The Internal Revenue Service Should Continue to Make
Improvements to the Low-Income Taxpayer Clinic Grant Program
November 2001
Reference
Number: 2002-10-024
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.
November 29,
2001
MEMORANDUM FOR
COMMISSIONER, WAGE AND INVESTMENT DIVISION
FROM: Pamela J. Gardiner /s/ Pamela J. Gardiner
Deputy Inspector General for Audit
SUBJECT: Final Audit Report - The Internal Revenue
Service Should Continue to Make Improvements to the Low-Income Taxpayer Clinic
Grant Program (Audit # 200110010)
This
report presents the results of our review of the Low-Income Taxpayer Clinic
(LITC) grant program. The overall
objective of this review was to determine if the Internal Revenue Service (IRS)
has effective processes for awarding and administering grants for LITCs.
In
summary, we found that the IRS has effective
processes for awarding and administering grants for LITCs; however,
improvements could be made to ensure the continued success of the
program. We found that during the
evaluation phases, the IRS did not conduct any independent analyses of either
low-income taxpayers with IRS controversies or English as a second language
populations, did not analyze Single Audit Act reports and use the results, and
did not document the receipt of grant applications. Additionally, the IRS can improve the monitoring of the grant
recipients by performing site visits and analyzing interim and final reports
submitted by the recipients.
Management’s
Response: IRS management agreed that our
recommendations will help ensure the continued success of the LITC program by
strengthening the evaluation and monitoring controls. The Grant Administration Office will use information from
Research and Analysis that identifies low-income taxpayer demographics during
the selection and award process, ensure that required applicants submit Single
Audit reports and use the results in the evaluation process, and has
established a correspondence control system that includes date stamping. Additionally, IRS management has added
additional resources to the grant program.
Management’s complete response to the draft report is included as
Appendix V.
Copies
of this report are also being sent to the IRS managers who are affected by the
report recommendations. Please contact
me at (202) 622-6510 if you have questions or Daniel R. Devlin, Assistant
Inspector General for Audit (Headquarters Operations and Exempt Organizations
Programs), at (202) 622-8500.
Improvements Are Needed in Monitoring Low-Income Tax Clinics
Appendix I – Detailed Objective, Scope, and Methodology
Appendix II – Major Contributors to This Report
Appendix III – Report Distribution List
Appendix IV – Outcome Measures
Appendix V – Management’s Response to the Draft Report
The Internal Revenue Service (IRS)
Restructuring and Reform Act of 1998 (RRA 98) allows the IRS to provide
taxpayer assistance through the use of grants or cooperative agreements. The RRA 98 authorized the IRS, subject to
the availability of authorized funds, to provide up to $6 million annually in
matching funds for the development, expansion, or continuation of qualified
Low-Income Taxpayer Clinics (LITCs).
Each LITC may receive up to $100,000 of the authorized funds per year. These clinics provide legal assistance to low-income
taxpayers having disputes with the IRS and serve to inform individuals that
speak English as a second language (ESL) about their rights and
responsibilities under the Internal Revenue Code.
The IRS Commissioner has stated
that these clinics conform with the IRS’ goal of improving service to
taxpayers. In Fiscal Year (FY) 2000,
the IRS awarded 70 grants, totaling approximately $4.4 million, to LITCs to
assist taxpayers in resolving issues with the law and regulations regarding tax
administration. The IRS expanded the
program in FY 2001 and awarded 102 LITC grants, reaching the $6 million
threshold established by the RRA 98.
This audit was identified in the Treasury Inspector General
for Tax Administration’s (TIGTA) FY 2001 risk assessment process. Also, the Deputy Commissioner requested the
TIGTA’s assistance in reviewing the grant program. In addition to this review, we have initiated a financial review
of the LITCs to determine whether they are properly managing grant funds and
complying with the grant terms. The
results of that review will be presented in a separate report.
During the time of our review, the
Grant Administration Office in New Carrollton, MD, administered the LITC grant
program. In May 2001, control of the
program was moved to the Wage and Investment Business Unit headquarters in
Atlanta, GA, where the IRS plans to administer the LITC grant program in the
future.
The audit work was performed from February 2001 to May 2001 in the Stakeholder Partnership, Education and Communication (SPEC) area, Customer Assistance, Relationships, and Education (CARE) Division of the IRS Wage and Investment Business Unit in New Carrolton, MD. The audit was conducted in accordance with Government Auditing Standards.
Detailed information on our audit objective, scope, and methodology is presented in Appendix I. Major contributors to the report are listed in Appendix II.
