Financial Management:

IRS Lacks Accountability Over Its ADP Resources

AIMD-93-24: Published: Aug 5, 1993. Publicly Released: Aug 5, 1993.

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GAO reviewed the Internal Revenue Service's (IRS) accountability over its automated data processing (ADP) equipment and software.

GAO found that: (1) IRS ADP inventory records are incomplete and inaccurate primarily due to the lack of control over information maintained in the Computer Resources Management System (CRMS); (2) controls are not in place to ensure that additions and deletions to the ADP inventory system are recorded accurately or promptly, accounting and inventory records are reconciled, and physical inventories are effectively performed; (3) ADP assets included in CRMS are not valued in accordance with IRS valuation policy or any other authoritative basis; (4) IRS is not able to capture the costs associated with in-house software development, since it does not have a cost accounting system for tracking actual software development expenditures; (5) IRS managers lack readily available information needed to make ADP-related staffing decisions, monitor maintenance contracts, and prepare financial statements; and (6) the IRS Chief Financial Officer (CFO) does not have the authority to ensure that IRS ADP records are accurate and developed in accordance with applicable accounting standards.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: IRS intends to implement a system that will integrate its property and equipment inventory system with its financial system. This Integrated Financial System, currently targeted for March 2005, is expected to include information related to equipment resources and incorporate a means of accounting for such data. GAO is closing this recommendation and monitoring IRS's efforts in implementing the Integrated Financial System under a related recommendation (see GAO/AIMD-99-196).

    Recommendation: The Chief Financial Officer, IRS, should determine what information related to ADP resources, such as equipment condition and remaining useful life, would be most useful to IRS managers for financial management purposes and develop a means for accounting for these data.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Closed - Not Implemented

    Comments: Although IRS conducted an inventory of its P&E, GAO continued to find inaccuracies in the property records. GAO is closing this recommendation and monitoring IRS' efforts to ensure complete and accurate P&E inventory data under a related recommendation (see GAO-01-864, appendix II).

    Recommendation: The Chief Financial Officer, IRS, should oversee IRS efforts for ensuring that existing ADP inventory data in CRMS, including telecommunications and electronic filing equipment, are complete and accurate.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  3. Status: Closed - Not Implemented

    Comments: IRS issued standard operating procedures for inventorying ADP property that will be the basis for establishing property management controls to ensure maintenance of accurate inventory records. The procedures incorporate guidance associated with disposals and financially accounting for previously acquired property. IRS' detailed subsidiary records for fixed assets are not integrated with its summary-level general ledger accounts. IRS does not believe that monthly reconciliations between its existing inventory and financial systems are feasible. In fiscal year 1998, GAO found that (1) changes in the status of property and equipment were not timely recorded in the subsidiary records, and (2) physical inventories did not provide assurance that property and equipment information in its inventory system are complete and accurate. GAO is closing this recommendation and replacing it with four new recommendations (see GAO/AIMD-99-196) to highlight the need for action.

    Recommendation: The Commissioner of Internal Revenue should direct the CFO to develop and implement standard operating procedures that incorporate controls to ensure that inventory records are accurately maintained. Such controls should include: (1) establishing specific procedures to ensure the prompt and accurate recording of acquisitions and disposals in the IRS ADP fixed asset system, including guidance addressing the valuation of previously leased assets; (2) reconciling accounting and inventory records monthly as an interim measure until the successful integration of inventory and accounting systems is completed as planned; and (3) implementing mechanisms for ensuring that annual physical inventories at field locations are effectively performed, that discrepancies are properly resolved, and that inventory records are appropriately adjusted.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  4. Status: Closed - Implemented

    Comments: Enhancements to CRMS/INOMS are being coordinated within the CFO organization. The CFO drafted a memorandum to all Chief Officers informing them of the CFO's authority to ensure that the financial systems and all feeder systems, including software development, complied with the Core System Requirements.

    Recommendation: The Commissioner of Internal Revenue should provide that any software purchases, development, or modifications to the system are subject to CFO review and approval.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  5. Status: Closed - Implemented

    Comments: Authority and responsibility for improved financial systems and financial reporting have been placed with the CFO. In addition, the CFO and the Chief Information Officer are coordinating actions to create appropriate standards, requirements, and controls to ensure the integrity of the management and financial information in the ADP inventory system.

    Recommendation: The Commissioner of Internal Revenue should provide the agency's CFO with the authority to ensure that data maintained by the IRS ADP inventory system meet management and reporting needs.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  6. Status: Closed - Not Implemented

    Comments: Beginning with fiscal year 2001, agencies are now required to implement the provisions of SFFAS No. 10, Accounting for Internal Use Software. As part of IRS' action plan to address deficiencies in its controls over property and equipment, IRS has contracted with an IPA to assess its capitalization policies and procedures, including in-house software development. GAO closed this recommendation in lieu of a new, more specific recommendation in a related report.

    Recommendation: The Chief Financial Officer, IRS, should develop an interim means to capture relevant costs related to in-house software development.

    Agency Affected: Department of the Treasury: Internal Revenue Service

 

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