Applying Agreed-Upon Procedures: Highway Trust Fund Excise Taxes 
(11-FEB-02, GAO-02-379R).					 
								 
GAO assisted the Department of Transportation in determining	 
whether the net excise tax revenue distributed to the Highway	 
Trust Fund for fiscal year 2001 is supported by the underlying	 
records. In performing the agreed-upon procedures, GAO conducted 
its work in accordance with U.S. generally accepted government	 
auditing standards, which incorporate financial audit and	 
attestation standards established by the American Institute of	 
Certified Public Accountants.					 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-02-379R					        
    ACCNO:   A02749						        
  TITLE:     Applying Agreed-Upon Procedures: Highway Trust Fund      
Excise Taxes							 
     DATE:   02/11/2002 
  SUBJECT:   Accounting standards				 
	     Excise taxes					 
	     Reporting requirements				 
	     Accounting procedures				 
	     Auditing procedures				 
	     Auditing standards 				 
	     Highway Trust Fund 				 

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GAO-02-379R
     

United States General Accounting Office Washington, DC 20548

February 11, 2002

The Honorable Kenneth M. Mead Inspector General Department of Transportation

Subject: Applying Agreed-Upon Procedures: Highway Trust Fund Excise Taxes

Dear Mr. Mead:

We have performed the procedures contained in the enclosure to this letter,
which we agreed to perform and with which you concurred, solely to assist
your office in ascertaining whether the net excise tax revenue distributed
to the Highway Trust Fund (HTF) for the fiscal year ended September 30,
2001, is supported by the underlying records. As agreed with your office, we
evaluated fiscal year 2001 activity affecting distributions to HTF.

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

The adequacy of the procedures to meet your objectives is your
responsibility, and we make no representation in that respect. The
procedures we agreed to perform include (1) detailed tests of transactions
that represent the underlying basis of amounts distributed to HTF, (2)
review of the Internal Revenue Service's (IRS) quarterly HTF certifications,
(3) review of the Department of the Treasury Financial Management Service
adjustments to HTF for fiscal year 2001, (4) review of certain procedures in
the Office of Tax Analysis's process for estimating amounts to be
distributed to HTF for the fourth quarter of fiscal year 2001, (5)
comparison of net excise tax distributions to HTF during fiscal year 2001
and amounts reported in the financial statements prepared by the Bureau of
the Public Debt for HTF and HTF's financial statements, and (6) review of
key reconciliations of IRS records to Treasury records. The enclosure
contains the agreed-upon procedures and our findings from performing each of
the procedures.

We were not engaged to perform, and did not perform, an audit, the objective
of which would have been to express an opinion on the amount of net excise
taxes distributed to HTF. Accordingly, we do not express such an opinion.
Had we

GAO-02-379R Highway Trust Fund Excise Tax Procedures

performed additional procedures, other matters might have come to our
attention
that would have been reported to you.1 We completed the agreed-upon
procedures
on February 1, 2002.

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

This letter is intended solely for the use of the Office of Inspector
General of the
Department of Transportation and should not be used by those who have not
agreed
to the procedures and have not taken responsibility for the sufficiency of
the
procedures for their purpose. However, this letter is a matter of public
record and its
distribution is not limited. Consequently, copies are available to others
upon request.
This letter will also be available on GAO's home page at http://www.gao.gov.
If you
have any questions, please call me at (202) 512-3406.

Sincerely yours,

Steven J. Sebastian
Acting Director
Financial Management and Assurance
Enclosure

1In our reports on the results of our audit of IRS's fiscal year 2000
financial statements, we noted a reportable condition related to IRS's
ability to allocate excise tax collections to the appropriate trust funds at
the time deposits are made. This condition affects the adequacy of the
distributions of federal excise tax revenue to recipient trust funds. (See
U.S. General Accounting Office, Financial Audit: IRS' Fiscal Year 2000
Financial Statements (GAO-01-394, Washington D.C., March 1, 2001) and U.S.
General Accounting Office, Internal Revenue Service: Progress Made, but
Further Actions Needed to Improve Financial Management (GAO-02-35,
Washington D.C., October 19, 2001)). This condition continued to exist
during fiscal year 2001. Our report on the results of our audit of IRS's
fiscal year 2001 financial statements will be issued shortly.

Page 2

GAO-02-379R Highway Trust Fund Excise Tax Procedures

        Highway Trust Fund Excise Tax Procedures and Results 
I. Detailed tests of transactions that represent the underlying basis of
amounts distributed to HTF in fiscal year 2001

A. Nonrepresentative selection of tax returns from the quarter ended
September 30, 20002

1. For the quarter ending September 30, 2000, select the 30 largest excise
tax returns on the basis of total tax liability3 amount from IRS's master
file.4

Description of findings and results 
We selected the 30 largest excise tax returns from the quarter ended
September 30, 2000, for testing. The selection was based on the total tax
liability amount, for each return, from IRS's master file.

The total tax liability amount related to these 30 returns was approximately
$8.5 billion, or 63 percent of the total excise tax liability amount ($13.4
billion5) for the quarter ended September 30, 2000.

Of these 30 returns, 21 contained primarily HTF-related taxes, 7 contained
primarily Airport and Airway Trust Fund (AATF) taxes, and 2 contained
telephone taxes related to the general fund.

2. For each of 21 returns related primarily to HTF, we performed the
following procedures, which resulted in our testing approximately $6.4
billion in prorated collections6 affecting fiscal year 2001 distributions to
HTF:

2Since certifications are not completed until 6 months after the end of the
quarter, the certification and corresponding FMS adjustment for the quarter
ended September 30, 2000, was completed in March 2001, and thus affected
fiscal year 2001 distributions to HTF.

3Although the certifications are based on amounts collected, we used the tax
liability amounts to identify the taxpayers paying the largest amounts of
excise taxes. Based on our experience, these taxpayers generally pay their
excise taxes in full each quarter.

4The master file is a detailed database containing taxpayer information.

5IRS told us that this was the total excise tax liability amount, from its
master file, for the quarter ended September 30, 2000.

6IRS certifies to trust funds the amount of actual excise taxes collected.
Because there are occasions in which taxpayers have not paid their full tax
liability at the time of IRS's certification, IRS must allocate the amount
of payments actually received among the different excise taxes

(a) Trace the liability amount for abstracts7 59, 60, and 62 from the tax
return to IRS's master file.

Description of findings and results 
The liability amount for abstracts 59, 60, and 62 on the tax returns agreed
with IRS's master file for all 21 of the selected items. However, we found
an error on one of these returns where the taxpayer erroneously reported
$2.3 million of kerosene tax (abstract 35) on the line for liquefied
petroleum gas (abstract 61). IRS did not identify this mistake and entered
the erroneous information into the master file. As a result of this error,
IRS certified collections to the HTF-Highway Account were understated by
approximately $81,000 and the HTF-Mass Transit Account were overstated by
approximately $91,000, for the quarter ended September 30, 2000.8

reported on the taxpayer's return. IRS's Collection Certification System
prorates a taxpayer's payments proportionately among all taxes reported on
the tax return. For example, if a taxpayer reports that they owe $4 million
for gasoline tax, $2 million for diesel fuel tax, and $1 million for gasohol
tax on their Form 720 Quarterly Federal Excise Tax Return, but has only paid
IRS $3.5 million at the time IRS performs its certification, the program
prorates the $3.5 million in the following manner: $2 million to gasoline
tax, $1 million to diesel fuel tax, and $500,000 to gasohol tax.

7The abstract numbers identify the tax type (e.g., gasoline and ticket tax)
and are used as the basis for determining the distribution of the excise
taxes to the various trust funds. Abstract numbers are preprinted on the
Form 720 Quarterly Federal Excise Tax Return and are used by the taxpayer to
report excise tax assessments. If the return was related to HTF, we selected
(1) tax on 10 percent gasohol (abstract 59), (2) diesel fuel tax (abstract
60), and (3) gasoline tax (abstract 62). If the return was related to AATF,
we selected (1) tax on transportation of persons by air-ticket tax (abstract
26), (2) tax on use of international air facilities (abstract 27), and (3)
tax on transportation of property by air (abstract 28). If the return was
related to neither of the above trust funds, we selected all abstracts on
the return in which the taxpayer has reported a liability. The tax amounts
related to the selected abstracts for each trust fund are the largest tax
amounts reported on the taxpayer's excise tax return and make up over 86
percent of the total amount certified to HTF and over 90 percent of the
total amount certified to AATF.

