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Report to the Commissioner of Internal Revenue:
April 2005:
Internal Revenue Service:
Status of Recommendations from Financial Audits and Related Financial
Management Reports:
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-393]:
GAO Highlights:
Highlights of GAO-05-393, a report to the Commissioner of Internal
Revenue:
Why GAO Did This Study:
In its role as the nation’s tax collector, the Internal Revenue Service
(IRS) has a demanding responsibility for collecting taxes, processing
tax returns, and enforcing the nation’s tax laws. Since GAO’s first
audit of IRS’s financial statements in fiscal year 1992, a number of
weaknesses in IRS’s financial management operations have been
identified. In related reports, GAO has recommended corrective action
to address those weaknesses.
Each year, as part of the annual audit of IRS’s financial statements,
GAO not only makes recommendations to address any new weaknesses
identified, but also follows up on the status of weaknesses GAO
identified in previous years’ audits. The purpose of this report is to
assist IRS management in tracking the status of audit recommendations
and actions needed to fully address them.
What GAO Found:
As in past years, IRS has continued to make improvements to address a
number of financial management weaknesses. At the same time, a number
of the open audit recommendations have been outstanding for an extended
period of time. IRS has continued to experience delays in the
implementation of the new systems intended to correct some of these
long standing deficiencies. Others, however, could be resolved with
additional management attention. The continued existence of these
financial management weaknesses exposes IRS to loss due to errors or
theft and impairs the availability of current, accurate financial
information that management needs to make decisions on a day-to-day
basis.
Of 118 recommendations related to financial management (consisting of
76 recommendations open as of April 2004, 9 recommendations included in
GAO’s January 2005 report on the timeliness of IRS lien releases, 3
recommendations included in GAO’s March 2005 report on the Brookhaven
Service Center Campus rampdown, and 30 new recommendations included in
GAO’s management report for fiscal year 2004), GAO is closing 34 due to
effective actions IRS has taken to address the issues that gave rise to
them. These actions were verified by GAO in the course of conducting
the audit of IRS’s fiscal year 2004 financial statements.
Of the remaining 84 financial management recommendations GAO considers
open as of the date of this report, 75 are short term (capable of being
addressed within 2 years) and 9 are long term (expected to require more
than 2 years to implement). IRS considers 40 (48 percent) of the 84
recommendations to be closed. GAO considers 21 of these 40 to be still
open because it has not yet had an opportunity to verify the actions
taken by IRS. The actions cited by IRS for these 21 recommendations are
recent and were taken after GAO’s financial statement audit work for
the year was completed. For 18 of the 40 recommendations that IRS
considers closed, GAO found that action taken by IRS has not yet been
fully effective in addressing the conditions that gave rise to the
recommendations. IRS disagrees with the remaining recommendation.
IRS continues to exhibit a strong commitment to addressing its ongoing
financial management problems and has made improvements in recent years
that have resulted in the closing of many recommendations. At the same
time, the continued existence of the serious financial management
weaknesses that gave rise to the remaining open recommendations
represents a serious obstacle that IRS needs to overcome to achieve
effective financial management.
IRS stated that it has begun to address the 42 new recommendations
included in the report. GAO will review these corrective actions and
the status of IRS’s progress in implementing all open recommendations
as part of the fiscal year 2005 audit.
www.gao.gov/cgi-bin/getrpt?GAO-05-393.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Steven J. Sebastian at
(202) 512-3406 or sebastians@gao.gov.
[End of section]
Contents:
Letter:
Status of Recommendations:
Agency Comments and Our Evaluation:
Objective, Scope, and Methodology:
Appendixes:
Appendix I: Status of GAO Recommendations from Prior IRS Financial
Audits and Related Management Reports:
Appendix II: Details on Audit Methodology:
Appendix III: Comments from the Internal Revenue Service:
Appendix IV: GAO Contact and Staff Acknowledgments:
Abbreviations:
AUR: Automated Underreporter:
CADE: Customer Account Data Engine:
CAP: Custodial Accounting Project:
FMS: Financial Management Service:
IFS: Integrated Financial System:
IRM: Internal Revenue Manual:
IRS: Internal Revenue Service:
LPG: Lockbox Processing Guidelines:
MOU: Memorandum of Understanding:
NBIC: National Background Investigation Center:
NFC: National Finance Center:
P&E: property and equipment:
SB/SE: Small Business/Self-Employed:
SCC: Service Center Campuses:
SETS: Security Entry and Tracking System:
SPC: Submission Processing Center:
TAC: Taxpayer Assistance Center:
TFRP: Trust Fund Recovery Penalty:
W&I: Wage and Investment:
Letter April 29, 2005:
The Honorable Mark W. Everson:
Commissioner of Internal Revenue:
Dear Mr. Everson:
This report provides the status of the Internal Revenue Service's (IRS)
efforts to implement recommendations we have made based on our audits
of IRS's financial statements and other efforts related to financial
management. In updating the status of these recommendations, we have
included the results of our audits of IRS's financial statements for
fiscal years 2004 and 2003.[Footnote 1] This report is being provided
to you to (1) assist IRS management in tracking the unresolved issues
identified in our prior audits[Footnote 2] and (2) report on the
current status of open audit recommendations detailed in our previous
and most recent financial audit and financial management-related
reports.[Footnote 3] In cases where IRS has taken action on open
recommendations that did not result in our closing them, we explain why
this occurred. No new recommendations are being made in this report.
Since our first audit of IRS's financial statements in fiscal year
1992, our audits have identified a number of weaknesses in IRS's
financial management operations. In related reports on IRS's internal
controls, we have recommended corrective actions to address those
weaknesses. Appendix I lists (1) recommendations we have made based on
our financial audits and other financial management-related work that
we have not previously reported as closed, (2) the status of each of
these recommendations and corrective actions taken or planned as of
February 2005 as reported to us by IRS and incorporated in appendix I,
and (3) our analysis of whether the issues that gave rise to the
recommendations have been effectively and fully addressed based on the
work performed during our fiscal year 2004 financial audit. Effectively
implementing recommendations is critical for IRS to resolve its
financial management challenges.
Status of Recommendations:
In April 2004, we issued a report that provided (1) the status of IRS's
efforts to implement prior recommendations as of our fiscal year 2003
financial audit[Footnote 4] and (2) new recommendations based on the
results of our fiscal year 2003 financial audit.[Footnote 5] In the
April 2004 report, we included 100 audit recommendations that we had
not previously reported as being closed, 1 dating back as far as 1993.
Of the 100 recommendations, 24 were closed at the time that report was
issued, leaving 76 that were used as a starting point for appendix I of
this report. For this year, we added 9 recommendations from our January
2005 report on the timeliness of IRS lien releases, 3 recommendations
from our March 2005 report on the Brookhaven Service Center Campus
rampdown,[Footnote 6] and 30 new recommendations included in our
management report related to our audit of IRS's fiscal year 2004
financial statements, for a total of 118 recommendations. Based on the
results of our recently completed fiscal year 2004 financial audit, we
are closing 34 recommendations made in prior audits due to effective
actions IRS has taken to address the issues that gave rise to them.
Therefore, as of the date of this report, 84 financial management
recommendations remain open, 75 of which are short term and 9 of which
are long term.[Footnote 7]
As indicated in appendix I, of the 84 recommendations we consider to be
open, IRS considers 40 (48 percent) to be closed. We consider 21 of
these recommendations to be open because IRS took corrective action to
resolve these recommendations after we completed our testing for the
fiscal year 2004 audit. As a result, we have not yet had time to verify
implementation of the corrective actions, which is a prerequisite to
our closing a recommendation. We will verify the effectiveness of IRS's
actions to address these recommendations during our audit of IRS's
fiscal year 2005 financial statements. For 18 of the 40 recommendations
that IRS considers closed, we found that the initial action taken by
IRS in the current or prior years has not been fully effective in
addressing the conditions that gave rise to the recommendations. For 8
of these 18 recommendations, IRS initiated additional corrective action
after we completed our fiscal year 2004 audit and, as a result, we have
not yet had time to verify the effectiveness of these additional
actions. IRS disagrees with the remaining recommendation,[Footnote 8]
though it had agreed with the recommendation at the time it was made.
Sixteen of the 18 recommendations that IRS considers closed but that we
consider open involved the issuance of formal written policies or
directives aimed at addressing the internal control deficiencies that
gave rise to the recommendations. However, we found that these policies
or directives were not being adhered to or were not fully effective in
correcting the deficiencies that led to the recommendations. We also
found that the revised policies or directives intended to correct 4 of
these 16 recommendations did not adequately address the underlying
issues. We continue to be concerned that IRS's actions in a number of
cases consist of writing policies and procedures without providing a
mechanism to ensure proper and ongoing implementation. We believe that
the 16 recommendations could be resolved with additional management
follow-up to see that the revised policies and directives specifically
address the issues and that corrective actions as envisioned in policy
and procedural changes are fully and effectively implemented. In the
interim, to the extent the underlying weaknesses continue to exist,
they will impair the quality and timeliness of IRS's financial
information and increase its exposure to losses.
A significant number of the 84 recommendations in appendix I that we
consider open have been outstanding for an extended period of time.
Twenty-eight (33 percent) of the recommendations were made over 2 years
ago, including 9 recommendations from more than 3 years ago, 9
recommendations from more than 5 years ago, and 1 recommendation that
has remained open for over 10 years. The continued existence of the
issues that gave rise to these recommendations exposes IRS to losses
due to errors or theft and impairs the availability of current,
accurate financial information management needs to make decisions.
The majority of the 84 recommendations that we consider to be open
address one of two broad issues:
* Forty-eight (57 percent) of the recommendations, all of which we
consider to be short term, relate to weaknesses in controls for
safeguarding taxpayer receipts and information at lockbox banks and IRS
sites. These continued weaknesses expose IRS to unnecessary risk of
loss of funds and increase taxpayer exposure to losses from financial
crimes committed by individuals who inappropriately gain access to
confidential personal information. IRS considers 31 of these
recommendations closed. However, during our fiscal year 2004 financial
audit, we found that IRS's corrective actions had not fully resolved
the issues for 15 of these 31 recommendations and, for the remaining 16
recommendations, IRS's actions occurred after we completed our testing
for the fiscal year 2004 audit. For example, in January 2003, we
recommended that IRS require lockbox bank management to ensure that
returned refund checks are restrictively endorsed immediately upon
extraction and that IRS take steps to monitor adherence to this
requirement. IRS included the requirement in the 2004 "Lockbox
Processing Guidelines"[Footnote 9] and stated that it evaluates
adherence to this requirement during quality reviews of lockbox
operations. However, extraction staff at one of the four lockbox banks
we visited during our fiscal year 2004 audit informed us that returned
refund checks were processed without immediately being stamped.
* Nine (11 percent) of the recommendations relate to serious financial
management weaknesses that are rooted in IRS's continued reliance on
outdated automated systems. Correcting these deficiencies depends
largely on the ultimate success of IRS's ongoing systems modernization
effort. Our prior reviews have disclosed numerous management control
deficiencies in IRS's systems modernization effort that have
contributed to reported cost overruns and delays in the implementation
of the systems intended to resolve financial management
issues.[Footnote 10] For example, IRS implemented the first release of
its new Integrated Financial System (IFS) in November 2004, about 2
years later than initially planned. IFS Release 1 provides core
financial, budget formulation, and cost accounting capabilities.
However, full cost accounting capabilities will not be realized until
future releases, such as Work Management, are implemented. According to
IRS, implementation of subsequent releases, which provide property,
procurement, and performance management functions, is being
indefinitely deferred because of Release 1 delays and funding issues.
Also, after significant delays, IRS has begun processing some of the
least complex individual tax returns through the first release of the
Customer Account Data Engine (CADE), the new system designed to
modernize IRS's taxpayer files. Due to cost overruns and delays, IRS
has stopped the Custodial Accounting Project (CAP), another key
financial management initiative that was intended to provide management
information related to tax operations needed for day-to-day decision
making, performance management, and reporting. It was initially planned
that CADE would provide tax information to IFS for reporting purposes
through CAP. IRS is currently examining options to implement
alternative systems that would perform the functions that CAP had been
intended to perform. Successful implementation of future releases of
IFS, CADE, and other system initiatives is essential to correcting
IRS's long-standing financial management deficiencies and internal
control weaknesses that prevent IRS from producing reliable and timely
financial information needed for decision making on an ongoing basis.
Although IRS continues to experience delays in implementing the systems
intended to address many underlying financial management and operations
issues, it has made improvements in recent years that have resulted in
the closing of many recommendations. For example, IRS made significant
progress in addressing issues related to its administrative accounting
operations, which resulted in our closing 8 of 18 recommendations
related to IRS's administrative operations. However, delays in
implementing subsequent releases of IFS and other systems would inhibit
significant additional progress in addressing the remaining
administrative accounting operation issues because these subsequent IFS
releases and other system efforts would address 7 of the remaining 10
administrative accounting operations-related recommendations. Delays in
implementation of other systems would also inhibit IRS's ability to
correct 2 deficiencies related to unpaid tax assessments, tax revenue,
and refunds. Consequently, the continued delays in the implementation
of new systems and the other serious financial management weaknesses
that gave rise to many of the remaining open recommendations represent
a serious obstacle that IRS needs to overcome to achieve effective
financial management and have available accurate, timely financial
reporting and other information that is critical for effective day-to-
day decision making.
Agency Comments and Our Evaluation:
In commenting on a draft of this report, IRS said it has begun to
aggressively address the 42 new recommendations arising from our fiscal
year 2004 audit, which are included in the report. For example, IRS
stated that it has developed a comprehensive action plan to address
recommendations related to lockbox banks, which includes partnering
with Treasury's Financial Management Service to align lockbox bank
contractual requirements with IRS's physical security polices. We will
review the effectiveness of these corrective actions and the status of
IRS's progress in addressing all open recommendations as part of our
fiscal year 2005 IRS financial audit.
Objective, Scope, and Methodology:
The objective of this report is to assist IRS management in tracking
the status of financial audit and financial management-related
recommendations and the actions needed to address them. To accomplish
this objective, we evaluated the effectiveness of IRS's corrective
actions implemented in response to open recommendations during fiscal
year 2004 as part of our fiscal years 2004 and 2003 financial
audits.[Footnote 11] Further details on the scope and methodology of
our IRS financial audit work are included in appendix II. We obtained
from IRS its assessment of the status of each recommendation and
corrective action taken or planned as of February 2005, which we
included in appendix I. We compared IRS's actions to our fiscal year
2004 audit findings and noted any differences between IRS's and our
conclusions regarding the status of each recommendation. We conducted
our audit in accordance with U.S. generally accepted government
auditing standards. We requested comments on a draft of this report
from the Commissioner of Internal Revenue or his designee. We received
written comments from IRS, which are reprinted in appendix III.
We are sending copies of this report to the Chairmen and Ranking
Minority Members of the Senate Committee on Appropriations; Senate
Committee on Finance; Senate Committee on Homeland Security and
Governmental Affairs; Senate Committee on the Budget; Subcommittee on
Transportation, Treasury, the Judiciary, Housing and Urban Development
and Related Agencies, Senate Committee on Appropriations; Subcommittee
on Taxation and IRS Oversight, Senate Committee on Finance;
Subcommittee on Oversight of Government Management, the Federal
Workforce, and the District of Columbia, Senate Committee on Homeland
Security and Governmental Affairs; House Committee on Appropriations;
House Committee on Ways and Means; House Committee on Government
Reform; House Committee on the Budget; Subcommittee on Transportation,
Treasury, and Housing and Urban Development, the Judiciary, and the
District of Columbia, House Committee on Appropriations; Subcommittee
on Government Management, Finance, and Accountability, House Committee
on Government Reform; and Subcommittee on Oversight, House Committee on
Ways and Means. In addition, we are sending copies of this report to
the Chairman and Vice Chairman of the Joint Committee on Taxation, the
Secretary of the Treasury, the Director of the Office of Management and
Budget, the Chairman of the IRS Oversight Board, and other interested
parties. Copies will be made available to others upon request. In
addition, the report will be available at no charge on GAO's Web site
at [Hyperlink, http://www.gao.gov].
If you have any questions concerning this report, please contact me at
(202) 512-3406 or [Hyperlink, sebastians@gao.gov]. Major contributors
to this report are listed in appendix IV.
Sincerely yours,
Signed by:
Steven J. Sebastian:
Director:
Financial Management and Assurance:
[End of section]
Appendixes:
Appendix I: Status of GAO Recommendations from Prior IRS Financial
Audits and Related Management Reports:
Count: 1;
No.: 94-2;
Recommendation: Monitor implementation of actions to reduce the errors
in calculating and reporting manual interest on taxpayer accounts, and
test the effectiveness of these actions. (short-term);
Source report: Financial Management: Important IRS Revenue Information
Is Unavailable or Unreliable (GAO/AIMD-94-22, Dec. 21, 1993);
Status of recommendations: Per IRS: Open. IRS is addressing the issue
by increasing automation of restricted interest calculations, educating
the workforce, and developing a quality review process. In 2004, IRS
updated interest training and began quality reviews. IRS will begin to
measure accuracy based on the quality reviews in 2005;
Status of recommendations: Per GAO: Open. We will review the results of
IRS's quality reviews and test the accuracy of IRS's manual interest
calculations during our fiscal year 2005 financial audit.
Count: 2;
No.: 99-1;
Recommendation: Manually review and eliminate duplicate or other
assessments that have already been paid off to assure that all accounts
related to a single assessment are appropriately credited for payments
received. (short-term);
Source report: Internal Revenue Service: Immediate and Long-Term
Actions Needed to Improve Financial Management (GAO/AIMD-99-16, Oct.
30, 1998);
Status of recommendations: Per IRS: Open. IRS implemented its action
plan to improve the timely cross-referencing of Trust Fund Recovery
Penalty (TFRP) payments, which included identifying and correcting
processing problems, conducting training to provide clarification of
processing steps, and implementing mandatory quality reviews. In
addition, IRS plans to consolidate all TFRP work in one campus. This
will ensure better control over the quality, timeliness, and accuracy
of transcript processing. As IRS moves forward with the consolidation
process, it will be able to use the Automated Trust Fund Recovery
(ATFR) system to perform automated payment verifications on Individual
Master File (IMF) accounts assessed after August 2001. When the
transcript is received, ATFR verifies that all previous payments have
been cross-referenced properly as well as indicates where the current
payment should be cross-referenced. Currently, IRS has this capability
on the campus that has been selected as the centralized site. The Chief
Financial Officer (CFO) is also developing a TFRP database that will
establish the links to more accurately report the single balance due
from these assessments, and determine areas for improvement in the TFRP
process;
Status of recommendations: Per GAO: Open. We recognize automation of
the current TFRP program is much needed. However, IRS's efforts to date
have not been effective. A 2004 internal IRS report indicated over half
of all TFRP cases targeted for correction still contained posting
errors. Additionally, it reported that 1 in 3 cases with recent trust
fund activity had posting errors. In fiscal year 2004, we reviewed 50
TFRP cases and estimated that 16 percent contained payments that were
not properly reflected in each responsible party's account. We will
continue to review IRS's initiatives to improve posting of TFRP cases
and test TFRP cases for proper postings to all related accounts as part
of our fiscal year 2005 financial audit.