After the passage of the RRA 98, the IRS quickly developed effective processes and procedures for awarding the LITC grants. The evaluation criteria and ranking are reasonable and objective and are consistently applied to all applicants. Applicants are evaluated and ranked based on the quality of programs offered to assist low-income and ESL taxpayers. In addition to the quality of programs offered to low-income and ESL taxpayers, applicants are also evaluated and ranked on their experience in sponsoring an LITC, the quality of their grant administration and internal accounting procedures, and the number of low-income and ESL taxpayers in the geographical area.
While the evaluation process effectively awards grants to qualified applicants, we believe additional improvements can be made to ensure the continued success of the program. Specifically, the Grant Administration Office should consider:
· Conducting demographic analyses of low-income taxpayers with IRS controversies and ESL populations.
· Analyzing Single Audit Act reports during the evaluation of grant applicants.
· Documenting receipt of grant applications.
Implementing each of these improvements will enhance the award process and make the program more successful.
Conducting demographic
analyses of low-income taxpayers with IRS controversies and ESL populations
The IRS does not conduct any independent analyses of demographics to determine which areas of the country have high populations of low-income taxpayers with IRS controversies and/or ESL taxpayers. Because the Grant Administration Office does not have the resources dedicated to performing this type of research and analysis, it attempts to award LITC grants to major metropolitan areas to reach these populations.
The RRA 98 stipulates that the number of taxpayers who will be served by the clinic, including the number of taxpayers in the area for whom English is a second language, will be considered in determining who receives a grant award. The IRS grant application and guidelines require the applicant to provide this information. During the evaluation process, the evaluation panel uses the demographics statistics provided in the application to rank the packages. However, the IRS does not independently verify this information to ensure it is accurate and complete.
During its first year of operation in FY 1999, the Grant Administration Office awarded grants in 7 of the 18 states (including the District of Columbia) where 15 percent or more of the population consisted of low-income taxpayers and/or taxpayers that spoke English as a second language, according to the most recently published Census Bureau statistics. As depicted in the map below, in FY 2001 the IRS awarded grants in 15 of the 16 states meeting our 15 percent criteria.
The map was removed due to its size. To see the map, please go to the Adobe PDF
version of the report on the TIGTA Public Web Page.
Although the IRS awarded grants in 15 of the 16 states meeting the 15 program. We also believe publicizing the program and performing outreach to under-served areas identified from the analyses would assist the IRS in providing better customer service to taxpayers and make the LITC grant program even more successful. These analyses should take advantage of updated data from the 2000 census when available.
Analyzing Single Audit
Act reports during the evaluation of grant applicants
The IRS needs to receive and analyze these audit reports to determine whether any problems were identified, how they affected the internal controls around the management of federal funds, and what corrective action is being taken. We believe it is important that these audit reports be available during the evaluation and award phase to ensure the best applicants are selected for the LITC grant.
The IRS does not have a process in place to date stamp and/or log in application packages and, therefore, did not document the date each application was received. The former program manager did not believe it was necessary to date stamp the applications. Additionally, the policy was that all applications would be considered for a grant award as long as they were received before the evaluation panel convened. However, without date stamping or logging in each application, there is no assurance that all applicants are treated fairly during the evaluation process.
The IRS 2001 grant application package and guidelines stipulated that applications had to be received by the LITC program office no later than 4:00 p.m. local prevailing time on September 25, 2000. The package provided a mailing address and a courier/hand delivery address.
The IRS received 143 applications for the 2001 grant period. Fifteen of these were eliminated during the eligibility screening process because they did not meet the basic requirements for the grant. The others went through a technical evaluation in which they were numerically ranked based on criteria listed in the application package. The IRS selected applicants based on their technical evaluation score, the geographic location of the clinic, and the number of taxpayers who will be served.
We identified one application that was dated after the
established due date. This application
was evaluated with all the other applications received by the IRS. Additionally, the applicant was awarded a
grant, even though its application package was received late. A process of date stamping and/or logging in
of applications should be established and the due date should be upheld by the
program office to promote timely submission of all grant applications. While there was only one application
received late and awarded a grant, the IRS needs to have controls in place to
enhance the integrity of the evaluation and selection process.
1. The Director, CARE, in conjunction with the Wage and Investment research function, should conduct demographics research and perform analyses to determine which areas have a high population of low-income taxpayers with IRS controversies and/or ESL taxpayers. The results of these analyses should be provided to the evaluation panel for use when ranking application packages on demographic information.
Management’s Response: The Grant Administration Office completed the evaluative process of the 2002 LITC grant program applicants on October 15, 2001. It will use information from Research and Analysis that identifies low-income taxpayer demographics during the selection and award process of these applicants.
2.
The Director, CARE, should ensure
that applicable Single Audit Reports are received so that results can be
analyzed to determine if any issues exist regarding the management of federal
funds and/or the internal control structure.
