State Auditor Says Nebraska Is Losing Out On Millions In Website Fees

10/11 News | By Keller Russell on November 28th, 2009

You pay for the convenience of doing business on-line at Nebraska.gov, but just where is that money going?

State Auditor Mike Foley says hundreds of thousands of dollars in transaction fees from Nebraskans is lining the pockets of Kansas business owners.

For the last 14 years the state has contracted with a company called Nebraska Interactive to run its website, Nebraska.gov.

Nebraska Interactive is a wholly owned subsidiary of a Kansas based business, National Information Consortium (NIC), which Foley says not only nets 90 percent of the on-line transaction fees, but also racks in yearly administrative fees from the state, for running the website.

“Why are we doing this? This is a terrible terrible blunder that’s going to send millions of Nebraska dollars off to Kansas,” said Foley. “The trend over the last few years that’s been over a million dollars in transaction fees that goes to Kansas.”

According to NIC’s website, state governments pay contractually determined fees and a mix of “upfront revenues to fund infrastructure and develop e-government services”. Additional revenue generated from on-line transaction fees are shared between the state and the company.

But Foley said a contract with Nebraska Interactive, which is located in Lincoln, is far from cost effective. According to the auditors office, in 2008, the company generated $389,484 in profits before taxes.

But, the state paid out more than double that -$693,000 – in administrative fees to Nebraska Interactive’s Kansas-based parent company. The administrative fee the state pays for the state website increased by about 43 percent last year from 2007 according to the auditor’s office.

“And there’s not one person in the state of Nebraska that can tell you what that fee is for,” said Foley.

Of the money generated by on-line transactions, Foley said Nebraska only sees about ten percent.

“We’re paying 90 cents on the dollar for someone else to do this work when we could have done it a whole lot more cost effectively,” he said.

Foley, who sits on the State Records Board which negotiates the contract, voted against the bid for Nebraska Interactive when it came up this fall. The company was the sole bidder for the website’s contract but Foley said more effort should have been put forth by the board.

“We shouldn’t feel compelled to take the one bid just because he’s the one bidder. We can say sorry, we’re going to try again”.

The auditor is certain the state could find a better deal and wonders if the best option doesn’t already exist within the state payroll.

“Why wouldn’t we have already talked to our own web developers first who are already on the state payroll and say what do you think about this website? Do you think you could put up this website? What would it cost us to do it internally? We could keep all the profits for ourselves..we never did any of that,” said Foley.

Nebraska’s Secretary of State John Gale disagrees with the notion that a majority of the fee revenues generated are going to Kansas. He said a good portion of the money Nebraska Interactive makes funds the local employees salaries, building rent, equipment and supplies.

“There is obviously a portion that is paid to the home company but I don’t see how that’s any different from all of the franchise companies in Nebraska that have to pay the franchise fee to a home company some place else or banks that are branch banks,” said Gale.

Gale said there are a number of benefits working with a third party vendor to build and maintain the state’s website. The company absorbs the cost for hardware and software development and upgrades and pays for the full-time employees at Nebraska Interactive.

“We’re a very complex integrated economy and the mere fact that there is a margin of profit that is shared with the home company isn’t anything that I find unusual, outrageous or any different than how private enterprise operates probably amongst thousands of companies in Nebraska,” said Gale.

The state has put the contract for the state’s website up for competitive bid at least three times since 1998, according to Gale.

Foley wants to get state senators involved and see a study done on what’s the best option for operating the state’s website – in house or through the private sector.

Senator Tony Fulton of Lincoln says he’s interested.

“Certainly when I hear there could be ways that the government could save money, we should jump all over it and find out more information,” said Fulton.

Although, with some experience in the technology field, Fulton said sometimes there aren’t a lot of options or qualified vendors which can make it hard to find competitive bids.

“It may well mean that there’s not many options to choose from but that does not therefore mean we can’t question,” said Fulton. “I’m thankful the auditor is looking at this…in these tough economic times when dollars are tight every dollar has to be scrutinized and certainly we can ask questions as to why,” said Fulton.

Gale said he is putting together a sub-committee to look into the possibility of a study on what the best option for operating the state’s website is.

Foley wishes the research could have been done sooner.

“They didn’t want to do it because it’s just easy to say ‘hey folks down in Kansas, take care of this for us..send us the check at the end of the month’..we’ll be happy with that.”