Internal Revenue Service
Status of Recommendation from Financial Audits and Related Financial Management Reports Gao ID: GAO-04-523 April 28, 2004In 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.
Although IRS has made improvements to address a number of financial management weaknesses, some of the open audit recommendations have been outstanding for an extended period of time. IRS has continued to experience delays in the implementation of the new systems intended to correct some of these long-standing deficiencies. Others, however, could be resolved with additional management attention. The continued existence of these financial management weaknesses exposes IRS to loss due to errors or theft and impairs the availability of current, accurate financial information that management needs to make decisions on a day-to-day basis. Of 100 recommendations related to financial management (consisting of 78 recommendations open as of May 2003, 7 recommendations included in GAO's July 2003 report on IRS's excise tax certification process, and 15 new recommendations included in GAO's management report for fiscal year 2003), GAO is closing 24 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 2003 financial statements. Of the remaining 76 financial management recommendations GAO considers open as of the date of this report, 66 are short term (capable of being addressed within 2 years) and 10 are long term (expected to require more than 2 years to implement). IRS considers 37 (49 percent) of the 76 recommendations to be closed. GAO considers 12 of these 37 still open because it has not yet had an opportunity to verify the actions taken by IRS. The actions cited by IRS for these 12 recommendations are recent and were taken after GAO's financial statement audit work for the year was completed. For 24 of the 37 recommendations that IRS considers closed, GAO found that action taken by IRS has not yet been fully effective in addressing the conditions that gave rise to the recommendations. 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 76 recommendations that remain open during the fiscal year 2004 audit. IRS said it expects GAO to find in its fiscal year 2004 financial audit that IRS has taken corrective actions to allow closure of another 37 recommendations. In addition, IRS stated that it is actively working to implement corrective actions to address all remaining open recommendations.
GAO-04-523, Internal Revenue Service: Status of Recommendation from Financial Audits and Related Financial Management Reports
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Report to the Commissioner of Internal Revenue:
April 2004:
INTERNAL REVENUE SERVICE:
Status of Recommendations from Financial Audits and Related Financial
Management Reports:
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-523]:
GAO Highlights:
Highlights of GAO-04-523, 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:
Although IRS has made improvements to address a number of financial
management weaknesses, some of the open audit recommendations have been
outstanding for an extended period of time. IRS has continued to
experience delays in the implementation of the new systems intended to
correct some of these long-standing deficiencies. Others, however,
could be resolved with additional management attention. The continued
existence of these financial management weaknesses exposes IRS to loss
due to errors or theft and impairs the availability of current,
accurate financial information that management needs to make decisions
on a day-to-day basis.
Of 100 recommendations related to financial management (consisting of
78 recommendations open as of May 2003, 7 recommendations included in
GAO‘s July 2003 report on IRS‘s excise tax certification process, and
15 new recommendations included in GAO‘s management report for fiscal
year 2003), GAO is closing 24 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 2003
financial statements.
Of the remaining 76 financial management recommendations GAO considers
open as of the date of this report, 66 are short term (capable of being
addressed within 2 years) and 10 are long term (expected to require
more than 2 years to implement). IRS considers 37 (49 percent) of the
76 recommendations to be closed. GAO considers 12 of these 37 still
open because it has not yet had an opportunity to verify the actions
taken by IRS. The actions cited by IRS for these 12 recommendations are
recent and were taken after GAO‘s financial statement audit work for
the year was completed. For 24 of the 37 recommendations that IRS
considers closed, GAO found that action taken by IRS has not yet been
fully effective in addressing the conditions that gave rise to the
recommendations. 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 76
recommendations that remain open during the fiscal year 2004 audit. IRS
said it expects GAO to find in its fiscal year 2004 financial audit
that IRS has taken corrective actions to allow closure of another 37
recommendations. In addition, IRS stated that it is actively working to
implement corrective actions to address all remaining open
recommendations.
www.gao.gov/cgi-bin/getrpt?GAO-04-523.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Steven J. Sebastian at
(202) 512-3406 or sebastians@gao.gov.
[End of section]
Contents:
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:
GAO Contact:
Acknowledgments:
Letter April 28, 2004:
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 2003 and 2002.[Footnote 1] This report is being provided
to you to (1) assist IRS management in tracking the unresolved issues
identified in our prior 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. No new
recommendations are being made in this report.
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, 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) the status of each of
these recommendations and corrective actions taken or planned as of
February 2004 as reported to us by IRS and incorporated in appendix I,
and (3) our analysis of whether the issues that gave rise to the
recommendations have been effectively and fully addressed based on the
work performed during our fiscal year 2003 financial audit. Effectively
implementing recommendations is critical for IRS to resolve its
financial management challenges.
Status of Recommendations:
In May 2003, we issued a report that provided (1) the status of IRS's
efforts to implement prior recommendations as of our fiscal year 2002
financial audit[Footnote 3] and (2) new recommendations based on the
results of our fiscal year 2002 financial audit.[Footnote 4] In the May
2003 report, we included 98 audit recommendations that we had not
previously reported as being closed, 1 dating back as far as 1993. Of
the 98 recommendations, 20 were closed at the time that report was
issued, leaving 78 that were used as a starting point for appendix I of
this report. For this year, we added 7 recommendations from our July
2003 report on the excise tax certification process[Footnote 5] and 15
new recommendations included in GAO's management report for fiscal year
2003,[Footnote 6] for a total of 100 recommendations. Based on the
results of our recently completed fiscal year 2003 financial audit, we
are closing 24 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, 76 financial management
recommendations remain open, 66 of which are short term and 10 of which
are long term.[Footnote 7]
As indicated in appendix I, of the 76 recommendations we consider to be
open, IRS considers 37 (49 percent) to be closed. We consider 12 of
these recommendations to be open because IRS took corrective action to
resolve these recommendations after we completed our testing for the
fiscal year 2003 audit and, as a result, we have not yet had time to
verify implementation of the corrective actions, which is a
prerequisite to our closing a recommendation. We will verify the
effectiveness of IRS's actions to address these recommendations during
our fiscal year 2004 audit. For 24 of the 37 recommendations that IRS
considers closed, we found that action taken by IRS has not been fully
effective in addressing the conditions that gave rise to the
recommendations. IRS disagrees with the remaining
recommendation,[Footnote 8] though it had agreed with the
recommendation at the time it was made.
Twenty-three of the 24 recommendations that IRS considers closed but
that we consider open involved the issuance of formal written policies
or directives aimed at addressing the internal control deficiencies
that gave rise to the recommendations. However, we found that these
policies or directives were not being adhered to or were not fully
effective in correcting the deficiencies that led to the
recommendations. We also found that the revised policies or directives
intended to correct 6 of these 23 recommendations did not adequately
address the underlying issues. We believe that all these
recommendations could be resolved with additional management follow-up
to ensure that the revised policies and directives specifically address
the issues and 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.
A number of the 76 recommendations in appendix I that we consider to be
open have been outstanding for an extended period of time. For example,
24 (32 percent) of the recommendations were made over 2 years ago,
including 15 recommendations from more than 3 years ago, 4
recommendations from more than 5 years ago, and 1 recommendation that
has remained open for over 10 years. The continued existence of the
issues that gave rise to these recommendations exposes IRS to losses
due to errors or theft, and impairs the availability of the current,
accurate financial information management needs to make decisions.
The majority of the 76 recommendations we consider to be open address
one of two broad issues:
* Forty-one (54 percent), all of which we consider to be short term,
relate to weaknesses in (1) management controls over lockbox banks that
process taxpayer receipts and (2) controls intended to safeguard
taxpayer receipts and data at IRS sites. 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
considers 28 of these recommendations closed. However, during our
fiscal year 2003 financial audit, we found that IRS's corrective
actions had not fully resolved the issues for 22 of these 28
recommendations and, for the remaining 6 recommendations, IRS's actions
occurred after we completed our testing for the fiscal year 2003 audit.
For example, in November 1998, we recommended that IRS ensure that all
returned refund checks be stamped "nonnegotiable" as soon as extracted.
In May 2000, IRS updated its policies to add instructions and establish
a policy for safeguarding returned refund checks. However, during our
audits in fiscal years 2001 through 2003, we found that IRS employees
at some sites we visited were not consistently adhering to the policy
for handling returned refund checks.
* Fourteen (18 percent) relate to system deficiencies that will not be
fully corrected until IRS implements new financial management systems.
Prior GAO reviews have disclosed numerous modernization management
control deficiencies that have contributed to reported cost overruns
and delays in the implementation of the systems intended to resolve
these issues.[Footnote 9] For example, IRS had planned to implement the
first release of its new Integrated Financial System (IFS) in October
2003, but announced shortly before the start of the new fiscal year
that it was delaying implementation until at least the middle of fiscal
year 2004. As of February 2004, implementation of IFS release 1, which
is intended to provide core financial, budget formulation, and cost
accounting systems, had been further delayed. In addition, according to
IRS, implementation of subsequent releases, which provide property,
procurement, and performance management functions, is being reevaluated
because of release 1 delays and funding availability. IRS has also
encountered delays in the implementation of the Customer Account Data
Engine (CADE), the new system designed to modernize IRS's taxpayer
files, and the Custodial Accounting Project (CAP), which is intended to
provide management information related to tax operations needed for
day-to-day decision making, performance management, and reporting. As a
result of cost overruns and delays, IRS and a contractor undertook a
comprehensive review of CADE and IRS's entire business systems
modernization program. Based on the results of the review, IRS launched
an action plan to remedy the problems plaguing its systems
modernization program. However, the program continues to face
significant challenges and risks, and IRS does not expect that its new
financial management systems will be fully implemented until at least
2007. Successful implementation of IFS, CAP, and CADE is essential to
correcting IRS's long-standing financial management deficiencies and
internal control weaknesses that prevent IRS from producing reliable
and timely financial information needed for decision making on an
ongoing basis.
Although IRS continues to experience delays in implementing the systems
intended to address many underlying financial management and operations
issues, it has made improvements in recent years that have resulted in
the closing of many recommendations. For example, IRS made significant
progress in addressing issues related to property and equipment (P&E),
which resulted in closing 5 of the 11 P&E-related recommendations.
