TREASURY INSPEcTOR GENERAL
FOR TAX ADMINISTRATION
THE INTERNAL REVENUE SERVIcE cAN IMPROVE
ITS REIMBURSABLE PROGRAM
Reference No. 093207
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 Administrationís 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 managementís 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.
corrective Actions completed
The New Reimbursable Revenue Posting Process Has Increased Operational Efficiency and Improved the Accuracy of Accounts
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.
Reimbursable Accounts Receivable Have Been Substantially Reduced
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.
corrective Actions Not completed
Procedures Have Not Been Developed to Account correctly for Treasury Working capital Fund transactions
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.
Amounts Advanced to the IRS from Other Agencies cannot be Recorded Properly on the Automated Financial System
The Office of Financial Systems did not take steps to make sure that AFS would accept advance transactions. AFS still does not allow input of advance transactions; therefore, advance payments are instead posted to a suspense account. While this suspense account reflected a balance of over $7.5 million, IRS could not identify what portion of these amounts were advance payments.
The Unbilled Reimbursable Account and Reimbursable Receivable Account Are Not Properly Reconciled
The Office of Financial Systems issued updated Reimbursable Projects Accounting Procedures that require accounting technicians to maintain spreadsheets on each project rather than using AFS data to reconcile these accounts. No one reconciled the spreadsheet data to AFS accounts. As of March 1998, the FY 1993 through 1996 reimbursable accounts included approximately $17 million of erroneous Accounts Receivable.
Procedures Do Not Require Follow-up Telephone contacts on Overage Receivables
The updated Reimbursable Projects Accounting Procedures issued by the Office of Financial Systems do not require telephone contacts to account holders who do not respond to late notices. Follow-up telephone contacts should be used to keep accounts from becoming seriously delinquent. As of February 28, 1998, AFS reports reflected total Reimbursable Program Accounts Receivable of over $33 million for FYs 1993 through 1998.
Job Numbers Are Not Properly Used to Assist in the Automated Reconciliation of Reimbursable Project Accounts
The Office of Financial Systems did not modify AFS to require the use of job numbers on reimbursable transactions. Nine percent of the reimbursable receivable transactions were input without job numbers. Job numbers should be used to assist in the automated reconciliation of accounts by project.
Summary of Open Recommendations
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:
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.