There are opportunities for the Internal Revenue Service to cut the costs of fingerprinting at lockbox bank locations, according to a new government report.

The report, by the Treasury Inspector General for Tax Administration, found that lockbox bank employees are not allowed to begin working until a bank receives confirmation from the IRS that the employee has passed a limited background investigation based on a successful fingerprint check. However, according to TIGTA, an excessive number of potential lockbox employees are being fingerprinted. TIGTA estimated that the three lockbox sites reviewed fingerprinted 6,646 lockbox employees, unnecessarily resulting in $161,165 in excessive charges.

TIGTA also discovered that fingerprinted charges were submitted and paid for the same individuals in more than 1,000 instances in the same fiscal year, resulting in nearly $25,000 in unnecessary costs.

Another area for potential cost savings involves the high use of manual fingerprinting at one lockbox bank. At one lockbox site, TIGTA determined that if electronic fingerprinting were fully used, the IRS could have saved approximately $14,000 for fiscal years 2009 and 2010.  Because of these opportunities, TIGTA believes the IRS could have potentially saved 40 percent of the $496,953 in fingerprinting charges for the three lockbox banks reviewed in Fiscal Years 2009 and 2010.

The IRS has used lockbox depositary banks since 1985. This lockbox network comprises three commercial banks that collect tax payments at seven lockbox banks. These banks are authorized to act as financial agents for the IRS to perform electronic and paper-based lockbox services.

The services may include, but are not limited to, mail collection and sorting, mail extraction, remittance processing, deposit proofing and balancing, data transmission/delivery, deposit reporting, and funds transferred to the Treasury Department. According to the most recent available data, the lockbox network processed nearly 110 million payments in fiscal years 2009 and 2010, worth almost $571 billion. Due to the large amount of taxpayer payments received and past incidents of lockbox employees involved in the theft of these funds, employees working in the lockbox operations are not allowed to begin working until the bank receives confirmation from the IRS that the employee has passed a limited background investigation based on a successful fingerprint check.  Many of these lockbox employees are contract, part-time, or temporary workers.

TIGTA recommended that the IRS human capital officer perform an annual assessment of the number of staff needed at each lockbox bank to ensure fingerprinting charges are not excessive, and evaluate the feasibility of requiring lockbox banks to maintain logs of the individuals who have been fingerprinted. The IRS should also develop a process requiring IRS personnel to periodically review and analyze fingerprint billing data, clearly communicate appropriate fingerprinting submission guidance to lockbox bank management, and evaluate the use of electronic fingerprints at all lockbox banks, the report recommended.

In response, IRS management agreed with three of TIGTA’s five recommendations.  IRS management agreed to evaluate the feasibility of requiring the lockbox sites to maintain documentation to identify potential employees who have been previously fingerprinted. IRS management has also revised guidance regarding individuals with unclassifiable fingerprint results and ensured that all lockbox sites have electronic fingerprint equipment. 

However, IRS management did not fully address TIGTA’s concern that lockbox banks are fingerprinting an excessive number of potential employees. While IRS management indicated they would require a justification if the number of applicants fingerprinted exceeded industry standards, TIGTA does not believe that applying the industry standard hiring ratio will effectively ensure fingerprinting costs will be reduced. In addition, while TIGTA said it agrees with IRS management that pre-emptive measures to avoid duplicative fingerprint requests would improve the process, TIGTA believes an analysis of billing information would provide an increased assurance that steps taken by lockbox banks are effective to prevent duplicative charges.

The IRS also disagreed about the savings identified by TIGTA. "Although we agree additional opportunities exist to further reduce the lockbox fingerprinting costs, we only partially agree with the methodology used to determine the reasonable number of individuals who should have been fingerprinted and the amount of the potential savings," wrote IRS human capital officer Debra Chew. "We believe the potential to save $496,953 in FY 2009 and 2010 is overstated based on the methodology used to determine the number of excessive fingerprints taken."

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