Processing and Monitoring of Balance Due Notice Cases Needs Improvement
March 1, 2010
Reference Number: 2010-30-019
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
1=Tax Return/Return Information
March 1, 2010
MEMORANDUM FOR COMMISSIONER, SMALL BUSINESS/SELF-EMPLOYED DIVISION
COMMISSIONER, WAGE AND INVESTMENT DIVISION
FROM: Michael R. Phillips /s/ Michael R. Phillips
Deputy Inspector General for Audit
SUBJECT: Final Audit Report – Processing and Monitoring of Balance Due Notice Cases Needs Improvement (Audit # 200830049)
This report presents the results of our review to determine whether the Compliance Services Collection Operations (CSCO)[1] has effective controls
over the processing of Balance Due Notice Program cases to ensure appropriate
actions are taken to resolve balance due notices accurately and timely. This audit was included in our Fiscal Year
2008 Annual Audit Plan under the major management challenge of Tax Compliance
Initiatives.
Impact on the Taxpayer
Taxpayers with outstanding tax liabilities receive balance
due notices informing them of their outstanding liabilities. When the taxpayer responds to the balance due
notices, the Internal Revenue Service (IRS) is not always properly and timely
working the cases or effectively managing the inventory of cases. Taxpayers who contact the IRS may experience
unnecessary delays or costs associated with their outstanding liabilities,
including an estimated 6,217 taxpayers who were assisted by the 2 campuses during
the weeks in which we selected our sample.[2]
Synopsis
A balance due
account occurs when the taxpayer has an outstanding liability for taxes,
penalties, and/or interest. CSCO managers are responsible for ensuring
resolution actions on balance due notice responses are completed timely and
accurately. However, the results
of our case reviews showed that the work performed on balance due notice cases
does not always comply with established procedures and goals. In addition, CSCO managers could not rely on workload inventory reports
because they were inaccurate and inconsistent.
We selected a random sample of 60 Balance Due Notice Program cases from 2 campus CSCO sites to determine whether the cases were worked properly and procedures were followed. Fifty-seven (95 percent) of the 60 cases involved streamlined installment agreements. Our analysis showed that installment agreements were established without considering whether they were in the taxpayers’ or the IRS’ best interest. In 17 (30 percent) of the 57 cases, installment agreements were established when taxpayers may have had the ability to fully pay and could have avoided the costs of the installment agreement, which include a user fee,[3] penalties, and interest.[4] We estimate that for the weeks in which we selected our sample, 1,874 taxpayers may have had the ability to pay their tax liabilities in full. Other times it appeared the taxpayers did not have the income to support the payment amounts required by the terms of the installment agreements. IRS officials advised us that the Internal Revenue Manual instructions for streamlined installment agreements do not require them to contact the taxpayer or make a determination if the taxpayer has the ability to pay. Rather, the installment agreements are based entirely on data provided by the taxpayers on the Installment Agreement Request (Form 9465).
IRS employees should document the case file to support all actions taken to resolve a taxpayer’s case. However, 13 (22 percent) of the 60 sampled cases did not include proper documentation. We estimate that for the weeks in which we selected our sample, balances due notice cases for 958 taxpayers were not properly documented. The Internal Revenue Manual also requires that for any taxpayer correspondence, the CSCO needs to provide taxpayers with a final response that addresses all taxpayer issues within 30 calendar days from the date received by the IRS. However, in 39 (65 percent) of 60 sampled cases, this practice did not occur. In addition, the interim letters acknowledging the delay were either late or there was no evidence that interim letters were sent as required in 26 (67 percent) of the 39 untimely cases. We estimate that for the weeks in which we selected our sample, 4,343 taxpayers were adversely affected when processing of their balance due notices exceeded 30 calendar days.
Management was not always aware of the issues that we
identified because the workload reviews performed by team managers are not
identifying these kinds of problems. The
results of the workload reviews for Balance Due Notice Program cases are combined with those of other CSCO program cases.
Management
relies on several inventory and age reports to manage and monitor the Balance
Due Notice Program. The number of
case closures is a key measure on the inventory reports because it is used to
calculate the Balance Due Notice Program closure rate, which reflects how many
hours were needed to close the number of cases shown. This allows management to make staffing and
resource decisions, depending on the anticipated volume of cases. However, our analysis showed that the case closures on the inventory reports at one campus
were inaccurate and inconsistent. For
example, our physical count of the closed cases for the week in which we
selected our sample was 38 percent lower than the amount that was reported on
the Accounts Management System/Desktop Integration inventory report. In addition, the number of closed cases
reported on the various inventory reports ranged from 534 to 2,740 for the same
time period.
The two campuses also were not consistent in the types of
cases that were counted as closed in the inventory. One of the campuses we visited did not count
cases that are processed systemically and do not require
action by IRS employees. However,
over an 8-month period, another campus counted over 4,000 such cases in its
closed case inventory.
The actions taken by tax examiners on balance due notice cases vary from relatively simple to complex and time consuming processes. Regardless of the complexity or time spent on an action, the inventory reports capture and report it generically as a case closure. This can lead to several closures for the same taxpayer on a single liability. For example, a case is opened and closed when an installment agreement is established, and a new case may be subsequently opened and closed every time a payment is received from the taxpayer. This classification can make it difficult to assess the volume of work being performed and the number of taxpayers assisted. ****1****and our sample of 60 cases were reported as closed a total of 525 separate times.
CSCO managers can transfer newly received balance due notice cases to another campus if there is an inventory backlog that would prevent the cases from being worked timely. We found evidence that instead of transferring new cases, older cases were transferred. This allowed the transferring campus to show a better managed inventory, while negatively affecting the inventory of the campus that received the older cases. Regardless of the impact on the inventory, the taxpayers whose cases were transferred may have been unnecessarily burdened when actions on their cases were delayed.
Recommendations
We recommended the Director, Collection Policy, Small Business/Self-Employed Division, 1) consider revising the streamlined installment agreement procedures to ensure that the agreements are beneficial to both the IRS and the taxpayer. We also recommended the Director, Campus Compliance Services, Small Business/Self-Employed Division, and the Director, Filing and Payment Compliance, Wage and Investment Division, 2) remind employees about the need to properly document and timely work case actions, and review systemically generated actions such as interim letters to identify and resolve any systemic inconsistencies with Internal Revenue Manual requirements; 3) establish workload review criteria to ensure Balance Due Notice Program cases are worked in compliance with Collection function guidelines and policy; 4) use existing codes in the Embedded Quality Review System to isolate the results of cases subject to the workload reviews for the Balance Due Notice Program to help identify training needs; 5) establish procedures to timely and effectively reconcile inventory reports to the physical inventory; 6) ensure CSCO inventory reports accurately reflect information that is common among the various reports where applicable, such as the number of closed balance due notice cases during a given time period; 7) establish uniform procedures on the type of balance due notice cases that are reflected on CSCO inventory reports; 8) request programming changes to the Accounts Management System/Desktop Integration to accurately identify repeat cases; and 9) establish controls to ensure cases that are transshipped in order to alleviate inventory backlogs cause the least delay to taxpayers.
Response
IRS management agreed with most of our recommendations and
is taking corrective actions. The
Director, Collection Policy, Small Business/Self-Employed Division, will
consider changes to installment agreement procedures to enhance the benefits to
taxpayers and the IRS. The Director,
Filing and Payment Compliance, Small Business/Self-Employed Division, and
Director, Filing and Payment Compliance, Wage and Investment Division, agreed
to remind employees about the ongoing need to properly document and timely work
case actions and to include the proper use of interim letters in their 2010 campus
reviews and identify and resolve systemic inconsistencies with Internal Revenue
Manual requirements. They also agreed to
ensure Embedded Quality and National Quality review criteria are effectively
utilized in future reviews of the Balance Due Notice Program, and Headquarters
will continue to periodically review campus cases to ensure compliance with
Collection function guidelines and policy.
They also agreed to integrate the results of Embedded Quality and National
Quality reports to better identify
The Director, Filing and Payment Compliance, Small Business/Self-Employed Division, will also establish a requirement for campuses to reconcile local reports to Work Planning and Control on a quarterly basis. In addition, the Director, Filing and Payment Compliance, Small Business/Self-Employed Division, and Director, Filing and Payment Compliance, Wage and Investment Division, will review the need for uniform procedures on balance due notice cases that are reflected on CSCO inventory reports, and they will also review whether the controls over transshipped work are sufficient and effective to alleviate inventory backlogs while minimizing the delay to taxpayers.
However, IRS management stated they will continue to follow the Service-wide procedures provided in the Internal Revenue Manual to reconcile inventory reports to the physical inventory instead of establishing new procedures to timely and effectively reconcile inventory reports to the physical inventory. In addition, IRS management does not believe the Accounts Management System/Desktop Integration needs programming changes to identify repeat cases. Management’s complete response to the draft report is included as Appendix VI.
Office of Audit Comment
Our results show that the Service-wide procedures to
reconcile inventory reports to the physical inventory are not effective and
that the frequency of the physical inventory may prevent a proper
reconciliation. The Internal Revenue
Manual requires the CSCO to reconcile inventory reports to the physical
inventory on a quarterly basis, which may be too infrequent to determine the
cause of any variance. We determined
that the Philadelphia Campus actual closed cases inventory was significantly
lower (38 percent) than the inventory reflected on the corresponding campus
inventory report. CSCO management in the
Philadelphia Campus could not explain the reason for this significant
variance. Furthermore, instead of attempting to reconcile the physical inventory
counts to the appropriate inventory reports in an effort to identify the cause
of variances, we were told that the beginning inventory number for the next
period’s inventory report is just “plugged” with the physical count.
In addition, the IRS stated the Accounts Management System/Desktop Integration did not need changing to identify repeat cases as this system is only used to count cases when there is correspondence attached that has been worked. We do not agree. As our sample indicates, the majority of Balance Due Notice Program cases are installment agreement cases. Taxpayers with installment agreements receive an installment agreement reminder notice (Computer Paragraph 521) after every installment payment they make that advises them of the amount and due date of their next installment. These reminder notices also include a payment voucher, which the taxpayer is instructed to include when making his or her next installment. These payment vouchers are considered correspondence by the Balance Due Notice Program and are treated as a new case when entered into the Accounts Management/Desktop Integration system and counted as a closed case. We believe that cases that are simply a recording of a payment voucher should be identified as such, since this action by the Balance Due Notice Program does not impact the taxpayer. The critical actions impacting the taxpayer, such as processing the payment and crediting the payment to the taxpayer’s account, will have already been completed by other IRS functions.
Additionally, the IRS disagreed with the first outcome measure, stating that all taxpayers with unpaid taxes receive an initial notice demanding full payment of the balance due and publications are enclosed which explain payment options. Taxpayers meeting streamline installment agreement criteria can request an installment agreement without first proving that they have an ability to pay the liability in full. However, despite the information on payment options, our case review results indicate that taxpayers enter into installment agreements that are not beneficial to the taxpayers and, in some cases, the IRS. Our first outcome measure shows the financial impact of entering into an agreement in cases where taxpayers could have fully paid their liabilities. We were advised that the Balance Due Notice Program simply processes the applications for installment agreements based on the information provided by the taxpayer. Furthermore, there are no automated checks of the taxpayer’s current adjusted gross income or taxable income, or comparison of the user fee as a percentage of the balance due amount, to alert the IRS of obvious or egregious situations where the taxpayer either may have the ability to fully pay or, conversely, cannot afford the monthly installment they request. The outcome measure is an estimate of the taxpayers’ cost of this practice at just one campus, during a 1-week period.
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 Margaret E. Begg, Assistant Inspector General for Audit (Compliance and Enforcement Operations), at (202) 622-8510.
Balance Due Notice
Cases Are Not Always Worked Properly and Timely
Balance Due Notice Program
Inventory Is Not Effectively Managed
Appendices
Appendix
I – Detailed Objective, Scope, and Methodology
Appendix
II – Major Contributors to This Report
Appendix
III – Report Distribution List
Appendix
IV – Outcome Measures
Appendix V
– Glossary of Terms
Appendix
VI – Management’s Response to the Draft Report
Abbreviations
|
CSCO |
Compliance Services Collection Operations |
|
IDRS |
Integrated Data Retrieval System |
|
IRS |
Internal Revenue Service |
|
SB/SE |
Small Business/Self-Employed |
|
W&I |
Wage and Investment |
A balance due
account occurs when the taxpayer has an outstanding liability for taxes,
penalties, and/or interest. These
accounts are automatically monitored through computer analysis and placed in a
specific status depending on age and/or activities. Based on the computer analyses, the Internal
Revenue Service (IRS) generates notices to taxpayers informing them of their
outstanding liabilities. For example,
the IRS designates status 19 when the first balance due notice is mailed to the
taxpayer. After 5 weeks, if no contact
is received from the taxpayer, the IRS changes the account to status 20 and a
second notice is mailed to the taxpayer.
Two IRS Divisions have responsibility for processing taxpayer responses
to balance due notices. Specifically, the
Small Business/Self-Employed (SB/SE) Division Campus Compliance Services function
is responsible for processing taxpayer responses to balance due notices at its
five Compliance Services Collection Operations (CSCO)[5]
sites.[6] The Wage and Investment (W&I) Division
Filing and Payment Compliance function is responsible for processing taxpayer
responses to balance due notices at its five CSCO sites.[7]
When taxpayers
respond to notices, CSCO tax examiners are assigned to work the cases based on
their skill level. The first step is the
Collection First Read Process. In this
step, examiners work cases that can be quickly closed, such as cases where the
taxpayer sends documentation to support an address change. If the case cannot be closed during the First
Read Process, it is placed in a holding status and eventually moved to the
technical units. The tax examiners must
then research the tax accounts to determine what actions can be taken to bring
the taxpayer into compliance. In
addition, if contact is made with the taxpayer, either by telephone or in
person, the tax examiners must interview the taxpayer to obtain additional
information. The examiners must also
analyze the taxpayer’s ability to pay when determining an option for resolving
the delinquency. Taxpayers have several
payment options for resolving their accounts, including payoffs, arranging for
time extensions, or initiating installment agreements.
CSCO management is responsible for managing the balance due
notice workload and establishing controls to ensure resolution actions are
completed timely and accurately. CSCO
management control balance due notice inventories using the Accounts Management System/Desktop
Integration, which replaced the Integrated Case Processing system. Accounts Management System/Desktop
Integration is used to add cases to inventory, assign cases to employees in the
technical units, and record history of work performed and actions taken on
balance due notice cases. Accounts
Management System/Desktop Integration also produces inventory reports that
management can use to monitor the technical units’ inventories.
CSCO operations and department managers should also perform operational reviews at least once a year. These reviews should evaluate organizational performance in accomplishing program objectives. In addition, team managers should perform workload reviews to evaluate employee performance, identify training needs, and ensure protection of taxpayer rights.
The IRS Quality Review process also provides a method to monitor, measure, and improve the effectiveness of compliance work. To evaluate the effectiveness of CSCO programs, the IRS Quality Review process uses the following five performance measures:
· Customer Accuracy – measures whether account resolution actions were correct.
· Regulatory/Statutory Accuracy – measures whether account resolution decisions were consistent with regulatory/statutory requirements.
· Procedural Accuracy – measures whether account resolution actions were consistent with internal procedures.
· Timeliness – measures whether account resolution actions were performed efficiently.
