TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION

Office of Audit

Some Managerial Salaries Were Calculated Incorrectly Due to Complex Pay-Setting Rules

Final Report Issued on March 29, 2017

Highlights

Highlights of Reference Number:  2017-10-023 to the Internal Revenue Service Human Capital Officer.

IMPACT ON TAXPAYERS

The pay system for managers at the IRS differs from the pay system used for nonmanagerial employees.  Errors in calculating pay when moving between the two pay systems can cause improper overpayments or underpayments, which in turn result in an inefficient use of resources to correct the pay errors.

WHY TIGTA DID THE AUDIT

The audit was initiated to determine whether existing processes provide reasonable assurance that salary overpayments or underpayments are prevented and detected when employees move into, within, and out of IRS paybands.

WHAT TIGTA FOUND

Based on a statistical sample of employees who received salary increases of greater than 10 percent for promotions into management positions between Fiscal Years 2006 and 2015, 31 percent of sampled employees were not paid correctly.  TIGTA estimates that the IRS overpaid more than 600 employees by approximately $4.2 million and underpaid more than 900 employees by approximately $2.7 million.

These errors occurred for a variety of reasons.  The errors were generally due to the complexities associated with setting pay when employees move between the pay systems for managerial and nonmanagerial employees.  The procedures for setting pay in these circumstances require IRS personnel to apply cumbersome and oftentimes confusing rules which vary depending on, for example, the management position that the employee will be occupying.  While the IRS has made efforts to train employees, the IRS advised TIGTA that individual offices responsible for setting pay did not receive the same training.  Also, the seasonal nature of some of the IRS’s work contributes to the complexity involved in setting pay because the IRS often promotes permanent employees to temporary management positions, and employees may move back and forth between their temporary management position and their permanent position within a short period of time.

Salary errors can have a significant impact on employees.  TIGTA interviewed all current IRS employees who had debt of more than $5,000 resulting from salary overpayments when they were promoted to management positions.  Employees stated that they were unaware of any overpayment until notified by the IRS and did not understand how pay calculations were made.  Several expressed frustration with these pay issues, with some employees stating that they had delayed retirement, experienced medical issues, contacted their Member of Congress, or turned down management offers as a result.

The IRS has taken action to increase the accuracy of pay calculations going forward, including the addition of a second level of quality review and formed a team to review the pay actions associated with almost 1,000 current IRS employees who were potentially overpaid.

WHAT TIGTA RECOMMENDED

TIGTA recommended that the IRS Human Capital Officer 1) address the salary overpayments and underpayments TIGTA identified and 2) consider simplifying pay calculation processes in areas in which pay errors continue to be identified. 

In their response, IRS management agreed with both recommendations and stated that the IRS will 1) take action to process corrective personnel actions for salary overpayments and underpayments TIGTA identified and 2) review results and recommendations from TIGTA, an internal review, and other sources to simplify pay policy and/or training.

READ THE FULL REPORT

To view the report, including the scope, methodology, and full IRS response, go to:

https://www.treasury.gov/tigta/auditreports/2017reports/201710023fr.pdf.