Examination of Witnesses (Questions 1-19)
Monday 15 December 2003
Mr Mike Eland, Mr Len Morris, and Mr Kevin Franklin
Q1 Chairman: Good afternoon and welcome
to the Committee of Public Accounts. Today we are looking at the
Comptroller and Auditor General's Report on transforming the performance
of HM Customs and Excise through electronic service delivery.
I am pleased to welcome Mr Eland, who is the Acting Accounting
Officer and Chairman of Customs and Excise.
Mr Eland: May I introduce my witnesses?
I have Len Morris, who is our Director of Information and E-services
and Kevin Franklin, who is the Head of our E-business Unit.
Q2 Chairman: May I ask you to start by
looking at paragraph1.11, which is on page 14? You will see that
the e-programme would cost £327 million to deliver and generate
benefits of over £4 billion, a return of 12:1. That was your
estimate in October 2002. Correct? In 2003, you revised the benefit
figures and now estimate that the benefits will be over £1.2
billion, a return of 4:1. That is quite a change in quite a short
time. Can you explain that please?
Mr Eland: Yes; certainly. The
original benefits were what we call aspirational benefits and
we made that quite clear at the time. They were a first top down
estimate of what might be possible, looking at some experience
in other countries and other companies within the UK. The second
figure, the £1.2 billion, is something we have built up into
a firmer estimate. We still have not finalised that yet; it will
be finalised when we produce our business case in March 2004.
We are building that up from the bottom, so we have quite considerable
confidence in that as a figure.
Q3 Chairman: In the light of the history
of spiralling costs in IT projects, are you confident that you
will get this expected 4:1 return?
Mr Eland: We will not have final
figures until March 2004. Clearly there will have to be some costs
added to the original £327 million. The Report notes that
we have some infrastructure costs to build in and also we have
associated costs in the business units, where we will be making
changes to accompany the e-programme. That will add to the cost.
We are also still looking to improve the benefit side. I would
still hope that the final business case will show a return, certainly
in the 3:1 and 4:1 range, yes.
Q4 Chairman: Can you please turn back
to page 12 and look at paragraph 1.6? You will see there that
in relation to the Inland Revenue the Committee of Public Accounts,
our Committee, said ". . . the drive to meet online delivery
targets should not compromise the development of rigorous business
cases for each service". Indeed the Inland Revenue are now
using specific targets for each service and client group. Why
are you not doing the same?
Mr Eland: We are going to do the
same. We are doing an overall business case, but we are also producing
business cases for each part of that programme. In addition to
that, we, in our take-up strategy, are now beginning to segment
the business community so that we can produce particular take-up
strategies in each sector.
Q5 Chairman: May I ask about the electronic
VAT return (EVR) service now? You can find reference to that in
paragraph 2.31 on page 34. We read there ". . . only a very
small proportion of businesses would use the service". Why
is it taking so long to get a service on e-VAT up and running
and used by the majority of businesses?
Mr Eland: We have provided a service
so people can use it, but there has been very poor take-up of
it. That is largely because, when we first introduced it, we simply
provided the facility to make a VAT return. In actual fact a VAT
return is a fairly simple form; there is no particular incentive
to do that electronically. What we are now trying to do is a much
more radical approach of providing a whole range of linked services
with the VAT return. From the market research we have done, we
believe that will enable us to achieve much higher levels of take-up.
Q6 Chairman: We read in that paragraph
". . . only 2,700 traders (less than 1% of the 1.7 million
registered traders) have submitted returns via the EVR service".
What level of take-up do you need to get the benefits which could
arise from a real take-up?
Mr Eland: We would be looking
for something much more like 600,000 to 700,000.
Q7 Chairman: You are nowhere near that.
Mr Eland: We have not yet started
with the second phase of it. Effectively what we have done is
leave the facility there, but we have not marketed it or pressed
for it because we are looking to develop this second version of
it which will be a considerable improvement on it.
Q8 Chairman: May I ask you now to look
at page 29 and paragraphs 2.13 and 2.14 which are on the management
of your consultants? It is a pretty poor record outlined there,
is it not? Why was your management so poor?
Mr Eland: When we first started
the programme we expanded the number of consultants very rapidly
and the management system we put in place was not adequate. The
director concerned recognised this, he commissioned an internal
audit review to look at what improvements could be made and we
have put in place a number of improvements which we now feel gives
us much better management of that area.
