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the money we have available to fulfil our obligations to the American

people.

In reports issued since fiscal 1992, the General Accounting Office

has issued fifty-nine recommendations that if acted on would improve its

record keeping and information systems. Today we will hear how the

IRS is planning to act on these recommendations, and when they will be

fully implemented.

Today, we will review the IRS' plans for improvement in

developing accurate financial information and adequate internal controls

that will ensure that errors are either prevented, or detected quickly.

We will also assess the ability of the Internal Revenue Service's

information system to produce reliable information. This includes the

weaknesses in internal control policies and procedures, such as failure to

reconcile fund balances, that have increased the risk of fraud and

diminished the reliability of the information provided to Congress and

others.

Today's hearing includes several witnesses commenting on the IRS'

financial management problems. Appearing today are:

Gene L. Dodaro, Assistant Comptroller General, Accounting and

Information Management Division, General Accounting Office.

Steven O. App, Deputy Chief Financial Officer, Department of the

Treasury.

Anthony Musick, Chief Financial Officer of the Internal Revenue

Service.

We thank you all for joining us and look forward to your

testimony.

Subcommittees of the House Government Reform and Oversight

Committee swear in all witnesses for hearings. I ask each of you who

will be testifying to stand and raise your right hand for the oath.

[Administer Oath]

Mr. HORN. And as you know the tradition, the subcommittees of the House Government Reform and Oversight Committee do swear in all witnesses for hearings, and I would ask each of you who will be testifying to stand and raise your right hands for the oath.

[Witnesses sworn.]

Mr. HORN. All of the five witnesses have affirmed, and the clerk will note that. And as you also know, since you are regulars, our practice is to include your written testimony in the hearing record after each of you is introduced, and we would appreciate having you orally summarize your written statement in 10 minutes or so. We are not going to hold you rigidly to that, we want you to feel you have made the case, and I am not going to be offended if you go over. But on the other hand, we do want to get the show on the road so there can be questioning.

We have a vote under way now. So we are going to recess this committee. Now that you are sworn in, you can tell the truth to each other and we will recess for about 15 minutes and reassemble here, by the time we get over and vote, at roughly 5 minutes of 11.

[Recess.)

Mr. HORN. Let's come to order. The ranking member has arrived and she would like her statement put in the record, and we are delighted to do it.

[The prepared statement of Hon. Carolyn B. Maloney follows:]

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Thank you Mr. Chairman for holding this important hearing. I share your concern with the financial management of the federal government. It is a fundamental issue which must be addressed in these times of ever-greater budgetary restraint. The Chief Financial Officer Act of 1990 and the Government Management Reform Act of 1994 will help improve financial management in the federal government and it is important that we continue vigorous oversight to ensure proper and timely implementation.

One of the requirements of the 1990 CFO Act is that the General Accounting Office audit
the Principal Financial Statements of the IRS. The report for fiscal year 1995 is very troubling,
as was the report for fiscal year 1994 which we examined at an earlier hearing of this
subcommittee last March. In fact, in each of the four years of audits of the IRS beginning with
fiscal 1992, the GAO has been unable to render an opinion. If this situation is allowed to continue,
it calls into question the ability of the executive branch to meet the rapidly approaching
requirements for government-wide audits beginning in fiscal 1997.

So there is a sense of deja vu surrounding today's testimony. Given the short time frame involved since we last examined this problem, I suspect that the answer to the question posed by the Chairman in giving a title to this hearing --"Has there Been Any Improvement?"--is "Not a whole lot.”. However, I would point out that even though the problems are serious, they still take time to solve. I understand the IRS has a more vigorous action plan which they will describe for us today.

I look forward to both the GAO's presentation and the IRS/Treasury response. The GAO
reports that it was unable to complete its audit for FY 1995 because of multiple shortcomings in
the accounting practices at the IRS. Perhaps most worrying is the fact that the total revenue
collected, $1.4 trillion, could not be reconciled to the accounts maintained in IRS master file.
Also, the amounts of taxes collected for various purposes, such as social security, income and
excise taxes, could not be substantiated.

(over)

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The IRS claims to be on the move toward significant improvement on these and many other accounting deficiencies. The subcommittee is eager to learn about this progress..

I am also concerned with problems the GAO has found with the IRS's Accounts Receivable. These represent money owed to the federal government -- namely to the taxpayer -which have not been collected. I have a long-standing interest in this issue, and have worked with Chairman Horn in successfully enacting legislation on the collection of non-tax delinquencies. That will certainly be a subject for future hearings by this subcommittee.

I look forward to hearing our distinguished witnesses, and I thank the Chairman for his continuing vigilance on these issues.

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