Examination of Witnesses (Questions 60-79)
MR DAVE
HARTNETT CB AND
MR NICK
LODGE
17 DECEMBER 2007
Q60 Mr Bacon: Has it now been established—because
you can look into emails and see when they were opened, it leaves
a trace with a time on it—when the email was opened?
Mr Hartnett: Not to my knowledge,
Mr Bacon, because, as I explained earlier on, HMRC started an
investigation; it has stopped it; the emails have been provided
to Mr Poynter and maybe to others (I know they were provided to
Mr Poynter); and I do not know the answer to that question.
Q61 Mr Bacon: The emails have been
provided to us, I have got a copy of them here, but what I am
really asking is has the investigation established, by looking
at the computer itself, by going into the interstices of the computer,
when the email was opened?
Mr Hartnett: That is work that
Mr Poynter is doing. I am not privy to the detail of his work.
Q62 Mr Bacon: I would just like to
explore the question of cost a little further. You said in answer
again to the Treasury Select Committee that in relation to the
previous episode with APACS, the clearing system, that in order
to protect members' account numbers, you had been able to take
a copy of the segregated data very quickly without involving your
IT supplier. It sounds on the face of it highly likely that if
you knew what you were doing and if you worked in the area, making
a copy of a set of data while leaving one or two fields blank
would be a relatively simple matter that would not involve a lot
of cost. Does that sound fair to you?
Mr Hartnett: To the best of my
knowledge, Mr Bacon, there are five junior people who have had
a part in handling the disks or the loading up of the data that
was brought to Waterview Park and the like. I know that Mr Poynter
wants to understand which of them knew how to use the stand-alone
secured computer to produce a different cut of the data, if I
could put it that way. What is clear to me at the minute is that
it was possible to cut that data in Waterview Park in a different
way in order to provide material to APACS.
Q63 Mr Bacon: Without any significant
cost?
Mr Hartnett: To the best of my
knowledge, without any significant cost.
Q64 Mr Bacon: So although the senior
executive officer mentioned the issue of cost, that was probably
a red herring and was unlikely to have been an issue in actual
fact?
Mr Hartnett: That could be right.
I do not know the answer. Mr Poynter is going to get us there—I
hope.
Q65 Mr Bacon: I would like to ask
about the issue of testing because child benefit used to come
under the Department for Work and Pensions and was transferred
over to your Department. We were told by the National Audit Office
in a previous hearing that for audit purposes the National Audit
Office was satisfied with the testing which was undertaken by
the DWP itself and that therefore they could rely on that from
an audit standpoint because of its extent and its quality. That
ceased to be case when the function of paying child benefit transferred
over to HMRC because the quantity, the quality and the extent
of the testing undertaken internally by HMRC was not as great
as had been the case under the DWP. Is that also your understanding?
Mr Hartnett: I have absolutely
no knowledge about that at all and I am going to go away now and
find out what the quality of our testing was because we are rigorous
about our testing.
Q66 Mr Bacon: Could I ask Caroline
Mawhood to just comment on that. I think I am right in saying,
if I reprise what you said last time accurately, that while it
was at DWP there was in the NAO's view from an audit standpoint
accurate internal testing for your good purposes?
Sir John Bourn: Perhaps I could
just preface what Miss Mawhood is going to say. We are not critical
of the arrangements in HMRC. They take their sample for internal
management purposes. They are perfectly reasonable in what they
do. Our concern of course was the whole issue of whether the accounts
give a true and fair view, and for that we have needed a wider
range of instances from which to draw our sample. In the past,
DWP, for their purposes, had done that so we were able to use
it. HMRC had a different approach, which is absolutely their business,
but because it did not coincide with our needs, we had to obtain
the information separately. There is no criticism on our part
of the arrangements in HMRC in this regard. Is there anything
you would like to add to that?
Miss Mawhood: I think that probably
explains it all. Under DWP they were taking a large sample and
getting independent evidence that the claimant, for example, was
still alive whereas later when HMRC was looking at what testing
they would do, given the cost of testing so many individual cases,
they decided to take a risk approach, which is perfectly legitimate
as Sir John says, for their purposes, but for our purposes in
carrying out the audit we felt that we needed to do our own sample
in the light of that.
Q67 Mr Bacon: You say for their purposes.
The ultimate purpose was paying child benefit to child benefit
recipients and that continued to be the case whether it was done
by DWP or later by HMRC, surely?
Miss Mawhood: I think they had
their purposes for doing the sample. It does depend on different
approaches in different departments to this sort of thing. From
our point of view of getting the audit evidence we looked at what
testing was done and we judged that we needed to do more testing
to give ourselves assurance about, in this case, child benefit
payments.
Mr Hartnett: Mr Bacon, can I come
back in because I now understand the question in a way I did not
before, and I apologise for that. The NAO wanted to look at the
basis on which we were running a random enquiry programme. It
was a different risk-based approach to checking compliance with
child benefit and, as Sir John and Miss Mawhood say, they wanted
a bigger sample in order to test what we were doing. I have to
say I welcome them wanting to test what we were doing because
it provided assurance for us or would have told us that we could
have done it better.
Q68 Mr Bacon: I would like to ask
you about the physical copying itself. How is it physically possible
to draw down a full copy of the data on to a removable CD? How
is it possible that a junior official could do that?
