Attestation Review of the Internal Revenue Service’s Fiscal
Year 2001 Annual Accounting of Drug Control Funds
February
2002
Reference
Number: 2002-10-053
This report has cleared the Treasury
Inspector General for Tax Administration disclosure review process and
information determined to be restricted from public release has been redacted
from this document.
February
1, 2002
MEMORANDUM FOR
COMMISSIONER ROSSOTTI
FROM: (for) Pamela J. Gardiner /s/ Scott E.
Wilson
Deputy Inspector General for
Audit
SUBJECT: Final Audit Report - Attestation Review
of the Internal Revenue Service’s Fiscal Year 2001 Annual Accounting of Drug
Control Funds (Audit # 200210006)
This
report presents the results of our attestation review of the Internal Revenue
Service’s (IRS) Fiscal Year (FY) 2001 Office of National Drug Control Policy
(ONDCP) detailed accounting submission.
The purpose of this review was to express a conclusion about the
reliability of each assertion made in the detailed accounting submission.
In summary, except for one matter concerning the IRS’ explanation
and documentation of estimation methods, nothing came to our attention that
caused us to believe that the accompanying IRS FY 2001 ONDCP detailed
accounting submission assertions are not presented, in all material respects,
based on ONDCP-established criteria.
However, we identified several detailed accounting submission report processing controls that could be implemented or
strengthened to reduce the risk of reporting misstatements.
We
recommend that the IRS’ Chief Financial Officer ensure that written procedures
are established to fully document and provide guidance for the processes used
to compile the accounting submissions; ensure that the accounting submissions
are examined by a responsible official who would certify as to their accuracy;
and, maintain documentation in such a manner that it is easily associated with
the accounting submission.
The IRS agreed
to implement the TIGTA recommendations included in the report
Management’s complete
response to the draft report is included as Appendix V.
Copies of this
report are also being sent to the IRS managers who are affected by the report
recommendations. Please contact me at
(202) 622-6510 if you have questions or Daniel R. Devlin, Assistant Inspector
General for Audit (Headquarters Operations and Exempt Organizations Programs),
at (202) 622-8500.
The Fiscal
Year 2001 Detailed Accounting Submission Was Presented Fairly
Appendix I – Detailed Objective, Scope, and Methodology
Appendix II – Major Contributors to This Report
Appendix III – Report Distribution List
Appendix IV – Internal Revenue Service Fiscal Year 2001
Detailed Accounting Submission
Appendix V – Management’s Response to the Draft Report
The Anti-Drug Abuse Act of 1988 establishes as a policy goal the creation of a drug-free America. A key provision of the Act is the establishment of the Office of National Drug Control Policy (ONDCP) to set priorities, implement a national strategy, and certify federal drug control budgets. The Internal Revenue Service’s (IRS) Narcotics Program supports the National Drug Control Strategy through continued support of joint agency task forces including the Interagency Crime Drug Enforcement Task Force and High Intensity Drug Trafficking Area Task Force, through the use of asset forfeiture legislation, and international training and assistance programs.
The Strategy established 5 goals
and 31 supporting objectives as the basis for a coherent, long-term national
effort. The IRS focuses on two goals,
which are to reduce drug-related crime and to reduce sources of supplies.
This review was conducted as required by the National Drug
Enforcement Policy (21 U.S.C. § 1704(d)) and the
ONDCP Circular, Annual Accounting of Drug
Control Funds, dated December 17, 1999. The National Drug Control Program agencies
are required to submit to the Director of the ONDCP, not later than February 1
of each year, a detailed accounting of all funds expended (the ONDCP Circular
requires amounts obligated) during the previous fiscal year. Further, it requires such accounting to be
authenticated by the Inspector General of each agency prior to its submission.
We conducted our fieldwork in the IRS’ Headquarters offices of the Chief Financial Officer (CFO) and Chief, Criminal Investigation (CI) during the period of November 2001 through January 2002. Our review was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. An attestation review is substantially less in scope than an examination, the objective of which is the expression of an opinion on the ONDCP detailed accounting submission assertions. Accordingly, we do not express such an opinion.
