Major Management Challenges and Program Risks
Department of the Treasury
Gao ID: GAO-03-109 January 1, 2003
In its 2001 performance and accountability report on the Department of the Treasury, GAO identified important tax systems modernization, border security, trade regulation, financial management, and other issues facing the department. The information GAO presents in this report is intended to help to sustain congressional attention and a departmental focus on continuing to make progress in addressing these challenges and ultimately overcoming them. This report is part of a special series of reports on governmentwide and agency-specific issues.
The Department of the Treasury (Treasury) helps promote a stable economy, manages the government's finances, and safeguards federal financial systems and our nation's leaders. Given these multiple missions, Treasury and its components confront several performance and accountability challenges. Internal Revenue Service (IRS): IRS is now halfway through a 10-year modernization effort to improve taxpayer service and better ensure compliance. IRS has made progress in laying a management foundation to improve its performance, including reorganizing into customer-focused operating divisions, bringing new computer systems on-line, and producing reliable year-end financial statements. However, IRS still faces challenges in improving compliance and collection, deploying major business systems, implementing new performance measures, developing reliable cost-based performance information, and securing its computer systems. U.S. Customs Service: In the aftermath of the 9/11 terrorist attacks, recent legislation established a new Department of Homeland Security that will absorb Customs. Regardless of this change, Customs is challenged to safeguard U.S. borders against the illegal entry of goods, including weapons of mass destruction, while efficiently regulating legitimate commercial activity. While some of Custom's work to address these challenges cannot be discussed in this report due to its sensitive nature, two challenges Customs is working on include enhancing its trade compliance program and acquiring a new trade system. Financial Management: Treasury faces many challenges in improving its financial management systems and correcting internal control weaknesses, particularly at IRS and Customs. As the government's fiscal agent, Treasury is also challenged to prepare reliable financial statements for the U.S. government, improve debt collection, and strengthen computer security controls at its Financial Management Service. Both the Treasury Department and IRS issued audited financial statements 45 days before the end of fiscal year 2002.
GAO-03-109, Major Management Challenges and Program Risks: Department of the Treasury
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Performance and Accountability Series:
January 2003:
Major Management Challenges and Program Risks:
Department of the Treasury:
GAO-03-109:
A Glance at the Agency Covered in This Report:
The Department of the Treasury is responsible for a broad scope of
activities that touch the lives of all Americans, including:
*collecting taxes to finance government operations;
*managing the government‘s finances; and
*carrying out law enforcement activities, such as securing U.S. borders
and adding to homeland security, *controlling firearms-related crime,
and managing seized assets.
This Series:
This report is part of a special GAO series, first issued in 1999 and
updated in 2001, entitled the Performance and Accountability Series:
Major Management Challenges and Program Risks. The 2003 Performance
and Accountability Series contains separate reports covering each
cabinet department, most major independent agencies, and the U.S.
Postal Service. The series also includes a governmentwide perspective
on transforming the way the government does business in order to meet
21st century challenges and address long-term fiscal needs. The
companion 2003 High-Risk Series: An Update identifies areas at high
risk due to either their greater vulnerabilities to waste, fraud,
abuse, and mismanagement or major challenges associated with their
economy, efficiency, or effectiveness. A list of all of the reports
in this series is included at the end of this report.
GAO Highlights:
Highlights of GAO-03-109, a report to Congress included as part of
GAO‘s Performance and Accountability Series
Why GAO Did This Report:
In its 2001 performance and accountability report on the Department
of the Treasury, GAO identified important tax systems modernization,
border security, trade regulation, financial management, and other
issues facing the department. The information GAO presents in this
report is intended to help to sustain congressional attention and a
departmental focus on continuing to make progress in addressing
these challenges and ultimately overcoming them. This report is
part of a special series of reports on governmentwide and agency-
specific issues.
What GAO Found:
The Department of the Treasury (Treasury) helps promote a stable
economy, manages the government‘s finances, and safeguards federal
financial systems and our nation‘s leaders. Given these multiple
missions, Treasury and its components confront several performance
and accountability challenges.
Internal Revenue Service (IRS): IRS is now halfway through a 10-year
modernization effort to improve taxpayer service and better ensure
compliance. IRS has made progress in laying a management foundation
to improve its performance, including reorganizing into customer-
focused operating divisions, bringing new computer systems on-line,
and producing reliable year-end financial statements. However, IRS
still faces challenges in improving compliance and collection,
deploying major business systems, implementing new performance
measures, developing reliable cost-based performance information,
and securing its computer systems.
U.S. Customs Service: In the aftermath of the 9/11 terrorist
attacks, recent legislation established a new Department of
Homeland Security that will absorb Customs. Regardless of this
change, Customs is challenged to safeguard U.S. borders against
the illegal entry of goods, including weapons of mass destruction,
while efficiently regulating legitimate commercial activity.
While some of Customs‘s work to address these challenges cannot be
discussed in this report due to its sensitive nature, two
challenges Customs is working on include enhancing its trade
compliance program and acquiring a new trade system.
Financial Management: Treasury faces many challenges in improving
its financial management systems and correcting internal control
weaknesses, particularly at IRS and Customs. As the government‘s
fiscal agent, Treasury is also challenged to prepare reliable
financial statements for the U.S. government, improve debt collection,
and strengthen computer security controls at its Financial Management
Service. Both the Treasury Department and IRS issued audited financial
statements 6 weeks after the end of fiscal year 2002.
What Remains to Be Done:
IRS: Continue efforts to improve service, ensure compliance, maintain
comparable performance measures, manage systems modernization, and
implement effective computer security.
Customs: Enhance evolving trade compliance program and implement new
trade system through continuous improvement and effective resource
management.
Financial Management: Improve bureau operations, strengthen internal
controls, ensure compliance with a key law, continue to improve debt
collection, and strengthen computer security.
www.gao.gov/cgi-bin/getrpt?GAO-03-109. To view the full report,
click on the link above. For more information, contact Norm Rabkin
at (202) 512-9110 or rabkinn@gao.gov.
Transmittal Letter:
Major Performance and Accountability Challenges:
GAO Contacts:
Related GAO Products:
Performance and Accountability and High-Risk Series:
Transmittal Letter January 2003:
The President of the Senate
The Speaker of the House of Representatives:
This report addresses the major management challenges facing the
Department of the Treasury (Treasury) as it seeks to carry out certain
aspects of its economic, financial, enforcement, and management
missions. It is part of a special series GAO has issued biennially
since January 1999, entitled the Performance and Accountability Series:
Major Management Challenges and Program Risks. This report discusses
the actions Treasury has taken and that are under way to address the
challenges GAO reported in its series 2 years ago, in January 2001, and
major events that have occurred that significantly influence the
environment in which the department carries out its mission. Also, GAO
summarizes the challenges that remain and further actions that GAO
believes are needed.
This analysis should help the new Congress and the administration carry
out their responsibilities and improve government for the benefit of
the American people. For additional information about this report,
please contact Norm Rabkin, Managing Director, Tax Administration and
Justice, at
(202) 512-9110 or at rabkinn@gao.gov.
David M. Walker
Comptroller General
of the United States:
Signed by David M. Walker
[End of section]
Major Performance and Accountability Challenges:
According to its mission statement, the Department of the Treasury
(Treasury) promotes prosperous and stable domestic and international
economies; manages the government‘s finances; and safeguards our
financial systems, protects our nation‘s leaders, and secures a safe
and drug-free America. With a fiscal year 2002 budget of $16.4 billion
in discretionary spending and a staff of about 150,000, Treasury‘s
responsibilities are divided among 12 major components, including the
Internal Revenue Service (IRS); Bureau of Alcohol, Tobacco, and
Firearms (ATF); Financial Management Service (FMS); U.S. Customs
Service (Customs); and U.S. Secret Service.[Footnote 1] In helping
Treasury meet its overall mission, these components confront several
major performance and accountability challenges.
In our last report of January 2001, we identified five major
performance and accountability challenges for Treasury and its
components.[Footnote 2] These included (1) modernizing the IRS to
better help taxpayers meet their tax responsibilities and increase
overall compliance with tax laws,
(2) improving Customs‘s regulation of commercial trade while ensuring
protection against the entry of illegal goods at U.S. borders, (3)
achieving sound financial management through sustained management
attention and priority, (4) developing measurable performance targets
to assess ATF‘s progress in reducing criminals‘ access to firearms, and
(5) improving asset forfeiture program management and accountability.
We noted the specific steps Treasury had taken to address the
challenges, while pointing out areas in which Treasury had not made
enough progress.
Since Treasury has made significant progress on two of the five
challenges identified in our last report--ATF performance targets and
asset forfeiture program management--we have removed these from
consideration in this report.[Footnote 3] The other three challenges,
however, continue to confront Treasury--IRS modernization, Customs
regulation of commercial trade, and Treasury financial management.
Addressing these three challenges will require sustained managerial
attention and commitment, as well as oversight and evaluations from
independent organizations.
[See PDF for image]
[End of figure]
Modernize IRS to Better Help Taxpayers Meet Their Tax Responsibilities
and to Increase Overall Compliance with Tax Laws:
IRS has now invested 5 years in a modernization effort intended to
improve service to taxpayers and better ensure taxpayer compliance with
the tax laws. This is half way through the 10 years IRS estimated would
be needed. So far, IRS has made important progress at laying the
management foundation for a more modern agency that is able to respond
to taxpayer needs faster, more accurately, and at a lower cost.
However, at this time, neither the foundation nor the structure--the
reengineered processes that would deliver better service and improve
compliance--is complete. IRS must successfully manage several
significant challenges that threaten continued modernization.
Challenges include reversing the decline in compliance and collection
programs, managing the deployment of several large business systems,
and implementing new performance measures and management processes.
IRS‘s modernization strategy encompasses five components--business
practices, agency organization, performance measurement, managerial
accountability, and new technology. As shown in figure 1, the
components are the foundation for a modern agency that can achieve its
goals of providing better service and ensuring compliance while using
resources productively. The components are interrelated; for example,
new technology will support revamped practices, and performance
measures will be used to ensure accountability. Each component, by
itself, is a major effort. Because the components are interrelated, IRS
must make progress on all of the components in a coordinated fashion.
For these reasons, IRS‘s modernization effort is ambitious and complex.
Figure 1: Overview of IRS‘s Modernization Program:
[See PDF for image] - graphic text:
[End of figure] - graphic text:
IRS has made important progress in developing and implementing the five
components of modernization. However, continued progress depends on
meeting a number of challenges. Table 1 summarizes the progress IRS has
made on the five modernization components and identifies seven major
challenges associated with three of the components.
Table 1: Summary of IRS‘s Modernization Accomplishments and Challenges:
Modernization component: Customer focused operating divisions; Major
accomplishments: * Reorganized into four operating divisions, each
responsible for a group of taxpayers with similar needs (FY2001);
Challenges remaining: [Empty].
Modernization component: Management roles with clear responsibility;
Major accomplishments: * Implemented new strategic planning, budgeting,
and performance management system; * Assigned responsibility for
improvement projects; * Redirected almost 2,300 staff positions toward
higher priorities; Challenges remaining: [Empty].
Modernization component: Revamped business practices; Major
accomplishments: * Brought new systems on-line, including telephone
call routing and data support systems; * Initiated efforts to
reengineer major business systems, including examination and collection
programs; Challenges remaining: * Improving service to taxpayers; *
Collecting taxes that are due the government but not voluntarily paid
by taxpayers; * Making appropriate payments to taxpayers claiming the
earned income credit.
Modernization component: Balanced measurement of performance; Major
accomplishments: * Established an evaluation system for frontline
employees aligned with service and compliance goals; * Initiated
program to measure voluntary compliance rate; * Produced reliable year-
end financial statements; Challenges remaining: * Establishing measures
comparable over time and collecting sufficient performance data; *
Addressing financial management weaknesses to develop reliable cost-
based performance information.
Modernization component: New technology; Major accomplishments: *
Adopted GAO recommendations regarding management controls for
information systems acquisition and implementation; * Continued toward
fully implementing complex information systems and bringing more
limited systems on-line; Challenges remaining: * Managing the Business
Systems Modernization program; * Implementing effective computer
security.
[End of table]
Source: GAO analysis of IRS.
As already noted, the components of IRS‘s modernization effort are
interrelated, and consequently, the seven challenges are interrelated.
Maximum progress on modernization will only be made if IRS
simultaneously and successfully deals with all seven challenges.
Improving Service to Taxpayers:
Improving service to taxpayers remains a challenge for IRS. The
progress that IRS has made to date in modernizing has, as noted, laid a
foundation for improvement but has not yet provided the quality of
service that taxpayers, Congress, and IRS management agree is needed.
Providing good service to taxpayers by making it as easy as possible
for them to understand and meet their tax obligations could improve
voluntary compliance--payments and tax returns filed without IRS audit
and collection action--and reduce the need for these intrusive and
costly enforcement activities. A major principle of IRS‘s modernization
effort is that understanding the taxpayer‘s point of view and improving
service is fundamental to helping the majority of taxpayers who are
willing to comply with the tax laws and pay what they owe. A related
principle is that preventing compliance problems by educating and
informing taxpayers, or helping taxpayers resolve problems early on, is
less expensive and time consuming for both IRS and the taxpayer than
enforcement action taken later. Facilitating voluntary compliance is
especially important because the U.S. tax system relies on it. As shown
in figure 2, almost all tax revenue that is collected is paid through
withholding, remittances sent with tax returns, or other forms of
payment, without any IRS enforcement action.
Figure 2: Tax Revenue Collected through Voluntary Payments or IRS
Enforcement Action:
[See PDF for image]
[End of figure]
Table 2 shows the recent improvement in selected aspects of taxpayer
service, as well as the level of current service. Taxpayers still have
difficultly reaching IRS and, when they do get through, they may not be
able to rely on the accuracy of the information IRS provides. For
example, the percentage of phone calls to assistors that received
service increased to
71 percent in the 2002 tax filing season, yet the remaining 29 percent
attempting to reach an assistor hung up or were disconnected without
receiving service. IRS officials credited the 2002 filing season
improvement to, among other efforts, call routing system improvements.
Treasury Inspector General for Tax Administration (TIGTA) data suggest
that the tax law information IRS provided at walk-in locations improved
from 2001 to 2002, despite a lack of comparable data. Nonetheless, in
2002, the tax law information provided was incorrect 50 percent of the
time.
Table 2: Selected Performance Measures of IRS Telephone and Walk-in
Assistance in the Tax Filing Season:
Telephone accessibility measures: CSR level of service[A]; 2000:
Telephone accessibility measures: 61%; 2001: Telephone accessibility
measures: 68%; 2002: Telephone accessibility measures: 71%.
Telephone accessibility measures: Telephone accuracy measures; 2000:
Telephone accessibility measures: [Empty]; 2001: Telephone
accessibility measures: [Empty]; 2002: Telephone accessibility
measures: [Empty].
Telephone accessibility measures: Tax law correct response rate[B];
2000: Telephone accessibility measures: N/A [C]; 2001: Telephone
accessibility measures: 79% +/-1%; 2002: Telephone accessibility
measures: 85% +/-1%.
Telephone accessibility measures: Walk-in accuracy measures; 2000:
Telephone accessibility measures: [Empty]; 2001: Telephone
accessibility measures: [Empty]; 2002: Telephone accessibility
measures: [Empty].
Telephone accessibility measures: Tax law correct answers rate[D];
2000: Telephone accessibility measures: N/A[ C]; 2001: Telephone
accessibility measures: N/A[ C]; 2002: Telephone accessibility
measures: 50%.
Source: IRS and TIGTA.
[A] The percentage of calls that IRS estimates were from callers
attempting to reach an assistor, also called a customer service
representative (CSR), that received service, including some calls
answered through automation, from January through mid-July.
[B] Estimate of the percentage of calls in which assistors provided
correct responses from January through June.
[C] Comparable data is not available.
[D] The percentage of questions that were answered correctly in test
walk-in contacts from January through April.
[End of table]
Part of what makes improving service such a challenge is the volume of
requests for taxpayer assistance. For example, IRS data indicates that
in the 2002 filing season, taxpayers called IRS about 100 million
times, with an estimated 30 million of those calls to an assistor, as
opposed to IRS‘s automated services. IRS had about 10,000 assistors on
board to answer those calls.
A common theme in our recent reports on taxpayer service is the need
for improved management of IRS‘s service functions, such as telephone
assistance. Specifically, we have recommended explicit goal setting,
improved performance measures, and more program evaluation. Such
practices would enable IRS managers and frontline staff to better
understand what they are trying to accomplish, how their actual
performance compares to their objectives, and the reasons for any gaps.
Armed with such information, IRS managers would be better positioned to
make decisions regarding improvement actions.
Another related theme is the need for improved human capital
management. We have recognized that IRS‘s new performance management
system could be a powerful tool to help IRS achieve its mission, and
that system weaknesses could make it less effective in ensuring that
employees at every level of the organization are working toward common
goals. For telephone performance, we have called for systems and
evaluations to identify gaps in assistors‘ skills, meet training needs
to fill those gaps, monitor and address the causes of attrition, and
ensure that human capital management practices help IRS achieve
taxpayer service goals.
IRS has generally agreed with our recommendations and has taken action
to implement them. For example, more focus is being placed on long-term
goals in planning documents. However, management improvements will have
to be sustained over time so taxpayers can see benefits in the form of
improved service.
In addition to the challenge of making changes that achieve long-term
improvements, revamping taxpayer service will require that IRS
simultaneously meet the other significant management challenges
discussed in this report. For example, to ensure that changes result in
efficient, improved service, IRS will need to establish comparable
measures over time, collect sufficient data to identify ways to improve
service, and develop cost-based performance information to identify the
costs of achieving improved results.
Collection of Unpaid Taxes:
Collecting taxes due the government[Footnote 4] has always been a
challenge for IRS, but in recent years the challenge has grown. In
testimonies and reports we have highlighted large and pervasive
declines in IRS‘s compliance and collections programs. For example,
between 1996 and 2001 the programs generally experienced larger
workloads, less staffing, and fewer numbers of cases closed per
employee. By the end of fiscal year 2001, IRS was deferring collection
action on about one out of every three tax delinquencies assigned to
the collections programs. As of September 30, 2002, IRS had an
inventory of known unpaid taxes, including interest and penalties,
totaling $249 billion, of which $112 billion has some collection
potential and, thus, is at risk.[Footnote 5]
To reverse these trends, IRS is in various stages of planning and
implementing management improvements, including reengineering
compliance and collection practices, collecting better data about
noncompliance, and investing in modern financial and information
systems. Because of the magnitude of these efforts, the collection of
unpaid taxes is a major management challenge. Because of the potential
revenue losses and the threat to voluntary compliance this is also a
high-risk area.
Many view a visible enforcement program as critical for our tax system.
While improving taxpayer service may enhance voluntary compliance,
taxpayers‘ willingness to voluntarily comply with the tax laws depends
in part on their having confidence that their friends, neighbors, and
business competitors are paying their fair share of taxes. To provide
that confidence, IRS operates a number of compliance and collection
programs, including computerized checks for nonfiling and underreported
income, audits, and telephone and field collections.
For the last several years, Congress and others have been concerned
that the declines in IRS‘s compliance and collections programs are
eroding taxpayers‘ confidence in the fairness of our tax system.
Indeed, in May 2002 congressional hearings, the IRS Commissioner said
that IRS was not providing taxpayers with adequate assurance that their
neighbors or competitors were complying with the tax laws and paying
what they owed.[Footnote 6]
IRS‘s strategy to reverse the compliance and collection program
declines is ambitious and, therefore, challenging. Generally, the
strategy intends to improve the productivity of IRS‘s existing
compliance and collections staff and better target noncompliance. By
reengineering the compliance and collections programs (and augmenting
the programs with staff freed up elsewhere in IRS), IRS hopes to
significantly increase its compliance and collections efforts. The
reengineering efforts rely heavily on technology modernization, which
is also a high-risk management challenge.
Better targeting of noncompliance requires better information. IRS‘s
new effort to review compliance, the National Research Program (NRP),
should, if implemented as planned, provide IRS with the first up-to-
date information on compliance rates and sources of noncompliance since
it last measured the compliance rate using 1988 tax returns. Such
information could be another input into IRS‘s strategic planning,
budgeting, and performance management process and used to set agency
priorities and allocate resources. However, we remain concerned about
IRS‘s ability to appropriately allocate its enforcement resources,
including staff, to its various compliance and collections activities.
For example, as we have reported,[Footnote 7] IRS has not been able to
readily determine the full cost of its various programs and activities.
Without this information, IRS cannot perform cost-benefit analyses to
ascertain whether the resources it has devoted to compliance programs
were appropriate relative to costs and potential benefits.
IRS has agreed with the recommendations we made regarding
implementation of NRP and more effective use of data in the strategic
planning, budgeting, and performance management process. IRS has also
agreed with us about the need for better cost data on its enforcement
activities and has been developing a centralized cost accounting system
expected to be deployed in late 2003. Successfully completing these
actions will be a challenge. However, implementation should provide IRS
managers with better information about how to effectively and
efficiently target noncompliance.
