GAO-05-999R Activities of TIGTA 

United States Government Accountability Office

Washington, DC 20548 

September 27, 2005 

The Honorable Charles E. Grassley 

Chairman 

The Honorable Max Baucus 

Ranking Minority Member 

Committee on Finance 

United States Senate 

Subject: Activities of the Treasury Inspector General for Tax Administration 

The Department of the Treasury Inspector General for Tax Administration 

(TIGTA) audits and investigates the Internal Revenue Service’s (IRS) operations 

to (1) promote economy and efficiency and detect and prevent fraud and abuse and 

(2) recommend actions for improvement. TIGTA was established by the Internal 

Revenue Service Restructuring and Reform Act of 19981 (IRS Reform Act), which 

amended the Inspector General Act of 19782 (IG Act), to include an independent 

inspector general (IG) to provide oversight of IRS’s activities, programs, and offices. 

This report responds to your request that we review the activities of TIGTA. As 

discussed with your staff, we are providing information regarding (1) TIGTA’s budget 

and staffing levels; (2) TIGTA’s audit and investigative coverage of IRS, including 

oversight of IRS’s offices and identified weaknesses in IRS’s operations, and audit 

coverage of specific requirements of the IRS Reform Act; (3) TIGTA’s audit and 

investigative accomplishments; (4) the quality assurance program, including the 

results of peer reviews; and (5) the audit follow-up process to track IRS’s 

implementation of TIGTA’s audit recommendations. 

Results in Brief 

Over the 5-year period of fiscal years 2000 through 2004, TIGTA’s budget authority 

increased by 14 percent while staff levels decreased by 6 percent. In fiscal year 2004, 

TIGTA had budget authority of about $130 million and realized authorized full-time 

equivalent (FTE) staff of 877. In relation to IRS’s total federal funds, the budget 

authority for TIGTA’s oversight has steadily declined but is comparable to such ratios 

for other IG offices. 

 

1

Pub. L. No. 105-206, 112 Stat. 685, 705 (July 22, 1998). 

2

Pub. L. No. 95-452, 92 Stat. 1101 (Oct. 12, 1978) (codified, as amended, at 5 U.S.C. App.). 
Page 2 GAO-05-999R Activities of TIGTA 

During fiscal year 2004, TIGTA provided audit coverage of IRS through an 

organizational structure that mirrors IRS’s organizational structure and through audit 

plans that include coverage of IRS’s business units, management challenges, and 

congressionally mandated work. TIGTA’s audits provided coverage of the IRS 

management challenges identified by TIGTA, the high-risk areas designated by us, 

and mandatory coverage required by the IRS Reform Act. Investigative coverage is 

provided through TIGTA’s investigative mission of addressing employees’ integrity, 

external attempts to corrupt tax administration, and employee and infrastructure 

security. 

As a result of its audit and investigative coverage, TIGTA reported that it issued 942 

audit reports, addressed 39,611 complaints and allegations, and closed 22,350 

investigations over the 5-year period of fiscal years 2000 through 2004. TIGTA 

claimed financial accomplishments resulting from these audits and investigations of 

over $16.3 billion, and identified additional potential financial impacts on tax 

administration of over $50 billion. 

TIGTA’s external peer reviews and internal quality reviews have concluded that 

TIGTA’s quality assurance program provides reasonable assurance that audit reports 

meet applicable standards. The program includes internal quality reviews of 

individual audits, internal quality inspections of the Office of Audit, and an external 

quality peer review of the Office of Audit every 3 years in compliance with 

government auditing standards.3

IRS tracks corrective actions on audit recommendations using the Department of the 

Treasury’s Joint Audit Management Enterprise System (JAMES). The system 

includes audit recommendations from TIGTA, the Department of the Treasury Office 

of Inspector General, and us. IRS management is responsible for ensuring that 

corrective actions are taken on audit recommendations that address IRS. For fiscal 

years 2000 through 2004, JAMES reported that as of May 2005, about 83 percent of all 

audit recommendations were implemented. 

Scope and Methodology 

We obtained the actual budget authority and the staffing levels at TIGTA,4

 and the 

total federal funds and FTEs at IRS,5

 for fiscal years 2000 through 2004, as reported in 

the Budget of the United States Government. We used this information to identify 

trends over this period and to compare TIGTA’s resources with overall IRS resources. 

In addition, we compared the ratio of IG budget authority with agency budgetary 

resources6

 in fiscal year 2004 for all IG offices for which an IG is appointed by the 

President and confirmed by the Senate. For fiscal year 2004 agency budgetary 

 

3

GAO, Government Auditing Standards, GAO-03-673G (Washington, D.C.: June 2003). 4

Office of Management and Budget, Budget of the United States Government, Appendix (Washington, 

D.C.: Government Printing Office) Fiscal Years 2002-2006. 

5

Office of Management and Budget, Budget of the United States Government, Analytical Perspectives 

(Washington, D.C.: Government Printing Office) Fiscal Years 2002-2006. 

6

Agency budgetary resources are those amounts available to enter into new obligations and to liquidate 

them, and are made up of new budget authority (including direct spending authority provided in 

existing statute and obligation limitations) and unobligated balances of budget authority provided in 

previous years. 
Page 3 GAO-05-999R Activities of TIGTA 

resources, we used information from the Statement of Budgetary Resources for each 

agency reported in the Fiscal Year 2006 Budget of the United States Government.

