GAO

United States General Accounting Office

Report to Congressional Committees

January 2001 TAX SYSTEMS 

MODERNIZATION

Results of Review of 

IRS’ Third 

Expenditure Plan

GAO-01-227

Page 1 GAO-01-227 IRS’ Third Expenditure Plan

Contents

Letter 3

Appendixes Appendix I: Briefing Slides From November 9, 2000, Briefing 

of Senate and House Appropriations Subcommittee

Staff 8

Appendix II: Comments From the Internal Revenue Service 54

Appendix III: GAO Contacts and Staff Acknowledgments 56
Page 2 GAO-01-227 IRS’ Third Expenditure Plan
Page 3 GAO-01-227 IRS’ Third Expenditure Plan

United States General Accounting Office

Washington, D.C. 20548

Letr

January 22, 2001

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

Pursuant to the Department of Treasury’s fiscal year 1998 and 1999 

appropriations acts,1

 the Internal Revenue Service (IRS) submitted to the 

Congress in October 2000 its third expenditure plan, requesting $200 

million from its systems modernization appropriations account, referred to 

as the Information Technology Investments Account (ITIA). As required by 

the acts, we reviewed the plan. Our objectives were to (1) determine 

whether the third plan satisfied the conditions specified in the acts;2

(2) determine IRS progress in response to the subcommittees’ 

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).

2

Per the acts, ITIA funds are unavailable until IRS submits to the Congress for approval a 

modernization expenditure plan that (1) implements IRS’ Modernization Blueprint (IRS’ 

enterprise architecture); (2) meets the Office of Management and Budget’s (OMB) system 

investment guidelines; (3) meets IRS life-cycle management requirements; (4) is reviewed 

and approved by IRS, Treasury, and OMB, and is reviewed by GAO; and (5) meets federal 

acquisition requirements and management practices.
Page 4 GAO-01-227 IRS’ Third Expenditure Plan

September 28, 2000, direction on the Custodial Accounting Project3 (CAP) 

and the Security and Technology Infrastructure Release (STIR) project;4

and (3) provide any other observations about the third plan and the 

systems modernization program.

On November 9, 2000, we briefed your offices on the results of our review. 

This report transmits our November 9, 2000, briefing and reiterates our 

recommendations to the Commissioner of Internal Revenue that were 

specified in the briefing. The full briefing, including our scope and 

methodology, is reprinted in appendix I. In summary, we made four major 

points:

• First, IRS’ third expenditure plan satisfied the conditions specified in the 

appropriation acts, and IRS was making progress towards satisfying the 

subcommittees’ direction on the CAP and STIR projects.

• Second, IRS was still making important progress in establishing 

effective modernization management capability, but important and 

challenging work remained. For example, IRS had defined its system 

life-cycle methodology, which IRS refers to as its Enterprise Life Cycle, 

and planned to have it implemented by early 2001. IRS had also created 

a modernization management program office and planned to have it 

fully functional by early 2001. In addition, IRS had developed a draft 

enterprise architecture but still needed to resolve significant issues 

concerning its completeness and accuracy. Until these and other 

modernization management weaknesses were fully addressed, we 

concluded, key modernization controls would be missing, putting IRS at 

risk of building systems that might not perform as intended, might cost 

more, and might take longer to complete.

• Third, five modernization initiatives experienced schedule delays and/or 

cost increases, each of which IRS disclosed in the third plan. However, 

the third plan did not address whether projects’ prior commitments for 

delivery of promised systems capabilities (requirements) and 

benefit/business value were being met. 

3

CAP is one of a collection of systems that make up 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.

4

 STIR is the common integrated infrastructure to support and enable modernized business 

systems applications. As designed, it consists of a combination of custom and commercialoff-the-shelf software, hardware, and security solutions, integrated to form the technical 

foundation upon which modernized business systems applications will operate.
Page 5 GAO-01-227 IRS’ Third Expenditure Plan

• Last, IRS used contractor-provided “rough order-of-magnitude” 

estimates in preparing its third expenditure plan. However, consistent 

with its established practice, IRS planned to validate the third plan’s 

estimates as part of its negotiating and definitizing contract task orders. 

For IRS’ second expenditure plan, this process resulted in finalized 

contract costs that were $9 million under the “rough order-ofmagnitude” estimates in the plan. 

