The Treasury Inspector General for Tax Administration (TIGTA) has experienced significant changes over this reporting period that will shape our future. Most notably, we welcomed the arrival of Mark Everson, the new Commissioner of Internal Revenue. Upon Mr. Everson’s arrival, he outlined three major management challenges for the Internal Revenue Service (IRS). In his May 20, 2003, testimony before the Congressional Joint Review1, he identified these three areas as improving customer service; continuing the information technology modernization program; and enhancing enforcement activities. In addition to these three, TIGTA identified the following IRS management challenges for Fiscal Year (FY) 2003: IRS security; complexity of the tax law; human capital; and integrating performance
and financial management. This report highlights our significant accomplishments during the past six
months that contribute to addressing these management challenges.
While welcoming the new Commissioner, we also bade a fond farewell to former IRS Deputy Commissioner Bob Wenzel, as he retired. Mr. Wenzel joined the IRS in 1963 as a Revenue Officer in Chicago. He served as the Deputy Commissioner of Internal Revenue beginning in 1998. On October 15, 2002, then Treasury Secretary Paul O’Neill announced that Mr. Wenzel would serve as the Acting Commissioner, upon Commissioner Rossotti’s departure on November 6, 2002. We thank Mr. Wenzel for all of his support over the years and wish him all the best in his retirement.
Another significant event was the proposal in the President’s fiscal year 2004 budget to consolidate the two Inspectors General within Treasury. The passage of this legislative proposal is uncertain at this time. This uncertainty has contributed to the
1 The Congressional Joint Review includes two Members of the majority and one Member of the minority from each of the House Committees on Ways and Means, Appropriations, and Government Reform and the Senate Committees on Finance, Appropriations, and Governmental Affairs.
extended vacancy in our Inspector General (IG) position since the retirement of David C. Williams in August 2002.
Despite these major changes, TIGTA has been very productive during the past year. Many of our accomplishments during FY 2003 helped improve tax administration and subsequently aided taxpayers nationwide. Specifically, with the issuance of 212* audit reports, we identified more than $1.9 billion in cost savings and an additional $7.2 billion in increased revenue or revenue protected. During this six-month reporting period (April 1 through September 30, 2003), we received 4,034 complaints of alleged criminal wrongdoing or administrative misconduct, opened 2,249 investigations and closed 2,595. Additionally, the Office of Chief Counsel reviewed 158 proposed regulations and legislative requests during the past six months.
Finally, 2003 marks the 25th anniversary of the Inspector General Act, and so we join the Offices of Inspectors General throughout the Federal Government in celebrating this significant milestone. As we embark on our journey into the next quarter century as an IG community, it is TIGTA’s sincere wish that the future will prove to be just as successful as the previous 25 years.
* The figure representing total audit reports for the fiscal year (212) is a correction of the amount (123) shown in the previously published printed version of this report. We have also clarified references to the reporting period in this paragraph.
TABLE OF CONTENTS
Page
Message from TIGTA’s Senior Executive Team…….……….………………….…….…….….1
TIGTA’s Organizational Structure and Mission……………..…………………….………….…5 Improving the Economy,
Efficiency, and Effectiveness of Tax Administration….……………………….….…....….…8
Providing Quality Customer Service Operations……….……………….…...…….….8 Information Technology Modernization Program……..….………………....…....…..9 Enhanced Enforcement Activities – Tax Compliance………..………….………….11 IRS Security………………………………………………………………………….……….14 Complexity of the Tax Law……………………………………………………………….18 Human Capital….………….………………………………………………………...…….18 Integrating Performance and Financial Management…………..….……….……19
Detecting and Deterring Fraud in IRS Programs and Operations….………………………………………………….…….…………..21
Employee Integrity………………………………………………………….....…………..21
External Attempts to Corrupt Tax Administration……………………………….……24
Congressional Testimony..................…......................................……………………….……26
Awards and Special Achievements ………………………………………....……….………27
Appendices
Appendix I - Audit Statistical Reports
Audit Reports With Questioned Costs………………….………………….….………..30
Prior Period Reports…….……………………………………………………….….……...30
Reports With Recommendations That Funds Be Put to
Better Use…………………………………………………………………….…....……..31 Reports With Additional Quantifiable Impact on Tax
Administration……………………….……………………………………….….………32
Page
Appendix II - Office of Investigations - Statistical Reports
Investigations Opened and Closed………………………………………………………34 Financial Accomplishments…………………….……………………………….……….…34 Status of Closed Criminal Investigations…………….………………...……………..…..34 Criminal Dispositions……..…………………...………………………………………………35 Administrative Disposition on Closed TIGTA Investigations……………………………35 Complaints/Allegations Received by TIGTA…………………………………………….36 Status of Complaints/Allegations Received by TIGTA….………………….…………..36 Allegations of Misconduct Against IRS Employees……………….………….…………37 Report of Employee Misconduct for the Period 4/1/03-9/30/03
Summary by Disposition Groups……..…………………………………………………37 Report of Employee Misconduct for the Period 4/1/03-9/30/03 National Summary……………….……..…………………………………………………37 IRS Summary of Substantiated §1203 Inquiries Recorded in ALERTS for the Period 4/1/03-9/30/03…….……....……….…………….………………………38
Appendix III - Statistical Reports – Others
Audit Reports With Significant Unimplemented Corrective Actions…………….……………….……..………………………………………………….39 Statistical Reports – Others….…………..……………………………………….………….47
Appendix IV - Audit Products
April 1, 2003 – September 30, 2003……….………………………………………………..48
Appendix V - Statutory TIGTA Reporting Requirements…….…….…….…………………56
Appendix VI - Section 1203 Standards…...…..……………….………………….…………..63
Hotline Information……………………………………………….………………….……………64
Inspector General
TIGTA provides independent oversight of IRS activities, the IRS Oversight Board, and the IRS Office of Chief Counsel. Although TIGTA is organizationally placed in the Departmental Offices and reports to the Secretary of the Treasury, it functions independently from the Departmental Offices and all other offices and bureaus within the Department. TIGTA’s focus is devoted to all aspects of work related to tax administration.
TIGTA’s primary organizational functions are the Office of Audit (OA) and the Office of Investigations (OI). TIGTA’s Offices of Chief Counsel, Information Technology, and Management Services support OA’s and OI’s efforts.
TIGTA’s goal is to conduct audits and investigations designed to:
•
Promote economy, efficiency, and
effectiveness in
administering the nation’s tax system.
•
Detect and deter waste, fraud and abuse
in IRS programs
and operations.
