Answers on $526M in tax mistakes expected in December

Auditors reviewing $526 million in tax errors made by Indiana's tax collection agency said Monday they will investigate whether state employees are knowledgeable enough to track tax collections and whether the state has adequate internal controls to guard against future errors.

Auditors for the accounting firm Deloitte briefed members of the State Budget Committee on their 27-page risk assessment and audit plan. The auditors said they expect to begin their audit this week and expect to report findings to the budget panel in December.

In December, the Revenue Department discovered it had lost track of $320 million in corporate tax collections. Four months later, the state also discovered it had not paid $206 million in local income taxes owed to counties.

The errors led Gov. Mitch Daniels to force out three top officials in the department, and the discovery of the second error spurred Republicans to acquiesce to Democrats, who had sought an independent audit.

Deloitte employees Kathi Schwerdtfeger and Bari Faudree walked lawmakers through the plan they compiled following interviews with state workers at the Revenue Department, State Budget Agency, Department of Local Government and Finance, and the treasurer's and auditor's offices.

The state has become a national model, they said, for processing individual returns more quickly and efficiently, but may have been deficient in hiring staff with enough expertise to track a tax check through the entire processing system. There also may be problems with internal controls at the tax department caused in part by high turnover.

Internal controls and reviews, designed to catch errors immediately and avert problems like those which led to the two major errors, "appear to have been a lower priority" than the tax return processing, Deloitte wrote in its report. The management of the department's IT and tax collection areas "may not have been as rigorous in detecting errors within the financial accounting systems."

But Schwerdtfeger and Faudree were careful to note these are areas to investigate, and are not necessarily problems.

State budget director Adam Horst said he was happy that answers could come by the end of the year.

"We said 'Your goal here is as fast as you can get it done, but we said it has to be independent and it has to be right,'" he said.

Horst added that some areas the group will review, including employee proficiency, are not necessarily specific problems at the revenue department but could be part of general problems found in any government agency.