GAO discussed its: (1) fiscal year 1994 financial audit of the Internal Revenue Service (IRS); and (2) evaluation of the IRS Tax System Modernization (TSM) effort. GAO noted that: (1) IRS did not use its revenue general ledger accounting system or its master files for its revenue reports, but relied on alternative sources such as Treasury schedules; (2) there were large discrepancies between information in IRS master files and Treasury data; (3) IRS did not properly document transactions or perform adequate analysis to ensure the reliability of the information it reported; (4) IRS was unable to reconcile its accounts and could not substantiate some of its expenses; (5) IRS has initiated actions to correct some previously identified problems concerning computer security, payroll processing, funds reconciliation and monitoring, its budgetary and management control systems, and receipt balance accuracy; and (6) in spite of those actions, IRS lacks the strategic information management practices, software development capability, systems architecture, and effective organization structure to manage and control system modernization.

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