TIGTA protects the public’s confidence in the tax system by supporting the IRS in achieving its strategic goals, identifying and addressing IRS’ material weaknesses, and implementing the President’s Management Agenda and the Department of Treasury’s priorities.
TIGTA’s comprehensive, independent performance and financial audits of IRS programs and operations focus on mandated reviews and on high-risk challenges facing the IRS. The audits address a variety of issues, including information technology; computer and employee security; tax compliance initiatives; performance and financial management; taxpayer protection and rights; tax return processing; customer service; and tax fraud. TIGTA also performs audits to determine if the IRS adequately ensures fair and equitable treatment of taxpayers.
Audit recommendations result in cost savings, such as protection of revenue and increased revenue. Other quantifiable impacts include the reduction of taxpayer burden; protection of taxpayer rights and entitlements; taxpayer privacy and security; and protection of IRS resources.
TIGTA’s investigative program, pursuant to its statutory responsibility to prevent and detect fraud, waste and abuse in the programs and operations of the IRS, includes:
• Investigating allegations of criminal violations that impact tax administration, and administrative misconduct by IRS employees and contractors.
• Conducting integrity/fraud awareness presentations for IRS employees and others, such as tax practitioners and community groups.
• Operating a hotline to receive and process complaints of fraud, waste, abuse and misconduct involving IRS employees and programs.
• Conducting proactive investigative initiatives that ferret out criminal and administrative misconduct in the administration of IRS programs.
•
Operating a Criminal Intelligence Program
(CIP) that
manages threat information that could impact IRS
employees and functions.
•
Investigating fraud, waste, and abuse
involving IRS
procurements.
•
Conducting forensic examinations of
physical and
electronic evidence to support investigations.
• Using technical and investigative support, equipment, training, and other specialized services to enhance investigative operations.
TIGTA INVESTIGATIONS PROTECT TAX ADMINISTRATION TIGTA protects the Department of Treasury’s ability to collect
Employee Integrity
revenue owed to the Federal Government. TIGTA accomplishes this goal by providing comprehensive investigative services focused on three
External Attempts to Employee and programs: IRS employee integrity;
Corrupt Tax Infrastructure Security IRS employee and infrastructure
Administration
security; and external attempts to TIGTA Investigative Performance Model corrupt federal tax administration.
In order to focus investigative resources on its primary program areas, TIGTA developed and implemented a performance model to help it achieve the most return on investment for the IRS, the Treasury Department, and the American taxpayer.
AUTHORITIES
TIGTA has all the authorities granted under the Inspector General Act of 1978, as amended. TIGTA also has access to tax information in the performance of its tax administration responsibilities and has the obligation to report potential criminal violations directly to the Department of Justice. The Inspector General and the Commissioner of Internal Revenue have established policies and procedures delineating responsibilities to investigate potential criminal offenses under the internal revenue laws.
In addition, the IRS Restructuring and Reform Act of 1998 (RRA 98) amended the Inspector General Act of 1978 to give TIGTA statutory authority to carry firearms and execute the provisions of the Internal Revenue Code (I.R.C.) §7608(b)(2). These provisions include law enforcement authority to execute and serve search warrants and subpoenas, and make arrests.
PROVIDING QUALITY CUSTOMER SERVICE OPERATIONS
Providing top quality service to every taxpayer in every transaction is integral to the IRS’ modernization plans. The IRS provides customer service through walk-in services, toll-free telephone services, access through the IRS’ Internet (Digital Daily), written communications to taxpayers, and accurate and timely tax refunds. Each of these services affects a taxpayer’s ability and desire to comply voluntarily with the tax laws.
In response to Congressional concerns throughout 2003, TIGTA has been determining if IRS employees in Taxpayer Assistance Centers (TACs) provide accurate and timely responses to taxpayers’ tax law questions. From January through June 2003, TIGTA auditors asked 411 tax law questions in 104 TACs and found that IRS employees incorrectly answered 25 percent of the questions. However, TIGTA recognizes that the IRS continues to improve the quality of service at the TACs and commends the IRS for taking immediate actions on issues identified in TIGTA’s previous audit reports. IRS executives have been actively engaged in the development and implementation of these actions. TIGTA believes the increase in accuracy rates compared to the same period in Calendar Year 2002 can be directly attributed to these actions.
During the 2003 Filing Season2, IRS Customer Service Representatives (CSR) handled 24 million calls concerning tax law questions. TIGTA auditors measured the quality of the IRS toll-free assistance program while monitoring live taxpayer phone calls. The results indicated a need for the CSRs to ask taxpayers additional questions related to the taxpayer’s situation, in order to collect all necessary information to give a correct and complete response. Management agreed with the recommendations and is taking corrective action.
Report Reference Nos. 2003-40-120, 2003-40-157, 2003-40-158, and 2003-40-216
The Office of the Taxpayer Advocate (OTA) conducts systemic advocacy projects to resolve and prevent recurring problems faced by taxpayers. However, competing OTA priorities, combined with the absence of timeliness standards and
2
The —filing
season“ is the period from January through mid-April when most individual income tax
returns
are filed.
complete management information systems, have delayed systemic advocacy projects, thereby adversely affecting a substantial number of taxpayers. TIGTA determined that potentially 16.7 million taxpayers are continuing to be affected by the problems identified in the projects TIGTA auditors sampled. Work on these projects stops for up to eight months each year when advocacy analysts are reassigned to work on the National Taxpayer Advocate’s (NTA) Annual Report to Congress.
TIGTA recommended the NTA formalize the policy of and implement a process for managing concurrently working on systemic advocacy projects and assignments in support of the NTA’s Annual Report to Congress. TIGTA also recommended that the NTA establish timeliness and staff resource standards for conducting systemic advocacy projects, and upgrade its management information system to provide data on systemic advocacy project activities and staff resources to assist managers in monitoring and budgeting for project resources.
The NTA concurred with the premise of the recommendations; however, the NTA believes that substantial improvements have already been implemented. TIGTA attempted to evaluate the actions taken to date by the NTA to improve systemic advocacy projects; however, no measurable benefits could be determined because several actions had not been developed or implemented at the time of our review. The NTA also disagreed that TIGTA’s recommendations would reduce the burden to potentially 16.7 million taxpayers. However, TIGTA believes that the NTA did not consider all types of taxpayer burden and therefore TIGTA stands by its initial projection.
INFORMATION TECHNOLOGY MODERNIZATION PROGRAM
The Business Systems Modernization (BSM) program is in the fifth year of its efforts to upgrade and modernize the IRS’ information technology and business systems. The BSM program is an extremely complex effort. During FY 2003, the BSM program made progress in defining necessary management processes and capabilities for effectively acquiring and implementing information technology systems. Deployed projects include the first release of the infrastructure system for future BSM applications and an upgraded Internet Refund application accessed over 15 million times during the filing season.
The Business Systems Modernization Office (BSMO) and the PRIME3 contractor have made significant progress in revising and refining testing processes and practices from lessons learned during the early testing of BSM projects. However, the BSM
3
The PRIME contractor is the Computer Sciences Corporation, which heads an alliance of leading technology companies assisting the IRS with modernizing its computer systems and related technology.
project teams have not implemented fully these processes and practices. In all eight BSM projects analyzed, TIGTA identified concerns with the project testing practices followed, such as insufficient test plans, incomplete testing activities, and inadequate actions to resolve failed tests.
TIGTA reported that the inadequate testing practices are the result of the BSM project teams attempting to meet overly optimistic project schedules. Several factors contributed to the schedule pressures, including budget constraints, inadequate resources, and changing business requirements. All of the BSM testing projects reviewed were either delivered late or are significantly behind planned delivery dates.
Implementing and following defined testing processes will reduce the possibility of undetected errors, allow identified errors to be fixed before project deployment, and increase the extent to which a system can be relied upon to provide accurate information and safeguard taxpayer data. Following and improving defined testing processes is equally important since it will improve project team maturity and significantly improve the chances of BSM program success. Since the purpose of this review was to present issues and trends in BSM testing processes, TIGTA did not make any recommendations. Management generally agreed with TIGTA’s assessment. Report Reference Nos. 2003-20-178 and 2003-20-127
Until recently, the PRIME contractor’s cost and schedule estimation process was decentralized at the project level, and the IRS had not independently reviewed these estimates or the PRIME contractor’s estimation system. In response to criticism and the need to improve processes, the IRS has tasked the PRIME contractor to build a program-wide cost and schedule estimation system. In addition, the IRS has created a process for independently reviewing and validating these estimates. While some progress has been made in establishing a program-wide estimation system, it has not yet been completed, validated or implemented, so TIGTA could not determine if it would produce reliable estimates.
TIGTA recommended the BSMO ensure all BSM contractors follow estimation guidance, ensure the cost and schedule model calibration process is documented, ensure an independent assessment of the cost and schedule system is made once improvements are implemented, and improve system validation and estimate review processes. Management’s response was not received prior to the issuance of the audit report. Report Reference No. 2003-20-219
ENHANCED ENFORCEMENT ACTIVITIES -TAX COMPLIANCE
The mission of the IRS Criminal Investigation (CI) function is to investigate potential criminal violations of the Internal Revenue Code (I.R.C.) and related financial crimes in a manner that fosters confidence in the tax system and compliance with the law4. A 1999 independent review, led by Judge William Webster5, concluded that CI’s focus had drifted from its primary mission of investigating potential violations of the
I.R.C. concerning legal sources of income6. The CI function established Lead Development Centers (LDC) to assist in identifying and developing legal income source tax investigations, as opposed to other CI investigations that target illegal income derived from activities such as drug dealing7. CI also receives allegations of potential tax fraud through the IRS’ toll-free Tax Fraud Hotline.
TIGTA’s reviews of the LDC and hotline programs determined that CI needs to improve its processes and make more effective use of LDC and hotline resources and information. CI offices did not communicate project objectives clearly or provide sufficient information on allegations, LDC research did not always address the allegations adequately, and the LDCs may have conducted unnecessary research based on the CI field offices’ subsequent closing actions and time expended. Further, TIGTA auditors determined that CI gave only limited scrutiny to hotline leads and rarely assigned hotline allegations to CI field agents for investigation. Finally, the CI function did not provide specific guidance to ensure that allegations of refund fraud or questionable return preparer activity reported to the hotline were used to prevent the issuance of potentially fraudulent refunds.
TIGTA recommended that management include applicable research projects in the LDC inventory and return the fraud referral process to the CI field offices; establish procedures to improve the research guidance for the LDCs; emphasize the need for effective communication between the LDCs and CI field offices; and implement a review process to evaluate the impact on LDC resources when CI field offices close cases with little additional investigative time.
To improve the Tax Fraud Hotline process, TIGTA recommended that procedures be revised to specify that LDC managers prioritize research of informant allegations based on their relative potential, without giving routine preference to field office requests, and assess the adequacy of the preparation of forms that refer hotline information to the LDCs proactively. TIGTA also recommended that procedures be
4 This statement is CI‘s mission statement. The following website is CI‘s home page and contains its mission
statement: http://www.hq.irs.gov/ci/about/mission.htm. 5 The following website contains the Webster Report: http://www.hq.irs.gov/ci/documents/websterreport.pdf.
6The cover sheet and Judge Webster‘s letter dated April 9, 1999, support this statement. This statement is supported in the first paragraph, second sentence, of the Executive Summary and the second paragraph, second sentence of website : http://www.hq.irs.gov/ci/documents/websterreport.pdf.
7
The support for this statement is listed in the following website, under the section entitled —Legal Source Tax
Crimes Program,“ first paragraph: http://www.treas.gov/irs/ci/compliancestrategy.htm.
developed that establish specific criteria for, and guide the referral of appropriate hotline information to, the Fraud Detection Centers on allegations of refund or return preparer fraud. To evaluate the benefits of the hotline, the number and results of investigations should be tracked. Although CI management generally agreed with TIGTA's recommendations, they did not always propose sufficient corrective actions to address the issues. Report Reference No. 2003-10-201 and 2003-10-210
IRS’ goal of providing world-class service to taxpayers hinges on the theory that if the IRS provides the right mix of education, support, and up-front problem solving to taxpayers, the overall rate of voluntary compliance with the tax laws will increase. The challenge to IRS management is to establish a tax compliance program (examining tax returns and collecting tax liabilities) that identifies those who do not meet their tax obligations either by not paying the correct amount of tax or not filing proper tax returns, and that effectively brings them into compliance. As part of its 2000 reorganization, IRS has begun to revamp its business processes to stabilize traditional compliance activities.
The Automated Collection System (ACS) function’s business results significantly decreased from FY 1997 to FY 1999 and continued to decline for the two full fiscal years the Small Business/Self-Employed (SB/SE) Division was in operation (FYs 2001 and 2002).
The ACS function is a critical Collection operation, collecting nearly $1 million per Full-Time Equivalent in FY 2002. However, it was far more effective in the mid-1990s than in FY 2001 and 2002. The ACS function’s results showed some improvement during the first seven months of FY 2003, but a relatively low priority assigned to Taxpayer Delinquency Investigations (TDI) may have long-term consequences for filing compliance. Also, the numbers of both TDIs and Taxpayer Delinquent Accounts (TDA) in the queue8 and shelved9 continued to grow significantly. The SB/SE Division is taking steps to improve Collection operations. In January 2003, the IRS implemented a method to identify probable collectible TDAs and filter out probable non-collectible cases. A team has recommended several approaches for optimizing the ACS function’s performance, and several additional projects are expected to improve the ACS function’s results.
8 The queue is an automated holding file for unassigned inventory of lower-priority delinquent cases that the Collection function does not have enough resources to immediately assign for contact.
9
Shelved accounts are delinquent unpaid accounts, or investigations of non-filed returns, that have been taken out of Collection inventory because they are lower priority.
TIGTA recommended that the IRS continue to monitor and evaluate the results of the initiatives and reevaluate resources for the TDI program, to reinforce a balanced program ensuring that filing compliance does not erode. Management agreed with the recommendation and has initiated corrective action.
Report Reference No. 2003-30-186
An offer in compromise (OIC) is an agreement between a taxpayer and the Federal Government that settles a tax liability for payment of less than the full amount owed. Concerns relating to the administration of the OIC Program have existed for some time. The enactment of RRA 98 made the OIC Program accessible to more taxpayers; as a result, the year-end inventory increased from approximately 32,000 offers at the end of FY 1997 to approximately 95,000 at the end of FY 2001, and the percentage of inventory older than the IRS’ six-month goal increased from 21 to 46 percent. The IRS initiated the Centralized Offer in Compromise (COIC) Program in August 2001 as a strategy to close more offers within six months in order to reduce the growing backlog of offers being received. TIGTA reported that the COIC Program is making progress toward achieving these goals. However, the reduction primarily resulted from significantly more offers being returned to taxpayers, and not because more offers were fully evaluated and then accepted or rejected. Taxpayers and their representatives contributed to the increase in returned offers by submitting offers that were not eligible or by not staying current in filing tax returns and making estimated tax payments while their offers were being evaluated. COIC sites also contributed to the higher number of returned offers by inappropriately returning 15 percent of the returned offers in the sample that could have been processed. Determinations of offers that could be processed were not done timely and requests for additional information from taxpayers occasionally included unnecessary items. However, the overall requests were reasonable and necessary to evaluate the offers.
TIGTA recommended that an automated system be used periodically to track trends in reasons why offers are returned to taxpayers and then modify or highlight forms, instructions, and outreach information for those issues. TIGTA also recommended that the IRS develop a method to identify the primary sources of offers that cannot be processed and a strategy to address the issues of these offers, as well as those for unrealistic or frivolous offers. Also, management needs to use reports to help ensure that determinations that offers cannot be processed are being made timely; analyze the staffing mix at both COIC sites for the current volume of offers to be processed; and establish monthly reports to monitor the age of open offers in the various assignments. In addition, management needs to monitor continually the backlog of cases awaiting assignment to offer examiners and adjust the acknowledgement letter sent to taxpayers to reflect more accurately the estimated time before contact should be expected. Management agreed with the recommendations and has initiated corrective action.
Report Reference No. 2003-30-182
During examinations, large corporate taxpayers sometimes file claims for additional deductions, credits, and/or other adjustments to taxable income that were not included on the original return. Filing these claims during examinations has been identified as a risk that could hamper efforts to meet the Large and Mid-Size Business (LMSB) Division’s performance goals. The LMSB Division believed these claims are a significant factor in extending the length of and time spent on examinations. The LMSB Division is considering issuing a new revenue procedure that would provide special treatment for those taxpayers who file claims during examinations. Examiners would be allowed to delay the claim evaluation process until after the ongoing examination is completed. However, TIGTA found that claims had relatively little effect on the length of these examinations and that the proposed new revenue procedure could increase the interest the IRS must pay on claims by approximately $1.84 billion over five years.
TIGTA recommended the IRS direct that the design team’s study no longer be represented as the basis for changing the process for managing claims that are filed in large corporate examinations. In addition, TIGTA recommended the IRS conduct a pilot program to gather pertinent information concerning the effect the proposed procedure will have on the length of examinations and interest costs. In addition, survey results from the second study, now nearing completion, should not be represented as being statistically valid in determining the characteristics of formal claims filed in examinations or the amount of revenue protected from examining claims. Management agreed with the recommendations and is implementing corrective action. Report Reference No. 2003-30-176
IRS SECURITY
INFORMATION SYSTEMS
Security of the IRS’ information systems has been considered a material weakness for several years. Security will continue to be a major challenge for the IRS because of the interconnectivity of computer systems via the Internet and the risk of terrorism in the United States.
Sensitive information is still unnecessarily vulnerable to attack by hackers, terrorists, disgruntled employees, and contractors. TIGTA recognizes that complete security can never be achieved and that there must be trade-offs between security and operational needs. However, to provide reasonable security, controls must exist at the perimeter, in the infrastructure, and in the applications that process sensitive data. TIGTA’s audits continue to identify significant weaknesses in each of these areas that could allow unauthorized access, destruction of data, and disruption of service. During the past six months, the IRS responded to these issues and has taken or plans to take adequate corrective actions.
The IRS initiated two significant efforts this year to improve computer security. First, it is investing considerable resources into addressing known computer security weaknesses. Specifically, it has revised its reporting of material weaknesses from a facility-based approach, which did not adequately describe the weaknesses, to an approach based on addressing root causes. The second significant effort is that the IRS is requiring business unit managers to review the security of the systems that support their operations, as required by the Federal Information Security Management Act 10.
TIGTA believes that both of these actions could help the IRS change the perception held by many of its managers that security is solely the responsibility of the Chief Information Officer (CIO). While the CIO is still responsible for the perimeter and infrastructure technical controls, the security of applications is clearly the responsibility of the business unit managers who use them. Business unit manager involvement is critical because most of the security weaknesses TIGTA identified can be corrected by improved management and operational controls. By themselves, technical controls provided by the CIO cannot afford the necessary security.
The IRS relies on its information systems to collect, process, store, and disseminate vast amounts of sensitive financial information for millions of taxpayers. The amount and sensitivity of this information makes the IRS a highly visible target for hackers, and, particularly, disgruntled employees and contractors who have ready access to IRS systems.
During this reporting period, TIGTA identified that the IRS has moved toward allowing more and more of its employees to work away from the traditional office. This is, in part, because of the Congressional Federal Telework Mandate 200111, which required executive agencies to establish policies for employee telecommuting. While telecommuting provides benefits to both the Federal Government and its employees, there are related security risks that must be addressed.
