Internal Revenue Service
Status of Recommendations From Financial Audits and Related Financial Management Reports
Gao ID: GAO-03-665 May 29, 2003
In its role as the nation's tax collector, the Internal Revenue Service (IRS) has a demanding responsibility in collecting taxes, processing tax returns, and enforcing the nation's tax laws. Since GAO's first audit of IRS's financial statements in fiscal year 1992, a number of weaknesses in IRS's financial management operations have been identified. In related reports, GAO has recommended corrective action to address those weaknesses. Each year as part of the annual audit of IRS's financial statements, GAO not only makes recommendations to address any new weaknesses identified but also follows up on the open weaknesses GAO identified in previous years' audits. The purpose of this report is to assist IRS management in tracking the status of audit recommendations and actions needed to address them.
Many of GAO's open audit recommendations to IRS were made during the past 6 months; others, however, have been outstanding for an extended period of time. The continued existence of these problems exposes IRS to loss due to errors or theft and impairs the reliability and availability of current, accurate financial information that management needs to make decisions on a day-to-day basis. Of 98 recommendations related to financial management (consisting of 62 recommendations open as of July 2002, 27 recommendations included in GAO's January 2003 report on management and oversight at lockbox banks, and 9 new recommendations included in GAO's management report for fiscal year 2002), GAO is closing 20 because of actions IRS has taken to address the issues that gave rise to them. These actions were verified by GAO in the course of conducting the audit of IRS's fiscal year 2002 financial statements. Of the remaining 78 financial management recommendations GAO considers open as of the date of this report, 73 are short term (capable of being addressed within 2 years) and 5 are long term (expected to require more than 2 years to implement). IRS considers 34 (44 percent) of the 78 recommendations to be closed. For 26 of these 34, including 15 related to GAO's recent report on lockbox banks, GAO considers them still open because it has not yet had an opportunity to verify the actions taken by IRS. The actions cited by IRS are recent and were taken after GAO's financial statement audit work for the year was completed. For 8 of the 34 recommendations that IRS considers closed, GAO found that action taken by IRS has not yet been fully effective in addressing the condition that gave rise to the recommendation. IRS disagrees with the remaining recommendation. IRS continues to exhibit a strong commitment to addressing its ongoing financial management problems and has made improvements in recent years that have resulted in the closing of many recommendations. At the same time, the continued existence of the serious financial management weaknesses that gave rise to the remaining open recommendations represents a serious obstacle that IRS needs to overcome to achieve effective financial management. GAO will continue to monitor IRS's progress in implementing the 78 recommendations that remain open as of the date of this report. IRS expects GAO to find in its fiscal year 2003 financial audit that IRS has taken corrective actions to allow closure of another 34 recommendations. In addition, IRS has stated that it is actively working to implement corrective actions to address all remaining open recommendations.
GAO-03-665, Internal Revenue Service: Status of Recommendations From Financial Audits and Related Financial Management Reports
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Report to the Commissioner of Internal Revenue:
May 2003:
Internal Revenue Service:
Status of Recommendations From Financial Audits and Related Financial
Management Reports:
GAO-03-665:
GAO Highlights:
Highlights of GAO-03-665, a report to the Commissioner of Internal
Revenue
Why GAO Did This Study:
In its role as the nation‘s tax collector, the Internal Revenue
Service (IRS) has a demanding responsibility in collecting taxes,
processing tax returns, and enforcing the nation‘s tax laws. Since
GAO‘s first audit of IRS‘s financial statements in fiscal year 1992, a
number of weaknesses in IRS‘s financial management operations have
been identified. In related reports, GAO has recommended corrective
action to address those weaknesses.
Each year as part of the annual audit of IRS‘s financial statements,
GAO not only makes recommendations to address any new weaknesses
identified but also follows up on the open weaknesses GAO identified
in previous years‘ audits. The purpose of this report is to assist IRS
management in tracking the status of audit recommendations and actions
needed to address them.
What GAO Found:
Many of GAO‘s open audit recommendations to IRS were made during the
past 6 months; others, however, have been outstanding for an extended
period of time. The continued existence of these problems exposes IRS
to loss due to errors or theft and impairs the reliability and
availability of current, accurate financial information that
management needs to make decisions on a day-to-day basis.
Of 998 recommendations related to financial management (consisting of
62 recommendations open as of July 2002, 27 recommendations included
in GAO‘s January 2003 report on management and oversight at lockbox
banks, and 9 new recommendations included in GAO‘s management report
for fiscal year 2002), GAO is closing 20 because of actions IRS has
taken to address the issues that gave rise to them. These actions were
verified by GAO in the course of conducting the audit of IRS‘s fiscal
year 2002 financial statements.
Of the remaining 78 financial management recommendations GAO considers
open as of the date of this report, 73 are short term (capable of
being addressed within 2 years) and 5 are long term (expected to
require more than 2 years to implement). IRS considers 34 (44 percent)
of the 78 recommendations to be closed. For 26 of these 34, including
15 related to GAO‘s recent report on lockbox banks, GAO considers them
still open because it has not yet had an opportunity to verify the
actions taken by IRS. The actions cited by IRS are recent and were
taken after GAO‘s financial statement audit work for the year was
completed. For 8 of the 34 recommendations that IRS considers closed,
GAO found that action taken by IRS has not yet been fully effective in
addressing the condition that gave rise to the recommendation. IRS
disagrees with the remaining recommendation.
IRS continues to exhibit a strong commitment to addressing its ongoing
financial management problems and has made improvements in recent
years that have resulted in the closing of many recommendations. At
the same time, the continued existence of the serious financial
management weaknesses that gave rise to the remaining open
recommendations represents a serious obstacle that IRS needs to
overcome to achieve effective financial management.
GAO will continue to monitor IRS‘s progress in implementing the 78
recommendations that remain open as of the date of this report. IRS
expects GAO to find in its fiscal year 2003 financial audit that IRS
has taken corrective actions to allow closure of another 34
recommendations. In addition, IRS has stated that it is actively
working to implement corrective actions to address all remaining open
recommendations.
What GAO Recommends:
GAO did not make any new recommendations.
www.gao.gov/cgi-bin/getrpt?GAO-03-665.
To view the full report, including the scope and methodology, click on
the link above. For more information, contact Steven J. Sebastian at
(202) 512-3406, sebastians@gao.gov.
[End of section]
Letter:
Status of Recommendations:
Agency Comments:
Objective, Scope, and Methodology:
Appendixes:
Appendix I: Status of GAO Recommendations from Prior IRS Financial
Audits and Related Management Reports:
Appendix II: Details on Audit Methodology:
Appendix III: Comments from the Internal Revenue Service:
Appendix IV: GAO Contact and Staff Acknowledgments:
Abbreviations:
ADP: automated data processing:
ATFRP: Automated Trust Fund Recovery Penalty:
CADE: Customer Account Data Engine:
CAP: Custodial Accounting Project:
CARE: Communication, Assistance, Research and Education:
CFO: Chief Financial Officer:
COIC: Centralized Offer in Compromise:
EDW: Enterprise Data Warehouse:
FAOP: Field Assistance Operating Procedures:
FBI: Federal Bureau of Investigation:
FFMIA: Federal Financial Management Improvement Act of 1996:
FMFIA: Federal Managers' Financial Integrity Act of 1982:
FMS: Financial Management Service:
IEI: Invitations for Expressions of Interest:
IFS: Integrated Financial System:
IRM: Internal Revenue Manual:
IRS: Internal Revenue Service:
IT: information technology:
IRACS: Interim Revenue Accounting Control System:
ITAMS: Information Technology Asset Management System:
LPG: Lockbox Processing Guidelines:
MOU: Memorandum of Understanding:
NFC: National Finance Center:
NTEU: National Treasury Employees Union:
OHRES: Office of Human Resources Enterprise Solutions:
OIC: Offer in Compromise:
P&E: property and equipment:
SETS: Security Entry and Tracking System:
SPIF: Single Point Inventory Function:
TAC: Taxpayer Assistance Center:
TFRP: Trust Fund Recovery Penalty:
W&I: Wage and Investment:
Letter May 29, 2003:
The Honorable Mark W. Everson
Commissioner of Internal Revenue:
Dear Mr. Everson:
This report provides the status of the Internal Revenue Service's (IRS)
efforts to implement recommendations we have made based on our audits
of IRS's financial statements and other efforts related to financial
management. In updating the status of these recommendations, we have
included the results of our audits of IRS's financial statements for
fiscal years 2002 and 2001.[Footnote 1] This report is being provided
to you to (1) assist IRS management in tracking the unresolved issues
identified in our prior financial audits[Footnote 2] and (2) report on
the current status of open audit recommendations detailed in our
previous financial audit and financial management-related reports. In
cases where IRS has taken action on open recommendations that did not
result in our closing them, we explain why this occurred.
Since our first audit of IRS's financial statements in fiscal year
1992, our audits have identified a number of weaknesses in IRS's
financial management operations. In related reports on IRS's internal
controls and in management letters, we have recommended corrective
actions to address those weaknesses. Appendix I lists (1)
recommendations we have made based on our financial audits and other
financial management-related work that we have not previously reported
as closed, (2) IRS's reported status of each of these recommendations
and its corrective actions taken or planned as of April 2003, and (3)
our analysis of whether the issue that gave rise to the recommendation
has been effectively and fully addressed based on the work performed
during our fiscal year 2002 financial audit. Effectively implementing
recommendations is critical for IRS to resolve its financial management
challenges.
Status of Recommendations:
In July 2002, we issued a report that provided (1) the status of IRS's
efforts to implement prior recommendations as of our fiscal year 2001
financial audit[Footnote 3] and (2) new recommendations based on the
results of our fiscal year 2001 financial audit.[Footnote 4] In the
July 2002 report, we included 89 audit recommendations that we had not
previously reported as being closed, some dating back as far as 1993.
Of the 89 recommendations, 27 were closed at the time that report was
issued, leaving 62 that were used as a starting point for appendix I of
this report. For this year, we added 27 new recommendations included in
our January 2003 report on IRS's and Treasury's Financial Management
Service's (FMS) management and oversight of lockbox banks[Footnote 5]
and 9 new recommendations included in our fiscal year 2002 management
report,[Footnote 6] for a total of 98 recommendations. Based on the
results of our recently completed fiscal year 2002 financial audit, we
are closing 20 recommendations made in prior audits due to verified
actions IRS has taken to address the issues that gave rise to them.
Therefore, as of the date of this report, 78 financial management
recommendations remain open, 73 of which are short term and 5 of which
are long term.[Footnote 7]
As indicated in appendix I, of the 78 recommendations we consider to be
open, IRS considers 34 (44 percent) to be closed. We consider 26 of
these recommendations (including 15 related to our recent report on
lockbox banks) to be open because IRS has taken recent corrective
action to resolve these recommendations, but we have not yet verified
implementation of the corrective action, which is a prerequisite to
closing the recommendation. The actions cited by IRS are recent and
were taken after our fiscal year 2002 financial statement audit work
was completed. For 8 of the 34 recommendations that IRS considers
closed, we found that action taken by IRS has not been fully effective
in addressing the condition that gave rise to the recommendation. IRS
disagrees with the remaining 1 recommendation.
Regarding the 34 recommendations IRS considers closed, many involved
issuance of formal written policies or directives. Because these
policies or directives were only recently issued and their
effectiveness is not yet known, or because we continue to find
instances where the policy is not being adhered to, we continued to
keep these recommendations open. Regarding the 8 for which we have
assessed IRS action and determined it was not sufficient, we believe
these could be resolved with additional management follow-up to ensure
that corrective actions as envisioned in policy and procedural changes
are fully and effectively implemented. In the interim, the underlying
weaknesses will likely continue to exist, impairing the quality and
timeliness of IRS's financial information and increasing its exposure
to losses.
Many of the 78 recommendations in appendix I that we consider to be
open were issued within the past year; others, however, have been
outstanding for an extended period of time. For example, 36 (46
percent) of the recommendations were made during the past 6 months,
while 23 (29 percent) were made over 2 years ago, including 10 from
more than 3 years ago and 1 that has remained open for over 9 years.
Twenty of the 23 recommendations made over 2 years ago were considered
to be short term at the time they were made. The continued existence of
the issues that gave rise to these recommendations exposes IRS to loss
due to errors or theft, and impairs the reliability and availability of
the current, accurate financial information management needs to make
decisions.
The majority of the 78 recommendations we consider to be open address
one of two broad issues:
* Eleven (14 percent) relate to a material weakness in IRS's property
and equipment (P&E) management. In its Federal Managers' Financial
Integrity Act (FMFIA) annual assurance statement, IRS has reported a
material weakness in P&E management every year since 1983. IRS
continues to make significant progress in addressing issues related to
P&E, but a number of these issues can only be fully resolved through
implementation of an integrated property management system. IRS expects
to fully implement such a system by March 2005.
* Forty-five (58 percent) relate to weaknesses in controls intended to
safeguard taxpayer receipts and data. We consider all of these
recommendations to be short term in nature. For example, lockbox banks
with contracts to process taxpayer receipts continued to hire staff and
allow them access to taxpayer receipts and data before the results of
their fingerprint checks were received and approved, and IRS was unable
to ensure that the taxpayer receipts and data it receives are properly
accounted for and safeguarded. These continued weaknesses expose IRS to
unnecessary risk of loss and increase taxpayer exposure to losses from
financial crimes committed by individuals who inappropriately gain
access to confidential personal information.
IRS continues to exhibit a strong commitment to addressing its ongoing
financial management problems and has made improvements in recent years
that have resulted in the closing of many recommendations. At the same
time, the continued existence of the serious financial management
weaknesses that gave rise to the remaining open recommendations
represents a serious obstacle that IRS needs to overcome in order to
achieve effective financial management and have available accurate,
timely financial reporting and other information that is useful for
day-to-day decision making. This was the overriding intent of FMFIA,
the Chief Financial Officers Act of 1990, the Federal Financial
Management Improvement Act of 1996 (FFMIA), and other federal financial
management reform legislation.
Agency Comments:
In commenting on a draft of this report, IRS said it believed that we
would be able to confirm its completion of an additional 34
recommendations based on our fiscal year 2003 financial audit. IRS
stated that it is actively working to implement corrective actions to
address all remaining open recommendations. We will review the
effectiveness of these corrective actions and the status of IRS's
progress in addressing all open recommendations as part of our fiscal
year 2003 financial audit.
