Improvements Are Needed to
Ensure That Employee Plans Return Information Is Timely Received and That
Returns Are Properly Processed and Adequately Safeguarded
June 2002
Reference Number: 2002-10-098
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.
June 21, 2002
MEMORANDUM FOR COMMISSIONER, TAX EXEMPT AND GOVERNMENT ENTITIES DIVISION
FROM: Pamela J. Gardiner /s/ Pamela J. Gardiner
Deputy Inspector General for Audit
SUBJECT: Final Audit Report - Improvements Are Needed to Ensure That Employee Plans Return Information Is Timely Received and That Returns Are Properly Processed and Adequately Safeguarded (Audit # 200110012)
This report presents the results of our review of the centralization and processing of the Annual Return/Report of Employee Benefit Plan (Form 5500) returns. The overall objective of the review was to determine whether the Tax Exempt and Government Entities (TE/GE) Division effectively planned for and monitored the change in processing Employee Plans (EP) returns. In August 2000, the Department of Labor (DOL) started processing these returns, which had previously been processed by the Internal Revenue Service (IRS). The IRS relies on the EP return information to conduct examinations to determine whether employers and other plan sponsors are complying with the law.
In summary, we found that the IRS effectively planned for the centralization of processing the Form 5500 returns that needed additional action before they could post to the IRS’ system prior to the July 1, 2001, implementation date. A transition plan was developed that identified the tasks to be completed and outlined the responsibilities of transition team members from the various IRS business units.
However, the IRS’ efforts to monitor the implementation of the change in processing Form 5500 returns can be improved. For example, the DOL contractor experienced significant delays in processing Form 5500 returns in the first year of the contract and was at risk of not timely processing all of the returns. The IRS could have taken a more active role to determine the actual cause of the processing delays. In addition, the IRS still does not have access to the imaged Form 5500 returns, which is needed to correct error conditions and verify taxpayer information before corresponding with the taxpayer.
Moreover, the IRS has no assurance that existing controls effectively safeguard taxpayer remittances received by the DOL contractor or ensure that these remittances are timely and accurately processed. The IRS could not provide any records of the remittances received from the DOL contractor even though the DOL contractor’s records showed that it had forwarded remittances totaling over $1.8 million. In our limited test of these remittances, we determined that many of the remittances had not posted to the taxpayers’ accounts. Finally, the computer systems used by the DOL contractor to process taxpayer information and by the IRS to view the Form 5500 returns have not been certified as meeting the Department of the Treasury’s standards, which increases the risk of unauthorized use of taxpayer information.
We recommended that the Commissioner,
TE/GE Division, reassess the terms of the interagency agreement with the DOL,
including whether the 2001 and subsequent plan years’ Form 5500 returns would
be timely processed, and determine whether the IRS should consider other
alternatives for processing these returns after the 5-year agreement has
ended. Also, the telecommunication
issues affecting access to the End User Access System should be resolved. In addition,
the TE/GE Division should designate an office or individual to be
responsible for conducting the safeguard reviews of the DOL contractor’s site
and coordinate with the DOL to ensure tax remittances and return information
are properly safeguarded and timely processed.
Furthermore, the IRS accreditation authority and the DOL should
coordinate the certification effort for the computer systems used to process
Form 5500 return information.
Management’s Response: IRS management agreed with our recommendations cited in the report and is taking appropriate corrective action. Since the time of our review, TE/GE Division management has worked closely with the DOL to resolve the start-up problems, and stated that the DOL contractor has made substantial progress on processing returns within the time frames required by the contract. TE/GE Division management will compile an assessment report on the timeliness and completeness of 1999 and 2000 processing and will use this information to forecast the DOL’s ability to timely process Form 5500 returns for 2001 and subsequent years.
The Modernization and Information Technology Service (MITS) is examining how to access the Form 5500 series returns and is determining whether alternative methods other than the End User Access System (EUAS) are appropriate. If EUAS is used, TE/GE Division management has determined the number of users that need access. The TE/GE Division management and the MITS will also coordinate and develop an implementation plan for IRS access to Form 5500 images that specifies the roles and responsibilities including security certification for the selected solution.
TE/GE Division management will work with the IRS’ Office of Disclosure to perform safeguard reviews of the DOL contractor’s site, which will increase assurances that controls are in place to safeguard taxpayer remittances received by the DOL contractor. In addition, the IRS Ogden Campus has agreed to report any discrepancies on transmittals from the DOL contractor to the TE/GE Division so that appropriate follow-up actions can be initiated. Management’s complete response to the draft report is included as Appendix VI.
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.
The Internal Revenue Service Does Not Have Access to the Imaged Form 5500 Returns
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 – Detailed Sampling Plan
Appendix VI – Management’s Response to the Draft Report
The Employee Retirement Income Security Act (ERISA), of 1974, mandates that plan administrators and sponsors of employee benefit plans submit an Annual Return/Report of Employee Benefit Plan (Form 5500) to the Government. The Department of Labor (DOL) and the Internal Revenue Service (IRS) require employers and other plan sponsors, such as labor unions and trade associations, to report information concerning employee benefit and fringe benefit plans on the Form 5500. This information is used by four federal agencies to carry out provisions of ERISA and other statutes applicable to their agencies. The IRS’ Tax Exempt and Government Entities (TE/GE) Employee Plans (EP) Division uses the Form 5500 return information as part of its EP examination program to ensure that employers and other plan sponsors are complying with applicable provisions of the Internal Revenue Code (I.R.C.). If the employee benefit plan is a tax-exempt plan and it does not comply with legal provisions, the IRS can revoke its tax exempt status. The benefit plan becomes taxable and the employer or plan sponsor will be responsible for paying taxes retroactively to the first Form 5500 return filed for that plan.
In September 1996, the Congress recommended that the Pension and Welfare Benefits Administration (PWBA) of the DOL process the Form 5500 returns. In response to this action, the IRS and DOL established an interagency agreement on June 15, 2000, to share the costs of the system. Previously, the IRS was responsible for processing the Form 5500 returns.
In August 2000, a DOL contractor started processing the returns using the Employee Retirement Income Security Act of 1974 Filing Acceptance System (EFAST). The EFAST is designed to electronically image the Forms 5500 and capture the information in a format that is compatible with the Employee Plans Master File (EPMF) maintained by the IRS. The EPMF contains key information from the Form 5500 returns for all benefit plans filed by employers and sponsors. In those instances where information from the EFAST cannot be systemically posted to the EPMF, the IRS must connect to the End User Access System (EUAS) to view, search, and print electronic images of the returns to attempt to correct the return information so it can post to the EPMF.
During the period August 2000 to June 2001, the three IRS service centers that formerly processed the Form 5500 returns worked on correcting the returns that could not post to the EPMF. On July 1, 2001, the TE/GE Division centralized the responsibility for handling these returns that needed additional action to the Customer Account Services function at the Ogden Submission Processing Center (OSPC).
We performed our review at the IRS offices in Ogden, Utah; Washington, D.C.; and Memphis, Tennessee, and at the DOL contractor’s facility in Lawrence, Kansas, between January and September 2001 and in February 2002. The audit was performed 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.
The
IRS effectively planned for the centralization of processing the Form 5500
returns that need additional action before they can post to the EPMF prior to
the July 1, 2001, implementation date.
Examples of the planning efforts included:
Ø
A
transition team that consisted of employees from various IRS business units was
assembled.
Ø
A
transition plan that identified specific tasks to be completed before the
implementation date was developed.
Ø
Team
members were assigned various tasks and responsibilities.
Ø
Bi-weekly
meetings were held to discuss the status of outstanding issues or address new
concerns.
As a result, most of the tasks in the transition plan were completed prior to the July 1, 2001, implementation date. For example:
Ø
The OSPC
hired and initiated training for most of the employees who will be assigned to
work the Form 5500 returns.
Ø
Procedures
were developed for transferring the work to the OSPC.
Ø
Guidelines
for processing the work were revised.
Ø
Computer
programs were updated to generate the work at the new location.
The remaining tasks were not critical to successfully implementing the OSPC site, with the exception of access to the EUAS. Although the transition team timely submitted a Request for Information Services (RIS) to obtain access to the EUAS, the RIS was not completed by the July 1, 2001, implementation date and, as of February 2002, the IRS still did not have access to the system. Further details on this issue are provided later in the report.
