The IRS got a taste of its own medicine Tuesday, when the General Accounting Office announced the tax agency had failed an audit of its financial statements.
According to GAO's report, "IRS' Fiscal Year 1999 Financial Statements" (AIMD-00-76), a review of the agency's six financial statements resulted in one qualified opinion, one unqualified opinion and four disclaimers. The audit is required under the Chief Financial Officers Act of 1990.
An unqualified opinion means the agency's financial statements were reliable. A qualified opinion means segments of the statements were not reliable. A disclaimer of opinion means the auditor could not determine if the information in the statement was reliable.
"IRS still lacks the timely and reliable financial and performance information it needs to make decisions on an ongoing basis and to assist it in effectively fulfilling its responsibilities as the nation's tax collector," the report said.
The good news is that the IRS is improving. In 1999, the agency made progress in financial reporting, computer security and other serious management issues, the report said. GAO credited IRS senior management for committing to resolve the agency's financial weaknesses, but challenged the agency to uphold its committment for the long haul.
"Some of these solutions can be addressed in the near term through continued efforts and committment of IRS management. Others involve modernization of IRS' financial and operational systems and will take years to fully achieve," the report said.
Senate Governmental Affairs Committee Chairman Fred Thompson, R-Tenn, said the audit proves how difficult it is for federal agencies to implement good management practices. Thompson didn't fault IRS Commissioner Charles Rossotti, but expressed disappointment at the results of the report.
"Poll after poll shows that Americans are losing faith in their government. And once again we see that the IRS can't keep its own books while demanding that taxpayers keep theirs," Thompson said.
The IRS couldn't prove that it could adequately safeguard confidential taxpayer information, comply with financial laws and regulations or provide accurate, timely and meaningful information, GAO concluded. Specific problems cited included:
- Unreliable information from the agency's general ledger
- The inability to promptly track and collect unpaid taxes
- Insufficient controls to prevent incorrect tax refunds from being made
- Poor documentation of property and equipment
- Computer security weaknesses
"During [fiscal] 1999, IRS worked hard to improve its financial management reports," said Bob Wenzel, IRS' deputy commissioner of operations. "We did this to the best of our ability in FY 1999, and we will continue to do so from here on."