While an award program for Internal Revenue Service employees complies with federal regulations, some employees with tax and conduct issues received awards, according to a report released publicly by the Treasury Inspector General for Tax Administration.

“These awards are designed to recognize and reward IRS employees for a job well done, and that is appropriate, because the IRS should encourage good performance,” said TIGTA Inspector General J. Russell George. “However, while not prohibited, providing awards to employees who have been disciplined for failing to pay federal taxes appears to create a conflict with the IRS’s charge of ensuring the integrity of the system of tax administration,” he added.

TIGTA conducted its audit because new federal guidance issued in FY 2011 requires agencies to reduce spending on awards programs beginning in FY 2012. The overall objective of TIGTA’s review was to evaluate the IRS’s compliance with procedures for expenditures on awards and to review the IRS’s controls over awards made to employees with conduct and performance issues.

TIGTA found that the IRS awards program complied with federal requirements to limit awards expenditures and saved additional funds by keeping aggregate incentive payments, individual employee compensation, and aggregate awards below the federal limits. For FY 2011, the IRS awarded almost $92 million in cash and almost 520,000 hours of time off to 70,500 of its approximately 104,400 employees. For FY 2012, the IRS awarded $86 million in cash and almost 490,000 hours of time off to 67,870 of its approximately 98,000 employees.

However, between October 1, 2010 and December 31, 2012, more than 2,800 employees with recent substantiated conduct issues resulting in disciplinary action received more than $2.8 million in monetary awards and more than 27,000 hours in time-off awards. Among these, more than 1,100 IRS employees with substantiated federal tax compliance problems received more than $1 million in cash awards and more than 10,000 hours in time-off awards.

TIGTA recommended that the IRS human capital officer determine the feasibility of implementing a policy requiring management to consider conduct issues resulting in disciplinary actions, especially the nonpayment of taxes, prior to awarding all types of performance and discretionary awards.

The IRS agreed with TIGTA’s recommendation and plans to conduct a study by June 30, 2014 for the implementation of such a policy.

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