The
IRS could have taken additional actions to more timely address the various
start-up problems that occurred when the DOL contractor began processing the
Form 5500 returns. One issue involved
delays by the DOL contractor in processing Form 5500 returns. Had IRS
management taken a more active role to determine the actual cause of the
processing delays rather than attributing the delays solely to start-up
problems experienced with a new system, the cause of the delays may have been
identified sooner.
The
DOL contractor will need to process about 1.2 million returns each year in
order to meet the production rate that is necessary to consistently process its
annual receipts. In order to meet this
requirement, the IRS will need to receive approximately 23,000 returns each
week. However, through December 31,
2001, the IRS had received only an average of
about 14,660.
Start-up delays encountered by the DOL contractor
shortened the actual processing period for the 1999 returns by seven
weeks. As such, the DOL contractor
provided the IRS with only 46 percent of the returns filed for the 1999 plan
year as of June 30, 2001. The DOL contractor increased the
processing rate for the second processing year. Between July 1 and December 31, 2001, the DOL contractor averaged
processing 17,972 returns per week, for a total of 467,280 returns. However, this increase may not be enough to
ensure that IRS receives return information for the approximately 1.2 million
returns that are received by the DOL contractor annually.
One
of the factors contributing to the delays was that the DOL contractor received
a significantly higher volume of handwritten returns than anticipated, which
generally take longer to process.
According to the DOL contractor, about 15 percent of the handwritten
returns processed through June 30, 2001, needed manual correction compared with
less than 2 percent for computer-generated returns.
If
the DOL contractor does not deliver the required services (e.g., does not meet
the deadline of processing all the 1999 and 2000 plan year returns), the DOL
contract stipulates a penalty of $50,000 for non-performance, up to a maximum
of $200,000 in any single option period.
In April 2001, IRS management recognized that the DOL contractor was not
going to timely complete the processing of the 1999 plan year returns, and
allocated additional funds for the DOL contractor to obtain additional
equipment and resources. The IRS paid
over $2.9 million for additional equipment and resources during the first two
years of the contract to address the backlog of returns and to assist the DOL
contractor in improving the timeliness of processing. However, the IRS had no documentation of the expected
improvements that should result from the additional funds. According to the contracting officer
technical representative, the IRS can expect to continue paying the additional
costs in each of the remaining three years of the contract.
Another
issue that the IRS is faced with is that for 147,485 of the 1,140,340 (12.9
percent) Form 5500 returns processed by the DOL contractor for the 1999 and
2000 plan years through December 31, 2001, the IRS did not receive complete
return information. The incomplete
returns are considered “fact of file” records because they contain only basic
tax information, such as the taxpayer’s name, identification number, and date
the return was filed. However, this
basic tax information does not assist the TE/GE Division in its efforts to
assess compliance with the I.R.C.
IRS
management advised us that the large number of “fact of file”
records is primarily attributed to taxpayers who submit returns on the
incorrect form, which cannot be processed by the EFAST system. However, beginning with the 2000 plan year
returns, returns submitted on incorrect forms will be returned to the taxpayer
for correction. This should reduce the
number of “fact of file” records.
When
both the delays in processing and incomplete return information are considered,
the IRS received approximately 72 percent
of return data for the 1999 plan year needed to conduct studies for its
examination program. Without a complete
universe of returns, the IRS does not have reasonable assurance that samples
used to conduct studies for its examination program are appropriately
representative of the population of Form 5500 returns. Also, if the untimely processed Form 5500
returns are not included in the population of returns to examine, the IRS may
not be aware of some potential areas of non-compliance if those returns do not
comply with the law.
1.
The
Commissioner, TE/GE Division, should reassess the terms of the interagency
agreement as soon as practical after June 30, 2002, based on the completeness
and timeliness of the Form 5500 return information provided by the DOL for the
1999 and 2000 plan years. This
assessment should include:
·
Whether the
DOL will be able to timely process the 2001 and subsequent plan years’ returns.
·
Whether
additional engineering changes may be needed and the costs associated with the
changes.
·
What impact
the untimely processing of 1999
and 2000 plan year returns
has had on the EP examination program’s goals.
Management’s Response: TE/GE Division management will compile an assessment report on the timeliness and completeness of 1999 and 2000 processing by October 1, 2003. TE/GE Division management will use this report to forecast the DOL’s ability to timely process Form 5500 returns for 2001 and subsequent years. The assessment report will contain details of any needed engineering changes and associated costs.
