Mr. MUSICK. The number that I would rely on is the number that is in the financial statements. The reason for the financial statements in the financial accounting process is to report net realizable value.

Chairman STEVENS. That is the average between the $44.5 billion and the $47.8 billion, right?

Mr. MUSICK. Right.

Chairman STEVENS. Tell me about your action plan. You say in your statement that you have an action plan that identifies financial accounting problems, the person responsible for the management, and a schedule for fixing the problems. Is that published?

Mr. MUSICK. Yes, sir. I have a copy here I would be glad to leave with you, also.

Chairman STEVENS. I would like to see that.

Mr. MUSICK. Yes, sir.

Chairman STEVENS. Are you going to do that annually?

Mr. MUSICK. What it is, it is on a data base and we are doing it monthly.

Chairman STEVENS. Monthly?

Mr. MUSICK. Yes, sir. We are updating this monthly, which you see, and there would probably be-if I give you this, there will be dates missed because this was as of May and what we do is we have this on a database that every month we are going in and updating that. I could give you probably one that is updated as of

Chairman STEVENS. I am not going to publish it or anything. I am very interesting to know that you have it.

Mr. MUSICK. Let me tell you, if you would like to

Chairman STEVENS. How do you identify the persons responsible?

Mr. MUSICK. The process we went through is this. Since 1992, we have gotten a number of GAO audit reports. In addition to that, we have had some letters come from GAO when we asked, what is it that we have to do to get a clean opinion. Over the last 6 months, we analyzed the information and figured out what we had to do from an audit standpoint to get a clean opinion in the short term.

What I mean in the short term is, what can we do to ensure that the GAO or any other auditor can say that the numbers are correct. What Mr. Holloway alluded to is that we are going to be working together to try to come up with something on that and to refine this action plan.

The second piece of it would be to identify things that we have to do in the long term, and that is these system fixes cannot be done overnight. It takes some time. I think that you asked about and they mentioned the administrative system. I was involved in that. It took us a little over 2 years to implement. It took longer than that once you bought the software, brought it in-house, implemented it. The problem was getting all the people trained, and we also interfaced it with existing systems, like the payroll system comes out of the Department of Agriculture. We had to build an interface with that to bring that data into the accounting system. So what we are trying to do is to figure out for a short-term period, what information we can get to the auditors so that they can attest and say the numbers on the financial statement are right.

The second piece of this would be, what are some of the systems fixes that are going to take a little bit longer for us to fix, and that is what the plan is attempting to do and it was really based off the experiences that we have had over the last 4 years of audits and the conversations with the GAO. Again, as Mr. Holloway indicated, we are hoping that we can refine this. We are going to be meeting with them, and we have already met with them on several occasions to see what we can do to refine this a little bit more and provide some more time lines.

Chairman STEVENS. Does that plan identify the funds that are going to be needed to increase training or change your technology base in order to achieve the goals as required by the Financial Accounting Act?

Mr. MUSICK. In order to show you what this does, I have to take this into a couple of pieces. On the administrative side of the house, we have the system in place. We have interfaces with travel, procurement, budget, payroll. We have those.

The issue that we have on the administrative side of the house is two issues. One, that we did not reconcile our accounts with the Treasury, or simply stated, we did not reconcile our checkbook with our bank account. We have taken care of that and we are working on that. Part of that problem was that in trying to implement a new system, we had to migrate data from these old systems and things were just difficult to get reconciled. So we have been working on that and we believe we have that done.

The second piece of that is that we have to figure out how to get receipt and acceptance information from Federal agencies, and mainly the two that we deal with are GSA and GPO, and we are working on that right now. The funding for that, I think, will be done with existing resources. As Mr. Holloway said, there will probably be some contract funding that we might need to do.

On the revenue side, we are also taking the same approach. We are trying to determine from a short-term basis if we can extract data, detailed transactions, which we have, out of the master file, to have all detailed transactions that the GAO or anyone else could go back and audit.

The second piece of that is to determine how we can build the necessary system that replaces the old revenue accounting system that not only takes care of controlling the tax compliance operations but also provides a standard general ledger for government reporting.

Chairman STEVENS. Mr. Musick, I am sorry to tell you that we have just been requested, all Senators to come to the floor at this time. Why, I do not know. I will submit to you some questions that I have.

I am very pleased to hear about the action plan, frankly. I would like to know from you, as the CFO, when you think we will get an auditable financial statement. When will you comply with existing law, which we require in 1998. I would like to ask you some questions on the record about the year 2000 problem and the costs.I

We will submit those to you, if you will permit me to do so. I regret this, but I think that this is probably part of the process of

1 The responses to questions from Mr. Musick appears on page 279.

dealing with our retiring Majority Leader. I thank you for your courtesy and apologize for this.

Incidentally, for the record, we are going to have to change the date on the next hearing with IRS. We will notify IRS about that. Because of some of these days we have lost, we are going to have to change our schedule to make up here in the Committee and we will let you know. Thank you very much.

Mr. MUSICK. Thank you.

Chairman STEVENS. The Committee is adjourned.

[Whereupon, at 11:42 a.m., the Committee was adjourned.]

The Committee met, pursuant to notice, at 10:02 a.m., in Room SD-342, Dirksen Senate Office Building, Hon. Ted Stevens, Chairman of the Committee, presiding.

Present: Senators Stevens, Domenici, Glenn and Akaka.

OPENING STATEMENT OF SENATOR STEVENS

Chairman STEVENS. This is our Committee's fourth hearing to review the IRS' capability to modernize for the 21st Century. Our past hearings have revealed that the IRS has great difficulty defining what technology, organization and business practices it will need for the coming 5 years or more. The IRS really has not been able to pass a financial audit, and its Tax Systems Modernization (TSM) effort is over budget, behind schedule, and many components just do not work.

The GAO's review of the May 6 IRS Report to Congress on Tax Systems Modernization concluded that the "IRS has not made adequate progress in correcting its management and technical weaknesses," and therefore the IRS will still waste the money provided for TSM-that last part is not a quote.

Today we are releasing GAO and Commerce Department inspector general reports on a new TSM program called Cyberfile. These reports find that the agencies ignored sound procurement, computer security, program management and financial control procedures, and the IRS has, in the judgment of our staff at least, nothing useful to show for the roughly $20 million spent on Cyberfile. We want to revisit the issue of IRS reorganization, particularly the August IRS downsizing plan. The IRS maintains this is only an acceleration of prior plans, but the past failures in TSM and updating business practices may create serious problems for the compliance and customer service portions of the IRS. The Committee would like discussion of the impact administrative reorganization will have on business operations and how IRS p lans to address tax administrations issues that are likely to arise.

Also, the Committee wants to review proposals and IRS actions taken to correct the problems identified in the series of hearings we have held.

Our first panel this morning includes Gene Dodaro, Assistant Comptroller General and Director of the Accounting and Informa

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