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. 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 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.