Internal Revenue Service: Status of Recommendations from
Financial Audits and Related Financial Management Reports
(29-APR-05, GAO-05-393).
In its role as the nation's tax collector, the Internal Revenue
Service (IRS) has a demanding responsibility for collecting
taxes, processing tax returns, and enforcing the nation's tax
laws. Since GAO's first audit of IRS's financial statements in
fiscal year 1992, a number of weaknesses in IRS's financial
management operations have been identified. In related reports,
GAO has recommended corrective action to address those
weaknesses. Each year, as part of the annual audit of IRS's
financial statements, GAO not only makes recommendations to
address any new weaknesses identified, but also follows up on the
status of weaknesses GAO identified in previous years' audits.
The purpose of this report is to assist IRS management in
tracking the status of audit recommendations and actions needed
to fully address them.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-05-393
ACCNO: A22999
TITLE: Internal Revenue Service: Status of Recommendations from
Financial Audits and Related Financial Management Reports
DATE: 04/29/2005
SUBJECT: Financial management
Financial management systems
Internal controls
Tax administration systems
Financial statement audits
Audit recommendations
Corrective action
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GAO-05-393
* Report to the Commissioner of Internal Revenue
* April 2005
* INTERNAL REVENUE SERVICE
* Status of Recommendations from Financial Audits and Related
Financial Management Reports
* Contents
* Status of Recommendations
* Agency Comments and Our Evaluation
* Objective, Scope, and Methodology
* Status of GAO Recommendations from Prior IRS Financial Audits and
Related Management Reports
* Details on Audit Methodology
* Comments from the Internal Revenue Service
* GAO Contact and Staff Acknowledgments
* GAO Contacts
* Acknowledgments
* http://www.gao.gov
United States Government Accountability Office
Report to the Commissioner of Internal Revenue
April 2005
INTERNAL REVENUE SERVICE
Status of Recommendations from Financial Audits and Related Financial Management
Reports
a
GAO-05-393
INTERNAL REVENUE SERVICE
Status of Recommendations from Financial Audits and Related Financial
Management Reports
What GAO Found
As in past years, IRS has continued to make improvements to address a
number of financial management weaknesses. At the same time, a number of
the open audit recommendations have been outstanding for an extended
period of time. IRS has continued to experience delays in the
implementation of the new systems intended to correct some of these
long-standing deficiencies. Others, however, could be resolved with
additional management attention. The continued existence of these
financial management weaknesses exposes IRS to loss due to errors or theft
and impairs the availability of current, accurate financial information
that management needs to make decisions on a day-to-day basis.
Of 118 recommendations related to financial management (consisting of 76
recommendations open as of April 2004, 9 recommendations included in GAO's
January 2005 report on the timeliness of IRS lien releases, 3
recommendations included in GAO's March 2005 report on the Brookhaven
Service Center Campus rampdown, and 30 new recommendations included in
GAO's management report for fiscal year 2004), GAO is closing 34 due to
effective actions IRS has taken to address the issues that gave rise to
them. These actions were verified by GAO in the course of conducting the
audit of IRS's fiscal year 2004 financial statements.
Of the remaining 84 financial management recommendations GAO considers
open as of the date of this report, 75 are short term (capable of being
addressed within 2 years) and 9 are long term (expected to require more
than 2 years to implement). IRS considers 40 (48 percent) of the 84
recommendations to be closed. GAO considers 21 of these 40 to be still
open because it has not yet had an opportunity to verify the actions taken
by IRS. The actions cited by IRS for these 21 recommendations are recent
and were taken after GAO's financial statement audit work for the year was
completed. For 18 of the 40 recommendations that IRS considers closed, GAO
found that action taken by IRS has not yet been fully effective in
addressing the conditions that gave rise to the recommendations. IRS
disagrees with the remaining recommendation.
IRS continues to exhibit a strong commitment to addressing its ongoing
financial management problems and has made improvements in recent years
that have resulted in the closing of many recommendations. At the same
time, the continued existence of the serious financial management
weaknesses that gave rise to the remaining open recommendations represents
a serious obstacle that IRS needs to overcome to achieve effective
financial management.
IRS stated that it has begun to address the 42 new recommendations
included in the report. GAO will review these corrective actions and the
status of IRS's progress in implementing all open recommendations as part
of the fiscal year 2005 audit.
United States Government Accountability Office
Contents
Letter 1
Status of Recommendations 2
Agency Comments and Our Evaluation 6
Objective, Scope, and Methodology 6
Appendixes
:Status of GAO Recommendations from Prior IRS Financial Audits and Related
Management Reports 9
:Details on Audit Methodology 78
:Comments from the Internal Revenue Service 80
: GAO Contact and Staff Acknowledgments 81
Abbreviations
AUR Automated Underreporter
CADE Customer Account Data Engine
CAP Custodial Accounting Project
FMS Financial Management Service
IFS Integrated Financial System
IRM Internal Revenue Manual
IRS Internal Revenue Service
LPG Lockbox Processing Guidelines
MOU Memorandum of Understanding
NBIC National Background Investigation Center
NFC National Finance Center
P&E property and equipment
SB/SE Small Business/Self-Employed
SCC Service Center Campuses
SETS Security Entry and Tracking System
SPC Submission Processing Center
TAC Taxpayer Assistance Center
TFRP Trust Fund Recovery Penalty
W&I Wage and Investment
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. However, because this
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separately.
A
United States Government Accountability Office Washington, D.C. 20548
April 29, 2005
The Honorable Mark W. Everson Commissioner of Internal Revenue
Dear Mr. Everson:
This report provides the status of the Internal Revenue Service's (IRS)
efforts to implement recommendations we have made based on our audits of
IRS's financial statements and other efforts related to financial
management. In updating the status of these recommendations, we have
included the results of our audits of IRS's financial statements for
fiscal years 2004 and 2003.1 This report is being provided to you to (1)
assist IRS management in tracking the unresolved issues identified in our
prior audits2 and (2) report on the current status of open audit
recommendations detailed in our previous and most recent financial audit
and financial management-related reports.3 In cases where IRS has taken
action on open recommendations that did not result in our closing them, we
explain why this occurred. No new recommendations are being made in this
report.
Since our first audit of IRS's financial statements in fiscal year 1992,
our audits have identified a number of weaknesses in IRS's financial
management operations. In related reports on IRS's internal controls, we
have recommended corrective actions to address those weaknesses. Appendix
I lists (1) recommendations we have made based on our financial audits and
other financial management-related work that we have not previously
reported as closed, (2) the status of each of these recommendations and
corrective actions taken or planned as of February 2005 as reported to us
by IRS and incorporated in appendix I, and (3) our analysis of whether the
issues that gave rise to the recommendations have been effectively and
fully addressed based on the
1 GAO, Financial Audit: IRS's Fiscal Years 2004 and 2003 Financial
Statements, GAO-05-103 (Washington, D.C.: Nov. 10, 2004).
2 GAO, Internal Revenue Service: Status of Recommendations from Financial
Audits and Related Financial Management Reports, GAO-04-523 (Washington,
D.C.: Apr. 28, 2004).
3 GAO, Opportunities to Improve Timeliness of IRS Lien Releases,
GAO-05-26R (Washington, D.C.: Jan. 10, 2005); Review of Controls over
Safeguarding Taxpayer Receipts and Information at the Brookhaven Service
Center Campus, GAO-05-319R (Washington, D.C.: Mar. 10, 2005); and
Management Report: Improvements Needed in IRS's Internal Controls,
GAO-05-247R (Washington, D.C.: Apr. 27, 2005).
Status of Recommendations
work performed during our fiscal year 2004 financial audit. Effectively
implementing recommendations is critical for IRS to resolve its financial
management challenges.
In April 2004, we issued a report that provided (1) the status of IRS's
efforts to implement prior recommendations as of our fiscal year 2003
financial audit4 and (2) new recommendations based on the results of our
fiscal year 2003 financial audit.5 In the April 2004 report, we included
100 audit recommendations that we had not previously reported as being
closed, 1 dating back as far as 1993. Of the 100 recommendations, 24 were
closed at the time that report was issued, leaving 76 that were used as a
starting point for appendix I of this report. For this year, we added 9
recommendations from our January 2005 report on the timeliness of IRS lien
releases, 3 recommendations from our March 2005 report on the Brookhaven
Service Center Campus rampdown,6 and 30 new recommendations included in
our management report related to our audit of IRS's fiscal year 2004
financial statements, for a total of 118 recommendations. Based on the
results of our recently completed fiscal year 2004 financial audit, we are
closing 34 recommendations made in prior audits due to effective actions
IRS has taken to address the issues that gave rise to them. Therefore, as
of the date of this report, 84 financial management recommendations remain
open, 75 of which are short term and 9 of which are long term.7
4 GAO, Financial Audit: IRS's Fiscal Years 2003 and 2002 Financial
Statements, GAO-04-126 (Washington, D.C.: Nov. 13, 2003).
5 GAO-04-523.
6 The term "rampdown" is used to refer to IRS's significant reduction of
its submission processing functions at selected service center campuses.
In fiscal year 2004, Brookhaven became the first service center campus to
downsize its submission processing function.
7 Short-term recommendations are defined as those that could be addressed
within 2 years at the time we made the recommendation. Long-term
recommendations are defined as those expected to require 2 years or more
to implement at the time we made the recommendation.
As indicated in appendix I, of the 84 recommendations we consider to be
open, IRS considers 40 (48 percent) to be closed. We consider 21 of these
recommendations to be open because IRS took corrective action to resolve
these recommendations after we completed our testing for the fiscal year
2004 audit. As a result, we have not yet had time to verify implementation
of the corrective actions, which is a prerequisite to our closing a
recommendation. We will verify the effectiveness of IRS's actions to
address these recommendations during our audit of IRS's fiscal year 2005
financial statements. For 18 of the 40 recommendations that IRS considers
closed, we found that the initial action taken by IRS in the current or
prior years has not been fully effective in addressing the conditions that
gave rise to the recommendations. For 8 of these 18 recommendations, IRS
initiated additional corrective action after we completed our fiscal year
2004 audit and, as a result, we have not yet had time to verify the
effectiveness of these additional actions. IRS disagrees with the
remaining recommendation,8 though it had agreed with the recommendation at
the time it was made.
Sixteen of the 18 recommendations that IRS considers closed but that we
consider open involved the issuance of formal written policies or
directives aimed at addressing the internal control deficiencies that gave
rise to the recommendations. However, we found that these policies or
directives were not being adhered to or were not fully effective in
correcting the deficiencies that led to the recommendations. We also found
that the revised policies or directives intended to correct 4 of these 16
recommendations did not adequately address the underlying issues. We
continue to be concerned that IRS's actions in a number of cases consist
of writing policies and procedures without providing a mechanism to ensure
proper and ongoing implementation. We believe that the 16 recommendations
could be resolved with additional management follow-up to see that the
revised policies and directives specifically address the issues and that
corrective actions as envisioned in policy and procedural changes are
fully and effectively implemented. In the interim, to the extent the
underlying weaknesses continue to exist, they will impair the quality and
timeliness of IRS's financial information and increase its exposure to
losses.
8 Recommendation 03-08 in appendix I was issued to correct a potential
conflict in the responsibilities of lockbox coordinators, who assist
lockbox banks with processing issues and who also perform the on-site
performance review of those banks.
Page 3 GAO-05-393 Status of Recommendations
A significant number of the 84 recommendations in appendix I that we
consider open have been outstanding for an extended period of time.
Twenty-eight (33 percent) of the recommendations were made over 2 years
ago, including 9 recommendations from more than 3 years ago, 9
recommendations from more than 5 years ago, and 1 recommendation that has
remained open for over 10 years. The continued existence of the issues
that gave rise to these recommendations exposes IRS to losses due to
errors or theft and impairs the availability of current, accurate
financial information management needs to make decisions.
The majority of the 84 recommendations that we consider to be open address
one of two broad issues:
o Forty-eight (57 percent) of the recommendations, all of which we
consider to be short term, relate to weaknesses in controls for
safeguarding taxpayer receipts and information at lockbox banks and IRS
sites. These continued weaknesses expose IRS to unnecessary risk of loss
of funds and increase taxpayer exposure to losses from financial crimes
committed by individuals who inappropriately gain access to confidential
personal information. IRS considers 31 of these recommendations closed.
However, during our fiscal year 2004 financial audit, we found that IRS's
corrective actions had not fully resolved the issues for 15 of these 31
recommendations and, for the remaining 16 recommendations, IRS's actions
occurred after we completed our testing for the fiscal year 2004 audit.
For example, in January 2003, we recommended that IRS require lockbox bank
management to ensure that returned refund checks are restrictively
endorsed immediately upon extraction and that IRS take steps to monitor
adherence to this requirement. IRS included the requirement in the 2004
"Lockbox Processing Guidelines"9 and stated that it evaluates adherence to
this requirement during quality reviews of lockbox operations. However,
extraction staff at one of the four lockbox banks we visited during our
fiscal year 2004 audit informed us that returned refund checks were
processed without immediately being stamped.
9 Internal Revenue Service, "2004 Lockbox Processing Guidelines"
(Washington, D.C: January 2004), and subsequent 2004 updates. The 2004
Lockbox Processing Guidelines provides guidelines for processing work at
lockbox banks serving IRS for the 2004 tax processing year.
Page 4 GAO-05-393 Status of Recommendations
o Nine (11 percent) of the recommendations relate to serious financial
management weaknesses that are rooted in IRS's continued reliance on
outdated automated systems. Correcting these deficiencies depends largely
on the ultimate success of IRS's ongoing systems modernization effort. Our
prior reviews have disclosed numerous management control deficiencies in
IRS's systems modernization effort that have contributed to reported cost
overruns and delays in the implementation of the systems intended to
resolve financial management issues.10 For example, IRS implemented the
first release of its new Integrated Financial System (IFS) in November
2004, about 2 years later than initially planned. IFS Release 1 provides
core financial, budget formulation, and cost accounting capabilities.
However, full cost accounting capabilities will not be realized until
future releases, such as Work Management, are implemented. According to
IRS, implementation of subsequent releases, which provide property,
procurement, and performance management functions, is being indefinitely
deferred because of Release 1 delays and funding issues. Also, after
significant delays, IRS has begun processing some of the least complex
individual tax returns through the first release of the Customer Account
Data Engine (CADE), the new system designed to modernize IRS's taxpayer
files. Due to cost overruns and delays, IRS has stopped the Custodial
Accounting Project (CAP), another key financial management initiative that
was intended to provide management information related to tax operations
needed for day-to-day decision making, performance management, and
reporting. It was initially planned that CADE would provide tax
information to IFS for reporting purposes through CAP. IRS is currently
examining options to implement alternative systems that would perform the
functions that CAP had been intended to perform. Successful implementation
of future releases of IFS, CADE, and other system initiatives is essential
to correcting IRS's long-standing financial management deficiencies and
internal control weaknesses that prevent IRS from producing reliable and
timely financial information needed for decision making on an ongoing
basis.
Although IRS continues to experience delays in implementing the systems
intended to address many underlying financial management and operations
issues, it has made improvements in recent years that have resulted in the
closing of many recommendations. For example, IRS made significant
10 GAO, Business Systems Modernization: IRS's Fiscal Year 2004 Expenditure
Plan, GAO-05-46 (Washington, D.C.: Nov. 17, 2004).
Page 5 GAO-05-393 Status of Recommendations
progress in addressing issues related to its administrative accounting
operations, which resulted in our closing 8 of 18 recommendations related
to IRS's administrative operations. However, delays in implementing
subsequent releases of IFS and other systems would inhibit significant
additional progress in addressing the remaining administrative accounting
operation issues because these subsequent IFS releases and other system
efforts would address 7 of the remaining 10 administrative accounting
operations-related recommendations. Delays in implementation of other
systems would also inhibit IRS's ability to correct 2 deficiencies related
to unpaid tax assessments, tax revenue, and refunds. Consequently, the
continued delays in the implementation of new systems and the other
serious financial management weaknesses that gave rise to many of the
remaining open recommendations represent a serious obstacle that IRS needs
to overcome to achieve effective financial management and have available
accurate, timely financial reporting and other information that is
critical for effective day-to-day decision making.
In commenting on a draft of this report, IRS said it has begun to
aggressively address the 42 new recommendations arising from our fiscal
year 2004 audit, which are included in the report. For example, IRS stated
that it has developed a comprehensive action plan to address
recommendations related to lockbox banks, which includes partnering with
Treasury's Financial Management Service to align lockbox bank contractual
requirements with IRS's physical security polices. We will review the
effectiveness of these corrective actions and the status of IRS's progress
in addressing all open recommendations as part of our fiscal year 2005 IRS
financial audit.
Agency Comments and Our Evaluation
Objective, Scope, and Methodology
The objective of this report is to assist IRS management in tracking the
status of financial audit and financial management-related recommendations
and the actions needed to address them. To accomplish this objective, we
evaluated the effectiveness of IRS's corrective actions implemented in
response to open recommendations during fiscal year 2004 as part of our
fiscal years 2004 and 2003 financial audits.11 Further details on the
scope and methodology of our IRS financial audit work are included in
appendix II. We obtained from IRS its assessment of the status of each
11 GAO-05-103.
recommendation and corrective action taken or planned as of February 2005,
which we included in appendix I. We compared IRS's actions to our fiscal
year 2004 audit findings and noted any differences between IRS's and our
conclusions regarding the status of each recommendation. We conducted our
audit in accordance with U.S. generally accepted government auditing
standards. We requested comments on a draft of this report from the
Commissioner of Internal Revenue or his designee. We received written
comments from IRS, which are reprinted in appendix III.
We are sending copies of this report to the Chairmen and Ranking Minority
Members of the Senate Committee on Appropriations; Senate Committee on
Finance; Senate Committee on Homeland Security and Governmental Affairs;
Senate Committee on the Budget; Subcommittee on Transportation, Treasury,
the Judiciary, Housing and Urban Development and Related Agencies, Senate
Committee on Appropriations; Subcommittee on Taxation and IRS Oversight,
Senate Committee on Finance; Subcommittee on Oversight of Government
Management, the Federal Workforce, and the District of Columbia, Senate
Committee on Homeland Security and Governmental Affairs; House Committee
on Appropriations; House Committee on Ways and Means; House Committee on
Government Reform; House Committee on the Budget; Subcommittee on
Transportation, Treasury, and Housing and Urban Development, the
Judiciary, and the District of Columbia, House Committee on
Appropriations; Subcommittee on Government Management, Finance, and
Accountability, 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 Secretary of the Treasury, 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. In addition, the report will be available at no charge on GAO's
Web site at http://www.gao.gov.
