Allegations that Gov. Linda Lingle’s office ordered the acceptance of generous changes in a contract for operation of the state’s computerized tax system triggered a resolution by the Legislature this year calling for an investigation by the state auditor. The administration needs to explain why millions of dollars were promised to the company for work that some say could have been done in-house at a fraction of the cost.

Tu Duc Pham, who left his position as the state Department of Taxation’s tax research and planning officer last November, told legislators that Barry Fukunaga, Lingle’s chief of staff, approved cancellation of the CGI contract in October 2008 but his "verbal approval was subsequently reversed."

What emerged, Pham said, were contract changes "heavily skewed in favor" of Montreal-based CGI Group Inc., approved a year ago despite opposition from within the department.

Fukunaga has denied ever approving cancellation of the contract.

Pham described Sandra Yahiro, the department’s deputy director, as "a strong supporter of CGI" whom Director Kurt Kawafuchi replaced as head of the project in March 2009. However, he said, the governor’s office reinstated Yahiro as the project leader two weeks later.

Yahiro "worked with CGI to draft an amended contract shrouded in secrecy and did the very best to maximize profit for CGI at the expense of the state," Pham alleged. He added that Yahiro said in a June 2009 meeting that she had been given a "marching order" to sign the contract.

The following month, Lingle appointed Yahiro as deputy director of the Department of Accounting and General Services. In terse testimony to legislators in April in opposition to the audit resolution, Kawafuchi said the Taxation Department "has always followed applicable procurement and legal requirements in the procurement of goods and services." He left office this week and declined to comment further on the controversy.

Under the contract changes, CGI receives one-third of collections from delinquent taxes, including the cost of computer upgrades and postage fees, with a payment ceiling of $25 million in a two-year period. The project is expected to generate $110 million before fees by the completion of the contract a year from now. Pham said he believes 10 state employees could have performed the work for $800,000 a year.

House Finance Chairman Marcus Oshiro told the Star-Advertiser that the contract revision "tended to be a benefit more to them (CGI) rather than the state of Hawaii." CGI’s original contract, by competitive bid, to install the system from 1999 to 2004 was for $53 million. The company has received noncompetitive contracts costing taxpayers nearly $35 million since then. The Taxation Department’s entire budget is $20 million a year.

Nora Nomura of the Hawaii Government Employees Association has said Taxation Department employees have been demoralized and are fearful of retaliation if they were to speak out against the vendor. A thorough audit should determine whether their concerns are justified.