Management Report
Review of Controls over Safeguarding Taxpayer Receipts and Information at the Brookhaven Service Center Campus Gao ID: GAO-05-319R March 10, 2005This report responds to a Congressional request that, in conjunction with our audit of the Internal Revenue Service's (IRS) fiscal year 2004 financial statements, we review the agency's procedures for handling and processing receipts and taxpayer information at the Brookhaven service center campus. As a result of the increased percentage of taxpayers filing returns electronically, IRS designed a detailed business plan to reduce the number of service center campuses that process paper returns. In fiscal year 2004, Brookhaven became the first service center campus to downsize its submission processing function, leading to changes in its operations and a significant reduction in the volume of taxpayer receipts and information processed. Congress requested this review in light of these significant changes in operations and IRS's desire to benefit from the Brookhaven experience in planning for future submission processing rampdowns. Specifically, we were asked to (1) review the policies and procedures IRS developed to safeguard and process taxpayer receipts and information at the modified Brookhaven operation and (2) offer recommendations, if any, for improving internal controls at Brookhaven and at other submission processing centers that will undergo future rampdowns. To accommodate the request, we agreed to add a review of the mail control function at the Brookhaven service center campus to our tests of internal controls conducted as part of our audit of IRS's fiscal year 2004 financial statements. We have performed extensive work in reviewing internal controls designed to safeguard taxpayer receipts and information as part of our annual financial audits of IRS. In performing this work, we have come to recognize the significance and importance of the submission processing function to IRS and the potential for loss, theft, or misuse of taxpayer receipts and information if controls are not properly designed and effectively implemented. Our audits have identified weaknesses in internal controls over the safeguarding of taxpayer receipts and information related to submission processing activities at IRS's service center campuses, lockbox banks, and field offices. In reviewing the Brookhaven rampdown procedures, we considered the internal control weaknesses previously found at other service center campuses.
We found that IRS completed the rampdown at Brookhaven without any significant disruptions in service. However, we did identify several areas where improvements could be made to internal controls at the Brookhaven service center campus residual mail processing unit, as well as to the process for estimating mail volumes. These issues are also relevant to IRS as it proceeds in ramping down future submission processing functions. Specifically, we found that IRS developed standard operating procedures for employees processing incoming mail at Brookhaven during the rampdown. However, we found that these procedures did not include detailed instructions for (1) tracking taxpayer receipts and information forwarded to other service center campuses for further processing and (2) handling cash receipts found during the extraction process. The absence of these instructions increases the risk that employees with significant internal control responsibilities over high-risk and vulnerable assets are not aware of the correct procedures to be followed in safeguarding and processing taxpayer receipts and information, thereby increasing the risk of their theft, loss, or misuse. Staff at the Brookhaven location did not always follow the required procedures to safeguard taxpayer receipts and information in its facilities. We found that (1) access rights allowed to visitors were not always appropriately restricted; (2) trash, which included taxpayer information, was not always sufficiently secured; and (3) candling was not always properly performed. The lack of adherence to IRS's procedures increases the risk of theft, loss, or misuse of taxpayer receipts and information. IRS did not have a documented methodology for estimating post-rampdown mail volumes at service center campuses selected for rampdowns. The lack of a documented methodology increases the risk that adequate mail volume information will not be gathered, maintained, and appropriately considered as estimates are prepared to assist IRS management in making decisions related to sites selected for future rampdowns and assessing their ultimate success.
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Director: Team: Phone:GAO-05-319R, Management Report: Review of Controls over Safeguarding Taxpayer Receipts and Information at the Brookhaven Service Center Campus
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March 10, 2005:
John M. Dalrymple:
Deputy Commissioner for Operations Support:
Internal Revenue Service:
Subject: Management Report: Review of Controls over Safeguarding
Taxpayer Receipts and Information at the Brookhaven Service Center
Campus:
Dear Mr. Dalrymple:
This report responds to your request that, in conjunction with our
audit of the Internal Revenue Service's (IRS) fiscal year 2004
financial statements,[Footnote 1] we review the agency's procedures for
handling and processing receipts and taxpayer information at the
Brookhaven service center campus. As a result of the increased
percentage of taxpayers filing returns electronically, IRS designed a
detailed business plan to reduce the number of service center campuses
that process paper returns. In fiscal year 2004, Brookhaven became the
first service center campus to downsize its submission processing
function, leading to changes in its operations and a significant
reduction in the volume of taxpayer receipts and information
processed.[Footnote 2] You requested this review in light of these
significant changes in operations and IRS's desire to benefit from the
Brookhaven experience in planning for future submission processing
rampdowns.[Footnote 3] Specifically, you asked us to (1) review the
policies and procedures IRS developed to safeguard and process taxpayer
receipts and information at the modified Brookhaven operation and (2)
offer recommendations, if any, for improving internal controls at
Brookhaven and at other submission processing centers that will undergo
future rampdowns. To accommodate your request, we agreed to add a
review of the mail control function at the Brookhaven service center
campus to our tests of internal controls conducted as part of our audit
of IRS's fiscal year 2004 financial statements.
As you are aware, we have performed extensive work in reviewing
internal controls designed to safeguard taxpayer receipts and
information as part of our annual financial audits of IRS.[Footnote 4]
In performing this work, we have come to recognize the significance and
importance of the submission processing function to IRS and the
potential for loss, theft, or misuse of taxpayer receipts and
information if controls are not properly designed and effectively
implemented. Our audits have identified weaknesses in internal controls
over the safeguarding of taxpayer receipts and information related to
submission processing activities at IRS's service center campuses,
lockbox banks,[Footnote 5] and field offices. In reviewing the
Brookhaven rampdown procedures, we considered the internal control
weaknesses previously found at other service center campuses.
We performed most of our work from May 2004 through October 2004 as
part of our audits of IRS's fiscal years 2004 and 2003 financial
statements, with some additional follow-up work completed in January
2005.[Footnote 6] We designed our tests and inquiries based on results
and findings from our previous years' audits and financial management-
related reviews, taking into consideration differences that may occur
during a nonpeak tax filing season and the nature of Brookhaven's
ramped down operations. We conducted our work in accordance with U.S.
generally accepted government auditing standards. Additional details on
our scope and methodology are included in our fiscal year 2004
financial statement audit report.[Footnote 7]
Results in Brief:
We found that IRS completed the rampdown at Brookhaven without any
significant disruptions in service. However, we did identify several
areas where improvements could be made to internal controls at the
Brookhaven service center campus residual mail processing unit, as well
as to the process for estimating mail volumes. These issues are also
relevant to IRS as it proceeds in ramping down future submission
processing functions.
Specifically, we found the following:
* IRS developed standard operating procedures for employees processing
incoming mail at Brookhaven during the rampdown. However, we found that
these procedures did not include detailed instructions for (1) tracking
taxpayer receipts and information forwarded to other service center
campuses for further processing and (2) handling cash receipts found
during the extraction process. The absence of these instructions
increases the risk that employees with significant internal control
responsibilities over high-risk and vulnerable assets are not aware of
the correct procedures to be followed in safeguarding and processing
taxpayer receipts and information, thereby increasing the risk of their
theft, loss, or misuse.
* Staff at the Brookhaven location did not always follow the required
procedures to safeguard taxpayer receipts and information in its
facilities. We found that (1) access rights allowed to visitors were
not always appropriately restricted; (2) trash, which included taxpayer
information, was not always sufficiently secured; and (3)
candling[Footnote 8] was not always properly performed. The lack of
adherence to IRS's procedures increases the risk of theft, loss, or
misuse of taxpayer receipts and information.
* IRS did not have a documented methodology for estimating post-
rampdown mail volumes at service center campuses selected for
rampdowns. The lack of a documented methodology increases the risk that
adequate mail volume information will not be gathered, maintained, and
appropriately considered as estimates are prepared to assist IRS
management in making decisions related to sites selected for future
rampdowns and assessing their ultimate success.
This report offers three recommendations to assist IRS with
strengthening controls over the safeguarding of taxpayer receipts and
information and preparing for future rampdowns. In its comments, IRS
agreed with our recommendations and described actions that it had taken
or planned to take to address the issues described in this report.
Scope and Methodology:
In conducting our review of the Brookhaven submission processing
function, we did the following:
* Visited the Brookhaven service center campus from May 24 through May
27, 2004, and observed mail operations over taxpayer receipts and
information.
* Conducted interviews with IRS and U.S. Treasury Inspector General for
Tax Administration officials regarding the phaseout of the submission
processing function.
* Gathered and analyzed data outlining IRS's planning and
implementation processes for the Brookhaven rampdown.
* Reviewed data covering fiscal year 2004 mail volumes, IRS's summary
of lessons learned from the rampdown, and strategies for ramping down
future submission processing functions.
Background:
On July 22, 1998, Congress enacted the IRS Restructuring and Reform Act
of 1998 (RRA 98)[Footnote 9] to better balance IRS's responsibility to
collect taxes, protect the rights of taxpayers, and serve the public.
Among other provisions, RRA 98 authorized IRS to encourage the use of
its electronic tax administration programs by taxpayers to reach the
goal of 80 percent of individual tax returns filed electronically by
2007. IRS has strongly encouraged taxpayers to file electronically and
acted to facilitate and support this transition. Although IRS does not
expect to achieve the goal set by RRA 98, substantial progress has been
made. From 1998 to 2004, the volume of paper returns decreased by 30
million returns--from 101 million in 1998 to 71 million in 2004 (over
29 percent). IRS reported that during the 2004 filing season, 47
percent of individual tax returns were filed electronically. As part of
its approach to administering and managing this change in taxpayer
behavior, IRS developed and approved a detailed business plan to
gradually reduce the number of its submission processing functions that
process individual and business tax returns. The plan calls for the
rampdown of a submission processing function every few years until this
function remains at only four service center campuses (SCC). The pace
of implementation depends on the public's continued migration from
paper to electronically filed returns.
Prior to rampdown, Brookhaven performed functions generally similar to
the other 9 IRS SCCs in the processing of taxpayer receipts and
information. All 10 SCCs also managed taxpayer accounts and compliance
programs. The functions performed by SCCs included (1) opening,
sorting, and extracting mail; (2) depositing payments; (3) posting data
to IRS's financial management systems; and (4) reconciling deposits to
deposit information maintained at the Department of the Treasury's
Financial Management Service. In connection with the Brookhaven
rampdown, IRS instructed taxpayers and tax preparers who previously
submitted their returns to the Brookhaven SCC to instead send their
returns, payments, or both to other specifically designated locations.
Despite IRS's instructions designating other locations to which returns
were to be sent, some taxpayers continue to mail tax returns and
receipts to the Brookhaven location. Mail arriving at the Brookhaven
SCC, including some taxpayer returns, payments, correspondence,
notices, and mail returned to IRS as undeliverable, is now handled by a
newly created unit within Brookhaven, the Accounts Management Mail
Unit. This unit is tasked with the goal of timely performing the
initial mail processing, including extracting, dating and recording,
sorting, and candling. The receipts and tax returns are then forwarded
overnight to either the Andover or Cincinnati SCCs for further
processing, depending on the type of return involved.[Footnote 10]
No Major Disruptions in Brookhaven Operations during Its Submission
Processing Rampdown:
During fiscal year 2004, IRS implemented its rampdown of the Brookhaven
SCC submission processing function with no major disruptions in
service. As part of this success, the Brookhaven SCC exceeded its goal
of sending taxpayer receipts and returns for further processing to
either of the two other designated SCCs within 3 to 5 workdays from
time of receipt in Brookhaven, generally accomplishing this task within
48 hours. IRS's ability to successfully realize its rampdown is
attributable in part to (1) early planning, which began as far back as
1998; (2) initiatives that the personnel office undertook to ensure
minimum impact to the taxpayers and IRS's employees; and (3)
involvement of the necessary business divisions, offices, units, and
managers from its functional areas, including operations,
communications, infrastructure (i.e., equipment and real estate), and
personnel.
IRS's planning efforts were critical because the rampdown had a
dramatic impact on Brookhaven SCC operations and its personnel. For
example, the rampdown necessitated the agency's first reduction in
force,[Footnote 11] affecting more than 2,700 employees previously
assigned to the campus's submission processing function. Of those
employees, 664 were actually laid off. The remaining employees were
reassigned to other jobs, took advantage of voluntary retirement or
separation incentives, or resigned from their jobs. As of January 2005,
127 employees were assigned to processing incoming mail in the
Brookhaven Accounts Management Mail Unit.
IRS continues to plan for future rampdowns[Footnote 12] through the
following strategies: (1) gaining consensus from its managers and
employees on how to approach future rampdowns, (2) identifying areas of
improvement based on the implementation of the Brookhaven SCC rampdown,
(3) documenting and evaluating common consolidating themes and lessons
learned, and (4) incorporating those lessons learned into future
rampdown implementation plans. As IRS proceeds with the implementation
of its detailed business plan to reduce the number of SCCs that process
paper returns, it is critical that effective internal controls are
maintained to deal with the unique risks entailed in the changing
submission processing environment.
Certain Procedures Could Be Strengthened as IRS Pursues Future
Rampdowns:
While we want to emphasize that IRS's rampdown of the Brookhaven
submission processing function was achieved with no major service
disruptions, our review identified certain matters that should be
addressed to provide for better safeguarding of taxpayer receipts and
information and better efficiency in the processing and monitoring of
residual returns and receipts at Brookhaven and at future rampdown
locations. Specifically, we identified three areas where IRS's
procedures could be strengthened: (1) instructions and guidance to
staff processing mail, (2) adherence to existing management controls,
and (3) procedures for estimating future mail volume data. Each of
these areas is relevant to operations at other SCCs and to IRS's
success as it proceeds with future rampdowns.
Instructions and Guidance to Staff Processing Mail:
Recognizing the change required in the Brookhaven Accounts Management
Mail Unit operations to process residual returns and receipts received
during and after the rampdown, IRS developed specific standard
operating procedures (SOP) to instruct and guide mail room staff. We
noted that the SOPs could be strengthened by including specific
instructions for (1) monitoring document transmittals after receipts
and tax returns were forwarded to another SCC for final processing and
(2) processing cash discovered during the extraction process. The
absence of such instructions in the Brookhaven SOPs increases the risk
that employees are not familiar with how to safeguard, process, and
account for taxpayer receipts and information. We did note that
instructions related to these two areas did exist in various sections
of IRS's Internal Revenue Manual (IRM)[Footnote 13] related to
submission processing. However, the Brookhaven SOPs that were used to
guide staff on a daily basis were silent on these tasks and did not
contain a reference to these requirements in the IRM.
Specifically, the SOP that outlines the procedures for preparing and
mailing taxpayer receipts and information received between SCCs did not
include instructions for the Accounts Management Mail Unit to timely
verify that taxpayer receipts and information it had sent to other SCCs
had been received in their entirety by the receiving SCCs. While we
found instructions in the IRM addressing the monitoring of document
transmittals used to mail items between IRS locations, these
instructions were not available or referred to in the SOP. For
instance, according to the Case Processing section of the IRM, IRS
staff sending taxpayer receipts, returns, and information to SCCs are
required to establish a control to ensure that the contents of packages
were received. The IRM states that the receiving SCC must acknowledge
receipt of package contents within 5 workdays. If no acknowledgment is
received, the sender must initiate follow-up within 10 workdays.
However, similar procedures for the Accounts Management Mail Unit staff
were not outlined or mentioned in the SOP. Neither the IRM's Case
Processing section nor the SOP includes instructions for matching
receipt acknowledgments to the original list of contents sent. Without
these controls, the risk is increased that lost documents will not be
promptly identified and affected taxpayers alerted timely.
Illustrating this issue, during our site visit to the Brookhaven SCC,
we found a basket in the Accounts Management Mail Unit that contained
several weeks of acknowledged document transmittals from the Andover
and Cincinnati SCCs that had not yet been matched to the original
document transmittals. Without timely matching of the original copies
of the document transmittals to the acknowledged ones, IRS management
could not be timely assured that documents or packages (including
payments and returns) sent from the Brookhaven SCC actually reached
their destinations. While Brookhaven staff stated that e-mails were
received from the designated SCCs, the e-mails only acknowledged
receipt of the packages and not the full extent of their contents.
We also found that the SOPs did not include guidance on the processing
of cash discovered during the extraction process. While the IRM
contains detailed guidance for handling cash discovered during
extraction, these instructions were not outlined or referred to in the
SOP. Cash is not commonly used by taxpayers to make payments through
the mail; however, we have observed cash payments submitted by
taxpayers through the mail in prior audits. Consequently, because
employees do not have clear guidance regarding the handling of cash,
the risk is increased that such cash might be lost or misappropriated.
During our review, we were informed that IRS plans to add the SOPs used
by the Brookhaven Accounts Management Mail Unit to its IRM. The IRM
will then be the general guide used for all other Accounts Management
Mail Unit operations created as IRS continues with its plans for future
submission processing consolidations.
Adherence to Existing Management Controls:
During our visit to Brookhaven, we tested selected controls intended to
safeguard taxpayer receipts and information. As agreed with IRS, our
visit took place in May 2004, a nonpeak period during which mail volume
was lower and less processing was observed. Nonetheless, we found three
instances where IRS employees did not adhere to the policies and
procedures IRS currently has in place.
* IRS requires that individuals inside any restricted area wear badges
indicating access was granted. Such badges are to be worn only while in
these areas and are required to be relinquished upon departure.
However, after leaving a secured area, we were mistakenly given other
badges with access rights to secured areas.
* According to IRS standards, taxpayer data and related information no
longer needed must be destroyed through a secure process such as
shredding. While these items are awaiting destruction, IRS must protect
the items from improper disclosure. However, we observed sensitive
waste containing taxpayer information, such as undeliverable mail,
computer screen printouts, and photo copies of incorrect document
transmittals, stored on a loading dock in an unlocked container for
periods of up to 2 weeks prior to disposal.[Footnote 14] While the
loading dock was within a secured perimeter, employees, contractors,
and visitors allowed in this area could have gained unauthorized access
to this sensitive information.
* To prevent the accidental destruction of taxpayer receipts and
information, IRS requires that emptied envelopes be candled twice
before destruction to ascertain that all contents were removed.
However, we observed one IRS employee who did not run the envelopes
over the light source to complete the first candling.
Although the lack of adherence to these policies and procedures created
no major disruption in service or hindrance to IRS's processing of mail
received at the Brookhaven SCC, it increases the risk that taxpayer
receipts and information will be unnecessarily exposed to potential
loss, theft, or misuse.
Procedures for Estimating Mail Volume Data:
IRS's plan to ramp down its submission processing function is in direct
response to the continuing decline in the volume of paper returns and
receipts filed as taxpayers increasingly migrate to electronic filing.
In effecting a rampdown at a specific SCC, volume of incoming hard-copy
returns and receipts should normally decline dramatically over a short
period of time as taxpayers are instructed to mail these returns and
receipts to other locations. The rapid reduction in the volume of this
type of mail inevitably requires significant changes in operating
procedures and staffing levels. Detailed procedures documenting how to
accumulate and utilize mail volume data are thus necessary to better
enable IRS to estimate post-rampdown volume and measure the rampdown's
success. However, during our review, we did not find a documented
methodology for estimating mail volumes that was tailored to encompass
the dramatic changes in mail volume precipitated by a rampdown.
Each year, IRS develops an annual plan that estimates the numbers and
types of returns and receipts to be filed at each SCC during the
upcoming tax filing season. This process considers such factors as
prior years' experience and processing, legislative, and budget
changes. These estimates are used to assist IRS in determining the
staffing needs of each SCC during routine operations when mail volume
levels are relatively stable. However, this process is not designed to
provide for the dramatically lower mail volumes expected in a rampdown.
For example, according to IRS, during fiscal year 2002, Brookhaven
processed about 26.8 million pieces of mail. In contrast, during fiscal
year 2004, Brookhaven processed about 3.4 million pieces of mail, a
decrease of over 87 percent from its pre-rampdown level.
In reviewing the mail volume data maintained at the Brookhaven SCC
after its rampdown, which included estimates and actual pieces of mail
received, we found that staff were not provided with a methodology to
assist them in compiling Brookhaven's post-rampdown mail volume
estimates. The lack of a documented methodology for estimating mail
volume data at SCCs selected for a rampdown could affect IRS's ability
to develop sound and reliable mail volume estimates that can be used as
a tool to assist in implementing and assessing the success of future
rampdowns. This increases the risk that IRS management will not have
reliable data available to effectively manage its resources during and
after each rampdown or to evaluate its success.
Conclusions:
IRS succeeded in ramping down the submission processing function at the
Brookhaven SCC without any major disruption of operations. The
completion of such a significant restructuring of a large and complex
operation like an SCC without major service disruptions is a notable
accomplishment. Nonetheless, opportunities exist for IRS to enhance its
internal controls over the safeguarding of hard-copy taxpayer receipts
and information at Brookhaven and future rampdown locations. IRS will
inevitably experience similarly significant changes in mail volume at
other SCCs as it proceeds with implementing its detailed business plan.
To maximize the benefit IRS realizes from its Brookhaven experience
will require a systematic, documented approach to analyzing and
utilizing mail volume information and effectively applying it to
planning for and assessing the success of future rampdowns.
Recommendations for Executive Action:
To address the issues we have raised in this report to assist in both
strengthening controls at the Brookhaven SCC and in the planning and
implementation of future SCC rampdowns, we recommend that IRS do the
following:
* Revise the Accounts Management Mail Unit procedures, scheduled to be
incorporated into the IRM, to include detailed instructions for (1)
monitoring transshipped documents and (2) handling cash receipts found
during extraction. Where adequate guidance exists elsewhere, IRS should
include these through cross-references.
* Enforce adherence to existing instructions on safeguarding taxpayer
receipts and information, such as securing access and candling
procedures, at SCCs selected for significant reductions in their
submission processing functions.
* Document a methodology for estimating anticipated rapid changes in
mail volume at future SCCs selected for significant reductions in their
submission processing functions, taking into consideration factors such
as the prior rampdown experience at Brookhaven.
Agency Comments:
We received written comments on a draft of this report from IRS's
Commissioner. In commenting on our draft report, IRS's Commissioner
agreed with our recommendations and described actions that the agency
had taken or planned to take to improve the planning, procedures, and
residual work processes associated with future rampdowns. The IRS
Commissioner's comments are reproduced in their entirety in the
enclosure to this report.
This report contains recommendations to you. We would appreciate
receiving a description and status of your corrective actions within 30
days of the date of this report.
This report is intended for use by the management of IRS. We are
sending copies to the Chairmen and Ranking Minority Members of the
Senate Committee on Appropriations; Senate Committee on Finance; Senate
Committee on Homeland Security and Governmental Affairs; Senate
Committee on the Budget; Subcommittee on Transportation and Treasury
and General Government, Senate Committee on Appropriations;
Subcommittee on Taxation and IRS Oversight, Senate Committee on
Finance; Subcommittee on Oversight of Government Management, the
Federal Workforce, and the District of Columbia, Senate Committee on
Homeland Security and Governmental Affairs; House Committee on
Appropriations; House Committee on Ways and Means; House Committee on
Government Reform; House Committee on the Budget; Subcommittee on
Transportation, Treasury, and Housing and Urban Development, The
Judiciary, District of Columbia, House Committee on Appropriations;
Subcommittee on Government Management, Finance, and Accountability,
House Committee on Government Reform; and Subcommittee on Oversight,
House Committee on Ways and Means. In addition, we are sending copies
of this report to the Chairman and Vice Chairman of the Joint Committee
on Taxation, the Commissioner of Internal Revenue, the Director of the
Office of Management and Budget, the Chairman of the IRS Oversight
Board, and other interested parties. Copies will be made available to
others upon request. In addition, the report is available at no charge
on GAO's Web site at http://www.gao.gov.
We acknowledge and appreciate the cooperation and assistance provided
by IRS officials and staff during our review. If you have any questions
or need assistance in addressing these matters, please contact me at
(202) 512-3406 or sebastians@gao.gov. Key contributors to this
assignment were Charles Fox, Alain Dubois, John Sawyer, and Gary
Wiggins.
Sincerely yours,
Signed by:
Steven J. Sebastian:
Director:
Financial Management and Assurance:
Enclosure:
Comments from the Internal Revenue Service:
DEPARTMENT OF THE TREASURY:
INTERNAL REVENUE SERVICE:
COMMISSIONER:
WASHINGTON, D.C. 20224:
March 8, 2005:
Mr. Steven J. Sebastian:
Director, Financial Management and Assurance:
U.S. Government Accountability Office:
441 G Street, N.W.:
Washington, D.C. 20548:
Dear Mr. Sebastian:
I am responding to your draft report entitled "Management Report.
Review of Controls over Safeguarding Taxpayer Receipts and Information
at the Brookhaven Service Center Campus" (GAO-05-319R). Thank you for
reviewing our procedures for handling and processing receipts and
taxpayer information at the Brookhaven Campus. I believe the
information in your report will assist us in our future ramp down
efforts. I appreciate your recognition that we completed this major
reduction to our submission processing function without disruption to
the public. Accomplishing this ramp down involved intense planning and
implementation efforts from executives, managers, and employees
throughout the IRS organization. Efforts of this scope and complexity
are truly Servicewide team endeavors.
While we are pleased with the successful ramp down, I agree that we
could make improvements in the planning, procedures, and residual work
processes. I agree with each of your recommendations. Responses to your
specific recommendations are enclosed.
I appreciate your willingness to conduct this review at our request. I
know that your thorough review will strengthen our future ramp down
efforts. If you have any questions, please contact Floyd Williams,
Director, Legislative Affairs, at (202) 622-3720.
