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United States Government Accountability Office: 
GAO: 

Report to Congressional Committees: 

April 2014: 

Information Technology: 

IRS Needs to Improve the Reliability and Transparency of Reported 
Investment Information: 

GAO-14-298: 

GAO Highlights: 

Highlights of GAO-14-298, a report to congressional committees. 

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 2014, the agency's 
budget request is $2.6 billion for IT. Given the size and significance 
of IRS's IT investments, and the challenges inherent in successfully 
delivering these complex IT systems, it is important that Congress be 
provided reliable cost, schedule, and scope information to assist with 
its oversight responsibilities. 

Accordingly, GAO's objectives were to (1) summarize the reported cost 
and schedule performance for IRS's major IT investments and assess the 
reporting of the performance information (2) for selected investments, 
evaluate the reliability of reported cost and schedule variances; and 
(3) determine IRS's progress in implementing a quantitative measure of 
functionality delivered for projects. To address these objectives, GAO 
reviewed documentation, including monthly cost and schedule variance 
reports, and interviewed staff, including those from selected 
investments which are critical to IRS's mission. 

What GAO Found: 

According to the Internal Revenue Service (IRS), 6 of its19 major 
information technology (IT) investments were within 10 percent of cost 
and schedule estimates during fiscal year 2013. The remaining 13 were 
reported as having significant cost and schedule variances for at 
least 1 month of the year. Specifically, IRS reported 8 investments as 
being below cost or ahead of schedule; 3 as behind schedule; and 2 as 
over cost (see figure). IRS reported a range of reasons for these 
variances, including cost savings from contract negotiations and scope 
deferrals for those below cost or ahead of schedule, and procurement 
delays for those behind schedule. It is important to note that the 
reported monthly cost and schedule variances are for the fiscal year 
only. IRS's reporting would be more meaningful if it were supplemented 
with cumulative cost and schedule variances for the investments or 
investment segments, consistent with the Office of Management and 
Budget's guidance for measuring progress towards meeting investment 
goals. 

Figure: Summary of Investments with Significant Variances: 

[Refer to PDF for image: illustration] 

Number of investments with No significant variances: 6; 
Number of investments with Significant variances: 13: 
* Below cost or ahead of schedule: 8; 
* Behind schedule: 3; 
* Over Cost: 2. 

Source: GAO analysis of IRS data. 

[End of figure] 

The reported variances for six investments reviewed were not always 
reliable because the projected and actual cost and schedule amounts on 
which they depend were not consistently updated in accordance with OMB 
and Treasury reporting requirements. Specifically, projected amounts 
were not always updated on a monthly basis for in-process (i.e., 
ongoing) activities for a range of reasons; and actual information was 
not consistently updated for completed activities within the 60-day 
time frame required by Treasury guidance. Addressing these issues 
would help IRS improve the reliability of reported information and 
provide Congress with a more accurate report of the agency's 
performance in meeting cost and schedule goals. 

IRS is currently not working on developing a quantitative measure of 
scope (i.e., functionality) as GAO recommended in June 2012 and does 
not plan on doing so, because it believes it is difficult to develop a 
single measure that would allow it to measure progress in delivering 
scope for the range of IRS's investments. However, the agency could 
develop measures using different methods as appropriate. In addition, 
IRS has started to include scope performance (in the functional 
performance section) in its quarterly reporting to Congress. However, 
this information does not include a quantitative measure of 
performance. In addition, it does not show how delivered scope 
compares to what was planned. Providing transparency into progress in 
delivering scope by reporting qualitatively in the congressional 
reports until a quantitative measure is developed would help IRS 
provide Congress a complete picture of the agency's performance in 
managing its major investments. 

What GAO Recommends: 

GAO is making recommendations for IRS to report more comprehensive and 
reliable cost and schedule information and improve the transparency of 
reported scope information for its major investments. IRS agreed with 
GAO's recommendations and stated it believed it had addressed one of 
them. GAO continues to believe further actions are needed. 

View [hyperlink, http://www.gao.gov/products/GAO-14-298]. For more 
information, contact David A. Powner at (202) 512-9286 or 
pownerd@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

Most of IRS's 19 Major Investments Reportedly Within or Below Cost or 
Schedule Goals, but Reported Information Is Only for the Current 
Fiscal Year: 

Reported Cost and Schedule Information Not Always Reliable: 

IRS Has Yet to Develop a Quantitative Measure of Scope: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Reasons for Significant Variances: 

Appendix III: Investment Variances Reported by IRS from October 2012 
to September 2013: 

Appendix IV: Investment Profiles: 

Appendix V: Comments from the Department of the Treasury: 

Appendix VI: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: IRS's Major Investments and Their Descriptions: 

Table 2: Timeliness of Reporting Status of Activities: 

Table 3: Variances for IRS' Major IT Investments from October 2012 to 
September 2013: 

Figures: 

Figure 1: IRS's Information Technology Organization: 

Figure 2: Summary of Investments with Significant Variances: 

Abbreviations: 

ACA: IRS Affordable Care Act: 

CADE: Customer Account Data Engine: 

CIO: Chief Information Officer: 

IMF: Individual Master File: 

IRDM: Information Reporting and Document Matching: 

IRS: Internal Revenue Service: 

IT: information technology: 

MeF: Modernized e-File: 

OMB: Office of Management and Budget: 

RRP: Return Review Program: 

TIGTA: Treasury Inspector General for Tax Administration: 

Treasury: Department of Treasury: 

[End of section] 

United States Government Accountability Office: 
GAO:
441 G St. N.W. 
Washington, DC 20548: 

April 2, 2014: 

Congressional Committees: 

The Internal Revenue Service (IRS) relies extensively on information 
technology (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 2014, the agency's budget request is 
$2.6 billion for IT, about 20 percent of IRS's total budget request 
for the year. 

Given the size and significance of IRS's IT investments, and the 
challenges inherent in successfully delivery these complex IT systems, 
it is important that Congress be provided ongoing, accurate, and 
objective information on the progress toward completion and the risks 
facing these projects. Accordingly, the Conference Report accompanying 
the Consolidated Appropriations Act, 2012 and the Consolidated and 
Further Continuing Appropriations Act, 2013 mandated GAO to review the 
cost and schedule performance of IRS's major IT investments.[Footnote 
1] Specifically, our objectives were to (1) summarize the reported 
cost and schedule performance for IRS's major IT investments and 
assess the reporting of the performance information;[Footnote 2] for 
selected investments, evaluate the reliability of reported cost and 
schedule variances; [Footnote 3,4] and (3) determine IRS's progress in 
implementing a quantitative measure of functionality delivered for 
projects. 

To address our first objective, we obtained and analyzed monthly cost 
and schedule variances for IRS's major IT investments from October 
2012 to September 2013, as reported by IRS. Additionally, we 
identified significant cost and schedule variances-—those variances 
that were 10 percent greater or less than planned cost and schedule 
goals. 

For our second objective, we analyzed monthly cost and schedule 
variance reports to determine whether they reflected monthly updates 
for both in-process and completed activities. We also interviewed 
relevant IRS officials to determine IRS's progress in addressing our 
recent recommendation to establish guidance for determining projected 
cost and schedule amounts-—which are critical to calculating variances—
in accordance with best practices. 

To address our third objective, we followed up with IRS officials to 
determine what progress had been made in putting in place a 
quantitative measure of functionality delivered as we had previously 
recommended.[Footnote 5] When we learned IRS had not addressed our 
recommendation and was not planning on doing so, we followed up on the 
causes and, for each of the investments in our selection, identified 
the qualitative methods IRS stated it was using to manage scope. 

We conducted this performance audit from June 2013 to April 2014 in 
accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. Details on our 
objectives, scope, and methodology can be found in appendix I. 

Background: 

The mission of IRS, a bureau within the Department of the Treasury 
(Treasury), is to provide America's taxpayers top quality service by 
helping them understand and meet their tax responsibilities and by 
applying the federal tax laws with integrity and fairness to all. In 
carrying out its mission, IRS annually collects over $2 trillion in 
taxes from millions of individual taxpayers and numerous other types 
of taxpayers and manages the distribution of over $300 billion in 
refunds. To guide its future direction, the agency has two strategic 
goals: (1) improve taxpayer service to make voluntary compliance 
easier and (2) enforce the law to ensure everyone meets their 
obligations to pay taxes. 

IRS is organized into four primary operating divisions to meet the 
needs of specific taxpayer segments. 

* The Wage and Investment Division services individual taxpayers and 
provides the information, support, and assistance these taxpayers need 
to fulfill their tax obligations. 

* The Small Business and Self-Employed Division services all fully or 
partially self-employed individuals and corporations and partnerships 
with assets of $10 million or less. 

* The Large Business and International Division services corporations 
and partnerships with assets greater than $10 million. 

* The Tax Exempt and Government Entities Division services a large and 
unique economic sector of organizations, which include pension plans, 
exempt organizations, governmental entities, and tax-exempt bond 
issuers. 

* IRS's Information Technology organization is responsible for 
delivering IT services and solutions to support tax administration as 
well as the operations of the broader organization. Information 
Technology is headed by the Chief Technology Officer who reports to 
the Deputy Commissioner for Operations Support.[Footnote 6] It 
includes nine subordinate offices; among those are: 

* The Associate CIO for Applications Development builds, tests, 
delivers, and maintains integrated information application systems 
that will support modernized systems and the production environment. 
It is the development organization for systems that manage taxpayer 
accounts from the initial filing of a tax return, interactions with 
the taxpayers, and potential audit and collection activities. It also 
provides enterprisewide administrative systems related to workforce 
support, human capital, financial, and facilities. Application 
Development is responsible for two of the seven programs we selected 
for detailed analysis in our review. 

* The Associate CIO for Enterprise Operations is responsible for 
supporting the mainframe and server environment by providing 
efficient, cost-effective, secure and reliable server and mainframe 
services for all IRS business entities and taxpayers. It also is 
responsible for financial management, human resources, training 
support and general business administration, developing an 
enterprisewide development and test environment and establishing 
security management. The Associate CIO is responsible for one of the 
seven programs we selected for detailed analysis in our review. 

* The Associate CIO for Strategy and Planning is to facilitate the 
alignment of IT and business. This is to be done through strategic 
planning and financial management practices that offer transparency of 
overall IT demand, supply, and the value of IT investments. This 
office includes a suboffice that is responsible for optimizing the 
efficiency and effectiveness of the IT portfolio through fiscally 
sound portfolio management processes. The office also serves as the 
primary interface with Treasury's capital planning and investment 
control organizations to coordinate actions including baseline change 
requests, budget formulation documents, and IT Dashboard reporting. 

* The Associate CIO for Enterprise IT Program Management Office is 
responsible for the delivery of integrated solutions for several of 
IRS's large-scale programs. It plays a key role in establishing 
change, configuration, and release plans and implementing new 
information system functional capabilities. This Associate CIO is 
responsible for three of the seven programs we selected for detailed 
analysis in our review. 

* The Associate Chief Information Officer (CIO) for the Affordable 
Care Act Program Management Office is responsible for setting the 
overall direction, providing day-to-day management and oversight and 
delivery of IRS IT's contribution for implementing provisions of the 
Patient Protection and Affordable Care Act. This Associate CIO is 
responsible for one of the seven programs we selected for detailed 
analysis in our review. 

Figure 1 shows the structure of IRS's Information Technology 
organization. 

