Session 2008/2009

Third Report

Public Accounts Committee

Report on Statement of Rate
Levy and Collection 2006-07

Together with the Minutes of Proceedings of the committee
relating to the report and the minutes of evidence

Ordered by The Public Accounts Committee to be printed 16 October 2008
Report: 13/08/09R (Public Accounts Committee)

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Northern Ireland Assembly, Printed Paper Office,
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Membership of Powers

The Public Accounts Committee is a Standing Committee established in accordance with Standing Orders under Section 60(3) of the Northern Ireland Act 1998. It is the statutory function of the Public Accounts Committee to consider the accounts and reports of the Comptroller and Auditor General laid before the Assembly.

The Public Accounts Committee is appointed under Assembly Standing Order No. 51 of the Standing Orders for the Northern Ireland Assembly. It has the power to send for persons, papers and records and to report from time to time. Neither the Chairperson nor Deputy Chairperson of the Committee shall be a member of the same political party as the Minister of Finance and Personnel or of any junior minister appointed to the Department of Finance and Personnel.

The Committee has 11 members including a Chairperson and Deputy Chairperson and a quorum of 5.

The membership of the Committee since 9 May 2007 has been as follows:

Mr Paul Maskey*** (Chairperson)
Mr Roy Beggs (Deputy Chairperson)
Mr Thomas Burns**
Mr Jonathan Craig
Mr John Dallat
Mr Trevor Lunn
Mr Ian McCrea*
Mr Mitchel McLaughlin
Mr George Robinson****
Ms Dawn Purvis
Mr Jim Shannon*****

* Mr Mickey Brady replaced Mr Willie Clarke on 1 October 2007
* Mr Ian McCrea replaced Mr Mickey Brady on 21 January 2008
* Mr Jim Wells replaced Mr Ian McCrea on 26 May 2008
** Mr Thomas Burns replaced Mr Patsy McGlone on 4 March 2008
*** Mr Paul Maskey replaced Mr John O’Dowd on 20 May 2008
**** Mr George Robinson replaced Mr Simon Hamilton on 15 September 2008
***** Mr Jim Shannon replaced Mr David Hilditch on 15 September 2008

List of abbreviations used in the Report

List of Abbreviations used in the Report

The Department/DFP Department of Finance and Personnel

The Agency/LPS Land and Property Services

IT Information technology

C&AG Comptroller and Auditor General

SRO(s) Senior Responsible Officer(s)

DC&AG Deputy Comptroller and Auditor General

The Minister The Minister for Finance and Personnel

OCG Office of Government and Commerce

Executive Summary

Introduction

1. This report considers the reasons for the financial and operational difficulties that have overwhelmed Land and Property Services, an Agency of the Department of Finance and Personnel, in its assessment, administration and collection of rates. The report examines the management of rate collection activity during a time of considerable change in policy, systems and management structures and, in particular, the decisions taken in implementing these changes.

2. The Committee has given priority to considering this topic given the importance that the collection of rates revenue has on both central and local government finances. Rate assessments amount to some £1 billion annually.

Overall conclusions

3. The Committee’s overall conclusion is that the implementation of the new IT system was very poorly managed. This has resulted in significant additional costs being incurred to resolve basic failings in the system which had not been discovered before the system went live. The Committee is amazed that shortcuts were taken to implement a complex and large IT system and substantial resources transferred from operational duties to ensure that the system was in place to issue domestic rates bills based on the new reforms.

4. The Committee considers that the Department and the Agency were trying to do too much in too short a timescale. The Agency was attempting to manage significant change on three different fronts; policy, systems and structures.

5. The Committee considers that the decision to proceed with the implementation of the new system was based on a fundamentally flawed risk assessment. It is crystal clear that the Department’s risk assessment did not take sufficient account of the huge risks of inadequate system testing, the impact of transferring front line staff to work on the introduction of rate reforms and the enormous financial consequences of postponing the collection of arrears. The Committee accepts that the Department achieved its objective of successfully calculating and issuing bills based on capital values by April 2004, however, the price paid for meeting this deadline outweighed the benefit many times over. The timetable objective may have been achieved but in the process of achieving it the business was thrown into chaos.

6. The Committee noted that the bills successfully issued did not provide either central or local government with any additional revenue. The Committee accepts that the new reforms may have led to a fairer allocation of rates between ratepayers with some paying less, others more and various reliefs and allowances introduced for those in great need, such as the Lone Pensioner Allowance, however, the Committee is of the view that a properly considered risk assessment would have avoided many of the problems noted in this report by postponing the reforms for one year.

7. There are a number of important recommendations for the Department of Finance and Personnel and Land and Property Services to ensure that what went wrong is fixed and that the resulting adverse consequences to ratepayers, Councils and staff are quickly resolved. There are also wider lessons on implementing complex new IT systems.

The Management of the IT Project

8. The IT specification was incomplete even though it ran to some 800 pages in length. The Committee was informed that the specification mostly got mainstream business processes correct but DFP regretted that some areas were missed and some functional errors made. The Committee disagrees with this assessment by the Department. Areas missed included the systems ability to chase arrears, a core operation of the Agency, validation controls over manual input errors and an audit trail to enable the C&AG to give assurance on the accuracy of the accounts. The Committee is most concerned that so many errors were made that led to such significant, additional sums being paid to the contractor.

9. The Committee accepts that the accuracy of the specification was the responsibility of the Agency but also considers that a number of the deficiencies in the software should have been, at least, challenged by the contractor, before proceeding. For example the Committee is very surprised that the system allows some ratepayers to be incorrectly issued with million pound bills due to simple keying in errors. IT systems should be designed to prevent and detect manual errors of this nature. It beggars belief that such a basic matter as this was overlooked by all involved in the development of the system’s software.

10. The Committee is concerned that the cost of the IT project has escalated from an initial estimate of £10.5 million to a revised estimate in the C&AG’s report of £11.5 million and now this cost has increased by a further £1.5 million to £13 million. The Committee is of the opinion that the contractor is doing very well out of the increasing value of the contract. Errors or omissions from the specification provide contractors with a rich revenue stream that is not subject to competitive tendering.

11. The Gateway Review process sounded alarm bells on the risk of not delivering. The Committee is not convinced that all the Gateway recommendations were implemented as effectively and as quickly as was necessary, particularly the concerns raised by the Gateway team about time pressures and adequacy of resources. The Committee can only conclude that the Department is mistaken in its positive assessment of the actions it took and/or the speed with which it took them.

12. This case has exposed a worrying IT skills deficit which the Department is now taking steps to address. The public service needs talented, commercially orientated IT specialists that can negotiate effective outcomes with private sector contractors. The Committee also considers that the project lacked sufficient accounting and management expertise. Better accounting skills should have assisted in reducing the volume of basic financial deficiencies in the system specification and design. Better management skills may have led to better decision making in terms of what needed to be done to create stable post implementation operations.

13. Both the quality of the data transferred from the existing IT system to the new one and the testing of the new system with test data were substandard. Much of the data on the old system was unstructured and it was therefore apparently difficult to establish rules for its transfer. The Department admitted that more resources should have been allocated to this. The Committee is surprised by this given that a new system had been in the planning since 2001. Moreover, test data was used to check whether the system worked properly but the data used did not test all potential eventualities and therefore did not reveal certain crucial errors in the specification leading to adverse performance and cost implications.

Defective Financial and Operational Controls

14. The Comptroller and Auditor General could not, in the circumstances, give any assurance on the 2006-07 accounts as it was not possible to verify a number of very material figures reported in the accounts. This was due to significant control problems arising from the poor specification of the IT system and certain key controls not functioning.

15. The Committee is concerned that a new IT system dealing with hundreds of thousands of bills requires so much manual data input. Where data is input manually, the Committee noted that there were insufficient validation controls built into the system software to detect keying in errors. These are basic controls which have been standard in IT system designs for decades.

16. Weaknesses in financial procedures in the new IT system, as detailed in this report increase the risk of fraud, as well as error. They also reduce the likelihood of detection of fraud. Given this extremely weak control environment, the Committee was therefore surprised that DFP, the department responsible for issuing best practice guidance, did not yet have a whistle-blowing policy in place. It must be currently one of the few departments without one.

17. The Committee welcomes the fact that the Department conducted a staff attitude survey for all its staff, including those at the Agency, during what has been a very challenging time for all those working there. It also welcomes the introduction of an action plan to improve staff morale at the Agency.

18. Customer service has suffered appallingly as a result of the system problems and the transfer of experienced front line staff to help with the implementation of the new system. Not responding to customer enquiries is unacceptable. Many ratepayers have legitimate worries as a result of receiving inaccurate bills and vulnerable ratepayers need help in obtaining allowances, which can be complicated to claim, let alone understand. The Committee records the obvious point that administrative backlogs and poor customer care are not a good combination and must be avoided by public sector service providers.

19. During 2006-07, the Agency abandoned its inspections of vacant properties, that is, properties which are not billed for rates. Through such inspections, properties notified as vacant can be found to be occupied and rates payable. This important work was deferred as staff were needed to assist with the introduction of rate reforms.

20. It is vital that there is an accurate up to date list of all properties so that all those liable to pay rates are assessed and billed. The Committee was concerned that there was evidence of both old and new properties that had been overlooked.

21. The Committee is most concerned that DFP was not providing Councils with sufficiently accurate penny product information to enable them to do their corporate planning. Small percentage errors in forecasts have a very significant impact on their finances. It seemed to the Committee that insufficient resources have been provided to improving accuracy in this important area, perhaps, because DFP considered this to be more of a problem issue for Councils than for itself. While the Committee notes DFP’s comments that more co-operation had been introduced recently, this seems to the Committee to be too little and too late.

The High Level of Rate Arrears following the Introduction of the New Reforms

22. The Committee finds it difficult to understand the decision taken to defer recovery of arrears, given its effect on public finances. The Committee is not convinced that other options, such as timetable adjustment, were sufficiently explored.

23. Arrears were £48 million in 2006 but rose to £124 million by 2008. Pursuing arrears is time-consuming, particularly if it is not done in a timely manner. With the delay in recovery action, more people will have moved house or will avoid payment or simply will not be able to afford payment of rate arrears on top of the arrival of the next year’s bill. More time and money will also be spent arranging assistance to those in financial difficulty to pay off arrears by instalments.

24. All of this has a significant cost. At one stage the Agency had only seven people tasked with pursuing arrears. DFP informed the Committee that it is now putting a lot of time and effort into this. Staff involved in the catchup exercise has risen to 80. The Committee is very concerned with, not only the spiralling level of arrears as a result of the decision to defer, but also with the spiralling cost of collection given the number of staff needed to undertake recovery action.

25. Irrecoverable arrears are estimated to double from £2 million to £4 million each year but the Department noted that this estimate was subject to a fair amount of uncertainty. It was a question of just waiting to see what happens. In the Committee’s view the £4 million estimate seems very much understated given the current economic difficulties people are facing with enormous rises in electricity and gas prices and the lack of credit now available.

26. Under current arrangements, Councils will have to fund the higher cost of collection in the years to come as well as sharing with central government any loss of funds through irrecoverable arrears. This may mean less money for Councils to spend on services, as a result of the estimated doubling of irrecoverable arrears. The Committee finds it intolerable that Councils will have to ‘pick up the tab’ for systemic failure in a central government agency.

27. DFP does not presently have any robust target for arrears. DFP is seeking to carry out benchmarking with other collection authorities to establish what the future level of arrears should be. The Committee is concerned that arrears will not be reduced to the levels achieved some years previously when the Agency was one of the better performing collection authorities.

Next Steps

28. The Department has referred to some of the measures it is taking to stabilise the Agency’s rate collection business. These should now be put to the Committee in the form of a comprehensive action plan which sets out what is needed to resolve the key problem issues.

Summary of Recommendations

1. The Committee recommends that risk assessments for new projects and programmes include a full assessment and evaluation of the costs of any steps taken to override normal implementation controls, to re-prioritise front line staff and to reduce customer services, particularly when challenging or fixed deadlines must be met (see paragraph 14).

2. Strong and realistic leadership from the programme board is essential to recognise what is and what is not achievable given the available timescales and resources. The Committee recommends Departments to invoke strong governance arrangements over such risk assessments, including consideration by the Department’s Audit Committee (see paragraph 15).

3. Implementation of new IT systems in the public sector has regularly caused difficulties. This is particularly the case if implemented at the same time as major policy changes. The Committee recommends that major new IT systems should not go live until major policy changes are finalised. In exceptional circumstances where this cannot be avoided, such IT projects should be assessed and managed on the basis that there is a high risk of failure, risks must be fully evaluated and adequate resources and contingency plans put in place to minimise the likelihood of post implementation failure and/or significant additional costs occurring. Risk of failure should also be mitigated through skilful project management and ensuring that whatever resources are needed are secured to check and test the adequacy of the design changes. Shortcuts in quality control measures must not be taken (see paragraph 16).

4. Transferring key operational staff to the project to meet the go live deadline led to significant operational problems post implementation of the new system. The Committee recommends that sufficient resources must always be found to ensure core business functions, customer service and performance standards are maintained rather than allow these to deteriorate in order to meet a project deadline, no matter how important that project might be (see paragraph 17).

5. The Committee recommends that DFP examines, in consultation with the Office of Government Commerce, why the Gateway process did not lead to a better outcome in this case. There are obviously lessons to be learnt. The Committee wishes to be informed of the results of this review (see paragraph 21).

6. The completeness and accuracy of specifications for large, complex and/or Mission Critical IT systems are essential if a system is to be successful. The Committee recommends that IT personnel, business users, the finance team, internal auditors and the IT contractor must work closely and effectively together. In addition they must have a clear understanding of the knowledge and expertise each must bring to the successful development of a specification that meets operational and financial requirements. Roles and responsibilities must be clearly defined (see paragraph 28).

7. The Committee considers it essential that all projects, but particularly IT projects, have project teams with the skills and experience proportionate to the size, complexity and importance of the project. The Committee recommends that a general pool of experts from the wider public sector, who have extensive skills and experience of successfully delivering IT projects, is formed and if necessary enhanced by recruitment. This pool must have sufficient breadth of experience to meet the longer term future needs of the Northern Ireland Civil Service. These experts should be allocated to lead large and complex Mission Critical projects (see paragraph 32).

8. The Committee recommends that there must be clear lines of communication between project sub-teams and Senior Responsible Officers (SROs) reporting to the main project board. This is particularly important given the failure to cope with the various interdependencies which, in this project, were not properly identified and/or communicated (see paragraph 33).

9. The Committee strongly recommends that sufficient planning, time and resources must be given to the quality of data transfers and the adequacy of data testing before a system goes live. Shortcuts with testing data must never be taken no matter how important the deadline might be as the cost of any subsequent flaws can be very substantial in terms of fixing an underperforming, live system. The Committee makes this recommendation recognising that it is a very basic and self-evident point but one that was not followed in this project, given the pressures arising from the tight implementation deadline (see paragraph 36).

10. The Committee strongly recommends that DFP ensures that all major systems problems that have led to a lack of proper audit trail are fully resolved. The Committee acknowledges that these audit trail deficiencies remain inherent within the 2007-08 accounts but expects DFP to ensure that the 2008-09 accounts are properly supported by the books and records so that the C&AG can provide the Assembly with an unqualified opinion on the accounts (see paragraph 41).

11. The Committee expects DFP to prepare accurate and timely accounts, initially on a cash basis. The Committee recommends that DFP puts in place arrangements for the preparation of a modern style annual report, as soon as possible that includes accruals based financial information. DFP should liaise closely with the Audit Office in devising the accounting policies and disclosures for these accounts (see paragraph 42).

12. The Committee recommends that all software systems should be designed to reduce the amount of manual data input and limit the extensive use of supervisory test checking that has for so long been the resource intensive practice employed in the public sector. Information should only be input once with all aspects of the system updated electronically. IT systems must have strong validation controls that prevent or, at the very least, substantially reduce human error. In this particular case, DFP should amend the system accordingly and robustly negotiate the cost of doing so with the contractor given the Committee’s view that such system failings should have been obvious to the contractor when designing the software (see paragraph 49).

13. The Committee is particularly concerned that the new system contained a major system weakness in cash procedures which increased the risk of fraud. The Committee recommends that all outstanding system problems are resolved as a matter of urgency and that this Committee is provided with a timetable for their resolution. The Committee expects DFP’s audit committee to closely monitor and challenge progress made and obtain sufficient evidence that there are no other significant system weaknesses (see paragraph 54).

14. The Committee reiterates the recommendation made previously in its report on Tackling Public Sector Fraud that it would like to see much more emphasis given to whistle-blowing as an important means of identifying potential fraudulent activity. There is no excuse for 25% of departments and agencies not having whistle-blowing policies in place and expects DFP to ensure this deficit is addressed and that full compliance is achieved. The Committee also expects DFP to ensure that departments are proactive in training and encouraging staff to blow the whistle and for DFP to include an analysis of activity levels of whistle-blowing across departments as part of its annual Fraud Report (see paragraph 57).

15. The Committee recommends that meaningful and challenging performance targets are set for staff morale and that the implementation of the action plan is monitored by DFP’s audit committee (see paragraph 61).

16. The Committee also recommends that a further survey of the Agency’s staff is conducted in Autumn 2009 (see paragraph 62).

17. The Committee recommends that DFP radically improves the quality of its customer care to its ratepayers, including its handling of phone calls and introduces strong, measurable performance criteria in this area, which should be monitored closely. The Committee wants DFP to report back on what performance targets it has put in place to measure customer service and its timeframe for achieving them. These performance measures should be reported and commented upon in the Annual Report (see paragraph 69).

18. The Committee recommends that demanding targets are set for a reduction in the level of incorrectly recorded vacant properties, over each Council area, and for increasing the amount of rateable assessments for so called vacant properties (see paragraph 72).

19. The Committee recommends that co-operation is needed with Councils to maximise district and regional rate revenues and recommends that the Department conducts a research study in conjunction with Councils with a view to having an agreed strategy on assessing and billing all eligible properties in a timely manner(see paragraph 73).

20. The accuracy of penny product information is essential to the effective financial planning of Council services. While the Committee recognises that forecasting is not an exact science, the Committee is of the view that DFP has not invested sufficient energy into developing systems for calculating the actual penny product and into estimating subsequent year(s) penny product. The Committee recommends that DFP places more resources into the system and develops a more robust budgetary model to estimate future Council revenue (see paragraph 79).

21. The collection of arrears is a core business activity of the Agency. The collection of rate revenue is an important source of funding for central government and a vital one for Councils. The Committee recommends that sufficient resources should always be allocated to the collection of arrears and that these should be ring-fenced. Collection of arrears should never be deferred (see paragraph 92).

22. The Committee recommends that DFP introduces robust measurable performance criteria for the management and collection of rate arrears. This should include a target level of overall arrears, and more detailed targets for each Council area (see paragraph 93).

23. The Committee recommends that revenue forgone and additional costs of collection as a result of the problems with the new system will not be passed on to Councils. The Committee would like an assurance of this from DFP (see paragraph 94).

24. The Department has referred to some of the measures it is taking to stabilise the Agency’s rate collection business. The Committee recommends that these should be put to the Committee in the form of a comprehensive action plan which sets out what is needed to resolve the key problem issues. In particular, the action plan must deal with the following:

a. governance and the control environment;

b. leadership and management skills;

c. communication with stakeholders; and

d. the IT systems.

DFP’s Audit Committee must closely monitor the progress made against this action plan (see paragraph 95).

25. The Committee also considers it essential that the Department’s Audit Committee monitors closely the governance and control environment of Land and Property Services and the performance of its constituent parts that now include rates assessments, property valuations, mapping and land registration (see paragraph 96).

26. The Agency’s problems are so wide ranging that the Committee would suggest that the Assembly’s Committee for Finance and Personnel pays particular attention to the regular monitoring of progress made in stabilising the business and strengthening the governance arrangements (see paragraph 97).

27. The Committee recommends that DFP introduces as soon as possible measurable performance criteria for the assessment and collection of rates. These should include:

a. rates assessments, including a target for improving the completeness of the register of rateable properties and inaccuracies in the number of properties treated as vacant;

b. billing;

c. collection, including the cost of collection per £1 of rates;

d. stakeholder satisfaction; ratepayers, District Councils and staff;

e. irrecoverable rates; and

f. accuracy of penny product estimates.

The standard for these performance criteria should be set at a level that is comparable to the best results achieved in other collection authorities and take account of the needs of key stakeholders (see paragraph 98).

28. All public bodies need to think realistically and carefully about the number of complex change management or IT projects that they can manage and resource at the same time, particularly given the short supply of skilled and experienced project managers and specialists. The Committee recommends that DFP disseminates information on lessons learnt in terms of skills, project management and specialists during this process to other departments where there are multiple significant changes occurring, to avoid similar issues arising in the future (see paragraph 101).

Introduction

1. The Public Accounts Committee met on 18 September 2008 to consider the Comptroller and Auditor General’s report on the “Statement of Rate Levy and Collection 2006-07” which was published within his General Report on “Financial Auditing and Reporting: 2006-2007” (NIA 193/07-08, Session 2008-09). The witnesses were:

Mr Leo O’Reilly, Accounting Officer, Department of Finance and Personnel (DFP);
Mr John Wilkinson, Accounting Officer, Land and Property Services (LPS);
Mr Arthur Scott, Director of Operations, Land and Property Services;
Ms Anne Johnston, Programme Manager for the Rating Reform and Modernisation Programme, Land and Property Services ;
Mr Kieran Donnelly, Deputy Comptroller and Auditor General (DC&AG); and
Mr David Thomson, Treasury Officer of Accounts, Department of Finance and Personnel.

The Committee also took written evidence from DFP.

2. On 1 April 2007, domestic rates bills were issued under a completely new regime. Annual rates bills were for the first time calculated on the basis of the estimated selling price of a home rather than, as had been the case for many years, using rental values determined some 30 years previously. A new computer system was installed in October 2006, to process bills based on the policy. At the same time, senior management and staff were handling the additional challenge of setting up a new Agency, Land and Property Services, created by merging the Rate Collection Agency and the Valuation and Lands Agency and preparing for the inclusion of Ordnance Survey and Land Registers from 1 April 2008.

3. In his report, the Comptroller and Auditor General (C&AG) stated that he could not give any assurance to the Assembly on the assessment and collection of rates for the year 2006-07, due to significant system control problems which arose following the introduction of the new IT system. His report highlighted not only numerous problems in relation to checking the accuracy of the figures in the accounts but also, control failures that impacted on LPS’s performance in administrating and collecting rates.

4. In taking evidence, the Committee focused on three key areas. These were:

the management of the IT project;
defective financial and operational controls;
the huge escalation in the level of arrears of rates following the introduction of the new reforms;

The Management of the IT Project

Priority given to implementing rating reforms

5. The Committee noted that the key priority of DFP and its Agency, LPS, was to issue domestic rates bills on 1 April 2007, based on the new rating reforms. Senior management in the Agency were having to cope simultaneously with:

the introduction of unprecedented change in rating reform, legislation and policy;
the implementation of a new IT system that was needed to process the changes in reform; and
managing the formation of a new Agency, created by the merger of the Rate Collection Agency and the Valuation and Lands Agency on 1 April 2007 and one year later the inclusion of two further Agencies, Ordnance Survey and Land Registry.

6. Current guidance[1] on delivering successful programmes and projects recommends that no government initiative (including legislation) dependent on IT should be announced before analysis of risks and implementation options have been undertaken. DFP informed the Committee that risks were identified and those that were thought to severely threaten the overall outcome of the programme were considered by the programme board.

7. The Committee was informed by the Agency that, at times, the job was colossal with the main focus and effort put into rating reform. Agency staff were transferred from front line service delivery to assist in this. As a result, backlogs arose in dealing with customer enquiries and resolving problems arising from flaws in the new IT system which had been rushed in to meet the reform deadline. The Committee was informed that collection of rate arrears had to be deferred due to the need to drive through the reforms and because the new system could not issue the necessary documentation.

8. DFP pointed out that changes in policy were still being made after the new IT system went live in October 2006. The Department informed the Committee that continuing policy development created additional work and required them to, sometimes, work around the recently implemented IT system. This created additional risks to the system’s ability to process transactions accurately and caused disruption and delays in administering ratepayers’ allowances.

9. The Committee asked DFP why the timescales for these reforms were not adjusted to give some breathing space so that the system could be implemented in a more organised way. DFP informed the Committee that it had carried out an intensive review of whether the system would be capable of issuing the new bills from 1 April 2007; all options were considered and a decision was taken to introduce the system from that date.