However, delays in implementing IFS would inhibit significant
additional progress in addressing P&E issues because IFS is intended to
address 5 of the remaining 6 P&E-related recommendations. Delays in
implementation of IFS and other systems would also inhibit IRS's
ability to correct 14 deficiencies related to financial reporting,
unpaid tax assessments, tax revenue, and refunds. Consequently, the
continued existence of delays in the implementation of new systems and
the other serious financial management weaknesses that gave rise to
many of 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 the Federal Managers'
Financial Integrity Act, the Chief Financial Officers Act of 1990, the
Federal Financial Management Improvement Act of 1996, 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 implementation of an additional 37
recommendations based on our fiscal year 2004 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 2004 financial
audit.
Objective, Scope, and Methodology:
The objective of this report is to assist IRS management in tracking
the status of financial audit and financial management-related
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 2003 as part of our fiscal years 2003 and 2002 financial
audits.[Footnote 10] Further details on the scope and methodology of
our IRS financial audit work are included in appendix II. We obtained
from IRS its assessment of the status of each recommendation and
corrective action taken or planned as of February 2004, which we
included in appendix I. We compared IRS's actions to our fiscal year
2003 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 available at no charge on GAO's Web site
at [Hyperlink, http://www.gao.gov].
If you have any questions concerning this report, please contact me at
(202) 512-3406 or [Hyperlink, sebastians@gao.gov]. Contributors to this
report 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.: 94-2;
Recommendation: Monitor implementation of actions to reduce the errors
in calculating and reporting manual interest on taxpayer accounts, and
test the effectiveness of these actions. (short-term);
Source report: Financial Management: Important IRS Revenue Information
Is Unavailable or Unreliable (GAO/AIMD-94-22, Dec. 21, 1993);
Status of recommendations: Per IRS: Open. IRS is addressing the issue
by increasing automation of restricted interest calculations,
developing a quality review process, educating the workforce and
measuring accuracy. Specifically, IRS has completed the rollout of the
new software, provided training, and implemented a national help desk
to support the end users. Additionally, IRS plans to implement quality
reviews of the new manual interest procedures during 2004;
Status of recommendations: Per GAO: Open. We will review the changes
IRS has implemented and continue to test the accuracy of IRS's manual
interest calculations during our fiscal year 2004 financial audit.
Count: 2;
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. IRS is developing an
automated system to manage Trust Fund Recovery Penalties (TFRP). Phase
I, to automate calculation of the penalties and assessment process to
ensure accuracy and assessment timeliness, was implemented in July
2003, and various aspects of the implementation continue. IRS is
conducting the pilot for Phase II, which automates the manual steps of
the campus process to timely cross-reference payments. Phase II has
been delayed until at least April 2004. Software necessary for Phase
III, centralization of some TFRP functions, is scheduled for release in
2004. IRS anticipates completing Phase III by March 31, 2005. IRS is
developing an action plan to improve timely and accurate manual
processing of TFRP transcripts. Additional reviews have been
recommended for each campus on TFRP cases. Processing problems have
been identified and recommendations for corrective actions have been
made. Training was developed to provide clarification of IRM issues;
Status of recommendations: Per GAO: Open. This recommendation
specifically calls for IRS to review and correct its existing taxpayer
records. In fiscal year 2003 we found that 24 of the 59 cases with
Trust Fund Recovery Penalties (TFRP) had payments that were not
properly reflected in each responsible party's account. We recognize
automation of the current TFRP program is much needed. Until
implemented, TFRP cases will continue to depend on campus personnel
manually inputting the cross-reference information needed to link these
assessments, but these efforts to date have not been effective. For 17
(71 percent) of the 24 cases with mis-posted payments noted above, all
necessary manual cross-indexes had been posted. Even after the new
system is implemented, it will require significant manual effort to
correct existing taxpayer records and ensure that it functions as
needed for future cases. We will continue to test TFRP cases for proper
postings to all related accounts.
Count: 3;
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. 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. CAP Release 1 is
behind schedule, and a new strategy is being developed. Cost and
schedules will not be known until the new strategy is validated. In
addition, IRS is developing an automated system to manage cases with
Trust Fund Recovery Penalties (TFRP), as discussed under recommendation
99-1 above. When Phase II of the system is implemented, the Chief
Financial Officer (CFO) can establish the links to more accurately
report the single balance due from these assessments. Final phase of
implementation is anticipated in 2005;
Status of recommendations: Per GAO: Open. IRS's plan to address our
specific recommendation regarding TFRP cases is discussed in
recommendation 99-1 above. We will continue to monitor IRS's
development of a new strategy for CAP, as well as its implementation of
the new TFRP system.
Count: 4;
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. This question is on the
Submission Processing Checklist and the campuses are reviewed monthly
against the checklist to ensure compliance. A memo will be issued to
Compliance Field Functions reminding them to properly stamp returned
checks as non-negotiable;
Status of recommendations: Per GAO: Open. IRS's action of establishing
a policy does not provide assurance that this policy is consistently
adhered to. During our fiscal year 2003 site visits, we found checks at
a service center campus that had not been stamped. Additionally, in
several units of IRS's Small Business/ Self Employed division that
received payments at a field office, we found that staff were unaware
of the procedures for handling returned refund checks. Furthermore,
some of these units did not have "non-negotiable" stamps. Additionally,
the Compliance unit in another field office did not stamp returned
refund checks. Consequently, several employees handled the checks
before they were eventually restrictively endorsed, thus increasing
their risk of theft.
Count: 5;
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: Open. 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. IRS will
write new IRM procedures relating specifically to the control and
reconciliation of remittances maintained in locked containers/safes.
The draft IRM will be completed by June 30, 2004. Operational review of
the Taxpayer Assistance Center (TAC) will include steps to ensure
adherence to IRM procedures;
Status of recommendations: Per GAO: Open. During our fiscal year 2003
audit, at both field office units that handle receipts, including TAC,
the individual who posted receipts to the log also reconciled the log.
We will review IRS's actions during our fiscal year 2004 audit.
Count: 6;
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. Automated Trust Fund Recovery
Penalty programming continues. Phase I, to automate calculation of the
penalties and assessment process to ensure accuracy and assessment
timeliness was implemented July 1, 2003. IRS is conducting the pilot
for Phase II, which automates the manual steps of the campus process to
timely cross-reference payments. Phase II Pilot solution identified and
tested: the system works well in production and productivity doubled
when the campus began using the system;
Status of recommendations: Per GAO: Open. When IRS implements its
Automated Trust Fund Recovery Penalty Program, we will review its
effectiveness in eliminating processing delays. In the meantime, we
will continue to monitor Trust Fund Recovery Penalty processing
timeliness.
Count: 7;
No.: 99-22;
Recommendation: Expand IRS's current review of campus 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. In April 2003, IRM 5.1.2 was revised with new
sub-sections, including: Timeliness of Remittances and Physical
Security Controls over Remittances;
Status of recommendations: Per GAO: Open. IRS's action of establishing
a policy does not provide assurance that this policy is consistently
adhered to. We verified that IRS has included guidelines in the fiscal
year 2003 Operating Procedures for Taxpayer Assistance Centers (TACs)
for safeguarding receipts in locked containers and over-stamping checks
made payable to IRS. IRS has also included these issues in its TAC
reviews. In addition, IRS provided evidence that it performed reviews
of Forms 809 used in field collections. However, similar to prior
audits, we continued to find control weaknesses over the safeguarding
and accounting for taxpayer receipts and data in TAC as well as in
Small Business/Self Employed field office units that handle receipts.
During our fiscal year 2003 audit, we did not find any issues with
courier security and hiring practices in IRS field offices. We will
continue to monitor IRS's efforts.
Count: 8;
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: Open. The need to build an
appropriate depth of experience is both immediate and ongoing;
resources are examined to see if work can be realigned, and if existing
employees can be retrained. Contractor support is used to provide the
support and backup necessary for preparation of the compensating
procedures, pending implementation of the Custodial Accounting Project
(CAP) and the Customer Account Data Engine (CADE). IRS is committed to
supporting the funding of contractor resources that are used for the
Custodial Financial Statement Audit. This corrective action will be
continually monitored and developed as new solutions to the problem are
identified. This recommendation will remain open until the full
implementation of CAP for the entire custodial financial audit (IMF,
BMF, INMF, and IRAF) with an anticipated date of October 1, 2007,
pending the CAP Release 1 replan and rescheduling of Release 2;
Status of recommendations: Per GAO: Open. In fiscal year 2003, IRS
continued to utilize compensating procedures to enable it to generate
reliable information for financial reporting purposes. Additional
resources were not added in FY 2003 to perform current compensating
procedures pending implementation of CAP/CADE. IRS has noted that the
depth of IRS experience of staff is inadequate. IRS's current position
is to support the financial statement audit process with available
resources and contractors, without hiring until the full implementation
of CAP. We will continue to assess IRS's actions during our fiscal year
2004 audit.
Count: 9;
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. Integrated Financial System
(IFS) Release 1 includes requirements for a cost module that is
interfaced with program area management information systems. Once
implemented, both direct and indirect resource cost data will be linked
to the budget process and the strategic planning goals of all business
units. This will help move the Service forward in transitioning to a
Performance-Based Organization. Full cost accounting will not be
realized until future releases such as Asset Management and Work
Management are implemented. At present these releases are being
evaluated based on IFS Release 1 delays and funding availability. All
future releases have been delayed or placed on indefinite hold;
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: 10;
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, Information
Technology Asset Management, was first published in June 2002. It was
updated and republished in July 2003. Increased automation, including
the expansion of the Electronic Packing Slip initiative, helped IRS
establish accurate skeletal records in ITAMS. IRS's Asset Management
office publishes exception reports for the field Single Point Inventory
Function (SPIF) employees to reconcile on a biweekly basis. Errors and
exceptions are tracked on these exception reports for SPIF employees to
use in order to perfect incorrect P&E records. IRS also now has one
authoritative IRM that consolidates all the procedures and policies for
SPIF employees in one location;
Status of recommendations: Per GAO: Closed. During fiscal year 2003,
IRS (1) developed and implemented procedures to use electronic data
from vendors to create inventory records, which helped ensure that
assets were promptly and accurately recorded upon receipt of the
assets, (2) focused additional effort on ensuring that assets disposals
were recorded timely, (3) expanded use of network monitoring software
to track assets, and (4) enhanced monitoring and quality control over
the annual inventory process. As a result, our testing during fiscal
year 2003 indicated significant improvement in the accuracy and
reliability of IRS's P&E inventory records.
Count: 11;
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. In IFS Release 1, P&E and
leasehold improvements will be recorded as assets when purchased.
