Management Advisory Report:
The Criminal Investigation Function Needs to Monitor the Lead
Development Centers to Minimize the Risks Associated with the Accelerated
Rollout
February 2002
Reference Number:
2002-10-052
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.
February
15, 2002
MEMORANDUM FOR
CHIEF, CRIMINAL INVESTIGATION
FROM: Pamela J. Gardiner /s/ Pamela J. Gardiner
Deputy Inspector General for
Audit
SUBJECT: Final Management Advisory Report - The
Criminal Investigation Function Needs to Monitor the Lead Development Centers
to Minimize the Risks Associated with the Accelerated Rollout (Audit #
200110028)
This
report presents the results of our review of the Criminal Investigation (CI)
function’s nationwide implementation of the Lead Development Centers
(LDC). The overall objective of this
review was to identify the risks associated with the accelerated nationwide
rollout.
In
summary, we found that the CI function planned to complete a formal pilot phase
before nationwide implementation of the LDC initiative. However, the CI executives decided to
accelerate the rollout to improve their ability to properly refocus resources
to investigate legal source tax crimes and because funding became
available. The CI function may be at
risk of not meeting its planned objective for this new initiative since the
necessary research tools were not in place and staffing levels were not
validated prior to nationwide implementation.
Management’s
Response: The CI function agreed to the
recommendations presented in this report and plans to obtain the necessary
research tools, as well as conduct a study of the operational LDCs to determine
the proper staffing levels and resource allocation.
Management’s complete response to the draft report is included as Appendix IV.
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.
Criminal Investigation’s Efforts to Implement the Lead
Development Centers Need to Be Monitored
Appendix I – Detailed Objective, Scope, and Methodology
Appendix II – Major Contributors to This Report
Appendix III – Report Distribution List
Appendix IV – Management’s Response to the Draft Report
The Lead Development Center (LDC) is an innovative concept initiated by the Criminal Investigation (CI) organization to improve its ability to refocus resources into legal source tax-related areas. The LDC represents a significant investment in the reengineering of the current case development process to ensure that leads referred for criminal investigation meet the criteria and goals established in the CI Strategy and Program Plan (SPP). The CI function’s commitment is consistent with the Webster Report recommendation to shift resources from narcotics and other illegal source income to tax crimes related to legitimate business activity.
The LDC acts as a quality control for information items provided by special agents, Operating Divisions (ODs), Fraud Detection Centers (FDCs), and all other sources. The main role of the LDC is to have investigative analysts research sophisticated databases to timely develop high quality leads and assign Primary Investigations. The LDC also assists the field offices in meeting the operational criteria and goals of the Annual Compliance Guidance and advises Headquarters Planning and Strategy of trends and deviations in program and geographic areas. In addition, the LDC serves as a conduit for referring all leads with potential civil violations to the ODs.
As part of restructuring the IRS, the Commissioner approved the establishment of the LDC concept as part of the CI function’s redesigned infrastructure. The modernization design team recommended that CI roll out the initial LDC as a 1-year pilot in the Baltimore Field Office beginning October 2000. The purpose of the pilot was to determine the optimal organizational structure and site locations, evaluate automated data processing capabilities and needs, refine procedures and protocols, and validate workload requirements. However, in December 2000, the Chief, CI, decided to accelerate the rollout of the LDCs. The LDC Executive Steering Committee authorized Fiscal Year (FY) 2001 funding to be used and established key priorities for the nationwide implementation of the LDC initiative.
The LDC Task Force, responsible for overseeing the pilot and subsequent implementation of the LDCs, originally proposed one LDC be established in each of the six CI geographic areas by October 2001. The CI function now plans to have all 12 LDCs operational by January 2002.
A prior Treasury Inspector General for Tax Administration review identified the LDC as a potential area of concern because of its significant impact on the CI function’s primary mission. As a result, we added this assignment to our FY 2001 audit cycle. To accomplish our objective, we reviewed available documentation and interviewed the Director of Field Operations for the Mid-Atlantic Area; the Baltimore LDC managerial staff; and the Chief of the Business Systems Planning Section, Office of Strategy. Audit work was performed from April to August 2001 and was conducted in accordance with the President’s Council on Integrity and Efficiency’s Quality Standards for Inspections. Detailed information on our objective, scope, and methodology is presented in Appendix I. Major contributors to the report are listed in Appendix II.
