************************************************************* ** This document is an ASCII formatted version of a ** ** printed document. The page numbers in this electronic ** ** version may not be in the same order as the printed ** ** document. The printed document may also contain charts ** ** and photographs which are not reproduced in this ** ** electronic version. If you require the printed version ** ** of this document, contact the Office of Inspector ** ** General, Department of the Treasury, 1201 Constitution ** ** Avenue, N.W., Room 7210, Washington, D.C. 20220 or ** ** call (202) 927-0650. ** ************************************************************* OFFICE OF INSPECTOR GENERAL SEMIANNUAL REPORT APRIL 1, 1995 - SEPTEMBER 30, 1995 Activities of the Department of the Treasury's: * Office of Inspector General * IRS Inspection Service * Customs Office of Internal Affairs * ATF Office of Inspection * Secret Service Office of Inspection CROSS REFERENCES TO INSPECTOR GENERAL ACT, AS AMENDED Section 4(a)(2): Review of Legislation and Regulations 62 Section 5(a)(1): Significant Problems, Abuses, and Deficiencies 5-56 Section 5(a)(2): Recommendations with Respect to Significant Problems, Abuses, and Deficiencies 15-56 Section 5(a)(3): Significant Unimplemented Recommendations Described in Previous Semiannual Reports 73-78 Section 5(a)(4): Matters Referred to Prosecutive Authorities 80-81 Section 5(a)(5): Summary of Instances Where Information Was Refused 82 Section 5(a)(6): List of Audit Reports 83-89 Section 5(a)(7): Summary of Significant Reports 5-56 Section 5(a)(8): Statistical Table - Questioned Costs 66-67 Section 5(a)(9): Statistical Table - Recommendations that Funds Be Put to Better Use 67-70 Section 5(a)(10): Summary of Audit Reports Issued Before the Commencement of the Reporting Period for which No Management Decision Has Been Made 71-73 Section 5(a)(11): Significant Revised Management Decisions Made During the Reporting Period 78 Section 5(a)(12): Management Decisions with which the Inspector General Is in Disagreement 71 FOREWORD My first year as Treasury Inspector General has been one of challenges and action. Our challenges were to increase our productivity and effectiveness by dedicating more staff to direct line responsibilities and simplifying our core work processes. Also, we sought to provide products that our customers, departmental managers and the Congress, will find useful and relevant. Our goal is to help decision makers find solutions to the problems they face. I am happy to say we have made progress. First, we asked three former department-level inspectors general to take a frank look at our organization. Based in part on their report, we restructured our organization from three program components to two core program areas. Our management structure now reflects our core functions: audit and investigations. We continue to look for ways to strengthen these core functions by redirecting employees from indirect staff functions to line responsibilities. The result? Increased capacity using existing resources to meet the needs of this Department. To explore new ways to help managers focus on solutions, we have established a small Evaluations staff. This group does quick response reviews designed to provide Department policymakers timely and useful information. For example, the Evaluations Staff has been working in partnership with the Department on the implementation of the Government Performance and Results Act (GPRA). To assist the Department's bureaus, we have co-developed a GPRA Implementation Assessment Guide that identifies the critical steps in the strategic planning process and related performance plans and reports. Together, we also are developing a tool for evaluating the data collection processes which support performance measures. Our next big challenge is to help the Department meet its responsibility to produce a consolidated Department-wide financial statement which we can then audit. To do this, we are working closely with Department financial managers and external stakeholders, such as the General Accounting Office and the Office of Management and Budget, to identify potential problems and deal with them early and constructively. Chief among these concerns is garnering sufficient resources and then coordinating their use to accomplish this task. Producing and auditing Treasury's financial statements will be a major effort--the Department collects 97 percent of the $1.3 trillion in Government revenue, and carries over 99 percent of the $4.97 trillion national debt. Treasury also is the Government's primary disbursing agent issuing over 80 percent of the total Government outlay of $1.5 trillion. We are committed to making this work. We believe that the process of generating an annual financial statement will lead to a Government that pays attention to the ultimate bottom line: Is the American public getting what it pays for? Valerie Lau Inspector General Department of the Treasury October 31, 1995 TABLE OF CONTENTS FOREWORD i INTRODUCTION 1 AREAS OF CONCERN 5 MULTI-BUREAU ACTIVITIES 15 LAW ENFORCEMENT BUREAU ACTIVITIES 23 U.S. Customs Service 23 Bureau of Alcohol, Tobacco and Firearms 26 U.S. Secret Service 29 NON-LAW ENFORCEMENT BUREAU ACTIVITIES 33 Departmental Offices 33 Bureau of Engraving and Printing 36 Financial Management Service 38 U.S. Mint 39 Comptroller of the Currency/ Office of Thrift Supervision 40 Bureau of the Public Debt 41 INTERNAL REVENUE SERVICE ACTIVITIES 43 Audits 43 Investigations 49 Integrity Activities 54 OTHER ACTIVITIES 57 STATISTICAL SUMMARIES 65 APPENDIX A: AUDIT REPORT LISTING APRIL 1, 1995, THROUGH SEPTEMBER 30, 1995 83 TREASURY BUREAU ABBREVIATION Bureau of Alcohol, Tobacco and Firearms ATF Office of the Comptroller of the Currency OCC U.S. Customs Service Customs Departmental Offices Departmental Offices Bureau of Engraving and Printing BEP Federal Law Enforcement Training Center FLETC Financial Management Service FMS Internal Revenue Service IRS U.S. Mint Mint Bureau of the Public Debt BPD U.S. Secret Service Secret Service Office of Thrift Supervision OTS INTRODUCTION Under the provisions of the Inspector General Act of 1978, as amended, Treasury's Office of Inspector General (OIG) reports semiannually on its activities to the Congress. This report, which covers the second half of Fiscal Year 1995, describes major issues and concerns identified during audits and investigations, along with recommendations for corrective action. Because the report describes selected significant audits and investigations, the conditions should not be considered as representative of overall conditions in the Department of the Treasury and its bureaus. Treasury's Inspector General reports directly to the Secretary and Deputy Secretary. A Deputy Inspector General helps provide policy direction to the OIG. Three Assistant Inspectors General are responsible for the OIG's audit, administrative, and investigative and oversight functions. In addition to Treasury OIG operations, the report covers the activities of the Offices of Internal Affairs and Inspection at Customs, ATF, IRS, and Secret Service. The Inspector General has oversight responsibility for internal investigations performed by the Offices of Internal Affairs and Inspection at ATF, Customs, and Secret Service and for the IRS Inspection Service's internal audits and investigations. OIG ORGANIZATIONAL ISSUES The OIG is continuing efforts to provide increased value to its customers and to maximize its audit and investigative resources. Toward this end, the OIG has reorganized much of its headquarters operations during the last 6 months. For example, the OIG has redirected audit resources that were previously dedicated to research and planning efforts to regional audit operations. This redirection of staff will assure more effective allocation of resources and increase the OIG's ability to audit the Department's activities. In addition, the OIG has eliminated the Office of Oversight and Quality Assurance and reassigned oversight responsibilities to the Offices of Audit and Investigations. This action will enhance the OIG's responsiveness to potential problems identified in the internal audit and internal affairs and inspection operations of the Department's law enforcement bureaus. Finally, to better respond to requests for assistance from its Treasury customers, the OIG has established an Evaluations staff. These changes will ensure that OIG auditors and investigators contribute more directly to the organization's mission. TREASURY FUNCTIONS AND ORGANIZATION The OIG and Offices of Internal Affairs and Inspection assist Treasury in carrying out its many functions. Today, nearly 156,000 employees work for the Department of the Treasury throughout the world. Treasury, as one of the oldest Government agencies, performs some of the most fundamental Governmental activities -- collecting and borrowing the money it takes to run our Government and enforcing many of our laws. Treasury also has the broader responsibility of assisting in the design of economic policy and putting that policy in place. The Department has a full-time agenda of accounting, revenue collection, law enforcement, money production, and economic policy formulation. Treasury also performs such diverse functions as providing security protection for the President, striking commemorative medals, enforcing our nation's firearms and explosives laws, and investigating financial institution fraud. Treasury is organized into 12 different bureaus and offices. Eleven operating bureaus carry out the specific programs assigned to Treasury. These components are overseen by the Departmental Offices which formulate policy and manage the Department. Bureau Employees Bureau of Alcohol, Tobacco and Firearms 4,100 Office of the Comptroller of the Currency 3,700 U.S. Customs Service 19,200 Departmental Offices 1,800 Bureau of Engraving and Printing 3,000 Federal Law Enforcement Training Center 500 Financial Management Service 2,200 Internal Revenue Service 111,300 U.S. Mint 2,200 Bureau of the Public Debt 1,800 U.S. Secret Service 4,700 Office of Thrift Supervision 1,500 Total 156,000 AREAS OF CONCERN * If audits of IRS and Customs financial statements continue to receive disclaimers of opinion, both the consolidated Treasury and Government-wide financial statements will be materially affected. * Effective actions are still needed to address Tax Systems Modernization program management, systems infrastructure, and economic analysis concerns. This chapter summarizes areas of concern in the Department of the Treasury from the perspectives of the OIG and the Offices of Internal Affairs and Inspection. FINANCIAL STATEMENTS The Department faces significant long-term challenges to achieve unqualified opinions on Treasury financial statements. Currently, the Department and the OIG are planning for the pilot preparation of the Fiscal Year 1996 consolidated Treasury financial statements. The Government Management Reform Act (GMRA) requires agencies to prepare consolidated financial statements. In addition, under GMRA, audited Government-wide financial statements for Fiscal Year 1997 must be completed by March 31, 1998. The OIG and the Department are focusing substantial effort on the preparation of audited financial statements for Treasury entities and consolidated statements for all of Treasury. Treasury's consolidated financial statements have a significant impact on the Government-wide statements' reporting of cash, public debt, and revenues, as well as other assets, liabilities, and expenses. Audits of IRS and Customs resulted in disclaimers of opinion on their Fiscal Year 1994 financial statements. While the OIG was unable to render an opinion on Customs' financial statements, it is encouraged by the significant progress Customs has made. However, the OIG is concerned that audit results of both the consolidated Department and Government-wide statements will be materially affected if IRS and Customs continue to receive disclaimers. The General Accounting Office (GAO) was unable to express an opinion on IRS' Fiscal Year 1994 financial statements because, in part, tax revenue of $1.3 trillion collected by IRS could not be verified or reconciled to accounting records, and the estimates for gross and net accounts receivable of $69 billion and $35 billion, respectively, were not reliable. The OIG audit of Customs' Fiscal Year 1994 financial statements resulted in a disclaimer of opinion due to material weaknesses in the internal control structure, which precluded Customs from producing auditable financial information on a timely basis. Both IRS and Customs received disclaimers of opinion on their financial statements for Fiscal Years 1993 and 1992. The underlying problems in their internal control structures require long-term solutions and continued focus on corrective actions, although management has made significant progress in addressing these concerns. The Inspector General is a member of the Department's Financial Statements Advisory Council, which is addressing the presentation of the Department-wide financial statements. The Inspector General also is a member of a similar body addressing the Government-wide financial statements' preparation and audit. Treasury and OIG officials are already working together on the long-term solutions needed to assure that financial management and internal control systems provide information needed for the preparation of sound financial statements. In addition, cooperative efforts are underway to secure the resources necessary for the audits of Treasury components and the consolidated Treasury financial statements. TAX SYSTEMS MODERNIZATION Tax Systems Modernization (TSM) is the centerpiece of IRS' efforts to reengineer its business processes, information systems, and organizational culture. Since 1986, IRS has invested $2.5 billion to create an environment where taxpayer accounts are updated rapidly and taxpayer information is readily available to IRS employees in order to respond to taxpayer inquiries. Nevertheless, IRS' efforts to modernize tax processing are at serious risk due to management and technical weaknesses that impede design and development activities. The IRS Inspection Service and others have provided extensive audit coverage of the costs and difficulties associated with modernizing IRS information systems. The Inspection Service has issued 73 reports relating to TSM activities since Fiscal Year 1991. This oversight showed that control weaknesses in three areas--program management, information systems infrastructure, and economic analysis--increased the TSM initiative's vulnerability to schedule delays, cost overruns, and the failure to meet mission goals. In February 1995, GAO included the TSM initiative in its overview of government high risk areas. GAO reported that TSM's overall design is still incomplete and IRS is continuing to automate existing, problem plagued functions with limited understanding of whether or how different systems will eventually connect to improve tax administration. In July 1995, GAO further reported that IRS does not have a comprehensive business strategy to cost-effectively reduce paper submissions, and has not yet fully developed and put in place the requisite management, software development, and technical infrastructures necessary to successfully implement an ambitious modernization effort like TSM. IRS is committed to taking the recommended next steps to strengthen the management of TSM by developing detailed actions to address the issues. The Associate Commissioner for Modernization will monitor IRS' progress toward implementing all of these improvements to ensure that necessary actions are completed. Because of the significance of the changes that IRS is undertaking, the Commissioner plans to report to the Congress on progress toward meeting the key milestones. During the six months ending September 30, 1995, IRS internal auditors issued six reports on the design, development, and acquisition of IRS' TSM efforts. The OIG also has been conducting a review of the Department's oversight of TSM. The OIG's results have shown that although the Department has been active in providing oversight of TSM, its efforts have not been effective and IRS continues to experience recurring problems in TSM's development. The OIG believes that opportunities exist for the Department to have more impact on ensuring that recurring problems are corrected. To the Department's credit, it has undertaken recently a new initiative to enhance oversight of TSM by establishing the Modernization Management Partnership (MMP). MMP is comprised of executive managers in the Department and IRS whose objectives are to direct successful implementation of TSM and ensure efficient use of TSM funds. The Inspector General is an advisory member of MMP's Executive Steering Group. While it is too early to assess MMP's effectiveness, the OIG agrees that the Department needs a new approach to providing oversight of TSM. RETURN FILING FRAUD Although IRS has strengthened controls, the vulnerability of systems for detecting return filing fraud before the issuance of tax refunds remains significant. Since 1994, the IRS Inspection Service has provided extensive coverage to IRS revenue protection efforts. As a result of this emphasis and IRS management's initiatives, a number of significant actions were taken to detect and prevent return filing fraud during the 1995 filing season. One such effort was the elimination of the Direct Deposit Indicator (DDI), which provided electronic return originators (EROs) with information on whether a taxpayer's refund would be offset by another liability before payment. The EROs used DDIs to determine risk when making refund anticipation loans, a source of fraud, to taxpayers. Other actions taken include increasing verification of taxpayers' social security numbers (SSNs), performing additional checks on returns claiming certain credits, conducting suitability checks of and monitoring EROs, and devoting additional compliance resources to fraud detection and prevention. Because of the tighter systemic screening of returns in 1995, IRS processing centers rejected over 5 million electronically filed returns--more than triple the number of returns rejected in the previous year. Another important part of IRS' revenue protection strategy in 1995 involved screening refunds for tax returns that met certain criteria based on computer analysis and fraud identification profiles. Of the approximately 10 million returns subjected to this screening, more than 1 million warranted greater scrutiny and were subjected to examination. Through June 1995, over $269 million in refund claims were denied after audit by IRS examination personnel. IRS internal auditors are continuing to assess revenue protection activities. During Fiscal Year 1995, auditors conducted ten reviews on various aspects of these activities and additional reviews are planned for Fiscal Year 1996. Much of this audit coverage is online and provides immediate feedback on areas of concern. A summary of five recent audits is included in the Internal Revenue Service Activities chapter of this report. IRS has initiated various initiatives that are designed to detect and deter fraud schemes associated with both paper and electronic returns. For example, IRS management is addressing communication problems within and between IRS offices, which inhibited the development of comprehensive procedures and the effective testing of new computer programs and applications designed to identify suspicious return preparers. IRS also plans or has taken steps to strengthen procedures involving refunds issued to taxpayers with invalid SSNs, and to issue clearer instructions and consistent information on Earned Income Credit eligibility. INTEGRITY IN LAW ENFORCEMENT Ensuring the integrity of the Department's operations is essential to maintaining public trust. Through audits and investigations, the OIG works with senior management officials from the 12 Treasury bureaus to promote integrity and improve systems designed to prevent or detect fraud and mismanagement. Each Treasury bureau promotes programs that emphasize ethics and integrity awareness. In recent years, integrity issues relative to the operations and management of some law enforcement bureaus have come under scrutiny by Congress and the public. During the past 6 months, OIG personnel responded to information requests for Congressional hearings related to the incidents that took place at Waco, Texas, and Ruby Ridge, Idaho. The OIG performed reviews of both occurrences. In addition, the OIG and the Under Secretary for Enforcement are jointly conducting an inquiry into allegations of misconduct by Treasury law enforcement personnel attending the "Good O' Boy Roundup." The OIG is solely