Major Management Challenges and Program Risks: Department of the Treasury
(Letter Report, 01/01/2001, GAO/GAO-01-254).

This report, part of GAO's high risk series, discusses the major
management challenges and program risks facing the Department of the
Treasury. The primary challenges that Treasury faces include (1)
modernizing the Internal Revenue Service's tax administration systems,
(2) improving Customs Service's regulation of commercial trade, (3)
achieving sound financial management, (4) improving the Bureau of
Alcohol, Tobacco, and Firearms' performance measures, and (5) improving
the management of Treasury's asset forfeiture program.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GAO-01-254
     TITLE:  Major Management Challenges and Program Risks: Department
	     of the Treasury
      DATE:  01/01/2001
   SUBJECT:  Risk management
	     Accountability
	     Financial management
	     International trade regulation
	     Performance measures
	     Customs administration
	     Internal controls
	     Tax administration systems
IDENTIFIER:  GAO High Risk Program
	     High Risk Series 2001
	     Earned Income Tax Credit
	     Treasury Asset Forfeiture Fund
	     IRS Information Technology Investments Account
	     Customs Service Automated Commercial Environment System
	     EIC
	     Treasury Offset Program
	     FBI National Instant Criminal Background Check System
	     Custom Service Seized Assets and Case Management Tracking
	     System

******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO Testimony.                                               **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
******************************************************************
GAO-01-254

Performance and Accountability Series

January 2001 Major Management Challenges and Program Risks

Department of the Treasury

GAO- 01- 254

Letter 3 Overview 6 Major

13 Performance and Accountability Challenges

Related GAO 59

Reports Performance

63 and Accountability Series

Lett er

January 2001 The President of the Senate The Speaker of the House of
Representatives

This report addresses the major performance and accountability challenges
facing the Department of the Treasury (Treasury) as it seeks to carry out
certain aspects of its economic, financial, enforcement, and

management missions. It includes a summary of actions that Treasury has
taken and that are under way to address these challenges. It also outlines
further actions

that GAO believes are needed. This analysis should help the new Congress and
administration carry out their responsibilities and improve government for
the benefit of the American people. This report is part of a special series,
first issued in January 1999, entitled the Performance and Accountability
Series: Major Management Challenges

and Program Risks. In that series, GAO advised the Congress that it planned
to reassess the methodologies and criteria used to determine which federal
government operations and functions should be highlighted and which should
be designated as “high risk.” GAO completed the assessment,
considered comments provided on a publicly available exposure draft, and
published its guidance document ,

Determining Performance and Accountability Challenges and High Risks (GAO-
01- 159SP), in November 2000. This 2001 Performance and Accountability
Series contains separate reports on 21 agencies- covering each cabinet
department, most major independent agencies, and the U. S. Postal Service.
The series also includes a governmentwide perspective on performance

and management challenges across the federal government. As a companion
volume to this series, GAO is issuing an update on those government
operations and programs that its work identified as “high risk”
because of either their greater vulnerabilities to waste, fraud, abuse, and
mismanagement or major challenges associated with their economy, efficiency,
or effectiveness.

David M. Walker Comptroller General of the United States

Overview The Department of the Treasury is responsible for a broad scope of
activities that touch the lives of all Americans, including collecting
taxes, managing the

government's finances, securing U. S. borders, controlling firearms- related
crime, and managing seized assets. To carry out its responsibilities,
Treasury has a

workforce of about 143,000 employees, most of whom work for Treasury's 13
bureaus. Treasury faces a variety of performance and accountability
challenges that affect successful execution of its broad and complex
responsibilities. This report discusses the primary challenges that have
surfaced on the basis of our work at Treasury and several of its bureaus and
describes the progress made since we issued our last performance and
accountability report in 1999. 1 1 Performance and Accountability Series:
Major Management Challenges and Program Risks: Department of the Treasury
(GAO/ OCG- 99- 14, Jan. 1999).

Modernize the Internal Revenue Service to better help taxpayers meet their
tax responsibilities and to increase overall compliance with tax laws

? Improve the U. S. Customs Service's regulation of commercial trade while
ensuring that it protects against the entry of illegal goods at U. S.
borders

? Achieve sound financial management through significant management
attention and priority

? Improve the Bureau of Alcohol, Tobacco and Firearms' performance measures
to better determine its progress in reducing criminals' access to firearms

? Improve the management of Treasury's asset forfeiture program

Internal Revenue IRS' ability to balance its goals of helping taxpayers

Service (IRS) comply with tax laws and improving overall compliance
Modernization

depends on successfully modernizing IRS. This modernization effort
encompasses changes to every facet of IRS' operations, including its
organizational structure, its performance management system, and its
technology. IRS is about 3 years into the modernization process, which is
likely to take a decade or more to complete. Over the past 3 years, IRS has
developed and

committed to an integrated modernization strategy, which is a significant
achievement. It has implemented a new organizational structure with four
customerfocused operating divisions to meet the needs of the taxpayer
segments they serve. It has also made progress in implementing our
recommendations aimed at establishing key management controls needed to

effectively build and implement modern information systems. Substantial work
remains for IRS' modernization, however, before expected results are

achieved. This work includes ? revamping business practices to better meet
taxpayers' needs, ? implementing a balanced approach to performance
management to better assess progress in achieving goals and improving
operations,

? addressing financial management weaknesses to develop reliable cost- based
performance information, and ? institutionalizing effective management
controls for information systems modernization. We have classified four
areas of IRS' operations as highrisk: financial management, systems
modernization, the collection of unpaid taxes, and noncompliance with the
Earned Income Credit (EIC). Two of these areas-

financial management and systems modernization- were first designated as
high- risk in 1995. In all four areas, billions of dollars are at risk
because IRS lacks requisite management controls. Specifically:

? Because IRS lacks reliable cost accounting information, it is difficult
for IRS and Congress to determine the cost of various tax collection and
enforcement activities. If IRS had such cost accounting information, it
could also use it to manage these activities more efficiently. ?
Modernization of IRS' systems that support critical IRS business functions
has inherent risks because it is extremely complex and costly. In addition,
IRS has not yet fully corrected long- standing and serious modernization
management and technical weaknesses that were the focus of our past
recommendations. If these weaknesses are not fully addressed, modernization
projects are at risk of not

performing as intended, costing more, and taking longer to complete. ? IRS
lacks reliable and timely financial, operational,

and compliance data to help target its effort in collecting billions of
dollars in unpaid taxes. As a result, the federal government is exposed to
significant losses of tax revenue, and compliant taxpayers bear an undue
burden of financing the government's activities. ? IRS lacks data to
demonstrate that it has effective controls over noncompliance with the EIC-
a tax credit that is available to low- income working people. According to
IRS data, taxpayers are

inappropriately claiming billions of dollars for this credit. IRS has made
good progress in establishing managerial

controls in its financial management and systems modernization areas, but
concerted follow- through with modernization plans and substantial
implementation is

needed to more fully address our recommendations and reduce the risk level.
Customs' Regulation Customs faces significant performance challenges in of
Commercial Trade balancing its responsibilities for enforcing laws to
safeguard U. S. borders against the illegal entry of goods and regulating
legitimate commercial activity efficiently. Customs has made some progress
in implementing modernization initiatives that are designed to improve

its regulation of commercial activities and the effectiveness of personal
searches of passengers, but the following challenges remain: ? completing an
assessment of new trade compliance initiatives as we recommended; ? fully
implementing mature and effective system acquisition capabilities as we
recommended so that it can effectively acquire a large, complex import
processing system known as the Automated

Commercial Environment that is to help facilitate the movement of goods into
the United States and the collection of revenues; ? continuing to address
our recommendation to obtain better data to improve the process of searching

airline passengers who may be carrying contraband, such as illegal drugs,
while respecting the rights of American citizens and the traveling public;
and

? using reliable data to address our recommendation to determine its staff
resource needs for all of its operations and ensure that personnel are
located where they are most needed.

Financial Treasury faces many challenges in its ongoing efforts to
Management improve the accuracy and reliability of its financial and

information management systems and correct internal control weaknesses that
we and the Treasury Office of Inspector General (OIG) identified at several
of its bureaus and offices. Treasury received a qualified opinion on its
fiscal year 1999 Department- wide financial statements because of financial
management

problems at IRS and the inability of IRS' administrative systems to produce
timely, auditable data to support certain IRS financial statements.
Treasury's ability to effectively fulfill its financial management
responsibilities has also been adversely affected by the lack of substantial
compliance with the financial management systems requirements detailed in
the Federal Financial Management Improvement Act of 1996 (FFMIA) and
weaknesses in Customs' internal controls over data in its automated systems.

Certain significant financial systems weaknesses; problems with fundamental
recordkeeping and financial reporting; incomplete documentation; and weak
internal controls, including computer controls, have undermined the U. S.
government's ability to obtain an opinion on the reliability of its
financial statements for the 3 years that we have reported on these
statements. As preparer of

the Financial Report of the United States Government, Treasury's Financial
Management Service (FMS) has a key responsibility to provide leadership and
work with agencies to address some of these problems, in particular the lack
of sufficient systems, controls, and procedures to properly prepare the
government's financial statements. Further, in performing much of Treasury's
role as primary fiscal agent for the federal government, FMS continues to
experience challenges in addressing financial management issues related to
implementing the requirements of the Debt Collection Improvement Act of 1996
and improving its computer security controls over systems used to help it
process hundreds of billions of dollars of collections and disbursements
made on behalf of most federal agencies.

At the end of fiscal year 1998, the unified budget of the federal government
was in surplus for the first time in almost 30 years and surpluses are
projected to continue over the next decade. As we have stated in previous
reports, the transition from annual budget deficits to surpluses presents
challenges to Treasury for managing the maturity profile of federal debt
held by the public consistent with Treasury's objectives and strategies for
achieving these three debt management objectives of sound cash management,
lowest financing costs, and the

promotion of efficient capital markets. Bureau of Alcohol,

Significant technological advances have given the Tobacco and Bureau of
Alcohol, Tobacco and Firearms (ATF) more Firearms'

investigative information to enforce the federal laws and Performance

regulations relating to firearms and firearms- related Measures violent
crime. However, as we observed in our June 2000 report, 2 it is difficult to
determine ATF's progress

2 Observations on the Department of the Treasury's Fiscal Year 1999
Performance Report and Fiscal Year 2001 Performance Plan (GAO/ GGD/ AIMD-
00- 231R, June 30, 2000).

because its performance measures are generally output measures (e. g.,
number of firearm traces made, average trace response time, and number of
persons trained), rather than outcome measures (e. g., reductions in
firearms- related crimes). Treasury officials have said that until Treasury
is better able to determine the causeand-

effect relationships between its programs and the outcomes they are intended
to influence, it will continue to rely on output measures.

Asset Forfeiture Another challenge for Treasury deals with the separate

Program but similar seized asset programs operated by Treasury and Justice
that were first designated as high risk in 1990. Neither department had
adequately focused on

managing and accounting for seized assets nor formed a plan to consolidate
the two programs, as was mandated by Congress. As of September 30, 1999, the
combined value of assets in these two programs was more than

$1 billion, of which about $625 million were assets under Treasury's
management. We have noted improvements in the management of both programs
over the last decade. However, the Treasury Inspector General continues to
identify weaknesses in the areas that were the subject of our past
recommendations, such as implementing accountability control over seized
property at Customs. Further, Treasury and Justice have not addressed our
recommendation to consolidate their two programs to eliminate duplication of
resources and reduce administrative costs. However, they are conducting a
study of opportunities for cooperation in

the administration of their programs. We will consider the results of this
study along with actions to address internal control weaknesses in
determining whether to remove the high- risk designation for the asset
forfeiture program in the future.

Major Performance and Accountability Challenges

This report discusses the performance and accountability challenges that
have surfaced on the basis of our work at Treasury and several of its
bureaus. Those challenges affect Treasury's ability to carry out its
critical enforcement and financial responsibilities which include ensuring
compliance with tax and trade laws, protecting U. S. borders against the
illegal entry of goods, managing the finances of the government, and
reducing firearms- related crimes. Although Treasury and its bureaus have
made progress in each of these areas, longstanding

challenges, some of which rise to the level of high risk, remain. These
challenges and high- risk areas are discussed below. Modernize IRS to IRS'
ability to balance its goals of helping taxpayers

Better Help meet their tax responsibilities and improving overall

Taxpayers Meet compliance with the tax laws depend on its successful

Their Tax completion of a major modernization effort. This effort
Responsibilities

is multifaceted and encompasses changes to IRS' and to Increase
organizational structure, business practices,

Overall performance management system, and information Compliance With

systems. IRS' organizational restructuring is proceeding reasonably well;
however, substantial work remains Tax Laws

before expected results are achieved. This work includes ? revamping
business practices to better meet taxpayers' needs, ? implementing a
balanced approach to performance management to better assess progress in
achieving goals and improving operations,

? addressing financial management weaknesses to develop reliable cost- based
performance information, and ? institutionalizing effective management
controls for information systems modernization.

IRS is now about 3 years into its modernization effort, but improvements in
taxpayer service have not yet materialized. 1 Taxpayers continue to be
frustrated with IRS' inability to provide telephone customer service.
Although the telephone answer rate for the 2000 filing season improved
compared to 1999, it was still well below the performance level achieved in
1998. IRS data

showed that the answer rate for the 2000 filing season was 62 percent, which
is lower than the 72 percent IRS achieved in the 1998 filing season. The
answer rate was lower than in 1998 even though IRS, since 1999, has invested
heavily in technology to route telephone calls from taxpayers to the
location where the wait is shortest and has made telephone assistance
available 24 hours a day, 7 days a week. Once taxpayers do get through to
IRS, they are often frustrated when employees cannot quickly and accurately
answer questions and resolve problems.

Improvements in telephone customer as well as other service improvements
should result if IRS is successful at its modernization effort. Figure 1
shows how IRS plans to achieve its mission through five modernization
components. 1 IRS Modernization: Long- Term Effort Under Way, but
Significant Challenges Remain (GAO/ T- GGD/ AIMD- 00- 154, May 3, 2000).

Figure 1: Modernization Promises to Align IRS With Service- oriented Mission
and Goals

Mission Statement

Provide America's taxpayers top- quality service by helping them understand
and meet their tax responsibilities and by applying the tax law with
integrity and fairness to all.

Goals

Service to each taxpayer ? Service to all taxpayers ? Productivity through a
quality work environment

Modernization Components

Revamped Customer

Management Balanced

New Business

Focused Roles With

Measurement Technology

Practices Operating

Clear of

Divisions Responsibility

Performance

Source: IRS.

IRS' development of and commitment to an integrated modernization strategy
is a significant achievement, but implementation of the modernization
strategy may take 10 years or more. Progress thus far has been made in
laying a foundation for change. The initial aspects of the modernization
effort- the reorganization of IRS' structure, with four customer- focused
operating divisions organized around the taxpayer segments they serve- has
proceeded reasonably well. The operating divisions are up and running, as of
October 2000. Executive leadership teams, which are made up of a combination
of career IRS employees and outside hires, have been selected for the
divisions; and IRS has been shifting employees to the new organizational
structure

in phases. Within each operating division, IRS has identified the key
processes- prefiling, filing, and postfiling- that are its primary
interactions with taxpayers. Each operating division is to have
responsibility for all of the key processes for its

respective taxpayer segment. However, the following key challenges remain.
Revamping Business For the future, IRS must focus on revamping business

Practices to Meet practices to better meet taxpayer needs. Within the new
Taxpayers' Needs

operating divisions, teams must take a fresh look at how to enforce the tax
laws and meet taxpayer needs in new and better ways. This will be a
challenge in both overcoming cultural barriers to “thinking outside
the box” as well as in coordinating the requisite human

capital, data, and information systems support across IRS. One example of
this rethinking is IRS' fresh look at how it provides face- to- face
customer service. On the basis of the conclusion that from a taxpayer's
perspective, a single point of contact for resolving issues is a good way

of doing business, IRS is creating a new position- tax resolution
representative. This position is to be staffed with permanent employees at
IRS walk- in sites who perform traditional prefiling duties, such as
answering tax law questions and helping taxpayers prepare their

returns, as well as handling postfiling compliance duties, including
installment agreements, account adjustments, and simple audits.

Implementing a According to our past studies of human capital Balanced
Approach

management, systems for motivating employees and to IRS' Performance
managing their performance must be aligned to support Management System
agencies' missions and expectations. 2 At the heart of a to Better Assess
performance management system is a set of balanced Progress measures that,
if properly used, helps organizations assess progress toward achieving
strategic goals and improving operations. IRS has implemented a new balanced
measurement system that seeks to develop

discrete, corresponding performance measures for each of its three strategic
goals- providing top- quality customer service, ensuring taxpayer
compliance, and ensuring employee productivity through a quality work
environment. Each goal will have measures for customer satisfaction,
business results, and employee satisfaction. IRS is aligning its individual
performance

evaluation systems with its balanced measurement system to clearly link the
work of individual managers and employees to the mission and goals of the
agency. According to IRS officials, the alignment has been accomplished for
managers and executives, and IRS is now in the process of expanding the
alignment for its core workforce. IRS lacks one of its important business-
results measures- a measure of taxpayers' voluntary compliance. This measure
is a prerequisite to understanding current compliance levels and whether

IRS' initiatives will lead to improved compliance. IRS has lacked a
voluntary compliance measure for several years and is working to develop
one. In the past, IRS

used detailed random audits to develop estimates for the level of voluntary
compliance, but these audits were the subject of much criticism. In 1995,
due to the additional 2 Human Capital: A Self- Assessment Checklist for
Agency Leaders (GAO/ GGD- 99- 179, Sept. 1999); and Human Capital: Key
Principles From Nine Private Sector Organizations (GAO/ GGD- 00- 28, Jan.
31, 2000).

costs and burden that such audits placed on taxpayers, IRS formally
cancelled its plans to continue them. We have said that a modified version
of the past audits,

which reduces burden on taxpayers, could be useful in assessing voluntary
compliance. The Commissioner has acknowledged the need for a voluntary
compliance measure and has said that in the absence of such a measure, it
would be impossible to make informed decisions on the effectiveness of
various strategies to encourage voluntary compliance. Accordingly, IRS is
working to develop a method for assessing compliance,

and we are monitoring IRS' efforts in this regard. In addition to developing
a compliance measure, the next steps for IRS in the area of performance
management are to (1) align the balanced measures that it has developed to
the employee performance

evaluation system, clearly linking the work of individual employees and
managers to the mission and goals of the agency; and (2) determine what
performance data needs to be collected to track progress. IRS is working on
both of these steps. IRS' human capital problems can be seen as part of a

broader pattern of human capital shortcomings that have eroded mission
capabilities across the federal government. See our High- Risk Series: an
Update (GAO- 01- 263, Jan. 2001) for a discussion of human capital as a
newly designated governmentwide high- risk area.

Addressing Financial Although a balanced measurement system could provide

Management it with information on the results of its programs to Weaknesses
to improve customer service and increase compliance, IRS Develop Reliable
also needs to know the cost of achieving these results. Cost- Based

Reliable cost information is critical for IRS management Performance

and Congress to determine whether IRS has the Information appropriate levels
of funding and staff and is effectively using them. However, serious
financial management

weaknesses- a high- risk area since 1995- impair IRS' ability to develop
reliable, cost- based performance information. For example, our audit of
IRS' fiscal year 1999 financial statements identified substantial weaknesses
in accounting, reporting, and budgetary controls that rendered IRS unable to
reliably report how it spent the $8. 5 billion that Congress appropriated
for it. IRS' lack of cost accounting information has rendered it unable to
develop cost- based performance information to measure the effectiveness of
its tax collection and

enforcement programs and to judge whether it is appropriately allocating
available resources among competing management priorities. Consequently, IRS
cannot measure the extent to which it is achieving its mission of promoting
compliance with federal tax laws. We also found many instances in which
expenditures were not promptly charged against related appropriations, and
obligations were not deobligated when appropriate. 3 These weaknesses
seriously

impaired IRS' ability to ensure that resources were spent only in accordance
with laws, regulations, and management policy. To address these issues, we
have provided IRS with detailed management and operational recommendations.
IRS' senior management has been proactive in addressing these issues and has
played a

major role in the progress IRS has achieved to date. However, resolving many
of IRS' most serious problems will require a sustained, long- term
commitment of resources, continued involvement of senior management, and
sustained progress in systems

modernization. 3 IRS Internal Audit also reported weaknesses in IRS'
controls over deobligations in its report entitled Review of the Need to
Deobligate Unliquidated Obligations (Internal Audit Report No. 084602, June
26, 1998).