While our reports on the collection of unpaid taxes have focused on the
efficiency with which existing compliance and collections resources are
used, the IRS Commissioner has raised the issue of whether the existing
resources, even if used efficiently, can provide an adequate level of
enforcement. In a September 2002 report to the IRS Oversight Board, the
Commissioner said that IRS has been facing a growing compliance
workload at the same time that resources were declining. He said the
result is a ’huge gap“ between the number of taxpayers who are not
filing, not reporting, or not paying what they owe and IRS‘s capacity
to deal with them. Whether the Commissioner is correct about the
magnitude of this problem depends in part on policy makers‘ judgments
about how large an enforcement presence IRS needs to provide taxpayers
with confidence that all taxpayers are paying their fair share of
taxes.
Earned Income Credit Noncompliance:
In addition to collecting taxes, IRS is also responsible for
administering tax code provisions that make financial assistance
available to the working poor. Under the code, taxpayers who meet
earned income, family size, and other requirements are authorized to
claim the earned income credit. The credit offsets the impact of the
social security taxes paid by low-income workers and is intended to
encourage low-income persons to seek work rather than welfare. For most
recipients, the credit amount exceeds the amount of their income tax
liability; in such cases, because the credit is refundable, the
taxpayers receive a refund.
There are significant compliance problems associated with the earned
income credit that have led us to list IRS‘s administration of the
credit as a high-risk area for the federal government. IRS estimates
that of the
$31.3 billion in earned income credits claimed by taxpayers in tax year
1999, about $8.5 to $9.9 billion should not have been paid.[Footnote 8]
This level of noncompliance has remained relatively unchanged even
after a 5-year effort to reduce it. Because IRS has struggled to reduce
the overclaim rate and because of the magnitude of the financial risk,
earned income credit noncompliance has been and remains both a
management challenge and a high-risk area.
The design of the earned income credit may contribute to noncompliance.
As we have reported,[Footnote 9] certain features of the credit
represent a trade-off between compliance and other desired goals.
Unlike other income transfer programs, such as Temporary Assistance for
Needy Families and Food Stamps, the earned income credit was designed
to be administered through the tax system. Accordingly, while the other
programs have staff that review documents and other evidence before
judging applicants to be qualified to receive assistance,
administration of the credit relies more directly on the self-reported
qualifications of individuals. This approach generally should result in
lower administrative costs and possibly higher participation rates for
the credit than other assistance programs. However, earned income
credit noncompliance may also be higher.
IRS has to balance its efforts to combat noncompliance with its efforts
to help ensure that qualified persons claim the credit. With the data
available, we were able to estimate that for every three households
that claimed the credit, there was an additional eligible household
that did not.[Footnote 10]
The IRS Commissioner and the Assistant Secretary for Tax Policy have
convened a high-level Treasury/IRS task force to develop
recommendations to better administer the credit and make it easier for
taxpayers to comply with the rules. However, until IRS has designed and
implemented effective controls to deal with noncompliance and the
erroneous refunds that result, this will remain a high-risk area.
Establishing Measures Comparable over Time and Collecting Sufficient
Performance Data:
A sound organizational performance and human capital management system
is essential for assessing how well IRS meets its goals and for making
program improvements. IRS has made progress in revamping its
performance management system by using its strategic planning,
budgeting, and performance management process to reconcile competing
priorities and initiatives with the realities of available resources.
Also, in October 2001, IRS rolled out its new employee evaluation
system for frontline employees. This main human capital management
system, like that implemented earlier for executives and managers, was
designed to structurally align performance expectations for employees
with IRS‘s three strategic goals to encourage behaviors and actions
that support and advance those goals. IRS has also made progress in
developing a way to measure the voluntary compliance of individual
taxpayers without placing undue burden on them. In late 2002, IRS
started to collect data to measure voluntary compliance, update
criteria used to select tax returns for audit, and make operational
changes that could improve compliance.
While this progress is notable, several aspects of the performance
management system make measuring, assessing, and improving
organizational and employee performance risky. Our work over the past
couple of years has shown that IRS could do a better job of designing
and implementing performance measures and program evaluation practices
that support its on-going business operations, modernization efforts,
and budget requests. Further, IRS could make additional progress in
linking its budget request to intended results so that Congress could
make more informed budget decisions and better assess IRS‘s use of
resources. IRS could also improve the alignment between strategic goals
and elements of the frontline employee performance management system
and ensure that the new performance management systems for frontline
employees and managers are working as intended.
To address these risky aspects, IRS needs to take a number of actions.
First, it needs to ensure that its organizational performance measures
are (1) objective and reliable; (2) consistent through time, and thus,
comparable; and (3) limited to key performance indicators. Second, IRS
needs to do more and better evaluations of its programs so it can
better determine the factors that affect program performance and
identify ways to use resources more effectively and improve service and
compliance. Third, and in keeping with the Government Performance and
Results Act of 1993, IRS should continue its efforts to better link
budget requests with program results. Finally, IRS should ensure that
its human capital management systems reinforce behaviors that support
strategic goals by clearly aligning employee and organizational
objectives, ensuring that managers‘ expectations are specific and
output-or outcome-oriented, and monitoring whether employee feedback is
useful and aligned with IRS‘s goals.
Addressing Financial Management Weaknesses to Develop Reliable Cost-
Based Performance Information:
In addition to using performance measures to assess progress in
improving customer service and increasing compliance, IRS also needs to
know the cost of achieving these results. Reliable cost information is
critical for IRS management and Congress to determine whether IRS has
the appropriate levels of funding and staff and is effectively using
them. However, serious financial management weaknesses--a high-risk
area since 1995--hurt IRS‘s ability to develop reliable, cost-based
performance information and to ensure that resources were spent only in
accordance with laws, regulations, and management policy. To address
these issues, we have provided IRS with detailed management and
operational recommendations. IRS‘s senior management has been proactive
in addressing these issues and has played a major role in the progress
IRS has achieved to date. However, resolving many of IRS‘s most serious
problems will require a sustained, long-term commitment of resources,
continued involvement of senior management, and sustained progress in
systems modernization.
IRS has made significant progress in addressing its financial
management weaknesses, including addressing deficiencies in controls
over budgetary activity and its accountability over property and
equipment (P&E). IRS implemented procedures to deobligate funds no
longer required for a specific purpose, and developed compensating
procedures to address several of the budgetary control weaknesses we
previously reported. For example, IRS (1) instituted the routine review
of contracts to better manage obligational authority, (2) developed
procedures to identify and eliminate from the applicable general ledger
accounts transactions that were incorrectly recorded as adjustments to
prior years‘ obligations, and (3) revised its accrual methodology to
address reported deficiencies in controls over the accurate recording
of undelivered orders and accrued expenses. IRS also continued its
efforts to correct long-standing deficiencies in systems and controls
over its P&E. Specifically, IRS
(1) initiated annual physical inventories at its headquarters and its
field offices and is using the results to annually update its P&E
inventory records, (2) implemented a new inventory system for its
automated data processing assets, and (3) implemented procedures to
improve the timeliness of recording P&E acquisitions in its accounting
records. While further efforts are needed in both areas, IRS has made
significant progress since our last report.
For fiscal year 2002, IRS was able to produce financial statements
covering its tax custodial and administrative activities that are
fairly stated in all material respects and was able to accomplish this
6 weeks after the end of the fiscal year.[Footnote 11] This was a
significant achievement and was the result of tremendous dedication and
effort on the part of IRS‘s senior management and staff, as well as
some significant changes in certain business practices. However, it
also necessitated the continued use of costly, resource-intensive
processes to compensate for its long-standing and pervasive internal
control and systems deficiencies. IRS continues to lack timely,
accurate, and useful financial information and sound controls with
which to make fully informed decisions and to ensure ongoing
accountability. Despite the progress made, our audits of IRS‘s fiscal
year 2002 and 2001 financial statements continued to identify the
existence of five material weaknesses in internal controls and two
instances of noncompliance with provisions of the Internal Revenue Code
related to the timing of IRS‘s releasing of tax liens and the
structuring of installment agreements with taxpayers. Additionally, we
found that IRS‘s financial management systems continued to be in
substantial noncompliance with the requirements of the Federal
Financial Management Improvement Act of 1996 (FFMIA).[Footnote 12]
In fiscal year 2002, as in prior years, IRS did not have adequate
financial management systems to enable it to routinely and reliably
generate and report the information needed to prepare financial
statements and manage operations on an ongoing and timely basis. IRS
did not always timely record material transactions in its general
ledger system, including taxes receivable. In addition, IRS uses
separate general ledgers to account for its tax collection activities
and the costs of conducting those activities, respectively. This
separation greatly complicates efforts to measure the cost of its tax
collection efforts.
IRS still lacks a centralized and integrated cost accounting system
capable of providing timely and reliable cost information related to
its activities and programs. Without such a system, managers may lack
ready information to manage costs and make decisions. During fiscal
year 2002, IRS conducted a comprehensive assessment of its strategic
priorities as part of its strategic planning process. A major goal of
this exercise was to prioritize IRS‘s programs relative to its mission
in light of its available resources. IRS is using the outcome of this
process as a basis for resource allocation decisions. This initiative
represents a major step forward in IRS‘s efforts to ensure it is using
its resources as efficiently and effectively as possible. As we have
stated previously, addressing the financial management issues we have
reported on would enhance this process by providing sound, reliable,
and timely information to assist in evaluating the impact of these
decisions in terms of both the costs incurred and the benefits derived.
To address its need for reliable cost-based performance information,
IRS is developing a cost accounting system that is scheduled for
implementation in late 2003. Informed business decision making depends
on this system‘s successful implementation.
Managing the Business Systems Modernization Program:
IRS‘s multi-billion dollar Business Systems Modernization program is
critical to the success of the agency‘s efforts to transform its
manual, paper-intensive business operations and fulfill its obligations
under the IRS Restructuring and Reform Act of 1998.[Footnote 13] IRS‘s
challenges in modernizing its business systems date back to the mid-
1990s, when we reported on a number of technical and management
weaknesses and made a series of recommendations for correcting them and
limiting modernization activities and spending until they were
corrected.[Footnote 14] It was then that we designated the
modernization program as a high-risk area.[Footnote 15] These
challenges remained virtually unchanged until 1999, as IRS made limited
progress in implementing our recommendations, and our ongoing reviews
of the program continued to identify additional weaknesses and produce
additional recommendations. Beginning in 1999, however, progress
improved, particularly with respect to strengthening IRS‘s
modernization management controls and capabilities.
