3 DELETED TAX CASES AND GOVERNANCE
OF IT PROJECTS
18. In 2003 the Department became aware that routine
housekeeping software had wrongly deleted taxpayer records for
many years. The software was intended to cleanse the databases
of cases over three years old where the Department's work had
been completed. But the software also deleted live cases. The
Department discovered the problem in 2003 when it introduced a
new information system that enabled monitoring of the system in
question.
19. The Department estimates that almost one million
records were incorrectly deleted in the period 1997 to 2000.[32]
The incorrect deletions mean that some taxpayers will not have
received the repayment to which they were entitled and others
owe tax that will now not be collected. The Department also estimates
that, as a result of the deletions from 1997 to 2000, some 364,000
people have been underpaid by a total of £82 million (£226
average) and some 22,000 people overpaid by around £6 million
(£259 average).[33]
20. The software has also incorrectly deleted records
for earlier years, but the number of cases involved was much smaller.
Before 1997 the Department was clearing 99% of cases before they
were three years old, but problems with the National Insurance
Recording System (NIRS 2) resulted in a build up of open cases.[34]
21. The Department has looked at its other systems
and has tried to learn the lessons from the detection of the deleted
tax cases. When it deletes taxpayer records now it stores them
on a backup file, so that it can reconstitute the information
if it is needed.[35]
22. IT systems are essential for the administration
and collection of taxes and the Department has suffered from high
profile problems with its IT systems, mostly operated by private
sector IT service providers. Problems with the IT systems when
the New Tax Credits schemes went live in April 2003 resulted in
several hundred thousand claimants receiving payments well after
they fell due. The Department was also unable to reconcile payments
made with amounts authorised.
23. The Department has been negotiating with EDS—its
previous IT service provider—for compensation for unsatisfactory
system performance. This process was facilitated by an independent
arbiter, who has reported his findings but EDS has not accepted
them. The Department is considering its legal options.36
24. Our predecessor Committee's Report in April 2004
noted that New Tax Credits was one in a series of major IT systems
that had caused serious problems. It concluded that the Department
should have been more cautious and realistic in fixing the timetable
and assessing the resources needed. At the Committee's hearing
on 24 January 2005 the Department stressed that it had learnt
the lessons from previous problems. The contract with the Department's
new IT provider, Capgemini, included a more severe penalty regime,
though such clauses inevitably affected the 'price' of the contract.37[36]
32 Q 31 Back
33
Q 46 Back
34
Q 29; 38th Report from the Committee of Public Accounts, NIRS
2: Contract Extension (HC 423, Session 2001-02) Back
35
Q 113
36 Q17 Back
3 36 7
Qq 66-67 Back
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