

Despite more than $81 billion in GST collections every year, this week’s auditor-general’s report warned oversight and reporting of GST fraud within the ATO is only partly effective, as internal roles and responsibilities are not clear.

An ATO spokeswoman said the majority of the 150 officials were former contractors or former employees and were not working with the ATO at the time of suspected fraud. Some were found to be victims of identity theft.

Action has been taken against 12 people who were substantiated as having committed the fraud while working at the ATO.

“This includes termination of contract, administrative action, and criminal prosecutions,” the spokeswoman said.

“As a result of our actions, we are not aware of anyone currently working at the ATO who is suspected of committing the fraud. The ATO has always treated fraud and corruption seriously and has zero tolerance for such behaviour.

“We expect all ATO staff and contractors to act with the highest levels of integrity, and we will take all reasonable measures to prevent, detect and deal with fraud and corruption risk to the ATO.”

In May 2022, the ATO announced it was cracking down on an $850 million GST fraud by 40,000 Australians. A month later, the Serious Financial Crime Task Force’s Operation Protego began executing search warrantstargeting 19 people, while estimates of the fraud had risen to $1 billion involving up to 70,000 people.

The new report said $2 billion in primary liabilities had been raised since Operation Protego got underway, with $2.7 billion in suspect GST refunds stopped before payment

More than 4700 tip-offs related to GST fraud have been received by the ATO since 2019-20.

Penalties of more than $120 million were issued before June 30 last year, with interest of about $220 million and continuing to accrue. As of August 31, the ATO said it had recovered $123 million, including $67.6 million recovered via bank garnishee notices.

The fraud was uncovered by Westpac and other banks, some of which passed on a series of alerts to the ATO from 2020. But after being frustrated by the apparent lack of action by the ATO, some bank staff shared their concerns informally with the Reserve Bank, which then alerted Treasury and the tax office in February last year.

Accountants in western Sydney, where the fraud went viral in mid-2021, have found new examples in recent tax returns, suggesting that the fraud activity is continuing.

The ATO agreed to five recommendations from the auditor-general, and has established a Fraud and Criminal Behaviours Unit to focus on further protecting against fraud.

In a statement, the ATO said it takes all fraud attempts seriously, and will work with the taskforce and other agencies to go after individuals suspected of doing the wrong thing.

Tom McIlroy is the Financial Review's political correspondent, reporting from the federal press gallery at Parliament House. Connect with Tom on Twitter. Email Tom at thomas.mcilroy@afr.com