TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION

Office of Audit

The Return Review Program Increases Fraud Detection; However, Full Retirement of the Electronic Fraud Detection System Will Be Delayed

Final Report Issued on September 25, 2017

Highlights

Highlights of Reference Number:  2017-20-080 to the Internal Revenue Service Chief Information Officer.

IMPACT ON TAXPAYERS

The goal of implementing the Return Review Program (RRP) is to replace the older Electronic Fraud Detection System (EFDS) with an automated system that would enhance the IRS’s capabilities to prevent, detect, and resolve criminal and civil noncompliance.  The IRS developed the RRP with the end goal of having one fraud detection system for systemic case selection that identified more fraudulent returns at a lower false detection rate than the EFDS and the Dependent Database, resulting in reduced taxpayer burden.

WHY TIGTA DID THE AUDIT

The IRS reported that the long-term limitations of the EFDS include its inability to keep pace with increasing levels of fraud or to serve the IRS’s evolving compliance needs.  The IRS has implemented incremental RRP functionality since launching its first pilot of Identity Theft models in April 2014 to identify how many more electronically filed tax returns the RRP would have selected into inventory versus the EFDS.  The overall objective of this review was to determine if the RRP system can identify all fraud currently identified by other existing fraud detection systems and to assess the EFDS retirement plans.

WHAT TIGTA FOUND

The IRS retired the EFDS Identity Theft models for the 2016 Filing Season and the Non–Identity Theft models for the 2017 Filing Season after demonstrating that the RRP met the IRS’s objectives of identifying more fraudulent returns at a lower false detection rate.  The IRS leveraged the RRP to detect some of the identity theft returns selected by the Dependent Database.  The IRS also significantly expanded the RRP’s systemic use of ***2*** new data elements in the 2017 Filing Season to detect identity theft tax returns.

The IRS addressed a prior TIGTA recommendation by developing a plan to retire the EFDS.  In December 2015, the IRS Executive Steering Committee unanimously approved the EFDS Retirement Strategy, which called for the retirement of 19 components by December 2018.  Six of the eight components with a retirement date of December 2015 or December 2016 were retired timely.  The other two components are now scheduled to be retired in October 2017.  The remaining 11 of 19 EFDS components are related to Enterprise Case Management and have retirement dates in December 2017 or December 2018.  The IRS initiated a separate Enterprise Case Management project in January 2015, to be implemented in December 2018.  However, in February 2017, the IRS suspended the Enterprise Case Management project due to insufficient funding and staffing.  In addition, the IRS determined that the software product selected for Enterprise Case Management cannot support an enterprise-wide deployment.

WHAT TIGTA RECOMMENDED

TIGTA made no recommendations in the report.  However, key IRS officials reviewed this report prior to its issuance and agreed with the facts and conclusions presented.

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/201720080fr.pdf.

 

Redaction Legend:

2 = Law Enforcement Techniques/ Procedures and Guidelines for Law Enforcement Investigations or Prosecutions