The IRS’ Fiscal Year (FY) 2001 submission included additional information concerning Interagency Crime Drug Enforcement obligations, which is not required by the ONDCP Circular. This information was not reviewed, and accordingly, we do not express any form of assurance on it.
Detailed information on our audit objective, scope, and methodology is presented in Appendix I. Major contributors to the report are listed in Appendix II.
We reviewed the accompanying IRS
ONDCP detailed accounting submission and assertions for the fiscal year ended
September 30, 2001 (Appendix IV). This
submission, including the assertions made, were prepared pursuant to 21 U.S.C.
§ 1704(d) and the ONDCP Circular, Annual
Accounting of Drug Control Funds, dated December 17, 1999, and they are the
responsibility of the IRS.
The assertions, as required by Section 5.b. of the ONDCP Circular, include that the methodology used is reasonable and accurate, including thorough explanations and documentation of estimation assumptions used; the methodology disclosed was the actual methodology used; and, the data presented are associated with obligations against a financial plan that properly reflects changes if made. ONDCP-established criteria include well-documented sources of data with demonstrated connection to drug control obligations, documented and explained estimations, complete reporting of data, fair presentation of data from financial systems, well-documented calculations, and association with a financial plan that, if revised, properly reflects those revisions, including ONDCP’s approval of reprogrammings in excess of $5 million.
The IRS was unable to thoroughly
explain or provide detailed documentation of two estimation assumptions used in
its detailed accounting submission. The
IRS based its allocation of funds on institutional knowledge for general CI
resources and Currency Transaction Reporting resources between goals 2 and 5. Documentation presented to support the
general CI resource allocation assumption was an e-mail message from a Special
Agent dated May 15, 1998. This e-mail
message showed a 60/40 percent allocation for goals 2 and 5 respectively. Further, no documentation was presented for
the 50/50 percent allocation assumption for goals 2 and 5 used for Currency
Transaction Reporting resources. Due to
this condition, we were unable to verify either allocation assumption.
Based on our review, with the exception of the matter described in the preceding paragraph, nothing came to our attention that caused us to believe that the accompanying IRS FY 2001 ONDCP detailed accounting submission assertions are not presented, in all material respects, in accordance with ONDCP-established criteria.
We identified several detailed
accounting submission report processing controls that
could be implemented or strengthened to reduce the risk of reporting
misstatements. The IRS currently does
not have written guidance on: how the
submissions should be prepared, supervisory reviews of the completed
submissions to ensure that the amounts are accurate, and uniform accumulation
of detailed documentation to support the amounts that are included in the
submissions.
During the course of our verification testing, we identified various processing and mathematical errors that were corrected by the IRS prior to its final issuance of the detailed accounting submission. These errors could have been prevented if written procedures were available and an accountable official reviewed the work performed prior to the submission being presented for audit.
1. The CFO, with participation of the Chief, CI, should ensure that written procedures are established to fully document and provide guidance for the processes used to compile the accounting submissions, including the support for the estimation assumptions used.
Management’s Response: The IRS agreed to implement the TIGTA recommendation.
2.
The CFO, with
participation of the Chief, CI, should ensure that the accounting submissions
are examined by a responsible official who would certify as to their accuracy.
Management’s Response: The IRS agreed to implement the TIGTA recommendation.
3.
The CFO, with participation of
the Chief, CI, should ensure that detailed supporting documentation is
maintained in such a manner that it is easily associated with the accounting
submission. This would facilitate both
a post preparation examination and the auditor’s review.
Management’s Response: The IRS agreed to implement the TIGTA recommendation.
* * * * *
While this report is an unrestricted public document, the
information it contains is intended solely for the use of the IRS, the United
States Department of the Treasury, the ONDCP, and the Congress. It is not intended to be, and should not be,
used by anyone other than these specified parties.
Appendix I
Detailed Objective, Scope, and Methodology
The overall objective of this review was to perform an attestation review of the Internal Revenue Service’s (IRS) reporting of Fiscal Year (FY) 2001 Office of National Drug Control Policy (ONDCP) expenditures for the purpose of expressing a conclusion about the reliability of each assertion made in the detailed accounting submission. To accomplish our objective, we:
I.
Obtained an
understanding of the process used to prepare the FY 2001 detailed accounting
submission.
A. Discussed the process to record and report ONDCP expenditures with responsible IRS personnel.
B. Obtained documents such as the detailed accounting submission, written procedures, supporting worksheets, and evidence of the methodology used.
C. Prepared a narrative of the process used to prepare the accounting submission including the identification of controls that ensure amounts are accurately recorded and reported.
II. Evaluated the reasonableness of the drug methodology process.
A. Reviewed data supporting the detailed accounting submission to establish its relationship to the amounts being reported.
B. Reviewed the estimation methods for consistency with reported amounts.
C. Verified whether all drug related activities were reflected in the drug methodology such as investigation and support resources, intelligence, international, etc.
D. Identified material weaknesses associated with IRS financial systems that yield data from which the drug related obligation estimates were derived.
E. Obtained documentation to support any modifications to the initial drug methodology and verified that the modifications were submitted to the ONDCP for review prior to implementation.
F. Verified that any reprogramming or transfers, affecting the drug control budget in excess of $5 million, were approved by the ONDCP.
III. Performed sufficient verifications of reported obligations to support our conclusion on the reliability of the assertions.
A. Verified that the detailed accounting submission included all of the elements specified in Section 5 of the ONDCP Circular, Annual Accounting of Drug Control Funds.
B. Verified that Interagency Crime and Drug Enforcement funds were excluded from the reported obligations.
C. Verified that the Table of Drug Control Obligations presented obligations by Strategic Goals, Drug Function, Budget Decision Units, and any other published subdivision displayed in the National Drug Control Strategy Budget Summary.
D. Verified that the drug control budget submitted to the ONDCP was consistent with the detailed accounting submission.
E. Verified the mathematical accuracy of the obligations presented in the table.
F. Traced the information contained in the table to supporting documentation.
G. Reviewed the supporting documentation for reasonableness.
H. Re-performed the calculations performed by management to obtain the breakout by goal, function, and decision unit. Also, verified the basis for estimates used in the accounting submission.
I. Verified that the methodology disclosed was the actual methodology used to generate the table.
J. Reviewed the presentation of the data in the table for consistency with prior year submissions.
Appendix II
Major Contributors to This Report
Daniel R. Devlin, Assistant
Inspector General for Audit (Headquarters Operations and Exempt Organizations
Programs)
John R. Wright, Director
Thomas
J. Brunetto, Audit Manager
Gary
D. Pressley, Senior Auditor
Gwen
Bryant-Hill, Auditor
Linda Douglas, Auditor
Appendix III
Deputy Commissioner
N:DC
Chief Financial Officer
N:CFO
Chief, Criminal Investigation CI
Department of the Treasury, Deputy Chief Financial
Officer MD
Chief Counsel CC
National Taxpayer Advocate
TA
Director, Legislative Affairs CL:LA
Director, Office of Program Evaluation and Risk Analysis N:ADC:R:O
Office of Management Controls N:CFO:F:M
Audit Liaisons:
Chief Financial Officer N:CFO
Chief, Criminal Investigation CI
Appendix IV
Internal Revenue Service Fiscal
Year 2001 Detailed Accounting Submission
The Appendix was removed due to its size. To see the Appendix, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.
Note: The exhibited detailed accounting submission
was changed by the IRS and received by TIGTA on February 1, 2002, to reflect a
revision in the first column heading from IRS - CI to IRS as mentioned in its
response to TIGTA’s draft report. This
was the only change made to the submission that was reviewed by the TIGTA.
Appendix V
The response was removed due to its size. To see the complete response, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.