Figure 1: IRS's Information Technology Organization: 

[Refer to PDF for image: organizational structure] 

Top level: 
Chief Technology Officer: 
* Deputy Chief Information Officer, Operations; 
* Deputy Chief Information Officer, Strategy/Modernization. 

Second level, reporting to Chief Technology Officer: 
Management Services: 
* Applications Development; 
* Cybersecurity; 
* User and Network Services; 
* Enterprise Operations; 
* Enterprise Services; 
* Strategy and Planning; 
* Enterprise Information Technology Program Management Office; 
* Affordable Care Act Program Management Office. 

Source: IRS. 

[End of figure] 

IRS Relies on IT to Carry Out Its Mission: 

IT plays a critical role in enabling IRS to carry out its mission and 
responsibilities. For example, the agency relies on information 
systems to process tax returns, account for tax revenues collected, 
send bills for taxes owed, issue refunds, assist in the selection of 
tax returns for audit, and provide telecommunications services for all 
business activities, including the public's toll-free access to tax 
information. 

For fiscal year 2014, IRS requested about $2.6 billion for IT 
investments. This included about $1.8 billion, about 69 percent, of 
the total amount for 19 major investments, and about $800 million, or 
31 percent, of the total amount for 130 non-major investments. For 
IRS, a major investment is one that costs $10 million in either 
current year or budget year, or $50 million over the 5-year period 
extending from the prior year through the budget year +2. The 
following table provides a list of the 19 investments and their 
descriptions. 

Table 1: IRS's Major Investments and Their Descriptions: 

Investment: Account Management Services; 
Description: Enhances customer support by providing applications that 
enable IRS employees to access, validate, and update individual 
taxpayer accounts on demand. 

Investment: Affordable Care Act[A]; 
Description: Encompasses the planning, development, and implementation 
of IT systems needed to support IRS's tax administration 
responsibilities associated with certain provisions of the Affordable 
Care Act. Initiatives that have already been deployed include the 
initial release of the Branded Prescription Drug Industry Fee project 
and an effort intended to provide a secure connection between IRS and 
the Department of Health and Human Services/Centers for Medicare and 
Medicaid Services to support health insurance exchange open enrollment 
for the Fall of 2013. Future capabilities to be provided include 
performing at-filing checks of tax returns for reporting a premium tax 
credit, leveraging third-party data from the Insurance Marketplaces, 
and pre-refund compliance activities related to healthcare credits 
claimed by citizens. 

Investment: Customer Account Data Engine (CADE) 2; 
Description: Is IRS's new program for processing individual taxpayer 
returns that is intended to eventually replace the Individual Master 
File (IMF).The initial phase, which IRS began using in January 2012, 
modified the IMF processing cycle to allow for daily (rather than 
weekly) processing and posting of taxpayer returns and established the 
database that will serve as the authoritative source for all 
individual taxpayer data. In the second phase, which is still in the 
early planning stages, IRS expects, among other things, to (1) rewrite 
applications so they can directly access and update the database, and 
(2) ensure compliance with Federal Financial System Requirements. 

Investment: Electronic Fraud Detection System; 
Description: Intended to detect fraud at the time tax returns are 
filed in order to eliminate the issuance of fraudulent tax refunds. 

Investment: e-Services; 
Description: Comprises several web-based self-assisted services that 
are intended to allow authorized individuals to do business with IRS 
electronically. 

Investment: Foreign Account Tax Compliance Act; 
Description: Intended to implement provisions of the Foreign Account 
Tax Compliance Act regarding financial institutions reporting to IRS 
information about financial accounts held by U.S. taxpayers, or 
foreign entities in which U.S. taxpayers hold a substantial ownership 
interest. 

Investment: Return Review Program (expected to replace Electronic 
Fraud Detection System); 
Description: Currently under development, is intended to maximize 
fraud detection at the time that tax returns are filed to eliminate 
issuance of questionable refunds. IRS expects to begin phasing this 
system in starting in filing season 2014. 

Investment: Individual Master File (IMF); 
Description: Represents the authoritative data source for individual 
tax account data. All other IRS information systems that process IMF 
data depend on output from this source. This investment is a critical 
component of IRS's ability to process tax returns. 

Investment: Information Reporting and Document Matching (IRDM); 
Description: Intended to establish a new business information matching 
program in order to increase voluntary compliance and accurate income 
reporting. 

Investment: Integrated Customer Communication Environment; 
Description: Includes several projects that are intended to simplify 
voluntary compliance using voice response, Internet, and other 
computer technology such as the Modernized Internet Employee 
Identification Number, which allows third parties to act on the behalf 
of taxpayers. 

Investment: Integrated Data Retrieval System; 
Description: Intended to provide systemic review, improve consistency 
in case control, alleviate staffing needs, issue notices to taxpayers, 
and allow taxpayers to see status of refunds. It is a mission-critical 
system used by 60,000 IRS employees. 

Investment: Integrated Financial System/CORE Financial System; 
Description: Used by IRS for budget, payroll, accounts payable/ 
receivable, general ledger functions, and financial reporting; 
also used to report on the cost of operations and to manage budgets by 
fiscal year. 

Investment: Integrated Submission and Remittance Processing System; 
Description: Processes paper tax returns, and updates tax forms to 
comply with tax law changes. 

Investment: IRS End User Systems and Services; 
Description: Supports products and services necessary for daily 
functions for over 100,000 IRS employees at headquarters and field 
sites. 

Investment: IRS Main Frames and Servers Services and Support; 
Description: Intends to support the design, development, and 
deployment of server storage infrastructures, software, databases, and 
operating systems. 

Investment: IRS Telecommunications Systems and Support; 
Description: Supports IRS's broad and local network infrastructure 
such as servers, and switches for voice, data, and video servicing of 
about 1,000 IRS sites. 

Investment: IRS.gov - Portal Environment; 
Description: Provides web-based services such as tax filing and refund 
tracking, to internal and external users, such as IRS employees and 
other government agencies, taxpayers, and business partners. 

Investment: Modernized e-File (MeF); 
Description: Designed to provide a secure web-based platform for 
electronic tax filing of individual and business tax and information 
returns by registered Electronic Return Originators. 

Investment: Service Center Recognition/Image Processing System 
(SCRIPS); 
Description: Used as a data capture, management, and image storage 
system using high-speed scanning and digital imaging to convert data 
from the 940, 941, K-1, and paper returns from Information Returns 
Processing, into electronic format. 

Source: GAO analysis of IRS data. 

[A] Although IRS did not include ACA as a major IT investment in its 
fiscal year 2014 budget request because it reportedly did not have 
time to prepare the required information, the agency started publicly 
reporting on the investment as a major investment for fiscal year 2014 
(in November 2013). In addition, officials told us of their plans to 
classify it as a major investment in the fiscal year 2015 budget 
request. 

[End of table] 

GAO and the Treasury Inspector General for Tax Administration Have 
Previously Reported on IRS's Key Major IT Investments: 

GAO and the Treasury Inspector General for Tax Administration (TIGTA) 
have previously reported on IRS's ongoing effort to modernize its tax 
administration and internal management systems, the agency's 
investment management process and key major investments--CADE 2, IRDM, 
and ACA. 

* Regarding investment management, in July 2011 we found that IRS had 
established most of the foundational practices needed to effectively 
manage its IT investments by executing 30 of the 38 key practices 
identified by the information technology investment management 
framework, including all of those needed for effective project 
oversight.[Footnote 7] 

* Further, we reported in October 2011 that CADE 2 was one of seven 
investments considered to be successfully acquired in that it best 
achieved its respective cost, schedule, scope, and performance goals. 
Officials cited active engagement with program stakeholders as a 
critical factor to the success of those investments and, overall nine 
common factors that were critical to the success of major IT 
investments were identified.[Footnote 8] 

* We reported in April 2013 that the majority of IRS's major IT 
investments were reportedly within 10 percent of cost and schedule 
estimates and 8 major IT investments reported significant cost and/or 
schedule variance. We also reported that weaknesses existed, to 
varying degrees, in the reliability of reported cost and schedule 
variances; and key risks and mitigation strategies were identified. 
[Footnote 9] As result, we made recommendations for IRS to improve the 
reliability of reported cost and schedule information by addressing 
the identified weaknesses in future updates of estimates. We also 
recommended that IRS ensure projects consistently follow guidance for 
updating performance information 60 days after completion of an 
activity and develop and implement guidance that specifies best 
practices to consider when determining projected amounts. IRS agreed 
with three of our four recommendations and partially disagreed with 
the fourth recommendation related to guidance on projecting cost and 
schedule amounts. The agency specifically disagreed with the use of 
earned value management data as a best practice to determine projected 
cost and schedule amounts, stating that the technique is not part of 
IRS's current program management processes and the cost and burden to 
use it outweighs the value added. While we disagreed with IRS's view 
of earned value management because best practices have found that the 
value generally outweighs the cost and burden of implementing it, we 
provided it as one of several examples of practices that could be used 
to determine projected amounts. We also noted that implementing our 
recommendation would help improve the reliability of report cost and 
schedule variance information, and that IRS had flexibility in 
determining which best practices to use to calculate projected 
amounts. For those reasons, we believed our recommendation was still 
warranted. 

* In our September 2013 review, we reported that IRS had updated the 
ACA cost estimate we had reviewed in our June 2012 budget report and 
noted that it reflected best practices to a greater extent.[Footnote 
10] For example, the estimate reflected the full life-cycle cost of 
the program. However, we noted a few areas remained where IRS could 
continue to improve the reliability of the estimate. We will continue 
to monitor IRS's progress in revising this estimate. 

* In September 2013, TIGTA reported that the CADE 2 database cross-
functional triage team effectively managed and resolved more than 
1,000 data defects.[Footnote 11] However, TIGTA's review determined 
that the downstream system interfaces were not implemented due to data 
quality issues and revised the implementation date of these interfaces 
to January 2014, raising the estimated cost of transition state 1. 
Finally, the lack of security systems integration prevents transaction-
level tracking of employee access to the database. As a result of 
these findings, TIGTA made recommendations aimed at improving the 
management of the CADE 2 program, including not exiting transition 
state 1 milestone 5 until interfaces with selected downstream systems 
are implemented into production; ensuring the CADE 2 database is 
accurate, complete, timely, and available; deploying the CADE 2 
database as the transactional database architected for transition 
state 2 and the target state; and ensuring that user access to the 
CADE 2 database is traced at the transaction level by individual 
user's identification. IRS agreed to certify the database as accurate, 
complete, timely, and available but disagreed with the remaining three 
recommendations. 

Most of IRS's 19 Major Investments Reportedly Within or Below Cost or 
Schedule Goals, but Reported Information Is Only for the Current 
Fiscal Year: 

According to IRS, 6 of 19 investments were within 10 percent of cost 
and schedule estimates during fiscal year 2013. The remaining 13 were 
reported as having significant cost and schedule variances for at 
least 1 month of the year. Specifically, IRS reported 8 investments as 
being below cost or ahead of schedule;[Footnote 12] 3 as behind 
schedule; and 2 as over cost (see fig. 2). IRS reported a range of 
reasons for these significant variances, including cost savings from 
contract negotiations and scope deferrals for those below cost or 
ahead of schedule, and procurement delays for those behind schedule. 
Specifically, IRS reported that: 

* CADE 2, Integrated Financial System, Integrated Submission and 
Remittance Processing System, IRS.gov, Main Frames and Servers 
Services and Support, and RRP were within 10 percent of cost and 
schedule estimates. 

