Government contractors working on the Internal Revenue Service’s main communications portal for taxpayers and tax professionals might have overbilled the agency hundreds of thousands of dollars, according to a new report.

The report, from the Treasury Inspector General for Tax Administration, said that three contractor invoices for January, February, and March 2014 had been reviewed and showed 161 instances in which hours were billed for work performed by contractor employees outside the invoice period of performance. In addition, TIGTA found multiple contractor employees who billed more than 240 hours in a month that potentially resulted in $405,679 in additional labor costs.

The IRS began consolidating its three separate user portals into one shared portal in August 2012. The goal was to provide a more modernized user experience, along with greater information and functionality, while lowering total costs.

The IRS now relies on the portal, known as the Integrated Enterprise Portal, to ensure the success and security of electronic filing. The portal serves as the preferred channel for interactions with the IRS and is currently the primary information source for taxpayers and tax professionals. It also plays a central role in advancing taxpayer issue resolution, providing guidance and outreach, and improving service interactions for taxpayers.

The IRS used a capacity-planning process to manage the current and future capacity of the portal and performance aspects of its information technology infrastructure. However, the IRS did not always review, verify, and maintain appropriate invoice documentation prior to releasing payment for contractor services, according to the report.

After TIGTA provided its results to the IRS, the IRS received additional billing information in greater detail from the contractor. Once the information was analyzed, the IRS determined that there were only two instances of contractor employees billing over 240 hours. TIGTA said it was not provided the additional information, however, and was unable to verify the analysis. Finally, TIGTA pointed out that business requirements were not sufficiently gathered and documented for the Integrated Enterprise Portal.

TIGTA recommended that the IRS’s chief technology officer ensure coordination between the personnel responsible for invoice reviews, ensure that procedures are followed to verify any invoice charges before paying them, and ensure business requirements are gathered to develop system requirements. In addition, TIGTA recommended that the CTO and the chief of agency-wide shared services at the IRS work with the contractor to resolve the potential billing errors identified in the report and obtain a credit on future invoices, if warranted.

The IRS agreed with the report’s recommendations. The IRS said it plans to follow its established procedures and processes to review and reconcile invoices and verify all invoice charges prior to payment. It also plans to continue using Enterprise Life Cycle procedures as the main tool for ensuring that requirements are captured and traced appropriately for future systems development and modernization projects.

“We are pleased the report acknowledges the IEP capacity management governance and supporting processes, but we disagree with the findings of your review of three IEP invoices that identified potential billing errors for contractor services representing a potential savings of $405,679 in contractor employee labor costs,” wrote IRS chief technology officer Terence V. Milholland in response to the report. “We provided your audit team a detailed analysis of the three invoices which the report also acknowledges. Our analysis demonstrated labor costs claimed by contractor employees were accurate. However, as noted in the report, the audit results do not account for our analysis. We believe once you consider our analysis you will agree that there are no potential labor cost savings. We strongly emphasize that the IRS did not pay for services that were not received and can confidently state that the Service was not overcharged for labor costs on any of the invoices analyzed. We regularly perform detailed reviews of invoices and seek clarification from the contractor to explain any inconsistencies.”

Although the IRS provided additional information after TIGTA completed its review, TIGTA said it believes the IRS did not take the appropriate actions to ensure established processes and procedures were followed to verify questionable invoice items or to adequately gather and develop system requirements.

An IRS spokesman emailed a further response to the report to Accounting Today. “The IRS Integrated Enterprise Portal delivers strong and reliable performance for taxpayers,” said the IRS. “While TIGTA recognizes the value of the system, we are very concerned that this report does not provide a full picture of our program and our proper oversight. We disagree with the findings in several areas. Our analysis shows labor costs claimed by contractor employees were accurate. The IRS strongly emphasizes we did not pay for services that were not received, and we are confident that the Service was not overcharged for labor costs on any of the invoices analyzed. We regularly perform detailed reviews of invoices and seek clarification from the contractor to explain any inconsistencies. TIGTA’s recommendations are in line with our existing commitment to monitor and improve our practices. We provided additional information to TIGTA that showed our Enterprise Life Cycle (ELC) managed service path was followed completely. However, the report didn’t account for the additional information provided, which shows we complied with established requirements.”

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