7

 

We did not audit or otherwise verify the budget amounts. 

To analyze TIGTA’s audit coverage of IRS, we compared the organizational structures 

of TIGTA and IRS to analyze coverage of IRS’s offices and missions, obtained copies 

of completed audits, and reviewed all audit reports issued by TIGTA during fiscal 

year 2004. We compared the subjects and contents of these audit reports with 

weaknesses at IRS previously identified by TIGTA and us to determine the extent to 

which the known weaknesses were being covered through TIGTA’s audits. In 

addition, we compared the audit reports with TIGTA’s statutorily mandated coverage 

of IRS’s administration of specific provisions of the IRS Reform Act. To illustrate the 

investigative coverage of IRS, we obtained the number of investigative cases that 

addressed the mission areas of TIGTA’s Office of Investigations during fiscal year 

2004. 

We identified the audit and investigative accomplishments reported by TIGTA in 

semiannual reports to the Congress for fiscal years 2000 through 2004, and obtained 

examples of individual reports to illustrate. We did not audit or otherwise verify the 

dollar amount of financial accomplishments reported by TIGTA. 

Regarding quality control, we interviewed TIGTA staff and obtained documentation 

of TIGTA’s quality control process, including the reports on quality control, internal 

quality inspections, and external peer review reports of TIGTA’s audit operations. 

We also interviewed TIGTA staff regarding the tracking of audit recommendations 

and obtained JAMES documentation for audit follow-up, including information about 

the percentage of recommendations implemented by IRS. 

We performed our audit from March 2005 through August 2005, in accordance with 

U.S. generally accepted government auditing standards. We requested comments on 

a draft of this report from the Treasury Inspector General for Tax Administration or 

his designee. We received written comments from the Treasury Inspector General for 

Tax Administration, which we have reprinted in enclosure IV. We also received 

several oral comments offering technical suggestions, which we have incorporated as 

appropriate. 

Background 

IRS administers America’s tax laws and collects the revenues that fund most 

government operations and public services. Each year IRS employees make millions 

of contacts with American taxpayers and businesses. To accomplish its mission, IRS 

focuses its efforts on achieving three key goals: (1) improving taxpayer service; 

(2) enhancing enforcement of the tax law; and (3) modernizing IRS through people, 

processes, and technology. For the fiscal year 2004 filing season, IRS reported that it 

collected over $2 trillion, processed over 131 million individual returns, and issued 

approximately 100 million refunds totaling about $208 billion. 

 

7

Office of Management and Budget, Budget of the United States Government, Supplemental 

Information (Washington, D.C.: Government Printing Office) Fiscal Year 2006. 
Page 4 GAO-05-999R Activities of TIGTA 

TIGTA is responsible for the independent oversight of IRS at the Department of the 

Treasury. Formed in January 1999 as a result of the IRS Reform Act, TIGTA is an 

oversight organization within the Department of the Treasury in addition to, and 

independent of, the Department of the Treasury Office of Inspector General, which 

was established by the IG Act Amendments of 1988.8

 Both IGs report directly to the 

Secretary of the Treasury; however, TIGTA provides oversight of IRS, and the 

Treasury IG provides oversight of the remaining offices at the Department of the 

Treasury. 

Prior to the IRS Reform Act, IRS oversight was provided by the Treasury IG and the 

IRS Office of Chief Inspector, also known as the Inspection Service. Established on 

October 1, 1951, the Inspection Service was responsible for carrying out internal 

audits and investigations to (1) promote the economic, efficient, and effective 

administration of the nation’s tax laws; (2) detect and deter fraud and abuse in IRS’s 

programs and operations; and (3) protect IRS from external attempts to corrupt or 

threaten its employees. The Chief Inspector reported to IRS’s Commissioner and 

Deputy Commissioner and provided information to the Treasury IG, who included the 

results of Inspection Service activities in the Treasury IG’s semiannual reports to the 

Congress. 

In 1998 the Senate Committee on Finance concluded that the Office of Chief 

Inspector lacked sufficient autonomy from IRS to independently provide monitoring 

and oversight activities.9

 In addition, the committee believed that the relationship 

between the Treasury IG and the Inspection Service did not foster the appropriate 

oversight of IRS. Consequently, to improve the quality and the credibility of IRS’s 

oversight, TIGTA was established within the Department of the Treasury to provide 

independent audits and investigations of IRS. 

In addition to the authorities and responsibilities granted under the IG Act, the IRS 

Reform Act gives TIGTA the statutory authority to allow staff to carry firearms, 

execute and serve search and arrest warrants, serve subpoenas and summonses, 

make arrests, and seize property. The IRS Reform Act also makes taxpayer returns 

and return information available for inspection by TIGTA. TIGTA reports to and 

operates under the general supervision of the Secretary of the Treasury; however, 

neither the Secretary nor any other officer of the Treasury Department can prevent or 

prohibit TIGTA from initiating, carrying out, or completing any audit or investigation, 

or from issuing a subpoena during the course of any audit or investigation. In 

addition, TIGTA is required to report to the Attorney General whenever there are 

reasonable grounds to believe that there has been a violation of federal criminal law. 

