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The Internal Revenue ServiceCan Improve Customer Service

by Accelerating Refund Payments

August 1999

Reference Number: 093903

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DEPARTMENT OF THE TREASURY

WASHINGTON, D.C. 20220

INSPECTOR GENERALfor TAX

ADMINISTRATION

August 5, 1999

MEMORANDUM FOR COMMISSIONER ROSSOTTI

FROM: Pamela J. Gardiner

Deputy Inspector General for AuditSUBJECT: Final Audit Report – The Internal Revenue Service Can Improve

Customer Service by Accelerating Refund Payments

The National Performance Review (NPR) and Executive Orders direct agencies to becustomer-driven. When the directives are compared to current Internal RevenueService (IRS) customer service practices, opportunities for improvement emerge. TheIRS has made progress, but a slow-changing culture and the retention of traditionalrefund operating processes are barriers to its continuing progress.

In summary, we compared NPR concepts, Executive Orders and legislativerequirements with the IRS strategic plan and returns processing practices. At the timeof our review, the IRS’ Mission Statement needed changing to be more customer-focused. Subsequent to the issuance of the draft of this report, however, the IRSchanged its Mission Statement.

We also recommended that the IRS’ paper return refund processing be accelerated toprovide better service to taxpayers and reduce costs.

In this regard, the IRS is requesting some changes that will reduce paper return refundprocessing by 7 to 11 days. This change will affect over 72 million returns and could

save up to $150 million in interest payments. While there are some differencesbetween our recommendations and the corrective actions taken, if the IRS implementsthe planned actions, customers will receive refunds weeks earlier than they do now.

Management’s response to the findings and recommendations has been incorporatedinto this report where appropriate. The complete text of the response is presented asan appendix to the report. Copies of this report are also being sent to IRS managerswho are affected by the report recommendations.

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2

Please contact me at (202) 622-6510, or your staff may contact Walter Arrison,Associate Inspector General (Wage and Investment Income Program), at(202) 622-6510, if you have any questions.

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The Internal Revenue Service Can Improve CustomerService by Accelerating Refund Payments

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Executive Summary

The National Performance Review (NPR) and Executive Orders direct agencies to becustomer-driven. When the directives are compared to current Internal Revenue Service(IRS) customer service practices, opportunities for improvement emerge. The IRS hasmade progress, but a slow-changing culture and the retention of traditional refundoperating processes are barriers to its continuing progress.

During the 1997 filing season, IRS met or exceeded the IRS-set performance goals.More than 118 million tax returns were processed; over $95 billion in overpayments on75 million returns were refunded; 103 million telephone calls were answered; and almost7 million walk-in taxpayers were served. Also, a dramatic 19 percent increase intelephone access was achieved. Returns processing quality and accuracy also improved.At the same time, new legislation was implemented to prevent erroneous refunds.

While some areas require improvements, filing season audits showed that the individualprograms were generally effective in meeting objectives and goals. This report presentsan overall evaluation of the performance outcomes from a customer perspective.

Results

The audit focused on two critical success areas concerning filing season activities:

• Increased Emphasis on Executive Branch and Congressional Initiatives CanAssist in Transforming the IRS Into a More Customer-Driven Agency

The IRS aggressively implemented the Government Performance and Results Act of 1993 strategic planning requirements. However, the same tax administration-orientedMission Statement has been used since 1984. This is at odds with the NPR, whichfocuses on customer-driven strategic planning. The IRS may have difficulty incommunicating the change and converting to a customer-focused organization with aMission Statement and Business Vision directed more to tax administration.Subsequent to the issuance of a draft of this report, the IRS changed the MissionStatement.

• Improved Customer Focus through Complementary Goals Can ImproveTaxpayer Satisfaction and Reduce Operating Costs

The IRS analyzed the cause-and-effect relationship between refund tax returnprocessing and refund inquiry telephone volumes. However, the IRS delayed actionfor further study since focus group interviews showed that those taxpayers were“satisfied” with the 40 days taken to issue refunds on paper-filed returns. The IRShas also adopted an electronic filing goal strategy to not accelerate paper return

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refunds since faster refunds is the advertised incentive for taxpayers to fileelectronically.

Overall, the IRS is achieving higher levels of customer-driven service in accordance withExecutive Orders and Congressional NPR initiatives.

Summary of Recommendations

The IRS’ senior executives should evaluate how the Strategic Plan and Budget can bemore integrated with the NPR direction for customer-driven strategic planning.

Responsible IRS functions should work together to accelerate refunds to satisfy customerneeds and reduce costs. Several short-term, low-cost, non-reengineering changes couldsignificantly reduce refund issuance time frames. This will require cooperating withother federal agencies, which is also in accordance with NPR initiatives. Long-termchanges could further accelerate refund issuance and lower costs.

Management’s Response

The IRS Mission has changed. However, IRS management determined that theRestructuring and Reform Act of 1998 direction precludes any wholesale systemchanges. The law requires the IRS to:

“…establish a strategic plan to eliminate barriers, provide incentives and usecompetitive market forces to increase taxpayer use of electronic filing whilemaintaining processing times for paper returns at 40 days.”

Some actions, which will not require significant changes, are being explored. The IRS iscoordinating with the Financial Management Service to accelerate all paper check refundprocessing by 7 to 11 days. This affects paper refund checks for 7.4 million electronicfilers and 65 million individual and business paper filers. The government will also saveup to $150 million in interest payments.

Office of Audit Comments

All efforts to improve refund processing time frames are beneficial. The proposedactions will benefit taxpayers and reduce government operating costs. If all contemplatedactions are taken, up to 72.4 million taxpayers could get their refunds about two weeksfaster. Additional opportunities to improve customer service are available; however, theIRS believes it is constrained by its electronic filing goals.

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We disagree that the Congress intended to prevent the IRS from improving on the 40-dayrefund period for paper returns. The Restructuring and Reform Act of 1998 legislativehistory does not support this interpretation. The 40-day refund is about double the timetaken for electronic returns. The IRS e-file advertisements highlight the time differencebetween electronic filing and paper return refund processing.

The IRS needs to identify alternate strategies for increasing electronic filing ratherthan intentionally denying improved customer service to millions. Taxpayers mayfile on paper either for personal choice or because of financial constraints. Improvedservice should not be sacrificed so that the IRS can meet electronic filing goals. Theaudit demonstrated that significant time saving processes are achievable at minimal costs.The choice to not accelerate refund processing by IRS senior executives is a costly one totaxpayers and the government. The high costs alone for answering calls and makinginterest payments suggest that other strategies should be pursued.

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Objective and Scope

The objective of this audit was to evaluate whether theInternal Revenue Service’s (IRS) operations are makingprogress towards meeting business visions andstrategies. We assessed whether the IRS has included inits strategies the requirements to provide customerservice established by statute and Executive Order.

We contacted executives in National Office functions,assessed Internal Audit (now Office of Audit, TreasuryInspector General for Tax Administration) and General

Accounting Office audit reports and reviewed pertinentmanagement studies to draw conclusions. The audit wasconducted from August 1997 through April 1998. Thedetailed objective, scope and methodology are providedas Appendix I.

The major contributors to this report are included inAppendix II.

Background

This report presents the results of an assessment of the1997 filing season and whether the IRS is makingprogress towards its strategic initiatives. The report ispart of audit services to provide executive managementwith broad overviews of critical tax administrationissues.

Results

The IRS improved filing season results from theprevious filing season. The performance measureresults used to determine whether goals are being metwere generally improved in all filing season categories.The IRS was also successful in implementing newlegislation preventing erroneous refunds, improvingtelephone service, increasing the volume of electronic

The objective focused on the IRS’ efforts to providecustomer service.

The report summarizes theresults of an assessment of the1997 filing season.

The IRS improved filingseason results from the

previous filing season.

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filers, and increasing the number of walk-in taxpayers toalmost seven million.

The 1997 filing season audits focused on programdelivery. While some areas require improvements,filing season audits determined that the individualprograms were generally effective in meeting objectivesand goals. This report presents an overall evaluation of the performance outcomes from a customer perspective.

The National Performance Review (NPR) recommendedand Executive Orders directed agencies to be customer-driven. We assessed the three related areas of strategicplanning, customer service, and stakeholder service.Overall, the IRS was moving towards the Executive andCongressional direction; however, further improvementsare needed.

The audit focused on two critical areas for successconcerning filing season activities.

• Increased Emphasis on Executive Branch andCongressional Initiatives Can Assist inTransforming the IRS Into a More Customer-DrivenAgency (see page 3).

• Improved Customer Focus through Complementary

Goals Can Improve Taxpayer Satisfaction andReduce Operating Costs (see page 7).

Each success area focuses on implementing thecustomer-driven service being emphasized by thePresident and the Congress.

The 1997 filing season audit results showed that programswere generally effective inmeeting goals and objectives.

Government agencies aredirected to be customer-

focused and driven.

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Increased Emphasis on Executive Branch andCongressional Initiatives Can Assist inTransforming the IRS Into a More Customer-Driven Agency

Subsequent to the issuance of a draft of this report, the IRS changed its Mission Statement. The followinginformation is provided to show the importance of linking the Mission Statement to customer-drivenstrategic planning. The IRS has not developed a revised strategic plan as yet.

Few agencies affect as many taxpayers as the IRS doeseach filing season. Both the President and the Congressare emphasizing customer service. The President hasfocused on reforming the way the federal governmentworks. The goal is to create a government that “worksbetter and costs less.” To accomplish the Presidentialgoals, the Vice President directed the NPR throughseveral phases of initiatives.

NPR began in 1993 with the initial report Creating aGovernment That Works Better and Costs Less. To helppromote the report, the President issued 16 executivedirectives by the end of 1993. One of the directivesrequired agencies to set customer service standards.

At the same time, the Government Performance andResults Act of 1993 (GPRA) required federal agenciesto develop strategic plans, establish an annualperformance plan, and report performance results to thePresident and the Congress. The time line forimplementing these requirements varies, but all shouldbe implemented by the year 2000.

The GPRA required each agency to submit a strategicplan by September 30, 1997, covering at least five yearsfor the agency’s program activities. The plan is tocontain the mission, long-term goals and objectives, andstrategies for achieving those goals and objectives. Theplan is to be updated at least every three years and is tobe the basis for goal setting and performance measures.

The goal of NPR is to create agovernment that works better and costs less.

The GPRA requires agenciesto have strategic and

performance plans, as well asto report results to theCongress.

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We compared the overall direction being set byExecutive and Congressional initiatives with the IRSstrategic plans by reviewing two documents:

• The NPR Vision and Strategies for Customer-DrivenStrategic Planning

• The IRS Fiscal Year (FY) 1998 Strategic Plan andBudget

The NPR Vision and Strategies for Customer-DrivenStrategic Planning

The two major change initiatives, the GPRA and theNPR, are designed to transform the way governmentagencies deliver services. The IRS has activelyparticipated in both the GPRA pilots and the NPRinitiatives. The GPRA requires that strategic plans bedeveloped and the NPR focus is on customer-drivenorganizations.

A customer focus is evidenced by Presidential actions.In 1993, the President issued an Executive Orderrequiring federal agencies to:

- identify customer bases; and

- determine from their customers the kind and

quality of services they expect.One NPR report is especially germane to the customerservice topic. In February 1997, the Federal

Benchmarking Consortium Study Report on Best Practices in Customer-Driven Strategic Planning wasreleased. The study report serves as a tool forgovernment leaders to adopt the best practices incustomer-driven strategic planning.

The IRS FY 1998 Strategic Plan and Budget

The IRS has been a leader among federal agencies instrategic management and the use of a strategicmanagement process. The IRS has taken steps tointegrate planning, budgeting, performance measures,and program evaluation. The IRS started the integratedplanning process with the 1997 Strategic Plan andBudget and continued the conversion with the issuance

The IRS has actively

participated in both GPRA pilots and NPR initiatives.

The IRS is a leader ingovernment use of thestrategic management process.

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The IRS has the opportunity to achieve a customer-driven strategic planning process.

The IRS has begun a process to identify customersatisfaction levels in several functions. The Director of the Strategic Planning Division planned to usecontractor support to gather data on customersatisfaction in FY 1998.

To implement the NPR best practices for a customer-driven strategic planning process, the IRS needs toextend its data gathering to include the followingactions:

- Examine products, services and processes

through the eyes of the customer.- Identify customers’ preferences and

requirements as well as their standards forperformance and timeliness.

- Capture both spoken and unspoken preferences,standards and other industry practices.

Customer-driven strategic planning is dependent on thisinput.

Recommendation

1. Senior IRS executives should evaluate how theStrategic Plan and Budget can be more integratedwith the NPR direction for customer-driven strategicplanning. The evaluation should include anassessment of the Mission and Vision to ensure theIRS can communicate a customer-driven planningprocess that will direct and align the entireorganization.

Performance measures and standards can then bealigned to focus the IRS on meeting customerrequirements for the kinds and quality of services.

Management’s Response: Subsequent to the issuance of the draft report, and in accordance with similar NPRrecommendations, the IRS changed the MissionStatement to read as follows:

Customer-driven strategic plans can provide the focus for functions to work towards thesame goal.

Senior executives should evaluate whether the StrategicPlan and Budget can be moredirected toward customer-driven strategies.

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“Provide America’s taxpayers top quality serviceby helping them understand and meet their taxresponsibilities and by applying the tax law withintegrity and fairness to all.”

Office of Audit Comments: The IRS did not address allaspects of the recommendation in its response to thedraft report. While changing the Mission Statement isan important step in changing the IRS, changing theother aspects of the strategic plan are also vital. TheCommissioner has made performance measures onedriver of change. However, the details of theperformance measures were not available when IRSresponded to a draft of this report.

Improved Customer Focus throughComplementary Goals Can Improve TaxpayerSatisfaction and Reduce Operating Costs

When functions do not share complementary goals,functional efficiency can be achieved withoutconsidering organizational effectiveness.

The IRS’ ability to deliver NPR-defined, world-classcustomer service has been hindered by functions notsharing complementary goals and measures. The IRSapproach to issuing refunds on paper-filed tax returnsand its adverse impact on customer service toll-freetelephone lines is an example of this condition.

The IRS has continued to study the relationship betweenpaper return refund processing time frames and the toll-free telephone call volumes. Studies in 1992 and 1996recommended accelerating refund processing to improvecustomer service. However, no changes have beenimplemented.

The 1997 IRS Customer Satisfaction Survey showed that67 percent of taxpayers surveyed considered promptrefunds “really important.” At the same time,47.5 percent of taxpayers were “very satisfied” with thelength of time it was taking to receive a refund. Theterm “prompt refund” was not defined in the survey.

The ability of the IRS todeliver NPR-defined, world-class customer service hasbeen hindered by non-aligned goals.

The IRS is re-examining itsefforts to better identifycustomer expectationsregarding refunds.

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In the past, IRS study recommendations to acceleraterefund processing were not implemented because theIRS accepted the premise that taxpayers were satisfiedwith the time taken to issue refunds.

The 1997 filing season again showed that once ataxpayer files a refund return, many inquired about whenthey would receive the refund. Virtually all servicecenters processed refunds in the 40-day processingperiod goal. Therefore, approximately 58 milliontaxpayers who filed paper tax returns received theirrefunds in about six weeks.

Taxpayers can inquire about their refund status by eithercalling the automated TeleTax system or by calling thetoll-free assistor lines. The two systems combined callvolume exceeded 132 million calls during the filingseason. IRS answered 85 million of these calls. At aminimum, 52 percent of all calls answered are refundinquiries. An estimated $22.4 million 1 was expended

just to answer refund calls.

Based on the volume of calls for this purpose, taxpayersare apparently concerned about the status of theirrefunds. Between January 1, 1997, and the week of April 5, 1997, there were 62.1 million attempted calls to

the automated TeleTax system. Approximately24.6 million callers (40 percent) received a busy signal.Over 85 percent of the 37.5 million answered calls wererefund inquiries. If 85 percent of all call attempts wererefund inquiries, then there is a high probability thatapproximately 53 million calls during the 1997 filingseason were refund inquiries.

Additionally, the unanswered calls affect customer andstakeholder perceptions of the IRS. Telephone accesswas cited as the second most pressing problem facingthe IRS in the Taxpayer Advocate’s Annual Report to

Congress FY 1996.

1 This figure represents the estimated costs based on budgetinformation provided by Customer Service. The actual cost of refund calls is not tracked. The cost is only the time actuallyexpended on a call, and no overhead time is included.

A minimum of 52 percent of allcalls answered are refund inquiries.

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In our opinion, continually expanding and/or upgradingthe telephone system is the high cost solution.Conversely, reducing telephone call volume wouldachieve the same results with no additional costs.However, reducing the number of telephone callsreceived will require a coordinated strategy by bothSubmission Processing and Customer Service.

Short Term Strategies

The challenge is to identify ways to accelerate refundprocessing without re-engineering paper tax returnprocessing. The NPR change methods for rescopingcurrent processes and cooperating with internal andexternal stakeholders are the appropriate models.

Depending on the actions taken, the IRS couldsignificantly reduce the time needed to issue refundchecks. The audit identified estimated time savingsranging from several days to several weeks. Althoughthe primary thrust of these efforts is to improvecustomer service and reduce demand on toll-freeassistance, there are also some cost reductions. Short-term strategies that could be in place in the near futurefollow.

Accelerating the processing cycle for paper-filedrefund tax returns

Currently, the IRS’ performance measure for issuingrefunds on paper-filed tax returns is targeted at 40 days.In 1997, service centers generally achieved this goal.However, this measure creates a barrier to processingrefunds more timely because the measure focuses onoptimizing the efficiency of service center processingoperations as opposed to the delivery of customerservice. At certain times, service centers may extendtheir time frames for working refunds to meet this

measure. This measure illustrates how the servicecenters have no incentive to improve customer serviceby reducing the processing time.

Expanding the telephonesystem is costly. Reducingdemand would achieve thesame results with noadditional costs.

The IRS has opportunities tosignificantly decrease thelength of time needed to issuerefund checks.

The IRS’ 40-day measure toissue refunds creates a barrier to accelerated refund

processing.

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The 40-day time standard has remained unchanged forseveral years, even though the IRS’ response to the NPRin 1993 cited actions to be taken to speed refunds totaxpayers. Other IRS studies have made similarrecommendations; but the processing system hasremained virtually unchanged.

Processing refund returns in five- to seven-day cycleswhenever possible

Service center processing guidelines provide for somemanagement discretion in the time frames for workingrefund returns. Generally, service centers attempt toprocess refund returns in one to three cycles (a cycle is aweek of processing). Service center managers indicatedthat the potential exists for processing refund returnsmore quickly; however, such actions would conflict withthe 40-day performance measure, which emphasizesefficiencies in workload management.

Service center processing takes up to 20 days of the40-day standard for issuance of refunds on paper-filedtax returns. The other time portion is with MartinsburgComputing Center (MCC) processing and issuing therefund. The IRS needs to balance the cost savings of notaccelerating refund issuance against the extra costs

incurred by Customer Service in responding to refundinquiries.

Extending the weekly cycle cut-off date for refundreturns

Currently, service center weekly processing cycles endon Thursdays. The accounts are then balanced andcomputer runs are perfected prior to data transmission tothe MCC. The opportunity exists for service centers tomeet a Friday cut-off date. However, the change wouldadd minimal extra staff costs and reduce the servicecenter time buffer for providing data to MCC. The timebuffer is used so that errors can be corrected and timeframes can still be met.

Service centers are measured on their ability to meetcycle cut-off dates. Service center managers indicatedthat there would be concern that without the extra day,

Service centers have noincentive to improve customer

service by reducing the processing time.

The IRS needs to balance thecost savings of not accelerating refunds against responding to refund inquiries.

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this performance measure may not be met. Again,functional goals are at odds with customer service goals.

The Friday cut-off would allow approximately20 percent of taxpayers due refunds (1 of 5 day’s work)to receive their refunds one week earlier than they donow. Thus, the service centers and the MCC have theopportunity to change methods and procedures toimprove the level of service to taxpayers.

Examine MCC and Financial Management Service(FMS) processing to identify how time frames forissuing refunds could be shortened

In May of each filing season, the IRS coordinates with

the FMS to accelerate refund check issuance. The FMSis the Treasury agency that issues the refunds. Thiseffort helps the government avoid incurring interestexpenses on tax refunds not issued by the 45-dayinterest free period for processing timely filed returnsallowed by law.

These accelerated time frames are evidence that theMCC and FMS time frames for processing refunds canbe shortened. For example, the MCC might adjust theway it accumulates refund transactions and forwards theauthorization data to the FMS.

In another example, MCC cycle processing schedulesshow release dates for “direct deposit” refunds to be10 days prior to the “assessment” posting date. Anassessment posting date is the date of record for the taxliability. All other refunds are not scheduled forissuance until three days prior to the “assessment” date.If the rationale for expediting the “direct deposit”refunds can be applied, an opportunity exists to reducerefund issuance time by seven days for the paper refundchecks that are mailed to taxpayers.

