Madam Chairman and Members of the Subcommittee: We are pleased to be here today to discuss the results of our work to date on the Internal Revenue Service’s (IRS) efforts to have its information systems function correctly when processing dates beyond December 31, 1999. These efforts are necessary because IRS’ information systems, many of which are over 25 years old, were programmed to read two-digit date fields. Therefore, if unchanged, beginning January 1, 2000, these systems would interpret 2000 as 1900, and thus would seriously jeopardize critical tax processing and collection operations. According to IRS, the failure to change two-digit date fields before 2000 could result in generating millions of erroneous tax notices, refunds and bills. IRS has less than 9 months to complete the work that it believes is necessary to reach its goal of having all of its systems Year 2000 compliant by January 31, 1999. Meeting this goal is important to help ensure that IRS (1) can accurately process tax returns during the 1999 filing season and (2) has almost a full year to test the multitude of changes that are necessary and make additional corrections so that its systems operate properly in the next millennium. Our statement today is based on the work we did to prepare a draft report on the status of IRS’ Year 2000 efforts. Our draft report is currently at IRS for comment. In preparing that report, we interviewed officials from IRS’ National Office, computing centers, service centers, regions, and district offices. We analyzed and compared IRS’ planning, budget, and performance-monitoring documentation with our Year 2000 assessment guide as a part of a structured approach for reviewing IRS’ conversion efforts. telecommunications is at the highest risk for not being completed by January 31, 1999. In addition to converting systems, IRS is undertaking two major system replacement projects as part of its Year 2000 efforts. Both of these projects have encountered some schedule delays. In a briefing to this Subcommittee in January 1998, we identified two significant risk areas to IRS’ Year 2000 efforts. The first was the lack of a master conversion and replacement schedule. The second was a limited approach to contingency planning. IRS is taking actions to address our concerns regarding the lack of a master conversion and replacement schedule. However, we remain concerned that IRS’ current approach to contingency planning does not address the likelihood that system failures could occur once systems are implemented. To assist agencies in their Year 2000 conversion efforts, we developed an assessment guide that includes a structured, step-by-step approach that agencies may use for reviewing and assessing their readiness to handle the Year 2000 problem. The assessment guide states that the Year 2000 conversion efforts should be managed as a single, large information systems project. The assessment guide describes in detail the five phases of a Year 2000 conversion process (i.e., awareness, assessment, renovation, validation, and implementation). Each of these phases represents a major Year 2000 program activity or segment. To successfully address the Year 2000 problem, effective program and project management is required for all five phases. IRS’ Chief Information Officer (CIO) established several parallel efforts to help ensure that IRS achieves Year 2000 compliance by January 31, 1999. These efforts include creating the Century Date Change Project Office, which is responsible for coordinating the conversion of most existing information systems that can be made Year 2000 compliant as well as ensuring that all systems are converted in accordance with a 14-step conversion process. That process incorporates the five phases included in our assessment guide. Some of the steps involved in converting existing systems include (1) correcting millions of lines of application code; (2) upgrading thousands of hardware and systems software products for IRS’ three levels of computing operations—mainframes, minicomputers/file servers, and personal computers, (3) upgrading telecommunications networks; and (4) ensuring that external data exchanges are Year 2000 compliant. The other parallel Year 2000 efforts are two major system replacement projects—the replacement of the Distributed Input System (DIS) and the Remittance Processing System (RPS) with the Integrated Submission and Remittance Processing (ISRP) system and the consolidation of the mainframe computer processing operations at 10 service centers to 2 computing centers. IRS personnel use DIS to input taxpayer data and RPS to input remittance data. According to IRS, these two systems are old, and it is not cost-beneficial to make them Year 2000 compliant. Therefore, IRS decided to replace DIS and RPS with ISRP. ISRP will be piloted in two phases at the Austin Service Center. The first phase is underway and the second phase is scheduled to begin July 31, 1998. Nationwide implementation is scheduled for January 1999. As a part of its mainframe consolidation effort, IRS is to (1) replace and/or upgrade service center mainframe hardware, systems software, and the associated telecommunications infrastructure; (2) replace about 16,000 terminals that support frontline customer service and compliance operations; and (3) replace the Communication Replacement System (CRS) that provides security functions for on-line taxpayer account