IRS Systems Security: Tax Processing Operations and Data Still at Risk
Due to Serious Weaknesses (Letter Report, 04/08/97, GAO/AIMD-97-49).

Pursuant to a congressional request, GAO reviewed the Internal Revenue
Service's (IRS) computer security, focusing on whether IRS is
effectively: (1) managing computer security; and (2) addressing employee
browsing of electronic taxpayer data.

GAO noted that: (1) over the last 3 years, GAO has reported on a number
of computer security problems at IRS and has made recommendations for
strengthening IRS' computer security management effectiveness; (2)
nevertheless, IRS continues to have serious weaknesses in the controls
used to safeguard IRS computer systems, facilities, and taxpayer data;
(3) GAO's recent on-site reviews of security at five facilities
disclosed many weaknesses in the areas of physical security, logical
security, data communications management, risk analysis, quality
assurance, internal audit and security, security awareness, and
contingency planning; (4) for example, the five facilities could not
account collectively for approximately 6,400 missing units of magnetic
storage media, such as tapes and cartridges, which could contain
taxpayer data; (5) in addition, printouts containing taxpayer data were
left unprotected and unattended in open areas of two facilities where
they could be compromised; (6) also, none of the facilities visited had
comprehensive disaster recovery plans, which threaten the facilities'
ability to restore operations following emergencies or natural
disasters; (7) one area of unauthorized access that has been the focus
of considerable attention is electronic browsing of taxpayer data by IRS
employees; (8) despite this attention, IRS is still not effectively
addressing the problem via thorough employee monitoring, accurate
recording of browsing violations, or consistent application and
publication of enforcement actions; (9) for example, IRS currently does
not monitor all employees with access to automated systems and data for
electronic browsing activities; (10) in addition, when instances of
browsing are identified, IRS does not consistently investigate them or
publicize them to deter others from browsing, and does not consistently
punish browsers; and (11) until these serious weaknesses are corrected,
IRS runs the risk of its tax processing operations being disrupted and
taxpayer data being improperly used, modified, or destroyed.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  AIMD-97-49
     TITLE:  IRS Systems Security: Tax Processing Operations and Data 
             Still at Risk Due to Serious Weaknesses
      DATE:  04/08/97
   SUBJECT:  Computer security
             Tax information confidentiality
             Federal employees
             Confidential communication
             Internal controls
             Emergency preparedness
             Personnel management
             Electronic forms
             Data storage
             Tax returns
IDENTIFIER:  IRS Electronic Audit Research Log System
             IRS Integrated Data Retrieval System
             IRS Distributed Input System
             IRS Integrated Collection System
             IRS Totally Integrated Examination System
             
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Cover
================================================================ COVER


Report to the Ranking Minority Member, Committee on Governmental
Affairs, U.S.  Senate

April 1997

IRS SYSTEMS SECURITY - TAX
PROCESSING OPERATIONS AND DATA
STILL AT RISK DUE TO SERIOUS
WEAKNESSES

GAO/AIMD-97-49

IRS Systems Security

(511529)


Abbreviations
=============================================================== ABBREV

  EARL - Electronic Audit Research Log
  GAO - General Accounting Office
  IDRS - Integrated Data Retrieval System
  IRS - Internal Revenue Service

Letter
=============================================================== LETTER


B-276609

April 8, 1997

The Honorable John Glenn
Ranking Minority Member
Committee on Governmental Affairs
United States Senate

Dear Senator Glenn: 

This report completes our response to your request to assess and
report on Internal Revenue Service (IRS) computer security.  While
security is an area of paramount importance in all computer-based
operations, it is particularly critical to IRS in light of the
agency's vital revenue collection mission and the sensitivity of the
data it processes.  Accordingly, we agreed with your office to
determine whether IRS is effectively (1) managing computer security
and (2) addressing employee browsing of electronic taxpayer data. 

On January 30, 1997, we issued to you a report responding to your
request.  The report detailed numerous security weaknesses that we
found at five IRS facilities.  Because some of the weaknesses are
sensitive and could jeopardize IRS' security if released to the
public, the report was designated "Limited Official Use" and the
identities of the facilities that we visited were not disclosed. 
Subsequently, your office requested that we issue an excerpted
version of the report suitable for public release.  This report,
which does not quantify either the total number of weaknesses found
or the number of weaknesses found in specific functional categories,
and does not detail the most serious weaknesses, satisfies that
request.  IRS commented on a draft of this report, and its comments
have been included in this report, as appropriate.  Details of our
objectives, scope, and methodology are in appendix I. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

Over the last 3 years, we have reported on a number of computer
security problems at IRS and have made recommendations for
strengthening IRS' computer security management effectiveness. 
Nevertheless, IRS continues to have serious weaknesses in the
controls used to safeguard IRS computer systems, facilities, and
taxpayer data.  Our recent on-site reviews of security at five
facilities disclosed many weaknesses in the areas of (1) physical
security, (2) logical security,\1 (3) data communications management,
(4) risk analysis, (5) quality assurance, (6) internal audit and
security,\2 (7) security awareness, and (8) contingency planning. 
For example, the five facilities could not account collectively for
approximately 6,400 missing units of magnetic storage media, such as
tapes and cartridges, which could contain taxpayer data.  In
addition, printouts containing taxpayer data were left unprotected
and unattended in open areas of two facilities where they could be
compromised.  Also, none of the facilities visited had comprehensive
disaster recovery plans, which threaten the facilities' ability to
restore operations following emergencies or natural disasters. 

One area of unauthorized access that has been the focus of
considerable attention is electronic browsing of taxpayer data by IRS
employees.  Despite this attention, IRS is still not effectively
addressing the problem via thorough employee monitoring, accurate
recording of browsing violations, or consistent application and
publication of enforcement actions.  For example, IRS currently does
not monitor all employees with access to automated systems and data
for electronic browsing activities.  In addition, when instances of
browsing are identified, IRS does not consistently investigate them
or publicize them to deter others from browsing, and does not
consistently punish browsers. 

Until these serious weaknesses are corrected, IRS runs the risk of
its tax processing operations being disrupted and taxpayer data being
improperly used, modified, or destroyed. 


--------------------
\1 Logical security measures include safeguards incorporated in
computer hardware and software. 

\2 The phrases "internal audit" and "internal security" refer to
functional disciplines, not IRS organizational entities. 


   BACKGROUND
------------------------------------------------------------ Letter :2

IRS relies on automated information systems to process over 200
million taxpayer returns and collect over $1 trillion in taxes
annually.  IRS operates 10 facilities throughout the United States to
process tax returns and other information supplied by taxpayers. 
These data are then electronically transmitted to a central computing
facility, where master files of taxpayer information are maintained
and updated.  A second computing facility processes and stores
taxpayer data used by IRS in conducting certain compliance functions. 
There are also hundreds of other IRS facilities (e.g., regional and
district offices) that support tax processing.  Because of IRS' heavy
reliance on systems, effective security controls are critical to IRS'
ability to maintain the confidentiality of taxpayer data, safeguard
assets, and ensure the reliability of financial management
information. 


      COMPUTER SECURITY
      REQUIREMENTS
---------------------------------------------------------- Letter :2.1

The Computer Security Act\3 requires, among other things, the
establishment of standards and guidelines for ensuring the security
and privacy of sensitive information in federal computer systems. 
Similarly, IRS' Tax Information Security Guidelines require that all
computer and communication systems that process, store, or transmit
taxpayer data adequately protect these data, and the Internal Revenue
Code prohibits the unauthorized disclosure of federal returns and
return information outside IRS.  To adequately protect the data, IRS
must ensure that (1) access to computer data, systems, and facilities
is properly restricted and monitored, (2) changes to computer systems
software are properly authorized and tested, (3) backup and recovery
plans are prepared, tested, and maintained to ensure continuity of
operations in the case of a disaster, and (4) data communications are
adequately protected from unauthorized intrusion and interception. 

Also, Treasury requires IRS to have C2-level safeguards to protect
the confidentiality of taxpayer data.  The Department of Defense
defines a hierarchy of security levels (i.e., A1, B3, B2, B1, C2, C1,
and D) with A1 currently being the highest level of protection and D
being the minimum level of protection.  C2-level safeguards include
all the requirements from the D and C1 levels and are required by IRS
for all sensitive but unclassified data.  These safeguards ensure
need-to-know protection and controlled access to data, including

  -- a security policy that requires access control;

  -- identification and authentication that provide mechanisms to
     continually maintain accountability;

  -- operational and life-cycle assurances that include validations
     of system integrity and computer systems tests of security
     mechanisms; and

  -- documentation such as a security features user's guide, test
     documentation, and design documentation. 


--------------------
\3 Public Law 100-235, 101 Stat.  1724 (1988). 


      PRIOR GAO WORK ON IRS
      COMPUTER SECURITY
---------------------------------------------------------- Letter :2.2

Over the past 3 years, we testified and reported numerous times on
serious weaknesses with security and other internal controls used to
safeguard IRS computer systems and facilities.  For instance, in
August 1993, we identified weaknesses in IRS' systems which hampered
the Service's ability to effectively protect and control taxpayer
data.\4 In this regard, we found that (1) IRS did not adequately
control access given to computer support personnel over taxpayer data
and (2) established controls did not provide reasonable assurance
that only approved versions of computer programs were implemented. 
Subsequently, in December 1993, IRS identified taxpayer data security
as a material weakness in its Federal Managers' Financial Integrity
Act report. 

In 1994, we also reported, and IRS acknowledged, that while IRS had
made some progress in correcting computer security weaknesses, IRS
still faced serious and longstanding control weaknesses over
automated taxpayer data.  Moreover, we reported that these
longstanding weaknesses were symptomatic of broader computer security
management issues, namely, IRS' failure to (1) clearly delineate
responsibility and accountability for the effectiveness of computer
security within the agency and (2) establish an ongoing process to
assess the effectiveness of the design and implementation of computer
controls.\5 To address these issues, we recommended that IRS greatly
strengthen its computer security management, and IRS agreed to do so. 

The unauthorized electronic access of taxpayer data by IRS
employees--
commonly referred to as browsing--has been a longstanding problem for
the Service.  In October 1992, IRS' Internal Audit reported that the
Service had limited capability to (1) prevent employees from
unauthorized access to taxpayers' accounts and (2) detect an
unauthorized access once it occurred.\6

We reported in September 1993 that IRS did not adequately (1)
restrict access by computer support staff to computer programs and
data files or (2) monitor the use of these resources by computer
support staff and users.\7 As a result, personnel who did not need
access to taxpayer data could read and possibly use this information
for fraudulent purposes.  Also, unauthorized changes could be made to
taxpayer data, either inadvertently or deliberately for personal
gain, for example, to initiate unauthorized refunds or abatements of
tax.  In August 1995, we reported that the Service still lacked
sufficient safeguards to prevent or detect unauthorized browsing of
taxpayer information.\8


--------------------
\4 Financial Management:  First Financial Audits of IRS and Customs
Revealed Serious Problems (GAO/T-AIMD-93-3, Aug.  4, 1993). 

\5 Financial Audit:  Examination of IRS' Fiscal Year 1994 Financial
Statements (GAO/AIMD-95-141, Aug.  4, 1995). 

\6 Review of Controls Over IDRS Security, (IRS Internal Audit
Reference Number 030103, October 23, 1992). 

\7 IRS Information Systems:  Weaknesses Increase Risk of Fraud and
Impair Reliability of Management Information (GAO/AIMD-93-34, Sept. 
22, 1993). 

\8 Financial Audit:  Examination of IRS' Fiscal Year 1994 Financial
Statements (GAO/AIMD-95-141, Aug.  4, 1995). 


      IRS ORGANIZATIONS
      RESPONSIBLE FOR MANAGING
      COMPUTER SECURITY
---------------------------------------------------------- Letter :2.3

Several organizations within the IRS are responsible for the security
of IRS computer resources and the facilities that house them.  For
example, the Office of the Chief Information Officer is responsible
for formulating policies and issuing guidelines for logical security,
data security, risk analysis, security awareness, security
management, contingency planning, and telecommunications.  The Real
Estate division within the Office of the Chief for Management and
Administration is responsible for formulating policies and issuing
guidelines for physical security.  The field offices (e.g., service
centers, computing centers, regional offices, district offices) are
responsible for implementing these policies and guidelines at their
locations.  Compliance with the policies and procedures is assessed
by both the headquarters and field offices. 


   SERIOUS SYSTEM SECURITY
   WEAKNESSES PERSIST
------------------------------------------------------------ Letter :3

Weaknesses in IRS' computer systems security continue to place
taxpayer data and IRS' automated information systems at risk to both
internal and external threats, which could result in the loss of
computer services, or in the unauthorized disclosure, modification,
or destruction of taxpayer data.  While IRS has made some progress in
protecting taxpayer data, serious weaknesses persist. 

During our five on-site reviews, we found numerous weaknesses in the
following eight functional areas:  physical security, logical
security, data communications management, risk analysis, quality
assurance, internal audit and security, security awareness, and
contingency planning.\9 Primary weaknesses were in the areas of
physical and logical security. 


