TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION
Indian Tribal Noncompliance With the Bank Secrecy Act Is Effectively Identified and Addressed, but Improvements Can Be Made
August 29, 2008
Reference Number: 2008-10-140
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.
Redaction Legend:
1 = Tax Return/Return Information
2(e) = Law Enforcement Procedure(s)Phone Number |
202-622-6500
Email Address
| inquiries@tigta.treas.gov
Web Site |
http://www.tigta.gov
August 29, 2008
MEMORANDUM
FOR
COMMISSIONER, SMALL BUSINESS/SELF-EMPLOYED DIVISION
COMMISSIONER, TAX EXEMPT AND GOVERNMENT ENTITIES DIVISION
FROM: Michael R. Phillips /s/ Michael R. Phillips
Deputy Inspector General for Audit
SUBJECT: Final Audit Report – Indian Tribal Noncompliance With the Bank Secrecy Act Is Effectively Identified and Addressed, but Improvements Can Be Made (Audit # 200810027)
This report presents the results of our review of the
Internal Revenue Service’s (IRS) effectiveness in identifying and addressing
Indian tribal governments’ noncompliance with the Bank Secrecy Act (BSA).[1]
Our overall objective was to determine whether
the IRS effectively identified and addressed Indian tribal entities that are
potentially not compliant with the BSA.
This review was conducted as part of the Treasury Inspector General for
Tax Administration Office of Audit Fiscal Year 2008 Annual Audit Plan related
to the Major Management Challenge of tax compliance initiatives.
Impact on the Taxpayer
The BSA requires certain businesses to submit reports of large‑dollar
cash transactions for use by law enforcement agencies in identifying terrorist funding, money laundering, and other
illegal activity. The IRS is effective
at identifying and addressing BSA noncompliance in the $25 billion per
year Indian tribal gaming industry. However,
improvements could further assure that tribal noncompliance can be addressed
through enforcement action to deter future criminal activities and identify Indian tribes with the highest risk of
noncompliance.
Synopsis
The Indian Tribal Governments (ITG) office and the Small Business/Self-Employed Division Fraud/BSA function have been effective in identifying and addressing Indian tribal entities that are not compliant with the BSA. The IRS has identified 286 tribal entities–out of a population of more than 2,500–that are required to comply with the BSA and has focused its efforts on those with the highest risk of noncompliance. When indications of noncompliance are identified, the IRS takes action to correct these deficiencies by providing increased educational contacts to help tribes understand BSA requirements, pursuing unfiled information reports during educational contacts and examinations, and referring cases with willful noncompliance to the IRS Criminal Investigation Division to develop for prosecution. If the Criminal Investigation Division does not accept a case for further development, the IRS Fraud/BSA function can forward the case to the Financial Crimes Enforcement Network[2] for potential penalty assessment when appropriate.[3] Examinations of all 286 tribal entities required to comply with the BSA have not been performed. However, the IRS had identified noncompliance in 34 (97 percent) of the 35 examinations closed from September 30, 2005, through November 9, 2007, that we reviewed.[4]
Improvements could further assure that tribal noncompliance can be detected and acted upon. For example, the ITG office and Fraud/BSA function could not account for all Notifications of Possible IRS Check to Verify Maintenance of Required Records and Filing Reports (Letter 1052), which are used to advise tribal entities of their BSA compliance responsibilities. Without documented evidence that tribes were notified of their responsibilities, the IRS cannot take enforcement actions such as penalty assessments against tribes that have not complied with the BSA.
During the audit, we presented the results of our tests for the accounting of Letters 1052 to IRS management, who recognized the need to better account for the Letters. In a revised Memorandum of Understanding dated March 6, 2008, the ITG office accepted responsibility for accounting for Letters 1052 after they have been issued to tribal entities. In addition, an ITG office official informed us that the Letters would be kept in a central location so that they could be easily located.
