Some 150 Australian Taxation Office (ATO) officials have been investigated over a costly GST fraud scheme which went viral on TikTok – resulting in termination, administrative action or criminal prosecution for 12 individuals.

The scam, which was highly promoted between users on TikTok and other social media platforms such as Facebook, resulted in the payment of at least $2 billion in fraudulent refunds, with the ATO estimating more than 57,000 detected perpetrators of GST fraud between April 2022 and 30 June 2023.

As part of Operation Protego – the tax office’s multi-agency response to the widespread fraud – some 150 of those suspected were ATO’s own officials.

“We take all fraud attempts seriously,” reads an ATO statement.

“The ATO, along with our partner agencies, is equipped to take strong action against individuals suspected of being involved in tax fraud.”

Last year, ATO deputy commissioner John Ford explained the fraud saw offenders inventing fake businesses and Australian business number (ABN) applications, then submitting fictitious business activity statements in an attempt to gain false GST refunds.

The ATO noted the majority of the 150 investigated employees were former contractors or ex-employees, and were not working with the ATO at the time they were suspected of committing fraud.

The tax office has taken action against a total of 12 individuals who were substantiated as having committed fraud while working for the ATO, including termination of contracts, administrative actions 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,” reads an ATO statement.

"A range of treatment strategies have been applied by the ATO, including termination of employment and criminal investigations.”

Meanwhile, broader criminal investigations including suspects not working with the ATO resulted in more than 100 arrests and 16 convictions – with more than $120 million in penalties issued to 30 June 2023.

ATO fraud prevention only “partly effective”

In a new report from Australia’s auditor-general Grant Hehir, it was found that while the ATO has implemented “partly effective” strategies to prevent GST fraud, its framework for managing GST fraud risk is “not fit for purpose.”

The report focused on Operation Protego, noting the tax office does not have a current strategy to deal with “large-scale fraud events”, and further pointing out issues with monitoring and reporting for GST fraud in which roles and responsibilities were “not clear”.

“The ATO’s management and oversight of fraud control arrangements for the GST is partly effective,” reads the report.

“The lack of clarity for roles and responsibilities, inadequate implementation of assurance requirements, and absence of a holistic and contemporary view of GST fraud risks undermines the effectiveness of efforts to prevent, detect and respond to fraud events in a timely manner and minimise fraud losses.”

The scams were reported to the ATO as early as December 2021, when the tax office began receiving an “increasing number of referrals” related to suspicious income tax and GST refunds.

Those referrals escalated in early 2022 alongside an uptick in social media posts promoting the GST fraud, and by April 2022 the ATO had reallocated about 470 staff in GST-related roles to work on Operation Protego.

On 6 May 2022, the ATO issued a public warning for people not to engage in the GST fraud.

This warning was essential given not all participants in the fraud seemed to fully grasp the illegality of the scheme – notably, some of TikTok’s young user base spruiked the scam as a simple “money hack”.

Two committees established by the ATO found a majority 57 per cent of participants in the scheme were government welfare recipients, approximately 30 per cent tried to obtain a fraudulent refund for a second time, and 10 per cent even tried for a third.

The ATO further identified some individuals in the scheme had been coerced into participating or providing their credentials to third parties, while others had their identity stolen and used to lodge fictitious business activity statements.

However, the tax office advised the Australian National Audit Office (ANAO) it couldn’t identify precisely how many Operation Protego participants were subject to identity crime and third-party fraud.

“During Operation Protego normal business processes were used to manage suspected cases of identity crime and third-party fraud, which means there was not specific tracking of Protego cases as a whole population,” it said.

The report showed the spate of GST fraud cost at least $2 billion, with $2.7 billion in suspect GST refunds stopped prior to payment.

As of 31 August, the ATO has recovered $123 million – including $67.6 million via bank garnishee notices – and has been "working towards clarifying the roles and responsibilities for assessing and managing GST fraud risks" since mid-2023.

The auditor-general’s 75-page report included five recommendations to the ATO aimed at “strengthening assurance” and improving responses to fraud events.

The ATO agreed to all five recommendations in full.