    [House Hearing, 113 Congress]
    [From the U.S. Government Publishing Office]

                    COLLECTED AND WASTED: THE IRS SPENDING
                         CULTURE AND CONFERENCE ABUSES

    =======================================================================

                                    HEARING

                                   before the

                             COMMITTEE ON OVERSIGHT

                             AND GOVERNMENT REFORM

                            HOUSE OF REPRESENTATIVES

                        ONE HUNDRED THIRTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                  JUNE 6, 2013

                                   __________

                               Serial No. 113-79

                                   __________

    Printed for the use of the Committee on Oversight and Government Reform

             Available via the World Wide Web: http://www.fdsys.gov
                          http://www.house.gov/reform

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                  COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                     DARRELL E. ISSA, California, Chairman
    JOHN L. MICA, Florida                ELIJAH E. CUMMINGS, Maryland,
    MICHAEL R. TURNER, Ohio                  Ranking Minority Member
    JOHN J. DUNCAN, JR., Tennessee       CAROLYN B. MALONEY, New York
    PATRICK T. McHENRY, North Carolina   ELEANOR HOLMES NORTON, District of
    JIM JORDAN, Ohio                         Columbia
    JASON CHAFFETZ, Utah                 JOHN F. TIERNEY, Massachusetts
    TIM WALBERG, Michigan                WM. LACY CLAY, Missouri
    JAMES LANKFORD, Oklahoma             STEPHEN F. LYNCH, Massachusetts
    JUSTIN AMASH, Michigan               JIM COOPER, Tennessee
    PAUL A. GOSAR, Arizona               GERALD E. CONNOLLY, Virginia
    PATRICK MEEHAN, Pennsylvania         JACKIE SPEIER, California
    SCOTT DesJARLAIS, Tennessee          MATTHEW A. CARTWRIGHT,
    TREY GOWDY, South Carolina               Pennsylvania
    BLAKE FARENTHOLD, Texas              TAMMY DUCKWORTH, Illinois
    DOC HASTINGS, Washington             ROBIN L. KELLY, Illinois
    CYNTHIA M. LUMMIS, Wyoming           DANNY K. DAVIS, Illinois
    ROB WOODALL, Georgia                 PETER WELCH, Vermont
    THOMAS MASSIE, Kentucky              TONY CARDENAS, California
    DOUG COLLINS, Georgia                STEVEN A. HORSFORD, Nevada
    MARK MEADOWS, North Carolina         MICHELLE LUJAN GRISHAM, New Mexico
    KERRY L. BENTIVOLIO, Michigan        Vacancy
    RON DeSANTIS, Florida

                       Lawrence J. Brady, Staff Director
                    John D. Cuaderes, Deputy Staff Director
                        Stephen Castor, General Counsel
                           Linda A. Good, Chief Clerk
                     David Rapallo, Minority Staff Director

                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on June 6, 2013.....................................     1

                                   WITNESSES

    The Hon. J. Russell George, Inspector General, Treasury Inspector
      General for Tax Administration
        Oral Statement...............................................     7
        Written Statement............................................     9
    Mr. Faris Fink, Commissioner, Small Business and Self-Employed
      Division, Internal Revenue Service
        Oral Statement...............................................    16
    Mr. Daniel Werfel, Acting Commissioner, Internal Revenue Service
        Oral Statement...............................................    54
        Written Statement............................................    56

                                    APPENDIX

    The Hon. Elijah E. Cummings, Opening Statement...................   102
    The Hon. Gerald E. Connolly, Opening Statement...................   104
    The Hon. Michelle Lujan Grisham, Opening Statement...............   106
    Questions for the Record to OGR Comm. through Chairman Issa and
      Rep. Lankford..................................................   108
    Questions for the Record from Wage & Investment from Rep. McHenry   110

      COLLECTED AND WASTED: THE IRS SPENDING CULTURE AND CONFERENCE ABUSES

                                  ----------

                             Thursday, June 6, 2013

                      House of Representatives,
          Committee on Oversight and Government Reform,
                                               Washington, D.C.
        The committee met, pursuant to call, at 9:31 a.m., in Room
    2154, Rayburn House Office Building, Hon. Darrell E. Issa
    [chairman of the committee] presiding.
        Present: Representatives Issa, Mica, Turner, Duncan,
    Jordan, Chaffetz, Walberg, Lankford, Gosar, DesJarlais, Gowdy,
    Farenthold, Lummis, Woodall, Massie, Meadows, Bentivolio,
    DeSantis, Cummings, Maloney, Norton, Tierney, Clay, Connolly,
    Speier, Pocan, Duckworth, Kelly, Cardenas, Horsford, and Lujan
    Grisham.
        Staff Present: Ali Ahmad, Communications Advisor; Richard
    A. Beutel, Senior Counsel; Molly Boyl, Parliamentarian;
    Lawrence J. Brady, Staff Director; Ashley H. Callen, Senior
    Counsel; Caitlin Carroll, Deputy Press Secretary; Sharon Casey,
    Senior Assistant Clerk; Steve Castor, General Counsel; John
    Cuaderes, Deputy Staff Director; Carlton Davis, Senior Counsel;
    Kate Dunbar, Professional Staff Member; Adam P. Fromm, Director
    of Member Services and Committee Operations; Linda Good, Chief
    Clerk; Tyler Grimm, Senior Professional Staff Member; Frederick
    Hill, Director of Communications and Senior Policy Advisor;
    Christopher Hixon, Deputy Chief Counsel, Oversight; Mark D.
    Marin, Director of Oversight; Ashkok Pinto, Chief Counsel,
    Investigations; Laura Rush, Deputy Chief Clerk; Scott Schmidt,
    Deputy Director of Digital Strategy; Rebecca Watkins, Deputy
    Director of Communications; Krista Boyd, Minority Deputy
    Director of Legislation/Counsel; Kevin Corbin, Minority
    Professional Staff Member; Jennifer Hoffman, Minority Press
    Secretary; Carla Hultberg, Minority Chief Clerk; Elisa LaNier,
    Minority Deputy Clerk; Lucinda Lessley, Minority Policy
    Director; Dave Rapallo, Minority Staff Director; and Rory
    Sheehan, Minority New Media Press Secretary.
        Chairman Issa. The committee will come to order.
        The Oversight Committee's mission statement most
    appropriately is that we exist to secure two fundamental
    principles. First, Americans have a right to know that the
    money Washington takes from them through the IRS is well spent.
    And second, Americans deserve an efficient, effective
    government that works for them.
        Our duty on the Oversight and Government Reform Committee
    is to protect these rights. Our solemn responsibility is to
    hold government accountable to taxpayers, because taxpayers
    have a right to know what they get from their government. It's
    our job to work tirelessly in partnership with citizen
    watchdogs, including our IGs, to deliver the facts to the
    American people and bring genuine reform to the Federal
    bureaucracy.
        Today, more than any other hearing, we revisit the kind of
    waste and the kind of failure to secure taxpayers' hard-earned
    money than I can remember in history. I was shocked when the
    GSA, the body that was supposed to be concerned about the
    entire Federal bureaucracy having reasonable per diems and
    spending within limits, doing things properly, determining what
    would be on a schedule and what it would cost, I was shocked
    when I found out that they threw themselves parties. But to
    find out that not only does the IRS take your money, not give
    you proper answers, and then when it comes to tens of millions
    of dollars use it in a way that is, at best, maliciously self-
    indulgent.
        To spend more than you would have spent by normal
    negotiations for rooms is unthinkable for any agency, but when
    it's the IRS and they give to their own employees benefits,
    such as local employees in Anaheim, and then fail to file W-2s
    for that income, the IRS effectively was guilty of tax evasion.
    And saying you don't know doesn't help you, doesn't give you an
    out as a taxpayer. It certainly shouldn't give the IRS an out
    when they're using taxpayer's money.
        Professional education is critical, and the IRS more than
    any other organization needs to be well trained, needs to
    understand not just the fundamental laws, but a long history of
    rulemaking and Federal cases that determine what you do or
    don't pay, what you're allowed to do or not allowed to do. And
    quite frankly, they need to be trained to treat the taxpayer as
    a customer and not a debtor.
        That and more justifies, when appropriate, travel, when
    appropriate, visits to the very companies and individuals from
    whom they receive the revenue that we in government spend. And
    I want to say here, and hopefully my ranking member will share
    this, we want the Federal workforce to feel that when they have
    justified travel, reasons to go and have meetings, reasons to
    use hotel rooms or conferences, that they do so. We don't want
    Washington think, or Cincinnati think to be no training, no
    travel, no interaction. Just the opposite. We want to get this
    right.
        Now, many will say $50 million over these many conferences
    is inherently wrong. I will say for the tens of thousands of
    workers who could have received great training, whose travel
    could have been meaningful but less expensive, that they were
    cheated out of additional education and meaningful training by
    this waste.
        I don't believe from the dais that any of us can determine
    whether $50 million, or $30 million, or $90 million was the
    right amount to spend, but with the help of the Inspector
    General we know that much of it was misspent. And that means
    the American people didn't get a well-trained Federal
    workforce. It means that many Federal workers who will look at
    this hearing, aghast, and say, I don't get those perks, as a
    matter of fact, I would get fired if I took one of those perks,
    that the Federal workers around the country should be appalled
    that there were two standards: one for some and one for the
    rest. And as taxpayers, we should be appalled that there were
    two standards: one for us and a different one for people that
    work for the IRS in some cases.
        I think it's important that we understand that the reason
    we are holding this hearing, and thanks to the Inspector
    General's office, we have the facts just now on a study we have
    had for a long time, but it concerns a period of 2010 to 2012.
    And so it's not a new occurrence, and many of these things may
    not be happening today. Certainly, both the administration and
    Congress have acted to reduce the budgets for some of this kind
    of effort. But I think that's the most important reason to have
    a hearing. We want the culture to be, spend it, and spend it
    wisely. We want the culture to be, how can we get better
    training and a better trained workforce. And in many cases the
    best way is, bid for the lowest price for what you need, don't
    kick back perks. Those are not what the rank and file wants.
    They want an opportunity to be well trained.
        I believe we are going to see a short video, or a couple of
    them today. These are, once again, for a reason. Training
    videos are important. Training material is important. And if
    you do training material, not only do you show it to your
    employees at conferences, but you put it on the Web. You make
    sure they know about it. You use it again and again. But if, in
    fact, what you have is entertainment, you know, if you will,
    training through art, it's not reusable. It doesn't have that
    staying power.
        I want to make sure that the lavish behavior that you are
    going to hear today doesn't happen again, and I think every
    Federal worker wants to know that there is a single standard.
    They live up to it and they expect those who they don't know
    about to live up to it.
        We often read that opening statement preamble about waste
    and about whistleblowers. I want to say today that one of the
    problems we have in government is there aren't enough
    whistleblowers. This hearing is about specifically spending at
    these conferences, and waste. But on everyone's mind is what
    the IRS did out of Cincinnati, and Washington, and Laguna, and
    Dallas offices to taxpayers and organizations that simply
    wanted to comply and made applications. Those people should
    have been better trained to be able to give answers quickly.
    There should have been the employees necessary for them not to
    wait 3 years.
        So I think when we look at over $3.2 million that was taken
    out of a fund to hire people, and instead was used for these
    lavish parties, it's pretty easy to see, don't talk about
    budget tightness until you tighten the budget where you can.
        I think that there's no question you are going to see
    outrage on both sides of the aisle here today. This is outrage
    that needs to be tempered with the fact that on the second
    panel we'll have a new Acting Commissioner. This committee and
    other committees of Congress need to work with the new
    Commissioner so that he has the opportunity to straighten this
    organization out. Yesterday Mr. Werfel called me and we had a
    conversation, and I say, I don't normally share conversations,
    but the conversation was important because it was the kind of a
    first step that I think is about the transparency of, you tell
    us what you're doing, most of it will never be spoken, it
    doesn't need to be spoken public. Mr. Cummings, and myself, Mr.
    Camp, Mr. Levin need to know, and the various committees in the
    Senate also, that the work is going the right way; that a
    culture that had gone wrong has been changed. And a culture
    that would see organizations abused for years without a
    whistleblower coming forward, or that would see some of these
    conferences and not be as outraged as we were is a culture that
    needs to change.
        And for those who were outraged, and those who are outraged
    today, I want everyone to understand, for the vast majority of
    Federal workers this is not the norm. And for the rest of the
    Federal workforce, if it's the norm, it's time to blow the
    whistle and get it changed. The American people deserve value
    for their hard-earned money.
        I recognize the ranking member for his opening statement.
        Mr. Cummings. Thank you very much, Mr. Chairman. I am glad
    that we are holding this hearing this morning. It is a very
    important hearing. I think that we must pause for one moment
    and give credit where credit is due, to you Mr. Chairman and to
    this entire committee. To Mr. Mica. You know, I also serve on
    the Transportation Committee, and Mr. Mica was the chairman of
    that committee. He called hearings and you called hearings, and
    we all worked together because back when the GSA scandal came
    up we worked in a bipartisan manner. And along with our
    actions, along with those of the President, we have been able
    to, I think, straighten out GSA.
        But we did more than that. I think we sent a powerful
    message throughout the Federal Government that you cannot take
    the money of American workers and waste it. And so I pause this
    morning to applaud what we have already done. But as I always
    say, we can do better. And we will.
        Today we are going to hold this hearing to examine
    excessive spending by the IRS at a conference out in Anaheim,
    California, in 2010. I understand this conference occurred 3
    years ago. I'm aware that many reforms were put in place, so
    something like this will not happen again. And I know many
    examples we will discuss today, like the ridiculous ``Star
    Trek'' video. And I swear to God, I have looked at that video
    over and over again, and I swear, I do not see the redeeming
    value. And I was up at 3 o'clock this morning watching it,
    because I was trying to get to the redeeming value. Couldn't
    get there. I worked hard at it now.
        However, these facts do not lessen my frustration and anger
    at this utterly wasteful spending. Take the ``Star Trek''
    video, for example. Again, there's no--absolutely no redeeming
    value that I can identify in the video, and perhaps you, Mr.
    Fink, can help us understand what it was. It is not only a
    parody of a television show, but a parody of what many people
    unfairly think about Federal workers.
        And let me pause here and thank the chairman for what you
    said about our Federal workers. You know, I'm a big defender of
    Federal workers, because I think a lot of times they are
    criticized when they should not be, and they get a raw deal.
    Their wages get frozen, but yet and still the babysitter still
    costs $1,200 a month. And so I want to make sure that they
    understand that we understand that this is not--and I was glad
    you said it, Mr. Chairman--that this is not what we think of
    Federal workers, what's happened here.
        And, you know, I go back, and I could not--every time I
    would watch these videos at 3:00 o'clock this morning, you
    know, I said to myself, you know, this is appalling. But you
    know what really got me? When I walked out the door to come to
    Washington, and to see my constituents who get the early bus,
    the ones that go down to the Sheraton Hotel in downtown
    Baltimore and clean the floors, them. And I thought about the
    man who came to me the other day because he had just gotten a
    letter from the IRS about an audit. And I believe deep in my
    heart, he didn't mind being audited, he was scared as all get
    out, but he wants to know that he has been treated fairly. And
    he wants to know--and these are the words that I'm going to
    concentrate on today. The other day I concentrated on truth and
    trust. Today, I'm going to add on to that, take and waste. Take
    and waste.
        What happens here is that when we have episodes like this,
    it has an impact on the average person. I live in a block where
    most people don't even make $50,000 a year. But yet, still we
    can produce a video that has no redeeming value, none, and
    spend taxpayers' hard-earned dollars for that. And then there
    was that line dance. Couldn't see any there either. And so I
    say we can do better.
        But guess what? Mr. Fink, the money that was spent on that,
    that's my money. That's the lady who got the early bus this
    morning. That's her money, the one who makes $35,000, her. The
    gentleman up the street from me that makes $45,000 hauling
    trash. That's their money. And so it was wasted.
        In my district I can tell you that $50,000 is a huge amount
    for families who are struggling to get by. That's more than
    many households make in this country.
        Unfortunately, this was only part of a broader problem,
    which was the growth of IRS conference spending over the last
    decade. The Inspector General's report finds that the IRS spent
    approximately $48.6 million on conferences over the past 3
    fiscal years, from 2010 to 2012. But the IRS spent far more
    than that in the 3 prior fiscal years, from 2007 to 2009, when
    the IRS spent an astonishing $72 million on conferences. And I
    know, Mr. George, that the scope of your inquiry was limited.
        But let me say this, Mr. Chairman. It would be--it would be
    legislative malpractice, legislative malpractice if we did not
    bring Mr. Shulman in here to ask him to explain to us why from
    2007 to 2008, in 2007, the conference budget was $13.395
    million, and then it more than doubled when we are going into a
    recession, when President Bush is coming to us telling us that
    the sky is about the fall, that our economic situation is about
    to go over a cliff. We then double it. It would be legislative
    malpractice if we don't figure out what happened there, because
    if we are truly going to get to the cause of this, we have to
    understand what happened to cause something to double.
        I'm almost finished.
        Chairman Issa. No problem.
        Mr. Cummings. According to the IRS spending data, the
    single largest increase in conference spending occurred between
    2007 and 2008 when spending jumped by more than $15 million in
    a single year. This is simply unacceptable and absolutely
    unnecessary. It may be difficult to find any good news today,
    but at least there are some indications that things are
    beginning to change. In 2011, after news broke about another
    wasteful conference held by the General Services Administration
    in Las Vegas, the President issued an executive order that
    significantly reduced travel and other expenditures across all
    Federal agencies. And I go back, and I give you credit, Mr.
    Chairman. I give Mr. Mica credit. A lot of these things had to
    do with what we did in this committee.
        In 2012, the Office of Management & Budget directed all
    agencies to reduce their travel expenditures by 30 percent
    below the 2010 levels. OMB also required conferences costing
    more than $100,000 to be approved at the Deputy Secretary
    level, and it prohibited conferences over $500,000 without a
    waiver personally signed by the agency head.
        As a result, the Inspector General's report explains that
    the IRS has now cut spending on conferences by 87 percent since
    2010. We did that. We did that. And we ought to take credit for
    it, Mr. Chairman. Conference spending dropped to $6.2 million
    in 2011 and to less than $5 million in 2012.
        I'm also very encouraged by the actions of the new head of
    IRS, Mr. Werfel, who is here with us today. And, Mr. Chairman,
    I agree with you, he is a breath of fresh air. He, I know he
    called you right after he got appointed and called me literally
    within hours of after getting appointed. And he said one thing
    that I shall never forget. He said, I will, number one, figure
    out what is going on and meet with you, Mr. George. He said
    number two, I will hold those responsible, who are bad actors
    in the agency. And number three, which means something to that
    lady that I talked about in my block that got on the bus at 6
    o'clock this morning, he said, I will restore trust in the IRS.
        And so he has been in his position for only 2 weeks and he
    has already taken significant action to begin restoring the
    integrity of the IRS and holding people accountable. In fact,
    as news reports today highlight, he removed two IRS employees
    from their positions and placed them on administrative leave
    for their alleged actions at this 2010 conference.
        Mr. Werfel has a critical job ahead of him. One of the most
    damaging aspects of incidents like the IRS conference in
    Anaheim, or the GSA conference in Las Vegas, is that they hurt
    the reputation of all government workers who commit their lives
    to public service.
        And as I close, Mr. Chairman, I hope you will join me in
    offering our committee's support as he works in the weeks and
    months ahead--and I know you will, because you just said you
    would. And as I said at our last meeting with IRS, we must
    dedicate ourselves to two major goals, two goals: truth and
    trust. Both goals are key, and based on his actions today, Mr.
    Werfel is working to achieve them.
        And with that, Mr. Chairman, I thank you for your
    indulgence, and I yield back.
        Chairman Issa. I thank you, Mr. Cummings.
        Members will have 7 days to submit opening statements for
    the record.
        We now welcome our first panel of witnesses. Returning,
    actually, two out of three returning guests, The Honorable J.
    Russell George, he is the Inspector General for Tax
    Administration; Mr. Gregory Kutz, who is Assistant Inspector
    General for Management Services and Exempt Organizations.
        And welcome back. We know that you had a big part in this
    investigation.
        We also welcome Mr. Faris Fink. He is Commissioner of the
    Small Business and Self-Employed Division at the Internal
    Revenue Service.
        And pursuant to the rules of the committee, would all three
    witnesses please rise, raise your right hand to take the oath?
        Do you solemnly swear or affirm that the testimony you are
    about to give will be the truth, the whole truth, and nothing
    but the truth?
        Let the record--please be seated--let the record reflect
    that all witnesses answered in the affirmative.
        Now, I understand, Mr. George, is there one opening
    statement between the two of you?
        Mr. George. That is correct, Mr. Chairman.
        Chairman Issa. And thank you again, Mr. George, for being
    here. I know we are going to rely on you for a number of
    questions, but I believe Mr. Kutz is going to take the lead,
    and we appreciate that. I also appreciate the fact that you
    created a relationship with the Acting Commissioner that I
    believe is going to provide a great deal to the transparency,
    without redundancy by committees, and I think that's important,
    too. So what I'd like to do is, I guess, recognize--Mr. George,
    do you want to make any comment before we go to Mr. Kutz?
        Mr. George. Yes.
        Chairman Issa. Please. The gentleman is recognized.

                     STATEMENT OF J. RUSSELL GEORGE

        Mr. George. Chairman Issa, Ranking Member Cummings, and
    members of the committee, thank you for the opportunity to
    discuss IRS conference spending. Today's testimony highlights
    the results of our audit of IRS conference spending for fiscal
    years 2010 through 2012. My own testimony will focus primarily
    on a conference held in Anaheim, California, in 2010. This
    conference was selected for review because we have received a
    specific allegation of excessive spending.
        Overall, we found that the IRS spent, as was pointed out,
    an estimated $49 million for 225 conferences during the 3-year
    period of our review. The conference in California was held at
    the Marriott, Hilton, and Sheraton Hotels in Anaheim in August
    of 2010 at a reported cost of $4.1 million. The Small Business/
    Self-Employed Division of the IRS conducted this conference for
    an estimated 2,600 executives and managers. As required at the
    time, the conference was approved by the two Deputy
    Commissioners of the IRS. We could not validate the accuracy of
    the $4.1 million conference cost because the IRS did not have
    effective controls to track and report those costs; $3.2
    million dollars of the conference costs were paid from unused
    funding originally intended for hiring enforcement employees.
        Instead of using the required IRS personnel whose job it is
    to search for the most cost-effective location for the
    conference, the IRS used two commercial planners to identify a
    site for the conference. These two planners were not under
    contract with the IRS, and thus had no incentive to negotiate a
    favorable room rate. They were paid an estimated total of
    $133,000 in commissions based on the costs of the rooms paid by
    the IRS.
        Rather than negotiate a lower room rate, the planners
    specifically requested 25 or more VIP suite upgrades with
    amenities from the hotel, along with a reception with
    complimentary drinks and deli breakfasts and other
    refreshments. The agreement with the hotels indicated that a
    total of 132 suite upgrades were provided each night by the
    three hotels. For example, the Commissioner and Deputy
    Commissioner for the Small Business Division stayed multiple
    nights in presidential suites at the hotels.
        Other examples of questionable spending for the conference
    include planning trips costing $35,000, two video productions
    which were shown at the conference. Local employees were
    authorized to stay at the hotel at an expense of $30,000;
    $44,000 in travel costs were incurred for employees to staff
    booths in an exhibition hall; gifts and trinkets were given to
    IRS employees costing $64,000; and $135,000 were expended for
    outside speakers, one of whom was paid $17,000. This speaker
    created six paintings at two sessions. Two of the paintings
    were given away at the conference, three were auctioned off for
    charity, and one was reported by the IRS as lost.
        In addition to this audit, TIGTA conducted other reviews of
    individuals related to the conference which focused on
    potential misconduct. Although the details of our actions are
    confidential pursuant to Title 26, Section 6103, Subsection
    (b)(2)(A) and (f) of the Internal Revenue Code, we did refer an
    issue to the Internal Revenue Service for consideration of
    administrative action. Overall, our review of this conference
    did not uncover any criminal violations.
        In conclusion, it is worth noting that the IRS conference
    spending, as was pointed out, dropped over the 3-year period
    from a total of $38 million in 2010 to $5 million in 2012. This
    was due in large part to increased oversight and controls
    instituted at the IRS. We did make further recommendations to
    tighten controls and the IRS has agreed to all of our
    recommendations.
        Chairman Issa, Ranking Member Cummings, members of the
    committee, thank you for the invitation to appear.
        Chairman Issa. Thank you.
        [Prepared statement of Mr. George follows:]

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        Chairman Issa. Mr. Kutz.
        Mr. Kutz. I have nothing. I look forward to your questions,
    Mr. Chairman.
        Chairman Issa. Thank you.
        Mr. Fink.