Working away from the office is not a new concept at the IRS. However, the number of employees who may telecommute continues to grow, and the IRS now has over 43,000 laptop computers in use. Laptop computers pose a significant risk because they enable employees to take vast amounts of information outside the traditional office space and these computers can be lost or stolen. There is another security risk with employees working away from the office. With the creation of home offices and the continuing use of permanent offices at taxpayer locations, the IRS has to provide its employees with the means to connect to its network from the outside while maintaining security over these connections.
1011 Federal Information Security Management Act, Pub. L. No. 107-347, Title III, 116 Stat. 2946 (2002).Department of Transportation and Related Agencies Appropriation Act, 2001, Pub. L. No. 106-346, Section 359, 114 Stat. 1356 (2000).
The IRS provided a secure infrastructure
for its employees to connect to the network.
However, the IRS could enhance the security of the architecture.
Recommendations were made to correct the specific weaknesses identified, with
the IRS agreeing to most.
Report Reference No. 2003-20-118
TIGTA also operates a Strategic
Enforcement Division (SED) that consists of data
analysts, computer specialists, and criminal investigators who monitor, probe, and
investigate the evolving electronic environment. SED responds to computer intrusion
incidents, investigates IRS network vulnerabilities, conducts system penetration tests,
and provides forensic processing of computers and other media in support of TIGTA
investigations.
During the reporting period, SED
conducted proactive initiatives to evaluate IRS
network vulnerabilities, including an initiative that assessed the integrity of IRS
servers.
Another initiative was launched to identify and remove unauthorized deployment of
wireless technology within IRS facilities. Results of these proactive initiatives
were
provided to IRS management. In the past six months, TIGTA has conducted eight
computer security reviews/tests and completed eleven investigations involving
potential computer security breaches.
EMPLOYEE AND INFRASTRUCTURE SECURITY
As part of its statutory mission, TIGTA investigates threats and attacks against IRS personnel, property, and data infrastructure. The President has designated the IRS a “critical infrastructure,” further highlighting TIGTA’s need to protect the Treasury Department’s ability to collect tax revenue by ensuring IRS employee safety and infrastructure security.
In response to heightened security concerns and TIGTA’s responsibility for investigating threats against the IRS and its employees, TIGTA created a Criminal Intelligence Program (CIP), which proactively attempts to identify threats against IRS personnel and facilities. In an effort to improve the overall security of the IRS, the CIP provides information that enables the IRS to enhance its security measures. During this reporting period, TIGTA issued 46 advisories notifying IRS management of potential threats and completed 602 investigations of threats and assaults directed at IRS facilities and employees.
The following are examples of IRS Employee and Infrastructure Security investigations conducted during this reporting period.
Individual Arrested for Physically Assaulting an IRS Revenue Officer
On April 4, 2003, an individual was arrested in the Western District of Michigan for physically assaulting a federal officer while that officer was engaged in official duties. The Revenue Officer was making a second attempt to serve a summons as part of a tax collection action. The individual grabbed the Revenue Officer’s arm with both hands and pulled him toward a building. The Revenue Officer was later released and he fled from the property.
Individual Charged for Threatening to Kill an IRS Taxpayer Advocate
On June 11, 2003, an individual was charged in the Southern District of Illinois for threatening to kill an IRS Taxpayer Advocate. The individual sent a threatening letter to the IRS in Missouri and subsequently left a telephone message threatening to kill an IRS Taxpayer Advocate.
Individual Sentenced to 27 Years and Ordered to Pay $2,252,000 Restitution for Burning an IRS Office and Destroying Taxpayer Files
On July 21, 2003, an individual was sentenced in the District of Colorado to 27 years incarceration and five years supervised release for destruction of Federal Government property by means of fire and three years incarceration and one year supervised release for forcible interference with IRS employees and administration. The individual is also required to pay over $2,252,000 restitution and was ordered to pay a $200 special assessment fee. The individual endeavored to intimidate and impede IRS employees acting in their official capacities by damaging and destroying taxpayer files, records, government equipment, and personal property by participating in the arson of the IRS’ Colorado Springs offices.
Individual Convicted for Burning an IRS Office and Destroying Federal Government Property
On August 4, 2003, a Federal jury convicted a second individual in the District of Colorado for destruction of Federal Government property by means of fire, forcible interference with IRS employees and administration, subornation of perjury, and tampering with a witness for the individual’s involvement in the arson of the IRS’ Colorado Springs offices.
COMPLEXITY
OF THE TAX LAW
Tax law complexity is the highest-ranking problem individual and business taxpayers had with the IRS, according to the FY 2000 Taxpayer Advocate’s Annual Report to Congress. One example of this complexity is in the area of granting extensions of time to file individual tax returns, where IRS regulations and practices treat taxpayers differently for the same payment noncompliance, create unnecessary taxpayer burden, increase IRS operating costs, and reduce current year tax receipts. Current IRS extension regulations prevent the IRS from assessing Delinquency Penalties for this noncompliance, and require compliant taxpayers to file extension forms needlessly. IRS management has been unwilling to change the extension regulations.
TIGTA recommended that the IRS change the regulations to provide clear, quantifiable guidelines for the level of payment compliance needed to obtain extensions to file; establish October 15 as the sole extended due date; provide equitable safeguards, commonly called “safe harbors,” to ensure that Delinquency Penalties are not assessed for inadvertent or minor underpayments; and require assessment of the Delinquency Penalty starting on April 16 for any delinquent tax amounts in excess of safe harbor allowances. The IRS agreed to establish October 15 as the sole extended due date for individual taxpayers, and plans to form a study team to examine the other recommendations in depth.
HUMAN CAPITAL
The IRS faces a range of serious personnel management issues, ranging from recruiting, training, and retaining employees to problems associated with the IRS’s recent reorganization and modernization efforts. TIGTA’s reviews in this area include a review of training information that the IRS provided to the IRS Oversight Board to assess IRS training efforts. TIGTA determined that the data provided was not adequate or reliable enough for the Board to perform an assessment or establish baselines. In addition, the costs of training courses and the allocation of training resources cannot be determined from either the Administrative Corporate Education System (ACES) or the IRS’ financial accounting system. While the IRS plans to implement a new Learning Management System with enhanced capabilities, plans are not adequate to demonstrate that the limitations of the data in the ACES and the IRS financial system will be corrected by implementing the new system. Management generally agreed with the recommendations. Reference Report No. 2003-10-212
TIGTA also reviewed the IRS’ use of streamlined critical pay authority. This authority allows the IRS to designate up to 40 key positions for which compensation may be set at a higher rate than the pay of most Federal Government executives. The IRS was not always successful in recruiting qualified outside candidates using critical pay authority. In nine cases, the IRS designated positions as critical pay positions but subsequently filled them as Senior Executive Service positions. In addition, candidates were often identified for positions before they were approved as critical pay positions, contrary to IRS procedures. Fifteen critical pay employees were identified by name in the memoranda sent to the Commissioner requesting that he approve critical pay for the positions. TIGTA recommended additional scrutiny by the Secretary of the Treasury, as well as the IRS Oversight Board, to help ensure that the authority is used appropriately. IRS disagreed with the recommendation to obtain the IRS Oversight Board’s approval on the justification, candidate selection, and compensation for all streamlined critical pay positions before they are filled. Because the designation of certain positions as critical indicates a high level of importance to the success of IRS’ mission, TIGTA continues to believe that the IRS Oversight Board should be a part of the approval process for all streamlined critical pay positions.
INTEGRATING PERFORMANCE AND FINANCIAL MANAGEMENT
A clean financial audit is a basic prescription for any well-managed organization. Without accurate and timely financial information, it is not possible to accomplish the President’s Management Agenda to secure the best performance and highest measure of accountability for the American people.
Two IRS Wage and Investment (W&I) Division enforcement programs are the document matching and the examination programs. The document-matching program, called the Automated Underreporter (AUR) Program, identifies unreported income using information returns filed by third parties such as banks and employers. The W&I Division’s examination program, including the Earned Income Tax Credit (EITC) examinations12, checks compliance in reporting income, deductions, and credits on tax returns through correspondence between the taxpayer and the IRS.
TIGTA conducted reviews focusing on whether the purpose, strategies and plans, and management policies are effectively designed to ensure the programs are meeting the IRS’ goals of service to all taxpayers through the fair and uniform application of the law and improving voluntary compliance. The reviews also determined if the programs established long-term outcome goals and measures that reflect the programs’ goals.
The W&I Division has a comprehensive strategic planning process to help ensure it manages resources and meets its annual goals and performance levels for the Automated Underreporter, Discretionary Examination, and EITC Programs. However, there are no established long-term outcome goals and measures that assess the
12
The EITC is a major Federal effort to assist the working poor. The IRS has responsibility for administering the EITC, which is a refundable credit available to taxpayers who file returns with certain earned income.
Programs’ effects or impact on IRS goals. Without long-term performance measures and goals, the IRS cannot be assured that the activities on which these funds were spent helped it achieve the Programs’ purpose.
In addition, neither the AUR nor the EITC Program has sufficient data available to establish baselines and long-term goals and measures. The IRS will not be able to measure the success of its efforts because the IRS has been unable to provide meaningful outcome data necessary to establish long-term performance measures and goals. In FY 2003, the IRS was appropriated $32 million for the AUR Program, $38 million for Discretionary Examination, and $146 million for the administration of the EITC Program. These appropriations were not limited to conducting examinations in these programs but for administering each program.
TIGTA recommended that IRS management finalize long-term goals and related measures currently being developed and establish a consistent method to measure progress toward long-term goals. Management agreed with the recommendations and is taking corrective action.
Report Reference Nos. 2003-40-139, 2003-40-180, and 2003-40-185
EMPLOYEE INTEGRITY
IRS employee misconduct undermines the IRS’ ability to improve customer service and effectively enforce tax laws and collect taxes owed. TIGTA investigates employee misconduct allegations including extortion, bribery, theft, taxpayer abuses, false statements, and financial fraud, as well as contractor misconduct and fraud. During the reporting period, TIGTA completed 1,058 employee integrity investigations.
As an integral part of its employee integrity program, TIGTA conducts proactive integrity initiatives to uncover fraud in IRS operations and to identify internal control weaknesses that permitted the fraud to go undetected or unreported. TIGTA’s most aggressive proactive initiative is its Unauthorized Access (UNAX) Program designed to detect IRS employees who may have improperly accessed and/or disclosed confidential taxpayer information. During this reporting period, TIGTA initiated 233 investigations involving unauthorized access of IRS computer systems.
The following are examples of Employee Integrity investigations conducted during this reporting period.
IRS Revenue Agent Indicted for Accepting a $250,000 Bribe
On September 3, 2003, an IRS Revenue Agent was indicted in the Southern District of Texas for bribery. The Revenue Agent allegedly solicited a $500,000 bribe from an individual in exchange for ensuring that a civil audit the agent was conducting would not reach the individual or be converted into a criminal investigation. Further, the Revenue Agent allegedly agreed to accept $250,000, with an additional $100,000 to be paid at a later date. The Revenue Agent was arrested by TIGTA Special Agents following a pre-planned meeting where the Revenue Agent received the $250,000 bribe.
Former IRS Special Agent Sentenced for Covering Up Association with Prostitutes and Theft of His Law Enforcement Vehicle
On September 8, 2003, a former IRS Special Agent was sentenced in the Central District of California for concealing and covering up his association with prostitutes, the theft of his law enforcement vehicle, and production of sexually explicit depictions of a minor. The former IRS Special Agent filed a false Security Incident Report with both TIGTA and the IRS concealing the true facts surrounding the theft of his law enforcement vehicle. The former IRS Special Agent also lied under oath on numerous occasions to TIGTA investigators about the theft of his law enforcement vehicle, his involvement with prostitutes, and his prior misrepresentation of himself as a Federal Bureau of Investigation agent. The former IRS Special Agent was sentenced to 63 months in federal prison and three years supervised release and ordered to pay a $200 special assessment, to undergo sex offender counseling, and to register as a sex offender upon release from prison.
Individual Sentenced for Providing Uncertified Bomb Detection Dogs to IRS
On September 8, 2003, an individual was sentenced in the Eastern District of Virginia for wire fraud and submitting false claims to get business from U.S. Government agencies. The individual provided bomb detection dogs that failed explosive detection tests on several occasions and made a series of false statements about the qualifications of the dogs and the handlers to get business from U.S. Government agencies. The individual was ordered to pay more than $708,000 in restitution and was sentenced to 78 months imprisonment and three years supervised release upon completion of the individual’s prison sentence.
IRS Contractor Pays $95,000 to the United States Government in Settlement Agreement
On August 6, 2003, an IRS contractor who provided security services for IRS facilities reached a settlement agreement with the U.S. Government to pay $95,000 to settle allegations of violations of the False Claims Act. The contractor presented claims for payment for security services when the contractor knew the corporation was in default under the contract and unable to provide the licensed security services required under the contract.
