About a month ago, on March 25, 2009, the Treasury Inspector General for Tax Administration released a report. The audit report is a review of George W. Bush's Economic Stimulus Program.

I am not a CPA so the following is merely my interpretation of reading the report. Should there be any errors, please feel free to leave a comment correcting me.

You can read Reliance on New Procedures Allowed Some False Economic Stimulus Payments to Be Issued and Pose a Continuing Risk of False Refunds Being Issued in the Future in PDF format.

If individuals received a larger stimulus payment in 2008 than they would have if the payment had been calculated using information from their TY 2008 returns, they will be allowed to keep the excess and will not be asked to pay it back.

If an individual erroneously receives a stimulus payment that isn't warranted, he or she gets to keep it. No penalty. Unlike the various penalties if that person screws up his or her tax return in other ways.

Why is this relevant? Because the government screwed up some stimulus payments.

A lot of stimulus payments.

As of December 2008, the IRS distributed 119.2 million stimulus payments totaling $96.3 billion. However, we identified $1.2 million in false stimulus payments and $16.3 million in false refunds that were inappropriately issued due to reliance on new controls that did not work effectively.

$17.5 million dollars went to the wrong people in the wrong amounts. And none of it has to be paid back. There is also no punishment for the IRS or its employees. The money is gone, period.

However, we determined the Action Plan submitted by the CI Division to the Executive Steering Committee was not adequate. Specifically, we identified several concerns with the CI Division’s Action Plan that would not prevent false stimulus payments from being issued on known false returns. After we discussed these concerns with IRS management, the IRS agreed to take additional steps to prevent the issuance of false stimulus payments. As a result of these additional changes, we estimate that at least 12,000 false stimulus payments totaling $7.1 million were prevented from being issued.

That's a relief, eh? They almost made 12,000 more payments totalling $7.1 million...but they didn't. They caught those ones.

What happened with those other false payments? Why did those slip through the cracks? The IRS screwed up.

In Processing Year (PY) 2008, the CI Division changed the controls and implemented a temporary freeze to hold the issuance of potentially false refunds. However, our limited testing identified that $1.2 million in stimulus payments and $16.3 million in false refunds were inappropriately issued because the temporary freeze was released due to processing delays or systemic deficiencies.

There was supposed to be a freeze on "potentially false refunds"...but they went ahead and lifted the freeze. So, the freeze kind-of didn't really matter.

In any case, they aren't doing that whole freeze thing anymore. Which opens the door to even more false returns totaling and even higher amount.

The amount of erroneously issued stimulus payments that we identified is relatively small in relation to the total stimulus payments issued. However, we remain concerned that the existing controls pose a risk that false refunds, as well as any stimulus payments associated with potential future legislation, will be erroneously issued in the 2009 Filing Season (PY 2009) and beyond. We estimate that approximately $117.6 million in false refunds could be erroneously released over 5 years due to the expiration of the temporary freeze within the currently established time periods. Allowing false stimulus payments or false refunds to be issued reduces the dollars in the United States Treasury, especially in this current economic environment.

Based on the report, the process for freezing was complex and confusing. Unlike in previous years, there was no human control over the system and the way the freeze was set up, it would expire after a certain time period. Whether or not the refunds were legitimate.

The temporary freeze is programmed to expire within a certain time period. Thus, if a false refund account is not timely worked or referred for resolution, the account is at risk of having the refund erroneously issued because the temporary freeze expires. This process significantly differs from PY 2007, when the CI Division used a criminal freeze to prevent the issuance of false refunds. Generally, CI Division personnel must manually release the criminal freeze (i.e., the criminal freeze does not systemically release).

In a nutshell, $17.5 million is gone. The system hasn't been fixed so we are now at risk of losing approximately $117.6 million in false refunds over five years.

I wonder how many people who knowingly received false refunds attended angry tea parties about taxation?