                        STATEMENT OF FARIS FINK

        Mr. Fink. Chairman Issa, Ranking Member Cummings, members
    of the committee, my name is Faris Fink. I am the Commissioner
    with the Small Business/Self-Employed Division of the Internal
    Revenue Service. I appreciate the opportunity to appear here
    today.
        I have worked for the Internal Revenue Service for 32
    years, starting as a grade 7 revenue officer in Ohio. I became
    the Commissioner of the Small Business/Self-Employed Operating
    Division in May of 2011. I am proud to be an IRS employee and
    serve alongside thousands of dedicated public servants who
    administer our tax laws. My division has 24,000 employees, and
    it accounts for the majority of the $50 billion that the IRS
    collects in enforcement revenue each year.
        The meeting we held in 2010 was to train 2,600 managers
    from 350 offices across the country. We needed to ensure that
    they had the tools to lead their employees and adapt to major
    changes that were occurring. At the time of this meeting,
    almost 30 percent of our managers were new or had only been
    managers within a 2-year period. Another focus of the meeting
    was employee safety. There had been a substantial increase in
    the number of security threats against employees of the
    Internal Revenue Service.
        I think it is important to point out that in carrying out
    this 2010 meeting we followed IRS and government procedures
    that were in place at the time. The Treasury Inspector
    General's office review found no instances of fraud. But we are
    now in a very different environment, and there are many new
    procedures in place at the IRS governing training and travel.
    In hindsight, many of the expenses that were incurred in this
    2010 conference should have been more closely scrutinized or
    not incurred at all, and were not the best use of taxpayer
    dollars. Given the new procedures and restrictions in
    spending--on spending--we would not hold this same type of
    meeting today.
        Mr. Chairman, that ends my statement, and I would be happy
    to answer any questions.
        Chairman Issa. Thank you, Mr. Fink.
        I need to announce for both the witnesses and the folks on
    the dais that we expect votes momentarily. It will be a long
    series of votes. We could be gone for up to an hour. So I would
    ask the witnesses, we will make room available back there for
    you. We will come back immediately, and I mean fast as a bunny,
    after the last vote. So as soon as myself, or actually anyone
    gets to the chair, we will recommence so that we can get the
    day underway. I have been advised these may be the only votes
    of the day. I would also advise that you please return if at
    all possible if you don't have travel plans.
        With that, I will recognize myself for a first round. Could
    we have the--those will be last votes of the day, yes. Could we
    have the suites, please?
        Now, as I show those, I want everyone to understand that
    these are suites that were upgrades. I think even Mr. Fink may
    have enjoyed one similar to this. There's--these are not
    uncommon for large conventions. What we want to make clear is
    the allocation and how we paid for them is, I think, a big part
    of what the IG is aware of. Is there another picture or is that
    the only one?
        Okay, well, let's just say that I have been honored when I
    was chairman of an association to stay in one of those. It was
    comped by the hotel after a large bidding on taking virtually
    every room in the hotel. And I assure you, the room rates for
    our guests were below what the IRS paid in that hotel.
        Having said that, could we go to the video? And then we
    will begin with the questioning. I think Mr. Cummings and I
    both have seen it enough, but for some who have not seen it, I
    want to get it into the record. And this is a short clip. It
    won't be the whole thing. But it sets a tone.
        Lacy, I know you haven't seen this.
        [video shown.]
        Chairman Issa. I'm sure many more will watch that and some
    will laugh. My questions are, you know, what a surprise, and I
    will start with Mr. Fink. What were you thinking? Were you
    thinking this will never be seen, or were you thinking, how
    will this look when it is seen?
        Mr. Fink. Mr. Chairman----
        Chairman Issa. Please speak close to the mic. We couldn't
    hear. You are not on.
        Mr. Fink. Mr. Chairman, those videos were, at the time they
    were made, were an attempt to, in a well-intentioned way, use
    humor, the ``Star Trek'' video to open the conference. The
    dance video was used to close the conference. They would not
    occur today based upon all of the guidelines that exist, and
    frankly, they were not appropriate at that time either, Mr.
    Chairman. And the fact of the matter is, is it's embarrassing,
    and I apologize. Those videos, I notice in the Inspector
    General's report there is not a clear delineation of the cost
    of both the videos, but they are embarrassing, and I regret the
    fact that they were made.
        Chairman Issa. Let me do a follow-up question, because one
    of the most concerning part of the IG's report is it appears as
    though at the IRS, both in this and other cases, we can't count
    on proper accounting of what money is spent on what. There were
    at least many cases in which people traveled for conferences
    during this entire period, and as far as I know, today, in
    which if they simply bill it as travel and not as conference
    travel, then it won't be seen as conference travel.
        How are we to know--and, obviously, without receipts and
    even a missing painting--how are we to know that these kinds of
    changes have occurred to where there is an auditable train of
    where money was spent?
        Mr. Fink. Mr. Chairman, to respond to that question, of
    course, it has already been spoken that there has been many
    changes at the IRS. One of the changes at the Internal Revenue
    Service is around the tracking of expenses around conferences,
    meetings, and training. For the particular conference in
    Anaheim, we were only able to track 90 percent of the cost.
    There's a variety of reasons that the other 10 percent were not
    accurately tracked. It's because people did not use the
    tracking code that was in place. It's also that folks were on
    other travel, visiting offices, doing things of that nature,
    did not use the conference tracking code, and may have charged
    their expenses to another code for another business purpose.
        Chairman Issa. Well, you know, the reason I ask that is
    twofold. First of all, if I did it as a business, and thus
    couldn't account for receipts, wouldn't your inspectors say
    disallowed?
        Mr. Fink. Mr. Chairman, yes. Our auditors would look at
    records. They do have some discretion, as far as the
    reasonableness of the records that are submitted. But we take
    very seriously the role that we occupy in ensuring that people
    have the appropriate business records. This year, an example
    that you have provided, we only did have 90 percent of the
    information as far as the expenditures.
        Chairman Issa. Now, if I were to have local folks get hotel
    rooms and meals and so on and not issue a W-2, I made a fairly
    serious allegation as a layman, I'm not saying that it's the
    law, exactly, but I could characterize it as tax evasion. If a
    company didn't do it and the employees, particularly let's just
    say that they are accountants and very knowledgeable of the
    law, didn't do it, there were no W-2s, no 1099s, essentially no
    accountability for this revenue that is supposed to be taxed,
    what would you do in that case?
        Mr. Fink. In that case, Mr. Chairman, as pointed out in the
    Inspector General's report, you have to look at each situation
    case-by-case. And in that particular situation, you would look
    at the individual facts that existed in that situation. In the
    matter that you are referring to here is we now have issued W-
    2s to all of what we characterize as being local travellers
    after it was brought to our attention by the Inspector General
    and in their report that we had not appropriately accounted for
    all of the local travellers, sir.
        Chairman Issa. I appreciate that.
        Mr. Kutz, I guess I'll characterize it to you. It was not
    in the tax year in which it was earned, so the employees did
    not voluntarily file, as far as we know. I know that's not
    available to the public, but the employees didn't take it on
    themselves, knowledgeable people about taxes, to say, oh, I've
    got to pay taxes on this. The employer did not issue the
    required tax statement to itself, if you will. I characterized
    it as tax evasion because it can't just be swept under the rug.
    These were knowledgeable parties on both sides, weren't they?
        Mr. Kutz. Yes, the IRS did not issue W-2s. And in fact, we
    found seven people that they didn't identify that were local
    that actually traveled. So those would have been some of the
    ones that didn't get W-2s.
        Chairman Issa. Now, I'm going to just close with one quick
    question, because not only do we have votes, but I want to be
    sensitive to time. I've worked event planners, and whether it
    was an event planner inside the IRS, which it should have been,
    or the ones that were hired, there does seem to be a little
    sleight of hand. They received a commission based on the more
    that was spent, the more they received. And apparently, they,
    as I understand from your report, they got free rooms for FAM
    trips, for familiarization trips, while IRS employees paid for
    the rooms. Again, as far as I can tell, that increased their
    commissions while lowering their unreimbursable cost. Is that
    roughly right?
        Mr. Kutz. That would be right. The IRS also received, I
    think, 10 comp rooms per night, but most of the upgrade rooms
    IRS had they paid the $135 per diem rate for.
        Chairman Issa. And have you done any work to look at
    comparables from other associations? I headed the Consumer
    Electronics Association, puts on the CES, but I also was on
    smaller associations. Have you done any work to figure out what
    the comp would be? I couldn't find that there. And I want to
    not cast any blame on the various hotels, because if somebody
    comes and says, this is what I want, it's not your job to make
    the dumb smart if you're on the selling side.
        Mr. Kutz. No, what we looked at is that they could have
    actually potentially negotiated the room rate down from $135,
    as you mentioned, rather than solicit the 25-plus VIP suite
    upgrades per hotel. So they actually went out and said, we'll
    pay you full per diem, which is the most they could pay, and
    then they said we wanted to have various amenities, including
    the suite upgrades.
        Chairman Issa. And with the ranking member's indulgence,
    there was a mention of rooms, various rooms that--various food
    that was provided. IRS employees received full per diem, of
    course. Did you have a substantial amount of per diem returned
    as a result of their getting meals, which would be the law? In
    other words, you're not entitled to keep the per diem if you
    didn't have to use it because others provided you meals.
        Mr. Kutz. Actually, Federal Travel Regulations do not
    require employees to deduct that from their per diem, but we
    did do a statistical sample, and all the employees in our
    sample got full per diem of $71 per day, even though they
    received a continental breakfast. But there was nothing wrong
    with that according to Federal Travel Regulations.
        Chairman Issa. It just smells real bad.
        Mr. Kutz. Well, we essentially paid for breakfast twice
    probably, Mr. Chairman.
        Chairman Issa. But negotiating paying for breakfast and
    then paying full per diem created a situation in which they got
    overpaid, basically.
        Mr. Kutz. Not technically, according to Federal Travel
    Regulations. But again, from a taxpayer perspective, they got
    breakfast and the government paid them for breakfast at the
    same time.
        Chairman Issa. Thank you.
        Mr. Cummings.
        Mr. Cummings. Thank you very much, Mr. Chairman.
        Mr. George, according to your report, the IRS conference in
    Anaheim in 2010 cost more than $4 million. Is that correct?
        Mr. George. Yes, it is sir.
        Mr. Cummings. Although your report does not identify any
    legal violations, it raises concerns with the way taxpayer
    money was spent. For example, your report raises concerns with
    how the IRS chose Anaheim as the location for this conference.
    And it questions the use of nongovernment event planners to
    identify this location.
        Picking up where the chairman left off, specifically your
    report states, ``The use of the planners in this process
    increased the possibility that the site selection did not
    result in the lowest cost to the government.'' Is that right?
        Mr. George. That is correct, sir.
        Mr. Cummings. Now, let me go to you, Mr. Fink. I am--I must
    tell you that I'm pleased that you apologized. That's a major
    step, because I think it's important that the American people
    know that, that somebody feels bad about this, and remorseful.
    But Mr. Fink, let me turn to this. The committee obtained
    documents from the hotels that hosted the conference in
    Anaheim, and in one of those documents is an email between two
    Marriott hotel employees. I want to read it to you and get your
    response. Now, I want you to listen to this.
        It says, ``Orlando and Las Vegas are out!'' Exclamation
    marks. ``This is fantastic news as Orlando was $1 million
    less--less in travel spend. The funding is there, and they have
    been instructed to move forward.''
        Mr. Fink, this email sounds like the hotel employees were
    mocking you and maybe even making--taking advantage of the IRS.
    It says you could have saved a million dollars by holding this
    conference in Orlando.
        I have no idea if these hotel employees knew what they were
    talking about or just theorizing. So let me ask you, since you
    were the man in charge. How did you choose Anaheim for this
    conference? Did you look at other locations, like Orlando? And
    were any of those other locations less expensive?
        Mr. Fink. Representative Cummings, first off, I'm not
    familiar with the email, but I will tell you what I have been
    told was done at that time, was that we used a travel
    estimator. There is a travel estimator that is used by the
    Internal Revenue Service when planning training meetings. That
    travel estimator we looked at over 20 different locations. And
    in using the travel estimator, we came up with three locations
    that could handle this size of conference, that would be able
    to be logistically not incurring additional costs as far as
    traveling people long distances when they arrived.
        So we looked at those types of things that were--in
    addition to using the travel estimator to look at, I believe it
    was over 20 different locations. So that we had to incur--we
    had to look at and make sure that we were not going to incur
    additional local expenses, but along with that, it was just a
    matter of logistics when which came up with the final three
    cities, sir.
        Mr. Cummings. And so you've said several times during this
    hearing that if this were to take place today, it would be
    different. How would it be different?
        Mr. Fink. It would be different today because,
    Representative Cummings, the conference would not occur. Under
    the guidelines and the restrictions that exist today, a
    conference of this nature would not occur.
        Mr. Cummings. I note that back in 2010 there were 152
    conferences, and then in 2012, I think there was like 24, and
    an 87 percent decrease, and thanks to this committee, and
    Transportation of course, and President Obama. Do you think
    that was a good thing?
        Mr. Fink. Absolutely.
        Mr. Cummings. And why do you say that?
        Mr. Fink. The reason that I feel it was a good thing to see
    the decrease, it showed that we had increased our scrutiny,
    that we were paying more attention to how we are using the
    taxpayers' money, and that we were taking a harder look as to
    what was the necessary training that individuals were
    receiving.
        Mr. Cummings. Now, let me ask you this: Did the event
    planner give you a cost-benefit comparison of the various
    locations before the IRS chose which to use?
        Mr. Fink. Representative Cummings, I had no interaction
    with the event planners. I do not know if they gave us a cost
    estimate. I know that we chose the cities as far as looking at
    which cities would be appropriate, and we also made the final
    decision around where to hold the conference.
        Mr. Cummings. Mr. George, I'd like to ask you about the
    room upgrades. As I understand your report, 132 hotel rooms
    were upgraded to suites, but the government still paid its
    normal per diem rate of $135 for these rooms. That's right? I
    think you testified to that earlier. So your report is not
    saying that the IRS paid $1,500 a night for these rooms, which
    I guess they might normally go for, Mr. Kutz?
        Mr. Kutz. That's right.
        Mr. Cummings. Your report is saying, if I understand it
    correctly, that instead of accepting these room upgrades, the
    IRS should have negotiated lower prices for all the rooms or
    for the whole conference, is that right?
        Mr. George. That is correct, sir.
        Mr. Cummings. And, Mr. Fink, my final question, why didn't
    you do that?
        Mr. Fink. First off, I was not aware that we had the
    ability to do that. And as of today, I'm not sure that we could
    have done that, Representative Cummings. I do believe, though,
    that we did pay the $135 per diem rate, and in paying that $135
    per diem rate there were additional items that were included by
    the hotels to use during the conference.
        Mr. Cummings. Thank you, Mr. Chairman.
        Mr. Mica. [Presiding.] Thank the gentleman. And I'll yield
    to myself for questions. And we do have the vote going on,
    folks, so we probably have about 4 or 5 minutes left here, less
    than that.
        But let me start out with Mr. George. Your report indicated
    $135,000 was spent just on speakers for this event. Is there
    any similar experience in spending that amount of money for a
    conference that you're aware of?
        Mr. George. In the course of conducting this audit we did
    not compare previous conferences to this one in terms of that
    expense.
        Mr. Mica. Well, Mr. Cummings talked a little bit about our
    efforts to rein in GSA, and we conducted some reviews of GSA's
    operations and found out that they spent--it wasn't even a
    million dollars on a conference, but outrageous spending was
    determined. We couldn't get much attention on that.
        Mr. Fink, are you familiar with this guy? This is the GSA
    official in the hot tub. Have you ever seen that picture?
        Mr. Fink. I have seen that picture, yes, sir.
        Mr. Mica. Well, I just wondered if that was any motivation
    for the dramatic change in your spending. Spent $37 million in
    that year, and then Congress held these hearings, which we
    participated in, and the famous guy in the hot tub probably did
    more to bring egregious spending under control. Did this affect
    you at all?
        Mr. Fink. The new guidelines were put into place,
    Congressman, the new restrictions on travel and on spending
    funds for training and things of that nature. That was handled
    primarily by the--what would be the operations support side.
        Mr. Mica. Well, did you approve expenditures for the--or
    involved in the planning of the $4 million conference in
    Anaheim?
        Mr. Fink. No, sir, I did not.
        Mr. Mica. You attended?
        Mr. Fink. Yes, sir.
        Mr. Mica. And you did participate in the conference?
        Mr. Fink. Yes, sir.
        Mr. Mica. And then afterwards, I understand you were
    promoted. Is that correct?
        Mr. Fink. I became the Commissioner after the conference,
    yes, sir.
        Mr. Mica. I understand the planners and some of the others
    got bonuses. Is that correct?
        Mr. Fink. There were six bonuses that were paid, yes, sir,
    to individuals who----
        Mr. Mica. Did you get a bonus that year, 2010, 2011?
        Mr. Fink. For performance, yes, sir.
        Mr. Mica. Did you--are you aware of the money that they
    spent, of course on this particular enterprise, that paid
    $17,000, where this individual, who is I guess some sort of art
    expert, and produced six drawings, paintings?
        Mr. Fink. Yes, sir, I saw that in the Inspector General's
    report, and also I attended that session.
        Mr. Mica. You did. You did. And do you think that that was
    a proper expenditure of taxpayer dollars?
        Mr. Fink. For what we were trying to convey at that time,
    and based upon his expertise, the way he communicates and the
    message that he delivers through his presentation----
        Mr. Mica. I was surprised to hear you said that one of the
    paintings is--a couple were auctioned, I guess, and they got
    less than $500 for charity, but one is missing. Maybe we should
    offer a reward for the missing. You don't know where the
    missing painting is, do you, Mr. Fink?
        Mr. Fink. Absolutely not, sir.
        Mr. Mica. Okay. And then I understand, you know, we had
    these--these are the famous--these turned over to me by some
    whistleblowers--these are the famous $20,000 drumsticks that
    were used in the Las Vegas GSA conference. And I thought that
    wasteful spending had been taken to a new level.
        Now I see, Mr. George, in your report, you have squirting
    fish as part of $64,000. Has anyone--did you see--anyone seen a
    squirting fish? Did you see one at the conference?
        Mr. Fink. No, sir, I did not.
        Mr. Mica. Maybe I could offer a reward. I'd love to see one
    of the squirting fish. I'm sure that some of the taxpayers, the
    people that went to work on that early bus this morning out of
    Baltimore, or my district in central Florida, love to know that
    the Federal Government spent $64,000 on squirting fish for
    Federal employees at a conference. Is that an appropriate
    expenditure of funds, Mr. Fink?
        Mr. Fink. And I would answer, Congressman, that there were
    expenses that were incurred at that conference, for that
    conference, that were absolutely inappropriate. And that would
    be one of those expenditures.
        Mr. Mica. Well, I would say that IRS has taken government
    arrogance and wasteful spending to an absolutely incredible
    level. And it has to be dismaying to people who are sending
    their hard-earned dollars to IRS every week in their paycheck,
    every month, quarterly, or April 15th, to find out their money
    has been spent--some of these expenditures were no bid, too,
    sole source. I think all of the $135,000 on the conference
    speakers.
        Is that correct, Mr. George?
        Mr. George. That is my understanding sir, yes.
        Mr. Mica. Well, we're going to hear from Mr. Werfel in a
    short while. Our goal is to, one, hold people accountable, and
    I understand some people have been suspended. We understand
    some people have gotten bonuses like yourself, Mr. Fink, who
    were involved or there. And we understand that, again, that the
    system has been corrected to a degree, partly because of
    Congress bringing these items to the attention of the Congress
    and the American people.
        With that, we will have to recess, and we will return
    within 10 minutes of the last vote, so stay posted. The
    committee is in recess. Thank you.
        [Recess.]
        Mr. Chaffetz. [Presiding.] Committee will come to order. We
    will now recognize the gentleman from Ohio, Mr. Turner, for 5
    minutes.
        Mr. Turner. Mr. George, I've thanked you before for your
    tenacity in making certain that we have the information to be
    able to do the oversight. One thing that struck me in looking
    at this review of this conference is what I call a budgetary
    slush fund trick.
        When I served as mayor for the city of Dayton, I inherited
    a city that had not balanced its budget in 5 years and we had
    to immediately balance it. And one way that we did so was by
    finding those slush fund budgeting tricks. And this trick was
    actually something that we saw in the city. And that is that
    people were taking vacant positions and they were cannibalizing
    the money, and using it for items that did not have the same
    level of scrutiny. The money would not be--if they came forward
    sort of with a budget proposal that had what they were actually
    going to spend the money on, it would never pass the test of
    scrutiny but by keeping vacant positions open, they could
    cannibalize the money and use it for purposes that had a lower
    level of scrutiny and accomplish things like this outrageous
    conference.
        Could you speak to that for a moment? Because in the city,
    we prohibited this practice. What we did is we said if you have
    an open position that fund, those funds could only be used for
    personnel, and if they're not used for personnel, that they are
    recaptured and have to go back into essentially for us the
    Treasury on the Federal side. I'm concerned in seeing this that
    this must happen across the board in the Federal level, and
    there's probably hundreds of millions of dollars that could be
    recaptured if we recaptured vacant position funding.
        Can you speak to that, Mr. Gorge?
        Mr. George. Yes, Mr. Turner. And then I may defer to my
    colleague, Mr. Kutz, to elaborate.
        We did look at this issue. The money that was expended by
    the IRS in terms of the unused money that was otherwise
    provided for hiring of enforcement officials, it was going to
    lapse. If the IRS had not completed the hiring process by the
    end of the fiscal year, that money would have been returned to
    the general Treasury. And so they did have an incentive, and in
    some ways, some people consider it a perverse incentive, to
    spend money before it goes back to the Treasury.
        Mr. Turner. See, what we did in the city is we said you
    don't have that option. If you have not hired people, if these
    monies are not being used for personnel, the money goes back,
    period, so you don't get this slush fund that they used to do
    this conference.
        Mr. George. There are instances when money is limited to
    the sole purpose for which it was first appropriated. So, but
    in this instance that was not the case. And I think I'm going
    to now request that my colleague----
        Mr. Kutz. Real briefly this is part of the small business
    output; they're part of the enforcement appropriations account
    within the IRS. This money was essentially transferred within
    that appropriation which we've determined was not a violation
    of appropriations law.
        Mr. Turner. Well, I want to take this issue up because
    certainly, I've seen on the local level how it makes a
    difference, and we certainly need to do it on the Federal level
    because I'm certain across all Federal agencies there have to
    be these slush fund pots that don't meet the scrutiny level
    that if the funds had been requested for the purpose that it
    ultimately was spent would have been denied.
        Mr. Fink, we have what we understand is the swag bag from
    the event. This says leading into the future, and then we have
    a portfolio that says ``teamwork in action.'' These items like
    3,000 of them were given to all the participants over $60,000
    of these types of trinkets. And listening to the ranking member
    who was so eloquent about the issue of how these are taxpayer
    dollars that are taken out of the pockets of people who work
    very hard for their money. We note in the footnotes of what was
    in these swag bags is that it also included, I'm kind of
    confused by saying this, a plastic squirting fish. And I've
    been asked several times by the media who have taken a look at
    this, what purpose could the IRS have in giving the
    participants a plastic squirting fish?
        I think it goes to what the ranking member was saying part
    of the party atmosphere that this clearly was not for business
    and government purposes, that it was a party.
        Could you please tell me what were these items for? And why
    would people get a plastic squirting fish?
        Mr. Fink. Congressman, as I mentioned, I honestly have no
    idea what the plastic squirting fish was. That's just being
    honest about it. The items that you refer to, there in the bag,
    as I mentioned earlier, and in the Inspector General's report
    also, when you look at the expenditures that were done for
    these items, we certainly, as an organization, should not have
    spent those funds.
        Mr. Turner. Thank you. Mr. Fink, I hope you understand the
    irony of taxpayers who hear you saying that you can only
    account for 90 percent of the expenditures but they could never
    stand in front of you and be able to do that.
        I yield back.
        Mr. Chaffetz. Thank you. I now recognize the gentlewoman
    from New York, Mrs. Maloney, 5 minutes.
        Mrs. Maloney. Thank you. The recent history of the IRS is
    appalling. Democrats and Republicans are united in our outrage
    at the wasteful spending, the inappropriate behavior and
    mismanagement of one of our most important agencies. But the
    changes that have been put in place are dramatic, and they are
    having an effect. I believe you would all agree with that. Yes?
        Mr. Fink. Yes.
        Mr. Kutz. Yes.
        Mr. George. Yes.
        Mrs. Maloney. For example, the top three most expensive
    conferences outlined in the IG's report all took place in 2010,
    correct? Mr. George?
        Mr. George. That is correct.
        Mrs. Maloney. Since then, the number of large meetings has
    decreased by 84 percent. The cost of the meetings has decreased
    by 87 percent, and the number of large meetings has decreased
    by 84 percent. That is definitely moving in the right
    direction. And the spending on the conferences with 50 or more
    participants was reduced from 37 million to 4.9 million in
    2012, all good movement.
        And I would say that the President's initiative, the
    government-wide campaign to cut waste, to target ineffective
    and wasteful spending, has been very useful and appropriate and
    is getting results.
        But I was concerned by the video that the chairman showed
    us, and not only was it a monumental waste of well over $50,000
    of taxpayers' money, but I would say it is an insult to the
    memory of Star Trek. I could do a better Captain Kirk. But I
    think I recognized one of the panelists in the video. Mr. Fink,
    were you Mr. Spock in that video?
        Mr. Fink. Yes, that is correct.
        Mrs. Maloney. So how many government employees participated
    in that video in acting, editing, producing? How many employees
    were involved?
        Mr. Fink. I apologize, but I do not know the exact number
    of when you go to the editing and the things of that nature, I
    am not sure what that total number was, that participated.
        Mrs. Maloney. Well, do you think this was a responsible use
    of taxpayer money.
        Mr. Fink. As I said, no, I do not.
        Mrs. Maloney. And did you approve this?
        Mr. Fink. No.
        Mrs. Maloney. You did not approve it.
        Mr. Fink. No, sir--no, ma'am.
        Mrs. Maloney. You did not approve it. Well, I would like to
    ask Mr. George, you did come out I believe with nine
    recommendations, is that correct?
        Mr. George. Yes, that is correct.
        Mrs. Maloney. And of those nine recommendations, how many
    has the Treasury Department accepted and are supporting?
        Mr. George. All of them.
        Mrs. Maloney. They are all supporting them the Treasury
    Department all nine.
        Mr. George. That's correct.
        Mrs. Maloney. And the President of the United States I
    believe also came out in support of your recommendations.
        Mr. George. That was actually related to the review we did
    on 501(c)(4) reviews, but I believe the President's
    spokesperson may have addressed this instant audit, but I'm not
    completely certain about that.
        Mrs. Maloney. So Treasury is now implementing all of the
    nine or how many are they implementing?
        Mr. George. They are in the process of implementing all of
    the nine. I don't know I may again defer to my colleague, Mr.
    Kutz.
        Mr. Kutz. There were nine in the other report on exempt
    organizations, and there's nine in this report.
        Mrs. Maloney. And they are implementing all of them, is
    that correct?
        Mr. Kutz. That's correct. That's our understanding.
        Mrs. Maloney. And could you go over what are the most
    important nine in the 504(3)(c) category Mr. Kutz? What are the
    recommendations could you briefly go through the
    recommendations?
        Mr. Kutz. Well, let me touch on the most important
    probably, the one about the backlog. As you all know, there's a
    backlog of organizations that have been there, in some cases, 3
    years, waiting for a decision yes or no. One of our most
    important recommendations is to have those addressed quickly so
    those people can get an answer as to yes or no.
        Certainly one of the issues was whether or not the IRS had
    evidence of looking at political campaign intervention in 298
    cases we identified. In some instances, there was no evidence
    in the file that there was political campaign intervention. We
    recommended that they actually document, if you're going to
    have someone wait for several years to get a response, you
    better have a good answer as to why you picked that case,
    especially if there is no evidence in the file of any political
    campaign intervention. So those are examples of some of the
    most important ones from that report.
        Mrs. Maloney. And when you say ``intervention,'' what would
    you define as intervention? Paying for campaign ads? Or what is
    intervention? What do you define in IRS as the intervention?
        Mr. Kutz. Well, the regulation definition is supporting or
    opposing a particular candidate running for public office.
        Mrs. Maloney. Well, I would think that would be pretty easy
    to do, see whether or not they bought time on campaigns, bought
    TV ads. Have you looked at that?
        Has the Department looked at that area?
        Mr. Kutz. I don't know if they looked at that. With respect
    to the 298 cases we looked at, 69 percent had evidence of
    significant political campaign intervention, and 31 percent did
    not. And the recommendation was related to if you're going to
    pick a case that there's no evidence of campaign intervention,
    you should make sure and document why, in fact, you did that.
        Chairman Issa. [Presiding.] The gentlelady's time has
    expired. The gentleman from Tennessee, Mr. Duncan, is
    recognized.
        Mr. Duncan. Thank you very much, Mr. Chairman, and first of
    all, I want to say that I very much appreciate the great
    opening statements that you and Ranking Member Cummings have
    made, especially my friend, Mr. Cummings. I just, I agree with
    everything that both of you said in regard to this.
        I thought back though of several years ago, Edward Rendell,
    when he was mayor of Philadelphia, and having some trouble with
    some city employee unions, of course, he later became Governor
    of Pennsylvania, he said before the House Ways and Means
    Committee that government does not work because it was not
    designed to, he said there is no incentive for people to save
    money, so much of it is squandered. There's no incentive for
    people to work hard, so many do not. And the problem throughout
    government is that we don't have enough incentives or pressure
    for people to save money, and we end up with these ridiculous
    expenditures because it's not coming out of people's own
    pockets.
        We need to make sure that in the future, that we put more
    incentives and more pressures and more punishments for people
    to not to do these types of things. I saw an article yesterday
    about how it's almost impossible to remove a Federal employee
    who messes up in some big way.
        Mr. George, I also want to commend you. I think you've done
    great work not only on this, but on some others things for this
    committee and for the Ways and Means Committee, and I really
    appreciate what you've done. But I feel the same way that all
    these others who have spoken before me, not just about the Star
    Trek and the dance line and the line dancing and all that, but
    to pay $133,000 to a firm just to locate a hotel or figure out
    the hotel when the IRS employees themselves could have done
    these things.
        So we need to make sure that these things don't happen in
    the future. And what I have seen happen so often, when we go
    through these times where it gets a lot of publicity and a lot
    of attention but 2 or 3 years later, we are back into these
    things again. So we need to stay on top of that, and that's
    really all I have to say and I yield back.
        Mr. George. Mr. Duncan, if I may, I just want to be clear,
    the $133,000 paid to the event planners were paid by the hotel,
    not by the IRS. But they had, again, no incentive to reduce the
    cost to the IRS because the more the IRS paid, the more they
    got in commissions.
        Mr. Duncan. Thank you for that clarification.
        Chairman Issa. I thank the gentleman. We now go to the
    gentlelady from the District of Columbia, Ms. Norton.
        Ms. Norton. Thank you, Mr. Chairman, and I appreciate this
    hearing. This, of course, is a longstanding problem, Mr. Mica,
    the chairman himself, have witnessed our work with the GSA.
    Actually, the worst year of spending apparently for the IRS,
    $15 million, was the year before the President even came into
    office.
        By now, the, what the take-away from these episodes is one
    that you learn from your mother and father when you are
    spending someone else's money, spend it even more carefully
    than your own. Of course, that would go especially for
    taxpayers' money. Now this, no matter how you look at it, this
    $4 million, even if it wasn't this much as the $15 million is
    an excessive amount of money. I'd like to get to the root of
    why in the world this conference or this training was going on.
    And first, I would like to ask about Anaheim. Why, Mr. Fink,
    was Anaheim chosen, and where did these employees originate?
    Where did they come from?
        Mr. Fink. The Anaheim conference, the reason Anaheim was
    chosen is based upon the size of the conference, the number of
    individuals attending the----
        Ms. Norton. Where did they come from? Where were they
    based?
        Mr. Fink. The folks that attended the conference came from,
    we have leaders, we have managers in 350 different locations,
    so they came from across the entire United States to Anaheim.
        Ms. Norton. How many came from Washington?
        Mr. Fink. I don't have that exact number.
        Ms. Norton. Did most of them come from Washington?
        Mr. Fink. No. No. Most of them did not come from
    Washington.
        Ms. Norton. So was it less expensive to have it in some
    centrally located, assuming Anaheim could ever be found to be
    centrally located? Was it less expensive to have it, Mr.
    George, in a place like this, which is a vacation spot? And I'm
    not--Mr. Clay is suggesting St. Louis, I'm not going to wish
    that on the IRS--but would you respond, please?
        Mr. George. From the information actually that was elicited
    at today's hearing, we understand that Florida might have been
    less expensive than conducting it in Anaheim.
        Ms. Norton. Well you see suspicion is aroused whenever some
    sunny spot is picked and, but as you say, they came from all
    around the country.
        Now, this was to be a training conference. IRS employees
    deal with highly technical, rule bound, law bound work. So I
    think anyone who could understand that--by the way, I want to
    take exception to my good friend the ranking member who sees no
    redeeming value in line dancing as a sponsor of National Dance
    Day on the Mall----
        Chairman Issa. If the gentlelady would yield I don't think
    he went as far as to disparage line dancing. I think it was
    limited only to the Federal expenditure at this particular
    conference.
        Ms. Norton. You, of course, preempted the one admonition I
    would have, as a line dancer as the one who tries to do every
    kind of dance----
        Chairman Issa. Well, the ranking member is down there, and
    I'm afraid I had no chance but to speak on his behalf.
        Ms. Norton. I just wanted to stand up for the line dancers
    and say, hey, the IRS line dancers weren't bad at all. Too bad
    they weren't doing it on their own dime.
        Let me ask you about this training conference. Here is a
    training conference, and Mr. George, as I read through the
    report, I couldn't find what was the purpose of the conference?
    I couldn't put my finger on what is the purpose of this
    conference in Anaheim?
        Mr. George. While I'm going to defer eventually to Mr. Fink
    to complete this response, there is no question as you noted
    earlier, Ms. Norton, there is a redeeming value for training.
    These are very complicated matters. The IRS is about to engage
    in one of the most comprehensive and unprecedented aspects of
    its activities in terms of implementing the Affordable Care
    Act. So whether or not that was an aspect of this conference,
    again, I will defer to Mr. Fink.
        Ms. Norton. So was the majority or the great majority or
    how much of the conference was devoted for training and how
    much was devoted to fun?
        Mr. George. Well, if I may, one key aspect in all of
    disclosure, TIGTA, my organization had a representative----
        Ms. Norton. Now, this is very important. I was going to ask
    you this question. Not only were there IRS employees there,
    there were employees of the Inspector General there.
        Mr. George. We had one employee who was there. Keep in mind
    this was in the wake of the tragedy that occurred in Austin,
    Texas, when someone flew an airplane into a building housing
    IRS employees, and our, one of our senior investigators spoke
    at a session on security and threats to IRS as a result of
    people who are disgruntled as----
        Ms. Norton. Did he report back----
        Chairman Issa. The gentlelady's time is expired. Does
    anyone else need to answer that question? Are you finished?
        Mr. George. Well, I could go on.
        Chairman Issa. Well, complete your thought, please, I don't
    want to interrupt you.
        Mr. George. My employees traveled 1 day, arrived, spoke at
    two sessions and then departed. The vouchers that he filed were
    less than approximately $1,000, and he apparently, when he
    arrived, did get an upgrade to a suite, not a presidential
    suite or anything of the sort, but there were no regular rooms
    available which is what he requested when he first sought
    reservations at the hotel. But the bottom line is he was there
    to instruct IRS employees on the threats that are being
    presented as a result of----
        Ms. Norton. So most of the training conference was devoted
    to training then?
        Mr. George. I don't have the entire agenda but maybe Mr.
    Kutz----
        Chairman Issa. The gentlelady's time is expired, you can
    answer for the record. The gentleman from Ohio, Mr. Jordan.
        Mr. Jordan. Thank you, Mr. Chairman.
        Mr. Kutz, did Doug Shulman attend the Anaheim conference?
        Mr. Kutz. Yes, he was a speaker, he was there for one day.
        Mr. Jordan. Did Steve Miller attend the Anaheim conference?
        Mr. Kutz. There was no travel vouchers. We have no evidence
    that he attended the conference.
        Mr. Jordan. Did Lois Lerner attend the Anaheim conference?
        Mr. Kutz. No.
        Mr. Jordan. Did Sarah Hall Ingram attend the Anaheim
    conference?
        Mr. Kutz. I don't have that information, but I don't
    believe so.
        Mr. Jordan. Did any other individuals from the tax exempt
    division of the Internal Revenue Service attend the Anaheim
    conference?
        Mr. Kutz. No. There's no evidence anyone from the tax
    exempt government was at the conference or in the exhibit hall.
        Mr. Jordan. You guys your report indicates that there was
    $50 million spent in fiscal years 2010, 2011, 2012, 225
    conferences took place in that time period that individuals
    from the IRS attended. Did you look at any other conferences in
    detail other than the Anaheim conference?
        Mr. Kutz. No.
        Mr. Jordan. So there's 224 we don't know much about.
        Mr. Kutz. We did a drill down on the largest and when we
    had allegations of excessive spending.
        Mr. Jordan. Well, 14 of those 224 remaining conferences
    that you did not audit, 14 of those were solely for the tax
    exempt division, the division that targeted Americans for 3
    years for their political beliefs, 14 of those you did not look
    at those at all?
        Mr. Kutz. No those are about $2 million in total.
        Mr. Jordan. According to The Washington Times, the per
    person spending, today's Washington Times indicates that it was
    one of the most expensive per individual. The Tax Exempt and
    Governmental Entities unit to go over procedures for auditing
    retirement plans was one of the most expensive training
    sessions. Is that accurate, what is reported in today's paper?
        Mr. Kutz. I don't know.
        Mr. Jordan. Do you know of the 14 conferences that the Tax
    Exempt division was a part of, do you know if Doug Shulman
    attended any of those?
        Mr. Kutz. I have no information on that Congressman.
        Mr. Jordan. Do you know if Steve Miller attended any of
    those?
        Mr. Kutz. No information on that.
        Mr. Jordan. Did Lois Lerner attend any of those?
        Mr. Kutz. No information.
        Mr. Jordan. What about Sarah Hall Ingram? Do you know if
    she attended any of those?
        Is it fair to say that the people who run that division
    would most likely be at one of those 14 conferences held by the
    Tax Exempt division in the time period?
        Mr. Kutz. Given what I read through on the high level
    description of the conferences, it's likely some or one of
    those may have been there.
        Mr. Jordan. Potentially all of them could have been at
    those conferences?
        Mr. Kutz. They could have potentially been there.
        Mr. Jordan. I did notice that in this Anaheim conference,
    there was a session entitled politically savvy training
    session, ``how to not shoot yourself in the foot,'' do you
    happen to know if that training session was offered at any of
    the other 224 conferences in this time period?
        Mr. Kutz. I only know it was offered at the one you
    mentioned, the Anaheim conference.
        Mr. Jordan. Do you have any information on any of these
    other 224 conferences that were done in between 2010 and 2012
    that you can offer the committee today?
        Mr. Kutz. Nothing that is in depth like the Anaheim
    conference, no.
        Mr. Jordan. Do you think that would be an appropriate thing
    to check out the fact that the very people involved with the
    systematic targeting of individuals exercising their First
    Amendment rights, political beliefs that they have that it
    might be appropriate to know if those individuals who headed
    that division were involved in some of these conferences?
        Mr. Kutz. We would certain be willing and Mr. George can
    add to discuss with this committee, if you have a request for
    us to look at some of those conference, that's something we
    would consider.
        Mr. Jordan. Mr. Chairman, I would just say this, this is an
    agency that is just out of control. You think about one
    conference out of 225 and we know what happened at this
    conference with videos and with bags and gifts and not keeping
    receipts, but I think what's more telling is at the same time
    that this agency was targeting individuals for their political
    beliefs, we have the head of the agency attending the very
    conference where all this takes place. We are, it's a fair, I
    think, conclusion to reach that the people involved in the
    division that was targeting Americans for their political
    beliefs was involved in many of the other 224 conferences, and
    I think what is most chilling is this is the agency that began
    targeting people for their political beliefs the very month
    ObamaCare became law, March 2010, this is the very agency that
    will be charged with enforcing ObamaCare.
        And they are engaged in this kind of activity when they're
    also going to be in charge of enforcing the health care law.
    And to me, that's what's most troubling, and I think why we
    need to get to the bottom of this and with that I would yield
    back, Mr. Chairman.
        Mr. Cummings. Would the gentleman yield?
        Mr. Jordan. I'd be happy to yield.
        Mr. Cummings. The gentleman just made a request, well,
    you're requesting, I just want to make sure we're clear, you're
    requesting additional information, additional study?
        Mr. Jordan. I think that would be helpful. I'm not, I
    would, I guess, not phrase that in the term in the sense of an
    official request, that would be something I would want to check
    with the ranking member, and more importantly, the chairman of
    the committee.
        Mr. Cummings. And I'll be checking with the chairman too,
    because as I said from the very beginning, Mr. Chairman, and
    Mr. George, I consider it legislative malpractice that if we
    don't, at some point, look at why, from 2007 to 2008
    conferences, the price of conferences doubled, and it just
    seems to me if we're going to get to this bottom of this, and
    I'm not saying for one moment that President Bush knew about
    this or anything because I believe if he did, he probably would
    have done something but we do need to understand that. I yield
    back.
        Mr. Jordan. I was going to make one point. My only point
    was, we've looked at one conference and we uncovered this, by
    the very agency that's going to enforce ObamaCare, and there's
    224 other conferences that were going on in the same time
    frame. That's important.
        Chairman Issa. And for the entire committee, since this is
    a salient point that keeps coming back, it is the intention of
    the chair working with the ranking member to ask the GAO to do
    a current event study of where we stand with conference and
    travel post legislation, post the President's action, and
    obviously, post the good work of this IG and others. So I do
    think that this, I hope this will be the last time we're
    specifically looking at anything that isn't forward looking
    from 2012 on, because I do think that we really want to look at
    how many reforms have been accomplished.
        But, Mr. George, I certainly think that if you look at
    current ones and find that any of these past activities are
    still occurring, that you inform the new Commissioner and us as
    quickly as possible. But I do believe that the gentleman is
    right, but I believe GAO to look government-wide would probably
    be more appropriate.
        And with that I appreciate the opportunity to have the
    gentleman from Massachusetts be recognized.
        Mr. Tierney. Thank you, Mr. Chairman. So before we pivot
    and start looking at 2013 and beyond, I want to take a look at
    the last decade on that, and actually let me put a chart up
    that we have showing just how the costs have increased over
    that.
        Mr. George, you've already covered 2010, 11 and 12, and I
    appreciate your good work on that. But if we look back at 2005,
    according to the Internal Revenue Service data, the IRS spent
    about $9.8 million in 2005. Then in 2006 that nearly doubled to
    $19 million.
        So Mr. Fink, do you know what caused a sudden jump in 2005,
    2006?
        Mr. Fink. No, sir. I do not know what caused that jump for
    that particular period of time. I do not, sir.
        Mr. Tierney. Now you were named deputy commissioner in
    2008, is that right?
        Mr. Fink. Yes, sir.
        Mr. Tierney. So let me ask you about the increase that
    happened during that year. If you look at the chart in 2007,
    the IRS spend about $13.4 million on conferences. But the next
    year, 2008, the figure jumped to $29 million. So just a single
    biggest increase involved in any of those years, what caused
    that $15 million increase from 2007 to 2008, Mr. Fink?
        Mr. Fink. What I would say is the years which you are
    citing to, the definition of conference also includes training.
    In those years, we had significant hiring in those years, so we
    would have been training a significant number of individuals in
    those years. So when you're having those individuals go off to
    training because the training was done face to face primarily
    at that time, I would certainly say that that would be a
    contributing factor to the increase in those costs, sir.
        Mr. Tierney. So just to make sure I get this right you're
    saying at least in that particular year, whenever anybody got
    trained, you listed it as conference as a definitional matter?
        Mr. Fink. From what my understanding is, sir, is that the
    definition that is being used around conferences also includes
    training and training forums.
        Mr. Tierney. So no way to distinguish on your records as to
    which was which?
        Mr. Fink. Actually, if you have a breakout, you can take
    and you can look at the individual, as I believe the Inspector
    General has a breakout for the years that they looked at, you
    can go down through the individual courses that are listed
    there, the individual training sessions, you can actually pick
    out what is the technical training for field employees and for
    campus employees for the service. You can actually spot it out
    by the name.
        Mr. Tierney. So you went from $10 million in 2005 to $37
    million in 2010, and you're saying that basically, all of that
    distinction, the reason it went so high was that the difference
    between the $10 million and that was all in training added in
    and counted as part of a conference thing.
        Mr. Fink. And I'm saying a part of it certainly had to be
    due to training for new hires, sir.
        Mr. Tierney. What was the other part?
        Mr. Fink. That I do not know.
        Mr. Tierney. You don't know?
        Mr. Fink. No, because I do know that we did significant
    hiring in those years so that, of course, would increase the
    costs, sir.
        Mr. Tierney. Mr. Kutz and Mr. George, do you have any
    information to offer on these sharp increases in those given
    years?
        Mr. Kutz. Only for the 3 years where you've all mentioned
    that the controls that were spurred in part by the hearings
    this committee held and other government-wide and IRS and
    Treasury reforms had an impact it appears, a significant
    impact.
        Mr. Tierney. So I guess the good only news is that after
    the GSA debacle, that some reforms were put in place and the
    numbers dropped now to below $5 million, and I guess that's the
    case was to put these reforms in place after the GSA conference
    information came to light?
        Mr. Fink. Actually, sir, the reforms that started at the
    Internal Revenue Service started in late 2010 prior to the GSA
    conference.
        Mr. Tierney. Why was that? Was there somebody that called
    this to somebody's attention or was there an issue or?
        Mr. Fink. I was not involved in that so it would be purely
    speculative, sir.
        Mr. Tierney. So now we're spending less now than we were
    spending in 2005, so is any of what we're spending now training
    as opposed to conference, Mr. Fink?
        Mr. Fink. Yes. We are still doing training.
        Mr. Tierney. And that's included in that $4 million-plus
    number?
        Mr. Fink. I would believe that also training would be
    included in that, but if you want to know why there's such a
    sharp decrease, we're now doing a significant amount of
    training virtually as opposed to face to face, so the travel
    costs are reduced, you don't have that type of activity going
    on, so you have people presenting and doing it virtually, using
    technology.
        Mr. Tierney. You preempted one of my questions which is why
    don't we do more Webinars and technological so we don't have to
    have the conference on that. Mr. George.
        Mr. George. Mr. Tierney, I just want to add though included
    in this conference is what's called the tax forums in which the
    IRS gathers tax preparers in various parts of the country to
    update them on changes in tax law and IRS policies. There is a
    tremendous benefit to the entire system of tax administration
    for the IRS to conduct these, as these individuals, many of
    whom are tax accountants and literally individuals who prepare
    taxes, to make sure they're up-to-date on what the tax laws
    are, and many instances what to be aware of. And we receive at
    the Treasury Inspector General for Tax Administration sometimes
    many leads on people abusing the tax system as a result of
    these tax preparers learning what is or is not permissible and
    coming forward to us with those types of leads.
        Mr. Tierney. Thank you. I guess the idea of how important a
    functioning Internal Revenue Service is to this country, we
    have all seen countries that don't have good tax collection,
    and what that means a nation and everything like that, and so
    it's something we have to get on top of here that matter are
    trust that Mr. Cummings was talking about is essential and
    we're going to keep on that. Thank you, Mr. Chairman for having
    the hearing.
        Chairman Issa. Thank you. Just quickly following up on the
    gentleman's statement, Mr. George, Mr. Kutz, is there a
    possibility since the exhibit that was up there really doesn't
    reflect conference spending at all.
        Is there a possibility obviously with the acquiescence of
    your new Commissioner that you would provide to us a breakdown
    of what portion was billed as training, these true conferences,
    so on.
        I think it would be helpful for us because certainly, we
    want to make sure the record is complete, and I'd leave the
    record open to get that so we are comparing apples and apples
    in conferences versus outreach to the public versus travel for
    training, and I do appreciate the gentleman's fleshing out that
    we now are taking less people to college and taking more
    college to people.
        Mr. George. Happy to do so, again, with the, just note that
    if we would have to rely on information provided by the IRS
    itself and so----
        Chairman Issa. And the next panel will probably help us ask
    that again.
        Mr. George. Yes, I agree sir.
        Chairman Issa. Thank you. The gentleman from Utah Mr.
    Chaffetz.
        Mr. Chaffetz. Thanks, Mr. Chairman, and I thank you for
    having the foresight to actually call for this as we looked at
    the GSA, and now we are exposing this.
        Mr. Fink, how long have you been at the IRS?
        Mr. Fink. Thirty-two years, sir.
        Mr. Chaffetz. And I would suspect that through that time
    you've been to some conferences along the way?
        Mr. Fink. Yes, sir.
        Mr. Chaffetz. How would you compare this conference to past
    experiences?
        Mr. Fink. It is certainly in my career with the Internal
    Revenue Service, it is one of the largest I have ever attended
    but it was not uncommon in the service in past years that I've
    been there that you would have large gatherings of this, of
    your leadership team, bringing all your managers together in a
    function.
        Mr. Chaffetz. What did you personally get when you went to
