Insufficient and Inexperienced Staff Could Reduce the Ability to Detect and Stop Fraudulent Refunds
January 8, 2010
Reference Number: 2010-40-017
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 8, 2010
MEMORANDUM FOR COMMISSIONER, WAGE AND INVESTMENT DIVISION
FROM: (for) Michael R. Phillips /s/ Alan R. Duncan
Deputy Inspector General for Audit
SUBJECT: Final Audit Report – Insufficient and Inexperienced Staff Could Reduce the Ability to Detect and Stop Fraudulent Refunds (Audit # 200940032)
This
report presents the results of our review to assess Internal Revenue Service (IRS) efforts to ensure a successful
transition of pre-refund fraud detection activities from the Criminal
Investigation Division to the Wage and Investment Division. This review was conducted as part of the
Treasury Inspector General for Tax Administration Fiscal Year 2009 Annual Audit
Plan related to the major management challenge of Erroneous and Improper
Payments and Credits.
Impact on the Taxpayer
The Questionable Refund Program is a nationwide, multi-functional program designed to detect and stop fraudulent claims for refunds on income tax returns. Pre-refund fraud detection activities have been transferred from the Criminal Investigation Division to the Wage and Investment Division Accounts Management function. We are concerned that staffing may not be sufficient, which could result in a reduction of fraudulent refunds identified and stopped. Insufficient staffing may also reduce the ability of the IRS to provide timely assistance to taxpayers who experience delays in receiving their refund or who are victims of identity theft.
Synopsis
The IRS has
taken actions or is in the process of taking actions to ensure the Wage and
Investment Division will assume responsibility for transitioned activities as
planned.
In early 2006, the IRS Taxpayer Advocate Service released its 2005 Annual Report to Congress, which identified refund freezes[1] placed on taxpayer accounts by the IRS Criminal Investigation Division as one of the most serious problems encountered by taxpayers and called for improvements to the Questionable Refund Program. Shortly after the release of the report, the IRS Commissioner directed a review of the Questionable Refund Program. In October 2006, the IRS established the Pre-Refund Program Office to develop an enterprise vision and strategy for IRS pre-refund activities. To achieve the goals of the new Pre-Refund Program, the IRS launched three important initiatives, including the Fraud Detection Center (FDC)[2] Transition Team. In mid-January 2008, the FDC Transition Team began studying which FDC work processes and associated resources could move from the Criminal Investigation Division to the Wage and Investment Division Accounts Management function.
The
FDC Transition Team recommended the realignment of five activities from the Criminal
Investigation Division to the Wage and Investment Division Accounts Management
function. The Team was
also responsible for ensuring the transition of selected work activities and
associated resources to the Accounts Management function. According to the IRS, moving these resources
will capitalize on opportunities to complete this work more efficiently.
Insufficient
and inexperienced staff could result in a reduction of fraudulent refunds
identified and stopped.
The Wage and Investment
Division assumed responsibility for performing transitioned Questionable Refund
Program activities on October 11, 2009. However, we believe that staffing may not be
sufficient. Management used the actual
hours charged by employees in Fiscal Year 2007 for the activities being transitioned
and then revalidated the
results by using the actual
hours charged in Fiscal Year 2008 rather than performing a comprehensive analysis
to determine the average time to complete one unit of work. The analysis, which established that the Accounts
Management function would receive 248 Full-Time Equivalents[3] to work transitioned activities, did not
include an assessment of the anticipated workload volumes by activity for the
year and the average time to complete one unit of work.
During the course of our review, we raised our concerns to management regarding the potential effect of insufficient and inexperienced staff on program accomplishments. Management responded that the pre-refund fraud detection procedures provide a greater level of detail than has been available in prior filing seasons and that each new employee will be provided training. In addition, the Commissioner, Wage and Investment Division, and the Chief, Criminal Investigation Division, stated that they are prepared to work staffing issues cross-functionally if filing season workloads require. A memorandum of understanding between the Wage and Investment Division and Criminal Investigation Division stipulates that if the Accounts Management function has insufficient staff to work the inventories, then the Criminal Investigation Division will detail employees for the duration of the filing season or until peak inventories are reduced to a manageable level. We plan to monitor the impact of staffing on transitioned activities during the 2010 Filing Season and will include results in both our 2010 Interim Filing Season report and 2010 Filing Season report.