However, amortization will remain a manual process. The ability to tie
to the detailed physical asset information and a fully integrated
system with subsidiary records will not be available until the Asset
Management module is implemented during Release 2. All future releases
are being evaluated based on IFS Release 1 delays and funding
availability and have been delayed or placed on indefinite hold;
Status of recommendations: Per GAO: Open. We will evaluate IFS Release
1 after it is implemented and we will continue to monitor IRS's
progress with Release 2.
Count: 12;
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 Internal Revenue Manual (IRM) 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: Closed. After IRS took action, our
financial audit procedures in 2002 and 2003 have not identified the
inadvertent release of refunds due to lack of freeze codes. Therefore,
we are closing this specific recommendation regarding timely input of
freeze codes to prevent erroneous refunds.
Count: 13;
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: Closed. IRS has not established
specific time frames for processing abatements because large dollar
claims often require additional documentation to verify a claim's
validity. Often these cases go through examination, or have other
taxpayer compliance issues. Allowing interest on refunds for these
cases taking longer than 45 days to process is part of IRS's cost of
doing business. The Office of Unpaid Assessments reviewed abatement
cases identified for the 2002 audit and found that there were
compliance activities in each case that required interest. In addition,
IRS continues to enhance its policies and procedures to monitor the
processing of abatement transactions;
Status of recommendations: Per GAO: Open. Although we agree that many
cases may take longer than 45 days, we believe IRS should establish
general targets for timeliness as well as a method for measuring and
evaluating the processing times for abatements. In fiscal year 2003 we
continued to find delays. Additionally, our recommendation calls for a
review of abatements caused by IRS input errors to determine causes and
corrections. We will continue to monitor timeliness of abatement
processing and evaluate the effectiveness of IRS procedures for
monitoring abatement transactions during our fiscal year 2004 financial
audit.
Count: 14;
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: Open. IRS continues to make
progress in the "closed within six months" measure. IRS is re-examining
the six-month processing time goal. (IRS Should Evaluate the Changes to
Its Offer in Compromise Program, GAO-02-311);
Status of recommendations: Per GAO: Open. IRS has improved its closure
rate for offers in compromise, partly because it centralized processing
at two campuses. In fiscal year 2003, the percentage of offers closed
within six months increased to 56 percent, up from 38 percent the prior
year. We will continue to monitor the timeliness of offer in compromise
processing as part of our 2004 financial audit.
Count: 15;
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 presented to the GAO a
comprehensive action plan with short and long-term actions to address
the material weakness on collection of unpaid taxes. In addition, the
IRS is developing a cost accounting module. However, due to IFS Release
1 delays and funding availability, all future releases have been
delayed or placed on indefinite hold. Therefore, IRS will explore
currently available information and determine the feasibility of
developing a type of interim cost-benefit data or take other steps to
enhance resource allocation decisions with regard to collection
activities;
Status of recommendations: Per GAO: Open. We will continue to monitor
IRS's development of new systems and its efforts to use currently
available information to develop interim cost-benefit data.
Count: 16;
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. IRS has taken steps to
improve the timeliness of lien releases involving settlement by Offer-
in-Compromise. Offer-in-Compromise tax examiners were given access to
the lien system to initiate lien releases once an offer has been
settled. IRS staff will review lien processing units during scheduled
reviews during the second and third quarters of fiscal year 2004. They
will visit Offer-in-Compromise sites during the fourth quarter of
fiscal year 2004. Additionally, they have developed an action plan to
address the root causes of untimely lien releases from the fiscal year
2003 audit;
Status of recommendations: Per GAO: Open. During our fiscal year 2003
audit, we continued to find delays in release of liens. We found 12
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 35 days to 249 days. We will review the impact of IRS's
actions to date and will continue to review IRS's release of tax liens.
Count: 17;
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. (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 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. Once implemented, the cost module of
IFS, Release 1, will provide both direct and indirect resource cost
data and will be linked to the budget process and the strategic
planning goals of all business units. Full cost accounting will not be
realized until future IFS releases, including Asset Management and Work
Management, are implemented. At present these releases are being
evaluated based on IFS Release 1 delays and funding availability. All
future releases have currently been delayed or placed on indefinite
hold;
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: 18;
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: Closed. Completed September 1,
2002. Multi-disciplinary teams composed of management from Security
Services, Information Services, and Agency-Wide Shared Services will
continue to work with local staff to ensure consistent, on-going
implementation of policies and procedures. In April 2003, IRM 5.1.2 was
revised with new sub-sections, including: Timeliness of Remittances and
Physical Security Controls over Remittances;
Status of recommendations: Per GAO: Open. IRS's action of establishing
a policy does not provide assurance that this policy is consistently
adhered to. During our FY 2003 audit, we found that both field office
TACs we visited accepted walk-in payments in an unsecured area. In
addition, at one of the sites, receipts were not stored in locked
containers.
Count: 19;
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. In IFS Release 1, property
and equipment (P&E) and leasehold improvements will be recorded as
assets when purchased. However, amortization will remain a manual
process. The ability to tie to the detailed physical asset information
and a fully integrated system with subsidiary records will not be
available until the Asset Management module is implemented during
Release 2. All future releases are being evaluated based on IFS Release
1 delays and funding availability and have been delayed or placed on
indefinite hold;
Status of recommendations: Per GAO: Open. We will evaluate IFS Release
1 after it is implemented and we will continue to monitor IRS's
progress with Release 2.
Count: 20;
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. In IFS Release 1, P&E and
leasehold improvements will be posted to the correct accounting string
and Release 1 ties corresponding Federal Supply Classification codes to
P&E material groups. The ability to tie to the detailed physical asset
information and a fully integrated system with subsidiary records will
not be available until the Asset Management module is implemented
during Release 2. 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 2003
audit, we found that IRS, with contractor assistance, implemented
interim procedures to identify, extract, and reclassify P&E costs.
However, 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 continued to find that charges
to accounting codes were not always correct. We will evaluate IFS
Release 1 after it is implemented and we will continue to monitor IRS's
progress with Release 2.
Count: 21;
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. IRS updated IRM 2.14.1,
Information Technology Asset Management, to include all policies and
procedures pertaining to information technology assets. IRS is in the
process of revising IRM 1.14.2.49, Property Management Handbook, which
will provide policies and procedures for non-information technology
assets. Target date for the new consolidated handbook is April 2004.
Once published, these revised IRMs will provide authoritative guidance
for both information technology and non-information technology assets;
Status of recommendations: Per GAO: Open. We will continue to monitor
IRS's progress in revising and updating its IRMs during our fiscal year
2004 audit.
Count: 22;
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: Closed. IRS established an
Electronic Packing Slip initiative, which helped establish accurate
inventory records. IRS also implemented procedures to identify
potential errors and discrepancies on inventory records and produce
exception reports that are reviewed by SPIF personnel on a biweekly
basis;
Status of recommendations: Per GAO: Closed. In fiscal year 2003, IRS
developed procedures to obtain and use electronic data from vendors to
create inventory records, which helped ensure that assets were promptly
and accurately recorded upon receipt of the assets. In addition, IRS
enhanced monitoring and quality control over the annual inventory
process. As a result, our testing during fiscal year 2003 indicated
significant improvement in the accuracy and reliability of IRS's P&E
inventory records.
Count: 23;
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. (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. 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 the Interim Revenue Accounting Control
System 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. Additionally, for administrative transactions,
the IRS is in the midst of an initiative to identify all major non-
payroll expense transactions that can be accrued and/or recorded on an
interim basis. During fiscal year 2003, IRS implemented interim
accruals to monthly record material non-payroll administrative
activities, such as rent, postage, and telephone expenses;
Status of recommendations: Per GAO: Open. We verified that during
fiscal year 2003, IRS implemented interim accruals to more timely
record material administrative activities, such as rent, postage and
telephone expenses. This has significantly improved the reliability of
related balances during the year. However, for taxes receivable and the
related balances due to Treasury, the balances reported are not based
on the routine recording of transactions. We will continue to monitor
IRS's progress during our fiscal year 2004 financial audit.
Count: 24;
No.: 01-39;
Recommendation: Develop a mechanism to track and report the actual
costs associated with reimbursable activities. (long-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. IFS
Release 1 includes requirements for a cost module that is interfaced
with program area management information systems. Once implemented,
both direct and indirect resource cost data will be linked to the
budget process and the strategic planning goals of all business units.
This will help move the Service forward in transitioning to a
Performance-Based Organization. Full cost accounting will not be
realized until future releases, such as Asset Management and Work
Management, are implemented. At present these releases are being
evaluated based on IFS Release 1 delays and funding availability. All
future releases have been delayed or placed on indefinite hold;
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 both direct and indirect
costs at the necessary level of detail. IRS plans to implement these
procedures over several years as it phases in various program area
management information systems that will provide critical information
to its new cost accounting system. However, as indicated by IRS, these
systems have been placed on indefinite hold. We will continue to
monitor IRS's efforts to fully implement its cost accounting system
and, once it has been fully implemented, evaluate the effectiveness of
IRS procedures for developing cost information for its reimbursable
agreements.
Count: 25;
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. (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 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. In IFS Release 1, P&E and leasehold improvements
will be recorded as assets when purchased. P&E will also be posted to
the correct accounting string and Release 1 ties corresponding Federal
Supply Classification codes to P&E material groups. However, a fully
integrated system with subsidiary records will not be available until
the Asset Management module is implemented during Release 2. All future
releases are being evaluated based on IFS Release 1 delays and funding
availability and have been delayed or placed on indefinite hold;
Status of recommendations: Per GAO: Open. We will continue to evaluate
the effectiveness of IRS's interim procedures for capitalizing P&E
costs under the pooling concept during our fiscal year 2004 financial
audit. We will evaluate IFS Release 1 after it is implemented and we
will continue to monitor IRS's progress with Release 2.
Count: 26;
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: Closed. During our fiscal year 2003
audit work, we verified that IRS implemented its commitment guidance,
which requires business units to certify that unliquidated commitments
were reviewed to determine whether the commitments should be converted
into obligations. In addition, we found that IRS promptly established
obligations in its accounting system.
Count: 27;
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: Closed. 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 implemented interim accruals
to monthly record material administrative activities, such as rent,
postage, and telephone expenses. These accruals have resulted in
significantly reduced suspense amounts at all reporting periods;
Status of recommendations: Per GAO: Closed. We confirmed that quarterly
reconciliations between budgetary and proprietary accounts are
performed and documented. Informal reconciliations are prepared
monthly. During fiscal year 2003, IRS implemented interim accruals to
monthly record material administrative activities, such as rent,
postage, and telephone expenses. In addition, IRS implemented
procedures to accrue user fees on a quarterly basis. This has
significantly improved the reliability of the related balance during
the year and has reduced the balance of the suspense account at June
30, 2003, to $22 million and as of year-end $6 million.
Count: 28;
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. IFS Release 1 includes requirements for a cost
module that is interfaced with program area management information
systems. Once implemented, both direct and indirect resource cost data
can be linked to the budget process and the strategic planning goals of
all business units. This will help move the Service forward in
transitioning to a Performance-Based Organization. Full cost accounting
will not be realized until future releases, such as Asset Management
and Work Management, are implemented. At present these releases are
being evaluated based on IFS Release 1 delays and funding availability.
All future releases have been delayed or placed on indefinite hold;
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. During
our fiscal year 2003 audit, we continued to find 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.
However, IRS plans to fully implement cost accounting, which are
expected to require several years to execute, are currently on hold. We
will continue to monitor IRS's progress in implementing the IFS cost
accounting module.
Count: 29;
No.: 02-09;
Recommendation: Implement policies and procedures to allocate
nonpersonnel costs to programs and activities on a routine basis
throughout the year. (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 this
recommendation and indicated plans to address this issue with the cost
accounting module that will be part of IFS. IFS Release 1 includes
requirements for a cost module that is interfaced with program area
management information systems. Once implemented, both direct and
indirect resource cost data can be linked to the budget process and the
strategic planning goals of all business units. This will help move IRS
forward in transitioning to a performance-based organization. Full cost
accounting will not be realized until future releases, such as Asset
Management and Work Management, are implemented. At present, these
releases are being evaluated based on IFS Release 1 delays and funding
availability. All future releases have been delayed or placed on
indefinite hold;
Status of recommendations: Per GAO: Open. We confirmed that the IFS
plans include requirements that meet the objectives of this
recommendation;
however, in fiscal year 2003 IRS delayed, or placed on hold, the
implementation of these requirements for an indefinite period. IRS
plans to implement these requirements are expected to be executed over
several years as IRS phases in various program area management
information systems that will provide critical information to the cost
accounting system. We will continue to monitor IRS's efforts and, once
IFS is completed, follow up on IRS's implementation of these plans.
Count: 30;
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. IRS issued the Field
Assistance (FA) IRM in June 2003, which instructs TAC employees to
issue Form 809, Receipt for Payment of Taxes, when taxpayers request a
receipt as proof of payment even if cash was not received. (IRM
21.3.4.7.1.1(4). The IRM also states Document 10161-Payments May Be
Made By-will be posted in all TACs. IRS monitored adherence to these
requirements during operational reviews conducted in the TACs during
fiscal year 2003;
Status of recommendations: Per GAO: Closed. We verified that IRS has
incorporated guidelines in its FY 2002 & 2003 Field Assistance
Operations Procedures (FAOP) to instruct employees to issue receipts to
taxpayers upon request.
Count: 31;
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. IRS issued the FA IRM in
June 2003, which lists the required signs for each TAC. Sign #10161 is
the Payment Upon Request sign and each TAC is required to display the
sign where it can be seen (IRM 21.3.4.3(4). IRS monitored adherence to
these procedures during operational reviews of the TACs conducted in
fiscal year 2003. Signs were posted in TACs as required and additional
employees have been assigned 809 books in various TACs. Periodic
reviews and verification of the requirement are required at a minimum
during the annual filling season readiness operational review;
Status of recommendations: Per GAO: Open. IRS's action of establishing
a policy does not provide assurance that this policy is consistently
adhered to. We verified that IRS included instructions in its FY 2003
FAOP but the instructions did not specify that the signs be posted in
the most visible location. During our FY 2003 audit we found that no
signs were posted in one of the two field offices we visited.
Count: 32;
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. IRS's action of establishing
a policy does not provide assurance that this policy is consistently
adhered to. During our FY 2003 audit we verified that IRS revised the
LPG to direct employees to complete Form 9535, Record of Lockbox
Discovered Remittance and Correspondence when receipts are discovered
during candling and specified information to be recorded. We also
verified that the IRM, updated May 28, 2003, requires management to
maintain a log identifying the employees responsible for overlooking
the items and information on the items discovered (check amount/form
number). However, at 2 service centers and at one lockbox bank we found
that staff did not immediately record items found during final candling
in a control log. Furthermore, 1 service center's candling log did not
capture the minimum information in this recommendation. Since IRS's
action relating to the IRM occurred after our site visits, we will
continue to monitor IRS's efforts.
Count: 33;
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 validate that the information was
correctly entered on Form 9535 for every shift worked. The 2003
Extracting, Sorting & Numbering IRM, 3.1072.6.2(1)e, states,
"management shall immediately reconcile the discovered remittances with
the final candling log." The 2003 LPG was updated January 31, 2003;
Status of recommendations: Per GAO: Open. IRS's action of establishing
a policy does not provide assurance that this policy is consistently
adhered to. We verified that the LPG directs lockbox managers to daily
validate Form 9535 and the IRM, which was updated on May 28, 2003, to
coordinate with the LPG, requires that management initial the log to
validate that all available information is correctly entered and ensure
that all remittances listed in the log are brought to the deposit
function on a daily basis. However, at 1 service center we found that
items discovered during candling were not reconciled.
Count: 34;
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. IRS had issued guidance to
TAC managers requiring the separation of duties. Further, this item is
included in the self-assessment, which is to be conducted periodically.
IRS monitored adherence to the existing procedures during operational
reviews of the TACs conducted in fiscal year 2003;
Status of recommendations: Per GAO: Open. IRS's action of establishing
a policy does not provide assurance that this policy is consistently
adhered to. In addition, the applicable IRM no longer requires
segregation of duties. During our fiscal year 2003 audit, at both field
office units that handle receipts, including TAC, the individual who
posted receipts to the log also reconciled the log.
Count: 35;
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: Closed. On October 3, 2002, IRS
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 fingerprint checks (LPG, January 2003);
Status of recommendations: Per GAO: Closed. During our fiscal year 2003
audit we verified that the October 3, 2002, memorandum reiterated the
IRS requirement that all contractor employees who have access to
taxpayer receipts and information must have an approved background
investigation conducted by the IRS National Background Investigations
Center (NBIC). In addition, we found that IRS was pursuing courier
background investigations at all ten of its campuses.
Count: 36;
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. NFC is in the process of
upgrading the SETS application to a web version, which they anticipate
deploying in six to nine months. Treasury has requested that NFC
include IRS as a participant in the design and development sessions. In
the interim, NFC will continue to address any problems reported by IRS;
Status of recommendations: Per GAO: Open. We will continue to monitor
IRS's actions.
Count: 37;
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. Based on the results of the 2003
audit, IRS has drafted a detailed action plan for lien release issues,
which includes operational reviews. The new procedures are for
Automated Lien System Units to date stamp a duplicate copy of the line
release-billing voucher so that the Service has actual knowledge of
when line releases are no longer under our direct control. This was
issued in the Internal Revenue Manual on October 1, 2003. Certificates
must be generated weekly. A memo was issued January 28, 2003, on
Payment Compliance, which was reinforced via email on April 1, 2004, to
Territory Managers in Case Processing, emphasizing that the
requirements and the procedures have been incorporated into IRM
5.12.6.4.1. Reviews will be conducted at all management levels to
ensure that these procedures are being followed;
Status of recommendations: Per GAO: Open. Although IRS established
procedures for tracking liens, none of the 7 lien units that we visited
in 2003 had properly implemented the date-stamping procedures. We will
continue to review the implementation of IRS's corrective actions
during our 2004 financial audit.
Count: 38;
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: Closed. IRS successfully
implemented an Electronic Packing Slip initiative with its primary
hardware vendor. Using an automated transfer method, the vendor
provides an electronic feed of all equipment that was shipped. IRS
updates the Information Technology Asset Management System with that
information and has skeletal records established before the equipment
reaches a Single Point Inventory Function's loading dock;
Status of recommendations: Per GAO: Closed. IRS implemented a process
for suppliers to provide "electronic packing slip" information when
equipment is purchased and shipped. This information is used to
establish skeletal records on ITAMS before property is received at the
loading dock. During our fiscal year 2003 audit, we found that skeletal
records were almost always available for Single Point Inventory
Function units to update upon receipt of P&E.
Count: 39;
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. (long-
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's Information Technology
Services is working with Procurement and vendors to establish a
reliable vehicle for transmitting packing slip information. IRS 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 vendors. A fully integrated system
that provides the ability to tie to the detailed physical asset
information will not be available until the Asset Management module is
implemented during IFS Release 2. All future releases are being
evaluated based on IFS Release 1 delays and funding availability and
have been delayed or placed on indefinite hold;
Status of recommendations: Per GAO: Open. During our fiscal year 2003
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 2004 financial audit.
Count: 40;
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: Closed. All software valued at more
than $25,000 was recorded into ITAMS by June 2003. IRS also developed
and implemented procedures to update software information on an on-
going basis;
Status of recommendations: Per GAO: Closed. In fiscal year 2003, IRS
developed and implemented policy and procedures to identify and record
software licenses.
Count: 41;
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: Closed. IRS developed and
implemented procedures to reconcile the number of software users with
the number of licenses purchased. This allows IRS to determine
compliance with the terms of software licenses and to know when to
purchase more or less software based on usage;
Status of recommendations: Per GAO: Closed. In fiscal year 2003, IRS
implemented a process to inventory software licenses and assess
compliance with the terms of the licenses.
Count: 42;
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: Closed. During our fiscal year 2003
audit, we verified that IRS initiated corrective actions, that involved
monitoring and detailed analysis of its reimbursable receivables that
effectively addressed this recommendation. We found that, at fiscal
yearend, IRS had identified and written off most of its old
reimbursable receivable accounts and maintained no receivable balances
that were due from its custodial activities.
Count: 43;
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: Closed. The MOU between FMS and
IRS, detailing the roles and responsibilities of each organization in
administering the IRS Lockbox Program, was signed April 30, 2003. In
addition, IRM 3.0.230, Lockbox Processing Procedures, and the Lockbox
Processing Guidelines (2003) and (2004) outline the duties and
responsibilities of FMS and IRS;
Status of recommendations: Per GAO: Open. During our fiscal year 2003
audit, we reviewed the MOU in draft form and have since confirmed its
ratification. We will evaluate IRS's documentation of its oversight
roles and responsibilities in agency policy and procedure manuals as
part of our fiscal year 2004 financial audit.
