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OFFICE OF INSPECTOR GENERAL SEMIANNUAL REPORT
OCTOBER 1, 1994 - MARCH 31, 1995
Activities of the Department of the Treasury's:
* Office of Inspector General
* IRS Inspection Service
* Customs Office of Internal Affairs
* ATF Office of Inspection
* Secret Service Office of Inspection
CROSS REFERENCES TO INSPECTOR GENERAL ACT, AS AMENDED
Section 4(a)(2): Review of Legislation and Regulations 51
Section 5(a)(1): Significant Problems, Abuses, and
Deficiencies 5-47
Section 5(a)(2): Recommendations with Respect to Significant Problems, Abuses, and Deficiencies 11-47
Section 5(a)(3): Significant Unimplemented Recommendations Described in Previous Semiannual Reports 63-67
Section 5(a)(4): Matters Referred to Prosecutive
Authorities 70-71
Section 5(a)(5): Summary of Instances Where Information Was Refused 72
Section 5(a)(6): List of Audit Reports 73-78
Section 5(a)(7): Summary of Significant Reports 5-47
Section 5(a)(8): Statistical Table - Questioned Costs 54-55
Section 5(a)(9): Statistical Table - Recommendations that Funds Be Put to Better Use 55-58
Section 5(a)(10): Summary of Audit Reports Issued Before the Commencement of the Reporting Period for which No Management Decision Has Been Made 59-62
Section 5(a)(11): Significant Revised Management Decisions Made During the Reporting Period 67
Section 5(a)(12): Management Decisions with which the Inspector General Is in Disagreement 59
FOREWORD
Nearly 20 years ago, I began my career at Treasury working for IRS as a taxpayer service representative. Then, as now, I believed that my efforts made a difference. I am intent that this office will also make a difference by providing real value to the public, the Congress, and the Department. Accordingly, I have set five customer-oriented goals.
First, I have resolved that my office will assist Treasury efforts to be a model of good financial management within the Government. We will help Treasury managers strengthen internal controls and establish integrated and consistent accounting systems so that audited financial statements warrant unqualified opinions.
Recently, I was asked to participate in the newly-formed Treasury Financial Statement Advisory Committee and the Government-wide Audited Financial Statements Task Force. The Treasury committee's objective is to develop Department-wide financial statements that are informative and accurately portray Treasury's financial status. The Government-wide committee's mission is to develop an understandable consolidated financial statement that accurately reports the financial status of the Government as a whole. In addition, we have realigned our audit organization to create a separate unit to focus exclusively on auditing financial statements and related financial management issues.
Looking forward, my office will align its work to achieve the following additional goals:
* assess the effectiveness of information system changes and new initiatives;
* help Treasury bureaus to identify simplification and streamlining opportunities;
* be proactive in meeting the informational needs of the Department, the Administration, the Congress, and the public; and
* strengthen cooperative efforts with Treasury to ensure timely and useful audits and investigations, effective internal controls, and secure operations.
In this issue of the semiannual report, we are continuing efforts begun in the last issue to make the report as clear, interesting, and useful as possible. We welcome any ideas you, the reader, may have for further improvements.
I am firmly committed to helping develop tools and safeguards needed to meet Departmental goals efficiently and effectively. With the cooperation and support of Departmental managers and the Congress, we look forward to meeting the challenges that lay ahead.
Valerie Lau
Inspector General
Department of the Treasury
April 28, 1995
TABLE OF CONTENTS
FOREWORD i
INTRODUCTION 1
AREAS OF CONCERN 5
MULTI-BUREAU ACTIVITIES 11
LAW ENFORCEMENT BUREAU ACTIVITIES 19
U.S. Customs Service 19
Bureau of Alcohol, Tobacco and Firearms 24
U.S. Secret Service 26
NON-LAW ENFORCEMENT BUREAU ACTIVITIES 27
Departmental Offices 27
Bureau of Engraving and Printing 29
Financial Management Service 30
U.S. Mint 31
Comptroller of the Currency/Office of Thrift Supervision 32
Bureau of the Public Debt 33
INTERNAL REVENUE SERVICE ACTIVITIES 35
Audits 35
Investigations 44
OTHER ACTIVITIES 49
STATISTICAL SUMMARIES 53
APPENDIX A: AUDIT REPORT LISTING OCTOBER 1, 1994, THROUGH MARCH 31, 1995 73
The OIG appreciates the dedication of Robert O. Lord, who has overseen the production of all twelve of the Department of the Treasury's Semiannual Reports to the Congress. Bob retired on May 3, 1995, after 33 years of service to the Department. This issue is dedicated to him.
TREASURY BUREAU ABBREVIATION
Bureau of Alcohol, Tobacco and Firearms ATF
Office of the Comptroller of the Currency OCC
U.S. Customs Service Customs
Departmental Offices Departmental Offices
Bureau of Engraving and Printing BEP
Federal Law Enforcement Training Center FLETC
Financial Management Service FMS
Internal Revenue Service IRS
U.S. Mint Mint
Bureau of the Public Debt BPD
U.S. Secret Service Secret Service
Office of Thrift Supervision OTS
INTRODUCTION
Under the provisions of the Inspector General Act of 1978, as amended, Treasury's Office of Inspector General (OIG) reports semiannually on its activities to the Congress. This report, which covers the first half of Fiscal Year 1995, describes major problems, abuses, and deficiencies identified during audits and investigations, along with recommendations for corrective action.
Because the report describes selected significant audits and investigations, the conditions should not be considered as representative of overall conditions in the Department of the Treasury and its bureaus.
Treasury's Inspector General reports directly to the Secretary and Deputy Secretary. A Deputy Inspector General helps provide policy direction to the OIG. Four Assistant Inspectors General are responsible for the OIG's audit, investigative, oversight, and administrative functions.
In addition to Treasury OIG operations, the report covers the activities of the Offices of Internal Affairs and Inspection at Customs, ATF, IRS, and Secret Service. The Inspector General has oversight responsibility for internal investigations performed by the Offices of Internal Affairs and Inspection at ATF, Customs, and Secret Service and for the IRS Inspection Service's internal audits and investigations.
OIG ORGANIZATIONAL ISSUES
Treasury's OIG faces the same challenge today as does the rest of Government -- to achieve excellence in the quality of service provided to the public, the Congress, and their respective Departments. The last 6 months was a period of reassessment and steady progress.
To ensure that the OIG provides increased value to its customers, the Inspector General engaged a consultant team comprised of three former Inspectors General to take an objective look at the way Treasury's OIG does business. Their study identified practical and necessary actions that will improve the way the OIG accomplishes its mission. These changes will be reflected in future reports.
An issue cited by the consultant team and also raised in a recent General Accounting Office report deals with the independence of legal services provided to Inspectors General. Currently Counsel to the Treasury Inspector General, while assigned to the OIG, is organizationally a part of the Department's Office of General Counsel. The consultant team expressed concern about the appearance of Counsel's independence under this relationship. The OIG and the Department are working together to resolve this issue on a priority basis.
The OIG is giving increased attention to its charter to promote efficient and effective program management and to deter future problems. This semiannual report contains a number of examples where the OIG is advising Treasury on developing sound management and financial reporting systems and participating on various Treasury and Government-wide task forces that are examining ways to strengthen operations. This includes participation in:
* the Treasury/IRS Modernization Management Partnership established to foster Departmental participation in decision making affecting Tax Systems Modernization initiatives;
* the Treasury Financial Statement Advisory Committee and the Government-wide Audited Financial Statements Task Force established to develop consolidated Department-wide and Government-wide financial statements;
* the Audit Committee of the President's Council on Integrity and Efficiency, which is chartered to improve audit quality and coordinate interagency audits;
* Treasury streamlining and performance measurement efforts under the National Performance Review;
* the White House security review that was undertaken by Treasury following the incident in which a small aircraft crashed on the White House grounds;
* the Financial Management Systems Advisory Committee established to develop recommendations for standardizing and integrating financial systems;
* the Federal Electronic Benefits Task Force, which is coordinating development of a national system to transfer Government benefits electronically; and
* the Department's task force on BEP security, which was formed as a result of the 1994 theft of test currency by a BEP employee.
The OIG also is redirecting its audit resources to financial statement audits and related financial management issues. For example, the OIG has made a major commitment of staff to assume the responsibility for the audit of Customs financial statements from the General Accounting Office. The audit of Fiscal Year 1994 Customs financial statements is nearly completed, as well as audits of the Exchange Stabilization Fund and several other financial reporting entities.
TREASURY FUNCTIONS AND ORGANIZATION
The OIG and Offices of Internal Affairs and Inspection assist Treasury in carrying out its many functions. Today, over 172,000 employees work for the Department of the Treasury throughout the world. Treasury, as one of the oldest Government agencies, performs some of the most basic Governmental activities -- collecting and borrowing the money it takes to run our Government and enforcing many of our laws. Treasury also has the broader responsibility of assisting in the design of economic policy and putting that policy in place.
The Department has a full-time agenda of accounting, revenue collection, law enforcement, money production, and economic policy formulation. Treasury also performs such diverse functions as providing security protection for the President, striking commemorative medals, enforcing our nation's firearms and explosives laws, and investigating financial institution fraud.
Treasury is organized into 12 different bureaus and offices. Eleven operating bureaus carry out the specific programs assigned to Treasury. These components are overseen by the Departmental Offices which formulates policy and manages the Department.
Bureau Employees
Bureau of Alcohol, Tobacco and Firearms 4,200
Office of the Comptroller of the Currency3,800
U.S. Customs Service 18,900
Departmental Offices 1,800
Bureau of Engraving and Printing 3,000
Federal Law Enforcement Training Center 500
Financial Management Service 2,100
Internal Revenue Service 127,700
U.S. Mint 2,200
Bureau of the Public Debt 1,900
U.S. Secret Serve 4,600
Office of Thrift Supervision 1,600
Total 172,300
AREAS OF CONCERN
* Effective actions are needed to address Tax Systems Modernization program management, systems infrastructure, and economic analysis concerns.
* Comprehensive efforts are needed to detect millions of dollars in tax filing fraud before refunds are issued.
* Further action is needed to achieve unqualified audit opinions on Treasury financial statements and to standardize accounting systems.
This chapter summarizes areas of concern in the Department of the Treasury from the perspectives of the OIG and the Offices of Internal Affairs and Inspection.
TAX SYSTEMS MODERNIZATION
In light of the importance of, resource investment in, and past problems associated with IRS systems development efforts, the IRS Inspection Service and the OIG are concerned that IRS properly designs, develops, and acquires systems in its massive effort to modernize computer and telecommunications systems. In its February 1995 overview of Government high risk problems, the General Accounting Office reported that the overall design for Tax Systems Modernization (TSM) was still incomplete and IRS was continuing to automate functions with limited understanding of how different systems would eventually interconnect. The House Conference Report for the Fiscal Year 1995 budget also raised concerns about IRS's management of TSM. Over the years, Inspection Service auditors have expressed similar concerns regarding project delays and the need to implement better project controls.
The Inspector General and IRS's Chief Inspector believe that internal control problems in three TSM areas--program management, systems infrastructure, and economic analysis--should have been identified as material weaknesses in the Department's Fiscal Year 1994 Federal Managers' Financial Integrity Act (FMFIA) report to the President on internal control and financial management systems. The report did not identify them as material weaknesses, but it did state that IRS and the Department agreed that these TSM issues were valid areas of concern. It said that IRS and the Department believe that the corrective actions IRS had taken to address these concerns sufficiently mitigated known risks. IRS appointed a Modernization Executive, who is the single point of accountability for TSM, and took other steps to provide a framework for addressing TSM control concerns.
We believe that until management actions are complete and shown to be effective, the modernization efforts will remain a material risk, requiring continued close monitoring by senior Departmental and IRS managers. Acknowledging that the results of IRS actions need to be evaluated, Treasury's Fiscal Year 1994 FMFIA report promised to provide additional information on TSM in the 1995 FMFIA report.
In the meantime, Inspection Service auditors continue to review the design, development, and acquisition of major systems to help ensure that TSM resources will be used effectively and efficiently. Since Fiscal Year 1991, the Inspection Service has issued 67 internal audit reports relating to TSM initiatives. All of the reports have been made available to the Department to facilitate oversight. A summary of four completed reviews is included in the IRS Activities chapter of this report.
The OIG will be issuing an audit report on Treasury's oversight of TSM in June 1995. The objective of the audit is to determine whether Departmental oversight was sufficient to prevent problems from recurring that were identified in previous audits and other reviews. Although the report will address concerns about how well the Department has overseen TSM and other Treasury information systems, it is important to note that the Deputy Assistant Secretary for Departmental Finance and Management is tasked with taking the lead in determining how better Departmental oversight can be provided.
The Deputy Assistant Secretary is a member of the Executive Steering Group for a new Treasury/IRS Modernization Management Partnership. The partnership was established to foster Treasury Department participation in strategic policy development and decision making affecting IRS modernization. The Inspector General is an advisory member of the Executive Steering Group.
RETURN FILING FRAUD
IRS should continue its program to improve systems for detecting return filing fraud in advance of making refunds. IRS internal audits have shown that tax refund fraud is a serious problem, particularly as it relates to false claims for Earned Income Credits (EICs) intended for low income wage earners. IRS is taking corrective actions on an August 1994 audit summarized in our last semiannual report which noted that IRS's EIC Unallowable Program had resulted in over $449 million in refunds being stopped. The audit also reported that the auditors had identified another $308.8 million in potential revenues and refund savings.
During Fiscal Year 1994, the IRS Inspection Service issued 10 final reports and two draft reports addressing various aspects of the IRS revenue protection strategy. Eight new reviews are scheduled for Fiscal Year 1995. A summary of four recent audits is included in the IRS Activities chapter of this report. Significant findings included:
* IRS needed to improve its procedures, controls, and use of data to better detect questionable returns.
* Additional, more accurate, or validated data needed to be used to improve efforts to detect fraud.
* Current procedures allowed processing of returns and return information and the payment of refunds of tax and EICs to illegal aliens and to taxpayers who provided incomplete, unconfirmed, or inaccurate information.
* The Electronic Fraud Detection System had not met all expectations.
IRS is addressing this issue through a variety of approaches designed to detect and deter fraud schemes associated with both paper and electronic returns. For example, a number of controls and programs have been modified and fraudulent returns and master file data will be analyzed to a greater extent to improve detection and resolution of questionable returns. In addition, IRS proposed legislation to deny EICs to aliens who are not lawfully present in the U.S. and permitted to be employed.
FINANCIAL STATEMENTS
Further action is needed to achieve unqualified audit opinions on Treasury financial statements and to standardize accounting systems.
Audits of the Fiscal Year 1994 financial statements have been completed for three reporting entities. Unqualified audit opinions were rendered on BEP and the Departmental Offices Working Capital Fund financial statements, and a qualified opinion was rendered on the statements of the Treasury Forfeiture Fund. Audits of Fiscal Year 1994 financial statements are nearing completion for 10 other reporting entities.
The OIG is encouraged that Treasury bureaus are making progress toward the Department's goal of unqualified financial statement opinions for 1996 statements. However, problems remain. IRS and Customs need more reliable financial information systems. In addition, an Independent Public Accountant (IPA) under contract to the OIG recently identified areas of concern related to implementing the Mint's new Integrated Financial Management System. Moreover, a January 1995 OIG audit concluded that while Treasury management had made a significant effort to standardize financial systems, Departmental oversight of financial systems was still a material weakness.
We will continue to work with Departmental and bureau managers in their financial improvement efforts. Current financial audit and assistance efforts are summarized in the Multi-Bureau Activities chapter of this report.