Recommendation
We recommended that the Commissioner, Wage and Investment Division, perform a comprehensive analysis during the 2010 Filing Season to determine the average time to complete one unit of work for each of the transitioned activities. The average time to complete one unit of work should then be applied to the anticipated workload volumes to identify staffing resources needed to timely complete these activities in Processing Year[4] 2011.
Response
IRS management agreed with our recommendation. The IRS will analyze the volume of work and staff hours needed to perform the 2010 Filing Season work in order to determine the resources required to timely complete the projected work in the 2011 Filing Season. Management’s complete response to the draft report is included as Appendix IV.
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 Michael E. McKenney, Assistant Inspector General for Audit (Returns Processing and Account Services), at (202) 622-5916.
Appendices
Appendix
I – Detailed Objective, Scope, and Methodology
Appendix
II – Major Contributors to This Report
Appendix
III – Report Distribution List
Appendix
IV – Management’s Response to the Draft Report
Abbreviations
|
EFDS |
Electronic Fraud Detection System |
|
FDC |
|
|
FTE |
Full-Time Equivalent |
|
IRS |
Internal Revenue Service |
|
QRP |
Questionable Refund Program |
The
Questionable Refund Program is a nationwide, multi-functional program designed
to identify fraudulent tax returns and to stop the payment of fraudulent
refunds.
The Questionable Refund Program (QRP) is a
nationwide, multi-functional program designed to detect and stop
fraudulent claims for refunds on income tax returns. The Electronic Fraud Detection System (EFDS)
is the primary information system used to support the QRP. The EFDS applies specific fraud criteria to tax
returns filed with the Internal Revenue Service (IRS) in an attempt to identify
questionable tax returns with refunds.
Prior to the release of a refund,
questionable tax returns are reviewed at the Criminal Investigation Division’s
10 Fraud Detection Centers (FDC).[5] FDC personnel scan the identified tax returns to
determine fraud potential. During this
scanning process, FDC personnel use information, including prior year tax returns,
to assist in determining if further verification is warranted. If a tax return is selected for verification,
the refund is held until employers or third parties are contacted to verify
wage information. If the verification concludes that a tax return
contains false information (e.g., false or inflated wages), the tax return is
referred to either the Accounts Management function or the Examination function
for resolution.[6] If fraud was not detected, the IRS releases
the refund. Figure 1 identifies the number of fraudulent returns and refunds identified
and stopped by the QRP in Processing Years[7] 2007 and 2008.
Figure 1: Fraudulent Returns and
Refunds Identified and Stopped
for Processing Years 2007 and 2008
|
Processing Year |
Number of Fraudulent Refund
Returns Identified |
Number of Fraudulent Refunds
Stopped |
Amount of Fraudulent Refunds
Identified |
Amount of Fraudulent Refunds
Stopped |
|
2007 |
240,406 |
189,915 |
$1,467,762,110 |
$1,203,795,853 |
|
2008 |
380,656 |
306,128 |
$1,959,992,377 |
$1,683,912,973 |
Source: Criminal
Investigation Division QRP Workload Comparison Summary Reports.
Concerns raised by the National Taxpayer Advocate
resulted in revisions to the QRP
In early 2006, the IRS Taxpayer Advocate Service
released its 2005 Annual Report to Congress which identified refund freezes[8] placed on taxpayer accounts by the IRS
Criminal Investigation Division as one of the most serious problems encountered
by taxpayers and called for improvements to the QRP. Shortly after the release of the report, the
IRS Commissioner directed a review of the QRP.