Count: 44;
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. Rescheduled to November 15,
2004. IRS/ FMS has drafted a high-level reimbursement process. The plan
includes the use of a special Lockbox Program code to delineate IRS
rework costs as a result of errors made by the lock box sites.
Currently the IRS/FMS is working on further detailing the plan for
approval by FMS/IRS management. Once the plan is approved, IRS will
incorporate the procedures in both the Lockbox Processing Guidelines
and the Lockbox Processing IRM;
Status of recommendations: Per GAO: Open. We will evaluate IRS's
corrective actions in future financial audits.
Count: 45;
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: Closed. Both the new waiver
process, which is described in section 2.1.3.1 of the 2003 and 2004
Lockbox Processing Guidelines (LPG), revised April 8, 2003, and issued
December 1, 2003, respectively, and the Security Memorandum of
Understanding (MOU), which was used to document the internal process
between the IRS and the FMS, and completed on April 1, 2003, address
this recommendation;
Status of recommendations: Per GAO: Closed. During our fiscal year 2003
IRS financial audit, we verified that the new waiver process is
described in the LPG and that the internal process between IRS and FMS
is documented in the MOU.
Count: 46;
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: Closed. The Security MOU, completed
on 04/01/03, documents the roles and responsibilities of the Security
Review Team, which is comprised of FMS and IRS security experts. IRS
documents our findings, which are sent to FMS to be included in a final
report to the banks. This report covers findings, recommendations, and
due dates for all corrective actions. IRS receives a copy of the final
report;
Status of recommendations: Per GAO: Open. During our fiscal year 2003
IRS financial audit, we verified that a process to ensure that lockbox
bank management formally responds to IRS and FMS was documented in the
Security MOU. The MOU does not however document IRS's oversight roles
and responsibilities in IRS policy and procedure manuals.
Count: 47;
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: Closed. The Security MOU, which was
completed on April 1, 2003, documents the roles and responsibilities of
the Security Review Team, which is comprised of FMS and IRS security
experts;
Status of recommendations: Per GAO: Closed. During our fiscal year 2003
IRS financial audit, we verified that the roles and responsibilities of
the security review team were documented in the Security MOU.
Count: 48;
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: Closed. Lockbox banks underwent
security reviews in 2003. The banks were required to respond officially
to the items identified in the security report. Security reviews were
based on the lockbox sites' compliance with the LPG. 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;
Status of recommendations: Per GAO: Open. Based on our review during
our fiscal year 2003 IRS financial audit, the lockbox coordinators
completed a compliance review checklist during January and April 2003
peak for the 4 lockbox banks we visited. However, we noted that in some
instances the coordinator did not complete all the steps noted on the
checklist. We were unable to determine whether or not the reviews were
submitted promptly to IRS's National Office. We will continue to
monitor IRS's efforts in our fiscal year 2004 financial audit.
Count: 49;
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: Closed. IRS updated the security
checksheet to instruct reviewers to determine whether contractors have
completed and obtained favorable fingerprint results and to review all
relevant logs for cash payments and candling logs. In addition, IRS and
FMS personnel review all contractor (including courier) documentation
during peak. Lockbox Coordinators are responsible for reviewing the
candling log and cash log;
Status of recommendations: Per GAO: Open. During our fiscal year 2003
financial audit, we verified that IRS updated FMS's check sheet and
found it contained all of the recommended requirements. In addition, we
verified that the LPG was updated to revise guidance for candling.
However, we also reviewed the lockbox coordinators' on-site review
checksheet and found that it did not contain the courier or the
candling log requirements. We will continue to monitor IRS's efforts in
our fiscal year 2004 financial audit.
Count: 50;
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: Closed. IRS disagrees with this
recommendation. The Lockbox Coordinators were specifically hired to
conduct the performance reviews and to represent the IRS interests at
the banks during peak processing. IRS has increased the monitoring of
the Lockbox Coordinator's performance by establishing direct report of
these positions to a newly established organization in the Revenue and
Deposit Branch. Reports prepared by the Lockbox Coordinators are
analyzed and reviewed by the manager of the Lockbox Coordinators, also
the Lockbox Policy and Procedure Section and FMS. This review will
identify any inconsistencies with other on-site observations and
findings by other staff. In addition, each Submission Processing Center
conducts a review of the documents and remittances returned by the
Lockbox Bank. The role of the Lockbox Coordinators is not only to
ensure the proper reviews are completed for each site but also to be
the Liaison for the Bank and related Submission Processing Center. They
will respond to questions and provide direction based on established
guidelines in the Lockbox Processing Guidelines. To ensure Lockbox
Coordinators are able to perform all of the prescribed reviews the
Revenue and Deposit Branch will ensure additional staff is available as
needed. GAO's concern regarding the objectivity and integrity of each
individual Lockbox Coordinator becoming questionable will be addressed
through monitoring of individual performance by the newly assigned
manager. IRS is also working towards standardization of the review
process that should decrease this concern as well;
Status of recommendations: Per GAO: Open. We continue to believe the
current lockbox coordinator structure, where lockbox coordinators are
responsible for performing performance reviews as well as assisting
lockbox banks with processing issues, does not alleviate the potential
conflict of competing responsibilities in completing on-site
performance reviews. However, we will review IRS's actions during our
fiscal year 2004 audit to determine their effect on this issue. IRS
previously agreed with this recommendation in its comments on the
lockbox report dated December 20, 2002.
Count: 51;
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 reviews have been
completed to address this requirement;
Status of recommendations: Per GAO: Closed. During our fiscal year 2003
IRS financial audit, we verified that IRS had taken steps to monitor
compliance with this requirement. Additionally, this item is included
in FMS's monitoring/oversight checklist used to monitor compliance with
this requirement.
Count: 52;
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 2003 (revised April 8, 2003) and 2004 LPG
(issued December 1, 2003);
Status of recommendations: Per GAO: Open. During our fiscal year 2003
IRS financial audit, we noted that IRS had taken steps to monitor
compliance with this requirement. Additionally, this item is included
in FMS's monitoring/oversight checklist used to monitor compliance with
this requirement. However, in our fiscal year 2003 audit, we observed
that guards did not respond to alarms at one of the four lockbox banks
we visited.
Count: 53;
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 (revised
April 8, 2003) and 2004 LPG (issued December 1, 2003);
Status of recommendations: Per GAO: Closed. During our fiscal year 2003
IRS financial audit, we noted that IRS had taken steps to monitor
compliance with this requirement. Additionally, this item is included
in FMS's monitoring/oversight checklist used to monitor compliance with
this requirement as well as in the LPG. Furthermore, we noted no
exceptions during our observations.
Count: 54;
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 (revised April 8, 2003) and 2004 LPG (issued
December 1, 2003);
Status of recommendations: Per GAO: Closed. During our fiscal year 2003
IRS financial audit, we verified that IRS had taken steps to monitor
compliance with this requirement. Additionally, this item is included
in FMS's monitoring/oversight checklist used to monitor compliance with
this requirement.
Count: 55;
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 (revised April 8, 2003) and 2004
LPG (issued December 1, 2003);
Status of recommendations: Per GAO: Closed. During our fiscal year 2003
IRS financial audit, we verified that IRS had taken steps to monitor
compliance with this requirement. Additionally, this item is included
in FMS's monitoring/oversight checklist used to monitor compliance with
this requirement as well as in the LPG. Furthermore, we noted no
exceptions during our observations.
Count: 56;
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: Closed. Surveillance cameras have
been installed at all lockbox sites. Security review teams continually
monitor compliance. These procedures were updated in Section 2.4.1 of
the 2003 (revised April 8, 2003) and the 2004 LPG, issued December 1,
2003;
Status of recommendations: Per GAO: Open. IRS's action of establishing
a policy does not provide assurance that this policy is consistently
adhered to. During our fiscal year 2003 financial audit we found that
at one of four lockbox banks we visited, guards did not use the cameras
to monitor external activity when the door alarm was activated. At
another site, we found that guards did little to no monitoring of the
cameras while at the guard console.
Count: 57;
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 Section 3.5.1.1 of the 2003 (revised April 8, 2003) and the
2004 LPG, issued December 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. IRS needs to ensure that all
requirements are consistently and routinely adhered to by lockbox
management at all of the lockbox sites. During our review of lockbox
banks in 2003, we found one lockbox bank where envelopes that were not
opened on 3 sides were not candled twice and at another bank employees
were unable to determine whether 2 candlings had been performed.
Count: 58;
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 Section 3.5.1.1
of the 2003 (revised 04/08/03) and 2004 LPG, issued 12/ 01/03.
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. While IRS has added candling
reviews requirement to LPG 3.5.1.1 and has taken steps to monitor
adherence to this requirement by including this requirement in FMS's
oversight/monitoring checklist, its actions have not been sufficient to
ensure compliance. During our fiscal year 2003 IRS financial audit, we
found that at three of the four sites we visited, reviews of final
candled envelopes were not performed as required and/or was not
documented.
Count: 59;
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 Section 3.2.1 of the 2002 LPG
issued January 1, 2002, as well as the 2003 (revised April 8, 2003) and
2004 LPG, issued December 1, 2003. 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[A] quality reviews;
Status of recommendations: Per GAO: Open. During our fiscal year 2003
IRS financial audit, we verified that IRS had taken steps to monitor
compliance with this requirement. Additionally, this item is included
in FMS's monitoring/oversight checklist used to monitor compliance with
this requirement. However, we found that at three of the four sites we
visited, returned refund checks were not consistently restrictively
endorsed immediately upon extraction.
Count: 60;
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
2.8.7, 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: Closed. During our fiscal year 2003
audit, we verified that IRS had taken steps to monitor compliance with
this requirement.
Count: 61;
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: Closed. In our fiscal year 2003
financial audit, we found that IRS had made significant improvements in
ensuring that lockbox bank employees received favorable fingerprint
checks before being granted access to taxpayer data and receipts and no
exceptions were noted in this area.
