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 that enabled  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 further  recommendations for corrective action, including 16 new financial  management-related recommendations resulting from our fiscal year 2008  financial audit. Status of Recommendations Based on the Fiscal Year 2008 Financial Statement Audit

In July 2008, 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 2007 and prior year financial audits and  other financial management-related work. While most of these can be  addressed in the short term, a few, particularly those concerning IRS’s  automated systems, are complex and will require several more years to  fully and effectively address. Recommendations resulting from the information security issues  identified in our annual audits of IRS’s financial statements are reported  separately because of the sensitive nature of these issues. 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 collects 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. IRS has made  substantial progress in improving its financial management since its first  financial audit, as evidenced by unqualified audit opinions on its financial  statements for the past 9 years, resolution of several material internal  control weaknesses and significant deficiencies, 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. IRS added  corrective actions to address  issues found during the review. Management  Report:  Improvements Are  Needed to Enhance  IRS’s Internal  Controls and  Operating  Effectiveness  (GAO-09-513R,  June 2009)
Because this is a recent  recommendation, GAO did not  obtain information on IRS’s status  in addressing it. This, in  turn, can significantly affect both the level of enforcement tax revenue  collected and improper refunds disbursed.
Why GAO Did This Study

In its role as the nation's tax collector, the Internal Revenue Service (IRS) has a demanding responsibility to annually collect trillions of dollars in taxes, process hundreds of millions of tax and information returns, and enforce 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 actions to address those weaknesses. Each year, as part of the annual audit of IRS's financial statements, GAO makes recommendations to address any new weaknesses identified and follows up on the status of IRS's efforts to address the weaknesses GAO identified in previous years' audits. The purpose of this report is to (1) provide 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 9 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 IRS 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 2008 financial statements, 81 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 2008 financial audit, IRS took actions that GAO considered sufficient to close 35. At the same time, GAO identified additional internal control issues resulting in 16 new recommendations. In total, 62 recommendations remain open. To assist IRS in evaluating and improving internal controls, GAO categorized the 62 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 effectively address.