Business Systems Modernization
IRS's Fiscal Year 2004 Expenditure Plan Gao ID: GAO-05-46 November 17, 2004The Internal Revenue Service's (IRS) Business Systems Modernization (BSM) program is a multibillion-dollar, high-risk, highly complex effort that involves the development and delivery of a number of modernized information systems that are intended to replace the agency's aging business and tax processing systems. BSM funds are not available until IRS submits an expenditure plan that meets various conditions to congressional appropriations committees for approval. In January and July 2004, the Department of the Treasury submitted IRS's initial and revised fiscal year 2004 plans, respectively. As required by law, GAO reviewed the plans to (1) determine whether the plans satisfied the conditions specified in the law, (2) determine what progress IRS had made in implementing our prior recommendations, and (3) provide any other observations about the plans and IRS's BSM program.
IRS's initial (January 2004) and revised (July 2004) fiscal year 2004 expenditure plans, which requested about $388 million for the BSM program, satisfied the conditions specified in the law. These conditions include meeting the Office of Management and Budget's capital planning and investment control review requirements and complying with federal systems acquisition requirements and management practices. IRS has made progress in implementing our recommendations to improve its modernization management controls and capabilities and in completing BSM projects that have benefited taxpayers and the agency. For example, IRS has implemented our prior recommendation to promptly update its enterprise transition strategy to conform to changes in the agency's enterprise architecture. In addition, IRS has deployed several modernized systems that provide benefits, including Modernized e-File Release 1, which provides electronic filing for large businesses and tax-exempt organizations. Although progress has been made, GAO's previous recommendations on modernization management controls and capabilities related to configuration management, human capital management, cost and schedule estimating, and contract management have not yet been fully implemented or institutionalized. Weaknesses in these controls and capabilities have contributed, in part, to BSM project cost and schedule shortfalls. GAO's observations on IRS's expenditure plans and the BSM program include the following. Projects continue to incur significant cost increases and schedule delays. In its revised fiscal year 2004 plan, IRS disclosed that key BSM projects have continued to experience cost and schedule shortfalls against prior commitments. For example, the total life cycle cost for full deployment of the initial release of IRS's new core accounting system has increased by almost $74 million, and project completion has been delayed by 15 months. Reasons cited for the increases and delays include an inability to resolve key system design, integration, and performance issues in a timely manner. In-depth internal and independent assessments of the BSM program conducted during 2003 identified significant weaknesses and risks, consistent with our prior reviews. IRS developed 48 action issues to address the concerns raised by these program reviews and has taken actions to resolve them; however, most of the issues remain open. IRS has also performed post-implementation reviews on three deployed projects, but they were incomplete in that they did not include, for example, an analysis of actual versus planned benefits. Without such an analysis, IRS lacks important information about whether BSM projects are meeting expectations.
RecommendationsOur 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.
Director: Team: Phone:GAO-05-46, Business Systems Modernization: IRS's Fiscal Year 2004 Expenditure Plan
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Report to Congressional Committees:
November 2004:
BUSINESS SYSTEMS MODERNIZATION:
IRS's Fiscal Year 2004 Expenditure Plan:
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-46]:
GAO Highlights:
Highlights of GAO-05-46, a report to congressional committees
Why GAO Did This Study:
The Internal Revenue Service‘s (IRS) Business Systems Modernization
(BSM) program is a multibillion-dollar, high-risk, highly complex
effort that involves the development and delivery of a number of
modernized information systems that are intended to replace the
agency‘s aging business and tax processing systems. BSM funds are not
available until IRS submits an expenditure plan that meets various
conditions to congressional appropriations committees for approval. In
January and July 2004, the Department of the Treasury submitted IRS‘s
initial and revised fiscal year 2004 plans, respectively.
As required by law, GAO reviewed the plans to (1) determine whether the
plans satisfied the conditions specified in the law, (2) determine what
progress IRS had made in implementing our prior recommendations, and
(3) provide any other observations about the plans and IRS‘s BSM
program.
What GAO Found:
IRS‘s initial (January 2004) and revised (July 2004) fiscal year 2004
expenditure plans, which requested about $388 million for the BSM
program, satisfied the conditions specified in the law. These
conditions include meeting the Office of Management and Budget‘s
capital planning and investment control review requirements and
complying with federal systems acquisition requirements and management
practices.
