Summary: This report presents the results of GAO's audit of the Internal Revenue Service's (IRS) financial statements for fiscal year 1998. GAO found that pervasive weaknesses in the design and operation of IRS' financial management systems, accounting procedures, documentation, recordkeeping, and internal controls prevented IRS from reliably reporting on the results of its administrative activities. IRS was able to reliably report on the results of its custodial activities for fiscal year 1998, including tax revenue received, tax refunds disbursed, and taxes receivable due from the public. However, this achievement required extensive, costly, and time-consuming ad hoc procedures to overcome pervasive and long-standing internal control and systems weaknesses. IRS' major accounting, reporting, and internal control deficiencies include, among other things, (1) poor preventive controls over tax refunds, which have resulted in millions of dollars in fraudulent refunds; (2) the inability to properly safeguard or reliably report its property and equipment; (3) vulnerabilities in computer security that may allow unauthorized persons access to taxpayer information; and (4) an inability to properly account for, report, and control its budgetary resources. Such weaknesses, as they relate to IRS' administrative activities, prevented GAO from rendering an unqualified opinion on five of IRS' six principal financial statements. IRS acknowledges these weaknesses and plans to address them. This testimony summarized GAO's March 1999 report, GAO/AIMD-99-75.
