The Internal Revenue Service (IRS) has four main customer service toll-free telephone numbers that are offered to taxpayers. In Fiscal Year (FY) 1997, AT&T charged $30.3 million for 120.9 million calls, totaling 611.9 million minutes, for these toll-free customer Service lines.

The Treasury Inspector General for Tax Administration Office of Audit examined the IRS' processing of AT&T invoices for toll-free telephone service. This audit was performed as a follow-up to an Office of Audit review of the IRS' oversight of its contract for toll-free service.

We determined that no effective procedures exist to affirm that the vendor’s charges accurately reflect the amount of services received, or that the charges for those services are accurate, allowing a high potential for overpayment. There were also indications that the IRS is not receiving optimum discounts from AT&T.

Specifically, we found the following weaknesses in the billing process:

The review process for toll-free telephone service invoices does not include the verification of usage data, primarily because data available internally is inadequate or not in a usable format to allow an adequate verification of the charges. Because of the ineffectiveness of the review process, the IRS has not questioned erroneous charges and has not tracked credits for disputed items. In one instance, the IRS' process did not identify an erroneous extraordinary installation charge of $3.7 million. The IRS is also paying three times more than it should for a revised monthly report. Additionally, each month credits for thousands of dollars of inaccurate charges for services are not effectively tracked because the General Service Administration’s (GSA’) notification is sent to an individual in an IRS Service center who has no idea why the document is sent there.

During the 1997 filing season, IRS management concluded that AT&T’s billing practices did not provide the IRS with optimum discounts. AT&T continues to bill for separate numbers within one IRS call location. The IRS estimates that if the billing were based on total usage within one call site, as was the practice with the previous toll-free carrier, millions of dollars in discounts might be realized yearly. The IRS has not followed up sufficiently to affect a change in this billing practice. AT&T has not acted to address this issue and it remained unresolved as of the date of this report.

We believe that the following steps need to be taken to initiate an effective processing of AT&T charges to ensure that AT&T’s billing procedures accurately reflect the IRS' usage of toll-free service.

• The IRS needs to establish responsibility for coordinating an effort to validate AT&T charges for toll-free service, which includes any credits due the IRS. Individuals should be given the responsibility to become familiar with AT&T’s billing practices to ensure that all available discounts and best market rates are included in the monthly billings. Should coordination with the GSA or Treasury’s Departmental Offices become necessary to accomplish this, liaison responsibility needs to be assigned.

• consideration should be given to employing an outside consulting firm, which specializes in verification of telephone charges, to analyze the AT&T charges and determine the accuracy of the IRS' payments to the vendor. Specifically, this firm could validate current tariff rates, allowable discounts, and rate schedules. Also included could be an examination of the IRS’ internal call usage data, which could possibly result in recommendations on making it more comparable to AT&T’s data. This would allow for the eventual data verification process to be accomplished within the IRS.

• The IRS needs to effectively follow up with AT&T to ensure that the vendor’s billing practices include all proper discounts due the IRS. This issue also needs to be specifically addressed in any future contract so that subsequent contract modifications would not be necessary.

IRS management has already started to address some of the issues surfaced in our review. The Telecommunications and Operations Division has begun taking initiatives to contract with outside vendors to strengthen the billing verification of invoices.