Dozens of Internal Revenue Service employees have earned money preparing tax filings since 2009 in violation of agency policy, and one pleaded guilty last year to illegally accessing taxpayer data to conduct a private business, according to federal auditors.

The Treasury Inspector General for Tax Administration issued those findings as part of a report this week on how well the IRS is detecting and preventing conflicts of interest within its workforce.

IRS personnel are not generally barred from outside work, but they need special approval to ensure that their actions with the agency would not benefit them personally. The audit found that only about half of the 6,000 IRS staffers who held other jobs in 2011 had obtained the required authorization.


The IRS has experienced problems with its system for detecting conflicts of interest among agency employees, according to federal auditors. (Andrew Harrer/Bloomberg News)

The problem stemmed in part from the agency not always assigning managers to oversee the process, according to the inspector general’s office. Additionally, the IRS has had to rely on self-reporting, since it does not have authorization to dig into its employees’ tax filings to determine whether they work outside the agency.

“Without performing analyses to identify employees who have unapproved outside employment and assuring that employees and supervisors input all requests to the [tracking system], the IRS is at increased risk that outside employment activities may be in conflict with employees’ IRS responsibilities,” the report said.

Auditors determined that 44 agency workers prepared tax filings for pay, which is a prohibited practice. They identified another 20 personnel with a high risk of conflicts for other reasons — four of them earned between $500,000 and $7 million through outside work.

“Significant outside income could impact the employee’s effectiveness on the job,” the report said.

The review also found that 93 percent of the records in the IRS’s database of outside-employment requests are out-of-date and that the agency does not always document approvals.

The IRS said in a statement on Thursday that it takes the findings seriously, but it added that auditors “did not find any cases of actual conflict of interest or prohibited outside activities that had not been previously identified and referred for action by the IRS.”

The inspector general’s office recommended that the agency update its guidance on outside employment, appoint managers to oversee the approval process, clean up its tracking database and evaluate whether the organization needs new legislation to examine its employees’ tax filings.

The IRS disagreed only with the proposal to consider a legislative fix.

“We do not believe that sensitive taxpayer information should be used to oversee the IRS’s outside employment program,” agency managers said in a response letter. “Furthermore, we do not agree that the IRS should be singled out to utilize such a method for oversight simply because we are the … custodians of such information.”