SB/SE is one of IRS’s four business operating divisions. SB/SE is responsible for enforcement, taxpayer education, and account services for about 45 million taxpayers, including 33 million self-employed taxpayers and 7 million small businesses with assets of less than $10 million. SB/SE also performs some collection functions for other IRS operating divisions. SB/SE managers told us that the reorganization of IRS in 2000—including the creation of SB/SE—presented an opportunity for them to examine enforcement-related processes from a new perspective. Prior to this, the agency was organized around functional and geographic lines, with separate groups responsible for activities such as processing returns, audits, and collection in particular areas. The reorganization eliminated or substantially modified this national, regional, and district structure and established organizational units serving particular groups of taxpayers with similar needs. Officials told us that with the reorganization, they were now responsible for functions that they had not controlled so directly before. They said that there was general agreement among the managers of the newly created division that there were opportunities to make processes more efficient and effective, and that this led them to start several enforcement process improvement projects. They also distinguished between enforcement process improvement projects, which are generally incremental in their approach, and more far-reaching efforts to modernize IRS and transform processes through business systems modernization and other significant changes. We noted in our recent Performance and Accountability Series that IRS has made important progress in these larger efforts but its transformation continues to be a work in progress. Though many of the SB/SE projects include the word “reengineering” in their titles, SB/SE managers agreed that process improvement projects was a better description, given the scope of the changes these projects were making. As described in GAO’s Business Process Reengineering Assessment Guide, reengineering entails fundamentally rethinking how an organization’s work should be done while process improvement efforts focus on functional or incremental improvements. SB/SE managers explained that they purposefully avoided technology-driven changes of the sort under development in the IRS-wide business systems modernization effort. They said that their goal was to make shorter term, more SB/SE- focused changes in the meantime, while the more sweeping changes, and their longer planning and implementation horizons, were still years away from completion. In this report, we refer to the 15 SB/SE efforts under way as of November 2003 as “process improvement projects.” We have reported on declining enforcement trends, finding in 2002 that there were large and pervasive declines in six of eight major compliance and collection programs we reviewed, with the only exceptions in returns processing and in the automated underreporter program. In addition to these declines, we reported on the large and growing gap between collection workload and collection work completed and the resultant increase in the number of cases where IRS has had to defer collection action on delinquent accounts. In 2003, we reported on the declining percentage of individual income tax returns that IRS was able to examine each year, with this rate falling from .92 percent to .57 percent between 1993 and 2002. We also reported on enforcement productivity measured by cases closed per full-time equivalent employees, finding that IRS’s telephone and field collection productivity declined by about 25 percent from 1996-2001 and productivity in IRS’s three audit programs—individual, corporate, and other audit—declined by 31 to 48 percent. Improving productivity by changing processes is a strategy SB/SE is using to address these declining trends. As of November 2003, SB/SE had 15 ongoing process improvement projects under way, most of them in three broad enforcement areas—audit, collection, and compliance support. Audit projects entail changes to field and office examination processes. Collection projects include changes to automated collection programs, field collections, and other programs. Compliance support is the term SB/SE uses to describe processing functions related to audit and collection such as updating IRS information systems for the results of enforcement work and preparing examination closing letters and liens on taxpayer property. Compliance support projects include changes to technical services and case processing. We selected four SB/SE process improvement projects to review in detail for this report. Field Examination Reengineering includes changes to preaudit processes to better identify specific issues on tax returns for auditors to focus on, among other changes intended to improve examination efficiency and reduce taxpayer burden. The Compliance Support Case Processing Redesign project seeks to centralize data entry into online information systems that monitor the status of active audit and collection cases and their results from many different locations with widely variable workload to just a few with more consistent, predictable workload. The Collection Taxpayer Delinquent Account Support Project involves the development of two computer models to improve setting priorities for collections cases to assign to collections staff. The Collection Field Function Consultative Initiative seeks to improve timeliness on collections cases through regular managerial involvement as cases are being worked. Brief descriptions of all of SB/SE’s projects can be found in appendix IV. SB/SE process improvement project