Tax Debt Collection
IRS Needs to Complete Steps to Help Ensure Contracting Out Achieves Desired Results and Best Use of Federal Resources Gao ID: GAO-06-1065 September 29, 2006In 2005, the inventory of tax debt with collection potential had grown to $132 billion. The Internal Revenue Service (IRS) has not pursued some tax debt because of limited resources and higher priorities. Congress has authorized IRS to contract with private collection agencies (PCA) to help collect tax debts. IRS has developed a Private Debt Collection (PDC) program to start with a limited implementation in September 2006 and fuller implementation in January 2008. As requested, GAO is reporting whether (1) IRS addressed critical success factors before limited implementation, (2) IRS will assess lessons learned before fuller implementation, and (3) IRS's planned study will help determine if using PCAs is the best use of federal funds.
IRS made major progress in addressing the 5 critical success factors and 17 related subfactors for the PDC program before sending cases to PCAs. GAO reviewed program documents and interviewed officials to identify IRS's approaches and steps taken to address the factors. Taken together, IRS's actions were intended to ensure that the PCAs will be able to do the job and work the range of cases assigned, IRS will have the necessary resources and caseload ready, and taxpayer rights and data will be protected. Even with this progress, IRS has not completed work for three subfactors--setting results-oriented goals and measures, determining all PDC program costs, and evaluating the program based on the results-oriented goals and measures, once they are established. As a result, IRS risks not providing complete information that decision makers would find useful. Finishing work on the factors could help achieve but cannot guarantee program success, which also depends, in part, on how IRS addresses the factors and identifies and resolves any problems in the limited implementation phase. Although IRS officials indicated that a purpose of the limited implementation phase is to assure readiness for full implementation to up to 12 PCAs, IRS has not yet documented how it will identify and use the lessons learned to ensure that each critical success factor is addressed before expanding the program starting in January 2008. Because program success will be affected by how well IRS makes adjustments, assessing the lessons learned in limited implementation is critical. Also, IRS has not documented criteria that it will use to determine whether the limited implementation performance warrants program expansion. IRS officials indicated that they are considering criteria that could trigger a go/no go decision, such as the amount of taxes collected and indications of PCAs abusing taxpayers or misusing taxpayer data. IRS has not decided on whether these targets will include comparing the taxes collected to program costs, which was a key reason for canceling a 1996 PCA pilot program. Finally, IRS will have a little more than a half year to identify the lessons learned before incorporating them into the next contract solicitation, which IRS intends to release in March 2007. Related to such decisions on expansion is IRS's planned comparative study of using PCAs. That study is to compare using PCAs to investing IRS's PDC-related operating costs into having IRS staff work IRS's "next best" collection cases. Under the documented study design, IRS would exclude the fees paid to PCAs from the costs and subtract those fees from the tax debts collected by PCAs. While such a study might produce useful information, it will not compare the results of using PCAs with the results IRS could get if given the same amount of resources, including the fees to be paid to PCAs, to use in what IRS officials would judge to be the best way to meet tax collection goals. Adequately designing and implementing the study is important to ensure policymakers are aware of the true costs of contracting with PCAs and know whether PCAs offer the best use of federal funds.
RecommendationsOur 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:GAO-06-1065, Tax Debt Collection: IRS Needs to Complete Steps to Help Ensure Contracting Out Achieves Desired Results and Best Use of Federal Resources
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Report to the Committee on Finance, U.S. Senate:
United States Government Accountability Office:
GAO:
September 2006:
Tax Debt Collection:
IRS Needs to Complete Steps to Help Ensure Contracting Out Achieves
Desired Results and Best Use of Federal Resources:
Tax Debt Collection:
GAO-06-1065:
GAO Highlights:
Highlights of GAO-06-1065, a report to the Committee on Finance, U.S.
Senate
Why GAO Did This Study:
In 2005, the inventory of tax debt with collection potential had grown
to $132 billion. The Internal Revenue Service (IRS) has not pursued
some tax debt because of limited resources and higher priorities.
Congress has authorized IRS to contract with private collection
agencies (PCA) to help collect tax debts. IRS has developed a Private
Debt Collection (PDC) program to start with a limited implementation in
September 2006 and fuller implementation in January 2008. As requested,
GAO is reporting whether (1) IRS addressed critical success factors
before limited implementation, (2) IRS will assess lessons learned
before fuller implementation, and (3) IRS‘s planned study will help
determine if using PCAs is the best use of federal funds.
What GAO Found:
IRS made major progress in addressing the 5 critical success factors
and 17 related subfactors for the PDC program before sending cases to
PCAs. GAO reviewed program documents and interviewed officials to
identify IRS‘s approaches and steps taken to address the factors. Taken
together, IRS‘s actions were intended to ensure that the PCAs will be
able to do the job and work the range of cases assigned, IRS will have
the necessary resources and caseload ready, and taxpayer rights and
data will be protected. Even with this progress, IRS has not completed
work for three subfactors”setting results-oriented goals and measures,
determining all PDC program costs, and evaluating the program based on
the results-oriented goals and measures, once they are established. As
a result, IRS risks not providing complete information that decision
makers would find useful. Finishing work on the factors could help
achieve but cannot guarantee program success, which also depends, in
part, on how IRS addresses the factors and identifies and resolves any
problems in the limited implementation phase.
Although IRS officials indicated that a purpose of the limited
implementation phase is to assure readiness for full implementation to
up to 12 PCAs, IRS has not yet documented how it will identify and use
the lessons learned to ensure that each critical success factor is
addressed before expanding the program starting in January 2008.
Because program success will be affected by how well IRS makes
adjustments, assessing the lessons learned in limited implementation is
critical. Also, IRS has not documented criteria that it will use to
determine whether the limited implementation performance warrants
program expansion. IRS officials indicated that they are considering
criteria that could trigger a go/no go decision, such as the amount of
taxes collected and indications of PCAs abusing taxpayers or misusing
taxpayer data. IRS has not decided on whether these targets will
include comparing the taxes collected to program costs, which was a key
reason for canceling a 1996 PCA pilot program. Finally, IRS will have a
little more than a half year to identify the lessons learned before
incorporating them into the next contract solicitation, which IRS
intends to release in March 2007.
Related to such decisions on expansion is IRS‘s planned comparative
study of using PCAs. That study is to compare using PCAs to investing
IRS‘s PDC-related operating costs into having IRS staff work IRS‘s
’next best“ collection cases. Under the documented study design, IRS
would exclude the fees paid to PCAs from the costs and subtract those
fees from the tax debts collected by PCAs. While such a study might
produce useful information, it will not compare the results of using
PCAs with the results IRS could get if given the same amount of
resources, including the fees to be paid to PCAs, to use in what IRS
officials would judge to be the best way to meet tax collection goals.
Adequately designing and implementing the study is important to ensure
policymakers are aware of the true costs of contracting with PCAs and
know whether PCAs offer the best use of federal funds.
What GAO Recommends:
GAO recommends that IRS complete establishing for the PDC program: (1)
results-oriented goals and measures; (2) reliable, verifiable costs,
(3) evaluation plans, and (4) criteria and processes for assessing the
program before deciding whether to expand it. GAO also recommends that
IRS ensure that its study reports all PDC costs and the best use of
those federal funds.
In commenting on a report draft, IRS agreed with GAO‘s recommendations
and outlined some actions it has initiated to respond to some of them.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-1065].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Michael Brostek at (202)
512-9110 or brostekm@gao.gov.
[End of Section]
Contents:
Letter:
Background:
Results:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Briefing on the IRS Private Debt Collection Program:
Appendix II: Scope and Methodology:
Appendix III: Selected Data Related to IRS's Expectations for Elements
of the Private Debt Collection Program:
Appendix IV: Proposed Private Debt Collection Program Performance
Measures and Goals for Fiscal Year 2007:
Appendix V: Comments from the Internal Revenue Service:
Appendix VI: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Critical Success Factors and Related Subfactors for
Contracting with PCAs for Tax Debt Collection:
Table 2: Extent to Which IRS Has Taken Steps to Address the Critical
Success Factors and Related Subfactors for Contracting for Tax Debt
Collection as of September 15, 2006:
United States Government Accountability Office:
Washington, DC 20548:
September 29, 2006:
The Honorable Charles E. Grassley:
Chairman:
The Honorable Max Baucus:
Ranking Minority Member:
Committee on Finance:
United States Senate:
Each year, the federal government does not collect billions of dollars
of delinquent taxes. At the end of fiscal year 2005, the Internal
Revenue Service's (IRS) inventory of delinquent tax debt with some
collection potential was $132 billion (up from $122 billion in the
previous year). Because of inadequate resources to deal with the
workload and the need to work higher priority cases, IRS has shelved or
delayed collection on billions of dollars of delinquent taxes due since
1999. In addition, voluntary compliance may be undermined to the extent
taxpayers become aware that IRS is unable to collect taxes due.
Because of concerns about, and congressional consideration of,
proposals that IRS use private collection agencies (PCA) to help
collect more of the growing tax debt inventory, in May 2004 we issued a
report on IRS's efforts to plan for a Private Debt Collection (PDC)
program.[Footnote 1] We identified 5 critical success factors and 17
related subfactors that should be addressed to help ensure that a PDC
program achieves desired results and recommended that after gaining
some experience with PCAs, IRS do a study to compare the use of PCAs to
another collection strategy that IRS officials determine to be the most
effective and efficient overall way of achieving collection goals.
In October 2004, Congress authorized PDC contracting authority in the
American Jobs Creation Act of 2004.[Footnote 2] Based on that
authority, IRS has contracted with 3 PCAs as part of a planned limited
implementation phase that started with delinquent tax cases being
turned over to the PCAs on September 7, 2006, and has plans to expand
the program, beginning in January 2008, eventually to up to 12 PCAs.
However, members of Congress, the National Treasury Employees Union,
the National Taxpayer Advocate, and others continue to raise concerns
about IRS using PCAs, such as the potential for misuse of taxpayer
data, taxpayer mistreatment, or higher costs and lower effectiveness
when compared to hiring more IRS employees.
Given our 2004 report and these concerns, you asked that we answer
these questions:
* To what extent will IRS have addressed the critical success factors
before turning over collection cases to PCAs for the limited
implementation phase?
* How will IRS use the lessons learned from the limited implementation
phase to assess critical success factors and program performance before
full program implementation?
* Is the design of IRS's planned study of using PCAs adequate to
provide useful information to help determine whether contracting is the
best use of federal funds for achieving tax collection goals?
To answer these questions, we reviewed available IRS documents and
interviewed responsible IRS officials to identify the steps taken. For
example, to determine the extent to which IRS has addressed the
critical success factors before sending cases for the limited
implementation phase, we sought documentation on IRS's steps taken to
address each of the 17 subfactors. For areas such as the contracting
process, information systems, and cost tracking, we used generally
accepted criteria. We focused on whether IRS would complete the steps
to address each subfactor. We did not test or otherwise evaluate how
well IRS's actions would work or address the factors. Appendix I
summarizes the results of our work for each of the subfactors as well
as the results of our work on the other two questions through a series
of briefing slides. Appendix II offers more details on our scope and
methodology overall. We did our work from August 2005 to September 2006
in accordance with generally accepted government auditing standards.