--------------------
\9 The order of the functional areas does not denote relative
importance.  Every area is crucial to protecting the security of IRS
data and facilities. 


      PHYSICAL SECURITY
---------------------------------------------------------- Letter :3.1

Physical security and access control measures, such as locks, guards,
fences, and surveillance equipment, are critical to safeguarding
taxpayer data and computer operations from internal and external
threats.  We found many weaknesses in physical security at the
facilities visited.  The following are examples of these weaknesses: 

  -- Collectively, the five facilities could not account for
     approximately 6,400 units of magnetic storage media, such as
     tapes and cartridges, which could contain taxpayer data.  The
     number per facility ranged from a low of 41 to a high of 5,946. 

  -- Fire suppression trash cans were not used in several facilities. 

  -- Printouts containing taxpayer data were left unprotected and
     unattended in open areas of two facilities where they could be
     compromised. 


      LOGICAL SECURITY
---------------------------------------------------------- Letter :3.2

Logical security controls limit access to computing resources to only
those (personnel and programs) with a need to know.  Logical security
control measures include the use of safeguards incorporated in
computer hardware, system and application software, communication
hardware and software, and related devices.  We found numerous
weaknesses in logical security at the facilities visited.  Examples
of these vulnerabilities include the following: 

  -- Tapes containing taxpayer data were not overwritten prior to
     reuse. 

  -- Access to system software was not limited to individuals with a
     need to know.  For example, at two facilities, we found that
     data base administrators\10 had access to system software,
     although their job functions and responsibilities did not
     require it. 

  -- Application programmers were allowed to move development
     software into the production environment without adequate
     controls.  In addition, these programmers were allowed to use
     taxpayer data for testing purposes, which places these data at
     unnecessary risk of unauthorized disclosure and modification. 


--------------------
\10 The data base administrator is responsible for overall control of
the data base, including its content, storage structure, access
strategy, security and integrity checks, and backup and recovery. 


      DATA COMMUNICATIONS
      MANAGEMENT
---------------------------------------------------------- Letter :3.3

Data communications management is the function of monitoring and
controlling communications networks to ensure that they operate as
intended and transmit timely, accurate, and reliable data securely. 
Without adequate data communications security, the data being
transmitted can be destroyed, altered, or diverted, and the equipment
itself can be damaged.  At the five facilities, we found numerous
communications management weaknesses. 


      RISK ANALYSIS
---------------------------------------------------------- Letter :3.4

The purpose of risk analysis is to identify security threats,
determine their magnitude, and identify areas needing additional
safeguards.  We found risk analysis weaknesses at the five
facilities.  For example, none of the facilities visited conducted a
complete risk analysis to identify and determine the severity of all
the security threats to which they were vulnerable.  Without these
analyses, systems' vulnerabilities may not be identified and
appropriate controls not implemented to correct them. 


      QUALITY ASSURANCE
---------------------------------------------------------- Letter :3.5

An effective quality assurance program requires reviewing software
products and activities to ensure that they comply with the
applicable processes, standards, and procedures and satisfy the
control and security requirements of the organization.  One aspect of
a quality assurance program is validating that software changes are
adequately tested and will not introduce vulnerabilities into the
system.  We found many weaknesses in quality assurance at the five
facilities visited, including instances of failing to independently
test all software prior to placing it into operation.  In addition,
when software products were tested, this testing was sometimes
incomplete (e.g., did not include integrity or stress testing).\11
Such quality assurance weaknesses can result in systems not
functioning properly, putting federal taxpayer data at risk. 


--------------------
\11 Integrity testing ensures that an application program performs
only its intended functions.  Stress testing assesses system
performance at very high workloads. 


      INTERNAL AUDIT AND SECURITY
---------------------------------------------------------- Letter :3.6

Internal audit and internal security functions are needed to ensure
that safeguards are adequate and to alert management to potential
security problems.  We found many weaknesses in the internal audit or
internal security functions at the five facilities visited.  For
example, two of the facilities had not audited operations within the
last 5 years. 


      SECURITY AWARENESS
---------------------------------------------------------- Letter :3.7

An effective security awareness program is the means through which
management communicates to employees the importance of security
policies, procedures, and responsibilities for protecting taxpayer
data.  Three of the five IRS facilities did not have an adequate
security awareness program.  For example, at one site there was no
process in place for ensuring that management was made aware of
security violations and security related issues.  We found several
security awareness weaknesses at four of the five facilities. 


