oversight

Major Management Challenges and Program Risks: Department of the Treasury

Published by the Government Accountability Office on 1999-01-01.

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

                United States General Accounting Office

GAO             Performance and Accountability
                Series




January 1999
                Major Management
                Challenges and Program
                Risks
                Department of the
                Treasury




GAO/OCG-99-14
GAO   United States
      General Accounting Office
      Washington, D.C. 20548

      Comptroller General
      of the United States



      January 1999
      The President of the Senate
      The Speaker of the House of Representatives

      This report addresses the major performance and
      management challenges affecting the ability of the
      Department of the Treasury to effectively carry out its
      mission. Specifically, this report discusses the challenges
      facing three Treasury bureaus—the Internal Revenue
      Service, Customs Service, and the Financial Management
      Service—as well as departmentwide financial
      management challenges. It also discusses corrective
      actions that Treasury and its bureaus have taken or
      initiated to address these challenges and further actions
      that are needed. For many years, we have reported
      significant problems at Treasury. These problems are the
      result of serious deficiencies in (1) information and
      financial management systems, (2) internal controls at
      the department level and in the three bureaus, and (3) the
      organizational structure at IRS.

      Treasury has made progress in addressing its key
      management challenges and continues to plan future
      improvements. Progress has been made, for example, in
      the financial management area, as indicated by (1) the
      unqualified opinions both IRS and Customs received on
      their financial statements and (2) the removal of
      Customs’ financial management from our high-risk list of
      federal government programs. The Commissioner of
      Internal Revenue and the leadership team at IRS has given
a top priority to addressing deficiencies. However, while
the efforts of the Department and its bureaus are
encouraging, Treasury must do more. Because of the
complexity of many of Treasury’s challenges, long-term
efforts are still needed if effective solutions are to be
developed and implemented. In particular, we continue to
believe that several areas within IRS and the asset
forfeiture program at Customs remain at high risk.

This report is part of a special series entitled the
Performance and Accountability Series: Major
Management Challenges and Program Risks. The series
contains separate reports on 20 agencies—1 on each of
the cabinet departments and on most major independent
agencies as well as the U.S. Postal Service. The series
also includes a governmentwide report that draws from
the agency-specific reports to identify the performance
and management challenges requiring attention across
the federal government. As a companion volume to this
series, GAO is issuing an update to those government
operations and programs that its work has identified as
“high risk” because of their greater vulnerabilities to
waste, fraud, abuse, and mismanagement. High-risk
government operations are also identified and discussed
in detail in the appropriate performance and
accountability series agency reports.

The performance and accountability series was done at
the request of the Majority Leader of the House of
Representatives, Dick Armey; the Chairman of the House
Government Reform Committee, Dan Burton; the



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Chairman of the House Budget Committee, John Kasich;
the Chairman of the Senate Committee on Governmental
Affairs, Fred Thompson; the Chairman of the Senate
Budget Committee, Pete Domenici; and Senator Larry
Craig. The series was subsequently cosponsored by the
Ranking Minority Member of the House Government
Reform Committee, Henry A. Waxman; the Ranking
Minority Member, Subcommittee on Government
Management, Information and Technology, House
Government Reform Committee, Dennis J. Kucinich;
Senator Joseph I. Lieberman; and Senator Carl Levin.

Copies of this report series are being sent to the
President, the congressional leadership, all other
Members of the Congress, the Director of the Office of
Management and Budget, the Secretary of the Treasury,
and the heads of other major departments and agencies.




David M. Walker
Comptroller General of
the United States




            Page 3           GAO/OCG-99-14 Treasury Challenges
Contents



Overview                                                  6

Major                                                    12
Performance and
Management
Issues
Related GAO                                              77
Products
Performance and                                          83
Accountability
Series




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Page 5   GAO/OCG-99-14 Treasury Challenges
Overview



                     One of the primary responsibilities of the
                     Department of the Treasury is to manage the
                     government’s finances. This includes
                     collecting over $1.7 trillion in federal tax
                     revenues and making payments totaling
                     more than $1 trillion annually. Treasury
                     faces many challenges in managing the
                     government’s finances and, like other parts
                     of the government, is experiencing demands
                     to be more effective and accountable in
                     carrying out its mission. Many of the issues
                     affecting Treasury’s ability to effectively
                     manage the government’s finances involve
                     challenges relating to information systems.
                     Until Treasury and its bureaus and offices
                     are better able to address the numerous
                     performance and management challenges
                     they are facing, their ability to manage the
                     government’s finances will remain impaired.


The Challenges

Management and       The Internal Revenue Service (IRS) faces
Performance Issues   formidable challenges as it attempts to fulfill
Affecting the        its mission while addressing major
Internal Revenue     organizational, management, and
Service
                     performance issues. These issues include the
                     need for (1) restructuring IRS’ organization
                     and business practices to better balance its

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                      Overview




                      efforts between taxpayer assistance and
                      enforcement, (2) correcting management
                      and technical weaknesses in its systems
                      modernization efforts, (3) resolving financial
                      management and control weaknesses that
                      affect its ability to adequately manage its
                      financial operations, (4) addressing
                      problems relating to its ability to collect
                      federal tax receivables and other unpaid
                      assessments, (5) assessing the impact of
                      various efforts it has under way to reduce
                      filing fraud, (6) improving security controls
                      over information systems to address
                      weaknesses that place taxpayer data at risk
                      to both internal and external threats, and
                      (7) modifying information systems to
                      properly function in the year 2000.


Customs’ Financial    The Customs Service has made significant
Management            improvements in its financial management;
Removed From          as a result, we have removed it from our list
High-Risk List, but   of high-risk federal government programs.
Challenges Remain
                      However, Customs still needs to address
                      certain challenges related to controlling
                      access to sensitive data in its automated
                      systems and maintaining complete and
                      reliable information in its core financial
                      systems. In addition, our recent work has
                      shown that an incomplete systems
                      architecture has hindered Customs’


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                       Overview




                       management of major technology
                       investments, such as its Automated
                       Commercial Environment system.


Financial              Treasury’s Financial Management Service
Management             (FMS) faces challenges in addressing several
Challenges Affecting   financial management issues. First, FMS’
the Financial          ability to prepare reliable consolidated
Management Service
                       financial statements for the U.S. government
                       is primarily hindered by other federal
                       agencies’ weaknesses in recordkeeping,
                       documentation, and internal controls.
                       Second, general computer control
                       weaknesses at FMS and its contractor data
                       centers place the data in its financial systems
                       at significant risk of unauthorized
                       modification, disclosure, loss, or
                       impairment. Third, FMS has experienced
                       some difficulties in effectively fulfilling
                       Treasury’s responsibilities under the Debt
                       Collection Improvement Act.


Departmentwide         At the Departmental level, Treasury’s
Financial              financial management weaknesses hinder its
Management             ability to maintain reliable financial records
Weaknesses             on the results of its operations. Specifically,
                       weaknesses exist in the Department’s
                       (1) accountability for and reporting on
                       seized and forfeited property; (2) computer


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               Overview




               security controls; (3) integration of financial
               management systems; and (4) process that is
               used to prepare Departmentwide financial
               statements. In addition, the Department’s
               financial management systems did not
               comply with federal requirements.


Progress and   Treasury has made progress in addressing its
Next Steps     key managerial challenges and continues to
               develop plans aimed toward making future
               improvements. Progress, for example, is
               signified by the (1) unqualified opinions both
               IRS and Customs received on their financial
               statements and (2) removal of Customs’
               financial management from our list of
               high-risk federal government programs.
               While Treasury deserves to be recognized for
               the progress it has made in addressing its
               key problems, more needs to be done.
               Because of the complexity of many of
               Treasury’s challenges, long-term efforts may
               be required to effectively plan and
               implement solutions.

               To meet congressional demands to become
               more effective and accountable, Treasury
               began moving toward a performance-based
               approach to management before the
               Government Performance and Results Act



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Overview




requirements became mandatory.1 For
example, for several years, Treasury has
included in its budget request performance
goals that are derived from its strategic plan.
In addition, Treasury’s fiscal year 1999
performance plan, which was prepared
under the Results Act requirements, was
combined with its budget request and
included reports on performance goals for
the preceding 2 fiscal years. However,
Treasury’s performance plan would be more
useful to the Congress and other
stakeholders if it included performance
goals to specifically address all of the
significant management challenges,
including the numerous high-risk areas that
the Department faces. The performance plan
briefly acknowledges some of these major
challenges, but it does not have performance
goals that adequately address all of them.

We believe that Treasury must take action to
develop comprehensive implementation
strategies so that its financial and
information systems are designed to meet
the needs of the Department. Continued
dialogue between the Congress, the

1
 The Government Performance and Results Act of 1993 is designed
to improve the efficiency and effectiveness of federal programs by
establishing a system to set goals for program performance and to
measure results. The Act requires agencies to prepare multiyear
strategic plans, annual performance plans, and annual performance
reports.

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Overview




Department, and other stakeholders is also
necessary to help guide Treasury in devising
strategies to more effectively address its
major management challenges. In addition,
Treasury must be able to show stakeholders
evidence of the extent that progress is being
made. One way to show commitment to
improvement is to promptly implement
corrective actions to address those
challenges that lend themselves to
short-term solutions. Treasury’s annual
performance plan under the Results Act
could be used to convey the status of such
progress.




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Major Performance and Management
Issues


            Treasury performs key governmental roles,
            including administering and enforcing the
            nation’s tax laws, collecting revenue, and
            managing the government’s finances.
            Treasury also formulates and recommends
            economic, financial, tax, and fiscal policies
            and manufactures coins and currency. To
            carry out its diverse responsibilities,
            Treasury is divided into more than a dozen
            bureaus and offices. For its fiscal year 1999
            budget, Treasury requested about
            $12.3 billion.

            Our work and that of others have identified
            Departmentwide management problems at
            Treasury as well as significant problems in
            three bureaus—IRS, Customs, and FMS. Much
            of our work has focused on IRS because of
            the crucial role it plays in collecting taxes
            and administering the federal tax system. IRS
            is Treasury’s largest bureau with about
            102,000 staff years—two-thirds of the
            Department’s total staff years—and a fiscal
            year 1999 budget request of nearly
            $8.3 billion—about two-thirds of the
            Department’s total budget. Several key areas
            in IRS remain on our high-risk list of
            government programs, and IRS continues to
            face new organizational challenges that may
            affect its ability to effectively carry out its
            mission. For these reasons, this report


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                   Issues




                   highlights IRS’ major performance and
                   management issues relating to restructuring,
                   systems modernization, financial
                   management, accounting for and collecting
                   taxes owed the government, filing fraud,
                   information systems security, and century
                   date conversion efforts. This report also
                   addresses important management issues
                   affecting Customs and FMS as well as
                   Departmentwide financial management
                   problems. These challenges hinder
                   Treasury’s ability to manage the
                   government’s finances.