    that conference? What did you personally receive?
        Mr. Fink. For the Anaheim conference, sir?
        Mr. Chaffetz. Yes.
        Mr. Fink. The bag that was shown is what I got. Of course,
    it's already been mentioned, I paid the government rate and
    stayed in a suite, paid the $135 for the suite, but I got the
    bag, and there was a notebook inside the bag, and also I
    believe I received what is a, it's an attachment to your
    lanyards that you wear for identification purposes that it is
    spring loaded-type lanyard.
        Mr. Chaffetz. Anything else? Any other perks or benefits,
    food?
        Mr. Fink. Oh, there was, I believe if you look at the
    record, and I believe it's in the Inspector General's report,
    there was 25 baskets of fruit that were in each of the two
    primary hotels.
        Mr. Chaffetz. And how big was your room? Did you ever stay
    in a room like that.
        Mr. Fink. Yes, I have, sir.
        Mr. Chaffetz. When was that?
        Mr. Fink. I paid for a room like that personally, sir, and
    also I would mention to you that in another conference, sir,
    where there was, we had reserved most of the hotel, it was a
    very, very large conference, I was given a suite not quite that
    large, but it was a suite.
        Mr. Chaffetz. When and where was that?
        Mr. Fink. That was in, the one that I have the most recent
    recall of in memory was in Chicago, sir.
        Mr. Chaffetz. And when was that?
        Mr. Fink. I believe it was actually in, I would be
    speculating, but I believe it was in 2009.
        Mr. Chaffetz. So is it because of your rise in rank, did
    you believe you were entitled to this?
        Mr. Fink. No, sir.
        Mr. Chaffetz. Why did you get it then?
        Mr. Fink. My understanding is it was part of what was
    negotiated with the hotel as part of the arrangement for us
    taking a significant number of the rooms in the hotel for the
    conference, sir.
        Mr. Chaffetz. When did you think this was wrong?
        Mr. Fink. The conference in general?
        Mr. Chaffetz. Yeah.
        Mr. Fink. I don't think the conference, I think now that we
    should have been, we should have been paying closer watch to
    our expenditures and the expenses. I don't think the conference
    itself was wrong because of the time that we ran at the
    Internal Revenue Service, 30 percent of our managers in small
    business were brand new, we were going through a very difficult
    time in trying to get our leaders to recognize----
        Mr. Chaffetz. So when did you think that the something was
    wrong here?
        Did you ever think something was wrong here? What do you
    think is wrong about this picture?
        Mr. Fink. I think now that in retrospect in looking back
    that you take a look at the expenses. We should have been more
    diligent in our responsibility to the American taxpayer and to
    the American public.
        Mr. Chaffetz. And you're in charge of this group, right?
        Mr. Fink. At this time I am, yes.
        Mr. Chaffetz. And you were the number two at the time of
    the conference?
        Mr. Fink. Yes, sir.
        Mr. Chaffetz. When did it strike you that this was wrong?
        Mr. Fink. As I said----
        Mr. Chaffetz. When you got called to testify before
    Congress?
        Mr. Fink. No, sir.
        Mr. Chaffetz. Well, when?
        Mr. Fink. As I said, I do not think that the conference
    itself, the premise it was based upon, was wrong because of the
    needs of our employees at that time. I do not think that the
    conference was wrong.
        Mr. Chaffetz. When did you become aware of the massive
    expense?
        Mr. Fink. I actually did not become aware of the massive
    expense until much later. I did not know what the expense was
    at the time of the conference that we were paying, I did not
    know what those expenses were.
        Mr. Chaffetz. And you're the number two person in that
    division?
        Mr. Fink. Yeah----
        Mr. Chaffetz. You're oblivious to the expenses? You're
    totally ignorant of the expenses?
        Mr. Fink. I was not involved in the planning or execution.
        Mr. Chaffetz. Who was?
        Mr. Fink. They put together a planning team that----
        Mr. Chaffetz. Yeah, we've all watched ``The Office,'' we
    know what the party planning committee is.
        But who specifically authorized this? And when did you
    realize that it was wrong?
        Mr. Fink. If you look at the Inspector General's report----
        Mr. Chaffetz. No, I want to know from you. You're in
    charge. This is what's so infuriating. You're in charge. You
    have a public trust. You're paid by the American taxpayer to be
    responsible, to be respectful, to have knowledge, to have
    oversight, and yet you can't even tell me when you thought this
    was wrong. In fact, you're saying that well it was a pretty
    good conference.
        Chairman Issa. The gentleman's time is expired, but I would
    like to hear an answer to the question.
        Mr. Kutz or anyone who wants to respond to the gentleman.
        Mr. Kutz. Well, I would say the documents we saw that
    authorized the conference, actually Mr. Fink signed requesting
    it for Mr. Wagner, the Commissioner, and then it was authorized
    by the two deputy commissioners. This was in April of 2010.
        Mr. Chaffetz. Clarify that for me. Mr. Fink, actually
    signed off on this?
        Mr. Kutz. On the request for approval by the two deputy
    commissioners that he had signed for Mr. Wagner, I believe, in
    April 2010 for estimated $4.3 million conference at that point
    in time.
        Mr. Chaffetz. And so when did you realize that this was
    wrong? You signed the authorization before it happened.
        Chairman Issa. I'd ask that the gentleman have an
    additional 2 minutes for this specific and limited line of
    questioning, please.
        Mr. Cardenas. Point of personal privilege, Mr. Chairman, I
    do not watch ``The Office'' so I don't know who the collective
    ``we,'' is but it's not me.
        Chairman Issa. That will be noted for the record.
        Mr. Chaffetz. I appreciate the chairman.
        Mr. Kutz is saying you personally signed the documents,
    with the dollars on it, before the conference. Would you agree
    or disagree with that?
        Mr. Fink. I initialed the routing slip that went to----
        Mr. Chaffetz. What does that mean to you? Do you have any
    responsibility for that?
        Mr. Fink. I attended the briefing that was done for the two
    deputy commissioners.
        Mr. Chaffetz. Did that include the cost of the conference?
        Mr. Fink. If I remember correctly, the briefing that was
    done for the two deputy commissioners, yes, that included a
    discussion of the----
        Mr. Chaffetz. And that raised no warning flags? There was
    no bells that went off in your mind? And you didn't think that
    that was wrong?
        Mr. Fink. At that time because of what we were experiencing
    at the service----
        Mr. Chaffetz. What was that experience?
        Mr. Fink. We were experiencing a whole new taxpayer base
    that we were entering----
        Mr. Chaffetz. You testified--you testified that when you
    thought it was wrong is when you became aware of the expense,
    but we just heard from Mr. Kutz you signed off on a routing
    slip, you participated in meetings understanding the costs
    before the conference happened.
        Are you here claiming no responsibility at this point?
        Mr. Fink. Absolutely not. That's why I am here.
        Chairman Issa. The gentleman's time is expired. Mr. Fink,
    strictly for the purposes of we put you under oath, if I heard
    correctly, and maybe if necessary, we can have it read back,
    you had answered that you were not aware in some fashion of the
    cost of these, and then Mr. Kutz made it clear that you signed
    a routing slip. You made it clear that you attended briefings
    in which you knew cost.
        Would you like to revise your initial statement about not
    being aware of the cost? It's not about whether it's justified,
    but I think that the IG's investigation would say that you want
    to be much more accurate.
        Did you know about the cost, and if so, when, which is what
    I think the gentleman's line of question is. And I don't want
    to trap anyone, but I can't square those two right now.
        Mr. Fink. Okay, I was aware of the cost when we did, the
    estimated cost of $4.3 when we did the briefing for the two
    deputy commissioners of the Internal Revenue Service. That's
    when I became aware of the estimated cost.
        Chairman Issa. And that was $4.2 million?
        Mr. Fink. Four point three.
        Chairman Issa. Four point three million. There may be
    additional questions but I want to make sure for the record and
    I thank the gentleman for Utah because I think we now have a
    better understanding.
        Mr. Cummings. Mr. Chairman.
        Chairman Issa. Yes.
        Mr. Cummings. With all due respect, we just lost a member
    because he had to get out of here.
        Can we have an additional 5 minutes on our side? Do you
    follow me? In other words, he just----
        Chairman Issa. If you find a witness who is in potential
    liability of perjury and you want to clarify the record we will
    do so. The gentleman's is recognized for 5 minutes, more, if
    absolutely necessary.
        Mr. Cummings. Wait a minute. Whoa. Whoa. Whoa. Hold on.
    Wait a minute. I just asked for equal time. I just said that we
    had a member that had to leave, and I did not object to Mr.
    Chaffetz, I wanted to hear the answers to his questions. It has
    nothing to do with perjury. But I'm just asking for equal time.
    That's all I'm asking for. And I think that's not unreasonable.
        Chairman Issa. It's not a rule of the committee. I said Mr.
    Clay is recognized for 5 minutes or more if necessary.
        Mr. Clay.
        Mr. Cummings. Thank you.
        Mr. Clay. Thank you. All right. Thank you, Mr. Chairman.
    And the IG's report referenced three trips that multiple IRS
    employees and two event planners took in November, 2009, June
    2010 and August 2010.
        Mr. Fink, can you elaborate on why three separate planning
    trips were needed for the Anaheim conference?
        Mr. Fink. There were actually were, yeah, I can elaborate.
    There were two separate planning trips that were done. A third
    trip was actually done the week before the conference to make
    sure that everything was set up and ready to go for a
    conference of that size. I think that in retrospect, in looking
    at those trips and what occurred there, absolutely we should
    have used local individuals to conduct those planning trips,
    those visits, because it was very easy to have done that by
    using local individuals as opposed to traveling folks to
    Anaheim.
        Mr. Clay. Did you approve these planning trips?
        Mr. Fink. No, sir.
        Mr. Clay. Do you know who did?
        Mr. Fink. The then sitting Commissioner.
        Mr. Clay. The IG's report says that the audit, ``did not
    identify any policy or guidance that outlined the reasons when
    and why planning trips should be performed for conferences, the
    appropriate number of employees attending or whether approval
    is needed from senior management in advance.''
        And Mr. Fink, what is your response to that criticism?
        Mr. Fink. In reading the IG's report, at that time, I
    believe that is accurate, that is accurate that there was no
    criteria or guidance at that time around those planning
    conference. Since that time, of course, we have made changes
    that do put stricter and tighter guidelines around doing those
    types of visits and types of trips.
        Mr. Clay. And what level of approval is needed for these
    planning trips now?
        Mr. Fink. I do not know, sir, I can get that for you.
        Mr. Clay. The IG report concluded, ``the costs associated
    with these planning trips may have been excessive based on the
    number of employees who were involved.''
        Mr. Kutz, how many people went on each of these planning
    trips?
        Mr. Kutz. The November 2009 trip included three staff and
    cost $3,500 of travel, the June 2010 trip had eight staff that
    cost $10,300 for travel, and what Mr. Fink described as the
    week before the conference was 16 staff costing $22,000, and I
    believe the majority of these staff were from Washington, D.C.
        Mr. Clay. I'm astounded. I'm astounded it takes three trips
    to go and plan a conference. I don't understand it.
        Mr. Fink, why were so many people needed for the trips?
        Mr. Fink. The primary reason is because of the size of the
    conference, the number of individuals who were attending,
    setting up the logistics of the fact that the conference was
    over a 3-day period, 8 hours a day, that's why as I did state
    that absolutely now in retrospect when you look at it, it was
    unnecessary for people from Washington.
        Mr. Clay. It's almost like the joke, how many people does
    it take to change a light bulb?
        Mr. George, your report raised a concern that appropriate
    personnel did not sign the letters of intent with the hotels.
    Your report said this letters of intent are used by the IRS to
    secure hotel space for offsite events. Your report also states
    that these letters are normally required to be signed by
    centralized delivery services, the organization responsible for
    coordinating space for IRS events or procurement personnel.
    However, in the case of the Anaheim conference, a general
    schedule 14 revenue officer in charge of conference planning
    signed the letters of intent with the three hotels. Do you know
    who authorized the GS-14 to sign the letters of intent?
        Mr. George. I'm going to ask Mr. Kutz to respond to that,
    sir.
        Mr. Clay. Mr. Kutz.
        Mr. Kutz. The GS-14 did sign. The contracting officials
    told him it was okay to sign because the letter of intent was
    not a binding agreement for the Internal Revenue Service, so at
    the end of the day, that is, in fact, what the agreement was
    that was used.
        Mr. Clay. And those were the concerns raised I'm sure. And
    as a matter of fact, this revenue officer was the one signing
    the letter of intent, is that correct?
        Mr. Kutz. We certainly would have concern if a GS-14
    committing the Internal Revenue Service to several million
    dollars of spending yes, Congressman.
        Mr. Clay. And Mr. Fink why was a GS-14 revenue officer
    permitted to sign a letter of intent?
        Mr. Fink. I believe, sir, to the best of my recollection,
    it is because he had been involved in planning activities on
    other conferences that are listed in the Treasury Inspector
    General's report that he had some experience and knowledge, and
    that he had also coordinated this with the centralized services
    unit.
        Mr. Clay. And did the same GS-14 revenue officer who signed
    the letters of intent with the hotel choose the outside
    conference planners who planned the conference?
        Is that the same person?
        Mr. Fink. To the best of my knowledge, sir, yes.
        Mr. Clay. Had this revenue officer planned previous
    conferences with these same planners?
        Mr. Fink. That, sir, I do not know.
        Mr. Kutz. Congressman, my understanding is yes.
        Mr. Clay. And under what authority did the GS-14 prepare
    and sign these sole source justifications?
        Mr. Fink. I believe he was asked to do that by the then-
    sitting Commissioner of the Small Business Division. I believe
    that is who asked him or instructed him to do that in
    coordination with the planning committee.
        Mr. Clay. And Mr. George, do you know where this revenue
    officer stayed during the conference?
        Mr. George. I don't have that information. Maybe Mr. Kutz.
        Mr. Kutz. He stayed in the presidential suite for 6 nights.
        Mr. Clay. Mr. George, your report states that six employees
    were given awards totaling $6,000 for their work on the Anaheim
    conference, including $2,000 each for two employees who were
    primarily responsible for coordinating the conference planning.
        Did the GS-14 revenue officer receive one of these awards?
        Mr. George. My understanding is that he did.
        Mr. Kutz. He received a $2,000 award for the conference
    work.
        Mr. Clay. And who approved these awards?
        Mr. Kutz. I'm not sure who approved that award.
        Mr. Clay. Had the GS-14 in question received any previous
    awards for work planning conferences?
        Mr. Kutz. We're not aware of that.
        Mr. Clay. I wonder how much work the GS-14 did when you had
    an outside firm doing the conference planning. How much sense
    does that make, Mr. Fink?
        Mr. Fink. I'm not aware of how much work they did. I do not
    have specific knowledge.
        Mr. Clay. Mr. Chairman, I'm going to yield to----
        Chairman Issa. Yes, I think the gentleman would like a
    couple of minutes.
        Mr. Cummings. First of all, Mr. Chairman, thank you for
    your courtesy. I really appreciate it.
        Mr. Fink I just want to go back, and the chairman and I
    were just talking and I have a tremendous amount of respect for
    what he said to me just a moment ago, and that is that we're
    not trying to get anybody in any trouble with regard to
    perjury, but we want to make sure, that is why we want to be
    real clear on this. This is the committee where Roger Clemens
    testified, and next thing you knew, he found himself in some
    trouble. So we just want to be real clear so you can clear the
    record.
        So you knew, you did have knowledge of the, this Anaheim
    conference and how much it would cost before it went, it
    happened, is that right?
        Mr. Fink. Yes, sir, I did. Yes, sir.
        Mr. Cummings. And so you signed some documents, is that
    right?
        Mr. Fink. Yes, sir.
        Mr. Cummings. Like Mr. Kutz said. Did you look at the
    documents that you signed with regard to the cost of this? I
    mean, in other words sometimes people just sign documents and
    then pass them on. What was your, how did that work for you?
    What happened?
        Mr. Fink. When I signed the routing slip, Representative
    Cummings, I was given all the documents in a binder, a binder.
    Then I went through that binder, looked and saw in that binder
    what I said that previously being indicated as the estimated
    cost of the conference. And then I initialed off on that binder
    because we'd already previously had briefed the two deputy
    commissioners, and then forwarded that binder to the deputy
    commissioner.
        Mr. Cummings. So you were aware?
        Mr. Fink. Yes, sir.
        Mr. Cummings. Did you think that that cost was kind of
    high? Did you ever say that to yourself?
        Mr. Fink. No, sir. I did not.
        Mr. Cummings. Looking at it in retrospect, do you feel that
    way?
        Mr. Fink. Yes, in retrospect as I said we certainly could
    have saved money and done that conference_
        Mr. Cummings. And my last question, I watched your video.
    You were Dr. Spock?
        Mr. Fink. Yes, sir.
        Mr. Cummings. Did you ever sit there and say to yourself,
    well, maybe this isn't right, and if somebody sees this the
    taxpayers are not going to like this?
        Mr. Fink. Absolutely, sir.
        Mr. Cummings. While you were doing it?
        Mr. Fink. After I saw the production, as I mentioned, I
    fully regretted it.
        Mr. Cummings. And to this day, and thank you, Mr. Chairman,
    I got to ask this though, do you see the redeeming value in
    that video?
        Mr. Fink. No, sir.
        Mr. Cummings. So you agree with me?
        Mr. Fink. Yes, sir.
        Mr. Cummings. I feel better now that you agree. Thank you.
        Chairman Issa. I thank the gentleman. We now go to the
    gentleman from Michigan, Mr. Walberg.
        Mr. Walberg. Thank you, Mr. Chairman, and thank you for
    laboring on this oversight not just this particular issue which
    is tough to look at as a taxpayer, as a citizen, as a
    representative. It reminds me of an early morning walk in the
    feed room in my barn and turning the lights on after dark and
    hearing the sounds of scurrying things going for the corners,
    because the light is being turned on.
        And, Mr. Fink, you know, I'm not so concerned about how you
    feel about it now, or even back how you felt about it back
    then, I can't confirm one way or another. I certainly
    understand the embarrassment that you must feel about it, this
    all taking place now. I appreciate the apology. But it's after
    the fact, and I'm certain that probably the biggest reasons for
    the concern now is because it has all come to light.
        Let me ask you a question. You've made apologies, you've
    said that there are measures being taken, that this isn't going
    to happen again, this isn't happening now. What type of
    confidence do you have that that is true? That measures are in
    place to make sure that this does not happen again, that there
    are Webinars, that there are things that we do in light of the
    fact that what taxpayers are going through right now, that this
    has changed?
        Mr. Fink. The confidence I have is based upon if you take a
    look at how significantly all the costs have dropped based upon
    what the Inspector General has reported, I--that gives me
    tremendous confidence.
        I will tell you, also, I have confidence in the fact that
    looking at the changes that have been put into place, the
    guidance that is there, and the other reason I also have
    tremendous confidence is because the Acting Commissioner has
    come in and he has clearly spelled out what his expectations
    are. And when this came to his attention, he clearly spelled
    out that he was appalled at this, that he looked at the
    expenses, that he saw the video, and that it troubled him so
    that gives me tremendous confidence that it would never happen
    again on his watch.
        Mr. Walberg. Well, we're looking forward to hearing that
    from him, but in the culture and again, I would agree with the
    chairman that probably the overwhelming majority of Federal
    employees are doing the job that they've been asked to do or
    have been given to do and are doing it to the best of their
    ability, but here is a culture, there were numerous people
    involved in the videos and everything else, the planning, the
    costs, understanding it and yet the culture said, who cares? We
    can do this because we can do this because we can.
        And it happened. And when I sit in the situation where this
    week, in fact, a 59-year-old lady, single parent, calls and
    says I've been told by my home health care provider employer,
    she was a home health care worker, that she is being cut back
    to 28 hours because of ObamaCare, and the IRS is responsed with
    administering major portions of ObamaCare, and we see the
    culture that allowed this type of thing to go on without
    respect for that 59-year-old tax-paying mother, single parent,
    who is now concerned about losing her home because she doesn't
    have the hours that she needs, that she had before this
    implementation and we hear what goes on in this culture, I'm
    greatly concerned.
        Mr. George, I think I heard you say that you received
    notification of this problem from a whistle-blower was it?
        Mr. George. I use that term generically, it was an IRS
    employee who did alert us to the fact of excessive spending at
    this conference.
        Mr. Walberg. So there was one person that was willing at
    least to step up to the plate to say we think there is a
    problem?
        Mr. George. That is correct.
        Mr. Walberg. Mr. Fink, I hope, I hope that the culture in
    the IRS, even if it's just because you got caught, is changing
    to say that this will not continue on even after the light of
    day has been turned off to some degree on it.
        I have in my hands a copy of a letter that was written to
    Secretary Lew by Senator Coburn ultimately responding from a
    letter he had sent back in April of 2012 to then-Secretary Tim
    Geithner asking for a full listing of all conferences attended
    by department employees during fiscal years 2010, 2011, 2012,
    attended by, as the letter says, 50 or more Treasury staff and
    on that list there were only five conferences with a total cost
    under $500,000. Subsequent to that, this has all come out, with
    costs including the largest component of Treasury which is the
    IRS, of $50 million on hundreds of conferences over those 3
    years. So the request is being made to say, why weren't we
    given the information?
        So I would ask Mr. George and Mr. Kutz, why did that take
    place then? Has the culture changed now so that even from
    Treasury, we will get accurate information to Congress, and we
    won't feel we've been given inaccurate information, incomplete
    information, in fact, concerning, a concern about having even
    truthful information?
        Chairman Issa. The gentleman's time has expired.
        You may answer, please.
        Mr. George. The environment has changed entirely, Mr.
    Walberg. There is no question about that. And so that was not
    top priority for the administration in the wake of the GSA
    revelations. And then of course, with this report, it is
    obvious that this is a major issue, and it's something that the
    administration, to its credit, has taken steps to address.
        But there's something very important, sir, I need to note.
    As Mr. Fink pointed out, and as we have both in our audit
    report and during this testimony, new policies have been put in
    place. The key is to ensure that the policies are being
    followed. So they are there, but if they're not being
    implemented and oversighted in terms of what my office does,
    but more importantly, what managers within the Internal Revenue
    Service do, it could be for naught.
        Mr. Walberg. Absolutely.
        And, Mr. Chairman, I thank you for that. But I think it was
    notable what he said there, that in the past it didn't seem
    that important to the Treasury Secretary and others who were
    responsible for this. That has to change.
        Chairman Issa. And with our help, I hope it will.
        Mr. Walberg. Thank you.
        Chairman Issa. We now go to the gentleman who probably has
    more Federal workers in his district than anybody but possibly
    the ranking member, Mr. Connolly.
        Mr. Connolly. Thank you, Mr. Chairman, and that's probably
    true.
        Mr. George, there was a time, as the ranking member pointed
    out in his opening statement, where the amount of money spent
    on these conferences doubled in one fiscal year. What was going
    on in the IRS that it would double in one fiscal year?
        Mr. George. I do not have that information, sir.
        Mr. Connolly. Mr. Kutz, Mr. Fink, either of you?
        Mr. Kutz. We just looked at 2010 to 2012 as part of this.
        Chairman Issa. Would the gentleman yield?
        Mr. Connolly. Of course.
        Chairman Issa. You were out of the room at the point where
    we discovered that these numbers we have been looking at are
    combined. They are conferences, travel, training, and others.
    And the next witness will confirm. But we've asked to have them
    broken down so the committee would get the details because it's
    apparently a substantial amount of this was travel related to
    training specifically, training of new employees.
        Mr. Connolly. So it could have been just we were upping the
    training of a lot of new employees?
        Mr. George. That is a possibility, sir, yes.
        Mr. Connolly. Yeah. Okay. I thank the chair.
        Mr. George, your report found that the IRS contracted with
    15 outside speakers to present at a conference for a total cost
    of $135,350. Is that correct?
        Mr. George. Yes, it is, sir.
        Mr. Connolly. And one speaker was paid $17,000 for two
    presentations. Is that correct?
        Mr. George. That's correct.
        Mr. Connolly. And your report further stated that the
    contract signed by the IRS said ``In each presentation, he will
    create a unique painting that reinforces his message of
    unlearning the rules, breaking the boundaries, and training the
    thought process to find creative solutions to challenges.''The
    speaker then proceeded to paint six such paintings, including
    subjects such as Albert Einstein and Michael Jordan. Is that
    correct?
        Mr. George. Yes, among others.
        Mr. Connolly. Among others. Do you believe paying a speaker
    $17,000 to paint pictures for IRS employees was an appropriate
    use of taxpayer dollars?
        Mr. George. I do not, sir.
        Mr. Connolly. Either of the two of you can weigh in here.
        Mr. Kutz. I would agree with the Inspector General.
        Mr. Fink. I would agree.
        Mr. Connolly. Why did the IRS hire this speaker-painter?
        Mr. Fink. The individual that you are referring to had
    spoken to numerous private sector companies, as well as other
    government agencies. And the way that he presents his
    information is, is he picks subjects to do a painting on and
    then talks about their leadership attributes, their
    characteristics. What it ties to as far as viewing things
    differently and changing the way you think about things is the
    way he goes about doing the presentation is, is that, of
    course, is you cannot recognize the image. In some cases he
    will actually paint the image upside down. But then as he goes
    through it, he talks about what their leadership
    characteristics were or what the unique challenges were that
    they faced and how they had to overcome certain challenges.
        For example, you pointed out, I believe it was mentioned,
    Michael Jordan. He basically spoke about Michael Jordan's
    drive, you know, the fact that he was so committed to being the
    best and always trying to improve. So that's how he does the
    painting, and he relates the painting and his message are tied
    together around what you would hope would be positive
    leadership characteristics, sir.
