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OIO - Federal Tax Income Tax Adjustments Internal Controls Executive Summary

Office of the Chief Financial Officer

Executive Summary for Closed Reports



Original Report

Report No. 11-1-08-OTR: Final Report on the Audit of Internal Controls over Federal Income Tax Adjustments, dated May 24, 2011.


Current Status



Chief Risk Officer’s Risk Assessment

The Office of Tax and Revenue’s (OTR) Compliance Administration recognized financial risks associated with Federal Income Tax Adjustments and requested that the Office of Integrity and Oversight (OIO) perform an audit.  While managing Federal tax adjustments efficiently and effectively and ensuring any tax liabilities are collected in a timely manner are important, these risks are assessed as Medium.  However, all OIO recommendations were considered.


Overview of Recommendations

OIO offered nine recommendations.  Seven were implemented to further strengthen existing internal controls.


  • A team of Tax Auditors was assigned to process and close the aged inventory of federal adjustments in FY11 and FY12.  The task was completed fully in September of 2012.
  • The Audit Division's Monthly Labor Distribution Report includes all necessary case statistics, including beginning inventory, cases received, cases closed, and ending inventory.  This report was implemented in June of 2011.
  • Audit staff has been instructed to work all cases, including Federal Adjustments, on a first in/first out basis, unless priorities/circumstances require immediate attention to a particular case.  Managers review the employee reports on a monthly basis to ensure that inventory is worked in this manner.  These policies were reinforced in staff meetings throughout FY12.
  • A detailed inventory tracking log that includes case disposition information is maintained by analysts on the Compliance Director's staff in order to measure the program.  This new tracking system was implemented in June of 2012.
  • FY12 Audit IPP's were revised to include case closure in SMART Goals, updated to reflect differing grades and experience levels.
  • Several Federal Adjustment training classes were conducted for Audit and Collection employees in FY12.  Training focused on understanding the EOAD report, its effect on the DC return, and how to complete the adjustment.  Continuing education is provided every year.
  • The Compliance Administration has established an internal control policy that removes the Audit Assistant as well as CD creation/tracking from the Federal Adjustment process.  Data is now provided via download, eliminating the management of the CD.  The information is logged by the senior analyst and monitored.  A Desk Guide detailing this process was completed in September of 2012.


Two of the recommendations will not be implemented.


  • The Tax Systems Group (TSG) assessed the level of effort associated with electronic receipt of RAR’s from the IRS as High.  Therefore, OTR will not be pursuing the electronic processing at this time.  However, Compliance reviews the reports received from IRS, selects the most yielding cases and assigns them to Auditors.  Non-filers and lower yield simple adjustments are assigned to Collections. The process is designed to work all adjustments received.
  • The auditors assess penalties and interest on the accounts when the liability is determined.  However, the system does not post the penalty until after the 21 day period and the 30 day period.  This is a systemic issue and cannot be resolved at the Administration level.  Per DC Code Section 47-4201 (b) (1) Except as provided under paragraphs (1) and (2) of this subsection, interest shall be imposed at the underpayment rate set forth in subsection (3) of this section on an assessable penalty or addition to the tax only: (A) if the assessable penalty or addition to the tax paid is not paid within 21 calendar days after the date of notice and demand. DC Code 47-7213 a.3. states that “In the case of a failure to pay an amount in respect of the tax that is required to be shown on a return specified in paragraph (1) of this subsection which is not shown (including an assessment made under this title), within 30 calendar days from the date of notice and demand for payment, unless it is shown that failure is due to reasonable cause and not willful neglect there shall be added to the amount of tax stated in the notice and demand 5% for each additional month or fraction thereof during which the failure continues, not exceeding 25% in the aggregate.”


      To view the full report, Click :  Federal Tax Income Tax Adjustments Internal Controls Full Audit Report