ATF TAX REVENUES
When U.S. exporters send alcohol and tobacco products to foreign countries, ATF relieves the exporters of excise liabilities based upon export documentation filed by the exporters. The OIG is concerned about whether the tax-free process jeopardizes the collection of tax revenues because alcohol and tobacco products earmarked for export and foreign sale can be diverted and sold domestically without being detected. These tax-free products would represent billions of dollars annually in excise taxes if the products were taxed for domestic sale.
Historically, ATF has encouraged the alcohol and tobacco industries to pay the proper amount of excise taxes through a revenue examination program that focuses on production facilities posing the greatest risk to the revenue. A September 1994 OIG audit summarized in our last semiannual report identified needed improvements in tobacco tax compliance inspections. This included the need for ATF to more consistently verify that products reported as exported were actually exported. ATF generally concurred with the OIG's recommendations.
The OIG is currently performing a survey of ATF's tobacco tax-free export process to assess the extent of the problem in that industry. The OIG also plans to review ATF's tax-free export process for alcohol products.
CURRENCY PAPER PRICING
Multi-million dollar BEP contracts for currency paper have been awarded to the same supplier for over 100 years. Directly and through contracts with the Defense Contract Audit Agency (DCAA), the OIG has conducted numerous audits of the supplier over the last 2-1/2 years. These audits, showed problems with the accounting system used to establish contract costs, questioned over $50 million in contract costs, and raised questions about whether the supplier is taking advantage of its sole source position.
The supplier is concerned about the continuous review of its records and has indicated it may terminate manufacturing currency paper if the situation is not resolved. BEP has undertaken a project to identify alternative sources.
In the meantime, BEP and the supplier were recently involved in arbitration to "definitize" prices on three contracts, collectively exceeding $200 million. Attempts at negotiation between the parties had not resolved the issues. The resolution of these contract prices is of significant interest not only to BEP, but also to the OIG and the Treasurer's office because the arbitration involved significant contract pricing issues.
BEP and the supplier agreed with the arbitrator's decision, pending completion of DCAA's verification of revised cost figures submitted by the contractor during arbitration. However, the OIG, as well as DCAA, questioned the arbitrator's findings primarily in the area of common control between the currency paper supplier and its thread supplier and the profits paid to both suppliers.
BEP estimates that it will save $10 million on the three contracts as a result of the arbitration. Nevertheless, the OIG remains concerned about the arbitrator's decision on the three contracts and the precedent the decision may set for future contracts. The OIG and BEP are keeping the Treasurer informed about the status of resolving the three contracts and agreeing on the final prices.
FIREARMS PROLIFERATION
The Congress and the American public are concerned about the proliferation of firearms and their use in violent crimes. To reduce firearms-assisted criminal activity, the Congress passed both the Brady law and the Violent Crime Control and Law Enforcement Act. The Brady law, for example, increased the license fee to become a Federal firearms dealer, and it required that background checks be conducted for all firearms sales to non-dealers. The Crime Act placed a ban on certain assault weapons.
In addition, the President directed the Department and ATF to strengthen dealer licensing. To assist ATF, the OIG conducted a review of the licensing process. It disclosed that ATF had made significant progress to improve verification of dealer qualifications. It also identified additional measures that could be taken. Details of that review were included in our last semiannual report.
The OIG is currently finishing a review of the importation of assault weapons into the U.S. The review is evaluating whether ATF, with assistance from Customs, can effectively monitor such imports and whether the public safety is being jeopardized because banned assault weapons are being imported and used in violent criminal activity. Future OIG audits will evaluate how well ATF has implemented the initiatives required by both the Brady law and the Crime Act and whether these initiatives have been effective.
MULTI-BUREAU ACTIVITIES
* OIG customer services include assisting Treasury streamlining and performance measurement efforts.
* The OIG is advising Treasury task forces on financial management issues and redirecting its audit resources to financial statement audits.
* OIG audits questioned $59.3 million in contractor costs.
This chapter summarizes significant audit and other services that the OIG and Offices of Internal Affairs and Inspection provided to more than one Treasury bureau.
"Reinventing Government"
The OIG is working with Treasury managers to improve program management. Because of involvement with the National Performance Review (NPR) from the NPR's beginning, the OIG understands what the Department is required to do under Federal mandates. The OIG dedicated three senior staff members who participated in the national and Treasury portions of the NPR and also analyzed over 1,000 hotline calls from the public examining ways to streamline and improve the Government. In conjunction with the President's Council on Integrity and Efficiency, the OIG is continuing work on performance measurement with Departmental staff.
At the request of the Deputy Assistant Secretary for Departmental Finance and Management, the OIG is working directly with the Treasury team that is reviewing the Departmental and bureau streamlining plans. The OIG's specific purpose is to comment on whether the Department and its bureaus meet the NPR's mandates: improve customer service, cut red tape, and reduce costs. The OIG and the Treasury team also are looking for ways to achieve reductions greater than those previously envisioned. (OIG)
Treasury Financial Management
Pursuant to the Government Management Reform Act (GMRA), the Chief Financial Officers (CFO) Act, and other statutes, and the direction of the Secretary of the Treasury, the Department is committed to making Treasury a model of good financial management within the Government. The OIG is giving a high priority to supporting this important initiative and to coordinating audits of Treasury financial statements.
A critical financial management goal is to have unqualified audit opinions for all Fiscal Year 1996 Treasury financial statements. In addition, audited Department-wide financial statements for Fiscal Year 1996 are required in order to comply with the GMRA.
A newly-formed Treasury Financial Statement Advisory Committee was organized to assist in developing a model for the Treasury Department-wide financial statements. Committee members include the Inspector General and individuals from elsewhere in Treasury, other Federal agencies, and the private sector. The first meeting was held in April 1995.
In addition, a senior OIG representative attends the meetings of the Treasury Chief Financial Officers Council. The OIG assists other working groups established to improve financial management. OIG representatives participate in both the Financial Management Council and the Financial Management Systems Advisory Committee (FMSAC). FMSAC was created to develop recommendations for standardizing and integrating financial systems Department-wide. The OIG works with Departmental officials to formulate alternatives and recommendations.
A financial statement auditing organization has been established within the OIG. Increasing numbers of OIG auditors, both headquarters and field, are now dedicated solely to financial statement audit work. These auditors also are focusing on financial management efforts throughout the Department. Some perform audits while others oversee Independent Public Accountants (IPAs) under contract to the OIG. By Fiscal Year 1996, half of OIG audit resources will be devoted to financial statement auditing.
Audits of the Fiscal Year 1994 financial statements have been completed for three reporting entities. Unqualified audit opinions were rendered on BEP and the Departmental Offices Working Capital Fund financial statements and a qualified opinion was rendered on the statements of the Treasury Forfeiture Fund. Audits of Fiscal Year 1994 financial statements are nearing completion for 10 other reporting entities. During this semiannual period, the OIG also initiated interim work for the audit of ATF's Fiscal Year 1995 financial statements.
In previous years, GAO audited the financial statements for both IRS and Customs. The IRS Inspection Service and GAO currently are working together on the Fiscal Year 1994 IRS financial statements. The OIG has assumed responsibility for auditing the Fiscal Year 1994 Customs financial statements, and work on this audit is being completed. GAO also is planning to audit BPD's Fiscal Year 1996 financial statements. (OIG)
Financial Systems Standardization
In 1989, OMB identified Treasury's lack of effective management oversight of systems development activities as one of the high risk areas that it is monitoring throughout the Government. While Treasury management has made a significant effort to standardize financial systems, an OIG audit concluded that more needs to be done to close out this area as a Treasury material weakness. In addition, Treasury's strategy to standardize financial systems should be revisited by financial and technical experts.
The OIG report said that Treasury is unlikely to meet its goal of reducing to two core systems in 1996 and noted that standardization initiatives were still in the planning stages. Moreover, the Office of Financial Systems and Reports, the office responsible for providing oversight, is severely understaffed and the Treasury Information Resources Management (IRM) community was not actively involved in assessing the technical feasibility of financial systems initiatives until recently.
Treasury concurred with the OIG's suggested actions and said that positive steps would be taken to address the problems. The OIG suggested that Treasury's strategy to standardize financial systems be updated by financial and technical experts. Also, while Treasury's CFO has the lead role, the Treasury IRM community should assume some support responsibility in the overall strategic planning, design, and implementation of financial systems initiatives. (Report #OIG-95-037)
$59.3 Million in Contract Costs Questioned
The OIG is the central point for all Treasury bureaus to request preaward, cost incurred, and other contract audits. The OIG either performs the audits, refers the audits to the Defense Contract Audit Agency (DCAA), or contracts with an IPA.
As shown on page 14, the OIG performed or contracted for a total of 46 contract audits which questioned $59.3 million in Treasury contractor costs. Contracting officers agreed to savings and disallowed costs of over $12.6 million, including
COMPLETED CONTRACT AUDITS
OCTOBER 1, 1994, THROUGH MARCH 31, 1995
PREAWARD PROPOSAL
AUDITS* OVERHEAD AUDITS** OTHER CONTRACT AUDITS*
FUNDS
TO BE PUT NUMBER COSTS COSTS
NUMBER OF TO BETTER OF QUES- NUMBER OF QUES-
REPORTS USE REPORTS TIONED REPORTS TIONED
_CUSTOMS_
0 $0 5 $89,284 2 $94,295
_DEPT. OFFICES_
3 9,243 2 0 2 0
_IRS_
13 38,363,662 2 0 1 106,612
_FLETC_
0 0 4 5,282 0 0
_MINT_
1 54,167 2 1,781,616 1 0
_BEP_
4 18,447,672 0 0 0 0
_OCC_
0 0 1 0 0 0
_FMS_
3 374,302 0 0 0 0
_TOTALS***_
24 57,249,046 16 1,876,182 6 200,907
* Twenty-one preaward audits were performed by DCAA auditors, two were performed by HHS-OIG, and the remaining preaward audit was performed by both DCAA and EPA. All of the six "other" contract audits were performed by DCAA.
** Eleven overhead audits were performed by DCAA. The remaining five were performed by CPA firms under contract to Treasury OIG.
*** The monetary amounts are reflected in the tables on monetary benefits from OIG audits in the Statistical Summaries chapter of this report.
amounts which were questioned prior to September 30, 1994. An additional $96.1 million in potential monetary benefits, including amounts which were questioned prior to September 30, 1994, are awaiting completion of negotiations with contractors.
Preaward audits, which provide information on whether pricing proposals are fair and reasonable, are used by contracting officers in negotiating contracts. Incurred cost audits verify that costs claimed on cost reimbursement type contracts are documented and properly charged to the Government.
In addition, termination settlement audits are used as the basis to pay contractors for preparations made and work done under the terminated portions of contracts. For example, DCAA performed an audit of a termination settlement proposal submitted by an IRS contractor. The contract was for color graphic terminals and was terminated for the convenience of the Government. The audit questioned costs of $107,000; the entire questioned amount was sustained during negotiations. (Report #OIG-95-004)
During the period, the OIG continued to have DCAA perform audits of IRS's Treasury Information Processing Support Services procurement. In addition to 30 audit reports issued during the prior 6 months, another six reports were issued during the current period with questioned costs of $21.1 million and unsupported costs of $11.5 million. Contracts for this billion dollar procurement have already been awarded to two companies, and approximately 10 additional awards are anticipated in August 1995. (Reports #OIG-95-009, #OIG95010, #OIG-95-015, #OIG-95-016, #OIG-95-024 and #OIG-95-054)
Streamlining Management Controls Task Force
As a member of Treasury's Streamlining Management Controls Task Force, the OIG assisted in presenting a draft version of the task force report. The task force's objective was to streamline and consolidate all management control planning, evaluation, and reporting efforts into a single, comprehensive evaluation process and to centralize all management control reporting into two reports, an accountability report and a planning report. Initially, the task force members developed an inventory identifying all of the reporting requirements for audit and accountability that have grown from various statutes, including the Federal Managers' Financial Integrity Act, the CFO Act, and the Government Performance and Results Act.
The task force either combined or eliminated requirements within the control of the Department and developed recommendations for consolidating external requirements. The OIG's work on the task force has helped Treasury set the pace in this area for the rest of the Federal Government. (OIG)
Integrity Awareness: A High Priority
Integrity awareness remains a high priority for Treasury internal investigators. During the last 6 months, the OIG and Offices of Internal Affairs and Inspection at ATF, Customs, IRS, and Secret Service gave about 560 presentations to almost 16,000 Treasury employees. Highlights of these programs follow:
* IRS Inspection Service auditors and investigators routinely give presentations to IRS personnel that are designed to heighten their awareness of ethics and integrity. These presentations address a variety of topics and are tailored to the particular needs of the audience. For the 6-month period ending March 31, 1995, 516 presentations were given to 14,707 employees.
* Customs Office of Internal Affairs special agents conduct yearly integrity and bribery awareness presentations. In the past 6 months, Internal Affairs agents made 34 presentations to over 700 employees.
* ATF Inspection special agents and managers present integrity awareness and Ethics in Government briefings at bureau conferences, meetings, and supervisory, new agent, and inspector training classes. During the 6-month period, Internal Affairs made three presentations to 46 employees.
* Secret Service's Office of Inspection conducted integrity and ethics briefings for 337 employees, including criminal investigator recruits, experienced criminal investigators, special officers, Uniformed Division Officer recruits, and administrative personnel.
* The OIG gave six briefings to 123 Treasury employees, primarily from various Departmental Offices components. (OIG and Offices of Internal Affairs and Inspection)
Oversight and Quality Assurance Reviews
During the 6 months ended March 31, 1995, the OIG Office of Oversight and Quality Assurance (OQA) completed 13 reports and evaluations. One review of IRS's denial of an informant's claim for reward found that a reward should have been paid. The review was initiated following a request by an informant's attorney for an independent assessment of IRS's denial. IRS is authorized to approve payments for confidential information pertaining to violations of Internal Revenue statutes.
The review found that information provided by informants had led to an upward adjustment of about $6.6 million in a taxpayer's reportable income, which in turn resulted in a net tax benefit to the Government. IRS agreed with the OIG's findings and indicated that a reward amount would be computed.
OQA completed a follow-up quality assurance review of the OIG's Office of Investigations. This review evaluated the status of corrective actions on recommendations made in a May 1992 review of Investigations' compliance with the President's Council on Integrity and Efficiency's _Quality Standards for Investigations_. A third review addressed the results of a process analysis of the OIG's own procurement activities. OQA also conducted several reviews of hotline and other allegations that were determined to be unsubstantiated. (OIG)
Fraud Against the Government
As a result of a joint investigation with the IRS Criminal Investigation Division, the Small Business Administration, and the Health and Human Services OIG that was initiated by the OIG's Office of Investigations, IRS made a jeopardy assessment against a corporation which was providing contract services to a Treasury bureau. Based on this assessment, IRS attached contractor assets totalling approximately $3 million. The criminal investigation against the contractor is continuing.
In addition, a DCAA audit was performed at the request of the Office of Investigations. The audit determined that the pricing data for the contract was inaccurate and defective. The audit questioned $464,000 in costs claimed by the contractor. (OIG)
LAW ENFORCEMENT BUREAU ACTIVITIES
* An OIG audit concluded that Customs needed to institute user fees for Centralized Examination Station designations and strengthen CES program management.
* Undercover "Operation Magic Carpet" was terminated with the arrest of an alleged carpet smuggler who paid nearly $70,000 to allow the entry of Iranian carpets.
* A Customs officer and a Texas investigator were indicted for using their enforcement positions to hinder investigation of a noted drug smuggler.
This chapter summarizes significant audit, investigative, and other services that the OIG and the Offices of Internal Affairs and Inspection provided to four law enforcement bureaus: Customs, ATF, Secret Service, and FLETC. The Multi-Bureau and Departmental Activities chapter describes financial audit, contract audit, and other multi-bureau services provided to these bureaus.
U.S. CUSTOMS SERVICE
Centralized Examination Stations
An OIG audit concluded that the Centralized Examination Station (CES) Program established in 1987 offers Customs opportunities to meet its strategic goals of alternate funding, increased trade involvement, and more efficient and effective operations. The auditors recommended that Customs institute a user fee program for the CES designations it confers, expand trade involvement in the program, and strengthen program management and control.
CES operators provide the importing community the services needed to present their merchandise to Customs for examination. Under the program, Customs is able to examine merchandise at a few CES locations rather than many different importer premises, thereby reducing the time and cost to clear imported merchandise.
The OIG believes that Customs is authorized to charge user fees for CES designations under law. These designations convey to a few private businesses exclusive operating rights which provide substantial revenue and valuable business advantages. The over 100 CES operators reported revenues exceeding $16 million in Fiscal Year 1993, and these revenues could more than double in future years.
In addition, the auditors determined that the organizational structure in Customs fostered a culture of weak controls and poor accountability that adversely affected the program. Program management was left to the discretion of the districts, which had little concern for overall program uniformity or effectiveness. The lack of separation between program implementation and oversight did not provide the necessary checks and balances to hold managers accountable or establish program accountability. Consequently, program implementation has been slow and performance has been impaired.
Customs counsel advised management that Customs could not assess user fees. The matter was referred to Treasury's Office of General Counsel for a ruling. Customs agreed with the other recommendations and proposed actions which should address the findings in the report. (Report #OIG-95-012)
Border Station Rent
An OIG survey that was prompted by Customs' concerns found that Customs was paying excessive rent for border stations because GSA rental calculations included costs that were not incurred. Accordingly, Customs may have been overbilled $2.4 million annually.
In Fiscal Year 1993, Customs paid GSA $25 million for border station rent. The Public Buildings Amendments of 1972 authorized GSA to finance its real property management activities with user charges from tenant agencies. Border stations and other "special feature" property rental rates cannot be established using a comparable market rate. Instead, GSA calculates these rentals based on amounts invested in the construction and other economic data, with a goal of obtaining a reasonable rate of return on the investment in the property.
The OIG determined that GSA included costs that were never incurred in its rental calculation for border stations. This included GSA estimates of imputed costs for property insurance and property taxes and the value of donated land.
In response to a rental rate appeal by Customs, a GSA task force was revising GSA's rental formula. The task force was advised of the OIG's concerns. The OIG's report also suggested that Customs consider the survey findings when commenting on GSA's revised procedures. (Report #OIG95011)
Southwest Border Review
In response to persistent, but unfounded reports of systemic corruption of Customs inspectors stationed at Ports of Entry along the Southwest border, the Customs Office of Internal Affairs surveyed U.S. Attorney Offices, other law enforcement agencies, and Customs personnel assigned to the border to determine the validity of the allegations. Internal Affairs interview teams visited 35 ports and interviewed nearly 400 individuals.
The interviews did not disclose specific serious allegations of corruption, but instead identified areas such as trade facilitation, management practices, and employee discontent that lead to perceptions of corruption. Survey recommendations included forming cross-functional teams of Office of Investigations and Internal Affairs special agents, inspectors, and Commercial Operations personnel to perform post-case analyses to identify possible internal control lapses. Also recommended were other agency partnerships, obtaining and filing Customs employee photographs for investigative use in the field, exploring the use of integrity tests, and greater utilization of electronic surveillance during investigations.
Cross-functional teams currently are in use and more will be added during the year. Additionally, the converting of employee photographs to computer images has begun, and electronic surveillance equipment and support have been centralized with additional training for agents scheduled for this fiscal year. The issue of integrity tests has not been resolved, but a management decision is expected by September 1995. (Customs Internal Affairs)
Operation Magic Carpet
On January 3, 1995, an individual who was not a Customs employee was arrested in Toronto, Canada, by the Royal Canadian Mounted Police in cooperation with Customs' Office of Internal Affairs and Customs' Office of Investigations. In August 1994, the individual had paid a $25,000 bribe to an undercover Customs special agent for the illegal release of a seized shipment of Iranian rugs worth approximately $1 million. As part of a public corruption, smuggling, and fraud conspiracy undercover operation referred to as "Operation Magic Carpet," the Office of Internal Affairs, the Office of Investigations, and Inspection and Control investigated the smuggling and fraudulent entry of prohibited Iranian carpets via bribery and false documents.
"Operation Magic Carpet" was terminated on November 18, 1994, with the arrest of an alleged carpet smuggler from Miami, Florida, who between December 1993 and November 1994 paid nearly $70,000 in bribes to allow Iranian origin goods to enter the United States or be released from Customs seizure. The undercover operation was initiated after a supervisory Customs inspector informed the Office of Internal Affairs and the Office of Investigations that the alleged carpet smuggler had made a bribe overture in December 1993. (Customs Internal Affairs)
Customs Officer Indicted
In October 1994, a Customs command duty officer and a Texas Department of Public Safety investigator were indicted for conspiracy, obstruction of justice, witness tampering, and perjury. After surrendering to Office of Internal Affairs special agents, both individuals were arraigned and released on personal surety bond. The subjects allegedly utilized their enforcement positions to hinder the investigation and prosecution of a noted drug smuggler, who presently is serving a sentence of life imprisonment for importing 55,000 pounds of cocaine into south Florida.
The indictment resulted from a 3-year investigation conducted by the Office of Internal Affairs, the Office of Investigations, IRS, and the U.S. Attorney's Office, Southern District of Florida. Information was developed from cooperating defendants that the drug smuggler received law enforcement information from sources within the Customs Service and the Texas Department of Public Safety. The testimony of both subjects during the drug dealer's trial in Miami, Florida, subsequently was analyzed and conflicting statements regarding their involvement with the drug dealer were revealed. A trial date for the subjects is pending. (Customs Internal Affairs)
Smuggling of Illegal Aliens
A senior Customs inspector charged with facilitating the smuggling of 69 aliens into the United States was arrested by Immigration and Naturalization Service (INS) and Internal Affairs special agents on October 27, 1994. After three vans full of undocumented aliens were apprehended as they prepared to enter the United States through the inspector's primary inspection lane, it was learned that the U.S Border Patrol's Anti-Smuggling Unit previously had followed the vans to the inspector's residence after the vans stopped at an alien "drop" house. An investigation indicated that the alien smuggling operation was an ongoing endeavor involving a large network of co-conspirators. To date, only the inspector and his common-law wife have been apprehended.
On October 28, 1994, INS and Internal Affairs special agents executing search warrants on two storage lockers rented by the inspector discovered a quantity of anabolic steroids and endangered species skins. The inspector subsequently was indicted for illegally bringing aliens into the United States, official corruption, theft of Government property, and rescue of seized property. In addition, the inspector's common-law wife was arrested by the Office of Investigations on February 14, 1995, when she attempted to bring approximately 450 pounds of marijuana into the country. (Customs Internal Affairs)
Customs Inspector Indicted for Smuggling
A senior Customs inspector, who was indicted for conspiracy, smuggling, and false statements, was arrested by Internal Affairs agents on November 2, 1994. As part of an ongoing smuggling operation by one importer, the Customs inspector had falsely certified the destruction of contaminated Chinese foodstuffs that had been condemned by the Food and Drug Administration. The foodstuffs, worth tens of thousands of dollars, then were entered illegally into the commerce of the United States. The Customs inspector took early retirement from Customs and is preparing to go to trial. (Customs Internal Affairs)
Bribery Cases
During the 6 months ended March 31, 1995, the Office of Internal Affairs opened 42 cases involving bribery. Bribery continues to be a major concern for Customs in its efforts to ferret out corruption, as the following cases illustrate.
* On January 4, 1995, a senior Customs inspector was arrested for bribery. An Office of Internal Affairs investigation revealed that over the past year the inspector had accepted over $5,000 in bribe payments from an importer to release counterfeit merchandise such as "starter" jackets and other trademark goods worth in excess of $250,000. In December 1994, the Office of Internal Affairs monitored a meeting between the inspector and a cooperating defendant during which the Customs inspector "stamped out and released" a shipment of goods in return for a payment of $600. An individual who is not a Customs employee and who arranged for the clearance of shipments through the senior Customs inspector also has been charged with smuggling and bribery. The inspector has been suspended without pay.
* In another case, a drug smuggling suspect and his wife were indicted on February 1, 1995. In July 1994, a confidential informant provided information that a Mexican drug smuggling organization was interested in paying a bribe to a Customs inspector in exchange for allowing a load of narcotics to enter the United States. A joint investigation between the Office of Internal Affairs, the Office of Investigations, and the Drug Enforcement Administration ensued; and a Customs inspector was recruited for the undercover role. Several undercover meetings were held and on November 21, 1994, a drug smuggling suspect paid the cooperating inspector a $10,000 bribe. The following day a vehicle laden with over 1,000 pounds of marijuana was allowed to enter the United States via the cooperating inspector's primary inspection lane. Several hours later, after the drug smuggling suspect gave an additional $15,000 to the cooperating inspector, the drug smuggling suspect was arrested, the vehicle was searched, and the marijuana was seized. The drug smuggling suspect's wife, who also was charged in the venture, was arrested on January 21, 1995. A plea bargain currently is in progress between the U.S. Attorney's office, the drug smuggling suspect, and the drug smuggling suspect's wife. (Customs Internal Affairs)
BUREAU OF ALCOHOL, TOBACCO AND FIREARMS
Alleged Preferential Treatment in Label Processing
Responding to an OIG hotline complaint, the OIG reviewed ATF's processing of alcoholic beverage labels. The complainant, a submitter of labels to ATF for alcohol producers, bottlers, and importers, alleged that ATF provided preferential treatment to a competitor that helped the competitor increase its revenues at the expense of others and delayed the processing for all other label submitters. The OIG confirmed that ATF had handled the labels of the firm differently than the label submissions of others.
ATF requires that labels be approved before alcoholic products can enter the marketplace. Labels must accurately portray beverage contents and comply with other regulatory requirements such as health warnings. It is common practice for alcohol producers, bottlers, and importers to hire law firms, trade associations, or other representatives to submit labels to ATF for them. ATF processes approximately 60,000 labels annually.
Whether intentional or not, ATF actions resulted in processing one firm's labels more quickly than others between 1991 and 1994. While ATF indicated that the special arrangement was part of a pilot program, it could not provide any documented evidence to support its contention. ATF concurred with the OIG's recommendation that ATF not provide special treatment to any label submitter or give the perception of preferential treatment unless it is part of a well-documented, controlled, and publicized program. (Report OIG-95-065)
ATF Inspection Case
A former ATF special agent who pled guilty to providing false statements in order to obtain compensation was sentenced to 4 years of probation and a $40,000 settlement and was fined $3,000. The agent, who was involved in an automobile accident in April 1986 while driving a Government vehicle, filed a claim alleging that he had injured his back in the accident. The special agent received written notification the following month that he was being terminated from employment because of unacceptable performance; however, the Office of Workers' Compensation Programs (OWCP) accepted his claim for disability on April 20, 1987. From that date forward, the former special agent received tax-free compensation at a rate of 75 percent of his pay.
ATF Office of Inspection special agents examined the chargeback sheet that OWCP provided ATF and conducted a preliminary inquiry into the former special agent. The preliminary inquiry, along with the investigation that followed, disclosed he was actively engaged in conducting a home building and renovation business in Pennsylvania and Delaware.
Civil penalties, which included reimbursing the Government $40,000 and the former special agent's permanent elimination from the OWCP rolls, have been imposed. Criminal penalties, which could encompass a year of imprisonment and a $100,000 fine, are pending. The former special agent was earning approximately $36,000 a year in compensation at the time the Office of Inspection detected the fraud. (ATF Inspection)
U.S. SECRET SERVICE
Customer Service Activities
During the past 6 months, the Secret Service Office of Inspection has continued efforts to actively participate in measures to improve customer service and prevent waste, fraud, and abuse. These efforts have been made in cooperation with both internal programs and external programs, such as the U.S. Secret Service Strategic Plan and the National Performance Review.
The Secret Service is committed to the development of its Strategic Plan. As a part of this endeavor, review teams are in place to explore ways to improve relationships with Secret Service's many customers, including those in the financial community. The Office of Inspection's specific interest is to work with financial institutions to improve measures to prevent as well as to investigate financial crimes. Through these actions, the Secret Service will assist the Department of the Treasury in continuing its leadership role in financial management law enforcement.
The Office of Inspection also has played an active role in the development of Secret Service's Customer Service Plan. Inspection efforts will focus on enhancing the relationships with U.S. Attorney offices. (Secret Service Inspection)
Security Review
After the September 12, 1994, incident in which a small aircraft crashed on the White House grounds, the Secretary asked that Under Secretary for Enforcement Ronald K. Noble and U.S. Secret Service Director Eljay Bowron undertake a joint review of White House security. The OIG is monitoring the review to provide assurance that it was complete and properly implemented. (OIG)
NON-LAW ENFORCEMENT BUREAU ACTIVITIES
* The OIG arranged for a financial audit of the Treasury Forfeiture Fund and made suggestions to strengthen oversight of recipient law enforcement agencies.
* BEP is acting on a number of audit recommendations to improve internal controls relating to the production of currency paper and stamps.
* The OIG is assisting the Electronic Benefits Transfer Task Force in addressing inherent risks in transferring Government benefits electronically.
This chapter summarizes significant audit, investigative, and other services that the OIG provided to seven non-law enforcement bureaus: Departmental Offices, FMS, Public Debt, BEP, Mint, OTS, and OCC. The Multi-Bureau and Departmental Activities chapter describes financial audit and contract audit services provided to these and other Treasury bureaus.
DEPARTMENTAL OFFICES
Treasury Forfeiture Fund
The Fiscal Year 1994 audit of the Treasury Forfeiture Fund (TFF) resulted in a qualified opinion on its financial statements. The review was conducted by an Independent Public Accountant (IPA) under contract to the OIG.
Created in October 1992, the TFF consolidated all bureau forfeiture fund administration under Departmental management. The purpose of the TFF is to encourage state and local law enforcement involvement through the equitable sharing of forfeited assets. It is used to centralize the accounting for property or currency seized during Treasury law enforcement operations and the sharing of this property with participating state and local law enforcement agencies. Prior to 1992, the Customs Service had its own fund and Treasury's other bureaus used the Department of Justice's forfeiture fund.
The qualified opinion resulted from the inability of Customs and IRS to provide detailed documentation to support amounts presented in the "Analysis of Change in Seized Property" and the "Analysis of Change in Forfeited Property" disclosures included in the notes to the financial statements. Accordingly, the auditors were unable to satisfy themselves as to the fair presentation of the disclosures.
The report on the TFF's internal control structure cited six material weaknesses in the fund's internal control structure. This included weaknesses relating to the general and subsidiary ledgers, the use of the cash basis rather than the accrual basis of accounting, and incomplete performance indicators to report progress toward achieving the fund's goals and objectives. (Report #OIG-95-043)
Asset Forfeiture
At the request of the Executive Office for Asset Forfeiture (EOAF), the OIG suggested how EOAF could improve its oversight of the TFF. In Fiscal Year 1993, EOAF awarded $76 million to 329 agencies that participated with the Department in law enforcement operations. Test audits at four recipient law enforcement agencies identified practices that could affect the proper use of funds. These problems included the commingling of Federal and state forfeiture funds, delays in receiving funds, and inconsistencies in Treasury and Department of Justice guidance on the use of funds.
The OIG's consultative assistance report suggested that EOAF implement procedures to ensure that mandatory annual audits are properly conducted and timely resolved; coordinate with the Department of Justice to obtain audit results of mutually funded recipients; and assure that its recipient oversight program is properly documented. EOAF generally agreed with the suggestions and is planning specific actions to improve its oversight. In addition, the report contained useful appendices such as a risk assessment guide to assist EOAF in selecting recipients for audits and guidelines to use during the audits. (Report #OIG-CA-95-002)
OFAC Security Survey
In response to an October 19, 1994, break-in and burglary of Treasury's Office of Foreign Assets Control (OFAC) that was reported to the Secret Service, the OIG's Offices of Audit and Investigations evaluated the security of OFAC's facilities in the Treasury Annex Building. OFAC, which administers economic sanctions against foreign countries to further U.S. foreign policy and national security goals, routinely handles a large amount of classified, foreign policy, and business sensitive information. In the first phase of its review, the OIG immediately secured all documents relating to matters under investigation and evaluated the circumstances of the break-in.
Accompanied by officials from the Secret Service and Treasury's Office of Enforcement, the OIG conducted an after hours inspection of OFAC's offices in late October. This was followed by interviews of OFAC employees and an evaluation of OFAC's document and computer security controls. The OIG task force generally found adequate measures in place for safeguarding classified documents and computerized information. However, the physical security of OFAC office space needed to be strengthened. Several vulnerable areas were identified that could compromise the security precautions OFAC has realized by being located in a guarded Federal building with key controlled access to the floor it occupies.
The security evaluation report made several suggestions for improving the physical security of OFAC facilities. The Under Secretary for Enforcement and the Director of OFAC generally concurred with the suggestions. (Report #OIG-CA-95-001)
BUREAU OF ENGRAVING AND PRINTING
Custodial/Cleaning Contracts
The OIG reviewed allegations of BEP mismanagement and waste of funds by officials overseeing a custodial/cleaning contract with the National Industries for the Severely Handicapped (NISH/Goodwill) and a private cleaning services contractor. BEP took appropriate corrective actions in response to the OIG's findings.
The Office of Special Counsel forwarded the allegations to the OIG. In the OIG's opinion, BEP mismanaged contract award. Specifically, BEP officials (1) violated Federal procurement regulations by not competing the contract; (2) did not prepare a clearly defined and accurate statement of work; (3) did not develop a realistic Government estimate of cost prior to contract award; and (4) did not prepare sufficient analyses of the technical and cost proposals. Actions taken by BEP subsequent to the OIG's report will save the Department $820,000 a year. (Report #OIG-94-007)
Departmental Task Force
An IPA firm under contract to the OIG reviewed BEP internal controls for the production of currency and stamps in both the Washington, D.C., and Fort Worth, Texas, locations. The contract was awarded on behalf of the Department's BEP Task Force. The BEP Task Force was formed after the 1994 theft by a BEP employee of approximately $1.7 million of test currency. OIG representatives participate as a member of that task force.
The IPA firm made numerous recommendations to improve internal controls and increase compliance with existing procedures. The OIG has worked with the Task Force and BEP to develop corrective actions for the remaining recommendations and will monitor BEP's implementation of the corrective actions. (OIG)
Bribery Followup
On November 29, 1994, a BEP employee was sentenced in Federal court after pleading guilty to one count of conspiracy to accept a bribe from a BEP contractor. The employee was sentenced to 3 years probation, fined $5,000, and ordered to complete 100 hours of community service. As the prior semiannual report noted, an OIG investigation that began in 1992 determined that the employee illegally manipulated the procurement process to ensure that the contractor received a contract and subsequently developed a fraudulent contract modification. (OIG)
FINANCIAL MANAGEMENT SERVICE
Electronic Benefits Transfer Task Force
The National Performance Review calls for the swift development of a national system to transfer government benefits electronically. As a member of the Federal Electronic Benefits Transfer (EBT) Task Force, the OIG is committed to promoting the effective implementation of this new enterprise. The task force's goal is to make EBT a nationwide program under a Federal-state partnership with unified delivery of government-funded benefits.
EBT will provide benefit access through automated teller machines and retail point-of-sale terminals for social security, food stamps, and many other programs. Its purpose is to replace multiple paper-based delivery systems with a single, integrated electronic system that delivers benefits for a full range of Federal and state government programs. As a task force member, the OIG provides technical assistance in identifying and addressing the inherent vulnerabilities and risks of the EBT project and evaluates management's design and implementation of effective control procedures and techniques. (OIG)
U.S. MINT
$1.2 Million Recovery
A corporation which supplied coinage metal to the Mint reached a civil settlement agreement with the United States after a 3-year investigation by the OIG. Under the agreement, the corporation paid $1.2 million to the U.S. Treasury, but it would not admit to any of the allegations or claims made against it. Further, a former corporation principal, who is currently a fugitive, will not own any shares in and will not be a principal of the successor corporation.
The corporation was awarded 22 contracts for coinage metal totalling over $45 million in a 4-year period prior to the OIG's investigation. During that time, two of the corporation's principals were indicted felons and fugitives from justice. In responding to annual solicitations, the corporation submitted false certifications by denying that any principal of the corporation was under indictment. The contracting officer relied upon these false statements and determined that the corporation was a responsible contractor. The two principals are believed to have exercised control over the corporation's U.S. subsidiary from a foreign country during this time. (OIG)
Integrated Financial Management System
Under the direction of the OIG, an IPA performed a review of the system development process and internal controls for the Mint's Integrated Financial Management System (IFMS). The auditors found that IFMS currently did not provide adequate financial and manufacturing reporting necessary to support Mint-wide operations. Upon completion, IFMS is expected to provide financial and manufacturing processing capabilities that will lead to accurate, reliable, and timely information for managing Mint-wide manufacturing operations and supporting financial reporting.
The Mint is aware that it must improve its financial management system. The ongoing implementation of IFMS will address this need.
During its review of IFMS, the IPA was provided with insufficient documentation to demonstrate that IFMS was designed to ensure that accurate, reliable, and timely financial and performance information is collected and reported. As a result, the auditors were unable to determine if IFMS meets OMB, GAO, and Joint Financial Management Improvement Program requirements and standards. The Mint submitted a recommended action plan to the OIG to resolve this issue. The OIG is coordinating its evaluation of this plan with Mint personnel to ensure that financial management improvements are implemented in an effective and efficient manner. (OIG)
COMPTROLLER OF THE CURRENCY/OFFICE OF THRIFT SUPERVISION
FDICIA Activity
OIG efforts to fulfill the audit responsibilities in the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) have been extensive. The Act requires Federal banking agency OIGs to review actions taken by Federal regulators to supervise institutions which subsequently fail and cause a deposit insurance fund to incur a material loss and to make recommendations for preventing such loss, starting in July 1993 for national banks and in July 1995 for thrifts. OIG reports on the results must be issued within 6 months.
The OIG is monitoring the potential for national bank and thrift failures that could result in the performance of material loss reviews by reviewing problem bank and thrift reports and engaging in dialogue with OCC and OTS. In addition, the OIG is continuing coordination efforts with the OIGs at the FDIC and Federal Reserve Board. This effort includes coordinating audit strategies and discussing findings, conclusions, and depth of audit coverage in order to improve the process used to perform these audits.
The OIG has conducted two pilot audits of failed institutions. These are labor intensive and complex audits and can consume an average of 2 to 3 staff years each. In view of the requirement to begin auditing thrifts, it is reasonable to assume that the OIG may be required to apply about 10 staff years to this audit area during the remainder of this fiscal year. (OIG)
BUREAU OF THE PUBLIC DEBT
GSA Lease Charges
The Public Buildings Amendments of 1972 authorized GSA to finance real property management activities with user charges collected from tenant agencies. A proactive review by the OIG's Office of Investigations determined, however, that GSA charges to BPD for two lease agreements appeared to be excessive in relation to the rents GSA paid for the facilities. Overall, GSA retained over $2.1 million for its overhead and other charges. In one case, GSA received $226,000 in overhead, which is 64 percent of GSA's actual rental costs of $354,000. In the other case, GSA received $1,907,000, which is 164 percent of the actual rental cost of $1,164,000. This information was provided to the Commissioner of Public Debt who has ordered a comprehensive review of all BPD GSA leases. (OIG)
INTERNAL REVENUE SERVICE ACTIVITIES
* Responding to an audit, IRS will submit a legislative proposal instituting interest rates on overpayments and deficiencies more in line with the private sector, actions which could help to reduce the deficit.
* An internal audit concluded that IRS could increase revenues by $315 million with improvements in the IRA Excise Tax Program.
* Adjudication actions were taken on several cases in which taxpayers were swindled out of millions of dollars by individuals misrepresenting IRS.
This chapter summarizes significant audit and investigative, and other services provided by the IRS Inspection Service to IRS. The Multi-Bureau and Departmental Activities chapter describes financial audit, contract audit, and other services provided to IRS and other Treasury bureaus.
AUDITS
Revised Interest Rates
IRS internal auditors recommended that IRS pursue revision of the interest rate provisions of the tax code to reflect prevailing market rates. Decreasing the interest paid on overpayments to the prevailing 3-month Treasury bill rate and increasing the interest charged on deficiencies to a rate comparable to unsecured loans and credit cards would have a significant financial impact. For example, in 1993 the IRS could have saved $714 million in interest payments and would have generated several billion dollars in additional interest assessments using prevailing rates.
Congress passed legislation in 1986 that provided for a floating interest rate tied to the 3-month Treasury bill rate that is adjusted quarterly. The rate paid to taxpayers on overpayments is the 3-month Treasury bill rate plus 2 percentage points and the rate charged on deficiencies is the 3-month Treasury bill rate plus 3 percentage points.
Although these rates are variable, they do not accurately reflect prevailing market interest rates. At the time of the review, for example, IRS was paying 6 percent on overpayments which differed from the rates paid on savings accounts of 2.2 to 3.6 percent. Using the 4 percent Treasury bill rate instead of 6 percent, the Government would have saved $714 million. Similarly, IRS only charged 7 percent on deficiencies whereas the rate on unsecured loans ranged from 9.9 to 16 percent. Extrapolating assessed interest from sampled service centers, the auditors estimated that an increase in rates from 7 percent to 10 percent would result in additional interest assessments in excess of $4 billion for 1993.
A revised interest rate structure would also eliminate the Failure to Pay (FTP) penalty which costs $2.8 million annually to administer. IRS could redirect 60 staff years to other
programs. The penalty was created to remove any advantage for taxpayers to borrow from the Government. Further, IRS would increase assessments by approximately $1.25 billion a year if interest were substituted for the FTP penalty.
Noting that issues in the recommendation have historically not been favorably considered, IRS agreed to submit a legislative proposal to Congress recommending interest rates more in line with the private sector and elimination of the Failure to Pay penalty. (IRS Report #050301)
Revenue Protection Audits
Inspection Service audits assisted IRS efforts to improve its systems for detecting return filing fraud. IRS internal auditors raised taxpayer filing fraud issues impacting four areas: tax administration and policies relating to illegal aliens, the Questionable Refund Program (QRP), usage of the National Account Profile, and controls over the issuance of Employer Identification Numbers (EINs).
In reviewing tax administration policies in reference to illegal aliens, the auditors noted that current tax law allows individuals who do not have a valid Social Security Number (SSN) to file tax returns, to claim the Earned Income Tax Credit (EIC), and to receive refunds. The EIC is a refundable credit for low-income wage earners who have dependent children and maintain a household.
Responding to the recommendations, IRS proposed legislation to deny EIC payments to aliens who are not lawfully present in the United States and who are working. For Fiscal Year 1995, IRS will freeze refunds on all returns with missing or invalid primary, dependent, or EIC dependent SSNs. "Applied for a social security number" notations by individuals will not be allowed as a substitute for an SSN. (IRS Report #050602)
Another review evaluated the IRS QRP and efforts to detect multiple filer fraud. The review concluded that the QRP is inefficient and labor intensive and is not effectively identifying fraudulent returns. Computer technology was not used to its fullest extent in identifying fraudulent refund returns, returns having a greater probability of fraud needed closer examination, and procedures for verifying refund returns with non-wage earned income claiming the EIC were needed. The absence of effective procedures, controls, and guidelines for using computer technology resulted in significant noncompliance and fraudulent refund schemes not being identified. Potential additional taxes totalling $254 million were associated with duplicate dependents and duplicate EICs claimed in electronically filed returns.
In response, IRS indicated that all Electronic Filing Program service centers will have an Electronic Fraud Detection System in place for 1995 which will better use computer capabilities. When fully operational, the system will use artificial intelligence and anomaly detection to enhance the identification of fraudulent returns. Other service centers working the electronic filing QRP will use a new computer program that will facilitate the transfer and analysis of wage information and serve as a research tool. Criminal Investigation personnel are also developing a more usable common database for employees who are attempting to detect filer fraud. (IRS Report #051205)
In the third review, the auditors evaluated how the IRS verifies Master File Taxpayer Identification Numbers (TINs) as a control in preventing filing fraud. IRS uses a National Account Profile, which contains approximately 370 million SSNs, to verify TINs as part of its fraud prevention and detection efforts. While the profile is updated in a timely fashion, the report cited the need to improve communication and coordination of information between the IRS and the Social Security Administration (SSA) so as to improve controls. For example, IRS did not have the ability to identify returns during initial processing that may contain unauthorized SSNs, information which was available through SSA. Systemic weaknesses which allowed taxpayers to receive refunds without accurate identification data also needed to be addressed by management.
IRS management agreed to strengthen current controls and address systemic weaknesses by obtaining social security information from SSA, verifying SSNs on the Individual Master Files quarterly, and merging various duplicated data files. (IRS Report #052106)
In a fourth review, IRS internal auditors evaluated controls over the issuance of EINs which IRS assigns to businesses. The auditors noted that IRS did not fully use the EIN issuance process as a compliance tool in reducing the tax gap of unreported or under-reported income. For example, despite requesting sole proprietors to provide a SSN on Form SS-4, Application for Employer Identification Number, IRS issues EINs when such information is not provided. Without the cross referenced SSN to use in locating related Form 1040 information, IRS has difficulty determining whether the correct income has been reported or whether wage expenses match employment tax filings.
Other problems included issuing EINs where taxpayers have not provided complete entity information on the application, issuing EINs to individuals with prior compliance problems, and issuing multiple EINs to the same location with little or no inquiry. As a result, the opportunity for taxpayer fraud was increased.
IRS management has modified processing procedures to ensure action is taken to obtain all necessary data from someone requesting an EIN. Management is also studying options which will address remaining deficiencies. (IRS Report #052903)
IRS System Design Reviews
IRS internal auditors issued several reports on the design, development, and acquisition of major systems to help ensure that Tax Systems Modernization (TSM) resources are being used effectively and efficiently. TSM was initiated to upgrade outdated IRS computer and telecommunication systems and will cost an estimated $23.3 billion through the year 2008. Four system design reports are summarized below.
One review concluded that IRS could not be assured that the central communications infrastructure essential to support TSM would be in place when needed because of persistent technical concerns and ineffective methods to solve problems. The objective of the Service Center Support System Telecommunications Acquisition is to implement a responsive, flexible telecommunications and security subsystem to support the TSM initiative. Slippage could seriously jeopardize TSM integration objectives. IRS took action to address specific recommendations and identified other actions that will be taken to assure that telecommunication implementation activities will provide the intended support for TSM. (IRS Report #045704)
Another review reported that due to the unique nature of criminal investigation cases, limitations had been placed on pilot testing of the Automated Criminal Investigation (ACI) system. As a result, IRS had insufficient assurance that the pilot would deliver a reliable measure of the potential benefits of approving nationwide implementation of this $170 million system. As an integral part of TSM, ACI will provide a secure system with nationwide case processing tools and case-oriented database applications.
IRS plans to implement corrective action that should allow management to monitor progress and track productivity increases realized by ACI. However, these steps will only be done after reaching a decision to implement the system nationwide. (IRS Report #051302)
A third review reported that IRS managers needed more information to make a decision about implementing the Automated Issue Identification System (AIIS). Currently being tested, the objective of this system is to automatically identify tax return audit issues as effectively as manual classifiers. The auditors noted that IRS needed to establish specific implementation goals and criteria, determine system location and total cost, assess how AIIS integrates with other initiatives, and delay implementing AIIS until determining that the system is as productive as manual classification. The report also recommended that AIIS be tested to ensure that the system will effectively classify all sources of Examination's workload and to design future test work to clearly show comparisons between AIIS and manual classification.
IRS initiated action to address recommendations related to system location and cost and system integration. However, it did not fully address the recommendation to establish specific criteria which would provide AIIS productivity indicators to compare to manual classification. Officials also disagreed that implementing AIIS should be delayed until further testing is performed, noting that the Office of Examination is confident that AIIS is meeting its goal. (IRS Report #051602)
A fourth review reported that in prototype testing in one district, productivity was improved by the Integrated Collection System (ICS). However, improvements were generally the result of automating the Office of Collection's current labor intensive functions rather than changing the way Collection does business. Enhancements to complete the system's capabilities and move closer to the TSM vision are planned. To enhance ICS performance, the auditors recommended strengthened systemic management controls, expanded ICS education, improved system documentation, and inclusion of Inspection user requirements. Management agreed with the report's recommendations. (IRS Report #053304)
Correspondence Examination Program
Internal auditors found that IRS needed to capitalize on the potential of the Service Center Correspondence Examination Program as a means of increasing revenue, expanding examination coverage, and reducing the amount of unreported or under-reported income. The Service Center correspondence examinations are efficient, cost effective, revenue producing programs which involve simple issue changes on individual tax returns.
Despite significantly higher dollar per hour tax and penalty recommendations and higher assessment collectibility rates than revenue agents and tax auditors examining individual returns, resources allocated to the program declined 58 percent from Fiscal Year 1988 to Fiscal Year 1992. An estimated one million more taxpayers would have been examined and $3.2 billion more in taxes and penalties recommended if resources allocated to the program had remained constant over the 5-year period.
The auditors recommended that IRS change the method of allocating resources to the program, redeploy staff to this function as IRS reorganizes, expand efforts to identify and select new issues to be worked in the program, and change the cost model and project coding system to ensure accurate cost and collectibility data.
For Fiscal Year 1995, Examination increased staffing for the Correspondence Examination Program by 979 staff years. However, management did not agree to change the method of allocating resources. This could adversely affect the amount of resources provided annually to this highly effective program. Other recommendations were accepted. (IRS Report #052301)
Excise Taxes on Individual Retirement Arrangements
IRS agreed to take corrective actions to address problems associated with enforcing retirement legislation. An internal audit concluded that IRS could increase revenue by as much as $315 million annually with improvements in the Individual Retirement Arrangements (IRA) Excise Tax program.
Retirement legislation provides tax deferral advantages for retirement plans including IRAs. Congress established excise taxes to discourage taxpayers from abusing the tax deferral features of the law. Legislative goals were not being fully achieved because IRS did not ensure compliance. The auditors recommended that IRS increase taxpayer awareness and ensure compliance.
Specifically, systems and programs should be expanded to identify taxpayers with retirement distributions in excess of stipulated amounts and to take appropriate action to collect the 15 percent excise tax on those amounts. Estimated excise tax losses for excess distributions is approximately $94 million annually.
Secondly, the report noted that another $221 million in excise taxes for excess accumulations could be collected annually under existing legislation. The auditors recommended that elderly taxpayers be advised of IRA minimum distribution requirements and consider assessing the 50 percent excise tax where taxpayers do not comply after being advised. Finally, the auditors recommended that IRS pursue legislative and regulatory alternatives to simplify distribution rules and increase education efforts associated with distribution and accumulation requirements. (IRS Report #051902)
Collection Queue Inventory
IRS internal auditors found that the collection "queue inventory" included an estimated $853 million in Taxpayer Delinquent Accounts (TDA) with little or no collection potential. Although the original intent of the inventory was to provide a listing of TDAs and Taxpayer Delinquency Investigations (TDIs) for future assignment to revenue officers, IRS allowed it to become a receptacle for accounts which essentially have become uncollectible. These unproductive cases included:
* TDAs and related TDIs on deceased taxpayers,
* TDAs and related TDIs on defunct businesses, and
* TDAs on taxpayers with other tax periods that had been closed as "currently not collectible."
IRS agreed to initiate a wide range of actions addressing specific recommendations. Recommendations were made to reduce the risk that unproductive TDAs and TDIs will be assigned to revenue officers, improve the management of the accounts receivable inventory, and reduce taxpayer burden. Recommendations included identifying and purging unproductive TDAs and TDIs from the inventory using Internal Audit computer programs. (IRS Report #051408)
Processing Large Dollar Refunds
Internal auditors recommended revisions to procedures for processing large dollar refund cases closed by the Examination Division through the Joint Committee on Taxation. The Internal Revenue Code prohibits the refund or credit of any income tax in excess of $1 million until the Joint Committee has an opportunity to review the case.
The auditors noted that IRS could release these funds prior to the Joint Committee's review with little risk of an erroneous refund, no additional cost to IRS, and savings of between $12 million and $17 million in interest expense annually. The Joint Committee questions only a small percentage of cases, and the questions rarely result in a refund change. Whether or not this change is implemented, the auditors recommended immediate steps to expedite the refund process. Using overnight mail delivery instead of regular mail service to transmit case files, scheduling refund release dates, and continuing to process refunds while the Joint Committee reviews the cases could save approximately $6.3 million in interest expense annually.
IRS agreed to use overnight mail delivery and schedule the release of refunds to expedite the process. However, since Joint Committee staff opposed the recommended legislative proposal by which IRS would begin processing large dollar refunds after IRS technical and procedural reviews, management did not adopt the recommended legislative change. (IRS Report #051802)
1994 Processing Season
An audit of the 1994 processing season noted that IRS had encountered no major difficulties in processing 1993 individual tax returns. The internal auditors recommended that IRS strengthen efforts to prevent and identify returns omitting deferred and nontaxable income from EIC calculations.
The Internal Revenue Code requires that certain deferred and nontaxable earned income such as 401(k) plan salary contributions and military allowances be included in EIC calculations. The auditors found, however, that taxpayers were not including deferred and nontaxable income in EIC calculations, which in turn affected eligibility for EICs intended for low income wage earners. IRS did not detect a projected $10 million of the estimated $53 million in erroneous EIC credits claimed by taxpayers who did not include deferred income in their EIC calculations. Additionally, significant numbers of military personnel did not include nontaxable income in their EIC calculations, which resulted in an estimated $44 million in erroneous EIC credits.
Management generally agreed with recommendations which included revisions to the EIC worksheet, maintenance of error controls, and requests of the Department of Defense that nontaxable benefits to military personnel be shown on Forms W-2, Wage and Tax Statement. (IRS Report #051006)
Nonfiler Strategy (Phase III)
In October 1992, IRS established a Nonfiler Strategy to deal with the growing number of persons who do not file tax returns. The Strategy is a multi-functional approach to improving taxpayer compliance through the use of education, outreach, and enforcement techniques. Although successful in reaching nonfilers and initially bringing them into compliance, internal audit tests found that 34 percent of sampled nonfilers contacted had not remained in compliance. In addition, nonfilers paid only 18 percent of the $975 million owed based on work performed in the first year of the Strategy.
Because of the resources and effort invested in the Nonfiler Strategy, the auditors recommended that IRS analyze the characteristics of repeat nonfilers to develop strategies for improving compliance. Management agreed to include strategies for addressing repeat noncompliance in its Fiscal Year 1995 Nonfiler Action Plan and to address other audit concerns. (IRS Report #050704)
INVESTIGATIONS
Impersonation Cases
Every year, taxpayers are swindled out of thousands of
dollars by individuals posing as IRS employees or misrepresenting IRS. The IRS Inspection Service is responsible for investigating these occurrences. Actions were taken or initiated on several significant cases during the last 6 months.
In one case, eight Las Vegas, Nevada, residents were indicted for wire fraud, unlawful use of an SSN, aiding and assisting in preparing false documents, and money laundering. The subjects fraudulently obtained approximately $700,000 from nearly 30 victims by telling the victims that they had won large cash prizes or new cars but needed to wire transfer taxes and other fees before the items could be received. Half of the subjects are working out plea agreements with the U.S. Attorney's office. The remaining four individuals will be indicted under the Racketeer Influenced and Corrupt Organizations statute. An estimated additional 200 to 300 victims were defrauded by the group with losses totalling in the millions of dollars.
A second case involved the president of a Florida corporation who was sentenced in October 1994 to 12-1/2 years of incarceration and ordered to pay over $2.5 million in restitution. As reported in a prior semiannual report, in December 1992 the Inspection Service received a complaint from a Birmingham, Alabama, taxpayer who had been contacted by a representative of the Florida corporation and advised that he had won a $25,000 cash award and owed $7,000 in Federal income taxes before the award could be received. A check payable to "IRS" was sent to the corporation. Examination of the cancelled check showed that it had been altered before being deposited in the corporation's bank account. A subsequent search of the corporation's offices revealed evidence that several thousand persons had been victimized by the scheme.
Between 1991 and 1993, over $10,000,000 was fraudulently collected with many of the victims losing in excess of $200,000 each. Over $300,000 of this amount was delivered to the corporation president's residence via express mail and subsequently deposited directly into the president's personal bank accounts. The president entered into a preindictment agreement. In accordance with the agreement, the president was charged with conspiracy and required to cooperate fully in the investigation of other individuals involved in the scheme and telemarketers operating in the south Florida area.
On January 6, 1995, a Californian was arrested for mail fraud. The investigation that exposed the subject and several co-conspirators was expanded after a Georgia man reported that he had been informed by telephone that he won a $63,000 prize from Publisher's Clearing House and owed $5,000 in taxes to the Office of Payment Management, a fictitious department of IRS. Eventually, over 60 victims, many of them elderly, who had sent the suspect over $250,000 in the past 18 months were identified throughout the United States and Canada. Trial preparations are currently underway. (IRS Inspection)
$2.5 Million Embezzlement Scheme
An IRS employee was sentenced to 10 months of incarceration and was ordered to pay $100,000 in restitution, serve 3 years of supervised probation upon his release from prison, and undergo mandatory drug rehabilitation for participating in a $2.5 million embezzlement scheme. In addition, a bank official was sentenced to 2 years of supervised probation and fined $2,000 for accepting a bribe, and a check cashing store owner and a Certified Public Accountant (CPA) each received 3-year suspended sentences and were ordered to pay $2.5 million in restitution. A joint investigation by the Inspection Service, the Secret Service, and the Postal Inspection Service revealed that the bank official aided and abetted the IRS employee, the check cashing store owner, and the CPA, who had devised various methods of stealing or fraudulently generating tax refund checks that totalled $2.5 million over a 2-year period. Although the CPA and the check cashing store owner received most of the money, the IRS employee accepted bribe payments totalling between $80,000 and $100,000.
The CPA stole tax refund checks belonging to clients of his firm and, along with the IRS employee, prepared and filed fictitious tax returns that generated fraudulent manual tax refunds. Subsequently, the check cashing store owner negotiated a number of the stolen or fraudulent refund checks which had forged endorsements through his account at the bank official's bank. (IRS Inspection)
Tax Protestors Sentenced
A number of investigations have been conducted involving schemes by tax protestors, such as filing fraudulent liens or Forms 1099 to harass targeted individuals. Judges, IRS employees, and other Federal workers are common victims.
In November 1994, an Oklahoma man was convicted for corrupt interference with the administration of internal revenue laws, placed on 5 years of probation, fined $2,500, and ordered to serve 100 hours of community service and to pay all outstanding tax liabilities. The man and his wife had filed a fraudulent Security Claim of Commercial Lien and Affidavits against the IRS Oklahoma City District Director and five revenue officers. Charges against the wife were dismissed due to poor health. Evidence indicated that the subjects were members of The Pilot Connection Society (TPCS), a tax protest organization of more than 8,000 members that operates a "pyramid" commission scheme with affiliate groups throughout the country. TPCS advocates the non-filing of tax returns and the non-payment of Federal taxes with the avowed goal of destroying the IRS.
A continuing investigation into a Central Florida tax protestor organization that is anti-Federal Government, anti-IRS, anti-Federal Reserve Bank, and anti-United Nations resulted in a suspended attorney pleading guilty to obstruction of justice and mail fraud. The attorney participated in the filing of frivolous liens against two Federal judges and was sentenced to 4 years of incarceration, 100 hours of community service, and 3 years of supervised release. Two married couples also involved were sentenced in January 1995. The first couple received 18 months incarceration, 100 hours of community service, and 2 years of supervised release. The husband of the second couple was sentenced to 2 years of incarceration, 100 hours of community service, and 3 years of supervised release. His wife previously had been placed into a 12-month pre-trial diversion program. (IRS Inspection)
Attorney Charged in Theft Scheme
As the result of a joint investigation by the Inspection Service and the Marion County, Indiana, Prosecutor's office, an Indiana attorney was charged with theft for allegedly using a client's money for personal expenses. The attorney is accused of taking two checks totalling approximately $13,000, which his client had received from her ex-husband's estate, and using altered IRS documents as part of the theft scheme. The client, who is dyslexic and cannot read, gave the attorney the money for placement in a trust for her children after the attorney told her that it needed to be protected from IRS investigation because her ex-husband owed $60,000 in back taxes. In reality, no Federal income taxes were owed by the ex-husband and the attorney allegedly forged the checks to convert the money to his personal use.
When the client pressured the attorney for an accounting of the money paid out of the trust, he provided a list of supposed expenses and an apparently altered IRS notice which stated that her ex-husband's estate had an "Order of Freeze" placed on all money and assets. (The notice originally had been addressed to the attorney regarding his own tax liability for 1991.) After the attorney's arrest, at least 50 clients came forward to lodge complaints of theft that could total $600,000. The attorney had been disciplined by the State of Indiana on two previous occasions for commingling clients' funds with his own. Legal action against the attorney is pending. (IRS Inspection)
OTHER ACTIVITIES
* A consultant study identified ways to obtain operational improvements by modifying the OIG's organizational structure and making other changes.
* Treasury's Inspector General was appointed to chair the PCIE Audit Committee which is chartered to improve audit quality, coordinate interagency audits, and enhance professional development.
* IRS internal auditors completed audits of Argentina's new Pension and Retirement System.
This chapter describes significant functions and activities of the OIG and Treasury Offices of Internal Affairs that are not addressed in the previous chapters.
OIG Management Study
In anticipation of future challenges, the Inspector General engaged a consultant team comprised of three former Inspectors General of other agencies to take an objective look at the way Treasury's OIG does business. Their study identified practical and necessary actions that will improve the way the OIG accomplishes its mission.
Specifically, the team looked at ways in which the OIG could improve communication, teamwork, efficiency, and effectiveness to assist in meeting the Inspector General Act mandates. The consultants' report provides recommendations in areas where the OIG can obtain operational improvements by modifying its organizational structure, developing methods to fulfill information needs, and refocusing internal policies and procedures. The OIG is preparing plans to implement the organizational changes and other recommendations. (OIG)
PCIE Participation
Treasury's OIG continues to be an active participant in the President's Council on Integrity and Efficiency (PCIE). The PCIE is the main vehicle by which Inspectors General and other PCIE members cooperatively address the twin themes of management improvement and the prevention of fraud and waste.
Inspector General Valerie Lau recently was appointed to chair the PCIE Audit Committee. This committee is chartered to take a leadership role in improving audit quality, to coordinate interagency audits and other projects, and to enhance the professionalism of PCIE member organizations. The varied activities of this committee include recommending positions to the PCIE and others on audit matters, providing technical guidance for the external quality review of PCIE members, and serving as the focal point for the PCIE on the Chief Financial Officers Act. The Audit Committee also serves as the Board of Directors for the Inspectors General Auditor Training Institute.
Since January 1991, the Treasury OIG has managed the Institute on behalf of the PCIE. This effort has contributed significantly to the training and professional development of all Federal OIG auditors and has afforded the Treasury OIG a leadership role in the Federal OIG community.
The Institute is operated in a businesslike way. It receives no yearly appropriation, competes in the open market for students, and is continuously judged by its customers on the basis of quality and price. Since opening its doors to students in July 1991, more than 2,500 students from 60 different Federal OIGs have graduated from Institute training programs.
These programs teach auditors the skills needed to effectively evaluate complex Federal programs. Each training program is carefully designed to take into account the students' levels of experience and responsibility. As of March 31, 1995, the Institute's curriculum consisted of 13 distinct programs ranging in length from 2 days to 3 weeks. Programs deal with such subjects as providing skills needed to perform audits required by the Chief Financial Officers Act, improving auditors' capabilities to uncover fraud, and developing new tools and techniques that every auditor can use on a daily basis. (OIG)
Argentina Pension Audit
An IRS Inspection Service audit team performed the last of three scheduled audits of Argentina's new Pension and Retirement System. The system was adopted on July 1, 1994, and it enables individuals to select one of 26 private investment companies or a federal retirement fund.
Although Argentina's Director General Impositiva is primarily responsible for the entire system, the processing is performed by a private contractor. The Inspection team audited three major areas of the new system to identify control weaknesses and potential integrity lapses: (1) the distribution of funds to the appropriate company or to the federal fund, (2) the adequacy of controls over receipts, and (3) the billing processes and information system. The team will issue a formal report on its findings to the Director General. IRS was reimbursed for the Inspection Service's work. (IRS Inspection)
Legislative and Regulatory Review
The Inspector General Act requires the Inspector General to review existing and proposed legislation and regulations relating to the programs and operations of the Department and to make recommendations concerning their impact. The OIG reviewed and commented on numerous Treasury Directives and Treasury Orders in the 6 months ended March 31, 1995. Treasury is reviewing its internal regulations as part of the Administration's regulation reduction initiative. The OIG also monitored legislation of interest to the OIG and provided comments on legislation at the request of the Department.
The OIG commented on a proposed Executive Order covering classified national security information. The draft proposed that Inspectors General periodically evaluate their agency's implementation and administration of the program established under the order. The Inspector General concurred with the review requirement. The Inspector General also noted that the language to perform evaluations "periodically" should be retained because more stringent language on the frequency of review would create unnecessary hardship.
IRS's Chief Inspector provided comments on various proposals under the "Contract with America" to IRS's Legislative Affairs Division. The Chief Inspector noted that generally burdens would be placed upon taxpayers to claim limited benefits, including new worksheets and forms. The Chief Inspector stated that these burdens could bring additional complications and confusion to the taxpaying public. The Chief Inspector also cautioned that the specific provisions of the adoption expenses and family tax credit should be written to ensure that they do not become additional methods to secure fraudulent tax refunds. (OIG and IRS Inspection)
Secret Service Inspections
The Office of Inspection executes an inspection program that is intended to promote the effectiveness and efficiency of each element within the Secret Service. Every unit or function is inspected on a cycle that varies from 18 to 36 months. Each inspection includes an activity analysis of an element's assigned mission and covers areas such as personnel, office security, communications, training, management, and supervision. During the 6-month period ending March 31, 1995, the Office of Inspection conducted 31 inspections of field offices, divisions, and resident offices, including follow-up visits, re-inspections, and unannounced audits. (Secret Service Inspection)
STATISTICAL SUMMARIES
This chapter contains statistical analyses of OIG and Office of Inspection and Internal Affairs activities. Several of the analyses fulfill reporting requirements in the Inspector General Act, as amended.
Statistical Summary
_STATISTICAL HIGHLIGHTS APRIL 1994 - MARCH 1995_ a/
_6 MONTHS ENDED_
_9/30/94_ _3/31/95_ _TOTAL_
_AUDITS_
Audit Reports 135 120 255
Recommended Monetary Benefits (in Thousands):
Questioned Costs $5,695 $2,914 $8,609
Savings 112,427 63,548 175,975
Revenue Enhancements _430,800_ _657,793_ _1,088,593_
Total $548,922 $724,255 $1,273,177
_INVESTIGATIONS_
Cases Opened 2,230 2,083 4,313
Cases Closed 2,204 2,117 4,321
Successful Prosecutions 136 116 252
Administrative Sanctions 528 580 1,108
Recoveries and Penalties
(in Thousands) $1,316 $7,985 $9,301
_OVERSIGHT AND QUALITY ASSURANCE REVIEWS_
Reviews and Analyses 10 13 23
a/ Includes statistics for the OIG and Treasury Offices of Internal Affairs and Inspection.
Audit Reports Issued by Bureau
Appendix A of this report lists individual audit reports issued during the 6 months ended March 31, 1995.
OIG Audits Audit Reports
Multi-Bureau 2
ATF 1
OCC 1
Customs Service 9
Departmental Offices 16
BEP 5
FLETC 5
FMS 3
IRS* 15
Mint 4
BPD 0
Secret Service 1
OTS 0
62
Inspection Service Audits of IRS _58_
Total _120_
* OIG contract audits.
Audit Reports With Questioned Costs
The IRS Inspection Service did not issue any audit reports with questioned costs during this semiannual reporting period. The term "questioned cost" means a cost that is questioned because of (1) an alleged violation of a provision of a law, regulation, contract, or other requirement governing the expenditure of funds; (2) a finding that, at the time of the audit, such cost is not supported by adequate documentation ("unsupported cost"); or (3) a finding that the expenditure of funds for the intended purpose is unnecessary or unreasonable.
The term "disallowed cost" means a questioned cost that management, in a management decision, has sustained or agreed should not be charged to the Government.
OIG AUDIT REPORTS WITH QUESTIONED COSTS
6 MONTHS ENDED MARCH 31, 1995
_Questioned _Unsupported
Costs_a/ (in Costs_ a/ (in
_Report Category_ _Number_ Thousands) Thousands)
1. For which no management
decision had been made by
the beginning of the
reporting period 12 $6,778 $0
2. Which were issued
during the reporting
period _10_ b/ _2,914_ _0_
3. Subtotals (1 plus 2) 22 9,692 0
4. For which a management
decision was made during
the reporting period 6 2,593 0
* dollar value of
disallowed costs 4 953 0
* dollar value of costs
not disallowed 2 1,640 0
5. For which no management
decision has been made by
the end of the reporting
period (3 minus 4) _16_ _$7,099_ _$0_
6. Reports for which no
management decision was
made within six months of
issuance _11_ _$6,762_ _$0_
a/ "Questioned costs" includes "unsupported costs."
b/ Five audits were performed by DCAA.
Audit Reports With Recommendations That Funds Be Put To Better Use
The term "recommendation that funds be put to better use" means a recommendation that funds could be used more efficiently if management took actions to implement and complete the recommendation, including (1) reductions in outlays; (2) deobligations of funds from programs or operations; (3) costs not incurred by implementing recommended improvements related to operations; (4) avoidance of unnecessary expenditures noted in pre-award reviews of contract agreements; (5) any other savings which are specifically identified; or (6) enhancements to revenues.
The term "management decision" means the evaluation by management of the findings and recommendations included in an audit report and the issuance of a final decision concerning its response to such findings and recommendations, including actions concluded to be necessary.
OIG AUDIT REPORTS WITH RECOMMENDATIONS THAT FUNDS BE PUT TO
BETTER USE
6 MONTHS ENDED MARCH 31, 1995
_Savings_ _Revenue
(in Thou- Enhancements_
_Report Category_ _Number_ _Total_ sands) (in Thousands)
1. For which no
management decision has
been made by the
commencement of the
reporting period 34 $142,119 $138,959 $3,160
2. Which were issued
during the reporting
period 16a/ 57,248b/ 57,248b/ 0
3. Subtotals (1 plus
2) 50 199,367 196,207 3,160
4. For which a
management decision
was made during the
reporting period 20 107,154 107,154 0
* dollar value of
recommendations that
were agreed to
by management 6c/ 12,518 12,518 0
* based on proposed
management action 6c/ 12,518 12,518 0
* based on proposed
legislative action 0 0 0 0
* dollar value of
recommendations that
were not agreed to
by management 17d/ 94,636 94,636 0
5. For which no
management decision has
been made by the end of
the reporting period
(3 minus 4) _30_ _$92,213_ _$89,053_ _$3,160_
6. Reports for which no
management decision was
made within six months
of issuance _22_ _$52,452_ _$49,292_ _$3,160_
a/ Fifteen audits were performed under OIG contract by the Defense Contract Audit Agency totaling $57,239,803.
b/ Includes $18,275,287 of unsupported costs.
c/ Three reports were partially agreed to and partially not agreed to.
d/ Includes nine audits totalling $87,405,217 for which the offerors and subcontractors were eliminated from the competitive range for the TIPPIS acquisition, and therefore ineligible for contract award.
IRS AUDIT REPORTS WITH RECOMMENDATIONS THAT FUNDS BE PUT TO
BETTER USE
6 MONTHS ENDED MARCH 31, 1995
_Savings_ _Revenue
(in thou- Enhancements_
_Report Category_ _Number_ _Total_ sands) (in Thousands)
1. For which no
management decision has
been made by the
commencement of the
reporting period 0 $0 $0 $0
2. Which were issued
during the reporting
period _11_ _664,093_ _6,300_ _657,793_
3. Subtotals (1 plus
2) 11 664,093 6,300 657,793
4. For which a
management decision
was made during the
reporting period 11 664,093 6,300 657,793
* dollar value of
recommendations that
were agreed to by
management 0 0 0 0
* based on proposed
management action 11 664,093 6,300 657,793
* based on proposed
legislative action 0 0 0 0
* dollar value of
recommendations that
were not agreed to
by management 0 0 0 0
5. For which no
management decision
has been made by the
end of the reporting
period (3 minus 4) _0_ _$0_ _$0_ _$0_
6. Reports for which
no management decision
was made within six
months of issuance _0_ _$0_ _$0_ _$0_
Disputed Audit Recommendations
The Inspector General Act requires Inspectors General to provide information on significant management decisions in response to audit recommendations, with which the Inspectors General disagree. As of March 31, 1995, the following disagreements had not been resolved.
_U.S. Customs Service_
a. In a November 1994 report, the OIG recommended that Customs institute a user fee program for the designations awarded under its Centralized Examination Station (CES) Program. The OIG feels such a user fee program could provide Customs a reliable recurring source of operating revenues. Management was advised by its Counsel that Customs could not assess such fees. The matter has been referred to Treasury's Office of General Counsel for consideration.
A CES designation is similar to a franchise. Customs is conveying exclusive operating rights in a geographical area to a few private businesses. Customs is also endorsing the services offered and protecting the operators from outside competition. These rights provide the operator a valuable marketing tool not available to the general public and can result in substantial additional revenues.
b. In October 1994, the OIG recommended to Customs that a Customs licensed and bonded warehouse in the Los Angeles area be suspended under the Government-wide debarment and suspension regulations (31 CFR Part 19). The owners and certain employees of the warehouse were indicted by a grand jury in 1994 on conspiracy, bribery, and false statement charges on matters within the jurisdiction of the Immigration and Naturalization Service.
To date, one employee has plead guilty to bribery and another indicted employee has fled the country. In addition, one owner plead guilty to a conspiracy to bribe charge, and the trial of the other owner is scheduled to take place on August 8, 1995.
Suspension and debarment proceedings have not been initiated against the warehouse, its owners, or its employees; and Customs lawyers are reviewing the matter. The warehouse continues to operate as a Centralized Examination Station and as a licensed and bonded warehouse.
Undecided Audit Recommendations
The Inspector General Act requires a summary of each audit report which has been undecided for over 6 months. There were 35 such reports.
_Report Title and Date_ _Report Number_ _Amounts_
1. Evaluation of Proposal to
Establish a Final Price
Redetermination Under
Contract Number
TEP-88-205(TN),
2/18/93 b/ OIG-93-028 $ 1,014,000
2. Proposal Submitted for
Definitization of Letter
Contract No. TEP-93-14(TN)
for Distinctive Currency
Paper, 4/19/93 b/ OIG-93-053 6,755,090
3. Proposal Submitted for
Definitization of Letter
Contract No. TEP-91-18(N)
for Denominated
Distinctive Currency Paper,
6/16/93 b/ OIG-93-071 8,060,673
4. Pricing Proposal Submitted
under Contract No. TEP-88-205
for D-39 Currency Paper,
6/23/93 b/ OIG-93-073 1,725,804
5. Defective Pricing Review
of Cost or Pricing Data
Submitted under Contract
TIR-89-0056, Task Order 63,
8/27/93 a/ OIG-93-111 61,652
6. Supplemental Audit Report
on Defective Pricing Review
of Cost or Pricing Data
Submitted under Contract
TIR-89-0056, Task Order 63,
9/1/93 a/ OIG-93-119 47,836
7. Evaluation of Costs Incurred
for Fiscal Years 1990, 1991,
and 1992 under Contracts
TC-88-008, TC89025,
TC-90-002, and TC-89-022,
9/29/93 a/ OIG-93-136 172,308
8. Evaluation of Equitable
Adjustment Claim Submitted
under Contract Number
TIR-85-0289, Task Order 194,
10/13/93 a/ OIG-94-006 179,450
9. Evaluation of Termination
Settlement Claim Submitted
under Contract TEP-90-5(N)
for High Voltage Electrical
Services, 1/7/94 b/ OIG-94-044 578,471
10.Evaluation of Initial
Pricing Proposal Submitted
in Response to Solicitation
IRS-93-0118 for Automated
Data Processing Equipment
Maintenance, 1/27/94 b/ OIG-94-047 127,017
11. Evaluation of Direct
and Indirect Costs Incurred
for Calendar Year Ending
December 31, 1990,
2/8/94 a/ OIG-94-050 27,466
12. Supplemental Audit Report
on Evaluation of Proposal
Submitted under Contract No.
TEP-91-18(N) for Denominated
Distinctive Currency Paper,
2/10/94 b/ OIG-94-051 3,166,251
13. Evaluation of Proposal
Submitted in Response to
Solicitation BEP-92-08(TN)
for Maintenance of the
Programmable Access Control
and Security System,
3/11/94 a/ OIG-94-057 789,123
14. ATF Administration of
Cover Over Payments to
Puerto Rico and the Virgin
Islands, 3/28/94 c/ OIG-94-063 3,160,000
15. Proposal Submitted under
Contract Number TIR-91-0038
for an Integrated Collection
System, 5/11/94 b/ OIG-94-083 936,583
16. Defective Pricing Review
of Cost or Pricing Data
Submitted under Contract
TEP-88-205(TN), Option Year
One, 5/26/94 b/ OIG-94-096 2,967,177
17. Defective Pricing Review
of Cost or Pricing Data
Submitted under Contract
TEP-91-38(TN) for Currency Ink
and Varnish, 6/7/94 b/ OIG-94-099 1,900,461
18. Evaluation of Pricing
Proposal Submitted in Response
to Solicitation IRS-94-0001
for Treasury Information
Processing Support Services,
6/15/94 d/ OIG-94-103 796,041
19. Evaluation of Pricing
Proposal Submitted under
Contract TEP-93-14(TN), Base
Year and Option Year I Costs,
for Distinctive Currency and
Web Paper, 7/7/94 b/ OIG-94-110 1,135,065
20. Evaluation of Initial
Pricing Proposal Submitted
in Response to Solicitation
IRS-94-0001 for Treasury
Information Processing Support
Services, 7/11/94 d/ OIG-94-111 551,925
21. Evaluation of Proposal
Submitted under Contract
TEP-91-66 for Installation
and Support Services for
Currency Inspection Systems,
7/19/94 b/ OIG-94-115 275,148
22. Defective Pricing Review
of Cost or Pricing Data
Submitted under Contract
TEP-91-18(TN) Base Year Costs,
7/21/94 b/ OIG-94-116 163,499
23. Evaluation of Initial
Pricing Proposal Submitted in
Response to Solicitation
IRS-94-0001 for Treasury
Information Processing Support
Services, 7/21/94 d/ OIG-94-117 4,506,093
24. Defective Pricing Review
of Cost or Pricing Data
Submitted under Contract
TATF-93-3, 7/22/94 e/ OIG-94-118 463,917
25. Initial Pricing Proposal
Submitted in Response to
Solicitation USSS-94-3 for
Telecommunications Network
Maintenance Support,
8/2/94 a/ OIG-94-125 3,133,251
26. Evaluation of Initial
Pricing Proposal Submitted
in Response to Solicitation
IRS-94-0001 for Treasury
Information Processing Support
Services, 8/25/94 d/ OIG-94-135 414,587
27. Evaluation of Initial
Pricing Proposal Submitted
in Response to Solicitation
IRS-94-0001 for Treasury
Information Processing Support
Services, 9/7/94 d/ OIG-94-137 784,801
28. Evaluation of Initial
Pricing Proposal Submitted
in Response to Solicitation
IRS-94-0001 for Treasury
Information Processing Support
Services, 9/9/94 d/ OIG-94-138 5,022,410
29. Evaluation of Initial
Pricing Proposal Submitted
in Response to Solicitation
IRS-94-0001 for Treasury
Information Processing Support
Services, 9/13/94 d/ OIG-94-140 2,707,001
30. Evaluation of Initial
Pricing Proposal Submitted
under Contract TEP-91-18(N),
Option Year III,
9/15/94 b/ OIG-94-144 3,070,567
31. Evaluation of Initial
Pricing Proposal Submitted
in Response to Solicitation
IRS-94-0001 for Treasury
Information Processing Support
Services, 9/20/94 d/ OIG-94-146 2,489,268
32. Defective Pricing Review
of Cost or Pricing Data
Submitted under Contract
TM-90-1022, Modification 5,
13 and 14, 9/28/94 b/ OIG-94-149 200,414
33. Evaluation of Initial
Pricing Proposal Submitted
in Response to Solicitation
IRS-94-0001 for Treasury
Information Processing Support
Services, 9/28/94 d/ OIG-94-151 _1,831,006_
TOTAL _$59,214,355_
a/ Contract negotiations have not yet been held.
b/ Contract negotiations are in the process, but have not yet been completed.
c/ Recommendation is awaiting a decision from legal counsel.
d/ Contracts for these pricing proposal audits will not be negotiated until August, 1995.
e/ The company audited is currently under investigation by the Department of Justice.
Significant Unimplemented Recommendations
The Inspector General Act requires identification of significant recommendations described in previous semiannual reports on which corrective actions have not been completed. The following lists of such unimplemented recommendations in OIG and Inspection Service audit reports are based on information in the Department's automated tracking system, which is maintained by Treasury management officials. All of the recommendations are being implemented in accordance with currently established milestones.
_Report Title/Potential
Monetary Benefits and
_Report Number_ _Issue Date_ Recommendation Summary_
_OIG Audits 1/_
OIG-92-051 7/92 OCC's Examination Process
Issue a revised Policies and
Procedures Manual section on
the National Peer Review
Program and provide
appropriate training. (Two
recommendations)
Issue a revised Policies and
Procedures Manual section on
appropriate methodologies to
review allowances for loan and
lease losses.
OIG-92-052 7/92 Customs Lockbox Operations,
$40,000,000
Establish completion dates for
projects matching lockbox
remittance data to other
government agency data.
OIG-92-062 9/92 Department of the Treasury's
Follow-up on Corrective
Actions
Revise Treasury Directive 40
-03, Treasury Audit
Recommendations Monitoring
System.
OIG-93-024 1/93 Contract Administration at
FLETC, $407,000
Determine whether the
Government can collect
improper payments to
contractors.
OIG-93-029 2/93 Customs Accountability of
Seized and General Order
Firearms
Conduct a risk analysis for
the existing Weapons Inventory
Control System in accordance
with Treasury Directive 85-02
and OMB Circular A-130.
OIG-93-040 3/93 Customs Aviation Safety and
Training Program
Maintain complete and accurate
records, including damage cost
data, for all aircraft mishaps
and reflect same in the
aircraft accident/incident
database.
OIG-93-135 9/93 U.S. Customs Service Special
Operations Funds
Accountability and Utilization
Issue guidance regarding
contracting procedures
applicable to undercover
operations; adequately review
contracts prior to issuance.
Issue guidance on using
proceeds in an undercover
operation. Distribute Chief
Counsel opinions to field
operations; keep the
undercover database current.
OIG-94-055 3/94 Customs Aviation Maintenance
Contract
Establish procedures for
branch personnel to monitor
Department of Defense (DOD)
core refunds and periodically
verify that DOD core credits
are properly received and
accounted for by the
contractor.
OIG-94-060 3/94 U.S. Customs Service
Antidumping and Countervailing
Duty Program
Implement a Performance
Measurement System for the
AD/CV Duty Program that
includes measures of quality,
timeliness, and efficiency and
will allow Customs to assess
how well the program has been
implemented.
OIG-94-063 3/94 ATF Administration of Cover
Over Payments to Puerto Rico
and the Virgin Islands,
$3,160,000
Implement the decision of the
Department of the Treasury,
Office of General Counsel, on
the timing of cover over
payments.
OIG-94-071 3/94 U.S. Customs Service:
Paperless Entry Program
Entails Greater Risks Than
Perceived
Establish a single audit
program for districts to use
in assessing the paperless
program.
OIG-94-097 5/94 FMS's Activities to Process
and Monitor Agency
Disbursements
Ensure that employees complete
actions so that Regional
Finance Center files contain
only current Agency Head
signatures.
Test and document contingency
plans according to FMS
guidance.
_Inspection Service Audits 2/_
#033009 6/93 Modernizing the Master File,
$45,000
Correct mismatches caused by
one and two-digit differences
in secondary Social Security
numbers systemically during
service center processing.
#034008 7/93 Automated Underreporter
Project Initiation and Tax
Year 1988 Limited Pilot,
$1,315,000
Determine whether contract
overcharges can be recovered.
(Two recommendations)
#035006 9/93 Debtor Master File Processing,
$116,300,000
Improve the debtor file
validation process by
implementing all recommended
systemic changes and assess
whether mismatch conditions
could be resolved through the
use of IRS data files. (Five
recommendations)
#040204 10/93 Electronic Filing of
Fraudulent Returns
Deter electronic filing of
fraudulent returns by
providing Questionable Refund
Detection Teams with the
Master File information needed
to detect electronic filing
fraud.
#041702 12/93 Controls Over Adjustments Made
to Tax Accounts Via the
Integrated Data Retrieval
System
Implement systemic controls to
reduce the opportunity for
improper or unauthorized
transactions.
#041306 12/93 On-Line Review of the
Service's Electronic Filing
Fraud Detection Efforts During
the 1993 Filing Period
Improve fraud prevention and
detection by changing refund
deletion procedures to ensure
that fraudulent refunds are
stopped when they are detected
and by establishing taxpayers'
authenticity by checking prior
year information returns.
(Five recommendations)
#041403 1/94 Nonresident Alien Information
Documents
Enhance computer consistency
and validity controls to
ensure the integrity of Forms
1042 submitted by withholding
agents. (Three
recommendations)
Use computer analysis to
measure, examine, and enforce
compliance with Form 1042
requirements.
Improve coordination of
compliance enforcement efforts
with a systematic approach
taken to identify the causes
of noncompliance by
withholding agents and by
recipients. (Five
recommendations)
#042404 3/94 Standards Planning and
Implementation for Tax Systems
Modernization
Consolidate responsibility for
the vision, framework, and
strategy for IRS automated
data processing (ADP)
standards efforts.
Ensure the development of
useable, understandable ADP
standards that focus on user
needs. (Three
recommendations)
#043501 5/94 Controls Over Access to Credit
Bureau Databases
Mandate nationwide
implementation of interim
computer security applications
until the Service's
modernization efforts develop
standardized security programs
for all locator services.
(Four recommendations)
#043303 7/94 Automated Underreporter
Systems Tax Year 1990
Development and Testing and
Tax Year 1991 Rollout
Address data access security
issues associated with
implementation of the
Automated Underreporter
System. (Four
recommendations)
#043904 7/94 Handling of Undelivered Mail
Better manage undelivered mail
problems by using existing
management information systems
to monitor key undelivered
mail data, and by analyzing
the data for trends, and by
ensuring all service centers
are counting undelivered mail
the same way. (Three
recommendations)
#044104 8/94 Usefulness and Economy of the
Departmental Microcomputer
Acquisition Contract (DMAC)
Instruct DMAC contracting
officers and users about
potential savings that can
occur when delaying purchases
for a short period, and assure
that contract prices remain
competitive with market
prices. (Six recommendations)
#044201 8/94 Information Security Over
Small Scale Computer Systems
Ensure greater oversight and
security over sensitive
taxpayer information contained
on personal computers and
minicomputer systems. (Three
recommendations)
#044301 8/94 Local Telecommunications
Expenses
Establish accurate inventories
of local telephone lines,
verify the need for lines and
features through annual
reviews, and match inventories
with billings. (Five
recommendations)
#044509 8/94 Earned Income Credit
Unallowable Program,
$308,800,000
Revise procedures for the 1995
filing season to address
dependency/exemption issues
and filing status prior to
issuing refunds.
Improve the overall process of
identifying and transcribing
unallowable cases through
automation.
#044604 8/94 Initial Development of the
Electronic Management System
Address user needs and
documentation concerns
associated with development of
the Electronic Management
System. (Seven
recommendations)
#045601 9/94 Electronic Return Preparer
Fraud, $54,000,000
Identify and remove dishonest
preparers from the Electronic
Filing Program. (Six
recommendations)
1/ Includes OIG audit reports issued from October 1990 to September 1994.
2/ Includes IRS audit reports issued from April 1993 to September 1994.
Revised Management Decisions
The Inspector General Act requires Inspectors General to provide a description and explanation of the reasons for any significant revised management decisions made during the reporting period. There were no such decisions during this reporting period.
Hotline Allegations
The table below summarizes allegations of fraud, waste, misconduct, mismanagement, and assault received through "800" hotline numbers during the 6 months ended March 31, 1995. It does not include (1) allegations received by the OIG and Treasury Offices of Inspection and Internal Affairs through other sources; (2) inquiries on taxes and other matters which are referred informally to Treasury program managers and others for appropriate disposition; or (3) pending allegations for which dispositions have not been determined.
Organization
_Disposition of Allegations_ _Total_ _OIG_ _USCS_ _IRS_
Referred for investigative
or audit inquiry 107 28 5 74
Referred to program managers 192 99 0 93
Referred to other agencies _7_ _5_ _2_ _0_
Totals _306_ _132_ _7_ _167_
1-800-359-3898 OIG Hotline
1-800-829-2996 Customs Hotline
1-800-366-4484 IRS Hotline
Caseload Accounting
This table accounts for the caseload of the OIG and Offices of Internal Affairs and Inspection for the 6 months ended March 31, 1995. The beginning balance of cases, plus the cases opened, minus the cases closed, equals the ending balance of open cases.
Organization
Total OIG ATF USCS IRS USSS
Number of open cases at
the beginning of the
period 2,023* 167 94 357 1,386* 19
Number of cases opened
during the period 2,083 91 91 215 1,670 16
Number of cases closed
during the period 2,117 41 98 248 1,711 19
Number of open cases
at the end of the period 1,989 217 87 324 1,345 16
*Adjusted figures.
Nature of Allegations
The table below classifies the nature of allegations for investigative cases opened during the period. The number of allegations equals the number of cases opened because only the most significant allegation per case was counted.
Organization
Total OIG ATF USCS IRS USSS
Bribes, graft, kickbacks 166 2 2 42 120 0
Procurement and contract
irregularities 20 11 0 0 9 0
Assaults/threats 477 1 7 7 460 2
False statements and
claims 140 2 5 13 119 1
Theft/misuse of funds/
property 367 15 35 26 289 2
Drug abuse and control 57 0 7 21 28 1
Impersonating a Government
official 105 0 2 2 101 0
Criminal -- Other 359 8 3 10 338 0
Sexual Harassment 5 0 2 3 0 0
Improper conduct or
disclosure 299 23 11 90 169 6
Non-Criminal -- Other _88_ _29_ _17_ _1_ _37_ _4_
Total Allegations 2,083 91 91 215 1,670 16
Prosecutive Actions
The chart below accounts for the prosecutive actions of the OIG and Offices of Internal Affairs and Inspection for the 6 months ended March 31, 1995. The number of pending cases at the beginning of the period, plus the cases referred to prosecutive authorities, less the cases accepted for prosecution, less the declinations, equals the pending cases at the end of the period.
Organization
Total OIG ATF USCS IRS USSS
Number of cases pending
prosecutive decision at
the beginning of the period 393 15* 0 9* 366 3
Number of cases referred
to prosecutive authorities
during the period 783 12 6 26 737 2
Number of cases accepted
for prosecution during the
period 148 8 2 15 123 0
Number of declinations
during the period 511 5 3 14 484 5
Number of cases pending
prosecutive decision at
the end of the period 517 14 1 6 496 0
*Adjusted figures.
Successful Prosecutions
This chart shows the number of successful prosecutions involving the cases of the OIG and Offices of Internal Affairs and Inspection during the 6 months ended March 31, 1995. Successful prosecutions include the number of individuals who as a result of investigations (1) are found guilty by a Federal or state court, (2) are accepted for pretrial diversion agreements by the Department of Justice, or (3) are granted plea bargaining agreements.
_Organization_ _Prosecutions_
OIG 3
ATF 1
USCS 9
IRS 103
USSS _0_
Total _116_
Administrative Sanctions
This chart shows the number of personnel actions and the number of suspensions and debarments of contractors involving cases of the OIG and Offices of Internal Affairs and Inspection.
_Personnel _Suspensions and
_Organization_ Actions_ Debarments_
OIG 42 0
ATF 38 0
USCS 50 0
IRS 442 0
USSS _8_ _0_
Total _580_ _0_
Investigative Monetary Benefits
This table summarizes monetary benefits relating to investigations of the OIG and Offices of Internal Affairs and Inspections.
Adminis-
Organi- Criminal trative
zation Total Recoveries Penalties Penalties Savings
OIG $4,714,645 $4,687,629 $5,138 $0 $21,878
ATF 79,800 40,000 0 0 39,800
USCS 2,699 2,699 0 0 0
IRS 3,188,441 3,132,394 56,047 0 0
USSS _0_ _0_ _0_ _0_ _0_
Total $7,985,585 $7,862,722 $61,185 $0 $61,678
Access to Information
The Inspector General Act requires Inspectors General to report on unreasonable refusals of information available to the agency which relate to programs and operations for which the Inspector General has responsibilities. There were no instances to report where information or assistance requested by the Inspector General or the Offices of Internal Affairs and Inspection were unreasonably refused.
APPENDIX A: AUDIT REPORT LISTING 1/
OCTOBER 1, 1994, THROUGH MARCH 31, 1995
OIG Audits
Multi-Bureau
Treasury Department Controls over Contracts for Advisory and Assistance Services, OIG-95-046, 2/8/95
Treasury Department's Compliance with Public Law 101-121, The Anti-Lobbying Act, OIG-95-047, 2/9/95
Bureau of Alcohol, Tobacco and Firearms
Bureau of ATF: Alleged Preferential Treatment in Label Processing, OIG-95-065, 4/18/95
Office of the Comptroller of the Currency
Application of Agreed-Upon Procedures for Review of Indirect Rates Submitted under Contract TCC-93-0032 for Mail and Messenger Services, OIG-95-042, 1/26/95
U.S. Customs Service
Equitable Adjustment Proposal Submitted under Contract TC-92018 for Tethered Areostat Radar Systems and Supporting Ground Site Facilities, OIG95002, 10/3/94, $94,000 Q
Final Calendar Year 1990 Procurement Determined Indirect Rates and Factors under Contract TC87012 OIG95006, 10/18/95
_________________________________________________________________
1/ Amounts shown for some reports represent recommended monetary benefits. Q = Questioned Costs; S = Savings; R = Revenue Enhancements.
Survey of U.S. Customs Service Leased Space and Utilities, OIG95011, 11/3/94
U.S. Customs Service Centralized Examination Stations: Opportunities through Improved Program Management, OIG95012, 11/8/94
Personnel Floorcheck and Evaluation of the Adequacy of Timekeeping Procedures Applicable to Contract TC89047, OIG95017, 11/16/94
Procurement Overhead Rates under Contract TC89047, Review of Contractor's Accounts Payable Processing System, and Compliance with Cost Accounting Standard 412, OIG95029, 12/15/94, $10,000 Q
Incurred Costs under Contract TC90049 for Calendar Year Ended December 31, 1993, OIG95031, 12/19/94, $10,000 Q
Direct and Indirect Costs and Rates Claimed under Contract TC89047 for Calendar Year Ending December 31, 1992, OIG95033, 1/5/95, $69,000 Q
Direct and Indirect Costs and Rates Claimed under Contract TC86028 for Fiscal Year 1990, OIG95035, 1/1/95
Departmental Offices
Termination Settlement Proposal Submitted under Purchase Order IR93NO5274F for Color Graphic Terminals, OIG95004, 10/07/94, $107,000 Q
Direct and Indirect Costs and Rates Claimed under Contracts TOS-88-21 and TIR890065, OIG-95-005, 10/17/94
Contractor Proposal Submitted under Contract TSW9443 for Residency Training under the United States Saudi Arabian Joint Commission on Economic Cooperation, OIG95020, 11/21/94
Adequacy of Price Guarantee Billings by Louisiana Gasification Technology, Inc. from September 1993 through September 1994, OIG-95-028, 12/15/94
Salaries and Indirect Rates Submitted under Contract TSW9311 for a Hospital Administration Program, OIG95030, 12/16/94
Office of Foreign Assets Control Security Evaluation, OIG-CA-95-001, 12/21/94
Alleged Improper Procurement Activities at the Department of the Treasury, OIG95034, 1/5/95
Evaluation of Proposal Submitted under Contract TSW-94-45 for Residency Training under the United States-Saudi Arabian Joint Commission on Economic Cooperation, OIG95-036, 1/10/95, $8,000 S
Review of Treasury's Financial Management Systems Oversight, OIG-95-037, 1/11/95
1994 Audited Annual Chief Financial Officer's Report for the Treasury Forfeiture Fund, OIG-95-043, 1/26/95
1994 Audited Annual Chief Financial Officer's Report for the Treasury Working Capital Fund, OIG-95-049, 2/27/95
Contractor's Electronic Data Processing General Controls, Applicable to Contract TOS-92-33, OIG-95-052, 3/8/95
Costs Incurred for Fiscal Years Ended September 30, 1992 and 1993 under Contract TOS-88-28, OIG-95-055, 3/16/95
Executive Office for Asset Forfeiture: Oversight of Equitable Sharing Payments to State and Local Law Enforcement Agencies, OIG-CA-95-002, 3/17/95
Contractor's Accounting System, Applicable to Contract TOS-95-07, OIG-95-058, 3/22/95
Contractor Allegations in the Telecommunications Services Branch, Automated Systems Division, OIG-95-059, 3/30/95
Bureau of Engraving and Printing
Subcontract Price Proposal Submitted under Contract TEP9166 for Slitting, Batching and Stacking Systems, OIG95001, 10/03/94, $854,000 S
Custodial/Cleaning Contract at BEP OIG94007, 10/25/94, $820,000 Q
Initial Pricing Proposal Submitted in Response to Solicitation # BEP9402(TN) for Denominated Distinctive Paper, OIG95022, 11/28/94, $17,594,000 S
Initial Pricing Proposal Submitted in Response to Solicitation # BEP9422(N) for Automated Data Processing Programming and Analysis Support Services, OIG95039, 01/13/95
Application of AgreedUpon Procedures on Proposal Submitted under Contract TEP9239(N) in Support of the Western Facility, OIG95040, 1/25/95
Federal Law Enforcement Training Center
Direct and Indirect Costs and Rates Claimed under Contact TFTC 88-3 for Fiscal Years 1988-1993, OIG-95-019, 11/17/94
Direct and Indirect Costs and Rates Claimed for Fiscal Years Ended December 31, 1990, and 1991 under Contract TFTC88-6, OIG95038, 1/13/95
Direct and Indirect Costs and Rates Claimed under Contact TFTC 89-34 for Fiscal Years 1990-1993, OIG-95-041, 1/26/95
Direct and Indirect Costs and Rates Claimed under Contact TFTC 91-9 for the Periods October 1, 1992, through 1993, OIG95045, 2/2/95, $5,000 Q
Vendor Payments at FLETC Need Improvement, OIG-95-056, 3/10/95, $17,000 Q
Financial Management Service
Subcontract Price Proposal Submitted under Contract TFMS9022 for Automated Data Processing Services, OIG-95-023, 12/8/94
Subcontract Price Proposal Submitted under Contract TFMS9022 for Automated Data Processing Services, OIG95025, 12/14/94, $106,000 S
Subcontract Price Proposal Submitted under Contract TFMS9022 for Automated Data Processing Services, OIG95027, 12/14/94, $268,000 S
Internal Revenue Service
Subcontractor's Direct Labor and Indirect Cost Rates Submitted under Contract TIR890056, Task Order 182 for Automated Data Processing Support Services, OIG95003, 10/6/94, $238,000 S
Initial Pricing Proposal Submitted in Response to Solicitation IRS940001 for Treasury Information Processing Support Services, OIG95009, 11/1/94, $3,553,000 S
Initial Pricing Proposal Submitted in Response to Solicitation IRS940001 for Treasury Information Processing Support Services, OIG95010, 11/1/94, $14,504,000 S
Subcontract Pricing Proposal Submitted in Response to Solicitation IRS940006 for Personal Property Inventory Services, OIG95013, 11/4/94, $82,000 S
Subcontract Pricing Proposal Submitted in Response to Solicitation IRS940006 for Personal Property Inventory Services, OIG95014, 11/4/94, $68,000 S
Initial Pricing Proposal Submitted in Response to Solicitation IRS940001 for Support Services, OIG95015, 11/7/94, $2,398,000 S
Initial Pricing Proposal Submitted in Response to Solicitation IRS940001 for Support Services, OIG95016, 11/8/94
Costs Incurred under Contract TIR-92-0014, Vouchers Numbers 94-1-6, 943-6 and 9466, OIG-95-018, 11/16/94
Proposal Submitted for Modification 008 under Contract TIR940028 for Reproduction and Support Services, OIG95021, 11/21/94, $1,170,000 S
Initial Pricing Proposal Submitted in Response to Solicitation IRS940001 for Treasury Information Processing Support Services, OIG95024, 12/9/94, $10,650,000 S
Costs Incurred under Contract TIR-89-0056, Task Order 147, OIG-95-032, 1/11/95
Subcontractor's Direct Labor and Indirect Cost Rates Submitted under Contract TIR920014 for Engineering Services, OIG9544, 2/2/95
Subcontractor's Direct Labor and Indirect Cost Rates Submitted under Contract TIR920014 for Engineering Services, OIG95-053, 3/8/95
Initial Pricing Proposal Submitted in Response to Solicitation IRS940001 for Treasury Information Processing Support Services, OIG-95-054, 3/8/95, $5,113,000 S
Subcontractor's Direct Labor and Indirect Cost Rates Submitted under Contract TIR920014 for Engineering Services, OIG95-057, 3/22/95, $589,000 S
U.S. Mint
Costs Incurred under Contract TM902001 for American Eagle Coins Program Advertising Services, OIG95026, 12/14/94, $1,624,000 Q
Initial Proposal Submitted in Response to Solicitation USM-94-111 for Architectural and Engineering Services, OIG95-048, 2/14/95, $54,000 S
Estimating System Deficiency Disclosed During Proposal Review, Applicable to Solicitation USM-94-111, OIG-95-050, 3/3/95
Evaluation of Costs Incurred under Contracts TSB-87-1 and TM-92-2013, OIG-95-051, 3/3/95, $157,000 Q
U.S. Secret Service
Secret Service's Miami and Los Angeles Offices Need to Improve Reporting of Counterfeit Currency Seizures, OIG-95-008, 10/25/94
Inspection Service Audits
Internal Revenue Service
District Processing of Offers in Compromise - Western Region, 950103, 10/7/94
Offer in Compromise Program - Southeast Region, 150100, 10/13/94
IRS Efforts to Resolve Collection Staffing Imbalances, 050101, 10/21/94
Offer in Compromise Program - Mid-Atlantic Region, 850103, 10/25/94, $12,000,000 R
Controls over Refunds Issued from Excess Collections and Unidentified Remittances, 150301, 11/1/94
Balance Due Account Enforcement Actions - Western Region, 950203, 11/3/94
Controls over Contracted Credit Bureau and Locator Services - Western Region, 950304, 11/3/94
Causes of IMF Accounts Receivable Dollar Inventory in the Southeast Region, 150401, 11/7/94
Recommendations for Improving the Automated Process of Generating Leads for the Employment Tax Examination Program, 050203, 11/8/94, $686,000 R
Use of Third Party Data in the Southeast Region, 150202, 11/18/94
Litigation Case Control, 050502, 11/18/94
Effectiveness of the Federal/State Exchange Program in the Central Region, 450204, 11/23/94
IRS Needs to Revise Interest Rates to Reflect Current Market Rates and Eliminate the Failure to Pay Penalty, 050301, 11/23/94
IRS's Nonfiler Strategy Phase III, 050704, 11/25/94
Centralized Procurement Reorganization in the Southeast Region, 150504, 12/1/94
Accountability over Assets Seized by the Criminal Investigation Division in the Central Region, 450102, 12/1/94
Compliance Evaluation System, 050801, 12/9/94
Tax Administration and Policies Relating to Illegal Aliens, 050602, 12/14/94
Federal Tax Information Shared with State Agencies, 050406, 12/14/94
Use of Deceased Taxpayer Data, 050902, 12/14/94
Collectibility Cross-Functional Efforts in the Southeast Region, 150601, 12/15/94
Processing of 1993 Individual Income Tax Returns, 051006, 12/21/94, $56,000,000 R
Small Scale Computer Maintenance Costs, 051102, 1/3/95
Questionable Refund Program, 051205, 1/5/95, $254,000,000 R
Offer in Compromise Program - North Atlantic Region, 650203, 1/6/95
Procurement Function in the North Atlantic Region, 650103, 1/6/95
Readiness for the Pilot Test of the Automated Criminal Investigation System, 051302, 1/12/95
Individual Retirement Arrangement Excise Taxes, 051902, 1/20/95, $315,000,000 R
Automated Issue Identification System, 051602, 1/20/95
Implementation of the Revenue Reconciliation Act of 1990 - Additional Corporate Interest Assessment, 052401, 1/25/95
Opportunities for Reducing the Collection Queue Inventory, 051408, 1/26/95, $308,000 R
Controls over Consecutive Examinations, 051702, 1/31/95
Nation Account Profile, 052106, 2/1/95, $5,400,000 R
Service Center Correspondence Examination Program, 052301, 2/1/95
Procedures to Process Large Dollar Refunds through the Joint Committee on Taxation, 051802, 2/1/95, $6,300,000 S
Effectiveness of Appeals Actions, 350100, 2/7/95
Lockbox Remittance Processing Program, 052705, 2/8/95
Case Controls in the Atlanta District Taxpayer Service Problem Resolution Program, 150700, 2/15/95
Controls over the Issuance of Employer Identification Numbers (EINS), 052903, 2/17/95
Office of Examination Automation Totally Integrated Examination System Prototype Development, 052805, 2/18/95
Unclaimed IRS Funds Held by States and Banks, 052201, 2/21/95, $2,099,000 R
Integrated Collection System Expanded Prototype, 053304, 2/22/95
Effectiveness of the Return Preparer Penalty Program in the Central Region, 450303, 2/24/95
Examination Deficiencies Collected without Additional Contact, 950402, 3/1/95
Controls over Headquarters Operations Property, 053203, 3/1/95
Usefulness of Treasury Multiuser Acquisition Contract (TMAC) Products to Tax Systems Modernization (TSM), 051515, 3/1/95, $7,200,000 R
Review to Assess Procurement Methodologies, 053002, 3/1/95
San Francisco District's Collection Initiatives, 950505, 3/1/95
Controls over Manual Refunds, 053402, 3/3/95
Controls to Protect Software Licensing Agreements in the Midwest Region, 350204, 3/10/95
Tracking Tax Systems Modernization Costs Using the Project Cost Accounting Subsystem, 053502, 3/10/95
Coverage of the Employee/Independent Contractor Compliance Issue in the North Atlantic Region, 650401, 3/13/95
The Service's Implementation of the Business Tax Provisions for the Omnibus Budget Reconciliation Act, 053612, 3/17/95, $5,100,000 R
Controls over CI Vehicles and Undercover Media in the North Atlantic Region, 650303, 3/22/95
Transfer of Credits to Excess Collections in the Austin Service Center, 550200, 3/23/95
Physical and Data Security in the Central Region, 450401, 3/24/95
District Office Resolution of Filing Fraud, 052002, 3/28/95
The Process of Reactivating Delinquent Accounts Closed Currently Not Collectible Due to Taxpayer Hardship, 053801, 3/30/95
*** Last update 7/26/95 (sgb) ***