Office of the Comptroller and Auditor General - Dirt Investigation - Chapter 11

Chapter 11 : National Irish Bank Group

Background

Two banks in the National Irish Bank Group - National Irish Bank Limited (NIB) and National Irish Investment Bank Limited (NIIB) remit DIRT to the Revenue. The banks within the National Irish Bank Group are subsidiaries of National Australia Bank (NAB) since 1987. NIB has 61 branches in the Republic of Ireland. By 1998 the deposit base of NIIB had been transferred to NIB with NIIB thereafter being primarily concerned with asset finance leasing. National Irish Bank Financial Services Limited (NIBFS) is an independent financial services subsidiary of NIB.

Non-Resident Deposit Levels

The National Irish Bank group’s share of the non-resident deposit market as at 30 November 1998 was 2.02%

Its non-resident book varied between ?92m and ?261m during the period 1986-98.

Key statistics in relation to the group’s non-resident accounts were

Year

Number of Non-Resident

Accountsa

Percentage of Deposit

Book by Valueb

1998

n/a

15.3%

1997

n/a

22.3%

1996

n/a

20.2%

a It has been ascertained from correspondence between the bank and the Revenue Commissioners that the number of non-resident accounts in January 1998 was approximately 10,000. In addition, figures quoted in correspondence with my Office refer to 11,130 non-resident accounts at January/February 1999.

b Calculated using Central Bank data

Staff Instructions and Procedures

It is the bank’s policy to issue circulars and instructions to staff and this has been done on an ongoing basis. Staff instructions and procedures cover the opening and operation of non-resident accounts, Special Savings Accounts (SSAs), and other DIRT exempt accounts.

The procedures state that DIRT must be deducted, from interest credited to any eligible account, at the standard rate, unless a valid declaration is held which has been signed, dated and is in all other respects fully completed by the customer.

Before an account may be opened for a person or company who wishes to avail of non-resident status documentation must be produced that the person or company is resident outside the State. It is the responsibility of the official opening the account to obtain the proper documentation.

Up to recently non-resident declaration forms were filed locally in the branch network but with effect from late 1998, the bank has taken the decision to centralise all documentation in connection with the administration of non-resident declarations. In the future, it is proposing to conduct centrally controlled six-monthly ratification procedures within its branch network.

The bank did not seek a Form F during the period 1986 to 1993 as its understanding was that the Section 37 declaration had replaced the Form F with effect from April 1987. Neither does the bank appear to have sought an affidavit in order to satisfy itself about the authenticity of any claim for non-residence or in any case where a resident was opening a non-resident account for the beneficial ownership of a non-resident.

Internal Management Review

Internal Audit

The Internal Audit Department was established in 1986 with responsibility for the completion of branch and head office department reviews and audit work commenced during 1987.

Within the wider NAB group, responsibility for internal audit transferred to its European Audit function in 1997. European Audit provided a full audit service to NIB in common with other banks in the group utilising staff based in Dublin and other group locations in the UK and Northern Ireland.

The Chairman of the European Audit Committee advised me that audits were originally carried out on a rotational basis but that in recent years a shift to a more risk based approach has taken place.

Reviews conducted by auditors in respect of non-resident accounts were based on the selection of a sample of accounts flagged as non-resident on the bank’s computer system to ensure that the appropriate declaration was held for each account in the sample. In the course of audits the internal auditors examined samples to ensure that the account details were not at variance with the other branch records for the customer concerned. No other tests were carried out to check the authenticity of the non-resident status.

Branch audit reviews were completed as outlined in the following table

Period Audit Cycle Sample Size

1987 - 1989 Two years 15, irrespective of size

1989 - 1993 Two years 15 or one-third of forms held

1993 - 1997 Three years 15 or one-third of forms held

1997 - 1998 Non-resident issues no longer examined in branch audit reviews

An initial theme audit was carried out in 1994 and since 1997 procedural compliance with regard to DIRT is no longer examined during branch audits, but is examined by means of regular theme audits. A theme audit involves the selection of a particular theme or area for review on a bank wide basis.