The
Fraud/BSA function primarily selects entities for examination from a list
provided by the ITG office that is prioritized based on a risk analysis. However, feedback to ITG office management on
the effectiveness of the risk analysis is infrequently provided and only
addresses individual cases. Further
feedback was limited because the database used to record the population of tribal entities
required to comply with the BSA and data on BSA examinations contained incomplete
and inaccurate information. In addition,
there is no structured feedback process requiring the Fraud/BSA function to
advise the ITG office as to why entities were selected for examination or to
provide the actual results of the examinations.
Sharing this information could help the ITG office improve the risk
assessment process to focus on issues with greater impact.
During the audit,
we presented our conclusion that there was no structured feedback process
requiring the Fraud/BSA function to provide the ITG office the results of
examinations. In a revised Memorandum of
Understanding dated March 6, 2008, the Fraud/BSA function agreed to provide the
results of examinations to the ITG office.
Recommendations
We recommended that the Director, Fraud/BSA, ensure that the Fraud/BSA function database is complete and accurate by performing periodic reconciliations with the ITG office database and by completing all applicable fields in the Fraud/BSA function database when data are available. We also recommended that the Director, Fraud/BSA, provide feedback to the ITG office about why Indian tribal entities were selected for examination and instances when a case is closed without an examination.
Response
IRS management agreed with our
recommendations and provided planned actions to address them. These actions include 1) reconciling the Fraud/BSA
function database with the ITG office database and ensuring that all applicable
fields in the Fraud/BSA function database are completed when information is
available, and 2) providing information to the ITG office as to why entities are
selected for examination or instances when referrals are closed without an
examination. Management’s complete
response to the draft report is included as Appendix V.
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 Nancy A. Nakamura, Assistant Inspector General for Audit (Headquarters Operations and Exempt Organizations Programs), at (202) 622-3837.
Appendices
Appendix
I – Detailed Objective, Scope, and Methodology
Appendix
II – Major Contributors to This Report
Appendix
III – Report Distribution List
Appendix V –
Management’s Response to the Draft Report
Abbreviations
|
BSA |
Bank Secrecy Act |
|
FinCEN |
Financial Crimes Enforcement Network |
|
IRS |
Internal Revenue Service |
|
ITG |
Indian Tribal Governments |
Title 31 of the Bank Secrecy Act[5] (BSA)
requires certain businesses to keep records and provide reports to the Federal
Government about large‑dollar and suspicious financial transactions. These reports are greatly used by domestic
and international law enforcement agencies and serve as a tool for identifying
and intercepting terrorist funding and uncovering other criminal activity, such
as money laundering. For example, the
Financial Crimes Enforcement Network (FinCEN), an organization within the
Department of the Treasury that has overall authority for enforcement of the BSA,
recently reported that BSA documents were used to trace millions of dollars of
organized crime-controlled sports-betting proceeds through casinos. According to police, the ring handled several
million dollars a month and its operators paid “tributes” to organized crime
figures.
Within the Internal
Revenue Service (IRS), the Small Business/Self-Employed Division Fraud/BSA
function has overall responsibility for the BSA Program. In addition, the Tax Exempt and Government
Entities Division Indian Tribal Governments (ITG) office assumed responsibility
for administering some parts of the BSA program for Indian tribes in April 2002
by signing a Memorandum of Understanding with the Fraud/BSA function.
Law
enforcement agencies use reports of large-dollar and suspicious transactions
for identifying and intercepting terrorist funding and other criminal activity
through casinos and banks, including the $25 billion Indian tribal gaming
industry.
Currently, 225
tribes operate 442 casinos. According to
the National Indian Gaming Association, estimated revenues from these
operations have climbed at double-digit rates and increased from $17 billion to
almost $25 billion in the last 2 years.[6] Tribal
gaming is the fastest growing segment of the gaming industry. IRS examinations have regularly
encountered weak internal control practices on the part of nontaxable entities,
including Indian tribal casinos. These
weaknesses can result in tribal casinos being used as accommodating parties to
enable money laundering to occur[7] because tribal entities, as sovereign
governments, are not required to file income tax returns to report income.
