Applying Agreed-Upon Procedures: Highway Trust Fund Excise Taxes
(03-NOV-06, GAO-07-131R).
We have performed procedures, which we agreed to perform and with
which the Department of Transportation (DOT) concurred, solely to
assist the office of the Inspector General in ascertaining
whether the net excise tax revenue distributed to the Highway
Trust Fund (HTF) for the fiscal year ended September 30, 2006, is
supported by the underlying records. As agreed with DOT, we
evaluated fiscal year 2006 activity affecting distributions to
the HTF. In performing the agreed-upon procedures, we conducted
our work in accordance with U.S. generally accepted government
auditing standards, which incorporate financial audit and
attestation standards established by the American Institute of
Certified Public Accountants. These standards also provide
guidance for performing and reporting the results of agreed-upon
procedures. The adequacy of the procedures to meet DOT objectives
is DOT's responsibility, and we make no representation in that
respect. The procedures we agreed to perform were related to (1)
detailed tests of transactions that represent the underlying
basis of amounts distributed to the HTF, (2) Internal Revenue
Service's (IRS) quarterly HTF certifications, (3) Department of
the Treasury's Financial Management Service adjustments to the
HTF during fiscal year 2006, (4) IRS's precertification of
receipts for each quarter completed in fiscal year 2006, (5)
certain procedures of the Department of the Treasury's Office of
Tax Analysis' (OTA) process for estimating amounts to be
distributed to the HTF for the fourth quarter of fiscal year
2006, and other procedures related to (6) the net amount of
fiscal year 2006 excise taxes distributed to the HTF, (7)
transactions that represent total IRS tax revenue receipts and
refunds, and (8) key reconciliations of IRS records to Treasury
records. The enclosure contains the agreed-upon procedures and
our findings from performing each of the procedures.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-07-131R
ACCNO: A62925
TITLE: Applying Agreed-Upon Procedures: Highway Trust Fund
Excise Taxes
DATE: 11/03/2006
SUBJECT: Allocation (Government accounting)
Auditing procedures
Auditing standards
Excise taxes
Fund audits
Trust funds
Highway Trust Fund
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GAO-07-131R
* 131 enclosure.pdf
* Procedures on IRS's quarterly HTF receipt certifications
* The FMS adjustments made to the HTF accounts (Highway and Ma
* Procedures on IRS's HTF precertification for the quarters en
* Other procedures
* end of correspond & Test.pdf
* PDF6-Ordering Information.pdf
* Order by Mail or Phone
November 3, 2006
The Honorable Todd J. Zinser
Acting Inspector General
Department of Transportation
Subject: Applying Agreed-Upon Procedures: Highway Trust Fund Excise Taxes
Dear Mr. Zinser:
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 excise tax revenue
distributed to the Highway Trust Fund (HTF) 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 HTF.
In performing the agreed-upon procedures, we conducted our work in
accordance with U.S. generally accepted government auditing standards,
which incorporate financial audit and attestation standards established by
the American Institute of Certified Public Accountants. These standards
also provide guidance 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 were related to (1) detailed tests of
transactions that represent the underlying basis of amounts distributed to
the HTF, (2) Internal Revenue Service's (IRS) quarterly HTF
certifications, (3) Department of the Treasury's Financial Management
Service adjustments to the HTF during fiscal year 2006, (4) IRS's
precertification1 of receipts for each quarter completed in fiscal year
2006, (5) certain procedures of the Department of the Treasury's Office of
Tax Analysis' (OTA) process for estimating amounts to be distributed to
the HTF for the fourth quarter of fiscal year 2006, and other procedures
related to (6) the net amount of fiscal year 2006 excise taxes distributed
to the HTF, (7) transactions that represent total IRS tax revenue receipts
and refunds, and (8) key reconciliations of IRS records to Treasury
records. The enclosure contains the agreed-upon procedures and our
findings from performing each of the procedures.
1 To accommodate the Department of Transportation's accelerated reporting
date for fiscal year 2006, IRS performed precertifications of excise tax
collections. The data are for information purposes only and the
precertification does not constitute an official certification.
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
amount of net excise taxes distributed to the HTF. 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.2 We completed the agreed-upon procedures on October 25, 2006.
We provided a draft of this report to IRS and OTA officials for review and
comment. IRS agreed with the results and findings presented in this
report. OTA's review of the report only covered the procedures related to
the estimation process for the quarter ended September 30, 2006. OTA
agreed with the results and findings presented in this report relating to
procedures performed on the estimation process for the quarter ended
September 30, 2006.
This report is intended solely for the use of the Office of Inspector
General of the Department of Transportation and should not be used by
those who have not agreed to the procedures and have not taken
responsibility for the sufficiency of the procedures for their purpose.
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
2 In our report on the results of our audit of IRS's fiscal year 2005
financial statements, we noted a material weakness in IRS's financial
reporting process (GAO, Financial Audit: IRS's Fiscal Years 2005 and 2004
Financial Statements, GAO-06-137, [Washington, D.C.: Nov. 10, 2005]). A
component of this weakness includes IRS's inability to allocate excise tax
collections to the appropriate trust funds at the time deposits are made.
This condition affects the adequacy of the distributions of federal excise
tax revenue to recipient trust funds and is a continuation of an issue
that we have reported on in prior years.
Highway Trust Fund Excise Tax Procedures and Results
I. Procedures on detailed transactions that represent the
underlying basis of amounts distributed to the Highway Trust Fund
(HTF) in fiscal year 2006
A. Nonstatistical selection of tax returns from the
quarters ended June 30, 2005, and September 30, 20053
1. For each of the quarters ending June
30, 2005, and September 30, 2005, select
the 30 largest excise tax returns
containing excise taxes related
primarily to the HTF and the Airport and
Airway Trust Fund (AATF) on the basis of
total tax liability amount4 from the
Internal Revenue Service's (IRS) master
file.5
Description of findings and results
We selected the 30 largest excise tax
returns related primarily to the HTF and
the AATF from each of the two quarters
for testing. The selection was based on
the total tax liability amount owed for
each return from IRS's master file.
The total tax liability amount related
to the 30 returns from the quarter ended
June 30, 2005, was approximately $9.7
billion, or 65 percent of the total
excise tax liability amount of $15
billion for all excise tax types for the
quarter. Of these 30 returns, 21
contained primarily HTF-related taxes
and 9 contained primarily AATF taxes.
The total tax liability amount related
to the 30 returns from the quarter ended
September 30, 2005, was approximately
$9.8 billion, or 65 percent of the total
excise tax liability amount of $15
billion for all excise tax types for the
quarter. Of these 30 returns, 21
contained primarily HTF-related taxes
and 9 contained primarily AATF taxes.
2. For each of the 42 returns related
primarily to the HTF from the quarters
ended June 30, 2005, and September 30,
2005, we performed the following
procedures, which encompassed
approximately $15 billion in prorated
collections6 affecting fiscal year 2006
distributions to the HTF:
(a) Trace the liability amount for
abstracts7 60 and 62 from the tax
return to IRS's master file.
Description of findings and results
The liability amount for abstracts 60
and 62 on the tax return agreed with
the master file for 41 of the 42
returns. For one tax return for the
quarter ended September 30, 2005, the
taxpayer reported a credit for
abstract 62, but the IRS did not have
the supporting documentation to
substantiate the credit. As a result,
the prorated collection amount in the
Collection Certification System may
be overstated by $363,000 for
abstract 62 and $107,000 for abstract
60.
(b) Inspect the taxpayers'
calculations on the tax return for
the selected abstracts to determine
whether they are mathematically
correct.
Description of findings and results
The taxpayers' calculations on all 42
returns were mathematically correct.
(c) Calculate the prorated collection
amount for the selected abstracts
based on information from the master
file and compare this amount to the
amount from the Collection
Certification System audit files.8
Description of findings and results
The independently calculated prorated
collection amounts for the two
selected abstracts agreed with the
amounts in IRS's Collection
Certification System for all 42
returns.
B. Dollar unit sample (DUS) of transactions from the
quarters ended
December 31, 2005, and March 31, 2006
1. Sampling
(a) Obtain excise tax collection data
from the master file for the first
two quarters of fiscal year 2006.
Compare excise tax collection data
from the master file with data from
IRS's general ledger to determine if
they materially agree.9 Compare total
excise tax collections from the
master file with total excise tax
collections from the Collection
Certification System audit files to
determine if they materially agree.
Description of findings and results
Excise tax collections for the first
two quarters of fiscal year 2006 from
the master file materially agreed
with IRS's general ledger and with
total excise tax collections from the
Collection Certification System.
(b) Select a random attribute sample
of 78 excise tax assessments from the
master file.10 Compare assessment and
receipt information for each sample
item from the master file to the
assessment and receipt information in
the Collection Certification System
to determine if assessments and
receipts from the master file are
contained in the Collection
Certification System.
Description of findings and results
For 77 of the 78 sample items,
assessments and receipts from the
master file were contained in the
Collection Certification System. For
one sample item, the tax liability
associated with the tax return was
abated,11 however, the assessment
amount of $18,000 for abstract 71 was
not abated and, therefore, was
incorrectly included in the
Collection Certification System.
(c) Sum the prorated collections for
selected abstracts12 from the audit
files and compare these amounts to
amounts in the Report of Excise Tax
Collection13 to determine if the
Collection Certification System
properly summarized the prorated
collections.
Description of findings and results
The Collection Certification System
properly summarized the prorated
collections for all of the selected
abstracts. Prorated collections from
the audit files for the selected
abstracts agreed with the
corresponding amounts in the Report
of Excise Tax Collection.
(d) Separate the total population of
prorated collections from the audit
files into the following distinct
populations: (1) HTF, (2) AATF, and
(3) other excise tax abstracts. Use
DUS to select a sample of prorated
excise tax collections from the HTF
population using a confidence level
of 80 percent, a test materiality of
$379 million, and an expected
aggregate error amount of $114
million.
Description of findings and results
Use of DUS with a confidence level of
80 percent, a test materiality of
$379 million, and an expected
aggregate error amount of $114
million resulted in a sample of 9414
prorated collections for the HTF for
the first
two quarters of fiscal year 2006.
(e) Select samples of prorated excise
tax collections from the two non-HTF
populations. Use DUS to select a
sample of prorated excise tax
collections from the AATF population
using a confidence level of 80
percent, a test materiality of $103
million, and an expected aggregate
error amount of $31 million. Select a
random attribute sample of 45 items
from the population of prorated tax
collections related to all excise
taxes other than the HTF and the
AATF.
Description of findings and results
Use of DUS with a confidence level of
80 percent, a test materiality of
$103 million, and an expected
aggregate error amount of $31 million
resulted in a sample of 6615 prorated
collections for the AATF for the
first two quarters of fiscal year
2006.
A random attribute sample of 45 items
was selected from the population of
prorated tax collections related to
all excise taxes other than the HTF
and the AATF.16
2. Detailed transactions
(a) For each prorated excise tax
collection sampled from the HTF
population:
o Compare the assessment amount on
the tax return for the sampled
abstract with the amount recorded in
IRS's master file.
Description of findings and results
The assessment amount on the tax
return agreed with the amount
recorded in the master file for all
of the sampled items.
o Inspect the taxpayers'
calculations on the tax returns for
the related abstract to determine
whether they are mathematically
correct.
Description of findings and results
The taxpayers' calculations were
mathematically correct on the tax
return for all of the sampled items.
o Calculate the prorated collection
amount based on information from the
master file and compare this amount
to the sample items selected from the
Collection Certification System audit
files.17
Description of findings and results
The independently calculated prorated
collection, based on information from
the master file, agreed with the amounts
for all of the sampled items selected
from the Collection Certification System
audit files.
