As was surely intended, results of an audit of the Indiana Department of Revenue were obscured Monday by a more cheerful revenue forecast. But its difficult to have much confidence in a prediction of a $1 billion-plus surplus when $526 million in errors is reality.
Experts from Deloitte, a financial consulting firm, concluded the state agency placed so much emphasis on processing tax returns quickly that it compromised accuracy, resulting in errors state officials are still working to fix.
The audit found another 55,000 business tax accounts improperly reconciled and possibly representing more money owed to the state. In about 12,000 cases, Indiana businesses did not receive a share of $147,000 owed in refunds.
(The Department of Revenue) is at risk of a substantial increase in taxpayer inquiries and concern and ultimately a negative public perception if these accounts are not corrected timely, according to the audit, released Monday to the nonpartisan State Budget Agency.
The inquiry followed disclosure a year ago of $320 million in corporate tax revenue in an unused account. Democrats called for an audit at the time, but the minority partys plea was ignored. In April, another error was discovered – this one shorting cash-strapped local governments a total of $206 million in income tax payments over 14 months.
Gov. Mitch Daniels finally ordered the audit after the second error came to light. Lesley Weidenbener of the Franklin College Statehouse news bureau noted that, on several occasions, Daniels had lauded the agency for its quick processing of tax returns.
But the report said the agencys strategic focus on cutting the time and cost of handling income tax returns meant support areas such as information systems management and financial accounting and reporting appear to have been a lower priority for the organization, Weidenbener wrote.
The good news is that, under new leadership and with the addition of more than 20 top-level managers, the accounting mistakes have been corrected and no additional, significant errors were found. Auditors, however, noted the state is not using the integrated software system that might prevent problems.
The issues identified did not arise overnight; neither will they be fixed overnight, Deloittes Kathie Schwerdtfeger told budget officials. Many of the issues are complex and will require a significant investment of time and resources to address, while others may be able to be addressed quickly. The task of evaluating, prioritizing and remediating these issues will be great, especially in light of other competing priorities and sustaining day-to-day operations.
One of those priorities should be a switch to the integrated software system cited by Deloitte. Revenue Commissioner Mike Alley said he had considered buying one but estimated it could cost $50 million.
While its a hefty expenditure, $50 million spent certainly is preferable to $526 million lost. In fact, a more efficient software system seems like an obvious priority for that additional $1.28 billion in the rosy revenue forecast.