responsible for the fact-finding portion of this investigation. At the conclusion of its investigation, the OIG will issue a report summarizing its factual findings. The Office of the Under Secretary for Enforcement is responsible for determining the applicability of current laws, policies, rules, and regulations to the facts discovered by the OIG. In addition, the Office of the Under Secretary for Enforcement will recommend changes to those laws, policies, rules, or regulations, if deemed appropriate. The OIG will continue to evaluate the overall manner in which investigations are conducted within Treasury law enforcement bureaus. Cogent lessons have been learned by the law enforcement community as a result of the Congressional hearings. The OIG will continue to coordinate efforts with the bureaus to ensure that their investigative activities are appropriately planned and executed. SECURITY MANAGEMENT Security management problems and issues continually present challenges that require varying levels of attention throughout the Federal Government. The bombing of the Oklahoma City Federal Building has heightened attention to and the need for security management more than ever. Security over the Treasury Department's employees, facilities, and property are of paramount concern to the Inspector General and the Department. In fact, security management has application to many areas, including computer, physical, and classified documents security, and executive protection. The OIG has carried out an oversight role in reviewing and investigating security issues. For example, as a result of the September 12, 1994, airplane crash on White House grounds, the Secretary of the Treasury requested that the Under Secretary for Enforcement and the U.S. Secret Service Director conduct a multi-agency law enforcement investigation. The Secretary established the White House Security Review (the Review), which evaluated the adequacy of procedures to protect the President and the First Family within the White House Complex. The OIG monitored the Review to provide assurance that it was complete and the recommendations were properly implemented. As part of its oversight role, the OIG participated in certain interviews, attended meetings with the Review's independent Advisory Committee, reviewed documents assembled by the Review team, and provided comments on various aspects of the Review. The OIG also monitored the Review team's examination of a subsequent White House shooting incident which occurred on October 29, 1994, as well as a number of additional security related incidents that occurred in December 1994. The White House Security Review's classified report was issued in May 1995 and provided recommendations to enhance security at the White House Complex. The report was over 500 pages, with an appendix of over 250 pages. On May 1, 1995, the Inspector General issued an opinion to the Secretary that the White House Security Review's Report provided an accurate account of the events examined and that the report's conclusions were based on fact and were consistent with the nature of the findings developed. The Review team cooperated fully with the Inspector General's Office and provided unrestricted access to the information compiled by the Review throughout its investigation. In view of the bombing in Oklahoma City, Treasury recognized the need to assure that security management was given proper attention. For example, during this reporting period, the IRS Inspection Service initiated a review of employee protection measures in place at IRS. IRS employees have extensive contact with the public, and noncompliance with tax laws has been a common theme among some groups that have been identified as advocating the use of force and violence. Because this issue transcends individual Federal agencies, the Inspection Service coordinated its review efforts with other Federal law enforcement agencies in the Departments of Treasury and Justice. Subsequently, the IRS Inspection Service briefed the Vice President on the IRS employee protection program and the need for interagency coordination in this area. The OIG intends to maintain open communication with Treasury officials, and will conduct security reviews where warranted to ensure that security management is given the high level of attention that it requires. CUSTOMS SYSTEMS DEVELOPMENT Inadequacies in Customs' accounting system for revenue collections have been highlighted in prior semiannual reports. Customs has two major and costly system development initiatives that are intended, in part, to address these deficiencies--the Automated Commercial Environment (ACE) and the Automated Export System (AES). As part of its examination of Customs' Fiscal Year 1994 financial statements, the OIG reviewed Customs' general controls over its electronic data processing environment, including system development activities. The OIG's review disclosed that Customs had not fully adhered to systems development life cycle requirements in the early development stages of ACE. Customs felt it was in compliance with the requirements, however. Specifically, Customs had not yet performed appropriate analyses to determine the cost-benefit of various options available for system hardware needs and architecture of the ACE operating environment. Accordingly, implementation of ACE may be delayed, the system may not meet Customs' requirements, and unnecessary costs may be incurred. Because both systems will process and generate financial data for Customs' financial statements and performance measures, the OIG will continue to monitor the development and implementation of ACE and AES during its examinations of Customs' financial statements in future years. The first initiative, ACE, will process commercial importation transactions. ACE is intended to be an international trade information system for enforcing compliance with U.S. trade laws and regulations. ACE will replace the current Automated Commercial System which has been outpaced by the increasingly complex global trade environment. A limited prototype demonstration of ACE is scheduled for November 1995, with full implementation planned for Fiscal Year 1999. The second development initiative, AES, will be used for export processing. AES will be the cornerstone for full automation of export trade activity and is intended to facilitate enforcement of U.S. export laws, including the collection of harbor maintenance fees. AES also will interface with ACE to provide financial management information to account for revenues. Customs implemented prototype modules of AES at several Customs ports in July 1995. Full implementation is scheduled for 2000. Both systems should include adequate audit trails and must provide for effective data security, data integrity, and contingency planning. Furthermore, Customs must have adequate controls in place to provide assurance that revenues accounted for and processed by ACE and AES are valid, accurate, and complete. The OIG is monitoring these initiatives and has made recommendations to assist Customs management. TAX DATA SECURITY In the March 1993 semiannual report, the IRS Inspection Service reported that the Integrated Data Retrieval System (IDRS) control systems did not detect or prevent unauthorized accesses by IRS employees to obtain tax information. The information obtained subsequently was used for improper and illegal purposes. Even though improvements have been made to deter or detect unauthorized or improper access to tax information, some employees are not sufficiently discouraged because existing laws do not provide adequate penalties. A review by the Inspection Service showed that current laws do not specifically address situations involving unauthorized inspection of tax return information without subsequent disclosure to a third party (i.e., browsing). As a result, IRS personnel worked with employees from the Departments of Treasury and Justice to develop legislative proposals to amend both the Internal Revenue Code and the United States Criminal Code. During the 6-month period covered by this report, the Taxpayer Browsing Protection Act, which specifically addresses the confidentiality of tax information that is not disclosed to a third party, was introduced. The National Information Infrastructure Protection Act, which would make unauthorized access of computer systems to obtain sensitive information, such as tax data, a criminal offense, was also introduced. Both legislative proposals have been referred to the appropriate Senate committees for further action. MULTI-BUREAU ACTIVITIES * The OIG recommended that Treasury develop uniform guidelines for establishing financial controls over undercover operations within the Department. * OIG audits questioned $33.6 million in contractor costs. This chapter summarizes significant audit and other services that the OIG and Offices of Internal Affairs and Inspection provided to more than one Treasury bureau. Financial Statement Audits For Fiscal Year 1994, financial statement audits were performed for 13 Treasury entities. For two entities, Customs and IRS, the audit efforts resulted in disclaimers of opinion by the OIG and GAO, respectively. More positively, 10 Treasury entities received unqualified opinions and one received a qualified opinion on its financial statements. Pursuant to the Chief Financial Officer's Act of 1990, the OIG examined Customs' Fiscal Year 1994 financial statements and issued a disclaimer of opinion because of material weaknesses in Customs' internal control structure. The weaknesses precluded Customs from producing auditable financial information on a timely basis. Many of the internal control weaknesses require long-term solutions and continued progress is needed in order for Customs to produce timely and reliable financial information. GAO also issued disclaimers of opinion on Customs' Fiscal Year 1993 and Fiscal Year 1992 financial statements. Numerous material weaknesses initially identified by GAO remained in Fiscal Year 1994. Certain weaknesses limited Customs' ability to fully carry out its mission. For example, systems were inadequate to ensure that $567 million in duty and tax refunds, known as drawbacks, were valid and supported, and future unfunded liability associated with unasserted refund claims could not be estimated. Additionally, systems and procedures did not ensure that the $111 million accounts payable balance was valid and supported, and controls over major computer systems to prevent unauthorized access were lacking. The OIG also questioned the accuracy of reported seized property activity and property safeguards because of system and control problems. While the OIG was unable to render an opinion on Customs' financial statements, it is encouraged by the significant progress Customs has made. Customs began implementing programs to measure the amount of unpaid duties, fees, and taxes associated with importer noncompliance; has reduced the potential for excessive, duplicate, and unauthorized drawback payments; and is taking steps to determine future unfunded drawback liability. Management also changed procedures to ensure that accounts payable are properly stated and supported, and is improving controls over computer systems and seized property operations. Inspection Service internal auditors, working jointly with auditors from GAO, perform IRS financial statement reviews. All financial audit information resulting from this collaborative effort continues to be reported and distributed through GAO. The August 1995 report on the IRS Principal Financial Statements for Fiscal Years 1994 and 1993 concluded that IRS continues to face major challenges in developing meaningful and reliable financial management information and in providing adequate internal controls. Overcoming these challenges is difficult because of the long-standing nature and depth of IRS' financial management problems and the antiquated state of its systems. GAO verified that IRS accounted for $5.1 billion in payroll expenses. However, GAO could not express an opinion on the reliability of IRS' Fiscal Year 1994 statements for five primary reasons: * The reported total revenue amount of $1.3 trillion could not be verified or reconciled to accounting records maintained for individual taxpayers in the aggregate; * Amounts reported for various types of collected taxes, such as Social Security, income, and excise taxes, could not be substantiated; * The reliability of gross and net accounts receivable estimates, totalling over $69 billion and $35 billion, respectively, which include delinquent taxes could not be verified; * IRS appropriation fund balances, remaining open at the end of the fiscal year, could not be balanced to corresponding controlling appropriation fund balances held by Treasury on behalf of IRS; and, * A significant portion of IRS' $2.1 billion in non-payroll operating expenses could not be substantiated for lack of documentation._FISCAL YEAR 1994 FINANCIAL STATEMENT AUDITS OF TREASURY ENTITIES_ _Entity_ _Assets_ _Audit Opinion_ U.S. Customs Service $2.89 billion ** Disclaimer Issued Internal Revenue $41.4 billion ** Disclaimer Issued Service * Exchange Stabilization $37.9 billion *** Unqualified Opinion Fund Financial Management $108.6 million Unqualified Opinion Service (Salaries & Expenses Appropriation) U.S. Mint $10.7 billion ** Unqualified Opinion Departmental Offices $96.1 million Unqualified Opinion Working Capital Fund Treasury Forfeiture Fund $407.7 million ** Qualified Opinion Office of Thrift $152.9 million Unqualified Opinion Supervision Office of the $258 million Unqualified Opinion Comptroller of the Currency Bureau of Engraving and $615.2 million Unqualified Opinion Printing Departmental Offices $203,000 Unqualified Opinion Gifts & Bequests Fund Esther Cattell Schmitt $423,600 Unqualified Opinion Gift Fund Federal Financing Bank $112 billion *** Unqualified Opinion * Audited by GAO ** Includes operating and custodial assets *** Not a CFO audit IRS did not know and GAO could not determine the reasons for most of the cited differences. Therefore, appropriate adjustments for improving the reliability of the financial statements could not be adequately estimated. Weaknesses in IRS systems and processes controls, reported by GAO as early as 1988, continue to be a major cause of problems. GAO's report contains recommendations to assist IRS management in strengthening IRS' financial operations and resolving control deficiencies. As in prior years, the OIG audited the financial statements of Treasury's Exchange Stabilization Fund and issued an unqualified opinion. In addition, the OIG contracted with independent public accounting (IPA) firms to perform eight financial statement audits. Highlights of the Fiscal Year 1994 audit results follow: * FMS' Salaries and Expenses Appropriation received its first unqualified opinion. In prior years, FMS received qualified opinions due to unreliable property, plant, and equipment information. FMS improved its property records and asset valuation methodology, thereby providing reliable asset balances for its financial statements. * The Mint received its first unqualified opinion. In prior years, audits resulted in disclaimers of opinion. IPAs identified three material weaknesses in the Mint's internal control structure, and two material instances of non-compliance with laws and regulations for Fiscal Year 1994. Consequently, the IPAs extended procedures in several audit areas and proposed numerous adjustments to the financial statements to enable it to issue an unqualified opinion. * OTS received another unqualified opinion. However, the auditors' report on the internal control structure contained two reportable conditions, both pertaining to access to the automated data processing system. OCC and BEP contract for their own financial statement audits. Both bureaus received unqualified opinions. The OCC audit identified no internal control weaknesses. Auditors at BEP identified reportable conditions in the bureau's internal control structure for the Advanced Counterfeit Deterrence program. (OIG and IRS) COMPLETED CONTRACT AUDITS APRIL 1, 1995, THROUGH SEPTEMBER 30, 1995 PREAWARD PROPOSAL AUDITS* OVERHEAD AUDITS** OTHER CONTRACT AUDITS* FUNDS TO BE PUT NUMBER COSTS COSTS NUMBER OF TO BETTER OF QUES- NUMBER OF QUES- REPORTS USE REPORTS TIONED REPORTS TIONED _CUSTOMS_ 8 $3,120,127 6 $277,264 2 $0 _DEPT. OFFICES_ 0 0 3 0 0 0 _IRS_ 5 3,635,188 2 935,604 1 0 _SECRET SVC._ 1 97,940 0 0 0 0 _MINT_ 1 67,061 0 0 1 0 _ENG. & PRINT._ 9 22,586,844 4 2,558,242 0 0 _ATF_ 0 0 1 371,547 0 0 _TOTALS***_ 24 29,506,710 16 4,142,657 4 $0 * Twenty-two preaward audits were accomplished by DCAA auditors, one was accomplished by HHS-OIG, and the remaining preaward audit was accomplished by the United States Postal Inspection Service. All of the four "other" contract audits were accomplished by DCAA. ** All sixteen overhead audits were accomplished by DCAA. *** The monetary amounts are reflected in the table on monetary benefits from OIG audits in the Statistical Summaries chapter of this report. $33.6 Million in Contract Costs Questioned The OIG is the central point for all Treasury bureaus to request pre-award, cost-incurred, and other contract audits. The OIG either performs the audits, refers the audits to the Defense Contract Audit Agency (DCAA) and other cognizant Government audit agencies, or contracts with an IPA. As shown above, the OIG performed or contracted for a total of 44 contract audits which questioned $33.6 million in Treasury contractor costs. Contracting officers agreed to savings and disallowed costs of over $25 million, including amounts which were questioned prior to March 31, 1995. An additional $21.8 million in potential monetary benefits, including amounts which were questioned prior to March 31, 1995, are awaiting completion of negotiations with contractors. Pre-award audits, which provide information on whether pricing proposals are fair and reasonable, are used by contracting officers in negotiating contracts. Incurred cost audits verify that costs claimed on cost-reimbursement type contracts are documented and properly charged to the Government. (OIG) Undercover Operations The OIG reported to the Under Secretary for Enforcement the need for Department-wide guidelines for establishing financial controls for all undercover operations. In a prior report, the OIG discussed long-standing financial control weaknesses in Customs undercover operations. These weaknesses exposed Customs to the risk of undercover funds being misused, and to possible errors or irregularities in its financial statements. The auditors found that similar financial control weaknesses over undercover operations at Customs and IRS also had been reported between 1991 and 1994 by GAO, the IRS Inspection Service, and a Customs Task Force. Observing that ATF and Secret Service also conduct undercover operations, the OIG recommended that the Under Secretary develop uniform guidelines for establishing financial controls for all undercover operations within the Department. Uniform guidelines will facilitate the preparation and audit of Treasury's consolidated financial statements, and also provide enforcement bureaus with a common framework for ensuring that undercover expenditures and proceeds are properly accounted for and controlled. The Under Secretary agreed with the OIG's observations and, along with the Department's Chief Financial Officer, currently is drafting Department-wide guidelines. The OIG continues to assist this effort through periodic consultations and the provision of technical advice. (Report #OIG-95-104) Integrity Awareness: A High Priority Integrity awareness remains a high priority for Treasury internal investigators. During the last 6 months, the OIG and Offices of Internal Affairs and Inspection at ATF, Customs, IRS, and Secret Service gave over 705 presentations to 16,205 Treasury employees. Highlights of these programs follow: * IRS Inspection Service auditors and investigators routinely give presentations to IRS personnel that are designed to heighten their awareness of ethics and integrity. These presentations address a variety of topics and are tailored to the particular needs of the audience. For the 6-month period ending September 30, 1995, 603 presentations were given to 14,145 employees. * Customs' Office of Internal Affairs special agents conduct yearly integrity and bribery awareness presentations. In the past 6 months, Internal Affairs agents made 94 presentations to nearly 1,100 employees. * ATF Inspection special agents and managers present integrity awareness and Ethics in Government briefings at bureau conferences, meetings, and supervisory, new agent, and inspector training classes. During the 6-month period, Inspection made seven presentations to 133 employees. * Secret Service's