The Internal Revenue Service.

• Author: PILLA, DANIEL J.
• Position: Criticism of management and accounting practices

Flunks Accounting 101--Again!

The General Accounting Office's annual audit of the IRS found the agency's practices deficient for the sixth straight year.

FOR THE SIXTH YEAR in a row, the General Accounting Office (GAO) audited the Internal Revenue Service's books and records, and for the sixth year in a row, the agency failed the audit. It is not just that the IRS lacks verification for certain of its financial activities. The problem goes much deeper than that. The GAO found that "[P]ervasive weaknesses in the design and operation of IRS's financial management systems, accounting procedures, documentation, recordkeeping and internal controls, including computer security controls, prevented IRS from reliably reporting on the results of its administrative activities."

Federal law places considerable restrictions and requirements on the various government agencies to report all of their financial activities accurately. The agencies are to reconcile annually all of their financial affairs, reporting how and why every dime of taxpayer-provided funding is spent. Since the process of auditing these financial statements began in 1993, the IRS has failed in each of its annual audits. These shortcomings are systemic and run to the very core of its financial activities. The agency cannot even come close to keeping the same kind of records and providing the same sort of financial detail it expects of the average citizen. While the average citizen struggles mostly alone in his or her efforts to comply with the law, the IRS has the considerable advantage of an $8,000,000,000+ annual budget and a staff of more than 100,000 employees who are supposed to know how to do it.

The GAO identified eight specific areas where IRS accounting systems are deficient:

* Inadequate financial reporting processes that resulted in an inability to prepare reliably several of the required principal financial statements.

* The lack of proper bookkeeping systems to manage unpaid assessments, which has resulted in additional burdens to citizens and lost revenue to the government.

* A dearth of preventive controls that have permitted the payment of millions of dollars in fraudulent tax refunds.

* A failure to reconcile its fund balances with Treasury records.

* The inability to safeguard properly or reliably report its property and equipment.

* Vulnerabilities in computer security that may allow unauthorized individuals to access, alter, or abuse proprietary IRS programs and data and taxpayer information.

* Weaknesses in control over tax receipts and taxpayer data that increase the government's and the taxpayers' risk of loss or illegal disclosure of sensitive information.

* An inability to provide assurance that its budgetary resources are being properly accounted for...