Management and     The Congress, in passing the IRS
Performance        Restructuring and Reform Act of 1998,
Issues Affecting   reaffirmed its commitment to addressing the
IRS                performance and management issues
                   confronting IRS. In the same vein, the IRS
                   Commissioner has set goals for restructuring
                   the nation’s tax collection agency to provide
                   better customer service. One key to
                   restructuring IRS’ business operations to
                   provide better service to taxpayers is
                   acquiring modernized systems. Modernized
                   systems are also critical for IRS to address its
                   weaknesses relating to financial
                   management, information systems security,
                   accounting for and collecting taxes, and
                   filing fraud. At the same time it is planning


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                     Issues




                     business restructuring and systems
                     modernization, IRS must also manage its
                     century date conversion efforts—which are
                     crucial to its continued operation.


The Need for         The Congress had several reasons for
Restructuring IRS’   passing the IRS Restructuring and Reform Act
Organization and     of 1998, including concerns about IRS’
Business Practices   treatment of taxpayers. To address these
                     concerns and to institute his own initiatives,
                     the Commissioner of Internal Revenue
                     announced a multiyear business
                     modernization plan for IRS that is aimed at
                     improving customer service. The
                     Commissioner has categorized his proposed
                     changes into several key areas, including
                     (1) an organization built around taxpayer
                     needs, (2) balanced performance measures,
                     and (3) new technology.

                     Managing the restructuring will be a
                     challenge for IRS because (1) the proposed
                     changes in the way IRS does business are
                     extensive, (2) collecting taxes requires IRS to
                     balance its efforts between taxpayer
                     assistance and enforcement, and
                     (3) business restructuring must be
                     coordinated with systems modernization.




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The proposed restructuring would be the
biggest reorganization of IRS in decades.
Currently, IRS has about 100,000 employees
who are organized by tax administration
function such as returns processing and
collection. Under the proposed changes, IRS
would be organized into four units that
would specialize in serving the needs of
different types of taxpayers. The proposed
units are (1) wage and investment income;
(2) small business, self-employment, and
supplemental income; (3) middle market and
large corporate; and (4) tax exempt.

While the magnitude of the restructuring
task is daunting, management of
restructuring is complicated by the need to
balance IRS’ tax collection efforts and
resources between providing service to
taxpayers and enforcing compliance with the
tax laws. To reinforce the appropriate
relationship between these objectives, a
balanced set of IRS performance measures is
needed. The Commissioner has also
emphasized the importance of measures of
organizational performance that balance
customer satisfaction, business results,
employee satisfaction, and productivity. The
intent is to provide incentives for
service-oriented behavior toward taxpayers,
while also emphasizing the need for


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achieving efficiencies in collecting revenue.
Although IRS is striving to improve its overall
performance measurement system, it faces
particular challenges as it develops and
implements performance measures to gauge
its efforts to reduce taxpayer burden through
improved customer service. The key
challenges we identified are (1) developing a
reliable measure of taxpayer burden,
including the portion that IRS can influence;
(2) developing measures that can be used to
compare the effectiveness of the various
customer service programs; and (3) refining
or developing new measures that gauge the
quality of the services provided.
Additionally, as IRS refines its strategic goals
and related measures, it is important that IRS
obtain stakeholder involvement to balance
its efforts between assisting taxpayers and
enforcing compliance with the tax laws.

Reengineering business practices that focus
on solving taxpayer problems is a central
element of the restructuring concept. For
example, IRS is planning efforts to identify as
promptly as possible taxpayers who may
present a risk of nonpayment and to work
out a payment plan that addresses the
particular payment problems of those
taxpayers. This early identification is
intended to help the taxpayer make the


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necessary payments and minimize the need
for subsequent enforcement actions.

New technology is essential to addressing
the problems that have hampered IRS’ ability
to better serve taxpayers. This is critical in
that IRS’ existing computer systems do not
provide ready access to needed information
and, consequently, do not adequately
support modern work processes or facilitate
the attainment of the high level of customer
service that IRS hopes to achieve under
restructuring. Modernized systems should
help IRS collect taxes by providing its
collectors with on-line access to the
information they need when they need it.
These systems, along with the
Commissioner’s emphasis on balanced
performance measures, should help provide
IRS with the management information it
needs to evaluate the effectiveness of its
programs.

The Commissioner’s restructuring plan
acknowledges that deficiencies exist in IRS’
computer systems. In that regard, the plan
points out that the new business practices
and organizational structure provide a basis
for completing and implementing the
modern systems outlined in the technology
modernization blueprint. One challenge for


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                      IRS is to ensure that the systems development
                      plans under the modernization blueprint and
                      restructuring plan are aligned. In addition,
                      for the Commissioner’s restructuring plan to
                      be successful, it is also critical that the
                      long-standing internal control and system
                      weaknesses related to financial management
                      be fully addressed and corrected.


Key Contact           James R. White, Director
                      Tax Policy and Administration Issues
                      General Government Division
                      (202) 512-9110
                      whitej.ggd@gao.gov


The Need to Address   For more than a decade, IRS has been
Management and        attempting to modernize its outdated,
Technical             paper-intensive approach to tax return
Weaknesses in         processing. We reviewed IRS’ management of
Systems
                      its systems modernization program and, in
Modernization
Efforts               1995, reported on serious management and
                      technical weaknesses that jeopardized the
                      program’s successful completion. At that
                      time, we made recommendations to correct
                      the weaknesses and designated the
                      modernization program as a high-risk
                      information technology investment. Since
                      then, we have reviewed IRS’ actions to
                      address our recommendations and


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                          Major Performance and Management
                          Issues




                          strengthen its systems modernization
                          capability, and we have made additional
                          recommendations to aid in this endeavor.

                          IRS has made progress in strengthening its
                          modernization capability, and according to
                          IRS’ Chief Information Officer (CIO), the
                          Service plans to (1) fully implement our
                          recommendations before it begins building
                          modernized systems and (2) reexamine its
                          modernization blueprint in light of ongoing
                          IRS organizational restructuring and the IRS
                          Restructuring and Reform Act of 1998.
                          However, until our recommendations have
                          been fully implemented, IRS lacks the ability
                          to effectively modernize its tax systems.

IRS’ Efforts to Address   In July 1995, we reported that IRS (1) did not
Long-Standing Systems     have a comprehensive business strategy to
Modernization
Management and            reduce paper tax return filings in a
Technical Weaknesses      cost-effective manner and (2) had not fully
                          developed and put in place the requisite
                          management, software development, and
                          technical infrastructure necessary to
                          successfully implement its ambitious
                          systems modernization. We also reported
                          that IRS lacked an overall systems
                          architecture to guide the modernization’s
                          development and evolution.




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At that time, we made over a dozen
recommendations to address these
weaknesses, including calling for IRS to
(1) implement processes for investment
management; (2) implement disciplined
procedures for software development; and
(3) complete and enforce an integrated
systems architecture, including data and
security subarchitectures. IRS agreed with
our recommendations.

In 1996, because IRS had made progress in
implementing our recommendations and to
minimize the risk of IRS’ investing in systems
before the recommendations were
implemented, we suggested that the
Congress limit IRS’ information technology
spending to certain cost-effective categories.
In the fiscal year 1997 Omnibus Consolidated
Appropriations Act, the Congress directed
IRS to, among other things, establish a
schedule for implementing our
recommendations and submit an
architecture for the modernization by
May 15, 1997.

Since then, IRS has taken actions to address
these challenges. For example, IRS hired a
new CIO and created an investment review
board to select, control, and evaluate its
information technology investments.


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Additionally, IRS provided the first two levels
of a four-level modernization blueprint to the
Congress on May 15, 1997. Also, in
March 1998, IRS released a request for
proposals for a prime systems integration
services contractor. This contractor, in
partnership with IRS, was to be responsible
for defining key components of the blueprint
and for acquiring and implementing
modernized tax systems in accordance with
the blueprint. IRS awarded the contract in
December 1998.

In early 1998, we reported that the blueprint
was a good first step that provided a solid
foundation from which to define the level of
detail and precision needed to effectively
and efficiently build a modernized system of
interrelated systems. The Commissioner
agreed with our findings. Subsequently, the
Congress limited IRS’ ability to obligate
information technology investment funds
until certain conditions were met. These
conditions included that IRS was to submit to
the Congress for approval an expenditure
plan that (1) implements the blueprint,
(2) complies with requirements of the Office
of Management and Budget’s (OMB) system
investment guidelines, (3) passes reviews
and approvals by OMB and Treasury’s IRS



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                         Issues




                         Management Board, and (4) is reviewed by
                         us.

IRS Plans to Implement   In January 1998, the Commissioner of
Our Recommendations      Internal Revenue announced plans for
                         restructuring IRS’ organization. However, this
                         restructuring will affect the very business
                         processes and requirements that the
                         blueprint is based on, thus raising questions
                         about the blueprint’s validity and
                         applicability. Additionally, IRS has continued
                         to follow through with its plans to use
                         contractors to modernize its systems, rather
                         than follow its past practice of developing
                         the systems itself. However, as we reported
                         in our 1997 high-risk report on IRS, increasing
                         the use of contractors will not automatically
                         increase the likelihood of successful
                         modernization because IRS has historically
                         lacked the capability to effectively manage
                         its contractors. For this strategy of acquiring
                         modernized systems, rather than developing
                         them in-house, to be successful, IRS would
                         first have to strengthen and improve its
                         ability to manage contractors. Further,
                         Treasury’s fiscal year 1999 annual
                         performance plan, submitted under the
                         Results Act, only describes IRS’
                         modernization-related activities in general
                         terms. For example, the plan states that IRS
                         will conduct software maturity activities and


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establish and maintain systems life cycle
processes to manage the prime systems
modernization contractor. These general
statements do not provide objective,
quantifiable, and measurable performance
goals and do not specify measures for
assessing progress toward the goals, as
required by the Results Act.

In December 1998, IRS awarded its prime
contract for systems modernization.
According to IRS’ CIO, the Service plans to
partner with the prime contractor to
complete the modernization blueprint, as we
recommended, and to account for
(1) changes in system requirements and
priorities caused by IRS’ organizational
restructuring and (2) changes to
accommodate new technology and to
implement the IRS Restructuring and Reform
Act of 1998 requirements. Additionally, the
CIO stated that IRS plans to establish
disciplined life cycle management processes
and structures and mature software
development and acquisition capabilities
before it begins building modernized
systems.

Because of the importance and high cost of
the modernization and the fact that our key
recommendations remain open, we plan to


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                      continue evaluating IRS’ ability and readiness
                      to effectively modernize its systems and will
                      continue to categorize IRS’ systems
                      modernization effort as a high-risk program.