Recommendations for 

Executive Action

To ensure that IRS fully responds to congressional direction and addresses 

modernization management weaknesses, we recommend that the 

Commissioner of Internal Revenue

• follow through on plans to satisfy IRS appropriations subcommittees’ 

direction on CAP and STIR;

• expedite the completion of IRS’ enterprise architecture releases and 

implementation of other missing modernization management controls;

• not approve and fund detailed design and development activities for any 

system before the requisite enterprise architecture definition is 

completed;

• report immediately to IRS’ appropriations subcommittees on any 

changes to commitments made in IRS’ second plan concerning system 

requirements/capabilities to be delivered and the associated benefits to 

be realized, and continue to report such performance measures in future 

expenditure plans; and 

• report to IRS’ appropriations subcommittees on any variance from cost 

estimates in its third plan of 10 percent or more that result from 

definitization of contract task orders. 

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

Revenue agreed with our findings and recommendations. The 

Commissioner’s comments are reprinted in appendix II.

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

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

Senator Ted Stevens, and Senator Fred Thompson, and to Representative 

Dan Burton, Representative William J. Coyne, Representative Amo 

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

Rangel, Representative Jim Turner, Representative Henry A. Waxman, and 
Page 6 GAO-01-227 IRS’ Third Expenditure Plan

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 Commissioner of Internal Revenue; the 

Secretary of the Treasury; the Chairman of the IRS Oversight Board; and 

the 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) 512-3439. I can also be reached by e-mail 

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

Randolph C. Hite

Director, Information Technology 

Systems Issues
Page 7 GAO-01-227 IRS’ Third Expenditure Plan
Page 8 GAO-01-227 IRS’ Third Expenditure Plan

Appendix I

Briefing Slides From November 9, 2000, Apendxies

Briefing of Senate and House Appropriations 

Subcommittee Staff ApendxiI

1

Results of Review of IRS’ Third ITIA

Expenditure 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

November 9, 2000

Information Technology
Appendix I

Briefing Slides From November 9, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 9 GAO-01-227 IRS’ Third Expenditure Plan

2

• Introduction

• Objectives

• Scope and Methodology

• Results in Brief

• Background

• Results

• Conclusions

• Recommendations

Briefing Overview
Appendix I

Briefing Slides From November 9, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 10 GAO-01-227 IRS’ Third Expenditure Plan

3

• Per IRS’ FY 1998 and 1999 appropriations acts, Information

Technology Investment Account (ITIA) funds are unavailable until

IRS submits to the Congress for approval, a modernization

expenditure plan that:

• Implements IRS’ Modernization Blueprint (IRS’ enterprise

architecture);

• Meets OMB IT investment guidelines;

• Meets IRS life cycle management requirements;1

• Is reviewed and approved by IRS, Treasury, and OMB, and

is reviewed by GAO; and

• Meets federal acquisition requirements and management

practices.

1 IRS refers to its life cycle management program as the Enterprise Life Cycle (ELC), which is

graphically depicted in appendix I.

Introduction
Appendix I

Briefing Slides From November 9, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 11 GAO-01-227 IRS’ Third Expenditure Plan

4

Introduction

• To date, about $506 million has been appropriated for ITIA, and

$249 million has been released.

• IRS plans to submit a series of expenditure plans over the life of

the modernization requesting release of ITIA appropriated funds.

On October 10, 2000, IRS submitted its third expenditure plan.

IRS plans to submit another plan in March 2001.
Appendix I

Briefing Slides From November 9, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 12 GAO-01-227 IRS’ Third Expenditure Plan

5

Introduction

ITIA Funds Requested $35 $33 $176 $33 $200 ?

For Release (millions)

ITIA Funds Released $35 $33 $148 $33 ? ?

Per Plan (millions)

Cumulative Release of $35 $68 $216 $249 ? ?

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

10/00

2nd

Spending

Plan

3/00
Appendix I

Briefing Slides From November 9, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 13 GAO-01-227 IRS’ Third Expenditure Plan

6

• As agreed, our objectives were to

• determine whether the third plan satisfies the legislative

conditions;

• determine IRS progress in response to the subcommittees’

September 28, 2000, direction on the Custodial Accounting

Project (CAP) and the Security and Technology Infrastructure

Release (STIR) project; and

• provide any other observations about the third plan and the

systems modernization program.

• We agreed to provide our results to the subcommittee by

November 9, 2000.

Objectives
Appendix I

Briefing Slides From November 9, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 14 GAO-01-227 IRS’ Third Expenditure Plan

7

• To accomplish our objectives, we

• Reviewed the third expenditure plan and met with IRS

program officials to understand the scope and content of the

plan;

• Analyzed the plan against the legislative conditions to identify

variances;

• Assessed IRS’ progress and plans for responding to

congressional direction on CAP and STIR;

• Reviewed program and project management reports and

briefings;

• Observed modernization executive steering committee and

subcommittee meetings; and

• Interviewed program and project management officials.

