Comptroller and Auditor General Section 2 Report
Summary
Summary
Background
1. The Driver and Vehicle Licensing Agency (the Agency) is responsible for the collection of Vehicle Excise Duty on behalf of the Secretary of State for Transport. In 2011-12, the Agency collected a net £5.9 billion (2010-11: net £5.7 billion) of revenue, as reported in the Agency’s Trust Statement. The Agency paid over this £5.9 billion revenue to the Exchequer.
Scope of Audit
2. Section 2 of the Exchequer and Audit Departments Act 1921 requires me, as the Comptroller and Auditor General (C&AG), to examine the Vehicle Excise Duty revenue accounts (reported by the Agency in the Trust Statement) and to ascertain that the Agency has in place adequate regulations and procedures to secure an effective check on the assessment, collection and proper allocation of revenue, and that the Agency is duly carrying out these regulations and procedure. I am also required by that Act to examine the correctness of the sums brought to account and to report the results to the House of Commons. My audit opinions on the Agency’s Trust Statement and this report together satisfy that requirement.
3. My team has examined the systems and obtained evidence on the adequacy and operation of its regulations and procedure. My conclusion on the Agency’s overall management of the Vehicle Excise Duty systems is based on this examination, as well as taking into account evidence from our audit of the Trust Statement itself and information from other sources, including, for example, consideration of the Agency’s Governance Statement.
4. This report records the outcome of my team’s review and my conclusions as to the adequacy of the systems that the Agency had put in place during 2011-12.
Conclusion
5. Whilst recognising that no tax collection system can ensure that all those who have a tax liability comply with their obligations, I have concluded that, in 2011-12, the Agency has framed adequate regulations and procedures to secure an effective check on the assessment, collection and proper allocation of revenue, and that they were being duly carried out.
Summary of Key Findings
7. I reported in 2010-11 that the Agency had initiated a solution, known as the Identity and Access Management Systems (IAMS) project, to address several IT security issues that were deemed high risk, as together they increased the potential for the risk of fraud and error in the Vehicle Excise Duty transaction process. However, since I reported on the 2010-11 Trust Statement, the Agency has re-assessed this project and decided to delay the implementation until it has completed the future re-engineering of systems. The Agency considers that to implement IAMS on the current legacy IT architecture would not be cost efficient and would not derive the full benefits. Instead, the Agency is deploying a range of lower cost (including some manual) alternatives to manage the control issues that IAMS was intended to address. An important contributory factor in reaching this conclusion was that during 2011-12 the Agency set out to define the shape of its future ICT delivery model, against the backdrop of the Cabinet Office’s ICT Strategy for the Government as a whole. The Agency has an obligation to ensure that its own ICT proposals are consistent with this wider Government strategy. Notwithstanding these factors, it is important that the Agency implements the alternative measures as soon as possible to address the identified IT security risks and to reduce the potential risk of losses arising owing to fraud and error.
8. For 2011, the Department for Transport estimated that that the level of non-compliance in payment of Vehicle Excise Duty as 0.7 per cent of vehicles (2010: 0.9 per cent). The Agency has used several measures to encourage compliance (e.g. online processing using EVL) and to detect and curb evasion. The Agency considers that that these steps have contributed significantly to the efforts to sustain the low evasion rate.
9. To support the processing of Vehicle Excise Duty collection, the Agency holds significant volumes of personal information and is accountable for the adequate protection of the information that it collects processes and stores. The Agency has in place formal processes and procedures to ensure the effective governance of the data. As well as holding and processing information, the Agency also shares data with other bodies such as local authorities and car parking companies for purposes such as the collection of parking fines. The Agency has developed a robust strategy and set of strategic principles to govern how it shares its data with other bodies.
Full Report
Full Report
Collection Process
10. The Vehicle Excise Duty is vehicle road use tax levied as an excise duty which must be paid for most types of vehicles used (or parked) on ‘public roads’ in the United Kingdom. In 2011-12, the Agency collected a net £5.9 billion in Vehicle Excise Duty, which exceeded its forecast of £5.8 billion. The Agency’s system for collecting Vehicle Excise Duty comprises a number of sub-processes, as set out in the overview at Figure 1.
Figure 1 – Overview of Vehicle Excise Duty Assessment, Collection and Allocation Process
11. The Agency processed 46 million Vehicle Excise Duty collection transactions in 2011-12, of which 90 per cent were collected online or via the Post Office®. The Agency has invested in, and promoted, the use of paying online, as it is the most cost effective collection method. Online activity now represents 43 per cent (2010-11: 41 per cent) of all Vehicle Excise Duty collection transactions. The Agency is currently examining ways it can make customer interactions even more convenient via systems enhancements.
Audit Findings
Audit Findings
Operational systems
12. In 2010, the Agency commissioned consultants to carry out a detailed analysis of the Agency’s Vehicle Excise Duty Systems as part of the Cross Government Financial systems Risk Review initiative, which began in 2008. In my examination of the Agency’s 2010-11 Trust Statement and Vehicle Excise Duty revenue systems, my staff used this Risk Review as a baseline for our audit. My staff did so because the nature of the Risk Review was consistent with the principal aims and objectives of our revenue systems audit, i.e. to obtain assurance about the regulations and procedure in place to secure the effective check over the assessment, collection and allocation of Vehicle Excise Duty. My team has adopted the same approach in examining the 2011-12 Trust Statement and revenue systems to identify the risks to the assessment, collection and allocation; and to test the controls that the Agency has put in place to mitigate those risks.
13. Our completion of this revenue systems work, together with other transactional testing undertaken by my staff has allowed me to conclude that the systems are reasonable in their design and have operating effectively throughout the year. My staff did not identify any major control weaknesses. My staff have communicated the detailed results and findings of our work to the Agency’s senior management team in a separate management report.
