Tax Systems Modernization

The Internal Revenue Service's (IRS) Cyberfile project was intended to enable taxpayers to prepare and electronically send their tax returns via their personal computers. IRS' selection of the Commerce Department's National Technical Information Service (NTIS) to develop Cyberfile was not based on sound analysis that considered various alternatives and assessed NTIS' ability to develop and operate an electronic filing system. NTIS had promised IRS that it could develop Cyberfile in less than six months and have it up and running by February 1996. To meet these self-imposed deadlines, however, NTIS hastily initiated the project. Development and acquisition were undisciplined, and Cyberfile was poorly managed and overseen. The end result was that Cyberfile was not delivered on time, and IRS, after advancing more than $17 million to NTIS, has suspended Cyberfile's development and is reevaluating the project. IRS and NTIS did not follow all applicable procurement laws in developing Cyberfile, and NTIS actually circumvented procurement laws in implementing Cyberfile. Moreover, Cyberfile obligations and costs were not accounted for properly. Finally, adequate financial program management controls were not implemented to ensure that Cyberfile was acquired cost effectively. GAO summarized this report and discussed other tax systems modernization issues in testimony before Congress; see: Tax Systems Modernization: Actions Underway, But Management and Technical Weaknesses Not Yet Corrected, by Dr. Rona B. Stillman, Chief Scientist, Computers and Telecommunications Issues, before the Senate Committee on Governmental Affairs. GAO/T-AIMD-96-165, Sept. 10 (21 pages).

GAO found that: (1) IRS did not adequately analyze its requirements, consider alternative ways to satisfy its requirements, prepare a strategy for how it would acquire the most cost-effective alternative, or assess NTIS ability to develop, deliver, and operate an electronic filing system before deciding to use NTIS to develop Cyberfile; (2) IRS selected NTIS because of expediency and its belief that NTIS could meet a delivery date of February 1996; (3) IRS suspended development after advancing $17.1 million to NTIS; (4) IRS is reevaluating the project, since NTIS did not deliver it on time; (5) IRS cited the Brooks Act for its authority to procure Cyberfile, but it did not fully comply with the implementing regulation's requirements; (6) IRS did not obtain the proper delegation of procurement authority from the Treasury Department; (7) NTIS did not obtain the Small Business Administration's (SBA) approval to modify an existing sole-source Section 8(a) contract to add the Cyberfile project for a total cost of $3.3 million, and violated SBA rules for competing the procurement among eligible firms; (8) NTIS did not hold the contractor accountable for delivery dates and costs; (9) IRS did not ensure that NTIS efficiently and effectively managed the project; (10) IRS understated Cyberfile obligations and improperly accounted for the $17.1-million NTIS advance; (11) NTIS did not properly document significant financial transactions or record obligations and costs; and (12) IRS did not implement adequate controls to ensure that it did not incur excess costs after the project's suspension.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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