Small Business/Self-Employed Division Management Needs to
Increase Staffing Commitments to Meet Its Electronic Filing Mission
May 2003
Reference Number: 2003-30-104
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.
May
12, 2003
MEMORANDUM FOR ACTING COMMISSIONER, SMALL BUSINESS/SELF-EMPLOYED DIVISION
FROM: Gordon C. Milbourn III /s/ Gordon C.
Milbourn III
Acting Deputy Inspector
General for Audit
SUBJECT: Final Audit Report –Small Business/Self-Employed Division
Management Needs to Increase Staffing Commitments to Meet Its Electronic Filing
Mission (Audit # 200230049)
This
report presents the results of our review of the
organizational realignment
of Electronic Tax Administration (ETA)
operations to the Small Business/ Self-Employed (SB/SE) Division. The overall objective of this review
was to determine whether the risks
inherent in the realignment have been adequately managed by the SB/SE Division
to enable the missions of the transferred functions to be met.
The Commissioner, SB/SE
Division, identified the organizational realignment of former ETA
responsibilities to the Division as one of the top three areas for Treasury
Inspector General for Tax Administration audit coverage in Fiscal Year 2003.
In summary, the SB/SE
Division had successfully assimilated several ETA functions since assuming
responsibility for operational electronic products beginning in June 2002. The ETA’s Electronic Business Returns and
Payment Products and Services functions were consolidated into one function
within Customer Account Services, and the ETA’s Business Marketing Services
function became part of Taxpayer Education and Communication. Also, in order to monitor progress toward
the attainment of e-filing goals, the SB/SE Division had established an
acceptable performance measure to determine the number of electronically filed
business returns.
However, achieving mission
goals could be in jeopardy unless staffing is increased. SB/SE Division management created a high
level E-Submissions Steering Committee that had identified understaffing as a
risk to meeting mission goals and was working to provide the e-functions the
resources necessary to meet additional operating and marketing responsibilities
that accrue as newly developed e-forms are received.
We recommended that the
Commissioner, SB/SE Division, consider
re-allocating Division resources commensurate with the high priority placed on
the e-file initiative through the Administration’s Government to
Business E-Government Strategic Goals, as well as Congressionally mandated
goals. The Commissioner should request
additional resources through the Congressional Justification and Budget Request
process if re-allocation of SB/SE Division resources is not feasible.
Management’s Response: Internal
Revenue Service (IRS) management agreed with the recommendations. A reorganization of the Electronic Business
Return/Payment Products and Services function was approved to immediately add
seven positions to support e-file operations.
The SB/SE Division’s E-Submissions Executive Steering Committee
initiated a Trends, Issues and Problems (TIP) initiative in the strategic planning
cycle that resulted in an SB/SE Division strategy related to E-Submissions
growth. The Drivers of Program
Resources accompany this TIP, requesting additional resources for electronic
programs within the SB/SE Division.
Management’s complete
response to the draft report is included 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
Richard J. Dagliolo, Acting Assistant Inspector General for Audit (Small
Business and Corporate Programs), at (631) 654-6028.
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 Restructuring and Reform Act of 1998 (RRA 98) included e-filing goals. The Congress mandated goals requiring that 100 percent of computer prepared tax returns be electronically filed (e-filed) by 2003, and 80 percent of all tax returns be e-filed by 2007. The Internal Revenue Service (IRS) subsequently developed the Electronic Tax Administration (ETA) Strategy that established a framework for accomplishing these e-filing goals. The ETA Strategy is important to generating cost savings by reducing both processing expenses and the burden on taxpayers through simplifying the filing of tax returns.
Beyond the RRA 98
goals are the President’s Management Agenda initiatives that include expanding
electronic government. The
Administration’s E-Government Strategy included initiatives to expand
Government to Business Services through electronic tax products for
businesses. When implemented, the
initiatives are projected to reduce the burden
of compliance by saving each small business up to $182 per year. Aggregated, small businesses stand to save
up to $6.4 billion over 6 years.
Additional benefits include increases in the accuracy and reliability of
tax data, as well as reducing or eliminating the costs associated with paper
processing. Other benefits expected are
annual savings to the IRS and Social Security Administration (SSA) of $16
million in staff and printing/mailing costs, and reductions of 5.6 percent in
the costs to states for processing wage and tax data.
To better focus on core customer needs, starting in June 2002, the IRS’ Business Operating Divisions assumed responsibilities for operational electronic products for their respective customer segments. The Commissioner, Small Business/Self-Employed (SB/SE) Division, identified the organizational realignment of former ETA responsibilities to the SB/SE Division as one of the top three areas that he wanted the Treasury Inspector General for Tax Administration to include in its Fiscal Year (FY) 2003 Audit Plan.
