Applying Agreed-Upon Procedures: Highway Trust Fund Excise Taxes 
(26-FEB-01, GAO-01-383R).					 
								 
GAO assisted the Department of Transportation determine whether  
the net excise tax revenue distributed to the Highway Trust Fund 
(HTF) for the fiscal year 2000 was supported by the underlying	 
records. GAO agreed to (1) perform detailed tests of transactions
that represent the underlying basis of amounts distributed to	 
HTF, (2) review the Internal Revenue Service's (IRS) quarterly	 
HTF certifications, (3) review the Financial Management Service  
adjustments to HTF for FY 2000, (4) review the Office of Tax	 
Analysis process for estimating amounts to be distributed to HTF 
for the fourth quarter of FY 2000, (5) compare net excise tax	 
distributions to the HTF during FY 2000 and amounts reported in  
the financial statements prepared by the Bureau of Public Debt	 
for HTF and HTF's financial statements, and (6) review key	 
reconciliations of IRS records to Treasury records.		 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-01-383R					        
    ACCNO:   164538						        
    TITLE:   Applying Agreed-Upon Procedures: Highway Trust Fund      
             Excise Taxes                                                     
     DATE:   02/26/2001 
  SUBJECT:   Accounting procedures				 
	     Auditing procedures				 
	     Auditing standards 				 
	     Excise taxes					 
	     Financial management systems			 
	     Financial records					 
	     Internal controls					 
	     Tax administration 				 
	     Trust funds					 
	     Highway Trust Fund 				 

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GAO-01-383R

Highway Trust Fund Excise Tax Procedures

United States General Accounting Office Washington, DC 20548

February 26, 2001 The Honorable Kenneth M. Mead Inspector General Department
of Transportation

Subject: Applying Agreed- Upon Procedures: Highway Trust Fund Excise Taxes
Dear Mr. Mead: We have performed the procedures contained in the enclosure
to this letter, which we agreed to perform and with which you concurred,
solely to assist your office in ascertaining whether the net excise tax
revenue distributed to the Highway Trust Fund (HTF) for the fiscal year
ended September 30, 2000, is supported by the underlying records. As agreed
with your office, we evaluated fiscal year 2000 activity affecting
distributions to HTF.

In performing the agreed- upon procedures, we conducted our work in
accordance with generally accepted government auditing standards, which
incorporate financial audit and attestation standards established by the
American Institute of Certified Public Accountants. These standards also
provide guidance when performing and reporting the results of agreed- upon
procedures.

The adequacy of the procedures to meet your objectives is your
responsibility, and we make no representation in that respect. The
procedures we agreed to perform include (1) detailed tests of transactions
that represent the underlying basis of amounts distributed to HTF, (2)
review of the Internal Revenue Service's (IRS) quarterly HTF certifications,
(3) review of the Department of the Treasury Financial Management Service
adjustments to HTF for fiscal year 2000, (4) review of the Office of Tax
Analysis process for estimating amounts to be distributed to HTF for the
fourth quarter of fiscal year 2000, (5) comparison of net excise tax
distributions to the HTF during fiscal year 2000 and amounts reported in the
financial statements prepared by the Bureau of the Public Debt for HTF and
HTF's financial statements, and (6) review of key reconciliations of IRS
records to Treasury records. The enclosure contains the agreed- upon
procedures and our findings from performing each of the procedures.

We were not engaged to perform, and did not perform, an audit, the objective
of which would have been the expression of an opinion on the amount of net
excise taxes distributed to HTF. Accordingly, we do not express such an
opinion. Had we performed additional procedures, other matters might have
come to our attention

GAO- 01- 383R Highway Trust Fund Excise Tax Procedures Page 2 that would
have been reported to you. 1 We completed the agreed- upon procedures

on February 16, 2001. We provided a draft of this letter to IRS and Treasury
officials, along with its enclosure, for review and comment. They agreed
with the results and findings presented in this letter.

This letter is intended solely for the use of the Office of Inspector
General of the Department of Transportation and should not be used by those
who have not agreed to the procedures and have not taken responsibility for
the sufficiency of the procedures for their purpose. However, this letter is
a matter of public record and its distribution is not limited. Consequently,
copies are available to others upon request. If you have any questions,
please call Steven J. Sebastian, Acting Director, at (202) 512- 3406.

