Congress urged to force IRS to gather cost-benefit data

The General Accounting Office has recommended that Congress require the Internal Revenue Service to include cost-benefit information on its collection and enforcement efforts in its annual budget submission.

In a new report, "Recommendations to Improve Financial and Operational Management" (GAO-01-42) the GAO builds on its February audit of IRS' fiscal year 1999 statements by making dozens of new recommendations for improving its collection and financial operations. These operations suffer from systems deficiencies and inadequate management and internal controls, according to the report. The IRS failed the GAO's audit of its 1999 financial statements.

The report included 37 new recommendations for resolving operational weaknesses made in response to the GAO's February audit. That audit found that the IRS was unable to adequately manage unpaid assessments; disburse taxpayer refunds; safeguard manual tax receipts and taxpayer information; account for property and equipment; account for appropriated funds; and collect and report financial data. The GAO began auditing IRS' financial statements in fiscal 1992.

While nearly all of the new recommendations are addressed to the IRS, the report also recommends that Congress require the agency to develop cost-benefit data on its collection activities. The IRS has been reluctant to maintain such data because of the political sensitivity of its collection operations, according to the report.

"IRS has concerns that in light of congressional and public sensitivity over IRS' collection and enforcement activities, the Congress may not be receptive to IRS' developing this type of information," the report said.

Cost-benefit data on the IRS' collection efforts should aid the agency and Congress in evaluating budget requests and allocations and enable the IRS to collect billions of dollars of unpaid taxes, according to the report.

The report highlighted nine of the 37 new recommendations as principal suggestions that IRS should act on immediately. Forty-three recommendations made by GAO after previous audits remain open, while GAO closed 18 recommendations that had either been resolved by IRS or superseded by new recommendations.

The report argued that although systems limitations will continue to handicap IRS collection operations in the near future, the agency could resolve many operational issues in the short term through better management and the use of more consistent procedures.

"During fiscal year 1999, we continued to find widespread problems with implementing policy memorandums and the Internal Revenue Manual. Thus, a management program of continual monitoring is needed for key policies and controls to ensure that they are consistently applied," the report concluded.

The GAO praised senior managers at the IRS for their commitment to resolving operational issues during fiscal year 1999, but pointedly called on agency executives to maintain their involvement as the IRS confronts outstanding operational challenges.

"The sustained involvement of IRS' senior management … is paramount to IRS' resolving the serious problems that remain," the report said.

The IRS generally agreed with the report's recommendations, but questioned whether submitting cost-benefit data on collection activities for congressional review would be the most effective way to address the GAO's concerns with the IRS' collection operations.

"Recommendations that require IRS to submit certain reports for congressional review may not be as helpful as recommending that the issues be addressed in the IRS strategic planning process," said Bob Wenzel, IRS' deputy commissioner of operations.

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