oversight

IRS' Field Office Restructuring in Pennsylvania

Published by the Government Accountability Office on 1997-10-10.

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-276893

      October 10, 1997

      The Honorable William J. Coyne
      House of Representatives

      Subject:     IRS’ Field Office Restructuring        in Pennsvlvania


      Dear Mr. Coyne:

      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 Pennsylvania. IRS announced in August 1996 that it would eliminate
      more than 1,000 positions in its field offices, including some in Pennsylvania. As
      agreed with your office, we addressed the following questions: (1) On what basis
      did IRS decide to consolidate the Philadelphia and Pittsburgh districts as part of an
      overall district office consolidation plan? (2) How did this consolidation and other
      field office restructuring plans affect IRS positions in Pennsylvania? (3) What have
      been some of the programmatic impacts in Pennsylvania as IRS transitions to its
      new structure, and are they likely to continue after the consolidation is complete?
      (4) What savings, if any, will IRS achieve from its field office restructuring? On
      July 8, 1997, we briefed your office on the results of our work, and agreed to
      document our results in this 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 promoting consistency across




      ‘IRS also announced plans to eliminate three of its seven regional offices,
      effective October 1, 1995. The regional offices that were eliminated were
      located in Cincinnati, OH; Philadelphia, PA; and Chicago, IL.

                                         GAO/GGD-98-9R   IRS’ Field Office Restructuring   in Pennsylvania
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wider geographic areas, and (3) provide managers with greater flexibility      to shift compliance
staff within the district to respond to changing workload requirements.

Under IRS’ consolidation plan, the 30 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.

When IRS announced its district office consolidation, other function-specific reorganizations
were under way that affected regional 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, the first phase of
a new structure for managing and servicing regional and district office automation needs,
referred to as the Field Information Systems Organization (FISO), began in fiscal year 1996.
The enclosure has additional information on the effect of IRS’ field office restructuring on
Pennsylvania’s functional areas.

To help the transition to the new structure of 33 districts, 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 flat or declining budget for fiscal year 1997.
Accordingly, IRS officials said that they were attempting to improve efficiency as much as
possible with the various reorganizations.

 To help IRS 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. However, plans to consolidate




 2                                  GAO/GGD-98-9R IRS’ Field Office Restructuring   in Pennsylvania
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the support functions for the district office insolvency units were deferred until fiscal year
1998.’

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. As a result of this process, in October 1996, IRS
developed a final nationwide listing of excess and needed positions. That listing showed
2,371 excess positions and 1,312 needed positions--a potential net reduction of 1,059 positions
for fiscal year 1997.

IRS’ fiscal year 1997 appropriation act prohibited IRS from implementing its field
reorganization plan, including conducting any reduction-in-force (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,
from January 13 through February 5, 1997, IRS 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, 122 of which were for IRS employees in Pennsylvania.

IRS could not conduct a RIF until it finalized a RIF agreement with the National Treasury
Employees Union (NTEU). A hearing was held before the Federal Services Impasse Panel on
August 8, 1997, to resolve open issues, such as the scope of the RIF agreement (e.g., whether
the RIF agreement should be limited to only the current field reorganizations or include
future reorganizations) and various employee rights under a RIF. As a result of that hearing,
a RIF agreement was developed and signed by both IRS and NTEU and was approved by the
Department of the Treasury on September 9, 1997. According to IRS’ Chief Management and
Administration, IRS is currently examining its next steps. He said that based on the results of
the most recent round of buyouts offered between July 6 and August 8, 1997, and the filling
of vacancies in continuing districts, a decision will be made within the next several weeks on
whether IRS will conduct a RIF.3 IRS officials said that they are also negotiating with local
union representatives the transfer of work from noncontinuing districts to continuing
districts.




“The insolvency unit is responsible for handling cases where taxpayers who owe IRS money
have filed for bankruptcy.

3For this buyout period, IRS processed another 209 buyouts, 5 of which were for IRS
employees in Pennsylvania.

3                                   GAO/GGD-98-9R   IRS’ Field Office Restructuring   in Pennsylvania
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    RESULTS IN BRIEF

    Before the district office consolidation, Pennsylvania had two districts-one headquartered in
    Philadelphia and the other in Pittsburgh. As a result of the consolidation, the two districts
    were merged to form the Pennsylvania District, headquartered in Philadelphia. In deciding
    which districts to merge nationwide, IRS attempted to create districts that were more uniform
    in size than was the case under the structure of 63 districts. 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, as was the case in Pennsylvania, where Pittsburgh was merged into
    Philadelphia.

    According to IRS’ October 1996 final nationwide listing of excess and needed positions,
    Pennsylvania is expected to lose 132 positions as a result of field office restructuring-the  net
    of 187 positions to be eliminated (79 in Pittsburgh and 108 in Philadelphia) and 55 positions
    to be added (26 in Pittsburgh and 29 in Philadelphia). The largest portion of the reductions in
    Pittsburgh are to result from eliminating examination support positions. Slightly more than
I
    half of the reductions in Philadelphia are to result from closing the regional office.” As of
    August 12, 1997, of the 187 employees whose jobs had been identified for elimination, 23
    employees who still remained at IRS had not been designated for placement into other
    positions and therefore may be subject to a RIF.

    Rather than centralizing all compliance support functions in Philadelphia as initially called for
    under the consolidation plan, IRS ultimately allowed the Pennsylvania District to centralize its
    collection support function in Pittsburgh and the examination support function in
    Philadelphia.5 That decision appears to have mitigated the programmatic impacts of the
    district office consolidation on Pennsylvania. In another state that we visited where IRS
    merged two districts into one, all compliance support functions were to be consolidated in
    the continuing district. That led to increased attrition in the noncontinuing district, because
    employment opportunities in the noncontinuing district were limited. That attrition
    contributed to delays in processing work and increases in inventories in compliance support
    functions.6 However, some Pennsylvania district officials felt that attrition was lower in
    Pittsburgh because of the decision to retain a collection support unit in Pittsburgh as a
    potential source of employment for examination support employees whose jobs were to be
    eliminated.




    4Although the Philadelphia Regional Office closed October 1, 1995, 57 regional office positions
    were still occupied in October 1996.

     5The collection and examination support functions are responsible for various activities that
     support front-line Collection and Examination personnel, including issuing and releasing liens,
     processing payments from taxpayers, closing completed audits so that taxes and penalties can
     be assessed, and reviewing completed audits to make sure they were properly done.

     ‘IRS’ Field Office Restructuring   in Ohio (GAO/GAD-97-125R, July 3, 1997).

     4                                    GAO/GGD-98-9R   IRS’ Field Offke   Restructuring   in Pennsylvania
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According to Pennsylvania District officials, at the time of our visit in May 1997, the district
was experiencing a few minor programmatic impacts as a result of the impending downsizing.
For example, Philadelphia’s Chief of Collection said that some attrition was occurring in the
collection support group. As a result, some 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. The Chief said that some collection support staff were
working overtime to reduce backlogs.

Some Pennsylvania District officials said that they were concerned that if Pittsburgh staff are
not trained quickly, backlogs in collection support work could occur once the consolidation
takes place. Also, some Pittsburgh managers were concerned over the district’s ability to
fully service its computer and telecommunications      equipment, given the planned reduction in
FISO staff. The Electronic Filing Coordinator, the Taxpayer Education Coordinator, and the
Public Affairs Officer in Philadelphia expressed concern over the challenges associated with
administering their programs across a large state. However, they said that they hoped to
maintain the level of service in Pittsburgh that had been provided in the past. Finally, several
district officials expressed concern that IRS’ planned consolidation of support staff for the
insolvency unit could affect the district’s ability to process bankruptcy cases. IRS’ Chief
Management and Administration pointed out that the consolidation should not affect IRS’
ability to handle bankruptcy cases, because front-line insolvency staff will not be affected by
this consolidation.   According to the Chief Management and Administration, front-line staff,
not support staff, represent IRS in court proceedings.