Nevertheless, our last performance and accountability report continued
to show the modernization program as high-risk for three primary
reasons:[Footnote 16] (1) modernization of IRS‘s systems is vital to
revamping how the service does business and is integral to IRS
achieving its customer-focused vision; (2) the program is extremely
complex and costly; and (3) IRS had not yet fully corrected all of its
modernization management weaknesses, thereby increasing the risk that
projects would not perform as intended and would cost more and take
longer than necessary.
Since then, IRS has made important progress in a number of areas.
First, it has progressed in establishing the infrastructure systems on
which future business applications will run. Establishing this
infrastructure is a necessary prerequisite to introducing the business
applications that are intended to provide benefits to taxpayers and
IRS. Second, it has made progress in delivering three applications
(e.g., Internet Refund Fact of Filing) that are producing benefits as
of today. Third, progress has been made in establishing the
modernization management controls needed to effectively acquire and
implement information technology systems. For example, IRS has
developed and is using a modernization blueprint, commonly called an
enterprise architecture, to guide and constrain its modernization
projects, and is investing incrementally in its projects, both of which
are leading practices of successful public and private-sector
organizations.
Despite this important progress, IRS‘s business systems modernization
program remains ’challenged“ and at high risk for two reasons. First,
the scope and complexity of the program are growing. Specifically, the
number of projects underway continues to expand and the tasks
associated with those projects that are moving beyond design and into
development are by their nature more complex and risky. Second, IRS‘s
modernization management capacity is still maturing. For example, IRS
has yet to fully implement a strategic approach to ensuring that it has
sufficient human capital resources. It has also yet to fully implement
management controls in such areas as estimating costs, and employing
performance-based contracting methods.
The challenge for IRS is to make sure the pace of systems acquisition
projects does not exceed the agency‘s ability to manage them
effectively, which was a problem in the past. In February 2002 we
reported[Footnote 17] such an imbalance due to IRS‘s first priority and
emphasis being getting the newer, more modern systems--with their
anticipated benefits to taxpayers--up and running. In so doing,
however, management controls had not been given equal attention and
thus had not kept up. This emphasis on new systems progress adds
significant cost, schedule, and performance risk that escalates as a
program advances. Moreover, these risks are increased as IRS moves
forward because interdependencies among current ongoing projects and
the complexity of associated workload activities to be performed
increases dramatically as more system projects are built and deployed.
In response to our concerns about projects getting ahead of the
agency‘s ability to manage them effectively[Footnote 18] and
congressional direction, IRS scaled back its projects, giving priority
to implementing needed management capacity. Nevertheless, IRS has
continued to move forward with its ongoing infrastructure and business
application system projects while simultaneously taking steps to
implement missing management controls and capabilities, which in our
view worsens the imbalance between project workload and needed
management capacity. In our February 2002 report,[Footnote 19] we
recommended that the Commissioner of Internal Revenue reconsider the
scope and pace of the program to better balance it with the agency‘s
capacity to handle the workload. In response, IRS took steps to align
the pace of the program with the maturity of IRS‘s controls and
management capacity, including reassessing the portfolio of projects
that it planned to proceed with during the remainder of fiscal year
2002. Also, IRS made significant progress in improving its
modernization management controls.
Although progress has been made, certain management controls have not
been fully implemented. IRS has reported that most projects have
already encountered cost, schedule, and/or performance shortfalls. Our
analysis has shown that weak management controls contributed directly
to these problems. Given that IRS‘s fiscal year 2003 systems
modernization spending plan supports progress toward the later phases
of key projects and continued development of other projects, systems
modernization projects may encounter additional cost, schedule, and
performance shortfalls.
IRS has acknowledged these risks and has initiatives planned or under
way to address them. However, timing is critical. While the lack of
controls can be risky in a project‘s early stages, it is essential that
such controls be in place when multiple interdependent projects are
being designed, developed, and implemented. To mitigate this added
risk, IRS needs to fully implement the remaining management controls
that we have recommended. Until that time, the business systems
modernization program remains high risk, and we will continue to
monitor IRS‘s progress in this area.
Implementing Effective Computer Security:
IRS needs to continue addressing long-standing computer security
weaknesses. Over the past 9 years, we have provided IRS with numerous
recommendations to assist it in addressing weaknesses in its computer
security controls.
IRS has continued to make progress improving computer security
controls. For example, IRS has revised its information technology
security policy and guidance, updated security standards for several of
its computing systems and devices, and improved certain physical
security controls at its data processing facilities. IRS is also
consolidating several of its geographically dispersed computer systems
and centralizing responsibility for their operation and maintenance,
performing periodic internal control reviews of its computer-processing
environments, and implementing an intrusion detection capability.
Despite important progress, much work remains to be done to resolve the
serious weaknesses that threaten the confidentiality, integrity, and
availability of IRS systems and taxpayer information. IRS continues to
have serious weaknesses with computer controls designed to protect
computing resources, such as networks, computer equipment, software
programs, data, and facilities from unauthorized use, modification,
loss, and disclosure. Computer security weaknesses relate to electronic
access controls, physical security, segregation of duties, software
change controls, and service continuity. These weaknesses exist, in
part, because IRS has not yet fully implemented its agencywide computer
security program. For example, IRS does not always effectively
configure and implement computer systems in accordance with its
computer security policies, monitor system configuration and
implementation, and provide sufficient technical security-related
training to key personnel. In addition, IRS has not taken sufficient
steps to ensure that computer security weaknesses identified at one
data processing facility are considered and addressed at other
facilities. These weaknesses led us to report, as part of our audit of
IRS‘s fiscal year 2002 financial statements,[Footnote 20] that computer
security was a material weakness.[Footnote 21]
These weaknesses decrease the reliability and increase the
vulnerability of data processed by IRS‘s information systems, and
continue to expose IRS‘s tax processing operations to disruption. Until
IRS can adequately mitigate these weaknesses, unauthorized individuals
could gain access to critical hardware and software, and intentionally
or inadvertently add, alter, or delete sensitive data or computer
programs. Such individuals could also obtain personal taxpayer
information and use it to commit financial crimes in the taxpayer‘s
name (identity fraud), such as establishing credit and incurring debt.
Improve Customs‘s Management of Multiple Missions:
For years Customs has been performing the dual missions of enforcing
laws to safeguard U.S. borders against the illegal entry of goods and
of regulating legitimate commercial activity. To carry out its
responsibilities, Customs has a total workforce of 19,500 employees at
locations in the United States and around the world. In fiscal year
2001, Customs reported that its officers processed 142 million
conveyances;[Footnote 22] 472 million land, sea, and air passengers;
and over 23 million import entries with a value of over $1 trillion,
while collecting $23.8 billion in revenues. Customs has been challenged
to balance its security measures with the need to facilitate the flow
of cargo and people into the United States that is vital to our
economy. Traditionally, Customs‘s primary security and enforcement
focus had been on preventing the smuggling of drugs into the country.
In January 2001, we identified a number of challenges facing Customs in
performing its dual missions.[Footnote 23] In addition to those we
discuss in the following sections, the challenges included (1)
assessing progress on key mission areas through the implementation of
outcome-oriented performance measures; (2) improving the manner in
which airline passengers who may be carrying contraband, such as
illegal drugs, are searched while respecting the rights of American
citizens; and (3) using reliable data to determine Customs‘s staffing
needs and to ensure that personnel are deployed where they are needed.
We have not conducted follow-on work on these challenges since our
January 2001 report because the events of September 11, 2001, refocused
our efforts primarily on security challenges. Thus, we do not discuss
these challenges in this report.
The events of September 11 changed Customs‘s primary security and
enforcement focus. Shortly after the September 11 events, the
Commissioner of Customs said that terrorism has replaced drug smuggling
as the agency‘s top priority, and that Customs‘s traditional role in
preventing the smuggling of drugs and other contraband would be
affected by the new focus on terrorism. While the post-September 11
focus will be on Customs being especially vigilant for keeping out of
the country any ’implements of terrorism,“ such as chemical,
biological, or nuclear materials that could be used as weapons, the
agency still faces challenges associated with trade compliance and
overall border security. Immediately after the terrorist attacks on
September 11, Customs went to a ’Level 1“ alert across the country at
all official border entry points--land border ports of entry, seaports,
and international airports. Level 1, according to Customs, requires
sustained, enhanced scrutiny and questioning of those entering the
United States, and includes increased inspections of travelers and
goods at every port of entry. Because of the continued terrorist
threat, Customs has remained on Level 1 alert.
At the same time, Customs is challenged to ensure that antiterrorism
efforts do not slow the flow of legitimate international commerce and
travel. According to Customs, Customs has worked with importers on
concerns such as where their goods originated, the physical security
and integrity of their overseas plants and those of their foreign
suppliers, the background of their personnel, the means by which they
transport goods, and those whom they have chosen to transport their
goods into the country. Customs has reaffirmed to importers the
importance of knowing their customer, and has examined the security
practices of their freight forwarders and the routes their shipments
travel.
Concerning its diverse missions and responsibilities, our recently
completed and ongoing work has identified additional challenges that
directly or indirectly affect Customs‘s efforts to improve security at
U.S. borders to safeguard against the illegal entry of goods, including
potentially harmful, hazardous, or otherwise illegal commodities. These
challenges include (1) improving differing international mail and
package inspection processes; (2) ensuring that various illegal items,
including weapons of mass destruction, do not enter the country in
cargo containers at seaports; and (3) acquiring a new import processing
system. According to Customs, the inspection of incoming foreign mail
remains largely a manual process that relies primarily on physical
examination. One courier is working with Customs to pilot test an
advance manifest system, a computerized database that receives cargo
manifest information. The database will allow Customs to analyze
incoming package information and make more informed decisions about
what packages to inspect. Since our work on international mail and
containerized cargo processing involves information that Customs
considers to be law enforcement sensitive, we are precluded from
further discussing the challenges posed by mail and cargo processing in
this unclassified report.
Although Customs has made some progress in implementing initiatives
that are designed to improve the efficiency of its regulation of
commercial activities, additional challenges remain, particularly in
view of the new and heightened emphasis on terrorism. These challenges
include (1) continuing to improve its evolving trade compliance program
and (2) acquiring a new trade processing system.
