GAO

United States General Accounting Office

Report to Congressional Committees

November 2000 TAX SYSTEMS 

MODERNIZATION

Results of Review of 

IRS’ August 2000 

Interim Spending Plan

GAO-01-91

Page 1 GAO-01-91 IRS Interim ITIA Spending

Contents

Letter 3

Appendixes Appendix I: Briefing Slides From September 22, 2000, Briefing of

Senate and House Appropriations Subcommittee

Staff 14

Appendix II: Objectives, Scope, and Methodology 59

Appendix III: Comments From the Internal Revenue Service 61

Appendix IV: GAO Contacts and Staff Acknowledgments 65

Abbreviations

BSMO Business Systems Modernization Office

CADE Customer Account Data Engine

CAP Custodial Accounting Project

ELC Enterprise Life Cycle

IRS Internal Revenue Service

ITIA Information Technology Investments Account

OMB Office of Management and Budget

PRIME prime systems integration services contractor

SEI Software Engineering Institute

STIR Security and Technology Infrastructure Release
Page 2 GAO-01-91 IRS Interim ITIA Spending
Page 3 GAO-01-91 IRS Interim ITIA Spending

United States General Accounting Office

Washington, D.C. 20548 Letr

November 8, 2000

The Honorable Ben Nighthorse Campbell

Chairman

The Honorable Byron L. Dorgan

Ranking Minority Member

Subcommittee on Treasury and General Government

Committee on Appropriations

United States Senate

The Honorable Jim Kolbe

Chairman

The Honorable Steny H. Hoyer

Ranking Minority Member

Subcommittee on Treasury,

 Postal Service and General Government

Committee on Appropriations

House of Representatives

Throughout the 1990s, the Internal Revenue Service (IRS) has tried 

unsuccessfully to improve taxpayer service and IRS internal management 

by modernizing its inefficient information systems. To prevent a repeat of 

past mistakes, the Congress legislated explicit controls over IRS systems 

modernization spending. Specifically, the Department of the Treasury’s 

fiscal year 1998 and 1999 appropriations acts1

 limit the obligation of 

modernization funds until IRS submits to the Congress for approval an 

expenditure plan—which IRS commonly refers to as a spending plan—that 

(1) implements the IRS Modernization Blueprint, (2) meets Office of 

Management and Budget (OMB) investment guidelines for information 

systems, (3) is reviewed and approved by IRS’ Investment Review Board, 

OMB, and Treasury’s IRS Management Board and is reviewed by GAO, 

(4) meets the requirements of IRS’ system life cycle management program, 

and (5) complies with acquisition rules, requirements, guidelines, and 

systems acquisition management practices of the federal government. 

These legislative conditions are consistent with systems modernization 

recommendations that we made to IRS in 1995. Currently, however, our 

recommendations have yet to be fully implemented. 

1

The fiscal year 1998 Treasury and General Government Appropriations Act (Public Law 

105-61) and the fiscal year 1999 Omnibus Consolidated and Emergency Supplemental 

Appropriations Act (Public Law 105-277).
Page 4 GAO-01-91 IRS Interim ITIA Spending

In March 2000, IRS submitted its second spending plan, requesting 

$176.3 million from its systems modernization appropriations account 

referred to as the Information Technology Investments Account (ITIA).2

 In 

April 2000, IRS’ Senate and House appropriations subcommittees approved 

$148.4 million of that request and, on the basis of our findings on IRS’ 

management of the program, specified several conditions for IRS to satisfy. 

Recognizing that the $148.4 million would be obligated before another 

spending plan was submitted, IRS submitted in late August 2000 what it 

called an interim spending plan for $32.8 million as a stopgap funding 

measure.

As agreed, our objectives were to (1) determine whether IRS satisfied the 

conditions that the subcommittees specified in their April 2000 letters 

approving the interim plan and (2) provide any other observations relating 

to the agency’s management of the program.

The four conditions specified by the subcommittees were:

• adhere to the March 2000 spending plan as approved and funded or seek 

approval to do otherwise;

• meet the commitments made in the March 2000 spending plan; 

• address modernization management weaknesses and establish the 

capability to build systems by

• hiring an individual to lead the Business Systems Modernization 

Office (BSMO),

• developing mature software acquisition capabilities,

• clearly defining and applying IRS and contractor roles and 

responsibilities,

• creating performance-based task orders, and

• fully implementing IRS’ life cycle management methodology—

Enterprise Life Cycle (ELC)—and completing and using its enterprise 

architecture—Blueprint 2000—to define, direct, and control future 

modernization activities; and

• establish more reliable cost and schedule estimates for the initiatives 

outlined in the March 2000 plan.

2

IRS requested and the Congress established and funded this account with $506 million via 

the fiscal year 1998 Treasury and General Government Appropriations Act (Public Law 105-

61) and the fiscal year 1999 Omnibus Consolidated and Emergency Supplemental 

Appropriations Act (Public Law 105-277).
Page 5 GAO-01-91 IRS Interim ITIA Spending

On September 21, 2000, we briefed senior IRS officials, including the Chief 

Information Officer and the Business Systems Modernization Executive, on 

the results of our work. They stated that our briefing was fair, objective, 

and helpful. They also provided clarifying points that were incorporated 

into the briefing as appropriate. On September 22, 2000, we briefed the 

subcommittees’ offices. As requested by your offices, this report transmits 

and summarizes the briefing. The briefing slides are in appendix I.

We performed our work at IRS offices in Washington, D.C., from August 

through mid-September 2000, in accordance with generally accepted 

government auditing standards. See appendix II for details on our scope 

and methodology. IRS provided us with written comments on a draft of this 

report. Their comments are discussed in the “Agency Comments” section 

of this report and reprinted in appendix III.

Results in Brief IRS has satisfied some, but not all, of the conditions set out by its 

appropriations subcommittees. For example, IRS has hired an individual to 

lead the BSMO and is using performance-based contract task orders. It has 

also used more reliable methods to estimate the costs included in this 

spending plan. Further, although it has not fully satisfied all the 

commitments that it made in its March 2000 spending plan, it has made 

important progress on many of its initiatives, including acquiring 

requirements definition and preliminary design deliverables on such key 

projects as its corporate tax account database, drafting the initial release of 

its enterprise architecture known as Blueprint 2000, and defining and 

applying its ELC on projects.

However, IRS (1) deviated from the spending plan, as approved and funded, 

without seeking approval to do so, (2) missed many project cost and 

schedule commitments, and (3) has not fully corrected all its 

modernization management weaknesses. Two projects—Custodial 

Accounting Project (CAP) and Security and Technology Infrastructure 

Release (STIR)—are missing important requirements analysis, 

modernization integrations, and/or business case justification. Also, IRS 

has not yet made its BSMO fully operational and considers not having done 

so a major risk.

For various reasons discussed in this report, we did not view these issues, 

with two exceptions, as barriers to approval of the interim spending plan. 

These exceptions concerned CAP and STIR, and we are making 

recommendations to IRS about addressing them. In commenting on a draft 
Page 6 GAO-01-91 IRS Interim ITIA Spending

of this report, IRS’ Chief Information Officer generally agreed with our 

findings and stated that IRS is taking actions to implement our 

recommendations. On September 28, 2000, your subcommittees approved 

IRS’ interim spending plan but limited IRS’ use of CAP and STIR funds until 

missing requirements are addressed, which is consistent with our 

recommendations.

Background Since May 1999, IRS has submitted two spending plans and two interim, 

stopgap plans. On June 15, 1999, we reported on IRS’ first spending plan, 

stating that the $35 million requested satisfied the legislative conditions for 

the use of ITIA funds and was consistent with our open recommendations.3

We also said that it was an appropriate first step but that the key to success 

would be effective implementation of the plan. We recommended that 

future plans specify progress against prior plan commitments and that the 

next plan clarify the roles and responsibilities of IRS, its prime systems 

integration services contractor (PRIME) for modernization, and other 

modernization support contractors. 

Because IRS was unable to submit its second plan on time, it submitted in 

December 1999 a stopgap request for $33 million and additional time as an 

interim measure. We reviewed the request and raised concerns about 

projects that were scheduled to begin detailed design and software 

development before, among other things, the enterprise architecture was 

completed and the ELC was defined and implemented. Later that 

December, the appropriations subcommittees approved IRS’ $33 million 

funding measure but, in discussions and correspondence, directed IRS to 

(1) expedite completion of the architecture and implementation of the ELC 

and (2) explain in future expenditure plans how it plans to manage the risk 

of performing detailed design or development work if the architecture is 

not completed or the ELC is not implemented. Subsequently, IRS 

reassessed its modernization program plans and decided to restructure the 

program by scaling back its systems development efforts until it addressed 

our concerns and put in place the requisite modernization management 

capability.

