Examination of Witnesses (Questions 40-59)
MR DAVE
HARTNETT CB AND
MR NICK
LODGE
17 DECEMBER 2007
Q40 Keith Hill: What are these procedures?
What are these protocols?
Mr Hartnett: There will usually
be a gateway, if I can describe it like that, through which the
data passes and both sides will know who the key players are in
the process of passing data.
Q41 Keith Hill: In your evidence
to the Treasury Select Committee you said that the NAO did not
use the procedure. What did you mean by that?
Mr Hartnett: I hope I also said
HMRC did not use it properly.
Q42 Keith Hill: No, you said specifically
that the NAO did not use the procedure.
Mr Hartnett: I think the approach
that should have been taken was that the National Audit Office
should have come through the protocol we had set up with them
and not ask junior officials for very sensitive information, but
this is going to be something which Mr Poynter will look at, and
Sir John has said he is carrying out his own review and he will
look at that as well. The last thing, if I may, that I wanted
to add is that I believe that there is a recognition of that in
the letter of 9 November which the Second Director of the NAO
sent to HMRC.
Q43 Keith Hill: I want to ask you
about that in due course, Mr Hartnett, but let me try and be clear
about this. Are you saying that if the procedure had been followed,
it would have involved the so-called child benefit processing,
that is to say the more senior civil servant but, as you said
again to the Treasury Select Committee, the process owner knew
nothing about the release of the data because the procedure had
not been followed? Is that right?
Mr Hartnett: I think that is right
but it has to be tested by Mr Poynter and indeed by Sir John.
Q44 Keith Hill: Had a senior official
been involved in the earlier data transfer in March?
Mr Hartnett: There is no evidence
that I have seen of a senior official being involved, but can
I try and bring some definition to "senior official"
because I do feel there is a risk that we will get confused. Can
I break my Department into three lumps very quickly.
Q45 Keith Hill: Very quickly because
this is coming out of my ten minutes!
Mr Hartnett: I will do it as fast
as I can. I will speak even faster than normal! "Senior officials"
for me is the Senior Civil Service, which is about 420 people
in my organisation. The next tier, grades six and seven—I
am going quickly—is probably 5,000 or 6,000 people, and
below that the grades I see as clerical grades. The one senior
civil servant copied into this, was a senior manager. The SEO
that the Chairman has referred to, is in the big block at the
bottom, so in the bottom tier.
Q46 Keith Hill: Okay, but the SEO,
who was the process owner—
Mr Hartnett: No, the senior civil
servant was the process owner.
Q47 Keith Hill: Right, the Senior
Civil Service was not involved at any stage as far as you are
aware?
Mr Hartnett: I have seen no evidence
that a senior civil servant was involved in the decision to release
the disks and indeed the exchange of letters I had with the National
Audit Office on, I think, 22 November—but I stand to be
corrected—recognises that as well.
Q48 Keith Hill: So it would be correct
to say that a fundamental error, the original error, was made
in March when the whole dataset, the 100% scan, was transferred
to the NAO and that that error was simply repeated in October?
Mr Hartnett: The NAO auditor should
not have been given a full set of the data in March 2007 and allowed
to leave Waterview Park with it. One of the issues that comes
up there is—and this is for Mr Poynter as well—was
there someone in a position to put up their hand and say, "Why
are we doing this silly thing, let's stop it immediately",
and then in October there was a request for the data from the
NAO and it was posted to them by the junior member of staff that
has now been much referred to elsewhere.
Q49 Keith Hill: In the light of this
agreed procedure between the NAO and HMRC, in March when the data
was first sent to the NAO, do you think that the NAO should have
accepted the data in the form it was sent, that is to say in its
unsegregated form?
Mr Hartnett: Can I just correct
something which I think is implicit in the question you are asking
me. Nothing was sent to the NAO in March. It was handed to the
auditor on our premises at Waterview Park; the NAO auditor took
it away and it was returned I think precisely one month later,
by hand, so nothing was sent in March. I am sorry to be pernickety.
Q50 Keith Hill: No, I think it is
the point you were making to the Chairman at an earlier stage
but it is very, very helpful to have it further clarified. So
this was an entirely manual transaction on the first occasion?
Mr Hartnett: Yes.
Q51 Keith Hill: Both ways?
Mr Hartnett: On the first occasion.
Q52 Keith Hill: Nevertheless, the
data was on full scan, and in the light of the protocol that you
had with the NAO, do you think the NAO should have accepted a
full scan?