Enhance Evolving Trade Compliance Program:
Tremendous growth in the volume and value of imports continues to
create profound challenges for Customs to facilitate and enforce U.S.
trade laws and regulations. The volume of trade is expected to more
than double, up from $1 trillion in 1999 to surpassing $2 trillion in
the year 2006. To speed the processing of imports and improve
compliance with trade laws, Customs developed a strategy in response to
the Customs Modernization and Informed Compliance Act of 1993 (also
known as the ’Mod Act“).[Footnote 24]
The Mod Act fundamentally altered the relationship between importers
and Customs by giving the importer the legal responsibility for
declaring the value, classification, and rate of duty applicable to
merchandise being imported into the United States. Customs, however, is
responsible for determining the final classification and value of the
merchandise. The Mod Act also gave Customs and importers a shared
responsibility for ensuring compliance with trade laws. To implement
these new responsibilities, Customs developed an ’informed compliance
strategy.“:
In 1999, we reviewed Customs‘s informed compliance strategy and found
that although Customs had monitored and evaluated certain aspects of
the key initiatives--account management, compliance assessment,
compliance measurement, and the informed and enforced compliance
programs--it had not evaluated, nor did it have a plan to evaluate, the
impact of the overall informed compliance strategy on compliance with
trade laws.[Footnote 25] Consequently, we recommended that Customs
develop and implement an evaluation of the effectiveness of its
informed compliance strategy. Customs agreed with our recommendation
and stated that it would study the effectiveness of the program‘s key
initiatives.
Customs‘s Trade Compliance Strategy Study was completed on May 24,
2001. It concluded that while the trade (informed) compliance strategy
has evolved logically, it has some limitations. The study also provided
several recommendations to address these findings. For example, the
study indicated that the initiatives do improve compliance, but the
impact on overall compliance rates is small. For example, the Company
Enforced Compliance Process (CECP) was created to address the
compliance problems of large importers whose noncompliance had a
significant negative impact on the overall national compliance rates.
According to the study, Customs was expected to punish noncomplying
companies by imposing ’confirmed risk“ designations, increasing
examinations, removing privileges, and referring for penalties.
However, the confirmed risk status was only used six times and loss of
privileges and referral for penalties were never used. The study
concluded that CECP was not much of an enforced compliance process, and
it was discontinued.
However, according to Customs, the lessons learned from the program are
being incorporated into the next generation of compliance programs. On
the other hand, the study found that the companies‘ compliance rates
increased after they participated in the compliance assessment and
account management initiatives. While it is not possible to attribute
the increase in compliance totally to these initiatives, the study
concluded that these programs had a positive impact. In any event, not
losing sight of the trade compliance program as the focus remains on
terrorism will become part of the challenge that lies ahead.
Acquisition of New Trade System Remains Challenging:
Customs‘s ongoing effort to acquire a new trade processing system is
key to modernizing how Customs tracks, controls, and processes all
commercial goods imported into and exported out of the United States.
This large and complex system, known as the Automated Commercial
Environment (ACE), is expected to cost about $1.7 billion and is to
replace Customs‘s antiquated system. Expected benefits from ACE include
speeding the flow of legitimate commerce into and out of the United
States, identifying and targeting high-risk commerce requiring greater
scrutiny, and providing a single interface between the trade community
and the federal government for trade data. In April 2001, Customs
awarded a 5-year contract, with options to extend the contract to not
more than 15 years, to a system integrator responsible for developing
and deploying ACE.
Successfully managing a project as large and complex as ACE is a
challenging undertaking. Over the last 4 years, we have reported on ACE
and recommended steps Customs should take to minimize project risks,
including incrementally justifying ACE investment, ensuring ACE
alignment with Customs‘s enterprise architecture, having sufficient
human capital resources, developing rigorous and analytically
verifiable cost estimates, and employing effective software acquisition
processes.[Footnote 26] To its credit, Customs has taken action to
implement our recommendations, as follows:
* Incrementally justifying ACE investment. Customs defined and
committed to implement process controls for justifying and making ACE
investment decisions incrementally. For the first of four planned ACE
increments, Customs followed its investment process, which included
preparing cost and benefit expectations and determining that the
expected return on investment is favorable. After implementing the
first ACE increment, Customs plans to verify that actual costs and
benefits meet expectations. Customs plans to continue this incremental
investment approach for the three remaining ACE increments.
* Ensuring ACE alignment with Customs‘s enterprise architecture.
Customs ensured that its enterprise architecture contained sufficient
detail to build the first ACE release and has aligned the release with
the enterprise architecture. Customs plans to continue to extend its
enterprise architecture as necessary to build subsequent ACE releases.
* Having sufficient human capital resources. Customs developed and
plans to implement a human capital management strategy for the Customs
modernization office, which is responsible for managing the ACE
acquisition. In its initial steps toward implementing this strategy,
Customs increased the number of modernization office positions and
raised the grade levels of other positions. Implementing this strategy
is also expected to define the modernization office‘s skill and
capability needs and training and reward programs for each
modernization office position.
* Developing rigorous and analytically verifiable cost estimating.
Customs began developing and plans to implement a cost estimating
program that employs the tenets of effective cost estimating as defined
by the Software Engineering Institute (SEI).
* Employing effective software acquisition processes. Customs continues
to make progress and has plans to establish effective software
acquisition process controls, as embodied primarily in the second level
of SEI‘s Software Acquisition Capability Maturity Model.[Footnote 27]
Customs has made progress in implementing some, but not all, of our
recommendations. Moreover, because Customs is in the early stages of
acquiring ACE, many challenging tasks remain before Customs will have
implemented full ACE capability.
Achieve Sound Financial Management through Sustained Management
Attention and Priority:
A key to Treasury‘s ability to effectively carry out its mission both
at the department level and as fiscal agent for the U.S. government is
sound financial management, including preparing information about the
government‘s finances that is routinely available, accurate, and
reliable. Treasury faces many challenges in its ongoing efforts to
improve the accuracy and reliability of its financial management
systems and correct internal control weaknesses that we and the
Treasury Office of Inspector General (OIG) identified at several of its
bureaus and offices. Without accurate and reliable financial systems
and information, as well as sound internal controls, Treasury cannot be
sure that the information it has is sufficient to manage day-to-day
operations, measure the results of agency and governmentwide
operations, account for resources, collect taxes and other debts owed
the government, or safeguard assets. Sustained attention and priority
by top management will be required for Treasury to fully address its
financial management challenges.
Treasury received unqualified opinions on its fiscal years 2002 and
2001 departmentwide financial statements and for fiscal year 2002
issued its financial statements 6 weeks after the end of the fiscal
year. This was primarily a result of costly, resource-intensive efforts
to overcome major financial management deficiencies at key bureaus--
most notably, IRS, as discussed earlier, and Customs. Compensating
procedures have been used and certain significant business process
changes have been made to produce materially accurate financial
statements. Progress is being made in addressing underlying systemic
issues, but these efforts are still several years away from achieving
their intended outcomes. As a result, management continues to lack
access to timely, reliable, and accurate information needed for day-to-
day decisions. Treasury‘s ability to effectively fulfill its financial
management responsibilities has also been adversely affected by the
lack of substantial compliance with the financial management systems
requirements detailed in FFMIA and weaknesses in Customs‘s internal
controls over data in its automated systems.
Certain significant financial systems weaknesses, problems with
fundamental record keeping and financial reporting, incomplete
documentation, and weak internal controls, including computer controls,
have prevented the U.S. government from obtaining an opinion on the
reliability of its financial statements for the 5 years that we have
reported on these statements. As preparer of these financial
statements, FMS has a key responsibility to provide leadership and to
work with agencies to address some of these problems, in particular,
the lack of sufficient systems, controls, and procedures to properly
prepare the government‘s financial statements. In performing much of
Treasury‘s role as primary fiscal agent for the federal government, FMS
has made significant progress in addressing financial management issues
related to implementing the requirements of the Debt Collection
Improvement Act of 1996 (DCIA)[Footnote 28] and has taken actions to
improve its computer security controls over systems used to help it
process collections and disbursements made on behalf of the federal
government. However, challenges remain to fully address these issues.
In 2001, we reported that periods of budget surplus posed challenges
for Treasury‘s debt management. At that time, surpluses were projected
for the next decade, and Treasury was reducing debt held by the public.
During fiscal year 2002, 4 consecutive years of surpluses in the
unified budget of the federal government came to an end. With deficits
projected to continue for at least the next few years, we no longer
consider managing debt during large, sustained budget surpluses to be a
challenge facing Treasury in the near term.
Resolve Financial Management Challenges Affecting Certain Bureaus‘
Operations:
Treasury reported for fiscal years 2002 and 2001 that its financial
management systems did not substantially comply with the requirements
of FFMIA. In addition, we reported for fiscal year 2002 that IRS
continued to experience significant ongoing deficiencies in its
financial management and operational systems and processes. Further,
Customs continued to face financial management problems, including
weaknesses in its internal controls over data in its automated systems
and developing and implementing new automated systems.
Bring Treasury‘s Financial Management Systems into Compliance with
FFMIA:
FFMIA requires auditors performing financial audits of Chief Financial
Officers Act agencies to report whether the financial management
systems substantially comply with federal accounting standards, federal
financial management systems requirements, and the U.S. Standard
General Ledger at the transaction level. For fiscal year 2002, the
Treasury OIG reported that noncompliances were identified at IRS, FMS,
Customs, and the U.S. Mint. Generally, the noncompliances involved
financial systems that did not allow for reliably preparing certain
financial statements and reports without extensive compensating
procedures, general ledgers that did not conform with the U.S. Standard
General Ledger, and weaknesses in computer security controls. Under
FFMIA, we are required to report annually on agencies‘ implementation
of FFMIA by October 1 of each year. Thus, we will continue to monitor
Treasury‘s efforts to substantially comply with FFMIA.
Continue Work Resolving IRS‘s Financial Management Challenges:
As discussed in an earlier section of this report, IRS continues to
experience significant deficiencies in its financial management and
operational systems and processes. Nevertheless, in fiscal year 2002,
for the third consecutive year, IRS produced financial statements
covering its tax custodial and administrative activities that are
fairly stated in all material respects. In addition, IRS was able to
issue its fiscal year 2002 financial statements 6 weeks after the close
of the fiscal year, whereas in previous years, IRS needed 5 months to
issue these statements. IRS‘s success in fiscal year 2002 is attributed
to the hard work and commitment of senior management and staff;
significant changes in how the agency processed certain transactions,
maintained its records, and reported its results; and continued
refinements to compensating procedures used in prior years to produce
the financial statements. Nevertheless, because of serious financial
systems and control weaknesses, IRS had to rely extensively on costly,
resource-intensive processes, statistical projections, external
contractors, substantial adjustments, and monumental human efforts.
While IRS has made significant progress, it continues to face many of
the internal control weaknesses reported in previous years. In fiscal
year 2002, the following five areas remained material weaknesses:
(1) financial reporting, (2) unpaid tax assessments, (3) federal tax
revenue and refunds, (4) property and equipment, and (5) computer
security. We have provided IRS with detailed management and operational
recommendations so that it can address these issues. IRS has laid the
groundwork for sustainable improvements. Despite progress to date,
resolving many of IRS‘s most serious problems will continue to require
a sustained commitment from senior management.
Support Further Activity Strengthening Customs‘s Financial Management:
Customs continues to face financial management challenges, including
weaknesses in internal controls over data in its automated systems,
such as systems that are used to account for and manage Customs‘s
collection activity. In addition, as discussed in an earlier section of
this report, despite Customs‘s progress in implementing recommendations
we have made over the past 4 years, numerous management weaknesses
continue to hinder progress toward developing Customs‘s planned import
system--ACE--which is intended to replace the current system used for
collecting import-related data and ensuring, among other things, that
trade-related revenue is properly collected and allocated. To ensure
proper implementation of these initiatives, Customs management must
continue to provide the necessary support.
Manage Multiple Challenges as Government‘s Fiscal Agent:
One of Treasury‘s primary responsibilities is managing the federal
government‘s finances. In fiscal year 2002, this massive and complex
task included collecting more than $2.0 trillion in federal tax
revenues, making federal payments totaling about $1.0 trillion,
managing federal debt held by the public of about $3.6 trillion,
performing central accounting functions, and providing debt management
services to federal agencies. Treasury‘s FMS is the government‘s
financial manager, central disburser, and collections agency, as well
as its accountant and reporter of financial information. Treasury‘s
Bureau of the Public Debt (BPD) is responsible for issuing Treasury
securities and accounting for the resulting debt. For the
6 years that we have audited BPD‘s Schedules of Federal Debt, we have
rendered ’clean“ opinions on these schedules.
In performing much of Treasury‘s role as primary fiscal agent for the
federal government, FMS faces challenges in addressing financial
management issues related to (1) preparing the U.S. government‘s
financial statements, (2) fully implementing the requirements of DCIA,
and
(3) improving the computer security controls over systems used to help
process collections and disbursements made on behalf of most federal
agencies. FMS has made important progress in each of these areas.
However, it will take a significant and sustained commitment by FMS
management to fully address the challenges that still remain.
Prepare Reliable Financial Statements:
In our audit report on the government‘s fiscal year 2001 financial
statements, as in our audit reports for the previous 4 fiscal years, we
reported certain significant financial systems weaknesses, problems
with fundamental record keeping and financial reporting, incomplete
documentation, and weak internal control, including computer controls.
These deficiencies prevented the government from accurately reporting a
significant portion of its assets, liabilities, and costs and prevented
us from being able to form an opinion on the reliability of the
government‘s financial statements. These deficiencies also affected the
reliability of much of the related information in the U.S. government‘s
Fiscal Year 2001 Financial Report and the underlying financial
information. In addition, they affect the government‘s ability to
accurately measure the full cost and financial performance of certain
programs and effectively manage related operations. Many of these
deficiencies will require significant efforts and commitment by key
agencies. As preparer of the government‘s financial statements, FMS has
a major responsibility to provide leadership and to work with agencies
to address some of these problems, in particular, the lack of
sufficient systems, controls, and procedures to properly prepare the
government‘s financial statements. Such deficiencies hinder the
government‘s ability to (1) properly balance the government‘s financial
statements and account for billions of dollars of transactions between
federal government entities (intragovernmental activity and balances),
(2) properly and consistently compile the information in the financial
statements, and (3) effectively reconcile the results of operations
reported in the financial statements with budget results.
We are working with FMS, the Office of Management and Budget (OMB), and
other key agencies to address these deficiencies. To help address
certain issues that contributed to the out-of-balance condition for
intragovernmental activity and balances, OMB has stated that it is
implementing the recommendations included in a study conducted for the
Joint Financial Management Improvement Program (JFMIP) in fiscal year
2001. OMB has taken actions to address core problems in this area,
including issuing governmentwide business rules for transactions among
trading partners[Footnote 29] and requiring quarterly reconciliations
of intragovernmental activity and balances beginning with the 3-month
period ended December 31, 2002. Treasury is developing and plans to
implement a new system and procedures to prepare the U.S. government‘s
consolidated financial statements by fiscal year 2004. These actions
are intended to, among other things, directly link information from
agencies‘ financial statements to amounts reported in the consolidated
financial statements and facilitate the reconciliation of net position.
However, correcting these problems is a significant challenge because
of the government‘s size and complexity and the discipline needed to
comply with accounting and reporting requirements. Meeting these
challenges will require a significant commitment by agencies and FMS
management combined with OMB‘s continued leadership as well as
adequately trained staff and effective automated financial information
management systems.
Continue Efforts to Fully Implement DCIA:
As the federal government‘s central debt collection agency,
FMS[Footnote 30] provides debt management services to federal agencies
for nontax debts more than 180 days delinquent that are required by
DCIA to be referred for collection action. Nontax federal debt
delinquent more than 180 days continues to be significant
governmentwide; Treasury reported that it totaled $63.3 billion as of
September 30, 2001, the last period for which certified data were
available.[Footnote 31] Given the magnitude of this debt, it is
critically important that all the debt collection provisions of DCIA be
fully utilized to collect it. FMS has made significant progress in
implementing key provisions of DCIA, and FMS officials now consider the
agency‘s debt collection program to be fully mature. Several key
challenges remain. Most importantly, it will be critical for other
federal agencies to make implementation of DCIA a priority, as these
agencies‘ efforts and cooperation will play an important role in FMS‘s
ability to successfully meet its challenges.
FMS reported collecting more than $2.8 billion during fiscal year
2002.[Footnote 32] Of this amount, about $1.2 billion was nontax
federal debt, and offsetting tax refunds of delinquent debtors resulted
in the vast majority of collections. FMS‘s successful merger of the Tax
Refund Offset Program with the Treasury Offset Program (TOP) in 1999
streamlined operations and involved system enhancements that
contributed to significant increases in nontax debt collections from
tax refund offsets. In addition, FMS began offsetting Social Security
benefit payments in May 2001, which resulted in about $55 million in
delinquent nontax debt collections for fiscal year 2002.
Building on the success FMS has experienced in offsetting tax refunds
and its progress in bringing Social Security benefit payments into TOP,
continued attention to nontax debt collections from federal salary
payment offsets is warranted as they remain low. To increase such
collections, FMS must be able to incorporate into TOP more federal
salaries, including those from the Department of Veterans Affairs. In
addition, nonsalary payments from numerous non-Treasury disbursing
offices, including the Department of Defense and the U.S. Postal
Service, still need to be added to TOP. Obtaining sustained commitment
and cooperation from such agencies will be key to FMS‘s ability to
bring more federal salaries and other payments into TOP. Key challenges
for FMS include continuing to work with the agencies to identify those
payments that are eligible to be offset and working to help ensure that
the agencies have adequate systems in place to incorporate the payments
into TOP.
In addition to the offset programs, Treasury operates the only
governmentwide centralized debt collection center. This centralized
collection function, known as cross-servicing, may involve the use of
various debt collection tools, including private collection agencies
(PCA) and administrative wage garnishment (AWG). According to FMS,
agencies‘ cross-servicing referrals have been steadily increasing and
collections from cross-servicing have been increasing over the past 3
fiscal years. To complement these positive trends, FMS still faces
challenges in increasing the program‘s low collection rate. For
example, FMS reports for September 2002 show that about $7.9 billion of
debt was at the agency for cross-servicing and that FMS‘s debt
management staff and PCAs collected about $67 million for fiscal year
2002. Collections are challenging for FMS partly because the debts are
often old when agencies refer them. In fiscal year 2000, we reported
that about 46 percent of the debts that had been referred to FMS for
cross-servicing during a period we reviewed were more than 4 years
delinquent at the time of referral.[Footnote 33] In addition, in
February 2002, we reported that FMS‘s own data showed that as of
September 30, 2001, more than 50 percent of the debt referred for
cross-servicing governmentwide was more than 2 years delinquent at the
time of referral.[Footnote 34] We have emphasized that industry
statistics have shown that the likelihood of recovering amounts owed
decreased dramatically with the debt‘s age of delinquency. Clearly, to
optimize its debt collection program, FMS faces challenges in getting
agencies to refer eligible debts when they are over
180 days delinquent, as required by DCIA and related Treasury
regulations, or sooner whenever practicable.
In addition, FMS‘s job is becoming increasingly challenging as it is
now getting debts from more than 40 federal agencies. According to FMS
officials, certain recent referrals, such as Medicare Secondary Payer
debts from the Department of Health and Human Services, involve
complexities and issues that FMS debt collectors have not had to
address in the past.
FMS is also faced with concerns about the accuracy, completeness, and
validity of debts reported by agencies as eligible for and excluded
from the DCIA cross-servicing provisions. Over the years, we have
identified and reported on problems in this area. As of September 30,
2001, the last period for which certified data were available, about 89
percent of the total debt reported by the agencies as more than 180
days delinquent was shown as excluded from cross-servicing.
It is important to note that in AWG, Congress gave agencies, including
FMS, a powerful instrument for collecting debt or leveraging payment
from delinquent debtors.[Footnote 35] FMS has recently incorporated AWG
into its cross-servicing program. FMS views AWG as a collection tool of
last resort and does not contemplate initiating its use in most cases
until the debt has been with FMS for cross-servicing for at least 90
days. As of August 2002, more than 6 years after the enactment of DCIA,
only four agencies had authorized FMS to perform this important debt
collection function on their behalf.
Going forward, it will be important for FMS to be able to incorporate
more payments into its offset program. FMS will also need to determine
whether its current cross-servicing strategy, which involves its own
debt collectors and its PCA contractors, maximizes collections most
cost-effectively through prompt use of all appropriate debt collection
tools, including AWG. Therefore, we have previously recommended that
FMS comprehensively review its cross-servicing process and also that
FMS utilize AWG along with other debt collection tools.[Footnote 36] It
will also be important for FMS to continue to seek the cooperation of
OMB and the agencies‘ OIGs to help ensure that eligible delinquent
debts are identified and promptly referred by the agencies for cross-
servicing. In this regard, we have recommended that FMS work with OMB
and the agencies‘ OIGs to develop and implement a process for obtaining
periodic independent verification of the accuracy, completeness, and
validity of debts reported by agencies as eligible and excluded from
DCIA cross-servicing provisions.[Footnote 37] FMS is currently
addressing certain of these recommendations. FMS did not agree with all
the specific aspects of our recommendations to comprehensively review
its cross-servicing process or to use AWG in conjunction with other
debt collection tools.
