Sometimes cutting budgets raise deficits: The curious case of inspectors’ general return on investment

Offices of inspectors general (OIGs) are among the most underappreciated and overly criticized institutions in the U.S. government. OIGs serve important functions: improving the effectiveness of government agencies while detecting and deterring instances of waste, fraud, and abuse. Often, these actions return taxpayer money to the government in excess of what was spent on the enforcement actions—generating a positive return on investment (ROI).

In assessing the benefits OIGs bring to government, this paper focuses on ROI—the most quantifiable metric of agency performance. Specifically, Hudak and Wallack examine the ROI among a number of OIGs and the enforcement division of the IRS. The paper offers several important contributions:

  • First, it details OIGs’ role in government and the benefits they—and other revenue-positive entities—provide.
  • Second, it defines a clear and valid measure of ROI, addresses challenges that exist in calculating it.
  • Third, the paper provides data on ROI across several government agencies in ways that illustrate the value of specific institutions and allows for comparisons across those institutions.
  • Fourth, in order to understand how ROI functions at the agency level, the paper provides a case study of the IRS enforcement division and illustrates how budget cuts impact performance and other government-wide goals.
  • Finally, Hudak and Wallack offer recommendations in two areas: how to improve ROI reporting and how Congress can maximize its use of this important measure in budget and appropriations processes.