      CONTINGENCY PLANNING
---------------------------------------------------------- Letter :3.8

A contingency plan specifies emergency response, backup operations,
and post disaster recovery procedures to ensure the availability of
critical resources and facilitate the continuity of operations in an
emergency situation.  It addresses how an organization plans to deal
with the full range of contingencies from electrical power failures
to catastrophic events, such as earthquakes, floods, and fires.  It
also identifies essential business functions and prioritizes
resources in order of criticality.  To be effective when needed, a
contingency plan must be periodically tested and personnel trained in
and familiar with its use. 

None of the five facilities visited had comprehensive disaster
recovery plans.  Specifically, we found that disaster recovery
procedures at two of the five facilities had not been tested, while
plans for the remaining locations were incomplete, i.e., they failed
to include instructions for restoring all mission-critical
applications and reestablishing telecommunications.  Further, none
had completed business resumption plans, which should specify the
disaster recovery goals and milestones required to meet the business
needs of their customers.  We found many weaknesses in this
functional area at the five sites visited. 


   ELECTRONIC BROWSING IS NOT
   BEING ADDRESSED EFFECTIVELY
------------------------------------------------------------ Letter :4

Taxpayer information can be compromised when IRS employees, who do
not have a need to know, electronically peruse files and records. 
This practice, which is commonly called browsing, is an area of
continuing serious concern.  To address this concern, IRS developed
an information system--the Electronic Audit Research Log (EARL)--to
monitor and detect browsing on the Integrated Data Retrieval System
(IDRS), the primary computer system IRS employees use to access and
adjust taxpayer accounts.  IRS has also taken legal and disciplinary
actions against employees caught browsing.  However, EARL has
shortcomings that limit its ability to detect browsing.  In addition,
IRS does not know whether the Service is making progress in reducing
browsing.  Further, IRS facilities inconsistently (1) review and
refer incidents of employee browsing, (2) apply penalties for
browsing violations, and (3) publicize the outcomes of browsing cases
to deter other employees from browsing. 


      EARL'S ABILITY TO DETECT
      BROWSING IS LIMITED
---------------------------------------------------------- Letter :4.1

EARL cannot detect all instances of browsing because it only monitors
employees using IDRS.  EARL does not monitor the activities of IRS
employees using other systems, such as the Distributed Input System,
the Integrated Collection System, and the Totally Integrated
Examination System, which are also used to create, access, or modify
taxpayer data.  In addition, information systems personnel
responsible for systems development and testing can browse taxpayer
information on magnetic tapes, cartridges, and other files using
system utility programs, such as the Spool Display and Search
Facility,\12 which also are not monitored by EARL. 

Further, EARL has some weaknesses that limit its ability to identify
browsing by IDRS users.  For example, because EARL is not effective
in distinguishing between browsing activity and legitimate work
activity, it identifies so many potential browsing incidents that a
subsequent manual review to find incidents of actual browsing is
time-consuming and difficult.  IRS is evaluating options for
developing a newer version of EARL that may better distinguish
between legitimate activity and browsing. 

Because IRS does not monitor the activities of all employees
authorized to access taxpayer data and does not monitor the
activities of information systems personnel authorized to access
taxpayer data for testing purposes, IRS has no assurance that these
employees are not browsing taxpayer data and no analytical basis on
which to estimate the extent of the browsing problem or any damage
being done. 


--------------------
\12 This utility enables a programmer to view a system's output,
which may contain investigative or taxpayer information. 


      IRS PROGRESS IN REDUCING AND
      DISCIPLINING BROWSING CASES
      IS UNCLEAR
---------------------------------------------------------- Letter :4.2

IRS' management information systems do not provide sufficient
information to describe known browsing incidents precisely or to
evaluate their severity consistently.  IRS personnel refer potential
browsing cases to either the Labor Relations or Internal Security
units, each of which records information on these potential cases in
its own case tracking system.  However, neither system captures
sufficient information to report on the total number of unauthorized
accesses.  For example, neither system contains enough information on
each case to determine how many taxpayer accounts were
inappropriately accessed or how many times each account was accessed. 
Consequently, for known incidents of browsing, IRS cannot efficiently
determine how many and how often taxpayers' accounts were
inappropriately accessed.  Without such information, IRS cannot
measure whether it is making progress from year to year in reducing
browsing. 

A recent report by the IRS EARL Executive Steering Committee\13 shows
that the number of browsing cases closed has fluctuated from a low of
521 in fiscal year 1991 to a high of 869 in fiscal year 1995.\14
However, the report concluded that the Service does not consistently
count the number of browsing cases and that ".  .  .  it is difficult
to assess what the detection programs are producing.  .  .  or our
overall effectiveness in identifying IDRS browsing."

