Citibank Purchase
Card and Fleet Card Rebates Were Maximized and Are Now Properly Allocated
March 30, 2012
Reference
Number: 2012-10-031
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
CITIBANK PURCHASE CARD AND FLEET CARD
REBATES WERE MAXIMIZED AND ARE NOW PROPERLY ALLOCATED
Highlights
Final
Report issued on March 30, 2012
Highlights of Reference Number:
2012-10-031 to the IRS Deputy Commissioner for Services and Enforcement
and Deputy Commissioner for Operations Support.
IMPACT ON TAXPAYERS
The
IRS receives rebates based on its purchase card and fleet card
expenditures. Rebates are increased
based on the total volume of expenditures and timeliness of payments. Controls are generally operating effectively
for the IRS to achieve compliance with the Prompt Payment Act and to maximize
rebates. However, approximately $1
million of purchase card rebates were not allocated to the correct
appropriations, reducing the amounts that could have been spent IRS-wide, including
providing services to taxpayers.
WHY TIGTA DID THE AUDIT
This
audit was included in our Fiscal Year (FY) 2011 Annual Audit Plan and addresses
the major management challenge of Erroneous and Improper Payments and Credits. The overall objectives were to determine whether the IRS
has established sufficient controls in the purchase card and fleet card
programs to ensure rebates are maximized and properly allocated and that
payments are made in compliance with the Prompt Payment Act.
WHAT TIGTA FOUND
The IRS’s management controls over the credit card payment and
rebate allocation processes are generally operating effectively to achieve
compliance with the Prompt Payment Act and Office of Management and Budget
Circular A‑123, Appendix B, Improving the Management of Government Charge
Card Programs, including maximizing rebates.
TIGTA determined that, on average, invoices for purchase card and fleet card accounts were
paid within five calendar days of the invoice receipt date. This significantly contributed to the IRS
achieving compliance with the Prompt Payment Act and maximizing rebates. From September 2007 through March 2009,
the IRS made 106,080 payments totaling more than $102 million for purchase card
and fleet card accounts to Citibank.
These payments were timely in 99.96 percent of the instances.
Fleet card rebates received during FY 2008 through FY 2010 were
properly allocated to the appropriation from which the funds were originally
expended; however, only the purchase card rebates received after the first
quarter of FY 2010 were properly allocated. The incorrectly allocated purchase card rebates
resulted in a misappropriation of funds totaling approximately $1 million. The misappropriation was due to the IRS not
returning the rebates to the correct appropriation, and not because TIGTA
identified any instances in which these funds were used for personal use or
evidence of criminal wrongdoing.
Although the IRS is still unable to validate the amount of rebates
it receives and has no assurance that the amounts are correct, the Department
of the Treasury asked the General Services Administration to determine whether
the rebate amounts received from Citibank were accurate. The General Services Administration audit identified
additional rebates owed to the Department of the Treasury, but the final report
had not been issued by the conclusion of TIGTA’s fieldwork and, therefore, TIGTA
does not know how much was applicable to the IRS.
WHAT TIGTA RECOMMENDED
TIGTA made no recommendations as a result of the work performed
during this review. However, key IRS officials
reviewed the report prior to its issuance and agreed with the facts and
conclusions presented.
March 30, 2012
MEMORANDUM
FOR DEPUTY COMMISSIONER
FOR SERVICES AND ENFORCEMENT
DEPUTY
COMMISSIONER FOR OPERATIONS SUPPORT
FROM: Michael R. Phillips /s/ Michael R. Phillips
Deputy Inspector General for Audit
SUBJECT: Final Audit Report – Citibank Purchase Card and Fleet Card Rebates Were Maximized and Are Now Properly Allocated (Audit # 201110003)
This report presents the results of our review of the purchase card and fleet card rebate program. The overall objectives of this review were to determine whether the Internal Revenue Service has established sufficient controls in the purchase card[1] and fleet card programs to ensure rebates are maximized and properly allocated, and that payments are made in compliance with the Prompt Payment Act.[2] We also determined whether appropriate corrective actions have been taken in response to recommendations made in our prior audit.[3] This review was included in our Fiscal Year 2011 Annual Audit Plan and addresses the major management challenge of Erroneous and Improper Payments and Credits.
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.
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.
The Internal Revenue
Service Is Now Allocating Citibank Rebates to the Proper Appropriation
Appendices
Appendix
I – Detailed Objectives, Scope, and Methodology
Appendix
II – Major Contributors to This Report
Appendix
III – Report Distribution List
Appendix
IV – Outcome Measures
Appendix
V – Internal Revenue Service Purchase Card and Fleet Card Rebates
Appendix
VI – Excerpt From Office of Management and Budget Circular A-123, Appendix B
Appendix
VII – Glossary of Terms
Abbreviations
|
AWSS |
Agency-Wide Shared Services |
|
BFC |
Beckley Finance Center |
|
FY |
Fiscal Year |
|
IFS |
Integrated Financial System |
|
IRS |
Internal Revenue Service |
|
WebRTS |
Web Request Tracking System |
The
Department of the Treasury selected Citibank to provide credit card services
for all of its offices and bureaus under the SmartPay2[4] program, and the Internal
Revenue Service (IRS) uses purchase cards and fleet cards to procure goods and
services. Because this is a Government
contract, Citibank offers incentives (cash rebates) for timely payment of
purchase card and fleet card invoices. The
rebates are based on two primary factors: the total amount of purchase card and fleet
card purchases (hereafter referred to as expenditures) and the timeliness of
payments on expenditures. Rebates are
increased by timely payments and are reduced or eliminated by late payments. As a result, it is important for the IRS to
ensure that invoices are timely paid. From
Fiscal Year (FY) 2008 through FY 2010, the IRS had expenditures totaling almost
$215 million for purchase and fleet cards and received more than $2.4 million in
rebate proceeds for the same period.
