United States General Accounting Office

GAO Report to the Chairman, Subcommittee

on Oversight, Committee on Ways and

Means, House of Representatives

June 1998 IRS’ Year 2000 Efforts

Business Continuity

Planning Needed for

Potential Year 2000

System Failures

GAO/GGD-98-138

GAO United States

General Accounting Office

Washington, D.C. 20548

General Government Division

B-275431 

June 15, 1998

The Honorable Nancy L. Johnson

Chairman, Subcommittee on Oversight

Committee on Ways and Means

House of Representatives

Dear Chairman Johnson:

This report summarizes the information we provided to your office on the

results of our work to date on the Internal Revenue Service’s (IRS) efforts

to have its information systems function correctly when processing dates

beyond December 31, 1999. These IRS efforts are necessary because the IRS’

information systems, many of which are over 25 years old, were

programmed to read two-digit date fields. Therefore, if unchanged,

beginning January 1, 2000, these systems would interpret 2000 as 1900 and

thus would seriously jeopardize critical tax processing and collection

operations. Although 2000 is less than 2 years in the future, IRS has less

than 1 year to complete all of the work that it believes is necessary to

reach its goal of having all of its systems Year 2000 compliant by

January 1999. IRS established this goal to help ensure that it can accurately

process tax returns and other tax data through multiple systems by the

start of the 1999 filing season.

Our objectives were to (1) assess IRS’ progress in converting its systems

according to the guidelines in our Year 2000 assessment guide,1

 (2) identify

the risks IRS faces to completing the Year 2000 effort on time, and

(3) identify risks to the continuity of IRS operations in the event of Year

2000-induced system failures.

Background The enormous challenge involved in making information systems Year

2000 compliant is managerial as well as technical. Agencies’ success or

failure will largely be determined by the quality of their program

management and executive leadership. The outcome of these efforts will

also depend on the extent to which agencies have institutionalized key

systems development and program management practices, as well as on

their ability to execute large-scale software development or conversion

projects.

To assist agencies with these tasks, our Year 2000 assessment guide

discusses the scope of these challenges and offers a structured,

1

Year 2000 Computing Crisis: An Assessment Guide (GAO/AIMD-10.1.14, Sept. 1997).

Page 1 GAO/GGD-98-138 IRS’ Year 2000 Efforts
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step-by-step approach for reviewing and assessing an agency’s readiness

to handle the Year 2000 problem. The assessment guide states that the

Year 2000 program should be managed as a single, large information

systems project. The assessment guide describes in detail the five phases

of a Year 2000 conversion process (i.e., awareness, assessment,

renovation, validation, and implementation). Each of these phases

represents a major Year 2000 program activity or segment. To successfully

address the Year 2000 problem, effective program and project

management is required for all five phases. Appendix I contains a

description of these phases.

To make its information systems Year 2000 compliant, IRS must (1) convert

existing systems by modifying application software and data and

upgrading hardware and systems software, if needed; (2) replace systems

if correcting them is not cost-beneficial or technically feasible; or (3) retire

systems if they will not be needed by 2000.

IRS’ Chief Information Officer (CIO) established several parallel efforts to

help ensure that IRS achieves Year 2000 compliance by January 1999. These

efforts include creating the Century Date Change Project Office, which is

responsible for coordinating the conversion of most existing information

systems that can be made Year 2000 compliant as well as ensuring that all

systems are converted in accordance with the same standards. The

Century Date Change Project Office adapted our Year 2000 conversion

model phases and established a 14-step process to track the progress of its

Year 2000 conversion efforts. Some of the steps involved in converting

existing systems include (1) converting applications; (2) upgrading

hardware and/or systems software for mainframes, minicomputers/file

servers, and personal computers; (3) upgrading telecommunications

networks; and (4) ensuring that external data exchanges are Year 2000

compliant.

The other parallel Year 2000 efforts are 2 major replacement efforts:

(1) the replacement of the Distributed Input System (DIS) and the

Remittance Processing System (RPS) with the Integrated Submission and

Remittance Processing (ISRP) system and (2) the consolidation of the

mainframe computer processing operations at 10 service centers to 2

computing centers. IRS personnel use DIS to input taxpayer data and RPS to

input remittance data. According to IRS, these systems are old, and it is not

cost-beneficial to make them Year 2000 compliant. Therefore, IRS decided

to replace DIS and RPS with ISRP. A two-phase pilot of ISRP is under way

Page 2 GAO/GGD-98-138 IRS’ Year 2000 Efforts
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during 1998 at IRS’ Austin Service Center. Nationwide implementation is

scheduled for January 1999.

As a part of its mainframe consolidation effort, IRS is to (1) replace and/or

upgrade service center mainframe hardware, systems software, and

telecommunications infrastructure; (2) replace about 16,000 terminals that

support frontline customer service and compliance operations; and

(3) replace the communication replacement system that provides security

functions for on-line taxpayer account databases. Replacements of the

terminals and the communication replacement system are critical to IRS’

achieving Year 2000 compliance.

IRS is undertaking the non-Year 2000 aspects of mainframe consolidation

because it concluded that consolidation would

• satisfy the Office of Management and Budget’s Bulletin 96-02, which

directs agencies to consolidate information processing centers;

• be consistent with IRS’ planned modernization architecture; and

• save an estimated $356 to $500 million from fiscal years 1997 through 2003.

IRS’ original mainframe consolidation schedule called for moving

mainframe computer processing operations and the communication

replacement system from 10 service centers to 2 computing centers

between December 1997 and December 1998. The mainframe

consolidation project is to provide the hardware, systems software, and

telecommunications infrastructure for 40 mission-critical systems whose

application software is being converted under the direction of the Century

Date Change Project Office.

Results in Brief According to IRS, before January 1999, it needs to complete 12 steps of its

14-step process for converting (1) the applications for its existing systems;

(2) telecommunications networks; and (3) systems software and/or

hardware for mainframes, minicomputers/file servers, and personal

computers. In addition, before January 1999, IRS needs to (1) ensure that

external data exchanges will be Year 2000 compliant; (2) implement ISRP

and, at a minimum, the Year 2000 portions of mainframe consolidation;

and (3) modify application software to implement tax law changes for the

1999 and 2000 filing seasons. If these efforts are not completed, IRS’ tax

processing and collection systems may fail to operate or may generate

millions of erroneous tax notices, refunds, interest calculations, and

account adjustments.

Page 3 GAO/GGD-98-138 IRS’ Year 2000 Efforts
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For the conversion of its existing systems, IRS has made more progress on

its applications than on its information systems infrastructure.

Specifically, as of April 24, 1998, IRS reported that it had completed the first

12 steps of its 14-step conversion process for applications for about

46 percent (59 systems) of the 127 systems it has deemed as

mission-critical. IRS expects to convert the applications for the remaining

54 percent (68 systems) of the mission-critical systems by January 1999.

IRS has completed its assessment of the hardware and systems software

for its mainframe computers. Conversion efforts for other infrastructure

areas—hardware and systems software for minicomputers/file servers and

personal computers, telecommunications networks, and external data

exchanges—are, for the most part, in the assessment phase. According to

IRS, of these areas, telecommunications networks will likely present the

most significant conversion challenge and may be at the highest risk for

not being completed by January 1999.

The two major systems replacement efforts, which are also expected to

follow IRS’ 14-step conversion process, are experiencing some schedule

slippages. For example, the delivery of certain software for ISRP has been

delayed from April 1998 to June 1998, thereby leaving less time for testing.

Despite this delay, IRS officials believe ISRP will meet its implementation

schedule. IRS has also revised its schedule for completing mainframe

consolidation because of field office concerns about the ambitious

schedule and the pending expanded business requirements. IRS plans to

delay the consolidation of data processing operations for five service

centers from 1998 until after June 1999. IRS officials said they expect to

complete the Year 2000 portions of the mainframe consolidation (i.e.,

terminal replacement and the communication replacement system) by the

original completion date of December 1998. However, according to IRS’

weekly status reports on mainframe consolidation, the communication

replacement system has been experiencing some difficulties and is

somewhat behind its original schedule for system testing.

We identified two risk areas for IRS’ Year 2000 effort during our

January 1998 briefing to your office: (1) the lack of an integrated master

conversion and replacement schedule and (2) a limited approach to

contingency planning. A master conversion and replacement schedule,

according to our Year 2000 assessment guide, should be a part of an

agency’s Year 2000 program plan. This schedule could be used to track the

progress of concurrent and interdependent projects that must be

completed for the agency’s systems to function correctly when processing

dates beyond December 31, 1999. In 1998, IRS has a host of activities that it

Page 4 GAO/GGD-98-138 IRS’ Year 2000 Efforts
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must complete concurrently so that its systems will be able to function

correctly in 2000. Managing the interdependencies of these activities is

critical to help IRS ensure the timely completion of its Year 2000 effort.

A master conversion and replacement schedule could (1) establish the

sequential relationships between the tasks associated with the Year 2000

conversion and replacement activities, (2) identify how much a task can

slip without affecting other tasks or the overall Year 2000 effort, (3) help

determine whether programming and testing resources are likely to be

available when needed, and (4) provide a tool for prioritizing and assigning

programming and testing resources that are essential to the success of all

Year 2000 efforts in the most efficient manner. Since our briefing, IRS has

decided to have a contractor develop an integrated schedule of its Year

2000-related efforts, including making all of the necessary tax law changes

for 1999. IRS officials said they hope to have a baseline, master integrated

schedule in June 1998.2

Contingency planning was the second risk area we identified during our

January 1998 briefing. In part, due to IRS officials’ concerns that the same

resources that are doing Year 2000 conversion work would be needed to

do contingency planning, IRS officials decided to develop a process that

would minimize the number of contingency plans that would have to be

developed. Accordingly, IRS’ contingency management calls for developing

contingency plans only for those business functions or processes that are

supported by application software projects that are at risk of not being

made Year 2000 compliant on schedule. Therefore, IRS’ contingency

management plan does not address the likelihood that information

systems that are converted on schedule may still experience system

failures. As a result, IRS’ approach falls short of what we believe is needed

to help ensure the continuity of IRS’ core business processes in the event of

Year 2000-induced system failures.

IRS’ Year 2000 Efforts

Are Experiencing

Some Delays

IRS is experiencing delays in completing conversion efforts for its existing

systems and major systems replacement efforts. IRS has made the most

progress in converting its applications for the systems it has deemed

mission-critical. Conversion efforts for systems software and hardware,

telecommunications networks, and external data exchanges are still in the

initial steps of IRS’ 14-step conversion process. The completion schedule

2

IRS officials said this schedule is to be available for the Commissioner’s June 1998 executive steering

committee meeting on Year 2000. That meeting is scheduled for June 11, 1998, which is after the date

that this report was sent to publishing.

Page 5 GAO/GGD-98-138 IRS’ Year 2000 Efforts
B-275431 

for mainframe consolidation, with the exception of the Year 2000 critical

aspects, has been extended beyond December 1998.

Table 1 shows how IRS has allocated each of the 14 steps in its conversion

process to our Year 2000 assessment, renovation, validation, and

implementation phases.

Table 1: IRS’ 14-Step Conversion

Process as Mapped to the GAO Year

2000 Conversion Model’s Assessment,

Renovation, Validation, and

Implementation Phases

IRS’ 14-step conversion process GAO Year 2000 Conversion Model

phase Step Activity

Assessment 1. Requirements Definition

2. Requirements Response

Renovation 3. Year 2000 Impact Analysis

4. Year 2000 Source Code Compliance Form

5. Documentation Transmittal to Systems

Acceptance Testing (SAT)

Validation 6. Unit Test Process Checklist

7. Compatibility Testing

8. Program Transmittal to SAT

9. SAT One-Third Complete

10. SAT Two-Thirds Complete

11. SAT End-of-Test Status Report

Implementation 12. Production Transmittal/Implementation

Validationa 13. Program Level Certification

14. Systems Level Certificationb

aIRS has adapted our Year 2000 Conversion Model to include a validation step to follow the

implementation phase. Under our model, IRS’ step 13 would be considered part of the validation

phase (before the implementation phase) and step 14 would be considered part of the

implementation phase.

bThe Systems Level Certification includes an end-to-end test of certain interlocking applications

that need to exchange data to perform their mission-critical tasks. The test is designed to help

assure IRS that these applications are correctly performing all date computations using data and

system date clocks with January 1, 2000, dates or later. This test is scheduled to begin in

January 1999.

Source: IRS’ report to Congress on the status of its Year 2000 efforts as of October 1, 1997.

Much of IRS’ early Year 2000 efforts in 1996 focused on the awareness and

assessment phases of the applications for existing information systems

controlled by the CIO.

3

 In May 1997, IRS began assessing the date

dependencies of applications for information systems that were controlled

3

CIO-controlled systems are generally large, mainframe-based tax processing systems. Field or business

functional area systems are smaller, more specialized systems that run on a variety of platforms.

Page 6 GAO/GGD-98-138 IRS’ Year 2000 Efforts
B-275431 

by either field offices or business functional areas (hereafter referred to as

field/customer systems). As a result of the CIO and field/customer system

assessments that were completed as of March 31, 1998, IRS had identified

127 mission-critical systems, including 7 telecommunications systems.

As of April 24, 1998, IRS reported that it had completed the first 12 steps of

its 14-step conversion process on applications for about 46 percent (59

systems) of its 127 mission-critical systems. In doing so, IRS fell short of its

goal of having the applications for 66 systems converted by January 31,

1998. IRS’ schedule calls for completing the first 12 steps for the remaining

54 percent (68 systems) of the mission-critical systems by January 1999.

IRS officials said that they believe they are on track for meeting that goal.

IRS is still in the initial steps of its 14-step conversion process for most of

its systems software, hardware, and telecommunications network

components. IRS is also still in the initial stages of converting its external

data exchanges. Appendix II provides additional information on the status

of the conversion process for each of these areas. Of these infrastructure

areas, according to IRS, telecommunications networks present the most

significant conversion challenge and may be at the highest risk for not

being done by January 1999. According to IRS, the capability to exchange

information, both voice and data, between various computer systems is

the backbone of IRS’ ability to perform all of its tax processing and

customer service functions.

IRS uses a telecommunications network that is supported through the

Department of the Treasury and additional networks that are unique to IRS.

As of March 10, 1998, IRS had an inventory of the components that are

included in Treasury’s network and was verifying a preliminary inventory

of the components in the networks unique to IRS. At the time of our review,

a contractor was doing a risk assessment to help develop a conversion

schedule so that the most important work would be scheduled first to

minimize adverse impacts if IRS is not able to complete all of its

telecommunications work by January 1999.

IRS’ systems replacement efforts (i.e., ISRP and mainframe consolidation)

are experiencing some delays. For example, certain ISRP software

development that was to be completed in April 1998 is now scheduled to

be done by June 16, 1998. As a result, the time available for testing before

the start of the second phase of the pilot has been reduced. ISRP project

office officials still anticipate that ISRP will be implemented nationwide by

December 1998. The completion schedule for consolidating the data

Page 7 GAO/GGD-98-138 IRS’ Year 2000 Efforts
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processing portion of service center operations has been extended from

December 1998 until after June 1999. According to IRS officials, the need

for this extension stems from numerous factors, including field office

concerns about the ambitious schedule and expanded business

requirements for security, disaster recovery, and testing. At the time we

were finalizing this report, IRS officials said they were assessing various

technical alternatives for meeting the expanded business requirements.

They said they expect a revised business case and budget estimates that

reflect the impact of both the schedule and requirements changes to be

completed in June 1998. IRS officials said they expect to complete the Year

2000 portions of mainframe consolidation (i.e., terminal replacement and

the communication replacement system) by the original completion date

of December 1998. However, the communication replacement system has

been experiencing some difficulties and is somewhat behind its original

schedule for system testing.

IRS Is Taking Action

to Develop a Master

Schedule for

Completing

Interrelated Year 2000

Tasks

In our briefing to your office, we said that IRS’ ability to meet future

milestones was at increased risk because IRS lacked a master schedule

showing the relationships and interdependencies among the many Year

2000 efforts that must be completed in 1998. According to our assessment

guide, a master conversion and replacement schedule should be a part of

an agency’s Year 2000 program plan. This schedule could be used to

(1) establish the sequential relationships among all of the tasks associated

with all Year 2000 activities; (2) identify how much a task’s milestone

completion date could slip without affecting other tasks; (3) help

determine whether programming and testing resources will be available

when needed, given the concurrent milestone completion dates for various

tasks; and (4) provide a tool for assigning programming and testing

resources that are essential to the success of all efforts in the most

efficient manner.

Understanding the schedule and resource interdependencies of all the key

activities that are needed to make its systems Year 2000 compliant is

imperative if IRS is to make its mission-critical systems Year 2000

compliant on time. For example, IRS’ mainframe consolidation project is

behind schedule because of start-up delays and problems with

implementing the systems software that is being used to consolidate one

of the mainframe platforms. As a result of the problems with the

commercial off-the-shelf software, additional testing is being done that

was not initially expected. This testing requires staff from IRS’ Information

Systems Office of Technical Support, which is also supporting the Century

Page 8 GAO/GGD-98-138 IRS’ Year 2000 Efforts
B-275431 

Date Change Project Office in other efforts. A master schedule showing

both task and resource requirements should help identify whether any of

the individual Year 2000 efforts will require the same staff for the same

time period.

Recognizing that several major and complex projects, including

application software changes that are needed to implement recent tax

legislation, must be completed before the 1999 filing season, in

November 1997, the Commissioner of Internal Revenue announced the

establishment of an executive steering committee. This committee is to

identify risks to the 1999 filing season and the entire Year 2000 effort and

take actions to mitigate those risks. As a part of this effort, IRS developed a

Century Date Change Project Schedule for its Year 2000 activities. While

the project schedule identifies the tasks for major Year 2000 activities,

their corresponding start and finish dates, and the primary organizations

responsible for them, the schedule does not yet establish a link between

related tasks or analyze how the timing of the various tasks may affect

resource availability. Until these actions are complete, IRS cannot project

whether resources will be available when needed for concurrent tasks.

Thus, IRS faces the risk that resources may not be available when needed.

On February 12, 1998, IRS issued a statement of work for a contractor to

provide program management support to the Commissioner’s newly

established executive steering committee. One of the support activities

that IRS identified in the statement of work was the development of an

integrated schedule identifying (1) the interfaces and dependencies among

Year 2000 projects and (2) efforts to implement legislative changes for the

1999 filing season. IRS expects this schedule, along with related tasks and

dependencies, to be available in June 1998. If properly developed, this

schedule should meet the intent of the master conversion and replacement

schedule called for in our assessment guide. The contractor is to work

closely with IRS staff who are responsible for the various Year 2000 efforts

to assess resource needs for new requirements or resource shortages for

existing requirements. The contractor also is to identify and recommend

alternatives for allocating resources to help IRS meet all of its

requirements.

Page 9 GAO/GGD-98-138 IRS’ Year 2000 Efforts
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IRS’ Contingency

Planning Approach

Poses Risk to the

Continuity of

Operations

Contingency planning was the second risk area we identified during our

briefing to your office. Under IRS’ contingency planning approach, IRS may

be jeopardizing the continuity of operations for core business processes in

the event that Year 2000-induced system failures occur.

IRS’ Century Date Change Project Office has developed a “Century Date

Change Contingency Management Plan.” This plan states that “developing

contingency procedures for all of IRS’ numerous systems will require a

significant amount of knowledgeable resources, in most cases the same

resources assigned to perform the actual century date change conversion

effort.” To minimize the number of contingency plans that IRS would have

to develop, the contingency management plan calls for developing

contingency plans only for those business functions or processes that are

supported by application software projects that are at risk of not being

made Year 2000 compliant on schedule. The Century Date Change Project

Office has established criteria to identify such projects. For these projects,

IRS is to initiate a business function impact analysis. Once that analysis is

complete, technical and business owners evaluate available alternatives,

including using any existing contingency procedures, such as manual

procedures, or an alternative technological solution, such as commercial

off-the-shelf software. IRS plans to use a similar approach for initiating

contingency plans for business functions when the conversion of

infrastructure areas, such as systems software, external data exchanges,

and telecommunications network components, falls behind schedule.

IRS’ “Century Date Change Contingency Management Plan” does not

address the likelihood that information systems that are converted on

schedule may experience system failures. As a result, IRS will be

ill-prepared to effectively manage Year 2000-induced system failures that

could affect core business processes. IRS’ contingency management plan

does not address the possibility that (1) IRS may have overlooked a date

dependency during its assessment phase of applications or infrastructure

areas or (2) even if system conversion and replacement efforts are

completed on time and fully tested, unexpected failures may occur.

Aspects of contingency planning are under way for IRS’ replacement

projects (i.e., ISRP and mainframe consolidation). For example, the ISRP

project office has developed a contingency plan that identifies (1) various

risks to the ISRP pilot and nationwide implementation, (2) the probability

of those risks, and (3) contingency options for addressing those risks. IRS

is also taking steps to make its existing service center mainframe

computers Year 2000 compliant in the event that the consolidation of tax

Page 10 GAO/GGD-98-138 IRS’ Year 2000 Efforts
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processing to the computing centers is not completed according to

schedule. IRS expects to make its existing service center mainframe

computers Year 2000 compliant by January 1999. Also, as part of a larger

effort to enhance IRS’ disaster recovery capabilities, IRS officials said they

have identified expanded disaster recovery requirements for service center

data processing. At the time we were finalizing this report, IRS officials said

they were assessing various technical alternatives for meeting those

requirements so they can be incorporated in the mainframe consolidation

project.

Our exposure draft on business continuity and contingency planning states

that agencies must start business continuity and contingency planning

now to reduce the risk of Year 2000 business failures.4

 Among other things,

the exposure draft states that agencies need to do a business impact

analysis to determine the effect of mission-critical system failures on the

viability of agency operations. This analysis is to include examining

business priorities; dependencies; service levels; and, most important, the

business process dependency on mission-critical information systems.

According to our exposure draft, the business impact analysis triggers the

development of contingency plans for each core business process,

including any information system components that support that process.

Contingency plans would also address the actions IRS may take, for

example, to notify taxpayers in the event that Year 2000 failures cause

significant delays in processing tax returns and issuing refunds. IRS has

undertaken efforts in the past to identify its core business processes as a

part of various reengineering efforts that could be the starting point for a

business impact analysis. For example, in 1996, as part of an effort to

redesign its work processes, IRS began an effort to identify and map core

business processes.

Conclusions IRS is still assessing some of its infrastructure components and faces the

risk of not completing all of its Year 2000 efforts by January 1999.

Moreover, IRS, like other agencies, is likely to encounter Year 2000-induced

failures in some systems that were fully assessed, tested, and

implemented. IRS’ “Century Date Contingency Management Plan” focuses

on developing contingency plans only for business functions that are

supported by application software projects that are behind schedule. The

possibility exists that existing contingency or disaster recovery plans that

were developed for other than Year 2000 purposes may be applicable to

4

Year 2000 Computing Crisis: Business Continuity and Contingency Planning (GAO/AIMD-10.1.19,

Mar. 1998).

Page 11 GAO/GGD-98-138 IRS’ Year 2000 Efforts
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Year 2000 failures. However, if these plans are not applicable, under IRS’

“Century Date Contingency Management Plan,” IRS has no assurance that

its core business processes will be able to continue to function, albeit,

possibly at some reduced level of service, in the event that Year

2000-induced failures occur in systems that were converted according to

schedule.

Recommendations We recommend that the Commissioner of Internal Revenue take the

following steps to better ensure that IRS has adequately assessed the

vulnerabilities of its core business processes in the event of Year

2000-induced system failures:

• solicit the input of business functional area officials to identify IRS’ core

business processes and prioritize those processes that must continue in

the event of Year 2000-induced failures;

• map IRS’ mission-critical systems to those core business processes;

• determine the impact of information system failures on each core business

process;

• assess any existing business continuity and contingency plans that may

have been developed for non-Year 2000 reasons to determine whether

these plans are applicable to Year 2000-induced failures, and

• develop and test contingency plans for core business processes if existing

plans are not appropriate.

Agency Comments

and Our Evaluation

We requested comments on a draft of this report from the Commissioner

of Internal Revenue or his designated representative. IRS provided us with

comments during a May 4, 1998, meeting with the Acting Chief Information

Officer and his staff. Those comments were reiterated in a May 8, 1998,

letter from the Commissioner of Internal Revenue, which is reproduced in

appendix III.

The Commissioner said that IRS agrees that it must develop contingency

plans to manage any adverse impacts of a less-than-fully successful

century date program, and that IRS will take the following actions to

address our recommendations regarding contingency planning. He said

that to leverage the limited resources on the remaining Year 2000

conversion and testing efforts, IRS will focus contingency planning on

those areas that have the greatest risk and highest business impact.

Specifically, the Commissioner said the Acting Chief Information Officer

will be working with the other Chief Officers to document IRS’ current

Page 12 GAO/GGD-98-138 IRS’ Year 2000 Efforts
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business processes, the systems that support them, the impact if these

processes or systems fail, and the probability or potential for Year 2000

risk. The Commissioner said that contingency plans will be developed for

those areas that meet all of the following criteria: (1) high business impact,

(2) high risk associated with failure, and (3) high probability of systems

failure/instability due to Year 2000 conversion.

We believe that these actions, if implemented properly, address most of

the steps we identified in our contingency planning recommendations and

should put IRS in a better position to respond to unexpected failures as a

result of the Year 2000 problem than was the case under its previous

contingency planning approach. However, we remain concerned that IRS

will be ill-prepared in the event a failure occurs in a high business impact

area that is supported by a system that IRS assesses as having a low

probability of failure, but subsequently fails unexpectedly. We recognize

that IRS needs to leverage its resources, particularly its information

systems resources, to ensure that it completes all of the required Year 2000

conversion work on schedule. However, we believe it would be prudent

for IRS’ business officials who are responsible for high business impact

areas, regardless of the perceived Year 2000 risks, to begin identifying

alternative business procedures or processes that may need to be

implemented in the event of unexpected systems failure.

In addition to commenting on our recommendations, IRS provided us with

updated information on the status of its Year 2000 efforts. We have

incorporated that updated information in the report where appropriate.

The updated information is also included in IRS’ “Status Update Summary,”

which is also reproduced in appendix III.

Scope and

Methodology

To determine IRS’ progress and identify the risks facing its Year 2000

conversion efforts, we interviewed officials from the National Office,

computing centers, service centers, regions, and district offices. We

analyzed and compared IRS’ planning, budget, and performance-monitoring

documentation with our Year 2000 assessment guide as a part of a

structured approach for reviewing IRS’ conversion efforts. We did not

review existing business continuity or contingency plans that IRS may have

been developing for other than Year 2000-induced failures.

We conducted our work in accordance with generally accepted

government auditing standards between October 1996 and May 1998.

Page 13 GAO/GGD-98-138 IRS’ Year 2000 Efforts
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We are sending copies of this report to the Subcommittee’s Ranking

Minority Member; the Chairmen and Ranking Minority Members of the

House Committee on Ways and Means and the Senate Committee on

Finance, Subcommittee on Taxation and IRS Oversight; various other

congressional committees; the Secretary of the Treasury; the

Commissioner of Internal Revenue; the Director of the Office of

Management and Budget; and other interested parties. We will also make

copies available to others upon request.

The major contributors to this report are listed in appendix IV. Please

contact me at (202) 512-9110 if you have any questions about this report.

Sincerely yours,

Lynda D. Willis

Director, Tax Policy and

 Administration Issues

Page 14 GAO/GGD-98-138 IRS’ Year 2000 Efforts
Page 15 GAO/GGD-98-138 IRS’ Year 2000 Efforts
Contents

Letter 1

Appendix I 

Description of the

Five Phases of Our

Year 2000 Assessment

Guide

18

Appendix II 

Additional

Information on the

Status of the

Conversion of IRS’

Infrastructure Areas

19

Mainframe Computer Hardware and Systems Software 19

Telecommunications Networks 19

External Data Exchanges 21

Minicomputer/File-Server Hardware and Systems Software 22

Personal Computer Hardware and Commercial Software 23

Appendix III 

Comments From the

Internal Revenue

Service

24

Appendix IV 

Major Contributors to

This Report

28

Table Table 1: IRS’ 14-Step Conversion Process as Mapped to the GAO

Year 2000 Conversion Model’s Assessment, Renovation,

Validation, and Implementation Phases

6

Page 16 GAO/GGD-98-138 IRS’ Year 2000 Efforts
Contents

Abbreviations

CIO Chief Information Officer

DIS Distributed Input System

FMS Financial Management Service

IRS Internal Revenue Service

ISRP Integrated Submission and Remittance Processing System

RPS Remittance Processing System

SAT Systems Acceptance Testing

SSA Social Security Administration

Page 17 GAO/GGD-98-138 IRS’ Year 2000 Efforts
Appendix I 

Description of the Five Phases of Our Year

2000 Assessment Guide

Our Year 2000 assessment guide5 describes in detail the five phases that

agencies need to complete when making their systems Year 2000

compliant. Each of the following phases represents a major Year 2000

program activity or segment:

• Awareness. This phase entails defining the Year 2000 problem, gaining

executive level support and sponsorship, and ensuring that everyone in the

organization is fully aware of the issue. It is also during this phase that the

agency is to establish a Year 2000 program team and develop an overall

strategy.

• Assessment. This phase entails assessing the Year 2000 impact on the

agency, identifying core business areas, inventorying and analyzing the

systems supporting the core business areas, and prioritizing the

conversion or replacement of these systems. It is also during this phase

that the agency is to initiate contingency planning and identify and secure

the necessary resources.

• Renovation. This phase deals with converting, replacing, or eliminating

selected systems and applications. In so doing, it is important that the

agency consider the complex interdependencies among the systems and

applications.

• Validation. This phase deals with testing, verifying, and validating all

converted or replaced systems and applications and ensuring that they

perform as expected. This entails the agency testing in an operational

environment the performance, functionality, and integration of converted

or replaced systems, applications, and databases.

• Implementation. This phase entails deploying and implementing Year

2000-compliant systems and components. It is also during this phase that

the agency’s data exchange contingency plans are implemented, if

necessary.

5

GAO/AIMD-10.1.14.

Page 18 GAO/GGD-98-138 IRS’ Year 2000 Efforts
Appendix II 

Additional Information on the Status of the

Conversion of IRS’ Infrastructure Areas

This appendix contains additional information on the status of IRS’

infrastructure areas that were in the initial steps of IRS’ 14-step conversion

process at the time of our review. These initial steps are comparable to

either our assessment or renovation phase of our Year 2000 Conversion

Model. According to the Office of Management and Budget’s guidelines,

agencies were to have completed the assessment phase by June 1997. IRS

placed a priority on assessing its mainframe computers first because these

computers encompass most of IRS’ tax processing systems. IRS is still

assessing its telecommunications networks, external data exchanges, and

the systems software and hardware for minicomputers/file servers and

personal computers.

Mainframe Computer

Hardware and

Systems Software

IRS has completed its assessment of its mainframe computers and has

scheduled their conversion. All existing mainframe hardware and systems

software are currently scheduled to be converted between January 1998

and January 1999. IRS’ mainframe computer systems constitute the core of

IRS’ data processing activities, including the processing of tax return and

remittance data and the storage of taxpayer account and collection activity

data. These systems are currently located at IRS’ 10 service centers, the

Martinsburg Computing Center, and the Detroit Computing Center.

Most of IRS’ mainframe computers are being replaced as a part of IRS’

mainframe consolidation project. In the event that not all centers can be

consolidated by 2000, IRS is proceeding with plans to make its existing

mainframe hardware and systems software at the service centers Year

2000 compliant. Some mainframe computers, such as those supporting

master-file processing at the Martinsburg Computing Center and others at

the Detroit Computing Center, are not included in the mainframe

consolidation project. These mainframe computers are to be upgraded to

achieve Year 2000 compliance by January 1999.

Telecommunications

Networks

IRS is still in the assessment phase for its telecommunications networks.

IRS relies extensively on telecommunications networks to accomplish its

mission. According to the IRS’ Year 2000 Telecommunications Project

Management Plan, the IRS’ telecommunications network is a critical

component of IRS’ tax processing and customer service operations. The

capability to exchange information, both voice and data, among its various

computer systems is the backbone of IRS’ ability to perform all of its tax

processing and customer service functions.

Page 19 GAO/GGD-98-138 IRS’ Year 2000 Efforts
Appendix II 

Additional Information on the Status of the

Conversion of IRS’ Infrastructure Areas

According to the Commissioner’s Executive Steering Committee

documents, the telecommunications networks conversion is significantly

behind schedule for meeting the January 1999 milestone. Although IRS has

established conversion schedules for the mission-critical areas of its

telecommunications networks and is integrating these schedules into an

overall plan, many of the individual components that make up these

mission-critical areas have not been fully assessed. Generally, these

components have not been fully assessed because IRS’ inventory of

telecommunications resources has not been sufficiently detailed to allow

IRS to (1) confirm the Year 2000-compliant status of all

telecommunications components, (2) develop detailed conversion

schedules, and (3) track conversion progress against those schedules. In

part, the inventory has been difficult to compile because IRS’

telecommunications networks include both IRS-owned and multiple

vendor-maintained networks and equipment, such as the

Treasury-supported network, that cannot be easily combined to serve as a

comprehensive source of information.

IRS, Treasury, and contractors have formed integrated teams to address the

Year 2000 telecommunications issues. IRS is currently validating the

inventory of the Treasury-supported network by conducting site-specific

inventories at its service centers. In addition to needing quality inventory

data, IRS’ conversion solutions and plans for some areas are largely

dependent on the ability of vendors to provide Year 2000-compliant

products in a timely manner. After these products are received, IRS must

test them to ensure that they work within IRS’ own data processing

environment. According to IRS officials, a test plan for the

Treasury-supported network has been developed.

Given the large extent to which IRS relies on telecommunications networks

to accomplish its mission and the high degree of risk associated with not

making IRS’ telecommunications networks Year 2000 compliant, IRS’

telecommunications project plan calls for steps to mitigate this risk. The

plan calls for initiating efforts to ensure that the portions of IRS’

telecommunications networks that are most critical to IRS’ operations are

scheduled first and receive the necessary resources in accordance with

their priority to IRS’ operations. At the time of our review, a contractor was

doing a risk assessment to help develop a conversion schedule so that the

most important work is scheduled first to minimize adverse impacts if IRS

is not able to complete all of its telecommunications work by

January 1999. According to IRS documents, this risk assessment will also

trigger the development of contingency plans for mission-critical systems

Page 20 GAO/GGD-98-138 IRS’ Year 2000 Efforts
Appendix II 

Additional Information on the Status of the

Conversion of IRS’ Infrastructure Areas

that are found to be at risk for not being converted on time. As an

additional contingency measure, according to IRS, it is building redundancy

into telecommunications networks to provide limited access if a portion of

the network fails due to Year 2000 compatibility issues.

External Data

Exchanges

IRS hopes to complete its assessment of external data exchanges by

June 30, 1998. IRS, like most organizations, exchanges data in an electronic

format with other organizations for a variety of purposes. These data

exchanges involve both other government agencies as well as private

sector organizations. For example, IRS (1) transmits information

electronically to the Treasury’s Financial Management Service (FMS) for

the purposes of reporting revenue receipts and the issuance of refund

checks and (2) receives wage information (W-2) from the Social Security

Administration (SSA) to verify the accuracy of individuals’ reported

income. IRS also receives interest income data from banks and provides

information to many states to assist them with taxpayer compliance

activities.

In September 1997, IRS initiated a plan to identify (1) all of its external data

exchange organizations and (2) the actions needed to ensure that data

exchanges are not adversely impacted by the Year 2000 problem. IRS has

notified these organizations that Treasury has adopted a four-digit date

field. IRS reports that as part of its application conversion efforts it has

already converted more than 50 percent of the more than 300 data files

that it exchanges with more than 400 organizations. A key portion of the

remaining work involves contacting each of the organizations and

verifying that it is aware of the IRS’ plans for conversion and it has taken

steps to ensure the continued receipt and transmission of data.

IRS has also identified a group of organizations whose external data

exchanges are most critical to IRS’ operations and plans to commit

additional attention and resources to these organizations to ensure that

Year 2000 data exchange issues are thoroughly addressed. These

organizations include government agencies, such as FMS, SSA, and the

Federal Reserve, as well as private firms that are involved in activities

such as the Electronic Federal Tax Payment System for federal

employment tax deposits and banks that provide “lockbox” processing of

$170 billion in remittances annually. To ensure that these most critical

areas are thoroughly addressed, IRS has hired a contractor to conduct site

visits to validate that the systems that receive/provide these data are on

track to be Year 2000 compliant. At the time of our review, IRS was

Page 21 GAO/GGD-98-138 IRS’ Year 2000 Efforts
Appendix II 

Additional Information on the Status of the

Conversion of IRS’ Infrastructure Areas

validating its inventory of external data exchanges and obtaining

agreements regarding the organizations’ plans for converting their systems

so that data exchanges can be made Year 2000 compliant.

Minicomputer/FileServer Hardware and

Systems Software

For the most part, IRS has completed its assessment of its

minicomputer/file-server hardware and systems software. In the last 10 to

15 years, IRS has developed a number of information systems that use

minicomputer and file-server technologies, rather than the

mainframe-based technology that it has used for the past 30 years. IRS has

identified 39 mission-critical systems that use minicomputer and

file-server technologies. These systems support a variety of programs,

including electronic filing, customer service, returns processing, fraud

detection, criminal investigation, and compliance research activities. Many

of these systems input data to IRS’ mainframe-based systems and, as such,

are key elements of IRS’ tax processing system.

Because organizational control over these systems is scattered across

various project offices within IRS’ information systems organization and

business or functional units, IRS has taken longer to identify and assess

these systems than it has taken for its mainframe-based systems. The lack

of an accurate inventory has also hindered progress in completing the

assessment of these systems.

IRS is relying on vendors to provide the Year 2000 solution for 12 platforms

(i.e., a combination of computer hardware and systems software). These

platforms currently support 39 mission-critical systems and several other

important applications. According to the Commissioner’s Executive

Steering Committee documents, IRS established March 15, 1998, as the date

by which IRS wanted some assurance by the vendors that a Year 2000

solution existed for these platforms. Of the 12 platforms, 2 will be retired

(1 of which will be replaced when ISRP is implemented nationwide.) IRS has

determined that two platforms cannot be made Year 2000 compliant, and,

at the time of our review, IRS was still evaluating its replacement options

for them. As of April 10, 1998, IRS had either received or was about to

receive the eight remaining platforms. IRS had identified a relational

database as its greatest risk for its minicomputers and file servers because

it supports 15 mission-critical systems, and IRS is the vendor’s only

customer for this product. IRS officials told us that as of May 8, 1998, the

vendor had provided a version of this database to IRS for testing. IRS

officials said that once testing is completed, they will take the necessary

steps to procure this database and make it available to the various users.

Page 22 GAO/GGD-98-138 IRS’ Year 2000 Efforts
Appendix II 

Additional Information on the Status of the

Conversion of IRS’ Infrastructure Areas

Despite having identified the Year 2000 solutions for various

minicomputer/file-server platforms, as of May 8, 1998, IRS had not yet

completed a plan for migrating business or functional organizations from

their current minicomputer/file-server platforms to the ones that are Year

2000 compliant. Specifically, as of May 8, 1998, IRS was beginning to

develop for business and functional organizations (1) a schedule of critical

tasks, (2) the associated milestones for completing the tasks, and

(3) guidance on how to complete the tasks.

Personal Computer

Hardware and

Commercial Software

IRS is in the assessment phase for personal computer hardware and

commercial software (i.e., systems software and applications). IRS uses

personal computers extensively for a wide range of functions, including

(1) providing customer service staff with access to taxpayer account

databases, (2) allowing compliance staff to collect detailed information

and do complex calculations while working in the field, (3) entering

information from tax returns and remittances, and (4) doing essential

administrative functions. IRS has identified 134,000 personal computers

that it must assess to determine if the hardware and/or the associated

systems software is Year 2000 compliant or must be converted. IRS has

estimated that approximately 60,000 of these computers support

mission-critical functions. Of these 60,000 computers, IRS is currently

replacing approximately 16,000 as part of IRS’ service center mainframe

consolidation project. IRS’ goal is to convert all personal computers by

January 1999.

The Century Date Change Project Office is assigning Year 2000 conversion

responsibility for personal computers to the organizations within IRS that

currently share responsibility for purchasing and maintaining personal

computers and their associated commercial software. According to the

Century Date Change Project Office, as of March 1998, it had assigned

responsibility for converting 75,000 of these personal computers.

Page 23 GAO/GGD-98-138 IRS’ Year 2000 Efforts
Appendix III 

Comments From the Internal Revenue

Service

Page 24 GAO/GGD-98-138 IRS’ Year 2000 Efforts
Appendix III 

Comments From the Internal Revenue

Service

Page 25 GAO/GGD-98-138 IRS’ Year 2000 Efforts
Appendix III 

Comments From the Internal Revenue

Service

Page 26 GAO/GGD-98-138 IRS’ Year 2000 Efforts
Appendix III 

Comments From the Internal Revenue

Service

Page 27 GAO/GGD-98-138 IRS’ Year 2000 Efforts
Appendix IV 

Major Contributors to This Report

General Government

Division, Washington,

D.C.

Sherrie Russ, Assistant Director

Christopher Hess, Senior Evaluator

Monika Gomez, Evaluator

Troy Thompson, Evaluator

Elizabeth W. Scullin, Communications Analyst

Atlanta Field Office A. Carl Harris, Assistant Director

Joanna Stamatiades, Evaluator-in-Charge

Robert Arcenia, Senior Evaluator

Linda Standau, Senior Evaluator

Ronald Heisterkamp, Evaluator

(268755) Page 28 GAO/GGD-98-138 IRS’ Year 2000 Efforts
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