Treasury Inspector General for Tax Administration J. Russell George found that the IRS has completed both the development and testing for the system that calculates the tax credits under the law. But the report noted that the tax agency has more work to do on a host of areas, including those related to security-control processes and fraud detection.
“Without a fraud detection and mitigation strategy,” the report noted, “the ACA program may not have assurances that ACA systems adequately address emerging fraud control requirements. Further, without adequate fraud mitigation controls, the IRS may be unable to identify ACA refund fraud schemes prior to the issuance of erroneous funds.”
But acting IRS Commissioner Danny Werfel said, "The IRS has a strong, effective system in place for administering the premium tax credit. We have a proven track record of safely and securely transmitting federal tax information and we have a robust and secure process in place to deliver this important credit for taxpayers."
Sen. Orrin Hatch (R-Utah), ranking member of the Senate Finance Committee, jumped on the audit's conclusions, releasing a statement that said the law's premium subsidies are a “fraudster's dream come true.”
“As (the inspector general) found today, the very nature of these credits—pay first, verify a person's income later—will lead to potentially hundreds of billions of dollars of improper payments and could put millions of Americans personal information at risk,” Hatch said in a written statement Tuesday.
In all, the inspector general made seven recommendations for improvement, and the IRS agreed with all but one related to security controls. According to the report, an assessment revealed that some “critical” components in the security controls failed when they were tested. The inspector general recommended that the IRS' chief technology officer should make sure that the agency's cybersecurity organization resolve or develop an action plan for the failed security tests. In response to a draft report of the audit, the IRS disagreed with this suggestion because it already has systems in place to address that recommendation.
The inspector general's report said the IRS did a good job of accurately calculating the amount of tax credits, but that the IRS systems may not be capable of identifying fraudulent claims for income tax refunds based on the premium tax credit.
But Werfel has said the premium tax credits may be less susceptible to fraud because the subsidies generally will be paid directly to insurers and most taxpayers won't receive any cash.
Follow Jessica Zigmond on Twitter: @MHjzigmond
