State tax officials said to alter report on $60M computer project, firm says

A consultant hired by the state to oversee the $60 million modernization of the Department of Taxation’s computer systems was instructed by state tax officials on which subjects “should and should not” be addressed in its supposedly independent monitoring reports to lawmakers and the public, according to a new report.

The tax department also requested changes in the reports by consultant Advan­Tech LLC before they were made public, which the consultant said is “not the norm” in its experience.

Known as an “independent verification and validation” consultant, AdvanTech was hired after an embarrassing series of botched information technology projects in state government that date back to previous administrations.

The idea was the consultant would help ensure the multi-year tax department project known as Tax System Modernization progresses as planned and functions as the contractor promised it would. The tax department hired Advan­Tech in 2016 under a $1.431 million contract, and so far has paid the company $291,500, according to state procurement records.

House Finance Chairwoman Sylvia Luke said the latest AdvanTech report is “shocking and it’s sad” because it reveals tax department administrators in charge of the computer project “have manipulated the contents of this report.”

“It completely undermines the credibility of the report and what they have said in the past, and I’m not sure how the consultant can allow this to happen, and I don’t know how the Department of (Taxation) personnel can ethically insert themselves to maneuver and manipulate the information in these reports,” Luke said.

AdvanTech described the tax project as “the largest technology initiative currently underway in the state,” and it already has been a source of controversy.

Hawaii Government Employees Association Executive Director Randy Perreira wrote to Gov. David Ige on Oct. 31 to complain that the administration took control of the project away from Director of Taxation Maria Zielinski and Tax System Modernization Program Manager Robert Su earlier this year.

Ige in July named state Chief Information Officer Todd Nacapuy as “executive sponsor” of the tax project, and placed the project under the control of Nacapuy and tax department Deputy Director Damien Elefante.

Perreira warned that the management change has “severely impacted” state oversight of the project, and said there is a “complete lack of confidence” in the new leadership of Elefante and Nacapuy.

However, AdvanTech wrote in its latest report that the new management team for the tax project asked that AdvanTech “be more direct (and even blunt) in describing our findings.” The new managers assured AdvanTech they would not dictate what goes into the reports, or request changes, the consultant wrote.

AdvanTech had previously produced a series of six reports that offered a generally cheery assessment of the progress of the tax project, but that tone changed markedly in its October report, which was obtained by the Honolulu Star-Advertiser.

The latest AdvanTech report warned that, “At present, the program is not operating in an optimal way. There continue to be a number of issues and risks related to program execution that, if not addressed and remediated immediately, may have a significant negative impact on the program’s ability” to function properly when personal income taxes are shifted over to the new computer system next year.

In an issue that may be most alarming to individual taxpayers, the consultant warned that when personal income taxes shift from the old system to the new one in the fourth project phase, the addition of many thousands of new taxpayers to the new system “could overload capacity to provide taxpayer support.”

Lawmakers including Luke already have voiced concerns that it was extremely difficult for many taxpayers and tax professionals to get help through the tax department’s call center when taxpayers were unable to operate functions of the new system during previous phases of the project.

In fact, the new computer system has generated so many complaints that the Legislature earlier this year interrupted the flow of new funding to the project. Lawmakers refused a request from the Ige administration for an additional $18 million to continue the computer changeover.

AdvanTech also said in its latest report that the tax modernization project suffers from “a lack of professional, dynamic, and rigorous management of the program plan, issues, and risks.” The consultant also warned that “management and direction for the program is being seriously affected by personality conflicts, particularly at the leadership level.”

Zielinski said in a written statement that her office only recently received the latest AdvanTech report, “and therefore cannot comment on its content. However, the department remains committed to working collaboratively with all parties to ensure the success of the TSM program.”

Ige was traveling and unavailable for comment. Ford Fuchigami, administrative director for the governor’s office, said he also needs more time to review the latest report before commenting on what the administration’s next steps might be.

Fuchigami declined to say whether the interventions by the tax department in the reporting process as described by AdvanTech were proper, saying he still has questions about “what some of these things mean as the consultant has reported in this.”

When asked if staff in the tax department might be disciplined for inserting themselves into production of what were supposed to be independent verification reports, Fuchigami replied that, “Based on what I read, I will be doing some follow-up meetings with those that are involved in this.”

“Governor knows how important this system is … and the current system is actually failing, and it’s our responsibility to make sure we collect all the revenues so that we can pay for all the services that are provided to the people of Hawaii. For that particular reason, the governor has directed me to make all the necessary changes to ensure that this project is a success, and that’s what I’ll be doing.”

“I’ll do whatever is necessary to make sure that it is successful, and people are held accountable,” he said.

Fuchigami added that one of his key tasks will be to get lawmakers to restore full funding, “and the only way that I’m going to get funding from the Legislature is to make sure that the program is moving in the right direction that we’re looking at.”

Luke said it is up to the governor to ensure that departments do not manipulate similar oversight reports in the future.

“All these years the reports have been saying there are problems, there are problems, but we know things are on track, and then come to find out, this report is so different from the rest of the reports that we’ve been getting,” she said. “They’re pretty much saying, it’s short of saying it’s a failure, (but) I mean, there’s a lot of problems. There’s a lot of problems with personalities, there’s a lot of problems with vision and what’s going on. It’s kind of a disaster.”

House Minority Leader Andria Tupola said it appears to be a conflict of interest for the tax department to weigh in on how the monitoring report is written.

“I thought that it was supposed to be an independent look at what was working and not working, so how could that be an independent look if the tax department is suggesting what they say and what they don’t?” asked Tupola, (R, Kalaeloa-Ko Olina-Maili).