Count: 3;
No.: 99-3;
Recommendation: Ensure that IRS's modernization blueprint includes
developing a subsidiary ledger to accurately and promptly identify,
classify, track, and report all IRS unpaid assessments by amount and
taxpayer. This subsidiary ledger must also have the capability to
distinguish unpaid assessments by category in order to identify those
assessments that represent taxes receivable versus compliance
assessments and write-offs. In cases involving trust fund recovery
penalties, the subsidiary ledger should ensure that (1) the trust fund
recovery penalty assessment is appropriately tracked for all taxpayers
liable but counted only once for reporting purposes and (2) all
payments made are properly credited to the accounts of all individuals
assessed for the liability. (short-term);
Source report: Internal Revenue Service: Immediate and Long-Term
Actions Needed to Improve Financial Management (GAO/AIMD-99-16, Oct.
30, 1998);
Status of recommendations: Per IRS: Open. The Custodial Accounting
Project (CAP) is being stopped due to budget cuts. IRS is currently
examining other options for addressing this recommendation using
alternative approaches that leverage IRS's existing Financial
Management Information System (FMIS) and the Interim Revenue Accounting
Control System (IRACS) used to support the custodial balances on the
financial statements. The CFO is also developing a TFRP database that
can establish the links to more accurately report the single balance
due from these assessments and determine areas for improvement in the
TFRP process. The CFO is developing a business case and will pursue
opportunities to identify resources within IRS's IT budget to fund this
effort. IRS is continuing to develop the automated system to manage
TFRP, as discussed under recommendation 99-1. Final phase of
implementation for the automated trust fund system is anticipated in
2005;
Status of recommendations: Per GAO: Open. We will continue to monitor
IRS's development of an alternative strategy for CAP, as well as its
implementation of the new TFRP system and its other initiatives to
improve the TFRP process. IRS's plan to address our specific
recommendation regarding TFRP cases is discussed in recommendation 99-
1.
Count: 4;
No.: 99-17;
Recommendation: Ensure that all returned refund checks are stamped
"nonnegotiable" as soon as they are extracted. (short-term);
Source report: Internal Revenue Service: Physical Security over
Taxpayer Receipts and Data Needs Improvement (GAO/AIMD-99-15, Nov. 30,
1998);
Status of recommendations: Per IRS: Closed. In January 2005, the
Submission Processing Director's Office contacted each Submission
Processing Center (SPC) to address deficiencies identified by GAO in
2004 regarding overstamping of returned refund checks. Local management
was asked to discuss the deficiencies with their employees on a regular
basis and ensure corrective action is taken. This issue will be
reviewed monthly by the campus security review team and findings will
be shared with the Submission Processing Field Directors for additional
action, if required;
Status of recommendations: Per GAO: Open. During our fiscal year 2004
audit, we continued to observe that IRS staff were not consistently
aware of the requirement for overstamping returned refund checks. At
one service center campus we visited, the Refund Inquiry Unit staff
explained that the checks received from some Small Business/Self-
Employed (SB/SE) units had "void" written on them but were not
overstamped with the appropriate stamp. IRS's reported actions to
address deficiencies in overstamping returned refund checks occurred
after our fiscal year 2004 fieldwork. We will review the results of
IRS's actions during our fiscal year 2005 audit.
Count: 5;
No.: 99-19;
Recommendation: Ensure that walk-in payment receipts are recorded in a
control log prior to depositing the receipts in the locked container
and ensure that the control log information is reconciled to receipts
prior to submission of the receipts to another unit for payment
processing. To ensure proper segregation of duties, an employee not
responsible for logging receipts in the control log should perform the
reconciliation. (short-term);
Source report: Internal Revenue Service: Physical Security over
Taxpayer Receipts and Data Needs Improvement (GAO/AIMD-99-15, Nov. 30,
1998);
Status of recommendations: Per IRS: Closed. The Internal Revenue Manual
(IRM) was updated to require employees to record payments on Form 795,
Daily Report of Collection Activities, and to immediately place the
payment in a locked container. IRM procedures also provide for a
reconciliation process. The procedures require the employee who
prepared Form 795 to reconcile all receipts with the payment
information on Form 795 before forwarding to SPC. The SPC also performs
reconciliation by placing a distinct mark on Form 795 to indicate the
documents listed were received. The SPC returns the Form 795 to the
manager acknowledging receipt of Form 795 and all attachments. These
procedures are consistent with procedures followed by other IRS
functions;
Status of recommendations: Per GAO: Open. During our fiscal year 2004
audit, we found that IRS had updated the IRM and Taxpayer Assistance
Center (TAC) operational reviews to require employees to record
payments on Form 795 and to immediately place payments in a locked
container and provide for a reconciliation process for these payments.
However, during our 2004 audit visits to IRS field offices, we
continued to find that checks were not always stored in locked or
secured containers. In addition, the IRM reconciliation procedures for
payments do not provide for adequate segregation of duties between the
employee who prepares the Form 795 upon accepting a receipt and the
employee who reconciles the Form 795 prior to forwarding to SPC.
Count: 6;
No.: 99-20;
Recommendation: Analyze and determine the factors causing delays in
processing and posting TFRP assessments. Once these factors have been
determined, IRS should develop procedures to reduce the impact of these
factors and to ensure timely posting to all applicable accounts and
proper offsetting of refunds against unpaid assessments before
issuance. (short-term);
Source report: Internal Revenue Service: Custodial Financial Management
Weaknesses (GAO/AIMD-99-193, Aug. 4, 1999);
Status of recommendations: Per IRS: Open. Implementation of the ATFR
system continues. Phase I, which automates calculation and assessment
of penalties to ensure accuracy and timeliness, was implemented in July
2003. Phase II, which automates the manual steps of the campus process
to timely cross-reference payments, was implemented on one campus in
2004. IRS began its Phase III centralization process in January 2005 by
directing the new assessment work from one campus to the centralized
site as a test;
Status of recommendations: Per GAO: Open. IRS's plan to address our
specific recommendation regarding TFRP cases is discussed in
recommendation 99-1. When IRS completes implementation of its ATFR
program, we will review its effectiveness in eliminating processing
delays. In the meantime, we will continue to monitor trust fund
recovery penalty processing timeliness.
Count: 7;
No.: 99-22;
Recommendation: Expand IRS's current review of campus deterrent
controls to include similar analyses of controls at IRS field offices
in areas such as courier security, safeguarding of receipts in locked
containers, requirements for fingerprinting employees, and requirements
for promptly overstamping checks made out to "IRS" with "Internal
Revenue Service" or "United States Treasury." Based on the results, IRS
should make appropriate changes to strengthen its physical security
controls. (short-term);
Source report: Internal Revenue Service: Custodial Financial Management
Weaknesses (GAO/AIMD-99-193, Aug. 4, 1999);
Status of recommendations: Per IRS: Closed. The guidelines in the
Fiscal Year 2003 Operating Procedures for TACs for safeguarding
receipts in locked containers and over-stamping checks made payable to
IRS were incorporated into the IRM in June 2003. IRS monitored
adherence to these procedures during operational reviews of the TACs
conducted in fiscal year 2004 and found no discrepancies. Operating
procedures state, in part, that all remittances and related returns
must be recorded on Form 795, Daily Report of Collection Activity, and
placed in a locked container until transmitted to the appropriate SPC.
Payments in the form of personal checks, cashier checks, and money
orders should be made payable to "United States Treasury." Checks made
out to IRS or U.S. Treasury must be overstamped with the words "United
States Treasury" immediately upon receipt. IRS is also including these
issues in its operational reviews of the TACs. Managers in the TACs are
also required to complete an annual review that includes these issues.
Also, the Small Business and Self Employed Division (SB/SE) will issue
a reminder on the SB/SE Web site to all employees that payments
received from taxpayers must be made out to the United States Treasury.
Any payments received not made out to the United States Treasury will
be overstamped with the correct wording;
Status of recommendations: Per GAO: Open. We verified that IRS's
guidelines for safeguarding receipts in locked containers and over-
stamping checks made payable to "IRS" with "United States Treasury"
were included in the IRM and in TAC operational reviews. However,
during our fiscal year 2004 audit visits to IRS field offices, we
continued to find that checks were not always stored in locked or
secured containers. In addition, we found that checks made out to "IRS"
were not always immediately overstamped with "United States Treasury"
because staff was unaware of the policy or because some units did not
have the appropriate stamp. Some of IRS's reported actions to
strengthen its controls for storing and overstamping checks occurred
subsequent to our fiscal year 2004 fieldwork. We will continue to
evaluate IRS's correction actions during our fiscal year 2005 audit.
Count: 8;
No.: 99-25;
Recommendation: Ensure that additional staff are employed or existing
staff appropriately cross-trained to be able to perform the master file
extractions and other ad hoc procedures needed for IRS to continually
develop reliable balances for financial reporting purposes. (short-
term);
Source report: Internal Revenue Service: Custodial Financial Management
Weaknesses (GAO/AIMD-99-193, Aug. 4, 1999);
Status of recommendations: Per IRS: Open. The CAP is being stopped due
to budget cuts. IRS is currently examining other options for addressing
this recommendation using alternative approaches that leverage on IRS's
existing FMIS and IRACS used to support the custodial financial audit.
The CFO is developing a business case and will pursue opportunities to
identify resources within IRS's information technology budget to fund
this effort. The need to build an appropriate depth of experience is
still an immediate and ongoing issue. We continue to examine our
resources to see if work can be realigned, and if existing employees
can be retrained. Contractor support is used to provide the support and
backup necessary for preparation of the compensating procedures,
pending implementation of an alternative CAP solution and the Customer
Account Data Engine (CADE). IRS is committed to supporting the funding
of contractor resources that are used for the Custodial Financial
Statement Audit. This corrective action will be continually monitored
and developed as new solutions to the problem are identified;
Status of recommendations: Per GAO: Open. In fiscal year 2004, IRS
continued to augment its own resources with contractor support to
produce auditable financial statements. We will continue to assess
IRS's actions during our fiscal year 2005 audit.
Count: 9;
No.: 99-29;
Recommendation: Develop the data to support meaningful cost information
categories and cost-based performance measures. (long-term);
Source report: Internal Revenue Service: Serious Weaknesses Impact
Ability to Report on and Manage Operations (GAO/AIMD-99-196, Aug. 9,
1999);
Status of recommendations: Per IRS: Open. Integrated Financial System
(IFS) Release 1, which was implemented on November 10, 2004, includes a
cost module that will interface with program area management
information systems. Both direct and indirect resource cost data will
be linked to the budget process and the strategic planning goals of all
business units. This will help move IRS forward in transitioning to a
performance-based organization. Full cost accounting will not be
realized until future releases, such as Work Management, are
implemented. At present these releases are being reevaluated based on
funding availability. All future releases have been delayed or placed
on indefinite hold;
Status of recommendations: Per GAO: Open. We will follow up during
future audits to assess IRS's progress in implementing a cost-
accounting system and loading it with the cost information needed to
support cost-based performance measures.
Count: 10;
No.: 99-36;
Recommendation: Make enhancements to IRS financial systems to include
recording plant and equipment (P&E) and capital leases as assets when
purchased and to generate detailed records for P&E that reconcile to
the financial records. (long-term);
Source report: Internal Revenue Service: Serious Weaknesses Impact
Ability to Report on and Manage Operations (GAO/AIMD-99-196, Aug. 9,
1999);
Status of recommendations: Per IRS: Open. In the November 10, 2004, IFS
Release 1, P&E is being recorded as an asset when purchased. The
ability to tie to the detailed physical asset information and a fully
integrated system with subsidiary records will not be available until
the IFS Asset Management module is implemented. At present, all future
releases are being reevaluated based on funding availability and have
been delayed or placed on indefinite hold;
Status of recommendations: Per GAO: Open. IRS implemented the first
release of the new IFS on November 10, 2004, which will allow recording
P&E and capital leases as assets when purchased. However,
implementation of a property asset module that is intended to generate
detailed records for P&E that will reconcile to the financial records
is being deferred indefinitely due to funding constraints. We will
continue to monitor IRS's progress in implementing subsequent IFS
releases and the property asset module.
Count: 11;
No.: 01-02;
Recommendation: Revise policies and procedures governing the processing
of abatement transactions to establish (1) appropriate time frames for
processing abatements, (2) a methodology for monitoring the timeliness
of abatement processing, and (3) procedures to identify the causes for
delays and formulate corrective actions; Also, examine abatement
transactions arising from IRS errors to determine the causes for the
errors and, based on this examination, formulate and implement
appropriate procedures to reduce the level of errors made when entering
data into taxpayer accounts. (short-term);
Source report: Internal Revenue Service: Recommendations to Improve
Financial and Operational Management (GAO-01-42, Nov. 17, 2000);
Status of recommendations: Per IRS: Closed. IRS has not established
specific time frames for processing abatements because large dollar
claims often require additional documentation to verify a claim's
validity. Often these cases go through examination, or have other
taxpayer compliance issues. Allowing interest on refunds for these
cases taking longer than 45 days to process is part of IRS's cost of
doing business. The Office of Unpaid Assessments reviewed abatement
cases identified for the 2002 audit and found that there were
compliance activities in each case that required interest. In addition,
IRS enhanced its policies and procedures to monitor the processing of
abatement transactions;
Status of recommendations: Per GAO: Closed. IRS enhanced its policies
and procedures to monitor the processing of abatement transactions.
However, due to the complex nature of resolving underlying issues for
certain types of abatements, IRS did not establish specific time frames
for processing abatements. For example, large dollar claims often
require additional documentation to verify a claim's validity. Often
these claims go through examination, or have other taxpayer compliance
issues. Based on our fiscal year 2004 audit, we found that IRS was
processing abatements in a reasonable manner.
Count: 12;
No.: 01-03;
Recommendation: Implement procedures to monitor the age of all pending
offers and to require supervisors to follow up with staff to determine
within 6 months whether to accept or reject the offer. (short-term);
Source report: Internal Revenue Service: Recommendations to Improve
Financial and Operational Management (GAO-01-42, Nov. 17, 2000);
Status of recommendations: Per IRS: Closed. Over the last several
years, IRS has made significant improvements in the timeliness of Offer
in Compromise (OIC) investigations. IRS implemented two Centralized
Offer in Compromise (COIC) sites that process lower dollar and less
complex offers. The COIC sites also complete the front-end processing
for the field offers. Because front-end processing and statutory back-
end reviews added approximately 90 days or more to processing time for
field offers, IRS adjusted the processing goal for field-based offers
to 9 months, effective October 2004. IRS strengthened management
controls by creating additional management reports on OIC inventories,
closely monitoring age and inventory levels, and developing more
specific expectations for timely case actions. As of December 2004, 95
percent of OIC work in process in our COIC sites was 6 months old or
less and 70 percent of the field open inventory was 9 months old or
less;
Status of recommendations: Per GAO: Closed. IRS improved its procedures
for monitoring the age of pending offers and it significantly increased
its closure rate for offers in compromise.
Count: 13;
No.: 01-04;
Recommendation: As an alternative to prematurely suspending active
collection efforts, and using the best available information, develop
reliable cost-benefit data relating to collection efforts for cases
with some collection potential. These cost-benefit data would include
the full cost associated with the increased collection activity (i.e.,
salaries, benefits, administrative support), as well as the expected
additional tax collections generated. (long-term);
Source report: Internal Revenue Service: Recommendations to Improve
Financial and Operational Management (GAO-01-42, Nov. 17, 2000);
Status of recommendations: Per IRS: Open. IFS Release 1, which was
implemented on November 10, 2004, includes a cost module that will
interface with program area management information systems. However,
full cost accounting will not be realized until future releases, such
as Work Management, are implemented. At present these releases are
being reevaluated based on funding availability. All future releases
have been delayed or placed on indefinite hold. IRS has implemented
sophisticated modeling technology to identify productive and less
productive cases in order to make better decisions on resource
allocation. These models use a multitude of taxpayer attributes to
assess likelihood of collection and then feed results into the
prioritization risk factors currently in place. While not actual "cost-
benefit" analyses, these models help IRS ensure that resources are
devoted to cases with a high likelihood of collection, and also help
prevent premature suspension of collection efforts on these particular
cases. IRS is working on an initiative to approach collection inventory
with a corporate perspective. This study will assess the functional
impact of changes on individual collection components and result in
short-and long-term recommendations. These recommendations will help
increase collection coverage and leverage existing resources by
allocating workload to existing treatment streams based on capacity and
authorities;
Status of recommendations: Per GAO: Open. We will continue to review
IRS's initiatives to manage resource allocation levels for its
collection efforts.
Count: 14;
No.: 01-06;
Recommendation: Implement procedures to closely monitor the release of
tax liens to ensure that they are released within 30 days of the date
the related tax liability is fully satisfied. As part of these
procedures, IRS should carefully analyze the causes of the delays in
releasing tax liens identified by our work and prior work by IRS's
former internal audit function and ensure that such procedures
effectively address these issues. (short-term);
Source report: Internal Revenue Service: Recommendations to Improve
Financial and Operational Management (GAO-01-42, Nov. 17, 2000);
Status of recommendations: Per IRS: Open. IRS staff conducted reviews
of the lien processing units and OIC sites in 2004. In addition, IRS
staff has developed an overall action plan to address untimely lien
releases, including identification of root causes and where they occur
organizationally, and development and implementation of sub-action
plans to address each specific root cause;
Status of recommendations: Per GAO: Open. During our fiscal year 2004
audit, we continued to find delays in release of liens. We found 13
instances out of 59 cases tested in which IRS did not release the
applicable federal tax lien within the 30-day statutory period. The
time between the satisfaction of the liability and release of the lien
ranged from 34 days to 2,100 days. We also performed a review of IRS
operations at lien units and have identified some of the causes for
delays in the timely release of liens. Specifically, we identified that
exception reports generated during the lien process were not being
resolved or were not being resolved timely by the lien units. We made
separate recommendations to correct these weaknesses (GAO-05-26R). We
will review the impact of IRS's actions and will continue to review
IRS's release of tax liens as part of our fiscal year 2005 financial
audit.
Count: 15;
No.: 01-12;
Recommendation: For (1) IRS's Automated Underreporter and Combined
Annual Wage Reporting programs, (2) screening and examination of Earned
Income Tax Credit claims, and (3) identifying and collecting previously
disbursed improper refunds, use the best available information to
develop reliable cost-benefit data to estimate the tax revenue
collected by, and the amount of improper refunds returned to, IRS for
each dollar spent pursuing these outstanding amounts. These data would
include (1) an estimate of the full cost incurred by IRS in performing
each of these efforts, including the salaries and benefits of all staff
involved, as well as any related nonpersonnel costs, such as supplies
and utilities and (2) the actual amount (a) collected on tax amounts
assessed and (b) recovered on improper refunds disbursed. (long-term);
Source report: Internal Revenue Service: Recommendations to Improve
Financial and Operational Management (GAO-01-42, Nov. 17, 2000);
Status of recommendations: Per IRS: Open. During fiscal year 2004, IRS
conducted risk assessments on programs with funding greater than $10
million to implement the Improper Payments Information Act of 2002
(IPIA) PL 107-300 (Nov. 26, 2002). IRS determined that the Earned
Income Tax Credit (EITC) was its only risk area. IRS has a
comprehensive action plan to address the risk in this program including
several measures being used to report on this program. IRS plans to
continue to report to GAO separately on this program. For the Automated
Underreporter (AUR) program, IRS completed several data analyses and
identified reports during its risk assessment that reflect the amounts
it assessed and collected on refund returns through the AUR process.
