Tax Systems Modernization: Results of Review of IRS' Initial Expenditure Plan
Published: 1999-06-15T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Pursuant to a legislative requirement, GAO reviewed the Internal Revenue Service's (IRS) initial Information Technology Investments Account (ITIA) expenditure plan, focusing on whether: (1) the plan satisfies the conditions specified in IRS' fiscal year 1998 and 1999 appropriations acts; (2) the plan is consistent with GAO's past recommendations on IRS' systems modernization; and (3) GAO's observations on the modernization efforts.
section_title: What GAO Found
paragraphs: GAO noted that: (1) IRS' initial expenditure plan is the first in a series of incremental expenditure plans that IRS plans to prepare over the life of the modernization; (2) the initial plan specifies IRS' modernization initiatives through October 31, 1999, and it seeks approval to obligate about $35 million to complete these initiatives; (3) such an incremental approach to investing in systems modernization efforts is a recognized best practice that leading public and private sector organizations use to mitigate the risk of program failure on large, complex, multiyear modernization programs; (4) IRS' initial expenditure plan is an appropriate first step toward successful systems modernization and, with regard to the $35 million being requested for this increment, satisfies the conditions that Congress placed on the use of ITIA funds; (5) the plan is consistent with GAO's past recommendations; (6) the initial expenditure plan provides for additional blueprint precision and specificity; (7) it provides for definition of system infrastructure specifications and a revised plan for sequencing the introduction of the new technology needed to achieve the target systems architecture over the next 3 to 5 years; (8) these initiatives are consistent with GAO's past recommendations for completing the blueprint and collectively they represent the first steps needed to satisfy the legislative condition to implement the blueprint; (9) the initial expenditure plan provides for definition and targeted implementation of an Enterprise Life Cycle, which is consistent with GAO's past recommendations for instituting project management rigor, software process maturity, and investment management discipline; (10) if implemented properly, this effort should satisfy the legislative condition for an IRS system life cycle and investment management program that meets the Office of Management and Budget guidelines; (11) building on its initial expenditure plan, IRS plans to define in subsequent expenditure plans the follow-on efforts and funding requirements needed to incrementally: (a) add needed architectural precision and project-specific management discipline; and (b) implement its Enterprise Life Cycle, and its target systems architecture; and (12) if IRS effectively implements the initiatives described in its initial expenditure plan and fulfills its commitment to incrementally request and expend future modernization funds, IRS would be acting in a manner that is consistent with the legislative conditions and GAO's past recommendations.

section_title: Letter
paragraphs: This report provides the results of our review of the Internal Revenue  Service’s (IRS) initial Information Technology Investments Account (ITIA)  expenditure plan pursuant to the fiscal year 1998 Treasury and General  Government Appropriations Act (Public Law 105-61) and the fiscal year  1999 Omnibus Consolidated and Emergency Supplemental Appropriations  Act (Public Law 105-277).  In these acts, the Congress limited IRS’ ability to  obligate ITIA funds until the service and the Department of the Treasury  submit to the Congress for approval an expenditure plan that as stated in  the acts, (1) implements the IRS Modernization Blueprint, (2) meets Office  of Management and Budget (OMB) investment guidelines for information  systems, (3) is reviewed and approved by IRS’ Investment Review Board,  OMB, and Treasury’s IRS Management Board and is reviewed by GAO, (4) meets the requirements of IRS system life cycle management program,  and (5) is in compliance with acquisition rules, requirements, guidelines,  and system acquisition management practices of the federal government.   These conditions are consistent with recommendations on IRS’ tax systems  modernization that we have made over the past 5 years.
