Department of Taxation and Finance

Privatization of Personal Income Tax Return Processing: Contract Administration and Monitoring

In 1994 the Department of Taxation and Finance entered into a ten-year, $198 million contract with Fleet Services Corporation to privatize processing of the State's personal income tax returns. Under the contract, Fleet is expected to improve personal income tax return processing operations and to develop the capability to quickly recover critical parts of the operations if they are incapacitated by a disaster.

We found that the Department has been effective in administering some aspects of the contract, as the Department routinely monitors the income tax returns processed by Fleet to ensure that they are processed as intended, and has established strong controls over the security of processing operations. However, the Department has not been effective in administering other aspects of the contract For example, because the Department routinely makes payments to Fleet without adequately verifying the appropriateness of the amounts, Fleet is more likely to be overpaid. In addition, because Fleet has made little progress in developing disaster recovery capabilities, there is significant risk that personal income tax return processing operations cannot be quickly recovered in the event of a disaster. We make a number of recommendations aimed at strengthening the Department's administration of its contract with Fleet.

For a complete copy of Report 97-S-56 click here.
For a copy of the 90-day response click here.