Business Systems Modernization
Internal Revenue Service's Fiscal Year 2006 Expenditure Plan
Gao ID: GAO-06-360 February 21, 2006
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 2006 expenditure plan, in October 2005, to congressional appropriations committees, requesting $199 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 and (2) provide any other observations about the plan and IRS's BSM program.
IRS's fiscal year 2006 expenditure plan 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. During 2005, IRS made further progress in implementing BSM, but some projects did not meet short-term cost and schedule commitments. IRS deployed additional releases of several modernized systems, including the Customer Account Data Engine (the new taxpayer information database), e-Services (a new Web portal and electronic services for tax practitioners), and Modernized e-File (a new electronic filing system). While three project releases were delivered within the cost and/or schedule commitments presented in the fiscal year 2005 expenditure plan, others experienced cost increases or schedule delays. IRS has identified significant risks and issues that confront future planned system deliveries. The agency recognizes the potential impact of these project risks and issues on its ability to deliver planned functionality within cost and schedule estimates, and, to its credit, has developed mitigation strategies to address them. IRS has made additional progress in addressing high-priority BSM program improvement initiatives. Its program improvement process appears to be an effective means of assessing, prioritizing, and addressing BSM issues and challenges. However, much more work remains for IRS to fully address these issues and challenges. In response to GAO's prior recommendation, IRS is developing a new Modernization Vision and Strategy to address BSM program changes and provide a modernization roadmap. IRS expects to complete a high-level Vision and Strategy, as well as a more detailed 5-year plan for the modernization program, by mid-March 2006. The expenditure plan submitted to the Congress contains outdated program status information and omits key details concerning deferred BSM functionality. IRS's fiscal year 2006 plan is substantially based on information describing the status of BSM projects and program management initiatives as of April 2005, and, therefore, in key areas did not adequately describe progress or provide information consistent with the program's status at the time the plan was submitted to the Congress in October 2005. Without current and complete information, effective congressional oversight of BSM progress and accountability is impaired.
Recommendations
Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
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GAO-06-360, Business Systems Modernization: Internal Revenue Service's Fiscal Year 2006 Expenditure Plan
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entitled 'Business Systems Modernization: Internal Revenue Service's
Fiscal Year 2006 Expenditure Plan' which was released on February 21,
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Report to Congressional Committees:
February 2006:
Business Systems Modernization:
Internal Revenue Service's Fiscal Year 2006 Expenditure Plan:
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-360]:
GAO Highlights:
Highlights of GAO-06-360, 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 2006 expenditure plan, in October 2005, to
congressional appropriations committees, requesting $199 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 and (2) provide any other
observations about the plan and IRS‘s BSM program.
What GAO Found:
IRS‘s fiscal year 2006 expenditure plan 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.
GAO‘s observations on the expenditure plan and BSM program include the
following:
* During 2005, IRS made further progress in implementing BSM, but some
projects did not meet short-term cost and schedule commitments. IRS
deployed additional releases of several modernized systems, including
the Customer Account Data Engine (the new taxpayer information
database), e-Services (a new Web portal and electronic services for tax
practitioners), and Modernized e-File (a new electronic filing system).
While three project releases were delivered within the cost and/or
schedule commitments presented in the fiscal year 2005 expenditure
plan, others experienced cost increases or schedule delays.
* IRS has identified significant risks and issues that confront future
planned system deliveries. The agency recognizes the potential impact
of these project risks and issues on its ability to deliver planned
functionality within cost and schedule estimates, and, to its credit,
has developed mitigation strategies to address them.
* IRS has made additional progress in addressing high-priority BSM
program improvement initiatives. Its program improvement process
appears to be an effective means of assessing, prioritizing, and
addressing BSM issues and challenges. However, much more work remains
for IRS to fully address these issues and challenges.
* In response to GAO‘s prior recommendation, IRS is developing a new
Modernization Vision and Strategy to address BSM program changes and
provide a modernization roadmap. IRS expects to complete a high-level
Vision and Strategy, as well as a more detailed 5-year plan for the
modernization program, by mid-March 2006.
* The expenditure plan submitted to the Congress contains outdated
program status information and omits key details concerning deferred
BSM functionality. IRS‘s fiscal year 2006 plan is substantially based
on information describing the status of BSM projects and program
management initiatives as of April 2005, and, therefore, in key areas
did not adequately describe progress or provide information consistent
with the program‘s status at the time the plan was submitted to the
Congress in October 2005. Without current and complete information,
effective congressional oversight of BSM progress and accountability is
impaired.
What GAO Recommends:
GAO recommends that the Commissioner of Internal Revenue ensure that
future expenditure plans submitted to the congressional appropriations
subcommittees provide current and complete program status information
and report any changes to prior commitments concerning the delivery of
BSM project functionality. In providing comments on a draft of this
report, the Commissioner agreed with GAO‘s findings and described the
actions that IRS is taking to address GAO‘s recommendation.
www.gao.gov/cgi-bin/getrpt?GAO-06-360.
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 November 30, 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:
BSM: Business Systems Modernization:
IRS: Internal Revenue Service:
OMB: Office of Management and Budget:
Letter February 21, 2006:
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 2006 expenditure plan, in October 2005, to the
congressional appropriations committees, requesting $199 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] and (2) provide any other
observations about the plan and IRS's BSM program.
On November 30, 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 2006 plan satisfies each of the six legislative
conditions.
