The acting head of the US tax agency, the Internal Revenue Service, has been fired after it emerged that his staff had singled out conservative groups for extra scrutiny.
The audit by the Treasury Inspector General for Tax Administration found that the agency used inappropriate criteria when considering applications from right wing organisations that were seeking tax exemptions.
US President Barack Obama said such behaviour would not be tolerated.
The president said Steve Miller was asked to resign and vowed that more steps would be taken to hold those responsible accountable.
"Americans have a right to be angry about it, and I am angry about it," Mr Obama said of the IRS actions.
"I will not tolerate this kind of behaviour at any agency, but especially at the IRS given the power that it has and the reach that it has into all of our lives".
The audit described a series of problems within the IRS that led the agency to use "inappropriate criteria" for evaluating tax-exempt groups.
It was accused of singling out scores of conservative Tea Party and "Patriot" organisations for increased scrutiny.
Mr Obama, who has been accused by Republican critics of reacting too passively to the scandal, promised to work "hand in hand" with Congress to fix the issue.
But he acknowledged the realities of a politically divided Washington, and urged politicians to deal with the matter in a way that does not "smack of politics or partisan agendas."
Republicans signalled, however, they were not satisfied with Mr Miller's resignation and that they were determined to find out whether the White House encouraged, or knew about, the effort within the tax agency to single out conservative groups for more scrutiny.
House of Representatives Speaker John Boehner summed up many Republicans' attitude toward the IRS scandal, saying: "My question isn't about who is going to have to resign. My question is who is going to jail over this scandal."
The audit did not find evidence the IRS actions were motivated by partisan interests - a conclusion some Republicans do not accept.
The notion of a federal agency targeting conservatives based on ideology feeds into a Republican narrative of growing government intrusion under President Obama.
For the IRS and the administration, the stakes are particularly high in the scandal because the tax agency has an increasingly significant role in checking the tax status of non-profit groups that dabble in politics, and in enforcing parts of Mr Obama's overhaul of the healthcare system.