On March 7, 2000, IRS submitted to the appropriations subcommittees its 

second spending plan, which reflected these restructuring decisions and 

3

Tax Systems Modernization: Results of Review of IRS’ Initial Expenditure Plan

(GAO/AIMD/GGD-99-206, June 15, 1999).
Page 7 GAO-01-91 IRS Interim ITIA Spending

sought to obligate about $176 million from ITIA. On March 31, 2000, we 

briefed the subcommittee and subsequently reported4

 that (1) the plan 

satisfied the legislative conditions and was generally consistent with 

recommendations contained in our earlier reports and (2) IRS met few of 

the commitments in its first spending plan, even though it later received an 

additional $33 million and nearly 5 months additional time to do so. We 

stated that the key to success would be whether IRS effectively 

implemented the second plan. We also stated that until IRS implemented 

the plan, it would continue to lack key modernization and technical 

controls.

In April 2000, the appropriations subcommittees approved IRS’ plan for 

$148.4 million of the funds requested and underscored the need for IRS to 

pursue its restructuring plans by, among other things, directing IRS to 

establish modernization management capabilities and controls—including 

completion and implementation of the blueprint and systems life cycle 

methodology—before it began building systems.

Recognizing that it would fully obligate the $148.4 million before it was 

ready to submit another spending plan, on August 25, 2000, IRS submitted 

its second interim plan. This interim plan requested $32.8 million to carry 

the modernization program into early fiscal year 2001.

IRS Satisfied Some, 

But Not All, of the 

Subcommittees’ 

Conditions

IRS did not fully satisfy all of the conditions that its appropriations 

subcommittees established in their April 2000 letters releasing 

modernization investment account funding. However, IRS has made 

important progress on both modernization projects and initiatives to 

address long-standing modernization management weaknesses. Our 

assessment of IRS’ success in satisfying each condition is detailed below.

Condition 1: Adhere to the 

March 2000 Spending Plan 

as Approved and Funded or 

Seek Approval to Do 

Otherwise

IRS did not adhere to the approved and funded March 7, 2000, spending 

plan and did not seek approval to deviate from the plan. IRS’ position is 

that variances from the approved funding levels were small and inevitable 

given the scale and complexity of the program and that because IRS is 

4

Tax Systems Modernization: Results of Review of IRS’ March 7, 2000, Expenditure Plan

(GAO/AIMD-00-175, May 24, 2000).
Page 8 GAO-01-91 IRS Interim ITIA Spending

closely managing the variances, they do not necessitate the subcommittees’ 

actions.

In sum, IRS varied from the approved spending levels for twelve program 

projects and initiatives. These variances ranged in amount from 

approximately $44,000 to $9,000,000. In our view, such variances are to be 

expected given the projects’ and initiatives’ complexity and early stage in 

the life cycle and the inherent uncertainty associated with 

software/systems cost estimating. 

Condition 2: Meet the 

Commitments Made in the 

March 7, 2000, Spending 

Plan

IRS did not meet its cost and schedule commitments on most projects and 

initiatives in its March 7, 2000, spending plan. For example, Milestone III 

for the Customer Account Data Engine (CADE) project slipped by 3 

months, and the estimated cost for meeting Milestone III rose by about 

$1.4 million (9.1 percent). Also, Milestone III for the STIR project slipped 2 

months, and its cost increased about $1.4 million (17.0 percent). 

In our view, these cost and schedule variances are to be expected because, 

as we previously reported,5

 the milestone commitments for most of the 

initiatives in the March 2000 plan were not based on detailed work 

breakdown structures and schedules. Rather, they were merely targets that 

IRS had represented in its plan as achievable commitments. As a result, 

these variances are not good measures of progress. 

Most modernization initiatives, including key projects, have made 

important progress since March 2000. For example, the CADE and 

e-Services projects each completed the system planning and definition 

phase of the ELC, including a preliminary business case showing a positive 

return on investment, and both projects have met ELC criteria for 

beginning preliminary design work. 

5

GAO/AIMD-00-175, May 24, 2000.
Page 9 GAO-01-91 IRS Interim ITIA Spending

However, one project, CAP,6 has been approved to begin the detailed design 

and development phase (i.e., the system is being built) without sufficient 

definition and without a compelling business case to justify treating it as a 

near-term investment priority. Specifically, 

• the CAP business case does not show a positive return on investment; 

• the $150 million estimated total project cost does not include the cost to 

define and build interfaces with projects that are yet to be defined (i.e., 

Integrated Financial Systems’ standard general ledger, CADE, and 

STIR); 

• CAP business requirements are not yet sufficiently defined to verify 

claimed benefits; 

• CAP was approved to begin the development phase with two important 

conditions that could affect the system’s baseline requirements and 

functions (and thus cost); and 

• CAP integration with other modernization projects is unclear because 

CAP is not included in the integrated master schedule and monthly 

program management reviews.

Another project, STIR, was granted approval to begin the preliminary 

design phase without a risk-based approach to defining and economically 

justifying its requirements (i.e. preliminary security risk assessment, 

preliminary security certification package, and preliminary business case). 

Such an approach, as discussed in our November 1999 guide on security 

risk assessment practices of leading organizations,7

 is a federal 

requirement and a key element of successful organizations’ security risk 

assessment programs. 

6

CAP is one of a collection of systems comprising IRS’ Integrated Financial System project. 

CAP is designed to provide tax receipt and receivable analysis and reporting. Standard 

general ledger and other financial and administrative reporting as required by federal 

management directives are to be provided by other future projects.

7

Information Security Risk Assessments: Practices of Leading Organizations

(GAO/AIMD-00-33, November 1999).
Page 10 GAO-01-91 IRS Interim ITIA Spending

Condition 3: Address 

Modernization Management 

Weaknesses and Establish 

the Capability to Build 

Systems

IRS has fully addressed two of the five modernization management 

weaknesses cited by the subcommittees. Namely, it has hired a BSMO 

executive, and it reports that 20 of its 22 task orders issued since June 2000 

are performance based. We reviewed 3 key task orders and found that they 

reflected the tenets of performance-based contracting.

IRS is also making progress in addressing other modernization 

management weaknesses. For example, since March 2000, as part of the 

ELC, it has defined processes, roles, responsibilities, etc. for implementing 

selected Level 2 key process areas8

 of the Software Engineering Institute 

(SEI) Software Acquisition Capability Maturity Model . IRS plans to train 

staff and have all projects following these by the November 2000-toJanuary 2001 timeframe. In September 2001, IRS plans to conduct an 

evaluation (via an independent assessor) to ensure compliance with SEI’s 

Level 2 requirements. In addition, IRS has taken other steps to increase its 

acquisition discipline, such as conducting monthly program management 

reviews with the modernization contractor and establishing an integrated 

master schedule to track the projects’ schedules and interdependencies. 

In July 2000, IRS defined and baselined most parts of the ELC. Our review 

of selected projects (CAP, CADE, and STIR) indicates that the ELC is 

generally being followed. Further, IRS has defined IT investment 

management controls and is in the process of incorporating them into the 

ELC. 

The initial release of IRS’ enterprise architecture was being drafted and 

was not yet available for our review, however, some parts of the ELC are 

still being developed and finalized (e.g., program control policies and 

procedures, 75 to 80 change requests, legacy system impact supplement, 

and enterprise architecture management supplement). While IRS did not 

satisfy the September 30, 2000, commitments it made in the March 2000 

plan for issuing the enterprise architecture and fully implementing the ELC, 

it is making important progress and plans to complete both between 

November 2000 and January 2001. 

