Business Systems Modernization:

Internal Revenue Service's Fiscal Year 2005 Expenditure Plan

GAO-05-774: Published: Jul 22, 2005. Publicly Released: Jul 22, 2005.

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The Internal Revenue Service's (IRS) Business Systems Modernization (BSM) program is a multibillion-dollar, high-risk, highly complex effort that involves the development and delivery of a number of modernized information systems intended to replace the agency's aging business and tax processing systems. As required by law, IRS submitted its fiscal year 2005 expenditure plan in April 2005 to congressional appropriations committees, requesting about $203 million from the BSM account. GAO's objectives in reviewing the plan were to (1) determine whether it satisfied the conditions specified in the law, (2) determine what progress IRS had made in implementing our prior recommendations, and (3) provide any other observations about the plan and IRS's BSM program.

IRS's fiscal year 2005 expenditure plan, which requested about $203 million for the BSM program, satisfies the conditions specified in the law. These conditions include meeting the Office of Management and Budget's capital planning and investment control review requirements and complying with federal systems acquisition requirements and management practices. IRS has made progress in implementing GAO's recommendations to improve its modernization management controls and capabilities. However, certain controls and capabilities related to configuration management, human capital management, cost and schedule estimating, contract management, and post-implementation reviews have not yet been fully implemented or institutionalized. Weaknesses in these controls and capabilities have contributed, at least in part, to project cost and schedule shortfalls. GAO's observations on the expenditure plan and BSM program include the following: (1) during the past year, IRS has made progress implementing BSM, but much work remains. While IRS has deployed initial versions of several modernized tax processing and business systems, these deliveries only represent the initial steps toward modernization. For example, initial deliveries of the Customer Account Data Engine (CADE) project will process less than 1 percent of all tax returns filed this year; (2) IRS has not met long-term cost and schedule estimates, but its new incremental approach contributed to short-term improvements. In the second quarter of fiscal year 2004, systems modernization projects were rebaselined, and IRS adopted a new strategy to develop and deploy more manageable project segments. Since that time, IRS has met its short-term cost estimates and delivery dates for the initial releases of CADE and the Custodial Accounting Project. However, concerns remain about IRS's ability to continue meeting cost and schedule targets; (3) IRS has made progress toward addressing issues raised in independent BSM assessments and implementing program improvement initiatives, but high-priority issues and challenges remain in areas such as quality assurance, the change request process, and integrated schedule and baseline management; and (4) the BSM vision and strategy need revision in order to clearly show what the modernization program will consist of, when it will be completed, and at what cost. For example, the latest modernization strategy referenced in an expenditure plan dates back to fiscal year 2002, and its planned delivery dates no longer reflect reality.

Status Legend:

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  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendation for Executive Action

    Recommendation: To address the many changes associated with the BSM and to clearly describe what the modernization program is intended to accomplish, when it will be completed, and at what cost, the Commissioner of Internal Revenue should direct the Chief Information Officer to fully revisit the vision and strategy for the BSM program and develop a new set of long-term goals, strategies, and plans that are consistent with the budgetary outlook and IRS's management capabilities.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Closed - Implemented

    Comments: IRS took several actions to address this recommendation. Specifically, in fiscal year 2006, IRS issued an initial version of a new IT Modernization Vision and Strategy (MV&S). IRS also issued a companion 5-year plan (also known as the Enterprise Transition Strategy) to guide IT investments during fiscal years 2007 through 2011. The MV&S framework is built on a functional segmentation of IRS into core mission business functions (business domains) supported by services necessary for their effective and secure execution (service domains). The Enterprise Transition Strategy describes the overall IRS vision and strategy and how existing and proposed investments align to it. It also documents the scope, business challenges, current and transition architectures, redesign opportunities, strategy, proposed projects and associated release strategies, and the planned evolution (i.e., reuse, consolidation, retirement) of related key current production environment systems for each of the MV&S business domains. During fiscal year 2007, IRS updated its 5-year transition strategy to include a new service domain, planned business domains, and opportunities for retirement of legacy systems. As part of its modernization vision and strategy effort, IRS also developed an initial 5-year schedule for retiring and consolidating systems for each domain and began implementing this schedule. Finally, IRS recently started defining a new strategy for managing individual taxpayer accounts. On June 30, 2009, IRS issued preliminary analyses, including a solution architecture, a program roadmap and a timeline, in support of this new strategy. IRS plans to complete additional analyses and implement the new strategy by 2014.

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