Outdated computers cost IRS $200 million
Contractor failed to provide updated program to catch fraudulent requests for tax refunds.
By CNN's Katy Byron

(CNN) -- The Internal Revenue Service lost $200 million to $300 million last year because a contractor failed to provide the agency with an updated computer program to catch fraudulently filed requests for tax refunds, according to IRS spokeswoman Nancy Mathis.

Since 1996, Computer Sciences has provided the IRS with an automated Web-based program to screen tax returns requesting refunds. The IRS planned to use an updated program from Computer Sciences to screen 2005 tax filings.

But when the contractor did not deliver it on time, the IRS had to tell the company to revert to the old screening program, resulting in the distribution of millions of dollars in unearned refunds.

Because of the screening problems, 500,000 refund claims were temporarily frozen.

The IRS paid $20.9 million to redesign the Electronic Fraud Detection System, including $18.9 million to Computer Sciences, the IRS said.

Calls to Computer Sciences for comment were not returned.

The IRS has retained its contract with the company.

IRS Commissioner Mark Everson said IRS employees "who failed to act responsibly" over the problems were fired, but no further details on disciplinary actions were disclosed to CNN.

"The management efforts of both the IRS and its contractor to improve our automated-refund fraud detection system were insufficient and are unacceptable," Everson said.

During confirmation hearings on Thursday, the Senate Finance Committee questioned Eric Solomon, a nominee for the post of assistant treasury secretary for tax policy, about the computer problems.

Solomon could not confirm that an updated system would be in place for next tax season.

The treasury inspector general for tax administration is expected to release an investigative report soon on the problems, according to the Senate committee.

Related: More on taxes Top of page

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