Additionally,
each Federal agency that acquires goods or services from a business must comply
with the Prompt Payment Act,[5] which requires Federal agencies to
pay the amount due within 30 calendar days of receiving an invoice.[6]
If invoices are not timely paid, interest[7] penalties begin to accrue.
The
IRS established management controls over its payment processes to ensure
compliance with the Prompt Payment Act and to maximize rebates. For the purchase card program, in September
2007, the IRS implemented an electronic control (Web Request Tracking System (WebRTS)
purchase card module) in which the reconciliation and approval process takes
place to certify the invoice for payment.
In contrast, the fleet card program uses a manual control process
whereby an approving official receives the invoice, reconciles the transactions,
and certifies the invoice for payment. The
IRS’s policy is to reconcile and certify transactions for payment within 10
days[8] of the invoice receipt
date. The certified expenditures are
forwarded to the Beckley Finance Center (BFC), which processes the payments to
Citibank through the Integrated Financial System (IFS).
Office
of Management and Budget Circular A-123, Appendix B, Improving the Management
of Government Charge Card Programs (hereafter referred to as the Circular),[9] prescribes policies and
procedures to agencies regarding how to maintain internal controls that reduce
the risk of fraud, waste, and error in Government charge card programs (see
Appendix VI).[10]
The Circular also stipulates that unless specific statutory authority exists allowing rebates to be used for other purposes,
rebates must be returned to the appropriation or account from which they were
expended and can be used for any legitimate expenditure by the appropriation to
which they were returned or as otherwise authorized by statute. The IRS’s budget has five[11] regular appropriations: Taxpayer Services, Enforcement, Operations
Support, Business System Modernization, and Health Insurance Tax Credit
Administration. In addition, the
Circular instructs Federal agencies to maximize rebates where appropriate.
The purchase card and fleet card programs are administered by different IRS business units. The Credit Card Services Branch has administrative oversight and program responsibilities for the IRS’s purchase credit card program. Criminal Investigation and the Small Business/Self-Employed Division have administrative oversight and program responsibilities for their individual fleet card programs.
In our
prior audit of travel card rebates,[12] we recommended that the Chief Financial Officer establish and implement policies
and procedures to ensure travel card rebates are allocated to the appropriations
from which the expenditures were originally expended. We further recommended that the Deputy Commissioner for Operations Support institute an
oversight program, including periodic reviews, to ensure the new policies and
procedures were implemented and that future travel card rebates are properly
allocated. Additionally, we recommended that
the IRS coordinate with the Department of the Treasury to work with Citibank to
obtain the data necessary to independently verify the travel card rebate
amounts. The IRS concurred with our
recommendations and has made significant progress on their implementation.
We limited the scope of this review to evaluating management controls over the purchase card and fleet card payment and rebate allocation processes, whether purchase card and fleet card rebates were maximized and properly allocated, and whether payments were made in compliance with the Prompt Payment Act. We did not examine any other aspects of the IRS’s credit card programs during this audit.
This review was performed at the Agency-Wide Shared Services (AWSS), Employee Support Services, Credit Card Services Branch, in Nashville, Tennessee; the Office of the Chief Financial Officer in Washington, D.C.; the BFC in Beckley, West Virginia; Criminal Investigation, Investigations and Enforcement Operations, in Dallas, Texas; the Small Business/Self-Employed Division, Strategy and Finance Office, in St. Paul, Minnesota; and the Department of the Treasury Purchase Card and Fleet Card Coordinators in Washington, D.C., during the period October 2010 through October 2011. 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 objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Detailed information on our audit objectives, scope, and methodology is presented in Appendix I. Major contributors to the report are listed in Appendix II.
The IRS’s
management controls over the credit card payment and
rebate allocation processes are generally operating effectively to
achieve compliance with the Prompt Payment Act and the Circular, including maximizing
rebates. Our audit determined that, on
average, invoices for purchase card and fleet card accounts were reviewed,
approved, and paid within five calendar days of the invoice receipt date. This significantly contributed to the IRS achieving
compliance with the Prompt Payment Act and maximizing rebates. From September 2007 through March 2009, the
IRS made 106,080 payments totaling more than $102 million for purchase card and
fleet card accounts to Citibank. These
payments were timely in 99.96 percent of the instances.
Regarding the
proper allocation of rebates, we noted improvements since our prior report. Fleet card rebates received during FY 2008
through FY 2010 were properly allocated to the appropriations from which
the funds were originally expended. In
addition, the purchase card rebates received after the first quarter of FY 2010
were properly allocated. However, from FY
2008 through the first quarter of FY 2010, the AWSS function allocated the
majority of the purchase card rebates received during this period to the
Operations Support appropriation.
