Internal Controls: FMS' Monitoring of Lockbox Bank Operations Needs Improvement Page: 3 of 16
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Accountability * Integrity * Reliability
United States General Accounting Office Accounting and Information
Washington, D.C. 20548 Management Division
August 20, 1999
Mr. Richard L. Gregg
Commissioner, Financial Management Service
Department of the Treasury
Dear Mr. Gregg:
We recently reported on the U.S. government's financial statements for
fiscal year 1998.1 In connection with fulfilling our requirement to audit
these statements, we performed audit procedures to evaluate the internal
controls over cash receipts processed by the Department of the Treasury's
Financial Management Service (FMS) on behalf of the federal government.2
Our audit included testing the effectiveness of FMS' internal controls over
lockbox collections. The purpose of this report is to provide the results of
our work in this area and our recommendations for improvement.
On behalf of federal agencies, FMS enters into lockbox service agreements
with commercial banks to collect certain payments made to the federal
government. FMS uses two lockbox networks: the general lockbox
network for all payments except federal taxes and the Internal Revenue
Service (IRS) lockbox network for federal tax payments.3 Both networks
use the same banks but are under separate lockbox service agreements
with FMS. The banks establish post office boxes and electronic accounts
to receive payments and are responsible for safeguarding and processing
the funds collected in accordance with their agreements with FMS and the
federal agencies. In fiscal year 1998, FMS reported that about $259 billion
was collected through these banks, of which $242 billion was federal tax
payments in the IRS lockbox network and $17 billion was nontax payments
in the general lockbox network. Because funds collected through lockbox
banks go directly to the banks, FMS must ensure that the banks establish
and maintain adequate internal controls over the collections they process.
Thus, FMS' monitoring of lockbox banks' operations is intended to be a key
1Financial Audit: 1998 Financial Report of the United States Government (GAO/AIMD-99-130, March 31,
231 U.S.C. 331 (e) (1994).
3Network is the term used by FMS to describe the group of banks that provide lockbox services.
GAO/AIMD-99-219 Lockbox Collections
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United States. General Accounting Office. Internal Controls: FMS' Monitoring of Lockbox Bank Operations Needs Improvement, report, August 20, 1999; Washington D.C.. (digital.library.unt.edu/ark:/67531/metadc291942/m1/3/: accessed December 9, 2018), University of North Texas Libraries, Digital Library, digital.library.unt.edu; crediting UNT Libraries Government Documents Department.