a

GAO

United States General Accounting Office

Report to Congressional Committees

June 2003 BUSINESS SYSTEMS 

MODERNIZATION

IRS Has Made 

Significant Progress in 

Improving Its 

Management Controls, 

but Risks Remain

GAO-03-768
IRS’s initial (November 2002) and revised (March 2003) fiscal year 2003 

expenditure plans were prepared in accordance with the law. IRS made 

significant progress in improving its modernization management controls 

and capabilities and implementing GAO’s recommendations. For example: 

• IRS implemented 20 of 23 commitments and is implementing the remaining 

3 commitments that address previously reported weaknesses and 

recommendations. Significant among these efforts were IRS’s 

achievements in improving its software acquisition practices. 

• IRS deployed 3 modernized systems that are currently providing benefits 

that (1) improve telecommunications infrastructure, including telephone 

call management, call routing, and customer self-service; (2) provide offthe-shelf software to IRS revenue agents to allow them to accurately 

compute complex corporate transactions; and (3) improve customer selfservice by providing instant refund status information and instructions for 

resolving refund problems via the Internet. 

• IRS also took steps to balance the scope and pace of the BSM program 

with the management capacity of IRS and its prime contractor. These steps 

included reassessing the portfolio of projects that IRS had planned to 

proceed with during the remainder of fiscal year 2002 and reducing the 

planned scope and pace of the BSM program for fiscal year 2003. 

Although significant progress has been made, certain controls and 

capabilities for modernization have not yet been fully implemented, 

including human capital management and validation of cost and schedule 

estimates. Weaknesses in these controls and capabilities contributed, in part, 

to cost, schedule, and performance shortfalls in the BSM program. For 

example, in the revised fiscal year 2003 expenditure plan, IRS disclosed that 

75 percent of program-level initiatives and acquisition project milestones had 

cost increases and/or schedule delays exceeding 10 percent of the estimated 

cost and duration specified in the fiscal year 2002 expenditure plan. 

Schedule delays affect the delivery of benefits. For example, (1) the 

opportunity for Form 1040EZ filers to enjoy faster refunds, as promised by 

the first release of the project that is to replace IRS’s master files of taxpayer 

information, has been delayed for an additional 13 months and (2) schedule 

delays for the first release of the e-Services project will defer the provision 

of easy-to-use electronic products and services targeted at tax practitioners 

who inform, educate, and provide services to the taxpaying public. 

As required by law, the Internal 

Revenue Service (IRS), in 

November 2002 and March 2003, 

submitted to the congressional 

appropriations committees its 

initial and revised fiscal year 2003 

expenditure plans, respectively, 

requesting about $378 million for 

the Business Systems 

Modernization (BSM) program. 

GAO reviewed the plans to 

(1) determine whether the plans 

were prepared in accordance with 

the law, (2) determine what 

progress IRS had made in 

implementing modernization 

management controls and 

capabilities, and (3) provide any 

other observations about the plans 

and IRS’s BSM program. 

GAO recommends that the 

Commissioner of Internal Revenue 

direct the Chief Information Officer 

(CIO) to continue improvements in 

IRS’s modernization management 

controls. GAO also recommends 

that the Commissioner direct the 

CIO to promptly update the 

enterprise transition strategy to 

conform to other changes in IRS’s 

enterprise architecture and 

establish and implement a process 

for determining the type of task 

order to be awarded in acquiring 

modernized systems. The 

Commissioner agreed with GAO’s 

findings and commented on actions 

to address the recommendations. 

www.gao.gov/cgi-bin/getrpt?GAO-03-768.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Robert F. 

Dacey at (202) 512-3317 or daceyr@gao.gov. 

Highlights of GAO-03-768, a report to 

congressional committees 

June 2003

BUSINESS SYSTEMS MODERNIZATION 

IRS Has Made Significant Progress in 

Improving Its Management Controls, but 

Risks Remain 
Page i GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

Contents

Letter 1

Recommendations for Executive Action 4

Agency Comments 5

Appendixes

Appendix I: Briefing Slides from the December 18, 2002, Briefing to the 

Senate and House Appropriations Subcommittee Staffs 7

Appendix II: Briefing Slides from the April 14, 2003, Briefing to the 

Senate and House Appropriations Subcommittee Staffs 70

Appendix III: Comments from the Internal Revenue Service 114

Appendix IV: GAO Contacts and Staff Acknowledgments 117

GAO Contact 117

Staff Acknowledgments 117

Abbreviations

BSM Business Systems Modernization

CIO Chief Information Officer 

IRS Internal Revenue Service

OMB Office of Management and Budget

PRIME PRIME Systems Integration Support contractor

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. It may be reproduced and distributed in its entirety without further 

permission from GAO. However, because this work may contain copyrighted images or 

other material, permission from the copyright holder may be necessary if you wish to 

reproduce this material separately.
Page 1 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

United States General Accounting Office

Washington, D.C. 20548

A

June 27, 2003 Lret

The Honorable Richard Shelby

Chairman

The Honorable Patty Murray

Ranking Member

Subcommittee on Transportation, Treasury

and General Government

Committee on Appropriations

United States Senate

The Honorable Ernest J. Istook, Jr.

Chairman

The Honorable John W. Olver

Ranking Minority Member

Subcommittee on Transportation, Treasury

and Independent Agencies

Committee on Appropriations

House of Representatives

As required by law, the Internal Revenue Service (IRS), in November 2002 

and March 2003, submitted to the congressional appropriations committees 

its initial and revised fiscal year 2003 expenditure plans, respectively, 

requesting about $378 million from its Business Systems Modernization 

(BSM) fund. Our objectives in reviewing the plans were to (1) determine 

whether the plans satisfied the conditions specified in the law,1

 (2) 

determine what progress IRS had made in implementing modernization 

management controls and capabilities, and (3) provide any other 

observations about the initial and revised plans and IRS’s BSM program.

1

BSM funds are unavailable until IRS submits to congressional appropriations committees 

for approval a modernization expenditure plan that (1) meets the Office of Management and 

Budget’s (OMB) capital planning and investment control review requirements; (2) complies 

with IRS’s enterprise architecture; (3) conforms with IRS’s enterprise life-cycle 

methodology; (4) is approved by IRS, the Department of the Treasury, and OMB; (5) is 

reviewed by GAO; and (6) complies with federal acquisition rules, requirements, guidelines, 

and systems acquisition management practices. See P.L. 108-7 (Feb. 20, 2003), and 

intervening continuing resolutions for fiscal year 2003 funding, and P.L. 107-67 (Nov. 12, 

2001), for fiscal year 2002 funding.
Page 2 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

On December 18, 2002, and April 14, 2003, we briefed your respective 

offices on the results of our reviews. This report transmits the materials 

used at those briefings and reiterates the recommendations that we made 

to the then–Acting Commissioner of Internal Revenue that we specified in 

our December 2002 briefing.2 The full briefing materials, including our 

scope and methodology, are reprinted in appendixes I and II.

In summary, we made the following four major points in our December 

2002 briefing on the results of our review of IRS’s initial expenditure plan 

for fiscal year 2003:

• IRS’s initial expenditure plan satisfied each of the six legislative 

conditions.

• IRS had made significant progress in improving its modernization 

management controls and capabilities and implementing our 

recommendations. For example, IRS had implemented 20 of 23 

commitments and is in the process of implementing the remaining 3 

commitments that address previously reported weaknesses and 

recommendations. Significant among these efforts was IRS’s 

achievements in improving its software acquisition practices.

• IRS also had taken steps to balance the scope and pace of the BSM 

program with the management capacity of IRS and the PRIME Systems 

Integration Support contractor (PRIME). In accordance with our 

recommendation, IRS completed a reassessment of the fiscal year 2002 

BSM program in May 2002 and took actions to better balance the system 

acquisition workload with the management capacity. Specifically, IRS 

(1) deferred the start of five new projects until fiscal years 2003 and 

2004 to reduce IRS/PRIME resource demands, (2) reapplied a portion of 

these deferred financial resources toward PRIME management 

processes and support of the federally funded research and 

development center to accelerate correcting modernization 

management control weaknesses, and (3) increased its own efforts and 

executive focus on management process improvement.

2

Since the time of our briefings, a new Commissioner of Internal Revenue has been 

confirmed.
Page 3 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

• Although significant progress had been made, certain modernization 

management controls and capabilities—related to configuration 

management,3

 enterprise transition strategy,4 human capital 

management, and cost and schedule estimate validation—had not yet 

been fully implemented. Weaknesses in these controls and capabilities 

increase the risk of cost, schedule, and performance shortfalls in the 

BSM program.

We also made the following five observations related to the BSM program 

and the initial fiscal year 2003 expenditure plan:

• The number of project milestones experiencing cost and schedule 

changes was increasing.

• BSM was entering a critical, high-risk phase as the scope and complexity 

of the program continued to grow.

• Opportunities for using performance-based contracts in acquiring 

modernized systems were increasing.

• IRS had improved the format of its expenditure plan.

• Internal IRS costs of the BSM program, paid from other IRS 

appropriations, were expected to increase, but were not tracked or 

known.

In our April 2003 briefing on the results of our review of IRS’s revised fiscal 

year 2003 expenditure plan, we reported that IRS had deployed three 

modernized systems that provide benefits that (1) improve 

telecommunications infrastructure, including telephone call management, 

call routing, and customer self-service; (2) provide off-the-shelf software to 

IRS revenue agents to allow them to accurately compute complex 

corporate transactions; and (3) improve customer self-service by providing 

3

Configuration management is the means for ensuring the integrity and consistency of 

system modernization program and project products throughout their life cycles. Through 

effective configuration management, for example, integration among related projects and 

alignment between projects and the enterprise architecture can be achieved.

4

An enterprise transition strategy describes how an organization will migrate from its 

current operating environment to its future operating environment.
Page 4 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

instant refund status information and instructions for resolving refund 

problems via the Internet.

In addition, we made the following four major points in the April 2003 

briefing:

• IRS’s revised plan satisfied the conditions specified under the law.

• IRS continued to take steps to balance the pace of the program with 

management capacity by reducing the planned scope of the BSM 

program for fiscal year 2003. Between November 2002 and March 2003, 

IRS deferred four new project releases, discontinued two ongoing 

project releases, absorbed one new release into an ongoing project 

release, and transferred one ongoing project to another appropriation. 

Moreover, IRS reduced the scope of BSM program-level initiatives and 

core infrastructure projects. As a result, IRS reduced the initial BSM 

funding request for fiscal year 2003 by about $72 million. 

• Most initiatives/project milestones continued to experience cost 

increases and/or schedule delays. In the revised fiscal year 2003 

expenditure plan, IRS disclosed that 75 percent of program-level 

initiatives and acquisition project milestones had cost increases and/or 

schedule delays exceeding 10 percent of the estimated cost and duration 

specified in the fiscal year 2002 expenditure plan.

• Schedule delays affected the delivery of benefits. For example, (1) the 

opportunity for the first set of taxpayers (single, Form 1040EZ filers) to 

enjoy faster refunds, as promised by the first release of the project that 

is to replace IRS’s master files of taxpayer information, has been delayed 

an additional 13 months; (2) schedule slippages for the first release of 

the e-Services project will delay the provision of easy-to-use electronic 

products and services targeted at tax practitioners that inform, educate, 

and provide services to the taxpaying public; and (3) remediation of 

material weaknesses may be delayed.

Recommendations for 

Executive Action

To improve IRS’s modernization management controls and capabilities, we 

recommend that the Commissioner of Internal Revenue direct the Chief 

Information Officer (CIO) to complete actions to

• institutionalize configuration management procedures for the Business 

Systems Modernization Office;
Page 5 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

• implement plans for obtaining, developing, and retaining requisite 

human capital resources; and

• implement effective procedures for validating contractor-developed 

cost and schedule estimates.

In addition, we recommend that the Commissioner of Internal Revenue 

direct the CIO to

• promptly update the enterprise transition strategy to conform to other 

changes in IRS’s enterprise architecture and

• establish and implement a process for determining the type of task 

order to be awarded in acquiring modernized systems.

Agency Comments In providing written comments on a draft of this report, the Commissioner 

of Internal Revenue agreed with this report’s findings and commented on 

the actions IRS is taking to implement our recommendations. The 

Commissioner’s comments are reprinted in appendix III.

We are sending copies of this report to the Chairmen and Ranking Minority 

Members of other Senate and House committees and subcommittees that 

have appropriations, authorization, and oversight responsibilities for the 

Internal Revenue Service. 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 are also available at no charge on the GAO Web site at 

http://www.gao.gov.
Page 6 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

Should you or your offices have questions on matters discussed in this 

report, please contact me at (202) 512-3317. I can also be reached by E-mail 

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

Robert F. Dacey

Director, Information Security Issues
Page 7 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

Appendix I

Briefing Slides from the December 18, 2002, Apendxeis

Briefing to the Senate and House 

Appropriations Subcommittee Staffs ApenIdxi

1

Results of Review of IRS’s November 2002 Business 

Systems Modernization Expenditure Plan

Briefing to the 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

December 18, 2002
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 8 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

2

Briefing Overview

• Introduction

• Objectives

• Scope and Methodology

• Background

• Results in Brief

• Results

• Conclusions

• Recommendations
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 9 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

3

3An Enterprise Architecture (EA) is an institutional blueprint defining how an enterprise operates today, in both business and technology terms,

and how it wants to operate at some point in the future. An EA also includes a roadmap for transitioning between these environments.

4IRS refers to its life cycle management program as the Enterprise Life Cycle (ELC), which is graphically depicted in the Background Section.

1Treasury and General Government Appropriations Act, 2002 (P. L. 107-67).

2Treasury and General Government Appropriations Act, 2003 (H.R.5120 and S.2740). IRS’s FY 2003 funding is provided under a Current Resolution,

Pub. L. No. 107-229, as amended by Pub. L. No. 107-294, that continues IRS’s funding at the “current rate” of operations, subject to the “authori

conditions” provided in the FY 2002 appropriations act.

Introduction

• As mandated by IRS’s FY 2002 appropriations act,1 and proposed in its 

FY 2003 appropriations bills,2 Business Systems Modernization (BSM) 

funds are unavailable until IRS submits to the congressional 

appropriations committees for approval, a modernization expenditure 

plan that:

• Meets the Office of Management and Budget’s (OMB) capital 

planning and information technology (IT) investment control review 

requirements;

• Complies with IRS’s enterprise architecture (EA);3

• Meets IRS life cycle management requirements;4

• Is approved by IRS, Treasury, and OMB;

• Is reviewed by GAO; and

• Complies with federal acquisition requirements and management 

practices.

ty and 
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 10 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

4

Introduction

• Since mid-1999, IRS has submitted a series of expenditure or 

“spending” plans requesting release of BSM appropriated funds. To 

date, about $968 million5 has been appropriated and released for BSM. 

• IRS requested about $451 million in its November 2002 expenditure 

plan for FY 2003. 

• However, OMB only approved $257 million of IRS’s $451 million request. OMB is deferring decisions on the remaining $194 million until it 

completes a more thorough review of IRS’s business cases, receives 

the results of Treasury’s analysis on how it plans to proceed with the 

Custodial Accounting Project (CAP/EDW), and more thoroughly reviews 

IRS’s modernization plans in the context of the President’s management 

agenda and the 24 government-wide E-gov initiatives.

