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Audit returns for secretaries. He warns that he will go to the Anti-Corruption Authority

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    ΕπανΕρχεται γι α γραμματελς η Ελεγκτικor. Προει δοποιεi oτι θα πaει στην Αρχor κατa &tau ;ης Διαφθορàς

    Warns that the Audit for secretaries will go to the Anti-Corruption Authority – What does it say about the Ministry of Finance announcement

    The Audit Service is back on the matter of the secretaries of state officials.

    As he states, following the announcement of the Ministry of Finance, “since the Director General of the Ministry of Finance is now aware of the data we have obtained from the Social Insurance Fund, he has an obligation to act in a way to ensure the correctness of the relevant payments”.

    Notes that the Service intends to carry out a relevant audit after the payments for the month of April 2024 have been made.

    “In the event that we find that any person has acted in a way that may constitute an abuse of power, then we will inform the Anti-Corruption Authority accordingly,” he underlines.

    Details:

    “Following an announcement by the Ministry of Finance dated 22.3.2024, in which it states that it intends to continue the payment to former officials of the allowance in question for the employment of a private secretary, on the same basis as it was paid until today, we note the following:

    1. Legal framework of the benefit for the employment of a private secretary by former officials

    (a) The allowance granted to retired former Presidents of the Republic (PtD) and former Presidents of the House of Representatives (PtB ), was introduced for the first time with the On Benefits (President and Vice-President of the Republic, President and Vice-President of the House of Representatives) Law of 1988 (131/1988), when Mak. Spyros Kyprianou.

    The relevant article was as follows:

    “The President and Vice-President of the Republic and the President and Vice-President of the House of Representatives are granted upon leaving office an allowance for the employment of a private secretary which is equal to with the respective highest level of the 1st Class Stenographer salary scale and the applicable indexation allowance.

    Provided that the allowance referred to in paragraph (a) is not paid in the event that whenever the former President and Vice-President of the Republic and the former President and Vice-President of the House of Representatives choose to use the services of a civil servant under special arrangements.”

    (b) In 2014 Law 131/1988 was replaced by the Law on the Provision of Certain Benefits to Certain Beneficiaries of the State Sector and the Wider Public Sector (Terms and Procedure) (Law 3(I)/2014). The wording of the relevant provision remained essentially the same.

    (c) The fund for the above expenditure is included in the budget of the Ministry of Finance, Expenditure Group 04000 – Internal Transfers, Expenditure Subgroup 04120 – Other Internal Transfers, Article 04133.2 “Benefits to Certain Officials of the Republic”.

    The Budget Memorandum gives the following explanation:

    “Allowance for the employment of a private secretary. In the event and for as long as the former officials in question choose to use the services of a civil servant based on special arrangements, the allowance is not paid.”

    (d) In the Income Tax Law of 2002 (N .118(I)/2002), as originally passed in 2002, included in article 8, among others, the following exemptions:

    “8. Exempt from the tax-

    (1) the official remuneration of the President of the Republic or the official who exercises the function of the President of the Republic in his absence;

    (2) the pension granted to the President of the Republic upon his retirement from this function, in accordance with the provisions of the Pensions (Certain Officials of the Republic) Laws of 1980 to 1996;

    (3) the part of the pension granted to the Speaker of the House of Representatives upon his retirement from this function, in accordance with the provisions of the Pensions (Certain Officials of the Republic) Laws of 1980 to 1996, calculated on the basis of the attendance allowance ·

    (4) any other benefit or allowance granted to the President of the Republic and the Speaker of the Parliament upon his retirement from this function in accordance with the Benefits (President and Vice-President of the Republic, President and Vice-President of the House of Representatives) Laws of 1988 to 1989;'

    Subsections (1), (2) and (3) were deleted, as a measure due to the economic crisis at the time, by the Income Tax (Amendment) Law (L. 116(I)/2011) dated 31.8.2011.

    Subsection (4) remained intact and is valid until today. It is clear that the granting of an allowance for the employment of a private secretary was not and is not considered income, but a benefit which leaves no monetary gain to the former official, hence this alone is not taxable.

    2 . Legal framework for the flat-rate secretarial service allowance granted to Members of Parliament

    (a) The so-called “flat-rate allowance for secretarial services” granted to Members of Parliament was introduced in 1995 by the Ministers and the President, the Vice-President and the Members of the House of Representatives (Remuneration) (Amendment) Law (L. 79( I)/1995), which amended the basic law N.22/1960.

    (b) Specifically, the Law, which was amended again in 2005, provides for the following:

    “5. The compensation of the Members of the House of Representatives consists of:

    (a)(i) Annual remuneration of twelve thousand pounds (£12,000) adjusted as a result of the variation from time to time after the commencement of this Law of the price index and the annual rate of increase in wages and salaries of employees, according to the official figures of the Department of Statistics and Research”

    (ii) an amount equal to one-twelfth (1/12) of the annual remuneration from time to time paid under subparagraph (i), which shall be paid at the end of each year;

    (b) an annual performance allowance of twelve thousand pounds (£12,000) adjusted as a result of the fluctuation of the price index from time to time and

    (c) an annual per’ cut-off allowance of seven thousand two hundred pounds (£7,200) for secretarial services.”

    (c) The provision for the above expenditure is included in the budget of the House of Representatives, Expenditure Group 02000 – Officials of the Republic, Expenditure Sub-Group 02060 – Other Allowances of Officials, Article 02061 “Allowance for Secretarial Services”.