14. In my 2010-11 report I highlighted that in their Financial Risk Review, the consultants had identified some security concerns in the main IT systems supporting the collection of Vehicle Excise Duty. These control issues were identified as high risk because, together, they increase the potential risk of fraud and error in Vehicle Excise Duty transaction process. The Agency initiated a solution, known as the Identify and Access Management Systems (IAMS) project, in which it intended to incorporate a range control processes to address the security vulnerabilities raised in the Risk Review.
15. In 2011-12, the Agency re-assessed this project and decided to delay the implementation until it has completed the future re-engineering of its ICT systems. This is because the Agency concluded that to implement the project on the current IT architecture would not be cost efficient. In particular, the benefits that would be derived from the project would not be justified by the economic cost of implementing it. Instead, the Agency is deploying a range of lower cost (including some manual) alternatives to manage the control issues that IAMS was intended to address. An important factor in reaching this conclusion was that during 2011-12 the Agency set out to define the shape of its future ICT delivery model, against the backdrop of the Cabinet Office’s ICT Strategy for the Government as a whole. The Agency has an obligation to ensure that its own ICT proposals are consistent with this wider Government strategy.
Information Governance
16. To support the processing of income collection the Agency holds significant volumes of personal information and is accountable for the adequate protection of the information that it collects, processes and stores. The Agency has in place formal processes and procedures to ensure the effective governance of the data that it holds. This includes a full data governance model approved by the Board, and an information asset register which sets out what information is held and who are the owners and managers for the information assets.
Data Sharing
17. As well as holding and processing information, the Agency also shares data with other bodies such as local authorities and car parking companies for purposes such as the collection of parking fines. The Agency has developed a robust strategy and set of strategic principles to govern how it shares its data with other bodies. This includes setting out the basis on which it shares data and considers legal and policy requirements.
Compliance
18. Evasion Statistics - The Department for Transport (the Department) carries out an annual roadside survey to estimate the proportion of vehicles on the road that are evading paying Vehicle Excise Duty. The survey provides is the best available evidence of the effectiveness of the Agency’s collection procedures and provides strong assurance that there are effective procedures in place.
19. The Department’s 2011 survey, which took place in June, covered 1.1 million vehicles observed at 256 sites across the United Kingdom. The Department concluded from the survey that, if the results were typical of the level of compliance throughout 2011-12 financial year, the extent of non-compliance for Vehicle Excise Duty was equivalent to 0.7 per cent of vehicles (2010-11: 0.9 per cent) with a loss of round £40 million (2010-11: £46 million). The Agency’s enforcement activities help it to recover a proportion of the revenue at risk through non-compliance. The Department’s evasion estimate is broadly in line with the Agency’s own internal operational estimate of 0.6 per cent, which is based on a population size of around 10 million sightings.
20. The Department for Transport has decided that it will undertake the roadside survey on a biannual basis, given that the extent of non-compliance has broadly remained at constant low level over the last four years. However, the annual survey will be reinstated if there are indications that the evasion trend is increasing.
21. Compliance and Enforcement Measures - The Agency’s own compliance and enforcement activities have contributed significantly to the low evasion rate. The provision of online services has also helped to encourage compliance. In addition, the Agency’s own ANPR[1] units are active in identifying unlicensed vehicles. Unlicensed vehicle reports are also received from a number of sources, including Police, Traffic Wardens and Local Authority Parking Attendants and from the roadside activities of the Vehicle and Operator Services Agency (VOSA).
22. The Agency issues an Out of Court Settlement (OCS) letter to vehicle keepers for the outstanding Vehicle Excise Duty plus a penalty fine. Unpaid cases are pursued via the Magistrates Court with a maximum penalty of £2,500. Unlicensed vehicles may also be wheel-clamped and will not be released until the keeper has paid the outstanding Vehicle Excise Duty and fees. If the registered keeper does not claim the vehicle within this time, it may be disposed of by auction, breaking or shredding. In 2011-12 the Agency issued around 54,000 OCS letters and the number of vehicles clamped and impounded was 61,677.
23. The Agency uses a range of measures to encourage payment; from advertising campaigns to sending reminder letters. Since April 2010 the Agency has issued reminder letters to vehicle keepers who have not licensed their vehicles by the middle of the month of date of liability. The Agency issues Late Licensing Penalty (LLP) notices if these measures are unsuccessful. The Agency’s introduction of reminder letters has increased compliance and contributed to a reduction of 39 per cent in penalties that it has issued, from 813,000 in 2009-10 to 491,000 in 2011-12 (Figure 2).
24. In 2011-12, of the 491,000 LLP notices issued, 116,000 (totalling £6 million) were paid without further action. In addition, the Agency asked its debt collection agencies to pursue72 per cent (354,000) of these notices (Figure 3). In 2011-12, the debt collection agencies collected some 19 per cent (67,000) of the debts that they received from the Agency. The average collection rate since 2009-10 is 23 per cent. In June 2012 the Agency will begin to issue the LLPs earlier, i.e. six weeks after licence expiry. The Agency will also remove the issue of the reminder letters and start to transfer cases to debt collection agents earlier. This follows a successful trial which resulted in an increase in enforcement penalty payments. The Agency is working with the Cabinet Office Debt Taskforce and Behavioural Insights Team to reduce debt owed to the Government.
[1] Automatic Number Plate Recognition
Figure 2 – Late licenses penalties issued and collected since 2009-10
Figure 3 – Success rate of debt collection agencies since 2009-10
Amyas C E Morse
Comptroller and Auditor General
National Audit Office
157-197 Buckingham Palace Road
Victoria
London
SW1W 9SP
21 June 2012
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