Major Management Challenges and Program Risks : Department of

United States General Accounting Office

GAO Performance and AccountabilitySeries

January 1999

Major ManagementChallenges and ProgramRisks

Department of theTreasury

GAO/OCG-99-14

GAO United States

General Accounting Office

Washington, D.C. 20548

Comptroller General

of the United States

January 1999

The President of the SenateThe Speaker of the House of Representatives

This report addresses the major performance andmanagement challenges affecting the ability of theDepartment of the Treasury to effectively carry out itsmission. Specifically, this report discusses the challengesfacing three Treasury bureaus—the Internal RevenueService, Customs Service, and the Financial ManagementService—as well as departmentwide financialmanagement challenges. It also discusses correctiveactions that Treasury and its bureaus have taken orinitiated to address these challenges and further actionsthat are needed. For many years, we have reportedsignificant problems at Treasury. These problems are theresult of serious deficiencies in (1) information andfinancial management systems, (2) internal controls atthe department level and in the three bureaus, and (3) theorganizational structure at IRS.

Treasury has made progress in addressing its keymanagement challenges and continues to plan futureimprovements. Progress has been made, for example, inthe financial management area, as indicated by (1) theunqualified opinions both IRS and Customs received ontheir financial statements and (2) the removal ofCustoms’ financial management from our high-risk list offederal government programs. The Commissioner ofInternal Revenue and the leadership team at IRS has given

a top priority to addressing deficiencies. However, whilethe efforts of the Department and its bureaus areencouraging, Treasury must do more. Because of thecomplexity of many of Treasury’s challenges, long-termefforts are still needed if effective solutions are to bedeveloped and implemented. In particular, we continue tobelieve that several areas within IRS and the assetforfeiture program at Customs remain at high risk.

This report is part of a special series entitled thePerformance and Accountability Series: MajorManagement Challenges and Program Risks. The seriescontains separate reports on 20 agencies—1 on each ofthe cabinet departments and on most major independentagencies as well as the U.S. Postal Service. The seriesalso includes a governmentwide report that draws fromthe agency-specific reports to identify the performanceand management challenges requiring attention acrossthe federal government. As a companion volume to thisseries, GAO is issuing an update to those governmentoperations and programs that its work has identified as“high risk” because of their greater vulnerabilities towaste, fraud, abuse, and mismanagement. High-riskgovernment operations are also identified and discussedin detail in the appropriate performance andaccountability series agency reports.

The performance and accountability series was done atthe request of the Majority Leader of the House ofRepresentatives, Dick Armey; the Chairman of the HouseGovernment Reform Committee, Dan Burton; the

GAO/OCG-99-14 Treasury ChallengesPage 2

Chairman of the House Budget Committee, John Kasich;the Chairman of the Senate Committee on GovernmentalAffairs, Fred Thompson; the Chairman of the SenateBudget Committee, Pete Domenici; and Senator LarryCraig. The series was subsequently cosponsored by theRanking Minority Member of the House GovernmentReform Committee, Henry A. Waxman; the RankingMinority Member, Subcommittee on GovernmentManagement, Information and Technology, HouseGovernment Reform Committee, Dennis J. Kucinich;Senator Joseph I. Lieberman; and Senator Carl Levin.

Copies of this report series are being sent to thePresident, the congressional leadership, all otherMembers of the Congress, the Director of the Office ofManagement and Budget, the Secretary of the Treasury,and the heads of other major departments and agencies.

David M. WalkerComptroller General ofthe United States


Contents

Overview 6

MajorPerformance andManagementIssues

12

Related GAOProducts

77

Performance andAccountabilitySeries

83



Overview

One of the primary responsibilities of theDepartment of the Treasury is to manage thegovernment’s finances. This includescollecting over $1.7 trillion in federal taxrevenues and making payments totalingmore than $1 trillion annually. Treasuryfaces many challenges in managing thegovernment’s finances and, like other partsof the government, is experiencing demandsto be more effective and accountable incarrying out its mission. Many of the issuesaffecting Treasury’s ability to effectivelymanage the government’s finances involvechallenges relating to information systems.Until Treasury and its bureaus and officesare better able to address the numerousperformance and management challengesthey are facing, their ability to manage thegovernment’s finances will remain impaired.

The Challenges

Management andPerformance IssuesAffecting theInternal RevenueService

The Internal Revenue Service (IRS) facesformidable challenges as it attempts to fulfillits mission while addressing majororganizational, management, andperformance issues. These issues include theneed for (1) restructuring IRS’ organizationand business practices to better balance its


Overview

efforts between taxpayer assistance andenforcement, (2) correcting managementand technical weaknesses in its systemsmodernization efforts, (3) resolving financialmanagement and control weaknesses thataffect its ability to adequately manage itsfinancial operations, (4) addressingproblems relating to its ability to collectfederal tax receivables and other unpaidassessments, (5) assessing the impact ofvarious efforts it has under way to reducefiling fraud, (6) improving security controlsover information systems to addressweaknesses that place taxpayer data at riskto both internal and external threats, and(7) modifying information systems toproperly function in the year 2000.

Customs’ FinancialManagementRemoved FromHigh-Risk List, butChallenges Remain

The Customs Service has made significantimprovements in its financial management;as a result, we have removed it from our listof high-risk federal government programs.However, Customs still needs to addresscertain challenges related to controllingaccess to sensitive data in its automatedsystems and maintaining complete andreliable information in its core financialsystems. In addition, our recent work hasshown that an incomplete systemsarchitecture has hindered Customs’


Overview

management of major technologyinvestments, such as its AutomatedCommercial Environment system.

FinancialManagementChallenges Affectingthe FinancialManagement Service

Treasury’s Financial Management Service(FMS) faces challenges in addressing severalfinancial management issues. First, FMS’ability to prepare reliable consolidatedfinancial statements for the U.S. governmentis primarily hindered by other federalagencies’ weaknesses in recordkeeping,documentation, and internal controls.Second, general computer controlweaknesses at FMS and its contractor datacenters place the data in its financial systemsat significant risk of unauthorizedmodification, disclosure, loss, orimpairment. Third, FMS has experiencedsome difficulties in effectively fulfillingTreasury’s responsibilities under the DebtCollection Improvement Act.

DepartmentwideFinancialManagementWeaknesses

At the Departmental level, Treasury’sfinancial management weaknesses hinder itsability to maintain reliable financial recordson the results of its operations. Specifically,weaknesses exist in the Department’s(1) accountability for and reporting onseized and forfeited property; (2) computer


Overview

security controls; (3) integration of financialmanagement systems; and (4) process that isused to prepare Departmentwide financialstatements. In addition, the Department’sfinancial management systems did notcomply with federal requirements.

Progress andNext Steps

Treasury has made progress in addressing itskey managerial challenges and continues todevelop plans aimed toward making futureimprovements. Progress, for example, issignified by the (1) unqualified opinions bothIRS and Customs received on their financialstatements and (2) removal of Customs’financial management from our list ofhigh-risk federal government programs.While Treasury deserves to be recognized forthe progress it has made in addressing itskey problems, more needs to be done.Because of the complexity of many ofTreasury’s challenges, long-term efforts maybe required to effectively plan andimplement solutions.

To meet congressional demands to becomemore effective and accountable, Treasurybegan moving toward a performance-basedapproach to management before theGovernment Performance and Results Act


Overview

requirements became mandatory.1 Forexample, for several years, Treasury hasincluded in its budget request performancegoals that are derived from its strategic plan.In addition, Treasury’s fiscal year 1999performance plan, which was preparedunder the Results Act requirements, wascombined with its budget request andincluded reports on performance goals forthe preceding 2 fiscal years. However,Treasury’s performance plan would be moreuseful to the Congress and otherstakeholders if it included performancegoals to specifically address all of thesignificant management challenges,including the numerous high-risk areas thatthe Department faces. The performance planbriefly acknowledges some of these majorchallenges, but it does not have performancegoals that adequately address all of them.

We believe that Treasury must take action todevelop comprehensive implementationstrategies so that its financial andinformation systems are designed to meetthe needs of the Department. Continueddialogue between the Congress, the

1The Government Performance and Results Act of 1993 is designedto improve the efficiency and effectiveness of federal programs byestablishing a system to set goals for program performance and tomeasure results. The Act requires agencies to prepare multiyearstrategic plans, annual performance plans, and annual performancereports.


Overview

Department, and other stakeholders is alsonecessary to help guide Treasury in devisingstrategies to more effectively address itsmajor management challenges. In addition,Treasury must be able to show stakeholdersevidence of the extent that progress is beingmade. One way to show commitment toimprovement is to promptly implementcorrective actions to address thosechallenges that lend themselves toshort-term solutions. Treasury’s annualperformance plan under the Results Actcould be used to convey the status of suchprogress.


Major Performance and ManagementIssues

Treasury performs key governmental roles,including administering and enforcing thenation’s tax laws, collecting revenue, andmanaging the government’s finances.Treasury also formulates and recommendseconomic, financial, tax, and fiscal policiesand manufactures coins and currency. Tocarry out its diverse responsibilities,Treasury is divided into more than a dozenbureaus and offices. For its fiscal year 1999budget, Treasury requested about$12.3 billion.

Our work and that of others have identifiedDepartmentwide management problems atTreasury as well as significant problems inthree bureaus—IRS, Customs, and FMS. Muchof our work has focused on IRS because ofthe crucial role it plays in collecting taxesand administering the federal tax system. IRS

is Treasury’s largest bureau with about102,000 staff years—two-thirds of theDepartment’s total staff years—and a fiscalyear 1999 budget request of nearly$8.3 billion—about two-thirds of theDepartment’s total budget. Several key areasin IRS remain on our high-risk list ofgovernment programs, and IRS continues toface new organizational challenges that mayaffect its ability to effectively carry out itsmission. For these reasons, this report


Major Performance and Management

Issues

highlights IRS’ major performance andmanagement issues relating to restructuring,systems modernization, financialmanagement, accounting for and collectingtaxes owed the government, filing fraud,information systems security, and centurydate conversion efforts. This report alsoaddresses important management issuesaffecting Customs and FMS as well asDepartmentwide financial managementproblems. These challenges hinderTreasury’s ability to manage thegovernment’s finances.