While this report discusses some of the results of BSA enforcement activities, our audit scope did not include evaluating activities completed by the 1) Fraud/BSA function to obtain missing large‑dollar or suspicious transaction reports as the result of an examination, 2) IRS Criminal Investigation Division to pursue criminal sanctions, or 3) FinCEN to pursue the assessment of penalties. In addition, this audit was conducted while changes were being made to the BSA program. Any changes that have occurred since we concluded our analyses in April 2008 are not reflected in this report. Consequently, this report might not reflect the most current status of the IRS BSA program.
This review was performed at the Tax Exempt and Government
Entities Division ITG Headquarters Office and the Small Business/Self-Employed Division Fraud/BSA function in
Noncompliance Is Identified and Addressed, but Improvements Could Further Assure That Potential Criminal Activities Are Detected and Acted Upon
The ITG office and the Small Business/Self-Employed Division Fraud/BSA function have been effective in identifying and addressing Indian tribal entities that are not compliant with the BSA. The IRS has identified tribes required to comply with the BSA and focused its efforts on those with the highest risk of noncompliance. When indications of noncompliance are identified, the IRS takes action to correct these deficiencies by providing increased educational contacts to help tribes understand BSA requirements, pursuing unfiled information reports during educational contacts and examinations, and referring cases with willful noncompliance to the IRS Criminal Investigation Division to develop for prosecution. If the Criminal Investigation Division does not accept a case for further development, the Fraud/BSA function can forward the case to the FinCEN for potential penalty assessment when appropriate.[9]
However, improvements could further assure that tribal noncompliance can be addressed through enforcement action to deter future criminal activities and identify Indian tribes with the highest risk of noncompliance.
Noncompliance with the BSA is identified and addressed
The Memorandum of Understanding between the ITG office and Fraud/BSA function includes procedures for identifying and addressing potential noncompliance with the BSA and is intended to maximize effectiveness and efficiency by assigning responsibility to each office according to its area of expertise. The procedures outlined in the Memorandum of Understanding are consistent with internal guidelines in the Internal Revenue Manual, and we did not identify any omissions that would have a material effect on the BSA program. More importantly, the procedures in the Memorandum of Understanding are effective in identifying and addressing noncompliance with the BSA.
Identifying
noncompliance
The ITG office and Fraud/BSA function effectively identify noncompliance
by performing an annual analysis to identify high‑risk entities and to select
entities for examination based on the risk analysis. Examinations of books and records for a
limited number of tribal entities have identified a high percentage of actual
noncompliance.
Through outreach efforts and Internet research for revenue indicators
such as the number of tables or games at casinos, the IRS has identified
286 tribal entities–out of a population of more than 2,500–that are required to
comply with the BSA. The ITG office uses ratios and a point system–which includes input from the Federal Bureau
of Investigation and ITG office field specialists who are familiar with tribal
businesses–to determine which of
the 286 tribal entities have the highest risk of being noncompliant with the
BSA. For example, a specialist might have
specific knowledge of internal control weaknesses within the tribal entity’s
operations or might have received a referral from a tribal employee. When completed, the final prioritized
list of tribal entities with potential noncompliance is forwarded to the
Fraud/BSA function for examination consideration.
The Fraud/BSA function generally selected tribal entities for
examination based on the results of the ITG office risk analysis and identified
noncompliance from most entities selected.
Examinations of all 286 tribal
entities required to comply with the BSA have not been performed. However, the IRS identified noncompliance in
34 (97 percent) of the 35 examinations closed from September 30, 2005,
through November 9, 2007, that we reviewed.[10]
·
Reporting
violations – Reporting violations were identified in 26 (74 percent) of the 35 examinations
because entities failed to report large-dollar or suspicious transactions to
the IRS. For example, a reporting
violation occurs when an individual exchanges more than $10,000 in cash for
chips in a casino and the exchange is not reported to the IRS on a Currency
Transaction Report by Casinos (FinCEN Form 103). Another example of a reporting violation is a
casino’s failure to file a Suspicious Activity Report by Casinos and Card Clubs
(FinCEN Form 102) for any suspicious activity or transaction of less than
$10,000. Information on these Forms is
used by law enforcement agencies to help identify individuals who might be
involved in laundering large amounts of money related to criminal activities.