Reliable cost- based performance information helps support managerial
decisions. IRS has concerns that in view of the congressional and public
sensitivity about IRS' collection and enforcement activities, Congress may
not be receptive to developing this type of information and including it in
the annual budget submission. However, reliable cost- benefit performance

information related to these activities is necessary to better assist
Congress in making informed funding decisions concerning the appropriate
levels and uses of IRS' resources. Consequently, we have recommended that
IRS develop this information. We also presented a matter for congressional
consideration that Congress should consider requiring IRS to include in any
budget request for additional resources for its collection and

enforcement activities reliable cost- based performance indicators and other
relevant aggregate cost- benefit data that demonstrate the benefits of
providing for such resources. 4 Institutionalizing

The final challenge associated with IRS' modernization Effective Systems
effort is institutionalizing effective systems Modernization modernization
management controls for its information Management technology (IT) systems-
a long- standing challenge that Controls we have designated as a high- risk
area since 1995. Over a decade ago, IRS began modernizing its inefficient
and

outdated systems that are used to process tax returns and respond to
taxpayer inquiries. Until IRS' antiquated information systems are replaced,
they will continue to hinder efforts to better serve taxpayers through

revamped business practices. IRS has made progress over the last several
years, particularly since June 2000, in establishing some key management
controls. However, to fully address our recommendations and solve the
underlying issues, IRS will need to establish all

4 Internal Revenue Service: Recommendations to Improve Financial and
Operational Management (GAO- 01- 42, Nov. 17, 2000).

of our recommended controls and ensure that they are implemented. Until this
work is completed, IRS' systems modernization will continue to be designated
a high- risk area. Beginning in 1995 and continuing since then, we have made
recommendations to correct serious and

pervasive management and technical weaknesses, and we concluded that until
these weaknesses were corrected, IRS was not ready to invest billions of
dollars

in building modernized systems. 5 In general, these weaknesses fall into
four interrelated and interdependent IT management categories- investment
management, system life- cycle management, enterprise

architecture management, and software acquisition management (see fig. 2).

5 Tax Systems Modernization: Management and Technical Weaknesses Must Be
Corrected If Modernization Is to Succeed (GAO/ AIMD- 95- 156, July 26,
1995).

Figure 2: Categories of IRS' Systems Modernization Weaknesses

System Life- Cycle Management

Source: GAO analysis of IRS data.

Immediately following our 1995 report, IRS made limited progress in
strengthening its modernization management capability. As a result, we
suggested in 1996 that the Congress limit IRS' IT spending to certain cost-
effective categories. In the fiscal year 1997 Omnibus Consolidated
Appropriations Act, 6 Congress directed IRS to develop a plan to correct its
weaknesses, including developing and submitting to Congress, by May 1997, an
enterprise architecture (or agencywide

blueprint for the modernization). In response, IRS took several actions to
address congressional direction and implement our recommendations. For
example, IRS developed the first two levels of a four- level enterprise 6
Public Law 104- 208.

architecture, which IRS refers to as the Modernization Blueprint. In
September 1997 briefings and a subsequent report in early 1998, we reported
that the blueprint was a good first step and made recommendations for
completing and implementing it. Subsequently, Congress established

a multiyear capital account- the IT Investments Account (ITIA)- to fund IRS
systems modernization initiatives and limit IRS' ability to obligate these
funds

until it met certain conditions. 7 Specifically, IRS was to submit to
Congress for approval an expenditure plan that, among other things, (1)
implements the blueprint, (2) complies with requirements of the Office of
Management and Budget's (OMB) system investment guidelines, (3) passes
reviews and approvals by OMB and Treasury's IRS Management Board, and (4) is
reviewed by us. Between May 1999 and October 2000, IRS submitted three
expenditure plans and two interim “stop gap” plans, totaling
about $477 million, for multiple program and project- level modernization
initiatives. This series of plans was consistent with our position that IRS
incrementally modernize its systems and submit incremental expenditure plans
for release of ITIA funds. 8 Although we found that these expenditure plans

generally complied with the legislative conditions and our open
recommendations, we also reported that IRS' plans to build systems (i. e.,
perform detailed design and software development activities) before
correcting its long- standing weaknesses introduced a high risk of 7 See the
fiscal year 1998 Treasury and General Government

Appropriations Act (P. L. 105- 61) and the fiscal year 1999 Omnibus
Consolidated and Emergency Supplemental Appropriations Act (P. L. 105- 277).
8 Tax Systems Modernization: Results of Review of IRS' Initial Expenditure
Plan (GAO/ AIMD/ GGD- 99- 206, June 15, 1999).

failure. (Program and project reviews by the Treasury Inspector General for
Tax Administration (TIGTA) also found that modernization management controls
were lacking.) In response, IRS appropriately restructured its modernization
program by scaling back its system development activities and giving
priority to putting in place modernization management capabilities and

controls. Since it restructured the program, IRS has made important progress
in implementing modernization management capabilities and addressing our
recommendations. For example, we reported that IRS had largely defined its
system life- cycle methodology that incorporated software acquisition and
investment management processes as well as the program roles and

responsibilities of IRS and its modernization contractor, and it made
progress in producing the first release of its enterprise architecture.
Despite important progress, IRS has more work to do

before it will have fully implemented our recommendations and addressed
long- standing modernization weaknesses. These efforts include (1) making
the program office fully operational, (2) implementing the processes for
software acquisition and IT investment management, and (3) completing and
implementing its enterprise architecture. IRS has plans and initiatives
under way in these areas, but until this work is completed, key
modernization management controls are missing, which increases the risk that
projects will not perform as intended and will cost more and take longer
than they should. As we have consistently stated, these risks are not as
severe early in the projects' life cycles, when they are being planned

(project definition and design), but they escalate as projects begin to be
built (detailed design and software development). Accordingly, we have
recommended that IRS refrain from building systems until these controls

are in place and functioning.

In addition to institutionalizing effective systems modernization management
controls, IRS needs to continue to address the long- standing weaknesses in

security controls over its current information systems. Over the past 7
years, we have provided IRS numerous recommendations to assist it in
addressing weaknesses

in its computer security controls. Major issues addressed by these
recommendations include weaknesses in physical security and logical
security, data communications management, risk analysis, quality assurance,
internal audit and security, security awareness, and contingency planning.
Although IRS has made significant progress in

improving computer security weaknesses that we have identified over the last
several years, much remains to be done to resolve the serious weaknesses
within IRS' computing environment that place its automated systems and
taxpayer data at serious risk to both internal and external threats. Despite
IRS' extensive reliance on its information systems, IRS continues to have
serious weaknesses with general controls designed to protect computing
resources, such as networks, computer equipment, software programs, data,
and facilities, from unauthorized use, modification, loss, and disclosure.
During our audit of IRS' fiscal year 1999

financial statements, we also found that computer security controls over
IRS' key applications that manage tax return input and receipt processing do
not provide assurance that only authorized personnel have access to the
application and related data, that the data are complete and accurate, and
that application and data integrity is maintained.

These weaknesses in controls increase the risk that data processed by IRS'
information systems are not reliable and continue to expose IRS' tax
processing operations to disruption. If IRS does not adequately mitigate
these weaknesses, unauthorized individuals could gain access to critical
hardware and software, where they may

intentionally or inadvertently add, alter, or delete sensitive data or
computer programs. Such individuals could also obtain personal taxpayer
information and use it to commit financial crimes in the taxpayer's name,
such as fraudulently establishing credit and running up debts.

IRS Faces Challenges Successful modernization should help IRS address

in Collecting Unpaid aspects of another high- risk area- collection of
unpaid Taxes taxes. Unpaid taxes include (1) delinquent taxes that IRS is
attempting to collect, (2) taxes that IRS knows are due but has decided not
to pursue collecting, and (3) an unknown amount of unpaid taxes that IRS has
not identified. While IRS has proceeded with its

modernization effort, some key collection actions such as levies and
seizures have declined since 1997. 9 These declines may increase the
incentives for taxpayers to either not report or underreport their tax
obligations. Because IRS lacks a measure of voluntary compliance, it does
not know the impact of recent declines in collection actions. As a result,
we have expanded and renamed the former high- risk area, 10 which
encompassed only unpaid taxes known to IRS, to include unpaid taxes that IRS
does not know about. As

of September 30, 1999, IRS' inventory of known unpaid assessments totaled
$231 billion. Of this amount, $127 billion were write- offs that by
definition have no future 9 For example, the number of levies has decreased
dramatically from fiscal years 1997 to 2000-- from about 3.7 million to
about 220, 000. 10 The former high- risk area was called IRS receivables and
unpaid tax assessments. Unpaid tax assessments consist of (1) taxes due from
taxpayers for which IRS can support the existence of a receivable through
taxpayer agreement or a favorable court ruling (federal taxes receivable);
(2) compliance assessments in which neither the taxpayer

nor the court has affirmed that the amounts are owed; and (3) writeoffs,
which represent unpaid assessments for which IRS does not expect further
collections due to such factors as the taxpayer's death, bankruptcy, or
insolvency.

collection potential. The remaining $104 billion has some collection
potential and, thus, is at risk. 11

The former high- risk area was originally designated such in 1990, in part
due to serious deficiencies in IRS' information systems. The deficiencies
resulted in the lack of sound, reliable information, which hindered IRS'
ability to focus collection efforts on those accounts that had the greatest
collection potential. These conditions

persist. IRS' systems are not integrated; thus, they continue to create high
rates of error in taxpayer accounts, which in some cases have led to
instances of taxpayer burden and lost revenue to the federal government. IRS
attempts to identify taxpayers who have not paid the

taxes they owe through its various enforcement programs. In making decisions
about the number and types of enforcement cases to pursue, IRS considers its
resources as well as the potential for collection. IRS attributes its
inability to fully pursue such cases to a decrease in staff, reassignment of
collection employees to support customer service activities, and additional

staff time needed to implement certain taxpayer protections that were
included in the IRS Reform and Restructuring Act. However, as we previously
noted, inadequate financial and operational information has rendered IRS
unable to develop cost- based performance information for its tax collection
and enforcement programs to judge whether it is appropriately allocating
available resources among competing management priorities. These weaknesses
continue to expose the federal government to significant losses of tax
revenue and increase the burden on compliant taxpayers who 11 The $104
billion that has collection potential and, thus, is at risk consists of (1)
$27 billion in compliance assessments and (2) $77 billion in taxes
receivable--$ 21 billion of which is net taxes receivable and $56 billion of
which is an allowance for doubtful accounts.

finance the government's activities. Resolving this highrisk area will
require a long- term commitment of resources by IRS and sustained progress
in systems

modernization. Noncompliance With The final IRS high- risk area is
noncompliance with EIC. 12 EIC

Noncompliance with EIC exposes the federal government to billions of dollars
of risk. According to IRS studies, billions of dollars have been overclaimed
for this credit. Congress provided IRS with additional funding and
enforcement tools to improve EIC compliance. However, IRS does not yet have
sufficient data to demonstrate that it has effective controls over EIC
noncompliance. Subsequent to an April 1997 IRS study showing billions of
dollars of EIC noncompliance, Congress passed

legislation that gave IRS new enforcement tools and additional funding that
was specifically designated for EIC- related activities. With those new
tools and funds, IRS, in 1998, began implementing a 5- year EIC compliance
initiative that involved several components directed at the major sources of
EIC noncompliance. For example, IRS initiated enforcement efforts that
focused on (1) cases in which an EIC- qualifying child's

Social Security number (SSN) was used on more than one tax return for the
same tax year and (2) returns filed by certain EIC claimants who used the
head- ofhousehold filing status. IRS' efforts have, among other things,
reduced the number of EIC- related errors involving SSNs and enabled IRS to
stop millions of dollars in erroneous EIC claims.

