Business Systems Modernization
Internal Revenue Service's Fiscal Year 2005 Expenditure Plan Gao ID: GAO-05-774 July 22, 2005The 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 intended to replace the agency's aging business and tax processing systems. As required by law, IRS submitted its fiscal year 2005 expenditure plan in April 2005 to congressional appropriations committees, requesting about $203 million from the BSM account. GAO's objectives in reviewing the plan were to (1) determine whether it 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 plan and IRS's BSM program.
IRS's fiscal year 2005 expenditure plan, which requested about $203 million for the BSM program, satisfies 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 GAO's recommendations to improve its modernization management controls and capabilities. However, certain controls and capabilities related to configuration management, human capital management, cost and schedule estimating, contract management, and post-implementation reviews have not yet been fully implemented or institutionalized. Weaknesses in these controls and capabilities have contributed, at least in part, to project cost and schedule shortfalls. GAO's observations on the expenditure plan and BSM program include the following: (1) during the past year, IRS has made progress implementing BSM, but much work remains. While IRS has deployed initial versions of several modernized tax processing and business systems, these deliveries only represent the initial steps toward modernization. For example, initial deliveries of the Customer Account Data Engine (CADE) project will process less than 1 percent of all tax returns filed this year; (2) IRS has not met long-term cost and schedule estimates, but its new incremental approach contributed to short-term improvements. In the second quarter of fiscal year 2004, systems modernization projects were rebaselined, and IRS adopted a new strategy to develop and deploy more manageable project segments. Since that time, IRS has met its short-term cost estimates and delivery dates for the initial releases of CADE and the Custodial Accounting Project. However, concerns remain about IRS's ability to continue meeting cost and schedule targets; (3) IRS has made progress toward addressing issues raised in independent BSM assessments and implementing program improvement initiatives, but high-priority issues and challenges remain in areas such as quality assurance, the change request process, and integrated schedule and baseline management; and (4) the BSM vision and strategy need revision in order to clearly show what the modernization program will consist of, when it will be completed, and at what cost. For example, the latest modernization strategy referenced in an expenditure plan dates back to fiscal year 2002, and its planned delivery dates no longer reflect reality.
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-05-774, Business Systems Modernization: Internal Revenue Service's Fiscal Year 2005 Expenditure Plan
This is the accessible text file for GAO report number GAO-05-774
entitled 'Business Systems Modernization: Internal Revenue Service's
Fiscal Year 2005 Expenditure Plan' which was released on July 22, 2005.
This text file was formatted by the U.S. Government Accountability
Office (GAO) to be accessible to users with visual impairments, as part
of a longer term project to improve GAO products' accessibility. Every
attempt has been made to maintain the structural and data integrity of
the original printed product. Accessibility features, such as text
descriptions of tables, consecutively numbered footnotes placed at the
end of the file, and the text of agency comment letters, are provided
but may not exactly duplicate the presentation or format of the printed
version. The portable document format (PDF) file is an exact electronic
replica of the printed version. We welcome your feedback. Please E-mail
your comments regarding the contents or accessibility features of this
document to Webmaster@gao.gov.
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed
in its entirety without further permission from GAO. Because this work
may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this
material separately.
Report to Congressional Committees:
July 2005:
Business Systems Modernization:
Internal Revenue Service's Fiscal Year 2005 Expenditure Plan:
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-774]
GAO Highlights:
Highlights of GAO-05-774, 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 intended to replace the agency‘s aging
business and tax processing systems. As required by law, IRS submitted
its fiscal year 2005 expenditure plan in April 2005 to congressional
appropriations committees, requesting about $203 million from the BSM
account.
GAO‘s objectives in reviewing the plan were to (1) determine whether it
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 plan and IRS‘s BSM
program.
What GAO Found:
IRS‘s fiscal year 2005 expenditure plan, which requested about $203
million for the BSM program, satisfies 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 GAO‘s recommendations to improve
its modernization management controls and capabilities. However,
certain controls and capabilities related to configuration management,
human capital management, cost and schedule estimating, contract
management, and post-implementation reviews have not yet been fully
implemented or institutionalized. Weaknesses in these controls and
capabilities have contributed, at least in part, to project cost and
schedule shortfalls.
GAO‘s observations on the expenditure plan and BSM program include the
following:
* During the past year, IRS has made progress implementing BSM, but
much work remains. While IRS has deployed initial versions of several
modernized tax processing and business systems, these deliveries only
represent the initial steps toward modernization. For example, initial
deliveries of the Customer Account Data Engine (CADE) project will
process less than 1 percent of all tax returns filed this year.
