IRAS conducts regular reviews of clubs' private lotteries duty returns and their record-keeping procedures. During the audit visits, IRAS would gather information on the clubs' operations, record-keeping practices and internal controls with respect to computation of turnover and duty payable, amongst others.
Common Errors Observed During Audits
Below are some common errors observed during these audits. We hope that a better understanding of these common mistakes will help clubs to prepare and submit accurate and complete tax returns.
Under the law, IRAS may impose penalties for the submission of an incorrect PL duty return and for failure to keep proper records.
1. Audit Checklist For Form PL-R1 Not Maintained By The Clubs
We observed that a significant number of clubs did not maintain a copy of the completed Audit Checklist for Form PL-R1.
With effect from the reporting month Jan 2012, all club-appointed auditors are required to perform a review of the Form PL-R1 based on the checks imposed by IRAS. These checks are meant to:
- Guide the auditors in reviewing the PL Forms prepared by the clubs
- Ensure that the auditors perform all the required checks
Where the auditor noted any exception, the club should submit to IRAS the audit checklist with details of the exception together with its monthly filing of PL duty.
Where no exception is noted after the auditor has performed the review on Form PL-R1, the club need not submit the checklist to IRAS. Instead, the club should retain a copy of the completed checklist and submit it upon IRAS' request.
For more details, you may refer to the Audit Checklist for Form PL-R1 (DOCX, 31 KB).
2. Soft Meter Readings Inaccurately Reported Or Not Supported As A Result Of Meter Resets
As a result of meter resets, some clubs were found to have reported:
- Inaccurate soft meter readings; or
- Soft meter readings which were not supported with relevant printouts.
Where possible, soft meter readings before and after a meter reset should be printed and kept to support the meter readings reported in Form PL-R1.
Care also has to be taken when recording and computing the correct Turnover and Total Wins meter readings for meter reset cases.
Please refer to the explanatory notes of Form PL-R1 (XLSX, 67 KB) for an illustration of how meter readings should be reported in meter reset cases.
3. Failure To Comply With IRAS' Requirements Relating To The Hard Meters Of Fruit Machines
We noted that some clubs:
- Did not secure the fruit machine hard meter casing with a seal;
- Did not maintain or keep the hard meter seal register up-to-date; and/or
- Failed to label the hard meters of their fruit machines.
The hard meter readings are the next best alternative in ascertaining the Turnover of the machine in the event that the soft meter readings cannot be relied upon or are unavailable.
Requirement for Hard Meters of Fruit Machines
Clubs are required to:
- Mount the hard meters of every fruit machine with a cover
- Secure it with a serially numbered single-use seal to prevent tampering of the hard meter readings
For good control and accountability, the replacement/breaking of the seal should be recorded in a Hard Meter Seal Register.
The person who breaks the seal and another person who has witnessed the replacement/breaking of the seal should also acknowledge with their names, designations and signatures on each record.
For more details, please see the Hard Meter Seal Register (XLSX, 12 KB).
Under IRAS' current requirements, fruits machines installed effective 1 Nov 2007 must be equipped with hard meters tracking:
- Total Wins
- Money In an
- Money Out
If the hard meters are not labelled accurately, clubs may be unable to extract the appropriate meter readings for correct reporting in Form PL-R1.
4. Retention Of Soft Meter Printouts In Thermal Paper
We observed that soft meter printouts were retained in thermal paper. IRAS requires accounts, records and documents to be maintained in a legible form for a five-year period.
It is a good practice to photocopy or scan the soft meter printouts for long-term retention as the original printouts on thermal paper will fade over time.
5. Using Soft Meter Printouts To Prepare "Cash Collected" And "Handpays / Cancelled Credits" Under Form PL-R2
The Form PL-R2 is the reconciliation of the following:
- Profit based on soft meters (i.e. meter readings); and
- Profit based on manual records (i.e. actual cash flow).
We observed that some clubs had wrongly used soft meter printouts instead of actual cash count/payout records to prepare the "Cash Collected" and "Handpays/Cancelled Credits" under manual records section of Form PL-R2.
As such, the actual variance between the profit based on manual records and the profit based on meters would not be flagged out for timely review and investigation.
With proper maintenance of the fruit machines and control over record keeping, it is possible to obtain a nil variance between the two profit figures.
The table below shows documents used for reporting manual records section in Form PL-R2.
|Type of System|
Cash Collected ($)
Handpays/Cancelled Credits ($)
|Manual System||Cash count records||Handpays records|
|TITO System||Cash count records + Tickets in report||Handpays records + Tickets Out report|
|Card System||Cash count records + e-Credits in report||Handpays records + e-Credits Out report|
For good control, we recommend the club to set an acceptable threshold (say $5) and investigate any variance that is above the set threshold.
6. Hard Meter Readings Record, Cash And Hopper Count Records Were Not Signed By Preparer And Reviewer
We observed that the hard meter readings record, cash and hopper count records were signed by the recording staff only. To mitigate the risk of errors in manual recording, clubs are advised to have the signatures of the preparer and reviewer on these records for better control and accountability.
7. Jackpot Prizes Awarded Were Not Reported In Forms PL-R, PL-R1 And PL-R2
Jackpot prizes awarded (such as Cascade payouts) refer to wins, which are excluded from metered Total Wins, awarded by a linked jackpot system. Such cascade payouts have to be reported in Form PL-R (under "Line 1b(i)"), Form PL-R1 (under "Jackpot prizes awarded") and Form PL-R2 (under "Column B" and "Column I") for computing GST amount as well as reconciliation purpose. In the event that the cascade payouts are not reported, GST amount will be overstated and PL duty will be understated.
8. No Adjustment Made For Unredeemed Expired TITO Tickets, Unclaimed Credits And Unclaimed Winnings
During the audit, we noted that some clubs did not make adjustments for the following items under Form PL-R ("Line 1b(iii)"):
- Unredeemed expired Ticket-In-Ticket-Out (TITOs) tickets
- Unclaimed credits
- Unclaimed winnings
The above adjustment items have to be excluded from the winnings paid as these amounts were not paid out to players. In the event when the adjustments were not made, the Total wins will be overstated resulting in GST amount understated and PL duty overstated. For more information on the adjustments, please refer to explanatory note 6 of Form PL-R.