Examination of Witness (Questions 40 -
WEDNESDAY 14 NOVEMBER 2001
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.
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 limitedback
to my hobbyhorseto 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
(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
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
(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 toI
am sorry to keep repeating myselfis 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
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.