SB/SE was formed to address various issues affecting small business and self-employed taxpayers, such as filing tax returns and paying taxes. SB/SE’s strategic goals include increasing compliance and also reducing burden among SB/SE taxpayers. As part of SB/SE, TEC is to use various strategies, including providing education, outreach, assistance, and other services, to support SB/SE taxpayers in understanding and complying with tax laws. IRS created TEC in response to concerns that IRS should better balance such services with its enforcement efforts. In serving taxpayers, TEC is to partner with government agencies, small business groups, tax practitioner groups, and other stakeholders that could advance its education and outreach efforts. To meet an overall goal of increasing voluntary compliance, TEC’s four program goals or priorities are to combat abusive tax schemes, reduce taxpayer burden, promote electronic filing, and negotiate agreements with SB/SE taxpayers on specific ways to voluntarily comply with tax laws. Recent events underscore the importance of human capital management and strategic workforce planning. For example, we designated strategic human capital management as a governmentwide, high-risk area in January 2001, and it was also placed at the top of the President’s Management Agenda in August 2001. In addition, OMB and OPM have made efforts to improve human capital management and strategic workforce planning. The goal of strategic workforce planning is to ensure that the right people with the right skills are in the right place at the right time. Agency approaches to workforce planning can vary with their particular needs and missions. Nevertheless, looking across existing successful public and private organizations, certain critical elements recur as part of a workforce plan and workforce planning process. Although fluid, this process starts with setting a strategic direction that includes program goals and strategies to achieve those goals and flows through the critical elements to evaluating the workforce plan. Figure 1 uses a simple model to show these critical elements and their relationships to the agency’s overall strategic direction and goals. Before developing a workforce plan, an agency first needs to set a strategic direction and program goals. Setting a strategic direction and program goals is part of the general performance management principles that Congress expects agencies to follow under GPRA. A workforce plan should be developed and implemented to help fulfill the strategic direction and program goals. The critical elements of what this plan should include and how it should be developed follow. Involvement of management and employees: Involving various staff (from the top to the bottom) cuts across the other critical elements. Involving staff in all phases of workforce planning can help improve the quality of the plan because staff are directly involved with the daily operations. Further, vetting proposed workforce strategies to management and those most affected by those decisions can build support for the plan and facilitate obtaining the resources needed to implement the plan and meet program goals. Establishing a communication strategy that involves various staff can create shared expectations and a clear reporting process about the workforce plan. Workforce gap analysis: Analyzing whether gaps exist between the current and future workforce needed to meet program goals is critical to ensure proper staffing. The workforce plan should assess these gaps, to the extent practical, in a fact-based manner. The absence of fact-based analyses can undermine an agency’s efforts to identify and respond to current and emerging challenges. Thus, the characteristics of the future workforce should be based on the specific skills and numbers of staff that will be needed to handle the expected workload. The analysis of the current workforce should identify how many staff members have those skills and how many are likely to remain with the agency over time given expected losses due to retirement and other attrition. The workforce gap analyses can help justify budget and staffing requests by connecting the program goals and strategies with the budget and staff resources needed to accomplish them. Workforce strategies to fill the gaps: Developing strategies to address any identified workforce gaps creates the road map to move from the current to the future workforce needed to achieve the program goals. Strategies can involve how the workforce is acquired, developed and trained, deployed, compensated, motivated, and retained. Agencies need to know their flexibilities and authorities when developing the strategies, and to communicate the strategies to all affected parties. Evaluation of and revisions to strategies: Evaluating the results of the workforce strategies and making any needed revisions helps to ensure that the strategies work as intended. A key step is developing performance measures as indicators of success in attaining human capital goals and program goals, both short- and long-term. Periodic measurement and evaluation provides data for identifying shortfalls and opportunities to revise workforce plans as necessary. For example, an evaluation may indicate