Internal Revenue Service
Status of Recommendations From Financial Audits and Related Financial Management Reports Gao ID: GAO-02-848 July 30, 2002This report provides a status of the Internal Revenue Service's (IRS) efforts to implement recommendations GAO made on its audits of IRS's financial statements. In updating the status of these recommendations, GAO included the results of its audit of IRS's financial statements for fiscal year 2001 and 2000.
GAO-02-848, Internal Revenue Service: Status of Recommendations From Financial Audits and Related Financial Management Reports
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United States General Accounting Office:
GAO:
Report to the Commissioner of Internal Revenue:
July 2002:
Internal Revenue Service:
Status of Recommendations From Financial Audits and Related Financial
Management Reports:
GAO-02-848:
Contents:
Letter:
Status of Recommendations:
Agency Comments:
Objectives, Scope, and Methodology:
Appendixes:
Appendix I: Status of GAO Recommendations From Prior IRS Financial
Audits and Related Management Reports:
Appendix II: Comments from the Internal Revenue Service:
Appendix III: GAO Contacts and Staff Acknowledgments:
Abbreviations:
ADP: automated data processing:
CAP: Custodial Accounting Project:
DUPREF: duplicate refunds:
EFDS: Electronic Fraud Detection System:
EITC: Earned Income Tax Credit:
FFMIA: Federal Financial Management Improvement Act of 1996:
FMFIA: Federal Managers' Financial Integrity Act of 1982:
FMS: Financial Management Service:
IEI: invitations for expressions of interest:
IFS: Integrated Financial System:
IPS: Integrated Procurement System:
IRM: Internal Revenue Manual:
IRS: Internal Revenue Service:
ITAMS: Information Technology Asset Management System:
JFMIP: Joint Financial Management Improvement Program:
LPG: Lockbox Processing Guidelines:
NTEU: National Treasury Employees Union:
P&E: property and equipment:
QRR: Questionable Refund Report:
RTS: Request Tracking System:
SETS: Security Entry and Tracking System:
SFFAS: Statements of Federal Financial Accounting Standards:
SOC: sub-object class:
SPIF: Single Point Inventory Function:
TAC: Taxpayer Assistance Center:
TASL: taxpayer account subledger:
TFRP: trust fund recovery penalty:
WCF: Working Capital Fund:
[End of section]
United States General Accounting Office:
Washington, D.C. 20548:
July 30, 2002:
The Honorable Charles O. Rossotti:
Commissioner of Internal Revenue:
Dear Mr. Rossotti:
This report provides a status of the Internal Revenue Service's (IRS)
efforts to implement recommendations we have made based on our audits
of IRS's financial statements. In updating the status of these
recommendations, we have included the results of our audit of IRS's
financial statements for fiscal years 2001 and 2000. [Footnote 1] This
report is being provided to you to (1) assist IRS management in
tracking the unresolved issues identified in prior GAO financial
audits, [Footnote 2] and (2) report on the current status of open audit
recommendations detailed in previous GAO financial audit and financial
management related reports. In cases where IRS has taken action on open
recommendations that did not result in us closing them, we explain why
this occurred.
Since our first audit of IRS's financial statements in fiscal year
1992, our audits have identified a number of weaknesses in IRS's
financial management operations. In related reports on IRS's internal
controls and in management letters, we have recommended corrective
action to address those weaknesses. In connection with its efforts to
comply with the Federal Managers' Financial Integrity Act (FMFIA) and
the Federal Financial Management Improvement Act of 1996 (FFMIA), IRS
prepares quarterly remedial action plans to address identified internal
control weaknesses. These remedial action plans document IRS's approach
to addressing each of the financial management related audit
recommendations it receives and includes information on actions already
taken to address the issues that gave rise to the recommendation.
Appendix I lists (1) recommendations we have made based on our financial
audits that we have not previously reported as closed, (2) a synopsis of
IRS's planned corrective action and status of each recommendation as
reported in its remediation plan as of March 31, 2002, or communicated
to us in discussions with management or in IRS's response to our fiscal
year 2001 management report, [Footnote 3] and (3) our analysis of
whether the recommendation has been implemented based on the work
performed during our fiscal year 2001 financial audit. The table also
highlights in bold the nine recommendations which we consider to be of
the highest priority to assist senior management in the prioritization
of its resources to resolve the most pressing financial management
challenges facing IRS.
Status of Recommendations:
In October 2001, we issued a report that provided (1) the status of
IRS's efforts to implement prior recommendations as of our fiscal year
2000 financial audit, [Footnote 4] and (2) new recommendations based on
the results of our fiscal year 2000 financial audit. [Footnote 5] In
this report, we included 95 audit recommendations that we had not
previously reported as being closed, some dating back as far as 1993.
Of the 95 recommendations, 24 were closed at the time that report was
issued, leaving 71 that were used as a starting point for the appendix
of this report. We divided 1 of these open recommendations into its 3
component parts to facilitate tracking, and added 16 new
recommendations included in our recently published fiscal year 2001
management report for a total of 89 recommendations. [Footnote 6] Based
on the results of our recently completed fiscal year 2001 financial
audit, we are closing 27 recommendations due to actions IRS has taken
to address the issues that gave rise to them. Therefore, as of the date
of this report, 62 of our financial management recommendations remain
open, 56 of which are short term in nature and 6 of which are long term
in nature. [Footnote 7]
As indicated in appendix I, of the 62 recommendations we consider to be
open, IRS considered 16 (26 percent) to be closed. We consider each of
these recommendations to be open for one of the following three reasons:
(1) IRS has taken recent corrective action to resolve the
recommendation, but we have not yet verified implementation of the
corrective action, which is a prerequisite to closing the
recommendation (1 recommendation), (2) IRS does not agree with the
recommendation, but we continue to consider the recommendation valid (4
recommendations), or (3) we found that IRS action taken to date has not
been fully effective in addressing the condition that gave rise to the
recommendation (11 recommendations).
We believe the open issues under the third category could be resolved
with additional management follow-up to ensure that corrective actions
are fully effective in resolving the issue they are intended to
address. In the interim, the underlying weaknesses will likely continue
to exist, impairing the quality and timeliness of IRS's financial
information and increasing its exposure to losses, as well as impacting
IRS's ability to effectively fulfill its mission of providing top
quality service to taxpayers.
We also found that many of the open audit recommendations have been
outstanding for an extended period of time, including 3 recommendations
that we consider to be of the highest priority. The continued existence
of these problems exposes IRS to loss due to errors or theft, and
impairs the reliability and availability of the current, accurate
financial information management needs to make decisions on an ongoing
basis. For example, the 62 open recommendations include the following.
* Nineteen (31 percent) were recommended over 2 years ago. These
include 7 that were issued over 3 years ago and 2 that have remained
open for over 8 years. Of these 19 recommendations, we consider 11 (58
percent) to be short term in nature.
* Ten (16 percent) relate to a material weakness in IRS's property and
equipment (P&E) management. In its FMFIA annual assurance statement,
IRS has reported a material weakness in P&E management every year since
1983, but has been unable to successfully implement the corrective
actions needed to resolve this material weakness.
* Seven (11 percent) relate to weaknesses in controls intended to
safeguard taxpayer receipts and data. We consider all of these
recommendations to be short term in nature. These include IRS
continuing to hire staff and allow them access to taxpayer receipts and
data before the results of their fingerprint checks have been received
and approved, and IRS's inability to ensure that the taxpayer receipts
and data it receives are properly accounted for and safeguarded. These
continued weaknesses expose IRS to unnecessary risk of loss and
increase taxpayer exposure to losses from financial crimes committed
by individuals who inappropriately gain access to confidential personal
information.
IRS has exhibited strong commitment to addressing its ongoing financial
management problems and has made improvements in recent years that
have resulted in the closing of many recommendations. However, the
continued existence of the serious financial management weaknesses that
gave rise to the remaining open recommendations represent serious
obstacles that IRS needs to overcome in order to achieve effective
financial management and have available accurate, timely financial
reporting and other information that is useful for day-to-day decision
making. This was the overriding intent of FMFIA, the Chief Financial
Officers Act of 1990, FFMIA, and other federal financial management
reform legislation.
Agency Comments:
In commenting on a draft of this report, IRS agreed with our closing of
27 audit recommendations and reaffirmed its commitment to improving
financial management. Along with its comments, IRS provided an update to
the status of each of the 62 recommendations that we consider to be open
as of February 2002 when we completed our fiscal year 2001 audit. IRS
indicated that of these 62 recommendations, it considers 22 to be
closed as of July 17, 2002, including 2 of the highest priority
recommendations, based upon corrective actions IRS has taken. We will
review the effectiveness of these corrective actions and the status of
IRS‘s progress in addressing all open recommendations as part of our
fiscal year 2002 financial audit.
Objectives, Scope, and Methodology:
We evaluated the effectiveness of IRS's corrective actions implemented
in response to open recommendations during fiscal year 2001 as part of
our fiscal years 2001 and 2000 financial audits. [Footnote 8] Further
details on our scope and methodology with respect to this work are
included in our February 2002 report on the results of our fiscal years
2001 and 2000 financial statement audits. We also reviewed IRS's
September 30, 2001, corrective action plan for each of the material
weaknesses identified in its FMFIA assurance report, IRS's March 31,
2002, remediation plan, and IRS's response to our fiscal year 2001
management report for IRS's planned corrective actions. We noted IRS's
conclusion on the status of each outstanding recommendation based on
its plans and actions taken. We also compared IRS's plans to our fiscal
year 2001 audit findings and noted any differences between IRS's and
our conclusions regarding the status of the recommendations. We
performed our work from March 2001 through June 2002 in accordance with
U.S. generally accepted government auditing standards. We requested
comments on a draft of this report from the Commissioner of Internal
Revenue or his designee. Written comments were received from the Deputy
Commissioner and are reprinted in appendix II.
We are sending copies of this report to the Chairmen and Ranking
Minority Members of the Senate Committee on Appropriations; Senate
Committee on Finance; Senate Committee on Governmental Affairs; Senate
Committee on the Budget; Subcommittee on Treasury, General Government,
and Civil Service, Senate Committee on Appropriations; Subcommittee on
Taxation and IRS Oversight, Senate Committee on Finance; Subcommittee on
Oversight of Government Management, Restructuring, and the District of
Columbia, Senate Committee on Governmental Affairs; House Committee on
Appropriations; House Committee on Ways and Means; House Committee on
Government Reform; House Committee on the Budget; Subcommittee on
Government Efficiency, Financial Management, and Intergovernmental
Relations, House Committee on Government Reform; and Subcommittee on
Oversight, House Committee on Ways and Means. In addition, we are
sending copies of this report to the Chairman and Vice-Chairman of the
Joint Committee on Taxation, the Secretary of the Treasury, the
Director of the Office of Management and Budget, the Chairman of the
IRS Oversight Board, and other interested parties. Copies will be made
available to others upon request. In addition, the report will be
made available at no charge on GAO's web site at [hyperlink,
http://www.gao.gov].
If you have any questions concerning this report, please contact me at
(202) 512-3406.
The GAO contacts and staff acknowledgments are listed in appendix III.
Sincerely yours,
Signed by:
Steven J. Sebastian:
Director:
Financial Management and Assurance:
[End of section]
Appendix I: Status of GAO Recommendations From Prior IRS Financial
Audits and Related Management Reports:
Count: 1;
Number: 93-2;
Recommendation: Determine what information related to automated data
processing (ADP) resources, such as equipment condition and remaining
useful life, would be most useful to IRS managers for financial
management purposes and develop a means for accounting for these data.
(Long-term);
Source report: Financial Management: IRS Lacks Accountability Over Its
ADP Resources (GAO/AIMD-93-24, Aug. 5, 1993);
Status of recommendations, Per IRS: Open. IRS intends to implement a
system that will integrate its P&E inventory system with its financial
system. This Integrated Financial System (IFS) is expected to include
information related to equipment resources and to incorporate a means of
accounting for such data. Scheduled completion is March 1, 2005.
Status of recommendations, Per GAO: Open. We will follow up to
determine what information IRS has considered as part of establishing
IFS‘s system requirements.
Count: 2;
Number: 94-2;
Recommendation: Monitor implementation of actions to reduce the errors
in calculating and reporting manual interest on taxpayer accounts, and
test the effectiveness of these actions. (Short-term);
Source report: Financial Management: Important IRS Revenue Information
Is Unavailable or Unreliable (GAO/AIMD-94-22, Dec. 21, 1993);
Status of recommendations, Per IRS: Open. IRS is implementing new
procedures and software. IRS expects to complete testing,
implementation, and staff training by January 1, 2003.
Status of recommendations, Per GAO: Open. We will review the
effectiveness of IRS's new monitoring actions when implemented.
Count: 3;
Number: 99-1;
Recommendation: Manually review and eliminate duplicate or other
assessments that have already been paid off to assure all accounts
related to a single assessment are appropriately credited for payments
received. (Short-term) [High-priority recommendation] ;
Source report: Internal Revenue Service: Immediate and Long-Term
Actions Needed to Improve Financial Management (GAO/AIMD-99-16, Oct.
30, 1998);
Status of recommendations, Per IRS: Open. IRS is developing a system to
automate the trust fund recovery penalty (TFRP) program. IRS expects
that this will eliminate the opportunity for errors that plague the
current manual process. Scheduled for implementation October 1, 2003.
Status of recommendations, Per GAO: Open. IRS's manual cross-reference
information linking assessments is labor intensive and often
ineffective. In fiscal year 2001 we found that 20 out of 67 TFRP cases
had payments that were not posted to reflect each responsible party's
reduction in tax liability. Fourteen of the 20 (70 percent) had all the
necessary cross-references, and for 12 of these cases the unposted
payments were made after the cross-reference had been added.
Count: 4;
Number: 99-3;
Recommendation: Ensure that IRS‘s modernization blueprint includes
developing a subsidiary ledger to accurately and promptly identify,
classify, track, and report all IRS unpaid assessments by amount and
taxpayer. This subsidiary ledger must also have the capability to
distinguish unpaid assessments by category in order to identify those
assessments that represent taxes receivable versus compliance
assessments and write-offs. In cases involving trust fund recovery
penalties, the subsidiary ledger should ensure that (1) the trust fund
recovery penalty assessment is appropriately tracked for all taxpayers
liable but counted only once for reporting purposes and (2) all
payments made are properly credited to the accounts of all individuals
assessed for the liability. (Short-term) [High-priority
recommendation];
Source report: Internal Revenue Service: Immediate and Long-Term
Actions Needed to Improve Financial Management (GAO/AIMD-99-16, Oct.
30, 1998);
Status of recommendations, Per IRS: Open. IRS's Custodial Accounting
Project (CAP) includes the development of a taxpayer account subledger
(TASL) which is expected to provide the ability to identify duplicate
trust fund recovery assessments, taxes receivable, compliance
assessments, and write-offs for financial reporting purposes. Scheduled
for completion April 1, 2003.
Status of recommendations, Per GAO: Open. During our fiscal year 2002
audit, we will review certain requirements of IRS‘s CAP to verify that
the requirements address the issues raised in the recommendation.
Count: 5;
Number: 99-4;
Recommendation: Examine and consider options to increase deterrent
controls at service centers. Some options IRS should examine and
consider include installing surveillance cameras to monitor staff when
they are opening, extracting, and sorting the mail and when they are
processing receipts; restricting personal items that can be brought into
the receipt processing areas, such as handbags, briefcases, and bulky
outerwear; and providing lockers and requiring their use for storing
personal belongings outside of the receipt processing areas. (Short-
term);
Source report: Internal Revenue Service: Immediate and Long-Term
Actions Needed to Improve Financial Management (GAO/AIMD-99-16, Oct.
30, 1998);
Status of recommendations, Per IRS: Closed. IRS concluded that
surveillance cameras used to monitor staff when processing receipts
were not effective deterrent controls against theft. In lieu of
surveillance cameras, alternate physical security enhancements were
implemented. These items included the (1) adoption of an agreement with
the National Treasury Employees Union (NTEU) that prohibits employees
from bringing personal items, such as lunch bags, purses, and briefcases
into receipt processing areas and (2) installation of lockers to store
such items. Completed March 2000.
Status of recommendations, Per GAO: Closed. During our fiscal year 2001
audit, we verified that IRS examined and considered options to increase
deterrent controls at service centers, and that IRS installed lockers
at the service centers we visited. However, we noted that issues
continue to exist in the implementation of the policy prohibiting
employees from bringing personal belongings into receipt processing
areas. We will continue to evaluate the effectiveness of IRS's efforts
during our fiscal year 2002 financial audit.
Count: 6;
Number: 99-7;
Recommendation: Ensure that IRS‘s modernization blueprint includes the
ability to compare W-2 and other third-party information to tax returns
as they are processed to further prevent improper refunds from being
issued. (Short-term);
Source report: Internal Revenue Service: Immediate and Long-Term
Actions Needed to Improve Financial Management (GAO/AIMD-99-16, Oct.
30, 1998);
Status of recommendations, Per IRS: Open. The Modernization Blueprint
Volume III provides for the comparison against data available prior to
refund issuance. Scheduled completion is October 1, 2003.
Status of recommendations, Per GAO: Closed. The proposed blueprint
includes, at a high level, the ability to compare electronically
submitted returns that substantially addresses our recommendation. We
will continue to monitor IRS's efforts to ensure that this high-level
requirement is ultimately assigned to a specific modernization project.
Count: 7;
Number: 99-8;
Recommendation: Revise the Form 720 tax return to reflect a separate
column adjacent to the column for entering the tax assessment, by
abstract number, for the taxpayer to report on pages 1 and 2 of the tax
return claims and adjustments, by abstract number, based on the
information the taxpayer reports on Schedule C. (Short-term);
Source report: Excise Taxes: Internal Control Weaknesses Affect
Accuracy of Distributions to the Trust Funds (GAO/AIMD-99-17, Nov. 9,
1998);
Status of recommendations, Per IRS: Closed. IRS revised the Form 720
and the Schedule C. Completed October 2001.
Status of recommendations, Per GAO: Closed. We confirmed that the Form
720 and Schedule C were revised effective October 2001. The revisions
should (1) result in a better matching of certain adjustments to the
related tax periods and, (2) through the use of credit reference
numbers tied to the specific abstracts, alleviate the concerns we had
with related credits and adjustments not being placed by the abstract
on the front of the form.
Count: 8;
Number: 99-9;
Recommendation: Develop, document, and implement review procedures over
the adjustment and summarization of assessment data used in the
certifications. Specifically, IRS should require that detailed
supervisory review be performed and documented to ensure that
adjustments are reasonable and adequately supported, calculations are
appropriately performed, and the certification letter agrees with the
supporting schedules. (Short-term);
Source report: Excise Taxes: Internal Control Weaknesses Affect
Accuracy of Distributions to the Trust Funds (GAO/AIMD-99-17, Nov. 9,
1998);
Status of recommendations, Per IRS: Closed. Three separate check sheets
have been developed to ensure the quality of each excise tax
certification. In addition, IRS reported that it prepared written
procedures for preparing the certifications and changed the review
process to now require a second-level review to ensure accuracy.
Completed December 21, 1998.
Status of recommendations, Per GAO: Closed. In fiscal year 2000, IRS
prepared and implemented written procedures for their excise tax
certification process. However, we continued to find issues with the
implementation of these procedures, such as inadequate reviews that
resulted in undetected errors in the data used for certification. We
will continue to evaluate the effectiveness of IRS's efforts in our
fiscal year 2002 financial audit.
Count: 9;
Number: 99-10;
Recommendation: Establish procedures to review the applications and
associated documents for all applicants given job offers to ensure that
fingerprint checks are initiated on those individuals. Implement
procedures to provide supervisory feedback on these reviews as
necessary to ensure personnel staff are aware of and follow IRS's
policy requiring fingerprint checks. (Short-term)
Source report: Internal Revenue Service: Physical Security Over
Taxpayer Receipts and Data Needs Improvement (GAO/AIMD-99-15, Nov. 30,
1998);
Status of recommendations, Per IRS: Closed. IRS established procedures
in July 1999 that established database reports and procedures to enable
Personnel Offices to ensure that fingerprint checks are initiated and
supervisory feedback is provided so that IRS staff comply with
fingerprint check requirements. Completed July 9, 1999.
Status of recommendations, Per GAO: Closed. We confirmed that IRS
established procedures requiring local hiring offices to review hiring
database reports to monitor compliance with the fingerprint policy and
to ensure the accuracy of the hiring database. The procedures require
managers to take corrective actions when the reports showed instances of
noncompliance. However, certain implementation issues exist which
continued to result in instances where employees entered on duty who
were not fingerprinted until a few days or months later and a few
instances where IRS had no record of completed fingerprint checks.
See related recommendations 99-12 and 02-18.
Count: 10;
Number: 99-11;
Recommendation: Continue with the agency's plans to develop and
implement a policy to fingerprint filing season applicants at the
earliest possible time in the job application process. (Short-term)
Source report: Internal Revenue Service: Physical Security Over
Taxpayer Receipts and Data Needs Improvement (GAO/AIMD-99-15, Nov. 30,
1998);
Status of recommendations, Per IRS: Closed. IRS issued policies in 1999
that required fingerprinting all filing season applicants at the
earliest possible time in the job application process. Completed June
26, 1999.
Status of recommendations, Per GAO: Closed. We confirmed that IRS
issued policies requiring fingerprinting all filing season applicants
at the earliest possible time in the job application process. However,
we continued to find issues with the implementation of these policies,
such as instances where new hires were not fingerprinted until several
days or months after their enter on duty dates. These new hires were
assigned to positions, such as data transcription and mail clerks,
which gave them access to taxpayer data and receipts. We will continue
to evaluate the effectiveness of IRS‘s efforts to implement these
policies during the fiscal year 2002 financial audit.
Count: 11;
Number: 99-12;
Recommendation: Until the problems with delays in fingerprint checks
are resolved, develop and implement a policy prohibiting new employees
from being assigned to process receipts until the results of
fingerprint checks are received and reviewed by management. (Short-
term) [High-priority recommendation]
Source report: Internal Revenue Service: Physical Security Over
Taxpayer Receipts and Data Needs Improvement (GAO/AIMD-99-15, Nov. 30,
1998);
Status of recommendations, Per IRS: Closed. In April 2000 IRS issued a
policy memo requiring fingerprint checks be received and results
evaluated before an employee in any IRS office can begin working, and it
issued a further clarifying memo in August 2000. Completed August 2000.
Status of recommendations, Per GAO: Open. Although IRS issued the April
2000 policy, it did not consistently implement it. According to IRS and
Office of Personnel Management hiring data, IRS continued to hire
employees who had access to taxpayer receipts and data in fiscal year
2001 before it received the results of their fingerprint checks. We
will continue to evaluate the effectiveness of IRS's efforts in our
fiscal year 2002 financial audit.
Count: 12;
Number: 99-16;
Recommendation: Provide secure containers for service center employees
to store ’discovered remittances“ prior to inventory and submission to
the Receipt and Control Branch. Immediately upon discovery, the receipts
should be recorded into a control log, the receipts secured in a locked
container, and the discovered receipts reconciled to the control log
prior to submission for processing. (Short-term)
Source report: Internal Revenue Service: Physical Security Over
Taxpayer Receipts and Data Needs Improvement (GAO/AIMD-99-15, Nov. 30,
1998);
Status of recommendations, Per IRS: Closed. Each service center campus
currently has locked containers to store the discovered remittances. In
addition, IRS reported that it issued instructions to the service
centers on February 17, 1999, to emphasize the handling and recording of
these remittances to ensure reconciliation. Completed February 17, 1999.
Status of recommendations, Per GAO: Open. During our fiscal year 2001
site visits, we continued to find discovered remittances that were not
stored in locked containers and that were not immediately logged in when
they were discovered. Additionally, combination locks to containers
were not changed in accordance with IRS‘s policy. We will continue to
evaluate IRS's efforts in our fiscal year 2002 financial audit.
Count: 13;
Number: 99-17;
Recommendation: Ensure that all returned refund checks are stamped
’nonnegotiable“ as soon as they are extracted. (Short-term)
Source report: Internal Revenue Service: Physical Security Over
Taxpayer Receipts and Data Needs Improvement (GAO/AIMD-99-15, Nov. 30,
1998);
Status of recommendations, Per IRS: Closed. IRS updated Internal
Revenue Manual (IRM) 3.10.72.6(1) to reflect the policy of stamping all
returned refund checks non-negotiable as soon as they are extracted. In
May 2000, IRS added instructions to the IRM that required extraction
personnel to place returned refund checks in a designated bucket/bin
for manager review to ensure compliance. Completed May 2000.
Status of recommendations, Per GAO: Open. During our fiscal year 2001
site visits, we found that not all sites were locking or immediately
stamping the returned refund checks. Consequently, several employees
handled the checks before they were restrictively endorsed, thus
increasing their risk of theft. We will continue to evaluate IRS's
efforts in our fiscal year 2002 financial audit.
Count: 14;
Number: 99-18;
Recommendation: Require district office employees to store walk-in
payments in secure containers in accordance with IRM 1(16) 41, section
500. District office management should ensure that this policy is
followed and should limit the number of employees with access to the
keys or combinations to these containers. (Short-term)
Source report: Internal Revenue Service: Physical Security Over
Taxpayer Receipts and Data Needs Improvement (GAO/AIMD-99-15, Nov. 30,
1998);
Status of recommendations, Per IRS: Closed. IRS has communicated the
requirements to the field offices through its new Customer Service
Operating Guidelines for fiscal year 2000 and that access to the keys
to the containers are restricted. Completed December 6, 1999.
Status of recommendations, Per GAO: Closed. We confirmed that IRS has
communicated the requirements to the field offices through its new
Customer Service Operating Guidelines and that access to the keys to
the containers is restricted. However, we found issues with the
implementation of these requirements. At one of the sites visited
during fiscal year 2001, we found that walk-in payments were not stored
in a locked container for the first 11 months of the fiscal year.
Additionally, we found that all seven employees at another site we
visited had access to the keys to the cabinet used to store receipts
during nonoperating hours. We will continue to evaluate IRS's efforts
in our fiscal year 2002 financial audit.
Count: 15;
Number: 99-19;
Recommendation: Ensure that walk-in payment receipts are recorded in a
control log prior to depositing the receipts in the locked container
and ensure that the control log information is reconciled to receipts
prior to submission of the receipts to another unit for payment
processing. To ensure proper segregation of duties, an employee not
responsible for logging receipts in the control log should perform the
reconciliation. (Short-term)
Source report: Internal Revenue Service: Physical Security Over
Taxpayer Receipts and Data Needs Improvement (GAO/AIMD-99-15, Nov. 30,
1998);
Status of recommendations, Per IRS: Closed. IRS issued guidance to the
field in August 1999 and updated the IRM in January 2000 to include
instructions for a control log and reconciliation of receipts.
Completed January 2000.
Status of recommendations, Per GAO: Open. We continued to find
instances in which walk-in payments were not logged as soon as they
were received. At one field site visited, taxpayer payments were not
immediately recorded onto a control log, through the first 10 months of
fiscal year 2001. We will continue to evaluate IRS's efforts in our
fiscal year 2002 financial audit.
Count: 16;
Number: 99-20;
Recommendation: Analyze and determine the factors causing delays in
processing and posting trust fund recovery penalty assessments. Once
these factors have been determined, IRS should develop procedures to
reduce the impact of these factors and to ensure timely posting to all
applicable accounts and proper offsetting of refunds against unpaid
assessments before issuance. (Short-term)
Source report: Internal Revenue Service: Custodial Financial Management
Weaknesses (GAO/AIMD-99-193, Aug. 4, 1999);
Status of recommendations, Per IRS: Open. IRS convened a task group to
design an automated TFRP system that will have the capability to
systemically post TFRP assessments and properly cross-reference
payments received and thus eliminate the opportunity for errors that
plague the current manual process. Implementation is scheduled for
October 1, 2003.
Status of recommendations, Per GAO: Open. We will continue to monitor
the timeliness and completeness of IRS's processing of these
transactions during our fiscal year 2002 financial audit.
Count: 17;
Number: 99-21;
Recommendation: Identify and institute procedures to monitor compliance
of installment agreements. Such monitoring should ensure that the
installment agreements provide for full payment of the taxes owed. For
example, management could randomly select installment agreements from
all of its units to review for compliance with the Internal Revenue
Code. (Short-term)
Source report: Internal Revenue Service: Custodial Financial Management
Weaknesses (GAO/AIMD-99-193, Aug. 4, 1999);
Status of recommendations, Per IRS: Closed. IRS updated the IRM and
issued a new one in October 1999 to state that installment agreements
must stipulate full payment for liabilities. Service centers are
required to monitor compliance. Completed September 23, 1999.
Status of recommendations, Per GAO: Closed. We confirmed that IRS
updated the IRM to state that installment agreements must stipulate
full payment for liabilities. During fiscal year 2001, we noted no
instances of noncompliance with the Internal Revenue Code related to
installment agreements. We will continue to evaluate IRS‘s compliance
during our fiscal year 2002 financial audit of IRS.
Count: 18;
Number: 99-22;
Recommendation: Expand IRS's current review of service center deterrent
controls to include similar analyses of controls at IRS field offices
in areas such as courier security, safeguarding of receipts in locked
containers, requirements for fingerprinting employees, and requirements
for promptly over-stamping checks made out to the ’IRS“ with ’Internal
Revenue Service“ or ’United States Treasury.“ Based on the results, IRS
should make appropriate changes to strengthen its physical security
controls. (Short-term)
Source report: Internal Revenue Service: Custodial Financial Management
Weaknesses (GAO/AIMD-99-193, Aug. 4, 1999);
Status of recommendations, Per IRS: Open. IRS will be initiating
efforts to expand deterrent controls at campuses to field offices and
post of duty offices to ensure uniformity and consistency in its
implementation of deterrent controls. Implementation is scheduled for
January 1, 2003.
Status of recommendations, Per GAO: Open. IRS responded that it plans
to address this recommendation by January 2003. However, to date, it
has primarily focused its review of field offices to the Taxpayer
Assistance Centers (TAC). We are concerned with the limited scope of
this review since past audits have found control weaknesses over the
safeguarding and accounting for taxpayer receipts and data not only in
TAC units but other field office units, such as Case Processing. We
will continue to monitor IRS‘s efforts during our fiscal year 2002
financial audit.
Count: 19;
Number: 99-24;
Recommendation: Establish procedures to ensure the prompt recording of
tax returns. IRS should implement controls to ensure that excise tax
returns are recorded timely and included in the quarterly excise tax
trust fund certifications. (Short-term)
Source report: Internal Revenue Service: Custodial Financial Management
Weaknesses (GAO/AIMD-99-193, Aug. 4, 1999);
Status of recommendations, Per IRS: Closed. IRS implemented several IRM
procedures throughout 1999 to address this issue. These include
requiring service centers to express mail their Form 720s to the
Cincinnati service center daily and ensuring that Form 720s over $1
million are batched separately and expedited. Completed August 1999.
Status of recommendations, Per GAO: Closed. During fiscal year 1999,
IRS implemented additional procedures at the Cincinnati Service Center
Campus to expedite the processing of Form 720 Excise Tax returns over $1
million. During our reviews in fiscal years 2000 and 2001, we noticed a
significant reduction in large tax returns that were not included in the
proper quarterly excise tax trust fund certifications for the Airport
and Airway Trust Fund and the Highway Trust Fund.
Count: 20;
Number: 99-25;
Recommendation: Ensure that additional staff are employed or existing
staff appropriately cross-trained to be able to perform the master file
extractions and other ad hoc procedures needed for IRS to continually
develop reliable balances for financial reporting purposes. (Short-term)
Source report: Internal Revenue Service: Custodial Financial Management
Weaknesses (GAO/AIMD-99-193, Aug. 4, 1999);
Status of recommendations, Per IRS: Open. IRS hired two additional
contract staff to work on the CAP. However, IRS acknowledged that a
large number of additional staff are still needed. Over 30 staff are
scheduled to be hired by October 2003. Full transition to the CAP will
require an additional year. Scheduled completion is October 1, 2004.
Status of recommendations, Per GAO: Open. IRS‘s staffing changes are
focused on supporting the implementation of CAP, rather than the current
staffing needs of the masterfile and other existing financial systems.
We will follow-up during our fiscal year 2002 audit to assess IRS‘s
effectiveness in preparing timely, reliable financial statements based
on existing financial systems pending implementation of CAP.
Count: 21;
Number: 99-29;
Recommendation: Develop the data to support meaningful cost information
categories and cost-based performance measures. (Long-term)
Source report: Internal Revenue Service: Serious Weaknesses Impact
Ability to Report on and Manage Operations (GAO/AIMD-99-196, Aug. 9,
1999);
Status of recommendations, Per IRS: Open. IRS will implement cost
accounting as part of Release 1 of IFS. Scheduled for completion
October 1, 2003.
Status of recommendations, Per GAO: Open. We will review IFS plans to
verify that it incorporates a cost accounting capability sufficient to
address the issues that gave rise to this recommendation, and followup
during future audits to assess the effectiveness of the implementation
of IFS‘s cost accounting features.
Count: 22;
Number: 99-30;
Recommendation: Develop and implement procedures and controls to ensure
that detailed P&E records are accurately maintained. These procedures
and controls would include ensuring that physical inventories at field
locations are effectively performed, including prompt resolution of
discrepancies found in the inventories and appropriate adjustment of
detailed records. (Short-term)
Source report: Internal Revenue Service: Serious Weaknesses Impact
Ability to Report on and Manage Operations (GAO/AIMD-99-196, Aug. 9,
1999);
Status of recommendations, Per IRS: Open. IRS has completed some
remedies. Specifically, IRS established standard operating procedures to
account for P&E, deployed Single Point Inventory Function (SPIF) teams
at all sites except Metro DC to establish accountability for its ADP
assets, and implemented procedures to manually verify year Request
Tracking System (RTS) data into the Information Technology Asset
Management System (ITAMS). IRS also reported that it replaced the
current inventory system with a modernized system. Additional planned
remedies remain open, such as completing site-specific handbooks.
Scheduled for implementation October 1, 2002.
Status of recommendations, Per GAO: Open. During fiscal year 2001, we
confirmed that IRS took steps to address weaknesses over its P&E and we
noted improvement in the reliability of IRS‘s P&E inventory records.
However, serious weaknesses continued to affect IRS‘s ability to
maintain accountability over its P&E. For example, the new inventory
system did not capture information essential to ensure that software and
software licenses were properly controlled and used only in accordance
with license agreements and IRS‘s procedures for recording P&E
acquisitions, transfers, and disposals did not ensure that transactions
were promptly and accurately recorded. Of 210 P&E items we selected
from inventory records at 21 sites, 25 could not be located at the time
of our review. Also, the interface between ITAMS and RTS was not always
effective in ensuring that P&E acquisitions were promptly recorded. We
will evaluate IRS's continuing efforts to achieve accountability over
its P&E during our fiscal year 2002 financial audit.
Count: 23;
Number: 99-34;
Recommendation: Revise the current capitalization policy to ensure that
material P&E acquisitions are not expensed. (Short-term)
Source report: Internal Revenue Service: Serious Weaknesses Impact
Ability to Report on and Manage Operations (GAO/AIMD-99-196, Aug. 9,
1999);
Status of recommendations, Per IRS: Open. IRS has revised its
capitalization policy to include major systems, but needed to review
its capitalization threshold for major systems to reduce the risk of
expensing material P&E acquisitions. Scheduled to be completed on
November 1, 2002.
Status of recommendations, Per GAO: Open. We confirmed that IRS
established a capitalization threshold for internal use software
projects. This capitalization threshold, along with policies and
procedures implemented in fiscal year 2001 for identifying and recording
software development costs, allowed IRS to capitalize and record the
cost of major internal use software projects in fiscal year 2001.
However, this action did not fully address our recommendation.
Specifically, through fiscal year 2001, IRS had not revised its
capitalization policy for ADP and non-ADP P&E. For fiscal year 2001,
IRS‘s methodology for accumulating and capitalizing P&E hardware costs
was not consistent with its capitalization policy. For fiscal year
2001, IRS capitalized the cost of P&E without regard to the cost of
individual assets, but IRS‘s stated policy is to capitalize assets
costing $50,000 or more. A final revision to this policy is still
needed, supported by detailed analysis identifying the capitalization
threshold. We will continue to evaluate IRS's efforts in our fiscal year
2002 financial audit.
Count: 24;
Number: 99-35;
Recommendation: Review all lease agreements to determine whether they
meet the criteria for capital leases and capitalize and properly record
any leases that meet the criteria. (Short-term)
Source report: Internal Revenue Service: Serious Weaknesses Impact
Ability to Report on and Manage Operations (GAO/AIMD-99-196, Aug. 9,
1999);
Status of recommendations, Per IRS: Closed. Contracting officers are
required to notify the office of the CFO of all lease acquisitions with
total payments in excess of $50,000. IRS also reported that in November
2000 the CFO's office completed reviewing documentation for all leased
assets acquired in fiscal year 2000 to determine the status of prior
year balances and whether additional capital lease liabilities should
be recorded, and to make other accounting adjustments as necessary.
Completed November 27, 2000.
Status of recommendations, Per GAO: Closed. For fiscal years 2000 and
2001, IRS hired a contractor to review its lease agreements after
fiscal year-end to identify those that met the criteria for capital
leases. This process allowed IRS to report a reasonable amount for its
fiscal year 2001 capital lease liability. IRS still does not have a
systematic process to identify and record assets and the corresponding
capital lease liabilities as they occur. We will continue to monitor
IRS‘s efforts to identify and record capital leases as they occur
through recommendation No. 99-36.
Count: 25;
Number: 99-36;
Recommendation: Make enhancements to IRS financial systems to include
recording P&E and capital leases as assets when purchased and to
generate detailed records for P&E that reconcile to the financial
records. (Long-term)
Source report: Internal Revenue Service: Serious Weaknesses Impact
Ability to Report on and Manage Operations (GAO/AIMD-99-196, Aug. 9,
1999);
Status of recommendations, Per IRS: Open. IRS‘s new integrated
financial system, currently targeted for March 2005, will allow
recording P&E and capital leases as assets when purchased and will
generate detailed records for P&E that will reconcile to the financial
records. Scheduled completion March 1, 2005.
Status of recommendations, Per GAO: Open. We will continue to
evaluate IRS's progress in addressing these issues in its new system.
Count: 26;
Number: 99-37;
Recommendation: Ensure that additional knowledgeable staff are employed
or that existing staff are appropriately cross-trained to be able to
develop IRS's financial statements and perform its accounting and
financial functions or are able to perform the necessary supervision
needed to obtain reliable and supportable financial data on time.
(Short-term)
Source report: Internal Revenue Service: Serious Weaknesses Impact
Ability to Report on and Manage Operations (GAO/AIMD-99-196, Aug. 9,
1999);
Status of recommendations, Per IRS: Closed. Hiring and training has
been completed for additional staff to work on financial statement
preparation and accounting/financial functions. As staff turnover
occurs, management will work quickly to take action to fill critical
positions and provide necessary training. Completed October 25, 2000.
Status of recommendations, Per GAO: Closed. We confirmed individuals
have been hired and put in place to develop IRS's financial statements
and perform accounting and financial functions. We will continue to
evaluate the effectiveness of the new team during our fiscal year
2002 financial audit.
Count: 27;
Number: 99-38;
Recommendation: Establish procedures for the financial statements to
undergo review at the appropriate levels within the Chief Financial
Officer‘s office, with documented evidence of the reviews. (Short-term)
Source report: Internal Revenue Service: Serious Weaknesses Impact
Ability to Report on and Manage Operations (GAO/AIMD-99-196, Aug. 9,
1999);
Status of recommendations, Per IRS: Closed. IRS has developed
procedures that require two levels of review of the financial
statements. Completed August 31, 1999.
Status of recommendations, Per GAO: Open. As in prior years, we
identified errors and omissions in the draft fiscal year 2001 financial
statements indicating that this control had not been effectively
implemented. We will continue to evaluate the effectiveness of these
actions during our fiscal year 2002 financial audit.
Count: 28;
Number: 01-01;
Recommendation: Better monitor IRS's procedures requiring that a freeze
code be entered on all accounts of a taxpayer whom IRS has determined
is potentially liable for unpaid payroll taxes. This should be done on
all such accounts to prevent the inadvertent release of refunds to the
taxpayer until IRS determines the validity of the tax liability. (Short-
term)
Source report: Internal Revenue Service: Recommendations to Improve
Financial and Operational Management (GAO-01-42, Nov. 17, 2000);
Status of recommendations, Per IRS: Closed. IRS issued a memorandum to
the field emphasizing the timely input of the freeze code and revised
the IRM procedures to allow 30 days for the assessment of the trust
fund penalty after input of the freeze code. Completed September 28,
2001.
Status of recommendations, Per GAO: Open. We will continue to monitor
IRS‘s use of freeze codes during our fiscal year 2002 financial audit
of IRS to assure they are used to prevent refunds from being released
to taxpayers who are potentially liable or unpaid payroll taxes.
Count: 29;
Number: 01-02;
Recommendation: Revise policies and procedures governing the processing
of abatement transactions to establish (1) appropriate time frames for
processing abatements, (2) a methodology for monitoring the timeliness
of abatement processing, and (3) procedures to identify the causes for
delays and formulate corrective actions; and, examine abatement
transactions arising from IRS errors to determine the causes for the
errors and, based on this examination, formulate and implement
appropriate procedures to reduce the level of errors made when entering
data into taxpayer accounts. (Short-term)
Source report: Internal Revenue Service: Recommendations to Improve
Financial and Operational Management (GAO-01-42, Nov. 17, 2000);
Status of recommendations, Per IRS: Closed. IRS has begun using a new
Customer Service Management Information Report, which includes
categories of cases that often result in tax abatements, and has
developed other automated approaches to further study the causes for
delays in processing abatements. IRS reported that it has existing
procedures for processing claims for abatements that are specific to
the type and amount claimed.
Status of recommendations, Per GAO: Open. In fiscal year 2001, we
continued to find delays in the processing of abatements. We will
continue to monitor the effectiveness of IRS‘s actions during our
fiscal year 2002 financial audit.
Count: 30;
Number: 01-03;
Recommendation: Implement procedures to monitor the age of all pending
offers and to require supervisors to follow up with staff to determine
within 6 months whether to accept or reject the offer. (Short-term)
Source report: Internal Revenue Service: Recommendations to Improve
Financial and Operational Management (GAO-01-42, Nov. 17, 2000);
Status of recommendations, Per IRS: Open. IRS plans to centralize the
processing of smaller-dollar, less complex offers. As managers
currently conduct regular workload reviews, IRS believes this
centralization will better address this problem. Scheduled for
completion July 1, 2002.
Status of recommendations, Per GAO: Open. In fiscal year 2001 we
continued to find offers-in-compromise that were not processed timely.
We will continue test the timeliness of the processing of offers-in-
compromise during our fiscal year 2002 financial audit.
Count: 31;
Number: 01-04;
Recommendation: As an alternative to prematurely suspending active
collection efforts, and using the best available information, develop
reliable cost-benefit data relating to collection efforts for cases
with some collection potential. These cost-benefit data would include
the full cost associated with the increased collection activity (i.e.,
salaries, benefits, and administrative support) as well as the expected
additional tax collections generated. (Short-term) [High-priority
recommendation]
Source report: Internal Revenue Service: Recommendations to Improve
Financial and Operational Management (GAO-01-42, Nov. 17, 2000);
Status of recommendations, Per IRS: Closed. IRS disagreed with this
recommendation. IRS reported that it planned to address this issue in
its new strategic planning process, which is designed to identify and
allocate finite resources to processes that would best improve the
effectiveness of the agency and provide better service to the tax paying
public. IRS also reported that because it is not possible to provide
cost-benefit data in its current financial system, this issue is to be
addressed through the implementation of a Joint Financial Management
Improvement Program (JFMIP) compliant standard general ledger,
currently targeted for implementation in late 2004.
Status of recommendations, Per GAO: Open. We agree that addressing
these issues in IRS's strategic planning process is beneficial.
However, we believe that in order for IRS‘s strategic planning process
to be fully effective, it must be based on complete, timely, and
reliable underlying data. We continue to believe that reliable internal
cost-benefit data and analysis related to these programs is necessary
for IRS to make informed resource allocation decisions.
Count: 32;
Number: 01-05;
Recommendation: Incorporate into its systems modernization blueprint and
strategic planning process the capability to routinely and reliably
measure the cost-benefit of its collection activities and make informed
resource allocation decisions. (Short-term) [High-priority
recommendation]
Source report: Internal Revenue Service: Recommendations to Improve
Financial and Operational Management (GAO-01-42, Nov. 17, 2000);
Status of recommendations, Per IRS: Open. IRS ‘s plans to implement
cost accounting as part of IFS. Scheduled completion October 1, 2003.
Status of recommendations, Per GAO: Open. We will review the IFS plans
to verify that it includes requirements that meet the objectives of the
recommendation. IRS‘s response did not address the recommendation that
this information be incorporated into its strategic planning process.
Count: 33;
Number: 01-06;
Recommendation: Implement procedures to closely monitor the release of
tax liens to ensure that they are released within 30 days of the date
the related tax liability is fully satisfied. As part of these
procedures, IRS should carefully analyze the causes of the delays in
releasing tax liens identified by our work and prior work by IRS's
former internal audit function and ensure that such procedures
effectively address these issues. (Short-term) [High-priority
recommendation]
Source report: Internal Revenue Service: Recommendations to Improve
Financial and Operational Management (GAO-01-42, Nov. 17, 2000);
Status of recommendations, Per IRS: Open. IRS‘s Satisfied Module Tapes
are now downloaded twice to the Automated Lien System. Also, allowing
certain Offer-in Compromise Unit employees to request lien releases
would be an effective change. However, this requires negotiations with
the NETU, which are pending. In the interim, a pilot test has been
designed. Scheduled completion September 1, 2002.
Status of recommendations, Per GAO: Open. Actions taken to date have
not been fully effective. During fiscal year 2001 we found 5 instances
out of 59 cases tested in which IRS did not release the applicable
federal tax lien within the 30-day statutory period. The time between
the satisfaction of the liability and release of the lien ranged from
about 146 days to over 300 days.
Count: 34;
Number: 01-08;
Recommendation: Determine why the program that generates the
questionable Refund Report (QRR) was not functioning as intended during
fiscal year 1999 and implement appropriate corrective actions. (Short-
term)
Source report: Internal Revenue Service: Recommendations to Improve
Financial and Operational Management (GAO-01-42, Nov. 17, 2000);
Status of recommendations, Per IRS: Closed. IRS has refined its
criteria for identifying potential duplicate refunds under duplicate
refund (DUPREF) transcripts and had worked with service centers to
implement a new diagnostic tool for verifying payments.
Status of recommendations, Per GAO: Closed. Although IRS did not
directly address the problems with the QRR, we found that IRS staff are
using DUPREF, which performs a similar function.
