Analysis: The Good Side of the IRS Scandal

If there’s just one lesson to learn from the IRS scandal, it’s that big government failed. If there’s another, it’s that big government worked.

News of the scandal broke when an IRS official responded to a planted question, explaining that the tax agency unduly interrogated conservative groups seeking tax-exempt status. But those comments preempted a 54-page report from a Treasury Department tax investigator. It was that report which fueled subsequent news reports and congressional hearings. And it highlights the significant—and often successful—role such in-house investigators play in uncovering government scandals, even as they face scrutiny themselves.

"These type of oversight functions return more money to taxpayers than they cost to run,” says Joe Newman, communications director for the Project on Government Oversight, a nonpartisan watchdog.

The work of federal inspectors general saved the government nearly $94 billion in fiscal year 2011,according to a report by the Council of Inspectors General on Integrity and Efficiency, an independent executive branch organization tasked with auditing the auditors. The savings were also well worth it: the government got a $35 return for every dollar spent on 73 IG offices, according to the report. And investigations also led to thousands of prosecutions, debarments and other similar actions.

IG investigations routinely unearth corruption and mismanagement in government. IG’s have helped uncover corruption in the Iraq and Afghanistan reconstruction efforts. The infamous $800,000 Las Vegas conference hosted by the General Services Administration was uncovered by its IG and counterparts have helped to track government spending on stimulus funds in recent years as well.

But, despite their successes and independence, IG offices face plenty of scrutiny. And Treasury Inspector General of Tax Affairs J. Russell George, who unearthed the IRS missteps, is no different. At a Wednesday hearing, House Oversight Committee Chairman Darrell Issa criticized George for failing to keep Congress abreast of the IRS investigation as it was going on.

“The statute as written does not give you the ability to—or any IG to—use us as a whipping boy when you want to and in fact keep us in the dark until an investigation is completed,” Issa said.

George’s office faces $8 million in budget cuts this year under the across-the-board cuts known as sequestration. And he’s not alone. Two dozen IG offices face cuts of anywhere from $1 million to $28 million, they found, according to the Project on Government Oversight. All told, IG offices face more than $100 billion in cuts this fiscal year.

Such cuts mean fewer resources for investigations like the one that unearthed the IRS affair. In late March, the General Services Administration IG said cuts to his office would rob the GSA of $281 million in savings and revenue. At the time, his Education Department counterpart predicted staff wide furloughs of up to 11 days. And the House Oversight committee’s top Democrat, Rep. Elijah Cummings, said at a hearing that month that such cuts would hinder “the very oversight work we are praising them for today.”