Dispatch (UK/ROW version)
| by Paul Gosling 16 Jan 2008 Topic: News |
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HM Revenue & Customs (HMRC) has lost its focus on standards, instead prioritising job losses and efficiency savings, according to ACCA's submission to the Government's 'capability review' of HMRC. The depth of crisis at HMRC was dramatically revealed by its loss of CDs carrying data files of personal and bank account information of 25 million child benefit recipients. This failure led to the resignation of HMRC's executive chairman, Paul Gray. The acting chairman is now Dave Hartnett, the Director-General, who had been responsible for compliance strategy, tackling tax avoidance and links with business. Previous incidents had already cast doubt on the effectiveness of HMRC data controls. In September, an HMRC laptop containing hundreds of sensitive personal data files was stolen from the car of an employee. A few days later, 15,000 confidential personal data files disappeared when a CD sent by HMRC to Standard Life was lost in the post. It was revealed that it was standard practice for HMRC to send CDs containing data files to insurance companies. HMRC says that there have been seven 'significant' incidents of data loss in the last two-and-a-half years. Allen Blewitt, ACCA's chief executive, said: 'We always knew there were issues with the department, and in the early stages of the merger from Inland Revenue and Customs & Excise into HMRC, teething problems could be expected.' But, he added, it was now evident that 'the problems are more deep rooted and endemic'. 'ACCA's practising members say that the aggressive and investigative mentality of Customs & Excise has triumphed over the Inland Revenue's traditionally more measured approach in the merged HM Revenue & Customs,' explained Blewitt. Four years ago, when the merger was planned, ACCA warned: 'The problems of a merger between two such distinct bodies gives little grounds for confidence that it will succeed.' As part of HMRC's strategy to put right its problems with data control, PwC's chairman, Kieran Poynter, is conducting a review into the failings that led to the loss of data, proposing policies to safeguard personal data in the future. The National Audit Office's (NAO) role in accepting unencrypted CDs from HMRC containing personal details has been implicitly questioned by the Chancellor of the Exchequer, Alistair Darling. He told the House of Commons that consideration must be given to whether the NAO - and HMRC - broke data protection laws. The suggestion that the NAO may have been complicit in an alleged breach of the law came from a Labour MP, but the Chancellor accepted the point. Prime Minister Gordon Brown also cast doubt on the Government's support for the NAO by referring to 'a dispute about what the National Audit Office and HMRC said to each other', prior to the despatch of the CDs. The NAO subsequently released correspondence which it said vindicated its version of events. It is accepted by all parties that the NAO requested data to be supplied in a 'filtered form' that stripped out all personal information and that the supplied CDs be sent by a secure method. HMRC failed to do both things - pointing to its inability to provide filtered data cost-effectively because of the payment arrangements entered into under an IT outsourcing contract. The row over the NAO's role in the data loss comes at a difficult time for the Government's auditor. Earlier this year, the NAO published details of the personal expenses of the Comptroller and Auditor-General, Sir John Bourn. Following this, leading Liberal Democrat MP Norman Baker called on Bourn to resign. Bourn has since stepped down, but for different reasons. He is to retire in January, after 20 years in the job, because of the recent emergence of a potential conflict of interest. From April, the NAO has the power to audit certain Plcs, and will come under the inspection regime of the Professional Oversight Board of the Financial Reporting Council, which Bourn chairs. At the time of going to press, no announcement had been made over Bourn's replacement. Buoyed by the courts' authorisations of trawls through offshore accounts held with the UK's main banks, HM Revenue & Customs (HMRC) is seeking to dramatically extend its 'right to roam' through offshore accounts. HMRC is now seeking to trawl through the accounts of as many as 170 smaller and European banks, not previously targeted. There is speculation that the extension of the trawl could lead to a new offer to taxpayers to declare unpaid tax, in return for HMRC not imposing the full range of punitive measures. HMRC says it is working with the latest banks targeted 'to ensure that their customers receive similar treatment to those from the first'. HMRC has now received the final payments from the first Offshore Disclosure Facility (ODF) initiated earlier this year. Those who volunteered under this scheme had to pay the tax owed, interest and a 10% penalty, instead of the usual 30% penalty, plus possible criminal prosecution. Offshore account holders whose details were supplied to HMRC by banks in the first trawl, but failed to take advantage of the ODF, have now been contacted by HMRC. The prospect of a second 'amnesty' has been attacked by tax advisers. John Cassidy, tax investigations partner at PKF, said: 'There would be no logic to setting the penalty for a second ODF at the same 10% level and still allowing those who ought to have come forward the first time to use the new facility. Where is the incentive to come forward now rather than wait until a later exercise? There is a serious danger that such exercises will stop being taken seriously if they happen every year without change.' HMRC says it believes there are about 100,000 UK residents holding offshore accounts likely to give rise to tax liabilities. HMRC collected £400m under the first ODF, from 45,000 holders of offshore accounts. HMRC's special commissioners reportedly estimate the actual value of offshore accounts held by UK residents is about £2bn (though HMRC would not confirm this). Acting HMRC executive chairman, Dave Hartnett, urged banks to fully co-operate with the trawl of offshore accounts and not to seek a confrontation. In a parallel move, the Treasury has announced plans for legislation to levy capital gains tax on UK-based assets owned by non-domiciles using offshore trusts. It is thought that about 15,000 wealthy non-domiciles will be affected. 'mark to model' under scrutiny The use of 'mark to model' valuations for illiquid securities is to be reviewed by securities regulators, concerned that their use may have contributed to the collapse in valuations of US sub-prime mortgages and subsequent global 'credit crunch'. IOSCO - the International Organization of Securities Commissions - has set up a task force to review the challenges now facing securities regulators. This will consider whether IOSCO should develop alternative methods to value illiquid securities and whether there is best practice that can be disseminated. Particular attention will be given to the transparency and accounting treatment of special purpose vehicles (SPVs), analysing how best to ensure that liabilities are kept on the balance sheet. The implications of the use of SPVs by listed companies in terms of risk measurement will be evaluated, as will be the need to properly inform investors of listed companies' exposure to such risks. The review will analyse what types of data investors rely on for structured products. It will consider whether the information provided by issuers and arrangers of structured financial products is sufficient to enable their clients to assess the quality of products. If further information is needed, the review will attempt to define what this should be. The review will ask whether regulators are provided with sufficient information to safeguard public securities markets. Broker dealer firms' involvement in the trading of structured products such as collateralised debt obligations will also be considered, as will the role of credit ratings agencies. The review will examine whether agencies' roles are undermined by conflicts of interest. Michel Prada, chairman of IOSCO's technical committee, said: 'IOSCO, in pursuing its role of developing international principles, has established a task force to review recent events. The group will engage with securities regulators and the financial services industry to examine how they have responded to the recent crisis, the lessons that can be learned and what further work may be needed by IOSCO. 'The recent events in the credit markets have demonstrated how closely linked the world's financial centres are and that the issues facing securities regulators can no longer simply be viewed in a national context. This reinforces the need for regulators to develop and implement international principles of regulation.' The final version of the code of conduct for private equity investors has been published by Sir David Walker, completing the project commissioned by the British Venture Capital Association. The guidance aims to make the sector more transparent in its operations and head off criticisms, particularly from MPs and trade unions. Private equity-owned companies should publish their annual reports and accounts on their websites within six months of year end, under the finalised code. Summary mid-year updates should be published within three months. These expectations are less onerous than in the draft code, circulated for consultation in July. Under the code, portfolio companies will disclose the identity of private equity funds that own their businesses, identify senior managers and advisers of those funds and name members of their boards. There should be publication of financial reviews of the companies, covering their risk management objectives and policies, reflecting the principal risks they face and uncertainties, including risks associated with leverage. Companies owned by private equity funds should comply with Section 417 of the Companies Act 2006, which requires quoted companies to indicate the main trends and factors likely to affect future development, said Walker. This should provide information relating to employment practices, environmental impact and on policies of social and community concern. Private equity firms also have obligations on disclosures under the code. They should provide information on funds' structures, investment approach and the names of UK companies within the portfolio, with details of the leadership of those companies and arrangements to deal with any conflicts of interest that arise within the portfolio. Firms should show their commitment to the code of conduct on a comply or explain basis. While the code of conduct is not binding and is only produced for the UK's private equity sector, Walker recommends that it be used more widely, including by sovereign wealth funds. Pension fund administration could be transformed, through the growing use of devices to separate fund administration and liabilities from sponsoring employers. The significance of the trend was illustrated by the purchase of the former GEC empire, now a small company called Telent, by the Pension Corporation, to run the pension fund. The Pension Corporation is a new business, with directors who are leading figures in the City, including: Sir Martin Jacomb, former chairman of Prudential; Sir Nicholas Montagu, former head of the Inland Revenue; Sir Mark Weinberg of St James's Place; and Bob Scott, former chair of CGNU. The venture is backed by RBS, HBOS and private equity group JC Flowers. Despite GEC losing almost all of its value in its doomed move to convert into telecoms specialist Marconi, Telent retains a giant £2.5bn pension fund for 62,000 former staff. The takeover of Telent ran into trouble when the Pension Regulator appointed trustees to protect the interests of former GEC staff, but the deal still went ahead. There is a clear trend towards moves of this kind. In a separate initiative, magazine publisher EMAP transferred the assets and liabilities of two of its funds to specialist administrator Paternoster - run by another former Prudential boss, Mark Wood. Days later, Paternoster took control of the pension fund assets and liabilities of Eni Lasmo, valued at £150m. It is expected to make further acquisitions. Steven Dicker, corporate consultant at rewards adviser Watson Wyatt, says there is no doubt that many more companies will follow the recent example of EMAP. He told accounting & business he is advising schemes on divestments worth billions of pounds. 'EMAP went through the other day - others are in the pipeline that are ten times the size of that,' he said. Some of these, he explained, were now waiting for share prices and other asset values to stabilise before finalising fund disposals. Dicker predicted that FTSE100 companies would mostly look at the experience of mid-cap companies before they made their own commitments. A survey conducted by PwC confirmed the trend. A quarter of companies questioned - including 43 members of the FTSE100 - were considering disposing of their pension funds. There was a split between those - 11% of companies - seeking to dump funds in the next five years and those - 16% - that have a longer-term perspective. PwC said that about 20 new companies have been formed in the last three years to take over the running of pension funds. Marc Hommel, partner, PwC LLP, said: 'We are seeing a surge of interest from employers of all shapes and sizes looking to rid their balance sheets of pension liabilities.' in brief...
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