Undercover Operations:

IRS' Management of Project Layoff

GGD-92-80: Published: Apr 21, 1992. Publicly Released: May 6, 1992.

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Pursuant to a congressional request, GAO reviewed Project Layoff, an Internal Revenue Service (IRS) undercover operation, focusing on: (1) problems with the operation; and (2) ways to prevent similar problems in the future.

GAO found that: (1) IRS initiated the project because of concerns about tax evasion, particularly evasion of the wagering excise tax; (2) Project Layoff was intended to gather intelligence about the extent of illegal bookmaking in Las Vegas, Nevada, and to develop investigative leads about illegal bookmaking operations and their ties to organized crime in other cites; (3) the project produced tangible results, but was costly to IRS credibility due to allegations of misconduct; (4) it could not substantiate allegations of misconduct, but IRS was not fully prepared to carry out or manage an illegal bookmaking operation of the magnitude of Project Layoff; (5) IRS did not develop or use an adequate recordkeeping system or controls to keep track of the approximately $22 million in wages and $2.5 million in cash that flowed through the operation; (6) it could not determine if funds were embezzled from the operation; and (7) IRS acknowledged that Project Layoff suffered from control and management weaknesses and has taken steps to strengthen its management of undercover operations.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The Internal Revenue Manual was revised on August 10, 1992, to include requirements that Criminal Investigation will seek advice from the IRS Controller and use this advice in planning meetings.

    Recommendation: The Commissioner of Internal Revenue should direct the Assistant Commissioner (Criminal Investigation) to require that Criminal Investigation Division staff involve the Controller in planning financial recordkeeping to adequately account for business receipts and disbursements during business-type undercover operations.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Closed - Implemented

    Comments: The National Office analyst staff was increased on May 4, 1992, and staff were assigned specific program areas to ensure that these areas are included in operational reviews.

    Recommendation: The Commissioner of Internal Revenue should direct the Assistant Commissioner (Criminal Investigation) to require that National Office staff be involved in planning and overseeing how intelligence gathered and developed during large-scale operations will be used after the operations are completed.

    Agency Affected: Department of the Treasury: Internal Revenue Service

 

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