Applying Agreed-Upon Procedures
Federal Unemployment Taxes Gao ID: GAO-07-130R November 3, 2006We performed the procedures which we agreed to perform and with which the Department of Labor (DOL) concurred soley to assist the DOL in ascertaining whether the net federal unemployment tax (FUTA) revenue distributed to the Unemployment Trust Fund (UTF) for the fiscal year ended September 30, 2006, is supported by the underlying records. The procedures we agreed to perform relate to (1) transactions that represent underlying basis of amounts distributed to the UTF and (2) key reconciliations of the Internal Revenue Service records to the Department of the Treasury Records.
As agreed with DOL, we evaluated fiscal year 2006 activity affecting distributions to the UTF.
GAO-07-130R, Applying Agreed-Upon Procedures: Federal Unemployment Taxes
This is the accessible text file for GAO report number GAO-07-130R
entitled 'Applying Agreed-Upon Procedures: Federal Unemployment Taxes'
which was released on November 3, 2006.
This text file was formatted by the U.S. Government Accountability
Office (GAO) to be accessible to users with visual impairments, as part
of a longer term project to improve GAO products' accessibility. Every
attempt has been made to maintain the structural and data integrity of
the original printed product. Accessibility features, such as text
descriptions of tables, consecutively numbered footnotes placed at the
end of the file, and the text of agency comment letters, are provided
but may not exactly duplicate the presentation or format of the printed
version. The portable document format (PDF) file is an exact electronic
replica of the printed version. We welcome your feedback. Please E-mail
your comments regarding the contents or accessibility features of this
document to Webmaster@gao.gov.
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed
in its entirety without further permission from GAO. Because this work
may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this
material separately.
November 3, 2006:
The Honorable Gordon S. Heddell:
Inspector General:
Department of Labor:
Subject:Applying Agreed-Upon Procedures: Federal Unemployment Taxes:
Dear Mr. Heddell:
We have performed the procedures contained in the enclosure to this
report, which we agreed to perform and with which you concurred, solely
to assist your office in ascertaining whether the net federal
unemployment tax (FUTA) revenue distributed to the Unemployment Trust
Fund (UTF) for the fiscal year ended September 30, 2006, is supported
by the underlying records. As agreed with your office, we evaluated
fiscal year 2006 activity affecting distributions to the UTF.
In performing the agreed-upon procedures, we conducted our work in
accordance with U.S. generally accepted government auditing standards,
which incorporate financial audit and attestation standards established
by the American Institute of Certified Public Accountants. These
standards also provide guidance for performing and reporting the
results of agreed-upon procedures.
The adequacy of the procedures to meet your objectives is your
responsibility, and we make no representation in that respect. The
procedures we agreed to perform relate to (1) transactions that
represent the underlying basis of amounts distributed to the UTF and
(2) key reconciliations of the Internal Revenue Service records to the
Department of the Treasury records. The enclosure contains the agreed-
upon procedures and our findings from performing each of the
procedures.
We were not engaged to perform, and did not perform, an audit, the
objective of which would have been the expression of an opinion on the
net amount of FUTA taxes distributed to the UTF. Accordingly, we do not
express such an opinion. Had we performed additional procedures, other
matters might have come to our attention that would have been reported
to you. We completed the agreed-upon procedures on October 26, 2006.
We provided a draft of this report to IRS for review and comment. IRS
agreed with the results and findings presented in this report.
This report is intended solely for the use of the Office of Inspector
General of the Department of Labor and should not be used by those who
have not agreed to the procedures and have not taken responsibility for
the sufficiency of the procedures for their purposes. However, this
report is a matter of public record, and its distribution is not
limited. Copies are available to others upon request. This report is
also available at no charge on GAO's Web site at http://www.gao.gov. If
you have any questions, please call me at (202) 512-3406. Contact
points for our Offices of Congressional Relations and Public Affairs
may be found on the last page of this report.
Sincerely yours,
Signed by:
Steven J. Sebastian:
Director:
Financial Management and Assurance:
Enclosure:
Federal Unemployment Tax Procedures and Results:
I.Procedures on detailed transactions:
A. Obtain from the Internal Revenue Service (IRS) total Federal
Unemployment Tax (FUTA) collections and refunds reflecting the first 8
months of fiscal year 2006 posted to the master file.[Footnote 1]
Compare FUTA collections and refund data per the master file to
determine if they agree in all material respects[Footnote 2] to IRS's
general ledger.
