House Committee Slams 'Incompetent' Tax Refund Fraud Detection System

by Leroy Baker, Tax-News.com, New York

10 August 2006

A four month investigation by the House Ways and Means Committee into the Internal Revenue Service's contract with Computer Sciences Corp (CSC) to develop a computerised tax refund fraud detection system has uncovered "incompetence at all levels" and hundreds of millions of dollars in lost tax revenue.

CSC had not only missed a deadline to complete the new system in time for the 2005 tax filing system, but also missed an extended deadline of January 2006, meaning that there has been no electronic fraud detection system in place for either of the last two tax filing seasons. About $227.5 billion in tax refunds were issued in 2005 alone.

The IRS has estimated that between $200 million and $300 million in fraudulent tax refunds were paid out last year. However, a report due to be released by the Treasury Inspector General for Tax Administration will show that the actual losses were $318 million, according to a report by Dow Jones Newswires, which cited sources familiar with the forthcoming report.

In a letter by House Ways and Means Committee Chairman Bill Thomas to Treasury Secretary Henry Paulson, it was suggested that "now would be a good time for the government to reexamine the dependence of the IRS on the CSC and determine whether the federal government is best served by this particular contractor."

Thomas also stated that a lack of oversight on the part of the IRS was also as much to blame for the debacle.

"Without truthful assessments from the CSC and in the absence of (IRS) agency technical expertise, fully informed decisions were not made," wrote Thomas.

The agency has spent about $20.5 million on the fraud detection system.

In the face of criticism from the Senate finance panel last month, IRS Commissioner Mark Everson admitted that efforts to improve the system had been "insufficient and unacceptable".

CSC recently reported "solid revenue growth" in the first fiscal quarter of 2006 from its US federal government contracts, which increased 5.8% to $1.29 billion from $1.22 billion.

Recommended