The Criminal Investigation Function Substantially Accomplished Organizational Stand-Up

June 2001

Reference No. 2001-10-097

Executive Summary

The Internal Revenue Service (IRS) Restructuring and Reform Act of 1998 (RRA 98) directed that the IRS modernize to improve operations and to better serve its customers. In early 1998, the IRS Commissioner had outlined a program to modernize the IRS, offering more efficient work processes and better service to American taxpayers. The Criminal Investigation (CI) function began to work on its preliminary modernization design in April 1999, after the conclusion of a comprehensive review led by Judge William H. Webster. The challenge for the CI function was to design a new organization that included recommendations from the Webster Report while ensuring that the redesigned CI function would fit into the new vision of the IRS.

The IRS organization design plan included a process called "standing up," which means the new function has met the minimum requirements for operation. These requirements include filling key management positions, completing actions to realign positions, establishing a finance office and a separate budget, ensuring necessary business authorities are in place, and ensuring workarounds are functional.

Our overall objective was to determine whether the CI functionís stand-up process was effectively completed.


The CI function was successful in substantially completing the minimum requirements for operation when it stood up on July 2, 2000. Specifically, the Chief, CI, and most key managers were in place, employees were realigned to the new organization, the finance and budget office was in place, delegations of authority were prepared, and workarounds were developed. Although the CI function substantially stood up as a new organization, some areas require additional actions to ensure the overall accomplishment of the CI mission. For example, to accomplish its modernization efforts, the CI function prepared new delegation orders but needs to provide additional oversight to ensure consistent treatment of referrals to the Department of Justice (DOJ). In addition, continuing managerial attention is needed to resolve staffing and office space issues in order for the CI function to meet its modernization vision.

Additional Oversight Is Needed to Ensure the Consistent Treatment of Referrals to the Department of Justice

To meet the minimum requirements for standing up as a new organization, the CI function completed several new delegation authorities. One of the major new changes to the CI function policies involves the Special Agents-in-Charge (SAC) having the authority to refer non-sensitive investigations to the DOJ. The CI function has not established a process to ensure SACs are consistent when referring cases to the DOJ. Without a national process to monitor prosecution referrals, the CI function cannot be assured that the various SACs are consistently referring cases to the DOJ. This could place the CI function at risk of inconsistent treatment of taxpayers.

Continual Managerial Attention to Resolve Staffing and Office Space Issues Is Needed to Ensure the Criminal Investigation Functionís New Mission Is Attained

The CI functionís staffing and space needs have not been adequately addressed and timely resolved. This condition exists because the CI function did not develop a Memorandum of Understanding (MOU) with the Agency-Wide Shared Services (AWSS) function. Without increased managerial oversight and an effective MOU with the AWSS function, the CI function cannot be assured that staffing needs and space requirements are timely resolved, thereby jeopardizing the CI functionís ability to fulfill its modernization vision.

Summary of Recommendations

The Chief, CI, should establish a process requiring more frequent reviews of investigations to ensure consistent treatment of taxpayers. Also, the Chief, CI, should develop an MOU with the AWSS function that appropriately addresses the resolution of staffing and space needs. The MOU should also be properly monitored to ensure quality customer service.

Managementís Response: CI management disagreed with our recommendation that a process should be established requiring more frequent reviews of investigations to ensure consistent treatment of taxpayers. CI management believes that the reviews conducted by the DOJ Tax Division and the IRSí Criminal Tax Counsel, Centralized Case Review, Review and Program Evaluation (RPE), and Directors of Field Operations (DFO) are adequate to identify potential inconsistent treatment of taxpayers.

CI management agreed with our recommendation to develop an MOU with the AWSS to appropriately address the resolution of support staffing levels and space needs. The AWSS has an action plan and is taking the lead on obtaining MOUs with all of the business units to cover support staffing and space requirements. CI management will work with the AWSS to ensure the CI MOU is implemented according to the AWSSí action plan.

Managementís complete response to the draft report is included in Appendix IV.

Office of Audit Comment: We do not concur with the CI functionís conclusion that the reviews conducted by the DOJ and Centralized Case Review will be adequate to identify inconsistent treatment of taxpayers between geographical areas. The reviews are technical in nature and will not identify any geographical trends of inconsistent treatment of taxpayers. Also, these reviews may not include investigations that are not forwarded by the SACs for prosecution.

The CI function also mentioned that the RPE reviews began in February 2001. These reviews are conducted every 3 years; therefore, we do not believe they will be performed often enough to timely identify potential inconsistent treatment of taxpayers. As an alternative, we believe the CI function can address any potential inconsistencies by ensuring the issue is addressed in the scope of the DFOís reviews and the results shared among the DFO.