Applying Agreed-Upon Procedures: Airport and Airway Trust Fund	 
Excise Taxes (26-FEB-01, GAO-01-384R).				 
								 
GAO assisted the Department of Transportation determine whether  
the net excise tax revenue distributed to the Airport and Airway 
Trust Fund (AATF) for 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 AATF, (2) review the Internal Revenue Service's	 
(IRS) quarterly AATF certifications, (3) review the Department of
the Treasury Financial Management Service adjustments to AATF for
FY 2000, (4) review the Office of Tax Analysis process for	 
estimating amounts to be distributed to AATF for the fourth	 
quarter of FY 2000, (5) compare net excise tax distributions to  
AATF during FY 2000 and amounts reported in the financial	 
statements prepared by the Bureau of the Public Debt for AATF and
the Federal Aviation Administration's consolidated financial	 
statements, and (6) review key reconciliations of IRS records to 
Treasury records.						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-01-384R					        
    ACCNO:   164539						        
    TITLE:   Applying Agreed-Upon Procedures: Airport and Airway Trust
             Fund Excise Taxes                                                
     DATE:   02/26/2001 
  SUBJECT:   Accounting procedures				 
	     Auditing procedures				 
	     Auditing standards 				 
	     Excise taxes					 
	     Financial records					 
	     Financial statement audits 			 
	     Internal controls					 
	     Tax administration 				 
	     Trust funds					 
	     Airport and Airway Trust Fund			 

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GAO-01-384R

Airport and Airway 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: Airport and Airway 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 Airport and Airway Trust Fund (AATF) 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 AATF.

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 AATF, (2)
review of the Internal Revenue Service's (IRS) quarterly AATF
certifications, (3) review of the Department of the Treasury Financial
Management Service adjustments to AATF for fiscal year 2000, (4) review of
the Office of Tax Analysis process for estimating amounts to be distributed
to AATF for the fourth quarter of fiscal year 2000, (5) comparison of net
excise tax distributions to AATF during fiscal year 2000 and amounts
reported in the financial statements prepared by the Bureau of the Public
Debt for AATF and the Federal Aviation Administration's consolidated
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 AATF. Accordingly, we do not express such an
opinion. Had we

GAO- 01- 384R Airport and Airway Trust Fund Excise Tax Procedures Page 2
performed additional procedures, other matters might have come to our
attention

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 report 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 purposes. 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- 384R Airport and Airway Trust Fund Excise Tax Procedures
Page 3

Airport and Airway 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

Select a minimum of six AATF returns. 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, 7 contained primarily AATF- related taxes, 22 contained
primarily Highway Trust Fund (HTF) related taxes, and 1 contained telephone
taxes related to the general fund.

(b) For each of the seven returns related primarily to AATF, we performed
the following procedures which resulted in our testing approximately $1.6
billion in prorated collections certified to AATF 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- 384R Airport and Airway 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 returns agreed with the amounts in IRS' master
file for all seven of the returns.

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 seven
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
amount for the three selected abstracts agreed with the amounts from the
Collection Certification System audit file for all seven of the selected
returns.

(2) Receipt certifications (a) Inspect the certification letter for
authorizing signature.

e The abstract numbers identify the tax type (e. g., gasoline and
transportation of persons by air) 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 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 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 neither of the above trust
funds, we selected all abstracts on the return in which the taxpayer
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 approximately 90 percent of the total amount
certified to AATF and at least 85 percent of the total amount certified to
HTF.

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- 384R Airport and Airway Trust Fund Excise Tax Procedures
Page 5 Description of findings and results

The certification letter for the quarter ended September 30, 1999, had an
authorizing signature.

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

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

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

Description of findings and results The totals on the certification letter
were mathematically correct. (d) Trace the certified amounts for tax on
transportation of persons by air

(abstract 26), tax on use of international air facilities (abstract 27), tax
on transportation of property by air (abstract 28), and tax on aviation fuel
for commercial use (abstract 77) g from the certification letter back to the
Reports of Excise Tax Collections.

Description of findings and results The certified amounts for tax on
transportation of persons by air (abstract 26), tax on use of international
air facilities (abstract 27), tax on transportation of property by air
(abstract 28), and tax on aviation fuel for commercial use (abstract 77)
from the certification letter for the quarter ended September 30, 1999,
agreed with the amounts on the related Report of Excise Tax Collections.

g The certified amounts for tax on transportation of persons by air
(abstract 26), tax on use of international air facilities (abstract 27), tax
on transportation of property by air (abstract 28), and tax on aviation fuel
for commercial use (abstract 77) make up over 97 percent of the total amount
certified to AATF.

Enclosure GAO- 01- 384R Airport and Airway Trust Fund Excise Tax Procedures
Page 6 (e) Review the Reports of Excise Tax Collections h used in the
certification to

determine if they contain significant i collections from prior quarters.
Description of findings and results The Reports of Excise Tax Collections
used for the September 30, 1999, certification contained approximately $37
million in AATF excise tax collections related to prior quarters. Of this
amount, approximately $19 million was from the quarter ended June 30, 1999.

(f) Review the distribution rates used by IRS to determine whether the
distribution rates for tax on transportation of persons by air (abstract
26), tax on use of international air facilities (abstract 27), tax on
transportation of property by air (abstract 28), and tax on aviation fuel
for commercial use (abstract 77) agree with the applicable laws.

Description of findings and results We saw no evidence that the distribution
rates used by IRS for tax on transportation of persons by air (abstract 26),
tax on use of international air facilities (abstract 27), tax on
transportation of property by air (abstract 28), and tax on aviation fuel
for commercial use (abstract 77) did not agree with the applicable laws.

(3) FMS adjustments (a) Compare the Financial Management Service (FMS)
adjustments made to

AATF 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. j Recompute the difference between the OTA estimate

h 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.

i For this test, significant is defined as $20 million. This represents
approximately 1 percent of the total amount certified to AATF for a quarter.
j This schedule, called the "Subsidiary Quarterly Account of Estimates and
Actual Related Excise Taxes Appropriated to the Airport and Airway Trust
Fund," 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 AATF. The schedule, along with OTA
transfer forms and IRS certifications, supports the FMS adjustment.

Enclosure GAO- 01- 384R Airport and Airway Trust Fund Excise Tax Procedures
Page 7 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 AATF, 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
AATF for the quarter ended September 30, 1999-$ 22,800,000 k -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
l

agree. 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.

k 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.

l 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- 384R Airport and Airway Trust Fund Excise Tax Procedures
Page 8 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 m 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 abstracts related to
AATF and HTF. 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) AATF, (2) HTF, and (3)
other excise tax abstracts. Use Dollar Unit Sampling (DUS) to select a
sample of prorated excise tax collections from the AATF population.

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 n prorated
collections for the first 6 months of fiscal year 2000.

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

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

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

Enclosure GAO- 01- 384R Airport and Airway 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 for HTF.

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

(2) Detailed tests of transactions (a) For each prorated excise tax
collection sampled from the AATF 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.

Description of findings and results The assessment amounts on the tax
returns agreed with amounts recorded on IRS' master file for 72 of 74
sampled abstracts. For one sample item, IRS could not provide support for
credit adjustments to abstracts 60 and 35. Although neither of the two
abstracts was one of our sampled abstracts for AATF, the error resulted in
an overstatement of $28,334 to our sample abstract 77. q

For another sample item, IRS erroneously applied a credit for abstract 14 to
abstract 69. This error resulted in an understatement of $2,226 to abstract
69. We brought this to IRS' attention, and IRS subsequently corrected the
error.

Check the mathematical accuracy of the taxpayer's calculations on the tax
return for the related abstract.

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 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.

q 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.

Enclosure GAO- 01- 384R Airport and Airway Trust Fund Excise Tax Procedures
Page 10 Description of findings and results

The taxpayer's calculations on the tax return for the related abstracts were
mathematically correct.

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

Description of findings and results For 72 of 74 sampled abstracts, the
recomputed prorated collection amount based on information from the master
file agreed with the amounts from the Collection Certification System audit
files. For the other two cases, an error in the IRS' Collection
Certification System resulted in an understatement of $269,335 to abstract
26. (Note: This error in IRS' Collection Certification System resulted in an
understatement of $382,353 to the AATF certifications for fiscal year 2000.)

(b) Perform detailed testing on the two samples of prorated collections from
the non- AATF populations to determine if they contain any AATF excise tax
collections.

Description of findings and results The two samples of prorated collections
from the non- AATF populations did not contain any AATF 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 ($ 614,000) with an upper error limit of $44 million at
the 80 percent confidence level.

(3) Receipt certifications r 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- 384R Airport and Airway Trust Fund Excise Tax Procedures
Page 11 (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 tax on
transportation of persons by air

(abstract 26), tax on use of international air facilities (abstract 27), tax
on transportation of property by air (abstract 28), and tax on aviation fuel
for commercial use (abstract 77) from the certification letters back to the
Reports of Excise Tax Collections.

Description of findings and results The certified amounts for tax on
transportation of persons by air (abstract 26), tax on use of international
air facilities (abstract 27), tax on transportation of property by air
(abstract 28), and tax on aviation fuel for commercial use (abstract 77)
from the certification letters for the quarters ended December 31, 1999, and
March 31, 2000, agreed with the amounts in the related Reports 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.

Enclosure GAO- 01- 384R Airport and Airway Trust Fund Excise Tax Procedures
Page 12 (f) Review the distribution rates used by IRS to determine whether
the

distribution rates for tax on transportation of persons by air (abstract
26), tax on use of international air facilities (abstract 27), tax on
transportation of property by air (abstract 28), and tax on aviation fuel
for commercial use (abstract 77) agree with the applicable laws.

Description of findings and results We saw no evidence that the distribution
rates used by IRS for tax on transportation of persons by air (abstract 26),
tax on use of international air facilities (abstract 27), tax on
transportation of property by air (abstract 28), and tax on aviation fuel
for commercial use (abstract 77) did not agree with the applicable laws.

(4) Refunds/ credit reclassification s

(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 t 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.

s 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.

t IRS attaches a separate schedule to the AATF 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.

Enclosure GAO- 01- 384R Airport and Airway Trust Fund Excise Tax Procedures
Page 13 Description of findings and results

The totals on the certification letters and accompanying schedules were
mathematically correct.

(d) For selected excise taxes, u trace the refund and credit amount from the
schedule accompanying the certification letters 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, aviation gas and aviation O/ T gas, on the schedule
accompanying the certification letters agreed with the amounts on the
summary schedules.

(5) FMS adjustments (a) Compare the FMS adjustments made to AATF 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 AATF,
the original OTA estimates and IRS certified amounts agreed with the
supporting schedules. The independently recalculated difference between the
OTA estimate and the final IRS certified amount for AATF for the quarters
ended December 31, 1999-$ 171,462,000- and March 31, 2000-$ 193,737,000-
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 letter for
authorizing signature.

u 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- 384R Airport and Airway Trust Fund Excise Tax Procedures
Page 14 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 supervisor or another analyst
checked the certification letter and supporting worksheets.

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

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

Description of findings and results The totals on the certification letter
were mathematically correct. (d) Trace the certified amounts for tax on
transportation of persons by air

(abstract 26), tax on use of international air facilities (abstract 27), tax
on transportation of property by air (abstract 28), and tax on aviation fuel
for commercial use (abstract 77) from the certification letter back to the
Reports of Excise Tax Collections.

Description of findings and results The certified amounts for tax on
transportation of persons by air (abstract 26), tax on use of international
air facilities (abstract 27), tax on transportation of property by air
(abstract 28), and tax on aviation fuel for commercial use (abstract 77) per
the certification letter 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 for the June 30, 2000, certification contained approximately $34
million in AATF excise tax collections related to prior quarters. Of this
amount, approximately $23 million was from the quarter ended March 31, 2000.

Enclosure GAO- 01- 384R Airport and Airway Trust Fund Excise Tax Procedures
Page 15 (f) Review the distribution rates used by IRS to determine whether
the

distribution rates for tax on transportation of persons by air (abstract
26), tax on use of international air facilities (abstract 27), tax on
transportation of property by air (abstract 28), and tax on aviation fuel
for commercial use (abstract 77) agree with the applicable laws.

Description of findings and results We saw no evidence that the distribution
rates used by IRS for tax on transportation of persons by air (abstract 26),
tax on use of international air facilities (abstract 27), tax on
transportation of property by air (abstract 28), and tax on aviation fuel
for commercial use (abstract 77) 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.)

Enclosure GAO- 01- 384R Airport and Airway Trust Fund Excise Tax Procedures
Page 16 Description of findings and results

The refund and credit amounts for the selected excise taxes, aviation gas
and aviation O/ T gas, 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 AATF 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 AATF,
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 AATF for the quarter
ended June 30, 2000- $191,240,000- 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
into 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

Enclosure GAO- 01- 384R Airport and Airway Trust Fund Excise Tax Procedures
Page 17 communicate this information to interested parties at Treasury, the
Federal

Aviation 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.

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. v This information is considered along with
other factors to determine if adjustments to the excise tax receipts
estimation models are warranted.

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

Enclosure GAO- 01- 384R Airport and Airway Trust Fund Excise Tax Procedures
Page 18 (2) Refunds/ credit reclassification

(a) Inspect the certification letter for authorizing signature. 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, aviation gas and aviation O/ T gas, 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 AATF with
drafts of the (1) Bureau of the Public Debt's (BPD) financial statements for
AATF and (2) Federal Aviation Administration consolidated financial
statements to determine if they agree.

Enclosure GAO- 01- 384R Airport and Airway Trust Fund Excise Tax Procedures
Page 19 Description of findings and results

Fiscal year 2000 excise taxes of $9.9 billion distributed to AATF agree with
the amounts reported on (1) audited BPD financial statements for AATF and
(2) draft FAA consolidated financial statements.

(F) Other procedures

(1) Performed as part of fiscal year 2000 IRS financial statement audit. (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 w 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 x
reconciled to Treasury FMS records. y

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.

w IRS assigns a tax class number to specific types of taxes. Excise taxes
are tax class 4. x For the purpose of this section, we define material as
$20 billion. y 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- 384R Airport and Airway Trust Fund Excise Tax Procedures
Page 20 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.

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.

(901812)
*** End of document ***