oversight

IRS' Field Office Restructuring in Ohio

Published by the Government Accountability Office on 1997-07-03.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

GAO
      United States
      General Accounting    Office
      Washington,   D.C. 20548

      General   Government   Division




       B-276562

       July 3, 1997

       The Honorable John Glenn
       United States Senate

       Subject: IRS’ Field Office Restructuring in Ohio


       Dear Senator Glenn:

       This letter responds to your request that we provide information on the
       Internal Revenue Service’s (IRS) most recent field office restructuring effort,
       especially as it relates to Ohio. IRS announced in August 1996 that it would
       eliminate more than 1,000 positions in its field offices, including some in Ohio.
       As agreed with your office, we addressed the following questions: (1) How do
       IRS’ field office restructuring plans affect Ohio? (2) What have been some of
       the operational impacts in Ohio as IRS transitions to its new structure and are
       they likely to continue after the consolidation is complete? (3) What savings, if
       any, will IRS achieve from its field office restructuring? On April 2, 1997, we
       briefed your staff on the results of our work, and they asked that we document
       our results in a letter.

       BACKGROUND

       Before 1995, IRS’ organizational structure included a National Office and 82
       field offices (7 regional offices, 63 district offices, 10 service centers, and 2
       computing centers). In May 1995 IRS announced plans to consolidate its 63
       district offices into 33 district offices.’ IRS’objectives in consolidating the
       district offices were to (1) foster an integrated and consistent approach to
       compliance over a wider geographic area, (2) decrease taxpayer burden by




       lIRS also announced plans to eliminate three of its seven regional offices. The
       regional offices that were eliminated were located in Cincinnati, OH;
       Philadelphia, PA; and Chicago, IL. The regional office consolidation became
       effective October 1, 1995.
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promoting consistency across wider geographic areas, and (3) provide managers
greater flexibility to shift compliance staff within the district to respond to changing
workload requirementsunder IRS’consolidation plan, the noncontinuing districts were
to continue employing front-line compliance and customer service staff; but their
management structure-district office director, assistant director, and chiefs of various
functional areas, such as taxpayer service, collection, and examination-was to be
eliminated. Front-line employees remaining in the noncontinuing districts were to
report through their immediate managers to the management structure in the
continuing districts. That reporting structure took effect in October 1996. IRS
deferred decisions regarding other activities to be eliminated in the noncontinuing
districts, such as compliance support functions, pending further study. These
compliance support functions include processing paperwork that is required to (1)
close out examinations so that taxpayers can be assessed taxes and (2) document that
taxpayers have paid assessed taxes so that liens on their assets can be released.

In deciding which districts to merge, IRS attempted to create districts that were more
uniform in size than was the case under the 63district office structure. Accordingly,
total staffing was a key criterion that IRS used to decide which district offices should
retain a management structure and be designated as continuing districts. Generally,
smaller districts were merged into larger ones. However, this was not the case in
Ohio. Before the consolidation, Ohio had two districts that had relatively equal
staffing-one headquartered in Cleveland and the other headquartered in Cincinnati.
As part of the consolidation, the two districts were merged to for-r-nthe Ohio District,
headquartered in Cincinnati. The Ohio District has several suboffices, called posts-of-
duty, located throughout the state.

At the time IRS announced its district office consolidation, other function-specific
reorganizations were under way that affected regional office and district office
responsibilities. For example, in 1993, IRS started to centralize various support
activities, such as personnel, facilities management, and training (hereafter referred to
as Support Services). Also, IRS had recently completed a pilot test of a proposed
structure for managing and servicing regional and district office automation needs.
The first phase of implementing this new structure, referred to as the field information
systems organization (FISO), began in fiscal year 1996. Enclosure I has additional
information on the various reorganizations that have affected IRS’regional and district
offices.

 To help transition to the new 334istriet office structure, continuing districts were to
 develop plans showing how they would operate after the district office consolidation.
 These transition plans were approved by regional and National Office officials between
 September 1995 and January 1996. Subsequently, according to IRS National Office
 officials, Regional Commissioners and Chief Officers in the National Office agreed to
 assess the interactions of the various functional reorganizations such as Support
 Services and FISO on the district office consolidation plan. They considered, for
 example, whether IRS wanted a noncontinuing district office to function as a
 consolidated site for Support Services. Also, at that time, IRS faced the prospect of a


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flat or declining budget for fiscal year 1997; and IRS officials said that in addition to
using voluntary methods to downsize, IRS may have to use involuntary methods,
including a reduction in force (RIF). Accordingly, IRS officials said that they were
attempting to achieve as many efficiencies as possible from the various
reorganizations.

To help assess the interactions of the various functional reorganizations on district
office responsibilities, IRS’ Office of Workforce Transition convened a task force for
each functional area affected by the consolidation. On the basis of input from these
functional teams, the Office of Workforce Transition issued an Organizational Impact
Analysis report on April 14, 1996, that outlined a standard approach for consolidation,
For example, that report recommended that all district office compliance support
functions be centralized in the continuing districts within 18 months after October 1,
1996.

