The National Audit Office's report into the accounts and
workings of the Inland Revenue makes bleak reading.
The report, which was published last week, portrays an
organisation beset by a series of complex management and
operational problems that have hampered its capability to collect
taxes and to distribute benefits.
The report could not have come at a worse time for the Revenue,
which now calls itself HM Revenue and Customs, as it grapples with
a lengthening list of long-standing and new problems.
In particular, the department has had to endure a barrage of
criticism and continuing parliamentary scrutiny over its
mishandling of the Treasury's tax credits system.
Its public falling out with IT contractor EDS over tax credits
and the threat of a potentially costly court case is a rich source
of industry gossip. It is also an unnecessary and intrusive
distraction as it addresses the backlog of unresolved cases on its
books.
Its attempts to introduce online filing for PAYE, national
insurance and tax repayment systems are proving to be also
troublesome, as persistent software design weaknesses and
inadequate business processes and ageing IT systems have tested the
Revenue's ability to cope with its workload.
Add to this list the management time needed to sort out the
energy-sapping fine detail of the merger with Customs and Excise
which took place in April, and the bedding down of the relationship
with its principal IT contractor Capgemini, and it provides some
insight into the scale of the challenges facing HMRC's chairman
David Varney, as he gave his verdict on one of the most profoundly
critical reports ever written on the workings of the tax
system.
"There is still an awful lot to do," Varney said at an
unprecedented event in Whitehall at which outsiders, the media,
were allowed to question him on any aspect of the internal affairs
of HMRC.
In line with Computer Weekly's campaign for greater transparency
and accountability at the Revenue, Varney announced that there was
to be a new culture within the department over the operational
problems it faces.
Varney acknowledged that there was a "need to be open and honest
about the issues we face". This was "part of a culture we are
trying to build", he added.
Varney also asked for time for HMRC to address the problems set
out in the NAO's report.
The NAO depicted an organisation not in full control of its
business. HMRC collects and disburses £388bn a year. This makes up
the bulk of the public money managed by the Exchequer each
year.
Among the more damning of the auditors' criticisms were a series
of references to the paucity of management information within HMRC
about the nation's tax affairs. Although the Inland Revenue's IT
has been in the hands of multinational computer companies for 11
years, Whitehall officials appear to still have insuff- icient
management information to run the business properly.
The NAO was unable to report with any certainty how much tax the
Revenue was owed, and how much the Revenue owed in repayments. More
alarmingly, the auditors said the Revenue could not be sure to what
extent its systems were being defrauded, and how much it needed to
write off based on the management information available.
In response, Varney accepted that HMRC was "organisationally
challenged". He suggested that the affairs of Shell, BT, British
Gas and O2, where he had been chairman, were relatively
straightforward compared to HMRC.
"Clearly there are a number of areas where we have let people
down," Varney added.
The significance of such an admission - especially coming from a
senior civil servant of a department under political and
operational pressure - should not be underestimated.
Varney has taken the first difficult step towards addressing his
problems. He has publicly acknowledged their existence. The next
step is to persuade his colleagues, staff and political masters at
HMRC that such fine words and intentions need to be followed up
with actions.
Progress at HMRC
David Varney, chairman of HM Revenue and Customs, said the
department has already achieved some IT and other successes since
it was created on 18 April this year.
By "cleaning up more than one million names and addresses", HMRC
has saved £200,000 so far this year, which will grow to £500,000 by
the end of the financial year next April.
The issue of poor data quality at the department was first
highlighted by Steve Lamey, HMRC's chief information officer, at a
government IT conference in June when he said that up to 35% of the
90 million letters sent out each year go to the wrong addresses and
are returned by the Post Office.
While offering examples of progress, Varney also warned that
IT-related improvements will not happen overnight. "Getting IT to
where we need it will take time, but the building blocks are in
place," he said.
Particular efforts are being made to improve the service for
those who file online. About 60% of all employers filed
electronically this year, after the Revenue made it mandatory for
large companies and offered financial incentives to others.
But there have been delays processing online returns from
employers mainly because of difficulties going fully live with
Eric, a system that validates data, and in passing that data to the
department's main tax and debt systems.
Varney said the challenge for the department in handling online
returns was "matching service delivery to rapidly growing
demand".