Internal Revenue Service
Assessment of Fiscal Year 2004 Budget Request and 2003 Filing Season Performance to Date Gao ID: GAO-03-641T April 8, 2003The Internal Revenue Service (IRS) is responsible for collecting virtually all of the funds that pay for the federal government. For 2003, IRS expects to process 130 million individual income tax returns, issue 99 million refunds, receive 100 million telephone calls, and assist 4 million taxpayers face-to-face at IRS and volunteer offices. Most of these interactions with taxpayers occur during the January through April tax filing season. GAO was asked by the Subcommittee on Oversight, House Committee on Ways and Means, to assess the likelihood of IRS allocating more resources to a key priority, compliance; whether proposed spending on computer systems is justified; and filing season performance.
IRS is requesting $10.4 billion and 101,043 FTEs, a dollar increase of about 5 percent over the fiscal year 2003 request. The 2004 budget request, like other recent requests, identifies compliance as one of IRS's top priorities for additional resources. IRS intends to fund some program enhancements from the requested budget increase and internal savings. Several factors, including lowered savings projections since the budget request was prepared, raise questions about IRS's ability to achieve all the savings and shift resources to compliance as planned. IRS's recent history raises the same questions, in part, because unbudgeted expenses, such as pay raises, have absorbed budget increases. IRS is requesting $2.1 billion in information technology. This includes $429 million for the agency's multiyear capital account that funds contractor costs for the Business Systems Modernization program, and $1.67 billion for information systems, primarily for operations and maintenance. In response to GAO's recommendation last year, IRS has begun to implement an information technology management process patterned after its systems modernization program. Until the process is fully implemented, IRS will have limited ability to develop supportable information systems budget requests. IRS's 2003 filing season performance has improved over last year. For example, IRS's telephone access has improved and the Web site has seen increased use. Such improvements represent a payoff from IRS's ongoing systems modernization investments and wider management improvements. Although IRS has not succeeded in reallocating staff to one of its priority needs, compliance, there will likely be increased potential for such reallocation as modernization proceeds. This will present Congress, in its oversight and appropriations roles, with significant opportunities to weigh in on IRS's overall strategy for better accomplishing its mission.
GAO-03-641T, Internal Revenue Service: Assessment of Fiscal Year 2004 Budget Request and 2003 Filing Season Performance to Date
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Testimony :
Before the Subcommittee on Oversight, Committee on Ways and Means,
House of Representatives:
For Release on Delivery
Expected at 9 a.m. EDT
Tuesday, April 8, 2003:
Internal Revenue service:
Assessment of Fiscal Year 2004 Budget Request and 2003 Filing Season
Performance to Date:
Statement of James R. White
Director, Tax Issues:
Robert F. Dacey
Director, Information Technology Systems Issues:
GAO-03-641T:
GAO Highlights:
Highlights of GAO-03-641T, a testimony before the Subcommittee on
Oversight, Committee on Ways and Means, House of Representatives
Why GAO Did This Study:
The Internal Revenue Service (IRS) is responsible for collecting
virtually all of the funds that pay for the federal government. For
2003, IRS expects to process 130 million individual income tax returns,
issue 99 million refunds, receive 100 million telephone calls, and
assist 4 million taxpayers face-to- face at IRS and volunteer offices.
Most of these interactions with taxpayers occur during the January
through April tax filing season.
GAO was asked by the Subcommittee to assess the likelihood of IRS
allocating more resources to a key priority, compliance; whether
proposed spending on computer systems is justified; and filing season
performance.
What GAO Found:
IRS is requesting $10.4 billion and 101,043 FTEs, a dollar increase of
about 5 percent over the fiscal year 2003 request. The 2004 budget
request, like other recent requests, identifies compliance as one of
IRS‘s top priorities for additional resources. As shown below, IRS
intends to fund some program enhancements from the requested budget
increase and internal savings. Several factors, including lowered
savings projections since the budget request was prepared, raise
questions about IRS‘s ability to achieve all the savings and shift
resources to compliance as planned. IRS‘s recent history raises the
same questions, in part, because unbudgeted expenses, such as pay
raises, have absorbed budget increases.
IRS is requesting $2.1 billion in information technology. This includes
$429 million for the agency‘s multiyear capital account that funds
contractor costs for the Business Systems Modernization program, and
$1.67 billion for information systems, primarily for operations and
maintenance. In response to GAO‘s recommendation last year, IRS has
begun to implement an information technology management process
patterned after its systems modernization program. Until the process is
fully implemented, IRS will have limited ability to develop supportable
information systems budget requests.
IRS‘s 2003 filing season performance has improved over last year. For
example, IRS‘s telephone access has improved and the Web site has seen
increased use. Such improvements represent a payoff from IRS‘s ongoing
systems modernization investments and wider management improvements.
Although IRS has not succeeded in reallocating staff to one of its
priority needs, compliance, there will likely be increased potential
for such reallocation as modernization proceeds. This will present
Congress, in its oversight and appropriations roles, with significant
opportunities to weigh in on IRS‘s overall strategy for better
accomplishing its mission.
GAO Recommendations:
GAO is not making any recommendations. However, as GAO noted last year,
until IRS incorporates best practices in preparing its information
systems budget, it will not be able to ensure that the information
system operations and maintenance request is adequately supported.
www.gao.gov/cgi-bin/getrpt?GAO-03-641T.
To view the full report, including the scope and methodology, click on
the link above. For more information, contact Jim White at
(202) 512-9110 or WhiteJ@gao.gov.
[End of section]
April 8, 2003
Mr. Chairman and Members of the Subcommittee:
We are pleased to participate in the Subcommittee‘s inquiry into
Internal Revenue Service‘s (IRS) fiscal year 2004 budget request and
2003 tax filing season performance.
With its mission to ’provide America‘s taxpayers with top quality
service by helping them understand and meet their tax responsibilities
and by applying the tax law with integrity and fairness to all,“ IRS is
responsible for collecting most of the funds that pay for the federal
government. To carry out its mission, IRS has a budget of about $10
billion and staff of about 100,000 full time equivalents (FTE). For
2003, IRS expects to process 130 million individual income tax returns,
issue 99 million refunds, receive 100 million telephone calls, and
assist 4 million taxpayers face-to-face at IRS and volunteer[Footnote
1] offices.
As you requested, our statement discusses both IRS‘s 2004 budget
request and its 2003 filing season performance. With respect to the
budget, we assessed the likelihood that IRS will be able to allocate
more resources to one of its key priorities, compliance, and whether
the proposed spending on some computer systems is justified. With
respect to the filing season, we assessed IRS‘s performance in
processing returns and providing assistance to taxpayers.
Our assessment of the budget request is based on a comparative analysis
of IRS‘s fiscal year 2003 and 2004 budget requests, supporting
documentation, and interviews with IRS officials. Our assessment of the
filing season is based on a comparison of IRS‘s performance this year
to last, site visits to IRS processing centers and walk-in sites, and
interviews with IRS and Treasury Inspector General for Tax
Administration (TIGTA) officials, tax preparers, and other external
stakeholders. We also reviewed IRS‘s Web site for usability and
accessibility.
In summary, our assessment of IRS‘s 2004 budget request shows that:
* IRS is requesting 101,043 FTEs and $10.4 billion, an increase of
about 5 percent over its fiscal year 2003 request. The 2004 budget
request is one of many that have identified compliance activities as
among IRS‘s top priorities for receiving additional resources. These
additional resources were to be funded from budget increases,
internally generated savings, or both. Savings projections have been
revised downward since the 2004 budget request was prepared, which
raises questions about IRS‘s ability to achieve all the savings and
shift resources to compliance as planned. Further, IRS‘s recent history
shows that it has been unable to increase resources in compliance,
despite having made it a priority in budget requests. In fact, for the
most recent three full fiscal years--2000, 2001 and 2002--compliance
resources have declined slightly. Reasons for this include unfunded
expenses consuming budget increases.
* Another priority area for IRS is Information Technology (IT). IRS is
requesting about $2.1 billion and 7,986 staff years in information
technology resources for fiscal year 2004. This includes (1) $429
million for the agency‘s multiyear capital account that funds
contractor costs for the BSM program and (2) about $1.67 billion and
7,735 staff years for information systems, of which $1.62 billion is
for operations and maintenance. In preparing its fiscal year 2004
budget request for the operations and maintenance of information
systems, IRS began to implement an information technology portfolio
management process patterned after the one used for the BSM program.
However, until IRS fully implements planned process improvements, its
ability to develop supportable information systems budget requests will
remain limited.
Our assessment of the 2003 filing season to date shows that:
* IRS‘s 2003 filing season performance has improved over last year,
based on the data we reviewed in key filing season activities--paper
and electronic processing, telephone assistance, IRS‘s Web site, and
walk-in assistance. In particular, access to IRS‘s telephone assistors
has improved and Web site usage has increased. While we cannot quantify
the connection between these results and IRS‘s ongoing systems
modernization efforts, the improvement in filing season performance, in
part, represents a payoff from systems modernization.
IRS‘s Fiscal Year 2004 Budget Request Includes Compliance, Taxpayer
Service, and Information Systems as Priorities:
For fiscal year 2004, IRS is requesting $10.4 billion, an increase of
5.3 percent over fiscal year 2003 requested levels, and 101,043 FTEs.
IRS‘s 2004 budget request is its second in a row to propose increased
spending for higher priority areas that would be funded, in part, with
internal savings redirected from other areas. Specifically, IRS
proposes to devote an additional $454 million and 3,033 more FTEs to
enhance programs, primarily in compliance and some customer service
areas. As shown in figure 1, $166 million of the enhancements would be
funded from internal savings with the remainder funded from the budget
increase.
Figure 1: IRS‘s Proposed Funding for Program Enhancements:
[See PDF for image]
[End of figure]
As we did in last year‘s testimony on IRS‘s 2003 budget request, we
commend IRS for identifying savings to be reinvested in operations to
improve IRS performance. This approach implements a key principal of
IRS‘s long-term modernization effort. Under this approach, the
reengineering of IRS‘s work processes--much of which is dependent on
investments in computer modernization--would automate or eliminate
work, improve productivity, and free staff time that could then be
redirected to higher priority customer service and compliance
activities.
We provide some context for understanding the 2004 budget request in
figures 2 and 3 as shown in appendix I. In those figures, we illustrate
how IRS allocated expenditures and staff resources in fiscal year 2002,
the most recently completed year.
Current Projections and Recent History Raise Questions about Whether
IRS Will Realize Some Priority Resource Reallocations:
Revised projections developed since the 2004 budget request was
prepared raise questions about IRS‘s ability to achieve all the savings
projected and shift resources to compliance as planned. In addition,
some projected savings are based on reengineering efforts that are not
well defined. Further, IRS‘s recent history also shows that it has been
unable to increase resources in the compliance area despite having made
it a priority in past budget requests. In fact, for the most recent 3
full fiscal years--2000, 2001, and 2002--compliance resources have
declined slightly. Reasons for this decline include unfunded expenses
consuming budget increases and workload increases in other essential
operations.
IRS Has Revised Some Savings Shown in Its 2004 Budget Request:
IRS has revised the savings associated with several reengineering
efforts identified in the 2004 budget request. Revisions this far in
advance of the start of the fiscal year are not a surprise. They do
indicate that there is some uncertainty associated with the budget
request‘s savings projections.
Four of the seven most significant reengineering efforts--in terms of
FTEs and dollars to be saved--will not achieve all of their projected
savings because the efforts were based on assumptions that will not be
realized, according to IRS data and officials. IRS now projects that
the seven most significant efforts will save 1,073 FTEs and $60.5
million, down from original projections of 1,356 FTEs and $77.7
million.
IRS provided different reasons for why all savings will not be achieved
for the following individual efforts:
* IRS‘s effort to improve the efficiency of compliance support
activities--the single most significant effort--was partially
dependent on IRS implementing individual compliance savings projects in
2003. This effort was projected to save 394 FTEs and almost $26
million. However, due in part to delays until 2004 to allow for
additional testing, this effort is now expected to save about 30
percent of the original projections through the end of fiscal year
2004.
* IRS‘s effort to improve the efficiency of personnel services--the
second most significant effort--depended in part on the functions of a
new computer system to achieve most of its savings. This effort was
originally projected to save 222 FTEs and $14.6 million. According to
IRS officials, these functions will not be delivered on time due to
schedule delays. IRS officials have not determined the impact of this
delay and are currently assessing other potential approaches to achieve
savings in this area.
IRS officials said the remaining three of the seven most significant
efforts will achieve all or more of their projected savings. For
example, the effort to improve the efficiency of handling payments and
returns, originally projected to save 121 FTEs and $4.6 million, is now
expected to have more than double the savings, or 235 FTEs and $11.9
million, due to greater than expected productivity. However, according
to IRS officials, even when their savings are combined, these three
efforts will not save enough to offset the reduced savings from the
other four.
Reengineering efforts may not achieve all of their savings goals, in
part, because of the long time lag between when IRS begins developing
its budget request and when the fiscal year begins. As with most other
federal agencies, IRS usually begins formulating its budget request
about 18 months before the start of the fiscal year and about 10 months
before the President submits his budget to Congress. With planning
beginning so far ahead of the budget‘s actual execution, there are
inevitably intervening events, such as implementation delays with
computer systems, that make the assumptions upon which projections are
based no longer realistic.
Some 2004 Reengineering Efforts Are Not Well Defined:
Some of the reengineering efforts listed in the 2004 budget request are
not well defined, thus raising questions about whether they will
achieve their savings goals. For example:
* IRS still is reviewing its procedures to identify ways to make tax
return processing more efficient. Although IRS projected this effort to
save 203 FTEs and $6.9 million, it has not yet identified the
operational areas that will be reengineered. IRS officials said that
the projected savings are based on a 2 percent efficiency increase, but
they are currently determining how to achieve that goal.
* The effort to improve the efficiency of personnel services noted
above also included numerous competitive outsourcing assessments
affecting several program areas that, according to the budget request,
would result in a significant reduction of staffing. However, in
response to our request for more information, IRS was unable to provide
details on the type or number of specific assessments, program areas
that would be affected, how this effort would lead to reduced staffing,
or the amount of net savings expected.
According to IRS budget officials, IRS uses its budget formulation
process to establish productivity goals, although the responsible
business units may not know specifically how savings will be achieved.
Officials said that this approach encourages innovation in meeting
performance goals while identifying ways to save FTEs and budget
dollars.
