Tax Systems Modernization

One of the major goals of the Internal Revenue Service's (IRS) modernization effort is to move from a labor-intensive tax return processing system that relies on thousands of employees transcribing data from paper tax returns to an electronic system that reduces processing costs and eliminates transcription errors. For returns that continue to be filed on paper, IRS plans to achieve its objective through document imaging and optical character recognition. The Service Center Recognition/Image Processing System (SCRIPS) is the first of what was to have been two document imaging and optical character recognition systems. SCRIPS became operational in late 1994, and GAO reported that it experienced many problems during the 1995 filing season. (See GAO/GGD-96-48, December 1995.) This report follows up on these issues and assesses the performance of SCRIPS in 1996. GAO (1) identifies the main causes of the performance problems in 1995, (2) assesses whether SCRIPS' performance improved in 1996, and (3) provides a status report on IRS' future plans for SCRIPS.

GAO found that: (1) SCRIPS experienced significant performance problems in 1995; (2) two problems were system downtime and slow processing rates; (3) because of performance problems, two of the five centers stopped processing Forms 1040EZ on SCRIPS and reverted to using manual data entry; (4) SCRIPS performance deficiencies in 1995 stemmed primarily from both hardware and software problems; (5) although IRS had expected that SCRIPS would be processing five document types, forms 1040EZ, 941, and 1040PC, federal tax deposit (FTD) coupons, and information returns, IRS postponed plans to process forms 941 and 1040PC on SCRIPS; (6) of the three remaining document types, the Cincinnati test certified the software application only for FTD coupons, therefore, the software applications for information returns and Form 1040EZ were not thoroughly tested before they were put into production, (7) to improve the performance of SCRIPS for 1996, IRS made hardware and software modifications, some of which were made before the start of the 1996 filing season; (8) as a result of some of these enhancements and more staff familiarity with SCRIPS, according to IRS officials in all five SCRIPS service centers, SCRIPS performed significantly better during the 1996 filing season than it did in 1995; (9) in addition to a slower processing rate for information returns, SCRIPS is not processing all the forms that it was expected to process in 1996, is expected to cost more than originally estimated, and is expected to provide lower labor cost savings than IRS originally anticipated; (10) the latest cost estimate for SCRIPS is $288 million, considerably more than previous cost estimates, which, according to IRS' post-implementation review report on SCRIPS, ranged from $133 million to $209 million; (11) July 1995, IRS decided to terminate all software programming for the 1040PC because of SCRIPS' instability, lack of system capacity, and a number of software application problems; (12) IRS has also decided not to use SCRIPS to process Forms 941 beyond fiscal year (FY) 1997; and (13) in addition to funding constraints, according to IRS officials, a decision on using SCRIPS for Forms 941 will depend on the results of a September 1996 capacity test of SCRIPS, which were not available when GAO completed its audit work, and decisions by IRS' Investment Review Board.

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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