TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION

 

 

 

Attestation Review of the Internal Revenue Service’s Fiscal Year 2008 Annual Accounting of Drug Control Funds and Related Performance

 

 

 

January 30, 2009

 

Reference Number:  2009-10-040

 

 

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 30, 2009

 

 

MEMORANDUM FOR CHIEF FINANCIAL OFFICER

 

FROM:                (for)  Michael R. Phillips /s/ Nancy A. Nakamura

Deputy Inspector General for Audit

 

SUBJECT:                    Final Audit Report – Attestation Review of the Internal Revenue Service’s Fiscal Year 2008 Annual Accounting of Drug Control Funds and Related Performance (Audit # 200810034)

 

This report presents the results of our attestation review of the Internal Revenue Service’s (IRS) Fiscal Year (FY) 2008 Office of National Drug Control Policy (ONDCP) 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 $64.2 million on ONDCP-related activities and participated in 478 ONDCP-related cases that resulted in convictions in FY 2008.  Overall, the methodology used to prepare the IRS’ FY 2008 Report was clearly explained and adequately documented.  However, we determined that the performance information reported by the IRS includes a small number of cases from fiscal years prior to FY 2008.  For example, 18 of the 478 convictions reported actually occurred prior to FY 2008 and, therefore, should not be included in the FY 2008 measure.  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, we found that the methodology used to prepare the IRS’ FY 2008 Report was clearly explained and adequately documented.  In response to our FY 2007 attestation report,[1] and to better represent program effectiveness, the IRS began reporting the number of convictions and conviction rate related to its participation in ONDCP-related cases.  For FY 2008, the IRS reported 478 cases that resulted in convictions and an overall conviction rate of 87.9 percent.

While this additional reporting is a positive step in improving the reporting of performance measures, our testing indicated that 18 of the 478 convictions actually occurred prior to FY 2008 and, therefore, should not be included in the FY 2008 measure.  We similarly found that 3 of the 827 ONDCP-related investigations reported as completed in FY 2008 were actually completed prior to FY 2008. 

We also identified 18 cases among the cases the IRS reported as recommended for prosecution, but ultimately resulted in acquittal or dismissal, that occurred prior to FY 2008.  The IRS informed us that it does not adjust its reporting to account for timing differences resulting from the sometimes delayed posting of case results.  Not accounting for these timing differences adversely impacts the reliability of IRS performance information.  Specifically, the IRS’ conviction rate would be 90.6 percent by omitting these 36 cases that resulted in a conviction, acquittal, or dismissal prior to FY 2008 instead of the 87.9 percent reported.  Notably, these timing differences may also be present and result in the reporting of FY 2008 cases as occurring during FY 2009, further obscuring the correct calculation of the FY 2008 performance measures including the conviction rate.  Because of the limited-scope nature of our review, we did not perform indepth testing of IRS records necessary to identify potential errors of this type, nor did we analyze in detail the specific causes for the delayed postings we identified.

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, evaluate the cause of the delayed case postings we identified and based on this analysis, evaluate the feasibility of either improving the timeliness of its case postings and/or adjusting its yearend performance information to reflect timing differences caused by late postings of case information.

Response

IRS management agreed with our recommendation.  For its FY 2009 report on accounting of drug control funds, the IRS will include only those investigations completed within the fiscal year in the performance results.  In addition, the IRS adjusted its reporting of FY 2008 performance information to reflect timing differences caused by late postings of case information and included this revised reporting in its response.  Management’s complete response to the draft report is included as Appendix VI.

Office of Audit Comment

In responding to our report, the IRS provided a revised reporting of its FY 2008 performance information to reflect timing differences.  Because of the time limitations imposed by the mandatory reporting deadline of this review, we did not evaluate or perform any testing relating to the IRS’ revised reporting.

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 A. Nakamura, Assistant Inspector General for Audit (Management Services and Exempt Organizations), at (202) 622-8500.

