TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION

 

 

Attestation Review of the Internal Revenue Service’s Fiscal Year 2007 Annual Accounting of Drug Control Funds and Related Performance

 

 

 

January 31, 2008

 

Reference Number:  2008-10-058

 

 

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.

Phone Number   |  202-622-6500

Email Address   |  inquiries@tigta.treas.gov

Web Site           |  http://www.tigta.gov

 

January 31, 2008

 

 

MEMORANDUM FOR CHIEF FINANCIAL OFFICER

 

FROM:                   (for)  Michael R. Phillips /s/ Michael E. McKenney

Deputy Inspector General for Audit

 

SUBJECT:                    Final Audit Report – Attestation Review of the Internal Revenue Service’s Fiscal Year 2007 Annual Accounting of Drug Control Funds and Related Performance (Audit # 200710038)

 

This report presents the results of our attestation review of the Internal Revenue Service’s (IRS) Fiscal Year (FY) 2007 Office of National Drug Control Policy (ONDCP)[1] Detailed Accounting Submission and Performance Summary Report (the Report).  The purpose of this review was to express a conclusion about the reliability of each assertion made in the Report.

Impact on the Taxpayer 

The IRS reported that it expended $58.4 million on ONDCP-related activities and completed 654 ONDCP-related investigations in FY 2007.  Overall, the methodology used to calculate the IRS’ FY 2007 Report was clearly explained and adequately documented.  Complete and reliable financial and performance information is critical to the IRS’ ability to accurately report on the results of its operations to both internal and external stakeholders, including taxpayers. 

Synopsis

Overall, the methodology used to calculate the IRS’ FY 2007 Report was clearly explained and adequately documented.  However, in our opinion, the performance measure reported by the IRS could be improved to better represent the IRS’ contribution to the National Drug Control Strategy.  Specifically, by reporting only the number of ONDCP-related investigations completed, the IRS is providing very little information on the effectiveness of its efforts. 

In addition, our testing of the IRS ONDCP performance information for reasonableness identified that 47 (7 percent) of the 654 investigations reported as completed in FY 2007 were both initiated and completed on the same day and resulted in referral for prosecution, based on the supporting documentation provided.  The IRS informed us that the 47 investigations were all related to other investigations and were worked as part of the related investigations.  The IRS concluded that the 47 cases were not tracked as unique investigations until approximately the time the cases were forwarded for prosecution.  While the IRS’ explanation for the reporting of these types of investigations appears reasonable, we are unable to adequately verify it without a detailed review of at least a sample of investigation case files, which is significantly beyond the scope of this review. 

Based on our review, with the exception of the matters discussed above, nothing came to our attention to indicate that the assertions are not presented, in all material respects, in accordance with ONDCP-established criteria. 

Recommendation

We recommended the Chief Financial Officer, in coordination with the Chief, Criminal Investigation Division, expand the performance information used to report the IRS’ contribution to the National Drug Control Strategy to include additional measures that specifically address program effectiveness.

Response

The IRS agreed to consider expanding the performance information it reports.  Specifically, the IRS will evaluate potential performance measures and, in particular, will look at the measures used by the other agencies that support the National Drug Control Strategy. 

Copies of this report are also being sent to the IRS managers affected by the report recommendation.  Please contact me at (202) 622-6510 if you have questions or Nancy Nakamura, Assistant Inspector General for Audit (Headquarters Operations and Exempt Organizations Programs), at (202) 622-8500.

 

 

Table of Contents

 

Background

Results of Review

The Methodology Used to Calculate the Internal Revenue Service’s Fiscal Year 2007 Report Was Clearly Explained and Adequately Documented

Recommendation 1:

Appendices

Appendix I – Detailed Objective, Scope, and Methodology

Appendix II – Major Contributors to This Report

Appendix III – Report Distribution List

Appendix IV – Internal Revenue Service Fiscal Year 2007 Detailed Accounting Submission and Performance Summary Report

Appendix V – Management’s Response to the Draft Report

 

 

Abbreviations

 

FY

Fiscal Year

IRS

Internal Revenue Service

ONDCP

Office of National Drug Control Policy

 

 

Background

 

National Drug Control Program agencies are required to submit to the Director of the ONDCP, not later than February 1 of each year, a detailed accounting of all funds expended.

