```
                                                                 
Applying Agreed-Upon Procedures: Airport and Airway Trust Fund	 
Excise Taxes (23-JAN-03, GAO-03-361R).				 
                                                                 
We evaluated fiscal year 2002 activity affecting distributors to 
the Airport and Airway Trust Fund (AATF).			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-361R					        
    ACCNO:   A05942						        
  TITLE:     Applying Agreed-Upon Procedures: Airport and Airway Trust
Fund Excise Taxes						 
     DATE:   01/23/2003 
  SUBJECT:   Excise taxes					 
	     Trust funds					 
	     Financial records					 
	     Airport and Airway Trust Fund			 

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GAO-03-361R

GAO- 03- 361R Airport and Airway Trust Fund Excise Tax Procedures

United States General Accounting Office Washington, DC 20548

January 23, 2003 The Honorable Kenneth M. Mead Inspector General
Department of Transportation

Subject: Applying Agreed- Upon Procedures: Airport and Airway Trust Fund
Excise Taxes

Dear Mr. Mead: We have performed the procedures contained in the enclosure
to this report, which we agreed to perform and with which you concurred,
solely to assist your office in ascertaining whether the net excise tax
revenue distributed to the Airport and Airway Trust Fund (AATF) for the
fiscal year ended September 30, 2002, is supported by the underlying
records. As agreed with your office, we evaluated fiscal year 2002
activity affecting distributions to the AATF.

In performing the agreed- upon procedures, we conducted our work in
accordance with U. S. generally accepted government auditing standards,
which incorporate financial audit and attestation standards established by
the American Institute of Certified Public Accountants. These standards
also provide guidance for performing and reporting the results of agreed-
upon procedures.

The adequacy of the procedures to meet your objectives is your
responsibility, and we make no representation in that respect. The
procedures we agreed to perform include (1) detailed tests of transactions
that represent the underlying basis of amounts distributed to the AATF,
(2) review of the Internal Revenue Service*s (IRS) quarterly AATF
certifications, (3) review of the Department of the Treasury Financial
Management Service (FMS) adjustments to the AATF for fiscal year 2002, (4)
review of certain procedures in the Office of Tax Analysis* (OTA) process
for estimating amounts to be distributed to the AATF for the fourth
quarter of fiscal year 2002, (5) comparison of net excise tax
distributions to the AATF during fiscal year 2002 and amounts reported in
the financial statements prepared by the Bureau of the Public Debt (BPD)
for the AATF and the Federal Aviation Administration*s (FAA) draft
consolidated financial statements, and (6) review of key reconciliations
of IRS records to Treasury records. The enclosure contains the agreed-
upon procedures and our findings from performing each of the procedures.

We were not engaged to perform, and did not perform, an audit, the
objective of which would have been the expression of an opinion on the
amount of net excise

GAO- 03- 361R Airport and Airway Trust Fund Excise Tax Procedures Page 2
taxes distributed to the AATF. Accordingly, we do not express such an
opinion. Had

we performed additional procedures, other matters might have come to our
attention that would have been reported to you. 1 We completed the agreed-
upon procedures on January 10, 2003.

We provided a draft of this report to IRS and Treasury officials, along
with its enclosure, for review and comment. They agreed with the results
and findings presented in this report.

This report is intended solely for the use of the Office of Inspector
General of the Department of Transportation and should not be used by
those who have not agreed to the procedures and have not taken
responsibility for the sufficiency of the procedures for their purposes.
However, this report is a matter of public record and its distribution is
not limited. Copies are available to others upon request. This report is
also available at no charge on GAO*s home page at http:// www. gao. gov.
If you have any questions, please call me at (202) 512- 3406.

Sincerely yours, Steven J. Sebastian Director Financial Management and
Assurance

Enclosure 1 In our report on the results of our audit of IRS*s fiscal year
2002 financial statements, we noted a material weakness in IRS*s financial
reporting process (Financial Audit: IRS*s Fiscal Year 2002 and 2001
Financial Statements, GAO- 03- 243, November 15, 2002). A component of
this process includes IRS*s ability to allocate excise tax collections to
the appropriate trust funds at the time deposits are made. This condition
affects the adequacy of the distributions of federal excise tax revenue to
recipient trust funds and is a continuation of an issue that we have
reported on in prior years.

Enclosure GAO- 03- 361R Airport and Airway Trust Fund Excise Tax
Procedures Page 3

Airport and Airway Trust Fund Excise Tax Procedures and Results I.
Detailed tests of transactions that represent the underlying basis of
amounts distributed to the AATF in fiscal year 2002

A. Nonrepresentative selection of tax returns from the quarter ended
September 30, 2001 2 1. For the quarter ending September 30, 2001, select
the 30 largest excise tax

returns containing excise taxes related primarily to the AATF and the
Highway Trust Fund (HTF) on the basis of total tax liability 3 amount from
IRS*s master file. 4 Description of findings and results We selected the
31 largest excise tax returns from the quarter ended

September 30, 2001, for testing. 5 The selection was based on the total
tax liability amount and type of taxes owed, for each return, from IRS*s
master file.

The total tax liability amount related to these 31 returns was
approximately $8.1 billion, or 64 percent of the total excise tax
liability amount ($ 12.6 billion 6 ) for all excise tax types for the
quarter ended September 30, 2001.

Of these 31 returns, 6 contained primarily AATF- related taxes and 25
contained primarily HTF taxes.

2 Since certifications are not completed until 6 months after the end of
the quarter, the certification and corresponding FMS adjustment for the
quarter ended September 30, 2001, were completed in March 2002 and thus
affected fiscal year 2002 distributions to the AATF.

3 Although the certifications are based on amounts collected, we used the
tax liability amounts to identify the taxpayers paying the largest amounts
of excise taxes. Our review shows that these taxpayers generally pay their
excise taxes in full each quarter.

4 The master file is a detailed database containing taxpayer information.
5 Per our agreement with the Department of Transportation Office of
Inspector General, we selected one additional AATF- related return in
order to test a minimum of six AATF returns. 6 Per IRS, this was the total
excise tax liability amount, from its master file, for the quarter ended
September 30, 2001.

Enclosure GAO- 03- 361R Airport and Airway Trust Fund Excise Tax
Procedures Page 4 2. For each of the 6 returns related primarily to the
AATF, we performed the

following procedures, which resulted in our testing approximately $1.2
billion in prorated collections 7 affecting fiscal year 2002 distributions
to the AATF:

(a) Trace the liability amount for abstracts 8 26, 27, and 28 from the tax
return to IRS*s master file.

Description of findings and results The liability amount for abstracts 26,
27, and 28 on the tax return agreed with IRS*s master file for all 6 of
the returns. (b) Check the mathematical accuracy of the taxpayer*s
calculations on the

tax return for the selected abstracts. Description of findings and results
The taxpayer*s calculations on all 6 returns were mathematically

correct. 7 IRS certifies to trust funds the amount of excise taxes
collected. Because there are occasions in which taxpayers have not fully
paid their tax liability, IRS must allocate the amount of payments
actually received among the different excise taxes reported on the
taxpayer*s return. IRS*s Collection Certification System prorates a
taxpayer*s payments proportionately among all taxes reported as owed on
the tax return. For example, if a taxpayer reports that it owes $4 million
for gasoline tax, $2 million for diesel fuel tax, and $1 million for
gasohol tax on its Form 720 Quarterly Federal Excise Tax Return, but has
paid IRS only $3.5 million at the time IRS performs its certification, the
program prorates the $3.5 million in the following manner: $2 million to
gasoline tax, $1 million to diesel fuel tax, and $500,000 to gasohol tax.

8 The abstract numbers identify the tax type (e. g., gasoline and ticket
tax) and are used as the basis for determining the distribution of the
excise taxes to the various trust funds. Abstract numbers are preprinted
on the Form 720 Quarterly Federal Excise Tax Return and are used by the
taxpayer to report excise tax assessments. If the return was related to
the AATF, we selected (1) tax on transportation of persons by air- ticket
tax (abstract 26), (2) tax on use of international

air facilities (abstract 27), and (3) tax on transportation of property by
air (abstract 28). If the return was related to the HTF, we selected (1)
tax on 10 percent gasohol (abstract 59), (2) diesel fuel tax (abstract
60), and (3) gasoline tax (abstract 62). The tax amounts related to the
selected abstracts for each trust fund are the largest tax amounts
reported on the taxpayer*s excise tax return and make up over 90 percent
of the total amount certified to the AATF and over 87 percent of the total
amount certified to the HTF.

Enclosure GAO- 03- 361R Airport and Airway Trust Fund Excise Tax
Procedures Page 5 (c) Recompute the prorated collection amount for the
selected abstracts

based on information from the master file and compare this amount to the
amount from the Collection Certification System audit file. 9 Description
of findings and results The recomputed prorated collection amounts for the
three selected

abstracts agreed with amounts in IRS*s Collection Certification System
audit file for all 6 of the returns.

B. Dollar unit sample (DUS) of transactions from the quarters ended
December 31, 2001, and March 31, 2002

1. Sampling (a) Obtain excise tax assessments and collection data from
IRS*s master

file for the first 6 months of fiscal year 2002. Determine if excise tax
collections per master file agree with IRS*s general ledger. Reconcile
total excise tax collections from the master file to total excise tax
collections from the Collection Certification System audit files to
determine if they materially 10 agree.

Description of findings and results Excise tax collections for the first 6
months of fiscal year 2002 per the master file materially agreed with
IRS*s general ledger and with total excise tax collections from the
Collection Certification System.

(b) Select a random attribute sample of 78 excise tax assessments from
IRS*s master file. 11 Compare assessment and receipt information for each
sample item from the master file to the assessment and receipt information
in the Collection Certification System to determine if assessments and
receipts from the master file are contained in the Collection
Certification System.

9 The Collection Certification System produces what IRS refers to as
*audit files.* These audit files contain the individual prorated
collections, by abstract and taxpayer identification number, that make up
the certified total amounts for each abstract.

10 For the purpose of this reconciliation, material is defined as 1
percent of the total Form 720- related excise tax collections, related to
the quarters ended December 31, 2001, and March 31, 2002. For fiscal year
2002, the materiality amount was $210 million for the two quarters

combined. 11 For this sample, if one or no errors were found in testing
the 78 items, we would be 90 percent confident that the error rate in the
population would not exceed 5 percent.

Enclosure GAO- 03- 361R Airport and Airway Trust Fund Excise Tax
Procedures Page 6 Description of findings and results For each sample
item, assessments and receipts from the master file

were contained in the Collection Certification System. (c) To determine if
the Collection Certification System properly

summarized the prorated collections, total the prorated collections for
selected abstracts 12 from the audit files and compare these amounts to
amounts in the Reports of Excise Tax Collection. 13 Description of
findings and results The Collection Certification System properly
summarized the prorated

collections for all of the selected abstracts related to the AATF and the
HTF. Prorated collections for the above- mentioned trust funds from the
audit files agreed with the corresponding amounts in the Reports of Excise
Tax Collection.

(d) Separate the total population of prorated collections from the audit
files into the following distinct populations: (1) AATF, (2) HTF, and (3)
other excise tax abstracts. Use DUS to select a sample of prorated excise
tax collections from the AATF population.

12 The selected abstracts include the following: (1) tax on transportation
of persons by air (abstract 26), (2) tax on use of international air
facilities (abstract 27), (3) tax on transportation of property by air
(abstract 28), (4) tax on aviation fuel for commercial use (abstract 77),
(5) tax on 10 percent gasohol (abstract 59), (6) diesel fuel tax (abstract
60), and (7) gasoline tax (abstract 62). The tax amounts for the four
AATF- related abstracts make up over 96 percent of the total amount
certified to the AATF and the tax amounts for the three HTF- related
abstracts make up over 87 percent of the total amounts certified to the
HTF.

13 The Report of Excise Tax Collection contains prorated collections,
classified by abstracts, that serve as the basis for IRS*s quarterly trust
fund certifications.

Enclosure GAO- 03- 361R Airport and Airway Trust Fund Excise Tax
Procedures Page 7 Description of findings and results Use of DUS with a
confidence level of 80 percent, a test materiality of

$91 million, and an expected aggregate error amount of $27.3 million
resulted in a sample of 62 14 prorated collections for the first 6 months
of fiscal year 2002. (e) Select samples of prorated excise tax collections
from the two nonAATF populations.

Description of findings and results Use of DUS with a confidence level of
80 percent, a test materiality of $315 million, and an expected aggregate
error amount of $94.5 million resulted in a sample of 94 15 prorated
collections for the first 6 months of fiscal year 2002 for the HTF.

A random attribute sample of 45 items from the population of prorated tax
collections related to all excise taxes other than the AATF and the HTF
was selected for testing. 16 2. Detailed tests of transactions

(a) For each prorated excise tax collection sampled from the AATF
population:

Check to see that the assessment amount on the tax return, for the sampled
abstract, agrees with the amount recorded in IRS*s master file.

14 The planned sample size using DUS was 111 items. DUS selects dollars
versus specific transaction items by dividing the population by dollar
intervals. The dollar interval for the AATF was $34 million. Accordingly,
any item with a dollar value matching or exceeding the sampling interval
would be selected, whereas items less than the sampling interval might not
be selected. For example, an item of $68 million would cover two dollar-
intervals, but represent one sample

item. Due to large dollar items covering more than one interval, the 62
unique sampled transactions selected represent 111 dollar- intervals.

15 The planned sample size using DUS was 136 items. As explained in
footnote 14, DUS selects dollars versus specific transaction items by
dividing the population by dollar intervals. The dollar interval for the
HTF was $116 million. Due to large dollar items covering more than one
interval, the 94 unique sampled transactions selected represent 136
dollar- intervals.

16 For this sample, if no errors are found in testing the 45 items, we
would be 90 percent confident that the error rate in the population would
not exceed 5 percent.

Enclosure GAO- 03- 361R Airport and Airway Trust Fund Excise Tax
Procedures Page 8 Description of findings and results The assessment
amounts on the tax returns agreed with the amounts

recorded in IRS*s master file for all of the sampled abstracts.

Check the mathematical accuracy of the taxpayers* calculations on the tax
returns for the related abstract.

Description of findings and results The taxpayers* calculations on the tax
returns for the related abstracts were mathematically correct for all of
the sampled abstracts.

Recompute the prorated collection amount based on information from the
master file and compare this amount to the sample items selected from the
Collection Certification System audit file. 17 Description of findings and
results The recomputed prorated collection based on information from the

master file agreed with the amounts for all of the sampled items. (b)
Perform detailed testing on the two samples of prorated collections

from the non- AATF populations to determine if they contain any AATF
excise tax collections.

Description of findings and results The two samples of prorated
collections from the non- AATF populations did not contain any AATF excise
tax collections. (c) Evaluate the results of conducting steps (a) and (b).

Description of findings and results As noted in the results from steps (a)
and (b), we found no errors.

II. Review of IRS*s quarterly AATF certifications

A. Receipt certifications 17 The purpose of this test is to determine
whether the Collection Certification System prorates correctly. This test
is not intended to determine whether amounts provided to the system are
correct.

Enclosure GAO- 03- 361R Airport and Airway Trust Fund Excise Tax
Procedures Page 9 Perform the following steps on IRS*s AATF receipt
certifications for the quarters

ended September 30, 2001; December 31, 2001; March 31, 2002; and June 30,
2002: 18 1. Inspect the certification letters for authorizing signatures.

Description of findings and results The certification letters for all four
quarters had authorizing signatures. 2. Determine if evidence exists that
the supervisor or another analyst checked

the certification letters and supporting worksheets. Description of
findings and results There was evidence that another analyst and a
supervisor checked the

certification letters and supporting worksheets for all four quarters. 3.
Recalculate the totals on the certification letters to determine if they
are

mathematically correct. Description of findings and results The totals on
the certification letters for all four quarters were mathematically

correct. 4. Trace the certified amounts for tax on transportation of
persons by air

(abstract 26), tax on use of international air facilities (abstract 27),
tax on transportation of property by air (abstract 28), and tax on
aviation fuel for commercial use (abstract 77) 19 from the certification
letters back to the

Reports of Excise Tax Collection. 20 18 Since certifications are not
completed until 6 months after the end of the quarter, the certification
and corresponding FMS adjustment for the quarter ended September 30, 2002,
will not be completed in time to affect the recorded fiscal year 2002
distributions to the AATF.

19 The certified amounts for tax on transportation of persons by air
(abstract 26), tax on use of international air facilities (abstract 27),
tax on transportation of property by air (abstract 28), and tax on
aviation fuel for commercial use (abstract 77) make up over 96 percent of
the total amount certified to the AATF.

20 IRS uses data from two of these reports, covering sequential processing
intervals, for each quarterly certification. Collections are classified by
abstract on the report when the related Form 720 tax return has been
recorded in IRS*s master file during the processing interval covered by
the report. The second of the two reports used may contain collections
related to previous

quarters not classified by abstract until the current quarter because the
related return was not recorded on the master file until the current
quarter.

Enclosure GAO- 03- 361R Airport and Airway Trust Fund Excise Tax
Procedures Page 10 Description of findings and results The certified
amounts for tax on transportation of persons by air (abstract 26), tax on
use of international air facilities (abstract 27), tax on transportation
of

property by air (abstract 28), and tax on aviation fuel for commercial use
(abstract 77) per the certification letters agreed with the related Report
of Excise Tax Collection for all four quarters.

However, IRS omitted $146 million in excise tax collections from its
normal receipt certification for the quarter ended March 31, 2002, because
of processing delays. Specifically, IRS did not record information from
two large excise tax returns into its master file in time for inclusion in
the Report of Excise Tax Collection. As a result, IRS performed a
supplemental certification in order to timely certify the additional $146
million to the AATF. We (1) recalculated the total on the supplemental
certification letter and (2) traced the certified amounts for tax on
transportation of persons by air (abstract 26), tax on use of
international air facilities (abstract 27), tax on transportation of
property by air (abstract 28), and tax on aviation fuel for commercial use
(abstract 77) from the supplemental certification letters back to the two
supporting tax returns. We did not identify any discrepancies.

5. Review the Reports of Excise Tax Collection used in the certification
to determine if they contain significant 21 collections from prior
quarters.

Description of findings and results The Reports of Excise Tax Collection
supporting IRS*s certifications to the AATF did not contain significant
prior quarter collections for the quarters ended September 30, 2001; March
31, 2002; and June 30, 2002.

The Reports of Excise Tax Collection supporting IRS*s certification to the
AATF for the quarter ended December 31, 2001, contained approximately $432
million in AATF excise tax collections related to the quarter ended
September 30, 2001. IRS attributed this to the compressed time frame for
processing of excise tax returns for that quarter. Congress passed the Air
Transportation Safety and System Stabilization Act (Public Law 107- 42) in
response to the events of September 11, 2001. Section 301 gave the
Secretary of the Treasury the option of giving airlines an extension until
January 15, 2002, to make their excise tax deposits and to submit their
excise tax returns for the quarter ended September 30, 2001. When the
Secretary of the Treasury exercised this option, 21 For this test,
*significant* is defined as $20 million. This represents approximately 1
percent of

the total amount certified to the AATF for a quarter.

Enclosure GAO- 03- 361R Airport and Airway Trust Fund Excise Tax
Procedures Page 11 it reduced the time IRS normally has for processing
these returns from

approximately 4 months to 6 weeks. 6. Review the distribution rates used
by IRS to determine whether the

distribution rates for tax on transportation of persons by air (abstract
26), tax on use of international air facilities (abstract 27), tax on
transportation of property by air (abstract 28), and tax on aviation fuel
for commercial use (abstract 77) agree with the applicable laws.

Description of findings and results We saw no evidence that the
distribution rates used by IRS for tax on transportation of persons by air
(abstract 26), tax on use of international air facilities (abstract 27),
tax on transportation of property by air (abstract 28), and tax on
aviation fuel for commercial use (abstract 77) did not agree with the
applicable laws in effect during the four quarters. B. Refund/ credit
reclassification 22 Perform the following steps on IRS*s AATF refund/
credit certifications for the

quarters ended December 31, 2001; March 31, 2002; June 30, 2002; and
September 30, 2002: 23 1. Inspect the certification letters for
authorizing signatures.

Description of findings and results The certification letters for all four
quarters had authorizing signatures. 2. Determine if evidence exists that
the certification letters and accompanying

schedules 24 were checked by the supervisor or another analyst. 22 IRS
performs a quarterly reclassification of excise tax refunds and credits
originally entered into its master file as personal or corporate refund/
credit. IRS refers to these reclassifications as *refund/ credit
certifications.* These amounts do not represent the total excise tax
refund/ credit activity to the trust funds. Other routine excise tax
refunds and credits (e. g., overpayments), which are claimed on taxpayers*
Form 720 excise tax returns, are included in IRS*s excise tax receipt
certification to trust funds.

23 In order to meet certain reporting deadlines, IRS- certified refunds
and credits for the fourth quarter of fiscal year 2002 as of September 6,
2002. 24 IRS attaches a separate schedule to the AATF refund/ credit
certification letter that includes the

detailed excise tax amounts that support the total amount shown on the
letter. IRS compiles the amounts on these schedules from service center
campus systems and its Interim Revenue Accounting Control System. IRS has
10 service center campuses that process tax returns and tax receipts.

Enclosure GAO- 03- 361R Airport and Airway Trust Fund Excise Tax
Procedures Page 12 Description of findings and results There was evidence
that another analyst and a supervisor checked the

certification letters and accompanying schedules for all four quarters. 3.
Recalculate the totals on the certification letters and accompanying
schedules

to determine if they are mathematically correct. Description of findings
and results The totals on the certification letters and accompanying
schedules were

mathematically correct for all four quarters. 4. Trace the refund and
credit amount for aviation gas and aviation O/ T gas 25 from the schedules
accompanying the certification letters to other summary refund/ credit
schedules. These other refund/ credit summary schedules summarize refund
and credit data obtained from service center campuses* records.

Description of findings and results The refund and credit amounts for
aviation gas and aviation O/ T gas on the schedules accompanying the
certification letters agreed with the amounts on the summary schedules for
the quarters ended December 31, 2001; March 31, 2002; and June 30, 2002.

On IRS*s refund and credit certification for the quarter ended September
30, 2002, the IRS analyst entered data from the summary schedules into the
wrong sections of a schedule accompanying the certification letter. As a
result, IRS reported $12.3 million in AATF refunds as credits and $2.2
million in AATF credits as refunds. There was no impact on distributions
to the AATF because BPD deducts the total amount of refunds and credits in
calculating

distributions to the trust fund.

III. Review of FMS adjustments

Perform the following steps on FMS adjustments to AATF excise tax
distributions for the quarters ended September 30, 2001; December 31,
2001; March 31, 2002; and June 30, 2002.

25 Aviation gas and aviation O/ T gas are the only two excise taxes on the
AATF refund/ credit certification.

Enclosure GAO- 03- 361R Airport and Airway Trust Fund Excise Tax
Procedures Page 13 A. Compare the FMS adjustments made to the AATF for
fiscal year 2002 with

original OTA estimates and IRS- certified amounts to see if they agree
with the supporting schedules. 26 Description of findings and results For
the FMS adjustments made to the AATF, the original OTA estimates and

IRS- certified amounts agreed with the supporting schedule for all four
quarters.

B. Recompute the difference between the OTA estimates and final IRS-
certified amounts to see if the amounts agree with the differences
computed by FMS.

Description of findings and results The independently recalculated
differences between the OTA estimates and the final IRS- certified amounts
for the AATF agreed with the differences computed by FMS for all four
quarters.

These amounts were 27 for the quarter ended September 30, 2001,
$187,040,000;

for the quarter ended December 31, 2001, $8,832,000;

for the quarter ended March 31, 2002, ($ 381,091,000); and

for the quarter ended June 30, 2002, ($ 105,188,000).

IV. Procedures performed on excise tax distributions to the AATF for the
quarter ended September 30, 2002

A. Determine if OTA*s process for identifying and incorporating into its
trust fund estimates 28 the effect of new legislation on excise tax
receipts was in place during fiscal year 2002.

26 An FMS accountant compiles this schedule, called the Subsidiary
Quarterly Account of Estimates and Actual Related Excise Taxes
Appropriated to the AATF. It computes the difference between IRS-
certified amounts and the OTA estimate for excise taxes, individually and
in total, that relate to the AATF. The schedule, along with OTA transfer
forms and IRS certifications, supports the FMS adjustment.

27 A positive amount indicates that the FMS adjustment increased excise
taxes distributed to the trust fund. A negative amount, shown in
parentheses, indicates that the FMS adjustment decreased excise taxes
distributed to the trust fund.

28 OTA makes semimonthly estimates of excise tax collections for transfer
to trust funds.

Enclosure GAO- 03- 361R Airport and Airway Trust Fund Excise Tax
Procedures Page 14 Description of findings and results OTA*s process for
identifying and incorporating into its trust fund estimates

the effect of new legislation on excise tax receipts was in place during
fiscal year 2002. OTA prepares a tax rate table 29 to capture information
relating to legislation that affects tax rates, tax basis, accounts, and
deposit rules in effect during the tax period.

B. Determine if there is evidence of review of the transfer forms and
supporting schedules.

Description of findings and results There was evidence that another OTA
economist reviewed the transfer forms and supporting schedules for the
semimonthly transfers affecting distributions to the AATF for the quarter
ended September 30, 2002.

C. Recalculate the totals on the transfer letters to determine if they are
mathematically correct.

Description of findings and results The totals on the transfer forms
affecting distributions to the AATF for the quarter ended September 30,
2002, were mathematically correct. D. Trace the transfer amounts for tax
on transportation of persons by air

(abstract 26), tax on use of international air facilities (abstract 27),
tax on transportation of property by air (abstract 28), and tax aviation
fuel for commercial use (abstract 77) 30 from the transfer letter, through
the supporting schedules and back to the related source documents. 31 29
OTA communicates this information to interested parties at Treasury, the
Federal Highway

Administration, the Federal Transit Administration, and the Department of
Transportation. IRS uses the tax and distribution rates from this table in
its subsequent certification of collections to trust funds. 30 The
transfer amounts for tax on transportation of persons by air (abstract
26), tax on use of

international air facilities (abstract 27), tax on transportation of
property by air (abstract 28), and tax aviation fuel for commercial use
(abstract 77) made up over 96 percent of the total amount transferred to
the AATF during the fourth quarter of fiscal year 2002.

31 The source documents include the IRS report of excise taxes used to
derive the percentages applied to reported receipts, the Daily Treasury
Statement, the Monthly Treasury Statement, and the excise tax rate tables.

Enclosure GAO- 03- 361R Airport and Airway Trust Fund Excise Tax
Procedures Page 15 Description of findings and results The transfer
amounts for tax on transportation of persons by air (abstract 26),

tax on use of international air facilities (abstract 27), tax on
transportation of property by air (abstract 28), and tax aviation fuel for
commercial use (abstract 77) from the transfer forms affecting
distributions to the AATF for the quarter ended September 30, 2002, agreed
with the supporting schedules and source documents.

V. Other procedures

A. Compare total fiscal year 2002 excise taxes distributed to the AATF
with (1) drafts of FAA fiscal year 2002 consolidated financial statements
and (2) BPD fiscal year 2002 financial statements for the AATF to
determine if they agree.

Description of findings and results Fiscal year 2002 excise taxes of $8.
85 billion distributed to the AATF agreed with the amount reported on the
draft FAA consolidated financial statements but did not agree with the
amount on the BPD fiscal year 2002 financial statements for the AATF. The
BPD fiscal year 2002 financial statements for the AATF reported excise tax
distributions to the AATF of $8.95 billion. The difference is due to the
$105 million downward FMS adjustment for the quarter ended June 30, 2002,
which FMS recorded in December 2002. This was after the November 1, 2002,
issue date of BPD*s financial statements for the AATF.

B. Procedures performed as part of fiscal year 2002 IRS financial
statement audit: 1. From IRS*s master files for the first 8 months of
fiscal year 2002, use DUS

to select statistical samples of (1) total tax revenue receipts and (2)
refunds. For each sample item, test that the collection or refund amount,
tax period, and tax class 32 from source documentation agree with the
information recorded in IRS*s master files.

Description of findings and results Detailed testing of 153 revenue
receipts and 50 refund sample transactions showed that the collection or
refund amount, tax period, and tax class from source documents agreed with
the information recorded in IRS*s master files. 32 IRS assigns a tax class
number to specific types of taxes. Excise taxes are tax class 4.

Enclosure GAO- 03- 361R Airport and Airway Trust Fund Excise Tax
Procedures Page 16 2. Review selected service center campuses* monthly
Treasury SF- 224

reconciliations to determine if IRS- reported revenue receipts were
properly classified and reconciled to Treasury FMS records. For refunds,
review selected IRS service center campuses* monthly Treasury SF- 224
reconciliations to determine if IRS- reported total refunds (all tax
classes) were materially 33 reconciled to Treasury FMS records. 34
Description of findings and results Tax revenue receipts reported by
selected IRS service center campuses

through the monthly Treasury SF- 224 reconciliation process were properly
classified and materially agreed with Treasury FMS records.

Total refunds reported by the selected IRS service center campuses through
the monthly Treasury SF- 224 reconciliation process materially agreed with
Treasury FMS records.

3. Perform procedures to determine whether tax revenue receipt balances by
tax class, including excise tax, per IRS*s general ledger materially agree
with IRS master files and Treasury records. For refunds, perform a
comparison of total refund balances between the master file, the general
ledger, and Treasury records. Also, compare excise tax refunds per the
master file to the general ledger.

Description of findings and results Tax receipt balances for all tax
classes, including excise taxes, per IRS*s general ledger, materially
agreed with IRS*s master files and with Treasury records.

Refund balances per IRS*s general ledger materially agreed with the master
file and with Treasury records.

(191027) 33 For the purpose of this procedure and procedure V. B. 3, we
define material as $20 billion. This represents 1 percent of the total tax
revenue receipts collected by IRS in fiscal year 2002. 34 IRS maintains
records of refund balances by tax class in its master file and reports
this information monthly to Treasury on the SF- 224. Treasury provides IRS
with a Statement of Differences (TFS- 6652), which reports differences
between total refunds reported by IRS on the SF- 224 and the total refunds
per Treasury records.
*** End of document. ***
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