Summary
In March 2001, GAO issued a report (GAO-01-394) on the results of its audit of the Internal Revenue Service's (IRS) financial statements and on the effectiveness of its internal controls for fiscal year 2000. This report reviews additional matters identified during GAO's fiscal year 2000 audit regarding accounting procedures and internal controls that could be improved. GAO found that IRS had immaterial internal control issues that affected reporting. IRS (1) was unable to determine if its costs for reimbursable activities were accurate and whether it was recouping the costs of the goods or services it provided, (2) lacked procedures to properly record its working capital fund prepaid expenses, (3) accepted information from its contractors for inclusion in its year-end financial reporting without sufficient oversight or review, and (4) did not always follow standard procedures with respect to the transfer of funds between appropriations.
Recommendations
Our recommendations from this work are listed below with a Contact for more information. Status will change
from "In process" to "Implemented" or "Not implemented" based on our follow up work.
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Recommendations for Executive Action
Recommendation: To allow the proper reporting of the cost of reimbursable activity, the Commissioner of Internal Revenue Service should ensure that IRS personnel develop a mechanism to track and report the actual costs associated with reimbursable activities.
Agency Affected: Department of the Treasury: Internal Revenue Service
Status: In process
Comments: GAO confirmed that IRS completed procedures for costing reimbursable agreements that provide the basic framework for the accumulation of both direct and indirect costs at the necessary level of detail. During fiscal year 2007, IRS continued to improve its methodology for allocating its costs of operations to its business units. However, further actions are needed to begin gathering the actual cost of selected reimbursable projects. GAO will continue to monitor IRS's efforts in developing cost information for its reimbursable agreements.
Recommendation: To provide for more accurate records and better management of reimbursable activity, the Commissioner of Internal Revenue Service should ensure that IRS personnel establish procedures to periodically reconcile the subsidiary records to the control account for reimbursable receivables to ensure that the balance is adequately supported.
Agency Affected: Department of the Treasury: Internal Revenue Service
Status: Implemented
Comments: IRS addressed this recommendation by implementing procedures in fiscal year 2002, to monthly reconcile its subsidiary records to the control account for reimbursable receivables.
Recommendation: To provide for more accurate records and better management of reimbursable activity, the Commissioner of Internal Revenue Service should ensure that IRS personnel routinely age and review currently open reimbursable receivable accounts to identify accounts that are no longer valid or collectible.
Agency Affected: Department of the Treasury: Internal Revenue Service
Status: Implemented
Comments: IRS addressed this recommendation by initiating action in fiscal year 2001, to regularly age and review its reimbursable receivable accounts. GAO verified the effectiveness of these procedures during fiscal year 2002.
Recommendation: The IRS should develop and implement procedures to require that prepayments be recorded as assets routinely at the time the cost is incurred in accordance with generally acceptable accounting procedures. Services that are provided to IRS that will benefit IRS for more than one year should be established as prepaid expenses and amortized over the period of the benefit.
Agency Affected: Department of the Treasury: Internal Revenue Service
Status: Implemented
Comments: IRS charged depreciation expenses and not the full cost of the assets acquired under the Working Capital Fund (WCF). IRS no longer capitalizes WCF assets on its balance sheet. This change effectively addresses the underlying issue that gave rise to GAO's recommendation. GAO concurs with IRS's accounting treatment for this transaction.
Recommendation: The Commissioner of Internal Revenue Service should ensure that IRS personnel maintain effective oversight of the completeness and accuracy of contractor-generated information.
Agency Affected: Department of the Treasury: Internal Revenue Service
Status: Implemented
Comments: During its audit of IRS' fiscal year 2002 financial statements, GAO found that IRS personnel had effectively reviewed contractor-generated data. As a result, IRS improved the accuracy and reliability of contractor-generated data and reported more reliable information on its fiscal year 2002 financial statements.
Recommendation: The Commissioner of Internal Revenue Service should direct IRS management to ensure that it complies with Treasury regulations requiring that all transfers of funds between appropriations be properly approved and documented prior to recording them in the financial records.
Agency Affected: Department of the Treasury: Internal Revenue Service
Status: Implemented
Comments: Based on GAO's audit work for fiscal years 2001 and 2002, all transfers of funds between appropriations have been properly approved and documented prior to being recorded in the financial records.