Sincerely yours, Jeffrey C. Steinhoff Managing Director Financial Management
and Assurance

Enclosure 1 In our reports on the results of our audit of IRS' fiscal year
1999 financial statements, we noted a reportable condition related to IRS'
ability to allocate excise tax collections to the appropriate trust funds at
the time deposits are made. This condition affects the adequacy of the
distributions of federal excise tax revenue to recipient trust funds (
Financial Audit: IRS' Fiscal Year 1999 Financial Statements (GAO/ AIMD- 00-
76, February 29, 2000) and Internal Revenue Service: Recommendations to
Improve Financial and Operational Management (GAO- 01- 42, November 17,
2000)). This condition continued to

exist during fiscal year 2000. Our report on the results of our audit of
IRS' fiscal year 2000 financial statements will be issued shortly.

Enclosure GAO- 01- 383R Highway Trust Fund Excise Tax Procedures Page 3

Highway Trust Fund Excise Tax Procedures and Results (A) Procedures
performed for fiscal year 2000 excise tax distributions related to the
quarter ended September 30, 1999 a

(1) Nonrepresentative selection of tax returns (a) For the quarter ending
September 30, 1999, select the 30 largest excise tax

returns on the basis of total tax liability b amount from IRS' master file.
c

Description of findings and results We selected the 30 largest excise tax
returns from the quarter ended September 30, 1999, for testing. The
selection was based on the total tax liability amount, for each return, from
IRS' master file.

The total tax liability amount related to these 30 returns was approximately
$8.4 billion, or 63 percent of the total excise tax liability amount ($ 13.3
billion d ) for the quarter ended September 30, 1999.

Of these 30 returns, 22 contained primarily HTF related taxes, 7 contained
primarily Airport and Airway Trust Fund (AATF) taxes, and 1 contained
telephone taxes related to the general fund.

(b) For each of 22 returns related primarily to the HTF, we performed the
following procedures which resulted in our testing approximately $6.5
billion in prorated collections certified to the HTF for the quarter ended
September 30, 1999:

a Since certifications usually are not completed until 6 months after the
end of the quarter, the certification for the quarter ended September 30,
1999, was actually performed in fiscal year 2000.

b Although the certifications are based on amounts collected, we used the
tax liability amounts to identify the taxpayers paying the largest amounts
of excise taxes. Based on our experience, these taxpayers generally pay
their excise taxes in full each quarter.

c The master file is a detailed database containing taxpayer information. d
IRS told us that this was the total excise tax liability amount, from its
master file, for the quarter ended September 30, 1999.

Enclosure GAO- 01- 383R Highway Trust Fund Excise Tax Procedures Page 4

Trace the liability amount for selected abstracts e from the tax return to
IRS' master file.

Description of findings and results The liability amount for the three
selected abstracts on the tax return agreed with IRS' master file for 21 of
the 22 cases. On the remaining case, we identified an IRS input error that
understated the taxpayer's excise tax liability by $3,000. IRS corrected
this error after we brought it to its attention.

Check the mathematical accuracy of the taxpayer's calculations on the tax
return for the selected abstracts.

Description of findings and results The taxpayers' calculations on all 22 of
the selected returns were mathematically correct.

Recompute the prorated collection amount for the selected abstracts based on
information from the master file and compare this amount to the amount from
the Collection Certification System audit file. f

Description of findings and results The recomputed prorated collection
amounts for the three selected abstracts agreed with amounts in IRS'
Collection Certification System audit file for all 22 of the selected
returns.

e The abstract numbers identify the tax type (e. g., gasoline and ticket
tax) and are used as the basis for determining the distribution of the
excise taxes to the various trust funds. Abstract numbers are preprinted on
the Form 720 and are used by the taxpayer to report excise tax assessments.
If the return was related to HTF, we selected (1) tax on 10 percent gasohol
(abstract 59), (2) diesel fuel tax (abstract 60), and (3) gasoline tax
(abstract 62). If the return was related to AATF, we selected (1) tax on
transportation of persons by air– ticket tax (abstract 26), (2) tax on
use of international air facilities (abstract 27), and (3) tax on
transportation of property by air (abstract 28). If the return was related
to neither of the above trust funds, we selected all abstracts on the return
in which the taxpayer has reported a liability. The tax amounts related to
the selected abstracts for each trust fund are the largest tax amounts
reported on the taxpayer's excise tax return and make up at least 85 percent
of the total amount certified to HTF and approximately 90 percent of the
total amount certified to AATF.

f The Collection Certification System produces what IRS refers to as "audit
files." These audit files contain the individual prorated collections, by
abstract and taxpayer identification number, that make up the certified
total amounts for each abstract.

Enclosure GAO- 01- 383R Highway Trust Fund Excise Tax Procedures Page 5 (2)
Receipt certifications

(a) Inspect the certification letters g for authorizing signatures.
Description of findings and results The certification letters for the
quarter ended September 30, 1999, had authorizing signatures.

