Independent Attestation Review of the Internal Revenue Service’s Fiscal Year 2011 Annual Accounting of Drug Control Funds and Related Performance
January 30, 2012
Reference Number: 2012-10-018
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
E-mail Address |
TIGTACommunications@tigta.treas.gov
Website | http://www.tigta.gov
HIGHLIGHTS
NDEPENDENT ATTESTATION REVIEW OF THE
INTERNAL REVENUE SERVICE’S FISCAL YEAR 2011 ANNUAL ACCOUNTING OF DRUG CONTROL
FUNDS AND RELATED PERFORMANCE
Highlights
Final
Report issued on January 30, 2012
Highlights of Reference
Number: 2012-10-018 to the Internal
Revenue Service Chief Financial Officer and Acting Chief, Criminal
Investigation.
IMPACT ON TAXPAYERS
The IRS reported that it expended $66.5 million on
Office of National Drug Control Policy (ONDCP)-related activities and completed
927 ONDCP-related investigations in Fiscal Year 2011. Based on our review, nothing came to our
attention that caused us to believe that the assertions in the Detailed
Accounting Submission and Performance Summary Report are not appropriately
presented in all material respects in accordance with ONDCP-established
criteria. Complete and reliable
financial and performance information is critical to the IRS’s ability to
accurately report on the results of its operations to both internal and
external stakeholders, including taxpayers.
WHY TIGTA DID THE AUDIT
This
review was conducted as required by the ONDCP and the ONDCP Circular: Drug
Control Accounting, dated May 1, 2007.
The National Drug Control Program agencies are required to submit to the
Director of the ONDCP, not later than February 1 of each year, a detailed
accounting of all funds expended (the ONDCP Circular requires amounts
obligated) during the previous fiscal year.
Agencies also need to identify and document performance measure(s) that
justify the results associated with these expenditures.
The Chief Financial Officer, or another accountable senior level executive, of each agency for which
a Detailed Accounting Submission is required, shall provide a Performance
Summary Report to the Director of the ONDCP. Further, the Circular requires that each
report be provided to the agency’s Inspector General for the purpose of
expressing a conclusion about the reliability of each assertion made in the
report prior to its submission.
WHAT TIGTA FOUND
Based on our
review, nothing came to our attention that caused us to believe that the
assertions in the Detailed Accounting Submission and Performance Summary Report
are not appropriately presented in all material respects in accordance with ONDCP-established
criteria. The IRS reported that it
expended $66.5 million on ONDCP-related activities and completed 927 ONDCP-related investigations in Fiscal Year
2011. The IRS also reported it
participated in 435 ONDCP-related cases that resulted in convictions, with an
88.1 percent conviction rate.
WHAT TIGTA RECOMMENDED
TIGTA
made no recommendations as a result of the work performed during this review. However, key IRS officials reviewed this
report prior to its issuance and agreed with the facts and conclusions
presented.
January 30, 2012
MEMORANDUM FOR CHIEF FINANCIAL OFFICER
ACTING CHIEF, CRIMINAL INVESTIGATION
FROM: Michael R. Phillips /s/ Michael R. Phillips
Deputy Inspector General for Audit
SUBJECT: Final Audit Report – Independent Attestation Review of the Internal Revenue Service’s Fiscal Year 2011 Annual Accounting of Drug Control Funds and Related Performance (Audit # 201110031)
This report presents the results of our attestation review
of the Internal Revenue Service’s Fiscal Year 2011 Office of National Drug
Control Policy Detailed Accounting Submission and Performance Summary Report
(the Report). The overall objective of
this review was to express a conclusion about the reliability of each assertion
made in the Report. This review was
included in our Fiscal Year 2012 Annual Audit Plan and addresses the major
management challenge of Achieving Program Efficiencies and Cost Savings.
The Treasury Inspector General for Tax Administration made
no recommendations as a result of the work performed during this review. However, key Internal Revenue Service
officials reviewed this report prior to its issuance and agreed with the facts
and conclusions presented.
Copies of this report are also being sent to the Internal Revenue Service managers affected by the report results. Please contact me at (202) 622-6510 if you have questions or Nancy A. Nakamura, Assistant Inspector General for Audit (Management Services and Exempt Organizations), at 202-622-8500.
Appendices
Appendix
I – Detailed Objective, Scope, and Methodology
Appendix
II – Major Contributors to This Report
Appendix
III – Report Distribution List
Abbreviations
|
FY |
Fiscal Year |
|
IRS |
Internal Revenue Service |
|
ONDCP |
Office of National Drug Control Policy |
National Drug Control Program agencies are required to submit to
the Director of the ONDCP, not later than February 1 of each year, a detailed
accounting of all funds expended during the previous fiscal year.
The Anti-Drug Abuse Act of 1988[1] establishes as a policy goal the creation of a drug-free America. A key provision of the Act is the establishment of the Office of National Drug Control Policy (ONDCP) to set priorities, implement a national strategy, and certify Federal Government drug control budgets. The Internal Revenue Service (IRS) supports the National Drug Control Strategy through its continued support of the Organized Crime Drug Enforcement Task Force. The mission of IRS Criminal Investigation in Federal law enforcement’s anti-drug efforts is to reduce or eliminate the financial gains (profits) of major narcotics trafficking and money laundering organizations through the use of its unique financial investigative expertise and statutory jurisdiction.
This review was conducted as required by the ONDCP and the ONDCP Circular: Drug Control Accounting, dated May 1, 2007. The National Drug Control Program agencies[2] are required to submit to the Director of the ONDCP, not later than February 1 of each year, a detailed accounting of all funds expended (the ONDCP Circular requires amounts obligated) during the previous fiscal year. Agencies also need to identify and document performance measure(s) that justify the results associated with these expenditures. The Chief Financial Officer, or another accountable senior level executive, of each agency for which a Detailed Accounting Submission is required, shall provide a Performance Summary Report to the Director of the ONDCP. Further, the Circular requires that each report be provided to the agency’s Inspector General for the purpose of expressing a conclusion about the reliability of each assertion made in the report prior to its submission.
This review was performed at the IRS Headquarters offices of the Chief Financial Officer and Chief, Criminal Investigation, in Washington, D.C., during the period August 2011 through January 2012. Our review was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. In general, our review procedures were limited to inquiries and analytical procedures appropriate for an attestation review based upon the criteria in the ONDCP Circular. Detailed information on our audit objective, scope, and methodology is presented in Appendix I. Major contributors to the report are listed in Appendix II.
Summary of the Independent Attestation Review of the Fiscal Year 2011 Office of National Drug Control Policy Detailed Accounting Submission and Performance Summary Report
We reviewed the assertions in the IRS’s ONDCP Detailed Accounting Submission and Performance Summary Report (the Report) for Fiscal Year (FY)[3] 2011, which ended September 30, 2011 (see Appendix IV). The IRS is responsible for preparing the Report, which was prepared pursuant to 21 U.S.C. 1704 (d) and the ONDCP Circular: Drug Control Accounting, dated May 1, 2007. The IRS reported that it expended $66.5 million on ONDCP-related activities and completed 927 ONDCP-related investigations in FY 2011. For FY 2011, the IRS also reported it participated in 435 ONDCP-related cases that resulted in convictions, with an 88.1 percent conviction rate.
Our review was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. An attestation review is substantially less in scope than an examination, the objective of which is the expression of an opinion on the ONDCP Detailed Accounting Submission and Performance Summary Report. Accordingly, we do not express such an opinion.
The Report assertions, as required by Section 6.b. of the ONDCP Circular, include statements that the methodology used is reasonable and accurate, including explanations and documentation of any estimation assumptions used; the methodology disclosed was the actual methodology used; and the data presented are associated with obligations against a financial plan that reflects changes, if made. The assertions, as required by Section 7.b. of the ONDCP Circular, also include statements that the performance reporting system is appropriate and applied, explanations for not meeting any performance targets are reasonable, and the methodology used to establish performance targets is reasonable and applied. ONDCP-established criteria require well-documented sources of data, documented and explained calculations, and complete and fair presentation of data from financial systems.
Based on our review, nothing came to our attention that caused us to believe that the assertions in the Report are not appropriately presented in all material respects in accordance with ONDCP-established criteria.
While this report is an unrestricted public document, the information it contains is intended solely for the use of the IRS, the United States Department of the Treasury, the ONDCP, and Congress. It is not intended to be, and should not be, used by anyone other than these specified parties.
Appendix I
Detailed Objective, Scope, and Methodology
The overall objective of this review was to perform an attestation review of the IRS’s reporting of FY[4] 2011 ONDCP expenditures and related performance for the purpose of expressing a conclusion about the reliability of each assertion made in the Detailed Accounting Submission and Performance Summary Report. To accomplish our objective, we:
I. Obtained an understanding of the process used to prepare the FY 2011 Detailed Accounting Submission and Performance Summary Report.
A. Discussed the process used to record ONDCP expenditures and performance information with responsible IRS personnel.
B. Obtained documents such as written procedures and supporting worksheets that evidence the methodology used.
II. Evaluated the reasonableness of the drug methodology process for detailed accounting submissions.
A. Reviewed data supporting the Detailed Accounting Submission to establish their relationship to the amounts being reported.
B. Verified whether all drug-related activities are reflected in the drug methodology.
III. Performed sufficient verifications of reported obligations for detailed accounting submissions to support our conclusion on the reliability of the assertions.
A. Verified that the Detailed Accounting Submission included all of the elements specified in Section 6 of the ONDCP Circular: Drug Control Accounting.
B. Verified the mathematical accuracy of the obligations presented in the Table of FY 2011 Drug Control Obligations.
C. Traced the information contained in the Table of FY 2011 Drug Control Obligations to the supporting documentation.
IV. Evaluated the reasonableness of the methodology used to report performance information for National Drug Control Program activities.
A. Reviewed data supporting the Performance Summary Report to establish their relationship to the National Drug Control Program activities.
B. Verified whether all drug-related activities are reflected in the performance information.
V. Performed sufficient verifications of reported performance information to support our conclusion on the reliability of the assertions.
A. Verified that the Performance Summary Report included all of the elements specified in Section 7 of the ONDCP Circular: Drug Control Accounting.
B. Verified the mathematical accuracy of the performance information presented.
C. Traced the performance information presented to the supporting documentation.
D. Reviewed the supporting documentation for reasonableness.
Appendix II
Major Contributors to This Report
Nancy A. Nakamura, Assistant Inspector General for Audit (Management
Services and Exempt Organizations)
Jeffrey M. Jones, Director
Anthony J. Choma, Audit Manager
Angela Garner, Lead Auditor
Yasmin B. Ryan, Senior Auditor
Mildred Rita Woody, Senior Auditor
Appendix III
Commissioner C
Office of the Commissioner – Attn: Chief
of Staff C
Deputy Commissioner for Operations Support OS
Deputy Commissioner for Services and Enforcement SE
Deputy Chief, Criminal Investigation SE:CI
Deputy Chief Financial Officer OS:CFO
Chief Counsel CC
National Taxpayer Advocate TA
Director, Office of Legislative Affairs CL:LA
Director, Office of Progam Evaluation and Risk Analysis RAS:O
Office of
Internal Control
OS:CFO:CPIC:IC
Audit Liaisons:
Chief, Criminal Investigation SE:CI
Chief Financial Officer
OS:CFO
Appendix IV
Internal Revenue Service’s Fiscal
Year 2011 Detailed Accounting Submission and Related Performance Summary Report
DEPARTMENT OF
THE TREASURY
INTERNAL
REVENUE SERVICE
WASHINGTON.
D.C. 20224
CHIEF FINANCIAL OFFICER
December 5, 2011
MEMORANDUM
FOR MICHAEL PHILLIPS
DEPUTY INSPECTOR GENERAL FOR AUDIT
FROM:
Pamela J. LaRue /s/
Pamela J. LaRue
Chief Financial Officer
SUBJECT:
Annual Accounting and
Authentication of Fiscal Year (FY) 2011 Drug Control Funds, Related Performance
and Assertion of Performance Information
Please
find attached the IRS FY 2011 Annual Accounting and Authentication of Drug Control
Funds and Related Performance Report, as directed In the Office of National Drug
Control Policy (ONDCP) Circular: Drug Control Accounting, dated May 1, 2007. This
circular requires the Treasury Inspector General for Tax Administration (TIGTA)
to perform an attestation review before the IRS submits this document to the
ONDCP. After IRS receives TIGTA's conclusion as to the reliability of each
assertion, I will forward the document to the ONDCP.