IRS has made progress in implementing our recommendations to improve
its modernization management controls and capabilities and in
completing BSM projects that have benefited taxpayers and the agency.
For example, IRS has implemented our prior recommendation to promptly
update its enterprise transition strategy to conform to changes in the
agency‘s enterprise architecture. In addition, IRS has deployed several
modernized systems that provide benefits, including Modernized e-File
Release 1, which provides electronic filing for large businesses and
tax-exempt organizations.
Although progress has been made, GAO‘s previous recommendations on
modernization management controls and capabilities related to
configuration management, human capital management, cost and schedule
estimating, and contract management have not yet been fully implemented
or institutionalized. Weaknesses in these controls and capabilities
have contributed, in part, to BSM project cost and schedule shortfalls.
GAO‘s observations on IRS‘s expenditure plans and the BSM program
include the following:
* Projects continue to incur significant cost increases and schedule
delays. In its revised fiscal year 2004 plan, IRS disclosed that key
BSM projects have continued to experience cost and schedule shortfalls
against prior commitments. For example, the total life cycle cost for
full deployment of the initial release of IRS‘s new core accounting
system has increased by almost $74 million, and project completion has
been delayed by 15 months. Reasons cited for the increases and delays
include an inability to resolve key system design, integration, and
performance issues in a timely manner.
* In-depth internal and independent assessments of the BSM program
conducted during 2003 identified significant weaknesses and risks,
consistent with our prior reviews. IRS developed 48 action issues to
address the concerns raised by these program reviews and has taken
actions to resolve them; however, most of the issues remain open.
* IRS has also performed post-implementation reviews on three deployed
projects, but they were incomplete in that they did not include, for
example, an analysis of actual versus planned benefits. Without such an
analysis, IRS lacks important information about whether BSM projects
are meeting expectations.
What GAO Recommends:
GAO recommends that the Commissioner of Internal Revenue direct the
Chief Information Officer to ensure that, after BSM projects are
deployed, post-implementation reviews are performed that include an
analysis of quantitative and qualitative investment data to determine,
at a minimum, whether expected benefits were achieved. In commenting on
a draft of this report, the Commissioner agreed with GAO‘s
recommendation.
www.gao.gov/cgi-bin/getrpt?GAO-05-46.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact David A. Powner at (202)
512-9286 or pownerd@gao.gov.
[End of section]
Contents:
Letter:
Recommendation for Executive Action:
Agency Comments:
Appendixes:
Appendix I: Briefing Slides from the March 8, 2004, Briefing to the
Senate and House Appropriations Subcommittee Staffs:
Appendix II: Briefing Slides from the August 31, 2004, Briefing to the
Senate and House Appropriations Subcommittee Staffs:
Appendix III: Comments from the Internal Revenue Service:
Appendix IV: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Staff Acknowledgments:
BSM: Business Systems Modernization:
CIO: Chief Information Officer:
EA: Enterprise Architecture:
IRS: Internal Revenue Service:
OMB: Office of Management and Budget:
Letter November 17, 2004:
The Honorable Richard C. Shelby:
Chairman:
The Honorable Patty Murray:
Ranking Member:
Subcommittee on Transportation, Treasury and General Government:
Committee on Appropriations:
United States Senate:
The Honorable Ernest J. Istook, Jr.:
Chairman:
The Honorable John W. Olver:
Ranking Minority Member:
Subcommittee on Transportation, Treasury and Independent Agencies:
Committee on Appropriations:
House of Representatives:
As required by law, the Department of the Treasury submitted the
Internal Revenue Service's (IRS) initial and revised fiscal year 2004
expenditure plans in January and July 2004, respectively, to the
congressional appropriations committees, requesting about $388 million
from the Business Systems Modernization (BSM) account. Our objectives
in reviewing the plans were to (1) determine whether the plans
satisfied the conditions specified in the law,[Footnote 1] (2)
determine what progress IRS had made in implementing our prior
recommendations, and (3) provide any other observations about the
initial and revised plans and IRS's BSM program.
On March 8 and August 31, 2004, we briefed your respective offices on
the results of our reviews. This report transmits the materials used at
those briefings and reiterates the recommendation that we made to the
Commissioner of Internal Revenue in our August 2004 briefing. The full
briefing materials, including our scope and methodology, are reprinted
in appendixes I and II.
