oversight

Agreed-Upon Procedures: Black Lung Disability Trust Fund Excise Taxes

Published by the Government Accountability Office on 1999-02-25.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

      United States
GAO   General Accounting Office
      Washington, D.C. 20648

      Accounting and Information
      Management Division

      B-281569


      February 25, 1999

      The Honorable Charles C. Masten
      Inspector General
      Department of Labor

      Subject:    Agreed-Upon Procedures: Black Lung Disabilitv Trust Fund Excise
                  Taxes

      Dear Mr. Masten:

      We have performed the procedures contained in enclosure I to this letter, which
      we agreed to perform solely to assist your office in ascertaining whether the net
      excise tax revenue distributed to the Black Lung Disability Trust Fund (BLDTF)
      for the fiscal year ended September 30, 1998, is supported by the underlying
      records. As agreed upon with your office, we evaluated fiscal year 1998 BLDTF
      activity.

      This engagement to apply agreed-upon procedures was performed in accordance
      with standards established by the American Institute of Certified Public
      Accountants (AICPA). Accordingly, the adequacy of the procedures to meet
      your objectives is your responsibility and we make no representations in that
      respect. The procedures we agreed to perform included (1) detailed tests of
      transactions that represent the underlying basis of amounts distributed to
      BLDTF, (2) review of the Internal Revenue Service’s (IRS) quarterly BLDTF
      certifications, (3) review of the Department of the Treasury Financial
      Management Service adjustments to BLDTF for fiscal year 1998, (4) review of
      the Office of Tax Analysis process for estimating amounts to be distributed to
      BLDTF for the fourth quarter of fiscal year 1998, (5) comparison of net excise
      tax distributions to BLDTF during fiscal year 1998 and amounts reported in the
      financial statements prepared by the Bureau of Public Debt for BLDTF and the
      Department of Labor’s consolidated financial statements, and (6) review of key
      reconciliations of IRS records to Treasury records. Enclosure I contains the
      agreed-upon procedures and our results and findings from performing each of
      the procedures.

      We were not engaged to, and did not, perform an audit, the objective of which
      would be the expression of an opinion on the net excise taxes distributed to

                        GAO/AIMD-99-73R Black Lung Disability Excise Tax Procedures
B-281569
BLDTF. Accordingly, we do not express such an opinion. Had we performed
additional procedures, other matters might have come to our attention that
would have been reported to you.

We provided a draft of this letter to IRS and Treasury officials, along with its
enclosure, for review and comment, They agreed with the contents of this
letter and its enclosure.

We completed the agreed-upon procedures on February 12, 1999. In performing
the agreed-upon procedures, we conducted our work in accordance with
generally accepted government auditing standards, which incorporate financial
audit and attestation standards established by the AICPA. These standards also
provide guidance when performing and reporting the results of agreed-upon
procedures.

This report is intended for the use of the Office of Inspector General of the
Department of Labor. However, this report is a matter of public record and its
distribution is not limited. Consequently, copies are available to others upon
request. If you have any questions, please call me at (202) 512-3406.




Associate Director, Governmentwide Accounting
 and Financial Management Issues

Enclosure




 2                GAO/AND-99-73R Black Lung Disability Excise Tax Procedures
ENCLOSURE I                                                                 ENCLOSURE I

    Agreed-upon urocedures                   Descrintion of findings and results


    TAX DISTRIBUTIONS REIATED   TO
    QUARTERS ENDED JUNE 30,1997,


    (1) Nonrepresentative selection of tax


        1997, and September 30, 1997,
        select the 30 largest excise tax          September 30, 1997, were selected for
        returns on the basis of the               review. The selection was based on
        assessment amount for each                total assessment amount and the
        quarter. Select a minimum of 6            inclusion of additional tax returns
        Airport and Airway Trust Fund             related to AATF. The selection
        (AATF’) returns for each quarter.         exceeded 30 returns per quarter to
                                                            minimumof6AATFtax


