Internal controls: ready-made remedy

Internal controls: ready-made remedy

Technology: the list of poorly executed IT projects in the public sector is long, and their cost to government high. Despite steps to remedy this, will there ever be a winning solution?

with KPMG

In association with KPMG

With taxpayers and patients now regarded as customers, clients or even
stakeholders, it is easy to see how the government has looked to the private
sector to revolutionise the way in which it operates, both locally and
centrally. There have been many factors for this, from the pushing of local
government to become e-enabled, to meeting the efficiency savings called for in
the Gershon Review.

Government departments have worked closely with the private sector on public
private partnerships and privately financed schemes. ‘PFI strategy had two
things going for it as far as the government was concerned – private-sector
finance and transferring risk,’ according to Andy Dunn, a managing partner at
Atos Consulting.

‘The government thought it could derisk things. Although the supplier takes
on some risk, accountability for delivery remains with the government, so it
doesn’t transfer – PFI caused bad thinking.’

And the financial model within which the public sector operates – through
annual budgets that departments feel they have to spend, often from badly formed
figures – creates a great deal of pressure when combined with private
sector-style performance target setting.

So what does the public sector do? It copies the private sector and makes
great investment in IT to drive greater performance, while meeting its stringent
budgetary requirements. Unfortunately, where executives – most notably finance
directors – have gone through a round of poor IT choices, they seem to have come
through the other side a lot more choosy and frugal about technology. The public
sector, however, has yet to reach that point.

The number of problematic, costly or downright failed IT projects in the
public sector is long: from national insurance (NIRS2) to tax credits, to the
Passport Agency and even air traffic control systems. Those and more (see below)
have not delivered on what was promised originally.

While it is easier for private-sector businesses to gloss over IT problems,
especially in companies that are not listed, their lack of scale and complexity
in comparison with overarching public-sector contracts has seen fewer major
problems in recent times, and since they are not costly political hot potatoes,
they are also less likely to grab unwanted headlines. ‘The UK government is very
ambitious,’ says KPMG government advisory partner Keith Bannister. ‘It relies
heavily on IT to drive change. The only way to carry out a lot of the things
they’re talking about brings complexity to connect central and local

Yet, for the IT firms, the lure is so appealing that even when faced with
handling massive projects, the kind that are most at risk of failure, the
biggest companies still tender. ‘The place to be is the UK: it’s exciting as
many of these kind of projects are happening here for the first time, but
requirements change for public-sector contracts,’ says Bannister. ‘If you’re
midway through a project, you won’t have the requirements for a time, and
sometimes you have to revisit to see if it’s deliverable.’

The biggest concern for IT implementation companies is taking over the reins
of a struggling IT system. Capgemini, with its successful bid to operate the
Inland Revenue’s IT in place of EDS, was a prime example of this. After problems
with online tax filing and tax credits, the Revenue’s IT contract, worth £5bn,
was handed to Capgemini. Complicating matters was the plan to merge the Inland
Revenue and Customs & Excise to create HM Revenue & Customs
(HMRC). On top of this,
Capgemini would also be dealing with HMRC’s new chief information officer, Steve
Lamey. However, his appointment proved that private-sector experience of big
projects and risk could work in the public sector.

Lamey worked to set
Capgemini a clear set of
service-level agreements and switched to ‘firefighting’ mode to clear up the
databases of the merged department. The strategy meets the basics of what
Bannister classes as ‘good risk management’.

‘These programmes require governance procedures in place – linking objectives
to outcomes and ensuring transparency about what’s happening with a project. And
the key is knowing how a department’s portfolio of programmes is working

Bannister says public-sector clients following the focus from the private
sector can understand more clearly what business process changes come about from
implementing new IT, especially after so many failures. ‘Our clients want to
deliver services more efficiently. It’s not just about IT any more: it’s about
what the business change is, and the cultural outcome. We have to keep sight of
that,’ says Bannister. ‘A lot of lessons have been learned from failing projects
– so we now have the transformational government white paper [published in
November 2005], which is about professionalising IT, and the gateway programme.
I’m sure the number of failed programmes is decreasing.’

Dunn agrees that outsourcing the whole process rather than just the IT
implementation has improved the interface between government and supplier
because, although the government transfers the risk, the vendor is more in
control. ‘If you outsource it all it’s much more simple to measure and monitor,’
says Dunn.

Despite concerns, there have been some signs that the government is looking
to change its approach to IT as it attempts to avoid the problems of the recent
past. Transformational government points to a more professional approach to IT.
According to the white paper, ‘This requires coherent, joined-up leadership and
governance, portfolio management of the technology programmes, development of IT
professionalism and skills, strengthening of the controls and support to ensure
reliable project delivery, improvements in supplier management, and a systematic
focus on innovation.’

Other influential sources have put forward plans to turn around failing gover
nment IT systems. The National Audit Office (NAO) has urged government to avoid
IT project delays by not having many ongoing key projects under way at any one
time, as that could put too much pressure on a potential new IT supplier –
another example of putting risk management to the fore of government IT.

Conservative MP for Putney Justine Greening has her own take on risk and IT
as a qualified chartered accountant. ‘Rather than leave the risk with
departments to implement IT, the risk should start with those formalising
legislation. You’d end up with a more rigorous view of not only what the policy
should deliver, but the pragmatic question of whether it can actually happen
with the plan you have.’

But with the NAO set to report on successful public-sector technology
programmes to outline lessons for the future, there will, hopefully, be less use
for firefighting IT consultants.


While business leaders bemoan the changes that government makes to legislation,
which often appear arbitrary and without thought for their effect on industry,
the public sector feels the effect of this on an even greater scale. With
politicians looking to move up the ladder, and governments desperate to hang on
to power, civil servants often face the biggest operational change.

The list of failed public-sector projects is a long and inglorious one. For
example, the £200mnational insurance system, NIRS 2, struggled to pay pensioners
after failing to cope with legislative changes. But it did highlight that the
blame for such a project is never that clear cut.

While IT supplier Accenture took the headlines, the
National Audit Office (NAO) warned
that politics and IT projects really don’t mix well. ‘Legislative timetables
should be set so that departments can implement changes while complying with
other legal requirements,’ the NAO said in 2001.This problem has not gone away.

Conservative MP Justine Greening, while not coming out in defence of IT
consultants and software companies that have taken stick for failed large-scale
projects, says that IT has been ‘badly served’ by parliament. ‘Most government
policies – including those in the Department for Work and Pensions where I’m on
the select committee – are critically delivered by an IT system of some sort,
but the legislation we’re presented with in parliament will not include the IT
proposals in any detail whatsoever.

‘Fifty years ago, filing paperwork was enough. Now, understanding whether the
IT will deliver is very important.’ Unfortunately, Greening does not foresee a
change in this attitude until more business-focused individuals sit on
parliament’s green benches. ‘We don’t see the nuts and bolts presented. As you
get more accountants in parliament we will ask: “How can we sign off on a policy
proposal when you haven’t shown us the IT details? How do we know it’s value for

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