The Internal Revenue Service could not provide documentation for $394,430 of the invoiced labor hours paid on an estimated $1 million in labor charges, according to a new report.

The report, released Thursday by the Treasury Inspector General for Tax Administration, found that the IRS received an appropriation of $203 million in funds from the American Recovery and Reinvestment Act of 2009. The IRS awarded $85.4 million in contracts using Recovery Act funds for work that included reprogramming IRS computer systems, updating related tax forms and publications, and providing customer services to assist taxpayers with the new tax law provisions included in the Recovery Act.

TIGTA initiated its audit because it is required to monitor the IRS’s implementation of Recovery Act provisions. The overall objective of TIGTA’s review was to assess the IRS’s controls over contract invoice review, approval, and payment processes and to identify improper payments of Recovery Act funds made to contractors.

TIGTA’s review of a statistically valid sample of $1 million in labor charges identified that the IRS did not have documentation supporting $394,430 of the invoiced labor hours that were paid.

Applying the results of TIGTA’s analysis to the $5.3 million in labor charges for the procurement in which unsupported payments were identified, TIGTA estimates a total of $927,992 may have been erroneously paid. The IRS contracting officer’s technical representatives did not obtain required documentation supporting all billed labor charges, TIGTA noted.

The unsupported labor charges relate to work performed by contractor and subcontractor employees. In contrast, TIGTA’s review of a sample of $34,306 in travel expenses found that COTRs obtained documentation supporting every travel expense claimed. TIGTA confirmed that the travel expenses submitted and paid by the IRS were consistent with federal travel regulations.

TIGTA’s review also identified that some labor hours billed and paid were at higher or lower rates than established in the contract for the qualification level of the individual for whom the hours were billed. Finally, TIGTA found that although the contracting officers verified the qualifications and experience levels of those contractor employees who were designated as key personnel, a similar verification of a random sample of the remaining personnel was not performed by the responsible COTR as required by his or her appointment letter.

“The results of TIGTA’s review are of concern,” said TIGTA Inspector General J. Russell George in a statement. “When labor hours are not adequately verified, there is no assurance that Recovery Act funds are being used for authorized purposes.”

TIGTA made three recommendations to improve the IRS’s oversight of contract labor charges. IRS management agreed with TIGTA’s recommendations and is taking corrective actions.

“We appreciate your review and agree with the importance of assuring that funds used for the ARRA are adequately verified,” wrote David A. Grant, chief of agency-wide shared services at the IRS, in response to the report. “To ensure that all taxpayer dollars continue to be expended efficiently and in accordance with contract terms, we have increased our oversight of the Receipt & Acceptance function at the IRS.”

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