United States General Accounting Office

GAO Testimony

Before the Senate Committee on

Governmental Affairs

For Release on Delivery

Expected at

10:30 a.m., EST

Thursday

Mar. 12, 1998

IRS PERSONNEL

FLEXIBILITIES

An Opportunity to Test New

Approaches

Statement of Michael Brostek

Associate Director, Federal Management and Workforce

Issues

General Government Division

GAO/T-GGD-98-78

Summary 

IRS Personnel Flexibilities: An Opportunity

to Test New Approaches

GAO was asked to comment on the possible implications of proposed

legislation that would give new personnel flexibility to the Internal

Revenue Service (IRS). Specifically, H.R. 2676 and S. 1174 would give IRS

additional flexibilities relating to performance management, staffing, and

the development of demonstration projects. The Senate bill also includes

classification and pay provisions (“broad banding”) and “critical pay

authority” to help recruit and retain employees in highly skilled, high level,

technical and professional positions. The legislative proposals—which

would make some flexibilities permanently available and others available

for testing—were intended to help IRS improve its service to taxpayers and

overcome longstanding performance problems.

GAO had three comments regarding the proposed legislation:

• Because the legislative proposals provide only a broad outline for

managing IRS employees, it was difficult for GAO to predict the extent to

which the new provisions would help IRS improve its performance and

overcome past problems. For example, the IRS Commissioner would have

one year to develop a new performance management plan, acting in

accordance with both the new legislation and those provisions of Title 5

U.S.C. to which IRS would remain subject. Until the plan is developed and

IRS has some experience in implementing the new flexibilities, it would be

difficult to predict how helpful the new flexibilities might be in improving

IRS’ actual performance or whether such flexibilities might prove worthy of

emulation elsewhere in the federal government. GAO noted that the

provisions giving IRS permanent flexibilities regarding performance

management, staffing, and pay could alternatively be added to the

proposed demonstration authority already included in the legislation.

Doing so would give IRS the opportunity to shape personnel approaches

outside those currently available and gather evaluative data on how well

they work—which would also provide information that other agencies

could use to assess whether similar changes might improve their

personnel systems as well.

• GAO stated that the legislative proposals, focusing as they do on customer

service and on aligning employees’ performance with IRS’ mission, goals,

and objectives, are in keeping with broad trends that GAO has identified in

its previous work on public- and private-sector management. GAO noted

that legislation requiring that IRS or any other agency establish a

performance management system that focuses employees’ efforts on their

agency’s mission and goals will not, in and of itself, guarantee a shift in

organizational culture or in traditional ways of doing business. Consistent

with its reviews of agencies’ efforts to implement the Government

Page 1 GAO/T-GGD-98-78
Summary 

IRS Personnel Flexibilities: An Opportunity

to Test New Approaches

Performance and Results Act, GAO stated that the degree of commitment

by IRS’ leadership would determine whether a new focus on agency

mission could be sustained for the long-term.

• Federal agencies, including IRS, need the flexibility to tailor their personnel

approaches to best meet the demands of their missions. GAO also noted

that granting personnel flexibilities to federal agencies raises important

issues as to the extent to which, or the mechanisms whereby, Congress or

OPM will oversee these agencies to ensure their continued adherence to

applicable civil service laws.

Page 2 GAO/T-GGD-98-78
Statement 

IRS Personnel Flexibilities: An Opportunity

to Test New Approaches

Mr. Chairman and Members of the Committee:

I am pleased to be here today to discuss some of the possible implications

of legislative proposals that would give new personnel flexibility to the

Internal Revenue Service (IRS). With federal agencies now called upon to

improve customer service and deliver better results to the American

people while limiting costs, the need for a well-managed, well-qualified,

and highly motivated workforce has never been greater. Therefore, it is

not surprising that recent discussions have centered on the amount of

flexibility federal agencies should have in hiring and managing their

employees. With regard to the personnel flexibility proposals for IRS, I

would like to make three points on the basis of our prior body of work in

the human resource management area:

• First, because the proposals generally provide a broad outline for

managing IRS employees, but not the details, it is difficult to predict to

what extent the new provisions will help IRS improve its performance and

overcome past problems.