Scope and Methodology
Appendix I

Briefing Slides From November 9, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 15 GAO-01-227 IRS’ Third Expenditure Plan

8

Scope and Methodology

• Analyzed available evidence on recent efforts to address

modernization management weaknesses. Specifically, we

analyzed progress and plans for

• Business Systems Modernization Office (BSMO)

implementation,

• enterprise architecture definition,

• ELC definition and implementation,

• investment management definition and implementation,

and

• software acquisition maturity, as defined by the Software

Engineering Institute’s (SEI) acquisition model. This model

was developed by the SEI at Carnegie Mellon University to

evaluate an organization’s software acquisition capability.
Appendix I

Briefing Slides From November 9, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 16 GAO-01-227 IRS’ Third Expenditure Plan

9

• 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 enterprise

architecture.

• To meet our agreed upon report date, we did not

independently validate planned initiatives’ cost estimates or

confirm, through system and project management

documentation, the validity of IRS-provided information on

the initiatives’ content and progress.

Scope and Methodology
Appendix I

Briefing Slides From November 9, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 17 GAO-01-227 IRS’ Third Expenditure Plan

10

Scope and Methodology

• We provided a draft of this briefing on November 8, 2000, to IRS’

Chief Information Officer (CIO), BSMO Director, and other

executives and have incorporated their comments where

appropriate.

• We performed our work from October through November 2000 in

accordance with generally accepted government auditing

standards.
Appendix I

Briefing Slides From November 9, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 18 GAO-01-227 IRS’ Third Expenditure Plan

11

Objective 1: IRS’ third plan satisfies the legislative

conditions.

Results in Brief

Objective 2:IRS is making progress in responding to

 congressional direction on CAP and STIR.

	

	
 	 		

	

	
		
 



	

 


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2 These acquisition requirements and practices are intended to establish acquisition management rigor and discipline, such as those defined in the

Software Engineering Institute’s acquisition model. Our analysis of the plan focused on satisfaction of this model’s tenets.
Appendix I

Briefing Slides From November 9, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 19 GAO-01-227 IRS’ Third Expenditure Plan

12

• Objective 3: Other Observations

• Observation 1

• IRS continues to make important progress in establishing

effective modernization management capability, but important

and challenging work remains.

Results in Brief

	
	
	 
	

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Appendix I

Briefing Slides From November 9, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 20 GAO-01-227 IRS’ Third Expenditure Plan

13

Results in Brief

• One important and challenging task for IRS is completing and

implementing its enterprise architecture (EA).

• IRS is developing its EA in 3 releases (1.0, 1.1, and 2.0).

Each release is intended to provide incrementally more

architectural definition. For example, 1.0 is to provide

infrastructure level definition, and 1.1 is to provide application

level definition, including a sequencing plan for strategic

acquisition of modern business process applications.

• Thus far, IRS has developed a draft of EA 1.0. However, it

still needs to resolve significant issues concerning EA 1.0’s

completeness and accuracy. For example, the draft does not

include all planned EA products and does not fully address

how security and privacy needs will be met.
Appendix I

Briefing Slides From November 9, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 21 GAO-01-227 IRS’ Third Expenditure Plan

14

Results in Brief

• IRS then needs to have EA 1.0 independently verified and

validated. IRS planned to have EA 1.0 completed by

September 2000, then slipped the date to November 2000,

and currently plans to approve and issue it in December 2000.

This slippage will also delay completing EA versions 1.1 and

2.0, but revised issuance dates have not yet been established

for either.

• These delays in issuing IRS’ EA are significant because IRS’

third plan calls for beginning detailed design and development

(ELC Milestone III) on certain projects before requisite EA

definition is completed. For example, the E-Services projects

are scheduled to pass ELC milestone III in November 2000

and February 2001, respectively. However, EA 1.1, which is

to provide the necessary business process application

architectural definition, was not scheduled for completion until

March 2001, and this date will slip.
Appendix I

Briefing Slides From November 9, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 22 GAO-01-227 IRS’ Third Expenditure Plan

15

Results in Brief

• Observation 2

• Five initiatives have experienced schedule delays and/or cost

increases, each of which IRS reported in the plan. For

example,

• Tax Vision and Strategy (TAVS) project has slipped 3 months

and estimated cost has increased $6.2 million (27 percent).

• E-Services estimated cost increased $1.4 million (26 percent).

• The plan did not, however, address whether these five and

other projects’ prior commitments for systems capabilities

(requirements) and benefit delivery have also been delayed or

reduced. This is not consistent with our recommendation for

IRS to report progress against all prior commitments in each

plan.3

3Tax Systems Modernization: Results of Review of IRS’ Initial Expenditure Plan (GAO/AIMD-99-

206, June 15, 1999).
Appendix I

Briefing Slides From November 9, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 23 GAO-01-227 IRS’ Third Expenditure Plan

16

Results in Brief

• Observation 3

• Costs in the third plan are contractor-provided “rough

order-of-magnitude” estimates.

• Consistent with IRS’ recent actions to address prior

subcommittee direction on this issue, IRS plans to validate

the third plan’s estimates as part of its contract/task order

definitization process. Under this process, IRS assesses

contractor task order proposals, develops independent cost

estimates for each, and negotiates a task order cost.

• For IRS’ second expenditure plan, this process resulted in

cumulative contract costs that were $9 million under

estimates in the second plan (5 percent), although

individual project variances exceeded 10 percent.

• We are making recommendations to address our observations.

In commenting on a draft of this briefing, IRS’ CIO agreed with

our recommendations and plans to implement them.
Appendix I

Briefing Slides From November 9, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 24 GAO-01-227 IRS’ Third Expenditure Plan

17

• The third plan seeks approval to obligate about $200 million for

both program-level and project-specific activities.4

Background

4 See appendix II for a detailed summary of planned activities.

Third ITIA Expenditure Plan ($000)

Program Level Activities

PRIME Program Management Office $21,856

Federally Funded Research and Development Center (MITRE) $18,750

ELC, Quality Assurance, and Configuration Management $7,394

Architecture Engineering Office $17,570

Vision and Strategy - Tax Administration $6,200

Management Reserve $15,000

Subtotal $86,770

Project Level and Infrastructure Activities

Customer Services Capabilities $11,663

Custodial Accounting Project $44,130

Core Financial System $3,449

Security and Technology Infrastructure Release $25,185

Other Enabling Infrastructure $28,849

Subtotal $113,276

Total Requested Release $200,046
Appendix I

Briefing Slides From November 9, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 25 GAO-01-227 IRS’ Third Expenditure Plan

18

• The third plan continues ongoing initiatives and establishes 3 new

efforts:

• BSMO Quality Assurance contractor support;

• Core Financial System; and

• a management reserve.

• Like its previous plans, IRS’ third expenditure plan covers

contractor costs such as the Prime Systems Integration Support

(PRIME) contractor and the Federally Funded Research and

Development Center (MITRE), and not IRS internal costs, such

as IRS BSMO staff costs.

Background
Appendix I

Briefing Slides From November 9, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 26 GAO-01-227 IRS’ Third Expenditure Plan

19

Background

• To date, GAO has reviewed and reported on 2 expenditure plans

and 2 “stopgap” spending measures supporting requests for ITIA

funding releases.

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 funds 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.

1st 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 enteprise

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.
Appendix I

Briefing Slides From November 9, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 27 GAO-01-227 IRS’ Third Expenditure Plan

20

Background

Spending Plan Results of GAO Review

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.

2nd Interim Spending Plan

(Aug 2000)

($33 million request)

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

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

in its March 7, 2000 spending plan.

• Most modernization initiatives had nevertheless made important progress

since March 2000. IRS fully addressed two of its modernization management

capability weaknesses, and it was making progress in addressing others.

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

product development without sufficient definition and without a compelling

business case. Further investment in CAP should be limited until IRS

demonstrates sufficient business value and reports to the House and Senate

committees on risk mitigation.

• Another project, Security and Technology Infrastructure Release (STIR), was

being preliminarily designed without sufficient requirements definition and

economic justification. The STIR project should be directed to complete a

security risk assessment as soon as possible, and ensure that STIR

requirements and the proposed design solution are economically justified

through a business case.
Appendix I

Briefing Slides From November 9, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 28 GAO-01-227 IRS’ Third Expenditure Plan

21

Objective 1: Determine whether the third plan satisfies

the conditions in IRS’ FY 1998 and 1999

appropriations acts.

Results

	

	
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Appendix I

Briefing Slides From November 9, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 29 GAO-01-227 IRS’ Third Expenditure Plan

22



Results

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

Contract Tracking and Oversight, Evaluation, and Transition to Support.

	

	
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Appendix I

Briefing Slides From November 9, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 30 GAO-01-227 IRS’ Third Expenditure Plan

23

.

