An excerpt from a lengthy article in the Indianapolis Star:
While the $526 million figure is a simple one on the surface, underneath that massive amount of money are hundreds of thousands of individual financial transactions and decades of statutes and politics.
The $320 million error found in December was discovered through one of 28 tax "streams" that carry sales, income, corporate and other taxes into the state. The $206 million mistake that the state discovered earlier this month was money that was supposed to be sent to Indiana counties. In both problems, computer programming is being blamed, specifically errors in the state's tax return processing system.
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"There are a number of types of audits. There are financial audits, there are compliance audits, there are internal audits done by staff of the agency, there's IT audits and there are efficiency or operational audits."
And then there's the trigger, the point at which inside an audit things get examined more closely. The industry term is "materiality." Broadly, for Indiana, the "materiality" trigger is $70 million. Things below that level don't get a separate vetting because there just isn't enough time or resources to check every single blip, Hartman said.
Error is built into the equation.
Indeed, the state's local income tax process itself has error built into its equation. The state hands out money to counties based on last year's collections, and the two are constantly adjusting who owes whom what.
John Mikesell, a professor of public budgeting at Indiana University, noted that the transfers between other states and their localities are routine and almost never perfect.
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http://www.indystar.com/apps/pbcs.dll/article?AID=2012204160327