databases. Replacements of the terminals and CRS are critical to IRS’ achieving Year 2000 compliance. According to IRS, before January 1999, it needs to complete 12 steps of its 14-step process for converting (1) the applications for its existing systems; (2) telecommunications networks; and (3) systems software and/or hardware for mainframes, minicomputers/file servers, and personal computers. In addition, before January 31, 1999, IRS needs to (1) make its systems for external data exchanges Year 2000 compliant; (2) replace its data input and remittance processing systems and, at a minimum, the Year 2000 portions of its mainframe consolidation program; and (3) modify application software to implement tax law changes for the 1999 and 2000 filing seasons. assessments, as of March 31, 1998, IRS had identified 127 mission-critical systems, including 7 telecommunications systems. IRS has made more progress in converting its applications than in converting its information systems infrastructure. Specifically, as of March 31, 1998, IRS reported that it had completed the first 12 steps of its 14-step conversion process for applications for about 59 (46 percent) of its 127 mission-critical systems. IRS’ goal is to convert the applications for the remaining 68 mission-critical systems by January 31, 1999. IRS officials said they believe they are on track for meeting that goal. IRS has completed its assessment of the hardware and systems software for its mainframe computers. Conversion efforts for other infrastructure areas —hardware and systems software for minicomputers/file servers and personal computers, telecommunications networks, and external data exchanges—are, for the most part, either in the assessment phase or the early stages of conversion. According to IRS, of these areas, telecommunications networks will likely present the most significant conversion challenge and may be at the highest risk for not being completed by January 31, 1999. According to IRS, the capability to exchange information, both voice and data, among various computer systems is the backbone of IRS’ ability to perform all of its tax processing and customer service functions. IRS uses a telecommunications network that is supported through the Department of the Treasury and additional networks that are unique to IRS. As of March 10, 1998, IRS had an inventory of the components that are included in Treasury’s network and was verifying a preliminary inventory of the components in the networks unique to IRS. A contractor is currently doing a risk assessment to help develop a conversion schedule so that the most important work will be scheduled first to minimize adverse impacts if IRS is unable to complete all of its telecommunications work by January 31, 1999. The two major system replacement projects included in IRS’ Year 2000 efforts are experiencing some schedule slippages. For example, certain software development for ISRP that was to be completed in April 1998 is now scheduled to be done in June 1998. As a result, the time available for testing before the start of the second phase of the pilot has been reduced. ISRP officials do not believe this two-month delay will affect either the start of the second phase of the ISRP pilot or its nationwide implementation. According to IRS officials, IRS has revised its mainframe consolidation completion schedule because of field office concerns about the ambitious schedule and pending expanded business requirements. Under the revised schedule, IRS plans to delay the consolidation of data processing operations of five service centers from 1998 until after June 1999. IRS officials said they expect to complete the Year 2000 portions of mainframe consolidation (e.g., terminal replacement and CRS) by January 31, 1999. However, according to IRS’ weekly status reports on mainframe consolidation, CRS has been experiencing some difficulties and is somewhat behind its original schedule for system testing. In our January briefing to your office, we identified two major risk areas for IRS’ Year 2000 effort: (1) the lack of an integrated master conversion and replacement schedule and (2) a limited approach to contingency planning. IRS is taking action to have a contractor develop a master conversion and replacement schedule. A master conversion and replacement schedule, according to our Year 2000 assessment guide, should be a part of an agency’s Year 2000 Program Plan. This schedule could be used to track the progress of concurrent and interdependent projects that must be ready for integrated systems testing at the end of January 1999. This year, IRS has a host of activities that it must complete concurrently so that its systems will be able to function correctly in 2000. Managing the interdependencies of these activities is critical to help IRS ensure the timely completion of its Year 2000 effort. A master conversion and replacement schedule could (1) establish the sequential relationships between the tasks associated with the Year 2000 conversion and replacement activities, (2) identify how much a task can slip without affecting other tasks or the overall Year 2000 effort, (3) help determine whether programming and testing resources are likely to be available when needed, and (4) provide a tool for prioritizing and assigning programming and testing resources that are essential to the success of all Year 2000 efforts in the most efficient manner.