12 We have narrowed the focus of the former high- risk area called IRS tax
filing fraud that was designated in 1995. It has been renamed
“noncompliance with EIC” to better describe the scope of our
current concern- billions of dollars for EIC claims that IRS paid but should
not have. An unknown portion of erroneous EIC claims is likely attributable
to factors other than fraud.

In September 2000, IRS reported the results of a compliance study involving
tax year 1997 returns, that is pre- compliance initiative returns. 13 The
study showed that of the estimated $30. 3 billion in EIC claims made by
taxpayers who filed tax year 1997 returns in 1998, an estimated $9. 3
billion were invalid (should not have been claimed) and $7. 8 billion was
actually paid out in improper refunds. These study results generally would

not reflect the effect of IRS' 5- year initiative to improve EIC compliance

In July 1998, we recommended that IRS develop evaluation plans for each
initiative component to provide timely data for decisionmakers on the
interim results of the initiative. 14 IRS is collecting some data on
initiative results; however, it is not yet sufficient to determine whether
projects have reduced the overall noncompliance rate.

IRS is doing an EIC compliance study of tax year 1999 returns and plans to
study tax year 2001 returns. IRS plans to analyze the results of those
studies, along with the results of the tax year 1997 study, to measure
changes in taxpayer behavior and to determine the effectiveness of the EIC
initiative. IRS officials did not know when the results of the tax year 1999
study would

be finalized. Until sufficient data are available through these studies or
from other sources to demonstrate that IRS has implemented effective
controls over EIC noncompliance and the erroneous refunds that result,

this will remain a high- risk area. 13 Compliance Estimates for Earned
Income Tax Credit Claimed on 1997 Returns, Department of Treasury, Internal
Revenue Service, September 2000. 14 Earned Income Credit: IRS' Tax Year 1994
Compliance Study and Recent Efforts to Reduce Noncompliance (GAO/ GGD- 98-
150, July 28, 1998).

Key Contact James R. White, Director Tax Issues (202) 512- 9110 whitej@ gao.
gov Randolph C. Hite, Director

Information Technology Systems Issues (202) 512- 3870 hiter@ gao. gov Steven
J. Sebastian, Acting Director

Financial Management and Assurance (202) 512- 3406 sebastians@ gao. gov
Improve Customs'

Customs performs the dual missions of enforcing laws Regulation of

to safeguard U. S. borders against the illegal entry of Commercial Trade
goods and of regulating legitimate commercial activity.

While Ensuring As such, Customs is challenged to balance its security

That It Protects measures with the need to facilitate the flow of cargo

Against the Entry of and people into the United States. Specifically, the

Illegal Goods at agency's responsibilities include (1) collecting over U. S.
Borders

$20 billion in revenue from imports and enforcing over 400 laws governing
international trade, (2) preventing the smuggling of drugs into the country,
and (3) overseeing export compliance and money- laundering issues. To carry
out these responsibilities, Customs has a workforce totaling almost 20, 000
employees at locations around the world.

An overarching challenge for Customs as well as other law enforcement
agencies is assessing progress on its key mission areas through outcome-
oriented rather than output- oriented performance measures (i. e.,
succeeding in reducing crime versus making more arrests and convictions).
Treasury has said that until it has better

data to determine the cause- and- effect relationship between its various
programs and the outcomes it is intended to influence, it will continue to
use outputoriented performance measures. Accordingly, Customs assesses
progress in reducing the flow of illegal drugs by establishing goals for the
number of seizures and

pounds of illegal substances seized and other output measures. The quantity
of narcotics seized in fiscal year 1999 set a record, and Customs met its
performance goals for cocaine and marijuana but not for heroin. Customs also
reported that its officers processed over 21 million import entries with a
value of $977 billion; 137 million conveyances; 15 and 480 million land,
sea, and air passengers in fiscal year 1999. However, the degree to which
these actions have an impact on safeguarding the

borders is uncertain. In addition to identifying a need for Customs to
develop sound output- oriented performance measures, our recent work has
identified other performance and management challenges that directly or
indirectly affect Customs' efforts to improve security at U. S. borders to
safeguard against the illegal entry of goods, including drugs. Although
Customs has made some progress in

implementing initiatives that are designed to improve the efficiency of its
regulation of commercial activities and the effectiveness of personal
searches of passengers, the following challenges, all of which have been the
subject of our past recommendations, remain: (1) completing an assessment of
new trade compliance

15 Conveyances include aircraft, trucks, trains, buses, privately owned
vehicles, and ocean vessels.

initiatives; (2) acquiring a new import processing system; (3) continuing to
improve the process of searching airline passengers who may be carrying
contraband, such as illegal drugs, while respecting the rights of American
citizens and the traveling public; and (4) using reliable data to determine
its staffing needs for all of its operations and ensure that personnel are
located where they are most needed.

Impact of New Trade Tremendous growth in the world economy creates
Compliance

profound challenges for Customs to facilitate and Initiatives Unclear

enforce U. S. trade laws and regulations. The United States is in the midst
of a booming era of global trade; and, according to the Commissioner of
Customs, the surge in imports and exports will nearly double Customs'
workload in the next 5 years alone (see fig. 3). To speed the processing of
imports and improve compliance with trade laws, Customs has developed a new
strategy in response to the Customs Modernization and Informed Compliance
Act of 1993 (Mod Act). 16 16 Public Law 103- 182.

Figure 3: Projected Growth in Entry Summaries for Customs

40 Entry summaries (in millions)

35 30 25 20 15 10

5 0

1999 2000 2001 2002 2003 2004 2005 Fiscal years

Actual Projected

Source: Customs data.

The Mod Act fundamentally altered the relationship between importers and
Customs by shifting from Customs to the importer the legal responsibility
for declaring the value, classification, and rate of duty applicable to
merchandise being imported into the United States. Customs is responsible
for determining

the final classification and value of the merchandise. The Mod Act also gave
Customs and importers a shared responsibility for ensuring compliance with
trade laws. To implement these new responsibilities, Customs

developed an “informed compliance strategy.”

Our review of output statistics indicated that the informed compliance
strategy had not yet produced the benefits that were expected. 17 As shown
in figure 4, trade compliance rates have remained static at about 81
percent, short of Customs' 90- percent goal. We also found that although
Customs had monitored and

evaluated certain aspects of the key initiatives and actions, it had not
evaluated, nor did it have a plan to evaluate, the impact of the overall
informed compliance strategy on compliance with trade laws. Consequently, we
recommended that Customs develop and implement an evaluation of the
effectiveness of its informed compliance strategy.

17 Customs Service Modernization: Impact of New Trade Compliance Strategy
Needs to Be Assessed (GAO/ GGD- 00- 23, Dec. 15, 1999).

Figure 4: Trade Compliance Rates Have Remained Static Between Fiscal Years
1995 and 1999

Percentage rate of compliance 100

95

90

90 84 82 83 84 80 81 81

80 70 60 50 40 30 20 10

a 0

1995 1996 1997 1998 Fiscal years

Primary focus industries Overall rate

a Customs did not assess compliance rate for PFIs in FY 95. Note: Entry
summaries are required documentation filed with Customs to secure release of
imported cargo from Customs. Source: Customs data.

Customs agreed with our recommendation and stated that it would evaluate the
effectiveness of all the initiatives that we assessed, including account
management, compliance assessment, compliance measurement, and the informed
and enforced compliance programs. Customs said that this extensive study
should be completed by February 2001.

Acquisition of New Building and deploying a new import processing system
Import Processing is a key component to modernizing how Customs

System Remains assesses and collects taxes and fees totaling over $20

Challenging billion annually at over 300 ports. This large and complex
planned system, known as the Automated

Commercial Environment (ACE), which is expected to cost over $1 billion, is
to replace Customs' antiquated existing system and improve the performance
and accountability of Customs' import mission. In short, ACE is to be used
to collect, analyze, and disseminate import- related data in a way that will
facilitate the trade communities' movement of goods into the United States.
In February 1999, we reported on pervasive management and technical
weaknesses facing Customs in building ACE, and we made a series of
recommendations that Customs agreed to implement. Specifically, we
recommended that before building ACE, Customs (1) have a complete and
enforced enterprise architecture; (2) know that ACE was a cost- effective
solution and explore alternative system solutions to

mission needs, such as another system Treasury was developing known as the
International Trade Data System (ITDS); and (3) employ software engineering

rigor and discipline. Customs has taken several important actions to
implement our recommendations. For example, Customs has addressed our
recommendation for completing and enforcing an enterprise architecture to
provide an agencywide business and technological context within which ACE's
business value and mission performance can be optimized. Similarly, Treasury
and Customs have addressed our concern about possible duplication and
incompatibilities between ACE and

ITDS by combining the two efforts. To be successful with ACE, Customs needs
to fully implement our recommendations. Customs agrees and

plans additional actions to do so. For example, Customs has committed to
seeing that the fundamental acquisition and investment management
capabilities

that we recommended are in place before investing huge sums of money in ACE.
Also, Customs' plans call for investing in ACE incrementally on the basis of
a realistic and supportable cost estimate and benefit expectation for each
increment. Once an increment is completed, Customs plans to validate that
actual costs and benefits are meeting expectations and to use this
information in deciding whether to invest in future system increments.
Further, Customs still needs to fully implement mature and effective system
acquisition capabilities. Because these challenges remain, combined with
ACE's mission criticality, we plan to continue monitoring Customs'

management of ACE. Balancing Travelers' Congress, in exercising its power to
protect the nation's Rights With Customs' borders, gave Customs broad
authority to conduct Responsibility to

searches of persons and their luggage. Customs Interdict Contraband

regulations provide that persons, such as passengers coming into the United
States, are subject to inspection and search by a Customs officer in order
to detect the

smuggling of contraband, such as illegal drugs. Concerns have been raised
about Customs' policies and procedures for selecting or
“targeting” certain passengers for examinations and conducting
personal searches, including strip- searches and X- rays.

Inspectors are to select passengers for further examination on the basis of
Customs' policies and procedures and their professional judgment and
experience. When making a decision to search, inspectors are to consider all
the circumstances. Some or mere suspicion is the minimal level required to
conduct a patdown search. By policy, Customs requires

at least one articulable fact before conducting a patdown search.
Supervisory approval is required for any personal search conducted other
than a search related to an officer's safety. From our analysis of 102,000
arriving passengers in fiscal years 1997 and 1998 who were subjected to some
sort of personal search, we reported that generally, searched passengers of
particular races and gender were more likely than other

passengers to be subjected to more intrusive types of personal searches
(being strip- searched or X- rayed). However, in some cases, the types of
passengers who were more likely to be subjected to more intrusive personal
searches were not as likely to be found carrying contraband. 18

We recommended that Customs compare the characteristics of passengers
subjected to personal searches with the results of those searches to better
target passengers carrying contraband. Customs agreed with our
recommendation and said it had already taken

steps to develop better data on the results of its searches. By developing
improved data and continuing its other management controls, we believe
Customs

could better safeguard the rights of U. S. citizens and the traveling public
while meeting the major challenge of effectively carrying out its drug
interdiction mission. During our review of airline passenger targeting,
Customs developed additional policies and procedures 18 U. S. Customs
Service: Better Targeting of Airline Passengers for Personal Searches Could
Produce Better Results (GAO/ GGD- 00- 38, Mar. 17, 2000).

for personal searches that include new requirements for supervisory review
and approval and procedures intended to ensure that passengers subjected to
personal searches know their rights. We also identified management controls
that Customs uses to help ensure that inspectors use their search authority
fairly and judiciously. These controls included training for inspectors and
supervisors on conducting personal searches and more systematic evaluation
of passenger complaints. Customs reported in October 2000 that reforms
initiated to tighten oversight of the searches, such as revising the
personal search handbook, have resulted not only in far fewer people being
searched but also in the seizure of more contraband. For example, Customs
reported that Customs inspectors searched 9, 008 airline passengers in

fiscal year 2000, a steep reduction from the 23, 108 who were searched the
previous year. As searches decreased, the seizures of heroin, cocaine, and
ecstasy increased from 533 to 665 between fiscal years 1999 and 2000.
Overall, drug seizures increased from 1,164 to 1,174 during the same period,
according to Customs. The Commissioner of Customs said that the new
statistics indicate that Customs is searching fewer innocent

travelers while doing a better of job of catching those carrying contraband.
The Commissioner acknowledged, however, that the efforts are still in
progress and that much more needs to be done.

Using Reliable Data In 1998, we reported on selected aspects of Customs' to
Determine Staffing process for determining its need for inspectors and

Needs canine enforcement officers to process commercial cargo or land and
sea passengers at all of its 301 ports of entry. 19 We concluded and
recommended that for

19 Customs Service: Process for Estimating and Allocating Inspectional
Personnel (GAO/ GGD- 98- 107, Apr. 30, 1998).

Customs to successfully implement the Government Performance and Results
Act, which requires it to link performance to results, it had to determine
its needs for personnel for all of its operations and ensure that personnel
are allocated where they are most needed.

In response to our recommendation, Customs awarded a contract for the
development of a resource allocation model to estimate the number of
inspectors and other personnel needed to process passengers and inspect
cargo at all ports of entry. The contractor delivered a prototype to Customs
in March 1999.

This was a promising first step, but we continued to monitor the development
of the model. In April 2000, we testified that during a review conducted
earlier in the year, we found the accuracy and reliability of some input
data- such as the estimated time that Customs personnel spent on air and sea
passenger processing activities- to be questionable. 20 We concluded that
although the model is a potentially viable tool for Customs to use in
estimating its personnel needs for now and in the future as imports into the
country

continue to rise, we believe that more verification needs to be performed on
some questionable input data. Customs said that it is still in the early
stages of analyzing the model results and fully understanding its
capabilities. The original contractor was retained to do additional work to
make the model's results more understandable and easier to use. According to
Customs

officials, the model continues to be reviewed and will be modified as needed
to ensure accuracy and validity. Key Contacts Laurie E. Ekstrand, Director

Justice Issues 20 U. S. Customs Service: Observations on Selected Operations
and Program Issues (GAO/ T- GGD/ AIMD- 00- 150, Apr. 20, 2000).

(202) 512- 8777 ekstrandl@ gao. gov Randolph C. Hite, Director

Information Technology Systems Issues (202) 512- 6256 hiter@ gao. gov
Achieve Sound A key to Treasury's ability to effectively carry out its

Financial mission both at the Department level and as fiscal agent

Management for the U. S. government is sound financial management,

Through Significant including preparing information about the government's

Management finances that is routinely available, accurate, and Attention and

reliable. Treasury faces many challenges in its ongoing Priority efforts to
improve the accuracy and reliability of its financial and information
management systems and correct internal control weaknesses that we and the
Treasury OIG identified at several of its bureaus and offices. Without
accurate and reliable financial systems and information, as well as sound
internal controls, Treasury cannot be sure that the information it has is

sufficient to manage day- to- day operations, measure the results of agency
and governmentwide operations, account for resources, collect taxes and
other debts owed the government, or safeguard assets. Significant top
management attention and priority will be required for Treasury to fully
address its significant financial

management challenges. Treasury received a qualified opinion on its fiscal
year 1999 Department- wide financial statements because of financial
management problems at IRS and the inability of IRS' administrative systems
to produce timely,

auditable data to support certain IRS financial statements. Treasury's
ability to effectively fulfill its financial management responsibilities has
also been adversely affected by the lack of substantial compliance with the
financial management systems requirements

detailed in FFMIA and weaknesses in Customs' internal controls over data in
its automated systems.

Certain significant financial systems weaknesses; problems with fundamental
recordkeeping and financial reporting; incomplete documentation; and weak
internal control, including computer controls, have prevented

the U. S. government from obtaining an opinion on the reliability of the
government's financial statements for the 3 years that we have reported on
these statements.

As preparer of the Financial Report, FMS has a key responsibility to work
with agencies to address some of these problems, in particular the lack of
sufficient systems, controls, and procedures to properly prepare the
government's financial statements. Further, in performing much of Treasury's
role as primary fiscal agent for the federal government, FMS continues to
experience challenges in addressing financial management issues related to
implementing the requirements of the Debt Collection Improvement Act (DCIA)
of 1996 and improving its computer security controls over systems used to
help it process collections and disbursements made on behalf of most federal
agencies.

At the end of fiscal year 1998, the unified budget of the federal government
was in surplus for the first time in almost 30 years, and surpluses are
projected to continue over the next decade. As we have stated in previous
reports, the transition from annual budget deficits to surpluses presents
challenges to Treasury for managing the maturity profile of federal debt
held by the public consistent with Treasury's objectives and strategies for
achieving these three debt management objectives of sound cash management,
lowest financing costs, and

promoting efficient capital markets.

Financial For fiscal year 1999, Treasury reported that six of its Management
bureaus' financial management systems did not Challenges Affecting

substantially comply with the requirements of FFMIA. In Certain Bureaus'
addition, we reported that IRS continues to experience Operations
significant ongoing deficiencies in its financial management and operational
systems and processes. Further, Customs also faces financial management
problems including weaknesses in its internal controls

over data in its automated systems and developing and implementing new
automated systems. Treasury's Financial FFMIA requires auditors performing
financial audits of Management Systems CFO agencies to report whether
agencies' financial Do Not Substantially management systems substantially
comply with federal Comply With accounting standards, federal financial
management Requirements of

systems requirements, and the Standard General Ledger FFMIA (SGL) at the
transaction level. In fiscal year 1999 and 1998 auditors' reports on
compliance with laws and regulations, we and the Treasury OIG identified
instances in which Treasury's financial management systems did not
substantially comply with the requirements detailed in FFMIA. For fiscal
year 1999, Treasury reported that noncompliances were identified at IRS,
FMS, Customs, the Departmental Offices, the Office of the Comptroller of the
Currency, and the U. S. Secret Service. Generally, the noncompliances
involved financial systems that did not allow for the reliable preparation
of certain financial statements and reports, lack of or unreliable
subsidiary ledgers, general ledgers that did not conform with the SGL, and
weaknesses in computer security controls. Under FFMIA, we are

required to annually report on agencies' implementation of FFMIA by October
1 of each year. Thus, we will continue to monitor Treasury's efforts to
substantially comply with FFMIA. Financial Management

As discussed in an earlier section of this report, IRS Challenges Continue
at continues to experience significant deficiencies in its IRS financial
management and operational systems and

processes. Because of these problems, we could not render audit opinions on
four of IRS' six financial statements, and our opinion on its balance sheet
was qualified for fiscal year 1999. IRS' primary internal control weaknesses
relate to its accountability over administrative accounts and budgetary
resources,

management of taxpayer receipts and data, and management of unpaid tax
assessments as well as its computer security controls. To address these
issues, we have provided IRS with detailed management and operational
recommendations. Although progress has been made to date, resolving many of
IRS' most serious problems will require a sustained commitment from senior
management.

Customs Continues to Customs continues to face financial management Face
Financial challenges including weaknesses in its internal controls
Management over data in its automated systems, such as systems that
Challenges are used to account for and manage its collection

activity. In addition, as discussed in an earlier section of this report,
managerial and technical weaknesses have hindered progress toward developing
Customs' planned import system- ACE- which is intended to replace the
current system used for collecting import- related data and ensuring, among
other things, that trade- related revenue is properly collected and
allocated. To ensure proper implementation of important initiatives Customs

has planned or under way to address these issues, Customs management must
continue to provide the necessary support.

Financial One of Treasury's primary responsibilities is managing Management
the federal government's finances. This massive and Challenges

complex task includes collecting almost $1.9 trillion in Affecting
Treasury's federal tax revenues, making federal payments totaling Role as
Fiscal Agent more than $1. 7 trillion, managing federal debt held by the
public of about $3. 4 trillion, performing central

accounting functions, and providing debt management services to federal
agencies. Treasury's FMS is the

government's financial manager, central disburser, and collections agency,
as well as its accountant and reporter of financial information. Treasury's
Bureau of the Public Debt (BPD) is responsible for issuing Treasury
securities and accounting for the resulting

debt. For the three years that we have audited BPD's Schedules of Federal
Debt, we have rendered “clean” opinions on these schedules.

In performing much of Treasury's role as primary fiscal agent for the
federal government, FMS faces challenges in addressing financial management
issues related to (1) preparing the U. S. government's financial statements,
(2) implementing the requirements of the Debt Collection Improvement Act
(DCIA) of 1996, and (3) improving the computer security controls used to
help it process collections and disbursements made on behalf of most federal
agencies. Although FMS has made progress in each of these areas, challenges
still remain. It will take a significant and sustained commitment by FMS'
management to fully address these challenges. In addition, budget surpluses
present challenges to Treasury for managing the federal debt and achieving
its

debt management objectives. Preparing Reliable In our audit reports on the
government's fiscal years Financial Statements

1999, 1998, and 1997 financial statements, we reported for the Government
certain significant financial systems weaknesses; Continues to Be a

problems with fundamental recordkeeping and financial Challenge for FMS

reporting; incomplete documentation; and weak internal control, including
computer controls. These deficiencies prevented the government from
accurately reporting a significant portion of its assets, liabilities, and
costs and prevented us from being able to form an opinion on the reliability
of the government's financial statements. These deficiencies also affect the
reliability of much of the related information in the Fiscal Year 1999
Financial Report and the underlying financial information. In addition, they
affect the government's ability to

accurately measure the full cost and financial performance of certain
programs and effectively manage related operations. FMS continues to face
challenges in working with agencies to address some of these problems, in
particular the lack of sufficient systems, controls, and procedures to
properly prepare the government's financial statements. Such deficiencies
impair the government's ability to (1) properly balance the government's
financial statements and account for billions of dollars of transactions
between federal government entities, (2) properly and consistently compile
the information in the financial statements, and

(3) effectively reconcile the results of operations reported in the
financial statements with budget results. We are working with FMS, OMB, and
other key agencies to address these deficiencies. However, correcting them
is a significant challenge because of the government's size and complexity
and the discipline needed to comply with accounting and reporting
requirements. Meeting

these challenges will require a significant commitment from agencies' and
FMS' management, as well as adequately trained staff and effective automated
financial and information management systems.

Challenges Remain in As the federal government's central debt collection
Implementing DCIA agency, FMS 21 provides debt management services to
federal agencies for nontax debts over 180 days delinquent owed to the
federal government. According

to Treasury, this debt totaled about $59. 2 billion as of September 30,
1999, 22 with Treasury collecting about $2. 6 billion during fiscal year
1999, most of which resulted from offsetting tax refunds of delinquent
debtors under the Treasury Offset Program (TOP). 23 However, Congress in the
past has raised concerns about the slow pace at which Treasury and other
agencies have implemented DCIA. According to FMS officials, FMS' debt
collection program is not a fully mature program. FMS is actively working to
fully implement the provision of DCIA on a phased- in basis over the next
few years. FMS' successful merger of the Tax Refund Offset Program with TOP
in 1999 streamlined operations by providing a single point of contact for
agencies to refer debts for both tax refund offset and other administrative
offset programs. As a result, according to Treasury, offset collections for
fiscal year 1999 increased about $570 million over the previous year.
According to Treasury officials, system enhancements made during this merger
also contributed to increased collections. For example, FMS can now conduct
offset matching on

both Social Security numbers for joint tax returns, and the system also
allows creditor agencies to continuously add and update debt records. Even
with these 21 The Secretary of the Treasury assigned FMS primary
responsibility

to fulfill Treasury's responsibilities under DCIA. 22 About $20.7 billion of
this amount includes debt that was written off by certain agencies for
accounting purposes, but the agencies are still attempting to collect the
debts.

23 In addition to delinquent nontax federal debt, FMS collects child support
obligations on behalf of states. During fiscal year 1999, FMS collected
about $1. 3 billion in child support obligations, representing

about half of the collection total.

enhancements, challenges remain for FMS to fully implement TOP. For example,
payments for Social Security benefits and more federal salaries still need
to be added to TOP. FMS testified in June 2000 that it plans to have such
payments available for offset in fiscal year 2001. In addition to the offset
programs, nontax delinquent debt can be transferred to Treasury's
centralized collection centers for collection, known as crossservicing.
Cross- servicing may include the use of various debt collection tools, such
as private collection agencies (PCAs) and administrative wage garnishment.
24 As we reported in August 2000, FMS collected a relatively small amount of
debt through cross- servicing in part because (1) agencies did not always
promptly refer eligible debts,

and (2) agencies excluded debts from cross- servicing for various reasons,
such as debt that is not legally enforceable or debt that Treasury has
exempted or waived. At the time of our report, no requirement or process
existed for obtaining periodic and independent verification of the accuracy,
completeness, and validity of debts agencies reported as eligible or
excluded from

the DCIA cross- servicing provisions. Moreover, we reported that FMS' staff
and some of the PCAs did not always follow established procedures and
requirements or effectively use certain debt collection tools. In addition,
FMS' method of distributing debts to PCAs- a major debt collection tool- did
not fully promote competition, thus limiting the effectiveness of this tool.

Going forward, it will be important for FMS to determine whether its current
debt collection strategy and procedures are adequate for optimizing
collections 24 Administrative wage garnishment is a process by which an

employee's wages, up to 15 percent of the employee's disposable pay, can be
withheld by an employer and paid to the federal government to fulfill an
unpaid obligation. FMS officials stated that this tool provides significant
opportunities for improved collections of delinquent debts.

through its cross- servicing program and use all available debt collection
tools when appropriate, including administrative wage garnishment.
Accordingly, we recommended that FMS comprehensively review its cross-
servicing process. We also recommended that FMS work with OMB and agencies'
Inspector General offices to verify the accuracy and validity of debts
agencies report as eligible or excluded from crossservicing

and that it establish and implement procedures for monitoring agencies'
written debt referral plans. Further, we recommended that FMS take specific
actions to help ensure that a proportionate mix of debts

is being distributed to its PCAs and that competition among them is more
fully promoted. FMS is currently addressing these recommendations, although
it did not agree with all of the specific aspects of our recommendation to
comprehensively review its crossservicing process. Weaknesses in FMS' FMS
maintains multiple financial and information Computer Security systems to
help it process and reconcile moneys Controls Continue to disbursed and
collected by the various federal agencies. Exist

Our audit for fiscal year 1999 and previous years identified significant
computer control weaknesses at each of the FMS data centers. Computer
control problems continued to exist at FMS primarily because FMS still lacks
an effective, entitywide, computer security management program. FMS'
entitywide security control structure has failed to address many of the
weaknesses and related significant risks associated with

its current and evolving computing environment. The severity of these risks
magnifies as FMS expands its networked environment to provide users with
greater and easier access to larger amounts of data and system resources.
Consequently, billions of dollars of payments and collections are at
significant risk of loss or fraud, sensitive data are at risk of
inappropriate disclosure, and

critical computer- based operations are vulnerable to serious disruptions.
We have made numerous recommendations for improvements in FMS' computer

security controls to help reduce the exposure to these risks. Well- designed
and effective computer security controls are essential if FMS' operations
and computer resources are to be properly protected. However, it will take a
significant and sustained commitment by FMS'

management to fully address FMS' computer control weaknesses. FMS officials
have recognized the serious nature of these problems and have reported these
matters as a material weakness in FMS' Federal Managers' Financial Integrity
Act report for fiscal years

1999 and 1998. According to FMS officials, FMS has taken and will continue
to take actions to correct the weaknesses we identified and to heighten
management focus on security, as well as institute a more systematic and
comprehensive computer security management program. We will follow up on
these matters during our audit of the federal government's fiscal year 2000
financial statements.

Treasury Faces Debt At the end of fiscal year 1998, the unified budget of
the Management federal government was in surplus for the first time in
Challenges in a Period almost 30 years. Budget surpluses continued in fiscal
of Budget Surpluses

year 1999 and 2000 and are projected to continue over the next decade. Just
as budget deficits led to increased borrowing, surpluses over the past three
years have resulted in Treasury retiring debt. As we have stated in previous
reports, the transition from annual budget deficits to surpluses has
consequences for both the profile of federal debt held by the public and
Treasury's strategies for achieving its three debt management objectives of
sound cash management, lowest financing cost, and promotion of efficient
capital markets.

Treasury has reduced debt held by the public and managed a declining stock
of debt by redeeming maturing debt, reducing the number of auctions and size
of new debt issues, eliminating the 3- year note, reopening existing debt
issues rather than creating new

issues, conducting “buybacks” of debt before its maturity date,
and redeeming callable securities when the opportunity arose. Treasury
acknowledges that its future challenges will include making decisions on how
to reduce debt while considering such important factors as market
adjustments and implications for the Federal Reserve in implementing
monetary policy. We are currently conducting a review of how other selected
nations have “managed down” their debt and found that these
nations have already encountered some of the same challenges and decisions
about the debt market facing the United States. Key Contacts Gary T. Engel,
Director

Financial Management and Assurance (202) 512- 3406 engelg@ gao. gov Paul L.
Posner, Managing Director

Strategic Issues (202) 512- 9573 posnerp@ gao. gov Improve ATF's

Treasury's strategic plan includes an objective to deny Performance
criminals access to firearms and reduce violent crime, Measures to Better
including firearms- related crime. ATF is the Treasury Determine the agency
responsible for enforcing the federal laws and Progress in regulations
relating to firearms and reducing firearmsrelated

Reducing violent crime. Despite significant technological Criminals' Access

advances that have given ATF more investigative to Firearms information to
carry out its mission, limitations in its performance measures make it
difficult to determine its progress in reducing criminals' access to
firearms and firearms- related crime.

ATF recently reported that in the last decade, technology has brought its
investigators and inspectors an enormous increase in investigative
information. 25 For example:

? ATF's National Tracing Center has entered in the firearms trafficking
information system over 1 million traces of firearms recovered by law
enforcement officials. ? The National Integrated Ballistics Information
Network, operated by ATF with the Federal Bureau of Investigation (FBI),
contains a half- million

ballistics images. ? The National Instant Check System, launched by FBI and
ATF in 1998, has resulted in ATF receiving over 130, 000 reports of
prohibited persons attempting to buy firearms from federal firearms
licensees.

Regarding progress on denying criminals access to firearms, our June 2000
report 26 on Treasury's fiscal year 1999 performance report and fiscal year
2001 performance plan concluded that it is difficult to determine ATF's
progress because ATF's performance measures are generally output measures
(i. e., number of firearm traces made, average trace response time, and
number of persons trained), rather than outcome measures. Treasury's
performance report includes an outcome measure for future crimes avoided,
and the data show that Treasury exceeded its goal and increased the number
of crimes avoided over 1998. Although this measure does not show reduction
in the risk of violent crime, it does estimate the number of crimes
prevented

through the incarceration of criminals and the 25 Following the Gun:
Enforcing Federal Laws Against Firearms Traffickers; Department of the
Treasury; ATF (June 30, 2000). 26 Observations on the Department of the
Treasury's Fiscal Year 1999 Performance Report and Fiscal Year 2001
Performance Plan (GAO/ GGD/ AIMD- 00- 231R, June 30, 2000).

elimination of crime gun sources, according to Treasury's performance
report. In commenting on our June report, Treasury officials stated that the
performance measures associated with the challenge of denying criminals
access to firearms and reducing firearms- related crime will continue to be
output- oriented until Treasury is better able to determine the cause- and-
effect relationships between its

programs and the outcomes they are intended to influence. They noted that
the fiscal year 1999 performance report provides trend data from 1995
through 1998 that is directly related to this outcome- the number of violent
crimes committed and crimes committed with firearms. Although having the
trend data is helpful, without also having this data for 1999, it is
difficult to place ATF's 1999 performance in the

appropriate context. The Treasury OIG has also identified limitations in
measuring the impacts of ATF's programs. 27 In its August 2000 report on
ATF's Implementation of the youth crime gun interdiction initiative, 28
Treasury's OIG found, among other things, that ATF had not developed

? specific performance measures that show the actual impact on youth violent
crime rates in cities as a result of participating in the initiative or 27
See Final Report on the Bureau of Alcohol, Tobacco and Firearms'
Implementation of the Youth Crime Gun Interdiction Initiative (Treasury OIG-
00- 119, Aug. 21, 2000).

