Until resolved, they will continue to prevent us from expressing an opinion on IRS’ financial statements in the future. These improvements have made IRS’ accounting for its administrative operations much better today than it was 4 years ago. In this case, the banker is the Treasury and the differences are great. In addition, IRS will be challenged to fully meet the federal accounting standards for accounting for accounts receivable, which become effective for fiscal year 1998. Many of these actions are still incomplete and do not yet respond fully to any of our recommendations. As a result, until IRS makes more progress in correcting its management and technical weaknesses, its ability to develop systems and make changes to correct financial management problems will be hampered. IRS’ financial information will provide significant input to the preparation and audit of both Treasury’s agencywide and the governmentwide financial statements. IRS Follow-Through Will Be Critical

In summary, it will be essential for IRS to follow-through and ensure that its planned short-term, interim actions are completed on schedule to improve the reliability of IRS’ financial statements, and we will continue to work with IRS in doing so. Recent GAO Reports and Testimonies Related to IRS’ Financial Management and TSM Problems

	Financial Audit Reports

Financial Audit: Examination of IRS’ Fiscal Year 1992 Financial Statements (GAO/AIMD-93-2, June 30, 1993)
Financial Audit: Examination of IRS’ Fiscal Year 1993 Financial Statements (GAO/AIMD-94-120, June 15, 1994)
Financial Audit: Examination of IRS’ Fiscal Year 1994 Financial Statements (GAO/AIMD-95-141, August 4, 1995)
Financial Audit: Examination of IRS’ Fiscal Year 1995 Financial Statements (GAO/AIMD-96-101, July 11, 1996)

	Reports and Testimonies Related to IRS Financial Audits and TSM

IRS Operations: Significant Challenges in Financial Management and Systems Modernization (GAO/T-AIMD-96-56, March 6, 1996)
Tax Systems Modernization: Management and Technical Weaknesses Must Be Overcome To Achieve Success (GAO/T-AIMD-96-75, March 26, 1996)
Tax Systems Modernization: Progress in Achieving IRS’ Business Vision (GAO/T-GGD-96-123, May 9, 1996)
Letter to the Chairman, Committee on Governmental Affairs, U.S. Senate, on security weaknesses at IRS’ Cyberfile Data Center (AIMD-96-85R, May 9, 1996)
Financial Audit: Actions Needed to Improve IRS Financial Management (GAO/T-AIMD-96-96, June 6, 1996)
Tax Systems Modernization: Actions Underway But IRS Has Not Yet Corrected Management and Technical Weaknesses (GAO/AIMD-96-106, June 7, 1996)
Tax Systems Modernization: Cyberfile Project Was Poorly Planned and Managed (GAO/AIMD-96-140, August 26, 1996)
Internal Revenue Service: Business Operations Need Continued Improvement (GAO/AIMD/GGD-96-152, September 9, 1996)
Internal Revenue Service: Critical Need to Continue Improving Core Business Practices (GAO/T-AIMD/GGD-96-188, September 10, 1996)
The first copy of each GAO report and testimony is free.
Why GAO Did This Study

GAO discussed the Internal Revenue Service's (IRS) efforts to prepare reliable financial statements and improve its financial management, focusing on: (1) IRS implementation of GAO recommendations to correct financial management weaknesses; (2) IRS progress in addressing major problems that have prevented GAO from expressing an opinion on its financial statements; (3) IRS problems in developing Tax Systems Modernization (TSM); and (4) how IRS financial management weaknesses affect Department of the Treasury and governmentwide financial statements.

What GAO Found

GAO noted that: (1) IRS is implementing some short-term interim strategies to resolve financial management problems in time for its fiscal year 1996 financial statement audit; (2) IRS will need to make more sweeping changes and devise long-term solutions to fully address problems in its accounting for administrative operations, reporting accounts receivable, and accounting for revenue; (3) many IRS actions for correcting management and technical problems in developing TSM are incomplete and do not fully respond to the recommendations; (4) IRS financial information provides significant input to and greatly affects the preparation and audit of Treasury and governmentwide financial statements; and (5) it will be essential for IRS to follow through on its short-term and long-term efforts to improve its financial statements and financial management systems.