Office of Inspection works closely with all elements of Secret Service to foster the highest standards of integrity and ethics. To this end, inspectors conducted integrity and ethics briefings for 797 employees, including criminal investigator recruits, experienced criminal investigators, special officers, Uniformed Division Officer recruits, and administrative personnel. * The OIG gave one briefing to 30 OTS regional examiners and managers. (OIG and Offices of Internal Affairs and Inspection) LAW ENFORCEMENT BUREAU ACTIVITIES * Updated user fees for small airports could increase collections by $1.5 million. * Two task force operations resulted in the indictments of six individuals, including a Customs inspector, for conspiracy to smuggle over 5,400 kilograms of cocaine. * Legislative changes will enhance Secret Service's ability to minimize relocation costs associated with the Secret Service Travel Program. This chapter summarizes significant audit, investigative, and other services that the OIG and the Offices of Internal Affairs and Inspection provided to four law enforcement bureaus: Customs, ATF, Secret Service, and FLETC. The Multi-Bureau and Departmental Activities chapter describes financial audit, contract audit, and other multi-bureau services provided to these bureaus. U.S. CUSTOMS SERVICE Small Airport User Fees OIG auditors estimated that $1.5 million in additional revenue could be collected annually if Customs updated user fee billing methodologies to cover the cost of providing inspection services at small airports, as authorized by the Trade and Tariff Act of 1984. The act permits Customs to provide inspection services that enable small airports to receive international cargo and passengers. The audit found that Customs had to absorb the difference between revenues collected and the expenses associated with the inspections. The fees billed did not cover all of the services provided. In addition, the fee billing structure had not been updated by Customs since the program's inception in 1988. Increases to reflect the full cost of service would more than double the $1.2 million collected in Fiscal Year 1994. Customs agreed with recommendations for increased fees and improved program control and oversight, and agreed to submit a plan for corrective action within 30 days after receipt of the report. (Report #OIG-95-133) In-Bond Program The OIG is continuing to work with Customs to develop a compliance measurement program for "in-bond" shipments. Importers are allowed to bring goods into United States ports and then transfer the goods "in-bond" to another air, sea, or land port before declaring the goods on import documents. This creates a vulnerability for Customs as goods being transferred "in-bond" can be substituted or diverted without Customs' knowledge. While Customs has initiated several nationwide compliance measurement programs to objectively measure importer and carrier compliance with United States trade laws (largely in response to GAO financial statement audits), no program has been initiated for "in-bond" shipments of goods. The OIG was a member of a task force which studied methodologies for strengthening Customs' controls over goods being transferred "in-bond." Customs agreed to two important OIG recommendations, that statistically-selected "in-bond" shipments of goods should be physically examined at both the incoming port and the port of declaration, and that goods not selected at the incoming port should be available for selection and physical examination at the ports of declaration. Customs plans to implement an "in-bond" compliance measurement program in 1996. (OIG) Telecommunication Expenses An OIG audit concluded that during Fiscal Year 1994, Customs offices in the Washington, D.C. and Miami, Florida metropolitan areas paid $139,310 for telephone lines and features that went unused. Customs spent approximately $5.3 million servicewide for local telecommunication services in Fiscal Year 1994 with a significant portion of the expenses being attributed to the Washington and Miami metropolitan areas. In response to the OIG's recommendations, Customs officials developed procedures for reviewing telephone lines and for properly verifying bills prior to approving payment. Customs is also conducting an inventory of Headquarters telephone line features and switching to lower cost packages where appropriate. Finally, Customs will evaluate telecommunications expenses. (Report #OIG-95-125) Customs Inspector Arrested On February 9, 1995, six individuals including a Customs inspector and an Immigration and Naturalization Service (INS) inspector were indicted for conspiracy to import and distribute cocaine. The following day, the Customs inspector, the INS inspector, and an individual who was not a Government employee were arrested. A fourth person who was not a Government employee was arrested on April 19, 1995. The two remaining individuals who were indicted are considered fugitives. Since 1992, Internal Affairs had received multiple allegations that a Customs inspector was accepting bribes to allow loads of narcotics to enter the United States. An informant, working under the direction of the Federal Bureau of Investigation (FBI) and Internal Affairs, subsequently met with the Customs inspector and negotiated to allow 200 kilograms of cocaine to enter the United States. The indictments and arrests were the culmination of two task force operations, "Operation Wolfpack" and "Operation Street Sweeper," that were conducted by Customs' Office of Internal Affairs, Customs' Office of Investigations, the Department of Justice's (DOJ) Inspector General, the FBI and IRS. The charges stemmed from the smuggling of eight loads of cocaine, totalling over 5,400 kilograms, between 1990 and 1992. A superseding indictment charging the subjects and two additional individuals who are not Government employees with money laundering, attempted conspiracy to import one ton of cocaine and attempted bribery was handed down on July 27, 1995. The trial date has been set for October 31, 1995. (Customs Internal Affairs) Senior Customs Inspector Indicted for Narcotics Conspiracy On June 1, 1995, a Senior Customs inspector was indicted on a narcotics conspiracy charge involving members of a Colombian drug smuggling and distribution organization. The Customs inspector, his Colombian girlfriend, and three individuals who were not Government employees were arrested in April 1995 after the Customs inspector's girlfriend delivered a kilogram of pure heroin to a Drug Enforcement Administration (DEA) informant. During the joint Office of Internal Affairs and DEA investigation, the Customs inspector's girlfriend indicated that the Customs inspector helped her through the airport. Plea bargains currently are underway for all of the individuals arrested, with the exception of the Customs inspector. To date, he has categorically denied his criminal involvement in the drug smuggling conspiracy and has admitted only that the Colombian woman is his girlfriend. (Customs Internal Affairs) Baggage Handler Pleads Guilty In April 1995, a baggage handler pled guilty to conspiring to possess and distribute cocaine. One of seven individuals who were involved in a conspiracy to smuggle 27 pounds of cocaine with a street value of over $1.6 million, the baggage handler was arrested by Office of Internal Affairs special agents on October 19, 1994. As part of the conspiracy, baggage handlers removed suitcases containing narcotics before Customs' examination. In earlier talks with an undercover Internal Affairs special agent, the individuals involved in the conspiracy indicated that they were assisted by a corrupt Customs employee. The allegation proved false, however, when the "corrupt Customs employee" was determined to be a Port Authority employee who worked in the Customs area at the airport. The Port Authority employee was subsequently arrested by Internal Affairs special agents. (Customs Internal Affairs) Customs Intelligence Research Specialist Pleads Guilty In September 1995, a Customs intelligence research specialist and a relative pled guilty to conspiracy to commit offenses against the United States involving theft and fraud. A joint OIG and Office of Internal Affairs investigation revealed that the intelligence research specialist had disclosed confidential information obtained from a Government computer system through her employment to a relative. As part of a plea agreement, the Customs employee resigned from Government service. Sentencing is scheduled for November 1995. (OIG and Customs Internal Affairs) BUREAU OF ALCOHOL, TOBACCO AND FIREARMS ATF Explosives Enforcement Program An OIG audit concluded that ATF's explosives enforcement program could be improved. The report recommended that ATF increase coordination with state and county licensing and inspection departments, develop an effective performance measurement system to assess the results of its inspection efforts, and raise explosives license and permit fees to recover more of the program's costs. The OIG found that many states and counties license and inspect the same facilities as ATF. In addition, state and county departments often perform personnel criminal history checks, application investigations, reviews of facility plans, and compliance inspections. Increased coordination with the states and counties would allow ATF to better utilize its licensing and inspection resources. OIG auditors also had difficulty in assessing the results of ATF's inspection efforts. Although ATF performs over 3,700 explosives inspections annually, ATF has not summarized results regarding the seriousness of violations or the corrective actions taken to eliminate those violations. As a result, the positive impact that inspections were having on preventing the misuse of explosives could not be determined easily, and ATF had difficulty identifying areas of concern that merit increased inspection efforts. The OIG further concluded that ATF might have been able to offset an additional $600,000 in Fiscal Year 1994 program costs if licensing fees had been updated. ATF has not increased its fees, which are as low as $20 for a permit, since 1970. ATF agreed that the OIG's findings warranted further study and convened a focus group to specifically examine the explosives program. The focus group is expected to complete its work in early 1996. (Report #OIG95-129) Workers Compensation Program An OIG follow-up audit found that ATF implemented most of the recommendations made in 1989 and 1991 to improve pre-employment screening procedures, third party recoveries, and the detection and contention of invalid claims. However, ATF did not routinely obtain and review workers' compensation case files at the Department of Labor, which were crucial to the success of a return to work program, because of budgetary constraints and other priorities. The OIG estimated that ATF may have unnecessarily paid up to $2.1 million in workers' compensation to claimants capable of performing some type of work. The report recommended that ATF implement a more aggressive return to work program to identify injured employees capable of performing temporary light duty or regular, alternative, or permanently modified duties. In addition, ATF should ensure that medically suitable positions are identified and offered to employees collecting benefits, ensure that current and sufficient medical information is available on injured employees, and, when appropriate, request that individuals collecting benefits submit to independent medical examinations to resolve conflicting or questionable medical information. ATF concurred with the OIG's recommendations and is taking steps to correct identified weaknesses in the program. (Report #OIG-95-118) Retired Special Agent Pleads Guilty In August 1995, a retired special agent pled guilty to misdemeanor theft of Government property and was fined $5,000. The special agent had retired from ATF immediately after being interviewed by the Office of Inspection. While employed by ATF, the special agent violated Federal law by stealing and selling ammunition magazines and firearm scopes that belonged to the bureau. A portion of those magazines and scopes came from a quantity of ATF-seized firearms that were thought to have been destroyed in 1992. (ATF Inspection) Former ATF Contractor Indicted On May 12, 1995, a former ATF contractor was indicted for wire fraud, false statements, bank fraud, and misuse of a Social Security Number (SSN). The indictment charged that the former contractor gained admission to the Small Business Administration's (SBA) 8(a) program by using false SSNs and providing the SBA with copies of personal and corporate tax returns that the former contractor had not actually filed with IRS. After being accepted into the 8(a) program, the former contractor obtained a $15 million contract with ATF and committed various frauds in connection with the contract's performance. The OIG worked the investigation with the SBA OIG, the ATF Office of Inspection and the IRS Inspection Service. A trial is scheduled for October 1995. (OIG) Sexual Harassment Review During the reporting period, the OIG completed a review of allegations of sexual harassment at ATF that was initiated in response to requests from Treasury officials and a former Senate Subcommittee Chairman. The review, which involved an ATF employee who filed a complaint with the Department's Equal Employment Office concerning sexual harassment and reprisal, determined that EEO policies and procedures were not always followed by ATF. The OIG made four recommendations to correct the deficiencies identified, and ATF management has generally agreed to take action. (OIG) Sexual Harassment Awareness Training ATF continues to take steps to address sexual harassment. For example, during this reporting period, the Office of Inspection presented a two-day seminar entitled "Sexual Harassment Investigation and Awareness Training" for new Inspection personnel and other administrative employees. The seminar focused on sensitivity of sexual harassment issues, legal aspects of sexual harassment, investigative procedures relating to sexual harassment complaints, and methods for conducting sensitive and objective complainant interviews. (ATF Inspection) ATF Inspections The ATF Office of Inspection conducts inspections of ATF's criminal investigation and regulatory enforcement operations to evaluate compliance with established administrative procedures and operational effectiveness and efficiency. During this reporting period, the Office of Inspection conducted 8 inspections at the Division and District level, involving reviews of 74 separate operating offices in various locations throughout the United States. The regulatory inspections included interviews with officials from the alcohol, tobacco, and firearms industries regarding the quality of customer service received from ATF's Office of Regulatory Enforcement. The criminal investigations inspections included interviews with other Federal, state and local law enforcement agencies regarding the effectiveness of liaison activities by ATF's Office of Criminal Enforcement. The Office of Inspection made recommendations to managers for correcting noncompliance with policies and procedures and identified suggestions for improving efficiency. (ATF Inspection) U.S. SECRET SERVICE Secret Service Travel Program An OIG audit concluded that Secret Service generally managed its travel program effectively. However, controls over relocation contract payments and travel advance balances were inadequate. Secret Service also could take steps to remove legislative barriers in order to implement incentive programs and reimburse employees for losses on home sales. Such legislative changes would promote flexibility in minimizing relocation costs. The auditors also identified two methods for reducing relocation costs. One would be to offer monetary incentives to employees selling their homes. The other would be to pay employees for any loss on the sale of a home when it is cost beneficial to the Government. Both methods, however, would require legislative changes. The auditors estimated that had these methods been available, the Department could have saved as much as $4.2 million in 1993. Secret Service acknowledged the desirability and benefits of legislative modifications that would provide flexibility in minimizing relocation costs. However, bureau management did not believe that pursuing legislative action was its role. The OIG is bringing the issue to the attention of the Assistant Secretary for Management for further consideration. (Report #OIG-95-064) Security Review As a result of the September 12, 1994, incident in which a small aircraft crashed on the White House grounds, the Secretary of the Treasury directed Secret Service to conduct an internal investigation into policies and procedures relating to White House security. At the direction of the Secret Service Director, the Office of Inspection drew upon its familiarity with Secret Service policies, practices, and tradition to gather relevant facts and to record the oral and written history of Secret Service's air and ground defense practices. The inspectors also acted as Secret Service's liaison to the Treasury White House Security Review Team. At the conclusion of the Office of Inspection's internal investigation, a classified report of its findings, conclusions, and recommendations was presented to the Treasury White House Security Review Team for further analysis. The report subsequently served as the starting point for the Treasury White House Security Review's evaluation. At the direction of the Secretary, Treasury's White House Security Review was conducted by the Under Secretary for Enforcement. (Secret Service Inspection) Office of Enforcement Employee Indicted An Office of Enforcement employee was terminated and had his security clearance revoked after causing a disturbance at Washington, D.C.'s National Airport, as well as the Columbia, South Carolina Airport. Investigation by Secret Service inspectors revealed that in an attempt to avoid paying a $35 service charge for changing his airline reservation, the employee identified himself as a Secret Service agent, threatened to arrest an airline employee, and made a terroristic threat against the airline. The employee came to Secret Service's attention again when a citizen notified the Office of Inspection that a "Secret Service agent" had assaulted a woman. Investigation revealed that the employee had assaulted a woman in Washington, D.C., again identifying himself as a Secret Service agent. While the most recent assault and impersonation is pending local judicial action in Washington, D.C., the employee was indicted in Columbia, South Carolina on August 1, 1995, for impersonating a Secret Service agent. On August 30, 1995, the employee appeared before the U.S. Magistrate in Columbia and was placed on $10,000 personal recognizance bond. The court determined that the employee was ineligible for pre-trial diversion due to his lack of cooperation with the court. (Secret Service Inspection) Former Special Agent in Charge Pleads Guilty On June 30, 1995, a former Special Agent in Charge (SAIC) pled guilty to making false statements. The OIG developed information that the subject had misused confidential funds related to a classified investigation. A subsequent investigation by Secret Service inspectors determined that the former SAIC stole over $30,000 from Secret Service's confidential fund when it was under his control. He then created false documents regarding confidential expenditures to informants in order to cover up his thefts. Sentencing is scheduled for November 1995. (OIG and Secret Service Inspection) Secret Service Inspections Guided by a commitment to uphold the policies of the Secret Service Director and to ensure quality assurance, the Office of Inspection's responsibilities include internal special investigations, policy compliance reviews, ethics assessments, reviews of operational programs, and the validation of career development and training programs. The Office of Inspection subsequently provides objective and unbiased oversight and feedback that validates the Secret Service strategic and customer service plans. The Office of Inspection executes an inspection program that is intended to promote the effectiveness and efficiency of each element within Secret Service. Every unit or function is inspected on a cycle that varies from 18 to 36 months. Each inspection includes an activity analysis of an element's assigned mission and covers areas such as personnel, office security, communications, training, management, and supervision. During the 6-month period ending September 30, 1995, the Office of Inspection conducted 20 inspections of field offices, divisions, and resident