Brian O'Shea (Waterford, Labour)
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Question 124: To ask the Minister for Finance if the Revenue Commissioners Office have set an increased target level of random audits following from their findings that 30% of targeted businesses had a liability; his views on the implications of this high percentage for the self assessment system; and if he will make a statement on the matter. [39224/06]

Brian Cowen (Laois-Offaly, Fianna Fail)
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I am advised by the Revenue Commissioners that the objectives of their random audit programme are to measure and track compliance with tax legislation, validate Revenue's risk analysis approach and ensure that all taxpayers run the risk of being audited.

Revenue further advise me that of 379 random audit cases finalised from their 2005 programme, 277 cases or 73% have had no liability and over 80% yielded either nothing or less than €2000 in additional yield. It is instructive to compare the outcome to date of the 2005 random programme with that of the targeted programme. The average yield from all Random audits completed to date as part of the 2005 programme at €3,437 is less than 10% of the average yield from all targeted audits at €36,933. Revenue advise me that a random audit programme will continue to be a feature of the overall Revenue audit programme in future years. However at this time they have no plans to increase the numbers of random audits beyond approximately 400 per annum. Internationally a sample of this size is regarded as an acceptable sample for the size of the population being measured and sufficient to validate Revenue's risk approach and to ensure that all taxpayers run the risk of being selected for audit. It is also clear from comparisons of random and targeted audits that there is an opportunity cost associated with random work which Revenue must take into account.

While the random audit programme is important therefore, its significance should not be overplayed and it would almost certainly be premature and unsafe to draw conclusions on foot of the results from one year's random programme. Revenue are not prepared to do this. The main focus of Revenue will continue to be on selecting cases for audit based on the presence of various risk indicators and other information available. This is the type of targeted audit that gets best results and that is most likely to change the behaviour of the taxpayer into the future. The targeted approach is now greatly enhanced by the new computerised Risk Evaluation Analysis and Profiling System (REAP) recently developed by Revenue. This system, which categorises taxpayers in accordance with defined risk criteria, has been successfully piloted over the last two years and has been introduced nationwide during 2006. The system allows for the screening of all tax returns against sectoral and business norms and provides a selection basis for check or audits. This effectively means that 100% of self-assessed taxpayers will be risk assessed at least once a year. This approach allows valuable audit resources to be assigned to tackling those cases featuring in the higher end of risk ranking and analysis of the 2005 random results to date shows that there is strong evidence to suggest that this risk-based approach is the correct one.