Background:
IRS has two major programs to collect tax debts. First, IRS staff in
the telephone function may attempt collection over the phone or in
writing. Second, if more in-depth collection action is required, field
collection staff may visit delinquent taxpayers at their homes or
businesses as well as contact them by telephone and mail. Under certain
circumstances, IRS staff can initiate enforced collection action, such
as recording liens on taxpayer property and sending notices to levy
taxpayer wages, bank accounts, and other financial assets held by third
parties. Field collection staff also can be authorized to seize other
taxpayer assets to satisfy the tax debt. However, as we have previously
reported, IRS has deferred collection action on billions of dollars of
delinquent tax debt and, until recently, IRS collection program
performance indicators have declined, in part because of higher
workload in other priority areas and unbudgeted cost increases (such as
for rent or pay).[Footnote 3] Although IRS data indicate that trends in
collections have shown some improvements, the enforcement of the tax
laws--including the collection of unpaid taxes--remains one of GAO's
"high-risk" areas of government.[Footnote 4]
To help address the growing tax debt inventory and declines in IRS's
tax collection efforts, the Department of the Treasury proposed that
Congress authorize IRS to use PCAs to help collect tax debts for
simpler types of cases, paying them out of a revolving fund of tax
revenues that they collect. IRS officials said that this proposal
arose, in part, because of the belief that Congress was not likely to
provide the increased budget to hire enough IRS staff to work the
inventory of collection cases.
In 2004, Congress authorized IRS to use PCAs to take certain defined
steps to collect tax debts--including locating taxpayers, requesting
full payment of the tax debt or offering taxpayers installment
agreements if full payment cannot be made, and obtaining financial
information from taxpayers. PCAs are to have limited authorities and
are not to adjust the amount of tax debts or to use enforcement powers
to collect the debts, which are inherently governmental functions that
are to be performed by IRS employees. IRS is authorized to pay PCAs up
to 25 percent of the amount of tax debts collected and retain another
25 percent of taxes collected to fund IRS collection enforcement
activities.
IRS initially envisions using PCAs on simpler cases that have no need
for IRS enforcement action and that involve individual taxpayers that
(1) filed tax returns showing taxes due but did not pay all those taxes
and (2) made three or more voluntary payments to satisfy an additional
tax assessed by IRS but have stopped the payments. To start, IRS plans
to send cases to PCAs that have not recently been worked by IRS because
of their lower priority, such as cases set aside because of inadequate
IRS resources to work them or those in the queue to be worked but not
yet assigned to IRS staff. After gaining some experience, IRS plans to
expand the types of cases to be sent to PCAs to include those
unassigned cases that IRS staff now may work, including those in which
IRS attempts to find taxpayers that appeared to not file required tax
returns, according to IRS officials.
IRS first attempted to contract collections with a pilot test in 1996
but abandoned the effort, in part, because the $3.1 million collected
fell below the $4.1 million in direct costs plus the $17 million in
lost revenues from using IRS staff to work on the pilot test rather
than collect taxes. Also, limitations in IRS's computer systems and
ability to transfer data hampered efforts to send appropriate cases to
PCAs.[Footnote 5]
The current PDC program differs from the 1996 pilot because IRS will
require PCAs to try to resolve collection cases within guidelines
rather than just remind taxpayers of their debt, will pay PCAs a
percentage of dollars they collect rather than a fixed fee, and will
electronically send and protect taxpayer data rather than send the
cases manually. Appendix III provides some data and information about
the PDC program in terms of costs, projected tax revenue to be
collected, staffing, and cases to be sent to PCAs.
Our 2004 report identified and validated five critical success factors
for contracting with PCAs to collect tax debt. Table 1 describes the
critical success factors and their related subfactors.
Table 1: Critical Success Factors and Related Subfactors for
Contracting with PCAs for Tax Debt Collection:
Critical success factor: Results orientation;
Related subfactors:
* Determine expected program goals, costs, and overall results for
contracting with PCAs;
* Establish contract provisions and operational expectations,
measurable PCA performance evaluation standards, and PCA rewards and
disincentives based on performance and ensure that the government
agency and PCAs have a common understanding of these elements;
* Give PCAs as much freedom as practical on how to achieve performance
goals;
* Use a contracting process that will help ensure that PCAs selected
are able to meet operational and performance expectations.
Critical success factor: Agency resources;
Related subfactors:
* Provide sufficient staffs to do work associated with contracting with
PCAs, including administrative functions, contract oversight, and
working collection cases referred back by the PCAs;
* Have management commitment to using PCAs;
* Ensure that PCA employees receive appropriate training on such areas
as taxes and case-handling procedures;
* Ensure that computer systems will allow data to be exchanged
electronically between PCAs and the government agency and that payments
will be tracked and accounts updated;
* Be aware of and control costs of functions related to contracting.
Critical success factor: Workload;
Related subfactors:
* Select the appropriate type and volume of cases for PCAs to work on;
* Ensure that contractors work on the range of cases that they are
assigned in terms of ease of collection and amounts due;
* Provide PCAs appropriate, accurate information on taxpayers and
accounts.
Critical success factor: Taxpayer issues;
Related subfactors:
* Ensure that taxpayers are treated properly by PCAs;
* Ensure the security of taxpayer information provided to PCAs.
Critical success factor: Evaluation;
Related subfactors:
* Perform ongoing monitoring of PCAs in various aspects of operations
and performance expectations;
* Measure PCAs' performance in light of performance standards and
distribute rewards/disincentives;
* Evaluate whether the program meets its goals and expectations and
adjust the program as needed.
Source: GAO analysis of selected GAO reports and interviews with
officials from selected state and federal agencies and PCA firms.
[End of table]
To identify the critical success factors, we reviewed reports on
contracting and interviewed parties with experience in contracting for
debt collection, such as officials from 11 states, the Department of
the Treasury's Financial Management Service, the Department of
Education, and three PCA firms that IRS selected as subject matter
experts for the program. To corroborate the factors, we interviewed
officials from IRS who were developing the PDC program, the IRS Office
of Taxpayer Advocate, and the National Treasury Employees Union, which
represents IRS employees. As a validation tool, we asked for comments
on our draft list of factors from those whom we consulted to identify
the factors as well as from officials at four additional PCA firms. We
made changes based on their comments where appropriate.
After receiving authority to use PCAs in 2004, IRS had planned to issue
task orders to three PCAs in January 2006 as part of a limited
implementation phase running through December 2007. However, IRS was
delayed by a lawsuit and bid protest filed by certain PCAs to challenge
IRS's request for and evaluation of bids from PCAs. Specifically:
* IRS issued a Request for Quotations (RFQ) to solicit debt collection
services for the PDC program on April 25, 2005, under which IRS would
start sending cases to three PCAs in January 2006. Because of a lawsuit
filed in June 2005, IRS revised and reissued the RFQ on October 14,
2005, with plans to send cases to the PCAs in July 2006.
* IRS selected the three PCAs on March 9, 2006. Because one of the PCAs
that were not selected filed a bid protest later in March
2006,[Footnote 6] IRS stopped working with the three selected PCAs and
pushed back the date to send cases to those PCAs to the August-
September 2006 time frame.
* IRS prevailed in the bid protest in a decision issued on June 14,
2006, allowing it to resume its work with the selected PCAs. IRS sent
cases to the three PCAs on September 7, 2006.
In addition to contracting with PCAs, the PDC program includes IRS's
acquisition and deployment of an information system for automating case
selection and managing the case workload. IRS plans to eventually also
use this system to select and manage the caseloads for its telephone
and field collection functions. IRS had originally planned to deploy
the system with two limited-functionality subreleases concurrent with
the limited implementation phase (in which IRS is contracting with
three PCAs through December 2007) and begin ramping up the number of
contractors (eventually to up to 12) with the third, fully functional
information system subrelease in January 2008. However, IRS officials
said that information systems budget constraints require IRS to change
its information system plan. Although IRS has not yet finalized
decisions on ramping up the number of PCAs and implementing the
information system, the proposed plan IRS officials are considering is
to begin increasing the number PCAs and deploy an interim subrelease
with some enhancements in January 2008, but delay the full-function
subrelease indefinitely.
Results:
As shown in table 2, in preparation for turning over collection cases
to PCAs, as of September 15, 2006, IRS has made major progress in
addressing the 5 critical success factors and 17 related subfactors for
contracting for tax debt collection, but nevertheless has more to do.
Table 2: Extent to Which IRS Has Taken Steps to Address the Critical
Success Factors and Related Subfactors for Contracting for Tax Debt
Collection as of September 15, 2006:
Critical success factor: Results orientation;
Related subfactor: Determine expected program goals, costs, and overall
results;
Status of step(s) to address the subfactor: Complete: [Empty];
Status of step(s) to address the subfactor: Partial: X.
Critical success factor: Results orientation;
Related subfactor: Establish contract provisions, operational
expectations, and standards;
Status of step(s) to address the subfactor: Complete: X;
Status of step(s) to address the subfactor: Partial: [Empty].
Critical success factor: Results orientation;
Related subfactor: Give PCAs freedom to achieve performance goals;
Status of step(s) to address the subfactor: Complete: X;
Status of step(s) to address the subfactor: Partial: [Empty].
Critical success factor: Results orientation;
Related subfactor: Use a contracting process for selecting PCAs to meet
expectations;
Status of step(s) to address the subfactor: Complete: X;
Status of step(s) to address the subfactor: Partial: [Empty].
Critical success factor: Agency resources;
Related subfactor: Provide sufficient staffs to do contract-related
work;
Status of step(s) to address the subfactor: Complete: X;
Status of step(s) to address the subfactor: Partial: [Empty].
Critical success factor: Agency resources;
Related subfactor: Have management commitment to using PCAs;
Status of step(s) to address the subfactor: Complete: X;
Status of step(s) to address the subfactor: Partial: [Empty].
Critical success factor: Agency resources;
Related subfactor: Ensure appropriate PCA employee training;
Status of step(s) to address the subfactor: Complete: X;
Status of step(s) to address the subfactor: Partial: [Empty].
Critical success factor: Agency resources; Related subfactor: Ensure
computer systems can exchange data, track payments, and update
accounts;
Status of step(s) to address the subfactor: Complete: X;
Status of step(s) to address the subfactor: Partial: [Empty].
Critical success factor: Agency resources;
Related subfactor: Be aware of and control costs of functions related
to contracting;
Status of step(s) to address the subfactor: Complete: [Empty];
Status of step(s) to address the subfactor: Partial: X.
