First-Class Operation

California's EDD has become a lean tax-processing machine.

by / May 1, 2002
The Tax Processing and Accounting Division (TPAD) of California's Employment Development Department (EDD) collects payroll taxes from some 900,000 employers, taking in about $85 million in business taxes every day. On peak days, TPAD receives, processes and deposits nearly 75,000 checks by about 3 p.m., and collects, records and stores all of the pertinent data from the checks within a day.

It wasn't always that way.

Just a few years ago the process of collecting and recording the data took several weeks and about 50 people. The process is now done by one set of hands, and some new technology, in about a day.

That collection process was one of several that saw its inefficiencies and excesses eliminated by the Tax Engineering and Modernization (TEAM) Project that developed from a partnership between EDD and Unisys.

As part of the project, Unisys implemented its e-action Workflow Solution, which helps EDD scan, capture, process and archive tax forms. But it did so on terms that are not so common in a vendor/agency relationship.

Alternative Procurement

Alternative procurement projects are not very popular, and when you talk to Unisys and EDD representatives, you can see why.

"They're not a piece of cake," said Randy Oliver, division chief of TPAD. "You need a lot of attorneys and all kinds of representatives in on it."

It works something like this: EDD puts out a bid that says to potential vendors, "Here's our process; if you can streamline it with demonstrated savings in dollar amounts, among other things, you get to keep 83 percent of the savings as your payment."

Alternative procurement, or performance-based procurement, gives the consumer leverage and the vendor incentive to do a bang-up job of streamlining processes.

"It's not just the vendor throwing over the wall a system and saying, 'Good luck,' and then we find we're spending more resources than before," said Bob Affleck, deputy director of EDD's Tax Branch. "It's in the vendor's and our best interest to make sure this thing is going to work and produce the results because that's how they get paid."

Determining just how and where inefficiencies can be trimmed is part of the contract-negotiation process, which sometimes needed to be resurrected as the project was phased in. Determining where Unisys would collect on savings was a matter of determining how to eliminate personal years (PYs), which is the equivalent of one full-time employee's annual salary.

So if a process that took two $40,000-a-year employees to accomplish was streamlined so that it now takes only one of those employees, you've trimmed one PY, or $40,000, and the vendor would get 83 percent of the $40,000.

But in this case, no full-time employees were laid off.

"That was one of the criteria as part of the contract," Oliver said. "EDD management said we're not going to have any layoffs, we're going to take care of this through attrition." At the time, EDD employed a large number of part-time intermittent employees, for which the turnover rate was high. That gave the agency opportunities to save PYs.

Some of the full-time employees, however, were transferred to different departments. "We did a lot of career counseling," Affleck said. "A lot of those folks ended up better off than they were before because they were forced into looking for better jobs."

The final product cost was a little over $60 million, which is what Unisys got to pocket through demonstrated savings. Any savings over that contracted $60 million mark would stay with EDD.

But figuring out how and where the savings would be accrued was a formidable task that took a lot of negotiating.

"We identified various workloads, figured out what it cost us under the old system and measured what it would cost under the new system," Oliver said. "The difference was the basis of the payment to Unisys."

Defining workloads and the number of PYs it took to complete a process was a major challenge for EDD, which had to set forth requirements that Unisys had to meet. It was a process that took constant re-evaluation. Once EDD defined a workload or baseline cost for a process, it was Unisys' turn to demonstrate savings in that area.

"Naturally, Unisys wanted to have the most advantageous demonstration," Oliver said. EDD at times, had to send Unisys back to the drawing board to re-engineer the process to reflect realistic savings. The back-and-forth negotiations delayed the process, making for some anxious moments.

"Unisys wanted to get their money, and the state wanted to get its money's worth," Oliver said. "Whenever we started talking about money it became a little hedgy. Over the four or five years that this project was going on, there were constant negotiations and it wasn't all fun and games. There were a lot of times when people walked out of those meetings pretty ticked off."

Phased In

The project was grouped into four phases, the first of which began with customer service-related tasks, such as making it easier for employers to file tax returns. It then graduated into processes that yielded more PY savings. The fourth phase was originally planned for clean up, but turned out to be more work than both parties anticipated.

"When we got to the final phase, we thought that we would have already achieved all the PYs and we'd just be doing clean-up," said Luke Burson, a principal with Unisys. But the reality was that there were more PY savings that needed to be obtained for both parties to reach their objectives.

The first two phases were conducted nearly simultaneously and consisted of the conversion of documents, such as wage records and annual reconciliation forms, into images for data capturing.

The department revamped the entire data-capture process, from redesigning forms so they could be read more easily by new, automated equipment to replacing software.

It was during the early phases that Unisys implemented its e-action Workflow Solution, which greatly reduced the duration of the data capturing process and the number of people involved and improved customer service. With all the documents imaged, employer inquiries can be handled immediately instead of several weeks later.

"In the past, what happened was all of those [employer records] were filed in hard copy in an employer folder," Oliver said. "So you either had to try to talk to the employer without having a picture of what had been sent, have him fax you something or you had to wait and pull out his employer folder which could take weeks."

A 30,000 square-foot building they call the document retrieval unit, filled basically with paper employee records, sits across town awaiting transformation. It will take just a couple of thousand square feet to house all the records with the new system.

Now, all of those records are stored on optical platters and can be transmitted to an employer's desktop upon request without the use of human hands. Instead, little robotic arms retrieve the platters from storage, and facilitate immediate transmission to the employer's desktop.

"It's absolutely a world-class processing center," said Burson. "People from all over the world come to look at it. There isn't anybody doing more in their window of time, I don't believe.
Jim McKay, Justice and Public Safety Editor Justice and Public Safety Editor