• On November 18, 2002, IRS submitted its expenditure plan for $451 million, seeking release of the $257 million approved by OMB.

5This does not include the $14 million from IRS’s FY 2002 supplemental appropriation that has not yet been released.
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 11 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

5

Objectives

• As agreed with IRS’s appropriations subcommittees, our objectives were 

to

• determine whether the November 2002 expenditure plan satisfies 

the legislative conditions, 

• determine what progress IRS has made in implementing 

modernization management controls and capabilities, and

• provide any other observations about the November 2002 plan and 

IRS’s BSM program.
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 12 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

6

Scope and Methodology

• To accomplish our objectives, we

• Reviewed the November 2002 expenditure plan submitted by IRS 

in the context of both the amount originally requested by IRS and 

the amount approved by OMB;

• Analyzed the plan against the legislative conditions to identify any

variances;

• Reviewed program and project management reports and briefings 

to assess progress in implementing modernization management 

controls and capabilities;

• Observed modernization executive steering committee and 

subcommittee meetings to, among other things, document how the 

plan was developed and reviewed; 

• Interviewed IRS program and project management officials to 

corroborate our understanding of the plan and other BSM activities.
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 13 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

7

Scope and Methodology

• Analyzed available evidence on recent efforts to implement

modernization management controls and capabilities. Specifically, 

we analyzed progress and plans for

• software acquisition management, as defined by the Software 

Engineering Institute’s (SEI) Software Acquisition Capability

Maturity ModelTM(SA-CMM), 

• ELC definition and implementation, including configuration 

management, quality assurance and risk management,

• enterprise architecture (EA) definition and implementation,

• human capital management,

• cost and schedule estimation practices, 

• integrated program schedule development,

• contract management,

• transition management, and

• the Customer Account Data Engine (CADE) project, which is 

intended to replace IRS’s taxpayer master files.
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 14 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

8

Scope and Methodology

• Collaborated with the Treasury Inspector General for Tax 

Administration (TIGTA) to avoid duplication of effort in reviewing 

BSM initiatives and incorporated TIGTA results in this briefing where 

appropriate.

• Projects addressed by TIGTA included CADE.

• Program-level processes addressed by TIGTA included cost and 

schedule estimation, contract management, and transition 

management.
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 15 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

9

Scope and Methodology

• Consistent with prior reviews, 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.

• We provided a draft of this briefing on December 16, 2002, to IRS BSM 

program executives, and have incorporated their comments where 

appropriate.

• We performed our work from November through December 2002 in 

accordance with generally accepted government auditing standards.
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 16 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

10

Background

• The November 2002 plan that IRS submitted to OMB is to (1) continue 

ongoing program-level initiatives through mid-November 2003 and 12 

ongoing projects to their next milestones and (2) start 8 new projects or 

new releases of existing projects. See appendix I for a description of 

projects and initiatives. Examples of new projects are Modernized e-file 

and Modernized Data Access.

• The plan reported completion of several projects, including the Internet 

Refund/Fact of Filing, Enhance Call Routing, and Enterprise Systems 

Management applications and the first part of the Security and 

Technology Infrastructure Release (STIR). 

• However, OMB has only approved funding for IRS to (1) continue 

ongoing program-level initiatives for 3 months and 9 ongoing projects to 

their next milestones and (2) start 3 new projects or new releases of 

existing projects.

• Like its previous plans, IRS’s November 2002 expenditure plan covers 

contractor costs, such as the Prime Systems Integration Support 

contractor (PRIME) and the systems engineering and technical services 

provided by the Federally Funded Research and Development Center

(MITRE).

• A summary of the plan follows.
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 17 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

11

Background

Summary of IRS’s November 2002 Expenditure Plan ($000)6

Source: IRS

Program-Level Initiatives IRS Request

OMB

Approved

Architecture & Integration $43,577

Business Integration $11,413

Management Processes $13,828

Federally Funded Research and Development Center (FFRDC) - MITRE $20,750

Program Management Office $9,908

Subtotal $99,476 $25,000

Projects7

Core Infrastructure Projects (e.g. Infrastructure Shared Services) $99,261 $99,000

Data Projects (e.g. Customer Account Data Engine, Integrated Financial Services) $152,798 $115,000

Business Projects (e.g. e-Services, HR Connect) $94,800 $18,000

Subtotal $346,859 $232,000

Addition to Management Reserve* $4,342

Total** $450,677 $257,000

* - Includes $677 from Remaining FY2001 and FY2002 Appropriated Funds

** - Includes $14,000 from FY 2002 Supplemental Appropriation

6See appendix II for a more detailed summary of the plan.

7The 3 categories under this heading include 20 separate projects.
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 18 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

12

Background

• To date, GAO has reviewed and reported on seven requests for BSM

funding releases.8

• Since mid-1999, we have reported9 on the risks associated with 

IRS’s approach of concurrently building systems while developing

and implementing program management capabilities such as having 

a fully operational program management office and implementing its 

enterprise life cycle (ELC). IRS’s ELC is a structured method for 

managing system modernization program and project investments 

throughout their life cycles (see next slide for a simplified diagram of 

the life cycle).

• We reported that attempting to acquire modernized systems before

having the requisite management capability increases the risk that 

systems will experience cost, schedule, and performance shortfalls.

8For details on our past review results, see appendix III.

9For example, see U.S. General Accounting Office, Business Systems Modernization: Results of Review of IRS’ March 2001 Expenditure Plan, GAO01-716 (Washington, D.C.: June 29, 2001) and U.S. General Accounting Office, Internal Revenue Service: Progress Continues But Serious

Management Challenges Remain, GAO-01-562T (Washington, D.C.: April 2, 2001).
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 19 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

13

Background

IRS’s Enterprise Life Cycle Phases and Milestones (MS)

Strategic

Plan

Concept

Definition

System

Design

PostDeployment

Evaluation

Enterprise

Deployment

Vision & Strategy

Architecture

Development

Integration

Deployment

O

peratio

ns &

S

up

p

ort

MS

1

MS

2

MS

3

MS

4

MS

5

ELC

Milestones

ELC Phases
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 20 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

14

Background

• We have also reported10 that the risk of cost increases and schedule 

slippages associated with building systems without the requisite

management controls is not as severe early in projects’ life cycles 

when they are being planned (project definition and preliminary 

system design), but escalates as projects are built (detailed design 

and development) and implemented (enterprise deployment).

• In the case of IRS and its ELC, this point of risk escalation is

Milestone 3. From this point through deployment (Milestone 4) to

operations and support (Milestone 5), risk can increase significantly.

• In our February 2002 report,11 we identified key IRS projects that 

were approaching or had passed Milestone 3 that were beginning to 

experience cost, schedule, and performance shortfalls, and 

concluded that program risks were increasing.

10For example, see U.S. General Accounting Office, Tax Systems Modernization: Results of Review of IRS’ Third Expenditure Plan, GAO-01-

227 (Washington, D.C.: January 22, 2001).

11U.S. General Accounting Office, Business Systems Modernization: IRS Needs to Better Balance Management Capacity with Systems

Acquisition Workload, GAO-02-356 (Washington, D.C.: Feb. 28, 2002).
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 21 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

15

Results in Brief

• IRS’s November 2002 plan satisfies each of six legislative conditions.

Legislative Conditions Satisfies Does Not Satisfy

1. Meets OMB capital planning and investment control review

requirements.

9

2. Complies with IRS’ enterprise architecture. 9

3. Meets the requirements of IRS’ life cycle program. 9

4. Approved by IRS, Treasury, and OMB. 9

5. Reviewed by GAO. 9

6. Complies with federal acquisition requirements and management

practices.12 9

• IRS has made significant progress in improving its modernization

management controls and capabilities and implementing our 

recommendations. For example, IRS has implemented 20 of 23 

commitments and is in the process of implementing the remaining 

three commitments that address previously reported weaknesses and 

recommendations. As part of these efforts, IRS was independently

rated as SA-CMM Level 2. Further, IRS has taken steps to better 

balance the pace of the FY 2002 BSM program with its management 

capability. 12These acquisition requirements and practices are intended to establish acquisition management rigor and discipline, such as those defined in the

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

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 22 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

16

Results in Brief

• Although significant progress has been made, certain modernization 

management controls and capabilities, related to configuration 

management, enterprise transition strategy, human capital 

management, and cost and schedule estimate validation, have not yet 

been fully implemented. Weaknesses in these controls and capabilities 

contributed, at least in part, to BSM project cost, schedule, and 

performance shortfalls. 

• We also make five observations related to the BSM program and 

November 2002 expenditure plan:

• The number of project milestones experiencing cost and schedule 

changes is increasing

• BSM is entering a critical, high-risk phase as the scope and 

complexity of the program continue to grow
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 23 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

17

Results in Brief

• Opportunities for using performance-based contracts are increasing

• IRS has improved the format of its expenditure plan

• Internal costs of the BSM program, expected to increase, are not

tracked or known

• To assist IRS in improving and expanding their modernization 

management controls and capabilities, we are making 

recommendations to the Acting Commissioner of Internal Revenue.

• In commenting on a draft of this briefing, IRS officials generally agreed 

with our findings, conclusions, and recommendations, and indicated 

that they have plans in place to address these challenges. 
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 24 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

18

Results

Objective 1: The November 2002 plan satisfies the conditions 

proposed in IRS’s FY 2003 appropriations bills.

Legislative Conditions Expenditure Plan Provisions

1. Meets OMB capital

planning and IT

investment control

review requirements.

IRS’s November 2002 expenditure plan provides for

managing investments as part of a portfolio through

its Investment Decision Management process. This

includes conducting periodic portfolio reviews to

assess changes in business priorities and project

schedules.
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 25 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

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Results

Legislative Conditions Expenditure Plan Provisions

2. Complies with IRS’s

 enterprise

 architecture (EA). 

The November 2002 plan provides funds to

continue definition and implementation of the

enterprise architecture. For example, it provides

for

• completing and issuing EA release 2.1 

• publishing updates to the EA 

• performing EA compliance certification

activities

• issuing the 2003 and 2004 release architectures

• operating the systems engineering office 

3. Meets the

 requirements of IRS’s 

 life cycle program.

The plan provides funds for meeting the 

requirements in IRS’s enterprise life cycle 

management program, which IRS refers to as ELC.

For example, the plan calls for 

• maintaining responsibility for coordinating,

tracking, and integrating all program-wide costs,

schedules, releases, issues, and risks 

• maintaining the ELC
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 26 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

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Results

Legislative Conditions Expenditure Plan Provisions

4. Approved by IRS,

Treasury, and OMB.

• IRS – October 8 and 10, 2002 

• Treasury – November 5, 2002 

• OMB – November 14, 2002 (partial approval)13

• Submitted to IRS’s appropriations

subcommittees – November 18, 2002 

5. Reviewed by GAO. • GAO – December 18, 2002 briefing to IRS’s

appropriations subcommittees

6. Complies with the

acquisition rules,

requirements,

guidelines, and

systems acquisition

management practices

of the federal

Government.

As part of the ELC, IRS has defined processes,

roles, responsibilities, etc. for implementing

Software Engineering Institute (SEI) Software

Acquisition Capability Maturity ModelTM practices

within the level 2 key process areas.14 These

practices are consistent with federal acquisition

requirements and management practices, and the

plan calls for implementation of the ELC on all

projects. Also, all PRIME cost reimbursement task

orders are subject to a final independent audit by

the Defense Contract Audit Agency to ensure that

costs incurred are commensurate with the physical

completion of the contract.

13OMB approved only $257 million of the $451 million requested by IRS.

14These are Acquisition Planning, Solicitation, Requirements Development and Management, Project Management, Contract Tracking

and Oversight, Evaluation, and Transition to Support.
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 27 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

21

Results

Objective 2: IRS has made significant progress 

improving controls and capabilities, although some have 

not been fully implemented. 

• Since we reported on IRS’s last plan,15 IRS has made significant 

progress in improving its modernization controls and capabilities and 

addressing our recommendations. For example, it has implemented 20 

of 23 commitments to address previously reported weaknesses and 

recommendations as the following illustrates:

15GAO-02-356.

IRS Commitments to Address Previously Reported

Weaknesses and Recommendations

Completed In Progress Revised IRS Commitments as of

November 2002 Plan

Software acquisition management

 Complete internal SA CMM level 2 capability

compliance assessment by June 2002 for CADE,

STIR, and e-Services projects.

9

 Based on internal assessment, develop plan to

correct identified weaknesses.

9

 Have an external evaluation performed by an 

independent assessor in December 2002 to ensure

compliance with SEI’s SA CMM level 2

requirements.

9

 Have all BSMO projects follow SA CMM level 2 

processes by FY 2003.

9
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 28 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

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Results

IRS Commitments to Address Previously Reported

Weaknesses and Recommendations

Completed In Progress Revised IRS Commitments as of 

November 2002 Plan

ELC definition and implementation (Configuration

Management, Quality Assurance, Risk Management)

Configuration Management:

 Fully define BSMO standard configuration

management procedures by early 2002.

9

 Fully institutionalize BSMO standard configuration

management procedures by early 2002.

9

(See pp. 26-28)

To be completed by September

2003.

 Identify configuration items for current production

environment impacted by 2002 modernization

project releases by March 2002.

9

 Establish a centralized CM repository by early

2002.

9

 Define and implement a program-wide

configuration status account reporting mechanism

by March 2002.

9

Quality Assurance:

 Increase level of IRS oversight, scrutiny, and

quality assurance of PRIME activities.

9

Risk Management:

 Include all known risks in inventory by Feb. 2002. 9

 Track and update risk plans and their disposition. 9

Enterprise architecture (EA) definition and

implementation

 Approve EA 2.0. 9

 Ensure ongoing projects are aligned with EA in

accordance with compliance certification process

by late-December 2001.

9
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 29 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

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Results

IRS Commitments to Address Previously Reported

Weaknesses and Recommendations

Completed In Progress Revised IRS Commitments as of

November 2002 Plan

Human Capital Management

 Assess knowledge and skills needed to effectively

perform IT.

9

 Inventory the knowledge and skills of current IT

staff.

9

 Identify gaps between requirements and current

staffing.

9

 Develop and implement plans to fill the gaps. 9

(See pp. 31-33)

Cost and Schedule Estimation practices

 Direct PRIME to select an estimating method. 9

 Ensure PRIME develops a plan for implementing

the method by mid-January 2002.

9

 Ensure PRIME begins implementation of the plan

by the end of February 2002.

9

 Develop and implement an approach to oversee

PRIME estimation practices by February 2002.

9

(See pp. 34-36)

To be completed by mid- 2003.

Integrated Program Schedule Development

 Finalize the Integrated Master Schedule for

Release 2002 by late-December 2001.

9
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 30 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

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Results

IRS and PRIME Have Accomplished Notable Achievements 

Related to Their Software Acquisition Practices

• The Clinger-Cohen Act requires the establishment of effective IT 

management processes. SEI’s Software Acquisition Capability Maturity 

ModelTM (SA-CMM) defines such processes for managing software 

acquisitions. Since 1995, we have recommended that IRS establish the 

“repeatable” level of SEI’s software acquisition management processes 

(Level 2).16

• In December 2002, after an independent assessment, the IRS BSM 

office was rated SA-CMM Level 2.

• In August 2002, the PRIME systems integration contractor was rated 

SA-CMM Level 3. According to SEI, PRIME is the first organization in 

the world to achieve this rating.