· Professionalism – measures effectiveness in the use of appropriate communication techniques.
This review was performed at the SB/SE Division Campus Compliance Services Office at the Philadelphia Campus and the W&I Division Filing and Payment Compliance Office at the Andover Campus during the period May 2008 through April 2009. We conducted this performance audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objective. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objective. Detailed information on our audit objective, scope, and methodology is presented in Appendix I. Major contributors to the report are listed in Appendix II.
Balance Due Notice Cases Are Not Always Worked Properly and Timely
CSCO managers are
responsible for ensuring resolution actions on balance due notice responses are
completed timely and accurately. The
primary control for accomplishing this responsibility is the workload reviews
performed by the CSCO team managers.
Workload reviews are intended to evaluate the work performed by the
employee, identify training needs, and ensure protection of taxpayer rights in
accordance with IRS procedures. Workload
reviews should be performed monthly and usually involve two cases per employee.
Managers will review all of the cases
for employees who are learning to work new types of cases or who have
performance issues.
We selected a random sample of 30 cases from the
Philadelphia Campus and 30 cases from the
The results of our case reviews showed that the work performed on balance due notice cases does not always comply with established procedures and goals. Specifically, we determined that:
· Cases were not always properly documented.
· Installment agreements were established without considering whether they were in the taxpayers’ or IRS’ best interest.
· Case actions were not always closed timely.
· Workload reviews did not identify the above problems.
Cases were not always properly documented
All actions taken on an account are required to be documented clearly in the Accounts Management System/Desktop Integration. Proper documentation provides support for the actions taken to research and resolve a case. For example, in the case of an installment agreement, proper documentation would include recording the provisions of the installment agreement such as payment amount, payment date, and number of payments, as well as evidence that the tax examiner ensured the taxpayer’s balance would be fully paid within 60 months and before the collection statute expired. However, our review determined that 13 (22 percent) of 60 cases did not include proper documentation. Based on our case review, we estimate that for the weeks in which we selected our sample, [8] the balances due notice cases for 958 taxpayers were not properly documented. Without proper documentation, management does not have evidence to determine if the actions taken on the cases were proper or if corrective actions are necessary.
Installment agreements were established without considering whether they were in the taxpayers’ or IRS’ best interests
Of the 60 cases that we selected for review, 57 (95 percent) involved installment agreements. In all 57 cases, the taxpayers’ tax liability was under $10,000 and, therefore, the taxpayers were eligible for a streamlined installment agreement. Our analysis showed the IRS and taxpayer sometimes entered into installment agreements when taxpayers may have had the ability to fully pay. Other times it appeared the taxpayers did not have the income to support the payment amounts required.
For our sample cases, we analyzed the taxpayers’ Adjusted Gross Income from their applicable U.S. Individual Income Tax Return (Form 1040), their tax liability, any payments made with the Installment Agreement Request (Form 9465), and the applicable installment agreement user fee. In 17 (30 percent) of the 57 cases, we found indications the taxpayer may have had the ability to pay in full. The tax liabilities for these 17 cases were all less than $2,800, with an average tax liability of $1,198. In 15 of the cases, the tax liability was less than 5 percent of current Adjusted Gross Income ****1****. Taxpayers with liabilities that are a small percentage of their income may have the ability to fully pay their taxes.
***1***. We also identified 3 cases where the user fees were about 25 percent or more of the tax liability. Further, 8 of the cases were paid in full within 6 months due to a refund offset from the taxpayers’ subsequent Form 1040. Entering taxpayers in installment agreements in situations where they can pay their tax liability in full causes an unnecessary burden to the taxpayers, since they must pay the costs of the installment agreement, which include the user fee,[9] penalties, and interest.
In other cases, the installment agreement was not in the best interest of the IRS. ***1***.
SB/SE and W&I Division officials advised us that CSCO is primarily a paper process and that the Internal Revenue Manual instructions regarding streamlined installment agreements do not require them to contact the taxpayer or make a determination if the taxpayer has the ability to pay. We were also advised that they consider the balance due notices sent to the taxpayer, which encourage the taxpayer to full pay, to satisfy their requirement to request full payment from the taxpayer. Accordingly, these installment agreements were established without a detailed financial analysis of the taxpayer. Rather, the installment agreements were based entirely on data provided by the taxpayers on Form 9465.
Case actions were not always closed timely
The Internal Revenue Manual requires the CSCO to provide taxpayers with a final response that addresses all taxpayer issues within 30 calendar days from the date received by the IRS. Timely resolution is important because penalties and interest continue to accrue until the tax liability is paid in full. However, in 39 (65 percent) of 60 sampled cases, this practice did not occur. Eleven (28 percent) of these 39 cases were closed more than 45 calendar days after being received by the IRS and were therefore considered over age. In addition, if the case cannot be closed within 30 calendar days, the Internal Revenue Manual requires that an interim letter be sent to the taxpayer within the 30 calendar days acknowledging the delay. However, interim letters were only sent in 27 of the 39 untimely cases and 14 (52 percent) of the 27 interim letters were sent late.
The issuance of an interim letter does not establish a new deadline for a timely response. The Internal Revenue Manual specifically defines “timely” as providing a final response within 30 calendar days of the IRS received date or requesting more information from the taxpayer if needed. Interim letters only advise the taxpayer that the IRS is late in processing their request and are not used to request additional information. In the 14 cases where interim letters were sent late, the IRS was late twice on each case; once when it did not provide the taxpayer with a final response that addressed all issues within 30 days and again when these interim letters were sent late. Furthermore, in 12 (31 percent) of the 39 untimely cases, the IRS did not notify the taxpayer that it was late in processing the taxpayer’s request. In total, interim letters were either late or there was no evidence that interim letters were sent as required in 26 (67 percent) of the 39 untimely cases.
SB/SE Division officials advised us that interim letters were generated systemically and could not explain why they were late or not sent when required. Based on our case review, we estimate that for the weeks in which we selected our sample, 4,343 taxpayers were adversely affected when processing of their balance due notices exceeded 30 calendar days.
Workload reviews did not
identify the above problems
Management could not provide reasons why employees were not properly documenting cases, assessing taxpayers’ ability to fully pay their liabilities, or responding to taxpayers’ correspondence timely because management was not aware of these problems. Specifically, the workload reviews performed by team managers are not identifying problems with Balance Due Notice Program cases such as employees improperly documenting case histories, processing cases untimely, and failing to comply with installment agreement guidelines.
Although the results of the workload reviews are entered into the IRS Embedded Quality Review System to measure an employee’s performance, the results specific to Balance Due Notice Program cases are combined with those of other CSCO program cases, making it impossible to identify the sources of problem areas in any one program. In addition, the National Quality Review System separately captures performance information that is statistically valid to the national and area levels. However, neither system captures performance information that is statistically valid at the campus level. This limitation creates an information gap for the Balance Due Notice Program since it is managed at the campus level. For example, the problems we identified and reported here were significant, but were unique to the specific campuses we visited. Without relevant performance information, campus managers may not identify problems and solutions that are specific to their areas of responsibility.
Recommendations
Recommendation 1: The Director, Collection Policy, SB/SE Division, should consider revising the streamlined installment agreement procedures to ensure agreements are beneficial to both the IRS and the taxpayer.
Management’s Response: IRS management agreed with this recommendation and will consider changes to enhance the benefits to taxpayers and the IRS.
Office of Audit Comment: In their response, IRS management disagreed with the first outcome measure, stating that all taxpayers with unpaid taxes receive an initial notice demanding full payment of the balance due, and publications are enclosed which explain payment options. Taxpayers meeting streamline installment agreement criteria can request an installment agreement without first proving that they have an ability to pay the liability in full. However, despite the information on payment options, our case review results indicate that taxpayers enter into installment agreements that are not beneficial to the taxpayers and, in some cases, the IRS.
