Activities of the Treasury Inspector general for Tax Administration
Gao ID: GAO-05-999R September 27, 2005The Department of the Treasury Inspector General for Tax Administration (TIGTA) audits and investigates the Internal Revenue Service's (IRS) operations to (1) promote economy and efficiency and detect and prevent fraud and abuse and (2) recommend actions for improvement. TIGTA was established by the Internal Revenue Service Restructuring and Reform Act of 1998 (IRS Reform Act), which amended the Inspector General Act of 1978 (IG Act), to include an independent inspector general (IG) to provide oversight of IRS's activities, programs, and offices. This report responds to a Congressional request that we review the activities of TIGTA. We are providing information regarding (1) TIGTA's budget and staffing levels; (2) TIGTA's audit and investigative coverage of IRS, including oversight of IRS's offices and identified weaknesses in IRS's operations, and audit coverage of specific requirements of the IRS Reform Act; (3) TIGTA's audit and investigative accomplishments; (4) the quality assurance program, including the results of peer reviews; and (5) the audit follow-up process to track IRS's implementation of TIGTA's audit recommendations.
Over the 5-year period of fiscal years 2000 through 2004, TIGTA's budget authority increased by 14 percent while staff levels decreased by 6 percent. In fiscal year 2004, TIGTA had budget authority of about $130 million and realized authorized full-time equivalent (FTE) staff of 877. In relation to IRS's total federal funds, the budget authority for TIGTA's oversight has steadily declined but is comparable to such ratios for other IG offices. During fiscal year 2004, TIGTA provided audit coverage of IRS through an organizational structure that mirrors IRS's organizational structure and through audit plans that include coverage of IRS's business units, management challenges, and congressionally mandated work. TIGTA's audits provided coverage of the IRS management challenges identified by TIGTA, the high-risk areas designated by us, and mandatory coverage required by the IRS Reform Act. Investigative coverage is provided through TIGTA's investigative mission of addressing employees' integrity, external attempts to corrupt tax administration, and employee and infrastructure security. As a result of its audit and investigative coverage, TIGTA reported that it issued 942 audit reports, addressed 39,611 complaints and allegations, and closed 22,350 investigations over the 5-year period of fiscal years 2000 through 2004. TIGTA claimed financial accomplishments resulting from these audits and investigations of over $16.3 billion, and identified additional potential financial impacts on tax administration of over $50 billion. TIGTA's external peer reviews and internal quality reviews have concluded that TIGTA's quality assurance program provides reasonable assurance that audit reports meet applicable standards. The program includes internal quality reviews of individual audits, internal quality inspections of the Office of Audit, and an external quality peer review of the Office of Audit every 3 years in compliance with government auditing standards. IRS tracks corrective actions on audit recommendations using the Department of the Treasury's Joint Audit Management Enterprise System (JAMES). The system includes audit recommendations from TIGTA, the Department of the Treasury Office of Inspector General, and us. IRS management is responsible for ensuring that corrective actions are taken on audit recommendations that address IRS. For fiscal years 2000 through 2004, JAMES reported that as of May 2005, about 83 percent of all audit recommendations were implemented.
GAO-05-999R, Activities of the Treasury Inspector general for Tax Administration
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September 27, 2005:
The Honorable Charles E. Grassley: Chairman:
The Honorable Max Baucus:
Ranking Minority Member:
Committee on Finance:
United States Senate:
Subject: Activities of the Treasury Inspector General for Tax
Administration:
The Department of the Treasury Inspector General for Tax Administration
(TIGTA) audits and investigates the Internal Revenue Service's (IRS)
operations to (1) promote economy and efficiency and detect and prevent
fraud and abuse and (2) recommend actions for improvement. TIGTA was
established by the Internal Revenue Service Restructuring and Reform
Act of 1998[Footnote 1] (IRS Reform Act), which amended the Inspector
General Act of 1978[Footnote 2] (IG Act), to include an independent
inspector general (IG) to provide oversight of IRS's activities,
programs, and offices.
This report responds to your request that we review the activities of
TIGTA. As discussed with your staff, we are providing information
regarding (1) TIGTA's budget and staffing levels; (2) TIGTA's audit and
investigative coverage of IRS, including oversight of IRS's offices and
identified weaknesses in IRS's operations, and audit coverage of
specific requirements of the IRS Reform Act; (3) TIGTA's audit and
investigative accomplishments; (4) the quality assurance program,
including the results of peer reviews; and (5) the audit follow-up
process to track IRS's implementation of TIGTA's audit recommendations.
Results in Brief:
Over the 5-year period of fiscal years 2000 through 2004, TIGTA's
budget authority increased by 14 percent while staff levels decreased
by 6 percent. In fiscal year 2004, TIGTA had budget authority of about
$130 million and realized authorized full-time equivalent (FTE) staff
of 877. In relation to IRS's total federal funds, the budget authority
for TIGTA's oversight has steadily declined but is comparable to such
ratios for other IG offices.
During fiscal year 2004, TIGTA provided audit coverage of IRS through
an organizational structure that mirrors IRS's organizational structure
and through audit plans that include coverage of IRS's business units,
management challenges, and congressionally mandated work. TIGTA's
audits provided coverage of the IRS management challenges identified by
TIGTA, the high-risk areas designated by us, and mandatory coverage
required by the IRS Reform Act. Investigative coverage is provided
through TIGTA's investigative mission of addressing employees'
integrity, external attempts to corrupt tax administration, and
employee and infrastructure security.
As a result of its audit and investigative coverage, TIGTA reported
that it issued 942 audit reports, addressed 39,611 complaints and
allegations, and closed 22,350 investigations over the 5-year period of
fiscal years 2000 through 2004. TIGTA claimed financial accomplishments
resulting from these audits and investigations of over $16.3 billion,
and identified additional potential financial impacts on tax
administration of over $50 billion.
TIGTA's external peer reviews and internal quality reviews have
concluded that TIGTA's quality assurance program provides reasonable
assurance that audit reports meet applicable standards. The program
includes internal quality reviews of individual audits, internal
quality inspections of the Office of Audit, and an external quality
peer review of the Office of Audit every 3 years in compliance with
government auditing standards.[Footnote 3]
IRS tracks corrective actions on audit recommendations using the
Department of the Treasury's Joint Audit Management Enterprise System
(JAMES). The system includes audit recommendations from TIGTA, the
Department of the Treasury Office of Inspector General, and us. IRS
management is responsible for ensuring that corrective actions are
taken on audit recommendations that address IRS. For fiscal years 2000
through 2004, JAMES reported that as of May 2005, about 83 percent of
all audit recommendations were implemented.
Scope and Methodology:
We obtained the actual budget authority and the staffing levels at
TIGTA,[Footnote 4] and the total federal funds and FTEs at
IRS,[Footnote 5] for fiscal years 2000 through 2004, as reported in the
Budget of the United States Government. We used this information to
identify trends over this period and to compare TIGTA's resources with
overall IRS resources. In addition, we compared the ratio of IG budget
authority with agency budgetary resources[Footnote 6] in fiscal year
2004 for all IG offices for which an IG is appointed by the President
and confirmed by the Senate. For fiscal year 2004 agency budgetary
resources, we used information from the Statement of Budgetary
Resources for each agency reported in the Fiscal Year 2006 Budget of
the United States Government.[Footnote 7] We did not audit or otherwise
verify the budget amounts.
To analyze TIGTA's audit coverage of IRS, we compared the
organizational structures of TIGTA and IRS to analyze coverage of IRS's
offices and missions, obtained copies of completed audits, and reviewed
all audit reports issued by TIGTA during fiscal year 2004. We compared
the subjects and contents of these audit reports with weaknesses at IRS
previously identified by TIGTA and us to determine the extent to which
the known weaknesses were being covered through TIGTA's audits. In
addition, we compared the audit reports with TIGTA's statutorily
mandated coverage of IRS's administration of specific provisions of the
IRS Reform Act. To illustrate the investigative coverage of IRS, we
obtained the number of investigative cases that addressed the mission
areas of TIGTA's Office of Investigations during fiscal year 2004.
We identified the audit and investigative accomplishments reported by
TIGTA in semiannual reports to the Congress for fiscal years 2000
through 2004, and obtained examples of individual reports to
illustrate. We did not audit or otherwise verify the dollar amount of
financial accomplishments reported by TIGTA.
Regarding quality control, we interviewed TIGTA staff and obtained
documentation of TIGTA's quality control process, including the reports
on quality control, internal quality inspections, and external peer
review reports of TIGTA's audit operations. We also interviewed TIGTA
staff regarding the tracking of audit recommendations and obtained
JAMES documentation for audit follow-up, including information about
the percentage of recommendations implemented by IRS.
We performed our audit from March 2005 through August 2005, in
accordance with U.S. generally accepted government auditing standards.
We requested comments on a draft of this report from the Treasury
Inspector General for Tax Administration or his designee. We received
written comments from the Treasury Inspector General for Tax
Administration, which we have reprinted in enclosure IV. We also
received several oral comments offering technical suggestions, which we
have incorporated as appropriate.
Background:
IRS administers America's tax laws and collects the revenues that fund
most government operations and public services. Each year IRS employees
make millions of contacts with American taxpayers and businesses. To
accomplish its mission, IRS focuses its efforts on achieving three key
goals: (1) improving taxpayer service; (2) enhancing enforcement of the
tax law; and (3) modernizing IRS through people, processes, and
technology. For the fiscal year 2004 filing season, IRS reported that
it collected over $2 trillion, processed over 131 million individual
returns, and issued approximately 100 million refunds totaling about
$208 billion.
TIGTA is responsible for the independent oversight of IRS at the
Department of the Treasury. Formed in January 1999 as a result of the
IRS Reform Act, TIGTA is an oversight organization within the
Department of the Treasury in addition to, and independent of, the
Department of the Treasury Office of Inspector General, which was
established by the IG Act Amendments of 1988.[Footnote 8] Both IGs
report directly to the Secretary of the Treasury; however, TIGTA
provides oversight of IRS, and the Treasury IG provides oversight of
the remaining offices at the Department of the Treasury.
Prior to the IRS Reform Act, IRS oversight was provided by the Treasury
IG and the IRS Office of Chief Inspector, also known as the Inspection
Service. Established on October 1, 1951, the Inspection Service was
responsible for carrying out internal audits and investigations to (1)
promote the economic, efficient, and effective administration of the
nation's tax laws; (2) detect and deter fraud and abuse in IRS's
programs and operations; and (3) protect IRS from external attempts to
corrupt or threaten its employees. The Chief Inspector reported to
IRS's Commissioner and Deputy Commissioner and provided information to
the Treasury IG, who included the results of Inspection Service
activities in the Treasury IG's semiannual reports to the Congress.
In 1998 the Senate Committee on Finance concluded that the Office of
Chief Inspector lacked sufficient autonomy from IRS to independently
provide monitoring and oversight activities.[Footnote 9] In addition,
the committee believed that the relationship between the Treasury IG
and the Inspection Service did not foster the appropriate oversight of
IRS. Consequently, to improve the quality and the credibility of IRS's
oversight, TIGTA was established within the Department of the Treasury
to provide independent audits and investigations of IRS.
In addition to the authorities and responsibilities granted under the
IG Act, the IRS Reform Act gives TIGTA the statutory authority to allow
staff to carry firearms, execute and serve search and arrest warrants,
serve subpoenas and summonses, make arrests, and seize property. The
IRS Reform Act also makes taxpayer returns and return information
available for inspection by TIGTA. TIGTA reports to and operates under
the general supervision of the Secretary of the Treasury; however,
neither the Secretary nor any other officer of the Treasury Department
can prevent or prohibit TIGTA from initiating, carrying out, or
completing any audit or investigation, or from issuing a subpoena
during the course of any audit or investigation. In addition, TIGTA is
required to report to the Attorney General whenever there are
reasonable grounds to believe that there has been a violation of
federal criminal law.
Consistent with the IG Act and the IRS Reform Act, TIGTA conducts
audits and investigations of IRS's programs and operations to promote
the economic, efficient, and effective administration of the nation's
tax laws and to detect and deter fraud and abuse in IRS's programs and
operations. TIGTA's primary functional offices are the Office of Audit,
the Office of Investigations, the Office of Information Technology, the
Office of Management Services, and the Office of the Chief Counsel. As
required by the IG Act, TIGTA reports its activities and the results of
audit and investigative efforts in semiannual reports to the Congress
for the periods ending March 31 and September 30 each year. Also, TIGTA
presents specific information in these semiannual reports about IRS's
compliance with provisions of the IRS Reform Act.
TIGTA Budgets and Staffing:
The IRS Reform Act provided that all but 300 of IRS's Inspection
Service FTEs for fiscal year 1998 be transferred to TIGTA. The IRS
Commissioner was allowed to retain up to 300 FTEs to staff an internal
audit function. In addition, 21 FTEs previously transferred from the
Inspection Service to the Treasury IG for oversight of IRS pursuant to
a 1990 memorandum of understanding (MOU) were transferred to the newly
formed TIGTA. As a result, TIGTA realized 932 FTEs and had budget
authority of about $114 million in fiscal year 2000, its first year of
operations. In fiscal year 2004, TIGTA had budget authority of $130
million and realized 877 authorized FTEs. As of September 30, 2004,
TIGTA had 874 staff on board with 317 in the Office of Audit; 432 in
the Office of Investigations; 81 in the Office of Information
Technology; 23 in the Office of Management Services, including the IG;
and 21 in the Office of Chief Counsel.
From fiscal year 2000 through fiscal year 2004, TIGTA's budget
authority increased by 14 percent, from $114 million to $130 million,
while TIGTA's FTEs decreased by 6 percent, from 932 to 877. TIGTA's
increased budget authority occurred mostly in the second year of
operations because of expenses related to establishing an independent
office and the effects of full costing of federal retirements. Since
fiscal year 2001, TIGTA has operated in a relatively unchanged budget
environment while absorbing increases in costs that are largely beyond
TIGTA's control, accompanied by a corresponding reduction in FTEs. For
a comparison, during fiscal years 2000 through 2004, overall IRS's
total federal funds increased by 52 percent and FTEs increased by 1
percent. Therefore, even though they have both increased in recent
years, TIGTA's budget authority as a percentage of IRS's total federal
funds decreased from 0.30 percent to 0.23 percent. (See table 1.)
Table 1: TIGTA's and IRS's Budgets and FTEs for Fiscal Years 2000
through 2004:
[See PDF for image]
Source: Budget of the United States Government.
[End of table]
The comparison of TIGTA's budget authority with IRS's total federal
funds represents the amount provided for IG oversight as it relates to
the amount of budgetary resources received by the agency that it
oversees. When this comparison is made for the other IG offices in
which the IG is appointed by the President and confirmed by the Senate,
the percentages vary depending on the size of the federal agencies,
their missions, and the oversight issues emphasized by each IG office.
Such a comparison for fiscal year 2004 budgets indicates that the ratio
of TIGTA's budget authority to IRS's total federal funds was within the
range of these percentages for other IGs and their agencies. (See enc.
I.) The comparison of IGs' budget authorities and agencies' budgetary
resources ranged from 0.004 percent to 1.03 percent, whereby TIGTA's
percentage of IRS resources was at 0.23 percent, which ranks sixth of
28 agencies. This comparison at IRS does not include the implications
of IRS's main role as the nation's tax collector and the amount of
federal revenue collected by the IRS.
Audit Coverage of IRS:
In fiscal year 2004, TIGTA issued 189 audit reports, which provided
audit coverage of IRS's operating divisions and other units (see enc.
II), as well as the high-risk areas identified by us, management
challenges identified by TIGTA, and audits of IRS's activities mandated
by the IRS Reform Act. This is accomplished through TIGTA's
organizational structure, which has four business units reporting to
the Deputy IG for Audit that are aligned with IRS's operating divisions
and other units, and provide audits of identified risks and
congressionally mandated IRS requirements. (See fig. 1.)
Figure 1: TIGTA Organization Chart:
For example, in fiscal year 2004, TIGTA's Wage and Investment Income
business unit issued 40 audit reports that addressed the IRS Wage and
Investment Division's mission to serve tax filers with wage and
investment income and to help taxpayers understand the tax laws. The
work of this division includes IRS's enforcement of the tax laws, the
processing of taxpayers' returns, and the administration of the Earned
Income Tax Credit and Advanced Earned Income Tax Credit while
minimizing the burden on taxpayers and protecting their privacy.
Also, in fiscal year 2004, TIGTA's Small Business and Corporate
Programs business unit issued 37 audit reports to cover IRS's Small
Business and Self-Employed Division, which serves self-employed
individuals; individual filers with income from rents, royalties,
pensions, annuities, partnerships, estates, and trusts; and small
businesses with assets of up to $10 million. These audits also included
coverage of IRS's Large and Mid-Size Business Division, which serves
businesses with assets of more than $10 million. During fiscal year
2004, TIGTA's audits concentrated on assessing IRS's efforts to provide
quality service while helping taxpayers understand the tax laws,
processing the tax returns, and enforcing compliance with the tax laws.
TIGTA's Headquarters Operations and Exempt Organizations business unit
issued 82 audit reports in fiscal year 2004 to provide coverage of
IRS's Tax-Exempt and Government Entities Division, which serves a wide
range of customers, including small local community organizations,
municipalities, major universities, pension funds, state governments,
Indian tribal governments, and tax-exempt bond issuers.
These audits also provide coverage of IRS's Financial Management and
Operations, IRS's activities in compliance with the Government
Performance and Results Act of 1993,[Footnote 10] the Criminal
Investigation function, and agencywide shared services.
TIGTA's Information Systems business unit issued 30 audit reports to
cover IRS efforts to modernize its core business systems and to provide
high-quality, efficient, and responsible information services for its
operating divisions. In addition, through these audits, TIGTA oversees
the security of information systems, the buildings that house the
systems, and the people who operate them, and assesses IRS's efforts to
manage risks and vulnerabilities throughout its technology
modernization projects.
Audit Coverage of Risks and Mandates:
While TIGTA is organized to provide audits that address IRS's operating
divisions and other units, emphasis is also placed on high-risk areas
identified by us, IRS's management challenges identified by TIGTA, and
mandatory coverage required by the IRS Reform Act. Since 1990, we have
periodically reported on government operations that we have designated
as high risk because of their greater vulnerabilities to fraud, waste,
abuse, and mismanagement. We also identify high-risk areas to focus on
the need for broad-based transformations to address major challenges to
economy, efficiency, or effectiveness.
In January 2003 we identified 25 high-risk areas across government and
added a 26TH high-risk area in July 2003. These areas included IRS's
multibillion-dollar Business Systems Modernization program, financial
management, collection of unpaid taxes, and earned income tax credit
noncompliance. In January 2005 we combined the financial management
area with the systems modernization area into a category titled
"Business Systems Modernization," and combined the earned income credit
noncompliance with the collection of unpaid taxes into a category
titled "Enforcement of Tax Laws.":
The management challenges identified by TIGTA at the beginning of
fiscal year 2004 include the high-risk areas identified by us;
therefore, TIGTA'a audits of management challenges provide coverage of
our identified high-risk areas at IRS.[Footnote 11] (See enc. III.) The
identification of management challenges by the IGs began in 1997 when
the IGs were asked by congressional leaders to identify the 10 most
serious management problems in their respective agencies. This request
began a yearly process that continues as a result of the Reports
Consolidation Act of 2000.[Footnote 12] This act called for executive
agencies, including IRS, to include their IGs' lists of significant
management challenges in their annual performance and accountability
reports to the President, the Office of Management and Budget (OMB),
and the Congress.
Efforts to modernize IRS's systems, mandated by the IRS Reform Act,
began in fiscal year 1999. IRS expects that it will take 10 to 15 years
at a cost of $7 billion to $10 billion. We have recognized the
modernization of IRS's systems as a high-risk area, and TIGTA has
identified this as a management challenge that will require attention
for years to come. TIGTA has also recognized that the integration of
IRS's financial management and performance are management challenges at
IRS by citing the weaknesses we reported in our audits of IRS's
financial statements. These challenges include serious deficiencies in
financial systems, including control weaknesses and system deficiencies
affecting financial reporting, unpaid tax assessments, tax revenue and
refunds, and computer security. In fiscal year 2004, TIGTA completed 15
audits that addressed IRS's systems modernization and 13 audits that
addressed IRS's financial management and performance.
IRS's administration of tax compliance initiatives and taxpayer
protection and rights are also designated by TIGTA as management
challenges. Both of these challenges include the collection of taxes,
which is also a GAO high-risk area. In addition, TIGTA has recognized
improper payments at IRS as a management challenge that includes
taxpayers' noncompliance with the earned income tax credit. To provide
audit coverage of these areas in fiscal year 2004, TIGTA completed 29
audits of tax compliance initiatives along with 17 audits of taxpayers'
protection and rights, which included the collection of unpaid taxes,
and 5 audits that addressed erroneous and improper payments, which
included taxpayers' noncompliance with the earned income tax credit.
TIGTA's fiscal year 2004 audits also covered the statutorily mandated
audits specified in the IRS Reform Act, which requires TIGTA to review
IRS's actions taken to improve service to taxpayers. TIGTA's audit
reports covered the following areas:
* restrictions on the use of enforcement statistics to evaluate IRS
employees,
* any termination or mitigation under section 1203 of the IRS Reform
Act,[Footnote 13]
* information regarding the improper denial of requests for information
from IRS,
* restrictions on directly contacting taxpayers who have indicated they
prefer their representatives be contacted,
* procedures on the filing of a notice of a lien,
* procedures for seizure of property,
* certification that the Treasury Secretary complied with certain
disclosures,
* extensions of the statute of limitations for the assessment and
collection of taxes,
* adequacy and security of IRS technology,
* restrictions on the designation of taxpayers as illegal tax
protesters, and:
* actions with respect to violations of the fair-debt-collection
provisions.
To satisfy additional statutory provisions, TIGTA reported in each
fiscal year 2004 semiannual report the number of taxpayer complaints
during the period and the number of employee misconduct and taxpayer
abuse allegations received by IRS or the IG during the period from
taxpayers, IRS employees, and other sources. In addition, the
semiannual reports included a required summary of the status of such
complaints and allegations as well as their disposition, including any
action by the Department of Justice and any moneys paid as a
settlement.
Investigative Coverage:
As was the case with the audit function, the IRS Reform Act also
transferred the statutory law enforcement authority of the former IRS
Inspection Service to TIGTA and its Office of Investigations. TIGTA has
responsibility for enforcing criminal law related to internal revenue
and focuses investigations on three main areas of concern: (1)
allegations of criminal violations and serious administrative
misconduct by IRS employees; (2) external attempts to corrupt tax
administration; and (3) issues of employee infrastructure and security.
(See fig. 2.) The Office of Investigations' authority includes
executing and serving search and arrest warrants, serving subpoenas and
summonses, making arrests without warrant for any offense against the
United States related to internal revenue laws, and seizing property
subject to foreclosure under IRS laws.
Figure 2: TIGTA's Office of Investigations Closed Investigations by
Investigative Area Reported by TIGTA in Fiscal Year 2004:
[See PDF for image]
[End of figure]
The investigative responsibilities of TIGTA's Office of Investigations
are coordinated with the IRS Criminal Investigation office through an
MOU between TIGTA and the Chief of IRS Criminal Investigation signed in
August 2000. The MOU specifies that IRS Criminal Investigation will
investigate violations of the Internal Revenue Code's substantive
criminal tax provisions, such as attempted evasion, failure to file or
pay, the subscription of false documents, and corrupt endeavors to
obstruct or impede the administration of the tax code. TIGTA has
responsibility to protect IRS against external attempts to corrupt or
threaten IRS employees, including investigations of allegations of IRS
employee conduct violations and other allegations regarding employee
integrity.
During fiscal year 2004, TIGTA reported that it closed 3,900
investigative cases.[Footnote 14] Of these, 1,695 investigations, or 43
percent, addressed employee integrity cases, such as misconduct,
extortion, theft, taxpayer abuses, false statements, and financial and
contractor fraud. For example, because of these investigations, two IRS
employees were indicted for diverting tax refunds to their own
accounts, an employee pleaded guilty to filing fabricated income tax
returns to obtain tax refund payments, and an employee pleaded guilty
to stealing checks payable to IRS and altering them for personal use.
TIGTA reported that 32 percent of closed investigations during fiscal
year 2004, or 1,231 investigations with final referrals, addressed
external attempts to corrupt or interfere with the administration of
internal revenue laws. These external attempts to corrupt or interfere
include bribes offered by taxpayers to compromise IRS employees, the
manipulation of IRS's systems and programs, the use of fraudulent IRS
documentation, and impersonation of IRS officials. Specifically, TIGTA
reported that the Office of Investigations conducted 56 investigations
into bribery allegations involving taxpayers, 280 investigations of
attempts to manipulate IRS's systems and operations, and 895
investigations into nontax fraud and other related activities. To
illustrate, as a result of TIGTA's investigations, an individual was
sentenced for mail fraud because this individual directed clients to
deposit funds for tax purposes into a fund used for the individual's
personal purposes. In addition, individuals were sentenced for bribing
IRS employees and for impersonating IRS employees.
The remaining 25 percent of closed investigations, or 974 investigative
cases with final referrals reported by TIGTA, addressed employee and
infrastructure security to ensure IRS's ability to collect taxes.
Specifically, this includes activities by the Office of Investigations
to identify threats against IRS personnel and facilities and to notify
IRS management of the potential for harm. In addition, TIGTA also
investigates threats and assaults directed at facilities and employees,
which include arresting individuals who direct threatening letters and
statements to IRS employees. Consequently, as reported, TIGTA issued 64
advisories notifying IRS management of potential threats and completed
910 investigations of threats and assaults directed at IRS facilities
and employees.
TIGTA's Accomplishments:
Statutory IGs, including TIGTA, are required by the IG Act to report
specific financial accomplishments in their semiannual reports provided
for the Congress. As required, TIGTA's semiannual reports for fiscal
years 2000 through 2004 included the number of audit reports issued and
the questioned costs, unsupported costs, and funds to be put to better
use identified by the audits. As defined by the IG Act, questioned
costs include either alleged violations of laws, regulations,
contracts, grants, or agreements; costs not supported by adequate
documentation; or the expenditure of funds for an intended purpose that
was unnecessary or unreasonable. In addition, unsupported costs are
defined as costs that do not have adequate documentation, and funds to
be put to better use are inefficiencies identified by the IG in the use
of agency funds. For the 5-year period, TIGTA issued 942 audit reports
and reported $16.1 million in questioned costs, $3.1 million in
unsupported costs, and $16.2 billion in funds to be put to better use.
In an example of questioned costs, TIGTA's follow-up audit of controls
over IRS's telecommunications costs found that about $2.2 million of
questioned costs had been identified by IRS based on TIGTA's prior
findings of ineffective controls. In an example of unsupported costs,
TIGTA audited four invoices from the IRS business systems modernization
contract and found approximately $9.5 million of these costs
unsupported by documentation from the contractor. After TIGTA's audit
report draft was issued, the contractor provided documentation to
support all but approximately $52,000 of the $9.5 million originally
questioned. In an example of funds to be put to better use, TIGTA
recommended that IRS reduce the amount of underused office space, which
could save about $84 million per year.
In addition to the audit accomplishments, during the same 5-year
period, TIGTA reported that 39,611 complaints and allegations were
addressed and that 22,350 investigative cases were closed. This
activity resulted in the reported recovery of about $17.5 million of
embezzled or stolen funds and almost $80 million in court-ordered
fines, penalties, and restitutions. In addition, reported nonmonetary
investigative accomplishments included almost 10,000 criminal
referrals--of which about 1,700 were accepted for prosecution by the
Department of Justice or state or local authorities--and administrative
dispositions on 3,805 investigations, which included removal,
termination of employment or suspension, reduction in grade, written or
oral reprimand, or resignation of the employee. The combined financial
accomplishments from audits and investigations reported by TIGTA over
the 5-year period totaled about $16.3 billion.
In addition to the audit information required by the IG Act, TIGTA's
Office of Audit has identified measures that demonstrate additional
potential financial impact on tax administration. These accomplishments
are intended to provide further insights into the value and potential
impact of TIGTA's audits and include increases in the collection of
additional taxes, improvements to revenue protection and taxpayer
privacy, correction of inefficient uses of resources, needed
protections of human and capital assets, and correction of problems
with the reliability of management information. To illustrate, TIGTA
estimated that by improving the controls to ensure that tax returns
with potential transfer pricing[Footnote 15] issues are referred to
international examiners for consideration, federal revenue could
increase by approximately $32.3 million annually, provided that IRS has
the additional resources to examine the returns. For the 5-year period
we reviewed, TIGTA reported over $50 billion of these additional
potential financial impacts.
TIGTA Quality Assurance Program:
TIGTA's quality assurance program includes a quality review of
individual audit reports, internal quality inspections to monitor the
quality of audits, and external quality peer reviews. Specifically, the
IG Act requires federal IGs to follow Government Auditing Standards,
which requires an appropriate internal quality control system and an
external peer review every 3 years. These standards specify that
quality control systems should include procedures for monitoring, on an
ongoing basis, whether the policies and procedures related to the
standards are suitably designed and are being effectively applied.
To comply with the quality assurance standard, TIGTA's Office of
Management and Policy uses a standardized checklist to review all draft
audit reports prior to issuance. This review addresses audit scope,
finding attributes, the sufficiency and relevancy of findings in
comparison to the audit objectives, the adequacy of recommendations to
address identified causes, audit sampling methodology, and quantifiable
outcome measures. In addition, the review provides assurance of general
compliance with professional auditing standards; conformance with TIGTA
report format; clarity of information; and conformance with rules for
grammar, punctuation, and style.
TIGTA also performs quality assurance through internal quality
inspections of each of its four business units once every 3 years. In
these inspections, each business unit is assigned responsibility for
conducting the inspection of another business unit and reporting to the
Deputy IG for Audit on the results. The checklist used in this review
includes steps derived from the quality assurance process of the
President's Council on Integrity and Efficiency (PCIE)[Footnote 16] and
guidance from Government Auditing Standards. The checklist has
questions that address staff qualifications, independence, professional
judgment, independent referencing, audit planning, sampling plans,
supervision, evidence, work papers, internal controls, illegal acts,
noncompliance, abuse, and reporting.
Two internal inspections of TIGTA's business units have been completed,
and two are planned for the audit activities covering fiscal years 2004
and 2005. The reviews of the Headquarters Operations and Exempt
Organizations unit and the Wage and Investment Income unit found that
the audits conducted by these business units were completed in
compliance with U.S. generally accepted government auditing standards.
In addition, the reports concluded that audit staff generally complied
with Office of Audit policies and procedures. The review did find
instances in which the audit teams could more closely follow policies
and procedures and reported TIGTA's planned actions to address the
review's conclusions.
TIGTA has obtained two external peer reviews from other IG offices
since fiscal year 2000 and obtained an unqualified opinion in each
review. These external quality control reviews provide TIGTA with an
independent opinion on the quality control system, whether the system
is in place and operating effectively, and whether the policies and
applicable audit standards are being followed. The Transportation IG
performed the most recent external peer review of TIGTA. The peer
review report, dated January 22, 2004, concluded that the quality
control system for the audit function had been designed in accordance
with quality standards established by PCIE. The peer review report
further states that TIGTA's quality control system provides reasonable
assurance of material compliance with professional auditing standards
in conducting its audits. The report also identifies opportunities for
TIGTA to strengthen compliance with its quality control system for the
conduct of audits. The peer review observations include aspects of
continuing professional education, quality control, audit planning,
evidence and work papers, the assessment of management controls, and
audit reporting.
Audit Follow-up:
The Department of the Treasury tracks audit recommendations through the
JAMES. JAMES includes all audit recommendations from TIGTA, the
Treasury IG, and us on the basis of information provided by the
auditors, and tracks the status of management's response and
implementation. Treasury's process for tracking audit recommendations
is consistent with OMB Circular No. A-50, Audit Follow Up, which states
that audit follow-up on recommendations contained in audit reports is
an integral part of good management and is a shared responsibility of
agency management officials and auditors. In addition, each agency is
required to establish a system to ensure the prompt and proper
resolution and implementation of audit recommendations.
The IG Act also requires that semiannual reports prepared by the IGs,
including those of TIGTA, provide an identification of each significant
recommendation described in previous semiannual reports for which
corrective action has not been completed. In addition, Government
Auditing Standards requires that audit plans include a consideration of
the results of previous audits that could affect the current audit
objectives and follow-up on known significant findings and
recommendations.
Under OMB Circular No. A-50, IRS management is responsible for
completing plans for corrective actions to address audit
recommendations and for ensuring that corrective action is taken in
response to each audit report. Each TIGTA business unit has a staff
member who is a JAMES user with the ability to query the system and
provide feedback on the status of individual open or closed audit
report recommendations. TIGTA's semiannual reports include the status
of prior audit recommendations as required by the IG Act. Moreover, in
compliance with government auditing standards, TIGTA officials stated
that subsequent audits follow up on prior audit recommendations. During
fiscal years 2000 through 2004, JAMES reported that of 2,912 corrective
actions planned by IRS management to address TIGTA's audit
recommendations, 2,625, or approximately 90 percent, were closed
because IRS agreed to adopt the recommendations. Of these closed
recommendations, JAMES reported that about 83 percent have been fully
implemented.
Agency Comments:
In written comments on a draft of this report, the Treasury Inspector
General for Tax Administration generally concurred with the report
contents. TIGTA staff separately offered several oral comments for
clarification purposes. We considered each of the suggestions and
incorporated changes as appropriate.
As agreed with your offices, unless you announce its contents earlier,
we plan no further distribution of this report until 30 days after its
date. At that time, we will send copies to the Secretary of the
Treasury, the Commissioner of Internal Revenue, the Treasury Inspector
General for Tax Administration, the Deputy Director for Management of
the Office of Management and Budget, other congressional committees,
and interested parties. In addition, this report will be available at
no charge on the GAO Web site at http://www.gao.gov.
If you have any questions or would like to discuss this report, please
contact me at (202) 512-9471 or franzelj@gao.gov. Contact points for
our Offices of Congressional Relations and Public Affairs may be found
on the last page of this report. Key contributors to this report were
Jackson W. Hufnagle, Assistant Director, and Clarence Whitt.
Signed by:
Jeanette M. Franzel:
Director:
Financial Management and Assurance:
Enclosures - 4:
Enclosure I:
A Comparison of Inspectors General's Budget Authority and Agencies'
Budgetary Resources, Fiscal Year 2004:
[See PDF for image]
Source: Budget of the United States Government, Fiscal Year 2006.
[A] Corporation for National and Community Service's fiscal year 2006
congressional budget justification.
[B] IRS's total federal funds.
[C] Amounts for the TVA Inspector General are fiscal year 2005
estimates.
[D] Gross Fund Authority.
[E] Department of Labor totals exclude Pension Benefit Guaranty
Corporation.
[F] Railroad Retirement Board fiscal year 2004 Performance and
Accountability Report.
[G] Includes budget authority to combat Medicare fraud.
[H] Treasury's agency budgetary resources exclude IRS and include
interest on Treasury debt securities.
[I] Central Intelligence Agency and IG budgets are not available.
[End of table]
[End of section]
Enclosure II:
Internal Revenue Service Organization:
The Internal Revenue Service's (IRS) four business divisions have
missions directed at groups of taxpayers. (See fig. 3.) The Wage and
Investment Division serves filers with wage and investment income; (2)
the Small Business and Self-Employed Division serves self-employed
individuals, individual filers with income from rents, royalties,
pensions, annuities, partnerships, estates, and trusts, and small
businesses with assets up to $10 million; (3) the Large and Mid-Size
Business Division serves businesses with assets of more than $10
million; and (4) the Tax-Exempt and Government Entities Division serves
small local community organizations, municipalities, major
universities, pension funds, state governments, Indian tribal
governments, and tax-exempt bond issuers. Along with the Criminal
Investigation unit, these divisions report to the Deputy Commissioner
for Services and Enforcement.
