Public Administration-Budgeting and Finance
Name
Institution
Abstract
This paper provides a deep understanding of the Internal Revenue Service. It gives the missions and goals that govern the organization in the realization of its main objectives as the organization in America awarded with the mandate of collecting taxes in the country. It talks about the missions from different sections of the organization and how these missions sum up to make up the ultimate mission of the organization. Some of the ethical considerations revolving around the organization’s finance and budget system are also stated here. The ethics that govern the finance and budget systems of the Internal Revenue Service are honesty, sense of responsibility, and decency. These ethical practices assist the organization in performing their duties in a free and fair manner and in a way that enables them to attain their set objectives effectively. The technological considerations are also an essential aspect that the organization takes note of to improve the efficiency of the operations. The technological elements noted here are adaptations of new software that the organization has adopted to assist their financial systems. The laws, regulations, and policies impacting the IRS financial and budgeting systems are also presented in the paper. Some of these are the Antideficiency Act, which gives information on funds control concepts. This act prevents federal agencies from expending federal funds more than the appropriations, and from accepting voluntary service. Other rules that govern the organization are the GAO’s legal decision and the ‘bona fide needs’ rule. The paper also talks about the factors that affect the strategic financial planning for the organization. These factors being the objectives, flexibility, and economic factors. The evaluation procedures of the organization’s annual financial report are also talked about in-depth in this paper. Since the operation is a government agency, it operates as a non-profit organization, and its financial report evaluation process is a little different. They consider looking at the performance levels of the organization as a measure for financial reports evaluation and also determining its liquidity. The IRS sources of revenue are also evaluated, and taxes were determined to be the primary sources of revenue for the organization. The federal government highly regulates the IRS expenditure and through various rules stipulated. Because of this, the evaluation of its expenditure is also represented in this paper. The organization’s financial condition is also depicted here.
Mission and goals of Internal Revenue Service
The Internal Revenue Service is the revenue service of the United States federal government. This agency is a bureau of the treasury department, under the immediate direction of the Commissioner of Internal Revenue. The president appoints the commissioner for a five year term period. The IRS is the agency bestowed with the duty of collecting taxes and administering the internal revenue code. The agency provides taxpayers with tax assistance, and it also helps in correcting erroneous tax filings. It has also been involved in benefiting programs and enforces parts of the Affordable Care Act.
IRS is divided into different sections, all of which have their specific missions. The office of the IRS chief counsel has a mission to serve the American citizens fairly and with integrity. This mission is attained by giving accurate and impartial interpretations of the internal revenue laws and providing the best quality legal advice and representation of the IRS. The small business division is given the mission of providing small business customers with the best services by educating and making them aware of their tax obligations. This division also develops educational products and services and helps its customers understand the relevant laws.
The exempt and government entities division have a mission to provide its customers with the best services and assisting them in understanding and following the applicable tax rules and regulations. This division is entitled to serve the needs of three customer segments; the employee plans, the exempt organizations, and government entities. The wage and investment division has a mission to educate and help its customers to understand their tax responsibilities in the best quality, fair, and equitable way. The Appeals division has the mission to resolve tax controversies, without litigation, in a way that is fair and just to both the government and the taxpayers.
The criminal investigation division is given the mission to serve the Americans by investigating potential criminal violations of the internal revenue code and other financial crimes. The taxpayer advocate service division has the mission to assist taxpayers in resolving problems with the IRS and suggest changes to avoid the issues. The office of professional responsibility has the mission to foster excellence in professional tax services by setting, communicating, and enforcing competence standards, integrity, and conduct. The communications and liaison division supports the IRS mission and business objectives using communication services, strategic relationship management, solving issues, and sharing information. The missions of the various divisions that make up the IRS formulate the agency’s primary mission (Charles 2016).
The internal revenue service operates on six goals. The first is to enable every taxpayer to meet their tax obligations. The goal is achieved by making taxpayers understand and meet their filing, reporting, and payment obligations. Secondly, it has the goal to safeguard the tax system integrity by ensuring compliance by giving out and enforcing the tax code. Thirdly, IRS has a goal to collaborate with external parties to improve the tax administration; to improve the services offered to taxpayers. Fourth, the agency aims at cultivating a well-equipped, diverse, and flexible workforce. Fifth, the organization focuses on attaining advanced data access, usability, and analysis to assist in decision-making processes. Lastly, the IRS deals with driving increased agility, efficiency, effectiveness, and security in the day to day operations.
Ethical considerations relating to finance and budgeting
Many organizations in the United States have scandals with their financial budgeting processes. Greed is a powerful emotion, but unethical financial practices sometimes come as a result of a lack of education on relevant principles of financial standards. A business that is clear about its ethical direction will face its budgeting process as a way that focuses on helping the company attain its visions and objective. IRS has incorporated measures that try to ensure ethical practices in their finance and budgeting systems (Duska & Kury 2018).
The organization considers honesty as an ethical principle among its workers and the population it serves. Honesty is an essential practice in the finance and budgeting processes. The IRS revenue collection process is such that if you fail to pay your taxes in full while filing your returns, a bill will be imposed on you for the amount that you owe the agency. The freedom of information act promotes the transparency of the organization. This act was enacted in 1966 to enable anyone from the public to access the federal agency records of information. The freedom of information act has the idea that the government and its information belongs to the people. With this access to information, either financial or budgeting information brings a sense of honesty and transparency in the organization. Transparency is viewed as an ethical practice because it prevents people in the organization from participating in practices that are not in line with the internal revenue codes of conduct.
The organization also brings out some sense of responsibility. The IRS organizes its activities in a manner that reflects a deep understanding of its duties. The different sections available in the agency assist the organization in bringing an aspect of responsibility. Each division in the organization is given its specific task. The divisions perform the task transparently and honestly from the mission of the organization. Most business budgeting decisions revolve around choices thoughtfully made and the results of the policies.
IRS also facilitates its operations with decency. People always run organizations, and they sustain themselves financially by satisfying the needs of people and the customers they serve. As other organizations base their operations for profit-making at the expense of basic humanity, the IRS is different. The IRS is a federal agency that does not aim in profit-making but tends to serve the public with humanity and decency. The organization undertakes its operations in kindness to achieve a mutual gain with all its participants. The IRS focuses on collecting revenue from the public in a decent and just manner. There is fair treatment of customers, and in case of any complaints in any issue about taxes, there are specialists who can attend to the problems in a humane manner (Gartenstein 2015).
Technological considerations for improving finance and budgeting effectiveness
From the year 1959 to date, the internal revenue services in America underwent a period of technological changes to improve their accounting systems. At the time the Second World War was ending, the IRS was dealing with over 60 million tax returns with a combination of mechanical desk calculators, accounting machines, paper, and pencils. The organization then incorporated the use of computers in the year 1955, which led to 1.1 million returns being filed with the IBM 650 installation. IRS was then ordered to proceed with the use of computerized systems in the year 1959.
In 2003 a deal was made with tax software providers who were to provide free e-filing to many Americans. IRS used an approach that combined the improvement in new technologies and also taking advantage of the expiring contracts to get technologies that would increase the efficiency of the performance of the operations in the organization. With the investment in technology, the business processes of the organization will improve. There will also be saving on costs because of the reduced costs of working with antiquated systems.
The organization aimed at reducing the complexities of the technical environment by first resorting to the IT budgeting system, and as we all know, a good IT budget system is like a good financial system. It budgeting has also been common in individual financial planning, something the IRS took into consideration. This method of planning produces appropriate savings and investment guidance. For it to work, there is a need to understand the short term and long term goals. The organization is standardizing business processes by use of numerous systems to formulate an enterprise-wide solution for case management, ECM. Although Enterprise Content Management is a significant element to the taxpayer services and enforcement pillar, it is the main example to show the IRS efforts of improving their infrastructure.
The IRS aimed at attaining an integrated case management program system and also changing the legacy systems. They are also focusing on upgrading their technology by replacing from Solaris to Linux while reducing the operational costs and uncertainties related to the retirement of aging infrastructure. The adoption of Linux will enable the IRS to provide many thousand servers efficiently. The organization also considered shifting from text-based legacy programming languages, for example, Common Business-Oriented Language to modern common languages such as NET, and Java. The upgrade to the new language programs will promote programming language standardization and reduce workforce sustainment uncertainties.
The organization’s other technological objective is to leverage data to deliver secure, agile, and efficient applications and services. The IRS effective decision making depends on the essential insights attained by trusted information. When their high-quality data gets managed as an asset will enable the delivery of value. The use of day-to-day operations and decision-making has changed its existing processes. They opt to maintain a cloud infrastructure that will help reduce fixed investment, minimize the risk of old hardware, and improving scalability and elasticity.BY the consideration of all these technological factors, the operations are going to improve to ensure effectiveness in all that the organization does (Chopra, Ding, Doshi, Lad & Sun 2018).
Applicable laws, regulations, and policies impacting IRS budgeting and financing operations
IRS has some operating financial guidelines that it works in accordance to facilitate its operations. The rule on manual transmittal, which was put in place on March 14, 2019, serves the purpose of offering strategic planning, budgeting, and performance management process and also provides financial operating guidelines. The organization is guided by appropriation laws such as the Antideficiency Act, which gives information on funds control concepts. This act prevents federal agencies from expending federal funds more than the appropriations, and from accepting voluntary service. The organization’s employees are restricted by this law to involve the government in any obligation to make payments before money has been appropriated for a specific purpose unless it is authorized by law. The employees who go against the law are subject to either administrative or penal sanctions. The administrative sanctions include suspension from work without pay or ejection from work. The penal actions revolve around fines, imprisonment, or both.
The organization has requirements for funds to be appropriated and legally available for use. First, the need for expenditure has to be approved. The authorization will prevent misappropriation of funds by the employees who work at the IRS. Secondly, the obligation must take place within the stipulated periods applicable to the appropriation. Working on a timely basis in the allocation of funds helps in tracking the flow of funds within the organization and assists in preventing the misuse of funds. Finally, the obligation and expenditure must be within the number of funds the congress had stipulated. Working on a budget will enable the organization to operate within its means and not beyond its means; this will assist it from getting into irrelevant debts, which might end up affecting its operations.
The IRS also operates under the necessary expense doctrine, which is described under the GAO’s legal decision. The legal decision states that the organization’s appropriations are made for a specific obligation. It primarily considers expenses that are necessary unless there is another provision for another expense guided by law. For example, if the IRS needs a specific appropriation for business systems modernization, the costs have to be channeled only to that particular appropriation and not a general one. Following this rule, it helps in preventing the allocation of excess funding to specific projects which might end up misusing public funds. Hence, the organization’s expenses must have a logical relationship to the appropriation to be charged. Their expenditures must also be per the law and must not be within the scope of other appropriation funding schemes.
The ‘bona fide needs’ rule is also incorporated in the organization, which stipulates that allocated funds should be used for operations whose needs arise during that period of funds allocation. This law comes along with four regulations. First, the agency should not purchase goods or services before appropriations are done, and accounts are apportioned. Secondly, the appropriated funds should not be used to do unnecessary activities to use up excess funds when the financial year ends. Thirdly, the current fiscal year apportioned fund cannot be used for training that will take place in another financial year. Lastly, travel authorizations must not be done for a period past the current fiscal year.
The IRS budget also undergoes limitations, which is executed mainly by the congress. Congress explicitly limits the reallocation of funds that reduce funding of already existing programs, activities, or projects. The general provision in the appropriation docket sets a lower limit of ten percent or five million dollars. The House and the Senate must also approve any reprogramming that is above the set limit. There is also a need for prior approval to remove or add new programs through the reprogramming of funds. This regulation will enable easy accountability of the funds because specific amounts of money are allocated for a particular purpose.
Internal factors impacting successful strategic financial planning
The IRS has factors that it considers before it comes up with a financial plan. The first factor it focuses on is the organization’s objectives. The IRS structures its financial plan in a way that is consistent with its overall objectives. The financial plan aims at raising funds at a reasonable cost to enable the organization to attain its goals in the best manner possible. Its overall aim is to collect taxes at the least costs and serving the public interest by providing quality services and products to them. For them to attain these objectives, they have to come up with a reasonable financial plan that is going to assist them in attaining their goals in the best way and at least costs.
The second factor that influences the financial planning system is the requirements of the organization. The organization’s needs are going to impact their financial plan in the sense that they have to take care of the current and future requirements of the agency. They have to take into consideration the contingencies they might face, the replacement of assets, upgrading of assets, and operation systems. They also have to include their growth vision and the entire package that comes with it for the fiscal period the financial plan is going to run. The diversification of the organization’s operations is also a requirement that needs to be considered, and it ends up affecting the financial plan.