Because the IRS did not return the rebates proportionately to the
appropriations from which they were originally expended, it resulted in a
misappropriation of funds[13]
totaling approximately $1 million. We did not identify any instances in which
these funds were used for personal use or find any evidence of criminal wrongdoing.
Multiple factors
have contributed to the IRS maximizing the amount of rebates it receives from
Citibank. Primarily, the IRS has
undertaken initiatives to enhance the timeliness of its payments to Citibank by
instituting the WebRTS purchase card module. In addition, the current SmartPay2 contract
provides an increase in basis points over the previous contract. The contract’s terms have increased the amount
of rebates received and provides the IRS a greater incentive to maximize
rebates. However, the IRS is still
unable to validate the amount of rebates it receives from Citibank and has no
assurance that the amounts are correct.
The Internal Revenue Service Generally Exceeded the Requirements of the Prompt Payment Act and Maximized Purchase Card and Fleet Card Rebate Amounts
From September 2007 through March 2009, the
IRS made 106,080 payments totaling more than $102 million on purchase card and fleet
card accounts to Citibank. We identified
only 41 (0.04 percent) late payments that were attributed to isolated instances
of human processing errors and the transition to an electronic process.[14] As a
result, we believe the IRS successfully met the requirements of the Prompt
Payment Act, which requires payment by 30 calendar
days from the invoice receipt date.
In addition, because the IRS paid the purchase card and fleet card
invoices in an average of five calendar days, the IRS maximized
the amount of Citibank rebates and exceeded the payment time period in the Prompt
Payment Act.
Management
controls were generally effective in achieving prompt payment
Management
controls over the credit card payment process are generally operating
effectively to achieve compliance with the Prompt Payment Act. In September 2007, the IRS implemented the purchase
card module within the WebRTS, transitioning the purchase card administration
and payment process from a manual process to an electronic process. The module was designed to enhance the
purchase card program by providing an electronic process to associate and
reconcile transactions with Citibank charges, allowing approving officials to certify
individual transactions for payment, and interfacing daily with the Integrated
Procurement System and the IFS. These
enhancements allow the IRS to establish obligations and process payments more
efficiently.
In the IRS’s purchase
card program, 104,817 payments totaling
more than $93 million were made to
Citibank from September 2007 through March 2009. Of those payments, only 40 totaling approximately
$32,000[15] did not meet the requirements
of the Prompt Payment Act. The BFC took
full responsibility for all of the late payments. Management stated that the majority of the
late payments resulted from the purchase card program’s conversion from a
manual process to an electronic process during the implementation of the WebRTS
purchase card module. Additionally, management
stated that other late payments were due to isolated technician processing errors.
Unlike the purchase card program,
the IRS’s fleet card program operated on a manual process. In order to achieve compliance with the
requirements of the Prompt Payment Act, fleet card program management controls require
that the approving official reconcile and certify the invoice within 10 calendar
days of receipt and mail or fax the invoice to the BFC for payment. The IRS’s fleet card program approving
officials complied with the required time period and paid invoices within an
average of five calendar days from invoice receipt. This practice allows the BFC sufficient time
to process payments in compliance with the requirements of the Prompt Payment
Act. In
the IRS’s fleet card program, 1,263
payments totaling more than $9.6 million were made to Citibank from September
2007 through March 2009. Of those
payments, only one payment of $197 was not paid timely. The late payment was due to an oversight by a
BFC technician who incorrectly entered the amount of payment as one dollar less
than was actually due. The technician
corrected the mistake five calendar days later.
Due to the negligible amount of the late payment and the rapid
correction of the error, the late payment did not accrue interest penalties.
Although both credit
card programs had a small number of instances in which they did not meet the
Prompt Payment Act, we determined that the IRS has been successful in minimizing
both the number of payments that do not meet the requirements of the Prompt Payment
Act and the related interest penalties.
Multiple factors contributed to maximizing Citibank rebates
The initiation of the purchase
card electronic process within the WebRTS, adherence to management controls
over the payment process, and the terms and incentives provided in the
SmartPay2 contract have been effective in significantly increasing the amount
of Citibank rebates received by the IRS.
For example, with the WebRTS purchase card module, payments on purchase
card invoices averaged five calendar days from the invoice receipt date from
September 2007 to March 2009. For fleet card
programs, each Criminal
Investigation and Small Business/Self-Employed Division field office is required
to manually reconcile and certify its Citibank invoices within 10 calendar days
of receipt and mail or fax the invoices to the BFC for payment. Similar to the purchase card program, from
September 2007 to March 2009, payments on fleet card invoices averaged five calendar
days from the invoice receipt date.
Based on the low average number
of days from the invoice receipt date to the date the BFC made a payment, we believe the purchase
card and fleet card programs have been effective in maximizing rebates where
appropriate.
