Management Advisory Report: Significant Efforts Have Been Made to Address the Large and Mid-Size Business Divisionís Human Capital Concerns, but a Formal Workforce Planning Model Has Not Been Developed
Reference Number: 2001-30-137
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.
August 20, 2001
MEMORANDUM FOR COMMISSIONER, LARGE AND MID-SIZE BUSINESS DIVISION
FROM: Pamela J. Gardiner /s/ Pamela J. Gardiner
Deputy Inspector General for Audit
SUBJECT: Final Management Advisory Report - Significant Efforts Have Been Made to Address the Large and Mid-Size Business Divisionís Human Capital Concerns, but a Formal Workforce Planning Model Has Not Been Developed
This report presents the results of our review of whether the Internal Revenue Serviceís (IRS) Large and Mid-Size Business (LMSB) Divisionís strategy to retain, recruit, and train employees sufficiently manages its customer service and compliance risks. In summary, the LMSB Division has implemented several programs that will assist in strengthening its human capital. However, it could enhance its position by coordinating with Strategic Human Resources (SHR) in implementing an IRS-wide workforce planning model under executive leadership.
In commenting on a draft of the report, the Commissioner, LMSB Division, agreed that the Division needs a comprehensive workforce planning model. However, the Commissioner is concerned about the identification of workforce planning deficiencies for the LMSB Division alone. He maintained that these deficiencies exist as corporate deficiencies for the IRS as a whole, and that SHR has developed models, processes, and a methodology to address these deficiencies, which will be rolled out to the business units. The Division will implement SHRís proposals, develop LMSB-specific actions, and take action to strengthen the oversight of human capital matters. We have incorporated the comments into the report where appropriate, and the complete response to the draft report is included as an appendix.
Copies of this report are also being sent to IRS officials who are affected by the recommendations. Please contact me at (202) 622-6510 if you have questions or Gordon C. Milbourn III, Assistant Inspector General for Audit (Small Business and Corporate Programs) at (202) 622-3837.
Objective and Scope
The objective of this review was to determine whether the Large and Mid-Size Business (LMSB) Divisionís strategy to retain, recruit, and train employees sufficiently manages its customer service and compliance risks.
To assess the Divisionís management of human capital, we:
We conducted the review at LMSB Division Headquarters in Washington, DC. The review was performed in accordance with the Presidentís Council on Integrity and Efficiencyís Quality Standards for Inspections from October 2000 through April 2001.
Major contributors to this report are listed in Appendix I. Appendix II contains the Report Distribution List.
Many Federal departments and agencies are moving towards becoming results-based organizations. Leading results-based organizations understand that effectively managing their employees is essential to achieving results. Human capital planning must be an integral part of an organizationís strategic and program planning.
The General Accounting Office (GAO) considers strategic human capital management as a high-risk area for the government, and the Presidentís Fiscal Year (FY) 2001 budget has added human capital to its list of Priority Management Objectives. Inadequate attention to strategic human capital management has created a government-wide risk of eroding the capacity of some agencies to economically, efficiently, and effectively perform their missions.
The Internal Revenue Serviceís (IRS) reorganization during FY 2000 created four business divisions. The LMSB Division serves approximately 224,000 corpora-tions and partnerships that have the most complex tax issues. When the LMSB Division was created, many employees experienced in complex tax issues were assigned to the Division. Within 5 years, around 4,800 (67 percent) of the Divisionís approximately 7,200 employees will be eligible to retire.
The LMSB Division has identified the recruiting, retaining, and training of a highly skilled workforce as one of its strategic initiatives in its FY 2001 Annual Business Plan. The LMSB Divisionís Office of Performance, Quality, and Innovation has taken a number of positive actions that will assist in strengthening human capital. For example:
We identified two areas that require additional attention: developing a workforce planning model and designating executive leadership for the Strategic Human Capital process.
A Workforce Planning Model Needs to be Developed
In February 2001, the LMSB Divisionís Office of Strategy, Research, and Program Planning completed a Compliance Workplan and Workload Study to enhance workload identification in the Division. This study provided a guideline to determine where its current and future workload of cases would be located. While a step in the right direction, the study did not: (1) identify the competencies which staff members currently possess, (2) identify the competencies needed to achieve current and future goals, and (3) assess the gaps between these two sets of competencies. Further, current recruiting efforts in the Division are not strategically based, and hiring practices are focused on filling vacancies remaining from the prior organizational structure.
Workforce planning should be done concurrently with the development of an organizationís strategic plan. Workforce planning allows management to make more informed decisions regarding long-term investments. Information is provided to determine the right combinations and amounts of training, recruiting, and worklife programs needed to build the workforce to accomplish program goals and objectives.
