The Internal Revenue Service’s Federal Financial Management
Improvement Act Remediation Plan as of December 31, 2002
March 2003
Reference
Number: 2003-10-079
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, 2003
MEMORANDUM FOR
CHIEF FINANCIAL OFFICER
FROM: Gordon C. Milbourn III /s/ Gordon C.
Milbourn III
Acting Deputy Inspector
General for Audit
SUBJECT: Final Audit Report - The Internal Revenue
Service’s Federal Financial Management Improvement Act Remediation Plan as of
December 31, 2002 (Audit # 200310003)
This
report presents the results of our review of the Internal Revenue Service’s (IRS)
Federal Financial Management Improvement Act (FFMIA) remediation plan. The overall objective of this review was to
identify any
instances of and reasons for missed intermediate target dates established in
the IRS’ FFMIA remediation plan. We
also evaluated, in general, whether the IRS was 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 did not identify any instances where the IRS did not meet
established intermediate target dates contained in its FFMIA remediation
plan. The IRS extended 18 intermediate
target dates for actions scheduled for completion during Calendar Year 2002 and
provided acceptable reasons in the remediation plan document. Also, the IRS, through the Department of the
Treasury, properly obtained Office of Management and Budget concurrence for
remedial actions with target dates that extend longer than 3 years from the
initial reporting of the financial weakness.
In addition, the IRS adequately addressed General Accounting Office recommendations meeting FFMIA criteria in the
remediation plan.
We did identify, however,
that some resources included in the remediation plan were not verifiable to
supporting documentation, and that functional areas were not consistently
reporting resources shown in the remediation plan. Accordingly, we recommended procedures be issued that include a
process for verifying the resources included in the IRS’ FFMIA remediation plan
and that provide for consistent reporting of such resources by the responsible
functions.
Management’s
Response: IRS management agreed with the
recommendation presented in the report.
The CFO has enhanced and approved reporting procedures to address the
recommended resource issues. Further,
the enhanced reporting instructions for resources were included with the March
14, 2003, remediation plan quarterly call memorandum. Management’s complete response to the draft report is included as
Appendix IV.
Copies of this
report are also being sent to the IRS managers who are affected by the report
recommendation. 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 Identified; Some Target Dates Were
Extended
The Remediation Plan Addressed Applicable General
Accounting Office Recommendations
Appendix I – Detailed Objectives, Scope, and Methodology
Appendix II – Major Contributors to This Report
Appendix III – Report Distribution List
Appendix IV – Management’s Response to the Draft Report
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, § 803 (a) of the FFMIA requires each agency to implement and maintain systems that comply substantially with:
· Federal financial management system requirements.
· Applicable Federal accounting standards.
· The Government Standard General Ledger at the transaction level.
Auditors are required to report on agency compliance with the three stated requirements as part of financial statement audit reports. 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’s financial system does not comply, the agency 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, § 804 (b) of the FFMIA requires that the Inspector General report to the Congress instances and reasons when an agency has not met the intermediate target dates established in the remediation plan.
In the last several years, the General Accounting Office
(GAO) has reported numerous financial management weaknesses in its audits of
the Internal Revenue Service’s (IRS) annual financial statements and related
assessments of internal control. Due to
these weaknesses, the IRS is noncompliant with the FFMIA and is required to
prepare a remediation plan.
This review was performed at IRS National Headquarters in the office of the Chief Financial Officer (CFO), which is responsible for monitoring and implementing the remediation plan, during the period December 2002 through February 2003. The audit was conducted in accordance with Government Auditing Standards. 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, 2002, remediation plan had established intermediate target dates for all but 1 of the 104 open remedial actions listed in the plan. The one remedial action, which concerns future year enhancements to the Integrated Financial System (IFS), is being re-evaluated to identify the benefits that will be achieved through its implementation, as well as the sequencing of interim actions to accomplish the overall action. Approval of the completed re-evaluation and new sequencing is expected for the March 31, 2003, remediation plan update.
Our analysis of open remedial actions did not identify any instances where the IRS did not meet the established intermediate target dates contained in the remediation plan.
We compared the IRS’ December 31, 2002, remediation plan to the prior 4 quarters’ remediation plans, i.e., remediation plan activity during Calendar Year (CY) 2002. During that period, the IRS extended 18 of the 83 intermediate target dates on remedial actions that were due to be completed during CY 2002. These extensions ranged from 1 month to 19 months and averaged approximately 5 months beyond the original intermediate target dates. In addition, the IRS extended 12 intermediate target dates for remedial actions that had original completion dates after December 31, 2002. These extensions ranged from 1 month to 7 months and averaged approximately 3 months beyond the original intermediate target dates.
The IRS provided acceptable reasons for the extensions within the remediation plan documents, including for some of the more significant extensions:
· Hiring and funding issues.
· Re-planning of major actions.
· Date changes to coincide with other major actions.
· Insufficient data gathered to fully analyze and close specific actions.
· Training issues.
· Internal re-organizations.
For the September 2002
remediation plan, the IRS made a decision to revise the plan’s presentation to
concentrate only on GAO recommendations that addressed financial management
system weaknesses. Recommendations that
address procedural or guidance weaknesses were not included in the revised
plan. These recommendations would be
monitored through the use of the Department of the Treasury’s Joint Audit
Management Enterprise System (JAMES).
Because of this plan revision,
we performed a reconciliation of prior recommendations to the recommendations
included in the September 2002 plan using a crosswalk document provided by the
IRS. All recommendations, except for
eight, were found to be included verbatim in the revised plan. Five of the eight recommendations were
crosswalked by the IRS to other similar recommendations that addressed the
weakness and, therefore, were not included in the plan. The remaining three recommendations dealt
with procedural issues and were, therefore, not specifically crosswalked by the
IRS to recommendations contained in the plan.
We confirmed with IRS officials that these three recommendations were
not in the plan and verified that they were being monitored through the JAMES.
The
FFMIA requires that a remediation plan 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.
Of the 104 open remedial actions contained in the IRS’ December 31, 2002, remediation plan, 102 actions have intermediate target dates that extend longer than 3 years from the original reporting of the financial weakness. A significant number of the open remedial actions relate to implementation of four major IRS system projects and improvements concerning physical and computer security. The four projects include:
· The IFS, which is scheduled to be implemented in three releases. The first release is due in October 2003, the second release is due in March 2005, and the third release date has yet to be determined. These actions address, in general, GAO recommendations made since August 1993.
· The Custodial Accounting Project (CAP), which is scheduled to be implemented in three releases. The first release is due in November 2003, the second release is due in April 2005, and the third release is due in November 2006. These actions address, in general, GAO recommendations made since October 1998.
· The Automated Trust Fund Recovery (ATFR) System, which is scheduled to be implemented in March 2005 and addresses a GAO recommendation made in October 1998.
· The Complex Interest Quality Measurement System (CIQMS), which is scheduled to be implemented in July 2003 and addresses a GAO recommendation made in December 1993.
The security remedial actions are scheduled to be implemented in stages, with the final implementation scheduled for September 2003. These actions address, in general, GAO recommendations made as far back as 1999.
On March 30, 2001, the Department of the Treasury obtained OMB concurrence for time extensions relating to the IRS’ remedial actions in excess of 3 years from the initial reporting of the financial weakness. As part of the concurrence, quarterly status review sessions have been held with the OMB on the progress being made to complete the identified remedial actions. In addition, because the CAP implementation schedule was extensively revised, IRS officials briefed OMB representatives on the changes in December 2002.
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 Standards Advisory
Board standards, incorporated into OMB Bulletin, Form and Content, are the applicable accounting standards for the
Federal Government. OMB Circular A-127,
Financial Management Systems, is the
source of Federal financial management systems
requirements.
Since the preparation of the IRS’ December 31, 2001, remediation plan, the GAO reported 16 financial management recommendations resulting from its Fiscal Year (FY) 2001 IRS financial statement audit. We believe that 3 of these 16 recommendations met the current OMB guidance for inclusion in the IRS’ remediation plan. These recommendations included developing procedures to reduce the likelihood of invalid property records, ensure requisition and procurement numbers are accurately recorded, and record software licenses in the property records.
Our analysis showed that none
of the three recommendations were specifically included in the IRS’ December
31, 2002, remediation plan. IRS
officials informed us that these recommendations were not included since they believed that remedial actions already in the
plan would address these recommendations as well. After further review
of the property management section of the remediation plan and the
corresponding IFS requirements package, we concur that remedial actions do exist that should address the
three issues identified by the GAO.
