The Internal Revenue Service Should Expand the Successful
Automation of Payment Processing to Include Additional Documents
August 2003
Reference Number: 2003-40-159
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.
August
1, 2003
MEMORANDUM FOR COMMISSIONER, WAGE AND INVESTMENT DIVISION
FROM: Gordon C. Milbourn III /s/ Gordon C.
Milbourn III
Assistant Inspector General
for Audit (Small Business and
Corporate Programs)
SUBJECT: Final Audit Report - The Internal Revenue
Service Should Expand the Successful Automation of Payment Processing to
Include Additional Documents (Audit # 200240051)
This
report presents the results of our review of the Internal Revenue Service’s
(IRS) payment processing operation. The
overall objective of this review was to determine if the IRS is efficiently and
effectively processing payments on balance due accounts received from taxpayers
at its Submission Processing Sites.
In
summary, we identified two types of cases that could benefit from the IRS
providing the taxpayer with an improved posting document that could be
submitted with a remittance: balance
due notices sent directly to the taxpayer, and levies1 soliciting payments from third parties on behalf of
the taxpayer.
During
the course of our review, we learned that the IRS had initiated actions to
improve the processing of payments by standardizing “scan lines” on the tear
off vouchers on balance due notices. We
commend the IRS for these efforts. The
standard scan lines allow the IRS to automate the processing and posting of
taxpayer payments and significantly improve the efficiency of processing
payments from balance due notices.
Although
the IRS has plans to expand this concept, we identified an additional area for
consideration to increase automated payment processing. Specifically, we recommended that the
Commissioner, Wage and Investment Division, consider developing payment
vouchers with a standardized scan line that could be included with levies
issued to third party payers to help facilitate the processing of subsequent
remittances.
Management’s Response: The IRS was
pleased that our report recognized the improvements it has made in its payment
processing. These improvements
increased efficiency and reduced taxpayer burden. IRS management plans to continue to expand the use of
technologies to improve payment processing.
IRS management agreed with
the concept of implementing a voucher system for third party payments received
as a result of a levy. While they
maintained that numerous road blocks prevent the IRS from implementing such a
system in the near future, IRS management agreed to
review the feasibility of using standardized scan lines when processing
payments received as a result of levy action.
This review will be part of a broader multi-functional initiative of the
entire levy process that will begin in the first quarter of Fiscal Year 2004.
IRS management also pointed
out that any benefits derived from a voucher system for levies would only apply
to the payments received as a result of the levies issued and should not be
based on the number of levies issued, since many levies do not result in a
payment or do not result in recurring payments. These situations are frequent and substantially reduce the value
of a voucher system for levies. As a
result, management disagreed with our Outcome Measure as reported.
Management’s
complete response to the draft report is included as Appendix VI.
Office of Audit Comment: We agree
that the variables of some levies may preclude the use of a scanable payment
voucher. However, we believe the
majority of levies issued could be effectively processed through the IRS’
automated systems if scanable vouchers were provided with levies issued to
third party recipients. Results from
our judgmental sample of 201 payments requiring manual research to ensure
proper posting to taxpayer accounts showed that 54 percent were from third
parties for levies issued against delinquent taxpayers.
Copies of this
report are also being sent to the IRS managers who are affected by the report
recommendation. Please contact me at
(202) 622-6510 if you have questions or Michael R. Phillips, Assistant
Inspector General for Audit (Wage and Investment Income Programs), at (202)
927-0597.
The Internal Revenue Service Has Significantly Improved the Efficiency of Processing Payments
Opportunities Exist to Increase Automated Payment Processing
Appendix I – Detailed Objective, Scope, and Methodology
Appendix II – Major Contributors to This Report
Appendix III – Report Distribution List
Appendix IV – Outcome Measure
Appendix V – Glossary of Terms
Appendix VI – Management’s Response to the Draft Report
The Internal Revenue Service (IRS) collected over $2 trillion in Fiscal Year (FY) 2002. This included more than 33 million payments totaling over $99 billion that were received and processed through the 10 IRS Submission Processing Sites.
When payments arrive at the Submission Processing Sites, they are reviewed and sorted into two categories – “perfect” and “imperfect.” Perfect payments contain sufficient information to be sent directly to the Residual Remittance Processing System (RRPS) and posted to the taxpayer’s account. Specifically, the documentation must include the taxpayer’s name, the Taxpayer Identification Number (TIN), and the tax period, all in the proper format.