Count: 62;
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: Closed. On September 23, 2003, at
the annual Lockbox Conference, NBIC[B] presented the new background
investigation requirements for permanent Lockbox bank employees,
couriers and guards. The new procedures require a moderate risk
National Agency Check with Law and Credit investigation on all
permanent bank employees, couriers and guards. The banks were given an
implementation schedule beginning October 1, 2003 with full
implementation by April 1, 2004. On December 15, 2003, the Lockbox
Project Office sent out a Lockbox Electronic Bulletin with the 2004
Lockbox Processing Guidelines (LPG) containing the revised background
investigation requirements under L.P.G.4.2, Personnel Security and
L.P.G.5.1.2(5);
Status of recommendations: Per GAO: Open. During our fiscal year 2003
financial audit, we continued to find that lockbox couriers were not
undergoing background investigations. In our fiscal year 2004 financial
audit, we will evaluate the recent actions taken by IRS.
Count: 63;
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: Closed. On September 23, 2003, at
the annual Lockbox Conference, NBIC presented the new background
investigation requirements for permanent Lockbox bank employees,
couriers and guards. The new procedures require a moderate risk
National Agency Check with Law and Credit investigation on all
permanent bank employees, couriers and guards. The banks were given an
implementation schedule beginning October 1, 2003 with full
implementation by April 1, 2004. On December 15, 2003, the Lockbox
Project Office sent out a Lockbox Electronic Bulletin with the 2004
Lockbox Processing Guidelines (LPG) containing the revised background
investigation requirements under L.P.G.4.2, Personnel Security and
L.P.G.5.1.2(5);
Status of recommendations: Per GAO: Open. In our fiscal year 2004
financial audit, we will evaluate the recent actions taken by IRS.
Count: 64;
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: Closed. During fiscal year 2003 we
reviewed a Lockbox Electronic Bulletin (LEB) alert that revised the LPG
to require that guards inspect courier vehicles for unauthorized
passengers and unlocked doors. During our audit, we did not identify
any instances where guards did not inspect courier vehicles for
unauthorized passengers and unlocked doors.
Count: 65;
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: Closed. During our fiscal year 2003
financial audit, we verified that the LPG revision clarified the
candling procedures for the various types of extraction methods.
Count: 66;
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: Closed. On April 2, 2003, IRS
instructed the banks to change the quality review process for candling.
The new procedures require that banks track which machines and which
employees missed items. The procedures were effective April 14, 2003
and included in the 2004 LPG, issued December 1, 2003;
Status of recommendations: Per GAO: Open. IRS's action of establishing
a policy does not provide assurance that this policy is consistently
adhered to. During our fiscal year 2003 audit, we verified that IRS
included this requirement in the April 2003 LPG. However, we found at
two of the four sites we visited that neither the machines nor the
clerks responsible for overlooking discovered items were recorded on
the candling logs.
Count: 67;
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 3.2.8.2;
Status of recommendations: Per GAO: Open. IRS's action of establishing
a policy does not provide assurance that this policy is consistently
adhered to. During our fiscal year 2003 IRS financial audit we verified
that the LPG had been revised to incorporate this requirement. However,
we found at one of four sites we visited that management did not
initial the candling log for each shift, whether or not items were
found to validate that information was entered correctly and items
found had been reconciled to the Form 9535.
Count: 68;
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. IRS's action of establishing
a policy does not provide assurance that this policy is consistently
adhered to. During our fiscal year 2003 financial audit, we verified
that the LPG had been revised to incorporate this requirement. However,
we found that at one of four sites we visited cash was not always
recorded immediately upon discovery. In addition, there was no
documentation that management had reconciled the log.
Count: 69;
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: Closed. During our fiscal year 2003
financial audit, we verified that the LPG had been revised to
incorporate this requirement.
Count: 70;
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. IRS staffs have
received instructions on how to use the spreadsheet and to annotate
Case Closing documentation. As a result, Personnel Offices are
enforcing the 180-day policy for fingerprint results;
Status of recommendations: Per GAO: Closed. During our fiscal year 2003
financial audit we noted only 5 instances in over 12,000 hires where
individuals were hired with fingerprint results over 180 days old.
Count: 71;
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
Federal Bureau of Investigation fingerprint and name check. All 10 IRS
campuses now have a contact responsible for submitting paperwork to the
National Background Investigation Center (NBIC) and ensuring courier
employees are granted clearance. On April 10, 2003, IRS requested that
NBIC provide a monthly status report of the campus compliance to the
Wage and Investment (W&I) Division. The 2004 LPG (issued December 1,
2003) includes Guidelines for Background Investigations under Personnel
Security in Section 4.2;
Status of recommendations: Per GAO: Open. During our fiscal year 2003
audit, we found that the five service centers with Financial Management
Service (FMS) negotiated service agreements were not compliant with the
revised courier standards requiring couriers to undergo NBIC background
investigations.
Count: 72;
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: Closed. The Security Review Team of
Receipt and Control reviews monthly compliance with the courier
requirements. For the five campuses where IRS holds the courier
contract, the Security Review Team was required to verify the campus
has a valid insurance certificate valued at $1 million. For the five
campuses with FMS negotiated agreements, FMS drafted a memorandum to
the financial institutes advising them to regularly provide a copy of
the insurance certificates to IRS. The 2003 LPG included this procedure
in Section 2.8.4.1;
Status of recommendations: Per GAO: Open. During our fiscal year 2003
audit, we reviewed the Campus Security Checklist and found it included
a question on whether the Contracting Officer Technical Representative
for campuses with IRS-negotiated courier agreements had a copy of the
bonding/insurance certificate valued at $1 million. However, it did not
request this information for campuses with FMS-negotiated courier
agreements. For four of the five campuses with FMS-negotiated courier
agreements, we reviewed an amendment to the agreements and found that
three amendments required that the courier service provide its bonding
or insurance certification on an annual basis to FMS and one required
the service to provide insurance certification to the IRS campus.
However, we found during our audit that the IRS campuses had not
received the insurance statement as required by the agreement.
Count: 73;
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: Closed. On February 6, 2004, IRS
issued information alert W&I-IA-2002-63-2004 specifying the items that
are prohibited from the secure receipt processing areas and requiring
that employees use clear plastic bags to transport small items not
carried on their person in and out of the secure areas. First line
managers or a designated representative conduct, at minimum, monthly
random reviews of employee compliance with all security policies as
they relate to personal belongings in the secure receipt processing
areas. In addition, Campus Security Review Teams conduct monthly
reviews to ensure compliance with these procedures. These procedures
were added via Information Alerts to IRMs pertaining to the secure
receipt processing areas;
Status of recommendations: Per GAO: Open. During our fiscal year 2003
financial audit, we found that one of four campuses we visited allowed
prohibited items such as newspapers, books, and purses into receipt
processing areas. Additionally, at the same campus, items transported
in and out of the processing area in clear plastic bags were not
clearly visible and not all temporary employees had lockers to store
personal belonging. Since IRS's actions occurred after our site visits,
we will continue to evaluate IRS's corrective actions.
Count: 74;
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: Closed. On June 3, 2003, FA[C]
included a requirement in IRM 21.3.4.7.3.1(2), which states that cash
payments and Form 809 (Receipt for Payment of Taxes) must be stored
separately from personal belongings. This issue was also included in
operational reviews of the TACs conducted during fiscal year 2003;
Status of recommendations: Per GAO: Open. During our fiscal year 2003
financial audit, we verified that IRS included this requirement in the
IRM guidelines dated June 27, 2003. However, this IRM was completed at
the end of our site visits. We found that at one of the two field
offices we visited, personal belongings such as purses and briefcases
were allowed in areas where taxpayer receipts were received. Since
IRS's action occurred near the end of our audit, we will continue to
evaluate the effectiveness of IRS's corrective actions during our
fiscal year 2004 financial audit.
Count: 75;
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: Closed. On May 28, 2003, the IRM
candling procedures were updated with an Information Alert (W&I-IA-
2002-730) to specify precise first and final candling methods based on
dimensions of the mail and first and final candling;
Status of recommendations: Per GAO: Open. We verified that IRS included
this requirement in the IRM guidelines. However, during our fiscal year
2003 financial audit, we found that at two of four campuses we visited,
not all envelopes were illuminated at least once. Since IRS's action
occurred after our site visits, we will continue to evaluate IRS's
corrective actions during our fiscal year 2004 financial audit.
Count: 76;
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: Closed. On May 28, 2003, the IRM
candling procedures were updated with an Information Alert (W&I-IA-
2002-730) implementing procedures prohibiting a single employee from
performing the final candling in a remote location. This requirement
was also added to the 2004 revision of IRM 3.10.72;
Status of recommendations: Per GAO: Open. During our fiscal year 2003
IRS financial audit we verified that IRS included this requirement in
the IRM guidelines. However, we found at one campus that while two
employees performed candling in a separate room together, there were so
many crates and boxes in the area that the two employees could not see
one another. Since IRS's action occurred after our site visits, we will
continue to evaluate IRS's corrective actions during our fiscal year
2004 financial audit.
Count: 77;
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. Completed June 5, 2003. 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: Closed. We verified that IRS
incorporated guidelines in its fiscal year 2003 FAOP stating that all
TACs will accept all standard forms of payments from customers
including checks, money orders, and cash.
Count: 78;
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 monitored adherence to
these guidelines during operational reviews of the TACs conducted in
fiscal year 2003. The FA IRM, issued in June 2003, states "There will
be at least one employee in each TAC that is issued a Form 809 Receipt
Book". This gives each TAC the ability to issue the official receipt to
taxpayers when paying by cash or when a receipt is requested. (IRM
21.3.4.7.3(3). Managers in the TACs are also required to complete an
annual review to address this issue;
Status of recommendations: Per GAO: Open. Actions taken thus far have
not been effective. During our fiscal year 2003 financial audit, we
found at one field office TAC that taxpayers wishing to pay in cash
were encouraged to obtain a money order from a nearby bank. At the
other TAC in that same field office we found that the Compliance unit
manager was unaware of the procedures for receiving cash payments.
Count: 79;
No.: 03-37;
Recommendation: Develop and implement post-input review procedures to
verify the accuracy of excise tax credit information in the master
file. (short-term);
Source report: Management Report: Improvements Needed in Controls over
IRS's Excise Tax Certification Process (GAO-03-687R, July 23, 2003);
Status of recommendations: Per IRS: Closed. In July 2003, the
Cincinnati Compliance Campus implemented Program Analysis System
reviews on Gasoline Wholesale Distributor/End User/Diesel claims
submitted on Forms 8849. In August 2003 they implemented and increased
the responsibility for managers to review all work including fuel
claims as part of their performance review for employees. In December
2003, Excise is included in the Embedded Quality Review System
expansion rollout and fuel claims are also included in this review. The
Embedded Quality Review System is performed by the employer's manager
and is part of the employee's performance rating;
Status of recommendations: Per GAO: Open. IRS's corrective actions were
completed after the cut-off period of transactions included in our
fiscal year 2003 testing. We will review the effectiveness of these
actions during our fiscal year 2004 audit.
