TREASURY INSPEcTOR GENERAL
FOR TAX ADMINISTRATION
THE INTERNAL REVENUE SERVIcE NEEDS TO
INcREASE THE cAPAcITY, FOLLOW UP ON REPORTED
PROBLEMS, AND ENcOURAGE VOLUNTARY USE OF THE
ELEcTRONIc FEDERAL TAX PAYMENT SYSTEM
Reference No. 092303
The Internal Revenue Service's (IRS) Electronic Federal Tax Payment System (EFTPS) is a system designed to process electronic tax payment information. It receives payment information electronically from two banks, which have been designated as Treasury Financial Agents (FA), and posts the payments to the taxpayers’ accounts on the IRS Master Files. During the first nine months of Fiscal Year 1998, almost 34 million payments (totaling about $859 billion) had been submitted and processed through EFTPS.
This audit is the fourth in a series of development and implementation reviews of EFTPS. In this audit, we reviewed EFTPS controls and procedures to determine whether IRS management took effective corrective action on selected, previously reported control and processing weaknesses and developed an effective strategy to increase the number of taxpayers who voluntarily pay taxes through EFTPS.
Information Systems (IS) management corrected several weaknesses reported in previous EFTPS audits, including revising and retesting the EFTPS Business Resumption Plan for disaster recovery and scheduling programming changes to strengthen controls over sensitive payment record changes (i.e., taxpayer name and identification number changes). continued management emphasis is still needed in the following areas:
Electronic Federal Tax Payment System Processing capacity May Not Be Sufficient to Handle the Anticipated Growth in Electronic Payments in the Future
To address previously reported issues, IS management planned to implement a redesigned process that should mitigate short-term processing capacity risks. However, the IRS business process owners have not developed peak volume estimates to account for both the growth of current EFTPS use and new electronic payment initiatives that will increase the payment volume through EFTPS. The current system was sized to process the expected volume of Federal Tax Deposits (FTD). FTDs are primarily employers’ payments to the IRS for the Social Security, Medicare, and federal income taxes they withhold from employees’ wages. Although FTDs should remain the largest segment of EFTPS use, new electronic payment applications, along with increased marketing to potential users, could substantially add to EFTPS volumes.
Electronic Tax Administration Management Does Not Have a Process to Ensure Electronic Federal Tax Payment System Problems Reported by the Financial Agents Are Resolved
currently, there are no procedures in place to ensure that problems reported by the FAs are corrected. Two-thirds (82 of 124) of the incident reports reviewed showed that the problems were caused by programming errors, control weaknesses, or continuing system problems. Many of these reports acknowledged that problems were recurring, but did not address how they would be corrected. The reported problems caused some taxpayers to initiate their payments late and delayed others’ receipt of their payment acknowledgements.
The Internal Revenue Service can Increase the Number of Small Businesses Who Voluntarily Use the Electronic Federal Tax Payment System
IRS business taxpayer records indicate that approximately 5.7 million small business taxpayers are not required to pay taxes electronically. Increasing voluntary EFTPS participation by these taxpayers is necessary for the IRS to achieve the legislated goal to process 80 percent of all returns and payments electronically by 2007. To facilitate this effort, we provided ETA management with information about voluntary EFTPS use, by geographic area.
Summary of Recommendations
The following summarizes the specific recommendations contained in the report.
Management’s Response: IRS management responded to each of these recommendations, stating they:
Management’s complete response, including a subsequent addendum, is included in Appendix V.