Page 10 GAO-11-142 IRS’s Fiscal Years 2010 and 2009 Financial Statements rely on its general ledger system for tax transactions and underlying subsidiary records toreport federal taxes receivable, compliance assessments, and write-offs in accordance with federal accounting standards without significant compensating procedures, 10 (2) lack of transaction traceability for the reported balance in taxes receivable that com prises over 80 percent of IRS’s total assets as of September 30, 2010, and an effective transaction-based subledger for unpaid tax assessment transactions, and (3) inability to effectively prevent or timely detect and correct errors in taxpayer accounts. These internal control deficiencies are caused primarily by IRS’s continued reliance on software applications that were not designed to provide the accurate, complete, and timely transaction-level financial information that management needs to make well-informed decisions or to accumulate and report financial information in accordance with federal accounting standards. These problems are likely to continue to exist until these software applications are either significantly enhanced or replaced. Successfully addressing these issues is vital and is one ofthe goals of IRS’s ongoing systems modernization effort. Material Weakness in Internal Control over Information Security During fiscal year 2010, IRS continued to have a material weakness in its internal control related to its management of information systems security. IRS made progress during fiscal year 2010 in addressing several information security weaknesses identified in our previous audits. Specifically, IRS (1) upgraded key Integrated Financial System (IFS) 11 servers, (2) discontinued the use of unencrypted protocols for the servers supporting its procurement system, and (3) limited access to certain key financial documents used for input into IFS. Nevertheless, persistent, 10 Federal accounting standards classify unpaid tax assessments into one ofthe following three categories for reporting purposes: federal taxes receivables, compliance assessments, and write-offs. Federal taxes receivable are taxes due from taxpayers for which IRS can support the existence of a receivable through taxpayer agreement or a favorable court ruling. Compliance assessments are tax assessments where neither the taxpayer nor the court has affirmed that the amounts are owed. Write-offs represent unpaid tax assessments for which IRS does not expect further collections because of factors such as the taxpayer’s death, bankruptcy, or insolvency. Of these three classifications of unpaid tax assessments, only federal taxes receivable, net of an allowance for uncollectible amounts, are reported on the financial statements. 11 IFS is IRS’s administrative accounting system, which IRS uses to facilitate core financial management activities, including general ledger, budget formulation, accounts payable, accounts receivable, funds management, cost management, and financial reporting. IFS does not process or report IRS’s tax related transactions including tax revenues, tax refunds, and taxes receivable. This is trial version www.adultpdf.com . needs to make well-informed decisions or to accumulate and report financial information in accordance with federal accounting standards. These problems are likely to continue to exist until these. discontinued the use of unencrypted protocols for the servers supporting its procurement system, and (3) limited access to certain key financial documents used for input into IFS. Nevertheless,. owed. Write-offs represent unpaid tax assessments for which IRS does not expect further collections because of factors such as the taxpayer’s death, bankruptcy, or insolvency. Of these three