In addition, the
SmartPay2 contract terms provided additional incentives for making timely
payments, which the IRS made use of to significantly increase the amount of rebates
it received. During FY 2009, FY 2010,
and the first three quarters of FY 2011, under the SmartPay2 contract, the quarterly
rebates ranged from approximately $117,000 to $420,000,[16] or 1.41 percent of total purchase card and
fleet card spending. Under the prior
contract, the combined Citibank quarterly rebates for the purchase card and
fleet card programs ranged from approximately $41,000 to $133,000, or 0.90
percent of total purchase card and fleet card spending during FYs 2007 and
2008.
The terms and incentives
provided in the Citibank SmartPay2 contract created a substantial increase in
the rebates. Features of the SmartPay2
contract that resulted in these increased rebates are:
·
Sales
rebates basis points increased from 14 to 91 for the purchase card and from six
to 10 for the fleet card.
·
Productivity
rebate basis points increased from 53 to 75 for the fleet card.
Figure 1 indicates increases and decreases in the dollar amount
of rebates that were received after the implementation of the SmartPay2
contract, which were higher than the rebates that were received under the SmartPay1
contact.
Figure 1: Total Amount of Purchase Card and Fleet Card
Rebates by Quarter
Figure 1 was removed due to its size. To see Figure 1, please go to the Adobe PDF
version of the report on the TIGTA Public Web Page.
The Internal Revenue Service Is Now Allocating Citibank Rebates to the Proper Appropriation
During FY 2008 through FY 2010, the IRS received approximately $2.4 million in purchase card and fleet card rebates from Citibank. Fleet card rebates for this entire period were properly allocated to the Enforcement appropriation from which the funds were originally expended. In addition, purchase card rebates received after the first quarter of FY 2010 were properly allocated to the appropriations from which the funds were originally expended. However, from FY 2008 through the first quarter of FY 2010, the AWSS function allocated the majority of the purchase card rebates to the Operations Support appropriation instead of returning the rebates proportionately to the appropriations from which they were originally expended. We previously reported this finding in the travel card rebate report and determined that, during this audit, the IRS allocated purchase card rebates following the same process as travel card rebates. As a result, the IRS misappropriated approximately $1 million for this period, reducing the amounts that could have been spent IRS-wide, including providing services to taxpayers. The misappropriation was due to the IRS not returning the rebates to the correct appropriation and not because we identified any instances in which these funds were used for personal use or evidence of criminal wrongdoing.
The purchase
card rebates from FY 2008 through the first quarter of FY 2010 totaled approximately
$1.5 million. The AWSS function allocated the entire $1.5
million to the Operations Support appropriation but should have only allocated
approximately $500,000. The remaining $1
million should have been allocated to the other four appropriations. The Circular
states that rebate proceeds are to be returned to the appropriation or accounts
from which they were originally expended and can be used for any legitimate
expenditure for that appropriation. The IRS
advised us that it had interpreted the Circular as supporting its retention of
the rebates within the AWSS function budget to cover the costs of the Employee Support
Services programs and operations because it believed this was a legitimate
purpose.
In response to the recommendations
provided in our prior audit of travel card rebates, the IRS took
several actions to strengthen controls for rebate allocation and is now in
compliance with the Circular. Currently,
the IRS has a two-step automated process for allocating rebates. In June 2011, the AWSS function established
an automated process within the IFS to calculate the percentage of purchase
card, fleet card, and travel card expenditures from each appropriation. The IFS applies this percentage to the
rebates received to determine the amounts that should be allocated back to the correct
appropriation(s). The second control is
an independent validation of this calculation and allocation performed by the AWSS
function’s Office of Strategy and Finance.
This office replicates the automated process in the IFS to validate that
the calculations were correct according to the guidance and requirements of the
Circular and approves the rebate allocations for posting to the appropriation
or account from which they were originally expended.
Prior to this automated process,
the IRS developed draft guidance to manually calculate the percentage of
purchase card, fleet card, and travel card expenditures from each
appropriation, which was used to correctly allocate the rebates. This guidance was effective with the second
quarter of FY 2010, and we determined the IRS correctly allocated the rebates
for this quarter. Additional draft
guidance was issued for the Office of Strategy and Finance to independently
review the manual calculations after the rebates were allocated. The IRS issued these draft procedures in final
on January 18, 2011.
While we did evaluate the actual rebate allocations that
were made to the IRS’s appropriations to determine if they were appropriately allocated,
we did not examine the independent reviews conducted by the Office of Strategy
and Finance to determine if it effectively ensured the calculations were
correct.
Citibank Has Not Provided Sufficient Data to Allow for the Internal Revenue Service’s Validation of Rebate Accuracy
We determined that Citibank did not provide data that would
allow the IRS to verify whether the quarterly purchase card and fleet card rebates
received were correct.
As a
result, the IRS
cannot be assured that the purchase card and fleet card rebates received from
FY 2005 through the third quarter of FY 2011 totaling approximately $3.7
million were accurate.
Despite the lack of data, the IRS had not attempted to validate the amount of rebates received and instead relied on the Department of the Treasury to ensure the accuracy of the rebates. In our prior audit, we met with representatives from the Department of the Treasury and learned that while they do not have any written policies or procedures to verify the accuracy of the rebates, they do perform a “reasonableness test” on sales rebates. This is done by comparing various reports[17] they receive from Citibank that provide periodic information on the Department of the Treasury purchase card and fleet card expenditures (total sales) charged to Citibank cards. The IRS and the Department of the Treasury advised us during this audit that there had not been any changes or new procedures established to validate the rebates.