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 over a 5-year period as a
result of eliminating 1,059 field office jobs. For the most part, IRS’ methodology for
computing the savings is consistent with the methodology that we have used in computing
the personnel savings associated with buyouts versus RIFs.~ 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, 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 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. If IRS’ staffing levels fluctuate from their current levels, it will be difficult to
attribute changes in outputs to IRS’ field office restructuring without a.ba.seline ratio of front-
line compliance and customer service staff to support staff before the restructuring.         Without
information on the operational costs of restructuring and a baseline ratio of front-line staff to


7Federal Downsizing: The Costs and Savings of Buvouts Versus Reductions in Force
(GAO/GAD-96-63, May 14, 1996).

5                                    GAOIGGD-98-9R   IRS’ Field Office Restructuring   in Pennsylvania
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support staff, which IRS currently does not have, it will be difficult    to fully assess the net
costs and benefits of IRS’ field office restructuring.

TOTAL STAFFING WAS THE PRIMARY CRITERION FOR
SELECTING LOCATIONS FOR CONTINUING DISTRICTS

Before the consolidation Pennsylvania had two districts, one headquartered in Philadelphia
and the other headquartered in Pittsburgh. As part of the consolidation, the two districts
were merged to form the Pennsylvania District, headquartered in Philadelphia. In deciding
which districts to merge, IRS attempted to create districts that were more uniform in size
than was the case under the structure of 63 district offices. To achieve this uniformity,
smaller districts were generally merged into larger ones, as was the case in Pennsylvania.

Total staffing was the primary criterion that IRS used to decide which district offices should
be merged and which offices should retain a management structure and be designated as
continuing districts. In that regard, IRS determined that a continuing district should have a
minimum of about 900 staff.’ As part of its district office reorganization study, IRS developed
an estimate for the number of staff on board in fiscal year 1995-the number of staff on board
as of April 1994, plus hiring projections for fiscal year 1995. The Pittsburgh District’s
estimated staff size was 560, and the Philadelphia District’s estimated staff size was 1,019.
The total staffing for a combined Pennsylvania District was estimated to be 1,579 staff.

 NTEU representatives we met with in Pittsburgh expressed the belief that Pittsburgh should
 have remaineti a stand-alone district on the basis of the number of tax returns filed in that
 district (which is a proxy for a district’s potential workload).  According to the Chief
 Management and Administration, IRS considered workload, such as the number of tax returns
 filed, in making its consolid&ion decisions. However, the Chief said that the combined total
 number of tax returns filed for Philadelphia and Pittsburgh was still a manageable workload
 for one district. In that regard, in its 1995 reorganization study, IRS estimated that the
 Pennsylvania District would have more returns filed in fiscal year 2000 than any other district-
‘-about 11.2 million. IRS estimated that the former Pittsburgh district would account for about
 3.8 million of those returns, which would be fewer than any continuing district.

 Pittsburgh NTEU representatives also said that if Pennsylvania could have only one district
 office, Pittsburgh should have been designated as the headquarters rather than Philadelphia.
 The primary reasons they cited were the productivity losses associated with conducting a RIF
 of productive employees in Pittsburgh and replacing them with new hires in Philadelphia,
 which had been a relatively less productive district according to certain performance
 measures. However, all of the productivity data cited by the NTEU representatives related to
 front-line compliance and customer service activities (e.g., dollars assessed per staff hour in


 ‘The Indiana District, with 699 staff, and the Connecticut-Rhode Island District, with 885 staff,
 were the only exceptions to IRS’ minimum staffing requirement. According to IRS, these
 districts were allowed as exceptions because if they were merged with other nearby districts,
 the resulting districts would have been too large. Total staffing does not include customer
 service staff.

 6                                    GAO/GGD-98-9R IRS’ Field Office Restructuring   in Pennsylvania
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the Examination function and accuracy of information provided to taxpayers calling IRS’
customer service sites). Productivity data of front-line compliance and customer service staff
were not germane to IRS’ consolidation decisions because those decisions affect support
staff, not front-line staff. According to some Pennsylvania District officials, standardized,
agencywide efficiency statistics for compliance support operations do not exist.