IRS provided us a copy of the expenditure plan that it submitted to the  Congress.  As agreed with your offices, we reviewed this plan to determine  whether (1) the plan satisfies the conditions specified in IRS’ fiscal year  1998 and 1999 appropriations acts, (2) the plan is consistent with our past  recommendations on IRS’ systems modernization, and (3) we have any  other observations on the modernization efforts.  The results of this review  are based on our ongoing monitoring of IRS’ modernization efforts that is  being performed at the request of your offices.  Our work was performed  from January 1999 through May 1999 in accordance with generally  accepted government auditing standards.  (See appendix I for details on  our scope and methodology.)  The Commissioner provided us with written  comments, which are discussed in the “Agency Comments” section of this  report and are reprinted in appendix II.
subsections: section_title: Background
paragraphs: In 1995, we reported on management and technical weaknesses with IRS’  tax systems modernization that jeopardized its successful completion and  made over a dozen recommendations to correct the weaknesses.    Because of the seriousness of the weaknesses, we placed the  modernization on our 1995 list of high-risk federal programs.  In June  1996, we reported that IRS had made progress in implementing our  recommendations.  However, to minimize the risk of IRS investing in  systems before the recommendations were fully implemented, we  suggested that the Congress limit IRS’ information technology (IT)  spending to certain cost-effective categories.  These spending categories  were those that (1) support ongoing operations and maintenance, (2) correct pervasive management and technical weaknesses, such as a  lack of requisite systems life cycle discipline, (3) are small, represent low  technical risk, and can be delivered in a relatively short time frame, or (4) involve deploying already developed systems that have been fully  tested, are not premature given the lack of a complete systems  architecture, and produce a proven, verifiable business value.  The act  providing IRS’ fiscal year 1997 appropriations limited IRS’ IT spending to  efforts consistent with these categories.
In 1997, we again included the modernization on our high-risk list because  IRS had not yet implemented our recommendations.  However, we also  reported that IRS had made progress on the recommendations.  For  example, in May 1997, IRS issued its modernization blueprint.  This  blueprint consisted of four principal components: (1) a systems life cycle, (2) business requirements, (3) functional and technical architectures, and  (4) a sequencing plan.  We briefed IRS appropriations and authorizing  committees on the results of our assessment of IRS’ Modernization  Blueprint in September 1997.  In those briefings and in a subsequent  report, we concluded that the Modernization Blueprint was a good first  step that provided a solid foundation from which to define the level of  detail and precision needed to effectively and efficiently build a  modernized system of interrelated systems.  However, we also noted that  the blueprint was not yet complete and did not provide enough detail for  building and acquiring new systems.  As a result, IRS’ fiscal year 1998  appropriations act again limited IRS’ fiscal year spending to efforts that  were consistent with the aforementioned spending categories.  The act  providing IRS’ fiscal year 1999 appropriations continued these spending  limitations.
In its fiscal year 1998 and 1999 budget requests, IRS requested over $1 billion for its ITIA account, and the Congress provided $506 million for  the account.  Specifically, it appropriated $325 million in fiscal year 1998,  $30 million of which was rescinded in May 1998 for urgent Year 2000  requirements.  The Congress also provided $211 million in fiscal year 1999.   In providing these sums, the Congress limited IRS’ ability to obligate them  until IRS and the Treasury submitted to the Congress for approval an  expenditure plan that, as stated in the law, (1) implements the IRS  Modernization Blueprint, (2) meets OMB investment guidelines, (3) is  reviewed and approved by IRS’ Investment Review Board, OMB, and  Treasury’s IRS Management Board and is reviewed by GAO, (4) meets  requirements of IRS’ life cycle program, and (5) is in compliance with  acquisition rules, requirements, guidelines, and systems acquisition  management practices of the federal government.  IRS is not requesting any  ITIA funds for fiscal year 2000 but is asking for $325 million for fiscal year  2001.  In our April 1999 testimony, we reported this request was not  adequately justified and suggested that the Congress not provide the funds  until IRS provided the support.
