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ALBANY – A “botched” job by an outside vendor and internal department control lapses at the state’s tax agency led to delays in processing hundreds of thousands of paper income tax returns last year.

Additionally, it led to millions of dollars in overtime to fix the problems, a new state audit released Wednesday finds.

State Comptroller Thomas DiNapoli said problems “spun out of control” last year when the state Department of Taxation and Finance turned to a new private contractor to initially process the 20 percent of returns filed by paper instead of electronically.

Beyond delays, the vendor inserted various errors into taxpayers’ forms during the processing of everything from income earned and Social Security numbers to the amount of tax owed. The audit estimates errors occurred in 22 percent, or 439,000, of the returns handled. That is 40 times the contract’s allowable rate for mistakes and could result in a sharp reduction in payments to the vendors.

The audit took aim at the prime contractor – New York State Industries for the Disabled, or NYSID – and its subcontractor, SourceHOV. But it said the tax department also failed to monitor the problems as they worsened during 2013 in the first year of the three-year, $16 million contract.

As a result, it cost the tax department $6 million in overtime costs last year for its staff to help fix the problems. DiNapoli said that number will rise for interest payments the state will have to make for late refunds and other costs.

Geoff Gloak, a tax department spokesman, said the “state will not be paying for vendors’ failures, and department costs, including overtime and interest costs, will not be borne by state taxpayers.” The audit noted that, as of February, the state had paid only $234,000 to the vendors out of the $16 million contract.

In a brief response by the tax department contained in the audit, the agency did not dispute the comptroller’s findings. The agency said it “did not anticipate the possibility of the cascading vendor failures in 2013” that led to “significant processing delays” for many New Yorkers’ tax returns.

DiNapoli said the agency has since moved to fix the problems, noting 17 full-time tax department workers are assigned to work with the vendor to ensure problems don’t reoccur .

email: tprecious@buffnews.com