Q9 Chairman: May I lastly ask about your
contract with Fujitsu? You can find reference to this on page
31, paragraph 2.22. Are you sure the amended contract with Fujitsu
is excellent when you do not have a full business case or a detailed
cost benefit?
Mr Eland: As we went through the
process of change notice and procedure with the Fujitsu contract,
we did carry out a comparison with Rothschild's support to compare
the relative value for money of that approach and terminating
the contract and starting again. That showed that the termination
route was only marginally better in cost benefit terms than the
change notice procedure we went down. In addition to that, we
did do an examination of what revenue consequences there would
be if we went down the termination route and that showed that
not only would £500 million of revenue be put at risk, but
also that there would be deferred benefits in the e-programme.
We saw quite a clear benefit in going down the change notice route
and that is why we followed it.
Q10 Jon Trickett: In paragraph 2.7 we
see that you ignored Treasury guidelines to subject this to a
sensitivity analysis. In paragraph 2.12 we see that you ignored
Treasury guidance about appointing a senior responsible owner
(SRO) of the project, an overall owner of the project at the beginning.
Paragraph 2.14 illustrates instances where you failed to get proper
control over contractual obligations and commitments which were
entered into. Why did you ignore standard practice in these ways?
Mr Eland: We did not ignore it,
we were late in putting in place the contract supervision procedures
under the consultants. In relation to the other two points, we
have appointed a senior responsible owner, that is Mr Morris,
and we are carrying out the sensitivity analysis.
Q11 Jon Trickett: Yes, but we are well
down the track now, are we not? You have really ignored Treasury
guidance, have you not? You have behaved with flagrant disregard
for rules which are put in place to protect both you and your
staff and the public purse, have you not?
Mr Eland: No, I do not accept
that. What happened was that we had management procedures in place
to handle consultants, but they were not adequate to our own satisfaction,
so we took the initiative to put in place improved procedures.
Q12 Jon Trickett: You have signed this
Report. You failed to do the sensitivity analysis, you failed
to appoint an overall responsible SRO and you failed to control
contracts. Can you tell us, with reference to paragraph 2.14,
the value of contracts we are speaking about, for example where
there is insufficient documentary evidence to support the need
for consultancy services or cases where consultants had their
contract extended without documentary authorisation? What was
the value of those two items? How much money was involved where
you were failing to control the contractual commitments your department
had entered into?
Mr Eland: I am afraid I do not
have the figure for the overall value of the contract.
Q13 Jon Trickett: Why not?
Mr Eland: We had some 300 consultants
at that time which we have now reduced to 130.
Q14 Jon Trickett: Why do you not know
the amount of money? It says here that your own internal audit
noticed this first of all and it was drawn to the attention of
the NAO. Why do you not know the value of these almost illicit
contract extensions which have been entered into?
Mr Eland: They certainly were
not illicit contract extensions.
Q15 Jon Trickett: Consultants had their
contract extended. You have no idea how much money that was at
all; you do not have a clue, you cannot tell us, "... without
any authorisation or recorded changes to their work programme".
How is that anything other than an ultra vires expenditure?
Mr Eland: I see the figures actually
were £11 million for IT, technical support and management
and £6.4 for programme management here. We had procedures
in place.
Q16 Jon Trickett: You have now corrected
yourself. Is it £17 million which was inappropriately extended?
Is that it?
Mr Eland: No, they were not inappropriately
extended. That was the total figure of the contract.
Q17 Jon Trickett: Is the £17 million,
however you want to express it, the sum of money which this paragraph
refers to?
Mr Eland: Yes.
Q18 Jon Trickett: What evidence can you
bring forward that there was no collusion between your employees
and the contractors, since no authority was obtained by the individuals
who extended the contracts, nor any work programmes agreed. How
can I be sure that there was no collusion, or how can the taxpayer
be certain there was no collusion since there were no standing
orders or any other contractual agreements in place for these
extensions?
Mr Eland: That is not the case.
There were some areas where there was insufficient documentary
evidence to support precisely what the terms of the consultants'
contract covered and the full range of services that there were.
Q19 Jon Trickett: What did the internal
audit report tell you in relation to this £17 million? We
have not had the advantage of seeing it, but you presumably have.
Mr Eland: It pointed out insufficient
documentation, some evidence in some areas of imprecise agreed
objectives, some areas where there was not proper assessment performance
at the time.
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