Its assessment of the Combined Annual Wage Reporting program found that
this program did not produce refunds that would warrant further
analysis and study. In addition, IRS is developing cost data to
consider in making informed resource allocation decisions for all major
programs. The cost module of the IFS, Release 1, was implemented on
November 10, 2004; however, full cost accounting will not be realized
until future IFS releases are implemented. At present, future releases
are being reevaluated based on funding availability and have been
delayed or placed on indefinite hold;
Status of recommendations: Per GAO: Open. We will continue to monitor
IRS's progress in implementing the IFS cost accounting module and
loading it with appropriate cost information.
Count: 16;
No.: 01-15;
Recommendation: Ensure that all IRS units receiving collections have
consistent policies and procedures to safeguard and account for cash
receipts. (short-term);
Source report: Internal Revenue Service: Recommendations to Improve
Financial and Operational Management (GAO-01-42, Nov. 17, 2000);
Status of recommendations: Per IRS: Closed. Multidisciplinary teams
composed of management from Mission Assurance and Security Services,
Information Services, and Agency-Wide Shared Services will continue to
work with local staff to ensure consistent, ongoing implementation of
policies and procedures. In April 2003, IRM 5.1.2 was revised with new
sub-sections, including: Timeliness of Remittances and Physical
Security Controls over Remittances;
Status of recommendations: Per GAO: Closed. We verified that the IRM
sections applicable to field offices, TACs, and SPCs contained
consistent policies and procedures to safeguard and account for cash
receipts.
Count: 17;
No.: 01-17;
Recommendation: Develop a subsidiary ledger for leasehold improvements
and implement procedures to record leasehold improvement costs as they
occur. (long-term);
Source report: Internal Revenue Service: Recommendations to Improve
Financial and Operational Management (GAO-01-42, Nov. 17, 2000);
Status of recommendations: Per IRS: Open. In IFS Release 1, implemented
on November 10, 2004, P&E and leasehold improvements are recorded as
assets when purchased. However, amortization will remain a manual
process. The ability to tie the detailed physical asset information and
a fully integrated system with subsidiary records will not be available
until the Asset Management module is implemented. At present, all
future releases are being reevaluated based on funding availability and
have been delayed or placed on indefinite hold;
Status of recommendations: Per GAO: Open. IRS implemented the first
release of the new IFS on November 10, 2004, which will allow recording
of leasehold improvements as assets when purchased. However,
implementation of a property asset module that is intended to generate
detailed records for P&E that will reconcile to the financial records
is being deferred indefinitely due to funding constraints. We will
continue to monitor IRS's progress in implementing subsequent IFS
releases and the property asset module.
Count: 18;
No.: 01-18;
Recommendation: Implement procedures and controls to ensure that
expenditures for P&E are charged to the correct accounting codes to
provide reliable records for expenditures as a basis of extracting the
costs for major systems and leasehold improvements. (short-term);
Source report: Internal Revenue Service: Recommendations to Improve
Financial and Operational Management (GAO-01-42, Nov. 17, 2000);
Status of recommendations: Per IRS: Closed. In IFS Release 1,
implemented on November 10, 2004, P&E and leasehold improvements are
posted to the correct accounting code at the time of purchase. IRS has
improved the definitions of P&E and has provided guidance on
appropriate coding classifications to end users. Routine control
reviews have been established to ensure the accuracy and appropriate
coding classifications;
Status of recommendations: Per GAO: Open. IRS implemented the first
release of the new IFS on November 10, 2004, which will incorporate
procedures that will allow IRS to record P&E additions as they occur.
We will review the effectiveness of these procedures during our fiscal
year 2005 audit.
Count: 19;
No.: 01-21;
Recommendation: Consolidate and update the P&E policies and procedures
currently documented in various handbooks and policy memorandums into a
comprehensive document that personnel responsible for maintaining
inventory records can use as a reference. (short-term);
Source report: Internal Revenue Service: Recommendations to Improve
Financial and Operational Management (GAO-01-42, Nov. 17, 2000);
Status of recommendations: Per IRS: Closed. IRS has published
procedures for all property management in the IRM. Policies and
procedures pertaining to the property management of Information
Technology (IT) assets are provided in IRM 2.14.1-Information
Technology Asset Management. Policies and procedures for non-IT assets
were published on January 1, 2005, in IRM 1.14.4-Personal Property
Management. The IRM is now the one source that provides authoritative
guidance for the management of all property;
Status of recommendations: Per GAO: Closed. IRS has effectively
consolidated and published procedures for all property management in
the IRM.
Count: 20;
No.: 01-33;
Recommendation: Establish policies and procedures to ensure that all
administrative and, to the extent possible, custodial transactions, are
promptly recorded in the general ledger, preferably within 30 days of
the transaction. (long-term);
Source report: Internal Revenue Service: Recommendations to Improve
Financial and Operational Management (GAO-01-42, Nov. 17, 2000);
Status of recommendations: Per IRS: Closed. Regarding administrative
transactions, IRS has successfully implemented its monthly nonpayroll
expense accruals initiative. For custodial transactions, IRS records
its receipts and refund transactions into IRACS within 30 days of the
transaction. IRS also records the assessed portion of its unpaid
assessment balance in total within 30 days based on the transactions
that have posted to the taxpayer accounts. Each month and within 3 days
of the closing of the month IRS estimates its taxes receivable balance,
and the net taxes receivable balance, by applying the error rates and
rates of collection produced for the year-end financial statements to
each month's taxes receivable inventory. Steps to develop a subsidiary
ledger to accurately and promptly identify, classify, track, and report
all IRS unpaid assessments by amount and taxpayer and distinguish those
that represent taxes receivable are being addressed in recommendation
99-3;
Status of recommendations: Per GAO: Closed. We confirmed the
improvements IRS made in accounting for its administrative and
custodial transactions.
Count: 21;
No.: 01-39;
Recommendation: Develop a mechanism to track and report the actual
costs associated with reimbursable activities. (long-term);
Source report: Management Letter: Improvements Needed in IRS'
Accounting Procedures and Internal Controls (GAO-01-880R, July 30,
2001);
Status of recommendations: Per IRS: Open. IRS has developed guidance
for costing reimbursable agreements, which includes instructions on
tracking labor. IFS Release 1, implemented on November 10, 2004,
includes a cost module that will interface with program area management
information systems. Full cost accounting will not be realized until
future releases, such as Work Management, are implemented. Actions will
be initiated in fiscal year 2006 or fiscal year 2007 to begin gathering
the real cost of certain reimbursable projects. Future releases are
being evaluated based on funding availability and all future releases
have been delayed or placed on indefinite hold;
Status of recommendations: Per GAO: Open. We confirmed that IRS
completed procedures for costing reimbursable agreements that provides
the basic framework for the accumulation of both direct and indirect
costs at the necessary level of detail. IRS plans to implement these
procedures over several years as it phases in various program area
management information systems that will provide critical information
to its new cost accounting system. However, as indicated by IRS, these
systems have been placed on indefinite hold. We will continue to
monitor IRS's efforts to fully implement its cost accounting system
and, once it has been fully implemented, evaluate the effectiveness of
IRS procedures for developing cost information for its reimbursable
agreements.
Count: 22;
No.: 02-01;
Recommendation: Implement policies and procedures to record
capitalizable acquisition costs for P&E, capital leases, leasehold
improvements, and major systems in the appropriate P&E general ledger
accounts as transactions occur. (long-term);
Source report: Internal Revenue Service: Progress Made, but Further
Actions Needed to Improve Financial Management (GAO-02-35, Oct. 19,
2001);
Status of recommendations: Per IRS: Closed. In IFS Release 1,
implemented on November 10, 2004, property and equipment are recorded
as assets when purchased;
Status of recommendations: Per GAO: Open. IRS implemented the first
release of the new IFS on November 10, 2004, which will allow IRS to
record P&E additions in the appropriate general ledger accounts as they
occur. We will evaluate the effectiveness of the system for recording
capitalizable costs during our fiscal year 2005 audit.
Count: 23;
No.: 02-08;
Recommendation: Implement policies and procedures to require that all
employees itemize on their time cards the time spent on specific
projects. (long-term);
Source report: Internal Revenue Service: Progress Made, but Further
Actions Needed to Improve Financial Management (GAO-02-35, Oct. 19,
2001);
Status of recommendations: Per IRS: Open. IRS agreed with the objective
of this recommendation, which is to allow it to collect and report the
full payroll costs associated with its activities. While IRS indicated
that most of its employees already itemize their time charges in
functional tracking systems, it has acknowledged that full
implementation of the IFS cost accounting module is required to close
this recommendation. IFS Release 1, implemented on November 10, 2004,
includes requirements for a cost module that will be interfaced with
program area management information systems. Both direct and indirect
resource cost data can be linked to the budget process and the
strategic planning goals of all business units. This will help move IRS
forward in transitioning to a performance-based organization. Full cost
accounting will not be realized until future releases, such as Work
Management, are implemented. At present these releases are being
reevaluated based on funding availability and all future releases have
been delayed or placed on indefinite hold;
Status of recommendations: Per GAO: Open. We confirmed that IRS
employees use functional tracking (workload management) systems to
itemize and track their time charges. However, this recommendation
remains open because its objective is to allow IRS to collect and
report the full payroll costs associated with its activities. During
our fiscal year 2004 audit, we continued to find that the functional
tracking systems are insufficient for this purpose because they do not
interface with each other or the general ledger to allow management to
use them to readily accumulate the time charged to specific projects.
The new cost accounting module of IFS may be able to track IRS's costs
at the activity level and, thus, help to address the recommendation.
However, IRS's plans to fully implement cost accounting, which are
expected to require several years to execute, are currently on hold. We
will continue to monitor IRS's progress in implementing the IFS cost
accounting module.
Count: 24;
No.: 02-09;
Recommendation: Implement policies and procedures to allocate
nonpersonnel costs to programs and activities on a routine basis
throughout the year. (long-term);
Source report: Internal Revenue Service: Progress Made, but Further
Actions Needed to Improve Financial Management (GAO-02-35, Oct. 19,
2001);
Status of recommendations: Per IRS: Open. IRS agreed with this
recommendation and indicated plans to address this issue with the cost
accounting module that will be part of IFS. IFS Release 1, implemented
on November 10, 2004, includes a cost module that is interfaced with
program area management information systems. Both direct and indirect
resource cost data can be linked to the budget process and the
strategic planning goals of all business units. This helps move IRS
forward in transitioning to a performance-based organization. Full cost
accounting will not be realized until future releases, such as Work
Management, are implemented. At present, these releases are being
evaluated based on funding availability and all future releases have
been delayed or placed on indefinite hold;
Status of recommendations: Per GAO: Open. We confirmed that IRS's plans
include requirements that meet the objectives of this recommendation;
however, IRS has delayed or indefinitely placed on hold the
implementation of these requirements. IRS's plans to implement these
requirements were expected to be executed over several years as IRS
phases in various program area information systems that will provide
critical information to the cost accounting system. We will continue to
monitor IRS's efforts to address this issue.
Count: 25;
No.: 02-12;
Recommendation: Develop policies and procedures to require that field
offices post signs in the most visible locations to remind taxpayers to
obtain receipts for payments. (short-term);
Source report: Management Report: Improvements Needed in IRS's
Accounting Procedures and Internal Controls (GAO-02-746R, July 18,
2002);
Status of recommendations: Per IRS: Closed. IRS issued the Field
Assistance IRM in June 2003, which lists the required signs for each
taxpayer assistance center (TAC). Signs to remind taxpayers to obtain a
receipt for payment are posted in the most visible locations in each
TAC office as required by IRM 21.3.4.3(4). IRS monitored adherence to
these procedures during operational reviews of the TACs in fiscal years
2003 and 2004 and found signs were properly posted. Additionally,
periodic reviews and verification of the requirement are required, at a
minimum, during the annual filing season readiness operational review;
Status of recommendations: Per GAO: Closed. During our fiscal year 2004
audit, we verified that IRS had implemented policies and procedures
requiring field offices to post signs reminding taxpayers to obtain
receipts for payments. At the two field offices we visited, we observed
that signs containing the required information had been posted in
highly visible locations.
Count: 26;
No.: 02-14;
Recommendation: Develop policies and procedures to require that IRS and
lockbox employees performing final candling record receipts in a
control log at the time of discovery, recording at a minimum the total
number of payments found, the amount of each payment, and the taxpayer
who submitted the payment. (short-term);
Source report: Management Report: Improvements Needed in IRS's
Accounting Procedures and Internal Controls (GAO-02-746R, July 18,
2002);
Status of recommendations: Per IRS: Closed. The 2005 Lockbox Processing
Guidelines (LPG) (3.2.8.3), Documentation of Items Found in Candling
(Form 9535), directs the responsible manager to initial Form 9535 every
day for each shift. An entry must be made each shift, whether or not
items have been found. A manager will initial Form 9535 to validate all
of the following: All available information is correctly entered. Items
found have been reconciled with Form 9535 entries. Items have been
correctly categorized as processable or unprocessable. All processable
work has been cleared after each shift, i.e., the work has been put
back into the stream of work. The received date has been entered
correctly. Only Form 9535 will be used for documenting items found
during candling; In addition, during June 2004 a new candling log, Form
13592, was created. Procedures were also added to IRM 3.10.72 for
recording items found during final candling using the new form. In
January 2005, the submission processing director's office contacted
each SPC to address deficiencies identified by GAO in 2004 regarding
final candling. Local management was asked to discuss the deficiencies
with their employees on a regular basis and ensure corrective action is
taken. This issue will be reviewed monthly by the campus security
review team and findings will be shared with the appropriate directors
for additional actions, if required;
Status of recommendations: Per GAO: Open. During our fiscal year 2004
audit visits to four lockbox banks, we found no weaknesses in recording
information about discovered receipts in candling logs. However, at two
of the SPCs we visited, we found that candling staff did not
immediately record in a control log the items found during final
candling. In addition, candling staff at one of the SPCs did not
capture the minimum information as required by the updated guidance.
IRS's reported actions to strengthen its controls for items found
during candling at the SPCs occurred subsequent to our fiscal year 2004
fieldwork. We will monitor the effectiveness of IRS's updated policies
and procedures during our fiscal year 2005 audit.
Count: 27;
No.: 02-15;
Recommendation: Develop policies and procedures to require that IRS and
lockbox managers or designated officials reconcile logs of payments
found during final candling to the related receipts and documents.
(short-term);
Source report: Management Report: Improvements Needed in IRS's
Accounting Procedures and Internal Controls (GAO-02-746R, July 18,
2002);
Status of recommendations: Per IRS: Closed. The 2003 LPG 3.2.8.1(1)
directs the responsible manager to validate that the information was
correctly entered on Form 9535 for every shift worked. The 2003
Extracting, Sorting & Numbering IRM, 3.10.72.6.2(1) states, "management
shall immediately reconcile the discovered remittances with the final
candling log." The 2003 LPG was updated January 31, 2003. IRM 3.10.72
has been updated with procedures that direct the responsible manager to
validate that all information was correctly entered on Form 13592. In
January 2005, the Submission Processing Director's Office contacted
each SPC to address deficiencies identified by GAO in 2004 regarding
reconciliation of the candling log. Local management was asked to
discuss the deficiencies with their employees on a regular basis and
ensure corrective action is taken. This issue will be reviewed monthly
by the campus security review team and findings will be shared with the
appropriate director for additional action, if required;
Status of recommendations: Per GAO: Closed. We verified that the LPG
directs lockbox managers to validate Form 9535 daily and that the
updated IRM requires that management initial the log to validate that
all available information is correctly entered and ensure that all
remittances listed in the log are brought to the deposit function on a
daily basis. We found no instances in which IRS or lockbox managers
were not performing the required reconciliations during our fiscal year
2004 audit.
Count: 28;
No.: 02-16;
Recommendation: Ensure that field office management complies with
existing receipt control policies that require a segregation of duties
between employees who prepare control logs for walk-in payments and
employees who reconcile the control logs to the actual payments. (short-
term);
Source report: Management Report: Improvements Needed in IRS's
Accounting Procedures and Internal Controls (GAO-02-746R, July 18,
2002);
Status of recommendations: Per IRS: Closed. IRM procedures provide for
a reconciliation process. The procedures require the employee who
prepared Form 795, Daily Report of Collection Activity, to reconcile
all receipts with the payment information on Form 795 before forwarding
to the SPC. The SPC also performs a reconciliation by placing a
distinct mark on Form 795 to indicate the documents listed were
received. The SPC returns the Form 795 to the manager acknowledging
receipt of Form 795 and all attachments. These procedures are
consistent with procedures followed by other IRS functions;
Status of recommendations: Per GAO: Open. During our fiscal year 2004
audit, we found that IRS's procedures relating to the control and
reconciliation of receipts at its field offices do not provide for
segregation of duties between those employees who prepare the Form 795
and those who reconcile the receipts prior to sending them to the SPC.
We found that the employees who posted receipts to the log also
reconciled the log at both of the field offices we visited, including
the TACs.
Count: 29;
No.: 02-18;
Recommendation: Work with the National Finance Center (NFC) to resolve
the technical limitations that exist within the Security Entry and
Tracking System (SETS) database and continue to periodically review
SETS data to detect and correct errors. (short-term);
Source report: Management Report: Improvements Needed in IRS's
Accounting Procedures and Internal Controls (GAO-02-746R, July 18,
2002);
Status of recommendations: Per IRS: Closed. NFC is in the process of
upgrading the SETS application to a Web version, which it anticipates
deploying in 6 to 9 months. Treasury has requested that NFC include IRS
as a participant in the design and development sessions. In the
interim, NFC will continue to address any problems reported by IRS;
Status of recommendations: Per GAO: Open. We will continue to monitor
IRS's actions in addressing this recommendation during our fiscal year
2005 audit.
Count: 30;
No.: 02-20;
Recommendation: Establish procedures to track the release of liens up
to the point of delivery to the local jurisdiction to ensure liens are
released timely to avoid unduly burdening taxpayers once they have
satisfied their tax liability. (short-term);
Source report: Management Report: Improvements Needed in IRS's
Accounting Procedures and Internal Controls (GAO-02-746R, July 18,
2002);
Status of recommendations: Per IRS: Closed. IRS issued a memorandum
dated January 28, 2003, with instructions for tracking when the
certificates of lien release leave its immediate control. Certificates
must be generated at least weekly. Based on the results of the 2003
audit, IRS drafted a detailed action plan for lien release issues,
which includes operational reviews. The new procedures call for
Automated Lien System units to date-stamp a duplicate copy of the lien
release-billing voucher so that IRS has actual knowledge of when lien
releases are no longer under its direct control. This was issued in the
Internal Revenue Manual on October 1, 2003. Certificates must be
generated weekly. A memo was also issued January 28, 2003, on Payment
Compliance, which was reinforced via e-mail on April 1, 2004, to
territory managers in case processing, emphasizing that the
requirements and the procedures have been incorporated into IRM
5.12.6.4.1. IRS completed lien processing site reviews in 2004 and
verified implementation;
Status of recommendations: Per GAO: Closed. During our fiscal year 2004
audit, we verified that IRS substantially implemented the new
procedures.
Count: 31;
No.: 02-23;
Recommendation: Develop and implement procedures to ensure that
procurement award and requisition numbers recorded on property records
are complete, accurate, and linked to the accounting records. (long-
term);
Source report: Management Report: Improvements Needed in IRS's
Accounting Procedures and Internal Controls (GAO-02-746R, July 18,
2002);
Status of recommendations: Per IRS: Closed. IRS has developed and
implemented procedures that ensure award and requisition numbers are
accurately recorded on property records and are linked to the
accounting records. For example, IRS implemented an Electronic Packing
Slip initiative with vendors. Using an automated transfer method, the
vendors provide electronic data, such as procurement award and
requisition numbers, for all equipment that is shipped. IRS updates its
inventory records with this information and establishes skeletal
records before the equipment is received at IRS locations;
Status of recommendations: Per GAO: Closed. IRS continued to work with
vendors and improved the process of using electronic packing slips to
ensure that property records are complete and linked to the accounting
records. During our fiscal year 2004 audit, we noted improvements in
the accuracy of acquisitions recorded in the P&E inventory records and
linked to the accounting records.
Count: 32;
No.: 03-01;
Recommendation: Document IRS's oversight roles and responsibilities in
agency policy and procedure manuals and determine appropriate level of
IRS oversight of lockbox sites throughout the year, particularly during
peak processing periods. (short-term);
Source report: IRS Lockbox Banks: More Effective Oversight, Stronger
Controls, and Further Study of Costs and Benefits Are Needed (GAO-03-
299, Jan. 15, 2003);
Status of recommendations: Per IRS: Closed. The Memorandum of
Understanding (MOU) between the Financial Management Service (FMS) and
IRS, detailing the roles and responsibilities of each organization in
administering the IRS Lockbox Program, was signed April 30, 2003. In
addition, IRM 3.0.230, Lockbox Processing Procedures, and the LPG (2003
and 2004) outline the duties and responsibilities of FMS and IRS;
Status of recommendations: Per GAO: Closed. During our fiscal year 2004
audit, we confirmed that IRS's MOU was incorporated into an update of
the IRM and in the 2004 LPG.
Count: 33;
No.: 03-02;
Recommendation: Establish and document guidelines and procedures in
policy and procedure manuals for implementing the new penalty provision
for lockbox banks to reimburse the government for direct costs incurred
in correcting errors made by lockbox banks. (short-term);
Source report: IRS Lockbox Banks: More Effective Oversight, Stronger
Controls, and Further Study of Costs and Benefits Are Needed (GAO-03-
299, Jan. 15, 2003);
Status of recommendations: Per IRS: Closed. IRS/FMS prepared a
reimbursement process. The procedures include the use of a special
Lockbox Program code to delineate IRS rework costs as a result of
errors made by the lockbox sites. The Lockbox Policy Reimbursement
procedures are included in the 2005 Lockbox Processing Guidelines under
LPG 2.1.9 and 2005 Lockbox Processing Procedures under IRM 3.0.230.9.3;
Status of recommendations: Per GAO: Open. During our fiscal year 2004
audit, we confirmed that IRS had incorporated reimbursement procedures
in the 2004 LPG. IRS's update to the LPG and IRM occurred subsequent to
our fiscal year 2004 fieldwork. We will continue to evaluate IRS's
planned corrective actions during our fiscal year 2005 audit.
Count: 34;
No.: 03-04;
Recommendation: Establish and document a process in IRS policy and
procedure manuals to ensure that lockbox bank management formally
responds to IRS oversight findings and recommendations promptly and
that corrective actions taken by lockbox bank management are
appropriate. (short-term);
Source report: IRS Lockbox Banks: More Effective Oversight, Stronger
Controls, and Further Study of Costs and Benefits Are Needed (GAO-03-
299, Jan. 15, 2003);
Status of recommendations: Per IRS: Closed. The Security MOU, completed
on April 1, 2003, documents the roles and responsibilities of the
Security Review Team, which is comprised of FMS and IRS security
experts. IRS documents its findings, which are sent to FMS to be
included in a final report to the banks. This report covers findings,
recommendations, and due dates for all corrective actions. IRS receives
a copy of the final report. IRS's oversight roles and responsibilities
can be found in the 2005 LPG under 2.1.2.2, Revenue and Deposit Branch,
Lockbox Policy and Procedures (LPP), LPG 2.1.2.3, Revenue and Deposit
Branch, Lockbox Field Operations (LFO), and the Lockbox IRM 3.0.230;
Status of recommendations: Per GAO: Closed. During fiscal year 2004, we
verified that IRS outlined the oversight duties and responsibilities
for FMS and IRS in the IRM and in the 2004 LPG. In addition, IRS also
documented the oversight role and responsibilities in the 2005 LPG.
Count: 35;
No.: 03-06;
Recommendation: Ensure that the results of on-site compliance reviews
are completed and promptly submitted to IRS's National Office. (short-
term);
Source report: IRS Lockbox Banks: More Effective Oversight, Stronger
Controls, and Further Study of Costs and Benefits Are Needed (GAO-03-
299, Jan. 15, 2003);
Status of recommendations: Per IRS: Closed. Lockbox banks underwent
security reviews in 2003 and 2004. The banks were required to respond
officially to the items identified in the security report. Security
reviews were based on the lockbox sites' compliance with the LPG. IRS
is represented on the security review team, provides input related to
the review to FMS, and then receives a copy of the final response sent
by FMS to the lockbox bank. Reviews were submitted timely to the
National Office. Document Collection Instrument (DCI) reviews were
examined for completeness and accuracy;
Status of recommendations: Per GAO: Closed. During our fiscal year 2004
audit, we reviewed the results of IRS and FMS April peak-season
security reviews, captured in joint IRS/FMS consolidated trip reports
for each lockbox site, and concluded these reviews were timely
completed and submitted to IRS's National Office.
Count: 36;
No.: 03-07;
Recommendation: Revise the guidance used for compliance reviews so it
requires reviewers to (1) determine whether lockbox contractors, such
as couriers, have completed and obtained favorable results on IRS
fingerprint checks and (2) obtain and review all relevant logs for cash
payments and candled items to ensure that all payments are accounted
for. (short-term);
Source report: IRS Lockbox Banks: More Effective Oversight, Stronger
Controls, and Further Study of Costs and Benefits Are Needed (GAO-03-
299, Jan. 15, 2003);
Status of recommendations: Per IRS: Closed. IRS updated the security
check sheet to instruct reviewers to determine whether contractors have
completed and obtained favorable fingerprint results and to review all
relevant logs for cash payments and candling logs. In addition, IRS and
FMS personnel review all contractor (including courier) documentation
during peak filing season. Lockbox coordinators are responsible for
reviewing the candling log and cash log;
Status of recommendations: Per GAO: Open. We determined during our
fiscal year 2004 visits to four lockbox banks that the lockbox
coordinator's on-site review check sheet included the requirement to
ensure that the cash and candling logs are being kept and updated
daily. Further, we found that management at the four lockbox banks we
visited performed and adequately documented candling reviews. However,
the review check sheet does not include the requirement to ensure that
contractors have completed and obtained favorable results on IRS
fingerprint checks. In addition, we found that a contractor at two of
the lockbox banks we visited did not have the required background
investigation and was incorrectly being granted unescorted access to
the processing area.
Count: 37;
No.: 03-08;
Recommendation: Assign individuals, other than the lockbox
coordinators, responsibility for completing on-site performance
reviews. (short-term);
Source report: IRS Lockbox Banks: More Effective Oversight, Stronger
Controls, and Further Study of Costs and Benefits Are Needed (GAO-03-
299, Jan. 15, 2003);
Status of recommendations: Per IRS: Closed. IRS retains the position
that the lockbox coordinators were specifically hired to conduct the
performance reviews and represent IRS's interests during on-site peak
processing. During fiscal year 2004, the on-site administrative and
procedural DCIs were standardized and prioritized. Conference calls
were routinely conducted with lockbox field staff to address any
consistency issues or concerns. Backup field coordinators have been
designated and cross-trained. Newly implemented performance measures
concentrate heavily on the on-site and SPC DCI reviews, the combination
of which effectively serves as a system of checks and balances;
Status of recommendations: Per GAO: Open. Some of IRS's procedures were
implemented subsequent to our fiscal year 2004 peak-season site visits.
Although we did not identify any specific issues relating to the
lockbox coordinators' completion of the on-site performance reviews at
the lockbox banks during our 2004 site visits, we will further evaluate
IRS's process during our fiscal year 2005 audit.
Count: 38;
No.: 03-10;
Recommendation: Require lockbox management to ensure that guards are
responsive to alarms and that IRS takes steps to monitor adherence to
this requirement. (short-term);
Source report: IRS Lockbox Banks: More Effective Oversight, Stronger
Controls, and Further Study of Costs and Benefits Are Needed (GAO-03-
299, Jan. 15, 2003);
Status of recommendations: Per IRS: Closed. The requirement to ensure
that door alarms are responded to by the guards was previously
established in the 2002 LPG issued January 1, 2002. IRS and FMS
security teams observe the guards responding to door alarms, etc., by
performing tests during on-site security reviews: documented in Section
2.4 of 2003 (revised April 8, 2003) and 2004 LPG (issued December 1,
2003);
Status of recommendations: Per GAO: Open. During our fiscal year 2004
audit, we verified that the LPG required lockbox bank management to
ensure that guards responded to alarms and that IRS was continuing to
monitor the banks' adherence to this requirement. However, we continued
to find weaknesses in the guards' responsiveness to alarms at two of
the four lockbox banks we visited. At one lockbox bank, we observed
that guards did not respond to door alarms. At another lockbox bank,
the guards were not able to locate where the alarms had originated.
Count: 39;
No.: 03-14;
Recommendation: Require lockbox management to ensure that surveillance
cameras and monitors are installed in ways that allow for effective,
real-time monitoring of lockbox operations and that IRS take steps to
monitor adherence to this requirement. (short-term);
Source report: IRS Lockbox Banks: More Effective Oversight, Stronger
Controls, and Further Study of Costs and Benefits Are Needed (GAO-03-
299, Jan. 15, 2003);
Status of recommendations: Per IRS: Closed. Surveillance cameras have
been installed at all lockbox sites. Security review teams continually
monitor compliance. These procedures were updated in Section 2.4.1 of
the 2003 (revised April 8, 2003) and the 2004 LPG, issued December 1,
2003. The 2005 LPG, under LPG 4.1.4.1.4, directs the documentation of
the role and responsibilities for closed-circuit television (CCTV)
monitoring by security guards. In order to help ensure compliance to
LPG requirements, an IRS and FMS task group has developed a performance
measures process to include a category for security and internal
control to be piloted January-September 2005, and to be implemented
October 2005. This process will use a DCI check sheet that will list as
line items the requirements as outlined in the LPG. It will be used as
a tool to identify varying levels of performance and provide incentives
and disincentives based on those levels of performance. This will help
ensure compliance with the requirements as set forth in the LPG and
will help IRS identify if and where improvements are necessary;
Status of recommendations: Per GAO: Closed. During our fiscal year 2004
audit, we found no instances in which a bank did not have surveillance
cameras and monitors installed that allowed for effective, real-time
monitoring of receipt processing operations at the four lockbox banks
we visited.
Count: 40;
No.: 03-15;
Recommendation: Require lockbox management to ensure that envelopes are
properly candled and that IRS takes steps to monitor adherence to this
requirement. (short-term);
Source report: IRS Lockbox Banks: More Effective Oversight, Stronger
Controls, and Further Study of Costs and Benefits Are Needed (GAO-03-
299, Jan. 15, 2003);
Status of recommendations: Per IRS: Closed. The 2005 LPG 3.2.8.3,
Documentation of Items Found in Candling (Form 9535) (1), was revised
to require the responsible manager to initial the Form 9535 every day
for each shift. An entry must be made each shift, whether or not items
have been found. A manager will initial Form 9535 to validate all of
the following: All available information is correctly entered. Items
found have been reconciled with Form 9535 entries. Items have been
correctly categorized as processable or unprocessable. All processable
work has been cleared after each shift, i.e., the work has been put
back into the stream of work. The received date has been correctly
entered. Additionally, under LPG 3.2.8, IRS revised the requirement to
state that envelopes opened manually or by the OPEX mail machine must
be opened on three or more sides and are required to be candled once;
all others must be candled twice. In order to help ensure compliance to
the LPG requirements, an IRS and FMS task group has developed a
performance measures process to include a category for security and
internal control that will be implemented in October 2005. This process
will use a DCI check sheet that will list by line item the requirements
as outlined in the LPG. It will be used as a tool to identify varying
levels of performance and provide incentives and disincentives based on
those levels of performance. This will help ensure compliance with the
LPG requirements;
Status of recommendations: Per GAO: Open. During our fiscal year 2004
audit visits, we found one lockbox bank did not perform adequate
candling of items opened automatically by an OPEX machine. This machine
did not use a light source and no other candling was performed on
envelopes processed by it. Furthermore, the 2004 LPG candling
requirement was unclear as to the number of candlings required in this
situation. In addition, we observed some manual candling staff were not
adequately viewing envelopes as they were passed over a light source.
Some of IRS's corrective actions, including revising the 2005 LPG to
address candling requirements for specific types of mail, occurred
subsequent to our fiscal year 2004 fieldwork. In addition, IRS reports
that a new performance measurement process will be implemented in
October 2005 to ensure compliance with these new LPG requirements. To
the extent IRS has implemented its new requirements, we will continue
to evaluate IRS's corrective actions during our fiscal year 2005 audit.
Count: 41;
No.: 03-16;
Recommendation: Require lockbox management to perform and adequately
document candling reviews and that IRS take steps to monitor adherence
to this requirement. (short-term);
Source report: IRS Lockbox Banks: More Effective Oversight, Stronger
Controls, and Further Study of Costs and Benefits Are Needed (GAO-03-
299, Jan. 15, 2003);
Status of recommendations: Per IRS: Closed. The 2005 LPG 3.2.8.3,
Documentation of Items Found in Candling (Form 9535) (1), was revised
to require the responsible manager to initial the Form 9535 every day
for each shift. An entry must be made each shift, whether or not items
have been found. A manager will initial Form 9535 to validate all of
the following: All available information is correctly entered. Items
found have been reconciled with Form 9535 entries. Items have been
correctly categorized as processable or unprocessable. All processable
work has been cleared after each shift, i.e., the work has been put
back into the stream of work. The received date has been correctly
entered. Additionally, under LPG 3.2.8, IRS revised the requirement to
state that envelopes opened manually or by OPEX mail machine that must
be candled on three or more sides are required to be candled once; all
others must be candled twice. In order to help ensure compliance to the
LPG requirements, an IRS and FMS task group has developed a performance
measures process to include a category for security and internal
control that will be implemented in October 2005. This process will use
a DCI check sheet that will list by line item the requirements as
outlined in the LPG. It will be used as a tool to identify varying
levels of performance and provide incentives and disincentives based on
those levels of performance. This will help ensure compliance with the
LPG requirements;
Status of recommendations: Per GAO: Closed. During our fiscal year 2004
audit, we found that management at the four lockbox banks we visited
performed and adequately documented candling reviews.
Count: 42;
No.: 03-17;
Recommendation: Require that returned refund checks are restrictively
endorsed immediately upon extraction and that IRS take steps to monitor
adherence to this requirement. (short-term);
Source report: IRS Lockbox Banks: More Effective Oversight, Stronger
Controls, and Further Study of Costs and Benefits Are Needed (GAO-03-
299, Jan. 15, 2003);
Status of recommendations: Per IRS: Closed. The requirement to ensure
that returned refund checks are restrictively endorsed immediately upon
extraction was previously listed in Section 3.2.1 of the 2002 LPG
issued January 1, 2002, as well as the 2003 (revised April 8, 2003) and
2004 LPG, issued December 1, 2003. During the on-site security reviews,
IRS and FMS security teams reviewed adherence to this requirement.
Additionally, adherence to this requirement is evaluated during the
daily SPC quality reviews;
Status of recommendations: Per GAO: Open. During our fiscal year 2004
audit, we verified that the LPG required that returned refund checks be
restrictively endorsed immediately upon extraction and that IRS monitor
adherence to this requirement. However, IRS extraction staff at one of
the four lockbox banks we visited informed us that returned refund
checks were processed without immediately being stamped as
nonnegotiable.
Count: 43;
No.: 03-20;
Recommendation: Revise the LPG to require that before lockbox bank
couriers receive access to taxpayer data and receipts they undergo and
receive favorable results on background investigations that are deemed
appropriate by IRS and are consistent across lockbox banks. (short-
term);
Source report: IRS Lockbox Banks: More Effective Oversight, Stronger
Controls, and Further Study of Costs and Benefits Are Needed (GAO-03-
299, Jan. 15, 2003);
Status of recommendations: Per IRS: Closed. On September 23, 2003, at
the annual lockbox conference, the National Background Investigation
Center (NBIC) presented the new background investigation requirements
for permanent lockbox bank employees, couriers, and guards. The new
procedures require a moderate risk National Agency Check with Law and
Credit (NACLC) investigation on all permanent bank employees, couriers,
and guards. The banks were given an implementation schedule beginning
October 1, 2003, with full implementation by April 1, 2004. On December
15, 2003, the Lockbox Project Office sent out a Lockbox Electronic
Bulletin with the 2004 LPG containing the revised background
investigation requirements under LPG 4.2, Personnel Security and LPG
5.1.2(5);
Status of recommendations: Per GAO: Closed. During our fiscal year 2004
audit, we verified that the LPG had been revised to require that before
lockbox bank couriers receive access to taxpayer data and receipts they
undergo and receive favorable results on background investigations. We
found no instances where couriers received access to taxpayer data and
receipts without having undergone and received favorable results on
background investigations.
Count: 44;
No.: 03-21;
Recommendation: Revise the LPG to require that before permanent lockbox
bank employees receive access to taxpayer data and receipts they
undergo and receive favorable results on background investigations that
are deemed appropriate by IRS and are consistent across lockbox banks.
(short-term);
Source report: IRS Lockbox Banks: More Effective Oversight, Stronger
Controls, and Further Study of Costs and Benefits Are Needed (GAO-03-
299, Jan. 15, 2003);
Status of recommendations: Per IRS: Closed. On September 23, 2003, at
the annual lockbox conference, NBIC presented the new background
investigation requirements for permanent lockbox bank employees,
couriers, and guards. The new procedures require a moderate risk NACLC
investigation on all permanent bank employees, couriers, and guards.
The banks were given an implementation schedule beginning October 1,
2003, with full implementation by April 1, 2004. On December 15, 2003,
the Lockbox Project Office sent out a Lockbox Electronic Bulletin with
the 2004 LPG containing the revised background investigation
requirements under LPG 4.2, Personnel Security and LPG 5.1.2(5);
Status of recommendations: Per GAO: Closed. We verified that the 2004
LPG was revised to require all permanent employees assigned to a
lockbox bank to have a NACLC investigation. We did not identify any
instances during our fiscal year 2004 audit in which permanent
employees with unescorted access to the processing area did not have a
NACLC background investigation.
Count: 45;
No.: 03-24;
Recommendation: Revise the LPG to require that during candling, lockbox
bank employees record which machines and which extraction clerks missed
items. (short-term);
Source report: IRS Lockbox Banks: More Effective Oversight, Stronger
Controls, and Further Study of Costs and Benefits Are Needed (GAO-03-
299, Jan. 15, 2003);
Status of recommendations: Per IRS: Closed. On April 2, 2003, IRS
instructed the banks to change the quality review process for candling.
The new procedures require that banks track which machines and which
employees missed items. The procedures were effective April 14, 2003,
and included in the 2004 LPG, issued December 1, 2003;
Status of recommendations: Per GAO: Closed. During our fiscal year 2004
audit, we verified that procedures requiring that lockbox banks track
which machines and which employees missed items were included in the
2004 LPG. In our visits to four lockbox banks, we did not identify any
instances where lockbox bank employees did not record which machines
and which extraction clerks missed items during candling.
Count: 46;
No.: 03-25;
Recommendation: Revise the LPG to require that lockbox bank management
reconcile items found during candling to the candling records. (short-
term);
Source report: IRS Lockbox Banks: More Effective Oversight, Stronger
Controls, and Further Study of Costs and Benefits Are Needed (GAO-03-
299, Jan. 15, 2003);
Status of recommendations: Per IRS: Closed. The 2005 LPG 3.2.8.3,
Documentation of Items Found in Candling (Form 9535) (1), was revised
to require the responsible manager to initial the Form 9535 every day
for each shift. An entry must be made each shift, whether or not items
have been found. A manager will initial Form 9535 to validate all of
the following: All available information is correctly entered. Items
found have been reconciled with Form 9535 entries. Items have been
correctly categorized as processable or unprocessable. All processable
work has been cleared after each shift, i.e., the work has been put
back into the stream of work. The received date has been correctly
entered. Note: Only Form 9535 will be used for documenting items found
in candling;
Status of recommendations: Per GAO: Closed. During our fiscal year 2004
audit, we verified that the 2004 LPG had been updated to require that
lockbox bank management reconcile items found during candling to the
candling records. Per IRS, additional detailed instructions were
included in the fiscal year 2005 LPG. We did not identify any instances
during our fiscal year 2004 audit visits to four lockbox banks where
lockbox bank management did not reconcile items found during candling
to the candling records.
Count: 47;
No.: 03-26;
Recommendation: Revise the LPG to require that lockbox bank management
reconcile cash payments to internal cash logs and the cash logs they
provide to IRS. (short-term);
Source report: IRS Lockbox Banks: More Effective Oversight, Stronger
Controls, and Further Study of Costs and Benefits Are Needed (GAO-03-
299, Jan. 15, 2003);
Status of recommendations: Per IRS: Closed. The 2005 LPG has been
revised under LPG 3.3.2.15 as follows: Discovered Remittances-Cash. (1)
All employees identifying discovered remittances that are cash or other
items of value must immediately notify their manager or designee. A
manager or designee must be available at all times during business
hours to receive and immediately log each discovered cash remittance on
Form 9535; (2) All cash payments received must be immediately logged on
a Form 9535 that is dedicated to cash-only entries;
Status of recommendations: Per GAO: Closed. During our fiscal year 2004
audit, we verified that the 2004 LPG had been updated to require that
lockbox bank management reconcile cash payments to internal cash logs
and the cash logs they provide to IRS. Per IRS, additional detailed
instructions were included in the fiscal year 2005 LPG. We did not
identify any instances during our fiscal year 2004 visits to four
lockbox banks where cash payments were not reconciled to the internal
cash logs that lockbox bank management provided to IRS.
Count: 48;
No.: 03-29;
Recommendation: Confirm with FMS that IRS's requirements for background
and fingerprint checks for courier services are met regardless of
whether IRS or FMS negotiates the service agreement. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls (GAO-03-562R, May 20, 2003);
Status of recommendations: Per IRS: Closed. On October 7, 2002, FMS
issued an amendment to the Courier MOU, which included the requirement
that all courier employees satisfy the basic investigation including a
Federal Bureau of Investigation fingerprint and name check. All 10 IRS
campuses now have a contact responsible for submitting paperwork to
NBIC and ensuring courier employees are granted clearance. On April 10,
2003, IRS requested that NBIC provide a monthly status report of the
campus compliance to the Wage and Investment Division. The 2004 LPG
(issued December 1, 2003) includes Guidelines for Background
Investigations under Personnel Security in Section 4.2. As of December
31, 2004, all parties are adhering to these requirements;
Status of recommendations: Per GAO: Open. During our fiscal year 2004
audit, we reviewed FMS-and IRS-negotiated courier agreements for the
SPCs and found that the agreement at one SPC did not contain IRS's
requirements for background and fingerprint checks for courier
services. We will evaluate the compliance of the 2005 courier
agreements during our fiscal year 2005 audit.
Count: 49;
No.: 03-30;
Recommendation: Establish procedures to verify that courier services
are adhering to the standards established for them by IRS, including
the requirement that the courier service have insurance coverage.
(short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls (GAO-03-562R, May 20, 2003);
Status of recommendations: Per IRS: Closed. The Security Review Team
reviews monthly compliance with the courier requirements. For the five
campuses where IRS holds the courier contract, the Security Review Team
was required to verify the campus has a valid insurance certificate
valued at $1 million. For the five campuses with FMS-negotiated
agreements, FMS drafted a memorandum to the financial institutes
advising them to regularly provide a copy of the insurance certificates
to IRS. The 2003 LPG included this procedure in Section 2.8.4.1. The
campus now has a bonded courier who is delivering the deposits to the
depository on a daily basis. All procedures are in place to provide a
copy of the $1 million insurance binder to all campuses and
headquarters on an annual basis;
Status of recommendations: Per GAO: Closed. During our fiscal year 2004
audit, we determined that IRS had established procedures to verify that
courier services are adhering to the standards established for them by
IRS, including the requirement that the courier service have insurance
coverage. This was also included in the 2004 LPG. We found no instances
in which the required proof of insurance was not available during our
fiscal year 2004 visits to four SPCs and four lockbox banks.
Count: 50;
No.: 03-31;
Recommendation: Enforce consistent implementation of policy limiting
personal belongings in receipt processing areas at service center
campuses. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls (GAO-03-562R, May 20, 2003);
Status of recommendations: Per IRS: Closed. On February 6, 2004, IRS
issued information alert W&I-IA-2002-63-2004 specifying the items that
are prohibited from the secure receipt processing areas and requiring
that employees use clear plastic bags to transport small items not
carried on their person in and out of the secure areas. First-line
managers or a designated representative conduct, at minimum, monthly
random reviews of employee compliance with all security policies as
they relate to personal belongings in the secure receipt processing
areas. In addition, Campus Security Review teams conduct monthly
reviews to ensure compliance with these procedures. These procedures
were added via information alerts to Internal Revenue manuals
pertaining to the secure receipt processing areas;
Status of recommendations: Per GAO: Closed. We did not find any
instances of inappropriate personal belongings in receipt processing
areas at the four SPCs we visited during our fiscal year 2004 audit.
Count: 51;
No.: 03-32;
Recommendation: Prohibit the storage of employees' personal belongings
with cash payments and receipts at IRS's TACs. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls (GAO-03-562R, May 20, 2003);
Status of recommendations: Per IRS: Closed. IRM procedures were revised
during fiscal year 2004 with specific guidelines prohibiting the
storage of personal belongs under the same locking device with taxpayer
data. IRS monitored adherence to IRM procedures during operational
reviews conducted in fiscal year 2004. No discrepancies were
identified;
Status of recommendations: Per GAO: Open. During our fiscal year 2004
audit, we verified that IRS's guidelines prohibiting the storage of
personal belongings with cash payments and receipts at IRS's TACs were
included in IRM. However, during our visits to two TACs, we continued
to find weakness in adherence to these guidelines. At one TAC, we found
personal belongings being stored in filing cabinets directly adjacent
to the file cabinet storing receipts and in drawers located directly
underneath the TAC counters. At another TAC, we found a Form 809 book
being stored with personal belongings.
Count: 52;
No.: 03-33;
Recommendation: Revise candling procedures to specify the precise
candling methods to be used based on the dimensions of the mail
processed and the extraction method used for both the first and the
final candling. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls (GAO-03-562R, May 20, 2003);
Status of recommendations: Per IRS: Closed. On May 28, 2003, the IRM
candling procedures were updated with an information alert (W&I-IA-
2002-730) to specify precise first and final candling methods based on
dimensions of the mail and first and final candling. In January 2005,
the Submission Processing Director's Office contacted each SPC to
address deficiencies identified by GAO in 2004 regarding the revision
of candling procedures. Local management was asked to discuss the
deficiencies with their employees on a regular basis and ensure
corrective action was taken. This issue will be reviewed monthly by the
campus security review team and findings will be shared with the
appropriate director for additional action, if required;
Status of recommendations: Per GAO: Open. During our fiscal year 2004
audit, we verified that IRS had revised candling procedures in the IRM
to specify precise candling methods based on mail dimensions and the
extraction method used for the first and final candling. However,
during our fiscal year 2004 visits to two SPCs, we continued to find
weaknesses in candling procedures. At one SPC, we found extractors
improperly using the light source when candling items. Furthermore, in
certain candling tables, the intensity of the light source was
insufficient. In addition, not all items requiring opening on three
sides were being so opened. At another SPC, we found that not all
extractors had operational candling lights on their tingle tables and,
thus, were not performing two candlings as required nor had these
extractors been provided compensating instructions. Some of IRS's
actions to address deficiencies in candling procedures occurred
subsequent to our fiscal year 2004 fieldwork. We will continue to
evaluate IRS's corrective actions during our fiscal year 2005 audit.
Count: 53;
No.: 03-34;
Recommendation: Establish and implement procedures prohibiting a single
employee from performing the final candling in a remote location.
(short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls (GAO-03-562R, May 20, 2003);
Status of recommendations: Per IRS: Closed. On May 28, 2003, the IRM
candling procedures were updated with information alert (W&I-IA-2002-
730) implementing procedures prohibiting a single employee from
performing the final candling in a remote location. This requirement
was also added to the 2004 revision of IRM 3.10.72. In January 2005,
the Submission Processing Director's Office contacted each SPC to
address deficiencies identified by GAO in 2004 regarding single
employees performing final candling in a remote location. Local
management was asked to discuss the deficiencies with their employees
on a regular basis and ensure corrective action is taken. This issue
will be reviewed monthly by the campus security review team and
findings will be shared with the appropriate director for additional
action, if required;
Status of recommendations: Per GAO: Open. During our fiscal year 2004
audit, we verified that IRS had established procedures prohibiting a
single employee from performing the final candling in a remote
location. However, at one SPC we visited, we observed that boxes
stacked in the middle of the final candling room prevented employees
from seeing each other's work area. The effect of this operation was
similar to that of having a single employee performing final candling
in a remote location. Some of IRS's actions to address deficiencies in
this area occurred subsequent to our fiscal year 2004 fieldwork. We
will continue to evaluate IRS's corrective actions during our fiscal
year 2005 audit.
Count: 54;
No.: 03-36;
Recommendation: Establish a mechanism to periodically review adherence
to IRS's policy that payment of taxes in cash be accepted. (short-
term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls (GAO-03-562R, May 20, 2003);
Status of recommendations: Per IRS: Closed. IRS monitored adherence to
the policy of accepting cash payments during operational reviews
conducted in fiscal year 2004. No discrepancies were identified. The
Director, Field Assistance, granted an exception to the requirement of
accepting cash payments in some TACs with two or fewer persons. These
are locations where the volume of cash payments received is minimal.
TACs have agreements with other functions to accept cash payments or
TACs will convert the cash payments into money orders at financial
institutions nearby, making payments easy for the taxpayers. IRS
revised the IRM in fiscal year 2004 to reflect these exceptions;
Status of recommendations: Per GAO: Closed. During our fiscal year 2004
audit, we found that IRS monitored adherence to its policy of accepting
cash payments during operational reviews it conducted in fiscal year
2004 at the TACs we visited. We did not identify any issues with regard
to IRS refusing to accept cash payments of taxes.
Count: 55;
No.: 03-37;
Recommendation: Develop and implement post-input review procedures to
verify the accuracy of excise tax credit information in the master
file. (short-term);
Source report: Management Report: Improvements Needed in Controls over
IRS's Excise Tax Certification Process (GAO-03-687R, July 23, 2003);
Status of recommendations: Per IRS: Closed. In July 2003, the
Cincinnati Compliance Campus implemented Program Analysis System
reviews on Gasoline Wholesale Distributor/End User/Diesel claims
submitted on Form 8849. In August 2003, the campus implemented and
increased the responsibility for managers to review all work including
fuel claims as part of their performance review for employees. In
December 2003, excise taxes were included in the Embedded Quality
Review System (EQRS) expansion rollout, and fuel claims were also
included in this review. EQRS is performed by the employee's manager
and is part of the employee's performance rating;
Status of recommendations: Per GAO: Closed. During our testing of
sample items over the past 2 years, we found no significant data entry
errors relating to excise tax credits. We also verified during our
fiscal year 2004 audit that fuel claim reviews were being performed as
part of the Embedded Quality Review System.
Count: 56;
No.: 03-38;
Recommendation: Investigate why certification errors continue to go
undetected through IRS's review procedures. (short-term);
Source report: Management Report: Improvements Needed in Controls over
IRS's Excise Tax Certification Process (GAO-03-687R, July 23, 2003);
Status of recommendations: Per IRS: Closed. IRS reviewed existing
written procedures for the certification process and determined that
the procedures, if properly followed, were adequate. To ensure that the
procedures were properly implemented, a new section chief was
appointed. Also, in October 2003, IRS reiterated to management the
importance of reviewing and understanding the certification process;
Status of recommendations: Per GAO: Closed. IRS's actions have resulted
in improvements to the excise tax certification review process. In the
past 2 years, we found no significant errors related to IRS's
certification process that were not detected by IRS's review
procedures.
Count: 57;
No.: 03-39;
Recommendation: Develop and implement an action plan to improve the
certification review process. (short-term);
Source report: Management Report: Improvements Needed in Controls over
IRS's Excise Tax Certification Process (GAO-03-687R, July 23, 2003);
Status of recommendations: Per IRS: Closed. IRS reviewed existing
written procedures for the certification process and determined that
the procedures, if properly followed, were adequate. To ensure that the
procedures were properly implemented, a new section chief was
appointed. Also, in October 2003, IRS reiterated to management the
importance of reviewing and understanding the certification process;
Status of recommendations: Per GAO: Closed. IRS's actions have resulted
in improvements to the excise tax certification review process. In the
past 2 years, we found no significant errors related to IRS's
certification process that were not detected by IRS's review
procedures.
Count: 58;
No.: 03-40;
Recommendation: Communicate in writing any potential changes in IRS's
certification process to other Treasury entities that use the
certification information, and obtain concurrence from these entities
prior to implementing such changes. (short-term);
Source report: Management Report: Improvements Needed in Controls over
IRS's Excise Tax Certification Process (GAO-03-687R, July 23, 2003);
Status of recommendations: Per IRS: Closed. MOU signed December 15,
2004, by the Chairman, Excise Tax Trust Fund Working Group. The IRS
Treasury Excise Tax Trust Fund Working Group has established a process
of recording minutes of the Working Group meetings in order to document
issues related to trust fund certification procedures/processes and
proposed or passed legislative changes impacting trust fund
investments. Recording of minutes will be taken by a representative of
Treasury member offices or bureaus on a rotating basis. Draft minutes
will be shared with all participants for concurrence prior to final
approval and distribution. IRS will discuss and make a presentation to
advise the members of any changes to the trust fund certification
process;
Status of recommendations: Per GAO: Open. We verified that the Treasury
Excise Tax Trust Fund Working Group signed an MOU to establish a
process for documenting issues related to IRS's trust fund
certifications. We will review the effectiveness of this action during
our fiscal year 2005 audit.
Count: 59;
No.: 03-41;
Recommendation: Implement procedures to annually identify excise
taxpayers with the largest excise tax liabilities affecting the Highway
Trust Fund and the Airport and Airway Trust Fund. (short-term);
Source report: Management Report: Improvements Needed in Controls over
IRS's Excise Tax Certification Process (GAO-03-687R, July 23, 2003);
Status of recommendations: Per IRS: Closed. IRS has identified employer
identification numbers (EINS) of the largest excise tax liabilities
beginning with tax period September 2002. IRS identified the largest
excise tax filers to both Cincinnati Submission Processing and
Compliance campuses in August 2003. EINS will be updated annually using
the September tax periods;
Status of recommendations: Per GAO: Closed. We verified that IRS has
implemented procedures to identify taxpayers with the largest excise
tax liabilities affecting the Highway Trust Fund and the Airport and
Airway Trust Fund.
Count: 60;
No.: 03-42;
Recommendation: Implement procedures to track the status of tax return
filings for the largest payers of excise taxes and contact these
taxpayers if the submission processing campus has not received their
tax returns by 2 weeks after the due date. (short-term);
Source report: Management Report: Improvements Needed in Controls over
IRS's Excise Tax Certification Process (GAO-03-687R, July 23, 2003);
Status of recommendations: Per IRS: Closed. IRS implemented procedures
in March 2003 to track and monitor the top 100-plus list of excise
taxpayers and to call them for tax return(s) when necessary prior to
certification cutoff. The top 100-plus list is composed of taxpayers
with the largest excise tax liability. These procedures have been
validated by inclusion of all top 100-plus taxpayer returns in fiscal
year 2004 certifications;
Status of recommendations: Per GAO: Closed. IRS has implemented
procedures to track the status of tax return filings for the largest-
dollar excise taxpayers and to contact these taxpayers for their
returns when necessary prior to certification cutoff.
Count: 61;
No.: 03-43;
Recommendation: Implement procedures to monitor the receipt and
processing status of large excise tax returns to ensure that they are
promptly recorded in IRS's master file prior to certifying excise tax
distributions. (short-term);
Source report: Management Report: Improvements Needed in Controls over
IRS's Excise Tax Certification Process (GAO-03-687R, July 23, 2003);
Status of recommendations: Per IRS: Closed. The Cincinnati Campus's
program analyst staff and reports excise analysts are monitoring to
ensure timely posting of returns of the largest-dollar excise
taxpayers. The Service Level Administration between the Cincinnati
Submission Processing and Compliance campuses ensures monitoring and
processing of all Form 720 returns on a 6-day cycle. Compliance has
verified that Form 720 returns are being processed on a 6-day cycle,
procedures are in place, and IRS is monitoring to ensure timely posting
of returns of the largest-dollar excise taxpayers;
Status of recommendations: Per GAO: Closed. IRS's Internal Revenue
Manual was modified to require that all excise tax returns be processed
on a 6-day cycle. The 6-day cycle begins after the returns are batched,
which is normally within a week. We verified during our fiscal year
2004 audit that IRS had implemented procedures to monitor excise tax
returns to ensure that it meets this requirement.
Count: 62;
No.: 04-01;
Recommendation: Require lockbox bank managers to maintain appropriate
documentation on site demonstrating that satisfactory fingerprint
results have been received before contractors are granted access to
taxpayer receipts and data. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls and Accounting Procedures (GAO-04-553R, Apr. 26, 2004);
Status of recommendations: Per IRS: Closed. The current LPG requires
appropriate documentation for couriers and guards before contractors
are granted access to taxpayer receipts. To ensure compliance with the
LPG, IRS and FMS will include this as a review item when performing
security and administrative reviews. The procedures will be included in
the 2005 LPG with an effective date of January 17, 2005;
Status of recommendations: Per GAO: Open. During our fiscal year 2004
audit, we verified that the LPG required appropriate documentation
prior to couriers and guards being granted access to taxpayer receipts.
However, we found at two of the four lockbox banks we visited that
contractors who had not undergone fingerprinting or background
investigations were granted unescorted access to the lockbox bank. Some
of IRS's corrective actions to address on-site documentation
deficiencies occurred subsequent to our fiscal year 2004 fieldwork. We
will continue to evaluate these actions during our fiscal year 2005
audit.
Count: 63;
No.: 04-02;
Recommendation: Revise its policy on two-person courier teams to
prohibit the use of courier teams consisting of closely related
individuals to further minimize the risk of collusion in the theft of
taxpayer receipts and data. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls and Accounting Procedures (GAO-04-553R, Apr. 26, 2004);
Status of recommendations: Per IRS: Open. Additional background
investigation requirements for all couriers have been implemented. IRS
is researching the feasibility and impacts of changing current
contracts with couriers for SPC. The LPG will be updated to prohibit
immediate family members from traveling in pairs on courier routes. The
update will be made by February 15, 2005, with an effective date to be
determined before the April peak;
Status of recommendations: Per GAO: Open. During our fiscal year 2004
audit visits to two SPCs and one lockbox bank, we found that closely
related individuals were operating as deposit couriers. We will
continue to evaluate IRS's corrective actions during our fiscal year
2005 audit.
Count: 64;
No.: 04-03;
Recommendation: Develop procedures to require lockbox managers to
provide satisfactory evidence that managerial reviews are performed in
accordance with established guidelines. At a minimum, reviewers should
sign and date the reviewed documents and provide any comments that may
be appropriate in the event that their reviews identified problems or
raised questions. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls and Accounting Procedures (GAO-04-553R, Apr. 26, 2004);
Status of recommendations: Per IRS: Closed. The LPG instructs the banks
to perform numerous managerial reviews. IRS will consider the risk
level of each of the documented logs and assess each one to determine
the appropriate level of review and if more guidelines are necessary.
LPG 3.5.1.3(3) Desk and Work Area Reviews was updated to state that the
reviewing manager's initial is required as well as the site manager's
initial. This will be effective January 17, 2005. Any discovered
remittances must be recorded on Form 9535. In the remarks section the
site must indicate how the item was found. This was effective February
2005;
Status of recommendations: Per GAO: Open. During our fiscal year 2004
audit, we verified that the LPG instructs the lockbox bank managers to
perform numerous managerial reviews. However, we found that three of
the four lockbox banks we visited did not adhere to the LPG
requirements for maintaining and reviewing courier logs. In addition,
we found that LPG desk check review procedures were not followed at two
of the lockbox banks. Many of IRS's corrective actions addressing
documentation of required reviews occurred subsequent to our fiscal
year 2004 field work. We will continue to evaluate IRS's actions during
our fiscal year 2005 audit.
Count: 65;
No.: 04-04;
Recommendation: Revise candling procedures at lockbox banks to require
testing of automated candling machines at appropriate intervals, taking
into account such factors as use time, volume processed, machine
requirements, and shift cycles. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls and Accounting Procedures (GAO-04-553R, Apr. 26, 2004);
Status of recommendations: Per IRS: Open. IRS requires an additional
candling of all envelopes processed by extractors using machines that
have automated candling equipment. This requirement mitigates the risk
identified by GAO. However, IRS agrees to assess its current guidelines
for possible inclusion of testing standards for equipment with
automated candling equipment. LPG 3.2.8.1(1) Candling Equipment
Maintenance, was developed and states, "All candling equipment,
including OPEX mail machines, must be maintained to ensure maximum
efficiency. Maximum efficiency is determined by testing at least 10
envelopes daily." This will be effective as of January 3, 2005;
Status of recommendations: Per GAO: Open. We will evaluate IRS's
corrective actions during our fiscal year 2005 audit.
Count: 66;
No.: 04-05;
Recommendation: Require lockbox managers to maintain logs of these
tests and to periodically review their logs. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls and Accounting Procedures (GAO-04-553R, Apr. 26, 2004);
Status of recommendations: Per IRS: Closed. Testing standards were
implemented in the January 1, 2005, LPG. However, we revised the
requirements on January 31, 2005, to ensure clarification of peak-
versus-nonpeak testing requirements. The supporting LPG requirement
follows: LPG 3.2.8.1 Candling Equipment Maintenance (1) All candling
equipment, including OPEX machines, must be maintained to ensure
maximum efficiency. Maximum efficiency is determined by testing at
least 10 envelopes daily during nonpeak and for each shift during peak.
(2) Management shall maintain a log of all equipment tests. This log
shall be justification for requesting machine servicing. (3) A monthly
review report must be sent to the Lockbox Field Coordinator. (see LPG
3.5.1(2)). (4) Each site must keep vendor maintenance records available
for immediate review. IRS Lockbox Policy and Procedures and IRS Mission
Assurance updated the security section of the 2005 LPG. A security
review checklist was also developed requiring the security team to
conduct periodic security reviews to verify all requirements in the LPG
are being met;
Status of recommendations: Per GAO: Open. We found that one lockbox
bank we visited during our fiscal year 2004 audit did not maintain a
maintenance log for an automated extraction and candling machine.
Instead, the vendor maintained the log in a locked drawer accessible
only to the vendor. IRS's actions to increase testing for automated
extraction and candling equipment, and documentation of these tests by
management, occurred subsequent to our fiscal year 2004 fieldwork. We
will evaluate IRS's actions during our fiscal year 2005 audit.
Count: 67;
No.: 04-06;
Recommendation: Discontinue the practice of storing taxpayer receipts
and data outside TAC secured areas without storing the receipts in a
secured locked container. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls and Accounting Procedures (GAO-04-553R, Apr. 26, 2004);
Status of recommendations: Per IRS: Closed. Written procedures have
been provided to TAC employees for safeguarding taxpayer receipts when
received. IRM 21.3.4.7(6), issued in June 2003, provides guidance
stating that payments received from taxpayers will be immediately
placed in a locked container. The receipts are also stored away from
employees' personal belongings. IRS will continue to conduct
operational reviews at TAC offices to ensure IRM procedures are being
followed. The TAC location that was noted for securing payments from
taxpayers outside the secure area of the TAC was contacted and the
location of the desk has been moved inside the secured area of the TAC.
The TAC manager was informed to ensure all TAC operations are conducted
inside the secured area of the TAC. IRS monitored adherence to IRM
procedures related to receiving and storing taxpayer data in secured
areas during operational reviews conducted in fiscal year 2004. No
discrepancies were noted;
Status of recommendations: Per GAO: Closed. We verified that IRS
included monitoring of its policy and procedures regarding receiving
and storing taxpayer data in secured areas during operational reviews
conducted in fiscal year 2004. In addition, we did not find any
instances during our fiscal year 2004 audit visits to IRS field offices
in which taxpayer receipts and data stored outside the TAC secured
areas were not stored in a secured locked container.
Count: 68;
No.: 04-07;
Recommendation: Develop procedures to enhance adherence to existing
instructions on safeguarding discovered remittances at service center
campuses. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls and Accounting Procedures (GAO-04-553R, Apr. 26, 2004);
Status of recommendations: Per IRS: Closed. In 2003, IRM 3.8.46 was
written and distributed to all campuses. Form 4287 (Record of
Discovered Remittances) has been revised to enhance adherence to
existing instructions by including a check box for managers to indicate
that reconciliation has been performed. Also, IRS revised the monthly
security checklist to include a review of the discovered remittance
procedures. In addition, IRS added this item to the monthly security
checklist to include a review of the discovered remittance procedures;
Status of recommendations: Per GAO: Open. During our fiscal year 2004
audit, we verified that IRS had revised the IRM to require managers to
indicate that a reconciliation of discovered remittances had been
performed and also included this item in the monthly security
checklist. However, we found that three of the four SPCs we visited did
not adhere to the IRM procedures for Form 4287 ("Record of Discovered
Remittances").
Count: 69;
No.: 04-08;
Recommendation: Enforce policies and procedures to ensure that service
center campus security guards respond to alarms. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls and Accounting Procedures (GAO-04-553R, Apr. 26, 2004);
Status of recommendations: Per IRS: Closed. Beginning October 1, 2004,
all campuses and computing centers were tasked to perform ongoing
monthly unannounced alarm tests and to report the results to the
Physical Security Program Office. Tests and results are being
maintained by the Physical Security Program Office. IRM 1.16.12,
Security Guard Service and Explosive Detector Dog Program, was
rewritten October 18, 2004, to include the requirement that contracting
officers' technical representatives conduct random exercises on a
quarterly basis, at a minimum, using mock scenarios to measure response
times, actions, tactics, techniques, and procedures of uniformed guard
forces. Final issuance is expected by not later than September 30,
2005;
Status of recommendations: Per GAO: Open. During our fiscal year 2004
audit, we continued to find weakness in IRS's enforcement of policies
and procedures to ensure that service center campus security guards
respond to alarms. At one SPC we visited, we found that an off-site
code and edit function was located in a building without on-site
security guards and access was controlled only with proximity cards.
When we tested two exit door alarms, the door alarms were inaudible and
there was no response from the alarm monitoring company because,
according to IRS, the company only responds to after-hours alarms.
IRS's implementation of new procedures to address guard response issues
occurred subsequent to the end of our fiscal year 2004 fieldwork. We
will evaluate IRS's corrective actions during our fiscal year 2005
audit.
Count: 70;
No.: 04-09;
Recommendation: Establish compensating controls in the event that
automated security systems malfunction, such as notifying guards and
managers of the malfunction, and immediately deploying guards to better
protect the processing center's perimeter. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls and Accounting Procedures (GAO-04-553R, Apr. 26, 2004);
Status of recommendations: Per IRS: Closed. The IRS physical security
programs within Mission Assurance and Security Services developed
procedures to be used in conjunction with the policies developed in
recommendation 04-08 to ensure that local management is notified
whenever there is a malfunction of alarms and that guards are deployed
or doors are secured, as necessary, either during tests or when
otherwise needed. Procedures will include management notification of
alarm test failure. The project manager for the guard force contract is
required to sign off on all unannounced alarm test reports;
Status of recommendations: Per GAO: Open. IRS's implementation of new
procedures to address guard response issues occurred subsequent to the
end of our fiscal year 2004 fieldwork. Although we did not observe any
instances in which guards did not respond due to a malfunction in an
automated security system during our fiscal year 2004 visits to four
SPCs, we will evaluate IRS's newly implemented corrective actions
during our fiscal year 2005 audit.
Count: 71;
No.: 04-10;
Recommendation: Modify Aged Unliquidated Obligations (AUO) reports to
ensure that they report the last activity date for each outstanding
obligation line amount. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls and Accounting Procedures (GAO-04-553R, Apr. 26, 2004);
Status of recommendations: Per IRS: Closed. IRS has revised the Aging
Unliquidated Obligations report to accurately capture the last activity
date for each obligation line amount;
Status of recommendations: Per GAO: Closed. During our fiscal year 2004
audit, we verified that IRS modified AUO reports to capture the last
activity date for each obligation line amount.
Count: 72;
No.: 04-11;
Recommendation: Require procurement office staff to review and sign off
on whether obligations are valid or require deobligation before
business units complete their quarterly certifications. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls and Accounting Procedures (GAO-04-553R, Apr. 26, 2004);
Status of recommendations: Per IRS: Closed. In fiscal year 2004, IRS
implemented new guidelines for the quarterly review and certification
of all outstanding obligations. The procurement office conducted
reviews to ensure the accuracy of the unliquidated balances. Financial
plan managers reviewed procurement responses prior to processing
deobligations and completing their quarterly certifications;
Status of recommendations: Per GAO: Closed. During our fiscal year 2004
audit, we verified that IRS implemented new guidelines for the
quarterly review and certification of all outstanding obligations. As
part of the review process, the procurement office staff reviews the
AUO reports and determines whether obligations that they are
responsible for reviewing are valid or need to be deobligated. The
financial plan managers review procurement office staff responses prior
to completing their quarterly certifications. In addition, during our
fiscal year 2004 testing, we found that obligations were being properly
and timely deobligated.
Count: 73;
No.: 04-12;
Recommendation: Enhance compensating internal controls by including
tests or recalculations of payroll computations performed by NFC for
the IRS employees selected for review each pay period. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls and Accounting Procedures (GAO-04-553R, Apr. 26, 2004);
Status of recommendations: Per IRS: Closed. A detailed Standard
Operation Procedures (SOP) was developed and implemented on July 1,
2004, to review the full gross to net pay calculation for a random
sample of IRS employees each pay period. The first quarterly review was
accomplished on October 1, 2004;
Status of recommendations: Per GAO: Closed. In fiscal year 2004, we
confirmed that IRS developed and implemented procedures to review the
full gross to net pay calculation for a random sample of IRS employees
each pay period.
Count: 74;
No.: 04-13;
Recommendation: Timely investigate and resolve any identified errors.
(short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls and Accounting Procedures (GAO-04-553R, Apr. 26, 2004);
Status of recommendations: Per IRS: Closed. Procedures outlined in the
SOP noted above found no significant discrepancies in NFC payroll
calculations. The discrepancies found were primarily rounding issues.
The findings were forwarded to the Department of the Treasury to be
shared with NFC in October 2004. The process is now in place to forward
findings to the Department of the Treasury and NFC each quarter;
Status of recommendations: Per GAO: Closed. In fiscal year 2004, we
confirmed that IRS implemented procedures to review the full gross to
net pay calculation for a random sample of IRS employees each pay
period and satisfactorily resolved any errors or exceptions found.
Count: 75;
No.: 04-14;
Recommendation: Establish review procedures for amounts being reported
in supplemental information to the financial statements for Other
Claims for Refund. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls and Accounting Procedures (GAO-04-553R, Apr. 26, 2004);
Status of recommendations: Per IRS: Closed. On October 29, 2004, IRS
implemented a second level of management review to identify and report
any changes in the final financial statements;
Status of recommendations: Per GAO: Closed. The amounts reported as
supplemental information as of September 30, 2004, agreed with the
documentation provided by IRS's chief counsel.
Count: 76;
No.: 04-15;
Recommendation: Until the Business Performance Management System (BPMS)
is fully operational, implement procedures to ensure that all
performance data reported in the MPS report are subject to effective,
documented reviews to provide reasonable assurance that the data are
current at interim periods. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls and Accounting Procedures (GAO-04-553R, Apr. 26, 2004);
Status of recommendations: Per IRS: Closed. IRS has taken steps to
ensure that the performance measures data reported in the monthly
report are properly reviewed before being published. All divisions now
submit most of their performance measures data directly to BPMS. The
divisions are required to verify/certify the accuracy of the data
before uploading to BPMS. Corporate Performance Budgeting staff
implemented additional manual quality control procedures that include
reviewing all tables, charts, and line graphs and visually inspecting
the numbers and comparing the information to the previous month's
report for consistency. In addition, IRS is working with Treasury to
streamline its current set of performance measures. Its purpose is to
increase the value of the information provided to stakeholders, focus
priorities, and reduce administrative burden;
Status of recommendations: Per GAO: Open. In fiscal year 2004, we
continued to find errors in IRS's interim performance measures data.
GAO will continue to monitor IRS's progress in this area during our
fiscal year 2005 financial audit.
Count: 77;
No.: 05-01;
Recommendation: Expedite efforts to resolve the backlog of unpostable
liens, releasing liens as appropriate. (short-term);
Source report: Opportunities to Improve Timeliness of IRS Lien Releases
(GAO-05-26R, Jan. 10, 2005);
Status of recommendations: Per IRS: Open. IRS established a team at the
Cincinnati campus's Centralized Lien Processing Unit to resolve the
backlog of unpostable liens. Resolution of the backlog of 8,900
unpostables is ongoing daily with managerial oversight. IRS expects
completion by July 15, 2005;
Status of recommendations: Per GAO: Open. This is a new recommendation.
We will review IRS's corrective actions during our fiscal year 2005
audit.
Count: 78;
No.: 05-02;
Recommendation: Keep current on all new unpostable liens. (short-term);
Source report: Opportunities to Improve Timeliness of IRS Lien Releases
(GAO-05-26R, Jan. 10, 2005);
Status of recommendations: Per IRS: Open. IRS established a team at the
Cincinnati campus's Centralized Lien Processing Unit to resolve the
unpostable lien exception reports. Lien transactions that do not post
to a taxpayer's account will now be resolved weekly. Managers will
monitor reports to ensure timely resolution and take appropriate
corrective actions when necessary. Collection Policy will conduct an on-
site review no later than September 2005;
Status of recommendations: Per GAO: Open. This is a new recommendation.
We will review IRS's corrective actions during our fiscal year 2005
audit.
Count: 79;
No.: 05-03;
Recommendation: Research and resolve the current backlog of unresolved
unmatched exception reports. (short-term);
Source report: Opportunities to Improve Timeliness of IRS Lien Releases
(GAO-05-26R, Jan. 10, 2005);
Status of recommendations: Per IRS: Open. Managers and employees have
received training on the entity portion of the Satisfied Module
(SATMOD) Reject Report. Resolution of the backlog will be conducted by
the centralized site. Anticipated time for resolution is being extended
to May 2006 in order to complete a workshop, compile the extract from
the master file, and establish a specific group of employees to work on
the backlog;
Status of recommendations: Per GAO: Open. This is a new recommendation.
We will review IRS's corrective actions during future audits.
Count: 80;
No.: 05-04;
Recommendation: Research and resolve unmatched exception reports
weekly. (short-term);
Source report: Opportunities to Improve Timeliness of IRS Lien Releases
(GAO-05-26R, Jan. 10, 2005);
Status of recommendations: Per IRS: Open. IRS developed new procedures
for working on the unmatched exception reports. Accounts on the
unmatched exception report will be resolved by matching information
between the master file and the Automated Lien System (ALS). Timely
report resolution is an integral function of the Centralized Lien Unit,
and time frames and managerial oversight are built into report
resolution processes. Managers and employees have received training on
the entity portion of the reject report. Training will be ongoing as
new employees are assigned to the unit. IRM provisions require
resolution of rejected accounts within 5 business days. Managers will
monitor timeliness and will report weekly on the outstanding inventory.
The Collection Policy unit will conduct on-site reviews to determine if
procedural changes are required. The review will be conducted no later
than September 2005;
Status of recommendations: Per GAO: Open. This is a new recommendation.
We will review IRS's corrective actions during our fiscal year 2005
audit.
Count: 81;
No.: 05-05;
Recommendation: Provide training to designated staff on how to resolve
exception reports. (short-term);
Source report: Opportunities to Improve Timeliness of IRS Lien Releases
(GAO-05-26R, Jan. 10, 2005);
Status of recommendations: Per IRS: Open. Managers and employees have
received training on the resolution of the restricted interest portion
of the SATMOD reject report. Managers will report weekly on the
outstanding inventory. The Collection Policy unit will conduct reviews
to determine if procedural changes are required. Anticipated time for
resolution is being extended to May 2006 in order to complete a
workshop, establish a specific group to work on the backlog, and
complete the extract of Master File data;
Status of recommendations: Per GAO: Open. This is a new recommendation.
We will review IRS's corrective actions during future audits.
Count: 82;
No.: 05-06;
Recommendation: Research and resolve the current backlog of unresolved
manual interest or penalties reports. (short-term);
Source report: Opportunities to Improve Timeliness of IRS Lien Releases
(GAO-05-26R, Jan. 10, 2005);
Status of recommendations: Per IRS: Open. Managers and employees have
received training on the resolution of the manual computation portion
of the reject report. IRM provisions require resolution of the rejected
accounts within 5 business days. Managers will monitor timeliness and
will report weekly on the outstanding inventory. The Collection Policy
unit will conduct an on-site review. Training will be given to all new
employees as they are assigned to the group. The anticipated completion
date is September 2005;
Status of recommendations: Per GAO: Open. This is a new recommendation.
We will review IRS's corrective actions during our fiscal year 2005
audit.
Count: 83;
No.: 05-07;
Recommendation: Research and resolve exception reports containing liens
with manually calculated interest or penalties weekly, as called for in
the Internal Revenue Manual and the ALS User Guide. (short-term);
Source report: Opportunities to Improve Timeliness of IRS Lien Releases
(GAO-05-26R, Jan. 10, 2005);
Status of recommendations: Per IRS: Open. IRS developed new procedures
for working on exception reports containing liens with manually
calculated interest. Accounts listed on the exception report containing
manually calculated interest or penalties will now be sent to the
Examination Case Processing function for computation and then returned
to the Centralized Lien Processing Unit for either lien release or
other appropriate action. Timely report resolution is an integral
function of the Centralized Lien Unit, and time frames and managerial
oversight are built into report resolution processes. Managers and
employees have received training on the resolution of the manually
computed interest portion of the SATMOD reject report. A Master File
extract has been requested. The anticipated completion date is May 2006
in order to complete the extract, conduct a workshop, and establish a
specific group to work on the backlog. Management will report weekly on
the outstanding inventory and the Collection Policy unit will conduct
on-site reviews;
Status of recommendations: Per GAO: Open. This is a new recommendation.
We will review IRS's corrective actions during future audits.
Count: 84;
No.: 05-08;
Recommendation: Provide training to designated staff on how to resolve
exception reports containing accounts with manually calculated interest
or penalties. (short-term);
Source report: Opportunities to Improve Timeliness of IRS Lien Releases
(GAO-05-26R, Jan. 10, 2005);
Status of recommendations: Per IRS: Open. Management has provided
training to employees and will train all new employees assigned to the
group. A workshop will be conducted to cover the resolution of these
reports and management will report weekly on the outstanding inventory.
The Collection Policy unit will conduct on-site reviews. Anticipated
completion date is September 15, 2005;
Status of recommendations: Per GAO: Open. This is a new recommendation.
We will review IRS's corrective actions during our fiscal year 2005
audit.
Count: 85;
No.: 05-09;
Recommendation: Improve the current unmatched exception report by
including a cumulative list of all unmatched taxpayer accounts that
have not been resolved to date. (short-term);
Source report: Opportunities to Improve Timeliness of IRS Lien Releases
(GAO-05-26R, Jan. 10, 2005);
Status of recommendations: Per IRS: Open. Requests for additional
enhancements to cumulate the reject report have been initiated. In the
interim, area managers are required to print and resolve reports based
on IRM procedures. Anticipated date of completion is January 2007;
Status of recommendations: Per GAO: Open. This is a new recommendation.
We will review IRS's corrective actions during future audits.
Count: 86;
No.: 05-10;
Recommendation: Revise Accounts Management Mail Unit procedures,
scheduled to be incorporated into the IRM, to include detailed
instructions for (1) monitoring transshipped documents and (2) handling
cash receipts found during extraction. Where adequate guidance exists
elsewhere, IRS should include these through cross-references. (short-
term);
Source report: Management Report: Review of Controls over Safeguarding
Taxpayer Receipts and Information at the Brookhaven Service Center
Campus (GAO-05-319R, Mar. 10, 2005);
Status of recommendations: Per IRS: Open. IRS has submitted a new IRM
update, scheduled for publication in December 2005, to address issues
regarding transshipped documents and cash receipts. In the interim, IRS
will continue using the Standard Operating Procedures that contain
detailed information for document transmittals and the monitoring and
control of cash receipts;
Status of recommendations: Per GAO: Open. This is a new recommendation.
We will review IRS's corrective actions during future audits.
Count: 87;
No.: 05-11;
Recommendation: Enforce adherence to existing instructions on
safeguarding taxpayer receipts and information, such as securing access
and candling procedures, at service center campuses (SCC) selected for
significant reductions in their submission processing functions. (short-
term);
Source report: Management Report: Review of Controls over Safeguarding
Taxpayer Receipts and Information at the Brookhaven Service Center
Campus (GAO-05-319R, Mar. 10, 2005);
Status of recommendations: Per IRS: Closed. IRS has taken corrective
action to ensure that employees and managers are fully familiar with
the correct procedures for safeguarding taxpayer receipts and
information. Corrective actions taken include counseling employees on
proper procedures; holding a meeting with security clerks to review
procedures for issuing badges granting access to secured areas; taking
inventories of badges after each shift; implementing new procedures to
secure taxpayer data and related information awaiting destruction;
holding a meeting with mail employees to review the candling
procedures; and continuing to perform management reviews to ensure
adherence to the candling procedures;
Status of recommendations: Per GAO: Open. This is a new recommendation.
IRS's actions occurred subsequent to the completion of our fiscal year
2004 audit. We will review IRS's corrective actions during our fiscal
year 2005 audit.
Count: 88;
No.: 05-12;
Recommendation: Document a methodology for estimating anticipated rapid
changes in mail volume at future SCCs selected for significant
reductions in their submission processing functions, taking into
consideration factors such as the prior rampdown experience at
Brookhaven. (short-term);
Source report: Management Report: Review of Controls over Safeguarding
Taxpayer Receipts and Information at the Brookhaven Service Center
Campus (GAO-05-319R, Mar. 10, 2005);
Status of recommendations: Per IRS: Open. IRS will use historical data
obtained from the Brookhaven Campus rampdown, and any other prior
consolidations, to develop and document a methodology for estimating
future mail volumes. This methodology will be used in future
consolidations to ensure that IRS has reliable data to effectively
manage resources during and after the consolidation period;
Status of recommendations: Per GAO: Open. This is a new recommendation.
We will review IRS's corrective actions during our fiscal year 2005
audit.
Count: 89;
No.: 05-13;
Recommendation: Enforce its existing requirement that appropriate
background investigations be completed for contractors before they are
granted staff-like access to service centers. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls (GAO-05-247R, Apr. 27, 2005);
Status of recommendations: Per IRS: Closed. IRS has implemented steps
to monitor and enforce the requirements issued on September 29, 2003,
on the issuance of ID cards to contractors. This guidance requires that
a letter from the National Background Investigation Center (NBIC)
indicating successful completion of at least an interim background
investigation be received by the issuing office before a contractor can
be approved for staff-like access to IRS. The guidance further
stipulates that Physical Security staff would, at least every 6 months,
ensure that a re-certification had been received from the Contracting
Officer's Technical Representative (COTR) confirming the contractors'
need for continued staff-like access to the IRS facility. Additionally,
as part of the required records and accountability process, non-federal
photo ID cards are audited annually by the issuing office to reconcile
numerical and alphabetical files and ensure that ID cards have been
recovered upon separation or termination of the contract;
Status of recommendations: Per GAO: Open. This is a new recommendation.
IRS's actions occurred subsequent to the completion of our fiscal year
2004 audit. We will review IRS's corrective actions during our fiscal
year 2005 audit.
Count: 90;
No.: 05-14;
Recommendation: Require that background investigation results for
contractors (or evidence thereof) be on file where necessary, including
at contractor worksites and security offices responsible for
controlling access to sites containing taxpayer receipts and
information. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls (GAO-05-247R, Apr. 27, 2005);
Status of recommendations: Per IRS: Open. In the guidance memorandum
IRS issued on September 29, 2003, the Physical Security Program Office
requires the COTR to complete and submit a request form for every
contract employee. Implementation of the standardized form assures that
all required information is provided in order for the contractor to
receive its IRS photo ID card. This guidance also requires that a copy
of the letter from NBIC indicating successful completion of at least an
interim background investigation be attached to the request form or no
ID card will be issued. Both documents are maintained by the issuing
office. The IRS COTR for the lockbox banks verified that all six banks
currently maintain background investigation records, including copies
of documents submitted to NBIC and lists of cleared personnel. The
Physical Security Program Office will work with the Business Operating
Divisions (BOD) and Procurement to determine if the interagency
agreement with Financial Management Services (FMS) should be modified
to include a requirement for lockbox banks to maintain background
investigation files. The estimated completion date for the review of
the interagency agreement is November 2005;
Status of recommendations: Per GAO: Open. This is a new recommendation.
We will review the status of IRS's planned corrective actions during
our fiscal year 2005 audit.
Count: 91;
No.: 05-15;
Recommendation: Require that courier contracts call for couriers to
submit contingency plans to lockbox banks. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls (GAO-05-247R, Apr. 27, 2005);
Status of recommendations: Per IRS: Closed. IRS updated LPG 4.2.3.1,
Courier Contingency Plan, on January 1, 2005, to require that prior to
implementation of the contract, the courier service must provide the
lockbox with a disaster contingency plan. The contingency plan must
cover labor disputes, employee strikes, inclement weather, natural
disasters, traffic accidents, and unforeseen events;
Status of recommendations: Per GAO: Open. This is a new recommendation.
IRS's actions occurred subsequent to the completion of our fiscal year
2004 audit. We will review IRS's corrective actions during our fiscal
year 2005 audit.
Count: 92;
No.: 05-16;
Recommendation: Review lockbox bank courier contingency plans to help
ensure that they incorporate all contingencies specified in the LPG.
(short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls (GAO-05-247R, Apr. 27, 2005);
Status of recommendations: Per IRS: Closed. Contingency plans were
provided by all lockbox sites and are part of the Filing Season
Readiness (FSR) Plan. LPG 4.2.3.1 states "the contingency plan must
cover labor disputes, employee strikes, inclement weather, natural
disasters, traffic accidents, and unforeseen events." The Lockbox
Coordinators reviewed the contingency plans to ensure that these issues
were addressed;
Status of recommendations: Per GAO: Open. This is a new recommendation.
IRS's actions occurred subsequent to the completion of our fiscal year
2004 audit. We will review IRS's actions during our fiscal year 2005
audit.
Count: 93;
No.: 05-17;
Recommendation: Revise the LPG to specify that courier contingency
plans be available at lockbox banks. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls (GAO-05-247R, Apr. 27, 2005);
Status of recommendations: Per IRS: Open. LPG 2.1.7 requires each
lockbox bank to submit an annual FSR Plan. The plan must be submitted
to the Lockbox Field Coordinators for review to ensure each site is
prepared for the filing season. Lockbox Field Coordinators will ensure
all contingencies specified in the LPG are incorporated in the
contract. Additionally, the LPG will be updated by April 15, 2005, to
require all lockbox banks to have the courier contingency plan
available on site;
Status of recommendations: Per GAO: Open. This is a new recommendation.
We will review IRS's corrective actions during our fiscal year 2005
audit.
Count: 94;
No.: 05-18;
Recommendation: Review lockbox bank courier and shredding contracts to
ensure that they address all privacy-related criteria and include clear
reference to privacy-related laws and regulations. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls (GAO-05-247R, Apr. 27, 2005);
Status of recommendations: Per IRS: Closed. LPG 4.2.3(2), Courier
Services, updated January 1, 2005, requires lockbox banks to ensure all
bonded courier/armored car agreements specifically address privacy-
related criteria and include references to the Privacy Act of 1974 and
the Internal Revenue Code (IRC) Sections 6103, 7213, and 7131. IRS will
monitor this action during on-site reviews;
Status of recommendations: Per GAO: Open. This is a new recommendation.
IRS's actions occurred subsequent to the completion of our fiscal year
2004 audit. We will review IRS's corrective actions during our fiscal
year 2005 audit.
Count: 95;
No.: 05-19;
Recommendation: Revise the LPG to require that (1) lockbox couriers
promptly return deposit receipts to the lockbox banks following
delivery of taxpayer remittances to depositories and, (2) lockbox banks
promptly review the returned deposit receipts. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls (GAO-05-247R, Apr. 27, 2005);
Status of recommendations: Per IRS: Closed. LPG 4.2.3.1.8, Receipt for
Transport of IRS Lockbox Bank Deposit Form, updated January 1, 2005,
requires the lockbox site receive back, by the next business day, the
original completed Receipt for Transport of IRS Lockbox Bank Deposit
Form with the depository representative's name, signature, and date and
time the deposit was received by the depository. The lockbox banks are
to reconcile the Receipt for Transport of IRS Lockbox Bank Deposit
Form(s) daily to ensure receipt of dedicated service (e.g., the time
between release of the deposit to the courier and its release to the
depository is not in excess). If discrepancies are found, the Lockbox
Field Coordinator should be notified immediately;
Status of recommendations: Per GAO: Open. This is a new recommendation.
IRS's actions occurred subsequent to the completion of our fiscal year
2004 audit. We will review IRS's corrective actions during our fiscal
year 2005 audit.
Count: 96;
No.: 05-20;
Recommendation: Revise the LPG to require that deposit receipts for
taxpayer remittances be time-and date-stamped. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls (GAO-05-247R, Apr. 27, 2005);
Status of recommendations: Per IRS: Closed. LPG 4.2.3.1.8, Receipt for
Transport of IRS Lockbox Bank Deposit Form, was updated on January 1,
2005, to require the courier service employee to return the deposit
receipt form to the lockbox site on the next business day and ensure
the form contains the depository bank employee's name and signature,
the date the deposit was received by the depository, and the time the
deposit was received by the depository;
Status of recommendations: Per GAO: Open. This is a new recommendation.
IRS's actions occurred subsequent to the completion of our fiscal year
2004 audit. We will review IRS's corrective actions during our fiscal
year 2005 audit.
Count: 97;
No.: 05-21;
Recommendation: Better enforce the LPG requirement that lockbox bank
couriers annotate the time of delivery on receipts for deposits of
taxpayer remittances. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls (GAO-05-247R, Apr. 27, 2005);
Status of recommendations: Per IRS: Closed. LPG 4.2.3.1.8, Receipt for
Transport of IRS Lockbox Bank Deposit Form, was updated on January 1,
2005, to require lockbox bank couriers to annotate the time of delivery
of receipts for deposits of taxpayer remittances;
Status of recommendations: Per GAO: Open. This is a new recommendation.
IRS's actions occurred subsequent to the completion of our fiscal year
2004 audit. We will review IRS's corrective actions during our fiscal
year 2005 audit.
Count: 98;
No.: 05-22;
Recommendation: Provide a written reminder to courier contractors of
the need to adhere to all courier service procedures. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls (GAO-05-247R, Apr. 27, 2005);
Status of recommendations: Per IRS: Open. IRS will develop an annual
memorandum by January 1, 2006, requiring banks to remind courier
contractors to adhere to all courier service procedures in the LPG. IRS
will monitor adherence during site reviews;
Status of recommendations: Per GAO: Open. This is a new recommendation.
We will review the status of IRS's planned corrective actions during
our fiscal year 2005 audit.
Count: 99;
No.: 05-23;
Recommendation: Periodically verify that contractors entrusted with
taxpayer receipts and information offsite adhere to IRS procedures.
(short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls (GAO-05-247R, Apr. 27, 2005);
Status of recommendations: Per IRS: Closed. The 2005 LPG 4.2.3.1.8(1)
has been updated and the procedures will be monitored during the
periodic security reviews;
Status of recommendations: Per GAO: Open. This is a new recommendation.
IRS's actions occurred subsequent to the completion of our fiscal year
2004 audit. We will review IRS's corrective actions during our fiscal
year 2005 audit.
Count: 100;
No.: 05-24;
Recommendation: Develop alternative, back-up plans that are consistent
with IRS courier policies and procedures to address instances in which
only one courier reports for transport of taxpayer receipts or
information, such as requiring that a service center or lockbox bank
employee accompany the courier to the depository. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls (GAO-05-247R, Apr. 27, 2005);
Status of recommendations: Per IRS: Open. IRS will work with FMS to
develop an alternative back-up plan by June 30, 2005;
Status of recommendations: Per GAO: Open. This is a new recommendation.
We will review the status of IRS's planned corrective actions during
our fiscal year 2005 audit.
Count: 101;
No.: 05-25;
Recommendation: Formulate a policy to require that critical utility or
security controls not be located in areas requiring frequent access.
(short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls (GAO-05-247R, Apr. 27, 2005);
Status of recommendations: Per IRS: Open. IRS will ensure policy
guidelines address protection of critical or security controls and will
work with the business operating divisions and Procurement to
incorporate any revised requirements into updated and future
interagency agreements with FMS;
Status of recommendations: Per GAO: Open. This is a new recommendation.
We will review IRS's corrective actions during our fiscal year 2005
audit.
Count: 102;
No.: 05-26;
Recommendation: Require lockbox bank management to position closed-
circuit television cameras (CCTV) to enable monitoring of secured areas
containing sensitive systems or controls. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls (GAO-05-247R, Apr. 27, 2005);
Status of recommendations: Per IRS: Open. The LPG requires the lockbox
banks have installed cameras to monitor critical areas and assets in
those parts of a facility controlled by the banks. IRS will review,
through its Mission Assurance review process, the use of CCTV at the
banks and, within local constraints, expand surveillance capabilities
to include utility controls;
Status of recommendations: Per GAO: Open. This is a new recommendation.
We will review IRS's actions during our fiscal year 2005 audit.
Count: 103;
No.: 05-27;
Recommendation: Periodically monitor lockbox banks' adherence to the
LPG requirement that keys be kept in secured containers within the
secured perimeter. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls (GAO-05-247R, Apr. 27, 2005);
Status of recommendations: Per IRS: Open. The LPG requires that keys
and security panels controlled by the banks be properly stored and
secured. IRS's Mission Assurance will include controls over keys as
part of any and all reviews. As part of the review process, IRS will
work with the banks and lessors to improve security for keys and
security panels, irrespective of ownership;
Status of recommendations: Per GAO: Open. This is a new recommendation.
We will review IRS's actions during our fiscal year 2005 audit.
Count: 104;
No.: 05-28;
Recommendation: Assess technologies that may be exempt from the visual
inspection requirement to determine whether they are acceptable methods
of satisfying candling objectives and, if so, add such technologies to
the LPG list of accepted candling methods. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls (GAO-05-247R, Apr. 27, 2005);
Status of recommendations: Per IRS: Closed. IRS determined that current
technologies are not exempt from the candling requirement and added to
the 2005 LPG 3.2.8(1) that envelopes opened (either manually or by
OPEX) on three or more sides must be candled once on the candling
tables. All other envelopes must be candled twice on the candling
tables;
Status of recommendations: Per GAO: Open. This is a new recommendation.