(b) Inspect the tax returns and
master file information for the two
samples of prorated collections from
the non-HTF populations to determine
if they contain any HTF excise tax
collections.
Description of findings and results
The two samples of prorated collections from the non-HTF
populations did not contain any HTF excise tax collections.
(c) Evaluate the results of conducting steps (a) and
(b).
Description of findings and results
For the first 6 months of fiscal year 2006, the net most likely
error is $0 with an upper error limit of $228 million at the
80-percent confidence level.
II. Procedures on IRS's quarterly HTF receipt certifications
Perform the following procedures on IRS's HTF receipt
certification for the quarters ended September 30, 2005, December
31, 2005, and March 31, 2006:
A. Inspect the certification letters18 for
authorizing signatures.
Description of findings and results
The certification letters for all three quarters had
authorizing signatures.
B. Inspect the certification letters and supporting
worksheets to determine if evidence exists that they
were reviewed by the supervisor or another analyst.
Description of findings and results
There was evidence that the supervisor or another
analyst reviewed the certification letters and
supporting worksheets for all three quarters.
C. Calculate the totals on the certification letters
to determine if they are mathematically correct.
Description of findings and results
The totals on the certification letters for all three
quarters were mathematically correct.
D. Trace the certified amounts for diesel fuel tax
(abstract 60) and gasoline tax (abstract 62)19 from
the certification letters back to the Report of
Excise Tax Collection20 and the Treasury 90 Report.21
Description of findings and results
The certified amounts for diesel fuel tax (abstract
60) and gasoline tax (abstract 62) from the
certification letters agreed with the related Report
of Excise Tax Collection and the Treasury 90 Report
for the quarters ended September 30, 2005, and
December 31, 2005. For the quarter ended March 31,
2006, the certified amounts for abstracts 60 and 62
from the certification letters agreed with the Report
of Excise Tax Collection but not with the Treasury 90
Report. In deriving the certified amounts for
abstracts 60 and 62 for that quarter, IRS deducted
the incorrect amount of credits from the
Treasury 90 Report. This resulted in a $15,398,992
understatement of the amount certified to the HTF for
the quarter ended March 31, 2006.
E. Compare the distribution rates used by IRS for
diesel fuel tax (abstract 60) and gasoline tax
(abstract 62) with the applicable laws.22
Description of findings and results
The distribution rates used by IRS for diesel fuel
tax (abstract 60) and gasoline tax (abstract 62)
agreed with the applicable laws in effect during all
three quarters.
F. Inspect the Report of Excise Tax Collection used
in the certification to determine if it contains
significant23 collections from prior quarters.
Description of findings and results
The Report of Excise Tax Collection used in the
certification for all three quarters did not contain
significant collections from prior quarters.
G. Trace heavy vehicle use tax amounts
from the Highway Account certification
letters to the master file.24
Description of findings and results
The heavy vehicle use tax amounts from
the Highway Account certification letter
agreed with the master file for all
three quarters.
III. Procedures on Financial Management Service adjustments
Perform the following steps on Financial Management Service (FMS)
adjustments to HTF excise tax distributions for the quarters ended
June 30, 2005, September 30, 2005, December 31, 2005, and March
31, 2006:
A. Compare the FMS adjustments made to the HTF with
original Office of Tax Analysis (OTA) estimates and
IRS-certified amounts, and with the supporting
schedules.25
3 Since certifications are not completed until 6 months after the end of
the quarter, the certification and corresponding adjustment by the
Department of the Treasury's (Treasury) Financial Management Service for
the quarters ended June 30, 2005, and September 30, 2005, were completed
in December 2005 and March 2006, respectively, and thus affected
distributions to the HTF during fiscal year 2006.
4 Although the certifications are based on amounts collected, we used the
tax liability amounts to identify the taxpayers paying the largest amounts
of excise taxes. Our work shows that these taxpayers generally pay their
excise taxes in full each quarter.