Objective, Scope, and Methodology:
The objective of this report is to assist IRS management in tracking
the status of financial audit and related financial management
recommendations and the actions needed to address them. To accomplish
this objective, we evaluated the effectiveness of IRS's corrective
actions implemented in response to open recommendations during fiscal
year 2002 as part of our fiscal years 2002 and 2001 financial
audits.[Footnote 8] Further details on the scope and methodology of our
IRS financial audit work are included in appendix II. We also included
recommendations from our recently issued report on IRS and FMS
management and oversight of lockbox banks and from our recently issued
management report covering new recommendations from our fiscal year
2002 financial audit.[Footnote 9] We obtained from IRS its assessment
of the status of each recommendation and corrective action taken or
planned as of April 2003. We compared IRS's actions to our fiscal year
2002 audit findings and noted any differences between IRS's and our
conclusions regarding the status of each recommendation. We conducted
our audit in accordance with U.S. generally accepted government
auditing standards. We requested comments on a draft of this report
from the Commissioner of Internal Revenue or his designee. We received
written comments from IRS, which are reprinted in appendix III.
We are sending copies of this report to the Chairmen and Ranking
Minority Members of the Senate Committee on Appropriations; Senate
Committee on Finance; Senate Committee on Governmental Affairs; Senate
Committee on the Budget; Subcommittee on Transportation, Treasury, and
General Government, Senate Committee on Appropriations; Subcommittee on
Taxation and IRS Oversight, Senate Committee on Finance; Subcommittee
on Oversight of Government Management, the Federal Workforce, and the
District of Columbia, Senate Committee on Governmental Affairs; House
Committee on Appropriations; House Committee on Ways and Means; House
Committee on Government Reform; House Committee on the Budget;
Subcommittee on Transportation, Treasury, and Independent Agencies,
House Committee on Appropriations; Subcommittee on Government
Efficiency and Financial Management, House Committee on Government
Reform; and Subcommittee on Oversight, House Committee on Ways and
Means. In addition, we are sending copies of this report to the
Chairman and Vice Chairman of the Joint Committee on Taxation, the
Secretary of the Treasury, the Director of the Office of Management and
Budget, the Chairman of the IRS Oversight Board, and other interested
parties. Copies will be made available to others upon request. In
addition, the report will be made available at no charge on GAO's Web
site at http://www.gao.gov.
If you have any questions concerning this report, please contact me at
(202) 512-3406. The GAO contact and staff acknowledgments are listed in
appendix IV.
Sincerely yours,
Signed by:
Steven J. Sebastian
Director
Financial Management and Assurance:
:
[End of section]
Appendixes:
Appendix I: Status of GAO Recommendations from Prior IRS Financial
Audits and Related Management Reports:
Count: 1; No.: 93-2; Recommendation: Determine what information related
to automated data processing (ADP) resources, such as equipment
condition and remaining useful life, would be most useful to IRS
managers for financial management purposes and develop a means for
accounting for these data. (long-term); Source report: Financial
Management: IRS Lacks Accountability over Its ADP Resources (GAO/AIMD-
93-24, Aug. 5, 1993); Status of recommendations: Per IRS: Closed. IRS's
new Integrated Financial System (IFS) will include information related
to equipment resources and incorporate a means of accounting for such
data. Scheduled completion date is March 1, 2005; Status of
recommendations: Per GAO: Closed. IRS plans to implement an integrated
property and equipment (P&E) inventory system in March 2005, which is
expected to include information related to ADP resources and
incorporate a means of accounting for such data. As a result, we are
closing this recommendation and monitoring IRS's efforts in
implementing IFS under a related recommendation (99-36).
Count: 2; No.: 94-2; Recommendation: Monitor implementation of actions
to reduce the errors in calculating and reporting manual interest on
taxpayer accounts, and test the effectiveness of these actions. (short-
term); Source report: Financial Management: Important IRS Revenue
Information Is Unavailable or Unreliable (GAO/AIMD-94-22, Dec. 21,
1993); Status of recommendations: Per IRS: Open. As of January 1, 2003,
the rollout of the new software was completed. It is available to
anyone in the field. Training was provided. IRS reported that during
the rollout they implemented a national help desk to support the end
user. Additionally, IRS plans for post rollout review to ensure the
field is using the tool and using it properly. These reviews will also
include an analysis of the accuracy of the interest calculations.
Further, IRS will implement the final phase of the program, which
allows the software to interface with the Integrated Data Retrieval
System (IDRS)/Master File and in turn will greatly reduce human errors
associated with the manual input of data; Status of recommendations:
Per GAO: Open. We will review the effectiveness of IRS's use of
software to reduce the miscalculation of manual interest.
Count: 3; No.: 99-1; Recommendation: Manually review and eliminate
duplicate or other assessments that have already been paid off to
assure that all accounts related to a single assessment are
appropriately credited for payments received. (short-term); Source
report: Internal Revenue Service: Immediate and Long-Term Actions
Needed to Improve Financial Management (GAO/AIMD-99-16, Oct. 30, 1998);
Status of recommendations: Per IRS: Open. Automated Trust Fund Recovery
Penalty (ATFRP) programming continues and first phase to automate
calculation of the penalties and assessment process to ensure accuracy
and assessment timeliness is to be rolled out to all centers July 1,
2003. The second phase to automate the manual steps of the service
center process to timely cross-reference payments should be completed
by October 31, 2003. IRS is formulating plans to correct current
records for which payments have not been posted properly; Status of
recommendations: Per GAO: Open. Until new systems are in place and
fully functional, IRS's ability to track and link multiple Trust Fund
Recovery Penalty (TFRP) assessments will depend on service center
personnel manually inputting the cross-reference information needed to
link these assessments.
Count: 4; No.: 99-3; Recommendation: Ensure that IRS's modernization
blueprint includes developing a subsidiary ledger to accurately and
promptly identify, classify, track, and report all IRS unpaid
assessments by amount and taxpayer. This subsidiary ledger must also
have the capability to distinguish unpaid assessments by category in
order to identify those assessments that represent taxes receivable
versus compliance assessments and write-offs. In cases involving trust
fund recovery penalties, the subsidiary ledger should ensure that (1)
the trust fund recovery penalty assessment is appropriately tracked for
all taxpayers liable but counted only once for reporting purposes and
(2) all payments made are properly credited to the accounts of all
individuals assessed for the liability. (short-term); Source report:
Internal Revenue Service: Immediate and Long-Term Actions Needed to
Improve Financial Management (GAO/AIMD-99-16, Oct. 30, 1998); Status of
recommendations: Per IRS: Open. To ensure TFRP assessments are tracked
and payments are properly credited, IRS is developing the ATFRP
program. The first phase to automate the calculation of the penalties
and assessment process to ensure accuracy and timeliness of assessments
is to be rolled out to centers July 1, 2003. Phase 2, to automate
manual steps of service center process to timely cross-reference
payments is to be completed by October 31, 2003. This will allow the
Chief Financial Officer (CFO) to establish the links to more accurately
report the one balance due from these assessments. In addition, IRS's
Custodial Accounting Project (CAP) includes development of a Taxpayer
Account Sub Ledger which is expected to provide the ability to identify
duplicate trust fund recovery assessments, taxes receivable, compliance
assessments, and write-offs for financial reporting purposes. Scheduled
for completion November 3, 2003; Status of recommendations: Per GAO:
Open. Until new systems are in place and fully functional, IRS's
ability to track and link multiple TFRP assessments will depend on
service center personnel manually inputting the cross-reference
information needed to link these assessments. This process is labor-
intensive and not always effective. In fiscal year 2002, we found that
in 21 out of 23 unpaid payroll cases in which payments were not
properly recorded to all related accounts, cross-references were
present. Even after the subsidiary ledger is implemented, it may
require significant manual effort to correct taxpayer records and
ensure that it functions as needed.
Count: 5; No.: 99-12; Recommendation: Until the problems with delays in
fingerprint checks are resolved, develop and implement a policy
prohibiting new employees from being assigned to process receipts until
the results of fingerprint checks are received and reviewed by
management. (short-term); Source report: Internal Revenue Service:
Physical Security over Taxpayer Receipts and Data Needs Improvement
(GAO/AIMD-99-15, Nov. 30, 1998); Status of recommendations: Per IRS:
Closed. In April 2000, IRS issued a policy memo requiring that
fingerprint checks be received and results evaluated before an employee
in any IRS office can begin working, and it issued a further clarifying
memo in August 2000. Completed August 2000. IRS states that compliance
with this policy is monitored on a monthly basis in a report provided
to the Personnel Security Officer; Status of recommendations: Per GAO:
Closed. While IRS and Office of Personnel Management hiring data showed
that IRS continued to hire employees who had access to taxpayer
receipts and data in fiscal year 2002 before it received the results of
their fingerprint checks, we noted significant improvement over fiscal
year 2001 in implementing the April 2000 policy. We will continue to
evaluate the effectiveness of IRS's efforts in our fiscal year 2003
financial audit.
Count: 6; No.: 99-16; Recommendation: Provide secure containers for
service center employees to store "discovered remittances" prior to
inventory and submission to the Receipt and Control Branch. Immediately
upon discovery, the receipts should be recorded into a control log, the
receipts secured in a locked container, and the discovered receipts
reconciled to the control log prior to submission for processing.
(short-term); Source report: Internal Revenue Service: Physical
Security over Taxpayer Receipts and Data Needs Improvement (GAO/AIMD-
99-15, Nov. 30, 1998); Status of recommendations: Per IRS: Closed. Each
service center campus currently has locked containers to store the
discovered remittances. In addition, IRS reported that it issued
instructions to the service centers on February 17, 1999, to emphasize
the handling and recording of these remittances to ensure
reconciliation. Completed February 17, 1999. This question is on the
Submission Processing Checklist. At least three areas of the service
centers are reviewed monthly against the checklist to ensure
compliance; Status of recommendations: Per GAO: Closed. During our
fiscal year 2002 audit we verified that the two service centers we
visited were using locked containers to store discovered remittances.
These remittances were immediately recorded on a control log and the
log was reconciled.
Count: 7; No.: 99-17; Recommendation: Ensure that all returned refund
checks are stamped "nonnegotiable" as soon as they are extracted.
(short-term); Source report: Internal Revenue Service: Physical
Security over Taxpayer Receipts and Data Needs Improvement (GAO/AIMD-
99-15, Nov. 30, 1998); Status of recommendations: Per IRS: Closed. IRS
updated Internal Revenue Manual (IRM) 3.10.72.6(1) to reflect the
policy of stamping all returned refund checks "unless for credit to the
U.S. Treasury, this instrument is non-negotiable" as soon as they are
extracted. In May 2000, IRS added instructions to the IRM that required
extraction personnel to place returned refund checks in a designated
bucket/bin for manager review to ensure compliance. Completed May 2000.
This question is on the Submission Processing Checklist. The service
centers are reviewed monthly against the checklist to ensure
compliance; Status of recommendations: Per GAO: Open. IRS has taken
action to revise its IRM. However, IRS's action of establishing a
policy does not provide assurance that this policy is consistently
adhered to. Although this policy was implemented on October 15, 2001,
during our fiscal year 2002 site visits, we found that not all sites
were locking or immediately stamping the returned refund checks.
Consequently, several employees handled the checks before they were
restrictively endorsed, thus increasing their risk of theft. We will
continue to evaluate IRS's efforts in our fiscal year 2003 audit. IRS's
response only addresses IRS service center campuses. See status of
recommendation 03-17 for lockbox response.
Count: 8; No.: 99-19; Recommendation: Ensure that walk-in payment
receipts are recorded in a control log prior to depositing the receipts
in the locked container and ensure that the control log information is
reconciled to receipts prior to submission of the receipts to another
unit for payment processing. To ensure proper segregation of duties, an
employee not responsible for logging receipts in the control log should
perform the reconciliation. (short-term); Source report: Internal
Revenue Service: Physical Security over Taxpayer Receipts and Data
Needs Improvement (GAO/AIMD-99-15, Nov. 30, 1998); Status of
recommendations: Per IRS: Closed. IRS issued guidance to the field in
August 1999 and updated the IRM in January 2000 to include instructions
for a control log and reconciliation of receipts. Completed January
2000; Status of recommendations: Per GAO: Open. IRS has taken action
to issue guidance. However, IRS's action of establishing a policy does
not provide assurance that this policy is consistently adhered to.
During our fiscal year 2002 audit, at one of two field offices visited,
the individual reconciling the control log also posted receipts to the
log. We will continue to evaluate IRS's efforts in our fiscal year 2003
financial audit.
Count: 9; No.: 99-20; Recommendation: Analyze and determine the factors
causing delays in processing and posting TFRP assessments. Once these
factors have been determined, IRS should develop procedures to reduce
the impact of these factors and to ensure timely posting to all
applicable accounts and proper offsetting of refunds against unpaid
assessments before issuance. (short-term); Source report: Internal
Revenue Service: Custodial Financial Management Weaknesses (GAO/AIMD-
99-193, Aug. 4, 1999); Status of recommendations: Per IRS: Open. The
ATFRP programming is continuing, and the first phase to automate the
calculation of the penalties and assessment process to ensure accuracy
and timeliness of the assessments should be rolled out to all centers
July 1, 2003. The second phase to automate the manual steps of the
service center process to timely cross-reference payments should be
completed by October 31, 2003; Status of recommendations: Per GAO:
Open. We will continue to monitor the timeliness and completeness of
IRS's processing of these transactions.
Count: 10; No.: 99-22; Recommendation: Expand IRS's current review of
service center deterrent controls to include similar analyses of
controls at IRS field offices in areas such as courier security,
safeguarding of receipts in locked containers, requirements for
fingerprinting employees, and requirements for promptly overstamping
checks made out to "IRS" with "Internal Revenue Service" or "United
States Treasury." Based on the results, IRS should make appropriate
changes to strengthen its physical security controls. (short-term);
Source report: Internal Revenue Service: Custodial Financial Management
Weaknesses (GAO/AIMD-99-193, Aug. 4, 1999); Status of recommendations:
Per IRS: Closed. Guidelines were included in the fiscal year 2003
Operating Procedures for Taxpayer Assistance Centers (TAC) for
safeguarding receipts in locked containers and over-stamping checks
made payable to IRS. Operating procedures state, in part, that all
remittances and related returns must be recorded on Form 795, Daily
Report of Collection Activity, and placed in a locked container until
transmitted to the appropriate Submission Processing Center. Payments
in the form of personal checks, cashier checks, and money orders should
be made payable to "United States Treasury." Checks made out to IRS or
U. S. Treasury must be over-stamped with the words "United States
Treasury" immediately upon receipt. IRS is also including these issues
in its operational reviews of the TACs. Managers in the TACs are also
required to complete an annual review that includes these issues;
Status of recommendations: Per GAO: Open. IRS reported that it included
guidelines in its fiscal year 2003 Operating Procedures for TACs.
During our fiscal year 2002 audit, we noted that IRS has primarily
focused its review of field offices on the TACs. We are concerned about
the limited scope of this review since past audits, as well as our
fiscal year 2002 audit, have found control weaknesses over the
safeguarding of and accounting for taxpayer receipts and data not only
in TAC units but other field office units, such as Small Business/Self
Employed. Because IRS's action only addresses TACs and it occurred
after the completion of our fiscal year 2002 audit, we will assess the
adequacy of IRS's actions during our fiscal year 2003 financial audit.
Count: 11; No.: 99-25; Recommendation: Ensure that additional staff are
employed or existing staff appropriately cross-trained to be able to
perform the master file extractions and other ad hoc procedures needed
for IRS to continually develop reliable balances for financial
reporting purposes. (short-term); Source report: Internal Revenue
Service: Custodial Financial Management Weaknesses (GAO/AIMD-99-193,
Aug. 4, 1999); Status of recommendations: Per IRS: Closed. IRS hired
three additional contractor staff to work on financial reporting and
they have been appropriately cross-trained. This additional contractor
support provides the support and backup necessary for preparation of
the compensating procedures pending the implementation of CAP/ Customer
Account Data Engine (CADE). However, we are concerned that a large
number of additional staff are still needed (20 contractors) to fully
transition to CAP release 1. The additional staff are scheduled to be
hired by October 2003 for CAP Transition Support. The anticipated date
for using CAP release 1 (IMF) for the financial audit is October 1,
2004. The anticipated date for using CAP for the entire custodial
financial audit (IMF, BMF, NMF, and IRAF) is October 1, 2006; Status
of recommendations: Per GAO: Open. In fiscal year 2002, IRS continued
to utilize compensating procedures to enable it to generate reliable
information for financial reporting purposes. It is unclear if staff
resources available to perform current compensating procedures pending
implementation of CAP/CADE have been sufficiently enhanced. We will
assess the adequacy of IRS's actions during our fiscal year 2003
audit.
Count: 12; No.: 99-29; Recommendation: Develop the data to support
meaningful cost information categories and cost-based performance
measures. (long-term); Source report: Internal Revenue Service: Serious
Weaknesses Impact Ability to Report on and Manage Operations (GAO/AIMD-
99-196, Aug. 9, 1999); Status of recommendations: Per IRS: Open. IRS
will implement cost accounting as part of release 1 of IFS. Scheduled
for completion October 1, 2003; Status of recommendations: Per GAO:
Open. We will follow up during future audits to assess the
effectiveness of the implementation of IFS's cost accounting features.
Count: 13; No.: 99-30; Recommendation: Develop and implement procedures
and controls to ensure that detailed P&E records are accurately
maintained. These procedures and controls would include ensuring that
physical inventories at field locations are effectively performed,
including prompt resolution of discrepancies found in the inventories
and appropriate adjustment of detailed records. (short-term); Source
report: Internal Revenue Service: Serious Weaknesses Impact Ability to
Report on and Manage Operations (GAO/AIMD-99-196, Aug. 9, 1999); Status
of recommendations: Per IRS: Closed. IRM 2.14.1 was signed and put into
effect June 22, 2002. IRS has addressed the reconciliation of
discrepancies in the IRM, in the Inventory Certification Plan, and
through Asset Management Policy directives posted on IRS's Asset
Management Web site. During IRS's inventory cycle, it distributes
exception reports showing those discrepancies on a biweekly basis to
all Single Point Inventory Functions (SPIF). IRS tracks its progress
for working those exception reports using spreadsheets and graphs and
shares that information with the Area Directors and SPIFs; Status of
recommendations: Per GAO: Open. During fiscal year 2002, we noted
improvement in the reliability of IRS's P&E inventory records. However,
serious weaknesses continued to affect IRS's ability to maintain
accountability over its P&E. IRS's procedures for recording P&E
acquisitions and disposals did not ensure that transactions were
promptly and accurately recorded. For example, of 220 P&E items we
selected from inventory records at 22 sites, 22 could not be located at
the time of our review. We will evaluate IRS's continuing efforts to
achieve accountability over its P&E during our fiscal year 2003
financial audit.
Count: 14; No.: 99-34; Recommendation: Revise the current
capitalization policy to ensure that material P&E acquisitions are not
expensed. (short-term); Source report: Internal Revenue Service:
Serious Weaknesses Impact Ability to Report on and Manage Operations
(GAO/AIMD-99-196, Aug. 9, 1999); Status of recommendations: Per IRS:
Closed. IRS P&E capitalization policies and procedures have been
documented and include a capitalization threshold for the projected
design and development costs of internal use software systems, in
accordance with Statement of Federal Financial Accounting Standards No.
10; Status of recommendations: Per GAO: Closed. We confirmed that IRS
established a capitalization threshold for accumulating and
capitalizing P&E hardware costs consistent with the pooling concept
currently in use. We will continue to evaluate IRS's efforts to
implement a policy for capitalizing costs on a transactional basis as
part of recommendation number 99-36.
Count: 15; No.: 99-36; Recommendation: Make enhancements to IRS
financial systems to include recording P&E and capital leases as assets
when purchased and to generate detailed records for P&E that reconcile
to the financial records. (long-term); Source report: Internal Revenue
Service: Serious Weaknesses Impact Ability to Report on and Manage
Operations (GAO/AIMD-99-196, Aug. 9, 1999); Status of recommendations:
Per IRS: Open. IRS's new IFS, currently targeted for March 2005, will
allow recording P&E and capital leases as assets when purchased and
will generate detailed records for P&E that will reconcile to the
financial records. Scheduled completion is March 1, 2005; Status of
recommendations: Per GAO: Open. We will continue to evaluate IRS's
progress in addressing these issues in its new system.
Count: 16; No.: 99-38; Recommendation: Establish procedures for the
financial statements to undergo review at the appropriate levels within
the CFO's office, with documented evidence of the reviews. (short-
term); Source report: Internal Revenue Service: Serious Weaknesses
Impact Ability to Report on and Manage Operations (GAO/AIMD-99-196,
Aug. 9, 1999); Status of recommendations: Per IRS: Closed. IRS has
developed procedures that require two levels of review of the financial
statements. Completed August 31, 1999; Status of recommendations: Per
GAO: Closed. In fiscal year 2002, IRS implemented procedures for
reviewing its financial statements. Two levels of review were
performed, and the reviews were documented in IRS's financial statement
workpapers. As a result of this review process, our review of IRS's
year-end financial statements did not identify any material
presentation issues.
Count: 17; No.: 01-01; Recommendation: Better monitor IRS's procedures
requiring that a freeze code be entered on all accounts of a taxpayer
who IRS has determined is potentially liable for unpaid payroll taxes.
This should be done on all such accounts to prevent the inadvertent
release of refunds to the taxpayer until IRS determines the validity of
the tax liability. (short-term); Source report: Internal Revenue
Service: Recommendations to Improve Financial and Operational
Management (GAO-01-42, Nov. 17, 2000); Status of recommendations: Per
IRS: Closed. In September 2001 IRS issued a memorandum to the field
emphasizing the timely input of the freeze code and revised the IRM
5.19.7.9.11(3)(i) procedures to allow 30 days for the assessment of the
trust fund penalty after input of the freeze code. IRS group managers
are responsible for ensuring that the IRM procedures are followed and
that adherence is tested when they review cases; Status of
recommendations: Per GAO: Open. We will continue to monitor IRS's use
of freeze codes to assure they are used to prevent refunds from being
released to taxpayers who are potentially liable for unpaid payroll
taxes.
Count: 18; No.: 01-02; Recommendation: Revise policies and procedures
governing the processing of abatement transactions to establish (1)
appropriate time frames for processing abatements, (2) a methodology
for monitoring the timeliness of abatement processing, and (3)
procedures to identify the causes for delays and formulate corrective
actions. Also, examine abatement transactions arising from IRS errors
to determine the causes for the errors and, based on this examination,
formulate and implement appropriate procedures to reduce the level of
errors made when entering data into taxpayer accounts. (short-term);
Source report: Internal Revenue Service: Recommendations to Improve
Financial and Operational Management (GAO-01-42, Nov. 17, 2000); Status
of recommendations: Per IRS: Open. IRM 21 provides servicewide guidance
on account-related and adjustment workload. Timeliness standards are
addressed in IRM 21 and supplemented by an annual program guidance
provided by each Business Operating Division. IRS reports provide
detailed program-by-program comparisons of current inventory and trends
that are used by management and the policy/program analyst to monitor
program delivery and status. The quality review process also addresses
timeliness of the workload. To address specific causes of delays, IRS
will review abatement problems identified during the past year's audit
to determine the source of these abatements and the owner of the
process to determine if additional corrective actions are needed;
Status of recommendations: Per GAO: Open. In fiscal year 2002, we
continued to find delays in the processing of abatements. We will
continue to monitor the effectiveness of IRS's actions during our
fiscal year 2003 financial audit.
Count: 19; No.: 01-03; Recommendation: Implement procedures to monitor
the age of all pending offers and to require supervisors to follow up
with staff to determine within 6 months whether to accept or reject the
offer. (short-term); Source report: Internal Revenue Service:
Recommendations to Improve Financial and Operational Management (GAO-
01-42, Nov. 17, 2000); Status of recommendations: Per IRS: Closed. The
Centralized Offer in Compromise (COIC) operation began in August 2001.
Throughout the first year, excess field staff continued to work to
eliminate the backlog of cases that had accumulated in the field.
Several process improvements were also implemented in COIC. By October
2002, the field inventory was reduced by 20,000 cases, allowing IRS to
reduce field staff by about 500 revenue officers. Performance on the
"closed in six months" measure is improving significantly in the first
quarter of fiscal year 2003; Status of recommendations: Per GAO: Open.
Based upon IRS's reported improvements in the timeliness of Offers in
Compromise (OIC) processing, we will evaluate the timeliness of IRS's
processing of OICs as part of our 2003 audit.
Count: 20; No.: 01-04; Recommendation: As an alternative to prematurely
suspending active collection efforts, and using the best available
information, develop reliable cost-benefit data relating to collection
efforts for cases with some collection potential. These cost-benefit
data would include the full cost associated with the increased
collection activity (i.e., salaries, benefits, and administrative
support), as well as the expected additional tax collections generated.
(short-term); Source report: Internal Revenue Service: Recommendations
to Improve Financial and Operational Management (GAO-01-42, Nov. 17,
2000); Status of recommendations: Per IRS: Open. IRS implemented
computer models to identify the collectibility potential of cases based
on specific case characteristics. IRS currently has an open research
project that will validate the accuracy of the collectibility indicator
used in the risk-based models. The research project will include a
validation of the criteria used to determine collection efforts, based
on a cost-benefit analysis. Additionally, the cost accounting module of
IFS is currently scheduled for full implementation by October 1, 2006;
Status of recommendations: Per GAO: Open. The key objective of IRS's
efforts in developing cost data is to use data to make informed
resource allocation decisions. We will continue to monitor IRS's
development and use of cost data.
Count: 21; No.: 01-05; Recommendation: Incorporate into its systems
modernization blueprint and strategic planning process the capability
to routinely and reliably measure the cost-benefit of its collection
activities and make informed resource allocation decisions. (short-
term); Source report: Internal Revenue Service: Recommendations to
Improve Financial and Operational Management (GAO-01-42, Nov. 17,
2000); Status of recommendations: Per IRS: Closed. The capability to
measure the cost-benefit of collection activities and to make informed
resource allocation decisions has been incorporated into IRS's systems
modernization blueprint and strategic planning process; Status of
recommendations: Per GAO: Closed. IRS incorporated into its systems
modernization blueprint the ability to use cost information for cost-
benefit analysis.
Count: 22; No.: 01-06; Recommendation: Implement procedures to closely
monitor the release of tax liens to ensure that they are released
within 30 days of the date the related tax liability is fully
satisfied. As part of these procedures, IRS should carefully analyze
the causes of the delays in releasing tax liens identified by our work
and prior work by IRS's former internal audit function and ensure that
such procedures effectively address these issues. (short-term); Source
report: Internal Revenue Service: Recommendations to Improve Financial
and Operational Management (GAO-01-42, Nov. 17, 2000); Status of
recommendations: Per IRS: Open. On August 26, 2002, the Letter of
Understanding with the National Treasury Employees Union (NTEU) was
signed. It outlines procedures for the Streamlined Release of Federal
Tax Liens Pilot, which is applicable only for the Offer in Compromise
unit employees in the compliance centers. Selection and training of the
volunteers was completed and the pilot began on January 6, 2003. The
decision was made to expand the pilot to include additional lien
releases to provide more case data. The completion date was extended to
July 1, 2003, to allow time to share the pilot results with NTEU and
address any issues identified during the pilot; Status of
recommendations: Per GAO: Open. In fiscal year 2002 we found 20
instances out of 59 cases tested in which IRS did not release the
applicable federal tax lien within the 30-day statutory period. The
time between the satisfaction of the liability and release of the lien
ranged from 39 days to 1,263 days. We will continue to monitor IRS's
release of tax liens and evaluate any new IRS procedures during our
fiscal year 2003 financial audit.
Count: 23; No.: 01-12; Recommendation: For (1) IRS's Automated
Underreporter and Combined Annual Wage Reporting programs, (2)
screening and examination of Earned Income Tax Credit claims, and (3)
identifying and collecting previously disbursed improper refunds, use
the best available information to develop reliable cost-benefit data to
estimate the tax revenue collected by, and the amount of improper
refunds returned to, IRS for each dollar spent pursuing these
outstanding amounts. These data would include (1) an estimate of the
full cost incurred by IRS in performing each of these efforts,
including the salaries and benefits of all staff involved, as well as
any related nonpersonnel costs, such as supplies and utilities, and (2)
the actual amount (a) collected on tax amounts assessed and (b)
recovered on improper refunds disbursed. (short-term); Source report:
Internal Revenue Service: Recommendations to Improve Financial and
Operational Management (GAO-01-42, Nov. 17, 2000); Status of
recommendations: Per IRS: Open. The key objective of IRS's efforts in
developing cost data is to use data to make informed resource
allocation decisions. IRS intends to consider cost data associated with
its major programs, when developed, in all facets of the strategic
planning process. The cost accounting module of IFS is currently
scheduled for full implementation by October 1, 2006; Status of
recommendations: Per GAO: Open. We will review the IFS plans to verify
that it includes requirements that meet the objectives of the
recommendation. We will continue to monitor IRS's development and use
of cost data.
Count: 24; No.: 01-13; Recommendation: Incorporate in IRS's systems
modernization blueprint and strategic planning process capabilities for
routinely and reliably measuring cost-benefit information to make
informed resource allocation decisions. (long-term); Source report:
Internal Revenue Service: Recommendations to Improve Financial and
Operational Management (GAO-01-42, Nov. 17, 2000); Status of
recommendations: Per IRS: Closed. Under IFS, IRS is building a cost
accounting module and strategic enterprise module that aligns the
Treasury Integrated Management Information System structure to the Cost
Centers, Product and Services, Balance Measures, Production, and
eventually to Labor. This is part of the October 1, 2003, deliverable
and provides traceability to the systems modernization blueprint. The
Deputy Commissioner for Modernization & Chief Information Officer has
committed to provide subject matter experts to IFS to help tie the
costs associated with its activities and programs at the project areas
(tiers A, B, C) and sub project areas; Status of recommendations: Per
GAO: Closed. IRS incorporated into its systems modernization blueprint
the ability to routinely and reliably measure and analyze cost-benefit
information.
