Applying Agreed-Upon Procedures: Airport and Airway Trust Fund	 
Excise Taxes (15-FEB-02, GAO-02-380R).				 
								 
GAO examined the underlying records for the net excise tax	 
revenue distributed to the Airport and Airway Trust Fund (AATF)  
for fiscal year 2001. Specifically, GAO (1) did a detailed test  
of transactions that represent the underlying basis of amounts	 
distributed to AATF, (2) reviewed the Internal Revenue Service's 
(IRS) quarterly AATF certifications, (3) reviewed of the	 
Department of the Treasury Financial Management Service 	 
adjustments to AATF for fiscal year 2001, (4) reviewed procedures
in the Office of Tax Analysis's process for estimating amounts to
be distributed to AATF for the fourth quarter of fiscal year	 
2001, (5) compared of net excise tax distributions to AATF during
fiscal year 2001 and amounts reported in the financial statements
prepared by the Bureau of the Public Debt for AATF and the	 
Federal Aviation Administration's consolidated financial	 
statements, and (6) reviewed key reconciliations of IRS records  
to Treasury records.						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-02-380R					        
    ACCNO:   A02771						        
  TITLE:     Applying Agreed-Upon Procedures: Airport and Airway Trust
Fund Excise Taxes						 
     DATE:   02/15/2002 
  SUBJECT:   Excise taxes					 
	     Financial analysis 				 
	     Trust funds					 
	     Financial statements				 
	     Auditing standards 				 
	     Accounting procedures				 
	     Airport and Airway Trust Fund			 

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GAO-02-380R
     

United States General Accounting Office Washington, DC 20548

February 15, 2002

The Honorable Kenneth M. Mead Inspector General Department of Transportation

Subject: Applying Agreed-Upon Procedures: Airport and Airway Trust Fund

Dear Mr. Mead:

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

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 AATF, (2)
review of the Internal Revenue Service's (IRS) quarterly AATF
certifications, (3) review of the Department of the Treasury Financial
Management Service (FMS) adjustments to AATF for fiscal year 2001, (4)
review of certain procedures in the Office of Tax Analysis's (OTA) process
for estimating amounts to be distributed to AATF for the fourth quarter of
fiscal year 2001, (5) comparison of net excise tax distributions to AATF
during fiscal year 2001 and amounts reported in the financial statements
prepared by the Bureau of the Public Debt (BPD) for AATF and the Federal
Aviation Administration's consolidated financial statements, and (6) review
of key reconciliations of IRS records to Treasury records. The enclosure
contains the agreed-upon procedures and our findings from performing each of
the procedures.

We were not engaged to perform, and did not perform, an audit, the objective
of which would have been to express an opinion on the amount of net excise
taxes

GAO-02-380R Airport and Airway Trust Fund Excise Tax Procedures

distributed to AATF. Accordingly, we do not express such an opinion. Had we
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 report is intended solely for the use of the Office of Inspector
General of the
Department of Transportation and should not be used by those who have not
agreed
to the procedures and have not taken responsibility for the sufficiency of
the
procedures for their purposes. However, this letter is a matter of public
record and
its distribution is not limited. Consequently, copies are available to
others upon
request. 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., Mar. 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., Oct. 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-02-380R Airport and Airway Trust Fund Excise Tax Procedures

   Airport and Airway Trust Fund Excise Tax Procedures and Results 
I. Detailed tests of transactions that represent the underlying basis of
amounts distributed to AATF 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, 7 contained primarily AATF related taxes, 21 contained
primarily Highway Trust Fund (HTF) taxes, and 2 contained telephone taxes
related to the general fund.

2. For each of seven returns related primarily to AATF, we performed the
following procedures which resulted in our testing approximately $1.6
billion in prorated collections6 affecting fiscal year 2001 distributions to
AATF:

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 AATF.

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 reported on
the taxpayer's return. IRS's Collection Certification System prorates a
taxpayer's

(a) Trace the liability amount for abstracts7 26, 27, and 28 from the tax
return to IRS's master file.

Description of findings and results 
The liability amount for abstracts 26, 27, and 28 on the tax return agreed
with IRS's master file for all seven of the returns.

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

Description of findings and results 
The taxpayer's calculations on all seven of the 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.8

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 AATF, we
selected (1) tax on transportation of persons by air-ticket tax (abstract
26), (2) tax on use of international air facilities (abstract 27), and (3)
tax on transportation of property by air (abstract 28). If the return was
related to HTF, we selected (1) tax on 10 percent gasohol (abstract 59), (2)
diesel fuel tax (abstract 60), and (3) gasoline tax (abstract 62). If the
return was related to neither of these 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 90 percent of the total amount certified to AATF and over 86 percent of
the total amount certified to HTF.

8The 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.

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 seven 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
materially9 agree.

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

10

IRS's master file. Compare assessment and receipt information for each
sample item from the master file to the assessment and receipt information
in the Collection Certification System to determine if assessments and
receipts from the master file are contained in the Collection Certification
System.

Description of findings and results 
For each sample item, assessments and receipts from the master file 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

9

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

10For this sample, if one error or none 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.

selected abstracts11 from the audit files and compare these amounts to 12

amounts in 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 AATF and HTF.
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) AATF, (2) HTF, and (3)
other excise tax abstracts. Use DUS to select a sample of prorated excise
tax collections from the AATF population.

Description of findings and results 
Use of DUS with a confidence level of 80 percent, a test materiality of $99
million, and an expected aggregate error amount of $29.7 million resulted in
a sample of 6913 prorated collections for the first 6 months of fiscal year
2001.

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

11The selected abstracts include the following: (1) tax on transportation of
persons by air (abstract 26), (2) tax on use of international air facilities
(abstract 27), (3) tax on transportation of property by air (abstract 28),
(4) tax on aviation fuel for commercial use (abstract 77), (5) tax on 10
percent gasohol (abstract 59), (6) diesel fuel tax (abstract 60), and (7)
gasoline tax (abstract 62). The tax amounts for the four AATF-related
abstracts make up over 96 percent of the total amount certified to AATF and
the three HTF-related abstracts make up over 86 percent of the total amounts
certified to HTF.

12The Report of Excise Tax Collection contains classified prorated
collections that serve as the basis for IRS's quarterly trust fund
certifications.

13The 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. Because the large dollar items cover more than
1 interval, the 69 unique sampled transactions selected represent 135 dollar
intervals.

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 for HTF.

A random attribute sample of 45 items from the population of prorated tax
collections related to all excise taxes other than AATF and HTF was selected
for testing.15

2. Detailed tests of transactions

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

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

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 $260 million would cover 2 dollar
intervals but represent 1 sample item. Because the large dollar items cover
more than 1 interval, the 100 unique sampled transactions selected represent
129 dollar intervals.

15For 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.

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.16

Description of findings and results 
The recomputed prorated collection based on information from the master file
agreed with the amounts for 68 of the 69 items sampled from the Collection
Certification System audit file. For the other case, an error in IRS's
proration computer program resulted in an understatement of $6,984,964 for
abstract 26. In this case, 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-AATF populations to determine if they contain any AATF excise tax
collections.

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

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

Description of findings and results 
For the first 6 months of fiscal year 2001, the net most likely error is
($7.0 million) with an upper error limit of $51.2 million at the 80 percent
confidence level. Collections go through additional calculations to produce
certification amounts for distribution. Consequently, the magnitude of this
error cannot be quantified with respect to the impact on recorded
distributions to AATF.

II. Review of IRS's quarterly AATF certifications

A. Receipt certifications

Perform the following steps on IRS's AATF receipt certifications for the
quarters ended September 30, 2000; December 31, 2000; March 31, 2001; and
June 30, 2001:17

16

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.

17Since 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, 2001, will

1. Inspect the certification letters for authorizing signatures. Description
of findings and results The certification letters for all 4 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.

Description of findings and results 
The totals on the certification letters for all 4 quarters were
mathematically correct.

4. Trace the certified amounts for tax on transportation of persons by air
(abstract 26), tax on use of international air facilities (abstract 27), tax
on transportation of property by air (abstract 28), and tax on aviation fuel
for commercial use (abstract 77)18 from the certification letters back to
the

                                     19

Reports of Excise Tax Collection.

Description of findings and results 
The certified amounts for tax on transportation of persons by air (abstract
26), tax on use of international air facilities (abstract 27), tax on

not be completed in time to affect the recorded fiscal year 2001
distributions to AATF.

18The certified amounts for tax on transportation of persons by air
(abstract 26), tax on use of international air facilities (abstract 27), tax
on transportation of property by air (abstract 28), and tax on aviation fuel
for commercial use (abstract 77) make up over 96 percent of the total amount
certified to AATF.

19IRS 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.

transportation of property by air (abstract 28), and tax on aviation fuel
for commercial use (abstract 77) per the certification letters agreed with
the related Report of Excise Tax Collection for all 4 quarters.

5. Review the Reports of Excise Tax Collection used in the certification to
determine if they contain significant20 collections from prior quarters.

Description of findings and results 
The Reports of Excise Tax Collection supporting IRS's certifications to AATF
did not contain significant prior quarter collections for the quarters ended
September 30, 2000; March 31, 2001; and June 30, 2001.

The Reports of Excise Tax Collection supporting IRS's certification to AATF
for the quarter ended December 31, 2000, contained approximately $28 million
in AATF excise tax collections related to previous quarters. Of this amount,
approximately $20 million was from the quarter ended September 30, 2000.

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

Description of findings and results 
We saw no evidence that the distribution rates used by IRS for tax on
transportation of persons by air (abstract 26), tax on use of international
air facilities (abstract 27), tax on transportation of property by air
(abstract 28), and tax on aviation fuel for commercial use (abstract 77) did
not agree with the applicable laws in effect during the 4 quarters.

20For this test, "significant" is defined as $20 million. This represents
approximately 1 percent of the total amount certified to AATF for a quarter.

B. Refund/credit reclassification21

Perform the following steps on IRS's AATF 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 4 quarters had authorizing signatures.

2. Determine if evidence exists that the certification letters and
accompanying schedules22 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 4 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 4 quarters.

21IRS performs a quarterly reclassification of excise tax refunds and
credits originally entered into its master file as 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.

22IRS attaches a separate schedule to the AATF refund/credit certification
letter that includes the detailed excise tax amounts that support the total
amount shown on the letter. IRS compiles the amounts on these schedules from
service center campus systems and its Interim Revenue Accounting Control
System. IRS has 10 service center campuses that process tax returns and tax
receipts.

23

4. Trace the refund and credit amount for aviation gas and aviation O/T gas,
from the schedules accompanying the certification letters to other summary
refund/credit schedules. (These other refund/credit summary schedules
summarize refund and credit data obtained from service center campus
records.)

Description of findings and results 
The refund and credit amounts for aviation gas and aviation O/T gas on the
schedules accompanying the certification letters for the quarters 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 $10 million in AATF refunds as credits and $5 million
in AATF credits as refunds. There was no impact on distributions to the AATF
because BPD uses the total amount of refunds and credits in calculating
distributions to the trust fund.

III. Review of FMS adjustments

Perform the following steps on FMS adjustments to AATF 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 AATF 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.24

Description of findings and results 
For the FMS adjustments made to AATF, the original OTA estimates and IRS
certified amounts agreed with the supporting schedule for all 4 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.

23Aviation Gas and Aviation O/T gas are the only two excise taxes on the
AATF refund/credit certification.

24An FMS accountant compiles this schedule, called the Subsidiary Quarterly
Account of Estimates and Actual Related Excise Taxes Appropriated to the
Airport and Airway Trust Fund. It computes the difference between IRS
certified amounts and the OTA estimate for excise taxes, individually and in
total, that relate to the Airport and Airway Trust Fund. The schedule, 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 AATF agreed with the differences
computed by FMS for all 4 quarters.

25

These amounts were

for the quarter ended September 30, 2000, ($164,133,000); for the quarter
ended December 31, 2000, $86,598,000; for the quarter ended March 31, 2001,
$44,862,000; and for the quarter ended June 30, 2001, $76,855,000.

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

A. Determine if OTA's process for identifying and incorporating into its
trust fund estimates26 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 rate table27 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

25A 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.

26Under its new estimation process, OTA makes semimonthly estimates of
excise tax collections for transfer to trust funds.

27OTA 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.

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
AATF.

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 AATF for the quarter ended September 30, 2001.

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

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

D. Trace the transfer amounts for tax on transportation of persons by air
(abstract 26), tax on use of international air facilities (abstract 27), tax
on transportation of property by air (abstract 28), and tax aviation fuel
for commercial use (abstract 77)28 from the transfer letter, through the
supporting

29

schedules and back to the related source documents.

Description of findings and results 
The transfer amounts for tax on transportation of persons by air (abstract
26), tax on use of international air facilities (abstract 27), tax on
transportation of property by air (abstract 28), and tax aviation fuel for
commercial use (abstract 77), from the transfer forms affecting
distributions to AATF for the quarter ended September 30, 2001, agreed with
the supporting schedules and

30

source documents.

28The transfer amounts for tax on transportation of persons by air (abstract
26), tax on use of international air facilities (abstract 27), tax on
transportation of property by air (abstract 28), and tax aviation fuel for
commercial use (abstract 77), typically made up over 97 percent of the total
amount transferred to AATF during the fourth quarter of fiscal year 2001.

29The 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.

30As noted in step IV.A, OTA took into consideration the effect of Section
301 of P.L. 107-42. As a

V. Other procedures

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

Description of findings and results 
Fiscal year 2001 excise taxes of $9.1 billion distributed to the AATF agreed
with amounts reported on (1) draft BPD fiscal year 2001 financial statements
for AATF and (2) draft FAA fiscal year 2001 consolidated 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 class31 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 service center campuses' monthly Treasury SF-224
reconciliations to determine if IRS-reported revenue receipts were properly
classified and reconciled to Treasury FMS records.

result, OTA's estimated excise tax collections to AATF for the period
September 16 through September 30, 2001, was only $88.5 million, compared to
over $400 million in each of the other semimonthly periods affecting fourth
quarter distributions to AATF.

31IRS assigns a tax class number to specific types of taxes. Excise taxes
are tax class 4.

For refunds, review selected IRS service center campuses' monthly Treasury
SF-224 reconciliations to determine if IRS-reported total refunds (all tax
classes) were materially32 reconciled to Treasury FMS records.33

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 revenue
receipt balances by tax class, including excise tax, per IRS's general
ledger materially agree with IRS master files and Treasury records. For
refunds, perform a comparison of total refund balances between the master
file, the general ledger, and Treasury records. Also, compare excise tax
refunds per the master file to the general ledger.

Description of findings and results 
Fiscal year-end tax receipt balances for all tax classes, including excise
taxes, per IRS'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.

(191008)

32For 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.

33IRS 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. ***