(b) Determine if evidence exists that the supervisor or another analyst
checked the certification letters and supporting worksheets.

Description of findings and results There was evidence that the
certification letters and supporting worksheets were checked by another
analyst and a supervisor.

(c) Recalculate the totals on the certification letters to determine if they
are mathematically correct.

Description of findings and results The totals on the certification letters
were mathematically correct. (d) Trace the certified amounts for diesel fuel
tax (abstract 60), gasoline tax

(abstract 62), and tax on 10 percent gasohol (abstract 59) h from the
certification letter back to the Reports of Excise Tax Collections. i

Description of findings and results The certified amounts for diesel fuel
tax (abstract 60), gasoline tax (abstract 62), and tax on 10 percent gasohol
(abstract 59) per the

g IRS prepares two certification letters for HTF each quarter: one for the
Highway Account and the other for the Mass Transit Account. h The certified
amounts for diesel fuel tax (abstract 60), gasoline tax (abstract 62), and
tax on 10 percent gasohol (abstract 59), along with the heavy vehicle use
tax (traced separately), make up approximately 90 percent of the total
amount certified to HTF.

i The Report of Excise Tax Collections contains classified prorated
collections that serve as the basis for IRS' quarterly trust fund
certifications. IRS uses data from two of these reports, covering sequential
processing intervals, for each certification. Collections are classified on
the report when the related Form 720 tax return has been recorded on IRS'
master file during the processing interval covered by the report. The second
of the two reports used may contain collections related to previous quarters
not classified until the current quarter because the related return was not
recorded on the master file until the current quarter.

Enclosure GAO- 01- 383R Highway Trust Fund Excise Tax Procedures Page 6
certification letters for the quarter ended September 30, 1999, agreed with

the related Report of Excise Tax Collections. (e) Review the Reports of
Excise Tax Collections used in the certification to

determine if they contain significant j collections from prior quarters.
Description of findings and results The Reports of Excise Tax Collections
used for the September 30, 1999, certification contained approximately $346
million in HTF excise tax collections related to previous quarters. Of this
amount, approximately $344 million was from the quarter ended June 30, 1999.

(f) Heavy vehicle use taxes, which go to HTF, are reported on Form 2290 and
are not included in the Collection Certification System. Trace this amount
from the Highway Account certification letter to the master file.

Description of findings and results Heavy vehicle use tax per the Highway
Account certification letter agreed with the master file.

(g) Review the distribution rates used by IRS to determine whether the
distribution rates for diesel fuel tax (abstract 60), gasoline tax (abstract
62), and tax on 10 percent gasohol (abstract 59) agree with the applicable
laws.

Description of findings and results We saw no evidence that the distribution
rates used by IRS for diesel fuel tax (abstract 60), gasoline tax (abstract
62), and tax on 10 percent gasohol (abstract 59) did not agree with the
applicable laws.

j For this test, significant is defined as $90 million. This represents
approximately 1 percent of the total amount certified to HTF for a quarter.

Enclosure GAO- 01- 383R Highway Trust Fund Excise Tax Procedures Page 7 (3)
FMS adjustments

(a) Compare the Financial Management Service (FMS) adjustments made to HTF
for fiscal year 2000 with original Office of Tax Analysis (OTA) estimates
and IRS certified amounts to see if they agree with the supporting schedule.
k Recompute the difference between the OTA estimate and final IRS certified
amount to see if the amount agrees with the difference computed by FMS.

Description of findings and results For the FMS adjustments made to the HTF
accounts (Highway and Mass Transit), the original OTA estimates and IRS
certified amounts agreed with the supporting schedule. The independently
recalculated difference between the OTA estimate and the final IRS certified
amount for the Highway Account for the quarter ended September 30, 1999- ($
343,778,000) l -and for the Mass Transit Account for the quarter ended
September 30, 1999-($ 93,367,000)- agreed with the difference computed by
FMS.

(B) Procedures performed for fiscal year 2000 excise tax distributions
related to quarters ended December 31, 1999, and March 31, 2000

(1) Sampling (a) Obtain excise tax assessments and collection data from IRS'
master file for

the first 6 months of fiscal year 2000. Determine if excise tax collections
per master file agree with IRS' general ledger. Reconcile total excise tax
collections from the master file to total excise tax collections from the
Collection Certification System audit files to determine if they materially
m

agree. k This schedule, called the "Subsidiary Quarterly Account of
Estimates and Actual Related Excise Taxes Appropriated to the Highway
Account," is compiled by an accountant at FMS, and it computes the
difference between IRS certified amounts and the OTA estimate for excise
taxes, individually and in total, that relate to the Highway Account. A
similar schedule is prepared for the Mass Transit Account. The schedules,
along with OTA transfer forms and IRS certifications, support the FMS
adjustment.

l A positive amount indicates that the FMS adjustment increased excise taxes
distributed to the trust fund. A negative amount, shown in parentheses,
indicates that the FMS adjustment decreased excise taxes distributed to
trust funds.

m For the purpose of this reconciliation, material is defined as $199
million. This represents 1 percent of the total Form 720- related excise tax
collections, related to the quarters ended December 31, 1999, and March 31,
2000.

Enclosure GAO- 01- 383R Highway Trust Fund Excise Tax Procedures Page 8
Description of findings and results

Excise tax collections for the first 6 months of fiscal year 2000 per the
master file materially agreed with IRS' general ledger and with total excise
tax collections from the Collection Certification System.

(b) Select a random attribute sample of 78 excise tax assessments from IRS'
master file. Compare assessment and receipt information for each sample item
from the master file to the assessment and receipt information in the
Collection Certification System to determine if assessments and receipts
from the master file are contained in the Collection Certification System.

Description of findings and results For each sample item, assessments and
receipts from the master file are contained in the Collection Certification
System.

(c) To determine if the Collection Certification System properly summarized
the prorated collections, total the prorated collections for selected
abstracts n from the audit files and compare these amounts to amounts in the
Report of Excise Tax Collections.

Description of findings and results The Collection Certification System
properly summarized the prorated collections for all of the selected
abstracts related to HTF and AATF. Prorated collections for the above-
mentioned trust funds from the audit files agreed with the corresponding
amounts in the Report of Excise Tax Collections.

(d) Separate the total population of prorated collections from the audit
files into the following distinct populations: (1) HTF, (2) AATF, and (3)
other excise tax abstracts. Use Dollar Unit Sampling (DUS) to select a
sample of prorated excise tax collections from the HTF population.

n The selected abstracts include the following: (1) tax on 10 percent
gasohol (abstract 59), (2) diesel fuel tax (abstract 60), (3) gasoline tax
(abstract 62), (4) tax on transportation of persons by air (abstract 26),
(5) tax on use of international air facilities (abstract 27), (6) tax on
transportation of property by air (abstract 28), and (7) tax on aviation
fuel for commercial use (abstract 77). The tax amounts for the three HTF-
related abstracts make up at least 85 percent of the total amount certified
to HTF and the four AATF- related abstracts make up over 97 percent of the
total amounts certified to AATF.

Enclosure GAO- 01- 383R Highway Trust Fund Excise Tax Procedures Page 9
Description of findings and results

Use of DUS with a confidence level of 80 percent, a test materiality of
$304.9 million, and an expected aggregate error amount of $91.5 million
resulted in a sample of 114 o prorated collections for the first 6 months of
fiscal year 2000.

(e) Select samples of prorated excise tax collections from the two non- HTF
populations.

Description of findings and results Use of DUS with a confidence level of 80
percent, a test materiality of $76.1 million, and an expected aggregate
error amount of $22.8 million resulted in a sample of 74 p prorated
collections for the first 6 months of fiscal year 2000 for AATF.

A random attribute sample of 45 items from the population of prorated tax
collections related to all excise taxes other than HTF and AATF was selected
for testing. q

(2) Detailed tests of transactions (a) For each prorated excise tax
collection sampled from the HTF population:

Check to see that the assessment amount on the tax return, for the sampled
abstract, agrees with the amount recorded in IRS' master file.

o The actual sample size using DUS was 153 items. However, because DUS
selects dollars versus specific transaction items as the sampling unit, 39
items were selected more than once. Consequently, 114 unique sample
transactions were selected for testing.

p The actual sample size using DUS was 163 items. However, because DUS
selects dollars versus specific transaction items as the sampling unit, 26
items were selected more than once. Consequently, 74 unique sample
transactions were selected for testing.

q For this sample, if no errors are found in testing the 45 items, we would
be 90 percent confident that the error rate in the population would not
exceed 5 percent.

Enclosure GAO- 01- 383R Highway Trust Fund Excise Tax Procedures Page 10
Description of findings and results

The assessment amounts on the tax returns agreed with the amounts recorded
in IRS' master file for 106 of 114 sampled abstracts. For eight sample
items, IRS could not provide support for credit adjustments r to abstract
60. In addition, for 4 of the 15 sample items, IRS could not provide support
for credit adjustments to the non sample abstract 35. s The unsupported
credit adjustments resulted in an understatement of $621,644 to abstract 60
and overstatements of $189,560 and $1,920,434 respectively, to abstracts 59
and 62.

Check the mathematical accuracy of the taxpayers' calculations on the tax
returns for the related abstract.

Description of findings and results The taxpayers' calculations on the tax
returns for the related abstracts were mathematically correct for all of the
sampled abstracts.

Recompute the prorated collection amount based on information from the
master file and compare this amount to the sample items selected from the
Collection Certification System audit file. t

Description of findings and results The recomputed prorated collection based
on information from the master file agreed with the amounts for all items
sampled from the Collection Certification System audit file. (Note: Even
though the recomputed prorated collections for all HTF sample items were
correct, an error in IRS' Collection Certification System resulted in an
understatement of $145,261 to the HTF certifications for fiscal year 2000)

r Taxpayers are allowed to make claims or adjustments to prior quarters'
excise taxes by using Form 720, Schedule C. Two of these credits are for
diesel fuel sold for use by a state or local government (abstract 60) and
for kerosene sold for use by a state or local government (abstract 35). For
both abstract 60 and abstract 35 claims, taxpayers must attach to the Form
720 a list of the names and tax identification numbers of each governmental
unit to which the fuel was sold and the number of gallons sold to each.

s An error in the amount of any abstract in a tax return affects the ratio
used by the IRS Collection Certification System to determine the prorated
collection amount for all abstracts related to that tax return.

t The purpose of this test is to determine whether the Collection
Certification System prorates correctly. This test is not intended to
determine whether amounts provided to the system are correct. Because of the
errors noted above, the master file provided incorrect data to the
Collection Certification System.

Enclosure GAO- 01- 383R Highway Trust Fund Excise Tax Procedures Page 11 (b)
Perform detailed testing on the two samples of prorated collections from the

non- HTF populations to determine if they contain any HTF excise tax
collections.

Description of findings and results The two samples of prorated collections
from the non- HTF populations did not contain any HTF excise tax
collections.

(c) Evaluate the results of conducting steps (a) and (b). Description of
findings and results For the first 6 months of fiscal year 2000, the net
most likely error is $1.8 million with an upper error limit of $181 million
at the 80 percent confidence level.

(3) Receipt certifications (a) Inspect the certification letters for
authorizing signatures.

Description of findings and results The certification letters for the
quarters ended December 31, 1999, and March 31, 2000, had authorizing
signatures.

(b) Determine if evidence exists that the supervisor or another analyst
checked the certification letters and supporting worksheets.

Description of findings and results There was evidence that the
certification letters and supporting worksheets were checked by another
analyst and a supervisor.

(c) Recalculate the totals on the certification letters to determine if they
are mathematically correct.

Description of findings and results The totals on the certification letters
were mathematically correct. (d) Trace the certified amounts for diesel fuel
tax (abstract 60), gasoline tax

(abstract 62), and tax on 10 percent gasohol (abstract 59) from the
certification letters back to the Reports of Excise Tax Collections.

Enclosure GAO- 01- 383R Highway Trust Fund Excise Tax Procedures Page 12
Description of findings and results

The certified amounts for diesel fuel tax (abstract 60), gasoline tax
(abstract 62), and tax on 10 percent gasohol (abstract 59) per the
certification letters for the quarters ended December 31, 1999, and March
31, 2000, agreed with the related Report of Excise Tax Collections.

(e) Review the Reports of Excise Tax Collections used in the certifications
to determine if they contain significant collections from prior quarters.

Description of findings and results The Reports of Excise Tax Collections
used for the December 31, 1999, and March 31, 2000, certifications did not
contain significant collections from prior quarters.

(f) Heavy vehicle use taxes, which go to HTF, are reported on Form 2290 and
are not included in the Collection Certification System. Trace this amount
from the Highway Account certification letters to the master file.

Description of findings and results Heavy vehicle use tax per the Highway
Account certification letters agreed with the master file.

(g) Review the distribution rates used by IRS to determine whether the
distribution rates for diesel fuel tax (abstract 60), gasoline tax (abstract
62), and tax on 10 percent gasohol (abstract 59) agree with the applicable
laws.

Description of findings and results We saw no evidence that the distribution
rates used by IRS for diesel fuel tax (abstract 60), gasoline tax (abstract
62), and tax on 10 percent gasohol (abstract 59) did not agree with the
applicable laws.

Enclosure GAO- 01- 383R Highway Trust Fund Excise Tax Procedures Page 13 (4)
Refunds/ credit reclassification u

(a) Inspect the certification letters for authorizing signatures.
Description of findings and results The certification letters for the
quarters ended December 31, 1999, and March 31, 2000, had authorizing
signatures.

(b) Determine if evidence exists that the certification letters and
accompanying schedules v were checked by the supervisor or another analyst.

Description of findings and results There was evidence that the
certification letters and accompanying schedules were checked by another
analyst and a supervisor.

(c) Recalculate the totals on the certification letters and accompanying
schedules to determine if they are mathematically correct.

Description of findings and results The totals on the certification letters
and accompanying schedules were mathematically correct.

(d) For selected excise taxes, w trace the refund and credit amount from the
schedule accompanying the certification letters to other summary

u IRS performs a quarterly reclassification of excise tax refunds and
credits originally entered into its master file as personal or corporate
refunds/ credits. IRS refers to these reclassifications as "refunds/ credits
certifications." These amounts do not represent the total excise tax refund/
credit activity to the trust funds. Other routine excise tax refunds and
credits (e. g., overpayments), which are claimed on taxpayers' Form 720
excise tax returns, are included in IRS' excise tax receipt certification to
trust funds.

v IRS attaches a separate schedule to the HTF refund/ credit certification
letter that includes the detailed excise tax amounts that support the total
amount shown on the letter. IRS compiles the amounts on these schedules from
service center systems and its Interim Revenue Accounting Control System
(IRACS). IRS has 10 service centers (referred to as “campuses”
under IRS' current reorganization) that process tax returns and tax
receipts.

w The information used by IRS to obtain excise tax refunds and credits from
corporate and personal returns comes from service center systems and IRACS.
These systems do not include excise tax data at the abstract level. For this
reason, reference is made to excise taxes rather than abstracts.

Enclosure GAO- 01- 383R Highway Trust Fund Excise Tax Procedures Page 14
refund/ credit schedules. (These other refund/ credit summary schedules

summarize refund and credit data obtained from service center records.)
Description of findings and results The refund and credit amounts for the
selected excise taxes, gasoline and diesel, on the schedule accompanying the
certification letters for the quarters ended December 31, 1999, and March
31, 2000, agreed with the amounts on the summary schedules.

(5) FMS adjustments (a) Compare the FMS adjustments made to HTF for fiscal
year 2000 with

original OTA estimates and IRS certified amounts to see if they agree with
the supporting schedules. Recompute the difference between the OTA estimate
and final IRS certified amount to see if the amount agrees with the
difference computed by FMS.

Description of findings and results For the FMS adjustments made to the HTF
accounts (Highway and Mass Transit), the original OTA estimates and IRS
certified amounts agreed with the supporting schedule. The independently
recalculated difference between the OTA estimate and the final IRS certified
amount for the Highway Account for the quarters ended December 31, 1999-
$639,514,000- and March 31, 2000-$ 166,915,000- and for the Mass Transit
Account for the quarters ended December 31, 1999-$ 96,772,000- and March 31,
2000-$ 19,968,000- agreed with the difference computed by FMS.

(C) Procedures performed for fiscal year 2000 excise tax distributions
related to the quarter ended June 30, 2000

(1) Receipt certifications (a) Inspect the certification letters for
authorizing signatures.

Description of findings and results The certification letters for the
quarter ended June 30, 2000, had authorizing signatures.

(b) Determine if evidence exists that the supervisor or another analyst
checked the certification letters and supporting worksheets.

Enclosure GAO- 01- 383R Highway Trust Fund Excise Tax Procedures Page 15
Description of findings and results

There was evidence that the certification letters and supporting worksheets
were checked by another analyst and a supervisor.

(c) Recalculate the totals on the certification letters to determine if they
are mathematically correct.

Description of findings and results The totals on the certification letters
were mathematically correct. (d) Trace the certified amounts for diesel fuel
tax (abstract 60), gasoline tax

(abstract 62), and tax on 10 percent gasohol (abstract 59) from the
certification letters back to the Reports of Excise Tax Collections.

Description of findings and results The certified amounts for diesel fuel
tax (abstract 60), gasoline tax (abstract 62), and tax on 10 percent gasohol
(abstract 59) per the certification letters for the quarter ended June 30,
2000, agreed with the related Reports of Excise Tax Collections.

(e) Review the Reports of Excise Tax Collections used in the certification
to determine if they contain significant collections from prior quarters.

Description of findings and results The Reports of Excise Tax Collections
used in the certification did not contain significant collections from prior
quarters.

(f) Heavy vehicle use taxes, which go to HTF, are reported on Form 2290 and
are not included in the Collection Certification System. Trace this amount
from the Highway Account certification letter to the master file.

Description of findings and results Heavy vehicle use tax per the Highway
Account certification letter agreed with the master file.

(g) Review the distribution rates used by IRS to determine whether the
distribution rates for diesel fuel tax (abstract 60), gasoline tax (abstract
62), and tax on 10 percent gasohol (abstract 59) agree with the applicable
laws.

Enclosure GAO- 01- 383R Highway Trust Fund Excise Tax Procedures Page 16
Description of findings and results

We saw no evidence that the distribution rates used by IRS for diesel fuel
tax (abstract 60), gasoline tax (abstract 62), and tax on 10 percent gasohol
(abstract 59) did not agree with the applicable laws.

(2) Refunds/ credit reclassification (a) Inspect the certification letter
for authorizing signature.

Description of findings and results The certification letter for the quarter
ended June 30, 2000, had an authorizing signature.

(b) Determine if evidence exists that the certification letter and
accompanying schedule were checked by the supervisor or another analyst.

Description of findings and results There was evidence that the
certification letter and accompanying schedule were checked by another
analyst and a supervisor.

(c) Recalculate the totals on the certification letter and accompanying
schedule to determine if they are mathematically correct.

Description of findings and results The totals on the certification letter
and accompanying schedule were mathematically correct.

(d) For selected excise taxes, trace the refund and credit amount from the
schedule accompanying the certification letter to other summary refund/
credit schedules. (These other refund/ credit summary schedules summarize
refund and credit data obtained from service center records.)

Description of findings and results The refund and credit amounts for the
selected excise taxes, gasoline and diesel, on the schedule accompanying the
certification letter agreed with the amounts on the summary schedules.

(3) FMS adjustments (a) Compare the FMS adjustments made to HTF for fiscal
year 2000 with

original OTA estimates and IRS certified amounts to see if they agree with
the supporting schedules. Recompute the difference between the OTA

Enclosure GAO- 01- 383R Highway Trust Fund Excise Tax Procedures Page 17
estimate and final IRS certified amount to see if the amount agrees with the

difference computed by FMS. Description of findings and results For the FMS
adjustments made to the HTF accounts (Highway and Mass Transit), the
original OTA estimates and IRS certified amounts agreed with the supporting
schedule. The independently recalculated difference between the OTA estimate
and the final IRS certified amount for the Highway Account for the quarter
ended June 30, 2000-($ 449,806,000)- and for the Mass Transit Account for
the quarter ended June 30, 2000- ($ 76,473,000)- agreed with the difference
computed by FMS.

(D) Procedures performed for fiscal year 2000 excise tax distributions
related to the quarter ended September 30, 2000

(1) OTA estimation process (a) Determine if OTA's process for identifying
and incorporating into its

revenue estimates the effect of new legislation on excise tax receipts was
in place during fiscal year 2000.

Description of findings and results OTA told us that its process for
identifying and including new laws and regulations affecting excise taxes in
its revenue receipt estimates includes consultations with Treasury's Tax
Legislative Counsel, IRS' Chief Counsel, the Office of Management and
Budget, and the Joint Committee on Taxation. OTA, in consultation with
others, determined that no new enactments affected excise tax receipts in
fiscal year 2000. Communications supporting this determination were not
documented.

OTA does not routinely compile a comprehensive list of laws and regulations
that affect the receipt estimates. However, a tax rate table is used to
capture information relating to legislation that affects tax rates, tax
basis, accounts, and deposit rules in effect during the tax period and to
communicate this information to interested parties at Treasury, the Federal
Highway Administration, the Federal Transit Administration, and the
Department of Transportation. OTA documented consultations with legal staff
at Treasury in updating the table.

(b) Determine if OTA's process for reviewing and incorporating into its
revenue receipt estimates the new information received between the budget
preparation cycles was in place in fiscal year 2000.

Enclosure GAO- 01- 383R Highway Trust Fund Excise Tax Procedures Page 18
Description of findings and results

OTA told us that its review process to ensure that new information received
between the budget preparation cycles is reflected in the revenue receipt
estimates involves at least two reviews conducted by OTA's Director of the
Revenue Estimation Division (RED) for the impact of various technical,
economic, and legislative factors on the receipt estimates. OTA informed us
that the Director of RED reviews the changes to the earlier forecasts,
provides input to each staff economist, and approves changes to the
forecasts. OTA does not document this review. Also, director approval of
final changes is not documented by signature.

The Director of RED reviews the monthly receipt forecasts prepared by OTA
staff economists, which are based on fiscal year forecasts described above,
and indicates his concurrence by his signature on the monthly transfer
documents transmitted to FMS.

The Director of RED reviews the adjustments prepared by OTA staff economists
for the impact of new legislation enacted in the period between the budget
cycles and indicates his concurrence by his signature on the adjustment and
the transmittal memo to FMS. OTA prepared no such adjustments in fiscal year
2000 based on its determination that no new enactments affected receipts in
the fiscal year.

(c) Determine if OTA's process for considering and incorporating into its
revenue receipt estimates the impact of variances between actual and
previously forecasted excise tax receipts was in place in fiscal year 2000.

Description of findings and results OTA told us that its process consists of
comparing prior estimates of excise tax receipts to actual excise tax
collections, as reported by Treasury's FMS, to adjust its excise tax
receipts estimation models. x This information is considered along with
other factors to determine if adjustments to the excise tax receipts
estimation models are warranted.

(2) Refunds/ credit reclassification (a) Inspect the certification letter
for authorizing signature.

x OTA uses economic models to develop estimates for the amounts of excise
tax receipts to be transferred to HTF.

Enclosure GAO- 01- 383R Highway Trust Fund Excise Tax Procedures Page 19
Description of findings and results

The certification letter for the quarter ended September 30, 2000, had an
authorizing signature.

(b) Determine if evidence exists that the certification letter and
accompanying schedule were checked by the supervisor or another analyst.

Description of findings and results There was evidence that the
certification letter and accompanying schedule were checked by another
analyst and a supervisor.

(c) Recalculate the totals on the certification letter and accompanying
schedule to determine if they are mathematically correct.

Description of findings and results The totals on the certification letter
and accompanying schedule were mathematically correct.

(d) For selected excise taxes, trace the refund and credit amount from the
schedule accompanying the certification letter to other summary refund/
credit schedules. (These other refund/ credit summary schedules summarize
refund and credit data obtained from service center records.)

Description of findings and results The refund and credit amounts for the
selected excise taxes, gasoline and diesel, on the schedule accompanying the
certification letter agreed with the amounts on the summary schedules.

(E) Other procedures related to total fiscal year 2000 excise tax
distributions

(1) Compare total fiscal year 2000 excise taxes distributed to HTF with
drafts of the (1) Bureau of the Public Debt's (BPD) financial statements for
HTF and (2) HTF financial statements to determine if they agree.

Description of findings and results Fiscal year 2000 excise taxes of $35
billion distributed to the HTF agree with amounts reported on (1) audited
BPD financial statements for HTF and (2) draft HTF financial statements.

(F) Other procedures

(1) Performed as part of fiscal year 2000 IRS financial statement audit.

Enclosure GAO- 01- 383R Highway Trust Fund Excise Tax Procedures Page 20 (a)
Use DUS to select statistical samples of (1) total revenue receipts and (2)

refunds from IRS' master files for the first 9 months of fiscal year 2000.
For each item in the samples of revenue receipts and refunds, test that the
collection or refund amount and tax class y from source documentation agrees
with amounts recorded in IRS' master files.

Description of findings and results Detailed testing of 199 revenue receipts
and 18 refund sample transactions showed that the collection or refund
amount and tax class from source documents agreed with amounts recorded in
IRS' master files.

(b) Review selected service centers' monthly Treasury SF- 224
reconciliations to determine if IRS- reported revenue receipts were properly
classified and reconciled to Treasury FMS records. For refunds, review
selected IRS service centers' monthly Treasury SF- 224 reconciliations to
determine if IRS- reported total refunds (all tax classes) materially z
reconciled to Treasury FMS records. aa

Description of findings and results Tax revenue receipts reported by
selected IRS service centers via the monthly Treasury SF- 224 reconciliation
process were properly classified and materially agreed with Treasury FMS
records.

Total refunds reported by the selected IRS service centers via the monthly
Treasury SF- 224 reconciliation process materially agreed with Treasury FMS
records.

(c) Perform a proof of cash for fiscal year 2000 to determine whether
revenue receipt balances by tax class, including excise tax, per IRS'
general ledger materially agree with IRS master files and Treasury records.
For refunds, perform a comparison of total refund balances between the
master file, the general ledger, and Treasury records. Also, compare excise
tax refunds per the master file to the general ledger.

y IRS assigns a tax class number to specific types of taxes. Excise taxes
are tax class 4. z For the purpose of this section, we define material as
$20 billion. aa IRS maintains records of refund balances by tax class in its
master file and reports this information monthly to Treasury via the SF-
224. Treasury provides IRS with a Statement of Differences (TFS- 6652),
which reports differences between total refunds reported by IRS on the SF-
224 and the total refunds per Treasury records.

Enclosure GAO- 01- 383R Highway Trust Fund Excise Tax Procedures Page 21
Description of findings and results

Fiscal year- end tax receipt balances for all tax classes, including excise
taxes, per IRS' general ledger materially agreed with IRS' master files and
with Treasury records.

Fiscal year- end refund balances per IRS' general ledger materially agreed
with the master file and with Treasury records.

(901811)
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