Improvements Are Needed to
Ensure Relocation Advances Are Repaid Timely
May 2004
Reference
Number: 2004-10-092
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 13, 2004
MEMORANDUM FOR CHIEF FINANCIAL OFFICER
FROM: Gordon C. Milbourn III /s/ Gordon C. Milbourn III
Acting Deputy Inspector General for Audit
SUBJECT: Final Audit Report - Improvements Are Needed to Ensure Relocation Advances Are Repaid Timely (Audit # 200310020)
This report presents the results of our review of the Internal Revenue Service’s (IRS) Relocation Advance procedures. The overall objective of this review was to determine whether procedures and practices are adequate to facilitate timely repayment of relocation advances. The IRS has delayed implementing procedures to comply with Federal Government requirements for collecting administrative debts until it has completed its negotiations with the National Treasury Employees Union (NTEU) on how to implement debt collection policies and procedures.
In summary, the IRS needs to ensure relocation advances are repaid timely. As of May 2, 2003, there were 366 IRS employee relocation advances outstanding (some dating back to 1991) with balances totaling approximately $1.4 million. Of these, 200 (55 percent) advances totaling $492,000 had been outstanding for over 2 years—well beyond the time period needed to repay the advanced amounts, since these types of expenses are usually the first expenses to be incurred and reimbursed. An additional 100 (27 percent) advances totaling approximately $145,000 had been previously written off as uncollectible; some of these also dated back to 1991. Procedures to monitor outstanding advances have not been fully implemented, and procedures to monitor employee payment arrangements have not been established.
We recommended the Chief Financial Officer (CFO) promptly implement the Federal Claims Collections Standards (FCCS) and the requirements of the Debt Collection Improvement Act of 1996, and monitor all outstanding relocation advances. Additionally, the CFO should revise the Interim Relocation Handbook to specify when a relocation advance should be repaid. Finally, the CFO should issue guidelines for establishing installment agreements and a system to monitor payments.
Management’s Response: IRS management generally agreed with our recommendations. However, the CFO stated that the Labor Relations staff has advised IRS management of the requirement to negotiate implementation of the debt collection policies and procedures with the NTEU. Once negotiations with the NTEU are completed, the CFO will issue procedures to comply with requirements of the Debt Collection Improvement Act of 1996 and the FCCS. In addition, the IRS will revise the Relocation Handbook to specify that all advances must be repaid when vouchers are filed, and IRS management will establish employee installment agreements and provide a method or system to monitor compliance with the agreements. Lastly, the IRS has begun to notify the employee’s supervisor when an employee has an overdue relocation advance. Management’s complete response to the draft report is included as Appendix IV.
Office of Audit Comment: We believe delaying some corrective actions pending completion of negotiations with the NTEU is unnecessary. It has been 8 years since the Debt Collection Improvement Act of 1996 became law. The IRS should have implemented procedures to comply with the law long before now. Moreover, the current negotiations with the NTEU to obtain formal agreement over these procedures have taken over 10 months, which does not appear reasonable based on the scope of the proposed procedures.
Further, IRS management did not completely address our recommendation for the CFO to implement procedures to contact employees who have not filed a relocation voucher within 3 to 6 months of requesting an advance. IRS management’s proposal to mandate that all advances be repaid when the relocation vouchers are filed does not address those employees who do not file a voucher timely or at all. While we still believe our recommendation is worthwhile, we do not intend to elevate our disagreement concerning this matter to the Department of the Treasury for resolution.
Copies of this report are also being sent to the IRS managers 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.
Better Procedures Are Needed to Ensure Prompt Repayment of Relocation Advances
Procedures to Establish and Monitor Employees’ Payment Arrangements Are 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
If
a transferred Federal Government employee or a new hire is authorized to
relocate at Government expense, the Federal Travel Regulations provide that the
employee may be advanced funds to pay for the following types of expenses:
· A house-hunting trip.
· Travel to the new location (also known as “en route” travel).
·
Temporary
quarters.
When
Internal Revenue Service (IRS) employees file relocation vouchers to be
reimbursed for these types of expenses, they should list the amount of the
advanced funds that should be subtracted from the amount they are
reimbursed. If they do not, they will
be reimbursed funds that they have already received in advance and will need to
pay back the advanced funds.
Additionally, if employees are advanced funds for these types of
expenses and do not incur the expenses, or if they incur an expense for less
than the amount of the advance, they need to pay back the amount of the advance
that was not used for the relocation expenses.
We performed this audit to determine whether the IRS has an adequate process to ensure relocation reimbursements are properly applied to outstanding advances and to collect any overdue amounts. We conducted our audit during the period May through September 2003 at the IRS Chief Financial Officer’s (CFO) Policy and Procedures Unit in Bethesda, Maryland, and at the Beckley Finance Center in Beckley, West Virginia. 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 underwent a significant reorganization in 1999. As part of the reorganization, many of the accounting functions and records were centralized. The Beckley Finance Center became responsible for processing all IRS employee relocations. The relocation files, which had been kept in the accounting offices for each region, were transferred to the Beckley Finance Center. However, many of the files received from the regional offices were incomplete.
In June 2002, the Beckley Finance Center began reviewing all the relocation files to prepare for a data conversion from the current financial system to a new system. This review was to determine whether there was adequate documentation in the files (a processed Advance of Funds Application and Account [Form 1038]) to confirm that employees had actually received relocation advances and to determine whether they were within the applicable statute of limitations period for debt collection.
As of May 2,
2003, the IRS had reviewed a total of 105 relocation advances (totaling
$170,000) that did not appear to be collectible because of the length of time
they had been outstanding or the lack of documentation to substantiate the
debts. Based on the review, 100
relocation advances totaling approximately $145,000 were written off and 5 were
determined to be collectible. For some
of these 105 advances, the last activity (such as vouchers, payments, or
collection actions) shown was in 1991.
The reasons for and number of accounts written off are shown below.
|
58 |
|
|
Statute of limitations expired |
39 |
|
Uncollectible (employee deceased) |
3 |
|
Total |
100 |
There was no information in the files to
determine whether attempts were made to collect these advances before the files
were sent to the Beckley Finance Center.
For the amounts written off because there was no documentation of the
advance (Form 1038) on file, the Beckley Finance Center staff stated that they
attempted to contact the managers in the field offices to locate a copy of the
required supporting documents; however, the documents could not be found.
In addition, 366 relocation advances totaling approximately $1.4 million were outstanding as of May 2, 2003 (some dating back to 1991). Of these, 200 advances totaling $492,000 had been outstanding for over 2 years—well beyond the time period needed to repay the advanced amounts, since these types of expenses are usually the first expenses to be incurred and reimbursed. We reviewed a random sample of 64 advances totaling $147,000 that had been outstanding for over 2 years to determine what actions the IRS had taken to collect the outstanding balances. Of these 64 advances, 10 totaling approximately $50,000 were for employees who had never filed a relocation voucher. The other 54 were for employees who had filed relocation vouchers but still had outstanding advances totaling approximately $97,000.
For
53 of the 64 advances in our sample, the Beckley Finance Center had contacted
the employees to request repayment. Of
these 53 advances, 11 were paid off and 7 had payment arrangements to fully
repay; however, 35 did not have payment arrangements and were not fully
repaid. The Beckley Finance Center has
not taken any follow-up action on advances since the initial contacts were made
with the employees to collect the outstanding amounts. The Beckley staff stopped collection efforts
at the direction of the CFO’s office pending the implementation of all of the
debt collection requirements.
The
Federal Claims Collections Standards (FCCS), the Debt Collection Act of 1982,
and the Debt Collection Improvement Act of 1996 specify the steps that all
Federal Government agencies are to follow in developing procedures to pursue
collection action on nontax debts owed to the United States. Relocation advances provided to employees
are considered nontax debts once an agency official determines that an amount
is owed to the Federal Government.
The
FCCS provide agencies with collection tools including:
· The issuance of letters demanding payment.
· Salary offset by agencies.
The
FCCS require that a written “demand letter” be sent promptly to a debtor to
inform him or her of the consequences of failing to cooperate with an agency to
resolve the debt. The demand letter should
include the:
·
Basis for the indebtedness and the rights, if any, the
debtor may have to seek review within the agency.
·
Interest, penalties, or administrative costs that could
be imposed.
·
Date by which payment should be made to avoid late
charges and enforced collection.
· Name, address, and telephone number of a contact person or office within the agency.
The
IRS has not implemented procedures to comply with Federal Government
requirements for collecting administrative debt, such as sending demand letters
to employees with outstanding relocation advances. IRS officials are aware of the need to implement these Federal
requirements but have delayed implementation because of concerns that the
National Treasury Employees Union (NTEU) might file an unfair labor practice
charge. In June 2002, the IRS began
negotiating with the NTEU on how to implement the required debt collection
procedures. Pending any agreement with
the Union, no actions have been taken to collect administrative debts from employees
since July 2002.
We
believe this delay and additional negotiations were unnecessary. As reflected in the National Agreement, the
IRS and NTEU negotiated employee debt collection issues during those
negotiations. As a result, the IRS is
not required to negotiate any additional debt collection procedures at this
time and should implement the statutory and regulatory debt collection procedures as soon as practicable. Any additional procedures can be discussed after the current
National Agreement expires.
In addition to implementing the requirements of the Debt Collection Improvement Act of 1996, the IRS needs to establish procedures to contact employees who have not filed relocation vouchers within a reasonable time (3 to 6 months) of requesting an advance to determine the status of their relocations and the dates they plan to file vouchers. If these procedures were enacted, it would significantly reduce outstanding amounts and the need to initiate collection action.
The CFO should take the following actions:
1. Implement all of the applicable procedures required by the FCCS and the Debt Collection Improvement Act of 1996.
Management’s Response: The CFO hopes to complete negotiations with the NTEU within the next few months and plans to issue procedures to ensure compliance with requirements of the Debt Collection Improvement Act of 1996 and the FCCS by October 1, 2004.
Office of Audit Comment: We believe
delaying corrective actions pending completion of negotiations with the NTEU is
unnecessary. It has been 8 years since
the Debt Collection Improvement Act of 1996 became law. The IRS should have implemented procedures
to comply with the law long before now.
Moreover, the current negotiations with the NTEU to obtain formal
agreement over these procedures have taken over 10 months, which does not
appear reasonable based on the scope of the proposed procedures.
2. Notify supervisors of employees with overdue relocation advances to remind their employees of the obligation to repay outstanding amounts.
Management’s Response: On an interim
basis, the Beckley Finance Center is sending notices to employees who fail to
pay a debt owed to the IRS; a copy of the notice is furnished to the supervisor
when the employee fails to pay a debt.
Once the debt collection procedures are implemented, demand letters will
be sent to employees, with a copy going to each employee’s supervisor.
3.
Revise the Interim
Relocation Handbook to specify how
soon a relocation advance must be repaid.
Management’s Response: The CFO will revise
the Interim Relocation Handbook to specify that all advances must be repaid
when the vouchers are filed. The CFO
has submitted a Quarterly Notice to the NTEU to negotiate requirements for
advance repayment.
Office of Audit Comment: Since the IRS
and NTEU have already negotiated employee debt collection issues, we believe
there is no need to delay this corrective action.
4.
Implement
procedures to contact employees who have not filed relocation vouchers within 3
to 6 months of requesting an advance to determine the status of their
relocations and the dates they plan to repay the advances.
Management’s Response: The CFO will
revise the Relocation Handbook to include procedures making it mandatory that
all advances be repaid when the relocation vouchers are filed. In addition, the CFO will need to revise the
following forms: Form 1038 and
Relocation Voucher (Form 8741).
Office of Audit Comment: We agree with IRS
management’s decision to make it mandatory for all advances to be repaid when
the relocation vouchers are filed.
However, this action will not address those instances in which an
employee does not file a voucher timely or at all. We believe formal follow-up is required in those cases in which
an employee has not filed a voucher within 3 to 6 months of requesting an
advance.
IRS employees are allowed to
make payment arrangements when they are unable to pay off their outstanding
administrative debts. For 9 of the 64
outstanding relocation advances we reviewed, the IRS permitted employees to
make the payments in installments or to set up salary deductions.
Employees
making installment payments send their payments directly to the Beckley Debt
Collection Unit where the payments are posted to the Automated Financial
System. However,
there is no system to monitor whether employees made the agreed-upon
payments. The Beckley Debt
Collection Unit staff believes the responsibility to
ensure repayment of a relocation advance is between the employee and his or her
immediate supervisor. Moreover,
the IRS has not implemented procedures to define how and when installment
agreements may be established for employee debts in accordance with the FCCS.
Of the
nine employees who agreed to pay back their relocation advances in
installments, three were making payments according to their agreements, three
were making payments but the terms were not recorded in the case histories, two
were making payments but not in accordance with the terms of their agreements,
and one had paid in full.
Without
procedures to establish and monitor installment agreements, the IRS cannot
determine which employees have defaulted on their payment arrangements.
5. The CFO should issue guidelines for establishing employee installment agreements and provide an appropriate method or system to monitor compliance with the agreements.
Management’s Response:
The CFO will implement debt collection policies and procedures, which
will provide for the establishment of installment agreements. The IRS may accept payment in regular
installments, if a debtor is financially unable to pay a debt in one lump sum.
Appendix I
Detailed Objective, Scope, and Methodology
The
overall objective was to determine whether procedures and practices are
adequate to facilitate timely repayment of relocation advances. The scope of the audit involved reviewing a
sample of outstanding relocation advances and 100 of 105 relocation advances
that had been written off as of May 2, 2003. To accomplish our objective, we:
I. Determined whether procedures and practices were adequate to facilitate timely repayment of relocation advances. We selected a random sample from a universe of 366 relocation advances that had been outstanding as of May 2, 2003. Of the 366 relocation advances, 200 had been outstanding for over 2 years. We selected a random sample of 64 advances from the 200 to evaluate the repayment process—the sample was not intended to provide a statistical projection.
II. Determined whether procedures and
practices were adequate to prevent the unnecessary write-off of outstanding
relocation advances from current and former employees.
III. Interviewed
Policies and Procedures Unit management and determined whether new procedures
(yet to be issued) will address any deficiencies that we identified.
Appendix II
Major
Contributors to This Report
Daniel R. Devlin, Assistant
Inspector General for Audit (Headquarters Operations and Exempt Organizations
Programs)
Michael E. McKenney, Director
Kevin P. Riley, Audit Manager
Charles Ekunwe, Senior Auditor
Kenneth E. Henderson, Senior Auditor
Rosemarie Maribello, Senior Auditor
Appendix III
Commissioner C
Office of the
Commissioner – Attn: Chief of
Staff C
Deputy Commissioner
for Operations Support OS
Chief, Agency-Wide
Shared Services OS:A
Director, Beckley
Finance Center OS:CFO:I:BFC
Chief
Counsel CC
National
Taxpayer Advocate TA
Director, Office
of Legislative Affairs CL:LA
Director, Office of
Program Evaluation and Risk Analysis
RAS:O
Office of
Management Controls OS:CFO:AR:M
Audit Liaisons:
Chief
Financial Officer OS:CFO
Chief, Agency-Wide Shared
Services OS:A
Appendix
IV
The response was removed due to its size. To see the response, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.