offices, including follow-up visits, re-inspections, and unannounced audits. (Secret Service Inspection) NON-LAW ENFORCEMENT BUREAU ACTIVITIES * An OIG audit recommended several initiatives to enhance counterfeit deterrence. * The OIG continues to assist the Electronic Benefits Transfer Task Force in addressing inherent risks in transferring Government benefits electronically. * Due to incomplete documentation BEP could not reconcile Advanced Counterfeit Deterrence vault contents following the 1994 embezzlement of $1.7 million in test currency. This chapter summarizes significant audit, investigative, and other services that the OIG provided to seven non-law enforcement bureaus: Departmental Offices, BEP, FMS, Mint, OCC, OTS, and BPD. The Multi-Bureau Activities chapter describes financial audit and contract audit services provided to these and other Treasury bureaus. DEPARTMENTAL OFFICES Counterfeit Deterrence Efforts The introduction of the security thread and micro-printing in 1990 marked the first overt changes to U.S. currency designed to deter counterfeiting since 1929. The benefit of these deterrents, however, may not have been fully realized for several reasons. First, older currency has remained in circulation and can be copied. Second, micro-printing is not visible to the human eye and can be copied by newer high technology copiers. Finally, the Department had not made the public fully aware of these deterrents. Realizing that the security thread and micro-printing would not be the final solution to deterring counterfeiting, the Department began, in 1992, to study the need to further redesign U.S. banknotes. As a result of this study, beginning in 1996 with the $100 bill, the Department plans to circulate the first of the new currency containing significant new counterfeit deterrents. With these changes, the need for an informed public is even greater as three different types of notes will be in circulation: pre-1990 series without the security thread and micro-printing, 1990 and later currency series containing those two features, and the new currency with additional deterrents. The OIG recommended the development of a long-term public education program that includes delegating specific responsibilities to the Department's various offices and bureaus and developing a comprehensive system of performance measures for past and future deterrents. The Department was receptive to the recommendations, and has developed a strategic plan for an overall public education effort to enhance counterfeit detection. In addition, Secret Service has begun to develop more comprehensive methods for evaluating counterfeit deterrence features. (Report #OIG9584) Treasury Official Suspended An OIG investigation determined that a Departmental Offices official submitted false travel vouchers and violated procurement regulations and honorarium guidelines regarding proscribed actions and gifts or gratuities from outside sources. In March 1993, the OIG received a referral alleging that the Departmental Offices official was involved in travel voucher fraud and procurement irregularities between 1989 and 1993. Although prosecution was declined, the Departmental Offices official received a 14-day suspension for the infractions. On June 9, 1995, the Departmental Offices official resigned. (OIG) FinCEN Employee Disclosed Confidential Information As the result of a joint investigation by the OIG, the FBI, DEA, and Customs Internal Affairs, a private investigator was arrested by the FBI on March 3, 1995, for mail fraud. The arrest was effected with the cooperation of an OIG confidential source. The investigation determined that a Financial Crimes Enforcement Network (FinCEN) employee had disclosed confidential information obtained through his employment to the private investigator, who used the information in a case. On May 3, 1995, the private investigator was indicted for mail and wire fraud. Further judicial action against the private investigator and prosecution of the FinCEN employee are pending. (OIG) Investment of Forfeiture Funds An OIG audit could not provide assurance that appropriate amounts in Treasury's Forfeiture Fund (Fund) and relating holding accounts were invested and appropriate types of obligations were purchased. Even though Customs, acting as Executive Agent for the Executive Office for Asset Forfeiture (EOAF), properly invested amounts of the Fund and related holding accounts in United States obligations as permitted by law, there was no assurance that earnings of the Fund had been maximized. The Fund, with custodial and operating assets totaling approximately $408 million, can finance certain law enforcement efforts, such as investigative costs and purchases of evidence and information leading to seizure. The Department is authorized to share forfeiture proceeds with Federal agencies, state and local law enforcement agencies, and foreign governments. In Fiscal Year 1994, $61 million in forfeited assets were shared with these entities. Maximizing investment earnings increases the funds available for authorized purchases and helps to meet operating expenses. However, Customs had not always kept amounts in the Fund and related holding accounts consistently invested from August 18, 1994 through April 20, 1995, the period of review. Responding to audit comments, EOAF agreed to provide Customs with more detailed written guidance regarding the investment of Fund balances. EOAF also intends to invest throughout the year unless there is a significant operational demand for funding, despite the absence of a legal requirement requiring Fund investment. (Report #OIG-95-126) Forfeiture Fund Audit An OIG audit concluded that the Bergen County, New Jersey, Prosecutor's Office ineffectively used funds designed to support community policing activities, training, and law enforcement operations; inadequately supported requests for Federal equitable sharing funds; and did not comply with Federal requirements applicable to annual financial statement audits. Officials also did not properly allocate interest income to the Federal Equitable Sharing Account. To encourage the participation of state and local law enforcement agencies in both Treasury and Justice law enforcement operations, property or currency seized, and then forfeited, may be shared with the local law enforcement agencies that assisted in the seizure. The allocation of forfeited assets is called equitable sharing. Guidelines issued in 1993 recount how state and local agencies may use Treasury funds. The Prosecutor's Office has received approximately $4.5 million in equitable sharing funds since 1992, but spent only $305,400 for an Automated Fingerprinting Identification System (AFIS) work station which has been used infrequently. As part of an earlier review conducted at the request of the Department's EOAF, OIG auditors recommended that Prosecutor's Office officials segregate Federal funds after determining that Federal and state forfeiture funds had been commingled. Although the recommendation was adopted, the auditors subsequently found that interest income was not properly allocated to the Federal Equitable Sharing Account because balances used to calculate the interest were understated. Responding to the OIG's recommendations, Bergen County officials recalculated the interest allocation and deposited nearly $25,000 into the Prosecutor's Federal Equitable Sharing Account. The Prosecutor's Office also agreed to develop a plan for systematically reducing excess forfeiture funds, transferred the AFIS work station to the Sheriff's Office, initiated steps to ensure that Federal audit requirements for forfeiture funds are met, and designated an individual to be responsible for maintaining adequate request and receipt records. (Report #OIG-95-128) BUREAU OF ENGRAVING AND PRINTING Advanced Counterfeit Deterrence Currency Inventory Reconciliation Efforts Advanced Counterfeit Deterrence (ACD) vault contents could not be reconciled following the 1994 theft of approximately $1.7 million in ACD test currency because BEP did not maintain complete and accurate documentation of the vault contents. Additionally, based on an OIG test count of currency containers, BEP may have underreported overprinted test currency stored in the ACD vault. At the request of BEP, the OIG monitored BEP's physical inventory and reconciliation of the ACD vault in order to provide assurance to the Department that the project was complete and accurate. BEP conducted the inventory and reconciliation as a result of the 1994 theft. Immediately after the theft, BEP reviewed the controls over ACD test currency and reported the results to the Department in July 1994. The report listed corrective actions to strengthen controls over future test currency and included BEP's commitment to perform a complete physical inventory and reconciliation of the test currency stored in the ACD vault. The OIG agreed that the corrective actions listed in BEP's July 1994 report, such as using BEP's information system to track test printing, specifying retention deadlines, and establishing dual control over the ACD vault, should strengthen controls over future test currency. As a result, the OIG made no further recommendations for corrective action. (Report #OIG-CA-95-005) Federal Reserve Notes An OIG audit of Federal Reserve notes (FRNs) at BEP disclosed that BEP accounted for all FRNs in its Federal Reserve Depository Vaults by bank and denomination. In addition, the OIG identified several adjustments that needed to be made to BEP's preliminary reconciliation of FRNs at its Washington, D.C. facility. The audit also found that security over the Federal Reserve Depository Vaults in BEP's Washington, D.C. facility needs to be strengthened. Two inner vaults did not have badge readers and Federal Reserve Vault workers were not "badging" in or out of the vaults. The OIG's report made seven recommendations to improve subsequent physical inventories of currency production operations and strengthen security controls over the Federal Reserve Depository Vaults. BEP concurred with the report's recommendations. (Report #OIG-95-083) Security System Contractor Settlement Agreement An OIG investigation into allegations of contract fraud, product substitution, false claims, and false statements resulted in a settlement agreement between a BEP security system contractor, its subcontractors, and DOJ. As part of the settlement, two subcontractors agreed to drop their claims of approximately $1.5 million against the Government, and the contractor and two subcontractors agreed to pay over $200,000 in costs. The contractor had been awarded a firm fixed-price contract valued at nearly $9 million to install a computerized security system, which included numerous types of sensors and closed circuit television cameras, at BEP's Fort Worth, Texas facility. Installation of the conduits, wiring, and distribution field boxes was subcontracted, and, during the contract's performance, a controversy arose over whether one of the subcontractors had executed all of the required electrical testing on the exterior perimeter power and communications cable. (OIG) FINANCIAL MANAGEMENT SERVICE Electronic Benefits Transfer Task Force As a member of Federal Electronic Benefits Transfer (EBT) Task Force, the OIG continues to provide technical assistance to FMS and assist in the examination of inherent vulnerabilities and risks associated with the EBT system and the control systems and procedures designed by management to ensure effective operations. The task force was formed in response to the National Performance Review report which called for the rapid development of a national system to provide Government benefits electronically. The OIG also participated in the evaluation process used to select a certified public accounting firm to help FMS examine program vulnerabilities and controls. EBT will be a single, integrated electronic system for providing numerous Federal and state government benefits. The national EBT system will replace multiple existing paper-based delivery systems by utilizing automated teller machines and retail point-of-sale terminals to provide Federal retirement, veterans, social security, and food stamp benefits. Within Treasury, FMS has been entrusted with responsibility for developing and managing the national EBT system. (OIG) Processing Trust Fund Charges The OIG reviewed FMS' processing of Treasury bureau administrative charges to Government trust funds and found that the charges were valid and properly recorded. In Fiscal Year 1993, trust funds reimbursed $479 million for Treasury bureaus' administrative expenses. FMS receives and compiles quarterly reports of administrative expenses that bureaus, such as BPD, FMS, IRS, and Secret Service, incur in providing services to government trust funds. FMS also processes the monthly charges to trust funds for these expenses. Responding to the OIG's recommendations, FMS managers agreed to revise procedures for compiling and reconciling expenses paid by Social Security Administration trust funds, update supervisory review procedures, and revise internal control procedures. (Report #OIG-95-112) U.S. MINT Information Systems Contract Modified An OIG contract audit, which was placed at the request of the Mint, led to the April 28, 1995 modification of the Mint's contract with an information systems company. After attempted negotiations with the company failed, the Mint subtracted over $66,000 from the contract as an equitable adjustment. The adjustment was due to a contract clause incorporated by the Contracting Officer which stated that the Mint could perform a post-award audit and that the rates were subject to downward adjust. The Mint had contracted with the company to support its information management systems and accounting modernization. A DCAA defective pricing audit determined that the company utilized practices that might constitute suspected irregularities with regard to its pattern of substituting personnel and the application of general and administrative costs and profit to travel expenses. As a result, DCAA recommended the downward adjustment of over $66,000, out of the $4.5 million total that was negotiated for three modifications to the contract. (OIG) Workers' Compensation Fraud Investigation A Mint employee retired after being notified that he was under investigation for workers' compensation fraud. A joint investigation by the OIG's Office of Investigation and the Colorado Department of Labor's Criminal Enforcement Section revealed that the employee had concealed information about his self-employment activities and actual earnings in order to continue receiving benefits under the Federal Employees' Compensation Act. In actuality, the employee was conducting an appliance repair business while collecting compensation benefits. The investigation resulted in an estimated lifetime savings to the Mint of $375,000. Criminal charges have been filed against the former employee and prosecution is pending. (OIG) COMPTROLLER OF THE CURRENCY/OFFICE OF THRIFT SUPERVISION Material Loss Review Responding to requirements of the Federal Deposit Insurance Act (FDIA), as amended in 1991, the OIG conducted its first review of a failed bank supervised by OCC. Mechanics National Bank (Mechanics) failed due to uncontrolled growth coupled with unsafe and unsound banking practices. OCC supervision and enforcement efforts proved largely ineffective in curbing the number of poor loans and subsequent losses that led to the bank's failure. The failure resulted in a material loss to the Banking Insurance Fund (BIF) of approximately $36.6 million. The auditors concluded that earlier identification of Mechanics' problems and more effective enforcement actions may have reduced the number of poor loans originated by the bank. Losses associated with these poor loans eventually led to Mechanics' failure. OCC agreed with these conclusions. The auditors did not make any recommendations for preventing future losses to the BIF as supervisory policy and procedural changes have been made with the passage of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 and the Federal Deposit Insurance Corporation Improvement Act of 1991. The OIG will assess the long-term effectiveness of these supervisory changes as additional failed bank reviews are performed. (Report #OIG-95-134) Off-Site Monitoring Program The OIG provided OTS with information that will help the bureau determine whether the off-site monitoring program and associated information systems are operating effectively. In addition to conducting annual on-site examinations, OTS periodically reviews financial data submitted by 1,543 thrifts to identify changes in operations. To ensure that the off-site monitoring program is operating effectively, the report suggested that OTS formally define the program mission, communicate program goals through a policy directive, evaluate the cost of having two different regional structures, clarify the roles of Washington officials, and verify that systems and reports are appropriate and needed. The OIG staff also developed and provided OTS with a guide which was used to ensure that OTS activities meet the intent of Federal laws and regulations designed to prevent duplicate or redundant information systems. (Report #OIG-CA-95-004) BUREAU OF THE PUBLIC DEBT Debt Collection Initiated Against Former Savings Bonds Executive As the result of an OIG investigation, BPD initiated a debt collection action against a former executive of the U.S. Savings Bonds Division on July 11, 1995. The former official had falsified his time and attendance records, and the investigation identified nearly 170 hours of leave that should have been deducted from his leave balances. While prosecution was declined, the OIG is pursuing civil remedies against the former official under the Program Fraud Civil Remedies Act. The loss to the Government has been estimated at $8,600. (OIG) INTERNAL REVENUE SERVICE ACTIVITIES * During the 6 month period, IRS internal auditors issued 59 reports containing 179 recommendations for improving IRS operations. * Management actions to implement the reports' recommendations should result in additional revenue and cost avoidance of approximately $421 million. * Internal Security inspectors completed 1,702 investigations involving allegations of illegal or improper activities by IRS employees or other individuals. * Monetary benefits related to Inspection Service investigations totaled over $2.5 million. This chapter summarizes significant internal audit and investigative activities of the IRS Inspection Service. The independent and professional services provided to IRS by the Inspection Service are intended to promote the effective administration of the nation's tax laws; detect and deter fraud and abuse in IRS programs and operations; and protect IRS against external attempts to corrupt or threaten its employees. The Chief Inspector, who reports directly to the IRS Commissioner and receives oversight from Treasury's Inspector General, heads the organization, which includes Internal Audit and Internal Security functions. This structure ensures that audit and investigative results are reported independently to the IRS Commissioner and the Secretary of the Treasury. IRS internal audits focused on tax system modernization acquisitions and implementation; compliance efforts, such as the IRS Revenue Protection Strategy; filing season performance and customer service activities; security over sensitive information; and financial management and financial statement reporting. Internal Security investigations involved criminal acts, such as bribery, assaults, embezzlement, or impersonation. During this reporting period, U.S. Attorneys successfully completed 116 prosecutions referred to them by Internal Security. IRS management also took adverse personnel actions on 426 employees during the 6 months. The detection and deterrence of illegal and improper acts in IRS operations are an integral part of the Inspection Service's operations. The Inspection Service integrity program searches for indicators of fraud and abuse that are sufficient to warrant further investigation, and assists IRS management in discouraging the perpetration of such acts and limiting exposure when integrity breaches occur. AUDITS Revenue Protection IRS is continuing to improve systems for detecting return filing fraud before tax refunds are issued. However, tax refund fraud remains a serious problem, particularly as it relates to false claims for Earned Income Tax Credits (EITCs). During the 6-month period, the Inspection Service continued to provide in-depth coverage of this area and issued five internal audit reports. These reports are summarized below. * The first review found IRS procedures involving accounts on the invalid segment of the Individual