Tax Debt Collection: IRS Needs to Define Field Program Objectives and Assess Risks in Case Selection
Published: 2016-09-13T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: IRS's Field Collection program is where IRS revenue officers make in-person contact with noncompliant individuals and business officials to enforce tax return filing and payment requirements. Sound processes for selecting cases are critical to maintain taxpayer confidence in the tax system and use federal resources efficiently. GAO was asked to review the processes IRS uses to select collection cases for potential enforcement action.
This report (1) describes the Field Collection program's automated and manual processes for prioritizing and selecting cases and (2) assesses how well Field Collection case selection processes support the collection program's mission, including applying tax laws “with integrity and fairness to all.” To address these objectives, GAO reviewed IRS documents and conducted interviews with IRS officials knowledgeable about the case selection processes, including a series of focus groups with IRS Field Collection managers. GAO evaluated how well the processes adhere to relevant federal standards for internal control.
section_title: What GAO Found
paragraphs: The Internal Revenue Service (IRS) uses automated processes to prioritize cases to be potentially selected for in-person contact to resolve a tax collection issue (see figure), but group managers in the Field Collection program manually select the cases to assign to revenue officers. For example, when reviewing cases, group managers consider characteristics of the revenue officer available—such as current workload—and case characteristics—such as potential collectability—when deciding whether to assign a case.
GAO found weaknesses in the Field Collection program's internal controls for case selection, including:
Program objectives are not clearly defined and communicated. IRS has not sufficiently developed and communicated specific and measurable program objectives, including fairness. GAO heard different interpretations of program objectives and the role of fairness from focus group participants. Without clearly defined and clearly understood objectives aligned to its mission, Field Collection management does not have reasonable assurance that case selection processes support achievement of that mission. Further, the lack of clearly articulated objectives undercuts the effectiveness of Field Collection management's efforts to measure performance and assess risks.
Documentation and assessment of case selection risks are inadequate. The Field Collection program's automated prioritization and decision support systems are control procedures that may guide staff to reduce risks. However, the Field Collection program does not have documented procedures for periodically reviewing automated aspects of case selection. Further, the Field Collection program lacks sufficient guidance for group managers to exercise judgment in case selection. These deficiencies limit the Field Collection management's ability to provide reasonable assurance that selection decisions effectively support achievement of IRS's mission.
section_title: What GAO Recommends
paragraphs: GAO is making five recommendations, including that IRS: develop and document objectives in clear and measurable terms, including fairness; provide guidance for group managers' use of judgment in selecting cases; and develop procedures to assess automated and manual processes. IRS agreed with the recommendations and outlined planned steps to address them.

section_title: Letter
paragraphs: The Internal Revenue Service’s (IRS) collection program is a key part of  its enforcement strategy to address the tax gap—the difference between  taxes owed and paid on time—and to ensure taxpayers meet tax filing  and payment requirements. IRS estimated that for tax years 2008 to  2010, the average annual $458 billion gross tax gap included $39 billion  due in delinquent tax liabilities and $32 billion due in unfiled tax returns.  The Field Collection program—where revenue officers contact  noncompliant individuals and business officials face-to-face—is a key  phase in IRS’s three-phase collection process. Field Collection is often  the first enforcement stop for higher-priority cases not resolved by  sending notices and the last chance to enforce compliance for lower- priority cases unresolved through automated collection efforts. Without  sound methods for selecting cases for enforcement action, IRS risks  losing public confidence and not efficiently achieving its mission and  strategic goals.
You asked us to review the processes IRS uses to select collection cases  for potential enforcement action. This work focuses on the Field  Collection program. Our objectives were to (1) describe the Field  Collection program’s automated and manual processes for prioritizing and  selecting cases and (2) assess how well Field Collection case selection  processes support the collection program’s mission, including applying  tax laws “with integrity and fairness to all.”
To describe the Field Collection program selection processes, we  reviewed IRS documents and interviewed knowledgeable IRS officials on  the role of Field Collection systems and staff in prioritizing and selecting  cases to assign to revenue officers for collection. We also analyzed data  in IRS’s Field Collection inventory management system from March 10,  2016. These data allowed us to compare assigned and unassigned Field  Collection cases at the time.
To assess the selection process’s support of the collection program’s  mission, including applying tax laws with integrity and fairness to all, we  evaluated how well the process adhered to selected federal standards for  internal control, which are among the most relevant to ensuring mission  achievement. These standards include defining program objectives in  clear and measurable terms. Defining objectives is an internal control  foundation for other standards to assure that program operations  effectively address risks to program objectives and support the  achievement of objectives over time. We also spoke to group and territory  managers in a series of focus groups to discuss their role in the Field  Collection program’s case selection processes and procedures. We  compared these responses with the stated processes and procedures in  Field Collection documentation.
We determined that the data used in our analysis were reliable for the  purposes of this review. Our data reliability assessment included  reviewing relevant documentation, interviewing knowledgeable IRS  officials, and reviewing the data to identify obvious errors or outliers. For  additional details on our scope and methodology, see appendix I.
We conducted this performance audit from August 2015 to September  2016 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: As stated in IRS’s fiscal year 2016 collection program letter, the collection  program’s mission is to collect delinquent taxes and secure delinquent tax  returns through the fair and equitable application of the tax laws, including  the use of enforcement tools when appropriate and providing education to  taxpayers to facilitate future compliance.
As we have previously reported, IRS’s collection program largely uses  automated processes to categorize unpaid tax or unfiled tax return cases  and send them to a collection phase to be potentially selected for  collection activities. The automated Inventory Delivery System (IDS)  categorizes and routes cases based on many factors, such as type of tax  and amount owed. As shown in figure 1, IDS analyzes cases to identify  and filter out cases that should not be pursued further (shelved) and  determine whether cases should be sent to either the telephone phase  (the Automated Collection System, or ACS) or the in-person phase (Field  Collection) for potential selection.
Through IDS routing, the Field Collection program generally makes the  first effort to enforce filing and payment requirements for higher-priority  cases that are not resolved by sending notices. The Field Collection  program is also used to enforce compliance for lower-priority cases left  unresolved by ACS’s efforts.
The Field Collection program is organized to make direct contact with  individuals and business officials to enforce tax filing and payment  requirements. The program divides the United States into seven areas.  Each area is run by an area director who reports to the Director of Field  Collection. Each area is typically divided into six to eight territories, each  headed by a territory manager. Each territory, on average, contains six  groups that are run by group managers. Group managers directly oversee  an average of eight revenue officers.
Cases sent to the Field Collection program for potential selection are  generally identified by the taxpayer’s ZIP code and aligned with Field  Collection program groups around the nation, each of which works cases  in a set of ZIP codes in its geographic proximity. Group managers select  and assign collection cases to revenue officers for resolution. Revenue  officers are generally assigned to work cases in designated ZIP codes  handled by the group. Cases are removed from Field Collection’s  inventory of cases for potential selection when they are assigned to a revenue officer for resolution, are shelved; or expire under statute of limitations laws.
Unless cases sent to the Field Collection program are assigned to a  revenue officer for collection work, delinquent taxpayers may not receive  contact from IRS to attempt to resolve the delinquency aside from annual  reminder notices.
Since 2010, Field Collection staff have been reduced by 50 percent from  a 2010 high of 7,268 full-time equivalents (FTE), as shown in figure 2.
Field Collection revenue officers have consistently closed fewer cases  each year since a high in fiscal year 2011, as shown in figure 3. In fiscal  year 2015, more than 40 percent of closed cases were closed by shelving  rather than a revenue officer working the case. The figure also shows that  the year-end Field Collection inventory and queue has generally  remained stable in recent years.
section_title: Automated Processes First Prioritize Collection Cases, then Group Managers Manually Select Cases Balancing Various Factors
subsections: section_title: Automated Systems Assign Priority Levels Based on Collection Case Characteristics
paragraphs: Automated systems classify collection cases into a hierarchy of five  priority levels, as shown in figure 4.
The priority levels are divided into two files—the group hold file and the  group queue. Collection cases in the group hold file are generally  considered the highest priority and are the first cases group managers  evaluate for assignment. These cases are considered mandatory  because group managers typically are required to evaluate whether to  assign these cases within 45 days to the first available and qualified  revenue officer or document why the cases were not assigned by the  deadline or were removed from the hold file. Unlike collection cases in  other priority levels, group hold file cases require immediate evaluation for  assignment or an explanation if they are not assigned. Group managers  must even assign some mandatory cases in less than 45 days. For  example, collection cases involving missed or lower-than-expected  employment tax payments—known as federal tax deposit alerts within  IRS—should be assigned within 7 days. Other mandatory collection  cases include those involving IRS employees, transfers from other areas  within Field Collection, and current cases where additional delinquent  taxes have been assessed.
The group queue contains the other four priority levels’ collection cases— accelerated high, high, medium, and low. The automated system assigns  these priorities based on a number of criteria including the balance due  amount, return type, tax year of the case, and last return amount.  Accelerated high priority collection cases—second priority in selection  consideration—are cases that IRS has determined are among the most  important to pursue and group managers are generally expected to  assign them from the queue first. Characteristics of cases in this category  might include those with balances due greater than a selected high-dollar  amount or individual delinquent taxpayers with income greater than a  selected high amount. Non-accelerated high priority cases are third  priority in selection consideration. Characteristics of these cases may  include businesses with recent unpaid employment tax liabilities and  those with balances due that fall into a range of selected high-dollar  amounts. Characteristics of collection cases designated medium and low  priority may include balances due within, or less than, a range of relatively  moderate dollar amounts (in comparison to high priority cases) and  certain case age parameters that IRS views as lower priority.  Characteristics of low-priority cases include remaining cases that do not  meet the criteria of higher-priority levels.
section_title: Group Managers Balance a Number of Considerations When Selecting Field Collection Cases
paragraphs: IRS’s automated systems send new cases weekly to group managers’  hold files and queues. Group managers we met with explained that they  sequentially review the hold file and queue cases at each priority level to  take into account several case selection considerations. These  considerations can include revenue officers’ availability, including their  geographic proximity to the taxpayer’s location, since Field Collection  activities often involve face-to-face interaction. Group managers also  consider the characteristics of the cases available for assignment, such  as whether a business is still active or operating thus increasing the  potential for collectability (see figure 5).
The automated systems determine the anticipated difficulty and  appropriate category of revenue officer that can be assigned to a case  based on the queue priority level and other characteristics of the case,  such as complexity. These categories are based on the revenue officer’s  pay scale, which is aligned with the federal General Schedule (GS) pay  system. Revenue officers in the Field Collection program generally are  GS-9, 11, 12, or 13. This approach generally ensures that higher paid  revenue officers with more experience are assigned the more challenging  or complex cases.
In most instances, group hold file and accelerated high-priority cases all  must be assigned as soon as a revenue officer with the appropriate  characteristics is available. However, IRS guidance provides group  managers discretion to pass over these cases and select lower-priority  cases when there are justifiable reasons or business needs. For example,  a group manager can bypass an accelerated high-priority case when, in  the group manager’s judgment, assignment of that case at the time would  be too burdensome based on the size and complexity of the revenue  officer’s current caseload or when a revenue officer’s current caseload  has reached inventory levels prescribed in the Internal Revenue Manual.
On March 10, 2016, when we received a snapshot of all assigned and  unassigned cases in IRS’s inventory management system, the majority of  cases group managers had selected and assigned to revenue officers  were accelerated high- and high-priority cases (see table 1). Likewise  the majority of unassigned cases were medium- and low-priority cases.  Although IRS officials did not have historical data readily available to  analyze and confirm, they agreed that this mix of cases that we observed  on March 10, 2016, is likely typical as the case selection process is  geared toward selecting higher priority cases.
section_title: Weaknesses in Field Collection Case Selection Processes and Procedures Impact Their Ability to Support the Collection Program’s Mission
paragraphs: The primary weakness we identified in our analysis of Field Collection  case selection processes is a lack of clearly defined and measurable  objectives that support the collection program’s mission. According to  federal internal control standards, objectives defined in clear and  measurable terms are a foundation for improving accountability and  providing necessary assurance that a program’s mission will be achieved.  The lack of clearly defined and communicated objectives also negatively  impacts other aspects of Field Collection case selection processes that  we believe are most relevant to assuring mission achievement.  Specifically, the lack of clearly defined objectives directly impacts IRS’s  ability to effectively measure Field Collection performance, assess risks to  the achievement of objectives, and assess the continued effectiveness of  automated processes. Finally, we identified the lack of adequate  procedures to guide group managers’ use of judgment in selecting cases.  These deficiencies increase the risk that Field Collection case selections  may not contribute to the program’s mission as well as they otherwise  could.
subsections: section_title: Field Collection Has Not Clearly Defined and Communicated Program and Case Selection Objectives, including Fairness
paragraphs: Having program objectives clearly defined in measurable terms is a  foundation that allows managers to take steps to assure a program  achieves its mission, according to federal internal control standards. This  includes selecting appropriate methods to communicate internally the  necessary quality information to achieve program objectives.
IRS guides Field Collection employees through a number of different  channels, including: the Internal Revenue Manual (IRM), which is IRS’s  official compendium of personnel guidance; annual program letters; and  occasional memos and e-mails. However, none of the communications  we reviewed clearly defined the collection program or case selection  objectives. For example, the IRM does not state the objectives of the  Field Collection program or what role case selection plays in supporting  achievement of those objectives. Similarly, although annual collection  program letters to staff stated the program mission and listed distinct  activities and case types to focus on in the fiscal year grouped under IRS  strategic goals, they did not present clearly defined program or case  selection objectives sufficient for purposes of internal control. The  objectives are unclear in part because the terms are so general that they  do not enable management to assess risks, establish control procedures,  or link to related performance measures. An August 2013 email from the  Director of Field Collection stated that group managers should select  cases so that the mix of assigned cases mirrors what is available in the  inventory. This guidance suggests a program objective but neither the  e-mail nor any other guidance identifies it as such.
The only IRS communication we obtained that identified program and  case selection objectives was a document IRS provided to us in March  2016. According to IRS officials, the Collection program developed the  document in response to prior recommendations we made in reviewing  other aspects of collection case selection processes. However, as  shown in table 2, our analysis of the document shows that it does not fully  document and communicate program objectives, as recommended by  federal internal control standards.
The lack of clear and consistently communicated objectives was also  evident in our focus group discussions with Field Collection managers.  We asked managers to describe the objectives in choosing which case to  assign a given revenue officer. Participants provided a range of  responses. For example, many participants identified an objective of  assigning revenue officers a mix of cases that reflects the current  inventory. IRS officials explained that the mix of cases refers to the ratios  between cases where the taxpayer has a balance due versus those that  have not filed a tax return. This case selection objective can also mean  balancing the ratio of individual and business taxpayer cases so that the  mix of assigned cases mirrors what is available for assignment. This  principle reflects the guidance provided in the August 2013 email from the  Director of Field Collection.
Focus Group participants also described productivity, or resource use, as  an objective. For example, one participant said, “I look at cases that are  going to be more productive rather than assigning old, inactive cases.  The more productive cases are those cases that have come to Field  Collection more recently or have more recent [collection assessments or  unfiled returns]. The older cases are stale.” In contrast, several focus  group participants said that the program’s automated prioritization system  sometimes gives higher priority levels to cases that are older and may not  be collectable, such as cases that have been assigned to ACS for a long  time and have not been resolved. Some participants also stated that  balancing the revenue officer’s workload was an objective. According to  these participants, this involves looking at the number and complexity of  the current assigned workload of a given revenue officer to ensure that  the next case assigned does not overburden the officer.
In a March 2016 email to staff, the Director of Collection defined fairness  in the program as having three components: (1) fairness to the taxpaying  public by pursuing those who fail to voluntarily comply, (2) an equitable  process to select cases expected to best promote voluntary compliance  and other apparent Collection goals or objectives, and (3) respect and  adherence to policies and procedures that safeguard relevant taxpayer  rights in the collection process. This effort to define fairness came in  response to recommendations we made in reviewing other aspects of  IRS’s collection selection processes. While the effort demonstrates  progress, our analysis of this email shows that it still does not meet  applicable standards for clearly defining objectives and communicating  them with methods appropriate for use in internal control, as detailed in  table 3.
Because of the shortcomings identified in table 3, IRS risks that  employees implementing control procedures may not understand how  fairness applies to their work. For example, territory and group managers  in our focus groups offered a variety of opinions and perspectives of how  to assure fairness in case selection. Specifically, when we asked focus  group participants what fairness means to them and how they apply  fairness in case selection, managers’ responses included: avoiding conflicts of interest, such as cases where the group manager  or revenue officer has a prior relationship with an individual or  business;  selecting cases with consideration of geography, such as to ensure  there are no areas where taxpayers are in a “tax free zone;” and diversifying selections by type of business, selecting cases so that the  Field Collection program provides broad coverage, cases selected are  representative, and no one group of taxpayers is selected more than  others.
Our focus group discussions also showed that managers had inconsistent  views on the meaning of fairness in case selection and that some may not  fully understand how to apply fairness or believe the selection process  precludes unfair selection. In half of the group manager focus groups, at  least one participant said he did not know what the role of fairness is in  case selection or did not consider fairness in assigning cases. Some also  said that choosing any case for assignment would be fair because all of  the cases represent noncompliance and the automated selection process  fairly prioritizes cases for potential selection.
According to IRS officials, they have not clearly defined Field Collection  program and case selection objectives and fairness because they believe  their efforts to define them in the document and email described above  were sufficient. However, without clearly defined and clearly understood  objectives aligned to the Field Collection mission, program management  lacks reasonable assurance that case selection processes support  achievement of IRS’s mission, including applying tax law with integrity  and fairness to all.
section_title: Lack of Clear Objectives Impacts IRS’s Ability to Assess Performance, Program Risks, and Automated Processes
paragraphs: The lack of clear and consistent objectives also impacts IRS’s ability to  measure program performance, assess risks to the program mission, and  determine whether the automated processes used are still appropriate.
subsections: section_title: Performance Measures
paragraphs: We found that the Field Collection program tracks some case assignment  and closure data. Specifically, Field Collection management compares  open case inventory to a portion of the case inventory awaiting  assignment. IRS officials, including managers in all eight of our focus  groups, noted that they use case mix data to monitor or adjust case  selections on a monthly basis to achieve this balance. Our analysis of  Field Collection case data suggests that, overall at the national level, the  program’s mix of assigned cases is aligned—to some degree—with the  available inventory by noncompliance type and taxpayer type, as shown  in table 4.
However, because the Field Collection program has not yet established  clearly defined objectives and does not have related performance  measures it lacks a way to measure program performance effectively  over time. Federal internal control standards state that measurable  objectives allow management to assess program performance in  achieving them. For example, if one of Field Collection’s objectives was to  achieve fairness and it defined fairness to include ensuring broad  coverage of the taxpayer population in collection status, then the Field  Collection program would need to establish measures to assess its  achievement of this objective. Similarly, if a case selection objective was  to assign them so that cases assigned to revenue officers reflect the Field  Collection group inventory, then IRS would need to clearly link this  objective to related performance measures to which staff were held  accountable. We identified a number of potential data elements in the  case selection system that could be helpful to IRS in developing such  performance measures, as shown in table 5.
We found that IRS currently has two approaches for assessing risks  within the agency. These approaches are:  Internal controls framework. The procedures in IRM 1.4.2 govern  IRS’s processes for monitoring and improving internal controls, which  include identifying and mitigating risks. Managers are expected to  understand the risks associated with their operations and ensure that  controls are in place and operating properly to mitigate those risks.
Enterprise Risk Management (ERM). ERM is broader in scope than  internal controls, focusing on service-wide risks. ERM is intended to  help the service in setting strategy to consider risk and how much risk  the service is willing to accept. IRS implemented ERM in February  2014 to alert IRS management to IRS-wide risks and to serve as an  early-warning system to identify emerging challenges and address  them before they affect operations.
However, in order to use both of these approaches effectively to identify,  analyze, and manage risk, IRS needs to have clearly defined, measurable  objectives. Federal internal control standards state that effectively  managing a program to achieve its mission involves comprehensively  considering and assessing potential risks in the program’s internal and  external operating environments and establishing risk tolerances (the  acceptable level of variation in performance relative to the achievement of  objectives). Such tolerances are often stated in terms of performance  measures, which allow performance assessment toward achieving  objectives. Lacking clearly defined and associated performance  measures therefore hinders the Field Collection program’s ability to  effectively assess, identify, and address risks to the achievement of its  mission. Without clearly defined objectives, risks to achieving those  objectives cannot be identified and analyzed, nor can risk tolerances be  determined. According to IRS officials, the Field Collection program has  not assessed risks posed by case selection processes because selection  processes are well designed. However, unless Field Collection  management identifies and understands the significance of the risks to  achieving identified objectives, IRS lacks sufficient assurance that the  program’s case selection processes support achievement of objectives  and respond to the identified risks within acceptable tolerances.
section_title: Automated Processes
paragraphs: The Field Collection program’s automated prioritization and decision  support systems are control procedures that are intended to help guide  staff to reduce risks in making decisions. For example, the priority levels  may help guide group managers to generally select the types of cases  management considers higher priority, such as those that could yield  more revenue or other positive compliance results, which potentially  reduces the risk of using resources inefficiently. However, because Field  Collection lacks program and case selection objectives, it is not clear  what objectives the automated processes support or which specific risks  they are intended to address. According to federal internal control  standards, periodic reviews of controls assure procedures continue to  work as intended. Monitoring internal control design and effectiveness,  and revising control procedures as needed provides sufficient evidence  that the controls continue to be effective in addressing risks (which can  change over time) and support achievement of program objectives.
Although IRS occasionally makes and documents ad hoc changes to  these automated processes to improve results, Field Collection lacks  documented procedures to periodically review automated case selection  policies, procedures, and related activities, such as the case  characteristics and thresholds used to classify cases by priority level.  IRS established the queue priority categories in 2000 and modified them  in 2001, but did not have available documentation of periodic  assessments to assure they continued to be effective in the intervening  15 years. According to IRS officials, Field Collection lacks documented  procedures for periodic assessments because selection processes are  well designed. However, without periodic reviews IRS lacks reasonable  assurance that the case selection processes are still effective in working  toward achieving the program’s mission, including fairness to all  taxpayers.
section_title: The Field Collection Program Has Not Developed and Communicated Procedures to Guide the Use of Judgment in Case Selection Decisions
paragraphs: Management is responsible for establishing operating procedures and  communicating them to staff to ensure they are followed so that  objectives are achieved. Establishing and communicating guidance— such as documenting procedures—provides necessary assurance that  the staff responsible for implementing procedures understand and apply  them to effectively achieve program objectives. The Field Collection  program has established and communicated operating procedures to  guide automated aspects of case selection. However, Field Collection has  provided insufficient guidance to group managers on the use of  professional judgment when manually selecting cases.
As we noted earlier, we learned about the judgment group managers  exercise in selecting cases by talking with Field Collection officials. For  example, during the focus groups, managers described how professional  judgment factors into the case selection process. Some group managers  said they may choose to select a given case because of its geographic  proximity to other cases assigned to the revenue officer. Similarly, several  group managers discussed how they used professional judgment based  on previous experience to assess a case’s potential productivity for  resulting in collection. This is consistent with the findings of a September  2014 report from the Treasury Inspector General for Tax Administration  (TIGTA).
Although group managers use professional judgment when selecting  cases for assignment—resulting in the commitment of revenue officer  resources and some cases being selected over others—IRS has limited  guidance on how to exercise such judgment. IRS’s official guidance—the  Internal Revenue Manual (IRM)—does not guide group managers on how  to exercise judgment, such as by listing the factors that ought to be taken  into account to help ensure that Field Collection program and case  selection objectives are achieved. The only place the IRM acknowledges  professional judgment is in a note that states, “There are many  considerations when assigning work such as: risk level, case grade,  current inventory, geographical issues, etc.” The only other program- wide guidance we identified was the August 2013 email from the Director  of Field Collection stating that cases should be selected so that the mix of  assigned cases mirrors what is available in the queue.
According to IRS officials, Field Collection has not developed and  documented guidance for how group managers are to exercise  professional judgment in case selection because they consider current  procedures sufficient, such as relying on group mangers to understand  local conditions, relying on their previous experience as revenue officers  or gaining necessary experience on the job. However, the use of  professional judgment without sufficient guidance presents risks and  results in Field Collection management not having sufficient assurance  that the case selection decisions group managers make support  achievement of the program’s mission of applying the tax law with  integrity and fairness to all.
section_title: Conclusions
paragraphs: The Field Collection program’s automated systems and the decisions  made by group managers determine if some collection cases are pursued  sooner, later, or at all. Case selections can affect federal spending,  revenue collected, and taxpayer confidence in the tax system’s fairness,  which can affect overall voluntary compliance. Therefore, it is important  that the Field Collection program select and pursue collection cases that  are most likely to produce results in support of IRS’s mission, including  applying tax laws with integrity and fairness to all. Without clearly defined  and measurable objectives the Field Collection program cannot know, or  provide taxpayers assurance that, its case selection procedures are  effectively supporting its mission. Further, without objectives and other  controls IRS will not be able to monitor performance; identify, assess, and  manage risks; or ensure that its automated process are still effective.  Moreover, while the use of professional judgment is to be expected in the  selection of cases for assignment, without guidance for managers, IRS  will not have assurance that selections are being made consistently  across its regional offices.
section_title: Recommendations for Executive Action
paragraphs: To ensure that Field Collection program case selection processes support  IRS’s and the Collection program’s mission, including applying tax laws  with integrity and fairness to all, we recommend that the Commissioner of  Internal Revenue take the following five actions.
Develop, document, and communicate Field Collection program and  case selection objectives, including the role of fairness, in clear and  measurable terms sufficient for use in internal control.
Develop, document, and implement performance measures clearly  linked to the Field Collection program and case selection objectives.
Incorporate program and case selection objectives into existing risk  management systems or use other approaches to identify and  analyze potential risks to achieving those objectives so that Field  Collection can establish risk tolerances and appropriate control  procedures to address risks.
Develop, document, and communicate control procedures guidance  for group managers to exercise professional judgment in the Field  Collection program case selection process to achieve fairness and  other program and collection case selection objectives.
Develop, document, and implement procedures to periodically monitor  and assess the design and operational effectiveness of both  automated and manual control procedures for collection case  selection to assure their continued effectiveness in achieving program  objectives.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to the Commissioner of Internal  Revenue for review and comment. The Deputy Commissioner for Service  and Enforcement provided written comments on August 25, 2016, which  are reprinted in appendix II. IRS agreed with our recommendations and  described actions it plans to take to address each of them. IRS stated that  it appreciates GAO’s support and guidance as it continues to seek  opportunities to improve Field Collection case selection controls and case  selection throughout IRS.
IRS states that our report does not identify any instances where the  selection of a case was considered inappropriate or unfair. However, as  described in our scope and methodology, we did not design our study to  look for cases of inappropriate selection but rather to assess the internal  controls that help safeguard the case selection processes. By evaluating  the Field Collection program’s internal control framework for selection, we  were able to determine whether IRS has processes in place that provide  reasonable assurance of fair case selection.
IRS outlines planned actions to address each of our recommendations.  However, it is not clear that these actions will be fully responsive to the  first recommendation that IRS develop, document, and communicate  Field Collection program and case selection objectives, including the role  of fairness, in clear and measurable terms. IRS states that the Small  Business/Self-Employed Division (SB/SE) will develop fiscal year 2017  program objectives that align with the mission of SB/SE and that the  Collection program will develop and document specific Field Collection  and case selection activities that will support SB/SE objectives. Our  concern is that it is not clear how these efforts will address our  recommendation to establish Field Collection (not division-level) program  and case selection objectives. As described in this report, listing distinct  activities or case types to focus on in a fiscal year does not meet the  internal control standard of clearly defining and communicating program  objectives in specific and measurable terms.
Since it is not clear that the actions IRS described will result in Field  Collection program and case selection objectives sufficient for internal  control purposes, IRS’s ability to address our related recommendations to  establish performance measures, assess program risks, and monitor  control procedure effectiveness may be limited. Clearly defining  objectives is the foundation for effective implementation of internal control  standards, including assurance that program operations effectively  address risks to program objectives and support the achievement of  objectives over time.
In response to our recommendation to develop, document, and  communicate control procedures guidance for Field Collection group  managers to exercise professional judgement in case selection, IRS  stated they would review current procedures and guidance and make  changes if necessary. Given that we found little documented guidance on  the appropriate use of professional judgement, IRS lacks sufficient  assurance that case selections support achievement of the program’s  mission of applying the tax law with integrity and fairness to all.
IRS provided technical comments, which we incorporated as appropriate.
We are sending copies of this report to the Chairmen and Ranking  Members of other Senate and House committees and subcommittees that  have appropriation, authorization, and oversight responsibilities for IRS.  We will also send copies of the report to the Secretary of the Treasury,  Commissioner of Internal Revenue, and other interested parties. In  addition, the report will be available at no charge on the GAO website at  http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-9110 or mctiguej@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix III.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: Our objectives were to (1) describe the Field Collection program’s  processes (automated and manual) for prioritizing and selecting cases  and (2) assess how well Field Collection case selection processes  support the collection program’s mission, including applying tax laws “with  integrity and fairness to all.”
To describe the case selection processes, we reviewed program  documents and interviewed knowledgeable IRS officials, including  officials in the Small Business and Self-Employed Division Collection and  Field Collection offices. Our document review included guidance in the  Internal Revenue Manual (IRM) and automated system manuals. Our  analysis included both automated and manual processes that may involve  IRS staff. We analyzed these processes to outline and graphically depict  systems and processes IRS uses to prioritize and select cases.
To provide information on the assigned and unassigned case inventory,  we analyzed data from IRS Field Collection’s main inventory  management and case selection information system, ENTITY. The data  included characteristics such as the dollars due on selectable and  assigned cases, the age of the cases, and the priority levels of the cases  as determined in the prioritization process. These data describe a one- time snapshot of IRS Field Collection case inventory characteristics on  March 10, 2016. The data were only available as a snapshot because,  according to IRS officials, ENTITY is the only source for data on the  priority level of each case and the data on priority levels are updated  frequently and are not stored.
To assess the reliability of the ENTITY March 10, 2016, snapshot data we  present in the report tables, we interviewed knowledgeable IRS officials  and manually tested the data for missing data, outliers, or obvious errors.  We also reviewed relevant documentation on management reports and  case routing data. In addition, we received another snapshot of the case  inventories for May 25, 2016, and compared the data to the March 10  snapshot. We analyzed the data to determine if it changed significantly  between the two points in time—which, for the purposes of our analysis,  we determined would be a greater than 10 percent change—and found  no significant changes. We found the data sufficiently reliable for the  analysis that we conducted in this review.
To evaluate how well the case selection processes support program  goals, we compared the selection process and procedures to selected  standards in Standards for Internal Control in the Federal Government, to  include the standard that managers define program objectives, assess  risks to the objectives, and design controls to support the achievement of  the objectives and address the risks. We selected the standards by  assessing which are among the most relevant to ensuring the selection  processes support mission achievement given our objectives and the  program context. These standards include  to define program objectives in clear and measurable terms, which is  an internal control foundation for other selected standards to assess  risks and establish risk tolerances;  to design and implement control procedures to guide operations and  address risks; and  to establish performance measures and procedures for assessing  control procedures to assess program performance in achieving  objectives and ensure that controls effectively address risks and  support achievement of objectives over time.
Our review of the design of controls included the IRM and other Field  Collection program documents that we used to describe the case  selection process in objective one.
We conducted eight focus groups with a non-generalizable, nation-wide  random sample of IRS Field Collection managers—two focus groups with  territory mangers and six with group managers—to collect evidence on  the implementation of the case selection process. We received a list of all  Field Collection group and territory managers from IRS. To ensure that  managers selected had sufficient experience in their respective positions  to actively contribute to the focus groups, we removed managers that  were “acting” or had less than two years of experience in their position.  We arranged the list of managers in a random order. Managers were  assigned a focus group date and time in order of their random selection,  controlling for their time zones, and were given the option to participate in  the focus group or not. 43 of the 46 group managers that agreed to  participate in the focus groups actually did; all 16 territory managers  participated. All of the focus groups were conducted by phone in the week  of March 28, 2016.
We asked all eight focus groups questions about internal controls in the  Field Collection case selection process, including the program objectives  of the case selection process and the case characteristics managers  consider when making case selections and assignments. We  documented the responses from the focus group participants and  categorized the responses into themes. We analyzed the themes for their  frequency and pervasiveness through the focus groups. We looked for  patterns or trends across all eight focus groups and for differences  between the group and territory manager focus groups.
We conducted this performance audit from August 2015 to September  2016 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
section_title: Appendix II: Comments from the Commissioner of Internal Revenue
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
paragraphs: James R. McTigue, Jr. (202) 512-9110 or mctiguej@gao.gov.
section_title: Staff Acknowledgments
paragraphs: In addition to the above named contact, Brian James (Assistant Director),  David Dornisch, Steven Flint, Travis Hill, Ted Hu, Ronald W. Jones, Kay  Kuhlman, Donna Miller, Justin Riordan, and Andrew J. Stephens made  key contributions to this report.