Management andPerformanceIssues AffectingIRS

The Congress, in passing the IRS

Restructuring and Reform Act of 1998,reaffirmed its commitment to addressing theperformance and management issuesconfronting IRS. In the same vein, the IRS

Commissioner has set goals for restructuringthe nation’s tax collection agency to providebetter customer service. One key torestructuring IRS’ business operations toprovide better service to taxpayers isacquiring modernized systems. Modernizedsystems are also critical for IRS to address itsweaknesses relating to financialmanagement, information systems security,accounting for and collecting taxes, andfiling fraud. At the same time it is planning



Issues

business restructuring and systemsmodernization, IRS must also manage itscentury date conversion efforts—which arecrucial to its continued operation.

The Need forRestructuring IRS’Organization andBusiness Practices

The Congress had several reasons forpassing the IRS Restructuring and Reform Actof 1998, including concerns about IRS’treatment of taxpayers. To address theseconcerns and to institute his own initiatives,the Commissioner of Internal Revenueannounced a multiyear businessmodernization plan for IRS that is aimed atimproving customer service. TheCommissioner has categorized his proposedchanges into several key areas, including(1) an organization built around taxpayerneeds, (2) balanced performance measures,and (3) new technology.

Managing the restructuring will be achallenge for IRS because (1) the proposedchanges in the way IRS does business areextensive, (2) collecting taxes requires IRS tobalance its efforts between taxpayerassistance and enforcement, and(3) business restructuring must becoordinated with systems modernization.



Issues

The proposed restructuring would be thebiggest reorganization of IRS in decades.Currently, IRS has about 100,000 employeeswho are organized by tax administrationfunction such as returns processing andcollection. Under the proposed changes, IRS

would be organized into four units thatwould specialize in serving the needs ofdifferent types of taxpayers. The proposedunits are (1) wage and investment income;(2) small business, self-employment, andsupplemental income; (3) middle market andlarge corporate; and (4) tax exempt.

While the magnitude of the restructuringtask is daunting, management ofrestructuring is complicated by the need tobalance IRS’ tax collection efforts andresources between providing service totaxpayers and enforcing compliance with thetax laws. To reinforce the appropriaterelationship between these objectives, abalanced set of IRS performance measures isneeded. The Commissioner has alsoemphasized the importance of measures oforganizational performance that balancecustomer satisfaction, business results,employee satisfaction, and productivity. Theintent is to provide incentives forservice-oriented behavior toward taxpayers,while also emphasizing the need for



Issues

achieving efficiencies in collecting revenue.Although IRS is striving to improve its overallperformance measurement system, it facesparticular challenges as it develops andimplements performance measures to gaugeits efforts to reduce taxpayer burden throughimproved customer service. The keychallenges we identified are (1) developing areliable measure of taxpayer burden,including the portion that IRS can influence;(2) developing measures that can be used tocompare the effectiveness of the variouscustomer service programs; and (3) refiningor developing new measures that gauge thequality of the services provided.Additionally, as IRS refines its strategic goalsand related measures, it is important that IRS

obtain stakeholder involvement to balanceits efforts between assisting taxpayers andenforcing compliance with the tax laws.

Reengineering business practices that focuson solving taxpayer problems is a centralelement of the restructuring concept. Forexample, IRS is planning efforts to identify aspromptly as possible taxpayers who maypresent a risk of nonpayment and to workout a payment plan that addresses theparticular payment problems of thosetaxpayers. This early identification isintended to help the taxpayer make the



Issues

necessary payments and minimize the needfor subsequent enforcement actions.

New technology is essential to addressingthe problems that have hampered IRS’ abilityto better serve taxpayers. This is critical inthat IRS’ existing computer systems do notprovide ready access to needed informationand, consequently, do not adequatelysupport modern work processes or facilitatethe attainment of the high level of customerservice that IRS hopes to achieve underrestructuring. Modernized systems shouldhelp IRS collect taxes by providing itscollectors with on-line access to theinformation they need when they need it.These systems, along with theCommissioner’s emphasis on balancedperformance measures, should help provideIRS with the management information itneeds to evaluate the effectiveness of itsprograms.

The Commissioner’s restructuring planacknowledges that deficiencies exist in IRS’computer systems. In that regard, the planpoints out that the new business practicesand organizational structure provide a basisfor completing and implementing themodern systems outlined in the technologymodernization blueprint. One challenge for



Issues

IRS is to ensure that the systems developmentplans under the modernization blueprint andrestructuring plan are aligned. In addition,for the Commissioner’s restructuring plan tobe successful, it is also critical that thelong-standing internal control and systemweaknesses related to financial managementbe fully addressed and corrected.

Key Contact James R. White, DirectorTax Policy and Administration IssuesGeneral Government Division(202) [email protected]

The Need to AddressManagement andTechnicalWeaknesses inSystemsModernizationEfforts

For more than a decade, IRS has beenattempting to modernize its outdated,paper-intensive approach to tax returnprocessing. We reviewed IRS’ management ofits systems modernization program and, in1995, reported on serious management andtechnical weaknesses that jeopardized theprogram’s successful completion. At thattime, we made recommendations to correctthe weaknesses and designated themodernization program as a high-riskinformation technology investment. Sincethen, we have reviewed IRS’ actions toaddress our recommendations and



Issues

strengthen its systems modernizationcapability, and we have made additionalrecommendations to aid in this endeavor.

IRS has made progress in strengthening itsmodernization capability, and according toIRS’ Chief Information Officer (CIO), theService plans to (1) fully implement ourrecommendations before it begins buildingmodernized systems and (2) reexamine itsmodernization blueprint in light of ongoingIRS organizational restructuring and the IRS

Restructuring and Reform Act of 1998.However, until our recommendations havebeen fully implemented, IRS lacks the abilityto effectively modernize its tax systems.

IRS’ Efforts to AddressLong-Standing SystemsModernizationManagement andTechnical Weaknesses

In July 1995, we reported that IRS (1) did nothave a comprehensive business strategy toreduce paper tax return filings in acost-effective manner and (2) had not fullydeveloped and put in place the requisitemanagement, software development, andtechnical infrastructure necessary tosuccessfully implement its ambitioussystems modernization. We also reportedthat IRS lacked an overall systemsarchitecture to guide the modernization’sdevelopment and evolution.



Issues

At that time, we made over a dozenrecommendations to address theseweaknesses, including calling for IRS to(1) implement processes for investmentmanagement; (2) implement disciplinedprocedures for software development; and(3) complete and enforce an integratedsystems architecture, including data andsecurity subarchitectures. IRS agreed withour recommendations.

In 1996, because IRS had made progress inimplementing our recommendations and tominimize the risk of IRS’ investing in systemsbefore the recommendations wereimplemented, we suggested that theCongress limit IRS’ information technologyspending to certain cost-effective categories.In the fiscal year 1997 Omnibus ConsolidatedAppropriations Act, the Congress directedIRS to, among other things, establish aschedule for implementing ourrecommendations and submit anarchitecture for the modernization byMay 15, 1997.

Since then, IRS has taken actions to addressthese challenges. For example, IRS hired anew CIO and created an investment reviewboard to select, control, and evaluate itsinformation technology investments.



Issues

Additionally, IRS provided the first two levelsof a four-level modernization blueprint to theCongress on May 15, 1997. Also, inMarch 1998, IRS released a request forproposals for a prime systems integrationservices contractor. This contractor, inpartnership with IRS, was to be responsiblefor defining key components of the blueprintand for acquiring and implementingmodernized tax systems in accordance withthe blueprint. IRS awarded the contract inDecember 1998.

In early 1998, we reported that the blueprintwas a good first step that provided a solidfoundation from which to define the level ofdetail and precision needed to effectivelyand efficiently build a modernized system ofinterrelated systems. The Commissioneragreed with our findings. Subsequently, theCongress limited IRS’ ability to obligateinformation technology investment fundsuntil certain conditions were met. Theseconditions included that IRS was to submit tothe Congress for approval an expenditureplan that (1) implements the blueprint,(2) complies with requirements of the Officeof Management and Budget’s (OMB) systeminvestment guidelines, (3) passes reviewsand approvals by OMB and Treasury’s IRS



Issues

Management Board, and (4) is reviewed byus.

IRS Plans to ImplementOur Recommendations

In January 1998, the Commissioner ofInternal Revenue announced plans forrestructuring IRS’ organization. However, thisrestructuring will affect the very businessprocesses and requirements that theblueprint is based on, thus raising questionsabout the blueprint’s validity andapplicability. Additionally, IRS has continuedto follow through with its plans to usecontractors to modernize its systems, ratherthan follow its past practice of developingthe systems itself. However, as we reportedin our 1997 high-risk report on IRS, increasingthe use of contractors will not automaticallyincrease the likelihood of successfulmodernization because IRS has historicallylacked the capability to effectively manageits contractors. For this strategy of acquiringmodernized systems, rather than developingthem in-house, to be successful, IRS wouldfirst have to strengthen and improve itsability to manage contractors. Further,Treasury’s fiscal year 1999 annualperformance plan, submitted under theResults Act, only describes IRS’modernization-related activities in generalterms. For example, the plan states that IRS

will conduct software maturity activities and



Issues

establish and maintain systems life cycleprocesses to manage the prime systemsmodernization contractor. These generalstatements do not provide objective,quantifiable, and measurable performancegoals and do not specify measures forassessing progress toward the goals, asrequired by the Results Act.

In December 1998, IRS awarded its primecontract for systems modernization.According to IRS’ CIO, the Service plans topartner with the prime contractor tocomplete the modernization blueprint, as werecommended, and to account for(1) changes in system requirements andpriorities caused by IRS’ organizationalrestructuring and (2) changes toaccommodate new technology and toimplement the IRS Restructuring and ReformAct of 1998 requirements. Additionally, theCIO stated that IRS plans to establishdisciplined life cycle management processesand structures and mature softwaredevelopment and acquisition capabilitiesbefore it begins building modernizedsystems.

Because of the importance and high cost ofthe modernization and the fact that our keyrecommendations remain open, we plan to



Issues

continue evaluating IRS’ ability and readinessto effectively modernize its systems and willcontinue to categorize IRS’ systemsmodernization effort as a high-risk program.

