part 4: 

other 

accompanying 

information 

APPendiceS 

appenDix a: Other aCCOmpanying infOrmatiOn (unauDiteD) 

appenDix b: imprOper payments infOrmatiOn aCt anD 

reCOvery auDiting aCt 

appenDix C: management anD perfOrmanCe Challenges 

anD respOnses 

appenDix D: material Weaknesses, auDit fOllOW-up, 

finanCial systems, anD reCOvery aCt risk 

management 

appenDix e: glOssary Of aCrOnyms 

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273 

appendix a:
 

otHer accoMPanyinG inforMation (unaudited)
 

this section provides other accompanying Information as prescribed by oMb circular no. a-136, Financial Reporting 

Requirements. 

prOmpt payment 

the Prompt Payment Act requires federal agencies to make timely payments to vendors for supplies and services, to pay interest 

penalties when payments are made after the due date, and to 

take cash discounts only when they are economically justified. 0.80%

0.60%

0.40%

treasury bureaus report Prompt Payment data on a monthly 

basis to the Department, and periodic quality control reviews 

0.20% are conducted by the bureaus to identify potential problems. 

0.00%

Total Dollar 

Amount of 

Invoices Paid 

Total Number of 

Invoices Paid 

Percentage of 

Number of 

Invoices 

Paid Late 

1.40%

1.39%1.05%0.84%0.52%0.25%

2006 2007 2008 2009 2010 

1.20%

1.00%

Fiscal Year 

0.002%

Number (in Thousands) Dollars (in Millions) 

$4,227$4,384$4,704$4,773$6,250 

0.010%

$3,000

$2,000

Percentage of 

Dollar Amount 

of Interest 

Penalties Paid 

0.005%

$7,000

$6,000

$5,000

$4,000

0.002%0.001%0.001%0.001%0.001%

2006 2007 2008 2009 2010 

0.015%

$1,000

$0 0.000% 2006 2007 2008 2009 2010 

Fiscal Year Fiscal Year 

400

160166191338541

0.3%

300

Percentage 

of Number 

of Interest 

Penalties Paid 

0.2%

200

0.1% 100

600 0.5%

500

0.38%0.42%0.28%0.17%0.08%

2006 2007 2008 2009 2010 

0.4%

0 0.0% 2006 2007 2008 2009 2010 

Fiscal Year Fiscal Year 

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274 

tax gap 

reducing the tax gap is at the heart of Irs’ enforcement programs. the tax gap is the difference between what taxpayers should 

pay and what they actually pay due to not filing tax returns, not paying their reported tax liability on time, or failing to report their 

correct tax liability. the tax gap, about $345 billion based on updated fiscal year 2001 estimates, represents the amount of noncompliance with the tax laws. underreporting tax liability accounts for 82 percent of the gap, with the remainder almost evenly divided 

between non-filing (8 percent) and underpaying (10 percent). the Irs remains committed to finding ways to increase compliance 

and reduce the tax gap, while minimizing the burden on the vast majority of taxpayers who pay their taxes accurately and on time. 

the tax gap is the aggregate amount of tax (i.e., excluding interest and penalties) that is imposed by the tax laws for any given tax 

year but is not paid voluntarily and timely. the tax gap arises from the three types of noncompliance: not filing required tax returns 

on time or at all (the non-filing gap), underreporting the correct amount of tax on timely filed returns (the underreporting gap), and 

not paying on time the full amount reported on timely filed returns (the underpayment gap). of these three components, only the 

underpayment gap is observed; the non-filing gap and the underreporting gap must be estimated. each instance of noncompliance 

by a taxpayer contributes to the tax gap, whether or not the Irs detects it, and whether or not the taxpayer is even aware of the 

noncompliance. obviously, some of the tax gap arises from intentional (willful) noncompliance, and some of it arises from unintentional mistakes. 

the collection gap is the cumulative amount of tax, penalties, and interest that has been assessed over many years, but has not been 

paid by a certain point in time, and which the Irs expects to remain uncollectible. In essence, it represents the difference between 

the total balance of unpaid assessments and the net taxes receivable reported on the Irs’ balance sheet. the tax gap and the collection gap are related and overlapping concepts, but they have significant differences. the collection gap is a cumulative balance sheet 

concept for a particular point in time, while the tax gap is like an income statement item for a single year. Moreover, the tax gap 

estimates include all noncompliance, while the collection gap includes only amounts that have been assessed (a small portion of all 

noncompliance). 

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275 

tax burDen 

the Internal revenue code provides for progressive rates of tax, whereby higher incomes are generally subject to higher rates of 

tax. the following graphs and charts present the latest available information on income tax and adjusted gross income (agI) for 

individuals by agI level and for corporations by size of assets. for individuals, the information illustrates, in percentage terms, the 

tax burden borne by varying agI levels. for corporations, the information illustrates, in percentage terms, the tax burden borne by 

these entities by various sizes of their total assets. the graphs are only representative of more detailed data and analysis available from 

the statistics of Income (soI) office. 

Average 

Adjusted Gross 

Income (AGI) 

and Average 

Individual Income 

Tax Liability 

Tax Year 2008 

Dollars 

$1,600,000 

$1,400,000 

$1,200,000 

$1,000,000 

$800,000 

$600,000 

$400,000 

$200,000 

$0 $200,000 

under 

$500,000 

$500,000 

or more 

$100,000 

under 

$200,000 

$50,000 

under 

$100,000 

$30,000 

under 

$50,000 

$15,000 

under 

$30,000 

Under 

$15,000 

Individual 

Income Tax 

Liability as a 

Percentage 

of AGI 

Tax Year 2008 

Average AGI 

3,572 

Average income tax 

$1,63

14 

$381,

11

85,7

445

$133,2

$2

,065

,117

0,934

769

5,709

$2,740

$22

$39

$7

$59

$639

$2,221

$5,968

$16,

$5

25%

20%

15%

$200,000 

under 

$500,000 

$500,000 

or more 

$100,000 

under 

$200,000 

$50,000 

under 

$100,000 

$30,000 

under 

$50,000 

$15,000 

under 

$30,000 

Under 

$15,000 2.1%

2.9%5.7%8.4%12.6%19.5%23.4% 

Percent 

10%

5%

0%

INDIvIDUAL INCOME TAX LIABILITY 

Tax Year 2008 

Number of Average AGI Average income

Adjusted gross income (AGI) 

taxable returns 

(in thousands) 

AGI 

(in millions) 

Total income tax 

(in millions) 

per return 

(in whole dollars) 

tax per return 

(in whole dollars) 

Income tax as a 

percentage of AGI 

Under $15,000 37,970 $ 104,025 $ 2,227 $ 2,740 $ 59 2.1% 

$15,000 under $30,000 29,687 655,035 18,958 22,065 639 2.9% 

$30,000 under $50,000 25,641 1,002,998 56,953 39,117 2,221 5.7% 

$50,000 under $100,000 30,926 2,193,691 184,554 70,934 5,968 8.4% 

$100,000 under $200,000 13,851 1,845,103 232,270 133,211 16,769 12.6% 

$200,000 under $500,000 3,477 993,427 193,700 285,714 55,709 19.5% 

$500,000 or more 899 1,468,581 342,919 1,633,572 381,445 23.4% 

Totals 142,451 $ 8,262,860 $ 1,031,581 

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Corporation 

Tax Liability as 

a Percentage 

of Taxable 

Income 

Tax Year 2007 

Data 

Percent 

40%

35%

20%

10%

0%

32.7%19.3%23.7%29.7%33.0%33.3% 33.1%32.4%32.5%31.0%30.6%25.0% 

Zero

assets

$1 under

$500

$500 under

$1,000

$1,000 under

$5,000

$5,000 under

$10,000

$10,000 under

$25,000

$25,000 under

$50,000

$50,000 under

$100,000

$100,000 under

$250,000

$250,000 under

$500,000

$500,000 under

$2,500,000

$2,500,000

or more 

CORPORATION TAX LIABILITY 

Tax Year 2007 

Income subject to tax Total income tax after credits Percentage of income tax after 

Total Assets (in thousands) (in millions) (in millions) credits to taxable income 

Zero Assets $ 26,280 $ 8,593 32.7% 

$1 under $500 8,205 1,582 19.3% 

$500 under $1,000 4,292 1,017 23.7% 

$1,000 under $5,000 15,577 4,628 29.7% 

$5,000 under $10,000 10,008 3,299 33.0% 

$10,000 under $25,000 16,650 5,547 33.3% 

$25,000 under $50,000 13,139 4,347 33.1% 

$50,000 under $100,000 16,621 5,392 32.4% 

$100,000 under $250,000 27,977 9,100 32.5% 

$250,000 under $500,000 35,046 10,876 31.0% 

$500,000 under $2,500,000 145,944 44,586 30.6% 

$2,500,000 or more 928,546 232,408 25.0% 

Total $ 1,248,285 $ 331,375 26.5% 

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appendix b: 

iMProPer PayMents inforMation act and 

recoVery auditinG act 

the Improper Payments Information Act of 2002 (IPIa) requires agencies to review their programs and activities annually to identify 

those susceptible to significant improper payments. according to the office of Management and budget (oMb) circular a-123, 

Management’s Responsibility for Internal Control, appendix c, Requirements for Effective Measurement and Remediation of Improper 

Payments (a-123, appendix c), “significant” means that an estimated error rate and a dollar amount exceed the threshold of 2.5 

percent and $10 million of total program funding. a-123, appendix c also requires the agency to implement a corrective action plan 

that includes improper payment reduction targets. 

the government-wide chief financial officers council developed an alternative for meeting IPIa requirements for federal programs 

that are so complex that developing an annual error rate is not feasible. agencies may establish an annual estimate for a high-risk 

component of a complex program (e.g., a specific program population) with oMb approval. agencies must also perform trend 

analyses to update the program’s baseline error rate in the interim years between detailed program studies. When development of a 

statistically valid error rate is possible, the reduction targets are revised and become the basis for future trend analyses. 

I.	 Description of the Department’s risk assessment(s) performed subsequent to compiling its full 

program inventory and risk-susceptible programs 

each year, the Department develops a comprehensive inventory of the funding sources for all programs and activities and distributes it to the treasury bureaus and offices. If program or activity funding is at least $10 million, risk assessments are required at 

the payment type level (e.g., payroll, contracts, vendors, travel, etc.). the Department’s risk assessment follows the committee 

of sponsoring organizations of the treadway commission (coso) Internal control Integrated framework. the framework 

includes: 

1. Internal control environment 

2. risk assessment 

3. Internal control activities 

4. Information and communications 

5. Monitoring 

Within the coso Integrated framework, the factors addressed to determine risk levels include: 

•	 Operating Environment – existence of factors which necessitate or allow for loosening of financial controls; any known 

instances of fraud 

• Payment Processing Controls – Management’s implementation of internal controls over payment processes including 

existence of current documentation, the assessment of design and operating effectiveness of internal controls over payments, the identification of deficiencies related to payment processes, and whether or not effective compensating controls 

are present 

•	 Quality of Internal Monitoring Controls – Periodic internal program reviews to determine if payments are made properly; 

strength of documentation requirements and standards to support testing of design and operating effectiveness for key 

payment controls 

•	 Human Capital – experience, training, and size of payment staff; ability of staff to handle peak payment requirements; level 

of management oversight and monitoring against fraudulent activity 

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•	 Complexity of Program – length of time program has been operating; complexity and variability of interpreting and 

applying laws, regulations, and standards required of the program 

for those payment types resulting in high-risk assessments that comprise at least 2.5 percent and $10 million of a total funding 

source, (1) statistical sampling must be performed to determine the actual improper payment rate, and (2) a corrective action 

plan must be developed and submitted to the Department and oMb for approval. 

responses to the risk assessments produce a score that falls into pre-determined categories of risk. the following table describes 

the actions required at each risk level: 

Risk Level Required Action(s) 

High Risk > 2.5% Error Rate & > $10 Million Corrective Action Plan 

Medium Risk Review Payment Controls for Improvement 

Low Risk No Further Action Required 

the risk assessments performed across the Department in fiscal year 2010 resulted in all programs and activities as low and 

medium risk susceptibility for improper payments except for the Internal revenue service’s (Irs) earned Income tax credit 

(eItc) program. the eItc’s high-risk status is well-documented, having been previously identified in the former section 57 

of oMb circular a-11, Preparation, Submission, and Execution of the Budget, and has been deemed a complex program for the 

purposes of the IPIa. 

In addition to the risk assessments monitored under IPIa, the Department continued its review of initial risk assessments related 

to the American Recovery and Reinvestment Act of 2009 (recovery act) and required reassessments of high-risk recovery act 

programs. 

II.	 Describe the statistical sampling process conducted to estimate the improper payment rate for 

each program identified 

Earned Income Tax Credit 

the eItc is a refundable federal tax credit that offsets income taxes owed by low-income workers and, if the credit 

exceeds the amount of taxes owed, provides a lump-sum payment to those who qualify. 

the section below describes how the Irs currently develops its erroneous payment projections. the most recent projection is based on a tax year 2006 reporting compliance study that estimated the level of improper overclaims for fiscal year 

2010 to range between $15.3 to $18.4 billion and 23.9 percent (lower bound) to 28.7 percent (upper bound) of approximately $64.2 billion in total program payments. 

National Research Program (NRP) Analysis 

the complexity of the eItc program, the nature of tax processing, and the expense of compliance studies preclude statistical 

sampling on an annual basis to develop error rates for comparison to reduction targets. the estimates are based primarily on 

information from the national research Program (nrP) reporting compliance study of individual income tax returns for tax 

year 2006—the most recent year for which compliance information from a statistically valid, random sample of individual tax 

returns is available. the approach is nearly identical to that used for earlier years. 

under the tax year 2006 nrP reporting compliance study, individual income tax returns filed during calendar year 2007 for tax 

year 2006 were randomly selected for examination.1 this selection method allows the measures for the individual income tax 

1 the nrP used a stratified, random sample design. returns are grouped into predefined categories or “strata” and selected randomly within each 

stratum. 

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return filing population to be estimated from the results of the nrP sample returns. because one of the objectives of the nrP 

is to provide data for compliance measurement, nrP procedures and data collection differed from those followed in standard 

examination programs. nrP classification and examination procedures were more comprehensive in scope and depth than those 

for standard examination programs. these expanded procedures were designed to provide a more thorough determination of 

what taxpayers should have reported on their returns. 

the tax year 2006 nrP individual income tax return study covered filers of all types of individual income tax returns. about 

2,200 of the returns in the regular nrP sample were eItc claimants. the nrP study results for this eItc claimant subset of 

nrP returns were the primary source of data for the improper payments estimates. other data and information sources used for 

the estimates included the Irs enforcement revenue Information system (erIs), which tracks assessments and collections 

from Irs enforcement-related activities; treasury Department estimates of the effect of the eItc provisions in the Economic 

Growth and Tax Relief Reconciliation Act of 2001 on erroneous eItc claims; and treasury Department fiscal year 2010 eItc 

budget estimates. 

III. Describe the Corrective Action Plans for reducing the estimated rate of improper payments for 

the EITC program 

Base Program 

In 2010, the Irs prevented more than $3.7 billion from being paid in error. the prevention activity primarily focused on three 

areas: 

• Examinations – Irs identifies tax returns for examination and holds the eItc portion of the refund until an audit can 

be conducted. this is the only ongoing Irs audit program where exams are conducted before a refund is released. the 

examination closures and enforcement revenue protected in the charts below do not include test initiatives 

•	 Math Error – refers to an automated process in which the Irs identifies math or other statistical irregularities and automatically prepares an adjusted return for a taxpayer. congressional approval is required for math error use 

• Document Matching – Involves comparing income information provided by the taxpayer with matching information (e.g., 

W-2s, 1099s) from employers to identify discrepancies 

the chart below shows significant results from fiscal year 2005 through an estimate of fiscal year 2011. In fiscal year 2010 alone, 

the Irs conducted over 474,000 examinations, issued 300,000 math error notices, and closed over 900,000 document matching 

reviews. 

Compliance Activities 

(thousands) 

FY05* FY06* FY07* FY08* FY09* FY10** FY11*** FY05-FY11 Total 

Examination Closures 527,969 517,617 503,267 503,755 508,180 474,092 475,000 3,509,880 

Math Error Notices** 515,890 460,316 393,263 432,797 355,416 300,000 250,000 2,707,682 

Document Matching**** 324,419 364,020 734,603 727,916 688,087 904,920 900,000 4,643,965 

Amended Returns1 32,473 25,395 19,400 20,000 97,268 

* Restated actual 

** Preliminary estimates 

*** Estimate based on fiscal year 2011 preliminary data. 

**** Fiscal year 2007 and fiscal year 2008 restated to include enterprise data. In prior years, data included Wage and Investment data only. Small Business and SelfEmployed data have been added. 

1

 Amended returns are a subset of Examination Closures. 

these activities had a significant effect. treasury projects that continued enforcement efforts will protect over $23 billion in 

revenue through fiscal year 2011. 