Workforce planning ensures that the organization has the human resources it needs to accomplish its mission. The organization must assess the content of future work and the kind of workforce required to perform it. It is especially important to track changes and identify factors which may change the agencyís mission or program priorities. All of these results are then compared to the characteristics of the current workforce and gaps are identified. These gaps form the basis for identifying strategies and actions to prepare the workforce to meet future needs.
Workforce planning is a continuous process. While the LMSB Division does not have a human resource management system (HRMS) with which to monitor this process, there is a Treasury-wide initiative to provide for an HRMS. The IRSí Agency-Wide Shared Services will begin the pilot implementation of HR Connect. HR Connect is a Treasury-wide initiative and refers to the Peoplesoft Human Resources Management System. The primary function of HR Connect is the automation of various personnel and human resources-related processes. It will also provide tools for performance management, succession planning, and career planning, and will allow the IRSí business divisions to access their inventory of employee skills and plan for future needs.
The Division did not establish a workforce planning model in part because of the significant challenges in managing the organizational stand-up in FY 2000. Management concentrated its human capital efforts on developing processes rather than an overall strategy. Additionally, Strategic Human Resources (SHR) officials are developing an IRS-wide workforce planning model, which they expect to present to the IRSí Commissioner in July 2001. This model identifies the core and technical competencies of positions within the IRS.
Without effective workforce planning, the LMSB Division may be vulnerable to risks in addressing present and anticipated workforce issues. The Division may not be able to identify the competencies and skills needed in the workforce to meet its organizational mission and goals. The continuing attrition of the Divisionís experienced employees erodes its ability to provide customer service and take effective compliance actions. This affects the IRSí ability to provide service to all taxpayers in all respects of tax administration.
The Commissioner, LMSB Division, should:
Managementís Response: The Compliance Workplan and Workload Study was a major step in defining the LMSB Divisionís workload. The Division is working with this data to identify locations that need additional staffing. This data and the HRMS will be used to promote more effective human capital management in the future. Additionally, the SHR is working at the corporate level to address these deficiencies for the IRS. The Division will implement the SHRís models, processes and guidance, and will also develop LMSB Division-specific actions.
An Executive Should Lead the Workforce Planning Effort
According to best practices in various Federal agencies, a systematic approach to workforce planning can facilitate more efficient and accurate alignment of the workforce to meet its organizational goals, commitments, and priorities. Among these best practices, top leadership commitment is the single greatest determinant of the success or failure of a workforce planning program. Additionally, the GAO has defined senior leadershipís support as essential to becoming a high-performance organization.
A responsible executive should lead the workforce planning process. However, because elements of the initiative were divided among several functions within the Division, no single LMSB Division executive was placed in charge and given overall responsibility for the results of the Divisionís workforce initiative. The head of an organization and the leadership team are the only ones who can draw the critical linkages among the direction of an organization, a process that produces the next generation of workers, and the priority to develop new employees to produce future results.
The Commissioner, LMSB Division, should:
Managementís Response: The Commissioner, LMSB Division, did not agree to fully implement this recommendation. As an alternative, the LMSB Division could designate a sole responsible executive to oversee workforce planning. Another solution the Division proposed is to improve the communication between the Deputy Director, Strategy, Research and Program Planning, and the Director, Management and Finance, who both play important roles in the effective management of human capital. The Director, Management and Finance, has been designated as the primary contact for human capital matters.
The LMSB Division is facing a maturing workforce whose attrition could deplete the skill and knowledge base. While the Division has begun to implement processes to maintain its skilled workforce, it does not have a formal workforce planning strategy. A workforce planning strategy allows an organization to develop plans to address its identified future needs and continue to achieve its organizational goals and objectives. Only when the right employees are on board and are provided the training, tools, structures, incentives, and accountability to work effectively is organizational success possible.
Major Contributors to This Report
Gordon Milbourn III, Assistant Inspector General for Audit (Small Business and Corporate Programs)
Philip Shropshire, Director
Richard Hayes, Audit Manager
Donna Saranchak, Senior Auditor
Carole Connolly, Auditor
Ben Hawkins, Auditor
Report Distribution List
Deputy Commissioner N:DC
Chief Counsel CC
Director, Strategic Human Resources N:ADC:H
Director, Communications and Liaison, Large and Mid-Size Business Division LM:CL
Director, Management and Finance, Large and Mid-Size Business Division LM:M
Director, Performance, Quality and Innovation, Large and Mid-Size Business Division LM:Q
Director, Strategy, Research and Program Planning, Large and Mid-Size Business Division LM:SR
Director, Legislative Affairs CL:LA
Director, Office of Program Evaluation and Risk Analysis N:ADC:R:O
National Taxpayer Advocate TA
Office of Management Controls N:CFO:F:M
Commissioner, Large and Mid-Size Business Division LM
Director, Strategic Human Resources N:ADC:H
Managementís Response to the Draft Report
The response was removed due to its size. To see the complete response, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.