10. The Department advised the Committee that the decision to proceed also took account of concerns over the operational effectiveness of the existing IT system, first introduced in 1994. DFP pointed out that, following the decision to proceed, the majority of bills were issued accurately but acknowledged that the decision had led to significant operational and financial management difficulties. The Committee pressed DFP as to whether it had identified all the risks to the system before its decision to proceed. DFP responded that it had identified all the threats and risks to the system and sought to manage these as best as it could.

11. DFP informed the Committee that the Minister was kept fully advised leading up to the decision to proceed with rating reform using the new IT system. The Department also pointed out that there was no requirement for a Ministerial direction as nothing was being requested that was considered to pose a major risk to the system or was judged to be inappropriate.

12. The Committee considers that the decision to proceed with the implementation of the new system was based on a fundamentally flawed risk assessment. It is crystal clear that the Department’s risk assessment did not take sufficient account of the huge risks of not testing the system adequately, the impact of transferring front line staff to work on the introduction of rate reforms and the enormous financial consequences of postponing the collection of arrears. The Committee accepts that the Department achieved its objective of successfully calculating and issuing bills based on capital values by April 2007. However, it is clear that the price paid by the various stakeholders in meeting this deadline outweighed the benefit many times over. The timetable objective may have been achieved but in the process of achieving it the organisation was thrown into chaos.

13. The Committee accepts that the new reforms may have led to a fairer allocation of rates between ratepayers with some paying less, others more and various reliefs and allowances introduced for those in great need, such as the Lone Pensioner Allowance. The Committee is of the view that a properly considered risk assessment would have avoided many of the problems noted in this report by postponing the reforms for one year.

Recommendation 1

14. The Committee recommends that risk assessments for new projects and programmes include a full assessment and evaluation of the costs of any steps taken to override normal implementation controls, to re-prioritise front line staff and to reduce customer services, particularly when challenging or fixed deadlines must be met.

Recommendation 2

15. Strong and realistic leadership from the programme board is essential to recognise what is and what is not achievable given the available timescales and resources. The Committee recommends Departments to invoke strong governance arrangements over such risk assessments, including consideration by the Department’s Audit Committee.

Recommendation 3

16. Implementation of new IT systems in the public sector has regularly caused difficulties. This is particularly the case if implemented at the same time as major policy changes. The Committee recommends that major new IT systems should not go live until major policy changes are finalised. In exceptional circumstances where this cannot be avoided, such IT projects should be assessed and managed on the basis that there is a high risk of failure, risks must be fully evaluated and adequate resources and contingency plans put in place to minimise the likelihood of post implementation failure and/or significant additional costs occurring. Risk of failure should also be mitigated through skilful project management and ensuring that whatever resources are needed are secured to check and test the adequacy of the design changes. Shortcuts in quality control measures must not be taken.

Recommendation 4

17. Transferring key operational staff to the project to meet the go live deadline led to significant operational problems post implementation of the new system. The Committee recommends that sufficient resources must always be found to ensure core business functions, customer service and performance standards are maintained rather than allow these to deteriorate in order to meet a project deadline, no matter how important that project might be.

Gateway Reviews signalled implementation problems

18. The Gateway process is used to assist with the successful delivery of large procurement projects, particularly IT ones. The Office of Government Commerce (OGC) introduced the Gateway review process in Great Britain in 2001 and it was adopted for IT projects in Northern Ireland in 2003. It provides a structured approach to project management by carrying out reviews at five key decision points or “gateways” in the life of the project; three before the award of a contract and two covering service implementation. Reviews are conducted by a team of experts who are independent of the project. Reports are made at each Gateway giving a red, amber or green status depending on the urgency of any action required to ensure the project’s successful progress. Red requires action to be taken immediately while amber requires action to be taken by the next Gateway review and green, take action as required.

19. This IT project has had four Gateway reviews, three of which were assessed as having red status and one amber. DFP informed the Committee that, for each review, it addressed the concerns that had been identified and that it believed that sufficient remedial action had been taken to allow the implementation of the project.

20. The Committee is surprised by this response given the significant pressures faced by almost every part of the business, at that time, and the resultant chaos that ensued. Many of the problems arose due to the rush to meet a deadline that is set in stone. Shortcuts were taken with the system’s implementation and resources re-allocated from the Agency’s day to day business to meet the deadline. The Committee is not convinced that all the Gateway recommendations were implemented as effectively and as quickly as was necessary, particularly the concerns raised by the Gateway team about time pressures and the adequacy of resources. The Committee can only conclude that the Department is mistaken in its positive assessment of the actions it took and/or the speed with which it took them.

Recommendation 5

21. The Committee recommends that DFP examines, in consultation with the Office of Government Commerce, why the Gateway process did not lead to a better outcome in this case. There are obviously lessons to be learnt. The Committee wishes to be informed of the results of this review.

Deficiencies in the design and development of the IT system

22. DFP informed the Committee that the new system was very complex with a specification of some 800 pages and that staff, across the Agency, were involved in reviewing it. DFP commented that it is sometimes difficult for business users to understand the detail that is required in an IT specification. The Committee was advised by DFP that it had mostly got mainstream business processes correct but regretted that some areas were missed and some functional errors made. The Committee disagrees with this assessment. Areas missed included:

the system’s ability to issue final reminders, a core operation of the Agency;
initiating legal proceedings;
validation controls over manual input errors; and
an audit trail that enabled the C&AG to give adequate assurance on the accounts.

23. The Committee asked who was responsible for the specification; the Agency or the IT contractor. The Department informed the Committee that the detail of the specification rested fully with the Agency although it was assisted by the contractor. The Department emphasised that the contractor had to deal with significant changes, some very late in the day, as a result of revisions to rating policy.

24. The Committee accepts that many of these problems were the responsibility of the Agency but also considers that a number of the deficiencies in the software should have been, at least, picked up by the contractor, before proceeding. For example, the Committee is very surprised that the system allows some ratepayers to be incorrectly issued with million pound bills due to simple keying in errors. IT systems should be designed to prevent and detect manual errors of this nature.

25. The Committee wanted to know from DFP whether the system could now be confirmed as stable, as far as operational and financial needs are concerned, and that the system meets the Agency’s needs for the foreseeable future. The Department informed the Committee that the Agency has made major progress on the post ‘go live’ IT system issues with regard to operational needs, including accounting and financial management and control. The Agency’s ongoing full review of the system’s financial specification has identified a number of improvements and projects to deliver these have started. Nevertheless new demands on the system will continue to emerge as further changes to the rating system and associated rating reliefs are introduced following decisions by the Executive and the Assembly. DFP concluded that such changes to the system will require development, testing and implementation.

26. The Department informed the Committee that additional requirements, including expert advice, requirements over and above the contracted work and improvements to functionality add further costs to the system. The estimated total cost of the IT replacement project at the time of its closure in June 2008 is £13 million. This figure, which excludes the costs arising from the Review of Rating, is just outside the original risk analysis for the approved business case.

27. The Committee is concerned that the cost has escalated from an initial estimate of £10.5 million to a revised estimate in the C&AG’s report of £11.5 million and now this cost has increased by a further £1.5 million to £13 million. The Committee is of the opinion that the contractor is doing very well out of the increasing value of the contract. Errors or omissions from the specification provide contractors with a rich revenue stream that is not subject to competitive tendering.

Recommendation 6

28. The completeness and accuracy of specifications for large, complex and/or Mission Critical[2] IT systems are essential if a system is to be successful. The Committee recommends that IT personnel, business users, the finance team, internal auditors and the IT contractor must work closely and effectively together. In addition they must have a clear understanding of the knowledge and expertise each must bring to the successful development of a specification that meets operational and financial requirements. Roles and responsibilities must be clearly defined.

Skills and Competencies

29. DFP advised the Committee that the entire rating reform project was managed within an overall project delivery framework that was fully compliant with OGC arrangements. There was an overall programme board led by a Senior Responsible Officer (SRO) and individual IT projects beneath this main board, each with their own SRO. DFP emphasised to the Committee that this radical and extensive programme of reform involved introducing new systems over a very short timescale. DFP remarked that the separate project teams may have, at times, worked against a successful outcome by not taking full account of the interdependencies between each sub-project. DFP also noted that appropriately skilled and experienced people for such large projects are in short supply.

30. The Committee welcomes the Department’s candour on these deficiencies. This case has exposed a worrying IT skills deficit which the Department is now taking steps to address. The public service needs talented, commercially orientated IT specialists that can negotiate effective outcomes with private sector contractors.

31. The Committee also considers that the project lacked sufficient accounting and management expertise. Better accounting skills should have assisted in reducing the volume of basic financial deficiencies in the system specification and design. Better management skills may have led to better decision making in terms of what needed to be done to create stable post implementation operations.

Recommendation 7

32. The Committee considers it essential that all projects, but particularly IT projects, have project teams with the skills and experience proportionate to the size, complexity and importance of the project. The Committee recommends that a general pool of experts from the wider public sector, who have extensive skills and experience of successfully delivering IT projects, is formed and if necessary enhanced by recruitment. This pool must have sufficient breadth of experience to meet the longer term future needs of the Northern Ireland Civil Service. These experts should be allocated to lead large and complex Mission Critical projects.

Recommendation 8

33. The Committee recommends that there must be clear lines of communication between project sub-teams and SROs reporting to the main project board. This is particularly important given the failure to cope with the various interdependencies which, in this project, were not properly identified and/or communicated.

Data transfer and data testing problems

34. DFP informed the Committee that both the quality of the data transferred from the old IT system to the new one and the testing of the new system with test data were sub-standard. DFP explained that much of the data on the old system was unstructured and it was therefore difficult to establish rules for its transfer. The Department admitted that more resources should have been allocated to this. The Committee is alarmed by this given that a new system had been in planning since 2001.

35. Test data was used to check whether the system worked properly. The data used did not test all potential eventualities and therefore did not reveal certain crucial errors in the specification. For instance, following the IT system going live, it was discovered that there were insufficient, inbuilt software checks validating data input manually.

Recommendation 9

36. The Committee strongly recommends that sufficient planning, time and resources must be given to the quality of data transfers and the adequacy of data testing before a system goes live. Shortcuts with testing data must never be taken no matter how important the deadline might be as the cost of any subsequent flaws can be very substantial in terms of fixing an underperforming, live system. The Committee makes this recommendation recognising that it is a very basic and self-evident point but one that was not followed in this project, given the pressures arising from the tight implementation deadline.

Defective Financial and Operational Controls

Adequacy of financial accounts

37. The C&AG recommended as far back as 2005-2006[3] that DFP strengthened accountability arrangements for rates assessments and collection. Presently no annual report or financial statements are prepared or laid at the Assembly on what is a billion pound business. The current accounts consist of a one page, cash based statement. The Committee is astonished that the long established principle of commercial style accruals accounting has not yet been introduced to such a significant source of public sector revenue. This must be one of the few remaining accounts prepared in this basic and most uninformative manner.

38. DFP informed the Committee that a project has commenced that will enhance the accountability arrangements in due course. The Department noted that the restatement of the Statement of Rate Levy and Collection from a cash to an accruals basis will be a complex and challenging process. In order to ensure a clear focus on this task, the Agency has appointed a professionally qualified accountant to lead a project team to manage and oversee the transition to the new arrangements. This team will work to the delivery of a fully auditable resource based collection account by 2009-10.

39. The Committee noted that the receipts figure of £847 million could not be traced through to bills paid and included a £4 million pounds balancing figure. Vacancy deductions of £22 million included another £4 million pounds balancing figure. Even the bank account was not reconciled, the most basic but critical of accounting controls. The Committee notes, however, that the C&AG could not, in the circumstances give any assurance on the 2006-07 accounts as it was not possible to verify a number of very material figures reported in the accounts. This was due to significant control problems arising from the poor specification of the IT system and due to certain key controls not functioning.

40. The Committee has reviewed the updated information provided by the Agency on progress made since the preparation of the C&AG’s report. While there is evidence of some progress, there is still much to be done.

Recommendation 10

41. The Committee strongly recommends that DFP ensures that all major systems problems that have led to a lack of proper audit trail are fully resolved. The Committee acknowledges that these audit trail deficiencies remain inherent within the 2007-08 accounts but expects DFP to ensure that the 2008-09 accounts are properly supported by the books and records so that the C&AG can provide the Assembly with an unqualified opinion on the accounts.

Recommendation 11

42. The Committee expects DFP to prepare accurate and timely accounts, initially on a cash basis. The Committee recommends that DFP puts in place arrangements for the preparation of a modern style annual report, as soon as possible that includes accruals based financial information. DFP should liaise closely with the Audit Office in devising the accounting policies and disclosures for these accounts.

Financial control weaknesses

Validation controls

43. The Committee is of the view that it is incredible that the new IT system allowed ratepayers to receive incorrect bills in the value of millions of pounds. The Committee is concerned that the Department was unable to provide any assurance that smaller errors were or would be detected.

44. The Committee is concerned that a new IT system dealing with hundreds of thousands of bills requires so much manual data input. Where data is input manually, the Committee noted that there are insufficient validation controls built into the system software to detect keying in errors. These are basic controls which have been standard in IT system designs for decades.

45. The omission of such validation controls, in the Committee’s view, is an extremely serious oversight on the part of those at the Agency who prepared the specification and indeed on the contractor who wrote the software. It beggars belief that such a basic matter as this was overlooked by all involved in the development of the system’s software.

46. DFP informed the Committee that this was a very large system going through significant change and errors and omissions occurred in the specification and design of the system around certain non-standards transactions. The Department informed the Committee that any shortcomings in the system affecting a very small percentage of transactions can affect thousands of ratepayers. The Committee noted that, in this environment, considerable time and resources are required to resolve the backlog of errors and complaints that inevitably arise.

47. The Department pointed out that it was considering introducing supervisory checks in the absence of these embedded software controls. The Committee considers that this type of extensive supervisory checking should not normally be required in a properly designed IT system.

48. The Committee understands that mistakes are made by staff when a high number of transactions must be processed each day. This was compounded by employing casual staff unfamiliar with the business to replace experienced staff who were reassigned to ensure the reforms were introduced on time. In the Committee’s view the Agency’s staff who were not given the basic IT tools to avoid the normal levels of human error in processing significant amounts of data each day.

Recommendation 12

49. The Committee recommends that all software systems should be designed to reduce the amount of manual data input and limit the extensive use of supervisory test checking that has for so long been the resource intensive practice employed in the public sector. Information should only be input once with all aspects of the system updated electronically. IT systems must have strong validation controls that prevent or, at the very least, substantially reduce human error. In this particular case, DFP should amend the system accordingly and robustly negotiate the cost of doing so with the contractor given the Committee’s view that such system failings should have been obvious to the contractor when designing the software.

Landlord and agency allowances

50. The Committee also questioned DFP about the £5 million of allowances received by landlords and agents for prompt payment, even though some may not have qualified. The Department explained that the bills were issued under the old IT system but payment of them processed on the new system. There were difficulties processing these receipts on the new system which meant that they were input individually. The Department informed the Committee that staff did not follow procedures given to them.

51. The Committee is concerned that senior management considered this problem to be one where staff did not follow procedure rather than, as the Committee concludes, a management failure to introduce effective systems.

Bank reconciliations

52. The Committee noted that bank reconciliations, which are probably the most basic and key control of any business no matter how small, remain outstanding since 2006. DFP regretted that the main bank reconciliation was not working in 2006-07; this was due to a backlog in the Agency after the new system was installed. Significant progress has been made since then. The Agency noted that there are now just 352 that relate to 2006-07 and 180 items relating to 2007-08 that remain to be reconciled. The 2008-09 bank reconciliation is now being carried out daily. Queries that have been identified are investigated immediately and resolved promptly. The three other accounts that are used for rate revenue money are all up to date. The Committee was assured, at least, that this control is finally in place.

Cash Office Procedures

53. Internal Audit highlighted fundamental flaws in cash office procedures following the implementation of the new IT system in October 2006. Cashiers could remove a receipt from the system and this would not be picked up by any reconciliation. This was a serious control failing. The Department informed the Committee that this weakness arose because the permission levels for users were weak. Also, an individual had inappropriately obtained a supervisor’s password and used that password to reverse receipts already issued. Following investigation action was immediately taken to address these control failures. A manual process was designed, quality assured by DFP Internal Audit, and implemented from February 2007 until a system ‘fix’ was developed, tested and implemented in September 2007.

Recommendation 13

54. The Committee is particularly concerned that the new system contained a major system weakness in cash procedures which increased the risk of fraud. The Committee recommends that all outstanding system problems are resolved as a matter of urgency and that this Committee is provided with a timetable for their resolution. The Committee expects DFP’s audit committee to closely monitor and challenge progress made and obtain sufficient evidence that there are no other significant system weaknesses.

Fraud risk

55. Weaknesses in financial procedures such as those noted above, increase the risk of fraud, as well as error. Moreover, they reduce the likelihood of detection of fraud. The Committee asked how many frauds has been discovered in the last three years. The Department informed the Committee that, in the last three years, following investigations and, including the case referred to above, the Agency has detected two internal frauds. In both these cases, legal proceedings are under way.

56. Given this extremely weak control environment, the Committee was therefore amazed that DFP, the Department responsible for issuing best practice guidance, did not yet have a whistle-blowing policy in place.

Recommendation 14

57. The Committee reiterates the recommendation made previously in its report on Tackling Public Sector Fraud[4] that it would like to see much more emphasis given to whistle-blowing as an important means of identifying potential fraudulent activity. There is no excuse for 25% of departments and agencies not having whistle-blowing policies in place and expects DFP to ensure this deficit is addressed and that full compliance is achieved. The Committee also expects DFP to ensure that departments are proactive in training and encouraging staff to blow the whistle and for DFP to include an analysis of activity levels of whistle-blowing across departments as part of its annual Fraud Report.

Staff morale

58. The Committee enquired about the impact that the system problems were having on staff morale and asked DFP for a copy of a staff survey conducted in 2007 covering all staff at the Department and its agencies. The Committee has now received this survey and has found the results relating to the Agency to be very disturbing. 43% of the Agency’s staff believed that they had insufficient resources to do their job properly, 43% felt customers did not receive a good quality service and a staggering 47% did not have overall confidence in senior management. All of these results were considerably worse than those of the Department as a whole.

59. The Agency informed the Committee that 50% of staff had responded to the survey and the comments quoted above were made by individuals. The Committee was informed that the Agency hopes that attitudes have improved, given the effort that has been made since then to support the business. The Agency noted that a further survey is to be conducted soon and will be provided to the Committee by January 2009. As a result of the outcome of the 2007 staff attitude survey, the Committee has been advised that an action plan has been initiated for 2008-09. All Agency staff were consulted on the plan. The plan contains 26 steps to be taken to improve performance in the key areas of leadership/management, customer focus and communications.

60. The Committee welcomes the fact that a staff attitude survey was conducted during what has been a very challenging time for all those working at the Agency. It also welcomes the introduction of an action plan and the fact that staff were consulted on its content.

Recommendation 15

61. The Committee recommends that meaningful and challenging performance targets are set for staff morale and that the implementation of the action plan is monitored by DFP’s audit committee.

Recommendation 16

62. The Committee also recommends that a further survey of the Agency’s staff is conducted in Autumn 2009.

Customer service

63. From the evidence presented to the Committee, it is very evident that customer service has suffered appallingly as a result of these problems. During the past nine months elected representatives have been inundated with reports of people receiving the wrong rates demands, receiving a bill for the house next door or vulnerable pensioners who are waiting for their much needed allowances. Examples were given of ratepayers repeatedly being unable to contact the Agency.

64. The Department informed the Committee that this was not acceptable and there is no excuse for it. It added that it is conscious of the importance of people being able to make telephone contact rapidly and that is why it is developing a new contact system, called ‘Northern Ireland Direct’. This will come into operation later in the year. Northern Ireland Direct will provide callers with a three digit telephone number for government services; one of its initial priorities is those people who want to contact the Agency.

65. Some £7.2 million of receipts were unallocated to ratepayer accounts at 31 March 2007. The Committee asked DFP if this meant that those that had paid their rates find themselves being pursued for late payment. DFP pointed out that, if the Agency is unable to allocate receipts to the correct accounts because the necessary details have not been provided, then it is likely that the ratepayers will receive a final notice. However, this normally triggers the ratepayers to make contact with the Agency to say that they have already paid the bill and, once they have provided the information needed, the receipt can be allocated to them.

66. DFP advised the Committee that some £6.9 million has now been allocated to customer accounts. The remaining £273,000 has been allocated to suspense accounts[5] and the Agency is working to allocate these receipts to the correct ratepayer accounts. Every effort will continue to be made to allocate payments received to the correct accounts.

67. The Committee notes the Department’s explanation for unallocated cash but would point out that the C&AG’s report notes that the £7.2 million of unallocated cash was due to continued problems with the IT system. Nevertheless, notwithstanding the reason, the Committee is concerned that there are still a considerable number of ratepayers whose payments for 2006-07 have still not been allocated some 18 months later and are probably being pursued as if they are in arrears. The Committee is concerned that they probably have given up trying to contact the Agency given the comments above.

68. The Committee agrees with DFP that not responding to customer enquiries is unacceptable. Many ratepayers have legitimate worries as a result of receiving inaccurate bills and vulnerable ratepayers need help in obtaining allowances, which can be complicated to claim let alone understand. The Committee records the obvious point that administrative backlogs and poor customer care are not a good combination and must be avoided by public sector service providers. Life is difficult enough for the ordinary ratepayer in the unprecedented economic difficulties. Citizens expect and deserve a lot better than this from the public sector.

Recommendation 17

69. The Committee recommends that DFP radically improves the quality of its customer care to its ratepayers, including its handling of phone calls and introduces strong, measurable performance criteria in this area, which should be monitored closely. The Committee wants DFP to report back on what performance targets it has put in place to measure customer service and its timeframe for achieving them. These performance measures should be reported and commented upon in the Annual Report.

Identifying all rateable properties

70. During 2006-07, the Agency abandoned its inspections of vacant properties, that is, properties which are not billed for rates. Through such inspections, properties notified as vacant can be found to be occupied and rates payable. This important work was deferred as staff were needed to assist with the introduction of rate reforms. The Committee asked why the consequences of the drive to introduce reforms were not foreseen earlier and managed better. DFP noted that it had taken the view, at the time, that the work could be caught up later. But in hindsight it admitted that it should have committed more resources to this and other deferred activities during 2006-07 towards the end of the lengthy rating reform process.

71. It is vital that the Agency has an accurate up to date list of all properties so that all those liable to pay rates are assessed and billed. The Committee was concerned that there was evidence of both old and new properties that had been overlooked. The Department commented that there could never be 100% accuracy due to the nature of changes occurring in the property market and the volume of properties to be recorded. The Agency informed the Committee that it obtains information from a variety of sources, the most important of which were District Councils. An exercise is currently being carried out with Belfast City Council’s building control department to improve the accuracy of the property list in its area with a view to extending it out throughout NI.

Recommendation 18

72. The Committee recommends that demanding targets are set for a reduction in the level of incorrectly recorded vacant properties, over each Council area, and for increasing the amount of rateable assessments for so called vacant properties.

Recommendation 19

73. The Committee recommends that co-operation is needed with Councils to maximise district and regional rate revenues and recommends that the Department conducts a research study in conjunction with Councils with a view to having an agreed strategy on assessing and billing all eligible properties in a timely manner.

Problems with the calculation of the penny product

74. The penny product is a statistical analysis used to derive the district rate. The Agency prepares an estimate of it that is used by District Councils to forecast their future revenue as part of the operational planning. There has been a history of errors in calculating the penny product that has led to amounts repaid by some Councils and others receiving additional revenue. The Committee noted that Councils have regularly expressed concerns over the accuracy of the amounts estimated by the Agency.

75. The Committee noted that assurances had been given to the Committee of Finance and Personnel in 2001 that calculations in future would be accurate. The Committee asked DFP why an error had reoccurred in 2006-07. DFP explained that a control had been compromised but that the error had been quickly found by staff and revised estimates issued. Any calculation of the penny product is now fully reperformed by another person to ensure accuracy of calculation. The Committee was of the view that reperformance was a very outdated solution and that better technology was needed.

