TPS Systems Review

Introduction
What to Expect
TPS Overview
Computed Measures
Systems Reviews
Sampling
Methods Surveys
Annual Report

TPS Systems Review

	Welcome to the Systems Review portion of training. This section will describe the role of the Systems Review, its design, and how it is conducted. The Systems Review is one component of the TPS Program Review. The other component is Acceptance Sampling which is covered in a separate training module.
	What is a "Systems Review"? The Systems Review examines the "internal controls" and "quality assurance systems" that help ensure accurate and timely operations in each of the major tax functions. See Handbook 407 chapter II for definition of internal controls and quality assurance systems.)

	The review examines controls and quality assurance systems in the following major tax functions: Status Determinations Cashiering Report Delinquency Collections Field Audit Account Maintenance (which includes) Contribution Report Processing Debits/Billings Credits/Refunds Benefit Charging Experience Rating
	What Internal Controls are Examined? The following internal controls and quality assurance systems have been identified as necessary for a quality tax program operation: Recorded information and instructions Training systems Recording of transactions and events Execution by authorized individuals Systems to assure execution of events Review of completed work Here is a closer examination of these controls and quality assurance systems.
	*Recorded Information and Instructions* Any written information that helps tax staff understand how to perform their duties. This may include such items as: Tax manuals Tax letters and memos Help screens Desk aids Handbooks
	*Training Systems* States should have some way to train new staff as well as ways to provide both new and refresher training to experienced staff. Examples of training include: Formal classroom On-the-job Seminars Retreats Self-training Any method that provides knowledge necessary for staff to learn how to perform their duties.
	*Recording of Transactions and Events* Essential actions taken by tax staff should be recorded so that these actions can be tracked or followed through the State's systems. This is also known as leaving an audit trail. For example, each critical step in the processing of a basic document, such as a Status Report used to established an employer account, should be recorded so that authorized staff can trace the processing and verify that the document was processed timely and accurately.
	*Execution by Authorized Individuals* Certain key functions should only be performed by authorized staff. Think of it as a separation of powers. For example, it is undesirable for one person to be responsible for processing a refund application and authorizing the issuance of the resulting refund check. Tax operations should be organized in such a way as to avoid potential fraud situations such as allowing one person to have unchecked authority in certain critical functions.
	*Systems to Assure Execution of Events* This is another way to say that tax operations should have a system of checks and balances where it can be assured that critical functions are being performed and that things don't fall between the cracks. For example, if a State has a system to issue work assignments, there should be a way to determine when and to whom those assignments are made and when or if the assignments are completed.
	*Review of Completed Work* In order to help assure a quality product or operation, the work of the staff should be subject to some type of review. The most common type is supervisory review. Does the state have a system in place that assures a certain level of supervisory review of work results? There are other types of review that may also be used where appropriate such as peer review or review by quality assurance units.
	HINT: Notice that the Systems Review process is largely repetitive in that similar internal controls are verified for each of the tax functions reviewed. Thus, if an internal control such as the availability and use of an up to date and comprehensive tax manual is confirmed in one tax function, and the reviewer can verify and confirm that the same manual is used in all ofthe other tax functions, questions regarding that internal control in reviews of subsequent tax functions can be quickly answered in the affirmative.
	HINT: Depending on the structure of the State's tax operation, the TPS reviewer may have to revisit the same staff with questions on different tax functions.
	Be Prepared! Due to its comprehensiveness it is vital to prepare for the Systems Review. The following is essential to prepare for the Systems Review: Knowledge of applicable laws, rules, and regulations of the tax operation. It is desirable to have a tax background and a working knowledge of the tax program.
	To ensure proper examination of the six major tax functions, attempt to obtain a complete and current organizational chart of tax operations. Most States keep organizational charts of their operations. If the State does not have one available, consider preparing one for use during the review. Prepare a list of staff to contact in each tax function and sub-function to be reviewed. This list will become very useful during the actual conduct of the review and will help assure that nothing is overlooked. One of the most time consuming aspects of this review is arranging for and conducting interviews with staff. Assemble and review any necessary materials. This includes copies of:
	Laws Regulations Procedures Manuals Organization charts Forms, etc. This information is useful for understanding the tax operation, verifying the internal controls of each function, and providing documentation of the accuracy and completeness of the internal controls. Review and become familiar with the assembled materials. This will help to easily and efficiently conduct the review. See Handbook 407 ,p. II-12 for details of preparation. Plan the Year's Review Prepare a work plan. An annual work plan will be required by the Regional team leader. This work plan will help keep the review on schedule and help the Regional team leader fulfill the oversight role of keeping track of the review's progress. There is no formal format for a work plan. For further discussion on preparing a workplan click here. The Handbook also provides some details to ET Handbook 407, p. II-14 for details of preparation. Conduct the Reviews Conducting the Systems Review involves a basic understanding of how the Tax program works, being able to successfully interview staff concerning their work, and utilizing observation skills. The Systems Review consists of a series of questions designed to: Verify the existence and use of the internal controls and quality assurance systems. Document areas of "Risk" where internal controls and quality assurance systems are weak or non-existent. Quickly identify areas of Risk which have caused an Acceptance Sample to fail. The questions may be repetitive, with adjustments made according to each tax function's particular scope and objective.
	HINT: Once the review of at least one tax function is completed, the review of subsequent tax functions may proceed more easily due to the repetitive nature of the review questions.
	*Evaluative or Not?* The Systems Review questions can be either evaluative or non-evaluative. Evaluative questions are those where if an internal control or quality assurance system cannot be confirmed, a weakness is presumed to exist in the tax system and the State is judged to be at "Risk". Non-evaluative questions are for informational purposes only and the lack of internal controls or quality assurance systems does not put the State at risk. See Handbook 407,p. II-21 for details on evaluative questions and "Risk".
	HINT: Non-evaluative or informational questions are identified by an asterisk (). Information Sources* The Systems Review questions will be answered by gathering information from three sources: 1. Examinations of manuals,handbooks, laws, help screens, etc.
	HINT: Remember, this is the information gathered and studied prior to commencing the review! 2. Interviews with tax staff.
	HINT: There will be many interviews to conduct. It is important to plan the review so that interviews may be scheduled to minimize interference with normal tax operations.
	3. Direct observation - Can evidence be seen of internal controls that are supposedly in place? For example, for the internal control of supervisory review, was a supervisor actually observed reviewing the work of subordinates? *Inspect What You Expect* Verifying the Information - "Yes" answers to evaluative questions MUST be supported by document evidence. The documented evidence is known as the verification source or VS. (The verification test or VT will be discussed later.)
	The VS should be the most direct evidence to support the answer recorded. Only when no other source is available will the VS be solely the response from an interview. Click here for Handbook 407 chapter II, p. II-24 for details of VS. Examples of verification sources are as follows:
	Example 1 Question: Does the State have recorded information and instructions to assist employees performing Status functions in each category in accordance with State laws and written policies? Review Activities: Read the manual, handbook, or procedures that were assigned to employees; interview staff to confirm use; etc. Verification Source: Record the precise name and section or page number of documents containing information and instructions for making status determinations. Example 2 Question: Is there a systematic review of the accuracy of new employer status determinations? If yes, what type of review? (E.g., supervisory, peer, quality review,etc.) Review Activities: Review procedural manual; interview staff; look at a sample of work to find evidence of a review having been performed; observe operations and look for evidence of reviews being performed; etc. Verification Source: Record the procedure or evidence observed (e.g., supervisor's initials on forms, or observation of a quality review in progress). Because a lack of internal controls or quality assurance systems indicates a "Risk" in the particular tax function under review, verification sources are very important in that they offer documented evidence of the existence or non-existence of internal controls or quality assurance systems. Therefore, Verification Sources should be listed in detail. If an internal control or quality assurance system cannot be verified, the Systems Review evaluative question under consideration must be answered "No". A "No" answer will identify a "Risk" in the tax function under review.
	*SPECIAL NOTE - VERIFICATION TEST* In addition to verification sources, the significance of the Cashiering function demands that certain review questions require small, stringent tests to confirm the presence and effectiveness of the internal controls. These are referred to as "Verification Tests" or VT. (Click here for details of VT from Handbook 407, p. IV-3)
	HINT: Depending on the size and organization of the States tax operation, a VT can be time consuming. Become familiar with the VT requirements prior to commencing the Cashiering review and make arrangements to obtain the documents necessary to perform the tests as early in the Cashiering review process as possible.
	Conclude the Systems Review The process of conducting a Systems Review requires the completion of the Systems Review Forms for each tax function. These forms consist of: *Systems Review Questions* These are the questions found in the TPS Handbook that must be answered for each tax function reviewed. The answers are recorded on the Coding Sheet. *Coding Sheet* There is a coding sheet for recording the answers to the Systems Review questions. The coding sheet is an aid to data entry of the information as explained in Handbook 407 Appendix F. *Narrative* There is a narrative section where explanations of any "No", "NA", or "Other" responses or exceptions to the Systems Review questions may be recorded. *Program Review Findings Chart* As each tax function review is completed, record the final results in the Program Review Chart. This chart will be included in the final report of findings submitted annually to the State and the USDOL. Program Review Findings Chart Remember that the Systems Review, in conjunction with Acceptance Samples, comprise the overall "Program Review" for Tax operations. However, the Acceptance Sample is the final determiner of "quality" for any of the tax functions. If the Acceptance Sample does not pass, the reason must be determined and the Systems Review re-evaluated to determine if, indeed, all necessary internal controls are in place. Conclusion Now that Systems Reviews have been explained, this module is concluded. To learn more about the other half of Program Review - Sampling, please click here.