·
Recordkeeping
violations – Recordkeeping violations were identified in 20 (57 percent) of the 35 examinations
because casinos did not document and retain identifying information on
individuals making certain transactions in a casino (e.g., casinos failed to
maintain or document the names and addresses of individuals who might have a
credit account with the casino). These
records are used by law enforcement agencies to identify specific individuals
who might be involved in illegal activities.
·
Program violations – Program
violations were identified in 19 (54 percent) of the 35 examinations
because casinos did not include certain internal control procedures in their
BSA programs. For example, casinos’ BSA
programs did not include or document independent
testing of internal controls to identify reportable transactions and employee
training that emphasized identification of large‑dollar and suspicious
cash transactions.
Addressing noncompliance
The IRS has effectively addressed noncompliance by 1) conducting BSA compliance checks for entities that are not examined but are at risk of being noncompliant, 2) creating procedures to obtain missing documentation during examinations, and 3) referring cases with willful noncompliance to the IRS Criminal Investigation Division to develop for prosecution. If the Criminal Investigation Division does not accept a case for further development, the Fraud/BSA function can forward the case to the FinCEN for potential penalty assessment when appropriate.
·
Between
January 2007 and February 2008, the ITG office completed 49 BSA compliance
checks to review BSA procedures for tribal entities at risk of noncompliance
but not examined by the Fraud/BSA function.
Unlike an examination or audit, a BSA compliance check is a
voluntary process (for the tribe) wherein an ITG office field specialist
interviews key personnel in the tribe and asks questions about the tribe to
determine whether all recordkeeping and information-reporting requirements are
being met. The ITG office field
specialist documents an assessment of the compliance risk and any
recommendations for future activity needed for that tribal entity. Corrective actions were taken and/or recommendations were made to correct internal
weaknesses in 42 (86 percent) of the 49 BSA compliance checks. For example, the ITG office specialists assisted
entities in completing and filing delinquent information reports, advised them
regarding improving detection of reportable suspicious activities, and made
recommendations for employee training required under the BSA.
·
The Fraud/BSA function has developed procedures requiring examiners
to request that tribes submit or prepare any unfiled information reports that
are identified when they are conducting examinations. We observed and reviewed evidence in
examination case files that examiners follow these procedures when appropriate.
· The Fraud/BSA function also addressed willful noncompliance by referring cases to the FinCEN for potential penalty assessment when appropriate. We determined that 3 (9 percent) of the 35 closed examinations identified willful noncompliance, and the cases were referred to the FinCEN. ****1, 2(e)****
Improved accounting for BSA notification will help assure that enforcement action can be taken
The ITG office and Fraud/BSA function could not account for all Notifications of Possible IRS Check to Verify Maintenance of Required Records and Filing Reports (Letter 1052),[11] which are used to advise tribal entities of their BSA compliance requirements. The Memorandum of Understanding requires the ITG office to forward copies of Letters 1052 to the Fraud/BSA function after the Letters have been issued to tribal entities. The Fraud/BSA function is responsible for accounting for the Letters. If tribes are not notified, they might not be aware of their BSA reporting requirements, which could lead to reduced compliance. Without documented evidence that tribes were notified of their responsibilities, the IRS cannot take enforcement actions such as penalty assessments against tribes that have not complied with the BSA, which could also result in revenue lost to the Federal Government.
We determined that
the IRS could account for only 65 (71 percent) of the 92 Letters 1052 we requested
for review. However, ITG office and
Fraud/BSA function management stated that they are confident that all Letters
1052 were issued. They further explained
that they believed that the Letters could not be easily located because the responsibilities
for issuing and retaining Letters 1052 were once decentralized.
