oversight

Tax Administration: Allegations of IRS Employee Misconduct

Published by the Government Accountability Office on 1999-05-24.

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

                United States General Accounting Office

GAO             Report to the Chairman
                Committee on Finance
                U.S. Senate


May 1999
                TAX
                ADMINISTRATION
                Allegations of IRS
                Employee Misconduct




GAO/GGD-99-82
GAO   United States
      General Accounting Office
      Washington, D.C. 20548

      General Government Division



      B-280651

      May 24, 1999

      The Honorable William V. Roth, Jr.
      Chairman, Committee on Finance
      United States Senate

      Dear Mr. Chairman:

      For years, the Congress has expressed concerns about the Internal
      Revenue Service’s (IRS) management and treatment of taxpayers. We, and
      others, have chronicled IRS’ struggle to modernize and have made scores
      of recommendations to improve IRS’ operations and its service to
                                                                 1
      taxpayers. Congressional concerns led to a June 1997 report by the
      National Commission on Restructuring IRS and a series of hearings in 1997
      and 1998 that focused on problems at IRS.

      In April 1998, the Senate Committee on Finance held hearings on alleged
      misconduct by IRS employees in their treatment of other IRS employees
      and taxpayers. Witnesses testifying at the hearings alleged that (1) senior
      IRS managers did not receive the same level of disciplinary action as line
      staff; (2) the Deputy Commissioner of Internal Revenue delayed action on
      substantiated cases of employee misconduct until senior managers were
      eligible to retire; (3) IRS retaliated against whistleblowers and against
      taxpayers and their representatives who were perceived to be
      noncooperative; (4) IRS employees zeroed out or reduced proposed tax
      assessments for reasons not related to the merits of the cases; and (5) IRS
      discriminated against employees in the evaluation process on the basis of
      race or national origin in its Midwest District Office, which is
      headquartered in Milwaukee, WI.

      You asked us to review these allegations and, in particular, to evaluate
      both the specific allegations made at the hearings and any underlying
      systemic or programmatic problems that needed to be resolved to protect
      the rights of taxpayers and IRS employees in these areas. This report
      provides information related to specific allegations regarding IRS senior
      managers and the Midwest District Office. It also brings together
      information bearing on the other allegations from our current and past
      work on systemic problems at IRS. Because some of the specific
      allegations involve taxpayer data that cannot be publicly disclosed, we are
      issuing to you at the same time as this report a separate, restricted letter
      1
      A Vision for a New IRS, Report of the National Commission on Restructuring the Internal Revenue
      Service, June 25, 1997.




      Page 1                               GAO/GGD-99-82 Allegations of IRS Employee Misconduct
                   B-280651




                   that discusses alleged improper zeroing out and retaliation against
                   taxpayers.

                   We did our work in Washington, D.C., and Milwaukee between June 1998
                   and March 1999 in accordance with generally accepted government
                   auditing standards. A complete description of the objectives, scope, and
                   methodology for this report appears in appendix I. A summary of IRS’
                   written comments on a draft of the report appears at the end of this letter.

                   Available data showed significant differences between Senior Executive
Results in Brief   Service (SES) and line staff disciplinary cases in terms of dispositions and
                   processing times. For example, a much higher percentage of SES cases
                   than of lower-level cases was cleared or closed without action, and SES
                   cases tended to take longer to complete. Also, IRS found that actions taken
                   against lower-level employees more closely conformed to its established
                   table of penalties than actions taken against higher-graded employees.
                   However, there was no basis for a more direct comparison of the discipline
                   imposed on senior managers and lower-level employees because SES and
                   line staff offenses, as well as their associated mitigating and aggravating
                   factors, were different. Our ability to make other comparisons between
                   SES and line staff disciplinary cases was hindered by the lack of detailed
                   and accurate data in connection with IRS’ disciplinary case database.

                   Regarding the allegation that the Deputy Commissioner delayed action on
                   senior manager misconduct cases until the managers were eligible to
                   retire, we focused on actual retirements and did not reach general
                   conclusions about eligibility to retire. We found no cases in which an
                   individual who was ineligible to retire when an allegation was filed, retired
                   while the case was pending with the Deputy Commissioner. However,
                   cases we studied in depth were pending for 2 months to 4 years at the
                   Deputy Commissioner’s level. In addition, we estimated, on the basis of a
                   random sample of IRS SES disciplinary files, that SES cases averaged
                   almost a year from the time executive support staff received them until
                   case closure, compared to a goal of 90 days. To address a variety of
                   problems, including poor case-tracking procedures, inaccurate and
                   incomplete records and files, and poor communication, IRS has started to
                   revamp its entire disciplinary system.

                   We could not determine the extent of reprisal against whistleblowers
                   because IRS did not track whistleblowing reprisal cases. The only
                   systematic data available related to formal complaints filed with two
                   independent review agencies—the U.S. Office of Special Counsel (OSC)
                   and the U.S. Merit Systems Protection Board (MSPB). In fiscal years 1995



                   Page 2                       GAO/GGD-99-82 Allegations of IRS Employee Misconduct
B-280651




through 1997, OSC received 63 IRS whistleblower reprisal matters and
obtained action from IRS favorable to employees in 4 cases. In the same
time period, MSPB decided 45 initial appeals of whistleblowing reprisal
allegations involving IRS, dismissing the majority of them but settling more
than half of the remainder.

Regarding allegations of IRS retaliation against taxpayers, we previously
reported that IRS information systems were not designed to identify,
                                           2
address, and prevent such taxpayer abuse. In reviewing IRS databases for
this report, we again found that IRS information systems provided limited
and incomplete data on alleged revenue agent retaliation against taxpayers
and their representatives.

With respect to allegations of improper zeroing out or reductions of
recommended taxes by IRS managers, we found no evidence to support
the allegations in the eight specific cases referred to us by the IRS
employees who testified at the hearings. On the other hand, IRS did not
systematically collect data on how much additional taxes recommended by
auditors were zeroed out or reduced by IRS employees without a basis in
law or IRS procedure. In particular, IRS had no data on supervisors’
improperly limiting auditors’ recommendations of additional tax before an
audit was closed. Although our results were not a measure of improper
reductions in recommended taxes, we recently reported that the majority
of additional taxes recommended during audits was not assessed. We
attributed this to many factors, including the complexity of the tax code
and the overreliance on additional taxes recommended to measure audit
results.

IRS has acknowledged equal employment opportunity (EEO)-related
problems, including problems in hiring and promotion, in its Midwest
District Office and has begun addressing them. After an Equal Employment
Opportunity Commission administrative judge’s finding that an IRS
employee was a victim of discrimination, the district produced a climate
assessment report. In addition, although a recent outside panel found no
discriminatory hiring or promotion practices, its August 1998 report
contained many recommendations related to several district problem
areas, including the hiring and promotion processes. Since the report was


2
 Tax Administration: IRS Can Strengthen Its Efforts to See That Taxpayers Are Treated Properly
(GAO/GGD-95-14, Oct. 26, 1994); Tax Administration: IRS Is Improving Its Controls for Ensuring That
Taxpayers Are Treated Properly (GAO/GGD-96-176, Aug. 30, 1996); and Tax Administration: IRS
Inspection Service and Taxpayer Advocate Roles for Ensuring That Taxpayers Are Treated Properly
(GAO/T-GGD-98-63, Feb. 5, 1998).




Page 3                                GAO/GGD-99-82 Allegations of IRS Employee Misconduct
                       B-280651




                       issued, a new District Director was named who has stated her commitment
                       to overcoming the district’s contentious and long-standing EEO problems.

                       In general, IRS’ lack of adequate information systems and documentation
                       in the areas of employee discipline, retaliation against whistleblowers and
                       taxpayers, and zeroing out of recommended taxes prevented us from doing
                       a more comprehensive analysis of these issues. This lack of information
                       hinders both congressional oversight and IRS management from
                       addressing any problems in these areas. IRS has acknowledged the need
                       for more complete and accurate program and management information on
                       these issues.

                       The IRS Restructuring and Reform Act of 1998 included several provisions
                       related to employee misconduct, abuse, and retaliation. As a consequence,
                       IRS has taken steps intended to begin reform of its processes and data
                       collection in the areas of employee discipline, retaliation, and the tax
                       assessment process, among other things. We believe that it is important
                       that IRS maintain adequate information systems and documentation so
                       that employee and taxpayer complaints, including those related to
                       retaliation, can be properly reviewed.

                       Available data showed that case dispositions and processing times in
Disciplinary Actions   disciplinary cases during the period of January 1, 1996, through June 30,
for Senior Executive   1998, differed for SES employees and lower-level, or general schedule
Service and Lower-     (GS), staff. In addition, a 1997 IRS internal study found that actions taken
                       against lower-level employees more closely conformed to the IRS table of
Level Staff                                                                             3
                       penalties than actions taken against higher-graded employees. However,
                       because of dissimilarities in the types of offenses and incomplete case
                       files, these data do not necessarily prove disparate treatment. Agencies
                       must consider many factors, such as the nature and seriousness of the
                       offense; the employee’s job level and type of employment; whether the
                       offense was intentional, technical, or inadvertent; the employee’s past
                       disciplinary record; and the notoriety of the offense or its impact upon the
                       reputation of the agency, in deciding what penalty, if any, should be
                       imposed in any given case. IRS recognized that problems have hindered
                       the processing and resolution of employee misconduct cases and has
                       begun revamping its disciplinary systems.

Background             For the period we studied, IRS tracked disciplinary cases for GS and SES
                       employees in different systems. The Office of Labor Relations (OLR),
                       which is the personnel office for non-SES staff, handled GS cases. It
                       3
                           Guide for Penalty Determinations Report, IRS, Sept. 1997.




                       Page 4                                    GAO/GGD-99-82 Allegations of IRS Employee Misconduct
B-280651




tracked these cases in the Automated Labor and Employee Relations
Tracking System (ALERTS), although IRS officials told us that ALERTS
data were often missing or incomplete. The Office of Executive Support
(OES), which is the personnel office for IRS executives, handled SES
cases. Although ALERTS was supposed to also track SES cases, OES
tracked SES cases by using a log and monthly briefing reports. The
monthly briefing reports were used to inform the Deputy Commissioner
about the status of cases.

We selected the cases for our study of disciplinary actions for SES and
lower-level staff as follows: For GS cases, we used ALERTS data for 22,025
cases received in, or closed by, OLR between January 1, 1996, and June 30,
1998. For SES cases, our information came from two sources: (1) a 70-case
random sample of SES nontax misconduct case files that were active
                                             4
between January 1, 1996, and June 30, 1998; and (2) for the same time
period, 43 other SES nontax cases reported either in the logs or as
           5
“overaged” SES cases in the monthly briefing reports. In total, we looked
at 113 cases involving 83 SESers. Unless otherwise noted, all SES statistics
presented in this section are based on the random sample. See appendix I
for more information on how we selected the cases for our study.

We were unable to make many meaningful statistical comparisons
between SES and GS employee misconduct cases for three reasons. First,
we were able to collect more detailed data through our SES file review
than from the ALERTS database used for GS cases. This was particularly
true regarding dates on which important events occurred. As a result, we
could not compare average processing time at each phase of the
disciplinary process, although we were able to compare processing times
from case receipt through case closure.

Second, the level of detail and accuracy of ALERTS data varied widely.
Some IRS regions historically took ALERTS data entry more seriously than
others did, according to an IRS memorandum, and cases contained varying
levels of detail about case histories, issues, facts, and analyses. ALERTS
had few built-in system controls to ensure data integrity. Instead, IRS
relied on managers to ensure the accuracy of their subordinates’ work.

