Audit of IRS Cites Problems in Its Tracking of Funds

A congressional audit of the Internal Revenue Service asserts in a report released Thursday that the agency that scrutinizes taxpayers’ finances is not properly keeping track of the $1.4 trillion it collects each year.

“The agency that is so strict on the way Americans keep their books cannot itself pass a financial audit,” complained Sen. Ted Stevens (R-Alaska), chairman of the Governmental Affairs Committee.

Stevens, reviewing the fiscal 1995 audit by the General Accounting Office, the investigative arm of Congress, raised the possibility of Congress appointing an outside control board to run the IRS, similar to the board now overseeing the District of Columbia government.

In the House, Rep. Jim Lightfoot (R-Iowa), chairman of the Appropriations subcommittee controlling the IRS budget, said an outside board would “be something worth considering.”

“Management has been a problem there,” he said.

The GAO audit says “fundamental, persistent problems remain uncorrected” for the fourth year in a row. It said the IRS:

* Cannot reconcile the accounting records it keeps on individual taxpayers with the $1.4 trillion in revenue it collected or the $122 billion in refunds it paid.

* Cannot substantiate the amounts it reported collecting for various types of taxes--income, Social Security and excise.

* Cannot verify a significant portion of its $3 billion in non-payroll spending.

* Cannot determine the reliability of its $113-billion estimate of overdue taxes owed.

“Nobody in the private sector would take that long to identify who owes them money,” said Gregory M. Holloway, GAO director of government-wide auditing.

Treasury Department Inspector General Valerie Lau concurred. “IRS revenue accounting systems . . . do not meet today’s accounting standards for financial management systems, nor do they provide an adequate transaction trail,” she said.

Responding to the criticism, the IRS’ new chief financial officer, Anthony Musick, who began work three months ago, said the IRS has a detailed plan for correcting deficiencies and would continue intensive efforts to follow through.

He said problems do not mean the money the agency collects and spends “has simply disappeared or somehow been misappropriated.” Other systems ensure each taxpayer’s account is accurate, he said.

The IRS has made “significant improvements” in its financial performance since the GAO’s first audit in 1992, he said, but acknowledged “there is still much to do.”

The GAO’s Holloway conceded that the IRS, because of its sheer size, faces a formidable challenge in reordering its financial system but said it should be further along.

“Has progress been made? No doubt about it,” Holloway said. “Could more have been made? Unquestionably. . . . A lot more could have been done already.”

Musick could not say when the IRS would be able to produce a clean financial statement. Holloway said he hoped “in the next year or two.”