Information Technology:

IRS Needs to Improve Its Processes for Prioritizing and Reporting Performance of Investments

GAO-16-545: Published: Jun 29, 2016. Publicly Released: Jun 29, 2016.

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What GAO Found

The Internal Revenue Service (IRS) has developed information technology (IT) investment priorities for fiscal year 2016, which support two types of activities—operations and modernization. For example, it has developed priority groups for operations such as: (1) critical business operations, infrastructure operations, and maintenance; and (2) delivery of essential tax administration/taxpayer services. It has identified priorities for modernization, such as web applications, to help reach IRS's future state vision. However, while IRS has developed a structured process for allocating funding to its operations activities consistent with best practices, it has not fully documented this process. IRS officials stated this is because the process is relatively new and not yet stabilized. In addition, IRS does not have a structured process for its modernization activities, because, according to officials, there are fewer competing activities than for operations activities. Fully documenting a process for both operations support and modernization activities that is consistent with best practices would provide transparency and greater assurance it is consistently applied.

Of the six investments GAO reviewed, two investments—Foreign Account Tax Compliance Act and Return Review Program—provided complete and timely performance information for GAO's analyses. These investments performed under cost, with varying schedule performance, and delivered most planned scope (see table). However, IRS did not always use best practices for determining scope delivered. Specifically, IRS used a method inconsistent with best practices for determining the amount of work completed by its own staff.

Performance of Foreign Account Tax Compliance Act and Return Review Program during Fiscal Year 2015 and the First Quarter of Fiscal Year 2016

Investment name

Total budgeted costs (in millions)

Total actual costs (in millions)

Cost variance (in millions)

Schedule status

Percentage of planned scope delivered

Foreign Account Tax Compliance Act

$64.1

$51.7

$12.4 (19.4%)

Late (-8.3%)

91.7%

Return Review Program

$182.2

$157.7

$24.5 (13.4%)

On-Time (-0.1%)

99.9%

Source: GAO analysis of performance information from IRS's Investment Performance Tool. | GAO-16-545

Two other investments reported completing portions of their work on time and $1.7 million under planned costs (for the Customer Account Data Engine 2), and on time and $10.3 million under planned costs (for Affordable Care Act Administration). However, neither investment reported information on planned versus actual delivery of scope in accordance with best practices. The remaining two investments—Mainframes and Servers Services and Support and Telecommunications Systems and Support—generally met performance goals.

Why GAO Did This Study

IRS relies extensively on IT systems to annually collect more than $2 trillion in taxes, distribute more than $300 billion in refunds, and carry out its mission of providing service to America's taxpayers in meeting their tax obligations. For fiscal year 2016, IRS planned to spend approximately $2.7 billion for IT investments. Given the size and significance of these expenditures, it is important that Congress be provided information on agency funding priorities, the process for determining these priorities, and progress in completing key IT investments.

Accordingly, GAO's objectives were to (1) describe IRS's current IT investment priorities and assess IRS's process for determining these priorities, and (2) determine IRS's progress in implementing key IT investments.

To do so, GAO analyzed IRS's process for determining its fiscal year 2016 funding priorities, interviewed program officials, and analyzed performance information for six selected investments for fiscal year 2015 and the first quarter of 2016.

What GAO Recommends

GAO is recommending that IRS develop and document its processes for prioritizing IT funding and improve the calculation and reporting of investment performance information. IRS agreed with two recommendations regarding its prioritization processes, disagreed with one related to the calculation of performance information, and did not comment on one recommendation. GAO maintains all of the recommendations are warranted.

For more information, contact David A. Powner at (202) 512-9286 or pownerd@gao.gov.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In response to this recommendation, on March 31, 2017, IRS issued its Portfolio Investment Plan Process Description Manual for selecting and prioritizing operations support activities. The manual addresses (1) criteria for prioritizing selections; (2) comparing assets against one another to create a prioritized portfolio; and (3) ensuring executives' funding decisions are based upon the process for selecting and prioritizing activities.

    Recommendation: To help IRS improve its process for determining IT funding priorities and to provide timely information on the progress of its investments, the Commissioner of IRS should direct the Chief Technology Officer to document IRS's process for selecting and prioritizing operations support activities.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Open

    Comments: In April 2017, IRS stated that it had several process improvements underway that would impact its documentation of policies and procedures for prioritizing business systems modernization activities. The agency committed to addressing the recommendation by December 2017.

    Recommendation: To help IRS improve its process for determining IT funding priorities and to provide timely information on the progress of its investments, the Commissioner of IRS should direct the Chief Technology Officer to establish, document, and implement policies and procedures for selecting new and reselecting ongoing business systems modernization activities, consistent with IRS's process for prioritizing operations support priorities, which addresses (1) prioritization and comparison of IT assets against each other, (2) criteria for making selection and prioritization decisions, and (3) ensuring IRS executives' final funding decisions on IT proposals are based on IRS's prioritization process.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  3. Status: Open

    Comments: In April 2017, IRS reported that it was continuing to examine methods for modifying existing processes to measure work performed by IRS staff for the Foreign Account Tax Compliance Act and Return Review programs. We are monitoring IRS's efforts as part of an ongoing review of the agency's information technology operations.

    Recommendation: To help IRS improve its process for determining IT funding priorities and to provide timely information on the progress of its investments, the Commissioner of IRS should direct the Chief Technology Officer to modify existing processes for Foreign Account Tax Compliance Act (FATCA) and Return Review Program (RRP) for measuring work performed by IRS staff to incorporate best practices, including accounting for actual work performed and using the level of effort measure sparingly.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  4. Status: Open

    Comments: IRS began reporting on actual costs and scope delivery at least quarterly using metrics similar to FATCA and RRP and provided the quarterly reports for fiscal year 2016 and the first two quarters of fiscal year 2017 to GAO. As of September 2017, the agency had not implemented the recommendation for the Affordable Care Act Administration investment because it did not see the benefit in doing so given that development work was minimal. We are following up with IRS on this as part of an ongoing review of the agency's information technology operations.

    Recommendation: To help IRS improve its process for determining IT funding priorities and to provide timely information on the progress of its investments, the Commissioner of IRS should direct the Chief Technology Officer to report on actual costs and scope delivery at least quarterly for the Customer Account Data Engine 2 and the Affordable Care Act Administration. For these investments, IRS should develop metrics similar to FATCA and RRP.

    Agency Affected: Department of the Treasury: Internal Revenue Service

 

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