Examination of Witnesses (Questions 80-99)
DAWN PRIMAROLO
MP, MR TONY
ORHNIAL AND
MS SARAH
WALKER
14 MARCH 2007
Q80 Mr Todd: Do you have any evidence
that the HMRC staff have been involved in fraud in relation to
this scheme?
Dawn Primarolo: There are strict
controls and monitoring with regard to the staff, particularly
when you think of the example of what happened with the e-portal
and through a secure route from another department, but would
you like a note on the internal checks on making sure that staff—
Q81 Mr Todd: Yes.
Dawn Primarolo: I could not quote
today but I am happy to get the information for you, and also
whether anybody has been prosecuted.
Q82 Mr Todd: Turning to prosecutions,
again your own data shows that the number of cases in which your
compliance checks yield some sort of penalty and criminal prosecution
are actually relatively low. Is that reassuring or is it simply
that you have not got the resources to pursue a full investigation
to the point where you could take criminal charges?
Dawn Primarolo: Where there are
criminal charges the Department will take them. There are different
points in the report on prosecutions. The figure in the table,
which I think is the penalties, reflects error as a mistake on
the part of the claimant and where that has been accepted and
therefore it would not be appropriate to use the penalties and
fine them.
Q83 Mr Todd: Okay, but you have actually
only had 289 criminal prosecutions in the last year for which
you can give figures.
Dawn Primarolo: The criminal prosecutions
are complex and they change as each case comes through. Again,
we report that both to the NAO and to other bodies and it changes
as we get through the cases, but again I can give the most up-to-date
figures, although I do not have them here. I wonder whether we
could cover cases in investigation as well as cases pending prosecution
and cases that have been prosecuted.
Q84 Mr Todd: I think that one of
our difficulties here is that we are looking at data which is
quite old about what you have been up to and it would be helpful
on that kind of thing, where I would assume information does exist,
to get a more up-to-date picture. Can I just turn to the e-portal.
The impression one has from this is that some of the warnings
that were available in terms of the advice from the Office of
the E-Envoy on how to set up a portal of this kind and the security
aspects may not have been taken entirely seriously until the point
when the fraud was uncovered. Do you feel that you complied with
the guidance given?
Dawn Primarolo: The e-portal was
set up before the guidance existed. Actually the NAO comment on
it and accept that the way that the portal was dealing with—
Q85 Mr Todd: — Some guidance
existed in 2002.
Dawn Primarolo: But after the
planning and the e-portal itself was set up and when HMRC had
in place their judgment that the compliance and the risks on the
e-portal were proportionate and in line with what they were planning
for. Sarah can expand on that but this is prior to the e-portal.
Q86 Mr Todd: So you were already
designing this at a point when the advice appeared and someone
did not check it, because you only shut the e-portal in 2005.
Ms Walker: Late 2005.
Q87 Mr Todd: So the advice had already
been in place for some three years before that even though you
may well have designed the system at that point.
Ms Walker: At the point the system
was designed it complied with the guidance that was in force at
that time. You are right that shortly after that the guidance
was changed. The approach that the Department took was that we
would monitor very carefully looking for signs of fraud through
the portal. We were trying to strike a balance all the time between
making the system as accessible as we could for genuine claimants
at a stage where this was a new system and we were trying to make
it easy for people to get into it while monitoring any signs of
persistent fraud in the system.
Q88 Mr Todd: I take it that your
judgment is that having an e-portal at all is now too high risk
and you are not intending to reopen it?
Dawn Primarolo: My judgment is
that without proper identification checks on the e-portal it should
not be reopened. The Department advised me that by the summer
of 2008 the necessary IT and identification checks built into
the system will be available and it could reopen then, but you
are quite right in your assumption that until I have that absolute
amendment it will not reopen.
Q89 Mr Todd: I think I would urge
on you that there are many higher priority items in your information
systems requirements than that.
Dawn Primarolo: I think that it
is important to prioritise, you are quite right, about what we
should approach and what we should not. There are a lot of suggestions
being made in relation to the IT system and those will certainly
need to be considered as a part of that can we do without the
e-portal?