In December 1998, IRS awarded its Prime Systems Integration Services  (PRIME) contract for systems modernization.  According to IRS, it planned  to “partner” with the PRIME contractor, among other things, to (1) complete the modernization blueprint, as we recommended, and (2) account for changes in systems requirements and priorities caused by  IRS’ organizational restructuring, new technology, and IRS Restructuring  and Reform Act of 1998 requirements.  In addition, IRS stated that it  planned to establish disciplined life cycle management processes and  structures and mature software development and acquisition capabilities  before it begins building modernized systems.  Because of the  modernization’s high cost and importance, we continued in 1999 to  categorize it as a high-risk federal program.
section_title: IRS Plans to Submit a Series of Expenditure Plans to Incrementally Justify Modernization Initiatives
paragraphs: To comply with its statutory mandate to submit an expenditure plan to the  Congress before obligating ITIA funds, IRS has developed a strategy where,  in lieu of a single plan, it intends to develop and provide to the Congress a  series of expenditure plans over the life of the modernization.  This  expenditure plan strategy is a by-product of the Commissioner’s overall  approach to the modernization, which is to incrementally invest in  modernized systems in accordance with (1) rigorous systems and software  life cycle management processes and (2) a revised sequencing plan for  migrating from IRS’ legacy systems and master file environment to the  target systems and relational database environment specified in the  blueprint.
The initial plan requests $35 million for IRS modernization initiatives to be  delivered by October 31, 1999.  This plan proposes three categories of  modernization investments that IRS calls (1) supporting business goals, (2) building management capability, and (3) planning a modern  infrastructure, and is requesting for each category $17 million, $11.6 million, and $6.5 million, respectively.  The supporting business goals  initiatives include the early phases of selected systems development efforts  that are intended to improve taxpayer service by the year 2001 tax filing  season.  The building management capability initiatives provide for  defining and beginning the institutionalization of mature modernization  management and systems engineering processes that are to permit  effective blueprint implementation.  The planning modern infrastructure  initiatives refer to the first steps in establishing the technology foundation  (e.g., networks, operating platforms, system security, etc.) upon which to  build, interconnect, and operate modernized system applications.
IRS’ stated intention is to submit to the Congress a series of expenditure  plans in the future, the next being in October 1999.  According to IRS, the  October 1999 plan will define follow-on modernization initiatives,  deliverables, and funding requirements into the year 2000.
Leading public and private sector organizations use an incremental  approach to investing in systems modernization efforts.  In addition, the  Clinger-Cohen Act and OMB policy endorse this approach to funding large  system development investments.  Using this approach, organizations take  large, complex modernization efforts and break them into projects that are  narrow in scope and brief in duration.  This enables organizations to  determine whether a project delivers promised benefits within cost and  risk limitations and allows them to correct problems before significant  dollars are expended, which in turn mitigates the risk of program failure.
section_title: Initial Expenditure Plan Is an Appropriate First Step and Meets Legislative Requirements
paragraphs: IRS’ initial expenditure plan is an appropriate first step to successful  systems modernization and, with regard to the $35 million being requested  for this increment, satisfies the conditions that the Congress placed on the  use of ITIA funds.  The key to IRS’ success is now to effectively implement  the initiatives described in its initial expenditure plan and fulfill its  commitment to incrementally request and expend future modernization  funds.
subsections: section_title: Condition 1: Implements the Modernization Blueprint
paragraphs: IRS’ initial expenditure plan lays the foundation for blueprint  implementation on an incremental basis and begins the implementation  process for selected modernization initiatives.  For example, the  expenditure plan only requests funds to establish and selectively  implement an Enterprise Life Cycle (ELC).  This ELC is to provide IRS with  a disciplined and institutional approach for managing its IT investments  throughout their life cycle--from conception, development, and deployment  through maintenance and operation.  This ELC is to be an adaptation of the  PRIME contractor’s commercially available and proven systems life cycle  management approach and associated automated tools, incorporating IRS- unique needs such as key investment decision points.  Once in place at  IRS, the service plans to begin implementing the ELC on its ongoing  modernization initiatives.  According to IRS, future expenditure plans will  provide for ELC implementation on all future project initiatives.