Pittsburgh NTEU representatives also expressed concern about the costs associated with
higher locality pay and rent in Philadelphia. These additional costs are not likely to
materialize, because Philadelphia is to incur a net reduction in staffing and is not expected to
require any additional space as a result of the consolidation.

PENNSYLVANIA IS TO LOSE 132 POSITIONS AS A
RESULT OF FIELD RESTRUCTURING

As a result of IRS’ various restructuring efforts, Pennsylvania is expected to lose 132
positions--a net of 187 positions being eliminated (79 in Pittsburgh and 108 in Philadelphia)
and 55 positions being added (26 in Pittsburgh and 29 in Philadelphia). The largest portion of
the reductions in Pittsburgh stems from eliminating examination support positions. Slightly
more than half of the reductions in Philadelphia stem from closing the regional office.

 In applying the guidance for identifying excess positions, the Pennsylvania District Director
 asked for many exceptions. As shown in the enclosure, those exceptions covered 50
 positions that were initially planned to be eliminated in Pittsburgh. The Northeast Regional
 Commissioner initially rejected nearly all of these exception requests. However, she
.subsequently offered the district the option of centralizing one of its support functions in
 Pittsburgh. Accordingly, the Pennsylvania District decided to centralize its collection support
 unit in Pittsburgh. In conjunction with that decision, IRS National Office officials approved
 exceptions covering 60 collection support positions. Two other exceptions were approved in
 customer service.”

As of August 12, 1997, of the 187 employees whose jobs had been identified for elimination,
23 employees who still remained at IRS had not been designated for placement into other
positions and therefore may be subject to a RIF.

PROGRAMMATIC IMPACTS APPEAR TO HAVE BEEN
MITIGATED BY THE DECISION TO CENTRALIZE
SOME SUPPORT WORK IN PITTSBURGH

IRS’ decision to centralize collection support in Pittsburgh appears to have mitigated the
programmatic impacts of the consolidation on Pennsylvania. Examination support employees
in Pittsburgh whose jobs were to be eliminated had a potential source .of employment in the
collection support unit. This was not the case in another state (Ohio) where IRS had merged


“IRS is consolidating its customer service operations into 24 centers, 1 of which is in
Pittsburgh. Thus, IRS decided to locate the district’s Chief and Assistant Chief of Taxpayer
Service in Pittsburgh rather than in Philadelphia.

7                                  GAO/GGD-98-9R   IRS’ Field Offke   Restructuring   in Pennsylvania
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two. districts. In that state, once employees’ jobs in the noncontinuing district (Cleveland)
were identified as excess, attrition increased because employment opportunities in the
noncontinuing district were limited. As we reported in July 1997, that attrition contributed to
some backlogs in Ohio’s compliance support functions.10 Ahhough attrition was occurring in
Pittsburgh’s examination support unit at the time of our visit, the percent of attrition was
lower than in Cleveland.” Some district officials attributed the lower attrition to the decision
to retain a collection support unit in Pittsburgh as a potential source of employment for
examination support employees whose jobs were to be eliminated.

Nonetheless, at the time of our visit in May 1997, the Pennsylvania District was experiencing
a few minor programmatic impacts stemming from attrition in the collection support unit in
Philadelphia, according to district managers. Philadelphia’s Chief of Collection told us 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. However, she
said that the district was able to keep up with the workload by having staff work overtime.
Some Pennsylvania District officials said that they were concerned that if staff in Pittsburgh
are not trained quickly, backlogs in collection support work could occur once the
consolidation takes place. Examination managers in Philadelphia were not as concerned over
potential examination backlogs, because several tax examiners have been transferred to front-
line examination groups to close cases.

A few managers in Pittsburgh expressed concern over the potential impact of the FISO
consolidation.     Specifically, the Pittsburgh FISO manager expressed concern over the
district’s ability to fully service its computer and telecommunications equipment, given the
planned FISO staffing reduction; and the Chief of Taxpayer Service was concerned that
downtime on some information systems used for customer service activities could increase as
a result of the FISO staffing reduction. However, the district does not track performance
measures for FISO--e.g., downtime-so it will be difficult for managers to measure the impact
of the staffing reduction on downtime after the reduction takes effect.

The Electronic Filing Coordinator, the Taxpayer Education Coordinator, and the Public
Affairs Officer all expressed concern about the volume of work they would need to absorb
now that they were responsible for all of Pennsylvania, but they hoped to provide Pittsburgh
taxpayers with the same level of service as in the past. The Electronic Filing Coordinator is
responsible for promoting electronic filing and monitoring tax preparers who participate in
the program. The Taxpayer Education Coordinator is responsible for administering district
taxpayer education activities, focusing especially on business groups. The Public Affairs
Officer is responsible for media, congressional, and public relations.




 “GAO/GAD-97-125R.

 “Between 1995 and the Spring of 1997, about 25 percent of the staff in Pittsburgh’s
 Examination Support Processing (ESP) unit had left that unit compared with 32 percent in
 Cleveland’s unit.

 8                                  GAO/GGD-98-9R   IRS’ Field Office Restructuring   in Pennsylvania
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Finally, several district officials expressed concern that IRS’ planned consolidation of support
staff for the insolvency unit could affect the district’s ability to process bankruptcy cases.
District, officials in Philadelphia felt that the support group should be in Philadelphia because
(1) most of the bankruptcy ca+sesin Pennsylvania are filed in Philadelphia; and (2) the
bankruptcy courts in Philadelphia have traditionally required IRS staff to make personal
appearances during proceedings, whereas courts in the Pittsburgh area are willing to accept a
transcript from IRS. Union officials in Pittsburgh felt that the staff should be placed in
Pittsburgh, because they are part of the collection support unit, and other districts are to
consolidate insolvency support staff within this group. As of August 1997, no official decision
had been made on where the insolvency support unit will be located in Pennsylvania.
However, IRS’ Chief Management and Administration pointed out that the no matter what the
decision, consolidation should not affect IRS’ ability to handle bankruptcy cases, because
front-line insolvency staff will not be affected by this consolidation.    Front-line staff, not
support staff, represent IRS in court proceedings.

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. l2 As shown in table 1, the reported savings are the net of (1) 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.




121nits report on IRS’ fiscal year 1998 appropriation, the Senate Appropriations Committee
stated that IRS’ cost-benefit report lacked sufficient detail on the impacts of its field office
restructuring, particularly on customer service. The Committee directed IRS to continue to
delay its planned restructuring until another report is submitted. This report is to contain a
detailed plan on how IRS will ensure adequate taxpayer service in the future and a detailed
analysis of the impacts of the field office restructuring in rural areas of the country.
Similarly, the House Appropriations Committee, in its report on IRS’ fiscal year 1998
appropriation, directed that the field office reorganization be delayed until a report is
submitted to the Committee on the reorganization’s impact on the provision of taxpayer
services in rural areas.

9                                  GAO/GGD-98-9R   IRS’ Field Offwe Restructuring   in Pennsylvania
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Table 1: IRS’ Estimate of Savings From Field Office Restructuring

(Dollars in millions)


                                                cost of
 Fiscal                 Transition   filling 1,312 new           Salary savings from
 year                      cost9             positionsb   eliminating 2,371 positions          Net savings

  1997                    ($33.8)             ($24.0)                          $38.3               ($19.5)
  1998                     (10.2)               (49.9)                          90.8                  30.7

  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



Note: Numbers in parentheses are negative costs.

Yka.nsition costs include the costs of buyouts, moves, and RIFs.
bThe cost of filling new positions includes salaries and training costs.

Source:    Report on the Internal Revenue Service Field Suuuort Reorganization,                March 27,
1997.

IRS’ methodology for estimating the costs and benefits of its field office restructuring was
generally consistent with the methodology that we have used in estimating the costs and
savings of buyouts versus RIFs.13 In cases where IRS’ methodology differed from ours, 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, relative to what it is spending now, as a result of field office restructuring. IRS’
report states that the redirection of resources will enable it to maintain stable levels of
customer service and compliance in fiscal year 1998 and help compensate for out-year budget
projections through 2002 that are essentially flat.

 IRS’ Chief Management and Administration said that IRS fully expects to achieve operational
 efficiencies as a result of its field-office restructuring. Specifically, he said that by redirecting


 13GAO/GAD-96-63.

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resources from support positions to front-line customer service and compliance positions, the
ratio of front-line staff to support staff will be higher 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. If IRS’ staffing levels fluctuate from their current levels, attributing changes in
outputs to IRS’ field office restructuring will be difficult without a baseline ratio of front-line
compliance and customer service staff to support staff before the restructuring.      Without
information on the operational costs of restructuring and a baseline ratio of front-line staff to
support staff, which IRS currently does not have, 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 September 22, 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 then made
changes where appropriate.

SCOPE AND METHODOLOGY

To determine on what basis IRS decided to combine the Pittsburgh and Philadelphia districts
and how IRS’ field office restructuring plans affected Pennsylvania, 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 to be eliminated and to be added, we
identified those functional areas that were most affected. .We met with the highest ranking
officials or managers of those areas in Philadelphia and Pittsburgh in May 1997 and had
subsequent telephone conversations with various district officials. We met with IRS’ Chief
Management and Administration; other IRS National Office and regional office officials; the
President of NTEU; and union representatives in Philadelphia and Pittsburgh. We also
reviewed some of the data the NTEU representatives in Pittsburgh cited, as justification for
having Pittsburgh remain a stand-alone district.

Although IRS offices in Pennsylvania are losing some positions from several reorganizations
(e.g., regional office-district office consolidation, F’ISO, and Support Services), we focused our


11                                  GAO/GGD-9%9R    IRS’ Field Offke   Restructuring   in Pennsylvania
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audit work on the district office consolidation.   We took that approach because we believe
that the loss of those positions is more likely to adversely affect Pennsylvania taxpayers than
the loss of positions from the other reorganizations. The information regarding operational
impacts is based primarily on interviews with managers in Philadelphia and Pittsburgh. For
the most part, we could not use existin.g performance measures to identify operational
impacts because either they did not exist, or an appropriate baseline would have b,een
difficult to determine.

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 RIFs.14

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



As agreed with your office, unless you publicly release its contents earlier, we plan no further
distribution of this letter until 30 days from its date. At that time, we will send copies to
other members of the Pennsylvania 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 were Bryon Gordon and
Sherrie Russ. If you or your staff have any questions about the information in this letter,
please contact me or David Attianese, Assistant Director, on (202) 512-9110.

Sincerely yours,




 Lynda D. Willis
 Director, Tax Policy and
    Administration Issues




 14GAO/GAD-96-63.

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ENCLOSURE                                                                                ENCLOSURE

       SUMMARY OF THE FUNCTIONAL AREAS AFFECTED BY IRS’ FIELD OFFICE
          RESTRUCTURING AND PENNSYLVANIA’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 nationwide 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 (EP/EO), Appeals, the Controller’s Office, Field Executive
Direction, Inspection, and Procurement. With the exception of the Problem Resolution
Program, Procurement, and EP/EO, Pennsylvania was targeted to lose positions in all of these
functional areas.

District offices could request exceptions to the positions within their districts that were
identified as noncontinuing.   Their requests were first reviewed by the Regional
Commissioner with oversight responsibility for the district requesting the exception. IRS’
four Regional Commissioners then met as a group and made consensus recommendations to
the Chief Management and Administration; Chief Compliance Officer; and Deputy
Commissioner for final approval. As a result, requests for 93 positions were approved as
exceptions Service-wide.”

The Pennsylvania District originally requested 50 exceptions because of its desire to maintain
aspects of both the examination and collection support functions in Pittsburgh and
Philadelphia    After negotiations with the regional and national offices, it was agreed that the
Pennsylvania District would centralize the collection support unit in Pittsburgh. Under that
scenario, the District requested excepuons for 62 positions covering staff different from what
the district had originally proposed. Those exceptions were approved. Table I.1 shows the
net expected change in the number of positions for Philadelphia and Pittsburgh, by functional
area (after the exceptions were approved), and the number of exceptions requested and
approved.




151RSofficials 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.

13                                 GAO/GGD-98-9R   IRS’ Field Office Restructuring   in Pennsylvania
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Table 1.1: Net Exuected Change in the Number of Pennsvlvania District Positions as of
October 2, 1996, and the Number of Exceptions Reauested and Apuroved



                              I                Net change                                      Exceptions

 Functional area                  Pittsburgh                Philadelphia          Requested            Approved
                              I                         I                                          I
  Examination                                   -30                        20                 24                        0

  Collection                                     24                        -32                17                      60



  Problem Resolution                              0                          0                 0                        0
  Program

  FISO                                          -19”                        4a                 0                        0

  Support Services                              -15                        -10                 0                        0

  EP/EO                                            0                         0                 0                        0

  Regional officeb                                 0                       -57                 0                        0

  Other”                                          -6                         1                 3                        0

  Total                                          -53a                      -79”               50                       62

“Although on paper Pittsburgh is to lose 19 F’ISO positions and Philadelphia is to gain 4,
Pittsburgh may actually lose only 12 positions and Philadelphia may actually lose 3, because 7
of Philadelphia’s FISO positions are to be located in Pittsburgh. Therefore, the net loss for
Pittsburgh may be only 46, and the net loss for Philadelphia may be 86.

 bAlthough the Philadelphia Regional Office closed October 1, 1995, 57 regional office positions
 were still occupied when IRS prepared its October 1996 listing of noncontinuing positions.
 Employees occupying those positions in Philadelphia report to the Northeast Region in New
 York City.

 ‘Includes the Controller’s       Office and Field Executive Direction.

 Sources: We computed the net change in the                       number of positions using data from IRS’
 October 2, 1996, listings of excess and needed                    positions. The number of exception requests is
 from the Pennsylvania District’s June 4, 1996,                   memo to the Northeast Regional Chief
 Compliance Officer. The number of approved                        exceptions is from IRS’ listing of approved
 exceptions as of July 25, 1996.




 14                                            GAO/GGD-9%9R           IRS’ Field Office Restructuring             in Pennsylvania
ENCLOSURE                                                                                ENCLOSURE

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

EXAMINATION

Of the 50 exceptions requested by the Pennsylvania District, 24 were in the Examination
function. All but 1 of the 24 requests were for support positions in the Examination Support
Processing (ESP) unit. ESP is primarily responsible for closing completed examinations so
that taxpayers may be assessed taxes and penalties owed. Pennsylvania requested an
exception for examination support positions, because district office officials believed it would
be less disruptive to keep knowledgeable staff in both locations, rather than hire and train
new staff in Philadelphia. The exception request for examination support was denied.

The other request for an exception in the Examination function was for a Disclosure
Specialist. Disclosure Specialists are responsible for administering IRS’ program to ensure
that taxpayer information is protected. That request was also denied.

COLLECTION

The Pennsylvania District requested an exception for 17 collection support positions that
were targeted for elimination in Pittsburgh. Collection support is responsible for various
activities, including issuing liens and lien releases and processing taxpayer payments, that
support front-line Collection personnel. The Pennsylvania District Director requested that 17
positions be retained in Pittsburgh because of the disruptions associated with transferring this
work to Philadelphia (e.g., hiring and training new staff in Philadelphia). This request was
denied, but the district was offered the opportunity to centralize collection support in
Pittsburgh rather than Philadelphia. Pennsylvania decided to accept this approach and, as a
result, Pittsburgh retained 25 collection support positions while 32 collection support
positions in Philadelphia were designated as noncontinuing.      As best we could determine, the
60 approved exceptions for the Collection function shown in table I.1 included not only the 25
retained positions in Pittsburgh but also additional positions that Pittsburgh would need to be
a fully staffed support unit.