76. The Committee questioned DFP why amounts were clawed back from a number of Councils. DFP pointed out that these were not the result of errors but differences that arise as events crystallise differently than forecast. Estimates are a prediction of future events and are rarely exactly accurate. DFP noted that estimates for most Councils were within 2%, although it was admitted a number of Councils had a much wider margin of difference. DFP explained that it was learning from past results and had recently worked in greater partnership with Councils to share information and identify gaps in the data used in the calculations.

77. Since the evidence session, the Committee received correspondence from Derry City Council which notes the Council’s grave concern over the impact that overestimates of penny product are likely to have in future years on ratepayers through higher rates. The Council also expressed concern at the loss of revenue from vacant properties as a result of the deferral of regular checks and the above inflation increase in the Agency’s cost of collection which it must pay.

78. The Committee is extremely concerned that DFP was not providing Councils with sufficiently accurate information to enable them to do their their corporate planning. Small percentage errors have a very significant impact on their finances. It seemed to the Committee that insufficient resources have been provided to improving accuracy in this important area, perhaps, because DFP considered this to be more of problem issue for Councils than for itself. While the Committee notes DFP’s comments that more partnership working had been introduced recently, this seems to the Committee to be too little and too late.

Recommendation 20

79. The accuracy of penny product information is essential to the effective financial planning of Council services. While the Committee recognises that forecasting is not an exact science, the Committee is of the view that DFP has not invested sufficient energy into developing systems for calculating the actual penny product and into estimating subsequent year(s) penny product. The Committee recommends that DFP places more resources into the system and develops a more robust budgetary model to estimate future Council revenue.

The High Level of Rate Arrears following the Introduction of the New Reforms

80. Throughout this report, the Committee has been critical of the adverse impact that the priority which DFP gave to implementing the reforms in domestic rates by 1 April 2007 has had on the development of the IT system, the performance of the Agency on behalf of its customers and on its financial accounting. However, the decision to defer the collection of arrears is, in the Committee’s view, the most incredible decision of all.

81. The prior record of the Agency in collecting rates had been good with rate arrears of £24 million in 2004 but, following this decision, arrears rose to £88 million in 2007 and £124 million in 2008. The Committee asked DFP if it had considered other options and if it had estimated what the impact of the decision to defer collection would have on public finances. DFP responded that it had carefully considered the options available at the time but a clear decision was taken to give high priority to ensuring that the system was in a sufficient state of readiness to collect more than £1 billion of rates revenue (based on the new reforms) that was due for billing on 1 April 2007. The potential risk to collection of this revenue was judged to take a higher priority than the risk (which materialised) of not being able to use the new IT system to process debt proceedings against those who had failed to pay their rates bills on time. As the C&AG’s report highlights, rate arrears increased by some £40 million in 2006-07.

82. DFP informed the Committee that central government finances would have been in trouble, because of higher arrears, if it were not for significant underspends in other areas. The shortfall of revenue collected over the amount budgeted was £54 million in 2006-07 and £30 million on 2007-08. If and when the backlog in arrears is collected that money will fund spending. The Department accepted that if extra money had been received from rates, it could have adjusted expenditure upwards to allow more money to be used on public services. If and when the shortfalls are recovered, through recovery of arrears, this money will be used in spending plans.

83. The Committee finds it difficult to understand the decision taken to defer recovery of arrears, given its effect on public finances. The Committee is not convinced that other options, such as timetable adjustment, were sufficiently explored.

84. Every day’s delay in recovering arrears increases the cost of its collection and the risk of bad debt. Pursuing arrears is time-consuming, particularly if it is not done in a timely manner. More people will have moved house or will avoid payment due to the delay in pursuing them or simply will not be able to afford repayment of rate arrears on top of the arrival of the next year’s bill. More time and money will also be spent arranging assistance to those in financial difficulty to pay off arrears by instalments.

85. DFP informed the Committee that pursuing older debt and tracing ratepayers who have moved is time-consuming. It should, nevertheless, be noted that the Agency does not write off debt until all possible rate recovery actions have been exhausted.

86. All of this has a significant cost. At one stage the Agency had only seven people tasked with pursuing arrears. DFP informed the Committee that it is now putting a lot of time and effort into this. Staff involved in the catchup exercise has risen to 80. The Committee is very concerned with, not only the spiralling level of arrears as a result of the decision to defer, but also with the spiralling cost of collection given the number of staff needed to undertaking recovery action. The Department estimates that the extra cost of this is in the region of £700,000. This is based on cost of staff to deal with the backlogs in revenue and benefits (£340,000), the costs of casual staff to ‘backfill’ these posts (£300,000), and the costs of data matching to trace ratepayers who have moved (£60,000).

87. The Committee asked what impact these additional amounts were having on the cost of collecting rates. The Department then informed the Committee that this information is not currently available as unit cost targets, which were published annually by the former Rate Collection Agency, were discontinued with effect from 2005-2006 due to the additional work necessary for the programme of rating reforms.

88. The Committee finds it unacceptable that the preparation and publication of such key performance information was discontinued to accommodate the introduction of rating reforms. The Department informed the Committee that the best alternative information available is the unit cost of collecting rates that is, raising assessments and pursuing collection for each rateable property. The estimate for 2007-08 was £20.00 (£11.00 in 2005-06). The estimated cost for receiving and processing Housing Benefit applications was £36.00 (£28.00 in 2005-06). The Department informed the Committee that the Agency will reintroduce unit costs for revenues and benefits from 1 April 2009. These will be benchmarked with similar appropriate revenue and benefits bodies in Great Britain and Ireland. The Committee is concerned at the significant increases in these figures over two years.

89. The Committee also wanted to know what impact the decision to defer recovery action would have on levels of irrecoverable rates. DFP informed the Committee that it estimates irrecoverable arrears to double from £2 million to £4 million each year but noted that this estimate was subject to a fair degree of uncertainty. The Department’s view was that “it was a question of just waiting to see what happens”. In the Committee’s view the £4 million estimate seems very much understated given the current economic difficulties people are facing with enormous rises in electricity and gas prices and the lack of credit now available.

90. DFP informed the Committee that, under current arrangements, Councils would have to fund the higher cost of collection in the years to come as well as sharing with central government any loss of funds due to irrecoverable rates. This means less money to spend on public services. The Committee finds it intolerable that Councils will have to ‘pick up the tab’ for systemic failure in a central government agency.

91. The Committee asked DFP when arrears would return to the levels experienced in 2004, when the Agency’s performance was good when benchmarked against other agencies. DFP commented that a return to 2004 levels would be difficult given the amount of collectable debt over the past five years has grown by 50% and that the Agency now has non domestic vacant rates to collect, which were not in place in 2004. DFP assured the Committee that there is no acceptable level of arrears but it is seeking to carry out benchmarking with other collection authorities to establish what the future level of arrears should be. The Committee is concerned that there is no robust target established and that the DFP could not say when the normal target of collecting 98% of assessments will be achieved.

Recommendation 21

92. The collection of arrears is a core business activity of the Agency. The collection of rate revenue is an important source of funding for central government and a vital one for Councils. The Committee recommends that sufficient resources should always be allocated to the collection of arrears and that these should be ring fenced. Collection of arrears should never be deferred.

Recommendation 22

93. The Committee recommends that DFP introduces robust measurable performance criteria for the management and collection of rate arrears. This should include a target level of overall arrears, and more detailed targets for each Council area.

Recommendation 23

94. The Committee recommends that revenue forgone and additional costs of collection as a result of the problems with the new system will not be passed on to Councils. The Committee would like an assurance of this from DFP.

Next Steps

Recommendation 24

95. The Department has referred to some of the measures it is taking to stabilise the Agency’s rate collection business. The Committee recommends that these should be put to the Committee in the form of a comprehensive action plan which sets out what is needed to resolve the key problem issues. In particular, the action plan must deal with the following:

governance and the control environment;
leadership and management skills;
communication with stakeholders; and
the IT systems.

DFP’s Audit Committee must closely monitor the progress made against this action plan.

Recommendation 25

96. The Committee also considers it essential that the Department’s Audit Committee monitors closely the governance and control environment of Land and Property Services and the performance of its constituent parts that now include rates assessments, property valuations, mapping and land registration.

Recommendation 26

97. The Agency’s problems are so wide-ranging that the Committee would suggest that the Assembly’s Committee for Finance and Personnel pays particular attention to the regular monitoring of progress made in stabilising the business and strengthening the governance arrangements.

Recommendation 27

98. The Committee recommends that DFP introduces as soon as possible measurable performance criteria for the assessment and collection of rates. These should include:

rates assessments, including a target for improving the completeness of the register of rateable properties and inaccuracies in the number of properties treated as vacant;
billing;
collection, including the cost of collection per £1 of rates;
stakeholder satisfaction; ratepayers, District Councils and staff;
irrecoverable rates; and
accuracy of penny product estimates.

The standard for these performance criteria should be set at a level that is comparable to the best results achieved in other collection authorities and take account of the needs of key stakeholders.

Managing the Pace of Change

99. The Agency was attempting to manage significant change on three different fronts; policy, systems and structures. At the same time, its parent Department was managing a number of other complex, change management projects including HR Connect, and Account NI.

100. The Committee has the impression that both, in the Department and the Agency, there are too many complex projects and initiatives competing for senior management expertise, other essential skills and resources generally. The Agency, in this case, was trying to do too much in too short a timescale.

Recommendation 28

101. All public bodies need to think realistically and carefully about the number of complex change management or IT projects that they can manage and resource at the same time, particularly given the short supply of skilled and experienced project managers and specialists. The Committee recommends that DFP disseminates information on lessons learnt in terms of skills, project management and specialists during this process to other departments where there are multiple significant changes occurring, to avoid similar issues arising in the future.

[1] ‘DAO(DFP) 17/04, dated October 2004 on ‘Delivering success in Government Acquisition-Based Programmes and Projects’.

[2] ‘As defined in DAO(DFP) 17/04, dated 21 October on ‘Delivering Success in Government Acquisition-Based Programmes and Projects’.

[3] ‘General Report by the Comptroller and Auditor General for Northern Ireland. Financial Auditing and Reporting: 2005-2006 (NIA 65/06-07)’

[4] Public Accounts Committee Report on Public Sector Fraud (13/07/08R)

[5] A suspense account is a book-keeping account that contains transactions that require more information before they can be accounted for accurately. It is a holding account.

Appendix 1 Minutes of Proceedings
Relating to the Report

Thursday, 18 September 2008
Senate Chamber, Parliament Buildings

Present:
Mr Paul Maskey (Chairperson)
Mr Roy Beggs (Deputy Chairperson)
Mr Thomas Burns
Mr Jonathan Craig
Mr John Dallat
Mr Mitchel McLaughlin
Ms Dawn Purvis
Mr George Robinson
Mr Jim Shannon
Mr Jim Wells

In Attendance:
Mr Jim Beatty (Assembly Clerk)
Mrs Gillian Lewis (Assistant Assembly Clerk)
Mr John Lunny (Clerical Supervisor)
Mr Darren Weir (Clerical Supervisor)

Apologies:
Mr Trevor Lunn

The meeting opened at 2.04pm in public session.

The Chairperson welcomed Mr Kieran Donnelly, Deputy Comptroller and Auditor General (C&AG) and Mr David Thomson, Treasury Officer of Accounts (TOA) to the meeting.

5. Evidence on the NIAO Report ‘Statement of Rate Levy and Collection 2006-07’.

The Committee took oral evidence on the NIAO report ‘Statement of Rate Levy and Collection 2006-07’ from Mr Leo O’Reilly, Accounting Officer, Department of Finance and Personnel (DFP), Mr John Wilkinson, Chief Executive, Land and Property Services (LPS), Mr Arthur Scott, Director of Operations, LPS, and Ms Anne Johnston, Programme Manager for the Rating Reform and Modernisation Programme, LPS.

Mr Beggs, Mr Burns, Mr Craig, Mr Dallat, Mr Robinson and Mr Shannon declared an interest as they are councillors in local government.

2.14pm Mr Wells joined the meeting.
2.15pm Ms Purvis joined the meeting.

The witnesses answered a number of questions put by the Committee.

3.50pm Mr McLaughlin left the meeting.
4.10pm Mr Burns left the meeting.
4.15pm Ms Purvis left the meeting.

Members requested that the witnesses should provide additional information to the Clerk on some issues raised as a result of the evidence session.

4.38pm The evidence session finished and the witnesses left the meeting.

[EXTRACT]

Thursday, 16 October 2008
Room 144, Parliament Buildings

Present:
Mr Paul Maskey (Chairperson)
Mr Roy Beggs (Deputy Chairperson)
Mr Jonathan Craig
Mr John Dallat
Mr Trevor Lunn
Mr Mitchel McLaughlin
Mr George Robinson
Mr Jim Shannon
Mr Jim Wells

In Attendance:
Mr Jim Beatty (Assembly Clerk)
Ms Alison Ross (Assembly Clerk)
Mrs Gillian Lewis (Assistant Assembly Clerk)
Mr John Lunny (Clerical Supervisor)
Mr Darren Weir (Clerical Officer)

Apologies:
Ms Dawn Purvis

The meeting opened at 2.00pm in public session.

2.03pm Mr McLaughlin joined the meeting.

2.42pm The meeting went into closed session.

7. Consideration of the Committee’s Draft Report on Statement of Rate Levy and Collection 2006-07.

Members considered the draft report paragraph by paragraph.

The Committee considered the main body of the report.

Paragraphs 1 – 11 read and agreed.

Paragraphs 12 and 13 read, amended and agreed.

Paragraphs 14 and 15 read and agreed.

Paragraph 16 read, amended and agreed.

Paragraph 17 - 19 read and agreed.

Paragraph 20 and 21 read, amended and agreed.

3.32pm Mr Shannon left the meeting.

Paragraph 22 and 23 read, amended and agreed.

Paragraphs 24 – 27 read and agreed.

Paragraph 28 read, amended and agreed.

Paragraphs 29 – 31 read and agreed.

Paragraphs 32 – 34 read, amended and agreed.

Paragraphs 35 and 36 read and agreed.

Paragraph 37 read, amended and agreed.

Paragraph 38 read and agreed.

3.53pm Mr Lunn left the meeting.

Paragraph 39 read, amended and agreed.

Paragraph 40 read and agreed.

Paragraph 41 read, amended and agreed.

Paragraph 42 read and agreed.

Paragraphs 43 – 45 read, amended and agreed.

Paragraph 46 read and agreed.

Paragraphs 47 – 50 read, amended and agreed.

Paragraphs 51 – 55 read and agreed.

Paragraphs 56 and 57 read, amended and agreed.

Paragraphs 58 – 62 read and agreed.

4.14pm Mr McLaughlin left the meeting.

Paragraph 63 read, amended and agreed.

4.16pm Mr McLaughlin rejoined the meeting.

Paragraphs 64 – 66 read and agreed.

Paragraph 67 read, amended and agreed.

Paragraph 68 read and agreed.

Paragraph 69 read, amended and agreed.

Paragraphs 70 – 72 read and agreed.

Paragraph 73 read, amended and agreed.

Paragraph 74 read and agreed.

Paragraphs 75 and 76 read, amended and agreed.

Paragraph 77 read and agreed.

Paragraph 78 read, amended and agreed.

Paragraph 79 read and agreed.

Paragraph 80 read, amended and agreed.

Paragraph 81 read and agreed.

Paragraph 82 read, amended and agreed.

Paragraph 83 read and agreed.

Paragraphs 84 – 94 read, amended and agreed.

Paragraphs 95 – 97 read and agreed.

Paragraph 98 read, amended and agreed.

Paragraphs 99 – 101 read and agreed.

The Committee considered the Executive Summary.

Paragraphs 1 – 4 read and agreed.

Paragraph 5 read, amended and agreed.

Paragraph 6 read and agreed.

Paragraphs 7 and 8 read, amended and agreed.

Paragraphs 9 – 13 read and agreed.

Paragraphs 14 – 16 read, amended and agreed.

Paragraphs 17 – 20 read and agreed.

Paragraph 21 read, amended and agreed.

Paragraph 22 read and agreed.

Paragraphs 23 – 26 read, amended and agreed.

Paragraphs 27 and 28 read and agreed.

Agreed: Members ordered the report to be printed.

Agreed: Members agreed that the Chairperson’s letter requesting further information to the Accounting Officer, Department of Finance and Personnel, the Accounting Officer’s response, and correspondence from Derry City Council would be included in the Committee’s report.

Agreed: Members agreed that the Staff Attitude Survey would be laid in the Assembly Library and published on the Committee website.

Agreed: Members agreed that an embargo date would be agreed at the next meeting when the Clerk has investigated whether there may be media interest in the report.

[EXTRACT]

Thursday, 23 October 2008
Confex 2 & 3, Stormont Hotel, Belfast

Present:
Mr Roy Beggs (Deputy Chairperson)
Mr Jonathan Craig
Mr John Dallat
Mr Trevor Lunn
Mr Mitchel McLaughlin
Ms Dawn Purvis
Mr George Robinson
Mr Jim Shannon
Mr Jim Wells

In Attendance:
Mr Jim Beatty (Assembly Clerk)
Ms Alison Ross (Assembly Clerk)
Mrs Gillian Lewis (Assistant Assembly Clerk)
Mr John Lunny (Clerical Supervisor)

Apologies:
Mr Paul Maskey (Chairperson)
Mr Thomas Burns

The meeting opened at 2.00pm in public session, the Deputy Chairperson in the Chair.

1. Apologies.

The apologies are listed above.

The Deputy Chairperson welcomed Mr Kieran Donnelly, Deputy Comptroller and Auditor General to the meeting, and Ms Fiona Hamill, Deputy Treasury Officer of Accounts (Deputy TOA) to her first Committee meeting.

4. Matters arising.

(a) Members considered whether to hold a press conference to launch the Report on Statement of Rate Levy and Collection 2006-07. Members were advised that the Information Officer recommended that the media may wish to have pre-recorded interviews, rather than hold a press conference.

Agreed: Members agreed not to hold a press conference but to advise the Clerk if any member wishes to speak to the report.

Agreed: Members agreed to embargo the report until 00.01am on Thursday, 6 November 2008.

(b) Members considered whether a letter from Mr Leo O’Reilly, Accounting Officer, Department of Finance and Personnel, should be included in the report.

Agreed: Members agreed that Mr O’Reilly’s letter should be included in the report.

Agreed: Members agreed the press release.

Appendix 2 Minutes of Evidence

18 September 2008

Members present for all or part of the proceedings:
Mr Paul Maskey (Chairperson)
Mr Roy Beggs (Deputy Chairperson)
Mr Thomas Burns
Mr Jonathan Craig
Mr John Dallat
Mr Mitchel McLaughlin
Ms Dawn Purvis
Mr George Robinson
Mr Jim Shannon
Mr Jim Wells

Witnesses:

Ms Anne Johnston
Mr Arthur Scott
Mr John Wilkinson

Land and Property Services

Mr Leo O’Reilly

Department of Finance and Personnel

Also in Attendance:

Mr Kieran Donnelly

Deputy Comptroller and Auditor General

Mr David Thomson

Treasury Officer of Accounts

1. The Chairperson (Mr P Maskey): I welcome everyone to today’s evidence session, which concerns the NIAO’s statement on rate levy and collection in 2006-07. I remind everyone that mobile phones must be switched off as they can interfere with the sound system.

2. We are considering the Comptroller and Auditor General’s report on the statement of rate levy and collection 2006-07, which was published in July 2008. I welcome Leo O’Reilly, accounting officer of the Department of Finance and Personnel (DFP); John Wilkinson, chief executive of Land and Property Services (LPS); Arthur Scott, director of operations for Land and Property Services; and Ms Anne Johnston, programme manager for the rating reform and modernisation programme for the LPS. You are all very welcome. I will open the meeting with a statement, following which we can go straight into questions.

3. Mr O’Reilly, we have given priority to the report given that the administration and collection of rates has such a significant impact on central Government and local government. It seems fair to say that the accounting and operational problems that have been noted in the report, including the spiralling levels of rates arrears, arose due to problems with the introduction of a new IT system and the pressures of meeting deadlines for issuing bills that were based on the new rating reforms. We are keen to obtain candid and open responses from you about what went wrong, and why. We are also keen to identify any important lessons that the public sector can learn when implementing new, large IT systems.

4. We want to keep the session as simple as possible, so our questions today will largely follow the structure of the report. I thank Mr O’Reilly for the up-to-date information that he has supplied to the Committee, which details the progress that has been made since the completion of the Comptroller and Auditor General’s report. That information is in members’ papers.

5. Mr Beggs: In order to be sure that we are following procedures correctly, I should say that some aspects of the report affect local government. I therefore declare an interest as a councillor on Carrickfergus Borough Council.

6. The Chairperson: I am sure that several other councillors wish to declare an interest.

7. Mr G Robinson: I am a councillor on Limavady Borough Council.

8. Mr Craig: I sit on Lisburn City Council.

9. Mr Dallat: I am a member of Coleraine Borough Council.

10. Mr Burns: I am a member of Antrim Borough Council.

11. Mr Dallat: All that information has been declared anyway.

12. The Chairperson: I am a member of Belfast City Council. However, we already have all that information.

13. Mr McLaughlin: I did not declare an interest. [Laughter.]

14. The Chairperson: You are not a councillor; you are lucky.

15. Mr Shannon: I have to declare that I am a member of Ards Borough Council.

16. The Chairperson: I think that we are covered. Mitchel has not declared such an interest, but as far as I know, he is not a councillor.

17. I understand that you have looked again at what the report states about the prompt payment discounts that are given to landlords. Paragraphs 2.2.37 and 2.2.38 of the report note that every landlord received the full discount, which totalled some £5 million. A management decision was made to pay those discounts in full. What can you tell the Committee about that? Is there a problem with how the report deals with that matter?

18. Mr Leo O’Reilly (Department of Finance and Personnel): Thank you. I will begin by giving an update of the position on landlords and agents. Obviously, the background to it is quite complex, and I welcome the opportunity to outline it briefly to the Committee.

19. Under the rating legislation, landlords and agents are entitled to a discount on their rates bill of 7·5% and, as it was then, 10%, if they pay their bill within six months, in other words, on or before 30 September in any rating year. In the year in question, 2006-07, in order to receive that discount, landlords and agents should have paid their bills on or before 30 September 2006. If a landlord or agent did not pay their bill on or before that date, they should not have claimed the discount, which would have been highlighted in their bill. If they paid after the due date, which was 30 September, and paid less than they should have — in other words, if they claimed the discount — they would have been treated as being in arrears of that amount. That would have been treated as a debit on their account for the following financial year.

20. As the Committee knows, during 2006-07, the Rate Collection Agency (RCA), as it was known then, was migrating from the old to the new IT system. Complications arose that caused the difficulties and problems that you have asked me to explain, simply because the bills were issued under the old system but the payments against which they were input were under the new system. That happened because the cutover date from the old to the new system happened in mid-September 2006, after the bills had been issued to the landlords and agents but before all the payments had been received.

21. On 4 October 2006, the new system went live, and there were difficulties with bringing it into operation. Initial difficulties were identified with landlord and agent payments, and it was therefore decided that those payments would have to be input into the system individually. They were therefore put aside in order to give staff more time to deal with them in due course.

22. From November 2006 onwards, staff in the agency started to input into the system the payments that were received from landlords and agents. Staff should have retrospectively entered the date on which the payment had been received, whether that was before or after 1 October, in order to identify the critical distinction between the date on which landlords and agents were entitled to receive the discount and the date after which they should not have received it.

23. Unfortunately, what became apparent later was that cashiers entering that information into the system, rather than inputting the retrospective date, were in some cases inputting the current date, with the result that the system automatically treated those payments as being overdue. That meant that when the proofs for new bills were received the following financial year, some showed landlords or agents as being in arrears although they had paid their bills on time.

24. When that difficulty was identified at the beginning of the 2007-08 financial year, action was taken to postpone the issue of the bills. Work was carried out then — and since then — to correct the inaccuracies in the record of payments received.

25. However, from the Department’s perspective, the Northern Ireland Audit Office’s fundamental conclusion remains valid, albeit the circumstances that led to it are somewhat complex. The paperwork is not yet complete and, therefore, we cannot yet say whether an unknown amount of public funds might have been lost.

26. The Chairperson: Does that mean that you are unable to validate the amount? When will the paperwork be finalised? What concerns you about the wording of paragraphs 2.2.37 and 2.2.38? Was guidance given to staff members or did individuals act independently?