Key Contact           Jack L. Brock, Jr., Director
                      Governmentwide and Defense Information
                        Systems
                      Accounting and Information Management
                        Division
                      (202) 512-6240
                      brockj.aimd@gao.gov


The Need to           In fiscal year 1997, IRS received an
Continue to Address   unqualified opinion on its custodial financial
Financial             statements for the first time since we began
Management            auditing them in fiscal year 1992.1 This
Weaknesses
                      achievement was largely attributable to IRS’
                      efforts to improve significant internal
                      controls in critical areas, such as the
                      reconciliation of tax receipts and refunds
                      between its systems and those of FMS.
                      However, IRS had to use extensive ad hoc
                      procedures to enable it to prepare auditable
                      financial statements. This resulted from IRS’

                      1
                       The custodial financial statements did not report on activities
                      related to IRS’ administrative costs that were funded by
                      appropriations and reimbursements from other agencies, state and
                      local governments, and the public. These activities were reported
                      separately in IRS’ administrative financial statements, which were
                      audited by the Treasury Office of Inspector General.

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inability to rely on its general ledger system
to support its financial statements because
of its deficiencies. A core purpose of a
general ledger system is to support the
preparation of financial statements. To
compensate for deficiencies, IRS uses
specialized computer programs to extract
information from its master files—its only
detailed database of taxpayer
information—to derive amounts to be
reported in the financial statements.
However, the amounts produced by this
approach needed material audit adjustments
to produce reliable financial statements. In
our audit report on IRS’ fiscal year 1997
financial statements, we cited long-standing
material weaknesses in IRS’ financial
management that prevented it from routinely
generating timely and reliable information as
a tool for managing IRS operations or as a
basis for preparing financial statements.
These weaknesses also affect IRS’ ability to
adequately manage its financial operations,
expose the federal government and
taxpayers to financial loss, and create undue
burden to taxpayers.

IRS’ primary internal control weaknesses
relate to tax receipts, taxpayer data, and
unpaid tax assessments. IRS initiated
corrective actions designed to address some


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                       of the pervasive financial management
                       problems we have reported since 1992.
                       However, many of IRS’ initiatives—which
                       include its systems modernization effort and
                       plans to improve its financial reporting
                       capabilities—are long term and, according to
                       IRS’ plans, may take 10 years or more of
                       sustained effort to fully implement. Some
                       other issues can be resolved in the next few
                       years by improving policies, procedures, and
                       internal controls. These weaknesses in IRS’
                       financial management systems and internal
                       controls reflect the extent to which IRS still
                       has extensive work ahead to fully address
                       and resolve its financial management and
                       internal control deficiencies. Therefore, IRS’
                       financial management continues to be
                       designated as a high-risk area.

Internal Control       IRS’ controls over tax receipts and taxpayer
Weaknesses Regarding   data do not adequately reduce the
Tax Receipts and
Taxpayer Data          vulnerability of the federal government and
                       taxpayers to loss from the theft and
                       inappropriate disclosure of proprietary
                       taxpayer information. For example, receipts
                       were left in unrestricted areas accessible to
                       individuals not authorized to handle receipts.
                       In addition, employees were hired and
                       worked in positions requiring the handling of
                       cash, checks, or sensitive taxpayer
                       information before IRS received the results of


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their background or fingerprint checks. Of
the 80 thefts that IRS investigated at service
centers from January 1995 to July 1997, 12
(15 percent) were committed by individuals
who had previous arrest records or
convictions that were not identified before
their employment. In addition, single,
unarmed couriers in ordinary civilian
vehicles were used to transport IRS deposits
totaling hundreds of millions of dollars to
the depository institutions during the peak
filing season. One courier left a deposit
totaling more than $200 million unattended
in an open vehicle while he returned to the
service center. At one district office, IRS
relied on a bicycle messenger to deliver daily
deposits ranging from more than $1 million
during the nonpeak season to more than
$100 million during the peak season.

Although receipts and taxpayer information
will always be vulnerable to theft, IRS has a
responsibility to protect the government and
taxpayers from such losses. In
November 1998, we made recommendations
to IRS that would address the internal control
weaknesses that our work identified,
including prohibiting new employees from
being assigned to process receipts until
fingerprint checks are received and reviewed
by management, enhancing physical security


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                         over receipts and taxpayer data, and
                         reviewing the level of security provided
                         receipts and taxpayer data in transit to
                         depository institutions. IRS generally agreed
                         with our recommendations and has
                         indicated that it plans to address most of the
                         control deficiencies relating to tax receipts
                         and taxpayer data we identified.

Internal Control         IRS does not have a detailed listing or
Weaknesses Over          subsidiary ledger that tracks and
Unpaid Tax Assessments
                         accumulates unpaid tax assessments on an
                         ongoing basis. The lack of a subsidiary
                         ledger impairs IRS’ ability to effectively
                         manage its unpaid assessments. This
                         weakness has resulted in IRS’ inappropriately
                         directing collection efforts against taxpayers
                         after amounts owed had been paid. In one
                         case, three taxpayers had multimillion dollar
                         tax liabilities and liens placed against their
                         property, although the taxes had actually
                         been paid and two of the individuals were
                         owed refunds. In addition, IRS must rely on
                         computer programs to extract data from its
                         master files to prepare its financial
                         statements, a process that necessitated tens
                         of billions of dollars in adjustments to
                         correct misclassifications and eliminate
                         duplicate transactions in fiscal year 1997. IRS
                         also lacks adequate documentation to
                         support its unpaid assessments. For


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              example, the estate case files we reviewed
              generally did not include audited financial
              statements or an independent appraisal of
              the estate’s assets—information that would
              greatly assist in determining potential
              collectibility and potential underreporting in
              these cases. These weaknesses hinder IRS’
              ability to effectively manage its unpaid
              assessments by contributing to IRS’ inability
              to focus its collection efforts on those
              accounts exhibiting the greatest degree of
              collection potential.

              During fiscal year 1998, we issued a report
              discussing these issues in detail and
              providing recommendations to address
              them. IRS has agreed to consider studying
              ways of addressing these problems, pending
              implementation of its long-term system
              enhancements.


Key Contact   Gregory D. Kutz, Associate Director
              Governmentwide Accounting and Financial
                Management Issues
              Accounting and Information Management
                Division
              (202) 512-9505
              kutzg.aimd@gao.gov




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The Need to Address    Each year, IRS collects tax revenue to fund
Problems Relating to   government operations. In fiscal year 1998,
Federal Taxes          IRS collected over $1.7 trillion. However, IRS
Receivable and         has not been able to collect a significant
Other Unpaid
                       portion of the amount of federal taxes it
Assessments
                       identifies as due the government. This
                       problem has been compounded by serious
                       financial management system deficiencies
                       and the lack of sound, reliable information,
                       which impede IRS’ efforts to collect unpaid
                       tax assessments.

                       As of September 30, 1997, IRS had identified
                       $214 billion in unpaid tax assessments that
                       were due to the federal government. These
                       assessments, which have historically been
                       referred to as IRS’ accounts receivable,
                       consist of (1) $90 billion in taxes due from
                       taxpayers for which IRS can support the
                       existence of a federal tax receivable through
                       taxpayer agreement or a favorable court
                       ruling;2 (2) $48 billion in compliance
                       assessments for which neither a taxpayer
                       nor a court has affirmed that the amounts
                       are owed; and (3) $76 billion in write-offs,
                       which represent unpaid assessments for
                       which IRS does not expect further collection
                       because of such factors as the taxpayer’s

                       2
                        When Statement of Federal Financial Accounting Standards No. 7
                       became effective for fiscal year 1998, these transactions were
                       redefined and are now appropriately referred to as federal taxes
                       receivable.

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death, bankruptcy, or insolvency. Under
federal accounting standards, only the
$90 billion in unpaid assessments that IRS
can support by taxpayer agreement or
favorable court ruling represent federal
taxes receivable. For the first time since we
began auditing IRS, the agency has reported a
reasonable estimate of the amount of federal
taxes receivable it expects to ultimately
collect. This amount, $28 billion as of
September 30, 1997, represents just
31 percent of the total federal taxes
receivable and just 13 percent of the total
balance of unpaid assessments.

Our work has shown that this low level of
expected collectibility is a reasonable
estimate given the composition of IRS’ unpaid
assessments. The $76 billion in write-offs are
amounts primarily due from bankrupt and
insolvent taxpayers, including billions in
delinquent taxes that are owed by failed
financial institutions and thus have virtually
no hope of collection. The $48 billion in
compliance assessments are primarily
amounts that are owed by individuals and
businesses for income and payroll taxes.
However, IRS’ future prospects of collecting
these amounts are low because (1) these
taxpayers have not acknowledged the debt
and (2) in many instances these amounts are


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derived through IRS’ various compliance and
enforcement programs and may not
ultimately represent the amounts actually
owed by the taxpayer.

This leaves $90 billion in unpaid assessments
that represent federal taxes receivable. Yet,
our work has shown that $62 billion (68
percent) of this balance is also not likely to
be collectible. This $62 billion is owed
primarily by taxpayers who are
(1) experiencing financial hardships,
(2) undergoing bankruptcy, or (3) unwilling
to pay some or all of the amounts they owe.
Only $28 billion of the $90 billion of federal
taxes receivable represent amounts where
collection is likely based on the financial
status and willingness of the taxpayers to
pay some or all of the amounts they owe.
However, despite these problems, IRS’ goal is
to pursue collection of all federal taxes due.

Striving to close the gap between the amount
of tax revenue owed the government and the
amount likely to be collected is a major
challenge for IRS. However, IRS’ long-standing
systems deficiencies make this challenge
even more difficult. IRS has continually tried
to manage its federal taxes receivable and
other unpaid assessments with systems that
are unable to provide timely, useful, and


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reliable information on the status of
taxpayers’ accounts. Consequently, IRS does
not have the complete and reliable
information it needs to effectively focus
collection efforts on accounts with the
greatest collection potential. This is critical
given that 87 percent of IRS’ estimated unpaid
assessments, including the $62 billion in
federal taxes receivable, have little or no
potential for collection. Additionally,
because IRS’ systems are not integrated with
one another, they create high rates of error
in taxpayers’ accounts and, in some cases,
create unnecessary taxpayer burden. These
burdens result in costs to both the taxpayer
and IRS in resolving the errors caused by
these system deficiencies. System
weaknesses and the lack of adequate data
also have an impact on IRS’ ability to identify
delinquencies so that it can target its
compliance and enforcement initiatives.
These deficiencies impede IRS’ efforts to
detect noncompliant taxpayers earlier,
thereby increasing the likelihood that such
amounts, if and when detected, will yield
little collection.

