GAO Audit Finds IRS Faces Internal Control,
Financial Management Systems Deficiencies
The Government Accountability Office found that the fiscal years 2007 and 2008 financial statements of the Internal Revenue Service are fairly stated, though the service did not “maintain effective internal control” over compliance with laws or financial reporting, according to a GAO financial audit released Nov. 12.
IRS continues to rely on processes that use many of its resources to prepare its balance sheet due to its financial management systems deficiencies, GAO said. Because of its internal control issues, IRS could not ensure the prevention or timely detection of losses, misstatements, and legal noncompliance related to the financial statements, it said.
IRS management continues to use obsolete financial management systems that do not meet the requirements of the Federal Financial Management Improvement Act of 1996 (FFMIA), GAO said. As a result, the service faces “serious challenges” in collecting taxes because it cannot routinely get timely and accurate information for use when making day-to-day decisions, it said.
“As IRS continues to progress toward ever more automated financial management processes, the presence of material weaknesses in controls over these systems, especially in the area of information security, could have serious implications for our future ability to determine whether IRS's financial statements are fairly stated,” GAO said.
Improvements Made in Some Areas.
GAO did list some improvements IRS has made in addressing its internal control and financial management weaknesses and said it does not consider the existing control deficiencies over the collection of unpaid taxes and the issuance of improper refunds to be a “material weakness.”
GAO also decided that IRS has made progress in strengthening internal controls that protect hard copies of taxpayers' receipts and data at primary submission processing locations in fiscal 2008 and previous years, it said. Therefore, remaining issues no longer represent a significant deficiency, it said.
However, GAO said that some improvements were not enough to combat certain issues, and that IRS's steady commitment to address remaining challenges is needed. GAO said that while revenue collection and refund issuance controls have improved, issues remain over the agency's enforcement collection activities—a “significant deficiency.”
GAO also found that IRS did not always comply with the law regarding the timely release of tax liens, it said.
GAO said it will keep monitoring IRS's progress in implementing the 147 recommendations it has made that are still open, 66 of which relate to material weakness in information security, it said.
IRS said in response that it was committed to improving financial management, according to the report. IRS noted that it completed mandated Federal Information Security Management Act activities and created an Office of Online Fraud Detection and Prevention in reaction to information security threats over the Internet, GAO said.
The agency said that its management team is dedicated to addressing both financial management and information security issues as a continuing priority, GAO said.
Link to the financial statements and GAO report: