Financial Audit: IRS's FY 2023 and FY 2022 Financial Statements
Fast Facts
The Internal Revenue Service collects taxes to fund federal programs and services.
In FY23, IRS collected about $4.7 trillion in taxes and paid out more than $650 billion in tax refunds, credits, and other payments.
We audit and issue opinions annually on IRS's financial statements and on related internal controls (e.g., processes to reasonably assure that transactions are properly authorized and recorded).
In FY23, we found the statements were reliable and that controls over financial reporting were effective—although some information system and unpaid assessments controls could be improved.
2023 IRS Collections of Federal Taxes, by Type
Highlights
What GAO Found
In GAO's opinion, the Internal Revenue Service's (IRS) fiscal years 2023 and 2022 financial statements are fairly presented in all material respects, and although internal controls could be improved, IRS maintained, in all material respects, effective internal control over financial reporting as of September 30, 2023. GAO's tests of IRS's compliance with selected provisions of applicable laws, regulations, contracts, and grant agreements disclosed no instances of reportable noncompliance in fiscal year 2023.
Limitations in the systems IRS uses to account for federal taxes receivable and other unpaid assessment balances, as well as other control deficiencies that led to errors in taxpayer accounts, continued to exist during fiscal year 2023.These control deficiencies affect IRS's ability to produce reliable financial statements without using significant compensating procedures. In addition, new and continuing information system control deficiencies in such areas as the use of multifactor authentication, encryption of sensitive data, and management of configuration settings for certain platforms increase the risk of unauthorized access to, modification of, and disclosure of sensitive data and programs, as well as the disruption of critical operations.
IRS continues to take steps to address deficiencies in its internal control over financial reporting. However, the remaining deficiencies are significant enough to merit the attention of those charged with governance of IRS and therefore represent continuing significant deficiencies in internal control over financial reporting related to (1) unpaid assessments and (2) information system controls. Continued management attention is essential to fully addressing these significant deficiencies. In commenting on a draft of this report, IRS noted its intention to continue working to improve its internal control.
Why GAO Did This Study
In connection with fulfilling GAO's requirement to audit the consolidated financial statements of the U.S. government, and consistent with its authority to audit statements and schedules prepared by executive agency components, GAO has audited IRS's financial statements because of the significance of IRS's tax collections to the consolidated financial statements of the U.S. government. GAO annually audits IRS's financial statements to determine whether (1) the financial statements are fairly presented and (2) IRS management maintained effective internal control over financial reporting. GAO also tests IRS's compliance with selected provisions of applicable laws, regulations, contracts, and grant agreements.
IRS's tax collection activities are significant to overall federal receipts, and the effectiveness of its financial management is of substantial interest to Congress and the nation's taxpayers.
For more information, contact Dawn B. Simpson at (202) 512-3406 or simpsondb@gao.gov.