        Mr. Connolly. I guess I understand the principle, and I
    suppose it's easy to dismiss it, but when we're trying to be
    good stewards and guardians of taxpayer investments, especially
    when our mission is to collect taxes, it strikes me as maybe--
    no, not maybe, it strikes me as really a less than judicious
    use of taxpayer money. And this is the final question, I guess
    to ask all of you. It shows to me a culture of both arrogance
    and tin ear; tin ear as to how might this look.
        You know, the one thing about those of us who run for
    elective life is, we do ask ourselves the question, how would
    this look on the front page of the morning paper? And if the
    answer is not so good, smart politicians don't do it. It looks
    to me like this question never got asked in this--let's even
    concede well-meaning, well-intentioned set of activities, but
    it was, you know, one has to judge it on a range of insensitive
    to stupid, and not a wise use of taxpayer money. And there were
    other ways to make that point and to do that without being, in
    retrospect, becoming an object of ridicule and enormous anger
    by taxpayers who foot the bills.
        And I just, if the chairman would allow the three panelists
    just to comment on what appears to me and others as, frankly, a
    culture of arrogance and a real tin ear to the concerns of the
    public to pay the bills.
        Mr. George.
        Mr. George. I agree with everything you said, Congressman.
    And I know this term is somewhat overused, but the optics,
    there seems for some reason to have been just a lack of regard
    in terms of how this would be perceived by the American people
    in the times that we find ourselves in.
        Mr. Kutz. This is not a case today of fraud or criminal
    activity. This is a case of people that lost sight of the fact
    that they were spending taxpayer money and not their own.
        Mr. Connolly. And I agree with you, Mr. Kutz. I would
    certainly stipulate it's not a matter of fraud or embezzlement.
    It's a matter of very stupid judgment.
        Mr. Fink.
        Mr. Fink. And as I have said, in looking back in
    retrospect, and even at that time, this was not a good use of
    taxpayers' funds, it was an inappropriate use of taxpayers'
    funds, and we should have went about this in a much more
    judicious, much more prudent manner than we did.
        Mr. Connolly. I thank the gentleman.
        And I thank the chair for his indulgence.
        Mr. Gowdy. [Presiding.] Thank the gentleman from Virginia.
        The chair would now recognize the gentleman from Tennessee,
    Dr. DesJarlais.
        Mr. DesJarlais. Thank you, Mr. Chairman, and I do thank the
    panel for being here today.
        And I would like to say, Mr. Fink, we've had several
    hearings, as you know, on the Hill regarding issues surrounding
    the IRS, and when you started your testimony, the one thing you
    did that I appreciated was that you sincerely apologized, you
    showed remorse, and I think you are genuinely embarrassed,
    unlike your predecessor Commissioner Shulman, who when asked
    whether he was sorry or apologized, I think that what we got,
    at best, a backhanded apology that he was sorry that it
    happened under his watch, which I interpret that he is maybe
    embarrassed because it might make him look bad. So I do
    appreciate the fact that you do seem to care, and I think a lot
    of people do as well.
        But let's look at what the American people and the
    taxpayers got for their $4.3 million at this conference in
    Anaheim. Can you tell me what the main purpose that your
    division was there for at this conference?
        Mr. Fink. Yes, sir. And if you don't mind, I do truly
    regret this. I really do.
        The main reason there was because we had had a significant
    turnover in the leadership in the organization in Small
    Business. Also, at this time, we were experiencing an entire
    new customer base in Small Business, folks that had not had tax
    problems before, for whatever reason were coming in to interact
    with the Service. They were having difficulty remaining in
    compliance. Along with that, the third primary item was is
    that, as the Inspector General mentioned, is that we had an
    increase in security concerns out of the incident that occurred
    in Austin, Texas.
        Mr. DesJarlais. Because I have limited time, you have a
    term for the purpose of this, and that's continuing
    professional education. Is that correct?
        Mr. Fink. Yes, sir.
        Mr. DesJarlais. Okay. Do you believe that professional
    continuing education occurred at this $4.3 million conference?
        Mr. Fink. I apologize, but not in the videos, the dance
    videos, the ``Star Trek.''
        Mr. DesJarlais. Okay.
        Mr. Fink. There were learning lessons there, sir.
        Mr. DesJarlais. Now, you have methods of tracking this. You
    have 2,700 people to keep track of. You said they are there for
    a 3-day period, 8 hours a day. How did you keep track of these
    2,700 attendees? What did they do to get credit for these CPEs?
        Mr. Fink. They did not get CPE credit, sir, because we were
    not keeping individual track of their attendance at different
    parts of the event, so they did not get CPE credits. All they
    got was on our internal system, they received what would be
    characterized as leadership training.
        Mr. DesJarlais. How was their attendance determined? Was
    there videos? Was there head counts? Was there a sign-in sheet?
        Mr. Fink. No, sir, there was not.
        Mr. DesJarlais. Okay. So we have all these people, there
    really was no accountability in terms of whether or not they
    actually gained any new knowledge on this particular trip. I
    mean, we don't know whether they crossed the street and went to
    Disneyland during this 8 hours.
        Mr. Fink. We absolutely--I cannot sit here and say
    absolutely they did not, sir.
        Mr. DesJarlais. Do you know of people who did go to
    Disneyland when they were supposed to be in this 3-day, 8-hour
    a day?
        Mr. Fink. No, I do not, sir.
        Mr. DesJarlais. Did anybody talk about it? Has anyone
    talked about going other places rather than being at this $4.3
    million educational seminar?
        Mr. Fink. Not during--no one has talked about going during
    the seminar, but some people did, yes, absolutely talk about
    going places in the evening, sir.
        Mr. DesJarlais. So we really couldn't account for the 2,700
    people. So this conference was probably an abysmal failure when
    you look at the total number. We didn't have any way of
    tracking. We don't know if they were educated. So essentially
    this was not a good conference. We got 224 more of these to
    look at, so we'll kind of--we'll stop there.
        You know, when the American people don't listen to the IRS,
    and they don't pay their taxes, they actually can go to jail,
    get extreme penalties. What do you tell the people that their
    retribution may be when their taxpayer money that they did send
    in is wasted in this fashion? Is there any way that they can
    recoup this kind of money?
        Mr. Fink. Not that I'm aware of, sir, other than
    apologizing sincerely.
        Mr. DesJarlais. Okay. So I mean people, if they don't pay
    their taxes they can apologize sincerely, but they can still go
    to jail.
        Mr. George, if Mr. Shulman or Lois Lerner perjured
    themselves in a prior hearing here should they go to jail?
        Mr. George. It would depend upon the Department of Justice.
        Mr. DesJarlais. So if Mr. Shulman said he never had a
    discussion with the White House about the targeting or Lois
    Lerner turns out that she knew more about these alleged two
    rogue agents that we now know may be 80, if they weren't
    truthful with us should they go to jail like the American
    people go to jail if they don't comply with the IRS?
        Mr. George. They should be subjected to the criminal
    penalties associated with perjury.
        Mr. DesJarlais. Do you agree, Mr. Fink?
        Mr. Fink. I would say, as the Inspector General said, it is
    of course up to the Department of Justice.
        Mr. DesJarlais. Well, I know people get frustrated, we have
    these hearings, and we never seem to get accountability, but it
    sounds like we're getting somewhere. And I thank you all for
    your time and attention.
        I yield back.
        Mr. Gowdy. I thank the gentleman from Tennessee. The chair
    will now recognize himself for 5 minutes of questions.
        And I will say this to the witnesses. I prepared a list of
    questions for all three of you. But during the ranking member's
    opening statement--I shared with him on the floor--my mind went
    away from the questions, and it went back to South Carolina. In
    the very same month, the very same year that the IRS was
    conferencing in Anaheim, we were furloughing law enforcement
    officers. We were furloughing teachers. Prosecutors in my own
    office were furloughed, secretaries in my own office were
    furloughed. Those are secretaries who struggle to make ends
    meet under the best of circumstances. And here we're asking
    them to go 2 weeks without pay, and we canceled all out-of-town
    training. We brought our own food to our Thanksgiving and
    Christmas office socials. We started an anonymous fund to help
    our fellow employees who were struggling to make ends meet.
        And one night one of my secretaries came in after hours and
    asked if she could borrow the money to buy her child a birthday
    present. And she kept apologizing for having to do it. She kept
    saying, I'll pay you back, I'll pay you back.
        And at exactly the same time that young government
    employee, single mom, was borrowing money for a child's
    birthday present, other government employees were staying in
    $3,500-a-night rooms. Other government employees were spending
    more money on promotional materials than that young woman makes
    in a year. And other government employees were spending more
    money on audience participation tools than that young woman
    makes in a year.
        So, Mr. Inspector General, I appreciate the work that
    you've done, but with all due respect, this is not a training
    issue. This cannot be solved with another Webinar. This can't
    be solved with just one more recommendation. If we can just get
    that recommendation implemented. We're just one recommendation
    away from people acting responsibly.
        Mr. Inspector General, we can adopt all the recommendations
    you can possibly conceive of. I'd just say it strikes me, and
    maybe it's just me, but it strikes me as a cultural, systemic,
    character, moral issue.
        The IRS has been in existence, depending on how you want to
    count, either since 1862 or 1918. But in either event, they've
    had 100 years to figure out that while your fellow Americans
    are losing their jobs, and their health insurance, and their
    homes, you do not spend $4 million at a conference for which
    there is no accountability. You do not hire people to make
    meaningless speeches, or artists to paint paintings of Bono.
    When your fellow citizens, the ones who pay your salary are
    struggling, that is a character issue. Training cannot fix
    that.
        They sent more than 25 employees on a scouting trip to see
    whether or not the hotel was okay. That's not going to be fixed
    with training, Mr. Inspector General. When you've got law
    enforcement officers being furloughed and you've had 100 years
    to figure out how to act appropriately, you don't need an IG
    report to tell you that spending $27,000 for someone to talk
    about how random combinations of ideas can drive radical
    innovations, there's not a Webinar in the world that's going to
    fix that.
        So, Mr. Inspector General, in reality, it just strikes me
    that we just need one single recommendation. Start over. This
    entity has not only targeted citizens that it was supposed to
    serve, it's allowed itself to be used as a political tool. Not
    only does it have access to our financial information, it will
    soon have access to our health information. Those are details
    that we don't share with people that we do trust, and we are
    going to be asked to share it with people who are so
    disconnected as to spend this amount of money, while our fellow
    citizens are struggling mightily in the fall of 2010. I don't
    think training is going to fix it. I think replacement might.
        With that, I would recognize the gentleman from North
    Carolina, Mr. Meadows.
        Mr. Meadows. Thank you, Mr. Chairman. And I want to follow
    up on that, because it's hard to go back and talk to the people
    back home who have lost their homes, who have lost their jobs
    and with any clear conscience at all justify any part of this
    behavior. And quite frankly, I find your apology today hollow.
    It's not enough. You know, an honorable man would do more than
    that.
        And I am troubled by the lack of information that was
    provided to the Inspector General's office. You know, I look at
    this report and they can't draw a conclusion because you can't
    provide them, Mr. Fink, with documentation. We don't even know
    what the total cost of this conference was. You know, it's been
    reported that it was $4.1, but I've done the math. It's more
    than $4.1. There is no way. So what was the cost, Mr. Fink? Do
    you know?
        Mr. Fink. The costs that I'm aware of, sir, is the $4.1.
        Mr. Meadows. Well, I can do the number just based on what's
    in the IG's report, and I think they would concur with me,
    there is no way that that can be accurate. Because if you look
    just at the basic numbers, we are at $4.1, just on the amount
    of documentation. If you take 2,500 employees and travel
    vouchers at $3.8, if you just do the math, you're at $4.1
    before we figure in anything else. You can get to $4.5 almost
    immediately, and that's with 90 percent of what you said. Your
    testimony said 90 percent was undocumented, is that correct,
    that you were only able to document 90 percent of the costs?
        Mr. Fink. Yes, sir, that is correct.
        Mr. Meadows. Okay. So how do you know that if you don't
    know the total cost? How do you know that that 90 percent, how
    do you know that the testimony here today at 90 percent is
    accurate if you don't know the total cost? Did you just make it
    up?
        Mr. Fink. No, the--no, the 90 percent is based upon, if I'm
    not mistaken, and I think the Inspector General----
        Mr. Meadows. I'm asking you. It was your testimony.
        Mr. Fink. It's based upon what the overall costs shown in
    the report were, the $4.1 million.
        Mr. Meadows. So you only have 90 percent of the
    documentation, of the $4.1, not necessarily of the total cost?
        Mr. Fink. I believe that is correct, sir.
        Mr. Meadows. All right. So it could be $5 million? It looks
    like it probably was. Could it be $5 million, yes or no?
        Mr. Fink. Yes.
        Mr. Meadows. All right. Could it be $6 million? Think
    carefully, you're under oath.
        Mr. Fink. Yeah.
        Mr. Meadows. Could it be $6 million?
        Mr. Fink. There's no way that I'd know that, sir.
        Mr. Meadows. But we know that it could definitely be 5.
        Mr. Fink. It could go higher, yes, sir, absolutely to 5.
        Mr. Meadows. All right. What surprises me is a guy that's
    been paid for 32 years to hold the American people accountable
    is not accountable to those same people when he's documenting
    his own costs in his department. Why is that? The American
    people want to know? Why is that?
        Mr. Fink. At the time of the conference, there was no
    guidelines or requirement to track costs for that particular
    training event, that particular conference. We implemented the
    use of that code to track the conference expenses.
        Mr. Meadows. All right, so let me ask you a question.
    Yesterday I think you met with Senate committee members. Is
    that correct?
        Mr. Fink. Their staffs.
        Mr. Meadows. Their staffs, right.
        Mr. Fink. Yes, sir.
        Mr. Meadows. In that particular time, the general consensus
    was, is that you didn't think that the $4 million was really a
    problem. Did they mischaracterize that? Because your testimony
    today is that you have had this epiphany that it was a problem,
    but yesterday they didn't see that you saw that it was a
    problem. When did it become an issue to you, Mr. Fink?
        Mr. Fink. It was an issue with me yesterday, too, sir. As I
    stated is, is that if you look back in retrospect, we certainly
    could have done better for the American public and the
    taxpaying public. We certainly could have been more efficient
    and more effective.
        Mr. Meadows. Not more efficient, more accountable. You
    know, I mean, when we get to--and I'm running out of time, so
    let me finish. You also say that all of this was done because
    you had 30 percent new hires. Can you assure us today of the 30
    percent new hires in the Management Division? That's why you
    said it was such a large conference, your testimony.
        Mr. Fink. That was one of the three reasons that I stated,
    is that 30 percent of the managers had less than 2 years
    experience.
        Mr. Meadows. All right. And so we hired all these people,
    and so I've done the math. So you're saying one out of every
    two was a management hire? Because that's 800 new people in
    management if you take 30 percent of the people that attended
    the conference, so you're saying one out of every two hires was
    a management person?
        Mr. Fink. No, sir. I apologize. If that's a
    misunderstanding, that's my fault. When I talk about 30 percent
    of the managers having less than 2 years experience, that would
    not include the numbers of new hires for that particular year.
    The new hires were primarily frontline customer-facing
    employees. We hired 1,516 customer-facing employees. They
    wouldn't have been the managers attending that conference.
        Mr. Meadows. All right, I could see that I'm out of time. I
    appreciate the indulgence of the chair. I have one other
    question that hopefully I will get my colleagues to ask. Thank
    you. I yield back.
        Mr. Jordan. [Presiding.] The gentleman from Michigan, Mr.
    Bentivolio, is recognized.
        Mr. Bentivolio. Thank you, very much, Mr. Chairman.
        Mr. George, after reading your two investigations into
    what's going on at the IRS, both with the excess spending on
    conferences that we're discussing today, and about the
    targeting of conservative groups, I can't help but sense that
    the IRS is out of touch with the average American citizen that
    they were hired to serve.
        Mr. George, during your investigations, did you ever come
    across anyone in the IRS who felt disdain for the average
    American? Is there a culture that promotes a feeling of
    contempt for the American people as if they were somehow
    unworthy of the IRS work?
        Mr. George. I cannot say that our reviews would lead to
    that exact conclusion, Congressman. I can say that there was,
    both in this instance, as well as in the instance of the
    501(c)s, a lack of management, a lack of oversight by
    management of what was going on at the, quote/unquote, ``rank
    and file level'' at this stage. Now, we're continuing our
    review of the 501(c) matter, so I can't give you a definitive
    answer there.
        But in this instance, as Mr. Fink acknowledged, there was a
    lack of sensitivity as to how the expenditures would be
    perceived by the American people, and I would then presume to
    add to the fact that managers seemed to have had a lack of
    concern about how the expenditures would be perceived.
        Circumstances have changed. Again, with the GSA conference
    revelations, the subsequent actions taken by IRS officials, and
    then ultimately by the administration at the highest levels
    have also affected the behavior of government agencies at all
    levels on this issue.
        Mr. Bentivolio. Thank you.
        Mr. Fink, there are tens of millions of Americans who would
    love to be paying taxes to be collected by the IRS and can't
    because they're out of work. Millions of young people, for
    example, many with college degrees and student loans to pay,
    still can't find jobs. Millions more underemployed and barely
    getting by. I try to ask this of most of the agencies that come
    before this committee: When the IRS was looking at conferences,
    or other ways that it spends our money, does it ever consider
    the current economic suffering being experienced by its fellow
    citizens? And I echo the sentiments of Mr. Gowdy.
        Mr. Fink. At this particular time, part of this conference
    initiative, the one that we're speaking to, was about the
    individuals that were having difficulty with complying with
    their filing and paying requirements. That is why we brought
    our leadership together, so that they could convey the message
    out to the folks that do the face-to-face interaction that we
    have to understand the taxpayer's perspective, that we have to
    stand in the taxpayer's shoe so we can better understand what
    they are experiencing when they're interacting with the
    Internal Revenue Service. That is what it is.
        What is particularly difficult this time with this coming
    to light, and I think it does tie to what you're talking about,
    you know, our agency is going through a period of where we're
    furloughing individuals for 5 days, and then you have this
    event come up. And while you can use excuses and say, well,
    this was 1 year money and it couldn't have been carried over,
    it is equally difficult to explain to our own workforce that,
    wait a second, we're getting 5 days off being furloughed and
    not being paid, and you spent this in 2010 on this conference.
        Mr. Bentivolio. I understand. In your circles, have you
    ever heard this saying: It's better to ask for forgiveness than
    it is permission. Ask for forgiveness than it is for
    permission, in your circles heard that before?
        Mr. Fink. Yes, I have heard that before, yes, sir.
        Mr. Bentivolio. And as for your apology, Mr. Fink, I will
    trust you, but I will verify by watching the IRS very, very
    carefully.
        Thank you, and I yield back my time.
        Mr. Meadows. Will the gentleman yield?
        Mr. Jordan. Yes. The gentleman from North Carolina is
    recognized.
        Mr. Meadows. Mr. George, can I pick up on one note? On page
    5 of your report it talks about the transfer of $3.2 million.
    Is that a transfer or was that a reprogram?
        Mr. George. It was a transfer.
        Mr. Kutz. I think it was a reprogram within the enforcement
    appropriations.
        Mr. Meadows. Can you check on whether it was a transfer or
    a reprogramming because it requires different statutory
    approval.
        Mr. George. We will do so, but our understanding is, it was
    permissible, though. That is, we did take a look at that and
    they did not violate----
        Mr. Meadows. So it was a reprogramming, because transfers
    require previous approval from the Appropriations Committee.
        Mr. George. We will confirm that, sir.
        Mr. Meadows. All right, thank you.
        Yield back.
        Mr. Jordan. I thank the gentleman.
        The gentleman from Oklahoma is recognized.
        Mr. Lankford. Mr. Fink, we have heard an awful lot about
    the conference and what happened with it and how important it
    was to be able to get together, and I have no problem with
    conferences and people getting together. There's appropriate
    moments for that. But do you know the attendance? We've talked
    about this before. Do we know how many people actually attended
    the workshops? We understand that it was a full 8-hour day of
    workshops. Do we have a list somewhere of how many people were
    in the workshops and actually attended it?
        Mr. Fink. No, sir, we do not.
        Mr. Lankford. So there is no roll that's taken at those and
    there's no head counts of each workshop as they attended it,
    here is how many people were in the workshops?
        Mr. Fink. That's correct, sir, there was no roll.
        Mr. Lankford. The irony to me, as I go through the list of
    actual workshops--I'm sure you've gone back and taken a look at
    it--it's unbelievably ironic as you go through the list of the
    workshops that were held at this event. A few of those:
    ``Making Telework Work.'' That--this particular one was not 50
    minutes, but we've got all these conferences you're having in
    2010, and all these people gather together for this very
    expensive conference, and they have a meeting about
    telecommuting and teleworking. Now, several years later now,
    our conference expense is much less because we're actually
    making that happen.
        How about this one: ``Political Savvy: How Not to Shoot
    Yourself in the Foot.'' Or ``Unintentional Intolerance: Don't
    Be So Nice.'' This is the other one: ``Why Doesn't Somebody Do
    Something?'' With all that happened with the nonprofits, it's
    ironic to me that in the middle of this conference there is
    training actually about receiving other people and speaking out
    when you see a problem, and then later, apparently, no one
    spoke out and saw a problem with it.
        ``Talk Matters: Authentic Conversations.'' Spent $7,000
    bringing someone in to talk about how to have authentic
    conversations with people. And an amazing one to me is the over
    $10,000 to pay someone to talk about intolerance, when at the
    same exact moment the IRS is in another area isolating people
    that are Tea Party or conservative groups, but yet we're paying
    $11,000 to teach people not to be intolerant.
        It's completely ironic to me as we walk through what
    actually occurred at the conference. You know as well as I do,
    this has got to shift. It has to shift and it will. Changes
    have already been put in place and should be kept in place. But
    I would also concur that accountability is important in this
    process.
        Thank you for your testimony, for the investigation into
    what's happening. With that, I want to be able to yield back.
    We need to be able to move on to our next panel.
        Mr. Cummings. Does the gentleman yield?
        Mr. Lankford. Yes, sir, I would yield to you.
        Mr. Jordan. The ranking member is recognized.
        Mr. Cummings. I just--I know that we'll be dismissing this
    panel in a minute, but I just wanted--first of all, thank the
    gentleman for yielding.
        Mr. Fink, I just wanted to say something to you before you
    leave. I know this has been difficult. I know it. Do you have a
    family? Are you married?
        Mr. Fink. Yes, sir.
        Mr. Cummings. Do you have children?
        Mr. Fink. Yes, sir.
        Mr. Cummings. You remind me so much of people in my own
    district. But I got to tell you something. I'm glad you came
    with the attitude that you came with. I think it was the
    gentleman who said that he appreciated it--I think maybe it was
    DesJarlais--that you came with an apology. We watched Ms.
    Lerner come and plead the Fifth. Shulman came, and basically
    rope-a-doped. And it was really rather insulting to watch what
    Mr. Shulman did. But you came, and you took some tough blows,
    and you were honest, and you laid it out as best you could.
        And I just want you to know, I appreciate that. I
    appreciate you doing that. I appreciate--and I really mean
    this. The fact that you are remorseful means a lot to me, and
    I'm sure other members of the committee may feel the same way.
        I'm just hoping that other people in your department will
    look, and I know that there are other people that did--made a
    lot of mistakes, too, but I'm hoping that there is a lesson in
    this, is that, you know, when things don't look right that
    somebody says, wait a minute, hold on, maybe we should not be
    doing this. And I realize that a lot of times when a person
    stands up and does that, that they may be criticized, but when
    I looked at that list of things that I think the gentleman just
    mentioned, all that stuff, you know, half of those things talks
    about leadership. Leadership, speaking up, how to be a more
    effective leader, you know.
        And I think what you've shown here, and I know it's
    painful, but you've shown some leadership. And I do believe
    that this is a transformational moment--and I think that's
    basically what you've said--for the IRS. I don't think the IRS
    will ever be the same, but it'll be a better organization, we
    hope, and we are certainly going to, you know, be looking at it
    through a microscope. Thank you very much.
        Mr. Fink. Thank you.
        Mr. Jordan. I thank the gentleman.
        Mr. Fink, let me thank you, too, for coming forward. Look,
    we've all made mistakes in life and your attitude has been
    appropriate and we appreciate that. And I appreciate the
    ranking member's comments.
        Want to thank our other two witnesses. We're going to
    dismiss this panel and get ready for Mr. Werfel. So we'll be in
    recess for just a few minutes while the staff gets ready for
    the next panel.
        [Recess.]
        Chairman Issa. The committee will come to order. We now
    welcome our second panel. Mr. Danny Werfel is the Acting
    Commissioner of the Internal Revenue Service and has been on
    the job for nearly 2 weeks. And with that, pursuant to the
    committee rules, we'd ask the witness please rise, raise his
    right hand.
        Do you solemnly swear or affirm that the testimony you are
    about to give will be the truth, the whole truth, and nothing
    but the truth?
        Mr. Werfel. I do.
        Chairman Issa. Please have a seat. Let the record reflect
    the witness answered in the affirmative. And the procedure that
    we use today is not the ordinary procedure. We would normally
    put members of the administration first, but I think it was
    mutually agreed that this procedure made a lot of sense. And
    with that, you're recognized for your opening statement.

       STATEMENT OF DANNY WERFEL, ACTING COMMISSIONER, INTERNAL
                            REVENUE SERVICE

        Mr. Werfel. Thank you, Chairman Issa, Ranking Member
    Cummings, and members of the committee. Thank you very much for
    the opportunity to appear before you today to discuss the work
    we have already done and will continue to do to reduce travel
    and training expenses, and to ensure proper financial controls
    are in place over meetings and conference approval processes.
        The 2010 manager meeting held by the Small Business/Self-
    Employed Division in Anaheim, which was described in a recent
    Inspector General's report, is an unfortunate vestige from a
    prior era. While there were legitimate reasons for holding the
    meeting, many of the expenses associated with it were
    inappropriate and should not have occurred. Taxpayers should
    take comfort in knowing that these kinds of expenses are no
    longer permitted, and such a conference would not take place
    today.
        Since 2010, sweeping new spending restrictions have been
    put in place at the IRS, with the result that travel and
    training expenses have been dropped by more than 80 percent. We
    have limited employee travel and training to mission-critical
    projects. In fact, as the TIGTA report notes, costs related to
    large meetings dropped 87 percent between fiscal 2010 and 2012.
    Large-scale meetings like the one in Anaheim have not taken
    place in 2011, 2012, or 2013.
        Under the Treasury Department's leadership, the IRS has
    taken bold steps to ensure that travel and conference spending
    is appropriate, limited, and undergoes a thorough review and
    approval process. This is an ongoing effort, and we continue to
    examine areas associated with training and travel costs.
        As the Acting IRS Commissioner, I will do everything
    possible to ensure that tight spending protocols are in place
    at the agency to protect the use of taxpayer dollars, and I
    look forward to working with the committee on these efforts.
        Our work in this area is one part of a much larger effort
    to chart a path forward in the IRS. This is obviously a very
    challenging time for the agency, especially in light of the
    inappropriate actions that were recently brought to light
    regarding the 501(c)(4) application process. I look forward to
    discussing that issue with this committee as well.
        I intend to ensure that we are putting in place the
    appropriate measures to hold individuals accountable, address
    the processing of such applications, and review the broader
    internal controls and oversight mechanisms at the IRS.
        More broadly, I am reviewing the full range of IRS
    operations, processes, and practices to focus on how we deliver
    our mission today and how we can make improvements in the
    future. In that way, we will develop a better understanding of
    organizational risks wherever they exist within IRS. For
    example, in line with the TIGTA report on conference
    expenditures, we must ensure that we have the right controls
    and oversight in place to prevent wasteful or inappropriate
    spending in this and other areas. Where we find management
    failures or breakdowns in internal controls, we will move to
    correct these problems quickly and in a robust manner.
        Yesterday, in fact, I took action against two IRS employees
    after I learned of alleged inappropriate behavior. The IG
    forwarded information to us about a party during the 2010
    conference where food was allegedly provided free of charge in
    violation of government ethics standards. Two IRS employees
    involved in the party have been placed on leave, and we have
    started the process to remove them pending further review.
        I would like to be as forthcoming as I can with the
    committee with respect to these--with respect to these
    individuals, but because the process I just referred to has
    personnel implications, there is very little else that I can
    say publicly at this time about that process or the people
    involved.
        On all of these efforts I have described above, we will
    report to the President, the Treasury Secretary, and the public
    by the end of the month and give a progress update. We have a
    great deal of work ahead of us to review and correct the
    serious problems that have occurred at the IRS, and to continue
    the important work of the agency on behalf of the taxpayers.
        In the few days I have been at the IRS, it has already
    become clear to me that this agency is populated by thousands
    of dedicated public servants who are strongly committed to
    caring out the agency's mission. It's an honor for me to serve
    alongside them. And I am confident that together with Congress
    and other external stakeholders, we will address the current
    challenges and move forward with the indispensable work of this
    agency. Thank you, and I look forward to your questions.
        Chairman Issa. Thank you.
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        Chairman Issa. And I'll recognize myself for a round of
    questioning.
        Picking up sort of in the order in which you mentioned it,
    the two individuals that have been placed on administrative
    leave, in spite of administrative leave standards, they are
    available for transcribed interviews by this committee. Is that
    correct? You can give them things to do?
        Mr. Werfel. I'm aware of no prohibition that can be placed
    on this committee interviewing them or at least requesting
    interviews.
        Chairman Issa. Okay. It's the intention to request
    interviews of these persons of interest. And I would like you
    to also at some point today kind of run us through some of the
    troubles and perils you have in trying to take people out of a
    position and ultimately terminate them, demote them, deal with
    them, because I think that's one of the areas of interest.
        The vast majority of Federal workers are great workers.
    They do a good job. They are protected by civil service and
    unions. But at the same time it is vexing, I think, to all of
    us sometimes when you get really bad actors, how long it can
    take even when you know ultimately they're going to be
    terminated. And we may be able to help you in shortening that
    process. Ultimately we want due process, but my understanding
    is it can take up to 3 years to terminate somebody unless
    they're criminally indicted. Is that right?
        Mr. Werfel. I think I've heard of situations in which it
    can take that long, but, you know, you can move the process
    quickly, but I think very often it's not quick enough and it's
    something that certainly we should explore.
        Chairman Issa. And we'd like to work with you and other
    principal Cabinet positions and sub-Cabinet positions on that.
        When we had talked yesterday, I mentioned a question that I
    was very interested, and hopefully you've been able to
    ascertain this. In the earlier panel, we heard a lot about
    using event planners and how much the Anaheim conference cost.
    Were you able to get an estimate of, had your in-house people
    taken it fully, obviously the event planner would have been
    locked out of the process, but what they believe they could
    have saved the American taxpayers if it was done by the
    existing structure you had at the IRS?
        Mr. Werfel. Yes, and I appreciate the question. And as you
    just mentioned, you start with the $133,000 that were spent on
    the event planners, and, you know, that's a lot of money, and
    that's important, to make sure that we're saving that. And I
    think as the Inspector General pointed out, by not having IRS
    people designated to do this, who would have no incentives to
    keep the costs up, only to keep the costs down, you're not
    pushing as hard in the negotiation. And I asked my CFO to talk
    with the team and make sure we had an understanding of what the
    opportunity that was lost, and we think it could be up to about
    10 percent, you know. And 10 percent on a $4 million
    conference, now you're at $400,000. This is real money. And
    that's why I take the findings in the IG report very seriously,
    and this is a change that has to happen with respect to any
    activity going forward.
        Chairman Issa. Thank you. Additional question. We learned
    that approximately $3.2 million of the money spent on these
    conferences was redirected from accounts that should have been
    used to hire new employees. Is that still a possible practice,
    or has that been tightened up so that we could no longer think
    that we're asking for more examiners, we're asking to free up
    backlogs, and leftover money by not hiring these people gets
    spent on a conference and then the next year, of course, people
    are saying we need more money for inspectors.
        Mr. Werfel. It's a good question. It goes to how much
    flexibility there is in the IRS to spend the money that's been
    appropriated to them. It's my understanding that in this
    situation there was this $137 million appropriation to hire a
    certain number of employees and that there were an ability to
    take $18 million of that and spend it on training. And so you
    had this allowability to move certain amounts of money into
    training that would in theory supplement the enforcement
    actions.
        You know, this conference report--I mean, this IG report--
    raises questions in terms of whether that training was done
    effectively or not, and it raises questions about are we
    spending our money effectively and could the money, the $3
    million of that $18, been moved into enforcement activities and
    had a higher ROI for the taxpayer, return on investment for the
    taxpayer? In this case it's hard to argue against that.
        But here it's something that we have to talk about. How are
    we evaluating the way IRS is moving its money into proper
    places to ensure that we're doing the best for the taxpayer?
    Obviously, the IG report raises important questions.
        Chairman Issa. And there's going to be a lot of questions.
    One that I think I'm particularly sensitive to, there's a law,
    a statute, 6103. Obviously, it's a unique situation in that we
    receive personal information all the time in discovery from
    government. But when it comes to the IRS, there's specific
    rules. And they are there for a good reason, and we want to
    respect that.
        As you know, in one of your previous positions, this
    committee moved forward an agenda for something called the DATA
    Act. And we did so because we wanted government-wide to have
    structured data so that no matter where data was, any
    particular cell of information would be well defined so that if
    you wanted to extract it, but take the rest, you'd be able to
    do so.
        Because you were in that previous job and you're now in
    this job, would this kind of improvement at the IRS and other
    government entities allow, when an organization like ours says,
    well, we want to know everything but we don't want 6103
    information, Social Security numbers and the like, can you send
    it to us with that being redacted by computers rather than the
    laborious task of human beings putting blackouts? From your 2
    weeks here and your many years elsewhere, what do you think
    about that?
        Mr. Werfel. I'll tell you one thing. We want to know, for
    example, on the better tracking of conference expenditures, the
    issue that we found, and in response to you proposing the DATA
    Act, working groups got together throughout the Federal
    financial management community to figure out, what does
    standardization mean and what would it open up in terms of
    knowing where our money is going?
        And what happens is, is when we obligate money, we don't
    necessarily capture all the relevant information that we need
    in terms of where is that money going? So, for example, we
    might obligate a set of money, but we don't know which
    recipient to attach it to or which vendor is getting that
    money. And so I look at the conference report and I realize
    there is not good tracking for where the dollars are going,
    fixes to our underlying accounting would address that. And you
    could have a much more comprehensive and systemic review of,
    here are the transactions, and here is how that money flowed
    out in terms of what did we spend on these types of activities
    across the entire spectrum.
        You know, the issue here is, how do you get there? How do
    you fix our underlying financial management so that you have
    more transparency into where that money is going. And that is a
    dialogue that, obviously, I have been having with this
    committee for quite some time, and now that I'm in an agency
    and, you know, on the front lines of this type of financial
    management, I'm looking forward to working with you to give you
    insight, now complemented from my prior experience.
        Chairman Issa. Well, thank you. And I think that perhaps
    you could be the greatest asset for us working together with
    the administration broadly in finding ways to implement that
    sooner, something that rather oddly is extremely bipartisan
    here on the dais.
        Mr. Cummings.
        Mr. Cummings. I agree with you, Mr. Chairman, that is
    definitely a bipartisan issue.
        Mr. Werfel, there is an organization in Maryland whose
    philosophy I disagree with, but I will fight with everything I
    have got to protect them. And it's called the National
    Organization for Marriage. And as you know, they came into
    another hearing and they said that their tax information had
    been released to the public. They found it on a computer, you
    know, for the world.
        I've got to tell you that that disturbed me greatly because
    people, American, the American people have to know that the
    information they are giving to the IRS, whether it's an
    application, whether it's, you know, a tax return, or whatever,
    is kept private.
        And, you know, I keep talking about truth and trust. The
    idea that the IRS has an impact on every single family in
    America, and the idea that people are feeling more and more
    vulnerable with regard to their information being distributed
    all over the Internet, I'm just wondering, I mean--I mean, how
    you feel about that, and do you have a plan in place?
        And I'm not trying to get into any investigations, because
    that's the IG, I guess, but I'm just wondering where are we on
    that? And I'm sure that must have disturbed you. You did hear
    about it, right?
        Mr. Werfel. I did. Let me start by saying, you know, this
    goes right to your question, that I can't speak to the issue of
    a particular taxpayer because----
        Mr. Cummings. Right I understand. Okay, just talk
    generally.
        Mr. Werfel. I would like to broaden----
        Mr. Cummings. Yeah, but I wanted to give--the reason why I
    mentioned the name of it, because it's a Maryland organization.
    But more important than that, it's not just the organization,
    Mr. Werfel, it's the idea that information that taxpayers
    consider to be confidential then appears on the Internet. And
    that goes, I'm talking, I'm telling you that goes to trust,
    too, all right. So you can talk generally.
        Mr. Werfel. I will. And I would say, as the chairman
    mentioned, I have been in this seat for 2 weeks and----
        Mr. Cummings. I understand.
        Mr. Werfel. No, and that's been enough time to make some
    very critical conclusions. And one of the conclusions that I
    have reached is there are at least three, but the three that
    jump out the most to me, the three most important risks that I
    have learned so far in 2 weeks that we need to manage and keep
    at a very low risk level are the risk that the taxpayers would
    feel like their information is not well protected; the risk of
    IRS acting with partiality and not being impartial; and the
    risk that we're not keeping our costs down. And those jump out
    at you. And it's critical that--and we're having issues in each
    of those areas demonstrated by the recent IG reports.
        And part of our improvement plan, part of our efforts, as
    you said in your opening remark, to restore the trust are to
    put in place stronger practices than we have today to make sure
    that we're hitting it out of the park on those three issues. We
    have to make sure that information is protected under 6103.
    Citizens have to feel like when they're submitting personal
    information about their finances to the IRS that is protected.
    We have to make sure, and this is so critical, that the IRS is
    acting impartially. And third, and from the first panel I think
    it was clear the concerns that you raised, that I agree with,
    we have to make sure that we're spending the taxpayer dollars
    wisely.
        And so for any constituent that you have, I think the key
    is, how is the IRS doing on those three things? And what I'm
    hoping to do in my tenure is to put in place new procedures,
    new disciplines, new checks and balances, to make sure that in
    each of those three areas we're not only performing better, but
    there's a transparency to what's going on in each of those
    areas and there's a partnership, a broader partnership outside
    of IRS that involves this committee and other committees, that
    involves other stakeholders, whether it's GAO, or local
    universities, or think tanks who can help us think through
    these issues. And it can't just be the IRS operating alone at
    the IRS. We have to make these improvements collectively.
        Mr. Cummings. Now, Mr. Werfel, I, first of all, I
    appreciate everything that you have said. I also think I
    appreciate you reaching out to the chairman and I within hours
    after you were appointed saying that you wanted to work with
    us. And I really do appreciate that. But I'm wondering if you
    realize the moment that you find yourself in. I'm not finished.
    This is a very critical moment in the history of the IRS, and
    you've been called, I'm sure you're an ordinary man, but you've
    been called to an extraordinary mission. And it's--I'm not
    finished--an extraordinary mission.
        You have the duty now to restore trust for millions upon
    millions, hundreds of millions of Americans who work hard,
    blood, sweat, and tears, efforts to raise their families, and
    they just want a fair shake. They don't mind paying taxes as
    long as the things that you just talked about are done. And I'm
    just wondering if you realize the significant moment that
    you're in and how we are depending on you. And we know you
    can't do it by yourself. That's why all of us have to work with
    you to make this happen. Do you really comprehend that, sir?
        Mr. Werfel. I do. I understand the enormity of the moment
    and the enormity of the challenge. The way that I look at it,
    in order to make sure that I'm keeping my eye on the ball,
    because you can get lost in how big this challenge is, and I
    don't want to do that. I want to get to work and roll up my
    sleeves. You know, I'm a civil servant. I have been a civil
    servant in government for 16 years and I have a deep
    appreciation for the work that the Federal Government does in
    almost every realm. I'm a champion for the work that the civil
    servants do.
        And when I was approached about this, and I realized there
    is a group of civil servants at IRS that are struggling, that
    we have an agency in crisis, and I realized also, and I think
    one of the reasons why I was approached is because I have had
    in my career a knack for solving tough government problems,
    that I was the right person to go at this time, given my
    understanding of how the government works, and given my passion
    for improving government, to be there.
        And so I arrived and I said, what are the right things we
    need to do? And there are some very tough decisions, very
    tough. Almost every day I'm confronted with a set of questions
    and challenges that would--you know, I've joked a few times, we
    should take some of these to the Harvard Kennedy School of
    Public Policy and show how tough this is, and they would
    probably say, you know, this is an unrealistic problem. There
    is almost too much public policy tension going on.
        Mr. Werfel. I get questions like that five times a day. And
    I'm realizing, again, that each of these questions are
    solvable. The issue is making sure that there is cooperation
    and understanding, patience and input from a diverse set of
    stakeholders in solving them.
        So the answer to your question is, I understand the
    enormity of the moment, but then I take myself down to the
    level of, how do you fix a problem in the Federal Government?
    What can I bring to the table? Who can I bring around the table
    to help me? And then I can get down to the business of what
    needs to be done.
        Mr. Cummings. We're going to work with you and give you all
    the support that we possibly can. And thank you very much.
        Mr. Jordan. [presiding.] Mr. Werfel, I appreciate your
    attitude and the fact that you grasp the gravity of the
    situation. You just said in your last comments that this is an
    agency in crisis. You came from OMB. How many folks worked for
    you at Office of Management and Budget?
        Mr. Werfel. I held a variety of different positions, but
    the highest ranking position I held I would say about roughly
    115, 120.
        Mr. Jordan. And you're going to an agency now that has
    about 90,000 employees and slated to add several thousand more
    when it comes to the enforcement of the Affordable Care Act. Do
    you think maybe this is just an agency that's way too big, got
    way too much responsibility? And now that we're adding
    something as complex, something that Senator Baucus has called
    a train wreck, now that we're adding that responsibility to it,
    I think you're right when you say this is an agency in crisis,
    and it's headed for more in light of what's coming.
        Mr. Werfel. I think a couple of reactions, if I could. One,
    I agree with the premise that we need to evaluate the structure
    of the IRS going forward--its size, its complexity. That's part
    of this movement forward in terms of----
        Mr. Jordan. Let me interrupt, because I've got 5 and these
    guys have to catch planes, and I apologize. And I do appreciate
    the attitude that you have displayed and what I've heard from
    your public service. But in order to deal with an agency in
    crisis, in order to start fresh and reform that, you have to
    the bottom of the current problems. You have to hold, you said
    in your opening statement, hold people accountable for what's
    going on.
        So let me ask you this. Have you talked to Lois Lerner in
    your time as--in your short time as head of the IRS?
        Mr. Werfel. Let me answer that question two ways. I have to
    be careful about revealing any elements of a personnel issue.
        Mr. Jordan. I didn't say that. I just said, have you talked
    to her?
        Mr. Werfel. But I have not talked to Lois Lerner.
        Mr. Jordan. At all?
        Mr. Werfel. No, I have not talked to Ms. Lerner.
        Mr. Jordan. And is she still an employee of the IRS?
        Mr. Werfel. She--again, there's some Privacy Act issues.
    Let me just say that the position that she held is now being
    held by another employee.
        Mr. Jordan. Is she still being paid by the taxpayers?
        Mr. Werfel. Again, if I could, there's Privacy Act issues.
    But let me just--and this has been brought up--the personnel
    process for how we deal with----
        Mr. Jordan. No, I'm just asking if you've had any
    communication as the head of the IRS, if you've had any
    communication with Lois Lerner, who was in front of our
    committee 2 weeks ago and refused to answer questions.
        Mr. Werfel. And if I could, if I can answer, because I
    think I understand your question, and the answer to your
    question is, my review of what is going on in the IRS involves
    working very closely with the IG and the Justice Department.
    And I have to be very careful----
        Mr. Jordan. Got it.
        Mr. Werfel. --about interfering with their work.
        Mr. Jordan. Got it.
        Mr. Werfel. And so we have an individual that you named
    that's a very important person to get information from. She is
    central to the----
        Mr. Jordan. So you think she has important information to
    offer this committee.
        Mr. Werfel. Absolutely.
        Mr. Jordan. And offer the United States Congress. And more
    importantly, offer to the American people.
        Mr. Werfel. Absolutely. And I know the Justice Department
    and the Inspector General are working to get that information.
    And importantly----
        Mr. Jordan. So how did she get to this paid leave status if
    you've never talked to her and you're the acting head of the
    IRS?
        Mr. Werfel. I can explain that. So we have an audit report
    that the IG has completed, and I am looking at that audit
    report, and that audit report has conclusions of management
    failures that are going on--that went on in the IRS. And I, my
    first approach on accountability, because one of the things I'm
    charged to do is to make sure we're holding people accountable,
    and I have a completed audit report that has conclusions of
    mismanagement. And the first thing I'm doing is going through
    those findings and determine where were those management
    failures so critical that that individual no longer--can no
    longer serve a position of public trust in the IRS.
        Mr. Jordan. Okay.
        Mr. Werfel. So from the audit report alone I can make
    decisions.
        Mr. Jordan. Without communicating with her.
        Mr. Werfel. There is enough evidence in the record about
    the mismanagement, yes.
        Mr. Jordan. Have you, subsequent to her going on paid
    leave, subsequent to her coming in front of the committee and
    refusing to answer questions, have--do you think it would be
    appropriate for you to talk to her only in this context: to
    encourage her to come in front of the committee to get to the
    truth so we can hold people accountable and we can restore the
    trust and meet those qualifications you outlined in your
    opening statement, you outlined in your answer to Mr. Cummings.
        Mr. Werfel. I will.
        Mr. Jordan. You will go----
        Mr. Werfel. I will do two things. I will get to the bottom
    of this----
        Mr. Jordan. No, I'm asking will you encourage her to come
    in front of the committee and answer questions? You told us you
    want to hold people accountable, you want to get to the truth,
    you want to restore trust. The central figure in this drama
    thus far is Lois Lerner, and she has refused to answer
    questions. I'm asking, will you encourage her to reevaluate her
    decision not to answer questions and come in front of this
    committee?
        Mr. Werfel. And I'm going to answer your question. There's
    a complicated element to your question. But if I could--if you
    can indulge me. When I arrived at the IRS----
        Mr. Jordan. I think it's not complicated. I think it's real
    simple. I don't see how encouraging--you could make a public
    statement, you don't have to talk to her--you could say, I
    encourage Lois Lerner to come in front of the committee so we
    can, according to what you told Mr. Graves the other day, we
    can hold the proper people accountable, we can restore public
    trust in the Internal Revenue Service, we understand the
    gravity of the situation we are in, I would encourage her to
    come forward and give the committee the information and answer
    the questions we'd like to ask her. Will you do that?
        Mr. Werfel. Again, first of all, whether she comes and
    testifies is a matter for her and her attorney.
        Mr. Jordan. I understand that. She's exercising her Fifth--
    I understand that. I'm asking will you encourage her? Mr.
    Cummings just outlined how the enormity of the situation you
    find yourselves in--yourself in--you said, I get the gravity of
    the situation I find myself in, a 90,000-employee IRS, slated
    to hire a bunch more people to enforce the Affordable Care Act,
    I get how serious this is. The central figure thus far in the
    investigation is Lois Lerner. She's refused to answer questions
    in front of this committee. I'm asking you as the guy who's
    charged with fixing this agency, which is out of control, an
    agency in crisis, to use your words, will you encourage Lois
    Lerner make a statement? You're running this agency. Make a
    statement. I encourage Lois Lerner to come in front of the
    Oversight Committee and answer the questions of the Members of
    the United States Congress.
        Mr. Werfel. Two responses to that. Yes, as a general matter
    I encourage anyone who has information----
        Mr. Jordan. I didn't ask as a general matter.
        Mr. Werfel. Including Lois. Including Ms. Lerner. I
    encourage anyone, including Ms. Lerner, to come in front of
    this committee, to cooperate with the Justice Department, to
    cooperate with the Inspector General. So I apologize if I
    misunderstood your question.
        Where I was going--and maybe I got confused by your
    question--was I have to work very closely and follow certain
    rules that have been laid out for me by the Justice Department
    and the Inspector General about me talking to individuals in
    any way that might interfere with their investigation, and
    that's what I was. I just didn't want to overcommit.
        Mr. Jordan. No, and I'm over time and I want to--I just
    want to be clear. So you're going to encourage Lois Lerner,
    you're saying today in front of this committee you encourage
    Lois Lerner to come in front of this committee and answer
    questions.
        Mr. Werfel. Absolutely.
        Mr. Cummings. And just with the chair's indulgence. And
    anybody else.
        Mr. Werfel. Yes, absolutely.
        Mr. Cummings. All right.
        Mr. Werfel. Anybody who has information about this
    situation needs to provide that information. It's too
    important.
        Mr. Jordan. Got it. My time is--I apologize. The gentlelady
    from New York is recognized.
        Mrs. Maloney. Welcome. Clearly the way that some groups
    seem to have been targeted is impermissible and absolutely
    outrageous. But what type of things should send up warning
    signs?
        I'd like to ask you about a series of activities and
    whether or not you think Congress should clarify what is meant
    by them and whether or not they would be considered partisan
    political activity. I only have a short number of time, so if
    you could just answer yes, no, or don't know.
        For example, is advocating for a particular bill to be
    defeated considered partisan political activity? Yes, no, or
    you don't know.
        Mr. Werfel. I'm not sure if I can apply the rule of law to
    that set of facts. The key--my understanding of political
    activity orients around trying to get an individual elected to
    office for the purpose of 501(c)(4) review.
        Mrs. Maloney. That's what we're talking about. Okay, how
    about advocating a candidate to be elected or defeated?
        Mr. Werfel. Yes. That is square.
        Mrs. Maloney. And how about advocating to overturn a
    Supreme Court decision?
        Mr. Werfel. Again, there's a complexity that I can't speak
    to. My understanding of primary political----
        Mrs. Maloney. Well, how about advocating for birth control
    or trying to defeat access to birth control, should that
    activity enjoy tax-free status with funds raised from anonymous
    donors?
        Mr. Werfel. Again, I don't want to speak as an expert on
    these issues. I think right now my key understanding of how you
    measure political activity is how you advance a candidate--if
    you're advancing a candidate for office or otherwise.
        Mrs. Maloney. Well, the report that the--but I would say
    all of those decisions are rather political, very political, in
    my opinion.
        Mr. Werfel. Let me offer----
        Mrs. Maloney. But maybe we need to clarify them. And the
    IG's report on this issue explained that a lack of clear
    guidance on how groups are determined to be eligible for tax-
    exempt status was one factor that contributed to the decision
    made by the IRS personnel.
        But one key reason this problem exists is because of the
    difference between the original statute Congress passed and the
    regulation the Treasury Department subsequently issued. And the
    original statute passed by Congress provides that organizations
    may qualify under 501(4)(c) only if they engage exclusively in
    social welfare activities. And that seems to be very clear. If
    you're exclusively in social welfare, you have the tax-exempt
    status.
        But in 1959, a regulation was issued providing that
    entities could qualify under 501(c)(4) as long as they engaged
    primarily in social welfare activities. So would you--so
    requiring organizations to be primarily engaged in social
    welfare activities is very different, I'd say significantly
    different, from requiring them to exclusively engage in social
    welfare. Wouldn't you agree?
        Mr. Werfel. I would.
        Mrs. Maloney. Okay. And I know the regulation now is more
    than 50 years old, but do you know why Treasury changed it from
    exclusive to primary?
        Mr. Werfel. I do not.
        Mrs. Maloney. You do not. And is there any reason why you
    think we should not use the exclusive test today.
        Mr. Werfel. I think it's something that I don't--I want to
    work with the Treasury Department and committees in Congress to
    explore. Right now I have a regulation that I have to abide by
    that uses the word ``primary,'' and so that's what I'm working
    with. But one of the Inspector General recommendations----
        Mrs. Maloney. I know that he recommended, and also at the
    last hearing about the IRS we asked Neal Wolin who testified,
    he was the Deputy Secretary of Treasury, if he would consider
    the effort by the IRS and Treasury to issue a new regulation
    that returns to the exclusive test, and he said he would. And
    my question to you is, would you work with Mr. Wolin and others
    on the possibility of clarifying this and going back to the
    exclusive test?
        Mr. Werfel. I've already initiated discussions with
    Treasury Tax Policy around updating the regulation, but I don't
    want to presuppose what the interpretation of exclusivity is. I
    think that has to be a very broad process of seeking comment
    and input to make sure that we get the right definition.
        Mrs. Maloney. Would you welcome setting up a meeting with
    members in a bipartisan way of this committee and with Treasury
    on this specific issue?
        Mr. Werfel. Yes.
        Mrs. Maloney. I think that's very important because this is
    the Government Oversight and Reform Committee, and if we forget
    the reform part of it then we are likely to have the same
    situation in the future. And I think the fact that the series
    of questions that I put before you, which, in my opinion, are
    clearly political, but in your opinion are not, need to be
    clarified and need to be well understood by the employees at
    the IRS and the general public.
        My time has expired. Thank you.
        Mr. Jordan. The gentleman from Florida is recognized for
    his 5 minutes.
        Mr. Mica. Let me first yield a minute to our current chair,
    Mr. Jordan.
        Mr. Jordan. I thank the gentleman.
        Mr. Werfel, will you also commit to giving the committee
    every piece of information that you possibly can when you get
    the chance to review it and get it to the committee?
        Mr. Werfel. Yes, subject to 6103.
        Mr. Jordan. I understand 6103, I understand that. But right
    now the committee staff is interviewing an employee of the IRS,
    Mr. John Shafer. His attorney sent us a letter, to the
    committee staff, on Monday, June 3rd, and it says, ``In order
    to allow for a more complete interview of Mr. Shafer we sought
    permission from the IRS to provide the committee with limited
    documents in Mr. Shafer's possession. The request was also
    denied.'' I'll make sure that minority staff gets to see this--
    or minority members get to see this as well.
        We then have an email from the following day from the IRS
    to committee staff, Ms. Kirsten Wielobob, where she says,
    ``Unfortunately, we are unable to produce the requested
    documents in advance of Mr. Shafer's scheduled transcribed
    interview before the committee.''
        Here's an employee of yours being interviewed in front of
    the committee who wants to present documents to get to the
    truth so we can hold people accountable and do exactly what you
    described in your statement, and we want to know why you won't
    give us the documents.
        Mr. Werfel. It's not a question of won't give you the
    documents. It's a question of just having enough time to pull
    the documents----
        Mr. Jordan. My understanding is, it's a handful, it's just
    a handful of emails.
        Mr. Werfel. I don't know. I mean, you said the interview's
    ongoing, so I don't have specific information. But as a general
    matter, when we get a document request from Congress, we have
    to pull the entire data file down. So you named an individual,
    we would go and take their entire email down, and then we have
    to review it for 6103. And some of these individuals have been
    at IRS for years. So you're talking about thousands and
    thousands of pages. So the notion is not that we're withholding
    the documents, the notion is we're acting very quickly and
    effectively to try to get that information as quickly as
    possible.
        Mr. Jordan. And I know I'm over my time and I got to get
    back. But he has--he has the documents. He wants to give them
    to you and say review them so we can--I mean it's a handful in
    his possession, it's not his whole computer, it's not a whole
    file, it's a handful of documents.
        Mr. Werfel. If he's willing to hand me documents right now
    or expeditiously----
        Mr. Jordan. No, he was willing to do it on Monday so we
    could have it for today's hearing and you guys didn't do it.
        Mr. Werfel. Well, I have to look into that. I don't have
    any facts about that.
        Mr. Jordan. I thank the gentleman for his time and I yield
    back.
        Mr. Mica. Mr. Werfel, at today's hearing we have been
    trying to focus on conferences gone wild with IRS. I guess you
    have put some people on suspension. And that's with pay?
        Mr. Werfel. It is because of the process, but also we're
    making--doing the right procedures to move towards termination.
        Mr. Mica. The other thing, too, is I heard Mr. Fink, I
    guess he got a promotion after that and a bonus. And these--
    several of these folks got bonuses, too. Is there any way to
    recoup some of the rewards for bad behavior?
        Mr. Werfel. I will look into that. I don't know the
    personnel rules in terms of whether we can recoup bonuses.
        Mr. Mica. Well, we can change the law. And the other thing,
    too, the Inspector General has said that no laws were broken.
    And if no laws are broken, maybe we need to put some laws in
    place. Maybe you could recommend back to us.
        Mr. Mica. And I heard Mr. Cummings, too, and I have seen
    the same thing, folks getting up, working their tail off in
    this country, trying to feed their families, make ends meet,
    pay their taxes. And then, what is it, the plastic squirting
    fish, $64,000. You were at OMB, weren't you, just before you
    came here?
        Mr. Werfel. I was, yes.
        Mr. Mica. Are they sleeping at OMB?
        Mr. Werfel. No. In fact----
        Mr. Mica. I mean, that's Office of Budget and Management. I
    know you oversee the budget, but somebody's got to be looking
    at the management and operations. We do that as a committee.
    We're getting our information, is a bit old here. But I really
    wonder what's going on in the Office of Budget and Management.
    And you were there, now you're in IRS. So somewhere we've got
    to make the changes.
        The only thing that turned this whole spigot off was the
    hearing that we did. And then, as I said, thank God for the guy
    in the hot tub. All the investigation I did preliminarily did
    nothing like inflaming the public that the guy in the hot tub
    did. And I said--you know, I showed today the $20,000
    drumsticks, $64,000 for trinket for IRS employees, $135,000.
        Now you can bring under control the cost of the
    conferences, right?
        Mr. Werfel. Yes. Even----
        Mr. Mica. You've done that.
        Mr. Werfel. They're brought significantly under control and
    we could go deeper.
        Mr. Mica. That's only because of the scandal and the
    investigation that we went after, period. Please don't tell
    me--nobody did a darn thing until Mr. Cummings and some of us.
    Come on.
        Mr. Werfel. Well, if I could, I'm not disputing your point.
        Mr. Mica. Well, I don't have--I don't have much--too much
    time. But have you been to the White House yet as----
        Mr. Werfel. No.
        Mr. Mica. Okay. How many times--I mean, Mr. Shulman went,
    was it 160 times?
        Mr. Werfel. I've heard that number. I don't have any
    evidence. But since I started at the IRS I have not been to the
    White House at all.
        Mr. Mica. Okay. And finally, again, within your purview I
    think you have the ability to bring some of these costs under
    control, and also holding people accountable. Granted, you were
    not there, you were at OMB in another watchdog position, and
    somehow this slipped by OMB and everybody else. But now you
    have the ability to hold people accountable.
        I think folks want people held accountable who have misused
    their position, cost the taxpayer money. We look forward to
    working with you.
        The first thing I want out of you as IRS Commissioner is to
    tell us what we need to do to change the law, and we'll look
    forward to your recommendation, so that people can't be paid
    who have done misdeeds with the public trust.
        Mr. Mica. Yield back.
        Mr. Jordan. I thank the gentleman.
        The gentleman from Virginia is recognized.
        Mr. Connolly. Thank you, Mr. Chairman.
        And welcome, Mr. Werfel, welcome back to the Oversight and
    Government Reform Committee. While there were some stories when
    you were appointed about who is Dan Werfel, those of us here in
    the Oversight and Government Reform Committee knew the answer
    because you are a frequent flyer here at OGR and a very valued
    witness. And we thank you for your past service and certainly
    want to be as supportive as we can be in your new assignment,
    which as the ranking member indicated, is pretty awesome.
        Just to clarify one thing, you were being very careful in
    your response to Mr. Jordan on Ms. Lerner. I think there are
    two aspects of that to be careful about. One is there is
    precedent where predecessors, senior officials in IRS, made
    certain statements based on an IG report that then were
    considered by a judge to be prejudicial to an IRS employee,
    thus yielding a very undesirable outcome, which was the full
    reinstatement of an employee that people were trying to
    actually have dismissed, with back pay. And I assume you're
    being careful because obviously you want to avoid that pitfall.
        Mr. Werfel. Yeah. If I could, Congressman Connolly, there's
    a couple of reasons why I want to be careful. And also I want
    to be as transparent as possible in terms of how the process
    is.
        You know, when I arrived at IRS, I wanted to make sure
    people understood what I'm seeing, the path I'm taking, and a
    couple of things. One, the process to hold people accountable,
    to discipline people is long and complicated. And as you point
    out, you don't want to move too quickly without being fair and
    thorough. Fairness is critical, thoroughness is critical,
    because of what you just said. If I move someone forward for
    dismissal and I don't have a strong record, then I'm going to
    lose my case to try to dismiss them and they're going to get
    reinstated with back pay.
        Mr. Connolly. Right.
        Mr. Werfel. And I know people are going to lose patience,
    but I'm going to be as fair and thorough as possible.
        Mr. Connolly. That's correct. Sometimes up here we can
    afford the luxury of sort of cutting corners in due process.
    You cannot as a manager.
        Mr. Werfel. Yeah. And if I could clarify one other thing,
    the other important point is that in my review, and
    particularly in discussing or asking questions of the
    individuals that have knowledge about this situation, the
    Inspector General and the Justice Department have said to me,
    we are asking these questions, and if you come in and ask these
    questions at the same time as us, it could be disruptive to our
    very critical investigation.
        Mr. Connolly. Exactly.
        Mr. Werfel. So what they've said to me is, let's make sure
    we're all on the same page with what questions need to be
    asked, we are professional investigators, and we'll ask the
    questions, we're going to keep you informed, Acting
    Commissioner, in real time. And that's going to enable me to
    make sure there is a clean and fair and thorough investigation
    and get this committee the information it needs as quickly as
    possible.
        Mr. Connolly. And one other point, Mr. Werfel. Again in
    your response to Mr. Jordan, who was exhorting you to encourage
    this particular individual to come back to the committee and
    testify, and your answer was a broad answer, which didn't fully
    satisfy Mr. Jordan, which was, I'm going to encourage everybody
    to----
        Mr. Werfel. Absolutely.
        Mr. Connolly. But I want to be clear real clear. You can't
    be put in the position nor should you be put in the position of
    interfering with the exercise of the Fifth Amendment rights of
    anybody, including an employee, no matter what his or her
    status is at the IRS. Is that correct?
        Mr. Werfel. That's absolutely correct.
        Mr. Connolly. All right. Because I want to be real clear
    about that. A lot of people holding up the Constitution saying
    they believe in the Constitution, well, the Fifth Amendment,
    the last time I checked, is one piece of that Constitution. And
    it is a constitutional right, whether we like its exercise or
    not, and this individual has a right to exercise her Fifth
    Amendment right without interference by us or by you.
        Mr. Werfel. That is correct.
        Mr. Jordan. Would the gentleman yield briefly?
        Mr. Connolly. If the chairman will indulge me, because I--
    --
        Mr. Jordan. That's why I was very careful to use the word
    ``encourage.'' He can't compel her. I understand that.
        Mr. Connolly. And, Mr. Chairman, I think I understood you
    meant that. Thank you for clarifying.
        All right. Mr. Werfel, one final question. You've been
    given a 30-day review assignment by the President of the United
    States. Can you just describe what's going to be entailed in
    that review and what you hope will come out of that review in
    trying to address management practices, morale, and everything
    else in this huge, farflung enterprise known as the IRS?
        Mr. Werfel. Yes, I can. There's three parts to what the 30-
    day review entails. First part is accountability, and my 30-day
    progress report to the President and to the Treasury Secretary
    will detail the framework that we're using to make sure that
    we're getting to the bottom of it and holding people
    accountable. It'll have concrete examples, that I think we're
    all now aware of, of where I am actively taking personnel steps
    to hold people accountable. And then it will have a forward-
    looking view to make sure there's transparency in how this
    process is going to play out in the coming weeks.
        The second part of the report deals with fixing the problem
    with 501(c)(4) reviews. And there's a couple of pieces there.
    One, we've got to implement the nine IG recommendations fully
    and thoroughly. Second, we've got to get the backlog down. We
    still have an existing backlog of 501(c)(4) applications. It's
    an unacceptable backlog, and as has been widely reported,
    hundreds and hundreds of days that these taxpayers have been
    waiting for their answer, unacceptable. We have to move swiftly
    to knock that backlog down.
        And the third part of fixing the problem is, what is the
    right process going forward? The process that we've been using
    previously has not worked effectively. So in that report will
    be a framework for a new process.
        And then, very quickly, the third part is a broader review
    of IRS which includes some of these other things, cost cutting
    and 6103 protection and other things that we want to make sure
    we're looking at across the IRS to show the American people
    that we're serious about transformative change to improve this
    agency.
        Mr. Connolly. Thank you.
        And, Mr. Chairman, one other thing just consistent with our
    committee. I know Mr. Werfel is aware of it. But we held
    hearings very late, I think it was the last hearing our former
    colleague Todd Platts, chaired on identity theft and the
    growing problem of identity theft with the IRS. And I would
    hope that that gets sufficient review as well. Thank you.
        Mr. Jordan. Gentleman from Utah.
        Mr. Chaffetz. Thanks, Mr. Chairman.
        Thank you, Mr. Werfel. You've got your hands full and we
    wish you well. We need you to be successful.
        Are you familiar with the internal review that is happening
    at the IRS on this subject?
        Mr. Werfel. Yes. I'm essentially establishing and running
    the internal review with my leadership team.
        Mr. Chaffetz. Are you also aware of the internal review
    that Mr. Miller had initiated? This was done March through May
    of 2012.
        Mr. Werfel. I'm familiar with it and I'm at this point in
    time working with the team to make sure that I understand all
    the various----
        Mr. Chaffetz. Have you seen it?
        Mr. Werfel. It's a good question. I have talked to
    employees that were involved in that review.
        Mr. Chaffetz. Who did you speak with?
        Mr. Werfel. The primary person that I spoke with was Nancy
    Marks, who led that review.
        Mr. Chaffetz. What about Holly Paz?
        Mr. Werfel. I have not spoken to Ms. Paz yet.
        Mr. Chaffetz. You have not seen this document?
        Mr. Werfel. That's the thing. I'm not aware of a specific
    document that says----
        Mr. Chaffetz. So they did an internal review, but you
    haven't been given a document?
        Mr. Werfel. That is correct.
        Mr. Chaffetz. Is there a timeline for this review? We have
    been requesting since May to get a copy of the timeline. We've
    been assured by the IRS we'd get it. We still don't have it
    here today. We wanted to have it before this hearing. When will
    you provide us that timeline?
        Mr. Werfel. I was unaware of that specific request. Let me
    check and I will get back to you with a specific timeframe.
        Mr. Chaffetz. What did you learn about this document--this
    review? Are you telling me that there's a review and there's no
    document?
        Mr. Werfel. At this point. And this is frustrating. Look
    I'm arriving at the IRS and finding a lot of----
        Mr. Chaffetz. How convenient that there's no documentation
    of the internal review of this very--are you telling me there's
    no email?
        Mr. Werfel. I didn't say that. I thought what you were
    referring to is there kind of a former Acting Commissioner
    Miller asked for a review and here is the report to Mr. Miller.
    If there is a report I don't have it, and once I do it have it
    you will have it. That's the--that's my approach. But----
        Mr. Chaffetz. And I appreciate that. Would that include the
    background information or the other information? If there is no
    formal----
        Mr. Werfel. As long as there's no 6013 issues, yes.
        Mr. Chaffetz. And when would we--what's reasonable for me
    to expect that you would deliver that to the committee?
        Mr. Werfel. I don't want to overpromise. What I will
    promise----
        Mr. Chaffetz. But what's reasonable?
        Mr. Werfel. I will get back to you. It depends----
        Mr. Chaffetz. When would you get back to me by?
        Mr. Werfel. I will get back to you by the end of the day
    tomorrow with a reasonable timeframe for that request.
        Mr. Chaffetz. I think that's fair. I appreciate it. This is
    something that we obviously want to look at in this internal
    review.
        Had you met Mr. Shulman prior to your taking on this
    position?
        Mr. Werfel. Yes, roughly 5 times over the course of 4
    years.
        Mr. Chaffetz. At the White House?
        Mr. Werfel. I had----
        Mr. Chaffetz. I mean, you're at the White House, so----
        Mr. Werfel. Yes. I can recall, I think, two meetings or
    seeing him twice at the White House.
        Mr. Chaffetz. What were the topics of those meetings?
        Mr. Werfel. One of them was a signing ceremony for the
    signing of the Improper Payments Elimination and Recovery Act.
    I remember him being at that signing ceremony.
        The other was a meeting that was held in the Eisenhower
    Executive Office Building. The topic of that meeting was--the
    issue was this. The IRS--and Mr. Shulman was representing the
    IRS--was expressing concern to the Social Security
    Administration, and former Commissioner Astrue was in the room.
    The concern was that when the Social Security Administration
    releases information on deceased individuals through the Death
    Master File publicly----
        Mr. Chaffetz. Okay. I look forward to hearing more
    information about that. My time----
        Mr. Werfel. It was an improper payment issue. My primary
    responsibility at OMB was improper payments.
        Mr. Chaffetz. Okay. Mr. Werfel, I appreciate it. Let's keep
    going. How many criminal referrals have happened relating to
    the topics we have been discussing?
        Mr. Werfel. Criminal referrals? I don't think there's been
    any yet, but the Justice Department and the Inspector General
    are actively reviewing those issues. Interviews, documents,
    they're getting to that question.
        Mr. Chaffetz. Do you believe--you know, the IRS received
    some $80 million through the stimulus. My own personal purview
    here is that here comes the stimulus, they thrown in hundreds
    of billions of dollars, I for the life of me cannot figure out
    how to stimulate the economy the Obama administration gave $80
    million to the IRS. I don't understand how that stimulates the
    economy.
        But can you see where maybe--and I guess it's more of a
    statement than a question--that sort of this abuse of money is
    that they were just overflowing with cash? Suddenly had this
    infusion of $80 million--oh, $4 million for a conference, oh,
    that's fine. I just, at some point Mr. Werfel, my time is
    running out, I would hope you get back to that.
        Last question, what does it take to actually get fired at
    one of these organizations? I mean, you've got people who you
    say accountable, accountable, accountable, the Speaker wants to
    know when somebody is going to jail, I want to know what it
    takes to actually fire somebody.
        Mr. Werfel. It's an important question, and I think this
    committee is asking for recommendations on how we can improve
    the IRS. Part of that improvement is how do we improve
    timeliness of accountability. This is one of the questions that
    we can surface in terms of looking at our personnel rules and
    determining are they sufficient to meet the country's needs in
    terms of when something goes wrong who's held accountable. I am
    certainly open to discussing that with this committee and
    others.
        Mr. Chaffetz. Encouraging retirement is not holding
    somebody accountable for misdeeds and misspending the American
    people's money.
        Thank you. I yield back.
        Mr. Jordan. Could you fire somebody for refusing to answer
    questions of the United States Congress related to a matter at
    the IRS?
        Mr. Werfel. I don't know. I would have to ask. I would need
    legal counsel to advise me on that.
        Mr. Jordan. Okay. I think you probably can.
        The gentlelady from California is recognized.
        Ms. Speier. Mr. Werfel thank you. I'm hoping that under
    your leadership we're going to have a kinder and fairer and
    more frugal IRS. Can you promise us that?
        Mr. Werfel. I think those are three adjectives that I'm
    willing to support, certainly.
        Ms. Speier. All right. One of the problems that I think
    initiated the Anaheim conference was the fact that you were
    coming to the end of a fiscal year and there was unused money.
    Correct?
        Mr. Werfel. There was--yes, there was extra money
    available, and clearly in this case that money wasn't deployed
    to its highest and best use.
        Ms. Speier. Okay.
        Mr. Werfel. There's absolutely no doubt about that.
        Ms. Speier. But you worked at OMB before, so you've seen
    this phenomenon before, it's something I'm very concerned
    about, which is as various Federal agencies come to the end of
    the fiscal year and they have money left in accounts, they want
    to spend it down because there's fear that if they don't spend
    it down they will not be fully funded in the subsequent year.
    Is that correct?
        Mr. Werfel. That is a major problem.
        Ms. Speier. Okay. That's a major problem.
        Mr. Werfel. Yes.
        Ms. Speier. What would you recommend that we do government-
    wide in terms of addressing what is--I think IRS is just one
    example of what's going on in every agency in the country in
    the Federal Government when they've got money at the end of a
    fiscal year and they don't want to lose it, so you use it, and
    you find some way to use it. And in this case it was an Anaheim
    conference and somewhere else it's, you know, some other form
    of training or it's swag or whatever.
        So how do we fix that? Do we just freeze any kind of
    purchases in the fourth quarter unless it goes through a
    different process?
        Mr. Werfel. I think it's a very difficult question to
    answer. I think what happens at a lot of agencies is because
    this is known as a classic financial risk that we face in the
    Federal budgeting process there are chief financial officers
    and chief operating officers that are closely reviewing all
    expenditures that occur at the end of the fiscal year to make
    sure that money isn't being deployed for unnecessary or
    inefficient purposes.
        Ultimately, the goal is to make sure that the resources
    that are available are targeting areas that are going to have
    positive return on investment for the taxpayer, positive
    programmatic impact. If I see an expenditure that goes on in
    September I don't automatically think that might not be a good
    expenditure because if it's doing something like, for example,
    helping the IRS, you know, track down a criminal, get to
    someone who's doing identity thefts, getting to someone who's
    defrauding the government----
        Ms. Speier. Right. I mean, there's a difference between
    doing an criminal investigation and having a conference.
        Mr. Werfel. Absolutely.
        Ms. Speier. So there's a way of distinguishing. I guess
    what I'm asking you, I've got limited time, is for you to give
    us some advice. I mean, you've come from OMB, you know this is
    a phenomenon, you know that we've got to address it. What would
    you recommend that we put in place that would at least reduce
    the likelihood that this kind of crazy spending, this shopping
    spree mentality, goes on in the fourth quarter of a fiscal
    year?
        Ms. Speier. Let me move on to----
        Mr. Werfel. Let me just--I think one idea that comes to
    mind very quickly, it's not an idea but it's a fundamental
    principle, transparency. There should be more transparency
    about what goes on with Federal spending across the entire
    spectrum. And I think if you have transparency in terms of the
    kind of purchases that are happening at the end of the fiscal
    year it would bring light of day to appropriators and to
    others. So let me just offer that.
        Ms. Speier. All right. Thank you.
        Now, the Inspector General's report indicated that the IRS
    did not adequately track or document money spent on the Anaheim
    conference. I guess I'd like to know how the IRS has addressed
    this concern. If you've already answered this question you
    don't have to answer it again. Okay.
        Mr. Werfel. No, I haven't. There is a variety of different
    recommendations in the IG report for IRS. We have either
    implemented or in process of implementing them. We are updating
    our financial management manuals to make sure that when
    conferences occur that they are tracked and that they meet
    robust accounting requirements to make sure we know where the
    money is going. So we basically updated the requirements for
    managers in terms of how they report information on
    conferences.
        The irony here is that we have very few big conferences
    anymore. We've really knocked down in very significant ways,
    more than 80 percent the nature of this activity. Nonetheless,
    we have still put in new procedures to make sure that when it
    does happen, even at this very reduced level, that it's tracked
    more appropriately.
        Ms. Speier. Okay. Finally, and this is more of a generic
    question I'd like to ask you from your experience at OMB, I
    have got a bugaboo about swag. I think the Federal Government
    does not need to be in the business of buying anything that
    resembles swag. And I think we spend a fair amount of money. I
    could look at all of those coins that Department of Defense
    prints out, and I'm sure it's very expensive.
        So what would you say about swag and how widespread is it?
        Mr. Werfel. I mean, I'm in complete agreement. One of the
    interesting parts about this, my choice to go over to IRS, is
    that I have a history of responsibility around cutting waste,
    reducing error. I was pretty central to efforts at OMB to cut
    down on conference spending, to cut down on swag. We put in, in
    an executive order, while I was at OMB restrictions on the
    spending of any money on swag. And as I think has been
    testified to, the types of things you saw going on in 2010 are
    significantly less likely to happen today. Are they zeroed out?
    I don't know. But I don't want any swag purchased at the IRS
    while I'm Commissioner for sure.
        Ms. Speier. Thank you. I yield back.
        Mr. Jordan. Thank you.
        The gentleman from Oklahoma.
        Mr. Lankford. Thank you.
        Mr. Werfel, it's good to see you again.
        Mr. Werfel. Yes.
        Mr. Lankford. On the Budget Committee and then on Oversight
    and Government Reform we've had numerous conversations before.
    In your previous role you've done an excellent job.
        Mr. Werfel. Thank you.
        Mr. Lankford. And I look forward to you taking this on, and
    there is much to be done. That had to be an interesting
    feeling, to walk in the first day into IRS and think where do
    you start. So might as well start here. So thanks for doing it,
    thanks for taking it on.
        You know very well and you mentioned it earlier, in your
    earlier statement, that Americans have lost trust. I've been
    overwhelmed with individuals that have contacted me when I've
    been in district or have contacted my office and said, I've
    always suspected I was being targeted, but I started giving
    politically, and that next year is when I was audited by the
    IRS and I've always wondered about that over the last 3 years.
        So this has moved from nonprofit groups that we now know
    were targeted to ask for additional information and giving a
    nonresponse to individuals that now rise up and say, I think I
    was, as well. So as this broadens, and as we begin to look at
    it farther, those questions will continue to rise, and we will
    continue to have people contact our office and say, why was it
    I've been in business 40 years, I've never been audited, I
    started given politically and now I have.
        So those are all questions that will have to be addressed,
    and obviously 2 weeks in the office you can't address that, but
    add it to your list because that's coming as well.
        Mr. Werfel. I will. I do have one reaction to it, which is,
    you know, this process, I said we have to fix the process, I'm
    going to give a 30-day report that provides an update. One of
    the process fixes that I think is vital is more checks and
    balances in how these decisions are being made. Again, I think
    one of the problems that you have is if the IRS is too insular
    in how it's carrying out its work and there isn't kind of
    active oversight and check and balances. And I think if we can
    structure the right sets of checks and balances it would give
    comfort to your constituents that there's change amidst and
    there are controls in place to make sure that fairness is being
    applied.
        Mr. Lankford. Right. There's not much comfort for them. I
    can assure you of that.
        You mentioned in your opening statement as well some
    personnel matters that are going on right now.
        Mr. Werfel. Yes.
        Mr. Lankford. That is known, it's out there. The former
    Director of Collection Policy is now the current Director of
    Implementation and Oversight of the IRS Affordable Care Act
    office. There was a reception that was held where 18 people
    were invited. We have access to it, I'm not going to list names
    as we talk through this. But the email track coming in from the
    hotel reads this way. ``While I'm out''--this is someone in the
    hotel informing someone else what to do--``While I'm out there,
    there will be some hospitality for 18 people in room 431. It is
    to be kept confidential. The only person to discuss with
    this,'' and I'll leave name out, ``is the contact for the
    event. It's posted on the hospitality board but the one I have
    attached is the credit card information for billing. This card
    is only to be used for the food and the bartender fee. The beer
    and the wine will be paid by a credit card given to you at the
    end of this function,'' and inserted this IRS employee's name.
    Underlined and in bold: ``Do not post this to the room. It
    can't be shown as a room charge. I have been,'' insert a
    person's name here, ``permission, and you should use that to
    close out the credit card. But this person knows he's buying
    the booze and you shouldn't have to.''
        So this confidential report that we now know was about 18
    people that were there, they had $44 a person in what they
    listed here as booze and had $65 a person listed as food on it.
    One of those individuals, or two of those individuals maybe,
    are now under administrative review and are on paid leave.
        You've got to start this investigation, if you're that
    familiar with it you bring it up in your opening statement. The
    question remains do you know right now who are the other 18--
    the other 16 people that were involved in that?
        Mr. Werfel. I have asked that question, we are gathering
    that information, very important, and anything that we do that
    we make sure we have valid, reliable information. So we're
    working on that and that information will be made available.
        Mr. Lankford. Do you know, it was 18 people were set aside
    for hospitality, do you know if it's even 18 people that were
    there, was it more or was it less?
        Mr. Werfel. It's my understand that's in the right range,
    but again I don't want to commit to a particular number because
    we're still doing our review.
        Mr. Lankford. You're welcome to do your review. Are you
    familiar with any other senior-level or any of the management-
    level IRS officials that were there at this reception? These
    are obviously management-level folks when it's a confidential
    reception that was held as a part of this event in Anaheim. We
    don't see any kind of tracking how the invitation was done, and
    we're still trying to determine who was invited and how were
    they invited to this. Are you aware how that happened?
        Mr. Werfel. Again, I'm not yet ready to articulate the
    specific, but my commitment is we are working through that
    issue and we will get you those answers.
        Mr. Lankford. How about the purpose of the reception? Are
    you able to identify it at this point? Again in a confidential
    reception we have yet to see anything in writing that actually
    dictates this reception is being held for this.
        Mr. Werfel. Not yet, not the purpose. But what--we were
    able to determine enough to determine that two employees may
    have, and we're looking into it, but we believe there's
    significant evidence of a violation of an ethical code of
    conduct.
        Mr. Lankford. You understand all the issues with this, not
    only just for IRS, but this is the Director of Implementation
    and Oversight for the IRS Affordable Care Act office. I mean,
    there's already a lack of trust there, then we're trying to
    figure out who was this gathered, what was this, we have
    inappropriate use of funds here. We're trying to figure out all
    the dynamics of it. So there's a lot of things we have to
    connect to get the facts. As you're gathering that, do you have
    a timeframe on when you'll have that together?
        Mr. Werfel. I'm not going to commit to one, but I will,
    like I offered to Congressman Chaffetz, I will get back to you
    expediently on a timeframe so you can of a notional sense how
    long this will take.
        Mr. Lankford. Great. I appreciate that. But can you give us
    a ballpark? Because you're in the process. Obviously you're
    walking into the middle of this. But you've got enough facts
    and information that you've put somebody on administrative
    leave already at this point.
        Mr. Werfel. That's correct. That's correct.
        Mr. Lankford. This report came out 3 months ago. Then 4
    days ago, basically, our committee staff started contacting and
    asking questions about this reception. Within 2 days we've got
    somebody that's on administrative leave and is gone 2 days
    after we start asking about it. So enough information has risen
    up quickly you've got serious concerns about this.
        Mr. Werfel. I do.
        Mr. Lankford. We're trying to figure out as you're
    gathering information the timeframe of gathering that
    information.
        Mr. Werfel. Let me just state this, and I might have to
    reach out to you more to kind of update you as we go. The
    process, the personnel process that we're about to undergo, and
    the reason why people get placed on administrative leave before
    they're eventually dismissed is because there's a fact
    gathering and a response. That's a 30-day initial process. So a
    lot is going to be able to be gleaned about that situation over
    the next 30 days.
        Mr. Lankford. Okay. Terrific. Thank you. Look forward to
    getting that timeline.
        Mr. Jordan. Mr. Horsford.
        Mr. Horsford. Thank you, Mr. Chairman.
        Mr. Werfel, good afternoon.
        The Internal Revenue Service holds the general public and
    businesses to high standards when filing their taxes. The same
    is true of nonprofits who must maintain certain standards for
    their tax-exempt purposes. The fact that the IRS is now
    demonstrating a pattern of, in your own words, management
    failures to meet the very standards that they hold the public,
    businesses, and nonprofits to is very troubling and, frankly,
    unacceptable. You are one of the most powerful agencies in the
    United States, and there are serious consequences when any
    citizen, business, or nonprofit commits fraud or is suspected
    of wrongdoing with regard to their taxes or tax filings.
        What steps are being taken to reform the agency now to make
    sure you hold yourselves to the same standard you hold the
    American people?
        Mr. Werfel. That's a very important and good question. Let
    me walk through the steps for you.
        First of all, I think it's important to point out, if you
    look at the IRS on the day the report was issued and the IRS
    today, there has been replacement of leadership at very
    critical levels. I am a believer that accountability is driven
    from the top down. The IRS today has different leadership: the
    Acting Commissioner slot, Deputy Commissioner for Services and
    Enforcement, Commissioner of Tax-Exempt Organizations, Director
    of Exempt Organizations unit. If you're familiar with the IRS
    org chart, I am working my way down and pointing out that from
    the time the IG report was issued to today, there is leadership
    replacement at every level. We've added new leadership.
