The option of allowing taxpayers to split up their tax refunds into different accounts has increased the risk of fraud, perhaps even among IRS employees, according to a new government report.

The report, released Thursday by the Treasury Inspector General for Tax Administration, found that in calendar year 2011, more than 842,000 taxpayers took advantage of this “split refund” option, which the Internal Revenue Service first offered in 2007. Taxpayers are able to split their tax refunds between two to three different checking or savings accounts using Form 8888, Allocation of Refund (Including Savings Bond Purchases).

However, TIGTA found that more than 65,300 bank accounts had multiple direct deposits, accounting for more than 949,000 refunds for approximately $1.6 billion.

Auditors discovered that current IRS processes that are supposed to ensure the accuracy of direct deposit information are insufficient, increasing the potential of fraud. In addition, the option to split a refund between multiple accounts expands the risk of fraud.

“This is troubling,” said TIGTA Inspector General J. Russell George in a statement. “The IRS’s current practice of allowing direct deposits to be made to multiple accounts increases the potential for fraud and abuse.”

TIGTA identified more than 4,400 bank accounts listed on tax preparers’ personal tax returns that had multiple direct deposits. More than 202,000 refunds for more than $309 million were sent to these bank accounts. This raises a concern as to whether tax return preparers are diverting clients’ refunds or portions of refunds to their own bank accounts to pay tax preparation fees or for other reasons. TIGTA said the overall objective of its audit was to evaluate the IRS’s controls over the direct deposit of refunds.

TIGTA also identified more than 200 bank accounts listed on IRS employees’ tax returns that had multiple direct deposits. More than 10,600 refunds for more than $14 million were sent to these bank accounts.

TIGTA recommended that the IRS establish controls to identify tax preparers and IRS employees who potentially divert direct deposits to their own bank accounts. In response to the report, IRS officials agreed with the recommendation and plan to take appropriate corrective actions.

“With regard to the finding of accounts receiving multiple deposits from multiple taxpayers, it is important to note that the Treasury Inspector General for Tax Administration has not verified ownership of the bank accounts in question,” wrote Peggy Bogadi, commissioner of the IRS’s Wage and Investment Division. “There are circumstances where multiple deposits to a single account are legitimate and acceptable. Thus, the IRS must initiate appropriate investigatory proceedings to ascertain ownership. Nonetheless, we agree with the TIGTA that the findings are indicative that additional controls are needed to identify and question these multiple deposits and the IRS is making changes in this area for the 2013 filing season. Still, caution must be exercised in drawing conclusions as to the extent of fraudulent activity present.”