As another example, the initial expenditure plan requests funds to add  missing system architecture precision and detail to selected system  initiatives. In our February 1998 report, we concluded that while the  architecture in IRS’ May 15, 1997, blueprint provided a solid foundation  from which to build a complete architecture, it did not provide sufficient  detail and precision for building or acquiring new systems.  For example,  the architecture did not allocate business requirements to specific  configuration items (i.e., actual hardware and software components).  As  part of its initial expenditure plan, however, IRS plans to validate existing  business requirements and develop preliminary hardware and software  design specifications for IRS’ ongoing projects.  Additionally, IRS intends  for future expenditure plans to incrementally provide for architectural  specificity for future system initiatives.
The initial expenditure plan also requests funds for IRS to perform business  system planning, which is to result in a revised modernization sequencing  plan by October 31, 1999.  This initiative is necessary because the May 15,  1997, blueprint sequencing plan does not recognize, for example, the need  to introduce electronic tax administration technologies and capabilities  early in the modernization to respond to the electronic filing requirements  in the IRS Restructuring and Reform Act of 1998.  This revised sequencing  plan is to define the general timing, costs, and benefits of future  modernization projects, and is to be incrementally updated in future  expenditure plans with more specific cost and benefit information as  projects are initiated and business case justifications are developed.
section_title: Condition 2: Meets OMB Information Systems Investment Guidelines
paragraphs: If properly implemented, the ELC that IRS’ initial expenditure plan is to  establish and selectively implement, should meet OMB information system  investment guidelines.  These guidelines call for agencies to adopt a data- driven, analytically based approach to selecting, controlling, and evaluating  investments in information technology.  The overriding objective is to  ensure that investment decisions are made in a disciplined and rigorous  manner on the basis of established criteria, such as return-on-investment  and architectural compliance, and that system investments be broken into  a series of increments.  Consistent with these guidelines, IRS’ ELC is to  include processes for identifying alternative solutions, calculating their  projected returns-on-investment, and requiring that selected solutions be  architecturally compliant.  Through its ELC, IRS also plans to require that  systems be acquired and implemented in phased segments that are narrow  in scope and brief in duration.  According to IRS, system initiatives in  future expenditure plans will be conducted in accordance with the ELC.
section_title: Condition 3: Meets the Requirements of IRS’ Life Cycle Program
paragraphs: IRS’ blueprint included a high-level system life cycle framework that could  be used to define a disciplined set of processes for managing  modernization investments.  In lieu of using the system life cycle overview  contained in the blueprint as the framework for developing life cycle  management processes, IRS’ initial expenditure plan provides for  establishing the aforementioned ELC.  IRS decided to do this because it  concluded that adapting the PRIME contractor’s commercially available  methodology to meet its needs would be less costly and faster than  completing its own unique system life cycle contained in its May 15, 1997,  blueprint.  IRS officials also stated that the PRIME contractor’s  methodology offered more capability than the blueprint system life cycle  overview, such as processes for managing business process reengineering.
We reviewed the PRIME contractor’s commercially available methodology,  and found that it both meets the requirements specified in the blueprint’s  system life cycle overview and is consistent with the approaches that  successful private and public sector organizations use to manage large IT  investments.  If implemented correctly, it should provide IRS with effective  processes and tools for, among other things, planning, controlling,  developing, and deploying information systems based on defined activities,  events, milestones, reviews, and products.  As described above, the initial  expenditure plan provides for implementing the ELC on ongoing projects,  and, according to IRS officials, future expenditure plans will provide for  implementing it on follow-on projects.
section_title: Condition 4: Approved by IRS, Treasury’s IRS Management Board, and OMB and Reviewed by GAO
paragraphs: IRS’ Core Business Systems Executive Steering Committee, which replaced  IRS’ Investment Review Board, approved the $35 million expenditure plan  on April 20, 1999.  Treasury’s IRS Management Board and OMB approved  the plan on June 9, 1999, and June 10, 1999, respectively.  On May 13, 1999,  IRS provided us with a copy of its initial expenditure plan it submitted to  the Congress, and the results of our review are contained in this report.
