Office of the Comptroller and Auditor General - Dirt Investigation - Chapter 19

Chapter 19 : An Post - The Post Office Savings Bank

Background

The Post Office Savings Bank (POSB) is operated by An Post on behalf of the Minister for Finance. Accounts, while opened throughout the Post Office network nationwide, are maintained centrally. There are approximately 1,400 Post Offices in which deposit account transactions can be undertaken.

Non-Resident Deposit Levels

The bank’s share of the non-resident deposit market stood at 0.04% at December 1998 .

At December 1998, its non-resident book stood at 4m.

Key statistics in relation to non-resident accounts were as follows

Year

Number of Non-Resident

Accountsa

Percentage of Deposit

Book by Valueb

1998

1997

3,832

3,633

1%

1%

a Information provided by POSB.

b Calculated by reference to data supplied by the POSB.

Staff Instructions and Procedures

Staff instructions and procedures cover the operation of non-resident accounts.

The bank informed me that persons wishing to open a non-resident account are required to complete a declaration to the effect that they are non-resident. The bank accepts the customer’s declaration without carrying out further checking. Thereafter it takes the view that the onus is on the individual to inform the bank if they cease to be non-resident. However, since the introduction of anti-money laundering procedures in 1995, the customer is, in addition, required to supply two items of identification.

When a customer claims non-resident status, a declaration form is dispatched from POSB’s Head Office. The status is only accorded when a completed form is returned. This procedure has operated since 1991.

The bank did not require non-resident customers to produce a Form F during the period 1986 to 1993 as it was its impression that the non-resident declaration (Form 37) was sufficient for interest reporting exemption also. The bank did not seek affidavits in cases of doubt with regard to claimed non-resident status.

With regard to Special Savings Accounts (SSAs) the bank assured me that it acquires the relevant declaration in all cases. However, it takes the declaration at face value and no exercise is performed to confirm that the customer holds only one account. To satisfy the 30 day notice period requirement the relevant withdrawal requests are maintained separately in the bank’s repayment section for 30 days prior to processing. In the event of the balance exceeding the maximum limit the excess is repaid to the account holder.

The bank informed me that it does not hold any "no correspondence" or "c/o bank" accounts.

Internal Management Review

Internal Audit

Extent of Internal Audit

The bank informed me that non-resident accounts have not been reviewed in any great detail by its internal auditors. The internal audit function last conducted an audit of the POSB in 1991.

Results of Internal Audits

The 1991 internal audit noted

a practice whereby non-resident accounts were being flagged as DIRT exempt prior to receipt of the appropriate declarations

that in cases where a customer with a foreign address opened an account they were automatically supplied with a non-resident declaration form to complete and the account was automatically flagged DIRT exempt.

Internal Audit recommended that a declaration should be received by the POSB before an account is flagged as being DIRT exempt. The management response to this recommendation was that a claim for exemption would in future only be acted upon following receipt of an appropriate declaration.

The bank stated that internal audit conducted a follow up review of the matter in 1992. The follow up review found that management had implemented procedures to ensure that declarations were in place before accounts on which DIRT was not deducted were flagged exempt.

In regard to the lack of internal audit since 1992, the bank informed me that the overall internal audit plan is formulated using a risk based approach and weighs a number of factors such as complexity of systems, results of previous audits and changes to the system in assessing how frequently an area should be audited. In addition, internal audit placed reliance on the annual statutory audit of the POSB, as part of which, the external auditors report annually on the internal controls, accounting procedures and other matters by way of management letter. Internal Audit review this management letter in detail with POSB management and report its findings to the Audit Committee of POSB.

A review of the POSB was due to be completed by internal audit as part of its 1998 audit plan. This review has been deferred and included as part of the 1999 internal audit plan, because of a number of vacancies in the internal audit department.

The bank informed me that no evidence of any abuse of non-resident status has ever come to light.

Administrative Reviews

I enquired as to whether the bank instituted any specific review of non-resident accounts as a result of media reports on bogus accounts. The bank informed me that at that time it examined the value and number of non-resident accounts and formed the view that they were not material.

The matter was raised at Board level and the Board was supplied with details of the non-resident book. I was informed that the view taken by the Board was to rely on the Audit Committee, which comprises non-executive directors and which receives all internal audit reports.

External Review

Central Bank Review

The POSB is not subject to review by the Central Bank of Ireland.

External Audit Review

In 1994 the external auditors noted a problem with the bank’s non-resident account system whereby tax was being deducted from non-resident account holders. This was again raised in 1995. The bank informed me that this system problem was rectified.

The maximum permissible balance on an SSA is 50,000. The POSB operates a system whereby, in the event of the account balance exceeding this figure, the excess is repaid to the account holder. In 1994 the bank’s external auditors noted, in relation to SSAs, that while the bank had procedures in place to identify accounts whose balances exceeded 50,000, it had no procedures in place to ensure that written authorisation was obtained from account holders prior to repayment of excess amounts. The auditors recommended that the appropriate customer authorisation procedures be implemented in respect of repayments. I have been informed that the POSB has since introduced a procedure whereby this authorisation is requested on the account application form at the time of account opening.

In 1995 the external auditors commented on the fact that they had noted two instances where the balances in SSAs had been allowed to exceed the maximum permitted level of 50,000 due to delays in the transfer of excess amounts. I am informed that this occurred due to administrative oversight.

Administration of the Taxes Acts

Revenue Inspection of Declarations

In 1998 the Revenue Commissioners carried out an inspection of declaration forms. In this inspection the examination did not compare a sample of accounts with associated declarations and extended only to the review of 350 forms. As a consequence its review would not have detected any missing declarations.

Although the bank has not yet had any further correspondence from Revenue its understanding is that no material issues arose from their examination. The results of this examination were as follows:

Inspection Date

Sample Size

Declarations Invalid

Declarations Unsatisfactory

December 1998

350

16

12

It was agreed with the Revenue officials that the bank would write to the relevant account holders requesting up to date declaration forms.

Following the Revenue examination, a programme of review of all non-resident accounts was initiated by the bank. Difficulties have been encountered in contacting some customers as some account holders’ addresses are no longer valid. I was assured that the bank is happy with those account holders who have responded. Those who have not responded, numbering only a handful, are being followed up.

I enquired as to whether the bank intended amending the DIRT status of accounts where valid declarations are not returned. I was informed by the bank that the matter has not been thought through but that its understanding is that the onus is on the account holder to notify it of any change in residency. In response to further queries the bank assured me that in cases where a valid declaration is not received the residency flag would be changed immediately.

Investigation Branch Enquiries

Prior to the inspection of declarations in 1998, no matters came to the attention of the Investigation Branch of Revenue that would have necessitated contact with the POSB.

Interest Reporting

The bank confirmed that it did not submit returns, under Section 891 of the Taxes Consolidation Act 1997, to the Revenue Commissioners at any stage during the period under review.

Result of work performed by the Appointed Auditor

The POSB was not the subject of an examination by the Appointed Auditor on the grounds that its non-resident deposit book, in terms of market share was not material.

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