In a letter to IRS Commissioner Charles O. Rossotti dated Nov. 17, director of financial management and assurance Gregory D. Kutz, wrote, " During our fiscal year 1999 financial audit, we found improvements in several areas, including improvements in courier security. However ... longstanding material weaknesses in IRS' systems and internal controls remain."

In a follow up to its report on the results of the GAO audit of the Internal Revenue Service's fiscal year 1999 financial statements, a new GAO report issued last week addressed matters relating to IRS activities associated with its fiscal year 1999 appropriation of $8.5 billion and its collection of federal tax revenue, refunding of overpayments of taxes, and unpaid tax assessments.

The GAO cited concerns over: the accuracy of taxpayer accounts; security over hard-copy taxpayer receipts and data; controls over the release of federal tax liens; and the development of reliable performance information for internal management relating to the effectiveness of tax collection and enforcement activities.

The GAO found error rates of nearly 50 percent on accounts associated with trust fund recovery penalties that could affect as many as 80,000 taxpayers. In addition, the report found that the IRS and related lockbox banks hired individuals to handle taxpayer receipts and data who were later found to have unacceptable backgrounds, that, in many cases, the IRS didn't release federal tax liens within 30 days of taxpayers' satisfying their outstanding balances, and that the IRS was "unable to provide internal managers with reliable information on the net benefit of additional resources for programs."

In addition to reaffirming 43 recommendations still open from prior years, the report includes 37 new GAO recommendations.

Noting IRS concerns over a recommendation that the agency include cost/benefit data about its collection efforts and enforcement activities in its annual budget submission, GAO said it would ask Congress to consider requiring the IRS "to include in any budget request for additional resources for its various collection and enforcement activities relevant and reliable aggregate cost/benefit information."

"While IRS has made improvements since GAO began auditing its financial statements in fiscal year 1992, serious internal control and financial and operational system weaknesses continued to affect the agency's ability to effectively manage its operations and produce reliable financial information during fiscal year 1999," the report said.

The full report is available at www.gao.gov

-- SmartPros News Staff

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