TREASURY INSPECTOR GENERAL
FOR TAX ADMINISTRATION
THE INTERNAL REVENUE SERVICE CAN IMPROVE ITS
PROCESS FOR ACCURATELY AND TIMELY REPORTING
REVENUE ACCOUNTING ACTIVITIES
Reference No. 199910064
The Internal Revenue Service (IRS) has implemented an adequate system of internal controls to ensure that revenue accounting transactions are recorded accurately. However, the IRS can improve its preparation and approval processes for revenue accounting reports to ensure accurate and timely reporting of revenue accounting activities to internal and external stakeholders. Further, the IRS can strengthen its process for approving indemnity agreement requests to reduce the risk of double collection for the same tax assessment.
Management Oversight and Guidance Is Sufficient to Ensure the Accurate Recording of Revenue Accounting Transactions
The accurate and complete recording of IRS revenue accounting transactions is critical to ensure factual reporting of financial data to stakeholders. To ensure that the recording of revenue accounting data is complete and accurate, the IRS provides guidance and oversight through monthly operational reviews; periodic assistance visits; the issuance of Program Letters; and, frequent communication and contact on program issues.
Management Controls Are Not Effective to Ensure that Revenue Accounting Reports Are Accurate and Timely Issued
The accuracy and timeliness of IRS revenue accounting reports are critical in ensuring both internal and external stakeholders have current financial information available to make key economic and investment decisions. However, IRS management oversight is not adequate to provide reasonable assurance that significant errors and omissions are identified and corrected before the revenue accounting reports are issued.
This ineffective control environment can be attributed to the following conditions:
In addition, some report analysts were new to their positions, which exacerbated the weaknesses in the internal control environment.
Management Controls Are Not Effective to Ensure that Indemnity Agreement Requests Are Properly and Timely Processed
An indemnity agreement is an arrangement between a financial institution and the IRS where the financial institution agrees to reimburse the IRS when a negotiable instrument purchased by a taxpayer has not been negotiated. If indemnity agreement requests are not processed properly, the IRS runs the risk of collecting twice for the same tax assessment. The double payment will generate a refund to the taxpayer, thus causing undue burden on the taxpayer to contact the IRS on a tax matter he or she previously thought was settled.
IRS management has not taken the appropriate steps to ensure indemnity agreement requests are developed and processed in accordance with established guidelines. Requests did not always contain appropriate authorizations, were not always properly controlled, and case files were not sufficiently documented to evidence work performed.
Summary of Recommendations
To improve procedures for preparing and approving revenue accounting reports generated in the IRS National Office and the processing of indemnity agreement requests, we made recommendations to:
Managementís Response: IRS management agreed with our recommendations and plans to institute an additional level of independent review and validation of all issued reports, provide training to report analysts, update desk procedures concerning due dates and approval processes, consolidate report files, monitor the submission of reports by required due dates, and review all indemnity agreement cases for proper processing. Managementís complete response to the draft report is included as Appendix VI.