If
you have any questions, please contact me at (202) 622-5173, or have a member
of your staff contact Adina Leach, Acting Associate Chief Financial Officer for
Corporate Budget, at (202) 622-4663.
Attachments
Attachment 1
December,
2011
INTERNAL REVENUE SERVICE
Annual Accounting and Authentication of Drug Control
Funds and Related Performance
DETAILED ACCOUNTING
SUBMISSION
A. Table of Fiscal
Year (FY) 2011 Drug Control Obligations
|
Drug Resources by Function ($000) |
|
|
|
Investigations $66,566 |
|
Total $66,566 |
|
|
|
Drug Resources by Decision Unit |
|
Narcotics Crimes $66,566 |
|
Total $66,566 |
1) Drug Methodology
a) All
Drug Control Obligations (the resources appropriated and available for these
activities) are reported under one Drug Control Function and one Budget
Decision Unit, as shown in the above chart.
b) The
Internal Revenue Service (IRS) Drug Control Budget encompasses the Criminal
Investigation (CI) Narcotics-related program. The Office of National Drug
Control Policy (ONDCP) requires CI to report only on the Organized Crime and
Drug Enforcement Task Force (OCDETF) portion of the Narcotics program. CI's
overall Direct Investigative Time (DIT) applied to narcotics cases for FY 2011
was 12.4 percent of total DIT. The OCDETF subcomponent of this program was 11.4
percent of total DIT or 92 percent of the total narcotics DIT.
The
methodology for computing the resources appropriated and realized for the
OCDETF program is the application of the DIT attributable to OCDETF cases and
applying the DIT percentage to the total realized appropriated resources,
reduced by reimbursable funds and Earned Income Tax Credit (EITC) resources,
for the year for which the resources are being reported. The result is
determined to be the amount of resources expended on OCDETF cases. This
methodology has been approved by CI, the IRS Chief Financial Officer, and the
Treasury Inspector General for Tax Administration (TIGTA) during the FY 2006
ONDCP attestation review.
Fiscal
Year 2006 was the first year OCDETF funding became a permanent part of the CI's
budget. In the past, OCDETF was a reimbursable program administered by the
Department of Justice (DOJ).
Attachment 1
December, 2011
2) Methodology Modifications
None
3) Material Weaknesses or Other Findings
None
4) Reprogramming or Transfers
None
5) Other Disclosures
None
B. Assertions
1) Obligations by Budget Decision Unit
Obligations
reported by the Budget Decision Unit are a result of applying DIT data derived
from the Criminal Investigation Management Information System (CIMIS) to the
actual obligations from the CI realized Financial Plan, less reimbursements and
EITC funds.
2) Drug Methodology
The
methodology used to calculate obligations of prior-year budgetary resources is
reasonable and accurate.
a) Data
Data is
derived from CIMIS to determine the DIT applied to the OCDETF activities. Each
special agent submits CIMIS time reports monthly detailing their activities
relating to specific investigations. Each investigation is associated with a
specific program and sub-program area. The percentage of DIT applied to each
program area is calculated monthly with a final annual percentage determined
after the close of the fiscal year. The annual percentage of DIT relating to
OCDETF sub-program area items is applied to the total resources expended for FY
2011 in the CI budget (excluding reimbursables and
EITC). These OCDETF percentages include High Intensity/OCDETF, OCDETF, and
Terrorism/OCDETF program areas. These OCDETF DIT percentages are used to
determine the total resources expended on the OCDETF program.
2
Attachment 1
December, 2011
b) Other Estimation Methods
None
c) Financial Systems
The IRS
Integrated Financial System (IFS) is the final authority for the IRS resource
obligations and yields data which fairly presents drug related obligation estimates.
3) Application of Drug Methodology
The
methodology disclosed in this section was the actual methodology used to generate
the required table and meets all requirements described in section 6 of the
ONDCP Circular: Drug Control Accounting. Calculations made using this methodology
are sufficiently documented to independently reproduce all data and ensure
consistency between reporting years.
4) Reprogramming or Transfers
The data
presented is associated with obligations against a financial plan and properly
reflects any revisions occurring during the fiscal year.
5) Fund Control Notices
Criminal
Investigation asserts the data presented is associated with obligations against
a financial plan that fully complied with all fund control notices issued by the
Director under 21 U.S.C. section 1703(f) and Section 8 of the ONDCP Circular:
Budget Execution, as applicable.
C. Performance
Summary Report
1) Performance Reporting
a) Performance Measures
The IRS
reviewed performance measures used by other agencies that support the National
Drug Control Strategy as well as budget-level performance measures that are
already used to address the effectiveness of CI activities. As a result of the
review, the IRS determined that, in addition to the number of subject Criminal
Investigations Completed, the most appropriate performance measures to evaluate
its contribution to the National Drug Control Strategy were number of
Convictions and Conviction Rate. These are both budget-level performance
measures already used by CI to evaluate its performance as a whole. Criminal
Investigations Completed for
3
Attachment 1
December, 2011
the
OCDETF program and all other programs are defined as total subject criminal
investigations completed during the fiscal year, including those resulting in a
prosecution recommendation to the DOJ, discontinuance due to lack of evidence,
or a finding that the allegation was false (or other reasons).Convictions are
defined as the total number of subject criminal investigations with CIMIS
status codes of guilty plea, nolo-contendere, judge
guilty, or jury guilty. Conviction Rate is defined as the total number of
subject criminal investigations with CIMIS status codes of guilty plea, nolo-contendere, judge guilty, or jury guilty divided by
these status codes and nolle prosequi,
judge dismissed, and jury acquittal.
These
measures assess Cl's performance of its mission to
serve the public by conducting investigations of potential violations of the
Internal Revenue Code and related financial crimes (which OCDETF cases are an
important component), to foster confidence in the tax system and enhance
voluntary compliance. In addition, it reduces or eliminates the profits and
financial gains from narcotics trafficking and money laundering.
Criminal
Investigation's Narcotics Program supports the goals of the National Drug
Control Strategy and the National Money Laundering Strategy by seeking to
reduce or eliminate the profits and financial gains from narcotics trafficking
and money laundering organizations. CI has participated in the OCDETF program
since its inception in 1982 and focuses its narcotics efforts almost
exclusively on high-priority OCDETF cases where its contributions will have the
greatest impact.
b) Prior Years Performance Targets and
Results
Before FY
2008, CI did not set performance targets for the OCDETF Program. However, CI
projected for completed investigations which were used as benchmarks. The
OCDETF resources became a part of the IRS budget in FY 2006. Previously, the
IRS portion of the OCDETF resources was included in the DOJ appropriation and
was reported as part of the DOJ budget submission. The performance results for
FY 2006 through FY 2010 are shown below:
|
|
FY 2006 |
FY 2007 |
FY 2008 |
FY 2009 |
FY 2010 |
|
Investigations
Completed |
728 |
654 |
824 |
652 |
788 |
|
Convictions |
N/A |
N/A |
460 |
462 |
405 |
|
Conviction
rate |
N/A |
N/A |
90.6% |
84.9% |
82.3% |
As a
result of budgetary constraints, CI reduced its narcotics DIT (9 to 11 percent
of total) in FY 2006 and FY 2007. In response to the Attorney General's request
for the commitment of additional CI resources to OCDETF cases, CI agreed to
increase the amount of DIT devoted to narcotics
4
Attachment 1
December, 2011
investigations in FY 2008 to
between 11 and 13 percent of total 011. Criminal Investigation maintained this
same level through FY 2011.
c) Current Year Performance Targets and
Results
Based on
a recommendation from the FY 2008 audit and attestation, to evaluate the cause
of the delayed case postings identified and evaluate the feasibility of either
improving the timeliness of case postings and/or adjusting its year-end
performance information to reflect timing differences caused by late postings
of case information, CI calculated its year-end performance using the status
date of investigations. The results for FY 2011 are shown below:
|
FY 2011
OCDETF Targets
& Performance |
FY 2011 OCDETF Targets |
Based on
Status Date as of November
02, 2011 |
|
Investigations
Completed |
680 |
927 |
|
Convictions |
410 |
435 |
|
Conviction
Rate |
85% |
88.1% |
As noted
above, CI exceeded in all three performance target
areas for FY 2011: Investigations Completed; Convictions; and Conviction Rate.
It should
be noted that in last year's Attestation Review of the Internal Revenue
Service's Fiscal Year 2010 Annual Accounting to Drug Control Funds, prepared on
January 31, 2011, the reported Fiscal Year 2011 's performance targets for
OCDETF Cases Convictions was incorrectly reported as 460. The correct number
for convictions for FY 2011 was previously set, and submitted to ONDCP, as 410.
In FY 2010,
the target for convictions was lowered from 460 to 410. This target adjustment
was made due to a decrease in resources in the OCDETF programs at the
Department of Justice. Specifically, in the FY 2009 appropriations there was a
reduction of positions within the OCDETF program. This reduction included a
significant number of OCDETF attorney positions being funding within the United
States Attorney's offices around the country. Criminal Investigation
anticipated that this reduction in attorneys, used to prosecute the OCDETF
investigations, would likely affect the number of convictions that would be
achieved within the OCDETF program. Therefore the conviction target was lowered
from 460 to 410 for FY 2010, FY 2011, and FY 2012.
d) Fiscal Year 2012 Performance Targets
OCDETF Cases:
The
performance information for the IRS CI OCDETF program for FY 2012, as submitted
to ONDCP (ONDCP Budget Submission):
5
Attachment 1
December, 2011
|
Criminal
Investigations Completed |
680 |
|
Convictions |
410 |
|
Conviction
Rate |
85% |
e) Quality of Performance Data
To ensure
the reliability of the data, all cases have unique numbers assigned in CIMIS
which contain validity and business rule checks. The CIMIS database tracks the
status of the investigations from initiation through final disposition. The
system has sufficient internal checks and balances to assure status updates are
input in the proper order.
D. Annual Accounting
and Authentication of Drug Control Funds and Related Performance
1) Performance Measures Assertions
a) Performance Reporting System is
appropriate and applied
The IRS
uses the CIMIS to capture performance information accurately and that system
was properly applied to generate the performance data.
b) Explanations for not meeting performance
targets are reasonable
Explanations
offered for failing to meet a performance target and for any recommendations
concerning plans and schedules for meeting future targets or for revising or
eliminating performance targets are reasonable.
c) Methodology to establish performance
targets is reasonable and applied
The
methodology described in the Performance Summary Report for FY 2011 to
establish performance targets for the current year is reasonable given past performance
and available resources.
d) Adequate performance measures exist for
all significant drug control activities
The IRS
established at least one acceptable performance measure for each Drug Control
Decision Unit identified in its Detailed Accounting of FY 2011 Drug Control
Funds as required by section 6a(1 )(A) for which a significant amount of
obligations were incurred in the previous year.
6
Attachment 1
December, 2011
2)
Criteria for Assertions
a)
Data
The
sources of the data used are well documented and the data used in the report is
clearly identified and is the most recent available.
b)
Estimation Methods
Not
applicable.
c)
Reporting Systems
The
reporting system supporting the above assertions is current, reliable, and an
integral part of the agency's budget and management processes.
7
Attachment 2
October, 2011
FY 2011
OCOETF Program - Year
End
As of September 30,
2011
|
|
Appropriated * |
OEO Method ** |
|
|
|
|
|
CI
Financial Plan - Enforcement |
$586,931,406 |
$583,909,451 |
|
|
|
|
|
Total
OCOETF OIT |
11.4% |
11.4% |
|
|
|
|
|
Year-End
OCOETF |
66,910.180 |
66,565,677 |
|
|
|
|
|
"Earmarked"
OCOETF |
60,136,000 |
60,136,000 |
|
|
|
|
|
Over/(Under)
Realization |
6,774,180 |
6,429,677 |
|
|
|
|
|
Percent of OCOETF Realized |
|
110.69% |
* FY 2011
Status of Funds Report
**Obligations,
Expenditures, &Distributions (OED)
[1] Pub. L. No. 100-690, 102 Stat. 4181 (1988).
[2] A National Drug Control Program agency is defined as any agency that is responsible for implementing any aspect of the National Drug Control Strategy.
[3] A 12-consecutive-month period ending on the last day of any month, except December. The Federal Government’s fiscal year begins on October 1 and ends on September 30.
[4] A 12-consecutive-month period ending on the last day of any month, except December. The Federal Government’s fiscal year begins on October 1 and ends on September 30.