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I might also add that this last year we verified IRS had completed 17 of our recommendations, which was up. If you recall, in the March hearing it was 13. They believe they have other recommendations completed and we are in the process of verifying that in the 1996 audit. But I think the vision in the revenue area still needs work.
Mr. HORN. Have you been through this type of experience with other Federal agencies where GAO has established a relationship of, one, going in and looking, making some recommendations, then sitting down with them as to how, based on what you have seen in the private sector, public sector, these could be implemented? Is there any other agency where you have had that similar relationship?
Mr. DODARO. Oh, yes.
Mr. DODARO. We have had—well, for example, in the Government corporations area we had responsibility for auditing the Resolution Trust Corporation. We just completed our last audit as that organization has gone out of business and transferred those responsibilities to FDIC.
We worked with RTC from the standpoint-in the beginning we were at the point we are at IRS of having disclaimers and eventually working with them, fixing their control problems, putting in good systems and discipline. We were able to have a clean opinion on RTC.
The same with the Pension Benefit Guarantee Corporation. Over a number of years we were able to work with them as well. We have been working with FDIC for a number of years. In the Government corporations we have had the requirement for a financial audit in place for a number of years and GAO has had that responsibility, so we worked very closely, and it takes a number of years but, with concerted effort, it can be done.
We have also started now with the CFO requirements. We were working with the Customs Service initially for a couple of years. We have turned that audit over now to the Treasury Inspector General, but we are still providing some technical assistance. We did early audits in trying to work with the Education Department in the student loan insurance area. We have started, as we have talked in this committee, over at the Defense Department. I cannot report the same progress there. Mr. HORN. You have not found the $25 billion yet? Mr. DODARO. No, no. Mr. HORN. That they tell me isn't stolen, but they cannot find it. Mr. DODARO. Well, and it keeps changing.
But we have examples, clearly, in the Government corporation areas and in some of the Federal agencies where, working over time and there are examples of other agencies where the IG's are doing the same thing.
Mr. HORN. OK, so you have had that experience. Now, what I want to know is what were the keys to success in those other agencies? Are there similar factors in IRS and if IRS does not have them, what is it that they are lacking that these other agencies have had to make the transition a success?
Mr. DODARO. The critical factors of success, in my opinion, are, No. 1, having a detailed action plan that is credible, has very explicit milestones, and can be used to track progress both on the part of the managers within the agency as well as the Congress.
In the early years, as I mentioned in my statement, I was very troubled by the fact that IRS, I believe, underestimated the severity of their problems and underestimated what it was going to take to fix the problems in the correct manner.
And even when we were doing the audit for fiscal year 1994, I wrote a letter to the commissioner, basically saying that I was concerned that we did not have a plan in place. It was not until early spring in this past year where we have gotten a plan was developed and we have worked with IRS to refine that plan. So I think for the first time we have a credible plan to address some of the issues, albeit some of them still short term, but at least it is progress and I think we are moving in the right direction.
Mr. HORN. OK, and has IRS fixed the responsibility for implementation on that plan on one person or how are they administering it?
Mr. DODARO. Basically, responsibility rests with the Chief Financial Officer, the CFO, Tony Musick.
One area that I am a little concerned about is that Tony has to deal with other people in the IRS to get some of the changes put in place. For example, while the CFO has total responsibility over the administrative accounting operations, that person does not have responsibility over the revenue accounting function. Now, we at GAO made a recommendation over the years to give more responsibility for revenue accounting to the Chief Financial Officer.
Mr. HORN. Yes, but whose choice is that? When Congress said, "Establish a Chief Financial Officer,” they did not say, "you simply handle supervision of administrative accounting but if you have another type of accounting, such as revenue accounting, sorry, you do not handle that?” Aren't we holding them responsible for all fiscal matters within that agency?
Mr. DODARO. Yes, and the legislation was not as specific on this point. We do have a little bit of an unusual situation at IRS in that you have large custodial, governmentwide responsibilities there for revenue collection as well as internally. And there is no one organizational solution.