Count: 35;
Number: 01-09;
Recommendation: IRS should determine why service centers have not been
more effective in stopping refunds associated with questionable Earned
Income Tax Credits (EITC) and make changes to current procedures, as
appropriate. (Short-term)
Source report: Internal Revenue Service: Recommendations to Improve
Financial and Operational Management (GAO-01-42, Nov. 17, 2000);
Status of recommendations, Per IRS: Closed. IRS implemented several
measures to help prevent improper EITC refunds, such as automatically
freezing refunds when there is an open examination, using expanded data
such as child support orders to identify questionable claims, and
reducing examination cycle time. Completed January 16, 2001.
Status of recommendations, Per GAO: Closed. IRS implemented an
automatic freeze code on refunds associated with questionable EITC and
uses expanded data to identify questionable refunds.
Count: 36;
Number: 01-10;
Recommendation: IRS should review procedures for enforcing taxpayer
compliance with the Taxpayer Relief Act of 1997 and implement actions
to prevent taxpayers who were denied an EITC for tax year 1997 or any
subsequent year from being granted an EITC in successive years until
they provide the requisite supporting documentation. (Short-term)
Source report: Internal Revenue Service: Recommendations to Improve
Financial and Operational Management (GAO-01-42, Nov. 17, 2000);
Status of recommendations, Per IRS: Closed. IRS reviewed its procedures
to ensure that they are in accordance with the Taxpayer Relief Act of
1997 and has implemented an indicator to help prevent taxpayers from
receiving an EITC if they have previously been found ineligible.
Completed January 16, 2001.
Status of recommendations, Per GAO: Closed. IRS implemented an
automatic freeze code on EITC-related refunds when there is an ongoing
EITC examination case. We also confirmed that IRS implemented an
indicator to help prevent taxpayers from receiving an EITC if they had
previously been found ineligible.
Count: 37;
Number: 01-11;
Recommendation: IRS should track the total number of and dollars in
EITCs subjected each year to Electronic Fraud Detection System (EFDS)
screening and related efforts to enable IRS to estimate the full
magnitude of suspicious EITCs and determine the level of resources
to be devoted to EFDS screening and investigative follow-up appropriate
for the risks and potential losses involved. (Short-term)
Source report: Internal Revenue Service: Recommendations to Improve
Financial and Operational Management (GAO-01-42, Nov. 17, 2000);
Status of recommendations, Per IRS: Closed. IRS now collects data on
the number and dollar amount of EITC screened through EFDS, although it
does not believe these data should be used to identify the universe of
suspicious EITC claims. Closed January 16, 2001.
Status of recommendations, Per GAO: Closed. We confirmed that IRS now
retains the data on the number and dollar amount of claims screened
through EFDS.
Count: 38;
Number: 01-12;
Recommendation: For (1) IRS's Automated Underreporter and Combined
Annual Wage Reporting programs, (2) screening and examination of EITC
claims, and (3) identifying and collecting previously disbursed
improper refunds, use the best available information to develop
reliable cost-benefit data to estimate the tax revenue collected by,
and the amount of improper refunds returned to, IRS for each dollar
spent pursuing these outstanding amounts. These data would include (1)
an estimate of the full cost incurred by IRS in performing each of these
efforts, including the salaries and benefits of all staff involved, as
well as any related nonpersonnel costs, such as supplies and utilities,
and (2) the actual amount (a) collected on tax amounts assessed and (b)
recovered on improper refunds disbursed. (Short-term) [High-priority
recommendation]
Source report: Internal Revenue Service: Recommendations to Improve
Financial and Operational Management (GAO-01-42, Nov. 17, 2000);
Status of recommendations, Per IRS: Closed. IRS disagreed with this
recommendation. IRS believes that this issue is best dealt with through
its strategic planning process, and requested that in lieu of this
recommendation, GAO review that process as part of IRS‘s authorization.
Completed January 29, 2001.
Status of recommendations, Per GAO: Open. We agree that addressing
these issues in IRS's strategic planning process is beneficial.
However, we believe that in order for IRS‘s strategic planning process
to be fully effective, it must be based on complete, timely, and
reliable underlying data. We continue to believe that reliable internal
cost-benefit data and analysis related to these programs are necessary
for IRS to make informed resource allocation decisions.
Count: 39;
Number: 01-13;
Recommendation: Incorporate in IRS's systems modernization blueprint and
strategic planning process capabilities for routinely and reliably
measuring the cost-benefit of each of the efforts listed in
recommendation 53 and make informed resource allocation decisions.
(Long-term) [High-priority recommendation]
Source report: Internal Revenue Service: Recommendations to Improve
Financial and Operational Management (GAO-01-42, Nov. 17, 2000);
Status of recommendations, Per IRS: Open. IRS reported that it plans to
implement a cost accounting function as part of its implementation of
the IFS. Scheduled completion October 1, 2003.
Status of recommendations, Per GAO: Open. During our fiscal year 2002
financial audit, we will review IRS‘s IFS plans to verify that it
contains requirements to address the objectives of the recommendation.
Count: 40;
Number: 01-14;
Recommendation: Work with Treasury's Financial Management Service (FMS)
to revise the current lockbox contracts to emphasize security
requirements and to specifically require that (1) fingerprint checks be
completed before employees begin working, (2) temporary employees be
subjected to background checks that are consistent with those required
for IRS employees, and (3) at a minimum, lockbox bank courier services
meet the service center requirements contained in IRS's November 16,
1999, policy. (Short-term) [High-priority recommendation]
Source report: Internal Revenue Service: Recommendations to Improve
Financial and Operational Management (GAO-01-42, Nov. 17, 2000);
Status of recommendations, Per IRS: Closed. IRS developed lockbox bank
security standards included in the Calendar Year 2002 Contract. The
standards include physical security, courier, and background
investigation standards consistent with IRS campus requirements. IRS
worked with FMS and included the standards in the Invitations for
Expressions of Interest (IEI) for the new lockbox contract. IRS
reported corrective action was completed on January 29, 2001 with the
issuance of the IEI.
Status of recommendations, Per GAO: Open. Based on our review of the
2002 Lockbox Processing Guidelines (LPG) (4/02 version), contract
requirements were revised to address points 1 and 2 of the
recommendation. All employees and contractors (i.e., couriers and
janitors) are now required to complete Federal Bureau of
Investigation fingerprint checks before being allowed access to
taxpayer data. However, the requirements for couriers need to be
further revised to be more consistent with campus courier requirements.
For example, the LPG does not prohibit unauthorized passengers from
boarding courier vehicles and does not require lockbox employees or
guards to perform inspections of courier vehicles. We will monitor
IRS‘s progress in this area during our fiscal year 2002 financial
audit.
Count: 41;
Number: 01-15;
Recommendation: Ensure that all IRS units receiving collections have
consistent policies and procedures to safeguard and account for cash
receipts. (Short-term)
Source report: Internal Revenue Service: Recommendations to Improve
Financial and Operational Management (GAO-01-42, Nov. 17, 2000);
Status of recommendations, Per IRS: Open. The Subcommittee on Security
working group is identifying changes in policies for the field offices.
The Director of Security will take the lead in ensuring implementation
of consistent policies and procedures. Scheduled completion October
1, 2002.
Status of recommendations, Per GAO: Open. We will continue to monitor
IRS's progress in developing and implementing consistent policies to
safeguard and account for cash at a Service-wide level during our
fiscal year 2002 financial audit.
Count: 42;
Number: 01-16;
Recommendation: Perform and document periodic observations and reviews
to monitor and enforce compliance with policies addressing the
safeguarding of cash receipts. (Short-term)
Source report: Internal Revenue Service: Recommendations to Improve
Financial and Operational Management (GAO-01-42, Nov. 17, 2000);
Status of recommendations, Per IRS: Open. IRS is conducting reviews of
service center campuses and determining the appropriate types and
frequencies of reviews for field offices. Scheduled completion July 1,
2002.
Status of recommendations, Per GAO: Closed. We confirmed that IRS is
conducting periodic on-site reviews at service center campuses.
Count: 43;
Number: 01-17;
Recommendation: Develop a subsidiary ledger for leasehold improvements
and implement procedures to record leasehold improvement costs as they
occur. (Long-term)
Source report: Internal Revenue Service: Recommendations to Improve
Financial and Operational Management (GAO-01-42, Nov. 17, 2000);
Status of recommendations, Per IRS: Open. The new IFS will incorporate
a subsidiary ledger for leasehold improvements. Scheduled completion
March 1, 2005.
Status of recommendations, Per GAO: Open. We will continue to evaluate
the effectiveness of IRS's efforts in this area.
Count: 44;
Number: 01-18;
Recommendation: Implement procedures and controls to ensure that
expenditures for P&E are charged to the correct accounting codes to
provide reliable records for expenditures as a basis of extracting the
costs for major systems and leasehold improvements. (Short-term)
Source report: Internal Revenue Service: Recommendations to Improve
Financial and Operational Management (GAO-01-42, Nov. 17, 2000);
Status of recommendations, Per IRS: Open. The new Integrated Financial
System will incorporate a subsidiary ledger for leasehold improvements.
Scheduled completion March 1, 2005.
Status of recommendations, Per GAO: Open. IRS‘s corrective action plan
only partially addresses our recommendation. The planned remedy does not
address the portion of the recommendation pertaining to procedures and
controls over accounting codes used to record expenditures for major
systems. IRS‘s extraction of software project costs and leasehold
improvement costs from expenses based on accounting codes allowed IRS
to report a reasonable P&E balance for fiscal year 2001. However,
during our testing of transactions we found that IRS did not always
charge the appropriate accounting code for internal use software. We
will continue to evaluate the effectiveness of IRS's efforts during our
fiscal year 2002 financial audit.
Count: 45;
Number: 01-20;
Recommendation: Develop procedures and systems to capture and
capitalize the cost of internally developed software in accordance with
Statement of Federal Financial Accounting Standards (SFFAS) No. 10,
Accounting for Internal Use Software. (Short-term)
Source report: Internal Revenue Service: Recommendations to Improve
Financial and Operational Management (GAO-01-42, Nov. 17, 2000);
Status of recommendations, Per IRS: Open. In fiscal year 2001, IRS
developed and issued a policy for capturing and capitalizing internal
use software. IRS will validate and institutionalize the process for
capturing and capitalizing the cost of internally developed software.
Scheduled completion June 30, 2002.
Status of recommendations, Per GAO: Closed. We confirmed that IRS
developed policies and procedures to implement SFFAS No.10 that
resulted in the direct and indirect cost of internal use software being
capitalized.
Count: 46;
Number: 01-21;
Recommendation: Consolidate and update the P&E policies and procedures
currently documented in various handbooks and policy memorandums into a
comprehensive document that personnel responsible for maintaining
inventory records can use as a reference. (Short-term)
Source report: Internal Revenue Service: Recommendations to Improve
Financial and Operational Management (GAO-01-42, Nov. 17, 2000);
Status of recommendations, Per IRS: Open. IRS will develop and
implement guidelines to establish clear accountability in the receipt,
distribution, excess, and/or disposal of ADP hardware, software, and
telecommunications throughout IRS. Scheduled completion June 1, 2002.
Status of recommendations, Per GAO: Open. We will continue to monitor
IRS's progress during our fiscal year 2002 financial audit.
Count: 47;
Number: 01-23;
Recommendation: Develop and implement procedures so that personnel
responsible for maintaining P&E inventory records receive prompt
notification when P&E is received, moved, or disposed of. Procedures
should help ensure that those responsible for maintaining inventory
records promptly receive documentation supporting P&E transactions,
such as receiving reports, invoices, and disposal documents. (Short-
term)
Source report: Internal Revenue Service: Recommendations to Improve
Financial and Operational Management (GAO-01-42, Nov. 17, 2000);
Status of recommendations, Per IRS: Closed. SPIF procedures were
established to ensure prompt notification to SPIF units when P&E is
ordered, received, moved, or disposed of. Completed July 28, 2000.
