The Customs Department’s more-than-40-year-old Partial Payments Programme resulted in hundreds of thousands of dollars in lost revenue between 1996 and 2019, the public learned when the Commission of Inquiry questioned Internal Audit Department Director Dorea Corea and Customs Commissioner Wade Smith last week.
During Ms. Corea’s July 6 hearing, COI Counsel Bilal Rawat read extensively from her October 2019 report on the Customs programme and asked her to clarify various points about her findings.
The programme, Mr. Rawat read, began as a courtesy extended only to government employees that allowed them to pay for the importation of large goods through periodic installments, as the money could be easily deducted from their salaries.
Eventually, however, the programme evolved to include anyone “approved by the commissioner or a customs duty officer to make customs duty payments … through partial payments,” Mr. Rawat read.
But by June 2019, according to the IAD report published the following October, the programme had outstanding revenue of $490,145.60 from 1996 through 2019, the COI counsel read.
Summarising the report’s findings, Mr. Rawat said the internal auditor found several reasons for the programme’s malfunctions.
They included a lack of policies or procedures in place to guide the administration of the programme; inadequate controls over the granting of approval to make partial payments; and a general lack of due diligence by customs officers, Mr. Rawat read.
Reviewing the report’s explanation of how the programme works, Mr. Rawat said that after a participant fills out the declaration for importing goods — known as a T-12 form — they must then get approval from an authorised officer and enter into an agreement governing the conditions of their repayment.
An account is opened on the Customs Department’s JD Edwards accounting software to manage the repayment, Mr. Rawat explained in an account confirmed by Ms. Corea.
However, because of the chronic issues with administering and controlling the programme, some applicants are approved even with a history of unpaid debts, Mr. Rawat read.
In one instance, according to the report, an individual who had “left the government’s employ” in 2017 was approved for a partial import payment two years later, even though the individual previously had defaulted on personal and vehicle loans, Mr. Rawat read.
The individual only made the down payment, he added.
“And that speaks, doesn’t it, to a lack of checks and balances in the system?” Mr. Rawat asked Ms. Corea.
“That is correct,” she said.
In another instance, an importer had multiple T-12 forms approved even though he was behind on his previous payments, Mr. Rawat read.
Collecting owed money is also hindered by the fact that customs officers gather inadequate information on the approved importers, he read.
As the auditors noted in their report, customs officers typically collect the telephone number of the importer, but they only recently began collecting forms of identification, Mr. Rawat noted.
“The problem there: … It makes it very difficult for Customs to monitor whether someone is complying with the payment programme and also to try and enforce non-payment when it becomes a problem?” Mr. Rawat asked.“That is correct, sir,” Ms. Corea replied.
Additionally, the agreements for partial payments vary from one to another and are sometimes poorly drafted, making it difficult to enforce a legal claim that might arise, Mr. Rawat said.
Ms. Corea said that is true as well.
The auditors revealed that some payments were initiated “without even a signed agreement being obtained,” Mr. Rawat noted.
This “would mean that if someone defaulted, there would be no documentation to show that an agreement had been entered into in the first place,” he read.
When Mr. Smith sat before the COI on July 7, Mr. Rawat asked him related questions, many of which were based on a report from the auditor general that was published in 2015 but highlighted the same issues noted by the internal auditor four years later.
According to the auditor general, the Partial Payment Programme was “introduced on an unofficial and piecemeal basis to accommodate importers who had difficulty paying the full amount of duty assessed,” Mr. Rawat read.
Approval was initially granted by the financial secretary or elected representatives, but now is exclusively determined by the customs commissioner, he read.
As the nature of the programme changed over the years, the amount of partially paid duty fees began to accumulate as well, with more than $486,125 outstanding at the time of the 2015 audit, Mr. Rawat read.
Amongst the delinquent importers were government employees, he added.
The auditor general determined that “the pervasiveness of client non-payment suggests that the programme is being abused and possibly being used as a method to evade paying full duty,” Mr. Rawat read.
Whereas the programme was started to accommodate individuals and small businesses, it later included a number of “established businesses,” the auditor general wrote in the 2015 report.
“In some of these cases outstanding balances are so substantial that the Customs Department can be said to be financing business activities rather than securing government revenue,” Mr. Rawat read.
Asked by the COI counsel why established businesses were allowed to benefit from the Partial Payment Programme, Mr. Smith began his response by offering a brief “history” of the initiative.
Starting in 2003, he said, the department embarked on a mission to formalise the programme, putting in place agreements that importers were required to sign.
“And it’s important to note that the Customs Department was basically the technocrats in facilitating requests made by the Ministry of Finance and the financial secretary,” Mr. Smith said.
He added that he generally encourages applicants to send al etter to the Ministry of Finance and copy the Customs Department.
Once the requests are approved, the importer will then sign forms that Customs drafted in collaboration with the Attorney General’s Chambers that say they agree to pay the “amortised figure,” Mr. Smith said.
Mr. Rawat then asked Mr. Smith to clarify.
“Are you saying as commissioner of Customs in 2015, you were not authorising partial payment plans?” Mr. Rawat asked.
“No, I did not say that, commissioner,” Mr. Smith replied.“What I said, the financial secretary would authorise them.”
He added, however, that in some cases “officers within the Customs Department may contact the commissioner of customs, and we make authorisations … to have payroll deductions … for government employees, because they’re already working with the establishment.”
Mr. Rawat then questioned the commissioner about a suggestion in the auditor general’s report that elected members of government could intervene to sign someone up for the Partial Payment Programme.
“Was that happening in 2015?” Mr. Rawat asked.
Mr. Smith denied that it was.
“Commissioner, I would say emphatically, no elected [official] has come directly or instructed or attempted to instruct the Customs Department to issue a partial payment,” Mr. Smith said.
He added that any elected official or member of the public would have to go through the Ministry of Finance and the financial secretary.
Mr. Smith also told the COI how his department has combated some of the issues plaguing the programme, such as importers who have been granted additional credit terms even when they are behind on payments.
If such individuals are government employees, the department utilises the Financial Management Act to have the financial secretary deduct money from a forthcoming paycheque to offset the owed balance, Mr. Smith said.
Additionally, after writing to importers and warning them to honour their obligations, the department has launched a programme “to repossess tangible assets that are delinquent” in accordance with the Customs Management and Duties Act, Mr. Smith said.
“In the past couple of months, we have repossessed heavy equipment, taxis, personal vehicles that were in arrears,” he said.