However, we consider  them to remain open. As discussed previously, we are reporting our recommendations  resulting from the information security control deficiencies identified in our  annual audits of IRS’s financial statements separately because of the  sensitive nature of many of these control deficiencies. Open Recommendations Grouped by Internal Control Activity

Linking the open recommendations from our financial audits, and the  control deficiencies that gave rise to them, to internal control activities that  are central to IRS’s tax administration responsibilities provides insight  regarding their significance to accomplishing IRS’s mission. The following long term recommendation in table 9 is designed to assist  IRS in evaluating its operations and determining which activities are the  most beneficial. IRS has made substantial progress in improving its financial management  and internal control since its first financial audit, as evidenced by  unqualified audit opinions on its financial statements for the past   12 years, resolution of several material internal control weaknesses,  significant deficiencies, and other control 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—resolving  material weaknesses and significant deficiencies in internal control;  developing outcome-oriented performance metrics that can facilitate  managing operations for outcomes; and correcting numerous other  control deficiencies. Effective implementation of the recommendations we  have made through our financial audits and related work could greatly  assist IRS in improving its ability to effectively and efficiently carry out its  mission. Agency Comments and Our Evaluation

In commenting on a draft of this report, the IRS Commissioner expressed  his appreciation for our acknowledgment of the agency’s progress in  addressing its financial management challenges as evidenced by our  closure of 38 open financial management recommendations from prior  GAO reports. The IRS Commissioner also stated that the agency is  committed to implementing appropriate improvements to ensure that it  maintains sound financial management practices. Appendix I: Status of GAO Recommendations from Internal Revenue Service Financial Audits and Related Management Reports

This appendix presents a summary of (1) the 77 previous GAO  recommendations that were open as of the beginning of our fiscal year  2011 financial audit, (2) Internal Revenue Service (IRS) reported status  and corrective actions taken or planned for such recommendations as of  March 2012, and (3) our analysis of whether the control deficiencies that  gave rise to the recommendations have been effectively addressed. It  also includes a summary of the status of the 30 new recommendations  identified as part of our fiscal year 2011 financial statement audit. Those recommendations are reported separately and are not included in  this report primarily because of the sensitive nature of some of the  issues. In  our audit of IRS’s fiscal year 2011 financial statements, we reported a  significant deficiency in IRS’s internal control over tax refund  disbursements that resulted from (1) IRS not having effectively addressed  the deficiencies in internal control over manual tax refunds that we have  reported in previous years, (2) additional deficiencies in internal control  over manual tax refunds we identified during our fiscal year 2011 audit,  and (3) continued deficiencies in IRS’s internal control over processing of  claims for the First-time Homebuyer Credit (FTHBC). Each year, we continue  to identify control deficiencies related to IRS’s safeguarding of taxpayer  receipts and information.
Why GAO Did This Study

In its role as the nations tax collector, 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 nations tax laws.
Each year, as part of the annual audit of IRSs financial statements, GAO makes recommendations to address control deficiencies identified during the audit and follows up on the status of IRSs efforts to address the control deficiencies GAO identified in previous years audits. The purpose of this report is to (1) provide an overview of the financial management challenges still facing IRS, (2) provide the status of financial auditrelated recommendations and the actions needed to address them, and (3) highlight the relationship between GAOs recommendations and internal control activities central to IRSs mission and goals.

What GAO Found

The Internal Revenue Service (IRS) has made significant progress in improving its internal controls and financial management since its first financial statement audit in 1992, as evidenced by 12 consecutive years of clean audit opinions on its financial statements, the resolution of several material control deficiencies, and actions resulting in the closure of over 300 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 significant financial management challenges in (1) resolving its remaining material weaknesses and significant deficiency in internal control, (2) developing outcome-oriented performance metrics, and (3) correcting numerous other control deficiencies, especially those relating to safeguarding tax receipts and taxpayer information. At the beginning of GAOs audit of IRSs fiscal year 2011 financial statements, 77 recommendations from prior audits remained open because IRS had not fully addressed the underlying issues. During the fiscal year 2011 financial audit, IRS took actions that GAO considered sufficient to close 38 recommendations. At the same time, GAO identified additional control deficiencies resulting in 30 new recommendations. In total, 69 recommendations remain open. GAO has also identified numerous control deficiencies and made recommendations related to information security that have been reported separately and are not included in this report because of the sensitive nature of many of those control deficiencies.
To assist IRS in evaluating and improving internal controls, GAO categorized the 69 open recommendations by various internal control activities, which, in turn, were grouped into three broad control categories. The continued existence of control deficiencies that gave rise to these recommendations represents a serious challenge for IRS. Effective implementation of GAOs recommendations could greatly assist IRS in improving its internal controls and achieving sound financial management, which are integral to effectively carrying out its tax administration responsibilities.

What GAO Recommends

GAO is not making any recommendations in this report. In commenting on a draft of this report, the IRS Commissioner stated that the agency is committed to implementing appropriate improvements to maintain sound financial management practices.