• Second, the proposals, focusing as they do on customer service and on

aligning employees’ performance with the agency’s mission, goals, and

objectives, are in keeping with broad trends in the public and private

sector that we have identified in our previous work. At IRS or any federal

agency, the degree of commitment by top management will determine

whether this new focus can be sustained.

• Third, federal agencies such as IRS need the flexibility to tailor their

personnel approaches to best meet the demands of their missions. Along

with this need for flexibility, there is a need to maintain oversight and

accountability mechanisms that will ensure that agencies adhere to the

statutorily required merit principles, such as maintaining high standards of

integrity, conduct, and concern for the public interest and other national

goals, such as veterans’ preference.

The personnel flexibility proposals of the kind contained in H.R. 2676 and

S. 1174 are intended to help IRS improve its service to taxpayers and

overcome problems that have plagued its performance for some time.

These flexibility provisions, some of which the bills make permanently

available and others available for testing, would allow IRS to manage its

employees differently than it does today. As experience is gained in

implementing these proposals, some may show considerable benefit and

be worthy of emulation elsewhere; others may be less successful. In order

to take advantage of the lessons that implementation will yield, Congress

may find it appropriate to have IRS test all of its new approaches for a

Page 3 GAO/T-GGD-98-78
Statement 

IRS Personnel Flexibilities: An Opportunity

to Test New Approaches

limited period of time. This would give IRS the opportunity to include

effective planning and evaluative mechanisms in the test and would allow

Congress to consider the effects of IRS’ personnel changes before deciding

whether they should be made permanent.

The New Personnel

Flexibilities Could Be

Evaluated Before

Being Made

Permanent

We have examined two bills that would give IRS new flexibilities in

managing its workforce: H.R. 2676, which passed the House of

Representatives in November 1997, and S. 1174, which has been referred

to the Senate Committee on Finance. The bills are similar in that both

would give IRS additional flexibilities relating to performance management,

staffing, and the development of demonstration projects. The Senate bill

also includes classification and pay flexibilities (“broad-banding”) and a

provision for “critical pay authority” to help recruit and retain employees

in highly skilled, high level technical and professional positions. The new

flexibilities in performance management, staffing, and pay would be

granted permanently, while those initiatives IRS might develop under the

bills’ demonstration authorities would be subject to testing before being

made permanent.

The legislative proposals in H.R. 2676 outline a performance management

approach for IRS that would include all IRS employees, with the exception

of the IRS Oversight Board, the IRS Commissioner, and the IRS Chief

Counsel. The new performance management system would appear to

cover Senior Executive Service (SES) members and non-SES employees

alike, require that goals and objectives established through IRS

organizational performance planning be linked to individual or group

performance and used to make performance distinctions among

employees or groups of employees, require performance appraisals to

have at least two performance rating levels at fully successful or above,

allow awards of up to 50 percent of salary for a small number of

employees who report directly to the IRS Commissioner, and allow for

employee awards based on documented financial savings. It would also

require periodic performance evaluations to determine whether employees

are meeting all applicable retention standards, and would use the results

of employees’ performance evaluations as a basis for adjustments in pay

and other appropriate personnel actions.

These provisions constitute the broad outlines of a performance

management approach aimed at underscoring the importance of

accountability for performance and allowing IRS managers more room to

reward good performers. The provisions are intended to afford IRS the

Page 4 GAO/T-GGD-98-78
Statement 

IRS Personnel Flexibilities: An Opportunity

to Test New Approaches

opportunity to address some of its long-standing challenges, which include

attracting and retaining the talent necessary to modernize its management

practices and bring its technology and administrative systems up-to-date.

The provisions may also help IRS focus its employees on the agency’s

fundamental responsibility for collecting the proper amount of taxes

while, at the same time, providing courteous service to those who must

pay the taxes.

