Updated 3:44 p.m. ET Tuesday 6/4
(CNN) – The Internal Revenue Service spent millions of taxpayer dollars on everything from event planners' commissions to speakers' fees to guest prizes to parody videos at a 2010 conference, an audit of the agency shows.
The beleaguered agency - already snared in controversy over its targeting of conservative groups seeking tax-exempt status - spent $4.1 million on a 2010 conference in Anaheim, California, with "questionable expenses" comprising much of the budget, according to the report released Tuesday by the Treasury Department's inspector general for tax administration.
The audit notes that a large chunk of that money - about $3.2 million - came from unused funds allocated for hiring. This was in the same year that the IRS began to single out conservative and tea party groups that sought tax-exempt office, in part because the agency said it did not have the personnel to handle the overwhelming amount of applications pouring in that year.
"Effective cost management is especially important given the current economic environment and focus on Government efficiency," Inspector General J. Russell George said in a statement. "Certain of the IRS's expenses associated with the Anaheim conference do not appear to be a good use of taxpayer funds."
The August 2010 conference, held by the Small Business/Self-Employed division, had 2,600 attendees at three hotels in Anaheim. The audit states that none of the guests were required to document their attendance at the training sessions.
While the division made 1,516 hires that year, not all of them were on board the full year, so the division used the unused money for the three-day conference. Managers also indicated the used additional training funds for the event.
The audit notes that the IRS–a stickler for record keeping–could only provide documentation for $4.1 million. The division estimated it actually spent $4,297,285, but could not source that additional amount, according to the report.
The IRS used event planners instead of IRS employees or contractors to set up the conference, giving no incentive to get lower rates and leaving the government to pay $135 per night for all rooms. Instead of working for favorable room rates, both event planners got $66,500 in commission from the hotels, according to the audit.
Other expenses included more than $135,000 on outside speakers–including a $17,000 fee for a speaker who created paintings on stage to make his point that one must free "the thought process to find creative solutions to challenges."
"The speaker created six paintings at these two keynote sessions (three at each session). These paintings consisted of the following portraits: Albert Einstein (one); Michael Jordan (one); Abraham Lincoln (one); U2 singer Bono (one); and the Statute of Liberty (two)," the audit states.
While two of the paintings were given away at the conference and three were donated, one was reported lost.
The IRS also paid $11,400 to a speaker who specializes in happiness and positive psychology. He led four 90-minute workshops.
Another speaker received $27,500 for two hour-long speeches. The speaker's fee included a $2,500 flight in first class.
The presentation was based on the speaker's published book and, according to the contract, the speaker was to "share how seemingly random combinations of ideas can drive radical innovations."
On a somewhat ironic note, one of the sessions in the programs lists a speech given by IRS speakers titled: "Political Savvy: How Not to Shoot Yourself in the Foot."
In other expenses, IRS employees doled out $35,800 on three planning trips before the conference.
Forty-five employees who lived in the local area got to stay in the hotels and received daily per diems, amounting to more than $30,000 total.
And attendees got numerous gifts and promotional items from conference organizers–totaling more than $64,000. This included imprinted bags, imprinted hard-covered journals, lanyards, travel mugs, picture frames, and various promotion items, according to the audit.
Some attendees were also given Los Angeles Angels baseball tickets as contest prizes, which the division said came as a donation from the hotels.
At the three hotels, 132 suite upgrades were provided each night of the conference, representing nearly 5% of the 2,830 rooms booked. The upgrades ranged from $299 to $1,000 per night.
The hotels provided 10 free rooms each night, which were used by paid speakers and non-IRS support staff, according to the audit. Two of the event planners were given free rooms for 19 nights.
While attendees received a daily $71 per diem, they were also given two free drink coupons, daily continental breakfasts, and beverages and snacks during breaks.
The SB/SE division spent more than $50,000 on videos for the conference. One of the videos, CNN has reported, had a Star-Trek theme, while the other was a parody on IRS employees learning how to do the Cupid Shuffle dance.
Because the IRS did not keep track of all expenses for the videos, the inspector general's office estimates that it took 62 staff hours to produce the piece at a minimum hourly rate of $50.
While the focus of the audit was on the 2010 conference, the inspector general looked at all IRS conferences between 2010 and 2012, finding that the agency held 225 conferences during that time at an estimated cost of $49 million. Nearly $38 million of that came in 2010 alone.
The inspector general's office said it made nine recommendations to the IRS for future conferences, and the agency agreed to all nine.
Responding to the report, the IRS maintained that the 2010 conference was needed to make sure managers had proper training for "significant new programs, major staff and manager turnover and a substantial increase in security threats."
The Small Business/Self-Employed division amounts to nearly one-third of the agency's total work force, and at the time of the 2010 conference, almost 30% of the division's managers had been hired in the prior two years.
However, acting IRS Commissioner Danny Werfel, who was appointed last month after his predecessor stepped down amid scandal, said in a statement that the 2010 conference was an "unfortunate vestige from a prior era" and such a conference would not take place today.
"I will continue my efforts and ensure tight spending protocols are in place to protect the use of taxpayer dollars," he said.
According to the official IRS response, written by IRS chief financial officer Pamela LaRue, the agency had already put in place an "extensive series of procedures" and has "dramatically cut" expenses for conferences since 2010. For example, LaRue notes, all conferences must now be approved centrally rather than by individual units at the IRS.
The number of large meetings decreased by 84% and the costs for those meetings decreased by 87% by 2012, LaRue writes. The IRS predicts costs for 2013 will be even lower.
Travel and training expenses are also down by more than 80%, according to the IRS. The agency now does 90% of its training hours online–nearly double the amount from 2010.
"The IRS takes seriously our obligations to be good stewards of government resources," LaRue writes, adding that the agency has reached $1 billion in savings since 2009.
As for the use of event planners and the receipt of room upgrades noted in the audit, LaRue says those items did not involve "any additional government resources."
IRS officials will continue to make their case this week when they appear Thursday before the House Oversight and Government Reform.