Count: 25; No.: 01-14; Recommendation: Work with Treasury's Financial
Management Service (FMS) to revise the current lockbox contracts to
emphasize security requirements and to specifically require that (1)
fingerprint checks be completed before employees begin working, (2)
temporary employees be subjected to background checks that are
consistent with those required for IRS employees, and (3) at a minimum,
lockbox bank courier services meet the service center requirements
contained in IRS's November 16, 1999, policy. (short-term); Source
report: Internal Revenue Service: Recommendations to Improve Financial
and Operational Management (GAO-01-42, Nov. 17, 2000); Status of
recommendations: Per IRS: Closed. IRS developed lockbox bank security
standards included in the calendar year 2002 contract. The standards
include physical security, courier, and background investigation
standards consistent with IRS campus requirements. IRS worked with FMS
and included the standards in the Invitations for Expressions of
Interest (IEI) for the new lockbox contract. IRS reported that
corrective action was completed on January 29, 2001, with the issuance
of the IEI; Status of recommendations: Per GAO: Closed. IRS revised
the calendar year 2002 lockbox agreements. However, during fiscal year
2002, we continued to find that lockbox bank employees were given
access to taxpayer data and receipts before fingerprint results were
received and lockbox bank courier services requirements were not
consistent with service center requirements. We will monitor IRS's
progress in addressing these areas under recommendations 03-19, 03-20,
and 03-22.
Count: 26; No.: 01-15; Recommendation: Ensure that all IRS units
receiving collections have consistent policies and procedures to
safeguard and account for cash receipts. (short-term); Source report:
Internal Revenue Service: Recommendations to Improve Financial and
Operational Management (GAO-01-42, Nov. 17, 2000); Status of
recommendations: Per IRS: Open. Further review and identification of
the policies and procedures requiring consistency at field offices is
still underway. Completion date has been revised to August 29, 2003;
Status of recommendations: Per GAO: Open. During our fiscal year 2002
site visits, we found that not all collection units within the sites
stored receipts and unopened mail containing potential taxpayer
receipts and data in locked containers during operating hours. During
our fiscal year 2003 financial audit, we will continue to monitor IRS's
progress in developing and implementing policies that are consistent
throughout IRS to safeguard and account for cash.
Count: 27; No.: 01-17; Recommendation: Develop a subsidiary ledger for
leasehold improvements and implement procedures to record leasehold
improvement costs as they occur. (long-term); Source report: Internal
Revenue Service: Recommendations to Improve Financial and Operational
Management (GAO-01-42, Nov. 17, 2000); Status of recommendations: Per
IRS: Open. The new IFS will incorporate a subsidiary ledger for
leasehold improvements. Scheduled completion is March 1, 2005; Status
of recommendations: Per GAO: Open. We will continue to evaluate the
effectiveness of IRS's efforts in this area.
Count: 28; No.: 01-18; Recommendation: Implement procedures and
controls to ensure that expenditures for P&E are charged to the correct
accounting codes to provide reliable records for expenditures as a
basis of extracting the costs for major systems and leasehold
improvements. (short-term); Source report: Internal Revenue Service:
Recommendations to Improve Financial and Operational Management (GAO-
01-42, Nov. 17, 2000); Status of recommendations: Per IRS: Open. A
module of IRS's new IFS, scheduled for implementation in October 2003,
will incorporate procedures that will help ensure correct and direct
posting of all P&E to the proper accounting codes as transactions
occur. Routine and timely reporting of leasehold improvements will be
addressed in a subsequent release of IFS scheduled for implementation
in fiscal year 2005. In the interim, IRS has implemented processes to
identify, extract, and reclassify capitalized P&E transactions into the
proper general ledger accounts; Status of recommendations: Per GAO:
Open. During our fiscal year 2002 audit, we found that IRS, with
contractor assistance, implemented interim procedures to identify,
extract, and reclassify P&E costs, which improved the timeliness of
recording P&E transactions in accounting records. Nonetheless, IRS
continued to lack current, reliable P&E information on an ongoing basis
because P&E transactions were not properly recorded as transactions
occurred. In addition, we found that charges to leasehold improvement
accounting codes were not always correct. We will continue to monitor
IRS's progress in implementing IFS during our fiscal year 2003 audit.
Count: 29; No.: 01-21; Recommendation: Consolidate and update the P&E
policies and procedures currently documented in various handbooks and
policy memorandums into a comprehensive document that personnel
responsible for maintaining inventory records can use as a reference.
(short-term); Source report: Internal Revenue Service: Recommendations
to Improve Financial and Operational Management (GAO-01-42, Nov. 17,
2000); Status of recommendations: Per IRS: Open. IRM 2.14.1, which
established policies and procedures for information technology (IT)
assets, was signed and put into effect on June 22, 2002. IRS is in the
process of incorporating policies and procedures for non-IT assets into
the IRM; Status of recommendations: Per GAO: Open. We verified that
IRS issued a revised IRM to establish accountability in the receipt,
distribution, excess, and/or disposal of IT hardware, software, and
telecommunication equipment. During our fiscal year 2003 audit, we will
monitor IRS's progress in developing a comprehensive document that
provides policies and procedures for all P&E.
Count: 30; No.: 01-26; Recommendation: Review, and correct as
necessary, data in inventory records, such as serial or model numbers
and manufacturer names, during periodic inventories of P&E. (short-
term); Source report: Internal Revenue Service: Recommendations to
Improve Financial and Operational Management (GAO-01-42, Nov. 17,
2000); Status of recommendations: Per IRS: Closed. IRM 2.14.1,
Information Technology Asset Management, was signed and put into effect
on June 22, 2002. IRM 2.14.1 addresses the review and correction of
data in the inventory records. IRM 2.14.1.1.7 contains the Quality
Assurance Plan and guidelines for SPIF function employees to follow to
verify the adequacy and accuracy of IRS property management systems.
The Quality Assurance Plan specified in IRM 2.14.1 supports the
accuracy of IRS property records and facilitates the continuous process
improvement in the receipt, distribution, excess, and disposal of
property, ADP hardware, software, and telecommunications equipment
throughout IRS; Status of recommendations: Per GAO: Closed. We
verified that IRS's revised IRM 2.14.1 contains procedures for
validating data in inventory records. We also found improvement in the
accuracy of data, such as serial and model numbers and manufacturer
names recorded on IRS's inventory records, during our fiscal year 2002
audit.
Count: 31; No.: 01-27; Recommendation: Perform sufficient supervisory
reviews to help ensure that transactions recorded on P&E inventory
records are accurately entered into subsidiary records and
appropriately supported by documentation. (short-term); Source report:
Internal Revenue Service: Recommendations to Improve Financial and
Operational Management (GAO-01-42, Nov. 17, 2000); Status of
recommendations: Per IRS: Open. IRS does not plan to implement the IFS
Property Module until March 2005 and until that time will not have a
fully integrated system with subsidiary records. Work continues on
implementing the Electronic Packing Slip project, which will help
eliminate errors and ensure that P&E inventory records are accurately
accounted for in the system; Status of recommendations: Per GAO: Open.
We continued to find that P&E transactions were not always promptly and
accurately recorded. We will evaluate the effectiveness of IRS's
actions during our fiscal year 2003 financial audit.
Count: 32; No.: 01-33; Recommendation: Establish policies and
procedures to ensure that all administrative and, to the extent
possible, custodial transactions are promptly recorded in the general
ledger, preferably within 30 days of the transaction. (short-term);
Source report: Internal Revenue Service: Recommendations to Improve
Financial and Operational Management (GAO-01-42, Nov. 17, 2000); Status
of recommendations: Per IRS: Open. For custodial transactions, as of
June 1, 2002, Revenue Systems/Interim Revenue Accounting Control System
(IRACS) is using a spreadsheet to ensure that all documents are
received and recordable transactions are input into IRACS prior to
month-end activities. The capability for recording custodial
transactions for taxes receivable and refunds payable at the detail
level will not be available until full implementation of CAP with
integration to IFS. Procedures are being developed for the reporting of
accruals for taxes receivable and refunds payable on the quarterly
financial statements beginning fiscal year 2004. Additionally, for
administrative transactions, the IRS is in the midst of an initiative
to identify all major nonpayroll expense transactions that can be
accrued and/or recorded on an interim basis. The plan to record
additional interim accruals, without giving consideration to any
potential problems attributable to the IFS implementation, is scheduled
to be completed prior to the fourth quarter of fiscal year 2003;
Status of recommendations: Per GAO: Open. IRS's response recognizes the
continued existence of this condition and cites a plan of action to
resolve it. We will continue to monitor IRS's progress in this area
during our fiscal year 2003 audit.
Count: 33; No.: 01-34; Recommendation: Incorporate into its systems
modernization plan requirements and specifications for a general ledger
system that (1) accumulates and summarizes IRS's custodial and
administrative transactions for financial reporting purposes, (2) is
integrated with its supporting subsidiary records, and (3) is fully
compliant with the U.S. Standard General Ledger at the transaction
level. (short-term); Source report: Internal Revenue Service:
Recommendations to Improve Financial and Operational Management (GAO-
01-42, Nov. 17, 2000); Status of recommendations: Per IRS: Closed. IRS
will implement IFS, which will be fully compliant with the U.S.
Standard General Ledger at the transaction level. Scheduled completion
is October 1, 2003. It will be populated with multiple releases of
CAP; Status of recommendations: Per GAO: Closed. We have reviewed the
role that Enterprise Data Warehouse (EDW)/CAP will play in resolving
custodial financial management issues. EDW/CAP, when implemented, is
designed to feed the IFS general ledger daily summarized custodial
financial information. It is expected to provide (1) the ability to
generate timely and reliable custodial financial information with full
traceability between the detail and the custodial financial statement,
and (2) full traceability between the detail taxpayer transactions to
the U.S. Standard General Ledger in IFS. We will assess the
implementation of these projects in future audits.
Count: 34; No.: 01-39; Recommendation: Develop a mechanism to track and
report the actual costs associated with reimbursable activities.
(short-term); Source report: Management Letter: Improvements Needed in
IRS' Accounting Procedures and Internal Controls (GAO-01-880R, July 30,
2001); Status of recommendations: Per IRS: Open. IRS has developed
guidance for costing reimbursable agreements. This guidance includes
instructions on tracking labor and was completed February 1, 2002.
Additionally, IFS will also provide the systemic mechanism to track and
report the actual costs associated with reimbursable activities. The
target implementation date is October 1, 2003; Status of
recommendations: Per GAO: Open. We confirmed that IRS completed
procedures for costing reimbursable agreements that provides the basic
framework for the accumulation of these costs. We will follow up during
our fiscal year 2003 audit to determine if IRS has procedures in place
to ensure the framework is used to develop costing information for
reimbursable agreements.
Count: 35; No.: 01-40; Recommendation: Establish procedures to
periodically reconcile the subsidiary records to the control account
for reimbursable receivables to ensure that the balance is adequately
supported. (short-term); Source report: Management Letter:
Improvements Needed in IRS' Accounting Procedures and Internal Controls
(GAO-01-880R, July 30, 2001); Status of recommendations: Per IRS:
Closed. Since March 2002, and each month thereafter, IRS reported that
it has reconciled the reimbursable receivable accounts to the control
accounts. The reconciliation consists of comparison of the Automated
Financial System Control Totals to the general ledger data received
from the vendor. These totals are reconciled to correct improper
postings, mapping issues, timing differences, and posting errors;
Status of recommendations: Per GAO: Closed. IRS addressed this
recommendation by implementing procedures in fiscal year 2002 to
monthly reconcile its subsidiary records to the control account for
reimbursable receivables.
Count: 36; No.: 01-41; Recommendation: Routinely age and review
currently open reimbursable receivable accounts to identify accounts
that are no longer valid or collectible. (short-term); Source report:
Management Letter: Improvements Needed in IRS' Accounting Procedures
and Internal Controls (GAO-01-880R, July 30, 2001); Status of
recommendations: Per IRS: Closed. IRS is currently aging and reviewing
open reimbursable receivable accounts. Completed July 31, 2001; Status
of recommendations: Per GAO: Closed. IRS addressed this recommendation
by initiating action in fiscal year 2001 to regularly age and review
its reimbursable receivable accounts.
Count: 37; No.: 01-43; Recommendation: Ensure that IRS personnel
maintain effective oversight of the completeness and accuracy of
contractor-generated information. (short-term); Source report:
Management Letter: Improvements Needed in IRS' Accounting Procedures
and Internal Controls (GAO-01-880R, July 30, 2001); Status of
recommendations: Per IRS: Closed. There is currently considerable
review and supervision of contractor-generated information; Status of
recommendations: Per GAO: Closed. During our fiscal year 2002 audit, we
found that the information generated by the contractor had been
effectively reviewed by IRS personnel.
Count: 38; No.: 01-44; Recommendation: Ensure compliance with Treasury
regulations requiring that all transfers of funds between
appropriations be properly approved and documented prior to being
recorded in the financial records. (short-term); Source report:
Management Letter: Improvements Needed in IRS' Accounting Procedures
and Internal Controls (GAO-01-880R, July 30, 2001); Status of
recommendations: Per IRS: Closed. The Budget Execution Procedures book
includes instructions for processing the SF1151 and Warrants. It states
that funds can only be transferred after IRS has received approval from
Treasury. This procedure was issued on May 25, 2001; Status of
recommendations: Per GAO: Closed. Based on audit work for fiscal years
2001 and 2002, all transfers of funds between appropriations have been
properly approved and documented prior to being recorded in the
financial records.
Count: 39; No.: 02-01; Recommendation: Implement policies and
procedures to record capitalizable acquisition costs for P&E, capital
leases, leasehold improvements, and major systems in the appropriate
P&E general ledger accounts as transactions occur. (short-term); Source
report: Internal Revenue Service: Progress Made, but Further Actions
Needed to Improve Financial Management (GAO-02-35, Oct. 19, 2001);
Status of recommendations: Per IRS: Open. IRS P&E capitalization
policies and procedures provide for use of the pooling concept to
capitalize costs associated with ADP equipment with a useful life of
greater than 1 year. The pooling method is used, as opposed to the
preferred process of capturing costs on a transactional basis, due to
system limitations. IRS will implement capitalization of costs as
transactions occur when the new IFS Integrated Asset Management module
is implemented in March 2005; Status of recommendations: Per GAO:
Open. We will continue to monitor IRS's progress in this area during
future audits.