27. Mr O’Reilly: I will hand over to Arthur to talk in detail about the staff concerned.

28. Mr Arthur Scott (Land and Property Services): Guidance was given to the staff who carried out those transactions. However, a considerable number of staff did not get the procedure right on some occasions.

29. The Chairperson: At what level were the staff who did not get it right?

30. Mr Scott: Administrative officers, who are the working grade of the agency, input the payment information.

31. The Chairperson: I am trying to find out whether they received proper guidance.

32. Mr Scott: Staff who worked with those payments were familiar with the qualifying criteria that, if the payments were made on or before 30 September, the allowance was payable. If payments were made after the date, the allowance was not payable. The errors arose when staff input, after the event, the wrong date for the receipt of the payment. Each payment was date-stamped when the agency received it and, therefore, a clear record existed of when it had been made. That clearly identified whether the allowance should have been granted.

33. The Chairperson: How long after that date did senior staff realise that an issue had arisen?

34. Mr Scott: At that time, the complexities of the go-live and post-go-live issues meant that several elements were not working as well as had been anticipated, and that contributed to a backlog of work. In September 2006, the cutover to the new system took longer than expected, and the planned downtime of two weeks was extended to four weeks. During that period, the backlog of work increased, and senior staff in the section were aware of that. It is a well-established precedent, which is contained in the guidance that is available to the agency, that if landlords and agents make a payment by 30 September, an allowance is payable. Again, the problem was one of human error in processing payments after that date and inputting incorrect information into the system.

35. The Chairperson: We will leave that issue for now.

36. My next question is for Mr Wilkinson. The RCA became part of Land and Property Services on 1 April 2007, and from 1 April 2008, the new agency has also included Ordnance Survey and Land Registers. That represents a major restructuring in its own right at a time when major new policy and IT systems were being developed to tight time frames. What guarantees can you give the Committee that you will ensure that sufficient focus is given to issuing accurate bills and to controlling the level of arrears now that the RCA has been absorbed into a much larger multi-functional organisation?

37. Mr John Wilkinson (Land and Property Services): The work that we are doing to build a new organisation is fairly complex. The one specific area on which I have been concentrating over the past 12 to 15 months is the former Rate Collection Agency, which is now part of our operations directorate.

38. During that period, I have been working with the Department to get additional staff into that area of business. One of my early decisions was to move Mr Scott, who, until the middle of the past financial year, worked as the director of corporate services, back to rate collection in order to put a heavier focus on the development of IT systems.

39. At that time, I also took support from the delivery and innovation division of DFP for the management of the IT contract. I have worked through the departmental board on the budget for the organisation and staffing of that contract. During those months to deal with the backlogs to which you referred, I have taken on additional staff in order to strengthen teams across the revenues-and-benefits side of the business. Other matters with which we have been busy include examining the new organisation in order to determine how we can use its strength to help in that particular part of the business. For example, some of the geographic information systems that were held by the former Ordnance Survey have proved to be useful in tackling some vacancy issues. In order to tackle those problems, I try to draw on the synergy of the bigger organisation as well as staffing that particular part of the business.

40. The Chairperson: As regards that matter, were there major concerns about getting it right? Were you overwhelmed by the amount of work that needed to be done at that stage?

41. Mr Wilkinson: I want to offer a perspective on that, if I may. I started as chief executive of Land and Property Services on 1 April 2007. My view is that the organisation was going through a period of unprecedented change in rating reform, legislation and policy. It was absolutely massive. I am speaking from having 32 years of experience in the GB Civil Service. At times, the job was colossal. Focus and effort went into reform. The organisation made huge progress: in April 2007 something like over 500,000 bills went out based on the new capital values. Therefore, there was a huge amount of progress, change and achievement. As a consequence, some areas of work had to be reprioritised, and the slippage in some areas that was brought out in the Audit Office report reflects that reprioritisation. I assure the Committee that we are putting all our efforts and attention into resolving those issues.

42. The Chairperson: Paragraph 2.2.10 of the report states that many IT difficulties arose due to problems with the transfer of data from the old system. I am sure that you have heard the phrase “garbage in, garbage out”. The introduction of a new system had been considered since 2001. However, you say that the quality of data was poor, but surely there was plenty of time to clean up those data. How do you explain that?

43. Mr Wilkinson: The main issue with the data that were being transferred from the old to the new system concerned the various address lines in the systems. In order to give the Committee a comprehensive and detailed answer, I shall ask Anne Johnston to take that line of discussion further.

44. Ms Anne Johnston (Land and Property Services): The old system was introduced in 1994, and at that time, the new technology differed greatly from the system that it replaced; indeed, it has also grown incrementally since 1994. When we examined data-migration issues, we found that there was a great deal of complexity with the migration of data from the old to the new system.

45. In the old system, much of the data were relatively unstructured. In the new system, we wanted to take advantage of new structures and standards that had developed in the interim, and the database structures reflected that. It was difficult to establish rules for migration from the old system to the new. We carried out as much data-cleansing as possible, but some issues still arose. Early on in the project, we identified that that would be an issue, and we brought in expert help, but there were issues outstanding with the data migration. In hindsight, we should have put more resources into that project.

46. The Chairperson: You said that you realised from an early stage that that was a problem. How much earlier did you realise that it would be a problem, given that the project was under consideration from 2001?

47. Ms Johnston: In 2001, we started on a procurement process using GCat, which is an Office of Government Commerce (OGC) procurement method. We had to terminate that procurement because we received no compliant bids. It was not until 2004 that we recommenced a more open procurement procedure, using the Official Journal of the European Union to invite additional tenders. The project that we are talking about now really started in earnest only in 2004.

48. The Chairperson: Thank you. I will open the questioning to other members. Each will have 10 minutes to ask questions, and there may then be the chance for further questions.

49. Mr Beggs: My question is for Mr O’Reilly. In 2004, the Department of Finance and Personnel published guidance on delivering programmes and projects that states:

“No government initiative (including legislation) dependent on IT to be announced before analysis of risks and implementation options has been undertaken”.

50. Did the Department abide by that, and did it not identify significant risk?

51. Mr O’Reilly: The entire rating-reform project, which incorporated aspects of the revaluation of all domestic properties as well as the specific project to replace the billing and collection system in the Rate Collection Agency, was subject to and managed within an overall project-delivery framework that was fully compliant with OGC arrangements. That structure consisted of an overall programme board with a senior responsible officer, who, at the time was me. Beneath that were individual projects, primarily IT projects, each with their own senior responsible officer.

52. To answer your question specifically, within that arrangement, risks were identified systematically at the individual project level. If it was felt at individual project level that a risk caused a severe threat to the overall outcome of the programme, that risk was escalated to the overall programme board, which I chaired. In certain circumstances, some of the risks, including those that are the subject of this report, were also highlighted at certain key points to the departmental board and brought to the attention of the then permanent secretary.

53. Beyond that, risks were reported regularly to the then Minister. Through much of 2006 and early 2007, the risks and their management were reported to the Minister on a weekly basis.

54. Mr Beggs: In hindsight, do you think that that risk assessment was completed properly?

55. Mr O’Reilly: I believe that the risk assessment was successful in that we identified all the threats and risks to the system. We sought to manage those as best we could. Clearly, and self-evidently from the report, the outcomes were not as complete as we would have desired. As highlighted in the report, there were shortcomings in the system when it was being implemented in 2006-07 that had an adverse impact on the accounting and monitoring of certain aspects of the Rate Collection Agency in that financial year.

56. Mr Beggs: Paragraph 2.2.9 of the report contains the Department’s explanation that the problems arising from the development and implementation of the new IT system were due to policy changes that occurred after the project’s critical deadline of September 2006. Surely those policy changes would have generated new risks, as they would have involved new legislation. Were new risk assessments carried out?

57. Mr O’Reilly: Yes, risk assessments were carried out. Primarily, the risks were first identified at split-project level. Once the project team became aware of the new policy proposals, those were, given their nature, immediately communicated to the programme board and, in turn, highlighted to the head of the Department and also, significantly, to the Minister at the time.

58. Mr Beggs: Policy changes have continued right up until the present day. Therefore, even when the background work is, frankly, a shambles, there are continual policy changes. Was the Minister at the time advised of those risks?

59. Mr O’Reilly: Both Ministers in place since the return of devolution have been apprised of Land and Property Services’ position. The risks created by continuing policy development primarily involve the additional work that must be carried out by the agency in order to adjust its plans to take account of the new systems. That sometimes, as the report mentions, involves finding new ways to work around the existing IT systems to allow the new schemes to come into operation within a relatively short timescale. That, in itself, introduces additional risks to the system and to the capacity to report accurately on data, and it may involve potential delays and disruptions to the relief systems that are supposed to become available to ratepayers as quickly as possible.

60. Mr Beggs: Was consideration not given to changing the timescales of some of those reforms in order to provide some breathing space, so that the system could be implemented in an organised fashion?

61. Mr O’Reilly: Yes, in the period from January to March 2007 there was an intensive and ongoing review of whether the system would be in place and ready to deliver the new billing systems on and from 1 April 2007. The final decision to introduce the new system on that date was taken with a great deal of careful consideration. The Ministers at the time were fully aware of the options, and left themselves open to advice from officials as to whether the system could, and should, become operational on 1 April 2007. In the event, the decision was taken to introduce the system from that date. As John Wilkinson said, on the one hand, that was successful in that the vast majority of bills were issued accurately. However, the decision to launch the new system on that date created, or was associated with, some of the difficulties that have been highlighted in the report.

62. Mr Beggs: Despite the difficulties, further reforms were introduced. Do you not accept that there are huge financial costs in failing to provide a proper operating system and relatively few financial costs in postponing the introduction of a new rating policy?

63. Mr O’Reilly: Additional costs are certainly associated with introducing adjustments to an IT system, and I am sure that you and other members may want to come back to those issues later. However, it is important to note that there were also risks associated with not launching the new system. As Anne Johnston highlighted, the Rate Collection Agency, as it was at the time, was operating a system that dated back to 1994, the operational effectiveness of which was in severe difficulty. There was a risk that that system might cease to operate, and that risk had to be taken into account.

64. Mr Beggs: In my experience, the new system has been chaotic. I had difficulty getting a rates bill issued for my office, despite repeated phone calls. I paid my home rates promptly, yet I received threatening letters.

65. Mr Shannon: Those are from your wife.

66. Mr Beggs: Councils are presently being advised that there may be significant clawback of £4 million in Belfast and around £300,000 in Carrickfergus. I do not know the figures relevant to other councils; I have inquired about those. I do not know whether that issue is related to the technical difficulties that we are discussing.

67. I am aware of one pensioner who applied four months ago for the lone pensioner allowance and who still has not had a response, and we are now coming into the autumn and winter. It strikes me that difficulties have arisen.

68. The report states that checks on vacant properties have not been taking place. The process has been shambolic, and the risks have not been properly identified or appropriate action taken.

69. Mr O’Reilly: Speaking generally, I understand entirely your description of the perception of concern about the coherence and effectiveness of the new rating system. However, we are dealing with a system that is going through significant change. It is a very large system, as the report makes clear, and it manages rates accounts for 830,000 properties and more than 700,000 domestic properties.

70. During that period of significant change, there were difficulties with certain rate accounts, and if even a small percentage of those have difficulties, that can translate into difficulties with several thousand accounts — even 1% creates several thousand difficulties. Even a small percentage is a significant difficulty for the ratepayers concerned. I will ask my colleagues to comment on the issues surrounding bills being incorrectly issued or, in some cases, not issued.

71. The lone pensioner allowance was announced last November, just four months before the start of the rating year. The agency has worked extremely hard to put that system into operation as quickly as possible, particularly as it is focused on some of the most vulnerable members of society, namely lone pensioners over 70. We believe that we have been very successful in generating well over 16,500 applications. More than 10,000 of those applications have been assessed, of which 98% were successful and only 248 were unsuccessful.

72. The challenge for the agency is that, having done that work, it must ensure that the system is adapted quickly to take account of that new type of allowance and that the necessary adjustments and payments are made as quickly as possible. While my colleagues can speak on the technical details, the agency hopes that the vast majority of those applications will be ready for processing by the beginning of October and that outstanding applications will be assessed by the end of October.

73. The lone pensioner allowance is just one of many that have had to be introduced into the system in recent years. I have illustrated the problem from the agency’s point of view. Committee members will, rightly, illustrate the problems from the point of view of individual applicants who simply see a long delay in receiving the benefit and adjustment to which they are now entitled.

74. Mr Wilkinson: If I may address some of the issues that Mr Beggs raised. First, concerning the bills for his office and home, my understanding is that the agency went through a difficult period. Work was prioritised in order to issue the new bills, and that was done. A lot of work went into clearing up the early reviews of the new capital values, which were completed last November.

75. Because of delays in getting aspects of the IT systems in place, a backlog of work built up. In recent months, the agency has put in place a recovery plan, and it is addressing that backlog. The revenues-and-benefits section of Land and Property Services deals with about 100,000 interactions with taxpayers each month. A high volume of work is going through the system. Obviously, a backlog creates delays, but the agency is working hard and has had considerable success in putting matters right.

76. Mr Beggs: Have the policy-makers been talking to the people who have to deliver results?

77. Mr Wilkinson: Discussions have been going on at board level.

78. Mr Beggs: Have they been listening?

79. Mr Wilkinson: Yes, and they have been responding and supporting me, for example, by giving me additional staff.

80. Mr Beggs: Belatedly.

81. Mr Wilkinson: There are reasons behind that, which I am happy to talk about. However, I want to touch on one or two of the other points that you raised. You mentioned clawback, and that is another fairly complex area of our work. About 18 months ago, we gave councils some forecasts for the last financial year. One forecast estimated the total amount of rates to be collected at nearly £1 billion, and the overall figure ended up being within 2% of that. The final figure — over 18 months, and given all of the changes took place in that period — ended up being within 2% of the initial forecast.

82. The report makes it clear that the issue of vacant properties was another area of difficulty during the period. We have not carried out as many vacancy inspections as we would have liked. However, that is another issue that we are addressing and seeking to improve on.

83. Mr Beggs: It is clear that priority was given to developing the IT system’s ability to issue domestic rates bills based on capital values by April 2007. I understand that district councils were assured that any loss from the change to capital values would be made good to councils by way of transitional relief. Has that happened? If so, what period did that relief cover, and how much did it cost the Department? Were council losses fully covered by the relief?

84. Mr O’Reilly: I will have to check that point. However, I do not recall any comprehensive transitional relief scheme for district councils. A transitional relief scheme continues to operate for individual ratepayers who experienced above-percentage increases as a result of the move from the rental-based system to the capital-based system. I am not aware of any scheme that was allocated to councils overall, although my colleagues may correct me.

85. The Chairperson: I am sure that if the Committee needs confirmation of any of issues addressed today, you will respond in writing.

86. Mr Dallat: I understand that a new IT system has its problems and that that, coupled with a new rating system at the same time, makes your job rather difficult. However, the principle of accuracy in accounts is not something that arrived just last week — it was invented by the Romans 2,000 years ago and called double-entry bookkeeping, which allows one to check that matters are progressing properly. I am sure that you will be fascinated by that piece of information.

87. How did you take ownership of a system that could not check that the information going in was accurate? As the Chairperson said earlier, it was a case of garbage in; garbage out. That is a fundamental principal of the most basic accounting.

88. Mr Wilkinson: The question that was asked earlier concerned property details. There are two aspects to the accounting of the statement of rate levy. The first side draws on the assessments: there is a measure of the amount of money that could properly be raised on the assessment side of the accounts. The other side details the receipts. As I understand the Audit Office report, there was an issue about vacant properties with regard to the assessments on which we based the collection. All of the £939 million was accounted for, except for a small amount from those vacant properties.

89. There were some issues about the transfer from the old system to the new system on the receipts side. That led to a situation in which some moneys could not be accounted for in the first set of figures, which concerns summary controls. The bulk of the receipts were properly accounted for. I accept that there were some difficulties, but, according to the report, the bulk of the money, based upon the assessments, and the receipts were correctly found.

90. Mr Dallat: Mr Wilkinson, we are talking about almost £1 billion, for which you had no adequate audit trail. How can you explain that?

91. Mr Wilkinson: The difficulty with the audit trail was not with the individual accounts; it was with the summary controls around some of the areas that I have just mentioned, such as the vacant properties. There was a £4 million balancing figure.

92. Mr Dallat: Yes?

93. Mr Wilkinson: So the difficulty was around some of those areas.

94. Mr Dallat: They certainly were difficulties, because you had no way of checking — none whatsoever. Apparently, you did not issue final notices or process debt proceedings. I am sure that if Mr Micawber was alive today he would be absolutely horrified. You did not send notices to people advising them that they had not paid, or, if you did, they had account numbers on them, but no amounts.

95. Mr Wilkinson: That situation goes back to 2006-07. In the final part of that year, the difficulty was that the IT system that would automatically send out reminders and summonses was not in place. Priority was given to getting the new capital valuations out, which meant that recovery action in the back end of that year was suspended. During 2007-08, we put our efforts into getting the new systems in place, which we did satisfactorily. In the last financial year, we have started to gain ground and make progress on recovery action. The IT systems are now in place, and we have started to send out reminder letters and court summonses. Indeed, in the first six months of this year, around 100,000 reminders have been sent out using the new IT systems.

96. Mr Dallat: Do you accept that with every week that you delay sending out a reminder, the risk of bad debt increases dramatically?

97. Mr Wilkinson: Yes.

98. Mr Dallat: Thank you. That leads me easily onto the subject of the IT system. It was a fine mess, as Laurel and Hardy might put it. The report states that from February 2005 until November 2007, the agency paid £1·3 million to an IT contractor — please do not tell me his name — for making 80 changes that were needed to the original specification and system. The agency attributed only 15 of those changes to new requirements or unforeseen changes. Twenty-nine changes — costing a whopping £500,000 — related to corrections to the original specification. How can the agency justify spending £500,000 of taxpayer’s money in order to rectify errors in its own specification? Do you not agree that heads would roll if such a situation were to occur in the private sector?

99. Mr Wilkinson: The circumstances that gave rise to that were very complex. We have already discussed the background to the reform project. Anne Johnston will be able to give a more specific response to the question, but it is my understanding that the IT contract was lacking in some areas, and certainly in the detail of the specification. There were other areas, such as the reforms that were introduced as the project moved forward, that led to some of the change notices and the controls that changed over the period in question.

100. Ms Johnston: As my colleagues have said, the system was very complex. It is regrettable that there were some functional errors that were missed. That should not have happened.

101. Mr Dallat: Who is responsible for that? Who is the villain? Is it the IT contractor, or is it the agency?

102. I am sorry for appearing to blame you for the whole thing, Mr Wilkinson. I know that you became involved only at the tail end of it. I do not wish to shoot the messenger.

103. Mr McLaughlin: Just partly.

104. Mr Shannon: Just partially. [Laughter.]

105. Ms Johnston: We certainly had what were regarded at the time as rigorous quality reviews of the specification, which ran to some 800 pages. We involved staff across the agency in the review of that document. It is sometimes difficult for business users to understand the detail that is required in the specification of an IT system.

106. In the vast majority of cases we got the mainstream business processes correct. It reflects the complexity of the business that in some of the scenarios, which related to particular detailed circumstances, we missed some areas. As you said, there were 29 change control notes. Some of those occurred as a result of areas that we missed; others occurred as a result of spotting better ways of doing things once the system was in operation. Therefore, for a mixture of reasons, there were faults, and that is regrettable.

107. Mr Dallat: You said “thought”. Thought is not much good when you are running a major Department that is responsible for millions of pounds of public money.

108. What responsibility for the accuracy of the specification was set out in the contract for the contractor, given that they seemed to take the lead role, or, at the very least, were heavily involved in it? That is something that we must tease out. Who was responsible? Was it the contractor or the Department?

109. Mr O’Reilly: As Anne has highlighted, the Department was responsible for drawing up what was, and is, a very detailed specification. However, as she also explained, the Department did not always get it 100% right in terms of providing the contractor with precise, detailed requirements. Those were the areas where, as the Committee has rightly highlighted, changes had to be made and control notices issued in respect of the original specification.

110. To that extent, that was a shortcoming in the system. The only mitigation I offer for that is the sheer complexity and scale of designing a completely new system. It was not just a case of adapting or translating an existing system. The project involved taking an existing system that was based on rental values, and writing completely new collection systems that would, in future, be based on capital values.

111. Beyond those changes, control notices were also issued, for example, in respect of decisions made later in the programme development in order to introduce new benefits and new reliefs for ratepayers, as the Government reviewed their policy and decided that additional reliefs were required. Changes to the basic IT system were — and continue to be — required in order to take those on board.

112. Therefore, it was a combination of shortcomings: at the beginning in respect of the original specification drawn up and later, when alterations were needed to take on board policy changes as they evolved while the contract was being implemented.

113. Mr Dallat: I would love to accept that explanation. However, this shambles has been going on since 2004. The most recent indications, in February 2008, do not in any way indicate that the Department has a clean bill of health. Are you in a position to assure the Committee that that is all water under the bridge?

114. Mr O’Reilly: I certainly assure the Committee that I, as departmental accounting officer, and John Wilkinson, as the agency accounting officer, are very conscious of the difficulties that were highlighted in the Audit Office report and that we have pointed out to the Committee. We have been aware of those difficulties for some considerable time. We have been working intensively in order to resolve them and to put the system onto a permanent, stable platform.

115. Mr Dallat: From the past, we do not know whether it was the contractor or the agency that understood the system less. Do we know that now?

116. Mr O’Reilly: With a new system, there is a learning experience, during which the contractors are in charge of developing the system. There must then be a period of knowledge transfer with regard to the operation of the system. One of the responsibilities of a contractor in that case, or in any large IT development, is to provide training and staff development for the people who will use the system.

117. Mr Dallat: Surely, if the system did not work, it did not matter what staff development and training was provided?

118. Mr O’Reilly: I would not say that the system did not work. It did not work completely or perfectly.

119. Mr Dallat: It was a shambles.

120. Mr O’Reilly: I would not describe it as a shambles. There were shortcomings with certain aspects of the system. The opening questions highlighted difficulties around the treatment of one particular type of payment, because staff were dealing with it for the first time using a completely new system. Inevitably, there are difficulties like that at the beginning of any new, large system.

121. Mr Dallat: The wider public realises that tax collectors have been around for a very long time and does not fully appreciate problems that are introduced by computers, which have been in existence since the 1930s. Was it good practice to use the IT contractor to draw up the specification? Surely the contractor will benefit — and did benefit by £500,000 — if the specification is not sufficiently detailed or if it is inaccurate? In other words, the contractor could draw up a bad specification and milk the cow for years afterwards.

122. Mr O’Reilly: I will ask Anne where the division of responsibility rested for the drawing up of the original specification.

123. Ms Johnston: Although it was facilitated by the IT supplier, the detail of the original specification rested fully with the Rate Collection Agency, as it was called then. The supplier has been working with us to improve the system. Very stringent change-control procedures are built into the contract so that there is a very tight control over the costs that are incurred by making changes to the system.

124. Mr Dallat: Does that mean that everything will be fine from now on?

125. Ms Johnston: There are still some outstanding areas, but we have made leaps and bounds in relation to the changes. A financial review has begun, which will initiate more changes. That is due to be completed at the end of this financial year.

126. Mr Dallat: You will be pleased to know that my questions are coming to an end.

127. Mr O’Reilly, despite the failings, the same IT contractor who drew up the original financial specification was re-employed to prepare a revised version in February 2008. To whom will you tell that story?

128. Mr O’Reilly: I will ask my colleagues to comment on the detail of the procurement that was carried out in respect of those additional costs. Your question implies that the contractor was significantly at fault and perhaps was not fit to continue —

129. Mr Dallat: I asked earlier whether it was the fault of the contractor or the agency. I accept that the contractor was totally inadequate. That is why I want to know why you re-employed him.

130. Mr O’Reilly: The contractor had to deal with significant changes that were generated by his client — the Department — during the period of the contract. Although there were inevitable difficulties and shortcomings at times with those matters, the contractor, by and large, met the specifications that we provided.

131. Mr Dallat: Does that mean that you never thought about chucking them out?

132. Mr O’Reilly: No. To my recollection, there was never a problem with the quality of the contractor’s work or any time when it failed significantly to meet the Department’s specifications for the system.

