Acceptance first step to remedy at Revenue

The National Audit Office's report into the accounts and workings of the Inland Revenue makes bleak reading.

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".


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