The CI function planned to complete a formal pilot phase before nationwide implementation of the LDC initiative. However, the CI executives decided to accelerate the nationwide rollout to improve their ability to properly refocus resources to investigate legal source tax crimes and because funding became available. The CI function may be at risk of not meeting its planned objective for this new initiative since the necessary research tools were not in place and staffing levels were not validated prior to the nationwide implementation of the LDCs.
Currently, the LDCs do not have sufficient research tools to accomplish the overall objective of providing the highest quality leads for legal source tax investigations. The LDC concept uses integrated databases to ensure promising fraud referrals and information items are researched in the most efficient manner. Consequently, the success of the LDCs is dependent upon fast, reliable access to quality information systems and taxpayer records. If the LDCs are to function as envisioned, the CI function will need to acquire the law enforcement-enhanced Choice Point commercial database and will need access through the CI networked computers to the Integrated Data Retrieval System (IDRS) and the Electronic Fraud Detection System (EFDS). In addition, the CI function requires faster internet connectivity to enhance researching capabilities.
The law enforcement-enhanced Choice Point commercial database searches all three major credit bureaus and links with other sources for additional data to obtain in-depth financial investigative information. The CI function’s Business Systems Planning section provided $400,000 to contract with Choice Point for approximately 4 months starting in September 2001. The Director, Business Systems Planning section stated that the CI function did not have sufficient funds to extend the Choice Point contract for the full year. It is essential that the Choice Point’s law enforcement component be available for the LDCs to maximize their research capabilities. In addition, the CI function should ensure future funding is available to extend the contract to timely and adequately service each of the LDCs.
Current security policy prohibits IDRS access through computers with internet connectivity. The IDRS is the primary source of taxpayer information for the investigative analysts and is used to develop every lead received by the LDC. Without direct access to the IDRS from CI networked computers, the investigative analysts must share the limited number of dedicated terminals in the various locations. This practice is time-consuming and could jeopardize time frames established to process fraud referrals from the ODs and to provide service to the Special Agent-in-Charge offices. The Business Systems Planning section determined that there is a software package that disconnects the internet and electronic mail when the IDRS is accessed. However, we were advised that competing priorities have delayed the CI function from pursuing the issue.
The CI management is aware that effective case management, as well as an invigorated fraud referral program, are crucial to accomplishing its tax enforcement mission. The EFDS is a vital tool for lead identification and case development. The CI personnel in the FDCs exclusively use the EFDS database to detect potentially fraudulent electronically filed tax returns. The Modernization Information Technology Services (MITS), however, currently maintains and administers the EFDS. The Director, Business Systems planning section advised us that the CI and MITS functions tentatively resolved conflicting administration and security concerns. The MITS function agreed to allow direct access to the EFDS from CI networked computers. The CI and MITS functions drafted a Memorandum of Understanding (MOU) to transfer total information technology responsibility to the CI function for the EFDS. However, the CI and MITS functions still need to finalize the MOU and develop a plan to transfer the necessary terminals.
The LDCs also need internet access to research and develop quality leads. According to the CI officials, it is using the Treasury firewall, which is slow because of the tremendous amount of traffic on the system. Because the LDCs require extensive internet research, it would be advantageous for the CI function to make appropriate arrangements for its own firewall, thereby increasing the efficiency of its internet searches.
Although the CI function is currently working to address these electronic research problems, the final resolution of these issues is essential to ensure that the LDCs have the capability to refer the highest quality leads, in the most efficient manner, to the field offices.
Staffing allocation
The CI executives decided not to conduct an independent workload analysis to validate the number and allocation of the investigative analysts among the 12 LDC sites. Instead, they authorized hiring based upon the modernization design team’s staffing level methodology. Without an independent workload analysis validating the modernization team’s projected workload, the CI function is at risk of not effectively using its limited resources to successfully shift toward legal source tax investigations.
One of the most important objectives of the LDC pilot was to validate the staffing levels of the investigative analysts that were developed during the modernization effort. Since historical data were unavailable, the modernization design team interviewed a sample of field and administrative personnel to obtain estimates of the number of leads received and the time spent developing the leads. We determined that the CI function relied on these estimates and available 1997 staffing level data to estimate the future number of potential leads.
Based on this information, the CI executives approved accelerated hiring for all of the positions at each of the 12 LDC sites. These 12 sites require an additional 132 positions, which include 12 Special Agent managers, 12 supervisory analysts, 12 computer support assistants, and 96 investigative analysts.
We believe current workload requirements may differ in the new infrastructure and may not support the authorized staffing composition for the LDCs that were developed prior to the reorganization. Although the formal pilot objective was not completed, the LDC Task Force did track, on a monthly basis, the number and source of the leads for each of the field offices in the Baltimore LDC service area. This information could be used to assist in validating workload requirements.
To ensure that the LDC accomplishes its objective to refer the highest quality leads for criminal investigation, we recommend:
1. The CI function allocate sufficient funds in its FY 2002 budget to provide for the law enforcement enhanced Choice Point commercial software for the LDCs to conduct essential electronic searches.
Management’s Response: The CI function covered the $1.3 million cost of the Choice Point software until November 2002. The CI function will evaluate the use and value of Choice Point and decide whether to continue using this research tool beyond November 2002.
2. The CI function timely complete the process to procure and install the software that allows for direct access to the IDRS from CI networked computers.
Management’s Response: The CI function agreed to test software (Info Connect) on computer images. After the CI function completes testing this software, the MITS function will conduct a mandatory security review before permitting full implementation.
3. The CI executive management ensure the timely completion of the MOU with the MITS function to improve the ability to increase the inventory of tax-related cases.
Management’s Response: The CI and MITS functions are continuing to research a solution to this business problem. In the interim, the CI and MITS functions are drafting an MOU to allow the CI function to add the EFDS to the CI network. If approved, the CI function will provide the necessary support of the EFDS workstations on the CI network.
4.
The CI function
pursue obtaining a firewall to ensure faster internet access is obtained, which
will allow for the research needed to develop timely and quality leads.
Management’s Response: The cost for the CI function to obtain a separate firewall would
be prohibitive. CI management agreed,
however, to work with the MITS function to resolve the delays in obtaining
information from internet sources. The
CI function will explore alternative solutions, including implementing a
digital service line and using off-network computers with an internet service
provider. In addition, the CI National
Office LDC analyst will ensure all the LDCs are aware of any new solutions.
Office of Audit Comment: As discussed in response to earlier recommendations, the CI function should continue to work with the MITS function to ensure that adequate security measures are implemented for any solutions to the access issues.
5. The LDC Task Force conduct a workload analysis to
ensure LDC staffing levels support resource allocations and workload models.
Management’s Response: The CI Executives agreed to conduct a study of the operational LDCs to determine the proper staffing levels and resource allocation.
Appendix I
Detailed Objective, Scope, and Methodology
The overall objective of this review was to identify the risks associated with the accelerated nationwide implementation of the Lead Development Center (LDC) initiative. Specifically, our objective was to evaluate the feasibility of accelerating the nationwide implementation of the LDCs. In particular, we evaluated the progress and status of the LDC pilot. We also determined whether the planned LDC rollout reflected current workload projections. Our scope of review did not include evaluating the effectiveness of the LDCs. To accomplish these sub-objectives, we conducted the following audit tests:
I.
To evaluate the progress and status of the LDC pilot,
we:
A. Reviewed the Criminal Investigation (CI) Strategy and Program Plan and all documentation related to the LDC concept and design, pilot, and implementation plans.
B. Interviewed CI personnel who were responsible for the accelerated nationwide rollout of the LDCs and reviewed available documentation from the LDC Task Force and Executive Steering Committee.
C. Evaluated the status of major tasks and related issues included in the Baltimore Pilot project plan.
D. Identified incomplete tasks, unresolved problems, and ineffective processes that may have adversely affected the overall success of the accelerated nationwide rollout of the LDCs.
II. To determine whether the planned LDC rollout reflected current workload projections, we:
A. Evaluated the methodology used to validate the location and number of the additional LDCs.
B. Evaluated the methodology used to validate the size and staffing composition for the additional LDCs.
Appendix II
Major Contributors to This Report
Dan Devlin, Assistant Inspector General for
Audit (Headquarters Operations and Exempt Organization Programs)
Joseph W. Edwards, Director
John R. Wright, Director
Daniel R. Cappiello, Audit Manager
Richard J. Viscusi, Acting Audit Manager
Rosemarie M. Maribello, Senior Auditor
Carole Connolly, Senior Auditor
Appendix III
Commissioner N:C
Deputy Chief, Criminal Investigation CI
Director, Strategy
CI:S
Chief Counsel CC
National Taxpayer Advocate
TA
Director, Legislative Affairs CL:LA
Director, Office
of Program Evaluation and Risk Analysis
N:ADC:R:O
Office of Management Controls N:CFO:F:M
Director, Office of Security M:S
Audit Liaisons:
Director,
Strategy C:S:PS
Director,
Office of Security M:S:PR
Appendix IV
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.