Mr Hartnett: Twice a year, for
compliance purposes, the officials in Waterview Park in our claimant
compliance area ask EDS, who run the system in Benton Park View
(also in the North East) to produce a subset of 38-40 fields—I
will correct that if I need to—of the main child benefit
database. It is a snapshot in time. That is taken to Waterview
Park by people from our IT Directorate, handed over to the claimant
compliance people who have access to a secure environment, where
there is a secure desktop, and they load it up onto two disks,
so it is part of a normal process.
Q69 Mr Bacon: That sounds rather
different from what you said to the Treasury Select Committee
where you said that it was a puzzle to you as well how it should
have been built into your system that it could have been possible
to make a full copy. In fact, my question was phrased using your
own words, this is in answer to question 356: "...how on
earth was it possible ever to draw down a full copy? At this moment
I know it clearly was possible, but —"and then the
interlocutor says: "That is an issue of system design?"
and you say "Exactly; absolutely."
Mr Hartnett: I am sorry, Mr Bacon,
I was looking to find the question which I do not have here.
Q70 Mr Bacon: It is question 356
from Mr Todd
Mr Hartnett: Question 356, thank
you. What I was referring to was to the copy made in Waterview
Park. I have described for you the process by which the disks
get to Waterview Park from the mainframe at Benton Park View and
on to the secure system. One of the issues that I am hoping Mr
Poynter will address is how it was possible to take copies of
this material.
Q71 Mr Bacon: That was my question.
How on earth was it possible for a junior member of staff to take
a full copy of the data and then dispatch it? How was the overall
system designed in such a way that that conceivably could happen?
Mr Hartnett: Three junior officials
managed that secure environment and that computer. I want to understand,
and I do not fully at the minute, why they were able to do so.
Clearly they were able to download a copy of the whole system.
That seems to me to be something we have to address.
Q72 Mr Bacon: And the fact that the
copying elements within laptops and PCs inside HMRC have now been
disabled—and the Chancellor made reference to this in his
statement this afternoon—suggests that that hole has now
been plugged; is that correct?
Mr Hartnett: We have disabled
all USB ports and other download facilities. They are only put
back in place where there is a crucial business need and only
on the authority of a senior director. Can I add one thing about
our laptops, Mr Bacon, material on our laptops is automatically
encrypted and accessible only by the owner of the laptop.
Chairman: Thank you. Austin Mitchell?
Q73 Mr Mitchell: There is a report
by Kieran Poynter, who is the Chair of PricewaterhouseCoopers
(PwC). Why were PricewaterhouseCoopers chosen to do this?
Mr Hartnett: I am not sure I know
the answer to that precisely, Mr Mitchell. I know that they would
have been regarded as a firm well able to do this and skilled
in the sort of work that was needed, but this was an arrangement
entered into under the OGC Catalyst contract arrangement pre-tendered
by the Treasury not by HMRC.
Q74 Mr Mitchell: Part of their report
in spring 2008 is on internal processes and culture and how they
could be strengthened to achieve appropriate security in the future,
et cetera, et cetera. Why can the NAO not do this?
Mr Hartnett: I think there is
a very important issue here which has appeared in some media comment
about this, and that is it needed someone independent because
the NAO might—and I stress might—have an explanation
for things and HMRC might have an explanation for things. Sir
John has already mentioned that I offered a hypothesis earlier
on and they need someone independent to discern what the right
answer is.
Q75 Mr Mitchell: PwC is a romantic
name and you say that PwC are regarded as independent. They get
so much business from the Government that I cannot see them coming
out with a slashing indictment of ministers, the Department or
anybody they have got dealings with. They are regarded as more
independent than the National Audit Office?
Mr Hartnett: I have given you
my explanation as to why it needed someone else, but I do not
think Mr Poynter will hesitate for a moment to criticise HMRC,
or even the NAO, if he has the evidence to do that.
Q76 Mr Mitchell: Was there any competitive
bidding to do this?
Mr Hartnett: I am unaware of how
the contract was let, Mr Mitchell.
Q77 Mr Mitchell: Do we know how much
they are going to be paid?
Mr Hartnett: No, the fee will
be charged to the Treasury and then recharged to HMRC. I think
it is too early to say what that fee will be.
Q78 Mr Mitchell: Of course given
the pattern of these consultants, it is permissible to think that
they might well come up with a recommendation that the whole system
be reviewed by a team of consultants from PwC at the end of the
day!
Mr Hartnett: I think it very unlikely
that HMRC would be naive enough to acquiesce in that. I should
just add, Mr Mitchell, one thing I have missed. My understanding
is that these Catalyst agreements, pre-tendering arrangements,
put in place by OGC do have pricing arrangements in them, but
we can let you know more if that is important.
Q79 Mr Mitchell: There has been a
shower of mea culpas which is even greater than those I
offer my wife from time to time! Everybody has said it is a terrible
thing, an awful situation. Labour Party Members are saying, "Dare
we go canvassing now when about half the population have received
a letter saying: `we are a load of grovelling incompetents; we
keep losing all of your personal information'." It does not
create a good atmosphere. Is the fuss exaggerated? What exactly
is in these records that is going to allow people's identities
to be used? You can get much of it from the electoral roll and
when it comes to bank accounts the information is there for paying
in not for taking out.
Mr Hartnett: Let me say two things.
First, I have not apologised once for my Department being a shower
of grovelling incompetents. I am very proud of my Department.
It is regarded by the OECD as one of the best tax administrations
in the world and often we are the tax administration that other
countries turn to for help and guidance. I have apologised unreservedly
for the dreadful mistake that has happened here.
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