We have provided IRS with a series of long-
and short-term recommendations to assist it
in addressing the serious financial
management issues that are associated with


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                        federal taxes receivable and other unpaid
                        assessments. However, these issues and
                        their implications continue to expose the
                        government to significant loss of tax
                        revenue. Consequently, we believe federal
                        taxes receivable should continue to be
                        designated as a high-risk area for the
                        government.


Key Contact             Gregory D. Kutz, Associate Director
                        Governmentwide Accounting and Financial
                          Management Issues
                        Accounting and Information Management
                          Division
                        (202) 512-9505
                        kutzg.aimd@gao.gov


The Need to Assess      Since we first identified filing fraud as a
the Impact of Efforts   high-risk area in February 1995, IRS has taken
to Reduce Filing        several steps in an attempt to reduce its
Fraud                   exposure to filing fraud. For example, IRS
                        (1) expanded the number of up-front filters
                        in the electronic filing system that is
                        designed to screen electronic submissions
                        for problems, such as missing or incorrect
                        Social Security numbers (SSN), to prevent
                        returns with those problems from being filed
                        electronically; (2) strengthened the process
                        for checking the suitability of persons


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applying to participate in the electronic filing
program as return preparers or transmitters
by requiring fingerprint and credit checks;
(3) revised the computerized formulas used
to score all tax returns to determine their
fraud potential; (4) upgraded the Electronic
Fraud Detection System to give staff in the
Questionable Refund Program better
research capabilities; and (5) placed an
increased emphasis on validating SSNs on
filed paper returns.

A significant change in IRS’ return processing
procedures in 1997 enhanced its ability to‘
deal with paper returns involving missing or
incorrect SSNs. That year, as legislatively
authorized, IRS began treating missing or
incorrect SSNs as math errors, which was
similar to the way it had historically handled
computational errors. That meant that IRS
could adjust refunds claimed by persons
filing paper returns if the required SSNs were
missing or incorrect. Before 1997, IRS could
not make adjustments to a refund involving a
missing or incorrect SSN until it had gone
through more time-consuming and
labor-intensive examination procedures. As
we reported in 1996, those procedures
limited the number of cases IRS could work
and resulted in millions of questionable
refunds being issued.


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Most of the fraudulent refund claims
identified by IRS involved the Earned Income
Credit (EIC), which is a refundable tax credit
that is available to low-income, working
taxpayers. In April 1997, IRS released the
results of its study of EIC noncompliance on
tax returns filed in 1995 (i.e., tax year 1994
returns). The study showed that of the
$17.2 billion in EIC claims on tax year 1994
returns, about $4.4 billion (25.8 percent) was
estimated to be overclaims. How much of
this $4.4 billion involved fraud, as opposed
to less serious noncompliance, is unknown.
The returns included in IRS’ study were filed
before IRS was given increased authority to
deal with missing or invalid SSNs. However,
even after adjusting for the potential effect
of that increased authority, IRS determined
that the rate of EIC noncompliance would
still be over 20 percent.

Our work relating to the audit of IRS’
financial statements also showed that IRS’
internal controls are not adequate to ensure
that only valid tax refunds are disbursed. As
a result, IRS has sometimes issued refunds
that were duplicated, based on erroneous or
fraudulent tax returns, or payable to IRS
employees who had manipulated IRS’ records
to generate invalid refunds payable to
themselves.


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In response to IRS’ findings, the Congress
passed legislation that gave IRS (1) new
enforcement tools and (2) additional funding
that was specifically designated for
EIC-related activities. With those new tools
and funds, IRS, in 1998, began implementing a
5-year EIC compliance initiative that involved
several components directed at issues that
were identified by IRS’ study as major
sources of EIC noncompliance. For example,
IRS initiated enforcement efforts that focused
on (1) cases where an EIC-qualifying child’s
SSN was used on more than one tax return for
the same tax year and (2) returns filed by
certain EIC claimants who claimed the
head-of-household filing status. IRS also
began a study of noncompliance among EIC
claimants who report income from
self-employment, increased staffing in the
Questionable Refund Program, and issued
procedures requiring tax return preparers to
exercise due diligence in preparing returns
involving EIC claims.

As we reported in July 1998, most of IRS’
efforts under the EIC compliance initiative
had not progressed far enough at the time
we completed our audit work for us to judge
their effectiveness. To help assess the overall
effectiveness of its efforts, IRS plans to do
annual studies of EIC compliance starting


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               with a baseline study of returns filed in 1998
               (i.e., tax year 1997 returns), which is
               currently under way. Using the results of
               that baseline study and subsequent years’
               studies, IRS plans to measure the rate of
               compliance and improvement in that rate
               over time. Those annual studies should
               eventually provide the necessary data to
               assess the impact of IRS’ efforts on reducing
               the incidence of noncompliance associated
               with the EIC. Until sufficient data on the
               results and impact of IRS’ efforts are
               available through these studies and better
               controls are instituted through systems
               modernization, which is still in the planning
               stages, filing fraud should remain a high-risk
               area.


Key Contacts   James R. White, Director
               Tax Policy and Administration Issues
               General Government Division
               (202) 512-9110
               whitej.ggd@gao.gov




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                      Gregory D. Kutz, Associate Director
                      Governmentwide Accounting and Financial
                        Management Issues
                      Accounting and Information Management
                        Division
                      (202) 512-9505
                      kutzg.aimd@gao.gov

The Need to           For the past 5 years, we have reported
Improve Security      significant and long-standing weaknesses
Controls Over         with controls over IRS’ information systems.
Information Systems   Although IRS has made progress in improving
                      computer security, weaknesses in IRS’
                      computer security controls continue to place
                      IRS’ automated systems and taxpayer data at
                      serious risk to both internal and external
                      threats. Such weaknesses could result in the
                      denial of computer services or in the
                      unauthorized disclosure, modification, or
                      destruction of taxpayer data. These
                      weaknesses affect IRS’ ability to control
                      physical access to its facilities and sensitive
                      computing areas, control electronic access
                      to sensitive taxpayer data and computer
                      programs, prevent and detect unauthorized
                      changes to taxpayer data or computer
                      software, and restore essential IRS operations
                      following an emergency or natural disaster.

                      Similar to receipts and hard-copy taxpayer
                      data, the need is clear for IRS to implement


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strong and effective security over taxpayer
data contained in its information systems. IRS
relies on its information systems to annually
process more than 200 million taxpayer
returns, account for over $1.7 trillion
collected in tax revenues, and issue over
$150 billion in tax refunds. In addition, IRS
systems contain sensitive taxpayer
information, such as name, address, SSN, and
details of taxpayers’ financial holdings. As
we have previously reported, similar
information has been used to commit
financial crimes and identify fraud
nationwide. Commonly reported financial
crimes include using someone’s personal
information to fraudulently establish credit,
run up debt, and take over and deplete
taxpayers’ financial accounts.

We previously recommended that IRS
complete implementation of an effective
servicewide computer security management
program and establish the appropriate
safeguards and control measures to
adequately protect IRS’ tax processing
operations and taxpayer data. IRS agreed
with our recommendations and stated that
our conclusions and recommendations were
consistent with its ongoing actions to
improve systems security. Until stronger
security controls are in place over its


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                     information systems, IRS’ tax processing
                     operations remain vulnerable to disruption.
                     Furthermore, the sensitive taxpayer data
                     maintained by IRS could be disclosed to
                     unauthorized individuals, modified and
                     improperly used, or destroyed, thereby
                     exposing taxpayers to financial crimes such
                     as identity fraud.


Key Contact          Robert F. Dacey, Director
                     Consolidated Audit and Computer
                       Security Issues
                     Accounting and Information Management
                       Division
                     (202) 512-3317
                     daceyr.aimd@gao.gov


The Need to          IRS, like other Treasury offices and bureaus,
Confront the         is highly dependent on information
Challenges           technology to carry out its mission. Most of
Presented by the     Treasury’s information systems were not
Year 2000 Computer
                     designed to read dates beyond December 31,
Problem
                     1999. As a result, IRS and the other Treasury
                     offices and bureaus are in the midst of a
                     massive effort to make their information
                     systems Year 2000 compliant to avoid
                     significant disruptions to their operations.




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IRS accounts for the bulk of Treasury’s Year
2000 undertaking. Of the estimated
$1.9 billion earmarked for Treasury’s Year
2000 program, $1.4 billion has been
designated for IRS. These cost estimates
include work needed for IRS’ mission-critical
information systems, telecommunications
networks, and buildings. IRS’ program also
represents one of the largest civilian Year
2000 efforts. At the outset, IRS faced
significant challenges in making its systems
Year 2000 compliant. In addition to the size
of its effort, IRS lacked a comprehensive
inventory of information system assets,
particularly of its information systems
infrastructure (i.e., systems software,
hardware, and telecommunications
networks), and IRS’ CIO did not control all
mission-critical assets.

In a June 1998 report, we said that IRS had
made more progress in fixing its applications
than its infrastructure. Also, we said that two
major Year 2000 system replacement efforts
were experiencing schedule slippages. In
addition, we identified two risk areas for IRS’
Year 2000 effort—that is, the absence of an
integrated master schedule showing the
interdependencies among the many Year
2000 efforts and a limited approach to
contingency planning.


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IRS has begun taking action to address our
concerns about a master schedule. We made
no recommendations on that risk area in our
June 1998 report. Concerning the second
risk area, we recommended that the
Commissioner take steps to broaden the
contingency planning effort to help ensure
that IRS had adequately assessed the
vulnerabilities of its core business processes
to potential Year 2000 system failures.
Specifically, we recommended that the
Commissioner (1) solicit input from the
business functional areas to identify core
business processes and identify those
processes that must continue in the event of
a Year 2000 failure, (2) map IRS’
mission-critical systems to those core
business processes, (3) determine the impact
of information system failures on each core
business process, (4) assess existing
contingency plans for their applicability to
potential Year 2000 failures, and (5) develop
and test contingency plans for core business
processes if existing plans are not
appropriate.

Since we issued our report, IRS has been
taking actions to address our
recommendations. IRS had originally planned
to have its first set of contingency plans by
December 15, 1998; however, according to


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                its officials, IRS did not meet that milestone.
                We plan to continue monitoring IRS’ progress
                in developing contingency plans. If IRS is
                unable to make its mission-critical systems
                Year 2000 compliant, IRS could be rendered
                unable to properly and timely process tax
                returns, issue refunds, correctly calculate
                interest and penalties, effectively collect
                taxes, or prepare accurate financial
                statements and other financial reports.


Key Contact     James R. White, Director
                Tax Policy and Administration Issues
                General Government Division
                (202) 512-9110
                whitej.ggd@gao.gov


Customs’        Since Customs was originally added to the
Financial       high-risk list, it has developed and
Management      implemented actions to address the
Removed From    problems that contributed to its designation
the High-Risk   as a high-risk area. Because Customs’
                management has made progress in
List, but
                addressing its financial management
Challenges      weaknesses, especially those related to
Remain          assessing and collecting revenues, we are
                removing Customs financial management
                from the high-risk list. However, similar to
                many other federal agencies, Customs still


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                     faces certain challenges that are primarily
                     related to controlling access to sensitive data
                     that are maintained in its automated systems
                     and maintaining complete and reliable
                     information in its core financial systems.


Significant          In 1991, we added Customs as a high-risk
Improvements at      area because it had major weaknesses in its
Customs Results in   management and organizational structure
Removal From the     that diminished its ability to detect trade
High-Risk List
                     violations on imported cargo; collect
                     applicable duties, taxes, fees, and penalties;
                     control financial resources; and report on
                     financial operations. In February 1995, we
                     reported that Customs had taken several
                     actions in an effort to reduce risks in the
                     general management area. For instance,
                     Customs revised its 1993 5-year plan to
                     clarify and set priorities for its trade
                     enforcement objectives; improved controls
                     over the identification and collection of
                     duties, taxes, fees, and penalties; and
                     embarked on a reorganization plan to
                     correct institutional problems that were
                     related to cooperation and coordination
                     among its programmatic units and to ensure
                     consistency in policy implementation.

                     We have made several recommendations to
                     Customs to help promote better financial


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management and strengthen its controls
over assessing and collecting revenues. We
made these recommendations realizing that
most of these problems would require
long-term efforts to effectively plan and
implement solutions to address the
long-standing root causes. Over the past
several years, Customs has continually
shown a commitment to improving its
financial management by implementing
significant corrective actions to address our
recommendations. Actions that have been
implemented include statistically sampling
compliance of commercial importations
through ports of entry to better focus
enforcement efforts; implementing a
compliance measurement program (CMP) for
bonded warehouses;3 programming the
Automated Commercial System in fiscal year
1995 to detect any drawback claims4 that
exceeded the total amount of duty and tax
paid on related import entries; and
aggressively pursuing the collection of
delinquent receivables. Another indicator of
Customs’ progress in the financial
management area is its ability to receive

3
 Foreign merchandise can be placed into bonded warehouses
without the assessment of duties, taxes, and fees on the goods until
the goods are released into the commerce of the United States.
4
 Drawback claims are refunds of duties and taxes paid on imported
goods that are subsequently exported or destroyed.



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unqualified audit opinions on its fiscal years
1996 and 1997 financial statements.

In addition to these actions, according to
Customs officials, Customs has several
initiatives under way to improve its controls
over assessing and collecting revenues. For
example, in September 1998, Customs began
implementing a nationwide in-bond
shipments CMP that is intended to provide
some assurance over compliance of in-bond
shipments through random examinations of
such items.5 The program involved system
changes for in-bond shipments as well as the
addition of compliance measurement
inspections for randomly selected in-bond
shipments. Additionally, Customs plans to
implement a CMP for foreign trade zones6 and
is reviewing drawbacks and drawback
claims for quality assurance.

Given the significant improvement efforts,
including those related to assessing and

5
 In-bond shipment refers to goods that are authorized, by law, to be
moved within the United States before release or export without
appraisement or classification.
6
 Foreign trade zones are geographic areas, designated in
accordance with the Foreign Trade Zone Act of 1934, where
merchants may bring domestic or foreign merchandise for storage,
exhibition, manipulation, manufacturing, assembly, or other
processing without subjecting them to formal Customs entry
procedures and payment of duties. Foreign goods held in foreign
trade zones are not assessed duties, taxes, or fees until the goods
are released into the commerce of the United States.

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                       collecting revenues, undertaken by Customs
                       since it was first added to the high-risk list,
                       we are removing our high-risk designation.

Weaknesses Relating    Similar to many other federal agencies,
to Internal Controls   Customs still faces certain challenges that
Over Data in           are primarily related to controlling access to
Automated Systems      sensitive data that are maintained in its
                       automated systems and maintaining
                       complete and reliable information in its core
                       financial systems. In its March 1998 audit
                       report on Customs’ fiscal year 1997 financial
                       statements, the Treasury Office of Inspector
                       General (OIG) reported the following material
                       weaknesses in internal controls:7 (1) core
                       financial management systems need to be
                       improved and integrated and (2) adherence
                       to systems development standards for
                       certain financial management systems was
                       lacking. The Treasury OIG also identified
                       reportable conditions, including
                       (1) computer access vulnerabilities that
                       could allow for unauthorized modification
                       and deletion of production programs,
                       systems software, and data in Customs’
                       systems and (2) disaster recovery


                       7
                        A material weakness is a condition in which the design or
                       operation of one or more of the internal control components does
                       not reduce to a relatively low level the risk that errors or
                       irregularities in amounts that would be material to the financial
                       statements may occur and not be detected promptly by employees
                       in the normal course of performing their duties.

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capabilities that were in need of
improvement.8

We and others have made several
recommendations to Customs that are
related to the access of its computer systems
and to the improvement and integration of
its core financial management systems.
According to its officials, Customs has the
following initiatives under way to address
these recommendations: (1) implementing
system enhancements to its Seized Assets
and Case Management Tracking System
(SEACATS); (2) continuing its efforts to
replace all existing nonrevenue-related
financial management systems with a single
integrated system; (3) taking additional
corrective actions on computer security
control weaknesses, such as completing
periodic reviews of user access capabilities
and limiting users’ access to operating
system capabilities; (4) developing plans to
conduct a business impact and recovery
requirements analysis to identify critical
systems and applications in the event of a
8
 Reportable conditions involve matters coming to the auditor’s
attention relating to significant deficiencies in the design or
operation of internal controls that, in the auditor’s judgment, could
adversely affect an entity’s ability to (1) safeguard assets against
loss from unauthorized acquisition, use, or disposition; (2) ensure
the execution of transactions in accordance with management’s
authority and in accordance with laws and regulations; or
(3) properly record, process, and summarize transactions to permit
the preparation of the financial statements or to maintain
accountability for assets.

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                      systems disaster; and (5) pending the receipt
                      of funding, establishing a disaster recovery
                      site in the year 2000.

                      We believe that Customs’ improvement
                      efforts are appropriately focused, but its
                      management must provide the continuing
                      support needed to ensure that these
                      important actions are properly implemented
                      and that related problems do not recur. As
                      part of its annual audit of Customs’ financial
                      statements, the Treasury OIG plans to update
                      the status of Customs’ internal control
                      weaknesses. Also, we will continue to
                      monitor Customs’ progress in addressing
                      these areas.


Weaknesses Relating   Our recent work shows that an incomplete
to the Development    systems architecture has hindered Customs’
of Customs’           ability to manage information technology
Automated             investments, particularly large,
Commercial
                      mission-critical systems such as its
Environment System
                      Automated Commercial Environment (ACE)
                      system. Pending funding, Customs plans to
                      use ACE to replace the current system used
                      for collecting, disseminating, and analyzing
                      import-related data and ensuring the proper
                      collection and allocation of revenues totaling
                      about $19 billion annually. Customs initiated
                      ACE in 1994. In January 1998, Customs



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estimated that it would cost $1.15 billion to
develop, operate, and maintain ACE over the
15-year period between fiscal years 1994 and
2008. As of the end of fiscal year 1998,
Customs reported that it had spent
$62.1 million on ACE.

In May 1998, we reported that Customs’
incomplete enterprise information systems
architecture and limitations in its plans for
enforcing compliance with an architecture,
once one is completed, impair the agency’s
ability to effectively and efficiently develop
or acquire operational systems, such as ACE,
and to maintain existing systems.
Furthermore, because Customs’ incomplete
architecture is not based on a thorough
understanding of its enterprisewide
functional and information needs, Customs
did not have adequate assurance that its
information systems, such as ACE, would
optimally support its ability to (1) fully
collect and accurately account for billions of
dollars in annual federal revenue and
(2) allow for the expeditious movement of
legal goods and passengers across our
nation’s borders while preventing and
detecting the movement of illegal goods and
passengers. We recommended that Customs
follow through on plans to complete its
enterprise information systems architecture


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                and require that information systems comply
                with the architecture, unless a thorough
                analysis supports a waiver. Customs agreed
                with our recommendations and is in the
                process of completing its enterprise systems
                architecture and instituting a requirement
                that systems comply with the architecture.


Key Contacts    Gary T. Engel, Associate Director
                Governmentwide Accounting and Financial
                  Management Issues
                Accounting and Information Management
                  Division
                (202) 512-3406
                engelg.aimd@gao.gov

                Jack L. Brock, Jr., Director
                Governmentwide and Defense Information
                  Systems
                Accounting and Information Management
                  Division
                (202) 512-6240
                brockj.aimd@gao.gov


Financial       FMS is the government’s financial manager,
Management      central disburser, and collections agency as
Challenges      well as its accountant and reporter of
Affecting FMS   financial information. FMS faces challenges in
                addressing financial management issues


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                       related to preparation of the government’s
                       consolidated financial statements (CFS),
                       computer system security, and FMS’
                       implementation of its requirements under
                       the Debt Collection Improvement Act of
                       1996 (DCIA). We will continue to monitor FMS’
                       efforts to implement its requirements under
                       DCIA. In addition, we are evaluating FMS’
                       efforts to address the other matters during
                       our ongoing audit of the government’s fiscal
                       year 1998 CFS.


The Need to Address    In our March 1998 audit report on the
Issues Related to      government’s fiscal year 1997 CFS, we
Preparing Reliable     reported that problems with fundamental
Consolidated           recordkeeping, incomplete documentation,
Financial Statements
                       and weak internal controls prevent the
for the Government
                       government from accurately reporting a
                       large portion of assets, liabilities, and costs.
                       These deficiencies, as described in the
                       following paragraphs, affect the reliability of
                       the CFS and much of the underlying
                       information. As preparer of the CFS, FMS has a
                       key responsibility to work with agencies to
                       address some of these problems, including
                       the government’s inability to (1) properly
                       account for billions of dollars of basic
                       transactions, especially those between
                       governmental entities; (2) ensure that the
                       information in the CFS is consistent with


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agencies’ financial statements; and
(3) ensure that all disbursements are
properly recorded.

To make the CFS balance, FMS recorded a net
$12 billion item on the Statement of Changes
in Net Position, which it labeled
unreconciled transactions. FMS attributed
this out-of-balance condition, which is the
net of more than $100 billion in unreconciled
transactions, to the government’s inability to
properly identify and eliminate transactions
between federal government entities and to
agency adjustments that affected net
position. Agencies’ accounts can be out of
balance with each other, for example, when
one or the other of the affected agencies
does not properly record transactions with
another agency or the agencies record the
transactions in different time periods. These
out-of-balance conditions can be detected
and corrected by instituting procedures for
reconciling transactions between agencies.
Generally, such reconciliations are not
performed. These unreconciled transactions
result in material misstatements of assets,
liabilities, revenues, and/or costs. Until
effectively corrected, this problem could
continue to prevent us from being able to
form an opinion on the reliability of the CFS.



