Summary: This testimony discusses the results of GAO's audit of the Internal Revenue Service's (IRS) fiscal year 1997 custodial financial statements, which report the assets, liabilities, and results of activities related to IRS' responsibilities for implementing federal tax legislation, such as collecting federal tax revenues, refunding overpayments, and pursuing collections of amounts owed. For the first time, GAO was able to conclude that IRS' custodial financial statements were reliable. However, IRS' internal controls continue to be plagued by weaknesses that affect its ability to report, in a timely fashion, reliable financial information throughout the year; safeguard assets from loss; and ensure full compliance with laws and regulations. These weaknesses fall into the following areas: unpaid assessments, receipts and refunds, revenue accounting and reporting, compliance with the Federal Financial Management Improvement Act, and computer security. This testimony also discusses (1) the importance of preparing IRS' automated systems for Year 2000 compliance and (2) the potential implications of the IRS Commissioner's restructuring proposal on the agency's financial operations.
