High-Risk Series: IRS Management (Letter Report, 02/01/97, GAO/HR-97-8).

GAO reviewed four high-risk areas at the Internal Revenue Service (IRS)
involving; (1) the multi-billion dollar Tax Systems Modernization
initiative; (2) substantial financial management weaknesses which
diminish IRS' ability to assess the results of operations or measure
performance; (3) problems in the management and collection of billions
of dollars in tax accounts receivable; and (4) significant levels of tax
filing fraud.

GAO found that: (1) IRS has made some progress in addressing the
problems GAO has identified in the four high-risk areas; (2) IRS is
finalizing a comprehensive strategy to maximize electronic filing and
has begun initiatives to develop a complete integrated systems
architecture; (3) in response to GAO recommendations, IRS has also begun
to plan both short-term and long-term solutions to its financial
management problems, has implemented a new administrative accounting
system, and has transferred its payroll processing to the Department of
Agriculture's National Finance Center; (4) in dealing with its accounts
receivable problems, IRS has streamlined selected notification and
collection processes and is developing ways to adjust its collection
techniques to address the various characteristics of delinquent
taxpayers; (5) IRS' effort to further prevent and deter the filing of
fraudulent tax returns has involved increasing the electronic filters
and manual checks to screen electronic and paper returns for problems,
determine the suitability of those who want to serve as preparers or
transmitters of electronic returns, and better identify questionable
refund claims; (6) IRS' and Treasury's actions are encouraging, but GAO
remains concerned because continued progress is needed to fully
implement essential improvements; and (7) until IRS sustains an
agency-wide commitment and devotes the necessary management attention to
addressing the challenges it faces in modernizing its processes and
systems, it cannot hope to solve its high-risk problems.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  HR-97-8
     TITLE:  High-Risk Series: IRS Management
      DATE:  02/01/97
   SUBJECT:  Risk management
             Tax administration systems
             Accounts receivable
             Financial management
             Delinquent taxes
             Tax returns
             Fraud
             Collection procedures
             Systems design
             Electronic forms
IDENTIFIER:  IRS Electronic Fraud Detection System
             IRS Document Processing System
             IRS Cyberfile
             IRS Tax System Modernization Program
             TSM
             IRS Questionable Refund Program
             High Risk Series 1997
             
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Cover
================================================================ COVER


High-Risk Series

February 1997

IRS MANAGEMENT

GAO/HR-97-8

IRS Management


Abbreviations
=============================================================== ABBREV

  CFO - Chief Financial Officer
  DPS -
  EFDS - Electronic Fraud Detection System
  IRS - Internal Revenue Service
  QRP - Questionable Refund Program
  SSN - Social Security Number
  TSM - Tax systems modernization

Letter
=============================================================== LETTER



February 1997

The President of the Senate
The Speaker of the House of Representatives

In 1990, the General Accounting Office began a special effort to
review and report on the federal program areas its work identified as
high risk because of their vulnerability to waste, fraud, abuse, and
mismanagement.  This effort, which was supported by the Senate
Committee on Governmental Affairs and the House Committee on
Government Reform and Oversight, brought a much-needed focus on
problems that were costing the government billions of dollars. 

In December 1992, GAO issued a series of reports on the fundamental
causes of problems in high-risk areas, and in a second series in
February 1995, it reported on the status of efforts to improve those
areas.  This, GAO's third series of reports, provides the current
status of designated high-risk areas. 

This report discusses four high-risk areas at the Internal Revenue
Service involving (1) the multibillion dollar Tax Systems
Modernization initiative, (2) substantial financial management
weaknesses which diminish IRS' ability to assess the results of
operations or measure performance, (3) problems in the management and
collection of billions of dollars in tax accounts receivable, and (4)
significant levels of tax filing fraud.  Congress has signaled its
concern over these problems through its oversight and funding
decisions, and Treasury and IRS have made some progress in addressing
problems in each of these four high-risk areas since our last
high-risk report series.  However, IRS faces a number of significant
challenges to continuing this progress, particularly in its efforts
to modernize its operations.  A sustained, agency-wide commitment
will be critical to resolving these serious problems. 

Copies of this report series are being sent to the President, the
congressional leadership, all other Members of Congress, the Director
of the Office of Management and Budget, and the heads of major
departments and agencies. 

James F.  Hinchman
Acting Comptroller General
of the United States


OVERVIEW
============================================================ Chapter 0

The Internal Revenue Service's (IRS) mission is to collect the proper
amount of tax revenue in a fair and efficient manner at the least
cost to the public.  For fiscal year 1995, IRS reported collecting
$1.4 trillion from taxpayers, processing over a billion tax returns
and related documents, disbursing $122 billion in tax refunds, and
managing an estimated accounts receivable inventory of $113 billion. 
In addition, IRS administered a reported $400 billion in tax
expenditures.  To ensure its ability to efficiently and fairly
administer the nation's tax system, IRS has articulated a business
vision for 2001.  This vision calls for reducing the volume of paper
returns, providing better customer service, and improving compliance
by modernizing IRS' operations. 

Since developing its business vision in 1992, IRS has made some
progress in modernizing its operations; however, the gap between IRS'
current level of performance and that proposed in its vision is
great.  Specifically, the efficient administration of the nation's
tax system is undermined by problems in four areas of IRS'
operations:  tax systems modernization (TSM), financial management,
accounts receivable, and filing fraud.  These four areas were
identified in our 1995 High-Risk Series as being especially
vulnerable to waste, fraud, abuse, and mismanagement.\1 Improvements
have been made, but these areas continue to have problems that
warrant their inclusion in our 1997 High-Risk Series.