section_title: Condition 5: Complies With Federal Acquisition Rules, Requirements, Guidelines, and Management Practices
paragraphs: As described in its expenditure plan, IRS plans to establish, through its  ELC, the life cycle management processes and practices for acquiring  modernized systems.  If implemented effectively, these processes should  meet federal acquisition rules and management practices.  According to  federal acquisition laws, rules, and regulations, agencies should, among  other things, use disciplined, decision-making processes for planning,  managing, and controlling the acquisition of IT.  By doing so, agencies  mitigate the risks of acquiring systems that are not delivered on time and  on budget and do not work as intended.  IRS’ expenditure plan requests  funds to continue IRS’ efforts to strengthen its capability to effectively  manage its contractors.  For example, as part of its building management  capability initiatives, IRS plans to implement mature software/systems  acquisition management practices within the IRS organization responsible  for managing the PRIME contractor and other modernization contractors.   IRS intends to build the capability in accordance with the Software  Engineering Institute’s (SEI) software/system acquisition capability  maturity model requirements, and plans to have this capability in place by  October 31, 1999.   Among these maturity models’ requirements are  disciplined and rigorous processes and approaches for measuring and  tracking progress of contracts and acting to correct problems quickly,  which will be a key to IRS’ ability to effectively manage the PRIME  contractor and successfully modernize.
section_title: Initial Expenditure Plan Is Consistent With GAO’s Past Recommendations
paragraphs: In 1995, we first made recommendations to correct serious and pervasive  modernization management and technical weaknesses.  Since then, IRS has  taken actions to address our recommendations.  We have monitored these  actions and have made follow-up recommendations that recognize IRS’  progress and define the residual steps that IRS needs to take to ensure that  it is ready and capable to effectively modernize its systems.  Currently, our  open recommendations fall into three categories: (1) completing the  modernization blueprint, (2) developing the management and engineering  capability to effectively modernize systems, and (3) until the first two  recommendations are implemented, limiting modernization spending to  certain small, cost-effective, low-risk efforts.
IRS’ initial expenditure plan is consistent with these recommendations.   Specifically, of the $35.1 million being requested, IRS plans to use  approximately $14.6 million for initiatives relating to completing the  blueprint.  For example, IRS plans to develop a 5-year “core business  systems” modernization strategy that leverages new IT and recognizes IRS’  recent organizational restructuring and business process reengineering  efforts prompted by the IRS Restructuring and Reform Act of 1998.  The  result is intended to be a revised, business risk-based sequencing plan that  defines the general timing, cost, and benefits of new modernization  projects over the next 3 to 5 years.
In addition, IRS plans to spend about $11.6 million to develop the  management and engineering capability to build and implement  modernized systems.  Specifically, IRS has designated about $2.2 million for  PRIME and other contractor support to help IRS implement mature  program management practices that are to (1) strengthen IRS’ ability to  manage and control modernization initiatives and (2) ready IRS for an  evaluation by SEI against relevant software/system acquisition capability  maturity model requirements.  IRS has earmarked $9.4 million for defining,  documenting, and implementing its ELC, including training staff in its use,  on ongoing modernization projects.