2.
Based on
the reassessment, the Commissioner, TE/GE Division, should determine whether
the IRS should consider other alternatives for processing Form 5500 returns
after the 5-year interagency agreement with the DOL has ended.
Management’s Response: TE/GE Division management will determine whether the IRS should consider other alternatives for processing Form 5500 returns after the 5-year interagency agreement with the DOL has ended, based on the assessment report on the timeliness and completeness of processing previous years’ returns.
The interagency agreement with the DOL provides for access to the EUAS. However as of February 2002, TE/GE employees still do not have access to the system because the IRS needs to resolve telecommunication issues associated with transmission of data.
A RIS for the EUAS was signed April 24, 2000, requesting information technology support to address the problems with accessing return information. Since the RIS was prepared, the IRS has had several meetings with the DOL to discuss various issues but little progress has been made in obtaining access.
Because the EUAS is not available, TE/GE employees have to correct error conditions and verify taxpayer entity information without actually viewing the Form 5500 return. Instead, they have to attempt to correct the return information by researching the IRS’ information system. However, this system may not have all the information needed to resolve inconsistencies between the EFAST and the EPMF. As a result, all inconsistencies may not be resolved and all correspondence with taxpayers cannot be verified for accuracy.
In addition to the above, we are concerned that when access to the EUAS becomes available, the number of users allocated to the IRS will not be sufficient to allow employees to perform their duties efficiently. The IRS did not perform an analysis to assess the number of users needing access to the imaged returns. Instead, the IRS and DOL met and arbitrarily arrived at 30 users needing access to the system. The DOL stated that it would be the IRS’ responsibility to pay the costs associated with providing additional access to the EUAS.
The
IRS has 17 sites that will need access to the system and was allocated 30
accounts on the EUAS. However, only 10 IRS users can access
the system simultaneously. The TE/GE
analyst advised us that the OSPC operation alone would need access for about 30
users. In addition, EP examination
employees and employees from Customer Account Services located throughout the
country may need access to the imaged returns.
The
current system is limited to 100 users and the IRS was allocated 30
accounts. Had the IRS performed an
analysis to determine the appropriate number of users, the DOL may have been
able to accommodate the IRS. However,
it would now require a significant enhancement to the existing system to accommodate
the additional IRS users.
3.
The
Commissioner, TE/GE Division, should coordinate with the IRS’ Information
Systems function, the DOL, and the DOL contractor to resolve the
telecommunication issues affecting the access to the EUAS.
Management’s
Response: Modernization and Information
Technology and Security Services (MITS)
will present to the TE/GE Investment Executive Steering Committee a technical
approach to access imaged Forms 5500, which will be consistent with all
applicable telecommunications and security requirements.
4.
The
Commissioner, TE/GE Division, should determine the appropriate number of IRS
users needing access to the EUAS and take actions to obtain access for these
additional users.
Management’s Response: TE/GE Division management has determined the number of users that should access the EUAS. Users will have access once the IRS resolves the technical issues.
At times, taxpayers send unrelated remittances and other
documents to the DOL contractor, when submitting the Forms 5500, instead of
sending them directly to the IRS. The
DOL contractor is required to forward these misdirected remittances and
documents to the Memphis Service Center (MSC) for processing. Records supplied by the DOL contractor
showed that between October 2000 and May 2001, taxpayers sent 1,059
remittances, totaling more than $1.8 million, to the DOL contractor. The DOL contractor informed us they
forwarded these to the IRS for handling.
However, the IRS has no assurance that controls have
been implemented to safeguard taxpayer remittances received by the DOL
contractor or ensure that misdirected remittances are timely and accurately
processed at the MSC. We observed that:
Ø
The IRS could not provide any records of the 1,059 remittances forwarded
by the DOL contractor.
Ø
The TE/GE Division did
not perform any site visitations at the DOL contractor facility to ensure that
taxpayer information was properly safeguarded and that remittances were timely
transmitted to the IRS.
Ø
The TE/GE
Division did not establish controls for processing misdirected remittances
through a Service Level Agreement with the MSC.
Ø
The
Internal Revenue Manual (IRM) does not provide specific guidance for processing
the misdirected remittances received from the DOL contractor.