16U.S. General Accounting Office, Tax Systems Modernization: Management and Technical Weaknesses Must Be Corrected If Modernization

Is to Succeed, GAO/AIMD-95-156 (Washington, D.C.: July 26, 1995).
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 31 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

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Results

IRS Has Taken Steps to Balance Scope and Pace of BSM Program 

with Management Capacity of IRS and PRIME Contractor

• In accordance with our recommendation, IRS completed a reassessment of 

the FY 2002 BSM Program in May 2002 and took the following actions to 

better balance system acquisition project workload with management 

capacity:

• IRS deferred the start of 5 new projects until FY 2003 and 2004 to 

reduce IRS/PRIME resource demands, including

• Reporting Compliance, 

• Customer Account Data Engine Release 3, and

• Enterprise Data Warehouse Release 2.

• IRS reapplied a portion of these deferred financial resources available 

from these deferred projects towards PRIME management processes 

($1.1 million) and MITRE management support ($0.75 million) to 

accelerate correction of modernization management control 

weaknesses.

• In addition, IRS has increased its own efforts and executive focus on 

management process improvement (not funded out of the BSM account).
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 32 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

26

Results

Enterprise-wide Configuration Management Processes 

Have Been Established, But Are Not Yet Fully 

Institutionalized

• Effective configuration management (CM) is an essential control for 

ensuring the integrity and consistency of system modernization 

program and project products throughout their life cycles. 

• In June 2001, we reported17 that BSM CM was ineffective.

Accordingly, we made recommendations to address this weakness.

• In February 2002, we reported18 that IRS had made important 

progress in addressing our recommendations, but did not yet have

effective processes.

17GAO-01-716

18GAO-02-356
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 33 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

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Results

• Since then, IRS has implemented most of our remaining 

recommendations and strengthened its CM processes. For example, 

it has:

• developed and implemented directives, plans, and standard 

operating procedures to define and establish an enterprise-wide 

process,

• established a Modernization Change Control Board (CCB), 

project CCBs, and set approval authorities at all levels, and

• completed compliance assessments for 5 projects to assess 

alignment with enterprise-wide policies and procedures.

• However, IRS has not yet fully institutionalized these processes. For 

example,

• IRS has yet to complete or report on CM compliance 

assessments for several key projects, including the Security and

Technology Infrastructure Release, Enterprise Systems 

Management, and Filing & Payment Compliance.
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 34 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

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Results

• Key activities had not been performed on 4 of the 5 projects 

assessed. These activities included preparing complete CM 

plans, clearly identifying configuration items, and resolving 

various configuration status accounting discrepancies. 

• IRS acknowledges the importance of expanding and sustaining its 

progress in implementing CM processes and has committed, 

beginning in FY 2003, to conduct semi-annual compliance 

assessments for all BSM projects to verify that proper practices are

being followed and to ensure that all identified discrepancies are 

corrected.

• Until IRS fully institutionalizes effective CM processes, it cannot 

adequately ensure that systems are being developed in accordance

with enterprise-wide needs and requirements. Consequently, 

increased risk exists that projects will eventually require expensive 

rework.
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 35 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

29

Results

IRS’s Enterprise Transition Strategy Lags Behind its 

Enterprise Architecture

• An enterprise architecture (EA) is an institutional blueprint defining, in 

both business and technology terms, how an enterprise operates today, 

how it wants to operate at some point in the future, and how it will “get 

there.”

• The Enterprise Transition Strategy (ETS) is the plan for migrating from 

the current state to the future state. To remain current and to support 

continued coordinated improvements across the enterprise, the ETS 

should be maintained and updated as time and circumstances dictate. 
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 36 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

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Results

• However, IRS did not promptly update the transition strategy to conform to 

revisions in other components of the EA. For example,

• Although IRS revised its enterprise architecture and issued version 2.0 

in March 2002, it does not expect to approve ETS version 2.0 until 

December 2002 (9 months later). 

• IRS is currently revising its architecture and expects to approve EA 

version 2.1 in February 2003. IRS staff indicated that the draft ETS

version 2.0 does not fully align with the content of the draft EA version 

2.1 and that IRS plans to complete ETS 2.1 by March 2003.

• IRS officials intend to bring the transition strategy into closer 

synchronization with the rest of the architecture. IRS indicated that ETS 

version 2.0 was delayed because it decided to first complete its portfolio

reassessment in mid-2002. IRS officials believed that close management of 

the 2002-2004 release plans mitigated the risk.

• By not promptly updating its transition strategy to conform to other changes 

in its architecture, IRS increases the risk that the implementation of 

modernized systems will take longer and cost more than currently planned.
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 37 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

31

Results

Although Progress Has Been Made, BSM Human Capital 

Strategy Is Not Yet Fully Implemented

• To maintain and enhance the capabilities of IT staff, organizations 

should develop and implement a human capital strategy that, among 

other things, includes the following steps

• assess knowledge and skills needed to effectively perform IT

operations to support agency mission and goals,

• inventory the knowledge and skills of current IT staff, 

• identify gaps between requirements and current staffing, and

• develop and implement plans to fill the gaps.

• We reported in our February 2002 report19 that IRS had not defined 

or implemented a human capital strategy. Accordingly, we 

recommended that IRS address this weakness.

19GAO-02-356
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 38 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

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Results

• IRS has made important progress in addressing our 

recommendation. For example, it has 

• analyzed its current human capital state and conducted a gap 

assessment,

• developed a human capital plan to better align human capital 

resources with the organizational business direction,

• established a Human Factors Life Cycle Office.

• However, IRS has yet to fully implement its plan to ensure that it has 

sufficient human capital resources. IRS has yet to

• hire, develop, or retain sufficient human capital resources with

the required competencies, including technical skills, in specific 

mission areas, and

• develop a comprehensive multiyear workforce plan in place of

the current annual plan that does not encompass all phases of 

multiyear projects. 
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 39 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

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Results

• IRS recognizes the importance of implementing an effective 

strategy, and, for FY 2003, it is committed to

• carry-out the implementation strategy for the human capital plan,

• establish and report on measures for the Human Factors Life 

Cycle in support of BSM initiative.

• Until IRS fully implements its strategy, it will not have all of the

necessary IT knowledge and skills to effectively manage the BSM 

program or to operate modernized systems as they deploy. 

Consequently, the risk of BSM program and project cost, schedule,

and performance shortfalls is increased.
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 40 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

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Results

Although Progress Has Been Made, IRS Practices for 

Validating Cost and Schedule Estimates Are Not Yet 

Fully Implemented

• Organizations require the capability to adequately review and 

validate project cost and schedule estimates so that funding, 

resource allocation, and technical decisions can be made using 

credible information. This capability requires that procedures be 

developed, approved, and used, and that staff are sufficiently trained 

in their use.

• In February 2002, we reported20 that IRS had not implemented a 

capability to effectively estimate project costs and schedules. The 

cost and schedule estimates in the November 2001 plan were 

contractor-provided, “rough order of magnitude” estimates, that had 

not been subjected to meaningful, reliable validation by IRS. We

recommended that IRS correct this weakness. 

20GAO-02-356
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 41 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

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Results

• Since then, IRS has assumed responsibility for validating contractorprovided cost and schedule estimates. To achieve this, IRS has 

developed procedures, including a detailed checklist based on an

SEI cost and schedule estimation framework, for independently 

reviewing contractor-provided cost and schedule estimates.

• However, these procedures have not been approved or fully 

implemented, and staff have not been trained in their use, because 

IRS underestimated the amount of time and effort required to 

implement these procedures. 

• Also, IRS has undertaken an effort to validate the PRIME’s cost and 

schedule estimation methods, and to establish ways to leverage 

these methods in its validation system. 
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 42 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

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Results

• These cost validation issues contributed to the fact that BSM 

projects have cost more, taken longer, and delivered less 

functionality than originally estimated. For example, 

• IRS reports that CADE’s (Release 1) Milestone 4 date has 

slipped by an additional 6 months, and the cost would have 

increased, except the contractor has absorbed the associated 

increased cost. The slippage has delayed delivery of CADE

functionality and related taxpayer benefits for another tax filing 

season.

• IRS recognizes these weaknesses and is committed for FY 2003 to:

• completing a pilot of the new procedures in January 2003

• providing training in PRIME cost and schedule processes and 

practices

• overseeing PRIME’s progress in completing/continually 

improving its estimating system

• fully implementing its validation approach by mid-2003 
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 43 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

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Results

Objective 3: Other Observations About IRS’s BSM 

Program and Expenditure Plan

Observation 1: The Number of Project Milestones 

Experiencing Cost and/or Schedule Changes Is Increasing

• In its November 2001 plan, IRS disclosed that 18 initiatives or project 

milestones experienced cost and/or schedule shortfalls.

• In its November 2002 plan, IRS disclosed that 25 of 28 initiatives or 

project milestones have experienced cost and/or schedule shortfalls 

against commitments made in its November 2001 plan. Also, IRS 

reported cost decreases in certain milestones. A summary of cost

performance follows:

• 4 program-level initiatives had cost increases ranging from 4% to 20% 

($288,000 to $6.4 million) 

• 14 project milestones experienced cost increases ranging from 1% to

117% ($121,000 to $11.7 million)

• 4 milestones had cost decreases ranging from 1% to 20% ($233,000 to

$4.8 million)
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 44 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

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Results

• A summary of schedule performance follows:

• 12 project milestones experienced schedule delays ranging from 1.5 

months to 8 months, with 9 experiencing delays of 4 months or more

• one milestone had its schedule shortened by 1 month

• schedule performance for four project milestones could not be 

determined since their commitment date for completion is listed as 

“to be determined”

• Appendix IV shows the details, including explanations, of the cost 

and schedule changes reported by IRS in its November 2002 

plan. The following table illustrates three of the more significant 

examples:

Projects Commitment Date and

Funding as of 10/2001

($000)

Revised Commitment

Date and Funding

($000)

Change (%) 

($000)

Internet Refund/

Fact of Filing

(Release 1) 

Milestone 5 

7/31/02

$5,000

TBD

$8,304 +$3,304 (+66%)

e-Services

(Release 1.1 and 1.2) 

Milestone 4,5 

10/31/03

$40,191

4/18/04

$50,146

+6 Months

+$9,955 (+25%)

HR Connect

(Release 1) 

Milestone 4,5 

12/31/02

$10,000

TBD

$21,700 +$11,700(+117%)
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 45 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

39

Results

• IRS has provided a detailed explanation for each cost or schedule 

change in its plan. 

• Subsequent to the submission of its November 2002 plan to its 

appropriations subcommittees, IRS reported an additional $15-18 

million cost increase for Release 1 of the Integrated Financial 

Systems project (milestones 4 and 5). Among the reasons given by

IRS for the cost increase are

• Additional testing resources and tools 

• Development environment build-out to support training and 

testing

• Increased requirements, 

• Security enhancements to ensure EA compliance, 

• Additional training for approximately 8000 users, and

• Prior estimate was made before IFS vendor was selected, and 

license fees were known and design was done.
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 46 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

40

Results

Observation 2: IRS’s BSM Program Is Entering a Critical, HighRisk Phase

• The scope and complexity of the BSM Program are growing. The number 

of projects underway continues to expand and the tasks associated with 

those projects that are moving beyond design (milestone 3) and into 

development (milestone 4) are by their nature more complex and risky. The 

IRS November 2002 plan calls for 8 new projects or new releases of 

existing projects, and 10 business and data projects that are in milestone 4 

or beyond. OMB has approved funding for only 3 of the new projects or 

releases, and 5 of the projects that are in milestone 4 or beyond.

• Several of these projects, such as CADE and core infrastructure projects, 

will provide the foundational infrastructure upon which later projects will 

depend, and have already experienced cost and schedule delays.

• Continued delays and cost increases in these projects could have a similar, 

cascading effect on other projects. 
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 47 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

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Results

Observation 3: Opportunities For Using PerformanceBased Contracts Are Increasing

• Federal Acquisition Regulation indicates that performance-based 

contracting is the preferred method for acquiring services, should be 

used to the maximum extent practicable, and that fixed-price task 

orders are the preferred type of performance-based task order.

• In September 2002, TIGTA reported21 that the use of fixed-price task 

orders decreased between FY 2000 and FY 2001 from nearly 57 

percent of task orders issued to less than 21 percent, and 

recommended BSMO require the use of fixed-price task orders 

whenever possible and appropriate for projects in development and 

deployment and for any other task orders where requirements are 

clearly identified.

• OMB has also encouraged IRS to use performance-based, fixed 

price task orders to the maximum extent practicable.

21Additional Improvements Are Needed in the Application of Performance-Based Contracting to Business Systems Modernization

Projects (Reference Number 2002-20-170, dated September 2002)
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 48 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

42

Results

• According to IRS officials, under IRS’s enterprise life cycle, system 

specifications should be reasonably definite at the detailed design 

checkpoint prior to exiting milestone 4. The IRS November 2002 

plan shows that 9 projects will proceed towards milestone 4 or 5 for

FY 2003. OMB has approved funding for 4 of these projects (eServices, HR Connect, CADE, and Integrated Financial System).

• IRS officials state that the vast majority of development projects 

after detailed design, when specifications are reasonably definite, 

should be under either a fixed-price task order or performancebased task order that is not fixed price and stated that they are 

taking steps to implement such task orders, when appropriate. They 

also noted that such task orders may not be appropriate in certain 

circumstances where a type of project involve significant uncertainty 

as to requirements.

• IRS does not have a clearly documented process for determining 

the type of task order to be awarded, but recognizes the need to

develop such a process.
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 49 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

43

Results

Observation 4: IRS Has Improved the Format of Its 

Expenditure Plan

• In our February 2002 report,22 we observed that the November 

2001 plan did not provide sufficient information on changes to 

project scope and interdependencies with other modernization 

projects. IRS has made improvements in the November 2002 

plan’s format. It more clearly identifies changes in project scope 

and cross-project dependencies.

22GAO-02-356
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 50 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

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Results

Observation 5: Internal Costs of BSM Program, 

Expected to Increase, Are Not Tracked or Known

• As we previously reported,23 IRS paid its internal modernization program costs, such as BSM program office staff costs, and 

certain external BSM costs from Information Systems (IS) and 

other non-BSM appropriations. However, the actual amounts 

related to the program were not tracked or known. 

• IRS officials said they used “order of magnitude” estimates for 

capital planning purposes or developing business cases. 

However, they did not have actual costs to later compare or 

assess the accuracy of their estimates. 

• IRS officials also expect funding for the BSM program from IS 

and other appropriations to significantly increase as more 

systems near deployment.

• Consequently, as funding increases, risk also increases because 

decision-makers may not have complete information upon which 

to make important decisions, such as cost-benefit analyses, 

developing or assessing business cases, or making funding and 

resource allocations.

23U.S. General Accounting Office, Internal Revenue Service: Results of Review of IRS Spending for Business Systems Modernization, GAO-01-920

(Washington, D.C.: August 17, 2001)
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 51 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

45

Conclusions

• IRS’s November 2002 plan satisfies the legislative conditions. Since our 

last report, IRS has made significant progress in implementing 

modernization management controls and capabilities. As a result, it is 

better-prepared to meet the challenges ahead. At the same time, certain

BSM management capabilities have not been fully implemented.