TAXPAYER SERVICE

Pennsylvania requested that it be allowed to locate the Chief of Taxpayer Service and a
secretary in Pittsburgh rather than Philadelphia because Pittsburgh was scheduled to continue
as a customer service site. IRS is consolidating its telephone-based customer service
activities from 70 sites to 24 sites.16 Of the 70 sites, 4 were in Pennsylvania--l each in the
former Pittsburgh District and the Philadelphia Service Center, and two in the former
Philadelphia District. With the consolidation, the site located at the former Philadelphia



‘“In July 1997, IRS decided to increase the number of planned customer service sites from 23
to 24.

15                                  GAO/GGD-9%9R   IRS’ Field Office Restructuring   in Pennsylvania
ENCLOSURE                                                                               ENCLOSURE

District is scheduled to close in 1999.17 The consolidated customer service sites are to absorb
the functions of (1) toll-free taxpayer service sites, which answer calls about tax law and
procedures, taxpayer accounts, and notices that taxpayers receive from IRS; (2) automated
collection system 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 and a secretary located in Pittsburgh was approved.

The Pennsylvania District Director requested exceptions for four other Taxpayer Service
positions that are scheduled to be eliminated in Pittsburgh--a Taxpayer Education
Coordinator, an Electronic Filing Coordinator, and two support staff. 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. The exception
was denied, and the workload is to be transferred to Philadelphia.

PROBLEM RESOLUTION PROGRAM

Pennsylvania was not targeted to lose any positions in the Problem Resolution Program.
Problem Resolution Officers (PRO) are 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 Pittsburgh, are to retain their full PRO staff, primarily because IRS receives most taxpayer
complaints requiring PRO attention through customer service sites.

FISO

Pennsylvania did not request an exception for the 19 FISO positions that were identified as
excess in Pittsburgh. Under the FISO concept, oversight responsibility is being transferred
from district directors to Regional Directors of Information Services. All FISO positions are
to be eliminated in noncontinuing district offices unless the office is also a customer service
site. Because Pittsburgh is a customer service site, a few FISO 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. IWO 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.


 17According to an IRS official, IRS plans to offer employees at the Philadelphia        site the
 opportunity to transfer to the customer service site located in the Philadelphia        Service
 Center.

 16                                 GAO/GGD-98-9R   IRS’ Field Office Restructuring   in Pennsylvania
ENCLOSURE                                                                                ENCLOSURE

SUPPORT SERVICES

Pennsylvania did not request any exceptions for the 25 Support Services positions (10 in
Philadelphia and 15 in Pittsburgh) the Pennsylvania District 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, with a small staff remaining in
Pittsburgh as a satellite office of the Philadelphia consolidated site. However, according to
IRS’ Chief Management and Administration, when IRS designated Pittsburgh as a
noncontinuing district, it decided to eliminate its Support Services presence in Pittsburgh, just
as it did in all other noncontinuing offices. IRS has subsequently reduced the number of its
Support Services sites to 21.

OTHER

Pennsylvania requested exceptions for three positions that were to be eliminated in the
“other” category, which includes the Office of Field Executive Direction and the Controller’s
Office. The Office of Field Executive Direction supports the District Director and generally
includes a Public Affairs Officer, an Equal Employment Opportunity Speciahst, and a Quality
Coordinator. The Quality Office oversees various initiatives to improve work processes.
Since noncontinuing offices will no longer have a district director, IRS determined that these
positions were no longer needed in noncontinuing sites. Pennsylvania requested exceptions
for a Public Affairs Officer and the Equal Employment Opportunity specialist, and they were
denied. Pennsylvania also requested an exception for one position in the Controller’s Office,
which was denied. That office is responsible for budget and accounting work for field
offices.




(268797)


17                                 GAO/GGD-9%9R    IRS’ Field Office Restructuring   in Pennsylvania
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