• Internal orders govern reward fund distribution
• Massive sum paid without official approval

The Sri Lanka Customs has said that it cannot locate the finance minister’s authorisation, issued many decades ago, for the distribution of contentious reward funds among officials and informants in accordance with Section 153(2)(b) of the Customs Ordinance No.17 of 1869.

Despite regulations mandating the distribution of such funds according to a scheme approved by the minister of finance, the National Audit Office (NAO) recently reported that Customs had disbursed funds without the required ministerial approval.

Speaking to The Sunday Morning, Sri Lanka Customs Senior Director and Spokesman Seevali Arukgoda stated that there must be an authorisation granted by the minister many years ago. 

However, he emphasised that it could not be located due to its age.

“It is not available with the Finance Ministry or with Customs since it is very old. Nobody would take the responsibility to distribute such funds without the approval of the minister; the issue is that it cannot be located,” he said.

“The observation in the NAO report is wrong. This is not something which doesn’t have the minister’s approval. The only issue is that the approval cannot be found.”

Arukgoda explained: “We were given the power to do so legally under Section 153 of the Customs Ordinance. It is stated that the Director General of Customs (DGC) has the authority to distribute funds, subject to approval from the minister. This has been the practice since 1869. According to the law, 50% of the income earned through fines should be distributed among Customs officials, with the distribution method approved by the minister.”

He continued: “However, the NAO has contested the current distribution method of the reward fund, stating that it has not been authorised by the minister. In 1988, Customs made an amendment to this section, stipulating that distribution could not occur without the minister’s approval. The challenge we face is the inability to locate the document with the minister’s approval.”

Regarding the disbursement process of the funds, Arukgoda noted: “Although funds could be directly distributed among officials, they have been released by the Treasury all this time. The Treasury requires ministerial approval before releasing funds, indicating an inherent approval process. Hence, the NAO’s observation is incorrect.”

He further clarified: “While the audit demands the minister’s approval, it is not found within Customs, though it should exist somewhere. The distribution method is within Customs’ purview, but the minister’s approval remains elusive.”

When questioned on how Customs received the distribution method for the fund, Arukgoda emphasised: “The method cannot be established without the minister’s approval.”

The NAO’s audit findings reveal that since 1988, Customs has been disbursing reward money solely based on internal orders prepared at its own discretion. Shockingly, records show that a staggering sum of Rs. 24.23 billion had been paid out from 2012 to 31 August 2023, without the necessary ministerial endorsement.

Section 153(1) specifies that all forfeitures and penalties recovered under the ordinance, along with provisions from other laws, are subject to certain regulations. Section 153(2) mandates that proceeds from goods disposed of by the DGC are to be paid to the DGC after expenses are deducted. 

Half of this amount goes to the deputy secretary to the Treasury, with 60% credited to the Consolidated Fund and 40% to the Customs Officers’ Management and Compensation Fund. The other half is allocated to a reward fund under the DGC, to be distributed among Customs officers and informants based on a scheme approved by the minister.

Recent audit findings have brought Sri Lanka Customs under scrutiny for its handling of funds and penalty imposition procedures, revealing potential lapses in revenue management and institutional oversight.

The NAO report highlights several concerning practices within Customs, including the distribution of rewards and the imposition of penalties. 

According to the report, officials receiving rewards exceeding Rs. 10 million also benefited from additional incentives, overtime allowances, and other perks. Furthermore, the audit reveals discrepancies in the distribution of penalty revenues, with only 30% credited to the Government’s Consolidated Fund. 

In one instance cited in the report, importers had attempted to evade taxes totalling Rs. 326,020,712, resulting in a penalty of Rs. 7,611,652,834 being imposed by Customs. However, the investigation officers had later reduced the penalty to Rs. 481,694,078, resulting in a loss of Rs. 181,512,488 in State revenue. 

This raises questions about the effectiveness of penalty imposition and revenue collection procedures within Customs.

The audit also points out deficiencies in Customs’ investigation and reward payment processes. Investigations were found to be decentralised across various divisions, with no centralised system to monitor progress or measure performance. 

Additionally, a significant number of investigations were delayed, with 2,661 cases pending for more than five years and 4,147 cases pending for two to four years.

Moreover, sub-funds such as the narcotics fund and fuel fund, established under the reward fund, were found to be inactive for several years, despite annual allocations. The audit notes that these sub-funds were established without clear requirements or utilisation plans.

While the DGC has acknowledged these findings, promising reforms such as the utilisation of the fuel fund for preventive activities starting from this year, the audit underscores the need for comprehensive reforms and improved governance within Customs to ensure transparency, efficiency, and accountability in revenue management and investigative procedures.

As explained by Customs, the reward fund established within the Sri Lanka Customs extends benefits to various parties involved in Customs operations and enforcement. Primarily, Customs officials and informants directly engaged in Customs-related activities are entitled to receive rewards from the fund. 

Customs additionally stated that officers from the Sri Lanka Administrative Service, management service, and driver service, among others, who had been assigned to Customs duties, were also eligible beneficiaries. 

Moreover, Police officers, Civil Aviation officers, and Navy officers who collaborate with Customs in enforcing regulations and combating illicit activities may also receive rewards from the fund.