Third, some data were missing for the majority of the cases tracked in
ALERTS. For example, we could not analyze the frequency with which
4
 We excluded employee tax cases because they were inherently different from the cases and issues
raised during the April 1998 Senate Finance Committee hearings.
5
    IRS defined overaged cases as those cases pending in OES for more than 90 days.




Page 5                                   GAO/GGD-99-82 Allegations of IRS Employee Misconduct
                                         B-280651




                                         final dispositions were less severe than proposed dispositions because
                                         both pieces of information were available for only about 13 percent of the
                                         ALERTS cases. Because officials said that ALERTS was OLR’s means of
                                         recording information on lower-level disciplinary cases, we used it to the
                                         extent that it had information comparable to what we collected on SES
                                         cases.

Comparisons Between SES                  Available data showed that processing time and frequency and type of case
                                         dispositions differed for SES and lower-level staff. On average, from OES’
and Lower-Level                          or OLR’s receipt of a case until case closure, SES cases, on the basis of our
Misconduct Cases                         70-case random sample, lasted almost a year (352 days) and lower-level
                                         cases lasted less than 3 months (80 days).

                                         We estimated that the largest difference between SES and GS case
                                         dispositions occurred in the closed without action (CWA) and clearance
                                         categories. As shown in table 1, the dispositions in 73 percent of SES cases
                                         were CWA or clearance, versus 26 percent for GS cases. CWA is to be used
                                         to close a case when the evidence neither proves nor disproves the
                                         allegation(s). A disposition of clearance is to be used when the evidence
                                         clearly establishes that the allegations are false. In practice, neither
                                         disposition results in a penalty. The actual breakdown between the two
                                         dispositions is as follows: for SES cases, 61 percent were CWA and 12
                                         percent were clearance; for GS cases, 24 percent were CWA and 2 percent
                                         were clearance.

Table 1: Percentages of Closed SES and
Lower-Level Misconduct Cases                                                            Percentage of            Confidence
Receiving Various Dispositions                                                               sampled        interval for SES   Percentage
                                                                                                                             a          b
                                         Disposition                                       SES cases                  cases of GS cases
                                         Clearance or closed without                              73              63.4 - 83.4          26
                                         action
                                         Caution letter                                                 0               0-5                 3
                                         Oral or written counseling                                     9         4.5 - 17.0               13
                                         Reprimand                                                      2          0.4 - 7.9                9
                                         Suspension                                                     0               0-5                 9
                                         Removal                                                        0               0-5                 5
                                         Retired/Resigned                                               9         4.5 - 17.0               11
                                               c
                                         Other                                                          7          3.2 -14.8               25
                                         a
                                             The confidence level for these intervals was 95 percent.
                                         b
                                             Does not add to 100 percent due to rounding.
                                         c
                                          For GS cases, “other” includes admonishments, leave restriction, reassignment, alternative discipline,
                                         cases forwarded to Inspection, missing and miscoded cases, and other dispositions. For SES cases,
                                         “other” includes missing and miscoded cases.
                                         Sources: GAO analysis based on sample of SES cases and information from IRS’ ALERTS.


                                         Table 1 outlines in order of severity the frequency with which available
                                         data indicate that various dispositions were imposed for SES and lower-


                                         Page 6                                    GAO/GGD-99-82 Allegations of IRS Employee Misconduct
                          B-280651




                          level staff. SES data are based on the 56 closed cases in our 70-case
                                                                                           6
                          sample. GS data are based on 15,656 closed cases in ALERTS. Ninety-five-
                          percent confidence intervals for the SES data are presented to more
                          accurately portray our findings. Using these confidence intervals, the rates
                          of occurrence differed between SES and GS cases for dispositions of
                          clearance and CWA, reprimand, suspension, and other. However, using 95-
                          percent confidence intervals and eliminating the CWA or clearance
                          category from the analysis, the rates of occurrence between SES and GS
                          cases were similar for all dispositions, except oral or written counseling
                          and retired/resigned. In any case, we will discuss later in this report that
                          differences in dispositions of SES and GS cases do not necessarily mean
                          that the dispositions were inappropriate or that disparate treatment
                          occurred.

                          We also analyzed disciplinary actions for an additional 43 SES cases.
                          Because these cases were not randomly selected, the results may not be
                          representative. Of the 43 cases, we found 9 in the more serious
                          categories—6 instances of counseling, 1 reprimand, 1 suspension, and 1
                          removal.

Factors Affecting Case-   As further detailed in the upcoming section of this report on alleged case-
                          processing delays by the Deputy Commissioner, SES cases took a long
Processing Time and       time to close for many reasons. These reasons included poor case-tracking
Dispositions              procedures, inadequate file management, and poor communication among
                          agency officials involved in the disciplinary process. We do not know to
                          what extent, if any, these difficulties contributed to differences in
                          processing times between SES and GS cases.

                          Many factors can affect the discipline imposed in a particular case. These
                          factors include the nature and seriousness of the offense; the employee’s
                          job level and type of employment; whether the offense was intentional,
                          technical, or inadvertent; the employee’s past disciplinary record; and the
                          notoriety of the offense or its impact upon the reputation of the agency.
                          Collectively, these factors are components of what is known as the
                          Douglas Factors, and they must be considered in determining the
                                                         7
                          appropriate penalty in a case. See appendix II for a listing of the Douglas
                          Factors.




                          6
                              Excludes duplicate cases and nondisciplinary dispositions.
                          7
                              Douglas v. Veterans Administration, 5 M.S.P.R. 280 (1981).




                          Page 7                                    GAO/GGD-99-82 Allegations of IRS Employee Misconduct
                                        B-280651




                                        Not all of the Douglas Factors will be pertinent in every case, and, while
                                        some factors will weigh in the employee’s favor (mitigating factors), others
                                        may weigh against the employee (aggravating factors). IRS officials told us
                                        that lower-level actions tend to be more straightforward than SES actions,
                                        with fewer mitigating factors. Since mitigating factors tend to reduce the
                                        level of discipline imposed, this could partially explain why penalties might
                                        be imposed differently in lower-level cases than in SES cases.

                                        We found that allegations against SES employees were usually reported to
                                        a hotline, the Department of the Treasury’s Office of Inspector General
                                        (OIG), or the IRS Inspection Service. Because complaints against SES
                                        employees can be anonymous, this anonymity can affect IRS’ ability to
                                        follow up on a complaint or investigate it thoroughly. In contrast, IRS
                                        officials told us that GS cases were generally filed by managers about their
                                        subordinates. In these cases, the complainant was known and generally
                                        provided concrete evidence to support the allegation.

                                        Further, typical issues surrounding lower-level cases may be less
                                        complicated or easier to successfully investigate than those involving SES
                                        employees. Table 2 outlines in more detail the most common issues in SES
                                        and lower-level staff cases. SES data are based on our 70-case sample. GS
                                        data are based on 22,025 cases in ALERTS. We subjectively classified the
                                        issues in SES cases, and our classifications may not be precise. Overall, we
                                        found that the most common issue in SES cases was prohibited personnel
                                                  8
                                        practices, while time and attendance was the most common issue in GS
                                        cases.

Table 2: Most Frequently Cited Issues
in SES and GS Disciplinary Cases                                Most common               Second most                 Third most
                                                                                                                                       a
                                        Cases                   issue                     common issue                common issue
                                        SES sample              Prohibited personnel      Misuse of                   Procurement issues;
                                                                practices                 funds/property; fraud,      lying/falsifying
                                                                                          waste, and abuse            documents; abuse of
                                                                                                                      position/authority;
                                                                                                                      preferential treatment
                                        GS                      Time and attendance       Unauthorized                Unacceptable job
                                                                                          access to taxpayer          performance
                                                                                          information
                                        a
                                            There was a four-way tie among SES cases.
                                        Sources: GAO analysis based on SES case file review and issue data from IRS’ ALERTS.




                                        8
                                         Defined as actions that, by law, may not be taken by any employee who can take, direct others to take,
                                        recommend, or approve any personnel actions. Examples include discrimination, coercion of political
                                        activity, and nepotism. 5 U.S.C. 2302(b).




                                        Page 8                                 GAO/GGD-99-82 Allegations of IRS Employee Misconduct
                                           B-280651




IRS Study of Penalty Guide                 In 1994, in response to an internal IRS study reporting a perception that
                                           managers received preferential treatment in disciplinary matters, IRS
Effects                                                                                                       9
                                           created a table of penalties, the Guide for Penalty Determinations. The
                                           purpose of the guide was to ensure that decisions on substantiated cases
                                           of misconduct were appropriate and consistent throughout IRS. In 1997
                                           and 1998, IRS studied the effect of the guide on GS and SES employees and
                                           found that

                                         • actions taken against lower-graded employees more closely conformed to
                                           the guide than those taken against higher-graded employees (see table 3);
                                         • for GS employees overall, 91 percent of disciplinary actions conformed to
                                           the guide, versus 74 percent for SES employees;
                                         • when disciplinary actions did not conform to the guide, the actions were
                                           below the guide’s prescribed range 93 percent of the time for GS
                                           employees overall, versus 100 percent of the time for GS-13 through GS-15
                                           and SES employees; and
                                         • if admonishments were included as part of reprimands, conformance with
                                           the guide approached 100 percent for GS-13 through GS-15 employees.

Table 3: Degree With Which
Disciplinary Action Conformed to Guide                                                                               Degree of conformance
for Penalty Determinations, 1994-97        Employee level                                                             with the penalty guide
                                           GS-2 through GS-7                                                                      92% - 93%
                                           GS-8 through GS-12                                                                         88 - 91
                                           GS-13 through GS-15                                                                        77 - 87
                                                  a
                                           All SES                                                                                         74
                                           Note: Nonconformance with the penalty guide does not necessarily mean that a particular penalty
                                           was inappropriate.
                                           a
                                           IRS reviewed 164 executive cases. Of these, 43 cases had dispositions that were subject to the
                                           provisions of the guide.
                                           Source: Report of the Employee Complaints Analysis Group, IRS, 1998.


                                           The IRS study and IRS officials agreed that the guide had limitations and
                                           no longer met IRS needs. Specifically, the guide covered all employees but
                                           did not address statutory and regulatory limitations that restricted
                                           management’s ability to impose disciplinary suspensions on SES
                                           employees. IRS officials said that governmentwide, there was no level of
                                           discipline available for SES employees that was more severe than a
                                                                                                            10
                                           reprimand but less severe than a suspension of at least 15 days. In
                                           contrast, GS employees could have received suspensions of 14 days or
                                           less. While the guide prescribed a penalty range of “reprimand to
                                           suspension,” the only option for SES employees, because of the statutory
                                           9
                                               Report of the Double Standard Study Group, IRS, May 1992.
                                           10
                                                5 U.S.C. 7542 and 5 C.F.R. 752.601(b).




                                           Page 9                                        GAO/GGD-99-82 Allegations of IRS Employee Misconduct
                             B-280651




                             limitations against suspensions of less than 15 days, was a reprimand if
                             management wished to impose a penalty, but not the harshest available
                             penalty. IRS officials also told us that in certain cases, they might have
                             imposed discipline in between a reprimand and a 15-day suspension had
                             they had the option to do so. According to IRS officials, IRS’ 1995 attempt
                             to have the Office of Personnel Management deal with this issue was
                             unsuccessful. Statutory and regulatory requirements could partially
                             explain why reprimands might have been imposed when a harsher
                             disciplinary action might have seemed more appropriate.

                             Applying to employees at different levels, the IRS penalty guide was
                             constructed with very broad recommended discipline ranges to provide for
                             management discretion. However, one IRS study pointed out that, in some
                             instances, this rendered the guide useless (e.g., when the penalty range
                                                           11
                             was “reprimand to removal”).

IRS Is Making Changes to     IRS created a disciplinary review team in September 1998. Among other
                             things, the team was to
Its Complaint System
                           • develop an action plan that addressed case handling, complaint systems,
                             and employee awareness;
                           • review and revise IRS’ Guide for Penalty Determinations; and
                           • develop a process to review and monitor complaints.

                             As of March 1999, the team was proposing a new integrated IRS complaint
                             process. Its intent was to overcome problems with complaint processing
                             systems’ not (1) communicating or coordinating with each other, (2)
                             capturing the universe of complaints, (3) specifically tracking or
                             accurately measuring complaints, and (4) following up on complaints to
                             ensure that appropriate corrective action had been taken. The team was
                             proposing a 26-person Commissioner’s Review Group to, among other
                             things, manage and analyze complaints sent to the Commissioner of
                             Internal Revenue, monitor other IRS complaint systems, and coordinate
                             with the systems’ representatives. The team was also redesigning the
                             penalty guide.




                             11
                              For the 51 offenses listed in the penalty guide, 15 offenses (or 29 percent) had a range of “reprimand
                             to removal” or “admonishment to removal.”




                             Page 10                                GAO/GGD-99-82 Allegations of IRS Employee Misconduct
                        B-280651




                        On the basis of our review of SES cases, we did not find a case in which an
Alleged Delays by IRS   individual who was ineligible to retire at the time an allegation was filed,
Deputy Commissioner     retired while the case was pending with the Deputy Commissioner.
on Senior Executive     However, we found cases that spent up to 4 years at this stage in the
                        disciplinary process and cases that stalled at various points throughout the
Service Misconduct      process. Although OES’ goal for closing an SES case was 90 days, on the
Cases                   basis of our random sample, cases averaged almost 1 year for OES to
                        close. Further, IRS had poor case-tracking procedures, inadequate file
                        management, missing and incomplete files, and poor communication
                        among officials involved in the disciplinary process.

Background              Because IRS’ 1990 and 1994 written SES case-handling procedures were
                                                                                           12
                        out of date, IRS officials described the operable procedures to us. During
                        the period covered by our review, OES handled SES misconduct cases. Its
                        goal for closing a case was 90 days from its receipt of a case. Once OES
                        received a case, it was to enter it into ALERTS, although it did not always
                        do this, and prepare a case analysis. The case analysis and supporting
                        documents were then to be forwarded to the appropriate Regional
                        Commissioner, Chief, or Executive Officer for Service Center Operations,
                        who was to act as the “recommending official.” Within 30 days, the
                        recommending official was to review the case with the help of local labor
                        relations experts, develop any additional facts deemed appropriate, and
                        return a case report to OES, including a recommendation for disposition.

                        If OES disagreed with the report for any reason, it was to include a
                        “statement of differences” in its case analysis. OES was to forward the
                        field report and the OES analysis to the Deputy Commissioner’s office for
                        concurrence or disapproval. If the Deputy Commissioner concurred with
                        the proposed disposition, the recommending official could take action. If
                        the Deputy Commissioner did not approve, he could impose a lesser
                                                                                        13
                        disposition or return the case to OES for further development. IRS
                        executive case-handling procedures did not define a time period within
                        which the Deputy Commissioner was to act on case dispositions.

                        We collected information on SES cases from two sources: (1) the five
                        specific cases mentioned during the April 1998 Senate Finance hearings,
                        and (2) a 70-case random sample of the SES misconduct case files as
                        previously described, plus 43 more cases from OES tracking logs and

                        12
                         Offices and positions in existence when the procedures were written had changed or disappeared but
                        were still official links in the processing chain.
                        13
                         IRS officials told us that, procedurally, it would be difficult for the deciding official to impose a more
                        severe penalty than what was proposed.




                        Page 11                                  GAO/GGD-99-82 Allegations of IRS Employee Misconduct
                            B-280651




                            monthly briefing reports, for a total of 113 cases. These 113 cases involved
                            83 individuals. Again, see appendix I for more details on how we selected
                            the cases to study.

No Cases Showing            Of the 113 SES cases we reviewed, we did not find a single instance in
                            which an individual who was ineligible to retire at the time the allegation
Retirement Linked to        was filed, retired while the case was pending with the Deputy
Deputy Commissioner         Commissioner. Overall, of the 83 individuals involved in the 113 cases, 25
Delays in Case Processing   people, or 30 percent, had retired from IRS by December 31, 1998. Of
                                                                                                  14


                            these 25 people, 13 retired before their cases were closed or the cases
                            were closed because the individuals retired. At the time of retirement,
                            cases for 2 of the 13 people were pending in the Deputy Commissioner’s
                            office, but both of these individuals had been eligible to retire at the time
                            the complaints against them were originally filed. Cases for the remaining
                            11 of the 13 people either were still being investigated or were pending in
                            OES, that is, they had not yet reached the Deputy Commissioner’s office.
                            In doing our analyses, we focused on actual retirements and did not reach
                            general conclusions about eligibility to retire.

                            As table 4 shows, of the five executive cases mentioned during the April
                            1998 hearings, two of the executives were already eligible to retire when
                            the allegations against them were filed. We refer to the executives in the
                            five cases as Executives A through E. One of the two eligible executives—
                            Executive B—was still an IRS employee as of September 30, 1998. The
                            other—Executive D—retired while, in OES’ view, his case was pending in
                                                                 15
                            the Deputy Commissioner’s office. Of the three individuals who were not
                            eligible to retire when the allegations against them were filed, one retired
                            16 months after his case was closed. The other two executives, one of
                            whom was not found culpable, were still employed by IRS as of September
                            30, 1998.




                            14
                               The 25 individuals do not include people for whom specific retirement dates were unavailable or
                            individuals whose cases were received in OES after they had retired.
                            15
                               Executive D was transferred about 7 months after the Inspection investigation was completed. The
                            Deputy Commissioner considered the case closed with the individual’s transfer, but OES was unaware
                            of the Deputy Commissioner’s view and did not formally close the case until 3 months after Executive
                            D retired, or 35 months after the transfer.




                            Page 12                                GAO/GGD-99-82 Allegations of IRS Employee Misconduct
                                      B-280651




Table 4: Information on the Five
Misconduct Cases Cited at the April                      Employment
1998 Senate Finance Committee                            status                               Case pending
Hearings                                                 at our               Retirement       with Deputy
                                                         September 30,        status at time Commissioner
                                      SESer              1998, cutoff date    of allegation       (months) Case outcome
                                                                                                          a
                                      A                  IRS employee         Not eligible to               Not found to be
                                                                              retire                        culpable for
                                                                                                            violation
                                      B                  IRS employee         Eligible to                2 Counseled,
                                                                              retire                        confirmed in writing
                                      C                  Retired              Not eligible to           18 Counseled
                                                                              retire
                                                                                                          a
                                      D                  Retired              Eligible to                   Transferred
                                                                              retire
                                      E                  IRS employee         Not eligible to           48 Counseled,
                                                                              retire                        confirmed in writing
                                      a
                                      Disciplinary file did not document the duration of the Deputy Commissioner’s review.
                                      Sources: GAO analysis based on IRS misconduct case files and retirement eligibility information.


                                      IRS records showed that the misconduct cases spent from 2 months to 4
                                      years at the Deputy Commissioner level. See appendix III for more details
                                      about the five cases.

Case Processing Not Timely            As shown in table 5, on the basis of our random sample, the total
                                      processing time for SES misconduct cases averaged 471 days (almost 16
                                      months) from the date the complaint was filed until the case was closed.
                                      Most of this time involved OES case analysis and referral to the
                                      recommending official for inquiry (214 days, or about 7 months) and
                                      investigation by the recommending official (124 days, or more than 4
                                      months). These averages exceeded IRS’ most recent, written case-
                                      processing time guidelines, which were 14 and 30 days, respectively. The
                                      average total time from OES’ receipt of a case to the case’s closure was
                                      352 days, compared to a goal of 90 days. As previously mentioned, there
                                      was no targeted time frame for the Deputy Commissioner’s review.
                                      However, on average, cases spent 42 days at this level.




                                      Page 13                               GAO/GGD-99-82 Allegations of IRS Employee Misconduct
                                         B-280651




Table 5: Processing Time at Selected
Stages in the Disciplinary Process for                            Percentage of
SES Misconduct Cases                                              sample cases        Median            Mean       Required
                                                                           with       number          number        number             Range
                                                                               a
                                         Stages of process         information        of days         of days       of days           of days
                                         Complaint filed to                  21            41             60          10-15            0 - 280
                                         OIG/Inspection
                                         beginning
                                         investigation
                                         Complaint filed to                     66           40            57           10-15          0 - 306
                                         OIG/Inspection
                                         declining to
                                         investigate
                                         OIG/Inspection                         21         123           130    No standard            7 - 355
                                         starting investigation
                                         to referral to IRS
                                         OES receipt to                         60         161           214               14         43 - 690
                                         transmittal to
                                         recommending official
                                         (RO)
                                         RO’s receipt of case                   56           99          124               30         13 - 514
                                         to RO’s completion of
                                         inquiry
                                         OES transmittal to                     57           30            42   No standard            2 - 143
                                         deciding official (DO)
                                         to DO’s decision
                                         DO’s decision to case                  57            0            12   No standard            0 - 202
                                         closure
                                         OES receipt to case                    79         252           352               90     13 - 1,275
                                         closure
                                         Overall time:                          79         390           471 No standard         104 - 1,467
                                         complaint filed to
                                         case closure
                                         Note: Ninety-five-percent confidence intervals surrounding the mean number of days for all
                                         processing stages were less than plus or minus 10 percent.
                                         a
                                         Some percentages were relatively low because not all cases went through every phase, case files
                                         did not always include all dates, and open cases still had processing phases to go through.
                                         Sources: GAO analysis based on IRS misconduct case data and executive case-handling
                                         procedures.


                                         In addition, we found that some cases took a particularly long time to be
                                         resolved. For example, in our sample cases, from the date the complaint
                                         was filed to the date the case was closed, 8 cases took at least 2 years, an
                                         additional case took more than 3 years, and still another case took longer
                                         than 4 years.

                                         In 1992, IRS acknowledged that the best way to prevent employees from
                                                                                                      16
                                         retiring before their cases closed was to improve timeliness. Although we
                                         found no cases in which individuals ineligible to retire when allegations
                                         16
                                          IRS’ Program to Combat Senior-Level Misconduct: Getting Stronger but Still a Long Way to Go, Forty-
                                         First Report by the Committee on Government Operations, Nov. 23, 1992.




                                         Page 14                               GAO/GGD-99-82 Allegations of IRS Employee Misconduct
                              B-280651




                              were made retired with the case pending before the Deputy Commissioner,
                              the longer it takes to close cases, the more likely that individuals would
                              retire or resign while their cases were open.

Problems With the SES         Our review and a recent IRS task force report identified numerous
                                                                                              17
                              problems with the executive misconduct case-handling process. These
Misconduct Case-Handling      problems included inadequate staffing, poor communication, inaccurate
Process                       and incomplete records and files, outdated procedures, conflicts over
                              proposed case dispositions, and internal disagreement about case
                              investigations. These problems contributed to the lengthy case-processing
                              times in the available data and case files.

Lack of IRS Staff Resources   According to IRS officials, IRS’ downsizing a few years ago significantly
                              affected OES and field staff resources. From late 1996 through early 1998,
                              OES devoted only one staff year to executive misconduct cases. The staff
                              year was divided between the Director and one employee. In mid-1998, the
                              Director moved to Labor Relations, and the employee retired, leaving OES
                              with no resident expertise. Previously, four or five case experts handled
                              executive cases. In total, according to an IRS official, the office was
                              understaffed for about 18 months, which caused a case backlog. However,
                              the new Chief of OES was able to bring the staffing level up to eight,
                              including two individuals with employee relations backgrounds to act as
                              team leaders. She also used detailees and a technical contractor to reduce
                              the case backlog.

