Financial Management:

Important IRS Revenue Information Is Unavailable or Unreliable

AIMD-94-22: Published: Dec 21, 1993. Publicly Released: Dec 21, 1993.

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Pursuant to a legislative requirement, GAO reviewed the Internal Revenue Service's (IRS) financial management systems and internal controls over federal tax revenues.

GAO found that: (1) although IRS accounts for specific types of taxes assessed, it does not obtain and adequately account for payment information to determine specific taxes collected; (2) IRS cannot precisely determine the amount of subsidies provided to the social security trust fund because it does not separately account for the specific amount of social security taxes collected; (3) trust fund recipients receive little or no information relating to tax revenues; (4) IRS revenue information is unreliable because IRS systems are not designed to generate needed revenue information; (5) IRS does not adequately analyze its transactions to determine how they should be reported and classified; (6) IRS has omitted or misclassified over $150 billion in transactions and has overstated tax distributions by $113 billion by not reducing collections for refunds; (7) IRS does not calculate interest on certain types of accounts receivable; (8) IRS does not consistently review certain manual accounting entries to prevent erroneous or unauthorized entries; (9) IRS is planning to improve its system to account for and report on tax revenues; and (10) IRS intends to provide its Chief Financial Officer a larger role in overseeing revenue-related operations and reporting policies.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: IRS has undertaken several actions to strengthen controls over this area, such as updating guidance, implementing standardized software to aid in the computation of manually calculated interest, and providing training related to manual interest calculations. We verified that IRS began testing samples of manual interest transactions in fiscal year 2011, making statistically valid projections of the results, and evaluating the results to gauge the effectiveness of its actions.

    Recommendation: The Commissioner of Internal Revenue should direct the Chief Operations Officer, in conjunction with the Chief Financial Officer, to monitor implementation of actions to reduce the errors in calculating and reporting manual interest, and test the effectiveness of these actions.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Closed - Implemented

    Comments: IRS has developed and implemented procedures requiring a supervisory review of all manual and adjusted entries to ensure that entries to the accounting system are appropriate and authorized.

    Recommendation: The Commissioner of Internal Revenue should direct the Chief Financial Officer to establish detailed procedures for: (1) reviewing manual entries to the general ledger to ensure that they have been entered accurately; and (2) subjecting adjusting entries to supervisory review to ensure that they are appropriate and authorized.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  3. Status: Closed - Implemented

    Comments: GAO confirmed that IRS developed a set of policies and procedures for preparing its custodial financial statements.

    Recommendation: The Commissioner of Internal Revenue should direct the Chief Financial Officer to identify reporting information needs, develop related sources of reliable information, and establish and implement policies and procedures for compiling this information. These procedures should describe any: (1) adjustments that may be needed to available information; and (2) analyses that must be performed to determine the ultimate disposition and classification of amounts associated with in-process transactions and amounts pending investigation and resolution.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  4. Status: Closed - Implemented

    Comments: In the past, the Department of Labor (DOL) has been given a qualified opinion based on a scope limitation. This scope limitation related to two trust funds (Black Lung Disability, and Unemployment) for which IRS collects the monies. DOL's OIG was not able to obtain the information needed to provide an unqualified opinion on DOL's financial statements. IRS, with help from GAO, provided DOL's OIG with sufficient information to enable it to conclude on the reasonableness of the revenues and to give DOL an unqualified opinion for fiscal year 1997.

    Recommendation: The Commissioner of Internal Revenue should direct the Chief Financial Officer, who is responsible for financial reporting, to determine the trust fund revenue information needs of other agencies and provide such information, as appropriate. If IRS is precluded by law from providing needed information, IRS should consider proposing legislative changes.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  5. Status: Closed - Implemented

    Comments: IRS implemented a new certification procedure in June 1998, which uses taxes collected as a basis for determining specific taxes collected by trust fund. By doing this, IRS can distribute excise tax receipts in accordance with the law.

    Recommendation: The Commissioner of Internal Revenue should develop a method to determine specific taxes collected by trust fund so that the difference between amounts assessed and amounts collected is readily determinable and excise tax receipts can be distributed as required by law. This could be done by obtaining specific payment detail from the taxpayer, consistent with the GAO April 1993 Federal Tax Deposit (FTD) report. Alternatively, IRS might consider whether allocating payments to specific taxes based on the related taxpayer returns is a preferable method.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  6. Status: Closed - Implemented

    Comments: IRS uses the Information Returns Program (IRP) to match income with withholding information. At the time of this recommendation, it was taking the IRS 14 months after the return due date to identify discrepancies and contact the taxpayer. Subsequently, IRS accelerated the IRP so that notices were issued in December of the same year the return was due, an improvement of 7 months. This procedure has occurred for the past 3 years--1996, 1997, and 1998. However, GAO believes that IRS should further expedite this process, and GAO has made a new recommendation to address this.

    Recommendation: The Commissioner of Internal Revenue should give priority to IRS efforts that will allow for earlier matching of income and withholding information submitted by individuals and third parties.

    Agency Affected: Department of the Treasury: Internal Revenue Service

 

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