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The IRS Run Amok

Treasury criticizes the IRS on conference overspending

We all have heard about the IRS targeting conservative-oriented groups for closer scrutiny and unfair questioning with respect to their application for tax-exempt-status. There is no doubt this was an unethical practice and violated the basic right for all groups to be treated equally in the oversight process regardless of their political or ideological perspective. This blog is about the abuse of taxpayer money by the IRS for excessive spending on clowns, mind readers and lavish parties during a training conference just outside Las Vegas, claims that officials awarded a $58,808 contract to a large audio and visual services firm, Royal Productions, when federal regulations require contracts of such size be reserved for small businesses.

I have blogged about similar abuses at another government agency, the General Services Administration. In April 2012, the GSA Inspector General’s Report strongly criticized the agency for wasteful spending in November 2010 in connection with spending $823,000 on a Las Vegas conference. Congress’ House Oversight and Government Reform Committee held hearings on the matter and called the GSA action indicative of a “culture of wasteful spending.”

The Treasury Inspector General (IG) for Tax Administration has come to a similar conclusion in the case of the IRS. The matter is worse in the case of the IRS because it is not only the lavish parties but the bidding process also has come under scrutiny.

The IG said the agency violated federal rules by neglecting to publish a solicitation for the contract on the government’s list of Federal Business Opportunities and by providing Royal Productions with a competing bidder’s quote for the Las Vegas conference — thus allowing the company to present a winning offer. This is basic ethics. The bidding process must be above board and confidential. It didn’t help matters from an ethical perspective that the agency paid roughly double what the contract outlined for the company’s employees’ hotel rooms, according to the report.

The problems go deeper for the IRS and seems to be ingrained in its culture. The report points out in a 2010 conference in Anaheim, the IG received a specific complaint alleging overspending at that conference and it was the most expensive IRS conference during that period. Overall, the IG found that the IRS spent $49 million on 225 conferences from 2010 through 2012.

The conference in Anaheim involved 2,609 small business executives and managers (SB/SE) at Sheraton, Marriott, and Hilton hotels and reportedly cost $4.1 million (the IRS was unable to establish exactly how much it cost). Despite the availability within the IRS of event planners, the SB/SE division used two outside event planners who received commissions from the hotels of $133,000, which were based on the number of rooms the IRS used.

The IG also found that the IRS could have negotiated lower rates had it not accepted other benefits from the hotels including suite upgrades, two of which were presidential suites that cost between $1,500 and $3,500 per night that were provided to SB/SE division executives for $135 per night. Other benefits included free cocktails and promotional gifts, such as logoed brief bags, engraved pens, picture frames, and clocks.

There is more. The IG report mentions that the conference paid $135,350 for 15 outside speakers, including two keynote speakers. One of the keynote speakers was paid $17,000 to paint portraits of various famous people and the Statue of Liberty and give them to audience members. Three of the paintings were later sold at auction for small amounts. The second speaker was paid $27,500 for two one-hour motivational speeches on radical innovation.

Most likely some of the problem is in the data gathering and oversight of conferences and other events by IRS administrators. However, these incidents, along with the current scandal on targeting conservative groups for extra scrutiny of their applications for tax-exempt status, together reflect a culture of indifference and ethical blindness that seems to infect many agencies of the U.S. government. This is a troublesome trend because it goes against the very people to be served – the public.

In the IRS case I don’t think a general housekeeping and firing of certain employees are enough. I call on Congress to appoint an independent overseer of the IRS and do a complete audit of its processes and procedures by an independent audit firm. The public interest must be protected from encroachment on its rights by the government.

Blog posted by Steven Mintz, aka Ethics Sage, on June 6, 2013