ATO officials probed over links to $2bn GST fraud

Around 150 ATO officials have been investigated over their links to a massive $2bn GST fraud which was promoted on social media platform TikTok.

The GST fraud event was promoted on social media platform TikTok. Picture: Sebastien Bozon

Around 150 Australian Taxation Office officials have been investigated over their links to a massive $2bn GST fraud which was promoted on social media platform TikTok and resulted in dozens of arrests and convictions.

The ATO’s response to the scheme is assessed in an auditor-general’s report that found serious shortcomings in the tax office’s management of GST fraud risk, which was exposed when more than 57,000 fraudsters extracted $2bn in sham GST refunds from April 2022 to June 2023.

According to the report, the ATO had recovered $123m by the end of August, while penalties of more than $120m had been issued before June 30 last year.

The ATO says a further $2.7bn in suspect GST refunds were stopped prior to payment, while 12 of the 150 officials investigated have either been sacked, been criminally prosecuted or faced “administrative action”.

Outside of the ATO, investigations into the wide-ranging fraud case have led to more than 100 arrests and 16 convictions.

However the auditor-general’s report found the ATO’s strategies to prevent GST fraud risk were only “partly effective”, while its framework for assessing and managing GST fraud risk was not fit for purpose.

The ATO has agreed to implement five recommendations to bolster its fraud prevention approach.

“The ATO has implemented partly effective strategies to prevent GST fraud, but the framework for assessing and managing GST fraud risk is not fit for purpose,” the report says.

“The ATO has implemented largely effective strategies to detect and deal with GST fraud but does not have a strategy to deal with large-scale fraud events.”

In April 2022 the ATO launched Operation Protego, an ATO-led, multi-agency rapid response to the large-scale escalation of GST fraud that was emerging at the time.

When the operation was launched, the ATO said it was investigating $850m in payments to 40,000 people, but those figures have ballooned out to at least $2bn and more than 57,000 individuals.

The scam involved individuals acquiring an Australian Business Number before registering a fictitious business via their MyGov account.

The fraudsters would then submit a fake business activity statement, claiming they had spent large sums of money to set up the company, before applying for a 10 per cent GST refund for fake payments.

Influencers were blamed for promoting the scam on popular social media platform TikTok, where they described the fraud as a way to “borrow” money from the government.

TikTok has said it co-operated with the ATO and banned more than 60 accounts that promoted the scheme.

According to the auditor-general’s report, the fraud perpetrators are suspected of obtaining GST refunds of between $38,900 and $2.4m.

An ATO chief internal auditor report in April 2023 found that while ATO business units were monitoring early warning signs of potential GST fraud, the tax office did not have an escalation and rapid response approach to respond to alerts that raised the prospect of a systemic issue.

“The report (chief internal auditor report) notes that the ATO could experience a large-scale fraud event at any time,” the auditor-general’s report says.

“The report also notes that capabilities and controls should be in place to respond to events rather than reacting, and large-scale fraud treatment actions, roles and responsibilities could have been arranged ahead of time to allow for a timelier management response.”

In a statement responding to the auditor-general’s report, the ATO said it had responded “swiftly and decisively” to disrupt the Operation Protego fraud event, and its response had resulted in a “continuous reduction in GST fraud attempts”.

“The ATO operated swiftly and decisively through Operation Protego to successfully disrupt what was a large-scale fraud event,” it said.

“In the wake of Operation Protego, the ATO recognised the need to examine our response to heightened GST fraud risks and has already undertaken action to strengthen and enhance our management of GST fraud, including the establishment of the Fraud and Criminal Behaviours business line to focus on further protecting the system and clients against fraud and have since implemented a range of additional fraud defences.

The ATO said the majority of the 150 official investigated were former contractors or ex-employees who were not working with the ATO at the time of the suspected fraud.

“We have taken action against the small number (12) of those who were substantiated as having committed the fraud while working at the ATO,” the ATO said.

“This includes termination of contract, administrative action, and criminal prosecutions. As a result of our actions, we are not aware of anyone currently working at the ATO who is suspected of committing the fraud.”

Originally published as ATO officials probed over links to $2bn GST fraud