The Anti-Drug Abuse Act of 1988[2] establishes as a policy goal the creation of a drug-free America.  A key provision of the Act is the establishment of the Office of National Drug Control Policy (ONDCP) to set priorities, implement a national strategy, and certify Federal Government drug control budgets.  The Internal Revenue Service (IRS) Narcotics Program supports the National Drug Control Strategy with continued support of joint agency task forces (e.g., the Organized Crime and Drug Enforcement Task Force and High Intensity Drug Trafficking Area Task Force) through the use of asset forfeiture legislation, international training programs, and assistance programs.

This review was conducted as required by the National Drug Enforcement Policy (21 U.S.C. Section 1704(d)) and the ONDCP Circular Annual Accounting of Drug Control Funds, dated May 1, 2007.  The National Drug Control Program agencies[3] are required to submit to the Director of the ONDCP, not later than February 1 of each year, a detailed accounting of all funds expended (the ONDCP Circular requires amounts obligated) during the previous fiscal year.  Agencies also need to identify and document performance measure(s) that justify the results associated with these expenditures.  Further, the Circular requires that each report be provided to the agency’s Inspector General for the purpose of expressing a conclusion about the reliability of each assertion made in the report prior to its submission.  Beginning in Fiscal Year (FY) 2006, ONDCP funding became a part of the IRS budget.  In prior years, IRS-related ONDCP funds expended were reimbursed by the Department of Justice. 

This review was performed at the IRS Headquarters offices of the Chief Financial Officer and Chief, Criminal Investigation Division, in Washington, D.C., during the period October through December 2007.  Our review was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants.  An attestation review is substantially less in scope than an examination, the objective of which is the expression of an opinion on the Report.  Accordingly, we do not express such an opinion. 

Detailed information on our audit objective, scope, and methodology is presented in Appendix I.  Major contributors to the report are listed in Appendix II.

 

 

Results of Review

 

The Methodology Used to Calculate the Internal Revenue Service’s Fiscal Year 2007 Report Was Clearly Explained and Adequately Documented

We reviewed the IRS’ FY 2007 ONDCP Detailed Accounting Submission and Performance Summary Report (the Report) (see Appendix IV).  The Report was prepared pursuant to 21 U.S.C. Section 1704(d) and the ONDCP Circular Annual Accounting of Drug Control Funds.  It is the responsibility of the IRS. 

The Report assertions, as required by Section 6.b. of the ONDCP Circular, include statements that the methodology used is reasonable and accurate, including explanations and documentation of estimation assumptions used; the methodology disclosed was the actual methodology used; and the data presented are associated with obligations against a financial plan that reflects changes, if made.  The assertions, as required by Section 7.b. of the ONDCP Circular, include statements that the performance reporting system is appropriate and applied, explanations for not meeting any performance targets are reasonable, and the methodology used to establish performance targets is reasonable and correctly applied.  The ONDCP-established criteria include well-documented sources of data, documented and explained calculations, and a complete and fair presentation of data from financial systems.  The IRS reported that it expended $58.4 million on ONDCP-related activities and completed 654 ONDCP-related investigations in FY 2007. 

Overall, the methodology used to calculate the IRS’ FY 2007 Report was clearly explained and adequately documented.  However, in our opinion, the performance measure reported by the IRS could be improved to better represent the IRS’ contribution to the National Drug Control Strategy.  Specifically, by reporting only the number of ONDCP-related investigations completed, the IRS is providing very little information on the effectiveness of its efforts.  Measures that would provide a better indicator of the effectiveness of the IRS’ ONDCP-related efforts include the number of prosecution referrals, the number of convictions, and the conviction rate.  Complete and reliable financial and performance information is critical to the IRS’ ability to accurately report on the results of its operations to both internal and external stakeholders, including taxpayers.

In addition, our testing of IRS ONDCP performance information for reasonableness identified that 47 (7 percent) of the 654 investigations reported as completed in FY 2007 were both initiated and completed on the same day and resulted in referral for prosecution, based on the supporting documentation provided.  The IRS informed us that the 47 investigations were all related to other investigations and were worked as part of the related investigations.  It concluded that the 47 cases were not tracked as unique investigations until approximately the time the cases were forwarded for prosecution.  While the IRS’ explanation for the reporting of these types of investigations appears reasonable, we are unable to adequately verify it without a detailed review of at least a sample of investigation case files, which is significantly beyond the scope of this review. 

Based on our review, with the exception of the matters discussed above, nothing came to our attention to indicate that the assertions are not presented, in all material respects, in accordance with ONDCP-established criteria. 