I was advised that the theme audit approach has a quicker and wider impact when particular issues are flagged. Any follow up action taken is across the network as opposed to an individual branch audit where the issues arising are confined to the particular branch for follow up.

Theme Audits

Since DIRT compliance issues (principally missing and incomplete documentation) were being reported in branch and other audits on a regular basis, the bank decided to carry out its first theme audit in 1994 on the subject of DIRT.

Following an analysis of the level of non-resident deposits and Special Savings Account (SSA) deposits throughout the network, a total of 12 branches were selected for audit. Branches were selected with a view to covering the branches with the highest level of SSA and non-resident accounts (excluding branches audited in 1994). This resulted in audit coverage of 40% of the non-resident and SSA deposit levels. In addition DIRT compliance in the Treasury Department of the bank’s head office was also reviewed. Branch sample sizes selected were 30 non-resident accounts, 30 SSAs and 10 accounts covering DIRT exempt Companies, Pension Funds and Charities.

Testing in the theme audit concentrated for the most part on the following areas

Non-Resident Accounts

Ensuring that properly completed non-resident declarations were held

Checking that the address on the non-resident declaration form was not at variance with other branch records.

SSAs

Ensuring that properly completed SSA declaration forms were held

Reviewing a listing of branch SSAs for inconsistencies

Discussing with members of the branch staff, their understanding of SSA notice requirements

Reviewing withdrawal notices for selected SSA withdrawals.

DIRT exempt Companies, Pension Funds and Charities

Ensuring that properly completed and appropriate declaration forms were held for selected accounts

Ensuring that a copy of the Revenue Commissioners certificate was held for each charity account.

A further theme audit in relation to Legislative Compliance and the Taxation of Credit Interest was carried out in NIB during August and September 1998. The objective of the audit was to review and assess the adequacy and effectiveness of the systems of control established within the bank to verify compliance with the Revenue Commissioners’ requirements.

The scope of the audit included examination of a sample of customer accounts to

verify the completeness and accuracy of documentation

assess the validity of payment of credit interest without deduction of tax.

The initial phase of the audit sampled 10 non-resident and SSA accounts in each of 10 randomly selected branches. This was followed by a management request to conduct a centralised quality check on 100% of all non-resident account forms and SSAs in NIB.

At the hearing of evidence, I was informed that the current exercise involves matching declarations with the underlying accounting records as well as carrying out some basic quality checks on the standard of completion of the declaration forms. It is intended that this exercise will extend to a detailed examination of transactions on each account. The 1998 theme audit did not extend to Companies, Pension Funds or Charities. However the bank informed me that it is intended that an examination of these will be carried out in the future also.

Internal Audit Findings

The bank provided me with a summary of its findings from a review of 169 branch audit reports out of a total of 222 reports which covered a period in excess of 10 years to date. The bank were unable to locate the other 53 reports which were noted in its records as having taken place. The branch audit reports were reviewed in detail for deficiencies in relation to DIRT administration and particularly in relation to non-resident accounts. DIRT or non-resident deficiencies were identified in 100 reports covering 53 branches.

Weakness identified in the Audit

No. of reports which contained deficiencies

Weaknesses in the sighting of Forms
Non-Resident Form not sighted

70

Charity Form rather than a Non-Resident Form used

17

Charity Form not sighted

3

Weaknesses with completion of the Declarations
Non-Resident Form incomplete

34

Form not dated

65

19Account number issues

18

Form not signed

3

Joint accounts - not all parties to the account signed the Form

10

Form signed in wrong section

13

Weaknesses with the title to Non-Resident Accounts
Account at variance with other branch records

18

Care of branch address

13

DIRT Flag set at exempt for a resident account

16

Non-resident customers statements are held at Branch

1

One form used to cover multiple accounts

7

Company DIRT Declaration not signed

4

DIRT Refunds

There were several references in the audit reports of 1991 to 1993, to debits being made to the DIRT account of a branch, in respect of refunds made to customers which had not been authorised by the bank’s Finance Department. For example the 1991 audit report for the Cork branch of NIB stated that retention tax in the sum of ?9,242 was refunded to the account of a customer in September 1991. It was also stated that a non-resident declaration form was not sighted at the branch in respect of this customer.