teams completed most of the steps we identified as key to SB/SE’s process improvement project planning, but none of the projects we reviewed completed all of the key steps. Guidance on project planning steps, such as our 20-step framework, could help ensure that key steps are followed more consistently. Also, SB/SE enforcement productivity data presented problems in that the data available to SB/SE managers to assess the productivity of their enforcement activities, identify processes that need improvement, and assess the success of their process improvement efforts are only partially adjusted for complexity and quality of cases worked. The planning for each of the four projects we reviewed included most of the key steps in our process improvement framework, but none of the projects included all of the steps. Figure 2 presents our findings, organized by project stages, for each of the four projects we studied. A full circle means a step was fully completed in project planning and a partial circle means that only part of a step was completed. Our basis for each “no” or “partial” finding is explained in appendix III. Following figure 2, we discuss our findings in more detail with selected examples from the four projects we reviewed. The four SB/SE projects we reviewed largely included the productivity baseline definition and process mapping steps under the “Decision to Change” stage, where SB/SE had to determine whether any of its processes should be improved. The Field Examination Reengineering project team and both collection project teams had baseline data showing that the time needed to complete casework was rising and all four project teams had extensive flowcharts mapping the details of current processes. By helping managers understand the strengths and weaknesses of current processes, such information contributes to more informed decisions about which processes to change. However, SB/SE did not as consistently include the complexity and quality of work being done in productivity baselines, compare productivity data to external benchmarks, identify root causes of productivity declines, or measure the gap between current and desired productivity. Weaknesses in these steps leave SB/SE managers without information that could be useful when making decisions about which processes to change. For example, on three of the four projects, productivity data were not adjusted for case complexity and only partially adjusted for quality. This could cause productivity trends to be misinterpreted, leaving SB/SE at risk of trying to redesign processes that are already working well or missing opportunities to fix processes with potential for improvement. Because GAO’s Business Process Reengineering Assessment Guide and our roundtable participants stressed the importance of complete productivity data and because this was a recurring issue we identified in our assessment of the four SB/SE projects, we discuss the importance of adjusting for case complexity and quality when measuring productivity in more detail in the next section of this report. Another example of not consistently following our key steps in the “Decision to Change” stage is found in the Field Examination Reengineering project. The project team sought the advice of many large, noted organizations to benchmark its productivity. However, the work did not lead to measuring how SB/SE’s productivity compared to others’ because the team did not believe that operations in other organizations were comparable. Without this benchmarking, the team did not know whether and by how much it could improve productivity by updating operations based on the experiences of other large organizations. Both GAO’s Business Process Reengineering Assessment Guide and our roundtable participants stressed that although processes may seem unique to government, they likely have counterparts at a process level in the private sector. Moreover, GAO’s Guide says that looking at dissimilar organizations can actually lead to the most fruitful improvements because it stimulates thinking about new approaches. During the “Target Process Development” stage, the projects we reviewed consistently included the steps that prepare for implementation. Planning on all four of the projects we studied included obtaining executive support, assessing barriers to implementing changed processes, and assessing resource needs and availability. The Compliance Support Case Processing Redesign team, for example, originally identified the need for a computer programming change to implement part of their process redesign. When the programming change could not be made immediately, they continued with a manual process in order to keep the project moving forward. However, SB/SE less consistently included key steps in this stage related to designing the new process. For example, in the Collection Taxpayer Delinquent Account Support project, SB/SE did not consider alternatives to achieving the project’s goal of identifying the best cases to assign to collections staff. Because options were not considered, the team ran the risk of missing a more effective approach than the one they took. Another team did not design the new process based on analysis of a gap between current and desired productivity. It is important at this stage for projects to include fact-based performance analysis to assess how to change processes that are in greatest need of improvement in terms of cost, quality, and timeliness. By analyzing the gap between an existing process’s performance and where that performance should be, projects can target those processes that are most in need of improvement, analyze alternatives, and develop and justify implementation plans.