In October 2006, the IRS established the Pre-Refund Program
Office to develop an enterprise vision and strategy for IRS pre-refund
activities. To achieve the goals of the new Pre-Refund
Program, the IRS launched three
important initiatives, including the FDC Transition Team. In mid-January 2008, the FDC Transition Team
began studying which FDC work processes and associated resources could move
from the Criminal Investigation Division to the Wage and Investment Division
Accounts Management function.
The core objective of the FDC Transition Team was to identify work processes residing within the FDCs that could be realigned to the Accounts Management function, which would free up Criminal Investigation Division personnel to focus on scheme development.[9] The FDC Transition Team recommended the realignment of the following activities from the Criminal Investigation Division to Wage and Investment Division Accounts Management function:
The FDC Transition
Team was also responsible for the
transition of selected work activities and associated resources to the Accounts
Management function by October 11,
2009. According to the IRS, moving these
resources will capitalize on opportunities to complete this work more
efficiently. In addition, recommendations
were made by the
FDC Transition Team and accepted by the Accounts Management function to reduce
the number of sites performing QRP activities from 10 sites to 7 sites. Activities currently
performed in
Figure 2: Accounts Management Function Activities by Site
for the 2010 Filing Season
|
Program |
|
|
Austin Campus |
|
|
|
|
Total FTEs |
|
Scanning |
14 |
9 |
16 |
|
13 |
9 |
|
61 |
|
Verification |
2 |
25 |
2 |
35 |
22 |
12 |
19 |
117 |
|
Workload Transfers |
|
1 |
4 |
1 |
2 |
2 |
|
10 |
|
Refund Inquiries |
|
1 |
1 |
1 |
|
13 |
13 |
29 |
|
Identity Theft |
|
1 |
6 |
1 |
7 |
|
12 |
27 |
|
Other Direct[12] |
|
1 |
|
|
1 |
1 |
1 |
4 |
|
Total FTEs |
16 |
38 |
29 |
38 |
45 |
37 |
45 |
248 |
Source: FDC Transition Project Office.
This review was performed at the Wage and Investment
Division Office of Electronic Tax Administration and Refundable Credits and the
Criminal Investigation Division Office of Refund Crimes in
The IRS has taken a number of actions to facilitate the transition of QRP activities to the Wage and Investment Division. These actions include:
· Implementing effective governance and project management processes for the transition effort. These processes enabled the IRS to ensure that transition efforts met intended objectives and were planned and executed in a controlled and orderly manner.
· Preparing key project documents including a business case to identify anticipated costs and benefits, and a project plan to monitor the status and progress of the transition activities.
· Developing procedures and training materials for the various transitioned activities in an effort to ensure that Accounts Management function staff can accurately complete their required tasks.
· Announcing 222 positions on July 27, 2009, to be filled in the Accounts Management function. The IRS plans to fill all vacant positions by December 21, 2009, with training completed in early January 2010. However, as of September 30, 2009, the IRS had not filled any of the 222 positions.
· Performing a System Acceptability Test[13] to ensure changes to the EFDS were successfully programmed. These changes include the automatic generation of notification letters to third parties and the retrieval of tax returns for scanning on a first-in/first-out basis to improve the efficiency of the scanning process. Testing began on September 14, 2009.
· Developing a site deployment plan to ensure newly hired and transferring staff have the workspace and computers needed to perform their duties.
· Developing performance measures. Although the IRS had planned to have these performance measures developed by August 31, 2009, they were still being developed as of September 30, 2009.
Although the Accounts Management function assumed responsibility for
transitioned activities on October 11, 2009, staffing may not be sufficient
which could result in a reduction of fraudulent refunds identified and stopped,
and the inability of the IRS to timely provide assistance to taxpayers experiencing
delays in receiving their refund or who
are victims of identity theft. Management
used the actual hours charged by employees in Fiscal Year 2007 for the
activities being transitioned and
then revalidated the results by using the actual hours charged in Fiscal Year 2008 rather than performing a comprehensive
analysis to determine the average time to complete one unit of work. In addition, the analysis, which established
that the Accounts Management function would receive 248 FTEs to work
transitioned activities beginning October 11, 2009, did not include an
assessment of the anticipated workload volumes by activity for the year and the
average time to complete 1 unit of work.
During the course of our review, we raised our concerns to management regarding the potential effect that insufficient and inexperienced staff may have on program accomplishments. Management responded that the pre-refund fraud detection procedures provide a greater level of detail than has been available in prior filing seasons and that each new employee will be provided training. In addition, the Commissioner, Wage and Investment Division, and the Chief, Criminal Investigation Division, stated that they are prepared to work staffing issues cross-functionally if 2010 Filing Season workloads require. A memorandum of understanding between the Wage and Investment Division and the Criminal Investigation Division stipulates that if the Accounts Management function has insufficient staff to work the inventories, then the Criminal Investigation Division will detail employees for the duration of the filing season or until peak inventories are reduced to a manageable level. We plan to monitor the impact of staffing on transitioned activities during the 2010 Filing Season and will include results in both our 2010 Interim Filing Season report and 2010 Filing Season report.
Insufficient and Inexperienced Staff Could Result in a Reduction of Fraudulent Refunds Identified and Stopped
The Accounts Management function
may not have adequate staffing in Fiscal Year 2010, which could result in a
reduction in the number of fraudulent refunds identified and stopped. When calculating staffing requirements, the IRS should have identified
the anticipated units to be worked for the transitioned activities and then
performed a comprehensive analysis to determine the average number of units of
work that could be completed per hour. The
estimated units to be worked should then have been divided by the average units
completed per hour to determine the staff hours required. Instead, the IRS used the actual hours
charged by experienced employees in Fiscal Year 2008 to compute the Fiscal Year
2010 staffing.
The IRS attempted to use a comprehensive analysis
to compute the average time needed to accomplish a unit of work for each of the
transitioned activities. This analysis included
observing a sample of units processed by employees at a limited number of the FDCs
and then calculating the work rate by dividing the number of units processed by
the time expended per unit. The IRS
performed this analysis for the scanning tax return activity, the verifying
wage and withholding information activity, and the refund inquiry activity. Although the IRS computed the average time to
complete these activities, it did not use this computation when determining
staffing that would be needed to perform the work for these activities.
The IRS did not perform this analysis for
the remaining transitioned activities.
For example, the IRS did not perform this analysis in an attempt to
identify staffing needed for adjusting tax returns for victims of identity
theft, which is an activity for which the
Criminal Investigation Division has experienced staffing shortages in Fiscal
Year 2009. When questioned, IRS
management stated that they believed the analysis of actual hours charged in Fiscal Year 2008 provided
the best top-level view for determining the allocation of staffing for
transitioning activities. However, a recent IRS analysis of the hours
charged between May 30, 2009, and August 15, 2009, reflected that employees
were charging an average of 1,600 hours per week to work identity theft cases. The analysis also estimated that 800 new
cases would be received per week
through mid-October 2009 and that the inventory would continue to increase by
160 cases per week using an estimated case closure rate of .4 cases per hour. If the weekly receipts and the case closure
rate remain constant, we
calculate that the Accounts Management function will need approximately 104,000
staff hours in Fiscal Year 2010 for the identity theft workload. However, the Accounts Management function will
only be allocated 27,942 staff hours because that is what Criminal
Investigation Division employees charged in Fiscal Year 2008.
Despite concerns raised as to the accuracy of Fiscal Year 2008
actual time charges, IRS management used this information to determine staffing
levels
The Accounts Management function will
receive approximately 11 fewer employees to perform the scanning of tax returns
in Fiscal Year 2010 than the Criminal Investigation Division employed in this
activity in Fiscal Year 2008. The
reduction in staffing is a result of management’s concern regarding the
accuracy of employee time charges for the scanning activity. Management believes that employees were
working on scheme development[14] but were charging time to the scanning of
tax returns. The basis for this
conclusion was a comparison of weekly hours charged for scanning tax returns in
Calendar Years 2007 and 2008 to the weekly volume of returns scanned. Management concluded that as much as 30 percent of the hours
charged to scanning in Calendar Years 2007 and 2008 could have been in support
of scheme development.
