NAO uncovers finance ministry officials 'flouting' fringe benefit tax laws

The detail emerges from the Auditor General’s report of Public Accounts for 2009, and lambastes the governmental ministries and departments over “shortcomings that increase the risk of officers enjoying the use of fully expensed cars, to be in breach of the taxable fringe benefits regulations.”

The taxable fringe benefits are regulated by Subsidiary Legislation and Rules issued on January 1, 2001, and a Finance ministry circular to all governmental departments (10/2000) clearly states that “public officers who are provided with a car at Government expense and who make use of this car outside normal working hours, will be subject to the payment of income tax on this fringe benefit.”

A subsequent ministry directive was issued (3/2006) to strengthen government’s compliance with the fringe benefit regime. For tax purposes, fully expensed cars are considered as payments in kind, such that the beneficiary is taxed for this benefit.

Tax on fringe benefits should be withheld at source in accordance with the Final Settlement System Rules (FSS).

The shortfalls identified by the Auditor General in his investigation that covered all the 205 fully expensed cars in use by senior governmental officials across all departments, vary from ”unverifiable, undisclosed or conflicting information.” Others confirmed that fringe benefit tax was “not always being deducted in accordance with fringe benefit rules,” and will be taking necessary corrective action.

Other shortfalls refer to erroneously calculated values on the cars, to the extent that some declared a purchase value which was much less than the original, leading the officers to benefit from a lower fringe benefit calculation, or worse, 19 officers “had their taxable fringe benefit erroneously calculated in their favour.”

Besides the Finance ministry, unverifiable fringe benefit data was identified in 24 cases at the Ministry for Resources and Rural Affairs, six at the Office of the Prime Minister, five at the Ministry for Gozo, seven at the Education ministry and 10 at the Ministry for Home Affairs. There were also 1o cases of incorrect calculation of taxable fringe benefit  the Foreign office.

Leased cars

From a total of 17 leased fully expensed cars, only four were covered with the relative approval of financial policy regulation.

Respondents failed to provide the departmental approval reference for the remaining 13 cars, although three respondents with eight leased cars provided reasons why such approval was not sought.

However the Auditor General stressed that “this practice may hamper  government’s initiative to control this type of expenditure.”

Fuel

The fuel allowance limit as stipulated in a Finance ministry circular (5/98) was exceeded in 20 cases, of these 11 cars exceeded the fuel limit once during the year under review, while the remaining nine exceeded the limit on more than one occasion.

It resulted that internal approval to exceed the allowable fuel limit was only sought and obtained in four instances out of the 20 identified cars, leading the Auditor General to remark that non-compliance with the circular may lead to an eventual unauthorised increase in fuel expenditure over that allowed.

Among these are six cars run by officials at the Finance ministry, with four exceeding the fuel limit once, and two exceeding it more than once, while only one was approved.

The Foreign ministry had two cars exceeding the fuel limit, and both were unauthorised.

Maintenance

The Auditor General identified a series of shortfalls where repairs and maintenance of cars is concerned.

During 2008, a total of €101,428 was incurred on repairs and maintenance costs.
Eight respondents stated that no distinction is made  between repairs and maintenance costs in their records, one did not provide any comments, and another replied that separate records are not always kept.

A total 205 persons are entitled to fully expensed cars by government

The Principal Permanent Secretary, 10 Permanent Secretaries, 32 Director Generals, 126 Directors, 14 Designate Officers, 2 retired officers still offering services to government and 20 other officers and consultants.

Engines

One has an engine less than 800cc

92 range from 1200cc to 1400cc

72 range from 1350cc to 1400cc

63 range 1400cc to 1600cc

19 are not known.

Cars according to designation

Perm Secretary OPM,, car value €29,117 - limit 1800cc

Perm Secretaries car value €23,294 - limit 18000cc

Director General, car value €19,800 - limit 1600cc

Director, car value €16,306 l- imit 1600cc

Regulations on fully expensed cars

A Finance Ministry circular (5/98) regulates the procurement and use of cars, such as the maximum retail price and maximum engine capacity, and stipulates that the “prices are notional being inclusive of all taxes/duties” and “shall include the cost of any accessories whether standard or optional.”

The circular also provides that proper accounting records must be kept to clearly distinguish maintenance costs and repair costs.

Officers entitled to cars are subject to a stipulated maximum fuel consumption of either 175 or 150 litres per month according to the officers designation. The allowance is a non-cumulative basis, such that fuel litres not used up in a particular month cannot be carried forward to the following month.

19 out of the 35 respondents failed to provide essential information on their cars regarding the purchase price and the retail price and engine capacity.

This corresponds to 58 cars out of 205 lacking information on the retail price.

The purchase price of 34 cars was also not provided. Respondents also failed to submit the engine capacity of 19 cars out of 205.

It was not possible to ascertain whether the relative cars were purchased or leased in accordance with Finance ministry circulars.

This lack of information may weaken the internal control system and jeopardize managements control over this type of expenditure.

As a consequence, this might give rise to purchasing limits being exceeded.

The retail price limit was exceeded by 10 out of 147 cars. The excess ranged from €53 to €15,793 with three cars exceeding the limit by an amount not exceeding €1,000 and another three by an amount between €1,000 and €5,000.

Three other cases the limit was exceeded between €5,000 and €10,000, and one car exceeded the limit by over €10,000.

In seven cases the engine capacity of the cars exceeded that allowed in breach of the Finance ministry circular.

From a total of nine ministries, seven had one or more cars that exceeded the retail price limit, while four had one or more cars that exceeded the engine capacity limit.

This situation could lead to excessive increases in capital and recurrent expenditure, due to higher motor running costs.