During a conference call with analysts, company chairman and chief executive Mark Ernst said software problems during the first half of January likely prevented the company from serving an estimated 250,000 clients.
The company also cut its forecast for full-year 2006 earnings, blaming, among other things, “a slower start to the tax filing season than in previous years.” But it acknowledged it compounded the problem by introducing a new technology that went haywire -- and sent a quarter of a million customers to rivals.
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But in a conference call with investors, Mark Ernst, the company’s chairman and chief executive, said the slow start was exacerbated by “self-inflicted wounds. Ernst said software-related technology problems left the company unprepared for a surge in January filings by taxpayers expecting refunds and “created a hole out of which we’re working to climb.” He said the problem “cost us 250,000 clients” that were ”unable to be recovered.” The company said a new software distribution system introduced in January had caused its offices glitches that would be fixed for a day, then pop up again, It said the problems left some offices unable to process taxes.
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Besides the problems that Block had with its own tax prep needs, the company also experienced difficulties with the technology in its offices last month that hit its bottom line early in tax season. “Technology problems across the H&R Block network in early January impacted our ability to serve clients in those crucial early weeks,” said Block Chairman Mark A. Ernst. He said the problems had been corrected, but they impacted the company’s ability to serve 250,000 clients at that time of year. Mr. Ernst said he was pleased with sales of the company’s TaxCut software and online tax prep products. Block has implemented an integrated TaxCut marketing and brand-building campaign this year and has revamped the software’s look and feel. However, after the snafu in Block’s in-house tax preparation efforts, the best-selling tax prep software package, Intuit’s TurboTax, may see increased sales from customers who may decide not to buy Block’s TaxCut this year.
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Tax preparation giant H&R Block has a little problem. It miscalculated its own state income taxes, understating its liabilities by $32 million as of April 30, 2005. The company has also had serious problems with its in-house computer network.
Besides bungling its own taxes, H&R Block had serious problems with its in-house computer network that cut into its business in January.
Technology problems across the H&R Block network in early January impacted our ability to serve clients in those crucial early weeks," said Block Chairman Mark A. Ernst. He said the problems had been corrected, but they impacted the company's ability to serve 250,000 clients who were trying to get an early start on their taxes. Analysts speculated the internal technical troubles could reflect badly on the company's TaxCut software, to the benefit of its primary competitor, Intuit's TurboTax.This, and their inability to accurately assess their tax liabilities, even prompted a David Letterman "Top Ten":
Top Ten H&R Block Excuses
10. "Instead of CPA training, employees got CPR training"
9. "Forgot to carry the one 32 million times"
8. "For years we've been secretly funding Hamas"
7. "H was out sick that day and R was on jury duty"
6. "We were using Martha Stewart's guy"
5. "Were testing the world's first accounting monkey"
4. "Come on, it's a couple of dollars. It's not like we shot a guy in the face..."
3. "Hard to stay focused when you've been drinking since April 16th"
2. "Thirty-two million dollars?! We lose that much on a good day"
1. "Hoping for hot make-up sex with the IRS"
And it's not the first time Block has had software problems:
Feb 14, 2000
H&R Block's online tax filing service exposed some customers' sensitive financial records to other customers last weekend, prompting the company to shut down the system yesterday afternoon, CNET News.com has learned.
The company's Web-based tax preparation service, which is the premier sponsor of Yahoo's Tax Center, experienced a technical glitch that accidentally switched some tax filers' records, H&R Block confirmed today. As a result, when some registered users signed on to the service to work on their tax returns, they instead received someone else's filing--including a social security number, home address, annual income and other highly sensitive information.
"What we discovered was that some of our clients' data was appearing in other clients' data files," said Linda McDougall, vice president of communications for H&R Block. "We're keeping it down until we're convinced that the problem has been corrected."
McDougall emphasized that the problem only affected the Web-based preparation and filing of returns. Taxes processed with H&R Block's preparation software or at one of the company's offices were not exposed, she said.
The software glitch revealed the confidential records of at least 50 people, although the full extent of the problem will not be known until the company completes an internal audit, McDougall said. She added that at least 10 customers have contacted the company about the problem.
"Once we determined this, we took our system offline immediately and we began an audit of our entire customer database," McDougall said.
"We're confident that it wasn't due to a hacker--we feel that it was a software problem within our system," she added. "No return has been filed to the Internal Revenue Service that contains inaccurate data."
This is the second time in two weeks that H&R Block's $9.95 "Do-it-yourself" Net filing service--which more than 300,000 people have used so far this year--has suffered a technical problem and had to be shut down. H&R Block expects to handle more than 650,000 returns via the Net this year.
Other Web sites also have had security concerns in recent months. For example, RealNames, a company that substitutes complicated Web addresses with simple keywords, warned its users last week that its customer database had been hacked, and that user credit card numbers and passwords may have been accessed.
The H&R Block privacy breach was no doubt startling to some users who chose the 40-year-old company over other online services, such as Intuit's TurboTax software. User anxiety was intensified because it occurred on the weekend, making it difficult to locate an H&R Block employee who could address the problem.
Joshua Kasteler of the San Francisco Bay area said he was tackling his EZ 1040 on Sunday when the H&R Block system started to act sluggish. Kasteler logged off, and when he signed on to the password-protected site an hour later, he was given access to the records of another H&R Block customer.
"Instead of my information, it was a gentleman from Texas who worked for Advanced Micro Devices," Kasteler said, noting that the forms also listed the other person's phone number, address, social security number and annual income. "I assumed that someone else has my information, too, because this guy's information fell into my lap. I had this guy's life."
Kasteler said he emailed and called H&R Block but still had not heard back from the firm as of late today. So he decided to call the man whose information he had accessed: James Keech, a maintenance technician who also had trouble with the H&R Block site and had been unable to process his return since Thursday.
"When (Kasteler) called, I was freaking," Keech said. "I was like, 'If he's got it, how many other people have my file and aren't being honest and letting me know.' "
Keech said he called H&R Block and was told that there had been a security problem. He has asked that his data be deleted from the system.
"I'll probably go to a regular tax filing office now," he said. "It would have been easier to fill it out on paper."
The 1040 EZ is a simplified IRS form that does not include information such as itemized deductions, capital gains or rental income.
H&R Block's privacy policy states that "information contained in your tax return will be treated with extreme care and confidence...we will never disclose any tax return information without your consent." Like many Web sites, however, the policy doesn't address information that is accidentally disclosed without permission.
With the growth of the Net, consumer advocates have been pushing for umbrella data-protection laws to safeguard U.S. computer users, who may be giving up more information in the digital age that makes them vulnerable to fraud and privacy breaches.
The Clinton administration and Congress, however, have been reluctant to pass new privacy laws that impose stricter penalties for firms that don't secure the data they collect. Instead, the U.S. government has favored industry-developed guidelines.