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The government cannot ensure that the
information in the CFS is consistent with
agency financial statements. FMS relies on
agencies to submit data needed to prepare
the CFS; however, (1) several agencies were
unable to provide assurance that amounts
submitted to FMS agreed with their agency
financial statements; (2) many agencies
needed to make significant subsequent
adjustments to their submissions in an effort
to properly classify amounts in the CFS; and
(3) we found misstatements, which FMS
corrected, that totaled several hundred
billion dollars in agency-submitted
information and were primarily due to
mistakes in coding, incorrect use of general
ledger accounts, and misallocations among
the net cost categories.

In our March report, we noted that several
major agencies were not effectively
reconciling their records with FMS’ records of
cash disbursements, resulting in the
government’s being unable to ensure that all
disbursements are properly recorded. In our
related report issued in October 1998, we
indicated that auditors depend on FMS for
support in fulfilling their reconciliation
responsibilities. Several agencies reported
problems with FMS’ reconciliation processes
and the assistance it provides agencies in


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                    carrying out these processes. We found that
                    FMS had taken some steps that attempt to
                    improve the reconciliation process and was
                    considering other actions to improve its
                    assistance to agencies. We recommended
                    that FMS work with agencies and provide
                    sufficient resources to ensure that the
                    reconciliation problems are fully addressed.

                    FMS has developed action plans and is
                    working with us, OMB, and key agencies to
                    address the noted problems. However, fixing
                    these problems represents a significant
                    challenge because of the size and complexity
                    of the government and the discipline needed
                    to comply with new accounting and
                    reporting requirements. Meeting these
                    challenges will require a significant
                    commitment of agencies’ and FMS’
                    management as well as adequately trained
                    staff and effective automated financial
                    systems.


The Need to         FMS faces considerable challenges in
Improve Computer    overseeing the development,
Security Controls   implementation, and operation of its
                    entitywide information systems, including
                    the establishment of appropriate computer
                    controls. FMS maintains a wide array of
                    financial and information systems to help it


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process and reconcile money disbursed and
collected by the various government
agencies. Multiple banking, collection, and
disbursement systems are also used to
process agency transactions, capture
relevant data, transfer funds to and from
Treasury accounts, and facilitate the
reconciliation of these transactions. In
addition to operating six regional financial
centers, FMS relies on a network of
contractors and the Federal Reserve Banks
to help carry out its financial management
responsibilities.

In October 1998, we reported that general
computer control weaknesses at FMS and its
contractor data centers place the data
maintained in FMS’ financial systems at
significant risk of unauthorized modification,
disclosure, loss, or impairment.9 The
weaknesses we found included
(1) inappropriate access to computer
programs, data, and equipment;
(2) inadequate segregation of duties;
(3) improper application software
development and change control

9
 On July 31, 1998, we issued a “Limited Official Use” report to the
Secretary of the Treasury detailing weaknesses in FMS’ general
controls. The October 1998 version of the excerpted report for
public release, Financial Management Service: Areas for
Improvement in Computer Controls (GAO/AIMD-99-10, Oct. 20,
1998), provided a general summary of the weaknesses we identified
and the recommendations we made.

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procedures; and (4) incomplete or untested
service continuity and contingency plans.

Weak controls over FMS’ computer systems
place billions of dollars of payments and
collections at risk of fraud. These
weaknesses existed primarily because FMS
does not have an effective entitywide
computer security planning and management
program to ensure that (1) computer
controls are working and are reliable,
(2) established policies and procedures are
followed, (3) errors or fraudulent
transactions are detected in a timely manner,
and (4) identified deficiencies are promptly
corrected.

Because of the large volume of transactions,
the significance of the related amounts
involved, and the number of weaknesses
identified at the FMS data centers visited, we
consider FMS’ general computer control
problems a material weakness. According to
Treasury officials, FMS has planned or
already taken actions to correct many of the
individual weaknesses that we identified and
communicated to FMS management during
our testing. Although FMS is continuing to
correct weaknesses we identified, FMS
cannot ensure on an ongoing basis that
weaknesses will be promptly detected and


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                     corrected until it has an effective entitywide
                     security management program. Such a
                     program, if implemented effectively across
                     the organization, would go a long way
                     toward helping FMS identify and promptly
                     address its computer control weaknesses.


The Need to          DCIA provided significant opportunities for
Effectively          improving the government’s ability to collect
Implement the Debt   nontax delinquent debt. According to
Collection           Treasury, the 24 executive branch agencies
Improvement Act
                     that are to comply with the Chief Financial
                     Officers Act (CFO) of 1990 accounted for 99
                     percent of federal expenditures and held
                     more than 90 percent ($43.1 billion) of
                     federal nontax debt that was more than 180
                     days delinquent as of April 1998. Many of
                     DCIA’s provisions grant federal agencies
                     additional authority to enhance their debt
                     collection practices, and several key
                     provisions affect Treasury.10 Specifically,
                     DCIA requires that agencies transfer most of
                     their nontax debt that has been delinquent
                     for more than 180 days to Treasury for
                     collection through its offset or
                     cross-servicing programs. Under the offset
                     program, Treasury uses amounts that the
                     federal government owes delinquent federal

                     10
                       The Secretary of the Treasury assigned FMS primary
                     responsibility to fulfill Treasury’s responsibilities under DCIA.

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debtors to satisfy any of the debtors’
delinquent debt owed to a federal agency.
For example, an income tax refund payment
made by IRS may be offset to pay a taxpayer’s
delinquent student loan debt. Cross-servicing
involves the collection of debts through
centralized debt collection centers
established by Treasury or private collection
agencies. DCIA also requires the agencies to
report information to Treasury annually on
the debts owed to them and their efforts to
collect them. In turn, Treasury is required to
report this information to the Congress
annually. By April 1999, Treasury is to
provide a one-time report to the Congress on
the collection services provided by the
Department and other entities to collect
federal debts.

The Congress has raised concerns about the
slow pace at which DCIA has been
implemented by Treasury and the other
agencies with related responsibilities and the
modest amounts actually collected since
DCIA’s enactment. As we testified in
June 1998, our work at FMS has shown that
because of systems development problems,
FMS does not have a system capable of
matching all federal payments against
nontax delinquent debts owed the
government. In addition, FMS’ system


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development problems have caused delays
in consolidating the administrative, tax
refund, and federal salary offset programs,
and thus any debt collection efficiencies
envisioned by such a consolidation have not
been realized. Our work has also identified
areas in which actions by FMS are needed to
reduce the risk of costly system
modifications and further delays in the
Treasury Offset Program (TOP). FMS has
informed us that it has taken actions to
address these areas. According to FMS
officials, enhancements to the TOP system to
incorporate additional payment types (e.g.,
Social Security benefit payments) are
planned or ongoing, and the system has been
modified to accommodate the tax refund
offset program. However, FMS still faces
challenges in effectively fulfilling its
responsibilities under DCIA, including further
modifying the TOP system. A sustained
commitment by FMS’ management will be
needed to ensure that these challenges are
successfully met.




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Key Contact      Gary T. Engel, Associate Director
                 Governmentwide Accounting and Financial
                   Management Issues
                 Accounting and Information Management
                   Division
                 (202) 512-3406
                 engelg.aimd@gao.gov


Departmentwide   A key to Treasury’s ability to effectively
Financial        carry out its mission is sound financial
Management       management, including information about
Weaknesses       the government’s finances that is routinely
                 available, accurate, and reliable. Without
                 accurate and reliable financial systems and
                 information, Treasury cannot be sure that
                 the information it has is sufficient to manage
                 its day-to-day operations, measure results of
                 operations, account for resources, collect
                 taxes and other debts owed the government,
                 or safeguard assets. The requirements of the
                 CFO Act and other legislation and
                 recommendations that we and others made
                 have provided the impetus for ongoing
                 efforts to improve Treasury’s financial
                 management. Although progress has been
                 made, some solutions to Treasury’s financial
                 management weaknesses require longer
                 term actions and technological changes to
                 information systems. The Treasury OIG is
                 evaluating Treasury’s efforts to address


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                      these financial management weaknesses
                      during its ongoing audit of the Department’s
                      fiscal year 1998 Departmentwide financial
                      statements. We will continue to monitor
                      Treasury’s actions in these areas.


Weaknesses Exist in   Treasury’s asset forfeiture program was on
Treasury’s Asset      our original high-risk list in 1990 because the
Forfeiture Program    program did not adequately focus on
                      managing the items seized.11 We identified
                      and reported, in December 1992, major
                      operational problems related to the
                      management and disposition of seized and
                      forfeited property.12 We also reported that
                      Customs had initiated corrective actions to
                      address these problems. In our
                      February 1995 high-risk report, we reported
                      that although some management and
                      systems changes had improved program
                      operations, significant problems with seized
                      property management remained.

                      Since our 1995 report, Customs has
                      undertaken actions to address these

                      11
                        The Congress established the Department of the Treasury
                      Forfeiture Fund in October 1992 to supersede the Customs Fund.
                      Customs is responsible for managing property seized by Treasury
                      law enforcement agencies.
                      12
                        Seized property includes, among other things, illegal drugs that
                      have no resale value to the government. These items are subject to
                      forfeiture and are typically held by the seizing agency until they are
                      approved for destruction.

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                       problems, including continuing to upgrade
                       existing storage facilities and implementing
                       a new seized property inventory system, but
                       some challenges remain. In addition to these
                       challenges, improvements are needed in
                       Treasury’s accountability and reporting over
                       seized and forfeited property. Furthermore,
                       we have reported that the Department of
                       Justice and Treasury need to consolidate
                       their separate, but similar, seized asset
                       management and disposition functions. As a
                       result of the remaining weaknesses, the
                       sensitive nature of the asset forfeiture
                       program, and the high visibility that the
                       program has experienced, Treasury’s asset
                       forfeiture program continues to be
                       designated as a high-risk area.


Improvements Made      We have made several recommendations
in Customs’            relating to improving Customs’
Accountability Over    accountability and stewardship over
Seized and Forfeited   property seized. Specifically, we have
Property, but
                       recommended that Customs improve the
Challenges Remain
                       (1) physical security at its locations that are
                       used to store seized property, (2) reliability
                       of the information maintained in its seized
                       property tracking system, and (3) controls
                       over access to critical and sensitive data and
                       computer programs maintained in its



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systems that account for seized property and
law enforcement operations.

