Management Advisory Report:
The Internal Revenue Service’s Federal Financial Management Improvement
Act Remediation Plan Complies With Reporting Requirements
March 2002
Reference Number: 2002-10-069
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.
March
27, 2002
MEMORANDUM FOR
CHIEF FINANCIAL OFFICER
FROM: Pamela J. Gardiner /s/ Pamela J. Gardiner
Deputy Inspector General for
Audit
SUBJECT: Final Management Advisory Report – The
Internal Revenue Service’s Federal Financial Management Improvement Act
Remediation Plan Complies With Reporting Requirements (Audit # 200210010)
This
report presents the results of our review of the Internal Revenue Service’s
(IRS) Federal Financial Management Improvement Act (FFMIA) remediation plan to
identify any instances and reasons for missed intermediate target dates and to
evaluate, in general, whether the IRS is meeting its responsibilities in
fulfilling the intent of the FFMIA. The
review was performed to meet our requirement under the FFMIA that states, in
general, that each Inspector General shall report to the Congress instances and
reasons when an agency has not met the intermediate target dates established in
the remediation plan.
In
summary, we found no instances where the IRS did not meet established
intermediate target dates contained in the remediation plan, but we did
identify where intermediate target dates were extended with explanations. Also, the IRS received required Office of
Management and Budget (OMB) concurrence for remedial actions with intermediate
target dates that extend longer than 3 years, incorporated all General
Accounting Office (GAO) financial statement audit recommendations pertinent to
the FFMIA guidelines into its remediation plan, and has taken actions to
reconcile inconsistencies between GAO and IRS reported status of remedial
actions. The IRS has also taken
positive steps to implement corrective actions addressing prior Treasury
Inspector General for Tax Administration recommendations.
Management’s
Comments: Since this report contains no
recommendations, we did not require a formal response from the IRS. However, in reaction to an advance copy of
the report, the IRS commented that it is working very hard to bring the
remediation plan into compliance with the requirements of the FFMIA, the OMB,
and the Department of the Treasury guidelines, and is working to align the
remediation plan more closely with Federal Managers’ Financial Integrity Act of
1982 control weaknesses; to enhance reporting of resources needed and resources
approved; and, to identify specific financial systems deficiencies with the
appropriate actions.
Copies of this
report are also being sent to the IRS managers who are affected by the
report. 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.
No Instances of
Missed Target Dates Were Found, But Target Dates Were Extended
The Remediation Plan Contained Applicable General Accounting Office Recommendations
Internal Revenue Service Management’s Comments
Appendix I – Detailed Objectives, Scope, and Methodology
Appendix II – Major Contributors to This Report
Appendix III – Report Distribution List
The Federal Financial Management Improvement Act of 1996 (FFMIA) establishes in statute certain financial management systems requirements that were already established by Executive Branch policies. It was intended to advance Federal financial management by ensuring that Federal management systems can and do provide reliable, consistent disclosure of financial data. This should be done on a basis that is uniform across the Federal government from year to year, by consistently using professionally accepted accounting standards. Specifically, section 803 (a) of the FFMIA requires each agency to implement and maintain systems that comply substantially with:
· Federal financial management system requirements.
Auditors are required to report on agency compliance with the three stated requirements as part of financial statement audit reports; and agency heads are required to determine, based on the audit report and other information, whether their financial management systems comply with the FFMIA. If the agency does not comply, it is required to develop remediation plans that describe the resources, remedies, and intermediate target dates for achieving compliance, and file the plans with the Office of Management and Budget (OMB).
In addition, section 804 (b) requires that the Inspector General shall report to the Congress instances and reasons when an agency has not met the intermediate target dates established in the remediation plan.
The General Accounting Office (GAO) reported numerous
internal control weaknesses in its audits of the Internal Revenue Service’s
(IRS) annual financial statements. Due
to these weaknesses, the IRS is noncompliant with the FFMIA and is required to
prepare a remediation plan.
Review work was performed at IRS Headquarters in the office of the Chief Financial Officer, which is responsible for monitoring and implementing the remediation plan, during the period December 2001 through February 2002. The review was conducted in accordance with the President’s Council on Integrity and Efficiency’s Quality Standards for Inspections. Detailed information on our objectives, scope, and methodology is presented in Appendix I. Major contributors to the report are listed in Appendix II.
The
IRS’ December 31, 2001, remediation plan listed 49 open remedial actions. All had established intermediate target
dates. No instances were identified
where the IRS did not meet an established intermediate target date contained in
the remediation plan. However, we did
identify where intermediate target dates were extended for 19 remedial actions
during the past 5 quarterly reports.
A
comparison was made of the IRS’ December 31, 2001, remediation plan to the
prior four quarters’ remediation plans.
