IRS 2017 Budget: IRS Could Improve Presentation of Budget Data in Its Congressional Justification
Published: 2016-07-21T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Funding the federal government depends largely upon IRS's ability to collect taxes, including providing taxpayer services that make voluntary compliance easier and enforcing tax laws to ensure compliance with tax responsibilities. For fiscal year 2017, the President requested $12.3 billion in appropriations for IRS; the request is almost $1 billion (9 percent) more than IRS's fiscal year 2016 appropriation.
Because of the size of IRS's budget and the importance of its service and compliance programs for all taxpayers, GAO was asked to review the fiscal year 2017 budget request for IRS. In March 2016, GAO reported interim information on IRS's budget. This report assesses (1) the extent to which IRS's fiscal year 2017 CJ presents data on requested funding levels by appropriation accounts and in alignment with agency priorities, (2) IRS's management and allocation of user fees, and (3) the costs and reporting of IRS's IT investments. GAO reviewed the fiscal year 2017 CJ, documentation on IRS's vision for the future state, IRS budget plans, IT investment reports, and IRS budget data for fiscal years 2011 to 2017, interviewed IRS officials, and met with congressional appropriations staff to discuss the information they want included in the CJ.
section_title: What GAO Found
paragraphs: Congressional justification data . The Internal Revenue Service (IRS) has taken steps to manage its budget more strategically but did not make linkages between priorities and appropriations accounts. IRS prioritized a subset of its 19 strategic objectives for action and established six themes that represent its “future state” vision for tax administration. In the fiscal year 2017 congressional justification (CJ), IRS linked requests for increased funding to themes and included details on how much would be funded by each appropriation account. However, IRS did not provide data on how much it spends in support of each theme or the amount of funding needed to maintain current levels by theme. IRS is working to develop such data, but officials cited challenges with data availability and tracking spending by themes. Such information would provide transparency on the current funding levels which assist Congress in making informed budget decisions.
User fee spending . IRS has permanent, indefinite authority to obligate and spend user fee collections, which it obligates as part of its budget execution process. IRS's user fee spend plan must be approved by both the Department of the Treasury (Treasury) and the Office of Management and Budget. IRS was directed to wait 30 days following the submission of the user fee spend plan to Congress before obligating funds. As seen in the table, planned user fee spending increased more than $220 million (79 percent) between fiscal years 2011 and 2016. Of the $509 million planned user fee obligations in fiscal year 2016, the largest amounts are for the Patient Protection and Affordable Care Act ($204 million) and the Foreign Account Tax Compliance Act ($62 million).
Information technology data . The President's budget requested $2.8 billion for IRS's information technology (IT) investments which accounted for 21 percent of IRS's budget request for fiscal year 2017. Instead of presenting its IT investment data in its CJ, IRS moved them to a Treasury website. This is consistent with other Treasury bureaus and was intended to provide time for an enhanced data review process. However, despite the review process, Treasury did not detect an error which resulted in IRS underreporting its total IT investments by about $4 million. According to federal internal control standards, ongoing monitoring should occur in the course of normal operations. Data errors could negatively affect Congress's ability to make budget decisions and provide oversight.
section_title: What GAO Recommends
paragraphs: GAO recommends that IRS ensure the CJ includes data on the amount of funding requested to maintain current services for each future state theme, and that Treasury ensure the accuracy of Treasury-generated IRS IT investment reports. IRS and Treasury agreed with the recommendations.

section_title: Letter
paragraphs: Funding the federal government depends largely upon the Internal  Revenue Service’s (IRS) ability to collect taxes—in fiscal year 2015, IRS  collected about $3.3 trillion (before tax refunds of $403 billion), or 93  percent of total federal government receipts. IRS’s mission is to provide  taxpayers top-quality services by helping them understand and meet their  tax responsibilities, and to enforce the law with integrity and fairness. For  fiscal year 2017, the President requested $12.3 billion in annual  appropriations for IRS, about $1 billion (9 percent) more than fiscal year  2016 enacted levels. In March 2016, we reported that IRS’s fiscal year  2016 appropriation increased by $290 million to $11.2 billion over fiscal  year 2015 levels, with the increases being targeted to improve taxpayer  service, combat identity theft, and improve cybersecurity. In that report,  we also reported that IRS appropriations remain about 7 percent below  fiscal year 2011 levels. Full-time equivalent staff members funded by  annual appropriations declined by 12,000 between fiscal year 2011 and  fiscal year 2016, a 13 percent reduction. We also reported that these  declines have contributed to fluctuations in taxpayer service and longer  wait times on the phones than taxpayers have historically experienced.
Because of the size of IRS’s budget and the importance of its service and  compliance programs for all taxpayers, you asked us to review the fiscal  year 2017 budget request for IRS. In this report, we assess (1) the extent  to which IRS’s fiscal year 2017 congressional justification (CJ) presents  data on requested funding levels by appropriation accounts and in  alignment with agency priorities, (2) IRS’s management and allocation of  user fees, and (3) the costs and reporting of IRS’s information technology  investments.
To assess the extent to which the CJ provides data on funding levels by  appropriation accounts and agency priorities, we reviewed IRS  documentation on the implementation of the future state vision and on the  process used to prioritize requested program increases—the future state  is IRS’s vision for the future of tax administration to help IRS more  efficiently and effectively implement its mission. We reviewed the CJs  from fiscal years 2013 through 2017 for spending and staffing data, and  for changes to the budget presentation. During a meeting with  appropriations staff from both the majority and the minority, we discussed  their needs for obtaining information to make appropriations decisions as  IRS makes changes in its budget presentation. To describe IRS’s user  fee funding, we reviewed IRS’s authority to collect and obligate user fees,  the President’s budget requests from fiscal years 2013 through 2017, and  IRS budget and planning documents. To assess the costs of IRS’s  information technology (IT) investments, we reviewed congressional  justifications, capital investment plans and summaries, and IRS data for  fiscal years 2011 to 2017. We analyzed reported cost and schedule data  for major IT investments and interviewed Department of the Treasury  (Treasury) officials to assess the accuracy of these data and the  procedures used to report information to Congress. We compared data  reported in the fiscal year 2016 CJ and the fiscal year 2017 capital  investment plan and summary, and assessed the extent to which IRS  reporting complied with federal internal control standards. As applicable  for each objective, we interviewed IRS Corporate Budget and IT officials,  and reviewed data collection procedures. We determined that the data  used in this report were sufficiently reliable for our purposes.
We conducted this performance audit from December 2015 to July 2016  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
subsections: section_title: IRS Budget Structures
paragraphs: Funding requests for IRS are organized by appropriation account, which  aligns broadly with its strategic goals to (1) deliver high-quality and timely  service to reduce taxpayer burden, and encourage voluntary compliance;  and (2) effectively enforce the law to ensure compliance with tax  responsibilities and combat fraud. IRS funds its IT investments from its  Operations Support and Business Systems Modernization appropriation  accounts. IRS’s four appropriation accounts and the fiscal year 2016  appropriations are as follows:
Enforcement ($4.86 billion): Funds activities such as determining and  collecting owed taxes, providing legal and litigation support, and  conducting criminal investigations.
Operations Support ($3.75 billion): Funds activities including rent and  facilities expenses, IRS-wide administration activities, and IT  maintenance and security.
Taxpayer Services ($2.33 billion): Funds taxpayer service activities  and programs, including prefiling assistance and education, filing and  account services, and taxpayer advocacy services.
Business Systems Modernization ($290 million): Funds the planning  and capital asset acquisition of IT to modernize IRS business  systems.
In support of the President’s budget request, agencies submit CJs to  Congress to explain the request by outlining agency goals and objectives  for the coming fiscal year, and providing detailed descriptions of activities  at the program, project, and activity level. Agencies are to prepare the  justifications in accordance with the Office of Management and Budget’s  (OMB) Circular A-11 which provides guidance on materials required for  the agency’s request and reflects the needs of the Congress for providing  effective oversight.
section_title: Future State
paragraphs: Since 2014, IRS has undertaken a multiyear effort to develop a vision for  the future state of tax administration to fulfill its mission more efficiently  and effectively. To focus this effort, IRS narrowed 19 existing objectives  to a core set of objectives that were used to develop six future state  themes:  1.  Facilitate voluntary compliance by empowering taxpayers with secure  innovative tools and support.  2.  Understand noncompliant taxpayer behavior and develop approaches  to deter and change it.  3.  Leverage and collaborate with external stakeholders.  4.  Cultivate a well-equipped, diverse, skilled, and flexible workforce.  5.  Select highest value work, using data analytics and a robust feedback  loop.  6.  Drive more agility, efficiency, and effectiveness in IRS operations.
These future state themes are in addition to Treasury’s department-wide  focus on strengthening cybersecurity and eliminating identity theft. IRS  reported that it adopted a new, more strategic approach to identify and  select budget program priorities based on the future state themes.
section_title: User Fees
paragraphs: A user fee is charged to beneficiaries of certain goods or services  provided by the federal government. In general, a user fee is related to a  voluntary transaction or request for government goods or services above  and beyond what is normally provided to the public. Although IRS  services and operations are primarily funded through annual  appropriations, IRS has the authority to supplement its appropriations  with other resources, such as user fees. Until 1995, IRS user fee  collections were deposited into the Treasury’s general fund. In 1995,  Congress granted IRS authority to retain and obligate up to $119 million  in user fee revenue to supplement its annual appropriation. In 2005,  Congress removed the limit of $119 million and IRS was permitted to  retain and obligate user fees that were implemented after September 30,  1994, or the portion of the fee that has been increased since September  30, 1994, for those fees that existed prior to that date. For example, fees  for installment agreements—monthly payment plans for taxes owed— were established after September 30, 1994, and therefore IRS retains the  full amount of the fee collected. However, the fee for enrolling as an  actuary is divided between IRS and the general fund of the Treasury  because this user fee existed prior to September 30, 1994.
In fiscal year 2016, IRS expects to collect about $422 million in user fee  revenue from sources such as installment agreements (about $155  million) and income verification express services (about $51 million). IRS  deposits user fees that it is authorized to retain into its Miscellaneous  Retained Fees Fund—an estimated $411 million in fiscal year 2016— before transferring funds to an appropriation account to be obligated. For  fiscal year 2016, planned user fee obligations ($509 million) account for  about 4 percent of IRS’s total obligations ($12,374 million). IRS’s user fee  funds are available until expended (no-year funds) and funds that are not  obligated in the fiscal year in which they are collected are carried over to  the next fiscal year.
section_title: Information Technology and Appropriations Increases
paragraphs: IT comprises a significant portion of IRS’s budget and plays a critical role  in enabling IRS to carry out its mission and responsibilities. IRS’s fiscal  year 2016 appropriations include about $2.5 billion for IT investments; this  represents 20 percent of the total IRS budget. IRS relies on IT systems  to process tax returns, account for tax revenues collected, send bills for  taxes owed, issue refunds, assist in the selection of tax returns for audit,  and provide telecommunications services for all business activities,  including providing taxpayers with toll-free access to tax information,  among other things.
IRS’s fiscal year 2016 appropriations increased by $290 million. IRS is  required by law to allocate these funds across three areas: customer  service representative level of service, cybersecurity, and identity theft  prevention. IRS plans to use this funding to invest in (1) increased  telephone level of service, including reduced wait times and improved  performance on IRS’s Taxpayer Protection Program/Identity Theft Toll  Free Line; (2) cybersecurity, including network security improvements,  protection from unauthorized access, and enhanced insider threat  detection; and (3) identity theft refund fraud prevention. As shown in table  1, cybersecurity was allocated almost one-third of the funding, solely from  the Operations Support appropriation account. This funding includes $7  million (50 additional full-time equivalents) to maintain the cybersecurity  workforce.
Cybersecurity efforts are intended to protect taxpayer information and  IRS’s systems, services, and data from internal and external cyber- related threats. Cybersecurity funding increased by 58 percent from fiscal  years 2015 to 2016, primarily from increased appropriations as shown in  figure 1.
The President’s fiscal year 2017 budget also requests cybersecurity funds  provided through a Treasury Cybersecurity Enhancement Account, which  is intended to bolster Treasury’s overall cybersecurity posture. The  request includes $62 million for IRS, including $54.7 million to directly  support IRS cybersecurity efforts by securing data, improving continuous  monitoring, and other initiatives.
section_title: IRS Did Not Fully Link Future State Themes to Appropriation Accounts in Its 2017 Congressional Justification
paragraphs: IRS’s Senior Executive Team recognized that the 19 strategic objectives  listed in the 2014-2017 IRS Strategic Plan were too broad a set of  priorities for IRS future state vision. In January 2015, the Senior  Executive Team agreed on six enterprise themes to support the future  state vision that aligned with a subset of the strategic objectives and were  informed by the needs of the business units.
IRS modified its approach to prioritizing programs and initiatives for  requested funding increases in fiscal year 2017. In January 2015, the  Office of Planning, Programming and Audit Oversight asked the operating  divisions to submit program increase proposals they believed necessary  for IRS to achieve its priorities. This office reviewed the proposals to  ensure they aligned with IRS’s strategic plan and submitted them to the  Senior Executive Team for consideration. The Senior Executive Team  prioritized the proposed program increases through a voting process to  ensure that they aligned with IRS’s strategy and resource needs.
According to IRS officials, funding increases were requested for fewer  programs as a result of this new approach. Specifically, in the fiscal year  2017 CJ, increases were requested for 14 programs, whereas in the fiscal  year 2016 CJ, increases in 25 programs were requested.
In its fiscal year 2017 CJ, IRS explained how requests for increased  funding were linked to appropriations accounts, but it did not provide this  information for the amount requested to maintain current funding levels.  IRS linked each requested program increase to a future state theme and  included details on how much of the requested increase would be funded  by each of the four appropriation accounts. Figure 2 shows each of the  14 program increase requests organized by theme or focus area, with  funding requested broken out by appropriation account. Including data on  the appropriation account provides additional transparency and improves  the quality of the information available to Congress for budget  deliberations.
However, IRS did not provide data on how much it is currently spending  in support of each theme. As a result, it is unclear what amount of funding  would be required to maintain current levels by theme. According to  officials, IRS is working to develop such data, but officials cited technical  challenges with data availability and comparability as well as challenges  identifying spending for specific themes, some of which are worded  broadly.
OMB Circular A-11 requires that an agency prepare justifications in  concise, specific terms and cover all programs and activities of the  agency. Additionally, the guidance specifies that an agency should  consult with relevant congressional appropriations committees to confirm  their support for modifications to the CJ’s format. In adopting a new  approach by prioritizing a subset of objectives, IRS modified how its  budget data were organized, but did not clarify how spending by themes  relates to appropriation accounts. Congressional appropriations’ staff  from both the majority and minority with whom we spoke told us they  wanted more information on base spending by theme and account. Such  information is important to ensure transparency on the current funding  levels to assist Congress in making informed budget decisions.
section_title: IRS Used Its Flexibility to Spend User Fee Revenue to Fund Priorities
subsections: section_title: IRS Allocated User Fees as Part of Its Broader Budget Execution Process
paragraphs: IRS has permanent, indefinite authority to obligate user fee collections.  This authority allows the agency flexibility in the use of these funds. While  IRS does not need congressional approval of its user fee spend plan, it  must obtain approval from Treasury and OMB. Additionally, for fiscal year  2016, IRS was directed to wait 30 days following the submission of the  user fee spend plan to Congress before obligating these funds.
IRS’s Chief Financial Officer has oversight responsibilities for the initial  assessment, updates, collection, and review of user fees. While the Chief  Financial Officer does not provide the services for which user fees are  charged, the office is responsible for ensuring that user fees are  appropriately collected, deposited, and reported. As seen in table 2, IRS  plans to allocate $509 million of user fee revenues in fiscal year 2016  across three appropriation accounts. This represents 4 percent of IRS’s  total obligations in fiscal year 2016 ($12.37 billion).
IRS allocates user fee revenues as part of its budget execution process  and began planning for fiscal year 2016 allocations in April 2015. IRS  allocates user fee revenue to fund agency priorities for which other  funding was unavailable, but does not generally consider the source of  funds when making these decisions. Budget officials briefed members  of the Senior Executive Team and the IRS Commissioner multiple times  between September 2015 and January 2016, including on preliminary  estimates of user fee spending. According to IRS officials, IRS sends a  draft of the user fee spend plan to Treasury within 30 days of its budget  being enacted and finalizes the plan within 60 days. However, IRS began  fiscal year 2016 operating under a continuing resolution until December,  so the user fee spend plan was submitted to Congress in February  2016.