In Recent Years, Compliance Staffing Declined:
Since 2001, IRS‘s budget requests have made increasing compliance staff
one of several key priorities. For example, in its 2001 budget request
IRS asked for funding for the Staffing Tax Administration for Balance
and Equity (STABLE) initiative, which was designed to provide
additional staffing for examination, collections, and the new Tax
Exempt and Government Entities Division. However, TIGTA recently
reported data that showed an over 7 percent decline in compliance staff
between 2000 and 2002.[Footnote 2]
There are several reasons for the decline, including increased workload
and unfunded costs. In September 2002, the Commissioner attributed the
decline in compliance staffing to increases in workload in other
essential operations such as processing returns, issuing refunds, and
answering taxpayer mail. In the most recently completed fiscal year,
2002, IRS faced unbudgeted cost increases, such as rent and pay
increases, in the amount of about $106 million. As a result, IRS had to
delay hiring revenue agents and officers, tax compliance officers, and
tax specialists. As shown in appendix I, in 2002 figure 1 shows about
69 percent of IRS‘s spending was for labor costs. IRS noted in its
budget request that any major negative changes in the agency‘s
financial posture, such as unfunded salary increases, will have a
negative effect on staffing levels.
IRS‘s Experience in 2003 Illustrates the Difficulty of Projecting
Savings and Investments:
IRS‘s experience with last year‘s budget request illustrates the
difficulty of projecting and realizing savings and investing resources
in higher priority areas. As part of its 2003 budget request, IRS
identified internal savings of almost $197 million and 2,287 FTEs to be
accomplished through various reengineering efforts and workload
decreases. IRS planned to reinvest those savings in higher priority
areas--compliance and customer service program enhancements, including
efforts to stabilize audit rates, improve telephone assistance level of
service, and target highest priority collection cases. However, IRS now
estimates that about $75 million, or 38 percent, of the dollar savings
and about 1,280, or 56 percent, of the FTE savings will be achieved by
the specific reengineering efforts and workload decreases as identified
in the 2003 budget request. IRS officials provided several reasons why
some savings for these particular reengineering efforts will not be
realized, including delays in modernization projects and less-than-
anticipated workload decreases. For example, IRS received more innocent
spouse cases than anticipated, and the cases received were more
complex, causing the hours spent per case to increase.
While savings associated with a particular effort listed in the 2003
budget request may not materialize, IRS officials said that business
unit managers have identified other ways to increase productivity and
did more work with fewer staff--therefore achieving productivity
increases through efforts not identified in the 2003 budget request. As
an example, officials provided an analysis showing increased telephone
collections cases closed with significantly fewer staff than in the
previous year. While GAO did not verify these savings, IRS officials
were confident that this and other similar productivity increases were
being achieved. Furthermore, IRS budget officials said the results of
productivity increases not listed in the 2003 budget request should be
included in any tally of IRS‘s savings.
We agreed that productivity increases generate savings. IRS was unable
to quantify the gains from productivity increases in time for this
hearing. IRS officials also said that most of the savings generated by
the productivity increases would be used to handle workload increases
in the same area where savings were generated. They said the savings
would not be available for reallocation to other areas.
As was the case in 2002, cost increases not included in the 2003 budget
request are also limiting IRS‘s ability to fund new investments.
According to IRS officials, IRS will need to fund a total of about $388
million out of existing resources, including about $128 million for pay
increases.
Information Technology Budget Formulation Process Still Needs
Improvement:
IRS is requesting about $2.1 billion and 7,986 staff years in
information technology (IT) resources for fiscal year 2004. This
includes (1) $429 million for the agency‘s multiyear capital account
that funds contractor costs for the BSM program and (2) about $1.67
billion and 7,735 staff years for information systems, of which $1.62
billion is for operations and maintenance. In preparing its fiscal year
2004 budget request for the operations and maintenance of information
systems, IRS began to implement an information technology portfolio
management process patterned after the one used for the BSM program.
However, until IRS fully implements planned process improvements, its
ability to develop supportable information systems budget requests will
remain limited.
Fiscal Year 2004 BSM Request Developed in Accordance with Federal
Guidance:
Consistent with the Clinger-Cohen Act of 1996,[Footnote 3] the
Government Performance and Results Act of 1993,[Footnote 4] OMB
guidance on budget preparation and submission[Footnote 5] require that,
before requesting multiyear funding for capital asset acquisitions,
agencies develop sufficient justification for these investments. This
justification should reasonably demonstrate how proposed investments
support agency missions and operations, and provide positive business
value in terms of expected costs, benefits, and risks.
Since the BSM appropriation was established in fiscal year 1998, we
recommended[Footnote 6] that IRS put in place an enterprise
architecture (modernization blueprint) to guide and constrain its
business system investments.[Footnote 7] Use of such a blueprint is a
practice of leading public and private sector organizations. Simply
stated, this architecture provides a high-level road map for business
and technological change from which agencies can logically and
justifiably derive their budget requests and capital investment plans.
