IRS receives historic clean audit opinion

In what the General Accounting Office hailed as an "important milestone," the Internal Revenue Service last week received a clean audit opinion on its fiscal 2000 financial statements. The audit marks the first clean, or "unqualified," opinion the IRS has received since combining its tax custodial and administrative activities into one set of financial statements in 1998. GAO has audited IRS' financial statements since 1992. In its audit, "IRS' Fiscal Year 2000 Financial Statements," (GAO-01-394), GAO found that "extraordinary effort" by IRS senior management and staff overcame weak internal accounting controls to produce clean financial statements. Although GAO was quick to praise the commitment of IRS employees, it noted that extensive involvement by senior management was not a long-term answer to the IRS' financial management challenges. "This approach does not address the underlying financial management and operational issues that adversely affect IRS' ability to effectively fulfill its responsibilities as the nation's tax collector," the report said. GAO drew attention to a variety of accounting shortcomings at the IRS, including inadequate controls on tax refunds and unpaid taxes, which totaled $240 billion in fiscal 2000. GAO's audit showed that the IRS continues to scale back collection activities such as audits and property seizures as it devotes more resources to customer service, such as telephone call centers and electronic tax filing. Over 35 million taxpayers used one of three electronic options for filing their taxes during the last fiscal year, representing a 20 percent increase from 1999. The IRS generally agreed with the audit's findings on its remaining accounting challenges. GAO has more than 80 outstanding recommendations to improve financial management at the IRS. The Treasury Department received its first clean audit opinion ever this year, as a result of the IRS' clean financial statements, according to an official in the inspector general's office at Treasury. "As the biggest subsidiary of Treasury, the IRS is the big variable," said Bill Pugh, deputy assistant inspector general for audit at Treasury. "Since the IRS combined its statements, this was the first clean opinion on its agency-wide statements," he said.