In accordance with the Organizational Impact Analysis, IRS’National Director for
Strategic Planning, in a May 23, 1996, memorandum to the Regional Commissioners,
(1) provided guidance on how to identify the excess occupied positions expected as a
result of the various reorganizations, as of October 1, 1997; (2) asked the regional
functional chiefs to develop a standard set of criteria for any needed positions that
resulted from the various reorganizations; and (3) asked that any requests for
exceptions to the guidance on excess positions be received by June 4, 1996. The
Regional Commissioners met and made consensus recommendations regarding the
requests for exceptions to the Chief Management and Administration, the Chief
Compliance Officer, and the Deputy Commissioner. As a result, requests for 93
positions were approved as exceptions Servicewide.’ IRS’October 1996 final
nationwide listing of excess and needed positions showed 2,371 excess positions and
1,312 needed positions-a potential net reduction of 1,059 positions.

IRS’fiscal year 1997 appropriation act prohibited IRS from implementing its field
reorganization plan, including conducting a RIF, until it delivered a report to Congress
on, among other things, the costs and benefits of its field office restructuring. In
hopes of reducing the number of employees who would be subject to a RIF, IRS, from
January 13 through February 5, 1997, offered buyouts to employees who occupied
positions that (1) were targeted for elimination or (2) were potential placement
opportunities for employees whose positions were targeted for elimination. As of
June 18, 1997, IRS had processed 1,261 buyouts, 48 of which were for IRS employees
in Ohio. IRS cannot conduct a RIF until it reaches a RIF agreement with the National
Treasury Employees Union (NTEU). As of June 18, 1997, IRS and NTEU had not


21RSofficials considered some of the following conditions in deciding whether to grant
an exception: (1) the noncontinuing district had a business function that needed to be
retained or preserved in its current location, (2) the staffing arrangement proposed in
the exception request was expected to generate the same overhead savings as the
consolidated approach, and (3) the proposed staffing arrangement was expected to
produce additional revenue.

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reached agreement on various issues surrounding IRS’RIF plans, including the scope
of the agreement (e .g., whether it should be limited to only the current field
reorganizations or those in the future) and various employee rights under a RIF. A
hearing is scheduled before the Federal Services Impasse Panel from July 8 to 10,
1997, to resolve open issues. IRS officials said they are also negotiating the transfer of
work from the noncontinuing districts to the continuing districts with local union
representatives.

RESULTS IN BRIEF

As a result of field office restructuring, Ohio is expected to lose 98 positions-the net
of 154 positions to be eliminated (all of which are to be in Cleveland) and 56 positions
to be added (all but one of which is to be in Cincinnati). The district office
consolidation accounts for most of the positions that are to be eliminated in Ohio. As
a result of that consolidation, Cleveland is to lose 96 positions, most of which are in
compliance support functions that are responsible for such tasks as closing
examination cases, assessing the quality of audits, and processing liens. Cincinnati is
to gain positions so that it can do the work that is to be transferred from Cleveland.

According to Ohio District officials, at the time of our visit in February 1997, the
district was experiencing some backlogs-delays in processing work and increases in
inventories- in some compliance support functions. According to Cleveland
examination managers, delays were occurring in processing the paperwork to close
certain audits. These managers said the backlogs stemmed Tom a decline in staff
productivity resulting from low morale and attrition. Cleveland’s collection support
manager said that backlogs were occurring in processing the paperwork needed to
substantiate that taxpayers had paid assessed taxes so that liens against their assets
could be released. According to this manager, the backlogs stem from fewer staff
available to do the work-the staff had dropped from 19 to 15 and 4 more employees
planned to take buyouts.

Some Ohio District officials said that these backlogs could continue or increase if
needed positions in Cincinnati are not staffed with trained employees. However,
according to district officials, after all the work is transferred to Cincinnati and all
needed positions are filled with fully trained staff, backlogs will diminish or disappear.
According to a district official, as of May 2, 1997, the Regional Commissioner was
reviewing their request to be,gin lilling needed positions.

 In its March 27, 1997, report to Congress on the restructuring of its field support
 functions, IRS said that it expects to save $138 million in personnel costs as a result of
 eliminating 1,059 field office jobs. For the most part, IRS’methodolo,by for computing
 the savings is consistent with the methodology that we have used in computing
 personnel savings associated with buyouts versus RIFs.~ Although IRS is projecting


 3Federal Downsizing: The Costs and Savings of Buvouts Versus Reductions in Force
 (GAO/GGD-96-63, May 14, 1996).
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savings in personnel costs, it does not intend to reduce its overall staffing by the net
number of field positions it plans to eliminate. Instead, IRS plans to redirect the $138
million to fund additional front-line customer service and compliance positions.

