Business Systems Modernization
Internal Revenue Service's Fiscal Year 2007 Expenditure Plan Gao ID: GAO-07-247 February 15, 2007The 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. As required by law, IRS submitted its fiscal year 2007 expenditure plan, in September 2006, to congressional appropriations committees, requesting $167.3 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 IRS's progress in implementing prior GAO recommendations, and (3) provide any other observations about the plan and IRS's BSM program. To address these objectives, GAO analyzed the plan, reviewed related documentation, and interviewed IRS officials.
IRS's fiscal year 2007 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. IRS has made significant progress in implementing GAO's recommendations and improving its modernization management controls and capabilities. However, controls and capabilities related to requirements development and management and post-implementation reviews have not yet been fully implemented. In addition, more work remains to be done to fully develop a long-term vision and strategy for completing the BSM program. GAO has the following four observations on the expenditure plan and the BSM program: (1) During 2006, IRS made additional progress in implementing BSM projects and in meeting cost and schedule commitments, but two key projects experienced significant cost overruns. IRS deployed additional releases of the following modernized systems: the Customer Account Data Engine (the new taxpayer information database), Modernized e-File (a new electronic filing system), and Filing and Payment Compliance (a tax collection case analysis support system). While each of the five associated project segments delivered during 2006 were completed within the targeted 10 percent schedule variance threshold, two project segments associated with Modernized e-File and the Customer Account Data Engine experienced cost increases of 36 percent and 15 percent, respectively. (2) IRS could improve its reporting of progress in meeting project scope expectations. Although IRS's expenditure plan provides descriptive information on changes in project releases' scope (i.e., functionality), it does not provide a quantitative measure of whether project releases delivered planned functionality. Such a measure would be helpful in providing the Congress with more complete information on IRS's performance in implementing BSM project releases. (3) Future BSM project releases continue to face significant risks and issues. 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 has developed mitigation strategies to address them. (4) IRS has made further progress in addressing high-priority BSM program improvement initiatives. Its high-priority improvement initiatives continue to be an effective means of assessing, prioritizing, and incrementally addressing BSM issues and challenges. IRS is currently focusing on 13 high-priority initiatives, which it plans to complete by the end of March 2007.
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-07-247, Business Systems Modernization: Internal Revenue Service's Fiscal Year 2007 Expenditure Plan
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Report to Congressional Committees:
February 2007:
Business Systems Modernization:
Internal Revenue Service's Fiscal Year 2007 Expenditure Plan:
GAO-07-247:
GAO Highlights:
Highlights of GAO-07-247, 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. As required by law,
IRS submitted its fiscal year 2007 expenditure plan, in September 2006,
to congressional appropriations committees, requesting $167.3 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 IRS‘s
progress in implementing prior GAO recommendations, and (3) provide any
other observations about the plan and IRS‘s BSM program. To address
these objectives, GAO analyzed the plan, reviewed related
documentation, and interviewed IRS officials.
What GAO Found:
IRS‘s fiscal year 2007 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.
IRS has made significant progress in implementing GAO‘s recommendations
and improving its modernization management controls and capabilities.
However, controls and capabilities related to requirements development
and management and post-implementation reviews have not yet been fully
implemented. In addition, more work remains to be done to fully develop
a long-term vision and strategy for completing the BSM program.
GAO has the following four observations on the expenditure plan and the
BSM program:
* During 2006, IRS made additional progress in implementing BSM
projects and in meeting cost and schedule commitments, but two key
projects experienced significant cost overruns. IRS deployed additional
releases of the following modernized systems: the Customer Account Data
Engine (the new taxpayer information database), Modernized e-File (a
new electronic filing system), and Filing and Payment Compliance (a tax
collection case analysis support system). While each of the five
associated project segments delivered during 2006 were completed within
the targeted 10 percent schedule variance threshold, two project
segments associated with Modernized e-File and the Customer Account
Data Engine experienced cost increases of 36 percent and 15 percent,
respectively.
* IRS could improve its reporting of progress in meeting project scope
expectations. Although IRS‘s expenditure plan provides descriptive
information on changes in project releases‘ scope (i.e.,
functionality), it does not provide a quantitative measure of whether
project releases delivered planned functionality. Such a measure would
be helpful in providing the Congress with more complete information on
IRS‘s performance in implementing BSM project releases.
* Future BSM project releases continue to face significant risks and
issues. 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 has developed
mitigation strategies to address them.
* IRS has made further progress in addressing high-priority BSM program
improvement initiatives. Its high-priority improvement initiatives
continue to be an effective means of assessing, prioritizing, and
incrementally addressing BSM issues and challenges. IRS is currently
focusing on 13 high-priority initiatives, which it plans to complete by
the end of March 2007.
What GAO Recommends:
GAO recommends that the Commissioner of Internal Revenue direct the
Chief Information Officer to ensure that future expenditure plans
include a quantitative measure of progress in meeting project scope
expectations. In providing comments on a draft of this report, the
Commissioner agreed with the recommendation and outlined the actions
that IRS is planning to take to address it.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-247].
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 at pownerd@gao.gov.
[End of section]
Contents:
Letter:
Recommendation for Executive Action:
Agency Comments:
Appendixes:
Appendix I: Briefing Slides from the November 14, 2006, 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:
AMS: Accounts Management Services:
BSM: Business Systems Modernization:
CADE: Customer Account Data Engine:
IRS: Internal Revenue Service:
OMB: Office of Management and Budget:
February 15, 2007:
The Honorable Richard J. Durbin:
Chairman:
The Honorable Sam Brownback:
Ranking Minority Member:
Subcommittee on Financial Services and General Government:
Committee on Appropriations:
United States Senate:
The Honorable José E. Serrano:
Chairman:
The Honorable Ralph Regula:
Ranking Minority Member:
Subcommittee on Financial Services and General Government:
Committee on Appropriations:
House of Representatives:
As required by law, the Internal Revenue Service (IRS) submitted its
fiscal year 2007 expenditure plan in September 2006 to the
congressional appropriations committees, requesting $167.3 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 IRS's
progress in implementing our prior recommendations, and (3) provide any
other observations about the plan and IRS's BSM program.
On November 14, 2006, we briefed the cognizant congressional
appropriations subcommittee staffs 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 2007 plan satisfies each of the six legislative
conditions.
* IRS has made significant progress in implementing our recommendations
and improving its modernization management controls and capabilities,
including efforts to institutionalize configuration management
procedures, develop an updated modernization vision and strategy, and
improve the quality of the program status information provided in the
expenditure plan. However, controls and capabilities related to
requirements development and management and post-implementation reviews
have not yet been fully implemented. In addition, more work remains to
be done by the agency to fully develop a long-term vision and strategy
for completing the BSM program, including establishing time frames for
consolidating and retiring legacy systems. IRS recognizes this and
intends to conduct further analyses and update its vision and strategy
to address the full scope of tax administration functions and provide
additional details and refinements regarding the agency's plans for
legacy system dispositions.
* IRS has made additional progress in implementing BSM projects and in
meeting cost and schedule commitments, but two key projects experienced
significant cost overruns. During 2006, IRS deployed additional
releases of the following modernized systems: the Customer Account Data
Engine (the new taxpayer information database), Modernized e-File (a
new electronic filing system), and Filing and Payment Compliance (a tax
collection case analysis support system). Each of the five associated
project segments that were delivered during 2006 were completed on time
or within the targeted 10 percent schedule variance threshold, and two
of them were also completed within the targeted 10 percent variance
threshold for cost. However, two project segments--Modernized e-File
Release 3.2, Milestone 4/5 and Customer Account Data Engine Release
2.1, Milestone 4--experienced cost increases of 36 percent and 15
percent, respectively.
* IRS could improve its reporting of progress in meeting project scope
expectations. Although IRS's expenditure plan provides descriptive
information on changes in project releases' scope (i.e.,
functionality), it does not provide a quantitative measure of whether
project releases delivered planned functionality. Such a measure would
be helpful in providing the Congress with more complete information on
IRS's performance in implementing BSM project releases. IRS recognizes
the value of having such a measure and, to its credit, recently held a
meeting to address ways to develop it. Several BSM projects use earned
value management,[Footnote 2] a proven technique required by the
administration[Footnote 3] for measuring cost, schedule, and functional
performance. However, earned value management data are not reported in
IRS's expenditure plan.
* Future BSM project releases continue to face significant risks and
issues, which IRS is addressing. IRS has identified significant risks
and issues with its future planned system deliveries. For example, IRS
has reported that there is no slack in the schedule for Release 2.2 of
the Customer Account Data Engine, and that late-breaking tax law
legislation or other mandatory filing season changes will have an
adverse effect on the development and testing schedules. Maintaining
alignment between the Customer Account Data Engine and Accounts
Management Services[Footnote 4] projects is also a key area of concern.
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 has developed mitigation strategies to
address them.
* IRS has made further progress in addressing high-priority BSM program
improvement initiatives. Its high-priority improvement initiatives
continue to be an effective means of assessing, prioritizing, and
incrementally addressing BSM issues and challenges. IRS is currently
focusing on 13 high-priority initiatives, which it plans to complete by
the end of March 2007. These initiatives include establishing
requirements development/management processes and guidance as well as
defining governance structures and processes across all projects.
Recommendation for Executive Action:
To allow for more 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 include a quantitative measure
of progress in meeting project scope expectations. In developing this
measure, IRS should consider using earned value management, since this
is a proven technique required by the administration for measuring
cost, schedule, and functional performance against plans.
Agency Comments:
In providing written comments on a draft of this report, the
Commissioner of Internal Revenue agreed with our recommendation. In
responding to the recommendation, the Commissioner outlined the actions
that IRS is planning to take to address it, including evaluating
available options and working with GAO and the Treasury Inspector
General for Tax Administration to define quantitative measures of
project scope. The Commissioner's written comments are reprinted in
appendix II.
We are sending copies of this report to the Chairmen and Ranking
Minority 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 at 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 key 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 November 14, 2006, Briefing to the
Senate and House Appropriations Subcommittee Staffs:
Review of IRS's Fiscal Year 2007 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 14, 2006:
This briefing has been modified to incorporate editorial changes and
updated information on pages 5, 32, and 38.
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 2007 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 2006 appropriations act,[Footnote 5]
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 ;[Footnote 6]
* conform with IRS's enterprise life cycle methodology;[Footnote 7]
* comply with federal acquisition rules, requirements, guidelines, and
systems acquisition management practices;
* be approved by IRS, the Department of the Treasury, and OMB; and * be
reviewed by GAO.
Since mid-1999, IRS has submitted a series of expenditure or "spending"
plans requesting release of BSM appropriated funds. To date, about $2.1
billion has been appropriated and released for BSM.
On September 5, 2006, IRS submitted its fiscal year 2007 expenditure
plan to the relevant House and Senate appropriations subcommittees,
seeking release of $167.3 million from the BSM account.
As agreed with IRS's appropriations subcommittees, our objectives were
to:
determine whether IRS's fiscal year 2007 expenditure plan satisfies the
legislative conditions specified in IRS's appropriations act,
determine IRS's progress in implementing our prior recommendations,
and:
provide any other observations about the plan and IRS's BSM program.
Results in Brief:
IRS's fiscal year 2007 plan satisfies each of the six legislative
conditions.
IRS has made significant progress in implementing our recommendations
and improving its modernization management controls and capabilities,
including efforts to institutionalize configuration management
procedures, develop an updated modernization vision and strategy, and
improve the quality of the program status information provided in the
expenditure plan. However, controls and capabilities related to
requirements development and management and post-implementation reviews
have not yet been fully implemented. In addition, more work remains to
be done by the agency to fully develop a long-term vision and strategy
for completing the BSM program, including establishing time frames for
consolidating and retiring legacy systems.
We have four observations related to the BSM program and fiscal year
2007 expenditure plan:
IRS Has Made Additional Progress in Implementing BSM Projects and in
Meeting Cost and Schedule Commitments, but Two Key Projects Experienced
Significant Cost Overruns. During 2006, IRS deployed additional
releases of the following modernized systems: the Customer Account Data
Engine (the new taxpayer information database), Modernized e-File (a
new electronic filing system), and Filing and Payment Compliance (a tax
collection case analysis support system). Each of the five associated
project segments delivered during 2006 were completed on time or within
the targeted 10 percent schedule variance threshold, and two of them
were also completed within the targeted 10 percent variance threshold
for cost. However, two project segments-Modernized e-File Release 3.2,
Milestone 4/5 and Customer Account Data Engine Release 2.1, Milestone 4-
experienced cost increases of 36 percent and 15 percent, respectively.
IRS Could Improve Its Reporting of Progress in Meeting Project Scope
Expectations. IRS's expenditure plan provides descriptive information
on changes in project releases' scope (i.e., functionality). However,
the plan does not provide a quantitative measure of whether project
releases delivered planned functionality. Such a measure would be
helpful in providing the Congress with more complete information on
IRS's performance in implementing BSM project releases. IRS recognizes
the value of having such a measure and, to its credit, recently held a
meeting to address ways to develop it.
Future BSM Project Releases Continue to Face Significant Risks and
Issues, which IRS Is Addressing. IRS has identified significant risks
and issues with its future planned system deliveries. For example, IRS
has reported that there is no slack in the schedule for Release 2.2 of
the Customer Account Data Engine, which is planned to be delivered in
January 2007, and that late-breaking tax law legislation or other
mandatory filing season changes will have an adverse effect on the
development and testing schedules. 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
has developed mitigation strategies to address them.
IRS Has Made Further Progress in Addressing High-Priority BSM Program
Improvement Initiatives. IRS's high-priority improvement initiatives
continue to be an effective means of assessing, prioritizing, and
incrementally addressing BSM issues and challenges. IRS is currently
focusing on 13 high-priority initiatives, which it plans to complete by
the end of March 2007. These initiatives include establishing
requirements development/management processes and guidance as well as
defining governance structures and processes across all projects.
To allow for more effective congressional oversight of the BSM program,
we are recommending that the Commissioner of Internal Revenue direct
the Chief Information Officer (CIO) to do the following:
ensure that future expenditure plans include a quantitative measure of
progress in meeting project scope expectations. In developing this
measure, IRS should consider using earned value management,[Footnote 8]
since this is a proven technique required by the administration for
measuring cost, schedule, and functional performance against plans.
In commenting on a draft of this briefing, the Associate CIO for
Applications Development stated that the briefing is balanced and
accurate and that IRS plans to implement the recommendation. She also
provided technical comments.
Background:
To date, we have reviewed and reported on 13 BSM expenditure plans:
Since mid-1999, we have reported[Footnote 9] 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[Footnote 10] 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,[Footnote 11] 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,[Footnote 12] 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,[Footnote 13] 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.
In our February 2006 report,[Footnote 14] we noted that IRS had made
further progress in implementing BSM, but some projects did not meet
short-term cost and schedule commitments. In addition, we noted that
future project deliveries faced significant risks and issues, which the
agency was actively working to mitigate. We also reported that IRS had
made additional progress in addressing high-priority program
improvement initiatives; however, much more work remained for the
agency to fully address BSM program issues and challenges.
In addition, we reported that, in response to our prior recommendation,
IRS was developing a new Modernization Vision and Strategy to address
BSM program changes and provide a modernization roadmap. Finally, we
concluded that the fiscal year 2006 expenditure plan submitted to the
Congress contained outdated program status information and omitted key
details concerning deferred BSM functionality. To allow for effective
congressional oversight of the BSM program, we recommended that the
agency ensure that future expenditure plans provide current and
complete program status information and report any changes to prior
commitments concerning the delivery of BSM project functionality.
IRS's fiscal year 2007 expenditure plan describes the agency's efforts
to:
continue ongoing program-level initiatives (e.g., Architecture &
Integration and Program Management) and core infrastructure projects
(e.g., Infrastructure Shared Services),
continue three tax administration project releases (Filing and Payment
Compliance Release 1.2, Modernized e-File Release 4, and Customer
Account Data Engine Release 2.2) to their next milestones, and:
begin six new tax administration project releases (Modernized e-File
Release 5; Customer Account Data Engine Releases 3.1, 3.2, 4, and 5;
and Accounts Management Services Release 1.1[Footnote 15]).
Table 1 shows a financial summary of the plan.
Table 1: Summary of IRS's Fiscal Year 2007 BSM Expenditure Plan (in
thousands of dollars)[A]:
Tax administration projects: Filing and payment compliance;
Amount requested: 3,500.
Tax administration projects: Modernized e-file;
Amount requested: 20,000.
Tax administration projects: Customer account data engine;
Amount requested: 58,500.
Subtotal- Tax administration projects;
Amount requested: 82,000.
Core infrastructure projects: Development, integration, and testing
environments (DITE);
Amount requested: 16,000.
Core infrastructure projects: Infrastructure Shared Services (ISS);
Amount requested: 27,000.
Core infrastructure projects: DITE/ISS risk adjustment;
Amount requested: 500.
Subtotal- Core infrastructure projects;
Amount requested: 43,500.
Architecture, integration, and management: Architecture and
integration;
Amount requested: 15,220.
Architecture, integration, and management: Business integration;
Amount requested: 5,250.
Architecture, integration, and management: Business rules;
Amount requested: 3,500.
Architecture, integration, and management: Management processes;
Amount requested: 3,920.
Architecture, integration, and management: Federally funded research
and development center-MITRE;
Amount requested: 7,600.
Architecture, integration, and management: Program management;
Amount requested: 3,270.
Architecture, integration, and management: Architecture, integration,
and management risk adjustment;
Amount requested: 740.
Subtotal- Architecture, integration, and management;
Amount requested: 39,500.
Management reserve;
Amount requested: 2,310.
Total;
Amount requested: $167,310.
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.
[End of table]
Scope and Methodology:
To accomplish our objectives, we:
reviewed the fiscal year 2007 expenditure plan submitted by IRS in
September 2006;
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 BSM activities;
analyzed available evidence on recent agency efforts to implement our
prior recommendations, including progress on improving its
modernization management controls and capabilities;
reviewed and analyzed modernization program review and project
management briefings and related documentation to assess program/
project status and associated issues and risks; and:
reviewed program management reports to assess the progress IRS has made
in completing actions and implementing program management improvements
related to the BSM Highest Priority Initiatives.
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 between September and November 2006, in
Washington, D.C., in accordance with generally accepted government
auditing standards.
Results:
Objective 1: The plan satisfies the conditions in IRS's Fiscal Year
2007 appropriations act.
Table 2: Fiscal Year 2007 Expenditure Plan Provisions for Satisfying
Legislative Conditions:
Legislative conditions: 1. Meets OMB capital planning and investment
control review requirements;
Expenditure plan provisions: IRS‘s fiscal year 2007 expenditure plan
identifies funding required for managing information technology (IT)
investments as part of a single portfolio through its capital planning
and investment control process. This includes conducting periodic
reviews to select and control IT investments.
Legislative conditions: 2. complies with IRS's enterprise architecture;
Expenditure plan provisions: The plan identifies funding required to
continue definition and implementation of the enterprise architecture
(EA). For example, it identifies funding needed for:
* finalizing and publishing updates to the EA based on change
requests,
* supporting the performance of EA compliance certification activities,
and;
* improving the IRS Enterprise Transition Strategy and Release
Architecture.
Legislative conditions: 3. Conforms with IRS's enterprise life cycle
methodology;
Expenditure plan provisions: The plan identifies funding required for
meeting the requirements in IRS‘s enterprise life cycle (ELC)
management program. For example, the plan calls for:
* maintaining responsibility for coordinating, tracking, and
integrating all programwide costs, schedules, releases, issues, and
risks and;
* maintaining and enhancing the ELC.
Legislative conditions: 4. Complies with the acquisition rules,
requirements, guidelines, and systems acquisition management practices
of the federal government;
Expenditure plan provisions: As part of the ELC, IRS has defined
processes, roles, and responsibilities for implementing Carnegie Mellon
University‘s Software Engineering Institute (SEI) Software Acquisition
Capability Maturity Model practices for the key process areas within
the repeatable level (level 2) of the 5-stage model.a These practices
are consistent with federal acquisition requirements and management
practices, and the plan calls for implementation of the ELC on all
projects. Further, all PRIME contractor cost reimbursement task orders
are subject to a final independent audit by the Defense Contract Audit
Agency to ensure that costs are incurred only for tasks actually
completed on the contract.
Legislative conditions: 5. Approved by IRS, the Department of the
Treasury, and OMB;
Expenditure plan provisions:
* IRS – May 19, 2006;
* Treasury – July 13, 2006;
* OMB – August 18, 2006.
Legislative conditions: 6. Reviewed by GAO;
Expenditure plan provisions: GAO – November 14, 2006, briefing to IRS‘s
appropriations subcommittees.
Source: IRS's fiscal year 2006 appropriations act (Pub. Law 109-115),
fiscal year 2007 Current Resolution (Pub. Law 109-289), and GAO
analysis of IRS data.
[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: IRS has made significant progress in implementing our
prior recommendations and improving its modernization management
controls and capabilities, although some have not yet been fully
addressed.
IRS has made significant progress in addressing our prior
recommendations and improving its modernization management controls and
capabilities, as the following table illustrates:
Table 3: Status of IRS Progress in Implementing Prior GAO
Recommendations:
Prior GAO recommendations: Configuration management: Institutionalize
configuration management (CM) procedures for the Business Systems
Modernization Office;
Implemented: Check;
In Progress: [Empty];
Status as of fiscal year 2007 plan: Since January 2005, IRS has (1)
developed an implementation guide and checklist for establishing CM
across the organization, (2) developed and conducted various CM
training modules,
(3) established several Configuration Control Boards, (4) conducted
additional CM process compliance assessments on BSM projects, and
(5) revised the compliance assessment procedure to assign the issues
and risks resulting from these reviews to the applicable projects for
mitigation. Future plans include continuing CM process compliance
assessments (four per year, depending on resources) on modernization
projects both under development as well as transitioned to production.
Prior GAO recommendations: Human capital management: Implement plans
for obtaining, developing, and retaining requisite human capital
resources;
Implemented: Check;
In Progress: [Empty];
Status as of fiscal year 2007 plan: In October 2005, IRS completed its
BSM Human Capital Strategy, which includes a detailed recruitment plan
to bring necessary personnel on board as well as strategic plans for
employee training, leadership development, and workforce retention. IRS
is implementing its strategy to develop and maintain a knowledgeable
and highly-skilled workforce to more effectively manage the BSM program
and support future operations of modernized IT systems. For example,
within the new Applications Development (AD) organization (formed by
merging BSM and the Business Systems Development production information
applications systems support organization), IRS has established a
Centers of Excellence office to, among other things, (1) determine
required skill sets and level of competency for each area of expertise
and grade level in the AD organization and (2) develop a recruitment
strategy and define training requirements. The AD organization recently
hired and trained 25 entry-level programmers to support project
development efforts.
Prior GAO recommendations: Cost and schedule estimation: Implement
effective procedures for validating contractor-developed cost and
schedule estimates;
Implemented: Check;
In Progress: [Empty];
Status as of fiscal year 2007 plan: During 2005 and 2006, IRS has taken
a number of actions to further improve the BSM cost and schedule
estimation process and procedures. For example, IRS mapped its existing
estimation capabilities to the Software Engineering Institute's
requisites for reliable estimating processes, identified and
prioritized gaps between the agency's existing capabilities and
industry best practices, and developed a phased improvement approach.
Consistent with its prioritized phased approach, IRS has contracted
with an estimation support contractor to augment the agency‘s project
estimation capability and has established a Cost and Schedule
Estimation Support Services Concept of Operations identifying support
paths for requesting, managing, and overseeing in-house and contractor
estimation support. In addition, the agency is creating an estimation
data repository to capture historical cost and schedule data to enable
identification and extraction of relevant baseline data to support
estimation development. In a related effort, IRS has also developed and
implemented, in May 2006, a scalable Basis of Estimate guide to promote
uniform standards for development and submission of supporting
documentation to enable comprehensive evaluation, replication, and
assessment of estimates. IRS plans to continue to leverage and expand
upon its current capabilities, within resource constraints, to achieve
a cost-effective BSM cost and schedule estimating system.
Prior GAO recommendations: Contract management: Establish and implement
a process for determining the type of task order to be awarded in
acquiring modernized systems;
Implemented: Check;
In Progress: [Empty];
Status as of fiscal year 2007 plan: During fiscal years 2005 and 2006,
IRS (1) issued a Milestone 4A Statement of Work template for use in
developing performance-based task orders,
(2) developed revised guidance on the selection of appropriate contract
types for BSM task orders,
(3) issued a BSM performance monitoring directive establishing the
requirement for preparing task order monitoring plans, (4) conducted
performance-based contracting and performance monitoring training
sessions, and (5) performed semiannual compliance assessments. As of
September 2005, four assessments had been completed on a total of 19
statements of work and 18 monitoring plans, resulting in a cumulative
average of about 80 percent compliance with the applicable performance-
based contracting templates and guidance.
Prior GAO recommendations: Requirements development and management:
Ensure that BSM completes the delivery of policies and procedures for
requirements development and management as planned;
Implemented: [Empty];
In Progress: Check;
Status as of fiscal year 2007 plan: (See p. 19).
Prior GAO recommendations: Requirements development and management:
Immediately implement interim policies while the final policies and
procedures are being developed;
Implemented: Check;
In Progress: [Empty];
Status as of fiscal year 2007 plan: (See p. 19).
Prior GAO recommendations: Post-implementation reviews: Perform
analysis of investment data to determine whether completed projects
have achieved expected benefits;
Implemented: [Empty];
In Progress: Check;
Status as of fiscal year 2007 plan: (See pp. 20-21).
Prior GAO recommendations: Modernization vision and strategy: 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;
Implemented: [Empty];
In Progress: Check;
Status as of fiscal year 2007 plan: (See pp. 22-24).
Prior GAO recommendations: Expenditure plan timeliness and
completeness: 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;
Implemented: Check;
In Progress: [Empty];
Status as of fiscal year 2007 plan: In February 2006, IRS coordinated
with the Department of the Treasury and OMB to develop a timeline and
process to effect timelier review and submission of future expenditure
plans. In April 2006, IRS issued a directive that established a process
to ensure prompt notification and centralized recording of all changes
to BSM projects and program-level initiatives. Implementation of this
new policy facilitated near real-time updates to program and project
status information contained in the fiscal year 2007 expenditure plan
throughout the development and review process. Also, the fiscal year
2007 plan includes a new change request summary that provides
information on BSM project scope changes.
Source: GAO analysis of IRS data.
[End of table]
Requirements Development and Management:
According to the Software Engineering Institute's (SEI) Capability
Maturity Model Integration[Footnote 16] (CMMI), the requirements for a
system describe the functionality needed to meet user needs and perform
as intended in the operational environment. A disciplined process for
developing and managing requirements can help reduce the risk of
developing or acquiring a system. In addition, a well-defined and
managed requirements baseline can improve understanding among
stakeholders and increase stakeholder buy-in and acceptance of the
resulting system.
In March 2006, we reported[Footnote 17] that BSM did not yet have
adequate policies and procedures in place to guide its systems
modernization projects in developing and managing requirements. As a
result of the lack of policies and procedures, BSM projects did not
consistently follow disciplined requirements development and management
practices. We recommended that IRS ensure that BSM completes the
delivery of policies and procedures for requirements development and
management as planned. We also recommended that IRS immediately
implement interim guidance for ongoing BSM projects while the final
policies and procedures are being developed.
In response to our first recommendation, IRS has established a schedule
for developing and issuing detailed requirements management and
development policies, procedures, and guidance. High-level policies
have been issued, and lower level policies, procedures, and templates
are being developed. IRS expects to complete the development of these
items by March 2007. In response to our second recommendation, IRS has
made draft policies and procedures available to BSM projects through
the agency's Business Rules and Requirements Management online
repository. Until IRS completes the development of detailed policies
and procedures to ensure disciplined requirements development and
management processes, BSM projects will continue to face risks,
including cost overruns, schedule delays, and performance shortfalls.
Post-Implementation Reviews:
Conducting post-implementation reviews (PIR) is a process for reviewing
IT projects to identify lessons learned from investments and determine
whether the benefits anticipated in the business case for the
investment have been realized.
OMB Guidance,[Footnote 18] GAO's Information Technology Investment
Framework[Footnote 19], and IRS's ELC require that post implementation
reviews be performed on deployed information systems. According to our
framework, the reviews should include (1) the collection, evaluation,
and analysis of both quantitative and qualitative investment data, and
(2) documentation of lessons learned and recommendations for improving
the information technology investment process.
In November 2004, we reported[Footnote 20] that IRS had performed PIRs
on deployed projects; however, these reviews were incomplete and did
not follow IRS's procedure. Although the PIRs documented lessons
learned in implementing the projects and provided recommendations for
future improvements, the reviews did not (1) compare and analyze actual
versus planned benefits and systems performance, (2) determine the
validity of original business assumptions, or (3) compare and analyze
actual versus planned cost and schedule estimates. We recommended that
future post- implementation reviews of deployed BSM projects include an
analysis of quantitative and qualitative investment data to determine
whether expected benefits were achieved.
In July 2005, we reported[Footnote 21] that IRS had issued a new
procedure for conducting post-milestone reviews and PIRs on BSM
projects, which we found to be compliant with established federal
guidance. The post- milestone reviews are to focus on the processes
used in systems development, while the PIRs are to focus on outcomes
related to expected business benefits, user expectations, and technical
performance requirements.
Between May and July 2006, IRS conducted a pilot PIR on the e-Services
Transcript Delivery System, utilizing the new procedure. The pilot
review identified process improvement opportunities that will be
considered during a planned PIR redesign effort.
However, IRS reported that no additional PIRs are scheduled to be
conducted at this time, due to fiscal year 2007 resource constraints
and other priorities. By not performing PIRs on all deployed BSM
projects, the agency lacks important information on whether expected
benefits have been achieved or expectations have been met for these
projects.
Modernization Vision and Strategy:
In July 2005, we reported[Footnote 22] 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.
During fiscal year 2006, IRS conducted the initial cycle of a new IT
Modernization Vision and Strategy (MV&S) activity. The MV&S initiative
established a 5-year plan (also known as the Enterprise Transition
Strategy) to guide IT investment decisions during fiscal years 2007
through 2011 and address priorities around modernizing front-line tax
administration functions and the supporting technical capabilities
provided by the infrastructure and security. Key characteristics of the
new vision and strategy include a partnership among IRS's IT and
business leadership; an emphasis on delivering smaller, more frequent
incremental releases; the leveraging of existing systems (or components
of existing systems) where appropriate; and a unified, portfolio-level
view of investments.
The MV&S framework is built on a functional segmentation of the IRS
into the following core mission business functions that directly relate
to front-line tax administration:
Submissions Processing,
Manage Taxpayer Accounts,
Customer Service,
Reporting Compliance,
Filing and Payment Compliance, and:
Criminal Investigation.
These six segments, referred to as "Business Domains", reflect a purely
functional, rather than organizational, view of the business. They are
supported by services necessary to provide for the effective and secure
execution of the core mission-critical business functions. These
services are addressed by two "Service Domains" that provide cross-
cutting data, infrastructure, and security services as well as common
business functions, which can be leveraged to support the Business
Domains. Within each domain, opportunities have been defined that
reflect the priorities that are expected to yield the greatest benefit
to taxpayers and the IRS.
The agency's Enterprise Transition Strategy describes the overall IRS
vision and strategy and how existing and proposed investments align to
it. It also provides an organization-wide view of programs and
projects, including known dependencies, across the agency, and is
intended to give leadership the visibility to use the agency's
enterprise architecture for organization-wide planning. The Enterprise
Transition Strategy documents the scope, business challenges, current
and transition architectures, redesign opportunities, strategy,
proposed projects and associated release strategies (e.g., Accounts
Management Services[Footnote 23]), and the planned evolution (i.e.,
reuse, consolidation, retirement) of related key current production
environment (CPE) systems for each of the MV&S Business Domains.
IRS's MV&S initiative is intended to be an annual process through which
the agency integrates the strategic plans, business concepts of
operations, IT planning roadmaps, and proposed investments into a set
of integrated strategies and investment proposals for each domain and
ultimately into a proposed IT investment portfolio. During the initial
fiscal year 2006 MV&S cycle, IRS recognized that the six Business
Domains and two Service Domains addressed did not represent the entire
scope of IRS activities, but felt that the limited scope was
appropriate, given time and resource constraints.
For the current MV&S cycle, IRS is adding a Business Domain (Internal
Management) and splitting one of the Service Domains into three
separate domains (Data, Infrastructure, and Security). Of these
redefined Service Domains, the Security domain is being addressed
during the current cycle. Additional refinements and extensions are
anticipated in future cycles to address additional Business Domains
(e.g., Financial Management) and develop a more comprehensive plan for
the Service Domains. IRS expects to regularly revise and update the
content of the MV&S to address the full scope of tax administration
functions and the changing business priorities.
In addition, IRS recognizes the need to proactively plan for the
disposition (i.e., consolidation, retirement, or potential reuse) of
each of the over 700 legacy systems comprising the current production
environment, but noted that it has not been able to conduct all of the
necessary detailed, highly complex analyses due to resource
constraints. The CPE system evolution information contained in the
current (June 2006) version of the Enterprise Transition Strategy is
preliminary and is largely driven by the planning activities of
individual modernization projects and, therefore, limited to plans for
related key CPE systems. IRS intends to conduct further analyses and
provide additional details and refinements in the future regarding its
plans for legacy system dispositions.
IRS's new IT MV&S and associated 5-year plan embodied in the Enterprise
Transition Strategy represent significant progress toward defining the
agency's future plans for the modernization program. However, more work
remains for IRS to fully address our prior recommendation of developing
a long-term vision and strategy for completing BSM, including
establishing time frames for consolidating and retiring legacy systems.
Objective 3: Observations about IRS's BSM Program and Expenditure Plan:
Observation 1: IRS Has Made Additional Progress in Implementing BSM
Projects and in Meeting Cost and Schedule Commitments, but Two Key
Projects Experienced Significant Cost Overruns.
During 2006, IRS's BSM program has delivered additional releases of the
following modernized systems that have provided benefits to taxpayers
and the agency:
Customer Account Data Engine (CADE). CADE is intended to provide the
modernized database foundation that will eventually replace IRS's
antiquated Master File processing system, which contains the agency's
repository of taxpayer information, and, therefore, is the BSM
program's cornerstone and highest priority project. CADE facilitates
faster refund processing and timelier response to taxpayer inquiries.
In January 2006, IRS implemented Release 1.3.2 of CADE, which was used
to process a subset of filing year 2006 Form 1040EZ, 1040, and 1040A
tax returns with no schedules for single taxpayers with refund or even-
balance returns and no dependents. In September 2006, IRS deployed CADE
Release 2.1, which adds the capability to process Form 1040 and 1040A
tax returns with certain schedules and supporting forms as well as
returns for taxpayers filing as head of household. According to IRS,
CADE has processed about 7.4 million tax returns and issued about 6.6
million refunds totaling over $3.4 billion during the 2006 filing
season.
Modernized e-File (MeF). This project is intended to initially provide
electronic filing for large corporations, small businesses, and tax-
exempt organizations and ultimately replace the 1040 e-file program. In
March 2006, IRS completed MeF Release 3.2, which enables corporations
and tax-exempt organizations to file joint federal/state tax returns
electronically and allows states to retrieve their applicable returns
from MeF. IRS reported that, during the 2006 filing season, over
900,000 tax returns have been received using MeF, including over 13,000
mandated returns (corporations with assets of over $50 million) and
about 600 state returns, which have been made available to the three
participating states (as of September 24, 2006).
Filing and Payment Compliance (F&PC). F&PC is intended to provide
support for detecting, scoring, and working non-filer (filing
compliance) and delinquency (payment compliance) cases. F&PC Release
1.1, which began full production operation in September 2006, provides
advanced software to analyze tax collection cases and separate the
complex cases requiring IRS involvement from the simpler (balance due)
cases that can be handled by private collection agencies (PCAs) for
case resolution. On September 7, 2006, an initial inventory of over
11,500 collection cases was delivered to the three PCAs for processing.
IRS continued to make progress in meeting cost and schedule commitments
for completed and ongoing project releases during 2006, but two key
projects experienced significant cost increases. Our analysis of IRS's
reported project costs and completion dates shows that each of the five
project segments delivered during 2006 were completed on time or within
the targeted 10 percent schedule variance threshold, and two of them
were also completed within the targeted 10 percent variance threshold
for cost. For example, F&PC Release 1.2 exited Milestones 3 and 4a on
time, and Milestone 4a was completed at the estimated project cost.
Also, CADE Release 1.3.2 was delivered within the targeted 10 percent
variance threshold for both cost and schedule. However, two project
segments-MeF Release 3.2, Milestone 4/5 and CADE Release 2.1, Milestone
4-experienced cost increases of 36 percent and 15 percent,
respectively, against the original commitments. The MeF project cost
increase was due to unplanned functionality related to security and
large file/mandate requirements, stress test requirements, the large
number of change requests received late in development, and higher than
expected defect reports in production. The CADE project cost overrun
was driven by restart/rework of the business process engineering effort
and the associated Design Specification Report. Appendix III provides
the complete list of BSM project cost and schedule changes reported by
IRS.
Observation 2: IRS Could Improve Its Reporting of Progress in Meeting
Project Scope Expectations.
IRS's expenditure plan includes tables showing, for each project
release segment, the status of activities that were planned as of the
fiscal year 2006 expenditure plan and an explanation of changes in
these plans, if any. The expenditure plan also features a list of
changes (i.e., additions, deletions, and deferrals) to requirements/
scope for its project releases. While the tables and list provide
information on the status of project releases, they do not provide a
quantitative measure of IRS's progress in meeting scope expectations.
Such a measure would help to provide the Congress with more complete
information on IRS's performance in delivering BSM project releases.
IRS recognizes the value of having a quantitative measure of progress
in meeting functional performance, and, to its credit, recently held a
meeting to address ways to develop it. Several BSM projects use earned
value management,[Footnote 24] a proven technique required by the
administration[Footnote 25] for measuring cost, schedule, and
functional performance. However, earned value management data are not
reported in IRS's expenditure plan.
Observation 3: Future BSM Project Releases Continue to Face Significant
Risks and Issues, which IRS Is Addressing.
IRS has reported that significant challenges and risks confront future
planned project releases. For example,
Customer Account Data Engine Release 2.2. IRS has reported that there
is no slack in the schedule for Release 2.2, which is planned to be
delivered in January 2007. Late-breaking tax law legislation or other
mandatory filing season changes will have an adverse effect on the
development and testing schedules. Also, the implementation of last
minute changes to the Telephone Excise Tax Refund (TETR)[Footnote 26]
functionality has the potential to impact Release 2.2 scope and
schedule.
Customer Account Data Engine Release 3. According to IRS, potential
scope problems could result in schedule delays and loss of planned
functionality for Releases 3.1 and 3.2, which are currently scheduled
to be deployed in August 2007 and December 2007, respectively.
Maintaining alignment with the Accounts Management Services project is
also a key area of concern.
Accounts Management Services Release 1.1. If the Release Content Master
Plans for the Accounts Management Services and Customer Account Data
Engine projects are not aligned, then a coordinated release structure
may not be possible, and delivery of Release 1.1 functionality, planned
for September 2007, may be impacted. Also, if additional resources,
including technical project staff, are not provided to the Accounts
Management Services project office, then the project may experience
significant schedule delays.
Filing and Payment Compliance Release 1.2. IRS reports that Release
1.2, which is scheduled to be deployed in January 2007, faces risks
associated with the delivery of business and system requirements.
Modernized e-File Release 4. Release 4, which is planned to be
completed in March 2007, also faces critical risks, including the
potential impact of the Excise Tax e-File and Compliance
(ETEC)[Footnote 27] application on the Modernized e-File development
and infrastructure as well as tight budget constraints and the
potential for shortfalls if additional issues arise.
IRS recognizes the potential impact of these project risks and issues
on its ability to deliver planned functionality within cost and
schedule estimates, and has developed mitigation strategies to address
them.
Observation 4: IRS Has Made Further Progress in Addressing High-
Priority BSM Program Improvement Initiatives.
During 2004, the Associate CIO for BSM 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.
Corrective actions recommended by GAO and the Treasury Inspector
General for Tax Administration for improving modernization management
controls and processes as well as several additional IRS-defined
improvement initiatives were then mapped to these key focus areas to
form a BSM program improvement framework.
In August 2004, the Associate CIO initiated an incremental approach to
assess, prioritize, and address the "highest priority initiatives" from
the program improvement framework in 6-month cycles. As of October
2005, IRS reported it had completed 27 highest priority initiatives
during the first two cycles, and was in the process of addressing a
third set of 22, which was planned to be completed by the end of March
2006. In April 2006, IRS reported that 17 of these 22 initiatives had
been completed and closed, 1 initiative had been dropped due to a lack
of resources, and the remaining 4 were being carried over to the next 6-
month period.
In October 2006, IRS reported that it had successfully completed and
closed its fourth set of 15 highest priority initiatives, which
included efforts related to implementing an Applications Development
productivity measurement system, integrating the change management
process into the configuration management function, institutionalizing
the Modernization Vision and Strategy approach and integrating it with
IRS's capital planning and investment control process, hiring and
training 25 entry-level programmers to support development of the
Customer Account Data Engine, and developing an electronic filing
strategy through 2010.
IRS is currently focusing on its fifth set of 13 newly selected high
priority improvement initiatives, which are scheduled to be completed
by the end of March 2007. These initiatives involve functions within
the agency's Applications Development and Enterprise Services
organizations and include:
defining the governance structures and process across all projects,
establishing requirements development processes as well as guidance on
requirements traceability and tracking the cost/schedule impact of
requirements changes (in response to our prior recommendation),
continuing to strengthen Enterprise Services technical capabilities
through filling current systems integration vacancies,
aligning IRS's Service Oriented Architecture with the Modernization
Vision and Strategy, and:
refining the new Applications Development organization.
IRS's program improvement process continues to be an effective means of
regularly assessing, prioritizing, and incrementally addressing BSM
issues and challenges.
Conclusions:
IRS's fiscal year 2007 plan satisfies the legislative conditions.
Although IRS has made significant progress in addressing our
recommendations to improve its modernization management controls and
capabilities, critical controls and capabilities have not yet been
fully implemented. The new IT Modernization Vision and Strategy
represents a significant step towards defining IRS's future plans for
the modernization program; however, more work remains for the agency to
fully develop the long-term strategy for completing BSM, including
establishing time frames for consolidating and retiring legacy systems.
IRS recognizes this and intends to conduct further analyses and update
its vision and strategy to address the full scope of tax administration
functions and provide additional details and refinements regarding the
agency's plans for legacy system dispositions.
IRS has made further progress in implementing BSM and in meeting cost
and schedule commitments during 2006, but two key projects experienced
significant cost overruns. While the expenditure plan includes
information on changes in projects' scope, it does not provide the
quantitative measure of progress in delivering planned functionality
that earned value management, for example, provides.
Future project deliveries continue to 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 effective process for continual improvement to
incrementally assess, prioritize, and address them.
Recommendation for Executive Action:
To allow for more 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 include a quantitative measure of
progress in meeting project scope expectations. In developing this
measure, IRS should consider using earned value management, since this
is a proven technique required by the administration for measuring
cost, schedule, and functional performance against plans.
Agency Comments:
In providing written comments on a draft of this briefing, the
Associate CIO for Applications Development stated that the briefing is
balanced and accurate and that IRS plans to implement the
recommendation. She 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:
Proposed modernization initiative: Tax administration projects: Filing
and Payment compliance (F&PC);
Description: Is to provide support for detecting, scoring, and working
nonfiler (filing compliance) and delinquency (payment compliance) cases
through advanced case selection methods.
Proposed modernization initiative: Tax administration projects:
Modernized e-File;
Description: Is to provide a single standard for filing electronic tax
returns. Initial releases will address large corporations, small
businesses, and tax-exempt organizations. Its ultimate goal is the
conversion of IRS‘s 1040 e-file program.
Proposed modernization initiative: Tax administration projects:
Customer account data engine (CADE);
Description: Is to build the modernized database foundation to replace
the existing Master File processing system that contains the repository
of taxpayer information.
Proposed modernization initiative: Tax administration projects:
Accounts Management Services (AMS);
Description: Is to deliver improved customer support and functionality
by leveraging existing IRS applications (Desktop Integration and
Correspondence Imaging System) and new technologies to bridge the gap
between modernization initiatives, such as CADE, and legacy systems.
AMS is to enhance CADE by providing applications for IRS employees and
taxpayers to access, validate, and update accounts on demand.
Proposed Modernization Initiative: Core infrastructure projects:
Development, Integration, and testing Environments;
Description: Is to provide oversight for laboratory environments that
support evaluation, development, and testing of components from
multiple projects: (1) Virtual Development Environment provides a
software development environment and a standardized set of tools; (2)
Enterprise Integration and Test Environment provides an integration and
testing environment for all projects.
Proposed Modernization Initiative: Core infrastructure projects:
Infrastructure shared services;
Description: Is to deliver, in incremental releases over multiple
years, a fully integrated shared information technology infrastructure
to include hardware, software, shared applications, data,
telecommunications, security, and an enterprise approach to systems and
operations management.
Proposed Modernization Initiative: Architecture, Integration, and
management: Architecture and integration;
Description: Is to ensure that systems solutions meet IRS business
needs and that the development projects are effectively integrated into
the business environment.
Proposed Modernization Initiative: Architecture, Integration, and
management: Business integration;
Description: Is to ensure that IRS‘s BSM program is aligned with the
business units‘ vision and delivers the desired business results. It
provides support to key activities such as transition management,
business rules enterprise management, and requirements development and
management operations.
Proposed Modernization Initiative: Architecture, Integration, and
management: Business rules;
Description: Is to support business process analysis and redesign,
business rules harvesting and management, and business requirements
definition.
Proposed Modernization Initiative: Architecture, Integration, and
management: Management processes;
Description: Is to provide sustaining support for program-level
management processes, including quality assurance, risk management,
program control and process management, and ELC maintenance and
enhancements.
Proposed Modernization Initiative: Architecture, Integration, and
management: Federally funded research and development center-MITRE;
Description: Is to provide program management and systems engineering
support.
Proposed Modernization Initiative: Architecture, Integration, and
management: Program management;
Description: Is to ensure that projects achieve their objectives;
provide the management information and IT infrastructure that supports
risk management, project cost and schedule estimating, and financial
management; and provide procurement management for the CSC contract and
associated task orders.
Source: IRS.
[End of table]
Appendix II: Additional Detail on IRS's Fiscal Year 2007 BSM
Expenditure Plan (in thousands of dollars):
[See PDF for Image]
Source: IRS.
[A ]Releases are software versions that provide a subset of the total
planned project functionality.
[B] Milestones correspond to phases within IRS's ELC (0-Vision &
Strategy / Enterprise Architecture, 1 - Project Initiation, 2 - Domain
Architecture, 3 - Preliminary Design, 4a - Detailed Design, 4b - System
Development, 5 - System Deployment).
[C] Core infrastructure projects and management initiatives are funded
on a fiscal year (FY) basis rather than by milestone.
[End of table]
Appendix III: IRS Reported Project Cost/Schedule Changes (in thousands
of dollars):
[See PDF for Image]
Source: IRS.
[A] During FY 2006, IRS realigned a significant portion of the costs
previously identified with the CADE Requirements Management Engineering
and Project Management/Transition Management initiatives to the
specific project release/milestone those funds directly supported. The
CADE project funding amounts shown in this table include the realigned
costs.
[End of table]
[End of section]
Appendix II: Comments from the Internal Revenue Service:
Department Of The Treasury:
Internal Revenue Service:
Washington, D.C. 20224:
Commissioner:
February 2, 2007:
Mr. David A. 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 "Business Systems Modernization: Internal Revenue Service's
Fiscal Year 2007 Expenditure Plan" GAO-07-247 (Job Code No. 310835). We
continue to appreciate the sound and balanced work of the GAO and are
pleased that it:
* Confirmed that the Internal Revenue Service's (IRS) Fiscal Year 2007
expenditure plan satisfies the conditions specified in the law. This
includes meeting the Office of Management and Budget's capital planning
and investment control review requirements and complying with the
federal systems acquisition requirements and management practices.
* Recognized that the IRS made further progress in 2006 toward
implementing Business Systems Modernization (BSM) projects and meeting
cost and schedule commitments. Under the jurisdiction of BSM, we
deployed additional releases of three systems: Customer Account Data
Engine (the new taxpayer database); Modernized e-File (a new electronic
filing system); and Filing and Payment Compliance (a tax collection
case analysis support system). In 2006, each of the five associated
project segments was delivered within the targeted 10 percent schedule
variance threshold.
* Acknowledged the potential impact of significant risks and issues on
the IRS' ability to deliver planned functionality within cost and
schedule estimates, and that we have developed mitigation strategies.
* Validated that we have made further progress in addressing high-
priority BSM program improvement initiatives, which continue to be an
effective means of assessing, prioritizing, and incrementally
addressing BSM issues and challenges.
In summary, we are in agreement with the audit recommendation and plan
to work with GAO and the Treasury Inspector General for Tax
Administration to define quantitative measures in meeting project scope
expectations.
Additionally, in accordance with your recommendation, we evaluated
options available, including the use of Earned Value Management (EVM),
to determine the best approach for providing quantitative measures in
meeting scope expectations. Our preliminary plan is to implement the
results of our analysis in phases, with an interim approach targeted
for September 2007. Our comments on the draft report's recommendation
are enclosed.
We appreciate your continued support, along with the assistance and
guidance provided by your staff. If you have any questions, or if you
would like to discuss our response in more detail, please contact
Richard A. Spires, Chief Information Officer, at (202) 622-6800.
Sincerely,
Signed by:
Mark W. Everson:
Enclosure:
Draft Report - Business Systems Modernization: Internal Revenue
Service's Fiscal Year 2007 Expenditure Plan Report GAO-07-247 (Job Code
No. 310835):
Recommendation # 1: GAO recommends that the Commissioner of Internal
Revenue direct the Chief Information Officer to ensure that future
expenditure plans include a quantitative measure of progress in meeting
project scope expectations.
Corrective Action #1: The IRS plans to work with GAO and the Treasury
Inspector General for Tax Administration to define such a measure. In
accordance with your recommendation, we evaluated options available,
including the use of earned value management (EVM), to determine the
best approach for providing quantitative measures in meeting scope
expectations. Our preliminary plan is to implement the results of our
analysis in phases, with an interim approach targeted for September
2007. Phase II process implementation is currently targeted for May
2008.
Implementation Date: May 1, 2008:
Responsible Official: Associate Chief Information Officer, Applications
Development:
Corrective Action Monitoring Plan: We enter accepted Corrective Actions
into the Joint Audit Management Enterprise System (JAMES). These
Corrective Actions are monitored on a monthly basis until completion.
[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 person named above, Timothy D. Hopkins, Paul
B. Middleton, and Sabine R. Paul made key contributions to this report.
(310835):
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. L. No. 109-115, Div. A, Title II,
November 30, 2005. Currently, IRS's fiscal year 2007 funding is
provided under a Current Resolution, Pub. L. No. 109-289, Div. B,
September 29, 2006, as amended by Pub. L. No. 109-383, December 9,
2006, which continues BSM's funding subject to the "authority and
conditions" provided in the fiscal year 2006 appropriations act.
[2] Earned value management is a project management tool that
integrates the investment scope of work with schedule and cost elements
for investment planning and control. This method compares the value of
work accomplished during a given period with that of the work expected
in the period. Differences in expectations are measured in both cost
and schedule variances.
[3] Recent Office of Management and Budget guidance directed agencies
to implement earned value management on major information technology
investments, in an effort to meet baseline cost, schedule, and
performance goals.
[4] Accounts Management Services (AMS) is a strategic project intended
to deliver improved customer support and functionality by leveraging
existing IRS applications and new technologies to bridge the gap
between modernization initiatives, such as the Customer Account Data
Engine (CADE), and legacy systems. AMS is to enhance CADE by providing
applications for IRS employees and taxpayers to access, validate, and
update accounts on demand. The development and implementation of the
AMS project is also essential to enabling CADE to accept more
complicated tax returns and to deal with taxpayer issues.
[5] Pub. Law 109-115, Div. A, Title II, Nov. 30, 2005. Currently, IRS's
fiscal year 2007 funding is provided under a Current Resolution, Pub.
Law 109-289, Div. B, Sept. 29, 2006, which continues BSM's funding
subject to the "authority and conditions" provided in the fiscal year
2006 appropriations act.
[6] 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.
[7] IRS refers to its life cycle management program as the enterprise
life cycle (ELC).
[8] Earned value management is a project management tool that
integrates the investment scope of work with schedule and cost elements
for investment planning and control. This method compares the value of
work accomplished during a given period with that of the work expected
in the period. Differences in expectations are measured in both cost
and schedule variances.
[9] 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).
[10] 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).
[11] 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).
[12] GAO, Business Systems Modernization: IRS's Fiscal Year 2004
Expenditure Plan, GAO-05-46 (Washington, D.C.' November 17, 2004).
[13] GAO, Business Systems Modernization: Internal Revenue Service's
Fiscal Year 2005 Expenditure Plan, GAO-05-774 (Washington, D.C.' July
22, 2005).
[14] GAO, Business Systems Modernization: Internal Revenue Service's
Fiscal Year 2006 Expenditure Plan, GAO-06-360 (Washington, D.C.'
February 21, 2006).
[15] IRS plans to use unobligated fiscal year 2005 Management Reserve
funding to begin work on the Accounts Management Services project.
[16] The CMMI is SEI's process model, which describes how to develop
the processes needed for software development and specific practices
that organizations should follow.
[17] GAO, Business Systems Modernization: IRS Needs to Complete Recent
Efforts to Develop Policies and Procedures to Guide Requirements
Development and Management, GAO-06-310 (Washington, D.C.' March 20,
2006).
[18] Executive Office of the President, Office of Management and
Budget, Evaluating Information Technology Investments: A Practical
Guide (November 1995) and Circular A-130, Transmittal Memorandum #4,
Management of Federal Information Resources (November 2000).
[19] GAO, Information Technology Investment Management: A Framework for
Assessing and Improving Process Maturity, GAO-04-394G (Washington,
D.C.' March 2004).
[20] GAO-05-46.
[21] GAO-05-774.
[22] GAO-05-774.
[23] Accounts Management Services (AMS) is a strategic project intended
to deliver improved customer support by leveraging legacy systems. As a
part of the fiscal year 2006 MV&S process, a strategy was developed to
create and retain Customer Account Data Engine (CADE) account data by
processing on-line transactions. The development and implementation of
the AMS project is integral to this strategy and essential to enabling
CADE to accept more complicated tax returns and to deal with taxpayer
issues. AMS project releases are to provide functional components
synchronized with the CADE development schedule as well as other
components delivered independent of the CADE schedule.
[24] Earned value management is a project management tool that
integrates the investment scope of work with schedule and cost elements
for investment planning and control. This method compares the value of
work accomplished during a given period with that of the work expected
in the period. Differences in expectations are measured in both cost
and schedule variances.
[25] Recent OMB guidance directed agencies to implement earned value
management on major IT investments, in an effort to meet baseline cost,
schedule, and performance goals.
[26] Under the TETR, taxpayers are being refunded the telephone excise
tax they have paid over the last three years, including interest.
Individuals and businesses are affected. This is a one time event.
[27] The ETEC project is funded by the Department of Transportation and
supports the compliance of highway use and fuel excise tax. It
leverages the Modernized e-File capabilities for filing excise tax
forms.
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