Incorrect notices demand money from timely taxpayers

July 25--The state recently sent erroneous balance-due notices to taxpayers who had paid their taxes on time, highlighting ongoing problems with the Tax Department's faulty $87.5 million computer system.

Tax Department call center operators said they have received many inquiries about inaccurate balance-due notices in recent months, but the agency could not say Thursday how many were sent.

"This is not the first time we're getting erroneous billing information. It happened several years ago and was never fully corrected," said state Sen. Sam Slom (R, Diamond Head-Kahala-Hawaii Kai), adding that he too received an inaccurate tax statement in recent years.

In one case a resident paid state income taxes on the April 20 tax deadline, but a balance-due bill for the full amount owed was sent nearly a month later on May 15.

In another instance, Honolulu certified public accountant Dick Oshima's firm mailed a payment for a client the same day she filed her return electronically. Two weeks later the client received a letter from the Tax Department demanding payment, he said.

"She was nervous as hell. She's a pretty innocent lady," Oshima said. "She was really, really disturbed. She thought she had done something wrong. She really thought she messed up and had to pay a double tax."

When asked how many inaccurate notices were sent to taxpayers and why, the agency could not immediately reply.

Tax Department spokeswoman Mallory Fujitani said in an email, "Many of your questions require research and cannot be addressed within the (one day) time frame you have provided."

Asked what the department is doing to fix the problem, Fujitani said, "We are still reviewing the process with the staff regarding what may have occurred."

Oshima, the CPA whose client got an incorrect bill, said the Tax Department doesn't process payments fast enough, leading to the mistakes. "They're so backed up or have a bunch of incompetent people, they don't process payments fast enough,"Oshima said. "A lot of work is still done manually because the system's not up to speed."

The state paid Montreal-based contractor CGI Group Inc. -- the same vendor that built Hawaii's troubled health insurance exchange -- $87.5 million between 1999 and 2011 to modernize the Department of Taxation's information technology system. It is now preparing to spend at least another $32 million to install a new system.

"The life cycle of (these) systems isn't extremely long," Fujitani said. "There's a lot of inflexibility in the current system."

The erroneous balance-due notices are adding to an already overburdened call center at the Tax Department.

The notices include a line saying taxpayers should call the Tax Department "if you have any questions." However, the department is often overwhelmed with calls and unable to answer. A frequently heard message informs callers that all operators are busy and asks the caller to try later.

The Tax Department said it had 328,793 incoming calls last year and answered 59 percent of those. In 2011 only 40 percent of calls were answered.

The department has 10 operators in its call center, Fujitani said. "(We have) more calls than we can handle."

The lengthy process of updating the Tax Department's computer system is adding to the agency's troubles.

The Tax Department realized in 2011 after assessing the "old technology" that it needed to replace the system, Fujitani added.

But three years later a contractor still hasn't been selected. The department's request for bids was scheduled to close Thursday but has been postponed until Aug. 26.

"This is not the kind of system we want to rush through development on," Fujitani said. "We want to make sure we address most of our issues before we get a vendor on board."

This isn't the state's first mailing blunder.

At least 4,582 Quest families received erroneous notices stating their health insurance coverage would end last month, resulting in hundreds of recipients flooding the state Medicaid offices for answers.

The month before, the state Department of Human Services, which administers the Medicaid health insurance program for low-income residents, mistakenly notified 4,500 aged, blind or disabled individuals that their benefits would end. The notices were generated as a result of adding new "functionality" to DHS' $100 million online eligibility system, known as Kolea, which also has been criticized for errors.

Tax Department workers testified before the Legislature earlier this year about problems with the current computer system. They said the technology has been defective since being installed and has never been able to produce accurate revenue accounting reports, which workers must manually generate.

The Tax Department manages roughly $6 billion a year in tax revenues, which were down 1.8 percent this fiscal year.

So far the state has allocated $725,000 for the "tax system modernization" project this year, according to the data.hawaii.gov website. It also budgeted $2.8 million for the project in 2015.

In 2010 former state Auditor Marion Higa criticized the flawed tax system and the department's relationship with its former vendor CGI.

The "tax processing system does not have a cash control account, and thus bank reconciliations cannot be performed and the state revenues collected cannot be verified," she wrote in an audit.

Despite its troubles with the state, CGI, one of the world's largest information technology firms, won a four-year contract costing more than $70 million to develop and maintain Hawaii's online insurance marketplace created by the Affordable Care Act.

The Hawai'i Health Connector failed to launch at the start of the sign-up period on Oct. 1 and experienced a number of glitches that limited health insurance enrollment since then.

CGI also has had problems with its technology in other states.

Mississippi sued the firm, then known as American Management Systems, in 1999 for problems with a similar tax system modernization project and won a $187 million settlement. In addition, a CGI subsidiary is under fire for the poorly built federal insurance exchanges at HealthCare.gov.

"We've spent millions and millions on websites and computer hardware and software, and we certainly have not got the bang for our buck," Slom said. "There's no consequences for bad behavior by government. All we do is waste more money, and it's not their money, it's the taxpayers' money. With the economy the way it is, people struggling -- individuals and businesses -- we cannot afford to do this."

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