                              The understaffing issue also extended to the labor relations functions in
                              the regions. These functions supplied the staff that recommending officials
                              used to investigate misconduct cases. When the regional offices were
                              consolidated several years ago, they lost their labor relations functions as
                              well as a central repository for program administration and expertise.

                              IRS did not enter executive misconduct cases into ALERTS from late 1996
                              through early 1998. IRS officials told us they did not have enough labor
                              relations experts to properly track cases on ALERTS because the system
                              required significant detail about each case. Instead, it tracked these cases
                              using logs and monthly briefing reports. OES also used the briefing reports
                              to inform the Deputy Commissioner of case status. IRS officials
                              acknowledged that these independent systems often disagreed with each
                              other about the details and status of the cases.


                              17
                               Task Force to Review Handling of Executive, Grade 15 and Inspector General Referrals and
                              Investigations, IRS, July 28, 1998.




                              Page 15                              GAO/GGD-99-82 Allegations of IRS Employee Misconduct
                                  B-280651




Poor Communication                Our review found that poor communication among IRS support staff, the
                                  Deputy Commissioner’s office, IRS Inspection, and OIG contributed to
                                  case-processing delays. As previously mentioned, the Deputy
                                  Commissioner considered one case to be closed with the transfer of the
                                  individual, but OES was not told to formally close the case. In another
                                  instance, the Deputy Commissioner told us that he inadvertently allowed a
                                  case to be lost in the system. Case information in the ALERTS, OES, and
                                  IRS Inspection tracking systems was also found to be inconsistent and
                                  inaccurate in many instances. For example, according to IRS officials,
                                  cases recorded as “overaged” in the IRS Inspection system were recorded
                                  as “closed” by the field offices, leading to confusion among officials as to
                                  whether a case was open or closed and where a particular case was
                                  pending at a given time.

                                  An internal IRS study found that many cases had timeliness problems,
                                  especially cases that had been referred to IRS from OIG. In certain
                                  instances, cases stayed at a particular phase in the process for months
                                  before an OES employee inquired about their status. In one instance, for
                                  nearly 2 years, OES did not follow up on the status of an OIG investigation.
                                  IRS officials told us that these problems occurred primarily because IRS
                                  had no contact person for OIG cases before early 1997, and because OES
                                  lacked staff resources to properly monitor cases.

Administrative Practices That     Our review identified several concerns surrounding IRS’ files, records, and
Raised Concerns                   miscellaneous procedures for executive misconduct cases. Examples
                                  included the following:

                                • Poor filing. Executive misconduct cases were to be filed alphabetically.
                                  Several times, we happened upon misfiled cases only because we went
                                  through all of the files to draw our sample. Also, in one instance, a closing
                                  letter addressed to the executive involved in a case was filed instead of
                                  being mailed to the individual. It took nearly 5 months for the error to be
                                  discovered and rectified.

                                • Missing files and records. We requested eight case files for our review that
                                  IRS could not provide, even after more than 4 months.

                                • Incomplete files. In some cases, the case files did not document important
                                  information, such as dates, transmittal memorandums, and final case
                                  dispositions. In one instance, the case file consisted of a single E-mail
                                  message. The case was serious enough to warrant suspending the
                                  individual.




                                  Page 16                       GAO/GGD-99-82 Allegations of IRS Employee Misconduct
                           B-280651




                         • Noncompliance with procedures. In several instances, field staff imposed
                           discipline before the Deputy Commissioner had concurred with the
                           proposed action. Several files contained memorandums to the field staff,
                           reminding them not to impose discipline or close a case until the Deputy
                           Commissioner had indicated his approval. Further, as mentioned in
                           appendix III, a premature disposition occurred in one of our case studies.

Outdated Procedures        According to two 1998 IRS internal studies, outdated procedures led to
                           inefficient case handling and confusion as to who was responsible for
                           what. Because of regional and district consolidations and a national office
                           restructuring, the written, 1994 case-handling procedures no longer
                           accurately depicted the proper flow of cases. Although procedures were
                           informally adjusted and work kept moving, it was not efficient. As a result,
                           ad hoc procedures were developed in each region, leading to
                           communication problems between the regions and the national office. IRS
                           recognized this problem in March 1998 and completed a draft of new case
                           procedures in July 1998. During that time, the Internal Revenue Service
                                                                  18
                           Reform and Restructuring Act of 1998 established the Treasury Inspector
                           General for Tax Administration (TIGTA), and procedures were again
                           revised to accurately depict TIGTA’s role. According to IRS officials, draft
                           procedures were sent to IRS field offices for comment in mid-March 1999.

Internal Disagreements     Another factor contributing to case-processing delays was internal
                           disagreement surrounding the proper level of discipline to impose in
                           particular cases. In our case studies, we noted instances in which internal
                                                                                    19
                           disputes significantly lengthened case-processing times. OES officials
                           told us that this situation occurred much more frequently in the past.
                           However, over the past few years, IRS has made a concerted effort to
                           resolve disputes below the Deputy Commissioner level.

                           As shown in table 6, in the cases involving Executives C and D,
                           disagreements were serious. In fact, they warranted formal statements of
                           differences. In each of these two cases, OES endorsed a stronger level of
                           discipline than that suggested by the recommending official. In the case of




                           18
                                P.L. 105-206.
                           19
                                See appendix III for information on these disagreements.




                           Page 17                                   GAO/GGD-99-82 Allegations of IRS Employee Misconduct
                                     B-280651




                                     Executive E, IRS officials disagreed among themselves over the facts of
                                     the case. Although an IRS Internal Security investigation confirmed the
                                     allegations, the Deputy Commissioner was not comfortable with the
                                     allegations’ correctness. However, he eventually agreed that the
                                     allegations had some merit. The Deputy Commissioner issued a letter of
                                     counseling 5-½ years after the complaint was filed, which was more than 4
                                     years after he received the case.

Table 6: Disputes Surrounding Case
Dispositions in Three Executive                               Recommending               OES’ original
Misconduct Cases                                              official’s proposed        proposed
                                     SESer                    disposition                disposition                   Final disposition
                                                                                                                   a
                                     C                        Close without action       Letter of reprimand           Closed without action,
                                                                                                                       but employee was
                                                                                                                       counseled
                                     D                        Counseling                 15-day suspension             Transferred, according
                                                                                         and consideration of          to Deputy
                                                                                         transferring the              Commissioner;
                                                                                         employee                      according to OES,
                                                                                                                       closed without action
                                                                                                                       “administratively” due
                                                                                                                                     b
                                                                                                                       to retirement
                                                                                                               c
                                     E                        Letter of reprimand        Letter of reprimand           Letter of counseling
                                     a
                                         OES subsequently changed its position and recommended a disposition of “close without action.”
                                     b
                                         See footnote 15 of this report.
                                     c
                                         The proposed disposition was later changed to “letter of reprimand or letter of counseling.”
                                     Source: GAO analysis based on IRS misconduct case files.


Recent IRS Actions                   As of March 1999, an IRS disciplinary review team was proposing changes
                                     to overcome problems with complaints processing. One of the units of its
                                     proposed Commissioner’s Review Group was to provide labor relations
                                     support for SES and other cases. This unit would have 11 employees. In
                                     addition, the Commissioner’s Review Group would have a contractor
                                     available to supplement it and support field investigations when
                                     management believed help was needed. As previously mentioned, the
                                     group would also be responsible for overcoming communication and
                                     coordination problems among complaint-processing systems.




                                     Page 18                                    GAO/GGD-99-82 Allegations of IRS Employee Misconduct
                                  B-280651




                                  IRS did not comprehensively collect and analyze information on reprisals
Number of                         against IRS employee whistleblowers or on IRS retaliation against
Whistleblowing                    taxpayers. Some information was available on the number of IRS-related
Reprisal Cases and                whistleblowing reprisal cases resolved by the two agencies responsible for
                                  considering such cases. For example, one of the agencies, OSC, received
Extent of Information             63 IRS whistleblower reprisal matters over the fiscal years 1995 through
on Alleged IRS                    1997 and obtained action from IRS favorable to employees in 4 cases.
Retaliation Against               Concerning allegations of IRS retaliation against taxpayers, we reported in
Taxpayers                         1996 and 1998 that IRS did not systematically capture information needed
                                  to identify, address, and prevent such taxpayer abuse. During this review,
                                  we also found limited and incomplete IRS information of past revenue
                                  agent retaliation against taxpayers.

                                  The IRS Restructuring and Reform Act of 1998 included several provisions
                                  related to abuse or retaliation against taxpayers, their representatives, or
                                  IRS employees. As of March 1999, the IRS disciplinary review team was
                                  proposing how data needed to fulfill the act’s requirements would be
                                  assembled.

Reprisals Against                 It is against the law to take a personnel action as a reprisal against a
                                                   20
                                  whistleblower. More specifically, an employee with personnel authority is
Whistleblowers                    not allowed to take, fail to take, or threaten a personnel action against an
                                  employee because the employee made a protected disclosure of
                                  information. Protected disclosures include disclosures that an employee
                                  reasonably believes show a violation of law, rule, or regulation; gross
                                  mismanagement; gross waste of funds; or an abuse of authority.

                                  If federal employees believe they have been subject to reprisal, they may
                                  pursue their complaint through the agency where they work. Alternatively,
                                  they may direct their complaint to OSC or MSPB.

                                  We could not determine the extent of reprisal against whistleblowers
                                  because IRS did not track information on whistleblower claims of reprisal.
                                  According to a knowledgeable IRS official, until recently, the ALERTS
                                  database did not have a code to capture information on retaliation
                                  associated with individuals, including reprisal against whistleblowers.
                                  However, OSC and MSPB provided the number of complaints filed with
                                  them.

Office of Special Counsel Cases   Under the Whistleblower Protection Act of 1989, OSC’s main role is to
                                  protect federal employees, especially whistleblowers, from prohibited
                                  20
                                       5 U.S.C. 2302(b)(8).




                                  Page 19                      GAO/GGD-99-82 Allegations of IRS Employee Misconduct
                                      B-280651




                                      personnel practices. In this role, OSC is to act in the interests of the
                                      employees by investigating their complaints of whistleblower reprisal and
                                      initiating appropriate actions. Whistleblowing employees may file a
                                      complaint with OSC for most personnel actions that are allegedly based on
                                      whistleblowing.

                                      As shown in table 7, between fiscal years 1995 and 1997, OSC received 63
                                      whistleblowing reprisal matters related to IRS, compared to 2,092 for the
                                      federal government as a whole. However, OSC concluded that a much
                                      smaller number of IRS and governmentwide reprisal matters involved
                                      potentially valid statutory claims and therefore warranted more extensive
                                      investigation. OSC closed cases without further action for many reasons,
                                      including lack of jurisdiction over an agency or employee, absence of an
                                      element needed to establish a violation, and insufficient evidence.

Table 7: OSC Whistleblower Reprisal
Matters for Fiscal Years 1995-97      Category                                                    IRS     Governmentwide
                                      Matters received                                             63              2,092
                                      Matters referred for field                                   13                621
                                      investigation
                                      Actions favorable to employees                                4                  237
                                      Source: OSC.


                                      Since IRS had about 100,000 employees during this period, the ratio of
                                      matters received to the number of employees was less than a tenth of 1
                                      percent. Similarly, although OSC received whistleblowing reprisal matters
                                      from throughout the federal government, the number of matters received
                                      was an extremely small percentage of the civilian employee federal
                                      workforce that numbered almost 2 million people.