Count: 80;
No.: 03-38;
Recommendation: Investigate why certification errors continue to go
undetected through IRS's review procedures. (short-term);
Source report: Management Report: Improvements Needed in Controls over
IRS's Excise Tax Certification Process (GAO-03-687R, July 23, 2003);
Status of recommendations: Per IRS: Closed. In October 2003, IRS
reiterated to management the importance of reviewing and understanding
the Certification process;
Status of recommendations: Per GAO: Open. IRS's corrective action was
completed after we reviewed its final excise tax receipt certification
affecting fiscal year 2003 distributions. We will review the
effectiveness of this action during our fiscal year 2004 audit.
Count: 81;
No.: 03-39;
Recommendation: Develop and implement an action plan to improve the
certification review process. (short-term);
Source report: Management Report: Improvements Needed in Controls over
IRS's Excise Tax Certification Process (GAO-03-687R, July 23, 2003);
Status of recommendations: Per IRS: Closed. In October 2003, IRS
reiterated to management the importance of reviewing and understanding
the Certification process;
Status of recommendations: Per GAO: Open. IRS's corrective action was
completed after we reviewed its final excise tax receipt certification
affecting fiscal year 2003 distributions. We will review the
effectiveness of this action during our fiscal year 2004 audit.
Count: 82;
No.: 03-40;
Recommendation: Communicate in writing any potential changes in IRS's
certification process to other Treasury entities that use the
certification information, and obtain concurrence from these entities
prior to implementing such changes. (short-term);
Source report: Management Report: Improvements Needed in Controls over
IRS's Excise Tax Certification Process (GAO-03-687R, July 23, 2003);
Status of recommendations: Per IRS: Open. IRS has implemented the
taking of minutes at all Treasury Excise Tax Working meetings, and will
also have a Memorandum of Understanding (MOU) signed by the Treasury
Excise Tax Working Group;
Status of recommendations: Per GAO: Open. We will review the status of
IRS's corrective actions during our fiscal year 2004 financial audit.
Count: 83;
No.: 03-41;
Recommendation: Implement procedures to annually identify excise
taxpayers with the largest excise tax liabilities affecting the Highway
Trust Fund and the Airport and Airway Trust Fund. (short-term);
Source report: Management Report: Improvements Needed in Controls over
IRS's Excise Tax Certification Process (GAO-03-687R, July 23, 2003);
Status of recommendations: Per IRS: Closed. IRS has identified Employer
Identification Numbers of the largest excise tax liabilities beginning
with tax period 200209. IRS identified the largest excise tax filers to
both Cincinnati Submission Processing and Compliance Campuses in August
2003. The Employer Identification Numbers will be updated annually
using the September tax periods;
Status of recommendations: Per GAO: Open. We verified that IRS had
identified the excise taxpayers with the largest excise tax liabilities
when we reviewed its pre-certification of excise tax receipts for the
quarter ended June 30, 2003. We will continue to monitor IRS's actions
during our 2004 audit to verify that IRS has implemented this as a
recurring annual procedure.
Count: 84;
No.: 03-42;
Recommendation: Implement procedures to track the status of tax return
filings for the largest payers of excise taxes and contact these
taxpayers if the submission processing campus has not received their
tax returns by 2 weeks after the due date. (short-term);
Source report: Management Report: Improvements Needed in Controls over
IRS's Excise Tax Certification Process (GAO-03-687R, July 23, 2003);
Status of recommendations: Per IRS: Open. IRS is conducting a pilot to
analyze the receipt pattern of the largest excise taxpayers. The
Cincinnati Submission Processing and Compliance Campuses have entered
into a Service Level Agreement (SLA) to jointly monitor receipts and
processing of excise tax returns. IRS implemented a 6-day cycle for
expedited processing of all Form 720s. This pilot is on schedule to be
completed by November 2004. The SLA was signed in October 2003 and
revised in November 2003;
Status of recommendations: Per GAO: Open. We will review the progress
of IRS's pilot during our fiscal year 2004 audit.
Count: 85;
No.: 03-43;
Recommendation: Implement procedures to monitor the receipt and
processing status of large excise tax returns to ensure that they are
promptly recorded in IRS's master file prior to certifying excise tax
distributions. (short-term);
Source report: Management Report: Improvements Needed in Controls over
IRS's Excise Tax Certification Process (GAO-03-687R, July 23, 2003);
Status of recommendations: Per IRS: Closed. The Campus' Program Analyst
staff and Reports Excise Analysts are monitoring to ensure timely
posting of the largest taxpayers. The SLA between the Cincinnati
Submission Processing and Compliance Campuses ensures monitoring and
processing of all Form 720 returns on a 6-day cycle. Compliance has
verified that Form 720 returns are being processed on a six-day cycle,
procedures are in place, and IRS is monitoring to ensure timely posting
of the largest taxpayers;
Status of recommendations: Per GAO: Open. IRS's corrective action was
completed after we reviewed its final excise tax receipt certification
affecting fiscal year 2003 distributions. We will review the
effectiveness of this action during our fiscal year 2004 audit.
Count: 86;
No.: 04-01;
Recommendation: We recommend that IRS require lockbox bank managers to
maintain appropriate documentation on-site demonstrating that
satisfactory fingerprint results have been received before contractors
are granted access to taxpayer receipts and data. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls and Accounting Procedures (GAO-04-553R, April 26, 2004);
Status of recommendations: Per IRS: Open. The current LPG requires
appropriate documentation for couriers and guards before contractors
are granted access to taxpayer receipts. To ensure compliance with the
LPG, IRS and FMS include this as a review item when performing security
and administrative reviews;
Status of recommendations: Per GAO: Open. This is a new recommendation.
We will review IRS's corrective action during our fiscal year 2004
audit.
Count: 87;
No.: 04-02;
Recommendation: We recommend that IRS revise its policy on two-person
courier teams to prohibit the use of courier teams consisting of
closely related individuals to further minimize the risk of collusion
in the theft of taxpayer receipts and data. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls and Accounting Procedures (GAO-04-553R, April 26, 2004);
Status of recommendations: Per IRS: Open. Additional background
investigation requirements for all couriers have been implemented.
However, Wage and Investment will confer with Mission Assurance to
assess their current guidelines;
Status of recommendations: Per GAO: Open. This is a new recommendation.
We will review IRS's corrective actions during our fiscal year 2004
audit.
Count: 88;
No.: 04-03;
Recommendation: We recommend that IRS develop procedures to require
lockbox managers to provide satisfactory evidence that managerial
reviews are performed in accordance with established guidelines. At a
minimum, reviewers should sign and date the reviewed documents and
provide any comments that may be appropriate in the event that their
reviews identified problems or raised questions. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls and Accounting Procedures (GAO-04-553R, April 26, 2004);
Status of recommendations: Per IRS: Open. The LPG instructs the banks
to perform numerous managerial reviews. IRS will consider the risk
level of each of the documented logs, and assess each one to determine
the appropriate level of review and if more guidelines are necessary;
Status of recommendations: Per GAO: Open. This is a new recommendation.
We will continue to review IRS's efforts during our fiscal year 2004
audit.
Count: 89;
No.: 04-04;
Recommendation: We recommend that IRS revise its candling procedures at
lockbox banks to require testing of automated candling machines at
appropriate intervals, taking into account such factors as use time,
volume processed, machine requirements, and shift cycles. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls and Accounting Procedures (GAO-04-553R, April 26, 2004);
Status of recommendations: Per IRS: Open. IRS requires an additional
candling of all envelopes processed by extractors using machines that
have automated candling equipment. This requirement mitigates the risk
identified by GAO. However, IRS agrees to assess their current
guidelines for possible inclusion of testing standards for equipment
with automated candling equipment;
Status of recommendations: Per GAO: Open. This is a new recommendation.
We will monitor IRS's actions during our fiscal year 2004 audit.
Count: 90;
No.: 04-05;
Recommendation: We recommend that IRS require lockbox managers to
maintain logs of these tests and to periodically review their logs.
(short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls and Accounting Procedures (GAO-04-553R, April 26, 2004);
Status of recommendations: Per IRS: Open. IRS will include this
recommendation as part of the assessment of testing standards for
machines (04-04) with automated candling equipment;
Status of recommendations: Per GAO: Open. This is a new recommendation.
We will monitor IRS's actions during our fiscal year 2004 audit.
Count: 91;
No.: 04-06;
Recommendation: We recommend that IRS discontinue its practice of
storing taxpayer receipts and data outside TAC secured areas without
storing the receipts in a secured locked container. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls and Accounting Procedures (GAO-04-553R, April 26, 2004);
Status of recommendations: Per IRS: Open. Written procedures have been
provided to TAC employees for safeguarding taxpayer receipts when
received. IRM 21.3.4.7(6), issued in June 2003, provides guidance
stating that payments received from taxpayers will be immediately
placed in a locked container. The receipts are also stored away from
employees' personal belongings. IRS will continue to conduct
operational reviews at TAC offices to ensure IRM procedures are being
followed. The TAC location that was noted for securing payments from
taxpayers outside the secure area of the TAC was contacted and the
location of the desk has been moved inside the secured area of the TAC.
The TAC manager was informed to ensure all TAC operations are conducted
inside the secured area of the TAC;
Status of recommendations: Per GAO: Open. This is a new recommendation.
We will review IRS's corrective actions during our fiscal year 2004
audit.
Count: 92;
No.: 04-07;
Recommendation: We recommend that IRS develop procedures to enhance
adherence to existing instructions on safeguarding discovered
remittances at service center campuses. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls and Accounting Procedures (GAO-04-553R, April 26, 2004);
Status of recommendations: Per IRS: Open. In 2003, IRM 3.8.46 was
produced and distributed to all campuses. Form 4287 (Record of
Discovered Remittances) has been revised to include a box for managers
to indicate that reconciliation has been performed. Also, IRS added to
the monthly security checklist to review the discovered remittance
procedures;
Status of recommendations: Per GAO: Open. This is a new recommendation.
We will review IRS's corrective actions during our fiscal year 2004
audit.