    (d) The flat rate allowance for secretarial services is taxable and pensionable and obviously forms part of the MP's emoluments. Hence our perennial recommendation that this allowance be integrated into the salary of the Members of Parliament.

    3. Comparison of the two allowances

    From the data in paragraphs 1 and 2 above, it is obvious that the allowance granted to former government officials for the employment of a private secretary is not income, is not taxable and is not pensionable, while the allowance granted to MPs is a flat rate allowance for secretarial services, constitutes income, is pensionable and taxable.

    4. The handling of the matter by the Ministry of Finance

    (a) As mentioned in a Special Report of our Service dated 24.3.2017, according to information received by the Ministry of Finance at the time, the private secretary allowance was provided without the Ministry then having any data/information regarding the employment or non-private secretary by the officials. In fact, the Ministry had informed us that it considered that the allowance in question was subject to the Law on the Reduction of Remuneration and Pensions of Officials, Employees and Pensioners of the State Service and the Wider Public Sector (L.168(I)/2012) and had incorporate the allowance into officials' salaries and pensions. We note that, based on the aforementioned Law 168(I)/2012, the reduced incomes include the flat-rate allowances for entertainment, hospitality and secretarial services. However, the allowance in question for the employment of a private secretary is not a flat rate allowance.

    (b) By letter dated 23.3.2017, the then Director General of the Ministry of Finance had agreed with our position that the benefits granted to certain officials for a specific purpose, such as secretarial allowance, should be paid upon presentation of the necessary supporting data and in no case the allowance paid should not exceed the actual cost.

    (c) The fact that the Council of Ministers decided on 3.10.2018 to continue paying the specific allowance without the presentation of any evidence does not change the provisions of the legislation, nor does it legitimize the practice that was applied until then, since as is known the decisions of the Council of Ministers the provisions of the legislation come into force.

    (d) By letter dated 17.1.2024, the Director General of the Ministry of Finance informed us of the following:

    “The Ministry of Finance has adopted a practice whereby the beneficiaries of the above secretary employment allowance are requested on an annual basis to confirm in writing the continued employment of a person with relevant duties. We are not in a position to know the emoluments of the private secretaries employed, since such data are not kept by the Ministry of Finance in respect of the specific persons, who are not civil servants.”

    (e) The above reply of the Ministry of Finance clearly indicates that the Ministry recognizes that the allowance in question is granted only if the ex-officials employ a person as a private secretary. It is reasonable to conclude that it would not be acceptable for the Ministry of Finance to employ a former official as a private secretary and pay her a salary of one euro. Today's (26.3.2024) statements by the Minister of Finance on state radio are consistent with the above. The fact that the Ministry of Finance (badly) did not ask for further data until today does not change the facts.

    (f) However, based on the mentioned announcement of the Ministry of Finance dated 22.3.2024, the Ministry of Finance, treats the allowance as income of the former official, regardless of whether or not the former official employs the declared person and regardless of the amount of that person's salary. As we found, the Ministry of Finance, for the four former officials, taxes the specific allowance at source, despite the express provision of the Income Tax Law (paragraph 1(d) above), while for the fifth former official it does not impose taxation . In other words, there is also a different treatment, which should also concern the Tax Commissioner.

    5. The findings of our Service

    (a) From a relevant audit carried out by our Service by receiving data from the Department of Social Insurance, it found that former officials (PtD and PtB) receive the allowance for the employment of a private secretary, either without employing at all the person they declared in the Ministry of Finance, or by paying that person a salary lower than the amount they themselves receive. In one case, the declared person provides services as a self-employed person.

    (b) Based on the Social Insurance Law (N.59(I)/2010), a person may be employed as an employee or self-employed employee. Therefore, when we refer to the person who employs someone else, it means with certainty that, if the employed person is an employee, the person who employs him is his employer.

    We have expressed doubts as to whether one can be considered to be “employing” a self-employed person, since in this case it is receiving services. However, on this aspect we have not arrived at a definitive position, since it can be argued that if the legislator wanted to exclude the regulation of the self-employed, he would have used the word “employs” and not “employs”. In any case, the self-employed should invoice the former official with a tax invoice subject to VAT.

    We also hold that a former official cannot be considered to be “privately employing a secretary” if she is employed by a corporation. If the company invoices the ex-officer with a VAT invoice for providing secretarial services, then the problem is more formal than substantive, but there should be compliance with the formal part of the legislation as well.

    (c) Based on the above, by our letter dated 15.3.2024, we recommended to the Director General of the Ministry of Finance to immediately comply with the legislation and to terminate the payment of the allowance in question if the conditions of this legislation are not met, or to reduce it to the appropriate measure to those former officials who pay a salary that falls short of the amount paid to them by the Republic. Regarding the recovery of amounts already given, we expressed the opinion that the amounts that went to the former officials should be recovered instead of the persons who declared that they employed them and for this purpose, in order to calculate the amounts, the Ministry of Finance should request the presentation of tax receipts .

    6. Next steps of our Service

    Based on article 7 of the Law on Accounting and Financial Management and Financial Control of the Republic (L.38(I)/2014), each control officer has responsibility to implement control procedures that ensure correctness in the payment of expenses.

    Consequently, and especially now that the Director General of the Ministry of Finance is aware of the data we have obtained from the Social Insurance Fund, he has an obligation to act in such a way as to ensure the correctness of the relevant payments. Our Service intends to carry out a relevant audit after making the payments for the month of April 2024. In the event that we find that any person has acted in a way that may constitute an abuse of power, then we will inform the Anti-Corruption Authority accordingly.”< /p>

    Source: cyprustimes.com

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