Last, IRS plans to spend the remaining $8.9 million on selected relatively  small, low-risk efforts.  For example, IRS is seeking $5.1 million to, among  other things, validate system requirements and update cost-effectiveness  (i.e., business case) justifications for two ongoing projects intended to  provide near-term customer service improvements via better routing of  taxpayers telephone inquiries.  In addition, IRS seeks to spend $3.2 million  on defining the network and platform technology infrastructure needed to  support the above two customer service initiatives and to provide the  foundation for secure future electronic commerce between employees, tax  practitioners, and taxpayers.
section_title: Other Observations on IRS’ Modernization Efforts
paragraphs: Our review disclosed several additional relevant items concerning IRS’  management of the modernization.  First, IRS has established a  modernization “governance” structure that provides for extensive  involvement by IRS’ top executives, including the Commissioner.  This  structure is an effective way to mitigate the risks associated with the  various modernization initiatives that IRS has underway and planned.   Second, although IRS plans to do so by July 1999, it has yet to adequately  define respective systems modernization roles and responsibilities for  itself, the PRIME contractor, and other support contractors.  Given that  IRS’ modernization approach provides for an unprecedented “partnership”  with its contractors, ensuring that these roles and responsibilities are  defined, understood, and enforced is of particular importance.  Last, IRS  can strengthen its incremental approach to investing in modernized  systems by regularly disclosing to the Congress in its planned future  expenditure plans IRS’ progress against the modernization expectations  that it defined in the preceding expenditure plan.
subsections: section_title: IRS’ Top Executives Are Directly Engaged in Ongoing Modernization Initiatives
paragraphs: IRS has established a governance structure for managing its modernization  initiatives and providing its top executives, including the Commissioner,  direct and frequent visibility into and control over all initiatives/projects.   This organizational structure is headed by the Core Business Systems  Executive Steering Committee, which is chaired by IRS’ Commissioner and  includes Treasury’s Assistant Secretary for Management and Chief  Financial Officer, IRS’ Chief Information Officer, the Chief Operating  Officer, key operating division heads, the PRIME contractor, and other key  business officials.  The Executive Steering Committee meets at least  monthly to review modernization progress and direct future work.  Under  this process, projects are not initiated and do not progress to the next  phase without the Steering Committee’s approval, thus mitigating the risk  of modernization missteps and failures.
section_title: IRS Has Yet to Adequately Define Modernization “Partnership” Roles and Responsibilities
paragraphs: Effective program/project and contract management requires a clear  delineation of the respective roles and responsibilities of the agency  management team and the contractors supporting the agency.  In the case  of IRS and its tax systems modernization program, this is particularly  important because IRS’ stated intention in its solicitation and award  documentation is to “partner” with the PRIME contractor and the  supporting contractors.  However, the nature of such a “partnership” is not  defined in federal acquisition regulations, and thus is an ambiguous  concept to implement and requires clear definition by IRS.
In its efforts to date, however, IRS has yet to adequately define the  respective roles of the service and its contractors.  In January 1999, IRS  tasked the PRIME contractor with (1) defining the roles and  responsibilities of IRS, itself, and the other contractors and (2) explaining  the structure and processes for managing the “partnership” between the  service and itself.  This task was to be completed by April 30, 1999.   According to IRS officials, this task was not adequately completed for  several reasons.  First, the PRIME contractor’s tasking was not adequately  defined and thus resulted in a deliverable that was too narrow in scope.   Second, IRS subsequently became concerned that the PRIME contractor  was not sufficiently independent enough to be defining roles and  responsibilities for itself and IRS.  Last, funding for the PRIME contractor  began to run low.  Consequently, IRS recently tasked one of its other  support contractors to develop a “Concept of Operations document by July  1999 that defines the roles, responsibilities, authorities, structure, and rules  of engagement for the PRIME contractor, IRS, and other IRS support  contractors.”
section_title: IRS Should Disclose Progress and Results in Subsequent Expenditure Plans
paragraphs: When employing an incremental approach to investing in systems  modernization efforts, leading public and private sector organizations track  and monitor whether each increment is producing promised benefits and  meeting cost and schedule baselines, and report this information to  executive decisionmakers.  By doing so, these organizations can address  variances from expectations incrementally, before significant dollars are  expended.  This is a proven way to effectively manage investment risks.