In August 2005, the ITG office
accepted responsibility for issuing Letters 1052 from the Fraud/BSA function. ITG office management stated that prior to
approval of the Memorandum of Understanding, ITG office specialists made
personal visits to each casino in their areas and issued Letters 1052. However, copies of the Letters were not
always retained or could not be located. In addition, Fraud/BSA function management stated that their
copies of Letters 1052 were filed in examination case files in the field
offices where the tribal entities were located.
Filing of Letters 1052 was centralized in a new office within the
Fraud/BSA function in November 2006, but not all Letters were accounted for.
Management Actions: During the audit, we presented the results of our tests for the accounting of Letters 1052 to IRS management, who recognized the need to better account for the Letters. In a revised Memorandum of Understanding dated March 6, 2008, the ITG office accepted responsibility for accounting for Letters 1052 after they have been issued to tribal entities. In addition, an ITG office official informed us that the Letters would be kept in a central location so that they could be easily located. Because the IRS has taken corrective actions, we are making no recommendations regarding Letters 1052 at this time.
Improved feedback could
focus risk assessments on issues with greater impact
As stated previously, the Fraud/BSA function primarily selects entities
for examination from a list provided by the ITG office that is prioritized
based on a risk analysis. However,
feedback to ITG office management on the effectiveness of the risk analysis is infrequently
provided and only addresses individual cases.
Further feedback was limited because the database used to record the
population of tribal entities required to comply with the BSA and data on BSA examinations
contained incomplete and inaccurate
information. In addition, there is no structured feedback
process requiring the Fraud/BSA function to advise the ITG office as to why
entities were selected for examination or to provide the actual results of the
examinations. Sharing this information could
help the ITG office improve the risk assessment process to focus on issues with
greater impact.
The Fraud/BSA function maintains a database (the BSA database) comprised
of entities engaged in businesses dealing with large amounts of cash, such as
casinos, currency exchanges, check cashers, and dealers of gold. This database is used to record the
population of tribal entities required to comply with the BSA. In addition, certain fields within the
database include information such as the reasons for and the results of
examinations.
We reviewed an extract of the population of 376 tribal entities from the BSA database and determined that the data
were incomplete and inaccurate.[12]
·
142 (38 percent) of 376 records in the BSA database
did not include information identifying each tribal entity (i.e., Employer Identification
Number[13]).
·
14 (6 percent) of the remaining 234 records with Employer
Identification Numbers in the BSA database were inaccurate and did not
have corresponding records in the ITG office database. ****1**** This part
of the BSA database should include only Indian tribal information.
Without complete and correct data, the Fraud/BSA function does not have
an accurate population of entities subject to the BSA requirements. Fraud/BSA function management stated that the
BSA database would never fully agree with the ITG database. The BSA database might have entries for two
casinos that use one Employer Identification Number. The ITG database would probably contain only
one entry for the one Employer Identification Number.
In addition,
Fraud/BSA function management cannot easily identify why entities were selected
for examination. During our review of
data for examinations completed during Fiscal Years 2005 through 2007,[14] we could identify
why the entity was selected for examination for only 5 (4 percent) of 120 entities.[15] Fraud/BSA function management advised that the
reasons for selecting entities for examination are currently documented only in
the examination case files. In addition, Fraud/BSA function management
advised us that they inherited the BSA database from another office and do not
input data in all fields.
Therefore, the Fraud/BSA function cannot systematically inform the ITG
office of the results of examinations and why particularly productive cases
were chosen for examination. Without
this feedback, the ITG office might be unable to improve its risk analysis to
better focus on issues with greater impact.
For example, it might be useful for the ITG office to know why seven examinations were surveyed (not examined) so that
this information could be considered during the next risk analysis or
compliance checks could be performed if needed.
Management Actions: During the audit, we presented our conclusion that there was no structured feedback process requiring the Fraud/BSA function to provide the ITG office with the results of examinations. In a revised Memorandum of Understanding dated March 6, 2008, the Fraud/BSA function agreed to provide the results of examinations to the ITG office. Because the IRS has taken corrective actions, we are making no recommendations regarding this issue.
After our audit fieldwork
had concluded, Fraud/BSA
function management advised us that the BSA database is being replaced in
the first quarter of Fiscal Year 2009, and the new database will not include “reason
for” and “results of examination” database fields. Fraud/BSA function management also advised us
that new database fields cannot be added until a later release of the new
system, possibly in Fiscal Year 2010 or later.
Recommendations
Recommendation 1: The Director, Fraud/BSA, should ensure that the BSA database is complete and accurate by:
a) Performing periodic reconciliations of the Fraud/BSA function and the ITG office databases.
b) Completing all applicable fields in the BSA database when data are available.
Management’s Response: IRS management agreed with the recommendation. By December 15, 2008, the BSA Policy and Operations manager will provide confirmation to the Director, Fraud/BSA, that a reconciliation of the Fraud/BSA function and the ITG office databases has been completed. The reconciliation will include checks to ensure that all applicable fields in the BSA database are completed when information is available. This reconciliation, in accordance with article 7 of the new Memorandum of Understanding, will be required on a semiannual basis, and its results will be shared with the ITG office.
Recommendation 2: The Director, Fraud/BSA, should provide feedback to the ITG office about:
a) Why Indian tribal entities were selected for examination.
b) Instances when a case is closed without an examination.
Management’s Response: IRS management agreed with the
recommendation. The Fraud/BSA function will provide the ITG office with
classification sheets for each case selected for examination. The classification sheets reflect why an
entity is selected for examination. The
Fraud/BSA function will provide the sheets to the ITG office upon completion of
the examination or when the decision is made to close the referral without an
examination.
Appendix I
Detailed Objective, Scope, and Methodology
The overall objective of this review was to determine whether the IRS effectively
identified and addressed Indian tribal entities that are potentially not compliant
with the BSA.[16] To
accomplish this objective, we:
I.
Compared
the Memorandum of Understanding
between the ITG office and the Fraud/BSA function to guidance outlined in the Internal Revenue Manual to determine
whether there were any omissions that would have a material effect on the BSA
program for tribal entities.
II.
Determined
whether the ITG office informed tribal governments of their compliance
responsibilities and performed risk analyses to identify tribal entities
needing additional contact, as outlined in the Memorandum of
Understanding. We determined whether the ITG office:
A. Performed risk analyses to identify tribal
entities for potential noncompliance with the BSA and Internal Revenue Code Section
6050(I).[17]
B.
Referred tribal entities to the Fraud/BSA
function for potential examination.
C.
Performed BSA and Internal Revenue Code Section 6050(I)
compliance checks on tribal entities not selected for examination by the Fraud/BSA function.
III.
Determined
whether the Fraud/BSA function
fulfilled its responsibilities outlined in the Memorandum of
Understanding. We determined whether the Fraud/BSA function:
A. Maintained a Fraud/BSA function database (the
BSA database), received from the ITG office, of tribal entities required to
comply with the BSA and Internal Revenue Code Section 6050(I). To accomplish this, we requested and reviewed an
extract of the population of 376 tribal entities from the BSA database. The IRS performed examinations on 120 (32
percent) of the 376 tribal entities during Fiscal Years 2005 through 2007. Data
validity tests were performed to determine whether the data were accurate (e.g.,
dates were not included in numeric fields) and complete (e.g., data were not
missing from fields). We also compared
data fields to examination case files and compared records in the BSA database
to records in the ITG database.
B.
Maintained copies of Notifications of
Possible IRS Check to Verify Maintenance of Required Records and Filing Reports
(Letter 1052). To accomplish this, we reviewed the 65 Letters
1052 received out of the 92 Letters 1052 we had requested. The 92 Letters 1052 represent all
Letters associated with examinations or compliance checks conducted on tribal
entities during the period September 30, 2005, through November 9, 2007.
C.
Performed BSA and Internal Revenue Code Section 6050(I)
examinations of tribal entities identified by the ITG office as being at risk
of noncompliance. To accomplish this, we
reviewed 35 of the 46 examinations closed during the period September 30, 2005,
through November 9, 2007. The data
extract provided to us by the Fraud/BSA function showed 46 records of
examination cases were closed during the period. Four cases could not be located, and we did
not review seven additional cases because they had been surveyed and not
examined.
D. Forwarded the results of BSA and Internal
Revenue Code Section 6050(I) examinations to the ITG office.
E.
Referred tribal entities that might not have
complied with the BSA and Internal Revenue Code Section 6050(I) to the
FinCEN for potential penalty assessments.
IV.
Determined
whether actions taken by the ITG office and Fraud/BSA function were effective in identifying and addressing
tribal entities with the highest risk of noncompliance with the BSA. We determined whether:
A. Fraud/BSA function examination results for tribal entities
showed that the ITG office risk analysis criteria were good indicators of
noncompliance.
B.
The ITG office used feedback from the Fraud/BSA function
to refine its criteria for
identifying potentially noncompliant tribal entities.
C.
The Fraud/BSA function examined the highest priority entities based
on the list provided by the ITG office.
D. The Fraud/BSA function created taxpayer burden by reviewing lower
priority cases that did not identify noncompliance.
Internal
controls methodology
Internal controls relate to management’s plans, methods, and procedures used to meet their mission, goals, and objectives. Internal controls include the processes and procedures for planning, organizing, directing, and controlling program operations. They include the systems for measuring, reporting, and monitoring program performance. We determined that the following internal controls were relevant to our objective: the ITG office and Fraud/BSA function policies, procedures, and practices for identifying and addressing potential noncompliance with the BSA. We evaluated these controls by interviewing management, reviewing applicable information, and reviewing BSA examination cases referred to the Fraud/BSA function by the ITG office.
Appendix II
Major Contributors to This Report
Nancy
A. Nakamura, Assistant Inspector General for Audit (Headquarters Operations and
Exempt Organizations Programs)
Troy
D. Paterson, Director
Gerald
T. Hawkins, Audit Manager
Julia
Moore, Lead Auditor
Andrew
J. Burns, Senior Auditor
Marjorie
A. Stephenson, Senior Auditor
Yolanda
D. Brown, Auditor
Appendix III
Commissioner C
Office
of the Commissioner – Attn: Chief of
Staff C
Deputy Commissioner for Services and Enforcement SE
Chief, Criminal Investigation SE:CI
Deputy Commissioner, Small Business/Self-Employed Division SE:S
Deputy Commissioner, Tax Exempt and Government Entities Division SE:T
Director, Fraud/Bank Secrecy Act, Small Business/Self-Employed Division SE:S:F/BSA
Director, Government Entities, Tax Exempt and Government Entities Division SE:T:GE
Director, Indian Tribal Governments, Tax Exempt and Government Entities Division SE:T:GE:ITG
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
Director, Communications and Liaison, Tax Exempt and Government Entities Division SE:T:CL
Director, Communications and Liaison, Small Business/Self-Employed Division SE:S:CLD:PSP:GTL
Appendix IV
This appendix presents detailed information on the measurable impact that our recommended corrective actions will have on tax administration. This benefit will be incorporated into our Semiannual Report to Congress.
Type and Value
of Outcome Measure:
· Reliability of Information – Actual; 270 taxpayer accounts affected (see page 3).
Methodology Used to Measure the Reported Benefit:
We compared an extract of the population of tribal entities on the Fraud/BSA function database (the BSA database) to tribal entities on the ITG office database that are required to comply with the BSA.[18] We identified the following inaccurate and incomplete information:
·
142 (38 percent) of 376 records in the BSA database
did not include information identifying each tribal entity (i.e., Employer Identification
Number[19]).
