Despite these issues, IRS was, for the second consecutive year, able to produce financial statements covering its tax custodial and administrative activities in fiscal years 2001 and 2000, that were fairly stated in all material respects. Strong commitment and hard work by both IRS’s senior leadership and staff continued to be the key to its ability to overcome its fundamental systems and internal control deficiencies and achieve its goal of receiving an unqualified audit opinion on its fiscal years 2001 and 2000 financial statements. Performance Management System

IRS has continued to make progress in revamping its performance management system-a system designed to measure, assess, and improve organizational and employee performance. Although Computer Security Improvements Made, Taxpayer Data Still at Risk

IRS has corrected or mitigated many of the computer security weaknesses cited in our previous reports, and is implementing a computer security program that should, when fully implemented, help it better manage its risks in this area. Business Systems Modernization

We now turn to the business systems modernization (BSM)—IRS’s ongoing, multiyear, multibillion-dollar program intended to leverage the power of information technology (IT) to revamp how the service does business. Progress has also been made over this period in establishing the modernization management controls needed to effectively acquire and implement BSM systems.
What GAO Found

The Internal Revenue Service (IRS) was, for the second consecutive year, able to prepare financial statements that received an unqualified opinion. However, this achievement once again came through the use of substantial, costly, and time-consuming processes to compensate for serious systems and control deficiencies. IRS continues to make progress in its performance management system by using a strategic planning and budgeting process to reconcile competing priorities and initiatives with available resources. In the area of computer security, IRS corrected or mitigated many of the previously reported weaknesses, including those affecting its electronic filing systems. It also is implementing a computer security program that should help manage its risks in this area. Business Systems Modernization is IRS' ongoing program to leverage information technology and is integral to IRS achieving its customer-focused vision. To date, IRS has made progress in establishing the systems infrastructure, delivering system applications, and developing the management controls and capabilities necessary to effectively acquire and deploy modernized systems.