Customs has made significant enhancements
and is in the process of making other
enhancements to improve security over
seized assets and the reliability of
information maintained in the information
systems that it uses to track the seized
assets. However, Customs still needs to
(1) obtain the remaining funding for
improvements to storage facilities,
(2) complete enhancements to SEACATS, and
(3) fully correct identified weaknesses in its
computer controls over the system for law
enforcement activities.

In May 1997, we reported that Customs had
recently built 6 new storage facilities in
locations it determined to be the most
vulnerable and had improved security at 28
other locations by installing various security
devices, such as motion sensors and
surveillance cameras. Also, Customs told us
that four storage facilities, which are to be
located in remote areas where significant
amounts of illegal drugs are routinely seized,
were in the preconstruction phase, but
funding for construction had not been
provided. We also reported in May 1997 that
security devices that had been procured to


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upgrade numerous locations had not been
placed in operation because the funding
necessary to install them had not been
received.

More recently, Customs said that the
General Services Administration has built
one of the planned storage facilities and that
Customs now leases it. However, Customs is
awaiting the final approval of funding for the
remaining three storage facilities. Also,
according to Customs officials, Customs has
now received partial funding for the
installation of security devices, has installed
them at several locations, and is awaiting the
final approval for the remaining funds.

Regarding the reliability of information
maintained in the information systems used
to track seized assets, Customs has
undertaken several improvement efforts. For
example, Customs has conducted annual
nationwide physical inventories of its seized
property and implemented additional
policies and procedures. In addition,
Customs has developed and implemented a
new system called SEACATS. However, in its
fiscal year 1997 audit report, the Treasury
OIG reported that SEACATS experienced
numerous data conversion problems. As a
result, SEACATS did not contain accurate and


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sufficient data that could be relied upon to
prepare the required analysis of changes in
forfeited and seized currency and property
disclosures reported by Customs. To address
the problems, Customs had to develop
postconversion programs to process and
correct erroneous data, conduct exhaustive
case file reviews, and perform a complete
physical inventory. On the basis of the
preliminary results of work performed by the
Treasury OIG for its audit of Customs’ fiscal
year 1998 financial statements, Customs
appears to have corrected many of the early
implementation problems it experienced
with the property information in SEACATS.
However, Customs officials acknowledged
that additional enhancements to SEACATS are
necessary for the system to perform as
originally envisioned. For example, Customs
must still obtain currency information from
outside the system to compile financial
statement disclosures.

In addition, the Treasury OIG reported that
although improvements to computer
controls have been made during fiscal year
1997, controls for the computer application
system for law enforcement activities
showed that this system continued to be
vulnerable to unauthorized access. Since the
law enforcement system is a source of key


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                       data to seizure activity recorded in SEACATS,
                       this vulnerability could affect the reliability
                       of information in SEACATS. Customs recently
                       contracted for a review of electronic data
                       processing controls for SEACATS, which upon
                       completion will be reviewed by the Treasury
                       OIG.



Weaknesses in          Treasury and its OIG have reported
Treasury’s             weaknesses in the Department’s
Accountability and     accountability and reporting over seized and
Reporting Over         forfeited property. Specifically, Treasury
Seized and Forfeited
                       reported material weaknesses related to
Property
                       seized property in the Federal Managers’
                       Financial Integrity Act section of its fiscal
                       year 1997 Accountability Report.13 In
                       addition, although the Treasury Forfeiture
                       Fund received an unqualified audit opinion
                       on its fiscal year 1997 financial statements,
                       the Fund’s auditor cited three material
                       weaknesses in its report on internal controls:
                       (1) the Fund’s accounting records were
                       primarily maintained on the cash basis of
                       accounting; (2) the Fund’s general ledger did
                       not record all balances and transactions that
                       were reflected in the financial statements;
                       and (3) as previously noted, SEACATS did not

                       13
                         This text refers to the Department’s third annual Accountability
                       Report for fiscal year 1997, which describes Treasury’s missions
                       and goals and demonstrates how its financial performance is tied to
                       the Department’s broader objectives.

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contain accurate and sufficient data that
could be relied on to prepare the analysis of
changes in forfeited and seized currency and
property without substantial manual
manipulation and reconciliation.

Furthermore, in its March 1998 report on
Treasury’s fiscal year 1997 financial
statements, the Treasury OIG reported as a
Departmentwide reportable condition the
need for Treasury to improve accountability
and reporting over its seizure and forfeiture
activities. Specifically, in addition to the
Treasury Forfeiture Fund internal control
problems, the Treasury OIG reported that the
Department’s law enforcement bureaus used
different inventory tracking systems that
collected and accounted for seized property
and forfeited assets differently and used
slightly different data definitions. In
addition, Treasury could not provide all of
the required disclosure information for
certain IRS and Secret Service seizure and
forfeiture activity that was outside the
Executive Office for Asset Forfeiture’s
responsibility.

According to a Treasury official, Treasury is
developing a plan that includes actions
designed to address the weaknesses
previously noted. The action plan is to


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                   (1) include a description of the problems
                   identified, prioritize the problems, and
                   propose solutions and (2) discuss plans to
                   develop an integrated tracking system that
                   will provide required financial reporting
                   disclosures and will be used by the Treasury
                   bureaus and integrated with SEACATS. As part
                   of its audit of Treasury’s fiscal year 1998
                   Departmentwide financial statements, the
                   Treasury OIG plans to update the status of the
                   asset forfeiture program weaknesses. We
                   will also continue to monitor Treasury’s
                   progress in addressing these areas.


Consolidation of   Justice and Treasury continue to operate
Treasury’s and     two similar but separate seized asset
Justice’s Seized   management and disposal programs without
Asset Management   plans for consolidation, despite legislation
and Disposition
                   requiring them to develop and maintain a
Functions Needed
                   joint plan to consolidate postseizure
                   administration of certain properties. In
                   June 1991, we recommended consolidating
                   the management and disposition of all
                   noncash seized property and designating
                   Justice’s Marshals Service as the custodian.
                   We estimated that program administration
                   costs could be reduced if Justice and
                   Customs consolidated the postseizure
                   management and disposition of such items.
                   We also reported that consolidation would


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                      likely result in lower contractor costs due to
                      economies of scale. We still believe that
                      consolidation of asset management and
                      disposition functions makes sense. We
                      encourage Treasury and Justice to continue
                      to identify areas of duplication and pursue
                      options for consolidation.


Weaknesses Exist in   In its auditors’ report on Treasury’s fiscal
Computer Systems      year 1997 Departmentwide financial
Security              statements, the Treasury OIG reported as a
                      material weakness that computer security
                      controls, which are designed to safeguard
                      data, protect computer application
                      programs, prevent system software from
                      unauthorized access, and ensure continued
                      computer operations, need to be
                      strengthened. Although some improvements
                      have been made, computer control
                      weaknesses in financial systems access and
                      physical security controls at certain bureaus
                      reported by the Treasury OIG in previous
                      years continued to exist during fiscal year
                      1997 and additional weaknesses were
                      identified. These weaknesses primarily
                      involve IRS, Customs, and FMS and are
                      discussed in each bureau’s separate section
                      of this report.




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Weaknesses Relating   In its auditors’ report on Treasury’s fiscal
to Integrated         year 1996 Departmentwide financial
Financial             statements, the Treasury OIG reported that
Management            Treasury’s lack of integrated financial
Systems
                      management systems was a material
                      weakness. An integrated system would
                      perform basic accounting functions and
                      provide integrated budget, financial, and
                      performance information that managers
                      could reliably use to make decisions. The
                      auditors reported that several component
                      entities maintained separate systems to
                      support program and financial management
                      and that these nonintegrated systems could
                      not be relied on to provide complete and
                      accurate information without extensive
                      manual procedures, analyses, and
                      reconciliations. The Treasury OIG had
                      recommended that the Treasury Chief
                      Financial Officers Council develop a strategy
                      for improving the level of financial systems
                      integration within and among the
                      Department’s bureaus.14

                      The Treasury OIG reported in its most recent
                      audit report, which covers fiscal year 1997,
                      that the Treasury CFO Council had initiated a

                      14
                        The Treasury CFO Council was established in July 1994 to help
                      ensure that all Treasury financial management systems provide
                      timely, useful, and auditable information that incorporates financial
                      and program performance measurements into the planning,
                      budgeting, and reporting process. The Council comprises CFOs and
                      deputy CFOs from all Treasury offices and bureaus.

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                       project to define core financial data
                       requirements, evaluate current systems
                       capabilities, and develop recommendations
                       for implementation of a Departmentwide
                       data stewardship process. However, the
                       Treasury OIG also reported that financial
                       system integration issues continued to exist.


Weaknesses Relating    In its auditors’ report on Treasury’s fiscal
to the Process Used    year 1996 Departmentwide financial
to Prepare             statements, the Treasury OIG reported a
Departmentwide         material weakness related to deficiencies in
Financial Statements
                       the Department’s financial statement
                       preparation process. In its report on the
                       fiscal year 1997 Departmentwide financial
                       statements, the Treasury OIG reported that
                       progress had been made in some areas, but a
                       material weakness continued to exist related
                       to the oversight and review of the
                       Department’s process to prepare the
                       Departmentwide financial statements. For
                       example, the bureaus submitted financial
                       data that did not conform to the format
                       requested by the Deputy CFO and contained
                       inconsistencies, incorrect classifications,
                       and inaccurate reporting of certain
                       transactions. In addition, intradepartmental
                       account balances and transactions reported
                       by the bureaus that need to be eliminated
                       during the financial statement preparation


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                       process were out of balance in excess of
                       $100 million. Furthermore, the draft fiscal
                       year 1997 Accountability Report provided to
                       the Treasury OIG contained material
                       discrepancies and omissions that should
                       have been detected and addressed in the
                       supervisory review process. The Treasury
                       OIG reported that, if not mitigated by actions
                       that required a significant amount of the
                       Department’s and Treasury OIG’s resources,
                       these weaknesses may have caused material
                       misstatements in the Departmentwide
                       financial statements. According to Treasury
                       officials, Treasury is taking actions to
                       address these problems. For example,
                       Treasury is making enhancements to its
                       system used in the financial statement
                       preparation process that it believes will
                       improve the system’s consolidating,
                       reporting, and analyzing functions.


Weaknesses Relating    The Federal Financial Management
to the Compliance of   Improvement Act of 1996 (FFMIA) requires
Financial              auditors performing financial audits to
Management             report whether agencies’ financial
Systems With
                       management systems substantially comply
Federal
Requirements           with federal accounting standards, financial
                       systems requirements, and the government’s
                       standard general ledger at the transaction
                       level. In its fiscal year 1997 auditors’ report


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                 on compliance with laws and regulations,
                 the Treasury OIG identified instances where
                 the Department’s financial management
                 systems did not substantially comply with
                 the requirements detailed in FFMIA. Treasury
                 reported that it had various actions planned
                 to correct the problems. For example,
                 according to a Treasury official, one of its
                 bureaus recently implemented a new system
                 that complies with FFMIA requirements.


