Gang cheats IRD of $2m

The South Auckland beneficiaries set up business to fraudulently file tax claims. Photo / NZ Herald

A gang of beneficiaries is being investigated for setting up a business to defraud the Inland Revenue Department of almost $2 million.

The South Auckland beneficiaries allegedly fraudulently filed online tax returns for friends and family members, who were also on benefits.

The Inland Revenue Department refused to say what it was doing to close the loophole which was allegedly taken advantage of by a large group of people.

The online services website allowed the group to file for a refund using an online guide.

The group had found a loophole which involved deducting the maximum allowable expenses and therefore lowering the person's taxable income - entitling them to a tax refund.

Allowable expenses included fees paid to someone for completing tax returns, commission on interest or dividend income, interest on money borrowed to invest, or premiums on loss of earnings insurance.

The group allegedly took a percentage of the refunds paid to the account holder.

It was understood there were more than 1500 frauds committed against 600 individual IRD accounts.

So far, seven people have been charged with accessing a computer system for dishonest purposes and for participation in an organised criminal group.

Counties Manukau Detective Senior Sergeant Pete Jones said seven people would appear in the Manukau District Court on September 28 in relation to online tax fraud.

The five women and two men were aged between 23 and 51.

"The charges follow an in-depth investigation spanning several months which culminated in officers from across the Counties Manukau police district searching nine addresses on July 14," he said.

The investigation was ongoing and further arrests were possible, Jones said.

Forensic accountant David Petterson said the frauds were "relatively easy" to carry out because the system did not require people to provide evidence of expenses paid.

"The problem that we have with the system is that it relies on the honesty and integrity of the taxpayers. The basis of the online service is you just put the claim in," he said.

"There is no way that Revenue can go through every claim and police this. It would be uneconomical."

It would have gone undetected until the value and number of claims were high enough to attract attention, Petterson said.

The IRD could recoup money paid out to people who were not entitled to refunds by deducting from future earnings.

Petterson said the IRD could install a data-matching system to cross reference beneficiaries and tax refund claimants. However, beneficiaries were not exempt from claiming tax refunds.

Inland Revenue spokeswoman Barbara Crocker refused to answer questions about the ease of defrauding its online system and what it was doing to close the loophole.