The Treasury Inspector General for Tax Administration (TIGTA) issued a report on September 5, 2018, regarding the Internal Revenue Service’s (IRS) most recent attempt at its private debt collection (PDC) program. The report did a thorough review of the current PDC program, finding that the Private Collection Agencies (PCA) performed well despite setbacks caused by the IRS’s management and oversight of the program.
On two prior occasions, the IRS attempted to implement PDC programs. Both times, the programs resulted in a financial net loss to the government according to the report. The 1996 pilot program resulted in a $17 million net loss and was cancelled after 12 months. The 2006 initiative resulted in a $20.9 million net loss.
In the most recent PDC program, the IRS awarded contracts to CBE Group, ConServe, Performant, and Pioneer (collectively, the PCAs). Of note, the report states that PCAs performed well in both quality and customer satisfaction. Combined initial quality scores of all PCAs were:
- Customer Accuracy: 99.7 percent,
- Professionalism: 99.9 percent,
- Timeliness: 99.8 percent,
- Regulatory Accuracy: 98.5 percent, and
- Procedural Accuracy: 97.2 percent.
Customer satisfaction scores, taken through a survey at the end of telephone calls with PCAs, show the following anonymized scores:
- PCA 1: 95 percent,
- PCA 2: 90 percent,
- PCA 3: 95 percent, and
- PCA 4: 91 percent.
The report discusses that the PDC program’s collection rate (1%) is lower than the national debt collection average (9.9%). However, the report lists many reasons that explain this, the most influential of which is the average age of accounts placed with PCAs. The average age of assigned accounts is 3.97 years, which, according to the report, are thought to be nearly uncollectible accounts.
The report also points to other obstacles faced by PCAs due to the IRS’s procedures for the program and the current climate. For example, the report notes that the IRS does not provide PCAs with the taxpayer’s telephone number upon placement. PCAs also face difficulty placing telephone calls to taxpayers because they must verify the taxpayer's sensitive information in an environment where telephone scams involving IRS impersonators are widespread.
The report also calls out several IRS procedures for the PDC program that may be harmful to consumers. As one example, the report highlights the potential harm caused by the required verification process. In the current process, the letters received by the taxpayer from both the IRS and the PCA contain a Taxpayer Authentication Number (TAN), which is unique to each taxpayer. PCAs are to use the TAN along with other personal information to ensure they are speaking to the correct person. However, if the taxpayer does not have his TAN available, he may verify the account using his social security number (SSN). To do this, the taxpayer would provide the first five digits of his SSN and the PCA would then provide the last four digits of the SSN. The report notes that this procedure could allow scammers to get access to the taxpayer’s sensitive information.
Another example is the IRS’s lack of standardization of a complaint process. This issue is twofold. First, the report notes that the IRS should have a complaint panel or have a complaint process that alows taxpayers to lodge compalints directly to the IRS rather than relying on PCAs to self-report complaints. Second, the IRS needs to clarify the definition of complaint so that the PCAs can self-report complaints consistently. The report found that the disparity in self-reported complaints (44% by one PCA, 6% by another) is indicative that the IRS has not provided clear guidance to the PCAs on what qualifies as a self-reportable complaint. The report notes that a complaint panel consisting of a cross-functional group would ensure that "the person in charge of reviewing complaints agast the PCAs are not the same people who are responsbile for the success or failure of the PDC initiative."
The report states that with the current inventory of delinquent taxpayer accounts, the IRS could do a better job at placing more promising accounts with PCAs. For example, inventory management and placement could be more profitable if assignment was based on dollar value of the account, age of the case, the taxpayer’s financial position, or the availability of taxpayer contact information. The IRS responded to this recommendation by stating it currently places accounts based on type and balance due, but any further analysis would result in a significant technology investment.
The report also notes that the IRS made it difficult to forecast the future financial success of the program. Specifically, the report states that the IRS failed to identify which expenses for the program were one-time start-up costs versus recurring operational costs. Without this information, it is difficult to accurately extrapolate the program's future financials.
Despite all of this, the current PDC program appears to be a success financially, as previously reported by insideARM. As of May 31, 2018, the program’s revenue ($56.65 million) was higher than the costs associated with the program ($55.33 million).
This report provides a positive review of the PCAs, showing that they are doing very well despite the inventory, information, and oversight provided by the IRS. Even would-be criticisms of PCAs, like the inconsistency of self-reporting complaints, are directed at the IRS, finding that PCAs did not receive clear guidance from the IRS. A review of the report as a whole gives the impression that the IRS is trying to balance oversight of the PDC program with the need to keep costs low and manageable so the program does not result in a net loss like its predecessors. Considering that the program is currently running in the black, it appears that the IRS's efforts are working in that area, which may mean the current program avoids the fate of the two prior attempts.