Critical success factor: Workload;
Related subfactor: Select the appropriate type and volume of cases;
Status of step(s) to address the subfactor: Complete: X;
Status of step(s) to address the subfactor: Partial: [Empty].
Critical success factor: Workload;
Related subfactor: Ensure that contractors work the range of cases;
Status of step(s) to address the subfactor: Complete: X;
Status of step(s) to address the subfactor: Partial: [Empty].
Critical success factor: Workload;
Related subfactor: Provide PCAs appropriate and accurate information;
Status of step(s) to address the subfactor: Complete: X;
Status of step(s) to address the subfactor: Partial: [Empty].
Critical success factor: Taxpayer issues;
Related subfactor: Ensure that taxpayers are treated properly;
Status of step(s) to address the subfactor: Complete: X;
Status of step(s) to address the subfactor: Partial: [Empty].
Critical success factor: Taxpayer issues;
Related subfactor: Ensure the security of taxpayer information;
Status of step(s) to address the subfactor: Complete: X;
Status of step(s) to address the subfactor: Partial: [Empty].
Critical success factor: Evaluation;
Related subfactor: Perform ongoing monitoring of PCAs;
Status of step(s) to address the subfactor: Complete: X;
Status of step(s) to address the subfactor: Partial: [Empty].
Critical success factor: Evaluation;
Related subfactor: Measure PCAs' performance and distribute rewards/
disincentives;
Status of step(s) to address the subfactor: Complete: X;
Status of step(s) to address the subfactor: Partial: [Empty].
Critical success factor: Evaluation;
Related subfactor: Evaluate whether program meets goals and
expectations, make adjustments;
Status of step(s) to address the subfactor: Complete: [Empty];
Status of step(s) to address the subfactor: Partial: X.
Source: GAO analysis of IRS's data.
Note: Our analysis was not to determine the adequacy of IRS's actions
to address the critical success factors and subfactors, but rather to
determine whether IRS had completed steps to address the various
factors.
[End of table]
IRS has completed steps to address 14 of the 17 subfactors. Although
IRS has taken steps on the remaining 3 subfactors, IRS still has work
to do to complete addressing them. For example, IRS had not yet
documented all of its specific goals[Footnote 7] and related measures
to orient and evaluate the PDC program in terms of achieving desired
results, such as goals and measures for improving the productivity of
IRS staff. Also, IRS had not determined all historical program costs,
that is, how much IRS has invested to date to develop and implement the
PDC program. Finishing work to address the critical success factors
could help achieve desired results--such as collecting tax debts--but
cannot guarantee success, which depends, in part, on how well IRS
addresses the factors, identifies problems, and resolves problems in
the limited implementation phase.
Although IRS officials indicated that a purpose of the limited
implementation phase is to assure readiness for full implementation,
IRS has not yet documented how it will identify and use the lessons
learned to ensure that each critical success factor is adequately
addressed before expanding the program. Because program success will be
affected by how well IRS identifies and makes needed adjustments to
resolve problems, tracking the lessons learned in the limited
implementation phase is critical. According to IRS officials, during
the limited implementation phase, they plan to collect information to
provide baselines, trends, and a basis for making any necessary
changes. However, officials did not have specifics on how IRS would
ensure all factors had been adequately addressed before moving to full
implementation in January 2008. Also, IRS has not documented criteria
that it will use to determine whether limited implementation phase
performance was sufficient to warrant program expansion. IRS officials
indicated that they plan to further discuss performance criteria that
could trigger a go/no go decision, and might consider criteria such as
the amount of taxes collected and indications of PCAs abusing taxpayers
or misusing taxpayer data. IRS has not decided on whether these targets
will include the amounts of collected taxes compared to program costs,
which was a key reason for canceling the 1996 PCA pilot program.
Finally, IRS will have a little more than a half year to identify the
lessons learned before incorporating them into the solicitation for the
next contract, which IRS intends to release in March 2007 in order to
begin expanding the number of PCAs in January 2008.
IRS has begun work to design a study intended to respond to a
recommendation in our May 2004 report. IRS plans to compare the net
dollars collected through the PDC program (dollars paid by taxpayers
less fees paid to PCAs) to the dollars IRS could expect to collect if
it invested its PDC-related operating costs into having IRS staff work
the "next best" cases under IRS's collection system. IRS is planning to
define the cases it considers to be "next best;" gather data on PCA
cases for 6-12 months; and do two iterations of the study, one in
September 2006 and one in March 2007. In the documented study design,
IRS would exclude the fees paid to PCAs from the costs and subtract
those fees from the tax debts collected by PCAs. While such a study
might produce useful information, it will not meet the intent of our
recommendation. The study would not compare the results of using PCAs
with the results IRS could get if given the same amount of resources,
including the fees to be paid to PCAs (which are to be paid from
federal tax receipts), to use in whatever fashion that officials
determine would best meet tax collection goals.
Appendix I includes more information on the status of IRS's
implementation of the PDC program.
As discussed in more detail below, we are recommending that IRS
complete establishing for the PDC program results-oriented goals and
measures; information on costs; plans for evaluations; and criteria and
process for assessing the critical success factors and program
performance. We also are recommending that IRS ensure that its planned
comparative study of using PCAs informs decision makers of all the
program costs and the best use of those federal funds. In providing
written comments on a draft this report (see app. V) the Commissioner
of Internal Revenue agreed with our recommendations and outlined some
actions IRS has initiated to respond to some of them.
Conclusions:
Although IRS's actions do not guarantee PDC program success, IRS made
significant progress in addressing the 5 critical success factors and
17 related subfactors before sending cases to PCAs for the limited
implementation phase. Taken together, these actions were intended to
achieve such important ends as ensuring that the selected PCAs will be
able to do the job and work the range of cases assigned, that IRS will
have the necessary resources and caseload ready to do its part, and
that taxpayers' rights and data will be protected. Even with this
progress, IRS has not yet completed the related steps that it must take
for 3 subfactors on setting goals and measures, determining all program
costs, and evaluating the program. Having information on whether the
program met its goals and desired results given the program costs would
be critical for policymakers. In addition, IRS lacks clear criteria and
processes for assessing how well it addressed the critical success
factors and whether the program performance warrants expanding the
number of PCAs and turning over more cases to them.
It is understandable that IRS officials have focused on rolling out
this new program and dealing with many pressing concerns such as making
sure that the PCAs are ready and that IRS can do its part, while
delaying work on these three subfactors and on the criteria and
processes for deciding on future program expansion. However, if it
waits too long, IRS risks not having critical information in a timely
and cost-effective manner in order to answer important questions about
whether the PDC program is producing desired results at acceptable
costs and whether the program should be expanded. Having plans to
answer these questions is especially critical now that lawsuit and bid
protest delays have reduced the time that IRS has to collect and
analyze performance data before having to make decisions about
expanding the PDC program. Therefore, it is all the more important that
IRS determine program costs and make decisions about its goals and
measures, evaluation plans, approach to assessing critical success
factors, and program expansion decision criteria as soon as possible.
Related to such decisions on expansion is IRS's planned comparative
study of using PCAs. If this study is not adequately designed and
implemented, policymakers may not be aware of the true costs of
contracting with PCAs--including the fees paid to PCAs. They also would
not be aware of the potential impact of increasing IRS funding, and
thereby miss the opportunity to know whether contracting with PCAs is
the best use of federal funds for meeting tax collection goals.
Recommendations for Executive Action:
To ensure that IRS decision makers will timely have the information
needed to make informed, data-based decisions about the private debt
collection program, we recommend that, as soon as possible, and
certainly before any expansion of the PDC program beyond the initial
round of cases sent to PCAs, the Commissioner of Internal Revenue
complete establishing:
* results-oriented goals and measures for the program based on the best
available information;
* reliable, verifiable information on all the costs of the program, to
the extent possible;
* plans for evaluating the results of the program in terms of expected
costs, goals, and desired results; and:
* clear criteria and processes for assessing how IRS addressed the
critical success factors in the limited implementation phase and
whether PDC program performance warrants program expansion.
We also recommend that, as IRS continues planning its comparative study
of using PCAs, the Commissioner of Internal Revenue ensure that the
study methodology and the IRS reports on the study results will inform
decision makers of the full costs of the PDC program, including the
fees paid to PCAs and the best use of those federal funds.
Agency Comments and Our Evaluation:
The Commissioner of Internal Revenue provided written comments on a
draft of this report in letter dated September 20, 2006 (which is
reprinted with its enclosures in app. V). The Commissioner noted that
he was pleased that our report acknowledges IRS's accomplishments and
steps to protect taxpayer data and rights.[Footnote 8] The Commissioner
also noted that IRS agreed with our recommendations and had initiated
efforts to address them, as discussed below.
Recommendation 1: Establish Results-Oriented Goals and Measures for the
Program Based on the Best Available Information:
IRS agreed with the recommendation. In discussing our draft report with
IRS officials, we clarified that the goals and measures should be
logically linked to IRS's five desired results and that IRS should
document any indirect links and why more direct linkages were not made.
In turn, IRS's letter provided information on such linkages, including
the indirect linkage for the desired result involving increased public
confidence, and provided a revised version of our appendix IV (which we
reprint with the Commissioner's letter in app. V) with columns added to
show the linkages between the desired results and the proposed goals
and measures as they appeared in our draft report. Although we did not
have time to fully review IRS's information, we are gratified to see
that IRS has established some program goals and measures and has made
progress in developing the linkages. We look forward to IRS developing
the related measures and data, such as for reducing the penalties and
interest paid, better utilizing IRS staff, freeing up IRS staff to work
more complex cases, and significantly reducing case backlogs. We also
look forward to IRS identifying specific goals--referred to as
"targets" in IRS's comments--that IRS will strive to achieve beyond
those listed in appendix IV.
Recommendation 2: Establish a System for Tracking All Costs of the
Private Debt Collection Program:
IRS agreed with our recommendation. In response to our draft report,
IRS provided us documentation that it had implemented a system to track
PDC program costs going forward from July 2006. In discussing our draft
report with IRS officials, they said that IRS will face difficulties in
estimating some of the of the PDC program costs incurred before the
tracking system was established. Based on this new information, we
revised our recommendation to state that IRS should complete
establishing verifiable, reliable information on all the costs of the
program, to the extent possible. IRS's comments state that it will
furnish reconstructed historical costs as soon as they are compiled.
Although we look forward to receiving such cost information, we
encourage IRS to use the cost information to manage and evaluate the
PDC program and inform policymakers.
Recommendation 3: Establish Plans for Evaluating the Results of the
Program in Terms of Expected Costs, Goals, and Desired Results:
IRS provided a combined response on this and the last recommendation
dealing with the comparative study (which is discussed below). IRS
agreed with our recommendation to evaluate the program, but did not
provide any additional information on how it plans to do so. We look
forward to IRS establishing and documenting specific plans for
evaluating the program over time and reporting the evaluation results.
