Call it the glitch that stole Christmas. The Internal Revenue Service issued over $46 million in erroneous tax refunds because of poor oversight and a computer glitch that, left unfixed, could cost taxpayers over $230 million over the next five years, according to a watchdog report.
This week, the Treasury Inspector General for Tax Administration (TIGTA) released an audit blasting the IRS for approving thousands of tax refunds in 2013 that were flagged as potentially fraudulent.
IRS employees identified the returns as questionable and meant to set them aside for further review, but a computer program overruled the flags and automatically issued the refunds before the IRS could complete its verification process, according to the audit.
“TIGTA identified that because of a programming error, over $27 million of refunds were erroneously issued for 13,043 Tax Year 2013 tax returns,” the audit said. “The programming error is overriding the IRS’s two-week processing delay on some refund tax returns that are identified by the IRS as potentially fraudulent.”
In addition, auditors identified 3,910 “potentially fraudulent” tax returns that were issued as a result of ineffective monitoring, totaling $19 million.
“The IRS did not ensure that tax examiners timely completed their verification work,” the audit said. “Name mismatches in IRS systems prevented refund holds from posting to tax accounts. Refund holds were either not set correctly or not functioning as intended.”
Auditors estimated that the programming error could lead the IRS to issue $135.5 million in erroneous refunds over the next five years and ineffective monitoring could cost another $95 million over the same period because “tax returns are not being verified as required.”
For handing out tens of millions of dollars in fraudulent refunds at the expense of hardworking American taxpayers, the IRS wins this week’s Golden Hammer, a weekly distinction awarded by The Washington Times highlighting the most egregious examples of wasteful federal spending.
Spending watchdogs say the audit is the latest piece of evidence in a mounting case to have IRS Commissioner John Koskinen impeached after multiple scandals that have plagued the agency in recent years, including the targeting of conservative groups applying for tax-exempt status.
“Apparently, the IRS has been too busy harassing conservative groups and donors to pay attention to their responsibility for protecting the public Treasury,” said Richard Manning, president of Americans for Limited Government. “IRS Commissioner Koskinen needs to be fired by Congress using impeachment. He is the leader of a gang that abuses its power while failing to do its basic duties.”
Rep. Diane Black, Tennessee Republican, also called for Mr. Koskinen to step down, saying the report was the last straw.
“We didn’t need another reminder that the IRS is mired in incompetence and mismanagement, but we got it anyway,” she said in a statement. “This latest study comes on the heels of stinging reports that IRS employees failed to pay their own tax bill and granted illegal contracts to tax cheats. It is abundantly clear that Commissioner John Koskinen has failed in his duty to restore trust at the IRS and must be replaced, but Congress is not guiltless either.”
Ms. Black blasted her colleagues in the House for approving an omnibus spending bill that gives the IRS $290 million.
“Only in Washington is this kind of ineptitude rewarded with a bigger check. Taxpayers have every right to be outraged by the dysfunction at the IRS — I know I am,” she said.
In a response letter to TIGTA’s report, the IRS said it is “continually improving our ability to detect potentially fraudulent refund claims and stop them from being paid until we have had the ability to review them and make a determination as to their legitimacy.”
TIGTA launched its investigation after an IRS employee alerted the office that the agency was not examining claims to ensure that erroneous refunds were not being issued.
Auditors recommended that the IRS fix the computer glitch and run period tests to make sure questionable refunds are verified in a timely manner to prevent further erroneous payments.
The IRS agreed to all of the watchdog’s recommendations, but officials could not specify a date that the programming fixes would be in place, citing budget constraints and limited resources.
“The implementation of such programming changes are subject to budgetary constraints, limited resources, and competing priorities,” IRS officials told the inspector general, according to the audit. “Consequently, and due solely to those constraints, the IRS cannot provide an implementation date.”
This isn’t the first time the IRS has been cited for its poor IT management. Auditors noted in their report that a TIGTA report in August 2013 found that 104 tax returns sampled with refunds totaling $613,929 were not evaluated and verified in a timely manner.
“Tax examiners confirmed that 96 tax returns had false income and withholding, but actions to prevent the issuance of the fraudulent refunds were not taken timely,” auditors wrote.
In October, another TIGTA report revealed that the IRS wasted $140 million over six years trying to update its computers to the outdated Windows 7 operating system.
“The acronyms IT and IRS have not always mixed well, which is why managers ought to be especially alert to snags in computer systems,” said Pete Sepp, president of the National Taxpayers Union. “It shouldn’t take an act of Congress to resolve this mess. All it takes is better communication within software and with tax examiners. There’s a delicate balance between ensuring there are no delays in what taxpayers are rightfully owed and overseeing the proper payment of refunds. In this case, the balance can be restored quickly.”