Financial Audit: IRS' Fiscal Year 2000 Financial Statements (Letter
Report, 03/01/2001, GAO/GAO-01-394).
The Internal Revenue Service's (IRS) fiscal year 2000 financial
statements, including the accompanying notes, present fairly, in all
material respects, in conformity with U.S. generally accepted accounting
principles, IRS' assets, liabilities, net position, net costs, changes
in net position, budgetary resources, reconciliation of net costs to
budgetary obligations, and custodial activity, as of and for the fiscal
year ended September 30, 2000. However, misstatements may nevertheless
occur in other financial information reported by the IRS as a result of
internal control weaknesses. Because of material weaknesses in internal
controls, IRS did not maintain effective internal controls over
financial reporting or compliance with laws and regulations, and thus
did not provide reasonable assurance that losses, misstatements, and
noncompliance with laws material in relation to the financial statements
would be prevented or detected in an ongoing manner and on a timely
basis. GAO's tests of compliance with selected provisions of laws and
regulations disclosed two instances of noncompliance with laws and
regulations that are reportable under U.S. generally accepted government
auditing standards or Office of Management and Budget guidance.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: GAO-01-394
TITLE: Financial Audit: IRS' Fiscal Year 2000 Financial
Statements
DATE: 03/01/2001
SUBJECT: Auditing standards
Reporting requirements
Financial management
Internal controls
Financial statement audits
Noncompliance
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GAO-01-394
Report to the Secretary of the Treasury
March 2001 FINANCIAL AUDIT IRS' Fiscal Year 2000 Financial Statements
GAO- 01- 394
Letter 3 Auditor's Report 5 Management
16 Discussion and Analysis
Financial Statements 54 Balance Sheet 54
Statement of Net Cost 55 Statement of Changes in Net Position 56 Statement
of Budgetary Resources 57 Statement of Financing 58 Statement of Custodial
Activity 59 Notes to the Financial Statements 60
Supplemental and 77
Other Accompanying Information Appendixes Appendix I: Material Weaknesses
and Management Challenges,
Reportable Conditions, and Compliance Issues 84 Appendix II: Details on
Audit Methodology 106 Appendix III: Comments From the Internal Revenue
Service 107
Abbreviations
EITC Earned Income Tax Credit FFMIA Federal Financial Management Improvement
Act of 1996 FFMSR Federal Financial Management Systems Requirements FIA
Federal Managers' Financial Integrity Act IRS Internal Revenue Service JFMIP
Joint Financial Management Improvement Program OMB Office of Management and
Budget P& E property and equipment SFFAS Statement of Federal Financial
Accounting Standards SGL U. S. Government Standard General Ledger SSA Social
Security Administration TIGTA Treasury Inspector General for Tax
Administration
Lett er
March 1, 2001 The Honorable Paul H. O'Neill The Secretary of the Treasury
Dear Mr. Secretary: The accompanying report presents the results of our
audit of the financial statements of the Internal Revenue Service (IRS) as
of and for the fiscal year ending September 30, 2000. Our audit was required
by the Chief Financial Officers Act of 1990, as expanded by the Government
Management Reform Act of 1994. This report contains our (1) unqualified
opinion on IRS' financial statements, (2) opinion that internal controls at
IRS as of September 30, 2000, were not effective, and (3) report on IRS'
noncompliance with two provisions of laws and regulations that we tested and
IRS' financial management systems' lack of substantial compliance with the
requirements of the Federal Financial Management Improvement Act of 1996.
Our unqualified opinion on IRS' fiscal year 2000 financial statements was
due to the extraordinary efforts of IRS senior management and staff to
compensate for serious internal control and systems deficiencies. There
has been a tremendous amount of hard work and commitment over the last 2
years, and there have been some significant improvements. Such efforts will
be needed to sustain this result in future years until lasting solutions to
IRS' internal controls and systems deficiencies are fully achieved. Despite
these significant efforts and the resulting unqualified opinion on its
fiscal year 2000 financial statements, IRS does not have timely, accurate,
and useful financial information and sound controls with which to make
informed decisions and to ensure accountability on an ongoing basis.
The accompanying report also discusses other significant issues that we
considered in performing our audit and in forming our conclusions that we
believe should be brought to the attention of IRS management and users of
IRS' financial statements. We will report our recommendations for
corrective actions to address the weaknesses in IRS' internal controls and
compliance with law and regulation issues in a separate report to be issued
at a later date.
We are sending copies of this report to the Chairmen and Ranking Members of
the Senate Committee on Appropriations; Senate Committee on Finance; Senate
Committee on Governmental Affairs; Senate Committee on the Budget;
Subcommittee on Treasury, General Government, and Civil Service, Senate
Committee on Appropriations; Subcommittee on Taxation and IRS Oversight,
Senate Committee on Finance; Subcommittee on Oversight of Government
Management, Restructuring, and the District of Columbia, Senate Committee on
Governmental Affairs. We are also sending copies of this report to the
Chairmen and Ranking Minority Members of the House Committee on
Appropriations; House Committee on Ways and Means; House Committee on
Government Reform; House Committee on the Budget; Subcommittee on Government
Efficiency, Financial Management, and Intergovernmental Relations, House
Committee on
Government Reform; and Subcommittee on Oversight, House Committee on Ways
and Means. In addition, we are sending copies of this report to the Chairman
and Vice- Chairman of the Joint Committee on Taxation, the Commissioner of
Internal Revenue, the Director of the Office of Management and Budget, the
Chairman of the IRS Oversight Board, and other interested parties. Copies
will be made available to others upon request.
This report was prepared under the direction of Steven J. Sebastian, Acting
Director, Financial Management and Assurance, who can be reached at (202)
512- 3406. If I can be of further assistance, please call me at
(202) 512- 5500. Sincerely yours,
David M. Walker Comptroller General of the United States
Audi Report tor' s To the Commissioner of Internal Revenue In accordance
with the Chief Financial Officers (CFO) Act of 1990, as expanded by the
Government Management Reform Act of 1994, this report presents the results
of our audit of the financial statements of the Internal Revenue Service
(IRS) for fiscal year 2000. The financial statements report the assets,
liabilities, net position, net costs, changes in net position, budgetary
resources, reconciliation of net costs to budgetary obligations,
and custodial activity related to IRS' administration of its
responsibilities for implementing federal tax legislation. The financial
statements do not include a measurement of the amount of taxes legally owed
the federal government but which have not been identified by IRS, often
referred to as the “tax gap.” In its role as the nation's tax
collector, IRS has a demanding responsibility in collecting taxes,
processing tax returns, and enforcing the nation's tax laws. The size and
complexity of IRS' operations present additional challenges to management.
IRS is a large, complex, decentralized
organization with about 100,000 people in 10 service centers, 1 3 computing
centers, and many other field offices throughout the United States.
Historically, most IRS offices other than headquarters have had
responsibilities tied to their geographical locations. However, in response
to congressional concerns about IRS' operations embodied in the Internal
Revenue Service Restructuring and Reform Act of 1998, IRS is undergoing a
reorganization that is significantly affecting the past roles and
responsibilities of these offices. In fiscal year 2000, IRS collected over
$2 trillion in taxes, processed over 210 million tax returns, and paid about
$194 billion in refunds to taxpayers. 1 As part of its ongoing
reorganization, IRS now calls these offices “campuses.”
IRS continues to face most of the pervasive systems and internal control
weaknesses that we have reported each year since we began auditing IRS'
financial statements in fiscal year 1992. 2 Despite these weaknesses, in
fiscal year 2000, IRS was able to produce for the first time combined
financial statements covering its tax custodial and administrative
activities that are fairly stated in all material respects. 3 This
achievement was the culmination
of 2 years of extraordinary effort on the part of IRS to develop
compensating processes to work around its serious systems and control
weaknesses to derive year- end balances for its financial statements and
address several of the management issues we raised in previous reports. IRS
laid the groundwork for sustainable improvements in several critical areas.
However, IRS' approach to obtaining this unqualified opinion on its
fiscal year 2000 financial statements relied heavily on costly,
timeconsuming processes; statistical projections; external contractors;
substantial adjustments; and monumental human efforts that extended
well after the September 30, 2000, fiscal year- end. The tremendous
commitment on the part of both IRS senior management and staff was the key
to IRS' ability to achieve its goal of receiving an unqualified audit
opinion on its financial statements for fiscal year 2000. At the same time,
these costly efforts would not be necessary if IRS' systems and controls
operated effectively. In addition, the absence of effective systems and
controls means that IRS lacks the timely, accurate, and useful information
to make informed management decisions and ensure adequate accountability on
an ongoing basis.
IRS' achievement is an important milestone. At the same time, sustaining
this success will require a continued high level of involvement by IRS
senior management and further efforts to obtain lasting solutions to its
fundamental systems and internal control deficiencies. IRS has made notable
progress in several areas. Specifically, we noted significant improvements
in IRS' policies and procedures over its fund balance with
Treasury and transactions held in suspense and in its documentation of 2
Financial Audit: Examination of IRS' Fiscal Year 1992 Financial Statements
(GAO/ AIMD- 93- 2, June 30, 1993). 3 In fiscal year 1997, IRS received for
the first time unqualified audit opinions on separate financial statements
covering its tax custodial activities (by GAO) and its administrative
activities (by the Department of Treasury Office of Inspector General). In
fiscal year 1998, IRS combined its tax custodial and administrative
activities in one set of financial statements. GAO was able to determine in
fiscal years 1998 and 1999 that the taxes receivable balance reported on the
balance sheet and the tax revenue and refunds reported in the statement of
custodial activity were fairly stated.
unpaid tax assessments that, if effectively sustained in the future, should
prevent a reemergence of the problems that we found in these areas in prior
years. IRS also made improvements in computer security and
handling of taxpayer receipts and data, although further improvement is
needed in each of these areas. In addition, IRS is working aggressively to
address issues we have raised regarding controls over its budgetary
activity. While more efforts are needed in this area, measurable progress
has been made.
IRS senior management has continued to demonstrate a strong commitment to
address the operational and financial management issues discussed in this
report. This high level of involvement by IRS senior management has greatly
contributed to actions taken to resolve some of the issues we have raised.
Continued involvement at this level is critical to IRS' success in
addressing the serious internal control and systems
problems that remain. While IRS was able to produce financial statements
that were fairly stated in all material respects using compensating
processes, this approach does not produce the reliable, useful, and timely
financial and performance information IRS needs for decision- making on an
ongoing basis which is the goal of the CFO Act. Also, this approach does not
address the underlying financial management and operational issues that
adversely affect IRS' ability to effectively fulfill its responsibilities as
the nation's tax collector. We reported on these continuing significant
challenges for IRS in our recently issued high- risk and performance and
accountability series 4 and other reports.
The challenge for IRS will be to build on the improvements made in fiscal
year 2000 to not only improve its compensating processes but, more
importantly, to develop and implement the fundamental long- term solutions
that are needed to address the management challenges we have identified.
Some of these solutions can be addressed in the near term through the
continued efforts and commitment of IRS senior management and staff. Others,
which involve modernizing IRS' financial and operational
systems, will take years to fully achieve. Until IRS' systems and processes
are overhauled and internal controls are strengthened, “heroic”
efforts will have to be sustained for IRS to continue to receive an
unqualified audit opinion in future years. 4 High- Risk Series: An Update
(GAO- 01- 263, January 2001) and Major Management Challenges and Program
Risks: Department of the Treasury (GAO- 01- 254, January 2001).
Opinion on IRS' IRS' financial statements, including the accompanying notes,
present fairly, Financial Statements
in all material respects, in conformity with U. S. generally accepted
accounting principles, IRS' assets, liabilities, net position, net costs,
changes in net position, budgetary resources, reconciliation of net costs to
budgetary obligations, and custodial activity, as of and for the fiscal year
ended September 30, 2000.
However, misstatements may nevertheless occur in other financial information
reported by IRS as a result of the internal control weaknesses described in
this report. IRS' financial statements report tax revenues collected during
the fiscal year and the cumulative amounts of unpaid taxes where there is
agreement with IRS, either by the taxpayer or court, as to the amounts owed.
Cumulative unpaid tax assessments where there is no future collection
potential or where there is no agreement as to the amounts owed are not
reported in the financial statements, but are reported as write- offs and
compliance assessments, respectively, in supplemental information to IRS'
financial statements. However, to the extent that taxes owed in accordance
with the nation's tax laws are not reported by taxpayers and are not
identified through IRS' various enforcement programs, in accordance with U.
S. generally accepted accounting principles, they are not reported in the
financial statements nor in supplemental information to the financial
statements. As IRS discusses in the other accompanying information to the
financial statements, IRS does not have current information upon which to
base a reasonable estimate of the magnitude of these unidentified and unpaid
taxes- referred to as the “tax gap.” We have discussed this
issue in our recently issued high risk series. 5
5 High Risk Series: An Update (GAO- 01- 263, January 2001).
Opinion on Internal Because of the material weaknesses 6 in internal
controls discussed below, Controls IRS did not maintain effective internal
controls over financial reporting (including safeguarding of assets) or
compliance with laws and regulations,
and thus did not provide reasonable assurance that losses, misstatements,
and noncompliance with laws material in relation to the financial statements
would be prevented or detected in an ongoing manner and on a
timely basis. Despite the material weaknesses in internal controls, IRS was
able to prepare, through compensating processes and approaches to work
around its serious internal control and systems deficiencies, financial
statements that were fairly stated in all material respects for fiscal year
2000.
Nonetheless, IRS continues to face the following key issues which represent
material weaknesses in internal controls and management challenges: ? an
inadequate financial reporting process, resulting in IRS not having current
and reliable ongoing information to support management decision- making and
to prepare cost- based performance measures; ? weaknesses in controls and
other limitations affecting its ability to properly manage unpaid
assessments, resulting in both taxpayer burden
and potentially billions of dollars in lost revenue to the government; ?
weaknesses in controls over tax refunds, permitting the disbursement of
potentially billions of dollars of improper refunds; ? inadequate controls
over property and equipment, resulting in IRS' inability to reasonably
ensure that its property and equipment is safeguarded and used only in
accordance with management policy;
? inadequate budgetary controls, resulting in IRS' inability to routinely
ensure that its budgetary resources are being properly accounted for,
reported, and controlled; and
? weaknesses in computer security controls that may allow unauthorized
individuals to access, alter, or abuse proprietary IRS programs and
electronic data and taxpayer information.
6 A material weakness is a condition that precludes the entity's internal
control from providing reasonable assurance that material misstatements in
the financial statements would be prevented or detected on a timely basis.
Reportable conditions are matters coming to our attention that, in our
judgment, should be communicated because they represent significant
deficiencies in the design or operation of internal controls that could
adversely affect IRS' ability to meet the objectives described in this
report.
The material weaknesses in internal control noted above may adversely affect
any decision by IRS' management that is based, in whole or in part, on
information that is inaccurate because of these weaknesses. In addition,
unaudited financial information reported by IRS, including budget and
performance information, may also contain misstatements resulting from these
weaknesses.
In addition to the material weaknesses discussed above, we identified two
reportable conditions which, although not material weaknesses, represent
significant deficiencies in the design or operation of internal controls
that could adversely affect IRS' ability to meet the internal control
objectives described in this report. These conditions concern:
? deficiencies in controls over hardcopy tax receipts and taxpayer data that
increase the government's and taxpayers' risk of loss or inappropriate
disclosure of taxpayer data; and ? deficiencies and limitations in revenue
reporting and excise tax distributions, resulting in IRS' inability to
separately report revenue
collected for three of the federal government's four largest revenue sources
and errors in quarterly distributions of excise tax revenue to trust funds.
We have reported on these material weaknesses and reportable conditions in
prior audits and have provided IRS numerous recommendations to address these
issues, of which over 80 were still open as of the date of this
letter. We will follow up in future audits to monitor IRS' progress in
implementing these recommendations. For more details on these issues, see
appendix I.
Compliance with Laws Our tests of compliance with selected provisions of
laws and regulations
and Regulations and disclosed two instances of noncompliance with laws and
regulations that are reportable under U. S. generally accepted government
auditing
FFMIA Requirements standards or OMB guidance. These relate to IRS'
structuring of installment agreements to collect delinquent taxes and the
timing of the release of tax
liens on taxpayers' property. Also, IRS' financial management systems did
not substantially comply with the following requirements of the Federal
Financial Management Improvement Act of 1996 (FFMIA): (1) Federal Financial
Management Systems Requirements, (2) applicable federal accounting standards
(U. S. generally accepted accounting principles), and
(3) the U. S. Government Standard General Ledger (SGL) at the transaction
level. IRS has readily acknowledged that its financial management systems
do not comply with FFMIA and the need to overhaul these systems as part of
its broader systems modernization efforts. For more details on these issues,
see appendix I. Except as noted above, our tests for compliance with the
laws and regulations disclosed no other instances of noncompliance that
would be reportable under U. S. generally accepted government auditing
standards or OMB audit guidance. However, the objective of our audit was not
to provide an opinion on overall compliance with laws and regulations.
Accordingly, we do not express such an opinion. Consistency of Other
Management's Discussion and Analysis, required supplemental Information
information, and other accompanying information contain a wide range of
data, some of which are not directly related to the financial statements. We
did not audit and do not express an opinion on this information. However,
we compared this information for consistency with the financial statements
and discussed the methods of measurement and presentation with IRS
officials. Based on this limited work, we found no material inconsistencies
with the financial statements or nonconformance with OMB guidance. Under OMB
Bulletin 97- 01, as amended, agencies are asked to strive to develop and
report objective measures that, to the extent possible, provide information
about the cost- effectiveness of their programs. However, we found that IRS
cannot report reliable cost- based performance measures relating to its
various programs in accordance with the Government Performance and Results
Act of 1993.
Objectives, Scope, and Management is responsible for (1) preparing the
annual financial Methodology
statements in conformity with U. S. generally accepted accounting
principles, (2) establishing, maintaining, and assessing internal control to
provide reasonable assurance that the broad control objectives of 31 U. S.
C. sect.3512, (c), (d), (Federal Managers' Financial Integrity Act (FIA)) are
met, (3) complying with applicable laws and regulations, and (4) ensuring
that the agency's financial management systems substantially comply with the
requirements of FFMIA.
We are responsible for obtaining reasonable assurance about whether (1) the
financial statements are presented fairly, in all material respects, in
conformity with U. S. generally accepted accounting principles and
(2) management maintained effective internal controls, the objectives of
which are the following:
? Financial reporting- transactions are properly recorded, processed, and
summarized to permit the preparation of financial statements in conformity
with U. S. generally accepted accounting principles and
assets are safeguarded against loss from unauthorized acquisition, use, and
disposition. ? Compliance with laws and regulations- transactions are
executed in
accordance with laws governing the use of budget authority and with other
laws and regulations that could have a direct and material effect on the
financial statements and any other laws, regulations, and governmentwide
policies identified by OMB audit guidance. We are also responsible for
testing compliance with (1) selected provisions of laws and regulations that
have a direct and material effect on the financial statements, (2) laws for
which OMB audit guidance requires testing, and (3) FFMIA requirements. In
addition, we are responsible for
performing limited procedures with respect to certain other information
appearing in these annual financial statements. For more details on our
methodology, see appendix II.
We did not evaluate all internal controls relevant to operating objectives
as broadly described by FIA, such as controls relevant to preparing
statistical reports and ensuring efficient operations. We limited our
internal control testing to testing controls over financial reporting and
compliance. We did not test compliance with all laws and regulations
applicable to IRS. We limited our tests of compliance to legal provisions
that we considered applicable to the financial statements for the fiscal
year ended September 30, 2000, and were either included in the Internal
Revenue Code or required
to be tested by OMB guidance. We caution that noncompliance other than that
discussed in this report may occur and not be detected by these tests and
that such testing may not be sufficient for other purposes.
We performed our work in accordance with U. S. generally accepted government
auditing standards and OMB audit guidance. Agency Comments and
In responding to this report, IRS recognized the extraordinary efforts Our
Evaluation necessary to overcome its serious systems deficiencies and
internal control weaknesses in order to prepare financial statements for
fiscal year 2000
that were fairly stated in all material respects. IRS also acknowledged the
need to sustain these efforts and to continue to address its systems and
control deficiencies but noted that ultimately, long- term resolutions to
many of these issues can only be addressed through its ongoing systems
modernization efforts. IRS highlighted its accomplishments thus far in
addressing these issues, and summarized many of the corrective actions it
has in progress or planned which it believes will ultimately achieve this
goal. For example, IRS cited improvements in areas such as routine
reconciliations of its fund balance, proper classification of program costs,
review and management of its suspense accounts, and substantiation of unpaid
assessments through better documentation. IRS also cited continuing efforts
to address issues such as accountability over property and equipment,
computer security, and security of hard copy tax receipts and taxpayer data.
We will evaluate the effectiveness of these efforts during
future audits. IRS generally agreed with our discussion of its problems with
financial reporting, but believed that our discussion of the quality of the
data in its general ledger systems could mislead readers. We clarified our
discussion of this issue to address IRS' concern. However, we did not accept
IRS' suggested alternate language because we believe it gives the impression
that the problem with IRS' general ledger data integrity relates primarily
to IRS' practice of not posting certain types of transactions until year-
end,
such as the capitalization of costs incurred in purchasing property and
equipment (P& E). However, as discussed in appendix I to this report, as of
September 30, 2000, IRS' general ledger did not include material amounts of
fiscal year 2000 transactions, and in fact, these transactions were not
recorded until months after the end of the year. In addition to the
capitalization of P& E and related depreciation expense, these included many
other material transactions, such as recognition of expenses for goods and
services received during fiscal year 2000 but not yet recorded. IRS also
recorded material adjustments to correct misstatements caused by previous
delays in recording transactions, such as fiscal year 1999
expenses that were not recorded until fiscal year 2000. In commenting on
this report's discussion of unpaid assessments, IRS noted that the cost-
benefit analysis discussed in this report would not produce more resources
nor necessarily indicate that the programs subject to such an analysis
should be expanded. The purpose of such analysis is not to increase
resources. Rather, the objective is to provide IRS
management with the basic information needed to make decisions involving
allocation of limited resources among competing priorities, and
once such decisions are made, to enable IRS to justify its decisions. This
analysis would also better position IRS to determine if increases in total
resources are warranted and to support related budgetary requests to
Congress. IRS indicated a preference for addressing this issue through its
strategic planning and budgeting process. However, in the absence of basic
cost- benefit information to support this process, the basis for IRS'
decisions will remain unclear.
IRS generally agreed with the report's discussion of weaknesses in controls
over P& E, but believed that our report did not put into proper perspective
the progress IRS believes it achieved in P& E management in fiscal year
2000. As we state in appendix I, we noted progress in IRS' efforts to
improve the timeliness and accuracy of its P& E records, nonetheless, while
improvements were made, we found that these efforts were not fully effective
as demonstrated by the significant number of errors in IRS' property records
we continued to find during our testing. In addition, it was only through an
interim process involving enormous manual efforts by IRS employees, and the
costly assistance of a contractor, that IRS was able to report a reliable P&
E balance in its financial statements. Throughout fiscal
year 2000, the lack of an integrated property management system precluded
IRS' ability to report timely, reliable P& E information. We recognize the
extraordinary efforts of IRS staff and we applaud
management's commitment to working to correct the long- standing weaknesses
that we identified. However, the progress that IRS made in fiscal year 2000
was not sufficient to correct the fundamental deficiencies in its property
management system. We will continue to evaluate the effectiveness of IRS'
initiatives to correct deficiencies during future audits and to assist it in
its efforts with suggestions and recommendations.
IRS had several other specific comments to the draft report. These comments,
along with the complete text of IRS' response, are included in appendix III.
David M. Walker Comptroller General of the United States
February 9, 2001
Management Discussion and Analysis
Financial Statements
Balance Sheet
Statement of Net Cost
Statement of Changes in Net Position
Statement of Budgetary Resources
Statement of Financing
Statement of Custodial Activity
Notes to the Financial Statements
Supplemental and Other Accompanying Information
Appendi xes Material Weaknesses and Management Challenges, Reportable
Conditions, and
Appendi x I
Compliance Issues Material Weaknesses During our audit of IRS' fiscal year
2000 financial statements, we identified and Management
six material weaknesses in internal controls. Some of these material
weaknesses and their related management challenges have allowed Challenges
inappropriate refunds to be paid, reduced IRS' effectiveness in enforcing
the tax code, and resulted in errors in taxpayer accounts and increased
taxpayer burden. The issues that we have identified and discuss in this
report relate to IRS' controls over (1) the financial reporting process,
(2) management of unpaid assessments, (3) refunds, (4) property and
equipment, (5) budgetary activities, and (6) computer security. We reported
on each of these issues last year. 1 We highlight these issues in the
following sections and plan to provide more details on them, as well as
recommendations for corrective actions, in a subsequent report. Less
significant matters involving IRS' system of internal controls and its
operation will be separately reported in a management letter to IRS. In our
previous report on the results of our audit of IRS' fiscal year 1999
financial statements, we reported on a material weakness with respect to
IRS' failure to routinely reconcile its fund balance with Treasury. During
fiscal year 2000, IRS implemented monthly reconciliation procedures for its
fund balance with Treasury that were operating effectively during fiscal
year 2000. Accordingly, we no longer consider this to be a material
weakness.
Financial Reporting In fiscal year 2000, as in prior years, IRS did not have
adequate internal controls over its financial reporting process. IRS was
unable to routinely, reliably, and timely generate the information needed to
prepare its financial statements and manage operations on an ongoing basis.
IRS does not (1) have an adequate general ledger system for financial
reporting and management purposes, (2) record material transactions in its
general ledger system in a timely manner, and (3) have adequate detailed
supporting records for several material accounts. To compensate for these
weaknesses, IRS depended on extensive, labor- intensive ad hoc procedures to
enable it to report reliable balances in its financial statements. 1
Financial Audit: IRS' Fiscal Year 1999 Financial Statements (GAO/ AIMD- 00-
76, February 29, 2000).
IRS' general ledger system (1) comprises two independent general ledgers
that are not integrated with each other nor with their supporting records
for material balances, 2 (2) is not current or accurate, and (3) is not
supported by adequate audit trails for property and equipment, federal tax
revenue, federal tax refunds, taxes receivable, or budgetary activity. In
addition, IRS' general ledger for its custodial activities does not use the
standard federal accounting classification structure. Because of these
deficiencies, IRS' general ledger system does not conform with the U. S.
Government Standard General Ledger (SGL) as required by the Core Financial
System Requirements of the Joint Financial Management Improvement Program 3
or the requirements of FFMIA. Consequently, IRS continued to be unable to
rely on its general ledger system to fully support its financial statements.
IRS often does not record material transactions in its general ledger system
until months after they occur. As a result, material balances in the general
ledger systems cannot be used by managers as a reliable source of current
financial data at interim periods. Consequently, for IRS to use its general
ledger system for financial reporting or other management purposes, IRS
must first supplement it with extensive analysis and material adjustments to
recognize transactions that have not yet been recorded. This approach is
costly, labor- intensive, and typically requires several months to complete.
For fiscal year 2000, this process was not completed until February 2001,
and required billions of dollars in adjustments to recognize fiscal year
2000 transactions that were not yet recorded in the general ledger. This
approach is also prone to errors that are not always caught and corrected by
management. For fiscal year 2000, substantial additional audit adjustments
were necessary to prevent the resultant financial statements from being
materially misstated. As a result of these problems, IRS cannot
produce reliable financial statements or financial performance information
throughout the year as a management tool, as is standard practice in private
industry and some federal entities.
2 IRS' two independent general ledgers support its administrative and
custodial operations. 3 The Joint Financial Management Improvement Program
(JFMIP) is a cooperative undertaking of the Office of Management and Budget,
the Department of the Treasury, the Office of Personnel Management, and GAO
working in cooperation with each other and with operating agencies to
improve financial management practices.
We previously reported that IRS commingled customer service and compliance
costs on its statement of net costs. 4 To address this issue, IRS revised
the format of its statement of net cost and significantly expanded and
enhanced the related disclosures in fiscal year 2000. The resulting
presentation appropriately classified the cost of IRS' programs.
Management of Unpaid Tax During fiscal year 2000, we found that serious
internal control issues and
Assessments other management challenges continued to affect IRS' management
of
unpaid assessments. IRS was able to report amounts for taxes receivable and
other unpaid assessments 5 in its financial statements and supplemental
information that were fairly stated in all material respects, using
statistical sampling techniques and estimation procedures. However, the lack
of an effective subsidiary ledger; errors and delays in recording taxpayer
information, payments, and other activities; and the inability to actively
pursue significant amounts in outstanding taxes owed to the federal
government continue to hinder IRS' ability to effectively manage unpaid
assessments.
4 GAO/ AIMD- 00- 76, February 29, 2000. 5 Unpaid 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 where neither the taxpayer nor
the court has affirmed that the amounts are owed, and (3) write- offs, which
represent unpaid assessments for which IRS does not expect further
collections due to factors such as the taxpayer's death, bankruptcy, or
insolvency. Of these three classifications of unpaid assessments, only
federal taxes receivable are reported on the principal financial statements.
As of September 30, 2000, IRS reported $22 billion (net of an allowance for
doubtful accounts of $59 billion),
$30 billion, and $129 billion in these three categories, respectively.
IRS continues to lack a detailed listing, or subsidiary ledger, that tracks
and accumulates unpaid assessments and their status on an ongoing basis. The
lack of such a subsidiary ledger renders IRS unable to promptly identify and
focus collection efforts on accounts most likely to prove collectible 6 and
impedes its ability to prevent or detect and correct errors in taxpayers'
accounts. As in prior years, 7 IRS' records contained errors and there were
significant delays in IRS recording activity in taxpayer accounts. While
these conditions in isolation may not rise to the level of material
weakness, collectively they are indications of serious internal control
deficiencies. These conditions continued to result in instances of
unnecessary taxpayer burden and lost opportunities to collect outstanding
taxes owed.
During our testing of statistical samples of 508 8 unpaid tax assessment
cases as part of our fiscal year 2000 audit, we found the following:
? Significant delays- of up to 12 years- in recording payments made by
taxpayers to related taxpayer accounts. We also found payments that were not
recorded at all in related taxpayer accounts. Some of these delayed or
unrecorded payments were made in the late 1980s. ? Delays in updating
information in taxpayer accounts. In some instances,
because IRS delayed entering taxpayer information such as bankruptcy status
or codes to prevent the release of refunds, it lost opportunities to offset
refunds owed to taxpayers for subsequent tax periods against their
outstanding tax liabilities. In two cases, IRS' failure to input or reverse
information resulted in refunds that should not have been issued because the
taxpayer had other outstanding tax liabilities. In each of these cases, the
inappropriate refund was for more than $4, 000.
? Other errors in taxpayer's accounts. We found at least eight cases in our
sample in which errors other than those noted above existed in taxpayer
accounts. In some cases, the errors directly affected the taxpayer. In one
6 It should be noted that although certain taxpayer accounts have little
likelihood of collection, IRS would generally continue some collection
efforts to reinforce continued compliance by taxpayers who appropriately
report and pay their tax obligations and to increase compliance by taxpayers
who are delinquent in reporting and paying their tax obligations.
7 GAO/ AIMD- 00- 76, February 29, 2000; and Financial Audit: IRS' Fiscal
Year 1998 Financial Statements (GAO/ AIMD- 99- 75, March 1, 1999). 8 These
statistical samples were selected primarily to substantiate, and in some
cases derive, balances and activity reported on IRS' financial statements.
Consequently, dollar errors or amounts can and have been statistically
projected to the population of transactions from which they were selected.
case, we found that a deceased individual's estate sent a payment of $68
million to IRS in January 1999, but IRS recorded the payment to the wrong
taxpayer account. The taxpayer's estate was actually owed a refund of almost
$7 million. This input error was not corrected until almost 2 years later.
Consequently, IRS did not pay the refund to the
estate for nearly 2 years after it was owed. We have found and reported on
these issues in previous audits. 9 IRS has acknowledged the seriousness of
these issues and continues to take remedial steps to correct them, but has
noted in the past and continues to note that the ultimate solution to many
of these issues is modernization of its systems. As in prior years, the
unpaid assessment accounts in which we
found significant delays in recording payments primarily were those
representing unpaid payroll taxes, where separate accounts are established
and assessments recorded for a related tax liability. 10 IRS' current
systems cannot automatically link each of the multiple assessments made for
the one tax liability. Consequently, if the business or an officer pays some
or all of the outstanding taxes, IRS' systems are unable to automatically
reflect
the payment as a reduction in the related account or accounts. In 29 of 68
(43 percent) unpaid payroll tax cases we reviewed involving multiple
assessments, we found that payments were not accurately recorded to
reflect each responsible party's reduction in tax liability. This is
approximately the same rate of occurrence that we identified during our 1999
audit (45 percent). IRS has attempted to compensate for the lack of an
automated link between related accounts by manually inputting a code in each
account that cross- references it to other related accounts. However,
in the 29 cases mentioned above, 28 (96 percent) had cross- references, yet
the payments still were not accurately recorded. 9 GAO/ AIMD- 00- 76,
February 29, 2000; GAO/ AIMD- 99- 75, March 1, 1999. 10 When a company does
not pay the taxes that have been withheld from employees' wages, such as
Social Security or individual income tax withholdings, IRS has the authority
to assess the responsible officers individually for the taxes withheld from
employees. Thus, IRS may record the assessments against each of several
individuals for the employeewithholding component of the payroll tax
liability of a given business in an effort to collect the total tax
liability of the business. While the assessments made against business
officers- known as trust fund recovery penalties- are a necessary
enforcement tool, IRS should only collect the unpaid tax once.
As with any large agency, IRS is confronted by the ongoing management
challenge of allocating its limited resources among competing priorities. As
we reported previously, IRS does not have the management data necessary
to prepare reliable cost- benefit analyses to ensure that its resource
allocation decisions are appropriate. Consequently, IRS is hindered in its
ability to determine whether it is devoting an appropriate level of
resources to collecting unpaid taxes relative to the costs and potential
benefits involved. During fiscal year 2000, we found potential additional
collection
opportunities that IRS was not pursuing, according to IRS, due to resource
constraints. We continued to identify instances in which IRS was not
actively pursuing accounts that appeared to have some collection potential.
IRS officially stopped collection efforts on some of these cases 11 while
other cases remained unworked although collection efforts were not
officially stopped. In our review of one of our statistical samples of
unpaid tax assessments consisting of 474 cases, we found (1) 9 cases in
which IRS
officially stopped collection activity due to resource constraints and (2)
several other cases for which information in the case files we reviewed
indicated some collection potential but on which IRS had not taken
collection action. For example, in one case, a taxpayer owed over $23,000 in
taxes, and despite this taxpayer's annual income in subsequent years of over
$110,000, IRS was not actively pursuing collection. There is a point at
which pursuing collection on a case ceases to be cost effective, and clearly
many cases in our sample provided little or no hope of future collections.
IRS' challenge is to determine the appropriate level of resources needed to
fulfill its mission and the most appropriate utilization of its existing
resources. Without sound management data in which to make these decisions,
IRS is hindered in its ability to justify its resource utilization
decisions, which could result in billions of dollars in outstanding amounts
going uncollected and could affect future compliance.
In fiscal year 2000, we noted substantial improvement in IRS' ability to
locate and provide adequate supporting documentation for unpaid assessments.
The cases we reviewed in fiscal year 2000 generally contained sufficient
detailed information to determine the appropriate classification 11 These
accounts had been designated by IRS as “currently not
collectible.” Until recently, the designation “currently not
collectible” was typically used for cases in which the taxpayer
was experiencing financial difficulties or other hardships that made
collection highly unlikely. However, during fiscal year 1999, IRS modified
the criteria under which unpaid assessment cases could be designated as
currently not collectible in response to an increasing inventory workload
and its judgment that resource constraints would not permit
the agency to actively pursue the cases.
of the unpaid assessment and to provide a basis for estimating
collectibility for cases determined to be taxes receivable. We identified
only one case this year in which IRS' inability to provide documentation
resulted in the need to reclassify the case.
Controls Over Refunds As we have reported in previous audits, weaknesses in
IRS' controls over refund disbursements and other management challenges
expose the federal government to material losses due to disbursing improper
refunds. 12 During fiscal year 2000, IRS disbursed tax refunds totaling
about $194 billion. IRS has implemented various controls, such as electronic
screening, that prevent thousands of improper refunds from being
disbursed each year. However, time constraints, 13 high volume, and reliance
on information supplied by taxpayers affected the options available to IRS
in its efforts to prevent improper refunds from being disbursed.
Consequently, IRS relies extensively on postrefund (detective) controls,
such as automated matching of returns with third- party data such as W- 2s
(wage and tax statements), to identify for collection improper refunds that
have been disbursed. However, each year, IRS does not apply these
controls to millions of tax returns it estimates to have billions of dollars
of underreported tax liabilities. Consequently they cannot be considered
effective detective controls. Inevitably, IRS must balance the cost of all
its refund controls against the benefits to be realized through their use.
However, as we previously reported, 14 IRS' financial management systems do
not provide the reliable information needed to support such decisions.
12 An improper refund is defined as any refund of tax payments from IRS to
which the taxpayer is not entitled. The taxpayer may or may not have made an
intentional misstatement on his or her return. 13 By statute, IRS must pay
interest on refunds not paid within 45 days of receipt or due date,
whichever is later (26 U. S. C. 6611). 14 Internal Revenue Service:
Recommendations to Improve Financial and Operational Management (GAO- 01-
42, November 17, 2000).
IRS does not always review Earned Income Tax Credit (EITC) claims in time to
identify invalid claims before issuing refunds. Historically, EITCs have
been vulnerable to high rates of invalid claims, 15 and because most EITCs
result in refunds, 16 the risk of disbursing improper refunds is
significantly increased. In an effort to minimize this risk, IRS, relying on
past experience, screens tax returns claiming EITCs to identify (for
detailed examination) those considered most likely to be invalid. During
fiscal year 2000, IRS examiners completed the detail examinations of about
257,000 tax returns claiming approximately $587 million in EITC and found
that about 173,000 of these tax returns claiming $395 million in EITC (67
percent) were invalid. When performed before refunds are disbursed, these
examinations are an important control to prevent disbursement of improper
refunds. However, because IRS often performs them after any related refunds
are disbursed, they are not an effective preventive control overall. 17 The
full magnitude of refunds resulting from invalid EITCs is unknown. However,
in September 2000, IRS estimated that in tax year 1997,
taxpayers filed about $9.3 billion in invalid EITCs, 18 of which $1.5
billion (16 percent) either was recovered or was expected to be recovered
through compliance efforts. The dollar amount of improper refunds disbursed
related to these EITCs is unknown. However, based on the refund rate of
about 78 percent of EITC in tax year 1997, IRS may have disbursed
approximately $7. 3 billion in improper refunds for EITC in tax year 1997,
about $6.1 billion (84 percent) of which may never be recovered. IRS began
implementing a 5- year initiative in fiscal year 1998 to address
noncompliance problems with EITCs.
To compensate for the inherent limitations of its preventive controls, IRS
performs automated matches between tax returns and related third- party data
to identify underreported taxes, improper refunds, and other errors.
However, these programs are not run until months after the returns have
15 High- Risk Series: An Update (GAO- 01- 263, January 2001 ); Major
Management Challenges and Program Risks: Department of the Treasury (GAO-
01- 254, January 2001); and GAO/ AIMD 00- 76, February 29, 2000. 16 During
fiscal year 2000, IRS processed about $31 billion in EITCs. Of this amount,
about $26 billion (84 percent) was refunded, and the rest reduced tax
assessments. 17 IRS estimated that of the 573,000 EITC tax returns examined
in fiscal year 1999, approximately 172,000 (30 percent) were conducted after
the refund had been disbursed
(GAO/ AIMD- 00- 76, February 29, 2000). 18 Compliance Estimates for Earned
Income Tax Credit Claimed on 1997 Returns (Internal Revenue Service,
September 2000).
been filed. As a result, they are used too late to prevent improper refunds
from being disbursed. There are factors that affect IRS' ability to
accelerate the timing of its automated matches, such as the limitations of
its current automated systems and the timing of filing requirements for
preparers of third- party documents, which are beyond IRS' control. In
response to a
previous GAO recommendation, IRS indicated that it has incorporated in its
systems modernization blueprint the capability to perform automated matching
against available data before issuing refunds. However, implementing this
feature is still years in the future. As noted above, IRS does not have the
management data necessary to prepare reliable cost- benefit analyses to
ensure that its resource allocation decisions are appropriate. Consequently,
IRS is hindered in its ability to determine the appropriate level of
resources to devote to following up on
the underreported taxes and improper refunds identified by its automated
matching programs. However, the results of IRS efforts to follow up on the
findings of its automated matches in recent years suggests that a
substantial amount of additional revenue might be realized if additional
resources were devoted to these efforts. 19 For example, for tax year 1998,
IRS' screening program for individuals identified 14.1 million individual
tax returns that had potential underreported taxes totaling at least $15.4
billion. IRS investigated about 2.5 million (18 percent) of these cases
accounting for about $6.5 billion (42 percent) of the total potential
underreported taxes. Also, IRS did not investigate any of the 636,000
discrepancies its matching program found for employment tax returns filed by
employers during tax year 1998. According to IRS, resource constraints
prevented it from investigating more of these discrepancies. However,
because of the lack of management information discussed above, IRS
cannot determine whether it would be cost beneficial to allocate more
resources to its automated matching programs and related follow- up. As
previously discussed, we also continued to find instances in which
inappropriate refunds were issued as a result of delays in recording
information in taxpayers' accounts. IRS also continued to be vulnerable to
issuing duplicate refunds allowed by gaps in its internal controls. IRS'
manual and automated systems are not properly coordinated to prevent
identical refunds from being processed through both systems, and controls
designed to compensate for this are not always effective. All the above19
GAO- 01- 42, November 17, 2000.
mentioned conditions expose the government to potentially significant losses
due to inappropriate refund disbursements. Property and Equipment During
fiscal year 2000, IRS continued to work to compensate for serious
deficiencies in systems and controls over its property and equipment (P& E).
Specifically, IRS worked hard to improve the reliability of its P& E
inventory records by conducting physical inventories at its headquarters and
its field offices, and used the results of these physical inventories to
update its P& E inventory records. Also, IRS worked to sustain a reliable
balance for P& E on its fiscal year 2000 financial statements by engaging
the
services of a contractor to extract and compile P& E transaction data for
year- end financial reporting. IRS' efforts resulted in it being able to
report a balance for P& E on its financial statements at September 30, 2000,
that was
fairly stated in all material respects. Nonetheless, serious weaknesses in
its P& E systems and controls continue to prevent it from having P& E
information available on an ongoing basis for management purposes and from
having reasonable assurance that its assets are properly safeguarded and
used only in accordance with management policy. IRS has reported a material
weakness in its controls over P& E in its assurance statement to Treasury
under 31 U. S. C. sect.3512 (c), (d) (Federal Managers' Financial Integrity Act
(FIA)) every year since 1983.
In prior years, IRS' procedures were not effective in ensuring that
acquisitions, disposals, and transfers were promptly and accurately recorded
in its P& E inventory records. As a result, IRS' P& E records were not
adequate to maintain accountability over its property. While we noted
progress in IRS' efforts to improve the timeliness and accuracy of recording
P& E activity, we nonetheless continued to find a significant number of
errors in IRS' property records. Specifically, IRS was unable to locate 35
of 220 sample items (16 percent) selected from P& E records, including
computers, monitors, printers, and computer software. IRS later determined
that 23 of these 35 items had been disposed of months earlier, but P& E
records had not been updated to reflect the disposal. In addition, we found
that 14 of 219 sample items (6 percent) selected at 22 sites we visited
could not be traced to IRS' P& E records. At 18 of the 22 IRS buildings we
visited, we found inaccurate P& E records consisting of either items not at
the site as recorded or items at the site but not on the records. Accurate
records are essential for maintaining control over P& E to ensure
that assets are properly accounted for and safeguarded.
As we have previously reported, IRS does not have an integrated property
management system that appropriately records P& E additions and disposals as
they occur and links cost recorded in the accounting records to property
records. Instead, IRS expenses property purchases during the year, and then
records adjustments at year- end to remove property purchases from expenses
and capitalize them as P& E based on analyses of
expense records. For its September 30, 1999, P& E balance, IRS recorded a
balance based primarily on a statistical estimation process developed and
implemented by a contractor. 20 While the effort resulted in a reasonable
estimate of the September 30, 1999, P& E balance, it did nothing to address
the fundamental deficiencies in IRS' accounting and property management
systems. Consequently, for fiscal year 2000, IRS hired a contractor to
develop and implement an interim process to enable IRS to continue to report
a reliable P& E balance in its financial statements until it has an
integrated accounting and property system. 21 Although we determined through
detailed tests of transactions and analyses of the contractor's work that
IRS' reported September 30, 2000, P& E balance was fairly stated,
longstanding weaknesses in IRS' property and accounting systems continue to
affect IRS' ability to account for its property and report a reliable P& E
balance. In addition, these weaknesses result in a recurring annual expense
of hiring a contractor to develop a P& E balance at fiscal year- end.
Budgetary Controls During fiscal year 2000, IRS devoted substantial effort
to addressing the budgetary control weaknesses that we reported in fiscal
year 1999. 22 For
example, during the fiscal year, IRS significantly reduced the number of
employees with authority to override automated spending controls. Also, IRS
substantially reduced the dollar amount and duration of transactions held in
suspense. Finally, IRS issued numerous policy memoranda and implemented
procedures to deobligate funds no longer required for a specific purpose.
However, IRS' internal controls continued to be inadequate in providing
reasonable assurance that its budgetary resources
20 GAO/ AIMD- 00- 76, February 29, 2000. 21 IRS plans to acquire and
install, in October 2003, an integrated financial system that will include
recording P& E as assets when purchased and generating detailed records for
P& E that reconcile to the financial records. 22 GAO/ AIMD- 00- 76, February
29, 2000.
were routinely accounted for, reported, and controlled. These weaknesses
significantly affect the reliability of key budgetary information IRS needs
on an ongoing basis to effectively manage its operations and ensure that its
resources do not exceed budgetary authority. We found that undelivered
orders 23 were not always reduced to reflect goods and services received or
were understated due to inappropriate deobligating of funds. For example, in
our testing of statistical samples of both the beginning and ending balances
of undelivered orders, we found error rates of 32 and 25 percent,
respectively, for the transactions tested.
These errors were primarily due to goods and services having been received
but not deducted from undelivered orders. For example, in testing one fiscal
year 2000 undelivered order totaling $7. 9 million for computer equipment,
we found that approximately $3.4 million of the equipment had been delivered
but had not been removed from the undelivered orders balance. We also found
instances in which IRS incurred costs before the
obligations were recorded in the accounting system. In one case tested in
our sample of beginning year undelivered orders, an obligation for over $9
million for software and maintenance was not recorded in the accounting
system until September 30, 1999, although the software was received and
maintenance commenced by the end of July 1999. Incurring costs without
timely recording obligations in the accounting system creates the risk that
IRS personnel could rely on an overstatement of available budget authority
to enter into additional obligations for which there is inadequate budget
authority to cover. We also found that IRS' efforts to address the need to
deobligate amounts no longer needed resulted in instances in which the
amounts were prematurely deobligated. In testing a separate statistical
sample of deobligations, we found that in 17 percent of the cases, IRS later
had to reobligate funds in whole or in part. These errors resulted in
misstatements of IRS' beginning and ending undelivered orders balances and
its records of outstanding obligations.
Also, we found significant errors in IRS' accrued expenses recorded at the
end of fiscal year 1999, which resulted in misstating the beginning balance
of undelivered orders for fiscal year 2000. In testing a statistical sample
of these accruals, we identified errors in 36 percent of the sample cases.
For example, IRS allocated $209,500 of the total invoice cost of $260,130
related to an information systems service contract to fiscal year 1999, and
the 23 Undelivered orders represent the value of goods and services ordered
that have been obligated but have not been received.
remaining $50,630 to fiscal year 2000. However, based on the terms of the
service contract, we determined that only $1,724 of the invoice cost related
to services for fiscal year 1999, while the remaining $258, 406 related to
services to be rendered in fiscal year 2000. This resulted in an
overstatement of the expense for fiscal year 1999 and an understatement of
the beginning undelivered order balance for fiscal year 2000. We identified
errors throughout IRS' $121 million of accruals that resulted in both
understatements and overstatements of the beginning undelivered orders
balance. We also found that, during fiscal year 2000, IRS recorded incorrect
activity as adjustments to obligations. 24 IRS recorded a total of $277
million in adjustments to obligations in fiscal year 2000. However, in
reviewing statistical samples of these adjustments, we found that 61 percent
of the items we reviewed were not valid adjustments and, in fact, many were
simply changes in internal accounting codes. For example, in one case we
reviewed, IRS recorded a change in an internal accounting code as a new $15
million obligation and erroneously adjusted the original $15 million
obligation downward, thereby misstating its reported level of adjustments to
obligations. While adjustments were made to correct the amounts recorded in
the financial statements, errors such as these affect the accuracy and
reliability of routine information on both total budgetary resources and
obligations. Computer Security IRS has corrected a significant number of the
computer security weaknesses identified in our previous reports and is
implementing a
servicewide computer security planning and management program that should,
when fully implemented, help IRS effectively manage its computer security
risks. However, IRS has not yet fully implemented its security program
across the service. Much remains to be done to resolve the significant
control weaknesses that continue to exist within the IRS computing
environment. IRS places extensive reliance on computer information systems
to perform basic functions such as processing tax returns and payments,
maintaining sensitive taxpayer data, calculating interest and penalties, and
generating refunds. These computer control weaknesses could impair IRS'
ability to
24 An adjustment to an obligation is recorded when the dollar amount
previously recorded is affected by a subsequent event, such as a change in
the price of goods or services.
perform these vital functions and increase the risk of the unauthorized
disclosure, modification, or destruction of taxpayer data. We found that IRS
continued 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. IRS did not always
? effectively implement physical controls to prevent or detect individuals
from gaining unauthorized access to its data processing facilities, ?
adequately restrict logical access to its computer networks and systems, ?
appropriately segregate system administration and security
administration responsibilities, ? optimally configure system software to
ensure the security and integrity
of system programs, files, and data, ? sufficiently plan or test the
activities required to restore critical business
systems when unexpected events occur, and ? adequately monitor key networks
and systems to identify unauthorized
activities and inappropriate system configurations. In addition, internal
controls over IRS' key computer applications that IRS personnel used to
process tax returns, research and adjust taxpayer records, generate notices,
and detect and investigate fraudulent tax returns
do not provide adequate assurance that only authorized personnel have access
to the application and related taxpayer data.
These weaknesses increased the risk that data processed by IRS' computer
systems were not reliable and were vulnerable to unauthorized disclosure.
For example, IRS did not promptly revoke the access privileges of separated
employees to a key system used to view and adjust taxpayer records. Weak
physical security at one of IRS' data processing facilities could have
allowed separated employees to enter the facility without
challenge, gain physical access to the system's terminals, and use their
unrevoked system access privileges to make unauthorized changes to taxpayer
records. 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 (identity fraud), such as fraudulently establishing credit
and running up debts.
Reportable Conditions In addition to the material weaknesses and management
challenges discussed above, we identified two reportable conditions. These
conditions concern weaknesses in IRS' (1) internal controls over manually
processed tax receipts and taxpayer information and (2) revenue reporting
and distribution process. We reported on both issues in prior years. 25
Manual Tax Receipts and IRS has acted to address some of its control
deficiencies related to
Taxpayer Information safeguarding cash, checks, and related hardcopy
taxpayer data it manually receives from taxpayers. For example, IRS has
significantly reduced the average amount of time it takes to obtain the
results of employee applicant fingerprint checks, now requires the use of
two bonded or insured couriers
to transport service center deposits, and has limited courier access within
service center premises. However, weaknesses that we have reported in prior
years continue to exist. To address these issues, IRS issued new policies
and procedures regarding handling of taxpayer receipts and data at sites
that collect and process tax revenue. However, we found that some of these
sites were not aware of the new policies, other sites did not adhere to
them, and some sites were not covered by the new policies and procedures
because they were not contractually bound to IRS.
We previously reported that IRS was hiring individuals and allowing them
access to cash, checks, and other taxpayer data before it received
satisfactory results of their fingerprint checks. 26 In response, IRS issued
a new policy in April 2000 prohibiting the hiring of applicants in any IRS
office until fingerprint checks were completed. However, we found that
throughout the rest of the fiscal year, some new employees began working
before the hiring office received the results of fingerprint checks. Because
most of IRS' hiring occurs in the several months leading up to the April
peak processing period, the policy was not yet in place to affect most of
its
fiscal year 2000 hiring. However, we found that 83 of the 2,526 staff hired
from the time the policy was issued through September 30, 2000, began
working before IRS received the results of their fingerprint checks.
IRS also issued a new policy in fiscal year 2000 strengthening its courier
requirements for all IRS locations, and we noted marked improvements at 25
GAO/ AIMD- 00- 76, February 29, 2000; GAO/ AIMD- 99- 75, March 1, 1999. 26
GAO/ AIMD- 00- 76, February 29, 2000.
most sites we visited. The new policy's requirements include that the
courier services use two bonded or insured couriers, that all courier
service employees with IRS access pass a limited background investigation
and have the courier company be insured for $1 million. We did continue to
find other weaknesses in controls over taxpayer receipts and taxpayer data
that have not yet been adequately addressed. For example, we continued to
find field office receipts and discovered remittances stored in open,
unlocked containers, contrary to IRS policy. Also, we noted that certain
problem areas have been addressed at service
centers but not at other field offices that handle taxpayer receipts. For
example, although IRS installed lockers at service centers for employees
that handle receipts to store their personal belongings, we continued to
find personal belongings such as handbags stored in receipt processing areas
at several field offices.
These inconsistencies by type of location are further illustrated by
weaknesses found at commercial lockbox banks that process tax receipts on
behalf of IRS. Since these lockbox banks operate under contract with
Treasury's Financial Management Service (FMS), many of IRS policies are
not applicable to their operations. For example, under their contract with
FMS, the lockbox banks are not required to follow IRS' policy prohibiting
the hiring of any new employee before the results of fingerprint checks are
received and reviewed. Consequently, at the lockbox banks we visited, we
found that fingerprint checks were not required for either permanent or
temporary employees. Similarly, IRS' new courier policy that applies to all
IRS locations has not been extended to the lockbox banks.
These weaknesses increase IRS' vulnerability to theft or loss and expose
taxpayers to increased risk of losses from financial crimes committed by
individuals who inappropriately gain access to confidential information
entrusted to IRS. Although we do not consider these to be material
weaknesses for financial reporting purposes, it is important that IRS
continue efforts to address these matters because they are critical to IRS'
successfully meeting its customer service goals. Revenue Reporting and
IRS continues to be unable to determine the specific amount of revenue it
Distribution actually collects for three of the federal government's four
largest revenue sources- Social Security, Hospital Insurance, and individual
income taxes. In addition, IRS continues to be unable to determine, at the
time payments are received, collections for the Highway Trust Fund or other
trust funds
that receive excise tax receipts. This is primarily because the accounting
information needed to validate the taxpayer's liability and record the
payment to the proper trust fund is provided on the tax return, which is
received months after the payment is submitted. Further, the information
on the return pertains only to the amount of the tax liability, not to the
distribution of the amount previously collected. As a result, IRS cannot
report the specific amount of revenue it actually collected for these large
revenue sources without first requiring taxpayers to submit the needed
information at the time of payment. IRS believes that imposing such a
requirement could create an additional burden to taxpayers.
Because collection data are not available to allocate excise taxes to the
appropriate trust funds when deposits are made, Treasury's Office of Tax
Analysis uses economic models to estimate the initial distribution of excise
tax receipts. Six months later, to prepare adjustments to the initial
distribution, IRS certifies the amounts that should have been distributed to
the excise- tax- related trust funds using its records of payments received
and the subsequently provided tax returns. This certification process is
complex, cumbersome, and error- prone. Because of continued weaknesses in
fundamental internal controls, such as inadequate reviews, undetected
errors in the certification process occurred that directly affected the
distribution of revenue to the trust funds. Although IRS had implemented
additional review procedures over its certification process in response to
our previous reports, these reviews have not been fully effective. For
example, IRS' failure to follow required review procedures at the service
center resulted in unsubstantiated credits or reductions made to the tax
liability of taxpayers who had not submitted required documentation with
their return.
Also, we continued to find delays in posting tax returns that resulted in
IRS omitting collections from certifications for a given quarter. For
example, the amount IRS certified to the Highway Trust Fund for the quarter
ended
September 30, 1999, 27 included nearly $346 million in collections from
previous quarters, and the amount it certified for the Airport and Airway
Trust Fund for the quarter ended June 30, 2000, included nearly $34 million
in collections from previous quarters. Delays by IRS in processing tax
returns and late filing of returns by taxpayers, the latter of which is
outside IRS' control, are factors that contributed to delays in posting
return
information. Taxpayers are not required to provide detailed information on
the type of tax when they pay their taxes. Also, IRS officials stated that
their systems cannot capture the additional detailed information.
Consequently, IRS is working on systems improvements to accommodate this
type of information in the future. In addition, IRS plans to initiate in 3
to 4 years a follow- up study to a previous study to gauge taxpayer ability
and readiness to provide detailed information by type of tax at the time of
payment without imposing an additional burden on taxpayers. Until IRS has
the systems capability to record, and makes a decision with respect to
whether taxpayers should provide, specific information on the type of taxes
being
paid at the time of payment, it will continue to be unable to report revenue
actually collected for three of the federal government's four largest
revenue sources and continue using a process for distributing excise tax
revenue to trust funds that is susceptible to errors.
Noncompliance With Our tests of compliance with selected provisions of laws
and regulations
Laws and Regulations disclosed two instances of noncompliance that are
reportable under U. S. generally accepted government auditing standards and
OMB guidance.
and FFMIA These relate to IRS' structuring of installment agreements to
collect Requirements
delinquent taxes and the timing of the release of federal tax liens against
taxpayers' property. We also found that IRS' financial management systems do
not substantially comply with the requirements of FFMIA.
27 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 and thus affected excise
tax distributions in fiscal year 2000.
IRS' Structuring of Section 6159 of the Internal Revenue Code authorizes IRS
to enter into
Installment Agreements Did installment agreements with taxpayers to fully
satisfy the taxpayer's liability. During two previous audits, 28 we
identified instances in which IRS Not Always Comply With
entered into installment agreements with payments and terms that would the
Internal Revenue Code
not be sufficient to satisfy the taxpayers' outstanding tax liability,
including future interest accruals, before the statutory collection period
for these tax liabilities expires. 29 In March 1998, IRS issued a memorandum
requiring that installment agreements provide for the full payment of a
taxpayer's outstanding tax liability. However, as in our fiscal year 1999
audit, we continued to find that these guidelines were not consistently
followed in fiscal year 2000. Consequently, IRS continued to be noncompliant
with Section 6159 of the Internal Revenue Code.
In fiscal year 1999, we found that of 40 unpaid tax cases involving new
installment agreements, 8 (20 percent) did not comply with the Internal
Revenue Code. In our testing of 86 unpaid assessments involving taxpayers
who entered into installment agreements to pay their outstanding tax
liabilities in fiscal year 2000, we found 2 cases (2 percent) that contained
payment terms that will be insufficient to satisfy the full tax liability
before the statutory collection period for these tax liabilities expires.
The
presence of such cases in fiscal year 2000 indicates that IRS continues to
be noncompliant with this provision of the Internal Revenue Code. IRS Did
Not Always Release
The Internal Revenue Code grants IRS the power to file a lien against the
Federal Tax Liens in property of any taxpayer who neglects or refuses to pay
all assessed federal Accordance With the
taxes. The lien becomes effective when it is filed with a designated office,
Internal Revenue Code
such as a courthouse in the county where the taxpayer's property is located.
The lien serves to protect the interest of the federal government and serves
as a public notice to current and potential creditors of the government's
interest in the taxpayer's property. For example, federal tax liens are
disclosed in credit reports of individuals. Under Section 6325 of the
Internal Revenue Code, IRS is required to release a federal tax lien within
30 days after the date the tax liability is satisfied or has become 28 GAO/
AIMD- 00- 76, February 29, 2000 and Financial Audit: IRS' Fiscal Year 1998
Financial Statements (GAO/ AIMD- 99- 75, March 1, 1999).
29 The statutory collection period for taxes is generally 10 years from the
date of the tax assessment. However, this period can be extended by
agreement with the taxpayer.
legally unenforceable or the Secretary of the Treasury has accepted a bond
for the assessed tax.
During our fiscal year 1999 audit, we found that IRS did not release the
applicable federal tax lien within the 30- day requirement stipulated in the
Internal Revenue Code for 26 percent of the cases we reviewed where the tax
liability was either paid off or abated. While we noted significant
improvement, we found that this condition continued to exist during fiscal
year 2000. Specifically, in our testing of 38 tax cases with liens in which
the taxpayers' total outstanding tax liabilities were either paid off or
abated during fiscal year 2000, we found 3 instances (8 percent) in which
IRS did not release the applicable federal tax lien within the 30- day
statutory requirement. The time between satisfaction of the liability and
release of the lien ranged from about 100 to over 500 days. In one case, we
found that although the taxpayer had paid off the outstanding tax liability
by August
1998, IRS did not formally release the lien against the taxpayer's property
until March 2000- 583 days later. The failure to promptly release tax liens
could cause undue burden to taxpayers who are attempting to sell property or
apply for commercial credit.
IRS' Financial Management In fiscal year 2000, we continued to find that
IRS' financial management
Systems Are Not in systems did not substantially comply with the
requirements of the Federal Compliance With FFMIA Financial Management
Improvement Act of 1996. Specifically, IRS' systems
Requirements did not comply with Federal Financial Management Systems
Requirements,
federal accounting standards (U. S. generally accepted accounting
principles), and the SGL at the transaction level. We found that IRS (1)
cannot rely on information from its general ledger to prepare its financial
statements, (2) does not have a general ledger that conforms to the SGL, (3)
lacks a subsidiary ledger for its unpaid assessments, (4) lacks a
reliable subsidiary ledger for its P& E, and (5) lacks an effective audit
trail from its general ledger back to subsidiary detailed records and
transaction source documents for material balances. Other material
weaknesses we discussed earlier- controls over refunds, P& E, budget, and
computer
security- are also conditions indicating that IRS' systems do not comply
with FFMIA. As a result, IRS' financial management systems cannot produce
auditable financial statements and related disclosures in conformance with
federal accounting standards (U. S. generally accepted accounting
principles) without substantial compensating processes and significant
adjustments. These weaknesses also indicate that IRS' systems cannot
routinely
accumulate and report the full cost of its activities. Since IRS' systems do
not comply with FFMSR, federal accounting standards (U. S. generally
accepted accounting principles), and the SGL, they also do not comply with
OMB Circular A- 127, Financial Management Systems. In its FIA assurance
statement to Treasury, IRS reported that its financial management systems
did not substantially comply with FFMIA in fiscal year 2000.
IRS' FFMIA remediation plan issued on September 30, 2000, did not always
describe the resources devoted to address the issues that prevent IRS'
financial management systems from complying with the requirements of the
act. FFMIA requires that if the head of an agency determines that its
financial management systems do not substantially comply with the act, a
remediation plan must be developed, in consultation with OMB, that describes
the resources, remedies, and intermediate target dates for achieving
substantial compliance. The act also requires OMB concurrence
with any plan not expected to bring the agency's systems into substantial
compliance with the act no later than 3 years after a determination of
noncompliance is made. IRS structures its FFMIA remediation plan to
respond to the recommendations of GAO and other auditors, such as the
Treasury Inspector General for Tax Administration (TIGTA), who review
various aspects of IRS' operations. However, of the 16 GAO recommendations
that IRS and GAO considered open at the time this remediation plan was
issued, 8 (50 percent) did not specify the resources to
be devoted to the actions planned. These include recommendations related to
IRS' weaknesses in controls over P& E, operating funds, and refunds. In
addition, IRS' remediation plan did not specify steps to ensure that
adequate security is built into new systems and networks before they are
placed in operation to prevent future recurrence of the computer security
weaknesses in its existing systems that we have been reporting. Also,
although some of IRS' remedial actions were not scheduled for completion
within the 3- year statutory time frame, IRS had requested but not yet
received OMB concurrence with the extended time frames of these plans as of
the end of our fieldwork.
These findings are consistent with those of TIGTA, which reported similar
deficiencies in IRS' December 31, 1999, FFMIA remediation plan. 30 When IRS
updated its remediation plan on December 31, 2000, we noted marked 30
Improvements Are Needed in the Internal Revenue Service's Federal Financial
Management Improvement Act Remediation Plan (Reference Number 2000- 10- 105,
August 2000).
improvement, and IRS considered two additional recommendations to have been
closed. However, of the 14 remaining recommendations, IRS' plans to address
2 (14 percent) still did not indicate the resources to be devoted to
implementing them.
Appendi x II
Details on Audit Methodology To fulfill our responsibilities as the auditor
of IRS' financial statements, we ? examined, on a test basis, evidence
supporting the amounts and
disclosures in the financial statements, ? assessed the accounting
principles used and significant estimates made
by management, ? evaluated the overall presentation of the financial
statements, ? obtained an understanding of internal controls related to
financial reporting (including safeguarding assets and compliance with laws
and
regulations, including the execution of transactions in accordance with
budget authority), and performance measures reported in Management's
Discussion and Analysis, ? tested relevant internal controls over financial
reporting (including safeguarding assets) and compliance, and evaluated the
design and
operating effectiveness of internal controls, ? considered compliance with
the process for evaluating and reporting on
internal controls and financial management systems under FIA, ? tested
compliance with selected provisions of the following laws and
regulations: Anti- Deficiency Act, as amended (31 U. S. C. sect.1341 (a)( 1));
Agreements for Payment of Tax Liability in Installments (26 U. S. C. sect.6159);
Use of Appropriations (31 U. S. C. sect.1301); Release of Lien as Discharge of
Property (26 U. S. C. sect.6325); Interest on Underpayment,
Nonpayment, or Extension of Time for Payment of Tax (26 U. S. C. sect.6601);
Interest on Overpayments (26 U. S. C. sect.6611); Determination of Rate of
Interest (26 U. S. C. sect.6621); Failure to File Tax Return or to Pay Tax (26
U. S. C. sect.6651); Failure by Individual to Pay Estimated Income Tax (26 U. S.
C. sect.6654); Failure by Corporation to Pay Estimated Income
Tax (26 U. S. C. sect.6655); Civil Service Reform Act of 1978 (5 U. S. C. sect.sect.
5332, 5303, 5304); Fair Labor Standard Act of 1938, as amended (29 U. S. C.
sect.206); Civil Service Retirement Act of 1930, as amended (5 U. S. C. sect.8334);
Federal Employees' Retirement System Act of 1986, as amended (5 U. S. C.
sect.8423); Social Security Act, as amended (26 U. S. C. sect.sect. 3101, 3121 and 42 U.
S. C. sect.430); Federal Employees Health Benefits Act of 1959, as amended (5 U.
S. C. sect.sect. 8905, 8906, and 8909); and Federal Employees' Group Life Insurance
Act of 1980 (5 U. S. C. sect.sect. 8701, 8702,
8704, 8707, and 8708), and ? tested whether IRS' financial management
systems substantially comply with FFMIA requirements, using the
implementation guidance and OMB
guidance.
Appendi x II I Comments From the Internal Revenue Service
(919500) Lett er
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GAO United States General Accounting Office
Page 1 GAO- 01- 394 IRS' Fiscal Year 2000 Financial Statements
Contents
Contents Page 2 GAO- 01- 394 IRS' Fiscal Year 2000 Financial Statements
Page 3 GAO- 01- 394 IRS' Fiscal Year 2000 Financial Statements United States
General Accounting Office
Washington, D. C. 20548 Comptroller General
of the United States
Page 4 GAO- 01- 394 IRS' Fiscal Year 2000 Financial Statements
Page 5 GAO- 01- 394 IRS' Fiscal Year 2000 Financial Statements United States
General Accounting Office
Washington, D. C. 20548 Comptroller General
of the United States
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Management Discussion and Analysis Page 17 GAO- 01- 394 IRS' Fiscal Year
2000 Financial Statements
Management Discussion and Analysis Page 18 GAO- 01- 394 IRS' Fiscal Year
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Management Discussion and Analysis Page 19 GAO- 01- 394 IRS' Fiscal Year
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Management Discussion and Analysis Page 20 GAO- 01- 394 IRS' Fiscal Year
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Management Discussion and Analysis Page 21 GAO- 01- 394 IRS' Fiscal Year
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Management Discussion and Analysis Page 22 GAO- 01- 394 IRS' Fiscal Year
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Management Discussion and Analysis Page 23 GAO- 01- 394 IRS' Fiscal Year
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Management Discussion and Analysis Page 24 GAO- 01- 394 IRS' Fiscal Year
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Management Discussion and Analysis Page 25 GAO- 01- 394 IRS' Fiscal Year
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Management Discussion and Analysis Page 26 GAO- 01- 394 IRS' Fiscal Year
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Management Discussion and Analysis Page 27 GAO- 01- 394 IRS' Fiscal Year
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Management Discussion and Analysis Page 28 GAO- 01- 394 IRS' Fiscal Year
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Management Discussion and Analysis Page 29 GAO- 01- 394 IRS' Fiscal Year
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Management Discussion and Analysis Page 30 GAO- 01- 394 IRS' Fiscal Year
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Management Discussion and Analysis Page 31 GAO- 01- 394 IRS' Fiscal Year
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Management Discussion and Analysis Page 32 GAO- 01- 394 IRS' Fiscal Year
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Management Discussion and Analysis Page 33 GAO- 01- 394 IRS' Fiscal Year
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Management Discussion and Analysis Page 34 GAO- 01- 394 IRS' Fiscal Year
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Management Discussion and Analysis Page 35 GAO- 01- 394 IRS' Fiscal Year
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Management Discussion and Analysis Page 36 GAO- 01- 394 IRS' Fiscal Year
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Management Discussion and Analysis Page 37 GAO- 01- 394 IRS' Fiscal Year
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Management Discussion and Analysis Page 38 GAO- 01- 394 IRS' Fiscal Year
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Management Discussion and Analysis Page 39 GAO- 01- 394 IRS' Fiscal Year
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Management Discussion and Analysis Page 40 GAO- 01- 394 IRS' Fiscal Year
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Management Discussion and Analysis Page 41 GAO- 01- 394 IRS' Fiscal Year
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Management Discussion and Analysis Page 42 GAO- 01- 394 IRS' Fiscal Year
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Management Discussion and Analysis Page 43 GAO- 01- 394 IRS' Fiscal Year
2000 Financial Statements
Management Discussion and Analysis Page 44 GAO- 01- 394 IRS' Fiscal Year
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Management Discussion and Analysis Page 45 GAO- 01- 394 IRS' Fiscal Year
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Management Discussion and Analysis Page 46 GAO- 01- 394 IRS' Fiscal Year
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Management Discussion and Analysis Page 47 GAO- 01- 394 IRS' Fiscal Year
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Management Discussion and Analysis Page 48 GAO- 01- 394 IRS' Fiscal Year
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Management Discussion and Analysis Page 49 GAO- 01- 394 IRS' Fiscal Year
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Management Discussion and Analysis Page 50 GAO- 01- 394 IRS' Fiscal Year
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Management Discussion and Analysis Page 51 GAO- 01- 394 IRS' Fiscal Year
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Management Discussion and Analysis Page 52 GAO- 01- 394 IRS' Fiscal Year
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Management Discussion and Analysis Page 53 GAO- 01- 394 IRS' Fiscal Year
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Financial Statements Page 55 GAO- 01- 394 IRS' Fiscal Year 2000 Financial
Statements
Financial Statements Page 56 GAO- 01- 394 IRS' Fiscal Year 2000 Financial
Statements
Financial Statements Page 57 GAO- 01- 394 IRS' Fiscal Year 2000 Financial
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Financial Statements Page 58 GAO- 01- 394 IRS' Fiscal Year 2000 Financial
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Financial Statements Page 59 GAO- 01- 394 IRS' Fiscal Year 2000 Financial
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Financial Statements Page 60 GAO- 01- 394 IRS' Fiscal Year 2000 Financial
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Financial Statements Page 61 GAO- 01- 394 IRS' Fiscal Year 2000 Financial
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Financial Statements Page 62 GAO- 01- 394 IRS' Fiscal Year 2000 Financial
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Financial Statements Page 63 GAO- 01- 394 IRS' Fiscal Year 2000 Financial
Statements
Financial Statements Page 64 GAO- 01- 394 IRS' Fiscal Year 2000 Financial
Statements
Financial Statements Page 65 GAO- 01- 394 IRS' Fiscal Year 2000 Financial
Statements
Financial Statements Page 66 GAO- 01- 394 IRS' Fiscal Year 2000 Financial
Statements
Financial Statements Page 67 GAO- 01- 394 IRS' Fiscal Year 2000 Financial
Statements
Financial Statements Page 68 GAO- 01- 394 IRS' Fiscal Year 2000 Financial
Statements
Financial Statements Page 69 GAO- 01- 394 IRS' Fiscal Year 2000 Financial
Statements
Financial Statements Page 70 GAO- 01- 394 IRS' Fiscal Year 2000 Financial
Statements
Financial Statements Page 71 GAO- 01- 394 IRS' Fiscal Year 2000 Financial
Statements
Financial Statements Page 72 GAO- 01- 394 IRS' Fiscal Year 2000 Financial
Statements
Financial Statements Page 73 GAO- 01- 394 IRS' Fiscal Year 2000 Financial
Statements
Financial Statements Page 74 GAO- 01- 394 IRS' Fiscal Year 2000 Financial
Statements
Financial Statements Page 75 GAO- 01- 394 IRS' Fiscal Year 2000 Financial
Statements
Financial Statements Page 76 GAO- 01- 394 IRS' Fiscal Year 2000 Financial
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Supplemental and Other Accompanying Information Page 78 GAO- 01- 394 IRS'
Fiscal Year 2000 Financial Statements
Supplemental and Other Accompanying Information Page 79 GAO- 01- 394 IRS'
Fiscal Year 2000 Financial Statements
Supplemental and Other Accompanying Information Page 80 GAO- 01- 394 IRS'
Fiscal Year 2000 Financial Statements
Supplemental and Other Accompanying Information Page 81 GAO- 01- 394 IRS'
Fiscal Year 2000 Financial Statements
Supplemental and Other Accompanying Information Page 82 GAO- 01- 394 IRS'
Fiscal Year 2000 Financial Statements
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Page 84 GAO- 01- 394 IRS' Fiscal Year 2000 Financial Statements
Appendix I
Appendix I Material Weaknesses and Management Challenges, Reportable
Conditions, and Compliance Issues
Page 85 GAO- 01- 394 IRS' Fiscal Year 2000 Financial Statements
Appendix I Material Weaknesses and Management Challenges, Reportable
Conditions, and Compliance Issues
Page 86 GAO- 01- 394 IRS' Fiscal Year 2000 Financial Statements
Appendix I Material Weaknesses and Management Challenges, Reportable
Conditions, and Compliance Issues
Page 87 GAO- 01- 394 IRS' Fiscal Year 2000 Financial Statements
Appendix I Material Weaknesses and Management Challenges, Reportable
Conditions, and Compliance Issues
Page 88 GAO- 01- 394 IRS' Fiscal Year 2000 Financial Statements
Appendix I Material Weaknesses and Management Challenges, Reportable
Conditions, and Compliance Issues
Page 89 GAO- 01- 394 IRS' Fiscal Year 2000 Financial Statements
Appendix I Material Weaknesses and Management Challenges, Reportable
Conditions, and Compliance Issues
Page 90 GAO- 01- 394 IRS' Fiscal Year 2000 Financial Statements
Appendix I Material Weaknesses and Management Challenges, Reportable
Conditions, and Compliance Issues
Page 91 GAO- 01- 394 IRS' Fiscal Year 2000 Financial Statements
Appendix I Material Weaknesses and Management Challenges, Reportable
Conditions, and Compliance Issues
Page 92 GAO- 01- 394 IRS' Fiscal Year 2000 Financial Statements
Appendix I Material Weaknesses and Management Challenges, Reportable
Conditions, and Compliance Issues
Page 93 GAO- 01- 394 IRS' Fiscal Year 2000 Financial Statements
Appendix I Material Weaknesses and Management Challenges, Reportable
Conditions, and Compliance Issues
Page 94 GAO- 01- 394 IRS' Fiscal Year 2000 Financial Statements
Appendix I Material Weaknesses and Management Challenges, Reportable
Conditions, and Compliance Issues
Page 95 GAO- 01- 394 IRS' Fiscal Year 2000 Financial Statements
Appendix I Material Weaknesses and Management Challenges, Reportable
Conditions, and Compliance Issues
Page 96 GAO- 01- 394 IRS' Fiscal Year 2000 Financial Statements
Appendix I Material Weaknesses and Management Challenges, Reportable
Conditions, and Compliance Issues
Page 97 GAO- 01- 394 IRS' Fiscal Year 2000 Financial Statements
Appendix I Material Weaknesses and Management Challenges, Reportable
Conditions, and Compliance Issues
Page 98 GAO- 01- 394 IRS' Fiscal Year 2000 Financial Statements
Appendix I Material Weaknesses and Management Challenges, Reportable
Conditions, and Compliance Issues
Page 99 GAO- 01- 394 IRS' Fiscal Year 2000 Financial Statements
Appendix I Material Weaknesses and Management Challenges, Reportable
Conditions, and Compliance Issues
Page 100 GAO- 01- 394 IRS' Fiscal Year 2000 Financial Statements
Appendix I Material Weaknesses and Management Challenges, Reportable
Conditions, and Compliance Issues
Page 101 GAO- 01- 394 IRS' Fiscal Year 2000 Financial Statements
Appendix I Material Weaknesses and Management Challenges, Reportable
Conditions, and Compliance Issues
Page 102 GAO- 01- 394 IRS' Fiscal Year 2000 Financial Statements
Appendix I Material Weaknesses and Management Challenges, Reportable
Conditions, and Compliance Issues
Page 103 GAO- 01- 394 IRS' Fiscal Year 2000 Financial Statements
Appendix I Material Weaknesses and Management Challenges, Reportable
Conditions, and Compliance Issues
Page 104 GAO- 01- 394 IRS' Fiscal Year 2000 Financial Statements
Appendix I Material Weaknesses and Management Challenges, Reportable
Conditions, and Compliance Issues
Page 105 GAO- 01- 394 IRS' Fiscal Year 2000 Financial Statements
Page 106 GAO- 01- 394 IRS' Fiscal Year 2000 Financial Statements
Appendix II
Page 107 GAO- 01- 394 IRS' Fiscal Year 2000 Financial Statements
Appendix III
Appendix III Comments From the Internal Revenue Service
Page 108 GAO- 01- 394 IRS' Fiscal Year 2000 Financial Statements
Appendix III Comments From the Internal Revenue Service
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Appendix III Comments From the Internal Revenue Service
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Appendix III Comments From the Internal Revenue Service
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Appendix III Comments From the Internal Revenue Service
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Appendix III Comments From the Internal Revenue Service
Page 113 GAO- 01- 394 IRS' Fiscal Year 2000 Financial Statements
United States General Accounting Office Washington, D. C. 20548- 0001
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