Panel Says IRS Can't Balance Books
By CURT ANDERSON
.c The Associated Press
WASHINGTON (AP) -- It sounds like a taxpayer's dream: The IRS was audited and
struggled to explain its own financial records.
``The IRS cannot do some of the basic accounting and record-keeping tasks that
it expects American taxpayers to do,'' said Gregory Kutz, who oversaw the
audit released Monday by the congressional General Accounting Office.
GAO said chronic Internal Revenue Service problems resulted last year in
millions of dollars in fraudulent refunds, failure to keep track of such basic
assets as cars and computers and substandard computer security controls.
``Think of this as not balancing your checkbook with the monthly bank
statement, and at the same time having a system prone to error,'' Kutz told
the House Government Reform Committee's panel on government management at a
Monday hearing.
GAO said IRS is unable to keep track of unpaid taxes properly, which means it
cannot concentrate collection efforts on the taxpayers most likely to pay. The
upshot is that only about $26 billion of the $222 billion in unpaid taxes as
of October 1998 are likely to be collected, with $119 billion -- a whopping 54
percent -- to be written off.
``It's a national scandal,'' said Rep. Steve Horn, R-Calif., chairman of the
government management subcommittee. ``It seems to me you shouldn't let people
off the hook like that.''
IRS officials were quick to take responsibility for the problems, which they
said were largely rooted in the agency's antiquated computer systems that date
as far back as the Kennedy administration. They were clearly embarrassed by
the report, coming as it does as the IRS is makes a high-profile attempt to
become more efficient and more customer-friendly.
``I am deeply disappointed that we failed to meet our obligations,'' said
Donna Cunninghame, the IRS' new chief financial officer. ``This is
unacceptable.''
The GAO found the IRS did a good job of collecting $1.8 trillion in tax
revenue in fiscal 1998. The main problems were found in the agency's
administration of an $8.1 billion annual budget. They include:
At least $17 million paid out in fraudulent and inappropriate refunds in the
first nine months of 1998. IRS sometimes duplicates refunds or fails to
compare tax returns with W-2 forms before they are mailed out within the
required 45 days. Fraudulent refunds worth another $65 million were stopped by
IRS investigators.
Improper paperwork to keep track of such items as a Chevrolet Blazer, a
$300,000 laser printer, laptop computers, televisions, VCRs and fax machines.
Most of these were accounting errors, not thefts. The Blazer, for example, was
returned to a leasing company but nobody took it off the books.
Poor computer security, including controls on access to sensitive taxpayer
information. The audit repeated past criticisms about the use of unarmed
bicycle couriers to transport taxpayer checks and sluggish background checks
on prospective employees with criminal pasts.
Inadequate controls over basic financial reporting and failure to reconcile
IRS balances with Treasury Department records.
Many of the problems are chronic, and some lawmakers were frustrated that they
have continued to surface annually since 1992.
``I don't see that there's been a real significant effort to deal with these
financial management issues,'' said Rep. Jim Turner, D-Texas. ``The problems
seem to be running pretty deep.''
Cunninghame, however, said the new management team at IRS is redoubling
efforts to eliminate them. She pledged improved performance in fiscal 1999 but
said the agency's computer systems must be modernized for a long-term fix.
``It will take time, and it won't be easy,'' she said. ``The IRS must replace
nearly its entire inventory of computer applications.''
Last year, the IRS awarded a multibillion-dollar contract to a consortium led
by Computer Sciences Corp. of El Segundo, Calif., for a modernization project
expected to last 15 years. That came after several previous efforts failed at
a cost of some $3.3 billion.
