IRS 2013 Budget:
Continuing to Improve Information on Program Costs and Results Could Aid in Resource Decision Making
GAO-12-603, Jun 8, 2012
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What GAO Found
The results of our work show:
IRS absorbed the 2.5 percent or $305 million fiscal year 2012 reduction by decreasing FTEs and other costs, primarily in the Enforcement and Operations Support appropriations. Several of our recent reports show that other opportunities exist to increase efficiencies through, for example, automating some services leveraging paid tax return preparers, and conducting more compliance checks before issuing refunds.
IRS’s fiscal year 2013 budget request represents a $944.5 million (8.0 percent) and about a 4,500 FTEs (5.0 percent) increase over fiscal year 2012.
Seven of the 12 proposed new program initiatives ($603.1 million) are supported by ROI estimates; the others ($303.9 million) are not supported by ROI information or, for the 2 we reviewed, other similar economic assessments, such as cost effectiveness analyses.
IRS’s PPACA cost estimate partially meets best practices for reliability, but it has not been updated since October 2010.
- IRS budgets for hiring new staff based on the new staff being onboard for the full fiscal year. But, in recent years, IRS hired most new staff late in the fiscal year, which could have resulted in funding being used for other purposes that are not described or substantiated in the budget justification.
- Fourteen of 20 major IT investments were within 10 percent of cost and schedule estimates between October 2011 and March 2012, but we could not determine whether these investments delivered planned functionality because IRS does not have a quantitative measure of scope for major IT investments.
We have conducted analyses related to 6 of the 22 legislative proposals included in the budget request for IRS.
IRS at least partially implemented 5 of our 9 prior recommendations intended to improve information presented in the budget request; in addition, we have 106 other matters for Congress or recommendations to IRS regarding tax administration that remain open and could result in potential financial benefits, either budget savings or increases in tax revenue.
Why GAO Did This Study
This letter transmits several briefings we provided between February 27, 2012 and May 16, 2012, as well as subsequent comments from the Internal Revenue Service (IRS). The President requested $12.8 billion for IRS for fiscal year 2013. This is an 8 percent increase over the enacted appropriation for fiscal year 2012, and follows a 2.5 percent decrease between fiscal year 2011 and fiscal year 2012. Because of the size of IRS’s budget and the importance of its service and compliance programs for all taxpayers, you asked us to review the fiscal year 2013 budget justification for IRS as well as how it absorbed the prior year’s reductions. Based on discussions with your offices, our objectives were to: (1) describe how IRS managed funding reductions in fiscal year 2012; (2) describe the fiscal year 2013 budget request for IRS and budget and staffing trends from fiscal year 2009 through fiscal year 2013; (3) evaluate any new enforcement and infrastructure initiatives in the fiscal year 2013 budget request, including whether return on investment (ROI) estimates are provided; (4) evaluate the reliability of IRS’s cost estimate for implementing its responsibilities nder the Patient Protection and Affordable Care Act (PPACA); (5) evaluate the amount requested for hiring additional staff in fiscal year 2013; (6) evaluate the performance of IRS’s major information technology (IT) investments; (7) list any analyses we have done related to legislative proposals included in the budget request for IRS; and (8) describe IRS’s progress implementing our prior budget presentation recommendations and list our open matters for Congress and recommendations to IRS regarding tax administration with potential budget savings or revenue increases.
What GAO Recommends
To continue to improve information on program cost and results that could aid in resource decision making, we recommend that the Commissioner of Internal Revenue
(1) ensure cost-effectiveness analyses are conducted for future significant investments when there are alternative approaches for achieving a given benefit, such as for any new significant PPACA projects;
(2) ensure that an updated PPACA cost estimate is completed by September 2012 in accordance with best practices in the GAO Cost Guide;
(3) prepare funding requests for new staff based on estimated hiring dates; and
(4) develop a quantitative measure of scope, at a minimum for its major IT investments, to have complete information on the performance of these investments.
For more information, contact James R. White at (202) 512-9110 or whitej@gao.gov.
Status Legend:
- Review Pending
- Open
- Closed - implemented
- Closed - not implemented
Recommendations for Executive Action
Recommendation: To continue to improve information on program cost and results that could aid in resource decision making, the Commissioner of Internal Revenue should prepare funding requests for new staff based on estimated hiring dates.
Agency Affected: Department of the Treasury: Internal Revenue Service
Status: Open
Comments: IRS officials reported that they do not agree with the recommendation to develop funding requests for new staff based on estimated hiring dates and are concerned with the long-term impact of implementing such a recommendation.
Recommendation: To continue to improve information on program cost and results that could aid in resource decision making, the Commissioner of Internal Revenue should ensure that an updated PPACA cost estimate is completed by September 2012 in accordance with best practices in the GAO Cost Guide.
Agency Affected: Department of the Treasury: Internal Revenue Service
Status: Open
Comments: IRS officials reported that the PPACA cost estimate should be completed by September 2012.
Recommendation: To continue to improve information on program cost and results that could aid in resource decision making, the Commissioner of Internal Revenue should ensure cost-effectiveness analyses are conducted for future significant investments when there are alternative approaches for achieving a given benefit, such as for any new significant PPACA projects.
Agency Affected: Department of the Treasury: Internal Revenue Service
Status: Open
Comments: According to IRS, officials will conduct cost-effectiveness analysis for future significant non-enforcement initiatives when there are alternative approaches to achieving a given benefit and there is sufficient time to conduct the analyses. Officials also noted that, as in prior years, IRS's budget submission reflects the continued improvement of the availability of information on program costs and the tools it uses to support budget initiatives, such as return on investment (ROI) calculations for both immediate and directly measureable revenue, as well as long-term revenue effects for initiatives that do not have an immediate measurable ROI.
Recommendation: To continue to improve information on program cost and results that could aid in resource decision making, the Commissioner of Internal Revenue should develop a quantitative measure of scope, at a minimum for its major IT investments, to have complete information on the performance of these investments.
Agency Affected: Department of the Treasury: Internal Revenue Service
Status: Open
Comments: IRS officials reported that they agreed with the recommendation and will evaluate and define the best approach for providing quantitative measures of scope/functionality for major projects. IRS also noted that they will monitor and measure the value to affirm both the soundness of the initial business case and the sustainable benefits of the investment with the intent to implement the defined measures by July 2013.