The IRS’ December 31, 2002, remediation plan listed 104 open remedial actions that were categorized into 9 major implementation areas. All but two major areas had resources identified in the plan. These two areas, which concern the implementation of the IFS, are being re-evaluated to identify the benefits that will be achieved through its implementation, as well as the sequencing of interim actions to accomplish the overall action. Approval of the completed re-evaluation and new sequencing is expected for the March 31, 2003, remediation plan update.
During our verification process, we were able to verify all estimated resources for FY 2003 to the draft FY 2003 Business Systems Modernization Office (BSMO) Expenditure Plan or other IRS budgetary documents, except for the ATFR System project. The reported resource estimate for this project was $59,000 more than the amount shown in the supporting documentation ($774,000 - $715,000). The IRS was aware of this difference and will update the remediation plan for the next quarter.
In addition, we identified the following non-FY 2003 differences between the December 31, 2002, remediation plan and supporting documentation provided by the IRS:
· The ATFR System project resource estimate for FYs 2004 and 2005 was $18,336 more than that shown in the draft ATFR Streamlined Business Case document ($1,618,336 - $1,600,000).
· The IFS project resource estimate for FY 2001 was $400,000 more than that shown in the BSMO Expenditure Plan ($8,600,000 - $8,200,000).
· The CAP resource estimate for FYs 2000 through 2002 was $1,126,000 more than that shown in the BSMO Expenditure Plan ($66,500,000 - $65,374,000).
· The CIQMS project resource estimate was 7 Full-Time Equivalents (FTE) more than that shown in the Request for Organizational Change document (55 FTEs - 48 FTEs).
· The security improvement resource estimate was $489,000 and 2 FTEs less than that shown in the cost documentation provided ($3,240,000 - $3,729,000 and 45 FTEs - 47 FTEs).
In addition to the above, we identified one project, the
ATFR System, which was reporting costs that were inconsistent with those of the
other projects within the remediation plan.
The ATFR project reported only estimated resources for contract costs,
while other projects (e.g., the IFS and the CAP) reported full implementation
costs, including IRS costs for salaries, travel, and other costs associated
with the projects.
The CFO does not have procedures that describe a process to verify information in the remediation plan or to specify the information needed to support resource commitments provided by the responsible functions. Unverifiable and inconsistent reporting of project resource estimates could mislead users of the remediation plan when making financial management decisions.
1. The
CFO should issue procedures that
include a process for verifying the resources included in its FFMIA remediation
plan and that provide for consistent reporting of such resources by the
responsible functions.
Management’s Response: The CFO has enhanced and approved its reporting procedures to address the recommended resource issues. The CFO also included enhanced reporting instructions for resources with the remediation plan quarterly call memorandum, dated March 14, 2003.
Appendix I
Detailed Objectives, Scope, and Methodology
The
overall objective of this review was to identify any instances of and reasons
for missed intermediate target dates established in the Internal Revenue
Service’s (IRS) Federal Financial Management Improvement Act of 1996 (FFMIA)
remediation plan. We also evaluated, in
general, whether the IRS was meeting its responsibilities in fulfilling the
intent of the FFMIA. To accomplish our
objectives, we:
I.
Gained an understanding of
the requirements of the FFMIA, including Office of Management and Budget and
Department of the Treasury guidance for compliance with the Act.
II. Determined whether the IRS’ remediation plan contained applicable General Accounting Office recommendations from prior IRS financial statement audit reports.
III. Determined whether 1) the IRS missed any intermediate target dates established in its remediation plan, 2) intermediate target dates were extended without sufficient documentation to support the revised date, and 3) proper approval was obtained for remedial actions extending longer than 3 years.
IV. Determined whether the IRS’ remediation plan had established resource needs for remedial actions and the resources presented were consistent with other IRS modernization resource budgets.
Appendix II
Major Contributors to This Report
Daniel R. Devlin, Assistant Inspector General for Audit (Headquarters
Operations and Exempt Organizations Programs)
John Wright, Director
Thomas Brunetto, Audit Manager
Chinita Coates, Auditor
Bobbie Draudt, Auditor
Appendix III
Acting Commissioner N:C
Deputy Chief Financial Officer N:CFO
Director,
Assistance and Review N:CFO:AR
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:AR:M
Audit Liaison: Chief Financial Officer N:CFO
Appendix IV
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.