GAO sounds alarm bells on IRS financial systems

The Government Accountability Office has raised concerns about "significant deficiencies" in IRS financial systems and the security surrounding them. In its financial audit of the IRS for fiscal 2014 and 2015, released Nov. 12, GAO reported that those limitations are causing headaches.

Because the systems can't differentiate taxes receivable from compliance assessments and write-offs, IRS employees have to go through billions of dollars of adjustments in a "labor-intensive and manual estimation process" to prepare financial statements, the GAO report states. That means the IRS cannot trace balances back through its general ledger, which raises concerns about verifying accuracy, the auditors wrote.

On the security front, GAO found significant problems with internal controls, including skipped security updates and weak passwords. In one key financial system, auditors found an account with a password that was the same as the account name.

"Until IRS takes the necessary steps to fully address these control deficiencies over its financial reporting systems, its financial and taxpayer data will remain at increased risk of inappropriate and undetected use, modification or disclosure," the GAO report states.

In his response to the audit, IRS Commissioner John Koskinen noted challenges but said the agency was working on improving and was already known for "consistently [producing] accurate and reliable financial statements."