Audit work was performed at the SB/SE Division National Headquarters in New Carrollton, Maryland, from September 2002 through January 2003. 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.
The transferred functions were successfully assimilated by the SB/SE Division
The recent organizational realignment of ETA responsibilities has affected the SB/SE Division by transferring the Business Marketing Services function to the Taxpayer Education and Communication function, where it became the Office of Electronic Programs effective November 1, 2001. The overall mission of the Office of Electronic Programs is to develop the marketing vision and strategy for implementing the e-file for business program and the Electronic Federal Tax Payment System.
The Electronic Business Returns and the Payment Products and Services functions were transferred to the Customer Account Services function, where they were subsequently merged into one function effective June 30, 2002. The overall mission of the renamed Electronic Business Returns/ Payment Products and Services is to have all SB/SE business returns available electronically. This function is responsible for testing the electronic forms delivered by the ETA and assuming all responsibilities for implementation. They also provide taxpayers with all available payment technology.
The SB/SE Division successfully assimilated these functions as transferred from the ETA, with all existing staffing and access to funding and training resources. Missions and milestones were successfully addressed as follows:
· The Office of Electronic Programs function successfully aligned its specific mission to the needs of the internal and external users. It is also responsible for servicing research requests from the other Business Operating Divisions.
· The Electronic Business Returns/Payment Products and Services function successfully re-aligned its specific mission to the needs of the internal and external users.
· The Office of Electronic Programs established a milestone table to monitor deliverables as set forth in the Statement of Work for the national marketing campaign.
· The ETA, Wage and Investment Division, retained program responsibility for monitoring milestones for electronic business returns during the development and testing phases.
A performance measure was established
The SB/SE Division has successfully implemented a performance measure in accordance with the Government Performance and Results Act’s (GPRA) requirements, to provide counts of the total business returns filed electronically. The data dictionary accurately defines the performance measure, and computer programs verify and validate volumes of electronically filed business returns.
We reviewed the formula and methodology supporting the performance measure and found that the electronically filed forms were processed at several IRS locations to various data files. These data files are subject to strict balancing routines, in accordance with IRS practices, to accurately validate and verify volumes. In our opinion, the methodology for identifying volumes of electronically filed business returns is sound.
Presently, this performance measure consists of volumes, which are manually recorded from electronic reports produced for each type of electronic business return filed at one of several field locations. This information is forwarded to the SB/SE Division Headquarters to be summarized for reporting purposes. An effort is underway to automate the entire process and should be completed during 2003.
SB/SE Division management is responsible for defining needs, identifying risks, and providing sufficient resources to minimize the risks in accomplishing the missions of the transferred functions. However, with the addition of new e-forms, staffing resources are not adequate to enable the transferred functions to meet their increasing responsibilities.
Since moving to the SB/SE Division, the Electronic Business Returns/Payment Products and Services function has documented the need for eventual expansion from 23 to 42 positions, once all business returns are made available electronically. Seven of these positions are needed immediately to meet program objectives, and two positions will be needed in the next fiscal year. However, no further positions have been received.
Since moving to the SB/SE Division, the Office of Electronic Programs function has documented the need to expand from 13 to 20 positions, once all business returns are made available electronically. Four of these positions are needed immediately to meet program objectives. However, no further positions have been received, and a vacant position needs to be filled.
The Director of ETA indicated that staffing resources were inadequate to achieve mission objectives even prior to the function transfers. The ETA had requested additional resources in the FY 2003 Congressional Justification and Budget document, and three positions are now in the process of being moved from the ETA to the SB/SE Division.
The FY 2004 Congressional Justification and Budget document submitted by the IRS did not contain a request for additional resources. Also, neither the SB/SE Division’s Strategy and Program Plan for FY 2003 – FY 2004, nor the Annual Performance Plan for FY 2004, contain any mention of the need for additional e-file resources.
SB/SE Division management recently created a high level E-Submissions Steering Committee responsible for providing oversight and guidance related to the E-Submissions priority within the SB/SE Division’s strategic plan. This committee recently opened a Trends, Issues, and Problems (TIP) initiative to address and resolve the concern regarding insufficient growth in staffing resources needed to meet the long-term mandated goal of having 80 percent of all tax returns filed electronically by 2007.
In addition, SB/SE Division management is in the process of requesting permission to fill an existing position that is presently vacant within the Office of Electronic Programs. There are also internal efforts being made to incorporate additional resources within Electronic Business Returns/Payment Products and Services. However, until additional resources are available, understaffing may:
·
Jeopardize the missions of the transferred functions.