133. Mr Dallat: What is your present assessment of the contractor? Would you chuck him out now?

134. Mr O’Reilly: No, not on my present assessment.

135. Mr Dallat: Given that the system went live in October 2006, why did it take until February 2008 to revise the specification for it?

136. Ms Johnston: Changes were made as issues arose. Each of the potential changes was considered and prioritised. They were then made if they concerned issues of immediate importance. In the current exercise, we are standing back, taking an overview of the financial elements of the system and taking action on them. That exercise includes incorporating other recommendations about our accounting procedures that were not known when the contract was awarded. Therefore, the review is comprehensive — it does not just examine changes to the system that are due to errors that we made; it introduces new processes.

137. Mr Dallat: Do you accept that considerable damage has been done to the image of the agency? Although many people have suffered, and 26 councils have been seriously disadvantaged, for a few people it has been Christmas Day every day because they have had no bills.

138. Mr O’Reilly: I accept that there is still work to do to stabilise the system. Despite having gone through a period of change and encountered the difficulties that we have, the outcome has not been desirable.

139. Mr Dallat: I hope that the Committee returns to this issue soon, because I am not satisfied that I have heard the answers that I need.

140. The Chairperson: At the start of the meeting I said that if there are questions that the representatives from the Department are not able to answer, they will give us the answers at the end of the meeting. There may be other questions that Committee members want addressed in the future, so we will write to the Department with those.

141. Mr Burns: The gateway review process is used to assist with the successful delivery of certain projects, particularly those concerning IT. Paragraph 2.2.11 and appendix 1 of the report state that the project had four gateway reviews, three of which were assessed as having red status and one amber. Given the concerns raised by those reviews — and others — was it not a high-risk strategy to introduce the new rating reforms by 1 April 2007 and not expect significant post-implementation problems?

142. Mr O’Reilly: You have repeated the sections of the review that highlight the red status of three of the four gateway reviews that were carried out towards the end of the implementation phase. A gateway review that produces a red outcome identifies specific actions that must be taken to ensure that the project concerned remains on track. The Rate Collection Agency addressed each of the points that were identified for action in each gateway review. The first gateway review identified a series of issues that required action, the second identified a new series of issues that had to be tackled, and the third that was red did likewise. In each case, we addressed the concerns that the gateway reviews identified. We believed, therefore, that sufficient remedial action had been taken on foot of the reviews to allow the implementation of the project.

143. Mr Burns: Paragraph 5 of appendix 1 of the report states that, following the two consecutive red gateway categorisations, assurances were given on the implementation of the recommendations that were made by the gateway team. Given the huge problems that have since arisen, are you content that the actions that were taken were adequate?

144. Mr O’Reilly: I am content that the actions that were taken in respect of the specific gateway review recommendations were adequate. However, as the Audit Office report highlights, the implementation of the new system and, in particular, the difficulties of migrating data and information from the old IT system to the new IT system during 2006-07 created difficulties.

145. Mr Burns: Did the programme managers have sufficient support throughout the project?

146. Mr O’Reilly: Arthur Scott was a key programme manager, so I will ask him to answer that.

147. Mr Scott: Yes, we did. You have described one of the common causes of failure that the Audit Office has identified, which is that senior management perhaps did not demonstrate their commitment and support for the project. However, as Leo O’Reilly outlined earlier, the project was scrutinised closely by all levels of management, up to and including the Minister. Therefore, there was never an occasion when the project team felt that it was not being properly supported or assisted by departmental management or senior managers in the Department.

148. Mr O’Reilly: Inevitably, however, a programme of such a scale leads to knock-on effects throughout an organisation, and that applies not just to the staff who are working on the programme. On a few occasions, we have illustrated that, as the project came into operational status, everyone in the Rate Collection Agency, as Land and Property Services was then called, felt the impact of that system. That created difficulties for staff in the organisation at the time.

149. Mr Burns: Paragraph 2.2.14 states that each gateway review recommended that adequate and appropriate experienced staff resources be allocated to the IT project. When selecting the project team for that major task, did you trawl the system for people with both the necessary skills and prior experience in successfully implementing a major IT project?

150. Mr Scott: Under the terms of the Office of Government Commerce procedure, the permanent secretary has to be assured that the senior responsible officer — and particularly the project manager — have the required skills. Those assessments were carried out based on a proven track record of delivery of a similar type of project in that individual’s previous career. That exercise was done for me as the senior responsible owner and for the project manager.

151. At the lower levels of the project team, the complexity of the system requires people who have business knowledge. Therefore, many of the staff who were involved in the project team were taken from the business, which, as Leo outlined, created its own problems for the business. They were given additional training in project management disciplines, the use of PRINCE2 (PRojects IN Controlled Environments) and other methodologies that were designed to help us deliver the project.

152. Mr Burns: Mr O’Reilly, were sufficient and appropriately trained staff allocated to the agency to enable it to pursue the IT project successfully?

153. Mr O’Reilly: As Arthur explained, we paid particular attention to ensuring that the project was staffed adequately, and that those staff had sufficient skills in the development of IT projects. However, that is not to say that, during the development stage of the operation, that activity did not create stresses and strains elsewhere in the Rate Collection Agency, because of both the impact of the new system coming on stream and, as Arthur highlighted, because some of the most experienced staff in the system were taken from their mainstream duties to work intensively on the development of the project. The project was staffed adequately, but I acknowledge that that created difficulties elsewhere in the organisation.

154. Mr Burns: Mr Wilkinson, were sufficient additional resources sought from DFP to meet those needs? Were they all received and, if so, did that happen as quickly as you required?

155. Mr Wilkinson: I first raised that difficulty with the Department after having been about six months in post and when I realised that some matters required additional resources. From the outset, I was supported, although I cannot say that that was not without difficulty given the overall resource situation in DFP. Consequently, as an interim action, I moved some of our valuation directorate staff to operations, revenues and benefits to help in the short term. Another measure that we took was to recruit new staff. We recruited not just adequate numbers, but people who had the necessary skills and experience. I am currently getting the additional staff that I need, and in the past four or five months of this financial year, we have recruited 60 additional people for that business area. Nevertheless, I am conscious of the fact that we have more work to do.

156. Mr Burns: I see from the updated information provided by the Department that you have been recruiting staff since April 2008 and that 50 new staff are being trained. Do you have the resources that you need, or are yet more staff required?

157. Mr Wilkinson: I require another 20 staff. Of the 80 that I requested, we have recruited 60 and are in the process of bringing in the final 20. That business area involves some specific skills, so I have been conscious not to bring in large numbers of staff in one go. We have brought in staff in groups of 10 or 12 in order to assist with induction and training and to keep the mainstream business running. I have been conscious not to take staff from the front line to spend time training new people, so we conducted a phased recruitment process.

158. Mr Burns: An enormous number of staff seem to be concerned with your new computer. Do you need that computer? Could the staff not do the work manually?

159. Mr Wilkinson: Without the new computer, we would probably require a much bigger army of staff. I take your point; however, I am hopeful that we will work through the difficulties and challenges that we face and that as the new staff are trained and the system develops, we will have a good system and business.

160. Mr Burns: That remains to be seen. On 27 April 2008, a report in ‘The Irish News’ revealed that staff in the agency:

“felt they were providing ‘shoddy customer service’ because of shambolic systems and ‘gross understaffing’.”

161. Does that reflect accurately what they said?

162. Mr Wilkinson: The staff attitude survey was completed by approximately 50% of the staff. The comments picked up by ‘The Irish News’ were made by individuals in the organisation, and all that I can say is that everyone is entitled to their view. I am not denying that we had difficulties in the organisation at that time, but when I talk to managers and staff some of them are quite perplexed by those comments and by the article in ‘The Irish News’. That is why I wrote to the editor to explain the situation.

163. Mr Burns: Do those people feel any differently now?

164. Mr Wilkinson: Considering everything that staff and managers have done in the past 12 months, I really hope that they do. The Land and Property Services management board has worked hard to support that part of the business; I have worked hard with the Department to bring in extra staff; we have moved staff within the business; and we have attempted to harness some of the systems from other parts of the business to assist. Without wishing to prejudge, another staff survey is to be carried out this month, and I hope that the outcome of that will be better.

165. Mr Burns: Can the Committee have a copy of that when it is published?

166. Mr Wilkinson: Certainly.

167. Mr McLaughlin: Paragraphs 2.2.15 and 2.2.16 illustrate that it is clear that there were problems in checking the accuracy of data that were input into the new system. In one case, that resulted in the system’s calculating a disabled person’s allowance of £2·9 million payable to one ratepayer. That was identified as an error through a manual supervisory check, and it was adjusted accordingly. From reading the report, it appears that that weakness is present across the whole system and is not confined to that particular allowance. That is an incredible and unbelievable admission. How could you put in place an IT system that does not include a basic, yet fundamental, element of protection? If there are shortcomings in data input management — which can always happen with human interface — the system must be capable of spotting those mistakes before the paperwork is issued to the public.

168. Mr Wilkinson: It is regrettable that that happened. The system should have the appropriate validation checks and controls. However, I can only go back to what I said earlier: the situation arose because of the difficulties that were encountered at that time. Priorities were given to getting the new capital values out, and aspects of the IT replacement slipped. However, I assure the Committee that we are working on putting controls in place. It comes through in the Audit Office’s report that colleagues worked on some of the serious areas of weakness immediately and addressed them. In the months since the Audit Office’s report was published, we have been working very hard to put assurances and controls in place.

169. Mr McLaughlin: In compiling his report, the Comptroller and Auditor General was concerned that errors of less significance would go undetected, resulting in ratepayers being overpaid or underpaid; indeed, that may have happened already. Do you have any idea of your exposure to those errors?

170. Mr Wilkinson: It is difficult to be precise. It depends on the degree and number of controls that are put into the system. One of the difficulties that we have faced over the months is that we have been trying to recover the business and put things back on track. To do that, on occasions we have eased controls to keep numbers flowing through the system.

171. There are many areas in the report that suggest answers to your question. For example, there was an earlier question about landlords’ allowance. We have been working on that to narrow it down, and a small amount of money may have been paid that should not have been. However, we will try to recover those losses as best we can.

172. Mr McLaughlin: I am sure that a report in the local newspaper a couple of weeks ago about a man who was sent a rates bill for millions of pounds was brought to your attention. Your new pristine system with its well-trained staff had billed that man on the basis of his ratepayer number. It was not a small error, yet the bill was issued.

173. Mr Wilkinson: That mistake was made by a new member of staff. We are seeking to build some controls into the system in that area. One of the things that can be done in such a situation is to build in a limit on a bill for a domestic property. We can put a validation check into the system to say that any bill that is over £500,000 or £250,000 — or some such figure — is stopped automatically.

174. Those controls are not yet in place, but we are working hard on that. The incident to which you refer was one of the occasions on which a file slipped through the net. It is a balancing act.

175. We are using a fully automated system to drive efficiencies, to speed up the process and, hopefully, as we proceed, to improve accuracy. That is balanced against how many checks and controls must be built into the system, which we are working on at the moment.

176. Mr McLaughlin: You have described adequately the solution to what happens when it is obvious that an inappropriate bill has been issued outside the proper parameters. Can the Committee regard your remarks as a formal assurance that those validation procedures are now in place?

177. Mr Wilkinson: Anne Johnston will to speak about that in more detail, and she can provide the Committee with some of the assurances that it seeks.

178. Mr McLaughlin: If it helps you Anne, perhaps you could tell us whether the procedures form part of the revised specifications, if they are not already in place.

179. Ms Johnston: They are part of the financial review that is under way.

180. Those procedures were followed immediately in areas in which it was obvious that we could improve the validation. Our current exercise involves a comprehensive examination of certain areas across the system. That is difficult to do because the wide range of properties that are covered by the system means that the values that are involved can be quite large. However, data validation is only one measure being considered as a means to improve the process. For example, we are increasing checks and implementing more controls, and we are introducing additional supervisory checks. That has staffing implications, given the level of checking that is necessary. It is a matter of considering each situation and balancing the risks.

181. Mr McLaughlin: This is a technical area that I do not have time to go into, but should data such as the name, address and the ratepayer’s number be pre-included in the form in order to avoid a number being added inadvertently more than once, perhaps in two different data fields?

182. Ms Johnston: That is done where possible. However, in making a payment, for example, details must be called up and sometimes staff might key ahead of themselves.

183. Mr McLaughlin: I would be no good in that agency; I do that all the time.

184. Ms Johnston: I assure the Committee that we are carrying out a comprehensive exercise to examine that, and I am confident that by the end of the year we will have as many controls in place as we can. I am not saying that we will be 100% certain — that would be difficult — but we will install a further level of controls.

185. Mr McLaughlin: If I may move on to paragraph 2.2.19 of the Audit Office report. The internal audit found errors in the calculation of the penny product — indeed, Mr Beggs referred to that point already.

186. That is not the first time that the issue has arisen. Previous errors in the calculation were considered by the Committee for Finance and Personnel in 2001, and that led to adjustments being made to district councils’ revenues and to compensation being paid. It is interesting to note that the membership of that Finance Committee included Mr Peter Robinson, the former Finance Minister and now First Minister, and Mr Nigel Dodds, who is the present Finance Minister.

187. A Mr Arthur Scott gave evidence to that Committee on 20 March 2001. Was that you, Mr Scott?

188. Mr Scott: Yes.

189. Mr McLaughlin: At that time, you were speaking as chief executive of what was then the Rate Collection Agency. You explained the nature of the problem and regretted the errors that occurred and the difficulties that they created for councils. Furthermore, you responded to members’ questions about the inadequacies in the management, training and control systems. You assured members that future calculations would be accurate and timely and that the information would be provided to councils at a time that suited their business needs. Will you explain why lessons were not learned from that experience?

190. Mr Scott: The unfortunate incident to which you refer occurred because a control that was implemented as a result of the hearing at which I gave that assurance was compromised. The control was performed by the same person who had input the information, but those responsibilities should have been segregated. The calculation of the penny product requires the extraction of a great deal of data, which must be entered into a spreadsheet. A transcription error occurred during that process.

191. The intention behind that control was to separate those responsibilities; someone should input the data and another person should check them. Unfortunately, that did not happen; both tasks were carried out by the one person, which compromised the control process. The error was spotted the day after the estimates were issued to the councils. Therefore, it was unlike the previous occasion when incorrect information was supplied and, subsequently, taken into the council process and used for estimates. We alerted the councils quickly, apologised for the mistake, redid the calculations and sent proper estimates.

192. In order to improve processes and to ensure that there is no reoccurrence of such an incident, we established a completely separate independent calculation of the penny product. Another member of staff completes an entirely independent calculation, which is cross-checked to ensure ultimate accuracy of the estimate.

193. Mr McLaughlin: Yet, today, councils are in difficulty.

194. Mr Scott: The fact that councils are in clawback is not because of an error made by the agency. It is difficult to predict an outcome 18 months in advance. The tax base is a living thing, properties are built and are demolished, and occupation of properties changes. It is difficult to estimate with confidence your position and say that you will be in a certain situation 18 months on. We have been trying to learn from past issues, and, more recently, to work in partnership with councils in order to increase transparency, share information and to enter a process of exchanging information regularly in order to identify any gaps, omissions or developments. We hope that that process will improve the accuracy of estimates; indeed, we currently provide revised estimates. That should allow councils to examine their estimates, consider current business trends and decide their responses to the year-end position. However, unfortunately, it is not an exact science.

195. Mr McLaughlin: It appears not. The 2001 problem reoccurred, and the remedy, apart from making improvements to and investment in technology, is to conduct the calculations twice. That seems a rather prosaic solution. Does that ultimately guarantee — and I address the question to Leo — that those errors will not reoccur?

196. Mr O’Reilly: It is the responsibility of the agency and the Department to ensure that there are no calculation errors. If that happens, it is clear that the Department must accept responsibility. The calculations involved are complex. As Arthur said, once discovered, the error was rectified quickly. Furthermore, as Arthur also said, it is difficult to guarantee the accuracy of forecasts that are made 18 months in advance.

197. If we consider what happened recently with councils, when there were variations in the —

198. Mr McLaughlin: I do not mean to be unreasonable. I am not talking about the difficulty in forecasting: we all accept that it cannot be a precise science. I am asking whether we can eliminate errors. Can we learn lessons from that incident and ensure that they do not happen again?

199. Mr O’Reilly: Errors in calculation happen. They are our responsibility; let me be clear about that.

200. Mr McLaughlin: Are you satisfied that the remedies are effective and that lessons have been learned?

201. Mr O’Reilly: Yes. Errors can arise for a variety of reasons. Some are basic inputting errors, as we discussed earlier; others are more subtle, such as an error with a set of particular built-in assumptions. Such assumptions may need adjustment. That is why, as Arthur said, we are happy to work closely with councils to focus on the spread of results — that is, how accurate we were. In 17 out of 26 councils, error was within 2% or less. However, in a number of councils the margin of difference between the estimate and the final figure was much wider. Clearly, we have to work closely with those councils to understand why that variation arose in order that we can remove such inaccuracies from forecasting in the future.

202. Mr McLaughlin: To finish, I refer you to paragraphs 2.2.22 to 2.2.25, which make bleak reading about basic financial controls. Amazingly, the agency could not give the auditor details of how the receipts figure of £847 million was made up — “made up” is probably the correct language to use — because worryingly, the receipts contain a balancing figure of £4 million. Reading on, we discover that bank reconciliations, which are probably the most basic and key control of any business, no matter how small, remain outstanding since 2006. Mr Wilkinson, do you feel that your basic financial management controls are even remotely adequate?

203. Mr Wilkinson: We need to improve certain aspects of financial management, especially with regard to the two points to which you refer. We have worked very hard to do that.

204. I refer you to an earlier question as to how the accounts are made up on both the assessments and the receipts side. Mr Scott will explain in a little more detail the issues that are involved in both parts of your question.

205. Mr Scott: It is regrettable that bank reconciliation was not working in 2006-07. That was due to a backlog in the agency after the new system was installed. We have made significant progress since then. In the financial year 2006-07, there are now just 352 items that have not been reconciled, and in 2007-08, 180 items have not been reconciled. The three other accounts that we used for rate revenue money are all up to date. The 2008-09 bank reconciliation is being carried out daily. Queries that have been identified are investigated immediately and resolved promptly. That control is now fully in place, and the chief executive has been assured about that.

206. Also, it is noted in the report that the £847 million in receipts that was collected was transferred to the consolidated fund, so it was lodged in the bank. We collected £847 million in receipts, although the summary transaction reports to which John Wilkinson referred earlier show £851 million. That is a reporting issue. We have carried out some tests on vouchers, where staff have input changes to receipts that were made using an incorrect voucher, and we have found discrepancies there. Some further work needs to be done on that, but we are confident that we will be able to trace the discrepancies and show that the account balances. We were unable to do that when the audit was carried out.

207. Mr McLaughlin: I am concerned that, in some of the commentary, the sum of money was regarded perhaps as inconsequential in what was a vast number of transactions. Are you now in control of your bank reconciliation process?

208. Mr Scott: In the current financial year, 2008-09, we are in control. Unfortunately, during 20007-08 we were still catching up on the backlog. As I explained earlier, we have still 180 items to reconcile, but I am confident that we will have them reconciled soon.

209. Mr McLaughlin: This is absolutely my last question. How much will it cost to gain full control of the accounting system? Are we near the end of the spending cycle?

210. Mr Scott: The review of the financial specification will consider how the system can better support reporting needs. As identified in the Audit Office report, we are committed to moving on to a more sophisticated basis, so there will be further change. Therefore, it is difficult to give a precise answer to your question.

211. Mr McLaughlin: It is a perpetual cycle.

212. Mr Craig: Paragraph 2.2.30 of the Audit Office report states that no inspections were carried out to verify the vacant status of properties for which a deduction was made. An article in ‘The Irish News’ on 27 August stated that 2,000-odd properties in the Belfast City Council area were vacant, but it later turned out that half of them were occupied. Is that correct? Am I right in saying that, as a result of that inspection policy, Belfast City Council lost out on more than £13 million in rates revenue in 2006-07?

213. Mr Wilkinson: The situation as stated in the Audit Office report is correct. The difficulties that were encountered in 2006-07 led to a prioritisation of work, which inevitably meant that the issue of vacancies was not examined as comprehensively as it should have been. During that period, vacancies were not ignored — some basic checks were done with landlords, for example. Since then, we have been trying to re-establish the position on vacant properties, and we have been working with councils to examine the issue. Last year, we worked with four councils that have a good knowledge of what is happening on their doorsteps, for example, whether bins are being collected. That was a successful project. We are continuing to examine the issue, and we plan to invest a great deal of additional resources into the area of vacancies to improve the situation.

214. Mr Scott: Partnership work was carried out in Belfast in late 2006-07. Land and Property Services is currently pursuing the collection of around £2·4 million in rates arrears. Therefore, although the council may not have received that money during the period of the vacancy, it will receive the money if we collect it.

215. Mr Craig: Some of those involved probably thought that Christmas had come early, but it has obviously not.

216. Could the Department not have foreseen the crisis with the new IT system? Was that not a management issue? The system was undergoing huge changes with the introduction of the new IT system. Everyone around this table knows that the introduction of such a system spells disaster for the Department involved, because such changes never seem to go smoothly. Surely someone should have predicted such a disaster and put in place a backup system to deal with it.

217. Mr Wilkinson: It is difficult for me to answer that because of the time period that is involved.

218. Mr Craig: I noticed that your predecessor is also sitting here.

219. Mr Wilkinson: I will ask Mr Scott to reply to that.

220. Mr Scott: The risks of the reform programme against business as usual were assessed. The consequence was that customer queries and the processing of applications for rate relief were afforded a priority over limited visiting to places where we absolutely had to, as John Wilkinson described. I took the view that we could catch up on the programme at a later stage.

221. We also explained earlier how dealing with some of the issues that arose after we went live placed tremendous demands on staff. We required experienced staff from the front line to work on the project. The issues that arose are some of the consequences of having to take those members of staff. We replaced those staff with casual staff who did not have the same level of expertise.

222. In mitigation, we tried some written inspection work and carried out some data matching with other organisations to help us to identify occupiers. Since then, we have increased the legislative power that is available to the agency in its ability to serve notice on an occupier, an agent or a landlord in order to find out who is in occupation and when that occupation started. Unfortunately, that power was not available to us in 2006-07.

223. Mr O’Reilly: The more general question that the member asked was about whether the Department considered backups, given the scale of the change that was involved in the IT system. One obvious method of backup is that if a problem arises with an IT system during development, it should be stopped and fixed. Only then can the project move ahead. The difficulty that we faced with the rate collection system was the implementation deadline of 1 April 2007. The very nature of rate collection means that it is done in annual cycles. Therefore, if the bills were not issued by 1 April 2007 under the new system, we would have had to revert to the old system for the financial year 2007-08.

224. As I said at the beginning of the meeting, the judgement was made close to the launch date as to where the balance of risk lay between going ahead with the new system and simply stopping it and reverting to the old system and having more time — which would have been a considerable luxury — to sort out the various residual difficulties that were still in the system. The Department and the Government decided to run with the system on 1 April 2007. In the main that worked, but there were difficulties with it, which the report has quite rightly highlighted.

225. Mr Craig: I was really asking whether many of those problems could have been foreseen much earlier and whether some more resources could have been put into the agency.

226. Mr O’Reilly: On reflection, and with the benefit of hindsight, we could have allocated a more intensive tranche of resources, particularly during the 2006-07 financial year, when we were approaching the end of a long process of rating reform. Beyond that, the other significant issue in 2006-07, as the report explains, was the programme of new rating reforms, which was a considerable distraction, as it were, for the core IT team who were developing the new system. Not only did they have to continue that work, but they also had to find ways to accommodate the new rating reforms that were to come into operation from 1 April 2007. Some of those problems were known about in advance, but some arose late in the 2006-07 financial year.

227. Mr Craig: It was a stretched system that had been stretched a bit too far in some respects.

228. Mr O’Reilly: I agree that certain aspects of the system were stretched too far.

229. Mr Craig: The report also examines the situation with assessments, which are discussed in paragraph 2.2.33. That paragraph highlights the fact that the former United Hospitals Trust management had to bring to the agency’s attention that part of its property was not being rated.

230. I find that a bit strange. I have never seen the Rate Collection Agency miss any property. What checks does the agency carry out in order to identify properties that have not been put on the system? I noted in one of the articles in ‘The Irish News’ that was mentioned that Belfast City Council is not too happy with the agency because in this current year it managed to omit IKEA and the new Victoria Square centre from the rates base. Those are not my words — I am simply quoting from the newspaper. What checks exist in order to ensure that all properties are on the valuation list?

231. Mr Wilkinson: In my experience of dealing with property, I know that one can never be 100% certain that one has got everything. I remember, going back a lot of years, when I was a district valuer in Carlisle in Cumbria, in the very early days of council tax lists in GB. There was rarely a couple of weeks that went by when a house that had not been included in the new council tax lists was not drawn to my attention and that then had to be brought on to the list and backdated.

232. The agency relies on a variety of sources to put properties on the valuation list and to be sure of the accuracy of what is on that list. The agency works with councils, planning departments and building control, and at present it is working with Belfast City Council’s building control department in an attempt to improve the accuracy and completeness of the valuation list with a view to extending that work across Northern Ireland.

233. The agency also relies on reports from staff who are out and about and who, perhaps when doing valuation work, will identify properties. It is an ongoing process of monitoring, checking and finding out what is happening on the ground as people are out and about on inspections.

234. In order to harness Land and Property Services, which is the bigger organisation, we are working closely with the mapping section, which was previously Ordnance Survey of Northern Ireland. All that information is intelligence to help make valuation lists complete and accurate.

235. Mr Craig: I understand the importance of working closely with other departments, especially local councils, because it is in their interest that the money is collected. Are any agency staff dedicated to examining this issue and to liaising with other departments in order to ensure that all properties are brought on to the valuation list? I understand some property in the middle of farmland perhaps not being picked up, but it is difficult to understand how anyone could have missed the likes of IKEA, given its high media profile.

236. Mr Wilkinson: The agency has a small team working on the Belfast City Council building control exercise. Members of staff also visit council offices when we get reports of notices for new property. Therefore, dedicated staff are working on that area. However, as I said, based on my experience, it is always quite surprising what has been missed.

237. Mr Shannon: The more that I hear, the harder I find it to understand where all the rates are going and what is happening. I have several questions that I would like to ask you, Mr O’Reilly — you are in the hot seat today.

238. Paragraph 2.2.40 shows that the shortfall for receipts in 2006-07 was £88 million, and in March 2008 it had risen to £130 million. The original arrears in 2004 totalled £24 million, so there has been a massive increase from £24 million to £88 million, then to £130 million. It seems to be growing year by year. The Committee needs to know whether that level of arrears was budgeted for, and if so, what impact that has had on departmental budgets. Any money that is budgeted for but that does not exist cannot be spent. Can you explain how that worked out?

239. Mr O’Reilly: I will start with your specific question and then return to the issue of arrears.

240. The question that you have asked relates to paragraph 2.2.49 of the report, which states that that:

“impacts on resources available for central government allocations across the public sector.”

241. To explain, in each Budget cycle, the Department of Finance and Personnel produces an estimate of the amount of money that it forecasts that it will receive through collections of the regional rate, as distinct from the district rate, which is for district councils. That forecast is built into the Budget and overall figure work in order to calculate the total amount that is available for allocations to Departments to spend during each of the following financial years.

242. The forecast receipt figure from regional rate collection in 2006-07 was £506·3 million. The final sum received from rate collection in that year was £452·1 million, meaning that there was a shortfall of £54·2 million. The shortfall in the following financial year, 2007-08, was £30 million.

243. You asked how that has an impact on money for services to the public. During the course of each financial year, we monitor departmental spend regularly against each Department’s forecast, and inevitably, there is always some slippage. That means that, as the year progresses, what the Departments identify as their total requirement reduces because they are unable to spend all their allocations for various reasons. Ultimately, that produces an underspend. As we analyse those figures over the course of a year, we keep in close touch with LPS to monitor what is happening with actual rate receipts. We have to incorporate that balance into the figure work and adjust overall spending plans accordingly.

244. As I recall, every year the level of departmental underspend was always higher than any shortfall in rate receipts. Had we known that the extra money was coming in during the year, we could have adjusted expenditure upwards to allow us to use that money. Therefore, a loss was implicit in the fact that we did not get the revenue in the particular year forecast. However, as and when we collect the arrears in future years, that money will be come into our system for spending. We must take account of shortfalls in revenue as they happen and adjust in-year spending plans in line with the overall review of in-year spending allocations.

245. Mr Shannon: It is hard to comprehend how the Department seems to depend on underspend to make it through the year. If it were not for that underspend, I do not know what we would do. Would we have to go to the United States Government or to Gordon Brown to get more money? What would we do? Had there not been an underspend, we would have had trouble with balancing the books. Is that correct?

246. Mr O’Reilly: That is correct. Had there not been an underspend, the shortfall of £54·2 million in 2006-07 and £30 million in 2007-08 would have had a direct impact on service provision. As I stressed, that is not to say that the fact that we were not receiving the money also affected our forecast of in-year spending. Therefore, it is not as though it had an effect.

247. Mr Shannon: My line of questioning will perhaps explore that matter. My colleague Roy Beggs, along with other members, gave examples of where the problems lie. We, as elected representatives, have been inundated in the past six or nine months with reports of people receiving the wrong rates demands, or of receiving a bill for the house next door. We have had the wrong reference numbers, incorrect sums of money and valuations that were not done correctly in the first place.

248. On the other side of the coin, people have contacted me to say that they have been trying, in some cases for as long as three years, to phone the Rate Collection Agency to pay money, but in spite of all their phone calls, the agency was unable or unwilling to answer them and closed its eyes to those requests. The situation is nothing short of chaos.

249. I do not know what is going on in your office, Arthur — I think that one of my staff has tried to phone you. I do not know what is happening with the lone pensioner allowance, a scheme that other members mentioned. Members of my staff have phoned your office because my constituents cannot get through to find out why applications that they submitted in April have not been processed come the middle of September. However, the staff in my office cannot get through to make enquiries on behalf of my constituents.

250. I have a good friend who works in the Rate Collection Agency, so, in desperation, I phoned him and told him that my staff had been unable to get any comment about the lone pensioner allowance. He told me — and this is a real beezer — that he could not help me because he cannot get through to that office either. There we have it: we cannot get through externally and we cannot get through internally. There has to be a mechanism in your system whereby people can get a response.

251. In five to six months, when my constituents and other Committee members’ constituents are waiting and worrying about how they are going to get through the winter with their lone pensioner allowance and how they will pay their oil bills, your agency will be sitting on thousands of applications that it refuses to process. I find that hard to comprehend, and I feel frustrated on behalf of my constituents. I and others find it frustrating whenever we work on behalf of our constituents to pursue matters that concern them but we find a disorganised agency. Your office does not even have an answering machine; for whatever reason, I cannot even leave a message.

252. I am keen to find out how this has happened and how we are faced with such chaos. How have we degenerated into a system where the money is not coming in, the bills are not going out, and the lone pensioner allowance applications are not being processed?

253. Mr O’Reilly: My colleagues might want to come in on some of the details of that, but I will say a couple of things. It is unacceptable to have a situation where members of the public cannot contact the Department in the way that you described. There are shortcomings, but I know that that is not acceptable, and there is no excuse.

254. Mr Shannon: I have three telephone numbers for an office in Belfast that people can call about the lone pensioner allowance, and we could not get an answer from any of them. I do not know whether everybody has left the country or whether they are away on holiday, but they are just not answering.

255. Mr O’Reilly: We are conscious of the importance of people being able to make telephone contact rapidly. That is why the Department is developing new contact arrangements for members of the public. It is called Northern Ireland Direct, and it will come into operation later this year. One of the lead areas on which that new three-digit telephone number is focusing is those who wish to make enquiries to Land and Property Services about rates and other matters. There is an active programme of work going on in developing that contact facility. That is because what you have described is simply not acceptable.

256. At the beginning of the meeting, I outlined the position on the lone pensioner allowance scheme, which was announced in November 2007. We launched the scheme in April 2008, and as I explained earlier, over 16,500 applications are being processed. We are developing an IT functionality, and we hope to have completed the outstanding assessments by the end of October 2008.

257. The Chairperson: If there are any other personal issues that members want to discuss, they could perhaps be addressed after the meeting.

258. Mr Shannon: There is a principle involved; everybody’s constituents — not just mine — are affected.

259. The Chairperson: I totally accept that, but if individual members have cases or problems that they have been dealing with, perhaps those could be addressed after the meeting.

260. Mr Scott: I am quite happy to take those points on board, and I apologise. This year LPS dealt with over 60,000 telephone calls that were generated when the bills were issued. To try to make it easier for people to contact us by telephone, we linked up with the Northern Ireland Citizen Interaction Centre, which provides additional staff to answer the calls. Many of the calls received are straightforward. Although detailed literature is sent to customers, people often just look at the bill, and then call with a query, rather than attempting to find the answer in the literature. Many of the new staff are trained to answer straightforward calls, thus freeing up more staff to deal with the more complicated queries, for example if someone moves house or there is some complexity involving their liability. I am very disappointed that you have experienced difficulties, but if you wish to contact me about the individual cases, I will make it my business to deal with them promptly.

261. Mr Shannon: I have telephoned the number, and it has not been answered.

262. Mr Scott: I can assure you that we answer it regularly.

263. Mr Shannon: Perhaps you will answer the next time I call.

264. The Chairperson: They see that it is your number calling; that is why they do not answer.

265. Mr Shannon: Land and Property Services attempts to find those people who owe outstanding arrears, although they may have moved house or have died. The agency is not even sure whether all of the arrears can actually be recovered. The fact that the system has failed so much and the arrears have increased over a number of years compounds the problems that the Department is facing.

266. Mr Scott: In relation to pursuing arrears, even well-functioning systems face that problem. For example, many of my colleagues who collect council tax in the mainland are faced with the same problem, and the system there has not changed. People who pay rates are constantly moving — if they do not inform the agency or the collection authority then that leads to a paper chase. As I outlined in response to an earlier question, Land and Property Services only recently was granted the power to send out a written request for information. In the past, the collection process involved chasing around and attempting to find people who might have moved; it was not terribly efficient. That is one of the reasons why we are working with councils to try to catch up on the backlog and also to investigate new ways of doing it — through data matching with selected partners, both in the private sector and in the wider public sector — to obviate the need to chase people.

267. Land and Property Services has now signed up as part of the national fraud initiative, which is being taken forward by the Audit Office, in an effort to find smarter, quicker and cheaper ways of identifying a person, and determining when they occupied a property, so that we can issue the bill and embark on the collection process, and pursue it through the courts if that person does not make an arrangement to pay the bill.

268. Mr Shannon: It is imperative that the outstanding arrears are recovered, so that funding can be made available to the playschools, the Sure Start and Home Start programmes, and all of the other projects in operation across all Departments. Funding must also be made available for schools, and to build by-passes, and many other things. We all know that, and perhaps it goes without saying, but that is why it is important to recover that money.

269. Mr Scott: Of the £123 million outstanding arrears at the beginning of the current tax year, the arrears strategy — which was put into operation four months earlier than last year; a signal of the improvements that we are making — has reduced that amount to £80 million. There is no acceptable level of debt. Land and Property Services will continue to pursue robustly all outstanding debt, and will only write-off that debt as a last resort, when every available means has been made to attempt recovery.

270. Mr Shannon: Paragraph 2.2.42 of the report states that the Department gave approval to prioritise the development of the IT system, rather than recover amounts due to the Northern Ireland block. Indeed, Mr O’Reilly, you told the Committee of Finance and Personnel on 9 April 2008 that you took:

“a conscious decision to put some routine work — such as chasing up arrears — on hold”.

271. Some of us here would say that it was not a conscious decision; it was an amazing, incredible unbelievable decision. Why should your Department have done that? How much consideration was given to finding ways to continue with recovery action? Was the decision simply to forget about recovery action until the new IT system was introduced? I cannot understand just where the system fell down; perhaps you could answer that for me.

272. Mr Scott: The decision that was taken in the latter part of 2006 and early 2007 related to the issues and challenges that we were encountering, arising from the introduction of the new IT system and the various difficulties that have been outlined today.

273. To clarify, no decision was taken to simply forget about arrears. However, a decision was made to prioritise other pieces of work that were connected with the basic capability of the system to issue rates bills from 1 April 2007. In other words, we wished to ensure that a system was in place to collect revenue of more than £800 million. A conscious decision was taken — at my level and higher — to give that priority, simply because of the sheer scale of the resources involved. Work on recovery of arrears took a lower priority during that short period of time.

274. Mr Shannon: That is not what you said in your statement to the Committee for Finance and Personnel. Your statement said, very clearly, that routine work, such as chasing up arrears, was put on hold. “On hold” means that nothing is done; not that work is pursued. With respect, I do not accept your explanation.

275. At any stage, did you try to estimate what impact an accumulation of arrears would have and how that would affect the business of Government?

276. Mr O’Reilly: I cannot recall precisely whether figure work was provided. However, we were conscious that by not collecting overdue rates, as we had done in previous years, we ran the risk of increasing the amount of arrears in the system, because we normally took remedial action to follow up on people who had not paid their rate bill on time.

277. Mr Shannon: Did you ever discuss or decide upon a business case about the Department’s options on that?

278. Mr O’Reilly: We considered carefully the options available to us on a range of significant issues, which we were addressing at the time. There is benefit of hindsight, but clear decisions were taken, at my level and higher, to focus on ensuring that the system was in a sufficient state of readiness to allow for collection of more than £800 million in revenue that was due for billing on 1 April 2007. That was a conscious decision, even if it meant that other areas of work, including following up on arrears, had to temporarily take lower priority.

279. Mr Shannon: Do you have any paperwork that shows how you arrived at that decision, because members of the Committee will be anxious to get their hands on that?

280. Mr O’Reilly: I can explain the context of the decision. I will look up the papers, but it was taken in context of the rating-reform and modernisation programme board, which was the level above Arthur.

281. Mr Shannon: There must be some paperwork to show how you arrived at that decision. Please furnish the Committee with that information.

282. Mr Scott: I wish to add that, during the period in which we focused on delivering domestic reform, work to resolve issues with the recovery module continued. However, despite that work, it was not in a useable state.

283. In trying to mitigate the impact of growing arrears, we issued strongly worded notices, explaining to those ratepayers who had not paid their debt that they would be taken to court. Work is still being done to gather the figures, but I think that that action brought in around £5 million. We did not take that action until around January.

284. In a normal rating year, when the system works properly, as bills are reassessed and sent out for the next year, the recovery process closes down; thereby making it impossible to recover arrears and assess new bills at the same time. In a normal rating year, no recovery takes place during February and March.

285. Therefore, efforts to mitigate and minimise the growth in arrears were taken on the foot of the decision to prioritise the delivery of domestic rate reform.

286. Mr Shannon: Was the Minister briefed, at any stage, on the IT system and the problems that could occur? Is it not right that civil servants can seek direction from the Minister?

287. Mr O’Reilly: If necessary, yes.

288. Mr Shannon: Did you do that?

289. Mr O’Reilly: No; not in that case.

290. Mr Shannon: In other words, although you briefed the Minister, you did not, at any stage, ask for his direction despite knowing that problems had occurred?

291. Mr O’Reilly: The simple reason for not doing so was that the Minister did not ask us to do anything that we believed to pose a major risk to the systems or that we judged to be inappropriate.

292. Mr Shannon: It would seem that had he been aware of potential problems, the Minister would have asked for something to be done.

293. Paragraph 2.2.42 states that:

“the new system did not have the necessary functionality to issue final notices or process debt proceedings.”

294. I hate to return to the issue, but I must ask how the fundamental requirement for an adequate systems specification could have slipped when, quite clearly, the system was unable to issue final notices or process debt proceedings. Who is to blame for that? How much did that cost?

295. Mr Scott: As regards the specification, when phase 1 was delivered, the recovery functionality did not work. There were problems with testing and the quality of data that was used for it. During that phase of the project, test data was used. Regrettably, the test data did not provide the complexity or variety of situations that can arise in the life cycle of a rating case. Therefore, to some extent, the agency was to blame for the decision to use that data. We learned from that. The later delivery of other phases of the system — for example, the housing-benefit system — went live in July 2008 as planned and on schedule, after having been deferred on two previous occasions because it was not ready.

296. The other complexity was that the system was trying to pick up migrated data and bill for, in some cases, a period of two years. Because no legal recovery functionality was available in 2006-07, we ended up having to issue recovery notices for 2006-07 and 2007-08. That added a new dimension of complexity to the issue. I can assure the Committee that during that period, the supplier, the project team and the agency tried their best to make it work. There were a few false starts. However, given the significance of issuing someone with court proceedings — it is not a matter to be taken lightly — I wanted to be assured that we were operating with a high level of accuracy. I do not claim that we get everything right all of the time, as some members have demonstrated during the meeting. However, we needed to have a level of confidence in the system. Therefore, it was better to delay functionality until the system was ready than to start it early.

297. Mr Shannon: What was the extra cost?

298. Mr Scott: That was the supplier’s contracted responsibility. Therefore, in that sense, there would have been no additional cost. However, there would have been opportunity cost for the necessary staff time. I do not have a precise figure for that at present, although I could calculate that and provide the Committee with details.

299. Ms Purvis: Chairman, if you do not mind, I must leave to attend another meeting. I have several questions, which I shall put in writing.

300. Mr G Robinson: As regards the amount of arrears at 31 March 2007, I refer to paragraphs 2.2.44 to 2.2.49 of the report and to paragraph 11 of the update paper for figures at 31 March 2008. Since you decided to put the routine recovery of rate arrears on hold, there has been a rise in the amount of arrears from £48 million on 31 March 2006 to £124 million on 31 March 2008. Given the significant rise in the cost of living during the past 12 months, in particular, how realistic is it to get ratepayers who fail or refuse to pay during the previous 12 months to repay rate bills for multiple years at one time?

301. Mr O’Reilly: Clearly, anyone who falls into arrears — for whatever reason — will face increasing difficulties in paying their bills. Colleagues will give details if necessary, but Land and Property Services regularly enters into agreements with ratepayers to deal with arrears over a period of time. Those agreements allow the ratepayers to clear their debts without being met with single, one-off bills. Obviously, the circumstances in which the arrears arose are also considered. Colleagues will provide further details of those arrangements.

302. Mr Scott: We always try to work with the ratepayers and take account of their circumstances. We will try to work with them if they make a reasonable offer. If they break that arrangement, we are prepared to give them a second chance — depending on the circumstances. If they fail to pay a third time, we would seek to secure that debt through the legal process.

303. Mr G Robinson: Mr Wilkinson, each year you tend to write off rates as being irrecoverable, amounting to between £2 million and £3 million. What have you estimated to be the cost of your decision to defer recovery for a year on the level of future irrecoverable rates?

304. Mr Wilkinson: It is difficult to give a precise figure. I will give the Committee some assurances as to what we have done about the issue of arrears. In the last financial year, as the IT system has become fully functional, we have strengthened the team by increasing the number of staff working in that area from fewer than 10 to nearly 80 people, because of the amount of debt involved.

305. That team was put together and we focused on the arrears issue very early in the financial year. At this point, the statistics reveal that we have issued approximately 100,000 final demands and processed something in excess of 20,000 court summonses. We are putting a lot of time and effort into the issue, and we are chasing the unpaid moneys very hard.

306. As Arthur Scott pointed out, we are also conscious of the fact that some people have difficulty paying and might want to come to arrangements. In those circumstances, the debt carries forward from previous years. We write off the moneys only in exceptional circumstances. I assure the Committee that we are trying to chase the arrears. We are trying to ensure that we catch up on the position that we found ourselves in and keep the write-offs down to a minimum.

307. Mr G Robinson: Mr O’Reilly, is it fair that district councils should be penalised by your failure to recover irrecoverable debt when they have no role in recovery and, particularly, when they had no say in your decision to abandon the arrears recovery for a year, which could well lead to higher write-offs?

308. Mr O’Reilly: As the Committee will be aware, councils are protected by statute if rates arrears that are due in a particular year are not collected. In other words, arrears do not affect the revenue that is paid to councils. That means that, if the arrears are collected in a subsequent year, the revenue balance goes towards offsetting the regional rate debt. However, as you rightly highlighted, if debts are written off in those circumstances, there is an allocation of the written off debt that is set against the regional rate and the district council rates based on the relative poundage involved.

309. The pattern of rates write-off over the last number of years has been that the annual figure has been somewhere between £1·5 million and £2 million per year. However, because of the present arrears position, we expect that figure to increase somewhat in the coming years. We forecast that as much as £4 million could be written off per year. We must wait and see what happens.

310. In those circumstances, there will be some impact on the district councils under the present arrangements for dealing with written-off rates debt.

311. Mr G Robinson: Mr Wilkinson, paragraph 2.2.46 states that a team of seven people were working on reducing arrears at the time of the report. The updated information that you supplied advises that 80 people are working on arrears. In paragraph 2.2.48 of the report, you said that chasing older debt and tracing ratepayers who have moved can be time consuming and is less likely to produce a return. What do you estimate to be the increased cost of reducing arrears to the levels that you used to achieve when you had one of the best records of recovery?

312. Mr Wilkinson: I cannot give you those figures at the moment, but I will provide them in writing to the Committee. However, we are looking at that issue.

313. Mr G Robinson: When will the arrears return to a level comparable to that of five years ago?

314. Mr Wilkinson: That is a difficult issue. Over the past five years, the total amount of rate collectable has grown considerably. I have seen figures and statistics that show that over the past five years the number of new properties that have been built — houses and non-domestic properties — has grown substantially in Northern Ireland. The total amount of collectable rate over that period has grown by about 50%.

315. However, other issues affect the arrears situation, one being the introduction of non-domestic vacant rating around 2004-05. The report shows the amount of arrears attributable to the time taken to trace owners and to collect non-domestic vacant rate.

316. As Mr O’Reilly said, there is no acceptable level of arrears, and we will chase arrears vigorously. We are seeking to carry out some benchmarking with other collection authorities to establish what our future arrears levels may be, given the growth in the total amount of assessments and issues such as the introduction of non-domestic vacant rating.

317. Mr G Robinson: When will you return to recovering 98% of your assessment? Is it correct that the cost of collection of rates is passed on to the councils? If so, is it fair that they should pay for additional costs due to the decision to delay recovery action?

318. Mr Wilkinson: I would like to think that we would get back to 98% as quickly as possible. We are working towards that figure, and our target has risen to 95% for this financial year. We are aiming towards 98% and we will get back to that as quickly as possible.

319. With regard to your second question, the arrears referred to only become losses to councils when they are written off. As I have explained already, we are looking to pursue the debt vigorously so that we keep all of those figures down to a minimum for the councils.

320. Mr Wells: You will have to forgive Jim Shannon. This is his first day and he went softly. Wait until he gets his teeth sharpened and really gets going. However, he brought out some interesting points.

321. I have been a member of the Committee for about three or four months only. Nevertheless, with every report it examines, I am left with the opinion that Departments work to the view that they may as well be hung for a sheep as a lamb. Once again we have a litany of errors, which can be found no matter which section of the report one turns to. There is not just one big error: there is a whole cacophony of errors, all causing problems and losses to the public exchequer.

322. In 2006 you had 2,433 vacant non-domestic properties. You managed to bring that figure down to 300 two years latter. Nonetheless, you had four years’ warning of that problem. Why were there such a huge number of properties that could not be traced? As a constituency representative, people ring me all the time wanting to know who owns a certain old derelict warehouse. I write to the Land Registry. It writes back to say that Mr Smith owns it, and I write to Mr Smith and threaten him with council action if he does not repair it. However, you managed to let the system build up.

323. Did that lead to your agency sending out multiple bills? When you eventually caught the culprit and sent him or her bills for up to four years’ rates, did that situation make it more difficult to force him or her to pay up? What was the level of write-off as a result of your failure to trace those non-domestic vacant properties? What are you doing to catch the last 300 owners, who are out there, but have not paid? That is a poor work standard in that aspect of rate collection.

324. Mr Wilkinson: I will lead off; then Arthur will come in.

325. We started from a standstill —

326. Mr Wells: You had four years’ warning. You knew about the problem for four years before you started.

327. Mr Wilkinson: Yes, and we have been trying to trace the owners of the properties. Until the legislation was introduced, we did not have that non-domestic vacant rating (NDVR) information. Mr Scott will explain what we have been doing to address that problem.

328. Mr Scott: The non-domestic vacant rating was introduced on 1 April 2004. It was a brand new tax. It was the first time that the collection authority — at that time the Rate Collection Agency — was required to collect information on the ownership of such properties.