* IRS has not met long-term cost and schedule estimates, but its new
incremental approach contributed to short-term improvements. In the
second quarter of fiscal year 2004, systems modernization projects were
rebaselined, and IRS adopted a new strategy to develop and deploy more
manageable project segments. Since that time, IRS has met its short-
term cost estimates and delivery dates for the initial releases of CADE
and the Custodial Accounting Project. However, concerns remain about
IRS‘s ability to continue meeting cost and schedule targets.
* IRS has made progress toward addressing issues raised in independent
BSM assessments and implementing program improvement initiatives, but
high-priority issues and challenges remain in areas such as quality
assurance, the change request process, and integrated schedule and
baseline management.
The BSM vision and strategy need revision in order to clearly show what
the modernization program will consist of, when it will be completed,
and at what cost. For example, the latest modernization strategy
referenced in an expenditure plan dates back to fiscal year 2002, and
its planned delivery dates no longer reflect reality.
What GAO Recommends:
GAO recommends that the Commissioner of Internal Revenue fully revisit
the vision and strategy for the BSM program and develop a new set of
long-term goals, strategies, and plans that are consistent with IRS‘s
budgetary outlook and management capabilities. In providing comments on
a draft of this report, the Commissioner agreed with GAO‘s findings and
described actions IRS is taking to address GAO‘s recommendation.
www.gao.gov/cgi-bin/getrpt?GAO-05-774.
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 May 20, 2005, Briefing to the
Senate and House Appropriations Subcommittee Staffs:
Appendix II: Comments from the Internal Revenue Service:
Appendix III: GAO Contact and Staff Acknowledgments:
Abbreviations:
BSM: Business Systems Modernization:
CIO: Chief Information Officer:
IRS: Internal Revenue Service:
OMB: Office of Management and Budget:
PRIME: Prime Systems Integration Support:
Letter July 22, 2005:
The Honorable Christopher S. Bond:
Chairman:
The Honorable Patty Murray:
Ranking Member:
Subcommittee on Transportation, Treasury, the Judiciary, Housing and
Urban Development, and Related Agencies:
Committee on Appropriations:
United States Senate:
The Honorable Joe Knollenberg:
Chairman:
The Honorable John W. Olver:
Ranking Member:
Subcommittee on the Departments of Transportation, Treasury, and
Housing and Urban Development, the Judiciary, District of Columbia, and
Independent Agencies:
Committee on Appropriations:
House of Representatives:
As required by law, the Internal Revenue Service (IRS) submitted its
fiscal year 2005 expenditure plan in April 2005 to the congressional
appropriations committees, requesting about $203 million from the
Business Systems Modernization (BSM) account. Our objectives in
reviewing the plan were to (1) determine whether the plan 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 plan and IRS's BSM
program.
On May 20, 2005, we briefed your respective offices on the results of
our review. This report transmits the materials we used at the briefing
and provides the recommendation that we made to the Commissioner of
Internal Revenue. The full briefing materials, including our scope and
methodology, are reprinted as appendix I.
In summary, we made the following major points:
* IRS's fiscal year 2005 plan satisfies each of the six legislative
conditions.
* Although IRS has made progress in implementing our recommendations
and improving its modernization management controls and capabilities,
certain controls and capabilities related to configuration management,
human capital management, cost and schedule estimating, contract
management, and post-implementation reviews have not yet been fully
implemented or institutionalized. Weaknesses in these controls and
capabilities have contributed, at least in part, to BSM project cost
and schedule shortfalls.
* IRS has made progress in implementing BSM, but much work remains. IRS
has deployed initial phases of several modernized systems during the
past year, including the Customer Account Data Engine (the new taxpayer
information database), Modernized e-File (a new electronic filing
system), and e-Services (a new Web portal and electronic services for
tax practitioners). The deployment of these systems provides several
benefits to the taxpayer, including faster processing of tax refunds
and more timely response to customer inquiries. However, these
deliveries represent only a beginning, and much more remains to be done
by IRS before the BSM program is complete. For example, the Customer
Account Data Engine will process less than 1 percent of all tax returns
filed this year.
* IRS has not met long-term cost and schedule estimates, but its new
incremental approach contributed to short-term improvements.
Historically, BSM has experienced significant cost overruns and
schedule slippages. In the second quarter of fiscal year 2004, IRS
rebaselined its projects and decided to change its BSM project strategy
to enable it to develop and deploy more manageable project segments.
Since making this change, IRS has met its short-term cost estimates and
scheduled delivery dates for initial releases of the Customer Account
Data Engine and the Custodial Accounting Project. However, concerns
remain about IRS's ability to continue meeting its cost and schedule
targets because of persistent weaknesses in the agency's capabilities
to deliver modernization initiatives on time and within budget.
* IRS has made progress toward addressing issues raised in independent
BSM assessments and implementing program improvement initiatives, but
significant issues and challenges remain. IRS has made further progress
in addressing the items in its BSM Challenges Plan, completing 44 of
the 48 action items. In addition, the current IRS Associate Chief
Information Officer (CIO) for BSM developed a new BSM program
improvement framework, which covers all identified issues and allows
the agency to regularly identify, prioritize, and resolve these issues.
Currently, there are 17 high-priority initiatives. These initiatives
address key areas, including quality assurance, cost and schedule
estimation, the change request process, and integrated schedule
management and baseline management. If it is effectively implemented,
this program improvement process should help IRS manage program risk.
However, until the agency has addressed its high-priority initiatives,
BSM remains at risk of further cost overruns and delays in its delivery
of critical functionality.
* IRS is adjusting the BSM program in response to its assessment of the
prime systems integration support (PRIME) contractor's performance and
budget reductions. As a result of its assessment of the PRIME
contractor's performance in 2004, IRS began to transfer program
management operations from the contractor to the agency. Subsequent
budget reductions resulted in further shifting of responsibilities away
from the contractor. IRS has taken over significant responsibilities
for program management, systems engineering, and business integration.
Also, IRS has made adjustments to project funding allocations and
future delivery schedules. Because IRS does not have all the expertise
and processes needed to discharge these responsibilities effectively,
these changes could impact future modernization budgets and cause
further delays in implementing functionality that is intended to
provide benefits to IRS and to taxpayers.
* The BSM vision and strategy need revision. The BSM program is based
on visions and strategies developed several years ago. The significant
delays experienced by the program over the past few years and the
changes brought about by the shift of significant program
responsibilities from the PRIME contractor to IRS, indicate a need for
IRS to revisit its long-term goals, strategies, and plans for BSM,
including an assessment of when significant future BSM functionality
would be delivered and at what cost.
Recommendation for Executive Action:
To address the many changes associated with the BSM and to clearly
describe what the modernization program is intended to accomplish, when
it will be completed, and at what cost, we recommend that the
Commissioner of Internal Revenue direct the CIO to take the following
action:
* fully revisit the vision and strategy for the BSM program and develop
a new set of long-term goals, strategies, and plans that are consistent
with the budgetary outlook and IRS's management capabilities.
Agency Comments:
In providing written comments on a draft of this report, the
Commissioner of Internal Revenue agreed with our findings and described
the actions that IRS is taking to implement our recommendation. The
Commissioner also provided additional information on various
improvement efforts that IRS has undertaken. The Commissioner's written
comments are reprinted in appendix II.
We are sending copies of this report to the Chairmen and Ranking
Members of other Senate and House committees and subcommittees that
have appropriation, 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 [Hyperlink,
pownerd@gao.gov]. Contact points for our Offices of Congressional
Relations and Public Affairs may be found on the last page of this
report. GAO staff who made major contributions to this report are
listed in appendix III.
Signed by:
David A. Powner:
Director, Information Technology Management Issues:
[End of section]
Appendix I: Briefing Slides from the May 20, 2005, Briefing to the
Senate and House Appropriations Subcommittee Staffs:
[See PDF for images]
[End of slide presentation]
[End of section]
Appendix II: Comments from the Internal Revenue Service:
DEPARTMENT OF THE TREASURY:
INTERNAL REVENUE SERVICE:
COMMISSIONER:
WASHINGTON, D.C. 20224:
June 28, 2005:
Mr. David Powner:
Director, Information Technology Management Issues:
U.S. Government Accountability Office:
441 G Street, N.W.
Washington, DC 20548:
Dear Mr. Powner:
I have reviewed the Government Accountability Office (GAO) draft report
titled "Internal Revenue Service's Fiscal Year 2005 Expenditure Plan"
(GAO-05-774, July 2005). We are pleased the GAO:
* Validated that we satisfied the legislative conditions as specified
in Congressional appropriations;
* Acknowledged the progress made in the Business Systems Modernization
(BSM) Program;
* Confirmed the new incremental approach and strategy to develop and
deploy more manageable project segments thus meeting short-term cost
estimates and delivery dates for some of our projects; and:
* Acknowledged the progress made towards addressing the issues raised
in independent BSM assessments and in implementing program initiatives.
We agree with your report's findings and with your observations that
much work remains ahead of us. However, we have the management focus
and discipline in place to ensure that we are "doing things right" as
opposed to "doing things fast," such as exiting milestones prematurely.
We are also consistently following the proper methodologies and holding
people accountable if they do not. Some ongoing challenges, however,
will be:
* Balancing the scope and pace of projects consistent with capacity;
* Ensuring that the right people are in place before launching a
project; and:
* Setting realistic delivery schedules and cost estimates.
We have begun with the implementation of a human resource capacity
management model to ensure that we have the right number of resources
with the right skills and backgrounds available to a project.
We also developed and implemented a more robust approach to post-
milestone and post-implementation reviews. In addition to extending the
post-implementation review process, we also look at lessons learned at
the end of each project milestone. We then retain the results of these
comprehensive reviews in a repository that is available to everyone
involved with the BSM program. We have now conducted several Post
Milestone Reviews according to the new BSM procedures on Post Milestone
and Post Implementation Reviews (PIRs).
We are aware that the magnitude of the BSM program dictates that we
will always be going through an evolution of assessment and
improvements. In that regard, the BSM Challenges Action Plan has
evolved to support our goal of continuous improvement of the program.
Every 6 months, the BSM leadership team identifies new high priority
items from the various oversight audit findings and the team's own
assessment of the program's needs. We are placing a major focus and
thrust towards completing these highest priority items over a 6-month
period. The BSM leadership team will continue to reevaluate the state
of the BSM program and set new priority items for improving the program
every 6 months.
I would like to briefly comment on your report's recommendation: "To
address the many changes associated with the BSM and to clearly
describe what the modernization program is intended to accomplish, when
it will be completed, and at what cost, we recommend that the
Commissioner of the Internal Revenue direct the CIO to fully revisit
the vision and strategy for the BSM program and develop a new set of
long-term goals, strategies, and plans that are consistent with the
budgetary outlook and the IRS's management capabilities."
The IRS has begun a planning effort to reset its IT Modernization
Strategy and approach. As part of this effort, we will be updating the
Enterprise Transition Strategy and Release Architectures that are part
of the IRS Enterprise Architecture. Our intent is to have the high-
level strategy, goals, and plans in place by the end of this fiscal
year (FY 2005), with more detailed engineering analysis and sequencing
strategies that will be completed during the first quarter of FY 2006.
We believe that this approach will address this recommendation.
We appreciate your continued support and the valuable assistance and
guidance from your staff. If you have any questions, or if you would
like to discuss this response in more detail, please contact Todd
Grams, Chief Information Officer, at (202) 622-6800.
Sincerely,
Signed by:
Mark W. Everson:
[End of section]
Appendix III: GAO Contact and Staff Acknowledgments:
GAO Contact:
David A. Powner, (202) 512-9286:
Staff Acknowledgments:
In addition to the contact named above, Bernard R. Anderson, John L.
Dale, Joanne L. Fiorino, Timothy D. Hopkins, and Tonia L. Johnson made
key contributions to this report.
(310495):
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) complies with federal acquisition rules,
requirements, guidelines, and systems acquisition management practices;
(5) is approved by IRS, the Department of the Treasury, and OMB; and
(6) is reviewed by GAO. See P.L. 108-447, Div. H, Title II, Dec. 8,
2004, for fiscal year 2005 funding.
GAO's Mission:
The Government Accountability Office, the investigative arm of
Congress, exists to support Congress in meeting its constitutional
responsibilities and to help improve the performance and accountability
of the federal government for the American people. GAO examines the use
of public funds; evaluates federal programs and policies; and provides
analyses, recommendations, and other assistance to help Congress make
informed oversight, policy, and funding decisions. GAO's commitment to
good government is reflected in its core values of accountability,
integrity, and reliability.
Obtaining Copies of GAO Reports and Testimony:
The fastest and easiest way to obtain copies of GAO documents at no
cost is through the Internet. GAO's Web site ( www.gao.gov ) contains
abstracts and full-text files of current reports and testimony and an
expanding archive of older products. The Web site features a search
engine to help you locate documents using key words and phrases. You
can print these documents in their entirety, including charts and other
graphics.
Each day, GAO issues a list of newly released reports, testimony, and
correspondence. GAO posts this list, known as "Today's Reports," on its
Web site daily. The list contains links to the full-text document
files. To have GAO e-mail this list to you every afternoon, go to
www.gao.gov and select "Subscribe to e-mail alerts" under the "Order
GAO Products" heading.
Order by Mail or Phone:
The first copy of each printed report is free. Additional copies are $2
each. A check or money order should be made out to the Superintendent
of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or
more copies mailed to a single address are discounted 25 percent.
Orders should be sent to:
U.S. Government Accountability Office
441 G Street NW, Room LM
Washington, D.C. 20548:
To order by Phone:
Voice: (202) 512-6000:
TDD: (202) 512-2537:
Fax: (202) 512-6061:
To Report Fraud, Waste, and Abuse in Federal Programs:
Contact:
Web site: www.gao.gov/fraudnet/fraudnet.htm
E-mail: fraudnet@gao.gov
Automated answering system: (800) 424-5454 or (202) 512-7470:
Public Affairs:
Jeff Nelligan, managing director,
NelliganJ@gao.gov
(202) 512-4800
U.S. Government Accountability Office,
441 G Street NW, Room 7149
Washington, D.C. 20548:
