a

GAO

United States General Accounting Office

Report to the Commissioner of Internal 

Revenue

May 2003 INTERNAL REVENUE 

SERVICE

Status of 

Recommendations 

From Financial Audits 

and Related Financial 

Management Reports

GAO-03-665
Many of GAO’s open audit recommendations to IRS were made during the 

past 6 months; others, however, have been outstanding for an extended 

period of time. The continued existence of these problems exposes IRS to 

loss due to errors or theft and impairs the reliability and availability of 

current, accurate financial information that management needs to make 

decisions on a day-to-day basis. 

Of 98 recommendations related to financial management (consisting of 62 

recommendations open as of July 2002, 27 recommendations included in 

GAO’s January 2003 report on management and oversight at lockbox banks, 

and 9 new recommendations included in GAO’s management report for 

fiscal year 2002), GAO is closing 20 because of actions IRS has taken to 

address the issues that gave rise to them. These actions were verified by 

GAO in the course of conducting the audit of IRS’s fiscal year 2002 financial 

statements. 

Of the remaining 78 financial management recommendations GAO considers 

open as of the date of this report, 73 are short term (capable of being 

addressed within 2 years) and 5 are long term (expected to require more 

than 2 years to implement). IRS considers 34 (44 percent) of the 78 

recommendations to be closed. For 26 of these 34, including 15 related to 

GAO’s recent report on lockbox banks, GAO considers them still open 

because it has not yet had an opportunity to verify the actions taken by IRS. 

The actions cited by IRS are recent and were taken after GAO’s financial 

statement audit work for the year was completed. For 8 of the 34 

recommendations that IRS considers closed, GAO found that action taken by 

IRS has not yet been fully effective in addressing the condition that gave rise 

to the recommendation. IRS disagrees with the remaining recommendation. 

IRS continues to exhibit a strong commitment to addressing its ongoing 

financial management problems and has made improvements in recent years 

that have resulted in the closing of many recommendations. At the same 

time, the continued existence of the serious financial management 

weaknesses that gave rise to the remaining open recommendations 

represents a serious obstacle that IRS needs to overcome to achieve 

effective financial management. 

GAO will continue to monitor IRS’s progress in implementing the 78 

recommendations that remain open as of the date of this report. IRS expects 

GAO to find in its fiscal year 2003 financial audit that IRS has taken 

corrective actions to allow closure of another 34 recommendations. In 

addition, IRS has stated that it is actively working to implement corrective 

actions to address all remaining open recommendations. 

In its role as the nation’s tax 

collector, the Internal Revenue 

Service (IRS) has a demanding 

responsibility in collecting taxes, 

processing tax returns, and 

enforcing the nation’s tax laws. 

Since GAO’s first audit of IRS’s 

financial statements in fiscal year 

1992, a number of weaknesses in 

IRS’s financial management 

operations have been identified. In 

related reports, GAO has 

recommended corrective action to 

address those weaknesses. 

Each year as part of the annual 

audit of IRS’s financial statements, 

GAO not only makes 

recommendations to address any 

new weaknesses identified but also 

follows up on the open weaknesses 

GAO identified in previous years’ 

audits. The purpose of this report is 

to assist IRS management in 

tracking the status of audit 

recommendations and actions 

needed to address them. 

GAO did not make any new 

recommendations. 

www.gao.gov/cgi-bin/getrpt?GAO-03-665.

To view the full report, including the scope 

and methodology, click on the link above. 

For more information, contact Steven J. 

Sebastian at (202) 512-3406, 

sebastians@gao.gov. 

Highlights of GAO-03-665, a report to the 

Commissioner of Internal Revenue 

May 2003

INTERNAL REVENUE SERVICE 

Status of Recommendations from 

Financial Audits and Related Financial 

Management Reports 
Page i GAO-03-665 Status of Recommendations

Contents

Letter 1

Status of Recommendations 2

Agency Comments 4

Objective, Scope, and Methodology 5

Appendixes

Appendix I: Status of GAO Recommendations from Prior IRS Financial 

Audits and Related Management Reports 7

Appendix II: Details on Audit Methodology 43

Appendix III: Comments from the Internal Revenue Service 45

Appendix IV: GAO Contact and Staff Acknowledgments 46
Contents

Page ii GAO-03-665 Status of Recommendations

Abbreviations

ADP automated data processing

ATFRP Automated Trust Fund Recovery Penalty

CADE Customer Account Data Engine

CAP Custodial Accounting Project

CARE Communication, Assistance, Research and Education

CFO Chief Financial Officer

COIC Centralized Offer in Compromise

EDW Enterprise Data Warehouse

FAOP Field Assistance Operating Procedures

FBI Federal Bureau of Investigation

FFMIA Federal Financial Management Improvement Act of 1996

FMFIA Federal Managers' Financial Integrity Act of 1982

FMS Financial Management Service

IEI Invitations for Expressions of Interest

IFS Integrated Financial System

IRM Internal Revenue Manual

IRS Internal Revenue Service

IT information technology

IRACS Interim Revenue Accounting Control System

ITAMS Information Technology Asset Management System

LPG Lockbox Processing Guidelines

MOU Memorandum of Understanding

NFC National Finance Center

NTEU National Treasury Employees Union

OHRES Office of Human Resources Enterprise Solutions

OIC Offer in Compromise

P&E property and equipment

SETS Security Entry and Tracking System

SPIF Single Point Inventory Function

TAC Taxpayer Assistance Center

TFRP Trust Fund Recovery Penalty

W&I Wage and Investment

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Page 1 GAO-03-665 Status of Recommendations

United States General Accounting Office

Washington, D.C. 20548

A

May 29, 2003 Lret

The Honorable Mark W. Everson

Commissioner of Internal Revenue

Dear Mr. Everson:

This report provides the status of the Internal Revenue Service’s (IRS) 

efforts to implement recommendations we have made based on our audits 

of IRS’s financial statements and other efforts related to financial 

management. In updating the status of these recommendations, we have 

included the results of our audits of IRS’s financial statements for fiscal 

years 2002 and 2001.1

 This report is being provided to you to (1) assist IRS 

management in tracking the unresolved issues identified in our prior 

financial audits2

 and (2) report on the current status of open audit 

recommendations detailed in our previous financial audit and financial 

management-related reports. In cases where IRS has taken action on open 

recommendations that did not result in our closing them, we explain why 

this occurred. 

Since our first audit of IRS’s financial statements in fiscal year 1992, our 

audits have identified a number of weaknesses in IRS’s financial 

management operations. In related reports on IRS’s internal controls and in 

management letters, we have recommended corrective actions to address 

those weaknesses. Appendix I lists (1) recommendations we have made 

based on our financial audits and other financial management-related work 

that we have not previously reported as closed, (2) IRS’s reported status of 

each of these recommendations and its corrective actions taken or planned 

as of April 2003, and (3) our analysis of whether the issue that gave rise to 

the recommendation has been effectively and fully addressed based on the 

work performed during our fiscal year 2002 financial audit. Effectively 

implementing recommendations is critical for IRS to resolve its financial 

management challenges. 

1

U.S. General Accounting Office, Financial Audit: IRS’s Fiscal Years 2002 and 2001 

Financial Statements, GAO-03-243 (Washington, D.C.: Nov. 15, 2002).

2

U.S. General Accounting Office, Internal Revenue Service: Status of Recommendations 

from Financial Audits and Related Financial Management Reports, GAO-02-848

(Washington, D.C.: July 30, 2002). 
Page 2 GAO-03-665 Status of Recommendations

Status of 

Recommendations

In July 2002, we issued a report that provided (1) the status of IRS’s efforts 

to implement prior recommendations as of our fiscal year 2001 financial 

audit3

 and (2) new recommendations based on the results of our fiscal year 

2001 financial audit.4 In the July 2002 report, we included 89 audit 

recommendations that we had not previously reported as being closed, 

some dating back as far as 1993. Of the 89 recommendations, 27 were 

closed at the time that report was issued, leaving 62 that were used as a 

starting point for appendix I of this report. For this year, we added 27 new 

recommendations included in our January 2003 report on IRS’s and 

Treasury’s Financial Management Service’s (FMS) management and 

oversight of lockbox banks5

 and 9 new recommendations included in our 

fiscal year 2002 management report,6 for a total of 98 recommendations. 

Based on the results of our recently completed fiscal year 2002 financial 

audit, we are closing 20 recommendations made in prior audits due to 

verified actions IRS has taken to address the issues that gave rise to them. 

Therefore, as of the date of this report, 78 financial management 

recommendations remain open, 73 of which are short term and 5 of which 

are long term.7

As indicated in appendix I, of the 78 recommendations we consider to be 

open, IRS considers 34 (44 percent) to be closed. We consider 26 of these 

recommendations (including 15 related to our recent report on lockbox 

banks) to be open because IRS has taken recent corrective action to 

resolve these recommendations, but we have not yet verified 

implementation of the corrective action, which is a prerequisite to closing 

the recommendation. The actions cited by IRS are recent and were taken 

3

U.S. General Accounting Office, Financial Audit: IRS’s Fiscal Year 2001 and 2000 

Financial Statements, GAO-02-414 (Washington, D.C.: Feb. 27, 2002).

4

GAO-02-848.

5

U.S. General Accounting Office, IRS Lockbox Banks: More Effective Oversight, Stronger 

Controls, and Further Study of Costs and Benefits Are Needed, GAO-03-299 (Washington, 

D.C.: Jan. 15, 2003).

6

U.S. General Accounting Office, Management Report: Improvements Needed in IRS’s 

Internal Controls, GAO-03-562R (Washington, D.C.: May 20, 2003).

7

Short-term recommendations are defined as those that could be addressed within 2 years. 

Long-term recommendations are defined as those recommendations expected to require 2 

years or more to implement. These designations were assigned at the time the 

recommendation was first issued.
Page 3 GAO-03-665 Status of Recommendations

after our fiscal year 2002 financial statement audit work was completed. 

For 8 of the 34 recommendations that IRS considers closed, we found that 

action taken by IRS has not been fully effective in addressing the condition 

that gave rise to the recommendation. IRS disagrees with the remaining 1 

recommendation.

Regarding the 34 recommendations IRS considers closed, many involved 

issuance of formal written policies or directives. Because these policies or 

directives were only recently issued and their effectiveness is not yet 

known, or because we continue to find instances where the policy is not 

being adhered to, we continued to keep these recommendations open. 

Regarding the 8 for which we have assessed IRS action and determined it 

was not sufficient, we believe these could be resolved with additional 

management follow-up to ensure that corrective actions as envisioned in 

policy and procedural changes are fully and effectively implemented. In the 

interim, the underlying weaknesses will likely continue to exist, impairing 

the quality and timeliness of IRS’s financial information and increasing its 

exposure to losses. 

Many of the 78 recommendations in appendix I that we consider to be open 

were issued within the past year; others, however, have been outstanding 

for an extended period of time. For example, 36 (46 percent) of the 

recommendations were made during the past 6 months, while 23 (29 

percent) were made over 2 years ago, including 10 from more than 3 years 

ago and 1 that has remained open for over 9 years. Twenty of the 23 

recommendations made over 2 years ago were considered to be short term 

at the time they were made. The continued existence of the issues that gave 

rise to these recommendations exposes IRS to loss due to errors or theft, 

and impairs the reliability and availability of the current, accurate financial 

information management needs to make decisions. 

The majority of the 78 recommendations we consider to be open address 

one of two broad issues:

• Eleven (14 percent) relate to a material weakness in IRS’s property and 

equipment (P&E) management. In its Federal Managers’ Financial 

Integrity Act (FMFIA) annual assurance statement, IRS has reported a 

material weakness in P&E management every year since 1983. IRS 

continues to make significant progress in addressing issues related to 

P&E, but a number of these issues can only be fully resolved through 

implementation of an integrated property management system. IRS 

expects to fully implement such a system by March 2005.
Page 4 GAO-03-665 Status of Recommendations

• Forty-five (58 percent) relate to weaknesses in controls intended to 

safeguard taxpayer receipts and data. We consider all of these 

recommendations to be short term in nature. For example, lockbox 

banks with contracts to process taxpayer receipts continued to hire 

staff and allow them access to taxpayer receipts and data before the 

results of their fingerprint checks were received and approved, and IRS 

was unable to ensure that the taxpayer receipts and data it receives are 

properly accounted for and safeguarded. These continued weaknesses 

expose IRS to unnecessary risk of loss and increase taxpayer exposure 

to losses from financial crimes committed by individuals who 

inappropriately gain access to confidential personal information.

IRS continues to exhibit a strong commitment to addressing its ongoing 

financial management problems and has made improvements in recent 

years that have resulted in the closing of many recommendations. At the 

same time, the continued existence of the serious financial management 

weaknesses that gave rise to the remaining open recommendations 

represents a serious obstacle that IRS needs to overcome in order to 

achieve effective financial management and have available accurate, timely 

financial reporting and other information that is useful for day-to-day 

decision making. This was the overriding intent of FMFIA, the Chief 

Financial Officers Act of 1990, the Federal Financial Management 

Improvement Act of 1996 (FFMIA), and other federal financial 

management reform legislation.

Agency Comments In commenting on a draft of this report, IRS said it believed that we would 

be able to confirm its completion of an additional 34 recommendations 

based on our fiscal year 2003 financial audit. IRS stated that it is actively 

working to implement corrective actions to address all remaining open 

recommendations. We will review the effectiveness of these corrective 

actions and the status of IRS’s progress in addressing all open 

recommendations as part of our fiscal year 2003 financial audit.
Page 5 GAO-03-665 Status of Recommendations

Objective, Scope, and 

Methodology 

The objective of this report is to assist IRS management in tracking the 

status of financial audit and related financial management 

recommendations and the actions needed to address them. To accomplish 

this objective, we evaluated the effectiveness of IRS’s corrective actions 

implemented in response to open recommendations during fiscal year 2002 

as part of our fiscal years 2002 and 2001 financial audits.8

 Further details on 

the scope and methodology of our IRS financial audit work are included in 

appendix II. We also included recommendations from our recently issued 

report on IRS and FMS management and oversight of lockbox banks and 

from our recently issued management report covering new 

recommendations from our fiscal year 2002 financial audit.9

 We obtained 

from IRS its assessment of the status of each recommendation and 

corrective action taken or planned as of April 2003. We compared IRS’s 

actions to our fiscal year 2002 audit findings and noted any differences 

between IRS’s and our conclusions regarding the status of each 

recommendation. We conducted our audit in accordance with U.S. 

generally accepted government auditing standards. We requested 

comments on a draft of this report from the Commissioner of Internal 

Revenue or his designee. We received written comments from IRS, which 

are reprinted in appendix III.

We are sending copies of this report to the Chairmen and Ranking Minority 

Members of the Senate Committee on Appropriations; Senate Committee 

on Finance; Senate Committee on Governmental Affairs; Senate Committee 

on the Budget; Subcommittee on Transportation, Treasury, and General 

Government, Senate Committee on Appropriations; Subcommittee on 

Taxation and IRS Oversight, Senate Committee on Finance; Subcommittee 

on Oversight of Government Management, the Federal Workforce, and the 

District of Columbia, Senate Committee on Governmental Affairs; House 

Committee on Appropriations; House Committee on Ways and Means; 

House Committee on Government Reform; House Committee on the 

Budget; Subcommittee on Transportation, Treasury, and Independent 

Agencies, House Committee on Appropriations; Subcommittee on 

Government Efficiency and Financial Management, House Committee on 

Government Reform; and Subcommittee on Oversight, House Committee 

on Ways and Means. In addition, we are sending copies of this report to the 

8

GAO-03-243.

9

GAO-03-299 and GAO-03-562R.
Page 6 GAO-03-665 Status of Recommendations

Chairman and Vice Chairman of the Joint Committee on Taxation, the 

Secretary of the Treasury, the Director of the Office of Management and 

Budget, the Chairman of the IRS Oversight Board, and other interested 

parties. Copies will be made available to others upon request. In addition, 

the report will be made available at no charge on GAO’s Web site at 

http://www.gao.gov. 

If you have any questions concerning this report, please contact me at (202) 

512-3406. The GAO contact and staff acknowledgments are listed in 

appendix IV. 

Sincerely yours,

Steven J. Sebastian

Director

Financial Management and Assurance
Page 7 GAO-03-665 Status of Recommendations

Appendix I

Status of GAO Recommendations from Prior Apendxeis

IRS Financial Audits and Related Management 

Reports ApenIdxi

Status of recommendations

Count No. Recommendation Source report Per IRS Per GAO

1 93-2 Determine what 

information related to 

automated data processing 

(ADP) resources, such as 

equipment condition and 

remaining useful life, would 

be most useful to IRS 

managers for financial 

management purposes 

and develop a means for 

accounting for these data. 

(long-term)

Financial 

Management: IRS 

Lacks 

Accountability over 

Its ADP Resources

(GAO/AIMD-93-24, 

Aug. 5, 1993)

Closed. IRS's new Integrated 

Financial System (IFS) will include 

information related to equipment 

resources and incorporate a means 

of accounting for such data. 

Scheduled completion date is 

March 1, 2005.

Closed. IRS plans to implement 

an integrated property and 

equipment (P&E) inventory 

system in March 2005, which is 

expected to include information 

related to ADP resources and 

incorporate a means of 

accounting for such data. As a 

result, we are closing this 

recommendation and monitoring 

IRS's efforts in implementing IFS 

under a related recommendation 

(99-36).

2 94-2 Monitor implementation of 

actions to reduce the errors 

in calculating and reporting 

manual interest on 

taxpayer accounts, and test 

the effectiveness of these 

actions. (short-term)

Financial 

Management: 

Important IRS 

Revenue 

Information Is 

Unavailable or 

Unreliable

(GAO/AIMD-94-22, 

Dec. 21, 1993)

Open. As of January 1, 2003, the 

rollout of the new software was 

completed. It is available to anyone 

in the field. Training was provided. 

IRS reported that during the rollout 

they implemented a national help 

desk to support the end user. 

Additionally, IRS plans for post 

rollout review to ensure the field is 

using the tool and using it properly. 

These reviews will also include an 

analysis of the accuracy of the 

interest calculations. Further, IRS 

will implement the final phase of the 

program, which allows the software 

to interface with the Integrated Data 

Retrieval System (IDRS)/Master 

File and in turn will greatly reduce 

human errors associated with the 

manual input of data. 

Open. We will review the 

effectiveness of IRS's use of 

software to reduce the 

miscalculation of manual interest.
Appendix I

Status of GAO Recommendations from Prior 

IRS Financial Audits and Related 

Management Reports

Page 8 GAO-03-665 Status of Recommendations

3 99-1 Manually review and 

eliminate duplicate or other 

assessments that have 

already been paid off to 

assure that all accounts 

related to a single 

assessment are 

appropriately credited for 

payments received. (shortterm)

Internal Revenue 

Service: 

Immediate and 

Long-Term Actions 

Needed to Improve 

Financial 

Management

(GAO/AIMD-99-16, 

Oct. 30, 1998)

Open. Automated Trust Fund 

Recovery Penalty (ATFRP) 

programming continues and first 

phase to automate calculation of 

the penalties and assessment 

process to ensure accuracy and 

assessment timeliness is to be 

rolled out to all centers July 1, 

2003. The second phase to 

automate the manual steps of the 

service center process to timely 

cross-reference payments should 

be completed by October 31, 2003. 

IRS is formulating plans to correct 

current records for which payments 

have not been posted properly.

Open. Until new systems are in 

place and fully functional, IRS’s 

ability to track and link multiple 

Trust Fund Recovery Penalty 

(TFRP) assessments will depend 

on service center personnel 

manually inputting the crossreference information needed to 

link these assessments.

4 99-3 Ensure that IRS's 

modernization blueprint 

includes developing a 

subsidiary ledger to 

accurately and promptly 

identify, classify, track, and 

report all IRS unpaid 

assessments by amount 

and taxpayer. This 

subsidiary ledger must also 

have the capability to 

distinguish unpaid 

assessments by category 

in order to identify those 

assessments that 

represent taxes receivable 

versus compliance 

assessments and writeoffs. In cases involving 

trust fund recovery 

penalties, the subsidiary 

ledger should ensure that 

(1) the trust fund recovery 

penalty assessment is 

appropriately tracked for all 

taxpayers liable but 

counted only once for 

reporting purposes and (2) 

all payments made are 

properly credited to the 

accounts of all individuals 

assessed for the liability. 

(short-term)

Internal Revenue 

Service: 

Immediate and 

Long-Term Actions 

Needed to Improve 

Financial 

Management

(GAO/AIMD-99-16, 

Oct. 30, 1998)

Open. To ensure TFRP 

assessments are tracked and 

payments are properly credited, 

IRS is developing the ATFRP 

program. The first phase to 

automate the calculation of the 

penalties and assessment process 

to ensure accuracy and timeliness 

of assessments is to be rolled out 

to centers July 1, 2003. Phase 2, to 

automate manual steps of service 

center process to timely crossreference payments is to be 

completed by October 31, 2003. 

This will allow the Chief Financial 

Officer (CFO) to establish the links 

to more accurately report the one 

balance due from these 

assessments. In addition, IRS's 

Custodial Accounting Project (CAP) 

includes development of a Taxpayer 

Account Sub Ledger which is 

expected to provide the ability to 

identify duplicate trust fund 

recovery assessments, taxes 

receivable, compliance 

assessments, and write-offs for 

financial reporting purposes. 

Scheduled for completion 

November 3, 2003.

Open. Until new systems are in 

place and fully functional, IRS’s 

ability to track and link multiple 

TFRP assessments will depend 

on service center personnel 

manually inputting the crossreference information needed to 

link these assessments. This 

process is labor-intensive and 

not always effective. In fiscal year 

2002, we found that in 21 out of 

23 unpaid payroll cases in which 

payments were not properly 

recorded to all related accounts, 

cross-references were present. 

Even after the subsidiary ledger 

is implemented, it may require 

significant manual effort to 

correct taxpayer records and 

ensure that it functions as 

needed.

(Continued From Previous Page)

Status of recommendations

Count No. Recommendation Source report Per IRS Per GAO
Appendix I

Status of GAO Recommendations from Prior 

IRS Financial Audits and Related 

Management Reports

Page 9 GAO-03-665 Status of Recommendations

5 99-12 Until the problems with 

delays in fingerprint checks 

are resolved, develop and 

implement a policy 

prohibiting new employees 

from being assigned to 

process receipts until the 

results of fingerprint 

checks are received and 

reviewed by management. 

(short-term)

Internal Revenue 

Service: Physical 

Security over 

Taxpayer Receipts 

and Data Needs 

Improvement

(GAO/AIMD-99-15, 

Nov. 30, 1998)

Closed. In April 2000, IRS issued a 

policy memo requiring that 

fingerprint checks be received and 

results evaluated before an 

employee in any IRS office can 

begin working, and it issued a 

further clarifying memo in August 

2000. Completed August 2000. IRS 

states that compliance with this 

policy is monitored on a monthly 

basis in a report provided to the 

Personnel Security Officer.

Closed. While IRS and Office of 

Personnel Management hiring 

data showed that IRS continued 

to hire employees who had 

access to taxpayer receipts and 

data in fiscal year 2002 before it 

received the results of their 

fingerprint checks, we noted 

significant improvement over 

fiscal year 2001 in implementing 

the April 2000 policy. We will 

continue to evaluate the 

effectiveness of IRS’s efforts in 

our fiscal year 2003 financial 

audit. 

6 99-16 Provide secure containers 

for service center 

employees to store 

“discovered remittances” 

prior to inventory and 

submission to the Receipt 

and Control Branch. 

Immediately upon 

discovery, the receipts 

should be recorded into a 

control log, the receipts 

secured in a locked 

container, and the 

discovered receipts 

reconciled to the control 

log prior to submission for 

processing. (short-term)

Internal Revenue 

Service: Physical 

Security over 

Taxpayer Receipts 

and Data Needs 

Improvement

(GAO/AIMD-99-15, 

Nov. 30, 1998)

Closed. Each service center 

campus currently has locked 

containers to store the discovered 

remittances. In addition, IRS 

reported that it issued instructions 

to the service centers on February 

17, 1999, to emphasize the 

handling and recording of these 

remittances to ensure 

reconciliation. Completed February 

17, 1999. This question is on the 

Submission Processing Checklist. 

At least three areas of the service 

centers are reviewed monthly 

against the checklist to ensure 

compliance. 

Closed. During our fiscal year 

2002 audit we verified that the 

two service centers we visited 

were using locked containers to 

store discovered remittances. 

These remittances were 

immediately recorded on a 

control log and the log was 

reconciled.

(Continued From Previous Page)

Status of recommendations

Count No. Recommendation Source report Per IRS Per GAO
Appendix I

Status of GAO Recommendations from Prior 

IRS Financial Audits and Related 

Management Reports

Page 10 GAO-03-665 Status of Recommendations

7 99-17 Ensure that all returned 

refund checks are stamped 

“nonnegotiable” as soon as 

they are extracted. (shortterm)

Internal Revenue 

Service: Physical 

Security over 

Taxpayer Receipts 

and Data Needs 

Improvement

(GAO/AIMD-99-15, 

Nov. 30, 1998)

Closed. IRS updated Internal 

Revenue Manual (IRM) 

3.10.72.6(1) to reflect the policy of 

stamping all returned refund checks 

"unless for credit to the U.S. 

Treasury, this instrument is nonnegotiable" as soon as they are 

extracted. In May 2000, IRS added 

instructions to the IRM that required 

extraction personnel to place 

returned refund checks in a 

designated bucket/bin for manager 

review to ensure compliance. 

Completed May 2000. This 

question is on the Submission 

Processing Checklist. The service 

centers are reviewed monthly 

against the checklist to ensure 

compliance.

Open. IRS has taken action to 

revise its IRM. However, IRS’s 

action of establishing a policy 

does not provide assurance that 

this policy is consistently 

adhered to. Although this policy 

was implemented on October 15, 

2001, during our fiscal year 2002 

site visits, we found that not all 

sites were locking or immediately 

stamping the returned refund 

checks. Consequently, several 

employees handled the checks 

before they were restrictively 

endorsed, thus increasing their 

risk of theft. We will continue to 

evaluate IRS’s efforts in our fiscal 

year 2003 audit. IRS’s response 

only addresses IRS service 

center campuses. See status of 

recommendation 03-17 for 

lockbox response. 

8 99-19 Ensure that walk-in 

payment receipts are 

recorded in a control log 

prior to depositing the 

receipts in the locked 

container and ensure that 

the control log information 

is reconciled to receipts 

prior to submission of the 

receipts to another unit for 

payment processing. To 

ensure proper segregation 

of duties, an employee not 

responsible for logging 

receipts in the control log 

should perform the 

reconciliation. (short-term)

Internal Revenue 

Service: Physical 

Security over 

Taxpayer Receipts 

and Data Needs 

Improvement

(GAO/AIMD-99-15, 

Nov. 30, 1998)

Closed. IRS issued guidance to the 

field in August 1999 and updated 

the IRM in January 2000 to include 

instructions for a control log and 

reconciliation of receipts. 

Completed January 2000.

Open. IRS has taken action to 

issue guidance. However, IRS’s 

action of establishing a policy 

does not provide assurance that 

this policy is consistently 

adhered to. During our fiscal year 

2002 audit, at one of two field 

offices visited, the individual 

reconciling the control log also 

posted receipts to the log. We will 

continue to evaluate IRS’s efforts 

in our fiscal year 2003 financial 

audit.

(Continued From Previous Page)

Status of recommendations

Count No. Recommendation Source report Per IRS Per GAO
Appendix I

Status of GAO Recommendations from Prior 

IRS Financial Audits and Related 

Management Reports

Page 11 GAO-03-665 Status of Recommendations

9 99-20 Analyze and determine the 

factors causing delays in 

processing and posting 

TFRP assessments. Once 

these factors have been 

determined, IRS should 

develop procedures to 

reduce the impact of these 

factors and to ensure 

timely posting to all 

applicable accounts and 

proper offsetting of refunds 

against unpaid 

assessments before 

issuance. (short-term)

Internal Revenue 

Service: Custodial 

Financial 

Management 

Weaknesses

(GAO/AIMD-99-

193, Aug. 4, 1999)

Open. The ATFRP programming is 

continuing, and the first phase to 

automate the calculation of the 

penalties and assessment process 

to ensure accuracy and timeliness 

of the assessments should be 

rolled out to all centers July 1, 

2003. The second phase to 

automate the manual steps of the 

service center process to timely 

cross-reference payments should 

be completed by October 31, 2003. 

Open. We will continue to 

monitor the timeliness and 

completeness of IRS’s 

processing of these transactions.

10 99-22 Expand IRS’s current 

review of service center 

deterrent controls to 

include similar analyses of 

controls at IRS field offices 

in areas such as courier 

security, safeguarding of 

receipts in locked 

containers, requirements 

for fingerprinting 

employees, and 

requirements for promptly 

overstamping checks made 

out to “IRS” with “Internal 

Revenue Service” or 

“United States Treasury.” 

Based on the results, IRS 

should make appropriate 

changes to strengthen its 

physical security controls. 

(short-term)

Internal Revenue 

Service: Custodial 

Financial 

Management 

Weaknesses

(GAO/AIMD-99-

193, Aug. 4, 1999)

Closed. Guidelines were included 

in the fiscal year 2003 Operating 

Procedures for Taxpayer 

Assistance Centers (TAC) for 

safeguarding receipts in locked 

containers and over-stamping 

checks made payable to IRS. 

Operating procedures state, in part, 

that all remittances and related 

returns must be recorded on Form 

795, Daily Report of Collection 

Activity, and placed in a locked 

container until transmitted to the 

appropriate Submission Processing 

Center. Payments in the form of 

personal checks, cashier checks, 

and money orders should be made 

payable to “United States Treasury.” 

Checks made out to IRS or U. S. 

Treasury must be over-stamped 

with the words “United States 

Treasury” immediately upon 

receipt. IRS is also including these 

issues in its operational reviews of 

the TACs. Managers in the TACs 

are also required to complete an 

annual review that includes these 

issues.

Open. IRS reported that it 

included guidelines in its fiscal 

year 2003 Operating Procedures 

for TACs. During our fiscal year 

2002 audit, we noted that IRS 

has primarily focused its review 

of field offices on the TACs. We 

are concerned about the limited 

scope of this review since past 

audits, as well as our fiscal year 

2002 audit, have found control 

weaknesses over the 

safeguarding of and accounting 

for taxpayer receipts and data not 

only in TAC units but other field 

office units, such as Small 

Business/Self Employed. 

Because IRS’s action only 

addresses TACs and it occurred 

after the completion of our fiscal 

year 2002 audit, we will assess 

the adequacy of IRS’s actions 

during our fiscal year 2003 

financial audit.

(Continued From Previous Page)

Status of recommendations

Count No. Recommendation Source report Per IRS Per GAO
Appendix I

Status of GAO Recommendations from Prior 

IRS Financial Audits and Related 

Management Reports

Page 12 GAO-03-665 Status of Recommendations

11 99-25 Ensure that additional staff 

are employed or existing 

staff appropriately crosstrained to be able to 

perform the master file 

extractions and other ad 

hoc procedures needed for 

IRS to continually develop 

reliable balances for 

financial reporting 

purposes. (short-term)

Internal Revenue 

Service: Custodial 

Financial 

Management 

Weaknesses

(GAO/AIMD-99-

193, Aug. 4, 1999)

Closed. IRS hired three additional 

contractor staff to work on financial 

reporting and they have been 

appropriately cross-trained. This 

additional contractor support 

provides the support and backup 

necessary for preparation of the 

compensating procedures pending 

the implementation of CAP/ 

Customer Account Data Engine 

(CADE). However, we are 

concerned that a large number of 

additional staff are still needed (20 

contractors) to fully transition to 

CAP release 1. The additional staff 

are scheduled to be hired by 

October 2003 for CAP Transition 

Support. The anticipated date for 

using CAP release 1 (IMF) for the 

financial audit is October 1, 2004. 

The anticipated date for using CAP 

for the entire custodial financial 

audit (IMF, BMF, NMF, and IRAF) is 

October 1, 2006.

Open. In fiscal year 2002, IRS 

continued to utilize compensating 

procedures to enable it to 

generate reliable information for 

financial reporting purposes. It is 

unclear if staff resources 

available to perform current 

compensating procedures 

pending implementation of 

CAP/CADE have been 

sufficiently enhanced. We will 

assess the adequacy of IRS’s 

actions during our fiscal year 

2003 audit.

12 99-29 Develop the data to 

support meaningful cost 

information categories and 

cost-based performance 

measures. (long-term)

Internal Revenue 

Service: Serious 

Weaknesses 

Impact Ability to 

Report on and 

Manage 

Operations

(GAO/AIMD-99-

196, Aug. 9, 1999)

Open. IRS will implement cost 

accounting as part of release 1 of 

IFS. Scheduled for completion 

October 1, 2003.

Open. We will follow up during 

future audits to assess the 

effectiveness of the 

implementation of IFS's cost 

accounting features.

(Continued From Previous Page)

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Count No. Recommendation Source report Per IRS Per GAO
Appendix I

Status of GAO Recommendations from Prior 

IRS Financial Audits and Related 

Management Reports

Page 13 GAO-03-665 Status of Recommendations

13 99-30 Develop and implement 

procedures and controls to 

ensure that detailed P&E 

records are accurately 

maintained. These 

procedures and controls 

would include ensuring that 

physical inventories at field 

locations are effectively 

performed, including 

prompt resolution of 

discrepancies found in the 

inventories and appropriate 

adjustment of detailed 

records. (short-term)

Internal Revenue 

Service: Serious 

Weaknesses 

Impact Ability to 

Report on and 

Manage 

Operations

(GAO/AIMD-99-

196, Aug. 9, 1999)

Closed. IRM 2.14.1 was signed and 

put into effect June 22, 2002. IRS 

has addressed the reconciliation of 

discrepancies in the IRM, in the 

Inventory Certification Plan, and 

through Asset Management Policy 

directives posted on IRS’s Asset 

Management Web site. During 

IRS’s inventory cycle, it distributes 

exception reports showing those 

discrepancies on a biweekly basis 

to all Single Point Inventory 

Functions (SPIF). IRS tracks its 

progress for working those 

exception reports using 

spreadsheets and graphs and 

shares that information with the 

Area Directors and SPIFs.

Open. During fiscal year 2002, 

we noted improvement in the 

reliability of IRS’s P&E inventory 

records. However, serious 

weaknesses continued to affect 

IRS’s ability to maintain 

accountability over its P&E. IRS’s 

procedures for recording P&E 

acquisitions and disposals did 

not ensure that transactions were 

promptly and accurately 

recorded. For example, of 220 

P&E items we selected from 

inventory records at 22 sites, 22 

could not be located at the time 

of our review. We will evaluate 

IRS’s continuing efforts to 

achieve accountability over its 

P&E during our fiscal year 2003 

financial audit. 

14 99-34 Revise the current 

capitalization policy to 

ensure that material P&E 

acquisitions are not 

expensed. (short-term)

Internal Revenue 

Service: Serious 

Weaknesses 

Impact Ability to 

Report on and 

Manage 

Operations

(GAO/AIMD-99-

196, Aug. 9, 1999)

Closed. IRS P&E capitalization 

policies and procedures have been 

documented and include a 

capitalization threshold for the 

projected design and development 

costs of internal use software 

systems, in accordance with 

Statement of Federal Financial 

Accounting Standards No. 10. 

Closed. We confirmed that IRS 

established a capitalization 

threshold for accumulating and 

capitalizing P&E hardware costs 

consistent with the pooling 

concept currently in use. We will 

continue to evaluate IRS’s efforts 

to implement a policy for 

capitalizing costs on a 

transactional basis as part of 

recommendation number 99-36. 

15 99-36 Make enhancements to 

IRS financial systems to 

include recording P&E and 

capital leases as assets 

when purchased and to 

generate detailed records 

for P&E that reconcile to 

the financial records. (longterm)

Internal Revenue 

Service: Serious 

Weaknesses 

Impact Ability to 

Report on and 

Manage 

Operations

(GAO/AIMD-99-

196, Aug. 9, 1999)

Open. IRS’s new IFS, currently 

targeted for March 2005, will allow 

recording P&E and capital leases 

as assets when purchased and will 

generate detailed records for P&E 

that will reconcile to the financial 

records. Scheduled completion is 

March 1, 2005.

Open. We will continue to 

evaluate IRS’s progress in 

addressing these issues in its 

new system. 

(Continued From Previous Page)

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Count No. Recommendation Source report Per IRS Per GAO
Appendix I

Status of GAO Recommendations from Prior 

IRS Financial Audits and Related 

Management Reports

Page 14 GAO-03-665 Status of Recommendations

16 99-38 Establish procedures for 

the financial statements to 

undergo review at the 

appropriate levels within 

the CFO’s office, with 

documented evidence of 

the reviews. (short-term)

Internal Revenue 

Service: Serious 

Weaknesses 

Impact Ability to 

Report on and 

Manage 

Operations

(GAO/AIMD-99-

196, Aug. 9, 1999)

Closed. IRS has developed 

procedures that require two levels 

of review of the financial 

statements. Completed August 31, 

1999.

Closed. In fiscal year 2002, IRS 

implemented procedures for 

reviewing its financial 

statements. Two levels of review 

were performed, and the reviews 

were documented in IRS’s 

financial statement workpapers. 

As a result of this review process, 

our review of IRS’s year-end 

financial statements did not 

identify any material presentation 

issues.

17 01-01 Better monitor IRS’s 

procedures requiring that a 

freeze code be entered on 

all accounts of a taxpayer 

who IRS has determined is 

potentially liable for unpaid 

payroll taxes. This should 

be done on all such 

accounts to prevent the 

inadvertent release of 

refunds to the taxpayer 

until IRS determines the 

validity of the tax liability. 

(short-term)

Internal Revenue 

Service: 

Recommendations 

to Improve 

Financial and 

Operational 

Management

(GAO-01-42, Nov. 

17, 2000)

Closed. In September 2001 IRS 

issued a memorandum to the field 

emphasizing the timely input of the 

freeze code and revised the IRM 

5.19.7.9.11(3)(i) procedures to 

allow 30 days for the assessment of 

the trust fund penalty after input of 

the freeze code. IRS group 

managers are responsible for 

ensuring that the IRM procedures 

are followed and that adherence is 

tested when they review cases.

Open. We will continue to 

monitor IRS’s use of freeze 

codes to assure they are used to 

prevent refunds from being 

released to taxpayers who are 

potentially liable for unpaid 

payroll taxes.

18 01-02 Revise policies and 

procedures governing the 

processing of abatement 

transactions to establish 

(1) appropriate time frames 

for processing abatements, 

(2) a methodology for 

monitoring the timeliness 

of abatement processing, 

and (3) procedures to 

identify the causes for 

delays and formulate 

corrective actions. Also, 

examine abatement 

transactions arising from 

IRS errors to determine the 

causes for the errors and, 

based on this examination, 

formulate and implement 

appropriate procedures to 

reduce the level of errors 

made when entering data 

into taxpayer accounts. 

(short-term)

Internal Revenue 

Service: 

Recommendations 

to Improve 

Financial and 

Operational 

Management

(GAO-01-42, Nov. 

17, 2000)

Open. IRM 21 provides servicewide 

guidance on account-related and 

adjustment workload. Timeliness 

standards are addressed in IRM 21 

and supplemented by an annual 

program guidance provided by 

each Business Operating Division. 

IRS reports provide detailed 

program-by-program comparisons 

of current inventory and trends that 

are used by management and the 

policy/program analyst to monitor 

program delivery and status. The 

quality review process also 

addresses timeliness of the 

workload. To address specific 

causes of delays, IRS will review 

abatement problems identified 

during the past year's audit to 

determine the source of these 

abatements and the owner of the 

process to determine if additional 

corrective actions are needed. 

Open. In fiscal year 2002, we 

continued to find delays in the 

processing of abatements. We 

will continue to monitor the 

effectiveness of IRS’s actions 

during our fiscal year 2003 

financial audit.

(Continued From Previous Page)

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Count No. Recommendation Source report Per IRS Per GAO
Appendix I

Status of GAO Recommendations from Prior 

IRS Financial Audits and Related 

Management Reports

Page 15 GAO-03-665 Status of Recommendations

19 01-03 Implement procedures to 

monitor the age of all 

pending offers and to 

require supervisors to 

follow up with staff to 

determine within 6 months 

whether to accept or reject 

the offer. (short-term)

Internal Revenue 

Service: 

Recommendations 

to Improve 

Financial and 

Operational 

Management

(GAO-01-42, Nov. 

17, 2000)

Closed. The Centralized Offer in 

Compromise (COIC) operation 

began in August 2001. Throughout 

the first year, excess field staff 

continued to work to eliminate the 

backlog of cases that had 

accumulated in the field. Several 

process improvements were also 

implemented in COIC. By October 

2002, the field inventory was 

reduced by 20,000 cases, allowing 

IRS to reduce field staff by about 

500 revenue officers. Performance 

on the “closed in six months” 

measure is improving significantly 

in the first quarter of fiscal year 

2003.

Open. Based upon IRS’s 

reported improvements in the 

timeliness of Offers in 

Compromise (OIC) processing, 

we will evaluate the timeliness of 

IRS’s processing of OICs as part 

of our 2003 audit.

20 01-04 As an alternative to 

prematurely suspending 

active collection efforts, 

and using the best 

available information, 

develop reliable costbenefit data relating to 

collection efforts for cases 

with some collection 

potential. These costbenefit data would include 

the full cost associated with 

the increased collection 

activity (i.e., salaries, 

benefits, and administrative 

support), as well as the 

expected additional tax 

collections generated. 

(short-term)

Internal Revenue 

Service: 

Recommendations 

to Improve 

Financial and 

Operational 

Management

(GAO-01-42, Nov. 

17, 2000)

Open. IRS implemented computer 

models to identify the collectibility 

potential of cases based on specific 

case characteristics. IRS currently 

has an open research project that 

will validate the accuracy of the 

collectibility indicator used in the 

risk-based models. The research 

project will include a validation of 

the criteria used to determine 

collection efforts, based on a costbenefit analysis. Additionally, the 

cost accounting module of IFS is 

currently scheduled for full 

implementation by October 1, 2006. 

Open. The key objective of IRS’s 

efforts in developing cost data is 

to use data to make informed 

resource allocation decisions. 

We will continue to monitor IRS’s 

development and use of cost 

data.

21 01-05 Incorporate into its 

systems modernization 

blueprint and strategic 

planning process the 

capability to routinely and 

reliably measure the costbenefit of its collection 

activities and make 

informed resource 

allocation decisions. (shortterm)

Internal Revenue 

Service: 

Recommendations 

to Improve 

Financial and 

Operational 

Management

(GAO-01-42, Nov. 

17, 2000)

Closed. The capability to measure 

the cost-benefit of collection 

activities and to make informed 

resource allocation decisions has 

been incorporated into IRS’s 

systems modernization blueprint 

and strategic planning process.

Closed. IRS incorporated into its 

systems modernization blueprint 

the ability to use cost information 

for cost-benefit analysis. 

(Continued From Previous Page)

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Count No. Recommendation Source report Per IRS Per GAO
Appendix I

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IRS Financial Audits and Related 

Management Reports

Page 16 GAO-03-665 Status of Recommendations

22 01-06 Implement procedures to 

closely monitor the release 

of tax liens to ensure that 

they are released within 30 

days of the date the related 

tax liability is fully satisfied. 

As part of these 

procedures, IRS should 

carefully analyze the 

causes of the delays in 

releasing tax liens 

identified by our work and 

prior work by IRS’s former 

internal audit function and 

ensure that such 

procedures effectively 

address these issues. 

(short-term)

Internal Revenue 

Service: 

Recommendations 

to Improve 

Financial and 

Operational 

Management

(GAO-01-42, Nov. 

17, 2000)

Open. On August 26, 2002, the 

Letter of Understanding with the 

National Treasury Employees 

Union (NTEU) was signed. It 

outlines procedures for the 

Streamlined Release of Federal Tax 

Liens Pilot, which is applicable only 

for the Offer in Compromise unit 

employees in the compliance 

centers. Selection and training of 

the volunteers was completed and 

the pilot began on January 6, 2003. 

The decision was made to expand 

the pilot to include additional lien 

releases to provide more case data. 

The completion date was extended 

to July 1, 2003, to allow time to 

share the pilot results with NTEU 

and address any issues identified 

during the pilot.

Open. In fiscal year 2002 we 

found 20 instances out of 59 

cases tested in which IRS did not 

release the applicable federal tax 

lien within the 30-day statutory 

period. The time between the 

satisfaction of the liability and 

release of the lien ranged from 

39 days to 1,263 days. We will 

continue to monitor IRS’s release 

of tax liens and evaluate any new 

IRS procedures during our fiscal 

year 2003 financial audit.

(Continued From Previous Page)

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Count No. Recommendation Source report Per IRS Per GAO
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IRS Financial Audits and Related 

Management Reports

Page 17 GAO-03-665 Status of Recommendations

23 01-12 For (1) IRS’s Automated 

Underreporter and 

Combined Annual Wage 

Reporting programs, (2) 

screening and examination 

of Earned Income Tax 

Credit claims, and (3) 

identifying and collecting 

previously disbursed 

improper refunds, use the 

best available information 

to develop reliable costbenefit data to estimate the 

tax revenue collected by, 

and the amount of 

improper refunds returned 

to, IRS for each dollar 

spent pursuing these 

outstanding amounts. 

These data would include 

(1) an estimate of the full 

cost incurred by IRS in 

performing each of these 

efforts, including the 

salaries and benefits of all 

staff involved, as well as 

any related nonpersonnel 

costs, such as supplies 

and utilities, and (2) the 

actual amount (a) collected 

on tax amounts assessed 

and (b) recovered on 

improper refunds 

disbursed. (short-term)

Internal Revenue 

Service: 

Recommendations 

to Improve 

Financial and 

Operational 

Management

(GAO-01-42, Nov. 

17, 2000)

Open. The key objective of IRS’s 

efforts in developing cost data is to 

use data to make informed 

resource allocation decisions. IRS 

intends to consider cost data 

associated with its major programs, 

when developed, in all facets of the 

strategic planning process. The 

cost accounting module of IFS is 

currently scheduled for full 

implementation by October 1, 2006.

Open. We will review the IFS 

plans to verify that it includes 

requirements that meet the 

objectives of the 

recommendation. We will 

continue to monitor IRS’s 

development and use of cost 

data.

(Continued From Previous Page)

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Count No. Recommendation Source report Per IRS Per GAO
Appendix I

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IRS Financial Audits and Related 

Management Reports

Page 18 GAO-03-665 Status of Recommendations

24 01-13 Incorporate in IRS’s 

systems modernization 

blueprint and strategic 

planning process 

capabilities for routinely 

and reliably measuring 

cost-benefit information to 

make informed resource 

allocation decisions. (longterm)

Internal Revenue 

Service: 

Recommendations 

to Improve 

Financial and 

Operational 

Management

(GAO-01-42, Nov. 

17, 2000)

Closed. Under IFS, IRS is building 

a cost accounting module and 

strategic enterprise module that 

aligns the Treasury Integrated 

Management Information System 

structure to the Cost Centers, 

Product and Services, Balance 

Measures, Production, and 

eventually to Labor. This is part of 

the October 1, 2003, deliverable 

and provides traceability to the 

systems modernization blueprint. 

The Deputy Commissioner for 

Modernization & Chief Information 

Officer has committed to provide 

subject matter experts to IFS to 

help tie the costs associated with its 

activities and programs at the 

project areas (tiers A, B, C) and sub 

project areas.

Closed. IRS incorporated into its 

systems modernization blueprint 

the ability to routinely and reliably 

measure and analyze costbenefit information.

25 01-14 Work with Treasury’s 

Financial Management 

Service (FMS) to revise the 

current lockbox contracts to 

emphasize security 

requirements and to 

specifically require that (1) 

fingerprint checks be 

completed before 

employees begin working, 

(2) temporary employees 

be subjected to 

background checks that 

are consistent with those 

required for IRS 

employees, and (3) at a 

minimum, lockbox bank 

courier services meet the 

service center 

requirements contained in 

IRS’s November 16, 1999, 

policy. (short-term)

Internal Revenue 

Service: 

Recommendations 

to Improve 

Financial and 

Operational 

Management

(GAO-01-42, Nov. 

17, 2000)

Closed. IRS developed lockbox 

bank security standards included in 

the calendar year 2002 contract. 

The standards include physical 

security, courier, and background 

investigation standards consistent 

with IRS campus requirements. IRS 

worked with FMS and included the 

standards in the Invitations for 

Expressions of Interest (IEI) for the 

new lockbox contract. IRS reported 

that corrective action was 

completed on January 29, 2001, 

with the issuance of the IEI.

Closed. IRS revised the calendar 

year 2002 lockbox agreements. 

However, during fiscal year 2002, 

we continued to find that lockbox 

bank employees were given 

access to taxpayer data and 

receipts before fingerprint results 

were received and lockbox bank 

courier services requirements 

were not consistent with service 

center requirements. We will 

monitor IRS’s progress in 

addressing these areas under 

recommendations 03-19, 03-20, 

and 03-22.

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IRS Financial Audits and Related 

Management Reports

Page 19 GAO-03-665 Status of Recommendations

26 01-15 Ensure that all IRS units 

receiving collections have 

consistent policies and 

procedures to safeguard 

and account for cash 

receipts. (short-term)

Internal Revenue 

Service: 

Recommendations 

to Improve 

Financial and 

Operational 

Management

(GAO-01-42, Nov. 

17, 2000)

Open. Further review and 

identification of the policies and 

procedures requiring consistency at 

field offices is still underway. 

Completion date has been revised 

to August 29, 2003. 

Open. During our fiscal year 

2002 site visits, we found that not 

all collection units within the sites 

stored receipts and unopened 

mail containing potential taxpayer 

receipts and data in locked 

containers during operating 

hours. During our fiscal year 

2003 financial audit, we will 

continue to monitor IRS’s 

progress in developing and 

implementing policies that are 

consistent throughout IRS to 

safeguard and account for cash.

27 01-17 Develop a subsidiary 

ledger for leasehold 

improvements and 

implement procedures to 

record leasehold 

improvement costs as they 

occur. (long-term)

Internal Revenue 

Service: 

Recommendations 

to Improve 

Financial and 

Operational 

Management

(GAO-01-42, Nov. 

17, 2000)

Open. The new IFS will incorporate 

a subsidiary ledger for leasehold 

improvements. Scheduled 

completion is March 1, 2005.

Open. We will continue to 

evaluate the effectiveness of 

IRS’s efforts in this area. 

28 01-18 Implement procedures and 

controls to ensure that 

expenditures for P&E are 

charged to the correct 

accounting codes to 

provide reliable records for 

expenditures as a basis of 

extracting the costs for 

major systems and 

leasehold improvements. 

(short-term)

Internal Revenue 

Service: 

Recommendations 

to Improve 

Financial and 

Operational 

Management

(GAO-01-42, Nov. 

17, 2000)

Open. A module of IRS’s new IFS, 

scheduled for implementation in 

October 2003, will incorporate 

procedures that will help ensure 

correct and direct posting of all P&E 

to the proper accounting codes as 

transactions occur. Routine and 

timely reporting of leasehold 

improvements will be addressed in 

a subsequent release of IFS 

scheduled for implementation in 

fiscal year 2005. In the interim, IRS 

has implemented processes to 

identify, extract, and reclassify 

capitalized P&E transactions into 

the proper general ledger accounts. 

Open. During our fiscal year 

2002 audit, we found that IRS, 

with contractor assistance, 

implemented interim procedures 

to identify, extract, and reclassify 

P&E costs, which improved the 

timeliness of recording P&E 

transactions in accounting 

records. Nonetheless, IRS 

continued to lack current, reliable 

P&E information on an ongoing 

basis because P&E transactions 

were not properly recorded as 

transactions occurred. In 

addition, we found that charges 

to leasehold improvement 

accounting codes were not 

always correct. We will continue 

to monitor IRS’s progress in 

implementing IFS during our 

fiscal year 2003 audit. 

(Continued From Previous Page)

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Appendix I

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IRS Financial Audits and Related 

Management Reports

Page 20 GAO-03-665 Status of Recommendations

29 01-21 Consolidate and update 

the P&E policies and 

procedures currently 

documented in various 

handbooks and policy 

memorandums into a 

comprehensive document 

that personnel responsible 

for maintaining inventory 

records can use as a 

reference. (short-term)

Internal Revenue 

Service: 

Recommendations 

to Improve 

Financial and 

Operational 

Management

(GAO-01-42, Nov. 

17, 2000)

Open. IRM 2.14.1, which 

established policies and 

procedures for information 

technology (IT) assets, was signed 

and put into effect on June 22, 

2002. IRS is in the process of 

incorporating policies and 

procedures for non-IT assets into 

the IRM. 

Open. We verified that IRS 

issued a revised IRM to establish 

accountability in the receipt, 

distribution, excess, and/or 

disposal of IT hardware, 

software, and telecommunication 

equipment. During our fiscal year 

2003 audit, we will monitor IRS’s 

progress in developing a 

comprehensive document that 

provides policies and procedures 

for all P&E. 

30 01-26 Review, and correct as 

necessary, data in 

inventory records, such as 

serial or model numbers 

and manufacturer names, 

during periodic inventories 

of P&E. (short-term)

Internal Revenue 

Service: 

Recommendations 

to Improve 

Financial and 

Operational 

Management

(GAO-01-42, Nov. 

17, 2000)

Closed. IRM 2.14.1, Information 

Technology Asset Management, 

was signed and put into effect on 

June 22, 2002. IRM 2.14.1 

addresses the review and 

correction of data in the inventory 

records. IRM 2.14.1.1.7 contains 

the Quality Assurance Plan and 

guidelines for SPIF function 

employees to follow to verify the 

adequacy and accuracy of IRS 

property management systems. 

The Quality Assurance Plan 

specified in IRM 2.14.1 supports 

the accuracy of IRS property 

records and facilitates the 

continuous process improvement in 

the receipt, distribution, excess, 

and disposal of property, ADP 

hardware, software, and 

telecommunications equipment 

throughout IRS. 

Closed. We verified that IRS’s 

revised IRM 2.14.1 contains 

procedures for validating data in 

inventory records. We also found 

improvement in the accuracy of 

data, such as serial and model 

numbers and manufacturer 

names recorded on IRS’s 

inventory records, during our 

fiscal year 2002 audit. 

31 01-27 Perform sufficient 

supervisory reviews to help 

ensure that transactions 

recorded on P&E inventory 

records are accurately 

entered into subsidiary 

records and appropriately 

supported by 

documentation. (shortterm)

Internal Revenue 

Service: 

Recommendations 

to Improve 

Financial and 

Operational 

Management

(GAO-01-42, Nov. 

17, 2000)

Open. IRS does not plan to 

implement the IFS Property Module 

until March 2005 and until that time 

will not have a fully integrated 

system with subsidiary records. 

Work continues on implementing 

the Electronic Packing Slip project, 

which will help eliminate errors and 

ensure that P&E inventory records 

are accurately accounted for in the 

system.

Open. We continued to find that 

P&E transactions were not 

always promptly and accurately 

recorded. We will evaluate the 

effectiveness of IRS’s actions 

during our fiscal year 2003 

financial audit.

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Count No. Recommendation Source report Per IRS Per GAO
Appendix I

Status of GAO Recommendations from Prior 

IRS Financial Audits and Related 

Management Reports

Page 21 GAO-03-665 Status of Recommendations

32 01-33 Establish policies and 

procedures to ensure that 

all administrative and, to 

the extent possible, 

custodial transactions are 

promptly recorded in the 

general ledger, preferably 

within 30 days of the 

transaction. (short-term)

Internal Revenue 

Service: 

Recommendations 

to Improve 

Financial and 

Operational 

Management

(GAO-01-42, Nov. 

17, 2000)

Open. For custodial transactions, 

as of June 1, 2002, Revenue 

Systems/Interim Revenue 

Accounting Control System 

(IRACS) is using a spreadsheet to 

ensure that all documents are 

received and recordable 

transactions are input into IRACS 

prior to month-end activities. The 

capability for recording custodial 

transactions for taxes receivable 

and refunds payable at the detail 

level will not be available until full 

implementation of CAP with 

integration to IFS. Procedures are 

being developed for the reporting of 

accruals for taxes receivable and 

refunds payable on the quarterly 

financial statements beginning 

fiscal year 2004. Additionally, for 

administrative transactions, the IRS 

is in the midst of an initiative to 

identify all major nonpayroll 

expense transactions that can be 

accrued and/or recorded on an 

interim basis. The plan to record 

additional interim accruals, without 

giving consideration to any 

potential problems attributable to 

the IFS implementation, is 

scheduled to be completed prior to 

the fourth quarter of fiscal year 

2003. 

Open. IRS’s response 

recognizes the continued 

existence of this condition and 

cites a plan of action to resolve it. 

We will continue to monitor IRS’s 

progress in this area during our 

fiscal year 2003 audit.

(Continued From Previous Page)

Status of recommendations

Count No. Recommendation Source report Per IRS Per GAO
Appendix I

Status of GAO Recommendations from Prior 

IRS Financial Audits and Related 

Management Reports

Page 22 GAO-03-665 Status of Recommendations

33 01-34 Incorporate into its 

systems modernization 

plan requirements and 

specifications for a general 

ledger system that (1) 

accumulates and 

summarizes IRS’s 

custodial and 

administrative transactions 

for financial reporting 

purposes, (2) is integrated 

with its supporting 

subsidiary records, and (3) 

is fully compliant with the 

U.S. Standard General 

Ledger at the transaction 

level. (short-term)

Internal Revenue 

Service: 

Recommendations 

to Improve 

Financial and 

Operational 

Management

(GAO-01-42, Nov. 

17, 2000)

Closed. IRS will implement IFS, 

which will be fully compliant with 

the U.S. Standard General Ledger 

at the transaction level. Scheduled 

completion is October 1, 2003. It 

will be populated with multiple 

releases of CAP. 

Closed. We have reviewed the 

role that Enterprise Data 

Warehouse (EDW)/CAP will play 

in resolving custodial financial 

management issues. EDW/CAP, 

when implemented, is designed 

to feed the IFS general ledger 

daily summarized custodial 

financial information. It is 

expected to provide (1) the ability 

to generate timely and reliable 

custodial financial information 

with full traceability between the 

detail and the custodial financial 

statement, and (2) full traceability 

between the detail taxpayer 

transactions to the U.S. Standard 

General Ledger in IFS. We will 

assess the implementation of 

these projects in future audits.

34 01-39 Develop a mechanism to 

track and report the actual 

costs associated with 

reimbursable activities. 

(short-term)

Management 

Letter: 

Improvements 

Needed in IRS’ 

Accounting 

Procedures and 

Internal Controls 

(GAO-01-880R, 

July 30, 2001)

Open. IRS has developed guidance 

for costing reimbursable 

agreements. This guidance 

includes instructions on tracking 

labor and was completed February 

1, 2002. Additionally, IFS will also 

provide the systemic mechanism to 

track and report the actual costs 

associated with reimbursable 

activities. The target 

implementation date is October 1, 

2003.

Open. We confirmed that IRS 

completed procedures for costing 

reimbursable agreements that 

provides the basic framework for 

the accumulation of these costs. 

We will follow up during our fiscal 

year 2003 audit to determine if 

IRS has procedures in place to 

ensure the framework is used to 

develop costing information for 

reimbursable agreements. 

35 01-40 Establish procedures to 

periodically reconcile the 

subsidiary records to the 

control account for 

reimbursable receivables to 

ensure that the balance is 

adequately supported. 

(short-term)

Management 

Letter: 

Improvements 

Needed in IRS’ 

Accounting 

Procedures and 

Internal Controls 

(GAO-01-880R, 

July 30, 2001)

Closed. Since March 2002, and 

each month thereafter, IRS 

reported that it has reconciled the 

reimbursable receivable accounts 

to the control accounts. The 

reconciliation consists of 

comparison of the Automated 

Financial System Control Totals to 

the general ledger data received 

from the vendor. These totals are 

reconciled to correct improper 

postings, mapping issues, timing 

differences, and posting errors.

Closed. IRS addressed this 

recommendation by 

implementing procedures in 

fiscal year 2002 to monthly 

reconcile its subsidiary records to 

the control account for 

reimbursable receivables. 

(Continued From Previous Page)

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Count No. Recommendation Source report Per IRS Per GAO
Appendix I

Status of GAO Recommendations from Prior 

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Page 23 GAO-03-665 Status of Recommendations

36 01-41 Routinely age and review 

currently open 

reimbursable receivable 

accounts to identify 

accounts that are no longer 

valid or collectible. (shortterm)

Management 

Letter: 

Improvements 

Needed in IRS’ 

Accounting 

Procedures and 

Internal Controls 

(GAO-01-880R, 

July 30, 2001)

Closed. IRS is currently aging and 

reviewing open reimbursable 

receivable accounts. Completed 

July 31, 2001.

Closed. IRS addressed this 

recommendation by initiating 

action in fiscal year 2001 to 

regularly age and review its 

reimbursable receivable 

accounts.

37 01-43 Ensure that IRS personnel 

maintain effective oversight 

of the completeness and 

accuracy of contractorgenerated information. 

(short-term)

Management 

Letter: 

Improvements 

Needed in IRS’ 

Accounting 

Procedures and 

Internal Controls 

(GAO-01-880R, 

July 30, 2001)

Closed. There is currently 

considerable review and 

supervision of contractor-generated 

information.

Closed. During our fiscal year 

2002 audit, we found that the 

information generated by the 

contractor had been effectively 

reviewed by IRS personnel. 

38 01-44 Ensure compliance with 

Treasury regulations 

requiring that all transfers 

of funds between 

appropriations be properly 

approved and documented 

prior to being recorded in 

the financial records. 

(short-term)

Management 

Letter: 

Improvements 

Needed in IRS’ 

Accounting 

Procedures and 

Internal Controls 

(GAO-01-880R, 

July 30, 2001)

Closed. The Budget Execution 

Procedures book includes 

instructions for processing the 

SF1151 and Warrants. It states that 

funds can only be transferred after 

IRS has received approval from 

Treasury. This procedure was 

issued on May 25, 2001.

Closed. Based on audit work for 

fiscal years 2001 and 2002, all 

transfers of funds between 

appropriations have been 

properly approved and 

documented prior to being 

recorded in the financial records. 

39 02-01 Implement policies and 

procedures to record 

capitalizable acquisition 

costs for P&E, capital 

leases, leasehold 

improvements, and major 

systems in the appropriate 

P&E general ledger 

accounts as transactions 

occur. (short-term)

Internal Revenue 

Service: Progress 

Made, but Further 

Actions Needed to 

Improve Financial 

Management

(GAO-02-35, Oct. 

19, 2001)

Open. IRS P&E capitalization 

policies and procedures provide for 

use of the pooling concept to 

capitalize costs associated with 

ADP equipment with a useful life of 

greater than 1 year. The pooling 

method is used, as opposed to the 

preferred process of capturing 

costs on a transactional basis, due 

to system limitations. IRS will 

implement capitalization of costs as 

transactions occur when the new 

IFS Integrated Asset Management 

module is implemented in March 

2005.

Open. We will continue to 

monitor IRS’s progress in this 

area during future audits. 

(Continued From Previous Page)

Status of recommendations

Count No. Recommendation Source report Per IRS Per GAO
Appendix I

Status of GAO Recommendations from Prior 

IRS Financial Audits and Related 

Management Reports

Page 24 GAO-03-665 Status of Recommendations

40 02-03 Perform periodic reviews to 

monitor and ensure that 

obligations are promptly 

established in the 

accounting system. Such 

reviews would assist IRS in 

maintaining accurate and 

complete records of its 

obligations and in reducing 

the risk of obligations 

exceeding available 

funding. (short-term)

Internal Revenue 

Service: Progress 

Made, but Further 

Actions Needed to 

Improve Financial 

Management

(GAO-02-35, Oct. 

19, 2001)

Closed. IRS issued guidance to all 

business units requesting a 

complete review of obligations to be 

completed monthly and certified 

quarterly and a complete review of 

commitments to be certified 

quarterly. Obligation guidance was 

completed June 26, 2001. 

Commitment guidance was 

completed December 31, 2002.

Open. During fiscal year 2002, 

IRS developed a listing of 

unliquidated commitments to use 

as a tool for ensuring the related 

obligations are promptly 

recorded in its accounting 

system. However, we continued 

to find instances where IRS did 

not promptly record obligations in 

its accounting system. We will 

continue to monitor the 

effectiveness of IRS’s corrective 

actions during our fiscal year 

2003 financial audit. 

41 02-05 Develop, document, and 

implement policies and 

procedures to require that 

reconciliations between 

proprietary and budgetary 

accounts be performed 

monthly so that differences 

can be identified in a timely 

manner, and, if necessary, 

adjusted. (short-term)

Internal Revenue 

Service: Progress 

Made, but Further 

Actions Needed to 

Improve Financial 

Management

(GAO-02-35, Oct. 

19, 2001)

Open. Policies and procedures 

addressing monthly reconciliations 

were documented on June 1, 2002. 

Monthly reconciliations are 

currently being prepared between 

proprietary and budgetary accounts 

and differences are adjusted when 

identified. During fiscal year 2003 

IRS is instituting new accrual 

procedures that should reduce the 

amount in suspense at interim 

reporting periods. IRS will monitor 

this new process during the year 

and evaluate its effectiveness.

Open. Quarterly reconciliations 

between budgetary and 

proprietary accounts are 

performed and documented. 

Informal reconciliations are 

prepared monthly. However, not 

all identified adjustments were 

recorded at interim periods 

during fiscal year 2002. For 

example, certain adjustments 

identified at interim periods, such 

as receipts into the general fund 

and user fees, as well as 

amounts in suspense, were not 

posted until year-end. We will 

continue to monitor IRS’s 

progress in this area during our 

fiscal year 2003 audit.

42 02-06 Develop, document, and 

implement policies and 

procedures to require that 

routine reviews and 

analyses of general ledger 

account balances be 

conducted to promptly 

identify errors and 

omissions. (short-term)

Internal Revenue 

Service: Progress 

Made, but Further 

Actions Needed to 

Improve Financial 

Management

(GAO-02-35, Oct. 

19, 2001)

Closed. Quarterly reviews of 

general ledger account balances 

and certification of those balances 

are being completed routinely. 

Policies and procedures addressing 

quarterly reviews were documented 

on June 1, 2002.

Closed. In fiscal year 2002, IRS 

issued a policy memorandum 

requiring quarterly reviews of the 

general ledger account balances 

and requiring that workpapers be 

established to document the 

reviews. This significantly 

reduced the amount of 

adjustments required at year-end 

and improved the quality of 

interim data.

(Continued From Previous Page)

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Count No. Recommendation Source report Per IRS Per GAO
Appendix I

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IRS Financial Audits and Related 

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Page 25 GAO-03-665 Status of Recommendations

43 02-07 Develop, document, and 

implement policies and 

procedures to require that 

corrections and adjusting 

entries be recorded 

throughout the year to 

reduce the magnitude of 

year-end adjustments and 

improve the reliability of 

interim financial data. 

(short-term)

Internal Revenue 

Service: Progress 

Made, but Further 

Actions Needed to 

Improve Financial 

Management

(GAO-02-35, Oct. 

19, 2001)

Closed. Adjustments and 

corrections are now being entered 

into the financial system routinely 

on a quarterly basis. Policies and 

procedures addressing recording of 

corrections and adjusting entries 

were documented on June 1, 2002.

Closed. In fiscal year 2002, other 

than adjustments arising from 

reconciliations between the 

proprietary and budgetary 

accounts, IRS began recording 

corrections and adjusting entries 

when they were identified rather 

than at year end, thus reducing 

the magnitude of year-end 

adjustments.

44 02-08 Implement policies and 

procedures to require that 

all employees itemize on 

their time cards the time 

spent on specific projects. 

(long-term)

Internal Revenue 

Service: Progress 

Made, but Further 

Actions Needed to 

Improve Financial 

Management

(GAO-02-35, Oct. 

19, 2001)

Open. IRS agreed with the 

objective of this recommendation 

which is to allow it to collect and 

report the full payroll costs 

associated with its activities. While 

IRS indicated that most of its 

employees already itemize their 

time charges in functional tracking 

systems, it has acknowledged that 

full implementation of the IFS cost 

accounting module is required to 

close this recommendation. The 

cost accounting module is currently 

scheduled for full implementation 

by October 1, 2006.

Open. We confirmed that IRS 

employees use functional 

tracking (workload management) 

systems to itemize and track their 

time charges. However, this 

recommendation remains open 

because its objective is to allow 

IRS to collect and report the full 

payroll costs associated with its 

activities. We found that the 

functional tracking systems are 

insufficient for this purpose 

because they do not interface 

with each other or the general 

ledger to allow management to 

use them to readily accumulate 

the time charged to specific 

projects. The new cost 

accounting module of IFS is 

expected to track IRS’s costs at 

the activity level and, thus, may 

address the recommendation. 

We will monitor IRS’s progress in 

implementing the IFS cost 

accounting module.

45 02-09 Implement policies and 

procedures to allocate 

nonpersonnel costs to 

programs and activities on 

a routine basis throughout 

the year. (short-term)

Internal Revenue 

Service: Progress 

Made, but Further 

Actions Needed to 

Improve Financial 

Management

(GAO-02-35, Oct. 

19, 2001)

Open. IRS agreed with this 

recommendation and indicated 

plans to address this issue with the 

cost accounting module that will be 

part of IFS. Scheduled completion 

is October 1, 2003. 

Open. We will verify that the IFS 

plans include requirements that 

meet the objectives of this 

recommendation, and we will 

follow up on its implementation 

once IFS is completed.

(Continued From Previous Page)

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Count No. Recommendation Source report Per IRS Per GAO
Appendix I

Status of GAO Recommendations from Prior 

IRS Financial Audits and Related 

Management Reports

Page 26 GAO-03-665 Status of Recommendations

46 02-10 Document reviews 

performed to validate that 

performance data are 

complete, accurate, and 

reliable. (short-term)

Internal Revenue 

Service: Progress 

Made, but Further 

Actions Needed to 

Improve Financial 

Management

(GAO-02-35, Oct. 

19, 2001)

Closed. A memorandum was 

issued by the CFO on March 8, 

2002, requiring certification by 

designated officials that 

performance data reported on a 

monthly basis has been validated 

and verified. In addition, on 

September 30, 2002, we completed 

work on the expanded data 

dictionary that includes information 

concerning management controls 

that are in place to ensure that the 

data submitted monthly and for all 

external reporting purposes are 

valid and verified.

Closed. In fiscal year 2002, IRS 

completed documenting its key 

controls for each of its key 

performance measures. As a 

result, by the end of fiscal year 

2002, IRS had documented key 

controls in place to validate that 

performance data reported in its 

Management Discussion and 

Analysis are complete, accurate, 

and reliable.

47 02-11 Develop policies and 

procedures to require that 

field office employees 

provide taxpayers receipts 

for all walk-in payments. 

(short-term)

Management 

Report: 

Improvements 

Needed in IRS’s 

Accounting 

Procedures and 

Internal Controls 

(GAO-02-746R, 

July 18, 2002)

Closed. In February 2002, Wage 

and Investment (W&I) 

Communication, Assistance, 

Research and Education (CARE) 

issued a directive to field office area 

directors to instruct employees to 

issue receipts to taxpayers upon 

request. The same directive 

instructed area directors to install 

signs to advise taxpayers that 

receipts would be provided upon 

request.

Open. Once we receive and 

verify the content of the February 

2002 directive, we will close this 

recommendation. During our 

fiscal year 2002 audit, we did not 

identify any problems with the 

field office employees providing 

taxpayers receipts for all walk-in 

payments. 

48 02-12 Develop policies and 

procedures to require that 

field offices post signs in 

the most visible locations 

to remind taxpayers to 

obtain receipts for 

payments. (short-term)

Management 

Report: 

Improvements 

Needed in IRS’s 

Accounting 

Procedures and 

Internal Controls 

(GAO-02-746R, 

July 18, 2002)

Closed. In February 2002, W&I 

CARE issued a directive to field 

office area directors to advise them 

to install Document 10161 in field 

offices. Document 10161 states, 

"Let us know if you need a receipt; 

one is available upon request."

Open. IRS reported that it has 

issued guidance, but this action 

does not by itself provide 

assurance that the policy is 

consistently adhered to. During 

our site visits, at one of two sites 

no signs were posted in the TAC 

to notify taxpayers that they can 

request a receipt. We will review 

IRS’s corrective actions during 

our fiscal year 2003 financial 

audit.

49 02-13 Develop policies and 

procedures to require that 

two employees be present 

when payments from drop 

boxes are collected and 

logged. (short-term)

Management 

Report: 

Improvements 

Needed in IRS’s 

Accounting 

Procedures and 

Internal Controls 

(GAO-02-746R, 

July 18, 2002)

Closed. This recommendation is no 

longer relevant because in July 

2002, IRS issued an IRM 

procedural update removing drop 

boxes from all TACs. 

Closed. This recommendation is 

no longer relevant because in 

July 2002, IRS issued an IRM 

procedural update removing drop 

boxes from all TACs. 

(Continued From Previous Page)

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Count No. Recommendation Source report Per IRS Per GAO
Appendix I

Status of GAO Recommendations from Prior 

IRS Financial Audits and Related 

Management Reports

Page 27 GAO-03-665 Status of Recommendations

50 02-14 Develop policies and 

procedures to require that 

IRS and lockbox 

employees performing final 

candling record receipts in 

a control log at the time of 

discovery, recording at a 

minimum the total number 

of payments found, the 

amount of each payment, 

and the taxpayer who 

submitted the payment. 

(short-term)

Management 

Report: 

Improvements 

Needed in IRS’s 

Accounting 

Procedures and 

Internal Controls 

(GAO-02-746R, 

July 18, 2002)

Closed. The 2003 Lockbox 

Processing Guidelines (LPG), 

3.2.8.1(1), directs "Lockbox 

employees to complete Form 9535, 

Record of Lockbox Discovered 

Remittance and Correspondence" 

when receipts are discovered 

during candling. The employee 

must record the type of document 

and remittance found, dollar 

amount, taxpayer's name and 

address, Social Security 

Number/Taxpayer Identification 

Number, and discoverer's name on 

Form 9535. Each remittance must 

be listed as a separate entry. The 

2003 Extracting, Sorting & 

Numbering IRM, 3.10.72.6.2, 

requires "management to maintain 

a log identifying the employees 

responsible for overlooking the 

items and items discovered." The 

2003 LPG was updated January 

31, 2003.

Open. During our fiscal year 

2002 audit we found that staff at 

the two service center campuses 

and several lockbox banks we 

visited did not immediately log 

items found during final candling. 

Because IRS’s action occurred 

after the completion of our fiscal 

year 2002 audit, we will assess 

the adequacy of IRS’s actions 

during our fiscal year 2003 audit. 

51 02-15 Develop policies and 

procedures to require that 

IRS and lockbox managers 

or designated officials 

reconcile logs of payments 

found during final candling 

to the related receipts and 

documents. (short-term)

Management 

Report: 

Improvements 

Needed in IRS’s 

Accounting 

Procedures and 

Internal Controls 

(GAO-02-746R, 

July 18, 2002)

Closed. The 2003 LPG, 3.2.8.1(1), 

directs the responsible manager to 

daily validate Form 9535. The 2003 

Extracting, Sorting & Numbering 

IRM, 3.10.72.6.2(1)e., states, 

"management shall immediately 

reconcile the discovered 

remittances with the final candling 

log." The 2003 LPG was updated 

January 3, 2003.

Open. During our fiscal year 

2002 audit at both service center 

campuses we visited and at 

several lockbox banks, items 

found during final candling were 

not reconciled. Because IRS’s 

action occurred after the 

completion of our fiscal year 

2002 audit, we will assess the 

adequacy of IRS’s actions during 

our fiscal year 2003 financial 

audit.

52 02-16 Ensure that field office 

management complies with 

existing receipt control 

policies that require a 

segregation of duties 

between employees who 

prepare control logs for 

walk-in payments and 

employees who reconcile 

the control logs to the 

actual payments. (shortterm)

Management 

Report: 

Improvements 

Needed in IRS’s 

Accounting 

Procedures and 

Internal Controls 

(GAO-02-746R, 

July 18, 2002)

Closed. W&I CARE has issued 

guidance to TAC managers 

requiring the separation of duties. 

Further, this item is included in W&I 

CARE self-assessment that is to be 

conducted periodically.

Open. IRS reported it has issued 

guidance. However, this action 

does not by itself provide 

assurance that this policy is 

consistently adhered to. During 

our fiscal year 2002 audit, at one 

of two sites we visited, the 

individual who reconciled the log 

also posted receipts to the log. 

We will continue to evaluate 

IRS’s efforts in our fiscal year 

2003 financial audit. 

(Continued From Previous Page)

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Count No. Recommendation Source report Per IRS Per GAO
Appendix I

Status of GAO Recommendations from Prior 

IRS Financial Audits and Related 

Management Reports

Page 28 GAO-03-665 Status of Recommendations

53 02-17 Clarify that the intent of the 

requirement for 

background investigations 

is meant to apply to 

personnel being entrusted 

with taxpayer receipts and 

information rather than just 

personnel being granted 

access to an IRS facility. 

(short-term)

Management 

Report: 

Improvements 

Needed in IRS's 

Accounting 

Procedures and 

Internal Controls 

(GAO-02-746R, 

July 18, 2002)

Open. On October 3, 2002, the 

Deputy Commissioner issued a 

memorandum, "Clarification of 

Background Investigation 

Requirements for Contractors" to 

clarify that the intent of the 

requirement for background 

investigations is meant to apply to 

personnel being entrusted with 

taxpayer receipts and information 

rather than just personnel being 

granted access to an IRS facility. 

Additionally, banks have been 

required to ensure that courier 

services employees working with 

the lockbox facility are getting 

Federal Bureau of Investigation 

(FBI) fingerprint checks (LPG, 

January 2003). The issue of 

background investigations is 

pending OSC committee decision.

Open. During our fiscal year 

2002 audit we found that couriers 

at one of two sites had not 

received a background 

investigation, or at a minimum, a 

fingerprint check. IRS issued a 

memorandum on October 3, 

2002, clarifying the intent of the 

background investigation 

requirement. Because IRS’s 

action occurred after the 

completion of our fiscal year 

2002 audit, we will assess the 

adequacy of IRS’s actions during 

our fiscal year 2003 audit. 

54 02-18 Work with the National 

Finance Center (NFC) to 

resolve the technical 

limitations that exist within 

the Security Entry and 

Tracking System (SETS) 

database and continue to 

periodically review SETS 

data to detect and correct 

errors. (short-term)

Management 

Report: 

Improvements 

Needed in IRS's 

Accounting 

Procedures and 

Internal Controls 

(GAO-02-746R, 

July 18, 2002)

Open. On July 9, 2002, a 

memorandum was sent to the 

Director, Office of Human 

Resources Enterprise Solutions 

(OHRES), regarding the need to 

work with NFC to correct SETS. On 

September 3, 2002, we received a 

response from OHRES, committing 

to work with NFC to resolve issues. 

Additionally, OHRES committed to 

develop a security module within 

HR Connect that will replace SETS. 

A task group met in November to 

identify system requirements.

Open. We will review IRS’s 

corrective actions during our 

fiscal year 2003 financial audit.

55 02-19 Issue a formal reminder of 

existing IRS manual refund 

procedures to supervisors 

and staff. (short-term)

Management 

Report: 

Improvements 

Needed in IRS’s 

Accounting 

Procedures and 

Internal Controls 

(GAO-02-746R, 

July 18, 2002)

Closed. IRS issued an information 

alert reminding staff to monitor 

manual refunds to prevent issuance 

of duplicate refunds and to monitor 

their reviews. Completed December 

6, 2001.

Closed. We reviewed a copy of 

the formal reminder. We also 

found that most IRS employees 

we interviewed at two service 

centers were aware of the 

issuance of the alert.

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Count No. Recommendation Source report Per IRS Per GAO
Appendix I

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IRS Financial Audits and Related 

Management Reports

Page 29 GAO-03-665 Status of Recommendations

56 02-20 Establish procedures to 

track the release of liens up 

to the point of delivery to 

the local jurisdiction to 

ensure liens are released 

timely to avoid unduly 

burdening taxpayers once 

they have satisfied their tax 

liability. (short-term)

Management 

Report: 

Improvements 

Needed in IRS’s 

Accounting 

Procedures and 

Internal Controls 

(GAO-02-746R, 

July 18, 2002)

Closed. IRS issued a memorandum 

dated January 28, 2003, with 

instructions for tracking when the 

certificates of lien release leave our 

immediate control. Certificates 

must be generated at least weekly. 

Documents must be carried to the 

mailing destination, i.e., U.S. Post 

Office or IRS mailroom. IRS must 

secure a date stamp on the second 

copy of the billing voucher which it 

will retain for at least 1 year after 

the processing year.

Open. IRS’s instructions were 

issued after the end of our 2002 

audit. We will review the 

implementation of IRS’s 

corrective actions during our 

fiscal year 2003 financial audit. 

57 02-21 Ensure that complete 

skeletal records are 

created and available for 

the SPIF units to update 

upon receipt of P&E. 

(short-term)

Management 

Report: 

Improvements 

Needed in IRS’s 

Accounting 

Procedures and 

Internal Controls 

(GAO-02-746R, 

July 18, 2002)

Open. Currently, suppliers provide 

IRS with Excel spreadsheets that 

are reviewed, adjusted as 

necessary, then placed in a format 

to "batch add" into the Information 

Technology Asset Management 

System (ITAMS) database. The 

"batch add" process goes a long 

way to establishing the skeletal 

records. IRS has developed a 

record layout for suppliers to 

provide "electronic packing slip" 

information when equipment is 

purchased and shipped. The 

procured asset record will be 

established on ITAMS before it is 

received at the loading dock. The 

establishment of the skeletal 

records on ITAMS via an electronic 

packing slip feed from our suppliers 

is key for cradle-to-grave asset 

stewardship and a high priority. 

Additionally, the automated 

interfaces that "reach out and 

touch" IRS’s network asset is also a 

high priority. IRS is working to 

ensure that information from 

automated interfaces to network 

systems are properly captured and 

used to update the existence of 

assets recorded in ITAMS. 

Scheduled completion for 

implementation of automated 

updates to ITAMS is June 1, 2003.

Open. During our fiscal year 

2002 audit, we found that skeletal 

records were not always 

available for SPIF units to update 

upon receipt of P&E. We will 

review IRS’s corrective actions 

during our fiscal year 2003 

financial audit.

(Continued From Previous Page)

Status of recommendations

Count No. Recommendation Source report Per IRS Per GAO
Appendix I

Status of GAO Recommendations from Prior 

IRS Financial Audits and Related 

Management Reports

Page 30 GAO-03-665 Status of Recommendations

58 02-22 Develop procedures and 

edit checks to reduce the 

likelihood of invalid 

property records. (shortterm)

Management 

Report: 

Improvements 

Needed in IRS’s 

Accounting 

Procedures and 

Internal Controls 

(GAO-02-746R, 

July 18, 2002)

Closed. IRS has developed 

procedures to reduce the possibility 

of invalid property records. IRS has 

published those procedures in IRM 

2.14.1, the inventory certification 

plan, and Asset Management 

Policy Directives. During its 

inventory cycle, IRS distributes 

exception reports showing 

discrepancies to our SPIF 

functions. IRS tracks its progress 

on those exception reports using 

spreadsheets and graphs and 

provides that information to the 

area directors and SPIFs. 

Closed. IRS issued a revised 

IRM that includes procedures for 

conducting an inventory and 

performing quality assurance 

reviews that reduce the likelihood 

of invalid property records. 

During our fiscal year 2002 audit, 

we did not find significant 

numbers of invalid property 

records.

59 02-23 Develop and implement 

procedures to ensure that 

procurement award and 

requisition numbers 

recorded on property 

records are complete, 

accurate, and linked to the 

accounting records. (shortterm)

Management 

Report: 

Improvements 

Needed in IRS’s 

Accounting 

Procedures and 

Internal Controls 

(GAO-02-746R, 

July 18, 2002)

Open. Information Technology 

Services is working with 

Procurement and existing vendors 

to establish a reliable vehicle for 

transmitting packing slip 

information. IRS reported that it will 

continue to work with Procurement 

to see that these fields are made a 

part of every procurement and that 

the necessary procurement award 

and requisition numbers are 

established on ITAMS at the time of 

purchase via an electronic feed 

from Procurement and matched via 

the electronic packing slip IRS will 

receive from the ADP equipment 

provider.

Open. During our fiscal year 

2002 audit, we continued to find 

that accounting transactions 

could not always be linked to 

P&E inventory records. We will 

continue to review IRS’s 

corrective actions during our 

fiscal year 2003 financial audit.

60 02-24 Record software licenses 

in IRS’s property 

management system. 

(short-term)

Management 

Report: 

Improvements 

Needed in IRS’s 

Accounting 

Procedures and 

Internal Controls 

(GAO-02-746R, 

July 18, 2002)

Open. IRS is executing an action 

plan that will allow it to identify, 

record, and account for software.

Open. In fiscal year 2002, IRS 

initiated a process to identify and 

record software licenses. We will 

review IRS’s corrective actions 

during our fiscal year 2003 

financial audit.

(Continued From Previous Page)

Status of recommendations

Count No. Recommendation Source report Per IRS Per GAO
Appendix I

Status of GAO Recommendations from Prior 

IRS Financial Audits and Related 

Management Reports

Page 31 GAO-03-665 Status of Recommendations

61 02-25 Develop an approach to 

assess IRS’s compliance 

with the terms of these 

software licenses. (shortterm)

Management 

Report: 

Improvements 

Needed in IRS’s 

Accounting 

Procedures and 

Internal Controls 

(GAO-02-746R, 

July 18, 2002)

Open. IRS is developing policies 

and procedures for tracking 

compliance with the terms of 

software licenses. 

Open. In fiscal year 2002, IRS 

initiated a process to inventory 

software licenses and assess 

compliance with the terms of the 

licenses. We will review IRS’s 

corrective actions during our 

fiscal year 2003 financial audit.

62 02-26 Ensure that, in the absence 

of an integrated general 

ledger system for IRS’s 

custodial and 

administrative activities, 

IRS strengthens monitoring 

and analysis of receivables 

to ensure that receivables 

are not being erroneously 

recorded as a result of the 

lack of integration between 

these two activities. (shortterm)

Management 

Report: 

Improvements 

Needed in IRS’s 

Accounting 

Procedures and 

Internal Controls 

(GAO-02-746R, 

July 18, 2002)

Closed. IRS agrees with this 

recommendation and has taken 

steps to better manage 

reimbursable activity. IRS is now 

reconciling all reimbursable 

receivable accounts with the 

appropriate general ledger 

accounts monthly and is monitoring 

activities between custodial and 

administrative accounts as part of 

this process. Additionally, IRS has 

implemented a process to routinely 

review open receivables and take 

action to write off amounts, as 

appropriate.

Open. IRS’s corrective actions to 

address this issue did not 

become effective until the fourth 

quarter of fiscal year 2002, which 

was after we had completed our 

internal control work related to 

reimbursable activity. We will 

review IRS’s corrective actions 

during our fiscal year 2003 

financial audit.

63 03-01 Document IRS’s oversight 

roles and responsibilities in 

agency policy and 

procedure manuals and 

determine appropriate level 

of IRS oversight of lockbox 

sites throughout the year, 

particularly during peak 

processing periods. (shortterm)

IRS Lockbox 

Banks: More 

Effective 

Oversight, 

Stronger Controls, 

and Further Study 

of Costs and 

Benefits Are 

Needed (GAO-03-

299, Jan. 15, 

2003)

Open. IRS is taking this 

recommendation under advisement 

and will respond formally to this 

issue upon approval and 

implementation of the IRS lockbox 

reorganization.

Open. This is a new 

recommendation. We will review 

IRS’s corrective actions during 

our fiscal year 2003 financial 

audit.

64 03-02 Establish and document 

guidelines and procedures 

in policy and procedure 

manuals for implementing 

the new penalty provision 

for lockbox banks to 

reimburse the government 

for direct costs incurred in 

correcting errors made by 

lockbox banks. (short-term)

IRS Lockbox 

Banks: More 

Effective 

Oversight, 

Stronger Controls, 

and Further Study 

of Costs and 

Benefits Are 

Needed (GAO-03-

299, Jan. 15, 

2003)

Open. IRS is taking this 

recommendation under advisement 

and will work with FMS to establish 

an effective reimbursement 

process. IRS will respond formally 

to this issue upon approval and 

implementation of the IRS lockbox 

reorganization.

Open. This is a new 

recommendation. We will review 

IRS’s corrective actions during 

our fiscal year 2003 financial 

audit.

(Continued From Previous Page)

Status of recommendations

Count No. Recommendation Source report Per IRS Per GAO
Appendix I

Status of GAO Recommendations from Prior 

IRS Financial Audits and Related 

Management Reports

Page 32 GAO-03-665 Status of Recommendations

65 03-03 Finalize and document the 

recently developed waiver 

process in IRS policy and 

procedure manuals and 

ensure that decisions on 

requests for waivers are 

formally and promptly 

communicated to lockbox 

management. (short-term) 

IRS Lockbox 

Banks: More 

Effective 

Oversight, 

Stronger Controls, 

and Further Study 

of Costs and 

Benefits Are 

Needed (GAO-03-

299, Jan. 15, 

2003)

Open. The new waiver process is 

described in section 2.1.3.1 of the 

January 2003 LPG document. The 

internal process between IRS and 

FMS is being documented by the 

Office of Program Evaluation and 

Risk Analysis in the Security 

Memorandum of Understanding 

(MOU). Expected completion date 

is April 1, 2003.

Open. This is a new 

recommendation. We will review 

IRS’s corrective actions during 

our fiscal year 2003 financial 

audit.

66 03-04 Establish and document a 

process in IRS policy and 

procedure manuals to 

ensure that lockbox bank 

management formally 

responds to IRS oversight 

findings and 

recommendations promptly 

and that corrective actions 

taken by lockbox bank 

management are 

appropriate. (short-term)

IRS Lockbox 

Banks: More 

Effective 

Oversight, 

Stronger Controls, 

and Further Study 

of Costs and 

Benefits Are 

Needed (GAO-03-

299, Jan. 15, 

2003)

Open. The banks are required to 

officially respond to any 

deficiencies identified by the IRS 

and FMS security team. Since FMS 

holds the agreement with the 

banks, FMS will take the lead on 

formally establishing a database to 

keep track of the findings and 

require corrective actions to be 

taken by the bank. A copy of the 

report and response will be 

forwarded to IRS. The internal 

process between IRS and FMS will 

be documented in the Security 

MOU. Expected completion date of 

the Security MOU is April 1, 2003.

Open. This is a new 

recommendation. We will review 

IRS’s corrective actions during 

our fiscal year 2003 financial 

audit.

67 03-05 Establish and document a 

process in IRS policy and 

procedure manuals to 

ensure that IRS officials 

with the appropriate levels 

of expertise continue to 

participate in announced 

and unannounced security 

reviews of lockbox banks. 

(short-term)

IRS Lockbox 

Banks: More 

Effective 

Oversight, 

Stronger Controls, 

and Further Study 

of Costs and 

Benefits Are 

Needed (GAO-03-

299, Jan. 15, 

2003)

Open. The Security MOU is in draft 

format. This MOU will document the 

roles and responsibilities of the 

Security Review team. The Security 

Review team consists of FMS and 

IRS security experts. Expected 

completion date is April 1, 2003.

Open. This is a new 

recommendation. We will review 

IRS’s corrective actions during 

our fiscal year 2003 financial 

audit.

(Continued From Previous Page)

Status of recommendations

Count No. Recommendation Source report Per IRS Per GAO
Appendix I

Status of GAO Recommendations from Prior 

IRS Financial Audits and Related 

Management Reports

Page 33 GAO-03-665 Status of Recommendations

68 03-06 Ensure that the results of 

on-site compliance reviews 

are completed and 

promptly submitted to 

IRS’s National Office. 

(short-term)

IRS Lockbox 

Banks: More 

Effective 

Oversight, 

Stronger Controls, 

and Further Study 

of Costs and 

Benefits Are 

Needed (GAO-03-

299, Jan. 15, 

2003)

Open. Lockbox banks are 

undergoing security reviews in 

2003. The banks will be required to 

officially respond to the items 

identified in the security report. 

Security reviews are based on the 

lockbox sites' compliance with the 

LPG. Since FMS holds the 

agreement with the banks, FMS will 

take the lead on formally 

establishing a database to keep 

track of the findings and require 

corrective actions to be taken by 

the lockbox bank management. The 

internal process between IRS and 

FMS is documented in the draft 

Security MOU. IRS is represented 

on the security review team, 

provides input related to the review 

to FMS, and then receives a copy of 

the final response sent by FMS to 

the lockbox bank. Expected 

completion is April 1, 2003.

Open. This is a new 

recommendation. We will review 

IRS’s corrective actions during 

our fiscal year 2003 financial 

audit.

69 03-07 Revise the guidance used 

for compliance reviews so 

it requires reviewers to (1) 

determine whether lockbox 

contractors, such as 

couriers, have completed 

and obtained favorable 

results on IRS fingerprint 

checks and (2) obtain and 

review all relevant logs for 

cash payments and 

candled items to ensure 

that all payments are 

accounted for. (short-term)

IRS Lockbox 

Banks: More 

Effective 

Oversight, 

Stronger Controls, 

and Further Study 

of Costs and 

Benefits Are 

Needed (GAO-03-

299, Jan. 15, 

2003)

Open. IRS updated the security 

checksheet to instruct reviewers to 

determine whether lockbox 

contractors, such as couriers, have 

completed and obtained favorable 

results on IRS fingerprint checks 

and obtain and review all relevant 

logs for cash payments and 

candled items. IRS also plans to 

update the Lockbox Coordinator 

on-site reviews to include specific 

review of courier documentation 

and the candling log. Review of the 

cash log is currently required. 

Open. This is a new 

recommendation. During our 

fiscal year 2003 financial audit, 

we will review IRS’s security 

checksheet used by the review 

teams during their security visits. 

We will also review the lockbox 

coordinators’ on-site reviews. 

(Continued From Previous Page)

Status of recommendations

Count No. Recommendation Source report Per IRS Per GAO
Appendix I

Status of GAO Recommendations from Prior 

IRS Financial Audits and Related 

Management Reports

Page 34 GAO-03-665 Status of Recommendations

70 03-08 Assign individuals, other 

than the lockbox 

coordinators, responsibility 

for completing on-site 

performance reviews. 

(short-term)

IRS Lockbox 

Banks: More 

Effective 

Oversight, 

Stronger Controls, 

and Further Study 

of Costs and 

Benefits Are 

Needed (GAO-03-

299, Jan. 15, 

2003)

IRS disagrees with this 

recommendation. The on-site 

performance reviews will continue 

to be conducted by the IRS 

Coordinator Staff. The Lockbox 

Coordinators are IRS's official 

representatives on site during the 

peak processing periods. The 

coordinators are qualified and 

trained to complete the banks 

performance review using the Data 

Collection Instrument. The 

coordinators know and understand 

how the taxpayer remittance should 

be processed and handled for IRS 

requirements. 

Open. This is a new 

recommendation. IRS agreed 

with this recommendation in its 

comments on the lockbox report, 

dated December 20, 2002. We 

agree that the coordinators are 

qualified and trained to complete 

the banks' performance reviews 

and that they understand how 

taxpayer remittances should be 

processed and handled for IRS 

requirements. However, we 

believe the current lockbox 

coordinator structure does not 

alleviate the potential conflict of 

competing responsibilities. 

71 03-09 Require lockbox 

management to ensure 

that perimeter doors are 

locked and alarms on 

perimeter doors are 

functioning and that IRS 

take steps to monitor 

adherence to this 

requirement. (short-term) 

IRS Lockbox 

Banks: More 

Effective 

Oversight, 

Stronger Controls, 

and Further Study 

of Costs and 

Benefits Are 

Needed (GAO-03-

299, Jan. 15, 

2003)

Closed. Security teams consisting 

of individuals from FMS, 

Agencywide Shared Services, and 

IRS are responsible for on-site 

security reviews. Lockbox sites are 

receiving announced and 

unannounced security reviews as of 

November 2002. These reviews will 

monitor management's compliance 

with this requirement.

Open. This is a new 

recommendation. IRS needs to 

ensure that previously existing 

requirements are consistently 

and routinely adhered to by 

lockbox management at all of the 

lockbox sites. During our review 

of lockbox banks in 2002, we 

found sites that were not 

adhering to this requirement. We 

will review IRS’s corrective 

actions during our fiscal year 

2003 financial audit.

72 03-10 Require lockbox 

management to ensure 

that guards are responsive 

to alarms and that IRS 

takes steps to monitor 

adherence to this 

requirement. (short-term)

IRS Lockbox 

Banks: More 

Effective 

Oversight, 

Stronger Controls, 

and Further Study 

of Costs and 

Benefits Are 

Needed (GAO-03-

299, Jan. 15, 

2003)

Closed. The requirement to ensure 

that door alarms are responded to 

by the guards was previously 

established in the 2002 LPG issued 

January 1, 2002. During on-site 

reviews, IRS and FMS security 

teams observe the guards 

responding to door alarms, etc., by 

performing tests during on-site 

security review. Documented in 

Section 2.4 of LPG issued January 

31, 2003.

Open. This is a new 

recommendation. IRS needs to 

ensure that this previously 

existing requirement is 

consistently and routinely 

adhered to by lockbox 

management at all of the lockbox 

sites. During our review of 

lockbox banks in 2002, we found 

sites that were not adhering to 

this requirement. We will review 

IRS’s corrective actions during 

our fiscal year 2003 financial 

audit.

(Continued From Previous Page)

Status of recommendations

Count No. Recommendation Source report Per IRS Per GAO
Appendix I

Status of GAO Recommendations from Prior 

IRS Financial Audits and Related 

Management Reports

Page 35 GAO-03-665 Status of Recommendations

73 03-11 Require lockbox 

management to ensure 

that employees’ identity 

and employment status are 

verified prior to granting 

access to the processing 

floor and that IRS take 

steps to monitor adherence 

to this requirement. (shortterm)

IRS Lockbox 

Banks: More 

Effective 

Oversight, 

Stronger Controls, 

and Further Study 

of Costs and 

Benefits Are 

Needed (GAO-03-

299, Jan. 15, 

2003)

Closed. The requirement to ensure 

that employee identity and 

employment status are verified 

prior to granting access to the 

processing floor was previously 

listed in the 2002 LPG issued 

January 1, 2002. During the on-site 

security reviews, the security review 

teams ensure the banks meet this 

requirement by reviewing personnel 

folders for temporary employees, 

bank officials, couriers, and guards. 

Documented in Section 2.5 of the 

2003 LPG issued January 31, 

2003.

Open. This is a new 

recommendation. IRS needs to 

ensure that this previously 

existing requirement is 

consistently and routinely 

adhered to by lockbox 

management at all of the lockbox 

sites. During our review of 

lockbox banks in 2002, we found 

sites that were not adhering to 

this requirement. We will review 

IRS’s corrective actions during 

our fiscal year 2003 financial 

audit.

74 03-12 Require lockbox 

management to ensure 

that visitor access to and 

activity in the processing 

area are adequately 

controlled and that IRS 

take steps to monitor 

adherence to this 

requirement. (short-term) 

IRS Lockbox 

Banks: More 

Effective 

Oversight, 

Stronger Controls, 

and Further Study 

of Costs and 

Benefits Are 

Needed (GAO-03-

299, Jan. 15, 

2003)

Closed. The requirement to control 

visitor access was previously listed 

in the 2002 LPG issued January 1, 

2002. During the on-site security 

reviews, IRS/FMS security teams 

observe the sites' handling of 

visitors to ensure that the banks 

meet this requirement. Additionally, 

during peak visits a lockbox 

coordinator observes adherence to 

this requirement. Documented in 

Section 2.6.2 of the 2003 LPG 

issued January 31, 2003.

Open. This is a new 

recommendation. IRS needs to 

ensure that this previously 

existing requirement is 

consistently and routinely 

adhered to by lockbox 

management at all of the lockbox 

sites. During our review of 

lockbox banks in 2002, we found 

sites that were not adhering to 

this requirement. We will review 

IRS’s corrective actions during 

our fiscal year 2003 financial 

audit.

(Continued From Previous Page)

Status of recommendations

Count No. Recommendation Source report Per IRS Per GAO
Appendix I

Status of GAO Recommendations from Prior 

IRS Financial Audits and Related 

Management Reports

Page 36 GAO-03-665 Status of Recommendations

75 03-13 Require lockbox 

management to ensure 

that employee access and 

items brought into and out 

of the processing area are 

closely monitored by 

guards and that IRS take 

steps to monitor adherence 

to this requirement. (shortterm)

IRS Lockbox 

Banks: More 

Effective 

Oversight, 

Stronger Controls, 

and Further Study 

of Costs and 

Benefits Are 

Needed (GAO-03-

299, Jan. 15, 

2003)

Closed. The requirement to ensure 

that employee access and items 

brought into and out of the 

processing area are closely 

monitored by guards was 

previously listed in the 2002 LPG 

issued January 1, 2002. 

Additionally, Post Orders are 

required to be developed and 

reviewed with security guards prior 

to each peak to reinforce this 

requirement. On-site security 

review, as well as Lockbox 

Coordinator visits, monitors the 

adherence to this requirement. 

During the on-site security reviews, 

IRS and FMS security teams 

observe the sites handling of 

visitors to ensure the banks meet 

this requirement. Documented in 

Section 2.7 of the 2003 LPG issued 

January 31, 2003. 

Open. This is a new 

recommendation. IRS needs to 

ensure that this previously 

existing requirement is 

consistently and routinely 

adhered to by lockbox 

management at all of the lockbox 

sites. During our review of 

lockbox banks in 2002, we found 

sites that were not adhering to 

this requirement. We will review 

IRS’s corrective actions during 

our fiscal year 2003 financial 

audit.

76 03-14 Require lockbox 

management to ensure 

that surveillance cameras 

and monitors are installed 

in ways that allow for 

effective, real-time 

monitoring of lockbox 

operations and that IRS 

take steps to monitor 

adherence to this 

requirement. (short-term)

IRS Lockbox 

Banks: More 

Effective 

Oversight, 

Stronger Controls, 

and Further Study 

of Costs and 

Benefits Are 

Needed (GAO-03-

299, Jan. 15, 

2003)

Open. The requirement to ensure 

that surveillance cameras and 

monitors are installed to permit 

observation of critical areas 

(internal/external) such as loading 

docks, secure storage areas, mail 

rooms extraction areas, etc. was 

established in the 2002 LPG issued 

January 1, 2002. In April 2002, we 

added a requirement for the guards 

to monitor CCTV activity on an 

ongoing basis whenever guards are 

not engaged in performing other 

security duties. We will review the 

existing requirements to determine 

its sufficiency. FMS and IRS 

security teams review tape 

inventories and inspect the camera 

coverage and quality during on-site 

security visits. Documented in 

Section 2.7.5 of the 2003 LPG 

issued January 31, 2003.

Open. This is a new 

recommendation. We will review 

IRS’s corrective actions during 

our fiscal year 2003 financial 

audit.

(Continued From Previous Page)

Status of recommendations

Count No. Recommendation Source report Per IRS Per GAO
Appendix I

Status of GAO Recommendations from Prior 

IRS Financial Audits and Related 

Management Reports

Page 37 GAO-03-665 Status of Recommendations

77 03-15 Require lockbox 

management to ensure 

that envelopes are properly 

candled and that IRS take 

steps to monitor adherence 

to this requirement. (shortterm)

IRS Lockbox 

Banks: More 

Effective 

Oversight, 

Stronger Controls, 

and Further Study 

of Costs and 

Benefits Are 

Needed (GAO-03-

299, Jan. 15, 

2003)

Closed. These procedures were 

updated in the 2003 LPG, Section 

3.5.1.1, effective January 1, 2003. 

Candling procedures are clarified to 

ensure envelopes are properly 

candled. Adherence to the 

requirements was added to the 

Lockbox Security Check Sheet. 

Adherence will be monitored by the 

lockbox FMS and IRS security team 

announced and unannounced 

visits.

Open. This is a new 

recommendation. IRS needs to 

ensure that previously existing 

requirements, updated for any 

clarifications, are consistently 

and routinely adhered to by 

lockbox management at all of the 

lockbox sites. During our review 

of lockbox banks in 2002, we 

found sites that were not 

adhering to candling 

requirements. We will review 

IRS’s corrective actions during 

our fiscal year 2003 financial 

audit.

78 03-16 Require lockbox 

management to perform 

and adequately document 

candling reviews and that 

IRS take steps to monitor 

adherence to this 

requirement. (short-term)

IRS Lockbox 

Banks: More 

Effective 

Oversight, 

Stronger Controls, 

and Further Study 

of Costs and 

Benefits Are 

Needed (GAO-03-

299, Jan. 15, 

2003)

Closed. The requirement to perform 

and adequately document candling 

reviews was added in the 2003 

LPG, Section 3.2.8, effective 

January 1, 2003. Adherence to the 

requirements was added to the 

Lockbox Security Check Sheet. 

Adherence will be monitored by the 

lockbox FMS and IRS security team 

during announced and 

unannounced visits. Additionally 

Lockbox Coordinators review 

candling as part of their quality 

review checks during each peak.

Open. This is a new 

recommendation. IRS needs to 

ensure that previously existing 

requirements, and any updates 

to these requirements, are 

consistently and routinely 

adhered to by lockbox 

management at all of the lockbox 

sites. During our review of 

lockbox banks in 2002, we found 

sites that were not adhering to 

these requirements. We will 

review IRS’s corrective actions 

during our fiscal year 2003 

financial audit.

79 03-17 Require that returned 

refund checks are 

restrictively endorsed 

immediately upon 

extraction and that IRS 

take steps to monitor 

adherence to this 

requirement. (short-term)

IRS Lockbox 

Banks: More 

Effective 

Oversight, 

Stronger Controls, 

and Further Study 

of Costs and 

Benefits Are 

Needed (GAO-03-

299, Jan. 15, 

2003)

Closed. The requirement to ensure 

that returned refund checks are 

restrictively endorsed immediately 

upon extraction was previously 

listed in the 2002 LPG issued 

January 1, 2002. During the on-site 

security reviews, IRS and FMS 

security teams review adherence to 

this requirement. Additionally, 

adherence to this requirement is 

evaluated during the daily SPC 

quality reviews.

Open. This is a new 

recommendation. IRS needs to 

ensure that previously existing 

requirements are consistently 

and routinely adhered to by 

lockbox management at all of the 

lockbox sites. During our review 

of lockbox banks in 2002, we 

found sites that were not 

adhering to this requirement. We 

will review IRS’s corrective 

actions during our fiscal year 

2003 financial audit.

(Continued From Previous Page)

Status of recommendations

Count No. Recommendation Source report Per IRS Per GAO
Appendix I

Status of GAO Recommendations from Prior 

IRS Financial Audits and Related 

Management Reports

Page 38 GAO-03-665 Status of Recommendations

80 03-18 Require that lockbox 

couriers are properly 

identified prior to granting 

them access to taxpayer 

data and receipts and that 

IRS take steps to monitor 

adherence to this 

requirement. (short-term)

IRS Lockbox 

Banks: More 

Effective 

Oversight, 

Stronger Controls, 

and Further Study 

of Costs and 

Benefits Are 

Needed (GAO-03-

299, Jan. 15, 

2003)

Closed. The 2003 LPG, Section 

2.7.4, effective January 1, 2003, 

specifies that guards identify 

couriers before granting access. 

Adherence to the requirements was 

added to the Lockbox Security 

Check Sheet. Adherence is 

monitored by the Lockbox FMS and 

IRS security team during their 

announced and unannounced 

security visits. 

Open. This is a new 

recommendation. IRS needs to 

ensure that previously existing 

requirements, and any updates 

to them, are consistently and 

routinely adhered to by lockbox 

management at all of the lockbox 

sites. During our review of 

lockbox banks in 2002, we found 

sites that were not adhering to 

this requirement. We will review 

IRS’s corrective actions during 

our fiscal year 2003 financial 

audit.

81 03-19 Require that employees 

have received favorable 

results on fingerprint 

checks before they are 

granted access to taxpayer 

data and receipts and that 

IRS take steps to monitor 

adherence to this 

requirement. (short-term)

IRS Lockbox 

Banks: More 

Effective 

Oversight, 

Stronger Controls, 

and Further Study 

of Costs and 

Benefits Are 

Needed (GAO-03-

299, Jan. 15, 

2003)

Closed. The requirement for 

lockbox sites to obtain favorable 

results on employees' fingerprint 

checks before allowing them 

access to the processing floor was 

previously listed in the 2002 LPG. 

The 2003 LPG, Section 2.6.1, 

effective January 1, 2003, was 

updated to reflect the new 

requirements. The FMS and IRS 

security team review personnel files 

to ensure employees currently 

working with taxpayer remittances 

have fingerprint clearance.

Open. This is a new 

recommendation. IRS needs to 

ensure that previously existing 

requirements are consistently 

and routinely adhered to by 

lockbox management at all of the 

lockbox sites. During our review 

of lockbox banks in 2002, we 

found sites that were not 

adhering to this requirement. We 

will review IRS’s corrective 

actions during our fiscal year 

2003 financial audit.

82 03-20 Revise the LPG to require 

that before lockbox bank 

couriers receive access to 

taxpayer data and receipts 

they undergo and receive 

favorable results on 

background investigations 

that are deemed 

appropriate by IRS and are 

consistent across lockbox 

banks. (short-term)

IRS Lockbox 

Banks: More 

Effective 

Oversight, 

Stronger Controls, 

and Further Study 

of Costs and 

Benefits Are 

Needed (GAO-03-

299, Jan. 15, 

2003)

Open. IRS reported that it is taking 

this recommendation under 

advisement.

Open. This is a new 

recommendation. We will review 

IRS’s corrective actions during 

our fiscal year 2003 financial 

audit.