If you have any questions concerning this report, please contact me at
(202) 512-3406 or [email protected]. Ma jor contributors to this report
are listed in appendix IV.
Sincerely yours,
Steven J. Sebastian Director Financial Management and Assurance Appendix I
Status of GAO Recommendations from Prior IRS Financial Audits and Related
Management Reports
Status of recommendations Count No. Recommendation Source report Per IRS
Per GAO
94-2 Monitor implementation of actions to reduce the errors in calculating
and reporting manual interest on taxpayer accounts, and test the
effectiveness of these actions. (short-term)
Financial Management: Important IRS Revenue Information Is Unavailable or
Unreliable
( GAO/AIMD-94-22, Dec. 21, 1993) Open. IRS is addressing the issue by
increasing automation of restricted interest calculations, educating the
workforce, and developing a quality review process. In 2004, IRS updated
interest training and began quality reviews. IRS will begin to measure
accuracy based on the quality reviews in 2005.
Open. We will review the results of IRS's quality reviews and test the
accuracy of IRS's manual interest calculations during our fiscal year 2005
financial audit.
(Continued From Previous Page)
Status of recommendations
Count No. Recommendation Source report Per IRS Per GAO
Page 10 GAO-05-393 Status of Recommendations
2 99-1 Manually Internal Revenue ice: Open. IRS Open. We
review and ServImmediate to implemented its recognize
eliminate and Long-Term action plan to automation of
duplicate or Actions Needed improve the the current
other Improve timely TFRP program
assessments Financial cross-referencing is much
that have Management of Trust Fund needed.
already been (GAO/AIMD-99-16, Recovery Penalty However,
paid off to Oct. 30, 1998) (TFRP) payments, IRS's efforts
assure that which included to date have
all accounts identifying and not been
related to a correcting effective. A
single processing 2004 internal
assessment problems, IRS report
are conducting indicated
appropriately training to over half of
credited for provide all TFRP
payments clarification of cases
received. processing steps, targeted for
(short-term) and implementing correction
mandatory quality still
reviews. In contained
addition, IRS posting
plans to errors.
consolidate all Additionally,
TFRP work in one it reported
campus. This will that 1 in 3
ensure better cases with
control over the recent trust
quality, fund activity
timeliness, and had posting
accuracy of errors. In
transcript fiscal year
processing. As 2004, we
IRS moves forward reviewed 50
with the TFRP cases
consolidation and estimated
that 16
percent
contained
payments that
were not
properly
reflected in
each
responsible
party's
account. We
will continue
to review
IRS's
process, it will initiatives
be able to use to improve
the Automated posting of
Trust Fund TFRP cases
and test TFRP
Recovery (ATFR) cases for
system to perform proper
automated payment postings to
verifications on all related
Individual Master accounts as
File (IMF) part of our
accounts assessed fiscal year
after August 2005
2001. When the financial
transcript is audit.
received, ATFR
verifies that all
previous payments
have been
cross-referenced
properly as well
as indicates
where the current
payment should be
cross-referenced.
Currently, IRS
has this
capability on the
campus that has
been selected as
the
centralized site.
The Chief
Financial Officer
(CFO) is also
developing a TFRP
database that
will establish
the links to
more accurately
report the single
balance due from
these
assessments, and
determine
areas for
improvement in
the TFRP process.
99-3 Ensure that IRS's modernization blueprint includes developing a
subsidiary ledger to accurately and promptly identify, classify, track,
and report all IRS unpaid assessments by amount and taxpayer. This
subsidiary ledger must also have the capability to distinguish unpaid
assessments by category in order to identify those assessments that
represent taxes receivable versus compliance assessments and write-offs.
In cases involving trust fund recovery penalties, the subsidiary ledger
should ensure that (1) the trust fund recovery penalty assessment is
appropriately tracked for all taxpayers liable but counted only once for
reporting purposes and
(2) all payments made are properly credited to the accounts of all
individuals assessed for the liability. (short-term)
Internal Revenue Service: Immediate and Long-Term Actions Needed to
Improve Financial Management
( GAO/AIMD-99-16, Oct. 30, 1998) Open. The Custodial Accounting Project
(CAP) is being stopped due to budget cuts. IRS is currently examining
other options for addressing this recommendation using alternative
approaches that leverage IRS's existing Financial Management Information
System (FMIS) and the Interim Revenue Accounting Control System (IRACS)
used to support the custodial balances on the financial statements. The
CFO is also developing a TFRP database that can establish the links to
more accurately report the single balance due from these assessments and
determine areas for improvement in the TFRP process. The CFO is developing
a business case and will pursue opportunities to identify resources within
IRS's IT budget to fund this effort. IRS is continuing to develop the
automated system to manage TFRP, as discussed under recommendation 99-1.
Final phase of implementation for the automated trust fund system is
anticipated in 2005.
Open. We will continue to monitor IRS's development of an alternative
strategy for CAP, as well as its implementation of the new TFRP system and
its other initiatives to improve the TFRP process. IRS's plan to address
our specific recommendation regarding TFRP cases is discussed in
recommendation 99-1.
99-17 Ensure that all returned refund checks are stamped "nonnegotiable"
as soon as they are extracted. (short-term)
Internal Revenue Service: Physical Security over Taxpayer Receipts and
Data Needs Improvement
( GAO/AIMD-99-15, Nov. 30, 1998) Closed. In January 2005, the Submission
Processing Director's Office contacted each Submission Processing Center
(SPC) to address deficiencies identified by GAO in 2004 regarding
overstamping of returned refund checks. Local management was asked to
discuss the deficiencies with their employees on a regular basis and
ensure corrective action is taken. This issue will be reviewed monthly by
the campus security review team and findings will be shared with the
Submission Processing Field Directors for additional action, if required.
Open. During our fiscal year 2004 audit, we continued to observe that IRS
staff were not consistently aware of the requirement for overstamping
returned refund checks. At one service center campus we visited, the
Refund Inquiry Unit staff explained that the checks received from some
Small Business/Self-Employed (SB/SE) units had "void" written on them but
were not overstamped with the appropriate stamp. IRS's reported actions to
address deficiencies in overstamping returned refund checks occurred after
our fiscal year 2004 fieldwork. We will review the results of IRS's
actions during our fiscal year 2005 audit.
(Continued From Previous Page)
Status of recommendations
Count No. Recommendation Source report Per IRS Per GAO
Page 13 GAO-05-393 Status of Recommendations
5 99-19 Ensure that Internal Revenue Closed. The Open. During
walk-in payment Service: Physical Internal our fiscal
receipts are Security over Revenue Manual year 2004
recorded in a Taxpayer Receipts (IRM) was audit, we
control log and Data Needs updated to found that IRS
prior to Improvement require had updated
depositing the (GAO/AIMD-99-15, employees to the IRM and
receipts in the Nov. 30, 1998) record payments Taxpayer
locked container on Form 795, Assistance
and ensure that Daily Report of Center (TAC)
the control log Collection operational
information is Activities, and reviews to
reconciled to to immediately require
receipts prior place the employees to
to submission of payment in a record
the receipts to locked payments on
another unit for container. IRM Form 795 and
payment procedures also to immediately
processing. To provide for a place payments
ensure proper reconciliation in a locked
segregation of process. The container and
duties, an procedures provide for a
employee not require the reconciliation
responsible employee who process for
prepared Form these
795 to payments.
reconcile all However,
receipts with during our
the payment 2004 audit
information on visits to IRS
Form 795 before field offices,
we continued
to find that
checks were
not
for logging forwarding to always stored
receipts in the SPC. The SPC in locked or
control log also performs secured
should perform reconciliation containers. In
the by placing a addition, the
reconciliation. distinct mark IRM
(short-term) on Form 795 to reconciliation
indicate the procedures for
documents payments do
listed were not provide
received. The for adequate
SPC returns the segregation of
Form 795 to the duties between
manager the employee
acknowledging who prepares
receipt of Form the Form 795
795 and all upon accepting
attachments. a receipt and
These the employee
procedures are who reconciles
consistent with the Form 795
procedures prior to
followed by forwarding to
other IRS SPC.
functions.
6 99-20 Open. Open. IRS's
Implementation plan to
Analyze and of the ATFR address our
determine the system specific
factors causing Internal Revenue continues. recommendation
delays in Service: Custodial Phase I, which regarding TFRP
processing and Financial automates cases is
posting TFRP Management calculation and discussed in
assessments. Weaknesses assessment of recommendation
Once these (GAO/AIMD-99-193, penalties to 99-1. When IRS
factors have Aug. 4, 1999) ensure accuracy completes
been determined, and timeliness, implementation
IRS should was implemented of its ATFR
develop in July 2003. program, we
procedures to Phase II, which will review
reduce the automates the its
impact of these manual steps of effectiveness
factors and to the campus in eliminating
ensure timely process to processing
posting to all timely delays. In the
applicable cross-reference meantime, we
accounts and payments, was will continue
proper implemented on to monitor
offsetting of one campus in trust fund
refunds against 2004. IRS began recovery
unpaid its Phase III penalty
assessments centralization processing
before issuance. process in timeliness.
(short-term) January 2005 by
directing the
new assessment
work from one
campus to the
centralized
site
as a test.
7 99-22 Expand IRS's current Internal Revenue Service: Closed. The
guidelines in the Open. We verified that IRS's review of campus Custodial
Financial Fiscal Year 2003 Operating guidelines for safeguarding deterrent
controls to Management Procedures for TACs for receipts in locked
containers include similar analyses Weaknesses safeguarding receipts in
locked and over-stamping checks of controls at IRS field (
GAO/AIMD-99-193, containers and over-stamping made payable to "IRS" with
offices in areas such as Aug. 4, 1999) checks made payable to IRS "United
States Treasury" were courier security, were incorporated into the IRM
included in the IRM and in TAC safeguarding of receipts in June 2003. IRS
monitored operational reviews. However, in locked containers, adherence to
these procedures during our fiscal year 2004 requirements for during
operational reviews of audit visits to IRS field offices, fingerprinting
employees, the TACs conducted in fiscal we continued to find that and
requirements for year 2004 and found no checks were not always stored
promptly overstamping discrepancies. Operating in locked or secured
containers. checks made out to "IRS" procedures state, in part, that In
addition, we found that with "Internal Revenue all remittances and related
checks made out to "IRS" were Service" or "United States returns must be
recorded on not always immediately Treasury." Based on the Form 795, Daily
Report of overstamped with "United results, IRS should make Collection
Activity, and placed States Treasury" because staff appropriate changes to
in a locked container until was unaware of the policy or strengthen its
physical transmitted to the appropriate because some units did not
security controls. SPC. Payments in the form of have the appropriate
stamp. (short-term) personal checks, cashier Some of IRS's reported
actions
checks, and money orders to strengthen its controls for should be made
payable to storing and overstamping "United States Treasury." checks
occurred subsequent to Checks made out to IRS or U.S. our fiscal year 2004
fieldwork. Treasury must be overstamped We will continue to evaluate with
the words "United States IRS's correction actions during Treasury"
immediately upon our fiscal year 2005 audit. receipt. IRS is also
including these issues in its operational reviews of the TACs. Managers in
the TACs are also required to complete an annual review that includes
these issues. Also, the Small Business and Self Employed Division (SB/SE)
will issue a reminder on the SB/SE Web site to all employees that payments
received from taxpayers must be made out to the United States Treasury.
Any payments received not made out to the United States Treasury will be
overstamped with the correct wording.
staff are employed or Custodial Financial stopped due to budget cuts.
continued to augment its own
existing staff Management IRS is currently examining resources with
contractor
appropriately cross-Weaknesses other options for addressing support to
produce auditable
trained to be able to ( GAO/AIMD-99-193, this recommendation using
financial statements. We will
perform the master file Aug. 4, 1999) alternative approaches that continue
to assess IRS's
extractions and other ad leverage on IRS's existing FMIS actions during
our fiscal year
hoc procedures needed and IRACS used to support the 2005 audit.
for IRS to continually custodial financial audit. The
develop reliable balances CFO is developing a business
for financial reporting case and will pursue
purposes. (short-term) opportunities to identify
resources within IRS's
information technology budget
to fund this effort. The need to
build an appropriate depth of
experience is still an immediate
and ongoing issue. We
continue to examine our
resources to see if work can be
realigned, and if existing
employees can be retrained.
Contractor support is used to
provide the support and backup
necessary for preparation of the
compensating procedures,
pending implementation of an
alternative CAP solution and
the Customer Account Data
Engine (CADE). IRS is
committed to supporting the
funding of contractor resources
that are used for the Custodial
Financial Statement Audit. This
corrective action will be
continually monitored and
developed as new solutions to
the problem are identified.
99-29 Develop the data to support meaningful cost information categories
and cost-based performance measures. (long-term)
Internal Revenue Service: Serious Weaknesses Impact Ability to Report on
and Manage Operations (GAO/AIMD- 99-196, Aug. 9, 1999)
Open. Integrated Financial System (IFS) Release 1, which was implemented
on November 10, 2004, includes a cost module that will interface with
program area management information systems. Both direct and indirect
resource cost data will be linked to the budget process and the strategic
planning goals of all business units. This will help move IRS forward in
transitioning to a performance-based organization. Full cost accounting
will not be realized until future releases, such as Work Management, are
implemented. At present these releases are being reevaluated based on
funding availability. All future releases have been delayed or placed on
indefinite hold.
Open. We will follow up during future audits to assess IRS's progress in
implementing a cost-accounting system and loading it with the cost
information needed to support cost-based performance measures.
10 99-36 Make Internal Open. In the Open. IRS
enhancements to Revenue November 10, implemented the
Service:
IRS financial Serious 2004, IFS first release of
systems to Weaknesses Release 1, P&E the new IFS on
is
include Impact Ability being recorded November 10,
recording plant to Report as an asset 2004, which will
and equipment on and Manage when purchased. allow recording
(P&E) and The ability to P&E and capital
capital leases Operations tie to the leases as assets
as assets (GAO/AIMD- detailed when
physical asset
when purchased 99-196, Aug. information and purchased.
and to 9, 1999) a fully However,
generate integrated implementation of
detailed records system with a property
for P&E that subsidiary asset module that
reconcile to records will is intended to
not be
the financial available until generate detailed
records. the IFS Asset records for
(long-term) Management P&E that will
module is reconcile to the
implemented. At financial records
present, all is being
future releases deferred
are being indefinitely due
to
reevaluated funding
based on constraints. We
funding will
availability continue to
and have been monitor IRS's
delayed or progress in
placed on implementing
indefinite
hold. subsequent IFS
releases and
the property
asset module.
Revise policies and procedures governing the processing of abatement
transactions to establish
(1) appropriate time frames for processing abatements, (2) a methodology
for monitoring the timeliness of abatement processing, and (3) procedures
to identify the causes for delays and formulate corrective actions. Also,
examine abatement transactions arising from IRS errors to determine the
causes for the errors and, based on this examination, formulate and
implement appropriate procedures to reduce the level of errors made when
entering data into taxpayer accounts. (short-term)
Internal Revenue Service: Recommendations to Improve Financial and
Operational Management
( GAO-01-42, Nov. 17, 2000) Closed. IRS has not established specific time
frames for processing abatements because large dollar claims often require
additional documentation to verify a claim's validity. Often these cases
go through examination, or have other taxpayer compliance issues. Allowing
interest on refunds for these cases taking longer than 45 days to process
is part of IRS's cost of doing business. The Office of Unpaid Assessments
reviewed abatement cases identified for the 2002 audit and found that
there were compliance activities in each case that required interest. In
addition, IRS enhanced its policies and procedures to monitor the
processing of abatement transactions.
Closed. IRS enhanced its policies and procedures to monitor the processing
of abatement transactions. However, due to the complex nature of resolving
underlying issues for certain types of abatements, IRS did not establish
specific time frames for processing abatements. For example, large dollar
claims often require additional documentation to verify a claim's
validity. Often these claims go through examination, or have other
taxpayer compliance issues. Based on our fiscal year 2004 audit, we found
that IRS was processing abatements in a reasonable manner.
(Continued From Previous Page)
Status of recommendations
Count No. Recommendation Source report Per IRS Per GAO
12 01-03 Implement Internal Revenue Closed. Over the Closed. IRS
procedures to Service: last several improved its
monitor the Recommendations years, IRS has procedures for
age of all to Improve made significant monitoring the
pending offers Financial and improvements in age of pending
and to require Operational the timeliness of offers and it
supervisors to Management Offer in significantly
follow up with (GAO-01-42, Nov. Compromise (OIC) increased its
staff to 17, 2000) investigations. closure rate
determine IRS implemented for offers in
within 6 two Centralized compromise.
months whether Offer in
to accept or Compromise (COIC)
reject the sites that process
offer. lower dollar and
(short-term) less complex
offers. The COIC
sites also
complete the
front-end
processing for the
field offers.
Because front-end
processing and
statutory back-end
reviews added
approximately 90
days or more to
processing time
for field offers,
IRS adjusted the
processing goal
for field-based
offers to 9
months, effective
October 2004. IRS
strengthened
management
controls by
creating
additional
management reports
on OIC
inventories,
closely monitoring
age and inventory
levels, and
developing more
specific
expectations for
timely case
actions. As of
December 2004,
95 percent of OIC
work in process in
our COIC sites was
6 months old or
less and
70 percent of the
field open
inventory was 9
months old or
less.
As an alternative to Internal Revenue Service: prematurely suspending
Recommendations to active collection efforts, Improve Financial and and
using the best Operational Management available information, ( GAO-01-42,
Nov. 17, develop reliable cost-2000) benefit data relating to collection
efforts for cases with some collection potential. These cost-benefit data
would include the full cost associated with the increased collection
activity (i.e., salaries, benefits, administrative support), as well as
the expected additional tax collections generated. (long-term) Open. IFS
Release 1, which was implemented on November 10, 2004, includes a cost
module that will interface with program area management information
systems. However, full cost accounting will not be realized until future
releases, such as Work Management, are implemented. At present these
releases are being reevaluated based on funding availability. All future
releases have been delayed or placed on indefinite hold. IRS has
implemented sophisticated modeling technology to identify productive and
less productive cases in order to make better decisions on resource
allocation. These models use a multitude of taxpayer attributes to assess
likelihood of collection and then feed results into the prioritization
risk factors currently in place. While not actual "cost-benefit" analyses,
these models help IRS ensure that resources are devoted to cases with a
high likelihood of collection, and also help prevent premature suspension
of collection efforts on these particular cases. IRS is working on an
initiative to approach collection inventory with a corporate perspective.
This study will assess the functional impact of changes on individual
collection components and result in short- and long-term recommendations.
These recommendations will help increase collection coverage and leverage
existing resources by allocating workload to existing treatment streams
based on capacity and authorities.
