Increased Management Attention Is Needed to Ensure the
Success of Future Notice Redesign Efforts
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.
December 14, 2001
MEMORANDUM FOR COMMISSIONER ROSSOTTI
FROM: (for) Pamela J. Gardiner /s/ Michael R.
Phillips
Deputy Inspector General for
Audit
SUBJECT: Final Report – Increased Management
Attention Is Needed to Ensure the Success of Future Notice Redesign Efforts
(#200130013)
This
report presents the results of our review to determine whether the Internal Revenue Service (IRS) has established
an effective framework for successfully achieving its notice redesign
objectives. The IRS sends more than 100 million notices to taxpayers each year. Over the past decade, the IRS has
established a number of initiatives to improve the quality of notices sent to
taxpayers. We conducted this review
because taxpayers still rate the clarity of notices as one of the most
important issues that the IRS needs to effectively address.
In summary, we identified some issues that, in our opinion, may have hampered
the IRS’ past notice redesign efforts.
These include the absence of a master plan for controlling notice
redesign efforts, the absence of a system for tracking customer satisfaction
with notices, and the absence of effective management systems for overseeing
the notice redesign process. Management
should ensure that these issues are addressed as part of the IRS’ ongoing
notice modernization and redesign efforts.
Management’s
Response: The Deputy Commissioner of the IRS responded
that the Notice Modernization Team had identified many of the same concerns as
outlined in this report and had incorporated our recommendations into their
overall process design prior to the completion of our audit. All four business divisions are now
accountable for integrating notice related work into their service and
compliance strategies. This includes
identifying and prioritizing needs for new/modified notices; ensuring that
legislated changes to notices are accomplished; and ensuring appropriate tone
and content for each customer segment and message. The Notice Modernization Team identified a total of 36 metrics
that tie into the IRS’ three balanced measures of Customer Satisfaction,
Employee Satisfaction, and Business Results.
The identification and data gathering of relevant metrics will be
managed through a newly established position in each division and supported by
a newly established Servicewide Notices Support Group office that will
establish and maintain a notice management information system. The metrics presented by the Notice
Modernization Team include measures of cost and achievement of outcomes.
Office of
Audit Comment: We are encouraged
by the IRS’ efforts to address the long-term problems with notice clarity. Tax law complexity is the primary problem
taxpayers have with the IRS according to the National Taxpayer Advocate’s
FY2000 Annual Report to the Congress.
A problem also reported related to tax law complexity is the clarity and
tone of the IRS’ communications. While
the IRS has addressed several of our concerns, the responsibility to improve
notices will be delegated to the business divisions. The business divisions’ management systems to redesign notices
efficiently and effectively are not specifically addressed in the management
response. Also, our recommendation to
implement a cost tracking system for the notice modernization effort was not
addressed. We believe that, without
these controls, the IRS will continue to be at risk of not achieving notice
modernization objectives in a timely and efficient manner.
Management’s
complete response to the draft report is presented as Appendix IV.
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 Gordon C. Milbourn III, Assistant
Inspector General for Audit (Small Business
and Corporate Programs), at (202) 622-3837.
A Master Implementation Plan for Managing and
Controlling Future Notice Redesign Efforts Is Needed
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 Internal Revenue Service (IRS) sends
more than 100 million notices to taxpayers each year. These written notices are the IRS’ most visible means of
communicating with its customers. The
clarity of these notices is vital to the success of the IRS’ strategies to meet
the needs of taxpayers and reduce taxpayer burden.
The IRS uses 343 different
computer-generated notices to assist taxpayers with filing their returns,
request information from taxpayers, or solicit payment of taxes. Each notice includes a toll-free number that
taxpayers can call for information. The
IRS estimates that its notice operations cost $472 million annually, with about
60 percent of these costs attributable to the downstream impact of issued
notices (i.e., handling subsequent correspondence, telephone calls, and
remittances from taxpayers).
The
need to improve the clarity of written communications to taxpayers has been a
known and ongoing issue for the IRS for more than a decade. As far back as 1989, the IRS established a
group to review notices for clarity and implement notice clarity guidelines
according to standards developed by an outside vendor. While the IRS has hired a number of
contractors and established a number of its own initiatives to rewrite and
redesign notices during the ensuing 12 years, only incremental progress has
been realized.
Taxpayers
rank the clarity of notices as one of the most important issues that the IRS
needs to effectively address. For example, the National Taxpayer
Advocate’s Annual Report to Congress for Fiscal Year (FY) 2000 listed the
“clarity and tone of IRS correspondence” as the third most serious problem,
behind only the complexity of individual tax law and business tax law
encountered by taxpayers. The report
cited the IRS’ limited progress in redesigning notices and stated that a
problem of this magnitude deserved a stronger commitment and dedication of
resources by the IRS.
The IRS’ Strategic Plan for FY 2000-2005
also identifies “communication with taxpayers” as one of its most significant
problems. The plan includes rewriting
and redesigning notices as one of the ways that the IRS will implement its
strategy to “meet the needs of taxpayers.”
In
August 2000, the IRS Commissioner
directed that sustained high-level attention be given to notice improve-ment
and proposed managing it as an agency-wide modernization project.
A Notice Modernization Team was subsequently
established in November 2000 to assess the end-to-end notice process and
identify major improvement opportunities.
The Notice Modernization Team is charged with creating a new system to
address the IRS’ needs for developing notices to support the business
strategies of the four operating divisions.
The goal for this modernization effort is to create a process to ensure
notice clarity, as opposed to redesigning specific notices. The modernization effort does not address
the needs of the IRS’ existing Office of Correspondence Improvement or the
“near term” efforts to improve the existing notice redesign or maintenance
functions. At the time we completed our
fieldwork, the Notice Modernization Team’s proposals had not been approved by
the IRS’ Executive Steering Committee.
To
accomplish our objective, we interviewed IRS management officials and reviewed
available documentation on past, present, and future notice redesign
initiatives. The audit was conducted at
the offices of the IRS’ Media and Publications function (Wage and Investment
Division) in New Carrollton, Maryland, from March through June 2001. 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 presented in Appendix II.
The IRS’ initial notice redesign initiatives that
started years ago have resulted in some recent success. Six redesigned notices were integrated into
the IRS’ systems in January 2001. At
the beginning of FY 2001, another 24 notices were identified for redesign. The rewriting of these notices was expected
to take the majority of FY 2001, and after the
necessary changes to the current information systems are made, 4 of the
redesigned notices are scheduled for implementation in January 2002, 7 in July
2002, and the remaining 13 by January 2003.
At the current pace, redesigning the
remaining 313 notices will take an extended period, possibly as long as another
decade. Since the IRS does not
have the resources to redesign all notices at once, there is a need to place
the notices in order of priority to maximize the opportunity for reducing
taxpayer burden, increasing taxpayer compliance, and improving IRS
productivity.
The IRS’ past notice redesign efforts have not been
controlled by a master plan. A master plan would formally set the
criteria for the order for redesign, identify the resources needed for the
notice redesign initiative, and outline the overall timetable for completing
the notice redesign work. Instead,
the IRS has primarily relied on notice volumes and anecdotal information from
informal employee observations in selecting notices for redesign.
There is a risk that this type of selection process may
not necessarily identify the notices that, if redesigned, could produce the
greatest benefits in meeting IRS business goals. As the time comes for more notices to be considered for the
redesign initiative, the notice redesign selection criteria become even more
important. An unknown portion of IRS
resources is used to handle taxpayer responses to unclear notices. At the same time,
unclear notices can increase taxpayer burden and hinder tax compliance.
1.
To
ensure the successful management of the IRS’ future notice redesign efforts,
the Commissioners of the SB/SE and W&I Divisions need to develop a master
redesign plan for all IRS notices that includes a notice priority scheme and a timetable for
completing the notice redesign effort.
This plan would enable IRS management to continuously assess whether its
notice redesign activities, business processes, and resources are properly
aligned with customer needs to support its mission and achieve desired
outcomes.
Management’s Response: The IRS commissioned a multi-functional Notice Modernization Team
in November 2000 to formulate an overall notice redesign and development
strategy that correlated to taxpayer needs and the needs of the new IRS
customer-focused business divisions.
Their recommendations regarding future strategy and structure
essentially form the master plan relating to the entire notice process. All four business divisions are now
accountable for integrating notice-related work into their overall service and
compliance strategies. This includes
identifying and prioritizing needs for new/modified notices; ensuring that
legislated changes to notices are accomplished; and ensuring appropriate tone
and content for each customer segment and message.
The IRS does not have an established process for
tracking taxpayer feedback concerning satisfaction with the clarity of IRS
notices. Before the IRS’ reorganization
in October 2000, some taxpayer feedback was captured to provide information
about the effectiveness of a specific notice.
After the reorganization, these analyses were discontinued since the
data system and the personnel available for this analysis were split between
two divisions. Further, we were advised
that there has been no raw data received since October 2000.
The General Accounting Office’s (GAO) Standards for Internal Control in the
Federal Government require management to ensure that there are adequate
means of obtaining information from external stakeholders that impact on an
agency achieving its goals.
Presidential Executive Order 12862 also directs federal agencies to
survey their customers to determine service satisfaction levels, set service
standards, and measure results against the best in the business.
In
a March 2000 report, the GAO recommended that the IRS explore the
cost-effectiveness of a notice tracking system. In response to this report, the IRS indicated it had not
developed a formalized notice tracking system because of higher priorities,
such as modernizing its computer systems and stabilizing its existing systems.
IRS officials recognize a need for a feedback system and
would like to
develop the capability to evaluate customer satisfaction with notices. Under
the current Notice Modernization effort, the taxpayer feedback concept is a
work-in-progress. IRS officials advised
us that IRS systems should provide measurements for specific notices to
evaluate the effectiveness of efforts to resolve tax issues and also provide
for alerts to further improve communications with taxpayers.
Without
taxpayer feedback regarding the clarity of IRS notices, the IRS cannot be
certain that the notices are achieving their intended purpose. In addition, without this feedback, the
potential exists that the IRS’ notice redesign efforts will not focus on those
notices that represent the best
opportunities for reducing taxpayer burden, improving taxpayer satisfaction,
and/or increasing IRS productivity.
2.
To effectively align the
IRS’ future notice redesign efforts with customer needs and ensure that the
redesigned notices are achieving the desired results, the Commissioners of the SB/SE and W&I Divisions need to ensure the
development and implementation of a tracking system that would enable the IRS to
measure taxpayer satisfaction levels with
the clarity of notices and to identify and correct problems with the new
design.
Management’s Response: The Notice Modernization Team identified a
total of 36 metrics that tie into the IRS’ three balanced measures of Customer
Satisfaction, Employee Satisfaction, and Business Results. Although not all metrics would be captured
on each notice or for each aspect of the notice process, each operating
division will be able to identify the measures most relevant for their customer
segment and business. Identification
and data gathering of relevant metrics will be managed through a newly
established position in each division and supported by a newly established
Servicewide Notices Support Group office which, among other duties, will
establish and maintain a notice management information system of all notices
and key notice data. The IRS’ plans
also call for gathering customer feedback on the effectiveness of their recent
notice redesign efforts.
The IRS has had several initiatives -- both in-house and
contracted redesign efforts -- over the past decade to improve notices. The IRS has
determined that, while the notice modification/creation process is designed to
take 17 months, it typically lasts substantially longer.
While there is limited information on the management
systems used to oversee these efforts, there is no evidence that project
management techniques were used.
Project management techniques are appropriate when there is a beginning
and an end to the work and when there is a unique product produced. Thus, the redesign of a notice fits these
criteria. Without project management
techniques, it is more difficult for management to ensure the notice redesigns
are on schedule, within budget and meet quality standards.
Additionally, in the past, the IRS has not captured and
evaluated the costs of its notice clarity and redesign operations. In particular, there is no IRS policy or
procedural guidance in place that gives direction to the IRS’ operating
functions on how human capital and overhead costs should be captured and
evaluated. Additionally, the IRS’
Notice Clarity function has had limited resources to capture and analyze cost
data since not all positions authorized by the October 2000 reorganization have
been filled.
