The Internal Revenue Service paid approximately $33 million for paper tax records storage services in fiscal year 2013, and as of March 2014, and the agency had 5.42 million cubic feet of paper tax records stored at various Federal Records Centers across the country, according to a new report. 

The report, from the Treasury Inspector General for Tax Administration, pointed out that inefficient management of costs related to records storage reduces the resources that the IRS has available to deliver its mission.

TIGTA identified two areas in which controls over records storage costs could be improved. Specifically, TIGTA found that, as of June 2013, the IRS had 238,523 cubic feet of records past due for disposal for which it was obligated to pay ongoing monthly storage costs. As a result, unnecessary costs of more than $700,000 were incurred for those records.

During TIGTA’s audit, the IRS took a number of actions to address the volume of records past due for disposal and minimize future costs. The IRS managed to reduce its volume of records past due for disposal from 238,523 cubic feet as of June 2013 to 16,013 cubic feet as of March 2014.

TIGTA also found that the review process and documentation supporting the records storage service invoices were insufficient to allow it to reasonably validate the charges billed for the services. For example, TIGTA’s review of the invoice certification process from May 2013 through March 2014 did not provide any evidence that the IRS performed a review of supporting information available from the National Archives and Records Administration or in any way compared the invoiced charges to the IRS’s own internal records prior to certifying the invoices for payment. 

During this period, the IRS paid the National Archives and Records Administration $30.8 million for storage services. The IRS acknowledged that the approach used to certify these invoices needed improvement and advised TIGTA that it is in the process of addressing this issue by developing additional guidance specifically focused on reviewing and validating invoice charges.

The report comes at a time when the IRS has come under fire for its handling of electronic storage after losing thousands of emails exchanged between the former director of its Exempt Organizations unit, Lois Lerner, and people outside the agency. TIGTA is reportedly conducting a separate investigation of the loss of emails from Lerner and other officials involved in reviewing applications for tax-exempt status from political organizations.

In the new report, TIGTA recommended that the IRS’s chief of agency wide shared services continue to carefully monitor the volume of records past due for disposal and address any delays in timely destruction of those records. In addition, TIGTA suggested that the commissioner of the IRS’s Wage and Investment Division, in coordination with the chief of agency-wide shared services, should ensure that established procedures to verify invoice charges are adhered to prior to certifying payment and review the validity of all charges TIGTA identified as not supported by required documentation.

In response, the IRS agreed with two of the three recommendations. The IRS said it plans to continue to monitor the document disposal process. The IRS also said it plans to take actions to ensure that established procedures, or approved alternative procedures, are followed when certifying invoiced charges. However, the IRS disagreed with the recommendation regarding reviewing the validity of all charges identified as not supported by required documentation.

“We agree that reliance on comparative analyses for the validation of invoices submitted for payment led to a less rigorous review process; however, we do not believe the amount of any potentially erroneous payments would be significant and we do not consider a comprehensive review of all previously submitted invoices would be a productive use of our limited resources,” wrote Debra Holland, commissioner of the IRS’s Wage and Investment Division, in response to the report. “The TIGTA does not provide an analysis to indicate the comparative analyses used by the IRS caused erroneous charges to be paid. As a result, we disagree with the potential Protection of Resources outcome measure of $30.8 million. Such a measure suggests that the IRS would have incurred no costs for storing approximately 5.42 million cubic feet of paper tax records at 18 Federal Records Center locations, or for the attendant service associated with storage, retrieval and delivery of those documents. Reporting the full amount of the expense paid for storage as a potential outcome is not reasonable, nor attainable.”

However, TIGTA contended that it believes that the $30.8 million paid for records storage service charges that were not supported by the required documentation represents a material amount warranting further review by the IRS.

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