Sincerely,
Signed by:
Mark W. Everson:
Enclosure:
Recommendation for the Commissioner:
Revise the Accounts Management Mail Unit procedures, scheduled to be
incorporated into the IRM, to include detailed instructions for (1)
monitoring transshipped documents, and (2) handling cash receipts found
during extraction. Where adequate guidance exists elsewhere, IRS should
include these through cross-references.
Response:
In response to GAO's recommendations regarding transshipped documents
and cash receipts, we have submitted a new Internal Revenue Manual
(IRM) update that is scheduled for publication in December 2005. In the
interim, we will continue using the Standard Operating Procedures that
contain detailed information for document transmittals and the
monitoring and control of cash receipts.
Recommendation for the Commissioner:
Enforce adherence to existing instructions on safeguarding taxpayer
receipts and information, such as securing access and candling
procedures, at SCCs selected for significant reductions in their
submission processing functions.
Response:
During the GAO visit, there were three instances identified where IRS
employees did not adhere to the policies and procedures in place for
safeguarding taxpayer receipts and information. These involved: (1)
incorrect badge issuance; (2) failure to properly secure taxpayer data
and related information while awaiting destruction; and (3) inadequate
candling operations. Management in Brookhaven is aware of the cited
problems, and corrective action has been taken to ensure that
applicable employees and managers are fully familiar with the correct
procedures.
With regard to item (1), the employee was counseled at the time of the
occurrence. A meeting was held with security clerks to review badge
procedures. Inventories of badges are now performed after each shift.
To correct item (2), action was taken to ensure that the classified
waste trailer is kept locked when not in use. To address item (3), the
employee was counseled at the time of observation. A meeting was held
with all mail employees to review the candling procedures and reviews
continue to be performed by management.
Recommendation for the Commissioner:
Document a methodology for estimating anticipated rapid changes in mail
volume at future SCCs selected for significant reductions in their
submission processing functions, taking into consideration factors such
as the prior ramp down experience at Brookhaven.
Response:
GAO identified a lack of a documented methodology for estimating the
mail volumes in Brookhaven after the closing of the Submission
Processing (SP) operation at that site. A documented methodology will
be needed in future consolidations to ensure that IRS has reliable data
to effectively manage resources during and after the consolidation
period.
Brookhaven was the first SP site to be closed. In the future, we will
use the historical data from Brookhaven, and any other prior
consolidations, to develop and document our methodology for estimating
future mail volumes.
[End of section]
(196024):
FOOTNOTES
[1] GAO, Financial Audit: IRS's Fiscal Years 2004 and 2003 Financial
Statements, GAO-05-103 (Washington, D.C.: Nov. 10, 2004).
[2] Submission processing is the data processing arm of IRS. These
units process paper and electronic submissions at IRS service center
campuses. This includes depositing tax payments, correcting errors, and
forwarding data to IRS's computing centers for analysis and posting to
taxpayer accounts.
[3] In this report, the term "rampdown" is used to refer to IRS's
significant reduction of its submission processing functions at
selected service center campuses.
[4] GAO, Internal Revenue Service: Status of Recommendations from
Financial Audits and Related Financial Management Reports, GAO-04-523
(Washington, D.C.: Apr. 28, 2004).
[5] Lockbox banks are financial institutions designated as depositories
and financial agents of the U.S. government to perform certain
financial services, including processing tax documents, depositing the
receipts, and then forwarding the documents and data to IRS's service
center campuses, which update taxpayers' accounts.
[6] As agreed, we visited Brookhaven in May 2004 after the peak tax
filing season, which primarily occurs from January 1 through April 15
of each year when most individual tax returns are filed.
[7] GAO-05-103.
[8] Candling is a process used by IRS to determine if any contents
remain in open envelopes. This is often achieved by passing the
envelopes over a light source.
[9] IRS Restructuring and Reform Act of 1998, Pub. L. No. 105-206, 112
Stat. 685 (July 22, 1998).
[10] Individual returns and payments are forwarded to the Andover SCC
and business returns and payments are forwarded to the Cincinnati SCC.
[11] In the federal government, layoffs are called reductions in force.
[12] IRS plans to ramp down the Memphis and Philadelphia submission
processing functions during fiscal years 2005 and 2007, respectively.
[13] The IRM is IRS's internal operating manual that sets forth the
agency's various operating polices and procedures.
[14] IRS officials told us that pickups for these items are normally
scheduled on a biweekly basis.
