WASHINGTON (CBS DC) — The Internal Revenue Service paid $2.8 million in bonuses plus thousands of hours of paid time-off to 2,800 of its employees who had been disciplined for misconducts such as late or non-payment, misuse of travel cards, and even fraud, internal government investigators say.

A new report issued by the Treasury Inspector General for Tax Administration reveals that between Oct. 1, 2010 and Dec. 31, 2012, the IRS doled out $2.8 million in bonuses and more than 27,000 hours in time-off awards to employees who were facing disciplinary actions for not paying their own taxes – and even to those dealing with “fraud issues.”

The report header states that the provision of awards to employees failing to pay taxes “appears to create a conflict with the IRS’s charge of ensuring the integrity of the system of tax administration.”

The internal report showed that at least five employees received performance bonuses after disciplinary action related to intentional under-reporting of taxes for multiple years. And more than 1,100 employees who failed to pay their taxes at all still received awards totaling more than $1 million in cash bonuses and 10,000 hours in additional paid vacation time.

But the report notes that IRS and federal guidelines don’t measure tax compliance in terms of employee performance benefits.

“The IRS does not consider tax compliance or other misconduct when issuing performance awards,” reads the report. Adding, “government-wide policies do not provide guidance on providing awards to employees with conduct issues.”

In total, more than 2,800 employees out of 98,000 got performance-based awards within a year of disciplinary action.

“TIGTA recommended that the IRS Human Capital Officer determine the feasibility of implementing a policy requiring management to consider conduct issues resulting in disciplinary actions, especially the nonpayment of taxes, prior to awarding all types of performance and discretionary awards,” reads one of the government watchdog recommendations.

“In the private sector, you don’t get bonuses, pay increases and promotions right after you’ve done something wrong, and that’s what’s really wrong with the culture there,” Rep. Darrell Issa, R-Calif., and head of the House Oversight Committee told CBS News. “At a minimum, people should have a timeout from bonuses and promotions after being found doing something wrong. That should be inherently part of the punishment.”

“There’s no question this is part of a problem in the federal government that money is spent like it’s somebody else’s – because it is,” Issa told CBS News. 

The IRS responded that it is currently in the process of developing policies that will link employee conduct to performance rewards for senior managers and executives, reports The Washington Post. The IRS stated that such policies may be extended to the entire IRS workforce, although that change would be subject to union approval.

“We strive to protect the integrity of the tax system, and we recognize the need for proper personnel policies,” the agency said via statement.

— Benjamin Fearnow