Life company executives embarrassed about internal controls problems have company in Washington: The U.S. Government Accountablity Office says the Internal Revenue Service has serious controls problems of its own.[@@]

The GAO gave unqualified opinions about the general accuracy of IRS financial statements for the fiscal years ending Sept. 30, 2004, and Sept. 30, 2005.

But Comptroller General David Walker, the head of the GAO, writes in a letter introducing the GAO’s report on its audits of the IRS financial statements that the IRS has “material weaknesses in internal controls” and “did not maintain effective internal controls over financial reporting (including safeguarding of assets) or compliance with laws and regulations.”

Because of those weaknesses, the IRS could “not provide reasonable assurance that losses, misstatements, and noncompliance with laws material in relation to the financial statements would be prevented or detected on a timely basis,” Walker writes.

The IRS succeeded at collecting about $2.3 trillion in revenue in fiscal year 2005 and at paying $267 billion in refunds, but because its computer systems are so antiquated, it could not be sure how much revenue it collected from individual income taxes, Social Security taxes or Medicare hospital insurance taxes, Walker writes.

GAO officials also found examples of big, stupid mistakes.

In one case, the IRS imposed $2 million in penalties and interest on a business that it accused of failing to provide a supporting schedule along with a quarterly payroll tax return, even though IRS auditors later found the business had attached the required schedule to the return, Walker writes.

The GAO report is on the Web at http://www.gao.gov/new.items/d06137.pdf