LANSING — New and pricey software.
Tens of thousands of letters auto-generated by a state agency that falsely accused Michigan residents of wrongdoing and/or financial error.
And the same state vendor in both cases.
When the Michigan Treasury Department purchased a new, $68.7 million individual income tax system in 2024, it turned to Fast Enterprises, LLC — the same Colorado company that provided the Michigan Unemployment Insurance Agency with the $47 million MiDAS (Michigan Integrated Data Automated System) the state began using in 2013.
Early this year, using its new GenTax system for the first time, Treasury incorrectly sent to taxpayers about 27,000 letters titled “Notice of Adjustment,” as first reported by the Detroit Free Press on April 23. Many of those taxpayers were told to pay more and did so without knowing the auto-generated letters were sent in error, according to June 16 testimony before the House Oversight Committee. Others received erroneous notices of late penalty assessments and interest, the committee was told.
It was reminiscent of 2013 to 2015, when letters auto-generated by the MiDAS system falsely accused up to 40,000 Michigan residents of unemployment insurance fraud, leading to the improper seizure of federal tax refunds, personal bankruptcies, and the state’s eventual agreement to pay $20-million to settle a class-action lawsuit that resulted.
“That’s concerning,” House Oversight Chair Jay DeBoyer, R-Clay Township, said June 16 when asked about the similarities between the two debacles, while adding that he wants a better understanding, in the case of the Treasury Department, as to how much of the problem related to programming and how much to user error on the part of state officials.
A Treasury spokesman on June 16 defended the agency’s choice of vendor.
“The Michigan Department of Treasury reviewed proposals and received feedback from other states regarding the GenTax product,” Treasury spokesman Ron Leix said in an email.
“Following a competitive bidding process, the department selected the GenTax system. This tax administration platform is used by more than half of the revenue agencies across the country.”
Treasury officials who testified June 16 before the House Oversight Committee were not asked about the choice of vendor. They said GenTax is much more efficient than the antiquated system it replaced and, in addition to other improved features, is much better at detecting possible fraud.
“Yes, there was a mistake,” Kavita Kale, deputy treasurer in charge of revenue services, told the committee.
“We owned it. We problem-solved it. We implemented the changes and that’s the best we can do.”
Katina Litterini, director of the Tax Administration Services Bureau, told the committee the 27,000 erroneous notices were the result of the system misreading a calculation field. She said corrected notices were sent out quickly and, although each case must be assessed individually, any improperly assessed penalties or interest would be waived.
The department has changed its protocols to increase oversight and prevent a recurrence, Litterini testified. Now, a sign-off from a higher-level official would be required before a large volume of similar notices was sent out, she said.
Still, DeBoyer said after the meeting he was disappointed with the Treasury presentation. “They really didn’t offer a great response to the people being wronged,” he said.
A Fast Enterprises spokesperson did not immediately respond to a June 16 phone message and a message sent through the company website.
But in 2017, James Harrison, a principal of Fast Enterprises, similarly suggested a lack of human oversight — not the company’s product — was mostly responsible for the UIA false fraud fiasco.
There can be greater risk of error without human review and it became apparent “some things should have been removed more quickly,” Harrison told the Free Press in 2017. “The state has said as much — they’ve made some changes.”
“What is the manpower of the agency?” Harrison asked. “Their limited manpower may have been a factor in trying to do some of these things. Governments often have limited resources.”
The Michigan UIA continued to use MiDAS after the false fraud scandal but has since been replacing it with a $78 million system procured from Deloitte, Inc.
At the June 16 meeting, Treasury officials also responded to concerns the committee heard May 19 from one current and one former Treasury auditor. Both said the department has shifted its audit focus away from large corporations based outside of Michigan, resulting in reduced revenue and a greater tax burden placed on smaller, Michigan-based companies.
Theresa Newton, director of revenue compliance, told the committee that audits are intended to encourage compliance and are not intended to generate revenue. She said a former distinction between instate and outstate auditors no longer applies.
“Instate auditors last year did more audits for outstate companies than outstate auditors did,” Newton testified.
Contact Paul Egan: 517-372-8660 or pegan@freepress.com.
This article originally appeared on Detroit Free Press: Michigan Treasury hires UIA vendor; gets MiDAS touch
Reporting by Paul Egan, Detroit Free Press / Detroit Free Press
USA TODAY Network via Reuters Connect
By Paul Egan, Detroit Free Press | USA TODAY Network