We recognize that if (1) the redirection of resources allows IRS to process more front-
line work (e.g., examine more tax returns, collect more delinquent taxes, and answer
more telephone calls) than is currently the case and (2) staff in the headquarters of
consolidated districts can handle all of the consolidated worMoad without adversely
affecting cycle time or work quality, IRS could achieve some efficiencies from its field
office restructuring. However, it is unclear whether the consolidation might also
involve some operational costs, such as increases in cycle time and reductions in work
quality that may offset some of those benefits. Because IRS’staffing levels are likely
to fluctuate from their current levels, without a baseline ratio of front-line compliance
and customer service staff to support staff before field office restructuring, it will be
difficult to attribute changes in outputs to IRS’field office restructuring. Without
information on the operational costs of restructuring and a baseline ratio of front-line
staff to support staff, it will be difficult to fully assess the net costs and benefits of
IRS’field office restructuring.

OHIO IS TO LOSE 98 POSITIONS AS A
RESULT OF FIELD RESTRUCTURING

As a result of IRS’various restructuring efforts, Ohio is expected to lose 98 positions-
a net of 154 positions being eliminated in Cleveland, 55 positions being added in
Cincinnati, and 1 position being added in Columbus, an Ohio post-of-duty. The district
office consolidation is the source of most of the job loss in Cleveland-96 positions.
Of these 96 positions, 81 are compliance support positions. Ohio also is losing
positions as a result of FISO, Support Services, and other reorganizations.

According to IRS’ Chief Management and Administration, and a member of the
working group that evaluated restructuring alternatives, because of IRS’desire to
create districts that are similar in size and workload, the geographic locations for the
continuing district offices, for the most part, were obvious to the working group.
Consolidations generally led to mergers of smaller districts into larger ones. However,
this was not the case in Ohio. Before those offices were consolidated, Cincinnati had
1,107 full-time equivalent staff and Cleveland had 1,113 full-time equivalent staff.’
According to an IRS official, the selection of Cincinnati (rather than Cleveland) as
headquarters for the consolidated Ohio District Office was largely a management
decision, given that the staffing levels for the former Cincinnati and Cleveland district
offices were essentially equal.

In applying the guidance for identifying excess positions, the Ohio District Director
asked for many exceptions. As shown in enclosure I, those exceptions covered 90 of


4These numbers, which exclude Support Services and FISO staff, are as of April 16,
1994, and include 1995 hiring projections.
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the positions to be eliminated in Cleveland, 5 of which were approved.5 Compliance
support activities accounted for most of the positions for which the Ohio District
Director requested exceptions. Essentially, the exception requests were based on the
Ohio District Director’s concerns over disruptions that could be caused by
consolidating compliance support activities in Cincinnati. He expressed concern that
this consolidation would cause severe work backlogs and significantly decrease IRS’
enforcement presence. However, when we met with Ohio District officials in early
February 1997 (8 months after their exception requests were written), they said that
these outcomes were not likely and that Cincinnati compliance support groups would
be able to absorb Cleveland’s work with little long-term disruption. In that regard, the
Ohio District Director said that the district had submitted many of its exception
requests in an attempt to retain trained employees and reduce the impact on
 Cincinnati’s resources as Ohio transitioned to its new structure.

In addition to the compliance support positions previously discussed, FISO staffing in
Ohio is to be reduced by about 44 percent-from 27 to 7 in Cleveland and from 30 to
25 in Cincinnati.6 Cleveland also is to lose 31 Support Services positions because
when Cleveland was designated as a noncontinuing district office, IRS decided not to
retain Cleveland as one of the its centralized Support Services sites.

SOME WORK BACKLOGS ARE OCCURRING IN
OHIO’S COMPLIANCE SUPPORT FUNCTIONS

According to Cleveland managers, some work backlogs-delays in processing work and
increases in inventories-were occurring in compliance support functions at the time
we did our audit work. However, it is too early to tell whether they will continue
after the work is transferred to Cincinnati and needed positions are filled. Cleveland
examination managers attributed the backlogs to a drop in productivity resulting from
low staff morale, attrition, and the inability to transfer work to Cincinnati. Cleveland
collection managers attributed the backlogs to attrition4 of the 19 staff in one of the
support groups had left since the district office consolidation began and 4 more were
expected to take buyouts. Ohio District officials were also concerned that these
backlogs could continue or increase even after the work is transferred to Cincinnati,
depending on how quickly IRS could hire and train staff to fill needed positions in
 Cincinnati. However, these officials said that after new staff were in place and trained


 5The five requests that were approved were for taxpayer service and the Federal&t&e
 Program. IRS is consolidating its customer service operations into 23 centers.
 Because Cleveland, rather than Cincinnati, is to be the location of one of the 23
 centers, IRS decided to locate the district’s Chief of Taxpayer Service, Assistant Chief
 and two staff in Cleveland. IRS also decided that Ohio’s Federal/State Coordinator
 should be in Columbus, the state capital, rather than in Cleveland or Cincinnati.
 ‘Cleveland is to retain some FISO staff because it is the site of one of IRS’ 23
 proposed customer service sites, and IRS wanted to have FISO staff available locally
 to service those sites.
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they would be able to handle the consolidated workloads. According to an Ohio
District official, as of May 2, 1997, the Regional Commissioner was reviewing the
District’s request to begin filling needed positions. According to Ohio District officials,
the three areas being adversely affected during the transition, and possibly after the
work is transferred to Cincinnati, are the Examination Support and Processing (ESP)
unit, Collection Support, and FISO.