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Enforcement Revenue Protected 

($ billions) 

FY05* FY06* FY07* FY08* FY09* FY10** FY11*** FY05-FY11 Total 

Examination Closures 1.35 1.50 1.49 2.00 2.15 1.96 1.96 12.41 

Math Error Notices** 0.52 0.46 0.41 0.44 0.40 0.34 0.28 2.85 

Document Matching**** 0.53 0.60 1.29 1.23 1.17 1.43 1.43 7.68 

Amended Returns 0.07 0.07 0.06 0.06 0.26 

TOTAL 2.40 2.56 3.19 3.74 3.79 3.79 3.73 23.20 

* Restated actual 

** Preliminary estimates 

*** Estimate based on fiscal year 2011 preliminary data 

**** Fiscal year 2007 and fiscal year 2008 restated to include enterprise data 

Testing New Business Processes 

the Irs continues to build new solutions for existing business processes and to use other activities to combat program 

error including: 

Pilot Concept – Assessing State Data for Validating EITC Eligibility 

treasury proposes a Partnership fund pilot to assess the availability, quality, completeness, and overall usefulness of stateadministered benefits data, as well as state benefits screening processes, to help validate eItc eligibility. the pilot would 

address whether state data could identify both ineligible individuals who receive improper eItc payments and eligible 

individuals who are not claiming the eItc. the assessment will be conducted separate from, but parallel to, normal federal 

eItc operations. the Irs’s actual eligibility results based on eItc claims in a pilot state will be compared to simulated 

eligibility results based on analysis of existing state data and potential state data that could be collected from new benefits 

enrollment questions. the results of the pilot will be used to develop administrative changes and statutory proposals to 

improve eItc payments nationally. 

Maximize Current Business Processes 

•	 Increase the activities associated with a suite of eItc paid preparer treatments, based on risk-based selections, including 

due diligence audits, visits by revenue and criminal investigation agents, streamlined injunctions, and educational and 

compliance notices to first-time and experienced preparers to influence the accuracy of eItc returns filed. analyze shortterm outcomes, including penalties and accuracy of returns 

•	 continuing the partnership with members from two key tax software associations to identify software enhancements and 

collaborative efforts that can help reduce eItc errors and assist preparers in meeting their eItc due diligence requirements 

•	 assess the 2010 eItc marketing/awareness campaigns that target eItc eligible and non-compliant populations to refine/ 

focus efforts and to incorporate recent tax law changes on eligibility and benefits to increase overall participation and 

improve compliance 

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IV. EITC Improper Payment Reduction Outlook 

the reduction outlook for eItc improper payments is as follows: 

Improper Payment (IP) Reduction Outlook 

($ in billions) 

Program PYOutlaysPY %PY $CYOutlaysCY IP%CY IP$CY+1 EstOutlaysCY+1IP%CY+1 IP$CY+2 EstOutlaysCY+2IP%CY+2 IP$CY+3 EstOutlaysCY+3IP%CY+3 IP$ 

EITC Upper Bound 

Estimate 

$48.1 28.0% $13.3 $64.2 28.7% $18.4 $64.1 28.7% $18.4 $58.2 28.7% $16.7 $58.3 28.7% $16.7 

EITC Lower Bound 

Estimate 

$48.1 23.0% $11.2 $64.2 23.9% $15.3 $64.1 23.9% $15.3 $58.2 23.9% $13.9 $58.3 23.9% $13.9 

Outlays: The amounts shown are projections of total payments for the EITC, estimated by the Office of Tax Analysis within the Department of the Treasury. 

Following prior methodology, the amount shown is the total EITC claimed. 

IP % and IP $: These estimates follow the prior approach which provided a range for improper payments. 

Note: The Improper Payment percentage and Estimated Outlay columns reflect a constant error rate pending the development of an annual error rate measurement. 

CY and CY+1 estimates include Recovery Act EITC provisions which expand the EITC for families with three children and increase the beginning of the phaseout range 

for couples filing a joint return. 

CY: Current year; PY: Prior year 

V. Management Accountability 

the secretary of the treasury has delegated responsibility for addressing improper payments to the assistant secretary for 

Management and chief financial officer (asM/cfo). Improper payments fall under the Department’s management and 

internal control program. a major component of the internal control program is risk assessments, which are an extension of 

each bureau’s annual improper payment review process. under treasury Directive 40-04, Treasury Internal (Management) Control 

Program, executives and other managers are required to have management control responsibilities as part of their annual performance plans. With oversight mechanisms such as the treasury cfo council and the Irs’s financial and Management controls 

executive steering committee, managerial responsibility and accountability in all management and internal control areas are 

visible and well-documented. 

Improper payments also have been monitored for improvement as a significant deficiency under the Federal Managers’ Financial 

Integrity Act. executives who are responsible and accountable for reducing the level of eItc overclaims have been identified, 

while other senior and mid-level officials have responsibility for monitoring progress in this area as bureau and program internal 

control officers. 

VI. Resources Requested in the Fiscal Year 2011 Budget Submission to Congress 

the fiscal year 2011 President’s budget submission included no new initiatives related directly to the eItc program. 

VII. Limiting Statutory and Regulatory Barriers 

a number of factors continue to serve as barriers to reducing overclaims in the eItc program. these include: 

•	 complexity of the tax law 

•	 structure of the earned Income tax credit 

•	 confusion among eligible claimants 

•	 high turnover of eligible claimants 

•	 unscrupulous return preparers 

•	 fraud 

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no one of these factors can be considered the primary driver of program error. furthermore, the interaction among the factors 

makes addressing the credit’s erroneous claims rate, while balancing the need to ensure the credit makes its way to taxpayers who 

are eligible, extremely difficult. 

VIII. Executive Order 13520 - Reducing Improper Payments and Eliminating Waste in Federal 

Programs 

on november 20, 2009, President barack obama issued executive order 13520 - Reducing Improper Payments and Eliminating 

Waste in Federal Programs (eo 13520). according to eo 13520, the purpose of the order is to “reduce improper payments by intensifying efforts to eliminate payment error, waste, fraud, and abuse in the major programs administered by the Federal Government, 

while continuing to ensure that Federal programs serve and provide access to their intended beneficiaries.” 

the eItc has been identified as a “high-priority program” under eo 13520. Due to the “high-priority program” status, certain 

requirements must be met. oMb developed these requirements to promote accountability and transparency by the agency 

program and federal government to the public for its use of public funds. requirements include but are not limited to: 

•	 Designation of a senate-confirmed accountable official 

•	 establishment of annual or semi-annual targets for reducing improper payments 

•	 report on agency methodology for identifying and measuring improper payments by the agency’s high-priority program(s) 

•	 agency plan for meeting the reduction targets for improper payments in the high-priority program(s) 

•	 agency plan for ensuring that initiatives undertaken do not unduly burden program access and participation by eligible 


beneficiaries
 

Periodic reviews and analysis of the progress of remediation plans will be addressed with the accountable program officials, 

Inspector general, chief financial officer, and oMb. treasury submitted the required plan and informational documents as 

required by 13520. 

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Recovery Auditing Act 

IX. Treasury’s Recovery Auditing Program 

section 831 of the Defense Authorization Act for fiscal year 2002 added a new subchapter to u.s. code (31 u.s.c 3561-3567), 

also known as the recovery auditing act, that requires agencies that enter into contracts with a total value in excess of $500 

million in a fiscal year to carry out a cost-effective program for identifying errors made in paying contractors and for recovering 

amounts erroneously paid to the contractors. a required element of such a program is the use of recovery audits and recovery 

activities. In accordance with oMb circular a-123, appendix c, reporting on recovery auditing is required annually. 

In fiscal year 2010, treasury issued contracts totaling $6.4 billion. treasury’s annual IPIa risk assessment process includes a 

review of pre-payment controls that minimize the likelihood and occurrence of improper payments. for recovery auditing act 

compliance, treasury requires each bureau and office to review their post-payment controls and report on recovery auditing 

activities, contracts issued, improper payments made, and recoveries achieved. bureaus and offices may use recovery auditing 

firms to perform many of the steps in their recovery auditing program and identify candidates for recovery action. 

treasury considers both pre-payment and post-payment reviews to identify payment errors a sound management practice that 

should be included among basic payment controls. all of treasury’s bureaus use some form of recovery auditing techniques to 

identify improper payments during post-payment reviews. at times, bureaus may use the services of recovery auditors to help 

them identify payment anomalies and target areas for improvement. however, treasury has extensive contract payment controls 

that are applied at the time each payment is processed, making recovery activity minimal. the low level of improper payments 

in 2010 did not require any treasury bureau to develop a management improvement program under recovery auditing act 

guidance. 

Recovery Auditing Information Fiscal Year 2004 - Fiscal Year 2010 

Agency AmountSubjectto Reviewfor CYReportingActualAmountReviewedandReportedCYAmountIdentifiedforRecoveryCYAmountRecoveredCY*AmountIdentifiedforRecoveryPYAmountRecoveredPYCumulativeAmts.IdentifiedforRecovery(CY+PYs)CumulativeAmts.Recovered(CY+PYs) 

Treasury $6,388,181,812 $5,825,819,856 $466,792 $518,000 $1,475,232 $1,357,672 $7,200,597 $6,018,579 

Note: CY: Current year; PY: Prior year 

* Includes amounts identified for recovery in prior years. 

for fiscal year 2010, the total number of contracts subject to review was 33,069; the total number reviewed was 25,479, for 

a total recovery auditing program cost of approximately $1.2 million dollars. 

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appendix c: 

ManaGeMent and PerforMance 

cHallenGes and resPonses 

In accordance with the Reports Consolidation Act of 2000, the Inspectors general issue semiannual reports to congress that identify 

specific management and performance challenges facing the Department. at the end of each fiscal year, the treasury office of 

Inspector general (oIg) and the treasury Inspector general for tax administration (tIgta) send an update of these management 

challenges to the secretary and cite any new challenges for the upcoming fiscal year. 

under the Emergency Economic Stabilization Act of 2008 (Pub. law no. 110-343), the special Inspector general for the troubled 

asset relief Program (sIgtarP) is not required to provide the secretary with a semi-annual report or annual update on management and performance challenges. 

the appendix contains the incoming management and performance challenges letters from oIg and tIgta and the secretary’s 

responses describing actions taken and planned to address the challenges. 

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DEPARTMENT OF THE TREASURY
 

WASHINGTON
 

INSPECTOR GENERAL	 October 22, 2010 

INFORMATION MEMORANDUM FOR SECRETARY GEITHNER 

FROM:	 Eric M. Thorson 

Inspector General 

SUBJECT:	 Management and Performance Challenges Facing 

the Department of the Treasury (OIG-CA-11-001) 

In accordance with the Reports Consolidation Act of 2000, we are providing you with our 

perspective on the most serious management and performance challenges facing the Department 

of the Treasury. 

This year we have combined three challenges reported last year into two, renamed those two and 

expanded them to reflect significant economic events and new responsibilities given to 

Treasury. Specifically, we have: 

•	 renamed the challenge previously reported as “Regulation of National Banks and Thrifts” to 

“Transformation of Financial Regulation.” We have also expanded this challenge to 

incorporate significant events and changes that have taken place since last year, most notably 

those related to Treasury’s new responsibilities under the recently enacted Dodd-Frank Wall 

Street Reform and Consumer Protection Act. 

•	 renamed the challenge previously reported as “Management of Treasury’s New Authorities 

Related to Distressed Financial Markets” to “Management of Treasury’s Authorities Intended 

to Support and Improve the Economy.” This challenge encompasses the previously reported 

challenge entitled “Management of Recovery Act Programs” and has been expanded to 

recognize Treasury’s new responsibilities and authorities related to the recently enacted 

Small Business Jobs Act of 2010. 

We also continue to report two challenges from last year. 

•	 Anti-Money Laundering and Terrorist Financing/Bank Secrecy Act Enforcement 

•	 Management of Capital Investments 

Challenge 1: Transformation of Financial Regulation 

In response to the need for financial reform, Congress passed the Dodd-Frank Wall Street 

Reform and Consumer Protection Act (Dodd-Frank) in July 2010. Dodd-Frank established new 

responsibilities for Treasury and created new offices tasked to fulfill those responsibilities. 

A critical challenge in the near term is Treasury’s role in standing up the Bureau of Consumer 

Financial Protection (BCFP). Established by Dodd-Frank, the purpose of BCFP is to implement 

and, where applicable, enforce federal consumer financial law consistently to ensure that all 

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consumers have access to markets for consumer financial products and services and that those 

markets are fair, transparent, and competitive. Eventually, BCFP will be an independent bureau 

of the Board of Governors of the Federal Reserve System (the Board of Governors). However, 

the Treasury Secretary is charged with supporting the creation and management of BCFP until a 

Director is confirmed. On September 17, 2010, the President appointed Elizabeth Warren to 

serve as Assistant to the President and Special Advisor to the Secretary of the Treasury on 

BCFP. At this time, it is uncertain when a BCFP Director will be confirmed. In the mean time, 

much needs to be done to set up the BCFP. While BCFP remains in Treasury, it will be under the 

audit and investigative oversight of my office. We are, however, coordinating those oversight 

efforts with the Office of Inspector General of the Board of Governors. 

Dodd-Frank also established the Financial Stability Oversight Council (FSOC), which is chaired 

by the Treasury Secretary. FSOC held its inaugural meeting on October 1, 2010. FSOC’s 

mission is to identify risks to financial stability that could arise from the activities of large, 

interconnected financial companies; respond to any emerging threats to the financial system; and 

promote market discipline. The Council of Inspectors General on Financial Oversight (CIGFO), 

which I chair, facilitates the sharing of information among inspectors general with a focus on 

reporting our concerns that may apply to the broader financial sector and ways to improve 

financial oversight. Accordingly, CIGFO will be an important source of independent, unbiased 

analysis to FSOC. In the future, CIGFO may also vote to convene a working group to evaluate 

the effectiveness and internal operations of the FSOC. We held our inaugural meeting on 

October 21, 2010. 

Dodd-Frank also established two new offices within Treasury: the Office of Financial Research 

(OFR) and the Federal Insurance Office (FIO). OFR is to be a data collection, research and 

analysis arm of FSOC. OFR will operate under a confirmed Director while the Director of FIO 

will be appointed by the Treasury Secretary. Among other things, the Director of OFR is to 

report to Congress annually on the office’s activities and its assessments of systemic risk. FIO is 

to monitor the insurance industry, including identifying gaps or issues in the regulation of 

insurance that could contribute to a systemic crisis in the insurance industry or financial system. 

The Director of FIO will advise FSOC on insurance matters. 

Intended to streamline the supervision of depository institutions and holding companies, DoddFrank transfers the powers and duties of the Office of Thrift Supervision (OTS) to the Office of 

the Comptroller of the Currency (OCC), the Board of Governors, and the Federal Deposit 

Insurance Corporation (FDIC) no later than July 21, 2011. Dodd-Frank requires OCC, OTS, the 

Board of Governors, and FDIC to jointly submit a plan within 180 days of the enactment of 

Dodd-Frank to their respective Inspectors General and Congress detailing the steps they will take 

to implement the transfer. The respective Inspectors General will evaluate that plan and jointly 

provide a written report to OCC, OTS, the Board of Governors, and FDIC, with a copy to 

Congress, on whether it conforms to the provisions of Dodd-Frank. Our joint report will be 

issued within 60 days of receiving the plan. In addition, we will jointly report on the status of the 

implementation of the plan every 6 months thereafter until all aspects of the plan are 

implemented. 

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Clearly, the intention of Dodd-Frank is most notably to prevent, or at least minimize, the impact 

of a future financial sector crisis on our economy. In order to accomplish this, Dodd-Frank has 

placed a great deal of responsibility within Treasury and on the Treasury Secretary. The 

management challenge from our perspective is to implement an effective FSOC process 

supported by the newly created offices within Treasury and the streamlined banking regulatory 

structure that timely identifies and strongly responds to emerging risks. This is especially 

important in times of economic growth and financial institution profitability when such 

government action is likely to be unpopular. Our future work plans will include reviews to look 

at how well Treasury establishes the new offices and undertakes its other critical roles. 

The other regulatory challenges that we discussed last year still remain. Specifically, since 

September 2007, 90 Treasury-regulated financial institutions have failed, with estimated losses 

to the Deposit Insurance Fund of approximately $36 billion. This is an increase of 51 financial 

institutions and $9 billion in losses since my last challenges letter. More financial institutions are 

expected to fail over the next 2 years. 

Although many factors contributed to the turmoil in the financial markets, our work found that 

OCC and OTS did not identify early or force timely correction of unsafe and unsound practices 

by numerous institutions under their respective supervision. The irresponsible lending practices 

of many institutions are now well-recognized—including reliance on risky products, such as 

option adjustable rate mortgages, and degradation of underwriting standards. At the same time, 

financial institutions engaged in other high-risk activities, including high asset concentrations in 

commercial real estate and overreliance on unpredictable brokered deposits to fund rapid growth. 

Recently, the unprecedented speed at which servicers were foreclosing on defaulted mortgages 

has revealed flaws in the processing of those foreclosures. A number of the largest banks with 

servicing functions have voluntarily placed moratoriums on foreclosures either in certain states 

or nationwide until these matters are resolved. While the depth and extent of these problems are 

not fully known at the time of this writing, this is yet another troubling development in the 

manner in which financial institutions have been operating. I am also concerned about the impact 

this could have on an already stressed housing market. Addressing this issue could be the first 

major challenge for the FSOC. 