Results

Objective 2: Determine IRS progress responding to

congressional direction on CAP and STIR

CAP

GAO Findings Congressional Direction IRS Response

In our September 2000

briefing and subsequent

report, we stated that

IRS had prematurely

passed milestone III

without a compelling

business case to justify

the decision. In

addition, IRS had not

demonstrated that CAP

was integrated with

other modernization

projects.

The subcommittees directed

that no CAP funds be

expended until IRS’ CIO and

CFO certify and report to the

Subcommittees that a

compelling business case had

been established for treating

CAP as a near-term priority

and that the risks associated

with post-milestone III

development and the lack of

program controls were being

effectively mitigated.

In response, IRS:

- is revising the business case with the intent of

showing compelling business value benefits

that will be derived from developing CAP,

plans to have the business case certified by

the CIO and CFO once it is completed, and

intends to report to the subcommittees in

November 2000.

- incorporated CAP into the Integrated Master

Schedule;

- moved CAP under the Program Management

Process, with formal participation beginning

in November 2000;

According to IRS officials, no CAP funds from the

August 2000 funding release have or will be used for

post-milestone III work until it has fulfilled

congressional direction.
Appendix I

Briefing Slides From November 9, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 31 GAO-01-227 IRS’ Third Expenditure Plan

24

Results

GAO Findings Congressional Direction IRS Response

In our September 2000

briefing and subsequent

report, we stated that

IRS did not have

adequate assurance that

it was properly

designing STIR because

it had not assessed the

project’s security threats

and vulnerabilities,

analyzed the resulting

risks in terms of

probability and impact,

and used this security

risk assessment (SRA)

to develop and justify

cost effective

countermeasures.

The subcommittees directed

IRS to complete an SRA,

validate STIR project

requirements against the

results of the SRA, and have

the results certified by the

Commissioner. The

subcommittees also directed

that the STIR funds approved

for release should only be

used for the risk assessment

until the Commissioner

certifies the assessment is

complete and the results

applied to the project.

In response, IRS:

- accelerated development of and completed an

SRA and identified new risks:

- web interface vulnerabilities

- outsourcing internet service provider;

- engaged IRS’ security office and Federally

Funded Research and Development (FFRDC)

contractor (MITRE) to verify that the SRA is

complete and consistent with IRS’ ELC

guidance, draft EA 1.0, and its Technology

Model View logical design;

- is currently mapping the results of the SRA to

the STIR project requirements to ensure that

the system requirements document is

complete and the baseline business case is

cost effective;

- plans to obtain the Commissioner’s

certification of the completed SRA in

November 2000.

According to IRS officials, no STIR funds from the

August 2000 funding release have or will be used for

post-milestone III work until it has fulfilled

Congressional direction.
Appendix I

Briefing Slides From November 9, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 32 GAO-01-227 IRS’ Third Expenditure Plan

25

Results

Observation 1: Progress Occurring on Management

Weaknesses, But Important and Challenging Work Remains

• Since our September briefing and subsequent report6 on IRS’ last

plan, IRS has continued to make important progress in addressing

its remaining management weaknesses, and is on schedule for

meeting most of its commitments for correcting these weaknesses

by January 2000 (e.g., having a fully functional BSMO). However,

commitments made in this last plan for addressing lack of an

enterprise architecture have slipped.

Objective 3: Other observations about IRS’ third

plan and its systems modernization

program

6Tax Systems Modernization: Results of Review of IRS’ August 2000 Interim Spending Plan

(GAO-01-91, November 8, 2000).
Appendix I

Briefing Slides From November 9, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 33 GAO-01-227 IRS’ Third Expenditure Plan

26

Results

	
	
	 
	

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Appendix I

Briefing Slides From November 9, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 34 GAO-01-227 IRS’ Third Expenditure Plan

27

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Appendix I

Briefing Slides From November 9, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 35 GAO-01-227 IRS’ Third Expenditure Plan

28

Results

• As noted in the prior table, one important and challenging task

that remains, and for which commitments have slipped, is issuing

the EA 1.0.

• IRS is developing its EA in 3 releases (1.0, 1.1, and 2.0).

Each release is intended to provide incrementally more

architectural definition. As shown in the following table, EA

1.0 is to provide infrastructure level definition, and 1.1 is to

provide application level definition, including a sequencing

plan for strategic acquisition of modern business process

applications.
Appendix I

Briefing Slides From November 9, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 36 GAO-01-227 IRS’ Third Expenditure Plan

29

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 November 9, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 37 GAO-01-227 IRS’ Third Expenditure Plan

30

Results

• IRS has developed a draft of EA 1.0 and circulated it internally

for comment (see appendix III for description of framework

being used to develop the EA).

• IRS obtained about 950 issues (159 of which IRS reports it

has resolved). Some of the remaining issues are significant.

• Once these issues are resolved, IRS still needs to have

MITRE assess EA 1.0 completeness and correctness. We

reviewed MITRE’s planned assessment method and found it

to be reasonable.

• IRS then needs to obtain modernization steering committee

approval of EA 1.0.

• IRS’ revised date for issuing EA 1.0 is December 18, 2000.

According to IRS, EA 1.0 slippage will delay EA 1.1 and 2.0.
Appendix I

Briefing Slides From November 9, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 38 GAO-01-227 IRS’ Third Expenditure Plan

31

Results

Area of Comment Summary of Comments Proposed Resolution

Security • Lacks a comprehensive security

overview.

• Security needs are not fully reflected in

the business process descriptions.

• Develop a security overview that incorporates key concepts and identifies

security points throughout the architecture.

• Add security needs to business process definitions.

Privacy • No explicit privacy principles,

constraints and assumptions.

• Lacks a comprehensive privacy view.

• Clarify/add privacy principles, constraints and assumptions to enterprise

architecture.

• Create a key concept for privacy.

• Map security functions to privacy needs.

• Consider adding Enterprise Requirement(s) for privacy.

Business Processes • Tax Administration and Vision Strategy

(TAVS) and enterprise architecture use

different process models.

• Excludes differences among Business

Operating Division business processes.

• Incorporate TAVS operating models into enterprise architecture concept of

operations.

• Assess need to incorporate Business Operating Division-specific tailoring.

• Tailor Business Architecture work products where needed.

Data • Lack of breadth, depth, and accuracy in

conceptual data model.

• Mapping of data to business processes

incomplete.

• Security not reflected in the conceptual

data model.

• Extend conceptual data model to address scope of near-term projects.

• Complete mapping of data to business processes.

• Add security details to conceptual data model.

Business Systems • Lacks complete definition of business

systems.

• Interface definitions are incomplete.

• Mapping of systems to business

processes incomplete.

• Complete descriptions of business systems assigned to near-term projects.

• Complete descriptions of all business systems.

• Add interface descriptions for business systems assigned to near-term

projects.

• Complete mapping of systems to business processes.

Enterprise Requirements • Lacks clear traceability to architecture. • No action planned because direct traceability not intended.

EA Consistency • Products not consistent with each other,

key concepts, and Technical Reference

Model.

• Rework products to reflect Technical Reference Model structure and intent,

reflect key concepts, and agree with each other.

EA Completeness • Many work products are incomplete. • Complete key work products to the extent necessary to support near-term

projects and to resolve major issues impacting approval.

Traceability from Blueprint 97 • Elements of Blueprint 97 are not all

traced to Enterprise Architecture.

• Complete accountability tracing of Blueprint 97 elements into Enterprise

Architecture.
Appendix I

Briefing Slides From November 9, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 39 GAO-01-227 IRS’ Third Expenditure Plan

32

Results

• As shown in the following graphic, IRS’ third plan calls for

beginning detailed design and development (i.e., building)

on selected projects in advance of planned EA version

releases. It is important that IRS ensure that the relevant

and important architectural definition that is planned for

each version be completed and used on affected systems

before IRS begins building these systems. If it does not,

IRS risks building systems that are not architecturally

compliant, which could sub-optimize agencywide mission

performance.
Appendix I

Briefing Slides From November 9, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 40 GAO-01-227 IRS’ Third Expenditure Plan

33

Results

Selected Projects

Customer Account

Data Engine

Customer

Communications

e-Services

release 1

e-Services

release 2

STIR

Core Financial System

Enterprise Architecture

September-00

December-00

March-01

Planned Date For Beginning Detailed

Design and Development

June-01

September-01

1.0 1.0 1.1 ? ? 2.0
Appendix I

Briefing Slides From November 9, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 41 GAO-01-227 IRS’ Third Expenditure Plan

34

Results

Observation 2: Third Plan Discloses Project Cost and

Schedule Changes, But Does Not Report Any Changes to

Promised System Capabilities and Benefits

• Five projects have experienced cost increases and/or

schedule delays against commitments made in prior plan.

IRS reported such changes in its third plan.

Program/ Project

Management Initiative

8/2000 Commitment

Date and Funding

($000)

Revised Commitment

Date and Funding

($000)

Change (%)

TAVS Milestone 1 12/31/00

$22,695

3/31/01

$28,895

+3 months

$6,200 (27%)

CRM Exam Milestone 3 11/07/00

$2,426

12/18/01

$2,426

+1.5 months

$0

E-Services Milestone 3 2/28/01

$5,480

2/28/01

$6,918

0 months

$1,438 (26%)

Enterprise Systems

Management Milestone

3

1/31/01

$5,431

2/28/01

$6,894

+1 month

$1,463 (27%)

Customer

Communications

Milestone 3 (release

2002)

11/30/00

$3,509

2/28/01

$3,509

+3 months

$0
Appendix I

Briefing Slides From November 9, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 42 GAO-01-227 IRS’ Third Expenditure Plan

35

Results

• In our June 1999 report on IRS’ first plan,7 we

recommended that IRS, in future expenditure plans, report

progress against incremental project commitments.

• However, the third plan does not address whether

program and project initiatives’ scopes (e.g., system

requirements sets, benefit expectations) have changed.

Such disclosure is critical to understanding progress

against incremental project commitments.

7Tax Systems Modernization: Results of Review of IRS’ Initial Expenditure Plan (GAO/AIMD99-206, June 15, 1999).
Appendix I

Briefing Slides From November 9, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 43 GAO-01-227 IRS’ Third Expenditure Plan

36

Results

Observation 3: Plan Is Based on Contractor Estimates

That Have Not Been Validated by IRS

• The cost estimates in IRS’ third plan are contractorprovided, “rough order of magnitude” estimates, and are

not based on detailed work breakdown structures of tasks

and deliverables.

• Consistent with IRS’ recent practice established to address

a similar concern we raised with IRS’ second plan, IRS

plans to validate these estimates as part of its task order

definitization process with its PRIME and other contractors.

Under this process, the contractor submits task order

proposals that include costs, IRS assesses the proposals

and develops independent cost estimates, and IRS

negotiates a final task order cost.

• For IRS’ second plan, this process resulted in some project

negotiated costs being more than 10 percent above or

below plan estimates. Cumulative negotiated costs were

$9 million less than plan estimates (5 percent).
Appendix I

Briefing Slides From November 9, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 44 GAO-01-227 IRS’ Third Expenditure Plan

37

Conclusions

• IRS’ third plan satisfies the legislative conditions, and IRS is in

the process of satisfying its appropriations subcommittees’ recent

direction for the CAP and STIR projects. By doing so, IRS will be

better positioned to make informed decisions about when or how

to move forward with these two investments.

• IRS continues to make important progress in correcting

modernization management weaknesses, such as implementing

the ELC, making the BSMO fully functional, and developing an

EA. However, until these weaknesses are fully addressed, key

modernization controls will continue to be missing, putting IRS at

risk of building systems that may not perform as intended, and/or

cost more and take longer to complete.
Appendix I

Briefing Slides From November 9, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 45 GAO-01-227 IRS’ Third Expenditure Plan

38

Conclusions

• As we have consistently reported, these risks are not as severe

early in projects’ life cycles when they are being planned (project

definition and preliminary system design), but escalate as

projects are built (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.

• Given that IRS’ third plan calls for several projects to pass ELC

milestone III within the next several months, it is important for IRS

to continue to make implementation of these program

management controls a top priority. In particular, completing the

EA releases relevant to these projects, fully implementing its

ELC, and making its BSMO fully functional, are essential.
Appendix I

Briefing Slides From November 9, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 46 GAO-01-227 IRS’ Third Expenditure Plan

39

Conclusions

• While IRS is reporting on performance in meeting project cost

and schedule commitments made in prior years, it is not

disclosing whether projects’ scope and expected benefit

commitments have changed. Such information is critical to fully

disclosing IRS modernization management performance and

establishing accountability.

• The estimates in IRS’ plan are contractor provided estimates that

have yet to be subjected to government validation. IRS’

established process for introducing such validation occurs as part

of its contract task order definitization process. This process

control is reasonable, but can result in project costs that are

significantly different from what IRS’ appropriations

subcommittees are asked to approve.
Appendix I

Briefing Slides From November 9, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 47 GAO-01-227 IRS’ Third Expenditure Plan

40

Recommendations for

Executive Action

We recommend that the Commissioner of Internal Revenue:

• follow through on plans to satisfy IRS appropriations

subcommittees’ direction on CAP and STIR;

• expedite the completion of IRS’ EA releases and

implementation of other missing modernization management

controls;

• do not approve and fund post-Milestone III detailed design

and development activities for any system prior to completing

requisite EA definition;
Appendix I

Briefing Slides From November 9, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 48 GAO-01-227 IRS’ Third Expenditure Plan

41

Recommendations for

Executive Action

• report immediately to IRS’ appropriations subcommittees

on any changes to commitments made in IRS’ second plan

concerning system requirements/capabilities to be

delivered and the associated benefits to be realized, and

continue to report such performance measures in future

expenditure plans; and

• report to IRS’ appropriations subcommittees on any

variance from cost estimates in its third plan of 10 percent

or more that result from definitization of contract task

orders.
Appendix I

Briefing Slides From November 9, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 49 GAO-01-227 IRS’ Third Expenditure Plan

42

Agency Comments

• In commenting on a draft of this briefing, IRS’ CIO agreed with our

conclusions and recommendations and stated IRS plans to:

• satisfy the subcommittees' direction on CAP and STIR with reports

on these projects to the subcommittees during November 2000.

• complete the EA 1.0 and expedite the full implementation of

modernization management controls. EA 1.0 is to be completed and

approved during December 2000. All other recommended

management controls will be implemented as rapidly as possible.

• approve projects to move into detailed design (beyond milestone 3)

only with the requisite EA definition. Project designs will be

reviewed for EA compliance and approved by the Director of

Architecture and Engineering before exiting milestone 3.

• report in November 2000 on any changes to the

requirements/capabilities/benefits of projects from the baseline of

the March 7, 2000, expenditure plan, and

• report any variance of 10 percent or more due to the definitization of

task orders. These reports will be issued quarterly starting in

January 2001.
Appendix I

Briefing Slides From November 9, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 50 GAO-01-227 IRS’ Third Expenditure Plan

43

Appendix I:

Enterprise Life Cycle

Strategic

Plan

Concept

Definition

System

Design

PostDeployment

Evaluation

Enterprise

Deployment

Vision & Strategy

Architecture

Development

Integration

Deployment

Operations & Support

MS

1

MS

2

MS

3

MS

4

MS

5

ELC

Milestones
Appendix I

Briefing Slides From November 9, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 51 GAO-01-227 IRS’ Third Expenditure Plan

44

Appendix II:

IRS’ Expenditure Plan

Business Systems Modernization - ITIA Spending Plan FY 2001 ($000)

Proposed Modernization Initiatives Milestone

Milestone

Date

Amount

Requested

Program Level Activities

BSMO Quality Assurance FY Sep-01 $1,800

PRIME Program Management Office FY Sep-01 $21,856

ELC Enhancements and Maintenance FY Sep-01 $3,686

FFRDC (MITRE) FY Sep-01 $18,750

Architecture Engineering Office FY Sep-01 $17,570

Configuration Management FY Sep-01 $1,908

Vision and Strategy - Tax Administration MS1 Mar-01 $6,200

Management Reserve FY Sep-01 $15,000

$86,770

Business Systems Projects

CRM Exam (1120 Replacement) FS2001 MS4 Sep-01 $9,917

e-Services (Window A) MS4 Oct-01 $1,746

Custodial Accounting Project / Taxpayer Account Subledger MS4 Jan-03 $44,130

Core Financial System (CFS) MS2 Dec-00 $2,829

MS3 Mar-01 $620

$59,242
Appendix I

Briefing Slides From November 9, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 52 GAO-01-227 IRS’ Third Expenditure Plan

45

Appendix II:

IRS’ Expenditure Plan

Infrastructure Projects

Security and Technology Infrastructure Release (STIR) MS4 Aug-01 $25,185

Enterprise Systems Management (ESM) MS3 Feb-01 $6,894

MS4 Nov-01 $9,184

Solutions Demonstration Lab (SDL) FY Sep-01 $1,759

Virtual Development Environment (VDE) FY Sep-01 $6,310

Enterprise Integration and Test Environment (EITE) FY Sep-01 $4,702

$54,034

Total Business Systems Modernization Program $200,046
Appendix I

Briefing Slides From November 9, 2000, 

Briefing of Senate and House Appropriations 

Subcommittee Staff

Page 53 GAO-01-227 IRS’ Third Expenditure Plan

46

Appendix III:

EA Work Products

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
Page 54 GAO-01-227 IRS’ Third Expenditure Plan

Appendix II

Comments From the Internal Revenue ServiceApendxiI
Appendix II

Comments From the Internal Revenue 

Service

Page 55 GAO-01-227 IRS’ Third Expenditure Plan
Page 56 GAO-01-227 IRS’ Third Expenditure Plan

Appendix III

GAO Contacts and Staff Acknowledgments ApendxiI

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, Nancy DeFrancesco, Timothy Hopkins, Larry Korb, Sabine Paul, 

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

Thorne, and Teresa Tucker.

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