Mr Hartnett: I think that has
got to come out in Sir John's review and it has got to come out
in Mr Poynter's review. I regret that we made a full scan available
to someone leaving our premises. One of the other issues I do
not have the answer to yet—and I do not think my colleagues
around me know the answer to and I would quite like to know the
answer to—is what computer or computers was the NAO auditor
using in Waterview Park? Was he using his own or was he using
ours? Because we had to stop our own inquiry, I simply do not
know the answer to that. It seems to me to be a question of some
relevance.
Sir John Bourn: Perhaps I could
say, Chairman, that, as Mr Hartnett has just said, this will be
an issue that Mr Poynter will examine, and I have said that we
shall be happy to work with him. We had the perfect right to ask
for the data that we did ask for and the way in which it was supplied
to us is a matter for HMRC and, as Mr Hartnett has said, further
work will amplify our mutual understanding of the whole area.
Q53 Keith Hill: Right well, I hear
what Sir John says. Can I just ask Mr Hartnett what he makes of
the letter of 9 November from the Second Director, Tax Credits
and Benefits at the NAO where he apologises to HMRC (i) for not
fully apprising HMRC of the NAO's new approach, and (ii) for not
ensuring the implications of the new audit approach were understood?
Mr Hartnett: I want to say three
things, if I may. The first is—and maybe this is not terribly
helpful—I think the quality of this letter is a mark of
the quality of relations between HMRC and the NAO. The NAO is
a demanding auditor but we have great respect for the NAO. The
second thing I want to say is I do not know the individual who
wrote the letter, I have never met him personally, but I am pleased
to see the apology. It seems to me that it is important. The third
thing is I believe that it is an apology for some things that
went wrong, but I say that—I am sorry to be repetitious—knowing
that Sir John will be carrying out his own inquiry and knowing
that Mr Poynter is carrying out an inquiry.
Q54 Keith Hill: And may I say that
I think it is the view of this Committee that the letter demonstrates
great integrity on the part of its writer. Can I just ask you
one final question then, which is on the issue of cost. Can you
confirm that the question of costs was never explored with the
clearing system because again, as you said to the Treasury Select
Committee, the NAO had stepped outside the process we had established.
Mr Hartnett: I have seen nothing
that suggests that cost was discussed anywhere and that it was
anything other than the SEO saying that the material was there
and it would be costly to get something else, so I have seen no
evidence of a discussion.
Q55 Keith Hill: The absolutely final
thing, although the question of cost was in the mind of the junior
official in the March email exchange, it is right to say that
this did not reflect a formal HMRC position?
Mr Hartnett: No, I have seen no
evidence of that, but I would say this: I want all our people,
and Paul Gray, my predecessor, would have wanted all our people,
to be conscious of cost but not at the expense of security.
Keith Hill: Thank you.
Q56 Chairman: Just to be fair, do
you want to comment on this 9 November letter, Sir John?
Sir John Bourn: I think only to
say that—and I am grateful for the point that Mr Hill made
about it—it was a letter which dealt with the audit strategy
and expresses the regret on the part of a member of my staff that
he had not discussed this strategy with HMRC. It was not about
the particular data which forms the subject of this investigation
but, as Mr Hartnett has said and Mr Hill has acknowledged, it
was about the relationship between the external auditor and the
client, and I think it does show that the relationship between
the two organisations was fundamentally right.
Chairman: Richard Bacon?
Q57 Mr Bacon: Mr Hartnett, you said
to the Treasury Select Committee—and I refer to the point
that Mr Hill was making—and I quote: "Here we had set
up a procedure with the National Audit Office for passing data
to them. The National Audit Office did not use the procedure and
we did not release the data through the procedure ... " That
begs a couple of questions. First of all, were the National Audit
Office aware that this procedure had been set up and, if so, how?
Mr Hartnett: I think the letter
to which we have just referred, Mr Bacon, is evidence of that
procedure and I am told, although I have not personally seen them,
that there are emails which point to knowledge on both sides of
the process and the procedure.
Q58 Mr Bacon: But, nonetheless, your
own officer also did not use the procedure?
Mr Hartnett: That seems to be
the case.
Q59 Mr Bacon: This then leads us
to the email of 13 March, the one sent at 23 minutes past three,
and indeed in answer to my colleague Mr Dunne, who is also a Member
of the Treasury Select Committee, one of the things that you said
on 5 December was: "...what we know from the email is that
it was sent. We do not know that the process owner read it or
when he read it."
Mr Hartnett: Yes.
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