ADP Modernization:

IRS' Automated Examination System--Troubled Past, Uncertain Future

IMTEC-89-54: Published: Jun 22, 1989. Publicly Released: Jul 25, 1989.

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Howard G. Rhile, Jr
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Pursuant to a congressional request, GAO reviewed the Internal Revenue Service's (IRS) Automated Examination System (AES), intended to automate the examination of income tax returns, focusing on: (1) IRS progress in developing and implementing AES; and (2) AES compatibility with the IRS Tax System Modernization effort, intended to streamline tax processing through increased automation.

GAO found that IRS: (1) projected a total cost of $77 million for AES development and implementation when it established the project in 1982; (2) significantly expanded the project in 1984 and 1985, projecting completion by 1989 at a total cost of $1 billion; (3) spent about $187 million on AES from its inception through fiscal year (FY) 1988; (4) due to management and direction problems, currently estimates project completion by 1995 at a total cost of $1.8 billion; (5) currently projects AES benefits at $16.2 billion over its 9-year life, down from a contractor estimate of $42.7 billion in 1987; (6) has not convincingly demonstrated or verified any dollar benefits from the single currently operational AES component; (7) cited software development problems as the primary cause of AES cost overruns and schedule slippages; (8) developed AES independently from its Tax Modernization System effort, although its plans to eventually integrate AES into the system may require costly system modifications; (9) concurred with the Office of Management and Budget's reduction of its 1990 AES budget request from $110 million for continued development and operations and maintenance to $19.5 million for operations and maintenance only; and (10) believes that AES should not be abolished and plans to restructure the project and seek increased funding in the FY 1991 budget.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The AES project has been renamed "Examination Automation". IRS has hired a contractor to establish a method of evaluating productivity and tracking actual usage and impact. IRS has accepted the contractor's package and instituted internal procedures.

    Recommendation: In light of AES troubled past, before additional investments are made in this project, the Commissioner of Internal Revenue should establish a sound and consistent methodology for estimating its benefits. To validate this methodology and measure the success of further development efforts, estimated benefits should be compared with actual benefits achieved as components of the system are deployed, and the Commissioner should make this comparison available to Congress as part of the agency's annual budget submission.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Closed - Implemented

    Comments: AES officials agreed to comply with modernization standards as they become available. A working group meets monthly to coordinate AES with the modernization. IRS officially plans no review of AES documentation for compliance. This is nonresponsive, since the action plan does not lead to a concrete result, and does not provide for evaluation.

    Recommendation: In view of the unresolved questions concerning AES integration with Tax System Modernization, the Commissioner of Internal Revenue should develop a strategy to enable AES to function effectively with other components of the modernized system. In particular, IRS should determine how AES standards for data structures can be made consistent with the standards of other systems within the modernization effort.

    Agency Affected: Department of the Treasury: Internal Revenue Service


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