• IRS faces heightened risks because (1) several key projects are 

entering their later stages of development and deployment, (2) some of 

these projects provide the foundational infrastructure upon which later 

projects depend, (3) an increasing number of project milestones are 

experiencing cost increases and schedule delays, and (4) it plans to 

start more projects.

• Without sustained top management involvement, improved management 

capabilities, and consistent oversight, the successful implementation of 

the BSM program could be jeopardized.
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 52 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

46

Recommendations for 

Executive Action

• To improve IRS’s modernization management controls and capabilities, 

we reiterate our prior recommendations that the Acting Commissioner of 

Internal Revenue direct the Chief Information Officer (CIO) to

• institutionalize BSMO configuration management procedures;

• implement plans for obtaining, developing, and retaining requisite 

human capital resources; and

• implement effective procedures for validating contractor-developed 

cost and schedule estimates

• In addition, we recommend that the Acting Commissioner of Internal 

Revenue direct the CIO to

• promptly update the enterprise transition strategy to conform to other

changes in IRS’s enterprise architecture and

• establish and implement a process for determining the type of task 

order to be awarded
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 53 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

47

Agency Comments 

• In providing oral comments on a draft of this briefing, BSM executives, 

including the Associate Commissioner for Business Systems 

Modernization, stated that they generally agree with this briefing and 

that

• it is a fair characterization of the progress they have made in 

maturing management processes and in indicating areas for further 

growth.

• they appreciated GAO for their on-going support throughout the 

year.

• they are making continued progress toward those areas cited in the 

draft briefing as needing further progress.
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 54 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

48

Appendix I:

BSM Program-Level Initiatives/Projects

Description of BSM Program-Level Initiatives and Projects

Proposed Modernization Initiatives Description

Program-Level Initiatives:

Architecture & Integration Ensures that systems solutions meet IRS business needs and that the projects are

effectively integrated.

Business Integration Ensures that IRS BSM program is aligned with the business units’ reengineering

efforts and that business transformation plans are developed and maintained to

support a seamless “transition to support”.

Management Processes Provides sustaining support for program-level management processes, including

quality assurance, process improvement, training, program control, and ELC

maintenance and enhancements.

FFRDC - MITRE Provides program management and systems engineering support to BSMO.

Program Management Office Provides overall program management for IRS-PRIME Partnership activities and

deliverables, and is responsible for coordinating, tracking, and integrating all

program-wide costs, schedules, and performance measures.

Core Infrastructure Projects:

Development Integration & Testing

Environment

Provides oversight for laboratory environments which support development, and

testing: (1) Virtual Development Environment – development environment and

standardized set of tools; (2) Enterprise Integration Testing Environment –

integration testing environment for all projects.

Infrastructure Shared Services Provides foundational enabling infrastructure (infrastructure technology components

and strategic infrastructure services for all data and business projects: (1) Enterprise

Systems Management – develops and executes a strategy to provide network and

systems management to improve IT infrastructure availability and performance; (2)

Security and Technology Infrastructure Release – provides infrastructure for secure

telephony and electronic interaction among employees, tax practitioners, and 

taxpayers.

Source: IRS
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 55 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

49

Appendix I:

BSM Program-Level Initiatives/Projects

Data Projects:

Customer Account Data Engine Builds the modernized database foundation to replace the existing master file processing

systems.

Integrated Financial Services Implements an integrated financial management system using a commercial off-the-shelf

enterprise resource planning product.

Custodial Accounting Project / Enterprise Data

Warehouse

Provides integrated, reliable tax operations and internal management information to

support evolving decision analytics, performance measurement, and management

information needs.

Modernized Data Access Provides a single integrated approach and software for accessing current processing

environment (legacy) data across the organization, and builds key infrastructure

components that all modernization projects can share.

Information Returns Processing Provides modernized information returns repository to link third party data directly to

customer accounts to efficiently handle customer service and compliance inquiries and

demands.

Business Projects:

Customer Communications 2001 Improves communications infrastructure, including telephone call management, call

routing, and customer self-service applications.

Internet Refund / Fact of Filing Improves customer self-service by providing instant refund status information and

instructions for resolving refund problems to taxpayers with Internet access.

Customer Account Management Delivers an enterprise solution to support access to tax account data, contact

management, case management, outbound correspondence management, and workflow

management.

Customer Contact Modernization Provides initial building blocks to transition IRS from current call center environment to

new customer contact center.

e-Services Creates a web portal and value-adding e-Services to promote the goal of conducting most

of the IRS’s transactions with taxpayers and tax practitioners electronically.

Filing & Payment Compliance Provides support for detecting, scoring, and working cases in the area of non-filer (filing

compliance) and delinquency (payment compliance) cases.

HR Connect Delivers an enterprise solution to allow IRS employees to access and manage their

human resources information online.

Modernized e-file Provides a single standard for filing electronic tax returns.

Source: IRS
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 56 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

50

Appendix II:

IRS Expenditure Plan

Detailed Summary of IRS’s November 2002 Expenditure Plan ($000)

Proposed Modernization Initiatives Release1 Milestone2 Milestone

Date

Amount

Requested

OMB

Approved

Program Level Initiatives3

Architecture & Integration FY Nov. 03 $43,577

Business Integration FY Nov. 03 $11,413

Management Processes FY Nov. 03 $13,828

FFRDC - MITRE FY Nov. 03 $20,750

Program Management Office FY Nov. 03 $9,908

Subtotal - Prog. Mgmt. and Arch. $99,476 $25,000

Core Infrastructure Projects3

Development Integration & Testing Environment infrastructure Nov. 03 $13,961

Infrastructure Shared Services infrastructure Nov. 03 $85,300

Subtotal - Core Infrastructure Projects $99,261 $99,000

Data Projects

Customer Account Data Engine R1 5 June 03 $4,851

Customer Account Data Engine R1 6 Dec. 03 $3,638

Customer Account Data Engine R2 infrastructure TBD $6,924

Customer Account Data Engine R3 3 Dec. 03 $15,289

Customer Account Data Engine R3 infrastructure Dec. 03 $581

Customer Account Data Engine R4 3 Aug. 04 $6,756

Subtotal - CADE $38,039 $38,000

Source: IRS

1Releases are software versions that provide a subset of the total planned project functionality.

2Milestones correspond to phases within IRS’s Enterprise Life Cycle, which is graphically depicted in the Background Section.

3Program Level Initiatives and Core Infrastructure Projects are funded on a fiscal year (FY) basis rather than by milestone.
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 57 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

51

Appendix II:

IRS Expenditure Plan

Detailed Summary of IRS’s November 2002 Expenditure Plan ($000)

Integrated Financial Services R1 4 Sept. 03 $67,227

Integrated Financial Services R1 5 March 04 $6,828

Integrated Financial Services R2 2,3a TBD $2,500

Subtotal - IFS $76,555 $77,000

Custodial Accounting Project /Enterprise Data Warehouse R1, B1 4,5 May 03 $4,850

Custodial Accounting Project / Enterprise Data Warehouse R1, B1.1 4,5 Sept. 03 $13,613

Modernized Data Access R1 infrastructure Nov. 03 $16,741

Information Returns Processing R1 1 TBD $3,000

Subtotal - Data Projects $152,798 $115,000

Business Projects

Customer Account Management R1 4 Oct 04 $20,949

Customer Contact Modernization R1 2 TBD $2,500

e-Services R1.1/1.2 5 April 04 $5,846 $6,000

Filing &Payment Compliance R1 4 April 04 $26,159

HR Connect R1 4,5 TBD $11,500 $12,000

Modernized e-file 4 Nov. 03 $27,846

Subtotal - Business Projects $94,800 $18,000

Addition to Management Reserve $4,342

Total Business Systems Modernization Program $450,677 $257,000

Data Projects (Cont.)

Proposed Modernization Initiatives Release1 Milestone2 Milestone

Date

Amount

Requested

OMB

Approved

Source: IRS
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 58 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

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Appendix III:

Results of Past GAO Reviews 

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. (See Tax

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

GAO/AIMD/GGD-99-206, June 15, 1999) 

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 the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 59 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

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Appendix III:

Results of Past GAO Reviews 

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. (See Tax Systems Modernization: Results of Review of IRS’

March 7, 2000, Expenditure Plan, GAO/AIMD-00-175, May 24, 2000)

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. (See Tax Systems Modernization: Results of Review

of IRS’ August 2000 Interim Spending Plan, GAO-01-91, November 8, 2000)
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 60 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

54

Appendix III:

Results of Past GAO Reviews 

Spending Plan Results of GAO Review

3rd Spending Plan (Oct 2000)

($200 million request)

• IRS’s plan satisfied the legislative conditions for the use of ITIA funds, and

was making important progress towards satisfying the congressional direction

on two projects – CAP and STIR.

• IRS was making important progress in establishing effective modernization

management capability, but important and challenging work remained. Until

IRS completed its initiated actions to fully implement its system life cycle

methodology and business systems modernization office, and resolve issues

concerning the completeness and accuracy of enterprise architecture, it

continued to lack key modernization and technical controls.

• Five modernization initiatives experienced schedule delays and/or cost

increases. 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.

• IRS used contractor-provided “rough order-of-magnitude” estimates in 

preparing the third expenditure plan. IRS planned to validate the third plan’s

estimates as part of its process to negotiate and definitize contract task orders.

Previously, this process resulted in finalized contract costs below the

estimates, totaling $9 million. (See Tax Systems Modernization: Results of

Review of IRS’ Third Expenditure Plan, GAO-01-227, January 22, 2001)
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 61 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

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Appendix III:

Results of Past GAO Reviews 

Spending Plan Results of GAO Review

4th Spending Plan (March 2001) 

($128 million request)

• IRS’s plan satisfied the conditions specified in the appropriations acts.

• IRS continued to make important progress in implementing modernization

management controls and capabilities. Nevertheless, IRS’s modernization 

management capacity is still not where it should be, given (1) the number of 

systems acquisition projects that the March 2001 plan identifies as underway 

and planned and (2) the fact that several of the ongoing projects are entering 

critical stages in their life cycles. For example, IRS did not have a sufficiently

defined version of the enterprise architecture to guide and constrain projects, 

and employing rigorous configuration management practices.

• Due to missing management capacity, key IRS projects were beginning to 

experience cost, schedule, and performance shortfalls against the 

commitments the agency made in its third expenditure plan. For example,

deployment of the Customer Communications 2001 project was three months

behind schedule, and promised system capabilities and associated benefits

had been deferred. Also, a critical infrastructure project, STIR, was reported to

be 1.5 months late in trying to complete its preliminary design phase

(Milestone 3); and the agency was still working to finalize 6 of 19 work

products needed to complete the phase. Thus, the project was actually almost

five months late.

• IRS officials recognized the need to address its modernization management

capacity before key ongoing projects moved into critical life-cycle phases, and 

before additional projects were started. Accordingly, IRS planned or had

initiated steps to address these weaknesses. In particular the Commissioner

had decided to slow ongoing and new projects, giving priority to putting in 

place missing management capacity. We believed this decision was prudent

and appropriate and made recommendations to ensure IRS followed through

on this decision. (See Business Systems Modernization: Results of Review of

IRS’ March 2001 Expenditure Plan, GAO-01-716, June 29, 2001) 
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 62 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

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Appendix III:

Results of Past GAO Reviews 

Spending Plan Results of GAO Review

5th Spending Plan (Nov 2001)

($391 million request)

• IRS’s plan satisfied the conditions specified in the appropriations acts.

• IRS continued to make important progress in implementing modernization

management controls and capabilities. Nevertheless, IRS’s modernization

management capacity is still not where it needs to be, given (1) the number of

systems acquisition projects that the November 2001 plan identifies as being

underway, (2) the fact that several of these ongoing projects have already

entered the critical building stage of their life cycles (milestone 3) and are to 

begin deployment (milestone 4) during this year, and (3) IRS’s plan to begin

additional projects. Examples of modernization management controls and

capabilities that are not yet fully implemented include software acquisition

management, configuration management, quality assurance, risk management,

enterprise architecture implementation, human capital management,

integrated program scheduling, and cost and schedule estimating.

• The increased risk of IRS’s proceeding without these controls and capabilities

had contributed to actual project cost, schedule, and performance shortfalls.

For example, deployment of the CADE Release 1 project was 6 months

behind, and its cost had increased by $5 million.

• IRS acknowledged the need to strengthen its modernization management

controls, and recognized that these controls become more critical as the size

and complexity of the BSM program continues to increase. It also had actions

underway to fully implement these controls and, until then, planned to

compensate for their immaturity by applying experienced human capital.

• Reliance on a combination of existing immature processes and individual

expertise and heroic efforts was a short-term solution to a long-term need. We

made recommendations to assist IRS in striking a proper balance between the

need to quickly introduce modernized systems yet prudently manage the risks

inherent in such an undertaking. (See U.S. General Accounting Office,

Business Systems Modernization: IRS Needs to Better Balance Management

Capacity with Systems Acquisition Workload, GAO-02-356 (Washington, D.C.:

Feb. 28, 2002)
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 63 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

57

Appendix IV:

IRS Reported Cost / Schedule Changes

Program/ Project 

Management Initiative

Commitment Date and

Funding as of 10/2001

($000)

Revised Commitment

Date and Funding 

($000)

Change (%) 

($000)

IRS

Explanation of Change

Customer

Communications 2001

Milestone 4,5

10/31/01

$45,174

02/26/02

$44,796

+4 months

-$378 (-1%)

A performance award dispute (settled in

February 2002) delayed Milestone 5. The

IRS paid the PRIME contractor $500K less

in performance awards than the maximum

allowed under the task order. Some of this

extra funding was used to cover higher than

expected transition to support costs.

Internet Refund/

Fact of Filing

(Release 1) 

Milestone 3 

9/30/01

$10,696

9/28/01

$10,817 +$121 (+1%)

Actual costs came in $121K higher than

estimated.

Internet Refund/

Fact of Filing

(Release 1) 

Milestone 4 

3/31/02

$5,000

TBD

$6,792 +$1, 792 (+36%)

Additional hardware requirements ($250k).

Additional testing, transition to support

needs, increased requirements, and MS4 cost

overrun increase ($1.465M).

Additional FY02 requirements for help desk

($50,000).

Additional support from ESM project for

performance measurement $27,000.

Internet Refund/

Fact of Filing

(Release 1) 

Milestone 5 

7/31/02

$5,000

TBD

$8,304 +$3,304 (+66%)

Maintenance through the remainder of the

fiscal year and enhancements for FY03

filing season ($2.304M).

Additional cost due to extension of MS5

from 07/31/02 to 09/30/02 ($1.0M).

Source : IRS and GAO Analysis
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 64 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

58

Appendix IV:

IRS Reported Cost / Schedule Changes

Program/ Project

Management Initiative

Commitment Date and

Funding as of 10/2001

($000)

Revised Commitment

Date and Funding

($000)

Change (%) 

($000)

IRS

Explanation of Change

e-Services

(Release 1.1 and 1.2) 

Milestone 4,5 

10/31/03

$40,191

4/18/04

$50,146

+6 Months

+$9,955 (+25%)

The delays occurred because infrastructure

was not completed to meet the e-Services

date. Did not resolve technical issues timely.

Also schedule delays and cost increases

because of move of Gaithersburg Computing

Center environment to the Martinsburg and

the Tennessee Computing Centers.

Unplanned infrastructure hardware

($4.255M). Additional STIR Integration

($4.200M). Increased product assurance

testing costs $1.5M.

Customer Account

Management

(Release 1) 

Milestone 2 

3/31/02

$13,100

8/30/02

$13,300

+5 months

+$200 (+2%)

New business requirements required update

to future concept of operations, and to

identify and prioritize their business process

re-engineering opportunities before

proceeding to MS3. Proposal for MS3 cost

overrun due to changes in business

requirements.

Customer Account

Management

(Release 1) 

Milestone 3b 

10/31/02

$24,494

6/30/03

$19,694

+8 months

-$4,800 (-20%)

New business requirements required update

to future concept of operations, and to

identify and prioritize their business process

re-engineering opportunities before

proceeding to MS3. Decrease due to 

movement of work to MS3a and ITABS.

Filing and Payment

Compliance

(Release 1) 

Milestone 2,3 

1/31/03

$17,117

12/31/02

$18,117

-1 month

+$1,000 (+6%)

$1.0M variance to include unplanned

transition to support in MS2,3 activities per 

new BSM program guidelines.

Source: IRS and GAO Analysis
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 65 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

59

Appendix IV:

IRS Reported Cost / Schedule Changes

Program/ Project

Management Initiative

Commitment Date and

Funding as of 10/2001

($000)

Revised Commitment

Date and Funding

($000)

Change (%) 

($000)

IRS

Explanation of Change

HR Connect

(Release 1) 

Milestone 4,5 

12/31/02

$10,000

TBD

$21,700 +$11,700(+117%)

CBS ESC approval to exit MS3 was delayed

until February 2002. Given Treasury’s 8-9

month estimate to complete development

work, this delayed the start of MS5.

Deployment schedule for remainder of IRS

will be determined following prototype

deployment. Adjustment to previous

estimate ($200k). FY 2003 cost is $11.5M.

Customer Account Data

Engine (CADE)

 Release 1 

Milestone 4 

6/30/02

$45,338

12/31/02

$45,338

+6 months Deployment delayed due to contractor

delays in staffing the project, failure to

acquire a business rules engine,

underestimating the technical complexity of

a few key software components, and late

attention to critical project elements.

Customer Account Data

Engine (CADE)

Release 1 

Milestone 5 

12/31/02

$5,795

6/30/03

$4,851

+6 months

-$944 (-16%)

FY 2002 funding for MS5 ($5.795M) was

returned to management reserve because

schedule delays moved MS5 to FY 2003.

The net MS5 decrease ($.994M) is due to 

revised estimates to do the same work.

Customer Account Data

Engine (CADE)

Release 2 

Milestone 4 

12/31/02

$38,400

TBD

$46,324 +$7,924 (+21%)

In the process of replanning Release 2 due to

delays in Release 1. Begin and end dates will

be determined when the task order is 

definitized in November. Planning for future

functionality due to CAM/CADE

sequencing ($1.0M). FY03 infrastructure

costs ($6.924M)

Source: IRS and GAO Analysis
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 66 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

60

Appendix IV:

IRS Reported Cost / Schedule Changes

Program/ Project

Management Initiative

Commitment Date and

Funding as of 10/2001

($000)

Revised Commitment

Date and Funding

($000)

Change (%)

($000)

IRS

Explanation of Change

Customer Account Data

Engine (CADE)

Release 3 

Milestone 3 

6/30/03

$9,779

12/31/03

$15,870

+6 months

+$6,091 (+62%)

Deferred to FY03 to align with CAM and

CADE Release 2 capabilities, which impact

Release 3 scope, schedule, and costs.

Custodial Accounting

Project/Enterprise Data 

Warehouse (CAP/EDW)

Release EDW R1 B1

Milestone 4,5 

3/31/03

$51,430

5/15/03

$62,924

+1.5 months

+$11,494 (+22%)

Delay due to temporary reassignment of

IMF programmer resources to support tax

filing season changes. Variance ($6.664M

FY 2002 and $4.850M FY 2003) due to

integration with STIR components, revenue

interface with IFS, CAP-CADE interface,

schedule delays, changes to IMF extract,

MCC operational support, development of

changes to the CAP/CADE interface, and

requirements associated with mid-year IMF

changes and CAP/IFS interface.

Integrated Financial

Services/Core Financial

Services (IFS/CFS)

Release 1 

Milestone 4A/3B

11/30/02

$17,250

11/30/02

$23,000 +$5,750 (+33%)

Completed the deliverables originally

scheduled for MS2,3. However, certain

deliverables needed to exit Milestone 3 

under Milestone Exit criteria were not

planned using the COTS path through the

ELC until MS4A. Extended Milestone 3 by

establishing Milestone 3B so we could

produce the deliverables needed to obtain

Enterprise Architecture Certification and

other design work and exit Milestone 3. The

net MS4A/3B variance, $5.750M (-$17.250

+ $23.000) is due to revised estimates to

complete the work and the ISS DCC

communications infrastructure buildout for

IFS.

Source: IRS and GAO Analysis
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 67 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

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Appendix IV:

IRS Reported Cost / Schedule Changes

Program/ Project

Management Initiative

Commitment Date and

Funding as of 10/2001

($000)

Revised Commitment

Date and Funding

($000)

Change (%)

($000)

IRS

Explanation of Change

Infrastructure Shared

Services

FY 2002 

11/30/02

$39,747

11/30/02

$48,846 +$9,099 (+23%)

Started 3 months early to provide support to

FY 2003 Release. Cost increase due to

realignment of projects' schedules, increased

software maintenance, decision to buy rather

than lease equipment, and addition of

Modernized e-file requirements. The

majority of the cost overrun is as a result of

OMB A-11requirements to purchase

HW/SW instead of leasing it as originally

planned. Purchasing the equipment in FY

2002 saves money in the out years.

Security and

Technology

Infrastructure Releases

(STIR)

Milestone 4 

10/30/01

$31,287

1/31/02

$31,287

+3 months Slip in Enterprise Integration and Test

Environment (EITE) Ready For Use (RFU)

date caused a slip in the MS4 exit date. Late

identification, ordering, and receipt of

equipment caused the slip in EITE.

Security and

Technology

Infrastructure Releases

(STIR)

FY 2002 

5/31/02

$43,973

11/30/02

$55,522

+6 months

+$11,549 (+26%)

Start date slipped 3 months due to slippage

in milestone 4 exit date. End date slipped

because STIR was split into two releases to

accommodate projects' schedules.

Sub-release 1 supports IR/FoF; Release 2

supports e-Services. Cost change due to

realignment of projects' schedules, increased

software maintenance, additional security

requirements, and OMB A-11 requirement

to purchase rather than lease equipment

 (+$11.340M), and application of FY 2001

infrastructure funds to FY 2002.

Source: IRS and GAO Analysis
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 68 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

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Appendix IV:

IRS Reported Cost / Schedule Changes

Program/ Project

Management Initiative

Commitment Date and

Funding as of 10/2001

($000)

Revised Commitment

Date and Funding

($000)

Change (%)

($000)

IRS

Explanation of Change

Enterprise Systems

Management (ESM)

Milestone 4 

12/19/01

$9,184

2/19/02

$9,184

+2 months 60-day extension of MS4 exit to realign the

schedule with STIR and EITE RFU, reevaluate the system requirements document

relative to the evolving needs of the

modernized projects, specifically IR/FoF,

evaluate the current ITS organization’s

ability to support the existing ESM release

plan.

Enterprise Systems

Management (ESM)

FY 2002

7/31/02

$11,323

11/30/02

$11,090

+4 months

-$233 (-2%)

Start date slipped 3 months due to slippage

in milestone 4 exit date. End date slipped to

coincide with ESM PMAR release 1.3 to

support IR/FoF. Cost decrease due to revised

period of performance, enhancements in

Web Hosting facilities, and Security Test &

Evaluation overrun.

Development

Integration and Test

Environment (DITE)

FY 2002

11/15/02

$12,916

11/15/02

$17,194 +$4,278 (+33%)

Increased support for Help Desk, Data

Modeling, Rational Tools, Customer Guide,

and increase in maintenance costs. Cost of

relocating projects from GCC to MCC. Cost

to move Z900 from GCC to TCC for

Disaster Recovery.

Program Management

FY 2002

11/10/02

$7,918

11/10/02

$8,206 +$288 (+4%)

Savings realized as a result of negotiation of

the fee position and reaching agreement on

the price for the full period of performance.

New requirements requests received so late

in the fiscal year are, in some cases, only

achievable by extra costs, such as having

contractors.

Source: IRS and GAO Analysis
Appendix I

Briefing Slides from the December 18, 2002, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 69 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

63

Appendix IV:

IRS Reported Cost / Schedule Changes

Program/ Project

Management Initiative

Commitment Date and

Funding as of 10/2001

($000)

Revised Commitment

Date and Funding

($000)

Change (%) 

($000)

IRS

Explanation of Change

Architecture and

Integration

FY 2002 

11/10/02

$32,539

11/10/02

$38,948 +$6,409 (+20%)

Cost increase ($6.409M) transferred from

Business Integration to cover the cost of

Release Management.

Management Processes

FY 2002 

11/10/02

$10,082

11/10/02

$11,190 +$1,108 (+11%)

Cost increase ($1.108M) needed to fund the

PRIME's SA CMM activities to prepare for

and conduct the SA CMM Level 3 

assessment.

FFRDC – MITRE

FY 2002 

11/10/02

$18,070

11/10/02

$18,820 +$750 (+4%)

Additional work identified to support

Program Management (acquisition

management), Management Processes

(process improvement, ELC, risk

management) and Architecture & 

Engineering (data management).

Source: IRS and GAO Analysis
Page 70 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

Appendix II

Briefing Slides from the April 14, 2003, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs ApenIdxi

1

Results of Review of IRS’s Revised Fiscal Year 2003 Business 

Systems Modernization Expenditure Plan

Briefing to the Staffs of

the Senate Committee on Appropriations,

Subcommittee on Transportation, Treasury and 

General Government

and

the House Committee on Appropriations,

Subcommittee on Transportation, Treasury, and 

Independent Agencies

April 14, 2003
Appendix II

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Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 71 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

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Briefing Overview

• Introduction

• Objectives

• Scope and Methodology

• Background

• Results in Brief

• Results

• Conclusions

• Agency Comments

• Appendices

• I – Description of BSM Program-Level Initiatives and Projects

• II – Detailed Summary of IRS’s March 2003 Expenditure Plan

• III – Detailed Comparison of IRS’s Initial (November 2002) and 

Revised (March 2003) FY 2003 Expenditure Plans

• IV – IRS Reported Cost and Schedule Changes
Appendix II

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Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 72 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

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Introduction

• As mandated by IRS’s FY 2003 appropriations act,1 Business Systems 

Modernization (BSM) funds are unavailable until IRS submits to the 

congressional appropriations committees for approval, a modernization 

expenditure plan that:

• Meets the Office of Management and Budget’s (OMB) capital 

planning and investment control review requirements;

• Complies with IRS’s enterprise architecture (EA);2

• Conforms with IRS’s Enterprise Life Cycle methodology;3

• Is approved by IRS, Treasury, and OMB;

• Is reviewed by GAO; and

• Complies with federal acquisition rules, requirements, guidelines, 

and systems acquisition management practices.

2An Enterprise Architecture (EA) is an institutional blueprint defining how an enterprise operates today, in both business and technology terms,

and how it wants to operate at some point in the future. An EA also includes a roadmap for transitioning between these environments.

3IRS refers to its life cycle management program as the Enterprise Life Cycle (ELC).

1Consolidated Appropriations Resolution, 2003 (P. L. 108-7).
Appendix II

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Appropriations Subcommittee Staffs

Page 73 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

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Introduction

• Since mid-1999, IRS has submitted a series of expenditure or 

“spending” plans requesting release of BSM appropriated funds. To 

date, about $1.35 billion has been appropriated for BSM, including $366 

million for FY 2003. Of the $1.35 billion appropriated, about $1.2 billion 

has been released.

• On November 18, 2002, IRS submitted its initial FY 2003 expenditure plan for about $451 million, seeking release of the $257 million

approved by OMB at that time.

• On January 9, 2003, IRS reduced its initial release request from $257 million to $231.7 million to narrow the scope of the BSM program and

reduce related risks, and to focus on the timely remediation of material 

weaknesses.

• The relevant House and Senate appropriations subcommittees subsequently approved the release of the requested $231.7 million on 

January 10 and 22, 2003, respectively. 

• On March 14, 2003, IRS submitted a revised FY 2003 expenditure plan for about $378 million, seeking release of the remaining $146.6 million

from the BSM account.
Appendix II

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Appropriations Subcommittee Staffs

Page 74 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

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Objectives

• As agreed with IRS’s appropriations subcommittees, our objectives were 

to

• determine whether the March 2003 expenditure plan satisfies the 

legislative conditions, 

• provide any observations about the March 2003 plan and IRS’s BSM

program.
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Appropriations Subcommittee Staffs

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Scope and Methodology

• To accomplish our objectives, we

• Reviewed the revised FY 2003 expenditure plan submitted by IRS 

in March 2003;

• Analyzed the plan against the legislative conditions to identify any

variances;

• Compared the revised (March 2003) plan to the initial (November 

2002) plan to identify changes in the scope of BSM activities 

planned for FY 2003;

• Observed modernization executive steering committee and 

subcommittee meetings to, among other things, document how the 

plan was developed and reviewed; 

• Interviewed IRS program and project management officials to 

corroborate our understanding of the plan and other BSM activities.
Appendix II

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Appropriations Subcommittee Staffs

Page 76 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

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Scope and Methodology

• Consistent with prior reviews, 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.

• We provided a draft of this briefing on April 11, 2003, to IRS BSM 

program executives, and have incorporated their comments, as 

appropriate.

• We performed our work from March through April 2003 in accordance 

with generally accepted government auditing standards.
Appendix II

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Briefing to the Senate and House 

Appropriations Subcommittee Staffs

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Background

• IRS BSM program has deployed projects and reported the following

benefits, including:

• Customer Communications 2001 – improves telecommunications 

infrastructure, including telephone call management, call routing, 

and customer self-service applications

• Customer Relationship Management Examination – provides

commercial off-the-shelf software to IRS revenue agents to allow 

them to accurately compute complex corporate transactions

• Internet Refund/Fact of Filing – improves customer self-service by 

providing instant refund status information and instructions for

resolving refund problems to taxpayers with Internet access. IRS

reports that this application has had over 12 million users. 
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Appropriations Subcommittee Staffs

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Background

• In our December 2002 briefing on the results of our review of IRS’s initial 

FY 2003 (November 2002) BSM Expenditure Plan, we reported, among

other things, that:

• IRS had made significant progress in improving its modernization

management controls and capabilities and implementing our 

recommendations. Further, IRS had taken steps to better balance the pace 

of the FY 2002 BSM program with its management capability.

• Although significant progress had been made, certain modernization 

management controls and capabilities, related to configuration 

management, enterprise transition strategy, human capital management, 

and cost and schedule estimate validation, had not yet been fully 

implemented. Weaknesses in these controls and capabilities contributed, at 

least in part, to BSM project cost, schedule, and performance shortfalls.
Appendix II

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Appropriations Subcommittee Staffs

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Background

• We also made five observations in our December 2002 briefing related 

to the BSM program and IRS’s initial (November 2002) FY 2003 BSM

Expenditure Plan:

• The number of project milestones experiencing cost and schedule 

changes was increasing

• BSM was entering a critical, high-risk phase as the scope and 

complexity of the program continued to grow

• Opportunities for using performance-based contracts were 

increasing

• IRS had improved the format of its expenditure plan

• Internal costs of the BSM program, expected to increase, were not 

tracked or known

• To assist IRS in improving and expanding its modernization 

management controls and capabilities, we made several 

recommendations to the Acting Commissioner of Internal Revenue.
Appendix II

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Briefing to the Senate and House 

Appropriations Subcommittee Staffs

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Background

• We also reported in our December 2002 briefing that sustained top 

management involvement, improved management capabilities, and 

consistent oversight are critical to the successful implementation of the 

BSM program.

• Like its previous plans, IRS’s March 2003 expenditure plan covers 

contractor costs, such as the Prime Systems Integration Support 

contractor (PRIME) and the systems engineering and technical services 

provided by the Federally Funded Research and Development Center

(MITRE).

• A summary of the revised plan follows.
Appendix II

Briefing Slides from the April 14, 2003, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

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Background

Summary of IRS’s March 2003 Expenditure Plan ($000)4

Program-Level Initiatives IRS Request

Architecture & Integration $34,000

Business Integration $8,000

Management Processes $11,476

Federally Funded Research and Development Center (FFRDC) - MITRE $16,688

Program Management $10,000

Subtotal $80,164

Projects5

Core Infrastructure Projects (e.g. Infrastructure Shared Services) $89,261

Data Projects (e.g. Customer Account Data Engine, Integrated Financial Systems) $168,251

Business Projects (e.g. e-Services, Modernized e-file) $59,342

Subtotal $316,854

FY 2003 Management Reserve Request* $11,120

FY 2002 Management Reserve Carryover ($10,146)

FY 2002 CAM MS3b Unused Funds ($19,694)

Total $378,298

* - Includes $677 from Remaining FY2001 and FY2002 Appropriated Funds.

Source: IRS

4See appendix I for a description of each program-level initiative and project, and see appendix II for a more detailed summary of the plan. 5The 3 categories under this heading include several separate projects.
Appendix II

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Results in Brief

• IRS’s March 2003 plan satisfies each of six legislative conditions.

Legislative Conditions Satisfies Does Not Satisfy

1. Meets OMB capital planning and investment control review

requirements.

9

2. Complies with IRS’ enterprise architecture. 9

3. Conforms with IRS’s Enterprise Life Cycle methodology 9

4. Approved by IRS, Treasury, and OMB. 9

5. Reviewed by GAO. 9

6. Complies with federal acquisition rules, requirements, guidelines,

 and systems acquisition management practices.6 9

• The revised March 2003 expenditure plan:

• Slows the pace of BSM program

• Shows that most initiatives/project milestones continue to 

experience cost increases and/or schedule delays 

• Demonstrates the impact of schedule delays on delivery of 

benefits

• In commenting on a draft of this briefing, the Associate Commissioner 

for BSM generally agreed with it and provided other comments. 6These acquisition requirements and practices are intended to establish acquisition management rigor and discipline, such as those defined in the

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

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Appropriations Subcommittee Staffs

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Results

Objective 1: The March 2003 plan satisfies the conditions in 

IRS’s FY 2003 appropriations act.

Legislative Conditions Expenditure Plan Provisions

1. Meets OMB capital

planning and

investment control

review requirements.

IRS’s March 2003 expenditure plan provides for

managing investments as part of a portfolio through

its Investment Decision Management process. This

includes conducting periodic portfolio reviews to

assess changes in business priorities and project

schedules.
Appendix II

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Appropriations Subcommittee Staffs

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Results

Legislative Conditions Expenditure Plan Provisions

2. Complies with IRS’s

 enterprise

 architecture (EA). 

The March 2003 plan provides funds to continue

definition and implementation of the enterprise

architecture. For example, it provides for

• completing and issuing EA release 2.1 

• publishing updates to the EA 

• performing EA compliance certification

activities

• issuing the 2003 and 2004 release architectures

• operating the systems engineering office 

3. Conforms with IRS’s

Enterprise Life Cycle

methodology.

The plan provides funds for meeting the 

requirements in IRS’s enterprise life cycle 

management program, which IRS’s refers to as

ELC. For example, the plan calls for 

• maintaining responsibility for coordinating,

tracking, and integrating all program-wide costs,

schedules, releases, issues, and risks 

• maintaining the ELC
Appendix II

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Appropriations Subcommittee Staffs

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Results

Legislative Conditions Expenditure Plan Provisions

4. Approved by IRS,

Treasury, and OMB.

• IRS – January 15, 2003

• Treasury – January 16, 2003

• OMB – February 25, 2003

• Submitted to IRS’s appropriations

subcommittees – March 14, 2003 

5. Reviewed by GAO. • GAO – April 14, 2003 briefing to IRS’s

appropriations subcommittees

6. Complies with the

acquisition rules,

requirements,

guidelines, and 

systems acquisition

management practices

of the federal

government.

As part of the ELC, IRS has defined processes,

roles, responsibilities, etc. for implementing

Software Engineering Institute (SEI) Software

Acquisition Capability Maturity ModelTM practices

within the level 2 key process areas.7

These

practices are consistent with federal acquisition

requirements and management practices, and the 

plan calls for implementation of the ELC on all

projects. Also, all PRIME cost reimbursement task

orders are subject to a final independent audit by 

the Defense Contract Audit Agency to ensure that

costs incurred are commensurate with the physical

completion of the contract.

7These are acquisition planning, solicitation, requirements development and management, project management, contract tracking

and oversight, evaluation, and transition to support.
Appendix II

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Results

Objective 2: Observations About IRS’s BSM Program and 

Revised Expenditure Plan

Observation 1:Revised Plan Reduces the Scope of 

BSM Program

•IRS’s initial (November 2002) FY 2003 plan was to (1) continue 

ongoing program-level initiatives through mid-November 2003 

and 12 ongoing projects to their next milestones and (2) start 8

new projects or new releases of existing projects.

•However, IRS’s revised (March 2003) FY 2003 plan is to (1) 

continue ongoing program-level initiatives at a reduced funding 

level through mid-November 2003 and 9 ongoing projects to their 

next milestones and (2) start 5 new projects or new releases of 

existing projects. 

•See appendix I for a description of projects and initiatives. 
Appendix II

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Appropriations Subcommittee Staffs

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Results

• Since the November 2002 Plan, IRS has:

• Reduced the funding request for BSM program by about $72 million

• Deferred 4 new project releases, discontinued 2 ongoing project 

releases, absorbed 1 new release into an ongoing project release, 

and transferred 1 ongoing project to another appropriation

• Started a new project release-CAP Release 2 and funded a 

business case study for the Work Management project 

• Reduced funding for program-level initiatives by 19 percent and core 

infrastructure projects by 10 percent

• The changes in scope reduced the number of projects in the more 

complex and risky later stages of development. The March 2003 plan 

calls for 7 business and data projects that are in milestone 4 or beyond.
Appendix II

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Appropriations Subcommittee Staffs

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Results

• IRS reduced funding for the core infrastructure projects, in part, to reflect 

reduced BSM scope. IRS asserts that it has taken steps to mitigate 

project impacts resulting from these reductions. Core infrastructure 

projects provide oversight for laboratory environments, which support 

development and testing, as well as the foundational enabling 

infrastructure and strategic services for all data and business projects. If 

core infrastructure is not sufficient or available, the risk of schedule 

delays for other projects increases. 

• The following slide shows a comparison between the funding levels 

requested by the initial and revised FY 2003 plans.
Appendix II

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Appropriations Subcommittee Staffs

Page 89 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

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Results

Comparison of IRS’s Initial (November 2002) and Revised 

(March 2003) FY 2003 Expenditure Plans ($000)8

Program-Level Initiatives

Nov. 2002 

IRS Request

Mar. 2003

IRS Request Change (%)

Architecture & Integration $43,577 $34,000 -$9,577 (-22%)

Business Integration $11,413 $8,000 -$3,413 (-30%)

Management Processes $13,828 $11,476 -$2,352 (-17%)

Federally Funded Research and Development Center (FFRDC) - MITRE $20,750 $16,688 -$4,062 (-20%)

Program Management $9,908 $10,000 +$92 (+1%)

Subtotal $99,476 $80,164 -$19,312 (-19%)

Projects9

Core Infrastructure Projects (e.g. Infrastructure Shared Services) $99,261 $89,261 -$10,000 (-10%)

Data Projects (e.g. Customer Account Data Engine, Integrated Financial System) $152,798 $168,251 +$15,453 (+10%)

Business Projects (e.g. e-Services, Modernized e-file) $94,800 $59,342 -$35,458 (-37%)

Subtotal $346,859 $316,854 -$30,005 (-9%)

FY 2003 Management Reserve Request* $4,342 $11,120 +$6,778 (+156%)

FY 2002 Management Reserve Carryover ($10,146) - $10,146

FY 2002 CAM MS3b Unused Funds ($19,694) - $19,694

Total $450,677 $378,298 -$72,379 (-16%)

* - Includes $677 from Remaining FY2001 and FY2002 Appropriated Funds

Source: IRS

8See appendix III for a more detailed comparison of IRS’s initial and revised FY 2003 expenditure plans.

9The 3 categories under this heading include several separate projects.
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Results

• Observation 2: Most Initiatives/Project Milestones Continue to 

Experience Cost Increases and/or Schedule Delays

• In its March 2003 plan, IRS disclosed that 25 of 28 initiatives or project 

milestones have experienced cost increases and/or schedule delays 

against commitments made in the November 2001 plan. Of the 25, 15 were 

acquisition projects and 10 were program-level initiatives. 

• 21 of 28 (or 75 percent) initiatives/project milestones experienced cost 

increases and/or schedule delays exceeding 10 percent of the estimated 

cost and duration stated in the November 2001 plan: 

• 12 experienced cost increases

• 14 experienced schedule delays

• See Appendix IV for details.
Appendix II

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Appropriations Subcommittee Staffs

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Results

• The cost increases and schedule delays were caused, in part, by:

• Cost and schedule estimating deficiencies

• Under-estimating the complexity of projects

• Competing demands of projects for facilities used to test project 

releases

• Project interdependencies, whereby delays with one project had a

cascading effect and caused delays in another project

• In response to one of our previous recommendations, IRS and PRIME 

have developed new cost and schedule estimating and validation 

procedures. However, current variances were the result of estimates made 

before or during the implementation of new procedures.
Appendix II

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Results

Observation 3: Schedule Delays Affect Delivery of Benefits

• Schedule slippages delay direct benefits to the public:

• According to IRS, taxpayers covered under CADE will receive their 

refunds much faster than under Master File processing. However, 

continuing delays in deploying the first and subsequent releases of

CADE will postpone delivery of this benefit to taxpayers. For 

example, the opportunity for the first set of taxpayers (single 1040EZ 

filers) to enjoy faster refunds has been delayed 13 months.

• The e-Services project is to provide easy-to-use electronic products 

and services targeted at tax practitioners that inform, educate, and

provide services to the taxpaying public. Schedule slippages with 

the first release of e-Services will delay deployment of services such 

as registration of electronic return originators, taxpayer identification 

number matching, and secure e-mail.
Appendix II

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Results

• Remediation of material weaknesses may be delayed:

• IRS has reported a material weakness associated with the design of 

the Master Files. CADE is to build the modernized database 

foundation that will replace Master Files. Continuing schedule 

slippages will delay resolution of this material weakness.

• CAP will address a financial material weakness and permit the 

tracking from submissions to disbursement of all revenues received 

from individual taxpayers. The first release of CAP is several months 

behind its May 2003 initial operating capability, primarily due to 

delays in availability of necessary infrastructure support 

functionality, delay in developing the interface to CADE, and 

diversion of critical staff to support filing season 2002. 

• Acceleration of the second release of CAP (milestone 4) is an 

attempt to resolve the financial material weakness in accordance

with the IRS Financial Remediation Plan.

• Also, IFS Release 1 is currently on schedule for October 2003.
Appendix II

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Conclusions

• IRS’s revised (March 2003) expenditure plan satisfies the legislative 

conditions. Since our last briefing, IRS has reduced the scope of the 

BSM program.

• Despite the reduced scope of the IRS BSM program for FY 2003, it

continues to face heightened risks because (1) several key projects are 

in or entering their later stages of development and deployment, (2)

some of these projects provide the foundational infrastructure upon 

which later projects depend, and (3) project milestones continue to

experience cost increases and schedule delays.

• Continued management attention and effort toward implementing our 

prior recommendations are necessary to manage these risks and 

sustain improvements in IRS’s BSM management capabilities.
Appendix II

Briefing Slides from the April 14, 2003, 

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Agency Comments

• In providing comments via e-mail on a draft of this briefing, the 

Associate Commissioner for Business Systems Modernization, stated 

that it is a fair and accurate representation of the BSM program. He also 

stated that

• IRS achievements demonstrate its program-wide commitment to 

reach the degree of management capability to effectively run such a 

large, complex program

• IRS has established a stable management team 

• IRS’s major concern is the impact of inconsistent funding of the

program

• IRS appreciates GAO’s continued support for the BSM program

• In addition, the Associate Commissioner for BSM provided specific 

comments which we have incorporated into the briefing, as appropriate.
Appendix II

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Appendix I:

BSM Program-Level Initiatives/Projects

Description of BSM Program-Level Initiatives and Projects

Source: IRS

Proposed Modernization Initiatives Description

Program-Level Initiatives:

Architecture & Integration Ensures that systems solutions meet IRS business needs and that the projects are

effectively integrated.

Business Integration Ensures that IRS BSM program is aligned with the business units’ reengineering

efforts and that business transformation plans are developed and maintained to

support a seamless “transition to support”.

Management Processes Provides sustaining support for program-level management processes, including

quality assurance, process improvement, training, program control, and ELC

maintenance and enhancements.

FFRDC - MITRE Provides program management and systems engineering support to BSMO.

Program Management Provides overall program management for IRS-PRIME Partnership activities and

deliverables, and is responsible for coordinating, tracking, and integrating all

program-wide costs, schedules, and performance measures.

Core Infrastructure Projects:

Development Integration & Testing

Environment (DITE)

Provides oversight for laboratory environments which support development, and

testing: (1) Virtual Development Environment – development environment and

standardized set of tools; (2) Enterprise Integration Testing Environment –

integration testing environment for all projects.

Infrastructure Shared Services (ISS) Provides foundational enabling infrastructure (infrastructure technology components

and strategic infrastructure services for all data and business projects: (1) Enterprise

Systems Management (ESM) – develops and executes a strategy to provide network

and systems management to improve IT infrastructure availability and performance;

(2) Security and Technology Infrastructure Release (STIR) – provides infrastructure

for secure telephony and electronic interaction among employees, tax practitioners,

and taxpayers.
Appendix II

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Appendix I:

BSM Program-Level Initiatives/Projects

Description of BSM Program-Level Initiatives and Projects (Cont.)

Source: IRS

Proposed Modernization Initiatives Description

Data Projects:

Customer Account Data Engine (CADE) Builds the modernized database foundation to replace the existing master file processing

systems.

Integrated Financial Systems (IFS) Implements an integrated financial management system using a commercial off-the-shelf

enterprise resource planning product.

