IRS Case Selection:

Collection Process Is Largely Automated, but Lacks Adequate Internal Controls

GAO-15-647: Published: Jul 29, 2015. Publicly Released: Jul 29, 2015.

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What GAO Found

The Internal Revenue Service's (IRS) collection program largely uses automated processes to categorize and route unpaid tax or unfiled tax return cases for potential selection. The automated Inventory Delivery System (IDS) categorizes and routes cases based on many factors, such as type of tax and amount owed. Outside of IDS, collection managers set goals for closing cases in priority areas, such as delinquent employer payroll taxes and cases involving certain high-wealth taxpayers. If goals are at risk of not being met, officials may take action to select additional priority cases. In recent fiscal years, the collection program has exceeded nearly all case closure goals for priority cases. However, because IRS has not identified objectives for the collection program, such as fairness, it is difficult to assess the program's overall effectiveness.

GAO identified several areas where the lack of documented objectives and internal control deficiencies for categorizing and routing cases increase the risk that the collection program's mission, including fair case selection, will not be achieved. Examples of key internal control steps and deficiencies follow.

Selected Key Steps in Internal Control

Selected Key Steps in Internal Control

Program objectives and key terms are not clearly defined: Although fairness is specified in the collection mission statement and IDS processes can affect how collection cases are selected, management has not defined fairness or any other program or case selection objectives. IRS collection's management referred to various documents as examples of program objectives. However, the documents were not specific enough nor codified in official IRS guidance to ensure proper control over the program. Without clearly defined objectives that can enhance program effectiveness, it is difficult for IRS to ensure it selected collection cases in a fair and unbiased manner.

Case categorization and routing procedures are not documented: According to management, case categorization and routing procedures were developed over several years as the result of incremental decisions and system changes. However, GAO found that the system and decisions were not documented, such as the selection of priority areas. Without documentation, it is difficult to determine whether processes are effective or consistently applied.

Effectiveness of processes is not routinely monitored : Despite some ad-hoc studies, IRS does not have procedures to periodically monitor IDS, including the dollar thresholds used to identify some cases for collection. Management could not provide GAO with justification for the thresholds because according to officials, they were set so long ago. Without periodic evaluations, out-of-date collection procedures could result in unnecessary costs or missed collections. Unadjusted dollar amounts could lead to inconsistent treatment of taxpayers over time as the real value of dollar thresholds decline over time due to inflation.

Why GAO Did This Study

IRS's collection program pursues individuals and businesses that failed to fully pay their taxes or file returns. Since 2009, the total tax debt inventory has increased 23 percent to $380 billion, while collection staff declined 23 percent. Given its large workload and declining resources, it is important that IRS make informed decisions about the collection cases it pursues to enhance compliance and confidence in the tax system.

GAO was asked to review IRS's processes for categorizing and routing collection cases for potential selection. This report (1) describes collection processes and trends in priority areas; and (2) assesses how well controls support the mission, including applying tax laws with integrity and fairness to all.

GAO reviewed IRS guidance, processes, and controls for categorizing and routing collection cases, reviewed data on results in priority areas, assessed whether IRS's controls followed Standards for Internal Control in the Federal Government , and interviewed IRS officials.

What GAO Recommends

GAO recommends that IRS take five actions to improve collection controls, such as clearly defining and documenting program objectives and control procedures, and periodically evaluating the effectiveness of controls. In commenting on a draft of this report, IRS said it generally agreed with all of GAO's recommendations.

For more information, contact James R. McTigue, Jr. at (202) 512-9110 or mctiguej@gao.gov.

Recommendations for Executive Action

  1. Status: Open

    Comments: IRS agreed with the recommendation. In March 2017, IRS provided a document intended define the objectives and "fairness," but it did not clearly define objectives for the collection program and enterprise-wide case categorization and routing processes, but instead identified division-level objectives and fiscal year 2017 collection strategies. The document also did not clearly define and communicate objectives--to include fairness--to staff in measurable terms that would be easily understood. Further, the objectives definitions were not were not clear and sufficient to support the design of internal control for related risks, the development of performance measures to determine whether objectives were achieved, and control assessments to assure case selections effectively support the collection program mission over time, including fairness. In August 2017, we shared this assessment with IRS and asked whether or when Collection plans to develop or provide additional documents.

    Recommendation: To help ensure the IRS collection program meets its mission and selects cases fairly, the Commissioner of Internal Revenue should establish, document, and implement clear objectives for the collection program and enterprise-wide case categorization and routing processes, and define key terms, such as "fairness" and "risk."

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Open

    Comments: IRS agreed with the recommendation and said it would continue to build upon existing risk management guidance by finalizing and making available training for managers, which would assist them in understanding their responsibilities for identifying internal and external risks to Collection program objectives. In November 2016, IRS provided documentation of risk management training for managers. However, since objectives for the collection program, enterprise-wide case categorization and routing processes, and fairness were not yet clearly defined, such guidance cannot be effectively incorporated into risk assessment processes to identify internal and external risks to collection program objectives. In August 2017, we shared this assessment with IRS and asked whether or when Collection plans to develop or provide additional documents.

    Recommendation: To help ensure the IRS collection program meets its mission and selects cases fairly, the Commissioner of Internal Revenue should build upon existing Enterprise Risk Management (ERM) guidance to help managers identify internal and external risks to collection program objectives, and better understand how long-standing risk processes integrate with new ERM approaches; incorporate this guidance into existing or future ERM or collection program risk assessment processes.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  3. Status: Open

    Comments: IRS agreed with the recommendation and said it would review its case prioritization and selection processes and implement and communicate clear guidance and documentation to appropriate IRS staff. In November 2016, IRS provided documents on collection processes, but the information was either technical or covered Automated Collection System (ACS) or Field Collection processes rather than enterprise-wide processes to support collection program objectives and IRS goals. More specifically, the documents did not provide corrected guidance on the role of the Inventory Delivery System and modeling in shelving or routing cases to either ACS or the Field, or provide guidance on how management is to select priority area cases. In August 2017, we shared this assessment with IRS and asked whether or when Collection plans to develop or provide additional documents.

    Recommendation: To help ensure the IRS collection program meets its mission and selects cases fairly, the Commissioner of Internal Revenue should clearly establish, document, and implement case categorization and routing procedures--such as those for IDS, high priority case selection, and any other important processes--to support collection program objectives and IRS goals.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  4. Status: Open

    Comments: IRS said agreed that continually improving its performance is important and said that Collection would review and, if needed, update its internal management documents. In July 2017, IRS provided documents that identified and established responsibilities for periodic, regular review procedures to potentially update dollar thresholds used in routing collection inventory for potential selection, including IDS and its decision rules to route cases to one collections function instead of another (i.e., the Automated Collection System versus Field Collection. In August 2017, we asked IRS when it plans to conduct the first such evaluations and requested that it provide documentation of results of those implemented evaluations when available.

    Recommendation: To help ensure the IRS collection program meets its mission and selects cases fairly, the Commissioner of Internal Revenue should establish, document, and implement procedures for the periodic evaluation of the efficiency and effectiveness of collection-wide case categorization, routing rules, and case selection processes.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  5. Status: Open

    Comments: IRS agreed that continually improving its performance is important and said that Collection would review and, if needed, update its internal management documents. In July 2017, IRS provided documents that identified and established responsibilities for periodic, regular review procedures to potentially update dollar thresholds used in systems that use a dollar threshold to prioritize Collection cases. In August 2017, we asked IRS when it plans to conduct the first such evaluations and requested that it provide documentation of results of those implemented evaluations when available.

    Recommendation: To help ensure the IRS collection program meets its mission and selects cases fairly, the Commissioner of Internal Revenue should establish, document, and implement procedures for periodic updates of dollar thresholds for categorizing case selection, including those identified as "high risk."

    Agency Affected: Department of the Treasury: Internal Revenue Service

 

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