Tax Administration:

Federal Tax Deposit Information Can Be Processed More Efficiently

GGD-87-86: Published: Jul 2, 1987. Publicly Released: Jul 2, 1987.

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GAO studied the efficiency of the Internal Revenue Service's (IRS) optical character recognition equipment to determine: (1) if the speed and accuracy of processing payment information are enhanced when depositories use machine-readable type to encode dollar amounts on federal tax deposit (FTD) coupons instead of handwritten figures; and (2) whether opportunities exist to increase the use of coding.

GAO estimated that depositories encoded about 19 percent of the FTD coupons IRS received in fiscal year 1986. GAO found that: (1) in tests of optical character recognition equipment at two IRS service centers, one center scanned encoded coupons 36-percent faster and 92-percent more accurately than nonencoded coupons, while the other service center scanned encoded coupons 55-percent faster and 56-percent more accurately than nonencoded coupons; (2) IRS officials attributed the differences between the service centers to such factors as management styles, locations of the optical character function in the service center organizations, and staff abilities; (3) representatives from most nonencoding depositories indicated that their institutions could encode dollar amounts on coupons using the same equipment they used to process checks; and (4) the Department of the Treasury, IRS, and the Federal Reserve are encouraging nonencoding banks to start encoding. GAO concluded that encoding dollar amounts on coupons: (1) improves IRS operating efficiency; (2) reduces staff time associated with processing coupons; (3) reduces the optical character recognition equipment's coupon-processing time, making it available for other processing; and (4) could improve the accuracy with which depositories tabulate coupons and report total payment amounts to the Federal Reserve.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: Treasury disagreed and decided to conduct a promotion program to encourage banks to voluntarily encode their FTD coupons. The program described to GAO is very low key. Each of IRS' 10 service centers is on its own as to what it does to encourage encoding. GAO believes that kind of effort is unresponsive to GAO recommendations and will be less than fully effective, thus minimizing savings.

    Recommendation: To improve the efficiency with which FTD coupons are processed and better ensure that all depositories reasonably capable of encoding dollar amounts on FTD coupons do so, the Secretary of the Treasury should establish the necessary regulations and procedures to: (1) require federal depositories to encode dollar amounts on individual FTD coupons before submitting them to IRS for processing; and (2) exempt depositories that would incur prohibitive costs in complying.

    Agency Affected: Department of the Treasury


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