Nonetheless, there was no empirical evidence
to support the fact that employees were erroneously charging their time to
scanning tax returns when they were actually working on scheme development. Management planned to validate their decision to
reduce staffing for scanning tax returns in Fiscal Year 2010 by reviewing the
hours charged to scanning tax returns in Fiscal Year 2009. However, management was unable to perform
this review because of problems with the criteria used by the EFDS to identify
questionable returns which were
detected early in the 2009 Filing Season. These problems caused an unusually low volume
of returns to be identified for scanning.
This resulted in a departure from the normal identification and scanning
process of questionable returns, which management explained affected the
reporting of time and complicated any analysis of time reported for scanning activities.
Since the IRS was experiencing problems with
the EFDS identifying returns for the QRP, the staff hours expended to scan and
verify each return may not have been accurately reported for the work performed,
thereby complicating any analysis of the 2009 Filing Season. We recognize that errors in time reporting can
occur since employees working in the FDCs may perform multiple program activities
each week. During our review, some employees
indicated that the accuracy of the hours being recorded between activities was
questionable.
Staffing levels were based on a highly experienced staff; however, most
of the individuals performing these activities in Fiscal Year 2010 will be new
to these activities
Using the actual
hours to identify staffing needs could result in the IRS not having adequate
staffing to sustain its ability to identify and stop fraudulent refunds. The
actual hours charged to the transitioned activities in Fiscal Year 2008 are
based on a highly experienced staff.[15] However,
when the Accounts Management function assumes responsibility for the
transitioned activities, the majority of the individuals performing these
duties will be new employees. Of the 359
employees who will be working on the transitioned activities, 62 percent (222
employees) will be new to the program.
We surveyed
a judgmental sample of 100 employees (10 employees at each FDC) and received
responses from 61 employees who noted that they had worked in a FDC for an
average of 9 years. Figure 3 identifies the
number of years worked by the surveyed employees. In addition, 45 of the surveyed employees believed
that it took at least 1 year or more to become proficient in their assigned
duties. Assigned duties of the surveyed
employees included identity theft, refund inquiries, scanning, scheme
development, and verification.
Figure 3: Number of Years Worked at the FDCs
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.
Of additional concern is that the 222 new employees will either be seasonal or temporary employees. The hiring of seasonal employees could result in higher turnover rates, thereby reducing the possibility of an increased number of experienced employees performing the work in subsequent years. For example, the Criminal Investigation Division had only seven seasonal employees on the rolls and experienced very low turnover rates. IRS management is filling positions with seasonal or temporary employees because the activities being transitioned to the Accounts Management function are seasonal in nature with the majority of workload demand occurring between January and June. Management has developed a contingency plan in case workload issues arise during Fiscal Year 2010. The Criminal Investigation Division has agreed to provide staffing to the Accounts Management function if needed.
Fiscal Year 2008 staffing levels were used despite clear
indications that these levels were inadequate
Unlike
some of the other transitioned activities (scanning and verification), the IRS cannot
adjust tolerances to control the workload volume for taxpayer cases that
require assistance as the result of identity theft.[16]
Similar to the other transitioned
activities, the IRS’ determination of staffing needed for Fiscal Year 2010 was
based on the actual staff hours charged in Fiscal Year 2008. Our review identified that the IRS did not
have adequate staffing to timely work and assist victims of identity theft in
Fiscal Year 2009. On August 24, 2009, the IRS reported that it
took approximately 2 hours for the Criminal Investigation Division to
close one identity theft case and that they were receiving 800 cases per
week. Based on these figures, the
Accounts Management function would need approximately 104,000 staff hours in
Fiscal Year 2010 for the identity theft workload; however, Accounts Management function
will only be allocated 27,942 staff hours since that is what Criminal
Investigation Division employees charged in Fiscal Year 2008.