Master File (IMF) did not deter and detect refund fraud. When tax returns are processed, surname and SSN information is matched with data provided by the Social Security Administration. If no discrepancies exist, returns are posted to the valid segment of the IMF. Mismatched information is researched for quick resolution, and returns with mismatches that remain are posted to the IMF's invalid segment. IRS internal auditors reported that, without improvements, IRS risks losing significant revenue by annually issuing refunds to taxpayers who do not provide correct SSNs. Controls did not prevent taxpayers from receiving refunds in successive years using a single, invalid SSN. These individuals received refunds because existing procedures did not give IRS employees sufficient guidance on when refunds must not be issued. Moreover, returns with invalid SSNs are four times more likely to include claims for the EITC than returns with valid SSNs. To better deter fraud and improve compliance with filing regulations, the auditors recommended that IRS managers strengthen procedures to ensure that refunds are issued to taxpayers with invalid SSNs only after they have conclusively identified themselves. The auditors also recommended that IRS computer systems re-freeze all accounts with invalid SSNs, subject future returns to enhanced validation procedures, and issue reminder notices to all filers using invalid SSNs. IRS Taxpayer Service managers generally agreed with the recommendations and initiated corrective actions, which included freezing refunds until mismatches are resolved and developing the Non-U.S. Individual Tax Identification Number (ITIN) System for taxpayers who verify their identity, but are not entitled to SSNs. Beginning in tax filing year 1996, refunds will not be issued to taxpayers without either a valid SSN or an ITIN. (IRS Report #053102) * The second review evaluated whether IRS had taken actions to change the EITC program to comply with legislated changes affecting the 1995 filing season. The auditors determined that IRS took appropriate actions to implement the EITC tax law changes legislated by the Omnibus Budget Reconciliation Act of 1993 and that controls were operating effectively to identify taxpayers without qualifying children. However, they concluded that improvements could be made to ensure that the prisoner provision of the General Agreement on Tariffs and Trade, which denies the EITC to prisoners who use income earned while they are incarcerated to qualify for the credit, is implemented. The auditors also recommended that clear instructions and consistent information regarding EITC eligibility be communicated to taxpayers. IRS managers took or planned appropriate actions to address these issues, which include preparing procedures for identifying and screening prisoner returns claiming an EITC and requesting assistance from IRS Chief Counsel in interpreting EITC provisions in the Internal Revenue Code (IRC). Clarified instructions will be disseminated once work with Chief Counsel is completed. (IRS Report #055503) * The third review found that national plans for identifying suspicious return preparers were incomplete and top level IRS management had not been provided timely and complete information on fraud initiative progress. The review was an on-line audit of IRS' preparedness in addressing electronic filing fraud during the 1995 filing season. IRS managers agreed with most of the findings and took corrective actions, such as establishing a multi-functional task force to address filing fraud issues and providing training on IRS' program for detecting questionable electronic return preparers. Regarding publicizing EITC delays, officials decided that only limited information on the potential for some refund delays would be publicly released. (IRS Report #055104) * A fourth review found that IRS made strides during the 1995 filing season in preventing the issuance of erroneous refunds and claims for the EITC to non-qualifying taxpayers. This success was due, in part, to the processing of selected returns in the Service Center Correspondence Examination Program. Improvements can be made, however. IRS internal auditors recommended programming changes to automatically adjust taxpayer filing status and child care credit indicators when dependents are disallowed, action to alleviate undue taxpayer burden for simple date of birth verifications, and use of separate "unallowable" codes for returns filed with missing or invalid dependent SSNs. Management agreed to make recommended program changes and refined examination selection criteria for processing year 1996. (IRS Report #056703) * The fifth revenue protection audit involved stopping fraudulent Electronic Filing (ELF) refunds at four Non-ELF service centers. The Criminal Investigation Division introduced a system to assist Questionable Refund Detection Teams (QRDT) at the four centers in stopping the refunds. Although the system was implemented with minimal delays, the QRDTs could be more effective by ensuring that potentially fraudulent refunds are not used to pay prior tax liabilities or taxpayer debts, such as child support payments; enhancing listings used to determine whether fraudulent returns were stopped and providing the listings to all service centers; and developing procedures to avoid unnecessary employer contacts. The auditors also recommended that the system be maintained through the next filing season. Management agreed with the recommendations and systemic changes are planned. In addition, more service centers will receive fraudulent refund listings. (IRS Report #057204) IRS System Design Reviews During the 6 months ending September 30, 1995, IRS internal auditors issued six reports on the design, development, and acquisition of IRS' TSM efforts. TSM is a multi-billion dollar initiative to upgrade outdated IRS information and telecommunication systems. Four of the six system development reports are summarized below. * A review of TSM planning efforts concluded that IRS management could not ensure Information Systems technical staff and vendor resources were used effectively to accomplish TSM initiatives. Therefore, IRS managers could not be assured collective vendor and staff efforts added significant value to TSM. IRS managers agreed with the facts and recommendations and initiated appropriate corrective actions. Plans will be updated only when needed to reflect progress, adjust for budget restraints, or make changes required by technology constraints or advances. In addition, the Chief Information Officer will continue to increase technical skill levels by recruiting experienced, degreed engineers and computer professionals. (IRS Report #054003) * A second review found that additional testing was needed before implementing the Service Center Recognition/Image Processing System (SCRIPS) nationwide. SCRIPS is a stand-alone, forms-processing system, designed to replace, upgrade, and enhance current optical character recognition systems used to process various tax documents. Without testing at simulated production levels, documents processed on SCRIPS during the 1995 filing season could be adversely affected. Auditors recommended that IRS managers ensure that the Quality System Testing process adequately tests output, storage volume, and read accuracy rates; conducts acceptance and equipment testing; and addresses SCRIPS' ability to detect unprocessed returns. IRS managers agreed with the auditors' recommendations and are taking corrective actions, which include establishing new internal controls and making software changes to better detect unprocessed returns. (IRS Report #054406) * The third review was an on-line audit of the IRS Document Processing System (DPS), a major modernization initiative designed to enhance the quality of IRS products and services. DPS will use technology, such as digital imaging, high speed data capture, and character recognition, to more accurately and timely process tax returns and related data. To quickly realize benefits from this process, the auditors recommended that IRS managers concentrate immediate efforts on determining which subsystems are critical for DPS' success; make resources available to develop and procure needed hardware, software, and telecommunications capabilities; and fund and emphasize the redesign of tax forms rather than the processing of existing tax forms. IRS initiated corrective action addressing the recommendations. This included securing funds to complete testing of Form 1040S to ensure that it is ready for the 1997 DPS pilot and formalizing program management processes to closely monitor the progress of supporting TSM subsystems. (IRS Report #054903) * A fourth review evaluated IRS' ability to accomplish the objectives of its Integrated Case Processing (ICP) Program initiative. ICP is an attempt to improve the credibility of the overall TSM effort by delivering current, complete taxpayer account information and update capability to all customer service and district office employees who interact with taxpayers. In evaluating the status of the ICP Program, the auditors identified three issues requiring management action. The initial ICP transition strategy changed due to internal pressure not to abandon other current system upgrades. Concurrent development of ICP, departmental systems, and other long-term TSM initiatives forced the ICP effort to compete for scarce personnel resources. In addition, various phases of ICP were not completely defined and the lack of a finalized set of system user requirements delayed initial roll-out activity. ICP personnel also could not effectively test the initial phase because properly configured equipment could not be obtained on a timely basis. IRS initiated corrective actions, including consolidating ICP activities under one program manager, defining the ICP strategy to support TSM business requirements, and increasing staffing levels. (IRS Report #052504) Automated Financial System Security Security over the IRS Automated Financial System (AFS) did not adequately protect confidential data and ensure that only authorized users had access to the system. The security table responsible for controlling access to AFS was not reliable and allowed users to obtain multiple access codes, and management information reports highlighting changes to the security table did not exist. AFS is the main vehicle for IRS financial and management accounting, appropriations control, and financial reporting. During Fiscal Year 1994, AFS controlled IRS' budget of approximately $7.3 billion and processed disbursements of approximately $963 million. To protect confidential data, the auditors recommended that IRS managers strengthen controls and modify documentation requirements. IRS management agreed with the recommendations and took appropriate corrective actions. These included requesting the AFS contractor to make changes to strengthen security and provide a better audit trail, and to conduct biweekly matches of user entity information with a centralized IRS Employee Master Database. (IRS Report #054102) Telefile Program Taxpayers can file simple income tax returns through the Telefile system by using a touchtone telephone. In a review of the Telefile program, internal auditors determined that IRS managers successfully addressed Telefile processing problems identified in 1994 and effectively implemented the program for the 1995 filing season. However, improvements were identified that could enhance the program. The auditors recommended that IRS manager develop a nationally coordinated marketing effort for the Telefile program, provide formalized training which emphasizes the best practices used for Telefile marketing and publicity initiatives, and analyze additional performance data from the IRS Problem Resolution Program (PRP). IRS managers agreed with these recommendations and have implemented or proposed corrective actions, such as establishing a specific tracking code for Telefile returns to facilitate the tracking of complaints handled by local PRP offices. (IRS Report #056102) Third Party Taxpayer Information IRS internal auditors determined that IRS must minimize the risk of violating taxpayer privacy rights in order to avoid losing access to third party information which drives its compliance programs. To ensure against inadvertent Privacy Act violations, the auditors recommended that IRS establish a uniform and national methodology for controlling third party information. Management agreed with the recommendations and plans to develop a process for reviewing and approving information requests, establish specific guidelines for the Disclosure Quality Review process, inform district directors about issues identified in the Quality Review process, and incorporate procedures for these new processes in the Internal Revenue Manual. (IRS Report #056301) INVESTIGATIONS Unauthorized Access And Disclosure of Tax Information An integral part of the public's confidence in IRS is the assurance that sensitive tax information will be protected to the fullest extent. Congressional interest in this issue has been significant, thus placing it in the forefront of the Inspection Service's investigative efforts. The following three examples illustrate the Inspection Service's significant investigative results on allegations of unauthorized access and disclosure of tax information. * An IRS employee, who unlawfully accessed IRS computers to acquire confidential taxpayer information for personal use, was indicted for computer related fraud and wire fraud. The employee faces a maximum punishment of 5 years in prison and a $250,000 fine for each of 14 counts if convicted. Based on information provided by a taxpayer, the investigation disclosed that the employee used a valid password to access IRS computers, but exceeded his/her authorized access by inspecting confidential taxpayer records of associates and others. The employee allegedly made more than 200 unauthorized accesses involving over 30 different taxpayers and built dossiers on certain associates. Further judicial action is pending. * A former employee pled guilty to wire fraud and computer related fraud and is awaiting sentencing. The former employee, who resigned from IRS prior to the indictment, is charged with accessing the account of a public figure and providing the information to individuals who were not IRS employees. Audit trails, subpoenas, and interviews conducted as part of another investigation revealed the employee's actions. * A former employee was arrested by Inspection Service inspectors and was later indicted for cashing stolen remittance checks and making unauthorized computer accesses of tax information. Investigation disclosed that the former employee had provided IDRS information to a narcotics trafficker. The Inspection Service worked closely with DEA on the case. Audit trails revealed approximately 50 incidents where the former employee accessed the accounts of the narcotics trafficker's associates and other narcotics suspects. The former employee, who resigned as a result of the Inspection Service's investigation, subsequently pled guilty to embezzlement and was given a 1 year suspended sentence. (IRS Inspection) Tax Remittance Theft An individual who was not an IRS employee was indicted for embezzling public money and converting it to his/her own use after altering three checks totaling more than $85,000 that were made payable to IRS and mailed to a postal lockbox. The individual was arrested by IRS inspectors after handwriting analysis identified the subject as the person responsible for altering and endorsing the tax payments. If convicted, the subject faces a maximum of 10 years in prison and a $250,000 fine for each of three counts. Under an arrangement between the Department, FMS, and a bank, the bank agreed to act as a lockbox depository to process and deposit estimated tax payments into a Treasury account. A bank security investigator later contacted the Inspection Service and reported that a number of altered checks, originally made payable to IRS, had been negotiated by an individual who maintained an account with the bank. The three tax payments were altered, endorsed, and deposited into the subject's bank account. The Inspection Service received information from the FBI that the name on the bank account was believed to be an alias of an individual who was connected to a foreign gang that was involved in various stolen check schemes. The FBI indicated that the gang members assumed the identities and SSNs of real persons by infiltrating corporate mail rooms and banks. After reviewing a bank photograph of the individual, an FBI agent advised the Inspection Service that the individual may have been arrested previously by local police for possessing a stolen credit card and using false identification. Forensic examination of the subject's fingerprints confirmed the FBI agent's identification of the subject. (IRS Inspection) Refund Scheme Investigations Confidence in the nation's tax system depends in part on a public perception that IRS is fair, honest, and impartial. Refund schemes by taxpayers and IRS employees undermine the system's integrity and are investigated vigorously by the Inspection Service. The following examples illustrate refund scheme investigations that were completed during the 6month period. * An IRS employee was charged with conspiracy, tax evasion, and aiding and abetting the preparation of false returns. Investigation revealed that the employee prepared and filed over 100 false Forms 1040X, Amended U.S. Individual Income Tax Returns, involving over 50 taxpayers and generating nearly $400,000 in tax refunds. The employee later resigned his/her position with IRS. An investigation was initiated after a co-worker notified the Inspection Service that the employee had begun making unusual IDRS requests. The employee later admitted to operating a Form 1040X refund scheme. Amended tax returns prepared by the employee falsely listed relatives, friends, and associates as members of partnerships that sustained losses, which decreased the taxpayers' original taxable incomes and generated tax refunds. The taxpayers paid the employee a fee that was generally 20 to 30 percent of the refund amount after receiving their refunds. Subpoenas of the employee's personal bank accounts revealed that the employee had made over $91,000 in deposits in addition to his/her IRS salary. The defendant is expected to sign a plea bargain agreement in the near future. * An IRS employee, who was indicted for aiding and assisting in the preparation of false tax returns, pled guilty to one count and served 6 months of house confinement. The employee, who was terminated from IRS, was identified through a refund scheme investigation by the IRS Criminal Investigation (CI) Division. Further investigation revealed that the employee had prepared numerous false income tax returns and generated tax refunds averaging $1,300 each. Most of the returns included fraudulent EITC claims for which the employee used false dependents or those that did not qualify for the credit. Many of the taxpayers for whom the employee prepared fraudulent returns were illegal aliens who did not speak or read English. * An accountant pled guilty to mail fraud and preparing fraudulent and false income tax returns and is awaiting sentencing. The individual embezzled approximately $2.2 million by preparing and submitting altered IRS Forms 8498, Notices of Taxes Due, to the employer, falsely implying that the forms were sent by IRS. A joint Internal Security and CI investigation was initiated after CI's Questionable Refunds Section (QRS) reviewed the accountant's tax returns and discovered estimated tax payments for over $2 million. Analysis of the subject's personal returns revealed that the individual made tax payments to a personal tax account with checks made payable to IRS that were drawn on the employer's corporate account. In order to conceal the embezzlement scheme, the accountant altered IRS Forms 8498 to show that the employer owed substantial penalties and interest for failing to timely file W-2 forms. The accountant then placed the forms in the company's internal mail system. The subject also prepared fictitious letters, which were never mailed, from the employer to IRS stating that the notice of moneys due had been received and that payment checks were enclosed. The accountant perpetrated a similar scheme on the state level which netted over $175,000 in state tax payments. (IRS Inspection) Inspection Service Protection Activities One of the Inspection Service's responsibilities is investigating attempts to interfere with the administration of Internal Revenue laws through threats, assaults, and intimidation. A joint investigation by ATF, the Inspection Service, the FBI, and state and local