The IRS could do a better job of policing employees' spending with government credit cards, a Treasury Department watchdog said Tuesday in a report that found that lax oversight allowed a few bad apples to buy romance novels, diet pills and even porn on the taxpayer's dime.
The Treasury's inspector general for tax administration — the same agency that brought the hammer down on the IRS for singling out conservative groups for special scrutiny — found that IRS workers on the whole stick to the rules when they use government credit cards.
It identified improprieties in only about two-tenths of 1 percent of transactions in fiscal years 2010 and 2011, when IRS workers made 273,000 credit card purchases worth about $108 million.
"The majority of IRS cardholders appear to use their purchase cards properly," the report said, adding that "we did not find a significant amount of improper purchases in our limited testing."
But some of the improper purchases it did find were doozies.
Related: Read the full inspector general's report (.pdf)
One woman made 38 transactions totaling $2,655 for what appeared to be personal purchases covered up with fake receipts. Taxpayers paid for her purchases of diet pills, romance novels, steaks and a smartphone, which the report said were falsely categorized as "reference books and office supplies."
And the government credit cards of two other employees, one of them still with the IRS, bought pornography online, the inspector general said.
Both of them reported that their cards had been stolen or compromised, which the report said it hadn't been able to verify or discredit — although it noted that one of the cardholders had reported at least five cards as having been lost, stolen or counterfeited, something the report said the IRS might want to consider a red flag in the future.
In a separate case, the inspector general questioned the IRS' spending on a five-day international tax conference in Washington in 2010. It didn't allege that the IRS went over budget — in fact, it noted, the agency spent less on the conference than it was authorized to.
But "we did not find any Department of the Treasury or IRS criteria to assess the reasonableness" of what was spent, it said, leading it to consider "the cost of the expenses related to this conference to be high."
Among the questionable expenditures it highlighted were the purchase of 28 bottles of wine for just 41 guests and meal costs that were several times the federal per-diem rate of $18 for lunch and $36 for dinner in Washington.
It also questioned the IRS' spending of slightly less than $4,000 over the two years on team-building and morale-boosting merchandise like bandannas, Thomas the Tank Engine rubber wristbands, Nerf footballs and something described as "the world's largest jigsaw puzzle."
The IRS, in response, "did not concur with our assessment that these items were inappropriate," the report said.
The IRS did, however, agree with the report's complaints about what it said were two serious, systemic problems that leave the agency "vulnerable to repeated violations of applicable laws and regulations":
• IRS workers are adept at splitting up their credit card purchases into multiple transactions so each of them come in under the cards' $3,000 limits — a violation of federal regulations. And the IRS routinely neglects to refer confirmed cases of "split purchases" for investigation, a violation of its own policies.
The inspector general identified 123 purchases that were split up into 361 transactions in just six months last year, totaling almost half a million dollars. Twenty-two of the cardholders who carried out the improper transactions were repeat offenders, it said. None of them were referred for investigation.
"While the IRS may have had a valid business need to purchase these items, it should have used another procurement method," the report said.
• The IRS is also slow to cancel the cards of employees who leave the agency, lagging by an average of nine days. In one case, the agency waited eight months to cancel the card used by a former employee. During the two-year period it studied, the inspector general found 38 transactions worth about $9,000 that took place after the cardholder had left the IRS.
The report noted that IRS policy is to leave an account open until all transactions have cleared, and it said all 38 transactions were eventually found to represent a "legitimate business need." But by not have a clear cutoff date for such accounts, the IRS exposes itself to "risks of financial loss by the separated employee or another individual using the card," it said.
The inspector general recommended 11 changes in IRS oversight to tighten up the credit card program. While it had some quibbles, notably with the report's criticism of its morale spending, the IRS said it accepted all of them — a far less contentious response than it had to the same agency's report on its singling out of conservative groups seeking tax-exempt status.
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