Tax Systems Modernization:

Cyberfile Project Was Poorly Planned and Managed

AIMD-96-140: Published: Aug 26, 1996. Publicly Released: Sep 10, 1996.

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Pursuant to a congressional request, GAO reviewed the Internal Revenue Service's (IRS) acquisition of Cyberfile, an electronic filing system that the National Technical Information Service (NTIS) is developing for IRS, focusing on whether: (1) the IRS decision to use NTIS to develop Cyberfile was based on sound analysis; (2) IRS and NTIS followed applicable procurement laws and regulations; (3) IRS and NTIS properly accounted for Cyberfile obligations and costs; and (4) IRS cost-effectively acquired equipment and services.

GAO found that: (1) IRS did not adequately analyze its requirements, consider alternative ways to satisfy its requirements, prepare a strategy for how it would acquire the most cost-effective alternative, or assess NTIS ability to develop, deliver, and operate an electronic filing system before deciding to use NTIS to develop Cyberfile; (2) IRS selected NTIS because of expediency and its belief that NTIS could meet a delivery date of February 1996; (3) IRS suspended development after advancing $17.1 million to NTIS; (4) IRS is reevaluating the project, since NTIS did not deliver it on time; (5) IRS cited the Brooks Act for its authority to procure Cyberfile, but it did not fully comply with the implementing regulation's requirements; (6) IRS did not obtain the proper delegation of procurement authority from the Treasury Department; (7) NTIS did not obtain the Small Business Administration's (SBA) approval to modify an existing sole-source Section 8(a) contract to add the Cyberfile project for a total cost of $3.3 million, and violated SBA rules for competing the procurement among eligible firms; (8) NTIS did not hold the contractor accountable for delivery dates and costs; (9) IRS did not ensure that NTIS efficiently and effectively managed the project; (10) IRS understated Cyberfile obligations and improperly accounted for the $17.1-million NTIS advance; (11) NTIS did not properly document significant financial transactions or record obligations and costs; and (12) IRS did not implement adequate controls to ensure that it did not incur excess costs after the project's suspension.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: According to the Commerce Department, IRS was notified prior to entering into the interagency agreement that it would be charged management fees for the procurement of Cyberfile-related equipment and services handled by NTIS whether or not the items were procured through existing government contracts. Consequently, Commerce does not plan to rescind these management fees.

    Recommendation: Before permitting NTIS to resume work on the Cyberfile project or accept new systems development projects from other federal agencies (e.g., work NTIS solicits, such as providing information management solutions, performing program management and software development, and building state-of-the-art customized programs), the Secretary of Commerce should rescind management fees for all items purchased from existing government contracts.

    Agency Affected: Department of Commerce

  2. Status: Closed - Implemented

    Comments: In its comments on a draft of the report, Commerce agreed to rescind the prompt payment penalties and associated management fees, which totalled $2,276. In its September 10, 1996 comments on the final report, Commerce stated that these penalties and fees had been returned to the IRS.

    Recommendation: Before permitting NTIS to resume work on the Cyberfile Project or accept new systems development projects from other federal agencies (e.g., work NTIS solicits, such as providing information management solutions, performing program management and software development, and building state-of-the-art customized programs) the Secretary of Commerce should rescind all charges made to IRS associated with NTIS mismanagement, such as costs and fees for prompt payment penalties.

    Agency Affected: Department of Commerce

  3. Status: Closed - Implemented

    Comments: In response to GAO's recommendation, Commerce initiated an effort to research and resolve this issue. Commerce stated that as part of this effort, the department identified avoidable costs and reported to the Congress that as of September 30, 1996, all contracts had been terminated and costs ceased to be incurred.

    Recommendation: Before permitting NTIS to resume work on the Cyberfile project or accept new systems development projects from other federal agencies (e.g., work NTIS solicits, such as providing information management solutions, performing program management and software development, and building state-of-the-art customized programs), the Secretary of Commerce should ensure that the Director, NTIS, immediately identifies all costs that can be avoided while Cyberfile is suspended and takes needed contractual action to do so.

    Agency Affected: Department of Commerce

  4. Status: Closed - Implemented

    Comments: On September 9, 1996, the Department of Commerce submitted a report to the specified congressional committees addressing the weaknesses in NTIS' acquisition and financial management processes that contributed to Cyberfile mismanagement, and completed and planned actions to respond to GAO's recommendations.

    Recommendation: Before permitting NTIS to resume work on the Cyberfile project or accept new systems development projects from other federal agencies (e.g., work NTIS solicits, such as providing information management solutions, performing program management and software development, and building state-of-the-art customized programs), the Secretary of Commerce should provide to the Senate Committee on Governmental Affairs, the House Committee on Government Reform and Oversight, the Senate and House Appropriations Committees, the Senate Committee on Commerce, Science, and Transportation, and the House Committee on Science a report detailing: (1) the weaknesses in NTIS acquisition and financial management processes and controls that permitted Cyberfile mismanagement (e.g., permitted NTIS to disregard procurement laws and regulations and dispense with acceptable financial accounting practices); and (2) actions that have been taken to ensure that these weaknesses in NTIS processes and controls have been corrected and that resulting mismanagement does not recur.

    Agency Affected: Department of Commerce

  5. Status: Closed - Implemented

    Comments: According to IRS, the acquisition weaknesses identified during the review of Cyberfile are reflective of systemic weaknesses being experienced by the Service in its systems modernization efforts and are being addressed in IRS' February 27, 1997, action plan to the Congress for correcting Tax Systems Modernization management and technical weaknesses. Consequently, IRS is not planning to report a material weakness for the Cyberfile acquisition.

    Recommendation: In light of the severity of acquisition and financial problems identified, before resuming the Cyberfile project, the Commissioner of Internal Revenue should report the acquisition weaknesses as material weaknesses in the agency's system of internal controls under the Federal Managers' Financial Integrity Act to the extent they remain uncorrected at the close of fiscal year 1996 and reassess these controls periodically to ensure that they are adequate and are being adhered to as required by the act.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  6. Status: Closed - Implemented

    Comments: IRS cancelled the Cyberfile project and Commerce reported to the Congress that it terminated all Cyberfile contracts and costs by September 30, 1996.

    Recommendation: In light of the severity of acquisition and financial problems identified, before resuming the Cyberfile project, the Commissioner of Internal Revenue should ensure that NTIS identifies all obligations and costs that can be avoided while Cyberfile is suspended and takes needed contractual action to do so.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  7. Status: Closed - Implemented

    Comments: GAO performed an independent audit of IRS' financial statements for fiscal year 1996 and found that IRS had adjusted the obligations and costs recorded for Cyberfile to reflect the actual obligations and costs associated with the interagency agreement with NTIS.

    Recommendation: In light of the severity of acquisition and financial problems identified, before resuming the Cyberfile project, the Commissioner of Internal Revenue should ensure that the IRS Chief Financial Officer adjusts the obligations and costs recorded for Cyberfile to reflect the actual obligations and costs associated with the interagency agreement with NTIS.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  8. Status: Closed - Not Implemented

    Comments: IRS cancelled the Cyberfile project during the course of GAO's work. According to IRS officials, the Cyberfile project will not be resumed. However, to mitigate the recurrence of problems encountered under this project, IRS developed and is implementing a Systems Life Cycle (SLC) to guide future technology investments. The SLC was issued on September 30, 1997 and included policies and procedures for: reengineering work processes; creating business requirements; developing engineering solutions; creating business cases for investments; designing and developing systems in accordance with a standard architecture; maintaining the systems in the production environment; and applying and analyzing performance metrics.

    Recommendation: In light of the severity of acquisition and financial problems identified, before resuming the Cyberfile project, the Commissioner of Internal Revenue should provide to the Senate Committee on Governmental Affairs, the House Committee on Government Reform and Oversight, the Senate and House Appropriations Committees, the Senate Committee on Finance, and the House Committee on Ways and Means a report detailing: (1) the weaknesses in IRS acquisition and financial management processes and controls that permitted Cyberfile mismanagement (e.g., permitted IRS to disregard system acquisition policies and procedures, disregard federal acquisition regulations, and provide inadequate oversight of NTIS system development and acquisition efforts); (2) actions that have been taken to ensure that these weaknesses in IRS processes and controls have been corrected and that resulting mismanagement does not recur; and (3) IRS plans for Cyberfile, including a business case analysis addressing costs, mission-related benefits and technological risks, schedule and milestones, and acquisition strategy.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  9. Status: Closed - Not Implemented

    Comments: Commerce does not plan to report the acquisition and financial weaknesses in its FMFIA report because it has taken serious actions to correct identified weaknesses. In its March 31, 1997 report on NTIS' fiscal year 1996 financial statements, Ernest and Young reported that most of the recommendations made by GAO and internal auditors regarding acquisition and financial management controls had been implemented.

    Recommendation: Before permitting NTIS to resume work on the Cyberfile project or accept new systems development projects from other federal agencies (e.g., work NTIS solicits, such as providing information management solutions, performing program management and software development, and building state-of-the art customized programs), the Secretary of Commerce should report the acquisition and financial management weaknesses as weaknesses in the agency's system of internal controls under the Federal Managers' Financial Integrity Act to the extent they remain uncorrected at the close of fiscal year 1996, and reassess these controls periodically to ensure they are adequate and are being adhered to as required by the act.

    Agency Affected: Department of Commerce

 

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