Consistent with the IG Act and the IRS Reform Act, TIGTA conducts audits and 

investigations of IRS’s programs and operations to promote the economic, efficient, 

and effective administration of the nation’s tax laws and to detect and deter fraud and 

abuse in IRS’s programs and operations. TIGTA’s primary functional offices are the 

Office of Audit, the Office of Investigations, the Office of Information Technology, the 

Office of Management Services, and the Office of the Chief Counsel. As required by 

the IG Act, TIGTA reports its activities and the results of audit and investigative 

 

8

Pub. L. No. 100-504, 102 Stat. 2515 (Oct. 18, 1988). 

9

S. Rep. No. 105-174 (1998). 
Page 5 GAO-05-999R Activities of TIGTA 

efforts in semiannual reports to the Congress for the periods ending March 31 and 

September 30 each year. Also, TIGTA presents specific information in these 

semiannual reports about IRS’s compliance with provisions of the IRS Reform Act. 

TIGTA Budgets and Staffing

The IRS Reform Act provided that all but 300 of IRS’s Inspection Service FTEs for 

fiscal year 1998 be transferred to TIGTA. The IRS Commissioner was allowed to 

retain up to 300 FTEs to staff an internal audit function. In addition, 21 FTEs 

previously transferred from the Inspection Service to the Treasury IG for oversight of 

IRS pursuant to a 1990 memorandum of understanding (MOU) were transferred to 

the newly formed TIGTA. As a result, TIGTA realized 932 FTEs and had budget 

authority of about $114 million in fiscal year 2000, its first year of operations. In 

fiscal year 2004, TIGTA had budget authority of $130 million and realized 877 

authorized FTEs. As of September 30, 2004, TIGTA had 874 staff on board with 317 in 

the Office of Audit; 432 in the Office of Investigations; 81 in the Office of Information 

Technology; 23 in the Office of Management Services, including the IG; and 21 in the 

Office of Chief Counsel. 

From fiscal year 2000 through fiscal year 2004, TIGTA’s budget authority increased by 

14 percent, from $114 million to $130 million, while TIGTA’s FTEs decreased by 6 

percent, from 932 to 877. TIGTA’s increased budget authority occurred mostly in the 

second year of operations because of expenses related to establishing an independent 

office and the effects of full costing of federal retirements. Since fiscal year 2001, 

TIGTA has operated in a relatively unchanged budget environment while absorbing 

increases in costs that are largely beyond TIGTA’s control, accompanied by a 

corresponding reduction in FTEs. For a comparison, during fiscal years 2000 through 

2004, overall IRS’s total federal funds increased by 52 percent and FTEs increased by 

1 percent. Therefore, even though they have both increased in recent years, TIGTA’s 

budget authority as a percentage of IRS’s total federal funds decreased from 0.30 

percent to 0.23 percent. (See table 1.) 

Table 1: TIGTA’s and IRS’s Budgets and FTEs for Fiscal Years 2000 through 2004 

Dollars in millions 

Fiscal year 

TIGTA’s budget 

authority

IRS’s total 

federal funds 

TIGTA’s budget 

authority as a 

percentage of 

IRS’s total 

federal funds TIGTA’s FTEs IRS’s FTEs 

2000 $114 $37,881 0.30 932 97,799 

2001 127 39,370 0.32 937 98,574 

2002 130 46,658 0.28 943 100,217 

2003 128 51,631 0.25 926 99,862 

2004 130 57,443 0.23 877 98,735 

Source: Budget of the United States Government. 
Page 6 GAO-05-999R Activities of TIGTA 

The comparison of TIGTA’s budget authority with IRS’s total federal funds represents 

the amount provided for IG oversight as it relates to the amount of budgetary 

resources received by the agency that it oversees. When this comparison is made for 

the other IG offices in which the IG is appointed by the President and confirmed by 

the Senate, the percentages vary depending on the size of the federal agencies, their 

missions, and the oversight issues emphasized by each IG office. Such a comparison 

for fiscal year 2004 budgets indicates that the ratio of TIGTA’s budget authority to 

IRS’s total federal funds was within the range of these percentages for other IGs and 

their agencies. (See enc. I.) The comparison of IGs’ budget authorities and agencies’ 

budgetary resources ranged from 0.004 percent to 1.03 percent, whereby TIGTA’s 

percentage of IRS resources was at 0.23 percent, which ranks sixth of 28 agencies. 

This comparison at IRS does not include the implications of IRS’s main role as the 

nation’s tax collector and the amount of federal revenue collected by the IRS. 

Audit Coverage of IRS 

In fiscal year 2004, TIGTA issued 189 audit reports, which provided audit coverage of 

IRS’s operating divisions and other units (see enc. II), as well as the high-risk areas 

identified by us, management challenges identified by TIGTA, and audits of IRS’s 

activities mandated by the IRS Reform Act. This is accomplished through TIGTA’s 

organizational structure, which has four business units reporting to the Deputy IG for 

Audit that are aligned with IRS’s operating divisions and other units, and provide 

audits of identified risks and congressionally mandated IRS requirements. (See fig. 1.) 

Figure 1: TIGTA Organization Chart 
Page 7 GAO-05-999R Activities of TIGTA 

For example, in fiscal year 2004, TIGTA’s Wage and Investment Income business unit 

issued 40 audit reports that addressed the IRS Wage and Investment Division’s 

mission to serve tax filers with wage and investment income and to help taxpayers 

understand the tax laws. The work of this division includes IRS’s enforcement of the 

tax laws, the processing of taxpayers’ returns, and the administration of the Earned 

Income Tax Credit and Advanced Earned Income Tax Credit while minimizing the 

burden on taxpayers and protecting their privacy. 

Also, in fiscal year 2004, TIGTA’s Small Business and Corporate Programs business 

unit issued 37 audit reports to cover IRS’s Small Business and Self-Employed 

Division, which serves self-employed individuals; individual filers with income from 

rents, royalties, pensions, annuities, partnerships, estates, and trusts; and small 

businesses with assets of up to $10 million. These audits also included coverage of 

IRS’s Large and Mid-Size Business Division, which serves businesses with assets of 

more than $10 million. During fiscal year 2004, TIGTA’s audits concentrated on 

assessing IRS’s efforts to provide quality service while helping taxpayers understand 

the tax laws, processing the tax returns, and enforcing compliance with the tax laws. 

TIGTA’s Headquarters Operations and Exempt Organizations business unit issued 82 

audit reports in fiscal year 2004 to provide coverage of IRS’s Tax-Exempt and 

Government Entities Division, which serves a wide range of customers, including 

small local community organizations, municipalities, major universities, pension 

funds, state governments, Indian tribal governments, and tax-exempt bond issuers. 

These audits also provide coverage of IRS’s Financial Management and Operations, 

IRS’s activities in compliance with the Government Performance and Results Act of 

1993,10 the Criminal Investigation function, and agencywide shared services. 

TIGTA’s Information Systems business unit issued 30 audit reports to cover IRS 

efforts to modernize its core business systems and to provide high-quality, efficient, 

and responsible information services for its operating divisions. In addition, through 

these audits, TIGTA oversees the security of information systems, the buildings that 

house the systems, and the people who operate them, and assesses IRS’s efforts to 

manage risks and vulnerabilities throughout its technology modernization projects. 

Audit Coverage of Risks and Mandates 

While TIGTA is organized to provide audits that address IRS’s operating divisions and 

other units, emphasis is also placed on high-risk areas identified by us, IRS’s 

management challenges identified by TIGTA, and mandatory coverage required by 

the IRS Reform Act. Since 1990, we have periodically reported on government 

operations that we have designated as high risk because of their greater 

vulnerabilities to fraud, waste, abuse, and mismanagement. We also identify high-risk 

areas to focus on the need for broad-based transformations to address major 

challenges to economy, efficiency, or effectiveness. 

 

10Pub. L. No. 103-62, 107 Stat. 285 (Aug. 3, 1993). 
Page 8 GAO-05-999R Activities of TIGTA 

In January 2003 we identified 25 high-risk areas across government and added a 26th

high-risk area in July 2003. These areas included IRS’s multibillion-dollar Business 

Systems Modernization program, financial management, collection of unpaid taxes, 

and earned income tax credit noncompliance. In January 2005 we combined the 

financial management area with the systems modernization area into a category titled 

“Business Systems Modernization,” and combined the earned income credit 

noncompliance with the collection of unpaid taxes into a category titled 

“Enforcement of Tax Laws.” 

The management challenges identified by TIGTA at the beginning of fiscal year 2004 

include the high-risk areas identified by us; therefore, TIGTA’a audits of management 

challenges provide coverage of our identified high-risk areas at IRS.11 (See enc. III.) 

The identification of management challenges by the IGs began in 1997 when the IGs 

were asked by congressional leaders to identify the 10 most serious management 

problems in their respective agencies. This request began a yearly process that 

continues as a result of the Reports Consolidation Act of 2000.12 This act called for 

executive agencies, including IRS, to include their IGs’ lists of significant 

management challenges in their annual performance and accountability reports to the 

President, the Office of Management and Budget (OMB), and the Congress. 

Efforts to modernize IRS’s systems, mandated by the IRS Reform Act, began in fiscal 

year 1999. IRS expects that it will take 10 to 15 years at a cost of $7 billion to 

$10 billion. We have recognized the modernization of IRS’s systems as a high-risk 

area, and TIGTA has identified this as a management challenge that will require 

attention for years to come. TIGTA has also recognized that the integration of IRS’s 

financial management and performance are management challenges at IRS by citing 

the weaknesses we reported in our audits of IRS’s financial statements. These 

challenges include serious deficiencies in financial systems, including control 

weaknesses and system deficiencies affecting financial reporting, unpaid tax 

assessments, tax revenue and refunds, and computer security. In fiscal year 2004, 

TIGTA completed 15 audits that addressed IRS’s systems modernization and 13 audits 

that addressed IRS’s financial management and performance. 

IRS’s administration of tax compliance initiatives and taxpayer protection and rights 

are also designated by TIGTA as management challenges. Both of these challenges 

include the collection of taxes, which is also a GAO high-risk area. In addition, 

TIGTA has recognized improper payments at IRS as a management challenge that 

includes taxpayers’ noncompliance with the earned income tax credit. To provide 

audit coverage of these areas in fiscal year 2004, TIGTA completed 29 audits of tax 

compliance initiatives along with 17 audits of taxpayers’ protection and rights, which 

included the collection of unpaid taxes, and 5 audits that addressed erroneous and 

improper payments, which included taxpayers’ noncompliance with the earned 

income tax credit. 

 

11GAO and TIGTA maintain ongoing coordination of high-risk audit efforts. 12Pub. L. No. 106-531, 114 Stat. 2537 (Nov. 22, 2000). 
Page 9 GAO-05-999R Activities of TIGTA 

TIGTA’s fiscal year 2004 audits also covered the statutorily mandated audits specified 

in the IRS Reform Act, which requires TIGTA to review IRS’s actions taken to 

improve service to taxpayers. TIGTA’s audit reports covered the following areas: 

• restrictions on the use of enforcement statistics to evaluate IRS employees, 

• any termination or mitigation under section 1203 of the IRS Reform Act,13 

• information regarding the improper denial of requests for information from 

IRS, 

• restrictions on directly contacting taxpayers who have indicated they prefer 

their representatives be contacted, 

• procedures on the filing of a notice of a lien, 

• procedures for seizure of property, 

• certification that the Treasury Secretary complied with certain disclosures, 

• extensions of the statute of limitations for the assessment and collection of 

taxes, 

• adequacy and security of IRS technology, 

• restrictions on the designation of taxpayers as illegal tax protesters, and 

• actions with respect to violations of the fair-debt-collection provisions. 

To satisfy additional statutory provisions, TIGTA reported in each fiscal year 2004 

semiannual report the number of taxpayer complaints during the period and the 

number of employee misconduct and taxpayer abuse allegations received by IRS or 

the IG during the period from taxpayers, IRS employees, and other sources. In 

addition, the semiannual reports included a required summary of the status of such 

complaints and allegations as well as their disposition, including any action by the 

Department of Justice and any moneys paid as a settlement. 

Investigative Coverage 

As was the case with the audit function, the IRS Reform Act also transferred the 

statutory law enforcement authority of the former IRS Inspection Service to TIGTA 

and its Office of Investigations. TIGTA has responsibility for enforcing criminal law 

related to internal revenue and focuses investigations on three main areas of concern: 

(1) allegations of criminal violations and serious administrative misconduct by IRS 

employees; (2) external attempts to corrupt tax administration; and (3) issues of 

employee infrastructure and security. (See fig. 2.) The Office of Investigations’ 

authority includes executing and serving search and arrest warrants, serving 

subpoenas and summonses, making arrests without warrant for any offense against 

the United States related to internal revenue laws, and seizing property subject to 

foreclosure under IRS laws. 

 

13In general, the IRS Commissioner shall terminate the employment of any IRS employee if there is a 

final administrative or judicial determination that in the performance of official duties, such employee 

committed any misconduct violations outlined in the act. 
Page 10 GAO-05-999R Activities of TIGTA 

Figure 2: TIGTA’s Office of Investigations Closed Investigations by Investigative Area Reported by 

 TIGTA in Fiscal Year 2004 

The investigative responsibilities of TIGTA’s Office of Investigations are coordinated 

with the IRS Criminal Investigation office through an MOU between TIGTA and the 

Chief of IRS Criminal Investigation signed in August 2000. The MOU specifies that 

IRS Criminal Investigation will investigate violations of the Internal Revenue Code’s

substantive criminal tax provisions, such as attempted evasion, failure to file or pay, 

the subscription of false documents, and corrupt endeavors to obstruct or impede the 

administration of the tax code. TIGTA has responsibility to protect IRS against 

external attempts to corrupt or threaten IRS employees, including investigations of 

allegations of IRS employee conduct violations and other allegations regarding 

employee integrity. 

During fiscal year 2004, TIGTA reported that it closed 3,900 investigative cases.14 Of 

these, 1,695 investigations, or 43 percent, addressed employee integrity cases, such as 

misconduct, extortion, theft, taxpayer abuses, false statements, and financial and 

contractor fraud. For example, because of these investigations, two IRS employees 

were indicted for diverting tax refunds to their own accounts, an employee pleaded 

guilty to filing fabricated income tax returns to obtain tax refund payments, and an 

employee pleaded guilty to stealing checks payable to IRS and altering them for 

personal use. 

 

TIGTA reported that 32 percent of closed investigations during fiscal year 2004, or 

1,231 investigations with final referrals, addressed external attempts to corrupt or 

interfere with the administration of internal revenue laws. These external attempts to 

corrupt or interfere include bribes offered by taxpayers to compromise IRS 

employees, the manipulation of IRS’s systems and programs, the use of fraudulent 

IRS documentation, and impersonation of IRS officials. Specifically, TIGTA reported 

that the Office of Investigations conducted 56 investigations into bribery allegations 

 

14TIGTA recognizes investigative cases as closed after they are referred for final action. This may 

include referrals to the Department of Justice, state or local jurisdictions, or IRS. 
Page 11 GAO-05-999R Activities of TIGTA 

involving taxpayers, 280 investigations of attempts to manipulate IRS’s systems and 

operations, and 895 investigations into nontax fraud and other related activities. To 

illustrate, as a result of TIGTA’s investigations, an individual was sentenced for mail 

fraud because this individual directed clients to deposit funds for tax purposes into a 

fund used for the individual’s personal purposes. In addition, individuals were 

sentenced for bribing IRS employees and for impersonating IRS employees.

The remaining 25 percent of closed investigations, or 974 investigative cases with 

final referrals reported by TIGTA, addressed employee and infrastructure security to 

ensure IRS’s ability to collect taxes. Specifically, this includes activities by the Office 

of Investigations to identify threats against IRS personnel and facilities and to notify 

IRS management of the potential for harm. In addition, TIGTA also investigates 

threats and assaults directed at facilities and employees, which include arresting 

individuals who direct threatening letters and statements to IRS employees. 

Consequently, as reported, TIGTA issued 64 advisories notifying IRS management of 

potential threats and completed 910 investigations of threats and assaults directed at 

IRS facilities and employees. 

TIGTA’s Accomplishments

Statutory IGs, including TIGTA, are required by the IG Act to report specific financial 

accomplishments in their semiannual reports provided for the Congress. As required, 

TIGTA’s semiannual reports for fiscal years 2000 through 2004 included the number 

of audit reports issued and the questioned costs, unsupported costs, and funds to be 

put to better use identified by the audits. As defined by the IG Act, questioned costs 

include either alleged violations of laws, regulations, contracts, grants, or 

agreements; costs not supported by adequate documentation; or the expenditure of 

funds for an intended purpose that was unnecessary or unreasonable. In addition, 

unsupported costs are defined as costs that do not have adequate documentation, and 

funds to be put to better use are inefficiencies identified by the IG in the use of 

agency funds. For the 5-year period, TIGTA issued 942 audit reports and reported 

$16.1 million in questioned costs, $3.1 million in unsupported costs, and $16.2 billion 

in funds to be put to better use. 

In an example of questioned costs, TIGTA’s follow-up audit of controls over IRS’s 

telecommunications costs found that about $2.2 million of questioned costs had been 

identified by IRS based on TIGTA’s prior findings of ineffective controls. In an 

example of unsupported costs, TIGTA audited four invoices from the IRS business 

systems modernization contract and found approximately $9.5 million of these costs 

unsupported by documentation from the contractor. After TIGTA’s audit report draft 

was issued, the contractor provided documentation to support all but approximately 

$52,000 of the $9.5 million originally questioned. In an example of funds to be put to 

better use, TIGTA recommended that IRS reduce the amount of underused office 

space, which could save about $84 million per year. 

In addition to the audit accomplishments, during the same 5-year period, TIGTA 

reported that 39,611 complaints and allegations were addressed and that 22,350 

investigative cases were closed. This activity resulted in the reported recovery of 

about $17.5 million of embezzled or stolen funds and almost $80 million in courtordered fines, penalties, and restitutions. In addition, reported nonmonetary 
Page 12 GAO-05-999R Activities of TIGTA 

investigative accomplishments included almost 10,000 criminal referrals—of which 

about 1,700 were accepted for prosecution by the Department of Justice or state or 

local authorities—and administrative dispositions on 3,805 investigations, which 

included removal, termination of employment or suspension, reduction in grade, 

written or oral reprimand, or resignation of the employee. The combined financial 

accomplishments from audits and investigations reported by TIGTA over the 5-year 

period totaled about $16.3 billion. 

In addition to the audit information required by the IG Act, TIGTA’s Office of Audit 

has identified measures that demonstrate additional potential financial impact on tax 

administration. These accomplishments are intended to provide further insights into 

the value and potential impact of TIGTA’s audits and include increases in the 

collection of additional taxes, improvements to revenue protection and taxpayer 

privacy, correction of inefficient uses of resources, needed protections of human and 

capital assets, and correction of problems with the reliability of management 

information. To illustrate, TIGTA estimated that by improving the controls to ensure 

that tax returns with potential transfer pricing15 issues are referred to international 

examiners for consideration, federal revenue could increase by approximately 

$32.3 million annually, provided that IRS has the additional resources to examine the 

returns. For the 5-year period we reviewed, TIGTA reported over $50 billion of these 

additional potential financial impacts. 

TIGTA Quality Assurance Program 

TIGTA’s quality assurance program includes a quality review of individual audit 

reports, internal quality inspections to monitor the quality of audits, and external 

quality peer reviews. Specifically, the IG Act requires federal IGs to follow 

Government Auditing Standards, which requires an appropriate internal quality 

control system and an external peer review every 3 years. These standards specify 

that quality control systems should include procedures for monitoring, on an ongoing 

basis, whether the policies and procedures related to the standards are suitably 

designed and are being effectively applied. 

To comply with the quality assurance standard, TIGTA’s Office of Management and 

Policy uses a standardized checklist to review all draft audit reports prior to issuance. 

This review addresses audit scope, finding attributes, the sufficiency and relevancy of 

findings in comparison to the audit objectives, the adequacy of recommendations to 

address identified causes, audit sampling methodology, and quantifiable outcome 

measures. In addition, the review provides assurance of general compliance with 

professional auditing standards; conformance with TIGTA report format; clarity of 

information; and conformance with rules for grammar, punctuation, and style. 

TIGTA also performs quality assurance through internal quality inspections of each of 

its four business units once every 3 years. In these inspections, each business unit is 

assigned responsibility for conducting the inspection of another business unit and 

reporting to the Deputy IG for Audit on the results. The checklist used in this review 

 

15Transfer pricing is a term commonly used to describe pricing arrangements for exchanging goods, 

services, and other property between related entities or affiliates of multinational businesses with 

operations in the United States and other countries. 
Page 13 GAO-05-999R Activities of TIGTA 

includes steps derived from the quality assurance process of the President’s Council 

on Integrity and Efficiency (PCIE)16 and guidance from Government Auditing 

Standards. The checklist has questions that address staff qualifications, 

independence, professional judgment, independent referencing, audit planning, 

sampling plans, supervision, evidence, work papers, internal controls, illegal acts, 

noncompliance, abuse, and reporting. 

Two internal inspections of TIGTA’s business units have been completed, and two are 

planned for the audit activities covering fiscal years 2004 and 2005. The reviews of 

the Headquarters Operations and Exempt Organizations unit and the Wage and 

Investment Income unit found that the audits conducted by these business units were 

completed in compliance with U.S. generally accepted government auditing 

standards. In addition, the reports concluded that audit staff generally complied with 

Office of Audit policies and procedures. The review did find instances in which the 

audit teams could more closely follow policies and procedures and reported TIGTA’s 

planned actions to address the review’s conclusions. 

TIGTA has obtained two external peer reviews from other IG offices since fiscal year 

2000 and obtained an unqualified opinion in each review. These external quality 

control reviews provide TIGTA with an independent opinion on the quality control 

system, whether the system is in place and operating effectively, and whether the 

policies and applicable audit standards are being followed. The Transportation IG 

performed the most recent external peer review of TIGTA. The peer review report, 

dated January 22, 2004, concluded that the quality control system for the audit 

function had been designed in accordance with quality standards established by 

PCIE. The peer review report further states that TIGTA’s quality control system 

provides reasonable assurance of material compliance with professional auditing 

standards in conducting its audits. The report also identifies opportunities for TIGTA 

to strengthen compliance with its quality control system for the conduct of audits. 

The peer review observations include aspects of continuing professional education, 

quality control, audit planning, evidence and work papers, the assessment of 

management controls, and audit reporting. 

Audit Follow-up 

The Department of the Treasury tracks audit recommendations through the JAMES. 

JAMES includes all audit recommendations from TIGTA, the Treasury IG, and us on 

the basis of information provided by the auditors, and tracks the status of 

management’s response and implementation. Treasury’s process for tracking audit 

recommendations is consistent with OMB Circular No. A-50, Audit Follow Up, which 

states that audit follow-up on recommendations contained in audit reports is an 

integral part of good management and is a shared responsibility of agency 

management officials and auditors. In addition, each agency is required to establish a 

system to ensure the prompt and proper resolution and implementation of audit 

recommendations. 

 

16PCIE is an interagency council composed principally of the presidentially appointed and Senateconfirmed IGs, which is governed by Executive Order No. 12805 of May 11, 1992, to coordinate and 

enhance the work of the IGs. 
Page 14 GAO-05-999R Activities of TIGTA 

The IG Act also requires that semiannual reports prepared by the IGs, including those 

of TIGTA, provide an identification of each significant recommendation described in 

previous semiannual reports for which corrective action has not been completed. In 

addition, Government Auditing Standards requires that audit plans include a 

consideration of the results of previous audits that could affect the current audit 

objectives and follow-up on known significant findings and recommendations. 

Under OMB Circular No. A-50, IRS management is responsible for completing plans 

for corrective actions to address audit recommendations and for ensuring that 

corrective action is taken in response to each audit report. Each TIGTA business unit 

has a staff member who is a JAMES user with the ability to query the system and 

provide feedback on the status of individual open or closed audit report 

recommendations. TIGTA’s semiannual reports include the status of prior audit 

recommendations as required by the IG Act. Moreover, in compliance with 

government auditing standards, TIGTA officials stated that subsequent audits follow 

up on prior audit recommendations. During fiscal years 2000 through 2004, JAMES 

reported that of 2,912 corrective actions planned by IRS management to address 

TIGTA’s audit recommendations, 2,625, or approximately 90 percent, were closed 

because IRS agreed to adopt the recommendations. Of these closed 

recommendations, JAMES reported that about 83 percent have been fully 

implemented. 

Agency Comments 

In written comments on a draft of this report, the Treasury Inspector General for Tax 

Administration generally concurred with the report contents. TIGTA staff separately 

offered several oral comments for clarification purposes. We considered each of the 

suggestions and incorporated changes as appropriate. 

- - - - - 

As agreed with your offices, unless you announce its contents earlier, we plan no 

further distribution of this report until 30 days after its date. At that time, we will 

send copies to the Secretary of the Treasury, the Commissioner of Internal Revenue, 

the Treasury Inspector General for Tax Administration, the Deputy Director for 

Management of the Office of Management and Budget, other congressional 

committees, and interested parties. In addition, this report will be available at no 

charge on the GAO Web site at http://www.gao.gov. 
Page 15 GAO-05-999R Activities of TIGTA 

If you have any questions or would like to discuss this report, please contact me at 

(202) 512-9471 or franzelj@gao.gov. Contact points for our Offices of Congressional 

Relations and Public Affairs may be found on the last page of this report. Key 

contributors to this report were Jackson W. Hufnagle, Assistant Director, and 

Clarence Whitt. 

Jeanette M. Franzel 

Director 

Financial Management and Assurance 

Enclosures – 4 
Page 16 GAO-05-999R Activities of TIGTA 

Enclosure I 

A Comparison of Inspectors General’s Budget Authority and 

Agencies’ Budgetary Resources, 

Fiscal Year 2004

Dollars in millions 

No. Federal agency 

IG budget 

authority 

Agency total 

budgetary 

resources 

IG budget 

authority as a 

percentage of 

agency budgetary 

resources 

1 Nuclear Regulatory Commission $7 $682 1.03 

2 Federal Deposit Insurance Corporation 26 2,728 0.95 

3 Corporation for National and Community Service 6 935a 0.64 

4 Environmental Protection Agency 51 13,152 0.39 

5 Agency for International Development 37 14,633 0.25 

6 Treasury Inspector General for Tax Administration 130 57,443b 0.23 

7 Department of Commerce 21 9,823 0.21 

8 Department of Justice 74 37,415 0.20 

9 Department of Homeland Security 93 53,879 0.17 

10 Department of the Interior 42 25,109 0.17 

11 Department of State 32 21,332 0.15 

12 National Aeronautics and Space Administration 27 19,187 0.14 

13 General Services Administration 40 28,732 0.14 

14 Tennessee Valley Authority (TVA) 9c 7,341d 0.12 

15 Department of Energy 39 36,523 0.11 

16 Small Business Administration 14 14,025 0.10 

17 Department of Labor 66 67,890e 0.10 

18 Department of Housing and Urban Development 101 111,556 0.09 

19 Department of Veterans Affairs 65 94,564 0.07 

20 Railroad Retirement Board 7 10,461f 0.07 

21 Department of Transportation 63 106,442 0.06 

22 Department of Agriculture 81 142,890 0.06 

23 Department of Education 46 131,766 0.03 

24 Department of Health and Human Services 223g 721,084 0.03 

25 Department of Defense 179 1,014,878 0.02 

26 Social Security Administration 88 562,912 0.02 

27 Office of Personnel Management 16 126,269 0.01 

28 Department of the Treasury 14 373,254h 0.004 

29 Central Intelligence Agency nai nai nai 

Source: Budget of the United States Government, Fiscal Year 2006.

a

Corporation for National and Community Service’s fiscal year 2006 congressional budget justification. b

IRS’s total federal funds. 

c

Amounts for the TVA Inspector General are fiscal year 2005 estimates. 

d

Gross Fund Authority. 

e

Department of Labor totals exclude Pension Benefit Guaranty Corporation. f

Railroad Retirement Board fiscal year 2004 Performance and Accountability Report. g

Includes budget authority to combat Medicare fraud. 

h

Treasury’s agency budgetary resources exclude IRS and include interest on Treasury debt securities. i

Central Intelligence Agency and IG budgets are not available. 

 
Page 17 GAO-05-999R Activities of TIGTA 

Enclosure II 

Internal Revenue Service Organization

The Internal Revenue Service’s (IRS) four business divisions have missions directed 

at groups of taxpayers. (See fig. 3.) The Wage and Investment Division serves filers 

with wage and investment income; (2) the Small Business and Self-Employed 

Division serves self-employed individuals, individual filers with income from rents, 

royalties, pensions, annuities, partnerships, estates, and trusts, and small businesses 

with assets up to $10 million; (3) the Large and Mid-Size Business Division serves 

businesses with assets of more than $10 million; and (4) the Tax-Exempt and 

Government Entities Division serves small local community organizations, 

municipalities, major universities, pension funds, state governments, Indian tribal 

governments, and tax-exempt bond issuers. Along with the Criminal Investigation 

unit, these divisions report to the Deputy Commissioner for Services and 

Enforcement. 

Figure 3: IRS Organization 
Page 18 GAO-05-999R Activities of TIGTA 

Additional IRS offices report to the IRS Commissioner, including the Office of 

Appeals, which resolves tax controversies between taxpayers and IRS without 

litigation; the Taxpayer Advocate Service, headed by the National Taxpayer 

Advocate, which helps taxpayers resolve problems that have not been resolved 

through normal IRS channels and recommends changes to the Congress to improve 

the tax system; and Operations Support and other offices that support IRS activities.
Page 19 GAO-05-999R Activities of TIGTA 

Enclosure III 

 

Coverage of High-Risk Areas and Management Challenges in

Fiscal Year 2004 TIGTA Audit Reports

GAO 2005a 

high-risk areas 

GAO 2003b 

high-risk areas 

Management challenges 

identified by TIGTA in 

2004c

Fiscal year 

2004 TIGTA 

audit 

reports

Systems 

modernization 

Systems Systems modernization 15 

modernization 

Financial 

management 

Integrating performance 

and financial management 

13 

Collection of unpaid Tax compliance initiatives 29 

taxes Taxpayer protection and 

rights 

17 

Enforcement of 

tax laws 

Earned income tax 

credit noncompliance 

Erroneous and improper 

payments 

5 

 Quality customer service 

operations 

26 

 Security of IRS 18 

 Processing returns and 

implementing tax law 

changes 

10 

 Complexity of the tax law 2 

Areas 

addressed by 

TIGTAd

audits 

 Human capital 1 

Audits of 

management 

challenges 

 136

Other audits 3 

Total TIGTA 

audits 

 139

Contract 

auditse 

 50 

Total audits 189

Sources: GAO’s 2003 and 2005 High Risk Series, and TIGTA’s fiscal year 2004 audit reports. 

a

GAO, High-Risk Series: An Update, GAO-05-207 (Washington, D.C.: January 2005). b

GAO, High-Risk Series: An Update, GAO-03-119 (Washington, D.C.: January 2003). c

Department of the Treasury, Performance and Accountability Report FY 2004. d The Department of the Treasury Inspector General for Tax Administration. e

Contract audits performed for TIGTA by the Defense Contract Audit Agency.
Page 20 GAO-05-999R Activities of TIGTA 

Enclosure IV 

Comments from the Department of the Treasury

(194504) 
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