An optical scanner bought for £500,000 by the Government's clearing bank, the Office of the Paymaster General (PMG), almost caused a computer virus to infect all Government Departments and failed to stop £5,239 being paid to a fraudster, according to the report.
The PMG maintains an account in the Central Bank and last year processed four million payable orders (or cheques) worth £34 billion. The scanner made errors of between 10 and 25 per cent when dealing with the cheques.
The PMG issues cheques on behalf of most Government Departments and used the scanner to electronically record cheque numbers and amounts. However, the scanner performed so poorly it often took the PMG up to 15 days to process cheques and notify banks as to which ones it would honour. Banks only give two days before they clear cheques issued by the PMG.
On one occasion a number of payment orders were stolen. One for £244.68 was changed to £7,244.68 before being lodged to a bank account. By the time the change was discovered £5,239 had already been taken out of the account.
The Garda was notified about the theft of the cheque. The remainder, £2,005, was later transferred back to the PMG.
The Office of the Attorney General advised that the bank was liable for the £5,239, even though it had operated the normal two-day rule. The report notes the PMG is engaged in "ongoing consideration" of the matter.
Between April and May the scanner was out of operation due to what was called the "Chernobyl virus". The report says this virus could "have travelled through the main Department of Finance server and to all other departmental locations.
"It would appear that there was a risk that this could have happened due to the fact that certain anti-virus software had not been installed in the scanner."
The PMG told the supplier the virus did not originate in its office, and the shortcomings in the supplier's virus-checking procedures were pointed out.
The report says problems with the scanner meant staffing in the banking section of PMG increased even though the scanner was supposed to reduce numbers. "Furthermore, figures received during the audit indicated that overtime, which was expected to reduce on the acquisition of the system, had in fact significantly increased". More than £100,000 was spent on contracting out data entry work between 1998 and 1999.
The unnamed supplier's final £38,000 payment has been withheld because the archiving function of the scanner is also broken. Consequently staff still have to physically store the cheques.
The PMG had "very little control" over the technical problems, says the report. Its early tests of the system had produced acceptable results, but its later operation was a disappointment, it adds.