a

GAO

United States General Accounting Office

Report to the Chairman and Ranking 

Minority Member, Committee on 

Finance, U.S. Senate

January 2004 TAX 

ADMINISTRATION

Planning for IRS’s 

Enforcement Process 

Changes Included 

Many Key Steps but 

Can Be Improved

GAO-04-287
www.gao.gov/cgi-bin/getrpt?GAO-04-287.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact James White at 

(202) 512-9110 or whitej@gao.gov. 

Highlights of GAO-04-287, a report to the 

Committee on Finance, U.S. Senate 

January 2004

TAX ADMINISTRATION

Planning for IRS's Enforcement Process 

Changes Included Many Key Steps but 

Can Be Improved 

Planning for the four enforcement process improvement projects GAO 

reviewed included most of the 20-step framework developed to assess the 

projects. This increases the likelihood that projects target the right 

processes for improvement, choose the best target process from among 

alternatives, effectively implement the project, accurately assess project 

outcomes, and properly manage the change to the new process. However, 

none of the projects completed all of the steps. For example, some projects 

did not fully identify the causes of productivity shortfalls, leaving a risk that 

the project did not fix the right problem. In the course of this work, GAO 

found that IRS managers do not have guidance about the steps to follow in 

planning process improvement projects, increasing the possibility of 

omitting steps. 

A recurring issue in the four projects was that IRS’s enforcement data only 

partially adjust for the complexity and quality of cases worked. This issue is 

also a problem for IRS enforcement productivity data generally. Failing to 

adjust for both complexity and quality increases the risk that trends in 

productivity will be misunderstood. For example, a decline in the number of 

cases closed per employee at the same time that case complexity is 

increasing may not be a real decline in productivity. GAO recognizes that 

some options for improving productivity data could be costly. However, 

costs could be mitigated by using existing statistical methods and IRS 

complexity and quality data. 

 

20-Step Process Improvement Framework 

In recent years, the Internal 

Revenue Service (IRS) has 

experienced declines in most of its 

enforcement programs, including 

declines in audits and in efforts to 

collect delinquent taxes. Increasing 

enforcement productivity is one 

strategy that can help reverse these 

declines. To this end, IRS is 

currently planning and has begun 

implementing enforcement process 

improvement projects. 

GAO was asked to assess the 

extent to which the planning for 

the projects followed steps 

consistent with both published 

GAO guidance and the experiences 

of private sector and government 

organizations. Specifically, GAO 

assessed the extent to which four 

judgmentally selected projects 

followed the 20 planning steps 

summarized in the figure. 

GAO recommends that the 

Commissioner of Internal Revenue 

take actions to (1) put in place a 

framework to guide the planning 

for process improvement projects 

and (2) invest in better 

enforcement program productivity 

data, recognizing the costs and 

benefits of doing so. 
Page i GAO-04-287 IRS Process Improvement Projects

Contents

Letter 1

Results in Brief 5

Background 6

SB/SE Process Improvement Projects Included Most Key Steps but 

Productivity Measurement Could Be Improved 9

Conclusions 18

Recommendations for Executive Action 18

Agency Comments and Our Evaluation 19

Appendixes

Appendix I: Process Improvement Project Framework 21

Decision to Change 22

Target Process Development 24

Implementation 26

Outcome Assessment 27

Change Management 27

Appendix II: Scope and Methodology 30

Appendix III: GAO Assessment of Four Selected SB/SE Process 

Improvement Projects 32

Appendix IV: Descriptions of SB/SE Process Improvement Projects 37

Appendix V: Comments from the Internal Revenue Service 41

Table Table 1: Major Process Improvement Projects in IRS’s Small 

Business/Self Employed Operating Division 37

Figures Figure 1: 20-Step Process Improvement Framework 3

Figure 2: Key Steps Included in Selected SB/SE Process 

Improvement Projects 10

Figure 3: 20-Step Process Improvement Framework 21

Figure 4: Key Steps Included in the Field Examination 

Reengineering Project 33

Figure 5: Key Steps Included in the Compliance Support Case 

Processing Redesign Project 34

Figure 6: Key Steps Included in the Collection Taxpayer Delinquent 

Account Support Project 35

Figure 7: Key Steps Included in the Collection Field Function 

Consultative Initiative Project 36
Contents

Page ii GAO-04-287 IRS Process Improvement Projects

Abbreviations

CQMS Collection Quality Measurement System

EQMS Examination Quality Measurement System

GAO General Accounting Office

IRS Internal Revenue Service

SB/SE Small Business/Self Employed Division

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Page 1 GAO-04-287 IRS Process Improvement Projects

United States General Accounting Office

Washington, D.C. 20548

A

January 20, 2004 Letr

The Honorable Charles E. Grassley

Chairman

The Honorable Max Baucus

Ranking Minority Member

Committee on Finance

United States Senate

In recent years, as we have reported, the Internal Revenue Service (IRS) 

has experienced declines in most of its enforcement programs, including 

steep declines in audits and broad declines in its efforts to collect 

delinquent taxes.1 Factors we have cited as contributing to these declines 

include the growth in tax returns filed each year, reallocation of 

enforcement resources to improve telephone and other services to 

taxpayers, the addition of new taxpayer rights and protections by the IRS 

Restructuring and Reform Act of 1998,2

 decreased enforcement staffing, 

and decreased enforcement productivity as measured by cases closed per 

staff time.3

 The declines have triggered concerns that taxpayers’ 

motivation to voluntarily comply with their tax obligations could be 

undermined.

Increasing enforcement productivity is one strategy that could help reverse 

these declines. To this end, IRS’s Small Business/Self Employed (SB/SE) 

operating division is currently planning and has begun implementing 15 

enforcement process improvement projects. These projects aim to make 

incremental improvements to enforcement processes and are distinct from 

the major changes expected to result from IRS’s long-term business 

systems modernization effort. Because of your concern about the declines 

in IRS’s enforcement programs, including the reported declines in their 

productivity, you asked us to examine IRS’s planning of its enforcement 

process improvement projects. Specifically, as agreed with your offices, 

1

U.S. General Accounting Office, Compliance and Collection: Challenges for IRS in 

Reversing Trends and Implementing New Initiatives, GAO-03-732T (Washington, D.C.: 

May 7, 2003) and U.S. General Accounting Office, IRS Modernization: Continued Progress 

Necessary for Improving Service to Taxpayers and Ensuring Compliance, GAO-03-796T

(Washington, D.C.: May 20, 2003).

2

P.L. 105-206.

3

U.S. General Accounting Office, Tax Administration: Impact of Compliance and 

Collection Program Declines on Taxpayers, GAO-02-674 (Washington, D.C.: May 22, 2002).
Page 2 GAO-04-287 IRS Process Improvement Projects

our objective was to assess the extent to which SB/SE’s planning followed 

steps consistent with both GAO guidance and the experiences of private 

sector and government organizations. Our focus was on SB/SE’s planning 

and development of their projects; we did not evaluate the results of any 

projects because only 1 of the 15 projects had started implementation in 

August 2003, when we were choosing projects to review, and that project 

was too new to be evaluated.

To assess SB/SE’s planning, we needed to identify criteria--the steps to 

follow in planning process improvement projects. We developed a 20-step 

framework based on both GAO’s Business Process Reengineering 

Assessment Guide and discussions with private sector and other 

government managers with experience planning process improvement 

projects.4

 GAO’s Guide recognizes that the steps for planning process 

improvement need to be adapted for the magnitude of the projects and the 

particular circumstances of an organization. To do this, we first held a 

roundtable meeting with the Private Sector Council and two of its member 

companies, Northrop Grumman and CNF.5

 We also discussed process 

improvement planning with managers from the tax departments of 

California, Florida, and Minnesota; and the Minerals Management Service 

in the U.S. Department of the Interior. We then used GAO’s guidance and 

the experiences of the above organizations to develop 20 key planning 

steps appropriate for SB/SE’s incremental improvement projects. The 20 

key steps, organized by project stages, are summarized in figure 1. 

4

U.S. General Accounting Office, Business Process Reengineering Assessment Guide, 

GAO/AIMD-10.1.15 (Washington, D.C.: April 1997).

5

The Private Sector Council is a nonprofit, nonpartisan public service organization created 

to help the federal government improve its efficiency, management, and productivity 

through cooperative sharing of knowledge between the public and private sectors. It is 

comprised of member companies—businesses from across North America in industries 

such as telecommunications, defense, finance, and energy. Corporate executives from 

member companies provide their time and expertise at no cost to the government. 
Page 3 GAO-04-287 IRS Process Improvement Projects

Figure 1: 20-Step Process Improvement Framework

The first six steps are related to an organization’s decision to change a 

process. These steps help an organization to understand the extent and 

causes of any weaknesses that need to be addressed. For example, in step 

1, an organization should begin investigating change by using productivity 

data to define a baseline. Productivity measures generally take the form of 

a ratio of outputs to inputs. The remaining steps in this stage refine the 

organization’s understanding of current performance and where the 

organization wants to be. 

The next six steps help an organization develop the new, or target, process. 

These steps emphasize understanding and analyzing alternatives and 

planning for implementation.

The next four steps concern an organization’s implementation of the new 

process. These steps help an organization through the most difficult phase 

of process improvement, where ideas about the new process are turned 

into actions. Two of these steps are related to pilot testing. Pilot testing 
Page 4 GAO-04-287 IRS Process Improvement Projects

allows corrective actions to be taken if needed to correct problems prior to 

full implementation. The other two steps address employee 

responsibilities. 

In the next stage, an organization makes plans to assess the outcome of the 

new process. The single step in this stage ensures that an organization 

makes plans early for evaluating the success the success of the new 

process. It is important to develop assessment plans prior to full project 

implementation in order to ensure that the data necessary for evaluation 

are collected. 

The last three steps are related to how an organization manages the change 

to the new process. Successfully managing change reduces the risk that 

improvement efforts will fail due to the natural resistance to change within 

an organization. 

Our 20-step framework emphasizes productivity measurement and analysis 

both because the SB/SE projects focus on productivity gains and because 

the managers we consulted, particularly our roundtable participants, said 

that meaningful productivity data are an important foundation for design 

and implementation of process improvement efforts.

We recognized in our review that there is some judgment involved in 

defining these steps and that some steps may not be appropriate on every 

project. GAO’s Business Process Reengineering Assessment Guide notes 

that the guide only provides a general framework for assessing key issues. 

It says that it should not be regarded as a specific, rigid set of steps for 

conducting a project because reengineering is far too situational for such a 

rigid approach.6

 The same caveat applies to the process improvement 20-

step framework we developed for this review. Appendix I provides an 

expanded discussion of each planning step we identified as appropriate for 

SB/SE’s projects. 

We judgmentally selected four projects to study in detail, including at least 

one project in each of the three main enforcement areas that SB/SE was 

revamping—audits (or examinations), collection, and compliance support. 

We also looked for projects that were sufficiently far along in their planning 

for us to expect to see either completed steps or plans for the remaining 

steps. 

6

GAO/AIMD-10.1.15. 
Page 5 GAO-04-287 IRS Process Improvement Projects

For the four projects we selected, we assessed the degree to which IRS 

followed our 20-step framework by first interviewing officials and 

examining the extensive documentation they provided. We then returned 

to officials responsible for each project and asked for additional 

information, particularly in areas where our initial assessment was that key 

steps were not taken. Where IRS officials showed us that certain steps had 

been addressed, we then revised our initial assessment. We also 

recognized the need for flexibility in the application of our criteria, in that 

some of the steps we identified may not necessarily be appropriate for 

every project. For instance, one project determined that completing a pilot 

was not necessary; accordingly they could not adjust the process based on 

the pilot, so that step was listed “not applicable” in our assessment. We 

describe the development of our framework and our assessment of 

selected SB/SE projects in detail in appendix II.

Results in Brief Planning for the four projects we reviewed included most of the 20-step 

framework we developed to assess SB/SE’s planning of enforcement 

process improvement projects. By including so many key planning steps in 

its projects, SB/SE increased the likelihood that project teams target the 

right processes for improvement, choose the best target process from 

among alternatives, effectively implement the project, accurately assess 

project outcomes, and properly manage the change to the new process. 

However, none of the projects completed all of the steps. For example, 

some projects did not fully identify the causes of productivity shortfalls, 

leaving a risk that the projects would not fix the right problem. In the 

course of this work, we found that SB/SE managers do not have guidance 

about the steps to follow in planning process improvement projects, 

increasing the possibility of omitting steps. GAO’s Business Process 

Reengineering Assessment Guide notes that a framework, such as the one 

in this report, could help ensure that key steps are followed.7

 

A recurring issue in the four projects we examined in detail was that 

SB/SE’s enforcement data only partially adjust for the complexity and 

quality of cases worked. This issue is also a problem for SB/SE 

enforcement productivity data generally. Failing to adjust for both 

complexity and quality increases the risk that trends in productivity will be 

misunderstood. For example, a decline in the number of cases closed per 

7

GAO/AIMD-10.1.15. 
Page 6 GAO-04-287 IRS Process Improvement Projects

employee at the same time that case complexity is increasing may not be a 

real decline in productivity—more complex cases may require more time 

per case. We recognize that some options for improving productivity data, 

such as collecting more data on complexity and quality, could be costly. 

However, costs could be mitigated by using existing statistical methods to 

analyze SB/SE’s current complexity and quality.

To improve the planning of future enforcement process changes, we are 

recommending that the Commissioner of Internal Revenue ensure that 

SB/SE (1) puts in place a framework to guide planning of future process 

improvement projects and (2) invests in enforcement productivity data that 

better adjust for complexity and quality, taking into consideration the costs 

and benefits of doing so. 

In commenting on a draft of this report, the Commissioner of Internal 

Revenue agreed with our first recommendation and agreed in principle 

with our second, but also raised concerns about cost and feasibility. The 

Commissioner’s comments are discussed later in this report. The 

Commissioner’s letter is reprinted in appendix V.

Background SB/SE is one of IRS’s four business operating divisions. SB/SE is 

responsible for enforcement, taxpayer education, and account services for 

about 45 million taxpayers, including 33 million self-employed taxpayers 

and 7 million small businesses with assets of less than $10 million. SB/SE 

also performs some collection functions for other IRS operating divisions. 
Page 7 GAO-04-287 IRS Process Improvement Projects

SB/SE managers told us that the reorganization of IRS in 2000—including 

the creation of SB/SE—presented an opportunity for them to examine 

enforcement-related processes from a new perspective. Prior to this, the 

agency was organized around functional and geographic lines, with 

separate groups responsible for activities such as processing returns, 

audits, and collection in particular areas. The reorganization eliminated or 

substantially modified this national, regional, and district structure and 

established organizational units serving particular groups of taxpayers with 

similar needs. Officials told us that with the reorganization, they were now 

responsible for functions that they had not controlled so directly before. 

They said that there was general agreement among the managers of the 

newly created division that there were opportunities to make processes 

more efficient and effective, and that this led them to start several 

enforcement process improvement projects. They also distinguished 

between enforcement process improvement projects, which are generally 

incremental in their approach, and more far-reaching efforts to modernize 

IRS and transform processes through business systems modernization and 

other significant changes. We noted in our recent Performance and 

Accountability Series that IRS has made important progress in these larger 

efforts but its transformation continues to be a work in progress.8

 

Though many of the SB/SE projects include the word “reengineering” in 

their titles, SB/SE managers agreed that process improvement projects was 

a better description, given the scope of the changes these projects were 

making. As described in GAO’s Business Process Reengineering 

Assessment Guide, reengineering entails fundamentally rethinking how an 

organization’s work should be done while process improvement efforts 

focus on functional or incremental improvements.9

 SB/SE managers 

explained that they purposefully avoided technology-driven changes of the 

sort under development in the IRS-wide business systems modernization 

effort. They said that their goal was to make shorter term, more SB/SEfocused changes in the meantime, while the more sweeping changes, and 

their longer planning and implementation horizons, were still years away 

from completion. In this report, we refer to the 15 SB/SE efforts under 

way as of November 2003 as “process improvement projects.”

8

U.S. General Accounting Office, Major Management Challenges and Program Risks: A 

Governmentwide Perspective, GAO-03-95 (Washington, D.C.: January 2003). 

9

GAO/AIMD-10.1.15. 
Page 8 GAO-04-287 IRS Process Improvement Projects

We have reported on declining enforcement trends, finding in 2002 that 

there were large and pervasive declines in six of eight major compliance 

and collection programs we reviewed, with the only exceptions in returns 

processing and in the automated underreporter program. In addition to 

these declines, we reported on the large and growing gap between 

collection workload and collection work completed and the resultant 

increase in the number of cases where IRS has had to defer collection 

action on delinquent accounts.10 In 2003, we reported on the declining 

percentage of individual income tax returns that IRS was able to examine 

each year, with this rate falling from .92 percent to .57 percent between 

1993 and 2002.11 We also reported on enforcement productivity measured 

by cases closed per full-time equivalent employees, finding that IRS’s 

telephone and field collection productivity declined by about 25 percent 

from 1996-2001 and productivity in IRS’s three audit programs—individual, 

corporate, and other audit—declined by 31 to 48 percent.12 

Improving productivity by changing processes is a strategy SB/SE is using 

to address these declining trends. As of November 2003, SB/SE had 15 

ongoing process improvement projects under way, most of them in three 

broad enforcement areas—audit, collection, and compliance support. 

Audit projects entail changes to field and office examination processes.13 

Collection projects include changes to automated collection programs, 

field collections, and other programs.14 Compliance support is the term 

SB/SE uses to describe processing functions related to audit and collection 

such as updating IRS information systems for the results of enforcement 

work and preparing examination closing letters and liens on taxpayer 

property. Compliance support projects include changes to technical 

services and case processing. 

10GAO-02-674.

11U.S. General Accounting Office, Tax Administration: IRS Should Continue to Expand 

Reporting on Its Enforcement Efforts, GAO-03-378 (Washington, D.C.: Jan. 31, 2003). 

12GAO-02-674. 

13Field examinations are the most complex audits and are done at the taxpayer’s location. In 

an office examination, the taxpayer comes to an IRS office with his or her records and 

meets with an auditor. 

14IRS employs a number of means to collect overdue taxes from taxpayers who owe them. 

These include letters, phone calls, office appointments, and visits to business locations.
Page 9 GAO-04-287 IRS Process Improvement Projects

We selected four SB/SE process improvement projects to review in detail 

for this report. Field Examination Reengineering includes changes to 

preaudit processes to better identify specific issues on tax returns for 

auditors to focus on, among other changes intended to improve 

examination efficiency and reduce taxpayer burden. The Compliance 

Support Case Processing Redesign project seeks to centralize data entry 

into online information systems that monitor the status of active audit and 

collection cases and their results from many different locations with widely 

variable workload to just a few with more consistent, predictable 

workload. The Collection Taxpayer Delinquent Account Support Project 

involves the development of two computer models to improve setting 

priorities for collections cases to assign to collections staff. The Collection 

Field Function Consultative Initiative seeks to improve timeliness on 

collections cases through regular managerial involvement as cases are 

being worked. Brief descriptions of all of SB/SE’s projects can be found in 

appendix IV. 

SB/SE Process 

Improvement Projects 

Included Most Key 

Steps but Productivity 

Measurement Could Be 

Improved 

SB/SE process improvement project teams completed most of the steps we 

identified as key to SB/SE’s process improvement project planning, but 

none of the projects we reviewed completed all of the key steps. Guidance 

on project planning steps, such as our 20-step framework, could help 

ensure that key steps are followed more consistently. Also, SB/SE 

enforcement productivity data presented problems in that the data 

available to SB/SE managers to assess the productivity of their 

enforcement activities, identify processes that need improvement, and 

assess the success of their process improvement efforts are only partially 

adjusted for complexity and quality of cases worked.

Enforcement Process 

Improvement Projects 

Included Many Key Steps 

but SB/SE Lacked a 

Planning Framework 

The planning for each of the four projects we reviewed included most of 

the key steps in our process improvement framework, but none of the 

projects included all of the steps. Figure 2 presents our findings, organized 

by project stages, for each of the four projects we studied. A full circle 

means a step was fully completed in project planning and a partial circle 

means that only part of a step was completed. Our basis for each “no” or 

“partial” finding is explained in appendix III. Following figure 2, we discuss 

our findings in more detail with selected examples from the four projects 

we reviewed. 
Page 10 GAO-04-287 IRS Process Improvement Projects

Figure 2: Key Steps Included in Selected SB/SE Process Improvement Projects

a

SB/SE has not completed the implementation plan for this step in the project. 

b

SB/SE has not completed the monitoring and evaluation plan for this project.

N/A means a step was not applicable.
Page 11 GAO-04-287 IRS Process Improvement Projects

The four SB/SE projects we reviewed largely included the productivity 

baseline definition and process mapping steps under the “Decision to 

Change” stage, where SB/SE had to determine whether any of its processes 

should be improved. The Field Examination Reengineering project team 

and both collection project teams had baseline data showing that the time 

needed to complete casework was rising and all four project teams had 

extensive flowcharts mapping the details of current processes. By helping 

managers understand the strengths and weaknesses of current processes, 

such information contributes to more informed decisions about which 

processes to change. 

However, SB/SE did not as consistently include the complexity and quality 

of work being done in productivity baselines, compare productivity data to 

external benchmarks, identify root causes of productivity declines, or 

measure the gap between current and desired productivity. Weaknesses in 

these steps leave SB/SE managers without information that could be useful 

when making decisions about which processes to change. For example, on 

three of the four projects, productivity data were not adjusted for case 

complexity and only partially adjusted for quality. This could cause 

productivity trends to be misinterpreted, leaving SB/SE at risk of trying to 

redesign processes that are already working well or missing opportunities 

to fix processes with potential for improvement. Because GAO’s Business 

Process Reengineering Assessment Guide and our roundtable participants 

stressed the importance of complete productivity data and because this 

was a recurring issue we identified in our assessment of the four SB/SE 

projects, we discuss the importance of adjusting for case complexity and 

quality when measuring productivity in more detail in the next section of 

this report.15

Another example of not consistently following our key steps in the 

“Decision to Change” stage is found in the Field Examination 

Reengineering project. The project team sought the advice of many large, 

noted organizations to benchmark its productivity. However, the work did 

not lead to measuring how SB/SE’s productivity compared to others’ 

because the team did not believe that operations in other organizations 

were comparable. Without this benchmarking, the team did not know 

whether and by how much it could improve productivity by updating 

operations based on the experiences of other large organizations. Both 

GAO’s Business Process Reengineering Assessment Guide and our 

15GAO/AIMD-10.1.15. 
Page 12 GAO-04-287 IRS Process Improvement Projects

roundtable participants stressed that although processes may seem unique 

to government, they likely have counterparts at a process level in the 

private sector. Moreover, GAO’s Guide says that looking at dissimilar 

organizations can actually lead to the most fruitful improvements because 

it stimulates thinking about new approaches. 

During the “Target Process Development” stage, the projects we reviewed 

consistently included the steps that prepare for implementation. Planning 

on all four of the projects we studied included obtaining executive support, 

assessing barriers to implementing changed processes, and assessing 

resource needs and availability. The Compliance Support Case Processing 

Redesign team, for example, originally identified the need for a computer 

programming change to implement part of their process redesign. When 

the programming change could not be made immediately, they continued 

with a manual process in order to keep the project moving forward. 

However, SB/SE less consistently included key steps in this stage related to 

designing the new process. For example, in the Collection Taxpayer 

Delinquent Account Support project, SB/SE did not consider alternatives to 

achieving the project’s goal of identifying the best cases to assign to 

collections staff. Because options were not considered, the team ran the 

risk of missing a more effective approach than the one they took. Another 

team did not design the new process based on analysis of a gap between 

current and desired productivity. It is important at this stage for projects to 

include fact-based performance analysis to assess how to change processes 

that are in greatest need of improvement in terms of cost, quality, and 

timeliness. By analyzing the gap between an existing process’s 

performance and where that performance should be, projects can target 

those processes that are most in need of improvement, analyze 

alternatives, and develop and justify implementation plans. Using these 

steps can increase the likelihood of determining the best new process.

During the “Implementation” stage, three of the four projects we reviewed 

had completed implementation plans and all three included key 

implementation steps. These steps focus on the challenge of turning 

project concepts into a workable program. For example, in the Collection 

Taxpayer Delinquent Account Support project, the team clearly defined 

who was responsible for updating the existing computer programs to select 

cases for priority collection action and who was responsible for evaluating 

the implemented process. We also found that three of the four teams 

conducted pilot tests and used their results to modify the new processes 
Page 13 GAO-04-287 IRS Process Improvement Projects

prior to implementation—steps important for ensuring that process 

problems are worked out prior to project implementation.

SB/SE was less consistent, however, in establishing employee performance 

expectations for the new processes. In the Field Examination 

Reengineering project, SB/SE plans to implement changes to audit planning 

steps in order to streamline audits and reduce demands on taxpayers for 

additional information. SB/SE’s plan includes monitoring the deployment 

of the new process using measures such as the percent of personnel 

trained. However, SB/SE’s plan does not specify performance expectations 

for employees or how it will measure whether its auditors are using the 

new techniques properly. 

Two projects had completed plans for outcome assessments at the time of 

our review. One of these, the Collection Taxpayer Delinquent Account 

Support project, included an evaluation plan using available data to 

develop measures of how accurately the new models were working. The 

other two projects were in the process of developing evaluation plans—an 

important step to ensure that the correct data are available and collected 

once the change is implemented. 

Three of four initiatives incorporated change management principles 

throughout their initiatives. In the fourth, we agreed with SB/SE managers 

that change management key steps were not a factor because the changes 

to the method of prioritizing collection cases did not affect collections 

staff. These are key steps because successful process improvement 

depends on overcoming a natural resistance to change and giving staff the 

training to implement the changes. The three project teams where change 

management was a factor consistently completed all of the key steps in the 

“Change Management” stage. 

In the course of our discussions with SB/SE managers about the steps that 

their projects did and did not include, we learned that SB/SE does not have 

its own guidance or framework that describes the steps to be followed in 

planning process improvement projects. SB/SE managers said that 

projects had been planned and carried out without such a framework. 

Contractors provided substantial assistance in designing SB/SE’s process 

improvement projects, and managers told us that they relied in large part 

on the contractor staffs’ expertise and experience in planning the projects. 
Page 14 GAO-04-287 IRS Process Improvement Projects

A framework laying out the steps to be followed is an important internal 

control for projects such as these because it provides top managers 

assurance that the steps that the organization has determined to be 

important are either taken on each project or that project managers have 

explained why they should be omitted. GAO’s Business Process 

Reengineering Assessment Guide notes that an established framework is 

important for projects in that it defines in detail the activities the project 

team needs to complete and alerts the team to key issues that it must 

address.16 Without a process improvement framework and a consistent set 

of steps to follow, IRS runs the risk of future projects also missing key 

steps. This, in turn, exacerbates the risk of projects not addressing 

appropriate process problems, developing a less than optimal target 

process, ineffectively implementing the project, inaccurately assessing 

project outcomes, or mismanaging the change to the new process. A 

framework such as the one we developed for this report is an important 

internal control tool for SB/SE managers to guard against these risks. The 

internal control is needed whether process improvement is planned by 

SB/SE staff or contractors. Such a framework may also prove useful in 

other IRS units besides SB/SE. As with the 20-step framework we used to 

assess SB/SE’s approach, however, any such guidelines should allow for 

appropriate managerial discretion in cases where certain steps are not 

relevant. 

IRS Enforcement 

Productivity Data Only 

Partially Adjusted for 

Complexity and Quality

The data available to SB/SE managers to assess the productivity of their 

enforcement activities, identify processes that need improvement, and 

assess the success of their process improvement efforts are only partially 

adjusted for complexity and quality of cases worked. Productivity 

measures the efficiency with which resources are used to produce outputs. 

Specific productivity measures take the form of ratios of outputs to inputs 

such as cases closed or dollars collected per staff year. The accurate 

measurement of enforcement productivity requires data about the quantity 

of outputs produced and inputs used that are accurate and consistent over 

time and that link the outputs directly to the inputs used to produce them.17 

16GAO/AIMD-10.1.15. 

17We did not evaluate the accuracy or consistency of the data that IRS used to measure these 

quantities, or whether the specific outputs and inputs that IRS chose for its productivity 

measures were the most appropriate. These evaluations were beyond the scope of our 

report. However, for a discussion of the issues involved in choosing output and input 

indicators for productivity measures, see app. I.
Page 15 GAO-04-287 IRS Process Improvement Projects

The accurate measurement of productivity also requires good data on the 

relative complexity or difficulty of the cases and the quality of the work 

done by IRS staff. Case complexity can vary with the type of tax 

(employment vs. income), the type of taxpayer (individual vs. business) 

and the type and sources of income and expenses. A measure of 

productivity like cases closed per staff year that shows an increase may not 

indicate a real gain in efficiency if the mix of cases worked has shifted to 

less difficult cases or the quality of the work has declined. This problem of 

adjusting for quality and complexity is not unique to SB/SE process 

improvement projects—the data available to process improvement project 

managers are the same data used throughout SB/SE to measure 

productivity and otherwise manage enforcement operations.

SB/SE managers used data on the number of cases completed and the time 

it takes to complete them to measure output. Such data were usually only 

partially adjusted for quality and only once were they adjusted for 

complexity. Opportunities to make more such adjustments were missed. 

An example of a complete adjustment for complexity is the Compliance 

Support Case Processing Redesign team’s use of a proxy for complexity. 

The project illustrates both the shortcomings of SB/SE’s productivity data 

and the feasibility of some adjustments using other currently available 

information. The team wanted to measure the work needed to enter 

examination and collection case data into the information system, holding 

complexity constant, but direct measures of complexity were not available. 

While developing their new process, the team knew that more complex 

cases were to be assigned to higher-grade clerks.18 The team used the 

grade of the clerk to adjust output for complexity. Although not a direct 

measure of relative complexity, the grade level of the clerks provided 

managers a means to adjust for complexity and better identify performance 

increases that were due to changes in productivity by holding complexity 

constant. Such an adjustment increases the credibility of the team’s 

estimate that IRS would save up to 385 positions from the proposed 

redesign.

18SB/SE staff have general schedule grades, with higher grades equating to more education 

and/or experience and to more complex job responsibilities. 
Page 16 GAO-04-287 IRS Process Improvement Projects

SB/SE has systems in place that measure quality against current standards 

but do not account adequately for changes in standards of quality. The 

Exam Quality Measurement System (EQMS) and the Collection Quality 

Measurement System (CQMS) use samples of audit and collection cases, 

respectively, to determine if IRS standards were followed and compute 

scores that summarize the quality of the case.19 Generally, the scoring is 

done on a numerical scale. For example, EQMS uses quality scores that 

range on a scale from 0 to 100. To SB/SE’s credit, most of the projects that 

we reviewed used EQMS and CQMS scores in an attempt to control for 

quality changes. Unfortunately, these scores may not adequately reflect 

changes in standards of quality. For example, the IRS Restructuring and 

Reform Act of 1998 placed additional documentation requirements for 

certain collection actions on SB/SE collections staff, such as certifications 

that they had verified that taxes were past due and that sanctions were 

appropriate given the taxpayers’ circumstances. SB/SE has changed the 

standards used in EQMS and CQMS to reflect the new requirements but has 

not changed its quality scale to account for the new, higher level of quality 

implied by the new standards. As a result, two exams with the same quality 

scores, one done before passage of the act and one after, may not have the 

same level of quality. If the way that SB/SE computes its quality scores 

does not adequately reflect such changes in quality standards, an increase 

in staff time needed to complete the additional requirement may be 

misinterpreted as a decline in productivity. 

19The Internal Revenue Manual describes standards for both the collection and 

examination system. Standards for collection requirements include determining if the 

casework isolated the right issues at the right time, the right actions were taken timely and 

efficiently, the right legal procedures were followed, and the case was closed correctly. The 

exam system uses eight standards to define quality, each defined by elements representing 

components that are present in a quality examination. Each exam is scored on each of the 

eight standards and the total score is the sum of the scores for each standard.
Page 17 GAO-04-287 IRS Process Improvement Projects

Opportunities exist to improve SB/SE’s enforcement productivity data. 

Statistical methods that are widely used in both the public and private 

sectors can be used to adjust SB/SE productivity measures for quality and 

complexity. In particular, by using these methods, managers can 

distinguish productivity changes that represent real efficiency gains or 

losses from those that are due to changes in quality standards. These 

methods could be implemented using data currently available at SB/SE. 

The cost of implementation would be chiefly the staff time required to 

adapt the statistical models to SB/SE. Although the computations are 

complex, the methods can be implemented using existing software.20 We 

currently have under way a separate study that illustrates how these 

methods can be used to create better productivity measures at IRS. We 

plan to report the results of that study later in 2004.

We recognize that better incorporating the complexity and quality of 

enforcement cases in enforcement productivity data could entail costs to 

SB/SE. Collecting additional data on complexity and quality may require 

long-term planning and investment of additional resources. However, as 

discussed in the previous paragraph, there are options available now to 

mitigate such costs. Existing statistical methods could be used in the short 

term, with currently available data on case complexity and quality to 

improve productivity measurement. In addition, IRS’s ongoing business 

systems modernization effort may provide additional opportunities for 

collecting data. 

20The statistical methods use data on outputs, inputs, quality, and complexity to derive a 

composite productivity index. This index can be further analyzed (or “decomposed”) to 

adjust for the effect of factors like the IRS Restructuring and Reform Act of 1998. Examples 

of these methods include stochastic frontier and data envelopment analysis. These methods 

have been applied extensively in both the public and private sectors. For a survey of studies, 

see L. Sieford, “Data Envelopment Analysis: The Evolution of the State of the Art, 1978-

1995,” Journal of Productivity Analysis, 1996, 7, pp. 99-137. For an example of an 

application of these methods to the banking industry, see D. Wheelock and P. Wilson, 

“Technological Progress, Inefficiency, and Productivity Change in U.S. Banking, 1984-1993, 

Journal of Money, Credit and Banking, 31(2), May 1999, pp.212-234. For an application to 

public school productivity measurement, see J. Ruggiero and D. Vitaliano, “Assessing the 

Efficiency of Public Schools Using Data Envelopment Analysis and Frontier Regression,” 

Contemporary Economic Policy, July 1999, 17(3), pp. 321-31.
Page 18 GAO-04-287 IRS Process Improvement Projects

Our roundtable participants stressed the benefits of productivity analysis. 

They said that an inadequate understanding of productivity makes it harder 

to distinguish processes with a potential for improvement from those 

without such potential. GAO’s Business Process Reengineering 

Assessment Guide also highlighted the importance of being able to identify 

processes that are in greatest need of improvement.21 

Conclusions SB/SE deserves recognition for embracing process improvement and for 

including so many key steps in planning the projects. To the extent that 

IRS succeeds in improving enforcement productivity through these 

projects, resources will be made available for providing additional services 

to taxpayers and addressing the declines in tax enforcement programs. 

While the SB/SE projects we reviewed included most of the key steps in our 

framework, putting guidance in place for future projects to follow would 

help ensure that all key steps are included and improve project planning. 

The 20-step framework that we developed for this report is an example of 

such guidance. 

More complete productivity data—input and output measures adjusted for 

the complexity and quality of cases worked—would give SB/SE managers a 

more informed basis for decisions on how to improve processes. We 

recognize that better productivity will mean additional costs for SB/SE and 

that, therefore, SB/SE will have to weigh these costs against the benefits of 

better data. GAO currently has under way a separate study, illustrating 

how data on complexity and quality could be combined with output and 

input data to create better productivity measures. This may prove useful to 

SB/SE managers as they evaluate the current state of their productivity 

measures. We will report the results of that review later in 2004. 

Recommendations for 

Executive Action

We recommend that the Commissioner of Internal Revenue ensure that 

SB/SE take the following two actions:

• Put in place a framework to guide planning of future SB/SE process 

improvement projects. The framework that GAO developed for this 

report is an example of such a framework.

21GAO/AIMD-10.1.15. 
Page 19 GAO-04-287 IRS Process Improvement Projects

• Invest in enforcement productivity data that better adjust for 

complexity and quality, taking into consideration the costs and benefits 

of doing so. 

Agency Comments and 

Our Evaluation

The Commissioner of Internal Revenue provided written comments on a 

draft of this report in a January 14, 2004, letter, which is reprinted in 

appendix V. The Commissioner agreed with our recommendation that IRS 

develop a framework to guide future improvement projects. He notes that 

SB/SE used outside experts to help direct the projects we discuss in our 

report, and how the expertise gained from SB/SE’s projects puts the 

organization in a position to create a framework for future projects.

In regard to our second recommendation, the Commissioner agreed in 

principle with the value of adding to current enforcement productivity 

data, but also expressed concerns about cost and feasibility. His letter also 

discusses initiatives in progress to improve program management and 

monitoring in the short term, as well as his intent to explore the use of 

statistical methods to improve enforcement program productivity 

measurement and to ensure that they are included in modernization 

projects. The careful consideration of costs and benefits and steps to 

improve measures in the long term are at the heart of our recommendation 

and we encourage his ongoing commitment to these efforts. 

The Commissioner’s letter also notes that employee performance goals—

one of the steps in our framework—must not violate legal restrictions on 

the use of certain enforcement data to evaluate employee performance. We 

agree and clarified language in our report to make it clear that our 

framework step concerns employee performance expectations, not using 

enforcement data to evaluate employees or otherwise imposing production 

goals or quotas. 

In addition to commenting on our recommendations, IRS provided 

supplemental data on the results of some reengineering projects. 

Reviewing project results was not part of the scope of our review and time 

did not permit us to verify the supplemental data provided by IRS on 

project results. 

We conducted our work from September 2002 through November 2003 in 

accordance with generally accepted government auditing standards.
Page 20 GAO-04-287 IRS Process Improvement Projects

As agreed with your offices, unless you publicly announce its contents 

earlier, we plan no further distribution of this report until 30 days after its 

date. At that time, we will send copies of this report to the Secretary of the 

Treasury, The Commissioner of Internal Revenue, and other interested 

parties. This report is available at no charge on GAO’s Web site at 

http://www.gao.gov. 

If you or your staffs have any questions, please contact me at (202) 512-

9110 or David Lewis, Assistant Director, at (202) 512-7176. We can also be 

reached by e-mail at whitej@gao.gov or lewisd@gao.gov, respectively. Key 

contributors to this assignment were Tara Carter, Kevin Daly, Leon Green, 

Landis Lindsey, and Amy Rosewarne. 

James R. White

Director, Tax Issues

Strategic Issues Team
Page 21 GAO-04-287 IRS Process Improvement Projects

Appendix I

Process Improvement Project Framework AAppenednxidexiIs

The 20-step process improvement we identified is broken out into four 

broad stages, from deciding to make changes to assessing the results of the 

changes. A fifth stage deals with managing the changes being made and 

takes place throughout the latter part of the project. Figure 3 places the 

stages in their chronological order, with the change management stage 

shown taking place simultaneously with other stages. 

Figure 3: 20-Step Process Improvement Framework

Within each of the stages of this framework are specific key steps that we 

developed based on GAO guidance and what we learned from managers in 

other organizations about the steps they took to ensure that they were 

embarking on the right projects, designing and implementing the projects 

appropriately, and accurately assessing their projects’ results. The sections 

below describe the nature and purpose of the key steps that fall under the 

different stages. We recognize that some steps may not be appropriate for 

some projects and that managers need to apply judgment in using this or 

any other process improvement framework. Development of this 

framework is described in appendix II. 
Appendix I

Process Improvement Project Framework

Page 22 GAO-04-287 IRS Process Improvement Projects

Decision to Change Organizations that base the decision to redesign processes on accurate 

productivity data and a clear understanding of current processes increase 

the likelihood that a project will avoid misdiagnosing a problem or 

designing a less than optimal outcome target. Six key steps are important 

to accomplishing this. 

Identify Productivity 

Baseline 

Baseline data are information on the current process that provide the 

metrics against which to compare improvements and use in benchmarking. 

Productivity measures the efficiency with which an organization uses 

resources, or inputs, to produce outputs. Specific productivity measures 

generally take the form of a ratio of outputs to inputs. By establishing a 

baseline using such measures, a process improvement can be measured in 

terms of real efficiency gains. For example, the baseline could be used to 

measure the effect of a successful process improvement as additional 

output produced by the organization with the same or fewer inputs.

Include Complexity and 

Quality in Productivity 

Measures 

Productivity measures may give misleading information if they do not 

account for the relative complexity and quality of outputs and inputs. A 

measure of productivity like cases closed per staff year that shows an 

increase may not indicate a real gain in efficiency if the mix of cases has 

shifted to less difficult cases or the quality of the work has declined. 

Besides accounting for complexity and quality, the organization must also 

choose the appropriate indicators of its outputs and inputs and measure 

them accurately. Organizations like IRS that are service providers have 

outputs that often consist of complex, interrelated activities that, in many 

cases, may require multiple indicators of outputs to accurately measure 

productivity. The specific data needed depend on the characteristics of 

particular IRS processes. For example, the number and type of output 

indicators appropriate for services that have direct contact with taxpayers, 

such as audits, may be larger and more varied (to reflect the full impact of 

these services on taxpayers) than those appropriate for other services with 

less or no direct contact, such as forms processing. However, factors like 

complexity and quality are necessary for accurate productivity 

measurement for any process in IRS, regardless of how the specific 

quantitative measures are defined.
Appendix I

Process Improvement Project Framework

Page 23 GAO-04-287 IRS Process Improvement Projects

Compare Current 

Productivity to Internal and 

External Benchmarks 

A benchmark is a measurement or standard that serves as a point of 

reference by which process performance is measured. During the 

“Decision to Change” stage, benchmarking is the solution-building 

component of process improvement through which an organization 

compares data used to measure existing internal processes with external 

data on similar processes in other organizations, or in other components of 

the same organization, to identify process improvement needs and 

outcome targets. Through benchmarking an organization is able to identify 

gaps between an organization’s process performance and that of other 

organizations or other components of the same organization. 

Benchmarking is a key tool for performance improvement because it 

provides “real world” models and reference points for setting ambitious 

improvement goals. 

Map Current Process Process mapping is a graphical representation depicting the inputs, 

outputs, constraints, responsibilities, and interdependencies of the core 

processes of an organization. Acceptable modeling tools and other 

analysis techniques include flowcharting, tree diagrams, fishbone 

diagrams, and business activity maps. It is important that a process map 

defines what the components of each process are, as well as the process’s 

boundaries, dependencies, and interconnections with other processes. If 

initial process mapping is done at a high level, more detailed modeling is 

necessary to identify all of the current process’s activities and tasks, staff 

roles and responsibilities, and links and dependencies with other 

processes, customers, and suppliers. Performance data (e.g., costs, time, 

throughput) for all activities and tasks should be included on the map, or 

made available elsewhere. The people who actually do the work as well as 

the process owner should validate the mapping. Regulations, policies, laws, 

and assumptions underlying the processes should be identified. 

Identify Causes of Weak 

Performance

Causal factors are the conditions that initiate the occurrence of an 

undesired activity or state. Causal factors that are within the span of 

control of an organization should be addressed during the Target Process 

Development stage. Causal factors that are beyond the span of control of 

an organization should be isolated when identifying a problem. Examples 

of causal factors are legal requirements, mix of inputs, quality of inputs, 

and staff constraints. 
Appendix I

Process Improvement Project Framework

Page 24 GAO-04-287 IRS Process Improvement Projects

Measure Gap Between 

Current and Desired 

Productivity 

An empirical basis for the decision to make a process change is an 

important step leading towards an improvement that is optimal and 

attainable. An empirical basis can be established by using productivity 

data to define the gap between where the organization currently is and 

where it wants to be. 

Target Process 

Development 

After deciding to undergo a process improvement, an organization can 

increase the likelihood of determining the best new process by using 

productivity data, assessing implementation barriers, and developing 

feasible alternatives. 

Understand the Best 

Practices of Others 

Solutions can be adapted from best practices found in other organizations. 

Best practices are processes and procedures that high-performing 

organizations use to achieve results. An organization should evaluate the 

pros and cons of each best practice and if possible, apply its own 

productivity standards. Ideally, this form of benchmarking should be done 

with an external organization. Many processes that seem unique to the 

government actually have counterparts in the private sector, especially in 

generic areas such as claims processing, loan management, inventory 

management, etc. Also, it is important to note that the other organizations 

do not have to be particularly similar, or even do similar work. For 

example, Xerox used L.L. Bean to improve order fulfillment. Looking at 

processes in dissimilar organizations can actually lead to the most fruitful 

improvements because it stimulates new thinking about traditional 

approaches to doing work. 

Analyze Alternatives Alternatives are different process designs that would likely result in the 

same or a similar outcome. An organization’s analysis of alternative 

processes should consider benefits, costs, and risks. Performance results 

that each alternative could be expected to achieve should be determined. 

This can be done using methods such as prototyping, limited pilot testing, 

and modeling and/or computer simulation. In addition to performance, 

alternatives can be scored by any number of factors including, feasibility, 

budget, political appeal, implementation time, payback time, and risk. The 

team should explore each alternative thoroughly enough to convincingly 

demonstrate its potential to achieve the desired performance goals and 
Appendix I

Process Improvement Project Framework

Page 25 GAO-04-287 IRS Process Improvement Projects

fully describe the types of technical and organization changes necessary to 

support each goal, and if possible, test key assumptions. 

Design New Process to 

Close Productivity Gap 

The selection of a target process from among alternatives needs an 

empirical basis in the form of some sort of quantitative analysis. The 

decision to improve and forming the target process should be linked by an 

analysis of productivity data that shows how the new process can close the 

gap between the productivity baseline and the desired outcome. 

Obtain Executive Support Executive support should come in the form of an executive steering 

committee—a group headed by the organization’s leader to support and 

oversee the process improvement effort from start to finish. Executive 

involvement is important because they are in a position to build credible 

support among customers and stakeholders, mobilize the talent and 

resources for a reengineering project, and authorize the actions necessary 

to change agencywide operations. An executive steering committee’s roles 

include defining the scope of the improvement project, allotting resources, 

ensuring that project goals align with the agency’s strategic goals and 

objectives, integrating the project with other improvement efforts, 

monitoring the project’s progress, and approving the reengineering team’s 

recommendations. While carrying out these responsibilities the steering 

committee must also keep stakeholders apprised of the reengineering 

team’s efforts.

Assess Barriers to 

Implementing Changed 

Process 

Implementation barriers are obstacles that the organization will need to 

overcome to implement a new process. Examples of implementation 

barriers include political issues, entrenched workplace attitudes or values, 

an insufficient number of employees with the skills required for the 

redesigned roles, collective bargaining agreements, incompatible 

organization or physical infrastructure, current laws and regulations, and 

funding constraints. The impact of these barriers and the costs of 

addressing them (such as staff training, hiring, and relocation) need to be 

factored into the process selection decision. If the reengineering team 

determines that the risks and costs of implementing a preferred new 

process appear too great, they may need to pursue one of the less ideal, but 

more feasible alternatives.
Appendix I

Process Improvement Project Framework

Page 26 GAO-04-287 IRS Process Improvement Projects

Assess Resource Needs and 

Availability

Prior to taking on a process improvement project, GAO guidance and the 

other organizations we consulted stress the importance of ensuring the 

availability of staff and other resources necessary to complete design and 

implementation of the changed process. Without adequate resources, an 

organization undertaking a change runs the risk of an incompletely 

implemented project.

Implementation A carefully designed process improvement project needs a similarly well 

thought-out implementation in order to be successful. 

Conduct Pilot Tests Pilot tests are trial runs of the redesigned process. Pilot testing is a tool 

used to move the organization successfully to full implementation. Pilot 

testing allows the organization to (1) evaluate the soundness of the 

proposed process in actual practice, (2) identify and correct problems with 

the new design, and (3) refine performance measures. Also, successful 

pilot testing will help strengthen support for full-scale implementation from 

employees and stakeholders. 

Adjust Target Process Based 

on Pilot Results

Postpilot adjustments are corrective actions taken to correct trouble spots 

prior to full implementation. Trouble spots can be pinpointed through the 

formal evaluation of pilot projects designed to determine the efficiency and 

effectiveness of the new process. 

Define Roles and 

Responsibilities 

Process owners are the individuals with the responsibility for the process 

being improved. Designating process owners is necessary to ensure 

accountability. 
Appendix I

Process Improvement Project Framework

Page 27 GAO-04-287 IRS Process Improvement Projects

Establish Employee 

Expectations for New 

Process 

New employee and/or team performance expectations should be 

established to account for changes in roles and career expectations caused 

by the new process. Measurable indicators that are currently being used to 

track and assess employee or team progress should be analyzed to 

determine if adjustments will be required after the new process is 

implemented. In the case of IRS enforcement activities, the agency must 

ensure that the expectations do not violate the legal prohibition on using 

tax enforcement results to evaluate employee performance or imposing or 

suggesting production quotas or goals.1

 In 2002, we reported on IRS’s 

progress towards improving its performance management system; these 

changes were brought on, in part, by this requirement.2

Outcome Assessment Careful assessment of the results of a process improvement project is 

important in that it may lead to further changes in the process being 

addressed and may suggest lessons for other projects.

Develop Plans to Monitor 

and Evaluate New Process 

An evaluation plan is a way to collect and analyze data in order to 

determine how well a process is meeting its performance goals and 

whether further improvements are needed. Good performance measures 

generally include a mix of outcome, output, and efficiency measures. 

Outcome measures assess whether the process has actually achieved the 

intended results, such as an increase in the number of claims processed. 

Efficiency measures evaluate such things as the cost of the process and the 

time it takes to deliver the output of the process (a product or service) to 

the customer. The data needed to conduct outcome assessments later on 

need to be identified during project planning to ensure that they are 

available and collected once implementation begins. 

Change Management Change management focuses on the adjustments that occur in the culture 

of an organization as a result of a redesigned process. Research suggests 

that the failure to adequately address—and often even consider—a wide 

1

IRS Restructuring and Reform Act of 1998, section 1204, 26 U.S.C. §7804 note (2000). 

2

U.S. General Accounting Office, Performance Management Systems: IRS’s Systems for 

Frontline Employees and Managers Align with Strategic Goals but Improvements Can Be 

Made, GAO-02-804 (Washington, D.C.: July 12, 2002). 
Appendix I

Process Improvement Project Framework

Page 28 GAO-04-287 IRS Process Improvement Projects

variety of people and cultural issues is at the heart of unsuccessful 

organizational transformations. Similarly for process improvement efforts, 

redesigning a process is not only the technical or operational aspect of 

change, but also overcoming a natural resistance to change. Successfully 

managing change reduces the risk that improvement efforts will fail due to 

a natural resistance to change within an organization. 

Establish a Change 

Management Strategy 

An organization needs to establish a change management strategy that 

addresses cultural changes, builds consensus among customers and 

stakeholders, and communicates the planning, testing, and implementation 

of all aspects of the transition to the new process. Change management 

activities focus on (1) defining and instilling new values, attitudes, norms, 

and behaviors within an organization that support new ways of doing work 

and overcome resistance to change, (2) building consensus among 

customers and stakeholders on specific changes designed to better meet 

their needs, and (3) planning, testing, and implementing all aspects of the 

transition from one organization structure or process to another. 

Executive involvement is important for successful change management. 

Executive support helps strengthen upper management’s support for the 

project and serves to reinforce the organization’s commitment to the 

proposed changes. In a roundtable meeting held by GAO to obtain the 

perspectives of the private sector, one organization mentioned that 

providing continuous feedback to its employees is a critical element of a 

change management program. They also described the importance of 

consistently updating those employees who would be directly affected by a 

change initiative. Keeping employees informed of decisions and 

recognizing their contributions are important elements of developing 

positive employee attitudes toward implementing process improvement 

initiatives. Ongoing communication about the goals and progress of the 

reengineering effort is crucial, since negative perceptions could be formed 

and harden at an early stage, making the implementation of the new 

process more difficult to achieve. If change management is delayed it will 

be difficult to build support and momentum among the staff for 

implementing the new process, however good it might be. 

Establish a Transition Team A transition team is a group of people tasked with managing the 

implementation phase of process improvement projects. A transition team 

should include the project sponsor, the process owner, members of the 

process improvement project team, and key executives, managers, and 

staff from the areas directly affected by changeover from the old process to 
Appendix I

Process Improvement Project Framework

Page 29 GAO-04-287 IRS Process Improvement Projects

the new. Agency executives and the transition team should develop a 

detailed implementation plan that lays out the road to the new process, 

including a fully executable communication plan. The process owners 

responsible for managing the project will not effectively convey the goals 

and implementation strategy of the project if a viable mechanism is not set 

up by the transition team to keep employees and external stakeholders 

informed. 

Develop Workforce Training 

Plans 

Training and redeploying the workforce is often a major challenge and 

generally requires substantial preparation time. When a process is 

redesigned and new information systems are introduced, many of the tasks 

workers perform are radically changed or redistributed. Some positions 

may be eliminated or cut back, while others are created or modified. 

Workers may need to handle a broader range of responsibilities, rely less 

on direct supervision, and develop new skills. 
Page 30 GAO-04-287 IRS Process Improvement Projects

Appendix II

Scope and Methodology ApendxiI

We began development of a process improvement framework by reviewing 

previously developed GAO guidance related to business process 

reengineering.1

 We also reviewed guidance that GAO has recently issued 

on assessment frameworks for other major management areas.2 

GAO’s Business Process Reengineering Assessment Guide recognizes that 

the steps for planning process improvement need to be adapted for the 

magnitude of the projects and the particular circumstances of an 

organization. To supplement the GAO business process reengineering 

guidance, we held a half-day roundtable meeting with the Private Sector 

Council and two of its member companies, Northrop Grumman (a $25 

billion defense enterprise) and CNF (a $5 billion transportation services 

company).3

 We also discussed process improvement planning with public 

sector managers with experience in revamping complex processes. 

Reviewing publicly available information and in discussions with SB/SE 

staff, we found that the tax agencies in the states of California, Minnesota, 

and Florida had gone through substantial process improvement efforts in 

recent years. Similarly, the Department of the Interior’s Minerals 

Management Service had carried out substantial process improvement 

projects. We interviewed officials from these organizations and reviewed 

documents that they provided. We then used all of this information to 

adapt GAO’s guidance to a 20-step framework appropriate to the SB/SE 

projects. 

We judgmentally selected 4 projects to study in detail from the 15 projects 

SB/SE had under way. Our goal in selecting projects for detailed review 

was to cover at least one project in each of the three main enforcement 

1

GAO/AIMD-10.1.15. 

2

U.S. General Accounting Office, Human Capital: A Guide for Assessing Strategic 

Training and Development Efforts in the Federal Government, GAO-03-893G (Washington, 

D.C.: July 2003); U.S. General Accounting Office, Homeland Security: Management 

Challenges Facing Federal Leadership, GAO-03-260 (Washington, D.C.: Dec. 20, 2002), p. 60; 

U.S. General Accounting Office, Information Technology: A Framework for Assessing and 

Improving Enterprise Architecture Management (Version 1.1), GAO-03-584G

(Washington, D.C.; April 2003). 

3

The Private Sector Council is a nonprofit, nonpartisan public service organization created 

to help the federal government improve its efficiency, management, and productivity 

through cooperative sharing of knowledge between the public and private sectors. It is 

comprised of member companies—businesses from across North America in industries 

such as telecommunications, defense, finance, and energy. Corporate executives from 

member companies provide their time and expertise at no cost to the government. 
Appendix II

Scope and Methodology

Page 31 GAO-04-287 IRS Process Improvement Projects

areas that IRS was revamping— audit, collection, and compliance support. 

We also looked for projects that were sufficiently far along that we 

considered it reasonable to expect to see either completed steps or plans 

for remaining steps for most of the project. We selected one project each in 

the audit and compliance support areas. We found that there were 2 

projects underway in the collections area that were significantly far along, 

so we selected both of them for our detailed review.

For the four projects we selected, we used the documentation previously 

provided to us to identify evidence that SB/SE managers had taken or were 

in the process of taking the key process improvement project steps we 

identified. We then discussed our initial findings with IRS officials 

responsible for the four projects and they provided additional evidence, 

both orally and in writing, concerning the elements we had identified as 

present or not in our initial document review. We then revised our initial 

assessments based on the additional evidence that the officials provided. 

Our assessments also included review by a GAO project design specialist, 

in addition to our usual quality control procedures. 

We also recognized the need for flexibility in the application of our criteria, 

in that not all of the steps we identified necessarily make sense for every 

project. Where a particular step did not logically apply to a particular 

project, we listed it as “not applicable” in our assessment. For instance, the 

Collection Taxpayer Delinquent Account Support project we reviewed in 

detail did not change processes that staff were asked to carry out, so we 

rated the step about developing a training plan as “not applicable.” Where a 

step was not fully completed but the project team did a number of elements 

of the step, we assessed that step as “partial” in our matrix. We did not 

evaluate the success so far or the likelihood of success for any of the 

projects we reviewed. We also did not evaluate the effectiveness with 

which project steps were completed. For example, we did not evaluate the 

quality of the pilot tests. 

To determine the usefulness of IRS productivity data as a basis for 

determining the direction and eventual success of SB/SE process 

improvement efforts, we reviewed the literature on productivity 

measurement in tax agencies and in the public sector generally. We also 

reviewed studies on productivity measurement in service industries with 

functions similar to IRS.
Page 32 GAO-04-287 IRS Process Improvement Projects

Appendix III

GAO Assessment of Four Selected SB/SE 

Process Improvement Projects ApendxiI

The following four figures provide summaries of the evidence we used to 

make specific assessments of four selected SB/SE process improvement 

projects.
Appendix III

GAO Assessment of Four Selected SB/SE 

Process Improvement Projects

Page 33 GAO-04-287 IRS Process Improvement Projects

Figure 4: Key Steps Included in the Field Examination Reengineering Project
Appendix III

GAO Assessment of Four Selected SB/SE 

Process Improvement Projects

Page 34 GAO-04-287 IRS Process Improvement Projects

Figure 5: Key Steps Included in the Compliance Support Case Processing Redesign Project

a

SB/SE has not completed the implementation plan for this step in the project. 
Appendix III

GAO Assessment of Four Selected SB/SE 

Process Improvement Projects

Page 35 GAO-04-287 IRS Process Improvement Projects

Figure 6: Key Steps Included in the Collection Taxpayer Delinquent Account Support Project
Appendix III

GAO Assessment of Four Selected SB/SE 

Process Improvement Projects

Page 36 GAO-04-287 IRS Process Improvement Projects

Figure 7: Key Steps Included in the Collection Field Function Consultative Initiative Project

a

SB/SE has not completed the monitoring and evaluation plan for the new process. 
Page 37 GAO-04-287 IRS Process Improvement Projects

Appendix IV

Descriptions of SB/SE Process Improvement 

Projects ApendxiIV

SB/SE management capitalized on the opportunity presented by the IRS 

reorganization that created their operating division and saw declining 

productivity trends as an impetus to change. SB/SE had 15 distinct process 

improvement efforts under way as of November 2003, many with multiple 

subprojects. Table 1 provides descriptive information of the 15 projects. 

Table 1: Major Process Improvement Projects in IRS’s Small Business/Self Employed Operating Division

Project

Problem identified

by IRS

IRS’s process 

improvement goals Status Target completion date

Examination

Office Examination

& Field Examination

27 percent increase in 

calendar time associated 

with a field audit

75 percent increase in the 

hours per Office 

Examination 

Improve examination 

efficiency, effectiveness, 

and consistent treatment 

of taxpayers

Improve examiner’s ability 

to be flexible

Reduce taxpayer burden 

through more focused 

audits

Increase collaboration 

between examiner, 

manager, taxpayer, and 

representative

Full implementation in 

progress

Office Exam: Phase 1 – 

February 2004

Phase 2 – May 2004

Field Exam:

Phase 1 – in progress

Field Exam: Phase 2 – 

February 2004

Exam Life Cycle SB/SE examination life 

cycle from date tax return 

is filed to examination 

closing averages 780 

days 

Identify short-term and 

long-term 

recommendations to 

dramatically reduce 

examination life cycle 

Recommendations 

pending

Short-term 

recommendations and 

preliminary long-term 

recommendations: March 

2004

Implementation of shortterm recommendations 

and final long-term 

recommendations: April 

2004

Compliance Support

Case Processing Nonprofessional 

operations disbursed 

across 86 posts of duty

Lack of flexibility in 

changing staff priorities 

and duties

Inconsistent processes

Centralize case 

processing to four SB/SE 

campuses 

Implement electronic 

case closure processing

Full implementation 

pending

Implementation – 

Between January 2005 

and January 2006, with 

90 percent completed by 

June 2005
Appendix IV

Descriptions of SB/SE Process Improvement 

Projects

Page 38 GAO-04-287 IRS Process Improvement Projects

Technical Services Low-volume, highcomplexity programs are 

handled across all areas, 

limiting development of 

staff expertise 

Realign workload with 

staff expertise

Reassign work from 

professionals to 

paraprofessionals

Centralize national and 

multiarea programs

Automate responses to 

frequently asked 

questions

Develop program 

knowledge and subject 

expertise with

specialization

Full implementation in 

progress

Implementation complete 

– April 2004

Collection Operations Resource constraints limit 

ability to accomplish work 

within established time 

frames

Paper-intensive 

processes

Identify opportunities for 

specialization and 

consolidation of work 

processes 

Develop and implement 

automation initiatives

that will reduce paper 

processing

Recommendations 

pending

Recommendations due – 

April 2004

Collection

Taxpayer Delinquent 

Accounts Support 

Project

SB/SE can only work on 

40 percent of its top 

priority delinquent tax 

accounts

Total dollars of tax 

accounts continues to rise 

Determine the optimal 

balance between 

workload and inventory 

for telephone and field 

collection

Identify characteristics of 

cases that provide for 

productive disposition

Develop and implement 

models that predict 

payment characteristics 

Full implementation 

complete

Implementation 

completed – January 

2003

Collection Field 

Function 

Average calendar time to 

complete a collection 

case is 354 days

Decrease calendar time 

and improve quality 

Training and 

implementation partially 

completed

Final phase of training 

and implementation – 

March 2004

Tax Delinquent 

Investigations/

Nonfiler Initiative

Appropriate selection 

criteria must be 

developed to identify 

nonfiler cases 

Identify characteristics of 

cases that provide for 

productive nonfiler cases

Modeling implementation 

complete

Implementation due – 

July 04

(Continued From Previous Page)

Project

Problem identified

by IRS

IRS’s process 

improvement goals Status Target completion date
Appendix IV

Descriptions of SB/SE Process Improvement 

Projects

Page 39 GAO-04-287 IRS Process Improvement Projects

Automated Collection 

System Operating 

Model

The volume of phone call 

from taxpayers to 

telephone collection 

continues to rise resulting 

in capacity issues 

Determine optimal 

balance in telephone 

collection between IRSinitiated phone calls to 

taxpayers and taxpayer 

calls to IRS 

Site implementation 

complete

Site implementation 

complete – December 

2003

Organizational Structure Additional compliance 

resources are needed for 

high-risk accounts

Determine if Taxpayer 

Education and 

Communication 

resources can be shifted 

to compliance with 

minimal impact on 

achieving mission

Implementation pending Transition plan to be 

developed by January 

2004

Implementation complete 

by December 2004

Installment Agreement Currently, 36 percent of 

installment agreements 

and 49 percent of 

installment agreement 

dollars default within 5 

years 

Segment taxpayers with 

installment agreements 

based on probability of 

default

Develop alternative 

treatment process to 

leverage current 

enforcement tools based 

on taxpayer risk 

characteristics to reduce 

default rates and increase 

dollars collected 

Develop protocols for 

applying the appropriate 

agreement structures to 

taxpayer segments

Full implementation 

pending

Final phase of 

implementation to be 

completed in September 

2004

Collection Cycle Time Calendar days (cycle 

time) to process collection 

work from beginning to 

end needs to be reduced

Develop 

recommendations to 

decrease cycle time

Recommendations 

pending

Final short-term 

recommendations – 

March 2004

Final long-term 

recommendations and 

implementation of shortterm recommendations – 

April 2004

(Continued From Previous Page)

Project

Problem identified

by IRS

IRS’s process 

improvement goals Status Target completion date
Appendix IV

Descriptions of SB/SE Process Improvement 

Projects

Page 40 GAO-04-287 IRS Process Improvement Projects

Source: IRS. 

Business Master File 

Tolerance Modeling

Tolerance levels for 

business taxpayers in 

submissions processing 

and accounts 

management needs to be 

set consistently and 

effectively in coordination 

with compliance levels 

Develop a revenuesensitive model for setting 

business taxpayer 

tolerances 

Implementation in 

progress

Adjustments pending

Accounts management 

tolerances in place in 

August 2003

Submission processing 

phase I – January 2004

Additional changes based 

on a new model – 

January 2005

Workload Driver Model Analysis is needed to 

identify causes of 

increased volume of work 

in SB/SE 

Identify unknown causes 

for increased volume or 

work received in SB/SE 

Customer Account 

Services using datamining techniques and 

regression analysis and 

develop improvements to 

mitigate impact

Recommendations 

pending

Initial recommendations – 

July 2004

(Continued From Previous Page)

Project

Problem identified

by IRS

IRS’s process 

improvement goals Status Target completion date
Page 41 GAO-04-287 IRS Process Improvement Projects

Appendix V

Comments from the Internal Revenue Service ApendxiV
Appendix V

Comments from the Internal Revenue Service

Page 42 GAO-04-287 IRS Process Improvement Projects
Appendix V

Comments from the Internal Revenue Service

(440159) Page 43 GAO-04-287 IRS Process Improvement Projects
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