During that period, the IRS extended 19 of the 49 open remedial action
intermediate target dates. Thirteen
intermediate target dates were extended once and 5 intermediate target dates
were extended twice during the 5 quarters under review. The remaining intermediate target date was
extended, but later decreased.
Eight of the 19 remedial
actions with intermediate target date extensions are to be remedied by the
deployment of 3 key modernization projects.
Originally established intermediate target dates for these eight remedial
actions were extended to reflect the date in the integrated master schedule
approved by the Core Business Systems Executive
Steering Committee. These projects
include the Integrated Financial System, Customer Account Data Engine, and
Custodial Accounting Project.
The
reasons documented for extending the intermediate target dates for the
remaining 11 remedial actions include
potential reorganization of the Modernization/Information Technology Services,
funding for additional staff, re-designing or deployment of information
technology systems, developing a baseline quality measurement, and the need for
additional time to mitigate security control weaknesses in IRS posts-of-duty.
The
FFMIA requires that a remediation plan shall bring an agency’s financial
management systems into substantial compliance no later than 3 years after the
date a determination is made that the financial management systems do not
comply with the requirements of the FFMIA unless the agency, with concurrence
of the Director of OMB:
·
Determines that the agency’s
financial management systems cannot comply with the requirements within 3
years.
·
Specifies the most feasible
date to bring the agency’s financial management systems into compliance with
the requirements.
·
Designates an agency official
who shall be responsible for bringing the agency’s financial management systems
into compliance with the requirements.
Currently
the IRS remediation plan has 22 open remedial actions with intermediate target
dates that extend longer than 3 years.
On
March 30, 2001, the IRS requested and received, through the Department of the
Treasury, concurrence from the OMB for time extensions on remedial actions in
excess of 3 years. As part of the OMB
concurrence, the IRS is required to hold quarterly status review sessions as a
method of measuring performance against identified remedial actions.
Each
quarter the IRS’ Office of Management Controls (OMC) receives updates for each
open remedial action from responsible functional areas. A template is provided, which uses a format
recommended by the Department of the Treasury.
The requested information includes:
·
Overview of the FFMIA findings.
·
Accomplishments during the
quarter.
·
Due date slippage.
·
Planned actions for the
current quarter.
·
Impediments to success and what is needed to address
them.
·
Funding requirements and issues.
Starting
with the Fiscal Year (FY) 2001 third quarter remediation plan, the IRS
submitted to the OMB and the Department of the Treasury a summary update of
open custodial and administrative remedial actions. All extended intermediate target dates after March 30, 2001, were
identified and reported to the OMB in the IRS’ quarterly summary updates.
On January 4, 2001, the OMB issued revised implementation
guidance for the FFMIA. The revised
guidance states that Federal agencies must comply, and agency auditors must
report whether the agency’s financial management systems substantially comply,
with applicable Federal financial management systems requirements, applicable
Federal accounting standards, and the Government Standard General Ledger. The Federal Accounting Standard Advisory
Board standards, incorporated in the OMB’s Bulletin, Form and Content, are the applicable accounting standards for the
Federal government; and, the OMB Circular A-127, Financial Management Systems, is the source of Federal financial
management systems requirements.
The
GAO reported 52 new recommendations in 3 reports pertaining to its FYs 1999 and
2000 financial statement audits. All
recommendations pertinent to the January 4, 2001, FFMIA guidelines were
incorporated into the IRS’ remediation plan.
In
GAO’s report, IRS Progress Made, but
Further Actions Needed to Improve Financial Management (GAO-02-35, October
2001), it reported the status of recommendations from prior IRS financial
statement audits and related financial management reports. At the time the report was issued, the GAO
closed 24 of 85 previously open recommendations. The GAO closed the recommendations because the IRS had addressed
the weaknesses or because the recommendations were superseded by updated or
more detailed recommendations.
Of
the remaining 61 open recommendations as reported by the GAO, 29 were reported
by the IRS as closed in its December 31, 2001, remediation plan. However, the GAO continued to report
problems or errors for 17 of the 29 recommendations as a result of its FY 2000
financial statement audit and stated that it would continue to monitor and
evaluate the remedial actions during the FY 2001 financial statement
audit. The problems or errors continued
to occur because guidance issued by the IRS was not always consistently
followed. If the GAO, during its
financial statement audits, finds any instances of previously reported problems
occurring, it will not close the related audit recommendation.
The IRS has recognized the significance of inconsistent
classification of open and closed remedial actions and has taken actions to
minimize the impact of such inconsistencies.
The IRS’ OMC stated that the IRS meets with the GAO and the Department
of the Treasury to reconcile identified inconsistencies. The functional area responsible for the
remedial action must justify why the remedial action was closed, or a
determination is reached on initiating a new remedial action.
