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GAO Report on IRS Impacts Obamacare and Foreign Account Compliance

Monday, 16 December 2013 07:22 AM Current | Bio | Archive

In the opinion of the General Accountability Office (GAO), the IRS did not maintain effective internal control over its financial reporting for the year ended Sept. 30, 2013.

To be fair, it must always be kept in mind that Congress consistently adds duties and responsibilities on the IRS, constantly changes the laws creating enormous complexity and then underfunds it.

Basically, it's like Congress requires the IRS to build the world's tallest skyscraper, but funds it so the IRS can afford only wood to build it.

While the GAO is highly critical of the IRS' performance, it is also true that it is amazing that the IRS is able to perform as well as it does under these circumstances.

In a new report, the GAO cites continuing material weaknesses in internal control over unpaid tax assessments. Essentially, the IRS' system is unable to readily distinguish between taxes receivable, compliance assessments and write offs in order to properly classify these for group financial reporting purposes. These are serious control deficiencies that the GAO expects to continue.

To solve these problems the IRS will have to significantly enhance their systems capabilities so that reliable information can be reported on its general ledger.

These problems have been continuing for years. Deficiencies exist in information security, including missing security updates, insufficient monitoring of financial reporting systems and weak encryption for authentication.

Why is this important?

There are three major reasons. First, the financing of the government depends on the ability of the IRS to collect taxes owed properly. Second, if the public cannot trust the government to administer the tax system fairly and with accuracy, the public will not trust the government. Third, the IRS is a major component in the success or failure of the Affordable Care Act, control over the international financial industry under Foreign Account Tax Compliance Act (FATCA), as well as hundreds of non-tax-related social and subsidy programs it administers.

The GAO notes that until the IRS fully addresses existing control deficiencies, there will be an increased risk that its financial and taxpayer debt data can be hacked or subject to fraud.

"The IRS faces significant ongoing financial management challenges associated with (1) safeguarding the large volume of sensitive hard copy taxpayer receipts and related information and (2) its exposure to significant its exposure to improper refunds from identity theft," the report states.

Among the matters that all taxpayers should be concerned include the fact that the IRS has to make multibillion-dollar adjustments in its books and records in order to produce reliable information for reporting purposes. While the IRS has taken action steps over the years to improve its management, the GAO points out that the deficiencies are likely to continue until the IRS has the ability to detect and correct inaccuracies or errors in the taxpayer accounts on a timely basis.

Other serious deficiencies were noted, such as the IRS did not install appropriate security updates on certain databases and servers. This causes an increased risk that there can be breaches of computer security. There is also an increased information security risk since there is a lack of sufficient monitoring of internal and external system control.

Congress has designed the IRS to be the critical cog in the wheel for programs like Obamacare and FATCA to be administered. Why should anyone think that the IRS will successfully administer Obamacare or FATCA any better than the GAO says it is doing now?

This should be at the top of the list of question we all should be asking our representatives and senators.

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In the opinion of the General Accountability Office (GAO), the IRS did not maintain effective internal control over its financial reporting for the year ended Sept. 30, 2013.
Monday, 16 December 2013 07:22 AM
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