Open. We will continue to review IRS's initiatives to manage resource
allocation levels for its collection efforts.
Implement procedures to closely monitor the release of tax liens to ensure
that they are released within 30 days of the date the related tax
liability is fully satisfied. As part of these procedures, IRS should
carefully analyze the causes of the delays in releasing tax liens
identified by our work and prior work by IRS's former internal audit
function and ensure that such procedures effectively address these issues.
(short-term)
Internal Revenue Service: Recommendations to Improve Financial and
Operational Management
( GAO-01-42, Nov. 17, 2000) Open. IRS staff conducted reviews of the lien
processing units and OIC sites in 2004. In addition, IRS staff has
developed an overall action plan to address untimely lien releases,
including identification of root causes and where they occur
organizationally, and development and implementation of sub-action plans
to address each specific root cause.
Open. During our fiscal year 2004 audit, we continued to find delays in
release of liens. We found 13 instances out of 59 cases tested in which
IRS did not release the applicable federal tax lien within the 30-day
statutory period. The time between the satisfaction of the liability and
release of the lien ranged from 34 days to 2,100 days. We also performed a
review of IRS operations at lien units and have identified some of the
causes for delays in the timely release of liens. Specifically, we
identified that exception reports generated during the lien process were
not being resolved or were not being resolved timely by the lien units. We
made separate recommendations to correct these weaknesses ( GAO-05-26R ).
We will review the impact of IRS's actions and will continue to review
IRS's release of tax liens as part of our fiscal year 2005 financial
audit.
For (1) IRS's Automated Underreporter and Combined Annual Wage Reporting
programs,
(2) screening and examination of Earned Income Tax Credit claims, and (3)
identifying and collecting previously disbursed improper refunds, use the
best available information to develop reliable cost-benefit data to
estimate the tax revenue collected by, and the amount of improper refunds
returned to, IRS for each dollar spent pursuing these outstanding amounts.
These data would include (1) an estimate of the full cost incurred by IRS
in performing each of these efforts, including the salaries and benefits
of all staff involved, as well as any related nonpersonnel costs, such as
supplies and utilities and (2) the actual amount (a) collected on tax
amounts assessed and (b) recovered on improper refunds disbursed.
(long-term)
Internal Revenue Service: Recommendations to Improve Financial and
Operational Management
( GAO-01-42, Nov. 17, 2000) Open. During fiscal year 2004, IRS conducted
risk assessments on programs with funding greater than $10 million to
implement the Improper Payments Information Act of 2002 (IPIA) PL 107-300
(Nov. 26, 2002). IRS determined that the Earned Income Tax Credit (EITC)
was its only risk area. IRS has a comprehensive action plan to address the
risk in this program including several measures being used to report on
this program. IRS plans to continue to report to GAO separately on this
program. For the Automated Underreporter (AUR) program, IRS completed
several data analyses and identified reports during its risk assessment
that reflect the amounts it assessed and collected on refund returns
through the AUR process. Its assessment of the Combined Annual Wage
Reporting program found that this program did not produce refunds that
would warrant further analysis and study. In addition, IRS is developing
cost data to consider in making informed resource allocation decisions for
all major programs. The cost module of the IFS, Release 1, was implemented
on November 10, 2004; however, full cost accounting will not be realized
until future IFS releases are implemented. At present, future releases are
being reevaluated based on funding availability and have been delayed or
placed on indefinite hold.
Open. We will continue to monitor IRS's progress in implementing the IFS
cost accounting module and loading it with appropriate cost information.
01-15 Ensure that all IRS units receiving collections have consistent
policies and procedures to safeguard and account for cash receipts.
(short-term)
Internal Revenue Service: Recommendations to Improve Financial and
Operational Management
( GAO-01-42, Nov. 17, 2000) Closed. Multidisciplinary teams composed of
management from Mission Assurance and Security Services, Information
Services, and Agency-Wide Shared Services will continue to work with local
staff to ensure consistent, ongoing implementation of policies and
procedures. In April 2003, IRM
5.1.2 was revised with new subsections, including: Timeliness of
Remittances and Physical Security Controls over Remittances.
Closed. We verified that the IRM sections applicable to field offices,
TACs, and SPCs contained consistent policies and procedures to safeguard
and account for cash receipts.
17 01-17 Develop a subsidiary ledger for leasehold improvements and
implement procedures to record leasehold improvement costs as they occur.
(long-term)
Internal Revenue Service: Recommendations to Improve Financial and
Operational Management
( GAO-01-42, Nov. 17, 2000) Open. In IFS Release 1, implemented on
November 10, 2004, P&E and leasehold improvements are recorded as assets
when purchased. However, amortization will remain a manual process. The
ability to tie the detailed physical asset information and a fully
integrated system with subsidiary records will not be available until the
Asset Management module is implemented. At present, all future releases
are being reevaluated based on funding availability and have been delayed
or placed on indefinite hold.
Open. IRS implemented the first release of the new IFS on November 10,
2004, which will allow recording of leasehold improvements as assets when
purchased. However, implementation of a property asset module that is
intended to generate detailed records for P&E that will reconcile to the
financial records is being deferred indefinitely due to funding
constraints. We will continue to monitor IRS's progress in implementing
subsequent IFS releases and the property asset module.
18 01-18 Implement procedures and controls to ensure that expenditures for
P&E are charged to the correct accounting codes to provide reliable
records for expenditures as a basis of extracting the costs for major
systems and leasehold improvements. (short-term)
Internal Revenue Service: Recommendations to Improve Financial and
Operational Management
( GAO-01-42, Nov. 17, 2000) Closed. In IFS Release 1, implemented on
November 10, 2004, P&E and leasehold improvements are posted to the
correct accounting code at the time of purchase. IRS has improved the
definitions of P&E and has provided guidance on appropriate coding
classifications to end users. Routine control reviews have been
established to ensure the accuracy and appropriate coding classifications.
Open. IRS implemented the first release of the new IFS on November 10,
2004, which will incorporate procedures that will allow IRS to record P&E
additions as they occur. We will review the effectiveness of these
procedures during our fiscal year 2005 audit.
01-21 Consolidate and update Internal Revenue Service: Closed. IRS has
published Closed. IRS has effectively the P&E policies and Recommendations
to procedures for all property consolidated and published procedures
currently Improve Financial and management in the IRM. procedures for all
property documented in various Operational Management Policies and
procedures management in the IRM. handbooks and policy ( GAO-01-42, Nov.
17, pertaining to the property memorandums into a 2000) management of
Information comprehensive document Technology (IT) assets are that
personnel provided in IRM 2.14.1- responsible for Information Technology
Asset maintaining inventory Management. Policies and records can use as a
procedures for non-IT assets reference. (short-term) were published on
January 1,
2005, in IRM 1.14.4-Personal Property Management. The IRM is now the one
source that provides authoritative guidance for the management of all
property.
(Continued From Previous Page)
Status of recommendations
Count No. Recommendation Source report Per IRS Per GAO
20 01-33 Establish Internal Revenue Closed. Closed. We
policies and Service: Regarding confirmed the
procedures to Recommendations administrative improvements
ensure that all to Improve transactions, IRS made in
administrative Financial and IRS has accounting for
and, to the Operational successfully its
extent possible, Management implemented its administrative
custodial (GAO-01-42, Nov. monthly and custodial
transactions, 17, 2000) nonpayroll transactions.
are promptly expense accruals
recorded in the initiative. For
general ledger, custodial
preferably transactions,
within 30 days IRS records its
of the receipts and
transaction. refund
(long-term) transactions
into IRACS
within 30 days
of the
transaction. IRS
also records the
assessed portion
of its unpaid
assessment
balance in total
within 30 days
based on the
transactions
that have posted
to the taxpayer
accounts. Each
month and within
3 days of the
closing of the
month IRS
estimates its
taxes receivable
balance, and the
net taxes
receivable
balance, by
applying the
error rates and
rates of
collection
produced for the
year-end
financial
statements to
each month's
taxes
receivable
inventory. Steps
to develop a
subsidiary
ledger to
accurately and
promptly
identify,
classify, track,
and report all
IRS unpaid
assessments by
amount and
taxpayer and
distinguish
those that
represent taxes
receivable are
being addressed
in
recommendation
99-3.
01-39 Develop a mechanism to Management Letter: track and report the
Improvements Needed in actual costs associated IRS' Accounting with
reimbursable Procedures and Internal activities. (long-term) Controls (
GAO-01-880R ,
July 30, 2001) Open. IRS has developed guidance for costing reimbursable
agreements, which includes instructions on tracking labor. IFS Release 1,
implemented on November 10, 2004, includes a cost module that will
interface with program area management information systems. Full cost
accounting will not be realized until future releases, such as Work
Management, are implemented. Actions will be initiated in fiscal year 2006
or fiscal year 2007 to begin gathering the real cost of certain
reimbursable projects. Future releases are being evaluated based on
funding availability and all future releases have been delayed or placed
on indefinite hold.
Open. We confirmed that IRS completed procedures for costing reimbursable
agreements that provides the basic framework for the accumulation of both
direct and indirect costs at the necessary level of detail. IRS plans to
implement these procedures over several years as it phases in various
program area management information systems that will provide critical
information to its new cost accounting system. However, as indicated by
IRS, these systems have been placed on indefinite hold. We will continue
to monitor IRS's efforts to fully implement its cost accounting system
and, once it has been fully implemented, evaluate the effectiveness of IRS
procedures for developing cost information for its reimbursable
agreements.
22 02-01 Open. IRS implemented the first release of the new IFS on
November 10, 2004, which will allow IRS to record P&E additions in the
appropriate general ledger accounts as they occur. We will evaluate the
effectiveness of the system for recording capitalizable costs during our
fiscal year 2005 audit.
Implement policies and Internal Revenue Closed. In IFS Release 1,
Service:
procedures to record Progress Made, but implemented on November 10,
capitalizable Further Actions Needed 2004, property and
acquisition equipment
costs for P&E, capital to Improve Financial are recorded as assets when
leases, leasehold Management (GAO-02- purchased.
improvements, and major 35, Oct. 19, 2001)
systems in the
appropriate P&E general
ledger accounts as
transactions occur.
(long-term)
(Continued From Previous Page)
Status of recommendations
Count No. Recommendation Source report Per IRS Per GAO
23 02-08 Implement Internal Open. IRS agreed Open. We confirmed
policies and Revenue with the objective that IRS employees
procedures to Service: of this use functional
require that Progress recommendation, tracking (workload
all employees Made, but which is to
itemize on Further
Actions
Needed
their time to Improve allow it to collect management) systems
cards the Financial and report the full to itemize and
time spent on Management payroll costs track their time
specific (GAO-02-35, associated with its charges. However,
projects. Oct. 19, activities. While this
(long-term) 2001) IRS
indicated that most recommendation
of its employees remains open
already itemize because its
their time charges objective is to
in functional allow IRS to
collect and report
the full
tracking systems, payroll costs
it has acknowledged associated with its
that full activities. During
implementation of our fiscal year
the IFS cost 2004 audit, we
continued to find
accounting module that the functional
is required to tracking systems
close this are insufficient
recommendation. IFS for this purpose
Release 1, because they do not
implemented on
November 10, 2004, interface with each
includes other or the
requirements for a general ledger to
cost module that allow management to
will be interfaced use them to
with
program area readily accumulate
management the time charged to
information specific projects.
systems. Both
direct and indirect The new cost
resource cost data accounting module
can be linked to of IFS may be able
the budget process to track IRS's
and the costs at the
activity
strategic planning level and, thus,
goals of all help to address the
business units. recommendation.
This will help move However, IRS's
IRS forward in plans to fully
implement
transitioning to a cost accounting,
performance-based which are expected
organization. Full to require several
cost accounting years to execute,
will not be are currently
realized
until future on hold. We will
releases, such as continue to
Work Management, monitor IRS's
are implemented. At progress in
present these implementing the
IFS cost
releases are being accounting module.
reevaluated based
on funding
availability and
all future releases
have
been delayed or
placed on
indefinite hold.
02-09 Implement policies and Internal Revenue Service: procedures to
allocate Progress Made, but nonpersonnel costs to Further Actions Needed
programs and activities to Improve Financial on a routine basis Management
( GAO-02- throughout the year. 35, Oct. 19, 2001) (long-term) Open. IRS
agreed with this recommendation and indicated plans to address this issue
with the cost accounting module that will be part of IFS. IFS Release 1,
implemented on November 10, 2004, includes a cost module that is
interfaced with program area management information systems. Both direct
and indirect resource cost data can be linked to the budget process and
the strategic planning goals of all business units. This helps move IRS
forward in transitioning to a performance-based organization. Full cost
accounting will not be realized until future releases, such as Work
Management, are implemented. At present, these releases are being
evaluated based on funding availability and all future releases have been
delayed or placed on indefinite hold.
Open. We confirmed that IRS's plans include requirements that meet the
objectives of this recommendation; however, IRS has delayed or
indefinitely placed on hold the implementation of these requirements.
IRS's plans to implement these requirements were expected to be executed
over several years as IRS phases in various program area information
systems that will provide critical information to the cost accounting
system. We will continue to monitor IRS's efforts to address this issue.
25 02-12 Develop policies and procedures to require that field offices
post signs in the most visible locations to remind taxpayers to obtain
receipts for payments. (short-term)
Management Report: Improvements Needed in IRS's Accounting Procedures and
Internal Controls ( GAO-02-746R , July 18, 2002)
Closed. IRS issued the Field Assistance IRM in June 2003, which lists the
required signs for each taxpayer assistance center (TAC). Signs to remind
taxpayers to obtain a receipt for payment are posted in the most visible
locations in each TAC office as required by IRM 21.3.4.3(4). IRS monitored
adherence to these procedures during operational reviews of the TACs in
fiscal years 2003 and 2004 and found signs were properly posted.
Additionally, periodic reviews and verification of the requirement are
required, at a minimum, during the annual filing season readiness
operational review.
Closed. During our fiscal year 2004 audit, we verified that IRS had
implemented policies and procedures requiring field offices to post signs
reminding taxpayers to obtain receipts for payments. At the two field
offices we visited, we observed that signs containing the required
information had been posted in highly visible locations.
02-14 Develop policies and Management Report: procedures to require that
Improvements Needed in IRS and lockbox IRS's Accounting employees
performing Procedures and Internal final candling record Controls (
GAO-02-746R , receipts in a control log at July 18, 2002) the time of
discovery, recording at a minimum the total number of payments found, the
amount of each payment, and the taxpayer who submitted the payment.
(short-term) Closed. The 2005 Lockbox Processing Guidelines (LPG)
(3.2.8.3), Documentation of Items Found in Candling (Form 9535), directs
the responsible manager to initial Form 9535 every day for each shift. An
entry must be made each shift, whether or not items have been found. A
manager will initial Form 9535 to validate all of the following: All
available information is correctly entered. Items found have been
reconciled with Form 9535 entries. Items have been correctly categorized
as processable or unprocessable. All processable work has been cleared
after each shift, i.e., the work has been put back into the stream of
work. The received date has been entered correctly. Only Form 9535 will be
used for documenting items found during candling. In addition, during June
2004 a new candling log, Form 13592, was created. Procedures were also
added to IRM 3.10.72 for recording items found during final candling using
the new form. In January 2005, the submission processing director's office
contacted each SPC to address deficiencies identified by GAO in 2004
regarding final candling. Local management was asked to discuss the
deficiencies with their employees on a regular basis and ensure corrective
action is taken. This issue will be reviewed monthly by the campus
security review team and findings will be shared with the appropriate
directors for additional actions, if required.
Open. During our fiscal year 2004 audit visits to four lockbox banks, we
found no weaknesses in recording information about discovered receipts in
candling logs. However, at two of the SPCs we visited, we found that
candling staff did not immediately record in a control log the items found
during final candling. In addition, candling staff at one of the SPCs did
not capture the minimum information as required by the updated guidance.
IRS's reported actions to strengthen its controls for items found during
candling at the SPCs occurred subsequent to our fiscal year 2004
fieldwork. We will monitor the effectiveness of IRS's updated policies and
procedures during our fiscal year 2005 audit.
(Continued From Previous Page)
Status of recommendations
Count No. Recommendation Source report Per IRS Per GAO
27 02-15 Develop policies and Management Report: Closed. The 2003 LPG
Closed. We verified that the
procedures to require that Improvements Needed in 3.2.8.1(1) directs
the LPG directs lockbox managers
IRS and lockbox IRS's Accounting responsible manager to to validate
Form 9535 daily and
managers or designated Procedures and Internal validate that the
information that the updated IRM requires
officials reconcile logs of Controls (GAO-02-746R, was correctly
entered on that management initial the log
payments found during July 18, 2002) Form 9535 for every shift to
validate that all available
final candling to the worked. The 2003 Extracting, information is
correctly entered
related receipts and Sorting & Numbering IRM, and ensure that all
remittances
documents. (short-term) 3.10.72.6.2(1) states, listed in the log are
brought to
"management shall the deposit function on a daily
immediately reconcile the basis. We found no instances in
discovered remittances with the which IRS or lockbox managers
final candling log." The 2003 were not performing the
LPG was updated January 31, required reconciliations during
2003. IRM 3.10.72 has been our fiscal year 2004 audit.
updated with procedures that
direct the responsible manager
to validate that all information
was correctly entered on
Form 13592. In January 2005,
the Submission Processing
Director's Office contacted
each SPC to address
deficiencies identified by GAO
in 2004 regarding reconciliation
of the candling log. Local
management was asked to
discuss the deficiencies with
their employees on a regular
basis and ensure corrective
action is taken. This issue will
be reviewed monthly by the
campus security review team
and findings will be shared with
the appropriate director for
additional action, if required.
(Continued From Previous Page)
Status of recommendations
Count No. Recommendation Source report Per IRS Per GAO
28 02-16 Ensure that Management in Closed. IRM Open. During
field office Report: lR, procedures our fiscal year
management Improvements provide for a 2004 audit, we
complies with NeededIRS's reconciliation found that
existing Accounting process. The IRS's
receipt Procedures and procedures procedures
control InternaControls require the relating to the
policies that (GAO-02-746July employee who control and
require a 18, 2002) prepared Form reconciliation
segregation 795, Daily of receipts at
of duties Report of its field
between Collection offices do not
employees who Activity, to provide for
prepare reconcile all segregation of
control logs receipts with duties between
for walk-in the payment those employees
payments and information on who prepare the
employees who Form 795 before Form 795 and
reconcile the forwarding to those who
control logs the SPC. The reconcile the
to the actual SPC also receipts prior
payments. performs a to sending them
(short-term) reconciliation to the SPC. We
by placing a found that the
distinct mark employees who
on Form 795 to posted receipts
indicate the to the log also
documents reconciled the
listed were log at both of
received. The the field
SPC returns the offices we
visited,
Form 795 to the including the
manager TACs.
acknowledging
receipt of Form
795 and all
attachments.
These
procedures are
consistent with
procedures
followed by
other IRS
functions.
29 02-18 Work with the Management Report: Closed. NFC is Open. We will
National Improvements Needed in the process continue to
Finance in IRS's Accounting of upgrading monitor IRS's
Center (NFC) Procedures and the SETS actions in
to resolve Internal Controls application to addressing this
the technical (GAO-02-746R, July a Web version, recommendation
limitations 18, 2002) which it during our
that exist anticipates fiscal year
within the deploying in 6 2005 audit.
Security to 9 months.
Entry and Treasury has
Tracking requested that
System (SETS) NFC include IRS
database and as a
continue to participant in
periodically the design and
review SETS development
data to sessions. In
detect and the interim,
correct NFC will
continue to
errors. address any
(short-term) problems
reported by
IRS.
(Continued From Previous Page)
Status of recommendations
Count No. Recommendation Source report Per IRS Per GAO
Establish Management Closed. IRS Closed. During
30 02-20 procedures to Report: issued a our fiscal
year
track the Improvements memorandum 2004 audit, we
release of liens Needed in dated verified that
IRS
up to the point IRS's January 28, substantially
of delivery Accounting 2003, with implemented
the
to the local Procedures and instructions new
jurisdiction to Internal for tracking procedures.
when
ensure liens are Controls the
released (GAO-02-746R, certificates
of lien
release
timely to avoid July 18, 2002) leave its
unduly immediate
control.
burdening Certificates
taxpayers once must be
generated
they have at least
satisfied their weekly. Based
on the
tax liability. results of the
(short-term) 2003 audit,
IRS
drafted a detailed action
plan
for lien release issues,
which
includes operational reviews.
The new procedures call for
Automated Lien System units
to
date-stamp a duplicate copy
of
the lien release-billing
voucher
so that IRS has actual
knowledge of when lien
releases are no longer under
its
direct control. This was
issued
in the Internal Revenue
Manual
on October 1, 2003.
Certificates must be
generated
weekly. A memo was also
issued January 28, 2003, on
Payment Compliance, which
was reinforced via e-mail on
April 1, 2004, to territory
managers in case processing,
emphasizing that the
requirements and the
procedures have been
incorporated into IRM
5.12.6.4.1. IRS completed
lien
processing site reviews in
2004
and verified implementation.
(Continued From Previous Page)
Status of recommendations
Count No. Recommendation Source report Per IRS Per GAO
31 02-23 Develop and Management Closed. IRS has Closed. IRS
implement Report: developed and continued to
procedures to Improvements implemented work with
ensure that Needed in procedures that vendors and
procurement award IRS's ensure award and improved the
and requisition Accounting requisition process of
numbers recorded Procedures and numbers are using
on property Internal accurately electronic
records are Controls recorded on packing slips
complete, (GAO-02-746R, property records to ensure
accurate, and July 18, 2002) and are linked to that property
linked to the the accounting records are
accounting records. For complete and
records. example, IRS linked to the
(long-term) implemented an accounting
Electronic records.
Packing Slip During our
initiative with fiscal year
vendors. Using an 2004 audit,
automated we noted
transfer method, improvements
the vendors in the
provide accuracy of
electronic data, acquisitions
such as recorded in
procurement award the P&E
and requisition inventory
numbers, for all records and
equipment that is linked to the
shipped. IRS accounting
updates its records.
inventory records
with this
information and
establishes
skeletal records
before the
equipment is
received at IRS
locations.
32 03-01 Document IRS's IRS Lockbox Closed. The Closed.
oversight roles Banks: More Memorandum of During our
and Effective Understanding fiscal year
responsibilities Oversight, (MOU) between the 2004 audit,
in agency policy Stronger Financial we confirmed
and procedure Controls, and Management that IRS's
manuals and Further Study Service (FMS) and MOU was
determine of Costs and IRS, detailing incorporated
appropriate level Benefits Are the roles and into an
of IRS oversight Needed responsibilities update of the
of lockbox sites (GAO-03-299, of each IRM and in
throughout the Jan. 15, 2003) organization in the 2004 LPG.
year, particularly administering the
during peak IRS Lockbox
processing Program, was
periods. signed April 30,
(short-term) 2003. In
addition, IRM
3.0.230, Lockbox
Processing
Procedures, and
the LPG (2003 and
2004) outline the
duties and
responsibilities
of FMS and IRS.
(Continued From Previous Page)
Status of recommendations
Count No. Recommendation Source report Per IRS Per GAO
33 03-02 Establish and IRS Lockbox Closed. IRS/FMS Open. During our
document Banks: More prepared a fiscal year 2004
guidelines and Effective reimbursement audit, we
procedures in Oversight, process. The confirmed that
policy and Stronger procedures IRS had
procedure Controls, and include the use incorporated
manuals for Further Study of a special reimbursement
implementing the of Costs and Lockbox Program procedures in
new penalty Benefits Are code to delineate the 2004 LPG.
provision for Needed IRS rework costs IRS's update to
lockbox banks to (GAO-03-299, as a result of the LPG and IRM
reimburse the Jan. 15, errors made by occurred
government for 2003) the lockbox subsequent to
direct costs sites. The our fiscal year
incurred in Lockbox Policy 2004 fieldwork.
correcting Reimbursement We will continue
errors made by procedures are to evaluate
lockbox banks. included in the IRS's planned
(short-term) 2005 Lockbox corrective
Processing actions during
Guidelines under our fiscal year
LPG 2.1.9 and 2005 audit.
2005 Lockbox
Processing
Procedures under
IRM 3.0.230.9.3.
34 03-04 Establish and IRS Lockbox Closed. The Closed. During
document a Banks: More Security MOU, fiscal year
process in IRS Effective completed on 2004, we
policy and Oversight, April 1, 2003, verified that
procedure Stronger documents the IRS outlined the
manuals to Controls, and roles and oversight duties
ensure that Further Study responsibilities and
lockbox bank of Costs and of the Security responsibilities
management Benefits Are Review Team, for FMS and IRS
formally Needed which is in the IRM and
responds to IRS (GAO-03-299, comprised of FMS in the 2004 LPG.
oversight Jan. 15, and IRS security In addition, IRS
findings and 2003) experts. IRS also documented
recommendations documents its the oversight
promptly and findings, which role and
that corrective are sent to FMS responsibilities
actions taken by to be included in in the 2005 LPG.
lockbox bank a final report to
management are the banks. This
appropriate. report covers
(short-term) findings,
recommendations,
and due dates for
all corrective
actions. IRS
receives a copy
of the final
report. IRS's
oversight roles
and
responsibilities
can be found in
the 2005 LPG
under
2.1.2.2, Revenue
and Deposit
Branch, Lockbox
Policy and
Procedures (LPP),
LPG 2.1.2.3,
Revenue and
Deposit Branch,
Lockbox Field
Operations (LFO),
and the Lockbox
IRM 3.0.230.
03-06 Ensure that the results of IRS Lockbox Banks: More on-site
compliance Effective Oversight, reviews are completed Stronger Controls,
and and promptly submitted to Further Study of Costs IRS's National
Office. and Benefits Are Needed (short-term) ( GAO-03-299, Jan. 15,
2003) Closed. Lockbox banks underwent security reviews in 2003 and 2004.
The banks were required to respond officially to the items identified in
the security report. Security reviews were based on the lockbox sites'
compliance with the LPG. IRS is represented on the security review team,
provides input related to the review to FMS, and then receives a copy of
the final response sent by FMS to the lockbox bank. Reviews were submitted
timely to the National Office. Document Collection Instrument (DCI)
reviews were examined for completeness and accuracy.
Closed. During our fiscal year 2004 audit, we reviewed the results of IRS
and FMS April peak-season security reviews, captured in joint IRS/FMS
consolidated trip reports for each lockbox site, and concluded these
reviews were timely completed and submitted to IRS's National Office.
36 03-07 Revise the guidance used for compliance reviews so it requires
reviewers to
(1)
determine whether lockbox contractors, such as couriers, have
completed and obtained favorable results on IRS fingerprint checks
and
(2)
obtain and review all relevant logs for cash payments and candled
items to ensure that all payments are accounted for. (short-term)
IRS Lockbox Banks: More Effective Oversight, Stronger Controls, and
Further Study of Costs and Benefits Are Needed
( GAO-03-299, Jan. 15, 2003) Closed. IRS updated the security check sheet
to instruct reviewers to determine whether contractors have completed and
obtained favorable fingerprint results and to review all relevant logs for
cash payments and candling logs. In addition, IRS and FMS personnel review
all contractor (including courier) documentation during peak filing
season. Lockbox coordinators are responsible for reviewing the candling
log and cash log.
Open. We determined during our fiscal year 2004 visits to four lockbox
banks that the lockbox coordinator's on-site review check sheet included
the requirement to ensure that the cash and candling logs are being kept
and updated daily. Further, we found that management at the four lockbox
banks we visited performed and adequately documented candling reviews.
However, the review check sheet does not include the requirement to ensure
that contractors have completed and obtained favorable results on IRS
fingerprint checks. In addition, we found that a contractor at two of the
lockbox banks we visited did not have the required background
investigation and was incorrectly being granted unescorted access to the
processing area.
(Continued From Previous Page)
Status of recommendations
Count No. Recommendation Source report Per IRS Per GAO
Page 35 GAO-05-393 Status of Recommendations
37 03-08 Assign IRS Lockbox Closed. IRS Open. Some of
individuals, Banks: More retains the IRS's procedures
other than the Effective position that were implemented
lockbox Oversight, the lockbox subsequent to our
coordinators, Stronger coordinators fiscal year 2004
responsibility Controls, and were peak-season site
for completing Further Study specifically visits. Although
on-site of Costs and hired to conduct we did not
performance Benefits Are the performance identify any
reviews. Needed reviews and specific issues
(short-term) (GAO-03-299, represent IRS's relating to the
Jan. 15, 2003) interests during lockbox
on-site peak coordinators'
processing. completion of the
During fiscal on-site
year 2004, the performance
on-site reviews at the
administrative lockbox banks
and procedural during our 2004
DCIs were site visits, we
standardized and will further
prioritized. evaluate IRS's
Conference calls process during
were routinely our fiscal year
conducted with 2005 audit.
lockbox field
staff to address
any consistency
issues or
concerns. Backup
field
coordinators
have been
designated and
cross-trained.
Newly
implemented
performance
measures
concentrate
heavily on the
on-site and SPC
DCI reviews, the
combination of
which
effectively
serves as a
system of checks
and balances.
38 03-10 Require lockbox IRS Lockbox Closed. The Open. During our
management to Banks: More requirement to fiscal year 2004
ensure that Effective ensure that door audit, we
guards are Oversight, alarms are verified that the
responsive to Stronger responded to by LPG required
alarms and that Controls, and the guards was lockbox bank
IRS takes steps Further Study previously management to
to monitor of Costs and established in ensure that
adherence to Benefits Are the 2002 LPG guards responded
this Needed issued January to alarms and
requirement. (GAO-03-299, 1, 2002. IRS and that IRS was
(short-term) Jan. 15, 2003) FMS security continuing to
teams observe monitor the
the guards banks' adherence
responding to to this
door alarms, requirement.
etc., by However, we
performing tests continued to find
during on-site weaknesses in the
security guards'
reviews: responsiveness to
documented in alarms at two of
Section 2.4 of the four lockbox
2003 (revised banks we visited.
April 8, 2003) At one lockbox
and 2004 LPG bank, we observed
(issued December that guards did
1, 2003). not respond to
door alarms. At
another lockbox
bank, the
guards were not
able to locate
where the alarms
had
originated.
(Continued From Previous Page)
Status of recommendations
Count No. Recommendation Source report Per IRS Per GAO
39 03-14 Require lockbox IRS Lockbox Closed. Closed. During
management to Banks: More Surveillance our fiscal
ensure that Effective cameras have been year 2004
surveillance Oversight, installed at all audit, we
cameras and Stronger lockbox sites. found no
monitors are Controls, and Security review instances in
installed in Further Study teams continually which a bank
ways that allow of Costs and monitor compliance. did not have
for effective, Benefits Are These procedures surveillance
real-time Needed were updated in cameras and
monitoring of (GAO-03-299, Section 2.4.1 of monitors
lockbox Jan. 15, 2003) the 2003 (revised installed that
operations and April 8, 2003) and allowed for
that IRS take the 2004 LPG, effective,
steps to issued December 1, real-time
monitor 2003. The 2005 LPG, monitoring of
adherence to under receipt
this processing
operations at
the four
lockbox banks
we visited.
requirement. LPG 4.1.4.1.4,
(short-term) directs the
documentation of
the role and
responsibilities
for closedcircuit
television (CCTV)
monitoring by
security guards. In
order to help
ensure compliance
to LPG
requirements, an
IRS and FMS task
group has developed
a performance
measures process to
include a category
for security and
internal control to
be piloted
January-September
2005, and to be
implemented October
2005. This process
will use a DCI
check sheet that
will list as line
items the
requirements as
outlined in the
LPG. It will be
used as a tool to
identify varying
levels of
performance and
provide incentives
and disincentives
based on those
levels of
performance. This
will help ensure
compliance with the
requirements as set
forth in the LPG
and will help IRS
identify if and
where improvements
are necessary.
(Continued From Previous Page)
Status of recommendations
Count No. Recommendation Source report Per IRS Per GAO
Page 37 GAO-05-393 Status of Recommendations
40 03-15 Require lockbox IRS Lockbox Closed. The 2005 Open. During
management to Banks: More LPG 3.2.8.3, our fiscal year
ensure that Effective Documentation of 2004 audit
envelopes are Oversight, Items Found in visits, we
Stronger Candling (Form found one
Controls, and 9535) (1), lockbox bank
did not perform
properly Further Study was revised to adequate
candled and of Costs and require the candling of
that IRS takes Benefits Are responsible manager items opened
steps to Needed to initial the Form automatically
monitor (GAO-03-299, 9535 every day for by an OPEX
adherence to Jan. 15, machine. This
this machine
requirement. 2003) each shift. An did not use a
(short-term) entry must be made light source
each shift, whether and no other
or not items have candling was
been found. A performed on
envelopes
manager will processed by
initial Form 9535 it.
to validate all of Furthermore,
the following: All the 2004 LPG
available candling
information is requirement was
unclear as to
correctly entered. the number of
Items found have candlings
been reconciled required in
with Form 9535 this situation.
entries. Items have In addition, we
observed some
been correctly manual candling
categorized as staff were not
processable or adequately
unprocessable. All viewing
processable work envelopes as
has been they were
passed over a
cleared after each light source.
shift, i.e., the Some of IRS's
work has been put corrective
back into the actions,
including
stream of work. The revising the
received date has 2005 LPG to
been correctly address
entered. candling
Additionally, under requirements
for specific
types of mail,
LPG 3.2.8, IRS occurred
revised the subsequent to
requirement to our fiscal year
state that 2004 fieldwork.
envelopes opened In addition,
manually or IRS reports
that a new
by the OPEX mail performance
machine must be measurement
opened on three or process will be
more sides and are implemented in
required to October 2005 to
ensure
be candled once; compliance with
all others must be these new LPG
candled twice. In requirements.
order to help To the extent
ensure compliance IRS has
to implemented its
the LPG new
requirements, an requirements,
IRS and FMS task we will
group has developed continue to
a performance evaluate IRS's
corrective
actions during
our
measures process to fiscal year
include a category 2005 audit.
for security and
internal control
that will be
implemented in
October 2005. This
process will use a
DCI check sheet
that will list by
line
item the
requirements as
outlined in the
LPG. It will be
used as a tool to
identify
varying levels of
performance and
provide incentives
and disincentives
based on those
levels of
performance. This
will help ensure
compliance with the
LPG requirements.
(Continued From Previous Page)
Status of recommendations
Count No. Recommendation Source report Per IRS Per GAO
Page 38 GAO-05-393 Status of Recommendations
41 03-16 Require lockbox IRS Lockbox Closed. The 2005 Closed.
management to Banks: More LPG 3.2.8.3, During our
perform and Effective Documentation of fiscal year
adequately Oversight, Items Found in 2004 audit,
document Stronger Candling (Form we found that
candling reviews Controls, and 9535) (1), was management at
and that IRS Further Study of revised to the four
take steps to Costs and require the lockbox banks
monitor Benefits Are responsible we visited
adherence to Needed manager to performed and
this (GAO-03-299, initial the Form adequately
requirement. Jan. 15, 2003) 9535 every day documented
(short-term) for each shift. candling
An entry must be reviews.
made each shift,
whether or not
items have been
found. A
manager will
initial Form 9535
to validate all
of the following:
All available
information is
correctly
entered. Items
found have been
reconciled with
Form 9535
entries. Items
have
been correctly
categorized as
processable or
unprocessable.
All processable
work has been
cleared after
each shift, i.e.,
the
work has been put
back into the
stream of work.
The received
date has been
correctly
entered.
Additionally,
under LPG 3.2.8,
IRS revised the
requirement to
state that
envelopes opened
manually or by
OPEX mail machine
that must be
candled on three
or
more sides are
required to be
candled once; all
others must
be candled twice.
In order to
help ensure
compliance to the
LPG requirements,
an IRS and FMS
task group has
developed a
performance
measures process
to include a
category for
security and
internal control
that will be
implemented in
October 2005.
This process will
use a DCI check
sheet that will
list by line item
the requirements
as outlined in
the LPG. It will
be used as a tool
to
identify varying
levels of
performance and
provide
incentives and
disincentives
based on those
levels of
performance. This
will help ensure
compliance with
the LPG
requirements.
(Continued From Previous Page)
Status of recommendations
Count No. Recommendation Source report Per IRS Per GAO
Page 39 GAO-05-393 Status of Recommendations
42 03-17 Require that IRS Lockbox Closed. The Open. During our
returned refund Banks: More requirement to fiscal year 2004
checks are Effective ensure that audit, we
Oversight, returned refund verified that
the
restrictively Stronger checks are LPG required
endorsed Controls, and restrictively that returned
immediately upon Further Study endorsed refund checks be
extraction and of Costs and immediately upon restrictively
that IRS take Benefits Are extraction was endorsed
steps to monitor Needed previously immediately upon
(GAO-03-299, listed in extraction and
Jan. 15, Section 3.2.1 of that IRS monitor
the 2002
adherence to 2003) LPG issued adherence to
this January 1, 2002, this
requirement. as well as the requirement.
