TREASURY INSPECTOR GENERAL
FOR TAX ADMINISTRATION
Improvements Can Be Made to the Internal Revenue Service's Federal Financial Management Improvement Act Remediation Plan Process
Reference No. 2001-10-093
The Federal Financial Management Improvement Act of 1996 (FFMIA) emphasizes certain financial management system requirements that are established by Executive Branch policies. The Act also establishes new requirements for auditors to report on agency compliance with these basic requirements and for agency heads to correct deficiencies within a certain time period.
Each agency is required to implement and maintain financial management systems that comply substantially with federal financial management systems requirements, applicable federal accounting standards, and the United States (U.S.) Government Standard General Ledger at the transaction level. Further, if the head of the agency determines that the agency’s financial management systems do not comply with the above requirements, the head of the agency, in consultation with the Director of the Office of Management and Budget, shall establish a remediation plan. The remediation plan shall include resources, remedies, and intermediate target dates necessary to bring the agency’s financial management systems into substantial compliance.
The overall objective of this review was to evaluate the effectiveness of the Internal Revenue Service’s (IRS) remediation plan in resolving identified financial management weaknesses and the progress the IRS has made in implementing the remediation plan. Tests were also performed as required by the FFMIA to identify any missed remediation plan intermediate target dates. This review was conducted as part of an agency-wide review of all Department of the Treasury bureaus.
The IRS has made significant improvements with its remediation plan. Our follow-up of previously reported Treasury Inspector General for Tax Administration (TIGTA) findings showed that all weaknesses identified by the General Accounting Office (GAO) during its financial statement audits were included in the remediation plan and that intermediate target dates were identified for all remedial actions. Except for issues noted in this report, remedial actions included in the remediation plan directly addressed the identified weaknesses and, if fully implemented, were reasonable to correct the associated weaknesses. Further, we did not identify any missed intermediate target dates during the period of our review that would require specific reporting by the TIGTA as outlined in the FFMIA.
However, the IRS’ remediation plans through September 30, 2000, continued to not fully comply with the requirements of the FFMIA, in that resource commitments were not identified for all remedial actions (a previously reported condition). Further, the IRS was not performing independent verifications of implemented remedial actions, and it was not sufficiently providing explanations in its remediation plans for the necessity of revised remedial action intermediate target dates.
During our audit, the IRS developed and issued interim reporting responsibilities and requirements, which included a management responsibility to ensure that proper documentation to verify remedial action implementation is maintained and a status requirement to ensure that a description of the reason for a delay in implementing an action is provided. If the responsible organizations in fact maintain and provide such documentation, the IRS should be able to more effectively monitor the timely completion of remediation plan actions.
Resource Commitments Need to Be Identified for the Remediation Plan to Be in Compliance with the Federal Financial Management Improvement Act
Our review of the June 30, 2000, custodial component of the remediation plan identified four weaknesses where resource commitments were not identified. In addition, we identified one weakness for which the indicated resource commitment was not clear.
We subsequently reviewed the September 30, 2000, remediation plan. Of the four weaknesses we had previously identified in the June remediation plan as lacking commitments, three had been rectified. The one weakness previously identified as having a vague resource commitment was shown as "pending."
By not determining the extent of resources needed to fully implement remedial actions, the IRS cannot effectively evaluate the commitments needed to correct cited weaknesses. This could delay the completion of the actions due to insufficient resources being available when needed.
An Independent Process Needs to Be in Place to Verify and Test the Effectiveness of Implemented Remedial Actions
The IRS did not establish an independent verification and testing process to ensure that remedial actions reported as completed sufficiently corrected noted weaknesses. In its Fiscal Year (FY) 1999 financial statement audit, the GAO reported that one completed remedial action was ineffective to correct the identified weakness. As a result, the IRS will be updating the desk procedures to address the errors identified by the GAO.
Further, 8 weaknesses involving 22 remedial actions were reported as completed at the time of our review. However, since the IRS did not perform any independent testing of these actions, it will have no assurance of the actions’ effectiveness until an outside organization, such as the GAO, completes testing and reports its findings related to the annual audit of the IRS’ financial statements.
Without a process to verify the effectiveness of completed remedial actions, the IRS is at risk of having financial management systems that continue to not meet financial system requirements.
Effective Monitoring of Remedial Action Intermediate Target Dates Is Needed to Ensure Actions Are Implemented Timely
Our review and comparison of the March 31, June 30, and September 30, 2000, remediation plans to the December 30, 1999, remediation plan identified 10 in-process remedial actions for which intermediate target dates were extended. The revised intermediate target dates ranged from 1 month to 3 years past the original intermediate target dates. Several of the changes were not sufficiently explained in the remediation plans to allow an independent verification as to their reasonableness.
Our review of the remediation plans through September 2000 also identified that, of the 32 remedial actions still in process, 14 actions had intermediate target dates in FYs 2002, 2003, and 2004. This situation further emphasizes the need for a proactive monitoring process to not only monitor intermediate target dates but also to verify that accomplishment dates within remedial actions that have intermediate target dates in subsequent fiscal years are being established and met.
Without an effective process for monitoring remedial action intermediate target dates, delays in implementation may occur that will increase the risk of the IRS having financial management systems that do not meet financial system requirements.
Summary of Recommendations
The Chief Financial Officer, in consultation with responsible IRS organizational officials, should take an active role in identifying resource needs for all remediation plan actions, independently verifying and testing completed remedial actions, and verifying the reasonableness of revised remedial action intermediate target dates, including accomplishment dates for remedial actions that have intermediate target dates in subsequent fiscal years.
Management’s Response: IRS management agreed with our recommendations and has initiated corrective actions to identify resources for all remediation plan actions, independently verify and test completed remedial actions, and verify and monitor the reasonableness of revised remedial action intermediate target dates. Management’s complete response to the draft report is included as Appendix IV.