Similar opportunities may exist for FMS processing.For example under existing procedures, after receivingauthorization data from the MCC, the FMS has 10 daysto issue refund checks.

The benefit of an extended cut-off date would acceleraterefunds to 20 percent of thetaxpayers by 1 week.

There is evidence that the MCC and FMS time frames for processing refunds can beshortened.

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The IRS recognized the potential for expediting refundsin an action plan for implementing NPRrecommendations. However, there has been noappreciable progress in accelerating refunds totaxpayers. An obstacle to accelerating the process is theIRS’ use of part of the FMS time lag to identify and stoperroneous refunds. However, the advantage of thisdelay needs to be balanced against the adverse impact oncustomer service and toll-free telephone demand.

The preceding strategies would create an opportunity tobetter assess the impact of more timely refunds onincreasing customer satisfaction and reducing demandon toll-free services.

With minimum impact on service center operations,current IRS research efforts would be provided withanalogous data for developing long-term strategies. TheIRS would set a two-year time frame for collectingcustomer data related to refunds. Given this time frame,the IRS would be able to evaluate the incremental valueof any implemented changes. This information wouldthen be available prior to recommending more extensivemodifications to the existing process.

Recommendation

2. The Assistant Commissioner (Customer Service), incooperation with the Assistant Commissioner(Forms and Submission Processing), should evaluateand implement appropriate initiatives foraccelerating issuance of refunds to taxpayers. Theseactions should include, but not be limited to, thefollowing:

- Implementing, on at least a test basis, aservice center accelerated five- or-six-daycycle time for processing refund returns.

- Modifying current processing time frames toencourage service centers to extend weeklycycle cut-off dates to Friday.

- Negotiating with the MCC and the FMS toidentify and take advantage of opportunities

The IRS recognized the potential for expeditingrefunds. However, there hasbeen no appreciable progressin achieving this NPRinitiative.

IRS functions can acceleraterefunds by aligning goals and by coordinating with externalstakeholders.

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for reducing time taken to authorize and issuerefunds.

- Focusing the performance measurement forrefund issuance on customer service bycreating the incentive to minimize the daystaken to provide taxpayers with their refundchecks.

Management’s Response : Management plans nocorrective actions to change the service centerprocessing cycle time frames for paper refund returnsbased on their interpretation of the Restructuring andReform Act of 1998.

During the Mainframe Consolidation Process,management will reassess the Audit recommendation tomodify cycle processing time from Thursday to Friday.A Request for Information Services has been prepared tomake the necessary changes to issue refund checks onerror-free returns at the same time as direct depositrefunds. Completion of this action is contingent uponacceptance of the Request for Information Services byInformation Systems and Financial ManagementService. This change would affect 7.4 million electronicfilers and 65 million individual and business filers. The

government could save up to $150 million in interestpayments.

Management plans no corrective actions to focusperformance measures on minimizing refund issuancetime frames based on their interpretation of theRestructuring and Reform Act of 1998.

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Long Term Strategies

Reconsidering the establishment of a TaxpayerProfile database file for authorizing acceleratedissuance of taxpayer refunds

In 1996, an IRS task force recommended an express taxrefund program modeled after the state of Virginia'sprogram used for the past nine years. This proposalinvolved a taxpayer account verification system capableof authorizing the issuance of refunds in half the timenormally needed. However, the IRS rejected thisrecommendation. After the state of Virginiaexperienced an initial decrease in refund calls, call

volumes rose to previous levels.Likewise, in 1992, the Service Center ReorganizationStudy recommended the establishment of a SummaryAccount Record (SAR). This SAR was envisioned toinclude entity and account history that would beavailable on-line. The SAR benefits included:

• Reducing data transcription costs.

• Authorizing the accelerated release of refund checks.

• Accomplishing “one stop service.”• Consolidating multiple issues into single notices.

Our position is that a year-to-year rollover of entity andrefund information could be used to accelerate refundsand reduce processing costs. The potential benefits bothin decreased costs and improved customer service wouldoutweigh the cost of the system and the risks associatedwith accelerating the refunds.

Development of a taxpayer profile database wouldcreate opportunities for the IRS not only to expediterefunds, but also to implement the more efficient andeffective “one stop service” initiatives that are part of the IRS’ long-term strategies.

The Service Center Reorganization Studyrecommended developing anon-line taxpayer record that would assist in acceleratingrefunds and provide better service to taxpayers.

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Recommendation

3. The IRS should initiate efforts to reevaluate prior

IRS recommendations and develop a strategy forimplementing a taxpayer profile system. This wouldminimize risks while making the informationavailable for accelerated refund issuance and “onestop service” programs.

Management’s Response : By June 1999, the IRS willreevaluate prior IRS recommendations and determine if there is a need to develop a taxpayer profile system.

Conclusion

Few agencies have a greater opportunity to serve thepublic than the IRS. The IRS delivered the 1997 filingseason with proficiency and quality; however, in achanging environment even more is expected. Customerneeds and expectations have to be understood. Strategicplans can then be developed to deliver high qualityproducts and services to customers through better, faster,and cheaper programs. The Government Performanceand Results Act of 1993, the National PerformanceReview, and related Executive orders provide theframework to transform the IRS into a more customer-driven and customer-focused agency.

The IRS has the opportunity to move to the forefront oncustomer-driven strategic planning. The MissionStatement and Business Vision need to communicate tocustomers, stakeholders, and employees the IRScommitment to focus on the needs and expectations of the customer. Once the customer-driven strategicplanning process is implemented, performance measurescan be developed to ensure the organization is aligned

and focused to serve the customer.

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Appendix I

Detailed Objective, Scope and Methodology

The objective of this audit was to evaluate whether the Internal Revenue Service’s (IRS)operations are making progress towards meeting business visions and strategies. Weassessed whether the IRS has included in its strategies the requirements to providecustomer service established by statute and Executive Order.

To accomplish the objective, the following audit steps were performed.

A. Assessed whether the IRS had included in its strategies the requirementsestablished by Statute, e.g., the Government Performance and Results Act, and byExecutive Orders to provide customer-focused service to taxpayers. Also,compared and contrasted the National Performance Review Vision and Strategiesfor Customer-Driven Strategic Planning with the IRS’ Fiscal Year (FY) 1998Strategic Plan and Budget.

B. Interviewed IRS executives and management personnel from various NationalOffice operations, including Customer Service, Submission Processing, andManagement and Administration to gain insight into their concerns and todevelop viable, pragmatic solutions to the concerns identified. Also, discussedinsights and concerns with management personnel at the Philadelphia ServiceCenter and with other stakeholders, including the United States Postal Service.

C. Reviewed efforts to assess prior Internal Audit (now Office of Audit, TreasuryInspector General for Tax Administration) reports and General Accounting Officeaudit reports regarding filing season topics to develop potential leads and areas forpossible follow-up.

D. Identified and reviewed IRS and management studies related to CustomerSatisfaction and Expectations, as well as other filing season topics, to developpotential leads. Efforts included reviews of the Service Center ReorganizationStudy (1992), the IRS Rescoping IRS Business Operations (1995), and theExpress Refund Initiative (1996).

E. Reviewed the results of the following Office of Audit 1997 Filing SeasonReadiness reviews to identify any recurring themes which warrant executive levelattention:• Review of the Customer Service Toll-Free Telephone System Filing

Season Readiness (final report issued 11/20/97)

• Taxpayer Walk-in Program for the 1997 Filing Season (final report issued12/22/97)

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• Tax Season On-Line (final report issued 1/16/98)

• Revenue Protection Processing of Invalid and Duplicate Social Security

Numbers (final report issued 2/20/98)• Effectiveness of Invalid Primary SSN Processing (final report issued

5/7/98)

• Review of the Individual Taxpayer Identification Number Program (draftreport issued 4/24/98)

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Appendix II

Major Contributors to This Report

Kerry R. Kilpatrick, Regional Inspector General for Audit

Philip Shropshire, Deputy Regional Inspector General for Audit

Leon Niemczak, Senior Auditor

Hillary Chybinski, Auditor

Carol Gerkens, Auditor

Anthony Saranchak, Auditor

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Appendix III

Report Distribution List

Chief Operations Officer OP

Chief Information Officer IS

Taxpayer Advocate C:TA

Assistant Commissioner (Customer Services) OP:C

Assistant Commissioner (Forms and Submission Processing) OP:FS

National Director for Legislative Affairs CL:LA

Office of Management Controls M:CFO:A:M

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Appendix IV

Management’s Response to the Draft Report

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