The Internal Revenue Service Has
Improved Controls Over the Use of
Reference Number: 095001
June 15, 1999
MEMORANDUM FOR COMMISSIONER ROSSOTTI
FROM: David C. Williams
Inspector General /s/David C. Williams
SUBJECT: Final Audit Report Ė The Internal Revenue Service Has Improved Controls Over the Use of Interagency Agreements
This report presents the results of our review of the Internal Revenue Service's (IRS) use of interagency agreements. In summary, we found that the IRS has significantly improved the controls over the use of interagency agreements. However, additional emphasis is needed to fully address the previously reported concerns over the payment process.
To improve controls over the payment process for interagency agreements, we recommend that the Assistant Commissioner (Procurement) provide additional guidance and training to clarify responsibilities in the payment process.
The Assistant Commissioner (Procurement) concurred with the finding and recommendation in the report and has agreed to take corrective action. Managementís comments have been incorporated into the report where appropriate, and the full text of their comments is included as an appendix.
Copies of this report are also being sent to the IRS managers who are affected by the report recommendation. Please call me at (202) 622-6500 if you have any questions, or your staff may contact Pamela J. Gardiner, Deputy Inspector General for Audit, at (202) 622-6510.
Table of Contents
Objective and Scope
Additional Emphasis Is Needed to Improve Controls Over the Payment Process for Interagency Agreements
Appendix I - Detailed Objective, Scope and Methodology
Appendix II - Major Contributors to This Report
Appendix III - Report Distribution List
Appendix IV Ė Managementís Response to the Draft Report
The Internal Revenue Service (IRS) has significantly improved the controls over the use of interagency agreements. Specifically, Contracting Officerís Technical Representatives (COTRs) have been established in the IRS program offices to administer interagency agreements, and additional guidance has been provided by IRS Procurement to the program offices to assist in administering interagency agreements. IRS Procurement has centralized the requisitioning process to ensure all interagency agreements are consolidated in one listing. Additionally, most Contracting Officers (COs) are documenting the cost reasonableness and rationale for selection of an interagency agreement versus other contracting vehicles.
Although improvements have been made within the program area, additional emphasis is needed to fully address previously reported concerns over the payment process.
Additional Emphasis Is Needed to Improve Controls over the Payment Process for Interagency Agreements
While IRS program offices have made some improvement in the billing process, continued emphasis is needed to ensure that billing documents are properly received and government resources are adequately protected. We found that 3 of 22 COTRs still did not receive and/or review billing documentation for accuracy. Also, only 8 of 22 COTRs signed the certification forms acknowledging receipt and acceptance of the goods and services.
There is some confusion among the COTRs and COs regarding how payments are made for the interagency agreements. Some of the COs and COTRs did not understand the different payment methods or the overall payment process for interagency agreements. Without a clear understanding of the payment process, the COs cannot ensure that the COTRs are following the correct payment process. Furthermore, because the COTRs are not properly verifying expenses and acknowledging the receipt and acceptance of goods, the IRS has no assurance that funds have been properly expended.
Summary of Recommendation
Additional guidance and/or training should be provided to clarify responsibilities in the payment process.
Managementís Response: The Assistant Commissioner (Procurement) agreed with the facts cited in the report and is providing additional guidance on the payment process for interagency agreements. Managementís comments are included in the body of the report where appropriate and the complete text appears as Appendix IV.
Objective and Scope
The overall objective of this review was to determine whether corrective actions taken on a prior Audit report have improved the use of interagency agreements and the related controls within the Program. The audit work for this follow-up review was performed during the period September 1998 to December 1998 in the Internal Revenue Serviceís (IRS) National Office. The review was conducted in accordance with Government Auditing Standards.
Details of our audit objective, scope and methodology are presented in Appendix I. Major contributors to this report are listed in Appendix II.
An interagency agreement is a written agreement entered into between two federal government agencies. The IRS began using interagency agreements as an alternate method to procure goods and services in Fiscal Year (FY) 1986. The agreements allow the IRS to obtain goods and services from contractors who have existing contracts with other agencies (the servicing agency). The IRS is charged a surcharge (servicing fee) to cover the administrative costs incurred by the servicing agency. The IRS benefits from using interagency agreements since the time and expense involved in awarding a contract are negated.
The authority to execute interagency agreements is held by the Assistant Commissioner (Procurement) or his designee. According to Procurementís records, the IRS executed:
Payments for goods and services obtained through an interagency agreement can be made via the On-line Payment and Collection (OPAC) system. The OPAC system electronically transfers funds between the government agencies. In some instances, the servicing agency may request payment from the IRS before commencement of work by the contractor.
In November 1996, we reported that improvements in the IRSí use of interagency agreements were needed to ensure effective use of government resources. Specifically, the report included the following issues:
The IRS has taken appropriate actions to address the concerns presented in the November 1996 Audit report. As a result of the corrective actions taken, IRS Procurement has significantly improved the internal controls within the program for processing interagency agreements. Additional guidance was provided to the program offices administering interagency agreements. Procurement issued memoranda and updated policy and procedures to delineate the responsibilities of all parties involved in administering interagency agreements, and to designate that the authority to execute agreements is held by the Assistant Commissioner (Procurement).
Before the guidance was issued, the IRS program managers monitoring the interagency agreements were entering into agreements without going through IRS Procurement. Now, Contracting Officerís Technical Representatives (COTRs) have been established in the program offices to administer interagency agreements and to coordinate with IRS Procurement. Most of the COTRs we interviewed stated they had a copy of the guidance in their files and were following the procedures.