8

This model was developed by the SEI at Carnegie Mellon University to evaluate an 

organization’s software acquisition capability. Level 2 of the model requires the definition, 

implementation, and demonstration of management structures and processes in acquisition 

planning, solicitation, requirements development and management, project management, 

contract tracking and oversight, evaluation, and transition to support.
Page 11 GAO-01-91 IRS Interim ITIA Spending

Condition 4: Establish More 

Reliable Cost and Schedule 

Estimates for the Initiatives 

Outlined in the March 2000 

Plan

IRS has revised and validated its March 2000 spending plan cost and 

schedule estimates to increase their reliability. According to IRS, it tasked 

the contractor to develop, for each initiative, a detailed work breakdown 

schedule of the tasks, deliverables, staff, and time needed to complete the 

initiatives in accordance with the ELC. With the resulting staffing and time 

requirements, the contractor applied its cost rates to determine cost and 

schedule estimates and then submitted the estimates to IRS in task order 

proposals. IRS validated these costs during the task order “definitization” 

process by, among other things, comparing them to historical and current 

contractor rates charged to IRS and other federal agencies (e.g., General 

Services Administration). IRS then negotiated rates that could not be 

validated. For two projects—CADE and Customer Communications—we 

verified that IRS followed this process (although we did not specifically 

evaluate the reliability of IRS’ cost validation).

Other Observations IRS has made important progress in establishing its BSMO, although this 

office is not yet fully operational. Specifically, the office is in place, staff 

have been assigned, and roles, responsibilities, policies, and procedures 

have been defined that include SEI Level 2 software acquisition processes. 

However, IRS has not yet

• developed charters for the eight units (e.g., Architecture Management, 

and Program Oversight) within BSMO, although IRS plans to do so by 

the end of October 2000; 

• completed training on BSMO roles, responsibilities, policies, and 

procedures and the ELC, although IRS plans to do so between 

November 2000 and January 2001; and

• filled 21 vacant positions, or 18 percent of total BSMO staffing levels, 

including managers for program integration, program control, and 

program planning and four staff for configuration management. 

Until these tasks are completed, IRS will continue to report BSMO 

readiness as a major program risk.

Conclusions Although IRS has not fully met all the conditions specified by the 

subcommittees, it has moved aggressively and made important progress 

since March 2000 in advancing many projects and addressing 

modernization management weaknesses. Nevertheless, until these 

management weaknesses are fully addressed, key controls will be missing, 
Page 12 GAO-01-91 IRS Interim ITIA Spending

thereby increasing the risks that projects will not perform as intended 

and/or cost more and take longer to complete. These risks are not as severe 

early in a project life cycle when it is being planned, but they escalate as a 

project moves into the detailed design and development phase of its life 

cycle. Given that IRS plans show that several projects are scheduled to 

begin detailed design and development within the next 6 months, 

expeditious implementation of these program management controls is of 

paramount importance.

Further, IRS’ CAP project has prematurely passed milestone III before 

being economically justified and before addressing modernization 

integration issues. Also, IRS’ STIR project is missing the requisite analysis 

of security threats and vulnerabilities so that a meaningful risk profile can 

be developed and cost effective system requirements to counter these risks 

can be specified.

Recommendations for 

Executive Action

Because we have open recommendations to address IRS modernization 

management weaknesses that remain applicable, we reemphasize to the 

Commissioner of Internal Revenue that these recommendations should be 

implemented before IRS begins building software-intensive systems. 

In addition, we recommend that the Commissioner limit further investment 

in CAP until IRS (1) demonstrates that CAP is of sufficient business value 

to treat it as a near-term investment priority and (2) reports to the Senate 

and House appropriations committees on how it is mitigating the risks 

associated with beginning to build CAP before important program-level 

management controls are fully implemented.

Further, we recommend that the Commissioner (1) direct the STIR project 

to complete as soon as possible a security risk assessment and validate 

STIR requirements against the risk assessment results and then (2) ensure 

that STIR requirements and the proposed design solution are economically 

justified through business case analysis.

Agency Comments In commenting on a draft of this report, IRS’ Chief Information Officer 

generally agreed with our findings and described, at a very high level, 

actions since our September 22, 2000, briefing that are completed, 

underway, and planned to address our recommendations. IRS stated that in 

November 2000 it plans to report on these actions in more detail to its 
Page 13 GAO-01-91 IRS Interim ITIA Spending

Senate and House appropriations subcommittees. In closing, IRS stated 

that it appreciated our overall assessment of the management of the 

systems modernization program and that IRS has benefited from GAO’s 

work.

We are sending copies of this report to Senator Max Baucus, Senator 

Robert C. Byrd, Senator Orrin G. Hatch, Senator Joseph I. Lieberman, 

Senator Daniel Patrick Moynihan, Senator William V. Roth, Jr., Senator Ted 

Stevens, and Senator Fred Thompson, and to Representative Bill Archer, 

Representative Dan Burton, Representative William J. Coyne, 

Representative Stephen Horn, Representative Amo Houghton, 

Representative David R. Obey, Representative Charles B. Rangel, 

Representative Jim Turner, Representative Henry A. Waxman, and 

Representative C.W. Bill Young, in their capacities as Chairmen or Ranking 

Minority Members of Senate and House Committees and Subcommittees. 

We are also sending copies to the Honorable Charles O. Rossotti, 

Commissioner of Internal Revenue; the Honorable Lawrence H. Summers, 

Secretary of the Treasury; and the Honorable Jacob J. Lew, Director of the 

Office of Management and Budget. Copies will also be made available to 

others upon request.

Should you or your staff have any questions on matters discussed in this 

report, please contact me at (202) 512-6240. I can also be reached by e-mail 

at hiter@gao.gov. Key contributors to this report are listed in appendix IV.

Randolph C. Hite

Director, Information Technology Issues
Page 14 GAO-01-91 IRS Interim ITIA Spending

Appendix I

Briefing Slides From September 22, 2000, Apendxies

Briefing of Senate and House Appropriations 

Subcommittee Staff ApendxiI

1

Results of Review of IRS’ August 2000

Interim Information Technology Investments

Account (ITIA) Spending Plan

Briefing to Staffs of

the Senate Committee on Appropriations,

Subcommittee on Treasury and General Government

and

the House Committee on Appropriations,

Subcommittee on Treasury, Postal Service,

and General Government

September 22, 2000
Appendix I

Briefing Slides From September 22, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 15 GAO-01-91 IRS Interim ITIA Spending

2

Briefing Overview

• Introduction and Objectives

• Scope and Methodology

• Results in Brief

• Background

• Results

• Conclusions

• Recommendations

• Appendix I - Summary of August 2000 Interim Spending Plan
Appendix I

Briefing Slides From September 22, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 16 GAO-01-91 IRS Interim ITIA Spending

3

Introduction and Objectives

Introduction

• IRS submitted its second spending plan to the Congress in March 2000,

requesting $176.3 million from the Information Technology Investments

Account (ITIA) for its ongoing systems modernization program.

• IRS’ House and Senate Appropriations Subcommittees approved a

spending plan of $148.4 million of the requested funds in April 2000. On

the basis of our findings on IRS’ management of the program, they

specified several conditions for IRS to satisfy before the Subcommittees

would approve future ITIA spending plans.
Appendix I

Briefing Slides From September 22, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 17 GAO-01-91 IRS Interim ITIA Spending

4

• Recognizing the $148.4 million was to be obligated before another

comprehensive spending plan was submitted, IRS submitted an “interim”

plan for $32.8 million to carry the systems modernization program

through the end of FY 2000 and into early FY2001. IRS plans to submit

the more comprehensive spending plan in late September to cover the

first half of FY2001, and another spending plan in March 2001 to cover

the second half of FY 2001.

Introduction and Objectives

Cumulative Release $35 $68 $216 ? ? ?

of ITIA Funds

(millions)

1st

Spending

Plan

5/99

Interim

Spending

Plan

12/99

Interim

Spending

Plan

8/00

10/98 10/99 10/00 10/01

4th

Spending

Plan

3/01

3rd

Spending

Plan

9/00

2nd

Spending

Plan

3/00
Appendix I

Briefing Slides From September 22, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 18 GAO-01-91 IRS Interim ITIA Spending

5

Introduction and Objectives

Objectives

• As agreed, our objectives were to (1) determine IRS’ satisfaction of the

Subcommittee’s conditions regarding the ITIA funds and (2) provide any

other observations about IRS’ management of the program. The

conditions specified by the Subcommittees were for IRS to

• adhere to the March 7, 2000 spending plan as approved and

funded, or seek approval to do otherwise;

• meet the commitments made in the March 7, 2000 spending plan;

• address modernization management weaknesses and establish the

capability to build systems by:
Appendix I

Briefing Slides From September 22, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 19 GAO-01-91 IRS Interim ITIA Spending

6

Introduction and Objectives

- hiring a person to lead the business systems modernization office

(BSMO),

- developing mature software acquisition capabilities,

- clearly defining and applying IRS and contractor roles and

responsibilities,

- creating performance-based task orders,

- fully implementing IRS’ system life cycle management

methodology, referred to as the Enterprise Life Cycle, and

completing and using the Blueprint 2000, its enterprise

architecture, to define, direct, and control future modernization

efforts; and

• establish more reliable cost and schedule estimates for the

initiatives in the March 7, 2000, plan.