                                      As table 7 further shows, at times both IRS and the federal government
                                      took “favorable actions” as a result of OSC investigations. In general,
                                      favorable actions are those that may directly benefit the complaining
                                      employee, punish the supervisor involved, or systematically prevent future
                                      questionable personnel actions. Agencies take these actions after receiving
                                      a request from OSC or with knowledge of a pending OSC investigation. The
                                      four favorable actions taken by IRS between fiscal years 1995 and 1997
                                      entailed removing disciplinary letters from a personnel file, correcting an
                                      employee’s pay level, presenting a performance award, and promoting an
                                      employee retroactively and providing back pay.

Merit Systems Protection Board        Employee complaints of whistleblowing reprisal may reach MSPB in two
Cases                                 ways. First, if employees do not obtain relief through OSC, they may
                                      appeal to MSPB. Second, employees may appeal directly to MSPB without



                                      Page 20                          GAO/GGD-99-82 Allegations of IRS Employee Misconduct
B-280651




first going through OSC. They may do this for actions including adverse
actions, performance-based removals or reductions in grade, denials of
within-grade salary increases, reduction-in-force actions, and denials of
restoration or reemployment rights. MSPB categorizes both types of
appeals as “initial appeals.”

MSPB administrative judges throughout the country decide initial appeals.
The judges either dismiss the cases or decide them on their merits.
Common reasons for dismissing cases are that they do not raise appealable
matters within MSPB’s jurisdiction or that they are not filed within the
required time limit. The parties to the dispute also may enter into a
voluntary settlement, sometimes with assistance from the judge. Cases not
dismissed or settled are adjudicated on their merits. Possible outcomes are
that the agency action may be affirmed or reversed or the agency penalty
may be mitigated or otherwise modified.

A party dissatisfied with a case decision may file a “petition for review” by
MSPB’s three-member board. The board may grant a petition if it
determines that the initial decision was based on an erroneous
interpretation of law or regulation or if new and material evidence became
available. It may dismiss a petition that is untimely, withdrawn by the
parties, or moot. Petitions may also be denied or settled.

As with OSC, the number of whistleblowing reprisal decisions issued by
MSPB was very small compared to the size of the IRS and federal
workforces. As shown in table 8, for fiscal years 1995 through 1997, MSPB
decided 45 initial appeals of whistleblowing reprisal allegations involving
IRS. Similar to MSPB’s rulings involving the rest of the federal government,
MSPB dismissed the majority of initial appeals involving IRS and denied
the majority of petitions for review. However, settlements occurred in
more than half of the initial appeals that were not dismissed, which could
mean that employees were getting some relief. MSPB also occasionally
remanded petitions for review, that is, sent them back for further
consideration. MSPB ordered IRS corrective action (canceling an
employee’s removal and mandating back pay) in one initial appeal case
when due process measures unrelated to reprisal were not followed. To
our knowledge, except for this case, MSPB did not reverse any IRS actions
regarding alleged whistleblower reprisal matters over the 3-year period.
For government initial appeals as a whole, MSPB ordered agency




Page 21                      GAO/GGD-99-82 Allegations of IRS Employee Misconduct
                                         B-280651




                                         corrective action 11 times and otherwise reversed agency actions in 24
                                                   21
                                         instances.

Table 8: Number of MSPB Decisions
Covering Whistleblower Disclosures for   Decision                                                 IRS       Treasury       Governmentwide
Fiscal Years 1995-97                     Initial appeals
                                          Dismissed                                                 27              63                      882
                                          Corrective action not ordered                              1               6                       70
                                          Corrective action ordered                                  1               3                       11
                                          Settled                                                   11              22                      324
                                          Affirmed                                                   4              11                      127
                                          Reversed                                                   0               0                       24
                                          Modified/Mitigated                                         1               4                       21
                                         Total                                                      45             109                    1,459

                                         Petitions for review
                                         Dismissed                                                   1               1                       23
                                         Settled                                                     0               2                       14
                                         Denied                                                     13              23                      229
                                         Denied then reopened                                        0               3                       26
                                         Granted - affirmed                                          0               2                       10
                                         Granted - reversed                                          0               0                        7
                                         Granted - remanded                                          3               5                       32
                                         Granted - mitigated                                         0               1                        1
                                         Granted - other                                             1               1                        4
                                         Other                                                       0               0                        3
                                         Total                                                      18              38                      349
                                         Sources: Information compiled by GAO from MSPB, IRS, and the Internet.


Extent of Information on                 Before the IRS Reform and Restructuring Act of 1998, IRS did not
                                         systematically collect information on retaliation against taxpayers. As we
IRS Retaliation Against                                             22
                                         have previously reported, IRS information systems were designed for
Taxpayers                                tracking disciplinary and investigative cases or correspondence and not for
                                         identifying, addressing, or preventing retaliation against taxpayers. The
                                         systems contained data elements that encompassed broad categories of
                                         employee misconduct, taxpayer problems, and legal action. Information in
                                         the systems related to allegations of taxpayer abuse was not easily
                                         distinguishable from information on allegations not involving taxpayers.




                                         21
                                          Although we did not have any governmentwide statistics for 1998, we did have 1998 information for
                                         IRS. The only decisions in these cases that could have been construed to be favorable to the original
                                         complainants were 6 settlements out of the 25-case total.
                                         22
                                              GAO/GGD-95-14, GAO/GGD-96-176, and GAO/T-GGD-98-63.




                                         Page 22                                GAO/GGD-99-82 Allegations of IRS Employee Misconduct
                                          B-280651




                                          Consequently, we found limited information on potential taxpayer abuse in
                                                                                       23
                                          IRS information systems, as shown in table 9.

Table 9: IRS Information on Retaliation
Against Taxpayers                         Database                                   Results of GAO queries
                                          Internal Security Management               IRS found information on two cases of confirmed
                                          Information System                         retaliation in 4 years but said coding in database
                                                                                     could not ensure comprehensiveness.
                                          Automated Labor and Employee               Until recently, database did not include a code for
                                          Relations Tracking System                  retaliation for cases associated with individuals.
                                          Problem Resolution Office                  Database did not include a code for retaliation.
                                          Management Information System
                                          Executive Control Management               IRS case summaries described four cases as
                                          System                                     taxpayer retaliation during 1 year for this system, in
                                                                                     existence since mid-1997. According to IRS, the
                                                                                     system’s coding was becoming more specific.
                                          Source: GAO analysis of various IRS databases.


Restructuring Act Reporting               Recent changes in the law and IRS’ progress on information systems are
                                          intended to improve IRS’ ability to determine the extent to which its
Requirements                              employees might have retaliated against taxpayers or employees for
                                          whistleblowing. Enacted in July 1998, the IRS Restructuring and Reform
                                          Act of 1998 included several provisions related to abuse or retaliation
                                          against taxpayers, their representatives, or IRS employees.

                                          Section 1203 of the act provided for firing IRS employees who commit any
                                          1 of 10 acts. For example, the act required the Commissioner of Internal
                                          Revenue to fire any IRS employee for

                                          “violations of the Internal Revenue Code of 1986, Department of Treasury regulations, or
                                          policies of the Internal Revenue Service (including the Internal Revenue Manual) for the
                                          purpose of retaliating against, or harassing, a taxpayer, taxpayer representative, or other
                                          employee of the Internal Revenue Service” …or ... “threatening to audit a taxpayer for the
                                          purpose of extracting personal gain or benefit.”

                                          The act also required the Treasury Inspector General for Tax
                                          Administration to include in its annual report summary information about
                                          any termination under section 1203 or about any termination that would
                                          have occurred had the Commissioner not determined there were
                                          mitigating factors. In March 1999, the disciplinary review team previously
                                          described was proposing that the Commissioner’s Review Group report
                                          these data to the Inspector General as well as broader data on the number
                                          of taxpayer complaints and the number of taxpayer abuse and employee

                                          23
                                           For information on specific allegations of retaliation against taxpayers, see Tax Administration:
                                          Investigation of Allegations of Taxpayer Abuse and Employee Misconduct Raised at Senate Finance
                                          Committee’s IRS Oversight Hearings (GAO/OSI-99-9R, May 24, 1999).




                                          Page 23                               GAO/GGD-99-82 Allegations of IRS Employee Misconduct
                   B-280651




                   misconduct allegations. The group would collect, consolidate, and validate
                   data from existing systems and obtain supplemental information to fill
                   gaps. However, according to the team, the group would have to qualify the
                   initial reports to the Inspector General, waiting for data reliability to be
                   established.

                   With respect to allegations of improper zeroing out or reductions of
Alleged Improper   recommended tax by IRS managers, we found no evidence to support the
Zeroing Out or     allegations in the eight specific cases referred to us by the IRS employees
Reduction of       who testified at the hearings. On the other hand, IRS does not
                   systematically collect data on the extent to which additional taxes
Recommended Tax    recommended by IRS auditors are zeroed out or reduced without a basis in
                   law or IRS procedure. While there are no data on improper reductions,
                   there are data on IRS recommendations of additional tax that were not
                   ultimately assessed. On the basis of such data, we recently reported that
                   the majority of recommended additional taxes was not assessed. We
                   attributed this result to a variety of factors, including the complexity of the
                   tax code and the overreliance on taxes recommended as a measure of
                   audit results.

Background         IRS’ process for doing audits of taxpayers’ returns and closing related
                   disputes over additional recommended taxes has several steps. In an audit,
                   an IRS auditor usually reviews the taxpayer’s books and records to
                   determine compliance with tax laws and identify whether the proper
                   amount of tax has been reported. To close an audit, the auditor may
                   recommend increasing, decreasing, or not changing the tax reported. If a
                   taxpayer disagrees with the recommendation at the close of the
                   examination, the taxpayer may request an immediate review by the
                   auditor’s supervisor.

                   If the taxpayer agrees with the recommended additional tax or does not
                   respond to IRS’ notices of examination results, IRS assesses the tax. With
                   an assessment notice, IRS formally notifies the taxpayer that the specified
                   amount of tax is owed and that interest and penalties may accrue if the tax
                   is not paid by a certain date. The assessed amount, not the amount an
                   auditor recommends at the end of the audit, establishes the taxpayer’s
                   liability.

                   If the taxpayer disagrees with an examination’s recommendation, the
                   recommendation may be protested to IRS’ Office of Appeals or the dispute
                                         24
                   can be taken to court. The Office of Appeals settles most of these
                   24
                      Taxpayers may appeal to Tax Court without paying the tax or pay the tax and claim a refund in the
                   U.S. Court of Federal Claims or a federal district court.




                   Page 24                                GAO/GGD-99-82 Allegations of IRS Employee Misconduct
                        B-280651




                        disputes, and the remainder are docketed for trial. Agreements made in
                        settlements and court decisions determine the assessed part of the
                        disputed tax.

                        The issue of reductions in recommended tax was raised in the Committee’s
                        hearing by IRS auditors who alleged that some supervisors “zeroed out” or
                        reduced the results of audits—that is, the audits were closed with no or
                        reduced recommended additional tax, without a basis in law or IRS
                        procedure. The witnesses further alleged that the reasons for zeroing out
                        included retaliating against auditors to diminish their chances for
                        promotion, favoring former IRS employees in private practice, and
                                                                                          25
                        exchanging zeroing out for bribes and gratuities from taxpayers.

Data Collected by IRS   IRS has not systematically collected data on the extent to which additional
                        taxes recommended by auditors have been zeroed out or reduced without
                        a basis in law or IRS procedure. In particular, IRS had no data on
                        supervisors’ improperly limiting auditors’ recommendations of additional
                        tax before an audit was closed. However, IRS collects data on the amounts
                        of recommended taxes that were not assessed and the number of
                        examinations closed with no change in tax liability.

                        One of our recent reports illustrates the lack of data on the extent to which
                                                                                                    26
                        supervisors improperly limit auditors’ recommendations of additional tax.
                        We found that an estimated 94 percent of IRS workpapers lacked
                        documentation that the group manager reviewed either the support for
                        adjustments or the report communicating the adjustments to the taxpayer.
                        IRS managers acknowledged that because of competing priorities, they
                        could not thoroughly review workpapers for all audits. IRS officials
                        commented that supervisory reviews were usually completed through
                        other processes, such as reviewing time spent on an audit, conducting on-
                        the-job visits, and discussing cases with auditors. We recommended that
                        the IRS Commissioner require all audit supervisors to document their
                        review of all workpapers to help ensure the quality of all examinations.

                        In another recent report, we found that most additional taxes
                        recommended by IRS auditors were not assessed. Table 10 shows taxes
                        recommended by IRS auditors and the percentage of these amounts
                        assessed for audits closed in fiscal years 1992 through 1997. During these


                        25
                             Further information on these issues is in GAO/OSI-99-9R.
                        26
                             IRS Audits: Workpapers Lack Documentation of Supervisory Review (GAO/GGD-98-98, Apr. 15, 1998).




                        Page 25                                   GAO/GGD-99-82 Allegations of IRS Employee Misconduct
                                          B-280651




                                          years, at most, 41 percent of the additional taxes recommended during
                                          audits were assessed.

Table 10: Status of Additional Amounts
Recommended for Individual, Corporate,    Dollars in billions
and Other Audits Closed in Fiscal Years                                                             Recommended               Percentage
1992-97, as of September 27, 1997         Fiscal year                                                    amount                assessed
                                          1992                                                             $24.8                      34
                                          1993                                                              22.0                      40
                                          1994                                                              22.6                      41
                                          1995                                                              27.2                      40
                                          1996                                                              30.8                      36
                                          1997                                                              31.7                      38
                                          Note: Dollars are in current dollars.
                                          Source: Tax Administration: IRS Measures Could Provide a More Balanced Picture of Audit Results
                                          and Costs (GAO/GGD-98-128, June 23, 1998).


                                          Other IRS data showed that many examinations were concluded with no
                                          recommended additional tax. For example, according to IRS’ Fiscal Year
                                          1997 Data Book, 24 percent of the corporate examinations completed
                                          during fiscal year 1997 were closed with no proposed tax change.

Reasons for Reducing                      Our previous work identified several factors that, in part, explained why
                                          recommended additional taxes were not assessed after audits were
Recommended Tax                                  27
                                          closed. Factors like these could also explain some actions by supervisors
                                          to zero out or reduce recommended tax amounts prior to audits being
                                          closed. However, IRS does not collect data on the extent to which these
                                          factors, or others, contribute to supervisors’ decisions prior to audits being
                                          closed.

                                          We reported that the complexity and vagueness of the tax code was one
                                          explanation for recommended taxes not being assessed after a corporate
                                          audit was closed. Because of the complexity and vagueness of the tax
                                          code, IRS revenue agents had to spend many audit hours to find the
                                          necessary evidence to clearly support any additional recommended taxes.
                                          In addition, differing interpretations in applying the tax code to underlying
                                          transactions increased the likelihood of tax disputes. Because corporate
                                          representatives usually prevailed in Appeals or the courts, additional taxes
                                          recommended were often not actually assessed.

                                          We also reported that aspects of the corporate audit process for large
                                          corporations also made it difficult for revenue agents to develop enough
                                          support to recommend tax changes that could survive a taxpayer appeal.
                                          27
                                           Tax Administration: Factors Affecting Results From Audits of Large Corporations (GAO/GGD-97-62,
                                          Apr. 17, 1997).




                                          Page 26                                 GAO/GGD-99-82 Allegations of IRS Employee Misconduct
B-280651




For example, revenue agents worked alone on complex, large corporation
audits with little direct assistance from district counsel or their group
managers. In addition, when selecting returns for audit, the agents had
little information on previously audited corporations or industry issues to
serve as guideposts. Finally, the agents had difficulty obtaining relevant
information from large corporations in a timely manner.
                        28
IRS Internal Audit recently cited several factors that contributed to low
productivity, as partially manifested by high no-change rates, in the
Manhattan District Office. IRS acknowledged that in 1995, it took
aggressive action to close old examinations. Also, audit group managers in
Manhattan and two other districts did not have enough time to perform
workload reviews to ensure quality examinations. Manhattan was below
the IRS regional average in complying with IRS audit standards for such
things as depth of examinations and workpaper support for conclusions.

We also reported that relying too heavily on additional taxes
recommended as a measure of audit results might create undesirable
incentives for auditors. We found that audits of large corporations raised
concerns that relying on recommended taxes as a performance indicator
might encourage auditors to recommend taxes that would be unlikely to
                                                          29
withstand taxpayer challenges and thus not be assessed. Supervisors on
guard against this incentive, which might have also influenced them, might
have been accused of improper zeroing out. In this connection, we recently
reported that IRS examination and collection employees perceived that
managers considered enforcement results when preparing annual
                          30
performance evaluations.

IRS is increasing its efforts to ensure that enforcement statistics are not
used to evaluate its employees. In commenting on our report on
enforcement statistics, the Commissioner stated that IRS was taking
several actions to ensure that all employees comply with its policies on the
proper use of enforcement statistics. These actions included redrafting
applicable sections of the Internal Revenue Manual, establishing a panel
responsible for answering all questions IRS received on enforcement
statistics, and establishing an independent review panel to monitor
compliance with restrictions on using enforcement statistics. In addition,
28
 Productivity of the General Examination Program in the Manhattan District, IRS Internal Audit
Report, Reference No. 680904, Jan. 30, 1998.
29
     GAO/GGD-98-128.
30
 IRS Personnel Administration: Use of Enforcement Statistics in Employee Evaluations (GAO/GGD-99-
11, Nov. 30, 1998).




Page 27                               GAO/GGD-99-82 Allegations of IRS Employee Misconduct
                         B-280651




                         in January 1999, IRS proposed establishing a balanced system of
                         organizational measures focusing on quality and production measures, but
                         not including tax enforcement results.

Witness Allegations of   Several of the individual allegations made by IRS employees that we
                         reviewed involved the issue of improper zeroing out of additional taxes by
Improper Zeroing Out     IRS managers. The eight specific cases in question involved large
                         organizations, and the issues generally related to complex financial
                         transactions.

                         We found no evidence to support the allegations that IRS managers’
                         decisions to zero out or reduce proposed additional taxes were improper.
                         Instead, we found that the managers acted within their discretion and
                         openly discussed relevant issues with involved IRS agents, technical
                         advisors, and senior management. Ultimately, the decisions were approved
                         by appropriate individuals and were documented in the files.

                         Several of the cases demonstrated some of the concerns and issues we
                         have raised in our prior work concerning audits of large corporations. For
                         example, the complexity and vagueness of the tax code create legitimate
                         differences in interpretation and administering the tax system creates a
                         tension in seeking a proper balance between the tax administrator’s need
                         for supporting documentation and the taxpayer’s burden in providing such
                         information.

                         IRS has acknowledged problems related to the EEO climate in its
Equal Employment         Milwaukee, WI, area offices and over the last few years has moved to
Opportunity Issues in    address them. After a finding of discrimination in 1995 in the case of one
IRS’ Midwest District    employee, a new district director initiated an internal review, and,
                         afterwards, IRS appointed an outside review team to study the EEO
Office                   situation. The internal study made 53 recommendations in broad
                         categories related to creating a supportive work culture, understanding
                         issues, preparing employees for promotion, and examining the promotion
                         process. The outside study found no discriminatory hiring or promotion
                         practices, but it did make recommendations related to hiring and
                         promotions, among other things.

Background               Problems with the EEO climate in IRS’ Midwest District Office, which is
                         headquartered in Milwaukee, date back several years. In 1995, Treasury
                         agreed with an Equal Employment Opportunity Commission
                         administrative judge who found that a district employee was the victim of
                         discrimination and retaliation. Also, Wisconsin congressional offices
                         received EEO-related complaints from IRS employees, and internal and



                         Page 28                     GAO/GGD-99-82 Allegations of IRS Employee Misconduct
                         B-280651




                         external groups were critical of district EEO matters. According to the
                         District Director who arrived in early 1996, the district was perceived to
                         run on “good-old-boy” connections. Also, the district, which was created in
                         1996 through the merger of three smaller districts, was facing possible
                         layoffs, further contributing to tense labor-management relations.

Two Studies of the EEO   To try to better identify some of the underlying causes of the problems in
                         IRS Milwaukee area offices, the District Director commissioned an IRS
Climate Made Numerous    team in April 1996 to assess the EEO climate and make recommendations
Recommendations          for corrective action. As part of its review, the team distributed a survey to
                         all Milwaukee area district employees to gather EEO-related perceptions.

                         On the basis of its review of the survey results and other data, in December
                         1997, the team reported that a lack of trust and goodwill pervaded the
                         work environment. The survey revealed that people in all groups (e.g.,
                         males, females, nonminority whites, African Americans, and Hispanics)
                         believed they were less likely than people in other groups to receive
                         promotions, significant work assignments, training opportunities, and
                         formal recognition or rewards. Specific problems cited in the report
                         included little recent diversity training, a belief by certain minority
                         employees that stereotypes negatively affected their treatment, difficulties
                         in widely disseminating information, gaps in EEO communication, no
                         formal mentoring program, and much dissatisfaction with how employees
                         were selected for promotion.

                         On the basis of its findings, the assessment team made 53
                         recommendations in 4 categories. The categories covered creating a
                         supportive culture, creating a greater understanding of issues, preparing
                         employees for promotion, and examining ways that employees were
                                                         th
                         selected for promotion. In a 5 category—examining the representation of
                         minorities in the district—the team made 21 more recommendations that
                         were expected to be suspended pending an IRS analysis of the
                         ramifications of certain court cases.

                         The District Director who commissioned the climate assessment report
                         praised it and the process that produced it. During his tenure, many
                         actions were taken to address the district’s EEO problems. For example,
                         (1) policy statements were issued tolerating no discriminatory behavior,
                         (2) minority representation in the Director’s and EEO offices was
                         increased, (3) the EEO office was given more privacy, (4) baselines were
                         set to measure the impact of any improved hiring or promotion policies,
                         (5) minorities were promoted to positions of authority, and (6) training
                         was provided. Goals were also set to open communications with



                         Page 29                      GAO/GGD-99-82 Allegations of IRS Employee Misconduct
B-280651




employees, employee and community groups, and the media; treat
individual performance cases fairly; and not debate emotionally charged
personnel issues in the press.

In spite of the climate assessment team’s efforts and the various changes
made or planned, the district’s EEO problems persisted. Consequently, IRS
and certain members of the Wisconsin congressional delegation agreed
                                                              31
that another team should independently review the situation.

To try to preserve its independence, the team purposefully had no
representation from IRS. Also for this reason, it solicited no IRS comments
on its draft report.

The team interviewed more than 100 people and examined over 130
records and files, although it did not scientifically select interviewees or
broadly survey all district employees. Team members told us they tried to
ensure broad coverage by talking to many people and to all sides of
general issues. Moreover, they relied on the climate assessment survey to
summarize perceptions. They also, however, relied extensively on
anecdotal information without determining its objectivity or accuracy.

In August 1998, the team reported, among other things, that (1) many
employees had no confidence in the EEO process and feared retaliation if
they filed complaints or participated in a way considered adversarial to
management, (2) separating EEO functions into outreach and traditional
EEO/counseling components was not working effectively, (3) the
counseling program was in disarray, and (4) confusion existed over the
role of Treasury’s Regional Complaint Center in the formal EEO complaint
process. Also, although anecdotes collected by the team did not support a
sweeping indictment of Milwaukee IRS management practices, the report
concluded that, intentionally or not, some practices perpetuated a work
environment that was historically insensitive to the concerns of female and
minority employees.

On the basis of its review, the team made recommendations in different
areas. For instance, many recommendations dealt with the team’s findings
related to the district’s EEO process for resolving issues in a precomplaint
stage and its relationship to Treasury’s formal complaint process. The
team also made recommendations relating to hiring and promotions in
spite of finding no discriminatory pattern or practice in promoting or

31
 Members of the congressional delegation were Senators Russell Feingold and Herb Kohl and
Representatives Tom Barrett and Gerald Kleczka.




Page 30                              GAO/GGD-99-82 Allegations of IRS Employee Misconduct
                  B-280651




                  hiring minorities or women. The report noted that African Americans in
                  IRS’ Milwaukee and Waukesha, WI, offices appeared underrepresented
                                                                        32
                  when compared to the Milwaukee civilian labor force.

                  Although district managers and representatives of employee groups
                  disagreed with many of the issues and assertions in the report, there was
                  general agreement with many of the recommendations. For instance, the
                  head of the diversity office at the time of the study informed us that he
                  agreed with the substance of, had actually taken action related to, or
                  would favor forwarding to Treasury many of the report’s
                  recommendations.

                  After the report was released, IRS initiated several significant actions to
                  address problems identified. Chief among these was appointing a new
                  District Director who arrived in the district in mid-November 1998 with a
                  stated commitment to overcome past problems. In that regard, she
                  described to us her intent to open communication channels and deal with
                  disrespect, nastiness, and mean-spiritedness at all levels. She emphasized
                  her themes of communication, responsibility, and accountability and told
                  us that on her second day in the district she discussed these themes at an
                  off-site meeting with top managers and union, EEO, and diversity officials.

                  The new District Director also expressed to us her commitment to work
                  with various interest groups. In addition, she combined the district’s EEO
                  and diversity functions, made EEO positions permanent as opposed to
                  rotational, and invited a union representative to be present for interviews
                  for a new EEO officer.

                  The new District Director stated that these actions were on the right track,
                  but because of the long and contentious history of EEO problems in the
                  district, improvements and success will take time. She also noted that
                  better communication and cooperation among IRS and the various internal
                  and external stakeholders will be extremely important in dealing with the
                  district’s long-standing problems.

                  In commenting on a draft of this report, the Commissioner of Internal
Agency Comments   Revenue described IRS actions on the issues we noted. For instance, he
                  shared our concern that IRS needed to improve how it managed executive
                  misconduct cases. He noted that the recently created Commissioner’s

                  32
                     The head of the study team acknowledged that the proper statistical comparison was with the local
                  qualified labor force, not the civilian labor force. However, according to another study team member,
                  the relevant qualified labor force statistics were not available.




                  Page 31                                GAO/GGD-99-82 Allegations of IRS Employee Misconduct
B-280651




Complaint Processing and Analysis Group, proposed as the
Commissioner’s Review Group, will coordinate IRS’ efforts to improve
complaint information, especially relating to alleged reprisal against
whistleblowers, so that complaints will be promptly and fairly resolved.
IRS will also share more information with employees and the public on
responses to reprisals and other complaints to highlight a message that all
employees will be held accountable for their actions. The full text of the
Commissioner’s comments is reprinted in appendix IV.

As agreed with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days from the
date of this letter. At that time, we will send copies to Senator Daniel
Patrick Moynihan, the Ranking Minority Member of the Senate Committee
on Finance; the Honorable Charles O. Rossotti, Commissioner of Internal
Revenue; other interested congressional committees; and other interested
parties.

This work was done under the direction of Joseph E. Jozefczyk, Assistant
Director for Tax Policy and Administration Issues. Other major
contributors are listed in appendix V. If you have questions, you may
contact me on (202) 512-9110.

Sincerely yours,




James R. White
Director, Tax Policy
  and Administration Issues




Page 32                      GAO/GGD-99-82 Allegations of IRS Employee Misconduct
Page 33   GAO/GGD-99-82 Allegations of IRS Employee Misconduct
Contents



Letter                                                                                               1


Appendix I                                                                                          36
                         Disciplinary Actions for Senior Executive Service and                      36
Objectives, Scope, and     Lower-Level Staff
Methodology              Alleged Delays by IRS Deputy Commissioner on SES                           37
                           Misconduct Cases
                         Number of Whistleblowing Reprisal Cases and Extent of                      38
                           Information on IRS Retaliation Against Taxpayers
                         Alleged Improper Zeroing Out or Reduction of                               38
                           Recommended Tax
                         EEO Issues in IRS’ Midwest District Office                                 38


Appendix II                                                                                         40

The Douglas Factors
Appendix III                                                                                        41
                         Executive A Allegations                                                    41
Summaries of Alleged     Executive B Allegations                                                    41
Senior-Level             Executive C Allegations                                                    41
                         Executive D Allegations                                                    42
Misconduct Cases         Executive E Allegations                                                    43


Appendix IV                                                                                         44

Comments From the
Internal Revenue
Service
Appendix V                                                                                          46

Major Contributors to
This Report




                         Page 34                   GAO/GGD-99-82 Allegations of IRS Employee Misconduct
Contents




Abbreviations

ALERTS      Automated Labor and Employee Relations Tracking System
CWA         closed without action
DO          deciding official
EEO         equal employment opportunity
GS          general schedule
IRS         Internal Revenue Service
MSPB        Merit Systems Protection Board
OES         Office of Executive Support
OIG         Office of Inspector General
OLR         Office of Labor Relations
OSC         Office of Special Counsel
RO          recommending official
SES         Senior Executive Service
TIGTA       Treasury Inspector General for Tax Administration


Page 35                   GAO/GGD-99-82 Allegations of IRS Employee Misconduct
Appendix I

Objectives, Scope, and Methodology


                       We organized our work to bring together information bearing on the five
                       issues contained in your May 21, 1998, request letter. Accordingly, our
                       objectives were to

                       (1) determine if senior Internal Revenue Service (IRS) managers received
                       the same level of disciplinary action as line staff;

                       (2) determine to what extent, if any, the IRS Deputy Commissioner might
                       have delayed action on substantiated cases of employee misconduct until
                       senior managers were eligible to retire;

                       (3) ascertain the extent to which IRS employees might have retaliated
                       against whistleblowers and against taxpayers or their representatives who
                       were perceived as uncooperative;

                       (4) determine the extent to which IRS employees might have zeroed out or
                       reduced the additional tax recommended from examinations for reasons
                       not related to the merits of the examinations; and

                       (5) describe equal employment opportunity (EEO) issues in IRS offices in
                       the Milwaukee metropolitan area.

                       Our scope and methodology related to each of these objectives follow.

                       To compare disciplinary experiences of Senior Executive Service (SES)
Disciplinary Actions   and lower-level employees, we matched data accumulated by sampling
for Senior Executive   senior executives’ misconduct cases against data for lower-level
Service and Lower-     employees extracted from IRS’ broader disciplinary database, the
                       Automated Labor and Employee Relations Tracking System (ALERTS). We
Level Staff            compiled general statistics on how long senior executive cases took by
                       collecting information from every second nontax SES case file in IRS’
                       Office of Executive Support (OES) that was active sometime between
                                                          1
                       January 1, 1996, and June 30, 1998. Our sample included 70 cases.

                       For each case in our sample, we extracted and recorded data from the
                       relevant case file. These data included issues involved, processing dates,
                       information on whether allegations were substantiated by investigators,
                       disciplinary actions proposed and adopted, and information related to
                       retirement.


                       1
                        We excluded cases related to employees’ tax compliance because they were different in nature from
                       the cases raised at the April 1998 Senate Finance Committee hearings.




                       Page 36                               GAO/GGD-99-82 Allegations of IRS Employee Misconduct
                        Appendix I
                        Objectives, Scope, and Methodology




                        For lower-level employees, that is, general schedule (GS) employees, we
                        obtained selected parts of the ALERTS database from IRS. We ran our
                        statistical analyses on ALERTS cases that IRS’ Office of Labor Relations
                        received between January 1, 1996, and June 30, 1998, and on cases that
                        were closed within that period. More specifically, we focused on
                        administrative and IRS Inspection Service cases within ALERTS because
                        they were the categories in which conduct matters were found. Although
                        we did not audit ALERTS, IRS officials told us that this data system had
                        over the years had flaws, but they also told us it was better than it used to
                        be. Because ALERTS was the only source of information available on
                        lower-level disciplinary actions, we used it to the extent that it had
                        information comparable to what we collected on senior-level cases.

                        We also reviewed recent internal IRS and independent studies of IRS’
                        disciplinary systems and interviewed IRS officials about their plans for
                        revamping the systems. One IRS study we reviewed used the lower-level
                        disciplinary database to assess the effect of IRS’ using a guide to determine
                        appropriate disciplinary action. We also became familiar with the Douglas
                        Factors, shown in appendix II, governing disciplinary actions imposed and
                        asked IRS officials about the differences, if any, they perceived between
                        SES and lower-level cases.

                        We examined the question of alleged delays in dealing with cases of
Alleged Delays by IRS   alleged misconduct by senior executives by taking several steps. First, we
Deputy Commissioner     studied in depth the five specific cases mentioned in the April 1998
on SES Misconduct       hearings. This involved examining investigative and personnel files as well
                        as files maintained by OES. In addition, we interviewed various IRS
Cases                   officials, including the Deputy Commissioner, about these cases.

                        In addition, we used the 70-case sample of senior executive cases
                        previously described to obtain more broad-based information about any
                        possible delays. Although most of our analyses were based on this sample,
                        to learn more about the cases that took the most time, we also examined
                        every case file IRS could find that appeared on lists of cases awaiting
                        action at OES for at least 90 days during the January 1, 1996, through June
                        30, 1998, period we were studying. We also examined cases that appeared
                        on logs that IRS kept so we could better ensure we were not overlooking
                        cases we did not otherwise encounter for the period. In all, we examined
                        the 70 cases in our sample plus 43 more cases on lists and logs for a total
                        of 113 cases. Because some individuals were involved in more than 1 case,
                        the 113 cases we analyzed covered 83 senior executives. We extracted the
                        same type of information from each of the case files that we extracted




                        Page 37                          GAO/GGD-99-82 Allegations of IRS Employee Misconduct
                          Appendix I
                          Objectives, Scope, and Methodology




                          from the sampled case files. Examining lists, logs, and files allowed us to
                          see if recordkeeping practices might have contributed to any delays.

                          To examine the relationship between case-processing and retirement
                          dates, we analyzed where in the case-processing sequence the retirement
                          dates provided us by OES fell. In instances in which OES was also able to
                          readily provide retirement eligibility dates, we considered them in
                          examining processing timeliness as well.

                          To tabulate the number of whistleblowing reprisal cases, we obtained
Number of                 information from the Office of Special Counsel (OSC) and the Merit
Whistleblowing            Systems Protection Board (MSPB). We did this for the number of cases
Reprisal Cases and        involving IRS employees, and for contextual purposes, for cases from
                          throughout the federal government.
Extent of Information
on IRS Retaliation        For governmentwide data, we used either information already published or
Against Taxpayers         data generated specifically for us. For IRS data, the agencies did special
                          searches of their databases. We did not audit the OSC or MSPB data
                          systems. Because in the MSPB data system not all IRS cases could be
                          isolated, we examined actual case rulings that MSPB gathered for us or
                          that we located on the Internet, looking for Department of the Treasury
                          cases that were really IRS cases. For Treasury cases for which MSPB was
                          not able to give us timely information and information was not on the
                          Internet, we asked IRS to identify whether they involved IRS employees.