The details of the new performance management approach are left to the

Commissioner, who is charged with developing a plan for the new system

within 1 year. Leaving the details to the Commissioner is of course entirely

consistent with the bills’ approach of granting IRS somewhat greater

flexibility to tailor its personnel management to the agency’s particular

needs. Until the Commissioner develops that plan, acting in accordance

with both the new legislation and those provisions of Title 5 to which IRS

would remain subject, and has some experience in implementing the new

flexibilities, there is no way to predict just how helpful the new flexibilities

may be in improving IRS’ actual performance.

To the extent that the performance management, staffing, and pay

flexibility provisions, as implemented, contribute to improved IRS

performance, they not only will be worth retaining in IRS, but also may be

worthy of emulation elsewhere in the federal government. If certain

provisions do not improve performance, or perhaps unexpectedly detract

from performance or have other undesirable consequences, it may be

useful to have a means of identifying these problems and pulling the plug if

necessary.

Under these circumstances, one useful alternative to permanently

authorizing the performance management, staffing, and pay flexibility

provisions might be found in the legislation itself. H.R. 2676 would allow

the Commissioner to carry out demonstration projects without the

screening and approval currently required under the Office of Personnel

Management’s (OPM) demonstration project authority. The time-limited

projects as currently authorized in the bill could be conducted for such

purposes as improving personnel management, providing increased

individual accountability, and eliminating obstacles to dealing with poor

performers. An alternative might be to add the performance management,

staffing, and pay flexibility provisions to authorized activities included in

the proposed demonstration authority.

Page 5 GAO/T-GGD-98-78
Statement 

IRS Personnel Flexibilities: An Opportunity

to Test New Approaches

Including all of the authorized flexibilities under the demonstration

authority would give IRS a chance to see just how well its new approaches

work when put into action. IRS would have the opportunity to shape

personnel approaches outside those currently available and to develop an

evaluative mechanism to gather data on how well they work. Congress

would have the opportunity to consider the effects of the new approaches

before deciding if they should be made permanent. This option would also

provide information that other agencies could use to assess whether

similar changes might improve their personnel systems.

The Focus on IRS’

Mission and Goals

Will Require Top

Management’s

Long-Term

Commitment

In our contacts with human resource management experts from publicand private-sector organizations both here and abroad, we have found that

successful organizations recognize the importance of organizational

mission, vision, and culture as a means of focusing their workforce on the

job at hand.1

 At IRS, that job includes more than simply collecting taxes.

For example, as Congress is now emphasizing to IRS, it includes fair

treatment of the taxpayers as well. According to the House Ways and

Means Committee report on H.R. 2676, the new proposals for personnel

management at IRS would be aimed at establishing a balanced system of

measures that would ensure that taxpayer satisfaction—i.e., customer

service—is paramount throughout all IRS functions. For example, while

giving IRS greater flexibility in distributing cash awards to employees, H.R.

2676 specifies that awards will not be based solely on tax enforcement

results. This is consistent with our belief that IRS employees’ performance

should be assessed using a balanced set of indicators. Therefore, we

believe H.R. 2676 appropriately gives IRS the opportunity to factor in other

measures, such as customer service results and employee behavior.

The Committee report also said that the proposed legislation would

refocus the IRS personnel system on the agency’s overall mission and on

how each employee’s performance relates to that mission. Across

government, some of the agencies now implementing the Government

Performance and Results Act (known as GPRA or the Results Act) are

engaged in similar efforts, aligning the performance expectations of each

level of their organizations, and ultimately of each employee, with the

agencies’ missions and strategic goals. The Results Act itself was based on

principles and best practices established by successful private-sector

organizations and by governments at the state and local level and abroad.

1

Transforming the Civil Service: Building the Workforce of the Future, Results of a GAO-Sponsored

Symposium (GAO/GGD-96-35, Dec. 20, 1995).

Page 6 GAO/T-GGD-98-78
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IRS Personnel Flexibilities: An Opportunity

to Test New Approaches

The challenge for federal agencies such as IRS is to make these principles

work for the federal government as well.