(Continued From Previous Page)

Status of recommendations

Count No. Recommendation Source report Per IRS Per GAO
Appendix I

Status of GAO Recommendations from Prior 

IRS Financial Audits and Related 

Management Reports

Page 39 GAO-03-665 Status of Recommendations

83 03-21 Revise the LPG to require 

that before permanent 

lockbox bank employees 

receive access to taxpayer 

data and receipts they 

undergo and receive 

favorable results on 

background investigations 

that are deemed 

appropriate by IRS and are 

consistent across lockbox 

banks. (short-term) 

IRS Lockbox 

Banks: More 

Effective 

Oversight, 

Stronger Controls, 

and Further Study 

of Costs and 

Benefits Are 

Needed (GAO-03-

299, Jan. 15, 

2003)

Open. IRS reported that it is taking 

this recommendation under 

advisement.

Open. This is a new 

recommendation. We will review 

IRS’s corrective actions during 

our fiscal year 2003 financial 

audit.

84 03-22 Revise the LPG to require 

that guards inspect courier 

vehicles for unauthorized 

passengers and unlocked 

doors. (short-term)

IRS Lockbox 

Banks: More 

Effective 

Oversight, 

Stronger Controls, 

and Further Study 

of Costs and 

Benefits Are 

Needed (GAO-03-

299, Jan. 15, 

2003)

Closed. The 2003 LPG, Section 

2.7.4, which was effective January 

1, 2003, was updated to include 

this requirement.

Open. This is a new 

recommendation. We will review 

IRS’s corrective actions during 

our fiscal year 2003 financial 

audit.

85 03-23 Revise the LPG to require 

that candling procedures 

for the various types of 

extraction methods be 

clarified. (short-term)

IRS Lockbox 

Banks: More 

Effective 

Oversight, 

Stronger Controls, 

and Further Study 

of Costs and 

Benefits Are 

Needed (GAO-03-

299, Jan. 15, 

2003)

Closed. In the 2003 LPG, Section 

3.2.8, effective January 1, 2003, 

candling procedures for the various 

types of extraction methods were 

clarified. Splitting the envelope on 

three sides and flattening the 

envelope is sufficient to meet 

candling requirements. This 

process is sufficient to meet the 

candling requirements without 

further light source viewing. All 

other methods of extraction require 

viewing the envelope twice, through 

a light source, to meet the candling 

requirement.

Open. This is a new 

recommendation. We will review 

IRS’s corrective actions during 

our fiscal year 2003 financial 

audit.

86 03-24 Revise the LPG to require 

that during candling, 

lockbox bank employees 

record which machines and 

which extraction clerks 

missed items. (short-term)

IRS Lockbox 

Banks: More 

Effective 

Oversight, 

Stronger Controls, 

and Further Study 

of Costs and 

Benefits Are 

Needed (GAO-03-

299, Jan. 15, 

2003)

Open. Many new requirements for 

candling have been established. 

However, we are still in the process 

of analyzing the effectiveness of 

this as a requirement. Expected 

due date April 1, 2003. 

Open. This is a new 

recommendation. We will review 

IRS’s corrective actions during 

our fiscal year 2003 financial 

audit.

(Continued From Previous Page)

Status of recommendations

Count No. Recommendation Source report Per IRS Per GAO
Appendix I

Status of GAO Recommendations from Prior 

IRS Financial Audits and Related 

Management Reports

Page 40 GAO-03-665 Status of Recommendations

87 03-25 Revise the LPG to require 

that lockbox bank 

management reconcile 

items found during 

candling to the candling 

records. (short-term)

IRS Lockbox 

Banks: More 

Effective 

Oversight, 

Stronger Controls, 

and Further Study 

of Costs and 

Benefits Are 

Needed (GAO-03-

299, Jan. 15, 

2003)

Closed. Instructions for candling 

have been revised to require 

management to reconcile items to 

the Form 9535. The 2003 LPG was 

updated on January 31, 2003, via 

Lockbox Electronic Bulletin alert, to 

include this requirement in the 

LPG. LPG reference 3.2.8.

Open. This is a new 

recommendation. We will review 

IRS’s corrective actions during 

our fiscal year 2003 financial 

audit.

88 03-26 Revise the LPG to require 

that lockbox bank 

management reconcile 

cash payments to internal 

cash logs and the cash 

logs they provide to IRS. 

(short-term) 

IRS Lockbox 

Banks: More 

Effective 

Oversight, 

Stronger Controls, 

and Further Study 

of Costs and 

Benefits Are 

Needed (GAO-03-

299, Jan 15, 2003)

Closed. All cash receipts are 

documented on Form 9535. LPG 

2003 was updated on January 31, 

2003, via Lockbox Electronic 

Bulletin, to include the requirement 

to document immediately and for 

management to reconcile 

payments. LPG reference 3.3.2.14.

Open. This is a new 

recommendation. We will review 

IRS’s corrective actions during 

our fiscal year 2003 financial 

audit.

89 03-27 Revise the LPG to require 

that lockbox employees 

immediately seek 

processing guidance from 

the lockbox coordinator if 

envelopes with timely 

postmark dates are 

received after the postmark 

review period has ended. 

(short-term)

IRS Lockbox 

Banks: More 

Effective 

Oversight, 

Stronger Controls, 

and Further Study 

of Costs and 

Benefits Are 

Needed (GAO-03-

299, Jan 15, 2003)

Closed. The January 1, 2003, LPG 

included a requirement for a 

lockbox site to notify the SPC 

Lockbox Coordinator if it receives 

timely postmarked mail after the 

grace period. The Lockbox 

Coordinator will provide instructions 

for processing and assess the need 

for further postmark review. See 

LPG reference 3.2.2.1(2).

Open. This is a new 

recommendation. We will review 

IRS’s corrective actions during 

our fiscal year 2003 financial 

audit.

90 03-28 Enforce 180-day expiration 

period for fingerprint check 

results required when an 

individual enters on duty. 

(short-term) 

Management 

Report: 

Improvements 

Needed in IRS’s 

Internal Controls 

(GAO-03-562R, 

May 20, 2003)

Closed. IRS re-emphasized this 

policy by e-mail to Background 

Investigations Coordinators and 

Personnel Officers on September 

30, 2002, and during a conference 

call on October 9, 2002. In addition, 

the Personnel Security and 

Investigations staff created and 

distributed an Excel file that 

calculates the date when fingerprint 

results expire.

Open. This is a new 

recommendation. We will review 

IRS’s corrective actions during 

our fiscal year 2003 financial 

audit.

(Continued From Previous Page)

Status of recommendations

Count No. Recommendation Source report Per IRS Per GAO
Appendix I

Status of GAO Recommendations from Prior 

IRS Financial Audits and Related 

Management Reports

Page 41 GAO-03-665 Status of Recommendations

91 03-29 Confirm with FMS that 

IRS’s requirements for 

background and fingerprint 

checks for courier services 

are met regardless of 

whether IRS or FMS 

negotiates the service 

agreement. (short-term)

Management 

Report: 

Improvements 

Needed in IRS’s 

Internal Controls 

(GAO-03-562R, 

May 20, 2003)

Closed. On October 7, 2002, FMS 

issued an amendment to the 

Courier MOU, which included the 

requirement that all courier 

employees satisfy the basic 

investigation including an FBI 

fingerprint and name check.

Open. This is a new 

recommendation. We will review 

IRS’s corrective actions during 

our fiscal year 2003 financial 

audit.

92 03-30 Establish procedures to 

verify that courier services 

are adhering to the 

standards established for 

them by IRS, including the 

requirement that the 

courier service have 

insurance coverage. (shortterm)

Management 

Report: 

Improvements 

Needed in IRS’s 

Internal Controls 

(GAO-03-562R, 

May 20, 2003)

Open. IRS's Security Review Team 

of Receipt and Control reviews 

compliance with the courier 

requirements monthly, using the 

Campus Security Checklist. On 

April 17, 2003, IRS requested that 

FMS direct banks to issue a copy of 

the insurance certificate to their 

aligned campus. In addition, FMS 

agreed to draft a memorandum to 

the financial institutions advising 

them to regularly provide a copy of 

the insurance certificates to IRS 

Headquarters.

Open. This is a new 

recommendation. We will review 

IRS’s corrective actions during 

our fiscal year 2003 financial 

audit.

93 03-31 Enforce consistent 

implementation of policy 

limiting personal 

belongings in receipt 

processing areas at 

service center campuses. 

(short-term)

Management 

Report: 

Improvements 

Needed in IRS’s 

Internal Controls 

(GAO-03-562R, 

May 20, 2003)

Open. IRS will issue a 

memorandum to all Submission 

Processing Field Directors by May 

15, 2003, requiring managers in 

receipt processing areas to ensure 

employees are adhering to 

established security procedures. 

This memorandum will require unit 

managers in receipt processing 

areas to conduct random reviews of 

employee compliance with all 

security policies. Beginning by June 

30, 2003, IRS will verify managerial 

adherence to this direction during 

the monthly Campus Security 

Reviews. The IRS Headquarters 

Security Review Team will also 

conduct unannounced Campus 

Security Reviews at the campuses.

Open. This is a new 

recommendation. We will review 

IRS’s corrective actions during 

our fiscal year 2003 financial 

audit.

94 03-32 Prohibit the storage of 

employees’ personal 

belongings with cash 

payments and receipts at 

IRS’s TACs. (short-term)

Management 

Report: 

Improvements 

Needed in IRS’s 

Internal Controls 

(GAO-03-562R, 

May 20, 2003)

Open. IRS will include a 

requirement in the IRM guidelines 

to be issued June 30, 2003, stating 

that cash payments and Form 809 - 

Receipt for Payment of Taxes must 

be stored separately from personal 

belongings.

Open. This is a new 

recommendation. We will review 

IRS’s corrective actions during 

our fiscal year 2003 financial 

audit.

(Continued From Previous Page)

Status of recommendations

Count No. Recommendation Source report Per IRS Per GAO
Appendix I

Status of GAO Recommendations from Prior 

IRS Financial Audits and Related 

Management Reports

Page 42 GAO-03-665 Status of Recommendations

Source: GAO and IRS.

95 03-33 Revise candling 

procedures to specify the 

precise candling methods 

to be used based on the 

dimensions of the mail 

processed and the 

extraction method used for 

both the first and the final 

candling. (short-term)

Management 

Report: 

Improvements 

Needed in IRS’s 

Internal Controls 

(GAO-03-562R, 

May 20, 2003)

Open. IRS is revising its IRM 

candling procedures to specify 

precise first and final candling 

methods. Scheduled completion 

date is May 30, 2003.

Open. This is a new 

recommendation. We will review 

IRS’s corrective actions during 

our fiscal year 2003 financial 

audit.

96 03-34 Establish and implement 

procedures prohibiting a 

single employee from 

performing the final 

candling in a remote 

location. (short-term)

Management 

Report: 

Improvements 

Needed in IRS’s 

Internal Controls 

(GAO-03-562R, 

May 20, 2003)

Open. IRS will incorporate new 

requirements in the IRM prohibiting 

a single employee from performing 

the final candling in a remote 

location. Scheduled completion 

date is May 30, 2003.

Open. This is a new 

recommendation. We will review 

IRS’s corrective actions during 

our fiscal year 2003 financial 

audit.

97 03-35 Determine which TACs do 

not presently accept 

payment of taxes in cash 

and issue a memorandum 

reminding them of the 

requirement that cash be 

accepted. (short-term)

Management 

Report: 

Improvements 

Needed in IRS’s 

Internal Controls 

(GAO-03-562R, 

May 20, 2003)

Closed. IRS included guidelines in 

its Fiscal Year 2003 Field 

Assistance Operating Procedures 

(FAOP) stating that all TACs will 

accept all standard forms of 

payments from customers including 

checks, money orders, and cash.

Open. This is a new 

recommendation. We will review 

IRS’s corrective actions during 

our fiscal year 2003 financial 

audit.

98 03-36 Establish a mechanism to 

periodically review 

adherence to IRS’s policy 

that payment of taxes in 

cash be accepted. (shortterm)

Management 

Report: 

Improvements 

Needed in IRS’s 

Internal Controls 

(GAO-03-562R, 

May 20, 2003)

Closed. IRS will include procedures 

in its operational reviews of TACs to 

ensure compliance with the FAOP 

guidelines. Also, managers in the 

TACs are also required to complete 

an annual review to address this 

issue.

Open. This is a new 

recommendation. We will review 

IRS’s corrective actions during 

our fiscal year 2003 financial 

audit.

(Continued From Previous Page)

Status of recommendations

Count No. Recommendation Source report Per IRS Per GAO
Page 43 GAO-03-665 Status of Recommendations

Appendix II

Details on Audit Methodology ApenIdxi

To fulfill our responsibilities as the auditor of the Internal Revenue 

Service’s (IRS) financial statements, we did the following: 

• We examined, on a test basis, evidence supporting the amounts and 

disclosures in the financial statements. This included testing selected 

statistical samples of unpaid assessment, revenue, refund, accounts 

payable, accrued expenses, payroll, nonpayroll, property and 

equipment, and undelivered order transactions. These statistical 

samples were selected primarily to substantiate balances and activities 

reported in IRS’s financial statements. Consequently, dollar errors or 

amounts can and have been statistically projected to the population of 

transactions from which they were selected. In testing these samples, 

certain attributes were identified that indicated either significant 

deficiencies in the design or operation of internal control or compliance 

with provisions of laws and regulations. These attributes, where 

applicable, can be and have been statistically projected to the 

appropriate populations.

• We assessed the accounting principles used and significant estimates 

made by management. 

• We evaluated the overall presentation of the financial statements. 

• We obtained an understanding of internal controls related to financial 

reporting (including safeguarding assets), compliance with laws and 

regulations (including the execution of transactions in accordance with 

budget authority), and performance measures reported in the 

Management’s Discussion and Analysis. 

• We tested relevant internal controls over financial reporting (including 

safeguarding assets) and compliance, and evaluated the design and 

operating effectiveness of internal controls. 

• We considered the process for evaluating and reporting on internal 

controls and financial management systems under the Federal 

Managers’ Financial Integrity Act. 

• We tested compliance with selected provisions of the following laws and 

regulations: Anti-Deficiency Act, as amended (31 U.S.C. §1341(a)(1) and 

31 U.S.C. §1517(a)); agreements for payment of tax liability in 

installments (26 U.S.C. §6159); Purpose Statute (31 U.S.C. §1301); 

release of lien or discharge of property (26 U.S.C. §6325); interest on 
Appendix II

Details on Audit Methodology

Page 44 GAO-03-665 Status of Recommendations

underpayment, nonpayment, or extensions of time for payment of tax 

(26 U.S.C. §6601); interest on overpayments (26 U.S.C. §6611); 

determination of rate of interest (26 U.S.C. §6621); failure to file tax 

return or to pay tax (26 U.S.C. §6651); failure by individual to pay 

estimated income tax (26 U.S.C. §6654); failure by corporation to pay 

estimated income tax (26 U.S.C. §6655); Prompt Payment Act (31 U.S.C. 

§3902 (a), (b), and (f), and 31 U.S.C. §3904); Fair Labor Standards Act of 

1938, as amended (29 U.S.C. §206); Civil Service Retirement Act of 1930, 

as amended (5 U.S.C. §§5332, 5343); Federal Employees' Retirement 

System Act of 1986, as amended (5 U.S.C. §§8422 and 8423); Social 

Security Act, as amended (26 U.S.C. §§3101 and 3121, and 42 U.S.C. 

§430); and Federal Employees Health Benefits Act of 1959, as amended 

(5 U.S.C. §§8905, 8906, and 8909).

• We tested whether IRS’s financial management systems substantially 

comply with the three requirements of the Federal Financial 

Management Improvement Act.
Page 45 GAO-03-665 Status of Recommendations

Appendix III

Comments from the Internal Revenue Service ApenIdxi
Page 46 GAO-03-665 Status of Recommendations

Appendix IV

GAO Contact and Staff Acknowledgments ApenVIdxi

GAO Contact Steven Sebastian, (202) 512-3406

Acknowledgments In addition to the person named above, Casey Keplinger, Larry Malenich, 

Paul Foderaro, Chuck Fox, Yola Lewis, John Davis, William Cordrey, 

Valerie Freeman, Alain Dubois, George Jones, Leonard Zapata, and Gloria 

Cano made key contributions to this report.

(196002)
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