Custodial Accounting Project / Enterprise Data

Warehouse (CAP/EDW)

Provides integrated, reliable tax operations and internal management information to

support evolving decision analytics, performance measurement, and management

information needs.

Modernized Data Access (MDA) Provides a single integrated approach and software for accessing current processing

environment (legacy) data across the organization, and builds key infrastructure

components that all modernization projects can share.

Information Returns Processing (IRP) Provides modernized information returns repository to link third party data directly to

customer accounts to efficiently handle customer service and compliance inquiries and

demands.

Business Projects:

Customer Communications 2001 Improves communications infrastructure, including telephone call management, call

routing, and customer self-service applications.

Internet Refund / Fact of Filing (IR/FoF) Improves customer self-service by providing instant refund status information and

instructions for resolving refund problems to taxpayers with Internet access.

Customer Account Management (CAM) Delivers an enterprise solution to support access to tax account data, contact

management, case management, outbound correspondence management, and workflow

management.

Customer Contact Modernization (CCM) Provides initial building blocks to transition IRS from current call center environment to

new customer contact center.

e-Services Creates a web portal and value-adding e-Services to promote the goal of conducting most

of the IRS’s transactions with taxpayers and tax practitioners electronically.

Filing & Payment Compliance (F&PC) Provides support for detecting, scoring, and working cases in the area of non-filer (filing

compliance) and delinquency (payment compliance) cases.

HR Connect Delivers an enterprise solution to allow IRS employees to access and manage their

human resources information online.

Modernized e-file Provides a single standard for filing electronic tax returns.

Work Management Selects and integrates software applications to improve IRS’s ability to manage and

allocate staffing resources and track workload more effectively.
Appendix II

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Appendix II:

IRS Expenditure Plan

Detailed Summary of IRS’s March 2003 Expenditure Plan ($000)

Source: IRS

Proposed Modernization Initiatives Releasea Milestoneb Milestone

Date

Amount

Requested

Program-Level Initiativesc

Architecture & Integration FY Nov. 03 $34,000

Business Integration FY Nov. 03 $8,000

Management Processes FY Nov. 03 $11,476

FFRDC - MITRE FY Nov. 03 $16,688

Program Management FY Nov. 03 $10,000

Subtotal - Program-Level Initiatives $80,164

Core Infrastructure Projectsc

Development Integration & Testing Environment infrastructure Nov. 03 $13,961

Infrastructure Shared Services infrastructure Nov. 03 $75,300

Subtotal - Core Infrastructure Projects $89,261

Data Projects

Customer Account Data Engine (CADE) R1 5 Dec. 03 $4,889

Customer Account Data Engine (CADE) R2 4 TBD $6,924

Customer Account Data Engine (CADE) R3 3 Jun. 04 $15,870

Subtotal - CADE $27,683

Integrated Financial Systems (IFS) R1 3c Feb. 03 $29,700

Integrated Financial Systems (IFS) R1 4 Sep. 03 $53,655

Integrated Financial Systems (IFS) R1 5 Mar. 04 $10,700

Integrated Financial Systems (IFS) R2 2,3a TBD $2,500

Subtotal - IFS $96,555

Custodial Accounting Project / Enterprise Data Warehouse (CAP/EDW) R1 4,5 Feb. 04 $29,013

Custodial Accounting Project / Enterprise Data Warehouse (CAP/EDW) R2 4 Dec. 03 $15,000

Subtotal - CAP $44,013

Subtotal - Data Projects $168,251

aReleases are software versions that provide a subset of the total planned project functionality.

bMilestones correspond to phases within IRS’s Enterprise Life Cycle.

cProgram Level Initiatives and Core Infrastructure Projects are funded on a fiscal year (FY) basis rather than by milestone.
Appendix II

Briefing Slides from the April 14, 2003, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 99 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

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Appendix II:

IRS Expenditure Plan

Detailed Summary of IRS’s March 2003 Expenditure Plan ($000) (Cont.)

Business Projects

e-Services R1 & R2 4,5 Sep. 04 $18,846

Modernized e-file R1 4 Nov. 03 $39,846

Work Managementd FY Jun. 03 $650

Subtotal - Business Projects $59,342

FY 2003 Management Reserve Request* $11,120

FY 2002 Management Reserve Carryover ($10,146)

FY 2002 CAM MS3b Unused Funds ($19,694)

Total FY 2003 Release Request $378,298

FY 2003 Partial Release of Funds $231,700

Remaining Unreleased Request $146,598

Proposed Modernization Initiatives Release Milestone Milestone

Date

Amount

Requested

* - Includes $677 from Remaining FY 2001 and FY 2002 Appropriated Funds

Source: IRS

dThe Work Management project is being funded on a level of effort or fiscal year (FY) basis rather than by milestone for FY 2003.
Appendix II

Briefing Slides from the April 14, 2003, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 100 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

31

Appendix III:

IRS Expenditure Plan Comparison

Detailed Comparison of IRS’s Initial (November 2002) and Revised (March 2003) FY 

2003 Expenditure Plans ($000)

IRS Explanation of Changes

Target funding level based on reduced budget/fewer projects.

Target funding level based on reduced budget/fewer projects.

Target funding level based on reduced budget/fewer projects.

Target funding level based on reduced budget/fewer projects.

Refined estimate of required funding for FY 2003 initiatives.

Target funding level based on reduced budget/fewer projects.

Refined funding estimate to support FY 2003 initiatives. (See Note 1)

Policy change. Milestone 6 will be funded by ISY Appropriation.

Schedule delayed due to CADE R1 delays. Incorporated infrastructure costs.

Infrastructure costs combined with CADE R3 Milestone 3 costs above.

Deferred due to CADE program slippage.

Proposed Modernization Initiatives Nov. 02

Milestone

Date

Mar. 03

Milestone

Date

Schedule

Variance

Nov. 02

Amount

Requested

Mar. 03

Amount

Requeste

Cost Variance (%)

Program Level Initiatives

Architecture & Integration Nov. 03 Nov. 03 - $43,577 $34,000 -$9,577 (-22%)

Business Integration Nov. 03 Nov. 03 - $11,413 $8,000 -$3,413 (-30%)

Management Processes Nov. 03 Nov. 03 - $13,828 $11,476 -$2,352 (-17%)

FFRDC - MITRE Nov. 03 Nov. 03 - $20,750 $16,688 -$4,062 (-20%)

Program Management Nov. 03 Nov. 03 - $9,908 $10,000 +$92 (+1%)

Subtotal - Program-Level Initiatives $99,476 $80,164 -19,312 (-19%)

Core Infrastructure Projects

DITE Nov. 03 Nov. 03 - $13,961 $13,961 -

Infrastructure Shared Services Nov. 03 Nov. 03 - $85,300 $75,300 -$10,000 (-12%)

Subtotal - Core Infrastructure Projects $99,261 $89,261 -$10,000 (-10%)

Data Projects

CADE R1, Milestone 5 Jun. 03 Dec. 03 + 6 months $4,851 $4,889 +$38 (+1%)

CADE R1, Milestone 6 Dec. 03 - - $3,638 $0 -$3,638 (-100%)

CADE R2, Milestone 4 TBD TBD - $6,924 $6,924 -

CADE R3, Milestone 3 Dec. 03 Jun. 04 + 6 months $15,289 $15,870 +$581 (+4%)

CADE R3, Infrastructure Dec. 03 - - $581 $0 -$581 (-100%)

CADE R4, Milestone 3 Aug. 04 TBD - $6,756 $0 -$6,756 (-100%)

Subtotal - CADE $38,039 $27,683 -$10,356 (-27%)

Source: IRS
Appendix II

Briefing Slides from the April 14, 2003, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 101 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

32

Appendix III:

IRS Expenditure Plan Comparison 

Detailed Comparison of IRS’s Initial (November 2002) and Revised (March 2003) FY 

2003 Expenditure Plans ($000) (Cont.)

IFS R1, Milestone 3c - Feb. 03 - $0 $29,700 +$29,700 (+100%)

IFS R1, Milestone 4 Sep. 03 Sep. 03 - $67,227 $53,655 -$13,572 (-20%)

IFS R1, Milestone 5 Mar. 04 Mar. 04 - $6,828 $10,700 +$3872 (+57%)

IFS R2, Milestone 2/3a TBD TBD - $2,500 $2,500 -

Subtotal - IFS $76,555 $96,555 +$20,000 (+26%)

CAP/EDW R1B1, Milestone 4/5 May 03 - - $4,850 $0 -$4,850 (-100%)

CAP/EDW R1B1.1, Milestone 4/5 Sep. 03 - - $13,613 $0 -$13,613 (-100%)

CAP R1, Milestone 4/5 - Feb. 04 + 9 months $0 $29,013 +$29,013 (+100%)

CAP R2, Milestone 4 - Dec. 03 - $0 $15,000 +$15,000 (+100%)

Subtotal - CAP $18,463 $44,013 +$25,550 (+138%)

MDA R1, Infrastructure Nov. 03 TBD - $16,741 $0 -$16,741 (-100%)

IRP R1, Milestone 1 TBD - - $3,000 $0 -$3,000 (-100%)

Subtotal - Data Projects $152,798 $168,251 +$15,453 (+10%)

Business Projects

CAM R1, Milestone 4 Oct. 04 TBD - $20,949 $0 -$20, 949 (-100%)

CCM R1, Milestone 2 TBD - - $2,500 $0 -$2,500 (-100%)

e-Services R1 & R2, Milestone 4/5 Apr. 04 Sep. 04 + 5 months $5,846 $18,846 +13,000 (+222%)

F&PC R1, Milestone 4 Apr. 04 TBD - $26,159 $0 -$26,159 (-100%)

HR Connect R1, Milestone 4/5 TBD - - $11,500 $0 -$11,500 (-100%)

Modernized e-File R1, Milestone 4 Nov. 03 Nov. 03 - $27,846 $39,846 +$12,000 (+43%)

Work Management - Jun. 03 - $0 $650 +$650 (+100%)

Subtotal - Business Projects $94,800 $59,342 -$35,458 (-37%)

FY 2003 Management Reserve Request $4,342 $11,120 +$6,778 (+156%)

FY 2002 Management Reserve Carryover $0 -10,146 -$10,146 (-100%)

FY 2002 CAM MS3b Unused Funds $0 -19,694 -$19,694 (-100%)

Total FY 2003 Release Request $450,677 $378,298 -$72,379 (-16%)

Data Projects (Cont.)

Proposed Modernization Initiatives Nov. 02 

Milestone

Date

Mar. 03 

Milestone

Date

Schedule

Variance

Nov. 02 

Amount

Requested

Mar. 03 

Amount

Requeste

Cost Variance (%)

(See Note 2)

(See Note 2)

(See Note 2)

Incorporated into CAP R1 Milestone 4/5 project below.

Incorporated into CAP R1 Milestone 4/5 project below.

(See Note 3)

(See Note 4)

Deferred pending funding.

Deferred pending funding.

Deferred pending funding.

Deferred pending funding.

(See Note 5)

Deferred pending funding.

Decision made to fund HR Connect from ISY Appropriation.

(See Note 6)

Follow-on to FY 2002 study to develop implementation strategy/business case.

Increase to management reserve based on OMB guidance.

Management Reserve remaining at end of FY 2002 to carryover to FY 2003

CAM project discontinued in FY 03. FY 2002 funds go to management reserve.

IRS Explanation of Changes

Source: IRS
Appendix II

Briefing Slides from the April 14, 2003, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 102 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

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Appendix III:

IRS Expenditure Plan Comparison

Detailed Comparison of IRS’s Initial (November 2002) and Revised (March 2003) FY 

2003 Expenditure Plans ($000) (Cont.)

IRS Explanation of Changes:

Note 1: Deployment was delayed due to contractor delays in staffing the project, failure to 

acquire a business rules engine, underestimating the technical complexity of a few key 

software components, and late attention to critical project elements. Additional slippage was 

due to mandatory relocation of development site to satisfy security certification concerns.

Note 2: Infrastructure hardware and software procurements and labor to conduct IFS 

preliminary development activities originally planned to begin in Milestone 4 have been moved 

forward into a new Milestone 3c segment. This allows the project to continue to move forward 

on schedule for an October 1, 2003, “go live” while incomplete Milestone 3 activities are being 

satisfied. The net budget increase of $20 million for Milestones 3c, 4, and 5 reflects a revised 

estimate of actual labor costs and an increase in infrastructure costs.

Note 3: CAP/EDW R1B1 and R1B1.1 have been combined and renamed CAP R1 as a result 

of a major CAP replan effort. Delays in obtaining the Infrastructure Shared Services (ISS)

schedule, and other additional activities impacting the schedule, necessitated the major

schedule replan. This ultimately resulted in a 9 month delay (from May 2003 to Feb. 2004) in 

the scheduled completion of Milestone 5. The revised total CAP R1 cost ($29,013) consists 

of CAP EDW R1B1 ($4,850), CAP EDW R1B1.1 ($13,613), and a cost increase of $10,550.

The cost increase was due in large part to the schedule delays discussed above.
Appendix II

Briefing Slides from the April 14, 2003, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 103 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

34

Appendix III:

IRS Expenditure Plan Comparison

Detailed Comparison of IRS’s Initial (November 2002) and Revised (March

2003) FY 2003 Expenditure Plans ($000) (Cont.)

IRS Explanation of Changes (cont.):

Note 4: CAP R2 Milestone 4 was moved up from FY 2004 to FY 2003, in an 

attempt to resolve the custodial accounting material weakness as soon as possible 

and comply with the current remediation plan dates. 

Note 5: Schedule delays occurred due to late completion of infrastructure, 

competing demand for testing resources, and additional scope of new e-Services 

R2. E-Services R2 will provide Modernized e-file participants access to the eservices registration and application process, tax year updates, and an enhanced 

Transcript Delivery System. Cost increases were due to delays in and 

enhancements to E-Services subreleases R1.1 and R1.2, as well as the additional 

scope of R2.

Note 6: Prior to being funded by BSM, Modernized e-File was made up of two Tier 

B projects. Many of the management and infrastructure estimates for these former 

Tier B projects were either inaccurate or did not reflect the additional capacity of 

integrating with the modernized environment. The revised cost includes increases 

for PRIME integration and infrastructure support, and changes to the customer 

database.
Appendix II

Briefing Slides from the April 14, 2003, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 104 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

35

Appendix IV:

IRS Reported Cost / Schedule Changes

Source : IRS and GAO Analysis

Program/ Project

Management Initiative

Commitment Date and

Funding as of 10/2001

($000)

Revised Commitment

Date and Funding

($000)

Change (%) IRS Explanation of 

Change

Customer

Communications 2001

Milestone 4,5 

10/31/01

$45,174

02/26/02

$44,796

+4 months (+22%)

-$378 (-1%)

CC01 went live on 07/27/01. However, a

performance award dispute (settled in 

February 2002) delayed Milestone 5. The

IRS paid the PRIME contractor $500K less

in performance awards than the maximum

allowed under the Task Order. Some of this

extra funding was used to cover higher than

expected Transition to Support costs.

Internet Refund/

Fact of Filing

(Release 1) 

Milestone 3 

9/30/01

$10,696

9/28/01

$10,957 +$261 (+2%)

Actual costs came in $261K higher than

estimated to complete MS4,5 proposal.

