IRS Gave Sensitive Data to Convict Sentenced to 21 Years

The Internal Revenue Service failed to conduct background checks on many contract workers who handled sensitive taxpayer data, an internal review reveals.

The findings arrive at a time when identity theft has become an everyday threat in the public and private sectors. 

At the IRS, contractors hired for courier, printing, document recovery, and sign language and interpreter services who accessed sensitive information had not undergone investigations, which is a policy violation.

A Treasury Inspector General for Tax Administration report released today details several situations where employees had ample opportunity to steal data.

In one, a courier who daily delivered IRS documents and mail to post offices and other locations had previously served 21 years in prison for arson, retaliation and attempted escape.

For a printing services job, the IRS handed a CD containing 1.4 million taxpayer names, addresses and Social Security numbers to a contractor who had not been investigated.

A major reason for the lapses: IRS staff did not understand the word “access.”

No background checks were performed for the courier services because staff didn’t consider “possession/custody of envelopes and packages with this sensitive data” to be “access,” Michael E. McKenney, TIGTA acting deputy inspector general for audit, wrote in the report.

The inspector general flagged this problem a year ago, yet as of February, the IRS still had not done checks on the courier hires, he said.

"Allowing contractor personnel access to taxpayer and other [sensitive] information without the appropriate background investigation exposes taxpayers to increased risk of fraud and identity theft," McKenney said.

Elsewhere in the government, federal employees recently were exposed to ID theft after a contractor security breach. Sensitive data on Department of Homeland Security personnel likely was compromised when hackers pierced a USIS corporate network. Ironically, USIS conducts background investigations for many agencies.  

USIS separately is accused in a lawsuit of filing incomplete investigations to drive up profits. 

Many agencies are eyeing employee criminal and conduct records more closely following leaks and violence, such as a Navy Yard shooting rampage by a contractor who killed a dozen people.

In Thursday’s report, the inspector general implicitly drew attention to ex-government contractor Edward Snowden, who disclosed national secrets, as well as the lawsuit against USIS.

"A federal contractor with a top secret clearance leaked classified information to the media, and one of the largest private firms that specializes in conducting investigations for the federal government is under investigation for taking short cuts in its information gathering process,” McKenney said.

As of January, there were 10,000 contractor workers who had access to IRS facilities, systems or sensitive but unclassified information.

The report recommends IRS reconsider a waiver put in place years ago that exempts expert witnesses from background investigations given “the current security environment.”

Of the 28 contracts examined, six of them waived background checks. Expert witnesses receive sensitive information and are given the option of destroying or returning it to the IRS after their duties are completed.

The agency rejected the suggestion to reevaluate the waiver, which was established in 2005. Stuart Burns, chief for IRS agencywide shared services, said in a written response to a draft report that the agency’s chief counsel conducts a comprehensive review of any proposed expert’s qualifications before awarding a contract to "ensure that there is nothing in the expert's background which could be damaging to his or her credibility.”

But according to the inspector general, counsel does not perform the same type of screening performed during background investigations, including criminal history checks.

Thursday’s report looked at contracts awarded between October 2010 and June 2013. Auditors did not evaluate whether the background investigations themselves were thorough and complete.

In his letter, Burns said the IRS is "committed to ensuring that background investigations are conducted for contractor personnel who have access to sensitive but unclassified information."