In May 2016, IRS announced that it is revising a number of existing user  fees to more closely match the cost of providing the service and  implementing new user fees for some additional services as a result of its  2015 Biennial Fee Review. Agencies are required to review, on a biennial  basis, the fees, royalties, rents, and other charges for services and things  of value and make recommendations on revising those charges to reflect  costs incurred. IRS expects total annual user fee revenue to increase by  $128 million when the fees are fully implemented. Officials said they plan  to continue their current policy regarding how user fee revenue is  allocated.
section_title: IRS Officials Cited Change in Appropriations and Cost of Implementing Mandates for Shift in User Fee Allocations
paragraphs: According to IRS officials, the planning process for allocating user fee  revenue has been consistent between fiscal years 2011 and 2016.  However, according to IRS officials, changes in appropriation levels and  the cost of implementing mandates has resulted in a shift in how user fee  revenue has been allocated. As shown in table 3 and the sidebar, both  the amount and allocation of user fee funds shifted between fiscal years  2011 and 2016.
As we reported in June 2015, IRS management decided to allocate more  user fee funds to Operations Support in fiscal year 2015, in part because  of changes in the amount appropriated to its accounts and the cost of  implementing mandates, such as the Patient Protection and Affordable  Care Act (PPACA), which is largely funded by user fee revenue and  Operations Support funds. Of the $1.6 billion spent on PPACA  implementation between fiscal years 2010 and 2015, $465 million was  user fee revenue (29 percent) and $467 million was annually appropriated  Operations Support funds (29 percent). The fiscal year 2015  appropriation for Operations Support was $161 million (4.2 percent) less  than fiscal year 2014, while Taxpayer Services was not reduced during  that time frame. In fiscal year 2015, IRS obligated $210 million in user fee  revenue and $154 million from the Operations Support account for  PPACA implementation.
In addition to changes in the allocation of user fee funds across  appropriation accounts, IRS has also changed the amount it retains and  the amount it carries over to the next fiscal year. The amount of user fee  revenue that IRS collected and retained increased from $324 million in  fiscal year 2011 to $391 million in fiscal year 2015. As previously  mentioned, IRS is implementing changes to user fees which it expects to  generate an additional $128 million annually, all of which IRS is  authorized to retain and spend. In fiscal year 2011, user fee obligations  ($285 million) accounted for 2.2 percent of IRS’s total obligations  ($12,777 million). For fiscal year 2016, planned user fee obligations ($509  million) account for about 4 percent of IRS’s total obligations ($12,374  million).
Carryover Balances   IRS can carry over any unexpended fee  collections—those funds left over after IRS  transfers fee collections to supplement its  appropriations—for use in subsequent years.
We have suggested that carryovers are one  way agencies can establish reserves to  sustain operations in the event of a sharp  downturn in user fee collections or other  events. See GAO-08-386SP for additional  information on user fee design.
These changes in the amount of funds that IRS retains and obligates  have also affected the amount it carries over from one fiscal year to the  next. As seen in table 4, IRS’s carryover balance has declined in recent  years from about $327 million at the end of fiscal year 2011 to about $93  million planned for the end of fiscal year 2016. This is potentially  significant because, as we have previously reported, carryover balances  can help agencies to sustain operations in the event of a sharp downturn  in user fee collections or other events (see sidebar). However, this is less  of consideration for programs that could also be funded through annual  appropriations, as is the case with IRS. In briefings to the Senior  Executive Team and to the IRS Commissioner, officials identified the low  carryover balance from fiscal year 2016 to 2017 as a key risk because it  decreases the funds available for future fiscal years. As part of budget  deliberations, officials considered the tradeoffs between spending funds  on priorities in the current budget year and maintaining a reserve for  future years.
section_title: IRS Changed Reporting of Major IT Investments, but Treasury Lacked Controls to Detect Errors in Reporting Certain IT Spending Data
subsections: section_title: IRS Reported the Fiscal Year 2017 President’s Budget Request of $2.8 Billion for IT Spending Differently Than in Prior Years
paragraphs: IT is a significant portion—about 21 percent—of the total IRS budget  request for fiscal year 2017. The President requested $2.8 billion for  IRS’s IT investments in fiscal year 2017, an increase of about 15 percent.  This includes a $391 million (65 percent) increase for non-major IT  investments and a $33 million (2 percent) decrease for major IT  investments as shown in figure 3.
IT investments are funded through the Operations Support and the  Business Systems Modernization appropriation accounts and user fees.  These investments generally support (1) day-to-day operations (which  include operations and maintenance, as well as development,  modernization, and enhancements to existing systems); and (2)  modernization efforts in support of IRS’s goals. For IRS’s 23 major IT  investments, the amount requested for fiscal year 2017 is $1.8 billion,  which is funded primarily through the Operations Support appropriation  account as shown in figure 4.
In previous years, IRS reported data on its IT investments in the CJ in a  Summary of Capital Investments and Portfolio of Major Investments. The  Summary of Capital Investments listed major and non-major IT  investment totals and major IT investments by funding source. The  Portfolio of Major Investments included a comprehensive list and  description of major IT investments. For fiscal year 2017, IRS moved the  Summary of Capital Investments from the CJ to a link on Treasury’s  website that was accessible 30 days following the release of the  President’s budget. This website also includes a Capital Investment  Plan, similar to the Portfolio of Major Investments.
Treasury provides capital investment information on its website for each  Treasury bureau. Treasury is required to submit a Capital Investment  Plan to Congress no later than 30 days following the submission of the  President’s budget. According to IRS and Treasury officials, Treasury  asked IRS to move the capital investment information from the CJ to a  separate website to give Treasury additional time to review the data to  improve reliability. According to IRS officials, this approach also  eliminated the possibility of administrative errors in transcribing data from  one database to another. While the move delayed the availability of the  IRS information, the timing was consistent with capital investment  reporting by other Treasury bureaus.
section_title: Treasury Lacked Controls to Detect Errors in Reporting Certain IT Spending Data
paragraphs: In the fiscal year 2017 IRS Summary of Capital Investments, Treasury  reported the non-major IT investment total inaccurately for the 3 fiscal  years presented (fiscal years 2015 actual, 2016 enacted, and 2017  requested). Treasury underreported the amounts by about $4 million (less  than 1 percent) in each fiscal year. Consequently, Treasury also reported  the IT total for major and non-major IT investments inaccurately.
According to IRS and Treasury officials, this discrepancy was the result of  an error introduced during the 30-day Treasury review process. IRS  enters IT investment information into Treasury’s SharePoint Investment  Knowledge Exchange (SPIKE) system. IRS and Treasury review and  monitor the information before the Capital Investment Plan and the  Summary of Capital Investments reports are generated. According to IRS  officials, for fiscal year 2017, Treasury took a more active role in  reviewing the information submitted by IRS on IT investments. During the  review process, manual adjustments in SPIKE caused an error that  resulted in two rows of non-major IT investments being excluded from the  non-major IT total.
We asked IRS about the discrepancy, and IRS approached Treasury with  the issue and Treasury subsequently corrected the error in SPIKE and  revised the Summary of Capital Investments on Treasury’s website.  Stronger internal controls could help prevent such mistakes, such as  effective monitoring of Treasury-generated IRS information technology  investment reports. According to federal internal control standards,  ongoing monitoring should occur in the course of normal operations.  Monitoring should be performed continually and be ingrained in the  agency’s operations. It includes regular management and supervisory  activities, comparisons, reconciliations, and other actions people take in  performing their duties. According to Treasury officials, Treasury is  aware of the need to reduce manual corrections by making improvements  to SPIKE, but has yet to take steps to fully ensure that such errors will not  occur in future budget cycles.
