However, the majority of excise taxes are accounted for by IRS. Subsequent to this initial distribution, IRS certifies quarterly the amounts that should have been distributed to the excise tax-related trust funds based on the tax returns. Figure 2 shows IRS’ process for certifying the trust fund distributions. Excise Tax Section  (Cincinnati Service  Center)
Review Master File   and AQETL data. This information is a basis for preparing the certifications. As a result, the certified amount for the Highway Trust Fund was understated by $67 million. The lack of IRS review of the distribution rates on this spreadsheet resulted in errors in the excise tax certifications for the Highway Trust Fund going undetected. Conclusions

The errors we found in the review of the fiscal year 1997 excise tax certification process are the direct result of weaknesses in fundamental internal controls, specifically the lack of appropriate verification and review procedures, at all critical points in the excise tax certification process. These weaknesses led to taxpayer, IRS, and OTA errors going undetected and directly resulted in inaccurate distributions of excise tax revenue to the trust funds in fiscal year 1997. Revise the Form 720 tax return to reflect a separate column adjacent to the column for entering the tax assessment, by abstract number, for the taxpayer to report on pages 1 and 2 of the tax return claims and adjustments, by abstract number, based on the information the taxpayer reports on Schedule C.
To strengthen internal controls over IRS’ process of certifying excise tax distributions to the general fund and federal trust funds, we recommend that IRS:
Develop, document, and implement review procedures over the adjustment and summarization of assessment data used in the certifications. The head of a federal agency is required by 31 U.S.C.
Why GAO Did This Study

Pursuant to a legislative requirement, GAO conducted a follow-up review of the Internal Revenue Service's (IRS) controls over its process for certifying excise taxes for distribution to the federal trust funds.

What GAO Found

GAO noted that: (1) IRS does not have adequate controls over its process for certifying excise taxes for distribution to the federal government trust funds; (2) the lack of fundamental internal controls resulted in errors in the certifications going undetected; (3) these errors ultimately affected the amounts distributed to the trust funds during fiscal year 1997; (4) IRS' ineffective controls over the certification process resulted in undetected: (a) mistakes by taxpayers in preparing excise tax returns; (b) input errors by IRS when entering excise tax return information in its master files; and (c) errors by IRS in preparing the excise tax certifications; (5) as a result of these errors, trust funds did not receive the appropriate amount of excise tax revenue; (6) these errors are particularly important to the Highway Trust Fund, which receives over half of the excise taxes that are accounted for by IRS; (7) these weaknesses were a contributing factor in the Department of Transportation's (DOT) Inspectors General's: (a) qualified opinion on the Highway Trust Fund financial statements; (b) disclaimer of opinion on the Federal Aviation Administration's financial statements; and (c) disclaimer of opinion on DOT's consolidated financial statements; (8) the errors GAO found relating to taxpayer mistakes, IRS data input, and certification preparation could have been detected or prevented by effective IRS procedures; and (9) IRS has taken some actions to improve certain controls over the excise tax certification process.