Some federal agencies that have tried to align employee performance with

agency missions and goals have noted the conceptual challenges involved

in becoming more results-oriented.2

 For example, when we reviewed the

experiences of five regulatory agencies affected by the President’s

March 1995 directive to measure agency and employee performance in

terms of results, we found that some of the agencies were further along

than others. Officials at the five agencies cited some barriers, mostly

involving the need to clarify their missions and establish results-oriented

goals and measures, that made creating results-oriented performance

standards for employees more difficult. For example, at IRS, one of the five

agencies we reviewed, officials said it was difficult to measure the impact

that IRS taxpayer education and outreach efforts would have on the

agency’s goal of increasing voluntary tax compliance rates.

To a significant extent, meeting the challenge of more effectively aligning

employees’ performance with organizational missions and goals will be an

effort that succeeds or fails through its implementation. Nothing in current

personnel law or regulation prohibits agencies from establishing goals or

objectives for employees that are based on organizational goals,

communicating these goals and objectives to the employees, and using

these goals or objectives to make performance distinctions for purposes of

adjustments in pay and other personnel actions. Still, while many agencies

implementing the Results Act have tried to do these things, others have

not. Some that have tried have found that the challenges involved are not

so much a matter of restrictive personnel rules as of instilling in their

managers and other employees a new understanding of their agencies’

missions and goals and of what, for each employee, constitutes successful

performance.

The H.R. 2676 requirement that IRS establish a performance management

system that focuses employees’ efforts on their agency’s mission and goals

could be useful in further directing IRS’ attention to this issue. But at IRS or

any other agency, requiring this focus by legislation will not, in and of

itself, guarantee a shift in organizational culture or in traditional ways of

doing business. These things will hinge primarily on the long-term

commitment of IRS’ leadership to making the agency’s new direction clear,

2

Managing for Results: Regulatory Agencies Identified Significant Barriers to Focusing on Results

(GAO/GGD-97-83, June 24, 1997).

Page 7 GAO/T-GGD-98-78
Statement 

IRS Personnel Flexibilities: An Opportunity

to Test New Approaches

to changing IRS’ organizational culture to support it, and to holding all

employees accountable for fulfilling IRS’ commitment to the taxpayers.

Both H.R. 2676 and S. 1174 also require that before any flexibilities are

exercised, management and the employee unions need to enter into a

written agreement. This provision underscores the need for a shared

commitment to improving performance at every level of the agency. It also

underscores the importance of maintaining good working relationships

between management and all employees.

Flexibility and

Accountability

The proposals for new personnel flexibility at IRS are part of a broader set

of proposals to restructure the agency and improve its performance. In

facing new pressures to perform, IRS is not alone. In recent years, changes

in social, economic, and technological conditions put new pressures on

both public and private sector organizations, which had to deal with calls

for better performance and growing demands for more responsive

customer service, even as resources were becoming harder to come by.

Many of these organizations have looked hard at their human resource

management approaches, found them outmoded or too confining, and

turned to new ways of operating.3

The new human resource management model that many of these

organizations have chosen is more decentralized, more directly focused on

mission accomplishment, and set up more to establish guiding principles

than to prescribe detailed rules and procedures.4

 Under this model, an

organization adopts its human resource management practices because

they support the organization’s needs and mission, rather than because

they conform with practices that have been adopted elsewhere.

Recently, many federal agencies seem to be calling for similar flexibilities.

Some have criticized Title 5 as too restrictive and have sought to be

excepted from some or all of its provisions. For example, in the past 3

years, the Federal Aviation Administration (FAA) gained the right to

establish its own personnel system, the Federal Bureau of Investigation

(FBI) gained demonstration authority directly from Congress to change the

system under which it pays some of its scientific and technical workers,

and the Department of Defense (DOD) has begun developing a proposal for

a separate civilian personnel system tailored specifically to its needs. In

addition, the administration’s initiative to create performance-based

3

Civil Service Reform: Changing Times Demand New Approaches (GAO/T-GGD-96-31, Oct. 12, 1995).

4

GAO/T-GGD-96-31, October 12, 1995.

Page 8 GAO/T-GGD-98-78
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IRS Personnel Flexibilities: An Opportunity

to Test New Approaches

organizations (PBO) includes personnel features that lie outside the

structure of Title 5. The proposals for IRS we are discussing today are part

of this general trend.

In our previous work, we have recognized that to manage effectively for

results, agencies need the flexibility to manage according to their needs

and missions. Under the Results Act, managers are expected to be given

greater flexibility to manage, but also to be held more accountable for

results.

We have also found that, over the years, Title 5 has evolved to give federal

agencies more flexibility than they once had—and often, more than they

realize—to tailor their personnel approaches to their missions and needs.

But we also know that the federal government has traditionally wanted

certain principles to hold true for all its employees. The merit principles

and certain other national goals, such as veterans’ preference, remain

generally applicable to employees of all agencies. In fact, both H.R. 2676

and S. 1174, while giving new personnel flexibilities to IRS beyond those

already available to it under Title 5, would specifically require that the

agency continue to conform to the merit principles and other national

goals.

The question is, what sort of oversight is appropriate as agencies such as

IRS gain additional personnel flexibilities outside the traditional purview of

Title 5? The current civil service system is already highly decentralized,

and current oversight is by no means uniform. What is commonly thought

of as the “civil service”—the federal civilian workforce subject to all the

provisions of Title 5 and overseen by OPM—comprises just more than half

of all federal civil servants.5

 Technically, this segment is known as the

“competitive service,” which operates under the federal merit system.

Other federal civilian employees are employed in agencies or other federal

entities—such as government corporations (like the Tennessee Valley

Authority) and quasi-governmental organizations (like the U.S. Postal

Service)—that operate outside Title 5 or are statutorily excepted from

parts of it. These workers, while all members of the civil service, are in the

“excepted service” and are covered by a variety of alternative merit

systems. One of Congress’ reasons for establishing alternative merit

systems for some federal organizations was to give them a measure of

freedom from the rules governing the competitive service under Title 5.

5

See The Excepted Service: A Research Profile (GAO/GGD-97-72, May 1997).

Page 9 GAO/T-GGD-98-78
Statement 

IRS Personnel Flexibilities: An Opportunity

to Test New Approaches

Concerns over the constraints imposed by Title 5 have led to proposals

such as those already accepted or pending regarding FAA, FBI, DOD, and

IRS—proposals that could lead to an even more decentralized civil service.

To the extent that agencies such as these gain flexibilities outside of Title

5, Congress will need to know whether, in planning and implementing

their new approaches, these agencies continue to adhere to the merit

principles and other national goals. However, the proposals for IRS do not

make OPM’s role in this regard entirely clear. Congress has options of

clarifying OPM’s role or taking a more direct hand itself in overseeing IRS’

new personnel practices.

In closing, the proposals in H.R. 2676 and S. 1174 have been developed to

provide IRS exceptions from various Title 5 personnel requirements that IRS

believes impede its ability to accomplish its mission. In order to take full

advantage of the lessons that implementation will yield, Congress may find

it appropriate to incorporate all of the flexibilities into the demonstration

authority provisions of the bills. With appropriate evaluative mechanisms

included, this would allow for an informed judgment as to whether these

flexibilities should be made permanently available to IRS as well as

whether they possibly should be extended to other agencies. In addition,

the bills’ provisions encouraging IRS to align its employees’ performance

with IRS’ mission and goals are consistent with other public- and

private-sector organizational trends that have been given congressional

endorsement through the passage of the Results Act. However, success in

achieving this alignment will require a culture change in IRS driven by a

long-term managerial commitment. Finally, the granting of personnel

flexibilities to federal agencies raises important issues as to the extent to

which, or the mechanisms whereby, Congress or OPM will oversee these

agencies to ensure their continued compliance with the merit principles

and other national goals that undergird all federal employment.

This concludes my prepared statement, Mr. Chairman. I would be pleased

to answer any questions you or other Members of the Committee may

have.

(410304) Page 10 GAO/T-GGD-98-78
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