Select Committee on Treasury Minutes of Evidence


Examination of Witness (Questions 40 - 59)

WEDNESDAY 14 NOVEMBER 2001

MR JOHN ROQUES

  40. So they cannot argue that it is resource allocation, they need more money to do it.
  (Mr Roques) They may need more money; I did not ask that question. They did not say to me that the reason for them not doing it was an issue of resources.

  41. So that should not be a problem as they expressed it to you.
  (Mr Roques) They did not express it to me as a problem.

Mr Beard

  42. In your report you refer to the Board at one point having been "lulled into complacency" and at another point you say, "I have concluded that the Board [of Commissioners responsible for managing the Department] was not in fact as focused as it should have been on . . . [its] overarching statutory responsibility to collect, manage and account for the revenues". Elsewhere you observe that nearly £700 million went missing out of revenue, yet they were meeting the Treasury targets. What is your comment on the Treasury targets?
  (Mr Roques) I would say the issue of targets is a problem. All the targets in the Excise area throughout the period of my investigation were beaten by a mile. Most of those targets were in the area of how much fraud they discovered and as at the beginning of the period there was not much fraud, the reason they kept doing better than that was in my judgement not because they were very good, but because the amount of fraud was so much larger than they had understood. All over the place targets are very destructive. I have a very jaundiced view of what I call micro targets because they tend to cause incorrect behaviour. They divert people from the key task. My targets would be limited—back to my hobbyhorse—to knowing what the leakage was in each tax and setting as a target that you want less leakage next year than you had last year. I would then say to the Department and to the Chairman that they could decide how on earth they wanted to do that. They decide; they do not have targets about how many people they catch, how many people they stop. The only thing we want is to get more tax.

  43. You also observe that the assessment capability in the organisation was not up to that task of assessing leakage.
  (Mr Roques) It was not, because it placed no priority on that information.

  44. Not only were the Board looking elsewhere, they were not given adequate information with which to judge the situation.
  (Mr Roques) In my view they certainly did not have the information to manage the Department satisfactorily. As I have explained, this leakage data was the key information.

  45. Do you believe now that that capacity for assessment of leakage and the focus of the Board have improved?
  (Mr Roques) It has improved, but it is on the first rung of a long ladder.

  46. Do you think this sort of culture you are describing at the Board level had implications all down the system, or was the Board some sort of separate entity?
  (Mr Roques) If you are talking about this issue of targets, you could go almost anywhere. The simple one which I think I quote in my report, because it is my own area of auditing so easy for me to understand, is that they set a target that if you went to a stocktake you had to find a certain amount of error per visit. If you went and did a visit and found an error which was larger than the target, you did not want to go again, because if you went again you would knock the average down almost certainly. More auditing is usually conducive to stopping fraud rather than less. There would be an example of a stupid target and the people at the bottom know it is stupid and they are very irritated by it.

  47. It was really game playing.
  (Mr Roques) Absolutely.

  48. What I was actually referring to was the lack of focus of the Board on these sorts of matters. Did that have an implication, apart from the game playing you were just referring to, right down the levels of the organisation?
  (Mr Roques) Clearly my sampling of interviews at the bottom of the organisation was very much smaller than at the top of the organisation, which may influence my judgement. I was generally speaking impressed more by the people at the bottom of the organisation than I was by those at the top. What I mean by that is that most of the people were enthusiastic, most of the people wanted to succeed. If you go and sit in the Dover room with all the computer screens, you wonder how anybody can do any work in there, it is such a tip of a building, absolute shambles, no space and you feel very sorry for people trying to do a good job despite that.