law enforcement offices resulted in the September 12, 1995 indictment of a Tyler, Texas man for attempting to bomb the IRS Service Center in Austin, Texas. The Tyler man allegedly solicited an undercover Federal agent to set an explosive device at the IRS Service Center that would kill IRS employees. Law enforcement officials were able to thwart the man's plan prior to the assembly or placement of any explosive device. The accused individual remains in Federal custody and, if convicted, faces a maximum penalty of life in Federal prison and a $1 million fine. The investigation is continuing to determine whether other individuals are involved. Personnel Security Investigations Inspection Service investigators perform personnel security investigations that focus on a person's suitability for initial or continued employment with IRS. These background investigations, which are conducted to safeguard the integrity and security of IRS in accordance with Executive Order 10450, explore necessary areas related to the individual's character, reputation, and loyalty to the United States. The information that results is provided to IRS management officials for determining an individual's suitability for employment. During the 6-month period, the Inspection Service initiated 4,069 investigations and completed 3,279 investigations. This includes applicants for employment, employees requiring access to classified information, and periodic re-investigations of employees in certain sensitive positions. In addition, background investigations are conducted on certain contractor employees who have access to IRS computers and/or facilities. (IRS Inspection) Post-Employment Restrictions Violation On August 11, 1995, DOJ brought a civil complaint against a former IRS official for violating post-employment restrictions. At the time of his retirement, IRS had notified the former official that he was barred from representing a certain client for 2 years. However, an OIG investigation revealed that the retired employee had represented this client before IRS on several occasions during the 2-year period. The civil complaint was dismissed pursuant to a settlement agreement, in which the former official agreed to pay a $12,500 civil penalty to the U.S. Treasury. (OIG) INTEGRITY ACTIVITIES Integrity Breach Assessment Process Enhancing its capabilities to detect indicators of fraud through the use of its integrity breach assessment process is a major goal of the Inspection Service. In the integrity breach assessment process, auditors and investigators work jointly to profile successful investigations. The profiles are designed to identify the methodology of crimes and related control weaknesses. Using this process, auditors and investigators have developed 16 prototype efforts that are focused on detecting criminal acts, such as embezzlement of tax receipts, bribery, and fictitious claims for tax refunds. Computer applications, which match IRS records to identify fraud indicators that are similar to those profiled in successful investigations, are designed and tested. During the 6-month period, three prototypes were accepted as national projects and are being executed in each region. In one of the national projects, Inspection Service personnel are testing various means that can be used by an IRS employee to improperly access taxpayer accounts of individuals with the same name as the employee, a relative, or an acquaintance. The prototype showed how employees used information contained in the accounts to file tax returns with over $30,000 in fraudulent claims for dependent exemptions and EITCs. Employees also used taxpayers' identities to obtain personal credit cards and loans in excess of $40,000. (IRS Inspection) Computer Security and Confidentiality Of Tax Information Enhancements In its continuing effort to deter breaches in computer security and the unauthorized use of tax information, the Inspection Service consulted with DOJ and IRS Chief Counsel concerning the adequacy of the law regarding employees who improperly access IRS computer systems to obtain and use tax information. As a result of these consultations, the Inspection Service took additional steps to discourage employees from engaging in such activities in the future. Acting on the advice they received, Inspection Service employees worked with IRS Information Systems personnel to design and implement a warning message that will appear on IDRS terminals when employees access the system. The message, which employees must acknowledge by entering a password, advises of penalties for improper access. It is intended to further employees' awareness of their responsibility to protect the confidentiality of tax information and will facilitate prosecution in some situations. The Inspection Service also worked with IRS management to propose legislative changes to the criminal code and IRC that would provide additional penalties for improperly accessing and using tax information. While unauthorized disclosure of tax information to a third party is a felony under Section 7213 of the IRC, the statute does not specifically address situations involving unauthorized inspection (i.e., "browsing") of return information without a subsequent disclosure to a third party. IRS formally requested that the Department propose that 18 United States Code (U.S.C.) 1030, a computer crime statute, be amended to address unauthorized access of tax information through the use of a computer. A bill amending the computer crime statute has been referred to the Senate Committee on the Judiciary. In addition, IRS requested that the Department propose amending Section 7213 of the IRC because the statute specifically addresses the confidentiality of tax information and not just computer accesses. The amendment would make the unauthorized inspection and accessing of tax information a misdemeanor. A taxpayer browsing protection bill containing IRS' recommendations has been referred to the Senate Committee on Finance. (IRS Inspection) Heightening Employee Awareness The IRS Inspection Service periodically publishes Inspection Integrity Alerts and Senior Council For Management Control (SCMC) Directives to notify IRS management officials at all levels of control weaknesses that have led to integrity breaches. These documents summarize the results of significant audits or investigations and recommend actions that managers can take to reduce the risk of an integrity breach in their operations. During the period, three Inspection Integrity Alerts and Directives were issued to highlight control weaknesses in computer security, revenue collection, and the safeguarding of assets. One SCMC Directive alerted managers to concerns about how well IRS controls the property it seizes. In September 1992, GAO testified before the House of Representatives that IRS did not have proper controls and accountability over seized assets. Subsequent IRS internal audits showed that property controls needed continuous monitoring, as databases controlling seized property were inaccurate and assets were not always adequately safeguarded. These control weaknesses allowed one employee to embezzle and divert at least two seized vehicles for his own use. The SCMC Directive advised executives and managers of actions taken to improve inventory control systems and steps they continuously need to follow to ensure that these systems, and all seized property controls, are operating effectively. (IRS Inspection) OTHER ACTIVITIES * The Inspectors General Auditor Training Institute, which is managed by Treasury's OIG, experienced nearly a 70 percent increase in graduates between Fiscal Year 1994 and Fiscal Year 1995. * The IRS Inspection Service's Office of Inspection Systems Development and Integration is developing a state-of-the-art information system to support Inspection Service operations nationwide. This chapter describes significant functions and activities of the OIG and Treasury Offices of Internal Affairs and Inspection that are not addressed in the previous chapters. Professional Development Involvement Valerie Lau, Treasury's Inspector General, sits as Chairwoman of the President's Council on Integrity and Efficiency's (PCIE) Audit Committee. This committee has many important functions within the Inspector General Community including providing leadership in improving audit quality in the Inspector General Community and contributing to improving financial management Government-wide. During this reporting period the Audit Committee was involved in several significant financial management issues, two of which are discussed below. As the PCIE Audit Committee Chair, Ms. Lau testified before the House Subcommittee on Government Management, Information and Technology on August 1, 1995. She provided the Committee with a PCIE perspective on Inspector General responsibilities relative to the Chief Financial Officers Act, GMRA, and the Government Performance and Results Act. Ms. Lau also spoke about the Audit Committee's views on revisions to the Single Audit Act, recent pronouncements of the Federal Accounting Standards Advisory Board and the status of the PCIE's study of the PCIE Peer Review process. In addition, the Audit Committee issued a timely and well received report on the Government's efforts in establishing an EBT System. The report, entitled "Implementing the EBT System, A Report on the Current Status of Control Systems," was issued by the Audit Committee to the Director of the Office of Management and Budget on August 25, 1995. The report was accomplished under the leadership of the Department of Agriculture OIG with the assistance of OIGs from the Departments of Treasury, Health and Human Services, Defense, Education, Labor, and Veterans Affairs, and the Office of Personnel Management, the Railroad Retirement Board and the Social Security Administration. (OIG) Thrift Depositor Protection Oversight Board The Thrift Depositor Protection Oversight Board (Oversight Board) oversees and monitors the Resolution Trust Corporation's (RTC) operations. RTC is the agency that is responsible for resolving failed savings and loan associations for which a conservator or receiver was appointed between January 1, 1989 and June 30, 1995. (Savings and loan associations that fail after June 30, 1995 will be resolved by the Federal Deposit Insurance Corporation (FDIC).) The Oversight Board, which consists of seven members and is chaired by the Secretary of the Treasury, reviews and evaluates RTC's overall strategies, policies, and goals and approves RTC financial plans, budgets, and periodic financing requests. RTC is scheduled to terminate on December 31, 1995, at which time its remaining assets and responsibilities will be transferred to the FDIC. The Oversight Board will be replaced by a board comprised of the Secretary of the Treasury, the Chairman of the Federal Reserve Board, and the Secretary of Housing and Urban Development, which will have several immediate responsibilities including completing a final report on RTC's activities, as well as submitting a final Semiannual Report to Congress. During Fiscal Year 1995, Treasury's Inspector General continued to participate in the Oversight Board's meetings and to meet with the Inspectors General of RTC and other bank regulatory agencies. The Oversight Board's staff is relatively small, and Treasury's OIG did not schedule any audits of board activity during the year. However, during Fiscal Year 1995, the Oversight Board engaged an independent CPA firm to perform a financial audit of its Statement of Obligations Incurred for Fiscal Year 1994. A similar audit is planned for Fiscal Year 1995. With the Oversight Board's staff office closing in Fiscal Year 1996, Treasury's OIG plans to review and monitor the actions planned and taken to close the office. This will include accounting for all of the Oversight Board's assets and liabilities, appropriate disposition of these items, final accounting for cash, and the remission of any unobligated funds. (OIG) Community Development Financial Institutions Fund The Community Development Financial Institutions Fund was established as a wholly-owned Government corporation by the Community Development Banking and Financial Institutions Act of 1994. The fund is designed to facilitate the flow of lending and investment capital into distressed communities and to individuals who have been denied adequate access to the financial services industry. Subsequent legislation placed the fund within the Department and gave the Secretary of the Treasury, as the Administrator of the fund, all powers and rights as set forth in the authorizing statute. Treasury's Inspector General serves as the Inspector General for the fund. Two new programs, the Community Development Financial Institutions (CDFI) Program and the Bank Enterprise Award Program, will be administrated by the fund. Under the CDFI Program, the fund will provide financial and technical assistance to selected applicants in order to enhance their ability to make loans and investments and to provide services for the benefit of designated investment areas, targeted populations, or both. The purpose of the Bank Enterprise Award Program is to encourage insured depository institutions to increase loans, services, and technical assistance within distressed communities and to make equity investments in entities identified under the CDFI Program. Congress appropriated funds in Fiscal Year 1995, which are to be obligated by September 30, 1996. Initial awards to program recipients will take place in early 1996. The OIG is an active participant in the Interagency Working Group that was established to develop implementing regulations. In addition, the OIG will be responsible for conducting internal audits and investigations relating to the fund's operation. (OIG) IRS Peer Reviews The OIG Office of Investigations and Oversight performed two reviews that together served as an external peer review of IRS' Internal Audit operations. All Government audit organizations must undergo at least one external quality control review every 3 years. The OIG peer review focused on Internal Audit's quality control activities which provide assurance to the Commissioner of IRS, as well as to taxpayers, that IRS internal audits are performed in accordance with professional standards and are executed efficiently and effectively. The OIG concluded that IRS' Internal Audit operations complied with the Comptroller General's _Government Auditing Standards_ and its own established policies and procedures. However, the OIG recommended improvements related to the internal quality assurance review process and usage of forms to document auditor independence. IRS management agreed and has taken appropriate action. (OIG) Foreign Investors Real Property Tax Act The OIG Office of Investigations and Oversight reviewed IRS' enforcement of tax code provisions pertinent to the Foreign Investors Real Property Tax Act (FIRPTA). Responding to enforcement and related revenue collection concerns raised by an IRS official, OIG staff found that FIRPTA was only recently given increased attention and resources. Generally, FIRPTA requires that a purchaser of U.S. real property from a foreign person withhold tax equal to 10 percent of the amount realized by the foreign seller and remit payment to IRS. Past efforts at enforcing compliance with FIRPTA tax laws were unsuccessful, in part due to insufficient resources. However, various initiatives are currently under way to promote awareness of FIRPTA, and specific compliance projects have been established. The increased and continuing commitment of resources to the FIRPTA program should result in additional tax collections. (OIG) Inspectors General Auditor Training Institute The Treasury OIG is proud of the important role it plays in training auditors from every Federal OIG. Since January 1991, Treasury's OIG has managed the Inspectors General Auditor Training Institute on behalf of the PCIE. This effort has contributed significantly to enhancing the audit capability of all Federal OIG auditors and has underscored the Treasury OIG's leadership position in the Federal OIG community. The Institute operates in a business-like fashion. It receives no yearly appropriation, competes in the open market for students, and is continuously judged by its customers on the basis of quality and price. Since opening for business in July 1991, more than 3,400 auditors from nearly 70 different Federal organizations have graduated from Institute training programs. Students are taught skills they need to effectively evaluate complex Federal programs, and each program is carefully designed to take into account the students' level of experience and responsibility. As of September 30, 1995, the Institute's curriculum consisted of 13 distinct programs ranging in length from 2 days to 3 weeks. The programs deal with such areas as providing the skills needed to perform audits required by the Chief Financial Officers Act, improving auditors' capabilities to uncover fraud, and developing new tools and techniques that each auditor can use everyday. The Institute has experienced strong and steady growth during the 5 years it has been in operation, as illustrated by the above graph. Of significant note is the nearly 70 percent increase in graduates between Fiscal Year 1994 and Fiscal Year 1995. (OIG) Legislative and Regulatory Review The Inspector General Act requires the Inspector General to review existing and proposed legislation and regulations relating to the programs and operations of the Department and to make recommendations concerning their impact. The OIG reviewed and commented on numerous Treasury Directives and Treasury Orders in the 6 months ended September 30, 1995. Treasury is reviewing its internal regulations as part of the Administration's regulation reduction initiative. The OIG also monitored legislation of interest to the OIG and provided comments on legislation at the request of the Department, including the Information Technology Management Reform Act of 1995 that is intended to streamline the information technology acquisition process and improve management accountability of information technology. One of the Act's provisions called for Inspector General reviews of agency information resources plans, information technology acquisition programs, and information resources management. The OIG noted that the Act did not provide for any specific resources or funding for Inspectors General to carry out these responsibilities, and that the responsibilities in some sections were defined quite broadly. The OIG advised that, while Inspectors General can play an important role in overseeing information technology management, they need discretion to determine the extent of their audit work in this area based on available resources and other competing priorities. The Act subsequently was revised and no longer requires specific, mandated Inspector General reviews of information systems acquisitions or initiatives. The OIG also commented on the Accounting Standardization Act of 1995 which calls for uniform accounting and reporting systems, and standards in the Federal Government. The Act includes a penalty provision whereby an agency that does not substantially comply with uniform Federal accounting system requirements will be subject to across-the-board budget reductions. The OIG suggested clarification of this provision, since the wording implies that OIG offices within the noncompliant agencies would be penalized with the rest of the agency. (OIG) IRS Inspection Systems Development and Integration The IRS Inspection Service has consolidated its computer support operations and created the Office of Inspection Systems Development and Integration (ISDI). ISDI is responsible for designing and developing a state-of-the-art integrated information system to support internal audits, investigations, and administrative activities at Inspection Service offices nationwide. As part of this effort, ISDI operates the Inspection Computer Support Facility, a centralized data storage facility located in Atlanta, Georgia. This facility maintains information from IRS computer systems and other sources, for use by Inspection Service auditors and investigators. ISDI also coordinates with all IRS TSM Project Offices to ensure Inspection Service personnel will have timely access to all relevant data on TSM systems, either directly or through the Inspection Computer Support Facility. The new ISDI information system is partially on-line at the headquarters office and two regional offices. All remaining Inspection Service offices are scheduled to be operational in Fiscal Year 1996. (IRS Inspection) IRS Inspection Service Professional Assistance Long recognized for its internal auditing and investigative expertise, the Inspection Service often aids other organizations that are establishing new operations or strengthening existing programs. The Inspection Service values these relationships and continues to provide professional assistance to other Federal, state, and foreign government organizations. The Chief Inspector served as the lead instructor at two Organization for Economic Co-operation and Development (OECD) sponsored workshops on "Counteracting Corruption in Tax Administration." These workshops provide senior policymakers from countries that are in economic transition with the knowledge necessary to fight corruption. Senior tax officials from Albania, Hungary, Poland, Romania, Slovenia, and the newly independent countries of the former Soviet Union participated in the workshops. In addition, the Inspection Service continues to play a leadership role in the law enforcement community with regard to computer-related investigations. The Inspection Service hosted the most recent meeting of the Federal Computer Investigations Committee (FCIC) that was well received. A member of the Inspection Service's Internal Security staff continues to chair the FCIC. The Inspection Service also was represented at the Second Annual Meeting of the International Organization on Computer Evidence (IOCE). The IOCE, which resulted from a 1994 FBI initiative and is composed of several Federal agencies and more than 20 foreign nations, is developing international standards for investigating, collecting, processing, and storing computer-related evidence. An Internal Security employee serves as a member of the IOCE's steering committee. During the summer of 1995, the Inspection Service employed four District of Columbia high school students who worked side by side with Internal Security staff members. The students' hiring was in accordance with the Academy of Law, Justice and Security, whose goal is to prepare the students for post-secondary education and entry as trainees into careers in the criminal justice system, the security profession, or related occupations. The Inspection Service plans to continue its relationship with the students throughout their high school and college years, which will culminate, if possible, in permanent employment. (IRS Inspection) STATISTICAL SUMMARIES This chapter contains statistical analyses of OIG and Office of Inspection and Internal Affairs activities. Several of the analyses fulfill reporting requirements in the Inspector General Act, as amended. Statistical Summary _STATISTICAL HIGHLIGHTS OCTOBER 1994 - SEPTEMBER 1995_ a/ _6 MONTHS ENDED_ _3/31/95_ _9/30/95_ _TOTAL_ _AUDITS_ Audit Reports 120 138 258 Recommended Monetary Benefits (in Thousands): Questioned Costs $2,914 $4,454 $7,368 Savings 63,548 29,645 93,193 Revenue Enhancements _657,793_ _433,500_ _1,091,293_ Total $724,255 $467,599 $1,191,854 _INVESTIGATIONS_ Cases Opened 2,083 2,197 4,280 Cases Closed 2,117 2,115 4,232 Successful Prosecutions 116 143 259 Administrative Sanctions 580 512 1,092 Recoveries and Penalties (in Thousands) $7,985 $6,052 $14,037 _OVERSIGHT AND QUALITY ASSURANCE REVIEWS_ Reviews and Analyses 13 10 23 a/ Includes statistics for the OIG and Treasury Offices of Internal Affairs and Inspection. Audit Reports Issued by Bureau Appendix A of this report lists individual audit reports issued during the 6 months ended September 30, 1995. OIG Audits Audit Reports Multi-Bureau 3 ATF 4 OCC 1 Customs Service 22 Departmental Offices 7 BEP 15 FLETC 1 FMS 3 IRS* 8 Mint 7 BPD 1 Secret Service 4 OTS 2 Independent Entity _1_ 79 Inspection Service Audits of IRS _59_ Total _138_ * OIG contract audits. Audit Reports With Questioned Costs The IRS Inspection Service did not issue any audit reports with questioned costs during this semiannual reporting period. The term "questioned cost" means a cost that is questioned because of (1) an alleged violation of a provision of a law, regulation, contract, or other requirement governing the expenditure of funds; (2) a finding that, at the time of the audit, such cost is not supported by adequate documentation ("unsupported cost"); or (3) a finding that the expenditure of funds for the intended purpose is unnecessary or unreasonable. The term "disallowed cost" means a questioned cost that management, in a management decision, has sustained or agreed should not be charged to the Government. OIG AUDIT REPORTS WITH QUESTIONED COSTS 6 MONTHS ENDED SEPTEMBER 30, 1995 _Questioned _Unsupported Costs_a/ (in Costs_ a/ (in _Report Category_ _Number_ Thousands) Thousands) 1. For which no management decision had been made by the beginning of the reporting period 16 $7,099 $0 2. Which were issued during the reporting period _7_ b/ _4,454_ _0_ 3. Subtotals (1 plus 2) 23 11,553 0 4. For which a management decision was made during the reporting period 6 c/ 3,324 0 * dollar value of disallowed costs 6 c/ 1,344 0 * dollar value of costs not disallowed 4 1,980 0 5. For which no management decision has been made by the end of the reporting period (3 minus 4) _17_ _$8,229_ _$0_ 6. Reports for which no management decision was made within six months of issuance _12_ _$6,619_ _$0_ a/ "Questioned costs" includes "unsupported costs." b/ Five audits were performed by DCAA. c/ Four reports were partially agreed to and partially not agreed to. Audit Reports With Recommendations That Funds Be Put To Better Use The term "recommendation that funds be put to better use" means a recommendation that funds could be used more efficiently if management took actions to implement and complete the recommendation, including (1) reductions in outlays; (2) deobligations of funds from programs or operations; (3) costs not incurred by implementing recommended improvements related to operations; (4) avoidance of unnecessary expenditures noted in pre-award reviews of contract agreements; (5) any other savings which are specifically identified; or (6) enhancements to revenues. The term "management decision" means the evaluation by management of the findings and recommendations included in an audit report and the issuance of a final decision concerning its response to such findings and recommendations, including actions concluded to be necessary. OIG AUDIT REPORTS WITH RECOMMENDATIONS THAT FUNDS BE PUT TO BETTER USE 6 MONTHS ENDED SEPTEMBER 30, 1995 _Savings_ _Revenue (in Thou- Enhancements_ _Report Category_ _Number_ _Total_ sands) (in Thousands) 1. For which no management decision has been made by the commencement of the reporting period 30 $92,213 $89,053 $3,160 2. Which were issued during the reporting period 24a/ 42,145 29,645 12,500 3. Subtotals (1 plus 2) 54 134,358 118,698 15,660 4. For which a management decision was made during the reporting period 27 109,172 104,972 4,200 * dollar value of recommendations that were agreed to by management 15b/ 23,962 23,962 0 * based on proposed management action 15b/ 23,962 23,962 0 * based on proposed legislative action 0 0 0 0 * dollar value of recommendations that were not agreed to by management 23 85,210 81,010 4,200 5. For which no management decision has been made by the end of the reporting period (3 minus 4) _27_ _$25,186_ _$13,726_ _$11,460_ 6. Reports for which no management decision was made within six months of issuance _9_ _$8,139_ _$4,979_ _$3,160_ a/ Sixteen audits were performed under OIG contract by the Defense Contract Audit Agency totaling $26,742,194. b/ Eleven reports were partially agreed to and partially not agreed to. IRS AUDIT REPORTS WITH RECOMMENDATIONS THAT FUNDS BE PUT TO BETTER USE 6 MONTHS ENDED SEPTEMBER 30, 1995 _Savings_ _Revenue (in Thou- Enhancements_ _Report Category_ _Number_ _Total_ sands) (in Thousands) 1. For which no management decision has been made by the commencement of the reporting period 0 $0 $0 $0 2. Which were issued during the reporting period _3_ _421,423_ _423_ _421,000_ 3. Subtotals (1 plus 2) 3 421,423 423 421,000 4. For which a management decision was made during the reporting period 3 421,423 423 421,000 * dollar value of recommendations that were agreed to by management 3 421,423 423 421,000 * based on proposed management action 3 421,423 423 421,000 * based on proposed legislative action 0 0 0 0 * dollar value of recommendations that were not agreed to by management 0 0 0 0 5. For which no management decision has been made by the end of the reporting period (3 minus 4) _0_ _$0_ _$0_ _$0_ 6. Reports for which no management decision was made within six months of issuance _0_ _$0_ _$0_ _$0_ Disputed Audit Recommendations The Inspector General Act requires Inspectors General to provide information on significant management decisions in response to audit recommendations, with which the Inspectors General disagree. As of September 30, 1995, there were no disagreements to report. Undecided Audit Recommendations The Inspector General Act requires a summary of each audit report which has been undecided for over 6 months. There were 21 such reports. _Report Title and Date_ _Report Number_ _Amounts_ 1. Defective Pricing Review of Cost or Pricing Data Submitted under Contract TIR-89-0056, Task Order 63, 8/27/93 a/ OIG-93-111 $ 61,652 2. Supplemental Audit Report on Defective Pricing Review of Cost or Pricing Data Submitted under Contract TIR-89-0056, Task Order 63, 9/1/93 a/ OIG-93-119 47,836 3. Evaluation of Costs Incurred for Fiscal Years 1990, 1991, and 1992 under Contracts TC-88-008, TC89025, TC-90-002, and TC-89-022, 9/29/93 a/ OIG-93-136 172,308 4. Evaluation of Equitable Adjustment Claim Submitted under Contract Number TIR-85-0289, Task Order 194, 10/13/93 b/ OIG-94-006 179,450 5. Evaluation of Termination Settlement Claim Submitted under Contract TEP-90-5(N) for High Voltage Electrical Services, 1/7/94 a/ OIG-94-044 578,471 6. Evaluation of Initial Pricing Proposal Submitted in Response to Solicitation IRS-93-0118 for Automated Data Processing Equipment Maintenance, 1/27/94 b/ OIG-94-047 127,017 7. Evaluation of Proposal Submitted in Response to Solicitation BEP-92-08(TN) for Maintenance of the Programmable Access Control and Security System, 3/11/94 a/ OIG-94-057 789,123 8. ATF Administration of Cover Over Payments to Puerto Rico and the Virgin Islands, 3/28/94 c/ OIG-94-063 3,160,000 9. Evaluation of Change Order Proposal Submitted under Contract Number TIR-91-0038 for an Integrated Collection System, 5/11/94 b/ OIG-94-083 936,583 10. Defective Pricing Review of Cost or Pricing Data Submitted under Contract TEP-88-205(TN), Option Year One, 5/26/94 a/ OIG-94-096 2,967,177 11. Defective Pricing Review of Cost or Pricing Data Submitted under Contract TEP-91-38(TN) for Currency Ink and Varnish, 6/7/94 a/ OIG-94-099 1,900,461 12. Evaluation of Proposal Submitted Under Contract TEP-91-66 for Installation and Support Services for Currency Inspection Systems, 7/19/94 a/ OIG-94-115 275,148 13. Defective Pricing Review of Cost or Pricing Data Submitted under Contract TEP-91-18(TN) Base Year Costs, 7/21/94 a/ OIG-94-116 163,499 14. Defective Pricing Review of Cost or Pricing Data Submitted Under Contract TATF-93-3, 7/22/94 d/ OIG-94-118 463,917 15. Evaluation of Subcontract Price Proposal Submitted under Contract TEP-91-66 for Slitting, Batching and Stacking Systems, 10/3/94 a/ OIG-95-001 853,600 16. Evaluation of Subcontractor's Direct Labor and Indirect Cost Rates Submitted under Contract TIR-89-0056, Task Order 182 for Automated Data Processing Support Services, 10/6/94 a/ OIG-95-003 238,156 17. Evaluation of Proposal Submitted for Modification 0008 under Contract TIR-94-0028 for Reproduction and Support Services, 11/21/94 a/ OIG-95-021 1,170,073 18. Evaluation of Procurement Overhead Rates Under Contract TC-89-047, Review of Contractor's Accounts Payable Processing System, and Compliance with Cost Accounting Standard 412, 12/15/94 a/ OIG-95-029 10,234 19. Evaluation of Direct and Indirect Costs and Rates Claimed under Contract TC-89-047 for Calendar Year Ending 12/31/92, 1/5/95 a/ OIG-95-033 69,284 20. Evaluation of Direct and Indirect Costs and Rates Claimed under Contract TFTC 91-9 for the Periods October 1, 1992, through December 31, 1993, 2/2/95 a/ OIG-95-045 5,282 21. Evaluation of Subcontractor's Direct Labor and Indirect Cost Rates Submitted under Contract TIR-92-0014 for Engineering Services, 3/22/95 a/ OIG-95-057 589,177 TOTAL _$14,758,448_ a/ Contract negotiations have not yet been held. b/ Price negotiation memorandums have not yet been completed. c/ Recommendation is awaiting decision from General Counsel. d/ The company audited is under investigation by the Department of Justice and Treasury OIG, and currently is in litigation with the Government. Significant Unimplemented Recommendations The Inspector General Act requires identification of significant recommendations described in previous semiannual reports on which corrective actions have not been completed. The following lists of such unimplemented recommendations in OIG and Inspection Service audit reports are based on information in the Department's automated tracking system, which is maintained by Treasury management officials. All of the recommendations are being implemented in accordance with currently established milestones. _Report Title/Potential Monetary Benefits and _Report Number_ _Issue Date_ Recommendation Summary_ _OIG Audits_ OIG-92-051 7/92 OCC's Examination Process Issue a revised Policies and Procedures Manual section on the National Peer Review Program and provide appropriate training. OIG-92-052 7/92 Customs Lockbox Operations Establish completion dates for projects matching lockbox remittance data to other government agency data. OIG-92-062 9/92 Department of the Treasury's Follow-up of Corrective Actions Revise Treasury Directive 40-03, Treasury Audit Recommendation Monitoring system. (Two recommendations) OIG-93-024 1/93 Contract Administration at the Federal Law Enforcement Training Center Determine whether the Government can collect improper payments to contractors. OIG-93-040 3/93 Customs Aviation Safety and Training Program Maintain complete and accurate records, including damage cost data for all aircraft mishaps and reflect same in aircraft accident/incident database. OIG-94-055 3/94 Customs Aviation Maintenance Contract Establish procedures for branch personnel to monitor Department (DOD) core refunds and periodically verify that DOD core credits are properly received and accounted for by the contractor. OIG-94-060 3/94 U.S. Customs Service Antidumping and Countervailing (AD-CV) Duty Program Implement a Performance Measurement System for the AD-CV Duty Program that includes measures of quality, timeliness, and efficiency, and will allow Customs to assess how well the program has been implemented. OIG-94-063 3/94 Alcohol, Tobacco, and Firearms Administration of Cover Over Payments to Puerto Rico and the Virgin Islands, $3,160,000 Implement the decision of the Department of the Treasury, Office of the General Counsel, on the timing of cover over payments. OIG-94-071 3/94 U.S. Customs Service: Paperless Entry Program Entails Greater Risks Than Perceived Establish a single audit program for districts to use in assessing the paperless program. OIG-94-097 5/94 FMS' Activities to Process and Monitor Agency Disbursements Ensure that employees complete actions so that Regional Finance Center files contain only current Agency Head signatures. (Two Recommendations) _Inspection Service Audits_ #033009 6/93 Modernizing the Master File, $45,000 Correct mismatches caused by one and two-digit differences in secondary SSNs systemically during service center processing. #034008 7/93 Automated Underreporter Project Initiation and Tax Year 1988 Limited Pilot, $1,315,000 Determine whether contract overcharges can be recovered. (Two recommendations) #035006 9/93 Debtor Master File Processing, $116,300,000 Improve the debtor file validation process by implementing all recommended systemic changes and assess whether mismatch conditions could be resolved through the use of IRS data files. (Five recommendations) #041702 12/93 Controls Over Adjustments Made to Tax Accounts Via the Integrated Data Retrieval System Implement systemic controls to reduce the opportunity for improper or unauthorized transactions. #041306 12/93 On-Line Review of the Service's Electronic Filing Fraud Detection Efforts During the 1993 Filing Period Improve fraud prevention and detection by changing refund deletion procedures to ensure that fraudulent refunds are stopped when they are detected and by establishing taxpayers' authenticity by checking prior year information returns. (Three recommendations) #041403 1/94 Nonresident Alien Information Documents Enhance computer consistency and validity controls to ensure the integrity of Forms 1042 submitted by withholding agents. (Three recommendations) Use computer analysis to measure, examine, and enforce compliance with Form 1042 requirements. Improve coordination of compliance enforcement efforts with a systematic approach taken to identify the causes of noncompliance by withholding agents and by recipients. (Five recommendations) #042404 3/94 Standards Planning and Implementation for Tax Systems Modernization Consolidate responsibility for the vision, framework, and strategy for IRS automated data processing (ADP) standards efforts. Ensure the development of useable, understandable ADP standards that focus on user needs. (Three recommendations) #043501 5/94 Controls Over Access to Credit Bureau Databases Mandate nationwide implementation of interim computer security applications until IRS' modernization efforts develop standardized security programs for all locator services. (Four recommendations) #043303 7/94 Automated Underreporter Systems Tax Year 1990 Development and Testing and Tax Year 1991 Rollout Address data access security issues associated with implementation of the Automated Underreporter System. (Three recommendations) #044104 8/94 Usefulness and Economy of the Departmental Microcomputer Acquisition Contract (DMAC) Instruct DMAC contracting officers and users about potential savings that can occur when delaying purchases for a short period, and assure that contract prices remain competitive with market prices. (Two recommendations) #044201 8/94 Information Security Over Small Scale Computer Systems Ensure greater oversight and security over sensitive taxpayer information contained on personal computers and minicomputer systems. (Three recommendations) #044301 8/94 Local Telecommunications Expenses Establish accurate inventories of local telephone lines, verify the need for lines and features through annual reviews, and match inventories with billings. #045601 9/94 Electronic Return Preparer Fraud, $54,000,000 Identify and remove dishonest preparers from the Electronic Filing Program. (Two recommendations) #050704 11/94 IRS' Nonfiler Strategy Phase III Identify the repeat nonfiler population and analyze their characteristics as a market segment. #050602 12/94 Tax Administration and Policies Relating to Illegal Aliens Change criteria for the Unallowable Code Program and change policy and tax publications for the filing season to advise taxpayers to obtain receipts from the Social Security Administration when receiving new SSNs. (Two recommendations) #051006 12/94 Processing of 1993 Individual Income Tax Returns, $10,000,000 Revise Earned Income Credit worksheets to refer taxpayers to W-2 information about deferred income. Promote the use of Form 1040EZ. #051205 1/95 Questionable Refund Program, $254,000,000 Develop procedures to ensure all service centers more effectively use computer capabilities to identify fraudulent refund scheme returns; examine closely probable fraudulent paper tax returns; identify multiple refund scheme returns with the same address; and communicate uniform measurement and performance indicators to stakeholders. (Eight recommendations) #051302 1/95 Readiness for the Pilot Test of the Automated Criminal Investigation System Establish plans to allow management to monitor progress and track productivity increases realized by the Automated Criminal Investigation System. #051408 1/95 Opportunities for Reducing the Collection Queue Inventory Reduce the risk that unproductive collection cases are assigned to revenue officers, improve the management of the accounts receivable inventory, use Inspection Service computer programs to identify and purge unproductive collection cases, and reduce taxpayer burden. (Ten recommendations) #051902 1/95 Individual Retirement Arrangement Excise Taxes, $315,000,000 Increase taxpayer awareness and ensure compliance by expanding systems and programs to identify taxpayers with retirement distributions in excess of stipulated amounts and advise elderly taxpayers of IRA minimum distribution requirements. (Four recommendations) #052106 2/95 National Account Profile Improve communication and coordination of SSN information between IRS and the Social Security Administration to improve controls. (Twelve recommendations) #052301 2/95 Service