Executive Summary

Objectives and Scope

Background

Results

Conclusion

Appendix I – Detailed Objectives, Scope, and Methodology

Appendix II – Major Contributors to This Report

Appendix III – Report Distribution List

Appendix IV – Management's Response to the Draft Report

Executive Summary

The Internal Revenue Service (IRS) initiated Problem Solving Days (PSDs) in
November 1997 so that those taxpayers with unresolved tax problems could meet face-to-face with the appropriate tax specialists. Each IRS district office is responsible for operating the PSD Program under the overall coordination of the National Taxpayer Advocate. Taxpayer problems that cannot be resolved on these PSDs are handled as part of the IRS’ Problem Resolution Program (PRP).

The audit was conducted to evaluate the effectiveness of the Ohio District’s PSD Program.

Overall, Ohio District management has planned and implemented a successful PSD Program. Since the initial event in November 1997, PSDs have been held monthly on a rotating basis among the larger offices in the Ohio District. District management has taken the necessary actions to ensure that the events have been extensively publicized. District management has also ensured that sufficient staff, with the appropriate technical skills, is provided to assist taxpayers in resolving their problems.

The most recent customer feedback reports on the Ohio District’s PSD Program showed taxpayers were very satisfied with their overall experience. For example, the feedback report for the March 1998 event showed that 86 percent of the taxpayers gave the District the top rating possible in overall satisfaction. Customers also gave the District high marks in "employee courtesy" and "employee competence." Our observation of the PSD held in Dayton, Ohio, on December 3, 1998, showed that the event was effectively planned and carried out in accordance with national and local guidelines.

Two areas of concern, however, were identified that warrant District management’s attention:

Labor costs charged to the PSD Program between November 22, 1997, and
November 7, 1998, were overstated by nearly $514,000. The problem was caused by incorrectly coded timesheets that resulted in all of the employees’ time, in the current as well as subsequent pay periods, to continue to be charged to the PSD Program after they returned to their normal functions.

Prior to this review, District management had received no information on costs incurred during PSDs and, as a result, was unaware that their labor costs were unusually high. In addition, District management had no controls in place to routinely monitor labor costs charged to the PSD Program.

A detailed analysis of the centralized quality review results for PRP cases revealed that the Ohio District is achieving less success in meeting the quality standards for effective PRP casework on PSD cases than on PRP cases as a whole. District management was not aware of the lower quality because the centralized quality review reports do not identify the PSD cases that were included in the sample of PRP cases selected for review.

The Taxpayer Advocate for the Ohio District attributed the lower quality to the employees from the compliance functions (e.g., Collection and Examination) who work the PSD cases, as not having the same level of training, familiarity, and experience with PRP casework standards, including the documentation requirements, as those employees who work PRP cases full-time.

During the audit, we recommended that Ohio District management alert timekeepers to the correct procedures for recording time charged to PSDs and establish a control to monitor all bi-weekly time charges to the PSD Program. The District Director promptly issued a memorandum clarifying the procedures for charging time to PSDs. In addition, the local Taxpayer Advocate promptly implemented a cost tracking system.

To improve PSD casework quality, we recommend that Ohio District management ensure that future PSD training and employee briefings include an emphasis on those specific quality standards that were not being satisfactorily achieved. District management should also establish a control to monitor improvement in achieving quality standards on PSD cases.

Management’s Response: Ohio District management has taken steps to remedy the timekeeping errors and has implemented new internal controls to ensure that employee time on PSDs is properly reported. Similar National procedures are planned for all offices holding PSDs. To improve the quality of PSD cases, National PSD procedures have been updated to include case file "memory joggers," an improved initial taxpayer contact sheet that outlines principles of good taxpayer contact, a documentation portion, which also provides for an apology to the taxpayer, and the inclusion of PRP quality case standards with each case file. Management's complete response to the draft report is included as Appendix IV.

Objectives and Scope

The purpose of this audit was to determine whether Ohio District management effectively planned and coordinated the Problem Solving Day (PSD) Program and implemented systems of internal controls to ensure that taxpayers received prompt and effective resolution of their tax problems. This review supports the Internal Revenue Service's (IRS) objective to maximize customer satisfaction and reduce burden by expanding the availability of technical tax assistance to taxpayers.

This audit was performed in accordance with Government Auditing Standards. Our review included analyses of control records, management information reports, and other files; discussions with District management; and an observation of the PSD held in Dayton, Ohio, on December 3, 1998. We also evaluated the effectiveness of corrective actions taken by management in response to previously reported audit findings from the Review of Ohio District's Problem Solving Day Program (Reference Number 681002, Dated February 11, 1998). Our fieldwork on the current audit was conducted between November 30, 1998, and
March 3, 1999.