Count: 40; No.: 02-03; Recommendation: Perform periodic reviews to
monitor and ensure that obligations are promptly established in the
accounting system. Such reviews would assist IRS in maintaining
accurate and complete records of its obligations and in reducing the
risk of obligations exceeding available funding. (short-term); Source
report: Internal Revenue Service: Progress Made, but Further Actions
Needed to Improve Financial Management (GAO-02-35, Oct. 19, 2001);
Status of recommendations: Per IRS: Closed. IRS issued guidance to all
business units requesting a complete review of obligations to be
completed monthly and certified quarterly and a complete review of
commitments to be certified quarterly. Obligation guidance was
completed June 26, 2001. Commitment guidance was completed December 31,
2002; Status of recommendations: Per GAO: Open. During fiscal year
2002, IRS developed a listing of unliquidated commitments to use as a
tool for ensuring the related obligations are promptly recorded in its
accounting system. However, we continued to find instances where IRS
did not promptly record obligations in its accounting system. We will
continue to monitor the effectiveness of IRS's corrective actions
during our fiscal year 2003 financial audit.
Count: 41; No.: 02-05; Recommendation: Develop, document, and implement
policies and procedures to require that reconciliations between
proprietary and budgetary accounts be performed monthly so that
differences can be identified in a timely manner, and, if necessary,
adjusted. (short-term); Source report: Internal Revenue Service:
Progress Made, but Further Actions Needed to Improve Financial
Management (GAO-02-35, Oct. 19, 2001); Status of recommendations: Per
IRS: Open. Policies and procedures addressing monthly reconciliations
were documented on June 1, 2002. Monthly reconciliations are currently
being prepared between proprietary and budgetary accounts and
differences are adjusted when identified. During fiscal year 2003 IRS
is instituting new accrual procedures that should reduce the amount in
suspense at interim reporting periods. IRS will monitor this new
process during the year and evaluate its effectiveness; Status of
recommendations: Per GAO: Open. Quarterly reconciliations between
budgetary and proprietary accounts are performed and documented.
Informal reconciliations are prepared monthly. However, not all
identified adjustments were recorded at interim periods during fiscal
year 2002. For example, certain adjustments identified at interim
periods, such as receipts into the general fund and user fees, as well
as amounts in suspense, were not posted until year-end. We will
continue to monitor IRS's progress in this area during our fiscal year
2003 audit.
Count: 42; No.: 02-06; Recommendation: Develop, document, and implement
policies and procedures to require that routine reviews and analyses of
general ledger account balances be conducted to promptly identify
errors and omissions. (short-term); Source report: Internal Revenue
Service: Progress Made, but Further Actions Needed to Improve Financial
Management (GAO-02-35, Oct. 19, 2001); Status of recommendations: Per
IRS: Closed. Quarterly reviews of general ledger account balances and
certification of those balances are being completed routinely. Policies
and procedures addressing quarterly reviews were documented on June 1,
2002; Status of recommendations: Per GAO: Closed. In fiscal year 2002,
IRS issued a policy memorandum requiring quarterly reviews of the
general ledger account balances and requiring that workpapers be
established to document the reviews. This significantly reduced the
amount of adjustments required at year-end and improved the quality of
interim data.
Count: 43; No.: 02-07; Recommendation: Develop, document, and implement
policies and procedures to require that corrections and adjusting
entries be recorded throughout the year to reduce the magnitude of
year-end adjustments and improve the reliability of interim financial
data. (short-term); Source report: Internal Revenue Service: Progress
Made, but Further Actions Needed to Improve Financial Management (GAO-
02-35, Oct. 19, 2001); Status of recommendations: Per IRS: Closed.
Adjustments and corrections are now being entered into the financial
system routinely on a quarterly basis. Policies and procedures
addressing recording of corrections and adjusting entries were
documented on June 1, 2002; Status of recommendations: Per GAO:
Closed. In fiscal year 2002, other than adjustments arising from
reconciliations between the proprietary and budgetary accounts, IRS
began recording corrections and adjusting entries when they were
identified rather than at year end, thus reducing the magnitude of
year-end adjustments.
Count: 44; No.: 02-08; Recommendation: Implement policies and
procedures to require that all employees itemize on their time cards
the time spent on specific projects. (long-term); Source report:
Internal Revenue Service: Progress Made, but Further Actions Needed to
Improve Financial Management (GAO-02-35, Oct. 19, 2001); Status of
recommendations: Per IRS: Open. IRS agreed with the objective of this
recommendation which is to allow it to collect and report the full
payroll costs associated with its activities. While IRS indicated that
most of its employees already itemize their time charges in functional
tracking systems, it has acknowledged that full implementation of the
IFS cost accounting module is required to close this recommendation.
The cost accounting module is currently scheduled for full
implementation by October 1, 2006; Status of recommendations: Per GAO:
Open. We confirmed that IRS employees use functional tracking (workload
management) systems to itemize and track their time charges. However,
this recommendation remains open because its objective is to allow IRS
to collect and report the full payroll costs associated with its
activities. We found that the functional tracking systems are
insufficient for this purpose because they do not interface with each
other or the general ledger to allow management to use them to readily
accumulate the time charged to specific projects. The new cost
accounting module of IFS is expected to track IRS's costs at the
activity level and, thus, may address the recommendation. We will
monitor IRS's progress in implementing the IFS cost accounting module.
Count: 45; No.: 02-09; Recommendation: Implement policies and
procedures to allocate nonpersonnel costs to programs and activities on
a routine basis throughout the year. (short-term); Source report:
Internal Revenue Service: Progress Made, but Further Actions Needed to
Improve Financial Management (GAO-02-35, Oct. 19, 2001); Status of
recommendations: Per IRS: Open. IRS agreed with this recommendation and
indicated plans to address this issue with the cost accounting module
that will be part of IFS. Scheduled completion is October 1, 2003;
Status of recommendations: Per GAO: Open. We will verify that the IFS
plans include requirements that meet the objectives of this
recommendation, and we will follow up on its implementation once IFS is
completed.
Count: 46; No.: 02-10; Recommendation: Document reviews performed to
validate that performance data are complete, accurate, and reliable.
(short-term); Source report: Internal Revenue Service: Progress Made,
but Further Actions Needed to Improve Financial Management (GAO-02-35,
Oct. 19, 2001); Status of recommendations: Per IRS: Closed. A
memorandum was issued by the CFO on March 8, 2002, requiring
certification by designated officials that performance data reported on
a monthly basis has been validated and verified. In addition, on
September 30, 2002, we completed work on the expanded data dictionary
that includes information concerning management controls that are in
place to ensure that the data submitted monthly and for all external
reporting purposes are valid and verified; Status of recommendations:
Per GAO: Closed. In fiscal year 2002, IRS completed documenting its key
controls for each of its key performance measures. As a result, by the
end of fiscal year 2002, IRS had documented key controls in place to
validate that performance data reported in its Management Discussion
and Analysis are complete, accurate, and reliable.
Count: 47; No.: 02-11; Recommendation: Develop policies and procedures
to require that field office employees provide taxpayers receipts for
all walk-in payments. (short-term); Source report: Management Report:
Improvements Needed in IRS's Accounting Procedures and Internal
Controls (GAO-02-746R, July 18, 2002); Status of recommendations: Per
IRS: Closed. In February 2002, Wage and Investment (W&I) Communication,
Assistance, Research and Education (CARE) issued a directive to field
office area directors to instruct employees to issue receipts to
taxpayers upon request. The same directive instructed area directors to
install signs to advise taxpayers that receipts would be provided upon
request; Status of recommendations: Per GAO: Open. Once we receive and
verify the content of the February 2002 directive, we will close this
recommendation. During our fiscal year 2002 audit, we did not identify
any problems with the field office employees providing taxpayers
receipts for all walk-in payments.
Count: 48; No.: 02-12; Recommendation: Develop policies and procedures
to require that field offices post signs in the most visible locations
to remind taxpayers to obtain receipts for payments. (short-term);
Source report: Management Report: Improvements Needed in IRS's
Accounting Procedures and Internal Controls (GAO-02-746R, July 18,
2002); Status of recommendations: Per IRS: Closed. In February 2002,
W&I CARE issued a directive to field office area directors to advise
them to install Document 10161 in field offices. Document 10161 states,
"Let us know if you need a receipt; one is available upon request.";
Status of recommendations: Per GAO: Open. IRS reported that it has
issued guidance, but this action does not by itself provide assurance
that the policy is consistently adhered to. During our site visits, at
one of two sites no signs were posted in the TAC to notify taxpayers
that they can request a receipt. We will review IRS's corrective
actions during our fiscal year 2003 financial audit.
Count: 49; No.: 02-13; Recommendation: Develop policies and procedures
to require that two employees be present when payments from drop boxes
are collected and logged. (short-term); Source report: Management
Report: Improvements Needed in IRS's Accounting Procedures and Internal
Controls (GAO-02-746R, July 18, 2002); Status of recommendations: Per
IRS: Closed. This recommendation is no longer relevant because in July
2002, IRS issued an IRM procedural update removing drop boxes from all
TACs; Status of recommendations: Per GAO: Closed. This recommendation
is no longer relevant because in July 2002, IRS issued an IRM
procedural update removing drop boxes from all TACs.
Count: 50; No.: 02-14; Recommendation: Develop policies and procedures
to require that IRS and lockbox employees performing final candling
record receipts in a control log at the time of discovery, recording at
a minimum the total number of payments found, the amount of each
payment, and the taxpayer who submitted the payment. (short-term);
Source report: Management Report: Improvements Needed in IRS's
Accounting Procedures and Internal Controls (GAO-02-746R, July 18,
2002); Status of recommendations: Per IRS: Closed. The 2003 Lockbox
Processing Guidelines (LPG), 3.2.8.1(1), directs "Lockbox employees to
complete Form 9535, Record of Lockbox Discovered Remittance and
Correspondence" when receipts are discovered during candling. The
employee must record the type of document and remittance found, dollar
amount, taxpayer's name and address, Social Security Number/Taxpayer
Identification Number, and discoverer's name on Form 9535. Each
remittance must be listed as a separate entry. The 2003 Extracting,
Sorting & Numbering IRM, 3.10.72.6.2, requires "management to maintain
a log identifying the employees responsible for overlooking the items
and items discovered." The 2003 LPG was updated January 31, 2003;
Status of recommendations: Per GAO: Open. During our fiscal year 2002
audit we found that staff at the two service center campuses and
several lockbox banks we visited did not immediately log items found
during final candling. Because IRS's action occurred after the
completion of our fiscal year 2002 audit, we will assess the adequacy
of IRS's actions during our fiscal year 2003 audit.
Count: 51; No.: 02-15; Recommendation: Develop policies and procedures
to require that IRS and lockbox managers or designated officials
reconcile logs of payments found during final candling to the related
receipts and documents. (short-term); Source report: Management Report:
Improvements Needed in IRS's Accounting Procedures and Internal
Controls (GAO-02-746R, July 18, 2002); Status of recommendations: Per
IRS: Closed. The 2003 LPG, 3.2.8.1(1), directs the responsible manager
to daily validate Form 9535. The 2003 Extracting, Sorting & Numbering
IRM, 3.10.72.6.2(1)e., states, "management shall immediately reconcile
the discovered remittances with the final candling log." The 2003 LPG
was updated January 3, 2003; Status of recommendations: Per GAO: Open.
During our fiscal year 2002 audit at both service center campuses we
visited and at several lockbox banks, items found during final candling
were not reconciled. Because IRS's action occurred after the completion
of our fiscal year 2002 audit, we will assess the adequacy of IRS's
actions during our fiscal year 2003 financial audit.
Count: 52; No.: 02-16; Recommendation: Ensure that field office
management complies with existing receipt control policies that require
a segregation of duties between employees who prepare control logs for
walk-in payments and employees who reconcile the control logs to the
actual payments. (short-term); Source report: Management Report:
Improvements Needed in IRS's Accounting Procedures and Internal
Controls (GAO-02-746R, July 18, 2002); Status of recommendations: Per
IRS: Closed. W&I CARE has issued guidance to TAC managers requiring the
separation of duties. Further, this item is included in W&I CARE self-
assessment that is to be conducted periodically; Status of
recommendations: Per GAO: Open. IRS reported it has issued guidance.
However, this action does not by itself provide assurance that this
policy is consistently adhered to. During our fiscal year 2002 audit,
at one of two sites we visited, the individual who reconciled the log
also posted receipts to the log. We will continue to evaluate IRS's
efforts in our fiscal year 2003 financial audit.
Count: 53; No.: 02-17; Recommendation: Clarify that the intent of the
requirement for background investigations is meant to apply to
personnel being entrusted with taxpayer receipts and information rather
than just personnel being granted access to an IRS facility. (short-
term); Source report: Management Report: Improvements Needed in IRS's
Accounting Procedures and Internal Controls (GAO-02-746R, July 18,
2002); Status of recommendations: Per IRS: Open. On October 3, 2002,
the Deputy Commissioner issued a memorandum, "Clarification of
Background Investigation Requirements for Contractors" to clarify that
the intent of the requirement for background investigations is meant to
apply to personnel being entrusted with taxpayer receipts and
information rather than just personnel being granted access to an IRS
facility. Additionally, banks have been required to ensure that courier
services employees working with the lockbox facility are getting
Federal Bureau of Investigation (FBI) fingerprint checks (LPG, January
2003). The issue of background investigations is pending OSC committee
decision; Status of recommendations: Per GAO: Open. During our fiscal
year 2002 audit we found that couriers at one of two sites had not
received a background investigation, or at a minimum, a fingerprint
check. IRS issued a memorandum on October 3, 2002, clarifying the
intent of the background investigation requirement. Because IRS's
action occurred after the completion of our fiscal year 2002 audit, we
will assess the adequacy of IRS's actions during our fiscal year 2003
audit.
Count: 54; No.: 02-18; Recommendation: Work with the National Finance
Center (NFC) to resolve the technical limitations that exist within the
Security Entry and Tracking System (SETS) database and continue to
periodically review SETS data to detect and correct errors. (short-
term); Source report: Management Report: Improvements Needed in IRS's
Accounting Procedures and Internal Controls (GAO-02-746R, July 18,
2002); Status of recommendations: Per IRS: Open. On July 9, 2002, a
memorandum was sent to the Director, Office of Human Resources
Enterprise Solutions (OHRES), regarding the need to work with NFC to
correct SETS. On September 3, 2002, we received a response from OHRES,
committing to work with NFC to resolve issues. Additionally, OHRES
committed to develop a security module within HR Connect that will
replace SETS. A task group met in November to identify system
requirements; Status of recommendations: Per GAO: Open. We will review
IRS's corrective actions during our fiscal year 2003 financial audit.
