Applying Agreed-Upon Procedures: Federal Unemployment Taxes
(03-NOV-06, GAO-07-130R).
We performed the procedures which we agreed to perform and with
which the Department of Labor (DOL) concurred soley to assist the
DOL in ascertaining whether the net federal unemployment tax
(FUTA) revenue distributed to the Unemployment Trust Fund (UTF)
for the fiscal year ended September 30, 2006, is supported by the
underlying records. The procedures we agreed to perform relate to
(1) transactions that represent underlying basis of amounts
distributed to the UTF and (2) key reconciliations of the
Internal Revenue Service records to the Department of the
Treasury Records.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-07-130R
ACCNO: A62924
TITLE: Applying Agreed-Upon Procedures: Federal Unemployment
Taxes
DATE: 11/03/2006
SUBJECT: Federal taxes
Funds management
Auditing procedures
Financial records
Financial statement audits
Trust funds
Policies and procedures
Treasury Unemployment Trust Fund
******************************************************************
** This file contains an ASCII representation of the text of a **
** GAO Product. **
** **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced. Tables are included, but **
** may not resemble those in the printed version. **
** **
** Please see the PDF (Portable Document Format) file, when **
** available, for a complete electronic file of the printed **
** document's contents. **
** **
******************************************************************
GAO-07-130R
* 130 enclosure.pdf
* IV. Other procedures performed as part of the fiscal year 20
* end of correspond & Test.pdf
* PDF6-Ordering Information.pdf
* Order by Mail or Phone
November 3, 2006
The Honorable Gordon S. Heddell
Inspector General
Department of Labor
Subject: Applying Agreed-Upon Procedures: Federal Unemployment Taxes
Dear Mr. Heddell:
We have performed the procedures contained in the enclosure to this
report, which we agreed to perform and with which you concurred, solely to
assist your office in ascertaining whether the net federal unemployment
tax (FUTA) revenue distributed to the Unemployment Trust Fund (UTF) for
the fiscal year ended September 30, 2006, is supported by the underlying
records. As agreed with your office, we evaluated fiscal year 2006
activity affecting distributions to the UTF.
In performing the agreed-upon procedures, we conducted our work in
accordance with U.S. generally accepted government auditing standards,
which incorporate financial audit and attestation standards established by
the American Institute of Certified Public Accountants. These standards
also provide guidance for performing and reporting the results of
agreed-upon procedures.
The adequacy of the procedures to meet your objectives is your
responsibility, and we make no representation in that respect. The
procedures we agreed to perform relate to (1) transactions that represent
the underlying basis of amounts distributed to the UTF and (2) key
reconciliations of the Internal Revenue Service records to the Department
of the Treasury records. The enclosure contains the agreed-upon procedures
and our findings from performing each of the procedures.
We were not engaged to perform, and did not perform, an audit, the
objective of which would have been the expression of an opinion on the net
amount of FUTA taxes distributed to the UTF. Accordingly, we do not
express such an opinion. Had we performed additional procedures, other
matters might have come to our attention that would have been reported to
you. We completed the agreed-upon procedures on
October 26, 2006.
We provided a draft of this report to IRS for review and comment. IRS
agreed with the results and findings presented in this report.
This report is intended solely for the use of the Office of Inspector
General of the Department of Labor and should not be used by those who
have not agreed to the procedures and have not taken responsibility for
the sufficiency of the procedures for their purposes. However, this report
is a matter of public record, and its distribution is not limited. Copies
are available to others upon request. This report is also available at no
charge on GAO's Web site at http://www.gao.gov. If you have any questions,
please call me at (202) 512-3406. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last page
of this report.
Sincerely yours,
Steven J. Sebastian
Director
Financial Management and Assurance
Enclosure
Federal Unemployment Tax Procedures and Results
I. Procedures on detailed transactions
A. Obtain from the Internal Revenue Service (IRS) total Federal
Unemployment Tax (FUTA) collections and refunds reflecting the first 8
months of fiscal year 2006 posted to the master file.1 Compare FUTA
collections and refund data per the master file to determine if they agree
in all material respects2 to IRS's general ledger.
Description of findings and results
Total FUTA collections and refunds for the first 8 months of fiscal year
2006 per IRS's master file materially agreed with IRS's general ledger.
