Internal Controls

The Treasury Department's Financial Management Service (FMS) has lockbox arrangements with commercial banks, which allow FMS to collect payments made to the federal government, including federal tax payments. The banks establish post office boxes and electronic accounts to receive payments and are responsible for safeguarding and processing the funds. FMS reported that nearly $260 billion was collected through these banks in fiscal year 1998. FMS needs to improve its monitoring of lockbox bank operations to ensure that federal collections are adequately safeguarded and properly processed. GAO found weaknesses in FMS' monitoring of lockbox bank operations related to on-site reviews and lockbox bank audits. Without performing these key monitoring activities, FMS has no guarantee of identifying and resolving internal control weaknesses at lockbox banks in a timely fashion. GAO and other auditors recently reported on weaknesses in internal controls and instances of actual theft of federal tax payments by employees of banks that provide lockbox services for the Internal Revenue Service.

GAO noted that: (1) FMS needs to improve its monitoring of lockbox bank operations to ensure that federal collections are adequately safeguarded and properly processed; (2) there were weaknesses in FMS' monitoring of lockbox bank operations related to on-site reviews and lockbox bank audits; (3) on-site reviews performed by FMS and Internal Revenue Service (IRS) lockboxes were not always effective in detecting certain internal control weaknesses at the banks; (4) FMS did not perform periodic on-site reviews of the general lockbox bank operations prescribed in its internal policies and procedures and authorized by its agreements with the banks; (5) FMS did not have a policy to and did not obtain and review the results of the internal and external audits of general lockbox bank operations, even though these audits were required under the agreements with the banks; and (6) FMS did not include any audit requirements in its IRS lockbox agreements. Without performing these key monitoring activities, FMS is not assured of timely identifying and resolving internal control weaknesses at lockbox banks. Such weaknesses increase the risk of loss of federal collections. GAO and other auditors recently reported on weaknesses in internal controls and instances of actual theft of federal tax payments by employees of banks that provide IRS lockbox services. These problems emphasize the importance of establishing adequate controls and effectively monitoring lockbox banks to timely identify and resolve internal control weaknesses that otherwise put billions of dollars of government collections and taxpayer data at risk.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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