329. The member has rightly identified the Land Registry as one source of information. Unfortunately, the history of land law in Northern is in two halves. Some property is included in the Land Register, which is map-based. You study a map to find out who the owner is. Other property ownership is found in the Registry of Deeds, which consists of an index of names and sale dates. That means that the researcher must know who owned and sold the relevant property. It is not map-based and not easily traced.

330. We have reduced the numbers of vacant rates by searching through such information. We got the power to issue notices only in 2007-08. We are now down to the remaining 300 properties. We have not written off the debts because we believe that they are collectable.

331. There are exemptions and exclusions to non-domestic vacant rating. When we catch up with the person who either owns, or is entitled to possession of, the vacant property, we often discover that it is a qualifying industrial hereditament and is, therefore, excluded and that no rates are due.

332. If we issue a bill that covers a four-year period, as I explained earlier, we will work with the owner in an effort to agree a reasonable repayment arrangement. If that fails, we take them to court.

333. Mr Wells: You say that you have not written off any of those debts yet, but you must have an idea of the amount that you are never going to recover. What is the likely level of write off?

334. Mr Scott: The level of arrears at the moment is between £10 million and £15 million. However, as I explained earlier, sometimes when we catch up with people, we discover that the property involved is a qualifying industrial hereditament or is exempt from rates for some other reason. In those circumstances, no rates are due on that property. If there is a collectable rate, we do our utmost to collect it.

335. Mr Wells: Is there a whistle-blowing policy in what was formerly the Rate Collection Agency?

336. Mr Scott: In the RCA?

337. Mr Wells: Is there a whistle-blowing policy within your parent Department, the DFP?

338. The Chairperson: I think that that is your question, Mr O’Reilly.

339. Mr O’Reilly: The straight answer is, as stated in the report, that there is, as yet, no whistle-blowing policy in the Department. We are finalising a whistle-blowing policy, as the report highlights. It was considered at our audit-and-risk committee meeting in August and by the departmental board in September.

340. We intend to have a specific whistle-blowing policy for the DFP within the next couple of months. It is intended that that policy template will provide a framework for whistle-blowing policies across all Departments. We have been working closely with Public Concern at Work, which is an independent authority on whistle-blowing policy and best practice in the public sector.

341. Mr Wells: How many instances have you had of whistle-blowing on rates issues in recent years?

342. I take it there was none. Perhaps if you had had a policy in place, someone might have blown the whistle and raised the concerns that led to this quite embarrassing report.

343. The idea of a whistle-blowing policy is that, if a member of staff sees that something is going belly up, he or she can report it and feel confident about not being sacked or disciplined. As a result, the Department might be saved from embarrassment, such as its representatives sitting here for several hours answering difficult questions on a report that hardly leaves it smelling of roses.

344. Mr O’Reilly: I accept what you say, although I do not know whether a whistle-blowing policy can achieve those objectives. However, the Department and the agency have, for some time, been acutely conscious of the difficulties that are being explored here today and have been working to resolve them.

345. Mr Wells: When water charges were being considered, there was a suggestion of having a combined bill for rates and water. That would involve bringing together a huge set of data from approximately five different sources. For example, data would have to be gathered from the Social Security Agency; farmers with septic tanks would have to be separated from those without; the farmers’ allowance would have to be taken into account; and a distinction would have to be made between church halls that have septic tanks and those that do not.

346. Am I correct in thinking that, given this debacle, the chances of ever achieving a combined bill are nil? Perhaps that is a good reason never to introduce water charges, although that is a wider issue. If you cannot get the rate collection right, surely it is pie in the sky to believe that the agency could cope with the complicated task of charging for water for which a new computer system and complete reprogramming could be required.

347. Mr O’Reilly: You accurately highlight that, although the proposal for a combined water and rates bill seems, on the surface, to be straightforward, it would be extremely complex for the reasons that you identified and the requirement for new legislation. In addition, there is the simple fact that the person who is liable for the rates bill on a property is not necessarily the same individual who would be liable to pay water charges. You correctly highlight that such a change would pose a further major challenge in the integration of the existing rate-collection system with a new water-charging system. However, the Executive wish us to explore the feasibility of that option, and we are doing so.

348. Mr Wells: It was suggested that combined bills could be introduced by 1 April 2009. That is pie in the sky; it could not happen.

349. Mr O’Reilly: It would certainly provide a challenge. I do not want to comment specifically on that, because the work is ongoing. However, everything that you say is self-evidently true. A combined bill would present a major challenge, particularly in the light of the issues involved in moving to the new rating system and the difficulties that we have encountered therein.

350. The Chairperson: What lessons have you learned from the process, and what one thing would you do differently?

351. Mr O’Reilly: As reflected in the Audit Office’s report, the issues arose because of the undertaking of a radical and extensive programme of reform that involved introducing very different systems over an extremely short period. However, that was not the only problem. An immoveable deadline, in some respects, was built into the system. That inevitably creates some significant problems as the deadlines approach, and the Committee has explored some of the implications today. Therefore, timelines and deadlines in such systems must be carefully considered.

352. In contrast, in some other major IT projects that we are undertaking we have the luxury of being able to stop development until a problem has been resolved before moving on.

353. The second lesson that I draw from the process is one that the Committee also highlighted, and it concerns resourcing, particularly of skills. The skills required to implement such systems successfully are specialised and in relatively short supply. I have taken action over recent days and weeks to augment the IT skills in the Department and the financial skills in the Rate Collection Agency in order to ensure that we have additional professional skilled staff in place to deal with issues as they arise. Those are the two aspects that occur to me immediately. I do not know whether Mr Wilkinson or Mr Scott have anything to add to that.

354. Mr Wilkinson: I agree with Leo O’Reilly about the need for skills and resources in this area of work. It is a highly specialised field, and I am just pleased that we are making progress and looking to augment the resources that are available to us in Land and Property Services.

355. Mr Scott: Our quality assurance arrangements are crucial, bearing in mind the difficulties that were identified in the IT specification. With hindsight, it is important to realise the interdependency between the various aspects of the rating system. Following Northern Ireland Office guidance, we split the project into phases and delivered it in phases. However, in such an integral system, phasing worked against us to some extent in this case. That is something that we will have to examine closely in future.

356. The Chairperson: Thank you. Mr Dallat wants to ask a further question. I ask members to be brief if they wish to ask any more questions.

357. Mr Dallat: Is it reasonable to ask the Department to provide information on the cost of collecting each pound of the rates? We have heard a lot about the additional resources that are needed, and I have come to the conclusion that, if so many additional resources are required, it might be more cost-effective to make all property rate-free.

358. Mr Beggs: I recently asked a question in the Assembly about how much the Department charged each council for the collection of rates, and I have received a written answer on the matter. On the subject of delivery, I have no doubt that, had it been a private-sector organisation, Land and Property Services would have lost the contract and its clients would have gone somewhere else. A reality check is required in order to deliver a private-sector standard of performance. The public sector must reach those levels of performance or it will not be able to continue to deliver services.

359. The Chairperson: I am sure that we are all glad to hear that there are no further questions. I thank everyone for coming here today. Any report by the Comptroller and Auditor General that highlights an inability to rely on adequate systems and internal control or to obtain an adequate audit trail causes the Committee great concern. The fact that the Audit Office has addressed those issues in a statement of rate levy and collection serves only to increase the Committee’s anxiety. After all, almost £900 million has gone through the system.

360. We have all listened carefully to the responses of the witnesses today. We welcome the actions that they are taking to address the issues, and that will be included in the Committee’s report. However, several issues have been raised that have shocked me and other members. We will consider what has been said today, and we will make recommendations in our report. It is vital that wider lessons are learned from this case, given the number of significant and ongoing change programmes, as well as the implementation of critical new IT systems. We may need to ask further questions, and we will put those in writing. Thank you.

Appendix 3 Correspondence

Update paper on the Statement of
Rate Levy and Collection 2006-07

1. Paragraph 2.2.8 - (problems with the new IT system during 2006-07)

Problems with the system since its implementation have significantly impacted on operations in the area of rate collection and recovery. Subsequently, the completeness and accuracy of the Statement of Rate Levy and Collection and the availability of an adequate audit trail have also been adversely affected in the 2006-07 year.

Update:

Key management reports such as bills not issued are now available and working effectively. Supervisors are using these reports to improve the operation of the internal system of control in relation to the identified business progress risks.

2. Paragraph 2.2.9 - (problems with the new IT system during 2006-07) 1st bullet point

As a result final specification of some aspects of the new IT system could not be finalised, developed and tested in time for the introduction of these reforms from April 2007 (or was incorrectly specified as assumptions had been made).

The updated table below sets out the progress made in delivering those aspects of functionality which were not yet completed at April 2007.

Functionality	Volume	Position at 14 August 2008
Processing certificates of revision (to revise property valuations)	Approx. 50,000 per year	Delivered and operational in July 2007
Recovery (the issue of court proceedings to recover debt)	Approx. 40,000 per year	Delivered and operational in October 2007
Revised Disabled Persons Allowance	2,190 in 07/08 2,164 in 06/07 1,275 in 05/06	Delivered and operational in June 2007
Rate Relief	8,667 assessed 07/08 (6,995 awarded)	Delivered and operational in July 2008

Functionality	Volume	Position at 14 August 2008
Payment of Interest	68,000 cases	An interim system was delivered and operational in July 2008. Delivery of full system is scheduled for January 2009.
Education, Training and Leaving Care	Approx 1,000 approved 07/08 Approx 600 approved to date in 08/09	Outstanding. Implementation has been delayed because of a pending judicial review and reprioritisation to accommodate changes for the Executive’s review of rating. At present, cases are processed manually. Delivery is scheduled for October 2008.
Local Enterprise Agencies	23	Outstanding. Work on the system specification has started but this cannot be finalised until the outcome of an internal review of the non domestic vacant rating requirements is completed.
Non Domestic Hardship Relief	20 cases	Due to the small number of applications there are no plans to move from the interim IT solution.

3. Paragraph 2.2.9 - (re problems with the new IT system during 2006-07) 4th bullet point

Consequently, work to develop the functionality for legal recovery was suspended and it was not possible to issue court summons to those ratepayers who had failed to respond to payment reminders. Contingency plans were deployed but in most cases they relied on manual processing. There were difficulties in obtaining staff for process rating casework and in some instances there were issues of quality. A project plan was revised and approved by the Project Board.

Update:

The functionality to issue court summonses was operational by mid-October 2007 and just over 24,000 court processes were issued during 2007/08. Some additional training and guidance have been provided for new and existing staff to improve the quality of casework.

4. Paragraph 2.2.10 - Pressure to implement system ahead of adequate testing

Testing for the Housing Benefit module that is scheduled to go live in July 2008, is using live migrated data. A full dress rehearsal will also be undertaken in advance of the go live to identify any problem areas and to fine tune the Phase 3 cut over and contingency plans.

Update:

Following a full dress rehearsal the Housing Benefit module went live on 28th July 2008 as scheduled and it is fully operational.

5. Paragraph 2.2.13 - Staff resources

Problems with the IT system, and the need to deploy staff to remedy these problems impacted on the resource available within the Agency to carry out routine business operations such as collection and recovery of rates billed.

Update:

Land and Property Services has been working closely with Human Resource partners to source and deploy staff. Since April 2008, 50 staff have joined Land and Property Services and are currently at various stages of training. We continue to work with Human Resources to ensure our staffing levels are adequate to deliver the challenges of implementing rating reform and improving overall business performance.

6. Paragraph 2.2.15 - System control weaknesses.

In 2006-07 internal audit gave a limited assurance over the cash office procedures due to the ability of cashiers to remove a cash receipt entry from the system and the fact that the system reconciliation did not highlight such removals. This was compounded by an inadequate password control system.

Update:

A manual interim control was implemented immediately to remove the weakness. An IT fix was developed and tested and applied on 10 September 2007 to ensure robust control in this area.

7. Paragraph 2.2.20 (Weaknesses in internal controls)

(Re non-performance of prescribed management and supervisory checks.)

Whilst recognising the concerns of management over the capabilities of the IT system at that time, Internal Audit noted that, regardless of the cause, necessary checks, inspections and reminder action were not being completed.

Update:

System difficulties following go-live meant that it was not possible to generate key management reports for supervisory checks. This difficulty has been largely resolved.

8. Paragraph 2.2.22 - Receipts and unallocated cash at 31 March 2007

The Statement of Rate Levy and Collection presented by RCA includes £847 million of receipts during 2006-07. During the audit, my staff were unable to obtain an accurate listing of this amount from the new IT system which corresponds to the figure presented in the Statement of Rate Levy and Collection. My staff were informed by management at the Agency that this account area contains a balancing figure of £4million and therefore a complete and accurate listing is not available. The Agency has informed me that this continues to be under review.

Update:

The difficulty with the reconciliation of receipts arises from the need to use account adjustments to address a variety of issues that were either not specified, or incorrectly specified, to the supplier. The volume of account adjustments makes analysis impractical. The ongoing Financial Review of the system is addressing this issue and it is hoped to have it resolved by 31 March 2009.

9. Paragraph 2.2.23 - Receipts and unallocated cash at 31 March 2007

The problems with the IT system also mean that basic financial controls such as bank reconciliations were not successfully carried out during the 2006-07 or the 2007-08 year. In 2005-06 DFP told me that the Agency was taking steps to resolve outstanding issues in relation to bank reconciliations and would ensure these are brought up to date to support the 2006-07 Statement of Rate Levy and Collection and that procedures and processes are kept up to date going forward.

Update:

Land and Property Services deals with around 420,000 bank reconciliations per annum. In relation to the reconciliation for 2006/2007, there are now only 278 bank items still to be reconciled and operational finance are currently working on these - the queries relate mainly to migrated data. At the 30th June 2008 there were under 3,100 bank items in total to be reconciled. This figure includes a backlog of payments not posted due to the planned system closure of two weeks during July in preparation for ‘go live’ of the Housing Benefit module.

10. Paragraph 2.2.32 - Assessments

…A reconciliation carried out during 2006-07 identified differences in the number of properties listed on the Valuation and Lands Agency system and the previous RCA system…The Agency informed my staff that, currently, there is no difference between the property listings of the two systems.

Update:

Reconciliation of properties and their valuations on both systems is an ongoing process. There are 900 cases out of approximately 873,000 properties in which discrepancies have been identified and work to resolve them continues. It is hoped to have them cleared by 30 September 2008 for the Estimated Penny Product calculation.

11. Paragraph 2.2.40 - Arrears at 31 March 2007

Arrears carried forward at 31 March 2007 are £88 million, compared to £48 million at 31 March 2006 and £35 million at 31 March 2005. We note that the most recent indication of arrears at March 2008 is £130 million.

Update:

Arrears at the 31st March 2008 were £123.7m. The successful implementation of our revised arrears strategy has reduced this level of debt to around £80m. Work continues to further reduce this debt.

12. Paragraph 2.2.46 - Arrears at 31 March 2007

The Department had also indicated to me in my 2005-06 report that a team dedicated to dealing with rate arrears was being established and would be strengthened during 2007-08. The Agency informed me that a team of 7 staff was put together to deal with arrears once recovery action recommenced and that rating debt carried forward at 31 March 2007 was reduced to £41 million from £88 million as a consequence.

Update:

Land and Property Services has completed a significant restructuring exercise to reallocate 80 staff towards dealing with rate accounts that are in arrears.

13. Paragraph 2.2. 47 - Arrears at 31 March 2007

An aged profile of amounts in arrears could not be produced at 31 March 2007, but we were provided with an ageing of amounts in arrears at November 2007. It is concerning that such critical management information was not available and therefore not being used by the Agency at a time when the level of arrears was increasing significantly.

Update:

The information provided in an aged debt report (for example, debt over 30, 60, 90 days) is of no operational benefit. Land and Property Services defines debt as rates that are not discharged by the end of the year in which they are billed. Non payment of rates in-year (arrears) is addressed through the recovery strategy, which includes the issue of payment reminders, final notices and legal action if the ratepayer does not pay.

14. Paragraph 2.2.50 - Non Domestic Vacant Rating

…the RCA have been unable to establish full ownership details of NDVR properties. At 31 March 2007, ownership details relating to some 1,122 properties are still not confirmed, resulting in unbilled rates of approximately £2.6 million. This is an improvement on the position at 31 March 2006, where ownership details in relation to 2,433 properties were unknown, with unbilled rates of £6.8 million. The Agency has informed me that at February 2008, the number of NDVR properties where ownership remains unknown has reduced further to 626 properties and that, whilst ownerships remain unknown, a bill has been issued to these properties addressed to “The Owner”.

Update:

The number of properties where ownership details remain outstanding has been reduced to 300. Work continues to reduce this figure further.

15. Paragraph 2.2.52 - Non Domestic Vacant Rating

At 31 March 2007, management were not able to confirm the total amount in arrears which related to NDVR, but have estimated it to be in the region of £10 - £15 million.

Update:

Further analysis indicates that the amount of debts outstanding relating to NDVR arrears prior to 31/03/08 was £12.8m. This has been reduced to £6.8m. Work to recover the remaining debt continues.

16. Paragraph 2.2.65 System capacity in respect of future rating

…At present, the system does not yet have the capacity to process many of the reliefs introduced by the Review of Rating Reform, some of which are already in operation. Such reliefs include:

Updated Figure 4: IT System capacity in respect of future rating reforms

Relief	Date from which relief is operational	Current capacity of IT system to operate relief	Status at 14 August 2008
Rate relief	1 April 2007	Relief currently implemented with manual work around	IT system live on 28 July 2008
Education and Training relief	1 April 2007	Relief currently implemented with manual work around	Planned go-live date is start of October 2008
Payment of interest	1 April 2007	Interim system due to go live early May and full system November 2008	Interim system live from May 2008. Planned go- live date for full system is early January 2009
Farm diversification relief	1 April 2007	Relief currently implemented with manual work around	Relief has been fully specified for the IT system. It has not been scheduled into the current plans for implementation due to the low number of applications and time bound (3 year) nature of the relief measure.
Local Enterprise Area relief	1 April 2007	Relief currently implemented with manual work around	Relief has been partially specified. It will be progressed further when the planned internal review of non- domestic vacant rating is completed.
Hardship relief	1 January 2007	Separate interim IT system in place. Go live scheduled for October 2008	This relief has not been scheduled into the current set of plans due to the small volume of applications.
Lone pensioner allowance	1 April 2008	Go live scheduled for 13 May 2008	IT system live at end of June 2008
Savings limit relief	1 April 2008	Go live scheduled for 28 July 2008	IT system live on 28 July 2008

17. Paragraph 2.2.66- System capacity in respect of future rating

I asked the Department how those reliefs that are currently in operation are being managed by the Agency at present. The Department told me that manual workarounds and interim arrangements are in place and operating and that plans to add the necessary functionality to the IT system are in place. This is despite an earlier Gateway Review raising concerns regarding the use of manual work-arounds to remove the need to implement all the rating reforms on the IT Replacement System by 1 April 2007.

Update:

The Agency acknowledges the concerns in the Gateway Review. However, where, on occasions, manual intervention remains the only viable option, management has put in place controls commensurate with the risk.

18. Paragraph 2.2.68 - System capacity in respect of future rating

Although procedures for some of the above reliefs will go-live in the short term, the system to process payment of interest on many of these reliefs will not be ready until Autumn 2008, some 18 months after the introduction of some of these schemes.

Update:

Where cases of potential hardship have been identified manual payments have been made. As stated at paragraph 2.2.9 an interim system for the payment of interest (part automated) was signed off in May 2008 and went live in July 2008. The specification of a fully automated system is due to be agreed this month and initial plans indicate go live in January 2009.
The reason for the phased implementation has been the extreme complexity of the required functionality to meet the legislative requirements. In the light of the significant cost implications other options, including manual workarounds, were assessed but the fully automated IT system was determined to be the only viable solution.

Chairperson’s Letter of 22 September 2008 to Mr Leo O’Reilly

NIA Logo

PUBLIC ACCOUNTS COMMITTEE

Public Accounts Committee
Room 371
Parliament Buildings
BELFAST
BT4 3XX
Tel: (028) 9052 1208
Fax: (028) 9052 0366
Email: Jim.Beatty@niassembly.gov.uk

Date: 22 September 2008

Mr Leo O’Reilly
Accounting Officer
Department of Finance and Personnel
Rathgael House
3rd Floor
Balloo Road
Bangor
BT19 7NA

Dear Leo

RE: PUBLIC ACCOUNTS COMMITTEE EVIDENCE SESSION 18 September 2008

Further to the evidence session at the Public Accounts Committee yesterday, please provide the following additional information which members requested at the meeting:

1. Please state if there was an assurance given to District Councils that any loss from the change to capital values would be made good to Councils by way of transitional relief. If not, what measures are in place to address this issue?

2. Please provide, as Members requested, a copy of the staff attitude survey already completed. You also mentioned that a further survey was nearing completion and members would wish to see the outcomes of this survey as soon as it is completed.

3. The C&AG, in his 2005-06 Report, asked DFP to strengthen the accountability and corporate governance arrangements and was advised that DFP would consider this matter with urgency. However, from paragraph 2.2.6 the Committee notes that one year later the Department had merely appointed a project manager, and agreed terms of reference and a timetable. Why has this taken so long and when will accounts be laid at the Assembly?

4. Internal Audit highlighted fundamental flaws in cash office procedures, i.e. cashiers could remove a receipt from the system and this would not be picked up by any reconciliation, a clear failing. Your Update Paper states that a manual fix was implemented immediately to remove this weakness and an IT “fix” applied in September 2007.

How long had these fundamental flaws been operating before they were fixed, and how do you explain such fundamental flaw in your basic controls, as such control weaknesses would have increased your vulnerability to fraud and made their detection more difficult?

How many internal frauds have been found in the last 3 years?

5. Members noted that £7.2 million of receipts were unallocated to client accounts at 31 March 2007. What are the consequences for ratepayers, e.g. can ratepayers who have already paid their rates find themselves being pursued for late payment?

There are thousands of pounds of receipts to allocate to ratepayer accounts. When will all of these be finally allocated?

6. Paragraph 2.2.42 of the report states that the Department gave approval to prioritise the development of the IT system rather than recover amounts due to the NI block. Was there a business case prepared which included an options appraisal and cost benefit analysis? Please forward a copy of all relevant papers to the Committee.

7. Paragraph 2.2.48 of the report states that chasing older debt and tracing ratepayers who have moved can be time consuming and is less likely to produce a return. What is the estimated increased cost of reducing arrears to the levels previously achieved when the former RCA had one of the best records of recovery?

8. Members noted the timetable and the delays in the various stages of the project in figure 4 and the current position in the updated information. Can the system now be confirmed as stable, as far as operational need is concerned, including financial accounting, financial management and financial control needs?

Can LPS now confirm that there is a system that meets its needs for the foreseeable future and that £11.5 million is the estimate of the cost of this system?

9. How did the Agency and Department negotiate a contract where milestone payments would have to be paid in advance of full implementation at each phase?

Paragraph 2.2.64 states that there were circumstances where money was retained due to outstanding problems. Please indicate how much money was retained and for how long.

10. The system for calculating the payment of interest to those who have overpaid rates is still not implemented and will not be until 2009. What about those people such as single pensioners who have paid their bills in full but are awaiting the processing of lone pensioner relief. When will they get their interest?

11. Please provide the cost of collecting each £1 of rate.

12. During the evidence session there were comments from members about the difficulty of contacting the Land and Property Services. Mr Scott offered to provide his telephone number and members would appreciate this information.

I would be grateful if we could have your response by Monday, 6 October 2008.

Yours sincerely

Paul Maskey

Paul Maskey
Chairperson
Public Accounts Committee

Correspondence of 7 October 2008 from Leo O’Reilly

Rathgael House
Balloo Road
BANGOR, BT19 7NA
Tel No: 028 91277601
Fax No: 028 9185 8184
E-mail: leo.o’reilly@dfpni.gov.uk

Mr Paul Maskey MLA
Chairperson
Public Accounts Committee
Room 371, Parliament Buildings
Belfast
BT4 3XX
7 October 2008

Dear Paul

Re: Public Accounts Committee Evidence Session 18 september 2008 – Additional Information

Thank you for your letter of 22 September 2008 requesting additional information following the Public Accounts Committee evidence session on 18 September 2008. Please find the responses to your questions, set out below.