·
Cause delays in meeting the Congressionally mandated
e-file goal.
·
Cause delays in meeting the Government to Business
E-Government Strategy goals established by the President.
·
Delay the positive impact of e-file services for
taxpayers and tax practitioners.
· Delay cost saving benefits to the IRS, the SSA, and state and local governments.
The Commissioner, SB/SE Division, should
consider:
1. Re-allocating SB/SE Division resources commensurate with the high priority placed on the e-file initiative through Government to Business E-Government Strategic Goals, as well as Congressionally mandated goals.
Management’s Response: A reorganization of the Electronic Business Return/Payment Products and Services function was approved to immediately add seven positions to support e-file operations.
2.
Requesting additional resources through the
Congressional Justification and Budget Request process if re-allocation of
SB/SE Division resources is not feasible.
Management’s Response: The SB/SE Division’s E-Submissions Executive Steering Committee initiated a TIP initiative in the strategic planning cycle that resulted in an SB/SE Division strategy related to E-Submissions growth. The Drivers of Program Resources accompany this TIP, requesting additional resources for electronic programs within the SB/SE Division.
Appendix I
Detailed Objective, Scope, and Methodology
The overall objective was to determine whether the risks inherent in the organizational realignment of Electronic Tax Administration (ETA) operations to the Small Business/Self-Employed (SB/SE) Division were adequately managed to enable the missions of the transferred functions to be met. To accomplish our objectives, we:
I. Determined whether the transferred functions remained fully funded to support e-filing and e-payment programs.
A. Obtained budget information from the ETA for functions transferred to the SB/SE Division.
B. Obtained budget information from the SB/SE Division for functions transferred from the ETA.
C. Compared budget information obtained in steps I. A. and I. B. to determine whether the SB/SE Division received full funding.
II. Determined whether transferred functions were fully staffed and trained.
A. Obtained organization chart information from the ETA for functions transferred to the SB/SE Division.
B. Obtained organization chart information from the SB/SE Division for functions transferred from the ETA.
C. Compared organization chart information obtained in steps II. A. and II. B. to determine whether the SB/SE Division received full staffing.
D. Determined the extent of training needs for transferred functions and whether training had been received or scheduled.
III. Determined whether milestones were established to ensure that e-file and e-payment programs and policies were being achieved.
A. Interviewed the manager of the Electronic Business Returns/Payment Product and Services function to determine what milestones had been set for developing e-forms and payment options.
B. Interviewed the manager of the Office of Electronic Programs to determine what milestones had been set for implementing marketing strategies.
C. Interviewed the ETA Director of Diversified Electronic Filing to determine responsibility for the coordination of the development of e-file forms between the SB/SE Division and the ETA function within the Modernization, Information Technology and Security Services organization.
IV. Determined whether the specific missions of the transferred functions were identified and aligned to the needs of the internal and external users.
A. Interviewed the manager of the Electronic Business Returns/Payment Product and Services function to identify its mission and internal and external users. Determined whether the specific needs of the internal and external users were being met.
B. Interviewed the manager of the Office of Electronic Programs to identify its mission and internal and external users. Determined whether the specific needs of the internal and external users were being met.
V. Determined
the reliability of the performance measures for Electronic Business Returns
Filed.
A. Identified the data definition for measuring Electronically Filed Business Returns.
B. Determined what verification and validation routines IRS performed for ensuring the accuracy of the performance measure.
C. Based upon steps V. A. and V. B., formed an opinion as to accuracy and completeness of the performance measure.
D. Interviewed the manager of the Electronic Business Returns/Payment Product and Services function to identify whether the SB/SE Division had set specific interim goals for percentages of business tax returns filed.
Appendix II
Major Contributors to This Report
Richard J. Dagliolo, Acting
Assistant Inspector General for Audit (Small Business and Corporate Programs)
Kyle R. Andersen, Acting Director
Larry Madsen, Audit Manager
Daniel A. Zaloom, Senior Auditor
Margaret
F. Filippelli, Auditor
Stephen
A. Wybaillie, Auditor
David
D. Clous, Computer Specialist
Appendix III
Commissioner N:C
Deputy
Commissioner N:DC
Acting Deputy
Commissioner, Small Business/Self-Employed Division S
Director, Customer Account Services, Small
Business/Self-Employed Division S:CAS
Director, Electronic Tax Administration, Wage and
Investment Division W:ETA
Director, Taxpayer Education and Communication, Small
Business/Self-Employed Division S:T
Deputy Director,
Taxpayer Education and Communication, Small Business/Self-Employed
Division S:T
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:AR:M
Audit Liaison:
Commissioner, Small Business/Self-Employed Division S
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.