TREASURY INSPECTOR GENERAL

FOR TAX ADMINISTRATION

Controls Over Criminal Investigation Investigative Imprest Funds Should Be Strengthened

January 2001

Reference No. 2001-10-040

Executive Summary

The Internal Revenue Service (IRS) Criminal Investigation function (referred to as CI) has 35 investigative imprest funds, located throughout the country, under the control of individual Special Agents in Charge (SAC). The authorized balances of the imprest funds range from $10,000 to $300,000, with an average balance of $86,000. The investigative imprest funds are established to provide funding for undercover operations and other confidential expenditures. Confidential expenditures allow special agents to purchase or acquire information and services that are necessary to complete an investigative case. Reimbursements of confidential expenditures are claimed only through imprest funds for investigative purposes.

The IRS Chief Financial Officer requested that the Treasury Inspector General for Tax Administration perform an audit of CI investigative imprest funds because of concerns expressed by the General Accounting Office during its audit of the IRSí Fiscal Year 1999 financial statements. The overall objective of this audit was to determine whether the IRS CI functionís controls are sufficient to ensure that investigative imprest funds are accurately accounted for and adequately safeguarded; related fund transactions are authorized, approved, and accurately recorded; and, the imprest funds are maintained at the lowest dollar amount necessary to meet actual needs. The audit scope covered four funds located in various offices throughout the country and concentrated only on the financial aspects of investigative imprest fund transactions. We did not review investigative case files except to retrieve or confirm records relating to the financial transactions. Therefore, we are not attesting to the overall veracity of individual expenses within the imprest funds.

Results

In general, the selected CI investigative imprest funds were accurately accounted for and adequately safeguarded, and related fund transactions were authorized, approved, and accurately recorded. While CIís internal controls were designed to prevent loss or unauthorized use of the moneys in the investigative imprest funds, some improvements can be made. In particular, unannounced, independent quarterly account verifications should be consistently performed; fund balances should be maintained at the lowest dollar amount necessary to meet actual needs; and, monthly accountability reports should be timely prepared.

Unannounced, Independent Account Verifications Should Be Consistently Performed

The four imprest fund records reviewed did not contain evidence that adequate, unannounced, periodic verifications were performed in accordance with IRS procedures. For example, the verifications for one of the funds were consistently conducted in the quarter following the quarter being verified and were documented as being prepared by only one verifier instead of the required two. Another fund was not reviewed at irregular intervals; 3 of the 4 verifications for the period were performed in the last 2 weeks of the quarter. Of the remaining two funds, one was verified and reconciled only twice during the audit period and the remaining fund was verified only once during the audit period. Without unannounced periodic reviews of the imprest fund, the potential exists for improprieties and errors to occur and go undetected.

Investigative Imprest Fund Authorizations Should Be Maintained at a Level That Meets Actual Needs

The authorized dollar amounts for the four funds reviewed exceeded actual needs. Ideally, the imprest fund should turn over once every 2 months. However, all of the funds we reviewed were turning over beyond the 2-month period. The combined authorized fund level for the 4 imprest funds we reviewed was $960,000, and the average 2-month turnover rate for the 4 funds combined was $211,349, leaving an excess of $748,651.

The imprest funds were maintained in non-interest bearing checking accounts. As a result, the government was losing potential interest of approximately $49,000 per year on the combined average excess fund balance of $748,651.

Monthly Accountability Reports Should Be Prepared Timely

Accountability reports were not always timely prepared and submitted for the four imprest funds. Sixty-one percent (28 of 46) of the accountability reports were filed from 1 to 24 workdays after the allowable 10-workday limit. Nearly 30 percent (8 of 28) of the late reports were submitted more than 10 workdays late. If the accountability report is not filed timely, reimbursements will not be received timely. In addition, the Financial Management Office cannot maintain accurate, up-to-date detailed records for each imprest fund if the accountability reports are not received timely.

Summary of Recommendations

The Chief, CI, should ensure that the required quarterly imprest fund verifications are performed consistently and in accordance with IRS requirements. Additionally, the Chief, CI, should establish procedures requiring that authorized dollar amounts in the imprest funds be periodically monitored to determine actual needs and that oversight reviews be conducted to ensure the timely submission of accountability reports.

Managementís Response: CI has begun work on a system to ensure that unannounced independent account verifications are consistently performed, investigative imprest fund levels are maintained at appropriate levels based on needs, and monthly accountability reports are prepared on time. Managementís comments have been incorporated into the report where appropriate, and the full text of their comments is included as Appendix IX.