The Internal Revenue Service (IRS) Reimbursable Program manages a wide array of projects representing services which the IRS provides on a reimbursable basis to other entities such as states, foreign governments, and other federal agencies. Together, these reimbursable projects generated approximately $90 million in annual revenues for Fiscal Year (FY) 1998.

The Treasury Inspector General for Tax Administration’s Office of Audit (formerly Inspection Service Internal Audit) originally conducted a review of the Reimbursable Program in FY 1996. We initiated this follow-up review to evaluate the effectiveness of IRS management’s corrective actions on the prior report.

The National Director for Systems and Accounting Standards and the National Director for Financial Management had agreed to implement corrective actions in response to our prior report. Their completed corrective actions have helped increase operational efficiency and the collection of overdue accounts, and improve the accuracy of account balances. However, some of the planned corrective actions have been delayed or certified as complete when, in fact, they were not complete. This lack of follow-through increases the risk that financial statements will be inaccurate and that accounts will go uncollected.

The Office of Financial Systems modified the process to record reimbursable revenue on the Automated Financial System (AFS) so that both proprietary and budgetary accounts are updated concurrently. As a result, staff time needed to post revenue transactions has been reduced by approximately 20 percent ($20,000 in salary costs per year). Also, in contrast with the large discrepancies between the accounts in prior years ($18.5 million in FY 1995 and $28.7 million in April 1996), the FY 1997 proprietary and budgetary revenue accounts are now in agreement.

Due to several changes implemented since the prior review, the Reimbursable Accounts Receivable is substantially lower. As of April 30, 1998, reimbursable accounts outstanding for FY 1997 totaled $360,000. This is a significant reduction from the outstanding amounts of $8 million for FY 1994 and $16 million for FY 1995.

The Office of Accounting Standards and Evaluation has not developed procedures to account correctly for Treasury Working capital Fund (WcF) transactions. Because of this, IRS accounts are now manually adjusted using Treasury records at fiscal year end to reflect unexpended advances to the WcF. At the end of FY 1997, IRS recorded an adjustment of $65 million using Treasury WcF records to reflect the funds advanced to the WcF and reduce recorded expenses. IRS still does not have the ability to reconcile its own records to Treasury WcF records. For example, as of June 17, 1998, AFS showed the Treasury WcF as owing the IRS $12 million for telecommunications project services, while the Treasury WcF records showed that only $4 million was owed to the IRS for these services.

This report makes no new recommendations. The National Director for Systems and Accounting Standards and the National Director for Financial Management should complete previously planned corrective actions that have been delayed or have not been fully implemented. These actions include:

• Developing and implementing procedures to account for, track and reconcile Treasury WcF transactions.
• Updating AFS to accept advance transactions.
• Updating procedures to require follow-up telephone contacts on overage receivables.
• Modifying AFS to require job numbers for reimbursable transactions and using AFS information to automate the account reconciliation process.

The National Director for Systems and Accounting Standards agreed with our findings and has committed to implement corrective actions on the open recommendations. He also included a follow-up plan to ensure the corrective actions are completed timely and are effective. His full response is included as Appendix V to this report.