Contents Statement of Financial Position (Administrative) Statement of Operations (Administrative) Notes to Principal Financial Statements (Administrative) Statement of Financial Position (Custodial) Statement of Activity (Custodial) Notes to Financial Statements (Custodial) Statement of Financial Position (Revolving Fund) Statement of Activity (Revolving Fund) Note to Financial Statements (Revolving Fund) GAO United States General Accounting Office Comptroller General of the United States B-261816 To the Commissioner of Internal Revenue In accordance with the Chief Financial Officers (CFO) Act of 1990, the Internal Revenue Service (IRS) prepared the accompanying Principal Financial Statements for the fiscal years ended September 30, 1995 and 1994. In our attempt to audit these principal financial statements for fiscal year 1995, we found the following. We are unable to give an opinion on the fiscal year 1995 Principal Material weaknesses in internal controls resulted in ineffective controls • We are unable to report on compliance with laws and regulations because of limitations on the scope of our work. The following five financial management problems, which have One, the amounts of total revenue ($1.4 trillion) and tax refunds Two, the amounts reported for various types of taxes collected (social Four, a significant portion of IRS' reported $3 billion in nonpayroll Five, the amounts IRS reported as appropriations available for expenditure 'See Financial Audit: Examination of IRS' Fiscal Year 1994 Financial Statements (GAO/AIMD-95-141, IRS worked toward the goal of resolving these issues in time for our fiscal year 1995 financial statement audit. Progress was made, but many of IRS' efforts were not yet completed at the conclusion of the audit. IRS has continued its efforts to correct these problems with a goal of having these matters resolved in time for the fiscal year 1996 financial statement audit. Some of the corrective actions, particularly where they involve reprogramming software for IRS' antiquated systems and developing new systems, will require longer term solutions. Therefore, the focus of key IRS efforts are on interim solutions to facilitate reliable reporting while IRS works to put longer term corrective actions in place. IRS advised us that, as of the end of May 1996, its status in correcting the problems our audit identified was as follows: IRS stated that it had developed software programs to capture, from its revenue financial management system, the detailed revenue and refund transactions that, in the short term, would support reported amounts in its future financial statements until longer term system fixes could be made to achieve more reliable reporting of these amounts. In addition, IRS is attempting to complete documentation of its revenue financial management system to (1) aid in identifying better interim reporting solutions for reporting revenues and refunds, (2) provide better insights on the longer term systems fixes needed to enable IRS to readily and reliably provide the underlying support for its reported revenue and refund amounts, and (3) demonstrate that the level of misstatement related to its inability to reconcile the detailed transactions it identifies in its interim reporting efforts to its summary account records would not be material. • IRS asserted that it would continue its efforts to determine a means of using its current revenue financial management system's coding to identify its accounts receivable. IRS' efforts are focused on correcting known current coding errors through reviewing 100 percent of all receivables over a certain dollar threshold. In addition, through intensified training efforts and better internal control policies and procedures, it said it would seek to ensure more accurate input and processing of transactions that underpin accounts receivable. • IRS stated that it had completed the reconciliation of its Fund Balance with Treasury accounts except for IRS' suspense accounts that contained reconciling items that were more than 6 months old. However, IRS said it was still in the process of making the necessary adjustments required to its general ledger and the related Department of the Treasury records to complete this effort. |