Former IRS Contract Employee Indicted for Stealing Approximately $127,000 from an IRS Lockbox Facility
On September 17, 2003, a former IRS contract employee was indicted in the Northern District of Texas for stealing tax remittance checks from the IRS Dallas Lockbox. The individual worked as a contract employee at the IRS Dallas Lockbox, where he allegedly stole more than $127,000 in tax remittance funds sent to the IRS.
Former IRS Employee Sentenced for Preparing Fraudulent Income Tax Returns and Unauthorized Access of IRS Computer Records
On September 29, 2003, a former IRS employee was sentenced in the Eastern District of California for fraud and related activity in connection with computers, aiding and assisting in the preparation of fraudulent income tax returns, and making and subscribing a false income tax return. The former employee accessed, without authorization, electronically stored taxpayer records and prepared false income tax returns for her and other individuals for a fee. The tax returns were prepared in order for the former employee and others to defraud the IRS of monies by falsely claiming the Earned Income Tax Credit and receiving refunds. As a result, the U.S. Government incurred a loss of over $40,000. The former employee was sentenced to four months imprisonment, one year supervised release, $24,276 in restitution, and a $450 special assessment fee.
Former IRS Employee Sentenced for Unauthorized Access and Altering Taxpayer Records
On July 21, 2003, a former IRS employee was sentenced in the District of Kansas with intent to enable another person to defraud the United States. The former employee accessed, without authority, taxpayer information and abated tax assessments due the U.S. in excess of $55,000, thus causing the taxpayer to defraud the U.S. The former employee was sentenced to five months in federal prison, two years supervised release, and ordered to pay a special assessment of $300.
Former IRS Employee Indicted for Threatening to Initiate an IRS Audit of Tax Returns and for Assaulting and Intimidating a Federal Officer
On July 17, 2003, a former IRS employee was indicted in the Southern District of New York for threatening to initiate an IRS audit of tax returns as a way to seek revenge and for leaving a threatening message on the voicemail of the IRS Officer who terminated the former employee’s employment. The former IRS employee allegedly threatened two New York City Police Officers, who were affecting the former employee’s arrest for other charges, that the former employee would initiate an IRS audit of their tax returns as a way to seek revenge. The former employee also allegedly left a threatening message on the voicemail of the IRS Officer who terminated the former employee’s IRS employment and sought to have the IRS employee identification confiscated.
EXTERNAL ATTEMPTS TO CORRUPT TAX ADMINISTRATION
TIGTA also investigates external attempts to corrupt tax administration, including violations that impact the IRS, such as impersonation of IRS officials, theft of IRS refunds, bribery, and identity theft.
The following are examples of External Attempts to Corrupt Tax Administration investigations conducted during this reporting period.
Tax Practitioner Sentenced for Scheme to Defraud Taxpayers
On April 3, 2003, a tax practitioner was sentenced to 27 months incarceration, five years supervised release, over $67,000 in restitution and an $1,100 special assessment in the Northern District of Florida for obstruction of agency proceedings and mail fraud. The individual represented clients before the IRS regarding collection matters. The scheme involved the tax practitioner taking monies that clients had provided to pay their delinquent taxes, converting them to the practitioner’s own use, and mailing altered IRS documents to clients.
Individual Arrested for Using the IRS as a Tool of Retaliation Against Public Officials
On April 7, 2003, an individual was arrested in Minnesota for using the IRS as a tool of retaliation against certain public officials. The individual allegedly filed false Suspicious Activity Reports and several false IRS Reports of Cash Payments Over $10,000 Received in a Trade or Business (Form 8300) in retaliation against local public officials. Subsequently, IRS notices were sent to the victims, including circuit court and federal judges, directing them to provide additional information regarding the cash transactions.
Individual Arrested for Submitting False Claims and Declarations to the IRS
On April 30, 2003, an individual was arrested in New York State for submitting false claims and declarations to the IRS. The individual allegedly submitted false IRS Powers of Attorney and Declaration of Representative (Form 2848), claiming to be an attorney who was a member in good standing of the bar of the highest court of New York State, when he knew that he was not. The individual also prepared and filed false amended individual income tax returns claiming tax refunds.
Individual Pleads Guilty to Identity Theft
On July 15, 2003, an individual pleaded guilty in the District of Nevada to identity theft. After receiving notices from the IRS, a taxpayer complained to TIGTA that an unidentified individual allegedly unlawfully used his name, date of birth, and Social Security Number (SSN). An investigation disclosed that while seeking employment, the individual, purporting to be the taxpayer, submitted Employee’s Withholding Allowance Certificates (Form W-4) to two Nevada businesses. Subsequently, approximately $46,000 in earnings was reported to the IRS under the taxpayer’s SSN, and a demand for payment notice in excess of $11,000 was sent to the victim taxpayer from the IRS.
Individual Indicted for Altering and Transmitting Fictitious IRS Levy Release Documents
On July 23, 2003, an individual was indicted in the District of Delaware for faxing altered and fictitious IRS release of levy documents. The individual allegedly altered authentic IRS release of levy documents reflecting a partial release of levy on her husband’s wages and faxed the fictitious documents to her husband’s employer in order to reflect a full release of levy placed on her husband’s earnings fraudulently.
In addition to TIGTA’s audit and investigative work and as part of keeping key stakeholders informed of TIGTA’s oversight of IRS, the Deputy Inspector General (IG) for Audit testified before Congress on four occasions during this reporting period.
On April 1, 2003, the Deputy IG for Audit testified before the United States Senate Finance Committee on “Tax Scams and Schemes.” The purpose of the hearing was to discuss the efforts in assessing the IRS’ monitoring of electronic return providers or originators and in investigating individuals who corruptly interfere with this aspect of the tax administration system.
On May 13, 2003, the Deputy IG for Audit testified before the United States House of Representatives Committee on Ways and Means, Subcommittee on Oversight. The topic of the hearing focused on “The Use of Private Collection Agencies to Improve IRS Debt Collection.”
On May 20, 2003, the Deputy IG for Audit testified before the Committees of the United States Senate and United States House of Representatives on “The Strategic Plans and Budget of the IRS” as required by the IRS Restructuring and Reform Act of 1998. TIGTA concluded that it will continue its efforts to provide reliable and objective assessments of the IRS’ progress in balancing compliance and customer service, and to investigate employee misconduct or external threats that jeopardize the integrity, efficiency, and effectiveness of the nation’s tax administration system.