Figure 3: IRS Organization:
[See PDF for image]
[End of figure]
Additional IRS offices report to the IRS Commissioner, including the
Office of Appeals, which resolves tax controversies between taxpayers
and IRS without litigation; the Taxpayer Advocate Service, headed by
the National Taxpayer Advocate, which helps taxpayers resolve problems
that have not been resolved through normal IRS channels and recommends
changes to the Congress to improve the tax system; and Operations
Support and other offices that support IRS activities.
Enclosure III:
Coverage of High-Risk Areas and Management Challenges in Fiscal Year
2004 TIGTA Audit Reports:
[See PDF for image]
Sources: GAO's 2003 and 2005 High Risk Series, and TIGTA's fiscal year
2004 audit reports.
[A] GAO, High-Risk Series: An Update, GAO-05-207 (Washington, D.C.:
January 2005).
[B] GAO, High-Risk Series: An Update, GAO-03-119 (Washington, D.C.:
January 2003).
[C] Department of the Treasury, Performance and Accountability Report
FY 2004.
[D] The Department of the Treasury Inspector General for Tax
Administration.
[E] Contract audits performed for TIGTA by the Defense Contract Audit
Agency.
[End of table]
Enclosure IV:
Comments from the Department of the Treasury:
DEPARTMENT OF THE TREASURY:
INSPECTOR GENERAL for TAX ADMINISTRATION: WASHINGTON, D.C. 20005:
September 14, 2005:
Ms. Jeanette M. Franzel:
Director:
Financial Management and Assurance:
U.S. Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Dear Ms. Franzel:
This is the Treasury Inspector General for Tax Administration (TIGTA)
response to the Government Accountability Office (GAO) draft report,
"Activities of the Treasury IG for Tax Administration," Report Number
GAO-06-18R.
I appreciate your conducting a thorough and comprehensive review of
many of TIGTA's activities. We are proud of our accomplishments and are
pleased that the GAO report documents several of the successes we have
achieved.
According to my staff, the GAO staff assigned to this review were
professional and fair, which resulted in a balanced and accurate draft
report. We generally concur with the contents of the draft report. Ms.
Patricia Greiner of my staff has contacted Mr. Jack Hufnagle of GAO to
discuss some of our comments and suggestions to correct some technical
inaccuracies in the report.
If you have any questions or need additional information, please
contact me or Ms. Greiner at (202) 622-8482. Once again, thank you for
reviewing TIGTA, and I look forward to continuing to work with GAO to
achieve our mutual goal of improving performance and accountability in
the Federal Government.
Sincerely,
Signed by:
J. Russell George:
Inspector General:
[End of section]
(194504):
FOOTNOTES
[1] Pub. L. No. 105-206, 112 Stat. 685, 705 (July 22, 1998).
[2] Pub. L. No. 95-452, 92 Stat. 1101 (Oct. 12, 1978) (codified, as
amended, at 5 U.S.C. App.)
[3] GAO, Government Auditing Standards, GAO-03-673G (Washington, D.C.:
June 2003).
[4] Office of Management and Budget, Budget of the United States
Government, Appendix (Washington, D.C.: Government Printing Office)
Fiscal Years 2002-2006.
[5] Office of Management and Budget, Budget of the United States
Government, Analytical Perspectives (Washington, D.C.: Government
Printing Office) Fiscal Years 2002-2006.
[6] Agency budgetary resources are those amounts available to enter
into new obligations and to liquidate them, and are made up of new
budget authority (including direct spending authority provided in
existing statute and obligation limitations) and unobligated balances
of budget authority provided in previous years.
[7] Office of Management and Budget, Budget of the United States
Government, Supplemental Information (Washington, D.C.: Government
Printing Office) Fiscal Year 2006.
[8] Pub. L. No. 100-504, 102 Stat. 2515 (Oct. 18, 1988).
[9] S. Rep. No. 105-174 (1998).
[10] Pub. L. No. 103-62, 107 Stat. 285 (Aug. 3, 1993).
[11] GAO and TIGTA maintain ongoing coordination of high-risk audit
efforts.
[12] Pub. L. No. 106-531, 114 Stat. 2537 (Nov. 22, 2000).
[13] In general, the IRS Commissioner shall terminate the employment of
any IRS employee if there is a final administrative or judicial
determination that in the performance of official duties, such employee
committed any misconduct violations outlined in the act.
[14] TIGTA recognizes investigative cases as closed after they are
referred for final action. This may include referrals to the Department
of Justice, state or local jurisdictions, or IRS.
[15] Transfer pricing is a term commonly used to describe pricing
arrangements for exchanging goods, services, and other property between
related entities or affiliates of multinational businesses with
operations in the United States and other countries.
[16] PCIE is an interagency council composed principally of the
presidentially appointed and Senate-confirmed IGs, which is governed by
Executive Order No. 12805 of May 11, 1992, to coordinate and enhance
the work of the IGs.
