The Internal Revenue Service is facing a troublesome manpower drain, as a whopping average of 16 percent of its total workforce is now leaving the agency each year.The soaring employee turnover rate has raised eyebrows and concerns among members of the IRS Oversight Board, which warned that the tax service is losing a distressingly large number of talented workers who “possess skills and institutional knowledge that are extremely difficult to replace.”

In its annual report on the condition of the IRS, the Oversight Board said that it’s growing deeply concerned about the state of the IRS’s human capital. Noting that the tax service ultimately relies on a very talented, skilled, knowledgeable and dedicated workforce to accomplish its mission at a high level, the report reminded top IRS officials that, “This talented workforce cannot be taken for granted.”

Although the warning signs of an IRS manpower drain have been evident for a number of years, the oversight body suggested that the problem is growing more serious due to the agency’s aging workforce.

Currently, about 4,000 of the agency’s 100,000-person staff retire each year, and today more than 14,000 (nearly 14 percent) are eligible to exercise that option at any time.

What may be even more disturbing for personnel managers at the tax service is that these retirements account for only one quarter of the total employee turnover each year.

Resignations of IRS workers in their prime, who leave to join other agencies or private sector firms, are stripping the tax service of its “problem solvers and mentors,” the report suggested.

Staffing losses are especially high for recently hired revenue agents and revenue officers — employees considered to be mission-critical by IRS officials.

According to the IRS Human Capital Office, the attrition rate of newly hired mission-critical employees has begun to increase over the past three years, the report noted: “For MCOs [mission-critical employees] hired in FY2002, attrition after the first year was 8.8 percent; for those hired in FY2006, the first year attrition rate had risen to 15.6 percent.”

While the board offered little advice on what the IRS should do better to retain its existing workforce, the report bubbled over with suggestions for replacing its departing employees.

In urging the tax service to place more emphasis on bringing new workers on board, the report called on the IRS to recruit like the private sector.

If the IRS is to replace its retirees with skilled individuals, it must change its recruitment strategies and tactics, the report noted. Significantly, the oversight group said that the IRS’s own managers believe that the agency’s recruitment efforts are out of date.

During meetings held last year, a number of IRS officials told the board that the IRS must cast a wider net in its recruitment efforts and do a better job attracting additional numbers of young, recently graduated recruits. They observed that the standard recruitment messages of employment stability, service to country and excellent health benefits are geared more to an older audience and may not be as appealing to younger applicants who are seeking new experiences, career opportunities, training and travel.

To address the tax service’s manpower shortcomings, the Oversight Board suggested that the IRS pattern its recruiting efforts after those used by major CPA firms.

Specifically, the board’s report urged IRS to look to the private sector, such as the Big Four accounting firms, for best practices and tools for attracting and retaining talented employees. Like the IRS, the Big Four’s people are their greatest asset, and they too want to recruit and retain the best and brightest.

Among the approaches that the board believes the tax service should consider borrowing from the Big Four are:

* Deloitte & Touche’s practice of setting targets for staff turnover, and for the proportion of female managers at the firm;

* PricewaterhouseCoopers’ partner evaluation scorecard, which assigns one third of its points for “people-related items;” and,

* The introduction of special time codes at KPMG’s British firm that enable employees to account for how long they spend dealing with staff matters — a system designed to ensure that managers who devote extra time to people-related issues are not disadvantaged as a result in pay raises and promotions.

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