Senators Slam 'Botched' IRS Fraud Detection System

by Mike Godfrey, Tax-News.com, Washington

18 July 2006

In response to strong criticism from senators last week, Internal Revenue Service Commissioner Mark Everson has admitted that the agency's efforts to combat tax refund fraud have been "insufficient and unacceptable".

An estimated $320 million in tax refunds were paid out to fraudsters in 2006 because an IRS contractor failed to complete a computerised tax return fraud detection system on time.

"The management efforts of both the IRS and its contractor to improve our automated refund fraud detection system were insufficient and are unacceptable," Everson stated.

The IRS chief was responding to criticism from Senate Finance Committee Chairman Charles Grassley (R - Iowa) and ranking Democrat Max Baucus. According to the Senators, "the IRS's poor oversight" of the contractor, and "its own poor judgment" led to the agency losing as much as $320 million over the "botched project".

Grassley added that about $20.5 million was spent on a web-based electronic fraud detection system "that never materialised".

The contractor, Computer Sciences Corp. (CSC), failed to complete the new system in time for the 2005 tax-filing season. An extended deadline of January 2006 was also missed, meaning that there was no electronic fraud detection system in place for the 2006 filing season either.

Everson stated that $227.5 billion in tax refunds were issued in 2005.

Grassley also slammed the IRS for failing to report to Congress the problems with the contractor.

"My committee, which has exclusive Senate jurisdiction over the IRS and tax policy, learned about this mess through back channels, not from the IRS. I wonder if the IRS ever would have come clean if congressional committees hadn’t started looking into the issue," he stated.

The agency reportedly kept the problems with the system under wraps so as not to alert potential fraudsters.

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