Description of findings and results:
Total FUTA collections and refunds for the first 8 months of fiscal
year 2006 per IRS's master file materially agreed with IRS's general
ledger.
B. Use dollar unit sampling (DUS) to select a sample of combined FUTA
collection and refund transactions from the master file for the first 8
months of fiscal year 2006, using a confidence level of 80 percent, a
test materiality of $465 million, and an expected aggregate error
amount of $140 million.
Description of findings and results:
Use of DUS with a confidence level of 80 percent, a test materiality of
$465 million, and an expected aggregate error amount of $140 million
resulted in a sample of 38 transactions for the first 8 months of
fiscal year 2006. All of the 38 transactions represented FUTA
collections.[Footnote 3]
C. For each sampled FUTA tax collection transaction:
1. Trace collection transaction amounts from IRS's master files to
supporting documents (e.g., federal tax deposit coupons) to determine
whether collection amounts are accurately recorded.
Description of findings and results:
Based on supporting documentation, collection amounts were accurately
recorded for all 38 sampled FUTA collection transactions.
2. Compare the date in the master file with the date on source
documents to determine whether amounts were recorded to the appropriate
period.
Description of findings and results:
Based on supporting documentation, collection amounts were recorded to
the appropriate period for all 38 sampled FUTA collection transactions.
3. Inspect source documentation maintained in IRS's files (e.g., tax
returns) to determine whether the transactions were properly classified
as FUTA receipts.
Description of findings and results:
Based on supporting documentation, collection amounts were recorded in
the correct tax class[Footnote 4] for all 38 sampled FUTA collection
transactions.
4. Confirm FUTA transactions paid via the Electronic Federal Tax
Payment System (EFTPS)[Footnote 5] to determine whether the recorded
transactions are valid and reflect the proper amounts, are applied to
the proper tax period, and are properly classified as FUTA receipts.
Description of findings and results:
Of the 38 sampled FUTA collection transactions, 32 were paid via EFTPS.
The bank confirmation showed that all 32 transactions were valid and
had been recorded to the proper tax period and tax class and for the
proper amounts.
II. Analytical procedures:
A. Perform a predictive test on FUTA revenue collections and refunds
for the final 4 months of fiscal year 2006 and determine whether the
predicted FUTA collection and refund amounts vary materially[Footnote
6] from the actual FUTA revenue collection and refund amounts per IRS's
records for this period.
Description of findings and results:
The predicted FUTA revenue collection and refund data amounts for the
final 4 months of fiscal year 2006 did not materially vary from the
amounts for revenue collections and refunds per IRS's records for this
period.
III. Other FUTA procedures:
A. For each of the 12 months in fiscal year 2006, obtain supporting
documentation for monthly revenue reclassification adjustments
transmitted by IRS to the Financial Management Service (FMS). Compare
the supporting documentation with the reclassification adjustments
transmitted to FMS.
Description of findings and results:
Documentation was consistent with the monthly FUTA reclassification
adjustment amount transmitted to FMS for all 12 months of fiscal year
2006.
B. For each of the 12 months in fiscal year 2006, obtain supporting
documentation for the monthly entry of FUTA refund data into the
Government Online Accounting Link System (GOALS) to charge back the
Unemployment Trust Fund (UTF) account for FUTA tax refunds issued.
Compare the supporting documentation with the monthly entries reported
on GOALS.
Description of findings and results:
Documentation was consistent with the monthly FUTA refund amount
entered into GOALS to charge the UTF for FUTA tax refunds issued for
all 12 months of fiscal year 2006.
C. Compare fiscal year 2006 net FUTA collections per IRS's draft
statement of custodial activity and related footnote disclosures to (1)
the Department of the Treasury's Bureau of the Public Debt (BPD)
accounting records for the UTF and (2) drafts of the Department of
Labor's (DOL) consolidated financial statements to determine whether
any significant[Footnote 7] variances exist.
Description of findings and results:
There were no significant variances between net FUTA collections per
IRS's draft statement of custodial activity and BPD's accounting
records for UTF. Similarly, there were no significant variances between
IRS's draft statement of custodial activity and related footnote
disclosures and drafts of DOL's fiscal year 2006 consolidated financial
statements.
IV. Other procedures performed as part of the fiscal year 2006 IRS
financial statement audit:
A. From IRS's master files for the first 8 months of fiscal year 2006,
use DUS to select statistical samples of (1) total tax revenue receipts
and (2) refunds. For each sample item, compare the receipt or refund
amount, tax period, and tax class from source documentation with those
recorded in IRS's master files.
