Summary: The Internal Revenue Service (IRS) has the daunting responsibility of collecting the nation's taxes, processing tax returns, and enforcing the tax laws. The size and complexity of the agency's operations--IRS has about 100,000 employees in locations across the country--present additional challenges for IRS management. Despite these challenges, IRS successfully collected about $1.9 trillion in taxes in fiscal year 1999, processed hundreds of millions of tax returns, and paid about $185 billion in refunds. IRS has responded to some of the management concerns that GAO has raised in the past. However, this audit of IRS' financial statements for fiscal year 1999 found that serious problems persist. These problems include (1) deficiencies in controls to properly manage unpaid assessments, resulting in both taxpayer burden and potentially billions of dollars in lost revenue for the government; (2) poor controls over tax refunds, potentially allowing the disbursement of billions of dollars in improper refunds; (3) vulnerabilities in controls over hardcopy tax receipts and taxpayer data that increase the risk of inappropriate disclosure or loss of taxpayer data; (4) vulnerabilities in computer security that may allow unauthorized people to access, alter, or abuse sensitive IRS programs and data; (5) the failure to reconcile IRS' fund balance with Treasury records throughout fiscal year 1999; (6) inadequate systems and controls that resulted in the inability to properly account for IRS' property and equipment and related costs; (7) inadequate budgetary controls; and (8) an inadequate financial reporting process. Many of these problems have plagued IRS since GAO first began auditing the agency's financial statements in the early 1990s. These weaknesses prevented GAO from rendering an unqualified opinion on five of IRS' six financial statements. This testimony summarizes the February 2000 report, GAO/AIMD-00-76.