Key Contact Jack L. Brock, Jr., DirectorGovernmentwide and Defense Information SystemsAccounting and Information Management Division(202) [email protected]

The Need toContinue to AddressFinancialManagementWeaknesses

In fiscal year 1997, IRS received anunqualified opinion on its custodial financialstatements for the first time since we beganauditing them in fiscal year 1992.1 Thisachievement was largely attributable to IRS’efforts to improve significant internalcontrols in critical areas, such as thereconciliation of tax receipts and refundsbetween its systems and those of FMS.However, IRS had to use extensive ad hocprocedures to enable it to prepare auditablefinancial statements. This resulted from IRS’

1The custodial financial statements did not report on activitiesrelated to IRS’ administrative costs that were funded byappropriations and reimbursements from other agencies, state andlocal governments, and the public. These activities were reportedseparately in IRS’ administrative financial statements, which wereaudited by the Treasury Office of Inspector General.



Issues

inability to rely on its general ledger systemto support its financial statements becauseof its deficiencies. A core purpose of ageneral ledger system is to support thepreparation of financial statements. Tocompensate for deficiencies, IRS usesspecialized computer programs to extractinformation from its master files—its onlydetailed database of taxpayerinformation—to derive amounts to bereported in the financial statements.However, the amounts produced by thisapproach needed material audit adjustmentsto produce reliable financial statements. Inour audit report on IRS’ fiscal year 1997financial statements, we cited long-standingmaterial weaknesses in IRS’ financialmanagement that prevented it from routinelygenerating timely and reliable information asa tool for managing IRS operations or as abasis for preparing financial statements.These weaknesses also affect IRS’ ability toadequately manage its financial operations,expose the federal government andtaxpayers to financial loss, and create undueburden to taxpayers.

IRS’ primary internal control weaknessesrelate to tax receipts, taxpayer data, andunpaid tax assessments. IRS initiatedcorrective actions designed to address some



Issues

of the pervasive financial managementproblems we have reported since 1992.However, many of IRS’ initiatives—whichinclude its systems modernization effort andplans to improve its financial reportingcapabilities—are long term and, according toIRS’ plans, may take 10 years or more ofsustained effort to fully implement. Someother issues can be resolved in the next fewyears by improving policies, procedures, andinternal controls. These weaknesses in IRS’financial management systems and internalcontrols reflect the extent to which IRS stillhas extensive work ahead to fully addressand resolve its financial management andinternal control deficiencies. Therefore, IRS’financial management continues to bedesignated as a high-risk area.

Internal ControlWeaknesses RegardingTax Receipts andTaxpayer Data

IRS’ controls over tax receipts and taxpayerdata do not adequately reduce thevulnerability of the federal government andtaxpayers to loss from the theft andinappropriate disclosure of proprietarytaxpayer information. For example, receiptswere left in unrestricted areas accessible toindividuals not authorized to handle receipts.In addition, employees were hired andworked in positions requiring the handling ofcash, checks, or sensitive taxpayerinformation before IRS received the results of



Issues

their background or fingerprint checks. Ofthe 80 thefts that IRS investigated at servicecenters from January 1995 to July 1997, 12(15 percent) were committed by individualswho had previous arrest records orconvictions that were not identified beforetheir employment. In addition, single,unarmed couriers in ordinary civilianvehicles were used to transport IRS depositstotaling hundreds of millions of dollars tothe depository institutions during the peakfiling season. One courier left a deposittotaling more than $200 million unattendedin an open vehicle while he returned to theservice center. At one district office, IRS

relied on a bicycle messenger to deliver dailydeposits ranging from more than $1 millionduring the nonpeak season to more than$100 million during the peak season.

Although receipts and taxpayer informationwill always be vulnerable to theft, IRS has aresponsibility to protect the government andtaxpayers from such losses. InNovember 1998, we made recommendationsto IRS that would address the internal controlweaknesses that our work identified,including prohibiting new employees frombeing assigned to process receipts untilfingerprint checks are received and reviewedby management, enhancing physical security



Issues

over receipts and taxpayer data, andreviewing the level of security providedreceipts and taxpayer data in transit todepository institutions. IRS generally agreedwith our recommendations and hasindicated that it plans to address most of thecontrol deficiencies relating to tax receiptsand taxpayer data we identified.

Internal ControlWeaknesses OverUnpaid Tax Assessments

IRS does not have a detailed listing orsubsidiary ledger that tracks andaccumulates unpaid tax assessments on anongoing basis. The lack of a subsidiaryledger impairs IRS’ ability to effectivelymanage its unpaid assessments. Thisweakness has resulted in IRS’ inappropriatelydirecting collection efforts against taxpayersafter amounts owed had been paid. In onecase, three taxpayers had multimillion dollartax liabilities and liens placed against theirproperty, although the taxes had actuallybeen paid and two of the individuals wereowed refunds. In addition, IRS must rely oncomputer programs to extract data from itsmaster files to prepare its financialstatements, a process that necessitated tensof billions of dollars in adjustments tocorrect misclassifications and eliminateduplicate transactions in fiscal year 1997. IRS

also lacks adequate documentation tosupport its unpaid assessments. For



Issues

example, the estate case files we reviewedgenerally did not include audited financialstatements or an independent appraisal ofthe estate’s assets—information that wouldgreatly assist in determining potentialcollectibility and potential underreporting inthese cases. These weaknesses hinder IRS’ability to effectively manage its unpaidassessments by contributing to IRS’ inabilityto focus its collection efforts on thoseaccounts exhibiting the greatest degree ofcollection potential.

During fiscal year 1998, we issued a reportdiscussing these issues in detail andproviding recommendations to addressthem. IRS has agreed to consider studyingways of addressing these problems, pendingimplementation of its long-term systemenhancements.

Key Contact Gregory D. Kutz, Associate DirectorGovernmentwide Accounting and Financial Management IssuesAccounting and Information Management Division(202) [email protected]



Issues

The Need to AddressProblems Relating toFederal TaxesReceivable andOther UnpaidAssessments

Each year, IRS collects tax revenue to fundgovernment operations. In fiscal year 1998,IRS collected over $1.7 trillion. However, IRS

has not been able to collect a significantportion of the amount of federal taxes itidentifies as due the government. Thisproblem has been compounded by seriousfinancial management system deficienciesand the lack of sound, reliable information,which impede IRS’ efforts to collect unpaidtax assessments.

As of September 30, 1997, IRS had identified$214 billion in unpaid tax assessments thatwere due to the federal government. Theseassessments, which have historically beenreferred to as IRS’ accounts receivable,consist of (1) $90 billion in taxes due fromtaxpayers for which IRS can support theexistence of a federal tax receivable throughtaxpayer agreement or a favorable courtruling;2 (2) $48 billion in complianceassessments for which neither a taxpayernor a court has affirmed that the amountsare owed; and (3) $76 billion in write-offs,which represent unpaid assessments forwhich IRS does not expect further collectionbecause of such factors as the taxpayer’s

2When Statement of Federal Financial Accounting Standards No. 7became effective for fiscal year 1998, these transactions wereredefined and are now appropriately referred to as federal taxesreceivable.



Issues

death, bankruptcy, or insolvency. Underfederal accounting standards, only the$90 billion in unpaid assessments that IRS

can support by taxpayer agreement orfavorable court ruling represent federaltaxes receivable. For the first time since webegan auditing IRS, the agency has reported areasonable estimate of the amount of federaltaxes receivable it expects to ultimatelycollect. This amount, $28 billion as ofSeptember 30, 1997, represents just31 percent of the total federal taxesreceivable and just 13 percent of the totalbalance of unpaid assessments.

Our work has shown that this low level ofexpected collectibility is a reasonableestimate given the composition of IRS’ unpaidassessments. The $76 billion in write-offs areamounts primarily due from bankrupt andinsolvent taxpayers, including billions indelinquent taxes that are owed by failedfinancial institutions and thus have virtuallyno hope of collection. The $48 billion incompliance assessments are primarilyamounts that are owed by individuals andbusinesses for income and payroll taxes.However, IRS’ future prospects of collectingthese amounts are low because (1) thesetaxpayers have not acknowledged the debtand (2) in many instances these amounts are



Issues

derived through IRS’ various compliance andenforcement programs and may notultimately represent the amounts actuallyowed by the taxpayer.

This leaves $90 billion in unpaid assessmentsthat represent federal taxes receivable. Yet,our work has shown that $62 billion (68percent) of this balance is also not likely tobe collectible. This $62 billion is owedprimarily by taxpayers who are(1) experiencing financial hardships,(2) undergoing bankruptcy, or (3) unwillingto pay some or all of the amounts they owe.Only $28 billion of the $90 billion of federaltaxes receivable represent amounts wherecollection is likely based on the financialstatus and willingness of the taxpayers topay some or all of the amounts they owe.However, despite these problems, IRS’ goal isto pursue collection of all federal taxes due.

Striving to close the gap between the amountof tax revenue owed the government and theamount likely to be collected is a majorchallenge for IRS. However, IRS’ long-standingsystems deficiencies make this challengeeven more difficult. IRS has continually triedto manage its federal taxes receivable andother unpaid assessments with systems thatare unable to provide timely, useful, and



Issues

reliable information on the status oftaxpayers’ accounts. Consequently, IRS doesnot have the complete and reliableinformation it needs to effectively focuscollection efforts on accounts with thegreatest collection potential. This is criticalgiven that 87 percent of IRS’ estimated unpaidassessments, including the $62 billion infederal taxes receivable, have little or nopotential for collection. Additionally,because IRS’ systems are not integrated withone another, they create high rates of errorin taxpayers’ accounts and, in some cases,create unnecessary taxpayer burden. Theseburdens result in costs to both the taxpayerand IRS in resolving the errors caused bythese system deficiencies. Systemweaknesses and the lack of adequate dataalso have an impact on IRS’ ability to identifydelinquencies so that it can target itscompliance and enforcement initiatives.These deficiencies impede IRS’ efforts todetect noncompliant taxpayers earlier,thereby increasing the likelihood that suchamounts, if and when detected, will yieldlittle collection.

We have provided IRS with a series of long-and short-term recommendations to assist itin addressing the serious financialmanagement issues that are associated with



Issues

federal taxes receivable and other unpaidassessments. However, these issues andtheir implications continue to expose thegovernment to significant loss of taxrevenue. Consequently, we believe federaltaxes receivable should continue to bedesignated as a high-risk area for thegovernment.

