Progress Has Been Made in Improving the Financial Management
of Reimbursable Work Authorizations
October
2004
Reference
Number: 2005-10-009
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.
October
26, 2004
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 - Progress Has Been Made in
Improving the Financial Management of Reimbursable Work Authorizations (Audit # 200410022)
This
report presents the results of our review of the financial management of Reimbursable
Work Authorizations (RWA). The overall objective
of this review was to evaluate selected
aspects of the financial management of RWAs. Specifically, we evaluated procedures related
to the timely posting of RWA-related Intra-Governmental Payment and Collection
(IPAC) System charges and the periodic monitoring of open RWAs performed by the
Office of the Chief Financial Officer (CFO). We did not evaluate either the preparation of
RWAs or the year-end accrual of RWA expenditures. We also did not review any actions related to
the detailed administration of the RWAs, which is performed by financial plan
managers in the business units and operating divisions. This review was performed as part of our Annual
Audit Plan and at the request of the CFO.
In
summary, the Internal Revenue Service (IRS) has taken a number of positive
steps to improve the financial management of RWAs. Specifically, controls were enhanced and
procedures were revised to better ensure the timely posting of RWA-related
charges and the timely deobligation of unneeded open obligations related to
RWAs.
As a result of these steps, the age of unpostable IPAC System
charges in suspense awaiting further research decreased from an average of 8
months in December 2001 to an average of 2 months as of March 31, 2004. Unpostable
RWA-related IPAC System charges in suspense as of April 30, 2004, were resolved
within an average of 28 calendar days in a sample of 20 charges. The 20 charges we reviewed represented 45 percent
of the total dollar value of RWA-related charges in suspense as of April 30,
2004.
In
addition, procedures related to quarterly
certifications of open obligations by field plan managers, including those
related to RWAs, were recently revised. The revised procedures, which first affected
certifications due in July 2004, emphasize the need for the certification to be
supported by credible evidence and require the thorough evaluation of
obligations open more than 18 months.
These procedures, if implemented as designed, should ensure long periods
of inactivity are adequately addressed and planned completion dates are
documented – 2 issues we identified in our limited review of a sample of 20 RWAs
open 18 months or more.
We
made no recommendations in this report.
However, management officials reviewed the report and agreed with its
contents.
Copies of this
report are also being sent to the IRS managers affected by the report. Please contact me at (202) 622-6510 if you
have any questions or Daniel R. Devlin, Assistant Inspector General for Audit
(Headquarters Operations and Exempt Organizations Programs), at (202) 622-8500.
Controls Over Timely Posting of Reimbursable Work Authorizations-Related
Charges Have Improved
Appendix
I – Detailed Objective, Scope, and Methodology
Appendix
II – Major Contributors to This Report
Appendix
III – Report Distribution List
The Federal Property and Administrative Services Act of 1949 gave the
General Services Administration (GSA) responsibility for managing the Federal Government’s
real property. The Public Buildings
Service (PBS) was established by the Public Building Act of 1959, which sets
forth the functions of the PBS, including “providing for repairs and
alterations of Government owned or leased space on a reimbursable basis.” Federal agencies, such as the Internal
Revenue Service (IRS), prepare a GSA Reimbursable
Work Authorization (RWA) (Form 2957) whenever repairs or alterations to
space are needed. The RWA specifies the work required, requested
start and completion dates, and total dollar amount allocated for the work
requested.
As the GSA completes the work requested, it periodically charges the IRS via
the Intra-Governmental Payment
and Collection (IPAC) System. The IPAC System
is one of the major components of the Government On-Line Accounting Link System,
and its primary purpose is to provide a standardized interagency fund transfer
mechanism for Federal Program Agencies.
When an IPAC System charge is received, the Beckley
Finance Center (BFC) matches the charge to a receipt
and acceptance certification from the applicable field plan manager and posts
the charge to the Automated Financial System.
Charges which cannot be posted immediately are placed in a suspense
account pending receipt of the GSA work order receipt and acceptance
certification from the field plan manager. The IRS business unit plan managers are
also responsible for periodically verifying the continued validity of
outstanding RWA-related obligations.
The
timely receipt and acceptance of goods and/or services is a critical component
of effective financial management.
Receipt is acknowledgment that goods were received and/or services were
rendered. Acceptance is an acknowledgment by an authorized Federal
Government official that goods received and/or services rendered conform to the
contract requirements.
The Chief Financial Officer (CFO) requested that the Treasury Inspector General
for Tax Administration review the financial management of RWAs. The CFO was primarily concerned with the excessive
age of RWA-related charges in the IRS suspense account.
This limited-scope review was performed at the BFC,
The average age of
unpostable IPAC System charges which had to be placed in the IRS suspense
account has been substantially reduced.
An analysis by the BFC Quality Assurance section indicated that the age
of unpostable items in suspense decreased from an average age of 8 months in December
2001 to an average age of 2 months as of March 31, 2004.
In addition, unpostable RWA-related IPAC System charges in
suspense as of April 30, 2004, were resolved within an average of 28 calendar
days in a sample
of 20 charges we reviewed. The
20 RWA charges reviewed represented 45 percent of the total dollar value of RWA-related
charges in suspense as of April 30, 2004.
Government Accountability Office (GAO) Standards for Internal Control in the Federal Government require that transactions and other significant events be promptly recorded and properly classified. This is to ensure pertinent information maintains its relevance and value to management in controlling operations and making decisions.
Improvements in the efficiency
in resolving unpostable RWA-related IPAC System charges which had to be placed
in suspense for long periods of time are attributable to a number of
factors. First, the BFC Quality
Assurance section performed a series of reviews from June 2002 through July
2003 to determine the causes for the delayed posting of IPAC System charges. The results of the quality reviews were 14
short-term recommendations to improve the processing of IPAC System charges. Second, in October 2003, the IRS BFC prepared
revised procedures to address the financial management of the RWAs. These procedures specified the creation of an
RWA database to aid in researching and reconciling the RWAs, as well as to
provide for a current list of RWA contracts and contacts.
To ensure unneeded obligations, including those related to RWAs, are timely deobligated, IRS business unit plan managers are required to quarterly certify the continued validity of outstanding obligations. However, this control has not always been completely effective, and the timely deobligation of outstanding obligations has been an ongoing area of concern for the IRS. In its April 26, 2004, report, Improvements Needed in IRS’ Internal Controls and Accounting Procedures, the GAO found that the IRS did not always timely identify and deobligate outstanding obligations.
To improve the effectiveness of the quarterly certifications of open obligations, including those related to RWAs, the CFO recently enhanced IRS procedures. The enhanced procedures first affected certifications due in July 2004 and should help address 2 concerns we identified in our review of a sample of 20 RWAs open 18 months or more.
Finally, the enhanced procedures also specify that the CFO will provide feedback to each business unit on not only the timeliness of the certifications but also on whether the certifications contained sufficient evidence to support the validity of the obligations. This feedback should further help ensure the revised certification procedures are implemented as designed.
Appendix I
Detailed Objective,
Scope, and Methodology
The overall objective of this limited-scope review was to evaluate selected aspects of the financial management of Reimbursable Work Authorizations (RWA). Specifically, we evaluated procedures related to the timely posting of RWA-related Intra-Governmental Payment and Collection (IPAC) System charges and the periodic monitoring of open RWAs performed by the Office of the Chief Financial Officer. We did not evaluate either the preparation of RWAs or the year-end accrual of RWA expenditures. We also did not review any actions related to the detailed administration of the RWAs, which is performed by financial plan managers in the business units and operating divisions.
To accomplish our objective, we:
I.
Determined whether
effective procedures are now in place to ensure the controlling and periodic
monitoring of the RWAs.
A.
Interviewed Beckley Finance Center (BFC)
management to discuss the procedures for controlling and monitoring the RWAs.
B.
Determined whether the
BFC addresses RWA financial management as part of its quality assurance
program.
C.
Selected a sample of
20 RWAs open 18 months or more and determined whether they contained evidence
of periodic reviews. We selected this
sample judgmentally from the population of RWAs open at the time of our review
on June 14, 2004. This sampling method
was used because we did not intend to project the results. Internal Revenue Service records indicate
there were 1,810 open RWAs as of June 14, 2004. The 20 RWAs we sampled represented 15 percent
of the aggregate dollar value of this population.
II.
Determined whether the BFC Government Payables
Unit has developed effective procedures to ensure the timely posting of RWA-related
transactions to the general ledger.
A.
Interviewed BFC
Government Payables Unit management on the procedures for receiving and
processing RWA accounting data.
B.
Interviewed BFC
personnel responsible for posting RWA charges to the general ledger.
C.
Selected a sample of
20 unpostable
RWA-related IPAC System charges in suspense as of April 30, 2004, and evaluated
the timeliness of their resolution. We selected this sample judgmentally from the population of
370 RWA-related IPAC System charges in suspense as of April 30,
2004. This
sampling method was used because we did not intend to project the results. The
20 RWA charges reviewed represented 45 percent of the total dollar value of RWA-related
items in suspense as of April 30, 2004.
III.
Determined whether the BFC has effective
controls to ensure the timely deobligation of the RWAs no longer needed.
A.
Interviewed BFC
management regarding the procedures for deobligating the RWAs.
B.
Evaluated the methodology used to deobligate
funds.
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
Anthony J. Choma,
Audit Manager
Joseph F. Cooney, Lead
Auditor
Mildred Woody, Senior
Auditor
Rashme Sawhney, Auditor
Niurka M. Thomas, Auditor
Appendix III
Commissioner C
Office of Commissioner – Attn: Chief of Staff C
Deputy Commissioner for Operations Support OS
Associate Chief Financial Officer for Internal Financial Management OS:CFO:I
Director,
Chief Counsel CC
National Taxpayer Advocate TA
Director, Office of Legislative Affairs CL:LA
Director, Office of Program Evaluation and Risk Analysis RAS:O
Office of Management Controls OS:CFO:AR:M
Audit
Liaison: Chief Financial Officer OS:CFO