IRS learns Results Act lesson

The IRS learned the hard way that managers must balance productivity goals with customer and employee satisfaction: through embarrassing congressional hearings, unflattering news stories and, this week, reprimands for managers and executives. The agency's experience provides a cautionary tale for managers across government who are implementing performance measures under the Results Act.

This week, IRS Commissioner Charles Rossotti announced that the agency had reprimanded 12 managers and executives and admonished two professional staffers for improperly using performance measurements. Some officials have been or will be reassigned, and 132 additional managers and employees face investigations, the IRS said. All the disciplinary actions stem from managers putting a focus on bringing in more revenue by setting collection goals while failing to follow rules on how taxpayers should be treated.

In a statement, Rossotti said the IRS is "working on a multi-year effort to develop a new set of balanced measures to assess our organizational performance. These new measures will balance business results with customer satisfaction and employee satisfaction. This balance, missing from previous IRS measures, will ensure that taxpayer satisfaction and employee satisfaction are critical factors in measuring the performance of the IRS at all levels."

The IRS announcement accompanied the release of an independent panel's review of how performance measurement at the agency led to taxpayer abuses. The independent panel, made up of three federal executives from outside the IRS, recommended the disciplinary actions and development of the new measures.

In its review, the panel said Congress, the administration and the General Accounting Office put increasing pressure on the IRS starting in the early 1990s to lower the 17 percent non-compliance rate among taxpayers. In a May 1993 report, GAO found that private sector collection agencies successfully use performance measures such as dollars collected to evaluate employees. GAO suggested Congress consider amending laws like the Taxpayer Bill of Rights, which prevents the IRS from using collection performance measures to evaluate employees. The administration and Congress urged the IRS to step up delinquent tax collection efforts.

While then-IRS Commissioner Margaret Milner Richardson opposed the GAO suggestion, she testified in March 1994 before Congress that IRS regional commissioners and district directors would be held personally accountable for improving tax compliance in their regions and districts. During the same period, the IRS became a pilot agency for testing the 1993 Government Performance and Results Act. Under the Results Act, agencies must develop strategic goals and performance measures to show the results they are achieving with the money they spend.

The IRS developed a field office performance measurement system in 1994, partly in response to the Results Act. The system's 30 measures included compliance, customer service, dollars assessed and dollars collected. Through the system, the IRS ranked regions and districts by their productivity.

In many cases, the panel found, revenue officers set group goals that did not emphasize fair treatment of taxpayers. "Unfortunately, in its efforts to improve productivity, IRS lost focus on this important aspect of its tax collection responsibility," its report concluded.

Senate Finance Committee hearings in September 1997 revealed that IRS collection officers were abusing some taxpayers in their overzealous efforts to improve compliance. The hearings sparked numerous media accounts of taxpayer harassment and forced the IRS to abandon its performance measures.

The panel said IRS executives knew well before the 1997 hearings that the potential for misusing statistics should be an important factor for the agency to consider. The agency has issued policy statements addressing the issue dating back to 1959.

"The executives both in Washington and elsewhere who should have helped the service exercise caution as it emphasized productivity failed to exercise due diligence," the panel said.

The IRS will educate and train managers and employees about new customer and employee satisfaction measures during fiscal 1999, the agency said this week. Enforcement dollars will not be used as measures of performance in the field.