Imperfect payments lack one or more pieces of information that are necessary to process the payment. These imperfect payments are sent to the Payment Perfection Unit (PPU) for additional research. Once the research has been completed and the payment is perfected, it is sent to the RRPS for processing.
In addition to imperfect payments, other types of documents must be routed through the PPU for additional research.
· Payments for more than one tax period, or more than one check or money order as one payment.
· Payments larger than $5,000.
· Payments received in IRS field offices but forwarded to a Submission Processing Site for processing.
· Payments initially received by one of the IRS’ lockbox operations that could not be processed by the lockbox.
· Payments with correspondence from taxpayers attached.
Information developed during a recent review of payment processing operations indicated that additional research had to be done on a high percentage of remittances before they could be processed. This concern was reinforced by a comment from an operations manager who speculated that as many as 50 percent of the remittances received were imperfect. As a result, we initiated this review to determine whether the IRS could take steps to improve the efficiency of the payment processing operation by reducing the number of imperfect payments.
We performed our field tests at the Austin, Texas, and Ogden, Utah, Submission Processing Sites, the Ogden National Print Site (NPS), and at the IRS National Headquarters in New Carrollton, Maryland. We also analyzed payment processing data from all 10 Submission Processing Sites. Field work was performed between May 2002 and February 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. A glossary of terms used is included in Appendix V.
At the beginning of this audit, we reviewed 201 payments being processed through the Austin Submission Processing Site’s PPU to identify the types of cases that required additional research. Our results identified two types of cases that could benefit from the IRS providing the taxpayer with a posting document that could be submitted with the remittance: balance due notices sent directly to the taxpayer, and levies soliciting payments from third parties on behalf of the taxpayer.
During the course of our review, we learned that the IRS had also recognized the problem of too many imperfect payments and had initiated actions to reduce the number of payments that required additional research before they could be posted to the correct account. The IRS has recently improved the processing of payments by standardizing “scan lines” on the tear off vouchers at the end of balance due notices. These vouchers are returned to the IRS by taxpayers with their payments and used as posting documents. The standardized scan lines allow the IRS to automate the processing and posting of taxpayer payments.
After we learned of the IRS’ efforts to add standardized scan lines to notices of tax deficiencies that were mailed to taxpayers, we added tests to our review that evaluated the effectiveness of the new scan lines. We wanted to ensure that the new scan lines contained complete and consistent information and that RRPS equipment could process the documents.
The IRS is adding the scan lines in conjunction with another project to consolidate the printing and mailing of all notices. Two NPSs have been established, and systems have been designed to print and mail notices from these two sites. We visited the NPS at the Ogden Campus and reviewed 295 balance due notices. We found that the scan lines on all of the notices we reviewed contained complete information that could be processed through the RRPS.
We then selected two batches of payments (approximately 200 payments) and monitored the process as the payments were sent through the Ogden Submission Processing Site’s RRPS system. In 1 batch, 2 of the 100 payments appeared on an error report. Both errors were scanning (machine) errors, rather than problems with the payment documents. The section chief said that this was routine and demonstrated the correction process. She was able to bring up both payments on a computer monitor and quickly correct the errors, without sending the payments to the PPU. Processing on the two payments was then completed on the RRPS.
We commend the IRS for the efforts to automate payment processing. We consider the steps taken to use posting vouchers with machine-readable scan lines to be a significant improvement in the efficiency of processing payments. Although the IRS has plans to expand this concept, we have identified another area for consideration involving levies issued to third parties.
When taxpayers refuse to pay delinquent taxes, the IRS has the authority to work directly with financial institutions and other third parties to confiscate taxpayers’ assets, such as bank accounts and wages. This action is commonly referred to as a levy.
Levies are issued from both the Automated Collection System (ACS) and the Collection Field function (CFf). In FY 2002, the IRS issued 1,140,628 levies through the ACS and another 143,255 levies through the CFf.
Not all levies issued result in payments to the IRS. For instance, there may be no assets to confiscate, or, as a result of the levy, the taxpayer may contact the IRS to make other payment arrangements, so the levy is released. Of the levies that do generate proceeds, some involve a single payment, while others involve multiple payments.