Our first outcome measure shows the financial impact of entering into an agreement in cases where taxpayers could have fully paid their liabilities. We were advised that the Balance Due Notice Program simply processes the applications for installment agreements based on the information provided by the taxpayer. Furthermore, there are no automated checks of the taxpayer’s current adjusted gross income or taxable income or comparison of the user fee as a percentage of the balance due amount to alert the IRS to obvious or egregious situations where the taxpayer either may have the ability to fully pay or, conversely, cannot afford the monthly installment they request. The outcome measure is an estimate of the taxpayers’ cost of this practice at just one campus, during a 1-week period.
To improve the handling of Balance Due Notice Program cases,
the Director, Campus Compliance Services, SB/SE Division, and the Director,
Filing and Payment Compliance, W&I Division, should:
Recommendation 2: Remind employees about the need to properly document and timely work case actions and review systemically generated actions such as interim letters to identify and resolve any systemic inconsistencies with Internal Revenue Manual requirements.
Management’s
Response: IRS management
agreed with this recommendation and will remind employees about the ongoing
need to properly document and timely work case actions. They also agreed to include the proper use of
interim letters in their 2010 campus reviews and to identify and resolve
systemic inconsistencies with Internal Revenue Manual requirements.
Recommendation 3: Establish workload review criteria to ensure Balance Due Notice Program cases are worked in compliance with Collection function guidelines and policy, including encouraging timely processing of case actions and proper documentation.
Management’s Response: IRS management agreed with this recommendation and will ensure the Embedded Quality and National Quality review criteria are effectively utilized in future reviews of the Balance Due Notice Program. Headquarters will continue to periodically review campus cases to ensure compliance with Collection function guidelines and policy.
Recommendation 4: Use existing codes in the Embedded Quality Review System to isolate the results of cases subject to the workload reviews for the Balance Due Notice Program to help identify training needs.
Management’s Response: IRS management agreed with this recommendation and will integrate the results of Embedded Quality and National Quality reviews/reports to better identify training needs to further improve the Balance Due Notice Program.
Balance Due Notice Program Inventory Is Not Effectively Managed
IRS management relies on several inventory and age reports
to manage and monitor the Balance Due Notice Program. Because there are various levels of
management, the information provided in each of the inventory and age reports
varies depending on the need of the management level. CSCO management at the campuses generates a
Collection Inventory Report; a Work, Planning and Control Report; and reports
from the Accounts Management System/Desktop Integration. In addition, at one campus we visited,
reports are generated by the IDRS that are also used to control
inventories. CSCO management reports
provide information needed to effectively monitor the Program at the campus
level, such as case receipts, case closures, and the age of the open cases in
inventory. At the
Because the SB/SE Division Headquarters Office needs
information at a higher Program level, it consolidates data from the various
CSCO reports. The SB/SE Division Headquarters
Office produces a CSCO Inventory Report from the Work, Planning and Control
Reports prepared by the campuses. It
also produces a Compliance Operations Business Report from the campuses’ Work,
Planning and Control Reports and Collection Inventory Reports. These reports provide consolidated
information needed to make Program-wide decisions. For example, the Compliance Operations
Business Report tracks how well the campuses are meeting their corporate goals.
When evaluating how effectively CSCO managers in the campuses managed their
balance due notice inventories, we determined that CSCO managers cannot rely on
the inventory reports. Our analysis
showed that the inventory reports were
inaccurate and inconsistent and that the information system that captures the
data for the reports does not identify repeat and reassigned cases. Because the SB/SE Division Headquarters
Office uses these CSCO inventory reports to generate its own management
reports, it does not have reliable information to make Program-wide decisions
or to effectively manage the Program.
Balance due notice inventory
reports are inaccurate and inconsistent
To effectively manage the Balance Due Notice Program, the
various inventory reports that management relies on should be accurate and
consistent among reports and campuses.
To assess the effectiveness and validity of the various inventory
reports, we performed a physical inventory of balance due notice cases that
were closed during the weeks in which we selected our sample. We also determined whether the balance due
notice inventories were consistent among the various inventory reports in
addition to determining the types of cases reflected on these inventory
reports. Specifically, our results show
that management inventory reports:
·
Did not reconcile to a
physical count of the inventory at one campus.
·
Did not reconcile to
each other at one campus.
·
Were prepared using
different criteria at each campus we visited.
Inventory reports did not reconcile to a physical count of
the inventory at one campus. The Accounts Management System/Desktop
Integration inventory report is used by CSCO managers to control and
monitor case inventories and is the source for all of the other reports. To verify the accuracy of the Accounts
Management System/Desktop Integration inventory reports, we compared the closed cases on hand at the beginning of
each day of the week with the corresponding weekly Accounts Management
System/Desktop Integration inventory report.
We were able to reconcile our physical count of the inventory with the
weekly Accounts Management System/Desktop Integration inventory report at the
Andover Campus. However, Figure 1 shows
the results of this comparison at the Philadelphia Campus.
Figure 1:
Reported Inventory Compared
With Our Physical Count at the
|
Inventory Shown on the Accounts
Management System/Desktop Integration Inventory Report |
Physical Count of Inventory |
Difference Between Physical Count
and Reported Inventory |
|
3,268 |
2,011 |
1,257 (38 percent) |
Source:
Treasury Inspector General for Tax Administration
analysis of IRS
inventory reports and physical case counts for week ending September 19, 2008.
The physical inventory was significantly lower than the
inventories reflected on the reports.
CSCO management in the Philadelphia Campus believed that a portion of
the variance between the closed cases on the inventory report and our count was
due to the processing of electronic cases and cases assigned by the SB/SE
Division Headquarters Office. However,
neither the SB/SE Division Headquarters Office nor CSCO management in the Philadelphia
Campus could provide any evidence to support this explanation.
CSCO management also advised us that a physical count of
cases in the units is performed at least quarterly at both campuses. However, these physical counts are not
reconciled to an appropriate inventory report.
Instead, we were told that the beginning inventory number for the next
period’s inventory report is “plugged” with this count.
Inventory reports did not reconcile to each other at one
campus.
The various inventory reports relied on by Philadelphia Campus[10] CSCO management to assist them in monitoring case
activities reflect different inventory amounts for the same time periods. Figure 2 shows the number of cases closed and
ending inventory reported on the five major inventory reports used by the
Philadelphia Campus.
Figure
2:
Balance Due Notice Inventory Reports and Statistics
|
|
Accounts Management System/Desktop
Integration |
CSCO Inventory Report |
Week at a Glance |
Collection Inventory Report |
IDRS Report |
|
Cases Closed |
681 |
2,740 |
2,593 |
2,593 |
534 |
|
Ending Inventory |
3,746 |
4,385 |
4,362 |
3,961 |
2,935 |
Source:
Treasury Inspector General for Tax Administration analyses of
When a balance due notice cases is closed, it is recorded
on the Accounts Management System/Desktop Integration, which is the source of
data for the other reports. However,
there were significant differences in the number of closed cases reported,
which resulted in different ending inventory balances. The number of reported closed cases ranged
from 534 to 2,740 and the ending inventory ranged from 2,935 to 4,385 for the
week ending January 24, 2009.
The inaccuracies in the inventory reports could lead
management to incorrect conclusions about productivity. For example, campus management uses the CSCO
Inventory Report to monitor the receipts and closures of Balance Due Notice
Program cases. This report is also used
to monitor the rate of cases closed per hour, the resource hours expended to
close these cases, and the age of the cases.
The SB/SE Division Headquarters Office also uses the CSCO Inventory
Report to determine if there is a need to reassign cases among campuses. We attempted to determine why the reports
were inconsistent, but IRS officials could not offer an explanation, other than
to say the reports have different uses, so the information will not be the same. However, this does not explain why information
that is common in each report – such as the number of Balance Due Notice closed
cases during the same 1-week period – are different on each report.
Inventory reports were prepared
using different criteria at each campus we visited. Some balance due
notice cases are processed systemically and do not require action by IRS
employees. These cases are referred to
as Generalized IDRS Interface cases.
The taxpayer submits the Form 9465 for his/her installment agreement
electronically and it is processed with no intervention by CSCO tax
examiners. Consequently, these cases
have no impact on Balance Due Notice Program resources. However, CSCO inventory reports show that in
an 8-month period, CSCO management at the
Conversely, the Andover Campus only reports cases worked and
closed by their Balance Due Notice Program tax examiners, even though the
Andover Campus processes significantly more Generalized IDRS Interface cases. For example, during the 1-week period ending
November 8, 2008, the Andover Campus processed almost 1,000 cases through the Generalized
IDRS Interface, but did not reflect any of them on its inventory reports as Balance Due Notice Program closures. When campuses use different criteria for
counting and reporting closed cases, SB/SE and W&I Division Headquarters Office
management cannot provide effective oversight or properly assess productivity
and the assignment of resources to the different campuses.
Inventory reports do not identify repeat or reassigned cases
As previously discussed, inventory reports provide management with important information about productivity and workload so appropriate resource decisions can be made about staffing, training, and customer service. A key measure on the inventory reports is the number of case closures because it is used to calculate the Balance Due Notice Program closure rate, which reflects how many hours were needed to close the number of cases shown. This allows management to make staffing and resource decisions, depending on the anticipated case volume.
The actions taken by tax examiners on balance due notice cases vary from relatively simple actions to complex and time-consuming processes, such as establishing a new installment agreement for a taxpayer. Regardless of the complexity or time spent on an action, the inventory reports capture and report it generically as a case closure. Figure 3 shows how this classification process can result in multiple case closures for the same taxpayer on a single liability.
Figure 3: Closed Cases Associated With an Installment Agreement
Figure 3 was removed due to its size. To see Figure 3, please go to the Adobe PDF
version of the report on the TIGTA Public Web Page.
SB/SE and W&I Division officials advised us that unless the taxpayer sends correspondence with their installment agreement payment through the CSCO, a closure is not taken. However, our sample included some closed cases where the only correspondence was the payment voucher and the only action documented was the receipt of a scheduled payment.
We
determined that 47 (78 percent) of our 60 sampled closed cases were worked and
closed by a CSCO Balance Due Notice Program tax examiner before and/or after
our review. ****1****This report is used as the source for the
Work, Planning and Control report as well as the Collection Inventory Report. We also determined that 4 (7 percent) of the
60 cases were worked by the Automated Collection System after our review, which
indicates that although the cases were reported as closed by the Balance Due
Notice Program, they were not resolved.
Overall, the 60 sampled closed cases were reported as closed a total of
525 separate times.
In addition, CSCO managers can reassign (commonly referred to as “transshipped”) cases when they determine that cases were misrouted and not intended for the Balance Due Notice Program. These kinds of cases are typically routed to another program within the campus. Similarly, CSCO managers can transship newly received balance due notice cases to another campus if there is an inventory backlog that would prevent the cases from being worked timely.
The practice of transshipping cases is designed to reduce taxpayer burden by allowing the processing of balance due notice cases more quickly when there is a backlog at a specific campus. As new cases come to the backlogged campus, they should be immediately shipped to another campus so the campus with the backlog can focus on its existing inventory, and new cases do not compound to the backlog.
Because the inventory reports do not identify transshipped
cases (or their age), it is possible that cases are not being reassigned as
intended. ****1****.
According to a CSCO quality
review completed June 2009, the Philadelphia Campus assisted the Brookhaven and
Because CSCO inventory reports do
not accurately reflect the work being performed by the Balance Due Notice
Program, CSCO management cannot effectively analyze the Balance Due Notice
Program’s workload or make
informed decisions regarding the Program.
This condition can contribute to improper oversight and inefficient use of Balance Due Notice Program resources
because staffing needs are based on reported inventory levels that misrepresent
the actual workload activity.
Recommendations
To improve oversight of the Balance Due Notice Program and the usefulness of CSCO inventory reports, the Director, Campus Compliance Services, SB/SE Division, and the Director, Filing and Payment Compliance, W&I Division, should:
Recommendation 5: Establish procedures to timely and effectively reconcile inventory reports to the physical inventory.
Management’s Response: IRS management disagreed with this recommendation by stating that they will continue to follow Service-wide procedures provided in the Internal Revenue Manual to reconcile inventory reports to the physical inventory and will continue to ensure these procedures are followed.
Office
of Audit Comment:
Our results show that the Service-wide procedures to
reconcile inventory reports to the physical inventory are not effective and
that the frequency of the physical inventory may prevent a proper
reconciliation. The Internal Revenue
Manual requires the CSCO to reconcile inventory reports to the physical
inventory on a quarterly basis, which may be too infrequent to determine the
cause of any variance. We determined
that the
Recommendation 6: Ensure CSCO inventory reports accurately reflect information that is common among the various reports where applicable, such as the number of closed balance due notice cases during a given time period.
Management’s Response: IRS management agreed with this recommendation and will establish a requirement for campuses to reconcile local reports to Work, Planning and Control reports on a quarterly basis in the SB/SE Division. The W&I Division already reviews and reconciles local reports on a quarterly basis.
Recommendation 7: Establish uniform procedures on the type of balance due notice cases that are reflected on CSCO inventory reports. Procedures should include separate identification of cases that do not require Balance Due Notice Program resources.
Management’s Response: IRS management agreed with this recommendation and the SB/SE and W&I Divisions will review and discuss the need for uniform procedures on balance due notice cases that are reflected on CSCO inventory reports.
Recommendation 8: Request programming changes to the Accounts Management System/Desktop Integration to accurately identify repeat cases.
Management’s Response: IRS management disagreed with this recommendation. They do not believe the Accounts Management System/Desktop Integration needs programming changes to identify repeat cases as this system is only used to count cases when there is correspondence attached that has been worked. Since cases often include multiple pieces of correspondence, there may be an appearance of repeater activity. They rely on the IDRS to record actions taken by employees to complete a case.
Office of Audit Comment: As our sample indicates, the majority of Balance Due Notice Program cases are installment agreement cases. Taxpayers with installment agreements receive an installment agreement reminder notice (Computer Paragraph 521) after every installment payment they make, which advises them of the amount and due date of their next installment. These reminder notices also include a payment voucher, which the taxpayer is instructed to include when making his or her next installment. These payment vouchers are considered correspondence by the Balance Due Notice Program. When they are received, they are treated as a new case when entered into the Accounts Management System/Desktop Integration and counted as a closed case. We believe cases that are simply a recording of an installment payment voucher should be identified as such, since this action by the Balance Due Notice Program does not impact the taxpayer. The critical actions impacting the taxpayer, such as processing the payment and crediting the payment to the taxpayer’s account, will have already been completed by other IRS functions.
Recommendation 9: Establish controls to ensure cases that are transshipped in order to alleviate inventory backlogs cause the least delay to taxpayers.
Management’s Response: IRS management partially agreed with this recommendation and will review whether the controls over transship work are sufficient and effective to alleviate inventory backlogs while minimizing the delay to taxpayers.
Appendix I
Detailed Objective, Scope, and Methodology
The overall objective of
this review was to determine whether the CSCO[11] has effective controls
over the processing of Balance Due Notice Program cases to ensure appropriate
actions are taken to resolve balance due notices accurately and timely. To accomplish the objective, we:
I.
Evaluated whether management in the Andover and
Philadelphia Campuses have established effective inventory controls, per the
Internal Revenue Manual, over the processing of balance due notice responses
and aging inventories.
A.
Interviewed managers to determine how
they use inventory controls to ensure that cases are timely assigned to balance
due notice unit personnel for processing.
1.
Determined how the Accounts Management
System/Desktop Integration control, assign, and monitor inventory to unit
personnel.
2.
Evaluated
IRS efforts to ensure that computer-processed information and related reports
are accurate and complete.
3.
Identified the types of responses being
worked in the balance due notice unit to determine appropriate resolution
activities for specific cases.
B.
Reviewed available inventory reports to
identify case statuses and ages.
C.
Reviewed related
Internal Revenue Manuals, SB/SE and W&I Division Headquarters Office
guidelines, and local procedures for processing correspondence and workflow
management.
D.
Determined whether the
Collection First Read Process had properly evaluated balance due notice cases
for routing to appropriate technical units.
II.
Reviewed random samples of balance due notice responses
from both the case reviewers and the Collection First Read Program at the
selected campuses to determine if the actions taken were accurate, complete,
and timely. We reviewed valid
statistical samples of closed collection cases and selected these samples based
on random sampling techniques using random case selection from a population of 2,011
from the Philadelphia campus (week of September 15, 2008) and 4,604 from the
Andover campus (week of November 3, 2008) for a total of 6,615 balance due
notice cases. The initial samples (80
from
A. Reviewed each case and evaluated whether the closing action taken was consistent with instructions in the Internal Revenue Manual or other procedures prescribed by the SB/SE and W&I Division Headquarters Office.
B. Compared the notice response received date and closing action date to determine if actions were completed within the prescribed 30 calendar day time period.
C.
Evaluated whether
appropriate action was taken on notice responses that required additional
information to resolve the balance due.
III. Determined whether CSCO personnel performed and documented case reviews of the Balance Due Notice Program.
A. Interviewed unit managers and quality review personnel to determine the procedures and methodology for selecting work products for review.
B. Reviewed a sample of reports and available documentation related to the case reviews.
IV.
Tested
the inventory controls at the campus level.
A. Evaluated the inconsistencies identified between inventory reports and physical counts of closed cases.
1.
Identified
cases resulting from the Generalized IDRS Interface template to process cases
systemically and their impact on resources and the inventory reports.
2.
Determined
validity and impact of the processing of
electronic cases and cases assigned by the SB/SE Division Headquarters
Office.
B.
Analyzed
the value of the statistics provided on current inventory reports including:
1.
Credits
for case closures that may be inaccurately captured on the reports.
2.
Reliance
on a single source to maintain current inventory levels with little testing for
effectiveness.
3.
Necessity
of having multiple functions and personnel generating reports that include
similar information.
C.
Analyzed
whether repeat or problem cases can be identified from the available
databases of case inventories.
D.
Evaluated
the extent to which meeting corporate goals (45 calendar day timeliness
criteria) may be impeding accountability at individual campuses.
V.
Determined
the effectiveness of the management reviews of balance due notice cases.
A.
Evaluated
the management quality review process to determine the value of any results
reported.
1.
Compared
our case review results (of our samples from each campus) with the management
review results for the same time period.
2.
Assessed
the value of the IRS’ quality case reviews in recommending improvements at
the campus level.
B. Examined any limitations of the Embedded and National Quality Review Systems designed to capture results of management quality reviews.
Internal controls
methodology
Internal controls relate to the 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 the following internal controls were relevant to our audit objective: the CSCO’s policies, procedures, and practices for documenting the actions taken to resolve balance due notice cases. We evaluated these controls by interviewing management and reviewing a sample of balance due notice cases from two CSCO sites.
Appendix II
Major Contributors to This Report
Margaret
E. Begg, Assistant Inspector General for Audit (Compliance and Enforcement
Operations)
Carl
L. Aley, Jr., Director
Timothy
F. Greiner, Audit Manager
Richard
J. Viscusi, Lead Auditor
Pillai
Sittampalam, Senior Auditor
Frank
Maletta, Auditor
Appendix III
Commissioner C
Office of the Commissioner – Attn: Chief of Staff C
Deputy Commissioner, Small Business/Self-Employed Division SE:S
Deputy Commissioner, Wage and Investment Division SE:W
Director, Campus Compliance Services, Small Business/Self-Employed Division SE:S:CCS
Director, Collection, Small Business/Self-Employed Division SE:S:C
Director, Filing and Payment Compliance, Wage and Investment Division SE:W:CP:FPC
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:
Commissioner, Small
Business/Self-Employed Division SE:S
Commissioner, Wage and Investment Division SE:W
Appendix IV
This appendix presents detailed information on the measurable impact that our recommended corrective actions will have on tax administration. These benefits will be incorporated into our Semiannual Report to Congress.
Type and Value of Outcome Measure:
· Taxpayer Rights and Entitlements – Potential; 1,874 taxpayers entered in installment agreements when they had the potential to pay their tax liability in full and must now pay the costs of the installment agreement, which include the user fee, penalties, and interest (see page 3).
· Taxpayer Rights and Entitlements – Potential; $196,770 paid for installment agreement user fees in situations where the taxpayer had the potential to pay their tax liability in full (see page 3).
Methodology Used to Measure the Reported Benefit:
We selected and reviewed valid statistical samples of closed collection cases based on random sampling techniques using random case selection from a population of 6,615 balance due notice cases. The initial samples were based on a confidence level of 95 percent with a ± 5 percent precision level and an expected error rate of 10 percent. Our sample included 57 (95 percent) of 60 closed balance due notice cases involving installment agreements. In 17 (30 percent) of the 57 cases, we determined that the taxpayer may have had the ability to pay in full. When projected to the total population of 6,615 balance due notice cases closed during the weeks of September 15, 2008 (Philadelphia Campus) and November 3, 2008 (Andover Campus), we estimate 6,284 balance due notice cases involved installment agreements and 1,874 taxpayers may have had the ability to pay in full. We calculated the potential installment agreement user fee amount by multiplying the $105 charged for new agreements by the 1,874 taxpayers to arrive at $196,770.
Type and Value of Outcome Measure:
·
Taxpayer Rights and Entitlements – Potential; 4,343 taxpayers’ balance
due notice cases may have been affected when processing of their balance due
notices exceeded 30 calendar days.
Penalties and interest would continue to accrue until the tax liability
is paid in full (see page 3).
Methodology Used to Measure the Reported Benefit:
Using the same sample of 60 closed balance due notice cases, we identified 39 cases (65 percent) for which employees did not process the case within the required 30 calendar days. When we stratified the sample projection[12] to the total population of 6,615 balance due notice cases closed during the weeks of September 15, 2008 (Philadelphia Campus) and November 3, 2008 (Andover Campus), we estimate the processing of 4,343 balance due notice cases exceeded 30 calendar days.
Type and Value of Outcome Measure:
·
Reliability of Information – Potential; 1,257
balance due notice cases reported on Accounts Management System/Desktop
Integration inventory reports that could not be verified during a physical
count of the balance due notice inventory (see page 7).
Methodology Used to Measure the Reported Benefit:
To verify the accuracy of the Accounts Management System/Desktop Integration inventory reports, we counted the closed cases on hand at the beginning of each day during the weeks of September 15, 2008 (Philadelphia Campus) and November 3, 2008 (Andover Campus) with the corresponding weekly Accounts Management System/Desktop Integration inventory report. The Accounts Management System/Desktop Integration inventory report reflected 3,268 balance due notice cases, while we physically counted 2,011 balance due notice cases.
Appendix V
Accounts Management System/Desktop Integration – The system providing enterprise enabled inventory workflow capability across operating divisions. As we approached the end of fieldwork for this review, Desktop Integration was merged with the Correspondence Imaging System in Accounts Management, and reports previously generated from the Desktop Integration System are now generated from Accounts Management System/Desktop Integration.
Adjusted Gross Income – A taxpayer’s income (including
wages, interest, capital gains, income from retirement accounts, and alimony
received) adjusted by specific deductions (including contributions to
deductible retirement accounts and alimony paid).
Automated Collection System – A telephone contact
system through which telephone assistors collect unpaid taxes and secure tax
returns from delinquent taxpayers who have not complied with previous notices.
Campus – The data processing arm of the IRS.
The campuses process paper and electronic submissions, correct errors,
and forward data to the Computing Centers for analysis and posting to taxpayer
accounts.
Compliance Services Collection Operation (CSCO) – Units of tax examiners that work Balance Due Notice Program cases.
Embedded Quality Review System – The system used by Collection function
managers to complete all case reviews. The system provides a structured context for
evaluating employee performance and a reports utility for performance
documentation.
Headquarters Office – Central office location for IRS executives, management, and
analysts. The SB/SE Division Headquarters
Office is located in New Carrolton,
Installment Agreements – Arrangements by which the IRS allows taxpayers to full pay liabilities over time in smaller manageable payments.
Integrated Data Retrieval System – An IRS computer system capable of retrieving or
updating stored information; it works in conjunction with a taxpayer’s account
records.
National Quality Review System – The system used by reviewers to provide
independent collection review information from which management may draw
inferences regarding overall case quality for a given operational segment.
Refund Offset – Occurs when a taxpayer’s overpayment is applied to any outstanding tax liability prior to making a refund.
Streamlined Installment Agreement – An installment agreement for taxpayers with an aggregate unpaid balance of assessments of $25,000 or less which will be fully paid in 60 months. No managerial approval is required for streamlined installment agreements.
Technical Unit – A unit in the CSCO staffed with tax examiners that works balance due notices received from taxpayers, by skill set.
Transshipping – The process of sending Balance Due Notice Program cases from one campus to another.
Appendix VI
Management’s Response to the Draft Report
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
DEPUTY
COMMISSIONER
January 19, 2010
MEMORANDUM FOR MICHAEL R. PHILLIPS
DEPUTY INSPECTOR GENERAL FOR AUDIT
FROM:
Steven T. Miller /s/ Steven T. Miller
Deputy Commissioner for Services and
Enforcement
SUBJECT:
Draft Audit Report - Processing and Monitoring of Balance Due Cases Needs
improvement (Audit No. 200830049)
Thank you for the opportunity to respond to
the draft report titled, "Processing and Monitoring of Balance Due Cases
Needs Improvement." We appreciate your review of the program; however we
are not in full agreement with selected recommendations and various comments
throughout the report.
The Compliance Services Collection Operations
(CSCO) is a high volume correspondence-based operation, and is one of several
key components of the overall Collection process. Your review assessed
low-dollar, low-risk CSCO cases, which the IRS refers to as "streamlined
cases." In order to maximize the use of our limited resources, we have
created different procedural requirements based on the dollar level and risk of
the case. Due to the low level of risk on cases meeting certain criteria, the IRS
provides taxpayers with the ability to receive a "streamlined" installment
agreement. In fiscal year 2009, the vast majority of installment agreements
granted were streamlined. The IRS does not have sufficient resources to conduct
a full financial analysis on all of these agreements; therefore, an online
payment agreement application was created to assist taxpayers who meet
streamlined criteria so their proposed installment agreements could be approved
systemically. These procedures provide prompt customer service for our lower
risk accounts.
The CSCO uses Internal Revenue Manual (IRM)
5.19.1. Our review of the cases mentioned in this report revealed they were in
compliance with established streamlined procedures, as outlined in IRM
5.19.1.5.5. These guidelines provide that personal contact and a full financial
analysis are not required if the account meets specific streamlined criteria.
The IRM requires that we control the case
within the 3D-day time frame established after an interim letter is sent
advising the taxpayer of the status of their case. This helps to prioritize the
workload. Forms 9465, Installment Agreement Request, are entered directly
through Generalized IDRS Interface (GII); therefore, the documentation is systemic.
The cases are input immediately and coded, then bypass Accounts Management
System controls to ensure expedited processing and to maximize customer
service.
In your report, you stated that workload
reviews did not properly identify problems, such as training needs and trends.
We use Embedded Quality (EQ) and National Quality (NQ) reports, which are
sorted by Organization Function Programs (OFP), to identify trends and training
needs and supplement workload reviews.
We agree with your observation that IRS
management relies on several reports to manage and monitor the Balance Due
Notice Program. This provides our various levels of management with data
necessary for their respective purposes. Due to the variety of uses, numerous
reports are necessary to provide different key program information. We agree
that the physical inventory must match the report data for the comparable time
periods. We will ensure procedures are followed for reconciliation.
We also want to address several references in
your report regarding closures. We only count cases as closures when there is
correspondence attached that has been worked. Because cases often involve
multiple pieces of correspondence, there may be an appearance of overcounting
or inaccuracy. We also want to clarify that when a payment is received without
correspondence, there is no count taken as a closure.
We believe there may be a misunderstanding
regarding the count of transshipped work. The Headquarters Staff closely
monitors inventory balances between sites and adjusts those when necessary to
maximize resources and enhance customer service. If it becomes necessary to
transship work, both the gaining and losing campuses are involved in
discussions. Typically, new receipts are transshipped; however, there may be
times when aged receipts are transferred to balance the workload and provide
timely customer service. These inventory realignments are not counted as
closures. Procedures require that the cases be removed from the Accounts
Management tracking system at the losing Campus and included as receipts into
inventory at the gaining Campus. These are listed as adjustments - not
closures.
We do not concur with your calculation of
Outcome Measures in the report. All taxpayers with unpaid taxes receive an
initial notice which demands full payment of the balance due, and publications
are enclosed which explain payment options. Those taxpayers meeting streamlined
criteria can request an installment agreement from the IRS without first
proving that they have an inability to pay the liability' in full.
We believe that the CSCO program is
well-documented as to its limited scope and intent. This low-cost component of
the collection process enables the IRS to effectively handle large volumes of
correspondence and collect billions of dollars in unpaid taxes from taxpayers
who are trying to comply with their tax obligations.
If you have any questions, please call me at
(202) 622-0600, or Cheryl Sherwood, Director, Campus Compliance Services, Small
Business/Self-Employed Division, at (202) 283-2518.
Attachment
Attachment
RECOMMENDATION
1:
The Director, Collection Policy, SB/SE
Division, should consider revising the streamlined installment agreement
procedures to ensure agreements are beneficial to both the IRS and the
taxpayer.
CORRECTIVE
ACTION:
While we believe the current policy already
achieves this goal, we will consider changes to enhance the benefits to
taxpayers and the IRS.
IMPLEMENTATION
DATE:
September 15, 2010
RESPONSIBLE
OFFICIAL:
Director, Collection Policy, SB/SE
CORRECTIVE
ACTION MONITORING PLAN:
The Director, Collection Policy SB/SE will
advise the Director, Collection SB/SE of any delays in implementing this
corrective action.
RECOMMENDATION
2:
To improve the handling of Balance Due Notice
Program the Director, Campus Compliance Services, SB/SE Division and the
Director, Filing and Payment Compliance, W&I Division, should remind
employees about the need to properly document and timely work case actions, and
review systemically generated actions such as interim letters to identify and
resolve any systemic inconsistencies with Internal Revenue Manual requirements.
CORRECTIVE
ACTION:
The IRS currently uses Embedded Quality and
National Quality reports to monitor documentation and timeliness issues and
provide feedback to employees. In addition to our current procedures, we will
remind employees about the ongoing need to properly document and timely work
case actions. We also agree to include the proper use of interim letters in our
201 0 Campus reviews and also identify and resolve systemic inconsistencies
with Internal Revenue Manual requirements.
IMPLEMENTATION
DATE:
September 15, 2010
RESPONSIBLE
OFFICIAL:
Director, Filing and Payment Compliance,
SB/SE
Director, Filing and Payment Compliance,
W&I
CORRECTIVE
ACTION MONITORING PLAN:
The IRS will monitor this corrective action
as part of our internal management system of controls.
RECOMMENDATION
3:
To improve the handling of Balance Due Notice
Program cases, the Director, Campus Compliance Services, SB/SE Division and the
Director, Filing and Payment Compliance, W&I Division, should establish workload
review criteria to ensure Balance Due Notice Program cases are worked in
compliance with Collection function guidelines and policy, including
encouraging timely processing of case actions, and proper documentation.
CORRECTIVE
ACTION:
The IRS uses Embedded Quality and National
Quality review criteria to ensure balance due cases are worked within
established guidelines and policies. We will ensure that this criteria is
effectively utilized in future reviews and Headquarters will continue to
periodically review Campus cases to ensure compliance with these
requirements/guidelines.
IMPLEMENTATION
DATE:
September 15, 2010
RESPONSIBLE
OFFICIAL:
Director, Filing and Payment Compliance,
SB/SE
Director, Filing and Payment Compliance,
W&I
CORRECTIVE
ACTION MONITORING PLAN:
The IRS will monitor this corrective action
a8 part of our internal management system of controls.
RECOMMENDATION
4:
To improve the handling of Balance Due Notice
Program the Director, Campus Compliance Services, SB/SE Division and the
Director, Filing and Payment Compliance, W&I Division, should use existing
codes in the Embedded Quality Review System to isolate the results of cases
subject to the workload reviews for the Balance Due Notice Program to help
identify training needs.
CORRECTIVE
ACTION:
The IRS uses Embedded Quality and National
Quality reports, sorted by Organizations Function Program, to identify trends
and training needs at each Campus. Additional efforts will be made to integrate
the results of these reviews/reports to better identify
IMPLEMENTATION
DATE:
September 15, 2010
RESPONSIBLE
OFFICIAL:
Director, Filing and Payment Compliance, SB/SE
Director, Filing and Payment Compliance,
W&I
CORRECTIVE
ACTION MONITORING PLAN:
The IRS will monitor this corrective action
as part of our internal management system of controls.
RECOMMENDATION
5:
To improve oversight of the Balance Due
Notice Program and the usefulness of CSCO inventory reports, the Director Campus
Compliance Services, SB/SE Division and the Director, Filing and Payment
Compliance, W&I Division, should establish procedures to timely and
effectively reconcile inventory reports to the physical inventory.
CORRECTIVE
ACTION:
We are following the Servicewide procedures
provided in Internal Revenue Manual 25.14.1 to reconcile inventory reports to
the physical inventory and will continue to ensure these procedures are
followed.
IMPLEMENTATION
DATE:
N/A
RESPONSIBLE
OFFICIAL:
N/A
CORRECTIVE
ACTION MONITORING PLAN:
N/A
RECOMMENDATION
6:
To improve oversight of the Balance Due
Notice Program and the usefulness of CSCO inventory reports, the Director
Campus Compliance Services, SB/SE Division and the Director, Filing and Payment
Compliance, W&I Division, should ensure CSCO inventory reports accurately
reflect information that is common among the various reports where applicable,
such as the number of closed balance due notice cases during a given time
period.
CORRECTIVE
ACTION:
To achieve consistency in this area, we will
implement this recommendation in SB/SE by establishing a requirement for
Campuses to reconcile local reports to Work Planning and Control (WP&C) on
a quarterly basis. The W&I Division already reviews and reconciles local
reports on a quarterly basis.
IMPLEMENTATION
DATE:
April 15, 2010
RESPONSIBLE
OFFICIAL:
Director, Filing and Payment Compliance, SB/SE
CORRECTIVE
ACTION MONITORING PLAN:
The IRS will monitor this corrective action
as part of our internal management system of controls.
RECOMMENDATION
7:
To improve oversight of the Balance Due
Notice Program and the usefulness of CSCO inventory reports, the Director
Campus Compliance Services, SB/SE Division and the Director, Filing and Payment
Compliance, W&I Division, should establish uniform procedures on the type
of balance due notice cases that are reflected on CSCO inventory reports.
Procedures should include separate identification of cases that do not require
Balance Due Notice Program resources.
CORRECTIVE
ACTION:
The SBISE and W&I Divisions will review
and discuss the need for uniform procedures on balance due notice cases that
are reflected on Compliance Services Collection Operations (CSCO) inventory
reports.
IMPLEMENTATION
DATE:
September 15, 2010
RESPONSIBLE
OFFICIAL:
Director, Filing and Payment Compliance,
SB/SE
Director, Filing and Payment Compliance,
W&I
CORRECTIVE
ACTION MONITORING PLAN:
The IRS will monitor this corrective action
as part of our internal management system of controls.
RECOMMENDATION
8:
To improve oversight of the Balance Due
Notice Program and the usefulness of CSCO inventory reports, the Director
Campus Compliance Services, SB/SE Division and the Director, Filing and Payment
Compliance, W&I Division, should request programming changes to the
Accounts Management System Desktop Integration to accurately identify repeat
cases.
CORRECTIVE
ACTION:
We do not believe the Accounts Management
system/Desktop Integration system needs programming changes to identify repeat
cases as this system is only used to count cases when there is correspondence
attached that has been worked. Since cases often include multiple pieces of
correspondence, there may be an appearance of repeater activity. We rely on the
Integrated Data Retrieval System (IDRS) to record actions taken by employees to
complete a case.
IMPLEMENTATION
DATE:
N/A
RESPONSIBLE
OFFICIAL:
N/A
CORRECTIVE
ACTION MONITORING PLAN:
N/A
RECOMMENDATION
9:
To improve oversight of the Balance Due
Notice Program and the usefulness of CSCO inventory reports, the Director
Campus Compliance Services, SB/SE Division and the Director, Filing and Payment
Compliance, W&I Division, should establish controls to ensure cases that
are transshipped in order to alleviate inventory backlogs cause the least delay
to taxpayers.
CORRECTIVE
ACTION:
The Headquarters staff closely monitors
inventory imbalances between sites and adjusts when necessary to maximize
resource availability and enhance customer service. If it becomes necessary to
transship work, both the gaining and losing Campuses are involved. Usually, new
receipts are transshipped to avoid impact on taxpayers. When necessary, aged
receipts are realigned to balance workloads. While controls are already in
place to accomplish the movement of these cases, we will review whether these
controls are sufficient and effective to alleviate inventory backlogs while
minimizing the delay to taxpayers.
IMPLEMENTATION
DATE:
July 15, 2010
RESPONSIBLE
OFFICIAL:
Director, Filing and Payment Compliance,
SB/SE
Director, Filing and Payment Compliance,
W&I
CORRECTIVE
ACTION MONITORING PLAN:
The IRS will monitor this corrective action
as part of our internal management system of controls.
[1] See Appendix V for a glossary of terms.
[2] Week of
September 15, 2008 (
[3] Installment agreement user fees are $105 for new agreements.
[4] Interest on unpaid tax liabilities accrue until the liability is paid in full.
[5] See Appendix V for a glossary of terms.
[6] The five
SB/SE Division CSCO sites are in
[7] The five
W&I Division CSCO sites are in
[8] Week of
September 15, 2008 (
[9] Installment agreement user fees are $105 for new agreements.
[10] CSCO management at the Andover Campus advised us that they only use one report (Accounts Management System/Desktop Integration).
[11] See Appendix V for a glossary of terms.
[12] Stratum 1 was 30.401 percent of the population with an error rate of 63.33 percent; Stratum 2 was 69.599 percent of the population with an error rate of 66.67 percent. The resulting expected error rate for projecting to the combined population was 65.65 percent.