In June 2015, we reported on a separate ongoing monitoring internal  control issue which resulted in IRS providing inaccurate data on actual  obligations to date for major IT investments in its fiscal year 2016 CJ. As  a result of our recommendation that IRS implement internal controls to  ensure the accuracy of information on major IT investments reported in  the annual CJ, IRS took additional steps when preparing the fiscal year  2017 CJ. This included performing an operational review to examine the  existing procedures. In addition, for the fiscal year 2017 IT investment  reports, IRS implemented processes to ensure accurate and reliable data  such as comparing its IT data maintained on control charts to the data it  enters in SPIKE. IRS performed this reconciliation individually for each IT  investment. However, IRS reported that it did not review the Summary of  Capital Investments generated by Treasury in its entirety for accuracy  after it was generated from SPIKE.
Without effectively monitoring IT investment information, Treasury risks  continued errors in the information it reports on its IT investments. Such  errors could negatively affect Congress’s ability to obtain accurate  information on IT investments needed to inform future budget decisions  and oversight.
section_title: Conclusions
paragraphs: IRS intended to improve its budget process by aligning its spending  priorities with themes supporting its future state vision, but the effort  remains a work in progress. For fiscal year 2017, IRS did not make clear  how spending by themes relates to appropriation accounts and how this  advances IRS’s priorities; this linkage is important to the clarity and  transparency of IRS’s budget presentation. Appropriations staff told us  this information would help them make informed budget and oversight  decisions. While IRS faces data challenges that may limit its ability to fully  link funding requests to appropriation accounts, providing these linkages  to the extent feasible will improve transparency and provide Congress  with information to assist in making informed decisions. Additionally,  accurate and timely budget data are key to effective congressional  oversight. Since IT is such a significant portion—about 21 percent—of the  total budget request for IRS, it is particularly important to have robust  controls in place to ensure the data’s accuracy.
section_title: Recommendations for Executive Action
paragraphs: To enhance the budget process and to improve transparency, we  recommend that the Commissioner of Internal Revenue, to the extent  feasible, ensure that the CJ includes data by appropriation account on the  amount of funding requested to maintain current services for each future  state theme.
As Treasury works with IRS to improve the quality and accuracy of  budget data, we recommend that the Secretary of the Treasury ensure  sufficient controls are in place to make certain that the information  technology investment reports generated from SPIKE are accurate.  This  includes, for example, taking steps to reduce the need for manual  corrections to the data.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to the Commissioner of Internal  Revenue and the Secretary of the Treasury for comment. In written  comments reproduced in Appendix IV, IRS agreed with the  recommendation related to the presentation of data in the Congressional  Justification. IRS plans to provide a robust description of planed activities  and outcomes for funding requested to maintain current services. Given  IRS’s emphasis on the future state, budget data on the amount requested  to maintain current services for each theme is particularly valuable. In a  separate email response, Treasury agreed with the recommendation  related to information technology internal controls. Treasury noted that it  plans to implement improvements to SPIKE in the next few months that  would address our recommendation by avoiding the need for manual  corrections moving forward. IRS and Treasury also provided technical  comments which were incorporated as appropriate.
We are sending copies of this report to the Chairman and Ranking  Members of other Senate and House committees and subcommittees that  have appropriation, authorization, and oversight responsibilities for IRS.
We are also sending copies to the Commissioner of Internal Revenue, the  Secretary of the Treasury, and other interested parties. In addition, the  report is available at no charge on the GAO website at  http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-9110 or mctiguej@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix V.
section_title: Appendix II: Summary of the Internal Revenue Service’s Major Information Technology Investments
paragraphs: In the fiscal year 2017 Capital Investment Plan, the Internal Revenue  Service (IRS) did not report life-cycle costs of its major information  technology (IT) investments since most investments were considered  ongoing with an undetermined useful life. Instead, IRS provided total  anticipated outlays for the investments through fiscal year 2021.
section_title: Appendix III: Our Open Budget-Related Recommendations to the Internal Revenue Service
paragraphs: Recommendations  Develop a quantitative measure of  scope  At a minimum, develop a quantitative  measure of scope for its major  information technology (IT)  investments, in order to have  complete information on the  performance of these investments.
Benefit  A quantitative measure of  scope is a good practice  as it provides an  objective measure of  whether an investment  delivered the functionality  that was paid for.
Status  The Internal Revenue Service’s (IRS) position  on this recommendation has changed over  time. IRS agreed with the recommendation we  made in June 2012, but stated it had other  methods in place to document delivered  functionality of a project throughout the life- cycle. However, these methods did not  provide a quantitative measure of  performance. In responding to a related report  we issued in April 2014, IRS maintained its  position and therefore did not take action to  address the recommendation. In the  December 2015 quarterly report on  information technology to Congress, however,  IRS proposed a solution for one investment:  specifically, it listed specific “scope elements”  for the Return Review Program investment  and identified the elements it had implemented  to date. In addition, during our recent review of  IRS’s major IT investments, we found that IRS  had developed a quantitative measure of  scope for two investments, although we noted  that the measure could be improved by  accounting for the work performed by IRS staff  in accordance with best practices  (GAO-16-545). The measure used in the  quarterly report to Congress and the one we  noted during our June 2016 review are  positive steps. Similar, continued efforts by  IRS would help fully address our  recommendation to develop a quantitative  measure of scope for all major IT investments.
Developing a cost  estimate that meets  additional best practices,  will foster accountability,  improve insight, and  provide objective  information. capture actual costs and use  them as a basis for future  updates.  Explain why variances occurred  between the current estimate and  previous estimates.
IRS agreed with all of the actions  recommended, except using earned value  management and validating the PPACA cost  estimate by preparing a second, independent  cost estimate, in part because of cost and  burden. In February 2015, IRS released  version 3 of the PPACA cost estimate, which  reflects best practices to a greater extent.  However, four elements of this  recommendation remain open. IRS improved  the variance from the prior estimate, but IRS  has not improved its practices related to the  use of earned value management, risk and  uncertainty analysis, or validating the  estimate. IRS released version 4 of the cost  estimate in April 2016 and we will continue to  monitor IRS’s progress.
subsections: section_title: Report
paragraphs: with best practices, and develop  and document plans to address  risks.  Validate the original cost estimate  by preparing a second,  independent cost estimate.
Develop a long-term strategy  Develop a long-term strategy to  address operations amidst an  uncertain budget environment. As part  of the strategy, IRS should take steps  to improve its efficiency, including
Reexamine programs, related  processes, and organizational  structures to determine whether  they are effectively and efficiently  achieving IRS’s mission.  Streamline or consolidate  management or operational  processes and functions to make  them more cost effective.
Developing a long-term  strategy will enhance  budget planning and  improve decision making  and accountability.
IRS agreed with our recommendation and is  taking steps to implement it. IRS has adopted  a new, more strategic, approach to identify  and select budget program priorities based on  future state themes for the fiscal year 2017  budget request. As part of its planning  process, IRS prioritized a subset of 5  objectives for action as part of the 19  objectives identified in the IRS 2014-2017  Strategic Plan. Operating division officials  submitted requests for resources that they  thought were necessary to achieve the five  priority objectives, and they identified  initiatives that were the highest priority to IRS.  To guide IRS toward the future state concept  and assess progress along the way, IRS has  identified enterprise goals, but as of May  2016, these goals were still under  development.
Enhance calculation and use of actual  return on investment (ROI) data  Calculate actual ROI for implemented  initiatives, compare the actual ROI to  projected ROI, and provide the  comparison to budget decision  makers for initiatives where IRS  allocated resources.  Use actual ROI calculations as part of  resource allocation decisions.
Enhanced calculation of  ROI provides greater  insight on the productivity  of a program and can  inform decision making.
section_title: Report
paragraphs: Status  allocation decisions within the correspondence  exam program. IRS plans to use these  estimates to inform future examination plans  as we recommended in June 2014, but  considerable work remains in this long-term  effort. In July 2015, IRS officials reported there  is no timeline for full implementation. In June  2016, IRS officials confirmed that projected  revenue will be considered in investment  decision making as part of fiscal year 2018  enterprise planning guidance, but did not  report any progress in using actual ROI data.
section_title: Appendix IV: Comments from the Internal Revenue Service
section_title: Appendix V: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, the following staff made key  contributions to this report: Thomas Gilbert, Assistant Director; Melissa  King, Analyst-in-Charge; Charles Fox; Robert Gebhart; Carol Henn;  Laurie King; Edward Nannenhorn; Sabine Paul; Bradley Roach; Robert  Robinson; Cynthia M. Saunders; Andrew J. Stephens; and Elwood White.