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IRS subcontractors left sensitive paper documents exposed before destroying them

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The Internal Revenue Service’s program for destroying sensitive paper documents needs to be improved after an inspector general’s report found its contractor was leaving many of the documents easily accessible from open containers and storage bins.

The Treasury Inspector General for Tax Administration released a report Thursday faulting the IRS’s sensitive document destruction program. TIGTA found during some of its site visits to IRS facilities that sensitive documents had been stored in open containers. During other site visits, TIGTA discovered bin disposal slots that had been altered or left in poor condition, allowing ready access to discarded sensitive documents. TIGTA evaluators found bins in which they were able to reach their hands through the bin disposal slot and easily retrieve discarded sensitive documents.

Document disposal bin at the IRS with papers being pulled out
An example from the TIGTA report of a bin slot opening being too large

TIGTA

The inspection came after TIGTA’s Office of Inspections and Evaluations received a referral from its Office of Audit regarding concerns about the IRS’s sensitive document destruction program. The evaluation found that improved management oversight is necessary to ensure sensitive documents are properly safeguarded prior to destruction. 

The problems seem to be related to a change in contract terms. The IRS changed its billing criteria in its national contract for sensitive document destruction in fiscal year 2022. The national contract, which covers 387 IRS facilities across the country, went from weight-based billing to billing based on the number and type of bins. 

“When the IRS pays for actual sensitive document destruction services rendered, it is being good stewards of its operating budget,” said the report. “In addition, the proper collection and destruction of sensitive documents ensures the protection of tax information until it is destroyed. However, when billing concerns arise or when sensitive documents get exposed to unauthorized disclosure or access prior to destruction, the IRS could be paying for services not received or disclosure law fines. In addition, the IRS could face an erosion of the public trust, which could adversely affect voluntary compliance, the foundation of our nation’s tax system.”

The report comes at a critical time for the IRS, when it faces the prospect of a $20.2 billion cut in its enforcement funding from the Inflation Reduction Act because the continuing resolution that Congress passed last week to avoid a government shutdown repeated language from an earlier continuing resolution that had mandated a previous $20.2 billion cut. 

TIGTA noted that the IRS receives and creates a significant volume of sensitive documents and is responsible for protecting sensitive documents from receipt to disposal. It found the IRS has not established or communicated to personnel at its various facilities the standard operating procedures for sensitive document destruction to ensure uniformity and consistency. IRS officials did not know what specific sensitive document destruction procedures were used at 110 of its facilities. 

The IRS no longer performs on-site inspections at facilities where sensitive documents are brought for destruction to ensure proper disposal, the report noted. Instead it seems to leave the job to its contractor and subcontractors. The IRS contracts the job to a national vendor that relies on local subcontractors to complete the destruction of sensitive documents. 

But the IRS didn’t put in place appropriate processes and procedures to ensure billing with its main contractor was accurate. TIGTA’s review of invoices paid for October 2023 found charges for more bins than reported by the vendor as being retrieved for destruction. The IRS didn’t determine the optimal number, type or size of bins needed at its facilities. 

TIGTA made 12 recommendations in the report, suggesting the chief of facilities management and security services at the IRS should develop standard operating procedures for sensitive document safeguarding and destruction; immediately evaluate the 110 facilities to ensure sensitive document safeguards and destruction procedures are in place; replace bins that have been damaged and altered; perform annual inspections of all facilities used by subcontractors for sensitive document destruction; complete a cost-benefit analysis to ensure optimal bin size and number of bins at all facilities; and develop processes and procedures to ensure that the IRS is only paying for full bins serviced. IRS officials agreed with seven of TIGTA’s 12 recommendations and agreed in principle to the other five recommendations. 

The IRS’s most recent contract includes provisions requiring site inspections by a National Association for Information Destruction certified inspector, the IRS noted in response to the report. The IRS contract now requires for the first time that all vendors be NAID certified. 

“IRS staff who discard [sensitive but unclassified] materials with regular trash and recycling are violating long-established policies on which they were trained during orientation and about which they receive refresher training annually,” wrote Julia Caldwell, acting chief of facilities management and security services at the IRS, in response to the report.

The IRS agreed to establish a communication plan to provide more frequent periodic reminders to employees as well as put up posters on sensitive document destruction at all IRS locations. 

Caldwell noted that due to a change in industry standards from billing by weight to billing by bin, bin fill rate data are not required for contract performance, and contended that requiring the contractor to document bin fill rates for all bins serviced would not add value to the sensitive document destruction process. Her department does not have enough personnel to staff every IRS location, she pointed out, especially the smaller, remote locations, and it would be too costly to travel to those locations to verify service on the document bins.

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Accounting

IAASB tweaks standards on working with outside experts

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The International Auditing and Assurance Standards Board is proposing to tailor some of its standards to align with recent additions to the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants when it comes to using the work of an external expert.

The proposed narrow-scope amendments involve minor changes to several IAASB standards:

  • ISA 620, Using the Work of an Auditor’s Expert;
  • ISRE 2400 (Revised), Engagements to Review Historical Financial Statements;
  • ISAE 3000 (Revised), Assurance Engagements Other than Audits or Reviews of Historical Financial Information;
  • ISRS 4400 (Revised), Agreed-upon Procedures Engagements.

The IAASB is asking for comments via a digital response template that can be found on the IAASB website by July 24, 2025.

In December 2023, the IESBA approved an exposure draft for proposed revisions to the IESBA’s Code of Ethics related to using the work of an external expert. The proposals included three new sections to the Code of Ethics, including provisions for professional accountants in public practice; professional accountants in business and sustainability assurance practitioners. The IESBA approved the provisions on using the work of an external expert at its December 2024 meeting, establishing an ethical framework to guide accountants and sustainability assurance practitioners in evaluating whether an external expert has the necessary competence, capabilities and objectivity to use their work, as well as provisions on applying the Ethics Code’s conceptual framework when using the work of an outside expert.  

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Accounting

Tariffs will hit low-income Americans harder than richest, report says

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President Donald Trump’s tariffs would effectively cause a tax increase for low-income families that is more than three times higher than what wealthier Americans would pay, according to an analysis from the Institute on Taxation and Economic Policy.

The report from the progressive think tank outlined the outcomes for Americans of all backgrounds if the tariffs currently in effect remain in place next year. Those making $28,600 or less would have to spend 6.2% more of their income due to higher prices, while the richest Americans with income of at least $914,900 are expected to spend 1.7% more. Middle-income families making between $55,100 and $94,100 would pay 5% more of their earnings. 

Trump has imposed the steepest U.S. duties in more than a century, including a 145% tariff on many products from China, a 25% rate on most imports from Canada and Mexico, duties on some sectors such as steel and aluminum and a baseline 10% tariff on the rest of the country’s trading partners. He suspended higher, customized tariffs on most countries for 90 days.

Economists have warned that costs from tariff increases would ultimately be passed on to U.S. consumers. And while prices will rise for everyone, lower-income families are expected to lose a larger portion of their budgets because they tend to spend more of their earnings on goods, including food and other necessities, compared to wealthier individuals.

Food prices could rise by 2.6% in the short run due to tariffs, according to an estimate from the Yale Budget Lab. Among all goods impacted, consumers are expected to face the steepest price hikes for clothing at 64%, the report showed. 

The Yale Budget Lab projected that the tariffs would result in a loss of $4,700 a year on average for American households.

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Accounting

At Schellman, AI reshapes a firm’s staffing needs

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Artificial intelligence is just getting started in the accounting world, but it is already helping firms like technology specialist Schellman do more things with fewer people, allowing the firm to scale back hiring and reduce headcount in certain areas through natural attrition. 

Schellman CEO Avani Desai said there have definitely been some shifts in headcount at the Top 100 Firm, though she stressed it was nothing dramatic, as it mostly reflects natural attrition combined with being more selective with hiring. She said the firm has already made an internal decision to not reduce headcount in force, as that just indicates they didn’t hire properly the first time. 

“It hasn’t been about reducing roles but evolving how we do work, so there wasn’t one specific date where we ‘started’ the reduction. It’s been more case by case. We’ve held back on refilling certain roles when we saw opportunities to streamline, especially with the use of new technologies like AI,” she said. 

One area where the firm has found such opportunities has been in the testing of certain cybersecurity controls, particularly within the SOC framework. The firm examined all the controls it tests on the service side and asked which ones require human judgment or deep expertise. The answer was a lot of them. But for the ones that don’t, AI algorithms have been able to significantly lighten the load. 

“[If] we don’t refill a role, it’s because the need actually has changed, or the process has improved so significantly [that] the workload is lighter or shared across the smarter system. So that’s what’s happening,” said Desai. 

Outside of client services like SOC control testing and reporting, the firm has found efficiencies in administrative functions as well as certain internal operational processes. On the latter point, Desai noted that Schellman’s engineers, including the chief information officer, have been using AI to help develop code, which means they’re not relying as much on outside expertise on the internal service delivery side of things. There are still people in the development process, but their roles are changing: They’re writing less code, and doing more reviewing of code before it gets pushed into production, saving time and creating efficiencies. 

“The best way for me to say this is, to us, this has been intentional. We paused hiring in a few areas where we saw overlaps, where technology was really working,” said Desai.

However, even in an age awash with AI, Schellman acknowledges there are certain jobs that need a human, at least for now. For example, the firm does assessments for the FedRAMP program, which is needed for cloud service providers to contract with certain government agencies. These assessments, even in the most stable of times, can be long and complex engagements, to say nothing of the less predictable nature of the current government. As such, it does not make as much sense to reduce human staff in this area. 

“The way it is right now for us to do FedRAMP engagements, it’s a very manual process. There’s a lot of back and forth between us and a third party, the government, and we don’t see a lot of overall application or technology help… We’re in the federal space and you can imagine, [with] what’s going on right now, there’s a big changing market condition for clients and their pricing pressure,” said Desai. 

As Schellman reduces staff levels in some places, it is increasing them in others. Desai said the firm is actively hiring in certain areas. In particular, it’s adding staff in technical cybersecurity (e.g., penetration testers), the aforementioned FedRAMP engagements, AI assessment (in line with recently becoming an ISO 42001 certification body) and in some client-facing roles like marketing and sales. 

“So, to me, this isn’t about doing more with less … It’s about doing more of the right things with the right people,” said Desai. 

While these moves have resulted in savings, she said that was never really the point, so whatever the firm has saved from staffing efficiencies it has reinvested in its tech stack to build its service line further. When asked for an example, she said the firm would like to focus more on penetration testing by building a SaaS tool for it. While Schellman has a proof of concept developed, she noted it would take a lot of money and time to deploy a full solution — both of which the firm now has more of because of its efficiency moves. 

“What is the ‘why’ behind these decisions? The ‘why’ for us isn’t what I think you traditionally see, which is ‘We need to get profitability high. We need to have less people do more things.’ That’s not what it is like,” said Desai. “I want to be able to focus on quality. And the only way I think I can focus on quality is if my people are not focusing on things that don’t matter … I feel like I’m in a much better place because the smart people that I’ve hired are working on the riskiest and most complicated things.”

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