                          In looking for information on IRS employees who might have retaliated
                          against taxpayers or their representatives who were perceived to be
                          uncooperative, we studied our reports on taxpayer abuse. In addition, we
                          interviewed IRS officials and investigated entries under specific codes in
                          various databases to see if relevant issues appeared. Finally, we discussed
                          with IRS officials changes to the information systems that might be coming
                          in the future.

                          Concerning information on the improper zeroing out or reduction of
Alleged Improper          additional tax recommended, we studied our and Inspection Service
Zeroing Out or            reports dealing with examination issues related to audit results. We
Reduction of              specifically considered our and IRS information on the extent to which IRS
                          audit recommendations were actually assessed and the factors that could
Recommended Tax           explain the results.

                          To describe EEO issues in the Milwaukee area, we examined the report of
EEO Issues in IRS’        an outside team studying the program and the documents that the team
Midwest District Office   accumulated in doing its work, including an IRS internal EEO climate



                          Page 38                          GAO/GGD-99-82 Allegations of IRS Employee Misconduct
Appendix I
Objectives, Scope, and Methodology




assessment study. We also interviewed key study participants and affected
parties in Washington, D.C., and Milwaukee to better understand what the
EEO climate in the area was, how the study report was done, and what had
happened since the report was finished.

In addition to addressing the concerns of the Senate Committee on
Finance, we planned our work to respond to a mandate in the Conference
Report on the IRS Restructuring and Reform Act of 1998. The conferees
intended for us to review the study team report.

We did our work in Washington, D.C., and Milwaukee between June 1998
and March 1999 in accordance with generally accepted government
auditing standards.




Page 39                          GAO/GGD-99-82 Allegations of IRS Employee Misconduct
Appendix II

The Douglas Factors


                                                                    1
                The Douglas Factors are as follows:

              • The nature and seriousness of the offense, and its relation to the
                employee’s duties, position, and responsibilities, including whether the
                offense was intentional or technical or inadvertent, or was committed
                maliciously or for gain, or was frequently repeated;

              • the employee’s job level and type of employment, including supervisory or
                fiduciary role, contacts with the public, and prominence of the position;

              • the employee’s past disciplinary record;

              • the employee’s past work record, including length of service, performance
                on the job, ability to get along with fellow workers, and dependability;

              • the effect of the offense upon the employee’s ability to perform at a
                satisfactory level and its effect upon supervisors’ confidence in the
                employee’s ability to perform assigned duties;

              • consistency of penalty with those imposed upon other employees for the
                same or similar offenses;

              • consistency of the penalty with the applicable agency table of penalties;

              • the notoriety of the offense or its impact on the reputation of the agency;

              • the clarity with which the employee was on notice of any rules that were
                violated in committing the offense, or had been warned about the conduct
                in question;

              • potential for employee’s rehabilitation;

              • mitigating circumstances surrounding the offense such as unusual job
                tensions, personality problems, mental impairment, harassment, or bad
                faith, malice or provocation on the part of others involved in the matter;
                and

              • the adequacy and effectiveness of alternative sanctions to deter such
                conduct in the future by the employee or others.


                1
                    Douglas v. Veterans Administration, 5 M.S.P.R. 280 (1981).




                Page 40                                   GAO/GGD-99-82 Allegations of IRS Employee Misconduct
Appendix III

Summaries of Alleged Senior-Level
Misconduct Cases

               This appendix summarizes information about the five senior-level
               misconduct allegations cited in the April 1998 Senate Finance Committee
               hearings. The summaries include information about when the executives
               were eligible to retire and about whether their eligibility dates might have
               related to how their cases were processed. We refer to the executives in
               these five cases as Executives A through E.

               An IRS employee filed a complaint that Executive A and two other IRS
Executive A    employees violated IRS ethics rules. The IRS employee also alleged that
Allegations    Executive A and the two other employees retaliated against her for
               reporting the ethics violations. The alleged violations included
               manipulating a rating system, giving an improper award, falsifying records,
               and not reporting time card fraud, although Executive A was only alleged
               to be involved in the last violation. Treasury’s Office of Inspector General
               (OIG) did not find that Executive A was culpable for ethics violations but
               found that the other two employees were culpable. IRS attorneys
               reviewing the case concluded that the information in the OIG report did
               not demonstrate misconduct on Executive A’s part.

               Executive A was not eligible for retirement when the allegation was made
               or when the OIG investigation was closed.

               This case started when the OIG received an anonymous allegation that
Executive B                                        1
               Executive B abused travel authority. IRS officials reviewed the allegation
Allegations    and found that Executive B had authorized unjustified travel expenditures.
               Local management then counseled Executive B that all expenditures
               needed to be authorized according to IRS procedures. This counseling was
               confirmed in writing. However, contrary to IRS policy, the counseling took
               place before the Deputy Commissioner concurred with the proposed case
               resolution.

               Executive B was already eligible for retirement at the time the allegation
               was made.

               The OIG received an anonymous complaint that Executive C was abusing
Executive C    official travel. The OIG report concluded that Executive C made personal
Allegations    use of some travel benefits earned on government travel.

               The offices considering the case disagreed among themselves over the
               facts, the adequacy of the investigation, and the steps to be taken next. The

               1
               The allegation included two other issues that were immediately closed because they had been
               previously reviewed.




               Page 41                              GAO/GGD-99-82 Allegations of IRS Employee Misconduct
              Appendix III
              Summaries of Alleged Senior-Level Misconduct Cases




              Director of IRS’ Human Resources Division, which was involved in
              executive misconduct cases earlier in the 1990s, advocated a reprimand,
              but the recommending official thought that significant circumstances
              mitigated any disciplinary action. OES prepared a statement of differences
                                               2
              and recommended a reprimand. A few months later, the recommending
              official, finding no abuse and unclear IRS guidance in the area,
              recommended closing the case without action but cautioning the
              executive. The next month, the OES official who previously recommended
              a reprimand sent the case to the Deputy Commissioner, this time agreeing
              with the recommending official’s position. A few months after that, the
              OIG reminded the Deputy Commissioner of the previous year’s report and
              requested appropriate action. Later, OIG officials told OES that they
              disagreed with OES’ recommendation to close the case without action.
              Finally, OES wrote the Deputy Commissioner reaffirming the
              recommendation for closure without action but with cautioning.

              The Deputy Commissioner counseled the executive 5-½ years after the
              case began and 18 months after receiving the case. When we asked the
              Deputy Commissioner why the final stage of case processing took so long,
              he had no explanation.

              Executive C was not eligible for retirement at the time the allegation was
              made or at the time he was counseled.

              The IRS sexual harassment hotline received an anonymous allegation that
Executive D   Executive D might have harassed a staff member. During the Inspection
Allegations   Service investigation, Executive D refused to answer a question he
              believed was irrelevant. In its report, the Inspection Service summarized
              the facts of the investigation and did not conclude whether there was a
              violation of IRS ethical standards.

              OES and the recommending official disagreed in their analyses of the
              report and their resulting recommendations. OES concluded that a 15-day
              suspension was warranted for the refusal to answer a question even
              though IRS counsel was not sure a violation really occurred. OES also
              raised the possibility of reassigning Executive D. The recommending
              official believed that, in this case, refusal to answer a question did not
              violate ethics rules, but that counseling was warranted.



              2
              OES was previously known as the Office of Ethics and Business Conduct, but in this section only the
              designation OES will be used.




              Page 42                               GAO/GGD-99-82 Allegations of IRS Employee Misconduct
              Appendix III
              Summaries of Alleged Senior-Level Misconduct Cases




              About 39 months after OES prepared a statement of differences, an
              Inspection Service case-tracking entry indicated that IRS management
              planned no action on the case. The next year, OES closed the case
              “administratively” due to the employee’s retirement.

              The Deputy Commissioner told us that, several years before its
              administrative close, the case was “de facto closed” with Executive D’s
              transfer. He stated that the transfer was the appropriate disciplinary action
              because Executive D was too familiar with local employees.

              OES did not close the case until the individual retired several years after
              the transfer. It did not realize that the Deputy Commissioner considered it
              closed earlier. Also, IRS officials we asked could not find the case file for
              at least a few months.

              Executive D was eligible for retirement at the time the allegation was
              made.

              The Inspection Service began an investigation after an anonymous caller
Executive E   reported to Internal Security that Executive E abused her authority. More
Allegations   than a year later, the investigation confirmed the allegation, and the
              Director of the Human Resources Division recommended that a letter of
              reprimand be issued. More than 4 years after that, OES recommended
              sending a letter of reprimand or a letter confirming counseling. The Deputy
              Commissioner sent Executive E a letter of counseling 5-½ years after the
              original complaint and more than 4 years after receiving the case.

              The Deputy Commissioner explained to us that he had not been
              comfortable with the allegations’ correctness, but that he eventually
              agreed that the allegations had some merit. He added that the delay in
              closing the case occurred because he allowed the case to be lost in the
              system. He did not, he said, cover up for Executive E. Specifically, he
              stated that reduced OES staffing and a poor information system were
              contributing factors to the case being delayed without a disposition.

              Executive E was not eligible for retirement at the time the allegation was
              made or at the time the counseling letter was sent.




              Page 43                          GAO/GGD-99-82 Allegations of IRS Employee Misconduct
Appendix IV

Comments From the Internal Revenue Service




              Page 44
Appendix IV
Comments From the Internal Revenue Service




Page 45
Appendix V

Major Contributors to This Report


                        Lawrence M. Korb, Evaluator-in-Charge, Tax Policy and Administration
General Government        Issues
Division, Washington,   Leon H. Green, Senior Evaluator
D.C.                    Deborah A. Knorr, Senior Evaluator
                        Anthony P. Lofaro, Senior Evaluator
                        Jacqueline M. Nowicki, Evaluator
                        Patricia H. McGuire, Assistant Director
                        MacDonald R. Phillips, Senior Computer Specialist
                        James J. Ungvarsky, Senior Computer Specialist
                        Eric B. Hall, Computer Technician




                        Page 46                    GAO/GGD-99-82 Allegations of IRS Employee Misconduct
Page 47   GAO/GGD-99-82 Allegations of IRS Employee Misconduct
Page 48   GAO/GGD-99-82 Allegations of IRS Employee Misconduct
Ordering Information

The first copy of each GAO report and testimony is free. Additional
copies are $2 each. Orders should be sent to the following address,
accompanied by a check or money order made out to the
Superintendent of Documents, when necessary. VISA and
MasterCard credit cards are accepted, also. Orders for 100 or more
copies to be mailed to a single address are discounted 25 percent.

Order by mail:

U.S. General Accounting Office
P.O. Box 37050
Washington, DC 20013

or visit:

Room 1100
     th                  th
700 4 St. NW (corner of 4 and G Sts. NW)
U.S. General Accounting Office
Washington, DC

Orders may also be placed by calling (202) 512-6000 or by using fax
number (202) 512-6061, or TDD (202) 512-2537.

Each day, GAO issues a list of newly available reports and testimony.
To receive facsimile copies of the daily list or any list from the past
30 days, please call (202) 512-6000 using a touch-tone phone. A
recorded menu will provide information on how to obtain these
lists.

For information on how to access GAO reports on the INTERNET,
send e-mail message with “info” in the body to:

info@www.gao.gov

or visit GAO’s World Wide Web Home Page at:

http://www.gao.gov
United States                       Bulk Rate
General Accounting Office      Postage & Fees Paid
Washington, D.C. 20548-0001           GAO
                                Permit No. G100
Official Business
Penalty for Private Use $300

Address Correction Requested




268857