Years late and millions over budget, state computer system called a 'failure'

One of the state's biggest agencies has thrown millions of dollars at a computer system that's still not working, eight years after the project began.

If you or someone you know gets laid off, typically the first step is applying for unemployment benefits. It's a step thousands of Washingtonians take every year -- 221,300 people in 2015 collectively were paid out $1 billion in unemployment benefits.

The state’s Employment Security Department (ESD) is charged with administering the complicated system that collects unemployment insurance taxes from 250,000 businesses in the state to pay for the program. To make that complicated tax collection process easier, the agency launched a new computer system in 2014 -- an information technology upgrade that had been in the works for years.

But instead of making ESD's job easier and providing employers with a more sophisticated and reliable collections system, the IT project created a wave of problems. Businesses were bit first by the new system's many bugs.

“Everything changed every time I turned around. Every day was a different number,” said Ann Manley, owner of Manley Crop Insurance in Prosser, near the Tri-Cities.

Manley had paid her unemployment insurance taxes in the spring of 2014 and had the paperwork to prove it, but ESD notified her that she owed taxes and worse – she was late. She was assessed a penalty and interest on the late payment.

The notice to Manley from the state came with a warning: “We may take legal action against you if you do not respond to this statement. If you cannot pay in full, please contact your local tax office to set up a payment plan.”

“It’s so frustrating because you know you don’t owe anything,” said Manley. “This is stupid that they were able to do this and perpetrate this kind of hardship on the whole state and say, 'Oh well.' It’s ridiculous.”

Behind the scenes at ESD, there was a multi-million dollar problem. The agency’s new computer accounting system, Next Generation Tax System (NGTS) was systematically spitting out incorrect tax rates, inaccurate tax bills and bogus late charges. Phone lines exploded with confused business owners greeted with long wait times, dropped calls, conflicting information, and few answers about what was really going on.

“They should have done a better job of notifying the public that Employee Security Department was having problems, to bear with them. That they were working on it,” said Manley.

A review by the Washington State Auditor’s Office, issued in October 2015, identified serious “deficiencies in internal controls” that led to a “significant deficiency over financial reporting.” NGTS had been in development since 2008 through a contract with Hewlett-Packard, but the state auditors found ESD didn’t do its due diligence before bringing NGTS "live" in 2014.

“Prior to implementing the system, the Department did not perform adequate testing to ensure the system could process accurate and complete Unemployment Insurance Premium payments, tax and wage reports, unemployment insurance rates, and employer receivables,” the auditors wrote.

The NGTS debacle calls into question decision making by top leadership at ESD and came at the same time Gov. Jay Inslee (D) was touting the successes of his campaign to instill "Lean management" techniques across government agencies to improve productivity and customer service, and cut waste.

“There is no question ESD needs an updated, functional computer system. The delays are, of course, very frustrating…No one is pleased by the amount of time it’s taking. One of our priorities during this project has been that ESD does everything it can to minimize the impacts to customers, and that continues to be a high priority until NGTS is satisfactorily completed,” wrote Jaime Smith, Executive Director of Communications, Office of the Governor, in an email to KING 5.

Controversial Testimony

In January the NGTS problem caught the attention of the state Senate Commerce and Labor Committee. Its members wanted answers after hearing about a business owner who fought ESD for over a year to get a refund of $144.59 (a story documented by the Seattle Times in an article last year).

ESD Deputy Commissioner Lisa Marsh, who signed the NGTS contract with Hewlett-Packard and oversees the project, appeared before the Senate committee and blamed staff errors, not the problem-ridden NGTS system, for the refund delays.

“I wish we could blame it on something as mundane as technology or something like that, but it was people errors, it was process errors and we are working to improve them,” Marsh testified.

“That’s not the truth,” said Volker Brunke, a former ESD employee who managed the contract with Hewlett-Packard. “(I was disappointed in the testimony) because the individual efforts of the people trying to keep this system alive went so far that people almost got sick over it. Not because they were upset, but because they were driven to the point of physical exhaustion.”

Brunke's view was echoed by a current ESD employee who did not want to be identified for fear of retaliation.

“The employees did not create this problem but the employees are the ones being burdened by it….Lisa Marsh threw us under the bus….Management is burying its head in the sand. No one wants to admit the elephant in the room - that NGTS does not work,” the employee said.

“The employees were pissed, she’s blaming everything on them rather than stepping up and (taking responsibility),” said John Sem, a former ESD tax collector. “Everyone was appalled.”

Customers complain of a lack of transparency as well.

“They never wanted to admit it. I don’t think they ever really admitted that they had a problem. It was kind of people (on the phone at the agency) who told me on the sly what was going on,” said Manley.

“After five phone calls and six emails, I still have no answers,” wrote another customer to her state representative in 2014.

“No one responds to say, yes, you're in the good graces of your government so don't worry. No one. Nothing. What gives….? Help,” wrote a business owner to the agency.

In an interview with KING 5 in July, six months after the Senate committee hearing, Marsh again talked about staff errors but gave a different explanation for the root cause of a businessman working for a year to get a $144 refund.

“The NGTS system is absolutely at the heart of the challenges that we’ve having,” said Marsh. “I wish the system had gone better. I wish the system were working perfectly now for our customers. I wish it was working perfectly for our staff and we are working on getting it there.”

Sen. Curtis King, R-Yakima, sits on the Commerce and Labor Committee and was present last January during Marsh's testimony. KING 5 relayed to King information provided by former and current ESD staff that showed NGTS – not staff error - was at the heart of the refund problem.

“We’ll get her back in there and find out exactly what’s going on so that we can address the problem. We can’t continue to run government the way it’s being run, particularly in this instance,” said King. “Who else but government could run their operation this way? If we treated government the way they treat us, we’d all be in jail.”

Way over budget

NGTS was a multi-year project, and even as problems continued with its development, the money from the state budget continued to flow. NGTS was supposed to take three years to complete, with a budget of $46.8 million. Instead, it’s now been eight years and NGTS has is more than $20 million over the original budget.

ESD continues to pour money into the project. In August the agency signed a $3.1 million contract with Microsoft to work on NGTS and a new $635,000 contract with Hewlett-Packard. That’s in addition to paying its own employees, including hours of overtime, to get NGTS on track.

“It’s a failure. We told them from the very beginning it doesn’t work. They (management) failed to listen. They put blinders on and continued to roll forward with a failing system,” said Sem. He said he quit ESD after nine years with the agency due to frustrations created by NGTS and management’s response to them.

“We had employers calling us screaming at us on the phone. Others that weren’t screaming were using profanity with us. Day in and day out. Almost every call we picked up. I couldn’t wait to go home at the end of the day,” said Sem.

NGTS is still plagued with bugs. Employees working with the system report lingering problems with employers receiving incorrect tax rates. Duplicate refund checks have mistakenly been issued to employers who overpaid their tax bills, and clients tell KING 5 they’re having a hard time getting help from ESD.

Bookkeeper Sue Bryant of Camano Island told KING she worked for more than six months to get a bogus $42 penalty off of her client’s account. The error was finally fixed last month after she submitted a formal appeal to the department.

“The part that is so frustrating is that I couldn't seem to make anyone understand that this was an error in their system and not something I did. They wouldn’t own up to it.  It's only a $42 penalty, but it's a matter of principle,” said Bryant.

Ann Manley of Manley Crop Insurance in Prosser finally got her tax bill reconciled after a year asking the agency to fix it. She said her small business needs to spend its limited resources helping farmers, not fighting state government.

“When I have federal deadlines to take care of my farmers, I really resent having to take time away from that to deal with things like the employment security department. Period,” said Manley.

ESD executives said while problems continue, they are making significant headway with NGTS.

“Roughly 85 percent of the system is currently functioning as designed. Our Information Technology and Business Integration division took over full responsibility for the system in January 2016 and has recently provided a plan which, through a combination of state and contracted staff, would resolve both the historical and new NGTS change requests by March 2017.  They are working on ways to improve this date to December 2016,” said Janelle Guthrie, ESD's communications director.

No accountability

But what about Hewlett-Packard? The company was paid millions in taxpayer dollars to create the new accounting system. Why were they kept on the job year after year, setback after setback?

Marsh said the state is to blame for most of the cost overruns, not HP.

“They were continuing to deliver and the majority of the costs weren’t on HP. It was on our staff and we wouldn’t have recovered that,” said Marsh.

Sen. King said in the upcoming legislative session the Labor and Commerce Committee will investigate and try to hold someone to account.

“Let’s hold someone responsible that they didn’t do the job accurately and fairly and effectively like they should have done because I guarantee you those people are still there," King said.

King may be right.

“Our HR division has no record of any employee being terminated directly as a result of their performance on the NGTS project,” said ESD's Guthrie.

Follow Susannah Frame on Twitter @SFrameK5

Copyright 2016 KING


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