Appendix I
Detailed Objectives, Scope, and Methodology
The overall objectives of this review were to determine whether the IRS has established sufficient controls in the purchase card[19] and fleet card programs to ensure rebates are maximized and properly allocated and that payments are made in compliance with the Prompt Payment Act.[20] We also determined whether appropriate corrective actions have been taken in response to recommendations made in our prior audit on travel card rebates.[21] To accomplish our objectives, we:
I. Obtained an overall understanding of the controls the IRS has in place to maximize rebates in the purchase card and fleet card programs and the management controls related to payments made to Citibank.
A. Reviewed the applicable guidance and IRS policies, procedures, and practices and identified the controls over the purchase card and fleet card programs.
B. Interviewed IRS personnel involved in the purchase card and fleet card programs to determine the processes and controls used.
II. Determined whether the IRS’s internal controls were effective to ensure the IRS met the requirements of the Prompt Payment Act.
A.
Determined
whether the IRS business and functional units met the requirements of the
Prompt Payment Act.
1.
Analyzed data from the IRS’s IFS containing 106,080
payments made to Citibank on the IRS’s purchase card and fleet card corporate
accounts from September
2007 through March 2009.
2.
Calculated the number of calendar days from the
invoice receipt date to the payment confirmation date for purchase card and
fleet card transactions to determine whether the payments met the requirements
of the Prompt Payment Act.
B. Determined if any payments were late by analyzing whether cardholders timely reconciled, and approving officials timely reviewed and approved, the purchase card and fleet card transactions.
C. Assessed the reliability of the IFS computer-processed data and determined whether the data are sufficiently reliable to use for our audit tests. We randomly selected 12 copies of account statements and compared them against the data we received to ensure dates and amounts matched.
III. Interviewed IRS personnel responsible for purchase card and fleet card rebates and determined whether the quarterly rebate amounts they received from Citibank were verified for accuracy.
IV. Contacted the Department of the Treasury and obtained a status on any changes in its roles and responsibilities and the policies, procedures, and practices regarding the Department of the Treasury’s oversight of the IRS’s purchase card and fleet card programs.
A. Interviewed the Program Coordinator for the purchase card program.
B. Interviewed the Program Coordinator for the fleet card program.
C. Determined the status of the General Services Administration audit on the rebates received by the Department of the Treasury for all credit card programs.
V. Determined the appropriations that funded the purchase card and fleet card expenditures and the IRS’s allocation of the rebate amounts it received from Citibank from FY 2008 through FY 2010 to ensure the rebates were returned to the proper appropriations from which they were originally expended in accordance with Office of Management and Budget Circular A-123, Appendix B, Improving the Management of Government Charge Card Programs (Circular).
A. Interviewed the IRS Employee Support Services Chief Administrative Program Staff Manager, the Chief Financial Officer, the Small Business/Self-Employed Division Fleet Card Coordinator, and the Criminal Investigation Fleet Card Coordinator.
B. Traced purchase card and fleet card expenditures and rebate allocations for the period of FY 2008 through FY 2010 to determine whether the rebates were proportionally allocated back to the appropriations from which they were originally expended.
VI. Followed up on the FY 2010 Treasury Inspector General for Tax Administration audit recommendations related to travel card rebates to determine whether corrective actions were sufficient to fully address the audit findings.
VII. Determined whether the IRS effectively maximized rebates received from Citibank.
A. Obtained the quarterly AWSS function purchase card and the Criminal Investigation and Small Business/Self-Employed Division fleet card rebate amounts received in FYs 2008, 2009, and 2010 and the first three quarters in FY 2011.
B. Received the Department of the Treasury SmartPay2 General Services Administration credit card contract specification to determine how the IRS could maximize rebates.
C. Determined the impact of the Department of the Treasury SmartPay2 General Services Administration credit card contract terms had on maximizing rebates.
D. Used the results from Step II.A. to determine whether the payment dates effectively maximized rebates where appropriate. We did not specifically test whether each payment maximized the rebate because the Circular allows for maximizing rebates where appropriate.
Internal controls
methodology
Internal controls relate to management’s
plans, methods, and procedures used to meet their mission, goals, and
objectives. Internal controls include
the processes and procedures for planning, organizing, directing, and
controlling program operations. They
include the systems for measuring, reporting, and monitoring program
performance. We determined the following
internal controls were relevant to our audit objective: the IRS’s policies, procedures, and controls
to ensure the IRS maximizes rebates, properly allocates the rebates received,
and makes timely payments in accordance with the requirements in the Prompt
Payment Act. We evaluated these internal
controls by: 1) interviewing key
personnel within the AWSS function Credit Card Services, the Office of the Chief
Financial Officer, and Criminal Investigation and Small Business/Self-Employed Division
management; 2) interviewing management and personnel at the BFC; 3) interviewing
credit card approving officials; 4) reviewing a total population of 106,080
purchase and fleet card payments to determine compliance with the Prompt
Payment Act; 5) reviewing the polices and guidance for purchase card and fleet
card payment processing; and 6) reviewing guidance and supporting documentation
for the allocation of rebate amounts.
