OIG-01-069 May 1, 2001 

The Office of Ac 

Internal Control's Management 

rocess Related to an 

Information Technology Project 

ffice of Inspector 

******* 

The Department of the Treasury 
Results in Brief ....................................... ........e.. .............m..-....., m.. ..@. .......... 

Background ........................................................................m............*. .......... 

Finding and Recommendation ....................................................em .................* 

Office of Accounting and Internal Control 


has not Followed Departmental Guidance ................................................... 
 Recommendation ..........,.......A..
... .....*. .....*. ...............-.=. .......*.. . *. .-..........., 

Appendices 

Appendix 1: Management Comments .................................... ... .... ... Appendix 2: Major Contributors To This Report............... ... 10 

Appendix 3: Report Distribution ......................................... . .. .. ........ .. 11 

Abbreviations 

AIC Accounting and Internal Control 


ISLC lnformation System Life Cycle 


IPC Inventory, Tracking and Closure 


IT lnformation Technology 


OMB Office of Management and Budget 


Management Process Related to an information Technology Page 1 

Project (OIG-01-069) 

8 
The Department of the Treasury 

Office of hspector 

May I,2001 

James R. Lingebach 


Acting Deputy Chief Financial Officer 


Department of the Treasury 


On November 15, 2000, we began a review of the Department of 


the Treasury's Inventory, Tracking and Closure (ITC) Audit 


Subsystem. One area specifically identified for review was the 


Office of Accounting and Internal Control's (AIC) development of a 


new ITC system. Our objective was to assess the justification 


used as the basis for pursuing a new tracking system. 


This audit was initiated as part of the Office of Inspector General's 


Annual Audit Plan for Fiscal Year 2000. We conducted our work 


from November 29, 2000, to January 26, 2001, at the AIC office 


in Washington, D. C.. To assess AIC's basis of developing a new 


ITC system, we interviewed key management officials, reviewed 


guidance governing life cycle management and capital investments 


for information technology, and reviewed project related 


documents. Our audit work was performed in accordance with 


generally accepted government auditing standards. 


Our review found that AIC had not fully complied with information 


technology life cycle management and capital investment criteria in 


its pursuit of a new ITC system. We, therefore, recommended that 


Management Process Related to an Information Technology Page 2 

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the Deputy Chief Financial Officer require AIC to formally document €

project approval, obtain a firm commitment of funds, and €

document a comprehensive plan before proceeding to the system €

design phase of the new ITC development project. €

AIC's response outlined a set of corrective actions, which when €

fully implemented, will satisfy our recommendation. Specifically, €

AIC has already developed a business case, selected a project €

manager, and set aside funding for this project. AIC's response to €

our draft audit report is provided as Appendix 1. €

ackgroun 

Despite making a huge investment in information technology (IT), €

many government operations have been hampered by inaccurate €

data and inadequate systems. Too often, Federal IT projects cost €

too much, produce too little, and fail to significantly improve €

mission performance. As a result, several management reforms, €

including revisions to the Paperwork Reduction Act, the Clinger-€

Cohen Act, and the Chief Financial Officers Act, have introduced €

requirements emphasizing the need for Federal agencies to €

significantly improve their management processes, including how €

they select and manage IT resources. €

As a result of these legislative reforms, the Office of Management €

and Budget (OMB) issued its Capital Programming Guide. The €

guide states that agencies must have an effective process for €

making capital investment decisions that put funds in the right €

places. The guide defines a capital investment as land, structures, €

equipment, and intellectual property including software that are €

used by the Federal Government and have an estimated, useful life €

of two years or more. According to the guide, the cost of a capital €

asset is its full life-cycle costs, including all direct and indirect €

costs for planning, procurement, operations and maintenance, €

including service contracts, and disposal. €

To ensure that the Department of the Treasury had a structured €

and disciplined approach to acquiring or developing IT products, the €

Department issued its revised €lnformation System Life Cycle (ISLC)

Manual, TD P 84-07.The Department also issued Departmental €

Offices Investment Management Guidance, which when used €

Management Process Related to an Information Technology Page 3 

Project (OIG-01-069) 
appropriately, meet the IT investment requirements established by 

the General Accounting Office, OMB, and Treasury's Chief 

Information Officer and Deputy Chief Financial Officer. 

Finding 1 € ccounting and Internal Control has not 

epartmental 

The Office of Accounting and Internal Control has not followed 

Departmental guidance in its approach to obtaining a new 

inventory, tracking, and closure system. Specifically, AIC has not 

complied with mandatory phase one and two requirements outlined 

in the Department's ISLC Manual, TD P 84-01. As a result, the 

risk associated with acquiring a new ITC system at an acceptable 

cost, within reasonable and expected time frames, and that 

contributes to tangible, observable improvements in mission 

performance could be increased. 

We identified two reasons that AIC's project development actions 

were not in compliance with Departmental requirements. The first 

reason was that AIC management did not believe certain required 

actions were necessary at this stage of the project. The second 

reason was the urgency AIC management placed on establishing 

and implementing a new ITC system. 

The Department's ISLC Manual establishes the principles by which 

the Department is to implement life cycle management. This 

manual applies to all information systems developed, maintained, 

enhanced, and disposed of by the Department. The manual also 

provides that a typical information system life cycle consists of 

eight phases: Project Concept Development, Planning, 

Requirements Definition, Design, Development, Test, 

Implementation, and Operations. 

In April 2000, the Department issued additional guidance to users 

within Departmental Offices. This guidance, Departmental Offices 

Investment Management Guidance, provides Departmental Offices 

direction for capital investment management for information 

technology. 

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Both the Department's ISLC and capital investment guidance 

require life cycle management of IT projects to ensure a structured 

approach to information systems development and operations. 

ISLC further provides that an IT project begins when a need to 

develop or significantly change a system is identified. ISLC also 

provides that each system project must (1) have an accountable 

sponsoring organization, (2) have a single project manager, 

(3) have a comprehensive project plan. (4) undergo formal review 

and approval, and (5) not proceed until resource availability is 

assured. 

The preceding five requirements generally occur during the first 

two phases (Project Concept Development and Planning) of an IT 

project life cycle. The third and fourth phases (Requirements 

Definition and Design) occur when user needs are developed and a 

detailed design of the system is prepared. The remaining four 

phases (Development, Test, Implementation, and Operations) occur 

when detail specifications are produced, functional requirements 

are validated, the system is made operational, and system 

performance is monitored. 

To determine whether AIC was following Departmental guidance in 

its ITC system development project, we conducted interviews with 

key management officials, obtained project status information, and 

requested supporting documentation. Our review showed that AlC 

had: 

identified the need for a new or significantly enhanced tracking 

system. A phase one activity. 

contacted other agencies and bureaus to obtain information 

regarding their inventory, tracking, and closure system. A 

phase two activity. 

contacted several Treasury bureaus to begin the process of 

defining the requirements for a new system. A phase three 

activity. 

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started the process of assessing information gathered to 


determine the best methodology to meet its need for a new ITC 


system. A phase three activity. 


initiated discussions with one bureau for the possible design and 


implementation of a new tracking system. A phase four 


activity. 


Despite the aforementioned actions, AIC had not formally 

developed documentation to justify its development of a new ITC 

system, show the relative advantages of a new system, or explain 

the methods, tools, tasks, resource requirements, or project 

schedule listing significant project milestones. 

In addition, when we questioned management about mandatory 

phase one and two requirements pertaining to project approval and 

funding, identifying a sponsoring organization, and assignment of a 

project manager, we discovered that these activities were not 

formally addressed or had not been performed. For instance, we 

were informed that neither a sponsoring organization nor a project 

manager had been identified, a comprehensive project plan had not 

been developed, review and formal approval to proceed with the 

project had not been obtained, nor had AIC received a firm 

commitment of funds necessary for the project to proceed. We 

were also informed by senior AIC management that they were 

moving with the utmost speed to develop, test, and implement a 

new system, which are phase five and six activities. According to 

AIC management, they hoped to accomplish phase five and six 

activities within a few months. 

In summary, AIC had not met mandatory phase one and two

requirements before it proceeded with phase three (Requirements 

Definition) activities. This could result in increased cost, longer 

timeframes for implementing the system, and a system that does 

not contribute to improvements in service performance. 

Recommendation 

1. 	The Deputy Chief Financial Officer should require the Office of 

Accounting and Internal Control to formally address and 

Management Process Related to an Information Technology Page 6 

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document mandatory phase one and two requirements (e.g. 

obtain written project approval, obtain a firm commitment of 

funds, and develop a comprehensive plan) before performing 

any phase four activities. 

Management Comment. The Acting Deputy Chief Financial 

Officer responded that, at the time of our audit, only very 

preliminary research had been conducted with regard to the 

ITCS Replacement Project. Thus, phase one and two activities 

had not been completed. Since that time, however, AIC 

initiated a project, developed a business case, selected a project 

manager, and set aside funding for the project. 

OIG Evaluation. We consider this recommendation to be 

resolved. With regard to management's comments concernin 

the preliminary nature of AICfs ITCS project development 

efforts, we concluded, based on all information gathered durin 

the audit and detailed in the text of our finding, that AICfs

project development efforts exceeded the threshold of 

preliminary research. 

We appreciate the cooperation we received from the office of

Accounting and Internal Control during this audit. If you wish to 

discuss this report, you may contact me at (202) 927-5904. Major 

contributors to this report are listed in Appendix 2. 

;<Thomas E. y es

Director, Departmental Offices Audits 

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Appendi~1 

Management Comments 

DEPARTMENT OF THE TREASURY 

WASHINGTON. D.C. 20220 

MEMORANDUM FOR THOMAS E. BYRNES 

DJRECTORBEPARTMENTAL OFFICES AUDITS +fl- 1 

FROM: James R. Li ach 

;." Acting Dqmty Chief Financial Officer 

SUBJECT: 	 Draf? Audit Report on the Office of Accounting and Internal Controls' 

Management of an Information Technology Project 

Thank you for the opportunity to respond to your draft audit report on the Office of Accounting 

and Internal Controls' management of the Inventory, Tracking and Closure System (ITCS) 

Replacement Project. The Office of the Deputy Chief Financial Oficer (DCFO) understands 

and takes very seriously the need to develop systems in accordance with a structured approach. 

During interviews conducted by Office of Inspector General (OIG) auditors, DCFO managers 

provided numerous explicit assurances that the Office of the DCFO would adhere to a rigorous, 

structured approach in replacing the ITCS. That approach was explained clearly to OIG auditors. 

In managing the ITCS Replacement Project, the Office of the DCFO will adhere to the 

Department's Information System Life Cycle (ISLC) to an extent appropriate for the size and 

scope of this particular project. The ISLC Manual (chapter 3, section G,subsection (a), 

paragraph 2) states that "[all1 tasks and products [described in the ISLC model] may not be 

appropriate or cost-effective for every project. The model must be tailored to address the 

specific requtrements of individual projects." As required by the ISLC manual, the ITCS 

Repiacement Project Plan will specify the tailored ISLC to which the project will adhere. 

It is important to point out that at the time of this audit, the ITCS Replacement Project had not 

yet been formally initiated. DCFO staff had only been conducting very preliminary research of 

possible options. Therefore, it is not surprising that certain Phase I and Phase 2 activities 

specified in the Department's ISLC Manual had not been completed at the time of the audit. 

Since that time. however, a project has been initiated. We are making substantial progress in 

completing several activities specified in Phase 1 of the ISLC, as indicated below: 

An experienced information systems project manager has been selected and is now managing 


the project 


The ITCS Replacement Project Steering Committee-which includes representatives from 


the OIG. the Treasury Inspector General for Tax Administration. the Office of the DCFO. 


and the bureaus--has been officially convened 


The project team has been assembled and is developing preliminary requirements 


A Statement of Scope for the project has been developed and reviewed by the Steering 


Committee 


A business case has been developed and is being reviewed by the Steenng Committee 


Funding for the project in FY 2001 has been set aside to support the project through the 


Departmental Offices Working Capital Fund 


A Steenng Committee Charter has been developed and is being reviewed by the Committee 


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Appendix 1 

Management Comments 

We do appreciate your suggestions for improving our system development process. We share 

the same goal of ensuring that systems developed by the Department are developed in a 

responsible manner that adheres to Departmental and Government-wide guidance and policy. If 

you need further information or clarification, please contact David Epstein at (202) 622-0452. 

Management Process Related to an information Technology Page 9 

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Appendix 2 €

Major Contributors To This Report €

Thomas E. Byrnes, Director, Departmental Offices Audits €

William S. Schroeder, Audit Manager €

Marshall Toutsi, Auditor-in-Charge €

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Appendix 3 

Report Distribution 

The Department of the Treasury 

Deputy Chief Financial Officer 


Office of Strategic Planning and Evaluations 


Office of Accounting and Internal Control 


Office of IVlanaclement and Budclet

OIG Budget Examiner 

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