Without reliable and timely cost information,
management’s ability to ensure that resources are spent to achieve the expected
results is lessened. Measuring costs is
an integral part of management’s responsibility to adequately evaluate program
performance in terms of efficiency and effectiveness.
Office of Management and Budget (OMB) Circular A-11, Preparation and Submission of Budget
Estimates, strongly encourages agencies to measure program efficiency and
to strive to include goals or indicators for unit cost. Another OMB publication[1]
also requires agencies to accumulate and report the costs of its activities on
a regular basis for management information purposes. Managerial cost accounting is the process of accumulating,
measuring, analyzing, interpreting, and reporting cost information useful to
both internal and external groups concerned with the way in which the
organization uses, accounts for, safeguards, and controls its resources to meet
its objectives.
3.
The
Commissioners of the SB/SE and W&I Divisions need
to ensure that effective management systems
are used to oversee notice redesign efforts.
Likewise, control systems are needed so that cost information is
captured to help determine whether future notice redesign efforts are performed
in an efficient and cost-effective manner.
Management’s Response: The Notice Modernization Team’s recommendations have laid the
groundwork for the operating divisions to govern their notice efforts more
effectively. The 36 metrics presented
by the Notice Modernization Team are comprehensive and include measures of cost
and achievement of desired outcomes.
Cost/benefit analysis, predictive modeling and post-event analysis are
some additional techniques that the operating divisions may employ. To address the lengthy notice modification
process, the IRS’ design also establishes the practice of employing ad hoc
teams within the IRS geared to developing and issuing new and revised notice
content in significantly shortened time frames. Each operating division will establish a new Single Point of
Content (SPOC) office to assist them in their efforts to create and modify
notices. The SPOCs will work in
collaboration to ensure effective oversight of Servicewide notice issues.
Office of Audit Comment: We are encouraged by the IRS’ efforts to address the long-term problems with notice clarity. Tax law complexity is the primary problem taxpayers have with the IRS according to the National Taxpayer Advocate’s FY2000 Annual Report to the Congress. A problem also reported related to tax law complexity is the clarity and tone of the IRS’ communications.
While the IRS has addressed several of our concerns, the responsibility to improve notices will be delegated to the business divisions. The business divisions’ management systems to redesign notices efficiently and effectively are not specifically addressed in the management response. Also, our recommendation to implement a cost tracking system for the notice modernization effort was not addressed. We believe that, without these controls, the IRS will continue to be at risk of not achieving notice modernization objectives in a timely and efficient manner.
Appendix I
Detailed Objective, Scope, and Methodology
Our
audit objective was to determine whether the Internal Revenue Service (IRS) has
established an effective framework for successfully achieving both its notice
clarity and notice redesign objectives.
At
the time of our review, the IRS had initiated a Notice Redesign Team to design,
from the ground up, the notice system of the future. As a result, our audit focused on organizational and control
issues involving the IRS’ past and current notice redesign efforts so that any
identified deficiencies could be applied to the IRS’ future notice redesign
efforts.
To accomplish our objective,
we:
I.
Determined
whether the IRS has established an organizational structure for successfully
achieving both its incremental notice clarity and notice redesign objectives.
A.
Reviewed
the IRS Modernization documentation to determine the basis for the current
Office of Correspondence Improvement (OCI) organizational structure.
B.
Evaluated
whether the current OCI organizational structure was developed, giving full
consideration to both notice maintenance and notice redesign work requirements.
C.
Assessed
the impact of designated transition managers and employees on the OCI
function’s ability to accomplish its mission.
D.
Determined
whether sufficient staffing was being provided, particularly in management and
supervisory capacities, to effectively carry out the responsibilities of the
OCI function.
E.
Evaluated
the ability of the OCI organizational structure to provide the necessary flow
of information (i.e., up and down the chain of command and across all business
activities) to manage its activities.
F.
Determined
whether the organization structure was appropriately centralized or
decentralized given the nature of the OCI function’s operations.
G.
Determined
whether operating procedures and job descriptions had been developed for the
OCI function.
H.
Determined
whether key managers’ responsibilities had been adequately defined.
I.
Determined
whether established reporting relationships (i.e., formal or informal, direct,
or matrix) were effective and provided managers with information that was
appropriate to their responsibilities and authority.
II.
Determined
whether the IRS defined clear operational goals and strategies and developed an
operating plan that can be effectively used for identifying, prioritizing, and
conducting its future notice redesign efforts.
A.
Evaluated
the Notice Modernization initiative to determine whether there were appropriate
goals, strategies, project objectives, action items, designated responsible
officials, and timetables in the planning documents to ensure a successful
project.
B.
Evaluated
the redesign project coordination with other IRS functions by determining
whether all affected IRS organizations had participated in the project
planning.
C.
Evaluated
the management approval process for the redesign project by determining whether
all affected IRS organizations had concurred with the redesign plans.
D.
Evaluated
whether management had developed a means to systematically identify, gather,
and catalog trends, issues, and problems regarding notices and letters that
affect business operations, including IRS telephone and field operations, and
taxpayer burden, and whether this information had been fully considered in
developing and prioritizing future notice redesign efforts.
E.
Evaluated
the appropriateness of any prioritization criteria that were being used in
selecting notices for redesign.
III.
Determined
whether the IRS developed an adequate system of controls for assessing the
level of organizational effectiveness and efficiency achieved by the OCI
function.
A.
Identified
and evaluated the measures that management had developed for determining how
well the notice clarity and notice redesign efforts were meeting organizational
goals and customer expectations.
B.
Identified
and evaluated the reliability of the management information reports or other
analytical tools that were used to monitor and assess the attainment of goals
and expectations (e.g., the quality, quantity and timeliness of outputs,
employee satisfaction, customer satisfaction).
C.
Determined
whether notice redesign project costs were captured, monitored, and evaluated by
IRS management to fulfill its responsibility of ensuring the efficiency of
operations.
D.
Interviewed
OCI function managers to determine the value of costing information in managing
the OCI operations.
E.
Determined
whether there was a system of controls for reporting the status of redesign
efforts, including the status of notice redesign projects, the number of notice
redesign projects completed, and the length of time and costs taken to
implement these redesign projects.
F.
Determined
whether project management techniques were used on previous notice redesign
initiatives.
Appendix II
Major
Contributors to This Report
Gordon
C. Milbourn III, Assistant Inspector General for Audit (Small Business and
Corporate Programs)
Philip
Shropshire, Director
William
E. Stewart, Audit Manager
Lawrence
R. Smith, Senior Auditor
E.
John Thomas, Senior Auditor
Steven
R. Bohrer, Auditor
Appendix III
Deputy Commissioner N:DC
Assistant Deputy Commissioner for Modernization N:ADC:MOD
Commissioner, Large and Mid-Size Business Division LM
Commissioner, Small Business/Self-Employed Division S
Commissioner, Tax Exempt and Government Entities Division T
Commissioner, Wage and Investment Division W
Director, Customer Assistance, Relationships, and Education Division, Wage and Investment Division W:CAR
Director, Media and Publications Division, Wage and Investment
Division W:CAR:MP
Notice Modernization Team Leader, Wage and Investment
Division W:CP:CS:AN
Notice Clarity Branch Chief, Wage and Investment Division W:CAR:MP:NC
Director, Legislative Affairs
CL:LA
Director, Office of Program Evaluation and Risk Analysis N:ADC:R:O
Chief Counsel CC
National Taxpayer Advocate
TA
Office of
Management Controls N:CFO:F:M
Audit Liaisons:
Commissioner, Large and Mid-Size
Business Division LM
Commissioner, Small Business/Self
Employed Division S
Commissioner, Tax Exempt and Government
Entities Division T
Commissioner, Wage and Investment
Division W
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.
[1] Managerial Cost Accounting Concepts and Standards for the Federal Government, dated July 31, 1995