Management Letter

Pursuant to a legislative requirement, GAO provided information on additional matters it identified in its audit of the Internal Revenue Service's (IRS) custodial financial statements for fiscal year (FY) 1998 regarding accounting procedures and internal controls that could be improved.

GAO noted that: (1) IRS' policies and procedures over abatement transactions did not ensure that abatements were processed promptly or that the abatement transactions recorded in IRS' master file records were accurate; (2) IRS' FY 1998 Federal Managers' Financial Integrity Act assurance statement to the Department of the Treasury did not fully disclose all known material weaknesses existing during FY 1998 that could adversely affect IRS operations; (3) IRS did not resolve all reconciling differences between its custodial general ledger accounts and Treasury records; (4) IRS uses the Department of Agriculture's National Finance Center (NFC) as the service organization that processes the biweekly payroll for its employees; (5) during GAO's FY 1998 audit, IRS officials informed GAO that they had not implemented controls to ensure that NFC accurately processed and reported IRS' $5.8 billion in payroll and related benefits; (6) GAO found weaknesses in IRS' policies and procedures over its management discussion and analysis process that resulted in key performance indicators that were sometimes erroneous or not based on appropriate information; (7) the data contained in IRS' masterfiles were not always accurate; (8) GAO previously reported several instances where IRS recorded different types of transactions in the same general ledger accounts; (9) in GAO's FY 1998 audit, GAO found that this condition continued to exist; and (10) specifically, IRS continued to use: (a) revenue and refund accounts to record noncash revenue and refund adjustments; (b) refund accounts to record revenue transactions; and (c) a refund reversal account to record revenue transactions.