Secretary to the Treasury John Whitehead today released revised Financial Statements for the seven months ended 31 January 2008.
This was to correct an error that came about when Inland Revenue failed to account for about $600 million in provisional tax accruals during January. Following this correction, the operating balance is in surplus by $200 million. It was previously reported as a deficit of $400 million.
“Clearly I regret any error in the Financial Statements, and I am taking this matter very seriously”, Mr Whitehead said.
Mr Whitehead and Inland Revenue Commissioner Robert Russell have commissioned a full investigation into the error, including what steps need to be taken to ensure it can’t happen again.
Mr Russell said Inland Revenue took full responsibility for the error.
“We used the wrong tax accrual figures. That was a human error, but a bad one. It should not have happened, and I have apologised to the Minister of Revenue and the Minister of Finance.”
Mr Russell said each month when the Crown’s accounts are prepared it assesses future tax accrual levels based on the economic data supplied by Treasury.
“This time, we failed to use the updated data. As a result, we estimated $28.2 billion in total tax revenue for the year to January, instead of $28.8 billion.
“When the January figures came through we examined a number of possible explanations for the variance from forecast, when the answer was much more basic – we had not incorporated Treasury’s latest forecast.
Mr Russell noted “it was an accounting error over how much we estimated for accruals – nothing to do with forecasting or with actual tax payments”.
“We want a prompt and definitive report into how this happened and how we can give everyone confidence it won’t happen again,” Mr Russell said.
The terms of reference for the investigation are attached.
Paul Carpinter, Principal Advisor at the Treasury (and former Deputy Secretary of Treasury and former Chief Executive of MED) and Alan Pinder, Chief Adviser to the Deputy Commissioner of Inland Revenue, will conduct the investigation with support from senior staff in both agencies.
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Investigation of an Error in Tax Revenue Numbers: Terms of Reference
This note sets out the terms of reference for an investigation into the error in the tax revenues for January 2008 reported in the Financial Statements of the Government for the seven months ended 31 January 2008, which also occurred in the numbers for February 2008 provided by IRD to Treasury on March 12, 2008. This investigation is to report jointly to the Secretary to the Treasury and to the Commissioner for Inland Revenue. The purpose of this investigation is to discover how the error occurred in the January tax revenue numbers, why it was not detected until the preliminary February numbers were supplied in March, and what changes need to be made to prevent similar errors occurring in the future. Specifically, the investigation is to cover:
A. The facts of the situation: what process was followed, including what quality assurance, before the numbers were provided in February to Treasury, and what further checking was carried out prior to the numbers being released in the Financial Statements of the Government for the seven months ended 31 January 2008.
B. What deficiencies, if any, existed in IRD’s processes that led to the error?
C. What deficiencies in process, if any, existed in IRD or Treasury that meant the error was not identified when the fall in revenue was queried prior to the release of the Financial Statements?
D. What, if any, changes to systems and procedures, capability or resourcing need to be undertaken by IRD or by Treasury to give confidence that future numbers, including those for February 2008, will be reliable?
The investigation will be conducted by:
- Paul Carpinter, Treasury, and
- Alan Pinder, IRD
with assistance from Treasury and IRD staff as necessary.