Hawaii Tax Department Under Scrutiny for Waste, Mismanagement

HONOLULU — Internal Revenue Service, eat your heart out. Hawaii now has its own tax department scandal.

Senate President Donna Mercado Kim said the Senate’s investigation into the Hawaii Department of Taxation focuses on mismanagement and waste.

After testimony from the state legislative auditor, tax officials and IT professionals Wednesday, lawmakers on the Senate Ways and Means Committee learned:

• Twenty-five people in the state Department of Taxation were put on leave in December 2011 for unauthorized access to tax records. None were criminally charged. A deputy director for the Hawaii tax department, Josh Wisch, didn’t disclose details to the Senate, but Hawaii Reporter has learned that some of those employees were allowed to return to work. Hawaii Reporter has requested more detailed information on the results of the internal investigation from Wisch.
• The Department of Taxation has paid CGI Group more than $87 million over 12 years to modernize the state’s tax collection system, but the system continues to crash frequently and has been plagued with problems. A technology expert testified that a big part of the problem is the state purchased 50-year old software that was developed in 1960. The state is spending at least $32 million more to upgrade the system, and that figure could reach as high as $50 million. CGI is the same company running the troubled Hawaii Health Connector, the $53 millionObamacare web site that has been dysfunctional since its launch.
• In another case, Symago Hawaii, a company providing phone record management services under a $50,000 per year no-bid contract to the tax department, used a tax department employee as its registered agent in Hawaii and the tax department address as its official business address without permission for seven years. No one in the tax department noticed until this year.
• Tax department employees testified there is dysfunctional management in the department, because it is run, in part, by politicians with no technology experience.
• Another manager said Robert Su, CIO of the tax department and program manager for the tax modernization program, is getting shut out of management meetings because he would not sign off on contracts.
• Infighting between the state’s IT department and tax department because of the tax department’s attempt to micromanage and disregard plans in place for modernizing the system is also halting progress on its modernization program, according to state Deputy Chief Information Officer Randy Baldemor.
• The state was told the Hawaii Information Consortium or HIC would not charge the state to process online tax forms through an efiling system, Kim said, but the company received 25 cents for each online tax form processed. The company made $98,000 from February to June of this year. More recent figures have not been reported. The company also received another $462,000 directly from the users.

In an interview after the hearing, Kim said what she heard from state officials was “scary” and “frightening,” in part because of the huge price tag for taxpayers.

“The price tag is big. The price tag is serious for these systems. These issues brought up in the hearing today are so huge that unless we pay attention and unless we hold the tax department officials accountable, things will continue to get worse,” Kim said.

“The concern is there is this underlying lack of accountability in that there are all these issues because someone is not holding the department accountable to their rules, and the department has gotten very lax. Administrators come in and override some of the concerns of the people there,” Kim said.