Documentary Non-Compliance

The following table gives an indication of the documentary non-compliance rates being reported in branch audit reports during the years 1994 to 1996. A corresponding analysis was not done for the period 1986 to 1993 as the audit reports did not generally provide details of the sample sizes used in particular branches.

Branch

Date of Audit

Percentage of non-resident forms missing

Percentage of SSA declaration forms missing

Howth Road

February 1994

16%

11%

Cork

September 1994

6%

5%

Fermoy

September 1994

4%

23%

Clonmel

November 1994

-

16%

Wilton Terrace

November 1994

-

15%

Finglas

January 1995

6%

5%

Naas

February 1995

-

13%

Terenure

February 1995

-

11%

Lanesborough

April 1995

1%

-

Clones

May 1995

5%

7%

Monaghan

May 1995

4%

2%

Dungloe

July 1995

3%

5%

Virginia

July 1995

1%

-

Limerick

August 1995

8%

5%

Castlebar

September 1995

3%

6%

O’Connell St.

October 1995

1%

2%

Bray

November 1995

4%

8%

Carrick-on-Shannon

November 1995

4%

3%

Blanchardstown

January 1996

2%

-

College Green

January 1996

4%

12%

Galway

February 1996

6%

6%

Boyle

April 1996

1%

2%

Letterkenny

May 1996

1%

2%

Milford

June 1996

1%

-

Ramelton

June 1996

12%

-

Sligo

July 1996

2%

-

Wexford

August 1996

2%

2%

Mullingar

October 1996

3%

-

Fictitious or Incorrectly Named Accounts

An audit of the Blanchardstown branch in January 1996 revealed irregularities in relation to non-resident/incorrectly named accounts, even though a declaration had been signed confirming that fictitious or incorrectly named accounts did not exist in the branch and that all non-resident accounts were genuine. Three cases arose where accounts were held in names other than the names of the persons to whom the deposits actually belonged. In all cases, the accounts were also incorrectly classified as non-resident. The details of the cases were as follows

Date of Account

Opening

Balance at

date of audit

?

November 1992

230,000

May 1994

205,000

August 1995

100,000

Other branch audit reports around that time also reported isolated instances of fictitious or falsely named accounts.

In May 1996 a strongly worded memorandum was issued to branch management from the General Manager Banking and the General Manager Risk Management on the subject of fictitious or falsely named accounts.

The memorandum stated that

‘fictitious or falsely named accounts cannot be tolerated under any circumstances and every staff member is forbidden from knowingly opening or maintaining such accounts. There is no ambiguity in regard to this matter - all fictitious or incorrectly named accounts must be regularised and/or closed even where there is a possibility that the business will be lost’.

This issue appears to have been satisfactorily resolved by January 1997 when the Head of Retail Banking reported that confirmation had been received from Area Managers that all fictitious or incorrectly named accounts had now been closed or regularised.

1994 Theme Audit Findings

The bank provided a summary of the weaknesses identified during the course of the audit.

In the case of Non-Resident accounts

40% of sampled declarations contained some form of error or omission. Declaration forms were not sighted in 12% of cases, declarations were not dated in 13% of cases while 21% of declarations had an incorrect account number or no account number

Certain non-resident account details were at variance with other branch records. It was noted that some branches appeared to be of the opinion that once a non-resident declaration form was held, there was no obligation on the branch to confirm the residency of the account holder

A significant number of non-resident accounts were noted as being ‘care of the branch’

A significant number of accounts were noted as being incorrectly designated zero DIRT rather that non-resident

Certain deposit accounts opened some 20 years previously were without declarations

In the case of Special Savings Accounts

91% of sampled withdrawals were in breach of notice requirements

20% of sampled declarations contained some errors or omissions. SSA declaration forms were not sighted for 7% of accounts while 9% of the declarations were not dated and 5% of the declarations were not properly completed. In addition 19% of the declarations had an incorrect number.

