Summary
In 2005, the inventory of tax debt with collection potential had grown to $132 billion. The Internal Revenue Service (IRS) has not pursued some tax debt because of limited resources and higher priorities. Congress has authorized IRS to contract with private collection agencies (PCA) to help collect tax debts. IRS has developed a Private Debt Collection (PDC) program to start with a limited implementation in September 2006 and fuller implementation in January 2008. As requested, GAO is reporting whether (1) IRS addressed critical success factors before limited implementation, (2) IRS will assess lessons learned before fuller implementation, and (3) IRS's planned study will help determine if using PCAs is the best use of federal funds.
IRS made major progress in addressing the 5 critical success factors and 17 related subfactors for the PDC program before sending cases to PCAs. GAO reviewed program documents and interviewed officials to identify IRS's approaches and steps taken to address the factors. Taken together, IRS's actions were intended to ensure that the PCAs will be able to do the job and work the range of cases assigned, IRS will have the necessary resources and caseload ready, and taxpayer rights and data will be protected. Even with this progress, IRS has not completed work for three subfactors--setting results-oriented goals and measures, determining all PDC program costs, and evaluating the program based on the results-oriented goals and measures, once they are established. As a result, IRS risks not providing complete information that decision makers would find useful. Finishing work on the factors could help achieve but cannot guarantee program success, which also depends, in part, on how IRS addresses the factors and identifies and resolves any problems in the limited implementation phase. Although IRS officials indicated that a purpose of the limited implementation phase is to assure readiness for full implementation to up to 12 PCAs, IRS has not yet documented how it will identify and use the lessons learned to ensure that each critical success factor is addressed before expanding the program starting in January 2008. Because program success will be affected by how well IRS makes adjustments, assessing the lessons learned in limited implementation is critical. Also, IRS has not documented criteria that it will use to determine whether the limited implementation performance warrants program expansion. IRS officials indicated that they are considering criteria that could trigger a go/no go decision, such as the amount of taxes collected and indications of PCAs abusing taxpayers or misusing taxpayer data. IRS has not decided on whether these targets will include comparing the taxes collected to program costs, which was a key reason for canceling a 1996 PCA pilot program. Finally, IRS will have a little more than a half year to identify the lessons learned before incorporating them into the next contract solicitation, which IRS intends to release in March 2007. Related to such decisions on expansion is IRS's planned comparative study of using PCAs. That study is to compare using PCAs to investing IRS's PDC-related operating costs into having IRS staff work IRS's "next best" collection cases. Under the documented study design, IRS would exclude the fees paid to PCAs from the costs and subtract those fees from the tax debts collected by PCAs. While such a study might produce useful information, it will not compare the results of using PCAs with the results IRS could get if given the same amount of resources, including the fees to be paid to PCAs, to use in what IRS officials would judge to be the best way to meet tax collection goals. Adequately designing and implementing the study is important to ensure policymakers are aware of the true costs of contracting with PCAs and know whether PCAs offer the best use of federal funds.
Recommendations
Our recommendations from this work are listed below with a Contact for more information. Status will change
from "In process" to "Implemented" or "Not implemented" based on our follow up work.
Director:
Team:
Phone:
Michael Brostek
Government Accountability Office: Strategic Issues
(202) 512-9039
Recommendations for Executive Action
Recommendation: To ensure that IRS decision makers will timely have the information needed to make informed, data-based decisions about the private debt collection program, as soon as possible, and certainly before any expansion of the PDC program beyond the initial round of cases sent to PCAs, the Commissioner of Internal Revenue should complete establishing results-oriented goals and measures for the program based on the best available information.
Agency Affected: Department of the Treasury: Internal Revenue Service
Status: In process
Comments: As of June 2007, IRS believes it will complete work on this recommendation by September 2007. IRS is validating the measures that we cited in the IRS response to our 2006 report and has plans to develop goals for fiscal year 2008. Fiscal year 2007 experience with the program will serve as the baseline for setting these goals.
Recommendation: To ensure that IRS decision makers will timely have the information needed to make informed, data-based decisions about the private debt collection program, as soon as possible, and certainly before any expansion of the PDC program beyond the initial round of cases sent to PCAs, the Commissioner of Internal Revenue should complete establishing reliable, verifiable information on all the costs of the program, to the extent possible.
Agency Affected: Department of the Treasury: Internal Revenue Service
Status: In process
Comments: In June 2007, IRS officials said they now have a system to track all costs going forward and have developed some information on historic costs, even though they said the effort was difficult and has missing data. That is, they have collected historic data on labor and contract costs but the other costs are weak/missing. They promised to provide these costs data, as well as how they will collect costs data in the future.
Recommendation: To ensure that IRS decision makers will timely have the information needed to make informed, data-based decisions about the private debt collection program, as soon as possible, and certainly before any expansion of the PDC program beyond the initial round of cases sent to PCAs, the Commissioner of Internal Revenue should complete establishing plans for evaluating the results of the program in terms of expected costs, goals, and desired results.
Agency Affected: Department of the Treasury: Internal Revenue Service
Status: In process
Comments: IRS has started an operational data analysis (ODA) study to evaluate the Private Debt Collection (PDC) program against the costs, goals, and desired results. Of course, they need to establish the PDC costs and goals first as indicated in our first two recommendations. The ODA is study various aspects of the PDC program focusing on taxpayer behavior, IRS performance, and pca performance. They are finalizing the plan analyses in June and hope to finish the study by September 30, 2007.
Recommendation: To ensure that IRS decision makers will timely have the information needed to make informed, data-based decisions about the private debt collection program, as soon as possible, and certainly before any expansion of the PDC program beyond the initial round of cases sent to PCAs, the Commissioner of Internal Revenue should complete establishing clear criteria and processes for assessing how IRS addressed the critical success factors in the limited implementation phase and whether PDC program performance warrants program expansion.
Agency Affected: Department of the Treasury: Internal Revenue Service
Status: In process
Comments: IRS is developing a plan with time lines for finishing work on the criteria and processes for assessing how well IRS has addressed the critical success factors and whether IRS is ready for expansion of the Private Debt Collection (PDC) program. The operational data analysis (ODA) study is working on this recommendation. They hope to finalize work by either September 30, 2007, or December 31, 2007; it cannot be much later because IRS already plans to expand the PDC program by awarding more contracts in the fall of 2007 with the contracts to start by March 2008.
Recommendation: As IRS continues planning its comparative study of using PCAs, the Commissioner of Internal Revenue should ensure that the study methodology and the IRS reports on the study results will inform decision makers of the full costs of the PDC program, including the fees paid to PCAs and the best use of those federal funds.
Agency Affected: Department of the Treasury: Internal Revenue Service
Status: In process
Comments: The IRS has hired a contractor (Booz Allen Hamilton) to help design this study as the IRS finishes developing the private collection agencies (PCAs) program. The PCA program is scheduled to start on a limited basis by June 2006, with full implementation by the end of 2007. As of September 2006, our new report (GAO-06-1065) disclosed that IRS was still working on designing the study after we shared a number of comments on the direction it was taking (i.e., it was not fully meeting the intent of our recommendation). Our comments dealt with designing the study to account for all costs and to focus on the best use of federal funds to meet IRS's tax collection goals. IRS hopes to finish the design and testing of the study by fall 2006 to fully start the study during March 2007. Based on a meeting in June 2007, IRS hopes to have the study completed by August 2008.