5 The master file is a detailed database containing taxpayer information.
6 IRS certifies to trust funds the amount of excise taxes collected.
Because taxpayers have sometimes not fully paid their tax liability, IRS
must allocate the amount of payments actually received among the different
excise taxes reported on the taxpayer's return. IRS's Collection
Certification System prorates a taxpayer's payments proportionately among
all taxes reported as owed on the tax return. For example, if a
corporation reports that it owes $4 million for gasoline tax, $2 million
for diesel fuel tax, and $1 million for kerosene tax on its Form 720,
Quarterly Federal Excise Tax Return, but has paid IRS only $3.5 million at
the time IRS performs its certification, the program prorates the $3.5
million in the following manner: $2 million to gasoline tax, $1 million to
diesel fuel tax, and $500,000 to kerosene tax.
7 The abstract numbers identify the tax type (e.g., gasoline and ticket
tax) and are used as the basis for determining the distribution of the
excise taxes to the various trust funds. Abstract numbers are preprinted
on Form 720, Quarterly Federal Excise Tax Return, and are used by the
taxpayer to report excise tax assessments. If the return was related to
the HTF, we selected (1) diesel fuel tax (abstract 60) and (2) gasoline
tax (abstract 62). If the return was related to the AATF, we selected (1)
tax on transportation of persons by air (abstract 26), (2) tax on the use
of international air travel facilities (abstract 27), and (3) tax on
transportation of property by air (abstract 28). The tax amounts related
to the selected abstracts for each trust fund are the largest tax amounts
reported on the taxpayer's excise tax return and made up over 83 percent
of the total amount certified to the HTF and over 90 percent of the total
amount certified to the AATF for the quarters ended June 30, 2005, and
September 30, 2005.
8 The Collection Certification System produces what IRS refers to as audit
files. These audit files contain individual prorated collections by
abstract and taxpayer identification number. The certified amounts to the
trust funds are calculated by subtracting credits from prorated
collections and then multiplying the difference by the applicable trust
fund distribution rates.
9 For the purpose of this procedure, "material" is defined as 1 percent of
the Form 720-related excise tax collections for the quarters ended
December 31, 2005, and March 31, 2006. For fiscal year 2006, the
materiality amount was $236 million for the two quarters combined.
10 For this sample, if one or no errors were found in testing the 78
items, we would be 90 percent confident that the error rate in the
population would not exceed 5 percent.
11 Abatements are reductions in the amount of taxes owed and can occur for
a variety of reasons, such as to correct errors made by IRS or taxpayers
or to provide relief from interest and penalties. 26 U.S.C. S: 6404.
12 The selected abstracts are (1) diesel fuel tax (abstract 60), (2)
gasoline tax (abstract 62), (3) tax on transportation of persons by air
(abstract 26), (4) tax on the use of international air travel facilities
(abstract 27), (5) tax on transportation of property by air (abstract 28),
and (6) tax on kerosene for use in commercial aviation (abstract 77). The
tax amounts for the two HTF-related abstracts made up over 86 percent of
the total amount certified to the HTF and the tax amounts for the four
AATF-related abstracts made up over 99 percent of the total amount
certified to the AATF for the quarters ended December 31, 2005, and March
31, 2006.
13 The Report of Excise Tax Collection contains prorated collections,
classified by abstracts, that serve as the basis for IRS's quarterly trust
fund certifications.
14 The planned sample size using DUS was 145 items. DUS selects dollars
instead of specific transaction items by dividing the population by dollar
intervals. The dollar interval for the HTF was $137 million. Accordingly,
any item with a dollar value equal to or exceeding the sampling interval
would be selected, whereas items with dollar values below the sampling
interval might not be selected. For example, an item of $274 million would
cover two dollar intervals, but represent one sample item. Due to
large-dollar items covering more than one interval, the 94 unique sampled
transactions selected represent 145 dollar intervals.
15 The planned sample size using DUS was 136 items. As explained in
footnote 14, DUS selects dollars instead of specific transaction items by
dividing the population by dollar intervals. The dollar interval for the
AATF was $37 million. Because large-dollar items cover more than one
interval, the 66 unique sampled transactions represent 136 dollar
intervals.
16 For this sample, if no errors are found in the 45 items, we would be 90
percent confident that the error rate in the population would not exceed 5
percent.
17 The purpose of this procedure is to determine whether the Collection
Certification System prorates correctly. This procedure is not intended to
determine whether amounts provided to the system are correct.
18 IRS prepares two certification letters for the HTF each quarter: one
for the Highway Account and the other for the Mass Transit Account.
19 The certified amounts for diesel fuel tax (abstract 60) and gasoline
tax (abstract 62), along with the heavy vehicle use tax (traced
separately), made up over 87 percent of the total amount certified to the
HTF for the quarters ended September 30, 2005, December 31, 2005, and
March 31, 2006.
20 IRS uses data from two of these reports, covering sequential processing
intervals, for each quarterly certification. Collections are classified by
abstract on the report when the related Form 720 tax return has been
posted to IRS's master file during the processing interval covered by the
report. The second of the two reports used may contain collections related
to prior quarters that IRS certifies as part of the current quarter's
collections because the related return was not posted to the master file
until the processing interval covered by this report.
21 The Treasury 90 Report summarizes excise tax credit information and is
produced quarterly by IRS submission processing campus systems. IRS has
eight submission processing campuses that receive and process tax returns
and payments.
22 IRS calculates certified collections to the Highway Account and the
Mass Transit Account using the total prorated collection amount, tax rate,
and distribution rates applicable to each account.
23 For this procedure, "significant" is defined as $175 million, which
represents approximately 2 percent of the total amount certified to the
HTF for the quarters ended September 30, 2005, December 31, 2005, and
March 31, 2006.
24 These taxes, which go to HTF, are reported on Form 2290 and are not
included in the Collection Certification System.
Description of findings and results
The FMS adjustments made to the HTF accounts (Highway and Mass Transit) agreed
with the original OTA estimates and IRS-certified amounts, and with the
supporting schedules, for all four quarters.
B. Calculate the differences between the OTA estimates and
IRS-certified amounts to determine if the amounts agree with the
differences computed by FMS.
Description of findings and results
The independently calculated differences between the OTA estimates
and the IRS-certified amounts for the Highway Account agreed with
the differences computed by FMS for all four quarters. These
amounts were26
o ($162,439,000) for the quarter ended June 30,
2005;
o $388,440,000 for the quarter ended September 30,
2005;
o ($321,139,000) for the quarter ended December 31,
2005; and
o $2,248,000 for the quarter ended March 31, 2006.
The independently calculated differences between the OTA estimates
and the IRS-certified amounts for the Mass Transit Account agreed
with the differences computed by FMS for all four quarters. These
amounts were
o ($64,407,000) for the quarter ended June 30, 2005;
o ($20,809,000) for the quarter ended September 30,
2005;
o ($74,917,000) for the quarter ended December 31,
2005; and
o ($10,322,000) for the quarter ended March 31,
2006.
25An FMS accountant compiles this schedule, called the "Subsidiary
Quarterly Account of Estimates and Actual Related Excise Taxes
Appropriated to Highway Trust Fund." This schedule computes the difference
between IRS-certified amounts and the OTA estimate for excise taxes,
individually and in total, that relate to the Highway Account. A similar
schedule is prepared for the Mass Transit Account. The schedules, along
with OTA transfer forms and IRS certifications, support the FMS
adjustment.
26 A positive amount indicates that the FMS adjustment increased excise
taxes distributed to the trust fund. A negative amount, shown in
parentheses, indicates that the FMS adjustment decreased excise taxes
distributed to the trust fund.
IV. Procedures on IRS's HTF precertification for the quarters
ended September 30, 2005, December 31, 2005, March 31, 2006, and
June 30, 200627
A. Compare the precertified amount to the actual
amount certified to the HTF for the quarters ended
September 30, 2005, December 31, 2005, and March 31,
2006. If there is a significant variance,28 request
from the IRS data on any large returns omitted from
the precertification.
Description of findings and results
There were no significant variances between the
precertified amounts and the actual certified amounts
for the quarters ended December 31, 2005, and March
31, 2006. For the quarter ended September 30, 2005,
there was a significant variance of $755 million.
$702 million of this was attributable to an error IRS
made on the precertification related to the heavy
vehicle use tax, which resulted in an understatement
of the total HTF precertified amount. Because IRS's
precertification is not an actual certification that
results in any redistributions of excise taxes among
the trust funds, this error did not have an effect on
fiscal year 2006 distributions to the HTF.
B. Perform the following procedures on IRS's HTF precertification
for the quarter ended June 30, 2006:
1. Inspect the precertification letters and
supporting worksheets to determine if evidence exists
that they were reviewed by the supervisor or another
analyst.
Description of findings and results
There was evidence that the supervisor or another analyst reviewed
the precertification letters and supporting worksheets.
2. Calculate the totals on the precertification
letters to determine if they are mathematically
correct.
Description of findings and results
The totals on the precertification letters were mathematically
correct.
3. Trace the amounts for diesel fuel tax (abstract
60) and gasoline tax (abstract 62)29 from the
precertification letters back to the Report of Excise
Tax Collection and the Treasury 90 Report.
27 In order to accommodate the Department of Transportation's November 15
reporting date for fiscal year 2006, IRS performed precertifications of
excise tax receipts. The data in the precertification are for information
purposes only and do not represent an official certification for use in
adjusting the excise tax distributions to the HTF.
28 Significant is defined as 5 percent of the actual certified amount for
the quarter.
Description of findings and results
The precertified amounts for gasoline tax (abstract 62) from the
precertification letters agreed with the related Report of Excise Tax
Collection and Treasury 90 Report. The precertified amounts for diesel
fuel tax (abstract 60) from the precertification letters agreed with the
related Report of Excise Tax Collection but not with the Treasury 90
Report. In deriving the precertified amounts for abstract 60, the IRS
deducted the incorrect amount of credits from the Treasury 90 Report. This
resulted in an understatement of the precertified amount to the HTF for
the quarter ended June 30, 2006, of $88,363,365. Because IRS's
precertification is not an actual certification that results in any
redistributions of excise taxes among the trust funds, this error did not
have an effect on fiscal year 2006 distributions to the HTF.
4. Compare the distribution rates used by IRS for diesel fuel tax
(abstract 60) and gasoline tax (abstract 62) with the applicable
laws.
Description of findings and results
The distribution rates used by IRS for diesel fuel tax (abstract 60) and
gasoline tax (abstract 62) agreed with the applicable laws in effect
during the quarter.
5. Inspect the Report of Excise Tax Collection used in the
precertification to determine if it contains significant30
collections from prior quarters.
29 The certified amounts for diesel fuel tax (abstract 60) and gasoline
tax (abstract 62) made up over 86 percent of the precertified amount to
the HTF for the quarter ended June 30, 2006.
30 For this procedure, "significant" is defined as $175 million. This
represents approximately 2 percent of the precertified total to the HTF.
Description of findings and results
The Report of Excise Tax Collection supporting the precertification did
not contain significant collections from prior quarters.
6. Inspect the Collection Certification System information to
determine whether IRS omitted any significant31 returns from the
precertification. If so, report for the Highway Account and the
Mass Transit Account (1) the average amount of HTF-related excise
taxes from these taxpayers' returns that were included in IRS's
certification from the four previous quarters and (2) the amount
of HTF-related excise taxes from these taxpayers' returns that
were included in IRS's certification for the quarter ended June
30, 2005.
Description of findings and results
Our procedures did not identify any missing significant returns from the
precertification.
7. Trace the heavy vehicle use tax amount from the Highway Account
precertification letter to the master file.
Description of findings and results
The heavy vehicle use tax amount from the Highway Account precertification
letter agreed with the master file.
V. Procedures performed on excise tax distributions to the HTF for
the quarter ended September 30, 2006
A. Determine if OTA's process for identifying and
incorporating the effect of new legislation on excise
tax receipts into its trust fund estimates32 was in
place during the quarter ended September 30, 2006.
Description of findings and results
OTA's process for identifying and incorporating into
its trust fund estimates the effect of new
legislation on excise tax receipts was in place
during the quarter ended September 30, 2006. OTA
prepares a tax rate table33 to capture information
relating to legislation that affects tax rates, tax
basis, accounts, and deposit rules in effect during
the quarter.
B. Inspect the transfer forms and supporting
schedules to determine if there is evidence of
review.
Description of findings and results
There was evidence that another OTA economist
reviewed the transfer forms and supporting schedules
for the semimonthly transfers affecting distributions
to the HTF for the quarter ended September 30, 2006.
C. Calculate the totals on the transfer forms to
determine if they are mathematically correct.
Description of findings and results
The totals on the transfer forms affecting
distributions to the HTF for the quarter ended
September 30, 2006, were mathematically correct.
D. Trace the transfer amounts for diesel fuel tax
(abstract 60), gasoline tax (abstract 62), and heavy
vehicle use tax34 from the transfer forms through the
supporting schedules and back to the related source
documents.35
Description of findings and results
The transfer amounts for diesel fuel tax (abstract
60), gasoline tax (abstract 62), and heavy vehicle
use tax from the transfer forms agreed with the
supporting schedules and source documents for the
semimonthly transfers affecting distributions to the
HTF for the quarter ended September 30, 2006.
VI. Other procedures
A. Using IRS's quarterly certifications, OTA's
estimated distributions, and any adjustments, report
excise taxes distributed to the HTF in fiscal year
2006.
Description of findings and results
Based on a compilation of IRS's quarterly
certifications, OTA's estimated distributions, and
adjustments, the net amount of excise taxes
distributed to the HTF in fiscal year 2006 was
$38,754,503,680.
B. Procedures performed as part of the fiscal year
2006 IRS financial statement audit:
1. 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
collection or refund amount, tax period,
and tax class36 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.
2. Obtain selected IRS service center
campuses' monthly Department of the
Treasury (Treasury) FMS 224
reconciliations37 and determine whether
IRS-reported revenue receipts and
refunds were materially reconciled38 to
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.
3. Compare tax revenue receipt balances
by tax class, including excise taxes,
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 excise taxes, and
total refund balances per IRS's general
ledger materially agreed with IRS's
master files and Treasury records.
31 For this procedure, "significant" is defined as tax returns with a
total quarterly excise tax liability equal to or greater than $10 million
during each of the prior four quarters. Tax returns related specifically
to the HTF with liabilities equal to or greater than $10 million have, in
the aggregate, historically accounted for over 91 percent of distributions
certified to HTF.
32 OTA makes semimonthly estimates of excise tax collections for transfer
to trust funds. There are five semimonthly estimates for the quarter ended
September 30, 2006, which affect fiscal year 2006 distributions to the
HTF.
33 OTA communicates this information to interested parties at Treasury and
the Department of Transportation. IRS used the tax and distribution rates
from this table in its subsequent certification of collections to trust
funds.
34 The transfer amounts for diesel fuel tax (abstract 60), gasoline tax
(abstract 62), and heavy vehicle use tax made up over 91 percent of the
total amount transferred to the HTF for the fourth quarter of fiscal year
2006.
35 The source documents include the IRS report of excise taxes used to
derive the percentages applied to reported receipts, the Daily Treasury
Statement, the Monthly Treasury Statement, and the excise tax rate tables.
36 IRS assigns a tax class number to specific types of taxes. Excise taxes
are tax class 4.
37 At the end of each month, each IRS campus provides Treasury its FMS 224
(Statement of Transactions) generated from IRS's general ledger, reporting
receipts and refunds journalized during the month. Treasury reconciles the
amounts on the FMS 224 with its records and provides IRS a Statement of
Differences for any differences identified.
38 For the purpose of this procedure and procedure VI.B.3, 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.
(196090)
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