IRS Procurement has also taken steps to improve controls over interagency agreements by identifying the universe of agreements. Previously, the universe of interagency agreements was unknown, since not all agreements were processed through IRS Procurement. Presently, all agreements are processed through IRS Procurement where they are consolidated into one listing at the end of the fiscal year. This additional control allows interagency agreements to be identified and monitored.
Furthermore, IRS Procurement recently established procedures for controlling interagency agreements in the Request Tracking System/Integrated Procurement System (RTS/IPS). All procurement actions will be processed through the RTS/IPS system. The requesting office will initiate the interagency agreement on the tracking system and IRS Procurement will create a record of the agreement and record the obligation. This will further enable the universe of interagency agreements to be identified.
Finally, there has been improvement in determining cost reasonableness and rationale for selecting an interagency agreement as the contracting vehicle. Eighteen of 23 interagency agreements reviewed contained a rationale for selection in the file. This is an improvement from the previous review where only 1 of 15 agreements contained a rationale for why the interagency agreement was the most economical contracting vehicle. Also, Contracting Officers (COs) are verifying the servicing fees associated with the agreements and have even negotiated a lower fee in some instances. Previously, the servicing fees were accepted without further negotiation.
While IRS Procurementís actions have improved the internal control environment, we believe additional emphasis is needed to improve the controls over the payment process. Specifically, we noted inconsistencies in receipt and acceptance of billing documents and a lack of understanding of the payment process.
Additional Emphasis Is Needed to Improve Controls Over the Payment Process for Interagency Agreements
Inconsistencies still exist in the receipt and acceptance of billing documents. Also, there is an overall lack of understanding of the payment process for interagency agreements.
We previously reported that the costs incurred on interagency agreements were not adequately monitored, and receipt and acceptance certifications were rarely completed. Procurement agreed to issue a memorandum to all Chief Officers requiring program offices to verify invoices and advance transfer of funds using the OPAC system. Also, the program offices agreed to nominate an interagency agreement project monitor.
Although COTRs were established to monitor the agreements, 3 of 22 COTRs did not receive and/or review billing documentation for accuracy. Furthermore, only 8 of 22 COTRs signed the OPAC certification forms acknowledging receipt and acceptance of the goods and services.
The servicing agency sends billing information to the IRS Accounting Office in Beckley, West Virginia, once the work is performed. The servicing agency is paid via the OPAC system. The Accounting Office then forwards the billing information and the OPAC certification form to the COTR for verification. The COTR signs the certification form to acknowledge the receipt and acceptance of the goods and services and certifies the OPAC amounts.
As previously mentioned, the servicing agency may request payment before the commencement of work by the contractor. In 21 of 23 instances, the interagency agreements were either paid in advance for the full amount or reimbursed for work completed via the OPAC system, before the certification forms were signed. The Federal Acquisitions Regulations allow advance payments for interagency agreements. This, in conjunction with the use of the OPAC system, is the generally accepted payment method for interagency agreements throughout the government. However, our discussions with COs and COTRs indicated that 4 of 7 COs and 12 of 22 COTRs did not know they were performing an after-the-fact verification, since the servicing agency had been paid before the COTRs signed the OPAC certification form. Several COs and COTRs advised us that they did not fully understand the payment methods or payment process for interagency agreements.
Without a clear understanding of the payment process, the COs cannot ensure that interagency agreements are adequately monitored. Also, the COs and COTRs cannot ensure appropriate procedures are followed. Further, without the verification of billing documentation and acknowledgement of receipt and acceptance by the COTR, the IRS has no assurance that funds are properly expended.
Managementís Response: The Assistant Commissioner (Procurement) plans to incorporate additional information regarding the COTRís responsibilities in the payment process for interagency agreements into the COTR training courses offered by the Treasury Acquisition Institute. Also, guidance on the interagency agreement payment process will be included on the Procurement Intranet web site. Further, a revised Policy and Procedures Memorandum was issued that contains specific instructions for COs and COTRs, for interagency agreement funding, billing, and payment.
The IRS has significantly improved controls over the use of interagency agreements. Although improvements have been made within the program area, additional emphasis is needed to fully address previously reported concerns regarding the payment process.
Detailed Objective, Scope and Methodology
The overall objective of this audit was to follow up on a November 1996 Audit report to determine if corrective actions taken have improved the use of interagency agreements and controls within the Program. Specifically, we:
II. Determined whether corrective actions effectively improved the use and administration of interagency agreements.
2. Verified invoices to ensure that charges were valid and proper documentation was maintained.
3. Determined whether certification forms indicated receipt and acceptance of products/services before payments were issued.
Major Contributors to This Report
Michael Phillips, Acting Director, Office of Audit Projects
Nancy LaManna, Audit Manager
Corliss Brooks, Senior Auditor
Terrey Haley, Senior Auditor
Calvin Thomas, Senior Auditor
Michael Howard, Auditor
Richard Louden, Auditor
Report Distribution List
Chief, Management and Finance M
Assistant Commissioner (Procurement) M:P
Audit Liaison (Attn: Thomas Harner) M:P
National Director for Legislative Affairs CL:LA
Office of Management Controls M:CFO:A:M
Managementís Response to the Draft Report
Response has been removed due to its size. To see the complete Response, please go to the Adobe PDF version of this report.