Pursuant to a congressional request, GAO discussed the management challenges facing the Internal Revenue Service (IRS) and its progress in implementing its new restructuring initiative.

GAO noted that: (1) IRS' business modernization encompasses changing IRS' organizational structure, adopting new business practices, and managing for results; (2) a key challenge for IRS' business and modernization will be developing a balanced measurement system and incorporating that measurement system into reward and employee-evaluation systems; (3) IRS will have little assurance that employees will be motivated to change their behavior unless its reward and evaluation systems are aligned with its new measures; (4) IRS' systems modernization is intended to implement IRS' modernized business practices; (5) IRS developed the first two levels of a four-level modernization blueprint in May 1997, which was a good first step in defining the level of detail and precision needed to effectively and efficiently build modernized systems; (6) however, because the blueprint was developed before the Commissioner's restructuring initiative, questions exist about its validity; (7) IRS acknowledges these questions and, in addition to completing the blueprint, plans to validate it in light of the restructuring initiative; (8) further, IRS is working as a partner with a systems integration services contractor to complete the final aspects of the blueprint; (9) the success of systems modernization will depend on whether IRS can effectively partner with and manage its contractors; (10) the sheer magnitude of undertaking both business and systems modernization will strain IRS' management and staff; (11) such an ambitious undertaking, along with the need to stay in business, makes the restructuring initiative a high-risk venture that will take years to fully implement; and (12) the Commissioner acknowledges that the restructuring initiative is a high-risk venture and plans to manage it accordingly.