whether the workforce plan adequately considered barriers to achieving the goals, such as insufficient resources to hire and train the full complement of staff identified as necessary by the workforce gap analysis. Across the critical elements of a workforce plan, data collection and analysis provide fundamental building blocks. Having reliable data is particularly important to doing the workforce gap analysis. Early development of the data provides a baseline by which agencies can identify current workforce problems. Regular updating of the data enables agencies to plan for improvements, manage changes in the programs and workforce, and track the effects of changes on achieving program goals. IRS issued an Internal Revenue Manual (IRM) section for internal review and comment in March 2003, and IRS expects to finalize it in June 2003. The section outlines a strategic workforce planning system and model, and discusses the roles and responsibilities of IRS and its divisions in this system. For example, IRS is to be responsible for developing the strategic workforce plan across IRS and for analyzing current and future workforce needs. The divisions are to be responsible for providing requested data to IRS’s workforce planning office and for translating the IRS-wide plan into their operations. Thus, a strategic workforce plan for a unit within a division could be developed by IRS, the division, or the unit. If developed by the division or unit, the workforce plan is to be consistent with IRS- wide strategic and workforce plans. Our objective was to determine whether TEC has a workforce plan that conforms to the critical elements for what should be in a plan and how it should be developed and implemented. To meet this objective, we reviewed human capital literature--including OPM’s Human Capital Assessment and Accountability Framework--as well as workforce planning models at OPM, OMB, and IRS, among others; reviewed TIGTA and GAO reports on human capital and workforce planning; reviewed IRS and SB/SE documents on their strategic program plans, the plan that guided TEC’s creation and initial staffing, and the annual TEC staffing plan as well as IRS’s draft IRM section on strategic planning and workforce analyses (section 6.251) as of March 2003; and interviewed SB/SE and TEC officials on their goals, strategies, and staffing plans as well as IRS and SB/SE Workforce Council officials to determine their purposes, activities, time lines, and challenges. We conducted our work at IRS and SB/SE headquarters from February 2003 through April 2003 in accordance with generally accepted government auditing standards. We did not attempt to analyze the adequacy of any analyses done to develop a workforce plan for TEC or the program goals and strategies. The Commissioner of IRS provided comments on a draft of this report, which are discussed in the “Agency Comments and Our Evaluation” section and are reprinted in appendix I. Since its inception in October 2000, TEC has operated with short-term staffing plans that do not meet the critical elements of what a strategic workforce plan should include and how it should be developed. IRS and SB/SE are taking steps to develop a strategic workforce plan that will include TEC. However, questions remain about how the critical elements will be developed and implemented for TEC. TEC does not have a strategic workforce plan that includes the critical elements, such as analyses of the workforce gaps and strategies. Without such a workforce plan, TEC has less assurance that it has the necessary workforce to meet its current program goals and to manage changes in its programs and goals. IRS and SB/SE officials said that TEC does not have a strategic workforce plan because of the effort in creating the division and its units such as TEC to meet SB/SE taxpayer needs. These officials said this effort has been a significant undertaking, which delayed the workforce planning. SB/SE officials also said that they needed to have some experience with TEC as a new unit and some data on its new TEC workforce before developing a strategic workforce plan for TEC. Since its inception, TEC has operated under two types of staffing plans that did not use the critical elements of a workforce plan. One plan was developed prior to TEC’s creation in October 2000 to guide the hiring and allocation of 1,209 full-time positions for TEC. The other plan annually allocates the number of TEC staff to its various locations, functions (e.g., partnership outreach or marketing service) and four priorities (e.g., combat abusive tax schemes and promote electronic filing). Although both plans reflect analyses of the number of TEC staff by location, these plans did not address what a TEC workforce plan should include under the critical elements. For example, the plans did not identify any gaps in the workforce needed, any strategies to fill the gaps, or any measures for evaluation purposes. Recognizing the need for workforce planning, both IRS and SB/SE are developing strategic workforce plans and a planning process for TEC and other IRS entities that broadly reflect the critical elements. However, questions remain because of the lack of details on how any workforce plan for TEC will address the critical elements. IRS and SB/SE each convened workforce planning councils, consisting of executives and human capital managers, to oversee the development of a strategic workforce plan that would include TEC. IRS started its council in the fall 2001 at the direction of the IRS commissioner. SB/SE started its council in February 2003 to create a more detailed workforce plan for TEC and its other units than would be provided in the IRS-wide plan. Our review of IRS and SB/SE documents showed that they both intend to use the critical elements of strategic workforce planning. These documents include models and discussion that reference the critical elements. For example, these models refer to elements such as analyzing the gap in the workforce and developing strategies to reduce the workforce gap. Although IRS and SB/SE are taking steps to develop a strategic workforce plan for TEC, these steps have not yet produced enough details to specify how the critical elements will be developed and implemented for TEC. IRS and SB/SE officials said that they recognize the need to further define how the strategic workforce plan will be developed and implemented over time. For example, the degree to which top management and employees will be involved in developing and implementing the workforce plan for TEC is not yet clear. The draft IRM section refers to their involvement but does not provide details on the extent and nature of their involvement. As for identifying any workforce gaps at TEC, it is not clear what analyses will be done. As of April 2003, neither IRS nor SB/SE has analyzed the type of TEC workforce needed in the future to meet program goals or the skills of the current TEC workforce. Both types of analyses are needed to determine the gap between the current TEC workforce and the workforce needed in the future. Nor is it clear how and when these analyses will be done. SB/SE officials said that given resource limitations, they have not done the necessary workforce analyses for TEC or developed an implementation schedule for when the analyses would be done. As of April 2003, IRS or SB/SE analyses have dealt with other workforce issues. While useful, the analyses do not address the TEC workforce gap in terms of the skills needed now or in the future to meet program goals, particularly newer ones such as promoting electronic filing or negotiating voluntary compliance agreements. For example, IRS has analyzed 12 mission-critical positions in terms of potential losses (e.g., retirement) from the current number of positions. These analyses have not focused on TEC because the analyses, as well as the eventual IRS-wide workforce plan, are intended to be done at a high level with minimal references to TEC. SB/SE asked officials in TEC and its other units in February 2003 to use a checklist to self-assess their current workforce and planning capabilities against OPM criteria. SB/SE has not indicated how it will verify and use the subjective check marks made by the officials to determine workforce gaps in TEC, particularly in skills needed. No analyses have been provided to justify plans for fiscal year 2004 to hire 250 additional staff in TEC to combat abusive tax schemes and to not hire any additional staff to address three other TEC goals. IRS and SB/SE workforce officials had told us that the 250 staff estimate came from the budget and finance staff in SB/SE. In a subsequent meeting during May 2003, TEC and SB/SE officials said that IRS has decided against any staff expansion in TEC due to other budget considerations. Finishing the analyses of TEC workforce gaps is important for the rest of the workforce plan. The other two critical elements involving strategies and evaluation cannot be finished until IRS and SB/SE know the specific needs of the current and future TEC workforces. As IRS and SB/SE officials develop and implement a workforce plan for TEC, major challenges are likely to arise. For example, these officials cited the challenge of balancing daily operational demands with the capacity to forecast workforce needs in terms of staff numbers, skills, and locations. Another challenge is gathering reliable data on the attrition, retirement, and skills of the current workforce to do analyses that are critical to workforce planning. IRS and SB/SE officials also pointed to budget fluctuations that could limit their strategies to close gaps in the workforce needed by TEC over time. For example, the budget may be insufficient to replace losses of TEC workforce skills due to retirement. Finally, they said that if the workforce plan could adversely affect current TEC employees, dealing with employee unions to address the concerns could be a challenge. We have reported on these and other challenges that any agency faces in doing successful workforce planning. As discussed in our previous reports, and echoed by OPM and OMB guidance, a strategic workforce plan enables an agency to identify gaps in its current and future needs, select strategies to fill the gaps, and evaluate the success of the plan to make revisions that may be needed to better meet program goals. Such a workforce plan does not yet exist for TEC. Without such a plan, TEC is less likely to have the right number of staff with the right skills in