8IRS calculates certified collections to the Highway Account (HA) and Mass
Transit Account (MTA) using the tax amount, tax rate, and distributions
rates applicable to each account. In this instance, the tax amount remained
constant but the tax and distribution rates were different. The rates for
kerosene (abstract 35) were 24.4 cents/gallon tax rate, 21.44 cent/gallon HA
distribution rate, 2.86 cents/gallon MTA distribution rate, and .1
cent/gallon Leaking Underground Storage Tank Trust Fund distribution rate.
The rates for liquefied petroleum gas (abstract 61) were 13.6 cents/gallon
tax rate, 11.47 cents/gallon HA distribution rate, and 2.13 cents/gallon MTA
distribution rate. As a result, the misclassification resulted in opposite
effects on these two accounts but for different amounts.

IRS corrected this error after we brought it to its attention. The
correction was included in IRS's trust fund certification total for the
quarter ended December 31, 2000. Consequently, there was no net impact on
fiscal year 2001 distributions to HTF resulting from this error.

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

Description of findings and results 
The taxpayers' calculations on all 21 selected returns were mathematically
correct.

(c) Recompute the prorated collection amount for the selected abstracts
based on information from the master file and compare this amount to the
amount from the Collection Certification System audit file.9

Description of findings and results 
The recomputed prorated collection amounts for the three selected abstracts
agreed with amounts in IRS's Collection Certification System audit file for
all 21 of the returns.

B. Dollar unit sample (DUS) of transactions from the quarters ended December
31, 2000, and March 31, 2001

1. Sampling

(a) Obtain excise tax assessments and collection data from IRS's master file
for the first 6 months of fiscal year 2001. Determine if excise tax
collections per master file agree with IRS's general ledger. Reconcile total
excise tax collections from the master file to total excise tax collections
from the Collection Certification System audit files to determine if they
materially10 agree.

9The Collection Certification System produces what IRS refers to as "audit
files." These audit files contain the individual prorated collections, by
abstract and taxpayer identification number, that make up the certified
total amounts for each abstract.

10

For the purpose of this reconciliation, material is defined as $205 million.
This represents approximately 1 percent of the total Form 720-related excise
tax collections, related to the quarters ended December 31, 2000, and March
31, 2001.

Description of findings and results 
Excise tax collections for the first 6 months of fiscal year 2001 per the
master file materially agreed with IRS's general ledger and with total
excise tax collections from the Collection Certification System.

(b) Select a random attribute sample of 78 excise tax assessments from IRS's
master file.11 Compare assessment and receipt information for each sample
item from the master file to the assessment and receipt information in the
Collection Certification System to determine if assessments and receipts
from the master file are contained in the Collection Certification System.

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

(c) To determine if the Collection Certification System properly summarized
the prorated collections, total the prorated collections for selected
abstracts12 from the audit files and compare these amounts to amounts in

                                     13

the Reports of Excise Tax Collection.

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

(d) Separate the total population of prorated collections from the audit
files into the following distinct populations: (1) HTF, (2) AATF, and (3)
other

11For this sample, if one error or less was found in testing the 78 items,
we would be 90 percent confident that the error rate in the population would
not exceed 5 percent.

12The selected abstracts include the following: (1) tax on 10 percent
gasohol (abstract 59), (2) diesel fuel tax (abstract 60), (3) gasoline tax
(abstract 62), (4) tax on transportation of persons by air (abstract 26),
(5) tax on use of international air facilities (abstract 27), (6) tax on
transportation of property by air (abstract 28), and (7) tax on aviation
fuel for commercial use (abstract 77). The tax amounts for the three
HTF-related abstracts make up over 86 percent of the total amount certified
to HTF and the four AATF-related abstracts make up over 96 percent of the
total amounts certified to AATF.

13The Report of Excise Tax Collection contains classified prorated
collections that serve as the basis for IRS's quarterly trust fund
certifications.

excise tax abstracts. Use DUS to select a sample of prorated excise tax
collections from the HTF population.

Description of findings and results 
Use of DUS with a confidence level of 80 percent, a test materiality of $350
million, and an expected aggregate error amount of $105 million resulted in
a sample of 10014 prorated collections for the first 6 months of fiscal year
2001.

