The Internal Revenue Service’s Small Business and Self-Employed division spent $4.1 million on a conference in Anaheim, Calif., in 2010 that included questionable expenses for planning trips, outside speakers, video productions, and promotional items and gifts for IRS employees, according to a new report released Tuesday by the Treasury Inspector General for Tax Administration.

TIGTA conducted its audit to identify the IRS’s spending on conferences during fiscal years 2010 through 2012.  The audit’s primary focus was on the IRS SB/SE Division’s All Managers Conference in August 2010 in Anaheim, Calif., which was selected because it was the most expensive conference during the three-year period and because TIGTA received an allegation of excessive spending at that event. The conference was attended by over 2,600 IRS employees and held at the Marriott, Hilton and Sheraton hotels in Anaheim.

As part of its audit, TIGTA found that the IRS held 225 conferences during fiscal years 2010 through 2012 for a total estimated cost of approximately $49 million. The IRS reduced its spending on conferences from approximately $37.5 million in fiscal year 2010 to $4.8 million in fiscal year 2012.

“Excessive spending by federal agencies on management conferences has been highlighted by recent Inspectors General reports and in congressional hearings,” said TIGTA Inspector General J. Russell George in a statement. “Effective cost management is especially important given the current economic environment and focus on Government efficiency. Certain of the IRS’s expenses associated with the Anaheim conference do not appear to be a good use of taxpayer funds.”

There were a number of examples of the management control weaknesses and questionable spending that TIGTA identified at the Anaheim conference. While IRS management provided documentation showing the final total costs at $4.1 million, TIGTA could not obtain reasonable assurance that this amount represents a full and accurate accounting of the conference costs. The IRS paid for the conference primarily through unused funding, which would have lapsed, originally intended for hiring enforcement employees.

TIGTA found that IRS management did not use available internal personnel to assist in searching for the most cost-effective location as required by IRS policy. Instead, they relied on outside event planners who were not under contract with the IRS to identify possible off-site locations. These planners had no incentive to negotiate a favorable room rate for the IRS, TIGTA noted. Instead, the three hotels paid the event planners an estimated $133,000 commission based on the cost of rooms paid for by the IRS.

TIGTA said the IRS should have tried to negotiate a lower lodging rate to reduce conference expenses, but instead it accepted negotiated concessions provided by the hotel for free breakfasts, free drink coupons and suite upgrades.

The IRS reported that it expended $50,187 on videos for the conference, but was unable to provide any details supporting this cost. The latest example of a wasteful video featuring IRS employees practicing a dance known as the Cupid shuffle was unveiled on Friday ahead of the release of the report (see IRS Music Dance Video Released by Congress).

IRS management contracted with 15 outside speakers for presentations at a total cost of $133,350. Costs for outside speakers included a $17,000 fee for a keynote speaker whose presentation included creating six paintings of famous people, including basketball player Michael Jordan and U2 lead singer Bono, to reinforce his message of finding creative solutions to challenges. Two of the paintings were given away at the conference, three were donated to charity, and one was lost, according to IRS management. Another keynote speaker was paid $37,500 which included a $2,500 fee authorized for first class airfare.

IRS employees made three planning trips at a cost of approximately $35,800 prior to the conference. The IRS also paid over $30,000 for 45 IRS employees who reside in the local area to stay at the hotels and incur per diem expenses while at the conference. Numerous gifts and promotional items were provided to attendees at an estimated cost of more than $64,000, TIGTA noted.

Beginning in February 2011, the IRS issued a number of policy guidance documents to minimize spending on travel and conferences. In May 2012, the Office of Management and Budget issued guidelines which stipulate that agencies may not incur net expenses greater than $500,000 for a single conference, and agencies must publicly report on their official website all conference expenses in excess of $100,000.

TIGTA made nine recommendations to the IRS to ensure transparency and accountability in all future conferences. The IRS agreed to all nine recommendations and stated they had already begun implementation of several corrective actions in advance of the TIGTA report. 

“The meeting took place at a time where the IRS needed to ensure that managers had proper training to address significant new programs, major staff and manager turnover and a substantial increase in security threats," wrote IRS CFO Pamela J. LaRue in response to the report. “However, since that time, the technology and budget environment has changed, and during the past three years, the IRS has put in place an extensive series of procedures with regard to conferences. Clearly, a conference like this from three years ago—and many of the instances described—would not take place under our expanded and strengthened oversight process.”

She noted that all large IRS meetings and conferences must now be approved by the IRS centrally and not just by individual business units. In the three years since the conference, the IRS has implemented comprehensive financial controls over meetings and conference approval processes, she added, and the IRS has dramatically cut the expenditures related to its meetings and training.

The IRS plans to issue additional guidance related to conference spending and attendance, tracking continuing professional education credits, the use of event planners, soliciting upgrades, video productions, planning trips, and the conference approval process. The IRS also stated that it plans to issue Forms W-2 to all applicable employees.

The report was released on the same as a hearing by the House Ways and Means Committee in which representatives from Tea Party groups and other conservative organizations testified about the treatment they experienced when applying for tax-exempt status from the IRS.

The IRS released a statement from its newly appointed chief. "On Tuesday, the Treasury Inspector General for Tax Administration released a report on an IRS conference that took place in 2010," said IRS Acting Commissioner Danny Werfel. "This conference is an unfortunate vestige from a prior era. While there were legitimate reasons for holding the meeting, many of the expenses associated with it were inappropriate and should not have occurred. Taxpayers should take comfort that a conference like this would not take place today. Sweeping new spending restrictions have been put in place at the IRS, and travel and training expenses have dropped more than 80 percent since 2010 and similar large-scale meetings did not take place in 2011, 2012 or 2013.

"Cutting down on excessive and inappropriate travel has been a personal priority for me," Werfel added. "As federal controller at the Office of Management and Budget, I led the development and issuance of multiple government-wide policy directives requiring federal agencies to reduce their total amount of spending on administrative expenses, including travel and conferences, as well as putting in place strict policies for the review, approval, and public reporting of conference expenditures. In addition to the progress at the IRS, these efforts have led to significant progress government-wide, with the federal government reducing travel expenses by roughly $2 billion in fiscal year 2012 compared to fiscal year 2010. As Acting IRS Commissioner, I will continue my efforts and ensure tight spending protocols are in place to protect the use of taxpayer dollars."

The IRS’s press office also pointed out that it alone has achieved $1 billion in budget cuts and efficiencies since 2010, with travel and training expenses down more than 80 percent since 2010.

Whereas in fiscal year 2010, large conference costs were $37.6 million, the following year, large conference costs were $6.2 million, and in fiscal 2012, large conference costs had fallen to below $4.9 million. The IRS said it has also increased the use of virtual meetings and trainings to cut costs. In fiscal years 2010-2011, the IRS achieved a 51 percent savings in training related travel, and in fiscal 2011-2012, the IRS achieved an additional 35 percent savings in training related travel. In addition, the IRS noted that paid outside speakers are no longer being used at IRS conferences and trainings.

As for the Anaheim conference profiled in the TIGTA report, the IRS contended that the conference trained 2,600 managers from 350 offices around the country. The group that was trained at the conference, the Small Business/Self Employed Division, accounts for the majority of the $50 billion collected in annual IRS enforcement revenue each year.

“The purpose of this meeting was to ensure that managers had proper training to lead their employees and adapt to significant changes that were occurring,” said the IRS. “At the time of this conference, almost 30% of the SB/SE managers were either new to the division or new to management within the prior two years. The focus of the meeting included employee safety and security training due to a substantial increase in security threats following the suicide attack on an IRS facility in Austin earlier in the year.”

The IRS also pointed out that the TIGTA review found no instances of fraud or misconduct. The IRS said it is also important to note that many of the issues raised in the report, such as the use of event planners, the receipt of room upgrades, and the welcome reception and breakfast provided by the hotel, were complimentary and did not entail the use of any additional government resources.