Strengthen FMS‘s Computer Security Controls:
FMS maintains multiple financial and information systems to help it
process and reconcile moneys disbursed and collected by the various
federal agencies. Our audit for fiscal year 2000 and previous years
identified significant computer security control weaknesses at each of
the FMS data centers. For fiscal years 2002 and 2001, the Treasury OIG
continued to report computer security control weaknesses at FMS. FMS
has made important progress in addressing its computer security control
problems. However, weaknesses continued to exist at FMS primarily
because it still lacks an effective, entitywide computer security
management program. These weaknesses at FMS and its contractor data
centers place billions of dollars of payments and collections at risk
of loss or fraud. Sensitive data are at risk of inappropriate
disclosure, and computer-based operations are at risk of disruption.
The severity of these risks magnifies as FMS expands its networked
environment through the migration of its financial applications from
mainframes to client-server environments. Thus, as FMS provides users
greater and easier access to larger amounts of data and system
resources, well-designed and effective computer security controls are
essential if FMS‘s operations and computer resources are to be properly
protected.
We and the Treasury OIG have made numerous recommendations for
improvements in FMS‘s computer security controls to help reduce the
exposure to these risks. According to FMS officials, FMS has taken and
will continue to take actions to correct the identified weaknesses.
However, FMS‘s entitywide security control structure has yet to fully
address the significant risks associated with its current and evolving
computing environment. In response to our prior years‘ recommendation
that FMS establish an effective security program, FMS has taken
important steps, including revising and publishing information
technology security policies and standards in June 2002. FMS stated
that it has accelerated its plan to implement an entitywide security
program and has appointed division information officers in each
business area to provide the additional support needed to coordinate
this effort. FMS has also appointed a senior executive to oversee audit
findings, evaluate its entitywide security program using the Federal IT
Security Assessment Framework, and implement a program plan and
milestones to achieve a security program effectiveness of Level 3,
Implemented Procedures and Controls.[Footnote 38] FMS stated that
computer security remains one of its top priorities and that it is
completely dedicated to fully implementing and maintaining an effective
and robust security program. It will take a significant and sustained
commitment by FMS management to fully address the computer security
control weaknesses. We will follow up on these matters during our
audits of the federal government‘s financial statements.
[End of section]
GAO Contacts:
[End of section]
Subjects covered in this report: Modernize IRS; * Improving service to
taxpayers; * Collection of unpaid taxes; * Earned income credit
noncompliance; * Establishing measures comparable over time and
collecting sufficient performance data; Contact person: ; James R.
White, Director; Tax Issues; (202) 512-8650; WhiteJ@GAO.Gov.
Subjects covered in this report: Modernize IRS; * Addressing financial
management weaknesses to develop reliable cost-based performance
information; Contact person: ; Steven J. Sebastian, Director; Financial
Management and Assurance; (202) 512-3406; SebastianS@GAO.Gov.
Subjects covered in this report: Modernize IRS; * Managing the business
systems modernization program; * Implementing effective computer
security; Contact person: ; Robert F. Dacey, Director; Information
Technology; (202) 512-3870; DaceyR@GAO.Gov.
Subjects covered in this report: Improve Customs Management; * Enhance
evolving trade compliance program; Contact person: ; Laurie E.
Ekstrand, Director; Justice Issues; (202) 512-8777; EkstrandL@GAO.Gov.
Subjects covered in this report: Improve Customs Management; *
Acquisition of new trade system; Contact person: ; Randolph C. Hite,
Director; Information Technology Architecture and Systems; (202) 512-
3870; HiteR@GAO.Gov.
Subjects covered in this report: Achieve Sound Financial Management; *
Bring Treasury‘s financial management systems into compliance with
FFMIA; * Support further activity strengthening Customs‘s financial
management; * Prepare reliable U.S. government financial statements; *
Continue efforts to fully implement DCIA; * Strengthen FMS‘s computer
security controls; Contact person: ; Gary T. Engel, Director; Financial
Management and Assurance; (202) 512-3406; EngelG@GAO.Gov.
Subjects covered in this report: Achieve Sound Financial Management; *
Continue work resolving IRS‘s financial management challenges; Contact
person: ; Steven J. Sebastian, Director; Financial Management and
Assurance; (202) 512-3406; SebastianS@GAO.Gov.
[End of table]
[End of section]
Related GAO Products:
[End of section]
IRS:
Internal Revenue Service: Status of Recommendations from Financial
Audits and Related Financial Management Reports. GAO-02-848.
Washington, D.C.: July 30, 2002.
Management Report: Improvements Needed in IRS‘s Accounting Procedures
and Internal Controls. GAO-02-746R. Washington, D.C.:
July 18, 2002.
Performance Management Systems: IRS‘s Systems for Frontline Employees
and Managers Align with Strategic Goals but Improvements Can Be Made.
GAO-02-804. Washington, D.C.: July 12, 2002.
IRS‘s Budget Justification: Options for Structure and Content.
GAO-02-711R. Washington, D.C.: July 8, 2002.
Tax Administration: New Compliance Research Is on Track, but Important
Work Remains. GAO-02-769. Washington, D.C.: June 27, 2002.
Tax Administration: Impact of Compliance and Collection Program
Declines on Taxpayers. GAO-02-674. Washington, D.C.: May 22, 2002.
Tax Administration: Continued Progress Modernizing IRS Depends on
Managing Risks. GAO-02-715T. Washington, D.C.: May 14, 2002.
Earned Income Credit: Opportunities to Make Recertification Program
Less Confusing and More Consistent. GAO-02-449. Washington, D.C.: April
25, 2002.
Tax Administration: IRS Continues to Face Management Challenges in Its
Business Practices and Modernization Efforts. GAO-02-619T. Washington,
D.C.: April 15, 2002.
Internal Revenue Service: Enhanced Efforts to Combat Abusive Tax
Schemes--Challenges Remain. GAO-02-618T. Washington, D.C.: April 11,
2002.
Internal Revenue Service: Assessment of Budget Request for Fiscal Year
2003 and Interim Results of 2002 Tax Filing Season. GAO-02-580T.
Washington, D.C.: April 9, 2002.
Business Systems Modernization: IRS Needs to Better Balance Management
Capacity with System Acquisition Workload. GAO-02-356. Washington,
D.C.: February 28, 2002.
Tax Administration: Assessment of IRS‘ 2001 Tax Filing Season.
GAO-02-144. Washington, D.C.: December 21, 2001.
Earned Income Tax Credit Eligibility and Participation. GAO-02-290R.
Washington, D.C.: December 14, 2001.
IRS Telephone Assistance: Limited Progress and Missed Opportunities to
Analyze Performance in the 2001 Filing Season. GAO-02-212. Washington,
D.C.: December 7, 2001.
Tax Administration: Millions of Dollars Could Be Collected If IRS
Levied More Federal Payments. GAO-01-711. Washington, D.C.: July 20,
2001.
Business Systems Modernization: Results of Review of IRS‘ March 2001
Expenditure Plan. GAO-01-716. Washington, D.C.: June 29, 2001.
Tax Administration: Status of IRS‘ Efforts to Develop Measures of
Voluntary Compliance. GAO-01-535. Washington, D.C.: June 18, 2001.
Business Systems Modernization: Results of Review of IRS‘ Customer
Account Data Engine Project. GAO-01-717. Washington, D.C.: June 12,
2001.
IRS Modernization: Continued Improvement in Management Capability
Needed to Support Long-Term Transformation. GAO-01-700T. Washington,
D.C.: May 8, 2001.
IRS Audit Rates: Rate for Individual Taxpayers Has Declined But Effect
on Compliance Is Unknown. GAO-01-484. Washington, D.C.: April 25, 2001.
IRS Telephone Assistance: Quality of Service Mixed in the 2000 Filing
Season and Below IRS‘ Long-Term Goal. GAO-01-189. Washington, D.C.:
April 6, 2001.
Internal Revenue Service: Progress Continues But Serious Management
Challenges Remain. GAO-01-562T. Washington, D.C.: April 2, 2001.
IRS Modernization: IRS Should Enhance Its Performance Management
System. GAO-01-234. Washington, D.C.: February 23, 2001.
IRS Telephone Assistance: Opportunities to Improve Human Capital
Management. GAO-01-144. Washington, D.C.: January 30, 2001.
Tax Systems Modernization: Results of Review of IRS‘ Third Expenditure
Plan. GAO-01-227. Washington, D.C.: January 22, 2001.
Tax Systems Modernization: Results of Review of IRS‘ March 7, 2000,
Expenditure Plan. GAO/AIMD-00-175. Washington, D.C.: May 24, 2000.
Customs:
Customs and INS: Information on Inspection, Infrastructure, Traffic
Flow, and Security Matters at the Detroit Port of Entry. GAO-02-595R.
Washington, D.C.: April 22, 2002.
U.S. Customs Service: Observations on Selected Operations and Program
Issues. GAO-01-968T. Washington, D.C.: July 17, 2001.
Customs Service: The Self-Inspection Program Shows Promise but Remains
a Work in Progress. GAO-01-676. Washington, D.C.: June 1, 2001.
Customs Service: Effects of Proposed Legislation on Officers‘ Pay. GAO-
01-304. Washington, D.C.: January 31, 2001.
Customs Service Modernization: Results of Review of First Automated
Commercial Environment Expenditure Plan. GAO-01-696. Washington, D.C.:
June 5, 2001.
Customs Service Modernization: Management Improvements Needed on High-
Risk Automated Commercial Environment Project. GAO-02-545. Washington,
D.C.: May 13, 2002.
Customs Service Modernization: Third Expenditure Plan Meets Legislative
Conditions, but Cost Estimating Improvements Needed. GAO-02-908.
Washington, D.C.: August 9, 2002.
Financial Management:
Debt Collection Improvement Act of 1996: Major Data Sources Inadequate
for Implementing the Debtor Bar Provision. GAO-02-462. Washington,
D.C.: March 29, 2002.
Debt Collection Improvement Act of 1996: Status of Selected Agencies‘
Implementation of Administrative Wage Garnishment. GAO-02-313.
Washington, D.C.: February 28, 2002.
Debt Collection Improvement Act of 1996: Department of Agriculture
Faces Challenges Implementing Certain Key Provisions. GAO-02-277T.
Washington, D.C.: December 5, 2001.
Debt Collection Improvement Act of 1996: Agencies Face Challenges
Implementing Certain Key Provisions. GAO-02-61T. Washington, D.C.:
October 10, 2001.
Debt Management: Insights and Tools from Selected Nations. GAO-02-14.
Washington, D.C.: November 21, 2001.
Federal Debt: Debt Management Actions and Future Challenges.
GAO-01-317. Washington, D.C.: February 28, 2001.