Q90 Mr Todd: I have to say in the
normally admirable and harassed parliamentary response team from
tax credits I still receive responses saying, "The system
has a fix that is required here, we are waiting for it and until
then we cannot deal with your constituent's problem". I have
to say those answers have maintained consistency over several
years in some cases. Certainly in one case I can think of a fix
that has not occurred in four years in spite of it being promised.
What are the disciplines for choosing what goes into the releases
that you do eventually put out?
Dawn Primarolo: It is partly what
the recommendations—
Q91 Mr Todd: Perhaps she is the only
person who suffers from this problem.
Dawn Primarolo: It is partly the
recommendations that the parliamentary committee has made to the
Department and expect them to respond to, the e-portal being one
of them. You are quite right that it is necessary to look in terms
of IT releases, which are basically twice a year on to the system,
what should have the highest priority and what is doable and how
those resources should be used.
Q92 Mr Todd: Just on one measure,
manual payments would suggest system fault and those have increased
recently according to the CAB. What does that tell us?
Dawn Primarolo: There were some
manual payments that were necessary as a result of what happened
on the IT release in November. The figures in terms of manual
payments, the numbers that are given, are the actual number of
manual payments as opposed to the household number. Apart from
the result of the problem caused in November, which I reported
to the House, the manual payments are around about—
Ms Walker: The current number
is roughly 34,000 and of that about a third is caused by this
one temporary IT problem which will be fixed in April. The steady
state number is around about 20,000.[4]
Q93 Mr Todd: Which is lower than it was,
is that right?
Ms Walker: Which is lower than
it has been but it is still too high. We do have a current programme
of work to fix those problems that are causing cases not to be
able to be processed through the system.
Q94 Mr Todd: How do you rank that
workload in terms of your release strategy? I have taken up a
lot of time, perhaps someone can give me a note on your release
strategy and how you decide it.
Dawn Primarolo: Yes.
Q95 Mr Newmark: I want to focus a
bit on write-off of overpayments and recovery. I know we touched
on this a bit earlier. According to the National Audit Office,
and I am not very good with numbers, in 2003-04 £37 million
was written off according to the HMRC, in the following year,
2004-05, £123 million was written off, and that is a 300%
increase, and then the following year, 2005-06, £397 million
in tax credits was written off, which is another linear movement
of a 300% increase. I think that means the Government has written
off over half a billion in debt, which is taxpayers' money, in
the first three years of the new tax credits. In addition, the
total provision just in the years 2003-04 and 2004-05 is £1.3
billion that has been made in the Trust Statement account for
overpayments expected to be written off. All of us in this room
are taxpayers and I am as curious as other people to know what
further tax credit debt you expect will eventually have to be
written off.
Dawn Primarolo: The doubtful debt
figure which you quote is a requirement under UK accounting standards
and the Department is required to put those figures into the accounts,
and I have explained that at previous committee meetings. In terms
of the profile between the years that you identify, the second
year reflects the settlement of overpayments resulting in the
early operation, the surge through of a large number where it
was quite clearly an error in the way that the system was performing.
You can see the cluster at that point.
Q96 Mr Newmark: You still see the
linear progression and I am concerned that for year one it is
here, for year two you have a 300% increase in the amount that
is being written off and then on the basis of that higher number
you have another 300% increase. We are now in 2006-07 and I am
worried that the direction is if you maintain that 300% you are
going to have another 1.3 billion written off and that is in addition
to the Trust Statement.
Dawn Primarolo: No, I have just
explained that is the time lags in the system of when the cases
were actually settled in terms of writing them off. It does not
necessarily—
Q97 Mr Newmark: I know, but when
you do your accounting, and perhaps Tony can help me with this,
and you do a write-off, I am assuming the write-off is for the
year in which that error is made or when you decide to make a
write-off does it not matter whether it happened in 2003-04, you
are doing it in 2004-05 because that was when you recognised it?
Mr Orhnial: To the best of my
knowledge it is entered for the year when the write-off actually
takes place.
Q98 Mr Newmark: Not when the error
is made?
Mr Orhnial: No.
Q99 Mr Newmark: So this is a cumulative
effect then, after two years you identified more errors and therefore
wrote-off a two year build-up of those errors effectively, is
that correct?
Mr Orhnial: That is my understanding.
It took some time to clear up 2003-04.
4 Note by witness: These figures refer to the
number of families where manual payments are being made. Back
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