GAO discussed its audit of the Internal Revenue Service's (IRS) fiscal
year (FY) 1997 custodial financial statements.
GAO noted that: (1) in issuing an unqualified opinion on the FY 1997
custodial statements within the statutory deadline of March 1, GAO
reported that the over $1.6 trillion in tax revenue, $142 billion in tax
refunds, and $28 billion in net taxes receivable reported by the IRS
were fairly stated; (2) prior to FY 1997, GAO was unable to conclude
that IRS' custodial financial statements were fairly stated, mainly
because weaknesses in IRS' internal controls prevented it from producing
reliable financial information; (3) therefore, GAO's ability to conclude
that the FY 1997 custodial financial statements were reliable was a mark
of progress; (4) however, this could only be accomplished after
extensive use of ad hoc programming by IRS to extract data from its
systems, followed by numerous adjustments totalling tens of billions of
dollars to this data to produce the final financial statements; (5)
during GAO's FY 1997 audit, it found that IRS' internal controls remain
plaqued by weaknesses that affect its ability to timely report reliable
financial information throughout the year, safeguard assets from loss,
and assure full compliance with laws and regulations; (6) GAO reported
these weaknesses related to IRS' custodial activities as a material
weakness in its report on the FY 1997 consolidated financial statements
of the United States government; (7) these weaknesses include: (a)
unpaid assessments; (b) receipts and refunds; (c) revenue accounting and
reporting; (d) compliance with the Federal Financial Management
Improvement Act; and (e) computer security; and (8) in total, these
findings frame the remaining challenges that IRS still must meet to
assure that it is able to effectively manage unpaid assessments; assure
its financial systems are able to provide accurate, relevant, and timely
management information; assure that funds are properly safeguarded; and
assure its computer systems are properly designed and protected.
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