The Internal Revenue Service does not properly verify and monitor portions of its workers compensation claims system, leaving the agency vulnerable to fraudulent compensation filings, according to a June 15 Treasury Inspector General for Tax Administration report.

“Based on a statistical sample of active claims, we estimate that 133 (9 percent) [of] active claims were not initiated properly. If claims are not initiated properly, the IRS may make payments for compensation and medical expenses that are not necessary. Given that some IRS employees may receive workers’ compensation benefits for decades, improperly approving even one claim could prove very costly to the IRS,” the report said.

Under the requirements for filing and approving workers’ compensation, the IRS must obtain documentation of five elements:

  1. Notice of injury or death within three years;
  2. Proof the claimant was employed by the federal government;
  3. Proof that the claimant experienced an accident and that the medical repercussions are associated with that accident;
  4. Proof that the injury was sustained while performing their job responsibilities; and
  5. Proof that the work-related injury is connected to the specific condition for which the compensation is claimed.

The IG found that, while the IRS ensured that the first two requirements were met, some case files did not include documentation for all of the remaining three requirements.

The IRS has the option to challenge the validity of a workers’ compensation claim if all five requirements are not met and did so in 22 cases the IG reviewed. However, nine cases that could have been challenged either were not or had insufficient documentation on how that claim was resolved.

According to the IG, those nine cases cost the IRS over $3.7 million as of July 15, 2016.

The report also found that 67 percent of workers compensation claims filed as of that same time period were not monitored in a timely manner, meaning that the agency lacked updated medical records to prove that a claim was still viable.

The IG recommended that the IRS train specialists to ensure that all five documentation requirements are met, develop procedures to remind specialists to update documentation on active claims and conduct quality reviews of active claims. The IRS management agreed with all recommendations.