  49. While we are talking about targets and the Board being up to date, you mentioned at one point that there was an increase in the likelihood of fraud to avoid high hydrocarbon oil taxes and that it needed attention. Do you think this is now being remedied or is it part of the same culture as tobacco and drink?
  (Mr Roques) What I think I said was that it was an example, firstly reminding you that they do not have good information on these leakage estimates in any of the taxes, where people in the Investigation Division were beginning to say they thought there was more fraud in the hydrocarbons, partly in Northern Ireland which is well known, but not only there. Because one does not have this leakage data one does not know whether this is the investigation people crying wolf or whether it is a true problem. If I go right back to alcohol, right back at the beginning it was the NIS who were crying wolf, saying they had lots of fraud. The policy people were tending to say no, the control regime was fine and all they were trying to do was get more people into their division and they should go away.

  50. Would you say your probing in this sort of issue was at all linked to the inability of the Chief Investigating Officer to find a place in his diary to meet you?
  (Mr Roques) No. I had plenty of meetings with the current head of the Investigation Service whom I found an extremely impressive man, I have to say.

  51. Did Ministers have a role in fixing any of these targets or is there a role for Ministers?
  (Mr Roques) Every year targets are agreed between the Department and Treasury Ministers.

  52. You are observing how difficult they are to assess. How does the Treasury manage to overcome these difficulties?
  (Mr Roques) I am afraid what I come back to—I am sorry to keep repeating myself—is that my own judgement is that the target set and agreed with Treasury should be at what I call the highest level, which in principle in my mind should be about the amount of leakage and reducing that leakage and the example I gave was in tobacco in a rather similar way where they are saying that the likely market trend of smuggled tobacco is in the low twenties and they have a target to get it down to 18 per cent. I would say it is a sensible approach, to say, "Right, that is our target. Now you get on with it. You decide whether you want to have people in the ports. You decide how many vehicles you want to stop" and not have any other targets, just that one for tobacco.

  53. You made 65 recommendations for change in Customs and Excise. Were you at all surprised at the extent of the management failures when you looked into this?
  (Mr Roques) I had no pre-determined view when I arrived. What I was surprised about most was the section of my report on the style of management and the way the Board worked or did not and the way where there were committees which seemed logically to me to have the potential to deal with some of the problems, they never seemed to discuss any of the issues I would have expected them to discuss. I was surprised at that.

  54. Were these failings or the lack of them being noticed, entirely confined to the responsibility of the Board of Commissioners?
  (Mr Roques) Who else?

  55. As opposed to the Treasury.
  (Mr Roques) The truth is that I have no idea what role Treasury plays in understanding the mechanics of the management of the enterprise. I would say that the leaders of Customs should have established different management structures, as the new Chairman has with a proper management committee and major restructuring of these differences between policy and operations which made it very difficult to manage effectively.

  56. You are now reasonably assured that these deficiencies have been put right following your report.
  (Mr Roques) The management structure is likely to be much more effective. The detailed points in the control regime are likely to be very helpful. I wait to see whether the passion for leakage data and its accuracy and its publication and using that to set strategy for the whole Department becomes the focus of management.

  57. Were you asked for any contribution to His Honour John Gower's report on whether the ability to prosecute should be retained within Customs and Excise or not?
  (Mr Roques) No.

  58. You were not involved in that in any way.
  (Mr Roques) No.

  59. The Department believe that the measures they introduced in 1998 to tighten up procedures for warehouses and warehoused goods, which included new stocktaking and record-keeping requirements, have reduced the outward diversion of dutiable goods drastically, yet in your report you say there is still room for a lot of tightening up. Do you differ from that view that 1998 had not tightened up things all that much?
  (Mr Roques) It did tighten it up. What happens in this is that the criminal looks at the easiest route to meet his needs to supply the market and it tightened up the procedures in outward diversion so the criminal decided it was much easier to deal with the supply through inward diversion and smuggling, the white van trade. So they just moved to this easier way of doing things, which is why I thought it was important to make recommendations to tighten even further the potential to control outward diversion because I am quite sure that if smuggling became very much more difficult the criminal community would seek to re-examine whether outward diversion was now an easier play.


 
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