• We also agreed to provide our results within 30 days of the

Subcommittees’ receipt of the spending plan (August 25, 2000).
Appendix I

Briefing Slides From September 22, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 20 GAO-01-91 IRS Interim ITIA Spending

7

Scope and Methodology

To accomplish our objectives, we

• Reviewed IRS’ interim ITIA funding request dated August 18, 2000,

and other IRS documentation associated with the initiatives

identified in the request to understand the scope and content of

each;

• Analyzed the interim request against the conditions specified in the

Senate and House responses to the March 7, 2000, spending plan

to identify variances;

• Compared progress on selected program and project initiatives-- as

reported in the request and other modernization documentation and

supplemented by interviews of IRS and contractor officials--against

deliverables promised and commitments made in the March 7, 2000,

spending plan. The program initiatives were Blueprint 2000 and the

ELC and the project initiatives were CAP, CADE, and STIR.
Appendix I

Briefing Slides From September 22, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 21 GAO-01-91 IRS Interim ITIA Spending

8

Scope and Methodology

• Selected the Blueprint 2000 and ELC program initiatives because

both are intended to address open GAO recommendations; selected

the CAP, CADE, and STIR project initiatives because our reviews of

these projects were already underway for the Subcommittees.

• Analyzed relevant documentation concerning the operational status

of the Business System Modernization Office (BSMO), such as

plans, status reports, policies and procedures, IRS/contractor roles

and responsibilities descriptions.

• Analyzed progress in definitizing task orders and making them

performance-based. To do this, we selected three task orders and

compared them to performance-based contracting criteria. The task

orders selected were for CADE, STIR, and the PRIME’s program

management office. Selected the CADE and STIR task orders

because the Subcommittees had asked us to review these two

projects. Selected the program management office task order in

order to include one program-level task order in our scope.
Appendix I

Briefing Slides From September 22, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 22 GAO-01-91 IRS Interim ITIA Spending

9

Scope and Methodology

• Analyzed process that IRS and the contractor undertook to revise

and validate cost and schedule estimates in the March 2000

spending plan and verified on two projects--CADE and Customer

Communications--whether IRS adhered to its process. Selected

these two projects because they had the highest funding

requirements.

• Collaborated with the Treasury Inspector General for Tax

Administration (TIGTA) to avoid duplication of effort in reviewing

program and project initiatives and incorporated TIGTA’s results in

this briefing where appropriate. Initiatives addressed by TIGTA

included the Customer Communications and e-Services projects,

ELC, BSMO, and Blueprint 2000.
Appendix I

Briefing Slides From September 22, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 23 GAO-01-91 IRS Interim ITIA Spending

10

Scope and Methodology

• In order to meet the 30-day reporting requirement, we did not

independently validate planned initiatives’ cost estimates or confirm

through review of system and project management documentation the

IRS provided information on the initiatives’ content and progress.

• We provided this briefing on September 21, 2000, to IRS’ Chief

Information Officer, Business Systems Modernization Executive, and

other IRS executives and incorporated their comments where

appropriate.

• We performed our work from August through mid-September 2000 in

accordance with generally accepted government auditing standards.
Appendix I

Briefing Slides From September 22, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 24 GAO-01-91 IRS Interim ITIA Spending

11

Results in Brief

CONDITIONS GAO RESULTS

1. Adhere to the March 7, 2000

spending plan as approved and

funded, or seek approval to do

otherwise.

• IRS has not adhered to the approved and funded March 7, 2000, spending plan

and has not sought approval to deviate from the approved plan. Variances from

approved funding levels have occurred due to changes in the scope of initiatives.

• IRS’ position is that the variances from the approved funding levels are small and

inevitable given the scale and complexity of the program, and that because IRS

is closely managing the variances, they do not necessitate Subcommittee action.

2. Meet the commitments made in

the March 7, 2000 spending

plan.

• On selected initiatives, IRS has not met cost and schedule commitments made in

its March 7, 2000 spending plan. For example, Version 1.0 of the Enterprise

Architecture has slipped from September 30, 2000 to sometime in November

2000. Also, the cost for the Customer Communications initiative is about $5

million over the estimate.

• As we reported in April 2000, the cost and schedule commitments in the March 7,

2000 spending plan were not reliable because (1) the cost estimates were not

based on work breakdown structures and subjected to IRS analysis and

verification and (2) the milestones were merely goals that were not based on

project work breakdown schedules. As a result, performance against these cost

and schedule commitments is not a good measure of progress.

• Most modernization initiatives have nevertheless made important progress since

March2000. Key program initiatives have addressed or are addressing

modernization management weaknesses, such as developing and implementing

the modernization blueprint and its system life cycle management methodology.

In addition, key projects have completed requisite system definition and design

products, including mapping dependencies with other projects, and have been

justified by preliminary business cases. For example,
Appendix I

Briefing Slides From September 22, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 25 GAO-01-91 IRS Interim ITIA Spending

12

Results in Brief

Modernization Management Capability

Weaknesses

Fully

Addressed

Partially Addressed /

Progress Made Since

March 2000

BSMO Leadership X

Software Acquisition Capabilities X

IRS and Contractor Roles and

Responsibilities

X

Performance-based Task Orders X

ELC X

Blueprint 2000 X

CONDITIONS GAO RESULTS

2. Meet the commitments made in

the March 7, 2000 spending

plan. (continued)

IRS has advanced its “linchpin” project initiative, the Customer Account Data

Engine (CADE), into the system design phase by producing such

prerequisites as a preliminary business case that shows a positive return on

investment, key plans for completing the project (e.g., acquisition, test, and

risk management plans), and analyses of dependencies with other

modernization initiatives.

• One project, Custodial Accounting Project (CAP), has been approved for product

development (i.e. the system is being built) without sufficient definition and

without a compelling business case. Another project, Security and Technology

Infrastructure Release (STIR), is being preliminarily designed without sufficient

requirements definition and economic justification.

3. Address modernization

management weaknesses and

establish the capability to build

systems by:

- hiring a person to lead the

business systems

modernization office (BSMO),

- developing mature software

acquisition capabilities,

- clearly defining and applying

IRS and contractor roles and

responsibilities,

- creating performance-based

task orders

• IRS has fully addressed two of its modernization management capability

weaknesses, and it is making progress in addressing others.
Appendix I

Briefing Slides From September 22, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 26 GAO-01-91 IRS Interim ITIA Spending

13

Results in Brief

CONDITIONS GAO RESULTS

3. Address modernization

management weaknesses and

establish the capability to build

systems by: (continued)

- fully implementing the

Enterprise Life Cycle (ELC),

and completing and using the

Blueprint 2000

• While much remains to be accomplished to fully address all weaknesses, IRS

has plans in place and actions underway to address each weakness.

4. Establish more reliable cost and

schedule estimates for the

initiatives in the March 7, 2000,

plan.

• IRS has revised its March 7, 2000 spending plan cost and schedule estimates.

In doing so, it has developed cost and schedule estimates based on formal work

breakdown structures/schedules detailing tasks and deliverables and application

of standard industry labor rates and product costs.

• IRS has then used its estimates to negotiate and definitize its task orders with the

contractor.

• IRS plans to follow this estimating process in the future to ensure that future

spending plans contain more realistic cost and schedule estimates against which

progress can be measured.

OTHER OBSERVATIONS GAO RESULTS

• The BSMO has been established; staff has been assigned; and roles,

responsibilities, policies, and procedures have been defined that include mature

software acquisition capabilities. BSMO has also instituted monthly program

management reviews and established an integrated master schedule to manage

the schedules and interdependencies of the projects. However, one project,

CAP, had not yet been integrated into these activities.

