IRS 2014 Budget:

Improvements Made to Budget Request and Cost Estimate, but Further Actions Needed

GAO-13-835: Published: Sep 26, 2013. Publicly Released: Sep 26, 2013.

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What GAO Found

For the fiscal year 2014 budget formulation process, the Internal Revenue Service (IRS) implemented a new process that uses templates to help screen, prioritize, and select new initiatives before detailed business cases are developed to support funding requests. The template information that GAO reviewed varied in detail and scope; for some, IRS guidance may have contributed to incomplete submissions to senior leadership. According to Office of Management and Budget Circular A-94, in order to evaluate and compare funding initiatives, decision-makers need to be aware of benefits, costs, and strategies related to achieving program goals. By improving guidance on the type of data to include, IRS could help ensure the templates are fully completed.

IRS significantly improved its Patient Protection and Affordable Care Act (PPACA) cost estimate. In particular, the December 2012 estimate is more comprehensive, reflecting the full life-cycle cost of the program--estimated at $1.89 billion for fiscal year 2010 through 2026. A few areas of improvement remain, primarily regarding the accuracy and credibility of the cost estimate. For example, IRS showed how the December 2012 estimate differed from the previous estimate, but did not explain the factors that resulted in the variances. In addition, IRS did not obtain a second cost estimate that could be used to assess the reasonableness of the $1.89 billion estimated program costs.

Although the information technology (IT) systems for PPACA met dollar thresholds (as outlined in the Department of Treasury's guidance) as a major investment for public reporting, IRS did not report this as such. Officials told GAO they did not have time to prepare the information for the fiscal year 2014 budget justification, but plan to do so for fiscal year 2015. Until IRS publicly reports the IT systems for PPACA as a major investment, transparency about these systems' implementation and administration is limited.

Although IRS included new and useful information on its major IT investments in the budget justification (such as life-cycle costs) other important information (such as the start date and percent of life-cycle costs obligated) is reported elsewhere or must be calculated. IRS officials said they could consolidate this information for ease of review. Consolidating key budget and performance data would ensure Congress has comprehensive, easily accessible information on major IT investments to guide decisions.

Why GAO Did This Study

The financing of the federal government depends largely on IRS's ability to administer the tax laws, which includes providing service to taxpayers and enforcing the law to ensure everyone pays the taxes they owe. For fiscal year 2014, the President requested $12.9 billion for IRS, an increase of 9 percent over fiscal year 2012 actual levels.

Because of the size of IRS's budget and the importance of its programs, GAO was asked to review the fiscal year 2014 budget request. In April and May 2013, GAO reported preliminary observations on IRS's budget. Among other things, this report assesses how IRS prioritizes new initiatives; steps IRS has taken to improve the PPACA cost estimate and the reporting transparency of the related IT investment; and the type of information available in the budget justification about major IT systems. To address these objectives, GAO reviewed the fiscal year 2014 budget justification, compared the updated PPACA cost estimate to GAO's Cost Estimating and Assessment Guide, and interviewed IRS Corporate Budget officials.

What GAO Recommends

GAO recommends that IRS improve budget formulation guidance for new initiatives; improve the accuracy and credibility of future updates to the PPACA cost estimate as well as report the related IT investment publicly; and consolidate major IT investment reporting. IRS agreed with three of GAO's four recommendations and agreed with the majority of the actions associated with improving the accuracy and credibility of the PPACA cost estimate.

For more information, contact James R. McTigue, (202) 512-9110, or mctiguej@gao.gov.

Recommendations for Executive Action

  1. Status: Open

    Comments: In June 2014, IRS officials told us they are taking steps to implement this recommendation as part of the fiscal year 2016 budget formulation process, such as expanding guidance for pre-selection budget formulation templates to facilitate more complete information for internal budget decision-making. GAO can assess the result of the guidance after the fiscal year 2016 budget documents are available for review.

    Recommendation: To enhance the budget process and to improve transparency, the Acting Commissioner of Internal Revenue should improve guidance given to business units for the pre-selection budget formulation process, emphasizing the importance of information on the estimated impact--qualitative or quantitative--of proposed budget initiatives.

    Agency Affected: Department of the Treasury: Internal Revenue Service: Office of the Commissioner

  2. Status: Open

    Comments: IRS agreed with all of the actions recommended, except using earned value management and validating the PPACA cost estimate by preparing a second, independent cost estimate, in part because of cost and burden. IRS officials reported that the other actions were implemented into version 2 of the PPACA cost estimate. The updated cost estimate was completed in September 2013, and we plan to review it once it is released in January 2015.

    Recommendation: To enhance the budget process and to improve transparency, the Acting Commissioner of Internal Revenue should improve the accuracy and credibility of future updates to the PPACA cost estimate by taking the following actions to more closely follow best practices outlined in the GAO Cost Guide: (1) Use earned value management to capture actual costs and use them as a basis for future updates. (2) Explain why variances occurred between the current estimate and previous estimates. (3) Document how cost drivers are selected for future sensitivity analyses. (4) Conduct future risk and uncertainty analyses consistent with best practices, and develop and document plans to address risks. (5) Validate the original cost estimate by preparing a second, independent cost estimate.

    Agency Affected: Department of the Treasury: Internal Revenue Service: Office of the Commissioner

  3. Status: Closed - Implemented

    Comments: IRS reported the Affordable Care Act IT investment as a major investment in the fiscal year 2015 budget request and included an Exhibit 300 (a capital asset plan), which is publicly available on the OMB Dashboard. Publicly reporting on IRS's ACA IT investment eases the monitoring of implementation and enhances transparency.

    Recommendation: To enhance the budget process and to improve transparency, the Acting Commissioner of Internal Revenue should publicly report the Affordable Care Act information technology (ACA IT) investment as a major investment on the OMB IT Dashboard and the fiscal year 2015 budget request, including standard cost, schedule, and performance information.

    Agency Affected: Department of the Treasury: Internal Revenue Service: Office of the Commissioner

  4. Status: Closed - Implemented

    Comments: IRS included new, useful information on its major IT investments in its fiscal year 2015 budget request. Consolidating key budget and performance information on major IT investments in one budget document (such as the congressional justification) ensures decision makers have comprehensive, easy to understand information on major IT investments.

    Recommendation: To enhance the budget process and to improve transparency, the Acting Commissioner of Internal Revenue should report key data on major IT investments in one consolidated document, such as the congressional justification, in consultation with congressional stakeholders.

    Agency Affected: Department of the Treasury: Internal Revenue Service: Office of the Commissioner

 

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