January 2001 Major Managem

Challenges and 

Program Risks

Department of the Trea

GAO-01-254

Page 1 GAO-01-254 Tre

Letter 

Overview 

Major 

Performance 

and 

Accountability 

Challenges

Related GAO 

Reports

Performance 

and 

Accountability 

Series
Page 2 GAO-01-254 Treasu
of th

Page 3 GAO-01-254 Tre

United States General Accounting Office

Washington, D.C. 20548

January 2001

The President of the Senate

The Speaker of the House of Representati

This report addresses the major performa

accountability challenges facing the Depa

Treasury (Treasury) as it seeks to carry ou

aspects of its economic, financial, enforce

management missions. It includes a summ

that Treasury has taken and that are unde

address these challenges. It also outlines f

that GAO believes are needed. This analys

the new Congress and administration carr

responsibilities and improve government 

of the American people.

This report is part of a special series, first 

January 1999, entitled the Performance an

Accountability Series: Major Management 

and Program Risks. In that series, GAO ad

Congress that it planned to reassess the m

and criteria used to determine which fede

government operations and functions sho

highlighted and which should be designat

risk.” GAO completed the assessment, con

comments provided on a publicly availabl

draft, and published its guidance docume

Determining Performance and Accountab

Challenges and High Risks (GAO-01-159SP

November 2000.

This 2001 Performance and Accountabilit

contains separate reports on 21 agencies—

each cabinet department, most major inde

agencies, and the U.S. Postal Service. The 

includes a governmentwide perspective on 
Page 4 GAO-01-254 Treasu

and management challenges across the fede

government. As a companion volume to this 

is issuing an update on those government op

and programs that its work identified as “hig

because of either their greater vulnerabilitie

fraud, abuse, and mismanagement or major c

associated with their economy, efficiency, or 

effectiveness.

David M. Walker

Comptroller General 

of the United States
Page 5 GAO-01-254 Tre
Page 6 GAO-01-254 Tre

The Department of the Treasury is respon

broad scope of activities that touch the liv

Americans, including collecting taxes, ma

government’s finances, securing U.S. bord

controlling firearms-related crime, and ma

assets. To carry out its responsibilities, Tr

workforce of about 143,000 employees, m

work for Treasury’s 13 bureaus. Treasury 

of performance and accountability challen

successful execution of its broad and com

responsibilities. This report discusses the 

challenges that have surfaced on the basis 

at Treasury and several of its bureaus and 

progress made since we issued our last pe

accountability report in 1999.1

1 Performance and Accountability Series: Major Ma

Challenges and Program Risks: Department of the T

(GAO/OCG-99-14, Jan. 1999).
Page 7 GAO-01-254 Tre

Internal Revenue 

Service (IRS) 

Modernization

IRS’ ability to balance its goals of helping 

comply with tax laws and improving over

depends on successfully modernizing IRS

modernization effort encompasses change

facet of IRS’ operations, including its orga

structure, its performance management sy

technology. IRS is about 3 years into the m

process, which is likely to take a decade o

complete. Over the past 3 years, IRS has d

committed to an integrated modernization 

which is a significant achievement. It has i

new organizational structure with four cu

focused operating divisions to meet the n

taxpayer segments they serve. It has also m

in implementing our recommendations ai

establishing key management controls ne

• Modernize the Internal Revenue Service to 

help taxpayers meet their tax responsibilitie

increase overall compliance with tax laws

• Improve the U.S. Customs Service's regulat

commercial trade while ensuring that it prot

against the entry of illegal goods at U.S. bor

• Achieve sound financial management throu

significant management attention and priori

• Improve the Bureau of Alcohol, Tobacco an

Firearms' performance measures to better 

determine its progress in reducing criminals

to firearms 

• Improve the management of Treasury's ass

forfeiture program
Page 8 GAO-01-254 Treasu

effectively build and implement modern info

systems. Substantial work remains for IRS’ 

modernization, however, before expected re

achieved. This work includes 

• revamping business practices to better m

taxpayers’ needs, 

• implementing a balanced approach to pe

management to better assess progress in 

goals and improving operations, 

• addressing financial management weakn

develop reliable cost-based performance 

information, and 

• institutionalizing effective management c

information systems modernization. 

We have classified four areas of IRS’ operati

risk: financial management, systems modern

collection of unpaid taxes, and noncomplian

Earned Income Credit (EIC). Two of these ar

financial management and systems moderniz

were first designated as high-risk in 1995. In 

areas, billions of dollars are at risk because I

requisite management controls. Specifically:

• Because IRS lacks reliable cost accountin

information, it is difficult for IRS and Con

determine the cost of various tax collecti

enforcement activities. If IRS had such co

accounting information, it could also use 

manage these activities more efficiently. 

• Modernization of IRS’ systems that suppo

IRS business functions has inherent risks 

is extremely complex and costly. In addit

not yet fully corrected long-standing and 

modernization management and technica

weaknesses that were the focus of our pa

recommendations. If these weaknesses a

addressed, modernization projects are at 
Page 9 GAO-01-254 Tre

performing as intended, costing more, 

longer to complete.

• IRS lacks reliable and timely financial, 

and compliance data to help target its 

collecting billions of dollars in unpaid 

result, the federal government is expo

significant losses of tax revenue, and c

taxpayers bear an undue burden of fin

government’s activities. 

• IRS lacks data to demonstrate that it h

controls over noncompliance with the 

credit that is available to low-income w

people. According to IRS data, taxpaye

inappropriately claiming billions of do

credit. 

IRS has made good progress in establishin

controls in its financial management and 

modernization areas, but concerted follow

modernization plans and substantial impl

needed to more fully address our recomm

reduce the risk level. 

Customs’ Regulation 

of Commercial Trade 

Customs faces significant performance ch

balancing its responsibilities for enforcing 

safeguard U.S. borders against the illegal 

and regulating legitimate commercial activ

Customs has made some progress in impl

modernization initiatives that are designe

its regulation of commercial activities and 

effectiveness of personal searches of pass

following challenges remain:

• completing an assessment of new trad

initiatives as we recommended; 

• fully implementing mature and effectiv

acquisition capabilities as we recomm

it can effectively acquire a large, comp

processing system known as the Autom
Page 10 GAO-01-254 Treasu

Commercial Environment that is to help f

movement of goods into the United State

collection of revenues; 

• continuing to address our recommendatio

better data to improve the process of sea

airline passengers who may be carrying c

such as illegal drugs, while respecting the 

American citizens and the traveling publi

• using reliable data to address our recomm

to determine its staff resource needs for 

operations and ensure that personnel are 

where they are most needed. 

Financial 

Management 

Treasury faces many challenges in its ongoin

improve the accuracy and reliability of its fin

information management systems and corre

control weaknesses that we and the Treasury 

Inspector General (OIG) identified at severa

bureaus and offices. Treasury received a qua

opinion on its fiscal year 1999 Department-w

financial statements because of financial ma

problems at IRS and the inability of IRS’ adm

systems to produce timely, auditable data to 

certain IRS financial statements. Treasury’s a

effectively fulfill its financial management 

responsibilities has also been adversely affec

lack of substantial compliance with the finan

management systems requirements detailed 

Federal Financial Management Improvemen

1996 (FFMIA) and weaknesses in Customs’ i

controls over data in its automated systems.

Certain significant financial systems weakne

problems with fundamental recordkeeping a

reporting; incomplete documentation; and w

controls, including computer controls, have u

the U.S. government’s ability to obtain an opi

reliability of its financial statements for the 3 

we have reported on these statements. As pr
Page 11 GAO-01-254 Tre

the Financial Report of the United States 

Treasury’s Financial Management Service 

key responsibility to provide leadership a

agencies to address some of these problem

particular the lack of sufficient systems, c

procedures to properly prepare the gover

financial statements. Further, in performi

Treasury’s role as primary fiscal agent for 

government, FMS continues to experience 

addressing financial management issues r

implementing the requirements of the Deb

Improvement Act of 1996 and improving i

security controls over systems used to he

hundreds of billions of dollars of collectio

disbursements made on behalf of most fe

At the end of fiscal year 1998, the unified 

federal government was in surplus for the 

almost 30 years and surpluses are project

over the next decade. As we have stated i

reports, the transition from annual budget 

surpluses presents challenges to Treasury 

the maturity profile of federal debt held b

consistent with Treasury’s objectives and 

achieving these three debt management o

sound cash management, lowest financing 

promotion of efficient capital markets.

Bureau of Alcohol, 

Tobacco and 

Firearms’ 

Performance 

Measures 

Significant technological advances have g

Bureau of Alcohol, Tobacco and Firearms 

investigative information to enforce the fe

regulations relating to firearms and firear

violent crime. However, as we observed in 

report,2

 it is difficult to determine ATF’s p

2 Observations on the Department of the Treasury’s 

Performance Report and Fiscal Year 2001 Performan

(GAO/GGD/AIMD-00-231R, June 30, 2000).
Page 12 GAO-01-254 Treasu

because its performance measures are gener

measures (e.g., number of firearm traces ma

trace response time, and number of persons 

rather than outcome measures (e.g., reductio

firearms-related crimes). Treasury officials h

that until Treasury is better able to determin

and-effect relationships between its program

outcomes they are intended to influence, it w

to rely on output measures. 

Asset Forfeiture 

Program 

Another challenge for Treasury deals with th

but similar seized asset programs operated b

and Justice that were first designated as high 

1990. Neither department had adequately foc

managing and accounting for seized assets n

plan to consolidate the two programs, as wa

by Congress. As of September 30, 1999, the c

value of assets in these two programs was m

$1 billion, of which about $625 million were a

Treasury’s management. We have noted impr

in the management of both programs over th

decade. However, the Treasury Inspector Ge

continues to identify weaknesses in the area

the subject of our past recommendations, su

implementing accountability control over se

property at Customs. Further, Treasury and J

not addressed our recommendation to conso

two programs to eliminate duplication of res

reduce administrative costs. However, they a

conducting a study of opportunities for coop

the administration of their programs. We wil

the results of this study along with actions to 

internal control weaknesses in determining w

remove the high-risk designation for the asse

program in the future.
Page 13 GAO-01-254 Tre

y g

This report discusses the performance an

accountability challenges that have surfac

basis of our work at Treasury and several 

Those challenges affect Treasury’s ability 

critical enforcement and financial respons

include ensuring compliance with tax and 

protecting U.S. borders against the illegal 

managing the finances of the government

firearms-related crimes. Although Treasur

bureaus have made progress in each of the

standing challenges, some of which rise to 

high risk, remain. These challenges and h

are discussed below. 

Modernize IRS to 

Better Help 

Taxpayers Meet 

Their Tax 

Responsibilities 

and to Increase 

Overall 

Compliance With 

Tax Laws

IRS’ ability to balance its goals of helping 

meet their tax responsibilities and improv

compliance with the tax laws depend on i

completion of a major modernization effo

is multifaceted and encompasses changes 

organizational structure, business practic

performance management system, and inf

systems. IRS’ organizational restructuring 

reasonably well; however, substantial wor

before expected results are achieved. Thi

includes 

• revamping business practices to better 

taxpayers’ needs,

• implementing a balanced approach to 

management to better assess progress 

goals and improving operations, 

• addressing financial management wea

develop reliable cost-based performan

information, and 

• institutionalizing effective managemen

information systems modernization. 
Page 14 GAO-01-254 Treasu

IRS is now about 3 years into its modernizat

but improvements in taxpayer service have n

materialized.1

 Taxpayers continue to be frust

IRS’ inability to provide telephone customer 

Although the telephone answer rate for the 2

season improved compared to 1999, it was s

below the performance level achieved in 199

showed that the answer rate for the 2000 fili

was 62 percent, which is lower than the 72 p

achieved in the 1998 filing season. The answ

lower than in 1998 even though IRS, since 19

invested heavily in technology to route telep

from taxpayers to the location where the wai

and has made telephone assistance available 

day, 7 days a week. Once taxpayers do get th

IRS, they are often frustrated when employe

quickly and accurately answer questions and 

problems.

Improvements in telephone customer as wel

service improvements should result if IRS is 

at its modernization effort. Figure 1 shows h

plans to achieve its mission through five mo

components. 

1 IRS Modernization: Long-Term Effort Under Way, but 

Challenges Remain (GAO/T-GGD/AIMD-00-154, May 3, 2
Page 15 GAO-01-254 Tre

Figure 1: Modernization Promises to Align IRS With Service-oriented Mission an

Source: IRS.

IRS’ development of and commitment to a

modernization strategy is a significant ach

implementation of the modernization stra

10 years or more. Progress thus far has be

laying a foundation for change. The initial 

modernization effort—the reorganization 

structure, with four customer-focused ope

divisions organized around the taxpayer s

serve—has proceeded reasonably well. Th

divisions are up and running, as of Octobe

Executive leadership teams, which are ma

combination of career IRS employees and 

have been selected for the divisions; and I

shifting employees to the new organizatio

Mission Statement

Goals

Modernization Components

Provide America's taxpayers top-quality service by 

helping them understand and meet their tax 

responsibilities and by applying the tax law with 

integrity and fairness to all.

• Service to each taxpayer

• Service to all taxpayers

• Productivity through a quality work environment

Revamped

Business

Practices

Customer

Focused

Operating

Divisions

Management

Roles With

Clear

Responsibility 

Balanced

Measurement

of

Performance
Page 16 GAO-01-254 Treasu

in phases. Within each operating division, IR

identified the key processes—prefiling, filing

postfiling—that are its primary interactions w

taxpayers. Each operating division is to have 

responsibility for all of the key processes for 

respective taxpayer segment. 

However, the following key challenges rema

Revamping Business 

Practices to Meet 

Taxpayers’ Needs 

For the future, IRS must focus on revamping 

practices to better meet taxpayer needs. Wit

operating divisions, teams must take a fresh 

to enforce the tax laws and meet taxpayer ne

and better ways. This will be a challenge in b

overcoming cultural barriers to “thinking ou

box” as well as in coordinating the requisite 

capital, data, and information systems suppo

IRS. 

One example of this rethinking is IRS’ fresh 

it provides face-to-face customer service. On 

the conclusion that from a taxpayer’s perspe

single point of contact for resolving issues is 

of doing business, IRS is creating a new posi

resolution representative. This position is to 

with permanent employees at IRS walk-in sit

perform traditional prefiling duties, such as 

tax law questions and helping taxpayers prep

returns, as well as handling postfiling compli

including installment agreements, account a

and simple audits.
Page 17 GAO-01-254 Tre

Implementing a 

Balanced Approach 

to IRS’ Performance 

Management System 

to Better Assess 

Progress 

According to our past studies of human ca

management, systems for motivating emp

managing their performance must be align

agencies’ missions and expectations.2

 At t

performance management system is a set 

measures that, if properly used, helps org

assess progress toward achieving strategi

improving operations. IRS has implement

balanced measurement system that seeks 

discrete, corresponding performance mea

of its three strategic goals—providing top

customer service, ensuring taxpayer comp

ensuring employee productivity through a 

environment. Each goal will have measur

customer satisfaction, business results, an

satisfaction. IRS is aligning its individual p

evaluation systems with its balanced mea

system to clearly link the work of individu

and employees to the mission and goals o

According to IRS officials, the alignment h

accomplished for managers and executive

now in the process of expanding the align

core workforce. 

IRS lacks one of its important business-re

measures—a measure of taxpayers’ volun

compliance. This measure is a prerequisit

understanding current compliance levels 

IRS’ initiatives will lead to improved comp

has lacked a voluntary compliance measu

years and is working to develop one. In th

used detailed random audits to develop es

level of voluntary compliance, but these a

subject of much criticism. In 1995, due to 

2 Human Capital: A Self-Assessment Checklist for A

(GAO/GGD-99-179, Sept. 1999); and Human Capital: 

From Nine Private Sector Organizations (GAO/GGD

2000).
Page 18 GAO-01-254 Treasu

costs and burden that such audits placed on 

IRS formally cancelled its plans to continue 

have said that a modified version of the past 

which reduces burden on taxpayers, could b

assessing voluntary compliance. The Commi

acknowledged the need for a voluntary comp

measure and has said that in the absence of 

measure, it would be impossible to make inf

decisions on the effectiveness of various stra

encourage voluntary compliance. According

working to develop a method for assessing c

and we are monitoring IRS’ efforts in this reg

In addition to developing a compliance meas

next steps for IRS in the area of performance 

management are to (1) align the balanced me

it has developed to the employee performan

evaluation system, clearly linking the work o

employees and managers to the mission and 

agency; and (2) determine what performance 

to be collected to track progress. IRS is work

of these steps. 

IRS’ human capital problems can be seen as 

broader pattern of human capital shortcomin

have eroded mission capabilities across the 

government. See our High-Risk Series: an Up

(GAO-01-263, Jan. 2001) for a discussion of h

capital as a newly designated governmentwi

area.

Addressing Financial 

Management 

Weaknesses to 

Develop Reliable 

Cost-Based 

Performance 

Information

Although a balanced measurement system co

it with information on the results of its progr

improve customer service and increase comp

also needs to know the cost of achieving the

Reliable cost information is critical for IRS m

and Congress to determine whether IRS has 

appropriate levels of funding and staff and is 

using them. However, serious financial mana
Page 19 GAO-01-254 Tre

weaknesses—a high-risk area since 1995—

ability to develop reliable, cost-based perf

information.

For example, our audit of IRS’ fiscal year 

statements identified substantial weaknes

accounting, reporting, and budgetary con

rendered IRS unable to reliably report how 

$8.5 billion that Congress appropriated fo

of cost accounting information has render

develop cost-based performance informat

measure the effectiveness of its tax collec

enforcement programs and to judge whet

appropriately allocating available resourc

competing management priorities. Conseq

cannot measure the extent to which it is a

mission of promoting compliance with fed

We also found many instances in which ex

were not promptly charged against related 

appropriations, and obligations were not 

when appropriate.3

 These weaknesses ser

impaired IRS’ ability to ensure that resour

only in accordance with laws, regulations

management policy. To address these issu

provided IRS with detailed management a

recommendations. IRS’ senior manageme

proactive in addressing these issues and h

major role in the progress IRS has achieve

However, resolving many of IRS’ most ser

will require a sustained, long-term commi

resources, continued involvement of senio

management, and sustained progress in sy

modernization. 

3

IRS Internal Audit also reported weaknesses in IRS

deobligations in its report entitled Review of the Ne

Unliquidated Obligations (Internal Audit Report No. 

1998). 
Page 20 GAO-01-254 Treasu

Reliable cost-based performance informatio

support managerial decisions. IRS has conce

view of the congressional and public sensitiv

IRS’ collection and enforcement activities, C

may not be receptive to developing this type 

information and including it in the annual bu

submission. However, reliable cost-benefit p

information related to these activities is nece

better assist Congress in making informed fu

decisions concerning the appropriate levels 

IRS’ resources. Consequently, we have recom

that IRS develop this information. We also pr

matter for congressional consideration that 

should consider requiring IRS to include in a

request for additional resources for its collec

enforcement activities reliable cost-based pe

indicators and other relevant aggregate cost-

that demonstrate the benefits of providing fo

resources.4

Institutionalizing 

Effective Systems 

Modernization 

Management 

Controls 

The final challenge associated with IRS’ mod

effort is institutionalizing effective systems 

modernization management controls for its i

technology (IT) systems—a long-standing ch

we have designated as a high-risk area since 

a decade ago, IRS began modernizing its inef

outdated systems that are used to process ta

and respond to taxpayer inquiries. Until IRS’ 

information systems are replaced, they will c

hinder efforts to better serve taxpayers throu

revamped business practices. IRS has made 

over the last several years, particularly since 

in establishing some key management contro

However, to fully address our recommendati

solve the underlying issues, IRS will need to 

4 Internal Revenue Service: Recommendations to Impro

and Operational Management (GAO-01-42, Nov. 17, 2000
Page 21 GAO-01-254 Tre

of our recommended controls and ensure 

implemented. Until this work is completed

modernization will continue to be designa

area. 

Beginning in 1995 and continuing since th

made recommendations to correct seriou

pervasive management and technical wea

we concluded that until these weaknesses 

corrected, IRS was not ready to invest bill

in building modernized systems.5

 In gener

weaknesses fall into four interrelated and 

interdependent IT management categorie

management, system life-cycle manageme

architecture management, and software a

management (see fig. 2). 

5 Tax Systems Modernization: Management and Tech

Must Be Corrected If Modernization Is to Succeed (G

July 26, 1995).
Page 22 GAO-01-254 Treasu

Figure 2: Categories of IRS’ Systems Modernization Weaknesses

Source: GAO analysis of IRS data.

Immediately following our 1995 report, IRS m

progress in strengthening its modernization 

management capability. As a result, we sugg

1996 that the Congress limit IRS’ IT spending 

cost-effective categories. In the fiscal year 19

Omnibus Consolidated Appropriations Act,6

 

directed IRS to develop a plan to correct its w

including developing and submitting to Cong

May 1997, an enterprise architecture (or age

blueprint for the modernization). In respons

several actions to address congressional dire

implement our recommendations. For exam

developed the first two levels of a four-level 

System

Life-Cycle

Management

6

Public Law 104-208. 
Page 23 GAO-01-254 Tre

architecture, which IRS refers to as the M

Blueprint. 

In September 1997 briefings and a subseq

early 1998, we reported that the blueprint 

first step and made recommendations for 

and implementing it. Subsequently, Congre

a multiyear capital account—the IT Inves

Account (ITIA)—to fund IRS systems mod

initiatives and limit IRS’ ability to obligate 

until it met certain conditions.7

 Specifical

submit to Congress for approval an expen

that, among other things, (1) implements 

(2) complies with requirements of the Off

Management and Budget’s (OMB) system 

guidelines, (3) passes reviews and approv

and Treasury’s IRS Management Board, an

reviewed by us.

Between May 1999 and October 2000, IRS 

three expenditure plans and two interim “

plans, totaling about $477 million, for mul

and project-level modernization initiatives

plans was consistent with our position tha

incrementally modernize its systems and 

incremental expenditure plans for release 

funds.8

 Although we found that these exp

generally complied with the legislative co

our open recommendations, we also repo

plans to build systems (i.e., perform detai

software development activities) before c

long-standing weaknesses introduced a hi

7

 See the fiscal year 1998 Treasury and General Gove

Appropriations Act (P.L. 105-61) and the fiscal year 1

Consolidated and Emergency Supplemental Approp

105-277). 

8 Tax Systems Modernization: Results of Review of 

Expenditure Plan (GAO/AIMD/GGD-99-206, June 15
Page 24 GAO-01-254 Treasu

failure. (Program and project reviews by the 

Inspector General for Tax Administration (T

found that modernization management contr

lacking.) In response, IRS appropriately rest

modernization program by scaling back its s

development activities and giving priority to 

place modernization management capabilitie

controls. 

Since it restructured the program, IRS has m

important progress in implementing modern

management capabilities and addressing our 

recommendations. For example, we reported 

had largely defined its system life-cycle meth

that incorporated software acquisition and in

management processes as well as the progra

responsibilities of IRS and its modernization 

and it made progress in producing the first r

enterprise architecture. 

Despite important progress, IRS has more w

before it will have fully implemented our 

recommendations and addressed long-stand

modernization weaknesses. These efforts inc

(1) making the program office fully operatio

(2) implementing the processes for software 

and IT investment management, and (3) com

implementing its enterprise architecture. IRS 

and initiatives under way in these areas, but 

work is completed, key modernization mana

controls are missing, which increases the ris

projects will not perform as intended and wi

and take longer than they should. As we hav

consistently stated, these risks are not as sev

the projects’ life cycles, when they are being 

(project definition and design), but they esca

projects begin to be built (detailed design an

development). Accordingly, we have recomm

IRS refrain from building systems until these 

are in place and functioning.
Page 25 GAO-01-254 Tre

In addition to institutionalizing effective s

modernization management controls, IRS 

continue to address the long-standing wea

security controls over its current informa

Over the past 7 years, we have provided IR

recommendations to assist it in addressin

in its computer security controls. Major is

addressed by these recommendations inc

weaknesses in physical security and logic

data communications management, risk a

assurance, internal audit and security, sec

awareness, and contingency planning. 

Although IRS has made significant progre

improving computer security weaknesses 

identified over the last several years, muc

be done to resolve the serious weaknesse

computing environment that place its aut

systems and taxpayer data at serious risk 

internal and external threats. Despite IRS

reliance on its information systems, IRS c

have serious weaknesses with general con

to protect computing resources, such as n

computer equipment, software programs, 

facilities, from unauthorized use, modifica

disclosure. During our audit of IRS’ fiscal 

financial statements, we also found that c

security controls over IRS’ key application

tax return input and receipt processing do 

assurance that only authorized personnel 

the application and related data, that the d

complete and accurate, and that applicati

integrity is maintained.

These weaknesses in controls increase the 

processed by IRS’ information systems ar

and continue to expose IRS’ tax processin

to disruption. If IRS does not adequately m

weaknesses, unauthorized individuals cou

to critical hardware and software, where 
Page 26 GAO-01-254 Treasu

intentionally or inadvertently add, alter, or d

sensitive data or computer programs. Such i

could also obtain personal taxpayer informat

it to commit financial crimes in the taxpayer

such as fraudulently establishing credit and 

debts.

IRS Faces Challenges 

in Collecting Unpaid 

Taxes

Successful modernization should help IRS ad

aspects of another high-risk area—collection 

taxes. Unpaid taxes include (1) delinquent ta

is attempting to collect, (2) taxes that IRS kn

but has decided not to pursue collecting, and 

unknown amount of unpaid taxes that IRS h

identified. While IRS has proceeded with its 

modernization effort, some key collection ac

as levies and seizures have declined since 19

declines may increase the incentives for taxp

either not report or underreport their tax ob

Because IRS lacks a measure of voluntary co

does not know the impact of recent declines 

collection actions. As a result, we have expa

renamed the former high-risk area,10 which 

encompassed only unpaid taxes known to IR

include unpaid taxes that IRS does not know 

of September 30, 1999, IRS’ inventory of kno

assessments totaled $231 billion. Of this amo

billion were write-offs that by definition hav

9

 For example, the number of levies has decreased dram

fiscal years 1997 to 2000--from about 3.7 million to abou

10 The former high-risk area was called IRS receivables 

assessments. Unpaid tax assessments consist of (1) tax

taxpayers for which IRS can support the existence of a 

through taxpayer agreement or a favorable court ruling 

receivable); (2) compliance assessments in which neith

nor the court has affirmed that the amounts are owed; a

offs, which represent unpaid assessments for which IRS 

expect further collections due to such factors as the tax

bankruptcy, or insolvency. 
Page 27 GAO-01-254 Tre

collection potential. The remaining $104 b

some collection potential and, thus, is at r

The former high-risk area was originally d

in 1990, in part due to serious deficiencies 

information systems. The deficiencies res

lack of sound, reliable information, which 

ability to focus collection efforts on those 

had the greatest collection potential. Thes

persist. IRS’ systems are not integrated; th

continue to create high rates of error in ta

accounts, which in some cases have led to 

taxpayer burden and lost revenue to the f

government. 

IRS attempts to identify taxpayers who ha

taxes they owe through its various enforc

programs. In making decisions about the 

types of enforcement cases to pursue, IRS 

resources as well as the potential for colle

attributes its inability to fully pursue such 

decrease in staff, reassignment of collecti

to support customer service activities, an

staff time needed to implement certain tax

protections that were included in the IRS 

Restructuring Act. However, as we previo

inadequate financial and operational infor

rendered IRS unable to develop cost-base

information for its tax collection and enfo

programs to judge whether it is appropria

available resources among competing ma

priorities. These weaknesses continue to 

federal government to significant losses o

and increase the burden on compliant tax

11 The $104 billion that has collection potential and, 

consists of (1) $27 billion in compliance assessment

billion in taxes receivable--$21 billion of which is ne

and $56 billion of which is an allowance for doubtfu
Page 28 GAO-01-254 Treasu

finance the government’s activities. Resolvin

risk area will require a long-term commitmen

resources by IRS and sustained progress in s

modernization.

Noncompliance With 

EIC

The final IRS high-risk area is noncompliance 

Noncompliance with EIC exposes the federa

government to billions of dollars of risk. Acc

IRS studies, billions of dollars have been ove

for this credit. Congress provided IRS with a

funding and enforcement tools to improve E

compliance. However, IRS does not yet have 

data to demonstrate that it has effective con

EIC noncompliance. 

Subsequent to an April 1997 IRS study showi

of dollars of EIC noncompliance, Congress p

legislation that gave IRS new enforcement to

additional funding that was specifically desig

EIC-related activities. With those new tools a

IRS, in 1998, began implementing a 5-year EI

compliance initiative that involved several c

directed at the major sources of EIC noncom

For example, IRS initiated enforcement effo

focused on (1) cases in which an EIC-qualify

Social Security number (SSN) was used on m

one tax return for the same tax year and (2) r

by certain EIC claimants who used the head-

household filing status. IRS’ efforts have, am

things, reduced the number of EIC-related er

involving SSNs and enabled IRS to stop milli

dollars in erroneous EIC claims.

12 We have narrowed the focus of the former high-risk a

tax filing fraud that was designated in 1995. It has been 

“noncompliance with EIC” to better describe the scope 

concern—billions of dollars for EIC claims that IRS pai

not have. An unknown portion of erroneous EIC claims 

attributable to factors other than fraud. 
Page 29 GAO-01-254 Tre

In September 2000, IRS reported the resul

compliance study involving tax year 1997 

pre-compliance initiative returns.13 The st

that of the estimated $30.3 billion in EIC c

taxpayers who filed tax year 1997 returns 

estimated $9.3 billion were invalid (should 

been claimed) and $7.8 billion was actuall

improper refunds. These study results gen

not reflect the effect of IRS’ 5-year initiati

EIC compliance

In July 1998, we recommended that IRS d

evaluation plans for each initiative compo

provide timely data for decisionmakers on 

results of the initiative.14 IRS is collecting 

initiative results; however, it is not yet suf

determine whether projects have reduced 

noncompliance rate.

IRS is doing an EIC compliance study of t

returns and plans to study tax year 2001 r

plans to analyze the results of those studi

the results of the tax year 1997 study, to m

changes in taxpayer behavior and to deter

effectiveness of the EIC initiative. IRS off

know when the results of the tax year 199

be finalized. Until sufficient data are avail

these studies or from other sources to dem

IRS has implemented effective controls ov

noncompliance and the erroneous refund

this will remain a high-risk area. 

13 Compliance Estimates for Earned Income Tax Cre

1997 Returns, Department of Treasury, Internal Reve

September 2000. 

14 Earned Income Credit: IRS’ Tax Year 1994 Compli

Recent Efforts to Reduce Noncompliance (GAO/GG

1998).
Page 30 GAO-01-254 Treasu

Key Contact James R. White, Director

Tax Issues

(202) 512-9110

whitej@gao.gov

Randolph C. Hite, Director

Information Technology Systems Issues

(202) 512-3870

hiter@gao.gov

Steven J. Sebastian, Acting Director

Financial Management and Assurance

(202) 512-3406 

sebastians@gao.gov

Improve Customs’ 

Regulation of 

Commercial Trade 

While Ensuring 

That It Protects 

Against the Entry of 

Illegal Goods at 

U.S. Borders 

Customs performs the dual missions of enfo

to safeguard U.S. borders against the illegal 

goods and of regulating legitimate commerci

As such, Customs is challenged to balance it

measures with the need to facilitate the flow 

and people into the United States. Specifical

agency’s responsibilities include (1) collectin

$20 billion in revenue from imports and enfo

400 laws governing international trade, (2) p

the smuggling of drugs into the country, and 

overseeing export compliance and money-la

issues. To carry out these responsibilities, Cu

workforce totaling almost 20,000 employees 

around the world.
Page 31 GAO-01-254 Tre

An overarching challenge for Customs as 

law enforcement agencies is assessing pro

key mission areas through outcome-orient

output-oriented performance measures (i

in reducing crime versus making more arr

convictions). Treasury has said that until 

data to determine the cause-and-effect rel

between its various programs and the out

intended to influence, it will continue to u

oriented performance measures. Accordin

assesses progress in reducing the flow of i

establishing goals for the number of seizu

pounds of illegal substances seized and ot

measures. The quantity of narcotics seize

1999 set a record, and Customs met its pe

goals for cocaine and marijuana but not fo

Customs also reported that its officers pro

21 million import entries with a value of $9

million conveyances;15 and 480 million lan

passengers in fiscal year 1999. However, t

which these actions have an impact on sa

borders is uncertain. 

In addition to identifying a need for Custo

sound output-oriented performance meas

recent work has identified other performa

management challenges that directly or in

Customs’ efforts to improve security at U

safeguard against the illegal entry of good

drugs. Although Customs has made some 

implementing initiatives that are designed 

the efficiency of its regulation of commer

and the effectiveness of personal searche

passengers, the following challenges, all o

been the subject of our past recommenda

(1) completing an assessment of new trad

15 Conveyances include aircraft, trucks, trains, buses

vehicles, and ocean vessels.
Page 32 GAO-01-254 Treasu

initiatives; (2) acquiring a new import proces

system; (3) continuing to improve the proces

searching airline passengers who may be car

contraband, such as illegal drugs, while resp

rights of American citizens and the traveling 

(4) using reliable data to determine its staffin

all of its operations and ensure that personn

located where they are most needed. 

Impact of New Trade 

Compliance 

Initiatives Unclear

Tremendous growth in the world economy c

profound challenges for Customs to facilitat

enforce U.S. trade laws and regulations. The 

States is in the midst of a booming era of glo

and, according to the Commissioner of Cust

surge in imports and exports will nearly dou

Customs’ workload in the next 5 years alone 

To speed the processing of imports and impr

compliance with trade laws, Customs has de

new strategy in response to the Customs Mo

and Informed Compliance Act of 1993 (Mod 

16 Public Law 103-182.
Page 33 GAO-01-254 Tre

Figure 3: Projected Growth in Entry Summaries for Customs 

Source: Customs data.

The Mod Act fundamentally altered the re

between importers and Customs by shiftin

Customs to the importer the legal respons

declaring the value, classification, and rat

applicable to merchandise being imported 

United States. Customs is responsible for 

the final classification and value of the me

The Mod Act also gave Customs and impo

responsibility for ensuring compliance wi

To implement these new responsibilities, 

developed an “informed compliance strat

0

5

10

15

20

25

30

35

40

1999 2000 2001 2002 2003 2004 2005

Fiscal years

Entry summaries (in millions)

Actual

Projected
Page 34 GAO-01-254 Treasu

Our review of output statistics indicated tha

informed compliance strategy had not yet pr

benefits that were expected.17 As shown in fi

trade compliance rates have remained static 

percent, short of Customs’ 90-percent goal. W

found that although Customs had monitored 

evaluated certain aspects of the key initiativ

actions, it had not evaluated, nor did it have 

evaluate, the impact of the overall informed 

strategy on compliance with trade laws. Con

we recommended that Customs develop and 

an evaluation of the effectiveness of its infor

compliance strategy.

17Customs Service Modernization: Impact of New Trade 

Strategy Needs to Be Assessed (GAO/GGD-00-23, Dec. 1
Page 35 GAO-01-254 Tre

Figure 4: Trade Compliance Rates Have Remain

Between Fiscal Years 1995 and 1999

a

Customs did not assess compliance rate for PFIs i

Note: Entry summaries are required documentation 

Customs to secure release of imported cargo from 

Source: Customs data.

Customs agreed with our recommendatio

that it would evaluate the effectiveness of 

initiatives that we assessed, including acc

management, compliance assessment, com

measurement, and the informed and enfo

compliance programs. Customs said that 

study should be completed by February 2

0

10

20

30

40

50

60

70

80

100

90

1995 1996 1997 

Fiscal years

Primary focus industries

Overall rate

Percentage rate of compliance

a

80

84 82 83 81
Page 36 GAO-01-254 Treasu

Acquisition of New 

Import Processing 

System Remains 

Challenging

Building and deploying a new import proces

is a key component to modernizing how Cus

assesses and collects taxes and fees totaling 

billion annually at over 300 ports. This large 

complex planned system, known as the Auto

Commercial Environment (ACE), which is e

cost over $1 billion, is to replace Customs’ a

existing system and improve the performanc

accountability of Customs’ import mission. I

ACE is to be used to collect, analyze, and dis

import-related data in a way that will facilita

communities’ movement of goods into the U

In February 1999, we reported on pervasive 

management and technical weaknesses facin

in building ACE, and we made a series of 

recommendations that Customs agreed to im

Specifically, we recommended that before bu

Customs (1) have a complete and enforced e

architecture; (2) know that ACE was a cost-e

solution and explore alternative system solu

mission needs, such as another system Treas

developing known as the International Trade 

System (ITDS); and (3) employ software eng

rigor and discipline. 

Customs has taken several important action

implement our recommendations. For exam

Customs has addressed our recommendation 

completing and enforcing an enterprise arch

provide an agencywide business and techno

context within which ACE’s business value a

performance can be optimized. Similarly, Tre

Customs have addressed our concern about 

duplication and incompatibilities between A

ITDS by combining the two efforts. 

To be successful with ACE, Customs needs t

implement our recommendations. Customs a
Page 37 GAO-01-254 Tre

plans additional actions to do so. For exam

has committed to seeing that the fundame

acquisition and investment management c

that we recommended are in place before 

sums of money in ACE. Also, Customs’ pl

investing in ACE incrementally on the bas

and supportable cost estimate and benefit 

for each increment. Once an increment is 

Customs plans to validate that actual cost

are meeting expectations and to use this i

deciding whether to invest in future syste

Further, Customs still needs to fully imple

and effective system acquisition capabilit

these challenges remain, combined with A

criticality, we plan to continue monitoring 

management of ACE.

Balancing Travelers’ 

Rights With Customs’ 

Responsibility to 

Interdict Contraband

Congress, in exercising its power to prote

borders, gave Customs broad authority to 

searches of persons and their luggage. Cu

regulations provide that persons, such as 

coming into the United States, are subject 

and search by a Customs officer in order t

smuggling of contraband, such as illegal d

Concerns have been raised about Custom

procedures for selecting or “targeting” cer

passengers for examinations and conduct

searches, including strip-searches and X-r
Page 38 GAO-01-254 Treasu

Inspectors are to select passengers for furth

examination on the basis of Customs’ policie

procedures and their professional judgment 

experience. When making a decision to sear

inspectors are to consider all the circumstan

or mere suspicion is the minimal level requir

conduct a patdown search. By policy, Custom

at least one articulable fact before conductin

patdown search. Supervisory approval is req

any personal search conducted other than a 

related to an officer’s safety. From our analy

102,000 arriving passengers in fiscal years 19

who were subjected to some sort of persona

reported that generally, searched passengers 

particular races and gender were more likely 

passengers to be subjected to more intrusive 

personal searches (being strip-searched or X

However, in some cases, the types of passen

were more likely to be subjected to more int

personal searches were not as likely to be fo

carrying contraband.18

We recommended that Customs compare the 

characteristics of passengers subjected to pe

searches with the results of those searches t

target passengers carrying contraband. Cust

with our recommendation and said it had alr

steps to develop better data on the results of 

searches. By developing improved data and 

its other management controls, we believe C

could better safeguard the rights of U.S. citiz

traveling public while meeting the major cha

effectively carrying out its drug interdiction 

During our review of airline passenger targe

Customs developed additional policies and p

18 U.S. Customs Service: Better Targeting of Airline Pass

Personal Searches Could Produce Better Results (GAO/

Mar. 17, 2000).
Page 39 GAO-01-254 Tre

for personal searches that include new req

supervisory review and approval and proc

intended to ensure that passengers subjec

personal searches know their rights. We a

management controls that Customs uses t

that inspectors use their search authority 

judiciously. These controls included train

inspectors and supervisors on conducting 

searches and more systematic evaluation 

complaints.

Customs reported in October 2000 that ref

to tighten oversight of the searches, such 

personal search handbook, have resulted 

fewer people being searched but also in th

more contraband. For example, Customs 

Customs inspectors searched 9,008 airline 

fiscal year 2000, a steep reduction from th

were searched the previous year. As searc

the seizures of heroin, cocaine, and ecstas

from 533 to 665 between fiscal years 1999 

Overall, drug seizures increased from 1,16

during the same period, according to Cust

Commissioner of Customs said that the n

indicate that Customs is searching fewer 

travelers while doing a better of job of cat

carrying contraband. The Commissioner a

however, that the efforts are still in progre

much more needs to be done. 

Using Reliable Data 

to Determine Staffing 

Needs

In 1998, we reported on selected aspects o

process for determining its need for inspe

canine enforcement officers to process co

cargo or land and sea passengers at all of i

entry.19 We concluded and recommended 

19 Customs Service: Process for Estimating and Alloc

Personnel (GAO/GGD-98-107, Apr. 30, 1998).
Page 40 GAO-01-254 Treasu

Customs to successfully implement the Gove

Performance and Results Act, which require

performance to results, it had to determine i

personnel for all of its operations and ensure 

personnel are allocated where they are most 

In response to our recommendation, Custom

contract for the development of a resource a

model to estimate the number of inspectors 

personnel needed to process passengers and 

cargo at all ports of entry. The contractor de

prototype to Customs in March 1999.

This was a promising first step, but we conti

monitor the development of the model. In Ap

testified that during a review conducted earl

year, we found the accuracy and reliability of 

data—such as the estimated time that Custo

personnel spent on air and sea passenger pro

activities—to be questionable.20 We conclude

although the model is a potentially viable too

Customs to use in estimating its personnel n

now and in the future as imports into the cou

continue to rise, we believe that more verific

to be performed on some questionable input 

Customs said that it is still in the early stage

analyzing the model results and fully unders

capabilities. The original contractor was reta

additional work to make the model’s results 

understandable and easier to use. According 

officials, the model continues to be reviewed 

modified as needed to ensure accuracy and v

Key Contacts Laurie E. Ekstrand, Director

Justice Issues

20 U.S. Customs Service: Observations on Selected Oper

Program Issues (GAO/T-GGD/AIMD-00-150, Apr. 20, 200
Page 41 GAO-01-254 Tre

(202) 512-8777

ekstrandl@gao.gov

Randolph C. Hite, Director

Information Technology Systems Issues 

(202) 512-6256

hiter@gao.gov

Achieve Sound 

Financial 

Management 

Through Significant 

Management 

Attention and 

Priority

A key to Treasury’s ability to effectively ca

mission both at the Department level and 

for the U.S. government is sound financial 

including preparing information about the 

finances that is routinely available, accura

reliable. Treasury faces many challenges i

efforts to improve the accuracy and reliab

financial and information management sy

correct internal control weaknesses that w

Treasury OIG identified at several of its bu

offices. Without accurate and reliable fina

and information, as well as sound interna

Treasury cannot be sure that the informat

sufficient to manage day-to-day operation

results of agency and governmentwide op

account for resources, collect taxes and o

owed the government, or safeguard assets

top management attention and priority wi

for Treasury to fully address its significan

management challenges.

Treasury received a qualified opinion on i

1999 Department-wide financial statemen

financial management problems at IRS an

of IRS’ administrative systems to produce 

auditable data to support certain IRS fina

statements. Treasury’s ability to effectivel

financial management responsibilities has 

adversely affected by the lack of substant

with the financial management systems re
Page 42 GAO-01-254 Treasu

detailed in FFMIA and weaknesses in Custom

controls over data in its automated systems.

Certain significant financial systems weakne

problems with fundamental recordkeeping a

reporting; incomplete documentation; and w

control, including computer controls, have p

the U.S. government from obtaining an opini

reliability of the government’s financial state

the 3 years that we have reported on these st

As preparer of the Financial Report, FMS ha

responsibility to work with agencies to addr

these problems, in particular the lack of suff

systems, controls, and procedures to proper

the government’s financial statements. Furth

performing much of Treasury’s role as prima

agent for the federal government, FMS conti

experience challenges in addressing financia

management issues related to implementing 

requirements of the Debt Collection Improve

(DCIA) of 1996 and improving its computer s

controls over systems used to help it process 

and disbursements made on behalf of most f

agencies.

At the end of fiscal year 1998, the unified bud

federal government was in surplus for the fir

almost 30 years, and surpluses are projected 

over the next decade. As we have stated in p

reports, the transition from annual budget de

surpluses presents challenges to Treasury fo

the maturity profile of federal debt held by th

consistent with Treasury’s objectives and str

achieving these three debt management obje

sound cash management, lowest financing c

promoting efficient capital markets.
Page 43 GAO-01-254 Tre

Financial 

Management 

Challenges Affecting 

Certain Bureaus’ 

Operations

For fiscal year 1999, Treasury reported th

bureaus’ financial management systems d

substantially comply with the requirement

addition, we reported that IRS continues t

significant ongoing deficiencies in its fina

management and operational systems and 

Further, Customs also faces financial man

problems including weaknesses in its inte

over data in its automated systems and de

implementing new automated systems. 

Treasury’s Financial 

Management Systems 

Do Not Substantially 

Comply With 

Requirements of 

FFMIA 

FFMIA requires auditors performing finan

CFO agencies to report whether agencies

management systems substantially compl

accounting standards, federal financial m

systems requirements, and the Standard G

(SGL) at the transaction level. In fiscal ye

1998 auditors’ reports on compliance with 

regulations, we and the Treasury OIG iden

instances in which Treasury’s financial ma

systems did not substantially comply with 

requirements detailed in FFMIA. For fisca

Treasury reported that noncompliances w

at IRS, FMS, Customs, the Departmental O

Office of the Comptroller of the Currency

Secret Service. Generally, the noncomplia

financial systems that did not allow for th

preparation of certain financial statement

lack of or unreliable subsidiary ledgers, g

that did not conform with the SGL, and w

computer security controls. Under FFMIA

required to annually report on agencies’ im

of FFMIA by October 1 of each year. Thus

continue to monitor Treasury’s efforts to s

comply with FFMIA.

Financial Management 

Challenges Continue at 

IRS 

As discussed in an earlier section of this r

continues to experience significant defici

financial management and operational sys
Page 44 GAO-01-254 Treasu

processes. Because of these problems, we co

render audit opinions on four of IRS’ six fina

statements, and our opinion on its balance s

qualified for fiscal year 1999. IRS’ primary in

control weaknesses relate to its accountabil

administrative accounts and budgetary resou

management of taxpayer receipts and data, a

management of unpaid tax assessments as w

computer security controls. To address these 

have provided IRS with detailed managemen

operational recommendations. Although pro

been made to date, resolving many of IRS’ m

problems will require a sustained commitme

senior management.

Customs Continues to 

Face Financial 

Management 

Challenges 

Customs continues to face financial manage

challenges including weaknesses in its intern

over data in its automated systems, such as s

are used to account for and manage its colle

activity. In addition, as discussed in an earlie

this report, managerial and technical weakn

hindered progress toward developing Custom

import system—ACE—which is intended to 

current system used for collecting import-re

and ensuring, among other things, that trade

revenue is properly collected and allocated. 

proper implementation of important initiativ

has planned or under way to address these i

Customs management must continue to prov

necessary support.

Financial 

Management 

Challenges

Affecting Treasury’s 

Role as Fiscal Agent 

One of Treasury’s primary responsibilities is 

the federal government’s finances. This mass

complex task includes collecting almost $1.9 

federal tax revenues, making federal paymen

more than $1.7 trillion, managing federal deb

the public of about $3.4 trillion, performing c

accounting functions, and providing debt ma

services to federal agencies. Treasury’s FMS 
Page 45 GAO-01-254 Tre

government’s financial manager, central d

collections agency, as well as its accounta

reporter of financial information. Treasur

the Public Debt (BPD) is responsible for i

Treasury securities and accounting for the 

debt. For the three years that we have aud

Schedules of Federal Debt, we have rende

opinions on these schedules.

In performing much of Treasury’s role as p

agent for the federal government, FMS fac

in addressing financial management issue

preparing the U.S. government’s financial 

(2) implementing the requirements of the 

Collection Improvement Act (DCIA) of 19

improving the computer security controls 

process collections and disbursements m

of most federal agencies. Although FMS h

progress in each of these areas, challenge

It will take a significant and sustained com

FMS’ management to fully address these c

addition, budget surpluses present challen

Treasury for managing the federal debt an

debt management objectives.

Preparing Reliable 

Financial Statements 

for the Government 

Continues to Be a 

Challenge for FMS

In our audit reports on the government’s f

1999, 1998, and 1997 financial statements, 

certain significant financial systems weak

problems with fundamental recordkeepin

reporting; incomplete documentation; and 

control, including computer controls. The

prevented the government from accuratel

significant portion of its assets, liabilities, 

prevented us from being able to form an o

reliability of the government’s financial st

These deficiencies also affect the reliabili

the related information in the Fiscal Year 

Report and the underlying financial inform

addition, they affect the government’s abi
Page 46 GAO-01-254 Treasu

accurately measure the full cost and financia

performance of certain programs and effecti

manage related operations. FMS continues t

challenges in working with agencies to addre

these problems, in particular the lack of suff

systems, controls, and procedures to proper

the government’s financial statements. Such 

impair the government’s ability to (1) proper

the government’s financial statements and ac

billions of dollars of transactions between fe

government entities, (2) properly and consis

compile the information in the financial state

(3) effectively reconcile the results of operat

reported in the financial statements with bud

We are working with FMS, OMB, and other k

to address these deficiencies. However, corr

is a significant challenge because of the gove

size and complexity and the discipline neede

with accounting and reporting requirements

these challenges will require a significant co

from agencies’ and FMS’ management, as we

adequately trained staff and effective autom

financial and information management syste
Page 47 GAO-01-254 Tre

Challenges Remain in 

Implementing DCIA 

As the federal government’s central debt c

agency, FMS21 provides debt management 

federal agencies for nontax debts over 18

delinquent owed to the federal governmen

to Treasury, this debt totaled about $59.2 b

September 30, 1999,22 with Treasury collec

$2.6 billion during fiscal year 1999, most o

resulted from offsetting tax refunds of de

debtors under the Treasury Offset Program 

However, Congress in the past has raised 

about the slow pace at which Treasury an

agencies have implemented DCIA. Accord

officials, FMS’ debt collection program is 

mature program. FMS is actively working 

implement the provision of DCIA on a pha

over the next few years.

FMS’ successful merger of the Tax Refund 

Program with TOP in 1999 streamlined op

providing a single point of contact for age

debts for both tax refund offset and other 

offset programs. As a result, according to 

offset collections for fiscal year 1999 incr

$570 million over the previous year. Accor

Treasury officials, system enhancements m

this merger also contributed to increased 

For example, FMS can now conduct offse

both Social Security numbers for joint tax 

the system also allows creditor agencies to 

add and update debt records. Even with t

21 The Secretary of the Treasury assigned FMS prima

to fulfill Treasury’s responsibilities under DCIA. 

22 About $20.7 billion of this amount includes debt th

by certain agencies for accounting purposes, but the 

attempting to collect the debts.

23 In addition to delinquent nontax federal debt, FMS 

support obligations on behalf of states. During fisca

collected about $1.3 billion in child support obligatio

about half of the collection total.
Page 48 GAO-01-254 Treasu

enhancements, challenges remain for FMS to 

implement TOP. For example, payments for 

Security benefits and more federal salaries s

be added to TOP. FMS testified in June 2000 

to have such payments available for offset in 

2001.

In addition to the offset programs, nontax de

debt can be transferred to Treasury’s central

collection centers for collection, known as c

servicing. Cross-servicing may include the us

debt collection tools, such as private collecti

(PCAs) and administrative wage garnishmen

reported in August 2000, FMS collected a rela

amount of debt through cross-servicing in pa

(1) agencies did not always promptly refer el

and (2) agencies excluded debts from cross-s

various reasons, such as debt that is not lega

enforceable or debt that Treasury has exemp

waived. At the time of our report, no require

process existed for obtaining periodic and in

verification of the accuracy, completeness, a

of debts agencies reported as eligible or exc

the DCIA cross-servicing provisions. Moreov

reported that FMS’ staff and some of the PCA

always follow established procedures and re

or effectively use certain debt collection too

addition, FMS’ method of distributing debts 

major debt collection tool—did not fully pro

competition, thus limiting the effectiveness o

Going forward, it will be important for FMS t

whether its current debt collection strategy a

procedures are adequate for optimizing colle

24 Administrative wage garnishment is a process by whi

employee’s wages, up to 15 percent of the employee’s d

can be withheld by an employer and paid to the federal 

fulfill an unpaid obligation. FMS officials stated that thi

significant opportunities for improved collections of de
Page 49 GAO-01-254 Tre

through its cross-servicing program and u

debt collection tools when appropriate, in

administrative wage garnishment. Accord

recommended that FMS comprehensively 

cross-servicing process. We also recomme

FMS work with OMB and agencies’ Inspec

offices to verify the accuracy and validity 

agencies report as eligible or excluded fro

servicing and that it establish and impleme

for monitoring agencies’ written debt refe

Further, we recommended that FMS take 

actions to help ensure that a proportionat

is being distributed to its PCAs and that c

among them is more fully promoted. FMS 

addressing these recommendations, altho

agree with all of the specific aspects of ou

recommendation to comprehensively revi

servicing process. 

Weaknesses in FMS’ 

Computer Security 

Controls Continue to 

Exist

FMS maintains multiple financial and info

systems to help it process and reconcile m

disbursed and collected by the various fed

Our audit for fiscal year 1999 and previou

identified significant computer control we

each of the FMS data centers. Computer c

problems continued to exist at FMS prima

FMS still lacks an effective, entitywide, co

security management program. FMS’ entit

control structure has failed to address ma

weaknesses and related significant risks a

its current and evolving computing enviro

severity of these risks magnifies as FMS e

networked environment to provide users 

and easier access to larger amounts of da

resources. Consequently, billions of dollar

and collections are at significant risk of lo

sensitive data are at risk of inappropriate d

critical computer-based operations are vu

serious disruptions. We have made numer

recommendations for improvements in FM
Page 50 GAO-01-254 Treasu

security controls to help reduce the exposur

risks.

Well-designed and effective computer securi

are essential if FMS’ operations and compute

are to be properly protected. However, it wil

significant and sustained commitment by FM

management to fully address FMS’ computer 

weaknesses. FMS officials have recognized t

nature of these problems and have reported 

matters as a material weakness in FMS’ Fede

Managers’ Financial Integrity Act report for 

1999 and 1998. According to FMS officials, F

taken and will continue to take actions to co

weaknesses we identified and to heighten m

focus on security, as well as institute a more 

and comprehensive computer security mana

program. We will follow up on these matters 

audit of the federal government’s fiscal year 

financial statements.

Treasury Faces Debt 

Management 

Challenges in a Period 

of Budget Surpluses

At the end of fiscal year 1998, the unified bud

federal government was in surplus for the fir

almost 30 years. Budget surpluses continued 

year 1999 and 2000 and are projected to cont

the next decade. Just as budget deficits led t

borrowing, surpluses over the past three yea

resulted in Treasury retiring debt. As we hav

previous reports, the transition from annual 

deficits to surpluses has consequences for b

profile of federal debt held by the public and 

strategies for achieving its three debt manag

objectives of sound cash management, lowe

cost, and promotion of efficient capital mark

Treasury has reduced debt held by the public 

managed a declining stock of debt by redeem

maturing debt, reducing the number of auctio

of new debt issues, eliminating the 3-year no

reopening existing debt issues rather than cr
Page 51 GAO-01-254 Tre

issues, conducting “buybacks” of debt bef

maturity date, and redeeming callable sec

the opportunity arose. Treasury acknowle

future challenges will include making dec

to reduce debt while considering such imp

as market adjustments and implications fo

Reserve in implementing monetary policy

currently conducting a review of how oth

nations have “managed down” their debt a

these nations have already encountered s

same challenges and decisions about the 

facing the United States. 

Key Contacts Gary T. Engel, Director

Financial Management and Assurance 

(202) 512-3406

engelg@gao.gov

Paul L. Posner, Managing Director

Strategic Issues

(202) 512-9573

posnerp@gao.gov

Improve ATF’s 

Performance 

Measures to Better 

Determine the 

Progress in 

Reducing 

Criminals’ Access 

to Firearms

Treasury’s strategic plan includes an objec

criminals access to firearms and reduce v

including firearms-related crime. ATF is th

agency responsible for enforcing the fede

regulations relating to firearms and reduc

related violent crime. Despite significant t

advances that have given ATF more inves

information to carry out its mission, limita

performance measures make it difficult to 

progress in reducing criminals’ access to 

firearms-related crime. 
Page 52 GAO-01-254 Treasu

ATF recently reported that in the last decade

technology has brought its investigators and 

an enormous increase in investigative inform

example:

• ATF’s National Tracing Center has entere

firearms trafficking information system o

million traces of firearms recovered by la

enforcement officials.

• The National Integrated Ballistics Inform

Network, operated by ATF with the Fede

of Investigation (FBI), contains a half-mil

ballistics images.

• The National Instant Check System, launc

and ATF in 1998, has resulted in ATF rece

130,000 reports of prohibited persons atte

buy firearms from federal firearms licens

Regarding progress on denying criminals acc

firearms, our June 2000 report26 on Treasury’

1999 performance report and fiscal year 200

performance plan concluded that it is difficu

determine ATF’s progress because ATF’s per

measures are generally output measures (i.e.

firearm traces made, average trace response 

number of persons trained), rather than outc

measures. Treasury’s performance report inc

outcome measure for future crimes avoided, 

data show that Treasury exceeded its goal an

the number of crimes avoided over 1998. Alt

measure does not show reduction in the risk 

crime, it does estimate the number of crimes 

through the incarceration of criminals and th

25 Following the Gun: Enforcing Federal Laws Against 

Traffickers; Department of the Treasury; ATF (June 30, 

26 Observations on the Department of the Treasury’s Fis

Performance Report and Fiscal Year 2001 Performance 

(GAO/GGD/AIMD-00-231R, June 30, 2000).
Page 53 GAO-01-254 Tre

elimination of crime gun sources, accordi

Treasury’s performance report.

In commenting on our June report, Treasu

stated that the performance measures ass

the challenge of denying criminals access 

and reducing firearms-related crime will c

output-oriented until Treasury is better ab

determine the cause-and-effect relationshi

programs and the outcomes they are inten

influence. They noted that the fiscal year 

performance report provides trend data fr

through 1998 that is directly related to thi

the number of violent crimes committed a

committed with firearms. Although having 

data is helpful, without also having this da

is difficult to place ATF’s 1999 performanc

appropriate context.

The Treasury OIG has also identified limit

measuring the impacts of ATF’s programs

August 2000 report on ATF’s Implementat

youth crime gun interdiction initiative,28 T

found, among other things, that ATF had n

• specific performance measures that sh

impact on youth violent crime rates in 

result of participating in the initiative o

27 See Final Report on the Bureau of Alcohol, Tobacc

Implementation of the Youth Crime Gun Interdiction 

(Treasury OIG-00-119, Aug. 21, 2000).

28 The initiative began in 1996 by ATF at the directio

to strengthen enforcement efforts against traffickers 

firearms to youth. Seventeen cities were initially inc

program and were to use ATF’s Firearms Tracing Sys

every firearm recovered in a crime. ATF was to work 

investigative agencies using FTS trace information t

investigative and prosecutorial strategies that target 

supplying firearms to youth.
Page 54 GAO-01-254 Treasu

• a formal process to verify certain statistic

been reported to Congress about the prog

results. 

ATF officials acknowledged that better meas

initiative’s impact are needed and agreed to i

the related recommendation.

Treasury’s OIG is currently conducting a rev

enforcement performance measures at selec

agencies, including those for ATF firearms-re

programs, activities, and initiatives, to determ

measures cover the key aspects of performa

clear and consistent manner and support dep

goals and objectives.

Key Contact Laurie E. Ekstrand, Director

Justice Issues

(202) 512-8777

ekstrandl@gao.gov

Improve the 

Management of 

Treasury’s Asset 

Forfeiture Program

Treasury and Justice operate similar but sep

forfeiture programs.29 As of September 30, 19

combined value of assets in these two progr

more than $1 billion, of which about $625 mi

assets under Treasury’s management. Both p

also hold large amounts of nonvalued assets

drugs and weapons. These programs were p

original high-risk list in 1990 because (1) ove

neither Treasury nor Justice adequately focu

managing and accounting for seized and forf

29 The asset forfeiture program involves the managemen

seized in consequence of a violation of public law, inclu

instruments, real property, and tangible personal prope

the actual or constructive possession of the custodial ag

forfeited property, or property for which the title has pa

federal government.
Page 55 GAO-01-254 Tre

and (2) Treasury and Justice had not form

consolidate postseizure administration of 

properties to eliminate duplication of reso

reduce administrative costs.

We have made several recommendations 

improving Customs’ accountability and st

over property seized. Specifically, we hav

recommended that Customs improve the 

security at its locations used to store seiz

(2) reliability of the information maintaine

property tracking systems, and (3) contro

to critical and sensitive data and compute

maintained in its systems that account for 

property and law enforcement operations

years, Customs has taken many actions to 

recommendations, such as upgrading exis

facilities and implementing a new seized p

inventory system. These improvements ha

reduce the vulnerability of seized narcotic

property to theft and misappropriation. In 

Treasury and Justice are undertaking a jo

examine the opportunities for increased c

the management of the two programs. Ho

challenges remain to address the program

information systems and financial manage

weaknesses, including accountability over 

In addition, the results of the joint study a

determined.

Weaknesses Still 

Exist in Treasury’s 

Asset Forfeiture 

Program 

As we reported in January 1999, a major m

challenge facing Treasury’s asset forfeitur

the need to address weaknesses in the de

accountability for and reporting of seized 

property. The Treasury OIG fiscal year 199

findings also suggest that accountability c

seized property needs improvement. Furt

reported instances of material nonconform

provisions of FFMIA involving Customs’ S
Page 56 GAO-01-254 Treasu

and Case Tracking System (SEACATS) and t

Service’s Seized Property Systems in its fisca

Accountability Report.

In January 1999, we reported that Customs h

significant systems enhancements and was i

process of further enhancing the security ov

assets and the reliability of information main

SEACATS. According to Customs’ Fiscal Yea

Accountability Report, additional functional

enhance reporting functions for property an

was added to SEACATS. However, in Januar

Treasury’s OIG reported that the SEACATS d

not be relied on for financial reporting purpo

substantial manual reconciliation. Conseque

SEACATS could not produce the analysis of 

seized currency for Customs’ seized and forf

property financial statement disclosure. The 

several recommendations to resolve this issu

weaknesses in Customs’ core financial syste

including developing a comprehensive plan t

the general ledger system modifications nee

capture financial transactions as they occur.

In its audit of Customs’ fiscal year 1999 finan

statements, Treasury’s OIG also found that 

accountability controls over the inventory of 

property needed improvement. Specifically, 

reported that nine narcotic items could not b

accounted for during a Customs seized prop

inventory conducted in September 1999. Fur

six of these nine items had been identified as 

during the previous fiscal year inventory, and 

had not made the required notification to Int

Affairs. The OIG recommended that Custom

(1) determine why the six seizures identified 

during the fiscal year 1998 annual physical in

verification were not reported to Internal Af

(2) complete the current investigation exped

take appropriate action as a result of its find
Page 57 GAO-01-254 Tre

According to Treasury’s fiscal year 1999 a

report, Treasury plans several short- and l

actions to correct identified weaknesses i

automated systems used to track and repo

and forfeited assets. Because Treasury be

annual assurance and compliance reporti

Federal Managers’ Financial Integrity Act 

the proper forum for providing corrective 

Treasury’s fiscal year 2001 performance p

Customs’ fiscal year 2001 performance pla

include goals or measures of progress rela

asset forfeiture program’s management ch

However, as we reported in June 2000, it w

for Treasury to include measures showing 

toward correcting its material weaknesse

performance plan. Treasury reported that 

closely with its bureaus, including Custom

Secret Service, on developing and executi

remediation plans to correct weaknesses i

asset forfeiture program. Such support an

should help overcome the deficiencies in 

We will continue to monitor progress in a

these issues.

Seized Asset 

Management 

Programs Not Yet 

Consolidated, but 

Under Study

Legislation in 1988 required Treasury and 

develop a plan to consolidate their seized 

management functions. In 1991 we recom

consolidate the postseizure management 

disposition of noncash seized properties t

administrative costs. Although the Depart

not made plans for consolidating their pro

September 2000, they contracted for a stu

opportunities for increased cooperation a

agency and contractor resources. The stu

in recommendations for improving the eff

efficiency of property management functi

federal asset forfeiture program. Although 

not expected to fully embrace the concep

consolidating the two separate, seized ass
Page 58 GAO-01-254 Treasu

management and disposal functions, we beli

taking advantage of opportunities for cooper

sharing of agency and contractor resources 

encompasses the spirit of the recommendati

to reduce the programs’ administrative costs

To determine whether to remove the asset fo

programs from the high-risk list, we will con

results of Treasury’s and Justice’s study, incl

implementation of any related recommendat

well as the results of ongoing initiatives for r

Treasury’s and Justice’s respective managem

accountability issues. 

Contacts Gary T. Engel, Director 

Financial Management and Assurance 

(202) 512-3406

engelg@gao.gov

Richard M. Stana, Director

Justice Issues 

(202) 512-8777

stanar@gao.gov
Page 59 GAO-01-254 Tre

IRS Modernization Tax Administration: Assessment of IRS’ 2

Season (GAO-01-158, Dec. 22, 2000).

Internal Revenue Service: Recommendatio

Financial and Operational Management (G

Nov. 17, 2000). 

Tax Systems Modernization: Results of Re

August 2000 Interim Spending Plan (GAO

2000).

Customer Service: Human Capital Manage

Selected Public and Private Call Centers

(GAO/GGD-00-161, Aug. 22, 2000).

Tax Administration: IRS Faces Several Ch

Attempts to Better Serve Small Businesse

(GAO/GGD-00-166, Aug. 10, 2000).

Tax Systems Modernization: Results of Re

March 7, 2000, Expenditure Plan (GAO/AI

May 24, 2000).

IRS Modernization: Long-term Effort Und

Significant Challenges Remain

(GAO/T-GGD/AIMD-00-154, May 3, 2000).

IRS Modernization: Business Practice, Pe

Management, and Information Technology 

(GAO/T-GGD/AIMD-00-144, Apr. 10, 2000)

IRS Restructuring Act: Implementation Un

Agency Modernization Important to Succe

(GAO/T-GGD-00-53, Feb. 2, 2000).

Financial Audit: IRS’ Fiscal Year 1999 Fina

Statements (GAO/AIMD-00-76, Feb. 29, 20
Page 60 GAO-01-254 Treasu

IRS Employee Evaluations: Opportunities to 

Balance Customer Service and Compliance O

(GAO/GGD-00-1, Oct. 14, 1999).

IRS Management: Formidable Challenges Co

as It Attempts to Modernize (GAO/T-GGD/AI

July, 22, 1999).

Tax Systems Modernization: Results of Revie

Initial Expenditure Plan (GAO/AIMD/GGD-9

June 15, 1999).

Tax Administration: IRS’ 1999 Tax Filing Sea

(GAO/GGD-00-37, Dec. 15, 1999).

Tax Administration: IRS’ 1998 Tax Filing Sea

(GAO/GGD-99-21, Dec. 31, 1998).

Tax Systems Modernization: Blueprint Is a G

But Not Yet Sufficiently Complete to Build o

Systems (GAO/AIMD/GGD-98-54, Feb. 24, 19

Customs U.S. Customs Service: Observations on Selec

Operations and Program Issues

(GAO/T-GGD/AIMD-00-150, Apr. 20, 2000).

U.S. Customs Service: Better Targeting of Ai

Passengers for Personal Searches Could Pro

Results (GAO/GGD-00-38, Mar. 17, 2000).

Customs Service Modernization: Serious Ma

and Technical Weaknesses Must Be Correcte

(GAO/AIMD-99-41, Feb. 26, 1999).

Customs Service Modernization: Impact of N

Compliance Strategy Needs to Be Assessed

(GAO/GGD-00-23, Dec. 15, 1999).
Page 61 GAO-01-254 Tre

Customs Service: Process for Estimating 

Inspectional Personnel (GAO/GGD-98-107

1998).

Financial 

Management

Financial Management Service: Significan

in Computer Controls (GAO/AIMD-00-305

2000).

Debt Collection: Treasury Faces Challeng

Implementing Its Cross-Servicing Initiativ

(GAO/AIMD-00-234, Aug. 4, 2000).

Federal Reserve Banks: Areas for Improv

Computer Controls (GAO/AIMD-00-218, J

Observations on the Department of the Tr

Year 1999 Performance Report

(GAO/GGD/AIMD-00-231R, June 30, 2000)

Debt Collection: Treasury Faces Challeng

Implementing Its Cross-Servicing Initiativ

(GAO/T-AIMD-00-213, June 8, 2000).

Financial Audit: 1999 Financial Report of 

States Government (GAO/AIMD-00-131, M

Financial Audit: Bureau of the Public Deb

1999 and 1998 Schedules of Federal Debt

(GAO/AIMD-00-79, March 1, 2000).

Financial Management Service: Significan

in Computer Controls (GAO/AIMD-00-4, O

Federal Debt: Debt Management in a Peri

Surplus (GAO/AIMD-99-270, Sept. 29, 1999
Page 62 GAO-01-254 Treasu

Financial Audit: Issues Regarding Reconcilia

Fund Balances with Treasury Accounts (AIM

Sept. 17, 1999).

Federal Reserve Banks: Areas for Improvem

Computer Controls (GAO/AIMD-99-280, Sept

Federal Debt: Answers to Frequently Asked 

An Update (GAO/OCG-99-27, May 28, 1999).

Financial Audit: 1998 Financial Report of the 

States Government (GAO/AIMD-99-130, Mar

ATF Observations on the Department of the Treas

Year 1999 Performance Report and Fiscal Ye

Performance Plan (GAO/GGD/AIMD-00-231R

2000).

Asset Forfeiture Asset Forfeiture: Noncash Property Should B

Consolidated Under the Marshals Service

(GAO/GGD-91-97, June 28, 1991). 

Financial Management: Customs’ Accountab

Seized Property and Special Operation Adva

Weak (GAO/AIMD-94-6, Nov. 22, 1993).
Page 63 GAO-01-254 Tre

Major Management Challenges and Progr

Governmentwide Perspective (GAO-01-24

Major Management Challenges and Progr

Department of Agriculture (GAO-01-242)

Major Management Challenges and Progr

Department of Commerce (GAO-01-243)

Major Management Challenges and Progr

Department of Defense (GAO-01-244)

Major Management Challenges and Progr

Department of Education (GAO-01-245)

Major Management Challenges and Progr

Department of Energy (GAO-01-246)

Major Management Challenges and Progr

Department of Health and Human Service

(GAO-01-247)

Major Management Challenges and Progr

Department of Housing and Urban Develo

(GAO-01-248)

Major Management Challenges and Progr

Department of the Interior (GAO-01-249)

Major Management Challenges and Progr

Department of Justice (GAO-01-250)

Major Management Challenges and Progr

Department of Labor (GAO-01-251)

Major Management Challenges and Progr

Department of State (GAO-01-252)
Page 64 GAO-01-254 Treasu

Major Management Challenges and Program 

Department of Transportation (GAO-01-253)

Major Management Challenges and Program 

Department of the Treasury (GAO-01-254)

Major Management Challenges and Program 

Department of Veterans Affairs (GAO-01-255

Major Management Challenges and Program 

Agency for International Development (GAO

Major Management Challenges and Program 

Environmental Protection Agency (GAO-01-2

Major Management Challenges and Program 

National Aeronautics and Space Administrat

(GAO-01-258)

Major Management Challenges and Program 

Nuclear Regulatory Commission (GAO-01-25

Major Management Challenges and Program 

Small Business Administration (GAO-01-260

Major Management Challenges and Program 

Social Security Administration (GAO-01-261)

Major Management Challenges and Program 

U.S. Postal Service (GAO-01-262)

High-Risk Series: An Update (GAO-01-263)
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