· 14 (6 percent) of the remaining 234 records with Employer Identification Numbers in the BSA database were inaccurate and did not have corresponding records in the ITG office database. ****1****
· 115 (96 percent) of 120 records for examinations completed during Fiscal Years 2005 through 2007 did not include why the entity was selected for examination.[20]
Without complete and correct data, the Fraud/BSA function does not have an accurate population of entities falling under the BSA requirements. In addition, knowing why entities were selected for examination by the Small Business/Self-Employed Division Fraud/BSA function might help the ITG office improve its risk analysis process.
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] Pub. L. No. 91-508, 84 Stat. 1114 to 1124 (1970) (codified as amended in scattered sections of 12 U.S.C., 15 U.S.C., and 31 U.S.C.). Regulations for the Bank Secrecy Act, and other related statutes, are 31 C.F.R. Sections 103.11-103.77 (2007).
[2] The Financial Crimes Enforcement Network is an organization within the Department of the Treasury that has overall authority for enforcement of the BSA.
[3] When considering penalty assessment, the Financial Crimes Enforcement Network considers factors such as whether violations resulted from
negligent or willful action, what the violations were and the number that
occurred, or the length of time the violations persisted.
[4] The data extract provided to us by the Fraud/BSA
function showed 46 records of examination cases were closed during the
period. Four cases could not be located,
and we did not review seven additional cases because they had been surveyed and
not examined.
[5] Pub. L. No. 91-508, 84 Stat. 1114 to 1124 (1970) (codified as amended in scattered sections of 12 U.S.C., 15 U.S.C., and 31 U.S.C.). Regulations for the Bank Secrecy Act, and other related statutes, are 31 C.F.R. Sections 103.11-103.77 (2007).
[6] We did not have access to and therefore could not verify the information from the National Indian Gaming Association.
[7] Money laundering can occur in casinos by exchanging cash for “chips” and converting the chips back into money.
[8] IRS Computing Centers support tax processing and information management through a data processing and telecommunications infrastructure.
[9] When considering penalty assessment, the FinCEN considers
factors such as whether violations resulted from negligent or willful action,
what the violations were and the number that occurred, or the length of time
the violations persisted.
[10] The data extract provided to us by the Fraud/BSA
function showed that 46 examination cases were closed during the period. Four cases could not be located, and we did
not review seven additional cases because they were surveyed and not
examined. Some examinations identified
multiple violations. Therefore, the total
number of violations will be greater than 35.
[11] Letters
1052 must include a copy of the current regulations (31 C.F.R., Part 103).
[12] See Appendix IV.
[13] A unique nine-digit number used to identify
a taxpayer’s business account.
[14] We requested an extract of data for all examinations opened and closed during Fiscal Years 2005 through 2007. We could not verify that all examination data for that time period were received because data were not always accurate or complete. In addition, there is no secondary source of BSA examination inventory information with which to validate the BSA extract provided.
[15] See Appendix IV.
[16] Pub. L. No. 91-508, 84 Stat. 1114 to 1124 (1970) (codified as amended in scattered sections of 12 U.S.C., 15 U.S.C., and 31 U.S.C.). Regulations for the Bank Secrecy Act, and other related statutes, are 31 C.F.R. Sections 103.11-103.77 (2007).
[17] Internal Revenue Code Section 6050(I) requires
anyone involved in a trade or business, except financial institutions, to
report currency received for goods or services in excess of $10,000 on a Report
of Cash Payments Over $10,000 Received in a Trade or Business (Form 8300).
[18] Pub. L. No. 91-508, 84 Stat. 1114 to 1124 (1970) (codified as amended in scattered sections of 12 U.S.C., 15 U.S.C., and 31 U.S.C.). Regulations for the Bank Secrecy Act, and other related statutes, are 31 C.F.R. Sections 103.11-103.77 (2007).
[19] A unique nine-digit number used to identify a entity’s business account.
[20] ****1****