Details of our audit objectives, scope, and methodology are presented in Appendix I. Major contributors to this report are listed in Appendix II.

Background

In an effort to transform the IRS into a more customer-friendly agency, the PSD Program was initiated so that taxpayers could meet face-to-face with IRS employees and managers to discuss and resolve ongoing tax problems that they had been unable to resolve through regular IRS channels. The first in a continuing series of PSDs was held in all 33 IRS district offices on November 15, 1997.

Each IRS district office is responsible for planning and implementing the PSD Program under the overall coordination of the National Taxpayer Advocate. Taxpayer problems that cannot be immediately resolved on PSDs are handled as part of the IRS’ Problem Resolution Program (PRP). The PRP operates in all IRS district offices and service centers and is designed to ensure that taxpayer problems, unresolved through normal channels, are given special attention.

The prior audit, Review of Ohio District's Problem Solving Day Program (Report Reference Number 681002, Dated February 11, 1998), covered the Ohio District’s planning and coordination for the initial November 1997 PSD activities. This review found that the District did not have effective processes to ensure that taxpayers did not have to wait long periods to receive assistance. The prior audit also found that the District did not have procedures to ensure that timely taxpayer contact was made on any unresolved PSD cases.

Results

Overall, Ohio District management has planned and implemented a successful PSD Program. Since the initial event in November 1997, subsequent PSDs have been held monthly and have been rotated among the larger IRS offices within the District. District management has ensured that extensive publicity for PSDs was distributed to various media outlets in the surrounding area. The District has also developed an effective PSD Information Guide for employees to use during the events.

The most recent customer feedback reports on the Ohio District’s PSD Program showed that customers were very satisfied with their overall experience. For example, the feedback report for the March 1998 event showed that 86 percent of the taxpayers gave the District the top rating possible in overall satisfaction. Customers also gave the District high marks in "employee courtesy" and "employee competence."

Our observation of the December 3, 1998, PSD held at the Dayton, Ohio, office showed that the event was effectively carried out in accordance with national and local guidelines. District management had implemented new controls to correct the conditions identified in the prior audit. Sufficient staff, with the appropriate technical skills, was available to promptly and effectively assist walk-in taxpayers, as well as those taxpayers with scheduled appointments. The District also provided adequate space and security for taxpayer conferences.

However, we identified two issues that warrant Ohio District management’s attention:

• Improved controls are needed to ensure that PSD labor costs are accurately captured and monitored.
• Centralized quality review results show that more timely and effective resolution of PSD cases is needed.

Improved Controls Are Needed to Ensure That Problem Solving Day Labor Costs Are Accurately Captured and Monitored

Controls over PSD labor costs were evaluated because the Ohio District’s "average cost per customer served" of $809 was the highest in the nation and was more than twice the national average of $341. Our review focused exclusively on labor costs since they made up nearly 95 percent of the total PSD Program costs in the first two and one-half months of Fiscal Year (FY) 1999.

An analysis of Automated Financial System (AFS) data for the pay periods ending November 22, 1997, through November 7, 1998, showed that $883,274 in labor costs (i.e., basic salary, overtime, and benefits) were charged to the PSD Program in the Ohio District. Of this amount, $513,761 (58.2 percent) represented labor costs for time that was not spent on the PSD Program.

If these erroneous labor costs are excluded, the Ohio District’s "average cost per customer served" for PSDs would closely approximate the national average.

Labor costs associated with PSDs were tracked through the use of the Project Cost Accounting System codes on bi-weekly employee timesheets. The Accounting Data Code blocks on the bi-weekly timesheets were incorrectly completed for many employees when they were initially assigned to the PSD Program. As a result, the default function code was changed (i.e., from Examination or Collection to PSD) so that all of their subsequent time, in the current pay period as well as succeeding pay periods, was being charged to the PSD Program.

District management had no controls in place to routinely monitor the labor costs charged to the PSD Program. Prior to this review, District management had received no information on PSD costs and was unaware that their "average cost per customer served" was unusually high.

We advised Ohio District management of the above condition during the early stages of this audit in December 1998 and recommended that they:

1. Reemphasize the correct procedures for recording time charged to PSDs.
2. Establish controls to monitor the correctness of all future bi-weekly time charges to the PSD Program.

After we brought this issue to management’s attention, the District Director promptly issued a memorandum to all division/staff chiefs clarifying and restating the timekeeping procedures for PSDs. The local Taxpayer Advocate also promptly implemented a new control, in conjunction with the Ohio District Controller’s Office, to regularly receive and review an AFS report that shows all of the time charged to the PSD Program for each pay period.

Management’s Response: In addition to the above actions taken by Ohio District management, the IRS Commissioner stated that similar actions would be taken in all IRS offices holding PSDs and that additional guidance would be included in the PSD Handbook.

Centralized Quality Review Results Show That More Timely and Effective Resolution of Problem Solving Day Cases Is Needed

Customer feedback reports show that taxpayers are highly satisfied with the Ohio District’s PSD Program. Nevertheless, the centralized quality review results show that improvement in PSD case quality is needed to meet the nationally prescribed "Quality Standards for PRP Casework."

The IRS’ quality review of PRP cases is centralized in Oakland, California. This review, which includes PSD cases as well as regular PRP cases and is based on the documentation in the closed case files, measures adherence to 13 Customer Service Specifications. These include 4 Timeliness Standards, 5 Communication Standards, and 4 Accuracy Standards.

The centralized quality review also measures how well an office handled 17 Internal Specifications on each case. These represent case control and documentation requirements that are important to the proper functioning of internal systems and processes.

Of the 192 PRP cases closed by the Ohio District that were quality reviewed in FY 1998, 28 were PSD cases. The following table shows that the Ohio District’s effectiveness in meeting the quality standards on PRP casework ranged from 76 percent to 90 percent. However, the Ohio District was less effective in meeting the same quality standards on PSD cases.

District management was not aware of the lower quality on PSD cases because the centralized quality review reports do not identify the PSD cases that are included in the sample of PRP cases selected for review. We developed the data in the above table by comparing the reports to the inventory of closed PSD cases to identify the PSD cases that had been selected for review and segregating the quality review results for the PSD cases from the results for all other PRP cases.

The Ohio District will need significant improvement in meeting the Customer Service Specifications on PSD cases to meet the current national goals for PRP casework. For FY 1999, these goals are 89.1 percent for timeliness, 91.0 percent for communication, and
92.3 percent for accuracy.

Further analysis of the centralized quality review results show that the lower overall scores for PSD cases were due to the District’s lack of success in meeting certain specific standards within each broad measurement category. Examples follow:

• In 14 (66.7 percent) of the 21 applicable PSD cases, subsequent action was not taken within 7 calendar days from the time action could have been taken on the case.

• In 7 (58.3 percent) of the 12 applicable PSD cases, the next contact date or estimated completion date was not provided to the taxpayer.
• In 3 (75 percent) of the 4 applicable PSD cases, the second written request for information did not contain a due date or show the consequences for not responding.
• In 6 (22.2 percent) of the 27 applicable PSD cases, the customer was not given a clear, complete, or correct explanation of the resolution at closing.

• In 4 (14.3 percent) of the 28 applicable PSD cases, the taxpayer's problem was not completely resolved.
• In 3 (30 percent) of the 10 applicable PSD cases, not all of the related issues (i.e., an action taken on one account which will have a direct impact on another account) were addressed.
• In 9 (32.1 percent) of the 28 applicable PSD cases, not all actions that affect the taxpayer technically and procedurally were correct, including recourse when required.

• In 21 (75 percent) of the 28 applicable PSD cases, an apology was not made (i.e., documented in the case file) when appropriate.
• In 17 (77.3 percent) of the 22 applicable PSD cases, actions were not taken to establish computerized case controls within 7 calendar days of the date that PRP received the case.
• In 5 (62.5 percent) of the 8 applicable PSD cases, the computerized case controls were not closed within
  7 days of closing the case.

Because of the large number of taxpayers who participate in PSDs, the Ohio District finds it necessary to use many employees from its compliance functions (e.g., Collection and Examination) who volunteer to work these events. Prior to each PSD event, District management conducts employee briefings that cover the case file documentation standards. However, the Taxpayer Advocate for the Ohio District attributed the higher quality review error rates for PSD cases to the fact that the compliance employees have less training, familiarity, and experience with the PRP casework standards, including the documentation requirements, than those employees who work PRP cases full-time.

Ohio District management expects their compliance employees to work the cases that result from the PSD events, rather than reassigning them to PRP caseworkers. The purpose is to provide more ownership to the cases and to give the taxpayers a better sense of continuity that their problems are being resolved by the same IRS employees they originally met. District management also believes that this approach helps instill a customer service philosophy in these employees when they return to their daily compliance duties.

To encourage compliance with the nationally prescribed casework quality standards, Ohio District management needs to:

3. Incorporate into future PSD employee training and briefings an emphasis on those specific standards for which the centralized quality review results showed a need for improvement.
4. Monitor improvement in achieving quality standards on PSD cases by periodically comparing the centralized quality review reports to the inventory of closed PSD cases and segregating the quality review results for the PSD cases from the results for all other PRP cases.

Management’s Response: The IRS Commissioner stated that steps are being taken to train compliance employees in PSD casework. To improve the quality of PSD cases, National PSD procedures have been updated to include:

• Case file "memory joggers."
• Improved initial taxpayer contact sheets that outline principles of good taxpayer contact.
• A documentation portion that provides a taxpayer apology.
• The inclusion of PRP quality case standards with each case file.

Conclusion

The Ohio District is operating an effective PSD Program. District management has already taken action to implement new procedures and controls to address the PSD Program labor cost issue that was identified. Although taxpayers are highly satisfied with the PSD Program, District management can further ensure the more timely and effective resolution of taxpayer problems by taking the recommended actions to promote stricter adherence to the nationally prescribed casework standards. In addition, the corrective actions outlined by the IRS Commissioner will further strengthen PSD case quality on a nationwide basis.

Appendix I

Detailed Objectives, Scope, and Methodology

The overall objective of this review was to determine whether Ohio District management effectively planned and coordinated the Problem Solving Day (PSD) Program, and implemented effective systems of internal controls to ensure that taxpayers receive prompt and effective resolution of their tax problems. To accomplish our overall objective, we conducted the following audit tests:

1. To determine the adequacy of preparation by the District for the PSDs, including the December 3, 1998, event in Dayton, Ohio, we:

1. Contacted the local Public Affairs Office to determine how information on PSDs was being disseminated to the public.
2. Attended planning meetings and interviewed District management to ascertain the plans for scheduling appointments, selecting technical staff, ensuring systems support, arranging space and security, handling walk-in taxpayers and other logistical issues required to ensure that taxpayers’ tax problems were effectively processed on PSDs.
3. Interviewed the local Taxpayer Advocate to ascertain the methods for confirming appointments with taxpayers, measuring the volume of appointments, tracking the types of unresolved tax issues, and documenting receipt of completed forms from taxpayers.
4. Determined what program objectives, goals, processes and procedures the District used in implementing the PSD Program.

1. To evaluate the effectiveness of the District’s plans for PSDs, including the December 3, 1998, event, we:

1. Observed the facility preparations, traffic flow, security procedures, handling of walk-ins, and availability of forms/publications at the Dayton office to determine whether the District successfully prepared for the PSD event.
2. Determined whether the District followed prescribed guidelines during the PSD event.
3. Reviewed the process used by the District to determine taxpayer satisfaction with the services provided on PSD and to determine whether that process was conducted in conformance with quality standards, including taxpayer-waiting periods.

1. To ascertain whether taxpayers’ tax problems that remained unresolved from previous PSDs received adequate follow-up action, we:

1. Evaluated the adequacy of the District’s procedures, including the seven-day contact standard, for ensuring that follow-up actions are taken for any cases remaining unresolved from the PSD.
2. Evaluated the District’s use of tracking worksheets as a control for ensuring that appropriate follow-up actions were taken on taxpayers’ cases that were not resolved on the PSD.

1. To determine whether taxpayers’ concerns or issues have been properly and fully addressed, we:

1. Evaluated the most recent taxpayer and employee survey results. These were received by the Ohio District on November 27, 1998, and covered the June 1998 PSD event.
2. Analyzed the centralized quality review results for all 192 closed Problem Resolution Program (PRP) cases that were sampled during Fiscal Year (FY) 1998. This sample included 28 PSD cases. To conserve resources, we relied on the centralized quality review results instead of performing our own review of a sample of closed PSD cases.

1. To evaluate the efficiency of the District’s PSD Program, we:

1. Evaluated measurement reports for trends and areas of concern. Specifically, we evaluated the process for tracking program costs and the method for determining the "average cost per customer served," including the various components used in arriving at the "average cost per customer served."
2. Interviewed District managers and employees involved with the PSD Program to determine if they perceive any areas or methods where efficiencies can be achieved. We also determined the amount of emphasis placed on balancing program effectiveness and efficiency.

Major Contributors to This Report

Walter E. Arrison, Associate Inspector General for Audit (Wage and Investment Income Programs)

Kerry Kilpatrick, Director

Philip Shropshire, Deputy Director

William E. Stewart, Audit Manager

Lawrence R. Smith, Senior Auditor

E. John Thomas, Senior Auditor

Report Distribution List

Deputy Commissioner Operations C:DO

Chief Operations Officer OP

Assistant Commissioner (Customer Service) OP:C

Assistant Commissioner (Program Evaluation and Risk Analysis) M:OP

National Taxpayer Advocate C:TA

Regional Commissioner, Northeast Region RC

Director, Ohio District D

National Director for Legislative Affairs CL:LA

Office of Management Controls M:CFO:A:M

Management's Response to the Draft Report