In the case of Company, Pension Fund and Charity accounts

Charity declarations were not sighted for 53% of accounts and Corporate declarations were not sighted for 5% of accounts

Revenue Commissioners charity certificates were not sighted for 95% of charity accounts while 61% of corporate declarations were not certified on behalf of the bank

50% of accounts classified as having an exempt tax status on the company’s computer system had been incorrectly classified. 36% related to non-residents, 5% related to interest bearing resident accounts which should have been subject to DIRT and 10% related to non-interest bearing resident accounts.

In the case of Treasury

Properly completed declarations were held for all DIRT exempt accounts sampled. However Revenue Commissioners charity certificates were not sighted for all accounts.

In the case of the International Division

A substantial number of the non-resident declarations sampled had errors, omissions or were not sighted.

In the case of the deposits section of NIIB

An audit of the deposits section of NIIB was carried out in June 1994 and was reported in the 1994 theme audit report. It was noted that a significant number of problems were found with DIRT documentation. Problems were found with non-resident and foreign currency accounts and with special savings accounts and company DIRT exempt accounts. Declaration forms were not held for 98 foreign currency accounts and a significant number of declarations were not properly completed. The absence of the declaration forms for the 98 foreign currency accounts appears to have arisen due to an internal communication weakness, with NIIB being unaware that non-resident declaration forms were required for non-resident foreign currency accounts for the period June 1991 to December 1993. The report stated that in the case of one depositor (CMI Limited), a non-resident declaration form with no account number specified on the form is held in respect of several deposit accounts. The audit report stated that a rough estimate of NIIB’s potential exposure for uncollected DIRT at the time of the audit could have been in the region of ?100,000. This estimate did not include potential exposure on incorrectly completed forms.

The report concluded that the results were very disappointing and that management must take immediate steps to improve the situation. It also stated that the level of non-compliance was too high and that it appeared that there needed to be an organisation-wide attitude change to the whole area of DIRT, adding that it was a risk area and that the penalties for non-compliance at the level shown in the report would be very significant. The report gave an overall rating of unsatisfactory.

According to the bank a significant proportion of the errors detected were subsequently clarified and or rectified. The bank stated that these weaknesses do not necessarily imply failure to pay correct DIRT.

Specific action taken by the bank following the 1994 theme audit included the re-issuing of DIRT compliance procedures and the introduction of a half yearly DIRT compliance reporting process.

1998 Theme Audit

The overall conclusion reached in the 1998 theme audit was that the standard of compliance in National Irish Bank was unsatisfactory. A high level of errors was identified in both non-resident accounts and Special Savings Accounts. The following is a summary of the main issues arising

Non-Resident Accounts

18% of the non-resident accounts reviewed were found to contain errors against legislative requirements. No declaration form was held for 7% of cases, the declaration form had not been signed by all parties in 5% of cases, the address was missing or incorrect for at least one party to the account in 3% of cases while in another 3% of cases accounting records suggested that advice had been received indicating the customer was now resident in the Republic of Ireland. In some cases blank declarations had been signed by customers and branch staff had not subsequently ensured that the declarations were fully completed

There was a lack of evidence to show that procedures for verifying the customers identity had been implemented.

Special Savings Accounts

Breaches of legislative requirements were found in 21% of sampled SSAs. The major weaknesses identified were lack of understanding by branch staff of the eligibility requirements for joint accounts, failure to evidence that the identification of customers had been verified and in 79% of the sample tested, withdrawals from accounts being allowed within the required notice period. The report stated that there was the possibility that up to 4% of the customers may be ineligible for these accounts.

Speaking about the self-certification exercise introduced to branches following the 1994 theme audit, the report on the 1998 theme audit stated that

‘the six-monthly branch declaration process, to confirm that DIRT requirements were being met on an on-going basis, was not robust and gave a false picture of compliance in the bank’.

The report also stated that

‘In order to place the bank in a better informed position prior to any negotiation with the Revenue Commissioners it is recommended that the planned 100% review of the SSA and non-resident account populations commences immediately and is sufficiently resourced to enable a fast resolution. We strongly recommend that the review should concentrate on current legislative requirements as its first priority’.