On June 30, 2009, Criminal
Investigation Division management alerted management of the Accounts Management
function that they would not be able to complete the inventory of identity
theft cases by October 11, 2009. Management
noted that staffing was not sufficient to timely work identity theft
cases. For Fiscal Year 2009, identity
theft casework was centralized at the FDCs in
The project plan was to complete the identity
theft inventory prior to the transition.
However, as of August 22, 2009, the IRS reported 6,014 identity theft
cases currently in inventory and the inventory is increasing by 160 cases per
week. As a result, approximately 11,000
identity theft cases will be in inventory when the program transitions to the Accounts
Management function. It is critical that
the IRS provides timely assistance to taxpayers who are victims of identity
theft. Delays in working
identity theft cases because of the inventory backlogs can create an undue
burden on taxpayers whose refunds are legitimate.
Recommendation
Recommendation 1: The Commissioner, Wage and Investment Division, should perform a comprehensive analysis during the 2010 Filing Season to determine the average time to complete one unit of work for each of the transitioned activities. The average time to complete one unit of work should then be applied to the anticipated workload volumes to identify staffing resources needed to timely complete these activities in Processing Year 2011.
Management’s
Response: The IRS management
agreed with our recommendation. The IRS
will analyze the volume of work and staff hours needed to perform the 2010
Filing Season work in order to determine the resources required to timely
complete the projected work in the 2011 Filing Season.
Appendix I
Detailed Objective, Scope, and Methodology
The overall
objective of this review was to assess IRS efforts to ensure a successful
transition of pre-refund fraud detection activities from the Criminal
Investigation Division to the Wage and Investment Division. To accomplish our objective, we:
I.
Evaluated
the workload impact that the FDC Transition will have on pre-refund detection
activities (i.e., scanning, verification, etc.) for the individual FDC
locations.
A.
Attended
FDC Workload Transition Team site visitations at
B.
Obtained
and reviewed policies and procedures issued to FDC personnel to perform the
pre-refund detection activities.
C.
Met with
Criminal Investigation Division and Wage and Investment Division representatives
and obtained pertinent documentation to determine the pre-refund activities
currently performed by each FDC and the post-transition activities that will be
performed by each site.
D.
Prepared
a matrix identifying the pre-refund activities performed by FDC sites before
and after the transition.
E.
Met with
Criminal Investigation Division and Wage and Investment Division representatives
to determine which function will be the business owner of the EFDS after the
transition and established each function’s responsibility in the determination
of data-mining threshold scores and refund tolerance levels.
II.
Determined
whether the governance and project management processes are effective to ensure
implementation by October 11, 2009.
A.
Reviewed
the Enterprise Life Cycle manual to identify required governance and project
management processes and procedures.
B.
Obtained
and reviewed the Project Management Plan to determine the governance and
oversight in place to monitor the FDC Transition project.
C.
Attended
the monthly Pre-Refund Program Executive Steering Committee meetings.
D.
Obtained
and reviewed the prior Pre-Refund Program Executive Steering Committee meeting
minutes and briefing materials to determine how the status of the FDC transition
is being reported.
E.
Met with
Criminal Investigation Division and Wage and Investment Division representatives
to discuss each function’s roles and responsibilities for the various FDC
Transition project activities, including project oversight and management.
F.
Selected
a judgmental sample of 100 Criminal
Investigation Division employees (10 employees from each of the 10 FDC
sites) at the GS-9 grade level and below from a population of 250 employees to assess the experience level of the
current staff primarily performing
the work transitioning to the Accounts Management function. We used a judgmental sample because no
statistical projections were being made.
We received responses from 61 of the 100 employees surveyed.
III.
Determined
whether project management documentation was prepared to establish project
justification and ensure a successful implementation.
A.
Reviewed
the Enterprise Life Cycle manual to identify project documentation requirements
for project initiation and management.
B.