Financial management weaknesses reported by the GAO as a
result of its annual financial statement audits were contained in both the IRS’
FFMIA remediation plan and the IRS’ Annual Assurance Statement in accordance
with prescribed Department of the Treasury guidance. However, a comparison of these two documents identified one open
remedial action, contained in the IRS’ draft Annual Assurance Statement, that
had a different target date than that reported in the FFMIA remediation
plan. The OMC agreed the date should be
as reported in the remediation plan and will update the Annual Assurance
Statement prior to its finalization.
The Treasury
Inspector General for Tax Administration (TIGTA)
reported, in two prior audit reports, various recommendations to improve the
IRS’ remediation plans. These
recommendations included actions to:
The IRS has taken positive steps to implement corrective
actions addressing the TIGTA reported recommendations.
Since this report contains no recommendations, we did not require a formal response from the IRS. However, in reaction to an advance copy of the report, the IRS commented that it is working very hard to bring the remediation plan into compliance with the requirements of the FFMIA, the OMB, and the Department of the Treasury guidelines.
The IRS also commented that, with the Department of the Treasury’s encouragement, it is working to align the remediation plan more closely with Federal Managers’ Financial Integrity Act of 1982 control weaknesses; to enhance reporting of resources needed and resources approved; and, to identify specific financial systems deficiencies with the appropriate actions. The proposed plan will allow easy identification of problems by subject matter, provide more definitive information relating to systems’ deficiencies and resources, and reduce reporting procedure workloads for the functions. The proposed plan will continue to address specific GAO recommendations related to compliance with the FFMIA.
Appendix I
Detailed Objectives, Scope, and Methodology
The overall objective of this review was to identify any instances and reasons for missed intermediate target dates established in the Internal Revenue Service’s (IRS) remediation plan as required by the Federal Financial Management Improvement Act (FFMIA). We also evaluated, in general, whether the IRS is meeting its responsibilities in fulfilling the intent of the FFMIA. Our review did not evaluate the appropriateness of IRS remedial actions. To accomplish our objectives, we:
I. Determined whether the IRS missed any intermediate target dates established in its remediation plan, and whether proper approval was obtained for remedial actions extending longer than 3 years.
A. Verified that all remedial actions had intermediate target dates established.
B. Identified instances where the IRS did not meet established intermediate target dates.
C. Compared the most recent IRS remediation plan to the prior four quarters’ plans to identify intermediate target dates that have changed since the previous Treasury Inspector General for Tax Administration (TIGTA) review and obtained documentation to support the change.
D. Identified any intermediate target dates that extended longer than 3 years since the recommendation was reported.
E. Verified that approval was requested from the Office of Management and Budget (OMB) for identified intermediate target dates in excess of 3 years.
II. Determined whether the IRS’ remediation plan was consistent with General Accounting Office (GAO) recommendations from prior IRS financial audits and related financial management reports.
A. Identified financial management recommendations meeting FFMIA criteria from the following GAO reports: IRS Progress Made, but Further Actions Needed to Improve Financial Management (GAO-02-35, dated October 2001), Financial Audit IRS’ Fiscal Year 2000 Financial Statements (GAO-01-394, dated March 2001), IRS, Recommendations to Improve Financial and Operational Management (GAO-01-42, dated November 2000), and Management Letter: Improvements Needed in IRS’ Accounting Procedures and Internal Controls (GAO-01-880R, dated July 2001).
B. Mapped the GAO recommendations to the December 31, 2001, IRS remediation plan to identify recommendations not included in the plan.
C. Compared the GAO reported status of recommendations to those as reported by IRS in its remediation plan.
D. Compared the IRS’ 2001 Annual Assurance Statement Corrective Action Plan to the remediation plan.
E. Inquired of IRS officials the reasons for any identified inconsistencies.
III. Determined whether corrective actions were implemented for prior TIGTA audit recommendations concerning the IRS’ remediation plan.
A. Verified that all GAO recommendations were included in the remediation plan where warranted.
B. Verified that intermediate target dates were identified for all remedial actions and that intermediate target dates in excess of 3 years reflected OMB concurrence.
C. Verified that resource requirements were identified for all remedial actions.
D. Verified that the Chief Financial Officer’s (CFO) office was performing independent verifications of completed remedial actions.
E. Verified that the CFO’s office was performing independent verifications of revised intermediate target dates.
F. Verified that the CFO’s office was monitoring accomplishment dates for remedial actions that have intermediate target dates in subsequent years.
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
Tom Brunetto, Audit Manager
Chinita Coates, Auditor
Bobbie
Draudt, Auditor
Appendix III
Commissioner N:C
Deputy Commissioner N:DC
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 Liaison: Chief Financial Officer N:CFO