Key Contact Gregory D. Kutz, Associate DirectorGovernmentwide Accounting and Financial Management IssuesAccounting and Information Management Division(202) [email protected]

The Need to Assessthe Impact of Effortsto Reduce FilingFraud

Since we first identified filing fraud as ahigh-risk area in February 1995, IRS has takenseveral steps in an attempt to reduce itsexposure to filing fraud. For example, IRS

(1) expanded the number of up-front filtersin the electronic filing system that isdesigned to screen electronic submissionsfor problems, such as missing or incorrectSocial Security numbers (SSN), to preventreturns with those problems from being filedelectronically; (2) strengthened the processfor checking the suitability of persons



Issues

applying to participate in the electronic filingprogram as return preparers or transmittersby requiring fingerprint and credit checks;(3) revised the computerized formulas usedto score all tax returns to determine theirfraud potential; (4) upgraded the ElectronicFraud Detection System to give staff in theQuestionable Refund Program betterresearch capabilities; and (5) placed anincreased emphasis on validating SSNs onfiled paper returns.

A significant change in IRS’ return processingprocedures in 1997 enhanced its ability to‘deal with paper returns involving missing orincorrect SSNs. That year, as legislativelyauthorized, IRS began treating missing orincorrect SSNs as math errors, which wassimilar to the way it had historically handledcomputational errors. That meant that IRS

could adjust refunds claimed by personsfiling paper returns if the required SSNs weremissing or incorrect. Before 1997, IRS couldnot make adjustments to a refund involving amissing or incorrect SSN until it had gonethrough more time-consuming andlabor-intensive examination procedures. Aswe reported in 1996, those procedureslimited the number of cases IRS could workand resulted in millions of questionablerefunds being issued.



Issues

Most of the fraudulent refund claimsidentified by IRS involved the Earned IncomeCredit (EIC), which is a refundable tax creditthat is available to low-income, workingtaxpayers. In April 1997, IRS released theresults of its study of EIC noncompliance ontax returns filed in 1995 (i.e., tax year 1994returns). The study showed that of the$17.2 billion in EIC claims on tax year 1994returns, about $4.4 billion (25.8 percent) wasestimated to be overclaims. How much ofthis $4.4 billion involved fraud, as opposedto less serious noncompliance, is unknown.The returns included in IRS’ study were filedbefore IRS was given increased authority todeal with missing or invalid SSNs. However,even after adjusting for the potential effectof that increased authority, IRS determinedthat the rate of EIC noncompliance wouldstill be over 20 percent.

Our work relating to the audit of IRS’financial statements also showed that IRS’internal controls are not adequate to ensurethat only valid tax refunds are disbursed. Asa result, IRS has sometimes issued refundsthat were duplicated, based on erroneous orfraudulent tax returns, or payable to IRS

employees who had manipulated IRS’ recordsto generate invalid refunds payable tothemselves.



Issues

In response to IRS’ findings, the Congresspassed legislation that gave IRS (1) newenforcement tools and (2) additional fundingthat was specifically designated forEIC-related activities. With those new toolsand funds, IRS, in 1998, began implementing a5-year EIC compliance initiative that involvedseveral components directed at issues thatwere identified by IRS’ study as majorsources of EIC noncompliance. For example,IRS initiated enforcement efforts that focusedon (1) cases where an EIC-qualifying child’sSSN was used on more than one tax return forthe same tax year and (2) returns filed bycertain EIC claimants who claimed thehead-of-household filing status. IRS alsobegan a study of noncompliance among EIC

claimants who report income fromself-employment, increased staffing in theQuestionable Refund Program, and issuedprocedures requiring tax return preparers toexercise due diligence in preparing returnsinvolving EIC claims.

As we reported in July 1998, most of IRS’efforts under the EIC compliance initiativehad not progressed far enough at the timewe completed our audit work for us to judgetheir effectiveness. To help assess the overalleffectiveness of its efforts, IRS plans to doannual studies of EIC compliance starting



Issues

with a baseline study of returns filed in 1998(i.e., tax year 1997 returns), which iscurrently under way. Using the results ofthat baseline study and subsequent years’studies, IRS plans to measure the rate ofcompliance and improvement in that rateover time. Those annual studies shouldeventually provide the necessary data toassess the impact of IRS’ efforts on reducingthe incidence of noncompliance associatedwith the EIC. Until sufficient data on theresults and impact of IRS’ efforts areavailable through these studies and bettercontrols are instituted through systemsmodernization, which is still in the planningstages, filing fraud should remain a high-riskarea.

Key Contacts James R. White, DirectorTax Policy and Administration IssuesGeneral Government Division(202) [email protected]



Issues

Gregory D. Kutz, Associate DirectorGovernmentwide Accounting and Financial Management IssuesAccounting and Information Management Division(202) [email protected]

The Need toImprove SecurityControls OverInformation Systems

For the past 5 years, we have reportedsignificant and long-standing weaknesseswith controls over IRS’ information systems.Although IRS has made progress in improvingcomputer security, weaknesses in IRS’computer security controls continue to placeIRS’ automated systems and taxpayer data atserious risk to both internal and externalthreats. Such weaknesses could result in thedenial of computer services or in theunauthorized disclosure, modification, ordestruction of taxpayer data. Theseweaknesses affect IRS’ ability to controlphysical access to its facilities and sensitivecomputing areas, control electronic accessto sensitive taxpayer data and computerprograms, prevent and detect unauthorizedchanges to taxpayer data or computersoftware, and restore essential IRS operationsfollowing an emergency or natural disaster.

Similar to receipts and hard-copy taxpayerdata, the need is clear for IRS to implement



Issues

strong and effective security over taxpayerdata contained in its information systems. IRS

relies on its information systems to annuallyprocess more than 200 million taxpayerreturns, account for over $1.7 trillioncollected in tax revenues, and issue over$150 billion in tax refunds. In addition, IRS

systems contain sensitive taxpayerinformation, such as name, address, SSN, anddetails of taxpayers’ financial holdings. Aswe have previously reported, similarinformation has been used to commitfinancial crimes and identify fraudnationwide. Commonly reported financialcrimes include using someone’s personalinformation to fraudulently establish credit,run up debt, and take over and depletetaxpayers’ financial accounts.

We previously recommended that IRS

complete implementation of an effectiveservicewide computer security managementprogram and establish the appropriatesafeguards and control measures toadequately protect IRS’ tax processingoperations and taxpayer data. IRS agreedwith our recommendations and stated thatour conclusions and recommendations wereconsistent with its ongoing actions toimprove systems security. Until strongersecurity controls are in place over its



Issues

information systems, IRS’ tax processingoperations remain vulnerable to disruption.Furthermore, the sensitive taxpayer datamaintained by IRS could be disclosed tounauthorized individuals, modified andimproperly used, or destroyed, therebyexposing taxpayers to financial crimes suchas identity fraud.

Key Contact Robert F. Dacey, DirectorConsolidated Audit and Computer Security IssuesAccounting and Information Management Division(202) [email protected]

The Need toConfront theChallengesPresented by theYear 2000 ComputerProblem

IRS, like other Treasury offices and bureaus,is highly dependent on informationtechnology to carry out its mission. Most ofTreasury’s information systems were notdesigned to read dates beyond December 31,1999. As a result, IRS and the other Treasuryoffices and bureaus are in the midst of amassive effort to make their informationsystems Year 2000 compliant to avoidsignificant disruptions to their operations.



Issues

IRS accounts for the bulk of Treasury’s Year2000 undertaking. Of the estimated$1.9 billion earmarked for Treasury’s Year2000 program, $1.4 billion has beendesignated for IRS. These cost estimatesinclude work needed for IRS’ mission-criticalinformation systems, telecommunicationsnetworks, and buildings. IRS’ program alsorepresents one of the largest civilian Year2000 efforts. At the outset, IRS facedsignificant challenges in making its systemsYear 2000 compliant. In addition to the sizeof its effort, IRS lacked a comprehensiveinventory of information system assets,particularly of its information systemsinfrastructure (i.e., systems software,hardware, and telecommunicationsnetworks), and IRS’ CIO did not control allmission-critical assets.

In a June 1998 report, we said that IRS hadmade more progress in fixing its applicationsthan its infrastructure. Also, we said that twomajor Year 2000 system replacement effortswere experiencing schedule slippages. Inaddition, we identified two risk areas for IRS’Year 2000 effort—that is, the absence of anintegrated master schedule showing theinterdependencies among the many Year2000 efforts and a limited approach tocontingency planning.



Issues

IRS has begun taking action to address ourconcerns about a master schedule. We madeno recommendations on that risk area in ourJune 1998 report. Concerning the secondrisk area, we recommended that theCommissioner take steps to broaden thecontingency planning effort to help ensurethat IRS had adequately assessed thevulnerabilities of its core business processesto potential Year 2000 system failures.Specifically, we recommended that theCommissioner (1) solicit input from thebusiness functional areas to identify corebusiness processes and identify thoseprocesses that must continue in the event ofa Year 2000 failure, (2) map IRS’mission-critical systems to those corebusiness processes, (3) determine the impactof information system failures on each corebusiness process, (4) assess existingcontingency plans for their applicability topotential Year 2000 failures, and (5) developand test contingency plans for core businessprocesses if existing plans are notappropriate.

Since we issued our report, IRS has beentaking actions to address ourrecommendations. IRS had originally plannedto have its first set of contingency plans byDecember 15, 1998; however, according to



Issues

its officials, IRS did not meet that milestone.We plan to continue monitoring IRS’ progressin developing contingency plans. If IRS isunable to make its mission-critical systemsYear 2000 compliant, IRS could be renderedunable to properly and timely process taxreturns, issue refunds, correctly calculateinterest and penalties, effectively collecttaxes, or prepare accurate financialstatements and other financial reports.

Key Contact James R. White, DirectorTax Policy and Administration IssuesGeneral Government Division(202) [email protected]

Customs’FinancialManagementRemoved Fromthe High-RiskList, butChallengesRemain

Since Customs was originally added to thehigh-risk list, it has developed andimplemented actions to address theproblems that contributed to its designationas a high-risk area. Because Customs’management has made progress inaddressing its financial managementweaknesses, especially those related toassessing and collecting revenues, we areremoving Customs financial managementfrom the high-risk list. However, similar tomany other federal agencies, Customs still



Issues

faces certain challenges that are primarilyrelated to controlling access to sensitive datathat are maintained in its automated systemsand maintaining complete and reliableinformation in its core financial systems.

