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Australian Tax Office probed 150 staff over social media refund scam

One hundred and fifty people who worked for the Australian Taxation Office (ATO) have been investigated – and some prosecuted – for participating in a tax refund scam promoted on Facebook and TikTok.

The extent of the scam was revealed on Monday in an audit of the ATO’s management and oversight of fraud control arrangements for the Goods and Services Tax (GST) – Australia’s equivalent of a value-added or sales tax.

Down under, as elsewhere, businesses can claim refunds for the sales tax they pay on their own purchases.

The World Bank ranks Australia as the seventh-easiest country on Earth in which to start a business, in part because one step in the process – obtaining an Australian Business Number (ABN) – can be accomplished online with very little effort. An ABN is also one of the few requirements to register for GST refunds. The tools to request a refund are also online, and easy to use – even this Vulture managed to employ them (entirely legitimately) for a few years.

The scam promoted in online ads detailed a means of securing a loan from the ATO – an outright lie, as Australian tax authorities are not notably more generous than others around the world. Those who responded to the scam ads were advised on methods to create a fake business, fraudulently apply for an ABN, and then lodge false claims for a GST refund.

The scam worked spectacularly well for a time. The audit into the ATO found A$2 billion ($1.29 billion) of fraudulent GST refund claims and 57,000 participants in the scheme in the period between April 2022 and June 30, 2023.

The ATO had, by then, started fighting back. The audit document revealed that from mid-2021 the ATO received increased numbers of GST fraud tipoffs, and from December 2021 financial institutions sent an elevated volume of alerts regarding suspicious GST and income tax refunds.

By January 2022 the ATO was tracking so many cases that it knew it did not have enough people to handle them all. In April of the same year, 470 people were allocated to address the mess, and the effort was named Operation Protego.

Some of the fraudulent claims were lodged by stolen identities.

As Operation Protego continued, 150 ATO officials were identified as worthy of investigation.

The ATO yesterday described “the majority” of those investigated as “former contractors or ex-employees [who] were not working with the ATO at the time they are suspected of committing Operation Protego fraud.”

Some of the ATO officials were themselves the victims of identity theft and were not perpetrators.

But a dozen ATO staff were found to have committed fraud while working for the tax office. Sanctions on that dirty dozen included termination of contract, administrative action, and criminal prosecutions.

Many others were prosecuted as a result of Operation Protego. The ATO has shared details of one perp, who reactivated an ABN for a jewelry and silver manufacturing business and then lodged 63 false GST claims that netted A$73,650 ($47,500) – and 20 months jail. Other false claims discovered during Operation Protego sought millions in GST refunds an resulted in sentences of seven-and-a-half years.

Australia’s Serious Financial Crime Taskforce continues to pursue those who promoted the scheme.

While it’s come as a shock that 150 ATO employees were suspected of tax fraud, the audit found that the tax org’s efforts prevented an additional A$2.7 billion ($1.75 billion) in suspect GST refunds, saw A$123 million ($79.5 million) recovered, and are racking up huge interest on false refunds that are yet to be repaid.

But it’s not all good news for the ATO: the audit rated its GST fraud detection operations “partly effective” in three areas and “largely effective” in another. The document also found the ATO’s enterprise framework for fraud “is not fit for purpose and is not operating as intended.”

The audit also rated the ATO’s GST fraud detection methods “largely appropriate” – but at the same time detailed a classic organizational data flow mess. “Registers of controls used to detect potential GST fraud are dispersed across ATO business lines and the ATO does not maintain a centralized register,” the audit found. “The dispersed nature of GST controls means the ATO relies on internal committee discussions to draw together a ‘whole of GST product’ perspective on the effectiveness of these methods, rather than on collated or aggregated data.” ®