The ESP unit is primarily responsible for closing completed examinations so that IRS
can assess taxes. After an examination of a tax return is completed, an IRS revenue
agent sends the case file to a centralized ESP unit where it is processed and various
information about the examination is keyed into a management information system.
These data are used to generate a notice to the taxpayer about taxes owed. IRS
generally continues to- charge the taxpayer interest and penalties until the bill is paid,
including the amount of time it takes IRS to process the completed exam. However,
on cases in which the taxpayer agrees with the assessment, IRS cannot charge interest
past 30 days from the date of the agreement. ESP’s two priorities are to close cases
(1) approaching the statutory limit for an assessment-generally, 3 years from the date
a return is filed and (2) involving agreed assessments of over $10,000.

According to managers in Cleveland, their ESP unit was not experiencing a backlog in
high priority examination cases. However, they said backlogs were occurring in
closing lower priority cases. As an indication of the potential impact of these
backlogs, the Cleveland ESP unit had 533 cases (about 28 percent of the total active
inventory) over 30 days old, as of February 3, 1997, compared with 58 cases (about 8
percent) in Cincinnati. Cleveland managers attributed the backlog to low staff morale
and attrition that began when employees realized their jobs were in jeopardy.7

Additionally, managers in the Cleveland office were concerned about Cincinnati’s
ability to absorb Cleveland’s workload when the transfer of compliance support work
finally occurs because Cleveland’s ESP unit was larger than Cincinnati’s unit and had a
larger workload. Cleveland’s ESP unit had about 41 cases per employee as of
February 1997 compared with 25 cases per employee in Cincinnati. Ohio District
officials said that, while they are concerned about backlogs increasing, they have
alternatives that will lessen the impact if backlogs continue after the work is
transferred and needed positions are filled. Specifically, they plan to detail tax
examiners to field exam groups to close simple cases-decreasing the workload of the
centralized ESP unit. Also, district officials in Cincinnati said that if backlogs increase
they could temporarily detail front-line examination staff to the Cincinnati ESP unit to
help close cases.

Cleveland managers also expressed concern, to a somewhat lesser degree, about the
impact of the consolidation on the collection support group. That unit is responsible


‘We recognize that there could be other explanations for this large disparity. We
could not compare Cleveland’s current backlog to its backlog, if any, at a comparable
point in time before the restructuring began because of a change in reporting systems.
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for various activities that support front-line collection personnel, including issuing and
releasing liens and processing payments from taxpayers. These positions are to be
eliminated in noncontinuing districts. When we visited Cleveland in February, the
collection support manager told us that one of the offices in the collection support
group was experiencing delays in preparing documents evidencing the full or partial
payment of assessed taxes so that liens could be released. The collection support
manager attributed these delays to a loss of staff-the staff in this group decreased
from 19 to 15, and 4 more were expected to take buyouts.

As of May 2, 1997, according to the Chief of the Collection Division, these backlogs
were continuing, and the district could not transfer workload to Cincinnati because
the Ohio District had not yet negotiated with NTEU a process for transferring the
work. Consequently, the district was considering detailing revenue officers into the
collection support group until work can be transferred.

Managers in the Cleveland office were also concerned that after the consolidation it
may take longer for IRS to file hens against Cleveland taxpayers because Cleveland
used a procedure that the managers felt was more efficient than the centralized
approach used by Cincinnati. However, according to the Chief of Ohio’s Collection
Division, the district in March 1997 decided to adopt Cleveland’s procedure.

Managers in Cleveland and Cincinnati as well as the Ohio District Director expressed
concern over the potential impact of the F’ISO consolidation. FISO managers
expressed concern over their ability to fully service the district’s computer and
telecommunications resources with a staffing reduction of about 44 percent. The
managers said that downtime on some information systems that are used for customer
service activities could increase as a result of the FISO staffing reduction. However,
they were not tracking downtime at the time of our visit, so it will be difficult for the
managers to measure the impact of the staffing reduction after it takes effect.

DETERMINING THE AMOUNT OF NET
SAVINGS FROM IRS’FIELD OFFICE
RESTRUCTURING WILL BE DIFFICULT

 Congress directed IRS, in its fiscal year 1997 appropriation act, to report to the House
 and Senate Committees on Appropriations, no earlier than March 1, 1997, on the
 impact of its reorganization including, among other things, the overall costs and
 benefits of the proposed field office restructuring. In its report, which was delivered
 on March 27, 1997, IRS said that the restructuring would generate personnel cost
 savings of $138 million from fiscal years 1997 through 2001. As shown in table 1, the
 reported savings are the net of (I) salary savings from eliminating 2,371 positions; (2)
 costs associated with filling 1,312 needed positions; and (3) transition costs, such as
 buyouts, associated with the reorganization.




                                          GAO/GGD-97-125R   IRS’ Field Office Restructuring   in Ohio
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Table 1: IRS’Estimate of Savings From Field Office Restructuring

(Dollars in millions)

                                                           Salary  savings
                                              costs of                 from
                                         fiig     1,312       eliminating
                        Transition                  new               2,371
    Fiscal   year            costsa         positionsb           positions         Net savings
    1997                     ($33.8)             ($24.0)
    1998                    ( 10.2)               (49.9)
    1999                           0              (53.6)                97.0                  43.4
    2000                           0              (54.7)                97.0                  42.3
    2001                           0              (55.9)                97.0                  41.1
    Total                    ($44.0)            ($238.1)              $420.1                 $138.0

“transition costs include the costs of buyouts, moves, and RIFs.
bThe cost of new positions includes salaries and training costs.

Source: Renort On the Internal Revenue Service Field Sunnort Reorganization, March
27, 1997.


IRS’ methodology for estimating the costs and benefits of its field office restructuring
was generally consistent with methodology that we have used in estimating the costs
and savings of buyouts versus RIFs.* In cases where IRS’ methodology differed from
our methodology, we determined that those differences would tend to overstate the
costs of IRS’restructuring and thus understate potential savings.

Although IRS is projecting savings in personnel costs, it does not intend to reduce its
overall staffing by the net number of field positions it plans to eliminate. Instead, as
noted in its report, IRS plans to redirect these resources to front-line customer service
and compliance operations in the field offices. Therefore, IRS will not be achieving
any personnel cost savings a+sa result of field office restructuring. IRS’report states
that the redirection of resources will enable it to maintain stable levels of service and
compliance in fiscal year 1998 and help compensate for out-year budget projections
through 2002 that are essentially flat.




‘GAOIGGD-96-63.
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IRS’Chief Management and Administration said IRS fully expects to achieve
operational efficiencies as a result of IRS’field office restructuring. Specifically, he
said by redirecting resources from support positions to front-line customer service and
compliance positions, there will be a higher ratio of front-line staff to support staff
than is currently the case. As a result, he expects that IRS will be able to answer
more calls from taxpayers and collect more revenue than would have been the case
without the reorganization. He said that IRS did not develop any estimates about
these expected benefits for its report to Congress because the appropriation language
did not require IRS to do so.

We recognize that if (1) the redirection of resources allows IRS to process more front-
line work (e.g., examine more tax returns, collect more delinquent taxes, and answer
more telephone calls) than is currently the case; and (2) staff in the headquarters of
consolidated districts can handle all of the consolidated workload without adversely
affecting cycle time or work quality, IRS could achieve some efficiencies from its field
office restructuring. However, it is unclear whether the consolidation might also
involve some operational costs, such as increases in cycle time and reductions in work
quality, that may offset some of those benefits. Given that IRS’staffing levels are
likely to fluctuate from their current levels, without a baseline ratio of front-line
compliance and customer service staff to support staff before field office
restructuring, it will be difficult to attribute changes in outputs to IRS’field office
 restructuring. Without information on the operational costs of restructuring and a
 baseline ratio of front-line staff to support staff, it will be difficult to fully assess the
 net costs and benefits of IRS’field office restructuring.

AGENCY COMMENTS AND OUR EVALUATION

We requested comments on a draft of this letter from the Acting Commissioner of
Internal Revenue or his designee. On June 18, 1997, we obtained comments from the
Chief Management and Administration. He generally agreed with the facts and
provided some technical clarifications and updated information, which we considered
and made changes where appropriate. However, he expressed two areas of concern
about the letter. fist, he said the letter focused on some of the adverse impacts of
various reorganizations at the local level, without mentioning some of the potential
benefits at other organizational levels within IRS. Second, he said he disagreed with
our assessment of the likelihood of savings from IRS’field office restructuring.

 With respect to his first concern, he said that our conclusions regarding the impact of
 consolidations at the local level and some of the causes of those impacts were based
 on speculations from local managers. We believe that the local managers we
 interviewed were in the best position to assess the impact of the various
 organizational restructuring at the local level, although we recognize that they may not
 have had adequate data to fully assess these issues. The Chief Management and
 Administration also said that while local managers might observe some negative
 impacts during the transition period of consolidation, our letter did not include a
 discussion of some of the benefits IRS expects to achieve as a result of its various


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reorganizations. While we recognize that the reorganizations may have some benefit
beyond the local level, the scope of our audit did not include an assessment of those
benefits at locations other than at the district offices we visited.

His second concern focused on our characterization of the likelihood of achieving
savings. Our letter states that IRS may achieve some efficiencies, whereas he believes
IRS will in fact achieve savings from field office restructuring. We revised the letter in
an attempt to recognize IRS’ overall expectations, but, as we note in that revision,
there are factors that will make it difficult to quantify the net savings from
restructuring.

The Chief Management and Administration also asked that we point out that IRS’total
staffing has declined from 112,069 full-time equivalents in fiscal year 1995 to an
estimated 102,926 full-time equivalents in fiscal year 1997. During this time, while IRS
base-level staffing has declined, IRS has been redirecting resources that were doing
non-front-line work to front-line compliance and customer service work. One example
he cited was the elimination of regional office positions in the three regional offices
that IRS closed. According to the Chief Management and Administration, some of
those staff have been redirected to front-line compliance or customer service work.


SCOPE AND METHODOLOGY

To determine how IRS’field office restructuring plans affected Ohio, we reviewed
various IRS studies and analyses used to support decisions to (1) reduce the number
of district offices from 63 to 33 and (2) eliminate various field positions in concert
with the reduction in the number of district offices. Using an IRS listing of jobs that
were to be eliminated and to be added, we identified those functional areas that were
most affected and we met with the highest ranking officials or managers of those
areas in Cincinnati and Cleveland in February 1997. We had subsequent conversations
with various district officials by telephone. We also met with IRS’ Chief Management
and Administration, other IRS National Office and regional office officials, the
President of NTEU and union representatives in Cincinnati and Cleveland.

Although IRS offices in Ohio are losing some positions from several reorganizations
(e.g., district office consolidation, FISO, and Support Services), we focused our audit
work on the district office consolidation. We took that approach because the district
office consolidation accounted for most of the noncontinuing positions in Ohio, and
because we believe that the loss of those positions is more likely to adversely affect
Ohio taxpayers than the loss of positions from the other reorganizations. Conclusions
regarding operational impacts are based primarily on interviews with managers in
Cincinnati and Cleveland. For the most part, we could not use existing performance
measures to assess operational impacts because they either did not exist or an
appropriate baseline would have been difficult to determine.




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To evaluate the methodology IRS used to calculate the costs and benefits of its field
restructuring, we compared that methodology to one we have used to assess the cost
and benefits of buyouts versus RIPS.’

We did our work from January 1997 to April 1997, in accordance with generally
accepted government auditing standards.

We are sending copies of this letter to other members of the Ohio congressional
delegation, the Secretary of the Treasury, the Commissioner of Internal Revenue, and
other interested parties. We will make copies available to others on request. Major
contributors to this letter are listed in enclosure II. If you or your staff have any
questions about the information in this letter, please contact me on (202) 512-9110 or
David Attianese of my staff on (202) 512-9029.

Sincerely yours,



Lynda D. Willis
Director, Tax Policy and
  Administration Issues




 ‘GAO/GGD-96-63.
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ENCLOSURE I                                                                 ENCLOSURE I
     SUMMARY OF THE FUNCTIONAL AREAS AFFECTED BY IRS’FIELD OFFICE
           RESTRUCTURING AND OHIO’S REQUESTED EXCEPTIONS


As a result of an April 14, 1996, Organizational Impact Analysis, IRS officials
developed a list of 1,059 field office positions that were to be eliminated-the net of
2,371 noncontinuing positions and 1,312 positions that were needed as a result of
various organizational restructuring plans. Those positions encompassed the following
functional areas in field offices: Examination, Collection, Taxpayer Service, the
Problem Resolution Program, Field Information Systems Organization (FISO), Support
Services, Employee Plans and Exempt Organizations, Appeals, the Controller’s office,
Field Executive Direction, Inspection, and Procurement. With the exception of the
Problem Resolution Program, Ohio was targeted to lose positions in all of these
functional areas.

District offices could request exceptions to the positions that were identified as
noncontinuing. Their requests were first reviewed by the Regional Commissioner with
oversight responsibility for the district requesting the exception. Then, the Regional
Commissioners met, as a group, and made consensus recommendations to the Chief
Management and Administration, Chief Compliance Officer, and the Deputy
Commissioner for final approval. As a result, requests for 93 positions were approved
as exceptions Servicewide.

In a June 4, 1996, memorandum to the responsible Regional Commissioner, the Ohio
District requested exceptions for 90 positions, of which 5 positions were ultimately
approved for exception. Table I.1 shows the net expected change in the number of
positions for Cleveland and Cincinnati, by functional area, (after the exceptions were
approved) and the number of exceptions requested and approved.




13                                     GAO/GGD-97-125R   IRS’ Field Office Restrucfmring   in Ohio
ENCLOSURE I                                                                           ENCLOSURE I
Table 1.1: Net Expected Change as of October 2, 1996. in the Number of Positions bv
Functional Area in Cincinnati and Cleveland and the Number of Positions for Which
Ohio Reauested Exceptions and Received Annroval


                           Net change            Net change             Number of          Number of
                                    for                   for           exceptions         exceptions
 Functional    area         Cincinnati            Cleveland              requested           approved
 Examination                         41”                   -64                      68                 1”
 Collection                               7                -17                      16                  0
 Taxpayer Service                     -8                    -6                       4                  4
 Problem Resolution                       0                     0                    0                  0
    Program
 FISO                                 zb                  -27b                       0                  0
  Support Services                        1                -31                       0                  0
  Employee Plans and                                                                                    0
     Exempt
     Organizations                   49’                        0                    0
  Regional Officed                   -30                        0                    0                  0
  Other”                              -6                    -9                       2                  0
  Total                               56                 -154b                      90                   5

“Includes Federal/State Coordinator position to be established in Columbus.

bAlthough, on paper, Cleveland is to lose 27 FISO positions, only 20 positions may
actually be lost because 7 of Cincinnati’s FISO positions are to be located in
Cleveland. Likewise, although Cincinnati is to gain two positions on paper, Cincinnati
is scheduled to lose five positions because seven of its FISO positions are to be
located in Cleveland. Therefore, the net loss for Cleveland may be only 147, and the
net gain for Cincinnati may be only 49.

“This increase results from the consolidation of all of IRS’exempt organization
determination work in Cincinnati.

dAlthough the Cincinnati Regional Office closed October 1, 1995,30 regional office
positions were still occupied when IRS prepared its October 1996 listing of
noncontinuing positions. Employees occupying those positions were to report to the
Southeast Region in Atlanta.



 14                                           GAO/GGD-97-125R       IRS’ Field Office Restructuring   in Ohio
ENCLOSURE I                                                                   ENCLOSURE I
eIncludes Appeals, the Controller’s office, Inspection, Field Executive Direction, and
Procurement.

Sources: GAO computed the net change in the number of positions using data from
IRS’October 2, 1996, listings of excess and need positions. The number of exception
requests are from Ohio’s June 4, 1996, memo to the Northeast Regional Commissioner.
The number of approved exceptions is from IRS’listing of approved exceptions as of
July 25, 1996.

Descriptions of (1) the functional areas that are affected by field office restructuring
and (2) the Ohio District’s requests for exceptions in those areas are discussed in the
following sections.

Examination

Of the 90 exceptions requested by the Ohio District, 68 were in the examination area.
All but 2 of these 68 exception requests were for examination support positions42
positions in the Examination Support Processing Unit (ESP), 10 positions in the
Planning and Special Programs (PSP) unit, and 14 positions in Quality Measurement
Staff (QMS). ESP is primarily responsible for closing completed examinations so that
taxpayers may be assessed taxes and penalties owed. PSP is responsible for
classifying and screening returns prior to examination and for conducting special
programs to identify potentially noncompliant taxpayers. QMS is responsible for
reviewing completed examinations to ensure that they were properly done. Ohio’s
exception request was made on the basis of concerns that Cincinnati would not be
able to absorb the work of the Cleveland examination support groups. The entire
exception request for examination support was denied.

The other two requests for exceptions in the examination area involved the
Disclosure Specialist and a Federal/State Coordinator. Disclosure Specialists are
responsible for administering IRS’program to ensure that taxpayer information is
protected. Federal/State Coordinators are responsible for coordinating activities
between IRS and state agencies. The Ohio District requested that (1) a Disclosure
Specialist be retained in Cleveland because of a concern about the District’s ability to
absorb Cleveland’s workload in Cincinnati, and (2) the Federal/State Coordinator be
located in Columbus, the state capital and a site of one of the district’s posts-of-duty,
where he could better serve the state. Only the exception for locating the
Federal/State Coordinator in Columbus was granted.

Collection Suunort

The Ohio District requested an exception covering all 16 collection support positions
that were targeted for elimination. Collection support is responsible for various
activities, including issuing liens and lien releases and processing taxpayer payments,
that support front-line collection personnel. The Ohio District Director requested that



15                                       GAO/GGD-97-125R   IRS’ Field Office Resix-ucturing   in Ohio
ENCLOSURE I                                                                   ENCLOSURE I
all 16 positions be retained in Cleveland because it would be difficult for Cincinnati’s
group to absorb Cleveland’s workload. The entire request was denied.

Taxpaver Service

Ohio requested an exception to locate its Chief of Taxpayer Service, Assistant Chief,
and two support staff in Cleveland rather than Cincinnati because Cleveland is
scheduled to continue as a customer service site. IRS is consolidating its telephone-
based customer service activities from 70 sites to 23 sites, including Cleveland.
Cincinnati’s call site is scheduled to close in 1999.l’ The 23 customer service sites are
to absorb the functions of (1) toll-free taxpayer service (TPS) sites, which answer calls
about tax law and procedures, taxpayer accounts, and notices that taxpayers receive
from IRS; (2) automated collection system (ACS) sites, which contact taxpayers to
secure delinquent tax returns and payments and answer calls from taxpayers who are
the subject of collection actions; and (3) forms distribution centers, which handle
requests for tax forms and publications. The request to have a Chief .of Taxpayer
Service, an Assistant Chief, and two support staff in Cleveland was approved.

The Ohio District Director did not request exceptions for two other types of taxpayer
service positions that are scheduled to be eliminated in Cleveland-a taxpayer
education coordinator and an electronic filing coordinator. Their workload is to be
transferred to Cincinnati. Taxpayer education coordinators are responsible for
administering district taxpayer education activities, focusing especially on business
groups. Electronic filing coordinators are responsible for promoting electronic filing
and monitoring tax preparers who participate in the program.

Problem Resolution Program

Ohio did not request an exception for its Problem Resolution Program. Under the
district office consolidation, Problem Resolution Officers (PROS) are to remain in
noncontinuing districts as Associate PROS, but their staffs were designated as
noncontinuing. The PRO is responsible for helping taxpayers who feel that they have
not been treated fairly by IRS and/or are experiencing a personal hardship as a result
of some IRS action. PROS make use of functional staff, such as taxpayer service
representatives or revenue agents, to “work” the cases. These case workers are not
scheduled to be eliminated by the consolidation. Also, noncontinuing districts with
continuing call sites, such as Cleveland, are to retain their full PRO staff, primarily
because most taxpayer complaints requiring PRO attention are received by IRS
through customer service sites.




 ‘“According to an IRS official, IRS plans to offer employees at the Cincinnati call site
 the opportunity to transfer to the customer service site located at the service center in
 Covington, KY.
 16                                       GAO/GGD-97-125R   IRS’ Field Office Restructuring   in Ohio
ENCLOSURE I                                                                   ENCLOSURE I
FISO

Ohio did not request an exception for the 27 F’ISO positions that were identified as
excess in Cleveland. Under the F’ISO concept, oversight responsibility is being
transferred from district directors to Regional Directors of Information Services. All
F’ISO positions are to be eliminated in noncontinuing district offices unless the office
is also a customer service site. Because Cleveland is a customer service site a few
PISO staff will remain.
The major goal of this reorganization is to manage field information systems resources
as a corporate asset by aligning them under the Chief Information Officer. IRS
expects that doing so will enable it to more consistently employ information
technology throughout its field operations and to leverage resources across district
boundaries. FISO is responsible for providing customer and technical support for
district computer and telecommunications resources and for administering IRS’
computer security program and related budgetary and procurement programs.

Sun~ort Services

Ohio did not request any exceptions for the 31 Support Services positions Cleveland
was scheduled to lose. In 1993, IRS developed a strategy to make more efficient use
of IRS staff who provide various support services, such as personnel, training, and
facilities management. By May 1995, IRS had consolidated these services from 84 sites
into 23 sites, including Cleveland. However, when Cleveland was designated as a
noncontinuing district, IRS decided that it would not continue as a consolidated
Support Service site and Cleveland’s work was to be transferred to Detroit. IRS also
eliminated another consolidated site, reducing the number to 21.

Emnlovee Plans and Exempt Organizations (EP/EO)

Ohio did not request any exceptions for EP/EO because it is gaining, not losing EP/EO
staff. EP/EO monitors employee benefit plans to ensure compliance with the
Employee Retirement Income Security Act of 1974 and monitors organizations that are
exempt from federal income tax to ensure compliance with statutory requirements.
Cincinnati has been designated as one of five key EP/EO districts nationwide. All
work associated with making determinations about whether an organization meets the
requirements for a tax exempt organization is being centralized in Cincinnati.

Other

Ohio requested an exception for two positions that were to eliminated in the “other”
category. The “other” category includes the Office of Field Executive Direction,
Appeals, the Controllers office, Inspection, and Procurement. Ohio requested
exceptions for two positions under the Office of Field Executive Direction. That
office supports the District Director and generally includes a Public Affairs Officer, an
Equal Employment Opportunity Specialist, and a Quality Coordinator. The Quality
Office oversees various initiatives to improve work processes. Since noncontinuing


17                                      GAO/GGD-97-125R   IRS’ Field Office Restructuring   in Ohio
ENCLOSURE I                                                                   ENCLOSURE I
offices will no longer have a district director, IRS determined that these positions
were no longer needed in noncontinuing sites. The Ohio District requested, and was
denied, exceptions for its Equal Employment Opportunity and Quality Offices in
Cleveland.

Ohio did not request exceptions for appeals (one position in Cincinnati and two
positions in Cleveland), inspection (two positions in Cincinnati), the controller’s office
(five positions in Cleveland), and procurement (three positions in Cincinnati). The
appeals function provides an impartial review process for cases in which a taxpayer
does not agree with IRS’determination about taxes owed. Inspection includes IRS’
Internal Audit and Internal Security functions. The Controllers office is responsible
for budget and accounting work for field offices.




 18                                       GAO/GGD-97-125R   IRS’ Field Office Restructuring   in Ohio
ENCLOSUREII                                                                   ENCLOSURE II

                     MAJOR CONTRIBUTORS TO THIS REPORT

GENERAL GOVERNMENT DMSION, WASHINGTON. D.C.

David Attianese, Assistant Director, Tax Policy and Administration Issues
Sherrie Russ, Senior Evaluator
Bryon Gordon, Senior Evaluator

ATLANTA FIELD OFFICE

Robert V. Arcenia, Evaluator-in-Charge
Ronald J. Heisterkamp, Evaluator




(268760)




19                                       GAO/GGD-97-125R   IRS’ Field Office Restructuring   in Ohio
.




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