To effectively employ incremental investment management on its  modernization, IRS recognizes that it needs to incrementally measure and  track progress and results.  Accordingly, its governance structure and its  ELC provide for doing so.  In particular, its ELC is to incorporate SEI  process maturity model requirements that, among other things, define key  processes and approaches for measurement, analysis, and verification of  activities.  However, IRS has yet to define whether its planned future  expenditure plans will provide for disclosure of this information.  Such  disclosure would provide the Congress with the kind of regular and  valuable information that is needed to effectively oversee IRS’  modernization efforts.
section_title: Conclusions
paragraphs: IRS’ initial expenditure plan lays the foundation for successful systems  modernization; satisfies, for this $35 million increment, the conditions that  the Congress placed on the use of ITIA funds; and is consistent with our  past recommendations. IRS’ stated intention is to fully implement this  expenditure plan and to submit to the Congress for approval future  expenditure plans that incrementally build on this modernization  foundation.  Such an incremental approach to investing in modernized  systems is an effective way to minimize the inherent risk in large, complex,  multiyear modernization programs.  The next step for IRS is to effectively  implement the plan and fulfill its commitment to incrementally request and  expend future modernization funds.  A key factor in implementing its plans  will be IRS’ success in establishing mature and disciplined measurement  and tracking capabilities so that it can effectively analyze progress against  incremental goals, deliverables, and benefit expectations and reliably  report this information to congressional decisionmakers.  By including this  information in future expenditure plans submitted to the Congress, IRS can  strengthen modernization management and oversight.
section_title: Recommendations
paragraphs: Accordingly, we recommend that the Commissioner of Internal Revenue  ensure that future expenditure plans fully disclose IRS’ progress against  incremental goals, deliverables, and benefit expectations and that the  expenditure plan that IRS plans to submit in October 1999 fully explain the  nature and functioning of IRS’ “partnership” with its contractors, including  the respective roles and responsibilities of IRS and its contractors.
section_title: Agency Comments
paragraphs: In commenting on a draft of this report, IRS agreed with our findings and  recommendations and stated that it would ensure that future expenditure  plans would address progress against expectations established in previous  requests.  IRS also commented on the effectiveness of our evaluation  efforts and stated that our timely observations and comments have allowed  IRS to move quickly to implement our recommendations.
We are sending copies of this report to Senator Ted Stevens, Senator Robert C. Byrd, Senator William V. Roth, Jr., Senator Daniel Patrick  Moynihan, Senator Orrin G. Hatch, Senator Max Baucus, Senator Fred  Thompson, Senator Joseph I. Lieberman, Representative C.W. Bill Young,  Representative David R. Obey, Representative Bill Archer, Representative  Charles B. Rangel, Representative Amo Houghton, Representative William J. Coyne, Representative Dan Burton, Representative Henry A.  Waxman, Representative Stephen Horn, and Representative Jim Turner in  their capacities as Chairmen or Ranking Minority Members of Senate and  House Committees and Subcommittees.  We are also sending copies to  Honorable Charles O. Rossotti, Commissioner of Internal Revenue,  Honorable Robert E. Rubin, Secretary of the Treasury, Honorable Lawrence H. Summers, Deputy Secretary of the Treasury, and the  Honorable Jacob J. Lew, Director of the Office of Management and Budget.   Copies will also be made available to others upon request.
If you or your staff have any questions about this report please contact me  at (202) 512-6240 or by e-mail at hiter.aimd@gao.gov.  Other key  contributors to this report are listed in appendix III.
section_title: Objectives, Scope, and Methodology
paragraphs: Pursuant to the Department of the Treasury’s fiscal year 1998 and 1999  appropriations acts, the Congress limited IRS’ ability to obligate ITIA funds  until the service and Treasury submitted to the Congress for approval an  expenditure plan that per the acts, (1) implements the IRS Modernization  Blueprint, (2) meets OMB’s investment guidelines for information systems,  (3) is reviewed and approved by IRS’ Investment Review Board, OMB, and  Treasury’s IRS Management Board and is reviewed by GAO, (4) meets the  requirements of IRS system life cycle management program, and (5) is in  compliance with acquisition rules, requirements, guidelines, and system  acquisition management practices of the federal government.  Accordingly,  IRS provided us with the expenditure plan that it submitted to the Congress  (i.e., the Senate on May 25, 1999, and the House on June 2, 1999).  We  reviewed the plan to determine whether (1) the plan satisfied the  conditions specified in the acts, (2) the plan was consistent with our past  modernization recommendations, and (3) we had any other observations  on IRS’ systems modernization efforts.
