Management Advisory Report: The Small Business/Self-Employed Division Needs to Improve Taxpayer Correspondence and Availability of Management Information
Reference Number: 2001-30-056
This report has cleared the Treasury Inspector General for Tax Administration disclosure review process and information determined to be restricted from public release has been redacted from this document.
April 11, 2001
MEMORANDUM FOR COMMISSIONER, SMALL BUSINESS/SELF-
FROM: Pamela J. Gardiner
Deputy Inspector General for Audit
SUBJECT: Final Management Advisory Report - The Small Business/Self-Employed Division Needs to Improve Taxpayer Correspondence and Availability of Management Information
Attached for your review are the results of our analysis of the Small Business/Self- Employed (SB/SE) Divisionís efforts to implement selected management and information system processes. This management advisory report is being provided for informational purposes to aid Internal Revenue Service (IRS) management in its efforts to modernize the IRS.
In summary, SB/SE Division managers developed a comprehensive process to help ensure that authority for administrative and compliance actions is formally delegated to the proper level. SB/SE Division revenue officers and revenue agents have access to the systems they need to perform their work. Finally, our review of selected compliance field offices did not identify any indicators of problems related to the processing of personnel actions.
However, there are two areas which SB/SE Division management needs to continue to address. First, additional actions are needed to ensure letters and forms sent to taxpayers do not include references to outdated IRS organizational components. Second, continued emphasis is needed to ensure Integrated Collection System and Audit Information Management Systemsummary management information is both complete and readily available to Territory and Area Office Compliance managers.
Since we are making no recommendations, a response to this report is not required. Copies of this report are also being sent to the IRS managers affected by the report.
Please contact me at (202) 622-6510 if you have questions, or your staff may call Gordon C. Milbourn III, Associate Inspector General for Audit (Small Business and Corporate Programs), at (202) 622-3837.
Objective and Scope
The objective of our review was to determine if Small Business/Self-Employed (SB/SE) Division management took effective steps to implement selected management and information systems processes. We evaluated the methodology used to develop division level delegation orders and determined whether correspondence sent to taxpayers reflects the correct organizational information. We also assessed whether SB/SE Division personnel have access to the management information systems they need to perform their job responsibilities.
We reviewed various reports and interviewed headquarters and field personnel in the SB/SE Division. We did not perform substantive testing of Internal Revenue Service (IRS) actions, such as a detailed review of personnel actions, nor did we perform an in-depth review of individual delegation orders.
This review was conducted at the SB/SE Division Headquarters in Washington, DC, and at the SB/SE Divisionís Compliance Area 1, 4 and 10 Offices from October 2000 through January 2001. The review was conducted in accordance with the Presidentís Council on Integrity and Efficiencyís Quality Standards for Inspections.
Major contributors to this report are listed in Appendix I. Appendix II contains the Report Distribution List.
As part of the implementation of the IRSí modernization blueprint during calendar year 2000, work and responsibilities were realigned into the IRSí new divisions, which included the SB/SE Division. Full implementation of all aspects of the new divisions is a multi-year effort supported by multiple transition teams and detailed work plans. The work plans cover both the stand-down process and implementation of the new structure, including management and information system processes.
The SB/SE Division took comprehensive steps to help ensure the implementation of a number of its management processes, such as the delegation of authority for administrative and compliance actions. However, there are two areas which SB/SE Division management needs to continue to address. First, many letters and forms sent to taxpayers include references to outdated IRS organizational components. Second, Collection and Examination function management information is not readily available to second level managers and executives in the field Compliance function.
Management Developed a Process for Division Delegation Orders and Ensured Employees Have System Access
The IRS is still addressing IRS-wide Delegation Order issues identified during a previous review of the SB/SE Divisionís stand-up process. SB/SE Division management has developed a comprehensive process to help ensure that the authority for administrative and compliance actions is formally delegated to the proper level by establishing Division Delegation Orders.
Division Delegation Orders redelegate authority from IRS-wide Delegation Orders to a lower organizational level for more efficient operations. IRS-wide Delegation Orders typically delegate authority to the SB/SE Division Commissioner or Area Directors only.