On July 9, 2003, the Deputy IG for Audit testified before the United States House of Representatives Committee on the Budget, regarding "Waste, Fraud and Abuse in IRS Programs". TIGTA shared significant problems and challenges that confront the new Commissioner and IRS senior management. TIGTA concluded that it will continue its efforts to provide reliable and objective reviews and assessments of IRS programs and operations. It is TIGTA’s intent not only to identify waste, fraud, and abuse in IRS programs, but also to propose to IRS management solutions that address the underlying causes of the problems.
Auditor John P. Ojeda Receives Special Community Recognition
John P. Ojeda, TIGTA Office of Audit, Wage and Investment Income Programs, had a new state-of-the-art Junior High School in Austin, Texas named in his honor. The school was named the John P. Ojeda Junior High School and opened on August 18, 2003. Mr. Ojeda was recognized for his service to the Austin community for nineteen years, nine of which were as a school board trustee on the local school board. Mr. Ojeda received this honor because of his exceptional contributions to public education, his model of excellence for the students of the district, his demonstrated leadership and service, and his interest in and meritorious contribution to education.
TIGTA Receives PCIE Awards
TIGTA was recognized at the President’s Council on Integrity and Efficiency/Executive Council on Integrity and Efficiency (PCIE/ECIE) awards ceremony October 16, 2003 with two Awards for Excellence. One award went to Senior Auditor John L. Hawkins from Kansas City, Missouri, for his outstanding work in assessing the IRS’ controls over the access to, disclosure of, and use of social security numbers by third parties. The second award went to the Technical and Forensic Support Division for outstanding achievement in technical and forensic investigative support during the investigation of telemarketers who posed as representatives from the IRS in order to obtain money fraudulently from elderly citizens across the country.
TIGTA Receives Telework Award
The TIGTA Office of Information Technology (OIT) completed the implementation of a new, state-of-the-art telecommunications network in May 2003. This network underpins the Virtual Resource Solution (VRS) Telework program for which TIGTA was recently recognized with the 2003 Commuter Connections Employer Recognition Award (see photograph below). Over 90 percent of TIGTA employees currently participate in the VRS program. Over 35 percent of TIGTA employees work out of the office at least two days each week as part of the VRS program. Employees can access the TIGTA network via any Internet connection or dial up connection because of the technology investment made in the TIGTA telecommunications network.
2003 Commuter Connections Employer Recognition Award
Automated Clearance Verification System Developed
Over the past year, the Federal personnel security community has faced extraordinary challenges protecting homeland security. Many agencies are adding staff and/or reassessing security clearance requirements and, as a result, the demand for background investigations has risen dramatically. The Office of Personnel Management (OPM) Investigations Service is committed to providing quality investigations in a timely, cost effective manner. Because of the largely unpredicted workload increase, however, OPM's ability to meet the timeliness standards has declined. The Clearance Verification System is an e-Clearance initiative under the President’s Management Agenda and provides all current Departmental requirements as they relate to the processes involving investigation posting, maintenance, and reporting.
In order to create an investigation tracking system for TIGTA that is compliant with regulations and can be readily integrated with the e-Clearance initiative, experts in all aspects are required. TIGTA's Security team represented the organization at the initial e-Clearance meeting and follow up meetings. They digested the requirements, translated them into computer terms, and then worked closely with Bureau of Public Debt programmers to integrate and implement the program successfully. After several efforts at clarification, testing, verification, and validation, TIGTA has produced a zero defect file to the Treasury Department before the due date. As part of the Memorandum of Understanding with OPM, Treasury is required to revalidate its security clearance information every six months. This well-documented and highly automated e-Clearance system allows for a consistently repeatable process for TIGTA.
Electronic Reading Room Established for Public Access to Documents
The TIGTA Web Development Team created and introduced an electronic reading room providing public access to TIGTA documents pursuant to the Freedom of Information Act (FOIA), 5 U.S.C. § 552. The web developers worked closely with TIGTA’s Chief Counsel staff to ensure that all requirements for posting documents to the public site were met and/or exceeded. TIGTA Electronic Freedom of Information Act (EFOIA) documents are on the Treasury Internet site at http://www.treas.gov/tigta/foia/ and on a stand-alone computer available to the public in TIGTA's national headquarters in Washington, D.C. The Web Team created policies to ensure that this public site remains current and continues to meet all legal requirements for publicly accessible documents.
Assistance to Foreign Tax Administrators
On several occasions, TIGTA supported the Department of the Treasury in assisting foreign tax administrators with the development of their inspector general functions. This assistance included detailing individuals to Indonesia, Paraguay, Ecuador, Honduras, and Georgia.
In its continuing efforts to assist other countries in the implementation of Office of Inspectors General, TIGTA recently visited with officials from the government of Georgia. Shown above (left to right) are Pamela Gardiner, Deputy Inspector General for Audit, Eduard Shevardnadze, President of Georgia, and Robert Cortesi, Office of Tax Assistance.
APPENDIX I – AUDIT STATISTICAL REPORTS
AUDIT REPORTS WITH QUESTIONED COSTS
Two audit reports with questioned costs were issued during this semiannual reporting period.1 The term “questioned cost” means a cost that is questioned because of: (1) an alleged violation of a provision of a law, regulation, contract, or other requirement governing the expenditure of funds; (2) a finding that, at the time of the audit, such cost is not supported by adequate documentation (“unsupported cost”); or (3) a finding that expenditure of funds for the intended purpose is unnecessary or unreasonable. The term “disallowed cost” means a questioned cost that management, in a management decision, has sustained or agreed should not be charged to the government.
REPORTS WITH QUESTIONED COSTS |
|
QUESTIONED |
|
(4/1/03 œ 9/30/03) |
NUMBER OF |
COSTS2 |
UNSUPPORTED COSTS |
REPORT CATEGORY |
REPORTS |
(IN THOUSANDS) |
(IN THOUSANDS) |
|
|
|
|
1. For which no management decision |
|
|
|
had been made by the beginning of |
|
|
|
the reporting period |
2 |
$ 5,273 |
$0 |
2. Which were issued during the reporting period |
2 |
$ 39 |
$ 38 |
3. Subtotals (Item 1 plus Item 2) |
4 |
$ 5,312 |
$ 38 |
4. For which a management decision |
|
|
|
was made during the reporting period |
|
|
|
- Dollar value of disallowed costs |
2 |
$ 5,3113 |
$ 0 |
- Dollar value of costs not disallowed |
2 |
$ 4,643 |
$ 38 |
5. For which no management decision had been made by the end of the reporting period (Item 3 minus Item 4) |
1 |
$ 1 |
$ 0 |
6. For which no management decision |
|
|