IRS audit underscores need to modernize

A new financial management audit of the Internal Revenue Service shows improvement in some areas, but it also highlights the agency's need to modernize its financial management systems as quickly as possible.

Auditors found the IRS to be caught in a Catch-22. At least 14 financial control problems that auditors identified can be remedied only after the IRS brings an integrated financial management system online. But that milestone has been delayed in part because of the lack of existing financial controls that the new system is expected to fix.

In an audit report issued this week, the General Accounting Office made 76 financial management recommendations to the IRS. GAO auditors noted some of the recommendations are ones they made during earlier audits and are still waiting for the IRS to fix.

"The continued existence of these financial management weaknesses exposes the IRS to loss due to errors or theft and impairs the availability of current, accurate financial information that management needs to make decisions on a day-to-day basis," the report said.

The IRS had planned to get the first release of its new financial management software installed by October 2003. Known as IFS Release 1, it will perform core financial, budgeting and cost accounting functions for the IRS. Delays in the first release inhibit the agency's ability to correct 14 problems related to financial reporting, unpaid tax assessments, tax revenue and refunds, the report said.

The initial delays could push back subsequent IFS software releases that are needed to improve the agency's management controls over property, procurement and performance functions, the auditors said.

IRS officials not do expect to have available the full capabilities of the new financial management system until 2007, the report said.

In a written response to the audit, IRS Commission Mark Everson said some of the recommendations would take a number of years to resolve but the IRS intended to fix all of the problems identified in the audit.