Techreport,
Review of the Electronic Fraud Detection System
Audit Report, 2015-20-093. Treasury Inspector General for Tax Administration, Washington, DC, USA, (September 2015)
Abstract
The Internal Revenue Service (IRS) is developing a new system to detect fraudulent tax returns to replace their outdated system. However, as it has not set a termination date nor established a retirement plan for the old system, additional costs of running both systems could cost taxpayers approximately $18 million per year. That is the conclusion of an audit report publicly released today by the Treasury Inspector General for Tax Administration (TIGTA). Implemented in 1994, the Electronic Fraud Detection System (EFDS) remains the IRS's primary frontline system for detecting fraudulent returns. The EFDS is designed to maximize revenue protection and fraud detection at the time that tax returns are filed to reduce the issuance of questionable refunds. The EFDS supports the Department of the Treasury strategic goal to Manage the Government's Finances Effectively. This review is part of TIGTA's Fiscal Year 2015 Annual Audit Plan and addresses the major management challenge of Fraudulent Claims and Improper Payments. The overall audit objective was to determine whether the IRS has properly designed and tested enhancements to the EFDS prior to the 2015 Filing Season. The IRS is developing the Return Review Program to replace the EFDS due to its fundamental limitations in technology and design. However, the IRS has not set a termination date nor established a retirement plan for the EFDS. ''If the IRS does not efficiently transition to the Return Review Program so that it can retire the Electronic Fraud Detection System, the estimated additional operation and maintenance costs of running the system could cost taxpayers approximately $18.2 million per year,'' said J. Russell George, Treasury Inspector General for Tax Administration. The EFDS project team has taken steps to mitigate the risks associated with technical obsolescence. For example, the workload management system web release addressed concerns stemming from the client-server platform. However, a risk management plan and requirements plan were not updated. Additionally, the IRS did not use the required repository for managing the testing of system requirements. TIGTA recommended that the Chief Technology Officer: 1) develop a system retirement plan for the EFDS and retire the EFDS after validating the Return Review Program effectively identifies, at a minimum, all issues currently identified by the EFDS; 2) update the Risk Management Plan to reflect the current organizational structure, management process methodology, documentation requirements, and mitigation strategy; 3) update the Requirements Plan to reflect the current activities, methods, and techniques that are used to perform and support requirements development and requirements management; and 4) ensure that contractors have software licenses to use the required repository and verify that guidance is followed. IRS management agreed with TIGTA's recommendations.
