In order to determine how these recommendations fit within IRS’s  management and internal control structure, we compared the open  recommendations, and the issues that gave rise to them, to the control  activities listed in the internal control standards and to the list of major  factors and examples outlined in our Internal Control Management and  Evaluation Tool. Over the years since we first began auditing IRS’s  financial statements in fiscal year 1992, IRS has taken actions enabling us  to close over 200 of our financial management-related recommendations. At  the same time, however, our audits continue to identify additional internal  control issues, resulting in our making further recommendations for  corrective action, including 24 new financial management-related  recommendations resulting from our fiscal year 2007 financial audit. Status of Recommendations Based on the Year 2007 Financial Statement Audit

In June 2007, we issued a report on the status of IRS’s efforts to implement  corrective actions to address financial management recommendations  stemming from our fiscal year 2006 and prior year financial audits and  other financial management-related work. Consequently, a total of 81 financial management-related  recommendations were open at the end of fiscal year 2007 and need to be  addressed by IRS. While most of our open recommendations can be  addressed in the short term, a few recommendations, particularly those  concerning IRS’s automated systems, are complex and will require several  more years to fully and effectively address. Open Recommendations Grouped by Control Activity

Linking the open recommendations from our financial audits and other  financial management-related work, and the issues that gave rise to them,  to internal control activities that are central to IRS’s tax administration  responsibilities provides insight regarding their significance. IRS is charged with collecting trillions of dollars in taxes each year, a  significant amount of which is collected in the form of checks and cash  accompanied by tax returns and related information. In  addition, the number of staff increases significantly during the peak of the  tax filing season. IRS has made  substantial progress in improving its financial management since its first  financial audit, as evidenced by consecutive clean audit opinions on its  financial statements for the past 8 years, resolution of several material  internal control weaknesses, and actions taken resulting in the closure of  hundreds of financial management recommendations. This progress has  been the result of hard work by many individuals throughout IRS and  sustained commitment of IRS leadership. Nonetheless, more needs to be  done to fully address the agency’s continuing financial management  challenges. Effective implementation of the  recommendations we have made and continue to make through our  financial audits and related work could greatly assist IRS in improving its  internal controls and achieving sound financial management. We will review the effectiveness of further  corrective actions IRS has taken or will take and the status of IRS’s  progress in addressing all open recommendations as part of our audit of  IRS’s fiscal year 2008 financial statements. In its OMB No.
Why GAO Did This Study

In its role as the nation's tax collector, the Internal Revenue Service (IRS) has a demanding responsibility in annually collecting trillions of dollars in taxes, processing hundreds of millions of tax and information returns, and enforcing the nation's tax laws. Since its first audit of IRS's financial statements in fiscal year 1992, GAO has identified a number of weaknesses in IRS's financial management operations. In related reports, GAO has recommended corrective action to address those weaknesses. Each year, as part of the annual audit of IRS's financial statements, GAO not only makes recommendations to address any new weaknesses identified but also follows up on the status of weaknesses GAO identified in previous years' audits. The purpose of this report is to (1) assist IRS management in tracking the status of audit recommendations and actions needed to fully address them and (2) demonstrate how the recommendations relate to control activities central to IRS's mission and goals.

What GAO Found

IRS has made significant progress in improving its internal controls and financial management since its first financial statement audit in 1992, as evidenced by 8 consecutive years of clean audit opinions on its financial statements, the resolution of several material internal control weaknesses, and actions resulting in the closure of over 200 financial management recommendations. This progress has been the result of hard work throughout the agency and sustained commitment at the top levels of the agency. However, IRS still faces financial management challenges. At the beginning of GAO's audit of IRS's fiscal year 2007 financial statements, 75 financial management-related recommendations from prior audits remained open because IRS had not fully addressed the issues that gave rise to them. During the fiscal year 2007 financial audit, IRS took actions that enabled GAO to close 18 of those recommendations. At the same time, GAO identified additional internal control issues resulting in 24 new recommendations. In total, 81 recommendations remain open at the end of fiscal 2007. To assist IRS in evaluating and improving internal controls, GAO categorized the 81 open recommendations by various internal control activities, which, in turn, were grouped into three broad control categories. The continued existence of internal control weaknesses that gave rise to these recommendations represents a serious obstacle that IRS needs to overcome. Effective implementation of GAO's recommendations can greatly assist IRS in improving its internal controls and achieving sound financial management and can help enable it to more effectively carry out its tax administration responsibilities. Most can be addressed in the short term (the next 2 years). However, a few recommendations, particularly those concerning IRS's automated systems, are complex and will require several more years to fully and effectively address.