In
June 2001, we visited the DOL contractor’s facility and observed a warehouse
where approximately 1.2 million Form 5500 returns were stacked from the floor
to the ceiling. The DOL contractor
advised us that over 200,000 of the 1.2 million returns only had the envelopes
sliced opened and were waiting to be processed. These unprocessed returns may have included checks and cash with
the Form 5500 returns.
We
also observed that DOL contractor employees had no restrictions regarding the
possession of personal items within the processing facility. Several employees had purses and other
personal items at their workstations.
In addition, the two employees responsible for opening the mail were
separated from the other employees and managers. Each of these observations represents a control weakness, which
increases the risk of lost or stolen remittances because DOL contractor
employees have the opportunity to take remittances without being detected.
The
IRS is permitted to conduct safeguard reviews by visiting the DOL contractor’s
facility on a regular basis. However,
the IRS did not conduct any reviews because the responsible IRS manager was
unaware of the provision. The
visitations would have provided the IRS with the opportunity to identify
potential control weaknesses and to discuss changes that would ensure the DOL
contractor was adequately protecting remittances and timely transmitting them
to the IRS.
The
IRS is responsible for ensuring that effective cash management practices are
present. This includes ensuring that
all monies are appropriately safeguarded, accurately accounted for, and timely
deposited.
To test whether the misdirected remittances were posted
to taxpayers’ accounts, we selected a random sample of 218 remittances from the
1,059 remittances listed on the DOL contractor’s remittance log as of May 23,
2001. Our review of the 218 remittances
showed that, as of July 11, 2001, only 77 (35 percent) of the remittances had
been posted to taxpayers’ accounts. The IRS
had no records to confirm receipt of the remaining 141 cases. However, IRS managers at the MSC advised us
that some of the remittances received from the DOL contractor may not have been
processed by the IRS because they were made payable to either a private
individual, a private company, or the PWBA.
The IRS processes only those remittances made payable to the IRS or the
Department of the Treasury. Regardless
of who the checks were made payable to, the IRS could not provide any
documentation showing the disposition of remittances that did not post to
taxpayer accounts. As a result, we
could not determine if the IRS had forwarded these remittances to the proper agency
or returned them to the taxpayer.
These cases will be referred to the Treasury Inspector
General for Tax Administration’s Office of Investigation for further action.
The IRS also did not ensure that remittances were timely posted to taxpayer accounts. For the 77 remittances that posted, we identified 43 (56 percent) instances where it took more than 30 days between the dates the DOL contractor indicated the remittances were sent to the IRS and the date the payments posted to the taxpayers’ accounts. As a result of the delays, the IRS generated erroneous delinquency notices to 19 of the 77 taxpayers.
Although the IRS had some delays in posting payments to taxpayers’ accounts, the primary delays occurred because the DOL contractor did not process the remittances immediately upon receipt. If the DOL contractor receives returns prior to the beginning of the new filing period, the envelopes are opened but then held in the DOL contractor’s warehouse until the next processing cycle. If any of these envelopes contained misdirected remittances, the DOL contractor would not know that until it started processing the returns. For example, if the DOL contractor received Plan Year 2000 returns (containing misdirected remittances) in February 2001, the remittances would be held until the DOL contractor started processing the next cycle of returns on July 1, 2001. Delays in transmitting remittances to the IRS increase the risk of theft and increase the burden on taxpayers if the IRS sends delinquency notices and the taxpayer had already paid the tax.
5.
The
Commissioner, TE/GE Division, should designate an office or individual to be
responsible for conducting the safeguard reviews of the DOL contractor’s site.
Management’s Response: TE/GE Division management has consulted with the Director, Office of Disclosure, and will schedule a safeguard review during Fiscal Year 2003.
6.
The Commissioner, TE/GE Division, should coordinate with the
DOL to implement existing processing controls to ensure tax remittances and
return information are timely processed and properly safeguarded by the DOL
contractor. For example, time frames in
which the DOL contractor must send remittances to the IRS should be enforced
and additional controls to protect the physical security of the remittances at
the DOL contractor site should be established.
Management’s Response: The safeguard review will include an evaluation of the physical security of remittances at the DOL contractor site.
7.
The
Commissioner, TE/GE Division, should revise the IRM to include processing guidelines
regarding the receipt of misdirected remittances from the DOL contractor.