Initial proceeds from a levy are returned with a posting document that is part of the levy form, called Notice of Levy on Wages, Salary, and Other Income (Form 668-W(c)(DO)) and are processed with that document. However, if a levy results in continuing payments from a taxpayer’s wages, those payments after the first one have no accompanying payment document.
In our review of 201 imperfect payments requiring manual research in Austin, 108 (54 percent) were levy payments to an individual taxpayer account with the check drawn on a business entity such as the taxpayer’s employer. There was no voucher or other posting document included with these payments.
Providing machine scanable posting vouchers when levies are issued would help reduce the number of payments requiring manual research. This could also allow many levy payments to be processed through the automated systems of the RRPS rather than through manual processes, resulting in more accurate, timely, and efficient processing.
1.
The Commissioner, Wage and Investment Division, should
consider the feasibility of developing payment vouchers having a standardized
scan line that could be included with levies issued to third party payers to
help facilitate the processing of subsequent remittances.
Management’s Response: IRS management
agreed to review the feasibility of using standardized scan lines when
processing payments received as a result of levy action. This review will be part of a broader
multi-functional initiative of the entire levy process that will begin in the
first quarter of FY 2004.
IRS management also pointed out that any benefits derived from a voucher system for levies would only apply to the payments received as a result of the levies issued and should not be based on the number of levies issued, since many levies do not result in a payment or do not result in recurring payments. These situations are frequent and substantially reduce the value of a voucher system for levies. As a result, management disagreed with our Outcome Measure as reported.
Office of Audit Comment: We agree that the variables of some levies may preclude the use
of a scanable payment voucher. However,
we believe the majority of levies issued could be effectively processed through
the IRS’ automated systems if scanable vouchers were provided with levies
issued to third party recipients.
Results from our judgmental sample of 201 payments requiring manual
research to ensure proper posting to taxpayer accounts showed that 54 percent
were from third parties for levies issued against delinquent taxpayers.
Appendix I
Our overall objective was to determine if the Internal Revenue Service (IRS) is efficiently and effectively processing payments on balance due accounts received from taxpayers at its Submission Processing Sites. To accomplish this, we:
I. Determined if the IRS is working to improve balance due notices sent to taxpayers to include sufficient and accurate information to process payments without additional research.
A.
Identified which notices are sent to taxpayers with
balance due accounts.
B.
Determined how many notices are sent to taxpayers.
C.
Researched IRS documents and
websites regarding notice improvement projects and interviewed analysts and
managers involved in notice improvement to determine if the IRS is
considering sending notices to entities that send checks on behalf of other
taxpayers.
D. Researched Requests for Information Services (RIS) to determine if the standards for the “scan lines” on notices were sufficient and being applied to all notices.
II. Determined if the IRS had established standards/criteria for processing payments as “perfect” and “imperfect” and if the standards were properly and consistently applied at the various Submission Processing Sites by sending a questionnaire to all Submission Processing Sites.
A.
Determined the definition of a perfect payment (all
information necessary to post payment without additional research).
B.
Determined if the Submission
Processing Sites had any local procedures.
C.
Gathered data for analysis and comparison of
determinations of imperfect payments between multiple Submission Processing
Sites.
III.
Determined if the IRS had
applied the standard set out in RIS # TSF-0-0109 to all applicable balance due
notices.
A.
Interviewed Headquarters
managers and analysts to determine the status of applying the standard scan
line to all notices.
B.
Made a site visit to the
Ogden Campus to confirm that the scan line conforms to RIS # TSF-0-0109. To accomplish this, we:
1.
Reviewed 295 notices at the
National Print Site (NPS).
2.
Interviewed NPS quality
reviewers and the NPS analyst.
3.
Inspected 35 remittances in
the Ogden Submission Processing Site’s Payment Perfection Unit.
4.
Interviewed submission processing personnel and observed
processing of 200 scanable notice stubs through the Residual Remittance
Processing System.