Recommendation

Recommendation 1:  The Chief Financial Officer, in coordination with the Chief, Criminal Investigation Division, should expand the performance information used to report the IRS’ contribution to the National Drug Control Strategy to include additional measures that specifically address program effectiveness.

Management’s Response:  The IRS agreed to consider expanding the performance information it reports.  Specifically, the IRS will evaluate potential performance measures and, in particular, will look at the measures used by the other agencies that support the National Drug Control Strategy.

* * * * *

While this report is an unrestricted public document, the information it contains is intended solely for the use of the IRS, the United States Department of the Treasury, the ONDCP, and Congress.  It is not intended to be, and should not be, used by anyone other than these specified parties.

 

Appendix I

 

Detailed Objective, Scope, and Methodology

 

Our overall objective was to perform an attestation review of the IRS’ FY 2007 ONDCP Detailed Accounting Submission and Performance Summary Report (the Report),[4] for the purpose of expressing a conclusion about the reliability of each assertion made in the Report.  To accomplish our objective, we:

I.                   Obtained an understanding of the process used to prepare the FY 2007 Report.

A.    Discussed the process to record and report ONDCP expenditures and performance information with responsible IRS personnel.

B.     Obtained documents that show the methodology used, such as written procedures, supporting worksheets, and recording modifications.

II.                Evaluated the reasonableness of the drug methodology process.

A.    Reviewed data supporting the Detailed Accounting Submission segment of the Report to establish the relationship to the amounts being reported.

B.     Reviewed the estimation methods used for consistency with reported amounts. 

III.             Performed sufficient verifications of reported obligations to support our conclusion on the reliability of the assertions.

A.    Verified whether the Detailed Accounting Submission segment of the Report included all elements specified in Section 6 of the ONDCP Circular Annual Accounting of Drug Control Funds.

B.     Verified the mathematical accuracy of the obligations presented in the Table of the FY 2007 Drug Control Obligations.

C.     Traced the information contained in the Table of the FY 2007 Drug Control Obligations to the supporting documentation.

IV.             Evaluated the reasonableness of the methodology used to report performance information for National Drug Control Program Agency activities.

A.    Reviewed data supporting the Performance Summary segment of the Report to establish its relationship to the National Drug Control Program Agency activities being reported.

B.     Reviewed the estimation methods for consistency with reported performance information.

V.                Performed sufficient verifications of reported performance information to support our conclusion of the reliability of the assertions.

A.    Verified whether the Performance Summary segment of the Report includes all elements specified in Section 7 of the ONDCP Circular Annual Accounting of Drug Control Funds.

B.     Verified the mathematical accuracy of the performance information presented.

C.     Traced the performance information presented to the supporting documentation.

D.    Reviewed the supporting documentation for reasonableness.

 

Appendix II

 

Major Contributors to This Report

 

Nancy Nakamura, Assistant Inspector General for Audit (Headquarters Operations and Exempt Organizations Programs)

Alicia Mrozowski, Director

Anthony J. Choma, Audit Manager

Mildred Rita Woody, Lead Auditor

Richard Louden, Senior Auditor

Angela Garner, Auditor

Rashme Sawhney, Auditor

 

Appendix III

 

Report Distribution List

 

Acting Commissioner  C

Office of the Commissioner – Attn:  Acting Chief of Staff  C

Deputy Commissioner for Operations Support  OS

Deputy Commissioner for Services and Enforcement  SE

Chief, Criminal Investigation Division  SE:CI

Deputy Chief, Criminal Investigation Division  SE:CI

Deputy Chief Financial Officer  OS:CFO

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 Internal Control  OS:CFO:CPIC:IC

Audit Liaisons:

            Chief, Criminal Investigation Division  SE:CI

Chief Financial Officer  OS:CFO

 

Appendix IV

 

Internal Revenue Service Fiscal Year 2007
Detailed Accounting Submission and Performance Summary Report

 

 

The report was removed due to its size.  To see the report, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.

 

Appendix V

 

Management’s Response to the Draft Report

 

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.



[1] The ONDCP was established in 1988 to set priorities, implement a national strategy, and certify Federal Government drug control budgets by the Anti-Drug Abuse Act of 1988, P.L. 105-277 (Division C-Title VII), Section 707(d).

[2] P.L. 105-277 (Division C-Title VII), Section 707(d).

[3] A National Drug Control Program agency is defined as any agency that is responsible for implementing any aspect of the National Drug Control Strategy.

[4] See Appendix IV.