SignificantImprovements atCustoms Results inRemoval From theHigh-Risk List

In 1991, we added Customs as a high-riskarea because it had major weaknesses in itsmanagement and organizational structurethat diminished its ability to detect tradeviolations on imported cargo; collectapplicable duties, taxes, fees, and penalties;control financial resources; and report onfinancial operations. In February 1995, wereported that Customs had taken severalactions in an effort to reduce risks in thegeneral management area. For instance,Customs revised its 1993 5-year plan toclarify and set priorities for its tradeenforcement objectives; improved controlsover the identification and collection ofduties, taxes, fees, and penalties; andembarked on a reorganization plan tocorrect institutional problems that wererelated to cooperation and coordinationamong its programmatic units and to ensureconsistency in policy implementation.

We have made several recommendations toCustoms to help promote better financial



Issues

management and strengthen its controlsover assessing and collecting revenues. Wemade these recommendations realizing thatmost of these problems would requirelong-term efforts to effectively plan andimplement solutions to address thelong-standing root causes. Over the pastseveral years, Customs has continuallyshown a commitment to improving itsfinancial management by implementingsignificant corrective actions to address ourrecommendations. Actions that have beenimplemented include statistically samplingcompliance of commercial importationsthrough ports of entry to better focusenforcement efforts; implementing acompliance measurement program (CMP) forbonded warehouses;3 programming theAutomated Commercial System in fiscal year1995 to detect any drawback claims4 thatexceeded the total amount of duty and taxpaid on related import entries; andaggressively pursuing the collection ofdelinquent receivables. Another indicator ofCustoms’ progress in the financialmanagement area is its ability to receive

3Foreign merchandise can be placed into bonded warehouseswithout the assessment of duties, taxes, and fees on the goods untilthe goods are released into the commerce of the United States.

4Drawback claims are refunds of duties and taxes paid on importedgoods that are subsequently exported or destroyed.



Issues

unqualified audit opinions on its fiscal years1996 and 1997 financial statements.

In addition to these actions, according toCustoms officials, Customs has severalinitiatives under way to improve its controlsover assessing and collecting revenues. Forexample, in September 1998, Customs beganimplementing a nationwide in-bondshipments CMP that is intended to providesome assurance over compliance of in-bondshipments through random examinations ofsuch items.5 The program involved systemchanges for in-bond shipments as well as theaddition of compliance measurementinspections for randomly selected in-bondshipments. Additionally, Customs plans toimplement a CMP for foreign trade zones6 andis reviewing drawbacks and drawbackclaims for quality assurance.

Given the significant improvement efforts,including those related to assessing and

5In-bond shipment refers to goods that are authorized, by law, to bemoved within the United States before release or export withoutappraisement or classification.

6Foreign trade zones are geographic areas, designated inaccordance with the Foreign Trade Zone Act of 1934, wheremerchants may bring domestic or foreign merchandise for storage,exhibition, manipulation, manufacturing, assembly, or otherprocessing without subjecting them to formal Customs entryprocedures and payment of duties. Foreign goods held in foreigntrade zones are not assessed duties, taxes, or fees until the goodsare released into the commerce of the United States.



Issues

collecting revenues, undertaken by Customssince it was first added to the high-risk list,we are removing our high-risk designation.

Weaknesses Relatingto Internal ControlsOver Data inAutomated Systems

Similar to many other federal agencies,Customs still faces certain challenges thatare primarily related to controlling access tosensitive data that are maintained in itsautomated systems and maintainingcomplete and reliable information in its corefinancial systems. In its March 1998 auditreport on Customs’ fiscal year 1997 financialstatements, the Treasury Office of InspectorGeneral (OIG) reported the following materialweaknesses in internal controls:7 (1) corefinancial management systems need to beimproved and integrated and (2) adherenceto systems development standards forcertain financial management systems waslacking. The Treasury OIG also identifiedreportable conditions, including(1) computer access vulnerabilities thatcould allow for unauthorized modificationand deletion of production programs,systems software, and data in Customs’systems and (2) disaster recovery

7A material weakness is a condition in which the design oroperation of one or more of the internal control components doesnot reduce to a relatively low level the risk that errors orirregularities in amounts that would be material to the financialstatements may occur and not be detected promptly by employeesin the normal course of performing their duties.



Issues

capabilities that were in need ofimprovement.8

We and others have made severalrecommendations to Customs that arerelated to the access of its computer systemsand to the improvement and integration ofits core financial management systems.According to its officials, Customs has thefollowing initiatives under way to addressthese recommendations: (1) implementingsystem enhancements to its Seized Assetsand Case Management Tracking System(SEACATS); (2) continuing its efforts toreplace all existing nonrevenue-relatedfinancial management systems with a singleintegrated system; (3) taking additionalcorrective actions on computer securitycontrol weaknesses, such as completingperiodic reviews of user access capabilitiesand limiting users’ access to operatingsystem capabilities; (4) developing plans toconduct a business impact and recoveryrequirements analysis to identify criticalsystems and applications in the event of a

8Reportable conditions involve matters coming to the auditor’sattention relating to significant deficiencies in the design oroperation of internal controls that, in the auditor’s judgment, couldadversely affect an entity’s ability to (1) safeguard assets againstloss from unauthorized acquisition, use, or disposition; (2) ensurethe execution of transactions in accordance with management’sauthority and in accordance with laws and regulations; or(3) properly record, process, and summarize transactions to permitthe preparation of the financial statements or to maintainaccountability for assets.



Issues

systems disaster; and (5) pending the receiptof funding, establishing a disaster recoverysite in the year 2000.

We believe that Customs’ improvementefforts are appropriately focused, but itsmanagement must provide the continuingsupport needed to ensure that theseimportant actions are properly implementedand that related problems do not recur. Aspart of its annual audit of Customs’ financialstatements, the Treasury OIG plans to updatethe status of Customs’ internal controlweaknesses. Also, we will continue tomonitor Customs’ progress in addressingthese areas.

Weaknesses Relatingto the Developmentof Customs’AutomatedCommercialEnvironment System

Our recent work shows that an incompletesystems architecture has hindered Customs’ability to manage information technologyinvestments, particularly large,mission-critical systems such as itsAutomated Commercial Environment (ACE)system. Pending funding, Customs plans touse ACE to replace the current system usedfor collecting, disseminating, and analyzingimport-related data and ensuring the propercollection and allocation of revenues totalingabout $19 billion annually. Customs initiatedACE in 1994. In January 1998, Customs



Issues

estimated that it would cost $1.15 billion todevelop, operate, and maintain ACE over the15-year period between fiscal years 1994 and2008. As of the end of fiscal year 1998,Customs reported that it had spent$62.1 million on ACE.

In May 1998, we reported that Customs’incomplete enterprise information systemsarchitecture and limitations in its plans forenforcing compliance with an architecture,once one is completed, impair the agency’sability to effectively and efficiently developor acquire operational systems, such as ACE,and to maintain existing systems.Furthermore, because Customs’ incompletearchitecture is not based on a thoroughunderstanding of its enterprisewidefunctional and information needs, Customsdid not have adequate assurance that itsinformation systems, such as ACE, wouldoptimally support its ability to (1) fullycollect and accurately account for billions ofdollars in annual federal revenue and(2) allow for the expeditious movement oflegal goods and passengers across ournation’s borders while preventing anddetecting the movement of illegal goods andpassengers. We recommended that Customsfollow through on plans to complete itsenterprise information systems architecture



Issues

and require that information systems complywith the architecture, unless a thoroughanalysis supports a waiver. Customs agreedwith our recommendations and is in theprocess of completing its enterprise systemsarchitecture and instituting a requirementthat systems comply with the architecture.

Key Contacts Gary T. Engel, Associate DirectorGovernmentwide Accounting and Financial Management IssuesAccounting and Information Management Division(202) [email protected]

Jack L. Brock, Jr., DirectorGovernmentwide and Defense Information SystemsAccounting and Information Management Division(202) [email protected]

FinancialManagementChallengesAffecting FMS

FMS is the government’s financial manager,central disburser, and collections agency aswell as its accountant and reporter offinancial information. FMS faces challenges inaddressing financial management issues



Issues

related to preparation of the government’sconsolidated financial statements (CFS),computer system security, and FMS’implementation of its requirements underthe Debt Collection Improvement Act of1996 (DCIA). We will continue to monitor FMS’efforts to implement its requirements underDCIA. In addition, we are evaluating FMS’efforts to address the other matters duringour ongoing audit of the government’s fiscalyear 1998 CFS.

The Need to AddressIssues Related toPreparing ReliableConsolidatedFinancial Statementsfor the Government

In our March 1998 audit report on thegovernment’s fiscal year 1997 CFS, wereported that problems with fundamentalrecordkeeping, incomplete documentation,and weak internal controls prevent thegovernment from accurately reporting alarge portion of assets, liabilities, and costs.These deficiencies, as described in thefollowing paragraphs, affect the reliability ofthe CFS and much of the underlyinginformation. As preparer of the CFS, FMS has akey responsibility to work with agencies toaddress some of these problems, includingthe government’s inability to (1) properlyaccount for billions of dollars of basictransactions, especially those betweengovernmental entities; (2) ensure that theinformation in the CFS is consistent with



Issues

agencies’ financial statements; and(3) ensure that all disbursements areproperly recorded.

To make the CFS balance, FMS recorded a net$12 billion item on the Statement of Changesin Net Position, which it labeledunreconciled transactions. FMS attributedthis out-of-balance condition, which is thenet of more than $100 billion in unreconciledtransactions, to the government’s inability toproperly identify and eliminate transactionsbetween federal government entities and toagency adjustments that affected netposition. Agencies’ accounts can be out ofbalance with each other, for example, whenone or the other of the affected agenciesdoes not properly record transactions withanother agency or the agencies record thetransactions in different time periods. Theseout-of-balance conditions can be detectedand corrected by instituting procedures forreconciling transactions between agencies.Generally, such reconciliations are notperformed. These unreconciled transactionsresult in material misstatements of assets,liabilities, revenues, and/or costs. Untileffectively corrected, this problem couldcontinue to prevent us from being able toform an opinion on the reliability of the CFS.



Issues

The government cannot ensure that theinformation in the CFS is consistent withagency financial statements. FMS relies onagencies to submit data needed to preparethe CFS; however, (1) several agencies wereunable to provide assurance that amountssubmitted to FMS agreed with their agencyfinancial statements; (2) many agenciesneeded to make significant subsequentadjustments to their submissions in an effortto properly classify amounts in the CFS; and(3) we found misstatements, which FMS

corrected, that totaled several hundredbillion dollars in agency-submittedinformation and were primarily due tomistakes in coding, incorrect use of generalledger accounts, and misallocations amongthe net cost categories.

In our March report, we noted that severalmajor agencies were not effectivelyreconciling their records with FMS’ records ofcash disbursements, resulting in thegovernment’s being unable to ensure that alldisbursements are properly recorded. In ourrelated report issued in October 1998, weindicated that auditors depend on FMS forsupport in fulfilling their reconciliationresponsibilities. Several agencies reportedproblems with FMS’ reconciliation processesand the assistance it provides agencies in



Issues

carrying out these processes. We found thatFMS had taken some steps that attempt toimprove the reconciliation process and wasconsidering other actions to improve itsassistance to agencies. We recommendedthat FMS work with agencies and providesufficient resources to ensure that thereconciliation problems are fully addressed.

FMS has developed action plans and isworking with us, OMB, and key agencies toaddress the noted problems. However, fixingthese problems represents a significantchallenge because of the size and complexityof the government and the discipline neededto comply with new accounting andreporting requirements. Meeting thesechallenges will require a significantcommitment of agencies’ and FMS’management as well as adequately trainedstaff and effective automated financialsystems.

The Need toImprove ComputerSecurity Controls

FMS faces considerable challenges inoverseeing the development,implementation, and operation of itsentitywide information systems, includingthe establishment of appropriate computercontrols. FMS maintains a wide array offinancial and information systems to help it



Issues

process and reconcile money disbursed andcollected by the various governmentagencies. Multiple banking, collection, anddisbursement systems are also used toprocess agency transactions, capturerelevant data, transfer funds to and fromTreasury accounts, and facilitate thereconciliation of these transactions. Inaddition to operating six regional financialcenters, FMS relies on a network ofcontractors and the Federal Reserve Banksto help carry out its financial managementresponsibilities.

In October 1998, we reported that generalcomputer control weaknesses at FMS and itscontractor data centers place the datamaintained in FMS’ financial systems atsignificant risk of unauthorized modification,disclosure, loss, or impairment.9 Theweaknesses we found included(1) inappropriate access to computerprograms, data, and equipment;(2) inadequate segregation of duties;(3) improper application softwaredevelopment and change control

9On July 31, 1998, we issued a “Limited Official Use” report to theSecretary of the Treasury detailing weaknesses in FMS’ generalcontrols. The October 1998 version of the excerpted report forpublic release, Financial Management Service: Areas forImprovement in Computer Controls (GAO/AIMD-99-10, Oct. 20,1998), provided a general summary of the weaknesses we identifiedand the recommendations we made.



Issues

procedures; and (4) incomplete or untestedservice continuity and contingency plans.

Weak controls over FMS’ computer systemsplace billions of dollars of payments andcollections at risk of fraud. Theseweaknesses existed primarily because FMS

does not have an effective entitywidecomputer security planning and managementprogram to ensure that (1) computercontrols are working and are reliable,(2) established policies and procedures arefollowed, (3) errors or fraudulenttransactions are detected in a timely manner,and (4) identified deficiencies are promptlycorrected.

Because of the large volume of transactions,the significance of the related amountsinvolved, and the number of weaknessesidentified at the FMS data centers visited, weconsider FMS’ general computer controlproblems a material weakness. According toTreasury officials, FMS has planned oralready taken actions to correct many of theindividual weaknesses that we identified andcommunicated to FMS management duringour testing. Although FMS is continuing tocorrect weaknesses we identified, FMS

cannot ensure on an ongoing basis thatweaknesses will be promptly detected and



Issues

corrected until it has an effective entitywidesecurity management program. Such aprogram, if implemented effectively acrossthe organization, would go a long waytoward helping FMS identify and promptlyaddress its computer control weaknesses.

The Need toEffectivelyImplement the DebtCollectionImprovement Act

DCIA provided significant opportunities forimproving the government’s ability to collectnontax delinquent debt. According toTreasury, the 24 executive branch agenciesthat are to comply with the Chief FinancialOfficers Act (CFO) of 1990 accounted for 99percent of federal expenditures and heldmore than 90 percent ($43.1 billion) offederal nontax debt that was more than 180days delinquent as of April 1998. Many ofDCIA’s provisions grant federal agenciesadditional authority to enhance their debtcollection practices, and several keyprovisions affect Treasury.10 Specifically,DCIA requires that agencies transfer most oftheir nontax debt that has been delinquentfor more than 180 days to Treasury forcollection through its offset orcross-servicing programs. Under the offsetprogram, Treasury uses amounts that thefederal government owes delinquent federal

10The Secretary of the Treasury assigned FMS primaryresponsibility to fulfill Treasury’s responsibilities under DCIA.



Issues

debtors to satisfy any of the debtors’delinquent debt owed to a federal agency.For example, an income tax refund paymentmade by IRS may be offset to pay a taxpayer’sdelinquent student loan debt. Cross-servicinginvolves the collection of debts throughcentralized debt collection centersestablished by Treasury or private collectionagencies. DCIA also requires the agencies toreport information to Treasury annually onthe debts owed to them and their efforts tocollect them. In turn, Treasury is required toreport this information to the Congressannually. By April 1999, Treasury is toprovide a one-time report to the Congress onthe collection services provided by theDepartment and other entities to collectfederal debts.

The Congress has raised concerns about theslow pace at which DCIA has beenimplemented by Treasury and the otheragencies with related responsibilities and themodest amounts actually collected sinceDCIA’s enactment. As we testified inJune 1998, our work at FMS has shown thatbecause of systems development problems,FMS does not have a system capable ofmatching all federal payments againstnontax delinquent debts owed thegovernment. In addition, FMS’ system



Issues

development problems have caused delaysin consolidating the administrative, taxrefund, and federal salary offset programs,and thus any debt collection efficienciesenvisioned by such a consolidation have notbeen realized. Our work has also identifiedareas in which actions by FMS are needed toreduce the risk of costly systemmodifications and further delays in theTreasury Offset Program (TOP). FMS hasinformed us that it has taken actions toaddress these areas. According to FMS

officials, enhancements to the TOP system toincorporate additional payment types (e.g.,Social Security benefit payments) areplanned or ongoing, and the system has beenmodified to accommodate the tax refundoffset program. However, FMS still faceschallenges in effectively fulfilling itsresponsibilities under DCIA, including furthermodifying the TOP system. A sustainedcommitment by FMS’ management will beneeded to ensure that these challenges aresuccessfully met.



Issues

Key Contact Gary T. Engel, Associate DirectorGovernmentwide Accounting and Financial Management IssuesAccounting and Information Management Division(202) [email protected]

DepartmentwideFinancialManagementWeaknesses

A key to Treasury’s ability to effectivelycarry out its mission is sound financialmanagement, including information aboutthe government’s finances that is routinelyavailable, accurate, and reliable. Withoutaccurate and reliable financial systems andinformation, Treasury cannot be sure thatthe information it has is sufficient to manageits day-to-day operations, measure results ofoperations, account for resources, collecttaxes and other debts owed the government,or safeguard assets. The requirements of theCFO Act and other legislation andrecommendations that we and others madehave provided the impetus for ongoingefforts to improve Treasury’s financialmanagement. Although progress has beenmade, some solutions to Treasury’s financialmanagement weaknesses require longerterm actions and technological changes toinformation systems. The Treasury OIG isevaluating Treasury’s efforts to address



Issues

these financial management weaknessesduring its ongoing audit of the Department’sfiscal year 1998 Departmentwide financialstatements. We will continue to monitorTreasury’s actions in these areas.

Weaknesses Exist inTreasury’s AssetForfeiture Program

Treasury’s asset forfeiture program was onour original high-risk list in 1990 because theprogram did not adequately focus onmanaging the items seized.11 We identifiedand reported, in December 1992, majoroperational problems related to themanagement and disposition of seized andforfeited property.12 We also reported thatCustoms had initiated corrective actions toaddress these problems. In ourFebruary 1995 high-risk report, we reportedthat although some management andsystems changes had improved programoperations, significant problems with seizedproperty management remained.

Since our 1995 report, Customs hasundertaken actions to address these

11The Congress established the Department of the TreasuryForfeiture Fund in October 1992 to supersede the Customs Fund.Customs is responsible for managing property seized by Treasurylaw enforcement agencies.

12Seized property includes, among other things, illegal drugs thathave no resale value to the government. These items are subject toforfeiture and are typically held by the seizing agency until they areapproved for destruction.



Issues

problems, including continuing to upgradeexisting storage facilities and implementinga new seized property inventory system, butsome challenges remain. In addition to thesechallenges, improvements are needed inTreasury’s accountability and reporting overseized and forfeited property. Furthermore,we have reported that the Department ofJustice and Treasury need to consolidatetheir separate, but similar, seized assetmanagement and disposition functions. As aresult of the remaining weaknesses, thesensitive nature of the asset forfeitureprogram, and the high visibility that theprogram has experienced, Treasury’s assetforfeiture program continues to bedesignated as a high-risk area.

Improvements Madein Customs’Accountability OverSeized and ForfeitedProperty, butChallenges Remain

We have made several recommendationsrelating to improving Customs’accountability and stewardship overproperty seized. Specifically, we haverecommended that Customs improve the(1) physical security at its locations that areused to store seized property, (2) reliabilityof the information maintained in its seizedproperty tracking system, and (3) controlsover access to critical and sensitive data andcomputer programs maintained in its



Issues

systems that account for seized property andlaw enforcement operations.

Customs has made significant enhancementsand is in the process of making otherenhancements to improve security overseized assets and the reliability ofinformation maintained in the informationsystems that it uses to track the seizedassets. However, Customs still needs to(1) obtain the remaining funding forimprovements to storage facilities,(2) complete enhancements to SEACATS, and(3) fully correct identified weaknesses in itscomputer controls over the system for lawenforcement activities.

