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Washington, D.C.— The loss and possible destruction by a federal contractor of as many as 40,000 tax-related documents, including not just tax returns but checks in payment of taxes, “is yet another example of the dangers of the foolhardy rush to contract out federal work,” the president of the National Treasury Employees Union (NTEU) said today.

NTEU President Colleen M. Kelley called “shocking” media articles about revelations from the Senate Finance Committee that one of the nation’s largest banking institutions cannot account for nearly $1 billion in payments made by taxpayers.

“If an institution like Mellon Bank, which is large, trusted and stable, cannot be counted on to perform a government contract appropriately,” Kelley said, “it is truly frightening to think what else is going on in the world of federal contracting.”

She repeated her call for a stop to federal contracting until systems and processes are in place “to ensure adequate oversight and accountability—neither of which we now have.”

Finance Committee Chairman Sen. Max Baucus (D-MT) reported that investigation of a serious problem believed to have affected some 1,800 mishandled returns at a Pittsburgh, PA, facility operated by Mellon Bank under contract with the Internal Revenue Service (IRS) revealed that the number of lost or destroyed returns and related documents had skyrocketed to as many as 40,000—and could ultimately be higher.

Kelley has written to both Sen. Baucus and Sen. Kent Conrad (D-ND), chairman of the Senate Budget Committee, expressing her outrage over the handling of this contract and the length of time it took to cancel the contract with the bank.

She urged both senators to use their positions to ensure that IRS employees have the tools and resources they need to do their jobs “so that taxpayers will not have to be dependent on unreliable and careless government contractors to process their confidential tax returns.”

The NTEU president called the Mellon Bank problem “an all but inevitable result” of “starving the IRS and other federal agencies” of the funds they need to perform their missions on behalf of America’s taxpayers. In recent years, the IRS has had to enter into contracts such as the one with Mellon Bank because it has lacked the money to hire the staff it needs.

“There is a woeful lack of oversight of federal contracting, as this unfortunate episode clearly demonstrates,” Kelley said, “and when that is combined with insufficient funding for staffing needs, everyone loses, not the least of whom are taxpayers who lose faith in government. It is well past time for Congress and the administration to take notice and to act responsibly.”

The NTEU president said the problem at the now-closed Mellon Bank facility is far from an isolated example of the pitfalls of federal contracting. She pointed to a decision only six weeks ago by the Federal Retirement Thrift Savings Board to terminate its contract with American Management Systems, Inc., (AMS) to develop and implement a new computerized record keeping system for the federal Thrift Savings Plan (TSP).

AMS’s work on the project was so poor, Kelley said, including its failure to meet five adjusted delivery schedules and an initial estimate that had tripled to almost $90 million, that the board is suing the company in federal court for $50 million in actual damages and $300 million in punitive damages, alleging breach of contract and fraud.