In summary, we made the following major points in our March 2004
briefing on the results of our review of IRS's initial expenditure plan
for fiscal year 2004:
* IRS's initial expenditure plan satisfied each of the six legislative
conditions.
* IRS had made progress in implementing our recommendations to improve
its modernization management controls and capabilities and in
completing some modernization projects during fiscal year 2003 that
have benefited taxpayers and the agency. For example, IRS had (1)
implemented our prior recommendation to promptly update its enterprise
transition strategy to conform to changes in the agency's enterprise
architecture;[Footnote 2] (2) reported the deployment of an application
that provides refund status for the Advanced Child Tax Credit; and (3)
reported the delivery of the first release of a new human resources
system, HR Connect, to 73,000 IRS employees that allows them to access
and manage their human resources information online. Although progress
had been made, modernization management controls and capabilities
related to configuration management,[Footnote 3] human capital
management, cost and schedule estimating, and contract management had
not yet been fully implemented or institutionalized. Weaknesses in
these controls and capabilities had contributed, in part, to BSM
project cost and schedule shortfalls.
* Projects continued to incur cost increases and schedule delays for
several reasons, including inadequate definition of systems
requirements, increases in project scope, and cost and schedule
estimating deficiencies. Cost overruns and schedule delays impaired
IRS's ability to make appropriate decisions about investing in new
projects, delayed delivery of benefits to taxpayers, and postponed the
resolution of material weaknesses affecting other program areas.
* In-depth and more comprehensive internal and independent assessments
of the BSM program had identified significant weaknesses and risks that
are consistent with our prior reviews. IRS was taking actions to
address the issues identified in these BSM assessments.
In our August 2004 briefing on the results of our review of IRS's
revised fiscal year 2004 expenditure plan, we reported that IRS had
deployed several modernized systems to date that provide benefits,
including (1) Modernized e-File Release 1, which provides electronic
filing for large businesses and tax-exempt organizations; (2) e-
Services, which creates a Web portal and other e-Services to promote
the goal of conducting most IRS transactions with taxpayers and tax
practitioners electronically; and (3) Customer Account Data
Engine[Footnote 4]--Individual Master File Release 1.1, which is
expected to improve processing of all formats (telefile, electronic, or
paper) of the 1040EZ return for single taxpayers with refund or even-
balance returns.
In addition, we made the following major points in the August 2004
briefing:
* IRS's revised plan satisfied the conditions specified in the
appropriations law.
* Projects continued to incur significant cost increases and schedule
delays. In its revised fiscal year 2004 plan, IRS disclosed that key
BSM projects had continued to experience cost and schedule shortfalls
against prior commitments. For example, the total estimated life cycle
cost for full deployment of Release 1 of the Integrated Financial
System had increased by almost $74 million, and project completion had
been delayed by 15 months. IRS cited various reasons for cost increases
and schedule delays related to this and other projects, including an
inability to resolve key system design, integration, and performance
issues in a timely manner.
* IRS had taken actions to address issues raised in independent BSM
assessments. IRS developed 48 action issues to address concerns raised
by various program reviews conducted during 2003 and, in a May 2004
report, stated that almost all of them were closed based on completed
actions. However, many of these action issues were prematurely closed
because required activities were incomplete. Subsequent to the May
report, the Associate Chief Information Officer (CIO) for Modernization
Management began tracking the progress of the action issues, including
those that had been previously closed (merging some of these issues so
that 38 issues instead of 48 were being tracked). As of the end of
August 2004, 10 of the 38 issues had been closed, leaving 28 issues
open. IRS reported that some of the issues will take time to fully
complete, while others will span the life of the program.
* IRS had performed post-implementation reviews on three deployed
projects, but they were incomplete. Federal and IRS guidance calls for
post-implementation reviews to be performed on completed projects to
determine whether expected benefits have been achieved and to document
lessons learned. IRS had performed three such reviews, but they did not
include, for example, an analysis of actual versus planned benefits.
Without such an analysis, IRS lacks important information about whether
its BSM projects are meeting expectations.
Recommendation for Executive Action:
We recommend that the Commissioner of Internal Revenue direct the CIO
to ensure that, after BSM projects are deployed, post-implementation
reviews are performed that include an analysis of quantitative and
qualitative investment data to determine, at a minimum, whether
expected benefits were achieved.
Agency Comments:
In providing written comments on a draft of this report, the
Commissioner of Internal Revenue agreed with our recommendation and
commented on the actions IRS is taking to implement it. The
Commissioner also provided additional information on various
improvement efforts that IRS has undertaken. The Commissioner's written
comments are reprinted in appendix III.
We are sending copies of this report to the Chairmen and Ranking
Minority Members of other Senate and House committees and subcommittees
that have appropriations, authorization, and oversight
responsibilities for the Internal Revenue Service. We are also sending
copies to the Commissioner of Internal Revenue, the Secretary of the
Treasury, the Chairman of the IRS Oversight Board, and the Director of
the Office of Management and Budget. Copies are also available at no
charge on the GAO Web site at [Hyperlink, http://www.gao.gov].
Should you or your offices have questions on matters discussed in this
report, please contact me at (202) 512-9286 or Linda Lambert, Assistant
Director, at (202) 512-9556. We can also be reached by E-mail at
[Hyperlink, pownerd@gao.gov] and [Hyperlink, lambertl@gao.gov],
respectively. Key contributors to this report are listed in appendix
IV.
Signed by:
David A. Powner:
Director, Information Technology Management Issues:
[End of section]
Appendixes:
Appendix I: Briefing Slides from the March 8, 2004, Briefing to the
Senate and House Appropriations Subcommittee Staffs:
[See PDF for images]
[End of slide presentation]
[End of section]
Appendix II: Briefing Slides from the August 31, 2004, Briefing to the
Senate and House Appropriations Subcommittee Staffs:
[See PDF for images]
[End of slide presentation]
[End of section]
Appendix III: Comments from the Internal Revenue Service:
DEPARTMENT OF THE TREASURY:
INTERNAL REVENUE SERVICE:
WASHINGTON, D.C. 20224:
COMMISSIONER:
October 28, 2004:
Mr. David A. Powner:
Director, Information Technology Management Issues:
United States Government Accountability Office:
Washington, D.C. 20548:
Dear Mr. Powner:
We have reviewed the Government Accountability Office (GAO) draft
report entitled "Business Systems Modernization: IRS's Fiscal Year 2004
Expenditure Plan" (GAO-05-46, November 2004). We are pleased that the
GAO:
* Validated that we satisfied the six x-legislative conditions as
specified in Congressional appropriations;
* Acknowledged that we have shown marked improvement in implementing
modernization management controls and capabilities;
* Noted that we are implementing GAO's past recommendations; and:
* Recognized that we are providing real benefits to American taxpayers
and IRS employees as a result of delivering several modernized systems
(e.g., Modernized e-File Release 1, e-Services, and the Customer
Account Data Engine Release 1.1).
We would also like to comment on additional improvements we have made
in two areas.
The first area pertains to program performance as it relates to cost
estimating and scheduling. The report states that "projects continue to
incur significant cost increases and schedule delays." In the Fall/
Winter of 2003 (during the annual program planning process), we re-
baselined the cost estimates and delivery schedules for each of the BSM
program projects. Since then, our cost and scheduling performance have
dramatically improved. With the exception of one (IFS), all projects
were delivered on time (either early or within a few weeks of schedule)
and within budget. This is a major accomplishment. It demonstrates that
the steps we took in 2004 to improve program performance are having a
positive impact. Thus, due to the successful implementation . of
numerous program management improvements, 2004 did not follow the
pattern of cost overruns that had occurred from 1999 through 2003.
The second area pertains to the action items we developed to improve
the BSM program. The report discusses the list of 48 action items that
we developed and the fact that many are still open. In that connection,
we would note that many of these action items are ongoing and
continuous. We would also emphasize the other program improvement goals
that were met. For example, external studies conducted in 2003
confirmed:
* The BSM portfolio of projects far exceeded the IRS and PRIME's
management and technical capacity;
* The IRS Business United were not involved enough in project
management; and:
* Contractor performance was not at an acceptable level.
We have made significant progress in addressing each of these major
challenges.
First, the 2005 IRS budget to Congress reflects a portfolio reduction
of 37% from the 2003 level, which more closely aligns the BSM workload
with the IRS's and PRIME contractor's management capacity.
