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Audit: Breaches in security in state offices that process tax returns

William Holl| AP

William Holland | AP

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Updated: June 29, 2011 5:08AM

SPRINGFIELD — Auditor General William Holland Tuesday found breaches in security in state offices that process 3.4 million tax returns and uncovered questionable “irregularities” in the awarding of a controversial $2 billion lottery-management contract.

Holland’s audit could spell new trouble for state Revenue Director Brian Hamer, a state appointee backed by Gov. Pat Quinn and a holdover from Rod Blagojevich’s tenure. Hamer’s confirmation was not acted upon before the state Senate concluded its spring session.

In the agency’s Chicago and Springfield tax-processing offices, full- and part-time employees who handled confidential tax returns were permitted to carry personal cell phones equipped with cameras, Holland found.

Holland also found sensitive tax records on desks, open shelving areas and tables in areas where visitors had access and, in one instance, stored in an open bin in a readily accessible hallway within a tax-processing area.

Holland also disclosed instances where uncashed taxpayer checks turned up in the desk drawers of employees who no longer worked for the Department of Revenue and faulted the agency for not performing background checks on state workers who had access to the department’s taxpayer-information database.

“I don’t think we proved instances of identity theft,” Holland told the Chicago Sun-Times. “But I’d tell you, when you have so many people with so much access to so many records, it’s only a matter of time until something bad happens.”

An agency spokeswoman disputed the notion that the Department of Revenue was putting tax records at risk and that safeguards exist to bar general public access to sensitive tax-processing areas and to closely monitor agency employees who work there and their computer access.

“We are working every day to improve our ability to protect the privacy of the people who trust us,” Revenue spokeswoman Sue Hofer said. “That means installing new cameras. That means upgrading our system of who’s allowed into the building and into more sensitive areas of the building.”

Holland’s report also was critical of how the agency awarded a massive, $2 billion, 10-year contract to Northstar Lottery Group to manage Illinois’ lottery. Two rivals protested the firm’s selection but had their objections rejected by the state.

An agency committee assembled by acting Lottery Superintendent Jodie Winnett, with input from Quinn’s office to assess Northstar and its rivals, was given less than a week to evaluate the bids and had not completed its work when the company was chosen for the contract, Holland said.

The state auditor further questioned expenses approved by a consulting firm, Oliver Wyman, hired to guide the contracting process that ultimately led to Northstar’s selection. In one case, the $648-an-hour law firm hired by Wyman submitted detailed information for only $9,700 in services it had performed, just 1 percent of the $727,000 the law firm was paid.

“This is a $2 billion, 10-year contract for the day-to-day management of the lottery. You’d have thought they’d have put a lot more emphasis on making sure the process was clear and direct and open,” Holland said.

Hofer said that members of an evaluation committee that chose Northstar submitted their scoring on paper and electronic forms. One form or the other had been completed by each member before the company’s deal with the state was announced, she said.

Holland’s audit comes at a difficult time for Hamer, whose Quinn-backed nomination to head Revenue has stalled in the Senate.

“I am aware of [Tuesday’s] audit report and will review it thoroughly as Director Hamer’s nomination to continue running this agency remains pending in the Senate,”Senate President John Cullerton (D-Chicago) said.

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