• IRS recognizes BSMO is not fully functional because roles, responsibilities,

policies, etc. have not yet been implemented; IRS plans to have it so by

December 2000.
Appendix I

Briefing Slides From September 22, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 27 GAO-01-91 IRS Interim ITIA Spending

14

Background

Chronology of Spending Plans and GAO Review Results

Spending Plan Results of GAO Review

1st Spending Plan (May 1999)

($35 million request)

• The plan satisfied the legislative conditions for the use of ITIA finds and was

consistent with our open recommendations.

• The plan was an appropriate first step, but the key to success would be

effective implementation of the plan.

• Future plans should specify progress against prior plan commitments, and

the next plan should clarify IRS/contractor roles and responsibilities.

Interim Spending Plan (Dec 1999)

($33 million request)

• The plan raised concerns about projects that were scheduled to begin

detailed design and software development before, among other things, the

enterprise architecture was completed and the ELC was defined and

implemented.

• IRS should expedite completion of the architecture and implementation of

the ELC.

• Future plans should explain how IRS plans to manage the risk of performing

detailed design or development work if the architecture is not sufficiently

completed or the ELC is not sufficiently implemented.

2nd Spending Plan (Mar 2000)

($176 million request)

• IRS met relatively few commitments in its $35 million first ITIA spending

plan, even though the Service later received an additional $33 million and

nearly 5 months of extra time to accomplish the goals set forth in the first

plan.

• The plan satisfied the legislative conditions for the use of ITIA funds, and

was generally consistent with recommendations contained in our earlier

reports.

• The key to success would be whether IRS effectively implements the plan.

• Until IRS completes its initiated actions to redirect and restructure its

modernization effort, it would continue to lack key modernization and

technical controls.
Appendix I

Briefing Slides From September 22, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 28 GAO-01-91 IRS Interim ITIA Spending

15

Background

August 2000 Interim Spending Plan ($000)

Program Level Activities $4,567

Management Capabilities (4,190)

Enterprise Architecture (310)

Vision and Strategy 9,067

Project Level Activities $28,191

Fiscal Year 2001 Release 6,116

Fiscal Year 2002 Release 3,460

Tax Account Replacement (Customer Account Data Engine) 1,400

Custodial Accounting Project 4,253

Enabling Infrastructure 12,962

Requested Release $32,758
Appendix I

Briefing Slides From September 22, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 29 GAO-01-91 IRS Interim ITIA Spending

16

Results

Condition 1

• IRS has not adhered to the

approved funding levels

and categories specified in

the April 2000 Senate and

House responses to IRS’

March 7, 2000, plan.

• According to IRS, the

variances could not be

avoided given the size and

complexity of the business

systems modernization

program.

Amounts in table are listed in thousands ($000).

FFRDC (M ITRE) $0

Custom er Com m unications

FY2002 $0

Customer Communications

FY2001 $5,049

e-Services $3,460

Custom er Account Data Engine $1,400

Virtual Development

Environment $6,203

Enterprise Integration and Test

Environm ent $462

Tax Administration Vision &

Strategy $9,023

Custodial Accounting Project $4,253

Program M anagem ent O ffice ($324)

ELC Enhancem ent, M aintenance &

Fully Deployment ($1,617)

Enterprise Architecture and

Blueprint 2000 ($310)

Configuration M anagem ent

Policies and Processes ($844)

Business Integration ($1,405)

Internal M anagem ent Vision and

Strategy $44

CRM Exam (1120 replacem ent) $1,067

Security and Technology

Infrastructure Release $2,656

Enterprise System s M anagem ent $1,983

Telecom m unications Enterprise

Strategic Program $3,051

Solutions Developm ent Lab ($1,393)

No Change

$0

Change due to

cost

refinem ent

$2,908

$32,758

Change due to

scope

increase

$16,574

Not funded in

April 2000

release

$13,276
Appendix I

Briefing Slides From September 22, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 30 GAO-01-91 IRS Interim ITIA Spending

17

Results

• For two initiatives with the largest amount variance from

approved funding levels, IRS gave the following reasons

why extra funds were needed:

• Customer Communications - the costs for modifying

legacy systems to interface with Customer

Communications were omitted from IRS’ March 2000

spending plan.

• Virtual Development Environment - changes to scope of

projects (e.g., CADE) required additional capabilities.
Appendix I

Briefing Slides From September 22, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 31 GAO-01-91 IRS Interim ITIA Spending

18

Results

Condition 2

• On selected initiatives, IRS has not met cost and schedule commitments

in its March 7, 2000 spending plan. For example,

Project / Program

Management Initiative

3/2000 Commitment Date

and Funding ($000)

Revised Commitment

Date and Funding ($000) Change ($000)

Blueprint 2000

09/30/2000

$8,667

11/05/2000

$8,357

+ 2 months

- $310

ELC

9/30/2000

$5,113

12/31/2000

$3,496

+ 3 months

- $1,617

CADE Milestone 3

12/31/2000

$15,312

03/31/2001

$16,712

+ 3 months

+ $1,400

STIR Milestone 3

09/30/2000

$8,549

11/30/2000

$11,205

+ 2 months

+ $2,656
Appendix I

Briefing Slides From September 22, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 32 GAO-01-91 IRS Interim ITIA Spending

19

Results

• These variances were to be expected because--as stated in

our briefing and report on IRS’ March 2000 plan1--the

milestone commitments for most of the initiatives in the

March plan were not based on detailed work breakdown

structures and schedules, but rather were merely targets

that IRS had represented in its plan as achievable

commitments. As a result, these variances are not good

measures of progress.

• The milestone changes are consistent with the

Commissioner’s stated position that initiatives will not be

“schedule-driven.” Rather, they will be “content-driven” and

will not be allowed to proceed past a major ELC milestone

unless they are ready to do so.

1Tax Systems Modernization: Results of Review of IRS’ March 7, 2000, Expenditure Plan

(GAO/AIMD-00-175, May 24, 2000)
Appendix I

Briefing Slides From September 22, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 33 GAO-01-91 IRS Interim ITIA Spending

20

Results

• Most modernization initiatives have nevertheless made

important progress since March 2000. Key projects have

completed requisite system definition and design products,

including mapping dependencies with other projects, and

have been justified by preliminary business cases.2

2Note: Progress on program initiatives are discussed under Condition 3.
Appendix I

Briefing Slides From September 22, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 34 GAO-01-91 IRS Interim ITIA Spending

21

Results

Selected

Projects

Examples of Progress Made Since March 2000

CADE • Completed ELC Milestone II work products and received Executive Steering Committee

approval to proceed to Milestone III on August 8, 2000.

• Prepared preliminary business case showing positive return-on-investment.

• Issued performance-based task order to PRIME to develop necessary ELC work products to get

Milestone III approval.

STIR • Per ELC, conducted interim systems requirements review and produced interim systems

requirements report.

• Per ELC, produced interim project management plan.

• Issued performance-based task order to PRIME to develop necessary ELC work products to get

Milestone III approval.

e-Services * • Completed ELC Milestone II work products and received Executive Steering Committee

approval to proceed to Milestone III on August 8, 2000.

• Prepared preliminary business case showing a positive return-on-investment.

• Security Certification Package received an unqualified approval.

Customer Comm. * • Exited ELC Milestone III and received Executive Steering Committee approval to proceed to

Milestone IV.

• Pilot on track for timely completion by September 28, 2000.

• Issued performance-based task order to PRIME to develop ELC required workproducts to get

Milestone IV/V approval.

* According to Treasury Inspector General for Tax Administration (TIGTA)
Appendix I

Briefing Slides From September 22, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 35 GAO-01-91 IRS Interim ITIA Spending

22

Results

• However, one project, CAP,3 has been approved for postmilestone III product development (i.e., the system is being

built) without sufficient definition and without a compelling

business case to justify treating it as an investment priority.

For example,

• Business case does not show positive return on investment.

• $150 million estimated cost does not include cost to build interfaces

with projects that are yet to be designed (i.e., Integrated Financial

System’s standard general ledger, CADE, and STIR). According to

IRS, it has interproject teams working to define/design these

interfaces.

• CAP business requirements not yet sufficiently defined to trace to

and verify claimed benefits.

• CAP approved to exit milestone III with two important conditions that

could affect the system’s baseline requirements and functions (and

thus cost). Conditions are:

3CAP is one of a collection of systems comprising IRS’ Integrated Financial System project. CAP is to provide tax

receipt and receivable analysis and reporting. Standard general ledger and other financial/administrative reporting as

required by federal management directives are to be provided by other future projects.
Appendix I

Briefing Slides From September 22, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 36 GAO-01-91 IRS Interim ITIA Spending

23

Results

• determine impact of enterprise data warehouse architecture

standards on CAP baseline.

• identify whether ongoing legacy enhancements to masterfile will

create new interfaces for CAP.

• CAP integration with other modernization projects is unclear

because CAP is not included in the integrated master schedule and

monthly program management reviews.

• Another project, STIR, was granted milestone II approval

without a risk-based approach to defining and economically

justifying its requirements. Such an approach, as discussed

in our November 1999 guide4 on security risk assessment

practices of leading organizations, is a federal requirement

and a key of element of successful organizations’ security

risk assessment programs.

4Information Security Risk Assessments: Practices of Leading Organizations (GAO/AIMD-00-33, November 1999).
Appendix I

Briefing Slides From September 22, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 37 GAO-01-91 IRS Interim ITIA Spending

24

Results

• IRS plans to address these issues before milestone III.

• Preliminary security risk assessment

• Security certification package

• Preliminary business case
Appendix I

Briefing Slides From September 22, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 38 GAO-01-91 IRS Interim ITIA Spending

25

Results

Condition 3

IRS has fully addressed two modernization management

weaknesses, and it is making progress in addressing others.

Specifically,

• BSMO Leadership

• In March 2000, BSMO planned to hire a full-time business systems

modernization executive.

• In June 2000, IRS hired this executive.

• Mature Software Acquisition Capabilities

• As of March 2000, the BSMO had made limited progress in defining

the structures and processes for implementing mature software

acquisition capabilities.

• Since then, the BSMO, as part of the ELC, has defined processes,

roles, responsibilities, etc. for implementing selected Software

Engineering Institute (SEI) Software Acquisition Capability Maturity

ModelTMLevel 2 key process areas.5

5These are Acquisition Planning, Solicitation, Requirements Development and Management, Project

Management, Contract Tracking and Oversight, Evaluation, and Transition to Support.
Appendix I

Briefing Slides From September 22, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 39 GAO-01-91 IRS Interim ITIA Spending

26

Results

• The BSMO plans to train staff and have all projects following

these by the November 2000-January 2001 timeframe.

• The BSMO’s plans also includes evaluation in September 2001

by independent assessor to ensure compliance with SEI’s level 2

requirements.

• The BSMO has also taken other steps to increase its acquisition

discipline. For example, it and the PRIME contractor

• started conducting Monthly Program Management Reviews

• established an integrated master schedule to track the

projects’ schedules and interdependencies.

• However, neither of these two management steps included the

CAP project.
Appendix I

Briefing Slides From September 22, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 40 GAO-01-91 IRS Interim ITIA Spending

27

Results

• Defined IRS and contractor roles and responsibilities

• In March 2000, IRS was in the process of defining IRS, PRIME,

and other support contractor roles and responsibilities.

• As part of plan for establishing BSMO, IRS has defined IRS and

PRIME contractor roles/responsibilities. In doing so, IRS has

clearly differentiated between its role as the acquirer and the

PRIME’s role as the developer in such areas as program

leadership, architecture management, acquisition management,

and program oversight and assurance, quality assurance, testing,

risk management, and requirements management.

• IRS plans to implement these roles/responsibilities by December

2000.

• IRS has not yet defined roles and responsibilities for other

modernization support contractors (e.g., Integrated Support

Contractor for CAP project development).
Appendix I

Briefing Slides From September 22, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 41 GAO-01-91 IRS Interim ITIA Spending

28

Results

• Performance-based task orders

• In March 2000, IRS planned to implement performance-based task

orders.

• Since then, IRS reports that 20 of its 22 task orders issued since

June 2000, were performance-based.

• Our review of 3 of these task orders showed that IRS was

implementing the concepts of performance-based contracting.

• ELC definition and implementation

• As of March 2000, IRS had not yet defined many important parts of

the ELC.

• In July 2000, IRS defined and baselined most parts; however,

some parts are still being developed/finalized. For example,

• program control policies and procedures.

• 75-80 change requests

• legacy system impact supplement

• enterprise architecture management supplement
Appendix I

Briefing Slides From September 22, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 42 GAO-01-91 IRS Interim ITIA Spending

29

Results

• While IRS will not satisfy the September 30, 2000, commitment for

ELC implementation stated in the March 2000 plan, IRS has

developed an ELC deployment plan to provide detailed training on

ELC processes and procedures by the November 2000 to January

2001 timeframe.

• Review of selected projects (CAP, CADE, and STIR) indicates that

ELC is generally being followed. Exceptions reflect:

• ELC tailoring whereby projects are allowed to delete applicability

of selected work products.

• CAP and STIR initially followed another life-cycle management

methodology because the ELC was not yet available for use.

CAP and STIR have since been subjected to ELC requirements.
Appendix I

Briefing Slides From September 22, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 43 GAO-01-91 IRS Interim ITIA Spending

30

Results

• In addition, IRS has defined IT investment management controls

and is in the process of incorporating them into the ELC. The

controls include the development of business case guidance and

enforcement of business case management reviews. IRS also

defined controls for:

• business case assessment,

• portfolio prioritization,

• investment approval,

• investment monitoring,

• in-process evaluation, and

• post-implementation review.

• As defined, IRS’ investment management approach appears consistent

with our IT investment management framework.

• While these processes have been defined and IRS has begun using the

business case procedure, it has not yet fully implemented all investment

management controls.
Appendix I

Briefing Slides From September 22, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 44 GAO-01-91 IRS Interim ITIA Spending

31

Results

• Blueprint 2000/enterprise architecture completion and use

• In March 2000, IRS had defined a high-level framework (consisting

of approximately 60 notional work products) for developing its

enterprise architecture and had begun to define “key concepts” that

transcend individual architectural work products.

• Since then, IRS

• has determined that it will develop and complete its enterprise

architecture in 3 phases--referred to as Releases 1.0, 1.1, and

2.0. Release 1.0 is referred to as Blueprint 2000.

10/00 10/01

Release 1.0

11/00

Release 1.1

3/01

Release 2.0

9/01
Appendix I

Briefing Slides From September 22, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 45 GAO-01-91 IRS Interim ITIA Spending

32

Results

3

Process

Applications

(e.g. collections,

exam, etc.)

2

Data and

Application Infrastructure

(e.g. user authentication, data access,

image access, etc.)

1

Technical Infrastructure

(e.g. messaging services, networks, hardware,

operating systems, database management systems, etc.)

Focus of Release 2.0

Focus of Release 1.0

Focus of Release 1.1

Enterprise Architecture Being Developed in Phases
Appendix I

Briefing Slides From September 22, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 46 GAO-01-91 IRS Interim ITIA Spending

33

Results

Enterprise Architecture Being Developed in Phases

• Builds on and updates Blueprint 97

• Foundation for incrementally defined,

incrementally delivered enterprise

• Rich in Technical Infrastructure and

Applications Infrastructure (lower pyramid)

• Lean in business process applications (top of

pyramid)

• Provides structural framework for future

Enterprise Architecture releases

• Captures and conveys critical high-level

requirements

• Business processes fit together from prefiling to post-filing

• All systems, applications, data and interfaces

derived from business processes

• Includes business processes for 2002 projects

• Subsystem descriptions from Blueprint 97

are accounted for

• IMVS input limited to custodial accounting

• High-level data warehouse strategy

• Each project scoped by business systems

• Directed by Key Concepts on location,

portals, systems framework, TRM, data

Enterprise Architecture 1.0 Enterprise Architecture 1.1 Enterprise Architecture 2.0

• Builds on Enterprise Architecture 1.0

• Rich in business-specific processes

• Mid- and Long-Term Enterprise Transition

Strategy

• Includes TAVS migration strategy

transition specificity

• Includes IMVS content not included in

Enterprise Architecture 1.0

• Complete Data Warehouse strategy

• Key Concept updates

• Knowledge Management

• Systems Management

• Software Development

• Networks

• Data

• Business Rules Engines

• Business processes around Knowledge

Management

• Deals with Enterprise Architecture 1.0

issues/conditionals

• Builds on Enterprise Architecture 1.1

• Includes IMVS migration strategy

transition specificity

• Shared Services at same level as TAVS 1.0

• Knowledge Management components

incorporated into architecture, requirements,

transition strategy

• Incorporates other vision and strategy

results and updates as needed
Appendix I

Briefing Slides From September 22, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 47 GAO-01-91 IRS Interim ITIA Spending

34

Results

• defined the framework’s 60 work products and the

process/management controls for populating these work products

with the content associated with each release.

15-Systems 16-Taxonomy 17-Taxonomy of 18-Enterprise

Development of Tools Enterprise Standards

PCAs Standards and Conventions

19-Enterprise 20-Service 21-Taxonomy of 22-Taxonomy of

Conventions Level PCAs Service Levels Interface Types

23-Reuse 24-Definition of 25-Solution 26-Process/Systems

Strategy Business Design Matrix Systems Patterns

32-Application 33-Taxonomy of 34-Enterprise 35-Process/ 36-Enterprise

PCAs Application Types Application Application API Definitions

Matrix Matrix

27-Data PCAs 28-Taxonomy of Data 29-Data Management 30-Enterprise Approach Conceptual 31-Process Data Model

Data Matrix

45-Infrastructure 46-Taxonomy of 47-Infrastructure

PCAs Infrastructure Strategy

Elements 48-Infrastructure

Concept of

37-Technology PCAs 38-Taxonomy of Technology 39-Technology Insertion 40-Process/Technology Operations Capabilities Strategy Capability Matrix

41-Security and 42-Taxonomy of Security 43-Verification and 44-Security Function

Privacy PCAs and Privacy Functions Compliance Matrix

55-System 56-Interface 57-Current 58-Near-Term 59-Medium-Term 60-Long-Term

Assignments Assignments Production Sequencing and Sequencing and Sequencing and

to Projects to Projects Environment Release Plan Release Plan Release Plan

Description (1 - 3 years) (4 - 6 years) (7+ years)

49-Completeness 50-Completeness 51-Taxonomy 52-Enterprise

and Adequacy and Adequacy of Baseline Architecture

Assessment Assessment Content Risk Management

Approach Plan

Enterprise Business Direction Model View

01-Enterprise

Business Direction

Model

02-Enterprise

Context

Diagrams

03-Enterprise

Business Concept

of Operations

Location Model View

12-Location

PCAs

Organization Model View

System Engineering Model View Applications Model View

Data Model View

Business Process Model View

Technology Model View

Infrastructure Model

Enterprise Requirements Security and Privacy Model View

Enterprise Transition Strategy Management and Other Work Products

13-Location-Type

Definitions

14-Process LocationType Matrix09-Organization

Direction Model

10-Role Definitions 11-Process Role

Matrix

04-Business Process

Principles, Constraints,

and Assumptions (PCAs)

05-Enterprise

Process Hierarchy

06-Business

Process Flows

07-Business

Process Definitions

08-Process Thread

Performance Models

Enterprise Requirements 53-Taxonomy of Requirements 54-Requirements Statements and Traceability Linkage
Appendix I

Briefing Slides From September 22, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 48 GAO-01-91 IRS Interim ITIA Spending

35

Results

• expanded its list of “key concepts” to 23. They include computing

platforms, backup/recovery, development environment and

languages, data warehouse framework, and data base

management. Nine have been completed, and IRS officials told

us they plan to complete the remaining 14 by mid-November

2000.

• been drafting the 60 enterprise architecture products comprising

Release 1.0. They are to be submitted for review to IRS

business and other stakeholders by October 1, 2000. IRS

estimates this review and approval process will take a month.

IRS then plans to obtain Core Business Systems Executive

Steering Committee approval in early November 2000.
Appendix I

Briefing Slides From September 22, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 49 GAO-01-91 IRS Interim ITIA Spending

36

Results

• established structures and processes for developing,

implementing, and monitoring the enterprise architecture. For

example,

• Program Architecture Integration Team - provides forum for

identifying and resolving enterprise architecture issues raised

by ongoing projects.

• Program Integration Board - reviews projects at ELC

milestones to ensure conformance with draft architecture work

products and key concepts.

• required the PRIME to review the quality of each product to

establish an enterprise architecture quality assurance function,

and tasked the Federally Funded Research and Development

Center (FFRDC) contractor (MITRE) with assessing release 1.0

completeness and adequacy.
Appendix I

Briefing Slides From September 22, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 50 GAO-01-91 IRS Interim ITIA Spending

37

Results

Condition 4

• IRS has revised and validated its March 2000 spending plan

cost and schedule estimates. According to IRS,

• It tasked the contractor to develop for each initiative a detailed work

breakdown structure/schedule of the tasks, deliverables, staff, and

time needed to complete initiatives in accordance with the ELC.

• With the staffing and time requirements, the contractor applied its

cost rates to determine how much the effort would cost and then

submitted the cost and schedule estimates to IRS in a task order

proposal.

• IRS validated these costs during the task order “definitization”

process by, among other things, comparing them to historical and

current contractor rates charged to IRS and other federal agencies

(e.g., GSA) to assess their reasonableness.

• For two projects--CADE and Customer Communications--

we verified that IRS did follow this process.
Appendix I

Briefing Slides From September 22, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 51 GAO-01-91 IRS Interim ITIA Spending

38

Results

Other Observations

• IRS reports that it “stood up” the BSMO in July 2000. This means that

IRS has, among other things, established the office, assigned staff, and

defined roles/responsibilities, policies, and processes.

• However, it does not mean that the program office is fully functional. IRS

recognizes this and as a result, is reporting BSMO’s readiness as a

major program risk. To address this risk, IRS

• is developing charters for the eight units (i.e., Architecture

Management, Program Oversight, etc.) within BSMO, which IRS

plans to have done by the end of October 2000.

• plans to complete training on BSMO roles, responsibilities, policies,

and procedures and the ELC by November 2000 - January 2001

timeframe.

• is working to fill 21 vacant positions or 18% of total BSMO staffing

level, including (1) managers for program integration, program

control, and program planning and (2) all staff (four) for configuration

management.
Appendix I

Briefing Slides From September 22, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 52 GAO-01-91 IRS Interim ITIA Spending

39

Conclusions

• IRS has not fully satisfied all of the conditions that its Appropriations

Subcommittees established for further release of ITIA funds. However, IRS has moved aggressively and has made important progress in

addressing its modernization management weaknesses, and it has

similarly made progress on project initiatives.

• Until IRS’ management weaknesses are fully addressed, key

modernization management controls will be missing, which increases

the risks of projects not performing as intended, and costing more and

taking longer than they should. As we have consistently stated for the

last 3 years, these risks are not as severe early in projects’ life cycles

when they are being planned (project definition and preliminary system

design), but they escalate as projects begin to build (detailed design and

development). In the case of IRS and its ELC, this point of risk

escalation is ELC milestone III. Consequently, we will remain

concerned about projects that proceed beyond milestone III before these

weaknesses are fully addressed.
Appendix I

Briefing Slides From September 22, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 53 GAO-01-91 IRS Interim ITIA Spending

40

Conclusions

• Given that IRS’ plans call for several projects to pass ELC milestone III

during the next 6 months, it is important for IRS to continue to make

implementation of these program management controls a top priority. In

particular, it needs to fully address our open recommendations by (1)

completing its enterprise architecture, (2) fully developing and

implementing its ELC, including portfolio investment management

practices, and (3) making its BSMO fully operational by, among other

things, completing unit charters, training BSMO staff, and filling

management and staff vacancies

• One project, CAP, has prematurely passed Milestone III without a

justifiable basis for investing money in developing/building the system.

Specifically, it is unclear whether CAP is properly aligned with the

enterprise architecture and IRS’ yet-to-be established standard general

ledger. In addition, IRS has not demonstrated that CAP is effectively

integrated with other modernization projects; that its requirements can

be traced to expected benefits; and that expected benefits versus costs

provide a compelling business case for treating it as an investment

priority.
Appendix I

Briefing Slides From September 22, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 54 GAO-01-91 IRS Interim ITIA Spending

41

Conclusions

• On another project, STIR, IRS does not have adequate assurance that it

is properly designing this system because it has not assessed its

security threats and vulnerabilities, analyzed the resulting risks in terms

of probability and impact, and used this risk analysis to develop and

justify cost effective countermeasures.
Appendix I

Briefing Slides From September 22, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 55 GAO-01-91 IRS Interim ITIA Spending

42

Recommendations to the

Commissioner of Internal Revenue

• Because we have open recommendations regarding IRS’ need to

implement program level modernization management controls, we are

not making additional recommendations at this time but rather are reemphasizing to the Commissioner of Internal Revenue that these

recommendations remain operative and applicable until IRS (1)

addresses the modernization management and technical weaknesses

discussed in this briefing such as completing and implementing its

enterprise architecture and (2) does so before it begins building new

software-intensive systems.

• The Commissioner should also limit further investment in CAP until IRS

(1) demonstrates that sufficient business value will be derived to treat

CAP as a near-term investment priority and (2) reports to the Senate

and House Appropriations Committees on how the risks associated with

post milestone III CAP development and the lack of program level

controls, are being effectively mitigated.
Appendix I

Briefing Slides From September 22, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 56 GAO-01-91 IRS Interim ITIA Spending

43

Recommendations to the

Commissioner of Internal Revenue

• In addition, the Commissioner should (1) direct the STIR project to

complete as soon as possible a security risk assessment and validate

STIR requirements against the risk assessment results and (2) then

ensure that STIR requirements and the proposed design solution are

economically justified through business case analysis.
Appendix I

Briefing Slides From September 22, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 57 GAO-01-91 IRS Interim ITIA Spending

44

Appendix I

Proposed Modernization Initiatives

ELC

Milestone

Date to Achieve

Milestone Request

Program Level Activities 4,567

Management Capabilities (1,941)

Program Management Office FY00 09/30/00 (324)

ELC Enhancements, Maintenance, and Full Deployment FY00 09/30/00 (1,617)

Federally Funded Research and Development Contractor (MITRE) FY00 09/30/00 0

Management Reserve 0

Architecture Engineering (2,559)

Enterprise Architecture and Blueprint 2000 FY00 09/30/00 (310)

Configuration Management Policies and Procedures FY00 09/30/00 (844)

Business Integration FY00 09/30/00 (1,405)

Blueprint and Architecture 9,067

Vision and Strategy, Tax Admininistration MS1 9,023

Vision and Strategy, Internal Management MS2 10/13/00 44

Project Level Activities 22,045

FY 2001 Release (30)

Customer Communications MS3 05/22/00 (1,097)

Customer Relationship Management Exam (1120 Replacement) MS3 11/07/00 1,067

FY 2002 Release 3,460

Customer Communications MS3 11/30/00 0

e-Services MS2 08/08/00 (2,020)

MS3 02/28/01 5,480

Summary of IRS’ Interim Release Request for ITIA Funds

Amounts in table are listed in thousands ($000).
Appendix I

Briefing Slides From September 22, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 58 GAO-01-91 IRS Interim ITIA Spending

45

Appendix I

Summary, continued

Tax Account Replacement 1,400

Customer Account Data Engine (CADE) MS3 03/31/01 1,400

Integrated Financial System (IFS) 4,253

IFS Revenue Accounting

Collections Subledger 0

Tax Account Subledger MS3 08/08/00 2,547

MS4 09/30/00 1,706

Devel. Enabling Infrastructure 12,962

Security And Technology Infrastructure Release (STIR) MS3 11/30/00 2,656

Enterprise Systems Management (ESM) MS3 01/31/01 1,983

Telecommunications Enterprise Strategic Program (TESP) MS2 01/31/01 3,051

Solutions Demonstration Lab (SDL) n/a 09/30/00 (1,393)

Virtual Development Environment (VDE) n/a 09/30/00 6,203

Enterprise Integration and Test Environment (EITE) n/a 09/30/00 462

Longer-Term Projects 6,146

Fiscal Year 2001 Release 6,146

Customer Communications MS4,5 05/31/01 6,146

Customer Relationship Management Exam (1120 Replacement) 0

TOTAL 32,758

Amounts in table are listed in thousands ($000).
Page 59 GAO-01-91 IRS Interim ITIA Spending

Appendix II

Objectives, Scope, and Methodology ApendxiI

Pursuant to the mandate in Treasury’s fiscal year 1998 and 1999 

appropriations acts and requests by the Senate and House appropriations 

subcommittees, our objectives were to (1) determine to what extent IRS 

has satisfied the subcommittees’ conditions regarding the ITIA funds and 

(2) provide any other observations about IRS’ management of the program. 

The conditions specified by the subcommittees were: 

• adhere to the March 7, 2000, spending plan as approved and funded or 

seek approval to do otherwise; 

• meet the commitments made in the March 7, 2000, spending plan; 

• address modernization management weaknesses and establish the 

capability to build systems by 

• hiring a person to lead the business systems modernization office 

(BSMO), 

• developing mature software acquisition capabilities, 

• clearly defining and applying IRS and contractor roles and 

responsibilities, 

• creating performance-based task orders, and 

• fully implementing IRS’ system life cycle management 

methodology—the Enterprise Life Cycle—and completing and using 

its enterprise architecture—Blueprint 2000—to define, direct, and 

control future modernization activities; and 

• establishing more reliable cost and schedule estimates for the initiatives 

in the March 7, 2000, plan.

To accomplish our objectives we took several steps. To understand the 

scope and content of each, we reviewed IRS’ August 2000 interim ITIA 

funding request and other IRS documentation associated with the 

initiatives identified in the request. Then, to identify variances, we analyzed 

the interim request in relation to the conditions specified in the Senate and 

House responses to the March 7, 2000, spending plan. We compared 

progress on selected program and project initiatives-as reported in the 

request and other modernization documentation and supplemented by 

interviews of IRS and contractor officials-against deliverables promised 

and commitments made in the March 7, 2000, spending plan. The program 

initiatives we compared were Blueprint 2000 and the ELC and the project 

initiatives were CAP, CADE, and STIR. We selected (1) the Blueprint 2000 

and ELC program initiatives because both are intended to address open 

GAO recommendations and (2) the CAP, CADE, and STIR project initiatives 

because our reviews of these projects were already under way for the 

subcommittees. In addition, we analyzed relevant documentation 

concerning the operational status of the Business System Modernization 
Appendix II

Objectives, Scope, and Methodology

Page 60 GAO-01-91 IRS Interim ITIA Spending

Office (BSMO), such as plans, status reports, policies and procedures, and 

descriptions of IRS and contractor roles and responsibilities. We also 

analyzed progress in definitizing task orders and making them performance 

based. To do this, we selected three task orders and compared them to 

performance-based contracting criteria. The task orders selected were for 

CADE, STIR, and the PRIME’s program management office. We selected 

(1) the CADE and STIR task orders because the subcommittees had asked 

us to review these two projects and (2) the program management office 

task order to include one program-level task order in our scope.

We analyzed the process that IRS and the contractor undertook to revise 

and validate cost and schedule estimates in the March 2000 spending plan 

and verified for two projects-CADE and Customer Communicationswhether IRS adhered to its process. We selected these projects because 

they had the highest funding requirements. We collaborated with the 

Treasury Inspector General for Tax Administration (TIGTA) to avoid 

duplication of effort in reviewing program and project initiatives and 

incorporated the TIGTA results in this briefing where appropriate. 

Initiatives addressed by TIGTA included the Customer Communications 

and e-Services projects, ELC, BSMO, and Blueprint 2000.

In order to meet the 30-day reporting requirement, we did not 

independently validate planned initiatives’ cost estimates or confirm 

through review of system and project management documentation the IRS 

information provided on the initiatives’ content and progress. We 

performed our work from August through mid-September 2000 in 

accordance with generally accepted government auditing standards.
Page 61 GAO-01-91 IRS Interim ITIA Spending

Appendix III

Comments From the Internal Revenue ServiceApendxiI
Appendix III

Comments From the Internal Revenue 

Service

Page 62 GAO-01-91 IRS Interim ITIA Spending
Appendix III

Comments From the Internal Revenue 

Service

Page 63 GAO-01-91 IRS Interim ITIA Spending
Appendix III

Comments From the Internal Revenue 

Service

Page 64 GAO-01-91 IRS Interim ITIA Spending
Page 65 GAO-01-91 IRS Interim ITIA Spending

Appendix IV

GAO Contacts and Staff Acknowledgments ApendxiIV

GAO Contacts Gary Mountjoy, (202) 512-6367

Steve Sebastian, (202) 512-9521

Acknowledgments In addition to those named above, other key contributors were Bernard 

Anderson, Lorne Dold, Nancy DeFrancesco, Timothy Hopkins, Larry Korb, 

Karlin Richardson, Jay Pelkofer, Sherrie Russ, Tuyet Quan Thai, Aaron 

Thorne, and Teresa Tucker.

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