Key Contact      Gary T. Engel, Associate Director
                 Governmentwide Accounting and Financial
                   Management Issues
                 Accounting and Information Management
                   Division
                 (202) 512-3406
                 engelg.aimd@gao.gov


Further Action   The Department of the Treasury has
Needed           embraced efforts by the Congress, us, and
                 other stakeholders to present better
                 information on the results of the
                 Department’s programs and activities. In
                 doing so, Treasury has sought to link its
                 Departmentwide strategic goals to the goals
                 and missions of its bureaus and offices.
                 Along the same lines, Treasury has taken
                 steps to devise strategies for achieving its


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goals and on how it can best measure
performance. This is not necessarily an easy
task because data on program results are
typically more difficult and resource
intensive to obtain than data on program
activities. In some instances, Treasury lacks
information systems that are necessary to
obtain such data. However, it is of vital
importance for the Department to be
accountable to its stakeholders at times
when resources are limited and public
demands are high. Like other parts of the
federal government, Treasury needs to
improve its ability to apply the provisions of
certain statutes, such as the (1) Results Act;
(2) CFO Act, as expanded by the Government
Management Reform Act; and
(3) Clinger-Cohen Act. Collectively, these
statutes hold substantial promise for making
Treasury a more accountable and effective
part of the federal government.




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Related GAO Products



IRS

Systems         Tax Systems Modernization: Blueprint Is a
Modernization   Good Start But Not Yet Sufficiently
                Complete to Build or Acquire Systems
                (GAO/AIMD/GGD-98-54, Feb. 24, 1998).

                High-Risk Series: Information Management
                and Technology (GAO/HR-97-9, Feb. 1997).

                IRSOperations: Critical Need to Continue
                Improving Core Business Practices
                (GAO/T-AIMD-96-188, Sept. 10, 1996).

                Tax Systems Modernization: Actions
                Underway But Management and Technical
                Weaknesses Not Yet Corrected
                (GAO/T-AIMD-96-165, Sept. 10, 1996).

                Internal Revenue Service: Business
                Operations Need Continued Improvement
                (GAO/AIMD-96-152, Sept. 9, 1996).

                Tax Systems Modernization: Cyberfile
                Project Was Poorly Planned and Managed
                (GAO/AIMD-96-140, Aug. 29, 1996).

                Tax Systems Modernization: Actions
                Underway but IRS Has Not Yet Corrected



                Page 77          GAO/OCG-99-14 Treasury Challenges
                Related GAO Products




                Management and Technical Weaknesses
                (GAO/AIMD-96-106, June 7, 1996).

                Security Weaknesses at IRS’ Cyberfile Data
                Center (GAO/AIMD-96-85R, May 9, 1996).

                Tax Systems Modernization: Management
                and Technical Weaknesses Must Be
                Overcome to Achieve Success
                (GAO/T-AIMD-96-75, Mar. 26, 1996).

                Tax Systems Modernization: Management
                and Technical Weaknesses Must Be
                Corrected If Modernization Is to Succeed
                (GAO/AIMD-95-156, July 26, 1995).


IRS Financial   Internal Revenue Service: Physical Security
Management      Over Taxpayer Receipts and Data Needs
                Improvement (GAO/AIMD-99-15, Nov. 30, 1998).

                Excise Taxes: Internal Control Weaknesses
                Affect Accuracy of Distributions to the Trust
                Funds (GAO/AIMD-99-17, Nov. 9, 1998).

                Internal Revenue Service: Immediate and
                Long-Term Actions Needed to Improve
                Financial Management (GAO/AIMD-99-16,
                Oct. 30, 1998).




                Page 78                GAO/OCG-99-14 Treasury Challenges
                 Related GAO Products




                 Internal Revenue Service: Composition and
                 Collectibility of Unpaid Assessments
                 (GAO/AIMD-99-12, Oct. 29, 1998).

                 Management Letter: IRS’ Accounting
                 Procedures and Internal Controls
                 (GAO/AIMD-98-211R, Sept. 2, 1998).

                 Internal Revenue Service: Remaining
                 Challenges to Achieve Lasting Financial
                 Management Improvements
                 (GAO/T-AIMD/GGD-98-138, Apr. 15, 1998).

                 Financial Audit: Examination of IRS’ Fiscal
                 Year 1997 Custodial Financial Statements
                 (GAO/AIMD-98-77, Feb. 26, 1998).

                 IRSManagement: Improvement Needed in
                 High-Risk Areas (GAO/T-GGD-97-79, Apr. 14,
                 1997).

                 IRSHigh-Risk Issues: Modernization of
                 Processes and Systems Necessary to Resolve
                 Problems (GAO/T-GGD-97-52, Mar. 4, 1997).


Federal Taxes    Tax Administration: IRS’ Use of Enforcement
Receivable and   Authorities to Collect Delinquent Taxes
Other Unpaid     (GAO/T-GGD-97-155, Sept. 23, 1997).
Assessments



                 Page 79                GAO/OCG-99-14 Treasury Challenges
                      Related GAO Products




                      Issues Affecting IRS’ Collection Pilot
                      (GAO/GGD-97-129R, July 18, 1997).


Filing Fraud          Earned Income Credit: IRS’ Tax Year 1994
                      Compliance Study and Recent Efforts to
                      Reduce Non-Compliance (GAO/GGD-98-150,
                      July 28, 1998).

                      Earned Income Credit: IRS’ 1995 Controls
                      Stopped Some Noncompliance, But Not
                      Without Problems (GAO/GGD-96-172, Sept. 18,
                      1996).

                      Tax Administration: Electronic Filing Fraud
                      (GAO/T-GGD-94-89, Feb. 10, 1994).

                      Tax Administration: IRS Can Improve
                      Controls Over Electronic Filing Fraud
                      (GAO/GGD-93-27, Dec. 30, 1992).


Information Systems   IRSSystems Security: Although Significant
Security              Improvements Made,Tax Processing
                      Operations and Data Still at Serious Risk
                      (GAO/AIMD-99-38, Dec. 14, 1998).

                      IRSSystems Security: Tax Processing
                      Operations and Data Still at Risk Due to
                      Serious Weaknesses (GAO/AIMD-97-49, Apr. 8,
                      1997).


                      Page 80                GAO/OCG-99-14 Treasury Challenges
                    Related GAO Products




Year 2000           Internal Revenue Service: Impact of the IRS
                    Restructuring and Reform Act on Year 2000
                    Efforts (GAO/GGD-98-158R, Aug. 4, 1998).

                    IRS’
                       Year 2000 Efforts: Business Continuity
                    Planning Needed for Potential Year 2000
                    System Failures (GAO/GGD-98-138, June 15,
                    1998).

                    IRS’
                       Year 2000 Efforts: Status and Risks
                    (GAO/T-GGD-98-123, May 7, 1998).


Customs

Customs Financial   Customs Service Modernization:
Management          Architecture Must Be Complete and
                    Enforced to Effectively Build and Maintain
                    Systems (GAO/AIMD-98-70, May 5, 1998).


FMS                 Financial Management Service: Areas for
                    Improvement in Computer Controls
                    (GAO/AIMD-99-10, Oct. 20, 1998).

                    Financial Audit: Issues Regarding
                    Reconciliations of Fund Balances With
                    Treasury Accounts (GAO/AIMD-99-3, Oct. 14,
                    1998).



                    Page 81                GAO/OCG-99-14 Treasury Challenges
                 Related GAO Products




                 Debt Collection Improvement Act:
                 Significant Challenges Remain to Effectively
                 Implement Treasury’s Administrative Offset
                 Program (GAO/T-AIMD-98-195, June 5, 1998).

                 Financial Audit: 1997 Consolidated Financial
                 Statements of the United States Government
                 (GAO/AIMD-98-127, Mar. 31, 1998).

                 Debt Collection: Improved Reporting
                 Needed on Billions of Dollars in Delinquent
                 Debt and Agency Collection Performance
                 (GAO/AIMD-97-48, June 2, 1997).


Departmentwide   High-Risk Program: Information on Selected
Financial        High-Risk Areas (GAO/HR-97-30, May 1997).
Management




                 Page 82                GAO/OCG-99-14 Treasury Challenges
Performance and Accountability Series



             Major Management Challenges and Program
             Risks: A Governmentwide Perspective
             (GAO/OCG-99-1)

             Major Management Challenges and Program
             Risks: Department of Agriculture
             (GAO/OCG-99-2)

             Major Management Challenges and Program
             Risks: Department of Commerce
             (GAO/OCG-99-3)

             Major Management Challenges and Program
             Risks: Department of Defense (GAO/OCG-99-4)

             Major Management Challenges and Program
             Risks: Department of Education
             (GAO/OCG-99-5)

             Major Management Challenges and Program
             Risks: Department of Energy (GAO/OCG-99-6)

             Major Management Challenges and Program
             Risks: Department of Health and Human
             Services (GAO/OCG-99-7)

             Major Management Challenges and Program
             Risks: Department of Housing and Urban
             Development (GAO/OCG-99-8)




             Page 83          GAO/OCG-99-14 Treasury Challenges
Performance and Accountability Series




Major Management Challenges and Program
Risks: Department of the Interior
(GAO/OCG-99-9)

Major Management Challenges and Program
Risks: Department of Justice (GAO/OCG-99-10)

Major Management Challenges and Program
Risks: Department of Labor (GAO/OCG-99-11)

Major Management Challenges and Program
Risks: Department of State (GAO/OCG-99-12)

Major Management Challenges and Program
Risks: Department of Transportation
(GAO/OCG-99-13)

Major Management Challenges and Program
Risks: Department of the Treasury
(GAO/OCG-99-14)

Major Management Challenges and Program
Risks: Department of Veterans Affairs
(GAO/OCG-99-15)

Major Management Challenges and Program
Risks: Agency for International Development
(GAO/OCG-99-16)




Page 84               GAO/OCG-99-14 Treasury Challenges
Performance and Accountability Series




Major Management Challenges and Program
Risks: Environmental Protection Agency
(GAO/OCG-99-17)

Major Management Challenges and Program
Risks: National Aeronautics and Space
Administration (GAO/OCG-99-18)

Major Management Challenges and Program
Risks: Nuclear Regulatory Commission
(GAO/OCG-99-19)

Major Management Challenges and Program
Risks: Social Security Administration
(GAO/OCG-99-20)

Major Management Challenges and Program
Risks: U.S. Postal Service (GAO/OCG-99-21)

High-Risk Series: An Update (GAO/HR-99-1)




The entire series of 21 performance and
accountability reports and the high-risk
series update can be ordered by using
the order number GAO/OCG-99-22SET.



Page 85               GAO/OCG-99-14 Treasury Challenges
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