Quality and Productivity Commission 23 RD Annual Productivity and Quality Awards Program Navigating a New Course!

Transcription

1 Date of Implementation/Adoption: November 2006 Project Status: Ongoing One-time only Did you submit this project before? Yes No Executive Summary: Describe the project in 15 lines or less using 12 point font. Summarize the problem, solution, and benefits of the project in a clear and direct manner The Auditor-Controller is required to report annual non-employee compensation earned by payees via Internal Revenue Service (IRS) Form 1099 (1099). Approximately 19, s are printed and mailed out to payees, while electronic files are sent to the IRS. The IRS verifies the County s 1099 reporting information with their records. If there are any discrepancies, the IRS assesses a penalty for each incorrect 1099 and such penalties were averaging $85,500 per year. The County maintains 200,000 total vendor records and significant efforts are made to identify those requiring a 1099 and ensure the accuracy of information. Consequently, we began to research all avenues available to institute corrective measures and enhance quality control procedures for the 1099 processing. Technological solutions were developed and applied for each 1099 problem area to proactively identify errors, process corrections and reduce the error rate. The IRS penalty assessments have been substantially reduced and the improved process has enabled the County to negotiate a waiver of prior year penalties. (1) ANNUAL COST AVOIDANCE (2) ANNUAL COST SAVINGS (3) ANNUAL REVENUE (1) + (2) + (3) TOTAL BENEFIT SUBMITTING DEPARTMENT NAME AND COMPLETE ADDRESS (INCLUDE TELEPHONE AND FAX NUMBER) Department of Auditor-Controller Hall of Administration 500 W. Temple, Suite 525 Los Angeles, CA ph: fax: PROGRAM MANAGER S NAME TELEPHONE NUMBER SERVICE ENHANCEMENT PROJECT Connie K. Chung PRODUCTIVITY MANAGER S NAME AND SIGNATURE Michelle Day DATE SIGNED TELEPHONE NUMBER DEPARTMENT HEAD S NAME AND SIGNATURE Wendy L. Watanabe DATE SIGNED TELEPHONE NUMBER PAGE 1

2 Fact Sheet limited to 3 pages only: Describe the Challenge, Solution, and Benefits of the project, written in plain language. Include a discussion of the technology, links to the County Strategic Plan. The description should identify Performance Measures. CHALLENGE In order to improve the 1099 reporting process and reduce IRS penalty assessments, Disbursements Division recognized that evaluation and data cleansing of 1099 information must occur before 1099 processing. However, there were various challenges that needed resolution. One challenge was the sheer size of payee records (approximately 200,000). Therefore, it was necessary to target specific types of records and develop technological methods that could easily identify potentially inaccurate 1099 information. Once errors were identified, technical processes were needed to speed up our research time and identify and make corrective changes to the records. SOLUTION To overcome the first challenge of identifying 1099-related incorrect information from the 200,000 payee records in the County s financial system (ecaps), errors were categorized as follows: incorrect name, duplicate name, incorrect Taxpayer Identification Number (TIN), duplicate TIN, and incorrect address. Next, various sources in ecaps that can be used to isolate these errors were identified, such as master payee records and 1099 records. As a result, exception reports were developed. With these reports, potential errors were analyzed using such tools as the IRS TIN Matching program, United States Postal Service (USPS) ACCUZIP software, and advanced filters in Microsoft Access and Excel. By using these exception reports and tools, approximately 2,600 records were corrected in Tax Year 2007 and 2,700 records were corrected in Tax Year The solution to the challenge of effectively and efficiently managing IRS penalty records, i.e., transactions with errors, was to develop an interactive Microsoft Access database. Below are the database features: Stores the electronic penalty records sent by the IRS Produces payee solicitation letters Provides the ability to correct information such as TIN, payee name, and payee address Filters information by correction type Disbursements Division imports the IRS penalty records in the database. Then, solicitation letters are sent to the payees along with W-9 forms. Payees certify their tax information via the W-9 forms. On receiving the W-9 forms, Disbursements updates the PAGE 2

3 database with the new information. Moreover, Disbursements utilizes tools such as IRS TIN Matching software and previous 1099 reporting records to research the new information. When it is deemed correct, Disbursements updates payees 1099 information in ecaps so future 1099 reporting is accurate. BENEFITS The updated 1099 reporting process has brought about many benefits to the County and the public. Not only is more accurate information provided to the payee and the IRS, the County has also significantly reduced its volume of erroneous 1099 records. Since implementing the new processes, the average number of erroneous records has dropped significantly. As previously mentioned, for Tax Years 2003 through 2005, the IRS reported 1,700 invalid 1099 records. Since then, the number of invalid records has dropped to about 770 for Tax Years 2006 and The line graph below depicts a gradual decline in reporting invalid 1099 records to the IRS: Invalid 1099 Records Reported to the IRS Invalid Records 2,000 1,500 1, Incorrect 1099 Records Error Rate Tax Year 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Error Rate From Tax Year 2003 to Tax Year 2007, the County of Los Angeles has reduced the assessed penalties by more than $54,000, as depicted in the bar chart below. Furthermore, the cost and time allocated to correct payee information in response to IRS penalty notices has been reduced because of our continuous corrective measures. PAGE 3

4 IRS Penalties from Tax Years 2003 to 2007 $100, $80, $60, $40, $20, $ Tax Year The benefits, such as improving accurate reporting and cost savings, are consistent with the Auditor-Controller s Mission, which is to provide the County of Los Angeles with financial leadership, while advocating financial integrity and accountability in business transactions. PAGE 4

5 Cost Avoidance, Cost Savings, and Revenue Generated (Estimated Benefit): Use this form and provide details on the estimated/actual benefits. As a suggestion, work with your fiscal staff. Cost Avoidance: Anticipated costs that are eliminated or not incurred as a result of program outcomes. Cost Savings: A reduction or lessening of expenditures as a result of program outcomes. Revenue: Increases in existing revenue streams or new revenue sources to the County as a result of program outcomes. (1) ANNUAL COST AVOIDANCE (2) ANNUAL COST SAVINGS (3) ANNUAL REVENUE (1) + (2) + (3) TOTAL BENEFIT SERVICE ENHANCEMENT PROJECT As shown in the chart below, the County of Los Angeles has prevented a penalty of $54,600 (Tax Year 2003 minus Tax Year 2007). Disbursements Division s continuous corrective measures have ensured more accurate1099 records are reported to the IRS. Penalty Amount Tax Year Invalid Records Reported to the IRS ($50 Penalty per Invalid Record) ,747 $ 87, ,656 $ 84, ,703 $ 85, $ 44, $ 32, PAGE 5

6 FOR COLLABORATING DEPARTMENTS ONLY (for single department submissions, do not include this page) DEPARTMENT NO. 2 NAME AND COMPLETE ADDRESS DEPARTMENT NO. 3 NAME AND COMPLETE ADDRESS DEPARTMENT NO. 4 NAME AND COMPLETE ADDRESS DEPARTMENT NO. 5 NAME AND COMPLETE ADDRESS DEPARTMENT NO. 6 NAME AND COMPLETE ADDRESS PAGE 6