Appendix II
Major Contributors to This Report
Nancy A. Nakamura, Assistant Inspector General for Audit (Management
Services and Exempt Organizations)
Alicia P. Mrozowski, Director
John L. Ledford, Audit Manager
Heather M. Hill, Acting Audit Manager
Gene A. Luevano, Lead Auditor
David P. Robben, Senior Auditor
Ahmed M. Tobaa, Senior Auditor
Lara E. Phillippe, Auditor
Carol A. Rowland, Auditor
Appendix III
Commissioner C
Office of the Commissioner – Attn: Chief of Staff C
Commissioner, Small Business/Self-Employed Division SE:S
Chief, Agency-Wide Shared Services
OS:A
Chief, Criminal Investigation SE:CI
IRS Chief Financial Officer
OS:CFO
Director, Employee Support Services,
Agency-Wide Shared Services
OS:A:ESS
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:
Deputy Commissioner
for Operations Support
OS
Deputy Commissioner
for Services and Enforcement
SE
Chief, Agency-Wide Shared Services OS:A
Chief, Criminal Investigation SE:CI
IRS
Chief Financial Officer OS:CFO
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:
·
Cost Savings, Funds Put to Better Use – Actual; $1,009,822
in purchase card[22] rebates that were
not allocated to the correct appropriations for the period FY 2008 through the
first quarter of FY 2010 (see page 8).
Methodology Used to Measure the Reported Benefit:
We reviewed
applicable Federal guidance (Office of Management and Budget Circular A-123,
Appendix B, Improving the Management of Government Charge Card Programs (referred
to as the Circular) and the
Misappropriation Act)[23] to determine how purchase card rebates
should be allocated. The Circular
requires that rebates be returned to the appropriation or account from which
the purchase card expenditures were originally expended. The Misappropriation Act requires that
funds appropriated by Congress be used only for the programs and purposes for
which the appropriation was made. We requested the detailed purchase card expenditure
data from the IRS’s appropriations and accounts for the period FY 2005
through FY 2010. The AWSS function was
only able to provide detailed purchase card and fleet card expenditure data
from FY 2008 through FY 2010 that could be traced back to the specific
appropriation from which they were originally expended.
We analyzed the
detailed expenditure data from FY 2008 through the first quarter of FY 2010 and
determined the AWSS function received $1,514,450 in purchase card rebates from
Citibank. We calculated from the
detailed expenditure data the percentage of purchase card expenditures from
each of the IRS’s five appropriations.
We used these percentages to determine how the rebate amounts should
have been allocated back to each of the five appropriations and determined the
allocations the IRS made were incorrect from FY 2008 through the first quarter
of FY 2010. The AWSS function allocated
the entire $1,514,450 to the Operations Support appropriation but should have
only allocated $504,628. The remaining
$1,009,822 should have been allocated to the other four appropriations. Therefore, the IRS misappropriated $1,009,822
of the total purchase card rebates received from Citibank for FY 2008 through the
first quarter of FY 2010. From the second
quarter of FY 2010 through the end of FY 2010, the AWSS function correctly
allocated the rebates to all five appropriations.
Type and Value of Outcome Measure:
·
Reliability of Information – Potential; $3,696,450 in
rebate amounts that could not be independently validated to ensure accuracy (see
page 9).
Methodology Used to Measure the Reported Benefit:
We determined that Citibank did
not provide data that would allow the IRS to verify whether the quarterly
purchase and fleet card rebates received were correct.
We interviewed IRS
program officials and Department of the Treasury representatives to determine
the verification processes used to ensure the correct amount of rebates were paid
by Citibank. Despite
the lack of data from Citibank, the IRS had not attempted to validate the
amount of rebates received and instead relied on the Department of the Treasury to ensure the accuracy of
the rebates. The Department of the
Treasury does not have written policies and procedures to verify the accuracy
of the rebates, but does perform a “reasonableness test” on sales rebates. As
a result, the IRS has no assurance that the $3,696,450 in purchase card and
fleet card rebates received from FY 2005 through the third quarter of FY 2011 were
accurate.
Appendix V
Internal Revenue Service Purchase Card
[24]
and Fleet Card Rebates
Figure 1 illustrates the
amount of rebates received per quarter for the purchase card program. The vertical line indicates the start of the
SmartPay2 contract.
Figure 1:
Total Purchase Card Citibank Rebates Received by Quarter
Figure 1 was removed due to its size. To see Figure 1, please go to the Adobe PDF
version of the report on the TIGTA Public Web Page.
Figure 2 illustrates the
amount of rebates received per quarter for the fleet card program. The vertical line indicates the start of the
SmartPay2 contract.
Figure 2:
Total Fleet Card Citibank Rebates Received by Quarter
Figure 2 was removed due to its size. To see Figure 2, please go to the Adobe PDF
version of the report on the TIGTA Public Web Page.
Figure 3 shows the purchase card and fleet card programs’ total rebates
received per quarter from the first quarter of FY 2005 through the third
quarter of FY 2011. The “Total Rebates”
column indicates the total combined purchase card and fleet card rebates
received.
Figure 3: Citibank Quarterly Rebate Amounts Received
|
Fiscal
Year/Quarter |
Total
Purchase Rebate |
Total
Fleet Rebate |
Total
Rebate |
|
FY
2005 Q1 |
$26,499.72 |
$1,964.40 |
$28,464.12 |
|
FY
2005 Q2 |
$25,272.05 |
$856.05 |
$26,128.10 |
|
FY
2005 Q3 |
$37,263.59 |
$1,742.35 |
$39,005.94 |
|
FY
2005 Q4 |
$66,563.03 |
$1,831.55 |
$68,394.58 |
|
FY
2006 Q1 |
$61,258.16 |
$1,894.11 |
$63,152.27 |
|
FY
2006 Q2 |
$37,904.12 |
$1,655.71 |
$39,559.83 |
|
FY
2006 Q3 |
$59,227.21 |
$2,429.81 |
$61,657.02 |
|
FY
2006 Q4 |
$68,966.94 |
$2,209.47 |
$71,176.41 |
|
FY
2007 Q1 |
$69,290.25 |
$2,343.37 |
$71,633.62 |
|
FY
2007 Q2 |
$39,325.97 |
$1,702.35 |
$41,028.32 |
|
FY
2007 Q3 |
$53,802.11 |
$2,414.62 |
$56,216.73 |
|
FY
2007 Q4 |
$76,620.35 |
$2,880.28 |
$79,500.63 |
|
FY
2008 Q1 |
$83,426.13 |
$2,521.80 |
$85,947.93 |
|
FY 2008
Q2 |
$71,763.98 |
$2,004.24 |
$73,768.22 |
|
FY
2008 Q3 |
$118,581.82 |
$2,515.98 |
$121,097.80 |
|
FY
2008 Q4 |
$129,978.38 |
$2,956.08 |
$132,934.46 |
|
FY
2009 Q1 |
$141,493.03 |
$5,468.89 |
$146,961.92 |
|
Beginning
of SmartPay2 Contract |
|||
|
FY
2009 Q2 |
$113,578.88 |
$3,276.27 |
$116,855.15 |
|
FY
2009 Q3 |
$222,907.08 |
$6,354.64 |
$229,261.72 |
|
FY
2009 Q4 |
$222,907.08 |
$6,354.64 |
$229,261.72 |
|
FY
2010 Q1 |
$409,813.64 |
$10,440.70 |
$420,254.34 |
|
FY
2010 Q2 |
$202,128.60 |
$7,840.52 |
$209,969.12 |
|
FY
2010 Q3 |
$286,732.64 |
$9,620.46 |
$296,353.10 |
|
FY
2010 Q4 |
$342,669.21 |
$8,450.79 |
$351,120.00 |
|
FY
2011 Q1 |
$245,300.40 |
$7,223.67 |
$252,524.07 |
|
FY
2011 Q2* |
$165,291.00 |
$7,720.67* |
$173,011.67 |
|
FY
2011 Q3* |
$200,355.33 |
$10,856.33* |
$211,211.66 |
|
TOTAL |
$3,578,920.70 |
$117,529.75 |
$3,696,450.45 |
Source: Our analysis of Citibank Custom Reporting
System data for FY 2005 through the 3rd Quarter of
FY 2011. * Indicates the fleet card
program received rebates from Wright Express.
Appendix VI
Excerpt From Office of Management and Budget Circular A-123, Appendix B
Office of Management and Budget Circular A-123, Appendix B, Improving the Management of Government Charge Card Programs, specifically states that the goal of this guidance is to maximize the benefits to the Federal Government when using Government charge cards to pay for goods and services by, for example:
· Improving financial, administrative, and other benefits offered to the Federal Government by Government charge card providers and other entities, including maximizing rebates where appropriate.
· Ensuring effective controls are in place to mitigate fraud, misuse, and delinquency.
· Reducing administrative costs and time for purchasing and paying for goods and services.
To drive down costs while ensuring that charge card programs effectively support the agency mission and financial controls, charge card managers must strive to:
· Utilize proper cash management decision making to maximize agency sales productivity rebates or Government-wide interest income earned by the Department of the Treasury as the situation determines.
· Employ the necessary internal controls to identify and collect corrective rebates.
In order to ensure that agencies are in the best position to maximize sales and productivity rebates, charge card managers must:
· Ensure on-time payments and appropriate card use by employing the processes and tools identified in the guidance.
· Initiate internal controls to ensure that appropriate charge card use is maximized.
Appendix VII
|
Term |
Definition |
|
Accrue |
To
increase in amount or value. |
|
Appropriation |
An appropriation is a provision of law authorizing the expenditure of funds for a given purpose and to incur obligations. The IRS has five appropriations: Taxpayer Services, Enforcement, Operations Support, Business System Modernization, and Health Insurance Tax Credit Administration. |
|
Automated |
To convert to
an automatic operation. |
|
Basis Point |
A basis point
in the SmartPay2 contract is 0.01 of one percent and is used in the
calculation of the rebates received by the IRS. |
|
Beckley Finance Center |
The BFC processes all administrative accounts payable, accounts receivable, and collections and prepares and reconciles all financial reports and accounts to ensure integrity and accuracy. |
|
Citibank Custom Reporting System |
The Citibank Custom Reporting System provides a list of all attributes, metrics, and filters to produce queries and reports. |
|
Fiscal Year |
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. |
|
Fleet Cards |
Fleet cards
are used to procure fuel, maintenance service, and basic repairs for Government
owned or leased vehicles. In January
2011, the IRS implemented a new fleet card program, Wright Express. |
|
Integrated Financial System (IFS) |
The IFS is a
single-integrated system that connects the agency’s account performance,
budgeting, and procurement processing. |
|
Integrated Procurement System (IPS) |
The IPS is a
procurement system that is used to track obligations, create solicitations
and awards, handle vendor files, and generate reports. |
|
Maximizing |
The term “maximizing rebates” means to increase rebates as much as possible, where appropriate. |
|
Productivity Rebates |
Productivity rebates are
payments from the charge card contractor to the agency/organization based on
the timeliness and/or frequency of payments to the contractor. |
|
Purchase Card |
Purchase cards
are used to procure goods and/or services, such as office supplies, for
authorized Government business. |
|
Reasonableness Test |
Reasonableness
tests are procedures to examine the logic of accounting information. |
|
Rebate |
A rebate is a
monetary payment provided by credit card contractors to agencies based on
either the dollar volume spent or the timeliness and frequency of payments to
the contractor. |
|
Sales Rebate |
Sales rebates
are payments from the charge card contractor to the agency/organization based
on the dollar or “spend” volume during a specified time period. |
|
SmartPay1 |
SmartPay1 was
a card program that provided credit cards to Federal Government
agencies/departments through master contracts that are negotiated with major
national banks. The contract was in
effect from November 1998 through November 2008. |
|
SmartPay2 |
SmartPay2 is a
card program that provides credit cards to Federal Government agencies/departments
through master contracts that are negotiated with major national banks. The contract is in effect from November
2008 through November 2018. |
|
Web Request Tracking System |
A web-based
application that employs icons, drop-down menus, and fill-in data screens to
automate the processing of requests for goods and services and provides an
electronic interface between the IFS and the Integrated Procurement System. |
|
Wright Express |
In January
2011, the IRS implemented a new fleet card program, Wright Express. Wright Express is a subcontractor of
Citibank that deals exclusively with fleet cards. Wright Express replaced the Citibank fleet
card for the Criminal Investigation and Small Business/Self-Employed Division
fleets, with the exception of the fleet vehicles operated internationally. |
[1] See Appendix VII for a glossary of terms.
[2] Pub. L. No. 97-177, 96 Stat. 85 (1982) (codified as amended at 31 U.S.C. § 3901 et seq.).
[3] Treasury Inspector General for Tax Administration, Ref. No. 2010-10-124, Although Citibank Travel Rebates Have Significantly Increased, They Were Not Properly Allocated, Resulting in the Misappropriation of Funds, p. 24 (Sept. 2010).
[4] See Appendix VII for a glossary of terms.
[5] Pub. L. No. 97-177, 96 Stat. 85 (1982) (codified as amended at 31 U.S.C. § 3901 et seq.).
[6] Although “invoice” is synonymous with “statement,” both the Prompt Payment Act and the BFC use “invoice” to describe the receipt of monthly transaction reports. As a result, we used the term “invoice” in this report.
[7] The amount of interest must equal or exceed $1.00 before it can be charged to the IRS.
[8] The generic word “days” is used here in this paragraph. The requirement for purchase cards is business days and the requirement for fleet cards is calendar days.
[9] Office of Management and Budget Circular No. A-123, Appendix B, Revised January 15, 2009.
[10] Appendix VI provides information on the Circular’s guidance for Government credit card rebates.
[11] The FY 2012 budget contains four regular appropriations; however, during the time of our review there were five appropriations in effect.
[12] Treasury Inspector General for Tax Administration, Ref. No. 2010-10-124, Although Citibank Travel Rebates Have Significantly Increased, They Were Not Properly Allocated, Resulting in the Misappropriation of Funds, p. 24 (Sept. 2010).
[13] The Misappropriation Act, 31 U.S.C. § 1301, requires that funds appropriated by Congress be used only for the programs and purposes for which the appropriation was made.
[14] The implementation of the purchase card module within the WebRTS caused isolated errors as the IRS personnel were learning the new system.
[15] These late payments resulted in interest penalties paid to Citibank of approximately $100.
[16] Appendix V provides details of purchase card and fleet card rebates from FY 2005 through the third quarter of FY 2011.
[17] The Department of the Treasury reviews the Citibank monthly cycle spend reports (departmental roll-up level) to compare the spend amount to the rebate net charge volume amount provided separately by Citibank.
[18] The audit period subject to review was January 1, 2009, through March 31, 2010, and October 1 through December 31, 2010.
[19] See Appendix VII for a glossary of terms.
[20] Pub. L. No. 97-177, 96 Stat. 85 (1982) (codified as amended at 31 U.S.C. § 3901 et seq.).
[21] Treasury Inspector General for Tax Administration, Ref. No. 2010-10-124, Although Citibank Travel Rebates Have Significantly Increased, They Were Not Properly Allocated, Resulting in the Misappropriation of Funds, p. 24 (Sept. 2010).
[22] See Appendix VII for a glossary of terms.
[23] 31 U.S.C. § 1301.
[24] See Appendix VII for a glossary of terms.