Interviewed
representatives from the Criminal Investigation Division, the Wage and
Investment Division, and the Taxpayer Advocate Service to determine the
expected benefits to the IRS and taxpayers with the realignment of selected QRP
activities from the Criminal Investigation Division to the Wage and Investment
Division.
C.
Obtained
and reviewed the FDC Transition Business Case for project justification,
including a cost-benefit analysis.
D.
Determined
whether the project office established an effective method to accurately track
the cost associated with the transition.
E.
Obtained
and reviewed project deliverables (i.e., Project Implementation Plan,
Communication Plan, etc.) developed for the FDC Transition project.
F.
Evaluated
the analyses and supporting documentation for the project activities
establishing the workload assessments and staffing requirements for the Wage
and Investment Division.
G.
Reviewed
the Internal Revenue Manuals and training materials developed for the
pre-refund detection activities transitioning to the Accounts Management
function.
IV.
Determined
the effectiveness of project management controls.
A.
Interviewed
FDC Transition project management to determine how they are monitoring project
progress and performance.
B.
Attended
the FDC Transition project meetings.
C.
Obtained
and reviewed status reports and project schedules used to monitor project
progress and performance.
D.
Determined
whether issues are identified and tracked for resolution.
E.
Determined
whether risks are being identified by the project manager and risk mitigation
measures are developed.
F.
Interviewed
the FDC Transition project manager to determine what measures are in place to
elevate issues and risks for mitigation and what contingency plans have been
developed to minimize the impact to the QRP in the event that the transition is
not implemented timely.
Appendix II
Major Contributors to This Report
Michael E.
McKenney, Assistant Inspector General for Audit (Returns
Processing and Account Services)
Russell P. Martin, Director
Edward Gorman, Audit Manager
Van A. Warmke, Lead Auditor
Stephen
A. Elix, Auditor
Appendix III
Commissioner C
Office
of the Commissioner – Attn: Chief of
Staff C
Deputy Commissioner for Services and Enforcement SE
Chief,
Criminal Investigation Division SE:CI
Deputy Commissioner, Wage and Investment
Division SE:W
Director, Electronic Tax Administration and Refundable Credits, Wage and Investment Division SE:W:ETARC
Director,
Refund Crimes, Criminal Investigation Division
SE:CI:RC
Director, Strategy and Finance, Wage and Investment Division SE:W:S
Director, Accounts Management, Wage and
Investment Division SE:W:CAS:AM
Chief,
Program Evaluation and Improvement, Wage and Investment Division SE:W:S:PRA:
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
Liaison: Chief, Program Evaluation and
Improvement, Wage and Investment Division SE:W:S:PRA:
Appendix IV
Management’s Response to the Draft Report
Department of the
Treasury
Internal Revenue
Service
Commissioner
Wage and Investment Division
December
11, 2009
MEMORANDUM FOR DEPUTY
INSPECTOR GENERAL FOR AUDIT
MICHAEL R. PHILLIPS
FROM: Richard Byrd, Jr. /s/ Richard Byrd, Jr.
Commissioner, Wage and Investment Division
SUBJECT: Draft Audit Report –
Insufficient and Inexperienced Staff Could Reduce the Ability to Detect and
Stop Fraudulent
Refunds (Audit #200940032)
I reviewed the subject draft
report and acknowledge your concerns with our planned staffing and employee
experience levels. We agree that having
qualified staffing in place for the 2010 Filing Season is critical to the
success of the Fraud Detection Center (FDC) workload transition. However, we believe that our current
pre-refund procedures and the Criminal Investigations (CI) Division’s agreement
to provide any needed staffing support addresses your concerns. Hiring is well underway and our procedures
and training materials are in place.
In short, the IRS has
developed a plan based upon analysis, subject matter expertise, and management
input to accomplish the necessary hiring and provide training. We expect to satisfy the requirements of the
projected workload and have contingency plans in place if needed. Additionally, as part of our contingency
planning, CI is keeping all ten Scheme Development Centers, formerly known as
FDCs, in place through the 2010 Filing Season to augment Wage and Investment
(W&I) Division resources if necessary.
