House chides IRS on failed fraud-detection system

Internal Revenue Service

Treasury Secretary Henry Paulson received a harsh letter Aug. 3 from a House committee criticizing the Internal Revenue Service’s mistakes in attempting to update its electronic system for detecting fraudulent tax returns. The committee also chided the IRS for continuing to contract with Computer Sciences Corp. despite the failed system.

House Ways and Means Committee Chairman Rep. Bill Thomas (R-Calif.) wrote that the failure to update the Electronic Fraud Detection System cost taxpayers millions of dollars and has benefited criminals who intentionally filed false returns to defraud the federal government.

Moreover, the IRS paid $18.5 million to CSC, the prime contractor, for more than two years of work, which resulted in no working product, according to the letter.

Thomas urged Paulson to hold people accountable for the failed program and re-examine the IRS’ contracting relationship with the company. Thomas also wants the department to monitor future efforts and find out whether other integral IRS systems are in jeopardy.

“Another year without comprehensive fraud detection will allow further looting of the federal Treasury and have adverse effects on our tax system,” Thomas wrote.

The Senate Finance Committee slammed the IRS in July for similar system failures.

“The IRS has had a multitude of problems with [information technology] contracts in the past and has wasted a huge amount of money on projects that have not lived up to expectations,” Sen. Chuck Grassley (R-Iowa), the committee’s chairman, said at a July 13 hearing.

In response to the Senate committee, IRS Commissioner Mark Everson said July 14 that the agency has taken steps to correct problems. It took action against employees when necessary and regularly briefed Congress. It also improved some of its automated systems, helping bring in billions of dollars to Treasury, according to the statement.