Financial Audit

As in earlier years, GAO found it impossible to provide an affirmative opinion on IRS' principal financial statements for 1995, internal controls, and IRS' compliance with laws and regulations. The following financial management problems prevented GAO from rendering an opinion: (1) the amounts of total revenue ($1.4 trillion) and tax refunds ($122 billion) cannot be verified or reconciled to accounting records maintained for individual taxpayers in the aggregate; (2) the amounts reported for taxes collected (social security, income, and excise taxes, for example) cannot be substantiated; (3) the reliability of reported estimates of $113 billion for valid accounts receivable and $46 billion for collectible accounts receivable cannot be determined; (4) a significant portion of the agency's reported $3 billion in nonpayroll operating expenses cannot be verified; (5) the amounts IRS reported as appropriations available for expenditure for operations cannot be reconciled fully with Treasury's central accounting records showing these amounts, and hundreds of millions of dollars in differences have been found.

GAO found that: (1) it could not express an opinion of the 1995 IRS financial statement due to limitations in the scope of its work; (2) the information in the 1995 statement may be unreliable; (3) ongoing financial management problems include IRS inability to verify or reconcile taxpayer revenue and refunds to accounting records, substantiate amounts reported for various types of taxes collected, verify nonpayroll operating expenses, and reconcile reported appropriations with Department of the Treasury records, and determine the unreliability of estimated accounts receivable balances; (4) IRS has not resolved many of its financial management problems, but it has developed software to capture detailed revenue and refund transactions and is completing documentation of its financial management systems to aid in system improvements; (5) significant material weaknesses in IRS controls over recordkeeping exist, including lax computer security; (6) it could not test IRS compliance with applicable laws and regulations; and (7) IRS has completed 17 of 59 recommendations for improving its financial management systems.