                                                  to these 67 returns was approximately
                                                  $14.5 billion, or 64 percent of total
                                                  excise tax assessment amounts ($22.7
                                                  billion) for the two quarters combined.
                                                  Of the 67 returns, 48 contained
                                                  primarily Highway Trust Fund (HTF’)-
                                                  related taxes, 16 contained primarily
                                                  AATF’-related taxes and 3 contained
                                                  other taxes that related to the general
                                                  fund. None of the returns contained



aAlthough the law requires that certifications be based on tax collections, IRS based
certifications on tax assessments until June 1998. Since certifications usually are not
completed until 6 months after the end of the quarter, the certifications for the quarters
ended June 30 and September 30, 1997, were actually performed in fiscal year 1998,
based on tax assessments. In June, for collections in the first quarter of fiscal year 1998,
IRS began using a new certification method that brings IRS into compliance with the
requirements of the law.

3                           GAO/AlMD-99-73R Black Lung Disability Excise Tax Procedures
ENCLOSURE I                                                                     ENCLOSURE I

     Weed-uuon nrocedures                         Descrintion of findings and results
     3)   For each of the selected returns:       (b) For each of the 67 returns, abstracts
               trace the assessment amount            related primarily to HTF, AATF, and
               for selected abstractsb from           the general fund were selected for
               the tax return to IRS’master           tracing to IRS’master file and AQETL
               file and to the Automated              system. This resulted in our testing of
               Quarterly Excise Tax Listing           approximately $14 billion in net excise
               system (AQETL)’ to                     tax assessments.
               determine if the amounts
               were properly input into the            The assessment amount for 62 of the
               master file and properly                67 selected cases agreed with the
               transferred to AQETL.                   amount in IRS’master file and AQETL.
                check the mathematical                 Six errors with an absolute value of
                accuracy of the taxpayer’s             approximately $2.4 million were
                calculations for selected              identified in five cases that resulted in
                abstracts.                             incorrect assessment amounts input to
                                                       IRS’master file and AQETL. These
                                                       incorrect amounts resulted in an error
                                                       rate of less than 1 percent of the
                                                       $14 billion tested. None of these
                                                       errors had an effect on the BLDTF.
     (2) Receipt certifications
     (a) Inspect the certification letters for     (a) The cetication letters for the
         authorizing signature.                        certifYcations related to the quarters
                                                       ended June 30, 1997, and September
                                                       30, 1997, had authorizing signatures.




bThe abstract numbers identify the tax type (e.g., diesel fuel tax) and are used as a basis
to determine the distribution of the excise taxes to the various trust funds. Abstract
numbers are preprinted on the Form 720 and are used by taxpayers to report excise tax
assessments.
 ‘The AQETL contains excise tax data extracted from the master file. This system is used
 by IRS to monitor excise tax assessments reported on Forms 720 and to generate gross
 certified tax amounts for each tax type.

 4                                GAO/AIMD-99-73R Black Lung Disability Excise Tax Procedures
ENCLOSURE I                                                                     ENCLOSURE I

 Mreed-uuon procedures                         Descriution of findings and results
 (b) Determine if evidence exists that         (b)   There was no evidence that data on
     the certification letters were                  the BLDTF certification letters or
     checked by the supervisor or                    supporting documents for the
     another analyst.                                certifications related to the quarters
                                                     ended June 30, 1997, and September
                                                     30, 1997, were checked by either the
                                                     supervisor or another analyst.
 (c)   Recalculate the totals on the           (c)   The totals on the BLDTF certification
       certification letters to determine if         letters for the certifications related to
       they are mathematically correct.              the quarters ended June 30, 1997, and
                                                     September 30, 1997, were
                                                     mathematically correct.
 (d) Trace the certified amounts for           (d)   The gross cetied amounts for
     underground mined coal at $1.10                 underground mined coal at $1.10 per
     per ton (abstract 36), underground              ton (abstract 36), underground mined
     mined coal at 4.4 percent of the                coal at 4.4 percent of the sales price
     sales price (abstract 37), surface              (abstract 37), surface mined coal at
     mined coal at $0.55 per ton                     $0.55 per ton (abstract 38), and
     (abstract 38), and surface mined                surface mined coal at 4.4 percent of
     coal at 4.4 percent of sales price              sales price (abstract 39) on the
     (abstract 39) from the certification            certification letters for the
     letter to the AQETL system.                     certifications related to the quarter
                                                     ended June 30, 1997, were the same as
                                                     the amounts for these on the AQETL
                                                     system.




                           GAO/AI&ID-99-73R Black Lung Disability Excise Tax Procedures
ENCLOSURE I                                                                     ENCLOSURE I

    Weed-unon nrocedures                        Descrintion of findings and results
                                                      The gross certified amounts for
                                                      underground mined coal at $1.10 per
                                                      ton (abstract 36), underground mined
                                                      coal at 4.4 percent of the sales price
                                                      (abstract 37), surface mined coal at
                                                      $0.55 per ton (abstract 38), and
                                                      surface mined coal at 4.4 percent of
                                                      sales price (abstract 39) on the
                                                      certification letter for the certification
                                                      related to the quarter ended
                                                      September 30, 1997, did not agree with
                                                      the AQETL report. The analyst
                                                      preparing the certification transferred
                                                      the wrong amounts from the AQETL
                                                      report onto the certification letter. As
                                                       a result, IRS understated the certified
                                                       amount to BLDTF by approximately
                                                       $469,000on its certification for the
                                                       quarter ended September 30, 1997.
                                                       IRS subsequently identified the error
                                                       and made an adjustment on its BLDTF
                                                       certification for the quarter ended
                                                       December 31, 1997, to correct the
                                                       error.
    (e)   Compare totals from the               (e) Supporting reports of master file data
          supporting reports of master file         agreed with the AQETL certification
          data to the AQETL certification           results.
          results to determine if they agree.
    (f)   For one abstract, total the           (f)   For the tire tax (abstract 66), the
          individual assessments per this             AQETL system included all of the
          abstract from the master file and           assessments when computing the total
          compare the amount to the AQETL             gross certified amount.
          computed total to determine if
          AQETL included all the
          assessments when computing the
          total gross certified amount.




6                            GAO/AIMD-99-73R Black Lung Disability Excise Tax Procedures
ENCLOSURE I                                                                 ENCLOSURE I

    Agreed-unon nrocedures                    Descrintion of findings and results
    (3) FMS adjustments
    (a) Compare the Financial                 (a)   For the FMS adjustments made to
        Management Service @ ‘MS)                   BLDTF, the original OTA estimates
        adjustments made to BLDTF for               and IRS certified amounts agreed with
        fiscal year 1998 with original Office       the supporting schedule.d The
        of Tax Analysis (OTA) estimates             independently recalculated differences
        and IRS certified amounts to see if         between the OTA estimates and the
        these agree with the supporting             final IRS certified amounts for BLDTF
        schedules. Recompute the                    for the quarters ended June 30, 1997-
        difference between the OTA                  $7,773,000”-and September 30, 1997-
        estimate and final IRS certified            ($3,483,265)-agree with the difference
        amount to see if the amount agrees          computed by FMS.
        with the difference computed by
        FMS.




dThis schedule, called the “Subsidiary Quarterly Account of Estimates and Actual Related
Excise Taxes Appropriated to BLDTF” is compiled by an accountant at FMS and it
computes the difference between IRS certified amounts and the OTA estimate for excise
taxes, individually and in total, that relate to BLDTF. The schedule, along with OTA
transfers forms and IRS certifications, supports the FMS adjustment.
'A positive amount indicates that the FMS adjustment increased the excise tax
distributions to the trust fund. A negative amount indicates a decrease in the excise
‘;axes distributed to the trust funds.

7                          GAO/AIMD-99-73R Black Lung Disability Excise Tax Procedures
ENCLOSURE I                                                                    ENCLOSURE I

     #reed-unon nrocedures                       Descrintion of findings and results
     :B) PROCEDURES PERFORMED
     ?OR FISCAL YEAR 1998 EXCISE
     [‘Ax DISTRIBUTIONS RELATED TO
     2UARTERS ENDED DECEMBER     31,
     1997, AND MARCH 31,1998
     11)sampling
     :a) Obtain excise tax assessments and       (a)   Excise tax collections for the first 6
         collections data from IRS’master              months of fiscal year 1998 per the
         file for the first 6 months of fiscal         master file materially agreed with IRS’
         year 1998. Determine if excise tax            general ledger and with total excise
         collections per the master file               tax collections from the Collection
         agree with IRS’ general ledger.               Cetication System.
         Reconcile total excise tax
         collections from the master file to
         total excise tax collections from
         the Collection Certification System
         audit filesf to determine if they
         materiti~ agree.
     (b) Select an attribute sample of 78        (b) For each sample item, assessments
         excise tax assessments. Compare             from the master file are contained in
         assessment information for each             the Collection Certification System
         sample item from the master file to
         the assessment information in the
         Collection Certification System to
         determine if assessments from the
         master file are contained in the
         Collection Certification System.




fIRS’Collection Certification System produces, what IRS refers to as “audit files.” These
audit files contain the individual prorated collections, by abstract and taxpayer
identification number, that make up the certified total amounts for each abstract.

gFor purposes of this reconciliation, materiality is defined as $200 million. This
represents 1 percent of total Form 720-related excise tax collections, related to the
quarters ended December 31, 1997, and March 31, 1998.
 8                            GAO/AIMD-99-73R Black Lung Disability Excise Tax Procedures
ENCLOSURE I                                                                    ENCLOSURE I

    Agreed-unon nrocedures                       Descrintion of findings and results
    (4 To determine if the Collection            (cl The Collection Certification System
        Certification System properly                 properly summarized the prorated
        summarized the prorated                       collections for abstracts related to the
        collections, total the prorated               BLDTF, HTF, and AYI’F. Prorated
        collections for selected abstracts            collections for the above mentioned
        from the audit files and compare              trust funds from the audit files agreed
        these amounts to amounts                      with the corresponding amounts
        indicated on the “Report of Excise            indicated on the “Report of Excise Tax
        Tax Collection.“h                             Collection.”
    Cd> Separate the total population of         (d) Forty five random items from the
        prorated collections from the audit          population of prorated tax collections
        files into the following distinct            related to all excise trust funds other
        sampling populations 1) prorated             than the HTF and AATF funds were
        tax collections relating to all excise       selected for testing” Of these 45
        trust funds’ other than the HTF and          sample items, two were BLDTF
        AATF, 2) prorated tax collections            prorated collections.
        for the HTF, and 3) prorated tax
        collections for the AATF. Use
        random attribute sampling to
        extract a sample of 45 prorated
        excise tax collections from the
        population of prorated tax
        collections related to all excise
        trust funds other than the HTF and
        the fUTF.




hThe “Report of Excise Tax Collection” is produced by the Collection Certification System.
The IRS analyst uses information from these reports as the basis for calculating the gross
certified amount for each abstract.

‘Prorated tax collections for BLDTF are included in this population.

jFor this sample, if no errors are found in testing the 45 items, we would be 90 percent
confident that the error rate in the population would not exceed 5 percent.
9                           GAO/AIMD-99-73R Black Lung Disability Excise Tax Procedures
ENCLOSURE I                                                                  ENCLOSURE I

  %greed-unonnrocedures                        Descrintion of findings and results
  :e) Extract samples of prorated excise       (e) Use of Dollar Unit Sampling (DUS)
      tax collections from the                     with a confidence level of 80 percent,
      populations of prorated excise tax           a test materiality of $230 million and
      collections for the HTF and AATF.            an expected aggregate error amount of
                                                   $69 million resulted in a sample of 125
                                                   prorated excise tax collections for the
                                                   HTF. Use of DUS with a confidence
                                                   level of 80 percent, a test materiality
                                                   of $90 million and an expected
                                                   aggregate error amount of $27 million
                                                   resulted in a sample of 57 prorated
                                                   excise tax collections for AATF.
  (2) Detailed tests of transactions
  (a) For each prorated excise tax             (a) For all of the sampled abstracts,
      collection sampled from all excise           including those related to BLDTF, the
      trust funds other than the HTF and           assessment amounts on the tax
      the AATF populations:                        returns agreed with the amounts
             Check to see that the                 recorded in IRS’master file.
             assessment amount on the
             tax return, for the sampled
             abstract, agrees with the
             amount recorded in IRS’
             master file. Separately
             identify the results for the
             BLDTF abstracts.
             Test the mathematical                        For all of the sampled abstracts,
             accuracy of the taxpayer’s                   including those related to
             calculations on the tax return               BLDTF, the taxpayer’s
             for the related abstract.                    calculations on the tax returns
             Separately identify the results              for these abstracts were
             for the BLDTF abstracts.                     mathematically correct.




 10                         GAO/AIMD-99-73R Black Lung Disability Excise Tax Procedures
ENCLOSURE I                                                                       ENCLOSURE I

 Agreed-unon nrocedures                           Description of findings and results
                Recompute the prorated                        For all of the sampled abstracts,
                collection amount and                         including those related to
                compare this amount to the                    BLDTF, the recomputed prorated
                result from the Collection                    collection per the master file
                Certification System.                         agreed with the amounts from
                Separately identify the results               the Collection Certification
                for the BLDTF abstracts.                      System audit file.
  (b) Perform detailed testing on the two         (b) The two samples of prorated
      samples of prorated collections                 collections from the non-BLDTF
      from the HTF and AATF                           populations did not contain any
      populations to determine if they                BLDTF excise tax collections.
      contain any BLDTF excise tax
      collections.
     (3) Receipt certitications
  (a) Inspect the certification letters for       (a) The certification letters for the
      authorizing signature.                          certifications related to the quarters
                                                      ended December 31, 1997, and March
                                                      31, 1998, had authorizing signatures.
     (b) Determine if evidence exists that        (b) There was evidence that data on the
         the certification letters were               BLDTF certification letters and
         checked by the supervisor or                 documents supporting the certification
         another analyst.                             results for the certifications related to
                                                      the quarters ended December 31, 1997,
                                                      and March 31, 1998, were checked by
                                                      another analyst.
     (c)   Recalculate the totals on the          (c)   The totals on the certification letters
           certi6cation letters to determine if         for the certifications related to the
           they are mathematically correct.             quarters ended December 31, 1997,
                                                        and March 31, 1998, were
                                                        mathematically correct.




11                            GAO/AIMD-99-73R Black Lung Disability Excise Tax Procedures
ENCLOSURE I                                                                ENCLOSURE I

  igreed-upon Drocedures                     Descriution of findings and results
  Id) Trace the gross certified amounts      (d) The gross certified amounts for
      for underground mined coal at              underground mined coal at $1.10 per
      $1.10 per ton (abstract 36),               ton (abstract 36), underground mined
      underground mined coal at 4.4              coal at 4.4 percent of the sales price
      percent of the sales price (abstract       (abstract 37), surface mined coal at
      37), surface mined coal at $0.55 per       $0.55 per ton (abstract 38) and surface
      ton (abstract 38), and surface             mined coal at 4.4 percent of sales
      mined coal at 4.4 percent of sales         price (abstract 39) did not agree with
      price (abstract 39) from the               the “Report of Excise Tax Collection”
      certification letter back to the           because IRS incorrectly reversed some
       “Report of Excise Tax Collection.”        prorated collections related to
                                                 previous quarters from its December
                                                 31, 1997, certification.

                                                  As a result, IRS understated gross
                                                  prorated collections related to BLDTF’
                                                  by approximately $3.3 million on its
                                                  certification for the quarter ended
                                                  December 31, 1997. IRS subsequently
                                                  made adjustments on its BLDTF
                                                  certification for the quarter ended
                                                  June 30, 1998, which was completed in
                                                  December 1998, to correct the error.




 12                        GAO/AlMD-99-73R Black Lung Disability Excise Tax Procedures
ENCLOSURE I                                                                   ENCLOSURE I

  Agreed-upon nrocedures                       Descrintion of findinpts and results
                                               (d) Additionally, IRS did not reverse the
                                                   total amount of “estimatesttk included
                                                   in the previous quarter’s certification.
                                                   Since the “estimates” are not
                                                   supported by underlying tax returns or
                                                   collections, the amounts IRS certified
                                                   to BLDTF in fiscal year 1998 were
                                                   overstated by approximately
                                                   $5 million. IRS did not make any
                                                   adjustment on later fiscal year 1998
                                                   BLDTF certifications to correct this
                                                   error.
     (4) FMS adjustments
     (a)   Compare the FMS adjustment          (a) For the FMS adjustments made to
           made to the BLDTF for fiscal year       BLDTF, the original OTA estimates
           1998 with original OTA estimates        and IRS certified amounts agreed with
           and IRS certified amounts to see if     the supporting schedule. The
           these agree with the supporting         independently recalculated differences
           schedules. Recompute the                between the OTA estimates and the
           difference between the OTA              final IRS certified amounts for BLDTF
           estimate and final IRS cerUied          for the quarters ended December 31,
           amount to see if the amount agrees      1997-($5,243,735)-a March 31, 1998
           with the difference computed by         -($7,524,000)-agree with the difference
           FMS.                                    computed by FMS.




kinder IRS’previous certification process, which was used for the June 30, 1997, and
September 30, 1997, certification, the AQETL system added estimated tax amounts to the
gross certified tax if a taxpayer’s return was not posted to the master file when the
certification was performed. IRS believed the accuracy of the specific quarter’s
certifications would be improved by including these estimates. The AQETL system would
subsequently reverse the estimated amounts from the following quarter’s certification,
which would include the actual amounts per the return. When IRS began its new
certification process that started with the December 31, 1997, certification, it reversed
actual prorated collections related to previous quarters rather than the amount that had
been originally estimated. These amounts differed by approximately $5 million.

13                           GAO/AIMD-99-73R Black Lung Disability Excise Tax Procedures
ENCLOSURE I                                                                   ENCLOSURE I

  &-eed-unon nrocedures                        Descriution of findings and results
  :C) PROCEDURES PERFORMED
  FOR FISCAL YEAR 1998 EXCISE
  LAX DISTRIBUTIONS  RELATED TO
  I!HE QUARTER ENDED JUNE 30,
  1998
  cl) Receipt certifications
  [a) Inspect the certification letter for     (a) The certification letter for the
      authorizing signature.                       certification related to the quarter
                                                   ended June 30, 1998, had an
                                                   authorizing signature.
  (b) Determine if evidence exists that        (b) There was evidence that data on the
      the certification letter was checked         BLDTF cetication letter and
      by the supervisor or another                 documents supporting the certification
      analyst.                                     results for the certification related to
                                                   the quarter ended June 30, 1998, were
                                                   checked by another analyst.
  (c)   Recalculate the totals on the          (c)   The totals on the cetication letter
        certification letter to determine if         for the certification related to the
        they are mathematically correct.             quarter ended June 30, 1998, were
                                                     mathematically correct.
  (d) Trace the gross certified amounts         (d) The gross certified amounts for
      for underground mined coal at                 underground mined coal at $1.10 per
      $1.10 per ton (abstract 36),                  ton (abstract 36), underground mined
      underground mined coal at 4.4                 coal at 4.4 percent of the sales price
      percent of the sales price (abstract          (abstract 37), surface mined coal at
      37), surface mined coal at $0.55 per          $0.55 per ton (abstract 38), and
      ton (abstract 38), and surface                surface mined coal at 4.4 percent of
      mined coal at 4.4 percent of sales            sales price (abstract 39) agreed with
      price (abstract 39) from the                  the related amounts on the “Report of
      cetication letter to the “Report of           Excise Tax Collection.”
      Excise Tax Collection.”




 14                            GAO/AIMD-99-73R Black Lung Disability Excise Tax Procedures
ENCLOSURE I                                                                  ENCLOSURE I

 Agreed-unon nrocedures                        Descrintion of findinTs and results
     (2) EMS adjustments
 (a) Compare the FMS adjustment         (a) For the FMS adjustments made to
     made to BLDTF for fiscal year 1998     BLDTF, the original OTA estimates
     with original OTA estimates and        and IRS certified amounts agreed with
     IRS certified amounts to see if        the supporting schedule. The
     these agree with the supporting        independently recalculated differences
     schedules. Recompute the               between the OTA estimates and the
     difference between the OTA             final IRS certified amounts for BLDTF
     estimate and final IRS certified       for the quarter ended June 30, 1998-
     amount to see if the amount agrees     ($418,000)-agree with the difference
     with the difference computed by        computed by FMS.
     FMS.
 (D) PROCEDURES PERFORMED
 FOR FISCAL YEAR 1998 EXCISE
 TAX DISTRIBUTIONS  RELWED   TO
 THE QUARTER ENDED
 SEPTEMBER 30,199s
     (1) OTA estimation process
     (a) Determine if the OTA has a            (a)   OTA has a process for identifying and
         process to determine whether new            including new laws and regulations
         legislation affecting excise tax            affecting excise tax receipts into its
         receipts is identified and included         receipt estimates. This process
         in the receipt estimates.                   includes consultations with Treasury’s
                                                     Tax Legislative Counsel, IRS’Chief
                                                     Counsel, Office of Management and
                                                     Budget, and the Joint Committee on
                                                     Taxation. These communications are
                                                     not routinely documented.




15                          GAO/AIMD-99-73R Black Lung Disability Excise Tax Procedures
ENCLOSURE I                                                                  ENCLOSURE I

  igreed-unon nrocedures                      Descrintion of findings and results
                                                    An OTA tax rate table is used to
                                                    capture information relating to
                                                    legislation that affects tax rates, tax
                                                    basis, accounts, and deposit rules in
                                                    effect during the tax period and to
                                                    communicate this information to
                                                    interested parties at Treasury and the
                                                    Department of Labor (DOL). OTA
                                                     does not obtain documentation
                                                     indicating review and concurrence
                                                     with the information in this table by
                                                     relevant Treasury offices or DOL.
                                                    OTA does not routinely compile a
                                                    comprehensive listing of laws and
                                                    regulations that affect the receipt
                                                    estimates.
  @) Determine if OTA has a process           (b)   OTA has a process that considers the
     that considers the views of DOL                views of DOL prior to its finalizing the
     prior to its finalizing of the receipt         receipt estimates. During the
     estimates.                                     development of the receipt estimates,
                                                    OTA staff economists communicate
                                                    with ana3ystsat DOL about the
                                                    development of the estimates. These
                                                    communications are not documented.
                                                    Prior to finalizing the full year
                                                    estimates, which are the basis for the
                                                    monthly tax distributions, OTA
                                                    transmits the full year estimates to the
                                                    DOL for their review. The
                                                    documentation maintained does not
                                                    indicate the nature of review
                                                     comments and whether DOL
                                                     concurred with the final estimates.




 16                        GAO/AIMD-99-73R Black Lung Disability Excise Tax Procedures
ENCLOSURE I                                                                     ENCLOSURE I

 Agreed-unon nrocedures                          Descrintion of findings and results
     (c)   Determine if OTA has a review         (c)   OTA has a review process to ensure
           process to ensure that new                  that new information received
           information received between the            between the budget preparation cycles
           budget preparation cycles is                is reflected in the receipt estimates.
           reflected in the receipt estimates.         At least two reviews are conducted by
                                                       OTA’s Director of the Revenue
                                                       Estimation Division (RED) for the
                                                       impact of various technical, economic,
                                                       and legislative factors on the receipt
                                                       estimates. The Director of RED
                                                       reviews the changes to the earlier
                                                       forecasts, provides input to each staff
                                                       ecdnomist as appropriate, and
                                                       approves the changes to the forecasts.
                                                       Documentation of review comments is
                                                       not maintained and Director approval
                                                       of the final changes is not documented
                                                       by signature.
                                                       The Director of RED reviews the
                                                       monthly receipt forecasts prepared by
                                                       OTA staff economists, which are
                                                       based on the fiscal year forecasts
                                                       described above, and indicates his
                                                       concurrence by his signature on the
                                                       monthly transfer documents
                                                       transmitted to F’MS.
                                                       The Director of RED reviews the
                                                       adjustments prepared by OTA staff
                                                       economists for the impact of new
                                                       legislation enacted in the period
                                                       between the budget cycles and
                                                       indicates his concurrence by his
                                                       signature on the adjustment and
                                                       transmittal memo to FMS.




17                            GAO/AIMD-99-73R Black Lung Disability Excise Tax Procedures
ENCLOSURE I                                                                     ENCLOSURE I

                                              I
     Agreed-unon nrocedures                       Descrintion of findings and results
     (d) Determine if OTA has a process to        (d) OTA has a process to consider the
         consider the impact of variances             impact of variances between actual
         between actual and previously                and previously forecasted excise tax
         forecasted excise tax receipts and           receipts and incorporate these into its
         incorporate these into its receipt           receipts estimation process. OTA
         estimates.                                   compares prior estimates of excise tax
                                                      receipts to actual excise tax
                                                      collections as reported by Treasury’s
                                                      FMS, to adjust its excise tax receipts
                                                      estimation models.’In addition, OTA
                                                      staff economists review the
                                                       differences between prior quarterly
                                                       estimates and IRS certified amounts at
                                                       the trust fund level. This information
                                                       is considered along with other factors
                                                       to determine if adjustments to the
                                                       excise tax receipts estimation models
 L
                                                       are warranted.




‘OTA uses economic models to develop estimates for the amounts of excise tax receipts
to be transferred to BLDTF.

 18                           GAO/AIMD-99-73R Black Lung Disability Excise Tax Procedures
ENCLOSURE I                                                                    ENCLOSURE I

 Agreed-unon nrocedures                          Descrintion of findings and results
 (E) OTHER PROCEDURES
 RELATED TO TOTAL FISCAL YEAR
 1998 EXCISE TAX DISTRIBUTIONS
     (1) Compare total fiscal year 1998          (1)   Fiscal year 1998 excise taxes
         excise taxes distributed to BLDTF             distributed to the BLDTF materially
         with drafts of the 1) Bureau of               agreed with drafts of the 1) BPD
         Public Debt’s (BPD) financial                 financial statements for BLDTF and 2)
         statements for BLDTF and 2) DOL               DOL consolidated financial statements
         consolidated financial statements             with one exception. BPD and DOL
         to determine if they materially               omitted the FMS adjustment for the
         agree.                                        quarter ended June 30, 1998, in the
                                                       amount of $418,000 because they
                                                       determined that it was immaterial.


     (F) OTHER    PROCEDURES
 (1) Performed as part of fiscal year 1998
 IRS financial statement audit
     (a) Use DUS to extract statistical          (a) Detailed testing of the total of 413
         samples of 1) total revenue                 revenue collection and 109 refund
         receipts and 2) refunds from IRS            sample transactions did not reveal any
         master files for the iirst 9 months         instances of misclassification related
         of fiscal year 1998. For each item          to excise taxes.
         in the sample of revenue receipts
         and refunds, test that the collection
         or refund amount and tax class
         from source documentation agrees
         with amounts recorded in IRS
         master files.




19                           GAO/AIMD-99-73R Black Lung Disability Excise Tax Procedures
ENCLOSURE I                                                                   ENCLOSURE I

  &reed-unon nrocedures                         Descrintion of findings and results
  b)    Review selected service center’s        (b) -     Tax revenue collections reported
        monthly Treasury 224                              by selected IRS service centers
        reconciliations by tax class” to                  via the monthly Treasury 224
        determine if IRS-reported revenue                 reconciliation process were
        receipts and refunds, including                   properly classified and
        excise taxes, are properly classified             materially” agreed with Treasury
        and reconciled to Treasury FMS                    FMS records.
        records.
                                                           Total refunds reported by
                                                           selected IRS service centers via
                                                           the monthly Treasury 224
                                                           reconciliation process mater.iaIly
                                                           agreed with Treasury FMS
                                                           records.
  (c)   Perform a proof of cash for fiscal      (c) -      Fiscal year-end tax collection
        year 1998 to determine whether                     balances for all the classes,
        revenue receipt balances, by tax                   including excise taxes, per IRS’
        class, including excise tax, and                   general ledger materially agreed
        refund balances per IRS’general                    with IRS’ master files and with
        ledger materially agree with IRS’                  Treasury records.
        master files and Treasury records.
                                                           Fiscal year-end refund balances
                                                           per IRS’ general ledger materially
                                                           agreed with the master file and
                                                           with Treasury records.




 (9 19326)


 “IRS assigns a tax class number to specific types of taxes. Excise taxes are Tax Class 4.

 “For the purposes of this section, we defined materiality as $17 billion.

 20                          GAO/m-99-73R        Black Lung Disability Excise Tax Procedures
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