Management’s Response: TE/GE Division management has revised the instructions to the 2001 5500 series returns to instruct filers not to submit a remittance with returns. TE/GE Division management has also modified the processing guidelines to ensure proper and timely processing of mail and remittances from the DOL contractor. The IRS Ogden Campus has agreed to report to the TE/GE Division any discrepancies on transmittals from the DOL contractor so TE/GE management can initiate appropriate follow-up actions.
The
DOL contractor’s system used to process the Form 5500 returns is not certified
as meeting the IRS security requirements.
Neither the EFAST system nor the EUAS systems have been certified to
meet the Department of the Treasury’s standards. Such certification is required of all systems processing IRS data
and is the standard that the DOL agreed to in the interagency agreement. Information systems that are not
appropriately certified and accredited increase the risk of unauthorized use of
the taxpayer information maintained on these systems.
An official from the DOL advised us that the EFAST and
EUAS systems were not accredited and certified prior to being placed in service
because the DOL has been focused on the start-up of the DOL contractor
facility. The DOL initially granted the
DOL contractor an interim authority to operate the systems through June 30,
2001. The DOL subsequently extended the
DOL contractor’s authority through August 24, 2001.
Better and more timely communication and coordination
among the TE/GE functional executives, the IRS Certification Program Office,
and the DOL is needed to achieve accreditation and certification of the EFAST
and EUAS systems. For example, in
September 2000, the DOL sent a memorandum to the IRS requesting feedback on 26
security weaknesses identified by the DOL.
Instead of directly addressing each of the 26 issues outlined in the
memorandum or preparing a formal response to the memorandum, the IRS provided
the DOL an e-mail message requesting that the DOL contractor prepare a risk migration
plan. On July 27, 2001, after several
meetings between the IRS and DOL, the IRS advised the DOL that they would pay
additional funds of $413,871 for the DOL contractor to prepare the risk
migration plan, physical security upgrades, and security clearances. This 10-month delay in responding to the DOL
contractor’s September 2000 memorandum extends the time before the two systems
can be certified and continues to put taxpayer information at risk.
8.
The
Commissioner, TE/GE Division, should ensure that the IRS accreditation
authority and the DOL are coordinating the certification effort prior to
submitting certification packages to the Certification Program Office.
Management’s Response: TE/GE Division management and MITS will coordinate and develop an implementation plan for IRS access to Form 5500 images that specifies the roles and responsibilities, including security certification for the selected solution.
Appendix I
Detailed Objective, Scope,
and Methodology
The objective of the review was to determine whether the Tax Exempt and Government Entities (TE/GE) Division effectively planned for and monitored the change in processing Employee Plans (EP) returns. To accomplish our objective, we performed the following audit tests:
I.
Evaluated
the effectiveness of Internal Revenue Service (IRS) management’s oversight to
implement the EP returns processing.
Specifically, we reviewed the EP transition plan for transferring the EP
operations to the Ogden Submission Processing Center (OSPC).
A.
Determined
whether the plan clearly defined the responsibilities of the individuals and
business functions for transferring, implementing, and processing the EP work
at the OSPC.
B.
Determined
whether the Tax Exempt and Government Entities (TE/GE) Division established
service level agreements with other business functions and established methods
to track performance and compliance with these agreements for residual
processing of the EP returns.
C.
Determined
whether management identified and obtained the appropriate resources to timely
implement or timely process the additional work.
D.
Determined
whether management developed alternatives in the event that the OSPC did not
obtain the necessary resources.
E.
Determined
the status of updating the codebooks, Internal Revenue Manuals, training
material, and procedural changes related to the transfer.
F.
Determined
whether operating procedures for implementing the transfer were developed.
G.
Identified
other initiatives planned for additional work at the OSPC and determined
whether these initiatives would affect the residual processing of the EP
returns.
H.
Determined
whether management identified any risks (schedule, technical, operational, and
programmatic) and evaluated the method used to resolve the risks.
II.
Determined
whether system changes were required and whether the changes were completed
timely.
A.
Determined
whether Requests for Information Services were appropriately processed.
B.
Determined
whether the TE/GE Division identified systems and networks requiring security
certification and whether the systems and networks were timely and
appropriately certified/recertified and accredited.
C.
Interviewed
appropriate analysts.
1.
Determined
whether systems and network additions or changes were designed with appropriate
security.
