DEPARTMENT OF THE TREASURY INTERNAL REVENUE SERVICE WASHINGTON, D.C. 20224 CHIEF FINANCIAL OFFICER April 29, 2013 MEMORANDUM FOR MICHAEL E. MCKENNEY DEPUTY I SP CT GENERAL FOR AUDIT FROM: Pamela J. LaRue Chief Financial Officer SUBJECT: Draft Audit Report - Review of the August 2010 Small BusinesslSeIf-Employed Division's Conference in Anaheim, California (Audit 201310024) The IRS appreciates your review of the August 2010 Small Business/Self-Employed (SBISE) Division's Manager Meeting. One year ago, when questions were raised with respect to the meeting, the IRS formally requested that the Treasury Inspector General for Tax Administration (TIGTA) review the meeting to determine that all IRS and government procedures were followed. We are pleased that TIGTA found no instances of fraud or violations of the Federal Acquisition Regulations. The meeting took place at a time where the IRS needed to ensure that managers had proper training to address significant new programs, major staff and manager turnover and a substantial increase in security threats. However, since that time, the technology and budget environment has changed, and during the past three years, the IRS has put in place an extensive series of procedures with regard to conferences. Clearly, a conference like this from three years ago - and many of the instances described -- would not take place under our expanded and strengthened oversight process. In addition, as discussed in more detail below, the IRS has elevated the conference approval processes so that all large meetings must be approved centrally and not solely by individual business units. While more specifics regarding the meeting will be addressed below, it is important to note that in the three years since the meeting, the IRS has implemented comprehensive financial controls over meeting and conference approval processes and dramatically cut expenditures related to meetings and training. The expenditures related to this 2010 meeting are not reflective of the current spending environment at the IRS or the spending that has occurred over the last several years. As shown in the report, the number of large meetings decreased 84 percent between Fiscal Year (FY) 2010 and FY 2012. The costs of these meetings decreased 87 percent over that time period. Costs for FY 2013 will be even lower. Not only are costs for meetings and conferences significantly down since FY 2010, costs for all training-related travel were 68 percent lower from FY 2010 to FY 2012. To date, our travel and training expenses are down more than 80 percent since FY 2010. In fact, in FY 2012, more than 90 percent of our training courses were delivered virtually. Compared with FY 2010, the percentage of training hours delivered online has nearly doubled and our cost per hour of overall training has been reduced by 46 percent. The IRS takes seriously our obligations to be good stewards of government resources. As detailed below, the IRS has instituted a number of procedures over the last three years that ensure sound financial decisions are being made in regard to spending. Since FY 2009, we have achieved $1 billion in budget savings and efficiencies. With respect to the meeting on which TIGTA focused, its purpose was to ensure that managers had proper training to lead their employees and adapt to significant changes that were occurring at that time. The Division comprises almost one-third of the total IRS work force and includes our largest enforcement staff, providing for the majority of the approximately $50 billion in annual enforcement revenue that the IRS collects. With the significant challenges facing the IRS, development of managers is critical to ensuring continued high performance across the IRS. At the time of this conference, almost 30 percent of SBISE managers were either new to the division or new to management within the prior two years. Furthennore, had grown by over 4,400 hires in FY 2009 and FY 2010 as a result of hiring initiatives approved by Congress. This division also faced unique challenges in FY 2010 and had to manage through significant employee concerns about safety and security after a member of the SBISE management ranks was killed in a suicide attack against the IRS building in Austin, Texas. Employee safety and security training were important topics at the meeting with presentations by security personnel from TIGTA as well as the IRS. Until late 2010, it was IRS practice to periodically conduct