* Account Management Services, Electronic Fraud Detection System, e-
Services, Foreign Account Tax Compliance Act, Integrated Customer 
Communication Environment, IMF, IRDM, and Integrated Data Retrieval 
System were significantly below cost or ahead of schedule for reasons 
including early delivery of scope, redesign of releases, prematurely 
closing of an activity, and actual costs being lower than expected. 

* End User Systems and Services and SCRIPS were reported as being 
behind schedule for reasons such as scope changes, and hardware and 
software procurement issues. 

* MeF and ACA were reported as being significantly under cost and over 
cost at different times of the year, and Telecommunications Systems 
and Support was reported as being significantly under cost and behind 
schedule at different times during the year. 

According to IRS officials, the significant variances experienced by 
its major investments had no impact on the delivery of expected 
benefits. 

For a detailed list of reasons associated with the significant 
variances see appendix II. Figure 2 shows a summary of investments 
with significant cost and schedule variances. 

Figure 2: Summary of Investments with Significant Variances: 

[Refer to PDF for image: illustration] 

Number of investments with No significant variances: 6; 
Number of investments with Significant variances: 13: 
* Below cost or ahead of schedule: 8; 
* Behind schedule: 3; 
* Over Cost: 2. 

Source: GAO analysis of IRS data. 

[End of figure] 

It is important to note that the reported monthly cost and schedule 
variances are for the fiscal year only. IRS's reporting would be more 
meaningful for determining whether IRS is effectively managing its 
investments if it included cumulative cost and schedule variances for 
the investments or investment segments, consistent with OMB's guidance 
for measuring progress towards meeting investment goals. Specifically, 
OMB's fiscal year 2015 guidance on the planning, budgeting, 
acquisition, and management of IT capital assets instructs agencies to 
structure their efforts into "useful segments" (such as projects which 
accomplish a unique product or service with a defined start and end 
point and specific objectives that, when attained, signify 
completion), and to establish systems to measure progress towards 
these useful segments in terms of cost and schedule, among other 
things.[Footnote 13] 

IRS's monthly reports--and thus the quarterly reports to Congress that 
are derived from them--provide cost and schedule variance information 
for all investment projects and activities underway in any portion of 
the fiscal year.[Footnote 14] However, this fiscal year focus does not 
provide cumulative cost and schedule information at the useful segment 
level because it does not account for activities that were completed 
in previous fiscal years. In addition, it does not provide a realistic 
representation of performance because it includes activities which are 
not scheduled to begin until later in the fiscal year and reports 
these activities as having zero cost and schedule variances.[Footnote 
15] For example, in the June 2013 monthly report, IRS reported a 5.07 
percent cost underrun for RRP. The cost variance calculation included 
a zero variance for an activity that was not scheduled to start until 
the following month. The variance not including this activity would 
have been 6.06 percent. 

Officials told us that the way the agency reports is consistent with 
Treasury guidance and OMB reporting requirements. Nonetheless, while 
IRS's reporting is aligned with the manner in which budgets are 
allocated, it does not provide a measure of progress towards the 
useful segments[Footnote 16] which are associated with specific 
functionality as recommended in OMB guidance, and therefore does not 
fully capture IRS's performance in meeting overall project and 
investment level cost or schedule goals. Providing Congress with cost 
and schedule information at the useful segment level--in addition to 
the current fiscal year reporting--in the quarterly reports would 
provide a more meaningful gauge of whether the agency is effectively 
managing its investments. 

Reported Cost and Schedule Information Not Always Reliable: 

Although OMB and Treasury require cost and schedule variances to be 
updated on a monthly basis using actual cost and schedule amounts or 
projected cost and schedule amounts when actual information is not 
available, the reported variances for six investments reviewed were 
not always reliable because the projected and actual cost and schedule 
amounts on which they depend were not consistently updated.[Footnote 
17] Specifically, projected amounts were not always updated on a 
monthly basis for in-process (i.e., ongoing) activities for a range of 
reasons, including apparent confusion among investment staff on what 
to report and instructions not to update information until baseline 
change requests have been approved; and actual information was not 
consistently updated for completed activities within the 60-day time 
frame required by Treasury guidance. Addressing these issues would 
help IRS improve the reliability of reported information and provide 
Congress with a more accurate report of the agency's performance in 
meeting cost and schedule goals. 

Cost and Schedule Variances for In-process Activities Are Not 
Consistently Reported: 

Cost and schedule variances, which OMB and Treasury require to be 
updated on a monthly basis, are determined by subtracting actual cost 
and schedule from planned amounts or using projected information if 
actual information is not available. In addition, as we previously 
reported, according to best practices, projected cost and schedule can 
be determined in a number of ways, including evaluating critical path 
(for projected schedule), using earned value management data, 
evaluating the performance of completed work and comparing it to the 
remaining budget, assessing commitment values for material needed to 
complete remaining work, and estimating future conditions.[Footnote 18] 

Although required, IRS's monthly reports for fiscal year 2013 showed 
that all six investments reviewed did not consistently include updated 
variances for in-process activities. For two of the six investments, 
staff told us they did not include variances for in-process activities 
for several reasons, including that activities are usually 6 months or 
less. However, OMB and Treasury's guidance do not provide exceptions 
for shorter periods of time such as 6 months or less. Staff for the 
remaining four investments told us they update cost and schedule 
variances on a monthly basis; however, our analysis of the reports we 
reviewed showed that they did not. This is partly due to an 
inconsistent understanding among investment staff of the information 
that was to be included in the monthly reporting--which the Strategy 
and Planning group responsible for overseeing monthly variance 
reporting also acknowledged. 

Regarding the calculation of projected cost and schedule amounts, IRS 
has not yet updated its guidance to include best practices to consider 
as we recommended in April 2013.[Footnote 19] According to officials, 
the agency has experienced delays in addressing the recommendation due 
to budget issues, staffing shortages, and the government shutdown. 
However, officials reported that they have begun evaluating practices 
and processes currently in use as inputs for standard, repeatable, 
best practices for determining cost and schedule projections but they 
did not specify a time frame for fully addressing our recommendation. 
Developing and implementing the guidance will provide greater 
assurance that projected amounts, when reported, are determined 
consistent with best practices and therefore reliable. 

Cost and Schedule Variances for Completed Activities Were Not Always 
Updated with Actual Information in a Timely Manner: 

Treasury's guidance states that investments have 60 days to report 
actual cost and schedule from the time an activity has been completed. 
According to the guidance, this requirement is one of several intended 
to ensure the accuracy of the monthly reporting data. 

The quarterly reports submitted to the appropriations committees 
between December 2012 and September 2013 for performance between 
January 2013 and September 2013 show that, for the six investments 
featured in the reports, IRS updated investment cost and schedule 
variance information with actual amounts within the 60-day time frame 
required by Treasury in 78 percent of the cases, a slight improvement 
from last year. Specifically, four investments--e-Services; IRS.Gov; 
MeF; and RRP--updated all activities within the required time frame. 
However, most of the variances for CADE 2 activities were not updated 
in a timely manner. In addition variances for several IRDM activities 
were not updated on time. Table 2 identifies the number of activities 
which were updated within the 60-day window. 

Table 2: Timeliness of Reporting Status of Activities: 

Investments and total number of activities: CADE 2; 54; 
Number of activities completed or intended to be completed: 18; 
Number of activities completed or intended to be completed that were 
updated within 60 days (percentage): 5 (28%). 

Investments and total number of activities: e-Services; 26; 
Number of activities completed or intended to be completed: 11; 
Number of activities completed or intended to be completed that were 
updated within 60 days (percentage): 11 (100%). 

Investments and total number of activities: IRDM; 62; 
Number of activities completed or intended to be completed: 35; 
Number of activities completed or intended to be completed that were 
updated within 60 days (percentage): 28 (80%). 

Investments and total number of activities: IRS.Gov; 29; 
Number of activities completed or intended to be completed: 10; 
Number of activities completed or intended to be completed that were 
updated within 60 days (percentage): 10 (100%). 

Investments and total number of activities: MeF; 18; 
Number of activities completed or intended to be completed: 11; 
Number of activities completed or intended to be completed that were 
updated within 60 days (percentage): 11 (100%). 

Investments and total number of activities: RRP; 20; 
Number of activities completed or intended to be completed: 8; 
Number of activities completed or intended to be completed that were 
updated within 60 days (percentage): 8 (100%). 

Investments and total number of activities: Total (209); 
Number of activities completed or intended to be completed: 93; 
Number of activities completed or intended to be completed that were 
updated within 60 days (percentage): 73 (78%). 

Source: GAO analysis of IRS documentation. 

[End of table] 

In April 2013, we reported on this issue and noted that, according to 
IRS officials, actual information is sometimes not updated within the 
60-day time frame because of delays associated with approval through 
the governance process.[Footnote 20] We stated that we believed 60 
days to be a reasonable amount of time to provide information on the 
status of an activity that was expected to be completed and 
recommended that IRS take action to ensure projects consistently 
follow guidelines for updating performance information 60 days after 
completion of an activity. Staff from IRS's Strategy and Planning 
Office told us that, starting in fiscal year 2014, Treasury has 
addressed the timeliness issue for schedule calculations by having the 
monthly reporting system automatically calculate a variance based on 
the current date for any activity where the planned completion date 
has passed and investment staff have not provided an actual figure 
within 45 days of that projected date. We believe this is a positive 
step towards ensuring actual information is more consistently reported 
for completed activities within the required 60-day time frame and 
improving the reliability of their variances so they better reflect 
cost and schedule performance. 

Ensuring the variances for completed activities are consistently 
updated with actual information within the 60-day time frame required 
by Treasury as we previously recommended would provide more reliable 
information on which to gauge IRS's performance in meeting cost and 
schedule goals. 

IRS Has Yet to Develop a Quantitative Measure of Scope: 

According to OMB guidance,[Footnote 21] in managing their IT 
investments, agencies must use a performance-based acquisition 
management system or earned value management system in which work 
progress is quantified to measure both what was spent to perform the 
work and what was scheduled to have been accomplished. Consistent with 
this concept, we previously reported that having a quantitative 
measure of scope is a good practice as it provides an objective 
measure of whether an investment delivered the functionality that was 
paid for, and, in June 2012,[Footnote 22] we recommended that IRS 
develop such a measure for all its major investments. At that time, 
IRS agreed with our recommendation. 

IRS is currently not working on developing a quantitative measure of 
scope and does not plan on doing so because it believes it is 
difficult to develop a single measure that would allow it to measure 
progress in delivering scope for the range of IRS's investments. In 
addition, IRS stated that its current scope reporting is adequate for 
its project management purposes. Finally, it has begun reporting on 
scope performance in its quarterly reports to the appropriations 
committees. 

First, we believe IRS could develop quantitative measures using 
different methods as appropriate. For example, it could use earned 
value management, a technique which integrates the technical scope of 
work with schedule and cost elements for investment planning and 
control or it could leverage its requirements management processes to 
assign value to planned work. Second, while IRS has identified several 
processes for managing scope,[Footnote 23] they are primarily used for 
internal management purposes. Finally, while to its credit, IRS has 
started to include scope performance (in the functional performance 
section) in its quarterly reporting to Congress, there are no 
quantitative measures of progress made. In addition, the descriptions 
provided do not show how delivered scope compares to what was planned. 

