Conference With Line Dances, Swag Wouldn’t Happen Today, Says IRS Official

Under current federal restrictions on conferences, the Internal Revenue Service “would not hold this type of meeting today,” Faris Fink, commissioner of the agency’s Small Business and Self-Employed Division, told a hearing examining overspending at a $4.1 million training event for held in Anaheim, Calif., in 2010.

The event’s purpose was to train 2,600 managers from 350 offices to “ensure they had the tools to address changes occurring” in tax administration, Fink told angry members of the House Oversight and Government Reform Committee. “Thirty percent of the employees were new, or had been managers for only two years, and there was also a concern about employee safety” following a recent fatal attack on an IRS office in Texas, Fink added.

“We followed IRS procedures in place at the time, and the inspector general found no instances of fraud,” said the 32-year IRS veteran. “But we are now in a new era, and in hindsight, many expenses should have been more closely scrutinized or not incurred at all. They were not the best use of taxpayer dollars.”

A report by the Treasury inspector general for tax administration released on Tuesday found that the IRS shifted funds from its enforcement budget to pay for the two-day conference, used an outside lodging contractor who did not adhere to standard federal practices, failed to properly track all employee expenses, and spent thousands of dollars on comic videos and on swag bags that included plastic squirting fish.

Committee Chairman Rep. Darrell Issa, R-Calif., opened the hearing by pronouncing the IRS “guilty of tax evasion” because local IRS employees were given free lodging at the event without being sent W-2 forms to declare the benefit as income. Calling the conference “self-indulgent,” Issa said that because of that abuse, “tens of thousands of workers who could have received great training were cheated out of additional training and the American people didn’t get a well-trained workforce.”

Professional education is critical, Issa acknowledged, “and the IRS more than any other organization needs to be well trained, needs to understand not just fundamental laws, but the history of rulemaking … and how to treat the taxpayer as customer, not a debtor,” he said. “We want the federal workforce to feel when they have justified travel and reasons to use hotel rooms and conferences, they do so.”

One lesson of the episode, Issa added, is that “in government, there aren’t enough whistleblowers.”

Ranking member Rep. Elijah Cummings, D-Md., expressed outrage that the IRS wasted money taken from his constituents such as the “lady who gets the early bus and makes $35,000 a year.” He noted that IRS spending on conferences doubled after the 2007 and 2008 financial crisis. “It would be legislative malpractice,” Cummings said, not to ask then-IRS Commissioner Doug Shulman in to explain why.

Cummings also said that after watching -- at 3:00 a.m last night -- the video parody of “Star Trek” made for the Anaheim conference, he could find “no redeeming value” in that or the video showing IRS employees line-dancing. “It is not only a parody of a television show, but a parody of what many people unfairly think about federal workers,” he said.

Fink, who confirmed that he played the character “Mr. Spock” in the video, said he did not approve that expenditure. “Those videos were at that time an attempt in a well-intentioned way to use humor to open [and close] the conference,” he said. “They would not occur today based on the guidelines, and frankly, they were not appropriate at that time either. It’s embarrassing, and I apologize.”

Treasury Inspector General J. Russell George told lawmakers the Anaheim conference was selected for review “because we received a specific allegation of excessive spending.” He criticized IRS managers for arranging with the Marriott, Hilton and Sheraton hotels to upgrade 132 rooms to suites for high-level managers rather than negotiating a lower overall rate for the rooms. “We could not validate the $4.1 million cost due to a lack of record-keeping,” he added. He and assistant IG for audit Gregory Kutz said the IRS decision to shift $3.2 million from the enforcement budget was “not a violation of appropriations law,” though George spoke of a “perverse incentive” for an agency to spend money before the end of the fiscal year rather than returning it to the Treasury.

Kutz acknowledged to Issa -- who pointed out that businesses often find certain claimed expenses “disallowed” by the IRS -- that some conference attendees “were paid twice” for their meals because they filed for a full per diem but were given breakfast by the hotel. “It was not a violation of federal travel regulations,” Kutz added.

Fink said conference managers were able to track only 90 percent of the conference costs because “people didn’t use the tracking code that was in place, or were on other travel and may have charted their travel to another business purpose.” When asked by Rep. John Mica, R-Fla., about the reason for distributing squirting plastic fish, Fink said he did not approve that expense, and “if any expense incurred that was absolutely inappropriate, that would be one.”

Both Issa and Cummings said they had received a personal call from newly installed acting IRS Commissioner Danny Werfel, with Cummings calling him a “breath of fresh air.” He noted that Werfel on Wednesday had placed two attendees of the 2010 Anaheim conference on administrative leave for receiving free food and other items. Press reports named them as IRS employees Fred Schindler, director of implementation oversight at the IRS Affordable Care Act Office, and Donald Toda, a manager in the small-business and self-employed division based in Torrance, Calif.

Testifying separately, Werfel said that by law, employees placed on administrative leave have 30 days for a fact review before any dismissals take place. “If you look at the organization chart, I’m working my way down, and there’s leadership replacement at every level with reviews that are fair, through and expedient,” he said.

Addressing overall reforms of his agency in the wake of the scandal over the apparent targeting of conservatives seeking tax-exempt status, Werfel said, “One of the process fixes needed is more checks and balances in how decisions are being made. The IRS is too insular in carrying out its work,” he added, and “if you structure the right checks, you would give comfort to constituents” who fear the agency’s powers.

On the Anaheim conference, Werfel confirmed to Rep. James Lankford, R-Okla., that emails suggesting that some managers held a private reception that included alcohol and disguised the costs were being reviewed. “ We believe we have evidence of a violation of the code of conduct,” he said. On the overall event, “Whatever happened in 2010, it is a lot less likely to happen today,” Werfel said. “I don’t want any swag purchased by the IRS, certainly not while I am commissioner.”

The cost of the conference, meanwhile, drew criticism from Colleen Kelley, president of the National Treasury Employees Union. On Wednesday she said, “Many of the expenses associated with it were inappropriate and should not have been incurred.” But travel and training expenses are down more than 80 percent since 2010, and the IRS has said it did not hold any large-scale nationwide meetings in 2011, 2012 or 2013, she noted. “It would be highly detrimental to the IRS mission if these inappropriate expenditures hindered essential training for IRS employees,” she said.