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entitled 'Tax Debt Collection: IRS Needs to Complete Steps to Help 
Ensure Contracting Out Achieves Desired Results and Best Use of Federal 
Resources' which was released on October 30, 2006. 

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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. 

GAO's Mission: 

The Government Accountability Office, the investigative arm of 
Congress, exists to support Congress in meeting its constitutional 
responsibilities and to help improve the performance and accountability 
of the federal government for the American people. GAO examines the use 
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