Background for US Treasury: 200410193fr

The Oversight Board Has AchievedMuch of Its Original Intent, but There AreOpportunities for Increased EffectivenessSeptember 2004Reference Number: 2004-10-193

This report has cleared the Treasury Inspector General for Tax Administration disclosurereview process and information determined to be restricted from public release has beenredacted from this document.

DEPARTMENT OF THE TREASURY

WASHINGTON, D.C. 20220

INSPECTOR GENERALfor TAXADMINISTRATION

September 30, 2004MEMORANDUM FOR CHAIRPERSON, INTERNAL REVENUE SERVICE OVERSIGHTBOARDFROM: Gordon C. Milbourn IIIActing Deputy Inspector General for AuditSUBJECT: Final Audit Report - The Oversight Board Has Achieved Much ofIts Original Intent, but There Are Opportunities for IncreasedEffectiveness (Audit # 200310036)This report presents the results of our review to evaluate the Internal Revenue Service(IRS) Oversight Board’s effectiveness in fulfilling its responsibilities as required by theIRS Restructuring and Reform Act of 1998 (RRA 98).

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The RRA 98 provides theTreasury Inspector General for Tax Administration (TIGTA) the authority to conductaudits and investigations of the IRS Oversight Board. This audit was conducted as partof our Fiscal Year (FY) 2004 Annual Audit Plan.In summary, many stakeholders indicate the Oversight Board has improved IRSgovernance in line with the intent of the RRA 98; however, some stakeholders wereconcerned that the same issues are brought to the Board’s attention each year with noapparent action taken for resolution. A strategy for identifying, prioritizing, andintervening on key issues is needed. Moreover, in line with the best practices ofcorporate boards, the Board needs a process to perform annual self-assessmentswhich would include assessing and communicating its impact on tax administration.Some IRS officials expressed concerns about duplicate oversight and the potential forconflicts of interest. While we believe there are sufficient controls to minimize thepotential for conflicts of interest, there could be a significant benefit to increasedcoordination between the Board and other IRS oversight bodies to avoid duplicate orexcessive requests for information.

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Pub. L. No. 105-206, 112 Stat. 685 (codified as amended in scattered sections of 2 U.S.C., 5 U.S.C. app.,16 U.S.C., 19 U.S.C., 22 U.S.C., 23 U.S.C., 26 U.S.C., 31 U.S.C., 38 U.S.C., and 49 U.S.C.).

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To ensure the budget adequately supports the IRS strategic priorities, the Board mustapprove the IRS budget before it is submitted to the Department of the Treasury.Notwithstanding, Oversight Board members are concerned that the Board has not hadenough influence in the budget process. The IRS budgets submitted by the Presidentand those passed by the Congress have been significantly less than those submitted bythe Board. Congressional committee staffs indicated that the Board would bewell-served to ensure the Board’s budget contains enough detail to supportrecommendations for increases and also to ensure equal focus is maintained onachieving savings and efficiencies.One important reason the Board was created was to oversee the modernization of theIRS’ information systems. There are indications that better oversight of BusinessSystems Modernization (BSM) efforts by the Board was needed earlier in the process.The progress of IRS systems modernization is significantly behind schedule and overbudget. Many of the recommendations made by the Board in December 2003 weremade much earlier through independent assessment by the Government AccountabilityOffice (GAO)

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and the TIGTA. Better coordination and use of these sources ofindependent data would have helped the Board develop a more effective oversightstrategy.Universally, Oversight Board members were concerned about lengthy vacancies on theBoard because they create a tremendous amount of work for other Board members andreduce the collective business expertise which can be provided by the Board. For mostof its history, the Board has had one or two vacancies. A proposed measure designedto avoid prolonged vacancies has been included in new legislation which is now underconsideration.

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If the legislation is enacted, an automatic extension of a Boardmember’s term for up to 1 year would be granted if a successor is not timely confirmed.However, its success would depend on existing Board members’ willingness to continueto serve past their terms.Finally, in line with corporate best practices, the Oversight Board needs to clearly defineBoard procedures and practices to govern the manner in which it conducts its oversightand documents formal Board decisions. Additionally, because there will be significantturnover on the Board within the next 2 years, the Board needs a defined system toeducate and assist new members on IRS operations and issues.We recommended the Board formalize its process to strategically focus its efforts on themost significant issues facing the IRS, adopt a process for evaluating its effectivenessand impact on tax administration, and include its self-assessment in its annual report tothe Congress or other appropriate public document. Additionally, the Board shoulddefine practices for coordinating with IRS executives and other oversight bodies toavoid duplicate requests for information. The Board should also develop policies andprocedures to evaluate the IRS’ efforts and results in achieving savings and efficienciesto be detailed in its budget submission. The Board should make timely use of

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Formerly the General Accounting Office.

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Tax Administration Good Government Act – H.R. 1528 108

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Cong. § 127 (2004).

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