IRS's actions occurred subsequent to the completion of our fiscal year
2004 audit. We will review IRS's corrective actions during our fiscal
year 2005 audit.
Count: 105;
No.: 05-29;
Recommendation: Conduct an assessment of the costs and benefits of
relying on only one candling when using certain automated equipment.
(short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls (GAO-05-247R, Apr. 27, 2005);
Status of recommendations: Per IRS: Closed. IRS assessed the candling
functions on automated equipment and included in the 2005 LPG 3.2.8
section (1) a requirement that envelopes opened (either manually or by
OPEX equipment) on three or more sides must be candled once on the
candling tables. IRS will monitor adherence during site reviews;
Status of recommendations: Per GAO: Open. This is a new recommendation.
IRS's actions occurred subsequent to the completion of our fiscal year
2004 audit. We will review IRS's corrective actions during our fiscal
year 2005 audit.
Count: 106;
No.: 05-30;
Recommendation: Clarify the LPG to eliminate confusion about the number
of candlings required for different extraction methods. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls (GAO-05-247R, Apr. 27, 2005);
Status of recommendations: Per IRS: Closed. IRS updated the 2005 LPG
3.2.8, Candling, to require that envelopes opened (either manually or
by OPEX) on three or more sides must be candled once on the candling
tables. All other envelopes must be candled twice on the candling
tables;
Status of recommendations: Per GAO: Open. This is a new recommendation.
IRS's actions occurred subsequent to the completion of our fiscal year
2004 audit. We will review IRS's corrective actions during our fiscal
year 2005 audit.
Count: 107;
No.: 05-31;
Recommendation: Establish guidelines and a testing requirement to
ensure satisfactory lighting conditions for effective candling. (short-
term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls (GAO-05-247R, Apr. 27, 2005);
Status of recommendations: Per IRS: Open. IRS is in the process of
reviewing and strengthening current procedures contained in IRM
3.10.72, Batching, Sorting and Numbering;
Status of recommendations: Per GAO: Open. This is a new recommendation.
We will review the status of IRS's planned corrective actions during
our fiscal year 2005 audit.
Count: 108;
No.: 05-32;
Recommendation: Establish policies and procedures to require
appropriate segregation of duties in small business/self-employed
(SB/SE) units of field offices with respect to preparation of Payment
Posting Vouchers, Document Transmittal forms, and transmittal packages.
(short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls (GAO-05-247R, Apr. 27, 2005);
Status of recommendations: Per IRS: Open. IRS will establish a
procedure(s) for SB/SE field office units to track Document Transmittal
forms and acknowledgments of receipt of Document Transmittal forms. IRS
will also strengthen guidance to revenue officers and will develop
procedures specifically for its field clerical staff. IRS's procedures
will clarify that revenue officers are responsible for submitting an
appropriately labeled sealed envelope containing the Daily Report of
Collection Activity form to a designated clerical contact in the Post
of Duty (POD). This guidance will apply unless the revenue officers are
working away from the POD on extended field calls, flexiplace, or are
working in a single revenue officer POD. Those revenue officers will
send the envelope directly to Submission Processing;
Status of recommendations: Per GAO: Open. This is a new recommendation.
We will review the status of IRS's corrective actions during our fiscal
year 2005 audit.
Count: 109;
No.: 05-33;
Recommendation: Enforce the requirement that a document transmittal
form listing the enclosed Daily Report of Collection Activity forms be
included in transmittal packages, using such methods as more frequent
inspections or increased reliance on error reports compiled by the
service center teller units receiving the information. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls (GAO-05-247R, Apr. 27, 2005);
Status of recommendations: Per IRS: Open. IRS procedures will clarify
that the designated clerical contacts are responsible for bundling
sealed envelopes into a single package for overnight mail to Submission
Processing pursuant to the IRM. The procedures will also clarify that
the designated clerical contacts will prepare a Document Transmittal
form and send the prepared package to Submission Processing via
overnight mail. The procedures will direct the designated clerical
contact to retain a control copy of the Document Transmittal form and
the overnight mail transmittal until the receipted copy of the Document
Transmittal form is returned from Submission Processing. The IRS will
also require that the transmittal and the acknowledgment be reconciled
on a monthly basis, with appropriate follow-up as required. IRS will
also issue a memorandum to all Field Assistance employees reminding
them to adhere to these IRM requirements. IRS will also add this as a
review item for operational reviews conducted by Field Assistance
headquarters and area personnel;
Status of recommendations: Per GAO: Open. This is a new recommendation.
We will review the status of IRS's corrective actions during our fiscal
year 2005 audit.
Count: 110;
No.: 05-34;
Recommendation: Establish a procedure for SB/SE field office units to
track Document Transmittal forms and acknowledgments of receipt of
Document Transmittal forms. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls (GAO-05-247R, Apr. 27, 2005);
Status of recommendations: Per IRS: Open. IRS will update its
procedures to clarify that the managers should ensure continuous
coverage of the designated clerical contact duties so that absence due
to illness or leave does not disrupt the processing of remittances;
Status of recommendations: Per GAO: Open. This is a new recommendation.
We will review the status of IRS's planned corrective actions during
our fiscal year 2005 audit.
Count: 111;
No.: 05-35;
Recommendation: Require evidence of managerial review of recording,
transmittal, and receipt of acknowledgments of taxpayer receipts and
information. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls (GAO-05-247R, Apr. 27, 2005);
Status of recommendations: Per IRS: Open. IRS will establish a
procedure(s) to require evidence of managerial review of recording,
transmittal, and receipt of acknowledgments of taxpayer receipts and
information. However, IRS will not implement any procedure requiring
100 percent managerial review. IRS's new procedures will call for
random managerial spot-checking of packages prepared for submission to
Submission Processing by revenue officers working in PODs or by the
designated clerical contacts in the PODs. The new procedure(s) will not
call for any random managerial spot-checking of packages prepared by
revenue officers working away from the POD on extended field calls or
flexiplace. Instead, on those packages, IRS will continue to rely on
the remittance reviews conducted by remittance processing personnel in
Submission Processing. These reviews will be documented by the revenue
officer group manager and be retained for the appropriate period
required under record management guidelines;
Status of recommendations: Per GAO: Open. This is a new recommendation.
We will review the status of IRS's planned corrective actions during
our fiscal year 2005 audit.
Count: 112;
No.: 05-36;
Recommendation: Assess options to prevent the generation or
disbursement of refunds associated with accounts with unresolved AUR
discrepancies, including placement of a freeze or hold on all such
accounts, until the AUR review has been completed. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls (GAO-05-247R, Apr. 27, 2005);
Status of recommendations: Per IRS: Closed. IRS believes that, if
followed, the procedures it has in place adequately address preventing
the generation or disbursement of refunds associated with AUR accounts.
IRM 3.8.45 requires employees receiving an unidentified remittance to
conduct Individual Data Retrieval System (IDRS) research to determine
if there is an open account that allows for posting of the remittance.
Also, AUR will partner with Submissions Processing to ensure that
employees receiving unidentified remittances are aware of the need to
conduct IDRS research and how to properly post AUR remittances in these
instances;
Status of recommendations: Per GAO: Open. This is a new recommendation.
We will assess IRS's adherence to its existing procedures and other
actions it plans to take during our fiscal year 2005 audit.
Count: 113;
No.: 05-37;
Recommendation: Enforce documentation requirements relating to
authorizing officials charged with approving manual refunds. (short-
term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls (GAO-05-247R, Apr. 27, 2005);
Status of recommendations: Per IRS: Open. IRS will enforce requirements
to document monitoring by reminding management officials annually via a
memorandum, notice, or an Alert. As part of the reminder, the IRM check
sheets will be included and a response will be required confirming
these actions have been taken. In addition, IRS will consider including
this item in the Management Accountability Review Process;
Status of recommendations: Per GAO: Open. This is a new recommendation.
We will review IRS's corrective actions during our fiscal year 2005
audit.
Count: 114;
No.: 05-38;
Recommendation: Enforce requirements for monitoring accounts and
reviewing monitoring of accounts. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls (GAO-05-247R, Apr. 27, 2005);
Status of recommendations: Per IRS: Open. IRS will enforce monitoring
requirements by reminding management officials annually via a
memorandum, notice, or an Alert. As part of the reminder, the IRM check
sheets will be included and a response will be required confirming
these actions have been taken. In addition, IRS will consider including
this item in the Management Accountability Review Process;
Status of recommendations: Per GAO: Open. This is a new recommendation.
We will review IRS's corrective actions during our fiscal year 2005
audit.
Count: 115;
No.: 05-39;
Recommendation: Enforce requirements for documenting monitoring actions
and supervisory review. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls (GAO-05-247R, Apr. 27, 2005);
Status of recommendations: Per IRS: Open. IRS will enforce requirements
to document monitoring by reminding management officials annually via a
memorandum, notice, or an Alert. As part of the reminder, the IRM check
sheets will be included and a response will be required confirming
these actions have been taken. In addition, IRS will consider including
this item in the Management Accountability Review Process;
Status of recommendations: Per GAO: Open. This is a new recommendation.
We will review IRS's corrective actions during our fiscal year 2005
audit.
Count: 116;
No.: 05-40;
Recommendation: Enforce the requirement that command code profiles be
reviewed at least once annually. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls (GAO-05-247R, Apr. 27, 2005);
Status of recommendations: Per IRS: Open. IRS will enforce annual
review of command code profiles by reminding management officials
annually via a memorandum or notice. As part of the reminder, the IRM
check sheets will be included and a response will be required
confirming these actions have been taken. In addition, IRS will
consider including this in the Management Accountability Review
Process;
Status of recommendations: Per GAO: Open. This is a new recommendation.
We will review IRS's corrective actions during our fiscal year 2005
audit.
Count: 117;
No.: 05-41;
Recommendation: Specify in the IRM that staff members are not to review
their own command code profiles. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls (GAO-05-247R, Apr. 27, 2005);
Status of recommendations: Per IRS: Open. The IRM wording will be
updated and recommendations will be included in annual reminders
(memos/notices, etc.) to management officials that the approver's
manager is responsible for ensuring that approvers' profiles have
appropriate restrictions and have been reviewed;
Status of recommendations: Per GAO: Open. This is a new recommendation.
We will review IRS's corrective actions during our fiscal year 2005
audit.
Count: 118;
No.: 05-42;
Recommendation: Specify in the IRM how to properly verify interest and
penalties for accounts with liens with manually calculated interest or
penalties. (short-term);
Source report: Management Report: Improvements Needed in IRS's Internal
Controls (GAO-05-247R, Apr. 27, 2005);
Status of recommendations: Per IRS: Closed. IRS revised the IRM to
instruct employees to check the Integrated Data Retrieval System (IDRS)
to determine if restricted interest or penalty is due. The IRM now
clearly states that there are only two instances where restricted
interest and penalty should not be computed, offer-in-compromise and
bankruptcy cases. Also, instructions for computing restricted interest
and penalty are found in the Automated Lien System (ALS) User Guide as
well as in training material and desk guides. In addition, tax
examiners hired to staff the Centralized Case Processing (CCP), Lien
Processing Unit were provided hands-on training in the computation of
restricted interest and penalty. Resolution of these cases moved to CCP
effective February 2005. The centralized site has created a special
group of employees who were trained in the resolution of restricted
interest and penalty cases. New hires for this group will also receive
this training;
Status of recommendations: Per GAO: Open. This is a new recommendation.
IRS's actions occurred subsequent to the completion of our fiscal year
2004 audit. We will review IRS's corrective actions during our fiscal
year 2005 audit.
[End of table]
[End of section]
Appendix II: Details on Audit Methodology:
To fulfill our responsibilities as the auditor of the Internal Revenue
Service's (IRS) financial statements, we did the following:
* Examined, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. This included testing selected
statistical samples of unpaid assessments, revenue, refunds, accrued
expenses, payroll, nonpayroll, property and equipment, and undelivered
order transactions. These statistical samples were selected primarily
to substantiate balances and activities reported in IRS's financial
statements. Consequently, dollar errors or amounts can and have been
statistically projected to the population of transactions from which
they were selected. In testing these samples, certain attributes were
identified that indicated either significant deficiencies in the design
or operation of internal control or compliance with provisions of laws
and regulations. These attributes, where applicable, can be and have
been statistically projected to the appropriate populations.
* Assessed the accounting principles used and significant estimates
made by management.
* Evaluated the overall presentation of the financial statements.
* Obtained an understanding of internal controls related to financial
reporting (including safeguarding assets), compliance with laws and
regulations (including the execution of transactions in accordance with
budget authority), and performance measures reported in the
Management's Discussion and Analysis.
* Tested relevant internal controls over financial reporting (including
safeguarding assets) and compliance, and evaluated the design and
operating effectiveness of internal controls.
* Considered the process for evaluating and reporting on internal
controls and financial management systems under 31 U.S.C. § 3512(c),
(d), commonly referred to as the Federal Managers' Financial Integrity
Act of 1982.
* Tested compliance with selected provisions of the following laws and
regulations: Anti-Deficiency Act, as amended (31 U.S.C. § 1341(a)(1)
and 31 U.S.C. § 1517(a)); agreements for payment of tax liability in
installments (26 U.S.C. § 6159); Purpose Statute (31 U.S.C. § 1301);
release of lien or discharge of property (26 U.S.C. § 6325); interest
on underpayment, nonpayment, or extensions of time for payment of tax
(26 U.S.C. § 6601); interest on overpayments (26 U.S.C. § 6611);
determination of rate of interest (26 U.S.C. § 6621); failure to file
tax return or to pay tax (26 U.S.C. § 6651); failure by individual to
pay estimated income tax (26 U.S.C. § 6654); failure by corporation to
pay estimated income tax (26 U.S.C. § 6655); Prompt Payment Act (31
U.S.C. § 3902 (a), (b), and (f), and 31 U.S.C. § 3904); Fair Labor
Standards Act of 1938, as amended (29 U.S.C. § 206); Civil Service
Retirement Act of 1930, as amended (5 U.S.C. §§ 5332 and 5343); Federal
Employees' Retirement System Act of 1986, as amended (5 U.S.C. §§ 8422,
8423 and 8432); Social Security Act, as amended (26 U.S.C. §§ 3101 and
3121, and 42 U.S.C. § 430); Federal Employees Health Benefits Act of
1959, as amended (5 U.S.C. §§ 8905, 8906, and 8909); and Consolidated
Appropriations Act, 2004, Pub. L. No. 108-199, 118 Stat. 3 (Jan. 23,
2004).
* Tested whether IRS's financial management systems substantially
comply with the three requirements of the Federal Financial Management
Improvement Act of 1996 (Pub. L. No. 104-208, div. A, § 101(f), title
VIII, 110 Stat. 3009, 3009-389 (Sept. 30, 1996) (codified at 31 U.S.C.
§ 3512 note).
[End of section]
Appendix III: Comments from the Internal Revenue Service:
DEPARTMENT OF THE TREASURY:
INTERNAL REVENUE SERVICE:
COMMISSIONER:
WASHINGTON, D.C. 20224:
April 15, 2005:
Mr. Steven J. Sebastian:
Director:
Financial Management and Assurance:
U.S. Government Accountability Office:
441 G Street, N.W.
Washington, D.C. 20548:
Dear Mr. Sebastian:
Thank you for the opportunity to review and comment on your draft
report titled "Status of Recommendations from Financial Audits and
Related Financial Management Reports" (GAO-05-393). My staff recently
provided you with an update on the current status of the
recommendations, and agree that you accurately incorporated this
information in Appendix I of the draft report.
This year's document reports the status of 118 recommendations. We are
pleased that you agreed to close 34 of the 76 recommendations open from
the last update to this document. This closure rate demonstrates our
commitment to successfully develop and implement resolutions to issues
raised in GAO audits. This year's report also includes 42 new
recommendations, which we have begun to aggressively address. For
example, the IRS responsibly classified the 48 open recommendations on
lockbox banks as a reportable condition and developed a comprehensive
action plan to address these recommendations. These actions include
partnering with Treasury's Financial Management Service to align
lockbox bank contractual requirements with IRS' physical security
policies. We will monitor this plan through implementation.
I appreciate your continued support and commitment to work with the IRS
to ensure that our corrective actions appropriately address the
weaknesses identified in your recommendations. I want to specifically
commend your staff on their willingness to communicate directly with
our business owners on each recommendation and corrective action. We
believe the information exchanged was crucial to achieving the
understanding necessary for effective closure of the recommendations.
If you have any questions or would like to discuss this report further,
please contact me, or Janice Lambert, Chief Financial Officer, at (202)
622-6400.
Sincerely,
Signed by:
Mark W. Everson:
[End of section]
Appendix IV: GAO Contact and Staff Acknowledgments:
GAO Contacts:
Steven Sebastian, (202) 512-3406;
Paul Foderaro, (202) 512-2535:
Acknowledgments:
In addition to the persons named above, Chuck Fox, William Cordrey,
Charles Payton, Patricia Blumenthal, Gloria Cano, Nina Crocker, John
Davis, Alain Dubois, David Elder, Valerie Freeman, John Gates, and
Angel Sharma made key contributions to this report.
(196036):
FOOTNOTES
[1] GAO, Financial Audit: IRS's Fiscal Years 2004 and 2003 Financial
Statements, GAO-05-103 (Washington, D.C.: Nov. 10, 2004).
[2] GAO, Internal Revenue Service: Status of Recommendations from
Financial Audits and Related Financial Management Reports, GAO-04-523
(Washington, D.C.: Apr. 28, 2004).
[3] GAO, Opportunities to Improve Timeliness of IRS Lien Releases, GAO-
05-26R (Washington, D.C.: Jan. 10, 2005); Review of Controls over
Safeguarding Taxpayer Receipts and Information at the Brookhaven
Service Center Campus, GAO-05-319R (Washington, D.C.: Mar. 10, 2005);
and Management Report: Improvements Needed in IRS's Internal Controls,
GAO-05-247R (Washington, D.C.: Apr. 27, 2005).
[4] GAO, Financial Audit: IRS's Fiscal Years 2003 and 2002 Financial
Statements, GAO-04-126 (Washington, D.C.: Nov. 13, 2003).
[5] GAO-04-523.
[6] The term "rampdown" is used to refer to IRS's significant reduction
of its submission processing functions at selected service center
campuses. In fiscal year 2004, Brookhaven became the first service
center campus to downsize its submission processing function.
[7] Short-term recommendations are defined as those that could be
addressed within 2 years at the time we made the recommendation. Long-
term recommendations are defined as those expected to require 2 years
or more to implement at the time we made the recommendation.
[8] Recommendation 03-08 in appendix I was issued to correct a
potential conflict in the responsibilities of lockbox coordinators, who
assist lockbox banks with processing issues and who also perform the on-
site performance review of those banks.
[9] Internal Revenue Service, "2004 Lockbox Processing Guidelines"
(Washington, D.C: January 2004), and subsequent 2004 updates. The 2004
Lockbox Processing Guidelines provides guidelines for processing work
at lockbox banks serving IRS for the 2004 tax processing year.
[10] GAO, Business Systems Modernization: IRS's Fiscal Year 2004
Expenditure Plan, GAO-05-46 (Washington, D.C.: Nov. 17, 2004).
[11] GAO-05-103.
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