The banking industry will continue to be stressed over the next several years. In the 2010 

interagency Shared National Credits (SNC) review, OCC, OTS, and the other federal banking 

regulators found that credit quality improved from 2009 but remained weak with respect to the 

$2.5 trillion in large ($20 million or more) loans and loan commitments held by domestic bank 

organizations, foreign bank organizations, and nonbank entities such as securitization pools, 

hedge funds, insurance companies, and pension funds. The review, which covered $1 trillion of 

the $2.5 trillion SNC portfolio, identified total losses of $15 billion, down from total losses of 

$53 billion in 2009. Criticized assets declined to $448 billion from $642 billion and represented 

nearly 18 percent of the SNC portfolio, compared with 22 percent in 2009. The volume of poorly 

underwritten credits originated in 2006 and 2007 continued to adversely affect the overall credit 

quality of the portfolio. Refinancing risk within the portfolio is also significant, with nearly 67 

percent of criticized assets maturing between 2012 and 2014. 

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Our office is mandated to review the failures of Treasury-regulated financial institutions that 

result in material losses to the Deposit Insurance Fund. Since 2007, we have completed 21 such 

reviews and are engaged in 31 others. These reviews identify the causes of the failures and assess 

supervision exercised over failed institutions. Both OCC and OTS have been responsive to our 

recommendations for improving supervision. Dodd-Frank now mandates that our office also 

review failures that result in non-material losses to the Deposit Insurance Fund. To that end, we 

have completed 28 such reviews. However, neither the material nor non-material reviews address 

the broader supervisory effectiveness of the federal banking regulators as a whole or the 

effectiveness of the supervisory structure. It is therefore essential that OCC and OTS continue to 

take a critical look at their supervisory processes to identify why those processes did not prevent 

or mitigate the practices that led to the current crisis and what can be done to better protect the 

financial health of the banking industry and consumers going forward. 

Since implementation of Dodd-Frank is in its early stages, Treasury and its two federal bank 

regulators, OCC and OTS, will need to work in concert with the other affected federal bank 

regulators to ensure a smooth and effective transition to the new regulatory structure and 

requirements.
 

Challenge 2: Management of Treasury’s Authorities Intended to Support and Improve the 

Economy 

Congress provided Treasury with broad authorities to address the financial crisis under the 

Housing and Economic Recovery Act (HERA) and the Emergency Economic Stabilization Act 

(EESA) enacted in 2008, the American Recovery and Reinvestment Act of 2009 (Recovery Act), 

and the Small Business Jobs Act of 2010. Certain authorities in HERA and EESA have now 

expired but challenges still remain in managing Treasury’s outstanding investments. To an 

extent, Treasury’s program administration under these two Acts has matured. In contrast, 

program administration for the Recovery Act is still evolving, and the Small Business Jobs Act 

programs must be stood up. Our discussion of this challenge will begin with the most recent Act 

passed to support and improve the economy and then discuss the other new programs Treasury is 

responsible for. 

Management of the Small Business Lending Fund and State Small Business Credit Initiative 

In late September 2010, Congress enacted the Small Business Jobs Act of 2010 creating within 

Treasury a $30 billion Small Business Lending Fund (SBLF) and providing $1.5 billion to be 

allocated by Treasury to approved states for eligible state programs through the State Small 

Business Credit Initiative (SSBCI). The Act represents a key initiative of the Administration to 

increase lending to small business and thereby support job creation. The challenge for Treasury 

will be to get these two programs up and running quickly while maintaining proper control to 

ensure transparency, equitable treatment of all participants, and program results. Our office is 

specifically directed in the Act to exercise vigorous oversight. To that end, I am establishing an 

Office of Small Business Lending Fund Oversight to be headed by a Special Deputy Inspector 

General. 

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SBLF Under SBLF, Treasury will make capital investments in eligible financial institutions 

(e.g., banks with total assets of $10 billion or less and not on FDIC’s problem bank list) after 

consultation with the institution’s regulator. Eligible institutions are permitted to refinance 

securities issued to Treasury under the Troubled Asset Relief Program (TARP) Capital 

Purchase Program (CPP) as long as they are current on their CPP obligations. Treasury’s 

capital investment may be up to 5 percent of the institution’s risk-weighted assets depending 

on the institution’s size. During the first 41⁄2 years of Treasury’s investment, participating 

institutions initially pay dividends to Treasury of 5 percent but that rate may be reduced to as 

low as 1 percent based on their demonstrated increase in small business lending (after 4 1⁄2

years, the dividend rate increases to 9 percent and Treasury’s investment is expected to be 

repaid within 10 years although there are provisions for extending repayment beyond that 

time). 

As of this writing, Treasury has not published specific policies and guidance for program 

administration. It is critically important that a strong control structure along with 

commensurate staffing be established on the front-end of this effort. It is also critical in 

setting up this program that Treasury build on its experience with CPP. For example, in a 

recent (October 2010) report on TARP, GAO observed that applicants that withdrew from 

consideration for CPP in response to a request from their regulator received no review by 

Treasury or other regulators. GAO recommended that if Treasury administers programs 

containing elements similar to those of CPP, such as SBLF, that Treasury should implement 

a process for monitoring all applicants that regulators recommend for withdrawal to ensure 

that similar applicants are treated equitably. Treasury agreed to consider the GAO 

recommendation, and we believe that this should be a component of the control structure that 

Treasury establishes for SBLF. Another key provision of the Act is that banking regulators 

publish guidance by the end of November 2010 regarding prudent underwriting standards 

that must be used for loans made by participating institutions; these standards will need to be 

in place so that participating institutions have a clear understanding on how the funds are to 

be used. Furthermore, it is important that Treasury and regulators coordinate to ensure that 

participating institutions comply with the terms and conditions of the investments, to include 

validation of increased small business lending in return for reduced dividend rates on 

Treasury investments. 

SSBCI On October 8, 2010, Treasury announced individual SSBCI funding allocations 

totaling $1.46 billion for the 50 States, the District of Columbia, and the U.S. territories, 

intended to support new small business lending through local programs. Under the SSBCI, 

states may apply for federal funds for programs that partner with private lenders to extend 

greater credit to small businesses. SSBCI allows states to build upon existing state-level 

small business lending programs. If a State does not have an existing small business lending 

program, the state can establish one in order to access SSBCI funding. States must provide 

plans for utilizing their funding allocations to Treasury for review and approval and report 

quarterly and annually on results. Another key feature is that participating states receive their 

allocations in 1/3 increments. Treasury may withhold a successive increment to a State 

pending the results of an audit by our office. 

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The Act also details specific expectations of Treasury for program administration to include 

consulting with the Small Business Administration and federal banking agencies; 

establishing minimum national standards for approved State programs; providing technical 

assistance and disseminating best practices; managing, administering, and performing 

necessary program integrity functions; and ensuring adequate oversight of approved State 

programs, including oversight of the cash flows, performance, and compliance of each 

approved State program. As with SBLF, Treasury will be challenged to stand this program up 

quickly with an adequate control structure and commensurate staffing to meet these 

expectations and make the federal funds available to the states. 

A common theme we have seen in recent years, most notably with TARP and Recovery Act 

programs, is that Treasury first attempts to administer new and complex programs with minimal 

staffing only to find that more resources need to be devoted to program administration after 

problems start to surface. We cannot stress enough that a similar approach be avoided with SBLF 

and SSBCI. 

Management of Recovery Act Programs 

Treasury is responsible for overseeing an estimated $150 billion of Recovery Act funding and 

tax relief. Treasury’s oversight responsibilities include grants for specified energy property in 

lieu of tax credits, grants to states for low-income housing projects in lieu of tax credits, 

increased Community Development Financial Institutions Fund grants and tax credits, economic 

recovery payments to social security beneficiaries and others, and payments to U.S. territories for 

distribution to their citizens. 

Many of these programs were new to Treasury in 2009 and involve very large dollar amounts. It 

is estimated that Treasury’s Recovery Act payments in lieu of tax credit programs—for specified 

energy property and to states for low-income housing projects—will cost more than $20 billion 

over their lives. To date, Treasury has already awarded more than $6 billion under these 

programs and has yet to implement comprehensive monitoring procedures. In 2009, we reported 

that Treasury had dedicated only a small number of staff to award and monitor these funds. That 

has not changed and we continue to have concerns that the current staffing level is not 

commensurate with the size of these programs. Payments made to recipients under the specified 

energy property program alone comprise more than $5 billion of the funds awarded to date and 

the number of applicants continues to grow. We initiated and plan a number of audits of 

recipients of payments under the specified energy property program to ensure funds were 

properly awarded to eligible applicants for eligible properties. Our audits of these recipients, 

however, should not be viewed as a substitute for appropriate and comprehensive management 

oversight and monitoring of the program. 

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Management of the Housing and Economic Recovery Act and the Emergency Economic 

Stabilization Act 

Through several HERA and EESA programs, Treasury injected much needed capital into 

financial institutions and businesses. 

Under HERA, Treasury continues to address the distressed financial condition of Fannie Mae 

and Freddie Mac which are under the conservatorship of the Federal Housing Finance Agency. 

In order to cover the continuing losses of the two entities and their ability to maintain a positive 

net worth, Treasury agreed to purchase senior preferred stock, and as of June 30, 2010, had 

purchased $145 billion. Treasury also purchased and is still holding $184 billion of mortgagebacked securities issued by two entities under a temporary purchase program that expired in 

December 2009. Through the Housing Finance Agency Initiative supporting state and local 

finance agencies, Treasury purchased securities in Fannie Mae and Freddie Mac backed by state 

and local Housing Finance Agency bonds (New Issue Bond Program) and a participation interest 

in the obligations of Fannie Mae and Freddie Mac (Temporary Credit and Liquidity Program). 

Prior to expiring in December 2009, Treasury purchased $15.3 billion of securities under the 

New Issue Bond Program and provided $8.3 billion under the Temporary Credit and Liquidity 

Program. Even with this assistance, both entities remain in a weakened financial condition and 

may require prolonged assistance. Dodd-Frank requires the Secretary of the Treasury to conduct 

a study on ending the conservatorship of Fannie Mae and Freddie Mac and minimizing the cost 

to taxpayers. The report on this study is to be presented to Congress no later than January 31, 

2011. 

TARP, established under EESA, gave Treasury the authorities necessary to bolster credit 

availability and address other serious problems in the domestic and world financial markets. 

Treasury’s Office of Financial Stability administers TARP, and through several of its programs, 

made purchases of direct loans and equity investments in many large financial institutions and 

other businesses, as well as guaranteed other troubled mortgage-related and financial assets. On 

October 3, 2010, the authority to make new investments under the TARP program expired. 

Treasury will, however, continue making payments for programs which have existing contracts 

and commitments. TARP is expected to be less costly than first thought. Treasury has recently 

estimated that the total cost of TARP will be about $50 billion. As the life-cycle of TARP is 

maturing, Treasury’s challenge in this area is morphing from standing-up and running TARP 

programs to winding them down. That means Treasury must now focus on managing and exiting 

from its current TARP investments. These investments include, but are not limited to, AIG and 

General Motors. In this regard, at the time of this writing, it has been reported that AIG 

announced a restructuring plan that will accelerate the timeline for repaying the government, and 

General Motors is planning an initial public offering for later this year. 

EESA also established a special inspector general for TARP and imposed oversight and periodic 

reporting requirements on both the special inspector general and GAO. 

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As conditions improve, Treasury will need to continue to work with its partners to disassemble 

the structure established to support recovery efforts and ensure that federal funds no longer 

needed for those efforts are returned in an orderly manner to the Treasury general fund. 

Challenge 3: Anti-Money Laundering and Terrorist Financing/Bank Secrecy Act 

Enforcement 

Treasury faces unique challenges in carrying out its responsibilities under the Bank Secrecy Act 

(BSA) and USA Patriot Act to prevent and detect money laundering and terrorist financing. The 

Financial Crimes Enforcement Network (FinCEN) is the Treasury bureau responsible for 

administering BSA. However, a large number of other federal and state entities participate in 

efforts to ensure compliance with BSA, including the five federal banking regulators, the Internal 

Revenue Service, the Securities and Exchange Commission, the Department of Justice, and state 

regulators. Many of these entities also participate in efforts to ensure compliance with U.S. 

foreign sanction programs administered by Treasury’s Office of Foreign Assets Control (OFAC). 

Treasury must coordinate the efforts of these multiple entities. To this end, FinCEN and OFAC 

have entered into memoranda of understanding with many federal and state regulators in an 

attempt to build a consistent and effective process. In 2009, FinCEN had memoranda of 

understanding with 43 percent of federal and state regulators. While important to promote 

coordination and cooperation, it should be noted that these instruments are nonbinding and carry 

no penalties for violations, and their overall effectiveness has not been independently assessed. 

Furthermore, the USA Patriot Act has increased the types of financial institutions required to file 

BSA reports. In fiscal year 2009, financial institutions filed approximately 15 million BSA 

reports. The number is lower than 2008, which Treasury has attributed primarily due to a change 

in law that increased currency transaction report exemptions. FinCEN needs to work with 

regulators to ensure that financial institutions establish effective BSA compliance programs and 

file BSA reports, as required. 

Adding to this risk in the current environment is that financial institutions and their regulators 

may have decreased their attention to BSA and OFAC program compliance as they address 

safety and soundness concerns during the current economic crisis. FinCEN’s analysis of 

suspicious activity report data also found non-bank lenders and originators initiated many of the 

mortgages associated with suspicious activity reports filed for possible mortgage fraud. 

Furthermore, evidence suggests a link between mortgage fraud and money laundering. In that 

regard, FinCEN is considering applying anti-money laundering and suspicious activity report 

regulations to these non-bank institutions. 

FinCEN also has a particularly difficult challenge in dealing with money services businesses 

(MSB). FinCEN has to balance the needs of certain consumers who depend on access to MSBs 

(particularly the unbanked), with potentially unfettered access to the financial system that nontransparent MSBs create for those engaged in money laundering and terrorist financing. FinCEN 

has been working with the IRS to ensure MSBs comply with BSA registration and report filing 

requirements. IRS serves as the examining agency for MSBs but does not have the resources to 

annually inspect all MSBs or even identify unregistered MSBs, estimated to be in the tens of 

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thousands. Within this framework, FinCEN has been concerned with MSBs that use informal 

value transfer systems and with MSBs that issue, redeem, or sell prepaid (or stored value) cards. 

MSBs using informal transfers have been identified in several attempts to launder proceeds of 

criminal activity or finance terrorism. Similarly, prepaid cards can make it easier for some to 

engage in money laundering or terrorist financing. In September 2010, FinCEN notified financial 

institutions to be vigilant and file suspicious activity reports on MSBs that may be 

inappropriately using informal transfers, when they use financial institutions to store currency, 

clear checks, remit and receive funds, and obtain other financial services. Also this year, FinCEN 

proposed revising definitions and other regulations pertaining to prepaid access to close 

regulatory gaps. 

In September 2010, to add transparency to possible illicit wire transfer use of the financial 

system, FinCEN proposed a regulatory requirement for certain depository institutions and MSBs 

to report cross-border electronic transmittals of funds (CBETF). FinCEN determined that 

establishing a centralized database will greatly assist law enforcement in detecting and ferreting 

out transnational organized crime, multinational drug cartels, terrorist financing, and 

international tax evasion. If implemented, ensuring financial institutions, particularly MSBs, 

comply with the CBETF reporting requirements, as well as managing this new database, will be 

a significant challenge for FinCEN. 

To ensure efficient management, safeguarding, and use of BSA information, FinCEN also plans 

to modernize BSA information management. BSA data is currently maintained by IRS and 

access to the database is generally handled through an IRS system known as WebCBRS. 

FinCEN believes modernization will provide increased data integrity and analytical tools, and 

maximize value for state and federal partners. BSA Information Technology (IT) Modernization 

is also discussed in challenge 4. 

Given the criticality of this management challenge to the Department’s mission, we continue to 

consider anti-money laundering and combating terrorist financing programs as inherently highrisk. Mandatory work, particularly material loss reviews of failed banks and thrifts, prevented us 

from performing any audits in this area in Fiscal Year 2009 and in 2010 we were limited to 

completing audits started years earlier. With legislated changes to the financial loss threshold for 

performing material loss reviews, we expect to be able to increase audit coverage of anti-money 

laundering and terrorist financing programs in Fiscal Year 2011. 

Challenge 4: Management of Capital Investments 

Managing large capital investments, particularly information technology investments, is a 

difficult challenge for any organization, whether public or private. In prior years, we reported on 

a number of capital investment projects that either failed or had serious problems. This year, we 

identified challenges in 4 on-going investments, 2 of which were identified by the Office of 

Management and Budget (OMB) as high-risk projects. 

Replacement telecommunications platform The Information Technology Infrastructure 

Telecommunications investment with an overall value of $3.7 billion was rated as poorly 

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performing by the Acting Chief Information Officer (CIO) and a high-risk project by OMB. 

This investment includes the Treasury’s replacement telecommunications platform, TNet, as 

a major component. Treasury was originally to have begun implementation of TNet in 

November 2007 but was delayed until August 2009 and is still in transition. Additionally, 

TNet does not currently incorporate all OMB security requirements, and many Treasury 

components have reported performance concerns with the network. 

Treasury implementation of a common identity management system OMB also recognized 

Treasury’s Consolidated Enterprise Identity Management system as a high-risk project. This 

system is a $147 million effort to implement the requirements of the Homeland Security 

Presidential Directive 12. This directive requires deployment of a common identity standard. 

This initiative was identified as being more than $40 million over budget and significantly 

behind schedule. 

Data Center Consolidation OMB initiated the Federal Data Center Consolidation Initiative to 

consolidate the number of federal data centers. Treasury has over 60 data centers around the 

country. Treasury is currently in the planning phase of a significant effort to reduce the 

number of data centers by 2015. This effort would require restructuring of Treasury’s IT 

infrastructure over a relatively short time. Relocating and consolidating data centers is a 

major investment that requires careful planning to address security concerns, disaster 

recovery, and infrastructure support. 

FinCEN’s BSA IT Modernization As discussed in Challenge 3, Treasury, through FinCEN, 

is undertaking a major project known as BSA IT Modernization. Already underway, the 

project is expected to cost about $120 million. This project requires coordination between 

FinCEN and IRS, which has historically maintained the BSA database, and effective 

oversight by the Treasury Office of the CIO. A prior attempt, from 2004 to 2006, to develop 

a new BSA system ended in failure with over $17 million wasted because of shortcomings in 

project planning, management, and oversight. 

Treasury’s decentralized management of IT investments presents a significant hurdle to the 

successful implementation of major department-wide and government-wide initiatives. Large 

initiatives are often tasked to individual bureaus for overall management with some direction 

provided by the Treasury Office of the CIO. Coordination issues between bureaus can delay and 

disrupt implementation of department-wide policies and systems or prevent necessary changes 

from proceeding. Accordingly, Treasury should exercise continuous vigilance in managing the 

investments described above and others due to previously reported problems with large capital 

investments, and billons of procurement dollars at risk. 

We would be pleased to discuss our views on these management and performance challenges in 

more detail. 

cc: Daniel Tangherlini 

Assistant Secretary for Management, Chief Financial Officer, and
 

Chief Performance Officer
 

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DEPARTMENT OF THE TREASURY 

WASHINGTON, D.C. 

SECRETARY OF THE TREASURY 

november 15, 2010 

MEMORANDUM FOR ERIC M. THORSON
 

INSPECTOR GENERAL
 

FROM: 	 timothy f. geithner 

SUBJECT:	 Management and Performance challenges facing the 

Department of the treasury 

I am responding to your october 22, 2010, memorandum describing the most serious management and performance challenges facing the Department of the treasury. this memorandum provides information on the actions 

completed in fiscal year (fy) 2010 and the actions planned for fy 2011 to address these challenges. 

treasury has established effective control structures to monitor the implementation of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act (Dodd-frank act) and the Small Business Jobs Act of 2010, to ensure the 

acts achieve their intended purposes, as well as provide unprecedented accountability and transparency. the 

Department is committed to staying vigilant about the risks associated with all of our programs and to adjust our 

strategies based on changing circumstances to achieve financial stability, economic security, and protection of the 

taxpayer. We look forward to working with you to further address these challenges. 

Challenge 1 – Transformation of Financial Regulation 

on July 21, 2010, the President signed into law the historic Dodd-frank act. the comprehensive financial regulatory reforms enacted under the Dodd-frank act include new requirements for enhanced prudential supervision 

of financial firms that could threaten financial stability; the creation of a financial stability oversight council 

(fsoc) to monitor emerging threats to the stability of the financial system; the establishment of a new consumer 

financial Protection bureau (cfPb) to protect consumers against unfair, deceptive, or abusive financial practices 

and ensure consumers have the information they need to choose financial products that best meet their needs. the 

act also includes reforms that bring transparency and regulation to the over-the-counter derivatives markets for 

the first time; and the creation of a resolution regime for large, highly interconnected financial firms to allow these 

firms to fail while protecting taxpayers and the economy. these reforms will help guard against many of the gaps, 

lapses, and inconsistencies in supervision of financial firms that clearly contributed to the recent financial crisis. 

More broadly, these reforms will help set a new foundation for a pro-investment and pro-growth financial system. 

In implementing the Dodd-frank act, treasury is working hard to ensure that the new rules provide necessary 

protections against financial excess while preserving the benefits of financial innovation. to that end, treasury 

has adopted the following guiding principles for implementation: 

•	 reforms are implemented as quickly as possible to provide clarity to the public and the markets , recognizing 

that implementation will be complex in some cases 

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•	 full transparency and disclosure are provided in the implementation process through publication of draft 

rules, available opportunities for public comment, and consultation with a broad range of groups and 

individuals 

•	 regulations are streamlined and simplified where possible to minimize duplication and eliminate rules that 

do not work 

•	 Implementation is coordinated with other federal agencies to ensure new rules across government work 

together, not against, each other 

•	 every effort is made to create a more level playing field, both between banks and non-banks in the u.s., as 

well as between major financial institutions globally 

•	 freedom of innovation is protected to ensure economic growth 

treasury has been working to implement the reforms of the Dodd-frank act since enactment. Immediately after 

passage, treasury put in place a governance structure to oversee the Department’s implementation of the reforms. 

generally, treasury developed implementation teams dedicated to each of its core responsibilities, such as helping 

to establish the fsoc, laying the groundwork for the office of financial research (ofr), launching the cfPb, 

and creating a federal Insurance office (fIo). these teams update a steering committee of senior treasury officials who meet daily to consider options, make decisions, move implementation forward, and, where appropriate, 

make recommendations. 

Consumer Financial Protection Bureau 

title X of the Dodd-frank act establishes the cfPb within the federal reserve system to protect consumers 

against unfair, deceptive, or abusive financial practices and ensure consumers have the information necessary to 

choose consumer financial products and services that best meet their needs. the Dodd-frank act consolidates 

core authorities currently fragmented across seven federal agencies into a single, dedicated, and independent 

federal consumer protection watchdog. the cfPb will implement rules for consumer financial products and 

services and develop supervision programs to regularly examine the most critical bank and nonbank financial 

services providers. In addition, the cfPb will develop programs to promote greater financial literacy and establish 

a nationwide consumer complaint response unit, which will include a dedicated website and hotline for receiving 

consumer complaints about financial services. 

under the Dodd-frank act, the Department is responsible for standing up the new agency until the first cfPb 

Director is confirmed by the senate. the Department has designated July 21, 2011, as the “designated transfer 

date,” which is the date on which the cfPb will assume existing authorities of seven federal agencies. treasury 

has made substantial progress preparing the cfPb to incorporate staff and assume authorities from those agencies. 

Financial Stability Oversight Council 

on october 1, 2010, the fsoc held its first meeting at which it took a number of important steps to fulfill its 

mandate under the Dodd-frank act. as established under the act, the fsoc will provide, for the first time, 

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comprehensive monitoring to ensure the stability of our nation’s financial system. the fsoc is charged with 

identifying threats to the financial stability of the u.s., promoting market discipline, and responding to emerging 

risks to the stability of the u.s. financial system. 

at its inaugural meeting, in addition to adopting organizational documents, the fsoc approved resolutions to 

seek public comment on the criteria for designating nonbank financial companies for heightened supervision, as 

well as to inform recommendations the fsoc will make on how to implement statutory restrictions on banking 

institutions’ proprietary trading and investments in private funds (the “Volcker rule”). In addition, the fsoc 

must also study and make recommendations for implementing the concentration limit, the macroeconomic effects 

of risk retention requirements, and the economic implications of financial regulation. Work on those studies is 

underway. 

Office of Financial Research 

the ofr is housed within the treasury Department and will ultimately support the fsoc and its member 

agencies by providing them with better financial data, information, and analysis so policymakers and market 

participants have a more complete understanding of risk in the financial system. the ofr will be headed by a 

director nominated by the President and confirmed by the senate. a treasury staff team has begun to plan the 

ofr’s functions and gather input from regulators and private stakeholders. 

In fy 2011, treasury will conduct a census of existing data standardization initiatives and existing sources of 

reference data. once completed, the ofr team will move quickly to draw up detailed plans for ofr to facilitate 

and advance these initiatives without duplication or unnecessary burden. treasury is also developing an organizational structure, hiring procedures and pay structures, information technology, and other requirements. 

Federal Insurance Office 

the Dodd-frank act established the fIo to monitor important domestic and international insurance matters and 

coordinate federal efforts and develop federal policy on prudential aspects of international insurance matters. as 

part of the Department, fIo will monitor all aspects of the insurance industry, including identifying issues and 

gaps in the regulation of insurance that could contribute to a systemic crisis in the insurance industry or within 

the broader u.s. financial system. the fIo will also use its authority to negotiate, together with the u.s. trade 

representative, international insurance agreements on prudential measures. the fIo director will serve on the 

fsoc as a nonvoting member in an advisory capacity. 

treasury officials and staff are engaging frequently with interested parties and developing a framework within which 

fIo and the states, which would remain as the functional regulators, can work together. In fy 2011, treasury will 

stand up the office, appoint a director, and hire key staff. treasury will also begin to engage with representatives of 

other countries on insurance prudential issues as well as working closely with the u.s. trade representative. 

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Transfer and Abolishment of OTS 

the Dodd-frank act abolishes the office of thrift supervision (ots), transferring its duties to the office of 

the comptroller of the currency (occ), federal reserve, and federal Deposit Insurance corporation. these 

reforms streamline the regulatory system and reduce potential for regulatory arbitrage. occ’s and ots’s current on-site supervisory assessments, which focus on the quality of credit risk management practices (including 

effective credit risk rating systems and problem loan identification), adequacy of loan-loss reserves, and effective 

loan work-out strategies, will continue in the new regulatory structure to prevent a repeat of the current crisis. 

In addition, in the new regulatory structure, occ will continue to perform individual bank examinations on a 

variety of other activities aimed at identifying and responding to systemic trends and emerging risks that could 

adversely affect asset quality or the availability of credit at national banks and the banking system, and fair access 

to financial services. In fy 2011, treasury will work closely with the occ, ots, and other federal financial 

regulatory agencies to implement the Dodd-frank act reforms and to monitor and respond to any residual threats 

to a robust economic recovery of the u.s. financial system. 

Challenge 2 – Management of Treasury’s Authorities Intended to Support and Improve 

the Economy 

Small Business Lending Fund 

treasury’s office of financial Institutions is working expeditiously to finalize and promulgate policy guidance for 

the small business lending fund (sblf). More specifically, treasury’s stand-up team has drafted term sheets and 

applications, which soon will be posted to a newly created treasury website for the sblf. additionally, treasury 

is working with the federal banking agencies (fbas) to come to agreement on a process for the intake and review 

of applications and lending plans (which are required pursuant to the Small Business Jobs Act of 2010). once 

treasury and the fbas have agreed on the process, treasury will post the term sheets and applications publicly. 

as the treasury team works to stand up the sblf, careful consideration is being given to suggestions from the 

government accountability office (gao) and other oversight bodies. 

State Small Business Credit Initiative 

treasury is also implementing the state small business credit Initiative (ssbcI). staffing and hiring are 

integral components of this process. accordingly, treasury has formulated a detailed hiring plan with full-time 

equivalent estimates, as well as the functional competencies that will be needed to support this initiative, including legal, analytical, and programmatic oversight support. treasury is in the process of posting position descriptions for new hires and will likely engage contract support in the near term while hiring continues. this will 

provide the ssbcI with an adequate control structure and sufficient staff to meet the needs of the program. 

Management of Recovery Act Programs 

the Department of the treasury played a pivotal role in implementing the American Recovery and Reinvestment 

Act of 2009 (recovery act). by providing targeted investments and implementing tax provisions to benefit both 

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businesses and individuals, the Department continued to stimulate the u.s. economy, create and sustain jobs, and 

build the foundation for long-term economic growth. of the $787 billion provided by the recovery act, treasury 

is managing programs that will contribute nearly $300 billion in benefits to the american people through 2019. 

these programs, once implemented, will have a significant, positive impact on the lives of millions of americans. 

treasury’s recovery act programs include investments in renewable energy and low income housing, local 

and state government support, and the implementation of approximately 60 tax incentives for households and 

businesses. the tax incentive programs include the Making Work Pay credit, which by the end of calendar year 

2010, will provide an estimated $49 billion in refundable tax credits to working individuals and married taxpayers filing joint returns; and build america bonds, which in fy 2010 provided over $107 billion in financing to 

state and local governments throughout the country to help finance schools, utilities, public safety programs, and 

transportation. 

treasury has managed the low income housing and specified energy property programs by supplementing a small, 

core staff in the Departmental offices with support from treasury bureaus, including Irs. for the energy program, 

treasury entered into an interagency agreement with the Department of energy to assist with the technical 

aspects of that program. as a result, treasury successfully implemented both of these programs in five months and 

has made awards to date in excess of $10 billion. 

In fy 2010, the Department implemented compliance monitoring programs for both the low-income housing and 

specified energy property programs. for the housing program, treasury staff conducted reviews of state housing 

agencies, either by conducting in-person site visits or desk reviews. these reviews will continue in fy 2011. for 

the energy program, treasury implemented an annual reporting process through an automated system, which 

provides information and supporting documentation necessary for treasury to evaluate compliance with the program’s terms and conditions. this process will be ongoing throughout the program’s five year compliance period. 

additionally, the Irs has plans to initiate a compliance initiative project relative to the energy property program 

in fy 2011. this project is being designed to ensure that recipients do not also claim a tax credit with respect 

to the same property and that recipients have properly stated their basis. further, treasury has and will continue 

to inform Irs of particular areas of concern related to energy property compliance for their consideration as Irs 

designs the project. 

treasury expanded the recovery act implementation team in fy 2010 with the addition of two senior managers. the recovery act team facilitates all recovery act implementation efforts department-wide and interfaces 

with the broader recovery act community. as part of this broad responsibility, the team establishes internal 

processes, addresses external data requirements, manages risk inherent in recovery act implementation, and 

coordinates treasury recovery act audits. 

Management of the Housing and Economic Recovery Act and the Emergency Economic Stabilization Act 

treasury used the authority provided by the Emergency Economic Stabilization Act (eesa) to implement the 

troubled asset relief Program (tarP) and strengthen the u.s. financial system, restore credit markets for 

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businesses and consumers, and address foreclosures in the housing market. During fy 2010, as the financial 

system stabilized and the Department began to wind down its activities, treasury closed five programs to new 

investments: the cPP, the targeted Investment Program, the asset guarantee Program, the term assetbacked securities loan facility (part of the consumer and business lending Initiative), and the Public-Private 

Investment Program. In fy 2010, treasury implemented two new programs: the small business administration 

(sba) 7a Purchases Program and the community Development capital Initiative, both part of the consumer 

and business lending Initiative. 

treasury also introduced several initiatives in fy 2010, which together comprise the treasury housing Programs 

under tarP. these include the hardest-hit fund, the federal housing administration (fha) refinance 

Program, and subprograms under the home affordable Mortgage Program (haMP). subprograms under haMP, 

the first lien loan modification program, include the Principal reduction alternative Waterfall Program, the 

unemployment Program, and the home affordable foreclosure alternatives Program, as well as programs under 

the Making home affordable Program including the fha-haMP Program, the second lien Program, the 

fha-refinance Program, and the u.s. Department of agriculture-haMP Program. as additional focus turns to 

winding down the tarP investments, other dispositions will occur in fy 2011, including the possible conversion 

of capital Purchase senior Preferred loans to those offered through the sblf. 

as of september 30, 2010, $475 billion of eesa had been designated for particular tarP programs. of that 

amount, over $474 billion had been obligated to specific institutions under signed agreements, over $387 billion 

of those funds had been disbursed, and $204 billion of tarP investments were repaid with income received on 

tarP investments totaling over $28 billion. 

treasury Departmental offices played a critical role in contributing to a well-functioning office of financial stability 

(ofs), which oversees all eesa investments. since its inception, ofs has aggressively implemented the programs 

listed above and has grown into an organization of 215 full-time employees. for each program, ofs designed, 

planned, and implemented sound controls and oversight. the assistant secretary for Management has provided 

support services such as accounting, information technology, administration, and human resources on a reimbursable 

basis. ofs has prepared separate financial statements on its programs for which gao gave an unqualified opinion. 

gao also provided an unqualified opinion on ofs’s internal controls and identified no material weaknesses. 

under the additional purchase authorities granted by the Housing and Economic Recovery Act of 2008, treasury’s 

office of Debt Management purchased mortgage-backed securities (Mbs) guaranteed by fannie Mae and freddie 

Mac from september 2008, until the authority’s expiration on December 31, 2009. treasury purchased over $220 

billion face value of agency Mbs through two expert asset managers, barclays global Investors (now blackrock) 

and state street global advisors. through august 2010, treasury received $69.8 billion in principal and interest 

payments with $164 billion of unpaid principal balance remaining. for increased transparency, the Department 

publishes aggregate information on its holdings of agency Mbs monthly on financialstability.gov. 

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Challenge 3 - Anti-Money Laundering and Terrorist Financing/Bank Secrecy Act 

Enforcement 

the Department faces unique challenges in carrying out its responsibilities under the Bank Secrecy Act (bsa) and 

the USA PATRIOT Act to prevent and detect money laundering and terrorist financing. the financial crimes 

enforcement network (fincen) has overall authority for bsa enforcement and compliance, and delegates 

examination authority to the Internal revenue service (Irs), occ, ots, and other federal banking agencies. 

the following paragraphs highlight actions taken by fincen, Irs, occ, and ots, in coordination with other 

federal and state authorities, in fy 2010, and actions planned in fy 2011 related to this challenge. 

In the last several years, fincen has focused on effective and efficient administration, outreach, and engagement 

of existing industries covered by the bsa. however, new payment systems and industries vulnerable to money 

laundering continually evolve, such as prepaid access products, non-bank mortgage lenders and originators, and 

hedge funds. In fy 2011 and beyond, fincen will expand bsa regulations to new industry sectors, consistent 

with the administration’s priorities. Increasingly, fincen’s regulations focus on risks involving transactions and 

institutions for which there is no federal regulator or, in some cases not even a state regulator, and for which any 

existing regulators or delegated supervisory functions will require significant guidance and support from fincen. 

In fy 2009, fincen published a proposal simplifying the organizational structure of bsa requirements, and 

expects to implement it fully in fy 2011. fincen worked with the Irs and state regulators to develop a Money 

services business (Msb) examination manual. fincen initially released the manual in fy 2009, and translated 

it into spanish in fy 2010. fincen facilitated the development of training materials on this manual, and 

fostered training for Irs and state examiners in fy 2010. additionally, fincen issued an assessment in fy 2010 

showing that regulatory changes in fy 2009 simplifying the appropriate exemption of customers from currency 

transaction reporting requirements resulted in higher value for law enforcement and efficiency for financial 

institutions. fincen also continued to promote electronic filing of bsa reports in fy 2010, issuing a brochure 

highlighting the benefits of e-filing and initiating a phased outreach approach to financial institutions that 

continue to file bsa reports on paper that has met with positive industry response. 

to enhance the efficiency and effectiveness of the bsa regulatory framework, fincen also issued final rules in fy 

2010 to accomplish the following: 

•	 expand the suc cessful “314(a) program” to certain foreign law enforcement agencies, u.s. state and local 

law enforcement agencies, and certain other components within the Department of the treasury 

•	 Move to streamline mutual fund bsa requirements by allowing mutual funds to file currency transaction 

reports 

fincen, in close cooperation with law enforcement and regulatory authorities, developed and issued a proposed 

rule in fy 2010 that proposes to establish a more comprehensive regulatory framework for non-bank prepaid 

access. the proposed rule focuses on prepaid programs that pose the greatest potential risks of money laundering 

and terrorist financing. also in fy 2010, fincen issued a proposed rule that would require certain depository 

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institutions and Msbs to affirmatively provide records to fincen of certain cross-border electronic transmittals of funds (cbeft). fincen issued this proposal to meet the requirements of the Intelligence Reform and 

Terrorism Prevention Act of 2004. In addition, fincen reviewed comments received on a wide range of questions 

pertaining to the possible application of anti-money laundering (aMl) program and suspicious activity reporting 

rules to non-bank residential mortgage lenders and originators in response to an advance notice of Proposed 

rulemaking. In fy 2011, fincen will continue working toward finalizing these proposals, as well as proposed 

and/or final regulations related to: 

•	 clarifying the confidentiality of suspicious activity reports (sars) and accompanying guidance to financial institutions on sharing sar information within their organizational structure 

•	 clarifying foreign bank account reporting requirements 

•	 Implementing regulations related to due diligence in correspondent banking pursuant to the Comprehensive 

Iran Sanction, Accountability, and Divestment Act of 2010 

outreach plays an important role in effectively administering the bsa. the bank secrecy act advisory group 

(bsaag) serves as the principal forum to discuss bsa issues among regulators, law enforcement, and industry. 

occ, ots, and other federal banking agencies actively participate on various bsaag subcommittees. In fy 

2010, fincen continued outreach to specific financial institutions, visiting several small depository institutions 

and insurance companies, and plans to conduct further outreach to additional industry segments in fy 2011. 

active engagement with other regulators is also critical to meeting this challenge. by the end of fy 2010, 

fincen had established 59 memoranda of understanding (Mou) with federal and state regulators to enhance 

the sharing of information derived from compliance examinations. fincen shared analytic reports in the form of 

bsa data profiles with these federal and state regulators, and surveyed its Mou partners to determine the impact 

of the information exchanged. eighty-six percent of respondents indicated the information shared with them 

was valuable. as these Mous mature, the information exchanged will help fincen improve bsa examination 

consistency and compliance. In fy 2011, fincen will pursue Mous with additional state regulators, focusing 

specifically on state insurance regulators. 

to enhance regulated financial industry understanding of and compliance with bsa requirements, in fy 2010, 

fincen, with input from occ, ots and other agencies, published a range of financial institution advisories 

and regulatory guidance, including an advisory for financial institutions on key terms to use when filing sars 

regarding loan modification and foreclosure rescue scams, an updated advisory on informal value transfer systems, 

a distillation of existing guidance on obtaining and retaining beneficial ownership information, guidance to 

casinos on compliance program risk indicators, and advisories to financial institutions on several international 

issues including statements from the financial action task force and changes to Mexican currency regulations. 

In fy 2010, occ and ots collaborated with fincen and other federal banking agencies to issue guidance on 

the impact of new, more transparent messaging standards being adopted by industry via measures undertaken by 

the society for Worldwide Interbank financial telecommunication. In fy 2011, fincen, occ and ots will 

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continue to work with other federal banking agencies to issue guidance to institutions as needed and additional 

financial institution advisories as risks emerge. 

In fy 2010, fincen conducted strategic analytical studies and published reports promoting greater awareness of 

emerging money laundering trends and vulnerabilities. those analytic products included an assessment of suspicious activity reporting by insurance companies and casinos/card clubs, and several reports analyzing sars related 

to mortgage loan and loan modification fraud. In fy 2011, fincen will continue to publish analytic products, 

which assess trends and patterns in mortgage fraud. other analytic studies planned for fy 2011 include strategic 

assessments of suspicious activities which involve title and escrow companies, prepaid access devices, remote 

deposit capture, debt settlement and debt relief fraud, commercial real estate fraud, and identify theft. 

a primary strategy for meeting the goal of a safer, more transparent financial system includes effective examination for any potential money laundering, terrorist financing, and bsa issues in supervised institutions. occ 

and ots continue to examine compliance with bsa, USA PATRIOT Act, and other aMl provisions through a 

process which consists of on-site examinations conducted every 12-18 months, supplemented by off-site monitoring and follow-up to address identified supervisory issues. additionally, in fy 2010 fincen and the Irs finalized 

a referral process to implement a more effective bsa examination regime for non-bank financial institutions 

that the Irs examines. Implementation of this process is part of a broader strategy implemented in fy 2010 to 

better enable fincen to develop cases and pursue enforcement actions based, in part, on its own analytical efforts 

and information from law enforcement. fincen will build upon current initiatives through fy 2011; work will 

include coordinating with the Irs to develop stronger relationships with state regulatory agencies, particularly 

with regard to non-bank financial institution examinations. 

throughout fy 2010, fincen, occ, and ots continued to work with the federal financial Institution 

examination council (ffIec) agencies to ensure examination consistency, and to provide guidance and training 

to financial institutions and examiners regarding aMl and bsa requirements. this collaboration helps achieve 

a consistent examination approach that is risk focused and provides uniform guidance to financial institutions on 

regulatory expectations. In april 2010, occ, ots, and the other federal banking agencies, in consultation with 

fincen, issued an updated ffIec bsa/aMl examination Manual. the 2010 version was the fourth revision 

of the manual. occ and ots joined the other federal banking agencies in a webinar hosted by the american 

bankers association to provide an overview of significant revisions to the manual for the banking industry. In 

august 2010, the ffIec, with participation from occ, ots and fincen, continued to enhance advanced bsa/ 

aMl training for banking examiners through the fourth ffIec advanced bsa/aMl specialists conference in 

august 2010. also, in fy 2010, the ffIec agencies, in consultation with fincen, completed the development 

of a software application used by examiners to analyze bsa data for purposes of improving the scoping of bsa 

examinations. 

ensuring financial institutions comply with the bsa, aMl, USA PATRIOT Act, and related regulations is critical to protecting the integrity of the u.s. financial system and combating money laundering and terrorist financing. In fy 2010, fincen, occ, ots, and Irs worked collectively and with other federal banking agencies to 

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review examination results and take enforcement actions, as appropriate, against institutions that egregiously 

violated regulatory requirements. In March 2010, fincen and occ, in conjunction with the Department of 

Justice, reached settlement on the largest civil penalty action to date under the bsa. these bureaus and agencies 

will continue to work together in fy 2011 to ensure financial institutions comply with aMl and bsa requirements and protect the integrity of the financial system. 

Challenge 4 - Management of Capital Investments 

the Department takes its investment management role very seriously and remains committed to improving the 

management of information technology (It). In support of this commitment, the office of the chief Information 

officer (ocIo) is actively engaged in the following activities: 

Infrastructure Optimization/Data Center Consolidation and Shared Services 

In august 2010, the Department submitted its strategy for reducing the number of treasury data centers to the 

office of Management and budget (oMb). In support of this strategy, the treasury cIo council approved 

proposals of specific initiatives to consolidate and optimize the Department’s data centers. Data center consolidation efforts will focus on coordinating planning among those bureaus (e.g., bureau of the Public Debt, financial 

Management service, occ, ots, and Irs) that have begun to work together to consolidate their operations. 

the Department expects to increase the efficiency of its data centers in support of energy reduction and release 

of real property. enterprise content Management will be a key shared service that will foster collaboration across 

the Department for a variety of administrative activities such as records management and correspondence tracking. In fy 2011, the Department will continue to focus on data center consolidation and shared services as key 

strategies to better manage costs of It investments. 

Monthly Evaluation of IT Investments 

the treasury ocIo continues to evaluate, on a monthly basis, the degree to which major It investments achieve 

cost control, schedule, and other performance goals. the ocIo inputs and monitors progress made on these 

goals via an oMb website. the public transparency and the increased frequency of assessments have resulted in 

increased executive attention to It investment management, which in turn results in more consistent management of the treasury It budget. 

taking advantage of the potential cost savings and/or cost avoidance from these efforts is not only good management, but is necessary if the Department is to effectively field the new capabilities required to support the 

Department’s expanding financial and economic missions. 

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DEPARTMENT OF THE TREASURY
 

WASHINGTON, D.C.
 

SECRETARY OF THE TREASURY 

november 15, 2010 

MEMORANDUM FOR J. RUSSELL GEORGE 

TREASURY INSPECTOR GENERAL FOR 

TAX ADMINISTRATION 

FROM: 	 timothy f. geithner 

SUBJECT:	 response to Management and Performance challenges facing the 

Internal revenue service 

I am responding to your october 15, 2010, memorandum describing the Internal revenue service’s (Irs) most 

serious management and performance challenges. this memorandum provides information on the actions 

completed in fiscal year (fy) 2010 and the actions planned for fy 2011 to address these challenges. 

Challenge 1 – Security 

In fy 2010, Irs implemented a number of security enhancements at Irs buildings nationwide as a result of the 

february incident in austin in which an Irs employee perished and several others were injured. the Irs placed 

guards on a 24/7 basis in 11 of the austin offices, and security guards at all of the 401 taxpayer assistance centers 

(tacs). the Irs also established a more vigilant security posture at all buildings through increased canine 

patrols, random searches, and guard vigilance. In addition, Irs is conducting in-depth risk assessments at all 669 

facilities that house Irs employees to identify any security countermeasures that would enhance security. 

the Irs’s criminal Investigation Division (cI) enhanced its partnerships with the treasury Inspector general for 

tax administration and federal Protective service to share information on potential threats so Irs can institute 

appropriate countermeasures. the Irs included physical security briefings for all employees in mandatory annual 

security awareness briefings. 

During fy 2010, Irs expanded efforts to detect and prevent security threats and to protect access to taxpayer 

information, identifying and mitigating over 5,200 individual cyber incidents which could have compromised 

the integrity of the Irs to address computer security. the Irs combated online fraud schemes by monitoring, 

identifying, and mitigating fraudulent sites and phishing scams, shutting down 4,109 phishing sites (899 domestic 

and 3,210 international) in fy 2010, up from 3,444 sites shut down in 2009. the Irs has a team of capable “first 

responders” who are organized, trained, and equipped to identify, contain, and eradicate cyber threats targeting 

Irs computing assets. 

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the Irs continues to take the issue of identity theft very seriously. In fy 2010, Irs flagged more than 284,000 

accounts of identity theft victims with “markers” that indicated to an employee that they were dealing with a 

substantiated case of identity theft. In addition, Irs ensured that identity theft indicators and business rules 

isolated returns for additional screening to validate whether the true taxpayer filed the return. More than 82,000 

returns were selected for additional screening and closed, and more than $245 million was protected from being 

refunded to perpetrators on thousands of fraudulent returns. 

In fy 2011, Irs will deploy additional account “markers” that will improve the processing of taxpayer accounts 

impacted by identity theft. the Irs will also complete the development of a cI Disaster recovery site in 

Martinsburg, WV which will be used to prepare for, respond to, and recover from a disaster or emergency incident. 

Challenge 2 – Modernization 

In fy 2010, Irs modernization efforts continued to focus on core tax administration systems designed to provide 

more sophisticated tools to taxpayers and to Irs employees. the customer account Data engine (caDe), 

Modernized e-file (Mef), and account Management services (aMs) modernization projects delivered the 

changes necessary for a successful filing season, and continued to support implementation of the tax provisions of 

the American Recovery and Reinvestment Act of 2009 (recovery act). 

In fy 2010, Irs revised its caDe strategy (caDe 2) to implement a new taxpayer account database for the 

2012 filing season that provides for daily updating of individual taxpayer accounts to improve taxpayer service and 

accuracy, reduce interest paid on late refunds, improve data security, and allow the development of new tools to 

combat fraud and improve enforcement activities. completion of the taxpayer account database is the prerequisite for other major initiatives, including significant expansion of online services and transactions and the next 

generation of enforcement technologies. 

the Irs deployed an additional release of Mef that enabled acceptance of additional forms and schedules to 

reach 61 percent of the e-file population, and with enhanced disaster recovery capabilities to manage operational 

risk. In addition, Irs deployed the final release of aMs, enabling users to view correspondence images online, 

eliminating manual processing, and reducing case cycle time from 10-14 days to zero days. aMs also facilitated 

the identification of unallowable or fraudulent claims for first-time home buyer credits claimed by taxpayers 

filing amended returns. 

In fy 2011, Irs will continue to focus on modernization of the tax administration systems to provide additional 

benefits to taxpayers. the Irs will further develop caDe 2 to accommodate tax law changes in the 2012 filing 

season. 

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Challenge 3 – Tax Compliance Initiatives 

During fy 2010, Irs continued to focus on improving voluntary compliance in support of treasury’s goal of reducing the tax gap, ensuring businesses and individuals pay the correct amount of tax and overseeing tax-exempt 

and government entities. the Irs research community strategic Plan, released in fy 2010, focuses on research 

efforts aimed at effectively determining ways to address taxpayer compliance. specifically, Irs will develop several 

new estimates of taxpayer compliance, undertake research to support efficient methods to enhance compliance, 

and use analytically based technologies to provide tools for detecting and reducing noncompliance. 

Businesses and Individuals 

In fy 2010, Irs continued to make closing the tax gap, especially the portion attributable to underreporting of 

individual and business income tax, a major priority. While enforcement efforts are crucial, Irs also recognized 

the need to better identify noncompliant taxpayers, conduct exams more efficiently and with less taxpayer 

burden, and to engage and monitor tax return preparers, who are uniquely situated to impact taxpayer behavior 

and compliance. 

the Irs requested increases in its fy 2011 treasury budget submission to support the Presidential priority of addressing international tax evasion. the Irs’s planned initiatives build on the work started in fy 2010, allowing 

Irs to continue the multi-year investment in international tax compliance activities. Increases in the coverage 

of the most strategically important international issues, including complex enterprise structures and transactions, 

promote greater compliance in high net-worth individuals and large enterprises, including those with international components, operated by businesses and investors through multiple interrelated financial and tax entities. the 

Irs will also be able to continue directing significant resources to examining returns from the offshore Voluntary 

Disclosure Initiative and to the development of cases built upon data received from ubs for taxpayers who did 

not voluntarily disclose ownership of offshore accounts. 

the Irs is continuing the individual national research Program in order to update case scoring models to better 

identify noncompliant taxpayers. In fy 2011, Irs plans to use the improved case scoring models to identify a 

sample population on which to conduct examinations beginning in fy 2012. 

During fy 2010, while Irs continued to take enforcement actions crucial to closing the tax gap, it also took 

steps to conduct exams more efficiently and with less taxpayer burden. In fy 2010, Irs began using new software 

that reduces the taxpayer burden of printing records stored electronically in response to business owners and tax 

professionals who have been advocating for the acceptance of taxpayer records in electronic format. the new 

software will allow Irs to retain a complete set of the taxpayer’s accounting records. as a result, Irs anticipates a 

decrease in the size and complexity of initial document requests during an examination and in follow-up requests 

to taxpayers. the new software also has the potential to allow Irs to resolve audits more quickly due to increased 

efficiency in the analysis and testing of the books and records in electronic format. 

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for the first time since the early 1980s, Irs embarked on a three-year employment tax compliance study to determine the employment tax gap and employment tax compliance rates. the Irs developed new forms designed 

to provide a clearer procedure for workers who are being incorrectly classified as contractors by their employers. 

In fy 2011, systemic changes will identify returns that have incomplete forms attached, reducing the number 

of forms filed with incorrect social security and Medicare taxes reported. the Irs will report the results of the 

employment tax compliance study once three years of data are available to develop robust compliance estimates, 

and will use the results to develop processes to correct the problem of misclassification of employees. 

Tax-Exempt Entities 

During fy 2010, Irs continued to recognize the importance of maintaining a strong enforcement presence in the 

tax-exempt sector and ensured that tax-exempt organizations met their requirements under federal tax law. In fy 

2010, Irs improved the filing of required forms 8871, Political Organization Notice of Section 527 Status, and 8872, 

Political Organization Report of Contributions and Expenditures, to better identify non-compliance by section 527 

political organizations. In fy 2011, Irs will continue to focus on these organizations by revising form instructions to improve the guidance provided to filers, developing procedures to both periodically sample forms submitted for compliance and to conduct reviews of responses received to compliance notices, and seeking to correct 

systemic issues related to the issuance of form 8872 notices. 

In fy 2010, Irs assisted the Department of Justice (DoJ) in fraud and conspiracy investigations related to 

municipal bond contracts and initiated examination projects in identified areas of noncompliance. one notable 

accomplishment is that compliance contacts for tax-exempt and government entities increased 19.7 percent in fy 

2010 when compared to the previous year. 

During fy 2010, international tax compliance continued to challenge Irs. In fy 2010, Irs addressed international compliance issues, including internationally sponsored pension plans, the movement of in-kind charitable 

gifts offshore, and cross-border commerce using Indian reservations and casinos. In fy 2011, Irs will continue 

to ensure tax-exempt organizations comply with applicable laws and regulations, as well as continue to address 

international compliance issues. 

In fy 2010, Irs released an interim report on the compliance of colleges and universities for unrelated business 

taxable income and compensation. the colleges and universities project is part of an ongoing effort by Irs to 

review the largest, most complex organizations in the tax-exempt sector to identify issues that warrant additional 

guidance or scrutiny. based on responses to compliance questionnaires sent to 400 public and private colleges and 

universities, Irs has opened several dozen examinations focusing on unrelated business income and executive 

compensation and will issue a final report in fy 2011. 

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Tax Return Preparers 

the Irs recognizes that return preparers are a critical component of tax administration and are uniquely situated 

to impact taxpayer behavior and improve compliance with tax laws. In fy 2010, Irs emphasized compliance 

among return preparers through a variety of methods, including due diligence and “knock and talk” visits, as well 

as examinations of cases where potential preparer violations were identified. as discussed further below, in 2010 

Irs also began to lay a foundation for ensuring the quality and integrity of professional tax return preparation 

through a program of registration, competency testing, and continuing professional education. 

Challenge 4 – Implementing Health Care and Other Tax Law Changes 

Health Care 

the Affordable Care Act (aca) was signed into law on March 23, 2010, and later amended by the Health Care 

and Education Reconciliation Bill of 2010 on March 30, 2010. aca represents the largest set of tax law changes 

in more than 20 years, with more than 40 provisions that amend the tax laws. although the new law goes into 

effect gradually over many years, numerous provisions required Irs to take immediate action, including the small 

business health care tax credit, the Qualifying therapeutic Discovery credit, the expanded adoption credit, 

and numerous tri-departmental aca market reform regulations and subregulatory guidance issued jointly by the 

Department of health and human services (hhs), Department of labor, and treasury (with Irs). 

to implement various aca provisions that are effective in 2010 and 2011, Irs established teams, organized by 

affected taxpayer groups: individual taxpayers, small businesses, large industry, and tax-exempt and government 

entities. During fy 2010, Irs focused on: 

•	 Developing new systems and business processes for near-term provisions 

•	 conducting initial planning for longer-term provisions, and 

•	 Defining appropriate outreach activities for each affected group 

the Irs and hhs partnered to form a coordinating committee to assess cross-cutting policy considerations. 

also, interagency working teams have formed to assess operational needs such as data infrastructure, eligibility, 

enrollment, customer service, communications, and payment of premium tax credits. 

Provisions taking effect in later years (including the individual responsibility requirement and premium tax 

credit), when new options for buying health insurance through state-sponsored exchanges go into effect, place 

significant new administrative responsibilities on Irs. In preparation for these provisions, in fy 2010, Irs began 

to design and develop the requisite complex new systems and business processes and coordinate with other federal 

and state entities. 

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Recovery Act 

the Irs is faced with implementing tax law changes each filing season, and in fy 2010 Irs successfully implemented the fy 2010 provisions of the recovery act. In response to the fraud that sometimes accompanies major 

tax law changes, Irs identified erroneous and fraudulent first-time homebuyer credit claims through new 

system programming and pre-refund filters that rejected returns where claims in excess of the maximum allowable 

credit were made or claims in excess of allowable amounts for taxpayers with adjusted gross income exceeded 

income limitations. the Irs continues to take a strategic approach to this credit which includes both aggressive 

compliance and outreach components. from october to December 2010, Irs plans to send a series of notices to 

the millions of taxpayers who benefited from the program to remind them of the requirements on repayment and 

recapture of the credit. the Irs will also send notices to taxpayers who may have disposed of their home within 

the three years, reminding them of the requirement to report the disposition for the year it occurred. the Irs is 

also moving forward with its plans to use third party data to identify non-compliance and to address the areas of 

non-compliance already identified. 

In fy 2010, Irs provided detailed recovery act training to employees responsible for developing recovery actfunded requirements to ensure the necessary controls were in place to comply with procurement requirements. 

the Irs also increased staff to ensure full coverage of required procurement activities. In fy 2011, Irs will 

continue to assess staffing throughout the procurement lifecycle to maintain adequate internal control functions. 

Other Tax Law Changes 

In fy 2010, taxpayers continued to use Irs.gov in record numbers to get real-time, updated information on available tax credits as they filed their returns. taxpayers used the site to find answers to tax law questions through 

an Interactive tax assistant and updated phone tools to obtain information on the one-time $250 economic 

recovery payment. 

In fy 2011, Irs will continue to monitor proposed changes to the tax laws and prepare accordingly to ensure 

taxpayers have the necessary forms and information for the filing season. based on preliminary analysis of the 

affordable care act, Irs will prepare to implement the act, including the revision of more than 17 tax forms 

and the creation of three new forms. 

Challenge 5 – Providing Quality Taxpayer Service Operations 

During the 2010 filing season, Irs.gov remained the preferred source of information for taxpayers seeking answers 

to their questions on preparing and filing their tax returns accurately and timely and on new legislation. the 

Irs added more automated self-help web tools and services; e.g., an application for taxpayers to obtain a personal 

identification number to satisfy e-filing signature requirements and a multilingual website to facilitate participation in the tax system by individuals who do not speak english. these improvements are a part of Irs’s continued implementation of the taxpayer assistance blueprint (tab) service improvements. 

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the Irs and its partners provided free tax assistance to the elderly, disabled, and limited english proficient 

individuals and families at Volunteer Income tax assistance (VIta) and tax counseling for the elderly (tce) 

sites during the filing season. Volunteers at over 12,000 VIta and tce sites throughout the nation prepared 

more than 3.1 million tax returns, including 360,500 returns for individuals with disabilities and/or families with 

disabled dependents. 

During fy 2010, Irs and its partners hosted five open house events at 200 tacs and partner sites, including at 

least one in every state, in an effort to assist taxpayers during the economic downturn. the goal of these events 

was to improve the taxpayer’s experience by creating seamless case resolution on a variety of tax issues and to 

assist taxpayers in preparing their tax returns. as a result, they served more than 31,400 taxpayers and prepared 

over 7,700 returns. Included in the 2010 events were assistors trained to help taxpayers who owed delinquent 

taxes, especially those who were having difficulties meeting their tax obligations because of unemployment or 

other financial problems. services offered to taxpayers included added flexibility for missed installment agreement 

payments and streamlined processing for offers in compromise. 

In fy 2011, Irs will continue to implement its tab service improvements and provide greater access to service 

on non-workdays through events such as open houses. the Irs will also use Irs.gov to disseminate information to taxpayers quickly, continue to simplify forms to comply with the Plain Writing Act of 2010, and look for 

additional ways to improve the tax filing process. 

Challenge 6 – Human Capital 

In fy 2010, Irs completed its human capital business Plan for 2010-2014, which describes how Irs will work 

toward further improving its ranking as a “best place to work in government.” 

to attract the best and most qualified applicants, Irs enhanced its recruitment programs and introduced a new 

recruitment brand – “count on Me!” – on print materials, usajobs.gov, the Irs careers website, Internet 

advertisements, and social media. a job search tool on youtube helped provide the public with information on 

employment opportunities. the Irs also took steps to streamline its hiring process to make it faster and more 

efficient, while reducing applicant burden. 

In fy 2010, Irs had noteworthy hiring accomplishments, including meeting its goal of hiring 1,000 military 

veterans for the third year in a row, with veterans comprising 11 percent of total hires, up from 9 percent in fy 

2009, and 7 percent in fy 2008. the Irs achieved this goal by working with veterans’ organizations and other 

government agencies to hold targeted job fairs. 

also, Irs developed an overall strategy for improving coaching and mentoring skills at all leadership levels, 

including implementation of an internal coaching certification program and core workshops for all leaders to develop, promote, and retain Irs leaders. the Irs also completed 41 of 58 recommendations outlined in its 2009 

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Workforce of tomorrow (Wot) report, helping to resolve some of the most significant recruitment and retention 

workforce challenges facing current employees and managers. 

In fy 2011, Irs will implement additional Wot recommendations, as well as an accelerated leadership 

Program pilot to test a “fast track” training program for identified high-potential candidates. the Irs will also 

continue to use cutting edge technologies and communication tools to increase the breadth of recruitment in an 

effort to attract the best and brightest applicants and will continue efforts to streamline the hiring process. 

Challenge 7 – Erroneous and Improper Payments and Credits 

Refundable Credits 

During fy 2010, Irs continued to focus on refundable credits and the earned Income tax credit (eItc) as 

areas for reducing erroneous payments. the Irs protected over $3.7 billion in revenue through eItc enforcement efforts, which included the examination of over 474,000 original and amended returns claiming the eItc, 

900,000 document matching reviews, and 300,000 math error process corrections. the Irs also identified more 

than 405,555 fraudulent returns claiming over $3.0 billion in refunds, and stopped over $2.6 billion in fraudulent 

claims using the electronic fraud Detection system, with an average refund of $8,230. 

In fy 2011, Irs will continue to address eItc noncompliance through its aggressive compliance program which 

includes examinations, reviews of income misreporting, systemic corrections during return processing, and focus 

on paid return preparers, who prepare 66 percent of eItc returns. the Irs believes the implementation of new 

preparer requirements for registration, competency testing, continuing education, and compliance checks will 

improve eItc compliance, decrease fraud, and reduce overall program noncompliance. 

Contracts and Other Payments 

In fy 2010, Irs emphasized the importance of the role of the contracting officer’s technical representative 

(cotr) in contract administration and contract monitoring by providing on-line reference resources and 

developing more comprehensive training. the training is a mandatory requirement for all managers and employees involved in contract administration. It includes courses that separate the receipt and acceptance processes 

to clarify the requirements. the Irs has also established an automated system to ensure only properly certified 

employees serve as cotrs. to further assist cotrs in the contractor invoice review and approval process, 

detailed procedures include a requirement to verify contractor employee qualifications against the contract labor 

categories and descriptions prior to approval of any voucher for payment. 

Challenge 8 – Globalization 

During fy 2010, Irs continued to focus on taxpayers who shift income abroad and engage in offshore tax evasion 

schemes to hide their wealth and avoid paying taxes. With cross-border transactions on the rise, Irs more than 

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doubled its offshore presence by opening new offices in asia and central america, placing additional personnel 

at its existing offices throughout the world, and expanding its interaction with key international organizations 

involved in tax and financial law compliance. 

In fy 2010, Irs used audit results and intelligence from ongoing offshore initiatives to refine case identification 

and selection methods and to identify promoters, facilitators, and participants in abusive offshore arrangements. 

the Irs also began mining the information from participants of its offshore voluntary disclosure program, started 

in 2009, to identify financial institutions, advisors, and others who promoted or otherwise helped u.s. taxpayers 

hide assets and income offshore. this mined data will be used in fy 2011 to develop additional strategies to 

prohibit promoters and facilitators from soliciting new clients. 

as part of a continuing effort to ensure the issues with erroneous and fraudulent refund claims on forms 1040nr, 

U.S. Nonresident Alien Income Tax Return, are not widespread, Irs has developed new procedures for reviewing 

and processing the refund claims, assisted by recently passed legislation that extends the timeframe allowed for 

review. In fy 2011, a new database will be developed to provide for better tracking and validity reviews, and 

new criteria will be established to assist in the validation of claims. the Irs also plans to take steps to recover 

erroneous refunds through enforcement. the Irs continued to address emerging compliance issues with internationally sponsored pension plans, the movement of in-kind charitable gifts offshore, and adherence by charities to 

requirements for foreign bank accounts. 

Challenge 9 – Taxpayer Protection and Rights 

taxpayer protection is a top priority for Irs. In fy 2010, Irs continued to monitor compliance with the taxpayer rights provisions of the IRS Restructuring and Reform Act of 1998 (rra 98), including quarterly managerial 

certifications and annual independent reviews of the rra 98 section 1204 provisions. the certification process 

serves to ensure management does not use enforcement statistics to evaluate employees and drive behavior in 

conflict with taxpayer rights. the Irs issued new policy guidance and developed an improved briefing on the 

retention standard to ensure that the fair and equitable treatment of taxpayers remains a critical factor in evaluating employees. 

During fy 2010, Irs began laying the groundwork to ensure the quality and integrity of professional tax return 

preparation, which most taxpayers rely on in one form or another. the Irs successfully implemented an application process to comply with the mandate that all paid tax return preparers obtain a preparer tax identification 

number. In fy 2011, Irs will proceed with additional requirements related to competency testing and continuing 

professional education. 

the notice of federal tax lien process is an important component of the Irs recovery strategy to protect the government’s interest on unpaid tax liabilities. the Irs has taken several steps to address systemic and procedural 

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concerns identified with the notice of federal tax lien process, including system enhancements, Internal revenue 

Manual procedural updates, and operational reviews. the Irs continually examined and improved processes 

to ensure the protection of taxpayer rights. In fy 2011, Irs will implement automation tools to address notice 

requirements. 

Challenge 10 – Leveraging Data to Improve Program Effectiveness and Reduce Costs 

In fy 2010, Irs continued to make progress in financial management, particularly with use of its managerial 

cost accounting system that provides timely, accurate, and useful data across multiple business units. currently, 

the system has five years of data that provide managers with useful cost information for decision making related 

to their programs and activities. the Irs has used its Integrated financial system cost module to determine the 

full cost of a number of compliance activities at the program level, including the eItc program, and to develop 

cost-benefit analyses on other enforcement programs. 

the Irs implemented the redesign revenue accounting control system (rracs) in January 2010, bringing 

the revenue financial system substantially compliant with the united states standard general ledger. the 

requirement that rracs provide transaction traceability for unpaid tax assessments to the sub-ledger prevents 

closure of the unpaid assessment material weakness at this time. closure of this material weakness depends on 

implementation of caDe 2 (transition state 2) to provide the capability to properly categorize unpaid assessment data and provide an audit trail to the detailed transactions residing in modernized and legacy operating 

systems. 

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appendix d:
 

Material WeaKnesses, audit folloW-uP, 


financial systeMs, and recoVery act
 

risK ManaGeMent
 

this section consists of detailed descriptions of treasury’s material weakness inventory, including a summary of actions taken and 

planned to resolve the weaknesses; tracking and follow-up activities related to treasury’s gao, oIg, tIgta, and the special 

Inspector general for the troubled asset relief Program audit inventory; an analysis of potential monetary benefits arising from 

audits performed by treasury’s Inspectors general; an update on treasury’s financial systems framework; and an overview of 

treasury’s risk management activities related to the American Recovery and Reinvestment Act of 2009 (recovery act). 

i. treasury’s material Weaknesses 

Management may declare audit findings or internal situations as a material weakness whenever a condition exists that may jeopardize the treasury mission or continued operations. reporting on material weaknesses is required in these instances by the Federal 

Managers’ Financial Integrity Act of 1982 (fMfIa) and the Federal Financial Management Improvement Act of 1996 (ffMIa). 

Federal Managers’ Financial Integrity Act of 1982 (FMFIA) 

the fMfIa requires agencies to establish and maintain internal controls. the secretary must annually evaluate and report on the 

controls (fMfIa section 2) and financial systems (fMfIa section 4 and ffMIa) that protect the integrity of federal programs. 

the requirements of the fMfIa serve as an umbrella under which other reviews, evaluations, and audits should be coordinated and 

considered to support management’s assertion about the effectiveness of internal control over operations, financial reporting, and 

compliance with laws and regulations. 

as of september 30, 2010, treasury has four material weaknesses under section 2 of the fMfIa, summarized as follows: 

Summary of FMFIA and FFMIA Material Weaknesses Section 2 Section 4 Total 

Balance at the Beginning of FY 2010 5 0 5 

Closures/Downgrades during FY 2010 1 0 1 

Reassessed during FY 2010 0 0 0 

New MW declared during FY 2010 0 0 0 

Balance at the End of FY 2010 4 0 4 

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below are detailed descriptions of treasury’s four material weaknesses: 

Material Weakness Description 

INTERNAL REvENUE SERvICE - Improve Modernization Management Controls and Processes 

The IRS needs to improve its management of the Business Systems Modernization program. Key elements: 

•	 Assess the recommendations from the Special Studies and Reviews of the Business Modernization program and projects 

•	 Implement and institutionalize procedures for validating contractor-developed costs and schedules 

•	 Establish effective contract management practices 

•	 Complete a human capital strategy 

•	 Improve configuration management practices 

Actions Completed What Remains to be Done 

55Deployed release 5.2 of the Customer Account Data Engine (CADE) in 5Allow assessment time to observe long-term effect of actions completed and

January 2010, delivering the tax year 2009 filing season tax law changes demonstrate sustained improved performance 

affecting individual taxpayers, and providing technical improvements to the 5Targeted Downgrade/Closure: Fiscal year 2011 infrastructure and availability of current CADE 

55Deployed Modernized e-File (MeF) release 6.1 in January 2010, delivering all

functionality and tax law changes for corporate, partnership, and non-profit/ 

tax exempt returns; and the build-out of the infrastructure to include a more 

robust disaster recovery capability to support 1040 processing 

55Deployed Account Management Services (AMS) release 2.1 in September

2009, providing all AMS users the ability to view correspondence images 

online and on demand, eliminating users’ reliance on manual processes to 

obtain copies of images. 

55Exited CADE 2 Transition State 1 milestone 0-2 in February 2010; implemented 

CADE 2 Acquisition Strategy and Plan which provides oversight for all CADE 2 

acquisition tasks 

Material Weakness Description 

INTERNAL REvENUE SERvICE - Computer Security 

The IRS has various computer security controls that need improvement. Key elements: 

•	 Adequately restrict electronic access to and within computer network operational components 

•	 Adequately ensure that access to key computer application and systems is limited to authorized persons for authorized purposes 

•	 Adequately configure system software to ensure the security and integrity of system programs, files, and data 

•	 Appropriately delineate security roles and responsibilities within functional business operating and program units, as required by the Federal Information Security 

Management Act 

•	 Appropriately segregate system administration and security administration responsibilities 

•	 Sufficiently plan or test the activities required to restore certain critical business systems where unexpected events occur 

•	 Effectively monitor key networks and systems to identify unauthorized activities and inappropriate system configurations 

•	 Provide sufficient technical, security-related training to key personnel 

•	 Certify and accredit 90 percent of all systems 

Actions Completed What Remains to be Done 

55Security roles and responsibilities 5Systems/Application access controls

55Security/System Administration segregation of duties 5Systems software configuration access controls

55Security training 5Contingency planning

55Certification and Accreditation 5Audit trails

55Network access controls 5Targeted Downgrade/Closure: Fiscal year 2012 

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Material Weakness Description 

INTERNAL REvENUE SERvICE – Unpaid Assessments (remaining portions of Financial Accounting of Revenue – Custodial) 

The IRS needs to improve its internal control over Unpaid Assessments. Key elements: 

•	 Subsidiary ledger does not track and report one Trust Fund Recovery Penalty (TFRP) balance 

•	 Untimely posting of TFRP assessments and untimely review of TFRP accounts 

•	 IRS’ general ledger for its custodial activities does not use the standard federal accounting classification structure 

Actions Completed What Remains to be Done 

55Implemented the Redesign Revenue Accounting Control System (RRACS) in

January 2010, which enabled the custodial financial management system to 

substantially comply with the United States Standard General Ledger (USSGL) 

chart of accounts to address noncompliance with FFMIA. 

55RRACS now records all tax revenue and refunds using the USSGL format

and for the first time records the taxes receivable and allowance for doubtful 

accounts addressing this component of the material weakness 

5Achievement of CADE 2 Transition State 2 target of a single, data-centric 

solution system which provides for daily processing of taxpayer accounts 

5Targeted Downgrade/Closure: Fiscal year 2015 

Material Weakness Description 

FINANCIAL MANAGEMENT SERvICE - Consolidated Government-wide Financial Statements 

The government does not have adequate systems, controls, and procedures to properly prepare the Consolidated Government-wide Financial Statements. Key elements: 

•	 The government lacks a process to obtain information to effectively reconcile the reported excess of net costs over revenue with the budget deficit, and when 

applicable, a reported excess of revenue over net costs with the budget surplus 

•	 Weaknesses in financial reporting procedures in internal control over the process for preparing the Consolidated Financial Statements 

Actions Completed What Remains to be Done 

55Partially reconciled fiscal year 2009 operating revenues with budget receipts 5Complete reconciliation of operating revenues to budget receipts

55Developed a model to provide analysis of unreconciled transactions that 5Complete reciprocal category for the Treasury General Fund 

affect the change in net position 5Implement changes identified by the Office of the Fiscal Assistant Secretary

55Accounted for intra-governmental differences through formal consolidating as a result of its review of the Reporting Entity definitions per the Financial 

and elimination accounting entries using all reciprocal fund categories Accounting Standards Advisory Board criteria 

including the General Fund 5Include all disclosures as appropriate

55Federal agencies submit complete closing packages to GAO 5Include all loss contingencies as appropriate

55Establish traceability from agency footnotes to the Consolidated Financial 5Targeted Downgrade/Closure: Fiscal year 2014 Statements (CFS) for completeness 

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ii. auDit fOllOW-up aCtivities 

During fiscal year 2010, treasury placed renewed emphasis on both the general administration of internal control issues throughout the Department and the timely resolution of findings and recommendations identified by the office of the Inspector general 

(oIg), the treasury Inspector general for tax administration (tIgta), the special Inspector general for the troubled asset 

relief Program (sIgtarP), the government accountability office, and external auditors. During the year, treasury continued 

to implement enhancements to the tracking system called the “Joint audit Management enterprise system” (JaMes). JaMes is 

a Department-wide, interactive, web-based system accessible to the oIg, tIgta, sIgtarP, bureau management, Departmental 

management, and others. the system tracks information on audit reports from issuance through completion of all corrective actions 

required to address findings and recommendations contained in an audit report. JaMes is the official system of record for treasury’s 

internal control program. 

Potential Monetary Benefits 

the Inspector General Act of 1978, as amended, Public law 95-452, require the Inspectors general and the secretaries of executive 

agencies and Departments to submit semiannual reports to the congress on actions taken on audit reports issued that identify potential monetary benefits. the Department consolidates and analyzes all relevant information for inclusion in this report. the information contained in this section represents a consolidation of information provided separately by the oIg, tIgta, and Department 

management. 

In the course of their audits, the Inspectors general periodically identify questioned costs, make recommendations that funds be put 

to better use, and identify measures that demonstrate the value of audit recommendations to tax administration and business operations. “Questioned costs” include a: 

•	 cost that is questioned because of an alleged violation of a provision of a law, regulation, contract, or other requirement governing the expenditure of funds 

•	 finding, at the time of the audit, that such costs are not supported by adequate documentation (i.e., an unsupported cost) 

•	 finding that expenditure of funds for the intended purpose is unnecessary or unreasonable 

the Department regularly reviews progress made by the bureaus in realizing potential monetary benefits identified in audit reports, 

and coordinates with the auditors as necessary to ensure the consistency and integrity of information on monetary benefit recommendations being tracked. 

the statistical data in the following summary table and charts represent audit report activity for the period from october 1, 2009 

through september 30, 2010. the data reflect information on reports that identified potential monetary benefits issued by the oIg 

and tIgta. 

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Audit Report Activity With Potential Monetary Benefits for Which Management has Identified Corrective Actions (OIG and TIGTA) 

October 1, 2009 through September 30, 2010 

(Dollars in Millions) 

Disallowed Costs Funds Put to Better Use Revenue Enhancements Totals 

Reports Dollars Reports Dollars Reports Dollars Report Total Total Dollars 

Beginning Balance 10 $36.9 6 $159.1 11 $2,536.3 27 $2,732.3 

New Reports 2 .4 11 2,818.7 11 3,929.0 23 6,748.1 

Total 12 37.3 17 2,977.8 22 6,465.3 50 9,480.4 

Reports Closed 8 4.3 4 155.2 5 906.4 16 1,065.9 

a. Realized or Actual 6 1.1 2 29.2 3 16.1 10 46.4

 b. Unrealized - Written off 7 3.2 3 126.01 5 890.32 15 1,019.5 

Ending Balance 4 $33.0 13 $2,822.6 17 $5,558.9 34 $8,414.5 

1 This category includes one report, with $125.66 million written off, for which IRS management did not concur with TIGTA’s projected benefits. 

2 This category includes one report, with $209 million written off, for which IRS management did not concur with TIGTA’s projected benefits; and one report, with $539.6 million written off, for which 

TIGTA does not agree with the IRS that the benefits have not been realized. 

the following table presents a summary of oIg and tIgta audit reports with potential monetary benefits that were open for more 

than one year as of the end of fiscal years 2008, 2009, and 2010. 

Number of Reports with Potential Monetary Benefits Open for More than One Year 

PAR Report Year 9/30/2008 9/30/2009 9/30/2010 

OIG No. of Reports 1 0 1 

$ Projected Benefits $29.4 million $0 million $10.5 million 

TIGTA No. of Reports 12 10 12 

$ Projected Benefits $661.5 million $673.8 million $1,783.7 million 

the following table presents a summary of tIgta and oIg audit reports, broken out by year of report issuance, on which management decisions were made on or before september 30, 2009, but the final actions had not been taken as of september 30, 2010. 

Details of the Audit Recommendations with Potential Monetary Benefits on Which Management Decisions Were Made On or Before September 30, 2009, 

But Final Actions have Not Been Taken as of September 30, 2010 

(Dollars In Thousands) 

Bureau 

Report 

Number 

Report 

Issue Date Brief Description 

Disallowed 

Costs 

Funds Put to 

Better Use 

Revenue 

Enhancement Total Due Date 

IRS 2004-20-142 8/26/2004 The IRS should ensure the Storage Strategy 

Study addresses the data storage capacity 

deficiency and recommends a cost-effective 

virtual tape system solution to reduce 

maintenance and tape shipping costs. 

$ 200.0 $ 200.0 Due 

12/31/2010 

FY 2004 1 $ 200.0 $ 200.0 

IRS 2006-1c-142 9/25/2006 The IRS Contracting Officer (CO) should use 

the results of the Defense Contract Auditing 

Agency (DCAA) report to fulfill his/her duties 

in awarding and administering contracts. 

$ 32,373.8 $ 32,373.8 Delayed to 

10/15/2011 

FY 2006 1 $ 32,373.8 $ 32,373.8 

IRS 2007-1c-149 9/24/2007 The IRS will work with DCAA and the 

contractor to resolve the questioned costs 

applicable to IRS contracts. 

$ 62.2 $ 62.2 Delayed to 

8/31/2011 

FY 2007 1 $ 62.2 $ 62.2 

table continued on next page 

appendix d: material weaknesses, audit follow-up, 

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338
 

Details of the Audit Recommendations with Potential Monetary Benefits on Which Management Decisions Were Made On or Before September 30, 2009, 

But Final Actions have Not Been Taken as of September 30, 2010 

(Dollars In Thousands) 

Bureau 

Report 

Number 

Report 

Issue Date Brief Description 

Disallowed 

Costs 

Funds Put to 

Better Use 

Revenue 

Enhancement Total Due Date 

FY 2008 N/A N/A — — — — N/A 

DO OIG-09-024 1/7/2009 Treasury should reactivate the state-held 

federal unclaimed assets recovery program 

with appropriate policies, procedures, and 

controls. 

$ 10,500.0 $ 10,500.0 Due 

6/30/2012 

IRS 2009-10-107 7/24/2009 IRS should develop procedures requiring 

that workstation sharing levels are included 

in space needs assessments. When 

implementing these procedures the IRS 

should adjust its space needs to reflect 

workstation sharing and take action to 

release any unneeded space identified, 

where appropriate. 

$ 30,000.0 30,000.0 Due 

1/15/2011 

IRS 2009-30-068 5/28/2009 As resources become available, the 

IRS should initiate actions to develop 

compliance strategies for ensuring more 

Commodity Credit Corporation income 

payments are properly reported. 

92,200.0 92,200.0 Due 

3/15/2011 

IRS 2009-30-106 8/18/2009 IRS should coordinate with the respective 

functional areas to ensure employees 

receive periodic computer alerts to review 

large dollar frozen taxpayer accounts for 

credits that can be reelased and the freeze 

on accounts is systematically released when 

credits fall below the $10 million threshold 

by implementing agreed-upon computer 

programming modifications. 

92,600.0 92,600.0 Due 

1/15/2011 

IRS 2009-40-112 8/6/2009 IRS should explore the feasibility of 

making greater use of mortgage interest 

data to pursue additional nonfilers and 

underrerporters for audit. 

1,426,735.7 1,426,735.7 Due 

12/15/2011 

IRS 2009-40-137 9/24/2009 IRS should develop processes to identify 

erroneous Health Coverage Tax Credit claims 

based on criteria used to select taxpayers for 

examination and reject e-filed tax returns or 

forward paper-filed tax returns to the Error 

Resolution function at the time the tax return 

is filed. 

9,000.0 9,000.0 Due 

1/15/2011 

IRS 2009-40-138 9/23/2009 IRS should discontinue providing the 

option to taxpayers of self-identifying by 

annotating a tax return with “Combat Zone” 

and continue to provide individuals the 

option of self-identifying by telephone or 

electronically. 

1,100.7 1,100.7 Due 

1/15/2012 

IRS 2009-1c-134 9/28/2009 IRS should use the DCAA results in fulfilling 

the awarding and administration of IRS 

contracts. 

$ 145.6 145.6 Due 

10/15/2012 

FY 2009 8 $ 145.6 $ 131,600.0 $ 1,530,536.4 $ 1,662,282.0 

TOTAL 11 $ 32,581.6 $ 131,800.0 $ 1,530,536.4 $ 1,694,918.0 

appendix d: material weaknesses, audit follow-up, 

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performance and accountability report | fiscal year 2010 

339 

the following table provides a snapshot of oIg and tIgta audit reports with significant recommendations reported in previous 

semiannual reports for which corrective actions had not been completed as of september 30, 2009 and september 30, 2010, respectively. oIg and tIgta define “significant” as any recommendation open for more than one year. there were no “undecided audit 

recommendations” during the same periods. 

Audit Reports with Significant Unimplemented Recommendations 

9/30/2009 9/30/2010 

OIG TIGTA OIG TIGTA 

No. of Reports 8 26 6 24 

iii. finanCial management systems frameWOrk 

Overview 

the Department of the treasury’s financial management systems structure consists of financial and mixed systems maintained by the 

treasury bureaus and the Department-wide financial analysis and reporting system (fars). the bureau systems process and record 

the detailed financial transactions and submit summary-level data to fars on a scheduled basis. fars maintains the key financial 

data necessary for consolidated financial reporting. In addition, the fars modules also maintain data on the status of audit-based 

corrective actions. under this systems structure, the bureaus are able to maintain financial management systems that meet their 

specific business requirements. on a monthly basis, the required financial data submitted to fars to meet Departmental analysis 

and reporting requirements. the Department uses fars to produce its periodic financial reports as well as the annual Performance 

and accountability report (Par). this structured financial systems environment enables treasury to receive an unqualified audit 

opinion and supports its required financial management reporting and analysis requirements. 

the fars structure consists of the following components: 

•	 bureau core and financial management systems that process and record detailed financial transactions 

•	 treasury Information executive repository (tIer) that consolidates bureau financial data 

•	 cfo Vision that produces monthly financial statements and performs financial analysis 

•	 Joint audit Management enterprise system (JaMes) that tracks information on audit findings, recommendations, and planned 

corrective actions 

bureaus submit summary-level financial data to tIer on a monthly basis, within three business days of the month-end. these data 

are then used by cfo Vision to generate financial statements and reports on both a Department-wide and bureau-level basis. this 

structure enables the Department to produce its audited annual financial statements and monthly management reports. During fiscal 

year 2010, treasury continued to upgrade its fars applications to take advantage of technology improvements such as information 

security and the technical environment. 

as part of the Department’s enhancement effort, 14 treasury bureaus and reporting entities are cross-serviced for financial systems 

by the bureau of the Public Debt’s (bPD) administrative resource center (arc). cross-servicing enables these bureaus to have 

access to core financial systems without having to maintain the necessary technical and systems architectures. In an ongoing effort to 

streamline its financial systems environment, treasury continues to work with the bureaus to evaluate plans for continuous improvement to their financial management systems structure. 

part 4: other accompanying information 

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340 

Continued Improvement 

treasury’s target financial management systems structure continues to build upon the current fars foundation. treasury has 

enhanced fars to support new financial and performance requirements and continues to provide management with the appropriate 

tools needed to align the Department’s goals and objectives. 