Status of recommendations, Per GAO: Closed. We confirmed that IRS
established SPIF procedures to ensure prompt notification to SPIF units
when P&E is ordered, received, moved, or disposed of.
Count: 48;
Number: 01-24;
Recommendation: Revise guidance on recording P&E to clearly state that
P&E is to be recorded when title passes to IRS or when delivered, based
on the terms of the contract regarding shipping and delivery. This is to
clarify that P&E and related accounts payable should be promptly
recorded when P&E is received, in accordance with SFFAS No. 6, rather
than when it is placed in service. (Short-term)
Source report: Internal Revenue Service: Recommendations to Improve
Financial and Operational Management (GAO-01-42, Nov. 17, 2000);
Status of recommendations, Per IRS: Closed. SPIF procedures distributed
in July 2000 require that P&E be recorded within 10 days of receipt,
not when the P&E is placed into service. Completed July 28, 2000.
Status of recommendations, Per GAO: Closed. We verified that SPIF
procedures require that P&E be recorded within 10 working days of
receipt.
Count: 49;
Number: 01-25;
Recommendation:
Source report: Internal Revenue Service: Recommendations to Improve
Financial and Operational Management (GAO-01-42, Nov. 17, 2000);
Status of recommendations, Per IRS: Closed. All personnel responsible
for the maintenance of inventory accuracy completed training on policy,
procedures, and system usage. Completed August 1, 2001.
Status of recommendations, Per GAO: Open. Closed. During our fiscal
year 2001 audit, we confirmed that IRS personnel responsible for P&E
inventory received training.
Count: 50;
Number: 01-26;
Recommendation: Review, and correct as necessary, data in inventory
records, such as serial or model numbers and manufacturer names, during
periodic inventories of P&E. (Short-term)
Source report: Internal Revenue Service: Recommendations to Improve
Financial and Operational Management (GAO-01-42, Nov. 17, 2000);
Status of recommendations, Per IRS: Open. SPIF procedures instruct SPIF
units to conduct ongoing quality assurance activities to ensure the ADP
inventory is maintained properly. However, the final documentation that
specifically addresses quality assurance was delayed just prior to
signature due to a technical problem. Scheduled completion June 1, 2002.
Status of recommendations, Per GAO: Open. During fiscal year 2001, we
continued to find errors in IRS's P&E records. We will evaluate the
effectiveness of IRS's corrective actions during our fiscal year 2002
financial audit.
Count: 51;
Number: 01-27;
Recommendation: Perform sufficient supervisory reviews to help ensure
that transactions recorded on P&E inventory records are accurately
entered into subsidiary records and appropriately supported by
documentation. (Short-term)
Source report: Internal Revenue Service: Recommendations to Improve
Financial and Operational Management (GAO-01-42, Nov. 17, 2000);
Status of recommendations, Per IRS: Open. IRS will implement an
interface between the RTS and ITAMS that would eliminate the need for
manual reviews. However, additional work continues with the automated
interface with RTS. Scheduled completion October 1, 2002.
Status of recommendations, Per GAO: Open. We will evaluate the
effectiveness of these actions during our fiscal year 2002 financial
audit.
Count: 52;
Number: 01-30;
Recommendation: Develop policies and procedures to classify program
costs according to the nature of the work performed and in a manner
commonly understood by users of financial statements. This
classification should also be consistent with the classification of
related funding requirements in IRS‘s budgetary requests to the
Congress. (Short-term)
Source report: Internal Revenue Service: Recommendations to Improve
Financial and Operational Management (GAO-01-42, Nov. 17, 2000);
Status of recommendations, Per IRS: Closed. Procedures were developed
to classify program costs according to the nature of the work performed.
Completed February 16, 2001.
Status of recommendations, Per GAO: Closed. During fiscal year 2000,
IRS revised the format of its statement of net cost and significantly
expanded and enhanced the related disclosures. The resulting financial
statement presentation appropriately classified the cost of IRS‘s
programs. However, it was not clearly consistent with the related
classification of funding requirements in IRS‘s budgetary requests to
the Congress as recommended. During fiscal year 2001, IRS again revised
the format of its Statement of Net Cost. The revised format was
consistent with IRS‘s budgetary requests.
Count: 53;
Number: 01-31;
Recommendation: Incorporate into its tax systems modernization plans,
as they relate to financial management, the development of a cost
accounting system that will track and report, in appropriate detail,
the full costs associated with its activities and programs at the
project and subproject levels. This system should include a payroll
system that provides for activity-based costing of individual jobs to
which staff are assigned. (Short-term)
Source report: Internal Revenue Service: Recommendations to Improve
Financial and Operational Management (GAO-01-42, Nov. 17, 2000);
Status of recommendations, Per IRS: Open. Cost accounting has been
incorporated into plans for the IFS and the cost accounting module is on
schedule. Scheduled completion October 1, 2003.
Status of recommendations, Per GAO: Closed. We confirmed that IRS‘s
plans for IFS include a cost accounting system. We will follow-up on the
implementation of IRS‘s cost accounting system during future audits.
Count: 54;
Number: 01-33;
Recommendation: Establish policies and procedures to ensure that all
administrative and, to the extent possible, custodial transactions are
promptly recorded in the general ledger, preferably within 30 days of
the transaction. (Short-term)
Source report: Internal Revenue Service: Recommendations to Improve
Financial and Operational Management (GAO-01-42, Nov. 17, 2000);
Status of recommendations, Per IRS: Closed. IRS developed internal
procedures to ensure that transactions are recorded in a timely manner
in the administrative general ledger. Completed August 11, 2000.
Status of recommendations, Per GAO: Open. During our fiscal year 2001
financial audit, we continued to find substantial delays in the
recording of transactions in the custodial and administrative general
ledgers. IRS's stated corrective actions do not address custodial
transactions. We will continue to monitor IRS's progress in this area.
Count: 55;
Number: 01-34;
Recommendation: Incorporate into its systems modernization plan
requirements and specifications for a general ledger system that (1)
accumulates and summarizes IRS's custodial and administrative
transactions for financial reporting purposes, (2) is integrated with
its supporting subsidiary records, and (3) is fully compliant with the
U.S. Standard General Ledger at the transaction level. (Short-term)
Source report: Internal Revenue Service: Recommendations to Improve
Financial and Operational Management (GAO-01-42, Nov. 17, 2000);
Status of recommendations, Per IRS: Open. IRS will implement the CAP to
satisfy its custodial financial management needs. Related requirements
are included in the blueprint. Scheduled completion April 1, 2003.
Status of recommendations, Per GAO: Open. We will review the CAP to
verify that its requirements address the objectives of the
recommendation. IRS‘s response does not address administrative
transactions.
Count: 56;
Number: 01-35;
Recommendation: Revise procedure manuals to require that accruals be
recorded when services have been performed and goods received,
regardless of whether an invoice has been received. This may require
recording estimates of costs incurred based on reliable data. In these
cases, additional detailed guidance should be provided in determining
the amounts. (Short-term)
Source report: Internal Revenue Service: Recommendations to Improve
Financial and Operational Management (GAO-01-42, Nov. 17, 2000);
Status of recommendations, Per IRS: Closed. IRS issued formal guidance
requiring that the accruals be entered when services have been performed
or when goods are received. Completed August 30, 2000.
Status of recommendations, Per GAO: Closed. We verified that IRS issued
a memorandum requiring that the acceptance date be entered when
services have been performed or when goods are received, rather than the
date acceptance is input to the accounting system.
Count: 57;
Number: 01-36;
Recommendation: Ensure that the acceptance date entered in the Request
Tracking System/Integrated Procurement System (RTS/IPS) represents the
date that IRS received the goods and services rather than the date
acceptance was entered into the system. (Short-term)
Source report: Internal Revenue Service: Recommendations to Improve
Financial and Operational Management (GAO-01-42, Nov. 17, 2000);
Status of recommendations, Per IRS: Closed. IRS issued guidance
directing staff to record the date that goods and services are received
as the acceptance date, rather than the date the acceptance was input
into the system. Completed August 30, 2000.
Status of recommendations, Per GAO: Closed. We confirmed that IRS
issued guidance directing staff to record the date that goods and
services are received as the acceptance date, rather than the date the
acceptance was input into the system.
Count: 58;
Number: 01-39;
Recommendation: Develop a mechanism to track and report the actual costs
associated with reimbursable activities. (Short-term)
Source report: Management Letter: Improvements Needed in IRS' Accounting
Procedures and Internal Controls (GAO-01-880R, July 30, 2001);
Status of recommendations, Per IRS: Open. IRS‘s Office of Cost
Accounting and Analysis has developed guidance for costing reimbursable
agreements. This guidance includes instructions on tracking labor.
Completed February 1, 2002.
Status of recommendations, Per GAO: Open. We confirmed that IRS
completed procedures for costing reimbursable agreements that provides
the basis framework for the accumulation of these costs. We will follow-
up during our fiscal year 2002 financial audit to determine if IRS has
procedures in place to ensure it is used to develop costing information
for reimbursable agreements.
Count: 59;
Number: 01-40;
Recommendation: Establish procedures to periodically reconcile the
subsidiary records to the control account for reimbursable receivables
to ensure that the balance is adequately supported. (Short-term)
Source report: Management Letter: Improvements Needed in IRS' Accounting
Procedures and Internal Controls (GAO-01-880R, July 30, 2001);
Status of recommendations, Per IRS: Open. IRS materially reconciled its
accounts for reimbursable receivables, and is continuing to do so
monthly. Completed March 15, 2002.
Status of recommendations, Per GAO: Open. IRS has indicated that it
completed procedures by March 2002 that address this recommendation.
However, IRS‘s remediation plan continues to list it as an open
recommendation. We will verify the effectiveness of these procedures
during our fiscal year 2002 financial audit.
Count: 60;
Number: 01-41;
Recommendation: Routinely age and review currently open reimbursable
receivable accounts to identify accounts that are no longer valid or
collectible. (Short-term)
Source report: Management Letter: Improvements Needed in IRS' Accounting
Procedures and Internal Controls (GAO-01-880R, July 30, 2001);
Status of recommendations, Per IRS: Closed. IRS is currently aging and
reviewing open reimbursable receivable accounts. Completed July 31,
2001.
Status of recommendations, Per GAO: Open. IRS made progress on this
recommendation by initiating action in fiscal year 2001 to regularly
age and review its reimbursable receivable accounts. However, we
continued to find recorded reimbursable receivables that were not
valid or collectible during our fiscal year 2001 financial audit. We
will continue to monitor IRS's progress in this area.
Count: 61;
Number: 01-42;
Recommendation: Develop and implement procedures to require that
prepayments be recorded as assets routinely at the time the cost is
incurred in accordance with generally accepted accounting principles
(GAAP). Services that are provided to IRS that will benefit IRS for
more than 1 year should be established as prepaid expenses and
amortized over the period of the benefit. (Short-term)
Source report: Management Letter: Improvements Needed in IRS' Accounting
Procedures and Internal Controls (GAO-01-880R, July 30, 2001);
Status of recommendations, Per IRS: Closed. IRS charged depreciation
expenses and not the full cost of the assets acquired under the Working
Capital Fund (WCF). IRS no longer capitalizes WCF assets on its balance
sheet. Completed November 20, 2001.
Status of recommendations, Per GAO: Closed. We concur with IRS‘s
accounting treatment for this transaction.
Count: 62;
Number: 01-43;
Recommendation: Ensure that IRS personnel maintain effective oversight
of the completeness and accuracy of contractor-generated information.
(Short-term)
Source report: Management Letter: Improvements Needed in IRS' Accounting
Procedures and Internal Controls (GAO-01-880R, July 30, 2001);
Status of recommendations, Per IRS: Closed. IRS disagrees with GAO‘s
conclusion that contractors were not properly supervised. Completed
November 20, 2001.
