In GAO’s opinion, the IRS fiscal years 2012 and 2011 financial statements are fairly presented in all material respects. However, in GAO’s opinion, IRS did not maintain effective internal control over financial reporting as of September 30, 2012, because of a material weakness in internal control over unpaid tax assessments. In addition, GAO found that IRS’s financial management systems were not in substantial compliance with Federal Financial Management Improvement Act of 1996 (FFMIA) requirements because of the systems issues underlying the material weakness. ... In addition to its internal control deficiencies, IRS faces significant ongoing financial management challenges arising from its continued need to safeguard the large volume of sensitive hard copy taxpayer receipts and related information and to address its exposure to significant improper refunds based on identity theft. Sustained management efforts will be necessary to maintain and build on the progress made to date and to fully address IRS’s remaining internal controls and systems deficiencies as well as its financial management challenges.