In May 1997, we reported that Customs hadrecently built 6 new storage facilities inlocations it determined to be the mostvulnerable and had improved security at 28other locations by installing various securitydevices, such as motion sensors andsurveillance cameras. Also, Customs told usthat four storage facilities, which are to belocated in remote areas where significantamounts of illegal drugs are routinely seized,were in the preconstruction phase, butfunding for construction had not beenprovided. We also reported in May 1997 thatsecurity devices that had been procured to



Issues

upgrade numerous locations had not beenplaced in operation because the fundingnecessary to install them had not beenreceived.

More recently, Customs said that theGeneral Services Administration has builtone of the planned storage facilities and thatCustoms now leases it. However, Customs isawaiting the final approval of funding for theremaining three storage facilities. Also,according to Customs officials, Customs hasnow received partial funding for theinstallation of security devices, has installedthem at several locations, and is awaiting thefinal approval for the remaining funds.

Regarding the reliability of informationmaintained in the information systems usedto track seized assets, Customs hasundertaken several improvement efforts. Forexample, Customs has conducted annualnationwide physical inventories of its seizedproperty and implemented additionalpolicies and procedures. In addition,Customs has developed and implemented anew system called SEACATS. However, in itsfiscal year 1997 audit report, the TreasuryOIG reported that SEACATS experiencednumerous data conversion problems. As aresult, SEACATS did not contain accurate and



Issues

sufficient data that could be relied upon toprepare the required analysis of changes inforfeited and seized currency and propertydisclosures reported by Customs. To addressthe problems, Customs had to developpostconversion programs to process andcorrect erroneous data, conduct exhaustivecase file reviews, and perform a completephysical inventory. On the basis of thepreliminary results of work performed by theTreasury OIG for its audit of Customs’ fiscalyear 1998 financial statements, Customsappears to have corrected many of the earlyimplementation problems it experiencedwith the property information in SEACATS.However, Customs officials acknowledgedthat additional enhancements to SEACATS arenecessary for the system to perform asoriginally envisioned. For example, Customsmust still obtain currency information fromoutside the system to compile financialstatement disclosures.

In addition, the Treasury OIG reported thatalthough improvements to computercontrols have been made during fiscal year1997, controls for the computer applicationsystem for law enforcement activitiesshowed that this system continued to bevulnerable to unauthorized access. Since thelaw enforcement system is a source of key



Issues

data to seizure activity recorded in SEACATS,this vulnerability could affect the reliabilityof information in SEACATS. Customs recentlycontracted for a review of electronic dataprocessing controls for SEACATS, which uponcompletion will be reviewed by the TreasuryOIG.

Weaknesses inTreasury’sAccountability andReporting OverSeized and ForfeitedProperty

Treasury and its OIG have reportedweaknesses in the Department’saccountability and reporting over seized andforfeited property. Specifically, Treasuryreported material weaknesses related toseized property in the Federal Managers’Financial Integrity Act section of its fiscalyear 1997 Accountability Report.13 Inaddition, although the Treasury ForfeitureFund received an unqualified audit opinionon its fiscal year 1997 financial statements,the Fund’s auditor cited three materialweaknesses in its report on internal controls:(1) the Fund’s accounting records wereprimarily maintained on the cash basis ofaccounting; (2) the Fund’s general ledger didnot record all balances and transactions thatwere reflected in the financial statements;and (3) as previously noted, SEACATS did not

13This text refers to the Department’s third annual AccountabilityReport for fiscal year 1997, which describes Treasury’s missionsand goals and demonstrates how its financial performance is tied tothe Department’s broader objectives.



Issues

contain accurate and sufficient data thatcould be relied on to prepare the analysis ofchanges in forfeited and seized currency andproperty without substantial manualmanipulation and reconciliation.

Furthermore, in its March 1998 report onTreasury’s fiscal year 1997 financialstatements, the Treasury OIG reported as aDepartmentwide reportable condition theneed for Treasury to improve accountabilityand reporting over its seizure and forfeitureactivities. Specifically, in addition to theTreasury Forfeiture Fund internal controlproblems, the Treasury OIG reported that theDepartment’s law enforcement bureaus useddifferent inventory tracking systems thatcollected and accounted for seized propertyand forfeited assets differently and usedslightly different data definitions. Inaddition, Treasury could not provide all ofthe required disclosure information forcertain IRS and Secret Service seizure andforfeiture activity that was outside theExecutive Office for Asset Forfeiture’sresponsibility.

According to a Treasury official, Treasury isdeveloping a plan that includes actionsdesigned to address the weaknessespreviously noted. The action plan is to



Issues

(1) include a description of the problemsidentified, prioritize the problems, andpropose solutions and (2) discuss plans todevelop an integrated tracking system thatwill provide required financial reportingdisclosures and will be used by the Treasurybureaus and integrated with SEACATS. As partof its audit of Treasury’s fiscal year 1998Departmentwide financial statements, theTreasury OIG plans to update the status of theasset forfeiture program weaknesses. Wewill also continue to monitor Treasury’sprogress in addressing these areas.

Consolidation ofTreasury’s andJustice’s SeizedAsset Managementand DispositionFunctions Needed

Justice and Treasury continue to operatetwo similar but separate seized assetmanagement and disposal programs withoutplans for consolidation, despite legislationrequiring them to develop and maintain ajoint plan to consolidate postseizureadministration of certain properties. InJune 1991, we recommended consolidatingthe management and disposition of allnoncash seized property and designatingJustice’s Marshals Service as the custodian.We estimated that program administrationcosts could be reduced if Justice andCustoms consolidated the postseizuremanagement and disposition of such items.We also reported that consolidation would



Issues

likely result in lower contractor costs due toeconomies of scale. We still believe thatconsolidation of asset management anddisposition functions makes sense. Weencourage Treasury and Justice to continueto identify areas of duplication and pursueoptions for consolidation.

Weaknesses Exist inComputer SystemsSecurity

In its auditors’ report on Treasury’s fiscalyear 1997 Departmentwide financialstatements, the Treasury OIG reported as amaterial weakness that computer securitycontrols, which are designed to safeguarddata, protect computer applicationprograms, prevent system software fromunauthorized access, and ensure continuedcomputer operations, need to bestrengthened. Although some improvementshave been made, computer controlweaknesses in financial systems access andphysical security controls at certain bureausreported by the Treasury OIG in previousyears continued to exist during fiscal year1997 and additional weaknesses wereidentified. These weaknesses primarilyinvolve IRS, Customs, and FMS and arediscussed in each bureau’s separate sectionof this report.



Issues

Weaknesses Relatingto IntegratedFinancialManagementSystems

In its auditors’ report on Treasury’s fiscalyear 1996 Departmentwide financialstatements, the Treasury OIG reported thatTreasury’s lack of integrated financialmanagement systems was a materialweakness. An integrated system wouldperform basic accounting functions andprovide integrated budget, financial, andperformance information that managerscould reliably use to make decisions. Theauditors reported that several componententities maintained separate systems tosupport program and financial managementand that these nonintegrated systems couldnot be relied on to provide complete andaccurate information without extensivemanual procedures, analyses, andreconciliations. The Treasury OIG hadrecommended that the Treasury ChiefFinancial Officers Council develop a strategyfor improving the level of financial systemsintegration within and among theDepartment’s bureaus.14

The Treasury OIG reported in its most recentaudit report, which covers fiscal year 1997,that the Treasury CFO Council had initiated a

14The Treasury CFO Council was established in July 1994 to helpensure that all Treasury financial management systems providetimely, useful, and auditable information that incorporates financialand program performance measurements into the planning,budgeting, and reporting process. The Council comprises CFOs anddeputy CFOs from all Treasury offices and bureaus.



Issues

project to define core financial datarequirements, evaluate current systemscapabilities, and develop recommendationsfor implementation of a Departmentwidedata stewardship process. However, theTreasury OIG also reported that financialsystem integration issues continued to exist.

Weaknesses Relatingto the Process Usedto PrepareDepartmentwideFinancial Statements

In its auditors’ report on Treasury’s fiscalyear 1996 Departmentwide financialstatements, the Treasury OIG reported amaterial weakness related to deficiencies inthe Department’s financial statementpreparation process. In its report on thefiscal year 1997 Departmentwide financialstatements, the Treasury OIG reported thatprogress had been made in some areas, but amaterial weakness continued to exist relatedto the oversight and review of theDepartment’s process to prepare theDepartmentwide financial statements. Forexample, the bureaus submitted financialdata that did not conform to the formatrequested by the Deputy CFO and containedinconsistencies, incorrect classifications,and inaccurate reporting of certaintransactions. In addition, intradepartmentalaccount balances and transactions reportedby the bureaus that need to be eliminatedduring the financial statement preparation



Issues

process were out of balance in excess of$100 million. Furthermore, the draft fiscalyear 1997 Accountability Report provided tothe Treasury OIG contained materialdiscrepancies and omissions that shouldhave been detected and addressed in thesupervisory review process. The TreasuryOIG reported that, if not mitigated by actionsthat required a significant amount of theDepartment’s and Treasury OIG’s resources,these weaknesses may have caused materialmisstatements in the Departmentwidefinancial statements. According to Treasuryofficials, Treasury is taking actions toaddress these problems. For example,Treasury is making enhancements to itssystem used in the financial statementpreparation process that it believes willimprove the system’s consolidating,reporting, and analyzing functions.

Weaknesses Relatingto the Compliance ofFinancialManagementSystems WithFederalRequirements

The Federal Financial ManagementImprovement Act of 1996 (FFMIA) requiresauditors performing financial audits toreport whether agencies’ financialmanagement systems substantially complywith federal accounting standards, financialsystems requirements, and the government’sstandard general ledger at the transactionlevel. In its fiscal year 1997 auditors’ report



Issues

on compliance with laws and regulations,the Treasury OIG identified instances wherethe Department’s financial managementsystems did not substantially comply withthe requirements detailed in FFMIA. Treasuryreported that it had various actions plannedto correct the problems. For example,according to a Treasury official, one of itsbureaus recently implemented a new systemthat complies with FFMIA requirements.