Status of recommendations, Per GAO: Open. During fiscal year 2001, we
found errors in the contractor-prepared depreciation and capital lease
schedules that were not detected by IRS‘s review. We will continue to
review the completeness and accuracy of contractor-generated
information during our fiscal year 2002 financial audit.
Count: 63;
Number: 01-44;
Recommendation: Ensure compliance with Treasury regulations requiring
that all transfers of funds between appropriations be properly approved
and documented prior to being recorded in the financial records. (Short-
term)
Source report: Management Letter: Improvements Needed in IRS' Accounting
Procedures and Internal Controls (GAO-01-880R, July 30, 2001);
Status of recommendations, Per IRS: Closed. IRS did not agree with this
recommendation. IRS intentionally decided to allow Treasury and IRS
funding levels to be out of balance to avert unnecessary workload.
Completed November 20, 2001.
Status of recommendations, Per GAO: Open. IRS‘s response did not
address the issue that gave rise to this recommendation. IRS recorded
this transaction in its general ledger before it was approved as
required by Treasury regulations. We will review IRS‘s appropriation
balances during our fiscal year 2002 financial audit.
Count: 64;
Number: 02-01;
Recommendation: Implement policies and procedures to record
capitalizable acquisition costs for property and equipment, capital
leases, leasehold improvements, and major systems in the appropriate P&E
general ledger accounts as transactions occur. (Short-term)
Source report: Internal Revenue Service: Progress Made, but Further
Actions Needed to Improve Financial Management (GAO-02-35, Oct. 19,
2001);
Status of recommendations, Per IRS: Open. IRS is in the process of
implementing policies and procedures that would apply to the current
system and remain in effect for the new integrated financial system.
Scheduled completion April 1, 2002.
Status of recommendations, Per GAO: Open. We will continue to monitor
IRS's progress in this area during our fiscal year 2002 financial
audit.
Count: 65;
Number: 02-02;
Recommendation: Revise the definitions of Sub-Object Class (SOC) codes
pertaining to P&E or establish new codes so that individual SOC codes
cannot be used for both capitalizable purchases (assets) and
noncapitalizable purchases (expenses). For example, the SOC code used to
record capitalizable software costs should not be used to record
noncapitalizable software license fees. (Short-term)
Source report: Internal Revenue Service: Progress Made, but Further
Actions Needed to Improve Financial Management (GAO-02-35, Oct. 19,
2001);
Status of recommendations, Per IRS: Closed. IRS revised the P&E SOC
codes and definitions in Standard Announcement #2002-01, Financial
Management Codes Handbook. Completed October 1, 2001.
Status of recommendations, Per GAO: Closed. We confirmed that IRS
revised the P&E SOC codes and definitions in Standard Announcement
#2002-01, Financial Management Codes Handbook.
Count: 66;
Number: 02-03;
Recommendation: Perform periodic reviews to monitor and ensure that
obligations are promptly established in the accounting system. Such
reviews would assist IRS in maintaining accurate and complete records
of its obligations and in reducing the risk of obligations exceeding
available funding. (Short-term)
Source report: Internal Revenue Service: Progress Made, but Further
Actions Needed to Improve Financial Management (GAO-02-35, Oct. 19,
2001);
Status of recommendations, Per IRS: Closed. IRS issued guidance to all
business units requesting a complete review of obligations. Completed
June 26, 2001.
Status of recommendations, Per GAO: Open. IRS‘s quarterly reviews of
unliquidated obligations during fiscal year 2001 did not fully address
our recommendation since the review did not (1) identify obligations
that may not have been recorded and (2) ensure that obligations were
established promptly in the accounting system. During fiscal year 2001,
we continued to find instances where IRS did not promptly record
obligations in its accounting system. We will continue to monitor the
effectiveness of IRS's corrective actions during our fiscal year 2002
financial audit.
Count: 67;
Number: 02-04;
Recommendation: Incorporate into the systems modernization blueprint the
capability to differentiate prior-year adjustments between activities
that are valid upward and downward adjustments to obligations and
activities that are not valid adjustments to obligations. Such actions
would help ensure that activities that are not valid adjustments to
obligations are not recorded as adjustments to obligations. (Short-
term)
Source report: Internal Revenue Service: Progress Made, but Further
Actions Needed to Improve Financial Management (GAO-02-35, Oct. 19,
2001);
Status of recommendations, Per IRS: Closed. IRS has incorporated into
IFS‘s requirements the capability to differentiate between activities
that are valid upward and downward adjustments to prior years‘
obligations and activities that are not valid adjustments to prior
years‘ obligations. IFS's requirements were certified by the Director,
Administrative Accounting. Completed November 5, 2001.
Status of recommendations, Per GAO: Closed. We confirmed that IRS
incorporated into IFS‘s requirements the capability to identify valid
upward and downward adjustments to prior years‘ obligations.
Count: 68;
Number: 02-05;
Recommendation: Develop, document, and implement policies and
procedures to require that reconciliations between proprietary and
budgetary accounts be performed monthly so that differences can be
identified in a timely manner, and, if necessary, adjusted. (Short-
term)
Source report: Internal Revenue Service: Progress Made, but Further
Actions Needed to Improve Financial Management (GAO-02-35, Oct. 19,
2001);
Status of recommendations, Per IRS: Open. IRS will develop, document,
and implement policies and procedures to require that reconciliations
between proprietary and budgetary accounts be performed monthly so that
differences can be identified in a timely manner, and, if necessary,
adjusted. Scheduled completion April 1, 2002.
Status of recommendations, Per GAO: Open. During fiscal year 2001, IRS
began comparing related proprietary and budgetary accounts; however,
adjustments to correct the differences were not performed prior to
closing the accounting period. As a result, interim period balances
were materially misstated adversely affecting interim reports relying on
those balances. We will continue to monitor IRS‘s progress during our
fiscal year 2002 financial audit.
Count: 69;
Number: 02-06;
Recommendation: Develop, document, and implement policies and
procedures to require that routine reviews and analyses of general
ledger account balances be conducted to promptly identify errors and
omissions. (Short-term);
Source report: Internal Revenue Service: Progress Made, but Further
Actions Needed to Improve Financial Management (GAO-02-35, Oct. 19,
2001);
Status of recommendations, Per IRS: Open. IRS is developing procedures
to address this recommendation. Scheduled completion April 1, 2002.
Status of recommendations, Per GAO: Open. We will review these
procedures during our fiscal year 2002 audit, and assess the
effectiveness of their implementation.
Count: 70;
Number: 02-07;
Recommendation: Develop, document, and implement policies and
procedures to require that corrections and adjusting entries be
recorded throughout the year to reduce the magnitude of year-end
adjustments and improve the reliability of interim financial data.
(Short-term)
Source report: Internal Revenue Service: Progress Made, but Further
Actions Needed to Improve Financial Management (GAO-02-35, Oct. 19,
2001);
Status of recommendations, Per IRS: Open. IRS will develop, document,
and implement policies and procedures to require that corrections and
adjusting entries be recorded throughout the year to reduce the
magnitude of year-end adjustments and improve the reliability of
interim financial data. Scheduled completion April 1, 2002.
Status of recommendations, Per GAO: Open. We will review these
procedures during our fiscal year 2002 audit, and assess the
effectiveness of their implementation.
Count: 71;
Number: 02-08;
Recommendation: Implement policies and procedures to require that all
employees itemize on their time cards the time spent on specific
projects. (Long-term)
Source report: Internal Revenue Service: Progress Made, but Further
Actions Needed to Improve Financial Management (GAO-02-35, Oct. 19,
2001);
Status of recommendations, Per IRS: Closed. IRS disagreed with this
recommendation. IRS indicated that most of its employees already itemize
their time charges in functional tracking systems. Completed December
19, 2001.
Status of recommendations, Per GAO: Open. We confirmed that IRS
employees use functional tracking (workload management) systems to
itemize and track their time charges. However, we found that these
systems do not interface with each other or the general ledger to allow
management to use them to readily accumulate the time charged to
specific projects. We will follow-up on IRS‘s implementation of IFS‘s
cost accounting module that is intended to resolve the issue that gave
rise to this recommendation.
Count: 72;
Number: 02-09;
Recommendation: Implement policies and procedures to allocate
nonpersonnel costs to programs and activities on a routine basis
throughout the year. (Short-term)
Source report: Internal Revenue Service: Progress Made, but Further
Actions Needed to Improve Financial Management (GAO-02-35, Oct. 19,
2001);
Status of recommendations, Per IRS: Open. IRS agreed with this
recommendation and indicated plans to address this issue with the cost
accounting module that will be part of the IFS. Scheduled completion
October 1, 2003.
Status of recommendations, Per GAO: Open. We will verify that the IFS
plans include requirements that meet the objectives of this
recommendation, and followup on their implementation once the IFS is
completed.
Count: 73;
Number: 02-10;
Recommendation: Document reviews performed to validate that performance
data are complete, accurate, and reliable. (Short-term)
Source report: Internal Revenue Service: Progress Made, but Further
Actions Needed to Improve Financial Management (GAO-02-35, Oct. 19,
2001);
Status of recommendations, Per IRS: Open. IRS‘s remediation plan did
not address this recommendation.
Status of recommendations, Per GAO: Open. We will review IRS‘s
procedures during our fiscal year 2002 audit, and assess the
effectiveness of their implementation.
Count: 74;
Number: 02-11;
Recommendation: We recommend that the Commissioner of Internal Revenue
direct IRS management to develop policies and procedures to require
that field office employees provide taxpayers receipts for all walk-in
payments. (Short-term)
Source report: Management Report: Improvements Needed in IRS‘s
Accounting Procedures and Internal Controls (GAO-02-746R, July 18,
2002);
Status of recommendations, Per IRS: Open. IRS revised document 10161 to
indicate a receipt is available upon request and posted signs in all
Taxpayer Assistance Centers or field offices notifying taxpayers that
they can request a receipt. Completion data not specified.
Status of recommendations, Per GAO: Open. We will review IRS's
corrective actions during our fiscal year 2002 financial audit.
Count: 75;
Number: 02-12;
Recommendation: We recommend that the Commissioner of Internal Revenue
direct IRS management to develop policies and procedures to require
that field offices post signs in the most visible locations to remind
taxpayers to obtain receipts for payments. (Short-term)
Source report: Management Report: Improvements Needed in IRS‘s
Accounting Procedures and Internal Controls (GAO-02-746R, July 18,
2002);
Status of recommendations, Per IRS: Open. IRS revised document 10161 to
indicate a receipt is available upon request and posted signs in all
Taxpayer Assistance Centers or field offices notifying taxpayers that
they can request a receipt. Completion data not specified.
Status of recommendations, Per GAO: Open. We will review IRS's
corrective actions during our fiscal year 2002 financial audit.
Count: 76;
Number: 02-13;
Recommendation: We recommend that the Commissioner of Internal Revenue
direct IRS management to develop policies and procedures to require
that two employees be present when payments are collected and logged
from drop boxes. (Short-term)
Source report: Management Report: Improvements Needed in IRS‘s
Accounting Procedures and Internal Controls (GAO-02-746R, July 18,
2002);
Status of recommendations, Per IRS: Open. IRS distributed to Taxpayer
Assistance Centers or field offices a procedural memo outlining
separation of duties to emphasize the need to have more than one
employee process drop box payments. Scheduled completion date not
specified.
Status of recommendations, Per GAO: Open. We will review IRS's
corrective actions during our fiscal year 2002 financial audit.
Count: 77;
Number: 02-14;
Recommendation: We recommend that the Commissioner of Internal Revenue
direct IRS management to develop policies and procedures to require
that IRS and lockbox employees performing final candling record
receipts in a control log at the time of discovery, recording at a
minimum the total number of payments found, the amount of each payment,
and the taxpayer who submitted the payment. (Short-term)
Source report: Management Report: Improvements Needed in IRS‘s
Accounting Procedures and Internal Controls (GAO-02-746R, July 18,
2002);
Status of recommendations, Per IRS: Open. IRS established a task force
to develop procedures to reconcile payment logs. IRS will also include
these procedures in changes to the LPG. Scheduled completion January
2003.
Status of recommendations, Per GAO: Open. We will review IRS's
corrective actions during our fiscal year 2002 financial audit.
Count: 78;
Number: 02-15;
Recommendation: We recommend that the Commissioner of Internal Revenue
direct IRS management to develop policies and procedures to require
that IRS and lockbox managers or designated officials reconcile logs of
payments found during final candling to the related receipts and
documents. (Short-term)
Source report: Management Report: Improvements Needed in IRS‘s
Accounting Procedures and Internal Controls (GAO-02-746R, July 18,
2002);
Status of recommendations, Per IRS: Open. IRS established a task force
to develop procedures to reconcile payment logs. IRS will also include
these procedures in changes to the LPG. Scheduled completion January
2003.
Status of recommendations, Per GAO: Open. We will review IRS's
corrective actions during our fiscal year 2002 financial audit.
Count: 79;
Number: 02-16;
Recommendation: We recommend that the Commissioner of Internal Revenue
direct IRS headquarters management to ensure that field office
management comply with existing receipt control policies that require a
segregation of duties between employees who prepare control logs for
walk-in payments and employees who reconcile the control logs to the
actual payments. (Short-term)
Source report: Management Report: Improvements Needed in IRS‘s
Accounting Procedures and Internal Controls (GAO-02-746R, July 18,
2002);
Status of recommendations, Per IRS: Open. IRS established a task force
to develop procedures to reconcile payment logs. Scheduled completion
October 1, 2002.
Status of recommendations, Per GAO: Open. We will review IRS's
corrective actions during our fiscal year 2002 financial audit.
Count: 80;
Number: 02-17;
Recommendation: We recommend that the Commissioner of Internal Revenue
direct IRS headquarters management to clarify that the intent of the
requirement for background investigations is meant to apply to
personnel being entrusted with taxpayer receipts and information rather
than just personnel being granted access to an IRS facility. (Short-
term)
Source report: Management Report: Improvements Needed in IRS‘s
Accounting Procedures and Internal Controls (GAO-02-746R, July 18,
2002);
Status of recommendations, Per IRS: Open. IRS agreed that courier
service employees should undergo background checks. IRS is working with
FMS to modify the courier service contracts. Scheduled completion date
not specified.
Status of recommendations, Per GAO: Open. We will review IRS's
corrective actions during our fiscal year 2002 financial audit.
Count: 81;
Number: 02-18;
Recommendation: We recommend that the Commissioner of Internal Revenue
direct IRS management to work with the National Finance Center to
resolve the technical limitations that exist within the Security Entry
and Tracking System (SETS) database and continue to periodically review
SETS data to detect and correct errors. (Short-term)
Source report: Management Report: Improvements Needed in IRS‘s
Accounting Procedures and Internal Controls (GAO-02-746R, July 18,
2002);
Status of recommendations, Per IRS: Open. IRS will request a dialog
with the National Finance Center with the goal of making SETS a better
tool for tracking fingerprints and background investigations. Scheduled
completion date not specified.
Status of recommendations, Per GAO: Open. We will review IRS's
corrective actions during our fiscal year 2002 financial audit.
Count: 82;
Number: 02-19;
Recommendation: We recommend that the Commissioner of Internal Revenue
direct IRS management to issue a formal reminder of existing IRS manual
refund procedures to supervisors and staff. (Short-term)
Source report: Management Report: Improvements Needed in IRS‘s
Accounting Procedures and Internal Controls (GAO-02-746R, July 18,
2002);
Status of recommendations, Per IRS: Closed. IRS issued an information
alert reminding staff to monitor manual refunds to prevent issuance of
duplicate refunds and to monitor their reviews. Completed December 6,
2001.
Status of recommendations, Per GAO: Open. We will review IRS's
corrective actions during our fiscal year 2002 financial audit.
Count: 83;
Number: 02-20;
Recommendation: We recommend that the Commissioner of Internal Revenue
direct IRS management to establish procedures to track the release of
liens up to the point of delivery to the local jurisdiction to ensure
liens are released timely to avoid unduly burdening the taxpayer once
they have satisfied their tax liability. (Short-term)
Source report: Management Report: Improvements Needed in IRS‘s
Accounting Procedures and Internal Controls (GAO-02-746R, July 18,
2002);
Status of recommendations, Per IRS: Open. IRS agreed that its
procedures should include monitoring the mailing of certificates of
lien releases after the Automated Lien System generates the
certificate. IRS is formulating procedures requiring a date stamp
(mailing date) on the billing voucher. When these procedures are
issued, IRS will reemphasize the need to timely accomplish all other
processing steps. Scheduled completion date not specified.
Status of recommendations, Per GAO: Open. We will review IRS's
corrective actions during our fiscal year 2002 financial audit.
Count: 84;
Number: 02-21;
Recommendation: We recommend that the Commissioner of Internal Revenue
direct IRS management to ensure that complete skeletal records are
created and available for the SPIF units to update upon receipt of P&E.
(Short-term)
Source report: Management Report: Improvements Needed in IRS‘s
Accounting Procedures and Internal Controls (GAO-02-746R, July 18,
2002);
Status of recommendations, Per IRS: Open. IRS is (1) developing
requirements to implement an Electronic Packing Slip, (2) expanding its
use of network monitoring tools to track asset activity, and (3)
refining transactional business rules to enhance and tighten data
validation prior to entry into the database. Scheduled completion date
not specified.
Status of recommendations, Per GAO: Open. We will review IRS's
corrective actions during our fiscal year 2002 financial audit.
Count: 85;
Number: 02-22;
Recommendation: We recommend that the Commissioner of Internal Revenue
direct IRS management to develop procedures and edit checks to reduce
the likelihood of invalid property records. (Short-term)
Source report: Management Report: Improvements Needed in IRS‘s
Accounting Procedures and Internal Controls (GAO-02-746R, July 18,
2002);
Status of recommendations, Per IRS: Open. IRS is (1) developing
requirements to implement an Electronic Packing Slip, (2) expanding its
use of network monitoring tools to track asset activity, and (3)
defining transactional business rules to enhance and tighten data
validation prior to entry into the database. Scheduled completion date
not specified.
Status of recommendations, Per GAO: Open. We will review IRS's
corrective actions during our fiscal year 2002 financial audit.
Count: 86;
Number: 02-23;
Recommendation: We recommend that the Commissioner of Internal Revenue
direct IRS management to develop and implement procedures to ensure
that procurement award and requisition numbers recorded on property
records are complete, accurate, and linked to the accounting records.
(Short-term)
Source report: Management Report: Improvements Needed in IRS‘s
Accounting Procedures and Internal Controls (GAO-02-746R, July 18,
2002);
Status of recommendations, Per IRS: Open. The Electronic Packing Slip
will require vendors to include requisition and procurement numbers of
equipment purchases at the time of shipment. Full integration of
inventory procurement and accounting will occur with the implementation
of IFS. Scheduled completion date not specified.
Status of recommendations, Per GAO: Open. We will review IRS's
corrective actions during our fiscal year 2002 financial audit.
Count: 87;
Number: 02-24;
Recommendation: We recommend that the Commissioner of Internal Revenue
direct IRS management to record software licenses in IRS's property
management system. (Short-term)
Source report: Management Report: Improvements Needed in IRS‘s
Accounting Procedures and Internal Controls (GAO-02-746R, July 18,
2002);
Status of recommendations, Per IRS: Open. IRS is executing an action
plan that will allow them to populate the existing software data into
the ITAMS database.
Status of recommendations, Per GAO: Open. We will review IRS's
corrective actions during our fiscal year 2002 financial audit.
Count: 88;
Number: 02-25;
Recommendation: We recommend that the Commissioner of Internal Revenue
direct IRS management to develop an approach to assess IRS's compliance
with the terms of these software licenses. (Short-term)
Source report: Management Report: Improvements Needed in IRS‘s
Accounting Procedures and Internal Controls (GAO-02-746R, July 18,
2002);
Status of recommendations, Per IRS: Open. IRS is developing an action
plan that will set policies and procedures for the review and
compliance to the terms of the licenses. Scheduled completion date not
specified.
Status of recommendations, Per GAO: Open. We will review IRS's
corrective actions during our fiscal year 2002 financial audit.
Count: 89;
Number: 02-26;
Recommendation: We recommend that the Commissioner of Internal Revenue
direct IRS management to ensure that, in the absence of an integrated
general ledger system for IRS's custodial and administrative
activities, IRS strengthens monitoring and analysis of receivables to
ensure that receivables are not being erroneously recorded as a
result of the lack of integration between these two activities. (Short-
term)
Source report: Management Report: Improvements Needed in IRS‘s
Accounting Procedures and Internal Controls (GAO-02-746R, July 18,
2002);
Status of recommendations, Per IRS: Open. IRS is reconciling all
reimbursable receivable accounts with the appropriate general ledger
accounts monthly. As part of this process, IRS is monitoring activities
between custodial and administrative accounts. IRS is also developing
and testing new AFS transactions to properly record activity affecting
prior-year accounts identified in GAO‘s fiscal year 2001 audit.
Scheduled completion date not specified.
Status of recommendations, Per GAO: Open. We will review IRS's
corrective actions during our fiscal year 2002 financial audit.
[End of table]
[End of appendix]
Appendix II: Comments from the Internal Revenue Service:
Department Of The Treasury:
Internal Revenue Service:
Deputy Commissioner:
Washington, D.C. 20224:
July 17, 2002:
Mr. Steven J. Sebastian:
Acting Director:
Financial Management and Assurance:
U.S. General Accounting Office:
441 G Street, NW:
Washington, DC 20548:
Dear Mr. Sebastian:
I am writing to comment on your draft report titled, Internal Revenue
Service: Status of Recommendations from Financial Audits and Related
Financial Management Reports. Based on our review, I am providing an
updated status on each audit recommendation.
You mentioned in the draft report that we had closed 26 of the 89 cited
audit recommendations. Based upon discussions with you after the draft
report was issued, we now agree that 27 recommendations are closed. I
believe during the course of your fiscal year 2002 audit, you will find
we have taken actions to allow closure of a number of additional
recommendations. As you stated, some recommendations, such as those
related to modernization, require more time to address and will require
our sustained commitment. We are actively working to implement
corrective actions to address all remaining open recommendations.
I appreciate the GAO's acknowledgement of our significant improvements
over the last several years. I also recognize we must stay committed to
improving financial management.
Sincerely,
Signed by:
Bob Wenzel:
Enclosure:
[End of appendix]
Appendix III: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Steven Sebastian, (202) 512-3406:
Charles Fox, (202) 512-5261:
Acknowledgments:
In addition to those named above, Meafelia Gusukuma, John Davis,
William Cordrey, Delores Lee, George Jones, Leonard Zapata, Gloria
Cano, and Beverly Burke made key contributions to this report.
[End of appendix]
Footnotes:
[1] U.S. General Accounting Office, Financial Audit: IRS‘s Fiscal Years
2001 and 2000 Financial Statements, GAO-02-414 (Washington, D.C.: Feb.
27, 2002).
[2] U.S. General Accounting Office, Internal Revenue Service: Progress
Made, but Further Actions Needed to Improve Financial Management, GAO-
02-35 (Washington, D.C.: Oct. 19, 2001).
[3] U.S. General Accounting Office, Management Report: Improvements
Needed in IRS's Accounting Procedures and Internal Controls, GAO-02-
746R (Washington, D.C.: July 18, 2002).
[4] U.S. General Accounting Office, Financial Audit: IRS‘ Fiscal Year
2000 Financial Statements, GAO-01-394 (Washington, D.C.: Mar. 1, 2001).
[5] GAO-02-35.
[6] GAO-02-746R.
[7] Short-term recommendations are defined as those that could be
addressed within 2 years. Long-term recommendations are defined as
those recommendations expected to require 2 years or more to implement.
[End of section]
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