Pursuant to a congressional request, GAO followed up on its report on the Internal Revenue Service's (IRS) for fiscal year (FY) 1998 financial statements.

GAO noted that: (1) significant financial management system limitations and internal control weaknesses prevented IRS from reliably reporting on the results of its administrative activities for FY 1998 and from having reliable financial information for managing its operations; (2) these deficiencies are long-standing, many being reported in GAO's first financial audit of IRS for FY 1992; (3) in FY 1998, IRS did not reconcile its administrative fund balance with Treasury accounts; (4) without performing these reconciliations, IRS has no assurance that it is properly controlling and reporting its appropriated funds; (5) IRS did not promptly record certain types of expenditures against appropriation; (6) IRS' records show a net of $141 million in its suspense account at the end of FY 1998 that had not been applied to a specific IRS appropriation; (7) according to IRS' records, the absolute value of items in the suspense account related to FY 1989 through FY 1998 totalled $238 million for government accounts and $170 million for nongovernment accounts with net values of $74 million and $67 million, respectively; (8) until all these transactions are posted to the proper appropriation accounts and matched with corresponding obligational records, the agency cannot ensure that the activities recorded in these accounts are proper IRS transactions and that its outstanding obligations and disbursements do not exceed appropriated amounts; (9) IRS' systems were unable to generate detailed subsidiary records of its accounts payable and outstanding obligations; (10) in part this was due to IRS not having adequate transaction-level detail to match related transactions; (11) the lack of subsidiary records for key account balances affects IRS' ability to provide meaningful and reliable financial information needed to effectively report on and manage its operations; (12) IRS' property and equipment (P&E) was likely materially understated due to a number of deficiencies in its recording of property and equipment; (13) IRS' financial statements do not reflect the significant assets that IRS had purchased as part of tax system modernization; (14) additionally, IRS' detailed records do not accurately keep track of additions and deletions of P&E; (15) IRS did not have adequate review procedures to oversee and manage the accounting and financial reporting process; and (16) IRS has acknowledged these weaknesses and plans to improve its financial data for its administrative accounts.

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