    Obviously myself. I have also brought on other people.
        In particular, I want to point out a person by the name of
    David Fisher, who is a high-ranking official from the
    Government Accountability Office, an expert in risk management,
    coming from GAO. He is now the Chief Risk Officer of the IRS,
    and he is indispensable, I think, in these efforts to make sure
    that we are changing the culture and the approach at IRS.
        Other steps: accountability. I'm continuing to review the
    information in the audit report, as I mentioned earlier. Just
    based on that audit report there are gross examples--there are
    examples of gross mismanagement. And you can make
    determinations, and I am doing it as thoroughly and as fairly
    as I can, you can make determinations that there are
    individuals, because of their mismanagement practices in this
    case, can no longer hold positions of the public trust at the
    IRS. Those reviews are ongoing. Again, fair, thorough, but
    expedient.
        I can keep going, but I just want to give you confidence
    that we have an action plan, we have things taking place that
    are in immediate term to get at these issues. It's hard, but we
    are working very diligently to start to correct these problems.
        Mr. Horsford. And I appreciate that. And I want to say in
    respect to the opening remarks by our ranking member, as well
    as the chairman, I hope under your leadership we can take a
    step back, look at the whole of the agency, look where we need
    to strategically reform, and not just moving players and actors
    within the agency but fundamentally reform, which is one of the
    missions of this committee. And I know you touched on the
    importance of information being protected, the impartiality,
    and the issue of spending wisely, which is one of the reasons
    that we're here today.
        And I do just need to touch on one concern that I have as
    well, being from Nevada. I don't believe that Anaheim or places
    like Las Vegas should be singled out somehow as because of the
    place that the waste that the agency was involved with--which
    was wrong--that somehow these places should be targeted and
    prohibited from having conferences held, which is why my
    colleagues throughout our delegation and I introduced H.R.
    1880, the Protecting Resort Cities From Discrimination Act, to
    prevent Federal agencies from blacklisting resorts and casinos
    as conference destinations. It's not the destination that's the
    problem, it's the internal failure to spend appropriately, and
    it doesn't matter where that spending occurs. So I just want
    that noted.
        I do want to follow up in my concluding question to Ms.
    Maloney. You said that you have to follow this primary
    regulation.
        Mr. Werfel. I do.
        Mr. Horsford. The law is exclusively. Why don't you have to
    follow the law?
        Mr. Werfel. Actually I have to follow the law and
    regulation----
        Mr. Horsford. So the law is exclusively.
        Mr. Werfel. The law is exclusively, and the implementing
    regulation is primary, and that's part of the challenge.
        Mr. Horsford. So the regulation is not in compliance with
    Federal law, correct?
        Mr. Werfel. I don't know that I can answer that question. I
    think that's something that we have to review with----
        Mr. Horsford. Well, you said earlier that primary activity
    is not the same as exclusive.
        Mr. Werfel. It's not and----
        Mr. Horsford. So therefore it's out of compliance with
    Federal law.
        And I believe, Mr. Chairman, that agencies must follow the
    law. We, as Congress, set the law. We haven't changed the law
    from exclusively. And it's important that you implement your
    regulations accordingly. I'm glad to hear that you're reviewing
    that----
        Mr. Werfel. I am.
        Mr. Horsford. --with the Treasury and that you've agreed to
    some bipartisan participation, because the law is exclusively.
        Mr. Werfel. And I want to be clear, the ambiguity that's
    created between the law saying exclusive and the regulation
    saying primary is a problem, and it's, you know, it's one of
    the contributing----
        Mr. Horsford. So therefore the reg needs to be changed to
    be in compliance with Federal law. Unless Congress changes the
    law, that's the standard, and that's what the agency should be
    held to.
        Mr. Werfel. We're looking at those reg changes.
        Mr. Horsford. Thank you, Mr. Chairman.
        Mr. Jordan. The gentleman from North Carolina.
        Mr. Meadows. Thank you, Mr. Chairman.
        Thank you, Mr. Werfel, for your candid answers today. I
    want to follow up a little bit on some of these.
        Do we know exactly when Ms. Hall, Sarah Ingram Hall, left
    to go and take on her primary responsibilities with the
    Affordable Care Act?
        Mr. Werfel. I don't have an exact answer on that, but I
    think it's in the range of spring/summer 2010. It's in that
    range. We're still working through with Ms. Hall to make sure
    we have a better understanding of exactly when she left her
    role to go over to the ACA.
        Mr. Meadows. So you'll be able to get back to us----
        Mr. Werfel. Yes, we're working that issue very closely.
        Mr. Meadows. All right. The other day at the House
    Appropriations Committee you talked about--I guess the bonus
    was brought up and you said you would get back to them.
        Do you have an answer for us today on the bonus that was
    paid?
        Mr. Werfel. Can you remind me which question.
        Mr. Meadows. It was basically what kind of a bonus was paid
    to Sarah Ingram Hall. And you said you would get back to them.
    And I assume that you went back to your office or your staff
    did to check on it. Can you tell us today what that bonus was?
        Mr. Werfel. I will ask my staff if they can look into that.
    I don't have that information at my fingertips, but I can get
    that for you.
        Mr. Meadows. Did you go back and look into it after----
        Mr. Werfel. We had a session where we went through all of
    my commitments that I made in that hearing and made sure that
    we were getting to the answers to each of them. So I don't know
    yet----
        Mr. Meadows. So you have not had a discussion following
    that hearing about bonuses for Ms. Hall?
        Mr. Werfel. No, there were several issues raised in that
    hearing about bonuses and I just don't want to misspeak. There
    was a couple of questions that I had to go back to the office
    and make sure I was getting answers on. Again, this is--I'm
    going to get you the information, this is just about get you
    the right information.
        Mr. Meadows. Does your staff--does your staff know today?
    Do they know----
        Mr. Werfel. No. We're going to have to go back to the IRS
    and work through and get that information.
        Mr. Meadows. So they don't know?
        Mr. Werfel. I don't think I have the right staff here to
    answer that particular question. But again, this is not--this
    is--we'll get you that information.
        Mr. Meadows. All right. Let me go forward with a little bit
    of this.
        Mr. Meadows. Can you give us assurances here today that
    targeting outside of the 501(c)(4)s, did not happen with
    regards to auditing, with regards to penalty waivers, with
    regards to fees? Can you give us those assurances that that is
    not happening systemically across the service?
        Mr. Werfel. Here's what I can say. I'm not aware of it at
    this time, but I am----
        Mr. Meadows. Have you investigated it?
        Mr. Werfel. I am working through that. I have been here for
    2 weeks. There is a lot to cover. But I'm not ready to make
    those assurances because I have not yet completed the review.
        Mr. Meadows. So you cannot give us those assurances?
        Mr. Werfel. It would be a mistake for me to do it.
        Mr. Meadows. I agree with you. I'm not saying that you
    should, because I believe that we don't know.
        Mr. Werfel. But I also would clarify that I'm--at this
    point in time, I'm not aware of it. Because if I was, it would
    be stopped and you would be made aware.
        Mr. Meadows. Okay. You also talked about, you know, we need
    to have more people in the accountability, just previously in
    your testimony, when you said it was, you know, when you are
    singular, you need more layers of accountability. But yet, we
    saw with the 501(c)(4), that was not something that was unique
    to just Cincinnati. It involved a number of people in
    Washington, D.C., the technical advisors, and dozens of people
    knew about the problem. So how does more people actually fix
    the problem?
        Mr. Werfel. Well, I'm not sure--or I would say that more
    people fix the problem. We could end up with a solution, and I
    would be very open to that solution because I'm also interested
    in cost cutting, with the solution that has less overall
    people. What I meant by more people was that we have people
    that have different responsibilities, maybe an independent
    board like the IRS oversight board or something like that, who
    can look in and report more quickly whether it's through
    whistleblowing, or write to this committee or something like
    that, so again, the American people----
        Mr. Meadows. So we need an independent board to oversee----
        Mr. Werfel. We have one. We have one. We have the IRS
    oversight board. The question is, and this is something that
    I'm exploring, and I'm being very candid----
        Mr. Meadows. Right.
        Mr. Werfel. --about different ideas because at this point
    we are just at the idea phase, is maybe that board or other
    type of mechanism could be inserted to do ongoing reviews.
    Because if you go back in time and if you had a situation where
    there are ongoing reviews through 2010 and 2011, you might be
    in a situation where this was picked up more quickly. And
    that's what I want to look into.
        Mr. Meadows. All right, have you had conversations with
    Beth Tucker with regards to 501(c)(4)s, and what she felt like
    was the issue?
        Mr. Werfel. I have had many conversations with Beth. She is
    a critical part of the leadership team, yes.
        Mr. Meadows. Okay, and did she see it as targeting? Was she
    aware of it?
        Mr. Werfel. I think--well, she was not aware of it. I think
    we all have collectively looked at the situation, and agree
    that the singling out of applications for extra scrutiny based
    on political labels can fairly be described as targeting.
        Mr. Meadows. So she was never aware of it until the report
    from the IG came out?
        Mr. Werfel. At this point in time, I'm not aware that she
    was aware of it. I'm not going to speak concretely----
        Mr. Meadows. So she wasn't----
        Mr. Werfel. --but this is part of the process. Again, I go
    back to the guiding principles: Thorough, fair, and expedient.
    And before I come out here and make a conclusion, I have to be
    given the opportunity to do a thorough, and fair, expedient----
        Mr. Meadows. But I'm asking you about your personal
    conversations with her.
        Mr. Werfel. Okay, and based on those personal
    conversations, I'm not aware at this time of the exact timing
    that she knew of the situation.
        Mr. Meadows. Okay. And my last question is, is with regards
    to Nancy Marks.
        Mr. Werfel. Yeah.
        Mr. Meadows. She was the assistant to Sarah Ingram Hall, is
    that correct, technical senior advisor according to the flow
    chart under the IG's report, so she actually worked----
        Mr. Werfel. I actually think at some point because people
    moved around, but she was the technical advisor within----
        Mr. Meadows. When did she first go to Cincinnati to talk to
    them about that? Because obviously, she would have had to flown
    to get there, or paid mileage so we would have some
    documentation. When was the first time that she went to
    Cincinnati?
        Mr. Werfel. I'm going to qualify it by saying I would like
    to double confirm, but I think it's around March 2012.
        Mr. Meadows. Well, we have narrowed it down that far. When
    in March of 2012?
        Mr. Werfel. That I would have to get back to you. I don't
    have that----
        Mr. Meadows. Because we know within a time frame because
    that's critical. Because we had testimony that was given in
    Ways and Means on March the 22nd, 2012, and if she went before
    that, it would indicate that we have people that sent her to
    check on things while that testimony was being given in
    another. So that's critical, that time frame.
        Mr. Werfel. I will try to get you more precision on that.
        Mr. Meadows. All right. And so you have got a follow-up.
    Thank you, Mr. Chairman, for your indulgence.
        Mr. Jordan. I thank the gentleman. Real quick, Mr. Werfel,
    on Sunday, David Plouffe was on the Sunday shows, and they were
    discussing the targeting of conservative groups in the tax
    exempt division of the IRS, and he made the statement that this
    was not at all political. And I'm just curious, do you agree
    with Mr. Plouffe's assessment of what went on in the tax exempt
    division of your organization, of your agency?
        Mr. Werfel. I don't think I know the answer to the
    question. We have an audit report. The audit report doesn't
    find any evidence.
        Mr. Jordan. I'm asking, do you agree----
        Mr. Werfel. I'm going to try to answer. The audit report
    that I'm relying on, it is a very important document and fact
    pattern to review. It does not, at this time, find any evidence
    of political animus, or motivation with respect to this
    targeting.
        Mr. Jordan. To date, has any--has there been any group on
    the list who was targeted who is a left-leaning group? Have you
    identified one group as a left-leaning group, yes or no?
        Mr. Werfel. I have to--I can answer that question once I
    make sure that I have appropriate 6103 redactions, so I can get
    back to you on that question, but I have to do a 6103
    redaction.
        Mr. Jordan. Are you aware? Are you aware of any group that
    has come forward and said that they experienced the same kind
    of targeting several groups on the political right have
    experienced?
        Mr. Werfel. Here is how I answer that question. That we
    have started to produce documents to Congress, to Ways and
    Means, and Senate Finance. In those documents are additional
    helpful information that is coming to light that gives more
    information about the BOLO list, and different types of
    organizations that were on the BOLO list, and based on that,
    and the problem with that document is that there is a lot of
    6103 information over it. So----
        Mr. Jordan. Well, let me ask it this way, then. Is there
    anything on the BOLO list, any terms--I have yet to see one
    term on the BOLO list or the three terms initially used to
    target and develop the list, initial terms were Tea Party, 9/12
    and Patriot, and then the BOLO lists, I have yet to see any
    terms on that list that would frankly apply to left-leaning
    groups. They only seem to apply to right-leaning groups. We
    have only had right-leaning groups been identified and come
    forward.
        So I guess I'm back to the first question. Do you agree
    with Mr. Plouffe that it's--that this was not political?
    Because I don't see how you can reach any other conclusion but
    that it was political, but he says it's not.
        And I want to know what you, as the guy who is in here
    cleaning up an agency, and it seems to me, in order to solve
    the problems, get to the bottom, hold people accountable, you
    need to know the motivation. And right now the only logical
    conclusion is this was politically motivated. I want to know if
    you agree with that.
        Mr. Werfel. Here is how I would answer the question. If the
    audit report did not find it, it would be inappropriate for me
    to speculate that there was political motivation. It would be
    inappropriate for me to speculate----
        Mr. Jordan. Why is it inappropriate for you to speculate?
    I'm asking you to draw a conclusion based on the evidence, and
    the evidence is this: Not one group on the left has been
    identified for harassment. Hundreds, for years, have been
    identified on the right. So not one on the left, hundreds on
    the right, and yet you are still saying I don't believe this is
    politically driven?
        Mr. Werfel. I'm not--I'm saying I don't have enough
    evidence to make a conclusion at this time. And what I'm
    further saying is that there is data----
        Mr. Jordan. Do you think reasonable people, though, could
    look at the evidence and say, there is enough evidence to
    conclude that it was politically driven, because we have yet to
    find one group on the left, and we have got hundreds of groups
    on the right?
        Mr. Werfel. I think the problem is and there is a tension
    here, the tension is that there is more relevant documents and
    information that needs to be looked at before we can----
        Mr. Jordan. Okay, and any of that relevant documents that
    you--anything you have seen thus far that shows a people--
    groups on the left were targeted. Have you seen anything that
    points to that yet? I'm just asking today.
        Mr. Werfel. There are--I am unable to answer that question
    because I would be legally unallowed to answer that question
    because I have to go through a 6103 process and make sure I
    give you an answer that I can legally give you. And I have not
    gone through that process yet. So...
        Mr. Jordan. 6103 says you can't give away personal tax and
    identify who they are. I'm not asking you that. I'm just
    asking, is there any group on the left? I'm not saying tell me
    the specific group. I'm saying, is there any group on the left
    who has been targeted? I mean, I don't know how anyone--I would
    think we have folks on the--my colleagues on the other side of
    the aisle who would say, this sure looks politically driven to
    me, because they don't know of any--no Democrats told me a
    group on the left has targeted.
        Mr. Cummings. Will the gentleman yield just for a second?
        Mr. Jordan. Absolutely.
        Mr. Cummings. Would you define what is left and what is
    right? No, I'm serious. What is left and what is right? I mean,
    that's a hell of a question. Well, I'm just curious, I mean, I
    just want to know. I want the benefit of your answer, but I
    want to know what's left and right.
        Mr. Jordan. Yeah, well, I mean, do we know any groups with
    the term progressive or liberal in their title that were
    targeted? We don't know of any. Do you know groups with Tea
    Party, Patriot, 9/12 government, reduce government spending who
    were targeted, hundreds. That's--that's what I'm--that's what
    I'm getting at.
        Mr. Werfel. And what I was saying is, I was brought to the
    IRS to make sure we are enforcing the rule of law. It would
    violate the law for me to answer your question directly, but
    what I will say----
        Mr. Jordan. I don't know how it violates the law because
    you are not giving any specific--I'm not telling you to say,
    oh, you know, the Hamilton County Progressive Institute was
    denied. I'm not telling you to give me a specific thing and
    talk about them specifically. All I'm saying is, have you
    discovered any, name one. That's all I'm saying, because Mr.
    Plouffe seems to think there are, and they are saying it is not
    political, and yet we have received no evidence that would
    validate Mr. Plouffe's statement.
        Mr. Werfel. All I can say is that that information is
    forthcoming. We are running a process. It's fair, it's
    thorough, it's expedient and it's legal and these answers will
    be available. But I cannot provide premature answers before I
    go through the appropriate processes. I just can't do it.
        Mr. Jordan. The gentleman from Maryland is recognized.
        Mr. Cummings. Thank you very much. First of all, I want to
    thank you, Mr. Werfel, and I'm reminded that you have only been
    there for 2 weeks. But this is a subject that's bugging the
    hell out of me, and I want you to help me with this.
        You know, I keep hearing this argument that because we had
    some bad players and people not doing their job properly, that
    there is going to be a problem with addressing the
    responsibilities under the Affordable Care Act. This is
    America. Everybody on this--in this committee has fired people.
    Everybody. And if they hadn't fired people, they just keep on
    living and keep on working. We don't, because we have a bad
    actor, we don't suddenly quit Congress. We don't suddenly go
    off our mission. We let them go, and then we try to find
    somebody else who can do the job.
        Probably everybody in this room has been through some kind
    of process like that. A lot people in this room have gotten the
    jobs they got because somebody didn't do the job properly. This
    is my point. I don't buy this Affordable Care Act because we
    had some bad players, we cannot do the job. This is America.
    And if we took that attitude, we would never get anything done.
        So I'm asking you, and from what you have seen, I know that
    you said you are going from the top to the bottom and you are
    going off--you are doing what you got to do. Tell me this: Do
    you feel confident that doing the things that you can do, that
    you can find the appropriate people and create--help create the
    climate whereby we can get the Affordable Act responsibilities
    done pursuant to the law, which is the law, by the way, no
    matter how many times people may want to do away with it, it is
    the law. And we are--we are charged with the constitutional
    duty of enforcing the law and making the law happen, and you
    now have a responsibility of dealing with the law. Can you find
    the people that can do it?
        Mr. Werfel. Yes.
        Mr. Cummings. And can you carry out the responsibilities?
        Mr. Werfel. Yes.
        Mr. Cummings. And the reason why I ask that, is that I
    swear to God, it just bothers me, this no-can-do attitude. Not
    from you, but Members, oh, God, we have some bad employees. We
    can't do this. No, it doesn't work that way. My father was a
    former sharecropper with a second grade education. And one of
    the things I love about my dad, God bless his soul, he used to
    always say to us, he would say, there is no such word as can't.
    And he said, you've got to, you can get things done. And he was
    able to raise his seven children, educate all of them well, and
    successfully build his church with my mom on a second-grade
    education.
        This is America. And as I said to you a little bit earlier,
    you have got a tremendous responsibility. But I hope, and I
    pray that you don't go in there with the attitude that because
    we have got some bad actors, and because the climate was not
    what we want it--wanted it to be, that we can not carry out the
    mission of this country. We are better than that. We are better
    than that.
        And if we take that kind of attitude, I don't know what we
    will be able to accomplish at any time. And there is no Member
    of this Congress, as I said before, who has not had to let
    somebody go, who has not to fire somebody. So you feel
    confident about it. And how will you go about that? Because I'm
    tired of that argument.
        Mr. Werfel. Well, you're absolutely right. We have a legal
    responsibility, a tough operational challenge. I have started
    to look through our ACA work very closely. We have hit all of
    our key milestones, and I think we are on a path to hit the
    rest of our key milestones. I think one of the first things
    that I have done is I have had to put in a new individual who
    is taking on the responsibilities of the Commissioner of
    Services and Enforcement, which oversees the Affordable Care
    Act work. She is one of the most talented civil servants in the
    IRS. She has an enormously effective track record at getting
    things done. She came over from part of IRS called Large
    Businesses and International.
        And for me, it is a lot about leadership. You get the right
    leadership in place, she is going to be able to recruit the
    right talent in place, hold individuals accountable, get us to
    our milestones, and get the job done. But I'm going to be very
    active in this area because it is one of our critical
    operational priorities, and I'm responsible ultimately to make
    sure that we hit all of our deadlines, and my commitment is to
    do everything we can to hit them.
        Mr. Cummings. Thank you very much.
        Chairman Issa. Well, they don't get any easier in this
    hearing. So the good news is, this one is nearly done. The bad
    news is, that you agreed to come back and work with us.
        Mr. Werfel. I will.
        Chairman Issa. So let me just--let me just get back to--put
    that back up. You are familiar with the congressional act that
    created the Taxpayer's Bill of Rights.
        Mr. Werfel. I won't say I'm an expert at it, but yes.
        Chairman Issa. Have you--when you look at it, if you would
    get back to us and talk to us about, essentially, I will get it
    back on the screen, 1996 Act, which amended the Code from 1986,
    and so on. But it established taxpayer advocates and so on.
        Mr. Werfel. Yes.
        Chairman Issa. And it is an area in which it is not the
    jurisdiction of this committee, but hopefully, you would look
    at that and say, aren't there some--some things that weren't
    upheld that you will fix by better management? And perhaps,
    some things that need to be put into that--the symbolism of
    that Act that would cause the Ways and Means Committee or
    whatever committee of jurisdiction, I presume it's them, to
    update it, because I think that part of the confidence that we
    are asking you to reestablish is literal. Some of it is
    symbolic. Some of it takes time, but some of it, like today's
    hearing, with your willingness to come forward, we have started
    that.
        Mr. Werfel. And I think the people of the IRS, and I have
    mentioned this before, they are shocked and appalled by what
    happened in the 501(c)(4) situation. They are embarrassed by
    some of the inappropriate spending in the Anaheim situation.
    There are institutions within IRS like the National Taxpayer
    Advocate who holds as their primary mission to help taxpayers
    navigate through the tax system in a way that is fair and
    understandable. And I have spoken to our National Taxpayer
    Advocate, and she is ready, as a lot of the other leaders in
    the IRS are, to take on the types of transformational change
    that is necessary to make a difference here.
        Chairman Issa. I appreciate that. I might suggest that the
    next time letters come from Members of Congress, both sides of
    the aisle as they did here, that perhaps that somebody who
    should see them as an ombudsman and begin asking is there a
    there there? Because I think one of the challenges is, in the
    opinion of the chair, you have had two former individuals, one
    acting, Mr. Shulman, who--they didn't do their job. They are
    not managers up to the task. So I can't go back through every
    Commissioner, although I have met a number of them, but I can
    say, look, your two predecessors, not so good, just not so
    good. And I think we have met them. We have seen them. The
    American people have watched them, and they are disappointed in
    what they saw in hearings, but I think they were disappointed,
    as you are, in what happened on their watch.
        A couple of things. You're aware by now of the
    investigation related to procurement, about a half billion
    dollars worth of open contracts originated within a HUBZone
    here in the District of Columbia, are you?
        Mr. Werfel. I have had very preliminary briefings on it,
    but I am familiar with the issue that you referring to.
        Chairman Issa. This, in the opinion of the chair, from what
    my investigators have gleaned, represents a--and again, only in
    the opinion of this chair, but I believe strongly that fraud
    was perpetrated; that it included misconduct both by personnel
    within the IRS, and obviously, by the applicant.
        Now, you both strongly disagree. But I certainly think that
    if it is within your power, to immediately, or as soon as
    possible terminate any further procurement on a contract that,
    from our estimation, regardless of how it was procured, is
    costing the taxpayers every time you buy off of it more money
    than a replacement contract would cost, that your willingness
    to attack that--it may only be a couple of million dollars in
    savings, but I think symbolically, it is a big difference if we
    can stop that one sooner if you have the power to do so.
        Mr. Werfel. I don't know enough yet to comment conclusively
    or concretely, but I will committee to work with you on this to
    see what I learn, share it with you, and make sure we have a
    good path forward.
        Chairman Issa. Well, and I will enlighten you with the time
    I have remaining with one small fact. When this applicant
    applied for a HUBZone, something that the ranking member and I
    believe that when you have historically underemploying business
    set systems which is what this was, Northeast Washington, D.C.,
    the gentlelady, delegate isn't here, but this is an area that
    could use some job creation. The applicant in that case clearly
    said, yes, I'm going to create jobs in Northeast Washington.
    And then created only a few jobs with some college students
    whose parents were spending $30,000 or more to send them to
    Catholic University, not part of the underprivileged portion of
    Northeast Washington, D.C. Ultimately, they were making a few
    dollars looking at computers, providing no significant jobs,
    certainly, no job to the indigenous people of that region of
    the District of Columbia. They had no real presence there, and
    I think, you know, an abusive set-aside to people on both sides
    of the aisle, sometimes agreeing or not agreeing on some set-
    asides, but the abuse of the set-aside means that Mr. Cummings
    in Baltimore and parts of his district that are HUBZones, those
    people didn't get an opportunity to bid on that lucrative
    contract. Other people in the District of Columbia in those
    areas didn't. So I'm beating a dead horse, I don't mean to do
    so, but I think we are very passionate about fixing that
    particular contract.
        Mr. Cummings. Would the chairman yield?
        Chairman Issa. Of course.
        Mr. Cummings. First of all, I--Mr. Chairman, I want to
    thank you for raising that issue. You are absolutely right. I
    think that whatever the law is with regard to HUBZones and what
    have you, Mr. Werfel, I, too, want to make sure that they have
    been properly addressed. I think people should play by the
    rules. The rules have been set up in a certain way, and if
    people are not going by the rules, I got a problem with that.
    And I would appreciate your response. I know you got to look
    into it, but----
        Mr. Werfel. I will. I absolutely will.
        Mr. Cummings. Thank you, Mr. Chairman.
        Chairman Issa. One last point, and this is a discovery
    point and we have talked to your counsel for a few moments
    before I came back to the dais, who I understand has only been
    there about the same amount of time or a little less than you.
    So I don't want to be unfair to anyone.
        This committee would like to dispense with all of our
    discovery on the broader case as soon as possible. I know you
    would like to have as much of that behind us. In order to do
    so, we have a specific request, which is that documents have
    been requested by this committee, and, thank you--and even if
    they were not requested by the Ways and Means Committee, we
    would appreciate, essentially, as soon as possible, sending
    unredacted, all information requested by this committee to the
    Ways and Means Committee, because they have personnel who are
    cleared to look at 6103.
        Mr. Werfel. Yes.
        Chairman Issa. They can hold those documents. If we need a
    special quick, while you are going through redaction, look, we
    can ask them to analyze one, suggest redactions, work with your
    staff to say, can you please agree with this page.
        Mr. Werfel. Yeah.
        Chairman Issa. So we can expedite that. But more
    importantly, they can look through them for characters that
    they need, or characteristics they need, and ultimately in some
    cases, they may need to look at what you would give to us
    redacted. And we are working hand in hand with the Ways and
    Means Committee. So if you could consider that anything
    requested by this committee is, in fact, a carbon copy to the
    Ways and Means Committee, this wouldn't be subpoenas, of
    course, but voluntary stuff.
        Mr. Werfel. I understand. So in other words, you give us a
    data request, or an information request. We have to redact it
    from 6103. We get it to Chairman Camp, and potentially Senator
    Baucus earlier because they don't need the redacted versions.
        Chairman Issa. That's correct.
        Mr. Werfel. I understood the request.
        Chairman Issa. And I know that in some cases, they are not
    going to look at it immediately, but to the greatest extent
    possible, we would appreciate that. Go ahead, please.
        Mr. Werfel. I think--I understand the request. We are going
    to look into it, and then I will get back to you.
        Chairman Issa. Okay, and then, obviously, we would like to
    prioritize as much as possible, work with your staff to
    prioritize the documents we need sooner rather than later.
        Mr. Werfel. That's absolutely critical. That's really
    helpful to us, actually, to understand, for example, which
    people, what key search terms. The better clarity we have on
    that, the quicker the information starts flowing to you.
        Chairman Issa. I appreciate that, and I want to, once
    again, thank you, and Mr. Meadows is going to be recognized,
    but no, you are good? Okay. I'm not going to be--oh, you are
    good? Okay, then I'm closing subject to the ranking member. I
    want to thank you. This is a good start. It's a tough matter. I
    feel like you're, you know, coming in the day after we found
    tainted Tylenol and trying to bring back the reputation of a
    great pharmaceutical company.
        In a sense, you are in that same situation. No doubt
    something bad happened. It didn't happen on your watch. We are
    not blaming you, but you are the person we are looking to to
    take immediate and decisive action, and to the extent that you
    have so far, I want to personally thank you. Mr. Cummings.
        Mr. Cummings. I will be just extremely brief. I want to
    thank you, too. And as I tell my constituents, there are
    moments in life that are placed there to actually become a
    movement, a moment to a movement. And what I'm saying to you
    is, I think we have a moment here where we have seen so much
    that needs to be corrected, and now I'm just very pleased to
    see when you talked about those three points, the things that
    you are most concerned about, to turn that into a movement to
    make IRS a place where all Americans and their families can
    feel that trust. I mean, it's painful.
        I know writing from my constituents, a lot of them don't
    have bank accounts. They are writing more money orders, or
    whatever. But when they send that check into IRS, or they get
    that letter about an audit, or whatever, that the people on the
    other side are going to treat them fairly and with courtesy,
    and that they can feel a level of confidence which they
    mustn't, and I thank you, and I thank the President for
    appointing you.
        Chairman Issa. Well, I want to thank the President for
    appointing you to an acting position. I think the ranking
    member and I would all note that we just got an appointment
    request for the GSA position that's been acting for a long
    time. And this committee, both with IGs, and with cabinet and
    subcabinet heads, certainly would make for the record that we
    like confirmed individuals, and not acting. But we will
    continue working with you. Hopefully, that will soon be
    changed. We stand adjourned.
        [Whereupon, at 2:40 p.m., the committee was adjourned.]

                                    APPENDIX

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