Count: 55; No.: 02-19; Recommendation: Issue a formal reminder of
existing IRS manual refund procedures to supervisors and staff. (short-
term); Source report: Management Report: Improvements Needed in IRS's
Accounting Procedures and Internal Controls (GAO-02-746R, July 18,
2002); Status of recommendations: Per IRS: Closed. IRS issued an
information alert reminding staff to monitor manual refunds to prevent
issuance of duplicate refunds and to monitor their reviews. Completed
December 6, 2001; Status of recommendations: Per GAO: Closed. We
reviewed a copy of the formal reminder. We also found that most IRS
employees we interviewed at two service centers were aware of the
issuance of the alert.
Count: 56; No.: 02-20; Recommendation: Establish procedures to track
the release of liens up to the point of delivery to the local
jurisdiction to ensure liens are released timely to avoid unduly
burdening taxpayers once they have satisfied their tax liability.
(short-term); Source report: Management Report: Improvements Needed in
IRS's Accounting Procedures and Internal Controls (GAO-02-746R, July
18, 2002); Status of recommendations: Per IRS: Closed. IRS issued a
memorandum dated January 28, 2003, with instructions for tracking when
the certificates of lien release leave our immediate control.
Certificates must be generated at least weekly. Documents must be
carried to the mailing destination, i.e., U.S. Post Office or IRS
mailroom. IRS must secure a date stamp on the second copy of the
billing voucher which it will retain for at least 1 year after the
processing year; Status of recommendations: Per GAO: Open. IRS's
instructions were issued after the end of our 2002 audit. We will
review the implementation of IRS's corrective actions during our fiscal
year 2003 financial audit.
Count: 57; No.: 02-21; Recommendation: Ensure that complete skeletal
records are created and available for the SPIF units to update upon
receipt of P&E. (short-term); Source report: Management Report:
Improvements Needed in IRS's Accounting Procedures and Internal
Controls (GAO-02-746R, July 18, 2002); Status of recommendations: Per
IRS: Open. Currently, suppliers provide IRS with Excel spreadsheets
that are reviewed, adjusted as necessary, then placed in a format to
"batch add" into the Information Technology Asset Management System
(ITAMS) database. The "batch add" process goes a long way to
establishing the skeletal records. IRS has developed a record layout
for suppliers to provide "electronic packing slip" information when
equipment is purchased and shipped. The procured asset record will be
established on ITAMS before it is received at the loading dock. The
establishment of the skeletal records on ITAMS via an electronic
packing slip feed from our suppliers is key for cradle-to-grave asset
stewardship and a high priority. Additionally, the automated interfaces
that "reach out and touch" IRS's network asset is also a high priority.
IRS is working to ensure that information from automated interfaces to
network systems are properly captured and used to update the existence
of assets recorded in ITAMS. Scheduled completion for implementation of
automated updates to ITAMS is June 1, 2003; Status of recommendations:
Per GAO: Open. During our fiscal year 2002 audit, we found that
skeletal records were not always available for SPIF units to update
upon receipt of P&E. We will review IRS's corrective actions during our
fiscal year 2003 financial audit.
Count: 58; No.: 02-22; Recommendation: Develop procedures and edit
checks to reduce the likelihood of invalid property records. (short-
term); Source report: Management Report: Improvements Needed in IRS's
Accounting Procedures and Internal Controls (GAO-02-746R, July 18,
2002); Status of recommendations: Per IRS: Closed. IRS has developed
procedures to reduce the possibility of invalid property records. IRS
has published those procedures in IRM 2.14.1, the inventory
certification plan, and Asset Management Policy Directives. During its
inventory cycle, IRS distributes exception reports showing
discrepancies to our SPIF functions. IRS tracks its progress on those
exception reports using spreadsheets and graphs and provides that
information to the area directors and SPIFs; Status of
recommendations: Per GAO: Closed. IRS issued a revised IRM that
includes procedures for conducting an inventory and performing quality
assurance reviews that reduce the likelihood of invalid property
records. During our fiscal year 2002 audit, we did not find significant
numbers of invalid property records.
Count: 59; No.: 02-23; Recommendation: Develop and implement procedures
to ensure that procurement award and requisition numbers recorded on
property records are complete, accurate, and linked to the accounting
records. (short-term); Source report: Management Report: Improvements
Needed in IRS's Accounting Procedures and Internal Controls (GAO-02-
746R, July 18, 2002); Status of recommendations: Per IRS: Open.
Information Technology Services is working with Procurement and
existing vendors to establish a reliable vehicle for transmitting
packing slip information. IRS reported that it will continue to work
with Procurement to see that these fields are made a part of every
procurement and that the necessary procurement award and requisition
numbers are established on ITAMS at the time of purchase via an
electronic feed from Procurement and matched via the electronic packing
slip IRS will receive from the ADP equipment provider; Status of
recommendations: Per GAO: Open. During our fiscal year 2002 audit, we
continued to find that accounting transactions could not always be
linked to P&E inventory records. We will continue to review IRS's
corrective actions during our fiscal year 2003 financial audit.
Count: 60; No.: 02-24; Recommendation: Record software licenses in
IRS's property management system. (short-term); Source report:
Management Report: Improvements Needed in IRS's Accounting Procedures
and Internal Controls (GAO-02-746R, July 18, 2002); Status of
recommendations: Per IRS: Open. IRS is executing an action plan that
will allow it to identify, record, and account for software; Status of
recommendations: Per GAO: Open. In fiscal year 2002, IRS initiated a
process to identify and record software licenses. We will review IRS's
corrective actions during our fiscal year 2003 financial audit.
Count: 61; No.: 02-25; Recommendation: Develop an approach to assess
IRS's compliance with the terms of these software licenses. (short-
term); Source report: Management Report: Improvements Needed in IRS's
Accounting Procedures and Internal Controls (GAO-02-746R, July 18,
2002); Status of recommendations: Per IRS: Open. IRS is developing
policies and procedures for tracking compliance with the terms of
software licenses; Status of recommendations: Per GAO: Open. In fiscal
year 2002, IRS initiated a process to inventory software licenses and
assess compliance with the terms of the licenses. We will review IRS's
corrective actions during our fiscal year 2003 financial audit.
Count: 62; No.: 02-26; Recommendation: Ensure that, in the absence of
an integrated general ledger system for IRS's custodial and
administrative activities, IRS strengthens monitoring and analysis of
receivables to ensure that receivables are not being erroneously
recorded as a result of the lack of integration between these two
activities. (short-term); Source report: Management Report:
Improvements Needed in IRS's Accounting Procedures and Internal
Controls (GAO-02-746R, July 18, 2002); Status of recommendations: Per
IRS: Closed. IRS agrees with this recommendation and has taken steps to
better manage reimbursable activity. IRS is now reconciling all
reimbursable receivable accounts with the appropriate general ledger
accounts monthly and is monitoring activities between custodial and
administrative accounts as part of this process. Additionally, IRS has
implemented a process to routinely review open receivables and take
action to write off amounts, as appropriate; Status of
recommendations: Per GAO: Open. IRS's corrective actions to address
this issue did not become effective until the fourth quarter of fiscal
year 2002, which was after we had completed our internal control work
related to reimbursable activity. We will review IRS's corrective
actions during our fiscal year 2003 financial audit.
Count: 63; No.: 03-01; Recommendation: Document IRS's oversight roles
and responsibilities in agency policy and procedure manuals and
determine appropriate level of IRS oversight of lockbox sites
throughout the year, particularly during peak processing periods.
(short-term); Source report: IRS Lockbox Banks: More Effective
Oversight, Stronger Controls, and Further Study of Costs and Benefits
Are Needed (GAO-03-299, Jan. 15, 2003); Status of recommendations: Per
IRS: Open. IRS is taking this recommendation under advisement and will
respond formally to this issue upon approval and implementation of the
IRS lockbox reorganization; Status of recommendations: Per GAO: Open.
This is a new recommendation. We will review IRS's corrective actions
during our fiscal year 2003 financial audit.
Count: 64; No.: 03-02; Recommendation: Establish and document
guidelines and procedures in policy and procedure manuals for
implementing the new penalty provision for lockbox banks to reimburse
the government for direct costs incurred in correcting errors made by
lockbox banks. (short-term); Source report: IRS Lockbox Banks: More
Effective Oversight, Stronger Controls, and Further Study of Costs and
Benefits Are Needed (GAO-03-299, Jan. 15, 2003); Status of
recommendations: Per IRS: Open. IRS is taking this recommendation under
advisement and will work with FMS to establish an effective
reimbursement process. IRS will respond formally to this issue upon
approval and implementation of the IRS lockbox reorganization; Status
of recommendations: Per GAO: Open. This is a new recommendation. We
will review IRS's corrective actions during our fiscal year 2003
financial audit.
Count: 65; No.: 03-03; Recommendation: Finalize and document the
recently developed waiver process in IRS policy and procedure manuals
and ensure that decisions on requests for waivers are formally and
promptly communicated to lockbox management. (short-term); Source
report: IRS Lockbox Banks: More Effective Oversight, Stronger Controls,
and Further Study of Costs and Benefits Are Needed (GAO-03-299, Jan.
15, 2003); Status of recommendations: Per IRS: Open. The new waiver
process is described in section 2.1.3.1 of the January 2003 LPG
document. The internal process between IRS and FMS is being documented
by the Office of Program Evaluation and Risk Analysis in the Security
Memorandum of Understanding (MOU). Expected completion date is April 1,
2003; Status of recommendations: Per GAO: Open. This is a new
recommendation. We will review IRS's corrective actions during our
fiscal year 2003 financial audit.
Count: 66; No.: 03-04; Recommendation: Establish and document a process
in IRS policy and procedure manuals to ensure that lockbox bank
management formally responds to IRS oversight findings and
recommendations promptly and that corrective actions taken by lockbox
bank management are appropriate. (short-term); Source report: IRS
Lockbox Banks: More Effective Oversight, Stronger Controls, and Further
Study of Costs and Benefits Are Needed (GAO-03-299, Jan. 15, 2003);
Status of recommendations: Per IRS: Open. The banks are required to
officially respond to any deficiencies identified by the IRS and FMS
security team. Since FMS holds the agreement with the banks, FMS will
take the lead on formally establishing a database to keep track of the
findings and require corrective actions to be taken by the bank. A copy
of the report and response will be forwarded to IRS. The internal
process between IRS and FMS will be documented in the Security MOU.
Expected completion date of the Security MOU is April 1, 2003; Status
of recommendations: Per GAO: Open. This is a new recommendation. We
will review IRS's corrective actions during our fiscal year 2003
financial audit.
Count: 67; No.: 03-05; Recommendation: Establish and document a process
in IRS policy and procedure manuals to ensure that IRS officials with
the appropriate levels of expertise continue to participate in
announced and unannounced security reviews of lockbox banks. (short-
term); Source report: IRS Lockbox Banks: More Effective Oversight,
Stronger Controls, and Further Study of Costs and Benefits Are Needed
(GAO-03-299, Jan. 15, 2003); Status of recommendations: Per IRS: Open.
The Security MOU is in draft format. This MOU will document the roles
and responsibilities of the Security Review team. The Security Review
team consists of FMS and IRS security experts. Expected completion date
is April 1, 2003; Status of recommendations: Per GAO: Open. This is a
new recommendation. We will review IRS's corrective actions during our
fiscal year 2003 financial audit.
Count: 68; No.: 03-06; Recommendation: Ensure that the results of on-
site compliance reviews are completed and promptly submitted to IRS's
National Office. (short-term); Source report: IRS Lockbox Banks: More
Effective Oversight, Stronger Controls, and Further Study of Costs and
Benefits Are Needed (GAO-03-299, Jan. 15, 2003); Status of
recommendations: Per IRS: Open. Lockbox banks are undergoing security
reviews in 2003. The banks will be required to officially respond to
the items identified in the security report. Security reviews are based
on the lockbox sites' compliance with the LPG. Since FMS holds the
agreement with the banks, FMS will take the lead on formally
establishing a database to keep track of the findings and require
corrective actions to be taken by the lockbox bank management. The
internal process between IRS and FMS is documented in the draft
Security MOU. IRS is represented on the security review team, provides
input related to the review to FMS, and then receives a copy of the
final response sent by FMS to the lockbox bank. Expected completion is
April 1, 2003; Status of recommendations: Per GAO: Open. This is a new
recommendation. We will review IRS's corrective actions during our
fiscal year 2003 financial audit.
Count: 69; No.: 03-07; Recommendation: Revise the guidance used for
compliance reviews so it requires reviewers to (1) determine whether
lockbox contractors, such as couriers, have completed and obtained
favorable results on IRS fingerprint checks and (2) obtain and review
all relevant logs for cash payments and candled items to ensure that
all payments are accounted for. (short-term); Source report: IRS
Lockbox Banks: More Effective Oversight, Stronger Controls, and Further
Study of Costs and Benefits Are Needed (GAO-03-299, Jan. 15, 2003);
Status of recommendations: Per IRS: Open. IRS updated the security
checksheet to instruct reviewers to determine whether lockbox
contractors, such as couriers, have completed and obtained favorable
results on IRS fingerprint checks and obtain and review all relevant
logs for cash payments and candled items. IRS also plans to update the
Lockbox Coordinator on-site reviews to include specific review of
courier documentation and the candling log. Review of the cash log is
currently required; Status of recommendations: Per GAO: Open. This is
a new recommendation. During our fiscal year 2003 financial audit, we
will review IRS's security checksheet used by the review teams during
their security visits. We will also review the lockbox coordinators'
on-site reviews.
Count: 70; No.: 03-08; Recommendation: Assign individuals, other than
the lockbox coordinators, responsibility for completing on-site
performance reviews. (short-term); Source report: IRS Lockbox Banks:
More Effective Oversight, Stronger Controls, and Further Study of Costs
and Benefits Are Needed (GAO-03-299, Jan. 15, 2003); Status of
recommendations: Per IRS: IRS disagrees with this recommendation. The
on-site performance reviews will continue to be conducted by the IRS
Coordinator Staff. The Lockbox Coordinators are IRS's official
representatives on site during the peak processing periods. The
coordinators are qualified and trained to complete the banks
performance review using the Data Collection Instrument. The
coordinators know and understand how the taxpayer remittance should be
processed and handled for IRS requirements; Status of recommendations:
Per GAO: Open. This is a new recommendation. IRS agreed with this
recommendation in its comments on the lockbox report, dated December
20, 2002. We agree that the coordinators are qualified and trained to
complete the banks' performance reviews and that they understand how
taxpayer remittances should be processed and handled for IRS
requirements. However, we believe the current lockbox coordinator
structure does not alleviate the potential conflict of competing
responsibilities.
Count: 71; No.: 03-09; Recommendation: Require lockbox management to
ensure that perimeter doors are locked and alarms on perimeter doors
are functioning and that IRS take steps to monitor adherence to this
requirement. (short-term); Source report: IRS Lockbox Banks: More
Effective Oversight, Stronger Controls, and Further Study of Costs and
Benefits Are Needed (GAO-03-299, Jan. 15, 2003); Status of
recommendations: Per IRS: Closed. Security teams consisting of
individuals from FMS, Agencywide Shared Services, and IRS are
responsible for on-site security reviews. Lockbox sites are receiving
announced and unannounced security reviews as of November 2002. These
reviews will monitor management's compliance with this requirement;
Status of recommendations: Per GAO: Open. This is a new recommendation.