1. Please state if there was an assurance given to District Councils that any loss from the change to capital values would be made good to Councils by way of transitional relief? If not, what measures are in place to address this issue?

The introduction of new arrangements from 1 April 2007 basing domestic rate liabilities on capital values rather then rental values had the effect of altering the distribution of the new tax base among the 26 district councils. Some district councils therefore had a greater share of the new capital based valuations compared with the previous rental valuations, while others had a lesser share.
The allocation of the resources element of the DOE General Grant to district councils was changed to take account of the revised pattern of the tax bases. Both the tax base and general grant redistributions interacted to produce a changed pattern of domestic rates (as measured by capital values) compared to the rental value based council rate poundages.
The changeover from rental to capital values did not result in a direct loss of rates income for councils. They could continue to raise similar amounts from the district rates as previously. However, as a result of the changeover some councils lost out on General Grant because the new basis of valuation had an impact on the data used in the formula for the distribution of the General Grant between eligible councils. For this reason, it was decided that transitional relief would be made available to those councils which would have experienced a reduction in grant. This meant that 100% relief, costing £2.2 million, was provided to ten councils in the first year who would have lost General Grant, and 50% relief, costing £1.1million, was provided to nine councils in the second year.
On a separate point, it has been suggested that the district councils were informed that a transitional relief scheme would also be introduced to compensate councils who were specifically affected by the introduction of a £500,000 maximum capital value. However, there was no communication from the Government which pointed towards such a scheme, and it is not clear how this perception arose. The Government consulted on this measure towards the end of 2006 and there was no reference of a transitional relief scheme, nor did it arise during the consultation.
A proposal to reduce the maximum capital value to £400,000 has emerged following the 2007 Executive review of the rating system. The Department has recently consulted on this proposal. This included asking for views on the option of providing transitional relief to those councils most affected by this reduction. This consultation has now ended, and the Finance Minister will bring his conclusions to the Executive for consideration of the way forward on this and other aspects of the rating review.

2. Please provide, as Members requested, a copy of the staff attitude survey already completed. You also mentioned that a further survey was nearing completion and members would wish to see the outcomes of this survey as soon as it is completed.

A copy of the DFP staff attitude survey carried out in 2007 is attached. There are separate references to staff attitudes in LPS throughout this report. The outcome of a further updated survey soon to be undertaken will be provided when this has been carried out and the results are available. It is expected that headline results will be available in late December 2008, while the full detailed report should be available in mid- January 2009.
As a result of the outcome of the staff attitude survey in 2007, and in consultation with staff throughout the organisation, Land and Property Services has initiated an action plan for 2008/2009. The action plan contains some 26 steps to be taken to improve performance in the key areas of leadership/management, customer focus and communications.

3. The C&AG, in his 2005-06 Report, asked DFP to strengthen the accountability and corporate governance arrangements and was advised that DFP would consider this matter with urgency. However, from paragraph 2.2.6 the Committee notes that one year later the Department had merely appointed a project manager, and agreed terms of reference and a timetable. Why has this taken so long and when will accounts be laid at the Assembly?

As noted in the C&AG’s report, the Department is drawing up a timetable to prepare the Statement of Rate Levy and Collection in accordance with current applicable reporting standards. The restatement of the Statement of Rate Levy and Collection (SRLC) from a cash to a resource basis will be a complex and challenging process.
To identify the correct accounting practices and treatments that should be applied to a collection account such as the Statement of Rate Levy and Collection we have been reviewing the reporting of similar collection accounts, for example, council tax, within the local government sector in England and Wales.
Accounting for tax revenues (collection accounts) is not covered by the HMT Financial Reporting Manual, which governs central government accounting in the UK. Instead, advice and guidance on the preparation of collection accounts are provided to public sector bodies – local council and authorities - in the form of a Statement of Recommended Practice developed by the Chartered Institute of Public Finance and Accountancy (CIPFA) and statemented (accepted) by the Accounting Standards Board.
CIPFA have recognised that the existing Statement of Recommended Practice, ‘‘Code of Practice on Local Authority Accounting in the United Kingdom 2008’’ requires clarification and strengthening in relation to accounting for collection accounts on a resource basis, and we are advised that a revised draft Statement of Recommended Practice will be issued for consultation this month. Under CIPFA’s current timetable the revised Statement of Recommended Practice will then be applicable to all collection accounts prepared from 2009/10 onwards.
The revised Statement of Recommended Practice will provide best practice accounting advice and guidance in relation to collection accounts and therefore the Department considers that we should incorporate this revised advice and guidance from the new Statement of Recommended Practice before preparing full resource accounts for the rate collection account. This will ensure that the revised rate collection account will be both compliant with best practice guidance and also comparable with similar property tax collection accounts prepared by other authorities in GB.
In order to ensure a clear focus on this task, Land and Property Services has appointed a professionally qualified accountant to lead a project team to manage and oversee the transition to the new arrangements. This team will work to the delivery of a fully auditable resource based collection account in line with the 2009 Statement of Recommended Practice implementation timetable. In the interim the project team will:
Consider, in relation to the 2007/08 statement, how the existing cash format can be enhanced, through the use of additional notes and a management commentary, to provide further information.
For 2008/09 both enhanced cash and shadow resource accounts (based on the draft Statement of Recommended Practice 2009) will be produced.
From 2009/10 onwards, production and audit of Statement of Recommended Practice compliant accounts, together with the introduction of any accounts directions and legislation.

4. Internal Audit highlighted fundamental flaws in the cash office procedures, i.e. cashiers could remove a receipt from the system and this would not be picked up by any reconciliation, a clear failing. Your Update Paper states that a manual fix was implemented immediately to remove this weakness and an IT ‘fix’ applied in September 2007.

How long had these fundamental flaws been operating before they were fixed, and how do you explain such fundamental flaws in your basic controls, as such control weaknesses would have increased your vulnerability to fraud and made their detection more difficult?

How many internal frauds have been found in the past three years?

Phase 1 of the replacement IT system went ‘live’ in October 2006, and Land and Property Services used a daily report checking cash receipts against receipts received. The problem in the system permitting the reversal of a posting without the proper segregation of duties was identified in January 2007.
This weakness in the control system arose because the permission levels for users did not restrict access to the reverse posting functionality to the Cash Office supervisor only. Also, an individual had inappropriately obtained a supervisor’s password and used that password to reverse receipts already issued. (See below).
Following investigation action was immediately taken to address these control failures. A manual process was designed, quality assured by DFP Internal Audit, and implemented from 16 February 2007 until the system ‘fix’ was developed, tested and implemented in September 2007.
In the last three years, following investigations and, including the case referred to above, Land and Property Services has detected two internal frauds. In both these cases, legal proceedings are underway.

5. Members noted that £7.2m of receipts were unallocated to client accounts at 31 March 2007. What are the consequences for ratepayers, e.g. can ratepayers who have already paid their rates find themselves being pursued for late payment?

There are thousands of pounds of receipts to allocate to ratepayer accounts. When will all of these be finally allocated?

If Land and Property Services is unable to allocate receipts to the correct accounts because the necessary details have not been provided with the payments received, then it is likely that the ratepayers will receive a final notice. However, this normally triggers the ratepayers to make contact with Land and Property Services to say that they have already paid the bill and, once they have provided the information needed to associate the payment with their account, the receipt can be allocated to them.
In all of the information provided with the bill, Land and Property Services emphasises the need to provide the correct ratepayer and account numbers with payments.
Some £6.9m has now been allocated to customer accounts. The remaining £273k has been allocated to suspense accounts and Land and Property Services is working to allocate these receipts to the correct ratepayer accounts. Every effort will continue to be made to allocate payments received, but without adequate supporting information, to the correct accounts.

6. Paragraph 2.2.42 of the report states that the Department gave approval to the development of the IT system rather than recover amounts due to the NI block. Was there a business case prepared which included an options appraisal and cost benefit analysis? Please forward a copy of all relevant papers to the Committee.

As paragraph 2.2.42 of the report highlights, after go live in October 2006 the new system did not have the necessary functionality to issue final notices or process debt proceedings. As a result, priority was given to developing the new IT system’s ability to issue domestic rates bills based on capital values. This decision was taken because a higher priority was placed on ensuring that the new system would be ready to issue bills and collect rates revenues totalling some £1,044 million for the 2007-08 financial year.
The potential risk to collection of this revenue was judged to take a higher priority than the risk (which materialised) of not being able to use the new IT system to process debt proceedings against those who had failed to pay their rates bills on time. As the C&AG’s report highlights, rate arrears increased by some £40 million in 2006-07.
No separate business case was prepared since this was an operational decision taken based on the Programme Board’s assessment at the time of the relative priorities and risks to collection of rating revenues, with a clear priority given to ensuring that the full revenues due for 2007-08 could be collected. Work to address the problems affecting the recovery functionality of the new IT system continued whenever possible. Although some progress was made, testing revealed continuing problems with this aspect of the new system and therefore this aspect of the system did not become operational during 2006-07. Copies are attached of the minutes of the Rating Reform and Modernisation Programme Board (RRMP) where this issue was discussed – with the key references at Annex attached.
In order to mitigate the impact on revenue take, an additional 6,000 payment reminders were issued to ratepayers pointing out the consequences of non payment. We estimate that this action generated around an additional £5million in revenue.

7. Paragraph 2.2.48 of the report states that chasing older debt and tracing ratepayers who have moved can be time consuming and is less likely to produce a return. What is the estimated increased cost of reducing arrears to the levels previously achieved when the former RCA had one of the best records of recovery?

While chasing older debt and tracing ratepayers who have moved is time-consuming, it should, nevertheless, be noted that Land and Property Services does not write-off debt until all possible rate recovery actions have been exhausted.
Also, any decision to write off debt is subject to clearly defined write-off criteria which are open to scrutiny by DPF Internal Audit and the Northern Ireland Audit Office. On occasions, debt can be recovered after it has been written off. Normally this is by way of dividends received from bankruptcy cases.
As a result of recent reforms, the situation concerning valuation and collection of rates has changed considerably. The introduction of non domestic vacant rating and the 2007/08 rating reforms make it inappropriate to draw a direct comparison with the past. The total of the rates assessed on properties has increased by around 50% over this last five years, and it is highly unlikely that, in absolute terms, the level of arrears will ever return to the historic levels achieved by the former Rate Collection Agency.
However, Land and Property Services is making every effort to reduce rate arrears to a minimum. It is currently estimated that the actual cost of this is in the region of £700,000. This is based on the costs (£340,000) of staff to deal with backlogs in revenues and benefits, the costs of casual staff (£300,000) to ‘backfill’ these posts, and the costs (£60,000) of data matching with Experian to trace ratepayers who have moved.

8. Members noted the timetable and the delays in the various stages of the project in figure 4 and the current position in the updated information. Can the system now be confirmed as stable, as far as operational need is concerned, including financial accounting, financial management and financial control needs?

Can LPS now confirm that there is a system that meets its needs for the foreseeable future and that £11.5m is the estimate of the cost of this system?

Land and Property Services has made major progress on the post ‘go-live’ IT system issues with regard to operational needs, including accounting and financial management and control. This includes, for example:
Improving business performance and revenue collection levels.
Using key management reports to improve the internal system of control in relation to identified business risks.
Introducing new controls such as weekly collection reports, monthly revenue profiles, and monthly reconciliations between the valuation and revenue collection databases.
Using controls such as segregation of duties and authorisation levels and keeping supporting papers as evidence that checks have been carried out.
The ongoing full review of the system’s financial specification has identified a number of improvements, and projects to deliver these have started.
New demands on the system will continue to emerge as further changes to the rating system and associated rating reliefs are introduced following decisions by the Executive and Assembly. Such changes to the system will require development, testing and implementation.
Additional requirements, expert advice, requirements over and above the contracted work, and improvements to functionality, add further costs to the system. The estimated total cost of the IT replacement project at the time of its closure in June 2008 is £13million. This figure, which excludes the costs arising from the Review of Rating, is just outside the original risk analysis for the approved business case.

9. How did the Agency and Department negotiate a contract where milestone payments would have to be paid in advance of full implementation at each phase?

Paragraph 2.2.64 states that there were circumstances where money was retained due to outstanding problems. Please indicate how much money was retained and for how long?

The contract is based on the model contract developed by the Office of Government Commerce (OGC), and an OGC procurement expert and OGC- approved lawyers were involved in the preparation of the contract. Specifically, the conditions under which milestone payments are made follow the standards set by OGC.
Milestone payments are due when the agreed products are delivered and approved by Land and Property Services in line with agreed quality standards. The contract allows for products to be approved for payment while minor issues remain, and an appropriate percentage of the milestone payment is normally retained until the issues are resolved.
The milestone payments only relate to the requirements included in the original contract and do not cover subsequent requests for change, which are paid for separately and may incorporate milestone payments of their own, depending on the scale of the change.
The payment schedule contained within the Land and Property Services contract was based on the phases of software delivery and allowed for an amount to be retained for each phase:
Phase 1 10%
Phase 2 2%
Phase 3 4%
Phase 4 2%
There was also a further 10% to be retained until the four phases were delivered.
In Phase 1 the Senior Responsible Officer decided to retain an additional 10% due to the scale of the outstanding issues.
Because a reasonable number of the outstanding issues had been resolved by February 2007, 45% of the contracted retention figure for Phase 1 was paid.
By the middle of March 2007 further issues had been resolved and a further 15% of the contracted sum was paid, together with the 10% held back by the Senior Responsible Officer.
A further 15% of the contracted retention figure was paid in May 2007, and the remainder was retained until January 2008 when the Senior Responsible Officer considered that the supplier had completely fulfilled their contractural requirements in respect of Phase 1.

10. The system for calculating the payment of interest to those who have overpaid rates is still not implemented and will not be until 2009. What about those people such as single pensioners who have paid their bills in full but are waiting the processing of lone pensioner relief. When will they get their interest?

Because of the legislative requirements, the functionality for a fully automated system for payment of interest is extremely complex. While other options were assessed, including manual workarounds, it was decided that a fully automated system was the only viable situation. The specification for this has been agreed and initial plans indicate ‘go-live’ in January 2009.
An interim IT solution went live in July 2008 and work to clear the backlog of cases is progressing. Interest due is being made with all eligible refunds made from July.
However, it should be noted that interest is not payable with regard to the Lone Pensioner Allowance. This is because the regulations governing the payment of interest exclude any arrangements made under Article 3 (a) of The Rates (NI) Order, which includes both Rate Relief and the Lone Pensioner Allowance Scheme.
While Land and Property Services has been working to have the backlog of Lone Pensioner Allowance applications cleared by the end of October, testing of the IT has revealed further issues, which need to be resolved before some 4,500 applications involving Housing Benefit and Rate Relief can be cleared. Work is ongoing as a matter of urgency and the remaining applications will be cleared as soon as possible. Payments will, of course, be backdated to 1 April 2008. Over 12,000 applications for Lone Pensioner Allowance have been cleared to date.

11. Please provide the cost of collecting £1 of rate.

The cost of collecting £1 of rate is not currently available. Unit cost targets, which were published annually by the former Rate Collection Agency, were discontinued with effect from 2005-2006 due to the additional work necessary for the programme of rating reforms.
However, work is now being done to provide the PAC with a preliminary updated estimate of the cost of collecting £1 of rate. This information will be sent separately.
In the meantime, it is estimated that for 2007/08 the unit cost of collecting rates, that is, raising assessments and pursuing collection for each rateable property, was £20.00 (£11.00 in 2005/06). The estimated cost for receiving and processing Housing Benefit applications was £36.00 (£28.00 in 2005/06).
Land and Property Services will re-introduce unit costs for revenues and benefits from 1 April 2009. These will be benchmarked with similar appropriate revenue and benefits bodies in the United Kingdom.

12. During the evidence session there were comments from members about the difficulty of contacting Land and Property Services. Mr Scott offered to provide his telephone number and members would appreciate this information.

Members may find the following contact information for senior revenues and benefits staff helpful:

Name	Position	Contact details
Mr Arthur Scott	Director of Operations	02890252068 arthur.scott@dfpni.gov.uk
Mr Joe Mullan	Head of Revenues and Benefits	02890252256 Joe.mullan@dfpni.gov.uk
Mrs Frances McMullan	Regional Manager Revenues	02890252427 Frances.mcmullan@dfpni.gov.uk
Mr Brian Davidson	Recovery and Enforcement	02890252017 Brian.davidson@dfpni.gov.uk
Mr Michael McTernan	Head of Benefits	02890252499 Michael.mcternan@dfpni.gov.uk

I hope that this information is helpful, and I will be pleased to answer any further queries.

Yours sincerely

Leo O’reilly

Annex

Extracts from Minutes of Rating Reform and Modernisation Programme Board Meetings

Meeting Dated 13 November 2006

Present:	Leo O’Reilly	Colin Ross
	Nigel Woods	Lucy Marten
	Arthur Scott	Jonathan Crook
	Brian McClure
Apologies:	Chris Thompson

It Project

13. Phase 1 went live on 13 October, however, there were problems with the cash receipting program, and although the problem has been fixed the reason for it is not fully understood. Recovery action has not yet started. A later start date than in previous years will reduce the total amount collected during the rest of the ‘rating year’. It was noted that the rating debt figure could grow as a result.

[EXTRACT]

Meeting Dated 19 December 2006

Present:	Leo O’Reilly	Brian McClure
	Nigel Woods	Colin Ross
	Arthur Scott	Jonathan Crook
	Alan Brontë
Apologies:	Chris Thompson

RCA / VLA update

11. The Board noted a number of operational issues, including delay in clearing the backlog of refunds and the late start of recovery action. RPD is also working closely with RCA on outstanding reform issues.

[EXTRACT]

Meeting Dated 14 February2007

Present:	Leo O’Reilly	Brian McClure
	Nigel Woods	Colin Ross
	Arthur Scott	Jonathan Crook
	Alan Brontë
Apologies:	Chris Thompson

19. The problem preventing recovery action is still unresolved, but is being addressed.

[EXTRACT]

Meeting Dated 1 March 2007

Present:	Leo O’Reilly	Brian McClure
	Arthur Scott	Colin Ross
	Alan Brontë	Jonathan Crook
Apologies:	Chris Thompson
Apologies:	Nigel Woods

16. Arthur Scott is 80-85% confident that RCA will be able to issue circa 400-500k ‘straightforward’ domestic rate bills, subject to successful completion of testing by 13 March.

[EXTRACT]

Meeting Dated 18 April 2007

Present:	Leo O’Reilly	John Wilkinson
	Chris Thompson	Arthur Scott
	Brian McClure	Alan Brontë
Colin Ross	Jonathan Crook

23. The ‘recovery action’ functionality is now operational, and will by used after the new billing cycle discount date has passed. LPS is developing an arrears and recovery strategy which will be quality assured by IRRV.

[EXTRACT]

Copy of correspondence of 30 September 2008 from Derry City Council to Mr John Dowdall CB

Correspondence of 17 October 2008 from Leo O’Reilly

Rathgael House
Balloo Road
BANGOR, BT19 7NA
Tel No: 028 91277601
Fax No: 028 9185 8184
E-mail: leo.o’reilly@dfpni.gov.uk

Mr Paul Maskey MLA
Chairperson
Public Accounts Committee
Room 371, Parliament Buildings
Belfast
BT4 3XX 17 October 2008

Dear Paul

Re: Public Accounts Committee Evidence Session 18 September 2008 – Additional Information on the Cost of Collecting £1 of Rate

In my letter of 7 October I advised that information, which the Public Accounts Committee had requested, on the cost of collecting £1 of rate, was not currently available but that the information would be provided separately.

I can now inform the Committee that the cost of collecting £1 of rates for 2007/08 was 1.5p.

I hope this information is helpful.

Yours sincerely

Leo O’Reilly

Appendix 4 List of Witnesses Who Gave Oral Evidence to the Committee

1. Mr Leo O’Reilly, Accounting Officer, Department of Finance and Personnel.

2. Mr John Wilkinson, Chief Executive, Land and Property Services.

3. Mr Arthur Scott, Director of Operations, Land and Property Services.

4. Ms Anne Johnston, Programme Manager for the Rating Reform and Modernisatiion Programme, Land and Property Services.

5. Mr Kieran Donnelly, Deputy Comptroller and Auditor General, Northern Ireland Audit Office.

6. Mr David Thomson, Treasury Officer of Accounts, Department of Finance and Personnel.

Appendix 5

Details of Unpublished Paper

Unpublished Paper

Department of Finance and Personnel - Staff Attitude Survey 2007

This paper was submitted to the Committee but has not been printed. It may, however, be inspected by Members in the Assembly Library and by the public in the Public Accounts Committee Office, by prior appointment with the Committee Clerk, during normal working hours. (Contact telephone number:
028 9052 1208)

Session 2008/2009

Third Report

Public Accounts Committee

Report on Statement of Rate Levy and Collection 2006-07

Together with the Minutes of Proceedings of the committee relating to the report and the minutes of evidence

Ordered by The Public Accounts Committee to be printed 16 October 2008 Report: 13/08/09R (Public Accounts Committee)

Membership of Powers

Table of Contents

Report

Appendix 1:

Appendix 2:

Appendix 3:

Appendix 4:

Appendix 5:

List of Abbreviations used in the Report

Executive Summary

Introduction

Overall conclusions

The Management of the IT Project

Defective Financial and Operational Controls

The High Level of Rate Arrears following the Introduction of the New Reforms

Next Steps

Summary of Recommendations

Introduction

The Management of the IT Project

Priority given to implementing rating reforms

Recommendation 1

Recommendation 2

Recommendation 3

Recommendation 4

Gateway Reviews signalled implementation problems

Recommendation 5

21. The Committee recommends that DFP examines, in consultation with the Office of Government Commerce, why the Gateway process did not lead to a better outcome in this case. There are obviously lessons to be learnt. The Committee wishes to be informed of the results of this review.

Deficiencies in the design and development of the IT system

Recommendation 6

Skills and Competencies

Recommendation 7

Recommendation 8

Data transfer and data testing problems

Recommendation 9

Defective Financial and Operational Controls

Adequacy of financial accounts

Recommendation 10

Recommendation 11

Financial control weaknesses

Validation controls

Recommendation 12

Landlord and agency allowances

Bank reconciliations

Cash Office Procedures

Recommendation 13

Fraud risk

Recommendation 14

Staff morale

Recommendation 15

61. The Committee recommends that meaningful and challenging performance targets are set for staff morale and that the implementation of the action plan is monitored by DFP’s audit committee.

Recommendation 16

62. The Committee also recommends that a further survey of the Agency’s staff is conducted in Autumn 2009.

Customer service

Recommendation 17

Identifying all rateable properties

Recommendation 18

72. The Committee recommends that demanding targets are set for a reduction in the level of incorrectly recorded vacant properties, over each Council area, and for increasing the amount of rateable assessments for so called vacant properties.

Recommendation 19

Problems with the calculation of the penny product

Recommendation 20

The High Level of Rate Arrears following the Introduction of the New Reforms

Recommendation 21

Recommendation 22

93. The Committee recommends that DFP introduces robust measurable performance criteria for the management and collection of rate arrears. This should include a target level of overall arrears, and more detailed targets for each Council area.

Recommendation 23

94. The Committee recommends that revenue forgone and additional costs of collection as a result of the problems with the new system will not be passed on to Councils. The Committee would like an assurance of this from DFP.

Next Steps

Recommendation 24

Recommendation 25

Recommendation 26

97. The Agency’s problems are so wide-ranging that the Committee would suggest that the Assembly’s Committee for Finance and Personnel pays particular attention to the regular monitoring of progress made in stabilising the business and strengthening the governance arrangements.

Recommendation 27

98. The Committee recommends that DFP introduces as soon as possible measurable performance criteria for the assessment and collection of rates. These should include:

rates assessments, including a target for improving the completeness of the register of rateable properties and inaccuracies in the number of properties treated as vacant;

Report on Statement of Rate
Levy and Collection 2006-07

Together with the Minutes of Proceedings of the committee
relating to the report and the minutes of evidence

Ordered by The Public Accounts Committee to be printed 16 October 2008
Report: 13/08/09R (Public Accounts Committee)

Minutes of Proceedings
Relating to the Report

Thursday, 18 September 2008
Senate Chamber, Parliament Buildings

Thursday, 16 October 2008
Room 144, Parliament Buildings

Thursday, 23 October 2008
Confex 2 & 3, Stormont Hotel, Belfast

Update paper on the Statement of
Rate Levy and Collection 2006-07