In response to our recommendations, IRS developed an enterprise
architecture. In March 2002, IRS approved a new version of this
architecture (version 2.0), which describes IRS‘s current and target
business and technology environments. In December 2002, IRS completed
the associated high-level transition strategy that identifies and
conceptually justifies needed investments to guide the agency‘s
transition over many years from its current to its target architectural
state.
IRS‘s $429 million request for the BSM account for fiscal year 2004 is
based on its enterprise architecture as well as its related life cycle
methodology and investment management process. Thus, this request is
based on analyses that meet the statutory and regulatory requirements
for requesting multiyear capital investment funding.
BSM Program Management Capability Improved, but Risks Remain:
Pursuant to statute,[Footnote 8] funds from the BSM account are not
available for obligation until IRS submits to the congressional
appropriations committees for approval an expenditure plan that meets
certain conditions.[Footnote 9] In November 2002, IRS submitted an
expenditure plan seeking approval to obligate funds from the BSM
account for its planned fiscal year 2003 projects and program-level
initiatives. In March 2003, IRS submitted a revised plan that reduced
the initial request by shifting funding for two BSM projects to the
information systems account and reducing the amount requested for the
core infrastructure projects and program-level initiatives.
In briefings to the staff of the relevant appropriations subcommittees
and IRS on the results of our review of IRS‘s November 2002 expenditure
plan, we reported that IRS has progressed significantly in improving
its modernization management controls and capabilities, and has taken
steps to better balance the pace of the BSM program with its management
capability. We also reported that, although important progress has been
made, certain management controls and capabilities, related to
configuration management, human capital management, and cost and
schedule estimate validation, have not yet been fully implemented. Our
analysis has shown that weaknesses in these controls and capabilities
contributed to BSM project cost, schedule, and performance shortfalls
during fiscal year 2002. In approving the release of a portion of the
fiscal year 2003 BSM funding, the appropriations subcommittees directed
IRS to, among other things, fully establish and implement all
management processes and controls needed to effectively manage the BSM
program. IRS has acknowledged these weaknesses and has initiatives
planned or under way to address them.
Despite the progress made during the past year, IRS‘s BSM program faces
heightened risks because (1) several key projects are entering their
later stages of development and deployment, (2) some of these projects
provide the foundational infrastructure upon which later projects
depend, (3) an increasing number of project milestones are experiencing
cost increases and schedule delays, and (4) IRS plans to start more
projects. While IRS is better prepared to manage risk and meet the
challenges ahead, sustained top management involvement, improved
management capabilities, and consistent oversight, are critical to the
successful implementation of the BSM program.
Although Progress Made, Information Systems Budget Request Development
Process Needs Additional Improvements:
Leading private-and public-sector organizations have taken a project-or
system-centric approach to managing not only new investments but also
the operations and maintenance of existing systems. As such, these
organizations:
* identify operations and maintenance projects and systems for
inclusion in budget requests;
* assess these projects or systems on the basis of expected costs,
benefits, and risks to the organization;
* analyze these projects as a portfolio of competing funding options;
and:
* use this information to develop and support budget requests.
This focus on projects, their outcomes, and risks as the basic elements
of analysis and decision-making is incorporated in the IT investment
management approach that is recommended by the OMB and GAO.[Footnote
10] By using these proven investment management approaches for budget
formulation, agencies have a systematic method, on the basis of risk
and return on investment, to justify what are typically very
substantial budget requests for the operations and maintenance of
information systems. These approaches also provide a way to hold IT
managers accountable for operations and maintenance spending and the
ongoing efficiency and efficacy of existing systems.
In our assessment of IRS‘s fiscal year 2003 budget request, we
reported[Footnote 11] that IRS did not develop its information systems
operations and maintenance request in accordance with the investment
management approach used by leading organizations. For example, in
developing the request, IRS had not identified and assessed the
relative costs, benefits, and risks of specific operations and
maintenance systems and projects. Instead, according to IRS officials,
they developed the request by beginning with the FY 2002 expenditures
and simply adding amounts to fund cost-of-living and salary increases.
IRS officials attributed this gap between IRS‘s practices and those
followed by leading organizations to the lack of an adequate cost
accounting system, cultural resistance to change, and a previous lack
of management priority. We recommended[Footnote 12] that IRS prepare
its fiscal year 2004 information systems budget request in accordance
with the investment management approach used by leading organizations.
IRS agreed and initiated actions to address our recommendation.
IRS has made progress in incorporating investment management practices
into the formulation of its fiscal year 2004 information systems budget
request. For example, IRS created information technology portfolios for
its operations and maintenance systems in accordance with revised OMB
budget guidance.[Footnote 13] According to IRS officials, these
portfolios were used to assist managers and staff involved with
information technology planning and investment decision-making to (1)
assess initiatives in terms of their cost, risks, and expected returns
and (2) determine and maintain the appropriate mix of investments. They
also indicated that they are working with Treasury and OMB to improve
the information technology investment portfolio development process.
IRS‘s emphasis on portfolio development demonstrates an increased
effort to ensure its information systems operations and maintenance
requests are supported.
Despite this progress, IRS has not yet completed its planned actions to
implement our recommendation. As of April 2003, IRS has not developed
an activity-based cost accounting system to enable it to account for
the full costs of operations and maintenance projects and determine how
effectively IRS projects are achieving program goals and mission needs.
IRS officials stated that they are developing an activity-based cost
model in conjunction with the Integrated Financial System modernization
project, but this model will not be fully implemented until December
2003. Furthermore, IRS officials stated that data from this model will
not be available for use until the fiscal year 2006 budget formulation
cycle. In addition, IRS has still not completed its capital planning
guidance, and thus did not use it in preparing its fiscal year 2004
information systems budget submission. According to IRS officials, the
agency has developed a draft Capital Planning and Investment Control
guide that is undergoing internal review, but it will not be completed
and implemented until late October 2003. Until IRS incorporates the
cost model and capital planning and investment control guidance into
the preparation of its information systems budget request, IRS will not
be able to ensure that the information systems operations and
maintenance request is adequately supported.
Interim Results of IRS‘s 2003 Filing Season Show Improvement over
Previous Years:
IRS‘s filing season performance through mid-March has improved compared
to recent years, based on data we reviewed in five key filing season
activities--paper and electronic processing, telephone assistance,
IRS‘s Web site, and walk-in assistance. For example, telephone access
has improved, and IRS‘s Web site has seen increased use. While we
cannot quantify the connection between these results and IRS‘s ongoing
systems modernization efforts, the improvement in filing season
performance, in part, represents a payoff from systems modernization.
IRS‘s Paper and Electronic Processing Operations Have Gone Smoothly
This Year:
Through March 28, IRS has smoothly processed about 67 million
individual income tax returns. According to IRS data and to officials
and tax preparers we spoke with, IRS has not experienced any
significant processing or computer problems. IRS officials attribute
this year‘s smooth processing, in part, to the relatively insignificant
tax law changes compared to last year.
Electronic filing continues to grow, although at a slower rate than
projected. Of the approximate 67 million returns, about 26 million
individual income tax returns were filed on paper and 41 million
returns were filed electronically, as of March 28, as shown in table 1.
This represents an increase in electronic filing of 10.4 percent over
the same time period last year. Whether IRS will achieve its goal of 54
million tax returns filed electronically in 2003 is uncertain. Last
year at this time IRS was also below its goal, but made up the
difference late in the filing season:
Table 1: IRS Performance in the First Weeks of the 2003 and 2002 Filing
Seasons:
Volume in thousands
Actual Returns Processed:
Paper; 2002: 29,014; 2003:
26,289.
Electronic; 2002: 37,035;
2003: 40,870.
Telephone assistance:
Total calls[B]; 2002: 60,674;
2003: 38,213.
Answered by assistors; 2002: 9,540;
thousands: 2003: 9,938.
Answered by automation; 2002: 28,130;
thousands: 2003: 19,860.
Not answered; 2002: 23,004;
2003: 8,415.
Customer service representative level of service[B];
thousands: 2002: 69%; 2003: 84%.
Average speed of answer[B]; 2002: 216 seconds;
2003: 155 seconds.
Accounts customer accuracy rate[C]; 2002: 88% +/-
1%; 2003: 88% +/-1%.
Tax law customer accuracy rate[C]; 2002: 84% +/-
1%; 2003: 81% +/-1%.
Internet assistance:
Forms and publications downloaded[D]; 2002:
213,000; 2003: 283,000.
Refund status inquiries[E]; 2002: N/A;
thousands: 2003: 10,200.
Walk-in assistance:
Returns prepared at IRS walk-in sites[F]; 2002:
436; 2003: 291.
Returns prepared at volunteer sites[G]; 2002: 466;
2003: 594.
[End of table]
Source: IRS data.
[A] From January 1 to March 29, 2002, and January 1 to March 28, 2003.
[B] Based on actual counts from January 1 to March 23, 2002, and
January 1 to March 22, 2003.
[C] Based on a representative sample estimated at the 90 percent
confidence level from January to February 2002 and 2003.
[D] From January 1 to March, 31 2002 and 2003.
[E] From January 1 to March 28, 2003.
[F] From January 1 to March 16, 2002, and January 1 to March 15, 2003.
[G] From January 1 to March 9, 2002, and January 1 to March 8, 2003.
[End of table]
Growth in electronic filing is a key part of IRS‘s modernization
strategy. Electronic filing allows IRS to control costs and improve
customer service, by reducing labor intensive processing of paper
returns. This year, to help increase electronic filing, IRS entered
into an agreement with the Free File Alliance, a consortium of 17 tax
preparation companies, to offer free online tax preparation and filing
services for at least 60 percent of all taxpayers via the IRS Web site.
IRS data shows that as of March 26, about 2.1 million returns were
filed through the consortium, close to the goal of 2.5 million. While
there have been some complaints about pop-up ads, taxpayers reported in
IRS surveys that they were generally pleased with the service.
Because of the growth in electronic filing, the number of paper returns
has declined in recent years. As a result, IRS is closing processing
operations at the Brookhaven Submission Processing Center, one of its
eight processing centers for individual income tax returns filed on
paper. This closing represents a significant consolidation of IRS‘s
processing operations. Based on processing data to date, the
consolidation has not disrupted the filing season.
Telephone Access Improved over Last Year, While Accuracy Generally
Remained Stable:
Access to IRS‘s toll-free telephone lines improved over last year. As
table 1 shows, as of March 22, the percentage of taxpayers that
attempted to reach an assistor and actually got through and received
service--referred to as the Customer Service Representative level of
service--increased 15 percentage points over the same period last year,
for the approximately 10 million calls served. In addition, taxpayers
have waited 61 seconds less, on average, to speak to an assistor so far
this filing season as compared to last year. According to IRS
officials, the increase in the level of service is largely due to lower
than expected call demand and more effective routing of calls to
qualified assistors. Part of the reason for the decrease in demand is
that some taxpayers are using the new refund status check feature on
IRS‘s Web site rather than calling.
Accuracy was relatively stable this year as compared to last year. As
shown in table 1, taxpayers who called about their accounts received
correct information an estimated 88 percent of the time. IRS officials
said that accounts accuracy rates remained stable, because many simple
refund inquiries were diverted to the new refund feature on IRS‘s Web
site, leaving assistors to handle more complex calls. Table 1 also
shows taxpayers who called with tax law questions received correct
information an estimated 81 percent of the time, slightly down from
last year. According to IRS officials, because many assistors had
difficulty in adapting to a change in the guide used to query callers.
Web Site Is Seeing Increased Use and Has New Features, although
Concerns about Usability Still Exist:
IRS‘s Web site use has increased over last year. About 283 million
forms and publications have been downloaded--a 29 percent increase over
the same period last year. In addition, an independent study reported
that IRS‘s Web site had ranked in the top 10 out of 40 government web
sites and that users were able to access IRS‘s site in less than one
second during the January 20 through February 28 test period.
IRS added a new feature to its Web site for use this filing season: the
refund status check, (’Where‘s My Refund?“). This feature enables
taxpayers to find out if the IRS received their returns and whether
their refunds were processed. IRS intended this feature to divert some
simple telephone calls from assistors. Data shows that as of March 28,
about 10.3 million taxpayers have used this feature to check the status
of their refund.
While some of the problems we identified in previous years appear to
have been remedied, we continue to have concerns about the search
function on IRS‘s Web site. Our informal testing of IRS‘s Web site
showed that it is more user friendly than last year. We found it to be
more accessible, easier to navigate, and data was more current.
However, the search functions still do not always make the most
pertinent information readily available. For example, when we typed
’earned income tax credit“ into the forms and publication search
function, Publication 596--the primary publication on the earned income
tax credit--was the 70TH item on the list, and we had to scroll through
seven pages to find it. According to IRS officials, an independent
contractor is currently looking at ways to improve the search
functions, and the contractor expects to issue its report in mid-April
of this year.
Walk-in Assistance Improved and Community Based Coalitions Expanded
over Last Year:
The quality of assistance at IRS‘s walk-in sites has improved this year
over last, and service to taxpayers through community based coalitions
has increased. At congressional direction, the TIGTA has been
responsible for measuring the quality of assistance at IRS‘s walk-in
sites. According to TIGTA officials, the accuracy of tax law assistance
provided at IRS‘s walk-in sites increased as of February this year to
about 73 percent--an increase of 27 percentage points over the same
period last year. TIGTA also found that the rate at which IRS employees
referred taxpayers to a publication instead of answering tax law
questions--which had been an issue last year--declined by about 85
percent.
According to TIGTA officials, the increased accuracy rates resulted
from various steps taken by IRS, including revising to the guidelines
used by walk-in staff, certifying staff proficiency, conducting monthly
reviews of tax law accuracy, and taking immediate action to address
review information relating to any incorrect answers or improper
referrals found during IRS or TIGTA quality reviews.
As table 1 shows, more taxpayers had their returns prepared by
community-based coalitions and other organizations that provide free
tax return-preparation assistance as part of IRS‘s Volunteer Income Tax
Assistance and Tax Counseling for the Elderly programs. These programs
use IRS-trained volunteers to help prepare basic tax returns for
taxpayers with special needs--including those with a low to fixed
income, non-English speaking people, and the elderly.