Center Correspondence Examination Program Change the cost model and project coding system to ensure accurate cost and collectibility data. #052903 2/95 Controls Over the Issuance of Employer Identification Numbers Modify processing procedures to ensure actions are taken to obtain all necessary data from taxpayers requesting Employer Identification Numbers. (Five recommendations) #053304 2/95 Integrated Collection System (ICS) Expanded Prototype Enhance performance, strengthen systemic management controls, expand ICS education, improve system documentation, and include Inspection user requirements. (Seven recommendations) Revised Management Decisions The Inspector General Act requires Inspectors General to provide a description and explanation of the reasons for any significant revised management decisions made during the reporting period. There were no such decisions during this reporting period. Hotline Allegations The table below summarizes allegations of fraud, waste, misconduct, mismanagement, and assault received through "800" hotline numbers during the 6 months ended September 30, 1995. It does not include (1) allegations received by the OIG and Treasury Offices of Inspection and Internal Affairs through other sources; (2) inquiries on taxes and other matters which are referred informally to Treasury program managers and others for appropriate disposition; or (3) pending allegations for which dispositions have not been determined. Organization _Disposition of Allegations_ _Total_ _OIG_ _USCS_ _IRS_ Referred for investigative or audit inquiry 80 27 3 50 Referred to program managers 128 45 10 73 Referred to other agencies _2_ _2_ _0_ _0_ Totals _210_ _74_ _13_ _123_ 1-800-359-3898 OIG Hotline 1-800-829-2996 Customs Hotline 1-800-366-4484 IRS Hotline Caseload Accounting This table accounts for the caseload of the OIG and Offices of Internal Affairs and Inspection for the 6 months ended September 30, 1995. The beginning balance of cases, plus the cases opened, minus the cases closed, equals the ending balance of open cases. Organization Total OIG ATF USCS IRS USSS Number of open cases at the beginning of the period 1,994* 217 87 330* 1,344* 16 Number of cases opened during the period 2,197 71 103 290 1,705 28 Number of cases closed during the period 2,115 104 81 209 1,702 19 Number of open cases at the end of the period 2,076 184 109 411 1,347 25 *Adjusted figures. Nature of Allegations The table below classifies the nature of allegations for investigative cases opened during the period. The number of allegations equals the number of cases opened because only the most significant allegation per case was counted. Organization Total OIG ATF USCS IRS USSS Bribes, graft, kickbacks 121 5 1 32 83 0 Procurement and contract irregularities 14 6 0 0 7 1 Assaults/threats 703 1 13 12 674 3 False statements and claims 131 8 5 17 101 0 Theft/misuse of funds/ property 302 10 20 22 248 2 Drug abuse and control 72 0 10 9 53 0 Impersonating a Government official 103 1 1 0 100 1 Criminal -- Other 295 5 4 32 254 0 Sexual Harassment 18 0 1 16 0 1 Improper conduct or disclosure 343 14 33 124 155 17 Non-Criminal -- Other _95_ _21_ _15_ _26_ _30_ _3_ Total Allegations 2,197 71 103 290 1,705 28 Prosecutive Actions The chart below accounts for the prosecutive actions of the OIG and Offices of Internal Affairs and Inspection for the 6 months ended September 30, 1995. The number of pending cases at the beginning of the period, plus the cases referred to prosecutive authorities, less the cases accepted for prosecution, less the declinations, equals the pending cases at the end of the period. Organization Total OIG ATF USCS IRS USSS Number of cases pending prosecutive decision at the beginning of the period 519* 13* 1 9* 496 0 Number of cases referred to prosecutive authorities during the period 871 17 3 14 832 5 Number of cases accepted for prosecution during the period 161 4 1 10 145 1 Number of declinations during the period 664 11 3 4 642 4 Number of cases pending prosecutive decision at the end of the period 565 15 0 9 541 0 *Adjusted figures. Successful Prosecutions This chart shows the number of successful prosecutions involving the cases of the OIG and Offices of Internal Affairs and Inspection during the 6 months ended September 30, 1995. Successful prosecutions include the number of individuals who as a result of investigations (1) are found guilty by a Federal or state court, (2) are accepted for pretrial diversion agreements by the Department of Justice, or (3) are granted plea bargaining agreements. _Organization_ _Prosecutions_ OIG 5 ATF 2 USCS 20 IRS 116 USSS _0_ Total _143_ Administrative Sanctions This chart shows the number of personnel actions and the number of suspensions and debarments of contractors involving cases of the OIG and Offices of Internal Affairs and Inspection. _Personnel _Suspensions and _Organization_ Actions_ Debarments_ OIG 25 0 ATF 24 0 USCS 31 0 IRS 426 0 USSS _6_ _0_ Total _512_ _0_ Investigative Monetary Benefits This table summarizes monetary benefits relating to investigations of the OIG and Offices of Internal Affairs and Inspections. Adminis- Organi- Criminal trative zation Total Recoveries Penalties Penalties Savings OIG $3,300,076 $2,581,287 $262,265 $0 $456,524 ATF 8,100 0 8,100 0 0 USCS 203,668 201,668 2,000 0 0 IRS 2,540,491 2,267,609 272,882 0 0 USSS _0_ _0_ _0_ _0_ _0_ Total $6,052,335 5,050,564 $545,247 $0 $456,524 Access to Information The Inspector General Act requires Inspectors General to report on unreasonable refusals of information available to the agency which relate to programs and operations for which the Inspector General has responsibilities. There were no instances to report where information or assistance requested by the Inspector General or the Offices of Internal Affairs and Inspection were unreasonably refused. APPENDIX A: AUDIT REPORT LISTING 1/ APRIL 1, 1995, THROUGH SEPTEMBER 30, 1995 OIG Audits Multi-Bureau Treasury's Overt Changes to Currency Enhance Counterfeit Deterrence, OIG-95-084, 6/1/95 Treasury Enforcement: Need for Department-Wide Uniform Financial Controls for Undercover Operations, OIG-95-104, 7/19/95 Follow-Up Audit of the Federal Worker's Compensation Program at the Department of the Treasury, OIG-95-108, 7/25/95 Bureau of Alcohol, Tobacco and Firearms Bureau of ATF: Alleged Preferential Treatment in Label Processing, OIG-95-065, 4/18/95 Costs Incurred Under Contract TATF-93-3, OIG-95-098, 6/29/95, $371,500 Q Follow-up Audit of the Federal Workers' Compensation Program at the Bureau of Alcohol, Tobacco and Firearms, OIG-95-118, 8/24/95, $4,000,000 R Opportunities to Improve ATF's Explosives Licensing and Inspection Program, OIG-95-129, 9/29/95, $600,000 R _________________________________________________________________ 1/ Amounts shown for some reports represent recommended monetary benefits. Q = Questioned Costs; S = Savings; R = Revenue Enhancements. Office of the Comptroller of the Currency Material Loss Review of Mechanics National Bank of Paramount, California, OIG-95-134, 9/29/95 U.S. Customs Service Initial Pricing Proposal Submitted in Response to Solicitation CS-95-019 for Custody, Management and Disposition of Seized and Forfeited Property, OIG-95-060, 4/7/95 U.S. Customs Service Fiscal Year 1994 Financial Statements, OIG-95-071, 5/1/95 Direct and Indirect Costs and Rates Claimed Under Contract TC-88-013 for Fiscal Year Ended September 30, 1990, OIG-95-075, 5/11/95, $49,500 Q Offeror's Cost Accounting Standards Disclosure Statement, Applicable to Solicitation CS-94-010, OIG-95-082, 5/24/95 Subcontract Pricing Proposal Submitted in Response to Solicitation CS-94-010 for the Management and Sale of Seized Property and General Order Merchandise, OIG-95-085, 6/2/95, $1,554,300 S Initial Pricing Proposal Submitted in Response to Solicitation CS-94-010 for the Management and Sale of Seized Property and General Order Merchandise, OIG-95-087, 6/6/95, $455,500 S Direct and Indirect Costs and Rates Claimed Under Contract TC-88-013 for Fiscal Years Ended September 30, 1991 and 1992, OIG-95-088, 6/13/95, $227,700 Q Costs Incurred for Fiscal Year Ended June 30, 1991 Under Contract TC-90-022, OIG-95-090, 6/15/95 Subcontract Pricing Proposal Submitted in Response to Solicitation CS-94-010 for the Management and Sale of Seized Property and General Order Merchandise, OIG-95-097, 6/26/95 Initial Pricing Proposal Submitted in Response to Solicitation CS-95-034 for Treasury Enforcement Communications Systems Application Development and Maintenance Support, OIG-95-099, 7/5/95, $308,800 S Costs Incurred for the Six Month Period Ended 12/31/90 Under Contract TC-90-022, OIG-95-101, 7/18/95 Offeror's Proposal for Provisional Corporate General and Administrative Expense Rates Submitted in Response to Solicitation CS-94-010, OIG-95-102, 7/18/95 Subcontractor's Accounting System, Applicable to Solicitation CS-95-034, OIG-95-106, 7/20/95 Initial Pricing Proposal Submitted in Response to Solicitation CS-94-010 for the Management and Sale of Seized Property and General Order Merchandise, OIG-95-107, 7/25/95 Final Procurement Determined Direct and Indirect Costs and Rates Claimed Under Contract TC-89-047, for Fiscal Year Ended December 31, 1989, OIG-95-114, 8/15/95 Direct and Indirect Costs and Rates Claimed Under Contract TC-90-025 for Fiscal Years 1990 and 1991, OIG-95-119, 8/29/95 Initial Pricing Proposal Submitted in Response to Solicitation CS-95-035 for a Nationwide Tactical High Frequency Network, OIG-95-123, 9/19/95, $801,300 S U.S. Customs Service's Management of Telecommunications Costs, OIG-95-125, 9/27/95, $139,200 S Executive Office for Asset Forfeiture's Investment of the Treasury Forfeiture Fund, OIG-95-126, 9/27/95, $2,200,000 R Management Letter for the Audit of U.S. Customs Service's Fiscal Year 1994 Financial Statements, OIG-95-130, 9/29/95 U.S. Customs Service's EDP General Controls Continue to be Weak, OIG-95-131, 9/29/95 U.S. Customs Service: Small Airport User Fees Should be Raised to Cover the Cost of Service, OIG-95-133, 9/29/95, $1,500,000 R Departmental Offices Examination of the Exchange Stabilization Fund Financial Statements for Fiscal Years Ended September 30, 1994, and 1993, OIG-95-062, 4/17/95 Direct and Indirect Costs and Rates Claimed Under Contract TOS-88-21 for Fiscal Year Ended March 31, 1992, OIG-95-074, 5/8/95 Audited Fiscal Year 1994 Financial Statements of the Gifts and Bequests Fund, OIG-95-077, 5/16/95 Assessment of Need for a Study of Treasury's Office of Market Finance, OIG-CA-95-003, 6/14/95 Costs Incurred Under Contract TOS-90-11 for Fiscal Years 1990-1993, OIG-95-109, 7/27/95 Costs Incurred Under Contracts TOS-93-32, TEP-88-16 and TIR-91-0072 for Fiscal Years 1991-1994 and the First Three Months Ended March 10, 1995, OIG-95-121, 8/30/95 Use of Equitable Sharing Revenues by the Bergen County, New Jersey Prosecutor's Office, OIG-95-128, 9/29/95, $24,600 Q Bureau of Engraving and Printing Alternative Dispute Resolution Cost Data for Contracts TEP-88-205, TEP-91-18(N), and TEP-93-14, OIG-95-063, 4/18/95, $2,558,200 Q Pricing Proposal Submitted Under Letter Contract TEP-95-07(TN) for a Stamp Inspection System, OIG-95-080, 5/18/95, $282,700 S Initial Pricing Proposal Submitted in Response to Solicitation BEP-94-03(TN) for Four I-10A Security Presses and One Thermal Oxidizer, OIG-95-081, 5/18/95, $14,315,400 S Unissued Stocks of Federal Reserve Notes at the Bureau of Engraving and Printing, OIG-95-083, 5/31/95 Initial Pricing Proposal Submitted in Response to Solicitation BEP-95-41(TN) for Color Shifting Ink, OIG-95-091, 6/20/95, $1,008,400 S Subcontract Pricing Proposal Submitted in Response to Solicitation BEP-94-03(TN) for Four I-10A Security Presses and One Thermal Oxidizer, OIG-95-092, 6/21/95, $459,400 S Initial Pricing Proposal Submitted Under Contract TEP-95-23(TN) for Distinctive and Threaded Currency Paper, OIG-95-093, 6/21/95, $5,028,300 S Reconciliation Efforts by the Bureau of Engraving and Printing on the Advanced Counterfeit Deterrence Inventory, OIG-CA-95-005, 6/29/95 Pricing Proposal Submitted Under Pro Forma Contract TEP-96-01(TN) for Advanced Counterfeit Deterrent Flush, OIG-95-100, 7/13/95, $257,300 S Initial Pricing Proposal Submitted in Response to Solicitation BEP-95-16(TN) for Course Development and Instructional/Training Services, OIG-95-110, 7/28/95 Labor Hours Incurred Under Contract TEP-90-22(N) for System Analysis, Application Software Programming and Other Support Services, OIG-95-111, 8/2/95 Incurred Costs Under Contract TEP-89-11(N) and Purchase Order POA91-01369 for Fiscal Year 1991, OIG-95-115, 8/16/95 Initial Pricing Proposal Submitted Under Contract TEP-95-23(TN) for New Currency Design Paper (Watermark), OIG-95-116, 8/18/95, $1,027,800 S Incurred Costs Under Contract TEP-89-11(N) for Fiscal Years 1992 and 1993, OIG-95-117, 8/23/95 Initial Pricing Proposal Submitted in Response to Solicitation BEP-95-46(TN) for Cotton Fiber Rollers, OIG-95-122, 9/19/95 $207,300 S Federal Law Enforcement Training Center Survey of the Facilities Master Plan at the Federal Law Enforcement Training Center, OIG-95-132, 9/29/95 Financial Management Service Audited Fiscal Year 1994 Financial Statements of Esther Cattell Schmitt Gift Fund, OIG-95-087(2), 6/9/95 Audited Fiscal Year 1994 Financial Statements of the Financial Management Service's Salaries and Expenses Appropriation, OIG-95-094, 6/21/95 Financial Management Service Processing of Treasury Administrative Charges to Trust Funds is Largely Satisfactory, OIG-95-112, 8/4/95, $287,000 Q Internal Revenue Service Subcontract Price Proposal Submitted Under Contract TIR-91-0072 for Equipment, Software, Maintenance and Support Services, OIG-95-061, 4/12/95, $268,200 S Labor Costs Incurred Under Contract TIR-89-0056, Task Orders 62, 79, 81, 101, and 123, OIG-95-066, 4/25/95 Change Order Proposal Submitted Under Contract TIR-93-0025 for Workload Redistribution of the Service Center Recognition/Image Processing System, OIG-95-067, 4/25/95, $602,400 S Change Order Proposal Submitted Under Contract TIR-91-0072 for Computer Software and Hardware, OIG-95-072, 5/4/95 Total Cost Incurred Under Contract No. TIR-93-0026, OIG-95-086, 6/2/95, $935,600 Q Contractor's Electronic Data Processing Internal Controls Within the General Ledger System, OIG-95-103, 7/19/95 Pricing Proposal Submitted in Response to Solicitation IRS-95-0054 for Professional Education Services, OIG-95-105, 7/20/95, $39,300 S Pricing Proposal Submitted in Response to Solicitation IRS-95-0044 for Composite Mail Processing Systems Maintenance, OIG-95-120, 8/30/95, $2,725,100 S U.S. Mint U.S. Mint Integrated Financial Management System EDP Application Review, OIG-95-068, 4/25/95 Initial Pricing Proposal Submitted Under Contract TM-90-1022, for Financial Management Services, OIG-95-070, 4/27/95, $67,000 S Accounting and Estimating Deficiencies Disclosed During Evaluation of Initial Pricing Proposal Submitted Under Contract TM-90-1022 for Financial Management Services, OIG-95-073, 5/5/95 Audited Statement of Custodial Gold and Silver Reserves for the United States Mint as of September 30, 1994, and 1993, OIG-95-076, 5/12/95 Audited Fiscal Year 1994 Financial Statements of the United States Mint, OIG-95-089, 6/14/95 San Francisco Mint: Internal Controls Over Precious Metals, OIG-95-095, 6/22/95 U.S. Mint: Processing of Orders for Numismatic and Commemorative Coins Has Improved, OIG-95-096, 6/26/95 Bureau of the Public Debt The Transfer of the Bureau of the Public Debt Bond Production was Generally Satisfactory, OIG-95-127, 9/29/95 U.S. Secret Service Secret Service Travel Program Needs Improvement, OIG-95-064, 4/18/95, $4,200,000 R Survey of the U.S. Secret Service Accountability Over Firearms, OIG-95-069, 4/25/95 Proposal Submitted in Response to Solicitation USSS-95-02 for Computer System Maintenance Support Services, OIG-95-113, 8/9/95, $97,400 S U.S. Secret Service: Property Management, OIG-95-124, 9/26/95 Office of Thrift Supervision 1994 Audited Chief Financial Officer's Annual Audit Report for the Office of Thrift Supervision, OIG-95-079, 5/17/95 Off-Site Monitoring Program, OIG-CA-95-004, 6/22/95 Independent Entity 1994 Audited Annual Financial Statement for the Federal Financing Bank, OIG-95-078, 5/17/95 Inspection Service Audits Internal Revenue Service Utilization of Vendor Support for TSM Activities, 054003, 4/5/95 Best Practices for Improving Collection Field Function Productivity in the Southeast Region, 150800, 4/7/95 Automated Financial System Standardized Security Profiles, 054102, 4/12/95 Correspondence Accuracy in Brookhaven's Adjustment/Correspondence Branch, 650501, 4/12/95 Resource Commitments for the Fiscal Year 1995 Tax Compliance Initiative, 053703, 4/18/95 Management of the Workload in the Chicago District Collection Field Function, 350301, 4/19/95 Invalid Segment of the Individual Master File, 053102, 4/20/95 Revised Reporting Procedures for NonPayroll Income Tax Withholding, 054206, 5/1/95 Examination Division's Information Gathering Program - Central Region, 450503, 5/2/95 Refund Fraud Enforcement Activities Western Region Fresno Service Center Districts, 950605, 5/5/95 Integrated Case Processing Program, 052504, 5/8/95 Service Center Recognition/Image Processing System (SCRIPS) Pilot, 054406, 5/8/95 Remittance Processing - Houston District, 550103, 5/8/95 Resources Management Support Services - Dallas District, 550306, 5/12/95 Use of Forms 4137 to Collect FICA Tax on Tips and Wages, 054305, 5/16/95, $36,000,000 R Control and Accountability of Automated Data Processing Equipment in the North Atlantic Region, 650603, 5/17/95 Nashville Group Daily and Automated Teller Program (GAT), 150902, 5/19/95 Residual Payroll Processing at the Detroit Computing Center, 054701, 5/24/95 Contract Administration of the Architect Engineer Support Contract, 052604, 6/1/95 Implementation of Selected Enforcement Programs at the Detroit Computing Center, 054805, 6/9/95 Implementation of the Document Processing System, 054903, 6/14/95 Property Management Considerations - Southeast Region, 151005, 6/16/95 Deposit Accounts for Fiscal Year Filers, 055011, 6/23/95 Bankruptcy Case Processing - Dallas District, 550402, 6/23/95 Compliance with Partnership Withholding Tax Filing Requirements, 054602, 6/30/95 Cooperative Administrative Support Program - Western Region, 950705, 7/3/95, $423,000 S Implementation of the TDI Refund Hold Program, 055205, 7/5/95 OnLine Review Preparing for 1995 Filing Fraud Initiatives, 055104, 7/6/95 Interest Assessments on Large Examination Deficiencies, 055403, 7/6/95 Tax Implications of the New Earned Income Tax Credit Laws, 055503, 7/7/95 Management of the Baltimore District Compliance Program, 85020, 7/19/95 Employment Tax Examination Program Coverage of the Employee/Independent Contractor Issue, 055306, 7/20/95 Survey Authority Initiative - MidAtlantic Region, 850302, 7/26/95 Collection Queue - Newark District, 850401, 8/2/95 Controls Over CI Seized Assets, Vehicles and Undercover Media, 055903, 8/7/95 Telefile Program 1995 Filing Season, 056102, 8/9/95 Court Ordered Garnishment Processing, 055703, 8/13/95 Customer Service Development, 056003, 8/14/95 Protecting the Privacy of Third Party Taxpayer Information, 056301, 8/17/95 Compliance with Offer In Compromise Terms, 056209, 8/18/95 Monitoring the Compliance of Bankrupt Taxpayers - Southeast Region, 151103, 8/22/95 Currently Not Collectible Cases in the Fort Lauderdale District, 151200, 8/23/95 Locator Services Program - North Atlantic Region, 650701, 8/23/95 Advance Earned Income Credit Program Administration, 055603, 8/24/95 Controls to Ensure Proper Use of Information Accessed by IRS Law Enforcement Activities, 055802, 8/28/95 Telephone Routing Interactive System, 056504, 9/1/95 National Office Research Analysis/District Office Research Analysis and Compliance Research Information System Implementation, 056406, 9/7/95 Selected Areas in New Orleans Collection Field Function, 151300, 9/8/95 Field Information Systems Organization, 056904, 9/13/95 Implementation of Examination's FY 95 Refund Fraud Strategy, 056703, 9/21/95, $385,000,000 R Controls Over Sensitive Information and Assets within Criminal Investigation Division, 350404, 9/22/95 Management Initiatives for Reducing Taxpayer Delinquency Investigation (TDI) Inventories - Central Region, 450600, 9/22/95 Utilization of Computer Resources - Boston District, 650801, 9/22/95 Accounts Receivable Classifier (ARC), 950801, 9/22/95 Implementation of 1994 OBRA Tax Changes On Corporate Income Tax Forms, 056800, 9/27/95 Stopping Fraudulent Electronic Filing (ELF) Refunds at NonELF Centers During the 1995 Filing Season, 057204, 9/27/95 IRS' Administration of the Low Income Housing Tax Credit, 057102, 9/28/95 Bankruptcy Program - Houston District, 550503, 9/28/95 Pre-Assessed Installment Agreements Forms 9465, 057002, 9/29/95 *** Last update 1/18/96 (sgb) ***