(Correction: An earlier version of this article misstated the total number of IRS employees who received bonuses in 2012. About 67,870 IRS employees received awards that year.)

Internal Revenue Service employees disciplined for misusing agency travel cards, failing to pay federal taxes and fraud still received performance bonuses totaling millions of dollars, according to an agency watchdog.

In a recent audit made public Tuesday, the Treasury Inspector General for Tax Administration reported that between Oct. 1, 2010 and Dec. 31, 2012, more than 2,800 employees disciplined within the past year for misconduct collected a total of $2.8 million in monetary awards. That included more than $1 million in cash awards for 1,100 IRS employees who had failed to pay federal taxes.

IRS officials acknowledged to auditors that they generally did not consider conduct issues when paying employees’ performance awards, in part because of their interpretation of the agency’s contract with the National Treasury Employees Union (NTEU), as well as a lack of governmentwide policy on the matter.

The IG noted, however, that while the agency’s practice of paying awards without taking into account disciplinary action against employees may have complied with the letter of federal law, it “appears to be in conflict with the IRS’ charge of ensuring the integrity of the system of tax administration.”

The 1998 IRS Restructuring and Reform Act requires the agency to remove employees who intentionally commit misconduct, including “willful failure to pay federal taxes,” the TIGTA report stated.

Auditors recommended agency officials come up with a policy for considering conduct issues — especially nonpayment of taxes — before paying employee awards. The IRS human capital officer agreed with the recommendation and said the agency plans to conduct a study by the end of June for implementing such a policy.

The number of employees with conduct issues who were paid performance awards represents just 4 percent of the 67,870 IRS employees who received awards in fiscal 2012. The agency’s total workforce that year numbered about 98,000, according to the IG, and the average award for union employees was $944.

The IG also noted success by the agency in constraining award spending as mandated by the Office of Management and Budget in June 2011 guidance to all agencies. That guidance, which the Office of Personnel Management also signed, limited total spending on performance awards to 5 percent of aggregate salaries for Senior Executive Service members and 1 percent for all other employees.

Total spending cash awards fell by 6 percent between 2011 and 2012 — from $91.6 million to $86.3 million.

Last year, the IRS announced it was canceling employee bonuses for managers and sought to do the same for union workers. The agency’s union, NTEU, however filed both a grievance and a lawsuit, contending the awards were part of the union’s bargaining agreement with the union. In February, the agency reached agreement to pay employees’ performance awards at a lower percentage rate than called for in the union contract.

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