Accounting & Auditing | Corporate Finance & Governance | Taxation

Audit warns of problems with IRS internal controls

PointFile this under "Things That Make You Go Hmmmm."

More than six years ago, the federal government created the Sarbanes-Oxley Act and insisted that America's business executives vouch for the quality of their companies' internal controls.

Now comes word that at least one government agency could use some serious help in that area.

The Government Accountability Office has released a report that's critical of the financial oversight within the Internal Revenue Service. According to the GAO, the IRS did not "maintain effective internal control over financial reporting or compliance with laws and regulations, and thus did not provide reasonable assurance that losses, misstatements, and non-compliance with laws and regulations material in relation to the financial statements would be prevented or detected on a timely basis."

And there's more:

"IRS management faces serious challenges from its continued use of obsolete financial management systems that do not conform to the requirements of (the Federal Financial Management Improvement Act of 1996)," the report reads. "These challenges adversely affect IRS’s ability to fulfill its responsibilities as the nation’s tax collector because it is unable to routinely obtain comprehensive, timely, accurate, and useful information for day-to-day decision making.

"As IRS continues to progress toward ever more automated financial management processes," the report continues, "the presence of material weaknesses in controls over these systems, especially in the area of information security, could have serious implications for our future ability to determine whether IRS’s financial statements are fairly stated."

In all fairness, the GAO praised the IRS for making progress in tackling its financial management and internal control issues in recent years, and IRS Commissioner Douglas Shulman told that the agency is "dedicated to promoting the highest standards of financial management."

But the problems persist and must be addressed, the report states.

Seriously, if government regulators are going to hold corporate America's feet to the fire, is it too much to ask that they practice what they preach?

Read the report in its entirety, then tell us your reaction.


Bill Sheridan