Botched job costs tax department

Frequent mistakes by private subcontractor cost tax department $6 million

A $6 million blunder by the New York state tax department - after innumerable mistakes by a department subcontractor - has residents in the state perplexed and annoyed.

An audit released Wednesday by state comptroller Thomas P. DiNapoli - responsible for state financial reporting and accountability - revealed significant and costly oversights and errors in last year's paper tax returns.

The audit revealed the state Department of Tax and Finance contractor New York State Industries for the Disabled (NYSID) and subcontractor SourceHOV made a high enough rate of errors processing tax forms to cost the tax department $6 million in overtime to correct the issues.

The contract itself was $16 million for three years, begging serious questions on how the department failed to fully vet contractor options for such a high-stakes deal.

NYSID had a primarily administrative role in the debacle. The private vendor SourceHOV, which handled the technical aspects of processing the paper income tax return forms the state contracted out, failed repeatedly to meet requirements in its contract.

Delays plagued the process and "introduced errors and inaccuracies in at least 22 percent of the returns," according to the audit. The allowable rate of errors according to the original contract was half of 1 percent.

The problems cost the state additional interest for late payments and have cost the tax department additional overtime to correct problems that should have never occurred in the first place.

The incident speaks to the dangers and issues that arise as every area of public life is tinged by privatization of state functions. Increasingly privatizing state functions itself requires interrogation, particularly when those tasks are as sensitive as handling tax returns.

The clear lack of state oversight throughout 2013, the first of the three-year contract, is even more troublesome.

The audit revealed the state did not appropriately monitor the operations, leading to issues that "spun out of control," according to DiNapoli. The lack of oversight compounded what was clearly a poor selection of contractors in the first place and reveals poor management if not some level of ineffectiveness on the part of the state.

Though the subcontractor was clearly too incompetent to complete the task entrusted to it, the state tax department clearly remains culpable for these problems as well.

The vendor will be held responsible for the oversights and errors, either by receiving an adjusted reimbursement for the services or by the state seeking damages, if applicable. The situation appears to be receiving appropriate attention now. Unfortunately, this level of involvement, which the contract called for at the beginning, was not paid to it at the outset.

State functions always warrant careful attention by stakeholders and citizens. As these tasks are increasingly devolved to private companies and contractors, however, even stricter scrutiny is required to protect against misuse or abuse of power - or, as was the case here, protection against simple negligence and ineptitude.