The biggest problem is that the revenue accounting systems were not developed with sufficient input from the financial people at IRS so that they have good controls in place and could be used for financial reporting purposes. Revenue systems were largely developed by people who have responsibility for processing the tax returns and they were more interested in making sure that refunds got out quickly and they could track physically the returns as they come through the system.
Mr. HOLLOWAY. And just to amplify on what he said, I think that is a very important nuance that really needs to be looked at in the context of the tax system modernization effort, because as they move to redesign their data bases I think it is important that one of the functional requirements that need to be looked at and considered and incorporated are the financial accounting and reporting needs.
A lot of emphasis, much like in times past when they developed those, has been placed on trying to enhance customer service and improve production, which are all very important things that need to be considered, but I think, likewise, as they go to develop whatever the new data base is going to look like, consideration needs to be given to some of the dilemmas that they are confronted with from a financial reporting and accounting perspective.
Mr. DODARO. Mr. Chairman, I think this is the second critical success factor. One is having a plan. The other factor is making it happen and making it reality and having follow-through. Followthrough has been a problem at IRS. It is largely still functionally aligned and a lot of people have different responsibilities for different areas.
Fixing some of their financial problems and their systems problems requires a broader approach in the organization and, as you well know from the jobs that you have had over the years, that is the hardest part, is to get a large organization to work together.
And Tony is going to need help from other parts of IRS, and this is where the role of the Deputy Commissioner and the Commissioner becomes important in that they need to followup and if things are not getting done, they either need to realign responsibilities or make it clear and directed to people that they need to cooperate with him to bring this to closure.
The third factor that I think is important, success factor, is continual congressional oversight. I mentioned the RTC earlier. One of the comments, as we were testifying years ago on RTC and why they could not get a clean opinion, and at the same time Congress was being asked to increase appropriations to bail out the savings and loan problems and giving those to the RTC, one congressional member said, “Why should we give the RTC any additional money if they cannnot account for the appropriations that we have given them before?”
Congress put a lot of pressure to get the RTC cleaned up, because they were concerned with the difficulties that were ensuing by pumping a lot of money into the RTC to clean up the S&L crisis.
So continual congressional pressure, having follow-through by the agency managers in doing their job, and all rooted in a very good detailed plan, are the three keys of success.
Mr. HORN. Now, do you see in the CFO-Deputy CommissionerCommissioner relationship at IRS anything different than you see in other agencies as to the CFO's reporting? Is there something unique in IRS? In other words, are they taking it seriously at top management, of which the CFO is part?
Mr. DODARO. I think they are definitely committed to trying to fix the problem, but I think they need to exercise more discipline at the top. The same issue, I have made the same point about their tax system modernization program. Basically, IRS was allowing a lot of functional areas—you know, they are a large decentralized organization, the districts, the regions, the different functional areas, whether you are talking about processing returns or collecting revenue, were pretty much autonomous—and I think there still needs to be more of a cohesive management structure developed at the top of the IRS to integrate the CFO, to bring the new chief information officer that they have in place into that, and to make it
a cohesive team with an overall architecture or blueprint for bringing about these reforms. They are not quite there yet, in my opinion.
Mr. HORN. And we will pursue that with the Chief Financial Officer when we get to it.
My last part of this series of questions is the degree to which money, additional authority, et cetera, are involved here. How much can be done under existing appropriations? Does IRS have the authority to move money around, reprogramming authority, within the agency, and do they have their own revenue sources they can tap for modernization or does that have to be a congressional appropriation?
Mr. DODARO. Most of the money, and I will ask Greg to add on to this, to run IRS' operations, including the modernization program, come from appropriated funds of the Congress. Actually, in our last tax system modernization report we issued in June we recommended that since the IRS had so many management and technical weaknesses in their capability to manage that program, that the funding be restricted and limited to tax system modernization, to only critical operation and maintenance problems, building their capability in small projects.