U.S. Government Financial Statements: FY 2001 Results Highlight the
Continuing Need to Accelerate Federal Financial Management Reform. GAO-
02-599T. Washington, D.C.: April 9, 2002.
Financial Management Service: Significant Weaknesses in Computer
Controls Continue. GAO-02-317. Washington, D.C.: January 31, 2002.
Financial Audit: IRS‘s Fiscal Years 2002 and 2001 Financial Statements.
GAO-03-243. Washington, D.C.: November 15, 2002.
Internal Revenue Service: Progress Made, but Further Actions Needed to
Improve Financial Management. GAO-02-35. Washington, D.C.: October 19,
2001. :
Financial Audit: Bureau of the Public Debt‘s Fiscal Years 2002 and 2001
Schedules of Federal Debt. GAO-03-199. Washington, D.C.: November 1,
2002.
[End of section]
Performance and Accountability and High-Risk Series:
[End of section]
Major Management Challenges and Program Risks: A Governmentwide
Perspective. GAO-03-95.
Major Management Challenges and Program Risks: Department of
Agriculture. GAO-03-96.
Major Management Challenges and Program Risks: Department of Commerce.
GAO-03-97.
Major Management Challenges and Program Risks: Department of Defense.
GAO-03-98.
Major Management Challenges and Program Risks: Department of Education.
GAO-03-99.
Major Management Challenges and Program Risks: Department of Energy.
GAO-03-100.
Major Management Challenges and Program Risks: Department of Health and
Human Services. GAO-03-101.
Major Management Challenges and Program Risks: Department of Homeland
Security. GAO-03-102.
Major Management Challenges and Program Risks: Department of Housing
and Urban Development. GAO-03-103.
Major Management Challenges and Program Risks: Department of the
Interior. GAO-03-104.
Major Management Challenges and Program Risks: Department of Justice.
GAO-03-105.
Major Management Challenges and Program Risks: Department of Labor.
GAO-03-106.
Major Management Challenges and Program Risks: Department of State.
GAO-03-107.
Major Management Challenges and Program Risks: Department of
Transportation. GAO-03-108.
Major Management Challenges and Program Risks: Department of the
Treasury. GAO-03-109.
Major Management Challenges and Program Risks: Department of Veterans
Affairs. GAO-03-110.
Major Management Challenges and Program Risks: U.S. Agency for
International Development. GAO-03-111.
Major Management Challenges and Program Risks: Environmental Protection
Agency. GAO-03-112.
Major Management Challenges and Program Risks: Federal Emergency
Management Agency. GAO-03-113.
Major Management Challenges and Program Risks: National Aeronautics and
Space Administration. GAO-03-114.
Major Management Challenges and Program Risks: Office of Personnel
Management. GAO-03-115.
Major Management Challenges and Program Risks: Small Business
Administration. GAO-03-116.
Major Management Challenges and Program Risks: Social Security
Administration. GAO-03-117.
Major Management Challenges and Program Risks: U.S. Postal Service.
GAO-03-118.
High-Risk Series: An Update. GAO-03-119.
High-Risk Series: Strategic Human Capital Management. GAO-03-120.
High-Risk Series: Protecting Information Systems Supporting the Federal
Government and the Nation‘s Critical Infrastructures.
GAO-03-121.
High-Risk Series: Federal Real Property. GAO-03-122.
FOOTNOTES
[1] Certain Treasury law enforcement activities, including those of
Customs and the Secret Service, are transferring to the new Department
of Homeland Security, which was created by the Homeland Security Act of
2002, P.L. 107-296. In addition, ATF is transferring to the Department
of Justice, with the exception of certain functions relating to the
regulation and taxation of the alcohol and tobacco industries.
[2] U.S. General Accounting Office, Performance and Accountability
Series: Major Management Challenges and Program Risks: Department of
the Treasury, GAO-01-254 (Washington, D.C.: Jan. 2001).
[3] We also removed the high-risk designation of Justice‘s and
Treasury‘s asset forfeiture programs, as discussed in our 2003 High-
Risk Series: An Update, GAO-03-119.
[4] Total unpaid taxes due the government include (1) delinquent taxes
that IRS is attempting to collect, (2) taxes that IRS knows are due but
it has decided not to pursue collecting, and (3) an unknown amount of
unpaid taxes that IRS has not identified.
[5] Known unpaid taxes consist of (1) taxes due from taxpayers for
which IRS can support the existence of a receivable through taxpayer
agreement or a favorable court ruling (federal taxes receivable); (2)
compliance assessments, in which neither the taxpayer nor the court has
affirmed that the amounts are owed; and (3) write-offs, which represent
unpaid assessments for which IRS does not expect further collections
due to such factors as the taxpayer‘s death, bankruptcy, or insolvency.
The $112 billion represents only the first two categories.
[6] Internal Revenue Service: Statement of Charles O. Rossotti before
the Annual RRA‘98 Joint Hearing on IRS Progress Convened by the Joint
Committee on Taxation (IRS Doc 2002-11707, May 14, 2002).
[7] U.S. General Accounting Office, Financial Audit: IRS‘s Fiscal Years
2002 and 2001 Financial Statements, GAO-03-243 (Washington, D.C.: Nov.
15, 2002).
[8] IRS estimated that $1.2 billion would be recovered as a result of
enforcement efforts.
[9] U.S. General Accounting Office, Information on Payroll Taxes and
Earned Income Tax Credit Noncompliance, GAO-01-487T (Washington, D.C.:
Mar. 7, 2001).
[10] U.S. General Accounting Office, Earned Income Tax Credit
Eligibility and Participation, GAO-02-290R (Washington, D.C.: Dec. 14,
2001).
[11] GAO-03-243.
[12] P.L. 104-208.
[13] P.L. 105-206.
[14] U.S. General Accounting Office, Tax Systems Modernization:
Management and Technical Weaknesses Must Be Corrected If Modernization
Is to Succeed, GAO/AIMD-95-156 (Washington, D.C.: July 26, 1995) and
Tax Systems Modernization: Blueprint Is a Good Start but Not Yet
Sufficiently Complete to Build or Acquire Systems, GAO/AIMD/GGD-98-54
(Washington, D.C.: Feb. 24, 1998).
[15] U.S. General Accounting Office, High-Risk Series: An Overview,
GAO/HR-95-1 (Washington, D.C.: February 1995).
[16] GAO-01-254.
[17] U.S. General Accounting Office, Business Systems Modernization:
IRS Needs to Better Balance Management Capacity with Systems
Acquisition Workload, GAO-02-356 (Washington, D.C.: Feb. 28, 2002).
[18] U.S. General Accounting Office, Business Systems Modernization:
Results of Review of IRS‘ March 2001 Expenditure Plan, GAO-01-716
(Washington, D.C.: June 29, 2001).
[19] GAO-02-356.
[20] U.S. General Accounting Office, Financial Audit: IRS‘s Fiscal Year
2002 and 2001 Financial Statements, GAO-03-243 (Washington, D.C.: Nov.
15, 2002).
[21] A material weakness is a condition that precludes the agency‘s
internal controls from providing reasonable assurance that material
misstatements in the financial statements would be prevented or
detected on a timely basis.
[22] Conveyances include aircraft, trucks, trains, buses, privately
owned vehicles, and ocean vessels.
[23] GAO-01-254.
[24] P. L. 103-182, title VI.
[25] U.S. General Accounting Office, Customs Service Modernization:
Impact of New Trade Compliance Strategy Needs to Be Assessed, GAO/GGD-
00-23 (Washington, D.C.:
Dec. 15, 1999).
[26] U.S. General Accounting Office, Customs Service Modernization:
Third Expenditure Plan Meets Legislative Conditions, but Cost
Estimating Improvements Needed,
GAO-02-908 (Washington, D.C.: Aug. 9, 2002); Customs Service
Modernization: Management Improvements Needed on High-Risk Automated
Commercial Environment Project, GAO-02-545 (Washington, D.C.: May 13,
2002); Customs Service Modernization: Results of Review of First
Automated Commercial Environment Expenditure Plan,
GAO-01-696 (Washington, D.C.: June 5, 2001); and Customs Service
Modernization: Serious Management and Technical Weaknesses Must Be
Corrected, GAO/AIMD-99-41 (Washington, D.C.: Feb. 26, 1999).
[27] Capability Maturity ModelSM is a service mark of Carnegie Mellon
University, and CMM is registered in the U.S. Patent and Trademark
Office. The SA-CMM identifies key process areas that are necessary to
effectively manage software-intensive system acquisitions. Achieving
the second level of the SA-CMM‘s five-level scale means that an
organization has the software acquisition rigor and discipline to
repeat project successes.
[28] P.L. 104-134.
[29] Trading partners are U.S. government agencies, departments, or
other components included in the U.S. government‘s consolidated
financial statements that do business with each other.
[30] The Secretary of the Treasury assigned FMS primary responsibility
to fulfill Treasury‘s debt collection responsibilities under DCIA.
[31] This amount includes debts that were written off by certain
agencies for accounting purposes but that agencies are still attempting
to collect. It also includes only debts less than 10 years delinquent.
[32] In addition to delinquent nontax federal debt, FMS collects child
support obligations and state income tax debt on behalf of states and
tax levies for IRS. FMS reported collecting more than $1.6 billion of
such debt for states and IRS during fiscal year 2002.
[33] U.S. General Accounting Office, Debt Collection: Treasury Faces
Challenges in Implementing Its Cross-Servicing Initiative, GAO/AIMD-
00-234 (Washington, D.C.: Aug. 4, 2000).
[34] U.S. General Accounting Office, Debt Collection Improvement Act of
1996: Status of Selected Agencies‘ Implementation of Administrative
Wage Garnishment, GAO-02-313 (Washington, D.C.: Feb. 28, 2002).
[35] Certain debt collection experts have emphasized that the mere
threat of using AWG is often enough to motivate people to pay their
delinquent debts.
[36] GAO/AIMD-00-234 and GAO-02-313.
[37] GAO/AIMD-00-234.
[38] The Framework provides a method for agency officials to (1)
determine the current status of their security programs relative to the
existing policy and (2) where necessary, establish a target for
improvement. The Framework identifies five levels of security
effectiveness: Level 1, Documented Policy; Level 2, Documented
Procedures; Level 3, Implemented Procedures and Controls; Level 4,
Tested and Reviewed Procedures and Controls; and Level 5, Fully
Integrated Procedures and Controls.
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Automated answering system: (800) 424-5454 or (202) 512-7470:
Public Affairs:
Jeff Nelligan, managing director, NelliganJ@gao.gov (202) 512-4800 U.S.
General Accounting Office, 441 G Street NW, Room 7149 Washington, D.C.
20548: