TREASURY INSPECTOR GENERAL FOR TAX
ADMINISTRATION
MORE CAREFUL MONITORING OF
Issued on April 27, 2007
Highlights
Highlights of Report Number: 2007-10-074 to the Internal Revenue Service Chief
Financial Officer.
IMPACT ON TAXPAYERS
The Department of the Treasury Working Capital Fund (the
Fund) was established to provide common administrative services that benefit
more than one bureau within the Department of the Treasury and, in certain circumstances,
other agencies. It is funded through
advance payments from various Department of the Treasury bureaus, including the
Internal Revenue Service (IRS).
Fund billings to the IRS for actual costs incurred were not
consistently subject to any type of review for accuracy or reasonableness by
the IRS, which puts the IRS at risk of being unable to timely identify
potential errors and overcharges. In
addition, $34 million of the $97 million in total charges TIGTA reviewed were
not accurately recorded by the IRS.
Effective controls over Fund-related transactions are critical to the
IRS’ ability to ensure accountability for its expenditures and to accurately
report the results of its financial transactions to both internal and external
stakeholders, including taxpayers.
WHY TIGTA DID THE AUDIT
The
audit was initiated to determine whether the IRS has established adequate
controls to effectively monitor and accurately record transactions related to
the administrative services it receives from the Fund. This is one of the coordinated audits being
conducted in conjunction with the Treasury Office of Inspector General that
provide comprehensive coverage of this critical, multibureau program. The Fund Fiscal Year 2007 budget is $267
million; the IRS’ allocated share is $209 million.
WHAT TIGTA FOUND
TIGTA found weaknesses in two critical areas related to the
IRS’ monitoring of the administrative services it receives from the Fund. First, the IRS did not subject its Fund billings
for actual costs incurred to any type of review for accuracy or compare them to
current year estimated program expenditures for reasonableness. Compounding the risk of this condition is the
magnitude of these expenses. For
example, billings to the IRS for actual Fund services totaled more than $100
million during the period October 2005 through June 2006. At the time of our review, the IRS had no
procedures in place requiring the review and certification of Fund billings as
accurate before they are entered into its general ledger as valid
expenses.
Second, expense transactions relating to actual Fund
expenditures were not always accurately recorded. Our review of a random sample of Fund-related
expenditures recorded in the IRS general ledger during the period October 2005
through June 2006 identified a number of instances in which material financial
transactions were misclassified.
Similarly, Fund program expenditures were frequently allocated to
obligations not directly related to the expenditures. In total, $34 million of the $97 million in
charges TIGTA reviewed were misclassified.
Inaccurate financial management information compromises the ability of
the IRS to readily monitor costs and produce reliable accounting data.
Finally, the Department of the Treasury was unable to readily
substantiate the need for more than $60 million it accumulated from
the IRS and held in the Fund as of December 2006. TIGTA shared this information with Treasury
Office of Inspector General staff, who indicated they will be performing
further detailed testing in this area.
WHAT TIGTA RECOMMENDED
TIGTA
recommended the Chief Financial Officer develop procedures requiring that Fund billings
be reviewed and certified as accurate before entry into IRS records as valid
expenses, request that the Department of the Treasury include additional
information on the Fund billing statements to better facilitate the review and
accurate recording of Fund-related transactions, revise procedures to require
that Fund expenditures be allocated only to obligations directly related to the
expenditures, and periodically review expenditures related to the Fund to
ensure the account classifications are consistent with the definitions of the Fund
services being received.
In
their response to the report, IRS management agreed with all of our
recommendations. They are planning to
take adequate corrective actions.
READ THE FULL REPORT
To view the report,
including the scope, methodology, and full IRS response, go to:
http://www.treas.gov/tigta/auditreports/2007reports/200710074fr.html.
Email
Address: Bonnie.Heald@tigta.treas.gov
Phone Number: 202-927-7037
Web Site:
http://www.tigta.gov