Count: 93;
No.: 04-08;
Recommendation: We recommend that IRS enforce its policies and
procedures to ensure that service center campus security guards respond
to alarms. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls and Accounting Procedures (GAO-04-553R, April 26, 2004);
Status of recommendations: Per IRS: Open. The IRS Physical Security
Programs within Mission Assurance will modify IRM 16.12, Facility and
Property Protection, to require the following: development of self
assessments, which may be used to test the response capabilities for
guards, as these relate to alarms;
integrate self assessments into IRM 1.16;
conduct initial and then periodic security exercises, which are
realistic, to ensure security guards respond to alarms, required by
Operational Assurance personnel;
Operational Assurance will provide written reports to the Physical
Security Program Office to support the conducting of security
exercises;
review self assessment reports for alarm response and coordinate
corrective action of outstanding issues;
and, conduct annual security exercise at each of their assigned
facilities to test alarm responses by October 31, 2005;
Status of recommendations: Per GAO: Open. This is a new recommendation.
We will review IRS's corrective actions during our fiscal year 2004
audit.
Count: 94;
No.: 04-09;
Recommendation: We recommend that IRS establish compensating controls
in the event that automated security systems malfunction, such as
notifying guards and managers of the malfunction, and immediately
deploying guards to better protect the processing center's perimeter.
(short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls and Accounting Procedures (GAO-04-553R, April 26, 2004);
Status of recommendations: Per IRS: Open. The IRS Physical Security
Programs within Mission Assurance will develop procedures by August 30,
2004, to be used in conjunction with the policies developed in
Recommendation 04-08 to ensure that local management is notified
whenever there is a malfunction of alarms and that guards are deployed
or doors are secured, as necessary, either during tests or when
otherwise identified. Procedures will include management notification
of alarm failure when reported to the Situational Awareness Management
Center/ Computer Security Incident Response Center (SAMC/CSIRC);
Status of recommendations: Per GAO: Open. This is a new recommendation.
We will continue to review IRS's corrective actions.
Count: 95;
No.: 04-10;
Recommendation: We recommend that IRS modify AUO reports to ensure that
they report the last activity date for each outstanding obligation line
amount. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls and Accounting Procedures (GAO-04-553R, April 26, 2004);
Status of recommendations: Per IRS: Closed. The Beckley Finance Center
has revised the Aging Unliquidated Obligations report to accurately
capture the last activity date for each obligation line amount;
Status of recommendations: Per GAO: Open. This is a new recommendation.
We will review IRS's corrective actions during our fiscal year 2004
audit.
Count: 96;
No.: 04-11;
Recommendation: We recommend that IRS require procurement office staff
to review and sign off on whether obligations are valid or require
deobligation before business units complete their quarterly
certifications. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls and Accounting Procedures (GAO-04-553R, April 26, 2004);
Status of recommendations: Per IRS: Open. IRS is evaluating its current
approach toward reviewing open obligations and approving those that
require deobligation. This includes studying the relative
responsibilities of the procurement office, business units, and the
Beckley Finance Center with respect to validating and certifying
deobligations. New guidelines will be issued at the conclusion of this
internal review;
Status of recommendations: Per GAO: Open. This is a new recommendation.
We will review IRS's corrective actions during our fiscal year 2004
audit.
Count: 97;
No.: 04-12;
Recommendation: We recommend that IRS enhance its compensating internal
controls by including tests or recalculations of payroll computations
performed by NFC for the IRS employees selected for review each pay
period. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls and Accounting Procedures (GAO-04-553R, April 26, 2004);
Status of recommendations: Per IRS: Open. The IRS Transactional
Processing Operations division will expand its current random sample
payroll review/validation process to include the recalculation of
agency Thrift Saving Plan contributions. A detailed Standard Operating
Procedure outlining the complete review process is being developed,
with implementation expected by June 2004;
Status of recommendations: Per GAO: Open. This is a new recommendation.
We will monitor IRS's corrective actions during our fiscal year 2004
audit.
Count: 98;
No.: 04-13;
Recommendation: We recommend that IRS timely investigate and resolve
any identified errors. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls and Accounting Procedures (GAO-04-553R, April 26, 2004);
Status of recommendations: Per IRS: Open. The IRS Transactional
Processing Operations division is responsible for following up
immediately on any discrepancies with NFC and ensuring that NFC takes
corrective action within a timely basis;
Status of recommendations: Per GAO: Open. This is a new recommendation.
We will review IRS's actions during our fiscal year 2004 audit.
Count: 99;
No.: 04-14;
Recommendation: We recommend that IRS establish review procedures for
amounts being reported in Supplemental Information to the financial
statements for Other Claims for Refund. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls and Accounting Procedures (GAO-04-553R, April 26, 2004);
Status of recommendations: Per IRS: Open. The IRS's Appeals and Chief
Counsel provide estimated amounts on Other Claims for Refund to the
Office of Revenue Reports. For information received from Appeals, IRS
management will perform a second level of review to ensure the accuracy
of the amounts to be included in the financial statements. In addition,
IRS management will work closely with Chief Counsel to find ways to
accelerate getting information on claims pending review by federal
courts;
Status of recommendations: Per GAO: Open. This is a new recommendation.
We will review IRS's corrective actions during our fiscal year 2004
audit.
Count: 100;
No.: 04-15;
Recommendation: Until BPMS is fully operational, we recommend that IRS
implement procedures to ensure that all performance data reported in
the MPS report are subject to effective, documented reviews to provide
reasonable assurance that the data are current at interim periods.
(short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls and Accounting Procedures (GAO-04-553R, April 26, 2004);
Status of recommendations: Per IRS: Open. IRS has taken steps to ensure
that the performance measures data reported in the monthly report is
properly reviewed before being published. IRS is increasing the control
over data by increasing the number of measures reported through the
automated Business Performance Management Systems, requiring the
submitting divisions to certify that their data is accurate, and
reducing the number of measures manually reported in the monthly
report. In addition, Corporate Planning and Performance Unit staff
continues to complete the manual review process as described by GAO,
which requires the staff to review the draft document, to compare it to
the data provided to the divisions, and to compare it to the previous
month's report for consistency, thereby validating the accuracy of the
manual input of data to the report;
Status of recommendations: Per GAO: Open. This is a new recommendation.
We will review IRS's corrective actions during our fiscal year 2004
audit.
Source: GAO.
[A] In reporting on the status of this recommendation, IRS refers to
SPC, which is an acronym for Submission Processing Center.
[B] In reporting on the status of this recommendation, IRS refers to
NBIC, which is an acronym for National Background Investigation Center.
[C] In reporting on the status of this recommendation, IRS refers to
FA, which is an acronym for Field Assistance.
[End of table]
[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:
* 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, 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.
* Assessed the accounting principles used and significant estimates
made by management.
* Evaluated the overall presentation of the financial statements.
* 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.
* Tested relevant internal controls over financial reporting (including
safeguarding assets) and compliance, and evaluated the design and
operating effectiveness of internal controls.
* Considered the process for evaluating and reporting on internal
controls and financial management systems under the Federal Managers'
Financial Integrity Act.
* 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); Pay and
Allowance System for Civilian Employees (5 U.S.C. §§ 5332 and 5343, and
29 U.S.C. § 206); Federal Employees' Retirement System Act of 1986, as
amended (5 U.S.C. §§ 8422, 8423 and 8432); Social Security Act, as
amended (26 U.S.C. § 3101 and 3121, and 42 U.S.C. § 430); Federal
Employees Health Benefits Act of 1959, as amended (5 U.S.C. §§ 8905,
8906, and 8909); and Consolidated Appropriations Resolution, 2003 (Pub.
L. No. 108-7).
* Tested whether IRS's financial management systems substantially
comply with the three requirements of the Federal Financial Management
Improvement Act of 1996.
[End of section]
Appendix III: Comments from the Internal Revenue Service:
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224:
COMMISSIONER:
April 16, 2004:
Mr. Steven J. Sebastian
Director:
Financial Management and Assurance
U. S. General Accounting Office:
441 G Street, N.W.
Washington, D.C. 20548:
Dear Mr. Sebastian:
I am responding to your draft report titled, Internal Revenue Service:
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 100 recommendations cited in your report, we are pleased that
GAO agrees that 24 are now closed. In addition, we believe an
additional 37 recommendations will be closed based on your fiscal year
2004 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 and will require our
sustained commitment. We are actively working to implement corrective
actions to effectively address all remaining open recommendations.
I appreciate the GAO's acknowledgment of our continued strong
commitment to addressing financial management issues. I also recognize
we must remain committed to achieving effective financial management.
Sincerely,
Signed by:
Mark W. Everson:
[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, Paul Foderaro, Chuck Fox, Larry
Malenich, Charles Payton, Ted Hu, Yola Lewis, John Davis, William
Cordrey, Valerie Freeman, Alain Dubois, George Jones, Gloria Cano, and
Nina Crocker made key contributions to this report.
(196012):
FOOTNOTES
[1] U.S. General Accounting Office, Financial Audit: IRS's Fiscal Years
2003 and 2002 Financial Statements, GAO-04-126 (Washington, D.C.: Nov.
13, 2003).
[2] U.S. General Accounting Office, Internal Revenue Service: Status of
Recommendations from Financial Audits and Related Financial Management
Reports, GAO-03-665 (Washington, D.C.: May 29, 2003).
[3] U.S. General Accounting Office, Financial Audit: IRS's Fiscal Year
2002 and 2001 Financial Statements, GAO-03-243 (Washington, D.C.: Nov.
15, 2002).
[4] GAO-03-665.
[5] U.S. General Accounting Office, Management Report: Improvements
Needed in Controls over IRS's Excise Tax Certification Process, GAO-03-
687R (Washington, D.C.: July 23, 2003).
[6] U.S. General Accounting Office, Management Report: Improvements
Needed in IRS's Internal Controls and Accounting Procedures, GAO-04-
553R (Washington, D.C.: Apr. 26, 2004).
[7] Short-term recommendations are defined as those that could be
addressed within 2 years. Long-term recommendations are defined as
those expected to require 2 years or more to implement.
[8] Recommendation 03-08 in appendix I was issued to correct a
potential conflict in the responsibilities of lockbox coordinators, who
assist lockbox banks with processing issues and who also perform the
on-site performance review of those banks.
[9] U.S. General Accounting Office, Business Systems Modernization:
Internal Revenue Service Needs to Further Strengthen Program
Management, GAO-04-438T (Washington, D.C.: Feb. 12, 2004).
[10] GAO-04-126.
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