Any issues identified and/or corrective actions taken should be
considered during the evaluation process.
Management’s
Response:
The Grant Administration Office will take steps to ensure that required
applicants submit audit reports in accordance with the Single Audit Act as
described in OMB Circular A-133. The
Grant Administration Office will also ensure the Procurement function analyzes
these reports; the Grant Administration Office will use the results in the
evaluation process.
3.
The Director, CARE,
should ensure the established due date for applications is adhered to and
consider date stamping or logging in each application as it is received to
ensure only timely applications are evaluated.
Management’s
Response:
The Chief of Grant Administration recognized the need to validate all
incoming correspondence to the business unit and established a correspondence
control system that includes date stamping all incoming correspondence.
The IRS can improve the monitoring of the grant recipients by performing site visits and by analyzing the interim and final reports submitted by the recipients. Without the implementation of an effective monitoring process, the IRS has no assurance that grant funds are being used appropriately and that recipients are complying with the terms and conditions of the grant.
The number of grant recipients in the LITC grant program and the total funds awarded has increased each year since the inception of the program. Currently, the LITC grant program has 102 grant recipients, up from 34 in 1999. Additionally, funding has increased from approximately $1.5 million in 1999 to $6 million in 2001, the maximum authorized by the RRA 98. The LITCs are lobbying the Congress to increase the funding from $6 million to $15 million, which would also increase the number of recipients in the program and the risk that funds could be inappropriately expended.
The LITC grant program is staffed with a manager and two program analysts. In addition to the routine day-to-day tasks, the staff is responsible for preparing for the evaluation and award for each subsequent year’s grant recipients, conducting pre-award site visits, monitoring and providing guidance to the current year’s recipients, and ensuring that prior years’ recipients submitted all the necessary reports.
The Grant Administration Office is not consistently conducting site visits of the LITC grant program recipients. The site visits are an important aspect in monitoring the recipients. These visits help ensure the recipients are complying with the grant terms, expending the funds properly, and matching the funds appropriately. This year, the Grant Administration Office planned to visit 19 of the 102 grant recipients and used the OMB circulars to prepare a checklist to conduct and document the site visits. These visits were to begin in March 2001; however, because of lack of resources these plans have been put on hold.
Additionally, another method the IRS has to effectively monitor the grant recipients is to analyze the interim and final reports submitted by the recipients. The IRS LITC grant program guidelines require the recipients to submit interim and final financial and program reports. The guidelines stipulate that the financial reports should include a breakdown of LITC expenses; the source, date, availability, and amount of the matching funds; and an itemization and explanation of actual program costs.
The program reports should include an explanation of the strategy used for monitoring and evaluating program results and a description of how success will be measured. The program reports should also include the method of publicity used to promote the program and information regarding the type of representation and other assistance provided to low-income taxpayers and/or taxpayers for whom English is a second language. In addition, the reports should include the types of tax issues; the number of cases closed; and the number of outreach efforts, workshops, and other educational programs being conducted.
Currently, the program office captures the data provided in the reports on the number of taxpayers assisted by the LITCs. However, the program office does not perform any continuous monitoring of the LITCs by analyzing these reports as they are received. These reports should be closely analyzed to ensure that all grant funds have been expended and matched appropriately and that the goals and objectives of the program are being met. Additionally, the program office should analyze the reports to help identify potential issues at the clinics. This will help in determining which clinics to visit to ensure the information provided in the reports is accurate.
The information received by the grant recipients is valuable in determining if the program is meeting the intent of the RRA 98 and meeting the goals and objectives of the grant program. The IRS may need to devote more resources to the LITC grant program to ensure that the program is helping its targeted audience and grant funds are being effectively used.
4.
The Director, CARE, should consider the growth of the LITC grant program and
evaluate the resources necessary to properly monitor and administer the
program.
Management’s Response: The Grant Administration Office proposed changes to the organizational structure for FY 2002. The IRS Implementation Steering Committee approved the proposed change, the addition of one GS-13 Management and Program Analyst, in August 2001. The Grant Administration Office filled the position in October 2001.
Appendix I
Detailed Objective, Scope, and Methodology
The overall objective of this review was to determine if
the Internal Revenue Service (IRS) has effective processes for awarding and
administering grants for Low-Income Taxpayer Clinics (LITCs). To accomplish this objective, we:
I.
Determined if the IRS
properly awarded grants to qualified recipients.
A.
Reviewed applicable Office of
Management and Budget policies and IRS procedures to determine the requirements
for awarding LITC grants.
B.
Selected a judgmental sample
of 35 applications from a population of 143 Fiscal Year (FY) 2001 grant
applications and compared the sample to the acceptance criteria established for
the program. A judgment sample was used
because we did not plan on projecting the results to the universe.