* IRS has made further progress in implementing BSM, but some projects
did not meet short-term cost and schedule commitments. During 2005, IRS
deployed additional releases of several systems, including the Customer
Account Data Engine (the new taxpayer information database), e-Services
(a new Web portal and electronic services for tax practitioners), and
Modernized e-File (a new electronic filing system). While three project
releases were delivered within the cost and/or schedule commitments
presented in the fiscal year 2005 expenditure plan, others experienced
cost increases or schedule delays. For example, our analysis shows that
Release 1.3.1 of the Customer Account Data Engine was delivered at the
estimated cost and that the e-Services upgrade was completed on time
and within the estimated project cost. However, two project segments--
Integrated Financial System Release 1, Milestone 5, and Modernized e-
File Release 3.2, Milestone 4--experienced cost increases of 93 percent
and 29 percent, respectively.
* Future BSM project deliveries face significant risks and issues,
which IRS is addressing. IRS has identified significant risks and
issues with its future planned system deliveries. For example,
according to IRS, schedule delays associated with Release 1.3.1 of the
Customer Account Data Engine, as well as contention for key resources
between Releases 1.3.1 and 1.3.2, necessitated the deferral of some
functionality to later releases. These requirements deferrals may
negatively impact cost and schedule for Releases 2.1 and 2.2, which are
currently scheduled to be deployed in August 2006 and December 2006,
respectively. The agency, however, recognizes the potential impact of
these project risks and issues on its ability to deliver planned
functionality within cost and schedule estimates, and, to its credit,
has developed mitigation strategies to address them.
* IRS has made additional progress in addressing high-priority BSM
program improvement initiatives. Its high-priority improvement
initiatives appear to be an effective means of assessing, prioritizing,
and addressing BSM issues and challenges. However, much more work
remains for the agency to fully address these issues and challenges.
IRS is currently focusing on 22 high-priority initiatives, which it
plans to have completed by the end of March 2006. These initiatives
include establishing requirements management standards and executing
the implementation plan for integrated schedule and baseline
management.
* In response to our prior recommendation, IRS reports having efforts
under way to develop a new Modernization Vision and Strategy to address
BSM changes and provide a modernization roadmap. IRS anticipates having
an approved high-level Vision and Strategy in place in early fiscal
year 2006, and expects to complete a more detailed 5-year plan for the
modernization program by mid-March 2006.[Footnote 2] We believe these
actions represent good steps toward addressing our prior recommendation
to fully revisit the vision and strategy for the BSM program and
develop a new set of long-term goals, strategies, and plans consistent
with the budgetary outlook and with IRS's management capabilities.
* The expenditure plan submitted to the Congress contains outdated
program status information and omits key details concerning deferred
BSM functionality. IRS's fiscal year 2006 expenditure plan is
substantially based on information describing the status of BSM
projects and program management initiatives as of April 2005, and,
therefore, in key areas did not adequately describe progress or provide
information consistent with the program's status at the time the plan
was submitted to the Congress in October 2005. Specifically, the plan
(1) does not disclose that planned functionality for two BSM project
releases has been deferred to future releases and (2) contains a number
of inconsistencies between project cost and schedule data shown
throughout the document. Without current and complete information,
effective congressional oversight of BSM progress and accountability is
impaired.
Recommendation for Executive Action:
To allow for effective congressional oversight of the BSM program, we
recommend that the Commissioner of Internal Revenue direct the Chief
Information Officer to take the following action:
* ensure that future expenditure plans submitted to the congressional
appropriations subcommittees provide current and complete program
status information and report any changes to prior commitments
concerning the delivery of BSM project functionality.
Agency Comments:
In providing written comments on a draft of this report, the
Commissioner of Internal Revenue agreed with our findings and stated
that the report fairly represents BSM accomplishments as well as future
risks. The Commissioner also described the actions that IRS is taking
to implement our recommendation, including formulating a policy and
initiating dialogue with the Department of the Treasury and the Office
of Management and Budget to resolve expenditure plan development and
review process issues. 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]
Appendixes:
Appendix I: Briefing Slides from the November 30, 2005, Briefing to the
Senate and House Appropriations Subcommittee Staffs:
Review of IRS's Fiscal Year 2006 Business Systems Modernization
Expenditure Plan:
Briefing for the staffs of the Subcommittee on Transportation,
Treasury, the Judiciary, Housing and Urban Development, and Related
Agencies:
Senate Committee on Appropriations and
Subcommittee on the Departments of Transportation, Treasury, and
Housing and Urban Development, the Judiciary, District of Columbia, and
Independent Agencies:
House Committee on Appropriations:
November 30, 2005:
Briefing Contents:
* Introduction and Objectives:
* Results in Brief:
* Background:
* Scope and Methodology:
* Results:
* Conclusions:
* Recommendation for Executive Action:
* Agency Comments:
* Appendixes:
- I: Description of Business Systems Modernization (BSM) Projects and
Program-Level Initiatives:
- II: Additional Detail on IRS's Fiscal Year 2006 BSM Expenditure Plan:
- III: IRS Reported Project Cost/Schedule Changes:
Introduction and Objectives:
The Internal Revenue Service (IRS) has long relied on obsolete
automated systems for key operational and financial management
functions, and its attempts to modernize these computer systems span
several decades. IRS's multibillion-dollar Business Systems
Modernization (BSM) program, initiated in fiscal year 1999, is the
agency's latest attempt to modernize its systems. IRS contracted with
Computer Sciences Corporation (CSC) as the prime systems integration
support (PRIME) contractor to assist with designing, developing, and
integrating a new set of information systems that are intended to
replace IRS's aging business and tax processing systems. BSM is a high-
risk, highly complex program that involves the development and delivery
of a number of modernized tax administration, internal management, and
core infrastructure projects that are intended to provide improved and
expanded service to taxpayers as well as IRS internal business
efficiencies.