(short-term) 2003 (revised However, IRS
April 8, 2003) extraction staff
and 2004 LPG, at one of the
issued December four lockbox
1, 2003. banks we visited
informed us that
During the returned refund
on-site security checks were
reviews, IRS and processed
FMS security without
teams reviewed immediately
adherence to being stamped as
this nonnegotiable.
requirement.
Additionally,
adherence to
this requirement
is evaluated
during the daily
SPC quality
reviews.
43 03-20 Revise the LPG IRS Lockbox Closed. On Closed. During
to require that Banks: More September 23, our fiscal year
before lockbox Effective 2003, at the 2004 audit, we
bank couriers Oversight, annual lockbox verified that
receive access Stronger conference, the the LPG had been
to taxpayer data Controls, and National revised to
and receipts Further Study Background require that
they undergo and of Costs and Investigation before lockbox
receive Benefits Are Center (NBIC) bank couriers
favorable Needed presented the receive access
results on (GAO-03-299, new background to taxpayer data
background Jan. 15, 2003) investigation and receipts
investigations requirements for they undergo and
that are deemed permanent receive
appropriate by lockbox bank favorable
IRS and are employees, results on
consistent couriers, and background
across lockbox guards. The new investigations.
banks. procedures We found no
(short-term) require a instances where
moderate risk couriers
National Agency received access
Check with Law to taxpayer data
and Credit and receipts
(NACLC) without having
investigation on undergone and
all permanent received
bank employees, favorable
couriers, and results on
guards. The background
banks were given investigations.
an
implementation
schedule
beginning
October 1, 2003,
with full
implementation
by April 1,
2004. On
December 15,
2003, the
Lockbox Project
Office sent out
a Lockbox
Electronic
Bulletin with
the
2004 LPG
containing the
revised
background
investigation
requirements
under LPG 4.2,
Personnel
Security and LPG
5.1.2(5).
(Continued From Previous Page)
Status of recommendations
Count No. Recommendation Source report Per IRS Per GAO
44 03-21 Revise the LPG IRS Lockbox Closed. On Closed. We
to require that Banks: More September 23, verified that
before permanent Effective 2003, at the the 2004 LPG was
Oversight, annual lockbox revised to
lockbox bank Stronger conference, NBIC require all
employees Controls, and presented the permanent
receive access Further Study new background employees
to taxpayer data of Costs and investigation assigned to a
and receipts Benefits Are requirements for lockbox bank to
they undergo and Needed permanent have a NACLC
receive (GAO-03-299, lockbox bank investigation.
favorable Jan. 15, 2003) employees, We did not
results on couriers, and identify any
background guards. The new instances during
investigations procedures our fiscal year
that are deemed require a 2004 audit in
appropriate by moderate risk which permanent
IRS and are NACLC employees with
consistent investigation on unescorted
across lockbox all permanent access to the
banks. bank employees, processing area
(short-term) couriers, and did not have a
guards. The NACLC background
banks were given investigation.
an
implementation
schedule
beginning
October 1, 2003,
with full
implementation
by April 1,
2004. On
December 15,
2003, the
Lockbox Project
Office sent out
a Lockbox
Electronic
Bulletin with
the
2004 LPG
containing the
revised
background
investigation
requirements
under LPG 4.2,
Personnel
Security and LPG
5.1.2(5).
45 03-24 Revise the LPG IRS Lockbox Closed. On April Closed. During
to require that Banks: More 2, 2003, IRS our fiscal year
during candling, Effective instructed the 2004 audit, we
lockbox bank Oversight, banks to change verified that
employees record Stronger the quality procedures
which machines Controls, and review process requiring that
and which Further Study for candling. lockbox banks
extraction of Costs and The new track which
clerks missed Benefits Are procedures machines and
items. Needed require that which employees
(short-term) (GAO-03-299, banks track missed items
Jan. 15, 2003) which machines were included in
and which the 2004 LPG. In
employees missed our visits to
items. The four lockbox
procedures were banks, we did
effective April not identify any
14, 2003, and instances where
included in the lockbox bank
2004 LPG, issued
December 1, employees did
2003. not record which
machines and
which extraction
clerks missed
items during
candling.
03-25 Revise the LPG to require IRS Lockbox Banks: More that lockbox bank
Effective Oversight, management reconcile Stronger Controls, and items
found during Further Study of Costs candling to the candling and Benefits
Are Needed records. (short-term) ( GAO-03-299, Jan. 15,
2003) Closed. The 2005 LPG 3.2.8.3, Documentation of Items Found in
Candling (Form 9535) (1), was revised to require the responsible manager
to initial the Form 9535 every day for each shift. An entry must be made
each shift, whether or not items have been found. A manager will initial
Form 9535 to validate all of the following: All available information is
correctly entered. Items found have been reconciled with Form 9535
entries. Items have been correctly categorized as processable or
unprocessable. All processable work has been cleared after each shift,
i.e., the work has been put back into the stream of work. The received
date has been correctly entered. Note: Only Form 9535 will be used for
documenting items found in candling.
Closed. During our fiscal year 2004 audit, we verified that the 2004 LPG
had been updated to require that lockbox bank management reconcile items
found during candling to the candling records. Per IRS, additional
detailed instructions were included in the fiscal year 2005 LPG. We did
not identify any instances during our fiscal year 2004 audit visits to
four lockbox banks where lockbox bank management did not reconcile items
found during candling to the candling records.
47 03-26 Revise the LPG to require that lockbox bank management reconcile
cash payments to internal cash logs and the cash logs they provide to IRS.
(short-term)
IRS Lockbox Banks: More Effective Oversight, Stronger Controls, and
Further Study of Costs and Benefits Are Needed
( GAO-03-299, Jan. 15, 2003) Closed. The 2005 LPG has been revised under
LPG
3.3.2.15 as follows: Discovered Remittances-Cash. (1) All employees
identifying discovered remittances that are cash or other items of value
must immediately notify their manager or designee. A manager or designee
must be available at all times during business hours to receive and
immediately log each discovered cash remittance on Form 9535; (2) All cash
payments received must be immediately logged on a Form 9535 that is
dedicated to cash-only entries.
Closed. During our fiscal year 2004 audit, we verified that the 2004 LPG
had been updated to require that lockbox bank management reconcile cash
payments to internal cash logs and the cash logs they provide to IRS. Per
IRS, additional detailed instructions were included in the fiscal year
2005 LPG. We did not identify any instances during our fiscal year 2004
visits to four lockbox banks where cash payments were not reconciled to
the internal cash logs that lockbox bank management provided to IRS.
03-29 Confirm with FMS that Management Report: IRS's requirements for
Improvements Needed in background and IRS's Internal Controls fingerprint
checks for ( GAO-03-562R , May 20, courier services are met 2003)
regardless of whether IRS or FMS negotiates the service agreement.
(short-term) Closed. On October 7, 2002, FMS issued an amendment to the
Courier MOU, which included the requirement that all courier employees
satisfy the basicinvestigation including a Federal Bureau of Investigation
fingerprint and name check. All 10 IRS campuses now have a contact
responsible for submitting paperwork to NBIC and ensuring courier
employees are granted clearance. On April 10, 2003, IRS requested that
NBIC provide a monthly status report of the campus compliance to the Wage
and Investment Division. The 2004 LPG (issued December 1, 2003) includes
Guidelines for Background Investigations under Personnel Security in
Section 4.2. As of December 31, 2004, all parties are adhering to these
requirements.
Open. During our fiscal year 2004 audit, we reviewed FMS- and
IRS-negotiated courier agreements for the SPCs and found that the
agreement at one SPC did not contain IRS's requirements for background and
fingerprint checks for courier services. We will evaluate the compliance
of the 2005 courier agreements during our fiscal year 2005 audit.
(Continued From Previous Page)
Status of recommendations
Count No. Recommendation Source report Per IRS Per GAO
49 03-30 Establish Management Closed. The Closed. During
procedures to Report: Security Review our fiscal
verify that Improvements Team reviews year 2004
courier Needed in IRS's monthly compliance audit, we
services are Internal with the courier determined
adhering to the Controls requirements. For that IRS had
standards (GAO-03-562R, the five campuses established
established for May 20, 2003) where IRS holds procedures to
them by IRS, the courier verify that
including the contract, the courier
requirement Security Review services are
that the Team was required adhering to
courier service to verify the the standards
have insurance campus has a valid established
coverage. insurance for them by
(short-term) certificate valued IRS, including
at $1 million. For the
the five campuses requirement
with that the
FMS-negotiated courier
agreements, FMS service have
drafted a insurance
memorandum to the coverage. This
financial was also
institutes included in
advising them to the 2004 LPG.
regularly provide We found no
a copy of the instances in
insurance which the
certificates to required proof
IRS. The 2003 of insurance
was not
available
during our
fiscal year
2004 visits to
four SPCs and
four lockbox
banks.
LPG included this
procedure in
Section 2.8.4.1.
The campus now has
a bonded courier
who
is delivering the
deposits to the
depository on a
daily basis. All
procedures are in
place to provide a
copy of the $1
million insurance
binder to all
campuses and
headquarters on an
annual basis.
(Continued From Previous Page)
Status of recommendations
Count No. Recommendation Source report Per IRS Per GAO
Page 44 GAO-05-393 Status of Recommendations
50 03-31 Enforce consistent Management Report: Closed. On February 6,
2004, Closed. We did not find any
implementation of policy Improvements Needed in IRS issued information
alert instances of inappropriate
limiting personal IRS's Internal Controls W&I-IA-2002-63-2004 personal
belongings in receipt
belongings in receipt (GAO-03-562R, May 20, specifying the items that
are processing areas at the four
processing areas at 2003) prohibited from the secure SPCs we visited
during our
service center campuses. receipt processing areas and fiscal year 2004
audit.
(short-term) requiring that employees use
clear plastic bags to transport
small items not carried on their
person in and out of the secure
areas. First-line managers or a
designated representative
conduct, at minimum, monthly
random reviews of employee
compliance with all security
policies as they relate to
personal belongings in the
secure receipt processing
areas. In addition, Campus
Security Review teams conduct
monthly reviews to ensure
compliance with these
procedures. These procedures
were added via information
alerts to Internal Revenue
manuals pertaining to the
secure receipt processing
areas.
51 03-32 Prohibit the storage of Management Report: Closed. IRM procedures
were Open. During our fiscal year
employees' personal Improvements Needed in revised during fiscal year
2004 2004 audit, we verified that
belongings with cash IRS's Internal Controls with specific guidelines
IRS's guidelines prohibiting the
payments and receipts at (GAO-03-562R, May 20, prohibiting the storage
of storage of personal belongings
IRS's TACs. (short-term) 2003) personal belongs under the with cash
payments and
same locking device with receipts at IRS's TACs were
taxpayer data. IRS monitored included in IRM. However,
adherence to IRM procedures during our visits to two TACs,
during operational reviews we continued to find weakness
conducted in fiscal year 2004. in adherence to these
No discrepancies were guidelines. At one TAC, we
identified. found personal belongings
being stored in filing cabinets
directly adjacent to the file
cabinet storing receipts and in
drawers located directly
underneath the TAC counters.
At another TAC, we found a
Form 809 book being stored
with personal belongings.
(Continued From Previous Page)
Status of recommendations
Count No. Recommendation Source report Per IRS Per GAO
Management Closed. On May Open. During
52 03-33 Revise candling Report: 28, 2003, the our fiscal
year
procedures to Improvements IRM candling 2004 audit,
specify the Needed in procedures were we verified
that IRS
precise IRS's Internal updated with an had revised
candling Controls information candling
methods
to be used (GAO-03-562R, alert procedures in
based on the May 20, (W&I-IA-2002-730) the IRM to
to
dimensions of 2003) specify precise specify
the mail first and final precise
candling
processed and candling methods methods based
the based on on mail
extraction dimensions of the dimensions
method used mail and first and the
extraction
for both the and final method used
first and the candling. In for the first
and
final candling. January 2005, the final
Submission candling.
However,
during
(short-term) Processing our fiscal
Director's Office year 2004
visits to two
contacted each SPCs, we
SPC to address continued to
find
deficiencies weaknesses in
identified by GAO candling
in 2004 regarding procedures.
the revision At one SPC,
we
of candling found
procedures. Local extractors
improperly
management was using the
asked to light source
when
discuss the candling
deficiencies with items.
Furthermore,
in
their employees certain
on a regular candling
tables, the
basis and ensure intensity of
corrective the light
source was
action was taken. insufficient.
This issue will In addition,
not all
be reviewed items
monthly by the requiring
opening on
campus security three sides
review team were being so
and findings will opened. At
be shared with another SPC,
we
the appropriate found that
director for not all
extractors
had
additional operational
action, if candling
required. lights on
their tingle tables and, thus,
were not performing two
candlings as required nor had
these extractors been provided
compensating instructions.
Some of IRS's actions to
address deficiencies in
candling procedures occurred
subsequent to our fiscal year
2004 fieldwork. We will
continue to evaluate IRS's
corrective actions during our
fiscal year 2005 audit.
03-34 Establish and implement Management Report: procedures prohibiting a
Improvements Needed in single employee from IRS's Internal Controls
performing the final ( GAO-03-562R , May 20, candling in a remote 2003)
location. (short-term) Closed. On May 28, 2003, the IRM candling
procedures were updated with information alert (W&I-IA-2002-730)
implementing procedures prohibiting a single employee from performing the
final candling in a remote location. This requirement was also added to
the 2004 revision of IRM 3.10.72. In January 2005, the Submission
Processing Director's Office contacted each SPC to address deficiencies
identified by GAO in 2004 regarding single employees performing final
candling in a remote location. Local management was asked to discuss the
deficiencies with their employees on a regular basis and ensure corrective
action is taken. This issue will be reviewed monthly by the campus
security review team and findings will be shared with the appropriate
director for additional action, if required.
Open. During our fiscal year 2004 audit, we verified that IRS had
established procedures prohibiting a single employee from performing the
final candling in a remote location. However, at one SPC we visited, we
observed that boxes stacked in the middle of the final candling room
prevented employees from seeing each other's work area. The effect of this
operation was similar to that of having a single employee performing final
candling in a remote location. Some of IRS's actions to address
deficiencies in this area occurred subsequent to our fiscal year 2004
fieldwork. We will continue to evaluate IRS's corrective actions during
our fiscal year 2005 audit.
03-36 Establish a mechanism to Management Report: periodically review
Improvements Needed in adherence to IRS's policy IRS's Internal Controls
that payment of taxes in ( GAO-03-562R , May 20, cash be accepted. 2003)
(short-term) Closed. IRS monitored adherence to the policy of accepting
cash payments during operational reviews conducted in fiscal year 2004. No
discrepancies were identified. The Director, Field Assistance, granted an
exception to the requirement of accepting cash payments in some TACs with
two or fewer persons. These are locations where the volume of cash
payments received is minimal. TACs have agreements with other functions to
accept cash payments or TACs will convert the cash payments into money
orders at financial institutions nearby, making payments easy for the
taxpayers. IRS revised the IRM in fiscal year 2004 to reflect these
exceptions.
Closed. During our fiscal year 2004 audit, we found that IRS monitored
adherence to its policy of accepting cash payments during operational
reviews it conducted in fiscal year 2004 at the TACs we visited. We did
not identify any issues with regard to IRS refusing to accept cash
payments of taxes.
55 03-37 Develop and implement Management Report:
post-input review Improvements Needed in
procedures to verify the Controls over IRS's
accuracy of excise tax Excise Tax Certification
credit information in the Process (GAO-03-687R,
master file. (short-term) July 23, 2003)
Closed. In July 2003, the Cincinnati Compliance Campus implemented Program
Analysis System reviews on Gasoline Wholesale Distributor/End User/Diesel
claims submitted on Form 8849. In August 2003, the campus implemented and
increased the responsibility for managers to review all work including
fuel claims as part of their performance review for employees. In December
2003, excise taxes were included in the Embedded Quality Review System
(EQRS) expansion rollout, and fuel claims were also included in this
review. EQRS is performed by the employee's manager and is part of the
employee's performance rating.
Closed. During our testing of sample items over the past 2 years, we found
no significant data entry errors relating to excise tax credits. We also
verified during our fiscal year 2004 audit that fuel claim reviews were
being performed as part of the Embedded Quality Review System.
(Continued From Previous Page)
Status of recommendations
Count No. Recommendation Source report Per IRS Per GAO
03-38 Investigate why certification errors continue to go undetected
through IRS's review procedures. (short-term)
Management Report: Improvements Needed in Controls over IRS's Excise Tax
Certification Process ( GAO-03-687R , July 23, 2003)
Closed. IRS reviewed existing written procedures for the certification
process and determined that the procedures, if properly followed, were
adequate. To ensure that the procedures were properly implemented, a new
section chief was appointed. Also, in October 2003, IRS reiterated to
management the importance of reviewing and understanding the certification
process.
Closed. IRS's actions have resulted in improvements to the excise tax
certification review process. In the past 2 years, we found no significant
errors related to IRS's certification process that were not detected by
IRS's review procedures.
57 03-39 Develop and implement Management Report:
an action plan to improve Improvements Needed in
the certification review Controls over IRS's
process. (short-term) Excise Tax Certification
Process (GAO-03-687R,
July 23, 2003)
Closed. IRS reviewed existing written procedures for the certification
process and determined that the procedures, if properly followed, were
adequate. To ensure that the procedures were properly implemented, a new
section chief was appointed. Also, in October 2003, IRS reiterated to
management the importance of reviewing and understanding the certification
process.
Closed. IRS's actions have resulted in improvements to the excise tax
certification review process. In the past 2 years, we found no significant
errors related to IRS's certification process that were not detected by
IRS's review procedures.
(Continued From Previous Page)
Status of recommendations
Count No. Recommendation Source report Per IRS Per GAO
58 03-40 Communicate in writing Management Report: Closed. MOU signed
Open. We verified that the
any potential changes in Improvements Needed in December 15, 2004, by
the Treasury Excise Tax Trust Fund
IRS's certification process Controls over IRS's Chairman, Excise Tax
Trust Working Group signed an MOU
to other Treasury entities Excise Tax Certification Fund Working Group.
The IRS to establish a process for
that use the certification Process (GAO-03-687R, Treasury Excise Tax
Trust Fund documenting issues related to
information, and obtain July 23, 2003) Working Group has established
IRS's trust fund certifications.
concurrence from these a process of recording minutes We will review
the effectiveness
entities prior to of the Working Group meetings of this action during
our fiscal
implementing such in order to document issues year 2005 audit.
changes. (short-term) related to trust fund certification
procedures/processes and
proposed or passed legislative
changes impacting trust fund
investments. Recording of
minutes will be taken by a
representative of Treasury
member offices or bureaus on a
rotating basis. Draft minutes will
be shared with all participants
for concurrence prior to final
approval and distribution. IRS
will discuss and make a
presentation to advise the
members of any changes to the
trust fund certification process.
59 03-41 Implement procedures to Management Report: Closed. IRS has
identified Closed. We verified that IRS
annually identify excise Improvements Needed in employer identification
numbers has implemented procedures to
taxpayers with the largest Controls over IRS's (EINS) of the largest
excise tax identify taxpayers with the
excise tax liabilities Excise Tax Certification liabilities beginning
with tax largest excise tax liabilities
affecting the Highway Process (GAO-03-687R, period September 2002. IRS
affecting the Highway Trust
Trust Fund and the July 23, 2003) identified the largest excise tax
Fund and the Airport and
Airport and Airway Trust filers to both Cincinnati Airway Trust Fund.
Fund. (short-term) Submission Processing and
Compliance campuses in
August 2003. EINS will be
updated annually using the
September tax periods.
Status of recommendations Per
Count No. Recommendation Source report IRS Per GAO
60 03-42 Implement Management Report: Closed. IRS implemented Cl
procedures to
track the status of tax Improvements in procedures in March 2003
Needed
return filings for the Controls over to track and monitor the
IRS's
largest payers of excise Excise Tax Certification top 100-plus list of
excise largest-dollar exc
taxes and contact these Process (GAO-03-687R, taxpayers and to call them
for
taxpayers if the July 23, 2003) tax return(s) when necessary
for thei
submission processing prior to certification
cutoff. The
campus has not received top 100-plus list is composed
of cutoff.
their tax returns by taxpayers with the largest
2 weeks after the due excise tax liability. These
date. (short-term) procedures have been
validated by inclusion of all top 100-plus taxpayer returns in fiscal year
2004 certifications.
osed. IRS has implemented procedures to track the status of tax return
filings for the
ise taxpayers and to contact these taxpayers r returns when necessary
prior to certification
03-43 Implement procedures to monitor the receipt and processing status of
large excise tax returns to ensure that they are promptly recorded in
IRS's master file prior to certifying excise tax distributions.
(short-term)
Management Report: Improvements Needed in Controls over IRS's Excise Tax
Certification Process ( GAO-03-687R , July 23, 2003)
Closed. The Cincinnati Campus's program analyst staff and reports excise
analysts are monitoring to ensure timely posting of returns of the
largest-dollar excise taxpayers. The Service Level Administration between
the Cincinnati Submission Processing and Compliance campuses ensures
monitoring and processing of all Form 720 returns on a 6-day cycle.
Compliance has verified that Form 720 returns are being processed on a
6-day cycle, procedures are in place, and IRS is monitoring to ensure
timely posting of returns of the largest-dollar excise taxpayers.
Closed. IRS's Internal Revenue Manual was modified to require that all
excise tax returns be processed on a 6-day cycle. The 6-day cycle begins
after the returns are batched, which is normally within a week. We
verified during our fiscal year 2004 audit that IRS had implemented
procedures to monitor excise tax returns to ensure that it meets this
requirement.
Require lockbox bank Management Report: Closed. The current LPG
managers to maintain Improvements Needed requires appropriate
appropriate in IRS's Internal documentation for couriers
and
documentation on site Controls and guards before contractors
are
demonstrating that Accounting Procedures granted access to taxpayer
satisfactory (GAO-04-553R, Apr. 26, receipts. To ensure
fingerprint compliance
results have been 2004) with the LPG, IRS and FMS
will
received before include this as a review
item
contractors are when performing security and
granted
access to taxpayer administrative reviews. The
receipts and data. procedures will be included
in
(short-term) the 2005 LPG with an
effective
date of January 17, 2005.
Open. During our fiscal year 2004 audit, we verified that the LPG required
appropriate documentation prior to couriers and guards being granted
access to taxpayer receipts. However, we found at two of the four lockbox
banks we visited that contractors who had not undergone fingerprinting or
background investigations were granted unescorted access to the lockbox
bank. Some of IRS's corrective actions to address on-site documentation
deficiencies occurred subsequent to our fiscal year 2004 fieldwork. We
will continue to evaluate these actions during our fiscal year 2005 audit.
04-02 Revise its policy on two-person courier teams to prohibit the use of
courier teams consisting of closely related individuals to further
minimize the risk of collusion in the theft of taxpayer receipts and data.
(short-term)
Management Report: Improvements Needed in IRS's Internal Controls and
Accounting Procedures
( GAO-04-553R , Apr. 26, 2004) Open. Additional background investigation
requirements for all couriers have been implemented. IRS is researching
the feasibility and impacts of changing current contracts with couriers
for SPC. The LPG will be updated to prohibit immediate family members from
traveling in pairs on courier routes. The update will be made by February
15, 2005, with an effective date to be determined before the April peak.
Open. During our fiscal year 2004 audit visits to two SPCs and one lockbox
bank, we found that closely related individuals were operating as deposit
couriers. We will continue to evaluate IRS's corrective actions during our
fiscal year 2005 audit.
Status of recommendations Source report Per
Count No. Recommendation IRS Per GAO
64 04-03 Develop procedures to Management Report: Closed. The LPG
instructs the Open. Duri
require lockbox managers Improvements Needed banks to perform
numerous 2004 audit, we ver
to provide satisfactory in IRS's Internal managerial reviews. IRS
will LPG i
evidence that managerial Controls and consider the risk level of
each
reviews are performed in Accounting Procedures of the documented
logs and managerial rev
accordance with (GAO-04-553R, Apr. 26, assess each one to
determine
established guidelines. At 2004) the appropriate level of review
lockbox banks we v
a minimum, reviewers and if more guidelines are
should sign and date the necessary. LPG 3.5.1.3(3)
reviewed documents and Desk and Work Area Reviews and reviewi
provide any comments was updated to state that the
that may be appropriate reviewing manager's initial is desk check
rev
in the event that their required as well as the site were not foll
reviews identified manager's initial. This will be
problems or raised effective January 17, 2005. Any
questions. (short-term) discovered remittances must be
recorded on Form 9535. In the remarks section the site must indicate how
the item was found. This was effective February 2005.
ified that the nstructs the lockbox bank managers to perform numerous
iews. However, we found that three of the four
isited did not adhere to the LPG requirements for maintaining
ng courier logs. In addition, we found that LPG iew procedures
owed at two of the lockbox banks. Many of IRS's corrective actions
addressing documentation of required reviews occurred subsequent to our
fiscal year 2004 field work. We will continue to evaluate IRS's actions
during our fiscal year 2005 audit.
04-04 Revise candling procedures at lockbox banks to require testing of
automated candling machines at appropriate intervals, taking into account
such factors as use time, volume processed, machine requirements, and
shift cycles. (short-term)
Management Report: Improvements Needed in IRS's Internal Controls and
Accounting Procedures
( GAO-04-553R , Apr. 26, 2004) Open. IRS requires an additional candling
of all envelopes processed by extractors using machines that have
automated candling equipment. This requirement mitigates the risk
identified by GAO. However, IRS agrees to assess its current guidelines
for possible inclusion of testing standards for equipment with automated
candling equipment. LPG 3.2.8.1(1) Candling Equipment Maintenance, was
developed and states, "All candling equipment, including OPEX mail
machines, must be maintained to ensure maximum efficiency. Maximum
efficiency is determined by testing at least 10 envelopes daily." This
will be effective as of January 3, 2005.
Open. We will evaluate IRS's corrective actions during our fiscal year
2005 audit.
04-05 Require lockbox managers to maintain logs of these tests and to
periodically review their logs. (short-term)
Management Report: Improvements Needed in IRS's Internal Controls and
Accounting Procedures
( GAO-04-553R , Apr. 26, 2004) Closed. Testing standards were implemented
in the January 1, 2005, LPG. However, we revised the requirements on
January 31, 2005, to ensure clarification of peak-versus-nonpeak testing
requirements. The supporting LPG requirement follows: LPG
3.2.8.1 Candling Equipment Maintenance (1) All candling equipment,
including OPEX machines, must be maintained to ensure maximum efficiency.
Maximum efficiency is determined by testing at least 10 envelopes daily
during nonpeak and for each shift during peak. (2) Management shall
maintain a log of all equipment tests. This log shall be justification for
requesting machine servicing. (3) A monthly review report must be sent to
the Lockbox Field Coordinator. (see LPG 3.5.1(2)). (4) Each site must keep
vendor maintenance records available for immediate review. IRS Lockbox
Policy and Procedures and IRS Mission Assurance updated the security
section of the 2005 LPG. A security review checklist was also developed
requiring the security team to conduct periodic security reviews to verify
all requirements in the LPG are being met.
Open. We found that one lockbox bank we visited during our fiscal year
2004 audit did not maintain a maintenance log for an automated extraction
and candling machine. Instead, the vendor maintained the log in a locked
drawer accessible only to the vendor. IRS's actions to increase testing
for automated extraction and candling equipment, and documentation of
these tests by management, occurred subsequent to our fiscal year 2004
fieldwork. We will evaluate IRS's actions during our fiscal year 2005
audit.
(Continued From Previous Page)
Status of recommendations
Count No. Recommendation Source report Per IRS Per GAO
67 04-06
Discontinue the Management Report: Closed. Written procedures Closed.
practice We verified that IRS
of storing taxpayer Improvements Needed have been provided to TAC
included monitoring of its policy
receipts and data in IRS's Internal employees for safeguarding and
outside procedures regarding
TAC secured areas Controls and taxpayer receipts when receiving and
storing taxpayer
without storing the Accounting Procedures received. IRM 21.3.4.7(6), data
in secured areas during
receipts in a (GAO-04-553R, Apr. 26, issued in June 2003, provides
secured operational reviews conducted
locked container. 2004) guidance stating that payments in fiscal year
2004. In addition,
(short-term) received from taxpayers will be we did not find any
instances
immediately placed in a locked during our fiscal year
2004
container. The receipts are also audit visits to IRS
field offices in
stored away from employees' which taxpayer receipts
and
personal belongings. IRS will data stored outside the
TAC
continue to conduct operational secured areas were
not stored
reviews at TAC offices to in a secured locked
container.
ensure IRM procedures are
being followed. The TAC
location that was noted for
securing payments from
taxpayers outside the secure
area of the TAC was contacted
and the location of the desk has
been moved inside the secured
area of the TAC. The TAC
manager was informed to
ensure all TAC operations are
conducted inside the secured
area of the TAC. IRS monitored
adherence to IRM procedures
related to receiving and storing
taxpayer data in secured areas
during operational reviews
conducted in fiscal year 2004.
No discrepancies were noted.
04-07 Develop procedures to enhance adherence to existing instructions on
safeguarding discovered remittances at service center campuses.
(short-term)
Management Report: Improvements Needed in IRS's Internal Controls and
Accounting Procedures
( GAO-04-553R , Apr. 26, 2004) Closed. In 2003, IRM 3.8.46 was written and
distributed to all campuses. Form 4287 (Record of Discovered Remittances)
has been revised to enhance adherence to existing instructions by
including a check box for managers to indicate that reconciliation has
been performed. Also, IRS revised the monthly security checklist to
include a review of the discovered remittance procedures. In addition, IRS
added this item to the monthly security checklist to include a review of
the discovered remittance procedures.
Open. During our fiscal year 2004 audit, we verified that IRS had revised
the IRM to require managers to indicate that a reconciliation of
discovered remittances had been performed and also included this item in
the monthly security checklist. However, we found that three of the four
SPCs we visited did not adhere to the IRM procedures for Form 4287
("Record of Discovered Remittances").
69 04-08 Enforce policies and Management Report:
procedures to ensure that Improvements Needed
service center campus in IRS's Internal
security guards respond Controls and
to alarms. (short-term) Accounting Procedures
(GAO-04-553R, Apr. 26,
2004)
Closed. Beginning October 1, 2004, all campuses and computing centers were
tasked to perform ongoing monthly unannounced alarm tests and to report
the results to the Physical Security Program Office. Tests and results are
being maintained by the Physical Security Program Office. IRM 1.16.12,
Security Guard Service and Explosive Detector Dog Program, was rewritten
October 18, 2004, to include the requirement that contracting officers'
technical representatives conduct random exercises on a quarterly basis,
at a minimum, using mock scenarios to measure response times, actions,
tactics, techniques, and procedures of uniformed guard forces. Final
issuance is expected by not later than September 30, 2005.
Open. During our fiscal year 2004 audit, we continued to find weakness in
IRS's enforcement of policies and procedures to ensure that service center
campus security guards respond to alarms. At one SPC we visited, we found
that an off-site code and edit function was located in a building without
on-site security guards and access was controlled only with proximity
cards. When we tested two exit door alarms, the door alarms were inaudible
and there was no response from the alarm monitoring company because,
according to IRS, the company only responds to after-hours alarms. IRS's
implementation of new procedures to address guard response issues occurred
subsequent to the end of our fiscal year 2004 fieldwork. We will evaluate
IRS's corrective actions during our fiscal year 2005 audit.
(Continued From Previous Page)
Status of recommendations
Count No. Recommendation Source report Per IRS Per GAO
70 04-09 Establish Management Closed. The IRS Open. IRS's
compensating Report: physical implementation
controls in the Improvements security of new
event that Needed in IRS's programs within procedures to
automated Internal Mission address guard
security Controls and Assurance and response issues
systems Accounting Security occurred
malfunction, Procedures Services subsequent to
such as (GAO-04-553R, developed the end of our
notifying Apr. 26, 2004) procedures to be fiscal year 2004
guards and used in fieldwork.
managers of the conjunction with Although we did
malfunction, the policies not observe any
and immediately developed in instances in
deploying recommendation which guards did
guards to 04-08 to ensure not respond due
better protect that local to a malfunction
the processing management is in an automated
center's notified security system
perimeter. whenever there during our
(short-term) is a malfunction fiscal year 2004
of alarms and visits to four
that guards are SPCs, we will
deployed or evaluate IRS's
doors are newly
secured, as implemented
necessary, corrective
either during actions during
tests or when our fiscal year
otherwise 2005 audit.
needed.
Procedures will
include
management
notification of
alarm test
failure.
The project
manager for the
guard force
contract is
required to sign
off on all
unannounced
alarm test
reports.
71 04-10 Modify Aged Management Closed. IRS has Closed. During
Unliquidated Report: revised the our fiscal year
Obligations Improvements Aging 2004 audit, we
(AUO) reports Needed in IRS's Unliquidated verified that
to ensure that Internal Obligations IRS modified AUO
they report the Controls and report to reports to
last activity Accounting accurately capture the last
date for each Procedures capture the last activity date
outstanding (GAO-04-553R, activity date for each
obligation line Apr. 26, 2004) for each obligation line
amount. obligation line amount.
(short-term) amount.
Require procurement Management Report: Closed. In fiscal year
office staff to review Improvements Needed in 2004, IRS implemented new
and sign off on whether IRS's Internal guidelines for the
quarterly review and
obligations are valid Controls and certification of all
or require deobligation Accounting Procedures outstanding obligations.
before business units (GAO-04-553R, Apr. 26, The procurement office
conducted reviews to
complete their 2004) ensure the accuracy of the
quarterly unliquidated balances.
certifications. Financial plan managers
(short-term)
reviewed procurement
responses prior to
processing deobligations
and completing
their quarterly
certifications.
Closed. During our fiscal year 2004 audit, we verified that IRS
implemented new guidelines for the quarterly review and certification of
all outstanding obligations. As part of the review process, the
procurement office staff reviews the AUO reports and determines whether
obligations that they are responsible for reviewing are valid or need to
be deobligated. The financial plan managers review procurement office
staff responses prior to completing their quarterly certifications. In
addition, during our fiscal year 2004 testing, we found that obligations
were being properly and timely deobligated.
04-12 Enhance compensating internal controls by including tests or
recalculations of payroll computations performed by NFC for the IRS
employees selected for review each pay period. (short-term)
Management Report: Improvements Needed in IRS's Internal Controls and
Accounting Procedures
( GAO-04-553R , Apr. 26, 2004) Closed. A detailed Standard Operation
Procedures (SOP) was developed and implemented on July 1, 2004, to review
the full gross to net pay calculation for a random sample of IRS employees
each pay period. The first quarterly review was accomplished on October 1,
2004.
Closed. In fiscal year 2004, we confirmed that IRS developed and
implemented procedures to review the full gross to net pay calculation for
a random sample of IRS employees each pay period.
04-13 Timely investigate and Management Report: resolve any identified
Improvements Needed errors. (short-term) in IRS's Internal
Controls and Accounting Procedures
( GAO-04-553R , Apr. 26, 2004) Closed. Procedures outlined in the SOP
noted above found no significant discrepancies in NFC payroll
calculations. The discrepancies found were primarily rounding issues. The
findings were forwarded to the Department of the Treasury to be shared
with NFC in October 2004. The process is now in place to forward findings
to the Department of the Treasury and NFC each quarter.
Closed. In fiscal year 2004, we confirmed that IRS implemented procedures
to review the full gross to net pay calculation for a random sample of IRS
employees each pay period and satisfactorily resolved any errors or
exceptions found.
(Continued From Previous Page)
Status of recommendations
Count No. Recommendation Source report Per IRS Per GAO
Page 58 GAO-05-393 Status of Recommendations
75 04-14 Establish Management Closed. On Closed. The
review Report: October 29, amounts reported
procedures for Improvements 2004, IRS as supplemental
amounts being Needed in IRS's implemented a information as of
reported in Internal second level of September 30,
supplemental Controls and management 2004, agreed with
information to Accounting review to the documentation
the financial Procedures identify and provided by IRS's
statements for (GAO-04-553R, report any chief counsel.
Other Claims Apr. 26, 2004) changes in the
for Refund. final financial
(short-term) statements.
76 04-15 Until the Management Closed. IRS has Open. In fiscal
Business Report: taken steps to year 2004, we
Performance Improvements ensure that the continued to find
Management Needed in IRS's performance errors in IRS's
System (BPMS) Internal measures data interim
is fully Controls and reported in the performance
operational, Accounting monthly report measures data.
implement Procedures are properly GAO will continue
procedures to (GAO-04-553R, reviewed before to monitor IRS's
ensure that Apr. 26, 2004) being published. progress in this
all All divisions area during our
performance now submit most fiscal year 2005
data reported of their financial audit.
in the MPS performance
report are measures data
subject to directly to
effective, BPMS. The
documented divisions are
reviews to required to
provide verify/certify
reasonable the accuracy of
assurance that the data before
the data are uploading to
current at BPMS. Corporate
interim Performance
periods. Budgeting staff
(short-term) implemented
additional
manual quality
control
procedures that
include
reviewing all
tables, charts,
and line graphs
and visually
inspecting the
numbers and
comparing the
information to
the previous
month's report
for consistency.
In addition, IRS
is working with
Treasury to
streamline its
current set of
performance
measures. Its
purpose is to
increase the
value of the
information
provided to
stakeholders,
focus
priorities, and
reduce
administrative
burden.
77 05-01 Expedite Opportunities Open. IRS Open. This is a
efforts to to Improve established a new
resolve the Timeliness of team at the recommendation.
backlog of IRS Lien Cincinnati We will review
unpostable Releases campus's IRS's corrective
liens, (GAO-05-26R, Centralized Lien actions during
releasing Jan. 10, 2005) Processing Unit our fiscal year
liens as to resolve the 2005 audit.
appropriate. backlog of
(short-term) unpostable
liens.
Resolution of
the backlog of
8,900
unpostables is
ongoing daily
with managerial
oversight. IRS
expects
completion by
July 15, 2005.
05-02 Keep current on all new Opportunities to Improve unpostable liens.
Timeliness of IRS Lien (short-term) Releases ( GAO-05-26R ,
Jan. 10, 2005) Open. IRS established a team at the Cincinnati campus's
Centralized Lien Processing Unit to resolve the unpostable lien exception
reports. Lien transactions that do not post to a taxpayer's account will
now be resolved weekly. Managers will monitor reports to ensure timely
resolution and take appropriate corrective actions when necessary.
Collection Policy will conduct an on-site review no later than September
2005.
Open. This is a new recommendation. We will review IRS's corrective
actions during our fiscal year 2005 audit.
79 05-03 Research and resolve the Opportunities to Improve
current backlog of Timeliness of IRS Lien
unresolved unmatched Releases (GAO-05-26R,
exception reports. Jan. 10, 2005)
(short-term)
Open. Managers and employees have received training on the entity portion
of the Satisfied Module (SATMOD) Reject Report. Resolution of the backlog
will be conducted by the centralized site. Anticipated time for resolution
is being extended to May 2006 in order to complete a workshop, compile the
extract from the master file, and establish a specific group of employees
to work on the backlog.
Open. This is a new recommendation. We will review IRS's corrective
actions during future audits.
05-04 Research and resolve Opportunities to Improve unmatched exception
Timeliness of IRS Lien reports weekly. Releases ( GAO-05-26R ,
(short-term) Jan. 10, 2005) Open. IRS developed new procedures for working
on the unmatched exception reports. Accounts on the unmatched exception
report will be resolved by matching information between the master file
and the Automated Lien System (ALS). Timely report resolution is an
integral function of the Centralized Lien Unit, and time frames and
managerial oversight are built into report resolution processes. Managers
and employees have received training on the entity portion of the reject
report. Training will be ongoing as new employees are assigned to the
unit. IRM provisions require resolution of rejected accounts within 5
business days. Managers will monitor timeliness and will report weekly on
the outstanding inventory. The Collection Policy unit will conduct on-site
reviews to determine if procedural changes are required. The review will
be conducted no later than September 2005.
Open. This is a new recommendation. We will review IRS's corrective
actions during our fiscal year 2005 audit.
05-05 Provide training to designated staff on how to resolve exception
reports. (short-term)
Opportunities to Improve Timeliness of IRS Lien Releases ( GAO-05-26R ,
Jan. 10, 2005)
Open. Managers and employees have received training on the resolution of
the restricted interest portion of the SATMOD reject report. Managers will
report weekly on the outstanding inventory. The Collection Policy unit
will conduct reviews to determine if procedural changes are required.
Anticipated time for resolution is being extended to May 2006 in order to
complete a workshop, establish a specific group to work on the backlog,
and complete the extract of Master File data.
Open. This is a new recommendation. We will review IRS's corrective
actions during future audits.
82 05-06 Research and resolve the Opportunities to Improve
current backlog of Timeliness of IRS Lien
unresolved manual Releases (GAO-05-26R,
interest or penalties Jan. 10, 2005)
reports. (short-term)
Open. Managers and employees have received training on the resolution of
the manual computation portion of the reject report. IRM provisions
require resolution of the rejected accounts within 5 business days.
Managers will monitor timeliness and will report weekly on the outstanding
inventory. The Collection Policy unit will conduct an on-site review.
Training will be given to all new employees as they are assigned to the
group. The anticipated completion date is September 2005.
Open. This is a new recommendation. We will review IRS's corrective
actions during our fiscal year 2005 audit.
(Continued From Previous Page)
Status of recommendations
Count No. Recommendation Source report Per IRS Per GAO
83 05-07
Research and Opportunities to Open. IRS Open. This is a new
resolve Improve developed new
exception reports Timeliness of IRS procedures for recommendation. We
Lien working on will
containing liens Releases exception reports review IRS's
with (GAO-05-26R, containing corrective actions
manually Jan. 10, 2005) liens with during future
calculated manually audits.
calculated
interest or interest.
penalties Accounts listed
on the
weekly, as called exception report
for in the containing
Internal Revenue manually
Manual calculated
interest or
and the ALS User penalties will
Guide. now be sent to
the
(short-term) Examination Case
Processing
function for
computation and
then returned to
the Centralized
Lien Processing
Unit for either
lien release or
other
appropriate
action. Timely
report resolution
is an integral
function of the
Centralized Lien
Unit, and time
frames and
managerial
oversight are
built
into report
resolution
processes.
Managers and
employees have
received
training on the
resolution of the
manually computed
interest
portion of the
SATMOD reject
report. A Master
File extract
has been
requested. The
anticipated
completion date
is
May 2006 in order
to complete
the extract,
conduct a
workshop, and
establish a
specific group to
work on the
backlog.
Management will
report weekly on
the
outstanding
inventory and the
Collection Policy
unit will
conduct on-site
reviews.
(Continued From Previous Page)
Status of recommendations
Count No. Recommendation Source report Per IRS Per GAO
84 05-08 Provide Opportunities to Open. Open. This is a
training to Improve Management has new
designated Timeliness of provided recommendation.
staff on how to IRS Lien training to We will review
resolve Releases employees and IRS's corrective
exception (GAO-05-26R, will train all actions during
reports Jan. 10, 2005) new employees our fiscal year
containing assigned to the 2005 audit.
accounts with group. A
manually workshop will
calculated be conducted to
interest or cover the
resolution of
these
penalties. reports and
(short-term) management will
report weekly
on the
outstanding
inventory. The
Collection
Policy unit
will conduct
on-site
reviews.
Anticipated
completion date
is September
15, 2005.
85 05-09 Improve the Opportunities to Open. Requests Open. This is a
current Improve for additional new
unmatched Timeliness of enhancements to recommendation.
exception IRS Lien cumulate the We will review
report by Releases reject report IRS's corrective
including a (GAO-05-26R, have been actions during
cumulative list Jan. 10, 2005) initiated. In future audits.
of all the interim,
unmatched area managers
taxpayer are required to
accounts that print and
have not been resolve reports
resolved to based on IRM
date. procedures.
(short-term) Anticipated
date of
completion is
January 2007.
86 05-10
Revise Accounts Management Open. IRS has Open. This is a
Report: submitted a new new
Management Mail Unit Review of IRM update, recommendation. We
Controls over scheduled for will
procedures, Safeguarding publication in review IRS's
scheduled to Taxpayer December 2005, corrective actions
be incorporated into Receipts and to address during future
the Information issues regarding audits.
IRM, to include at the Brookhaven transshipped
detailed documents and
instructions for Service Center cash receipts.
Campus In the interim,
(1) monitoring (GAO-05-319R, IRS will
Mar. 10, continue using
the
transshipped 2005) Standard
documents Operating
and (2) handling Procedures that
cash contain
receipts found detailed
during information for
extraction. Where document
transmittals and
the
adequate guidance monitoring and
exists control of cash
elsewhere, IRS receipts.
should
include these
through
cross-references.
(short-term)
(Continued From Previous Page)
Status of recommendations
Count No. Recommendation Source report Per IRS Per GAO
87 05-11 Enforce Management Closed. IRS has Open. This is a
adherence to Report: Review taken corrective new
existing of Controls action to ensure recommendation.
instructions on over that IRS's actions
safeguarding Safeguarding employees and occurred
taxpayer Taxpayer managers are subsequent to
receipts and Receipts and fully familiar the completion
information, Information at with the correct of our fiscal
such as the Brookhaven procedures for year 2004 audit.
securing access Service Center safeguarding We will review
and candling Campus taxpayer IRS's corrective
procedures, at (GAO-05-319R, receipts and actions during
service center Mar. 10, 2005) information. our fiscal year
campuses (SCC) Corrective 2005 audit.
selected for actions taken
significant include
reductions in counseling
their employees on
submission proper
processing procedures;
functions. holding a
(short-term) meeting with
security clerks
to review
procedures for
issuing badges
granting access
to secured
areas; taking
inventories of
badges after
each shift;
implementing new
procedures to
secure taxpayer
data and related
information
awaiting
destruction;
holding a
meeting with
mail employees
to review the
candling
procedures; and
continuing to
perform
management
reviews to
ensure adherence
to the candling
procedures.
88 05-12 Document a Management Open. IRS will Open. This is a
methodology for Report: Review use historical new
estimating of Controls data obtained recommendation.
anticipated over from the We will review
rapid changes Safeguarding Brookhaven IRS's corrective
in mail volume Taxpayer Campus rampdown, actions during
at future SCCs Receipts and and any other our fiscal year
selected for Information at prior 2005 audit.
significant the Brookhaven consolidations,
reductions in Service Center to develop and
their Campus document a
submission (GAO-05-319R, methodology for
processing Mar. 10, 2005) estimating
functions, future mail
taking into volumes. This
consideration methodology will
factors be used in
future
consolidations
to
such as the ensure that IRS
prior rampdown has reliable
experience at data to
Brookhaven. effectively
(short-term) manage resources
during and after
the
consolidation
period.
(Continued From Previous Page)
Status of recommendations
Count No. Recommendation Source report Per IRS Per GAO
Enforce its Management Closed. IRS Open. This is a
89 05-13 existing Report: has new
implemented
requirement Improvements steps to recommendation.
that Needed in monitor and IRS's actions
enforce
appropriate IRS's Internal the occurred
background Controls requirements subsequent to
issued on the
investigations (GAO-05-247R, September 29, completion of
be Apr. 27, 2003, on the our fiscal year
completed for 2005) issuance of ID 2004 audit. We
contractors cards to will review
IRS's
before they are contractors. corrective
granted This guidance actions during
our
staff-like requires that fiscal year 2005
access to a letter from audit.
the
service National
centers. Background
(short-term) Investigation
Center (NBIC)
indicating
successful
completion of
at least an
interim
background investigation be
received by the issuing office
before a contractor can be
approved for staff-like access
to
IRS. The guidance further
stipulates that Physical
Security
staff would, at least every 6
months, ensure that a re-
certification had been received
from the Contracting Officer's
Technical Representative
(COTR) confirming the
contractors' need for continued
staff-like access to the IRS
facility. Additionally, as part
of
the required records and
accountability process, non-
federal photo ID cards are
audited annually by the issuing
office to reconcile numerical
and alphabetical files and
ensure that ID cards have been
recovered upon separation or
termination of the contract.
(Continued From Previous Page)
Status of recommendations
Count No. Recommendation Source report Per IRS Per GAO
90 05-14
Require that Management Report: Open. In the guidance Open. This
background is a new
investigation Improvements Needed in memorandum IRS issued on
results for recommendation. We will
contractors (or IRS's Internal Controls September 29, 2003, the
evidence review the status of IRS's
thereof) be on file (GAO-05-247R, Apr. 27, Physical Security Program
where planned corrective actions
necessary, including 2005) Office requires the COTR to during our fiscal
at year 2005
contractor worksites complete and submit a request audit.
and
security offices form for every contract
responsible for employee. Implementation of
controlling
access to sites the standardized form assures
containing
taxpayer receipts that all required information is
and
information. provided in order for the
(short-term)
contractor to receive its IRS
photo ID card. This guidance
also requires that a copy of the
letter from NBIC indicating
successful completion of at
least an interim background
investigation be attached to the
request form or no ID card will
be issued. Both documents are
maintained by the issuing
office. The IRS COTR for the
lockbox banks verified that all
six banks currently maintain
background investigation
records, including copies of
documents submitted to NBIC
and lists of cleared personnel.
The Physical Security Program
Office will work with the
Business Operating Divisions
(BOD) and Procurement to
determine if the interagency
agreement with Financial
Management Services (FMS)
should be modified to include a
requirement for lockbox banks
to maintain background
investigation files. The
estimated completion date for
the review of the interagency
agreement is November 2005.
05-15 Require that courier contracts call for couriers to submit
contingency plans to lockbox banks. (short-term)
Management Report: Improvements Needed in IRS's Internal Controls
( GAO-05-247R , Apr. 27, 2005) Closed. IRS updated LPG 4.2.3.1, Courier
Contingency Plan, on January 1, 2005, to require that prior to
implementation of the contract, the courier service must provide the
lockbox with a disaster contingency plan. The contingency plan must cover
labor disputes, employee strikes, inclement weather, natural disasters,
traffic accidents, and unforeseen events.
Open. This is a new recommendation. IRS's actions occurred subsequent to
the completion of our fiscal year 2004 audit. We will review IRS's
corrective actions during our fiscal year 2005 audit.
05-16 Review lockbox bank courier contingency plans to help ensure that
they incorporate all contingencies specified in the LPG. (short-term)
Management Report: Improvements Needed in IRS's Internal Controls
( GAO-05-247R , Apr. 27, 2005) Closed. Contingency plans were provided by
all lockbox sites and are part of the Filing Season Readiness (FSR) Plan.
LPG 4.2.3.1 states "the contingency plan must cover labor disputes,
employee strikes, inclement weather, natural disasters, traffic accidents,
and unforeseen events." The Lockbox Coordinators reviewed the contingency
plans to ensure that these issues were addressed.
Open. This is a new recommendation. IRS's actions occurred subsequent to
the completion of our fiscal year 2004 audit. We will review IRS's actions
during our fiscal year 2005 audit.
93 05-17 Revise the LPG to specify Management Report:
that courier contingency Improvements Needed in
plans be available at IRS's Internal Controls
lockbox banks. (GAO-05-247R, Apr. 27,
(short-term) 2005)
Open. LPG 2.1.7 requires each lockbox bank to submit an annual FSR Plan.
The plan must be submitted to the Lockbox Field Coordinators for review to
ensure each site is prepared for the filing season. Lockbox Field
Coordinators will ensure all contingencies specified in the LPG are
incorporated in the contract. Additionally, the LPG will be updated by
April 15, 2005, to require all lockbox banks to have the courier
contingency plan available on site.
Open. This is a new recommendation. We will review IRS's corrective
actions during our fiscal year 2005 audit.
Status of recommendations Source report Per
Count No. Recommendation IRS Per GAO
94 05-18 Review lockbox bank Management Report: Closed. LPG 4.2.3(2),
Courier Open. This is a new
courier and shredding Improvements Needed in Services, updated
January 1,
contracts to ensure that IRS's Internal Controls 2005, requires
lockbox banks to our f
they address all privacy- (GAO-05-247R, Apr. 27, ensure all bonded
completion of
related criteria and 2005) courier/armored car
include clear reference to agreements specifically
privacy-related laws and address privacy-related criteria fiscal
regulations. (short-term) and include references to the
Privacy Act of 1974 and the Internal Revenue Code (IRC) Sections 6103,
7213, and 7131. IRS will monitor this action during on-site reviews.
recommendation. IRS's actions occurred subsequent to the
iscal year 2004 audit. We will review IRS's corrective actions during our
year 2005 audit.
95 05-19 Revise the LPG to require that (1) lockbox couriers promptly
return deposit receipts to the lockbox banks following delivery of
taxpayer remittances to depositories and,
(2) lockbox banks promptly review the returned deposit receipts.
(short-term)
Management Report: Improvements Needed in IRS's Internal Controls
( GAO-05-247R , Apr. 27, 2005) Closed. LPG 4.2.3.1.8, Receipt for
Transport of IRS Lockbox Bank Deposit Form, updated January 1, 2005,
requires the lockbox site receive back, by the next business day, the
original completed Receipt for Transport of IRS Lockbox Bank Deposit Form
with the depository representative's name, signature, and date and time
the deposit was received by the depository. The lockbox banks are to
reconcile the Receipt for Transport of IRS Lockbox Bank Deposit Form(s)
daily to ensure receipt of dedicated service (e.g., the time between
release of the deposit to the courier and its release to the depository is
not in excess). If discrepancies are found, the Lockbox Field Coordinator
should be notified immediately.
Open. This is a new recommendation. IRS's actions occurred subsequent to
the completion of our fiscal year 2004 audit. We will review IRS's
corrective actions during our fiscal year 2005 audit.
05-20 Revise the LPG to require that deposit receipts for taxpayer
remittances be time- and date-stamped. (short-term)
Management Report: Improvements Needed in IRS's Internal Controls
( GAO-05-247R , Apr. 27, 2005) Closed. LPG 4.2.3.1.8, Receipt for
Transport of IRS Lockbox Bank Deposit Form, was updated on January 1,
2005, to require the courier service employee to return the deposit
receipt form to the lockbox site on the next business day and ensure the
form contains the depository bank employee's name and signature, the date
the deposit was received by the depository, and the time the deposit was
received by the depository.
Open. This is a new recommendation. IRS's actions occurred subsequent to
the completion of our fiscal year 2004 audit. We will review IRS's
corrective actions during our fiscal year 2005 audit.
05-21 Better enforce the LPG requirement that lockbox bank couriers
annotate the time of delivery on receipts for deposits of taxpayer
remittances. (short-term)
Management Report: Improvements Needed in IRS's Internal Controls
( GAO-05-247R , Apr. 27, 2005) Closed. LPG 4.2.3.1.8, Receipt for
Transport of IRS Lockbox Bank Deposit Form, was updated on January 1,
2005, to require lockbox bank couriers to annotate the time of delivery of
receipts for deposits of taxpayer remittances.
Open. This is a new recommendation. IRS's actions occurred subsequent to
the completion of our fiscal year 2004 audit. We will review IRS's
corrective actions during our fiscal year 2005 audit.
05-22 Provide a written reminder to courier contractors of the need to
adhere to all courier service procedures. (short-term)
Management Report: Improvements Needed in IRS's Internal Controls
( GAO-05-247R , Apr. 27, 2005) Open. IRS will develop an annual memorandum
by January 1, 2006, requiring banks to remind courier contractors to
adhere to all courier service procedures in the LPG. IRS will monitor
adherence during site reviews.
Open. This is a new recommendation. We will review the status of IRS's
planned corrective actions during our fiscal year 2005 audit.
99 05-23 Periodically verify that contractors entrusted with taxpayer
receipts and information offsite adhere to IRS procedures. (short-term)
Management Report: Improvements Needed in IRS's Internal Controls
( GAO-05-247R , Apr. 27, 2005) Closed. The 2005 LPG 4.2.3.1.8(1) has been
updated and the procedures will be monitored during the periodic security
reviews.
Open. This is a new recommendation. IRS's actions occurred subsequent to
the completion of our fiscal year 2004 audit. We will review IRS's
corrective actions during our fiscal year 2005 audit.
(Continued From Previous Page)
Status of recommendations
Count No. Recommendation Source report Per IRS Per GAO
100 05-24 Develop alternative, back-Management Report: Open. IRS will work
with FMS Open. This is a new
up plans that are Improvements Needed in to develop an alternative
back-recommendation. We will
consistent with IRS IRS's Internal Controls up plan by June 30, 2005.
review the status of IRS's
courier policies and (GAO-05-247R, Apr. 27, planned corrective actions
procedures to address 2005) during our fiscal year 2005
instances in which only audit.
one courier reports for
transport of taxpayer
receipts or information,
such as requiring that a
service center or lockbox
bank employee
accompany the courier to
the depository.
(short-term)
101 05-25 Formulate a policy to Management Report: Open. IRS will ensure
policy Open. This is a new
require that critical utility Improvements Needed in guidelines
address protection recommendation. We will
or security controls not be IRS's Internal Controls of critical or
security controls review IRS's corrective actions
located in areas requiring (GAO-05-247R, Apr. 27, and will work with
the business during our fiscal year 2005
frequent access. 2005) operating divisions and audit.
(short-term) Procurement to incorporate any
revised requirements into
updated and future interagency
agreements with FMS.
05-26 Require lockbox bank Management Report: Open. The LPG requires
102 the Open. This is a new
management to position Improvements Needed in closed-circuit television
IRS's Internal Controls cameras (CCTV) to ( GAO-05-247R , Apr. 27, enable
monitoring of 2005) secured areas containing sensitive systems or
controls. (short-term) lockbox banks have installed cameras to monitor
critical areas and assets in those parts of a facility controlled by the
banks. IRS will review, through its Mission Assurance review process, the
use of CCTV at the banks and, within local constraints, expand
surveillance capabilities to include utility controls.
recommendation. We will review IRS's actions during our fiscal year 2005
audit.
(Continued From Previous Page)
Status of recommendations
Count No. Recommendation Source report Per IRS Per GAO
103 05-27 Periodically monitor Management Report: Open. The LPG requires
that Open. This is a new
lockbox banks' adherence Improvements Needed in keys and security
panels recommendation. We will
to the LPG requirement IRS's Internal Controls controlled by the banks
be review IRS's actions during our
that keys be kept in (GAO-05-247R, Apr. 27, properly stored and
secured. fiscal year 2005 audit.
secured containers within 2005) IRS's Mission Assurance will
the secured perimeter. include controls over keys as
(short-term) part of any and all reviews. As
part of the review process, IRS
will work with the banks and
lessors to improve security for
keys and security panels,
irrespective of ownership.
104 05-28 Assess technologies that Management Report: Closed. IRS
determined that Open. This is a new
may be exempt from the Improvements Needed in current technologies are
not recommendation. IRS's actions
visual inspection IRS's Internal Controls exempt from the candling
occurred subsequent to the
requirement to determine (GAO-05-247R, Apr. 27, requirement and added
to the completion of our fiscal year
whether they are 2005) 2005 LPG 3.2.8(1) that 2004 audit. We will
review IRS's
acceptable methods of envelopes opened (either corrective actions
during our
satisfying candling manually or by OPEX) on three fiscal year 2005
audit.
objectives and, if so, add or more sides must be candled
such technologies to the once on the candling tables. All
LPG list of accepted other envelopes must be
candling methods. candled twice on the candling
(short-term) tables.
105 05-29 Conduct an assessment Management Report: Closed. IRS assessed
the Open. This is a new
of the costs and benefits Improvements Needed in candling functions on
recommendation. IRS's actions
of relying on only one IRS's Internal Controls automated equipment and
occurred subsequent to the
candling when using (GAO-05-247R, Apr. 27, included in the 2005 LPG
3.2.8 completion of our fiscal year
certain automated 2005) section (1) a requirement that 2004 audit. We
will review IRS's
equipment. (short-term) envelopes opened (either corrective actions
during our
manually or by OPEX equipment) on three or more sides must be candled once
on the candling tables. IRS will monitor adherence during site reviews.
fiscal year 2005 audit.
106 05-30 Clarify the LPG to eliminate confusion about the number of
candlings required for different extraction methods. (short-term)
Management Report: Improvements Needed in IRS's Internal Controls
( GAO-05-247R , Apr. 27, 2005) Closed. IRS updated the 2005 LPG 3.2.8,
Candling, to require that envelopes opened (either manually or by OPEX) on
three or more sides must be candled once on the candling tables. All other
envelopes must be candled twice on the candling tables.
Open. This is a new recommendation. IRS's actions occurred subsequent to
the completion of our fiscal year 2004 audit. We will review IRS's
corrective actions during our fiscal year 2005 audit.
(Continued From Previous Page)
Status of recommendations
Count No. Recommendation Source report Per IRS Per GAO
107 05-31 Establish guidelines Management Report: Open. IRS is in the
and process of Open. This is a new
a testing requirement to Improvements Needed in reviewing and
strengthening recommendation. We will
ensure satisfactory IRS's Internal Controls current procedures
contained in review the status of IRS's
lighting conditions for (GAO-05-247R, Apr. 27, IRM 3.10.72,
Batching, Sorting planned corrective
actions
effective candling. 2005) and Numbering. during our fiscal year
2005
(short-term) audit.
108 05-32 Establish policies Management Report: Open. IRS will establish
and a Open. This is a new
procedures to require Improvements Needed in procedure(s) for
SB/SE field recommendation. We will
appropriate segregation IRS's Internal Controls office units to
track Document review the status of IRS's
of duties in small (GAO-05-247R, Apr. 27, Transmittal forms
and corrective actions during our
business/self-employed 2005) acknowledgments of receipt of fiscal
year 2005 audit.
(SB/SE) units of field Document Transmittal forms.
offices with respect to IRS will also strengthen
preparation of Payment guidance to revenue officers
Posting Vouchers, and will develop procedures
Document Transmittal specifically for its field clerical
forms, and transmittal staff. IRS's procedures will
packages. (short-term) clarify that revenue officers are
responsible for submitting an
appropriately labeled sealed
envelope containing the Daily
Report of Collection Activity
form to a designated clerical
contact in the Post of Duty
(POD). This guidance will apply
unless the revenue officers are
working away from the POD on
extended field calls, flexiplace,
or are working in a single
revenue officer POD. Those
revenue officers will send the
envelope directly to Submission
Processing.
109 05-33 Enforce the requirement Management Report: that a document
Improvements Needed in transmittal form listing the IRS's Internal
Controls enclosed Daily Report of ( GAO-05-247R , Apr. 27, Collection
Activity forms 2005) be included in transmittal packages, using such
methods as more frequent inspections or increased reliance on error
reports compiled by the service center teller units receiving the
information. (short-term) Open. IRS procedures will clarify that the
designated clerical contacts are responsible for bundling sealed envelopes
into a single package for overnight mail to Submission Processing pursuant
to the IRM. The procedures will also clarify that the designated clerical
contacts will prepare a Document Transmittal form and send the prepared
package to Submission Processing via overnight mail. The procedures will
direct the designated clerical contact to retain a control copy of the
Document Transmittal form and the overnight mail transmittal until the
receipted copy of the Document Transmittal form is returned from
Submission Processing. The IRS will also require that the transmittal and
the acknowledgment be reconciled on a monthly basis, with appropriate
follow-up as required. IRS will also issue a memorandum to all Field
Assistance employees reminding them to adhere to these IRM requirements.
IRS will also add this as a review item for operational reviews conducted
by Field Assistance headquarters and area personnel.
Open. This is a new recommendation. We will review the status of IRS's
corrective actions during our fiscal year 2005 audit.
110 05-34 Establish a procedure for SB/SE field office units to track
Document Transmittal forms and acknowledgments of receipt of Document
Transmittal forms. (short-term)
Management Report: Improvements Needed in IRS's Internal Controls
( GAO-05-247R , Apr. 27, 2005) Open. IRS will update its procedures to
clarify that the managers should ensure continuous coverage of the
designated clerical contact duties so that absence due to illness or leave
does not disrupt the processing of remittances.
Open. This is a new recommendation. We will review the status of IRS's
planned corrective actions during our fiscal year 2005 audit.
111 05-35 Require evidence of Management Report: managerial review of
Improvements Needed in recording, transmittal, IRS's Internal Controls and
receipt of ( GAO-05-247R , Apr. 27, acknowledgments of 2005) taxpayer
receipts and information. (short-term) Open. IRS will establish a
procedure(s) to require evidence of managerial review of recording,
transmittal, and receipt of acknowledgments of taxpayer receipts and
information. However, IRS will not implement any procedure requiring 100
percent managerial review. IRS's new procedures will call for random
managerial spot-checking of packages prepared for submission to Submission
Processing by revenue officers working in PODs or by the designated
clerical contacts in the PODs. The new procedure(s) will not call for any
random managerial spot-checking of packages prepared by revenue officers
working away from the POD on extended field calls or flexiplace. Instead,
on those packages, IRS will continue to rely on the remittance reviews
conducted by remittance processing personnel in Submission Processing.
These reviews will be documented by the revenue officer group manager and
be retained for the appropriate period required under record management
guidelines.
Open. This is a new recommendation. We will review the status of IRS's
planned corrective actions during our fiscal year 2005 audit.
(Continued From Previous Page)
Status of recommendations
Count No. Recommendation Source report Per IRS Per GAO
112 05-36 Assess options Management Closed. IRS Open. This is a
to prevent the Report: believes that, new
generation or Improvements if followed, recommendation.
disbursement of Needed in the procedures We will assess
refunds IRS's Internal it has in place IRS's adherence
associated with Controls adequately to its existing
accounts with (GAO-05-247R, address procedures and
unresolved AUR Apr. 27, 2005) preventing the other actions it
discrepancies, generation or plans to take
including disbursement of during our
placement of a refunds fiscal year 2005
freeze or hold associated with audit.
on all such AUR accounts.
accounts, until IRM 3.8.45
the AUR review requires
has employees
receiving an
unidentified
remittance to
conduct
Individual
been completed. Data Retrieval
(short-term) System (IDRS)
research to
determine if
there is
an open account
that allows for
posting of the
remittance.
Also, AUR will
partner with
Submissions
Processing to
ensure that
employees
receiving
unidentified
remittances are
aware of the
need to conduct
IDRS research
and how to
properly post
AUR remittances
in these
instances.
113 05-37 Enforce Management Open. IRS will Open. This is a
documentation Report: enforce new
requirements Improvements requirements to recommendation.
relating to Needed in document We will review
authorizing IRS's Internal monitoring by IRS's corrective
officials Controls reminding actions during
charged with (GAO-05-247R, management our fiscal year
approving manual Apr. 27, 2005) officials 2005 audit.
refunds. annually via a
(short-term) memorandum,
notice, or an
Alert. As part
of the
reminder, the
IRM check
sheets
will be
included and a
response will
be required
confirming
these actions
have been
taken.
In addition,
IRS will
consider
including this
item in the
Management
Accountability
Review Process.
114 05-38 Enforce requirements for monitoring accounts and reviewing
monitoring of accounts. (short-term)
Management Report: Improvements Needed in IRS's Internal Controls
( GAO-05-247R , Apr. 27, 2005) Open. IRS will enforce monitoring
requirements by reminding management officials annually via a memorandum,
notice, or an Alert. As part of the reminder, the IRM check sheets will be
included and a response will be required confirming these actions have
been taken. In addition, IRS will consider including this item in the
Management Accountability Review Process.
Open. This is a new recommendation. We will review IRS's corrective
actions during our fiscal year 2005 audit.
115 05-39 Enforce requirements for Management Report:
documenting monitoring Improvements Needed in
actions and supervisory IRS's Internal Controls
review. (short-term) (GAO-05-247R, Apr. 27,
2005)
Open. IRS will enforce requirements to document monitoring by reminding
management officials annually via a memorandum, notice, or an Alert. As
part of the reminder, the IRM check sheets will be included and a response
will be required confirming these actions have been taken. In addition,
IRS will consider including this item in the Management Accountability
Review Process.
Open. This is a new recommendation. We will review IRS's corrective
actions during our fiscal year 2005 audit.
116 05-40 Enforce the requirement Management Report:
that command code Improvements Needed in
profiles be reviewed at IRS's Internal Controls
least once annually. (GAO-05-247R, Apr. 27,
(short-term) 2005)
Open. IRS will enforce annual review of command code profiles by reminding
management officials annually via a memorandum or notice. As part of the
reminder, the IRM check sheets will be included and a response will be
required confirming these actions have been taken. In addition, IRS will
consider including this in the Management Accountability Review Process.
Open. This is a new recommendation. We will review IRS's corrective
actions during our fiscal year 2005 audit.
(Continued From Previous Page)
Status of recommendations
Count No. Recommendation Source report Per IRS Per GAO
117 05-41 Specify in the IRM that staff members are not to review their
own command code profiles. (short-term)
Management Report: Improvements Needed in IRS's Internal Controls
( GAO-05-247R , Apr. 27, 2005) Open. The IRM wording will be updated and
recommendations will be included in annual reminders (memos/notices, etc.)
to management officials that the approver's manager is responsible for
ensuring that approvers' profiles have appropriate restrictions and have
been reviewed.
Open. This is a new recommendation. We will review IRS's corrective
actions during our fiscal year 2005 audit.
118 05-42 Specify in the IRM how to properly verify interest and penalties
for accounts with liens with manually calculated interest or penalties.
(short-term)
Management Report: Improvements Needed in IRS's Internal Controls
( GAO-05-247R , Apr. 27, 2005) Closed. IRS revised the IRM to instruct
employees to check the Integrated Data Retrieval System (IDRS) to
determine if restricted interest or penalty is due. The IRM now clearly
states that there are only two instances where restricted interest and
penalty should not be computed, offer-in-compromise and bankruptcy cases.
Also, instructions for computing restricted interest and penalty are found
in the Automated Lien System (ALS) User Guide as well as in training
material and desk guides. In addition, tax examiners hired to staff the
Centralized Case Processing (CCP), Lien Processing Unit were provided
hands-on training in the computation of restricted interest and penalty.
Resolution of these cases moved to CCP effective February 2005. The
centralized site has created a special group of employees who were trained
in the resolution of restricted interest and penalty cases. New hires for
this group will also receive this training.
Open. This is a new recommendation. IRS's actions occurred subsequent to
the completion of our fiscal year 2004 audit. We will review IRS's
corrective actions during our fiscal year 2005 audit.
Appendix II
Details on Audit Methodology
To fulfill our responsibilities as the auditor of the Internal Revenue
Service's (IRS) financial statements, we did the following:
o Examined, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. This included testing
selected statistical samples of unpaid assessments, revenue, refunds,
accrued expenses, payroll, nonpayroll, property and equipment, and
undelivered order transactions. These statistical samples were
selected primarily to substantiate balances and activities reported in
IRS's financial statements. Consequently, dollar errors or amounts can
and have been statistically projected to the population of
transactions from which they were selected. In testing these samples,
certain attributes were identified that indicated either significant
deficiencies in the design or operation of internal control or
compliance with provisions of laws and regulations. These attributes,
where applicable, can be and have been statistically projected to the
appropriate populations.
o Assessed the accounting principles used and significant estimates made
by management.
o Evaluated the overall presentation of the financial statements.
o Obtained an understanding of internal controls related to financial
reporting (including safeguarding assets), compliance with laws and
regulations (including the execution of transactions in accordance
with budget authority), and performance measures reported in the
Management's Discussion and Analysis.
o Tested relevant internal controls over financial reporting (including
safeguarding assets) and compliance, and evaluated the design and
operating effectiveness of internal controls.
o Considered the process for evaluating and reporting on internal
controls and financial management systems under 31 U.S.C. S: 3512(c),
(d), commonly referred to as the Federal Managers' Financial Integrity
Act of 1982.
* Tested compliance with selected provisions of the following laws
and regulations: Anti-Deficiency Act, as amended (31 U.S.C. S:
1341(a)(1) and 31 U.S.C. S: 1517(a)); agreements for payment of
tax liability in installments (26 U.S.C. S: 6159); Purpose
Statute (31 U.S.C. S: 1301); release of lien or discharge of
property (26 U.S.C. S: 6325); interest on
* underpayment, nonpayment, or extensions of time for payment of
tax (26 U.S.C. S: 6601); interest on overpayments (26 U.S.C. S:
6611); determination of rate of interest (26 U.S.C. S: 6621);
failure to file tax return or to pay tax (26 U.S.C. S: 6651);
failure by individual to pay estimated income tax (26 U.S.C. S:
6654); failure by corporation to pay estimated income tax (26
U.S.C. S: 6655); Prompt Payment Act (31 U.S.C. S: 3902 (a), (b),
and (f), and 31 U.S.C. S: 3904); Fair Labor Standards Act of
1938, as amended (29 U.S.C. S: 206); Civil Service Retirement Act
of 1930, as amended (5 U.S.C. S:S: 5332 and 5343); Federal
Employees' Retirement System Act of 1986, as amended (5 U.S.C.
S:S: 8422, 8423 and 8432); Social Security Act, as amended (26
U.S.C. S:S: 3101 and 3121, and 42 U.S.C. S: 430); Federal
Employees Health Benefits Act of 1959, as amended (5 U.S.C. S:S:
8905, 8906, and 8909); and Consolidated Appropriations Act, 2004,
Pub. L. No. 108-199, 118 Stat. 3 (Jan. 23, 2004).
o Tested whether IRS's financial management systems substantially comply
with the three requirements of the Federal Financial Management
Improvement Act of 1996 (Pub. L. No. 104-208, div. A, S: 101(f), title
VIII, 110 Stat. 3009, 3009-389 (Sept. 30, 1996) (codified at 31
U.S.C. S: 3512 note).
Appendix III
Comments from the Internal Revenue Service
Appendix IV
GAO Contact and Staff Acknowledgments
Steven Sebastian, (202) 512-3406
GAO Contacts
Paul Foderaro, (202) 512-2535
In addition to the persons named above, Chuck Fox, William Cordrey,
Acknowledgments
Charles Payton, Patricia Blumenthal, Gloria Cano, Nina Crocker, John
Davis, Alain Dubois, David Elder, Valerie Freeman, John Gates, and Angel
Sharma made key contributions to this report.
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