Key Contact Gary T. Engel, Associate DirectorGovernmentwide Accounting and Financial Management IssuesAccounting and Information Management Division(202) [email protected]

Further ActionNeeded

The Department of the Treasury hasembraced efforts by the Congress, us, andother stakeholders to present betterinformation on the results of theDepartment’s programs and activities. Indoing so, Treasury has sought to link itsDepartmentwide strategic goals to the goalsand missions of its bureaus and offices.Along the same lines, Treasury has takensteps to devise strategies for achieving its



Issues

goals and on how it can best measureperformance. This is not necessarily an easytask because data on program results aretypically more difficult and resourceintensive to obtain than data on programactivities. In some instances, Treasury lacksinformation systems that are necessary toobtain such data. However, it is of vitalimportance for the Department to beaccountable to its stakeholders at timeswhen resources are limited and publicdemands are high. Like other parts of thefederal government, Treasury needs toimprove its ability to apply the provisions ofcertain statutes, such as the (1) Results Act;(2) CFO Act, as expanded by the GovernmentManagement Reform Act; and(3) Clinger-Cohen Act. Collectively, thesestatutes hold substantial promise for makingTreasury a more accountable and effectivepart of the federal government.


Related GAO Products

IRS

SystemsModernization

Tax Systems Modernization: Blueprint Is aGood Start But Not Yet SufficientlyComplete to Build or Acquire Systems(GAO/AIMD/GGD-98-54, Feb. 24, 1998).

High-Risk Series: Information Managementand Technology (GAO/HR-97-9, Feb. 1997).

IRS Operations: Critical Need to ContinueImproving Core Business Practices(GAO/T-AIMD-96-188, Sept. 10, 1996).

Tax Systems Modernization: ActionsUnderway But Management and TechnicalWeaknesses Not Yet Corrected(GAO/T-AIMD-96-165, Sept. 10, 1996).

Internal Revenue Service: BusinessOperations Need Continued Improvement(GAO/AIMD-96-152, Sept. 9, 1996).

Tax Systems Modernization: CyberfileProject Was Poorly Planned and Managed(GAO/AIMD-96-140, Aug. 29, 1996).

Tax Systems Modernization: ActionsUnderway but IRS Has Not Yet Corrected



Management and Technical Weaknesses(GAO/AIMD-96-106, June 7, 1996).

Security Weaknesses at IRS’ Cyberfile DataCenter (GAO/AIMD-96-85R, May 9, 1996).

Tax Systems Modernization: Managementand Technical Weaknesses Must BeOvercome to Achieve Success(GAO/T-AIMD-96-75, Mar. 26, 1996).

Tax Systems Modernization: Managementand Technical Weaknesses Must BeCorrected If Modernization Is to Succeed(GAO/AIMD-95-156, July 26, 1995).

IRS FinancialManagement

Internal Revenue Service: Physical SecurityOver Taxpayer Receipts and Data NeedsImprovement (GAO/AIMD-99-15, Nov. 30, 1998).

Excise Taxes: Internal Control WeaknessesAffect Accuracy of Distributions to the TrustFunds (GAO/AIMD-99-17, Nov. 9, 1998).

Internal Revenue Service: Immediate andLong-Term Actions Needed to ImproveFinancial Management (GAO/AIMD-99-16,Oct. 30, 1998).



Internal Revenue Service: Composition andCollectibility of Unpaid Assessments(GAO/AIMD-99-12, Oct. 29, 1998).

Management Letter: IRS’ AccountingProcedures and Internal Controls(GAO/AIMD-98-211R, Sept. 2, 1998).

Internal Revenue Service: RemainingChallenges to Achieve Lasting FinancialManagement Improvements(GAO/T-AIMD/GGD-98-138, Apr. 15, 1998).

Financial Audit: Examination of IRS’ FiscalYear 1997 Custodial Financial Statements(GAO/AIMD-98-77, Feb. 26, 1998).

IRS Management: Improvement Needed inHigh-Risk Areas (GAO/T-GGD-97-79, Apr. 14,1997).

IRS High-Risk Issues: Modernization ofProcesses and Systems Necessary to ResolveProblems (GAO/T-GGD-97-52, Mar. 4, 1997).

Federal TaxesReceivable andOther UnpaidAssessments

Tax Administration: IRS’ Use of EnforcementAuthorities to Collect Delinquent Taxes(GAO/T-GGD-97-155, Sept. 23, 1997).



Issues Affecting IRS’ Collection Pilot(GAO/GGD-97-129R, July 18, 1997).

Filing Fraud Earned Income Credit: IRS’ Tax Year 1994Compliance Study and Recent Efforts toReduce Non-Compliance (GAO/GGD-98-150,July 28, 1998).

Earned Income Credit: IRS’ 1995 ControlsStopped Some Noncompliance, But NotWithout Problems (GAO/GGD-96-172, Sept. 18,1996).

Tax Administration: Electronic Filing Fraud(GAO/T-GGD-94-89, Feb. 10, 1994).

Tax Administration: IRS Can ImproveControls Over Electronic Filing Fraud(GAO/GGD-93-27, Dec. 30, 1992).

Information SystemsSecurity

IRS Systems Security: Although SignificantImprovements Made,Tax ProcessingOperations and Data Still at Serious Risk(GAO/AIMD-99-38, Dec. 14, 1998).

IRS Systems Security: Tax ProcessingOperations and Data Still at Risk Due toSerious Weaknesses (GAO/AIMD-97-49, Apr. 8,1997).



Year 2000 Internal Revenue Service: Impact of the IRS

Restructuring and Reform Act on Year 2000Efforts (GAO/GGD-98-158R, Aug. 4, 1998).

IRS’ Year 2000 Efforts: Business ContinuityPlanning Needed for Potential Year 2000System Failures (GAO/GGD-98-138, June 15,1998).

IRS’ Year 2000 Efforts: Status and Risks(GAO/T-GGD-98-123, May 7, 1998).

Customs

Customs FinancialManagement

Customs Service Modernization:Architecture Must Be Complete andEnforced to Effectively Build and MaintainSystems (GAO/AIMD-98-70, May 5, 1998).

FMS Financial Management Service: Areas forImprovement in Computer Controls(GAO/AIMD-99-10, Oct. 20, 1998).

Financial Audit: Issues RegardingReconciliations of Fund Balances WithTreasury Accounts (GAO/AIMD-99-3, Oct. 14,1998).



Debt Collection Improvement Act:Significant Challenges Remain to EffectivelyImplement Treasury’s Administrative OffsetProgram (GAO/T-AIMD-98-195, June 5, 1998).

Financial Audit: 1997 Consolidated FinancialStatements of the United States Government(GAO/AIMD-98-127, Mar. 31, 1998).

Debt Collection: Improved ReportingNeeded on Billions of Dollars in DelinquentDebt and Agency Collection Performance(GAO/AIMD-97-48, June 2, 1997).

DepartmentwideFinancialManagement

High-Risk Program: Information on SelectedHigh-Risk Areas (GAO/HR-97-30, May 1997).


Performance and Accountability Series

Major Management Challenges and ProgramRisks: A Governmentwide Perspective(GAO/OCG-99-1)

Major Management Challenges and ProgramRisks: Department of Agriculture(GAO/OCG-99-2)

Major Management Challenges and ProgramRisks: Department of Commerce(GAO/OCG-99-3)

Major Management Challenges and ProgramRisks: Department of Defense (GAO/OCG-99-4)

Major Management Challenges and ProgramRisks: Department of Education(GAO/OCG-99-5)

Major Management Challenges and ProgramRisks: Department of Energy (GAO/OCG-99-6)

Major Management Challenges and ProgramRisks: Department of Health and HumanServices (GAO/OCG-99-7)

Major Management Challenges and ProgramRisks: Department of Housing and UrbanDevelopment (GAO/OCG-99-8)



Major Management Challenges and ProgramRisks: Department of the Interior(GAO/OCG-99-9)

Major Management Challenges and ProgramRisks: Department of Justice (GAO/OCG-99-10)

Major Management Challenges and ProgramRisks: Department of Labor (GAO/OCG-99-11)

Major Management Challenges and ProgramRisks: Department of State (GAO/OCG-99-12)

Major Management Challenges and ProgramRisks: Department of Transportation(GAO/OCG-99-13)

Major Management Challenges and ProgramRisks: Department of the Treasury(GAO/OCG-99-14)

Major Management Challenges and ProgramRisks: Department of Veterans Affairs(GAO/OCG-99-15)

Major Management Challenges and ProgramRisks: Agency for International Development(GAO/OCG-99-16)



Major Management Challenges and ProgramRisks: Environmental Protection Agency(GAO/OCG-99-17)

Major Management Challenges and ProgramRisks: National Aeronautics and SpaceAdministration (GAO/OCG-99-18)

Major Management Challenges and ProgramRisks: Nuclear Regulatory Commission(GAO/OCG-99-19)

Major Management Challenges and ProgramRisks: Social Security Administration(GAO/OCG-99-20)

Major Management Challenges and ProgramRisks: U.S. Postal Service (GAO/OCG-99-21)

High-Risk Series: An Update (GAO/HR-99-1)

The entire series of 21 performance and

accountability reports and the high-risk

series update can be ordered by using

the order number GAO/OCG-99-22SET.


Ordering Information

The first copy of each GAO report and testimony

is free. Additional copies are $2 each. Orders

should be sent to the following address,

accompanied by a check or money order made

out to the Superintendent of Documents, when

necessary. VISA and MasterCard credit cards

are accepted, also. Orders for 100 or more

copies to be mailed to a single address are

discounted 25 percent.

Orders by mail:

U.S. General Accounting Office

P.O. Box 37050

Washington, DC 20013

or visit:

Room 1100

700 4th St. NW (corner of 4th & G Sts. NW)

U.S. General Accounting Office

Washington, DC

Orders may also be placed by calling

(202) 512-6000 or by using fax number

(202) 512-6061, or TDD (202) 512-2537.

Each day, GAO issues a list of newly available

reports and testimony. To receive facsimile

copies of the daily list or any list from the past

30 days, please call (202) 512-6000 using a

touchtone phone. A recorded menu will provide

information on how to obtain these lists.

For information on how to access GAO reports

on the INTERNET, send an e-mail message with

"info" in the body to: [email protected]

or visit GAO’s World Wide Web Home Page at:

http://www.gao.gov

United States

General Accounting Office

Washington, D.C. 20548-0001

Official Business

Penalty for Private Use $300

Address Correction Requested

Bulk Rate

Postage & Fees Paid

GAO

Permit No. G100