As mandated by IRS's fiscal year 2005 appropriations act, [NOTE 1] BSM
funds are not available until IRS submits a modernization expenditure
plan for approval to the congressional appropriations committees. This
plan must:
* meet the capital planning and investment control review requirements
established by the Office of Management and Budget (OMB);
* comply with IRS's enterprise architecture; [NOTE 2]
* conform with IRS's enterprise life cycle methodology; [NOTE 3]
* comply with federal acquisition rules, requirements, guidelines, and
systems acquisition management practices;
* be approved by IRS, Treasury, and OMB; and be reviewed by GAO.
NOTES:
[1] Pub. Law 108-447, Div. H, Title II, Dec. 8, 2004. Currently, IRS's
fiscal year 2006 funding is provided under a Current Resolution, Pub.
Law 109-77, Sept. 30, 2005, as amended by H.J. Res. 72, Nov. 19, 2005,
which continues BSIVI's funding subject to the "authority and
conditions" provided in the fiscal year 2005 appropriations act.
[2] An enterprise architecture (EA) is an institutional blueprint
defining how an enterprise operates today, in both business and
technology terms, and intends to operate in the future. An EA also
includes a roadmap for transitioning between these environments.
[3] IRS refers to its life cycle management program as the enterprise
life cycle (ELC).
Since mid-1999, IRS has submitted a series of expenditure or "spending"
plans requesting release of BSM appropriated funds. To date, about $1.9
billion has been appropriated and released for BSM.
On October 12, 2005, IRS submitted its fiscal year 2006 expenditure
plan to the relevant House and Senate appropriations subcommittees,
seeking release of $199 million from the BSM account.
As agreed with IRS's appropriations subcommittees, our objectives were
to:
* determine whether IRS's fiscal year 2006 expenditure plan satisfies
the legislative conditions specified in IRS's appropriations act and:
* provide any other observations about the plan and IRS's BSM program.
Results in Brief:
IRS's fiscal year 2006 plan satisfies each of the six legislative
conditions.
We have five observations related to the BSM program and fiscal year
2006 expenditure plan:
* IRS Has Made Further Progress in Implementing BSM, but Some Projects
Did Not Meet Short-Term Cost and Schedule Commitments. During 2005, IRS
deployed additional releases of several systems, including the Customer
Account Data Engine (the new taxpayer information database), e-Services
(a new Web portal and electronic services for tax practitioners), and
Modernized e-File (a new electronic filing system). While three project
releases were delivered within the cost and/or schedule commitments
presented in the fiscal year 2005 expenditure plan, others experienced
cost increases or schedule delays.
* Future BSM Project Deliveries Face Significant Risks and Issues,
which IRS is Addressing. IRS has identified significant risks and
issues with its future planned system deliveries. The agency, however,
recognizes the potential impact of these project risks and issues on
its ability to deliver planned functionality within cost and schedule
estimates, and, to its credit, has developed mitigation strategies to
address them.
* IRS Has Made Additional Progress in Addressing High-Priority BSM
Program Improvement Initiatives. IRS's high priority improvement
initiatives appear to be an effective means of assessing, prioritizing,
and addressing BSM issues and challenges. However, much more work
remains for IRS to fully address these issues and challenges.
* IRS is Developing a New Modernization Vision and Strategy. In
response to our prior recommendation, IRS reports having efforts
underway to develop a new Modernization Vision and Strategy. IRS
anticipates having an approved high-level Vision and Strategy in place
in early fiscal year 2006, and expects to complete a more detailed 5-
year plan for the modernization program by mid-March 2006.
* The Expenditure Plan Submitted to the Congress Contains Outdated
Program Status Information and Omits Key Details Concerning Deferred
BSM Project Functionality. IRS's fiscal year 2006 expenditure plan is
substantially based on information describing the status of BSM
projects and program management initiatives as of April 2005, and,
therefore, in key areas did not adequately describe progress or provide
information consistent with the program's status at the time the plan
was submitted to the Congress in October 2005. Specifically, the plan
(1) does not disclose that planned functionality for two BSM project
releases has been deferred to future releases and (2) contains a number
of inconsistencies between project cost and schedule data shown
throughout the document. Without current and complete information,
effective congressional oversight of BSM progress and accountability is
impaired.
To allow for effective congressional oversight of the BSM program, we
are recommending that the Commissioner of Internal Revenue direct the
Chief Information Officer (CIO) to ensure that future expenditure plans
submitted to IRS's appropriations subcommittees provide current and
complete program status information and report any changes to prior
commitments concerning the delivery of BSM project functionality.
In commenting on a draft of this briefing, the Associate CIO for BSM
stated that he appreciated the reasoned and balanced work of the GAO
and believed that the briefing fairly represents BSM accomplishments as
well as future risks. He also agreed with the recommendation and
provided technical comments.
To date, we have reviewed and reported on 12 requests for BSM funding
releases:
Since mid-1999, we have reported [NOTE 4] on the risks associated with
IRS's approach of building systems while concurrently developing and
implementing program management capabilities-for example, having a
fully operational program management office and implementing its
enterprise life cycle (ELC) methodology. IRS's ELC is a structured
method for managing system modernization program and project
investments throughout their life cycles. We reported that attempting
to acquire modernized systems before having the requisite management
capability increases the risk that systems will experience cost,
schedule, and performance shortfalls. In addition, we have noted
numerous modernization management control deficiencies and made
recommendations to correct them.
