Financial Management:

IRS' Self-Assessment of Its Internal Control and Accounting Systems Is Inadequate

AIMD-94-2: Published: Oct 13, 1993. Publicly Released: Oct 13, 1993.

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Pursuant to a legislative requirement, GAO reviewed the Internal Revenue Service's (IRS) efforts to identify, report, and correct material weaknesses in its internal control and accounting systems, focusing on: (1) the IRS process for evaluating its internal control and accounting systems; and (2) IRS plans for correcting reported material weaknesses.

GAO found that: (1) the IRS fiscal year 1992 assurance statement did not accurately disclose the condition of its internal control and accounting systems; (2) IRS systems have material weaknesses in revenue accounting and reporting, operating funds management, and reporting and safeguarding of seized assets; (3) IRS has reported some weaknesses that do not focus on all related issues, which impairs management's ability to correct them; (4) the IRS self-assessment process for identifying material weaknesses is only partially effective because it fails to identify the full extent of internal control and accounting system weaknesses; (5) IRS review staff do not have adequate guidance, procedures, or training to assess system weaknesses; (6) IRS corrective actions have not fully resolved problems because they do not address the underlying cause of the weakness; and (7) IRS has established a senior management council to oversee and review the Federal Managers' Financial Integrity Act process and increase senior executive involvement.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: IRS completed its final action regarding this recommendation by issuing improved internal control procedures and guidance.

    Recommendation: To ensure accurate reporting to the Secretary of the Treasury on the effectiveness of IRS internal control and accounting systems, the Commissioner of Internal Revenue should direct the Senior Management Council to coordinate and oversee activities to establish and implement proper written procedures that provide for the identification, documentation, and correction of material weaknesses.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Closed - Implemented

    Comments: The Office of Management Controls has developed a Service-wide training strategy to educate management staff on their internal control responsibilities. IRS selected a contractor to develop the training course materials.

    Recommendation: To ensure accurate reporting to the Secretary of the Treasury on the effectiveness of IRS internal control and accounting systems, the Commissioner of Internal Revenue should direct the Senior Management Council to coordinate and oversee activities to provide classroom training and guidance materials to all review staff.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  3. Status: Closed - Implemented

    Comments: The IRS Senior Management Council meets periodically with the IRS executives to review their identified material weaknesses and corrective action plans to ensure that fundamental causes are addressed. Further, one objective of the training strategy is to develop the skills needed to develop effective corrective action plans that address the root causes of material weaknesses.

    Recommendation: To ensure accurate reporting to the Secretary of the Treasury on the effectiveness of IRS internal control and accounting systems, the Commissioner of Internal Revenue should direct the Senior Management Council to coordinate and oversee activities to develop effective corrective action plans that address the fundamental causes of the weaknesses.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  4. Status: Closed - Implemented

    Comments: As part of IRS' annual process, the Senior Management Council instituted the practice of meeting with IRS executives to review the effectiveness of their corrective action plans. IRS developed written policies requiring testing of corrective actions to determine if the corrective actions are effective in resolving the weakness.

    Recommendation: To ensure accurate reporting to the Secretary of the Treasury on the effectiveness of IRS internal control and accounting systems, the Commissioner of Internal Revenue should direct the Senior Management Council to coordinate and oversee activities to verify the effectiveness of corrective actions before removing reported weaknesses from IRS records.

    Agency Affected: Department of the Treasury: Internal Revenue Service

 

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