We appreciate your
recognition of the actions we have taken to address the National Taxpayer
Advocate’s identification of a problem with pre-refund freezes. The National Taxpayer Advocate’s concerns
have been addressed with the actions taken by the FDC transition team. The transition of the identified program
activities from CI to W&I Accounts Management has proceeded as planned. Additionally, we appreciate your acknowledgement
of the actions we took to facilitate the transition of the Questionable Refund
Program activities to W&I, which successfully occurred on October 1, 2009.
Attached are our comments on
your recommendation. If you have
questions, please contact me at (404) 338-7060, or a member of your staff may
contact Verlinda Paul, Director, Earned Income Tax Credit/Pre-Refund, Wage and
Investment Division at (404) 338-7112.
Attachment
Attachment
Recommendation 1:
The Commissioner, Wage and Investment
Division, should perform a comprehensive analysis during the 2010 Filing Season
to determine the average time to complete one unit of work for each of the
transitioned activities. The average
time to complete one unit of work should then be applied to the anticipated workload
volumes to identify staffing resources needed to timely complete these
activities in Processing Year 2011.
Corrective Action:
We agree with this
recommendation. We will analyze the
volume of work and staff hours needed to perform the 2010 Filing Season work, in
order to determine the resources required to timely complete the projected work
in the 2010 Filing Season. However, as
noted in the cover memorandum above, we fully expect to satisfy the requirement
of the 2010 workload and have contingency plans in place to supplement available
Wage and Investment Division resources if needed.
Implementation Date:
November 15, 2011
Responsible Official:
Director, Accounts Management,
Wage and Investment Division
Corrective Action Monitoring Plan:
The corrective action will be
monitor as part of our internal managerial control system.
[1] The refund freeze condition on the taxpayer’s account prevents the release of the refund to the taxpayer.
[2] Criminal Investigation Division personnel at the 10 FDCs review questionable tax returns prior to the release of a refund.
[3] A Full-Time Equivalent (FTE) is a measure of labor hours in which 1 FTE is equal to 8 hours multiplied by the number of compensable days in a particular fiscal year. For Fiscal Year 2008, 1 FTE was equal to 2,096 staff hours.
[4] A processing year is the calendar year the return or document is processed by the IRS.
[5] The FDCs are located at the returns processing
campuses in
[6] Returns with certain refundable credits, such as the Earned Income Tax Credit, and returns for which refunds were issued are sent to the Examination function because the law requires the IRS to follow deficiency procedures before making an assessment in these cases.
[7] A processing year is the calendar year the return or document is processed by the IRS.
[8] The refund freeze condition on the taxpayer’s account prevents the release of the refund to the taxpayer.
[9] Scheme development is the identification of multiple returns containing false or fictitious claims for refund that appear to be related.
[10] A measure of labor hours in which 1 FTE is equal to 8 hours multiplied by the number of compensable days in a particular fiscal year. For Fiscal Year 2008, 1 FTE was equal to 2,096 staff hours.
[11] The filing season is the period from January through mid-April when most individual income tax returns are filed.
[12] Time charged by employees not specific to the other programs listed, such as researching Employer Identification Numbers that may not be valid or correct.
[13] The process of testing a system or program to ensure it meets the original objectives outlined by the user in the requirement analysis document.
[14] Scheme development is the identification of multiple returns containing false or fictitious claims for refund that appear to be related.
[15] We considered the staff at the FDCs to be highly experienced based on the low employee turnover rates indicated by the results of our employee survey and discussions held during walkthroughs at two FDCs.
[16] Identity theft cases occur when an identity thief
uses a legitimate taxpayer’s name and Social Security Number to file a return
to fraudulently claim a refund. As part
of IRS efforts to provide assistance to taxpayers who are the victims of
identity theft, the IRS will place an identity theft indicator on victims’
accounts so that IRS personnel can more easily recognize and assist the
legitimate taxpayer in case of future account problems.