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

Description of findings and results 
Use of DUS with a confidence level of 80 percent, a test materiality of $99
million, and an expected aggregate error amount of $29.7 million resulted in
a sample of 6915 prorated collections for the first 6 months of fiscal year
2001 for AATF.

A random attribute sample of 45 items from the population of prorated tax
collections related to all excise taxes other than HTF and AATF was selected
for testing.16

2. Detailed tests of transactions

(a) For each prorated excise tax collection sampled from the HTF population:

14The planned sample size using DUS was 129 items. DUS selects dollars
versus specific transaction items by dividing the population by dollar
intervals. The dollar interval for HTF was $129 million. Accordingly, any
item with a dollar value matching or exceeding the sampling interval would
be selected, whereas items less than the sampling interval might not be
selected. For example, an item of $258 million would cover 2 dollar
intervals, but represent 1 sample item. Due to large dollar items covering
more than 1 interval, the 100 unique sampled transactions selected represent
129 dollar intervals.

15The planned sample size using DUS was 135 items. DUS selects dollars
versus specific transaction items by dividing the population by dollar
intervals. The dollar interval for AATF was $36 million. Accordingly, any
item with a dollar value matching or exceeding the sampling interval would
be selected, whereas items less than the sampling interval might not be
selected. For example, an item of $72 million would cover 2 dollar
intervals, but represent 1 sample item. Due to large dollar items covering
more than 1 interval, the 69 unique sampled transactions selected represent
135 dollar intervals.

16For this sample, if no errors are found in testing the 45 items, we would
be 90 percent confident that the error rate in the population would not
exceed 5 percent.

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

Description of findings and results 
The assessment amounts on the tax returns agreed with the amounts recorded
in IRS's master file for all items sampled abstracts.

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

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

* Recompute the prorated collection amount based on information from the
master file and compare this amount to the sample items selected from the
Collection Certification System audit file.17

Description of findings and results 
The recomputed prorated collection based on information from the master file
agreed with the amounts in 97 of 100 items sampled from the Collection
Certification System audit file. For the other three cases an error in IRS's
pro-ration computer program resulted in an understatement of $1,075,858 for
sample abstract 60 and a net understatement of $3,806,796 for sample
abstract 62. In these three cases, a programming error in handling certain
credit adjustments caused a double counting of collections, and resulted in
an incorrect allocation.

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

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

17

The purpose of this test is to determine whether the Collection
Certification System prorates correctly. This test is not intended to
determine whether amounts provided to the system are correct.

(c) Evaluate the results of conducting steps (a) and (b).

Description of findings and results 
For the first 6 months of fiscal year 2001, the net most likely error is
($5.2 million) with an upper error limit of $200.7 million at the 80-percent
confidence level. Collections go through additional calculations to produce
certification amounts for distribution. Consequently, the magnitude of the
error cannot be quantified with respect to the impact on recorded
distributions to HTF.

II. Review of IRS's quarterly HTF certifications

A. Receipt certifications

Perform the following steps on IRS's HTF receipt certifications for the
quarters ended September 30, 2000, December 31, 2000, March 31, 2001, and
June 30, 2001:18

1. Inspect the certification letters19 for authorizing signatures.

Description of findings and results 
The HTF certification letters for all four quarters had authorizing
signatures.

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

Description of findings and results 
There was evidence that another analyst and a supervisor checked the
certification letters and supporting worksheets for all four quarters.

3. Recalculate the totals on the certification letters to determine if they
are mathematically correct.

18Since certifications are not completed until 6 months after the end of the
quarter, the certification and corresponding Financial Management Service
adjustment for the quarter ended September 30, 2001, will not be completed
in time to affect the recorded fiscal year 2001 distributions to HTF.

19IRS prepares two certification letters for HTF each quarter: one for the
HA and the other for the MTA.

Description of findings and results 
The totals on the certification letters for all four quarters were
mathematically correct.

4. Trace the certified amounts for diesel fuel tax (abstract 60), gasoline
tax

(abstract 62), and tax on 10 percent gasohol (abstract 59)20 from the 21

certification letters back to the Reports of Excise Tax Collection.

Description of findings and results 
The certified amounts for diesel fuel tax (abstract 60), gasoline tax
(abstract 62), and tax on 10 percent gasohol (abstract 59) per the
certification letters agreed with the related Reports of Excise Tax
Collection for all four quarters.

5. Review the Reports of Excise Tax Collection used in the certification to
determine if they contain significant22 collections from prior quarters.

Description of findings and results 
The Reports of Excise Tax Collection supporting IRS's certifications to HTF
did not contain significant prior quarter collections, in any of the four
quarters.

6. Heavy vehicle use taxes, which go to HTF, are reported on Form 2290 and
are not included in the Collection Certification System. Trace these amounts
from the Highway Account certification letters to the master file.

20The certified amounts for diesel fuel tax (abstract 60), gasoline tax
(abstract 62), and tax on 10 percent gasohol (abstract 59), along with the
heavy vehicle use tax (traced separately), make up over 91 percent of the
total amount certified to HTF.

21IRS uses data from two of these reports, covering sequential processing
intervals, for each quarterly certification. Collections are classified on
the report when the related Form 720 tax return has been recorded on IRS's
master file during the processing interval covered by the report. The second
of the two reports used may contain collections related to previous quarters
not classified until the current quarter because the related return was not
recorded on the master file until the current quarter.

22For this test, "significant" is defined as $90 million. This represents
approximately 1 percent of the total amount certified to HTF for a quarter.

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

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

Description of findings and results 
We saw no evidence that the distribution rates used by IRS for diesel fuel
tax (abstract 60), gasoline tax (abstract 62), and tax on 10 percent gasohol
(abstract 59) did not agree with the applicable laws in effect during the
quarters ended September 30, 2000, December 31, 2000, and June 30, 2001.

On its certification to HTF for the quarter ended March 31, 2001, IRS used
the excise tax and distribution rates that were in effect beginning December
22, 2000, rather than those that became effective on January 1, 2001. As a
result, IRS understated certified collections to the HTF-Highway Account by
$2 million and overstated certified collections to the HTF-Mass

                                     23

Transit Account by $1 million. IRS corrected the error after we brought it
to its attention. The correction was made in IRS's HTF certification for the
quarter ended June 30, 2001. As a result, there was no net impact on
distributions to the HTF for fiscal year 2001.

23IRS calculates certified collections to the HA and MTA using the total
prorated collection amount, tax rate, and distribution rates applicable to
each account. In this case, the total prorated collection amounts and
distribution rate for MTA of 2.86 cents/gallon remained constant. However,
the tax rate and distribution rate for HA changed. For gasohol (abstract
59), the January 1, 2001, rates were 13.1 cents/gallon tax rate and 7.64
cents/gallon distribution rate, while the December 22, 2000, rates were 13
cents/gallon tax rate and 7.54 cent/gallon distribution rate. As a result,
using the incorrect rates resulted in opposite effects on these two accounts
but for different amounts.

B. Refund/credit reclassification24

Perform the following steps on IRS's HTF refund/credit certifications for
the quarters ended December 31, 2000, March 31, 2001, June 30, 2001, and
September 30, 2001:

1. Inspect the certification letters for authorizing signatures.

Description of findings and results 
The certification letters for all four quarters had authorizing signatures.

2. Determine if evidence exists that the certification letters and
accompanying schedules25 were checked by the supervisor or another analyst.

Description of findings and results 
There was evidence that another analyst and a supervisor checked the
certification letters and accompanying schedules for all four quarters.

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

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

4. Trace the refund and credit amounts for diesel and gasoline26 from the
schedules accompanying the certification letters to other summary

24IRS performs a quarterly reclassification of excise tax refunds and
credits originally entered into its master file as a personal or corporate
refund/credit. IRS refers to these reclassifications as "refund/credit
certifications." These amounts do not represent the total excise tax
refund/credit activity to the trust funds. Other routine excise tax refunds
and credits (e.g., overpayments), which are claimed on taxpayers' Form 720
excise tax returns, are included in IRS's excise tax receipt certification
to trust funds.

25IRS attaches a separate schedule to the HTF refund/credit certification
letter that includes the detailed excise tax amounts that support the total
amount shown on the letter. IRS compiles the amounts on these schedules from
service center campus systems and its Interim Revenue Accounting Control
System. IRS has 10 service center campuses that process tax returns and tax
receipts.

26The certified refund/credit amounts for diesel and gasoline make up at
least 91 percent of the total certified refund/credit amount for HTF.

refund/credit schedules. (These other refund/credit summary schedules
summarize refund and credit data obtained from service campuses' records.)

Description of findings and results 
The refund and credit amounts for gasoline tax and diesel tax, on the
schedules accompanying the certification letters agreed with the amounts on
the summary schedules for the quarters ended December 31, 2000, June 30,
2001, and September 30, 2001.

On IRS's refund and credit certification for the quarter ended March 31,
2001, the IRS analyst entered data onto the wrong summary schedules. As a
result, IRS reported $244 million in HTF refunds as credits and the $83
million in HTF credits as refunds. There was no impact on distributions to
the HTF because the Bureau of Public Debt (BPD) uses the total amount of
refunds and credits in calculating distributions to the trust fund.

III. Review of Department of the Treasury Financial Management Service (FMS)
adjustments

Perform the following steps on FMS adjustments to HTF excise tax
distributions for the quarters ended September 30, 2000, December 31, 2000,
March 31, 2001, and June 30, 2001.

A. Compare the FMS adjustments made to HTF for fiscal year 2001 with
original Office of Tax Analysis (OTA) estimates and IRS-certified amounts to
see if they agree with the supporting schedules.27

Description of findings and results 
For the FMS adjustments made to the HTF accounts (Highway and Mass Transit),
the original OTA estimates and IRS-certified amounts agreed with the
supporting schedules for all four quarters.

B. Recompute the difference between the OTA estimates and final
IRS-certified amounts to see if the amounts agree with the differences
computed by FMS.

27An FMS accountant compiles this schedule, called the Subsidiary Quarterly
Account of Estimates and Actual Related Excise Taxes Appropriated to the
Highway Account. It computes the difference between IRS-certified amounts
and the OTA estimate for excise taxes, individually and in total, that
relate to the HA. A similar schedule is prepared for the MTA. The schedules,
along with OTA transfer forms and IRS certifications, support the FMS
adjustment.

Description of findings and results 
The independently recalculated differences between the OTA estimates and the
final IRS-certified amounts for the HA agreed with the differences computed
by FMS for all four quarters.

28

These amounts were

* for the quarter ended September 30, 2000, ($1,089,389,000);

* for the quarter ended December 31, 2000, ($262,394,000);

* for the quarter ended March 31, 2001, ($416,677,000); and

* for the quarter ended June 30, 2001, ($192,874,000).

The independently recalculated differences between the OTA estimates and the
final IRS-certified amounts for the MTA agreed with the differences computed
by FMS for all four quarters.

These amounts were

* for the quarter ended September 30, 2000, ($116,022,000);

* for the quarter ended December 31, 2000-$40,430,000;

* the quarter ended March 31, 2001, ($10,169,000); and

* for the quarter ended June 30, 2001, $29,203,000.

IV. Procedures performed on excise tax distributions to HTF for the quarter
ended September 30, 2001

A. Determine if OTA's process for identifying and incorporating into its
trust fund estimates29 the effect of new legislation on excise tax receipts
was in place during fiscal year 2001.

Description of findings and results 
OTA's process for identifying and incorporating into its trust fund
estimates the effect of new legislation on excise tax receipts was in place
during fiscal year 2001. OTA does not routinely compile a comprehensive list
of laws and regulations that affect the receipt estimates. However, OTA
prepares a tax

28A positive amount indicates that the FMS adjustment increased excise taxes
distributed to the trust fund. A negative amount, shown in parentheses,
indicates that the FMS adjustment decreased excise taxes distributed to the
trust fund.

29Under its new estimation process, OTA makes semimonthly estimates of
excise tax collections for transfer to trust funds.

rate table30 to capture information relating to legislation that affects tax
rates, tax basis, accounts, and deposit rules in effect during the tax
period.

For example, in calculating its trust fund estimates for the period from
September 16 through September 30, 2001, OTA took into consideration the
effect of Section 301 of the Air Transportation Safety and System
Stabilization Act (Public Law 107-42). This legislation provided relief to
domestic air carriers by suspending required excise tax deposits due after
September 10, 2001, until November 15, 2001. As a result, OTA assumed air
carriers would make no payments for tax on transportation of persons by air
(abstract 26) or tax on use of international air facilities (abstract 27)
until November 15, thereby decreasing the amount of estimated excise taxes
transferred to the Airport and Airway Trust Fund.

B. Determine if there is evidence of review of the transfer forms and
supporting schedules.

Description of findings and results 
There was evidence that another OTA economist reviewed the transfer forms
and supporting schedules for the semimonthly transfers affecting
distributions to HTF for the quarter ended September 30, 2001.

C. Recalculate the totals on the transfer forms to determine if they are
mathematically correct.

Description of findings and results 
The totals on the transfer forms affecting distributions to HTF for the
quarter ended September 30, 2001, were mathematically correct.

D. Trace the transfer amounts for diesel fuel tax (abstract 60), gasoline
tax (abstract 62), tax on 10 percent gasohol (abstract 59), and heavy
vehicle use tax,31 from the transfer letter, through the supporting
schedules and back to the related source documents.32

30OTA communicates this information to interested parties at Treasury, the
Federal Highway Administration, the Federal Transit Administration, and the
Department of Transportation. IRS uses the tax and distributions rates from
this table in its subsequent certification of collections to trust funds.

31The transfer amounts for diesel fuel tax (abstract 60), gasoline tax
(abstract 62), tax on 10 percent gasohol (abstract 59), and heavy vehicle
use tax made up over 91 percent of the total amount transferred to HTF
during the fourth quarter of fiscal year 2001.

32The source documents include the IRS report of excise taxes used to derive
the percentages applied to reported receipts, the Daily Treasury Statement,
Monthly Treasury Statement, and the excise tax rate table.

Description of findings and results 
The transfer amounts for diesel fuel tax (abstract 60), gasoline tax
(abstract 62), tax on 10 percent gasohol (abstract 59), and heavy vehicle
use tax from the transfer forms affecting distributions to HTF for the
quarter ended September 30, 2001, agreed with the supporting schedules and
source documents.

V. Other procedures

A. Compare total fiscal year 2001 excise taxes distributed to HTF with
drafts of (1) BPD's fiscal year 2001 financial statements for HTF and (2)
HTF fiscal year 2001 financial statements to determine if they agree.

Description of findings and results 
Fiscal year 2001 excise taxes of $31.5 billion distributed to HTF agree with
amounts reported on (1) draft BPD fiscal year 2001 financial statements for
HTF and (2) draft HTF fiscal year 2001 financial statements.

B. Procedures performed as part of fiscal year 2001 IRS financial statement
audit:

1. From IRS's master files for the first 9 months of fiscal year 2001, use
DUS to select statistical samples of (1) total tax revenue receipts and (2)
refunds. For each sample item, test that the collection or refund amount,
tax period, and tax class33 from source documentation agrees with amounts
recorded in IRS's master files.

Description of findings and results 
Detailed testing of 188 revenue receipts and 19 refund sample transactions
showed that the collection or refund amount, tax period, and tax class from
source documents agreed with amounts recorded in IRS's master files.

2. Review selected IRS service center campuses' monthly Treasury SF-224
reconciliations to determine if IRS-reported revenue receipts were properly
classified and reconciled to Treasury FMS records. For refunds, review
selected IRS service center campuses' monthly Treasury SF-224

33IRS assigns a tax class number to specific types of taxes. Excise taxes
are tax class 4.

reconciliations to determine if IRS-reported total refunds (all tax classes)

35

materially34 reconciled to Treasury FMS records.

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

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

3. Perform a proof of cash for fiscal year 2001 to determine whether tax
revenue receipt balances by tax class, including excise tax, per IRS's
general ledger materially agree with IRS's master files and Treasury
records. For refunds, perform a comparison of total refund balances between
the master file, the general ledger, and Treasury records. Also, compare
excise tax refunds per the master file to the general ledger.

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

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

(191007)

34

For the purpose of this procedure and procedure V.B.3, we define material as
$22 billion. This represents 1 percent of the estimated total tax revenue
receipts to be collected by IRS for fiscal year 2001.

35IRS maintains records of refund balances by tax class in its master file
and reports this information monthly to Treasury on the SF-224. Treasury
provides IRS with a Statement of Differences (TFS-6652), which reports
differences between total refunds reported by IRS on the SF-224 and the
total refunds per Treasury records.
*** End of document. ***