IRS needs to ensure that previously existing requirements are
consistently and routinely adhered to by lockbox management at all of
the lockbox sites. During our review of lockbox banks in 2002, we found
sites that were not adhering to this requirement. We will review IRS's
corrective actions during our fiscal year 2003 financial audit.
Count: 72; No.: 03-10; Recommendation: Require lockbox management to
ensure that guards are responsive to alarms and that IRS takes steps to
monitor adherence to this requirement. (short-term); Source report: IRS
Lockbox Banks: More Effective Oversight, Stronger Controls, and Further
Study of Costs and Benefits Are Needed (GAO-03-299, Jan. 15, 2003);
Status of recommendations: Per IRS: Closed. The requirement to ensure
that door alarms are responded to by the guards was previously
established in the 2002 LPG issued January 1, 2002. During on-site
reviews, IRS and FMS security teams observe the guards responding to
door alarms, etc., by performing tests during on-site security review.
Documented in Section 2.4 of LPG issued January 31, 2003; Status of
recommendations: Per GAO: Open. This is a new recommendation. IRS needs
to ensure that this previously existing requirement is consistently and
routinely adhered to by lockbox management at all of the lockbox sites.
During our review of lockbox banks in 2002, we found sites that were
not adhering to this requirement. We will review IRS's corrective
actions during our fiscal year 2003 financial audit.
Count: 73; No.: 03-11; Recommendation: Require lockbox management to
ensure that employees' identity and employment status are verified
prior to granting access to the processing floor and that IRS take
steps to monitor adherence to this requirement. (short-term); Source
report: IRS Lockbox Banks: More Effective Oversight, Stronger Controls,
and Further Study of Costs and Benefits Are Needed (GAO-03-299, Jan.
15, 2003); Status of recommendations: Per IRS: Closed. The requirement
to ensure that employee identity and employment status are verified
prior to granting access to the processing floor was previously listed
in the 2002 LPG issued January 1, 2002. During the on-site security
reviews, the security review teams ensure the banks meet this
requirement by reviewing personnel folders for temporary employees,
bank officials, couriers, and guards. Documented in Section 2.5 of the
2003 LPG issued January 31, 2003; Status of recommendations: Per GAO:
Open. This is a new recommendation. IRS needs to ensure that this
previously existing requirement is consistently and routinely adhered
to by lockbox management at all of the lockbox sites. During our review
of lockbox banks in 2002, we found sites that were not adhering to this
requirement. We will review IRS's corrective actions during our fiscal
year 2003 financial audit.
Count: 74; No.: 03-12; Recommendation: Require lockbox management to
ensure that visitor access to and activity in the processing area are
adequately controlled and that IRS take steps to monitor adherence to
this requirement. (short-term); Source report: IRS Lockbox Banks: More
Effective Oversight, Stronger Controls, and Further Study of Costs and
Benefits Are Needed (GAO-03-299, Jan. 15, 2003); Status of
recommendations: Per IRS: Closed. The requirement to control visitor
access was previously listed in the 2002 LPG issued January 1, 2002.
During the on-site security reviews, IRS/FMS security teams observe the
sites' handling of visitors to ensure that the banks meet this
requirement. Additionally, during peak visits a lockbox coordinator
observes adherence to this requirement. Documented in Section 2.6.2 of
the 2003 LPG issued January 31, 2003; Status of recommendations: Per
GAO: Open. This is a new recommendation. IRS needs to ensure that this
previously existing requirement is consistently and routinely adhered
to by lockbox management at all of the lockbox sites. During our review
of lockbox banks in 2002, we found sites that were not adhering to this
requirement. We will review IRS's corrective actions during our fiscal
year 2003 financial audit.
Count: 75; No.: 03-13; Recommendation: Require lockbox management to
ensure that employee access and items brought into and out of the
processing area are closely monitored by guards and that IRS take steps
to monitor adherence to this requirement. (short-term); Source report:
IRS Lockbox Banks: More Effective Oversight, Stronger Controls, and
Further Study of Costs and Benefits Are Needed (GAO-03-299, Jan. 15,
2003); Status of recommendations: Per IRS: Closed. The requirement to
ensure that employee access and items brought into and out of the
processing area are closely monitored by guards was previously listed
in the 2002 LPG issued January 1, 2002. Additionally, Post Orders are
required to be developed and reviewed with security guards prior to
each peak to reinforce this requirement. On-site security review, as
well as Lockbox Coordinator visits, monitors the adherence to this
requirement. During the on-site security reviews, IRS and FMS security
teams observe the sites handling of visitors to ensure the banks meet
this requirement. Documented in Section 2.7 of the 2003 LPG issued
January 31, 2003; Status of recommendations: Per GAO: Open. This is a
new recommendation. IRS needs to ensure that this previously existing
requirement is consistently and routinely adhered to by lockbox
management at all of the lockbox sites. During our review of lockbox
banks in 2002, we found sites that were not adhering to this
requirement. We will review IRS's corrective actions during our fiscal
year 2003 financial audit.
Count: 76; No.: 03-14; Recommendation: Require lockbox management to
ensure that surveillance cameras and monitors are installed in ways
that allow for effective, real-time monitoring of lockbox operations
and that IRS take steps to monitor adherence to this requirement.
(short-term); Source report: IRS Lockbox Banks: More Effective
Oversight, Stronger Controls, and Further Study of Costs and Benefits
Are Needed (GAO-03-299, Jan. 15, 2003); Status of recommendations: Per
IRS: Open. The requirement to ensure that surveillance cameras and
monitors are installed to permit observation of critical areas
(internal/external) such as loading docks, secure storage areas, mail
rooms extraction areas, etc. was established in the 2002 LPG issued
January 1, 2002. In April 2002, we added a requirement for the guards
to monitor CCTV activity on an ongoing basis whenever guards are not
engaged in performing other security duties. We will review the
existing requirements to determine its sufficiency. FMS and IRS
security teams review tape inventories and inspect the camera coverage
and quality during on-site security visits. Documented in Section 2.7.5
of the 2003 LPG issued January 31, 2003; Status of recommendations:
Per GAO: Open. This is a new recommendation. We will review IRS's
corrective actions during our fiscal year 2003 financial audit.
Count: 77; No.: 03-15; Recommendation: Require lockbox management to
ensure that envelopes are properly candled and that IRS take steps to
monitor adherence to this requirement. (short-term); Source report: IRS
Lockbox Banks: More Effective Oversight, Stronger Controls, and Further
Study of Costs and Benefits Are Needed (GAO-03-299, Jan. 15, 2003);
Status of recommendations: Per IRS: Closed. These procedures were
updated in the 2003 LPG, Section 3.5.1.1, effective January 1, 2003.
Candling procedures are clarified to ensure envelopes are properly
candled. Adherence to the requirements was added to the Lockbox
Security Check Sheet. Adherence will be monitored by the lockbox FMS
and IRS security team announced and unannounced visits; Status of
recommendations: Per GAO: Open. This is a new recommendation. IRS needs
to ensure that previously existing requirements, updated for any
clarifications, are consistently and routinely adhered to by lockbox
management at all of the lockbox sites. During our review of lockbox
banks in 2002, we found sites that were not adhering to candling
requirements. We will review IRS's corrective actions during our fiscal
year 2003 financial audit.
Count: 78; No.: 03-16; Recommendation: Require lockbox management to
perform and adequately document candling reviews and that IRS take
steps to monitor adherence to this requirement. (short-term); Source
report: IRS Lockbox Banks: More Effective Oversight, Stronger Controls,
and Further Study of Costs and Benefits Are Needed (GAO-03-299, Jan.
15, 2003); Status of recommendations: Per IRS: Closed. The requirement
to perform and adequately document candling reviews was added in the
2003 LPG, Section 3.2.8, effective January 1, 2003. Adherence to the
requirements was added to the Lockbox Security Check Sheet. Adherence
will be monitored by the lockbox FMS and IRS security team during
announced and unannounced visits. Additionally Lockbox Coordinators
review candling as part of their quality review checks during each
peak; Status of recommendations: Per GAO: Open. This is a new
recommendation. IRS needs to ensure that previously existing
requirements, and any updates to these requirements, are consistently
and routinely adhered to by lockbox management at all of the lockbox
sites. During our review of lockbox banks in 2002, we found sites that
were not adhering to these requirements. We will review IRS's
corrective actions during our fiscal year 2003 financial audit.
Count: 79; No.: 03-17; Recommendation: Require that returned refund
checks are restrictively endorsed immediately upon extraction and that
IRS take steps to monitor adherence to this requirement. (short-term);
Source report: IRS Lockbox Banks: More Effective Oversight, Stronger
Controls, and Further Study of Costs and Benefits Are Needed (GAO-03-
299, Jan. 15, 2003); Status of recommendations: Per IRS: Closed. The
requirement to ensure that returned refund checks are restrictively
endorsed immediately upon extraction was previously listed in the 2002
LPG issued January 1, 2002. During the on-site security reviews, IRS
and FMS security teams review adherence to this requirement.
Additionally, adherence to this requirement is evaluated during the
daily SPC quality reviews; Status of recommendations: Per GAO: Open.
This is a new recommendation. IRS needs to ensure that previously
existing requirements are consistently and routinely adhered to by
lockbox management at all of the lockbox sites. During our review of
lockbox banks in 2002, we found sites that were not adhering to this
requirement. We will review IRS's corrective actions during our fiscal
year 2003 financial audit.
Count: 80; No.: 03-18; Recommendation: Require that lockbox couriers
are properly identified prior to granting them access to taxpayer data
and receipts and that IRS take steps to monitor adherence to this
requirement. (short-term); Source report: IRS Lockbox Banks: More
Effective Oversight, Stronger Controls, and Further Study of Costs and
Benefits Are Needed (GAO-03-299, Jan. 15, 2003); Status of
recommendations: Per IRS: Closed. The 2003 LPG, Section 2.7.4,
effective January 1, 2003, specifies that guards identify couriers
before granting access. Adherence to the requirements was added to the
Lockbox Security Check Sheet. Adherence is monitored by the Lockbox FMS
and IRS security team during their announced and unannounced security
visits; Status of recommendations: Per GAO: Open. This is a new
recommendation. IRS needs to ensure that previously existing
requirements, and any updates to them, are consistently and routinely
adhered to by lockbox management at all of the lockbox sites. During
our review of lockbox banks in 2002, we found sites that were not
adhering to this requirement. We will review IRS's corrective actions
during our fiscal year 2003 financial audit.
Count: 81; No.: 03-19; Recommendation: Require that employees have
received favorable results on fingerprint checks before they are
granted access to taxpayer data and receipts and that IRS take steps to
monitor adherence to this requirement. (short-term); Source report: IRS
Lockbox Banks: More Effective Oversight, Stronger Controls, and Further
Study of Costs and Benefits Are Needed (GAO-03-299, Jan. 15, 2003);
Status of recommendations: Per IRS: Closed. The requirement for lockbox
sites to obtain favorable results on employees' fingerprint checks
before allowing them access to the processing floor was previously
listed in the 2002 LPG. The 2003 LPG, Section 2.6.1, effective January
1, 2003, was updated to reflect the new requirements. The FMS and IRS
security team review personnel files to ensure employees currently
working with taxpayer remittances have fingerprint clearance; Status
of recommendations: Per GAO: Open. This is a new recommendation. IRS
needs to ensure that previously existing requirements are consistently
and routinely adhered to by lockbox management at all of the lockbox
sites. During our review of lockbox banks in 2002, we found sites that
were not adhering to this requirement. We will review IRS's corrective
actions during our fiscal year 2003 financial audit.
Count: 82; No.: 03-20; Recommendation: Revise the LPG to require that
before lockbox bank couriers receive access to taxpayer data and
receipts they undergo and receive favorable results on background
investigations that are deemed appropriate by IRS and are consistent
across lockbox banks. (short-term); Source report: IRS Lockbox Banks:
More Effective Oversight, Stronger Controls, and Further Study of Costs
and Benefits Are Needed (GAO-03-299, Jan. 15, 2003); Status of
recommendations: Per IRS: Open. IRS reported that it is taking this
recommendation under advisement; Status of recommendations: Per GAO:
Open. This is a new recommendation. We will review IRS's corrective
actions during our fiscal year 2003 financial audit.
Count: 83; No.: 03-21; Recommendation: Revise the LPG to require that
before permanent lockbox bank employees receive access to taxpayer data
and receipts they undergo and receive favorable results on background
investigations that are deemed appropriate by IRS and are consistent
across lockbox banks. (short-term); Source report: IRS Lockbox Banks:
More Effective Oversight, Stronger Controls, and Further Study of Costs
and Benefits Are Needed (GAO-03-299, Jan. 15, 2003); Status of
recommendations: Per IRS: Open. IRS reported that it is taking this
recommendation under advisement; Status of recommendations: Per GAO:
Open. This is a new recommendation. We will review IRS's corrective
actions during our fiscal year 2003 financial audit.
Count: 84; No.: 03-22; Recommendation: Revise the LPG to require that
guards inspect courier vehicles for unauthorized passengers and
unlocked doors. (short-term); Source report: IRS Lockbox Banks: More
Effective Oversight, Stronger Controls, and Further Study of Costs and
Benefits Are Needed (GAO-03-299, Jan. 15, 2003); Status of
recommendations: Per IRS: Closed. The 2003 LPG, Section 2.7.4, which
was effective January 1, 2003, was updated to include this
requirement; Status of recommendations: Per GAO: Open. This is a new
recommendation. We will review IRS's corrective actions during our
fiscal year 2003 financial audit.
Count: 85; No.: 03-23; Recommendation: Revise the LPG to require that
candling procedures for the various types of extraction methods be
clarified. (short-term); Source report: IRS Lockbox Banks: More
Effective Oversight, Stronger Controls, and Further Study of Costs and
Benefits Are Needed (GAO-03-299, Jan. 15, 2003); Status of
recommendations: Per IRS: Closed. In the 2003 LPG, Section 3.2.8,
effective January 1, 2003, candling procedures for the various types of
extraction methods were clarified. Splitting the envelope on three
sides and flattening the envelope is sufficient to meet candling
requirements. This process is sufficient to meet the candling
requirements without further light source viewing. All other methods of
extraction require viewing the envelope twice, through a light source,
to meet the candling requirement; Status of recommendations: Per GAO:
Open. This is a new recommendation. We will review IRS's corrective
actions during our fiscal year 2003 financial audit.
