Tax AdministrationIRS Can Improve Controls Over Electronic Filing Fraud Gao ID: GGD-93-27 December 30, 1992
A major advantage to filing electronically with the Internal Revenue Service (IRS)--returns are sent via telephone lines and processed by computer--is that taxpayers can receive their refunds faster. The soaring popularity of electronic filing, however, has been accompanied by a rising incidence of fraudulent electronic returns; IRS identified more than 11,000 fraudulent returns in the first seven months of 1992. IRS began tightening its controls in 1992 both by beefing up its screening of individuals and firms who want to file electronically and by increasing the number of fraud detection personnel. These steps probably contributed to the rise in the number of fraudulent returns spotted in 1992. The amount of fraudulent returns that IRS identified but could not stop before issuance, however, increased by 35 percent during the first seven months of 1992 compared to the same period a year earlier--from $6.3 million to $8.5 million. A system of controls to totally prevent electronic filing fraud or to identify and stop all fraudulent returns before they are issued may be unrealistic. In GAO's view, however, additional controls can be implemented to further reduce IRS' vulnerability.
GAO found that: (1) IRS increased its fraud detection personnel and improved controls over the screening of individuals and firms that prepare or transmit electronic tax returns; (2) by 1992, detection of fraudulent electronic refunds increased and the number of fraudulent returns detected before transmittal also increased; (3) the detection and investigation rate for paper returns was still higher than the detection rate for fraudulent electronic returns; (4) IRS district offices lacked authority to check national criminal history records, lacked information on applicants' filing histories, and made decisions that were not subject to review; (5) further prevention measures against fraudulent returns included screening and investigating questionable tax returns when they arrived at service centers for processing; (6) problems with the screening and investigative process included deficient screening procedures, first-time filing problems, inadequate investigative staffing, and delays in obtaining paper documents to verify electronic filing information; and (7) IRS needs to strengthen controls over its electronic filing system and stop issuing refunds before the required paper documentation.Recommendations
Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.Director: Team: Phone: