Gov. Mitch Daniels named a new leader for the beleaguered Indiana Department of Revenue on Friday as a bipartisan budget group voted to move forward with an outside audit of the agency following $500 million in income tax revenue mistakes.
Mike Alley, former president of Fifth Third Bank of Central Indiana, will take over the department in the middle of tax season and as investigations into the errors — which were software programming mistakes — continue.
A key figure in the Daniels administration said that ongoing examination is likely to turn up additional problems.
"There are indications there could be other areas" with mistakes, said Adam Horst, director of the Office of Management and Budget, which oversees the revenue department. "But it's too soon to know for sure yet. It's important we wait until the end to see what the results are."
The State Board of Accounts began reviewing the state income tax transactions after Daniels announced in December that a programming error had left $320 million in corporate income taxes sitting unused in an account. State examiners are now working to reconcile what Hoosiers and businesses have paid into the Department of Revenue over the past decade with what's been distributed to state and local governments.
The work could take weeks or months to finish, Horst said.
Then Horst announced a second major error last week. He acknowledged the state had shorted local governments $206 million in income tax payments over 14 months. That discovery led Daniels and GOP leaders to call for an outside audit, something Democrats had been pushing for months.
On Friday, the State Budget Committee – a five-member group that includes Horst and four legislative fiscal leaders – took the first steps toward that audit. The group asked Horst to begin collecting information from companies interested in conducting the audit and then bring the information back to the committee in May, where members hope to hire a company for the job.
"Legislative leaders have come around to the idea of an independent audit, but we need to make it a reality before the next budget cycle," said Sen. Karen Tallian, D-Portgage, said after the meeting. "This isn't money between the cushions. We're talking about over a half billion dollars in mishandled taxpayer money."
Lawmakers said they want the audit to include a look at the Department of Revenue's information technology work as well as its operations. Rep. Bill Crawford of Indianapolis, the ranking Democrat on the House Ways and Means Committee, said the audit needs to be thorough and take place soon.
"There could be mistakes occurring right now that have consequences," Crawford said. "We agree that this was not intentional. But the consequences – whether this was intentional or unintentional – are severe and we need to know what's happening."
Fiscal leaders said they also want to consider whether the state should implement systems for other types of regular internal and external audits. Currently, the State Board of Accounts conducts only financial audits. It does not consider operational, programming, compliance or efficiency issues, said state examiner Bruce Hartman.
Sen. Brandt Hershman, R-Buck Creek, said the Department of Revenue problems should lead to a larger discussion about the types of reviews the state conducts of its agencies and whether more internal controls system should be in place.
"We need to take a survey of best practices in state governments," Hershman said. "We need to consider whether any of the other systems are frankly working better."
The mistakes at the Department of Revenue led Commissioner John Eckart to resign from his post, although he's staying on to help with the transition during tax season.
Eckart answered questions from the State Budget Committee on Friday and said he'll do whatever the governor and Alley, the new commissioner, ask him to do to help.
Alley served as president and chief executive officer of Fifth Third Bank of Central Indiana in Indianapolis from 1989 through 2002. He is currently chairman and owner of Patriot Investments, a company he founded in 2002. In 2009, he was named interim chairman and CEO of Integra Bank Corporation in Evansville, a position he held until 2011.
He is the current president of the board of trustees of Indiana State University.
Two senior managers — the chief financial officer and chief information officer — also left the department after the income tax mistakes were discovered. Daniels announced Friday that Mike Ashley will be the revenue agency's new financial officer.
Ashley has more than three decades of experience in information technology and finance, including various chief financial officer roles. He was the deputy director and chief financial officer for Indiana Department of Child Services and served as director of corporate finance and investment banking at Eli Lilly from 1998-2006.
Horst said the Daniels administration recruited both men to the positions and he "couldn't think of better names" to steer the agency through the next few months of investigations and changes.
"It'll be up to them to augment with their own team," Horst said. Fixing the agency's problems "will not be a two-person thing. It will take a number of people."
Lesley Weidenbener is managing editor of TheStatehouseFile.com, a news website powered by Franklin College journalism students.
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