 

Table of Contents

 

Background

Results of Review

The Methodology Used to Prepare the Fiscal Year 2008 Annual Accounting of Drug Control Funds and Related Performance Summary Report Was Clearly Explained and Adequately Documented, but Improvements Are Needed to Ensure Data Accuracy

Recommendation 1:

Appendices

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 – Internal Revenue Service Fiscal Year 2008 Detailed Accounting Submission and Related Performance Summary Report

Appendix VI – 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 during the previous fiscal year.

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) supports the National Drug Control Strategy through continued support of the Organized Crime and Drug Enforcement Task Force.  The mission of the Criminal Investigation Division in Federal law enforcement’s anti-drug efforts is to reduce or eliminate the financial gains (profits) of major narcotics trafficking and money laundering organizations through the use of its unique financial investigative expertise and statutory jurisdiction.

This review was conducted as required by the National Drug Control Policy (21 U.S.C. Section 1704(d)) and 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.  The Chief Financial Officer, or another accountable senior level executive, of each agency for which a Detailed Accounting Submission is required, shall provide a Performance Summary Report to the Director of National Drug Control Policy.  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. 

We conducted our fieldwork in the IRS Headquarters offices of the Chief Financial Officer and Chief, Criminal Investigation Division, during the period of October 2008 through January 2009.  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 ONDCP Detailed Accounting Submission and Performance Summary 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 Prepare the Fiscal Year 2008 Annual Accounting of Drug Control Funds and Related Performance Summary Report Was Clearly Explained and Adequately Documented, but Improvements Are Needed to Ensure Data Accuracy

We reviewed the IRS’ ONDCP Detailed Accounting Submission and Performance Summary Report (the Report) for FY 2008, which ended September 30, 2008 (see Appendix V).  This Report was prepared pursuant to 21 U.S.C. § 1704(d) and the ONDCP Circular Annual Accounting of Drug Control Funds.  The IRS is responsible for preparing the report.

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 methodology used to establish performance targets is reasonable and correctly applied.  ONDCP-established criteria include well-documented sources of data, documented and explained calculations, and complete and fair presentation of data from financial systems.

Overall, we found that the methodology used to prepare the IRS’ FY 2008 Report was clearly explained and adequately documented.  The IRS reported that it expended $64.2 million on ONDCP-related activities and completed 827 ONDCP-related investigations in FY 2008.  In response to our FY 2007 attestation report,[4] and to better represent program effectiveness, the IRS began reporting the number of convictions and conviction rate related to its participation in ONDCP-related cases.  For FY 2008, the IRS reported 478 cases that resulted in convictions and an overall conviction rate of 87.9 percent.

While this additional reporting is a positive step in improving the reporting of performance measures, our testing indicated that 18 of the 478 convictions actually occurred prior to FY 2008 and, therefore, should not be included in the FY 2008 measure.  We similarly found that 3 of the 827 ONDCP-related investigations reported as completed in FY 2008 were actually completed prior to FY 2008.  These 18 convictions and 3 completed investigations were included in the FY 2008 performance measure because the IRS calculates its performance measures based strictly on the date the case results are input into its management information system.  We also identified 18 cases among the cases the IRS reported as recommended for prosecution but ultimately resulted in acquittal or dismissal that occurred prior to FY 2008.  The IRS informed us that it does not adjust its reporting to account for timing differences resulting from the sometimes delayed posting of case results.  The 39 total cases (18 convictions, 3 completed investigations, and 18 acquittals or dismissals) we identified as completed or occurring prior to FY 2008 included 28 FY 2007 cases and 11 FY 2006 and prior cases. 

Not accounting for these timing differences adversely affects the reliability of IRS performance information.  Specifically, the IRS’ conviction rate would be 90.6 percent by omitting these 36 cases that resulted in a conviction, acquittal, or dismissal prior to FY 2008 instead of the 87.9 percent reported.  Notably, these timing differences may also be present and result in the reporting of FY 2008 cases as occurring during FY 2009, further obscuring the correct calculation of the FY 2008 performance measures including the conviction rate.  Because of the limited-scope nature of our review, we did not perform indepth testing of IRS records necessary to identify potential errors of this type, nor did we analyze in detail the specific causes for the delayed postings we identified.    