1.
Prepared a sampling plan
outlining the criteria used in selecting the sample of grant applications. The sample included applicants that received
and did not receive awards and applicants that met and did not meet the
acceptance criteria stipulated in the application package.
2.
Determined if the grant
applications were responsive to the announcement.
3.
Assessed if the acceptance
criteria were consistently applied to all grant submissions.
4.
Determined the procedures
followed when applications did not meet the acceptance criteria.
C.
Determined if the evaluation
process used to assess the grant applications ensured award to qualified
recipients.
1.
Assessed the reasonableness
of the evaluation criteria used.
2.
Determined if past
performance was considered when a new grant was awarded.
3.
Reviewed evaluation documents
and determined if evaluators were objective.
4.
Determined if the grant
recipients’ eligibility and capability for managing grant funds were evaluated
prior to award.
5.
Interviewed the evaluators
and determined if they verified the information provided in the grant
application.
D.
Determined whether IRS
employees had the skills and knowledge necessary to award and monitor grants.
II.
Determined if the IRS
accomplished the intent of the IRS Restructuring and Reform Act of 1998 (RRA
98) in selecting the grant recipients for FY 2001.
A.
Determined which areas of the
country are considered low income and/or have a high population of taxpayers
for whom English is a second language.
1.
Analyzed the 1990 Census Bureau reports and data (the
latest available at the time of our review) and determined the areas of the
country with a high population of low-income taxpayers and the areas of the country
with English as a second language taxpayers.
2.
Reviewed IRS reports indicating which areas of the country
have a high population of taxpayers who filed tax returns claiming the Earned
Income Tax Credit.
3.
Assessed documentation analyzed by the IRS evaluation team
in determining which areas of the country had controversies with the IRS.
B.
Determined if the grants awarded for FY 2001 represented
all geographic areas with low-income taxpayers and taxpayers for whom English
is a second language.
C.
Determined if the IRS had a process to evaluate the most
beneficial areas to establish LITCs and solicit grant applications in those
areas.
D.
Determined if there was a process used by the Grant
Administration Office to ensure objectives of the grant program were achieved.
III.
Determined if the IRS is properly administering the LITC
grant program.
A.
Evaluated the process for monitoring the clinics.
1.
Determined the methods used to monitor the clinics and
assessed the frequency and scope of the methods.
2.
Determined if the Grant Administration Office received
status, progress, and closeout reports and the frequency of the submissions and
how the program office verified the accuracy of the report data.
3.
Determined if the results of the monitoring methods were
documented and reviewed the documentation to ensure sufficient coverage.
4.
Determined what actions are taken for problems that were
identified with the clinics.
5.
Determined if the Grant Administration Office reviewed the
clinics’ performance against the terms of the grant agreement.
B.
Determined if the Grant Administration Office receives data
on the number and type of taxpayers represented by the clinics and assesses the
clinics’ effectiveness.
C.
Assessed the process the Grant Administration Office has in
place to ensure the clinics were properly matching funds.
Appendix II
Major Contributors to This Report
Maurice S. Moody, Assistant Inspector General
for Audit (Headquarters Operations and
Exempt Organizations Programs)
John Wright, Director
Debra
Gregory, Audit Manager
Terrey
Haley, Senior Auditor
Melvin
Lindsey, Senior Auditor
Dawn
Smith, Senior Auditor
Chinita
Coates, Auditor
Tom
Dori, Auditor
Appendix III
Commissioner N:C
Director, Customer Assistance, Relationships, and
Education W:CAR
Director, Procurement
A:P
Director, Stakeholder Partnership, Education and
Communication W:CAR:SPEC
Director, Strategy and Finance W:S
Chief Counsel CC
National Taxpayer Advocate
TA
Office of Management Controls N:CFO:F:M
Director, Legislative Affairs CL:LA
Director, Office of Program Evaluation and Risk
Analysis N:ADC:R:O
Audit Liaisons:
Wage and Investment Division W
Procurement A:P
Appendix IV
This appendix presents detailed information on the measurable impact that our recommended corrective actions will have on tax administration. This benefit will be incorporated into our Semiannual Report to the Congress.
Type and Value of Outcome Measure:
· Protection of Resources – Potential; $441,000 of grant funds awarded in 2001 to 6 organizations with findings identified during Single Audit Act reports (see page 2).
Methodology Used to Measure the Reported Benefit:
We reviewed the results of Single Audit Act reports for the 2001 grant recipients that were required to have single audits conducted for their federal programs. We determined how many federal programs each recipient administered. For each recipient, we identified how many federal programs had findings related to internal controls. We identified 6 recipients with findings in their federal programs and calculated the total LITC grant funds awarded to these 6 organizations at $441,000.
Appendix
V