The Internal Revenue Service was singled out by congressional auditors for slow-footed implementation of federal accounting rules requiring government agencies to implement effective management reporting for cost information.In a report to the House Government Reform Subcommittee on Government Management, Finance and Accountability, investigators at the Government Accountability Office concluded that, overall, the federal bureaucracy is doing only a mediocre job in complying with government accounting standards that call for the development and implementation of managerial cost accounting.

While some agencies - including the Federal Aviation Administration and other Transportation Department units - were praised by the GAO for showing strong leadership in the development of such cost accounting systems, others appear to be falling behind.

Near the back of the pack was, as the GAO put it, "Treasury's largest component, the Internal Revenue Service," where the GAO investigators found that "MCA capability was limited."

The importance of managerial cost accounting was underscored by the 1990 Chief Financial Officers Act, which directs government agency CFOs to "develop and maintain an integrated accounting financial management system that provides for the development and reporting of cost information."

Government agencies that implement managerial cost accounting procedures are able to more effectively measure the performance of programs and activities by identifying such non-financial information as the number of hours worked, units produced, grants managed, inspections conducted, people trained, or time needed to perform certain functions.

At the Treasury Department, however, the GAO found "no specific procedures in place to ensure that consistent, periodic, department-level oversight was conducted" to ensure that managerial cost accounting was implemented consistently by sub-agencies. Moreover, their report to Congress concluded that the department promoted and monitored MCA implementation only "on an informal and sporadic basis."

According to the auditors, "this contributed to widely disparate implementation and use of MCA among Treasury's operating bureaus."

The GAO singled out the IRS as among the least effective in implementing MCA.

While that agency requires individual and business taxpayers to rigorously account for deductible expenses, the auditor's report suggested that the tax service is experiencing significant problems accounting for its own costs.

"The IRS's newly implemented MCA module had less than one full year of data, and could only account for agency costs by activity, output or program when" they were "completely housed within a single cost center," the GAO said.

Indeed, managerial cost accounting policies and procedures have not been finalized and distributed within the IRS, the GAO auditors told Congress.

To correct these problems, the GAO recommended that the Secretary of the Treasury "require the commissioner of Internal Revenue to direct the chief financial officer of the IRS to finalize and implement a cost accounting system capable of determining the cost of activities, services or products at levels of detail suitable to assist managerial decision making."

For their part, Treasury officials are balking, on the grounds that budget "constraints limit the department's ability to oversee MCA activities," and they argue that "the cost of MCA should be weighed against its benefits and other competing priorities."

The GAO, however, countered that when budgets are tight, an effective system of managerial cost accounting is particularly valuable.

Properly functioning managerial cost accounting capabilities "could help Treasury meet its mission needs in an era of constrained resources," the auditors told Congress. "Such accounting tools are what is needed to promote efficiency, productivity and the best use of limited resources" at the IRS and other agencies.

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