the right places at the right time to address its priorities. Further, it is difficult to justify budget and staffing requests if the workforce needs are not known. IRS and SB/SE have started taking steps to develop a strategic workforce plan for TEC based on the critical elements under OPM and OMB guidelines, and our guidelines for what a plan is to include and how it is to be developed and implemented. However, IRS and SB/SE have not yet identified many details on how the plan for TEC will incorporate the elements. Without these details, we cannot be certain that the critical elements will be used and contribute to the program goals. Given the uncertainty on how the workforce plan for TEC will be developed and implemented, we recommend that the Commissioner of Internal Revenue ensure that the workforce plan for TEC be developed in conformance with the critical elements for what a plan should include and how a plan should be developed and implemented. We requested comments on a draft of this report from IRS. The Commissioner of Internal Revenue provided written comments in a letter dated May 28, 2003. (See appendix I.) These comments neither explicitly agreed nor disagreed with our recommendation to ensure that a workforce plan for TEC is developed in conformance with the critical elements of what a plan should include and how it should be developed and implemented. The Commissioner did say that IRS strongly endorses the development of a strategic workforce plan and that IRS has made progress on this effort, listing eight steps that have been taken. The Commissioner also said that the steps were a set of integrated strategies that reflect IRS’s commitment to improve its workforce planning efforts and that they addressed the issues raised in our report. To the extent that IRS had told us about how these steps contributed to a workforce plan for TEC, our report discusses them when we describe IRS’s efforts to create such a plan using the critical elements. Although we believe that these steps are useful, we made our recommendation because we did not see enough details to be assured that a workforce plan for TEC would be sufficiently developed and implemented in accordance with the critical elements. We are encouraged that IRS strongly endorses development of a strategic workforce plan. We look forward to seeing a workforce plan for TEC. As we agreed with your staff, unless you publicly release the contents of this report earlier, we will not distribute it until 30 days after its issue date. At that time, we will send copies of this report to the Ranking Minority Member of the Senate Committee on Small Business and Entrepreneurship. We will also send copies to the Commissioner of Internal Revenue and other interested parties. We will make copies available to others on request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. This report was prepared under the direction of Thomas Short, Assistant Director. Other major contributors include Catherine Myrick and Grace Coleman. If you have any questions or would like additional information, please contact me at (202) 512-9110 or brostekm@gao.gov or Thomas Short at (202) 512-9110 or www.shortt@gao.gov. 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. 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Summary: Strategic workforce planning helps ensure that agencies have the right people with the right skills in the right positions to carry out the agency mission both in the present and future. The Internal Revenue Service's (IRS) Taxpayer Education and Communication (TEC) unit within its Small Business and Self- Employed Division assists some 45 million small business and self-employed taxpayers. Given the number of taxpayers it is to assist and changes in its priorities and strategies, GAO was asked to determine whether TEC has a workforce plan that conforms to critical elements for what should be in a plan and how it should be developed and implemented. Although it has existed for more than 2-and-a-half years, TEC does not have a strategic workforce plan that includes certain critical elements. For example, it has not identified gaps between the number, skills, and locations of its current workforce and the workforce it will need in the future, and the strategies to fill gaps. Such a workforce plan for TEC could be developed by IRS, the Small Business and Self-Employed Division, and/or TEC. Small Business and Self-Employed Division officials said that TEC does not have a strategic workforce plan because they focused on creating the division and units such as TEC to begin addressing taxpayer needs, and because they first wanted to gain some experience with TEC as a new unit. IRS and the Small Business and Self-Employed Division are creating a process for developing a workforce plan for TEC that in broad terms would incorporate the critical elements common to workforce planning. However, it is not yet clear whether the workforce plan for TEC will be developed and implemented consistent with these critical elements. For example, IRS and the Small Business and Self-Employed Division have not analyzed the skills that the TEC workforce will need to meet its program goals or outlined the process and data to be used to do these analyses.