We have also reported [NOTE 5] that the risk of cost increases and
schedule delays associated with building systems without the requisite
management controls is not as severe early in projects' life cycles
when they are being planned (project definition and preliminary system
design), but escalates as projects are built (detailed design and
development) and implemented (deployment). In the case of IRS and its
ELC, a key point of risk escalation is milestone 3, at the end of the
system architecture phase. From this point through design and
development (milestone 4) to system deployment (milestone 5), risk will
increase significantly if requisite controls are not in place. In
February 2002, we reported that as IRS moved forward with its BSM
program, it faced increasing risks that it would be unable to deliver
promised system capabilities on time and within budget. To address the
escalating risks facing IRS, we recommended that the agency reconsider
the planned scope and pace of the BSM program with the goal of better
balancing the number of system acquisition projects underway and
planned with IRS's capacity to manage the workload.
* In our June 2003 report, [NOTE 6] we identified key IRS projects that
were approaching or had passed milestone 4 that were experiencing cost,
schedule, and performance shortfalls, and concluded that program risks
were heightened. In our November 2004 report, [NOTE 7] we stated that
key agency projects were continuing to incur significant cost increases
and schedule delays, and that independent assessments of the BSM
program had identified significant weaknesses and risks, consistent
with our prior reviews.
* In our July 2005 report, [NOTE 8] we noted that IRS had made progress
in implementing our prior 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 had not yet been fully implemented or
institutionalized. In addition, we noted that IRS had made progress
toward addressing issues raised in independent BSM assessments and
implementing program improvement initiatives, but significant
challenges and high-priority risks remained.
We also reported that although IRS had deployed the initial phases of
several modernized systems and met short-term cost and schedule
estimates, much more work remained to be done to complete the
modernization, and challenges confronted the agency in meeting its
longer-term cost and schedule estimates. In addition, we reported that
in response to its assessment of the PRIME contractor's performance and
budget reductions, IRS (1) was shifting significant BSM program
responsibilities from the contractor to the agency, and (2) had made
adjustments to project funding allocations and future delivery
schedules, including suspending work on the Custodial Accounting
Project and postponing future releases of the Integrated Financial
System indefinitely. Finally, we concluded that the BSM vision and
strategy was no longer current given project delays, and recommended
that the agency fully revisit it and develop a new set of long-term
program goals, strategies, and plans that is consistent with the
budgetary outlook and IRS's management capabilities.
IRS's fiscal year 2006 expenditure plan describes the agency's efforts
to
* continue ongoing program-level initiatives (e.g., Architecture &
Integration, Program Management) through the first week of November
2006 and core infrastructure projects (e.g., Infrastructure Shared
Services) through the end of November 2006,
* continue five tax administration project releases (Filing and Payment
Compliance Release 1.1, Modernized e-File Releases 3.2 and 4, and
Customer Account Data Engine - Individual Master File Releases 1.3.2
and 2) to their next milestones, and:
* begin three new tax administration project releases (Filing and
Payment Compliance Release 1.2 and Customer Account Data Engine -
Individual Master File Releases 2.1 and 2.2).
Table 1 shows a financial summary of the plan.
Table 1: Summary of IRS's Fiscal Year 2006 BSIVI Expenditure Plan (in
thousands of dollars)[A]:
[See PDF for image]
Source: IRS.
[A] See appendix I for a description of each BSM project and program-
level initiative. See appendix II for additional detail on the plan.
[B] The two categories under this heading include seven separate
projects or project releases.
[End of table]
NOTES:
[4] For example, see GAO, Business Systems Modernization: Results of
Review of IRS' March 2001 Expenditure Plan, GAO-01-716 (Washington,
D.C.: June 29, 2001) and Internal Revenue Service: Progress Continues
But Serious Management Challenges Remain, GAO-01-562T (Washington,
D.C.: April 2, 2001).
[5] For example, see GAO, Tax Systems Modernization: Results of Review
of IRS' Third Expenditure Plan, GAO-01-227 (Washington, D.C.: January
22, 2001) and Business Systems Modernization: IRS Needs to Better
Balance Management Capacity with Systems Acquisition Workload, GAO-02-
356 (Washington, D.C.: February 28, 2002).
[6] GAO, Business Systems Modernization: IRS Has Made Significant
Progress in Improving Its Management Controls, but Risks Remain, GAO-03-
768 (Washington, D.C.: June 27, 2003).
[7] GAO, Business Systems Modernization: IRS's Fiscal Year 2004
Expenditure Plan, GAO-05-46 (Washington, D.C.: November 17, 2004).
[8] GAO, Business Systems Modernization: Internal Revenue Service's
Fiscal Year 2005 Expenditure Plan, GAO-05-774 (Washington, D.C.: July
22, 2005).
Scope and Methodology:
To accomplish our objectives, we:
* reviewed the fiscal year 2006 expenditure plan submitted by IRS in
October 2005;
* analyzed the plan against the legislative conditions to identify any
variances;
* interviewed IRS program and project management officials to
corroborate our understanding of the plan and other BSIVI activities;
* reviewed and analyzed modernization program review and project
management reports, briefings, and related documentation to assess
program/project status and associated issues and risks; and:
* reviewed program management reports, briefings, and related
documentation to assess the progress IRS has made in completing actions
and implementing program management improvements related to the BSIVI
Highest Priority Initiatives.
We did not assess IRS's progress in implementing our prior
recommendations to improve its modernization management controls and
capabilities (i.e., configuration management, human capital management,
cost and schedule estimation, contract management, and post-
implementation reviews) as a part of this review, since we recently
reported on the status of IRS's ongoing actions to address them. [NOTE
9]
To assess the reliability of the cost and schedule information
contained in this expenditure plan, we interviewed IRS officials in
order to gain an understanding of the data and discuss our use of the
data. In addition, we checked that information in the plan was
consistent with information contained in IRS internal briefings.
We performed our work from October through November 2005, in
Washington, D.C., in accordance with generally accepted government
auditing standards.
NOTE:
[9] See GAO-05-774 for details.
Results:
Objective 1: The plan satisfies the conditions in IRS's Fiscal Year
2006 appropriations act.
Table 2: Fiscal Year 2006 Expenditure Plan Provisions for Satisfying
Legislative Conditions:
[See PDF for image]
Source: IRS's fiscal year 2005 appropriations act (Pub. Law 108-447),
fiscal year 2006 Current Resolution (Pub. Law 109-77), and GAO
analysis.
[A] These are acquisition planning, solicitation, requirements
development and management, project management, contract tracking and
oversight, evaluation, and transition to support.
[End of table]
Objective 2: Observations about IRS's BSM Program and Expenditure Plan:
Observation 1: IRS Has Made Further Progress in Implementing BSM, but
Some Projects Did Not Meet Short-Term Cost and Schedule Commitments:
During 2005, IRS's BSM program has deployed additional releases of
several modernized systems that have delivered benefits to taxpayers
and the agency, including the following:
* Customer Account Data Engine (CADE) - Individual Master File [NOTE
10] Release 1. [NOTE 11] CADE is intended to replace IRS's antiquated
system that contains the repository of taxpayer information and,
therefore, is the BSM program's linchpin and highest priority project.
In January and September 2005, IRS implemented Releases 1.2 and 1.3.1
of CADE, respectively, which have been used to process filing year 2005
1040EZ returns for single taxpayers with refund or even-balance tax
returns. According to IRS, CADE has processed over 1.4 million tax
returns and generated over $426 million in refunds so far this filing
season (as of August 26, 2005), and has significantly reduced the cycle
time for processing and issuing refunds for 1040EZs filed
electronically.
* e-Services. This project created a Web portal and provided other
electronic services to promote the goal of conducting most IRS
transactions with taxpayers and tax practitioners electronically. In
August 2005, IRS deployed an upgrade to the e-Services PeopleSoft
software platform and approved the project's transition to operations
and maintenance. According to IRS, as of early November 2005, over
93,000 users have registered with this Web portal, and the use of on-
line services by practitioners has resulted in IRS operational
efficiencies estimated at nearly $1.8 million.
* Modernized e-File (MeF). This project is intended to provide
electronic filing for large corporations, small businesses, and tax-
exempt organizations. In March 2005, IRS completed MeF Release 3.1,
which allows for the electronic filing of Form 7004 (Application for
Automatic Extension of Time to File Corporation Income Tax Return) and
Form 990PF (Return of Private Foundation). IRS reported that, during
the 2005 filing season, over 220,000 return submissions have been
accepted using MeF.
In addition to these system deliveries, in March 2005, IRS launched the
Submission and Settlement Harvesting Project, which is the agency's
first business rules harvesting [NOTE 12] initiative. This project was
chartered to reengineer the submission and settlement process and to
harvest business rules sets in support of CADE Release 3. According to
IRS, the effort has harvested over 1000 business rules sets and
identified several improvement opportunities to streamline the
submission process and increase efficiency. This activity was completed
in November 2005.
While IRS made progress in meeting cost and schedule commitments for
completed and ongoing project releases during 2005, some projects
experienced significant cost increases and schedule delays. For
example, our comparison of IRS's reported costs and ELC milestone
completion dates presented in the fiscal year 2005 (April 2005) and
fiscal year 2006 (October 2005) expenditure plans shows that CADE
Release 1.3.1 was delivered at the estimated cost and that the e-
Services upgrade and Milestone 5 exit were completed on time and within
the estimated project costs. However, two project segments-Integrated
Financial System Release 1, Milestone 5 and MeF Release 3.2, Milestone
4-experienced significant cost increases of 93% and 29%, respectively,
against commitments shown in the fiscal year 2005 plan. In addition,
CADE Release 1.3.1 took 24% longer to complete than expected. Appendix
III provides the complete list of BSM project cost and schedule changes
reported by IRS.
In July 2005, we reported [NOTE 13] that the BSM program has had a
history of cost increases and schedule delays that have been due, at
least in part, to deficiencies in various management controls and
capabilities that have not yet been fully corrected. As noted earlier
in this briefing, IRS is currently addressing our prior recommendations
to correct these deficiencies.
Observation 2: Future BSM Project Deliveries Face Significant Risks and
Issues, which IRS is Addressing.
IRS has reported that significant challenges and risks confront future
planned system deliveries. For example,
* Customer Account Data Engine - Individual Master File Release 1.3.2.
IRS has reported that unanticipated tax law changes, including 2005
disaster-related legislation, could impact the development and testing
schedules for Release 1.3.2, which is expected to be delivered in
January 2006.
* Customer Account Data Engine - Individual Master File Release 2.
According to IRS, schedule slippages associated with Release 1.3.1 as
well as contention for key resources between Releases 1.3.1 and 1.3.2
necessitated the deferral of some Release 1.3.2 functionality to later
releases. These requirements deferrals may negatively impact cost and
schedule for Releases 2.1 and 2.2, which are currently scheduled to be
deployed in August 2006 and December 2006, respectively. Also, IRS has
indicated that contention for key development resources currently
working on Release 1.3.2 may impact Release 2.1 development activities.
* Filing and Payment Compliance Release 1.1. As a result of a court-
ordered delay in procuring private collection agencies (PCAs), IRS is
implementing a two-phase approach for delivering Release 1.1. This
consists of delivering (1) a Partial Production Environment in January
2006 (system software delivery) and (2) a Full Production Environment
in July 2006 (PCAs begin collection efforts). The targeted delivery
date for the Full Production Environment hinges on the timely award of
the PCA contract. IRS reports that schedule delays could occur if (1)
PCA evaluation, selection, and contract award is delayed and/or (2) PCA
background investigations are not completed in a timely manner.
* Filing and Payment Compliance Release 1.2. IRS reports that Release
1.2, which is scheduled to be deployed in January 2007, faces a number
of risks. For example, requirements for Release 1.2 are being developed
using a new methodology/process that has not previously been utilized
within the IRS modernization environment, thereby creating a risk to
project schedule and cost should false starts be encountered during the
refinement of this methodology.
* Modernized e-File Release 3.2. Release 3.2, which is scheduled for
deployment in March 2006, also faces high priority issues and critical
risks, including project staff resources, the system's ability to
handle the projected volume for filing season 2006, and timely
completion of transition/training activities.
IRS recognizes the potential impact of these project risks and issues
on its ability to deliver planned functionality within cost and
schedule estimates, and, to its credit, has developed mitigation
strategies to address them.
Observation 3: IRS Has Made Additional Progress in Addressing High-
Priority BSM Program Improvement Initiatives.
As a result of continued cost overruns and schedule delays in the BSM
program, during the summer of 2003, IRS and the PRIME contractor, CSC,
initiated three external independent studies and one IRS internal
analysis to assess the effectiveness of the BSM program and to review
the CADE project.
During 2004, after assessing various aspects of the BSM program and
reviewing the four BSM studies as well as prior GAO and TIGTA reports,
the Associate CIO for BSM identified key barriers to success in the BSM
program and created a plan to address these barriers.
The Associate CIO established the following seven key focus areas for
improving IRS's capability to design, develop, and deliver modernized
IT systems:
* Staffing and Skill Sets,
* Contractor Management,
* Requirements and Demand Management,
* Systems Engineering,
* Project Management Disciplines,
* Communication and Collaboration, and
* Empowerment/Accountability.
He then mapped (1) GAO/TIGTA recommended corrective actions for
improving modernization management controls and processes, and (2)
several additional IRS-defined improvement initiatives to these key
focus areas to form a BSM program improvement framework.
In August 2004, the Associate CIO identified 16 "highest priority
initiatives" from the program improvement framework that were to be
completed by the end of January 2005. In March 2005, IRS reported that
12 of the 16 initial highest priority initiatives had been completed
and closed. The remaining 4 initiatives were carried forward with 13
newly selected highest priority improvement initiatives for a total of
17, which were planned to be completed by early September 2005.
In October 2005, IRS reported that 15 of the 17 highest priority
initiatives had been completed and closed, including several
initiatives related to the shift in the role of systems integrator from
the PRIME contractor to IRS as well as efforts to complete a human
capital strategy and recruiting plan, strengthen IRS's systems
engineering capability, hire a technical lead for the BSM program, and
establish the requirements management and business rules management
[NOTE 14] operations. The remaining 2 ongoing initiatives related to
(1) ensuring that BSM staff are trained in required project management
skills (e.g., schedule analysis, earned value, testing monitoring) and
(2) revising the change request process to reflect IRS's role as
systems integrator have been carried over to the next 6-month cycle.
In addition to the 2 initiatives carried forward, IRS is currently
focusing on 20 newly selected highest priority improvement initiatives
for a total of 22, which are planned to be completed by the end of
March 2006. These initiatives include:
* building on the current effort to develop a new Modernization Vision
and Strategy,
* establishing requirements management standards,
* upgrading the enterprise life cycle methodology to provide more
guidance to projects,
* executing the implementation plan for integrated master schedule and
baseline management, and
* awarding a contract to acquire a business rules management
repository.
This program improvement process appears to be a reasonable means of
regularly assessing and prioritizing and, hopefully, addressing BSM
issues and challenges. It should be noted, however, that it is an
incremental approach and that it can take several iterations of
initiatives to fully address issues within the key focus areas for
program improvement established by the Associate CIO for BSM. For
example, as noted above, IRS reported that it recently completed and
closed an initiative to establish a Requirements Management Office, and
is currently focusing on a follow-on initiative to further develop its
requirements management capabilities.
Observation 4: IRS is Developing a New Modernization Vision and
Strategy.
In July 2005, we reported [NOTE 15] that the significant delays and
other substantive changes that the BSM program had experienced since
the development of the initial BSM vision and strategy in 2000 and 2001
indicated a need for IRS to revisit its long-term goals, strategies,
and plans for the modernization program. To address the many changes
associated with the BSM and clearly describe what the modernization
program is intended to accomplish, when it will be completed, and at
what cost, we recommended that IRS fully revisit the vision and
strategy for the BSM program and develop a new set of long-term goals,
strategies, and plans consistent with the budgetary outlook and IRS's
management capabilities.
In commenting on a draft of our report, IRS agreed with our
recommendation and indicated that it had begun a planning effort to
revise its IT modernization strategy and approach. The agency also
stated that it would be updating the Enterprise Transition Strategy and
Release Architecture portions of the IRS Enterprise Architecture as a
part of this effort. At that time, IRS intended to have the high-level
strategy, goals, and plans in place by the end of fiscal year 2005, and
to complete a more detailed engineering analysis and sequencing
strategies during the first quarter of fiscal year 2006.
As of October 2005, IRS reported that it had (1) developed a set of IT
modernization goals for the year 2010 that align with and support the
agency's strategic plan, and (2) formed a multi-disciplinary team of IT
and business specialists to develop a modernization roadmap to guide
the agency toward meeting its goals incrementally, while providing near-
term business value. IRS stated that this roadmap will consider the
current state of IRS's IT infrastructure and take a realistic view of
the IT funding profile through 2010. Once approved, this plan is
intended to enable IRS to move forward with a set of well-coordinated
modernization initiatives, and will serve as the framework for
approving new IT projects.
According to the Associate CIO for BSM, IRS's new Modernization Vision
and Strategy focuses on promoting investments that provide value in
smaller, incremental releases that are delivered more frequently, with
the goal of increasing business value while investing in solutions that
reduce complexity and costs. It is organized and prioritized around
"domains" that represent a functional, rather than organizational, view
of the business. The domain priorities have been established to focus
on front-line tax administration, emphasizing enforcement and customer
service needs.
IRS's new Vision and Strategy is intended to include a 5-year plan that
will establish a technical strategy and identify investment priorities
and a timeline for implementation. According to IRS, the business focus
areas for modernization in the next five years include:
* addressing the tax gap;
* expanding electronic filing;
* increasing accuracy, maintaining service levels, and reducing
customer service costs; and:
* enabling IRS systems to change quickly in response to business needs.
From an IT perspective, the plan will focus on using existing systems
to deliver business functions and capabilities, including:
* decision analytics;
* tools and data management capabilities to manage cases;
* applications that allow taxpayer self-service and communications with
IRS via the Internet; and:
* standard, reusable tools to access and update tax administration
data.
IRS anticipates having an approved high-level Vision and Strategy in
place in early fiscal year 2006, and expects to complete its more
detailed 5-year plan for the modernization program by mid-March 2006.
We believe these actions represent good steps towards addressing our
prior recommendation to fully revisit the vision and strategy for the
BSM program and develop a new set of long-term goals, strategies, and
plans consistent with the budgetary outlook and IRS's management
capabilities.
Observation 5: The Expenditure Plan Submitted to the Congress Contains
Outdated Program Status Information and Omits Key Details Concerning
Deferred BSM Project Functionality.
As we have previously reported, [NOTE 16] to permit meaningful
congressional oversight, it is important that expenditure plans
describe how well the BSM program is progressing against the
commitments made in prior expenditure plans. However, IRS's fiscal year
2006 expenditure plan is substantially based on information describing
the status of BSM projects and program management initiatives as of
April 2005, and, therefore, in key areas did not adequately describe
progress or provide information consistent with the program's status at
the time the plan was submitted to the Congress in October 2005. In
particular, the fiscal year 2006 expenditure plan:
* does not disclose that planned functionality for two major BSM
project releases-CADE Release 1.3.2 and Modernized e-File Release 4-has
been deferred to future releases, thereby postponing the delivery of
taxpayer benefits.
* contains a number of inconsistencies between project cost and
schedule data shown throughout the document. For example, the
information provided in a program results summary table in the
Executive Summary does not match the cost and schedule data provided in
the plan's detailed project profiles for the Filing and Payment
Compliance and Modernized e-File projects, respectively. In addition,
changes to cost estimates for the Integrated Financial System and
Custodial Accounting Project noted in a summary table at the end of the
plan are not reflected in the respective project profiles.
IRS officials acknowledged the weaknesses we identified with their
expenditure plan and subsequently revised the plan to include updated
information, clarifications, and corrections where appropriate.
However, they did not provide the updated plan to the Congress. IRS
also acknowledged the importance of providing timely data and has
initiated efforts to establish and implement a policy and process to
allow for near real-time updating of the expenditure plan while it is
being reviewed by both internal and external stakeholders. They did
not, however, identify specific timeframes for putting this policy and
process in place. Without current and complete program status
information, meaningful congressional oversight of BSM progress and
accountability is impaired.
NOTES:
[10] CADE will include the modernized database foundation to replace
the current master files processing systems, which are the agency's
repository of taxpayer information. There are master files for
individuals, businesses, and employer retirement plans. CADE is
expected to facilitate faster refund processing and more timely
response to taxpayer inquiries.
[11] Release 1 includes five segments. Release 1.0, the base release of
1040 EZ functionality, was deployed in July 2004. Release 1.1, also
deployed in July 2004 (concurrent with Release 1.0), contained filing
season 2003 and 2004 tax law changes. Release 1.2, deployed in January
2005, included filing season 2005 changes. Release 1.3.1, deployed in
September 2005, included new functionality to improve performance,
allow address changes on tax returns, and implement initial filing
season 2006 tax law changes. Release 1.3.2, scheduled to be deployed in
January 2006, will include the remaining filing season 2006 tax law
changes and some additional functionality such as processing basic 1040
returns with no Schedules.
[12] Business rules harvesting refers to the process of extracting,
defining, and documenting tax processing criteria (e.g., income tax
refunds of $x or more are held for administrative review) from a
variety of sources, including IRS subject matter experts, legacy system
source code, the tax code, and various other paper documents.
[13] GAO-05-774.
[14] In conjunction with the business rules management initiative, IRS
completed a Business Rules End-to-End Prototype project. The objectives
of this effort were to (1) validate the business rules development and
management methodology and (2) assess when a business rules engine is
an appropriate solution for CADE and when other programming languages
(e.g., C++) should be used. A business rules engine translates business
rules or processing criteria into executable computer code that
processes transactions related to a tax form, and selects and executes
correct rules based on the tax year and tax form. The prototype project
determined that applying the full business rules management methodology
for harvesting business rules would significantly challenge IRS's
capacity, costs, and timelines to complete the CADE project (e.g., an
estimated 100 staff years are required to do full harvesting and create
the full set of models for the estimated 25,000 business rules embedded
in the current individual master file), and recommended using a
streamlined approach whenever possible to capture and document existing
business rules. This effort also determined that business rules can be
implemented effectively without a business rules engine, and
recommended that a business rules engine not be used for any CADE
applications, except for possibly implementing the fraud detection
rules.
[15] GAO-05-774.
[16] See GAO, Tax Systems Modernization: Results of Review of IRS'
Initial Expenditure Plan, GAO/AIMD-99-206 (Washington, D.C.: June 15,
1999), GAO-01-227, and GAO-02-356.
Conclusions:
IRS's fiscal year 2006 plan satisfies the legislative conditions.
IRS has made further progress in implementing BSM during 2005, but some
projects did not meet short-term cost and schedule commitments. Future
project deliveries face significant risks and issues, which the agency
is actively working to mitigate. In addition, IRS has significant
program challenges and issues that it must resolve, and has established
an incremental program improvement process to assess, prioritize, and
address them. The new vision and strategy that IRS is currently
developing represents a good step towards developing information for
the Congress on future plans for the modernization program. However,
key information provided in the fiscal year 2006 expenditure plan
submitted to the Congress is outdated and incomplete, which inhibits
effective congressional oversight of BSM progress.
Recommendation for Executive Action:
To allow for effective congressional oversight of the BSM program, we
recommend that the Commissioner of Internal Revenue direct the CIO to
take the following action:
* ensure that future expenditure plans submitted to IRS's
appropriations subcommittees provide current and complete program
status information and report any changes to prior commitments
concerning the delivery of BSM project functionality.
Agency Comments:
In providing oral comments on a draft of this briefing, the Associate
CIO for BSM stated that he appreciated the reasoned and balanced work
of the GAO and believed that the briefing fairly represents BSM
accomplishments as well as future risks. He agreed with the
recommendation addressing the timeliness and completeness of the
expenditure plan data and the importance of timely data for meaningful
oversight. He stated that IRS plans to propose a new policy to increase
the visibility and timeliness of changes to the plan and expedite its
review process. He also provided specific technical comments that we
have incorporated into the briefing, as appropriate.
Appendix I: Description of Business Systems Modernization (BSM)
Projects and Program-Level Initiatives:
[See PDF for image]
Source: IRS.
[End of table]
[End of section]
Appendix II: Additional Detail on IRS's Fiscal Year 2006 BSM
Expenditure Plan (in thousands of dollars):
[See PDF for image]
Source: IRS.
[End of table]
[End of section]
Appendix III: IRS Reported Project Cost/Schedule Changes:
[See PDF for image]
Source: IRS.
[End of table]
[End of section]
Appendix II: Comments from the Internal Revenue Service:
DEPARTMENT OF THE TREASURY:
INTERNAL REVENUE SERVICE:
COMMISSIONER:
WASHINGTON, D.C. 20224:
February 2, 2006:
Mr. David Powner:
Director, Information Technology Management Issues:
United States 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 "Review of Internal Revenue Service (IRS) Fiscal Year 2006
Business Systems Modernization Expenditure Plan" (GAO-03-360, 2006). We
are pleased the GAO:
* Validated that we satisfied the six legislative conditions as
specified in Congressional appropriations;
* Acknowledged the progress that the IRS has made in areas such as:
- Implementing our Business Systems Modernization (BSM) program,
- Mitigating risks,
- Managing high priority initiatives, and:
- Developing a new modernization vision and strategy.
We continue to appreciate the sound and balanced work of the GAO and
believe that this draft report fairly represents BSM accomplishments as
well as future risks. We are in particular agreement with your
recognition of the IRS' improved performance in meeting cost and
schedule commitments on several of our modernized systems; your
acknowledgement of the taxpayer and agency value our systems have begun
to add; your affirmation of the effectiveness of our program
improvement process; and your endorsement of the steps we have taken to
develop a Modernization Vision and Strategy (MVS) for the BSM program.
It is worth noting that since the Expenditure Plan (EP) was submitted,
we expect the Integrated Financial Systems (IFS) project to return
between $4 and $5 million to the BSM management reserve. Therefore, the
93 percent reported overrun in the last EP will be reduced. This
further demonstrates the noted improvement we have made in working to
control costs within the BSM program.
We also agree with your observation that although we have in place an
effective means of assessing, prioritizing, and addressing the BSM
issues, risks and challenges, continued improvements are needed to
fully address them.
I would like to briefly comment on your report's recommendation: "To
allow for effective Congressional oversight for the BSM program, we
recommend that the Commissioner of the Internal Revenue Service direct
the CIO to take the following action: Ensure that future Expenditure
Plans submitted to IRS's appropriations subcommittees provide current
and complete program status information and report any changes to prior
commitments concerning the delivery of BSM project functionality."
The IRS agrees that timely data is important to meaningful oversight.
In response to GAO's concerns, we provided GAO with an EP that all
stakeholders, both internal and external to the IRS, had reviewed and
approved. We also provided additional information in response to all of
the questions raised by GAO during their review of the EP. This
included providing documentation, clarifications, and corrections where
appropriate.
Nevertheless, to ensure that near real-time updates are made to future
EPs during the development and review process, we are formulating a
policy to raise the visibility of changes to EP data, and requiring
prompt notification that such changes are in process. Additionally, on
January 24, 2006, the Committee on Appropriations directed the IRS to
work with the Department of Treasury and Office of Management and
Budget (OMB) on issues concerning EP timelines and processes. We have
already initiated dialogue with Treasury and OMB on how we can
proactively resolve timeline and process issues. We believe these steps
will address your recommendation.
We appreciate your continued support and the assistance and guidance
from your staff. If you have any questions, or if you would like to
discuss our response in more detail, please contact W. 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, Timothy D. Hopkins and Sabine
R. Paul made key contributions to this report.
(310809):
FOOTNOTES
[1] BSM funds are unavailable until 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 Pub. Law No. 109-115, Div. A, Title II,
November 30, 2005, for fiscal year 2006 funding.
[2] According to IRS, the high-level Vision and Strategy and the 5-year
modernization plan are now both expected to be completed by mid-March
2006.
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