Staff for four of the seven investments we reviewed said their 
investments have a fixed schedule (tied to the filing season) and they 
often revert to modifying scope to meet this constraint. These changes 
in scope--which staff stated are tracked internally--are often not 
apparent in reported cost and schedule variances, and underline the 
importance of reporting on progress in delivering scope. As an 
example, in April 2013, data assurance, performance tuning, and 
downstream systems work that was planned for CADE 2 Transition State 1 
was put into a new release--Transition State 1 release 1.5--allowing 
IRS to "exit" Transition State 1 by the end of fiscal year 2012, in 
time for the filing season. 

As previously mentioned, a quantitative measure of scope would provide 
an objective indicator of performance. Until such a measure is 
developed, being more transparent about progress in delivering scope 
by reporting qualitatively on how delivered scope compares to what was 
planned in the congressional reports would help IRS provide Congress a 
complete picture of its performance in managing its major investments-
-particularly in those cases where functionality is deferred. 

Conclusions: 

For fiscal year, 2013, the cost and schedule performance for IRS' 
major IT investments was mixed, with six investments reported as being 
within 10 percent of cost and schedule goals throughout the year, 
eight reported as being significantly below cost or ahead of schedule--
although in some cases, these are due to scope deferrals or poor 
estimating practices--and 5 behind schedule or over cost. While the 
current fiscal year focus of the reported information is aligned with 
the manner in which budgets are allocated, reporting cumulative 
information at the investment or major investment segment level--
consistent with the delivery of functionality--would provide a better 
indicator of IRS's performance in meeting cost and schedule goals. 
However, the reported cost and schedule variance information is not 
always reliable and Congress therefore may not have the most accurate 
information to inform its decisions. Specifically, the variances for 
in-process and completed activities are not consistently updated due 
to, among other reasons, an inconsistent understanding of the 
information to be included in the monthly reports. IRS's unreliable 
reporting of cost and schedule variance information is further 
exacerbated by the fact that the agency has not yet developed a 
quantitative measure of scope that would help provide a complete 
picture of how IRS is managing its major investments. 

Recommendations for Executive Action: 

To improve the reliability of reported cost and schedule variance 
information for major investments, we recommend that the Commissioner 
of IRS direct the Chief Technology Officer to take the following three 
actions: 

* report cumulative investment and investment segment cost and 
schedule information in the quarterly reports to Congress, consistent 
with OMB requirements for measuring progress towards meeting goals; 

* ensure that projected cost and schedule variances for in-process 
activities are updated monthly, for the six investments for which we 
reviewed monthly updates, consistent with OMB and Treasury reporting 
requirements, by ensuring investment staff have a consistent 
understanding of the information to be included in monthly reports; 
and: 

* until a quantitative measure of scope is developed, qualitatively 
report on how delivered scope compares to what was planned in its 
quarterly reports to Congress, for the seven investments for which we 
reviewed scope reporting. 

* While we did not review the monthly update process and scope 
reporting for all of IRS's major IT investments, the agency should 
extend the related recommendations we are making as appropriate to 
other investments that are featured in the quarterly reports to 
Congress. 

Agency Comments and Our Evaluation: 

We obtained written comments on a draft of this report from IRS's 
Commissioner, which are reprinted in appendix V. In his written 
comments, the Commissioner stated that IRS agreed with our 
recommendations and recognizes the importance of consistent reporting 
to Congress on cost, schedule, and scope and will continue its effort 
to improve management of its investment process and values our support 
and guidance. He further stated IRS believed it had addressed our 
first recommendation to report cumulative investment and investment 
segment cost and schedule information in the quarterly reports to 
Congress as well as the recommendation we previously made to develop a 
quantitative measure of scope relating to our third recommendation. He 
added that the agency would provide a detailed corrective action plan 
addressing our second recommendation with its response to the final 
report. 

Regarding the recommendation to report cumulative investment cost and 
schedule information, the Commissioner stated that cumulative life-
cycle investment costs for each investment are included in the 
quarterly report to Congress. While the report includes cumulative 
costs, they are cumulative for the fiscal year, not for the investment 
or investment segment as we recommended and they therefore do not 
account for cost variances from prior fiscal years. As noted in this 
report, such reporting would be consistent with OMB guidance for 
measuring progress towards useful segments and provide a more 
meaningful gauge of whether the agency is effectively managing its 
investments. 

Relating to the recommendation we previously made to develop a 
quantitative measure of progress in delivering scope, the Commissioner 
noted that the agency has practices and process in place to assess and 
report on the delivery of scope in conjunction with cost and schedule 
management. He cited the quarterly report to Congress which draws on 
the Exhibit 300 SharePoint Investment Knowledge Exchange data (i.e., 
the monthly variance information we reviewed) and the baseline change 
request process, which specifically addresses the changes that are 
occurring within investments, as examples illustrating the 
implementation of the recommendation. However, we do not believe that 
these actions address our recommendation. Specifically, our review of 
the monthly variance reports show they report cost and schedule 
variances, not scope information. In addition, while the baseline 
change request process may document changes in scope, it does not 
provide a quantitative measure of progress in delivering scope as 
recommended. Further, while IRS has started to include scope 
performance (in the functional performance section) in its quarterly 
reports to Congress, there are no quantitative measures of progress in 
delivering scope. Finally, as noted in our report, the qualitative 
information (i.e., descriptions) provided do not show how delivered 
scope compares to what was planned. For these reasons, we believe our 
prior recommendation to develop a quantitative measure of progress in 
delivering scope and our new recommendation to qualitatively report on 
how delivered scope compares to what was planned in its quarterly 
reports to Congress until such measure is developed are still 
warranted. IRS also provided us with technical comments, which we 
incorporated into this report as appropriate. 

We are sending copies of this report to interested congressional 
committees and the Commissioner of IRS. This report will also be 
available at no charge on our website at [hyperlink, 
http://www.gao.gov]. 

If you or your staffs have any questions on matters discussed in this 
report, please contact me at (202) 512-9286 or pownerd@gao.gov. 
Contact points for our Offices of Congressional Relations and Public 
Affairs may be found on the last page of this report. GAO staff who 
made major contributions to this report are listed in appendix VI. 

Signed by: 

David A. Powner: 
Director: 
Information Technology Management Issues: 

List of Committees: 

The Honorable Tom Udall: 
Chairman: 
The Honorable Mike Johanns: 
Ranking Member: 
Subcommittee on Financial Services and General Government: 
Committee on Appropriations: 
United States Senate: 

The Honorable Ander Crenshaw: 
Chairman: 
The Honorable Jose E. Serrano: 
Ranking Member: 
Subcommittee on Financial Services and General Government: 
Committee on Appropriations: 
House of Representatives: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

Our objectives were to (1) summarize the reported cost and schedule 
performance for IRS's major information technology (IT) investments 
and assess the reporting of the performance information; (2) for 
selected investments, evaluate the reliability of reported cost and 
schedule variances; and (3) determine IRS's progress in implementing a 
quantitative measure of functionality delivered for projects. 

To address the first objective, we obtained and analyzed monthly cost 
and schedule variance data for IRS's major IT investments for October 
2012 through September 2013. The variance data provided were from the 
Department of Treasury's (Treasury) monthly variance reporting tool 
which the department uses for internal oversight and external 
reporting purposes. We identified the investments with reported 
variances of 10 percent or more from estimates as having significant 
variances and determined the number of months they reported 
significant variances. For these investments, we obtained the reason 
for the significant variances from the information reported by 
Treasury on OMB's IT Dashboard (in Treasury's Chief Information 
Officer comments) and followed up with IRS for clarification as 
needed. Because the Affordable Care Act (ACA) investment was not 
reporting monthly cost and schedule variances in Treasury's reporting 
tool, we requested and analyzed the quarterly project management 
reports summarizing the investment's cost and schedule performance. We 
also identified OMB reporting requirements for measuring progress 
towards useful segments and analyzed IRS's monthly cost and schedule 
variance reports and the quarterly reports to Congress that are 
derived from them against these requirements. 

For our second objective, we selected seven investments: Customer 
Account Data Engine (CADE) 2; Modernized e-File (MeF); IRS.gov--which 
is comprised of the Public User Portal, Registered User Portal, and 
Employee User Portal--Return Review Program (RRP); Information 
Reporting and Document Matching (IRDM); e-services; and ACA. We 
performed a detailed analysis of the cost and schedule performance for 
these seven investments in our April 2013 review of IRS's major 
investments summarized in our prior report.[Footnote 24] We selected 
them again for this review because (1) we identified reliability 
issues in the April 2013 review that we wanted to follow up on, and 
(2) these investments are still critical to IRS's mission. As noted 
earlier, while ACA is not classified as major investment in fiscal 
year 2013, we included it in our selection because of its criticality 
to IRS's mission and expected costs. In addition, IRS began reporting 
on it as a major investment in fiscal year 2014. 

We identified how each of the six investments in our selection which 
reported monthly cost and schedule variances during fiscal year 2013 
calculated projected amounts.[Footnote 25] We interviewed IRS 
officials responsible for performing these calculations. We also 
determined the extent to which these variances were included in the 
monthly reports by reviewing monthly variance reports from October 
2012 through September 2013. In addition, to determine, for these 
investments, the extent to which the IRS included variance data for 
completed activities in its external reporting within the 60-day time 
frame specified in Treasury guidance, we analyzed the four quarterly 
reports on the performance of IT investments submitted by IRS to the 
appropriations committees and GAO between December 2012 and September 
2013. Further, we identified all the activities included in the 
variance calculations by analyzing monthly variance reports and 
supplementing our analyses with interviews of IRS officials cognizant 
of the manner in which IRS reports these variance data to Treasury, 
including the Acting Manager of the IRS's Strategy and Planning group 
which has oversight responsibility for this reporting. We recently 
reported that IRS did not have guidance from Treasury for calculating 
the variances associated with in-process activities. As such, we did 
not perform a qualitative assessment of the investments' process for 
calculating cost and schedule variances.[Footnote 26] 

To address our third objective, we interviewed IRS officials to 
determine what progress the agency had made in developing a 
quantitative measure of progress in delivering scope as we recommended 
in June 2012.[Footnote 27] When we learned IRS had not addressed our 
recommendation, we followed up on the causes, and, for each of the 
investments in our selection, identified the qualitative methods IRS 
said it was using instead. We also analyzed the "functional 
performance" information IRS has begun to include in its quarterly 
reports to the congressional committees and GAO to determine the 
extent to which it completely and clearly describes how delivered 
scope compares to what was planned. 

We conducted this performance audit from June 2013 to April 2014 in 
accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. 

[End of section] 

Appendix II: Reasons for Significant Variances: 

In the Treasury Chief Information Officer's comments on the federal IT 
dashboard, IRS provided the specific reasons why its investments 
experienced significant cost and schedule variances. 

For investments that were significantly below cost or ahead of 
schedule, the agency reported that: 

* Account Management Services experienced a cost underrun in October 
2012 due to an over-estimation of a task order. 

* Electronic Fraud Detection System experienced cost underruns from 
February 2013 to September 2013. The underruns noted were due to (1) 
scope being moved to a future release, (2) cost savings from contract 
negotiations, (3) unrealized staffing gains, (4) early delivering of 
business functional changes for filing season 2013, (5) premature 
closure of an activity, and (6) actual amount being less than 
projected amount. The investment submitted, and received approval for, 
two baseline change requests during this period in order to correct 
completion cost and metric description and to align planned and 
projected costs and schedule for filing season 2014 work. The 
investment experienced schedule underruns from November 2012 to 
January 2013. The variances noted were due to (1) early delivery of 
enhancements for filing season 2013 and (2) late delivery of Record 
Layouts for Electronic Filing System. 

* e-Services experienced cost underruns in October 2012 and again from 
June 2013 through September 2013. The variances noted were due to (1) 
early delivery of mid-year changes, (2) fewer changes required from 
previous years, (3) lower than expected defect resolution time, (4) 
lower than expected system acceptance test tickets, and (5) IRS staff 
incorrectly charging time. 

* Foreign Account Tax Compliance Act experienced cost underruns from 
January 2013 to September 2013. The variances noted were due to (1) 
significant scope changes for release 1, (2) a redesign in release 1.1 
that did not require as much hardware be purchased because investment 
was able to leverage existing hardware, and (3) an overspend on 
release 1.1, drop 1. A baseline change request was approved in 
February 2013: 

* Integrated Customer Communication Environment experienced cost 
underruns in October 2012 and from June 2013 to September 2013. The 
variances noted were due to (1) high original estimates for the 
Federal Student Aid activity that over-estimated the complexity of the 
development work and (2) contractor over-estimates of development 
costs. 

* IMF experienced a cost underrun in October 2012. The variance noted 
was due to resource contention--staff were pulled off of IMF to work 
on CADE 2 development and testing. 

* IRDM experienced cost underruns from April 2013 to September 2013. 
The variances noted were due to, among other things, (1) delivery 
partner services costing less than planned because of a delay in the 
contract award being utilized and (2) costs were less than planned 
because resources were reduced on the Business Master File Analytics 
project and utilized on the Case Inventory Selection and Analytics 
project. 

* Integrated Data Retrieval System experienced a cost underrun in 
September 2013. The variance noted was due to actual labor costs being 
lower than planned due in part to retirements, attrition, and the 
government-wide pay freeze. 

For investments that were significantly behind schedule, the Treasury 
Chief Information Officer's comments on the federal IT dashboard 
identified the following reasons: 

* End User Systems and Services experienced a schedule overrun in 
October 2012. The variance noted was due to several factors: (1) scope 
changes and new funding and resource requirements; (2) a schedule 
change for site assessments; and (3) the need for an additional site 
walk through. 

* SCRIPS experienced a schedule overrun from February 2013 to April 
2013 because the Technical Refresh project was delayed due to issues 
with the procurement of the required and approved hardware and 
software. A baseline change request was submitted and approved in 
April 2013. 

For ACA, MeF, and TSS, IRS reported the following reasons: 

* ACA experienced a cost overrun for the last quarter of fiscal year. 
The overrun noted was due to a timing difference between planned 
obligations and actual contract award dates. ACA also experienced cost 
underruns throughout the first three quarters of the fiscal year. The 
underruns noted were due to (1) delays in contract awards, (2) re-
evaluation of the needs for technical contractor support, and (3) 
underrun in IRS labor because of slower than expected hiring due to 
sequestration. 

* MeF experienced a cost overrun in October 2012. The variance noted 
was due to a delay in the roll out of new forms and added performance 
tuning stabilization and monitoring into the production system; and 
baseline change request submitted. Additionally, MeF experienced cost 
underruns from May 2013 to June 2013 and from August 2013 to September 
2013. The variances noted were due to (1) the under-budget cost as the 
result of significantly lower infrastructure costs than originally 
anticipated and the decoupling of XML enhancement work, (2) lower 
infrastructure costs, (3) removal of scope, and (4) fewer than 
anticipated change requests received from business partners. 

* Telecommunications Systems and Support experienced schedule overruns 
from November 2012 through September 2013. The variances noted were 
due to (1) delays associated with two projects--Video Conferencing and 
Enterprise Electronic Fax and Networks Convergence, (2) construction 
delays associated with Hurricane Sandy, and (3) delays associated with 
the phone carrier providing toll free numbers. A baseline change 
request was submitted to address the schedule variance. The investment 
also experienced cost underruns from July 2013 to September 2013. The 
variances noted were due to (1) changes in project scope, (2) 
projected costs being incorrectly reported, and (3) a reduction in 
planned spending. A baseline change request was submitted to correct 
projected cost figures. 

[End of section] 

Appendix III: Investment Variances Reported by IRS from October 2012 
to September 2013: 

The following table shows significant cost and schedule variances 
reported monthly for IRS's major investments from October 2012 to 
September 2013. 

Table 3: Variances for IRS' Major IT Investments from October 2012 to 
September 2013: 

Fiscal year 2013: 

Affordable Care Act (ACA) Administration[A]; 
Cost: 
Oct-12-Nov-12: 54.83%; 
Dec-12: [Empty]; 
Jan-13-Feb-13: 59.90%; 
Mar-13: [Empty]; 
Apr-13: [Empty]; 
May-13: 27.68%; 
Jun-13: [Empty]; 
Jul-13: [Empty]; 
Aug-13: -220.21%.
Sep-13: [Empty]. 

Schedule: 
Oct-12: [Empty]; 
Nov-12: [Empty]; 
Dec-12: [Empty]; 
Dec-12: [Empty]; 
Feb-13: [Empty]; 
Mar-13: [Empty]; 
Apr-13: [Empty]; 
May-13: [Empty]; 
Jun-13: [Empty]; 
Jul-13: [Empty]; 
Aug-13: [Empty]; 
Sep-13: [Empty]. 

Account Management Services; 
Cost: 
Oct-12: 11.62%; 
Nov-12: [Empty]; 
Dec-12: [Empty]; 
Dec-12: [Empty]; 
Feb-13: [Empty]; 
Mar-13: [Empty]; 
Apr-13: [Empty]; 
May-13: [Empty]; 
Jun-13: [Empty]; 
Jul-13: [Empty]; 
Aug-13: [Empty]; 
Sep-13: -[Empty]. 

Schedule: 
Oct-12: [Empty]; 
Nov-12: [Empty]; 
Dec-12: [Empty]; 
Dec-12: [Empty]; 
Feb-13: [Empty]; 
Mar-13: [Empty]; 
Apr-13: [Empty]; 
May-13: [Empty]; 
Jun-13: [Empty]; 
Jul-13: [Empty]; 
Aug-13: [Empty]; 
Sep-13: [Empty]. 

Customer Account Data Engine 2 (CADE 2); 
Cost: 
Oct-12: [Empty]; 
Nov-12: [Empty]; 
Dec-12: [Empty]; 
Dec-12: [Empty]; 
Feb-13: [Empty]; 
Mar-13: [Empty]; 
Apr-13: [Empty]; 
May-13: [Empty]; 
Jun-13: [Empty]; 
Jul-13: [Empty]; 
Aug-13: [Empty]; 
Sep-13: [Empty]. 

Schedule: 
Oct-12: [Empty]; 
Nov-12: [Empty]; 
Dec-12: [Empty]; 
Dec-12: [Empty]; 
Feb-13: [Empty]; 
Mar-13: [Empty]; 
Apr-13: [Empty]; 
May-13: [Empty]; 
Jun-13: [Empty]; 
Jul-13: [Empty]; 
Aug-13: [Empty]; 
Sep-13: [Empty]. 

Electronic Fraud Detection System; 
Cost: 
Oct-12: [Empty]; 
Nov-12: [Empty]; 
Dec-12: [Empty]; 
Dec-12: [Empty]; 
Feb-13: 33.62%; 
Mar-13: 30.23%; 
Apr-13: 30.23%; 
May-13: 27.47%; 
Jun-13: 23.39%; 
Jul-13: 23.39%; 
Aug-13: 20.42%; 
Sep-13: 20.42%. 

Schedule: 
Oct-12: [Empty]; 
Nov-12: 10.34%; 
Dec-12: 10.34%; 
Dec-12: 10.34%; 
Feb-13: [Empty]; 
Mar-13: [Empty]; 
Apr-13: [Empty]; 
May-13: Empty]; 
Jun-13: [Empty]; 
Jul-13: [Empty]; 
Aug-13: [Empty]; 
Sep-13: [Empty]. 

e-Services; 
Cost: 
Oct-12: 17.31%; 
Nov-12: [Empty]; 
Dec-12: [Empty]; 
Dec-12: [Empty]; 
Feb-13: [Empty]; 
Mar-13: [Empty]; 
Apr-13: [Empty]; 
May-13: [Empty]; 
Jun-13: 10.01%; 
Jul-13: 10.01%; 
Aug-13: 10.54%; 
Sep-13: 10.54%. 

Schedule: 
Oct-12: [Empty]; 
Nov-12: [Empty]; 
Dec-12: [Empty]; 
Dec-12: [Empty]; 
Feb-13: [Empty]; 
Mar-13: [Empty]; 
Apr-13: [Empty]; 
May-13: [Empty]; 
Jun-13: [Empty]; 
Jul-13: [Empty]; 
Aug-13: [Empty]; 
Sep-13: [Empty]. 

Foreign Account Tax Compliance Act; 
Cost: 
Oct-12: [Empty]; 
Nov-12: [Empty]; 
Dec-12: [Empty]; 
Dec-12: 23.23%; 
Feb-13: 32.52%; 
Mar-13: 16.75%; 
Apr-13: 16.75%; 
May-13: 16.75%; 
Jun-13: 16.75%; 
Jul-13: 16.75%; 
Aug-13: 16.75%; 
Sep-13: 15.70%. 

Schedule: 
Oct-12: [Empty]; 
Nov-12: [Empty]; 
Dec-12: [Empty]; 
Dec-12: [Empty]; 
Feb-13: [Empty]; 
Mar-13: [Empty]; 
Apr-13: [Empty]; 
May-13: [Empty]; 
Jun-13: [Empty]; 
Jul-13: [Empty]; 
Aug-13: [Empty]; 
Sep-13: [Empty]. 

Individual Master File; 
Cost: 
Oct-12: 14.06%; 
Nov-12: [Empty]; 
Dec-12: [Empty]; 
Dec-12: [Empty]; 
Feb-13: [Empty]; 
Mar-13: [Empty]; 
Apr-13: [Empty]; 
May-13: [Empty]; 
Jun-13: [Empty]; 
Jul-13: [Empty]; 
Aug-13: [Empty]; 
Sep-13: [Empty]. 

Schedule: 
Oct-12: [Empty]; 
Nov-12: [Empty]; 
Dec-12: [Empty]; 
Dec-12: [Empty]; 
Feb-13: [Empty]; 
Mar-13: [Empty]; 
Apr-13: [Empty]; 
May-13: [Empty]; 
Jun-13: [Empty]; 
Jul-13: [Empty]; 
Aug-13: [Empty]; 
Sep-13: [Empty]. 

Information Reporting and Document Matching; 
Cost: 
Oct-12: [Empty]; 
Nov-12: [Empty]; 
Dec-12: [Empty]; 
Dec-12: [Empty]; 
Feb-13: [Empty]; 
Mar-13: [Empty]; 
Apr-13: 11.60%; 
May-13: 11.60%; 
Jun-13: 13.11%; 
Jul-13: 14.26%; 
Aug-13: 14.26%; 
Sep-13: 13.88%. 

Schedule; 
Oct-12: [Empty]; 
Nov-12: [Empty]; 
Dec-12: [Empty]; 
Dec-12: [Empty]; 
Feb-13: [Empty]; 
Mar-13: [Empty]; 
Apr-13: [Empty]; 
May-13: [Empty]; 
Jun-13: [Empty]; 
Jul-13: [Empty]; 
Aug-13: [Empty]; 
Sep-13: [Empty]. 

Integrated Customer Communication Environment; 
Cost: 
Oct-12: 17.50%; 
Nov-12: [Empty]; 
Dec-12: [Empty]; 
Dec-12: [Empty]; 
Feb-13: [Empty]; 
Mar-13: [Empty]; 
Apr-13: [Empty]; 
May-13: [Empty]; 
Jun-13: 11.87%; 
Jul-13: 13.62%; 
Aug-13: 17.24%; 
Sep-13: 17.14%. 

Schedule; 
Oct-12: [Empty]; 
Nov-12: [Empty]; 
Dec-12: [Empty]; 
Dec-12: [Empty]; 
Feb-13: [Empty]; 
Mar-13: [Empty]; 
Apr-13: [Empty]; 
May-13: [Empty]; 
Jun-13: [Empty]; 
Jul-13: [Empty]; 
Aug-13: [Empty]; 
Sep-13: [Empty]. 

Integrated Data Retrieval System; 
Cost: 
Oct-12: [Empty]; 
Nov-12: [Empty]; 
Dec-12: [Empty]; 
Dec-12: [Empty]; 
Feb-13: [Empty]; 
Mar-13: [Empty]; 
Apr-13: [Empty]; 
May-13: [Empty]; 
Jun-13: [Empty]; 
Jul-13: [Empty]; 
Aug-13: [Empty]; 
Sep-13: 10.83%. 

Schedule: 
Oct-12: [Empty]; 
Nov-12: [Empty]; 
Dec-12: [Empty]; 
Dec-12: [Empty]; 
Feb-13: [Empty]; 
Mar-13: [Empty]; 
Apr-13: [Empty]; 
May-13: [Empty]; 
Jun-13: [Empty]; 
Jul-13: [Empty]; 
Aug-13: [Empty]; 
Sep-13: [Empty]. 

Integrated Financial System/CORE Financial System: 
Cost: 
Oct-12: [Empty]; 
Nov-12: [Empty]; 
Dec-12: [Empty]; 
Dec-12: [Empty]; 
Feb-13: [Empty]; 
Mar-13: [Empty]; 
Apr-13: [Empty]; 
May-13: [Empty]; 
Jun-13: [Empty]; 
Jul-13: [Empty]; 
Aug-13: [Empty]; 
Sep-13: [Empty]. 

Schedule: 
Oct-12: [Empty]; 
Nov-12: [Empty]; 
Dec-12: [Empty]; 
Dec-12: [Empty]; 
Feb-13: [Empty]; 
Mar-13: [Empty]; 
Apr-13: [Empty]; 
May-13: [Empty]; 
Jun-13: [Empty]; 
Jul-13: [Empty]; 
Aug-13: [Empty]; 
Sep-13: [Empty]. 

Integrated Submission and Remittance Processing System; 
Cost: 
Oct-12: [Empty]; 
Nov-12: [Empty]; 
Dec-12: [Empty]; 
Dec-12: [Empty]; 
Feb-13: [Empty]; 
Mar-13: [Empty]; 
Apr-13: [Empty]; 
May-13: [Empty]; 
Jun-13: [Empty]; 
Jul-13: [Empty]; 
Aug-13: [Empty]; 
Sep-13: [Empty]. 

Schedule: 
Oct-12: [Empty]; 
Nov-12: [Empty]; 
Dec-12: [Empty]; 
Dec-12: [Empty]; 
Feb-13: [Empty]; 
Mar-13: [Empty]; 
Apr-13: [Empty]; 
May-13: [Empty]; 
Jun-13: [Empty]; 
Jul-13: [Empty]; 
Aug-13: [Empty]; 
Sep-13: [Empty]. 

IRS.gov - Portal Environment; 
Cost: 
Oct-12: [Empty]; 
Nov-12: [Empty]; 
Dec-12: [Empty]; 
Dec-12: [Empty]; 
Feb-13: [Empty]; 
Mar-13: [Empty]; 
Apr-13: [Empty]; 
May-13: [Empty]; 
Jun-13: [Empty]; 
Jul-13: [Empty]; 
Aug-13: [Empty]; 
Sep-13: [Empty]. 

Schedule: 
Oct-12: [Empty]; 
Nov-12: [Empty]; 
Dec-12: [Empty]; 
Dec-12: [Empty]; 
Feb-13: [Empty]; 
Mar-13: [Empty]; 
Apr-13: [Empty]; 
May-13: [Empty]; 
Jun-13: [Empty]; 
Jul-13: [Empty]; 
Aug-13: [Empty]; 
Sep-13: [Empty]. 

IRS End User Systems and Services; 
Cost: 
Oct-12: [Empty]; 
Nov-12: [Empty]; 
Dec-12: [Empty]; 
Dec-12: [Empty]; 
Feb-13: [Empty]; 
Mar-13: [Empty]; 
Apr-13: [Empty]; 
May-13: [Empty]; 
Jun-13: [Empty]; 
Jul-13: [Empty]; 
Aug-13: [Empty]; 
Sep-13: [Empty]. 

Schedule; 
Oct-12: -63.89%; 
Nov-12: [Empty]; 
Dec-12: [Empty]; 
Dec-12: [Empty]; 
Feb-13: [Empty]; 
Mar-13: [Empty]; 
Apr-13: [Empty]; 
May-13: [Empty]; 
Jun-13: [Empty]; 
Jul-13: [Empty]; 
Aug-13: [Empty]; 
Sep-13: [Empty]. 

Modernized e-File; 
Cost: 
Oct-12: -20.93%; 
Nov-12: [Empty]; 
Dec-12: [Empty]; 
Dec-12: [Empty]; 
Feb-13: [Empty]; 
Mar-13: [Empty]; 
Apr-13: [Empty]; 
May-13: 16.15%; 
Jun-13: 16.15%; 
Jul-13: 3.72%; 
Aug-13: 13.89%; 
Sep-13: 13.89%. 

Schedule: 
Oct-12: [Empty]; 
Nov-12: [Empty]; 
Dec-12: [Empty]; 
Dec-12: [Empty]; 
Feb-13: [Empty]; 
Mar-13: [Empty]; 
Apr-13: [Empty]; 
May-13: [Empty]; 
Jun-13: [Empty]; 
Jul-13: [Empty]; 
Aug-13: [Empty]; 
Sep-13: [Empty]. 

IRS Main Frames and Servers Services and Support; 
Cost: 
Oct-12: [Empty]; 
Nov-12: [Empty]; 
Dec-12: [Empty]; 
Dec-12: [Empty]; 
Feb-13: [Empty]; 
Mar-13: [Empty]; 
Apr-13: [Empty]; 
May-13: [Empty]; 
Jun-13: [Empty]; 
Jul-13: [Empty]; 
Aug-13: [Empty]; 
Sep-13: [Empty]. 

Schedule: 
Oct-12: [Empty]; 
Nov-12: [Empty]; 
Dec-12: [Empty]; 
Dec-12: [Empty]; 
Feb-13: [Empty]; 
Mar-13: [Empty]; 
Apr-13: [Empty]; 
May-13: [Empty]; 
Jun-13: [Empty]; 
Jul-13: [Empty]; 
Aug-13: [Empty]; 
Sep-13: [Empty]. 

Implement Return Review Program; 
Cost: 
Oct-12: [Empty]; 
Nov-12: [Empty]; 
Dec-12: [Empty]; 
Dec-12: [Empty]; 
Feb-13: [Empty]; 
Mar-13: [Empty]; 
Apr-13: [Empty]; 
May-13: [Empty]; 
Jun-13: [Empty]; 
Jul-13: [Empty]; 
Aug-13: [Empty]; 
Sep-13: [Empty]. 

Schedule: 
Oct-12: [Empty]; 
Nov-12: [Empty]; 
Dec-12: [Empty]; 
Dec-12: [Empty]; 
Feb-13: [Empty]; 
Mar-13: [Empty]; 
Apr-13: [Empty]; 
May-13: [Empty]; 
Jun-13: [Empty]; 
Jul-13: [Empty]; 
Aug-13: [Empty]; 
Sep-13: [Empty]. 

IRS Telecommunications Systems and Support; 
Cost: 
Oct-12: [Empty]; 
Nov-12: [Empty]; 
Dec-12: [Empty]; 
Dec-12: [Empty]; 
Feb-13: [Empty]; 
Mar-13: [Empty]; 
Apr-13: [Empty]; 
May-13: [Empty]; 
Jun-13: [Empty]; 
Jul-13: 15.92%; 
Aug-13: 10.73%; 
Sep-13: 10.73%. 

Schedule: 
Oct-12: [Empty]; 
Nov-12: -27.35%; 
Dec-12: -33.23%; 
Dec-12: -33.23%; 
Feb-13: -33.23%; 
Mar-13: -39.32%; 
Apr-13: -35.43%; 
May-13: -35.43%; 
Jun-13: -35.43%; 
Jul-13: -36.83%; 
Aug-13: -28.23%; 
Sep-13: -28.23%. 

Service Center Recognition/Image Processing System; 
Cost: 
Oct-12: [Empty]; 
Nov-12: [Empty]; 
Dec-12: [Empty]; 
Dec-12: [Empty]; 
Feb-13: [Empty]; 
Mar-13: [Empty]; 
Apr-13: [Empty]; 
May-13: [Empty]; 
Jun-13: [Empty]; 
Jul-13: [Empty]; 
Aug-13: [Empty]; 
Sep-13: [Empty]. 

Schedule; 
Oct-12: [Empty]; 
Nov-12: [Empty]; 
Dec-12: [Empty]; 
Dec-12: [Empty]; 
Feb-13: -73.30%; 
Mar-13: -29.59%; 
Apr-13: -29.59%; 
May-13: [Empty]; 
Jun-13: [Empty]; 
Jul-13: [Empty]; 
Aug-13: [Empty]; 
Sep-13: [Empty]. 

Source: GAO analysis of IRS data. 

Note: Empty cells are an indication of where a monthly variance was 
less than +/-10 percent. 

Positive variance indicates that cost or schedule is less than 
originally planned. 

Negative variance indicates that cost or schedule is greater than 
originally planned. 

[A] ACA did not report monthly but quarterly during fiscal year 2013. 
In addition, this investment has not been included in the quarterly 
reports to the congressional committees. 

[End of table] 

[End of section] 

Appendix IV: Investment Profiles: 

This appendix contains the profiles for the seven key investments we 
reviewed. Information contained within these profiles includes, but is 
not limited to: 

* Current life-cycle phase: Life-cycle phases can be represented as 
planning; development, modernization, and enhancement; operations and 
maintenance; or mixed. Planning refers to preparing, or acquiring the 
information used to design the asset; assess the benefits, risks, and 
risk-adjusted costs of alternative solutions; and establish realistic 
cost, schedule, and performance goals for the selected alternative, 
before proceeding to full acquisition or termination of a project. 
Development, modernization, and enhancement refers to projects and 
activities that result in new assets/systems or projects and 
activities that result in changes or modifications to existing assets 
that lead to substantive improvements, implement legislative or 
regulatory requirements, or meet an agency leadership request. 
Operations and maintenance refers to those projects and activities 
that are operating in a production environment. Finally, mixed refers 
projects and activities that are a combination of development, 
modernization, and enhancement and operations and maintenance. Having 
detailed information allows for clear tracking of a program's costs as 
it moves through its various life-cycle phases. 

* Development methodology: This is a framework that is used to 
structure, plan, and control the process of developing an information 
system. There are a number of approaches that can be utilized by an 
investment. IRS's Enterprise Lifecycle methodology includes the 
following approaches: waterfall, planned maintenance, iterative, and 
managed services. Waterfall is a sequential development of a solution 
with planned reviews and formal approvals required before continuation 
of work. The planned maintenance approach manages change in an 
organized manner, minimizes the disruption caused by frequent system 
changes, and increases the efficiency and effectiveness of the system 
change process. Additionally, the iterative approach is an adaptive 
development approach in which projects start with a conceptual vision 
of the solution and end with deployment, with repeated cycles of 
requirement discovery, development, and testing in between. Finally, 
the managed services approach is designed to capitalize on the 
benefits of managed services provided by either an outside service, 
internal business processes, and/or existing infrastructure service 
provider. This provides useful information on the requirements of how 
a project is to progress through the life cycle. 

* Contract type: For purposes of this report, this can be broken down 
into two categories. The first is firm, fixed price contracts in which 
the price is not subject to any adjustments. The second is cost 
reimbursement contracts which provide for the payment of allowable 
incurred costs, to the extent prescribed in the contract. Types of 
cost reimbursement contracts include, but are not limited to (1) cost 
plus fixed fee in which actual costs and a fixed fee can be charged; 
however, costs are not allowed to exceed the agreed upon estimate 
without approval; and (2) cost plus incentive fee that provides for an 
initially negotiated fee to be adjusted later by a formula based on 
the relationship of total allowable costs to total target costs. 

* Number of rebaselines: Rebaselines are changes to projects' cost, 
schedule, and performance goals (i.e., baselines). According to 
officials, scope changes must go through a baseline change request 
process and be approved by Treasury and OMB. 

Affordable Care Act: 

Side bar: 

ACA Investment Details: 
Program start date: June 2010; 
Full operational capability: 2018; 
Life-cycle costs: $1.89 billion; 
Current life-cycle phase: Mixed (development/operations and 
maintenance); 
Development methodology: Iterative; 
Contractor/full-time equivalent mix: 35/65; 
Contract type: Firm fixed price/cost plus fixed fee; 
Number of rebaselines (past 2 years): 2. 

Source: IRS officials and IRS data. 

[End of side bar] 

According to IRS, the Affordable Care Act investment encompasses the 
planning, development, and implementation of IT systems needed to 
support IRS' tax administration responsibilities associated with 
certain provisions of the Affordable Care Act. Initiatives that have 
already been deployed include the initial release of the Branded 
Prescription Drug Industry Fee project and an effort intended to 
secure connection between IRS and the Department of Health and Human 
Services/Centers for Medicare and Medicaid Services (CMS) to support 
health insurance exchange open enrollment for the Fall of 2013. Future 
releases of the ACA include: 

* ACA 4.0: CY2014 Information Sharing and Reporting: 

* ACA 4.1: CY2014 Non-Marketplace Provisions: 

* ACA 5.0: Filing Season 2015: 

* ACA 6.0: CY 2015 Compliance Activities: 

* ACA 6.1: Additional CY 2015 Compliance Activities: 

Customer Account Data Engine 2 (CADE 2): 

Side bar: 

CADE 2 Investment Details: 
Program start date: January 2010; 
Full operational capability: 2020; 
Life-cycle costs: $1.48 billion; 
Current life-cycle phase: Mixed (development/operations and 
maintenance); 
Development methodology: Waterfall/Iterative; 
Contractor/full-time equivalent mix: 54/46; 
Contract type: Cost plus fixed fee/firm fixed price; 
Number of rebaselines (past 2 years): 5. 

Source: IRS officials and IRS data. 

[End of side bar] 

CADE 2 began in 2010 as a new strategy for accelerating completion of 
a modernized database and converting to a single processing system 
sooner than CADE (which was intended to provide a modernized system of 
taxpayer accounts, with the ultimate goal of eventually replacing IMF) 
would allow. CADE 2 is expected to deliver its functionality 
incrementally through transition states. Transition state 1 includes: 
(1) daily batch processing of individual taxpayer returns provided by 
modifying the IMF to run on a daily, rather than weekly, basis; and 
(2) a comprehensive database for housing all individual taxpayer 
accounts and loaded with data from CADE and IMF to provide timelier 
updates of taxpayer information for use by IRS employees for 
compliance and customer service. Transition state 2, which IRS started 
in October 2010 and IRS plans to complete in March 2015, includes re-
writing IRS's legacy core tax processing applications in modern 
programming language, and is intended to increase flexibility, 
scalability, reliability, and security.[Footnote 28] 

According to IRS, the database component of transition state 1 has 
been in production as of May 2012, and in August 2012, daily updates 
to the database began. In addition, according to IRS, intense focus 
was placed on optimizing performance of the CADE 2 database in 2013. 
For 2014, the database will be kept in sync with the Individual Master 
File; data quality will be validated through the 2014 filing season; 
and risk-based decisions will be used to determine readiness to feed 
data downstream to other IRS systems. 

e-Services: 

Side bar: 

e-Services Investment Details: 
Program start date: August 2011; 
Full operational capability: Not applicable; 
Life-cycle costs: $211.43 million; 
Current life-cycle phase: Mixed (development/operations and 
maintenance); 
Development methodology: Planned maintenance; 
Contractor/full-time equivalent mix: 50/50; 
Contract Type: Cost-plus incentive fee and fixed price; 
Number of rebaselines (past 2 years): 0. 

Source: IRS officials and IRS data. 

[End of side bar] 

e-Services is a suite of web-based products that are intended to allow 
tax professionals and payers to conduct business with IRS 
electronically. These services are only available to tax 
practitioners, registered agents, and other third parties and are not 
available to the general public. The program is available via the 
Internet 24 hours a day, 7 days a week, and it contains products such 
as registration, an e-file application, a Transcript Delivery System 
(a system which tax professionals may use to request and receive 
account transcripts, wage and income documents, tax return 
transcripts, and verification of non-filing letters), and Taxpayer 
Identification Number Matching (a pre-filing service which allows 
authorized payers to match up to 25 payee taxpayer identification 
number and name combinations against IRS records prior to submitting 
an information return). 

Information Reporting and Document Matching (IRDM): 

Side bar: 

IRDM Investment Details: 
Program start date: August 2010; 
Full operational capability: Not applicable; 
Life-cycle costs: $186.49 million; 
Current life-cycle phase: Mixed (development/operations and 
maintenance); 
Development methodology: Waterfall; 
Contractor/full-time equivalent mix: 33/67; 
Contract type: Cost plus fixed fee/firm fixed price; 
Number of rebaselines (past 2 years): 2. 

Source: IRS officials and IRS data. 

[End of side bar] 

IRDM is aimed at helping close the tax gap--the difference between 
what business taxpayers should have paid and actually did. It is 
intended to improve voluntary compliance and accurate reporting of 
income by establishing a new business tax return and information 
returns that focus on merchant card payments and securities basis 
reporting. IRDM supports IRS business utilizing information systems 
that sort, match, identify, manage, and report on returns that are 
likely sources of tax gap-reducing revenue. To accomplish this, IRS 
requires operational resources and systems to be put in place to 
implement business and technology changes that are intended to expand 
and improve its automated matching of data on information returns to 
the data submitted on tax returns filed. The program consists of the 
following five projects that the IRS implemented in 2011 and 2012: 

* Data Assimilation: Identifies the link between tax forms and 
information returns filed for the same taxpayer to identify potential 
under-reporter cases. The project then groups these into specific 
categories to support IRS compliance programs associated with merchant 
card payments, securities cost basis, and government payments. 

* Data Correlation: Matches tax return and information return data and 
applies business rules to identify potential under-reporter cases for 
use in the IRDM case selection process. After case selection, Data 
Correlation builds a complete case record for analysis by a tax 
examiner to support IRS compliance programs. 

* Business Master File Analytics: Provides IRS users the ability to 
define and execute logic for the intelligent selection of business 
taxpayer case inventory to ensure cases selected result in the largest 
financial return. 

* Case Inventory Selection and Analytics: Provides IRS users the 
ability to define and execute logic for the intelligent selection of 
individual taxpayer case inventory and creates an analytical 
environment that offers a greater ability to evaluate case data to 
improve the selection of cases worked. 

* Case Management: Enables IRS users to manage and work business cases 
selected through Business Master File Analytics with identified 
discrepancies that could potentially affect tax liability. 

IRS.Gov: 

Side bar: 

IRS.Gov Investment Details: 
Program start date: July 2009; 
Full operational capability: 2020; 
Life-cycle costs: $612.03 million; 
Current life-cycle phase: Mixed (development/operations and 
maintenance); 
Development methodology: Managed Services; 
Contractor/full-time equivalent mix: 92/8; 
Contract type: Firm fixed price and time/materials; 
Number of rebaselines (past 2 years): 11. 

Source: IRS officials and IRS data. 

[End of side bar] 

The IRS.Gov investment consists of a public user portal--IRS.Gov, a 
registered user portal, and an employee user portal. The key goals of 
the program include simplifying and transforming the user web 
experience, consolidating and advancing IRS web technology to industry 
standards, implementing a high-performing contract structure and 
terms, and marketing competitive costs throughout the program's life 
cycle. 

Additionally, this effort supports the framework and functionality of 
IRS portals services used by the American taxpayer, IRS employees, and 
registered users. The overall objectives of this program are to: 

* provide a high-performing partnership between IRS and its contractor; 

* provide industry-leading web practices and innovations; 

* provide a compelling program performance management framework; 

* create a new IRS web environment that is the trusted taxation 
website; 

* Create a simple and manageable IRS web environment; 

* provide single point, end-to-end operational accountability and 
visibility; 

* provide a cost effective and affordable program cost structure; and: 

* transition successfully from the old programs to the new program. 

Modernized e-file (MeF): 

Side bar: 

MeF Investment Details: 
Program start date: November 2005;
Full operational capability: Not applicable; 
Life-cycle costs: $575.30 million; 
Current life-cycle phase: Mixed (development/operations and 
maintenance); 
Development methodology: Planned Maintenance/Waterfall; 
Contractor/full-time equivalent mix: Information not available; 
Contract type: Firm fixed price/cost reimbursement/cost plus fixed 
fee/cost plus incentive fee; 
Number of rebaselines (past 2 years): 3. 

Source: IRS officials and IRS data. 

[End of side bar] 

MeF is the primary system to receive and process all tax returns 
submitted electronically. When MeF receives an electronic tax return, 
the system determines if it satisfies the acceptance rules required 
for further processing. MeF is intended to benefit the tax preparation 
community and enables the IRS to answer questions quickly and helps to 
resolve issues. MeF is also intended to benefit corporations and tax-
exempt organizations that must file tax returns or annual information 
returns electronically and is intended to reduce the handling/mailing 
of voluminous paper returns. 

MeF stores all tax return data in Extensible Markup Language format in 
a Modernized Tax Return Database, allowing authorized IRS viewers (IRS 
Help Desk personnel and tax examiners) to see tax returns securely 
online. According to IRS, as of September 10, 2013, taxpayers used MeF 
to submit over 223 million individual returns and nearly 15 million 
business returns. 

Release 9, which IRS planned to deploy for Filing Season 2014, is 
intended to add the Employment/Unemployment Tax family of forms (Forms 
94x) and the U.S. Income Tax Return for Estates and Trusts (Form 1041) 
to the MeF environment, as well as a new Return Review Program 
interface. 

Return Review Program (RRP): 

Side bar: 

RRP Investment Details: 
Program start date: April 2010; 
Full operational capability: Time frame not available; 
Life-cycle costs: $169.13 million;
Current life-cycle phase: Mixed (development/operations and 
maintenance); 
Development methodology: Waterfall; 
Contractor/full-time equivalent mix: 55/45; 
Contract type: Cost plus incentive; 
Number of rebaselines (past 2 years): 1. 

Source: IRS officials and IRS data. 

[End of side bar] 

RRP is a web-based automated system that is currently in development, 
and is intended to replace the legacy Electronic Fraud Detection 
System (EFDS) built in the mid-1990s. It is intended to deliver 
functionality incrementally through transition states. Transition 
State 1 is scheduled to be completed in March 2014. Transition State 
2, the final transition state, is scheduled to be completed in March 
2015. RRP is to provide, among other things, the following 
functionality: 

* enable more effective routing of returns; 

* detect noncompliant and fraudulent returns; 

* ensure timely issuance of refunds and credits; 

* prevent issuance of refunds and credits not legally due to filers; 
and: 

* streamline business processes used by the IRS criminal investigative 
analysts, aids, and civil employees. 

The new system is comprised of three major activities: 

* Detection. The system will incorporate several existing models as 
well as new models to enhance detection of probable noncompliance. 
Using algorithms and business rule sets, the system will detect 
questionable information on each return as the return is processed. 
The system will also detect returns with potential fraud 
characteristics, thereby allowing criminal investigators to link and 
analyze groups of returns to identify schemes for potential criminal 
prosecution. 

* Resolution. The system will accommodate existing treatment streams 
and new treatment streams. Returns will be routed systemically to the 
best treatment stream, opened into the treatment stream's inventory 
and, if applicable, the system will send an initial contact letter to 
the taxpayer. 

* Prevention. The system will automatically integrate the results of 
each return's resolution into the detection models. The results can be 
used to help target education and outreach efforts to taxpayers and 
preparers on how to avoid unintentional noncompliance. The system will 
also allow analysis and identification of fraud and noncompliance not 
identified by the predictive detection models. 

[End of section] 

Appendix V: Comments from the Department of the Treasury: 

Department of The Treasury: 
Internal Revenue Service: 
Commissioner: 
Washington, D,C, 20224: 

March 21, 2014: 

Mr. David A. Powner: 
Director, Information Technology Management Issues: 
U,S, Government Accountability Office: 
441 G Street, NW: 
Washington, D,C, 20548: 

Dear Mr. Powner: 

Thank you for the opportunity to review the draft report titled, 
Information Technology: IRS Needs to Improve the Reliability and 
Transparency of Reported Investment Information (GAO-14-298). We 
recognize the importance of consistent reporting to Congress on cost, 
schedule and scope, We will continue our effort to improve the
management of our investment process and value your support and 
guidance. 

Overall, we agree with the recommendations provided in this report. 

With regard to your first recommendation, the IRS believes we have 
addressed this as we are reporting "cumulative investment and 
investment segment cost and schedule information in the quarterly 
reports to Congress." The cumulative life-cycle investment
costs for each of our investments are shown at the beginning of each 
project commentary in our pictorial quarterly report to Congress, Also 
included as part of the Addendum is the most current data as reported 
in Treasury SharePoint Investment Knowledge Exchange (SPIKE) for each 
investment that shows detailed cost and schedule performance on all 
open usable segments, We believe this provides necessary transparency 
to assess IRS performance in managing our investments and aligns with 
OMB guidance. 

With regard to your third recommendation, the IRS agrees with the 
concept of a quantitative measure of scope and believes we have 
addressed this matter. The Service has practices and processes in 
place to assess and report on the delivery of scope, These practices 
and processes are conducted in conjunction with cost and schedule 
management. For example, the Omnibus Information Technology Investment
Report has consistently and clearly reported the status on cost, 
schedule, and scope using the Exhibit 300 SPIKE data as the 
authoritative source, Any alterations to planned scope are identified 
within the E300 Baseline Change Request process, which specifically 
addresses the changes that are occurring within investments. 

We will provide a detailed corrective action plan addressing your second
recommendation with our response to the final report. If you have any 
questions, please contact me or a member of your staff may contact 
Terence V. Milholland, Chief Technology Officer, at (202) 317-5000. 

Sincerely, 

Signed by: 

John A. Koskinen: 
Commissioner: 

[End of section] 

Appendix VI: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

David A. Powner, (202) 512-9286 or pownerd@gao.gov: 

Staff Acknowledgments: 

In addition to the contact name above, individuals making 
contributions to this report included Sabine Paul (Assistant 
Director), Mary Evans, Rebecca Eyler, Paul Middleton, and Bradley 
Roach. 

[End of section] 

Footnotes: 

[1] H.R. Rep. No. 112-331, at 901 (2011) (Conf. Rep.); Consolidated 
Appropriations Act, 2012, Pub. L. No. 112-74, 125 Stat. 786, 884, div. 
C, title I (2011); and Consolidated and Further Continuing 
Appropriations Act, 2013, Pub. L. No. 113-6, 127 Stat. 198, 412, Div. 
F, title I (2013). 

[2] At the time of the mandate, Affordable Care Act, which refers to 
IRS's IT efforts to implement selected provisions of the Patient 
Protection and Affordable Care Act, Pub. L. No. 111-148, 124 Stat. 119 
(2010), as amended by the Health Care and Education Reconciliation Act 
of 2010, Pub. L. No. 111-152, 124 Stat. 1029 (2010) was not classified 
as a major investment because IRS reportedly did not have time to 
prepare the documentation required to classify it as such for fiscal 
year 2013. We nevertheless included it in our review due to its 
criticality to IRS's mission and expected costs. Also, at the start of 
fiscal year 2014, IRS started reporting on it as a major investment. 
In this report, we are not evaluating the healthcare.gov initiative 
headed by the Centers for Medicare and Medicaid Services. 

[3] The selected investments for this review are: Customer Account 
Data Engine (CADE) 2; Modernized e-File (MeF); IRS.gov--which is 
comprised of the Public User Portal, Registered User Portal, and 
Employee User Portal--Return Review Program (RRP); Information 
Reporting and Document Matching (IRDM); e-services; and ACA. We 
performed a detailed analysis of the cost and schedule performance for 
these seven investments in our April 2013 review of IRS's major 
investments summarized in GAO, IRS 2013 Budget: Continuing to Improve 
Information on Program Costs and Results Could Aid in Resource 
Decision Making, [hyperlink, http://www.gao.gov/products/GAO-12-603] 
(Washington, D.C.: June 8, 2012). We selected them again for this 
review because (1) we identified reliability issues in our prior 
review that we wanted to follow up on, and (2) these investments are 
still critical to IRS's mission. 

[4] Variances measure differences between estimated cost and schedule 
goals and actual or projected cost and schedule at one point in time. 
As such, variances provide indicators of performance or progress in 
meeting goals. 

[5] [hyperlink, http://www.gao.gov/products/GAO-12-603]. 

[6] IRS's Chief Technology Officer also acts as the agency's Chief 
Information Officer. 

[7] GAO, Investment Management: IRS Has a Strong Oversight Process but 
Needs to Improve How It Continues Funding Ongoing Investments, 
[hyperlink, http://www.gao.gov/products/GAO-11-587] (Washington, D.C.: 
July 20, 2011). 

[8] GAO, Information Technology: Critical Factors Underlying 
Successful Major Acquisitions, [hyperlink, 
http://www.gao.gov/products/GAO-12-7] (Washington, D.C.: Oct. 21, 
2011). 

[9] GAO, Information Technology: Consistently Applying Best Practices 
Could Help IRS Improve the Reliability of Reported Cost and Schedule 
Information, [hyperlink, http://www.gao.gov/products/GAO-13-401] 
(Washington, D.C.: Apr. 17, 2013). 

[10] GAO, IRS 2014 Budget: Improvements Made to Budget Request and 
Cost Estimate, but Further Actions Needed, [hyperlink, 
http://www.gao.gov/products/GAO-13-835] (Washington, D.C.: Sept. 26, 
2013). 

[11] TIGTA, Customer Account Data Engine 2 Database Deployment Is 
Experiencing Delays and Increased Costs, 2013-20-125 (Sept. 23, 2013). 

[12] We are highlighting this group of investments because reasons for 
being below cost or ahead of schedule sometimes include scope changes 
or deferrals. 

[13] Office of Management and Budget, Guidance on Exhibits 53 and 
300 - Information Technology and e-Government, OMB Guide (July 1, 
2013). 

[14] Projects and activities underway during the fiscal year include 
those that started in a previous fiscal year and were not completed by 
the beginning of the current fiscal year; those that are scheduled to 
start and finish in the current fiscal year and budget year; and those 
scheduled to start in the current fiscal year and budget year that 
will not be completed until the following fiscal year. 

[15] Internally, IRS tracks cost and schedule performance at the 
activity level. Activities are rolled up into projects and related 
projects make up the investments. 

[16] IRS's investments are typically structured by milestones or 
releases which are consistent with the definition of a useful segment. 

[17] ACA was the seventh investment in our selection. We did not 
include it as part of this analysis because it did not report monthly 
to Treasury and OMB or quarterly to the congressional appropriations 
committees like the other major investments. Instead ACA prepared 
quarterly reports for internal review summarizing the investment's 
cost and schedule performance which we obtained and analyzed. 

[18] [hyperlink, http://www.gao.gov/products/GAO-13-401]. 

[19] [hyperlink, http://www.gao.gov/products/GAO-13-401]. 

[20] [hyperlink, http://www.gao.gov/products/GAO-13-401]. 

[21] Office of Management and Budget, Guidance on Exhibits 53 and 
300 - Information Technology and e-Government, OMB Guide (July 1, 
2013). 

[22] [hyperlink, http://www.gao.gov/products/GAO-12-603]. 

[23] These processes include milestone exit reviews, stakeholder 
review and acceptance of deliverables, meetings with executives, and 
baseline change requests which, according to officials, must be 
approved by Treasury and OMB. 

[24] [hyperlink, http://www.gao.gov/products/GAO-13-401]. 

[25] ACA was the seventh investment in our selection. We did not 
include it as part of this analysis because it did not report monthly 
to Treasury and OMB or quarterly to the congressional appropriations 
committees like the other major investments. 

[26] [hyperlink, http://www.gao.gov/products/GAO-13-401]. 

[27] GAO, IRS 2013 Budget: Continuing to Improve Information on 
Program Costs and Results Could Aid in Resource Decision Making, 
[hyperlink, http://www.gao.gov/products/GAO-12-603] (Washington, D.C.: 
June 8, 2012). 

[28] CADE 2 will not completely resolve IRS's existing financial 
management deficiencies related to unpaid tax assessments. This is 
because CADE 2 is designed only to replace IRS's IMF and not the 
Business Master File and resolving the financial management 
deficiencies would require addressing issues related to both master 
files. 

[End of section] 

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