Recommendation 4: Establish Clear Criteria and Processes for Assessing
How IRS Addressed the Critical Success Factors in the Limited
Implementation Phase and Whether PDC Program Performance Warrants
Program Expansion:
IRS agreed with this recommendation and noted that its decision on
whether to expand the PCA program will be driven by several factors,
such as the composition of the inventory and cases to be worked by
PCAs, IRS resource capacity, and PCA performance. We look forward to
IRS finalizing and documenting the criteria and processes, which could
consider factors listed in this report, such as PCAs' treatment of
taxpayers and taxpayer data, the tax amounts collected, and the cost of
collecting the taxes. We also look forward to IRS documenting its
criteria and processes for assessing the critical success factors.
Recommendation 5: Ensure the Comparative Study Informs Decision Makers
of All PDC Costs, Including PCA Fees:
In agreeing with this recommendation, IRS noted that it has structured
the study so that data can be analyzed with and without the PCA fees.
In discussing the draft report with IRS officials, the officials said
that the study will include an analysis of the PCA fees as costs, not
as a reduction of gross revenue, and the study will project what IRS
would have collected had those costs been used to fund IRS's collection
program. We look forward to receiving more information on IRS's study
approach and the study results as IRS begins the first study iteration
in September 2006.
As agreed with your offices, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days
from its date. At that time, we will send copies to the Chairman and
Ranking Minority Member, House Committee on Ways and Means; the
Secretary of the Treasury; the Commissioner of Internal Revenue; and
other interested parties. Copies will be made available to others upon
request. This report will also be available at no charge on GAO's Web
site at [Hyperlink, http://www.gao.gov].
If you or your staff have any questions, please contact me at (202) 512-
9110 or brostekm@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 are listed in
appendix VI.
Signed by:
Michael Brostek:
Director, Tax Issues Strategic Issues Team:
[End of section]
Appendix I: Briefing on the IRS Private Debt Collection Program:
Review of IRS Private Debt Collection Program:
Briefing for Senate Committee on Finance:
Review Objectives:
To what extent will the Internal Revenue Service (IRS) have addressed
the critical success factors before turning over collection cases to
private collection agencies (PCA) for the limited implementation phase?
How will IRS use the lessons learned from the limited implementation
phase to assess critical success factors and program performance before
full program implementation?
Is the design of IRS's planned study of using PCAs adequate to provide
useful information to help determine whether contracting is the best
use of federal funds for achieving tax collection goals?
Objective 1: Extent to Which IRS Will Have Addressed the Critical
Success Factors and Subfactors Before Turning Over Cases to PCAs:
In preparation for turning over cases to PCAs for the limited
implementation phase, IRS made major progress in addressing the five
critical success factors. For example, IRS has addressed:
* results orientation issues by establishing expected costs and desired
results for the program;
* agency resources issues by estimating and funding IRS staffing needs
to administer the program in the limited implementation phase;
* workload issues by selecting and analyzing cases to identify the
types that should not be sent to PCAs and make needed changes to case
selection programming before sending the cases;
* taxpayer issues by taking steps to obtain feedback on PICA employees'
treatment of taxpayers, provide taxpayers information on how to contact
the National Taxpayer Advocate, and monitor PCAs' phone calls with
taxpayers; and:
* evaluation issues by planning various ways to monitor PCAs, such as
site reviews of training records and information systems records to
ensure PCAs comply with related requirements.
The extent to which IRS has addressed the critical success factors and
the 17 related subfactors before turning over the cases is summarized
in table 1.
Table 1: The Extent to Which IRS Has Taken Steps to Address the
Critical Success Factors and Related Subfactors for Contracting for Tax
Debt Collection as of September 15, 2006:
Critical success factor: Results orientation;
Related subfactor: Determine expected program goals, costs, and overall
results;
Status of step(s) to address the subfactor: Complete: [Empty];
Status of step(s) to address the subfactor: Partial: X.
Critical success factor: Results orientation;
Related subfactor: Establish contract provisions, operational
expectations, and standards;
Status of step(s) to address the subfactor: Complete: X;
Status of step(s) to address the subfactor: Partial: [Empty].
Critical success factor: Results orientation;
Related subfactor: Give PCAs freedom to achieve performance goals;
Status of step(s) to address the subfactor: Complete: X;
Status of step(s) to address the subfactor: Partial: [Empty].
Critical success factor: Results orientation;
Related subfactor: Use a contracting process for selecting PCAs to meet
expectations;
Status of step(s) to address the subfactor: Complete: X;
Status of step(s) to address the subfactor: Partial: [Empty].
Critical success factor: Agency resources;
Related subfactor: Provide sufficient staffs to do contract-related
work;
Status of step(s) to address the subfactor: Complete: X;
Status of step(s) to address the subfactor: Partial: [Empty].
Critical success factor: Agency resources;
Related subfactor: Have management commitment to using PCAs;
Status of step(s) to address the subfactor: Complete: X;
Status of step(s) to address the subfactor: Partial: [Empty].
Critical success factor: Agency resources;
Related subfactor: Ensure appropriate PCA employee training;
Status of step(s) to address the subfactor: Complete: X;
Status of step(s) to address the subfactor: Partial: [Empty].
Critical success factor: Agency resources; Related subfactor: Ensure
computer systems can exchange data, track payments, and update
accounts;
Status of step(s) to address the subfactor: Complete: X;
Status of step(s) to address the subfactor: Partial: [Empty].
Critical success factor: Agency resources;
Related subfactor: Be aware of and control costs of functions related
to contracting;
Status of step(s) to address the subfactor: Complete: [Empty];
Status of step(s) to address the subfactor: Partial: X.
Critical success factor: Workload;
Related subfactor: Select the appropriate type and volume of cases;
Status of step(s) to address the subfactor: Complete: X;
Status of step(s) to address the subfactor: Partial: [Empty].
Critical success factor: Workload;
Related subfactor: Ensure that contractors work the range of cases;
Status of step(s) to address the subfactor: Complete: X;
Status of step(s) to address the subfactor: Partial: [Empty].
Critical success factor: Workload;
Related subfactor: Provide PCAs appropriate and accurate information;
Status of step(s) to address the subfactor: Complete: X;
Status of step(s) to address the subfactor: Partial: [Empty].
Critical success factor: Taxpayer issues;
Related subfactor: Ensure that taxpayers are treated properly;
Status of step(s) to address the subfactor: Complete: X;
Status of step(s) to address the subfactor: Partial: [Empty].
Critical success factor: Taxpayer issues;
Related subfactor: Ensure the security of taxpayer information;
Status of step(s) to address the subfactor: Complete: X;
Status of step(s) to address the subfactor: Partial: [Empty].
Critical success factor: Evaluation;
Related subfactor: Perform ongoing monitoring of PCAs;
Status of step(s) to address the subfactor: Complete: X;
Status of step(s) to address the subfactor: Partial: [Empty].
Critical success factor: Evaluation;
Related subfactor: Measure PCAs' performance and distribute rewards/
disincentives;
Status of step(s) to address the subfactor: Complete: X;
Status of step(s) to address the subfactor: Partial: [Empty].
Critical success factor: Evaluation;
Related subfactor: Evaluate whether program meets goals and
expectations, make adjustments;
Status of step(s) to address the subfactor: Complete: [Empty];
Status of step(s) to address the subfactor: Partial: X.
Source: GAO analysis.
Note: our analysis was not to determine the adequacy of IRS's actions
to address the critical success factors and subfactors, but rather
whether IRS had completed steps to address the various factors.
[End of table]
As table 1 shows, IRS has taken steps to address all subfactors but has
more to do, as of September 15, 2006. Of the 17 subfactors, IRS has
completed steps to address 14. Although IRS has taken steps to address
the remaining 3 subfactors, IRS still has more work to do to complete
addressing them.
For the three subfactors for which IRS has remaining work, IRS has made
progress but did not yet have:
* results-oriented performance goals and measures for the results IRS
has said will come from the program;
* reliable, verifiable information on all PCA-related costs; and:
* details on when and how evaluations would be done to determine
whether the program met goals and expectations, in part because of a
lack of complete results-oriented program goals and related performance
measures.
The following slides discuss IRS's actions to address each of the 17
subfactors.
Objective 1: Results Orientation Subfactor: Determine Expected Program
Goals, Costs, and Overall Results:
IRS has completed steps to establish expected costs (see app. III) and
desired results for contracting with PCAs.
IRS officials said they had established private debt collection (PDC)
program goals and related measures but were unable to document a
complete list of goals and measures and their approval. Based on our
feedback since March 2006, IRS has been revising these goals and
measures and provided an updated revision in July 2006. Because of
their draft status and late development, we have not fully analyzed
them (app. IV lists the proposed goals and measures) but observed that
not all these proposed measures have goals. Some goals are to be
established based on actual PDC program performance in 2007. IRS
officials said they need to work with the PCAs to establish a PCA
employee satisfaction goal.
We also observed that the proposed measures are not fully linked to the
five desired results for the PDC program (as identified in IRS
documents and officials' statements). Because of the difficulty in
directly making such linkages, using intermediate proxy measures is
acceptable. IRS provided information in August 2006 on which measures
were linked to the desired results but, as of September 15, 2006, had
not yet documented the logic behind the linkages or whether more direct
linkages could be made. Table 2 shows our preliminary observations on
the extent to which the proposed measures link to the desired results.
Table 2: Preliminary Observations and Rationales on Whether IRS's
Proposed PDC Program Measures Link to the Desired Results for
Contracting with PCAs, as of September 15, 2006:
Desired results: Increased revenue;
Preliminary observations and rationales on whether IRS's: Yes; measures
of dollars and percentage collected are linked.
Desired Results: Top quality service to all taxpayers through improved
compliance, fairness, and taxpayer confidence in the tax system;
Preliminary observations and rationales on whether IRS's: Partial; the
case quality measure links to service. Measures of how many PCA cases
have been placed and closed can be linked to improved fairness and
compliance for cases correctly resolved by PCAs. We have not seen a
linkage through these measures or the taxpayer satisfaction survey with
improved taxpayer confidence.
Desired Results: Top quality service to each taxpayer through increased
case closure rates, speed and timeliness of service, handling more
cases earlier, and reducing penalties and interest paid by taxpayers;
Preliminary observations and rationales on whether IRS's: Partial;
measures on PCA case closure rates would link to increased case closure
rates overall. The PCA cycle time measure would show speed and
timeliness improvements if compared to all IRS collection cases. None
of the measures show how more cases will be handled earlier or whether
penalty and interest payments are reduced.
Desired Results: Productivity through a quality work environment,
including better utilization of IRS staff and freeing up IRS staff to
focus on more complex cases;
Preliminary observations and rationales on whether IRS's: Partial; the
measures on PCA staff satisfaction, PCA cases placed, time taken to
close PCA cases, and PCA case quality could be indicators of PCA
productivity but do not clearly link to better utilization or freeing
up of IRS staff.
Desired Results: Significant reduction in the backlog of
delinquent/inactive tax inventory;
Preliminary observations and rationales on whether IRS's: Partial;
measures on PCA cases placed and closed link to backlog reduction but
do not show the percentage of the backlog reduction or whether that
percentage is significant.
Source: GAO analysis.
[End of table]
Our previous work on high-performing organizations has shown that
results-oriented measures are important for allowing organizations to
track the progress they are making toward their goals and give managers
crucial information on which to base their organizational and
management decisions.
Leading organizations recognize that performance measures can create
powerful incentives to influence organizational and individual behavior
and reinforce the connection between the goals outlined in strategic
plans and the day-to-day activities of their managers and staff.
Linking program performance to higher-level goals can provide a clear,
direct understanding of how the achievement of the program's goals will
lead to the achievement of the agency's strategic goals.
We look forward to receiving more information from IRS officials as
they work toward documenting the final, approved PDC program goals and
related performance measures and the measures' linkages to the desired
results.
Objective 1: Results Orientation Subfactor: Establish Contract
Provisions, Operational Expectations, and Measurable Performance
Standards and PICA Rewards and Disincentives:
IRS has completed the tasks to establish contract provisions,
performance standards, operational expectations, and rewards and
disincentives.
The Request for Quotations (RFQ, or contract solicitation) contains key
contract elements of evaluation criteria, performance measurement, and
compensation arrangements.
IRS's review and approval of PCAs' operational plans, IRS meetings with
PCAs in July 2006 and August 2006, and follow-up actions resulting from
these meetings were to help clarify expectations.
Objective 1: Results Orientation Subfactor: Give PCAs Freedom to
Achieve Performance Goals:
IRS has completed tasks intended to ensure PCAs have sufficient freedom
to achieve performance goals. For example, IRS had meetings with the
selected PCAs in July 2006 and August 2006 in part, to go over program
administration and expectations. IRS officials said that the meetings
allowed PCAs an opportunity to point out any restrictions that would
adversely affect their performance.
During development of the program, IRS officials consulted with
selected PCAs and state and federal agencies that had contracted for
debt collection, in part, to ensure IRS's program would be designed to
provide PCAs adequate latitude to achieve goals. For example, IRS's
contract will allow PCAs to vary in their practices, such as the
frequency of attempted contacts with taxpayers, with the intent of
enabling each PCA to utilize its competitive advantage.
Also, IRS provided potential bidders for the PCA contract an
opportunity to review and comment on any restrictions in the draft PCA
procedural requirements. The PCAs provided no comments on the
requirements.
Objective 1: Results Orientation Subfactor: Contracting Process for
Selecting PCAs:
IRS has completed contracting process tasks designed to ensure that the
selected PCAs are able to meet operational and performance
expectations.
IRS sought proposals from preapproved vendors listed in the General
Service Administration's (GSA) Federal Supply Schedule contract for tax
collection services. GSA had already determined that listed vendors
were capable of performing the work. The solicitation contained a
detailed statement of work and required vendors to provide technical,
past performance, and pricing information.
IRS received 33 responsive proposals and evaluated all proposals using
the three criteria specified in the solicitation: (1) relevant
experience and past performance, (2) technical approach, and (3)
management plan. These criteria are commonly used in government
contracting.
IRS selected three vendors to receive PCA contracts. The ninth-ranked
vendor protested the evaluation, but GAO issued a decision on June 14,
2006, denying the protest and upholding the evaluation conducted by
IRS.
Objective 1: Agency Resources Subfactor: Providing Sufficient Staffs to
Do Contract-Related Work:
IRS completed steps to hire the number of staff officials judge to be
sufficient to do PDC contract-related work. Staffs were hired for the
Oversight Unit that will oversee the PCAs (15 staff) and the Referral
Unit that will refer cases to and receive cases from the PCAs (33
staff).
IRS determined its estimated staffing needs based on what it identified
as key workload drivers for similar functions. For example, IRS
considered the workload drivers for the Oversight Unit to be the number
of PCAs, number of teams and locations needed, and span of control (the
number of employees to be supervised).
Objective 1: Agency Resources Subfactor: Have Management Commitment to
Using PCAs:
IRS has completed steps to ensure management commitment. IRS has three
executive-level committees that meet regularly to oversee, coordinate,
and provide guidance for program management, including the Filing and
Payment Compliance Advisory Council and Taxpayer Relationship
Management Executive Steering Committee. The program office also briefs
the IRS Commissioner monthly.
According to IRS officials, these committees serve as a means to inform
IRS executives, including the Commissioner, and provide adequate
assurance and opportunity for feedback on management's commitment to
the PDC program.
IRS officials said the executive briefings would continue throughout
the limited implementation phase.
Objective 1: Agency Resources Subfactor: Ensure Appropriate PICA
Employee Training:
IRS has completed tasks to help ensure appropriate PCA employee
training. For example, IRS developed the training curriculum that
identifies the information that PCAs should use in developing training
for their employees who will handle taxpayers' information.
The RFQ task order requires PCAs to train all their employees before
they begin any taxpayer collection activity, including training on
taxpayer rights and privacy awareness.
The RFQ requires the PCA employees to sign a form certifying that they
completed the required training. The PCA must maintain these forms for
review by IRS upon request.
In response to our preliminary observations, IRS informed the PCAs that
their employees must receive a proficiency score of 70 percent or
better after training before being allowed to work on cases (as do IRS
telephone collection employees) and plans to contractually require this
test score threshold in future RFQs.
IRS plans to monitor PCAs' performance through quality review
assessments to identify trends and gauge training effectiveness. IRS
will use the same quality review process for PCA cases that it uses for
cases worked by its own employees.
Prior to turning over cases to the PCAs, IRS officials did site visits
to monitor initial PCA training sessions to ensure the content and
delivery of training followed PCAs' approved training plans. IRS
officials developed a checklist for monitoring the PCA training.
Objective 1: Agency Resources Subfactor: Ensure Computer Systems Data
Exchange, Payment Tracking, and Account Updating:
IRS has completed the tasks for computer systems data exchange, payment
tracking, and account updating.
IRS's system for tracking payments and updating taxpayer accounts is
the same as that used for other tax payments.
In developing the management information system for handling PCA cases,
IRS completed its system requirements, design, development, and testing
activities in accordance with its approved methodology for acquisition
of information systems.
IRS began its "partial production phase" (a simulated version of the
limited implementation phase using IRS staff rather than PCAs) in
January 2006 to help test processes and procedures.
Before turning cases over to PCAs, IRS tested its capability to
electronically transfer encrypted case files to them.
Objective 1: Agency Resources Subfactor: Be Aware of and Control Costs
of Functions Related to Contracting:
IRS has begun, but not completed, work to determine all the costs of
the PDC program.
Beginning July 2006, IRS has an accounting system that can be used to
track program costs and established codes and procedures to track
private debt collection program costs. However, since prior costs were
not systematically tracked, IRS would have to use available historical
cost data to determine the costs that were incurred prior to systematic
tracking, including such costs as those of planning the program
beginning as far back as October 2001.
IRS officials said they are working to use available data to determine
the historical costs. IRS provided us documentation on some of the
these costs, but without supporting information, it was not possible
for us to assess whether it captured all costs or if the costs provided
were reliable.
Objective 1: Workload Subfactor: Select Appropriate Type and Volume of
Cases for PCAs to Work:
IRS completed work to identify the appropriate type and volume of PCA
cases for the limited implementation phase. IRS identified criteria
intended to avoid sending cases that PCAs should not handle and used
its information system to test the criteria for case selection.
Beginning in January 2006, IRS officials tracked and analyzed the
selected cases to ensure that they were appropriate for PCAs and to
make any necessary changes to case selection programming.
For the limited implementation phase, IRS will turn over to PCAs only
cases that IRS currently is not working, including those "shelved"
because of IRS's inadequate resources to work them and those in the
queue to be worked by IRS employees but not yet assigned. However, in
full implementation, IRS officials said they may assign PCAs unassigned
cases from the various types of cases that IRS employees might work.
To reach case placement and collection goals for the limited
implementation phase, IRS is increasing case age thresholds to 2 years
since the case was put into its current status. IRS officials said they
are planning more changes in the limited implementation phase,
including further increasing case age and dollar thresholds.
The impact of the changes in the age of cases on realizing revenue
collection goals is uncertain. Some evidence suggests that PCAs are
generally less successful as the age of debt increases. However, IRS
officials said that the Financial Management Service within the
Department of Treasury has been successful in using PCAs to collect
debt in this age range.
Objective 1: Workload Subfactor: Ensure Contractors Work the Range of
Cases:
IRS has completed work on this factor with the following procedures:
* the RFQ requires PCAs to mail a letter to each taxpayer within 10
days of receiving a case for cases for which IRS provides a valid
address;
* target PCA reimbursement rates reflect higher compensation for lower-
dollar cases;
* the PCA Policy and Procedures Guide clarifies that PCAs are to
perform searches to locate all taxpayers that do not respond to initial
contacts;
* IRS's quality review procedures include a check that cases are being
worked actively;
* according to IRS officials, IRS plans to analyze these quality review
data and other data reports to identify trends in working different
types of cases; and:
* PCAs are allowed to return accounts after 6 months, and IRS officials
said that before approving returns, they will check whether PCAs had
taken the appropriate collection actions.
Objective 1: Workload Subfactor: Provide PCAs Appropriate, Accurate
Information on Taxpayers and Accounts:
IRS has completed the necessary tasks for this subfactor. According to
IRS officials, the taxpayer and account information to be provided to
PCAs will be the authoritative data from IRS's own records-the most
accurate available to IRS and the data will be updated four times a
week to ensure accuracy.
Objective 1: Taxpayer Issues Subfactor: Ensure Taxpayers Are Treated
Properly by PCAs:
IRS has completed the steps intended to ensure that taxpayers are
treated properly.
IRS has developed procedures to protect taxpayers and to ensure
taxpayers are treated properly, including the following:
* IRS will continue to require all new PCA employees to have background
investigations, photo identifications, and training on taxpayer rights
before they have access to taxpayer information;
* IRS will conduct taxpayer satisfaction surveys;
* IRS will monitor PCAs' compliance through quality reviews of PCAs'
telephone calls and case documents; and:
* IRS developed a formal complaint process for taxpayers to use based
on input and comment from the National Taxpayer Advocate.
IRS completed background investigations and monitoring of PCA
employees' training before turning over cases to PCAs.
Objective 1: Taxpayer Issues Subfactor: Ensure the Security of Taxpayer
Information:
IRS has completed the steps intended to ensure the security of taxpayer
information. For example, IRS completed site visits of the PCAs and
performed its safeguard computer security evaluations.
The PCA contract statement of work addresses security requirements by
referring to compliance with information security guidance and by
requiring minimum system capabilities, such as end-to-end encryption.
Objective 1: Evaluation Subfactor: Perform Ongoing Monitoring of PCAs
in Various Aspects of Operations and Performance Expectations:
As pointed out in our earlier discussion of training, IRS completed
steps to perform the one type of performance monitoring that was to be
done before turning over cases to PCAs: monitoring PCAs' training of
their own employees.
As also discussed earlier, IRS has taken steps to implement various
methods to monitor PCAs' performance in working cases, including:
* PCA scorecard scoring,
* telephone monitoring and case quality reviews, and:
* taxpayer satisfaction surveys.
Objective 1: Evaluation Subfactor: Measure PCAs' Performance and
Distribute Rewards and Disincentives:
IRS's tasks are complete on this subfactor in preparation for turning
cases over to PCAs. As noted earlier, the RFQ (contract solicitation)
contains key contract elements of performance measurement and
compensation arrangements.
Objective 1: Evaluation Subfactor: Evaluate Whether Program Meets Goals
and Expectations, Make Adjustments:
IRS must complete work on program goals and related results-oriented
measures to enable it to evaluate program results. As noted earlier,
IRS officials provided us proposed PDC program goals and related
measures but were unable to document a complete list of goals and
measures and their approval. Also, the proposed goals and measures IRS
provided us were not linked to all the desired results for the PDC
program.
Our previous work has shown that evaluations are critical to ensuring
that programs achieve desired results, government funds are well spent,
and the agencies are held accountable for the performance and
effectiveness of the programs they administer.
As discussed on the next slides, IRS did not have specifics on how it
will assess how critical success subfactors were addressed in the
limited implementation phase. Without such assessments, IRS may lack
information with which to better understand why goals (once they are
established) were or were not achieved and to identify any needed
adjustments.
Objective 2: How IRS Will Use Limited Implementation Lessons Learned to
Assess Critical Success Factors and Performance Before Full
Implementation:
Although IRS officials said that a purpose of the limited
implementation phase is to ensure readiness for full implementation of
the program, it is not clear when IRS will decide, in terms of
addressing critical success factors, if it is ready to proceed with
full implementation. IRS officials said that they intend to establish a
date and performance criteria that would trigger a go/no go decision,
but have delayed such work until after limited implementation starts in
order to finish the tasks that must be done to turn over cases to the
PCAs.
Generally, IRS officials said they will collect information during the
limited implementation phase to establish baselines, identify trends,
and provide a basis for making changes, if needed, to the program.
However, IRS officials could not cite specific circumstances that would
cause IRS to discontinue or delay full implementation of the program.
Officials said that before expanding the program, they would consider a
variety of data or criteria, such as the amounts of collected taxes and
indications of PCAs mistreating taxpayers or misusing tax data. IRS has
not decided whether these targets would include the amounts of
collected taxes compared to program costs, which was a reason for
canceling the 1996 PICA program pilot.
IRS did not have specifics on how and when collected information would
be reviewed to identify and use the lessons learned from the limited
implementation phase to ensure that the critical success factors have
been addressed before IRS expands to full implementation.
IRS's management guidance requires IRS managers to "get behind the
numbers" to determine the reasons for program performance levels. Since
critical success factors may be key to why desired results were or were
not achieved, assessments of critical success factors could provide
information with which IRS can take action to make adjustments to
improve performance.
Specific plans for how and when IRS will make decisions about readiness
on critical success factors and program expansion can help ensure that
IRS has the data it will need in time to make those decisions. Because
of implementation delays caused by a contract award lawsuit and bid
protest, IRS will have 16 instead of 24 months to identify any needed
adjustments and make decisions on expanding the program. For limited
implementation, IRS will have 7 months experience- from September 2006
to March 2007-before issuing its next contract solicitation under its
plans to have more PCAs working more cases by January 2008. As
originally planned, IRS would have rolled out cases in January 2006.
Our previous work has shown that data-based decision making is
important for improving government operations and programs. Collecting
and reviewing data, whether qualitative or quantitative, to help make
decisions about expanding the PDC program will require resources as
well as consideration of how to balance the costs and benefits of the
data collection and review, including the risks of not ensuring that
the critical success factors are adequately addressed or of ill-advised
or premature expansion of the PDC program.
Objective 3: IRS's Planned Study Of Using Pcas:
In the planned comparative study, IRS will compare the net dollars
collected by PCAs to the gross dollars that would be collected if IRS
(1) took no further action on the cases or (2) worked the "next best"
cases in IRS's own telephone collection program with funding equal to
IRS's annual budget for administering the PDC program.
IRS is planning to define the cases it considers to be "next best" and
plans to gather data on PCA cases for 6 to 12 months. IRS plans to do
two iterations of the study, one in September 2006 and one in March
2007.
The study design indicates that IRS will not count the fees paid to
PCAs as program costs. IRS will subtract these fees from the tax debts
collected and report the net dollars collected by PCAs.
For example, if the study found that IRS's PDC program administration
costs were $6 million, PCAs collected $100 million in tax debt, and
PCAs were paid $24 million in fees, the study would compare only the
net $76 million dollars that PCAs collected to all the dollars IRS
could be expected to collect if the $6 million were spent on IRS's
collection program.
Although IRS officials said that data on fees to PCAs-$24 million as
shown in the above hypothetical results-could be made available to
decision makers in the study results, the study plan document is not
clear on that point or whether the total costs of the program, to
include the PCAs' fees, will be made apparent in the study.
While the study may produce useful information, it will not compare the
results of using PCAs with the results IRS could get if it was given
the same amount of resources, including the fees to be paid by the
government to the PCAs. As a result, the IRS study will not meet the
intent of our recommendation. Our previous work has shown that for
informed decision making, agency managers and other stakeholders need
reliable, valid data on the costs of government programs. Economic
principles and government cost analysis criteria suggest that federal
government costs and social costs should be considered in analyzing
programs and policies.
For example, a study that would meet the intent of our recommendation
would compare the dollars collected by PCAs to the dollars that IRS
could be expected to collect if the true costs to the government-such
as the $6 million from the PDC program administration budget plus the
$24 million in PICA fees (which are paid out of federal tax receipts)
as shown in the above hypothetical example-were spent by IRS on working
its next best cases, using the most effective strategy for identifying
and working such cases.
IRS officials said that such a comparison is not realistic because
Congress would not approve such a budget increase. As noted in our 2004
report, IRS officials said that the proposal that Congress authorize
IRS to use PCAs arose, in part, because of the belief that Congress was
not likely to provide the increased budget to hire enough IRS staff to
work on the inventory of collection cases.
IRS's proposed study approach-by netting PCA fees from dollars
collected by PCAs-apparently adopts IRS's assumption about potential
funding increases. However, unless Congress is fully informed on the
true costs of the PDC program, and the potential impact of increasing
collections funding, it will lack key information with which to make
decisions on how federal funds can best be spent to meet tax collection
goals, in concert with other information about trade-offs with other
government programs.
IRS officials stated that supplemental research efforts are being
designed to identify the best use of PCAs among all cases in the
collections inventory. The status and methodologies of these efforts
are not clear because IRS has not yet provided us documents on them.
[End of section]
Appendix II: Scope and Methodology:
To determine to what extent the Internal Revenue Service (IRS)
addressed the critical success factors before turning over collection
cases to the private collection agencies (PCA) we reviewed program
documents and interviewed IRS officials. IRS agreed with the critical
success factors we identified. We identified the approaches/methods IRS
intended to use to address the factors and related subfactors and
identified any steps IRS had remaining to address each factor before
turning over cases to PCAs. We analyzed interviews and documents to
identify any gaps in IRS's approach, such as factors for which IRS
lacked intended approaches/methods to address a factor, documented
plans for completing steps, or details on how intended approaches/
methods would be implemented. For selected subfactors related to areas
for which we had related expertise and readily available criteria
(government acquisition, information technology development and
security, and financial management), we analyzed IRS's program
documents and compared IRS's approach for addressing the subfactor to
the criteria. For example, our information security staff reviewed
IRS's approach for addressing information security issues in light of
Federal Information Security Management Act and National Institute of
Standards and Technology requirements. We did not attempt to analyze
how well IRS addressed the factors or whether IRS made the right
decisions on issues such as PCA employees' training or taxpayer
protections.
To determine how IRS will use the lessons learned from the limited
implementation phase to assess the critical success factors and program
performance before full program implementation, we interviewed IRS
officials and reviewed available agency documents and plans. We focused
on when and how, if at all, IRS would determine whether its approaches/
methods for addressing the factors worked as intended; if program
performance warrants program expansion; and what changes, if any,
should be made before fully implementing the program.
To determine whether IRS's planned approach to study using PCAs will
provide useful information with which to determine if contracting is
the best use of federal funds for achieving tax collection goals, we
reviewed program documents and interviewed officials from IRS supported
by contractor staff assisting them in developing the study.
We used data only as background for reporting and did not formally
assess their reliability. To the extent possible, we corroborated
information from interviews with documentation and, where not possible,
we report the information as attributed to IRS officials. Although we
obtained documentation that IRS had completed steps to address the
critical success subfactors, we did not do detailed verification of the
documents, in part due to the limited time we had between IRS
completing and documenting some steps taken in preparation for turning
the cases over to PCAs on September 7, 2006, and the due date of this
report.
We did our work from August 2005 to September 2006 in accordance with
generally accepted government auditing standards.
[End of section]
Appendix III: Selected Data Related to IRS's Expectations for Elements
of the Private Debt Collection Program:
Element: Revenue collected;
In the limited implementation phase[A]: $55.8 million to $92 million;
In full program implementation (inclusive of limited implementation
phase)[B]: $1.4 billion[C].
Element: Number of IRS staff;
In the limited implementation phase[A]: Referral Unit: 33; Oversight
Unit: 15; Other: 17;
In full program implementation (inclusive of limited implementation
phase)[B]: Referral Unit: 70; Oversight Unit: 35; Other: 15.
Element: Costs[D];
In the limited implementation phase[A]: $61.16 million[E];
In full program implementation (inclusive of limited implementation
phase)[B]: $77.58 million[F].
Element: PCAs contracted;
In the limited implementation phase[A]: 3;
In full program implementation (inclusive of limited implementation
phase)[B]: Up to 12[G].
Element: Case placements;
In the limited implementation phase[A]: 158,000;
In full program implementation (inclusive of limited implementation
phase)[B]: Not available[H].
Element: Dollar value of case placements;
In the limited implementation phase[A]: $615.6 million to $1.01
billion;
In full program implementation (inclusive of limited implementation
phase)[B]: Not available[H].
Source: IRS.
Note: The data are based on IRS's expectations. We did not verify the
data.
[A] Unless otherwise noted, date range is from September 2006 (date of
turning over cases to PCAs) through December 2007.
[B] Unless otherwise noted, date range is from September 2006 (date of
turning over cases to PCAs) through September 30, 2009.
[C] This is a 10-year estimate with no date range provided. According
to IRS officials, this is a Department of Treasury estimate. IRS did
another estimate based on a different methodology for its information
systems investment document which is being revised.
[D] This includes information systems acquisition, maintenance, and IRS
staff costs.
[E] Costs are from IRS's information systems investments document,
which includes costs that precede case rollout and data organized by
information system subrelease with a date range from October 1, 2004,
through May 30, 2007, and is being revised with changes that may affect
program costs.
[F] Costs are from IRS's information systems document, which has cost
data organized by information system subrelease with a date range from
October 1, 2004 through September 30, 2009 and is being revised with
changes that may affect program costs.
[G] No date range was provided. However, IRS officials said they expect
to increase the number of PCAs beginning in January 2008.
[H] IRS officials said that inventory estimates for full implementation
cannot be made until decisions are made about information system
releases.
[End of table]
[End of section]
Appendix IV: Proposed Private Debt Collection Program Performance
Measures and Goals for Fiscal Year 2007:
IRS category: Operations: Cases placed;
Proposed private debt collection program performance measure: Number of
cases placed with PCAs in first 12 months;
Goal: 100,000.
IRS category: Operations: Resolutions;
Proposed private debt collection program performance measure:
Percentage of cases placed with PCAs that are resolved;
Goal: 63.
IRS category: Operations: Recalls;
Proposed private debt collection program performance measure:
Number/percentage of PCA cases recalled to IRS;
Goal: [A].
IRS category: Operations: Not collectible;
Proposed private debt collection program performance measure:
Number/percentage of PCA cases that are deemed currently not
collectible;
Goal: [A].
IRS category: Operations: Bankruptcies and decedents;
Proposed private debt collection program performance measure:
Number/percentage of cases involving bankruptcies or decedents;
Goal: [B].
IRS category: Operations: Cycle time;
Proposed private debt collection program performance measure: PCA time
to close the case;
Goal: [A].
IRS category: Financial: Dollars placed;
Proposed private debt collection program performance measure: Amount of
unpaid tax debts that are placed with PCAs;
Goal: [B].
IRS category: Financial: Collections;
Proposed private debt collection program performance measure: Amount of
unpaid tax debts that are collected;
Goal: [B].
IRS category: Financial: Collection percent;
Proposed private debt collection program performance measure:
Percentage of unpaid tax debts placed with PCAs that is collected;
Goal: 6.
IRS category: Financial: Collections retained by IRS;
Proposed private debt collection program performance measure: Amount of
PCA collections that IRS retains to fund collection enforcement
activities;
Goal: [B].
IRS category: Financial: Full payments;
Proposed private debt collection program performance measure: Cases
closed as fully paid;
Goal: [A].
IRS category: Financial: 3-5 year installment agreements;
Proposed private debt collection program performance measure: Cases
closed with an agreement to satisfy the taxpayer's unpaid tax debt in 3
to 5 years;
Goal: [A].
IRS category: Financial: 5-year installment agreements;
Proposed private debt collection program performance measure: Cases
closed with an agreement to satisfy the taxpayer's unpaid tax debt in
more than 5 years;
Goal: [A].
IRS category: Quality: Taxpayer satisfaction;
Proposed private debt collection program performance measure:
Percentage of surveyed taxpayers responding that they were satisfied;
Goal: 67.5.
IRS category: Quality: IRS employee satisfaction;
Proposed private debt collection program performance measure:
Satisfaction score for IRS employees in PDC program;
Goal: 3.72 of 5.
IRS category: Quality: PCA employee satisfaction;
Proposed private debt collection program performance measure:
Satisfaction score for PCA employees working cases;
Goal: to be set.
IRS category: Quality: Accuracy;
Proposed private debt collection program performance measure: Accuracy
score for PCA cases;
Goal: [C].
IRS category: Quality: Timeliness;
Proposed private debt collection program performance measure:
Timeliness score for PCA cases;
Goal: [C].
IRS category: Quality: Professionalism[D];
Proposed private debt collection program performance measure:
Professionalism score in PCA cases;
Goal: [C].
IRS category: Quality: Complaints;
Proposed private debt collection program performance measure: Verified
major complaints against PCA employees[E];
Goal: 0.
IRS category: Quality: Case quality;
Proposed private debt collection program performance measure: Overall
percentage quality score for cases worked by PCAs;
Goal: 90[F].
Source: IRS information as of September 15, 2006.
[A] Goals will be determined using experiences with PCA cases over the
first year.
[B] Goals will be developed using IRS's revenue projection model.
[C] Goals will be based on those used in the IRS telephone collection
function.
[D] Includes various types behavior of when interacting with taxpayers,
such as promoting a positive image by using effective communication
techniques.
[E] These major complaints could be reported by taxpayers and
government employees and include intimidation, heavy-handed behavior,
or similar activity by a PCA employee (type 2 complaint) or statutory
violations by a PCA employee, such as those of the Taxpayer Bill of
Rights, Fair Debt Collection Practices Act, Privacy Act, taxpayer
information disclosure statutes, or other applicable laws (type 3
complaint).
[F] PDC program officials said this is an approximate goal that could
be revised based on experience in IRS's telephone collection function.
[End of table]
[End of section]
Appendix V: Comments from the Internal Revenue Service:
Department Of The Treasury:
Internal Revenue Service:
Washington, D.C. 20224:
Commissioner:
September 20, 2006:
Mr. Michael Brostek:
Director, Tax Issues Strategic Issues Team:
United States Government Accountability Office:
Washington, DC 20548:
Dear Mr. Brostek:
Thank you for the opportunity to respond to your draft report entitled
"Tax Debt Collection - IRS Needs to Complete Steps to Help Ensure
Contracting Out Achieves Desired Results and Best Use of Federal
Resources," GAO-06-1065.
I am pleased that your report acknowledges the many accomplishments we
have made with this very important project. As you noted, we have made
major progress in addressing the five critical factors for the
successful implementation of the Private Debt Collection (PDC) program.
Although we experienced delays due to contractual issues, we took the
necessary steps to ensure that all actions relating to the transfer of
work to the Private Collection Agencies (PCA) were successfully
completed by August 14, 2006. As a result, the PCAs were prepared to
begin working the assigned cases consistent with our program
guidelines. Additionally, IRS resources were in place to fully support
this program. Most importantly, as acknowledged in your report, we have
taken all steps to ensure that taxpayer data and taxpayer rights are
protected.
We agree with the audit recommendations, which focus on the three
remaining action items. In fact, we have initiated efforts to address
each of these. Our comments on the draft report's specific
recommendations are enclosed.
If you have any questions, please contact me or Kevin Brown,
Commissioner, Small Business/Self-Employed Operating Division, at (202)
622-0600.
Sincerely,
Signed by:
Mark W. Everson:
Enclosure:
Comments of the Internal Revenue Service on the GAO report entitled,
"Tax Debt Collection - IRS Needs to Complete Steps to Help Ensure
Contracting Out Achieves Desired Results and Best Use of Federal
Resources" (GAO-06-1065):
Recommendation 1:
Establish results-oriented goals and measures for the program based on
the best available information.
Response:
We agree that results-oriented goals and measures are necessary to
track the performance of the Private Collection Agencies (PCAs) and to
evaluate the success of the Private Debt Collection (PDC) program. The
following describes each of the overarching results-oriented goals and
the measures to track these goals.
1. A goal of this program is to increase collections of unpaid,
undisputed taxes owed the U.S. government that would not otherwise be
resolved due to IRS resource constraints. Therefore, the IRS will
measure the additional dollars collected. This measure provides a
direct link to the goal.
2. Another goal of this program is to provide top quality service to
all taxpayers through improved compliance, fairness, and taxpayer
confidence in the tax systems. A fundamental premise of this program is
that delinquent tax accounts that otherwise would not be worked will be
resolved and will improve compliance. This, in turn, enhances the
public's confidence in the fairness of the tax system. We recognize
that this premise requires adherence to quality standards for its
success.
To assess this result, we have established a suite of quality measures
as well as operational measures that will include the number of cases
that would not otherwise be worked. While this latter measure is not a
direct measure of "public confidence" it serves as an indirect link. As
noted in discussions with the GAO auditors, it may not be possible to
precisely measure "public confidence" in a cost effective manner.
Therefore, we will use the measures described herein to assess the
desired result for this goal.
3. A third goal of this program is to provide top quality service to
each taxpayer through increased case closure rates, speed and
timelessness of service, handling more cases earlier, and reducing
penalties and interest paid by taxpayers.
To assess this result, the IRS will measure the number of case closures
and the PCA time to close the case. Since these cases would otherwise
remain unworked in the IRS queue, each case assigned is a direct
measure of earlier case handling. The earlier case handling will have a
direct bearing on reducing the penalties and interest paid by
taxpayers. To better quantify penalties and interest, the IRS is
designing a research sampling project to periodically capture the
actual penalty and interest data for PCA cases.
4. A fourth goal of this program is to improve productivity through a
quality work environment, including better utilization of IRS staff and
freeing up IRS staff to focus on more complex cases.
The use of PCAs will allow the IRS to improve productivity by working
additional cases in the queue. The increase in delinquent account
resolutions will be tracked as a direct link to this goal. It should be
noted that the current implementation plans provide for the placement
of cases with PCAs that IRS can not otherwise work due to resource
constraints. Therefore, we do not anticipate that IRS staff will be
freed up to focus on more complex cases in the program's early stages.
If in the future the program is expanded, measures will be established
to track the inventories and types of cases worked by both IRS and PCA
staff.
5. Another goal of this program is to produce a significant reduction
in the backlog of delinquent/inactive tax inventory. Therefore, the IRS
will measure the number of additional cases closed as a result of PCA
efforts. This will provide a direct link to the goal. The IRS will
assess the composition of the inventory and track the specific impact
of PCA closures on that total inventory. It should be noted that a
reduction or increase in delinquent/inactive tax inventory is the
result of many variables, with PCA closures representing but one of the
variables.
Additionally, the IRS has established a suite of private debt
collection program measures with appropriate targets. These measures
are reflected in Appendix IV of the report. We have provided a revised
Appendix IV indicating the linkage between each program performance
measure and the related results-oriented goals (as described above).
These comprehensive results-oriented goals, performance measures, and
targets, are based on the best available information and address this
recommendation.
Recommendation 2:
Establish a system for tracking all costs of the private debt
collection program.
Response:
We agree with this recommendation. The Chief Financial Officer (CFO) of
the IRS has established a system for tracking all costs of the private
debt collection program. The Integrated Financial System (IFS) of the
IRS has been adapted through the establishment of specialized codes to
track and report costs related to the private debt collection
contracts. The CFO's office has taken steps to set up a cost center to
separately track costs related to the PCA program. This tracking system
was implemented in June 2006. Our ability to reconstruct cost
information prior to this date will be limited to actual contract
expenditures and estimates of IRS staff costs. We will furnish the
reconstructed historical costs as soon as compilation is completed.
Recommendation 3:
Establish plans for evaluating the results of the program in terms of
expected costs, goals, and desired results and ensure the comparative
study informs decision makers of all PDC costs, including PCA fees.
Response:
We agree with this recommendation.
In the audit GAO-04-492, Tax Debt Collection, GAO recommended the
following: "If Congress authorizes the use of PCAs, as soon as
practical after experience is gained using PCAs, the IRS Commissioner
should ensure that a study is completed that compares the use of PCAs
to a collection strategy that officials determine to be the most
effective and efficient overall way of achieving collection goals."
The results of the program will be evaluated based on a review of the
results-oriented goals and measures and the cost tracking as identified
in recommendations 1 and 2 above. Additionally, we have implemented
data gathering as part of a cost effectiveness study.
We will perform a thorough analysis of the PDC program's cost
effectiveness and its impact on the collection of delinquent taxes as
part of this study. We have planned to include expenses and receipts
for operating PDC as tracked in our cost accounting system. We have
structured the study so that we will be able to analyze the data with
and without the PCA fees. The analysis of both approaches will yield
useful information.
Recommendation 4:
Establish clear criteria and processes for assessing how IRS addressed
the critical success factors in the limited implementation phase and
whether PDC program performance warrants program expansion.
Response:
The PCA program enables the IRS to supplement its resources to resolve
delinquent tax debts. The statute authorizes the PCA firms to locate
taxpayers,, solicit full payments and prepare payment agreements.
Assessment of the program will be part of a dynamic process driven by
several critical factors. The IRS will be continually evaluating the
composition of the delinquent accounts inventory, identifying cases
appropriate for PCAs, determining IRS resource capacity, and reviewing
PCA performance. Each of these will impact future decisions regarding
whether to expand the PCA program.
Responsible Official:
The Director, Collection, Small Business/Self-Employed Division.
Appendix IV: Proposed Private Debt Collection Program Performance
Measures and Goals for PCA Cases. Worked During Fiscal Year 2007, as of
September 15, 2006:
IRS Category: Operations: Placements;
Proposed PDC Program Performance Measure: Number of cases placed with
PCAs in first 12 months;
Goal: 100,000;
1*: [Empty];
2*: X;
3*: [Empty];
4*: [Empty];
5*: X.
IRS Category: Operations: Resolutions;
Proposed PDC Program Performance Measure: Percent of cases placed with
PCAs that are resolved;
Goal: 63 percent;
1*: [Empty];
2*: [Empty];
3*: X;
4*: X;
5*: X.
IRS Category: Operations: Recalls;
Proposed PDC Program Performance Measure: Number/percent of PCA cases
recalled to IRS;
Goal: [A];
1*: [Empty];
2*: [Empty];
3*: [Empty];
4*: [Empty];
5*: [Empty].
IRS Category: Operations: Not Collectible;
Proposed PDC Program Performance Measure: Number/percent of PCA cases
that are Currently Not Collectible;
Goal: [A];
1*: [Empty];
2*: X;
3*: [Empty];
4*: [Empty];
5*: X.
IRS Category: Operations: Bankruptcies and Decedents;
Proposed PDC Program Performance Measure: Number/percent of PCA cases
involving bankruptcies and decedents;
Goal: [B];
1*: [Empty];
2*: X;
3*: [Empty];
4*: [Empty];
5*: X.
IRS Category: Operations: Closure time;
Proposed PDC Program Performance Measure: PCA time to close the case;
Goal: [A];
1*: [Empty];
2*: [Empty];
3*: X;
4*: X;
5*: [Empty].
IRS Category: Financial: Placements;
Proposed PDC Program Performance Measure: Amount of unpaid tax debts
that are places with PCAs;
Goal: [B];
1*: X;
2*: [Empty];
3*: [Empty];
4*: [Empty];
5*: X.
IRS Category: Financial: Collections;
Proposed PDC Program Performance Measure: Amounts of unpaid tax debts
that are collected;
Goal: [B];
1*: X;
2*: [Empty];
3*: [Empty];
4*: [Empty];
5*: [Empty].
IRS Category: Financial: Collection percent;
Proposed PDC Program Performance Measure: Percent of unpaid tax debts
placed with PCAs that are collected;
Goal: 6 percent;
1*: [Empty];
2*: X;
3*: [Empty];
4*: [Empty];
5*: [Empty].
IRS Category: Financial: Collections retained by IRS;
Proposed PDC Program Performance Measure: Balance of the amount of PCA
collections of tax debts that IRS retains for collection enforcement
activities;
Goal: [B];
1*: [Empty];
2*: [Empty];
3*: [Empty];
4*: [Empty];
5*: [Empty].
IRS Category: Financial: Full payments;
Proposed PDC Program Performance Measure: Amount of unpaid tax debts in
cases closed as fully paid;
Goal: [A];
1*: X;
2*: X;
3*: [Empty];
4*: [Empty];
5*: [Empty].
IRS Category: Financial: 3-year installment Agreements;
Proposed PDC Program Performance Measure: Amount of unpaid tax debts in
cases closed with an installment agreement of less than 3 years;
Goal: [A];
1*: X;
2*: X;
3*: [Empty];
4*: [Empty];
5*: [Empty].
IRS Category: Financial: 5-year installment Agreements;
Proposed PDC Program Performance Measure: Amount of unpaid tax debts in
cases closed with an installment agreement of more than 5 years;
Goal: [A];
1*: X;
2*: X;
3*: [Empty];
4*: [Empty];
5*: [Empty].
IRS Category: Quality: Taxpayer satisfaction;
Proposed PDC Program Performance Measure: Taxpayer satisfaction survey
score;
Goal: 67.5 percent;
1*: [Empty];
2*: [Empty];
3*: X;
4*: X;
5*: [Empty].
IRS Category: Quality: IRS Satisfaction;
Proposed PDC Program Performance Measure: Satisfaction score for IRS
employees in PDC program;
Goal: 3.72 of 5;
1*: [Empty];
2*: [Empty];
3*: [Empty];
4*: [Empty];
5*: [Empty].
IRS Category: Quality: PCA Satisfaction;
Proposed PDC Program Performance Measure: Satisfaction score for PCA
employees working cases;
Goal: to be set;
1*: [Empty];
2*: [Empty];
3*: [Empty];
4*: [Empty];
5*: [Empty].
IRS Category: Quality: Accuracy;
Proposed PDC Program Performance Measure: Accuracy score in PCA cases;
Goal: [C];
1*: [Empty];
2*: [Empty];
3*: X;
4*: X;
5*: [Empty].
IRS Category: Quality: Timeliness;
Proposed PDC Program Performance Measure: Timeliness score for PCA
cases;
Goal: [C];
1*: [Empty];
2*: [Empty];
3*: X;
4*: X;
5*: [Empty].
IRS Category: Quality: Professionalism[D];
Proposed PDC Program Performance Measure: Professionalism score in PCA
cases;
Goal: [C];
1*: [Empty];
2*: [Empty];
3*: X;
4*: X;
5*: [Empty].
IRS Category: Quality: Complaints;
Proposed PDC Program Performance Measure: Verified major complaints
against PCA employees[E];
Goal: 0;
1*: [Empty];
2*: X;
3*: X;
4*: X;
5*: [Empty].
IRS Category: Quality: Case quality;
Proposed PDC Program Performance Measure: Overall quality scores for
cases worked by PCAs;
Goal: 90 percent[F];
1*: [Empty];
2*: X;
3*: X;
4*: X;
5*: [Empty].
Source: IRS.
[A] Goals will be determined using experiences with PCA cases over the
first year.
[B] Goals will be developed using IRS's revenue projection model.
[C] Goals will be based on those used in the IRS telephone collection
function.
[D] Includes various types of behavior when interacting with taxpayers,
such as respect and tone.
[E] These major complaints could be reported by taxpayers and
government employees and include intimidation, heavy-handed behavior,
or similar activity by a PCA employee (type 2 complaint) or statutory
violations by a PCA employee, such as those of the Taxpayer Bill of
Rights, Fair Debt Collection Practices Act, Privacy Act, taxpayer
information disclosure statutes, or other applicable laws (type 3
complaint).
[F] PDC program officials said this is an approximate goal that could
be revised based on the experiences of staff in IRS's telephone
collection function.
* This portion of the chart was added by the IRS and numbers 1 through
5 correspond to the Desired Results as identified in the GAO power
point presentation. These are as follows: (1) Increased Revenue; (2)
Top quality service to all taxpayers through improved compliance,
fairness, and taxpayer confidence in the tax system; (3) Top quality
service to each taxpayer through increased case closure rates, speed
and timeliness of service, handling more cases earlier, and reducing
penalties and interest paid by taxpayers; (4) Productivity through a
quality work environment, including better utilization of IRS staff and
freeing up IRS staff to focus on more complex cases; (5) Significant
reduction in the backlog of delinquent/inactive tax inventory.
[End of table]
[End of section]
Appendix VI: GAO Contact and Staff Acknowledgments:
GAO Contact:
Michael Brostek, (202) 512-9110 or brostekm@gao.gov:
Acknowledgments:
In addition to the contact named above, Tom Short, Assistant Director;
John Davis; Charles Fox; Timothy Hopkins; Ronald Jones; Jeffrey Knott;
Veronica Mayhand; Edward Nannenhorn; Cheryl Peterson; and William Woods
made key contributions to this report.
FOOTNOTES
[1] GAO, Tax Debt Collection: IRS Is Addressing Critical Success
Factors for Contracting Out but Will Need to Study the Best Use of
Resources, GAO-04-492 (Washington, D.C.: May 24, 2004).
[2] Pub. L. No. 108-357 (2004).
[3] See GAO, Tax Administration: Impact of Compliance and Collection
Program Declines on Taxpayers, GAO-02-674 (Washington, D.C.: May 22,
2002); Compliance and Collection: Challenges for IRS in Reversing
Trends and Implementing New Initiatives, GAO-03-732T (Washington, D.C.:
May 7, 2003); and Internal Revenue Service: Assessment of Fiscal Year
2005 Budget Request and 2004 Filing Season Performance, GAO-04-560T
(Washington, D.C.: Mar. 30, 2004).
[4] GAO, High-Risk Series: An Update, GAO-05-207 (Washington, D.C.:
January 2005).
[5] GAO, Internal Revenue Service: Issues Affecting IRS's Private Debt
Collection Pilot, GAO/GGD-97-12R (Washington, D.C: July 18, 1997).
[6] Another PCA that was not selected also filed a bid protest that was
later withdrawn by that protester.
[7] As used in this report, a goal is the desired numerical value of a
program performance measure, which can also be called a target.
[8] Although our report does document IRS's progress, it is important
to note that our report points out that we did not assess the adequacy
of IRS's actions or whether they would work, and that success would
depend, in part, on how well IRS addressed the critical success
factors, including identifying and resolving any problems.
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