The Internal Revenue Service needs to improve its use of return on investment data in managing tax enforcement resources, according to a new government report.
The report, publicly released Tuesday by the Treasury Inspector General for Tax Administration, noted that the IRS’s chief financial officer annually calculates ROI performance measures for seven of the IRS’s enforcement program areas. ROI information, including both estimated ROI for new enforcement initiatives and cost/benefit calculations based on actual program results and costs, is an important tool that helps IRS senior executives manage their enforcement resources.
TIGTA reviewed the IRS’s use of ROI data in managing its enforcement resources and evaluated the IRS’s progress in developing a methodology to measure actual revenue collected from specific new enforcement initiatives included in its annual budget requests.
Although the IRS considers cost-benefit information in making resource allocation decisions, it does not document how or to what extent it uses the information and has no policies or procedures to guide this process, the report noted. The cost-benefit calculations provide an incomplete picture and understate the actual results of the enforcement programs analyzed by the IRS.
TIGTA also found that the IRS continues to be unable to measure the actual revenue from new enforcement initiatives funded in prior years.
“In order to ensure that tax dollars are spent wisely, IRS executives and managers must base their decisions about enforcement activity on comprehensive and reliable data,” said TIGTA Inspector General J. Russell George in a statement.
TIGTA recommended that the IRS improve its use of enforcement cost-benefit information and conduct a feasibility analysis to identify the steps necessary to measure actual revenue for new enforcement initiatives.
In response to the report, IRS officials substantially agreed with TIGTA’s recommendations. The IRS plans to consider the feasibility of developing procedures to assist in guiding the use of enforcement program cost/benefit information and review the current cost/benefit model. The IRS also plans to document the current challenges that exist in estimating actual revenue for new enforcement initiatives and determine the feasibility of overcoming these challenges within existing legislation, systems and processes.
“The IRS understands and recognizes the importance of having timely and relevant cost and revenue data for enforcement activities,” IRS CFO Pamela J. LaRue wrote in response to the report. “This information assists IRS in understanding the effectiveness of its enforcement programs. We agree that cost/benefit information is one of several factors relevant to making resource allocation decisions. Other relevant factors include balanced measures and coverage.”