In fiscal year 2010, treasury established a tIer focus group to improve communication with the bureaus and to coordinate changes 

impacting financial management systems and financial operations. treasury enhanced the fars applications to be section 508 

compliant, which assists users with disabilities in accessing reports and performing data entry. In addition, treasury upgraded the 

fars servers to improve performance. 

the Irs continued to modernize the tax administration systems, improving the speed in which the Irs processes tax returns. In 

fiscal year 2010, the customer account Data engine (caDe) posted more than 41.2 million tax returns and more than 35.8 million 

refunds. the account Management services system, which stores taxpayer information, has been enhanced to eliminate the processing of paper and reduce case cycle time from 14 days to recognizing real-time submissions; and Irs upgraded the servers which host 

the financial management system that accounts for $11.5 billion in Irs funding. 

bPD/arc continued to improve the effectiveness of providing efficient financial management systems and financial operations 

services to 14 treasury bureaus and offices by implementing best practices in financial management. In fiscal year 2010, bPD/arc 

upgraded the core financial management systems platform to increase its responsiveness in producing financial management reports 

and to adhere to financial reporting governance standards. bPD/arc also provides administrative services in the areas of accounting, travel, payroll, human resources, and procurement to treasury bureaus and offices and to other federal entities to support core 

business activities. 

the bureau of engraving and Printing (beP) enhanced its manufacturing system to be fully integrated into its existing financial 

management system to support capturing performance data into the managerial cost accounting process. beP also participated in a 

pilot program with the bureau of the Public Debt (bPD) for intra-governmental transactions, utilizing a secure, web-based electronic 

invoicing and payment information system provided by the treasury’s financial Management service. 

Federal Financial Management Improvement Act (FFMIA) of 1996 Compliance 

With the exception of the Irs, all treasury bureaus are in compliance with ffMIa. as required by ffMIa, the Irs has a remediation plan in place to correct the deficiencies. for each ffMIa recommendation, the remediation plan identifies specific remedies, 

target dates, responsible officials, and resource estimates required for completion. this plan is reviewed and updated quarterly. 

the Irs made significant progress in fiscal year 2010 toward achieving ffMIa compliance by implementing the redesign revenue 

accounting control system (rracs), which enabled the custodial financial management system to substantially comply with the 

united states standard general ledger (ussgl) chart of accounts. rracs now records all tax revenue and refunds using the 

ussgl format and, for the first time, records the taxes receivable and allowance for doubtful accounts. the Irs also implemented 

automated interfaces which enabled traceability for 98.6 percent of the over $2.3 trillion in revenue collections. 

appendix d: material weaknesses, audit follow-up, 

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performance and accountability report | fiscal year 2010 

iv. reCOvery aCt risk management aCtivities 

upon the enactment of the recovery act in february 2009, just weeks after the new administration took office, treasury quickly 

designed and implemented a robust risk management program to support the Department’s implementation of the act. following 

oMb’s recovery act implementation guidance, treasury required the programs’ senior accountable officials in the bureaus to certify 

that they had taken the following actions for each recovery act program: 

•	 Identified and documented program-specific risks 

•	 Identified and documented applicable current process internal controls 

•	 Determined the risk level (high, medium, or low) by using treasury’s recovery act risk and impact assessment questionnaire 

•	 Determined additional controls needed, if any 

•	 Developed (or updated existing) and implemented a risk mitigation plan for each program with a risk level of medium or high 

•	 Performed ongoing monitoring and testing 

treasury created a recovery act risk Management council that continued to meet regularly during fiscal year 2010 to discuss the 

progress and status of each bureau’s recovery act risk management activities. 

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343 

appendix e:
 

Glossary of acronyMs
 

Glossary of Acronyms 

ABS Asset-Backed Securities 

ACA Patient Protection and Affordable Care Act 

ACD Advanced Counterfeit Deterrent 

ACH Automated Clearing House 

AD Audit Division 

ADR Alternative Dispute Resolution 

AFR Agency Financial Report 

AGP Asset Guarantee Program 

AIFP Automotive Industry Financing Program 

AIG American International Group 

AML Anti-money laundering 

AMS Account Management Services 

APR Annual Performance Report 

ARC Administrative Resource Center 

ASM/CFO Assistant Secretary for Management & Chief Financial 

Officer 

ATFC Afghanistan Threat Finance Cell 

AUR Automated Underreporter 

BCPO Bureau Chief Procurement Officer 

BEA Bank Enterprise Award 

BEP Bureau of Engraving and Printing 

BPD Bureau of the Public Debt 

BSA Bank Secrecy Act 

BSM Business Systems Modernization 

CADE Customer Account Data Engine 

CAMELS Capital adequacy, Asset quality, Management, Earnings, 

Liquidity and Sensitivity to market risk 

CAP Capital Assistance Program 

CAP Compliance Assurance Process 

CAR Collection Activity Report 

CBP U.S. Customs and Border Patrol 

CBLI Consumer and Business Lending Initiative 

CBO Congressional Budget Office 

CCMM Collections and Cash Management Modernization 

CDCI Community Development Capital Initiative 

CDE Community Development Entities 

CDFI Community Development Financial Institutions 

CDS Credit Default Swaps 

CFPB Consumer Financial Protection Bureau 

CFO Chief Financial Officer 

CFS Consolidated Financial Statements 

CFT Counter-terrorist financing 

CFTC Commodity Futures Trading Commission 

Glossary of Acronyms 

CHCO Chief Human Capital Officer 

CHIPRA Children’s Health Insurance Program Reauthorization Act 

of 2009 

CI Criminal Investigators 

CIF Climate Investment Funds 

CIGFO Council of Inspectors General on Financial Oversight 

CIO Chief Information Officer 

CMBS Commercial Mortgage Backed Securities 

CMF Capital Magnet Fund 

CO Contracting Officer 

COBRA Consolidated Omnibus Budget Reconciliation Act of 1985 

COLA Certificate of Label Approval 

COP Congressional Oversight Panel 

COSO Committee of Sponsoring Organizations of the Treadway 

Commission 

CPP Capital Purchase Program 

CRA Community Reinvestment Act 

CRE Commercial Real Estate 

Credit CARD Act Credit Card Accountability, Responsibility and Disclosure 

Act of 2009 

CSI Customer Service Index 

CSR Customer Service Representative 

CSRS Civil Service Retirement System 

CTF Clean Technology Fund 

DASHR/CHCO Office of the Deputy Assistant Secretary for Human 

Resources/Chief Human Capital Officer 

DASMB Deputy Assistant Secretary for Management and Budget 

DASPTR Deputy Assistant Secretary Privacy, Transparency, and 

Records 

DCAA Defense Contract Auditing Agency 

DCFO Deputy Chief Financial Officer 

DCIA Debt Collection Improvement Act of 1996 

DCP Office of D.C. Pensions 

DIP Debtor-in-Possession 

DISC Discontinued 

DMAS Debt Management Account System 

DO Departmental Offices 

Dodd-Frank Act Dodd-Frank Wall Street Reform and Consumer Protection 

Act 

DOJ Department of Justice 

EBRD European Bank for Reconstruction and Development 

ECM Enterprise Content Management 

EEO Equal Employment Opportunity 

EESA Emergency Economic Stabilization Act of 2008 

part 4: other accompanying information 

appendix e: glossary of acronyms 
the department of the treasury 

part 4: other accompanying information 

344 

Glossary of Acronyms 

EFT Electronic Funds Transfer 

EFTPS Electronic Federal Tax Payment System 

EGTRRA Economic Growth and Tax Relief Reconciliation Act 

EITC Earned Income Tax Credit 

EO Executive Order 

ERP Economic Recovery Payment 

ESF Exchange Stabilization Fund 

ETD Error Tracking Database 

EU European Union 

FAET Firearms and Ammunition Excise Tax 

Fannie Mae Federal National Mortgage Association 

FARS Financial Analysis and Reporting System 

FASAB Federal Accounting Standards Advisory Board 

FATF Financial Action Task Force 

FCDA Foreign Currency Denominated Assets 

FCRA Federal Credit Reform Act 

FDIC Federal Deposit Insurance Corporation 

FEC Financial Education and Counseling 

FECA Federal Employees’ Compensation Act 

FERS Federal Employees’ Retirement System 

FEGLI Federal Employees Group Life Insurance 

FEHBP Federal Employees Health Benefits Program 

FFB Federal Financing Bank 

FFETF Financial Fraud Enforcement Task Force 

FFIEC Federal Financial Institutions Examination Council 

FFMIA Federal Financial Management Improvement Act 

FHA Federal Housing Administration 

FHFA Federal Housing Finance Agency 

FHLB Federal Home Loan Bank 

FinCEN Financial Crimes Enforcement Network 

FinTRACA Financial Transactions and Reports Analysis Center of 

Afghanistan 

FIO Federal Insurance Office 

FISMA Federal Information Security Management Act 

FIRST Financial Information and Reporting Standardization 

FIST Fraud Investigative Strike Team 

FIT Office of Financial Innovation and Transformation 

FIU Financial Intelligence Unit 

FMFIA Federal Managers’ Financial Integrity Act 

FMIS Financial Management Information System 

FMS Financial Management Service 

FOIA Freedom of Information Act 

FONL Formulas Online 

FR Consolidated Financial Report of United States Government 

FRB Federal Reserve Bank 

FRBNY Federal Reserve Bank of New York 

Glossary of Acronyms 

Freddie Mac Federal Home Loan Mortgage Corporation 

FSB Financial Stability Board 

FSOB Financial Stability Oversight Board 

FST Floor Stocks Tax 

FTO Fine Troy Ounce 

FY Fiscal Year 

G-7 Group of Seven 

G-20 Group of Twenty 

GAAP Generally Accepted Accounting Principles 

GAB General Arrangement to Borrow 

GAFSP Global Agriculture and Food Security Program 

GAIS Government Agency Investment Services 

GAO Government Accountability Office 

GEF Global Environmental Facility 

GFRA General Fund Receipt Account 

Ginnie Mae Government National Mortgage Association 

GM General Motors 

GMAC General Motors Acceptance Corporation 

GSA General Services Administration 

GSE Government Sponsored Enterprises 

GWA Government-wide Accounting 

HAMP Home Affordable Modification Program 

HCTC Health Coverage Tax Credit 

HEAT Health Care Fraud Prevention and Enforcement Action Team 

HECM Home Equity Conversion Mortgage 

HERA Housing and Economic Recovery Act 

HFA Housing Finance Agency 

HFFI Healthy Food Financing Initiative 

HHF Hardest Hit Fund 

HHS Department of Health and Human Services 

HIRE Hiring Incentives to Restore Employment Act of 2010 

HRF Haitian Reconstruction Fund 

HSPD Homeland Security Presidential Directive 

HUD Department of Housing and Urban Development 

I&E Inspections and Evaluations 

IAP International Assistance Programs 

ID Investigation Division 

IDB Inter-American Development Bank 

IEEPA International Emergency Economic Powers Act 

IFI International Financial Institution 

IFSR Iranian Financial Sanctions Regulations 

IG Inspector General 

IMF International Monetary Fund 

IPIA Improper Payments Information Act 

IRIS Integrated Revenue Information System 

IRISL Islamic Republic of Iran Shipping Lines 

appendix e: glossary of acronyms 
performance and accountability report | fiscal year 2010 

345 

Glossary of Acronyms 

IRS Internal Revenue Service 

IRS-CI Internal Revenue Service - Criminal Investigations 

ISO International Organization for Standardization 

IT Information Technology 

ITR Iranian Transactions Regulations 

JAMES Joint Audit Management Enterprise System 

LMSB Large and Mid Sized Businesses 

MBS Mortgage-Backed Securities 

MDB Multilateral Development Banks 

MeF Modernized Electronic File 

MHA Making Home Affordable Program 

MINT U.S. Mint 

MOU Memorandum of Understanding 

MRADR Market Risk Adjusted Discount Rate 

MSB Money services business 

MV&S Modernization, Vision, and Strategy 

NAB New Arrangement to Borrow 

NACA Native American CDFI Assistance 

NDIC National Drug Intelligence Center 

NEI National Export Initiative 

NIBP New Issue Bond Program 

NMTC New Markets Tax Credit 

NOL Net Operating Loss 

NPRM Notice of Proposed Rulemaking 

NRC National Revenue Center 

NRP National Research Program 

NTDO Non-Treasury Disbursing Office 

OA Office of Audits 

OCC Office of the Comptroller of the Currency 

ODM Office of Debt Management 

OECD Organization for Economic Co-operation and Development 

OFAC Office of Foreign Assets Control 

OFAS Office of the Fiscal Assistant Secretary 

OFP Office of Fiscal Projections 

OFPP Office of Federal Procurement Policy 

OFR Office of Financial Research 

OFS Office of Financial Stability 

OI Office of Investigations 

OIA Office of Intelligence and Analysis 

OID Original Issue Discount 

OIG Office of Inspector General 

OMB Office of Management and Budget 

OPCL Office of Privacy and Civil Liberties 

OPE Office of the Procurement Executive 

OPEB Other Post Employment Benefits 

OPM Office of Personnel Management 

Glossary of Acronyms 

ORB Other Retirement Benefits 

OTC Over-the-Counter 

OTS Office of Thrift Supervision 

PACT Act Prevent All Cigarette Trafficking Act of 2009 

PAM Payments Application Modernization 

PAR Performance and Accountability Report 

PB President’s Budget 

PCA Planned Corrective Actions 

PCC OTC Paper Check Conversion Over-the-Counter 

PII Personal Identifiable Information 

PONL Permits Online 

PP&E Property, Plant, and Equipment 

PPIF Public-Private Investment Fund 

PPIP Public-Private Investment Program 

PSPA Preferred Stock Purchase Agreements 

PTIN Preparer tax identification number 

QEO Qualified Equity Offering 

QFI Qualified Financial Institution 

QTDP Qualified Therapeutic Discovery Project 

Recovery Act American Recovery and Reinvestment Act of 2009 

RMBS Residential Mortgage Backed Securities 

RRACS Redesign Revenue Accounting Control System 

S&ED Strategic and Economic Dialogue 

S.A.F.E. Act Secure and Fair Enforcement for Mortgage Licensing Act 

of 2008 

SAR Suspicious Activity Report 

SAS Statement on Auditing Standards 

SBA Small Business Administration 

SBLF Small Business Lending Fund 

SBR Statement of Budgetary Resources 

SCAP Supervisory Capital Assessment Program 

SCF Strategic Climate Fund 

SCMA Strategic Cash Management Agreements 

SDR Special Drawing Rights 

SEC Securities and Exchange Commission 

SES Senior Executive Service 

SFFAS Statement of Federal Financial Accounting Standards 

SFP Supplementary Financing Program 

SIG Special Inspector General 

SIGTARP Special Inspector General for TARP 

SME Small and Medium-sized Enterprise 

SNC Statement of Net Cost 

SOMA System Open Market Account 

SPSPA Senior Preferred Stock Purchase Agreements 

SPV Special Purpose Vehicle 

SSBCI State Small Business Credit Initiative 

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appendix e: glossary of acronyms 
the department of the treasury 

part 4: other accompanying information 

346 

Glossary of Acronyms 

SSG Senior Supervisors’ Group 

SSP Shared Service Provider 

SSP Stable Share Price 

STR Suspicious Transaction Report 

TAC Taxpayer Assistance Center 

TAIFF Troubled Assets Insurance Financing Fund 

TALF Term Asset-Backed Securities Loan Facilities 

TARP Troubled Asset Relief Program 

TCE Tax Counseling for the Elderly 

TCLP Temporary Credit and Liquidity Program 

TE/GE Tax Exempt and Government Entities 

TEOAF Treasury Executive Office for Asset Forfeiture 

TFF Treasury Forfeiture Fund 

TFFC Office of Terrorist Financing and Financial Crimes 

TFI Terrorism and Financial Intelligence 

TFR Thrift Financial Reports 

TFTP Terrorist Finance Tracking Program 

TIER Treasury Information Executive Repository 

TIGTA Treasury Inspector General for Tax Administration 

TIP Targeted Investment Program 

TIPS Treasury Inflation-Protected Securities 

TOP Treasury Offset Program 

TPP Trans-Pacific Partnership 

TRIA Terrorism Risk Insurance Act 

TTB Alcohol and Tobacco Tax and Trade Bureau 

TWEA Trading with the Enemy Act 

UN United Nations 

UNSCR United Nations Security Council Resolution 

UP Unemployment Program 

USA PATRIOT Act Uniting and Strengthening America by Providing Appropriate 

Tools Required to Intercept and Obstruct Terrorism Act of 

2001 

USDA United States Department of Agriculture 

USPS United States Postal Service 

USSGL United States Standard General Ledger 

VA Department of Veteran’s Affairs 

VITA Volunteer Income Tax Assistance 

WHBAA Worker, Homeownership, and Business Assistance Act of 

2009 

WMD Weapons of Mass Destruction 

WTO World Trade Organization 

appendix e: glossary of acronyms 
Treasury On-line www.treas.gov 

Treasury Performance and Accountability Reports www.treasury.gov/offices/management/dcfo/accountability-reports 

Alcohol and Tobacco Tax and Trade Bureau www.ttb.gov 

Community Development Financial Institutions Fund www.cdfifund.gov 

Comptroller of the Currency www.occ.treas.gov 

Bureau of Engraving & Printing www.bep.treas.gov 

Financial Crimes Enforcement Network www.fincen.gov 

Financial Management Service www.fms.treas.gov 

Internal Revenue Service www.irs.gov 

U.S. Mint www.usmint.gov 

Bureau of the Public Debt www.publicdebt.treas.gov 

Office of Thrift Supervision www.ots.treas.gov 

The Financial Stability Plan www.financialstability.gov 

Help for America’s Homeowners www.makinghomeaffordable.gov 

Recovery Act Spending www.recovery.gov 

website information
www.Treas.gov