Count: 86; No.: 03-24; Recommendation: Revise the LPG to require that
during candling, lockbox bank employees record which machines and which
extraction clerks missed items. (short-term); Source report: IRS
Lockbox Banks: More Effective Oversight, Stronger Controls, and Further
Study of Costs and Benefits Are Needed (GAO-03-299, Jan. 15, 2003);
Status of recommendations: Per IRS: Open. Many new requirements for
candling have been established. However, we are still in the process of
analyzing the effectiveness of this as a requirement. Expected due date
April 1, 2003; Status of recommendations: Per GAO: Open. This is a new
recommendation. We will review IRS's corrective actions during our
fiscal year 2003 financial audit.
Count: 87; No.: 03-25; Recommendation: Revise the LPG to require that
lockbox bank management reconcile items found during candling to the
candling records. (short-term); Source report: IRS Lockbox Banks: More
Effective Oversight, Stronger Controls, and Further Study of Costs and
Benefits Are Needed (GAO-03-299, Jan. 15, 2003); Status of
recommendations: Per IRS: Closed. Instructions for candling have been
revised to require management to reconcile items to the Form 9535. The
2003 LPG was updated on January 31, 2003, via Lockbox Electronic
Bulletin alert, to include this requirement in the LPG. LPG reference
3.2.8; Status of recommendations: Per GAO: Open. This is a new
recommendation. We will review IRS's corrective actions during our
fiscal year 2003 financial audit.
Count: 88; No.: 03-26; Recommendation: Revise the LPG to require that
lockbox bank management reconcile cash payments to internal cash logs
and the cash logs they provide to IRS. (short-term); Source report: IRS
Lockbox Banks: More Effective Oversight, Stronger Controls, and Further
Study of Costs and Benefits Are Needed (GAO-03-299, Jan 15, 2003);
Status of recommendations: Per IRS: Closed. All cash receipts are
documented on Form 9535. LPG 2003 was updated on January 31, 2003, via
Lockbox Electronic Bulletin, to include the requirement to document
immediately and for management to reconcile payments. LPG reference
3.3.2.14; Status of recommendations: Per GAO: Open. This is a new
recommendation. We will review IRS's corrective actions during our
fiscal year 2003 financial audit.
Count: 89; No.: 03-27; Recommendation: Revise the LPG to require that
lockbox employees immediately seek processing guidance from the lockbox
coordinator if envelopes with timely postmark dates are received after
the postmark review period has ended. (short-term); Source report: IRS
Lockbox Banks: More Effective Oversight, Stronger Controls, and Further
Study of Costs and Benefits Are Needed (GAO-03-299, Jan 15, 2003);
Status of recommendations: Per IRS: Closed. The January 1, 2003, LPG
included a requirement for a lockbox site to notify the SPC Lockbox
Coordinator if it receives timely postmarked mail after the grace
period. The Lockbox Coordinator will provide instructions for
processing and assess the need for further postmark review. See LPG
reference 3.2.2.1(2); Status of recommendations: Per GAO: Open. This
is a new recommendation. We will review IRS's corrective actions during
our fiscal year 2003 financial audit.
Count: 90; No.: 03-28; Recommendation: Enforce 180-day expiration
period for fingerprint check results required when an individual enters
on duty. (short-term); Source report: Management Report: Improvements
Needed in IRS's Internal Controls (GAO-03-562R, May 20, 2003); Status
of recommendations: Per IRS: Closed. IRS re-emphasized this policy by
e-mail to Background Investigations Coordinators and Personnel Officers
on September 30, 2002, and during a conference call on October 9, 2002.
In addition, the Personnel Security and Investigations staff created
and distributed an Excel file that calculates the date when fingerprint
results expire; Status of recommendations: Per GAO: Open. This is a
new recommendation. We will review IRS's corrective actions during our
fiscal year 2003 financial audit.
Count: 91; No.: 03-29; Recommendation: Confirm with FMS that IRS's
requirements for background and fingerprint checks for courier services
are met regardless of whether IRS or FMS negotiates the service
agreement. (short-term); Source report: Management Report:
Improvements Needed in IRS's Internal Controls (GAO-03-562R, May 20,
2003); Status of recommendations: Per IRS: Closed. On October 7, 2002,
FMS issued an amendment to the Courier MOU, which included the
requirement that all courier employees satisfy the basic investigation
including an FBI fingerprint and name check; Status of
recommendations: Per GAO: Open. This is a new recommendation. We will
review IRS's corrective actions during our fiscal year 2003 financial
audit.
Count: 92; No.: 03-30; Recommendation: Establish procedures to verify
that courier services are adhering to the standards established for
them by IRS, including the requirement that the courier service have
insurance coverage. (short-term); Source report: Management Report:
Improvements Needed in IRS's Internal Controls (GAO-03-562R, May 20,
2003); Status of recommendations: Per IRS: Open. IRS's Security Review
Team of Receipt and Control reviews compliance with the courier
requirements monthly, using the Campus Security Checklist. On April 17,
2003, IRS requested that FMS direct banks to issue a copy of the
insurance certificate to their aligned campus. In addition, FMS agreed
to draft a memorandum to the financial institutions advising them to
regularly provide a copy of the insurance certificates to IRS
Headquarters; Status of recommendations: Per GAO: Open. This is a new
recommendation. We will review IRS's corrective actions during our
fiscal year 2003 financial audit.
Count: 93; No.: 03-31; Recommendation: Enforce consistent
implementation of policy limiting personal belongings in receipt
processing areas at service center campuses. (short-term); Source
report: Management Report: Improvements Needed in IRS's Internal
Controls (GAO-03-562R, May 20, 2003); Status of recommendations: Per
IRS: Open. IRS will issue a memorandum to all Submission Processing
Field Directors by May 15, 2003, requiring managers in receipt
processing areas to ensure employees are adhering to established
security procedures. This memorandum will require unit managers in
receipt processing areas to conduct random reviews of employee
compliance with all security policies. Beginning by June 30, 2003, IRS
will verify managerial adherence to this direction during the monthly
Campus Security Reviews. The IRS Headquarters Security Review Team will
also conduct unannounced Campus Security Reviews at the campuses;
Status of recommendations: Per GAO: Open. This is a new recommendation.
We will review IRS's corrective actions during our fiscal year 2003
financial audit.
Count: 94; No.: 03-32; Recommendation: Prohibit the storage of
employees' personal belongings with cash payments and receipts at IRS's
TACs. (short-term); Source report: Management Report: Improvements
Needed in IRS's Internal Controls (GAO-03-562R, May 20, 2003); Status
of recommendations: Per IRS: Open. IRS will include a requirement in
the IRM guidelines to be issued June 30, 2003, stating that cash
payments and Form 809 - Receipt for Payment of Taxes must be stored
separately from personal belongings; Status of recommendations: Per
GAO: Open. This is a new recommendation. We will review IRS's
corrective actions during our fiscal year 2003 financial audit.
Count: 95; No.: 03-33; Recommendation: Revise candling procedures to
specify the precise candling methods to be used based on the dimensions
of the mail processed and the extraction method used for both the first
and the final candling. (short-term); Source report: Management Report:
Improvements Needed in IRS's Internal Controls (GAO-03-562R, May 20,
2003); Status of recommendations: Per IRS: Open. IRS is revising its
IRM candling procedures to specify precise first and final candling
methods. Scheduled completion date is May 30, 2003; Status of
recommendations: Per GAO: Open. This is a new recommendation. We will
review IRS's corrective actions during our fiscal year 2003 financial
audit.
Count: 96; No.: 03-34; Recommendation: Establish and implement
procedures prohibiting a single employee from performing the final
candling in a remote location. (short-term); Source report: Management
Report: Improvements Needed in IRS's Internal Controls (GAO-03-562R,
May 20, 2003); Status of recommendations: Per IRS: Open. IRS will
incorporate new requirements in the IRM prohibiting a single employee
from performing the final candling in a remote location. Scheduled
completion date is May 30, 2003; Status of recommendations: Per GAO:
Open. This is a new recommendation. We will review IRS's corrective
actions during our fiscal year 2003 financial audit.
Count: 97; No.: 03-35; Recommendation: Determine which TACs do not
presently accept payment of taxes in cash and issue a memorandum
reminding them of the requirement that cash be accepted. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls (GAO-03-562R, May 20, 2003); Status of recommendations: Per
IRS: Closed. IRS included guidelines in its Fiscal Year 2003 Field
Assistance Operating Procedures (FAOP) stating that all TACs will
accept all standard forms of payments from customers including checks,
money orders, and cash; Status of recommendations: Per GAO: Open. This
is a new recommendation. We will review IRS's corrective actions during
our fiscal year 2003 financial audit.
Count: 98; No.: 03-36; Recommendation: Establish a mechanism to
periodically review adherence to IRS's policy that payment of taxes in
cash be accepted. (short-term); Source report: Management Report:
Improvements Needed in IRS's Internal Controls (GAO-03-562R, May 20,
2003); Status of recommendations: Per IRS: Closed. IRS will include
procedures in its operational reviews of TACs to ensure compliance with
the FAOP guidelines. Also, managers in the TACs are also required to
complete an annual review to address this issue; Status of
recommendations: Per GAO: Open. This is a new recommendation. We will
review IRS's corrective actions during our fiscal year 2003 financial
audit.
[End of table]
Source: GAO and IRS.
[End of section]
Appendix II: Details on Audit Methodology:
To fulfill our responsibilities as the auditor of the Internal Revenue
Service's (IRS) financial statements, we did the following:
* We examined, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. This included testing selected
statistical samples of unpaid assessment, revenue, refund, accounts
payable, accrued expenses, payroll, nonpayroll, property and equipment,
and undelivered order transactions. These statistical samples were
selected primarily to substantiate balances and activities reported in
IRS's financial statements. Consequently, dollar errors or amounts can
and have been statistically projected to the population of transactions
from which they were selected. In testing these samples, certain
attributes were identified that indicated either significant
deficiencies in the design or operation of internal control or
compliance with provisions of laws and regulations. These attributes,
where applicable, can be and have been statistically projected to the
appropriate populations.
* We assessed the accounting principles used and significant estimates
made by management.
* We evaluated the overall presentation of the financial statements.
* We obtained an understanding of internal controls related to
financial reporting (including safeguarding assets), compliance with
laws and regulations (including the execution of transactions in
accordance with budget authority), and performance measures reported in
the Management's Discussion and Analysis.
* We tested relevant internal controls over financial reporting
(including safeguarding assets) and compliance, and evaluated the
design and operating effectiveness of internal controls.
* We considered the process for evaluating and reporting on internal
controls and financial management systems under the Federal Managers'
Financial Integrity Act.
* We tested compliance with selected provisions of the following laws
and regulations: Anti-Deficiency Act, as amended (31 U.S.C. §1341(a)(1)
and 31 U.S.C. §1517(a)); agreements for payment of tax liability in
installments (26 U.S.C. §6159); Purpose Statute (31 U.S.C. §1301);
release of lien or discharge of property (26 U.S.C. §6325); interest on
underpayment, nonpayment, or extensions of time for payment of tax (26
U.S.C. §6601); interest on overpayments (26 U.S.C. §6611);
determination of rate of interest (26 U.S.C. §6621); failure to file
tax return or to pay tax (26 U.S.C. §6651); failure by individual to
pay estimated income tax (26 U.S.C. §6654); failure by corporation to
pay estimated income tax (26 U.S.C. §6655); Prompt Payment Act (31
U.S.C. §3902 (a), (b), and (f), and 31 U.S.C. §3904); Fair Labor
Standards Act of 1938, as amended (29 U.S.C. §206); Civil Service
Retirement Act of 1930, as amended (5 U.S.C. §§5332, 5343); Federal
Employees' Retirement System Act of 1986, as amended (5 U.S.C. §§8422
and 8423); Social Security Act, as amended (26 U.S.C. §§3101 and 3121,
and 42 U.S.C. §430); and Federal Employees Health Benefits Act of 1959,
as amended (5 U.S.C. §§8905, 8906, and 8909).
* We tested whether IRS's financial management systems substantially
comply with the three requirements of the Federal Financial Management
Improvement Act.
[End of section]
Appendix III: Comments from the Internal Revenue Service:
DEPARTMENT OF THE TREASURY INTERNAL REVENUE SERVICE WASHINGTON, D.C.
20224:
DEPUTY COMMISSIONER:
May 16, 2003:
Mr. Steven J. Sebastian Director:
Financial Management and Assurance U.S. General Accounting Office:
441 G Street, NW Washington, DC 20548:
Dear Mr. Sebastian:
I am responding to your draft report titled, Status of Recommendations
From Financial Audits and Related Financial Management Reports. We
recently provided you with an update on the current status of the
recommendations and you accurately incorporated this information into
Appendix I of the draft report.
Of the 98 recommendations cited in your report we are pleased that GAO
agrees that 20 are now closed. In addition, we believe an additional 34
will be closed based on your fiscal year 2003 financial audit. As
stated in your report, some of your recommendations, such as those
related to our modernization efforts, will require a longer period of
time to resolve. We are actively working to implement corrective
actions to address all remaining open recommendations.
I appreciate the GAO's acknowledgement of our continued strong
commitment to improving financial management. I also recognize we must
stay committed to resolving any remaining financial management issues.
Sincerely,
Bob Wenzel:
Signed by Bob Wenzel:
[End of section]
Appendix IV: GAO Contact and Staff Acknowledgments:
GAO Contact:
Steven Sebastian, (202) 512-3406:
Acknowledgments:
In addition to the person named above, Casey Keplinger, Larry Malenich,
Paul Foderaro, Chuck Fox, Yola Lewis, John Davis, William Cordrey,
Valerie Freeman, Alain Dubois, George Jones, Leonard Zapata, and Gloria
Cano made key contributions to this report.
(196002):
FOOTNOTES
[1] 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).
[2] U.S. General Accounting Office, Internal Revenue Service: Status of
Recommendations from Financial Audits and Related Financial Management
Reports, GAO-02-848 (Washington, D.C.: July 30, 2002).
[3] U.S. General Accounting Office, Financial Audit: IRS's Fiscal Year
2001 and 2000 Financial Statements, GAO-02-414 (Washington, D.C.: Feb.
27, 2002).
[4] GAO-02-848.
[5] U.S. General Accounting Office, IRS Lockbox Banks: More Effective
Oversight, Stronger Controls, and Further Study of Costs and Benefits
Are Needed, GAO-03-299 (Washington, D.C.: Jan. 15, 2003).
[6] U.S. General Accounting Office, Management Report: Improvements
Needed in IRS's Internal Controls, GAO-03-562R (Washington, D.C.: May
20, 2003).
[7] Short-term recommendations are defined as those that could be
addressed within 2 years. Long-term recommendations are defined as
those recommendations expected to require 2 years or more to implement.
These designations were assigned at the time the recommendation was
first issued.
[8] GAO-03-243.
[9] GAO-03-299 and GAO-03-562R.
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