IRS Telephone Assistance: Opportunities to Improve Human Capital Management
Released: 2001-03-02T00:00:00

Letter

Background

IRS’ 10,000 customer service representatives are located at 25 call sites around the country. In 1999, IRS began operating this network as a single call center providing round-the-clock service. Managing the network in this way enabled IRS to route calls from three separate toll-free lines—one each for questions about tax law, account services, and refund status—to the sites with the shortest hold times among those customer service representatives assigned to answer questions concerning those issues. (Fig. 1 illustrates call routing within IRS’ toll-free network.)

Before IRS began operating the network as a single call center, taxpayer calls were routed by area codes or by the percentage of staff the site had scheduled to work. Calls routed in this manner could not be easily rerouted when a site was experiencing frequent busy signals or lengthy hold times. Although individual call site operating hours and call handling responsibilities varied, IRS expanded its overall toll-free network coverage in January 1999—from 16 hours a day, 6 days a week, to 24 hours a day, 7 days a week.

IRS’ call center network is controlled by the Operations Center. In general, the Operations Center is responsible for forecasting call demand—the numbers, types, and timing of calls IRS is expected to receive throughout the planning year on each of its three toll-free lines (tax law, accounts, and refunds); planning the routing of calls among call sites, based on each call site’s assigned toll-free line and subject coverage responsibilities; developing staffing requirements for each call site and monitoring site adherence to those requirements; and monitoring network call traffic status and, when necessary, rerouting calls among the sites to optimize service.

The Operations Center develops call site staffing requirements weekly, with call site input and agreement. These requirements prescribe the numbers of trained customer service representatives that are to be available and ready each half-hour to take calls on each assigned subject category and toll-free line. The call sites, in turn, are expected to adhere to the staffing requirements prescribed by the Operations Center. They are generally responsible for recruiting, training, and assigning customer service representatives in sufficient numbers and skills to enable them to meet prescribed staffing requirements. Collectively, IRS call centers employed nearly 10,000 customer service representatives in October 2000.

The top picture in figure 2 shows Operations Center officials monitoring network operations, while the picture on the right shows a representative handling a call at IRS’ call center in Atlanta.

Scope and Methodology

To address our objectives, we interviewed IRS officials involved in managing toll-free telephone operations, obtained supporting documentation, and reviewed related reports by the Treasury Inspector General for Tax Administration (TIGTA). Although we did not independently verify IRS officials’ responses to our questions, we reviewed them and related documentation for consistency. IRS’ use of other resources will be discussed in a forthcoming report on toll-free performance during the 2000 filing season.

We used our human capital self-assessment checklist to obtain an understanding of human capital management, its importance in achieving federal agency operational goals, and the framework that we developed to assist agency leaders in evaluating their human capital management practices. Because people are a key resource for carrying out agencies’ missions, we also reviewed the Government Performance and Results Act’s requirements for agency strategic planning, goal-setting, and performance measurement. To identify human capital management practices used by other organizations in telephone customer service, we obtained information from several sources, including our August 2000 report on human capital management practices of public and private organizations;the 1995 National Performance Review report on best practices in telephone service; and literature on call center management, including Incoming Calls Management Institute information and reports.

We did our work at IRS’ National Office in Washington, D.C.; the Office of the Chief Customer Service Field Operations in Atlanta; the Customer Service Operations Center in Atlanta; and six of IRS’ 25 call sites.

As agreed with your office, we judgmentally selected the six sites to ensure geographic coverage and other characteristics and, therefore, cannot project our results to all 25 call sites.

Because IRS began providing 24-hour coverage in 1999, we included the two call sites that operated 24 hours a day, 7 days a week and four sites operating fewer than 24 hours a day. Because some call sites were colocated with IRS service centers that had large labor pools from which the sites might recruit staff, the six sites included three that were colocated with service centers and three that were not. To understand human capital management practices within the context of IRS’ new organizational and operational structure, our sample includes three sites that were designated to serve taxpayers with incomes from wages and investments and three sites that were designated to serve small business and self-employed taxpayers. Since differences in site staffing levels could lead to differences in their human capital management practices, we selected two sites each from the low, middle, and high ranges of staffing levels among the 25 call sites—less than 200 staff, between 200 and 400, and more than 400, respectively. The characteristics of the six sites are shown in table 1.

We performed our work between May 1999 and October 2000 in accordance with generally accepted government auditing standards. We obtained written comments on a draft of this report from the Commissioner of Internal Revenue. The comments are discussed near the end of this report and are reprinted in appendix II.

IRS Plans to Base Staffing on Strategic Goals Rather Than Annual Funding

IRS faces an annual challenge in determining the staffing level for its toll- free telephone customer service operations. IRS has not established a long-term, desired level-of-telephone-service goal based on the needs of taxpayers and the costs and benefits of meeting them, and then determined what staffing level is needed to achieve that service level. Rather, IRS annually determines the level of funding it will seek for its customer service workforce, based on its judgment of how to best balance its efforts to assist taxpayers and to ensure their compliance with tax laws, and then calculates the expected level of service that funding level will provide. IRS’ approach to setting this goal is inconsistent with federal guidance on strategic planning, which calls for agencies to develop strategic goals covering at least a 5-year period and to determine the staffing and other resources needed to achieve the goals. IRS’ approach is also inconsistent with industry practices, which base their goals and staffing on customer needs. Without a long-term level-of-service goal, as well as annual goals aimed at achieving the long-term goal over time, IRS lacks meaningful targets for strategically planning and managing call center performance and measuring improvement. In commenting on a draft of this report, the Commissioner stated that IRS planned to set strategic goals and staff to meet those goals.

IInn the absence of a long-term goal, and multiyear plans for reaching it, IRS has estimated the service it could provide based on different staffing levels. For example, when formulating its fiscal year 2000 budget, IRS estimated that it would receive over 100 million calls on its three toll-free lines throughout the fiscal year and that its customer service representatives could handle an average of 5.6 calls per hour that they were available to take calls. These workload and productivity assumptions were the basis for calculating the expected levels of service IRS could provide with different staffing levels. Specifically, with customer service representative levels ranging from 8,291 to 10,800 full-time- equivalent staff, IRS estimated that it could achieve levels of service ranging from 58 to 80 percent, respectively. Because of the need to balance service and compliance activities within overall staffing budget limitations, IRS decided to request funding at the lower level, establishing a 58-percent level-of-service goal for fiscal year 2000 and a 60-percent level for fiscal year 2001.

A long-term, results-oriented goal is important because its provides a meaningful sense of direction as well as a yardstick for measuring the results of operations and evaluating the extent of improvements resulting from changes in resources, new technology, or management of human capital. The Government Performance and Results Act of 1993 required executive branch agencies to develop multiyear, strategic plans covering at least a 5-year period; describe the human and other resources needed to achieve goals; update these plans at least every 3 years; prepare annual performance plans with annual performance goals; and measure and report annually on its progress toward meeting those set long-term, output- or results-oriented goals in these strategic plans; goals.

Under the act, strategic plans are the starting point for agencies to set annual performance goals aimed at achieving their strategic goals over time. As part of the strategic planning process, agencies are required to consult with Congress and to solicit the views of other stakeholders who might be affected by the agencies’ activities.

Unlike IRS, officials at all seven public and private call center operations we visited as part of our August 2000 report said that they determined staffing requirements based on their customers’ needs and clearly articulated service-level goals—that is, the percentage of calls to be answered within a given time frame. For example, the Social Security Administration (SSA)—an agency that is also subject to federal budget constraints, had a goal of 95 percent of its callers getting through on its toll-free line within 5 minutes of their first attempt. This goal was established with input and support from Congress and top SSA leadership as part of a government wide effort to improve customer service. According to an SSA associate deputy commissioner, the focus on improving telephone customer service followed a period of very poor service in the early and mid-1990s, when as many as 49 percent of callers got busy signals when they called the toll-free number. The associate deputy said that congressional stakeholders continue to monitor SSA’s toll-free telephone operations, resulting in continued support by SSA management to allocate the resources needed to meet established goals.

Other studies have also documented the importance of setting service- level goals based on customers’ needs. One guide to call center management for practitioners that we reviewed underscored the importance of service-level goals. It described service level as “the core value” at the heart of effective call center management, without which, answers to many important questions, including “How many staff do you need?” would be left to chance. It said service-level goals should be realistic, understood by everyone in the organization, taken seriously, and funded adequately. While the guide also recommended benchmarking, formally or informally, with competitors or similar organizations, it stated each organization should determine an appropriate service level for its call centers, considering its unique circumstances. These considerations should include the labor and telephone equipment costs of answering the call, the value of the call to the organization, and how long callers are willing to hold for service.

IRS recognizes the need to establish long-term goals and is considering adopting some of the measures used by other organizations and establishing goals for those measures. For fiscal year 2001, for example, IRS plans to measure the percentage of callers who reach IRS within 30 seconds. While IRS has not established a long-term goal for this measure, it has set an interim goal of 49 percent for fiscal year 2001.

In commenting on a draft of this report, the Commissioner stated that IRS had instituted an agencywide strategic planning process in March 2000 that links the budget and available resources to its strategies and improvement projects. According to the Commissioner, IRS’ fiscal year 2002 Strategic Plan and Budget will include a 74 percent level-of-service goal, with a goal of reaching 85 to 90 percent by fiscal year 2003. Also, IRS had an initiative under way to improve workload planning to ensure that customer needs are considered during the planning and budgeting process.

Call Sites Faced Challenges in Implementing Human Capital Practices

The six call sites we visited faced challenges in successfully recruiting, training, retaining, and scheduling customer service representatives. According to site officials, these challenges included difficulties recruiting representatives due to job characteristics, training representatives and keeping them proficient, retaining skilled representatives, and scheduling representatives to meet forecasted staffing requirements.

Job Characteristics Affected Efforts to Recruit Suitable Representatives

Officials at five sites said they experienced some degree of difficulty in recruiting representatives because of job characteristics such as the seasonal nature of the positions, undesirable work hours, or the stressfulness of the work. Nevertheless, five of the sites were able to fill their vacant positions. One site was unable to fill its needs and had concerns about the suitability of the persons hired. According to officials at this latter site, due to the limited time between the date they were provided the number of positions to fill and the time that the new employees had to report for work, the officials did not have sufficient time to interview all applicants before hiring them.

Officials at each IRS call site were responsible for hiring representatives for their location, including deciding what recruiting methods and applicant screening tools to use. All six sites used some combination of conventional recruiting methods, such as newspaper advertisements and college campus recruiting. To determine the suitability of applicants, beyond the basic qualifications for the position, officials at four sites interviewed applicants before hiring them, and most used interview techniques to determine how applicants might behave in typical work situations. Two of these four sites also administered a five-question, tax- related math test to assess a candidate’s basic math and analytical skills.

In an effort to improve its recruiting for customer service representatives, IRS is in the early stages of developing a national recruiting strategy. As part of this plan, IRS is determining where it should target its recruiting efforts. IRS is identifying sites where IRS’ salary and benefits make it a competitive employer in the local job market and sites that have trouble recruiting and retaining suitable applicants. Officials believe this will help IRS determine which sites should be growth sites for hiring telephone customer service representatives.

All Sites Experienced Challenges in Training Representatives and Keeping Them Proficient

According to officials at the call sites we visited, the many obstacles that affected their ability to train customer service representatives and keep them proficient included the broad range of complex topics representatives must address, inadequate resources, the cyclical nature of taxpayer demand, reassignment of tax topics among representatives, and the lack of a formal mechanism to identify individual refresher training needs.

Each year, IRS must train thousands of customer service representatives in a broad range of topics, and according to officials at the six sites we visited, they sometimes had to do so without adequate resources. Topics range from the status of refunds to more complicated issues such as capital gains or losses. In fiscal year 1999, the standard training curriculum provided by all sites generally included periods of classroom instruction, followed by periods of on-the-job training that were roughly half the length of the classroom instruction. This training was delivered incrementally over a 3-year period, between the busy filing seasons, during which IRS receives the bulk of its toll-free calls. The training program also included annual tax law/procedural update training. However, after customer service representatives received their initial training, they generally did not receive subsequent refresher training despite the cyclical nature of the work.

Officials also cited a shortage of instructors, limited training time, and outdated training materials as other factors that affected their ability to effectively train customer service representatives. For example, officials at the one site that did not hire the number of representatives authorized said they did not have enough instructors to provide the necessary training. Officials at three sites said that they did not have sufficient time to fully train representatives before their peak season because they did not receive timely notice of when, and how many, they could hire. Officials at four sites also said that training materials provided by the National Office were frequently outdated.

Keeping customer service representatives proficient was also a challenge for the sites due to the cyclical nature of taxpayer demand and changes to the topics representatives were expected to know. The frequency of the calls and the topics covered varied throughout the year. The bulk of the calls are generally received during the busy filing season. For example, more than 57.6 of the 79.6 million toll-free calls made to IRS in fiscal year 2000, or 72 percent were made from January through June. In addition, calls received from January through April predominantly involved tax law topics, while calls received after April mainly involved account- and refund-related topics. Consequently, customer service representatives could go long periods, such as months between filing seasons or even years since topic training was completed, without receiving calls to reinforce their experience on some of the topics for which they were trained. Moreover, this situation was compounded when IRS implemented centralized call routing in 1999. In conjunction with this change, IRS consolidated the number of subject categories, which ranged from 40 to 125 depending on the site, and reassigned representatives to a broader group of 31 categories. This was done without ensuring that they had adequate training or experience. According to a site official, inadequate training is one factor reducing the accuracy of IRS responses to tax law and account calls. From 1998 to 1999, for example, network accuracy for account calls decreased from 87.9 to 81.7 percent, according to IRS’ weekly customer service snapshot report dated September 30, 1999.

Officials at the sites we visited also said that the lack of a formal mechanism to identify which representatives needed refresher training hindered their ability to keep their representatives proficient. Officials have records of specific training each representative has received, but they do not have a method for assessing individual competency gaps—i.e., between knowledge and skills needed to respond to calls and current proficiency—to quantify each representative’s refresher training needs. Although IRS had developed such a system and began using it in December 1998, a customer service training official said testing was not done consistently among the call sites, and refresher training was not provided to meet identified needs. The official also said a lack of funding and uncertainty of future organizational developments led IRS to discontinue the system in 1999.

Because IRS does not have a system for assessing competency gaps to identify the specific refresher training needs of individual representatives, call sites waste scarce training resources trying to improve the performance of customer service representatives. For example, officials said they sometimes send groups of representatives to refresher training, knowing that some representatives will probably receive training they do not need. This happens because the course covers several subjects and each representative probably needs some of the training but most representatives probably do not need all of the training. Providing unnecessary training wastes resources that would otherwise be available for representatives who need additional training. “Fundamentally, we are attempting the impossible. We are expecting employees and our managers to be trained in areas that are far too broad to ever succeed, and our manuals and training courses are, therefore, unmanageable in scope and complexity…. The next step is to rethink what we should do at each site in order to achieve greater site specialization.”

Because of the problems involved in attempting to provide the full range of training to all customer service representatives, in fiscal year 2000, IRS began refocusing its program to provide just-in-time training, targeted more to the specific types of questions taxpayers call about at different times throughout the year. In addition, as part of restructuring, IRS intends to further specialize training to serve specific taxpayer groups– those who receive income from wages and investments and those who receive income from small businesses or self-employment. IRS’ training related plans do not, however, address the need for identifying competency gaps to determine refresher training needs and target training accordingly. A National Office official informed us that IRS was working with the Office of Personnel Management to “develop competency models, document career paths, and develop assessment instruments for use in training, development, selection, etc., for all of the occupations within the IRS.” Due to the broad scope of this endeavor, however, the official could not say when IRS could expect to establish and implement a mechanism for assessing the refresher training needs of customer service representatives and ensuring that the training is provided.

IRS Did Not Monitor Reasons for Call Center Attrition to Determine How to Address It

Despite its substantial investment in recruiting and training its network of 10,000 customer service representatives, and concern by National Office and some site officials that attrition was higher than it should be, IRS was not actively monitoring attrition and determining what steps, if any, were needed to address it. Officials do not track how many representatives leave, why they leave, or where they go—data that would be key to a strategy for decreasing attrition. A recent study of experiences at 186 call centers indicates that attrition is a major problem for the industry that is expected to worsen. Some of the organizations we contacted as part of our August 2000 report, however, were not as concerned about their attrition. They said most of their attrition was to other jobs within their organization and thus benefited the overall organization.

None of the six sites we visited could provide attrition statistics for customer service representatives for 1998 or 1999. Officials at four sites provided estimates ranging from 13 to 19 percent per year; however, these estimates were just their opinions—they were not based on data collected by the site or the National Office. Although IRS did not monitor attrition, National Office officials and officials at three sites said that attrition was a problem. Only one of the six sites had collected data to determine the reasons why representatives left; officials at the remaining five sites and the National Office had opinions about why representatives left. In addition, IRS did not monitor whether the representatives who left obtained other jobs within or outside of IRS.

Examples included the stressful nature of the work, seasonal employment, and better opportunities elsewhere. resources recruiting, hiring, and training representatives, only to lose them to other organizations.

Some of the organizations included in our August 2000 report had high attrition, but officials said that attrition from their call centers was usually to other positions within their organizations. For example, at one company, officials noted that policies to promote from within and encourage employee mobility, allowed customer service representatives to move to more senior positions within the company.

IRS Was Adapting a Commercial System to Address Inaccurate Call Demand Forecasting and Staff Scheduling Difficulties

IRS faces challenges in effectively scheduling staff—that is, having the right number, with the right skills, at the right time, at each call site—due to inaccurate demand forecasting and a complicated staff scheduling process. During the first 6 months of fiscal year 2000, IRS data indicated that for 60 percent of the time call sites were overstaffed or understaffed compared to tolerances established by IRS. In addition, IRS’ method for measuring call sites’ adherence to their schedules was incomplete. Recognizing its problems with forecasting and scheduling, IRS was adapting an automated system similar to those used by other organizations.

Inaccurate forecasting of the expected fiscal year 2000 toll-free call volume led to inefficient scheduling and use of staff at some sites. The Operations Center estimated that IRS would receive 100 million calls in fiscal year 2000, but IRS actually received about 80 million—20 percent less than forecasted. Because individual site staffing requirements were based on IRS’ forecasts of the expected numbers, types, and timing of calls, network and individual site work plans were also overstated, resulting in the underutilization of staff at some sites. For example, according to TIGTA’s March 2000 report, for the period December 5, 1998, through March 15, 1999, overstated call demand resulted in staff being scheduled and ready to take calls, but getting no calls, an average of 10 percent of their time at six sites for which data were available.

Operations Center officials stated that IRS’ increased use of new routing technologies, combined with continuous organizational and procedural changes, made accurate forecasting difficult. Moreover, they believed the information that IRS had about historical demand was of limited value in predicting future demand for two reasons. First, the historical information was not based on operating 24 hours a day; and second, it was difficult to take into account the constantly changing environment (i.e., tax law changes and increased use of electronic filing and Web-based services). However, the Directors of Customer Account Services, whose staffs have responsibility for providing telephone customer service to wage and investment and small business and self-employed taxpayers, stated that demand forecasting should improve now that IRS has 2 years of information based on operating 24 hours a day.

Managers at most of the sites we visited stated that the complicated scheduling process made it difficult to ensure that the appropriate staff were scheduled to work at the right times. They were also concerned about the amount of time they spent scheduling and rescheduling staff in attempting to ensure that they had scheduled the number of staff with the skills the Operations Center prescribed for each half-hour increment of service time. IRS management had not developed a standard system for the sites to use in helping them to develop their site schedules. As a result, each site we visited used its own system to track variables related to each customer service representative, such as the specific work schedule agreement, planned vacation and training, and skill level in answering certain types of calls. Site managers then used these variables to develop site schedules. Managers explained that the large number of variables to consider when doing so (e.g., more than 160 different work schedules at one site) complicated the scheduling process and made it difficult for them to optimize their day-to-day efforts to meet the staffing requirements prescribed by the Operations Center. IRS’ own statistics bear this out. At the times IRS measured, call centers were either understaffed or overstaffed, compared with the Operations Center’s prescribed staffing schedule, 60 percent of the time—24 percent and 36 percent, respectively, during the first 6 months of fiscal year 2000. In measuring site adherence to its prescribed staffing requirements, the Operations Center considers variances of more than 10 percent (of the total number required to be ready for each half-hour period) as overstaffing or understaffing.

The Operations Center only partially measures each site’s ability to meet the prescribed staffing requirements. The current measurement system determines if each site had, on average, the required number of customer service representatives available to answer the telephone for each half- hour period. However, the Operations Center did not measure the extent to which sites provided representatives with the required skills.

IRS is working with a contractor to refine a commercially available automated system to facilitate forecasting demand, scheduling staff, and tracking adherence to the schedule. The system is expected to use historical data to more accurately forecast call demand (volume, type, and timing of calls) and to centrally compare information on site staff resources (e.g., availability and skills) in relation to forecasted demand to help ensure that network staffing schedules make optimum use of available site staffing. This system is also expected to identify individual site staffing options for meeting network requirements, thus reducing the amount of time site managers spend on scheduling staff.

According to Operations Center officials, the contractor was still refining the commercial version of the system because it was not designed to handle the size and complexity of IRS’ toll-free operations (e.g., the number of call sites and customer service representatives and the range of topics). According to the project leader responsible for this system, both system hardware and software were in place at all call centers prior to October 2000, but the software is not yet fully operational. Even though IRS now has 2 years of information based on operating 24 hours a day, it did not gather that data in a consistent format. The system’s forecasting and scheduling capability will not be usable until IRS has collected at least 1 year of call demand data in a consistent format. The project leader was not sure when IRS would have these data because data collection efforts were delayed in order to make changes that would allow IRS to capture more data than originally planned and in a reconfigured format. Also, the planned transfer of certain functions from the Philadelphia Service Center to the Operations Center was more than a year behind schedule in October 2000. Moreover, the project leader said IRS’ restructuring could cause further delays in achieving full system capability.

Other organizations included in our August report used an automated system similar to the one IRS is implementing. For example, one company used an automated system to identify its short- and long-term staffing requirements. The system assisted call center managers in forecasting call demands and scheduling staff to meet the demands. Officials said the system also enabled the company to significantly reduce the time needed to perform these tasks. It forecasted call demand down to half-hour intervals, based on historical data trends. Considering various assumptions about call patterns and information such as the number of customer service representatives available to take calls, on leave, or in training, the system also generated a staffing schedule. The schedules were reviewed daily and adjusted as needed.

Evaluations Do Not Consider How Human Capital Practices Affect Achieving Level-of-Service Goals

IRS also faces challenges in evaluating its human capital management practices. According to our self-assessment checklist, all human capital policies should be designed, implemented, and assessed by the standard of how well they help the organization pursue its mission, goals, and objectives. While IRS evaluates its practices to make improvements in some areas, such as recruiting or training, the evaluations do not assess how individual or collective human capital policies and practices affect its ability to achieve level-of-service goals. Its evaluations also generally did not consider how improving practices in one area might affect other areas. Unlike IRS, some organizations consider how their human capital management practices affect their operational goals and how changing one practice may affect another. Without expanding its evaluations to include such analyses, IRS is unlikely to optimize the efficiency and effectiveness of its toll-free operations.

Except for retention, IRS evaluated its human capital practices, to some extent, in most areas, including recruiting, training, and scheduling to improve those areas. These evaluations generally focused on how each practice could be improved for the next year. While these evaluations are useful for making short-term adjustments, they do not provide a basis for strategic planning because they do not assess how human capital management practices may need to be revised to support a long-term level-of-service goal. Additionally, IRS evaluations generally do not consider how making changes in one area affects other areas. For example, IRS evaluations of recruiting did not consider how improving retention practices might reduce attrition, decrease resources spent on recruiting and training new employees, or increase the resources available for improving the skills and productivity of existing employees.

Unlike IRS, other organizations have evaluated the effects of changes in one human capital practice on other practices as well as on the overall results of their telephone assistance operations. For example, one company used training results to identify successful new hires. First, officials determined the characteristics that recruits who did well during training had in common. Then, the company changed its recruiting practices to identify and hire similar people. The Incoming Calls Management Institute recommended doing something similar—identify the personality traits and skills of top performing customer service representatives and use those traits to help assess persons applying for a representative position.

Conclusions

IRS faces significant challenges in managing its human capital to provide telephone customer service to taxpayers. IRS has made or planned substantial improvements to help meet these challenges, but further improvements are needed. IRS will have difficulty improving its telephone service without setting a long-term, desired service-level goal that is based on the needs of taxpayers, as well as annual goals aimed at making progress toward reaching its long-term goal. As the Government Performance and Results Act and SSA experience suggest, IRS will also need support for its long- and short-term goals from congressional stakeholders.

IRS’ telephone customer service workforce represents a substantial human capital investment in providing assistance to taxpayers. To get the most from this investment, IRS must be able to (1) target scarce training resources where they are most needed to optimize call center and network performance, (2) minimize turnover of trained and experienced customer service representatives to avoid unnecessary recruiting and training expenditures and enhance productivity, and (3) determine how its individual or collective human capital policies and practices affect its ability to achieve customer service goals and how changes in one or more human capital management practices will affect other practices. However, until IRS establishes a system for assessing competency gaps to identify the refresher training needs of individual customer service representatives, it cannot effectively target scarce training resources to meet individual training needs. Without a system for monitoring attrition, identifying its causes, and taking steps to address them, IRS cannot ensure that its recruiting and training resources are used efficiently. And, unless IRS considers its human capital management practices’ contribution to achieving overall service goals and considers the interrelationships among its toll-free service human capital practices, it lacks a good basis for assessing the soundness of those human capital practices.

Recommendations for Executive Action

We are recommending that the Commissioner of Internal Revenue take several steps to improve IRS’ human capital management practices related to providing telephone customer service. Specifically, the Commissioner should establish a long-term, desired service-level goal based on taxpayers’ needs, together with annual goals designed to make progress toward reaching that long-term goal over time, and work with congressional and other stakeholders to obtain their support and the resources needed to reach those goals; establish a system for assessing customer service representatives’ competency gaps and meeting the refresher training needs identified by the assessments; develop a system for monitoring call center attrition and identifying its causes and use the information gathered from that system to develop, as appropriate, strategies for dealing with the attrition of customer service representatives; and ensure that IRS’ evaluations of human capital management practices consider the effects of those practices on its ability to achieve long- and short-term customer service goals and the interrelationships among human capital practices.

Agency Comments and Our Evaluation

The Commissioner of Internal Revenue provided written comments on a draft of this report in a January 12, 2001, letter, which is reprinted in appendix II. We also met with senior IRS officials on January 4, 2001, to discuss our draft report and to obtain updated information on IRS’ new toll-free measures and goals. The Commissioner agreed with our recommendations, which he said should improve performance in this critical area. In addition, he provided information summarizing IRS’ efforts relating to each recommendation and commented that IRS’ efforts reflected the constructive dialog between IRS and our staff. We incorporated the new information and modified the report, where appropriate, to reflect IRS efforts.

The Commissioner’s letter stated that IRS had instituted an agencywide strategic planning process in March 2000 that links the budget and available resources to its strategies and improvement projects, but also recognized the need to strengthen that new process. Toward this end, the Commissioner stated that IRS’ fiscal year 2002 Strategic Plan and Budget reflects a 74-percent level-of-service goal, with a goal of reaching 85 to 90 percent by fiscal year 2003. This plan was not yet available as we were preparing this report. He also stated that an initiative was under way to improve workload planning to ensure that customer needs are considered during the planning and budgeting process. The Commissioner’s letter did not say how the cited workload planning initiative would identify and assess customer needs.

Based on the Commissioner’s comments, significant efforts were under way or planned to help ensure that customer service representatives will have the competencies and training needed to respond to taxpayer calls. In addition to the targeted training and planned specialization discussed in this report, for example, IRS plans to establish competency-based recruiting and retention methods to help ensure that IRS recruits and retains individuals who are well-suited to telephone customer service work. The Commissioner’s comments also stated that IRS’ competency- based management plans include the use of “assessment instruments to identify training needs.” These initiatives seem to be promising and may form a basis for identifying individual refresher training needs and ensuring that these needs are met.

The Commissioner’s comments also recognized the importance of retaining skilled representatives. His comments identified several efforts that focused on identifying employees that may be more likely to remain with IRS. He did not comment on monitoring why employees leave or on using this information to strengthen IRS’ efforts to retain skilled representatives.

Regarding IRS’ evaluations of its human capital practices, the Commissioner’s comments did not respond directly to the primary point of our recommendation—that IRS evaluations should consider the effects of its practices on its ability to achieve its long- and short-term customer service goals. However, the Commissioner did say that IRS has embraced our Human Capital Self-Assessment Checklist for Agency Leaders. IRS had used it as a diagnostic tool in its recent review of its mid- and top-level management realignment process and planned to use it again in fiscal year 2001 to “conduct an overview of the status of human capital practices throughout the Service.” Our checklist provides a framework by which agency leaders can develop informed views of their agencies’ human capital policies and practices. The Commissioner also objected to our comparing IRS’ 1998 performance with performance in subsequent years, because of the many changes to IRS’ operating environment, such as enterprise call management and 24-hour operations. This report compared IRS’ reported tax law and account accuracy in 1998 and 1999. As stated in our evaluation of the Commissioner’s comments on our 2000 filing season report, we believe it is appropriate to compare IRS’ performance before and after the operational changes mentioned above. In reevaluating the examples we used, however, we decided to eliminate our reference to IRS’ reported tax law accuracy because we learned that the methods used to measure tax law accuracy changed in 1999, and thus, results may not be comparable.

As agreed with your office, unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days from the date of this letter. At that time, we will send copies to the Ranking Minority Member of the Subcommittee on Oversight; the Chairman and Ranking Minority Member, Committee on Ways and Means; the Secretary of the Treasury; the Commissioner of Internal Revenue; and Director, Office of Management and Budget. We will also send copies to others upon request.

If you have any questions, please call me at (202) 512-9110 or Carl Harris at (404) 679-1900. Key contributors to this report are acknowledged in appendix III.

Appendix I: Organizations Contacted in Our August 2000 Report

Table 2 describes the organization, mission, and telephone center operations of the private and public organizations that were included in the scope of our August 2000 report.

Customer Service: Human Capital Management at Selected Public and Private Call Centers (GAO/GGD-00-161, Aug. 22, 2000).

Telephone customer service operation A telephone hotline that provided consumers with product information and responded to questions about repairs. The answer center, located in Louisville, KY, handled about 2 million calls each year. About 200 telephone customer service representatives responded to inquiries 24 hours a day, 7 days a week.

Mission One of 11 core businesses of General Electric. Manufactures appliances, including refrigerators, ranges, dishwashers, microwave ovens, washing machines, dryers, water filtration systems, and heating systems. Also provides repair and maintenance services on appliances, operating a nationwide fleet of service vans. Designer, developer, and manufacturer of computer products, including personal computers, printers, computer workstations, and a range of hardware and software.

The Hewlett-Packard Company Executive Customer Advocacy Group provided support for customers contacting Corporate Headquarters regarding issues or concerns with products and services. The hotline was located in Palo Alto, CA. It operated from 8 a.m. to 5 p.m., Monday through Friday, with a staff of about 22 full-time- equivalent employees who were Hewlett-Packard Company retirees in part-time positions. One call center in Springfield, IL, was staffed by 34 full- time telephone customer service representatives, who were assisted during busy times by cross-trained employees from other areas within the taxpayer assistance division. Toll-free telephone lines were open from 8 a.m. to 5 p.m., Monday through Friday, with extended weekday hours and one Saturday opening during filing season. Automated service was available 24 hours a day, 7 days a week. The call center provided taxpayers with help in completing their returns and answered questions about taxes, returns, bills, and notices that had been filed. In the Product Sales and Service Division, about 6,900 telephone customer service employees provided information on product sales and service. Call centers operated 24 hours a day, 7 days a week.

Collects taxes for the state and its local governments, including income and business taxes on individuals and businesses, income and sales taxes, taxes on public utilities, tobacco and liquor, motor fuels and vehicles. The department also administers tax relief programs for the elderly and disabled and provides property assessments among the state’s counties. Designer, developer, and manufacturer of information technologies, including computer systems, software, networking systems, storage devices, and microelectronics. America’s largest not-for-profit health maintenance organization, serving over 8 million members in 17 states and the District of Columbia. An integrated health delivery system, Kaiser Permanente organizes and provides or coordinates members’ care, including preventive care, hospital and medical services, and pharmacy services.

Kaiser Permanente had 17 call centers nationwide, with 12 centers located in California, the largest region. Regional call centers operated independently. The California region, where we visited, had 5.9 million members, while other regions had fewer than 1 million members each. The two largest call centers were located in Stockton and Corona, CA. Together, they employed about 475 telephone customer service representatives and about 80 management and support staff. Hours of operation were 7 a.m. to 7 p.m., 7 days a week. The member service call centers provided answers to questions on health plan- related topics, including benefits, copayments, claims, Medicare, eligibility, available services, and physician information.

Mission Manages the nation’s social insurance program, consisting of retirement, survivors, and disability insurance and supplemental security income benefits for the aged, blind, and disabled. Also assigns Social Security Numbers to U.S. citizens and maintains earnings records for workers under these numbers. World’s largest package distribution company, it transports more than 3 billion parcels and documents annually.

Telephone customer service operation Thirty-six call centers nationwide were staffed by 3,100 full-time, 700 part-time, and up to 60 percent of about 4,100 spike employees who were available to assist at busy times. Toll-free telephone lines were open from 7 a.m. to 7 p.m., Monday through Friday, to answer callers’ questions about Social Security benefits and programs.

Coordinator of Utah taxes and fees, including taxes on income, sales, property, motor vehicles, fuel, beer, and cigarettes.

Nine call centers nationwide were staffed by over 6,800 customer service representatives. Eight centers were open from 7 a.m. to 9 p.m., Monday through Friday. One center in San Antonio, TX, operated 24 hours a day, 7 days a week. Seven of the nine call centers were staffed by contract employees. The Newport News, VA, call center, which was a contract facility we visited, had 230 representatives who handled calls related to pick-up, tracking, and claims. Three call centers—a main call center, motor vehicle center, and collection center—operated weekdays from 8 a.m. to 5 p.m. with about 35 telephone customer service representatives. The call centers responded to about 15,000 to 20,000 inquiries a month dealing with a range of questions on programs administered by the Commission.

For these organizations, we conducted a telephone interview in which we asked managers of telephone customer service operations several key semistructured interview questions. However, we did not have detailed discussions with officials and employees at various levels of the organizations.

We judgmentally selected the organizations to visit and telephone by reviewing literature on innovations in human capital management and by obtaining opinions from experts on what organizations they thought provided noteworthy or innovative human capital management in their call center operations. We chose telephone customer service operations that dealt with tax questions or specific subjects, such as benefits, investments, and installation and operation of technical equipment, that were comparable in complexity to tax issues addressed by IRS customer service representatives.

Specifically, the director for Workplace Quality at the U.S. Office of Personnel Management identified the SSA telephone customer service operation as a public sector organization that is known for effective human capital management. We visited the Illinois and California State tax agencies and telephoned the Utah State Tax Commission on the basis of recommendations of an official from the Federation of Tax Administrators. The Canada Customs and Revenue Agency was cited in literature as having an internationally recognized reputation for high- quality taxpayer service and had participated—along with IRS and the tax agencies of Australia and Japan, members of the Pacific Association of Tax Administrators, in a benchmarking study of customer service best practices.

Two private sector companies we visited—Kaiser Permanente and Allstate Insurance—were selected in consultation with the executive director of the Private Sector Council. The Council, with membership including about 50 major U.S. corporations, seeks to improve the productivity, management, and efficiency of government through cooperation with the private sector. Members volunteer expertise to government agencies by participating with them in projects that are coordinated through the Council. The other private organization we visited, the United Parcel Service, was selected in follow-up to our participation in a congressional delegation and IRS visit to its Atlanta, GA, headquarters to discuss human capital and telephone customer service issues.

The private call centers we telephoned—General Electric (GE) Answer Center, Hewlett-Packard Company Executive Customer Advocacy Group, and International Business Machines (IBM) Business Product Division, and/or their parent corporations—were cited in best practices literature for their effective human capital management.

Appendix II: Comments From the Internal Revenue Service

Appendix III: GAO Contacts and Staff Acknowledgments

GAO Contacts

Acknowledgments

In addition to those named above, Robert Arcenia, Ronald Heisterkamp, Mary Jo Lewnard, and Shellee Soliday made key contributions to this report.