- Associated Press - Saturday, August 2, 2014

INDIANAPOLIS (AP) - The Indiana Department of Revenue is moving forward cautiously as it looks to replace outdated tax software that was partly to blame for accounting errors that led to the discovery of more than $500 million in revenue that had gone undetected.

But while the department takes small steps toward replacing the software, it’s moved forward aggressively with other measures to ensure taxpayers’ information is protected and revenue is properly recorded, the Indianapolis Business Journal reported (http://bit.ly/UL6mV3 ).

Revenue Commissioner Mike Alley said the state has spent two years focused on people and processes before testing a Massachusetts company’s software to handle three specialty taxes. He said the state chose the gradual approach because it’s too risky to move more than $17 billion in tax collections to a single system in one leap.

“If something goes awry, all (of a) sudden you’ve lost the capability of collecting revenue for the state of Indiana,” Alley said.

The outdated software contributed to the departmental errors that led $320 million in corporate income taxes to accumulate in a holding account that no one noticed, and another $206 million in local income-tax revenue to not be properly reported or distributed.

But a 2012 audit by Deloitte & Touche found a lack of internal controls was the root problem and needed to be fixed first.

Alley said the department has reinstated a number of controls that had been dropped and has overhauled the staff of about 650 to add more financial and IT professionals. New staffers include a chief information security officer, who is charged with keeping taxpayer data safe.

The Deloitte audit found that Social Security numbers and taxpayer IDs were used in the help-desk ticketing system in violation of state policy and that multiple people were logging into the system under the same user IDs. It also found there was no policy for handling personal information, a violation of IRS rules, and noted that there were no safeguards in place to prevent employees from accessing the accounts of high-profile people.

The department “seemed much more focused on efficiency of tax processing than they were on ensuring a strong system of control and accountability over taxpayer funds,” the audit found.

Alley said the bulk of the problems detailed in the Deloitte report will have been fixed by the end of the year. The rest will have to wait until the department can acquire an integrated system, he said.

The department already has fixed or retired many stand-alone databases and spreadsheets that created opportunities for error. It will start using Massachusetts-based Revenue Sources Inc. software to process cigarette, alcohol and other tobacco taxes.

If the product works well, the department might choose to buy it or another off-the-shelf software to handle everything. Or it could seek a customized product.

The whole process is expected to take another five to seven years.

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Information from: Indianapolis Business Journal, http://www.ibj.com