Appendix II
Major Contributors to This Report
Michael R. Phillips, Assistant Inspector General for Audit
(Wage and Investment Income Programs)
Gary
L. Young, Acting Director
Stephen S. Root, Audit Manager
David Brown, Senior Auditor
Jacqueline Nguyen, Senior Auditor
Susan A. Price, Senior Auditor
Stephen Holmes, Auditor
Appendix III
Commissioner N:C
Deputy Commissioner for Services and Enforcement N:SE
Deputy Commissioner, Wage and Investment Division W
Director, Customer Account Services W:CAS
Director, Strategy and Finance W:S
Director, Submission Processing W:CAS:SP
Chief Counsel CC
National Taxpayer Advocate
TA
Director, Office of 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: GAO/TIGTA Liaison, Wage and Investment Division W:S:PA
Appendix IV
This appendix presents detailed information on the measurable impact 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:
· Inefficient Use of Resources – Potential; 1,283,883 levies issued in Fiscal Year (FY) 2002 (see page 3).
Methodology Used to Measure the Reported Benefit:
In FY 2002, there were 1,140,628 levies issued through the Automated Collection System and another 143,255 levies issued by the Collection Field function. Initial proceeds from a levy are returned with a document that is part of the Internal Revenue Service’s (IRS) levy form (Form 668) and are manually processed with that document. However, if a levy results in continuing payments from a taxpayer’s wages, subsequent payments after the first payment have no accompanying payment document. Machine scanable posting vouchers supplied with levies would allow all such payments to be processed through the automated systems of the IRS.
As mentioned earlier in this report, the variables of some levies may preclude the use of a scanable payment voucher. However, we believe the majority of levies issued could be effectively processed through the IRS’ automated systems if scanable vouchers were provided with levies issued to third party recipients. We recognize that some issued levies may not be returned with payments. Results from our judgmental sample of 201 payments requiring manual research to ensure proper posting to taxpayer accounts showed that 54 percent were from third parties for levies issued against delinquent taxpayers.
Inefficient Use of Resources is used here to demonstrate the value of our audit recommendation on tax administration and business operations. This issue is of interest to the IRS and Treasury executives, the Congress, and the taxpaying public, and is expressed in quantifiable terms to provide further insights to the value of the entity affected and potential impact of the issue.
Appendix V
Campus: The campuses are the data processing arm of
the Internal Revenue Service (IRS). The campuses process paper and electronic
submissions, correct errors, and forward data to the computing centers for
analysis and posting to taxpayer accounts.
Levy: When taxpayers refuse to pay delinquent taxes, the IRS has authority to work directly with financial institutions and other third parties to seize taxpayers’ assets. This action is commonly referred to as a levy.
Two operations within the IRS issue levies to collect
delinquent taxes: the Automated
Collection System (ACS), where customer service representatives contact
delinquent taxpayers by telephone to collect unpaid taxes and secure tax
returns; and the Collection Field function, where revenue officers contact
delinquent taxpayers in person as the final step in the collection
process. Field contact becomes
necessary when the tax matter is not resolved by the ACS.
National Print Site (NPS): The NPS initiative is transitioning the vast majority of taxpayer notice printing and mailing activities from 10 Submission Processing Sites to 2 new sites in Detroit, Michigan, and Ogden, Utah. The business process improvements associated with the NPS, based on state-of-the-art technologies, will enhance online access to notice information by IRS customer service representatives. The business process improvements will also permit economies of scale in generating and sending correspondence, allow the IRS to maximize postal discounts, and substantially improve management information available on the Taxpayer Notice Program.
Notice: Computer-generated messages resulting from an analysis of a taxpayer’s account. The types of notices and their purposes are:
· Settlement Notices – notices of assessments of tax due, payments, adjustments, balance due, or overpayment that are sent to the taxpayer.
· Taxpayer Inquiry Letters – requests to the taxpayer for additional information or documents needed to process the taxpayer’s return correctly.
· Submission Processing Site Notices – issued to request information and alert submission processing/customer service sites of certain conditions necessary to correct or update taxpayers’ accounts. These are researched in the submission processing/customer service sites or area offices and used internally only.
Payment Perfection Unit (PPU): The PPU, within the Deposit Activity, performs analysis and research on remittances and returns/documents that require additional preparation prior to depositing money. It also codes or edits for other functional areas to ensure all taxpayer information is available to credit a taxpayer’s accounts.
Residual Remittance Processing System (RRPS): The RRPS is a multi-functional remittance processing system for processing payments and controlling related source documents. It computerizes the recap of each day’s deposit information, simultaneously preparing tapes to post credits to taxpayers’ accounts.
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.