Second, a Business Unit leader is assigned to each project with
responsibility for leading the related BSM Governance Committee, and
sharing accountability for delivering the modernization project as
stated in their annual performance commitments.
Third, we are making progress in improving the accountability of the
PRIME contractor. I meet monthly with the Chief Operating Officer of
the Computer Sciences Corporation to reinforce the accountability of
the contractor to the IRS. Additionally, we have made significant
progress in restructuring BSM project contracts with the PRME that
shift an appropriate amount of financial risk to the contractor and tie
costs to performance. These steps have resulted in improved contractor
performance as demonstrated in the deliverables in 2004 and the general
adherence to costs and schedules.
In addition, we have concluded that we did not have enough seasoned
technology executives with a proven track record of managing and
delivering large, complex IT projects. In response, we made great
progress in hiring experienced executive and seasoned managers who have
expertise in running large IT programs and projects. A little over a
year ago the mix of leadership at the top of the BSM program consisted
of one outside expert and six internal IRS executives. Today, that mix
will soon be five outside experienced experts and three internal IRS
executives. This mix is a much better balance of the technology talents
and tax administration experience needed to successfully run BSM.
We recognize that there is still a lot of work ahead of us to continue
to mature the BSM Program, and we appreciate your assistance in this
effort. To that end, we will continue to provide GAO with monthly
dashboard reports on our progress in maturing our management controls
(as we have done over the past 30 months). We believe that in the
future, however, some of our management controls will have matured
enough to eliminate the need for monthly tracking of progress, and we
will further discuss these issues with GAO.
I would like to briefly comment on the specific recommendation in the
report:
RECOMMENDATION: After BSM projects are deployed, post-implementation
reviews are performed that include an analysis of quantitative and
qualitative investment data to determine, at a minimum, whether
expected benefits were achieved.
We agree with this recommendation. As the report indicates, we
concluded some time ago that the Post-Implementation Review (PIR)
process we were following (as called for in the Enterprise Life-Cycle
methodology) was inadequate. We have developed new procedures that not
only extend the PIR process as recommended by the GAO, but that will
take a look at lessons learned at the end of each project milestone and
retain the results of these comprehensive reviews in a repository that
is available to everyone on the BSM Program. We expect to conduct the
first PIR's under the new process by the end of the calendar year and
within 45 days of passing each subsequent project milestone. This
repository will also contain all previous reviews.
We appreciate your continued support and the valuable assistance and
guidance from your staff. If you have any questions, please contact W.
Todd Grams, Chief Information Officer, at (202) 622-6800.
Sincerely,
Signed by:
Mark W. Everson:
[End of section]
Appendix IV: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
David A. Powner, (202) 512-9286:
Linda J. Lambert, (202) 512-9556:
Staff Acknowledgments:
In addition to the individuals named above, other key contributors were
Bernard R. Anderson and Timothy D. Hopkins.
(310477):
FOOTNOTES
[1] BSM funds are unavailable until the IRS submits to congressional
appropriations committees for approval a modernization expenditure plan
that (1) meets the Office of Management and Budget's (OMB) capital
planning and investment control review requirements; (2) complies with
IRS's enterprise architecture; (3) conforms with IRS's enterprise life
cycle methodology; (4) is approved by IRS, the Department of the
Treasury, and OMB; (5) is reviewed by GAO; and (6) complies with
federal acquisition rules, requirements, guidelines, and systems
acquisition management practices. See P.L. 108-199, Div. F, Title II,
Jan. 23, 2004, for fiscal year 2004 funding.
[2] An enterprise architecture (EA) is an institutional blueprint that
defines how an organization operates today, in both business and
technology terms, and intends to operate in the future. An EA also
includes an enterprise transition strategy that describes how an
organization will migrate from its current operating environment to its
future operating environment.
[3] Configuration management is the means for ensuring the integrity
and consistency of system modernization program and project products
throughout their life cycles. Through effective configuration
management, for example, integration among related projects and
alignment between projects and the enterprise architecture can be
achieved.
[4] The Customer Account Data Engine is to build the modernized
database foundation to replace the current master files processing
systems, which are the agency's repository for taxpayer information.
There are master files for individuals, businesses, and employer
retirement plans.
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