The Internal Revenue Service (IRS) is completing the transition of its Federal Telecommunications System (FTS) long distance telephone service from AT&T to Sprint and is scheduled to implement the Telecommunications Asset Tool (TAT) in July 2001 for monitoring and tracking telecommunications assets. The IRS is also in the process of drafting national guidelines to centralize the issuance and usage of cellular telephones.

The overall objective of this audit was to determine whether the IRS is effectively managing the telecommunications costs related to FTS long distance calls, calling cards, and cellular telephones. We also followed up on related corrective actions contained:

1. In two prior audit reports, Review of the Service’s Controls over Voice Telecommunications Charges (Reference Number 034908, dated September 1993) and Review of the Service’s Efforts to Control Off-Net Long Distance Telecommunications Costs (Reference Number 082603, dated March 1998).
2. In the November 9, 2000, Federal Managers’ Financial Integrity Act Progress Report regarding the material weaknesses in the IRS’ controls over its telecommunications costs.

The IRS began work to improve controls in the telecommunications area based, in part, on our prior audit findings reported over 7 years ago. Although many corrective actions have been initiated to improve telecommunications controls, the reported issues still exist as planned actions were not completed or were not effective due to numerous reorganizations and unclear program accountability. Improving telecommunications controls would provide additional assurance that the planned Fiscal Year (FY) 2001 FTS long distance and cellular telephone service expenditures of over $20 million are properly spent for these services.

In the two prior audits in 1993 and 1998, weaknesses were identified in the IRS’ process for reviewing telephone call reports. Since then, the IRS has been involved in the development of several different computer systems that were to be used for review purposes to better control long distance telephone costs. However, reviews have not been conducted on a regular basis because of delays in implementing system software and the lack of fully approved detailed review procedures.

Our analysis of the long distance telephone billing information showed that, for Calendar Year 2000, over 17,000 telephone calls costing approximately $1,092,200 for 53,439 hours of usage would have been identified as questionable charges by IRS management had they reviewed the information using the four original IRS-approved review criteria. Additional analysis showed that over 842,000 telephone calls costing $743,000 for 215,144 hours of usage would have been identified as questionable charges by IRS management had they reviewed the information using the six revised IRS-approved review criteria.

In addition to the cost of the questionable telephone calls, there is the potential for lost staff time on unauthorized or unnecessary telephone calls. Furthermore, telephone bills are not being reviewed for accuracy, and controls over calling cards have not been fully implemented.

Cellular telephone control weaknesses and the lack of national guidelines to control the acquisition or use of cellular telephones were reported in the prior audit in 1993. The IRS agreed to monitor and control cellular telephone usage and maintain an accurate inventory. However, national guidelines have not been developed nor an accurate inventory maintained. As a result, there is no assurance that the cellular telephone program, which has recently seen extensive growth, is managed efficiently as charges have been as much as $1,000 for 1 month’s telephone charges for a single cellular telephone.

The Deputy Commissioner for Modernization & Chief Information Officer should ensure that guidelines and procedures for reviews and billing verification of long distance telephone charges and for cellular telephone issuance and usage are developed, implemented, and monitored. In addition, controls should be implemented to ensure calling cards are periodically inventoried and issued only to authorized IRS employees.

Management’s Response: IRS management will implement guidelines and procedures for reviews of long distance telephone charges using approved criteria; implement the TAT with procedures for verifying long distance billing; inventory calling cards annually; and implement guidelines and procedures for cellular telephone issuance, usage, and monitoring.

Management’s complete response is included as Appendix VII.

Office of Audit Comment: In the Corrective Action Monitoring Plan for recommendation #2, IRS management provides that a TIGTA audit of the TAT was requested. While we included an audit of the TAT in our FY 2002 Annual Audit Plan, TIGTA audits do not replace the need for management to monitor the corrective actions.