Internet Refund/

Fact of Filing

(Release 1) 

Milestone 4 

3/31/02

$5,000

11/7/02

$13,193

+7 months(+117%)

+$8,193 (+164%)

Definitization of this Task Order occurred

after submission of the October 2001

Expenditure Plan. Final negotiations placed

the MS 4 exit date at 05/03/02. However,

the PRIME contractor experienced

difficulties due to significant delays in

completing release level system integration

and testing (RSIT) and meeting performance

requirements. MS 4 completion was

delayed until the PRIME demonstrated

resolution of performance problems and

corrected outstanding items in the Defects

Report (DR).

Additional costs include $1.465M due to 

Product Assurance need for contractors to

perform testing, identified transition to

support needs, increased RIS costs, and MS4

cost overrun, $2.304M to cover maintenance

through the end of the fiscal year and

enhancements for FY03 filing season, and

$4.683M required to extend MS4 to 11/7/02.
Appendix II

Briefing Slides from the April 14, 2003, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 105 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

36

Appendix IV:

IRS Reported Cost / Schedule Changes

Program/ Project

Management Initiative

Commitment Date and

Funding as of 10/2001

($000)

Revised Commitment

Date and Funding

($000)

Change (%) IRS Explanation of 

Change

Internet Refund/

Fact of Filing

(Release 1) 

Milestone 5 

7/31/02

$5,000

3/12/03

$3,049

+7 months (+175%)

-$1,951 (-39%)

The PRIME contractor experienced

difficulties due to delays in completing

release level system integration and testing

(RSIT) and in meeting performance

requirements. Milestone 5 exit moved to 

3/12/03 at the request of the Business owner

so that the application can be monitored

during the 2003 Filing Season.

IRS planned to spend $2.304M in MS 5 to

cover maintenance through the remainder of

the fiscal year and enhancements for FY03

filing season. However, those funds were

used in MS 4 because of the delay in exiting

that Milestone.

The IRS estimated the non M&E MS 5 work

would cost $6M (the original $5M estimated

plus an additional $1.0M to extend MS 5

from 07/31/02 to 09/30/02. However, due to

the late exit of MS 4, MS 5 did not begin

until11/8/02. The cost of all MS 5 activities

through 3/12/03 is now estimated at

$3.049M.

Source: IRS and GAO Analysis
Appendix II

Briefing Slides from the April 14, 2003, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 106 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

37

Appendix IV:

IRS Reported Cost / Schedule Changes

Program/ Project

Management Initiative

Commitment Date and

Funding as of 10/2001

($000)

Revised Commitment

Date and Funding

($000)

Change (%) IRS Explanation of 

Change

e-Services

(Release 1.1 and 1.2) 

Milestone 4,5 

10/31/03

$40,191

9/30/04

$68,992

+11 Months (+41%)

+$28,801 (+72%)

The delays occurred because infrastructures

were not completed to meet the e-Services

date for PSIT. IR/FoF did not exit test

environment on schedule, delaying eServices. Also schedule delays and cost

increases because of move of Gaithersburg

Computing Center environment to the 

Martinsburg and the Tennessee Computing

Centers. FY 2002 cost increases for

unplanned infrastructure hardware

($4,255M), additional STIR Integration

($4.200M), and increased product assurance

testing ($1,500M).

Additional costs include continued support

of PRIME ISS contractors to e-services,

non-prime costs for MCC support in FY

2003, and ITS and Business training for

knowledge transfer needed for transitioning

e-services.

Customer Account

Management

(Release 1) 

Milestone 2 

3/31/02

$13,100

8/30/02

$13,300

+5 months (+56%)

+$200 (+2%)

New business requirements required update

to future concept of operations, and to

identify and prioritize their business process

re-engineering opportunities before

proceeding to MS3. Proposal for MS3 cost

overrun ($200K) due to changes in business

requirements.

Source: IRS and GAO Analysis
Appendix II

Briefing Slides from the April 14, 2003, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 107 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

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Appendix IV:

IRS Reported Cost / Schedule Changes 

Source: IRS and GAO Analysis

Program/ Project

Management Initiative

Commitment Date and

Funding as of 10/2001

($000)

Revised Commitment

Date and Funding

($000)

Change (%) IRS Explanation of 

Change

Filing and Payment

Compliance

(Release 1) 

Milestone 2,3 

1/31/03

$17,117

12/31/02

$18,117

-1 month (-6%)

+$1,000 (+6%)

$1.0M variance to include unplanned

transition to support in MS2,3 activities per 

new BSM program guidelines.

HR Connect

(Release 1) 

Milestone 4,5 

12/31/02

$10,000

12/31/02

$10,200 +$200(+2%)

The initial FY 2002 amount for MS4 and 5 

was based on available funds instead of

usable segment cost. This was done to cover

Treasury's anticipated activity in FY 2002

and not the entire MS4 and MS5 cost (i.e.,

MS5 work was never planned to be 

completed in FY 2002). The project is now

broken into MS4 and MS5 usable segments.

The estimate for MS4 is $10.2M and is 

compared with the original plan amount of

$10M. The BSM account will no longer

fund MS5 work.

Customer Account Data

Engine (CADE)

 Release 1 

Milestone 4 

6/30/02

$45,338

7/13/03

$45,338

+13 months

(+108%)

Deployment delayed due to contractor

delays in staffing the project, failure to

acquire a business rules engine,

underestimating the technical complexity of

a few key software components, late 

attention to critical project elements, and relocation of the development site to satisfy

security certification concerns.

Customer Account Data

Engine (CADE)

Release 1 

Milestone 5 

12/31/02

$5,795

12/31/03

$4,889

+12 months

(+200%)

-$906 (-16%)

FY 2002 funding for MS5 ($5.795M) was

returned to management reserve because

schedule delays moved MS5 to FY 2003.

The net MS5 decrease ($.906M) is due to 

revised estimates to do the same work.
Appendix II

Briefing Slides from the April 14, 2003, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 108 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

39

Appendix IV:

IRS Reported Cost / Schedule Changes

Program/ Project

Management Initiative

Commitment Date and

Funding as of 10/2001

($000)

Revised Commitment

Date and Funding

($000)

Change (%) IRS Explanation of

Change

Customer Account Data

Engine (CADE)

Release 2 

Milestone 4 

12/31/02

$38,400

TBD

$46,324 +$7,924 (+21%)

In the process of replanning Release 2 and

beyond due to delays in Release 1. Cost

increases are for planning for future

functionality due to CAM/CADE

sequencing ($1.0M) and FY03 infrastructure

costs ($6.924M).

Customer Account Data

Engine (CADE)

Release 3 

Milestone 3 

6/30/03

$9,779

6/30/04

$15,870

+12 months

(+100%)

+$6,091 (+62%)

Focus redirected to build foundation for

requirements. Deferred to FY03 to align

with CADE Release 2 capabilities, which

impact Release 3 scope, schedule, and costs.

Source: IRS and GAO Analysis
Appendix II

Briefing Slides from the April 14, 2003, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 109 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

40

Appendix IV:

IRS Reported Cost / Schedule Changes

Program/ Project

Management Initiative

Commitment Date and

Funding as of 10/2001

($000)

Revised Commitment

Date and Funding

($000)

Change (%) IRS Explanation of 

Change

Custodial Accounting

Project (CAP)

Release 1 

Milestone 4,5 

3/31/03

$51,430

2/16/04

$87,087

+11 months (+39%)

+$35,657 (+69%)

The first schedule variance resulted from

temporary reassignment of IMF programmer

resources to support 2002 tax filing season

changes, thus delaying MS5 from 03/31/03

to 05/15/03. The next major change in the

CAP schedule delayed M5 from 5/15/03 to

11/3/03. A delay in obtaining the ISS

schedule, and other additional activities

impacting the schedule, necessitated the 

major schedule replan. As a result, 11/3/03

transition to Production Environment was

redesignated as Initial Operational

Capability (IOC) and established MS5 as

2/16/04.

FY 2002 variance ($6.664M) due to

integration with STIR components, revenue

interface with IFS, CAP-CADE interface,

schedule delays, mid-year IMF changes.

FY03 request of $29,013 is comprised of

CY03 format changes, ISS/STIR and other

schedule delays, IFS/PACER modernized

interface development, ISS hardware and

software to upgrade processing capacity,

implementation of modernized standards to

CAP in-process development.

Source: IRS and GAO Analysis
Appendix II

Briefing Slides from the April 14, 2003, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 110 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

41

Appendix IV:

IRS Reported Cost / Schedule Changes

Program/ Project

Management Initiative

Commitment Date and

Funding as of 10/2001

($000)

Revised Commitment

Date and Funding

($000)

Change (%) IRS Explanation of

Change

Enterprise Data

Warehouse (EDW) 

Milestone 2,3 

5/31/02

$6,700

12/19/02

$6,950

+7 months (+78%)

+$250 (+4%)

Requirements expanded to include

additional data sets for analysis and

additional time needed to establish Business

User priorities. Upon completion and formal

exit of MS3 work for EDW, the IRS decided

to rescope EDW to focus on the original

CAP requirements. Meeting these original

requirements will provide a resolution to 

material weaknesses that currently exist in

Custodial Accounting.

Integrated Financial

System/Core Financial

System (IFS/CFS)

Release 1 

Milestone 4A/3B

11/30/02

$17,250

11/30/02

$23,000 +$5,750 (+33%)

Completed the deliverables originally

scheduled for MS2,3. However, certain

deliverables needed to exit Milestone 3 

under Milestone Exit criteria were not

planned using the COTS path through the

ELC. Extended Milestone 3 by establishing

Milestone 3B to produce the deliverables

needed to obtain Enterprise Architecture

Certification and other design work and exit

Milestone 3. The net MS4A/3B variance,

$5.750M (-$17.250 + $23.000) is due to

revised estimates to complete the work and

the ISS DCC communications infrastructure

buildout for IFS.

Source: IRS and GAO Analysis
Appendix II

Briefing Slides from the April 14, 2003, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 111 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

42

Appendix IV:

IRS Reported Cost / Schedule Changes

Program/ Project

Management Initiative

Commitment Date and

Funding as of 10/2001

($000)

Revised Commitment

Date and Funding

($000)

Change (%) IRS Explanation of 

Change

Infrastructure Shared

Services

FY 2002 

11/30/02

$39,747

11/30/02

$48,846 +$9,099 (+23%)

Started 3 months early to provide support to

FY 2003 Release. Cost increase due to

realignment of projects' schedules, increased

software maintenance, decision to buy rather

than lease equipment, and addition of

Modernized e-file requirements. The

majority of the cost overrun is as a result of

OMB A-11requirements to purchase

HW/SW instead of leasing it as originally

planned. Purchasing the equipment in FY

2002 saves money in the out years.

Security and

Technology

Infrastructure Releases

(STIR)

Milestone 4 

10/30/01

$31,287

1/31/02

$31,287

+3 months (+25%) Slip in Enterprise Integration and Test

Environment (EITE) Ready For Use (RFU)

date caused a slip in the MS4 exit date. Late

identification, ordering, and receipt of

equipment caused the slip in EITE.

Security and

Technology

Infrastructure Releases

(STIR)

FY 2002 

5/31/02

$43,973

11/30/02

$56,041

+6 months (+86%)

+$12,068 (+27%)

Start date slipped 3 months due to MS4 exit 

delay. End date slipped because STIR was

split into two releases to accommodate

projects' schedules. Sub-release 1 supports

IR/FoF; Release 2 supports e-Services,

which will be completed under ISS. Cost

change due to realignment of projects'

schedules, increased software maintenance,

additional security requirements, and OMB

A-11 requirement to purchase rather than

lease equipment (+$11.340M), and

application of FY 2001 infrastructure funds

to FY 2002.

Source: IRS and GAO Analysis
Appendix II

Briefing Slides from the April 14, 2003, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 112 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

43

Appendix IV:

IRS Reported Cost / Schedule Changes

Program/ Project

Management Initiative

Commitment Date and

Funding as of 10/2001

($000)

Revised Commitment

Date and Funding

($000)

Change (%) IRS Explanation of 

Change

Enterprise Systems

Management (ESM)

Milestone 4 

12/19/01

$9,184

2/19/02

$9,184

+2 months (+40%) 60-day extension of MS4 exit to realign the

schedule with STIR and EITE RFU, reevaluate the system requirements document

for the evolving needs of the modernized

projects, specifically IR/FoF, evaluate the

current ITS organization’s ability to support

the existing ESM release plan.

Enterprise Systems

Management (ESM)

FY 2002 

7/31/02

$11,323

1/31/03

$11,090

+6 months (+75%)

-$233 (-2%)

Start date slipped 3 months due to slippage

in milestone 4 exit date. End date slipped to

coincide with ESM PMAR release 1.3 to 

support IR/FoF. Cost decrease due to revised

period of performance, enhancements in

Web Hosting facilities, and Security Test &

Evaluation overrun.

Development

Integration and Test

Environment (DITE)

FY 2002 

11/15/02

$12,916

11/15/02

$17,194 +$4,278 (+33%)

Increased support for Help Desk, Data 

Modeling, Rational Tools, Customer Guide,

and increase in maintenance costs. Cost of

relocating projects from GCC to MCC. Cost

to move Z900 from GCC to TCC for

Disaster Recovery.

Source: IRS and GAO Analysis
Appendix II

Briefing Slides from the April 14, 2003, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 113 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

44

Appendix IV:

IRS Reported Cost / Schedule Changes

Program/ Project

Management Initiative

Commitment Date and

Funding as of 10/2001

($000)

Revised Commitment

Date and Funding

($000)

Change (%) IRS

Explanation of Change

Program Management

FY 2002

11/10/02

$7,918

11/9/02

$9,260 +$1,342 (+17%)

Savings ($14K) were realized as a result of

negotiation of the fee position and reaching

agreement on the price for the full period of

performance and refined cost estimates. Cost

increases ($1.026M) are to fund the

Executive Support Council. Unplanned

requests for information services (RIS) are

estimated at $330K.

Architecture and

Integration

FY 2002

11/10/02

$32,539

11/10/02

$38,910 +$6,371 (+20%)

Cost increase ($6.409M) transferred from

Business Integration to cover the cost of

Release Management. Cost decrease ($38K)

to complete Case for Action and Project

Management Plan transferred to Customer

Contact Engineering Study.

Management Processes

FY 2002

11/10/02

$10,082

11/9/02

$11,190 +$1,108 (+11%)

Cost increase ($1,108,000) needed to fund

the PRIME's SA-CMM activities to prepare 

for and conduct the SA-CMM Level 3

assessment.

FFRDC – MITRE

FY 2002

11/10/02

$18,070

11/10/02

$18,820 +$750 (+4%)

Additional work identified to support

Program Management (acquisition

management), Management Processes

(process improvement, ELC, risk

management) and Architecture &

Engineering (data management).

Source: IRS and GAO Analysis
Page 114 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

Appendix III

Comments from the Internal Revenue Service ApenIdxi
Appendix III

Comments from the Internal Revenue Service

Page 115 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
Appendix III

Comments from the Internal Revenue Service

Page 116 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
Page 117 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan

Appendix IV

 GAO Contacts and Staff Acknowledgments ApenVIdxi

GAO Contact Gregory C. Wilshusen (202) 512-6244

Staff 

Acknowledgments

In addition to the individual named above, other key contributors were 

Bernard R. Anderson, Timothy D. Hopkins, and Chetna Lal. 

(310190)
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