GAO audit finds buying policies at the IRS are lax

GAO audit finds buying policies at the IRS are lax

Agency's accounting records show discrepancies in equipment expenditures and lease agreements

By Shruti Dat'

GCN Staff

The IRS lacks adequate policies and procedures to manage property and equipment buys, according to a General Accounting Office report.

The IRS has conceded that it lacks controls over some accounting system elements, and it plans to implement structural changes.

Last month's report, IRS: Serious Weaknesses Impact Ability to Report on and Manage Operations, found that the IRS understated computer projects, equipment expenditures and lease agreements in accounting records.

GAO noted that with the IRS' Prime contract in gear to modernize technology, the agency must appropriately record property and equipment expenditures. The agency awarded Computer Sciences Corp. the Prime contract in December.

Willing but unable

"IRS itself has reported every year since 1983, under the Federal Managers' Financial Integrity Act, that because it does not have a reliable system of accounting property, it is unable to determine if property is being properly used or misappropriated," GAO said.

The IRS has spent millions of dollars on two computer-related projects new tax return and remittance processing systems, and a service center mainframe consolidation project.

Data from the IRS Information Systems Office and from expense reporting showed that the agency spent more than $100 million for the two systems projects. But the IRS showed only about $30 million for all fiscal 1998 equipment buys, meaning that most of the more than $100 million spent was misreported, GAO said.

The reason for the discrepancy lies in the IRS' use of the Treasury Department's $50,000 minimum capitalization threshold for individual items and a $500,000 threshold for bulk purchases of items that cost $5,000 or more each.

GAO reported that IRS expenditures of about $300,000 for 10 tape units and $100,000 for 80 PCs, each of which cost $30,000 and $1,300, respectively, were not capitalized because the expenditures met neither threshold.

Also, agencies are required to comply with the Government Standard General Ledger, a federal accounting system. The IRS, however, does not have detailed records for key account balances, including accounts payable and undelivered orders. The agency lacks subsidiary ledgers to regularly provide data supporting these account balances.

GAO noted that subsidiary ledgers would provide the information through which the IRS could effectively manage and report on operations. But the IRS was not able to provide a history that included transactions from 1991 to 1998.

As a result, IRS cannot readily determine what its accounts payable balance consists of and what it owes money for," the report said.

The agency also could not account for outstanding obligations undelivered orders. A computer tape given GAO showed $1.3 billion of expenses, which included $2.2 billion in debits and $861 million in credits.

GAO auditors were able to identify some entries that offset the previous years' expenses. But the IRS did not have a data field in its accounting system to identify offsetting transactions.

GAO recommended that the IRS develop meaningful information categories and cost-based performance measures. It also suggested that the chief financial officer implement three measures:

' Establish the means to capture and capitalize all costs incurred for design, installation and externally developed software.

' Revise the current capitalization policy for property and equipment acquisitions.

' Correctly capitalize and determine whether lease agreements meet the criteria for a capital lease.

In a written response to GAO, Bob Wenzel, IRS deputy commissioner of operations, said, "We have reviewed the findings of the auditors. However, we would like to point out numerous efforts which the IRS has undertaken toward improving the situation."

After the fiscal 1998 financial statement audit, the IRS installed a new management team in the Administrative Accounting Division.

The team includes a new chief financial officer, deputy CFO, permanent director of the Systems and Accounting Standards Division, and five office chiefs.

Wenzel said that the IRS intends to look into the integration of the current accounting system with other administrative systems, such as those for procurement, property and personnel.

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