Economic factors are also kept into consideration while drafting the organization’s financial plan. The case of raising funds for the organization is always reasonable. It still structures its financial capital system in a manner that creates an appropriate balance between the cost of funds and the organization’s ability to pay back in cases where credit is used for funding. The organization deals with the collection of taxes, but it will not be successful if they do not consider economic factors that sum up to the success of the organization. It has to consider the economic conditions of income, consumption, and wealth. The three components constitute a significant part of the economy that the IRS expects to collect a substantial amount of revenue from in the form of taxes. So, the organization needs to understand the conditions of these sectors in the economy before drafting their financial plans.
They also consider the flexibility of their financial plans. A financial plan should ensure flexibility to allow the diversion of funds into more profitable channels, something that the IRS also puts in mind. It also gives the provision of the ability to raise the organization’s funds at short notice in case of contingencies. Due to changes in rates of taxes from different regimes in the USA, the organization has to adopt a flexible financial plan. The flexibility helps them to cater to the uncertainties that come with the changes in the tax rates because there are times where revenue will be high and sometimes low. Because of these uncertainties, they have to employ adaptive measures to help them in risky situations. The organization has installed a system of tax diversification to deal with such situations whereby high and low extreme situations occur to keep up with their financial needs and goals (Coskuner 2016).
Evaluation of the organization’s annual financial report
An annual financial report carries a lot of relevant information with it, which assists in determining whether the institution is viable or not. The viability is determined by comparing profits and revenue statements. While financial stability is determined by the use of its assets and liabilities. The evaluation process of the annual financial report is done through various procedures. The organization looks at its trends from previous fiscal years. The review of recent years provides it with a detailed knowledge of how the managements see the institution’s operations in the marketplace. The review will help identify how the institution predicts its operations in the economy, including the trend that affects the results of the institution.
IRS also determines the performance of its operations as a method of evaluating its annual financial reports. The yearly statements represent only the current performance against one or several past fiscal years. But the financial reports do not show the management predictions. So, to cater to all this, the organization uses current reports and past annual reports to enable them to compare their current performance with what the management was predicting in previous years. This comparison assists the evaluation of the reliability of management’s predictions and the quality of administration in the IRS.
The financial section of the annual reports also includes a balance sheet which the organization analyses to make informed decisions. The balance sheets of the organization depict what it owns and the outstanding loans. Its income statements show the revenue, expenses, and profit in the current year and the previous year. All this, when compared, assists in determining the financial status of the organization, which will enable its effective performance in its activities. At the end of the annual reports are the notes on the financial statements by the auditor. These notes have the comments the auditor feels are necessary to understand the organization’s situation. The notes involve the depreciation of assets, how the organization books its revenue, and how it calculates its profit.
The organization also evaluates its financial reports by determining its liquidity. To determine if it is financially strong, the organization calculates the total value of everything it uses to raise funds. This includes the cash in the bank, account receivables, and inventory on hand that it can sell. The total amount is divided by the organization’s liability to get the percentage of the value that would be left if the organization has to liquidate and pay all creditors (Lan & Zhong 2016).
Evaluation of the organization’s revenue sources
The organization acting as a government agency and a non-profit organization have an evidence-based strategy for revenue growth. The main sources of revenue for the organizations are taxes, as it is a government agency given the duty to collect taxes in America and state the tax codes. The first primary source of revenue is the individual income tax. This has been the largest source of revenue for the organization and the federal revenue as a whole. Income tax amounts to about 48% of the total amount of revenue and about 8.3% of the GDP in the year 2019. The income taxes had in history risen as high as 9.9% of GDP in 2000, and at some point, it dropped as low as 6.1% in 2010 (Holtzblatt & McGuire 2016). Another source of revenue for the organization is corporate income taxes. The taxes are imposed on the USA resident corporations at a rate of 21 percent, which was reduced from the initial 35 percent in 2017. These taxes constitute 9 percent of the institution’s revenues. This source has been trending downwards, falling from an average of 3.7 percent of GDP in the late 1960s to an average of 1.7 percent of GDP over the past five years. However, in the years 2014 and 2015, it went up by 1.9 percent.
They also attain their revenue from social insurance taxes. The payroll taxes on the wages and earnings that fund social securities and the hospital insurance section of Medicare form the largest share of social insurance receivables. The other sources of the payroll taxes are the taxes from the railroad retirement system and the unemployment insurance program and the federal workers; pension contributions. The formation of the Medicare program in 1965 and the periodic increase in social security payroll taxes made social insurance taxes to increase from 1.6 percent of GDP in 1950 to 6.2 percent in 2009. The federal excise taxes also constitute a part of the organization’s revenue (Carlson 2019).
Evaluation of the organization’s expenditure
The IRS evaluates its expenditure levels by performing a cost revenue analysis. This analysis assists it to improve its operations. For it to perform the cost revenue analysis, it considers the relationship between costs and revenues. Because the IRS does not typically generate its revenue, there is a need to conduct there is a need for it to perform several cost revenue analyses at different stages of their organization’s business cycle. For this organization, the tax revenues they collect are assumed to be their desired outcomes annually, and it is compared to the costs incurred during the collection process of the tax revenues.
The IRS expenditure is also evaluated based on the quantifying results. The services the IRS offer relating to the process of tax collections to their customers have a direct financial impact on their customers. For example, the organization will enhance its expenditure so that it can reach a more extensive base of the taxes they are going to collect. The taxes have a financial impact on people they are imposed on because the taxes are imposed on the incomes of individuals or corporations. By quantifying the effects of the results of the taxes on the customers, the organization can deduce that for every amount of expenditure they incur, they impact their customers in a specific manner.
The IRS always has difficulties in updating its infrastructure or increasing its administrative staff. Because of this, it opts to keep administrative costs low and end up evaluating their expenditure by looking at the services they provide. They perform a cost revenue analysis on the services they offer. For example, the organization spent 500,000 dollars in providing its services to 2000 taxpayers in a given month and spends about 200 dollars for every individual. The administration assumes 20000 dollars for scheduling software systems would enable the organization to serve 500 more taxpayers. Incorporating the 20,000 dollars on software enables the cost per individual to reduce to 100 dollars, helping the organization utilize efficiently the expenditure stipulated for its operations.
Assessment of the organization’s overall financial condition
The IRS overall financial condition depends on the amount of revenue they collect from the different taxes they charge. Almost half of its revenues come from taxes on personal income, and much of the rest was coming from corporate taxes and employment taxes. Congress highly regulates their expenditure conditions, and any extra expenditure has to be indicated in their financial budget to avoid using funds for the purposes they were not appropriated to perform. The organization mostly focuses on revenue reliability rather than on the ratio of earned to contributed revenue. The revenue reliability nature of the organization is brought about because the organization does not only get its revenue from one source with the same amount of amounts of money. The organization aims at getting funding from different sections with the highest level of certainty.
The IRS financial stability is determined by the use of its assets and liabilities. The organization has been improving its operations for them to attain high levels of revenue through their collection processes. Internal revenue management gives instructions for securing, verifying, and analyzing financial information.
References
Carlson, W. (2019). What are the sources of revenue for the IRS? Tax Policy Center. https://www.taxpolicycenter.org/briefing-book/what-are-sources-revenue-federal-government
Charles, P. R. (2016, September). Homepage – Taxlitigator. https://www.taxlitigator.com/wp-content/uploads/2016/02/At_a_Glance.pdf
Chopra, C. P. A., Ding, O., Doshi, S., Lad, C. P. A., & Sun, S. Y. (2018). Summaries for the 2017 IRS-SJSU Small Business Tax Institute. The Contemporary Tax Journal, 7(1), 8.
Coşkuner, S. (2016). Understanding factors affecting financial satisfaction: The influence of financial behavior, financial knowledge, and demographics. Imperial Journal of Interdisciplinary Research, 2(5), 377-385.
Duska, R. F., Duska, B. S., & Kury, K. W. (2018). Accounting ethics. John Wiley & Sons.
Gartenstein, D.(2015). Budgetingethics.SmallBusinessChron.com. https://smallbusiness.chron.com/budgeting-ethics-47002.html
Holtzblatt, J., & McGuire, J. (2016). Factors Affecting Revenue Estimates of Tax Compliance Proposals.
Lan, S., & Zhong, R. Y. (2016). An evaluation model for financial reporting supply chain using DEMATEL-ANP. Procedia Corp, 56, 516-519.