B. Use dollar unit sampling (DUS) to select a sample of combined
FUTA collection and refund transactions from the master file for
the first 8 months of fiscal year 2006, using a confidence level
of 80 percent, a test materiality of $465 million, and an expected
aggregate error amount of $140 million.
Description of findings and results
Use of DUS with a confidence level of 80 percent, a test materiality of
$465 million, and an expected aggregate error amount of $140 million
resulted in a sample of 38 transactions for the first 8 months of fiscal
year 2006. All of the 38 transactions represented FUTA collections.3
C. For each sampled FUTA tax collection transaction:
1. Trace collection transaction amounts from IRS's master files to
supporting documents (e.g., federal tax deposit coupons) to
determine whether collection amounts are accurately recorded.
Description of findings and results
Based on supporting documentation, collection amounts were
accurately recorded for all 38 sampled FUTA collection
transactions.
2. Compare the date in the master file with the date on source
documents to determine whether amounts were recorded to the
appropriate period.
Description of findings and results
Based on supporting documentation, collection amounts were
recorded to the appropriate period for all 38 sampled FUTA
collection transactions.
3. Inspect source documentation maintained in IRS's files (e.g.,
tax returns) to determine whether the transactions were properly
classified as FUTA receipts.
Description of findings and results
Based on supporting documentation, collection amounts were
recorded in the correct tax class4 for all 38 sampled FUTA
collection transactions.
4. Confirm FUTA transactions paid via the Electronic Federal Tax
Payment System (EFTPS)5 to determine whether the recorded
transactions are valid and reflect the proper amounts, are applied
to the proper tax period, and are properly classified as FUTA
receipts.
Description of findings and results
Of the 38 sampled FUTA collection transactions, 32 were paid via
EFTPS. The bank confirmation showed that all 32 transactions were
valid and had been recorded to the proper tax period and tax class
and for the proper amounts.
1The master file is a detailed database containing taxpayer information.
2For this procedure, "material" is defined as $465 million. This
represents 1 percent of net Unemployment Trust Fund collections for fiscal
year 2005.
3Consequently, procedures agreed to regarding refund transactions are not
applicable.
II. Analytical procedures
A. Perform a predictive test on FUTA revenue collections and
refunds for the final 4 months of fiscal year 2006 and determine
whether the predicted FUTA collection and refund amounts vary
materially6 from the actual FUTA revenue collection and refund
amounts per IRS's records for this period.
Description of findings and results
The predicted FUTA revenue collection and refund data amounts for
the final 4 months of fiscal year 2006 did not materially vary
from the amounts for revenue collections and refunds per IRS's
records for this period.
4IRS assigns a tax class number to specific types of taxes. FUTA taxes are
tax class 8.
5EFTPS is a Financial Management Service system maintained by two
financial agents for the government. EFTPS is used for initiating tax
payments electronically. Employers who make federal tax deposits exceeding
$200,000 must use EFTPS to pay their FUTA taxes. The $200,000 threshold
includes all federal tax deposits, such as deposits for employment tax,
excise tax, and corporate income tax. Taxpayers who are not required to
make electronic deposits may voluntarily participate in EFTPS.
6For this procedure, "material" is defined as $465 million.
III. Other FUTA procedures
A. For each of the 12 months in fiscal year 2006, obtain supporting
documentation for monthly revenue reclassification adjustments transmitted
by IRS to the Financial Management Service (FMS). Compare the supporting
documentation with the reclassification adjustments transmitted to FMS.
Description of findings and results
Documentation was consistent with the monthly FUTA reclassification
adjustment amount transmitted to FMS for all 12 months of fiscal year
2006.
B. For each of the 12 months in fiscal year 2006, obtain
supporting documentation for the monthly entry of FUTA refund data
into the Government Online Accounting Link System (GOALS) to
charge back the Unemployment Trust Fund (UTF) account for FUTA tax
refunds issued. Compare the supporting documentation with the
monthly entries reported on GOALS.
Description of findings and results
Documentation was consistent with the monthly FUTA refund amount
entered into GOALS to charge the UTF for FUTA tax refunds issued
for all 12 months of fiscal year 2006.
C. Compare fiscal year 2006 net FUTA collections per IRS's draft
statement of custodial activity and related footnote disclosures
to (1) the Department of the Treasury's Bureau of the Public Debt
(BPD) accounting records for the UTF and (2) drafts of the
Department of Labor's (DOL) consolidated financial statements to
determine whether any significant7 variances exist.
Description of findings and results
There were no significant variances between net FUTA collections
per IRS's draft statement of custodial activity and BPD's
accounting records for UTF. Similarly, there were no significant
variances between IRS's draft statement of custodial activity and
related footnote disclosures and drafts of DOL's fiscal year 2006
consolidated financial statements.
7For this procedure, "significant" is defined as $465 million.
IV. Other procedures performed as part of the fiscal year 2006 IRS financial
statement audit
A. From IRS's master files for the first 8 months of fiscal year 2006, use
DUS to select statistical samples of (1) total tax revenue receipts and
(2) refunds. For each sample item, compare the receipt or refund amount,
tax period, and tax class from source documentation with those recorded in
IRS's master files.
Description of findings and results
The receipt or refund amount, tax period, and tax class from source
documents for 156 revenue receipts and 53 refund sample transactions were
consistent with amounts recorded in IRS's master files.
B. Obtain selected IRS service center campuses' monthly Department of the
Treasury FMS 224 reconciliations8 and determine whether IRS-reported
revenue receipts and refunds were materially reconciled9 to Department of
the Treasury (Treasury) FMS records.
Description of findings and results
Tax revenue receipts and refunds reported by selected IRS service center
campuses through the monthly Treasury FMS 224 reconciliation process
materially reconcile to Treasury FMS records.
C. Compare tax revenue receipt balances by tax class, including
FUTA, and total refund balances recorded in IRS's general ledger
with the master files and Treasury records to determine if they
agree in all material respects.
Description of findings and results
Tax receipt balances for all tax classes, including FUTA, and
total refund balances per IRS's general ledger materially agreed
with IRS's master files and Treasury records.
(196089)
8At the end of each month, each IRS campus provides Department of the
Treasury its FMS 224 (Statement of Transactions) generated from IRS's
general ledger, reporting receipts and refunds journalized during the
month. The Department of the Treasury reconciles the amounts on the FMS
224 with its records and provides IRS a Statement of Differences for any
differences identified.
9For the purpose of this procedure and procedure IV.C, we define
"material" as $23 billion. This represents 1 percent of the estimated
gross tax revenue receipts to be collected by IRS in fiscal year 2006.
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
work may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this material
separately.
GAO's Mission
The Government Accountability Office, the audit, evaluation and
investigative arm of Congress, exists to support Congress in meeting its
constitutional responsibilities and to help improve the performance and
accountability of the federal government for the American people. GAO
examines the use of public funds; evaluates federal programs and policies;
and provides analyses, recommendations, and other assistance to help
Congress make informed oversight, policy, and funding decisions. GAO's
commitment to good government is reflected in its core values of
accountability, integrity, and reliability.
Obtaining Copies of GAO Reports and Testimony
The fastest and easiest way to obtain copies of GAO documents at no cost
is through GAO's Web site ( www.gao.gov ). Each weekday, GAO posts newly
released reports, testimony, and correspondence on its Web site. To have
GAO e-mail you a list of newly posted products every afternoon, go to
www.gao.gov and select "Subscribe to Updates."
Order by Mail or Phone
The first copy of each printed report is free. Additional copies are $2
each. A check or money order should be made out to the Superintendent of
Documents. GAO also accepts VISA and Mastercard. Orders for 100 or more
copies mailed to a single address are discounted 25 percent. Orders should
be sent to:
U.S. Government Accountability Office 441 G Street NW, Room LM Washington,
D.C. 20548
To order by Phone: Voice: (202) 512-6000 TDD: (202) 512-2537 Fax: (202)
512-6061
To Report Fraud, Waste, and Abuse in Federal Programs
Contact:
Web site: www.gao.gov/fraudnet/fraudnet.htm E-mail: [email protected]
Automated answering system: (800) 424-5454 or (202) 512-7470
Congressional Relations
Gloria Jarmon, Managing Director, [email protected] (202) 512-4400 U.S.
Government Accountability Office, 441 G Street NW, Room 7125 Washington,
D.C. 20548
Public Affairs
Paul Anderson, Managing Director, [email protected] (202) 512-4800 U.S.
Government Accountability Office, 441 G Street NW, Room 7149 Washington,
D.C. 20548
*** End of document. ***