This audit was performed as part of the Treasury Inspector General for Tax Administration’s overall strategy to assess the implementation of the Government Performance and Results Act of 1993 (GPRA). Our overall objective was to assess the adequacy and completeness of the Internal Revenue Service’s (IRS) Fiscal Year (FY) 1999 Annual Program Performance Report (APPR).

The GPRA is intended to improve agency performance and provide objective information to Congressional and Executive Branch decision-makers to assist them in appropriating and allocating federal funds. The GPRA required executive agencies to prepare and submit to the President and the Congress their first annual program performance report by March 31, 2000.

An annual report must compare actual performance with the projected levels of performance set out in an annual performance plan. When a projected performance level is not met, the report should include an explanation for not achieving the goal and describe steps for meeting the goal in the future. The report should also assess the effect of past year performance on current year performance levels.

The IRS’ first APPR was submitted as part of its Fiscal Year 2001 Congressional Justification on February 7, 2000. Our assessment of the FY 1999 APPR was divided into two separate audits, Phase I and Phase II. During the Phase I audit, we assessed the IRS’ progress made through January 2000 to assemble verified and validated data for the FY 1999 APPR. Our findings and recommendations were presented in a report issued to the IRS on March 31, 2000.

The IRS’ first APPR met many of the requests contained in the Office of Management and Budget (OMB) Circular, Department of the Treasury guidance, and letters from the Chairman, Senate Governmental Affairs Committee. However, some areas could be improved to ensure that future reports are more useful to the stakeholders.

The current management control process could be improved to ensure that future APPRs more fully expand on the information requested by the OMB, the Department of the Treasury, and the Congress. Without more fully expanding on the requested information, Congressional and Executive Branch decision-makers may not have all of the objective information needed to assist them in appropriating and allocating federal funds. Also, the IRS’ largest stakeholder group, taxpayers, may not be able to assess whether tangible public benefits have been produced.

In our opinion, the FY 1999 APPR could have been improved by expanding on the following elements requested by the OMB Circular, Department of the Treasury guidance, and the Chairman, Senate Governmental Affairs Committee:

• Quantitative performance measures should be presented for all major management challenges and high-risk areas.
• Summaries of the findings and recommendations of the program evaluations completed during the fiscal year could be more complete. Program evaluations were completed during the year for 2 of 17 (11.8 percent) activities. Additionally, only
  3 of 8 (37.5 percent) "Program Evaluations, Risk Analyses, and Strategic Studies" included a summary that described both the findings and recommendations.
• A more complete assessment of actual performance and its impact on expected future performance could be presented for all performance measures. In this regard, the IRS did not provide a complete assessment of the effect of actual performance levels on expected future performance for 54 of its 68 (79.4 percent) performance measures.

Additional actions are needed to ensure that future APPRs provide stakeholders with all the information requested by the OMB, the Department of the Treasury, and the Congress. We recommended that the Deputy Chief Financial Officer for Strategic Planning and Budgeting ensure that the APPRs more fully expand on the information requested. Special attention should be given to including quantitative performance measures for all management challenges and high-risk areas, providing complete summaries of all findings and recommendations of program evaluations completed during the fiscal year, and providing more complete assessments of actual performance and its impact on expected future performance.

Management’s Response: IRS management agreed in general with our first two recommendations. They did not agree with our third recommendation that a more complete assessment of actual performance and its impact on expected future performance for all performance measures should be included in the APPR. In particular, they believe that the measures that were baselined, had no targets, or were shown as "To Be Determined," did not need any explanation when shown in a tabular form. Management’s complete response is included in Appendix IV of this report.

Office of Audit Comment: We continue to believe that more complete explanations of changes to goals from 1 year to the next are very beneficial to any readers of the APPR. We also believe that some explanation is needed to fully comply with OMB requirements. In addition, IRS management did not address the 6 measures that we identified as changed from 1 year to the next and we believed were not adequately explained. We encourage IRS management to reconsider their interpretation of OMB Circular A-11 Section 232.8 and provide more explanations of prior year efforts.