The enormous challenge involved in making information systems Year 2000 compliant is managerial as well as technical. Agencies’ success or failure will largely be determined by the quality of their program management and executive leadership. The outcome of these efforts will also depend on the extent to which agencies have institutionalized key systems development and program management practices, as well as on their ability to execute large-scale software development or conversion projects. To assist agencies with these tasks, our Year 2000 assessment guide discusses the scope of these challenges and offers a structured, step-by-step approach for reviewing and assessing an agency’s readiness to handle the Year 2000 problem. The assessment guide states that the Year 2000 program 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. Appendix I contains a description of these phases. To make its information systems Year 2000 compliant, IRS must (1) convert existing systems by modifying application software and data and upgrading hardware and systems software, if needed; (2) replace systems if correcting them is not cost-beneficial or technically feasible; or (3) retire systems if they will not be needed by 2000. IRS’ Chief Information Officer (CIO) established several parallel efforts to help ensure that IRS achieves Year 2000 compliance by January 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 the same standards. The Century Date Change Project Office adapted our Year 2000 conversion model phases and established a 14-step process to track the progress of its Year 2000 conversion efforts. Some of the steps involved in converting existing systems include (1) converting applications; (2) upgrading hardware and/or systems software for 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 2 major replacement efforts: (1) the replacement of the Distributed Input System (DIS) and the Remittance Processing System (RPS) with the Integrated Submission and Remittance Processing (ISRP) system and (2) 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 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. A two-phase pilot of ISRP is under way during 1998 at IRS’ Austin Service Center. 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 telecommunications infrastructure; (2) replace about 16,000 terminals that support frontline customer service and compliance operations; and (3) replace the communication replacement system that provides security functions for on-line taxpayer account databases. Replacements of the terminals and the communication replacement system are critical to IRS’ achieving Year 2000 compliance. IRS is undertaking the non-Year 2000 aspects of mainframe consolidation because it concluded that consolidation would satisfy the Office of Management and Budget’s Bulletin 96-02, which directs agencies to consolidate information processing centers; be consistent with IRS’ planned modernization architecture; and save an estimated $356 to $500 million from fiscal years 1997 through 2003. IRS’ original mainframe consolidation schedule called for moving mainframe computer processing operations and the communication replacement system from 10 service centers to 2 computing centers between December 1997 and December 1998. The mainframe consolidation project is to provide the hardware, systems software, and telecommunications infrastructure for 40 mission-critical systems whose application software is being converted under the direction of the Century Date Change Project Office. IRS is experiencing delays in completing conversion efforts for its existing systems and major systems replacement efforts. IRS has made the most progress in converting its applications for the systems it has deemed mission-critical. Conversion efforts for systems software and hardware, telecommunications networks, and external data exchanges are still in the initial steps of IRS’ 14-step conversion process. The completion schedule for mainframe consolidation, with the exception of the Year 2000 critical aspects, has been extended beyond December 1998. Table 1 shows how IRS has allocated each of the 14 steps in its conversion process to our Year 2000 assessment, renovation, validation, and implementation phases. Much of IRS’ early Year 2000 efforts in 1996 focused on the awareness and assessment phases of the applications for existing information systems controlled by the CIO. In May 1997, IRS began assessing the date dependencies of applications for information systems that were controlled by either field offices or business functional areas (hereafter referred to as field/customer systems). As a result of the CIO and field/customer system assessments that were completed as of March 31, 1998, IRS had identified 127 mission-critical systems, including 7 telecommunications systems. As of April 24, 1998, IRS reported that it had completed the first 12 steps of its 14-step conversion process on applications for about 46 percent (59 systems) of its 127 mission-critical systems. In doing so, IRS fell short of its goal of having the applications for 66 systems converted by January 31, 1998. IRS’ schedule calls for completing the first 12 steps for the remaining 54 percent (68 systems) of the mission-critical systems by January 1999. IRS officials said that they believe they are on track for meeting that goal. IRS is still in the initial steps of its 14-step conversion process for most of its systems software, hardware, and telecommunications network components. IRS is also still in the initial stages of converting its external data exchanges. Appendix II provides additional information on the status of the conversion process for each of these areas. Of these infrastructure areas, according to IRS, telecommunications networks present the most significant conversion challenge and may be at the highest risk for not being done by January 1999. According to IRS, the capability to exchange information, both voice and data, between 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. At the time of our review, a contractor was doing a risk assessment to help develop a conversion schedule so that the most important work would be scheduled first to minimize adverse impacts if IRS is not able to complete all of its telecommunications work by January 1999. IRS’ systems replacement efforts (i.e., ISRP and mainframe consolidation) are experiencing some delays. For example, certain ISRP software development that was to be completed in April 1998 is now scheduled to be done by June 16, 1998. As a result, the time available for testing before the start of the second phase of the pilot has been reduced. ISRP project office officials still anticipate that ISRP will be implemented nationwide by December 1998. The completion schedule for consolidating the data processing portion of service center operations has been extended from December 1998 until after June 1999. According to IRS officials, the need for this extension stems from numerous factors, including field office concerns about the ambitious schedule and expanded business requirements for security, disaster recovery, and testing. At the time we were finalizing this report, IRS officials said they were assessing various technical alternatives for meeting the expanded business requirements. They said they expect a revised business case and budget estimates that reflect the impact of both the schedule and requirements changes to be completed in June 1998. IRS officials said they expect to complete the Year 2000 portions of mainframe consolidation (i.e., terminal replacement and the communication replacement system) by the original completion date of December 1998. However, the communication replacement system has been experiencing some difficulties and is somewhat behind its original schedule for system testing. In our briefing to your office, we said that IRS’ ability to meet future milestones was at increased risk because IRS lacked a master schedule showing the relationships and interdependencies among the many Year 2000 efforts that must be completed in 1998. According to our assessment guide, a master conversion and replacement schedule should be a part of an agency’s Year 2000 program plan. This schedule could be used to (1) establish the sequential relationships among all of the tasks associated with all Year 2000 activities; (2) identify how much a task’s milestone completion date could slip without affecting other tasks; (3) help determine whether programming and testing resources will be available when needed, given the concurrent milestone completion dates for various tasks; and (4) provide a tool for assigning programming and testing resources that are essential to the success of all efforts in the most efficient manner. Understanding the schedule and resource interdependencies of all the key activities that are needed to make its systems Year 2000 compliant is imperative if IRS is to make its mission-critical systems Year 2000 compliant on time. For example, IRS’ mainframe consolidation project is behind schedule because of start-up delays and problems with implementing the systems software that is being used to consolidate one of the mainframe platforms. As a result of the problems with the commercial off-the-shelf software, additional testing is being done that was not initially expected. This testing requires staff from IRS’ Information Systems Office of Technical Support, which is also supporting the Century Date Change Project Office in other efforts. A master schedule showing both task and resource requirements should help identify whether any of the individual Year 2000 efforts will require the same staff for the same time period.