Description of findings and results:
The receipt or refund amount, tax period, and tax class from source
documents for 156 revenue receipts and 53 refund sample transactions
were consistent with amounts recorded in IRS's master files.
B. Obtain selected IRS service center campuses' monthly Department of
the Treasury FMS 224 reconciliations[Footnote 8] and determine whether
IRS-reported revenue receipts and refunds were materially
reconciled[Footnote 9] to Department of the Treasury (Treasury) FMS
records.
Description of findings and results:
Tax revenue receipts and refunds reported by selected IRS service
center campuses through the monthly Treasury FMS 224 reconciliation
process materially reconcile to Treasury FMS records.
C. Compare tax revenue receipt balances by tax class, including FUTA,
and total refund balances recorded in IRS's general ledger with the
master files and Treasury records to determine if they agree in all
material respects.
Description of findings and results:
Tax receipt balances for all tax classes, including FUTA, and total
refund balances per IRS's general ledger materially agreed with IRS's
master files and Treasury records.
(196089):
FOOTNOTES
[1] The master file is a detailed database containing taxpayer
information.
[2] For this procedure, "material" is defined as $465 million. This
represents 1 percent of net Unemployment Trust Fund collections for
fiscal year 2005.
[3] Consequently, procedures agreed to regarding refund transactions
are not applicable.
[4] IRS assigns a tax class number to specific types of taxes. FUTA
taxes are tax class 8.
[5] EFTPS is a Financial Management Service system maintained by two
financial agents for the government. EFTPS is used for initiating tax
payments electronically. Employers who make federal tax deposits
exceeding $200,000 must use EFTPS to pay their FUTA taxes. The $200,000
threshold includes all federal tax deposits, such as deposits for
employment tax, excise tax, and corporate income tax. Taxpayers who are
not required to make electronic deposits may voluntarily participate in
EFTPS.
[6] For this procedure, "material" is defined as $465 million.
[7] For this procedure, "significant" is defined as $465 million.
[8] At the end of each month, each IRS campus provides Department of
the Treasury its FMS 224 (Statement of Transactions) generated from
IRS's general ledger, reporting receipts and refunds journalized during
the month. The Department of the Treasury reconciles the amounts on the
FMS 224 with its records and provides IRS a Statement of Differences
for any differences identified.
[9] For the purpose of this procedure and procedure IV.C, we define
"material" as $23 billion. This represents 1 percent of the estimated
gross tax revenue receipts to be collected by IRS in fiscal year 2006.
GAO's Mission:
The Government Accountability Office, the investigative arm of
Congress, exists to support Congress in meeting its constitutional
responsibilities and to help improve the performance and accountability
of the federal government for the American people. GAO examines the use
of public funds; evaluates federal programs and policies; and provides
analyses, recommendations, and other assistance to help Congress make
informed oversight, policy, and funding decisions. GAO's commitment to
good government is reflected in its core values of accountability,
integrity, and reliability.
Obtaining Copies of GAO Reports and Testimony:
The fastest and easiest way to obtain copies of GAO documents at no
cost is through the Internet. GAO's Web site ( www.gao.gov ) contains
abstracts and full-text files of current reports and testimony and an
expanding archive of older products. The Web site features a search
engine to help you locate documents using key words and phrases. You
can print these documents in their entirety, including charts and other
graphics.
Each day, GAO issues a list of newly released reports, testimony, and
correspondence. GAO posts this list, known as "Today's Reports," on its
Web site daily. The list contains links to the full-text document
files. To have GAO e-mail this list to you every afternoon, go to
www.gao.gov and select "Subscribe to e-mail alerts" under the "Order
GAO Products" heading.
Order by Mail or Phone:
The first copy of each printed report is free. Additional copies are $2
each. A check or money order should be made out to the Superintendent
of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or
more copies mailed to a single address are discounted 25 percent.
Orders should be sent to:
U.S. Government Accountability Office
441 G Street NW, Room LM
Washington, D.C. 20548:
To order by Phone:
Voice: (202) 512-6000:
TDD: (202) 512-2537:
Fax: (202) 512-6061:
To Report Fraud, Waste, and Abuse in Federal Programs:
Contact:
Web site: www.gao.gov/fraudnet/fraudnet.htm
E-mail: fraudnet@gao.gov
Automated answering system: (800) 424-5454 or (202) 512-7470:
Public Affairs:
Jeff Nelligan, managing director,
NelliganJ@gao.gov
(202) 512-4800
U.S. Government Accountability Office,
441 G Street NW, Room 7149
Washington, D.C. 20548:
