Every year, the Commonwealth of Massachusetts receives about three million tax returns, which require processing, indexing, and archiving by the Massachusetts Department of Revenue (MDOR). Until recently, Bay State tax returns were manually keyed into a computer terminal by data entry operators and then conveyed to one of three storage spaces located in and around Boston. Processing returns was a slow and tedious task. Not only did it slow refunds, if a taxpayer's return was needed for review, it could take weeks to be retrieved. And if a return was already signed out by another tax examiner, a taxpayer could wait for months for a resolution.
With a goal of trimming costs to meet the Commonwealth's budget constraints, MDOR entered into a unique partnership with Datacap. The challenge was to develop an imaging and document workflow system that would replace manual data entry methods with a more productive data capture system and help reduce the enormous flow of paperwork.
The deployed system, featuring Datacap Taskmaster, enables MDOR to process a quarter of a million document images per day. It saves Massachusetts taxpayers $1.5 million a year in reduced labor costs and has made the retrieval of tax returns virtually instantaneous. Tax examiners can fetch a return at the push of a key, even one already in use by another tax examiner. The system is widely regarded as the most advanced automatic tax return processing system in the country. In fact, the installation won the coveted Computerworld Smithsonian Award for innovations that benefit society.
MDOR was contemplating the same obstacles facing all paper-intensive organizations. Due to escalating labor costs, traditional data entry - where operators manually key data from a document into a computer - is growing more expensive every year. In addition, it's increasingly difficult to find -- and keep -- properly trained workers.
At MDOR's data entry department, operators were processing an average of 351 tax returns per day, using traditional "heads-down" methods. Much of the data was not keyed in, so for auditing purposes, the paper tax returns had to be indexed and stored for retrieval in three warehouses located in the Boston area. Since a year's worth of paper returns occupy 11,000 square feet of storage space, MDOR's combined storage area would cover two acres. When auditors needed to review a taxpayer's return, they had to roam the aisles and physically retrieve the documents.
Determined to find a more efficient and economical way of tax processing that would improve customer service and audit functions, MDOR began to develop a state-of-the-art document management and document workflow system. Working with MDOR, Datacap configured a powerful data capture system using Unisys hardware, InfoImage software, high speed scanners, UNIX systems and Datacap's workflow platform and software components for scanning, recognition, validation, and edit.
The result is known as the Imaging Solution for Tax Administration, an integrated system that successfully automates the processing of tax returns. During tax season, as returns arrive, they are scanned and the digital images are sent electronically to a computer that "reads" both handwritten and machine-generated returns. Once the information is extracted, the system calculates the data contained in the tax return and determines tax due and/or refund. Finally, the information is indexed and stored in an electronic file folder for each taxpayer and automatically archived in a VAX mainframe computer, where it is available online for tax examiners and service personnel to retrieve and review at any time.
Components of Datacap Taskmaster include intelligent character recognition (ICR), which recognizes and "captures" machine and hand-printed data, and an edit feature that contrasts the scanned images with the raw data on screen to highlight discrepancies for operators to make quick corrections when necessary. The Datacap Taskmaster document workflow maximizes staff and system productivity by queuing batches of images from one step in the process to the next.
One of the unforeseen benefits of the Imaging Solution was it helped MDOR find a way to automate the processing of a complex form called a "NR/PY," the Nonresident/Part Year Resident tax return. Because there are deduction- and exemption ratios based on the percentage of total income earned in Massachusetts, the calculations for the NR/PY are daunting. Due to the flexibility of its off-the-shelf software, Datacap was able to build a template for the NR/PY tax form that accommodates the enormous range of variables.
The system has been a resounding success, and is frequently visited by federal agencies, corporations, and foreign governments who are looking to develop similar systems. Today, MDOR has the capability to scan, recognize and archive up to 25,000 income tax forms a day. Since each return averages 10 pages, the department is processing nearly 250,000 document images every day.
For the Commonwealth of Massachusetts, the benefits are clear: the time and expense previously spent processing tax returns and on retrieving them for audits has been dramatically reduced. Because of the knowledge management features built in to Datacap software, the system is able to capture 50% more information from tax returns than was possible using manual methods.
Over the life of the project, MDOR's data entry costs have been steadily dropping and staff has been reduced by 28%, saving Massachusetts taxpayers an estimated $1.5 million a year. At the same time, revenue collected per employee has increased 50%, and audit assessments and collection of delinquent taxes is up 24%. In addition, the imaging solution has enabled employees to increase processing from the average 351 to 618 returns per day - an 82% improvement. Faster refunds and more rapid retrieval of information -- especially the ability to recall a taxpayer's return instantly -- have significantly enhanced customer service.
The storage space needed for archiving tax returns has been shrunk too. One year's returns that have been imaged and stored electronically simply requires a magnetic disc storage box that fills just 25 square feet of space.
"The combination of advanced client/server technology and comprehensive data capture, storage, and retrieval capabilities makes Massachusetts unique among state tax systems," said Mitchell Adams, the State Revenue Commissioner. "It dramatically reduces paper management at MDOR and shortens the turnaround time from receipt of a return until refund checks are cut."