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 evaluate the cause of the delayed case postings we identified and based on this analysis, evaluate the feasibility of either improving the timeliness of its case postings and/or adjusting its yearend performance information to reflect timing differences caused by late postings of case information.

Management’s Response:  IRS management agreed with our recommendation.  For its FY 2009 report on accounting of drug control funds, the IRS will include only those investigations completed within the fiscal year in the performance results.  In addition, the IRS adjusted its reporting of FY 2008 performance information to reflect timing differences caused by late postings of case information.

Office of Audit Comment:  In responding to our report, the IRS provided a revised reporting of its FY 2008 performance information to reflect timing differences.  Because of the time limitations imposed by the mandatory reporting deadline of this review, we did not evaluate or perform any testing relating to the IRS’ revised reporting.

* * * * *

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’ reporting of FY 2008 ONDCP expenditures and related performance for the purpose of expressing a conclusion about the reliability of each assertion made in the Detailed Accounting Submission and Performance Summary Report.  To accomplish our objective, we:

I.                    Obtained an understanding of the process used to prepare the FY 2008 Detailed Accounting Submission and Performance Summary Report.

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

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

II.                 Evaluated the reasonableness of the drug methodology process.

A.     Reviewed data supporting the Detailed Accounting Submission to establish its relationship to the amounts being reported.

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

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

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

B.     Verified that the drug control budget submitted to the ONDCP was consistent with the Detailed Accounting Submission.

C.     Verified the mathematical accuracy of the obligations presented in the Table of the FY 2008 Drug Control Obligations.

D.     Traced the information contained in the Table of the FY 2008 Drug Control Obligations to the supporting documentation.

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

A.     Reviewed data supporting the Performance Summary Report to establish its relationship to the National Drug Control program 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 that the Performance Summary Report includes all of the 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 A. Nakamura, Assistant Inspector General for Audit (Management Services and Exempt Organizations)

Jeffrey M. Jones, Director

Anthony J. Choma, Audit Manager

Angela Garner, Lead Auditor

Seth A. Siegel, Senior Auditor

Melvin Lindsey, Auditor

 

Appendix III

 

Report Distribution List

 

Commissioner  C

Office of the Commissioner – Attn:  Chief of Staff  C

Deputy Commissioner for Operations Support  OS

Deputy Commissioner for Services and Enforcement  SE

Chief, Criminal Investigation Division  SE:CI

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

 

Outcome Measure

 

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; 39 Cases (see page 3).

Methodology Used to Measure the Reported Benefit:

Our review found that the IRS included cases from prior years in its reporting of FY 2008 ONDCP-related investigations.  Specifically, the IRS reported 827 completed investigations during FY 2008.  The IRS also reported that 478 cases resulted in convictions during FY 2008 corresponding to a conviction rate of 87.9 percent. 

Our testing indicated that 18 of the 478 reported convictions and 18 cases that had been recommended for prosecution but resulted in acquittals or dismissals occurred prior to FY 2008 but were used to compute the IRS’ FY 2008 conviction rate.  We similarly found that 3 of the 827 ONDCP-related investigations reported as completed in FY 2008 were actually completed prior to FY 2008.  The IRS calculates its performance measures based strictly on the date the case results are input into its management information system and it does not adjust its reporting to account for timing differences resulting from the sometimes delayed posting of case results.

 

Appendix V

 

Internal Revenue Service Fiscal Year 2008 Detailed Accounting Submission and Related Performance Summary Report

 

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

 

Appendix VI

 

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] Attestation Review of the Internal Revenue Service’s Fiscal Year 2007 Annual Accounting of Drug Control Funds and Related Performance (Reference Number 2008-10-058, dated January 31, 2008).

[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] Attestation Review of the Internal Revenue Service’s Fiscal Year 2007 Annual Accounting of Drug Control Funds and Related Performance (Reference Number 2008-10-058, dated January 31, 2008).