GAO Reports  
GAO-05-319R March 10, 2005

Management Report: Review of Controls
over Safeguarding Taxpayer Receipts and Information
at the Brookhaven Service Center Campus

This report responds to a Congressional request that, in conjunction with our audit of the Internal Revenue Service's (IRS) fiscal year 2004 financial statements, we review the agency's procedures for handling and processing receipts and taxpayer information at the Brookhaven service center campus. As a result of the increased percentage of taxpayers filing returns electronically, IRS designed a detailed business plan to reduce the number of service center campuses that process paper returns. In fiscal year 2004, Brookhaven became the first service center campus to downsize its submission processing function, leading to changes in its operations and a significant reduction in the volume of taxpayer receipts and information processed. Congress requested this review in light of these significant changes in operations and IRS's desire to benefit from the Brookhaven experience in planning for future submission processing rampdowns. Specifically, we were asked to (1) review the policies and procedures IRS developed to safeguard and process taxpayer receipts and information at the modified Brookhaven operation and (2) offer recommendations, if any, for improving internal controls at Brookhaven and at other submission processing centers that will undergo future rampdowns. To accommodate the request, we agreed to add a review of the mail control function at the Brookhaven service center campus to our tests of internal controls conducted as part of our audit of IRS's fiscal year 2004 financial statements. We have performed extensive work in reviewing internal controls designed to safeguard taxpayer receipts and information as part of our annual financial audits of IRS. In performing this work, we have come to recognize the significance and importance of the submission processing function to IRS and the potential for loss, theft, or misuse of taxpayer receipts and information if controls are not properly designed and effectively implemented. Our audits have identified weaknesses in internal controls over the safeguarding of taxpayer receipts and information related to submission processing activities at IRS's service center campuses, lockbox banks, and field offices. In reviewing the Brookhaven rampdown procedures, we considered the internal control weaknesses previously found at other service center campuses.

We found that IRS completed the rampdown at Brookhaven without any significant disruptions in service. However, we did identify several areas where improvements could be made to internal controls at the Brookhaven service center campus residual mail processing unit, as well as to the process for estimating mail volumes. These issues are also relevant to IRS as it proceeds in ramping down future submission processing functions. Specifically, we found that IRS developed standard operating procedures for employees processing incoming mail at Brookhaven during the rampdown. However, we found that these procedures did not include detailed instructions for (1) tracking taxpayer receipts and information forwarded to other service center campuses for further processing and (2) handling cash receipts found during the extraction process. The absence of these instructions increases the risk that employees with significant internal control responsibilities over high-risk and vulnerable assets are not aware of the correct procedures to be followed in safeguarding and processing taxpayer receipts and information, thereby increasing the risk of their theft, loss, or misuse. Staff at the Brookhaven location did not always follow the required procedures to safeguard taxpayer receipts and information in its facilities. We found that (1) access rights allowed to visitors were not always appropriately restricted; (2) trash, which included taxpayer information, was not always sufficiently secured; and (3) candling was not always properly performed. The lack of adherence to IRS's procedures increases the risk of theft, loss, or misuse of taxpayer receipts and information. IRS did not have a documented methodology for estimating post-rampdown mail volumes at service center campuses selected for rampdowns. The lack of a documented methodology increases the risk that adequate mail volume information will not be gathered, maintained, and appropriately considered as estimates are prepared to assist IRS management in making decisions related to sites selected for future rampdowns and assessing their ultimate success.

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