CHAPTER 300 - AUDITING

(300)-10 [Introduction]{.underline}

10.1 [Abbreviations and Acronyms]{.underline}.

  -------------- --------------------------------------------------------
  **ACRONYM**    **TITLE**

  ADA            Americans with Disabilities Act

  ADEA           Age Discrimination in Employment Act

  AGA            Association of Government Accountants

  AICPA          American Institute of Certified Public Accountants

  AIGA           Assistant Inspector General for Audit

  AIMS           Audit Information Management System

  ASED           Assessment Statute Expiration Date

  BSA            Bank Secrecy Act

  CAF            Corrective Action Form

  CASE           Computer Aided Software Engineering

  CB             Cumulative Bulletin

  CCH            Commerce Clearing House

  CD-ROM         Compact Disk-Read Only Memory

  CFE            Certified Fraud Examiner

  CFO            Chief Financial Officer

  CFR            Code of Federal Regulations

  CGFM           Certified Government Financial Manager

  CIA            Certified Internal Auditor

  CM             Configuration Management

  CMIR           Currency and Monetary Instrument Report

  CMP            Configuration Management Plan

  CO             Contracting Officer

  CPA            Certified Public Accountant

  CPE            Continuing Professional Education

  CSED           Collection Statute Expiration Date

  CTR            Currency Transaction Report

  DCAA           Defense Contract Audit Agency

  DIAL           Delinquent Investigation/Account Listing

  DIF            Discriminant Index Function

  DIGA           Deputy Inspector General for Audit

  DIGI           Deputy Inspector General for Investigations

  ECMS           Executive Control Management System
  -------------- --------------------------------------------------------

  -------------- --------------------------------------------------------
  **ACRONYM**    **TITLE**

  EDP            Electronic Data Processing

  EFTPS          Electronic Funds Transfer Program System

  EP/EO          Employee Plans/Exempt Organizations

  ERISA          Employee Retirement Income Security Act

  FAR            Federal Acquisition Regulation

  FFMIA          Federal Financial Management Improvement Act

  FIRMR          Federal Information Resources Management Regulation

  FMFIA          Federal Managers' Financial Integrity Act

  FOIA           Freedom of Information Act

  FTD            Federal Tax Deposit

  FTE            Full-time Equivalent

  GAO            Government Accountability Office[^1]

  GAGAS          Government Auditing Standards

  GMRA           Government Management Reform Act

  GPRA           Government Performance and Results Act

  IDRS           Integrated Data Retrieval System

  IG             Inspector General

  IGATI          Inspector General Audit Training Institute

  IIA            Institute of Internal Auditors

  IRC            Internal Revenue Code

  IRM            Internal Revenue Manual

  IRS            Internal Revenue Service

  IS             Information Systems

  ITS            Information Technology Services

  JAMES          Joint Audit Management Enterprise System

  LEM            Law Enforcement Manual

  LOU            Limited Official Use

  MITS           Modernization and Information Technology Services

  NTEU           National Treasury Employees Union

  OA             Office of Audit

  OCC            Office of Chief Counsel for the Inspector General

  OI             Office of Investigations

  OIG            Office of Inspector General

  OJT            On-the-Job Training

  OMB            Office of Management and Budget

  OMC            Office of Management Controls
  -------------- --------------------------------------------------------

  -------------- --------------------------------------------------------
  **ACRONYM**    **TITLE**

  OMP            Office of Management and Policy

  OMS            Outcome Measure Summary

  OPI            Office of Performance and Investment

  PCIE           President's Council on Integrity and Efficiency

  PMAI           Presidential Management Agenda Initiatives

  POD            Post of Duty

  QSI            Quality Standards for Inspections

  RAS            Resource Allocation System

  RRA 98         IRS Restructuring and Reform Act of 1998

  RWMS           Resources and Workload Management System

  SAC            Special Agent-in-Charge

  SAR            Semiannual Report to the Congress

  SBU            Sensitive But Unclassified

  SED            Strategic Enforcement Division

  SLC            Systems Development Life Cycle

  TBOR           Taxpayer Bill of Rights

  TC             Transaction Code

  TCMIS          TeamCentral Management Information System

  TCMS           Treasury Control Management System

  TIGTA          Treasury Inspector General for Tax Administration

  TIN            Taxpayer Identification Number

  UNAX           Unauthorized Access (Browsing)

  U.S.           United States

  USC            United States Code

  USDA           United Statement Department of Agriculture

  VMS            Voice Management System
  -------------- --------------------------------------------------------

10.2 [Mission of Office of Audit]{.underline}.

The mission of the Office of Audit (OA) is to promote the sound
administration of the nation's tax laws by conducting comprehensive,
independent performance and financial audits of IRS programs and
operations to:

-   Assess efficiency, economy, effectiveness and program
    accomplishments.

-   Ensure compliance with applicable laws and regulations.

-   Prevent, detect, and deter fraud, waste and abuse.

The OA timely reports on program and operational deficiencies and makes
recommendations to improve tax administration services and to strengthen
controls over IRS programs and operations. The OA works with the office
of the Deputy Inspector General for Investigations, as appropriate, in
response to allegations of misconduct, fraud, waste, and abuse. The OA
may also conduct management and program evaluations focused on issues of
concern to the Internal Revenue Service (IRS), the Department of the
Treasury, the Congress, and the general public.

10.3 [Legislative Authority and Responsibility Relating to the
OA]{.underline}.

The OA conducts audits of IRS programs and operations in accordance with
various statutory authorities and standards. Statutory authorities that
relate to the Treasury Inspector General for Tax Administration (TIGTA)
are included in [Chapter
(200)-10.5](../../../chapter200-general/200-10/chapter200-10.doc#Legislative).
Excerpts of these authorities that relate to the OA include:

-   **Inspector General Act of 1978, 5 U.S.C.A. app. 3** (West Supp.
    2003). This Act requires IGs to conduct, supervise, and coordinate
    all audits and investigations relating to the agencies' programs and
    operations and to keep the Congress and the heads of agencies
    informed about problems and remedies in the administration of these
    programs and operations.

-   **The IRS Restructuring and Reform Act of 1998 (RRA 98), Pub. L.
    No.\
    105-206, 112 Stat. 685 (codified as amended in scattered sections
    of\
    2 U.S.C., 5 U.S.C. app., 16 U.S.C., 19 U.S.C., 22 U.S.C., 23 U.S.C.,
    26 U.S.C., 31 U.S.C., 38 U.S.C., and 49 U.S.C.)**. In addition to
    establishing the TIGTA, the RRA 98 established specific mandatory
    review and reporting requirements for the TIGTA. These requirements
    are described in detail in\
    [**Section (300)-40**](../../300-40/chapter300-40.doc).

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-   **Chief Financial Officers Act of 1990, Pub. L. No. 101-576, 104
    Stat. 2838 (codified as amended in scattered sections of 5 U.S.C.,
    31 U.S.C., and\
    42 U.S.C.)**. This Act placed responsibility on the Inspectors
    General to audit or arrange for audits of all agency financial
    statements prepared in accordance with the Act.

> With the passage of this Act, the IRS was required to submit to the
> Department of the Treasury each year, beginning in Fiscal Year 1996,
> audited annual financial statements covering all accounts and
> associated activities of the agency.

-   **Government Management Reform Act of 1994, Pub. L. No. 103-356,\
    108 Stat. 3410**. This Act amended the CFO Act to expand the
    requirements for audited financial statements to all 24 CFO
    agencies. The Act also established that the Director of the Office
    of Management and Budget (OMB) is to identify components of
    executive agencies that should have audited financial statements.
    The IRS is identified as one such component in OMB Bulletin\
    98-08, Appendix B.

> Also, the Act piloted a program within the Department of the Treasury
> (including the IRS) in which the Department's annual Accountability
> Reports would include, among other items, the financial statements,
> auditor's report, GPRA data, Federal Financial Management Improvement
> Act assurance, and Federal Managers' Financial Integrity Act
> assurance.

-   **Clinger-Cohen Act of 1996 (Federal Acquisition Reform Act of
    1996)** **(Information Technology Management Reform Act of 1996),
    Pub. L. No. 104-106, 110 Stat. 642 (codified in scattered sections
    of 5 U.S.C., 5 U.S.C. app., 10 U.S.C., 15 U.S.C., 16 U.S.C., 18
    U.S.C., 22 U.S.C., 28 U.S.C., 29 U.S.C.,\
    31 U.S.C., 38 U.S.C., 40 U.S.C., 41 U.S.C., 42 U.S.C., 44 U.S.C., 49
    U.S.C.,\
    50 U.S.C.).** The Act requires affected Federal agencies to
    designate a Chief Information Officer and to put in place systems
    for effectively applying performance and results-based management
    principles to the development, acquisition, and maintenance of
    information technology systems. Also, the RRA 98 requires the TIGTA
    to evaluate the adequacy and security of IRS technology on an
    ongoing basis. Reviews will be performed to assess the IRS' progress
    in implementing the Modernization Blueprint and to evaluate
    Information Technology Services' success in meeting the business
    needs of operational functions.

-   **Federal Financial Management Improvement Act of 1996, Pub. L. No.\
    104-208, 110 Stat. 3009**. The Act requires that each Federal agency
    implement and maintain financial management systems that comply with
    uniform Federal accounting standards.

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-   **Government Performance and Results Act of 1993 (GPRA), Pub. L.
    No.\
    103-62, 107 Stat. 285 (codified as amended in scattered sections of\
    5 U.S.C., 31 U.S.C., and 39 U.S.C.)**. The GPRA (or Results Act)
    requires affected Federal agencies to improve Federal program
    effectiveness and public accountability by promoting a new focus on
    results, service quality, and customer satisfaction. It requires
    that agencies develop and implement plans for identifying program
    objectives and measuring program results. The TIGTA will help the
    IRS by evaluating its efforts in establishing new measures and
    adhering to GPRA requirements.

-   **Federal Managers' Financial Integrity Act of 1982, 31 U.S.C. §§
    1105, 1113, 3512 (2000)**. This Act amends the Accounting and
    Auditing Act of 1950 and requires each executive Federal agency to
    establish and maintain internal accounting and administrative
    controls in accordance with standards prescribed by the Comptroller
    General of the United States.

> OMB Circular A-123, revised June 1995. This Circular implements the
> requirements of the FMFIA by incorporating the Act's requirements, the
> OMB management control guidelines, and the Comptroller General's
> internal control standards. Circular A-123 requires agencies to
> establish a system to review management controls and annually report
> to the President and the Congress on their condition.

-   **Treasury Order 115-01, Office of the Treasury Inspector General
    for Tax Administration (January 14, 1999)**. This Treasury Order
    establishes that the TIGTA shall exercise all duties and
    responsibilities of an IG with respect to the Department of the
    Treasury and the Secretary of the Treasury on all matters relating
    to the IRS.

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-   **Treasury Directive 27-14, Organization and Functions of the Office
    of Treasury Inspector General for Tax Administration (January 15,
    1999)**. This Treasury Directive describes the organization and
    functions of the TIGTA. The TIGTA is charged with carrying out a
    comprehensive audit and investigative program to assess the
    operations and programs of the IRS, the IRS Oversight Board, and the
    Chief Counsel of the IRS.

> Specifically for the audit program, the TIGTA shall plan and oversee
> an audit program that provides for independent reviews and appraisals
> of the operations of the IRS. These reviews will provide information
> on the condition of selected functional activities of the IRS and are
> sufficient in scope to provide a basis for constructive management
> action by responsible officials.

## 

## 10.3.1 [Government Auditing Standards]{.underline}. The IG Act requires all audits of Federal programs and operations to be in compliance with the auditing standards established by the Comptroller General of the United States. The **Government Auditing Standards,** issued by the Comptroller General of the United States (July 2007 Revision)[^2], contains such standards for audits and attestation engagements of government organizations, programs, activities, and functions and of government funds received by contractors, nonprofit organizations, and other non-government organizations. These standards, which are sometimes referred to as the Government Accountability Office's "Yellow Book" standards, are to be followed by both government and non-government auditors when conducting government audits.

The general standards prescribed by the Yellow Book for conducting
financial audits, attestation engagements, and performance audits relate
to the competence of the audit staff, the audit organization's and the
individual auditors' independence, the exercise of professional judgment
in conducting the audit and in preparing related reports, and the
presence of quality controls and quality assurance. The general
standards are:

-   [Independence]{.underline} - in all matters relating to the audit
    work, the audit organization and the individual auditor, whether
    government or public, should be free both in fact and appearance
    from personal, external and organizational impairments to
    independence.

-   [Professional Judgment]{.underline} - professional judgment should
    be used in planning and performing audits and attestation
    engagements and in reporting the results.

-   [Competence]{.underline} - the staff assigned to conduct the audit
    or attestation engagement should collectively possess adequate
    professional Competence for the tasks required.

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-   [Quality Control and Assurance]{.underline} -- each audit
    organization performing audits and/or attestation engagements in
    accordance with generally accepted government auditing standards
    (frequently stated as GAGAS) should have an appropriate internal
    quality control system in place and should undergo an external peer
    review.

These general standards are distinct from those standards that relate to
conducting fieldwork and preparing related reports. The American
Institute of Certified Public Accountants standards for fieldwork and
reporting have been incorporated into the government auditing standards
for financial audits.

## 

## 10.3.2 [OMB Circular A-50]{.underline}. OMB Circular A-50, *Audit Follow-Up*, requires that agency officials and auditors reach agreement on the course of action to be taken on audit recommendations within 6 months of report issuance. The circular also mandates that each agency will establish a system to ensure prompt and proper management decisions on and implementation of audit recommendations. 

10.4 [OA's Input to the TIGTA's Strategic Plan and Performance
Measures]{.underline}.

The TIGTA's Strategic Plan and Performance Measures are discussed in
detail in Chapter (600)-60 of the TIGTA Manual. The OA provides input
into the development of the TIGTA's:

-   Strategic Plan, which is a 5-year plan that must be updated at least
    every\
    3 years.

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-   Annual performance goals and measures.

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-   Annual budget submissions. The OA identifies new audit initiatives
    that require additional funding.

The OA provides input on progress toward meeting GPRA performance goals
and workload indicators for the monthly TIGTA Performance Report. Each
month, the Office of Management and Policy extracts data from the
TeamCentral Management Information System and identifies quantifiable
measures from Audit/Project Summary and Impact Assessment documents that
affect tax administration, to measure achievement of established
performance goals. This input is provided to the TIGTA's Office of
Performance and Investment, which incorporates the data into the Interim
and Annual Performance Reports to Treasury. This information is also
distributed monthly to TIGTA executives for internal monitoring
purposes.

The OA's input on performance measures includes measures that quantify
the value or impact of audit products and services on tax administration
and business operations. These outcome measures demonstrate the degree
to which IRS management's corrective actions will alleviate reported
conditions by either improving operations or preventing an adverse
impact. Auditors should quantify these measures to the maximum extent
possible in monetary or other measurable units, such as the number of
taxpayer accounts affected, hours spent in performing an activity, or
units of production. Specific guidance on the identifying and reporting
of audit outcome measures is contained in [Section
(300)-60.15](../../300-60/chapter300-60.doc#OutcomeMeasures) and
[Section
(300)-90.26](../../300-90/chapter300-90.doc#IdentifyingOutcomeMeasures).

The OA also identifies measures that evaluate the efficiency,
effectiveness, economy, and quality of the audit program and its
processes. These measures represent internal cost and managerial
accounting features of the audit process. These measures are also a tool
used to determine if resources are properly directed toward meeting the
OA mission. When a measure is not achieved, the OA will determine what
corrective action must be taken to improve performance. If a given
measure does not accurately portray the OA's efforts, the measure will
be redesigned or replaced with a better measure. Examples include the
number of final reports issued, calendar and staff day expenditures, and
the return on the investment made in budget and staff.

See [Exhibit (300)-10.1](#exhibitperfmeasures) for a chart that lists
examples of the OA's performance measures.

**[Exhibit (300)-10.1]{.underline}**

[]{#exhibitperfmeasures .anchor}[Examples of OA Performance
Measures]{.underline}

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  **Performance Measure**

  Potential monetary benefits (e.g., cost savings - questioned costs and
  funds put to better use, increased revenue/revenue protection) from
  corrective actions to audit recommendations.

  Number of taxpaying entities affected by audit recommendations that
  protect rights and entitlements, reduce burden to taxpayers, or improve
  privacy and security.

  Taxpayer burden - reduction of burden hours.

  Number of final reports issued.

  Average staff days to issue final report.

  Average calendar days to issue final report.

  Percentage of audits meeting planned staff days.

  Percentage of audits meeting planned draft due date.

  Percentage of final reports with quantifiable outcomes.

  Percentage of final reports with cost savings.

  Return on investment: dollars returned per auditor (full-time
  equivalent).

  Return on investment: dollars returned per budget dollar.
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[^1]: Formerly the General Accounting Office.

[^2]: ^?^ ***Government Auditing Standards*** (July 2007 revision). Link
    to entire document:
    [***http://www.gao.gov/cgi-bin/getrpt?GAO-07-731G***](http://www.gao.gov/cgi-bin/getrpt?GAO-07-731G)