Concluding Observations:
As the examples of improved telephone access and the Brookhaven
Processing Center closing show, IRS is beginning to realize payoffs
from the ongoing systems modernization investments and wider management
improvements. Although IRS has not succeeded in reallocating staff to
one of its priority needs, compliance, there will likely be increased
potential for such reallocation as modernization proceeds. This will
present Congress, in its oversight and appropriations roles, with
significant opportunities to weigh in on IRS‘s overall strategy for
better accomplishing its mission. Specifically, Congress will have
opportunities to help IRS establish strategic priorities and make
decisions about the resources needed to meet those priorities.
Mr. Chairman, this concludes my prepared statement, and I would be
pleased to respond to any questions.
[End of section]
Appendixes:
Appendix I: How IRS Allocated Expenditures and Staff Resources in
Fiscal
Year 2002:
To provide some context for understanding the 2004 budget request,
figures 2 and 3 illustrate how the Internal Revenue Service (IRS)
allocated expenditures and staff resources in fiscal year 2002, the
most recently completed year. Figure 2 shows IRS‘s fiscal year 2002
actual expenditures in several categories, including about 69 percent
that was spent on labor. Figure 3 shows how IRS allocated its labor
across functional areas, including ensuring compliance such as auditing
and collecting delinquent taxes (45 percent), providing taxpayer
services such as telephone assistance (21 percent), and processing tax
returns (15 percent). However, the boundaries between categories may
not be as well defined as the figures indicate. For example, in figure
3, staff categorized as maintaining information systems could also be
considered under support for processing, taxpayer service or
compliance. Therefore, the figures are meant to provide a summary of
how IRS uses its resources and should be interpreted with caution.
Figure 2: IRS‘s Expenditures in Fiscal Year 2002 [Footnote 14]
[See PDF for image]
[End of figure]
Figure 3: How IRS Spent Its 99,180 Staff Years in Fiscal Year 2002:
[See PDF for image]
[End of figure]
(440182):
FOOTNOTES
[1] These offices use IRS-trained volunteers to help prepare basic tax
returns for taxpayers with special needs.
[2] Treasury Inspector General for Tax Administration, Trends in
Compliance Activities through Fiscal Year 2002, Reference No. 2003-30-
078, Washington D.C.: March 2002. The compliance staff figures include
revenue officers, revenue agents, and tax auditors.
[3] P.L. 104-106.
[4] P.L. 103-62.
[5] See, for example, OMB Circular No. A-11: Preparing, Submitting, and
Executing the Budget (Washington, D.C.: June 27, 2002).
[6] See U.S. General Accounting Office, Tax Administration: IRS‘ Fiscal
Year 1997 Spending, 1997 Filing Season, and Fiscal Year 1998 Budget
Request, GAO-T-GGD/AIMD-97-66 (Washington, D.C.: Mar. 18, 1997); Tax
Systems Modernization: Blueprint is a Good Start But Not Yet
Sufficiently Complete to Build or Acquire Systems, GAO/AIMD/GGD-98-54
(Washington, D.C.: Feb. 24, 1998); and Tax Administration: IRS‘ 2000
Tax Filing Season and Fiscal Year 2001 Budget Request, GAO/T-GGD/AIMD-
00-133 (Washington, D.C.:
Mar. 28, 2000).
[7] An enterprise architecture provides an institutional ’blueprint“
for defining how an organization operates today (baseline environment)
in both business and technological terms, and how it wants to operate
in the future (target environment). It also includes a sequencing plan
that provides a road map for transitioning between these environments.
[8] Consolidated Appropriations Resolution, 2003 (P.L.108-7).
[9] IRS‘s BSM expenditure plans are required to (1) meet OMB capital
planning and investment control review requirements, (2) comply with
IRS‘s enterprise architecture, (3) conform with IRS‘s enterprise life
cycle methodology, (4) be approved by IRS, Treasury, and OMB,
(5) be reviewed by GAO, and (6) comply with the acquisition rules,
requirements, guidelines, and systems acquisition management practices
of the federal government.
[10] See, for example, U.S. General Accounting Office, Information
Technology Investment Management: A Framework for Assessing and
Improving Process Maturity, Exposure Draft, GAO/AIMD-10.1.23
(Washington, D.C.: May 2000, Version 1).
[11] U.S. General Accounting Office, Internal Revenue Service:
Assessment of Budget Request for Fiscal Year 2003 and Interim Results
of 2002 Tax Filing Season, GAO-02-580T (Washington, D.C.: Apr. 9, 2002)
and Internal Revenue Service: Improving Adequacy of Information Systems
Budget Justification, GAO-02-704 (Washington, D.C.: June 28, 2002).
[12] See GAO-02-580T and GAO-02-704.
[13] Office of Management and Budget, OMB Circular No. A-11.
[14] IRS‘s annual expenditures may exceed its current year
appropriations, because IRS has additional budgetary resources
available to it and also incurs certain costs that were funded in prior
years. During fiscal year 2002, IRS‘s total budgetary resources
included its fiscal year 2002 appropriation of $9.437 billion as well
as unobligated balances available from prior years, spending authority
from offsetting collections, and recoveries of prior year obligations.