2.
Determined
whether system changes were tracked and recertified.
D.
Interviewed
the IRS Certification Office analyst and identified the certification
requirements and status of systems and networks used by the OSPC for the EP
workload migration.
III.
Evaluated
whether the Department of Labor’s (DOL) processing of the Annual Return/Report
of Employee Benefit Plan (Form 5500) returns affected IRS operations.
A.
Determined
whether the DOL provided the IRS with required data regarding Forms 5500, such
as the entity changes generated by the Employee Retirement Income Security Act
of 1974 Filing Acceptance system (EFAST) used to update the Employee Plans
Masterfile (EPMF) and whether any delays affected the IRS.
B.
Reviewed
the interagency agreement with the DOL and determined whether the TE/GE
Division established methods to track performance and compliance with the
agreement.
C.
Reviewed
the process the OSPC has implemented to ensure that the EFAST weekly
transaction files received from the DOL accurately post to the EPMF.
D.
Contacted
the Memphis Service Center (MSC) and determined whether the DOL processing of
Forms 5500 or the transition to the OSPC had affected the MSC.
E.
Reviewed a
random number sample of 218 remittances sent from the DOL contractor to the MSC
and determined whether the payments posted to the taxpayers account.
Appendix II
Major Contributors to This Report
Daniel R. Devlin, Assistant Inspector General for Audit
(Headquarters Operations and Exempt Organizations Programs)
Nancy A. Nakamura, Director
James V. Westcott, Audit Manager
Edward Gorman, Senior Auditor
Gregory H. Holdeman, Auditor
Carol A. Rowland, Auditor
Una K. Smith, Auditor
Commissioner N:C
Deputy
Commissioner Operations N:D C
Commissioner, Small
Business/Self-Employed Division S
Deputy
Commissioner, Small Business/Self-Employed Division S
Deputy
Commissioner, Tax Exempt and Government Entities Division T
Director, Submission Processing Center, Ogden S:CAS:SP:O
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
Audit Liaison:
Director, Communications and Liaison, Tax
Exempt and Government Entitites
Division T:CL
Appendix IV
This appendix
presents detailed information on the measurable affect that our recommended
corrective actions will have on tax administration. These benefits will be incorporated into our Semiannual Report to
the Congress.
Type and
Value of Outcome Measure:
·
Taxpayer
Privacy and Security - Actual, we estimated that 688 remittances could not be
accounted for (see page 9).
Methodology
Used to Measure the Reported Benefit:
From our
statistical sample of 218 remittances from a population of 1,059 remittances
received by the Department of Labor contractor between October 2000 and May
2001 and forwarded to the IRS, we determined that 64.7 percent (± 4.8 percent)
of the remittances did not post to taxpayers accounts. This figure is calculated based on the
following:
1,059
remittances * (64.7 percent ± 4.8 percent) = the range of 634 and 736 (see
Appendix V).
The mid-point of
the range is 688 (1,059 remittances * 64.7 percent = 688 remittances).
Type and Value
of Outcome Measure:
·
Taxpayer
Burden – Actual, 19 erroneous notices sent to taxpayers (see page 9).
Methodology
Used to Measure the Reported Benefit:
We used the 19
erroneous notices that were sent to taxpayers because the IRS did not timely
post remittances to the taxpayers’ accounts.
Appendix V
Overall Sample Criteria -
|
Type of Sample: |
Attribute |
|---|---|
|
Confidence
Level: |
90% |
|
Desired Precision Rate: |
+/-5% |
|
Expected Rate of Occurrence: |
Not to exceed 50% |
|
Formula Used to |
n = p(1-p)SE/t)**2 + p(1-p)/N: |
Calculating Sampling Error -
|
Where
all numbers are rounded to tenths |
|
|---|---|
|
Confidence
Level: |
90% |
|
Rate of Occurrence: |
64.7% |
|
Sampling Error Rate Calculation: |
________ ______ SE = +-t *(Öp(1-p)/n)*(Ö1-n/N) where: t = confidence level factor =
1.65 |
|
Formula to calculate the upper and lower confidence interval limits: |
where: p = actual error rate = 64.7% SE = actual
precision = ± 4.8% lower limit =
(p-SE) = 59.9% upper limit = (p+SE) = 69.5% |
Appendix VI
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.