To determine whether IRS’ expenditure plan satisfied the conditions  specified in appropriations acts, we first identified and reviewed the  relevant IRS and federal documents referenced in the statutory conditions,  such as the Modernization Blueprint, OMB information systems investment  guidelines (e.g., Raines Rules), and the Federal Acquisition Regulation.  We  then documented IRS’ completed, ongoing, and planned modernization  initiatives.  To do this, we reviewed IRS’ ITIA Expenditure Plan; Initial  Request for Funds; and other supporting documentation, such as the  individual initiatives’ project plans and descriptions, briefing presentations  (e.g., expenditure plan briefing to IRS Management Board), the PRIME  contract and associated task orders, and Executive Steering Committee  agendas and decision papers proposing courses of action.  We also  interviewed IRS’ Chief Information Officer and other service officials  working on the modernization program to gain an understanding of what  IRS is doing to satisfy the legislative conditions.  This included receiving  weekly briefings and reports on how IRS and contractor teams were  progressing on ongoing initiatives, such as efforts to improve customer  service, build capability to effectively acquire systems, establish a new  system development life cycle methodology (i.e., ELC), and define IRS and  contractor roles and responsibilities.  We also reviewed the business and  systems development life cycle methodology that IRS is modifying to  develop its ELC and were briefed by IRS and its contractors involved in this  effort.  We also attended IRS’ Executive Steering Committee meetings to  observe how IRS top management was directing and controlling the  modernization program and to understand IRS’ strategic modernization  approach and progress.  Last, we analyzed each of IRS’ modernization  initiatives vis-à-vis the statutory conditions to identify any variances or  inconsistencies.
To determine whether IRS’ expenditure plan is consistent with our past  recommendations on the tax systems modernization, we extracted from  our inventory of open recommendations those pertaining to IRS’  modernization and grouped them into the following three categories: (1) completing the Modernization Blueprint, (2) developing the  management and engineering capability to effectively modernize systems,  and (3) limiting modernization spending to certain small, cost-effective,  low-risk efforts until the first two recommendations are implemented.  We  then compared IRS’ efforts on its completed, ongoing, and planned  initiatives with the intent of our open recommendations to identify any  variances or inconsistencies.
To develop other observations on IRS’ systems modernization efforts, we  analyzed IRS’ overall modernization governance structure to determine  whether it provided for top management involvement and analyzed  contractor deliverables against task order requirements and the December 9, 1998, contract awarded to the PRIME contractor.  We also  attended Executive Steering Committee meetings to observe how the  Commissioner and committee members functioned with respect to  established structures and processes, and to understand IRS’ plans for  submitting future expenditure plans.  In addition, we met with and  interviewed the Chief Information Officer and IRS officials responsible for  the day-to-day management and control of the program and the PRIME  contractor, for development of the expenditure plan, and for definition of  IRS and contractor roles and responsibilities.
We performed our work at IRS headquarters in Washington, D.C., and its  facility in Lanham, Maryland, from January 1999 through May 1999 in  accordance with generally accepted government auditing standards.
section_title: Comments From the Internal Revenue Service
section_title: GAO Contact and Staff Acknowledgements
subsections: section_title: GAO Contact
paragraphs: In addition to the above contact, Keith Rhodes, Agnes Spruill, Karen  Richey, Lorne Dold, Sherrie Russ, Charles Roney, and Frank Maguire made  key contributions to this report.
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