A centralised 100% quality check on non-resident declaration forms took place in January and February 1999 at which time 636 declaration forms could not be located out of a total of 11,130 accounts (5.7%). While all forms should have been held in one file in each branch prior to centralisation it became apparent during the exercise that a number had been misplaced. Each branch was requested to search all records for the missing forms. Branches have also written to customers whose forms have not been located.

The end result of this exercise was that 239 (2%) declaration forms could not be located. Replacement declaration forms have now been received for 115 of those accounts, 105 accounts have been reclassified and 19 accounts have been closed. I was informed at the hearing of evidence that the reclassifications carried out were due to the fact that customers had not responded to correspondence issued to them. It was a protective measure undertaken by the bank for the future. It does not imply that those customers should not have been classified as non-resident.

The bank maintained at the hearing of evidence that the underlying position must have been quite strong to have arrived at the results now being shown following the extensive search, and the outcome of the theme audits should be read in that light.

Audit Follow up and Reporting

Where internal audit identify weaknesses, recommendations are made and action plans agreed. Internal Audit monitor the completion of action plans.

A quarterly report of significant findings is submitted by the internal auditor to the Board Audit Committee. A Board Audit Committee was established in 1988, comprising non-executive directors and senior management of the bank, to oversee the work of the internal audit department. The committee continued in existence until February 1997 when its responsibilities were assumed by the European Board Audit Committee, on which NIB is represented.

Administrative Reviews

In addition to reviews conducted by internal audit, line management operated a number of control and certification processes to confirm adherence to the requirements of the bank’s procedures manuals.

A half yearly process was introduced around 1993 whereby branch managers certified that appropriate tax codes were entered for DIRT on all relevant accounts and that statutory documentation was held

A half yearly DIRT compliance reporting process was introduced in 1995 whereby each branch manager [on receipt of a report listing all non-resident, SSA and DIRT exempt accounts held at their branch] declared that the bank’s procedures had been complied with fully in respect of DIRT exempt accounts and that a declaration was held for each account. A separate report detailing the action which the bank proposed to take, was required for those accounts on the listing for which no declaration form was held

Ad-hoc Regional Management and General Manager reviews of DIRT compliance issues, where specific issues were examined and additional guidance provided.

Recent Action

At the hearing of evidence the Chief Executive referred to a number of recent actions which have taken place within NIB in relation to DIRT compliance.

A composite procedures manual has been issued

An Operational Tax Unit has been established for the centralised control of declaration forms

Procedures for SSAs have been tightened

DIRT Compliance Supervisors have been appointed in each branch and training programmes on DIRT compliance have been organised

A sampling exercise to check the accuracy of the certifications by branches is to be undertaken. These have previously been accepted at face value.

The bank is and has been in correspondence with the Inspectors appointed by the Courts in 1998 with regard to DIRT.

External Review

Central Bank Review

The bank informed me that no issues have been raised by the Central Bank in connection with the administration of non-resident accounts.

External Audit Review

DIRT was raised as an issue by the external auditors in their management letters for 1989 and 1994 under the heading of ‘Points of Lesser Importance’. From an examination of available Audit Committee minutes it appears to have been raised also in the management letter for 1988 although the external auditors’ management letters for the years 1986 to 1988 are not available.

The 1989 management letter referred to DIRT exemption forms not being held in all cases where interest was being paid gross and to a number of accounts being incorrectly flagged as DIRT exempt. The total value of the errors amounted to ?2,237. In response management stated that in all cases the mistakes or omissions were simply due to errors by officials.

In 1994 the auditors noted that there were a number of cases where the appropriate declaration form was not available or had been incorrectly completed. The bank responded by stating that instructions relating to the holding of SSAs and non-resident accounts would be fully re-written and that all relevant people would be required to review their accounts and confirm compliance.