The IRS does have some reprogramming authority,I will ask Greg to talk about that-but the funding for their systems efforts comes from appropriations, the large bulk of it, and not from any other independent sources.
Mr. HORN. And they have spent the money we have appropriated when we have directed it for systems on systems? Because we have a few agencies, and IRS was one of them, that used the money simply to hire more people and did not follow Congress' direction.
Mr. DODARO. Yes, well, one of the problems we have had and we reported on in our financial audits was the inability to track the cost of the tax system modernization effort. We have had some problems exactly pinning that down in those areas and, also, not only what goes for new development under tax system modernization versus what is operation and maintenance of your existing systems—sometimes that goes back and forth as well. So we are trying to, as part of our audits, tie down how that money is actually expended.
Mr. HORN. OK, Mr. Holloway, do you want to comment on reprogramming, then Mr. Davis will take over.
Mr. HOLLOWAY. I think in the case of reprogramming, I think IRS has the capacity to reprogram as any other Federal agency would in terms of moving money around, but I think the context of your question, if I recall, dealt more with the impact of that with the presumption of adding more money to help cure the problems and fix the issues.
In the end, and I just wanted to amplify one of the things that Mr. Dodaro said, that it strikes me that one of the things that is going to be critical, while certainly the responsibility rests with the CFO, I have to reiterate the criticality of complete institutional support. No CFO, in the private sector or the public sector, will be able to effectively do their job if they do not have full and unwaivering support at the top that provokes support and cooperation throughout the organization.
Mr. HORN. Does your experience with IRS lead you to believe they have the support at the top?
Mr. HOLLOWAY. My experience at IRS leads me to believe that from a full institutional perspective I am not sure that the breadth of support that needs to be there to always, at a priority level, push things through has always been present and consistent. Now, if that is a function of the top or just the difficulty of managing a large bureaucracy, I do not know.
Mr. HORN. Well, that is certainly my impression, and when you look at who gets appointed commissioner, with all due respect to the fine talents they bring as tax lawyers, or whatever, they have never run anything. They have never run any large agency.
What we need in a couple of these places are people that are skilled managers that can pull people together, can focus on the plan and, as you say, hold goals to know when we have achieved it and can back up a CFO who needs the help of some egomaniac that is parallel in the organization to him or her, as the case may be.
Mr. HOLLOWAY. I think you are exactly right in that interpretation, that that is what is necessary.
Mr. HORN. Well, Mr. Davis, the gentleman from Virginia.
Mr. DAVIS. Thank you, Mr. Chairman. Mr. Dodaro, let me ask you, if you were auditing an agency's financial statements and had to report on whether the agency was or was not in compliance with the applicable Federal accounting standards and Federal financial management systems requirements, would you be able to do so?
Mr. DODARO. Yes, I believe so. I mean, we in the Federal Government now, through a joint arrangement with OMB, GAO, and the Treasury Department, have set up a Federal Accounting Standards Advisory Board and they have recommended new accounting standards for the Federal Government, which become effective in the next couple of years.
There are also some systems requirements that have been put in place. I think it would require, perhaps, some interpretations and help, as anything does in an area that is complicated like that, but
Mr. DAVIS. But there is enough specific guidance when you take a look at the OMB circulars and the publications issued by the Joint Financial Management Improvement Program and so on to enable an auditor to make that determination?
Mr. DODARO. Yes, I believe it is a good starting point. I think there would be additional issues that we would have to discuss but I think the foundation, augmented by the new accounting standards that are being issued, I think that helps it quite a bit.
Mr. DAVIS. I think Mr. Horn got at this, but in your opinion do you think the Department of the Treasury and the IRS have developed an effective plan for implementing the Government Management Reform Act requirements in terms of the plan?
Mr. DODARO. Most of our focus to date has been at the IRS level. We are beginning a look at the Treasury Department level. I think they have begun planning on this effort. We are now looking at the Bureau of Public Debt and Treasury's Financial Management Service for the first time and we are developing opinions along those lines. I think they are beginning to focus on it, but I do believe that