The new fraud detection system that the IRS has been developing since the beginning of 2012 needs some more work to make sure that it is successfully deployed and implemented.

The report from the Treasury Inspector General for Tax Administration looks at the IRS’s Return Review Program, which is being developed to replace its current Electronic Fraud Detection System. The EFDS has been in place since 1994 and is not expected to be viable after 2015, but TIGTA wanted to make sure that the IRS was “adequately managing the development risks associated” with the development of its replacement.

In its audit, TIGTA discovered that roles for high-level governance of the program had not yet been established; that prototype management plans had not been finished before work on prototypes was begun; that the system development path and lifecycle guidance for the RRP were uncertain or absent; and that alternative commercial software was not fully considered before the technology solutions were chosen.

Among other things, TIGTA recommended that the IRS’s chief technology officer establish the appropriate program-level governance; complete the RRP prototype management plans; document the systems development path and establish sufficient life cycle guidance; and make sure that work to consider alternative commercial solutions.

The IRS agreed with TIGTA’s recommendations, and noted that it has already established governance entities for the RRP and updated its prototype management plans.

“Fraud detection systems are of critical importance in the fight against tax fraud,” said Treasury Inspector General for Tax Administration J. Russell George in a statement. “If deployed correctly, the Return Review Program could significantly enhance the IRS’s capabilities to prevent, detect, and resolve tax refund fraud, including identity theft.”

The IRS estimates tax refund fraud at more than $19.2 billion each fiscal year.  The RRP is expected to increase the dollar amount of fraudulent tax refunds identified annually and also to help the IRS to reduce improper payments.

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