Administration of the Taxes Acts

Revenue Inspection of Declarations

In April 1998 Revenue inspected non-resident declarations in respect of NIB customers who invested in a personal portfolio product of Clerical Medical International (CMI) The results were as follows

Branch

Date of Inspection

DeclarationsSought

Declarations

Received

Queries Raised

Wilton Place

April 1998

76

70

8

CMI Personal Portfolio Product Background

NIB does not sell its own life assurance products but acts as an introducer for the products of other financial institutions. Among these institutions is CMI Insurance Company Limited, an Isle of Man-based subsidiary of Clerical Medical International. The Personal Portfolio was the principal CMI product marketed by NIB. This is a life assurance policy.

To acquire the life assurance policy, the customer had to pay a capital sum to CMI which CMI then invested to secure the capital value of the policy. Once invested in the policy these were CMI funds and the policy holder was not entitled to gain direct access to them. To gain access to these funds, policy holders would first have to encash their policy in whole or in part.

In a letter to Revenue the bank stated that CMI funds invested in NIB or NIIB were placed in separate numbered accounts. At the hearing of evidence the bank representatives informed me that to the best of their knowledge, access to the accounts in Ireland established by CMI with NIB was not available to the individuals who invested in those products. NIB operated on instructions from CMI. In a letter to Revenue the bank stated that CMI Personal Portfolio policies had been assigned by the beneficial owners to National Irish Bank as security for borrowings in a small number of cases. My review of internal audit reports noted one instance where CMI funds had been paid directly to the investor.

A large proportion of investors directed CMI to put the policy funds on deposit with NIB. This was with the encouragement of the bank who sought this business in the interests of its deposit base. NIB paid CMI interest on these accounts, which provided a return to the policy holder in accordance with their contract with CMI.

The bank supplied the following information to Revenue in regard to the period up to 1997, when an estimated ?34m was invested through National Irish Bank Financial Services Ltd in the CMI Personal Portfolio product

Approximately ?7m came from National Irish Bank accounts on behalf of residents who were paying DIRT. This relates to 60 account holders

Approximately ?14m came from National Irish Bank non-resident accounts. This relates to 76 account holders

The balance of approximately ?13m related to funds sourced outside the bank together with funds the source of which was under investigation.

Where customers of National Irish Bank invested in CMI, the funds for the investment were not necessarily held in accounts within National Irish Bank prior to the investment.

Revenue have not yet concluded their investigation in the matter.

CMI DIRT Issues

Investigations are being conducted by various parties into the sales methods used in marketing the CMI and associated products. My interest in the product is to the extent that it touches on non-resident exemptions from DIRT.

At the hearing of evidence the bank stated that 95 accounts across all sources of funds representing a total investment of ?13.8m had now been reported to the Money Laundering Officer as their investigations into CMI had identified the source of those funds as being suspicious. The bank stated that it was not always clear as to the source of the funds in accounts which were in existence in the early 1990s. There may be some DIRT/income tax implications arising from the resolution of these matters.

CMI Irish pound deposits were held in the branch network prior to November 1994 and were not supported by individual non-resident documentation, as it seems branch management understood that an administrative arrangement had been established whereby these forms were being completed and retained at Head Office. Forms were held for CMI sterling and Irish pound deposits within NIIB at that time. Following centralisation of the CMI deposits in November 1994, non-resident forms were obtained from CMI for all accounts.

In reply to my query as to whether there is an issue around the residency of the persons beneficially entitled to the interest, the bank representatives stated at the hearing that the person beneficially entitled to the interest is CMI. The bank stressed that there is no direct DIRT liability arising from the actual CMI accounts.

Investigation Branch Enquiries

In the period 1988-92 a number of matters were investigated by Revenue which were linked to the National Irish Bank’s branches at Artane, Malahide and O’Connell Street, Dublin. These are outlined in Chapter 7 - Section 3.

Interest Reporting

Returns under Section 891 of the Taxes Consolidation Act 1997 have only recently been made to the Revenue Commissioners for the years 1996-97 and 1997-98 as the bank was of the opinion that these returns were required only on request from Revenue. The bank is taking steps to ensure that these returns are submitted in future within the required timescale.

Liability Estimation

By letter dated 30 January 1998 Revenue requested the bank to address the issue of compliance with the DIRT regulations in the 10 year period ended 30 June 1998. The bank requested its officials at head office to carry out in the period between April and June 1998 a review of all non-resident deposit declarations held within the bank’s retail system. This review indicated that as of March 1998 declaration forms had not been completed in respect of deposit accounts with a total value of ?606,498. The bank attempted on a ‘without prejudice’ basis to estimate a possible scenario which may have applied in relation to deficiencies in the non-resident declarations during the 10 year period.

It estimated on a ‘totally without prejudice basis’ that NIB and NIIB may have had deficiencies in the operation of the non-resident declarations which might suggest that they have an obligation to make a ‘without prejudice’ payment to the Revenue Commissioners of ?337,915.

In regard to the question of factoring in a figure to take account of deposits reported for suspicion of breaches of the anti-money laundering procedures, the bank pointed out that the requirements under the money laundering legislation are based on a suspicion and limited information. The bank felt it was inappropriate to seek further payment from NIB in this regard. However in order to attempt to recognise a possible deficiency in relation to some portion of the non-resident declarations in respect of some of the deposits, NIB were willing to add an additional ?75,000 to the proposed settlement of ?337,915.

While some discussion has taken place, no settlement has been agreed with Revenue at 1 July 1999.

Internally the bank has deemed it prudent to make a provision of ?1m for any potential liability.

In evidence the bank stated that the ?1m was a general provision based on the ‘without prejudice’ offer made to the Revenue and included an allowance for interest and penalties. It related solely to the non-resident accounts and did not cover DIRT arrears in relation to SSAs or other exempt accounts.

In response to my questioning of the basis of calculation of the provision, and in particular the substantially greater non-compliance rates reported by the bank’s internal auditors during the years 1988 to 1993, the Head of Tax, Europe stated that internal audit reports were a snapshot in time. The fact that a document was recorded as missing at the time of the audit did not necessarily mean that the document did not exist. He contrasted the Irish situation with the UK regulations where the Inland Revenue continuously audit UK banks. Following the completion of an audit report by the Inland Revenue or a professional firm of auditors on its behalf, the bank is given the opportunity to produce further documentary evidence prior to any liability being established. He stated that what normally happens is that the vast majority of the forms have either been misfiled or retained in another branch of the bank.

According to the Chief Executive, the bank accepts that where accounts have been wrongly classified in the past, there is an onus on the bank to pay arrears of DIRT.

The bank stated that the collection of DIRT is an automatic process in the bank. The bank has evidence to suggest that manual adjustments to DIRT liabilities have been made. However the bank is not in a position to match the manual adjustments to specific accounts and in those circumstances it has taken a decision to proceed on the basis that no adjustment has been made.

Result of Work Performed by the Appointed Auditor

The Auditor reviewed branches of National Irish Bank Ltd at Carrick-on-Shannon, Wexford and Drumshanbo as well as its Treasury and Central Deposit Centre. The following are the results of the review

Tax Exemption
Documentary Compliance - Declaration of Non-Residents (Form 37)
Sample

480

No Declaration held

2

Late dated Declarations

Undated Declarations

Declaration Validity Exceptions

80

59

27

Total Declaration Exceptions

168

Percentage Exception

35%

Authenticity Risk Profile - Non-Residents
Sample

480

Risk Indicator
Irish Address

10

PO Box or ‘Care of’ Address

11

Hold Mail

3

Transaction Profile

10

Accounts with Liens

0

Other

0

Total accounts with Risk Indicators

34

Percentage Exceptions

7%

Accounts also with documentary exceptions

11

Accounts where the group believes it holds appropriate evidence of non-residence

31

19Documentary Compliance - other Exempt Accounts and SSAs
Account Type

Exempt

SSA

Sample

29

30

No Declaration

2

1

Declaration Exceptions

3

5

Total Exceptions

5

6

Percentage Exceptions

17%

20%

Interest Reporting Exemption
Documentary Exemption (Form F)
Sample

216

No Form

216

Percentage Exception

100%

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The contents of this page were last updated on 26/09/03