In addition, SB/SE Division front-line employees (revenue officers and revenue agents) have access to the systems they need to perform their job responsibilities of collecting delinquent taxes and examining tax returns. Finally, our review of selected SB/SE Division Compliance field offices did not identify any indicators of problems related to the processing of personnel actions.
Additional Actions Are Needed to Ensure Correspondence Sent to Taxpayers Does Not Include Outdated Organizational Information
Many letters and publications routinely used by SB/SE Division Compliance field offices in the course of daily contact with taxpayers still contain outdated IRS office titles and organizational component names. We reviewed nine routinely used letters and identified obsolete information in seven of the letters prepared by one or more of the five territory offices we sampled. For example, obsolete information included numerous references to District Directors.
Compliance field managers informed us that letters were generally corrected by covering errors with whiteout or by simply crossing out the outdated information and writing in the new information in ink. Some offices updated the office and organizational titles in outdated letters by developing their own local automated templates. These stopgap methods significantly increase the likelihood that correspondence with incorrect IRS organizational and functional information will be sent to taxpayers. Further, manually correcting forms and letters uses scarce Compliance resources and gives an unprofessional appearance.
Additionally, IRS Publication 556, Examination of Returns, Appeal Rights, and Claims for Refund, which assists taxpayers in understanding the examination process, and Publication 1035, Extending the Assessment Period, which explains tax assessment extensions, both contain a variety of references to obsolete IRS organizational information. Such references could be confusing to taxpayers attempting to understand the examination process.
During the course of our fieldwork, IRS officials informed us that a task group has been formed to address these problems. We provided the task group with detailed information regarding the letters and publications we identified which contained obsolete references.
Continued Emphasis Is Needed to Ensure Management Information Is Readily Available
Continued emphasis is needed to ensure Collection and Examination function management information is readily accessible to second level managers and executives in the field Compliance function. Current IRS management information systems such as the Integrated Collection System (ICS) and the Audit Information Management System (AIMS) will not fully reflect the new organization structure until at least early calendar year 2002. Consequently, Area and Territory managers could not readily obtain complete management information to review the results of work performed in their geographic areas without interim programming changes. For example, Area Office 10 includes the states of Texas and Oklahoma. Therefore, to monitor the program, the Area Director has to obtain separate reports for the old North Texas, South Texas, Houston and Oklahoma/Arkansas District offices.
In order to resolve this problem, in February 2001 the IRS completed programming changes in both the ICS and AIMS systems to realign data into the new Area/ Territory format. These changes were ongoing during our fieldwork, therefore, we were unable to test the success of the effort. IRS officials informed us that they expect Compliance Area/Territory summary level management information to be fully reliable beginning in March 2001.
Territory and Area managers will face several challenges in attempting to use this information to make program decisions. First, there is no baseline data to compare with new information generated during the course of the year, because fully reliable management information was not available at stand-up and there is no readily comparable prior yearsí data. Second, to effectively use the new data, managers will require training to be proficient in two distinctly different systems. In the previous organizational structure, managers used one system or the other, but not both, depending on their assigned area of responsibility (i.e., the Collection function or the Examination function). Four of the five Territory managers we interviewed stated that they were unfamiliar with a least one of the two systems.
Although the IRS has taken comprehensive steps to ensure implementation of a number of its management processes, SB/SE Division management needs to ensure: (1) letters and forms sent to taxpayers do not include confusing references to outdated IRS organizational components, and (2) Collection and Examination summary level management information is readily available to second level managers and executives in the field Compliance function.
Major Contributors to This Report
Gordon C. Milbourn III, Associate Inspector General for Audit (Small Business and Corporate Programs)
Parker Pearson, Director
Gary Swilley, Audit Manager
Anthony Choma, Senior Auditor
Philip Smith, Senior Auditor
Don Evans, Auditor
Rita Woody, Auditor
Report Distribution List
Deputy Commissioner N:DC
Director, Compliance S:C
Director, Compliance Area 1 S:C
Director, Compliance Area 4 S:C
Director, Compliance Area 10 S:C
Chief Counsel CC
Director, Legislative Affairs CL:LA
Office of Management Controls N:CFO:F:M
Director, Office of Program Evaluation and Risk Analysis N:ADC:R:O
National Taxpayer Advocate TA
Small Business/Self-Employed Division S