continuing professional education conferences on a national scale because of the importance and value of in- person training. However, in light of the continuing fiscal situation, improvements in technology, and recognizing the substantial costs of nationwide training meetings such as these, these types of meetings no longer occur. While the aggregate cost of the meeting is significant, it is important to note that the vast majority of the cost - more than 90 percent - resulted from travel and authorized government per diem for the attendees. Although the average cost per attendee was reasonable, the IRS recognizes that a number of less significant costs warranted additional scrutiny and were not the best use of government resources. Under subsequently issued guidance, many of these expenditures, including promotional items or themed videos, would not be authorized. Cost savings guidance issued since this event include the following: December 14, 2010 -- Deputy Commissioner - Fiscal Year (FY) 2011 Hiring Freeze Guidance -- implementing exception-only hiring freeze February 9, 2011 - Commissioner -- email to employees on cost-cutting February 10, 2011 -- Chief Financial Officer -- FY 2011 Budget Operating Guidance - working toward 50 percent reductions in non-mission critical travel, including management conferences February 28, 2011 Deputy Commissioner - FY 2011 Budget Operating Guidance Follow Up further restricting travel and training March 4, 2011 - Deputy Commissioner -- Workspace Budget Challenges -- reducing space holdings to cut cost August 19, 2011 -- Deputy Commissioner -- Purchase of Promotional Items - generally discontinuing purchase of any promotional items November 23, 2011 - Deputy Commissioner - FY 2012 Budget Operating Guidance - calling for further reductions in travel and training December 1, 2011 - Deputy Commissioner - Approval of Conference-Related Activities - implementing enhanced approval process for conference spending March 2, 2012 - Chief Financial Officer - Interim Guidance Memorandum, Interim Guidance on Policies and Controls on Event-Related Spending - implementing enhanced approval process for conference spending May 4, 2012 -- Director, Office of Procurement Policy - Acquiring Training, Meeting and Conference Space -- additional guidance for the selection of locations and facilities for IRS training activities May 8, 2012 -- Deputy Commissioner -- Reinforcing Travel Policies and Updating Current Procedures -- reinforcing adherence to polices on travel expenditures May 29, 2012 -- Deputy Commissioner -- Updating and Reinforcing Policies on Conferences, Group Conferences and Training - reinforcing travel policies December 6, 2012 -- Deputy Commissioner - Fiscal Year 2013 Budget Operating Guidance -- further restricting travel and training December 27, 2012 -- Chief Financial Officer -- Interim Guidance Memorandum, Re-issued Interim Guidance on the Approval Process for Event-Related Spending - implementing Treasury Directive 12-70, Hosted or Sponsored Conference Planning and Approval December 28, 2012 - Chief Financial Officer - Guidance for Tracking Event- Related Spending - implementing the requirement to track conference spending 0 February 21, 2013 - Deputy Commissioner -- Servicewide Video Editorial Board -- creating a review board to oversee spending on video productions 0 March 7, 2013 Deputy Commissioner - Additional Review on Video Production -- implementing mandatory high-level review on all video productions 0 March 12, 2013 -- Deputy Commissioner - FY 2013 Budget Sequestration Operating Guidance - increasing scrutiny and controls over hiring, travel, training, printing, contracts and overtime It is also important to note that many of the issues raised in the report, such as the use of event planners, the receipt of room upgrades, and the welcome reception and breakfast provided by the hotel, did not entail the use of any additional government resources. While the IRS is mindful of the sensitivity of the issues raised, these did not impact the overall cost of the meeting. The IRS has instituted new procedures in these areas as well. The IRS agrees with all of recommendations, and in most cases, has already implemented corrective actions in advance of receipt of the report. Our detailed comments to your recommendations are discussed in the attachment. If you have any questions, please contact me, or a member of your staff may contact Bill Maglin, Associate Chief Financial