Management Report:

Review of Controls over Safeguarding Taxpayer Receipts and Information at the Brookhaven Service Center Campus

GAO-05-319R: Published: Mar 10, 2005. Publicly Released: Mar 10, 2005.

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This report responds to a Congressional request that, in conjunction with our audit of the Internal Revenue Service's (IRS) fiscal year 2004 financial statements, we review the agency's procedures for handling and processing receipts and taxpayer information at the Brookhaven service center campus. As a result of the increased percentage of taxpayers filing returns electronically, IRS designed a detailed business plan to reduce the number of service center campuses that process paper returns. In fiscal year 2004, Brookhaven became the first service center campus to downsize its submission processing function, leading to changes in its operations and a significant reduction in the volume of taxpayer receipts and information processed. Congress requested this review in light of these significant changes in operations and IRS's desire to benefit from the Brookhaven experience in planning for future submission processing rampdowns. Specifically, we were asked to (1) review the policies and procedures IRS developed to safeguard and process taxpayer receipts and information at the modified Brookhaven operation and (2) offer recommendations, if any, for improving internal controls at Brookhaven and at other submission processing centers that will undergo future rampdowns. To accommodate the request, we agreed to add a review of the mail control function at the Brookhaven service center campus to our tests of internal controls conducted as part of our audit of IRS's fiscal year 2004 financial statements. We have performed extensive work in reviewing internal controls designed to safeguard taxpayer receipts and information as part of our annual financial audits of IRS. In performing this work, we have come to recognize the significance and importance of the submission processing function to IRS and the potential for loss, theft, or misuse of taxpayer receipts and information if controls are not properly designed and effectively implemented. Our audits have identified weaknesses in internal controls over the safeguarding of taxpayer receipts and information related to submission processing activities at IRS's service center campuses, lockbox banks, and field offices. In reviewing the Brookhaven rampdown procedures, we considered the internal control weaknesses previously found at other service center campuses.

We found that IRS completed the rampdown at Brookhaven without any significant disruptions in service. However, we did identify several areas where improvements could be made to internal controls at the Brookhaven service center campus residual mail processing unit, as well as to the process for estimating mail volumes. These issues are also relevant to IRS as it proceeds in ramping down future submission processing functions. Specifically, we found that IRS developed standard operating procedures for employees processing incoming mail at Brookhaven during the rampdown. However, we found that these procedures did not include detailed instructions for (1) tracking taxpayer receipts and information forwarded to other service center campuses for further processing and (2) handling cash receipts found during the extraction process. The absence of these instructions increases the risk that employees with significant internal control responsibilities over high-risk and vulnerable assets are not aware of the correct procedures to be followed in safeguarding and processing taxpayer receipts and information, thereby increasing the risk of their theft, loss, or misuse. Staff at the Brookhaven location did not always follow the required procedures to safeguard taxpayer receipts and information in its facilities. We found that (1) access rights allowed to visitors were not always appropriately restricted; (2) trash, which included taxpayer information, was not always sufficiently secured; and (3) candling was not always properly performed. The lack of adherence to IRS's procedures increases the risk of theft, loss, or misuse of taxpayer receipts and information. IRS did not have a documented methodology for estimating post-rampdown mail volumes at service center campuses selected for rampdowns. The lack of a documented methodology increases the risk that adequate mail volume information will not be gathered, maintained, and appropriately considered as estimates are prepared to assist IRS management in making decisions related to sites selected for future rampdowns and assessing their ultimate success.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: IRS agreed with our recommendation. Consequently, IRS reported that it updated sections of its Internal Revenue Manual (IRM) to include detailed procedures for mail operations where Submission Processing no longer has a presence. These instructions include monitoring trans-shipped documents, safeguarding taxpayer receipts and information, precise candling, and security requirements. The IRM also contains a cross-reference to the handling of cash receipts. During its fiscal year 2005 audit, GAO verified that IRS updated the IRM to include detailed procedures and cross-references, where applicable, for mail operations for service center campuses selected for significant reductions in IRS's submission processing functions. IRS's actions effectively addressed GAO's recommendation.

    Recommendation: To address the issues we have raised in this report to assist in both strengthening controls at the Brookhaven SCC and in the planning and implementation of future SCC rampdowns, IRS should revise the Accounts Management Mail Unit procedures, scheduled to be incorporated into the IRM, to include detailed instructions for (1) monitoring transshipped documents and (2) handling cash receipts found during extraction. Where adequate guidance exists elsewhere, IRS should include these through cross-references.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Closed - Implemented

    Comments: IRS agreed with our recommendation. Consequently, IRS's Wage and Investments Division's Accounts Management Branch increased management oversight of internal controls by implementing formal monthly internal control reviews at the former Submission Processing rampdown sites. A revised review template was developed to evaluate the quality of IRS's internal control performance, identify potential deficiencies, and allow corrective actions to be taken immediately. The monthly results from each field director are forwarded to the Director, Accounts Management, and GAO. Additionally, each IRS Submission Processing Center badge office provides training to the restricted area door monitors as it pertains to the control, issuance, and inventory of the non-photo badges that are assigned at each site. GAO verified IRS's actions effectively addressed our recommendation.

    Recommendation: To address the issues we have raised in this report to assist in both strengthening controls at the Brookhaven SCC and in the planning and implementation of future SCC rampdowns, IRS should enforce adherence to existing instructions on safeguarding taxpayer receipts and information, such as securing access and candling procedures, at SCCs selected for significant reductions in their submission processing functions.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  3. Status: Closed - Implemented

    Comments: IRS agreed with our recommendation. Consequently, IRS developed and implemented a methodology for estimating mail volumes and resource requirements for use in future Submission Processing consolidations. IRS used the prior campus consolidation experiences at the Brookhaven and Memphis campuses to help form its projections for the Philadelphia Campus Support Department. IRS's actions effectively addressed GAO's recommendation.

    Recommendation: To address the issues we have raised in this report to assist in both strengthening controls at the Brookhaven SCC and in the planning and implementation of future SCC rampdowns, IRS should document a methodology for estimating anticipated rapid changes in mail volume at future SCCs selected for significant reductions in their submission processing functions, taking into consideration factors such as the prior rampdown experience at Brookhaven.

    Agency Affected: Department of the Treasury: Internal Revenue Service

 

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