28 The initiative began in 1996 by ATF at the direction of the President to
strengthen enforcement efforts against traffickers who supply firearms to
youth. Seventeen cities were initially included in the

program and were to use ATF's Firearms Tracing System (FTS) to trace every
firearm recovered in a crime. ATF was to work jointly with other
investigative agencies using FTS trace information to develop investigative
and prosecutorial strategies that target traffickers supplying firearms to
youth.

? a formal process to verify certain statistics that have been reported to
Congress about the program's results. ATF officials acknowledged that better
measures of the initiative's impact are needed and agreed to implement the
related recommendation.

Treasury's OIG is currently conducting a review of enforcement performance
measures at selected agencies, including those for ATF firearms- related
programs, activities, and initiatives, to determine if the measures cover
the key aspects of performance in a clear and consistent manner and support
departmental goals and objectives. Key Contact Laurie E. Ekstrand, Director

Justice Issues (202) 512- 8777 ekstrandl@ gao. gov Improve the

Treasury and Justice operate similar but separate asset Management of

forfeiture programs. 29 As of September 30, 1999, the Treasury's Asset
combined value of assets in these two programs was Forfeiture Program more
than $1 billion, of which about $625 million were assets under Treasury's
management. Both programs also hold large amounts of nonvalued assets, such
as drugs and weapons. These programs were part of our original high- risk
list in 1990 because (1) over the years, neither Treasury nor Justice
adequately focused on managing and accounting for seized and forfeited
items;

29 The asset forfeiture program involves the management of property seized
in consequence of a violation of public law, including monetary instruments,
real property, and tangible personal property of others in the actual or
constructive possession of the custodial agency and forfeited property, or
property for which the title has passed to the federal government.

and (2) Treasury and Justice had not formed a plan to consolidate
postseizure administration of certain properties to eliminate duplication of
resources and reduce administrative costs. We have made several
recommendations relating to improving Customs' accountability and
stewardship over property seized. Specifically, we have recommended that
Customs improve the (1) physical security at its locations used to store
seized property,

(2) reliability of the information maintained in its seized property
tracking systems, and (3) controls over access to critical and sensitive
data and computer programs maintained in its systems that account for seized
property and law enforcement operations. In recent years, Customs has taken
many actions to address our recommendations, such as upgrading existing
storage facilities and implementing a new seized property inventory system.
These improvements have helped reduce the vulnerability of seized narcotics
and other property to theft and misappropriation. In addition,

Treasury and Justice are undertaking a joint study to examine the
opportunities for increased cooperation in the management of the two
programs. However, challenges remain to address the programs' inadequate
information systems and financial management weaknesses, including
accountability over seized assets. In addition, the results of the joint
study are yet to be determined.

Weaknesses Still As we reported in January 1999, a major management

Exist in Treasury's challenge facing Treasury's asset forfeiture program is
Asset Forfeiture

the need to address weaknesses in the department's Program accountability
for and reporting of seized and forfeited property. The Treasury OIG fiscal
year 1999 audit findings also suggest that accountability control over
seized property needs improvement. Further, Treasury reported instances of
material nonconformance with provisions of FFMIA involving Customs' Seized
Asset

and Case Tracking System (SEACATS) and the Secret Service's Seized Property
Systems in its fiscal year 1999 Accountability Report. In January 1999, we
reported that Customs had made significant systems enhancements and was in
the process of further enhancing the security over seized assets and the
reliability of information maintained in SEACATS. According to Customs'
Fiscal Year 1999

Accountability Report, additional functionality to enhance reporting
functions for property and currency was added to SEACATS. However, in
January 2000, Treasury's OIG reported that the SEACATS data could not be
relied on for financial reporting purposes without substantial manual
reconciliation. Consequently, SEACATS could not produce the analysis of
changes in

seized currency for Customs' seized and forfeited property financial
statement disclosure. The OIG listed several recommendations to resolve this
issue and other

weaknesses in Customs' core financial systems, including developing a
comprehensive plan to identify the general ledger system modifications
needed to capture financial transactions as they occur.

In its audit of Customs' fiscal year 1999 financial statements, Treasury's
OIG also found that accountability controls over the inventory of seized
property needed improvement. Specifically, the OIG reported that nine
narcotic items could not be located or accounted for during a Customs seized
property inventory conducted in September 1999. Furthermore, six of these
nine items had been identified as missing during the previous fiscal year
inventory, and Customs had not made the required notification to Internal
Affairs. The OIG recommended that Customs (1) determine why the six seizures
identified as missing during the fiscal year 1998 annual physical inventory
verification were not reported to Internal Affairs and

(2) complete the current investigation expeditiously and take appropriate
action as a result of its findings.

According to Treasury's fiscal year 1999 accountability report, Treasury
plans several short- and long- term actions to correct identified weaknesses
in the automated systems used to track and report on seized and forfeited
assets. Because Treasury believes that its

annual assurance and compliance reporting for the Federal Managers'
Financial Integrity Act and FFMIA is the proper forum for providing
corrective actions, Treasury's fiscal year 2001 performance plan and
Customs' fiscal year 2001 performance plan did not include goals or measures
of progress related to the asset forfeiture program's management challenges.
However, as we reported in June 2000, it would be useful for Treasury to
include measures showing its progress toward correcting its material
weaknesses in its annual performance plan. Treasury reported that it is
working closely with its bureaus, including Customs and the Secret Service,
on developing and executing all remediation plans to correct weaknesses
identified in its

asset forfeiture program. Such support and oversight should help overcome
the deficiencies in this program. We will continue to monitor progress in
addressing these issues.

Seized Asset Legislation in 1988 required Treasury and Justice to Management
develop a plan to consolidate their seized property Programs Not Yet
management functions. In 1991 we recommended they Consolidated, but
consolidate the postseizure management and Under Study

disposition of noncash seized properties to reduce administrative costs.
Although the Departments have not made plans for consolidating their
programs, in September 2000, they contracted for a study to identify
opportunities for increased cooperation and sharing of agency and contractor
resources. The study is to result in recommendations for improving the
effectiveness and efficiency of property management functions within the

federal asset forfeiture program. Although the study is not expected to
fully embrace the concept of consolidating the two separate, seized asset

management and disposal functions, we believe that taking advantage of
opportunities for cooperation and sharing of agency and contractor resources
encompasses the spirit of the recommendation designed to reduce the
programs' administrative costs.

To determine whether to remove the asset forfeiture programs from the high-
risk list, we will consider the results of Treasury's and Justice's study,
including the implementation of any related recommendations, as well as the
results of ongoing initiatives for resolving Treasury's and Justice's
respective management and accountability issues. Contacts Gary T. Engel,
Director Financial Management and Assurance

(202) 512- 3406 engelg@ gao. gov Richard M. Stana, Director

Justice Issues (202) 512- 8777 stanar@ gao. gov

Related GAO Reports IRS Modernization Tax Administration: Assessment of IRS'
2000 Tax Filing Season (GAO- 01- 158, Dec. 22, 2000).

Internal Revenue Service: Recommendations to Improve Financial and
Operational Management (GAO- 01- 42, Nov. 17, 2000).

Tax Systems Modernization: Results of Review of IRS' August 2000 Interim
Spending Plan (GAO- 01- 91, Nov. 8, 2000). Customer Service: Human Capital
Management at Selected Public and Private Call Centers (GAO/ GGD- 00- 161,
Aug. 22, 2000). Tax Administration: IRS Faces Several Challenges as It
Attempts to Better Serve Small Businesses (GAO/ GGD- 00- 166, Aug. 10,
2000). Tax Systems Modernization: Results of Review of IRS' March 7, 2000,
Expenditure Plan (GAO/ AIMD- 00- 175, May 24, 2000). IRS Modernization:
Long- term Effort Under Way, but Significant Challenges Remain (GAO/ T- GGD/
AIMD- 00- 154, May 3, 2000). IRS Modernization: Business Practice,
Performance Management, and Information Technology Challenges (GAO/ T- GGD/
AIMD- 00- 144, Apr. 10, 2000). IRS Restructuring Act: Implementation Under
Way but Agency Modernization Important to Success (GAO/ T- GGD- 00- 53, Feb.
2, 2000).

Financial Audit: IRS' Fiscal Year 1999 Financial Statements (GAO/ AIMD- 00-
76, Feb. 29, 2000).

IRS Employee Evaluations: Opportunities to Better Balance Customer Service
and Compliance Objectives (GAO/ GGD- 00- 1, Oct. 14, 1999). IRS Management:
Formidable Challenges Confront IRS as It Attempts to Modernize (GAO/ T- GGD/
AIMD- 99- 255, July, 22, 1999).

Tax Systems Modernization: Results of Review of IRS' Initial Expenditure
Plan (GAO/ AIMD/ GGD- 99- 206, June 15, 1999). Tax Administration: IRS' 1999
Tax Filing Season (GAO/ GGD- 00- 37, Dec. 15, 1999).

Tax Administration: IRS' 1998 Tax Filing Season (GAO/ GGD- 99- 21, Dec. 31,
1998). Tax Systems Modernization: Blueprint Is a Good Start But Not Yet
Sufficiently Complete to Build or Acquire Systems (GAO/ AIMD/ GGD- 98- 54,
Feb. 24, 1998).

Customs U. S. Customs Service: Observations on Selected Operations and
Program Issues (GAO/ T- GGD/ AIMD- 00- 150, Apr. 20, 2000).

U. S. Customs Service: Better Targeting of Airline Passengers for Personal
Searches Could Produce Better Results (GAO/ GGD- 00- 38, Mar. 17, 2000).

Customs Service Modernization: Serious Management and Technical Weaknesses
Must Be Corrected (GAO/ AIMD- 99- 41, Feb. 26, 1999). Customs Service
Modernization: Impact of New Trade Compliance Strategy Needs to Be Assessed
(GAO/ GGD- 00- 23, Dec. 15, 1999).

Customs Service: Process for Estimating and Allocating Inspectional
Personnel (GAO/ GGD- 98- 107, Apr. 30, 1998).

Financial Financial Management Service: Significant Weaknesses

Management in Computer Controls (GAO/ AIMD- 00- 305, Sept. 26,

2000). Debt Collection: Treasury Faces Challenges in Implementing Its Cross-
Servicing Initiative (GAO/ AIMD- 00- 234, Aug. 4, 2000).

Federal Reserve Banks: Areas for Improvement in Computer Controls (GAO/
AIMD- 00- 218, July 7, 2000). Observations on the Department of the
Treasury's Fiscal Year 1999 Performance Report (GAO/ GGD/ AIMD- 00- 231R,
June 30, 2000).

Debt Collection: Treasury Faces Challenges in Implementing Its Cross-
Servicing Initiative (GAO/ T- AIMD- 00- 213, June 8, 2000). Financial Audit:
1999 Financial Report of the United States Government (GAO/ AIMD- 00- 131,
March 31, 2000). Financial Audit: Bureau of the Public Debt's Fiscal Years
1999 and 1998 Schedules of Federal Debt (GAO/ AIMD- 00- 79, March 1, 2000).

Financial Management Service: Significant Weaknesses in Computer Controls
(GAO/ AIMD- 00- 4, Oct. 4, 1999).

Federal Debt: Debt Management in a Period of Budget Surplus (GAO/ AIMD- 99-
270, Sept. 29, 1999).

Financial Audit: Issues Regarding Reconciliations of Fund Balances with
Treasury Accounts (AIMD- 99- 271, Sept. 17, 1999). Federal Reserve Banks:
Areas for Improvement in Computer Controls (GAO/ AIMD- 99- 280, Sept. 15,
1999).

Federal Debt: Answers to Frequently Asked Questions- An Update (GAO/ OCG-
99- 27, May 28, 1999).

Financial Audit: 1998 Financial Report of the United States Government (GAO/
AIMD- 99- 130, Mar. 31, 1999). ATF Observations on the Department of the
Treasury's Fiscal Year 1999 Performance Report and Fiscal Year 2001

Performance Plan (GAO/ GGD/ AIMD- 00- 231R, June 30, 2000).

Asset Forfeiture Asset Forfeiture: Noncash Property Should Be Consolidated
Under the Marshals Service (GAO/ GGD- 91- 97, June 28, 1991). Financial
Management: Customs' Accountability for Seized Property and Special
Operation Advances Was Weak (GAO/ AIMD- 94- 6, Nov. 22, 1993).

Performance and Accountability Series

Major Management Challenges and Program Risks: A Governmentwide Perspective
(GAO- 01- 241)

Major Management Challenges and Program Risks: Department of Agriculture
(GAO- 01- 242)

Major Management Challenges and Program Risks: Department of Commerce (GAO-
01- 243)

Major Management Challenges and Program Risks: Department of Defense (GAO-
01- 244)

Major Management Challenges and Program Risks: Department of Education (GAO-
01- 245)

Major Management Challenges and Program Risks: Department of Energy (GAO-
01- 246)

Major Management Challenges and Program Risks: Department of Health and
Human Services (GAO- 01- 247)

Major Management Challenges and Program Risks: Department of Housing and
Urban Development (GAO- 01- 248)

Major Management Challenges and Program Risks: Department of the Interior
(GAO- 01- 249)

Major Management Challenges and Program Risks: Department of Justice (GAO-
01- 250)

Major Management Challenges and Program Risks: Department of Labor (GAO- 01-
251)

Major Management Challenges and Program Risks: Department of State (GAO- 01-
252)

Major Management Challenges and Program Risks: Department of Transportation
(GAO- 01- 253)

Major Management Challenges and Program Risks: Department of the Treasury
(GAO- 01- 254)

Major Management Challenges and Program Risks: Department of Veterans
Affairs (GAO- 01- 255)

Major Management Challenges and Program Risks: Agency for International
Development (GAO- 01- 256)

Major Management Challenges and Program Risks: Environmental Protection
Agency (GAO- 01- 257)

Major Management Challenges and Program Risks: National Aeronautics and
Space Administration (GAO- 01- 258)

Major Management Challenges and Program Risks: Nuclear Regulatory Commission
(GAO- 01- 259)

Major Management Challenges and Program Risks: Small Business Administration
(GAO- 01- 260)

Major Management Challenges and Program Risks: Social Security
Administration (GAO- 01- 261)

Major Management Challenges and Program Risks: U. S. Postal Service (GAO-
01- 262)

High- Risk Series: An Update (GAO- 01- 263)

GAO United States General Accounting Office

Page 1 GAO- 01- 254 Treasury Challenges

Contents

Page 2 GAO- 01- 254 Treasury Challenges

Comptroller General of the United States

Page 3 GAO- 01- 254 Treasury Challenges United States General Accounting
Office

Washington, D. C. 20548

Page 4 GAO- 01- 254 Treasury Challenges

Page 5 GAO- 01- 254 Treasury Challenges

Page 6 GAO- 01- 254 Treasury Challenges

Overview Page 7 GAO- 01- 254 Treasury Challenges

Overview Page 8 GAO- 01- 254 Treasury Challenges

Overview Page 9 GAO- 01- 254 Treasury Challenges

Overview Page 10 GAO- 01- 254 Treasury Challenges

Overview Page 11 GAO- 01- 254 Treasury Challenges

Overview Page 12 GAO- 01- 254 Treasury Challenges

Page 13 GAO- 01- 254 Treasury Challenges

Major Performance and Accountability Challenges Page 14 GAO- 01- 254
Treasury Challenges

Major Performance and Accountability Challenges Page 15 GAO- 01- 254
Treasury Challenges

Major Performance and Accountability Challenges Page 16 GAO- 01- 254
Treasury Challenges

Major Performance and Accountability Challenges Page 17 GAO- 01- 254
Treasury Challenges

Major Performance and Accountability Challenges Page 18 GAO- 01- 254
Treasury Challenges

Major Performance and Accountability Challenges Page 19 GAO- 01- 254
Treasury Challenges

Major Performance and Accountability Challenges Page 20 GAO- 01- 254
Treasury Challenges

Major Performance and Accountability Challenges Page 21 GAO- 01- 254
Treasury Challenges

Major Performance and Accountability Challenges Page 22 GAO- 01- 254
Treasury Challenges

Major Performance and Accountability Challenges Page 23 GAO- 01- 254
Treasury Challenges

Major Performance and Accountability Challenges Page 24 GAO- 01- 254
Treasury Challenges

Major Performance and Accountability Challenges Page 25 GAO- 01- 254
Treasury Challenges

Major Performance and Accountability Challenges Page 26 GAO- 01- 254
Treasury Challenges

Major Performance and Accountability Challenges Page 27 GAO- 01- 254
Treasury Challenges

Major Performance and Accountability Challenges Page 28 GAO- 01- 254
Treasury Challenges

Major Performance and Accountability Challenges Page 29 GAO- 01- 254
Treasury Challenges

Major Performance and Accountability Challenges Page 30 GAO- 01- 254
Treasury Challenges

Major Performance and Accountability Challenges Page 31 GAO- 01- 254
Treasury Challenges

Major Performance and Accountability Challenges Page 32 GAO- 01- 254
Treasury Challenges

Major Performance and Accountability Challenges Page 33 GAO- 01- 254
Treasury Challenges

Major Performance and Accountability Challenges Page 34 GAO- 01- 254
Treasury Challenges

Major Performance and Accountability Challenges Page 35 GAO- 01- 254
Treasury Challenges

Major Performance and Accountability Challenges Page 36 GAO- 01- 254
Treasury Challenges

Major Performance and Accountability Challenges Page 37 GAO- 01- 254
Treasury Challenges

Major Performance and Accountability Challenges Page 38 GAO- 01- 254
Treasury Challenges

Major Performance and Accountability Challenges Page 39 GAO- 01- 254
Treasury Challenges

Major Performance and Accountability Challenges Page 40 GAO- 01- 254
Treasury Challenges

Major Performance and Accountability Challenges Page 41 GAO- 01- 254
Treasury Challenges

Major Performance and Accountability Challenges Page 42 GAO- 01- 254
Treasury Challenges

Major Performance and Accountability Challenges Page 43 GAO- 01- 254
Treasury Challenges

Major Performance and Accountability Challenges Page 44 GAO- 01- 254
Treasury Challenges

Major Performance and Accountability Challenges Page 45 GAO- 01- 254
Treasury Challenges

Major Performance and Accountability Challenges Page 46 GAO- 01- 254
Treasury Challenges

Major Performance and Accountability Challenges Page 47 GAO- 01- 254
Treasury Challenges

Major Performance and Accountability Challenges Page 48 GAO- 01- 254
Treasury Challenges

Major Performance and Accountability Challenges Page 49 GAO- 01- 254
Treasury Challenges

Major Performance and Accountability Challenges Page 50 GAO- 01- 254
Treasury Challenges

Major Performance and Accountability Challenges Page 51 GAO- 01- 254
Treasury Challenges

Major Performance and Accountability Challenges Page 52 GAO- 01- 254
Treasury Challenges

Major Performance and Accountability Challenges Page 53 GAO- 01- 254
Treasury Challenges

Major Performance and Accountability Challenges Page 54 GAO- 01- 254
Treasury Challenges

Major Performance and Accountability Challenges Page 55 GAO- 01- 254
Treasury Challenges

Major Performance and Accountability Challenges Page 56 GAO- 01- 254
Treasury Challenges

Major Performance and Accountability Challenges Page 57 GAO- 01- 254
Treasury Challenges

Major Performance and Accountability Challenges Page 58 GAO- 01- 254
Treasury Challenges

Page 59 GAO- 01- 254 Treasury Challenges

Related GAO Reports Page 60 GAO- 01- 254 Treasury Challenges

Related GAO Reports Page 61 GAO- 01- 254 Treasury Challenges

Related GAO Reports Page 62 GAO- 01- 254 Treasury Challenges

Page 63 GAO- 01- 254 Treasury Challenges

Performance and Accountability Series

Page 64 GAO- 01- 254 Treasury Challenges

Ordering Information

The first copy of each GAO report is free. Additional copies of reports are
$2 each. A check or money order should be made out to the Superintendent of
Documents. VISA and MasterCard credit cards are accepted, also. Orders for
100 or more copies to be mailed to a single address are discounted 25
percent.

Orders by mail:

U. S. General Accounting Office P. O. Box 37050 Washington, DC 20013

Orders by visiting:

Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U. S. General
Accounting Office Washington, DC

Orders by phone:

(202) 512- 6000 fax: (202) 512- 6061 TDD (202) 512- 2537

Each day, GAO issues a list of newly available reports and testimony. To
receive facsimile copies of the daily list or any list from the past 30
days, please call (202) 512- 6000 using a touchtone phone. A recorded menu
will provide information on how to obtain these lists.

Orders by Internet:

For information on how to access GAO reports on the Internet, send an e-
mail message with “info” in the body to: info@ www. gao. gov or
visit GAO's World Wide Web home page at: http:// www. gao. gov

To Report Fraud, Waste, or Abuse in Federal Programs

Contact one:

? Web site: http:// www. gao. gov/ fraudnet/ fraudnet. htm ? e- mail:
fraudnet@ gao. gov ? 1- 800- 424- 5454 (automated answering system)

United States General Accounting Office Washington, D. C. 20548- 0001

Official Business Penalty for Private Use $300

Address Correction Requested Bulk Mail

Postage & Fees Paid GAO Permit No. GI00
*** End of document. ***