Officer for Financial Management, at (202) 435-5540. Attachment Attachment RECOMMENDATION 1 The IRS Chief Financial Officer (CFO) should, for conferences held after issuance of the March 2012 procedures, verify that appropriate information is being tracked and maintained by IRS offices to accurately account for actual conference costs and attendance. CORRECTIVE ACTION 1-1 The CFO issued the December 27, 2012 Interim Guidance Memorandum, Reissued Interim Guidance on the Approval Process for vent-Related Spending, requiring that documentation be maintained by the business units for conference and event-related spending. The CFO issued the December 28, 2012 memorandum, Guidance for Tracking vent-Related Spending, requiring that business units track actual costs and maintain documentation for conference and event-related spending. RESPONSIBLE OFFICIAL Chief Financial Officer IMPLEMENTATION DATE December 28, 2012 (Completed) CORRECTIVE ACTION 1-2 The CFO will update the December 27, 2012 Interim Guidance Memorandum, Reissued Interim Guidance on the Approval Process for Event-Related Spending, to include a requirement for CFO to review on a rotating basis documentation maintained by the business units for conference and event-related spending. RESPONSIBLE OFFICIAL Chief Financial Officer IMPLEMENTATION DATE August 31, 2013 RECOMMENDATION 2 The IRS CFO should implement a policy to determine whether specific sessions at conferences qualify for CPE credit. CORRECTIVE ACTION The IRS Human Capital Office (HCO) will strengthen the policy and guidance for determining eligibility for course credit in IRM 6.410.1.2.6, The Leaming and Education Policy Manual. The HCO will also strengthen the policy and guidance for determining when a course may be eligible for CPA CPE certification credit in IRM 6.410.1.3.3.3, Credit for Continuing Professional Education for Certified Public Accountants. RESPONSIBLE OFFICIAL Human Capital Office IMPLEMENTATION DATE August 31, 2013 RECOMMENDATION 3 The IRS CFO should reemphasize existing procedures to ensure business units contact Centralized Delivery Services (CDS) function personnel to coordinate planning of any future conference or event. Further, additional procedures should be developed that require all documentation supporting the selections of non-Government facilities for future conferences be maintained for management review. CORRECTIVE ACTION 3-1 The HCO will update IRM 6.410.1, Leadership and Education, Selection of Off-Site Locations and Facilities for Training, to include procedures that require all documentation supporting the selection of non-Government facilities for future conferences be maintained for management review. RESPONSIBLE OFFICIAL Human Capital Office IMPLEMENTATION DATE October 1, 2013 CORRECTIVE ACTION 3-2 The Agency-Wide Shared Services (AWSS) Procurement office will update and reissue Policy and Procedures Memorandum No. 70.24, Acquiring Training, Meeting and Conference Space, to reflect guidance in Treasury Directive 12-70, Hosted Conference/Special Event Planning, to reemphasize existing procedures for planning conferences or events and maintaining supporting documentation. RESPONSIBLE OFFICIAL Agency-Wide Shared Services IMPLEMENTATION DATE August 31, 2013 RECOMMENDATION 4 The IRS CFO should develop and implement procedures outlining the appropriate use of outside event planners when planning IRS conferences. This should include how event planners are selected and compensated. CORRECTIVE ACTION 4-1 The CFO issued the December 27, 2012 Interim Guidance Memorandum, Reissued Interim Guidance on the Approval Process for vent-Related Spending, which limits the use of external event planners. RESPONSIBLE OFFICIAL Chief Financial Officer IMPLEMENTATION DATE December 27, 2012 (Completed) CORRECTIVE ACTION 4-2 The HCO will update IRM 6.410.1, Leadership and Education, Selection of Off-Site Locations and Facilities for Training, to include guidance on the use, selection and compensation if event planners must be used. RESPONSIBLE OFFICIAL Human Capital Office IMPLEMENTATION DATE October 1, 2013 RECOMMENDATION 5 The IRS CFO should establish procedures clearly outlining when planning trips should be performed for conferences. These procedures should require documentation of the reason and estimated cost for planning trips, along with the requirement that local IRS employees are used to the extent possible to perform these planning trips. This information should be provided to a designated management official or an executive for approval. CORRECTIVE ACTION The HCO will update IRM 6.410.1, Leadership and Education, Selection of Off-Site Locations and Facilities for Training, to emphasize the requirement to document the reason for and estimated cost of planning trips and to maintain documentation of executive approval of the planning trip. RESPONSIBLE OFFICIAL Human Capital Office IMPLEMENTATION DATE October 1, 2013 RECOMMENDATION 6 The IRS CFO should establish procedures to clearly outline the need for and value provided by any conference videos for future conferences. The purpose and use of videos should be clearly detailed in any request for a conference and include the applicable costs in the approval request. CORRECTIVE ACTION In February 2013, the IRS created the Servicewide Video Editorial Board (SVEB), which is chaired by the Communications and Liaison Communications Director and includes the Deputy Human Capital Officer and the Wage 8: Investment Communications Director. The SVEB reviews and approves all video projects planned throughout the IRS, considering cost, topic and tone, including training and education videos, webinars, vignettes, videos for external placement on YouTube, |RS.gov and related web sites, and any other ad hoc taping projects such as videos for use at IRS meetings and conferences. A core part of the SVEB's efforts will be focused on ensuring that internal and external videos have a sound business purpose and advance tax administration interests, either through taxpayer education or internal training. The videos produced for the 2010 meeting would not be approved today under the SVEB's criteria. Mandatory higher level review is also currently in place. RESPONSIBLE OFFICIAL Communications and Liaison IMPLEMENTATION DATE February 21, 2013 (Completed) RECOMMENDATION 7 The IRS CFO should evaluate whether the solicitation of hotel room suite upgrades for use by IRS employees should be allowed in agreements with hotels hosting IRS conferences in the future. In addition, any agreement with hotels containing hotel suite upgrades should be approved by the applicable business unit executive. CORRECTIVE ACTION 7-1 The HCO will update IRM 6,410.1, Leadership and Education, Selection of Off-Site Locations and Facilities for Training, to prohibit the solicitation of room suite upgrades and where upgrades are offered at no cost to the IRS, require approval by the applicable business unit executive. RESPONSIBLE OFFICIAL Human Capital Office IMPLEMENTATION DATE October 1, 2013 CORRECTIVE ACTION 7-2 The AWSS Procurement office will update and reissue Policy and Procedures Memorandum No. 70.24, Acquiring Training, Meeting and Conference Space, to prohibit the solicitation of room suite upgrades and where upgrades are offered at no cost to the IRS, require approval by the applicable business unit executive. RESPONSIBLE OFFICIAL Agency-Wide Shared Services IMPLEMENTATION DATE August 31, 2013 RECOMMENDATION 8 The IRS CFO should identify all local employees who claimed per diem travel related to the conference and ensure Forms W-2 are issued to all employees for taxable travel as appropriate. CORRECTIVE ACTION The IRS will identify local employees who did not receive a Form W-2 for taxable travel and will issue them as appropriate. RESPONSIBLE OFFICIAL Chief Financial Officer IMPLEMENTATION DATE June 1, 2013 RECOMMENDATION 9 The IRS CFO should establish procedures to clearly outline the need for and value provided by any "information corridors"/exhibitor halls and other technology for future conferences. The purpose and use of any exhibitor hall or technology should be clearly detailed in any request for a conference and include the applicable costs, including giveaway items, in the approval request. CORRECTIVE ACTION 9-1 The CFO issued the December 27, 2012 Interim Guidance Memorandum, Reissued lnterim Guidance on the Approval Process for vent-Related Spending, which outlines the requirements to include the full-cost of events when submitting events for approval. RESPONSIBLE OFFICIAL Chief Financial Officer IMPLEMENTATION DATE December 27, 2012 (Completed) CORRECTIVE ACTION 9-2 The HCO will update IRM 6.410.1, Leadership and Education, Selection of Off-Site Locations and Facilities for Training, to reflect guidance on the analysis of the use of exhibitor halls and specialized technology. RESPONSIBLE OFFICIAL Human Capital Office IMPLEMENTATION DATE October 1, 2013