4.1.23 Determining Return Needs for LMSB


  1. This section discusses determining return needs in terms of regular return orders to facilitate the examination plan as well as determining training return needs for recent LMSB hires.

  2. The Industry PSPs must ensure that the correct types of returns are available in the quantity needed to accomplish the Examination Plan (Plan). The PSPs must determine the number, class, and activity code of returns needed for their Industries. To facilitate that effort, a Base Inventory Analysis should be prepared based on the current Turnover Rates. As a general rule, base inventories are prepared for IC cases.

  3. LMSB Ogden PSP has the responsibility for ordering returns and ensuring that each industry office has enough returns to facilitate their examination plan. The Classification plan can be used to facilitate this process.

Turnover Rates

  1. Turnover Rates quantify the amount of time expected to close an audit based on the recent cycle times for the prior twelve months. Turnover rates should be computed separately for each activity code for IC cases. The turnover rate is determined by the following formula: (Cycle Days/30 (days)) = Turnover Rate in Months.

  2. To determine the annual Turnover Rate, divide the Turnover Rate in Months by 12.

    Example: 180 cycle days/30 days = 6 months

    The turnover rate is 6 months

    6 Months/12 months = .5

    The annual turnover is .5

  3. As an alternative, the turnover rate can be computed by dividing the number of return closures by the average work-in-process

    Example: 1000 Return Closures/500 Work In Process Returns = 2

    The turnover rate is 2 returns per year.

    To express the turnover rate in terms of months, divide 12 by the turnover rate.

    12 months/2 =6 months


  4. Turnover rates can be expressed either in terms of:

    • the length of time required for a given return to be completed.

    • Or, the number of times inventory turns over in a year.

    Example: Cycle time is 540 Days

    540 days/30 (days)/12(months) = 1.5 Turnover rate (years per return)

    The inverse is also true:

    1/540/30(days)/12(months) = .66 (returns per year)

Base Inventory Analysis

  1. Base inventory enables the PSP to adjust inventory levels to meet the workplan. Once you have determined the projected level of work-in-process, you can monitor the inventory to establish and/or maintain the required inventory level.

  2. The concept of base inventory includes delivery of returns from start to finish. That is from status 12 to closing (status 80 or above). Likewise, work-in-process is defined to include status 12 through 59, with a few exceptions as presented. See Exhibit 4.1.23-1. An alternative would be to monitor only status 12 starts and closures (status 12 through 19).

  3. Since there is substantial variation in cycle times among the various activity codes LMSB typically examines, a separate computation must be performed for each activity code. Due to changing cycle times, base inventory must be recomputed on a regular basis, typically monthly, using updated 12-month averages.

  4. As a result of the lengthy turnover rates characteristic of most LMSB activity codes, you typically will have significant difficulty influencing return accomplishments once a fiscal year has begun. Therefore it is critical that base inventory be computed during the planning process. As soon as a draft plan is received from Headquarters (Operations Support), perform a base inventory computation to identify activity codes where inventory does not match needs. This process may impact your response to the draft plan, and may influence the types of returns delivered to the field from status 08 inventory.

  5. In order to compute the target current open inventory, divide the workplan target returns by the average inventory turnover rate (returns per year). For example, if the workplan calls for 100 returns and the average turnover rate is .66 returns per year for that activity code, then there should be 151 returns currently open (100/.66 = 151).

  6. Similar computations can assist with determining the correct inventory level to meet the workplan DESYs

  7. See Exhibit 4.1.23-1. for an example of an electronic spreadsheet base inventory analysis

Training Returns

  1. One of the roles of the PSP Analyst is to secure training returns for new hires. The process for doing so is as follows:

    • Industry Executives with Budget and Finance personnel determine hire locations and numbers of hires

    • Enter on Duty Dates (EODs) are established by Budget and Finance and the hiring process begins.

    • Hiring Coordinators involved in the hiring process notify the local Training Managers of the numbers of new hires they will be responsible for and the respective EOD’s.

    • A Training Schedule for classroom and On-the-Job Instruction are determined by Training, based upon specific hiring needs, i.e. internal vs. external hire

    • As early in the process as possible, the Training Manager notifies their respective Industry PSP Analyst of the impending hires, numbers of hires and locations or PODs.

    • Knowing when the training returns are needed in the training group, by using the training schedule and with information from the Training Manager, the PSP orders the needed activity codes (typically 219 and 221 for corporate training) and return locations from LWIS.

    • The PSP reviews the manager training return request for reasonableness, comparing number of hires to number of returns requested. Excessive orders should be discussed with the manager and reduced in size, without the presence of extenuating circumstances.

    • Project Code 0204 is assigned to all Training Returns.

    • If adequate training return inventory is not available on LWIS in the POD with hires, the PSP notifies the SRPP Operations Support North Hiring Analyst.

    • The Operations Support North Hiring Analyst, utilizing the Training Return function within LWIS, will attempt to locate additional potential training workload.

    • The Hiring Analyst will provide a listing of potential training returns to Ogden staff, which, after AIMS research, will establish available returns and make them available for ordering from LWIS by the PSP Analyst.

Classification Plan

  1. A classification plan is prepared using the LMSB Industry Case Compliance Plan. The classification plan is used to plan Non DAS return orders and schedule agents for classification details. In addition, it is used to determine whether LMSB has enough returns in inventory to meet the overall Industry Case return plan. (See IRM for a detailed description of the Classification Plan).

Base Inventory Analysis

This exhibit is an excel spreadsheet used to prepare a base inventory analysis. A base inventory analysis is a tool used to ensure that the industry inventory mix, by return type and activity code, will deliver planned staff years and returns.

The source of the information provided in this exhibit is A-CIS and AIMS Table 37.

The format of the base inventory analysis is provided in four sections: One for individuals, corporations (Non CIC), flow-thru entities (Partnerships and S Corporations), and training.

This exhibit contains various column headings. The definition of columns contained in the spreadsheet are as follows:

  • Column A:Lists the Activity Code

  • Column B: Planned direct examination staff years (DESY)


    The planned time is broken down by each activity code excluding training which is shown separately.

  • Column C:Year to date DESY accomplishments from Table 37. This amount does not include training returns. The source of information is Page 19 of Table 37 excluding training returns, Page 17 and flow-thru’s on Page 15.

  • Columns D - G: Rates

    • Column D:Planned Industry Case rates from Compliance Workplan( (DESY*2000)/planned returns)

    • Column E: Actual rates from Table.37 or ACIS Closed Case Database. It includes Industry Cases excluding training returns (Project Code 0204). The last 12 months should be used to determine rates.

    • Column F: This is the variance between planned and actual rate. A positive number is rate delivery in excess of plan. A negative number is rate delivery below plan rate.

    • Column G:Planned returns per Industry Compliance Plan excluding training returns

  • Column H:Returns closed Year to date – Source ACIS Closed Case Database filtered for Industry Case only, excluding training returns (Project Code 0204)

  • Columns I - K: Cycle Time

    • Column I:The Examination Cycle days from status 12 to status <79, extracted from ACIS Closed Case Database.

    • Column J :: This amount is cycle days converted to months

    • Column K: The turnover rate is calculated by taking the Column J and dividing it by 12 to compute the number of times inventory turns over each year

  • Columns L - M: Inventory

    • Column L:The base inventory is planned returns divided by turnover rate. This is the number of cases needed in inventory at all times to deliver returns using planned rates.

    • Column M:Open Status includes returns in status 12 through 79 excluding suspense cases, and those awaiting survey. The information is extracted from the A-CIS open case database.

  • Columns N - O:Variance

    • Column N: The planned returns is the difference between Status 12 open inventory (column M) and base inventory (column L) using planned rates. A negative number indicates a shortage of inventory to meet planned returns using planned rates. A positive number indicates excess inventory

    • Column O: Returns for DESY’s is the difference between Status 12 open inventory and base inventory required to accomplished planned DESY’s, using actual rates and adjusted for months remaining in the year. A negative number indicates a shortage of inventory to meet planned staff years. a positive number indicates excess inventory.


      This number is subject to distortion, especially early in year, by a significant variance between planned rate and actual rate. A variance of zero is optimal.

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