$849k in ‘sunk cost’: Fiji’s taxman pays company for software without certain features
25 January, 2022, 11:39 am
The Fiji Revenue and Customs Service (FRCS) paid a company $849,738 for the supply of VAT Monitoring System (VMS) software, only to find out the “software being developed did not have certain features”.
This, according to the 2019-2020 Audit Report on Statutory Authorities, Independent Body and Commissions that was tabled in the last Parliament sitting.
“We noted that expenses incurred for acquiring VMS, amounting to $849,738 was treated as sunk cost and expensed under Research and Development in the financial year ended 31 July 2018,” said the OAG report.
“In June 2016, the FRCS paid part of the cost of the VMS software, which was recorded under work in progress (WIP). With the introduction of the Tax Administration (Electronic Fiscal Devise) Regulations 2017, the initial software being developed did not have certain features that would allow the implementation of the requirements of the regulation.
“As such, the FRCS engaged a separate vendor to supply a new VMS software resulting in the expensing of costs already incurred.
“In addition, the audit also noted that there was no contractual agreement signed with the initial supplier of the VMS software.”
OAG recommended FRCS anticipate changes in tax law requirements as part of due diligence when planning for projects of such magnitude.
“In addition, the FRCS should ensure that written contracts are signed with suppliers for any major contract to safeguard the interest of the service.”
In its response, the FRCS commented that the “sunk cost” was minimal compared relative to the full cost of implementation.
“There was only one supplier (monopoly situation). Moving forward, the FRCS agreed to issue formal contracts,” said FRCS.