Further, the committee reported "the percentages of cases resulting
in discipline has remained constant from year to year in spite of the
Commissioner's 'zero tolerance' policy." IRS browsing data for fiscal
years 1991 to 1995 show that the percentage of browsing cases
resulting in IRS' three most severe categories of penalties (i.e.,
disciplinary action, separation, and resignation/retirement) has
ranged between 23 and 34 percent, with an average of 29 percent.\15


--------------------
\13 Electronic Audit Research Log (EARL) Executive Steering Committee
Report, (Sept.  30, 1996). 

\14 We did not verify the accuracy and reliability of these data. 

\15 The mix among these three categories has remained relatively
constant each year with disciplinary action accounting for the vast
majority of penalties. 


      INCIDENTS OF BROWSING ARE
      REVIEWED AND REFERRED
      INCONSISTENTLY
---------------------------------------------------------- Letter :4.3

According to IRS, effectively addressing employee browsing requires
consistent review and referral of potential browsing across IRS. 
However, IRS processing facilities do not consistently review and
refer potential browsing cases.  The processing facilities
responsible for monitoring browsing had different policies and
procedures for identifying potential violations and referring them to
the appropriate unit within IRS for investigation and action.  For
example, at one facility, the analysts who identified potential
violations referred all of them to Internal Security, while staff at
another facility sent some to Internal Security and the remainder to
Labor Relations. 

The analysts handle the review and referral of potential violations
differently because IRS policies and procedures do not provide
guidance in these areas.  In June 1996, IRS' Internal Audit reported
that IRS management had not developed procedures to ensure that
potential browsing cases were consistently reviewed and referred to
management officials throughout the agency.\16 Internal Audit further
reported that analysts were not given clear guidance on where to
refer certain cases, especially those involving potential Internal
Security cases, and that procedures had been developed by some
facilities but varied from site to site. 

IRS has acted to improve the consistency of its process.  In June
1996, it developed specific criteria for analysts to use when making
referral decisions.  A recent report by the EARL Executive Steering
Committee stated that IRS had implemented these criteria nationwide. 
Because IRS was in the process of implementing these criteria during
our work, we could not validate their implementation or
effectiveness. 


--------------------
\16 Implementation of the Electronic Audit Research Log (EARL), (IRS
Internal Audit Ref.  No.  064810, June 21, 1996). 


      PENALTIES FOR BROWSING ARE
      INCONSISTENT ACROSS IRS
---------------------------------------------------------- Letter :4.4

IRS policies and procedures on disciplining employees caught browsing
direct IRS management to ensure that decisions are appropriate and
consistent agencywide.  After several IRS directors raised concern
that field offices were not consistent in the types of discipline
imposed in similar cases, IRS' Western Region analyzed fiscal year
1995 browsing cases for all its offices and found inconsistent
treatment for similar types of offenses.  Examples of inconsistent
discipline included

  -- Temporary employees who attempted to access their own accounts
     were given letters of reprimand, although historically, IRS
     terminated temporary employees for this type of infraction. 

  -- One employee who attempted to access his own account was given a
     written warning, while other employees in similar situations,
     from the same division, were not counseled at all. 

The EARL Executive Steering Committee also reported widespread
inconsistencies in the penalties imposed in browsing cases.  For
example, the committee's report showed that for fiscal year 1995, the
percentage of browsing cases resulting in employee counseling ranged
from a low of 0 percent at one facility to 77 percent at another. 
Similarly, the report showed that the percentage of cases resulting
in removal ranged from 0 percent at one facility to 7 percent at
another.  For punishments other than counseling or removal (e.g.,
suspension), the range was between 10 percent and 86 percent. 


      PUNISHMENTS ASSESSED FOR
      BROWSING NOT CONSISTENTLY
      PUBLICIZED TO DETER
      VIOLATIONS
---------------------------------------------------------- Letter :4.5

IRS facilities did not consistently publicize the penalties assessed
in browsing cases to deter such behavior.  For example, we found that
one facility never reported disciplinary actions.  A representative
at this facility told us that employees were generally aware of cases
involving embezzlement and fraud if the cases received media
attention.  However, another facility reported the disciplinary
outcomes of browsing cases in its monthly newsletter.  For example,
it cited a management official who accessed a relative's account and
was punished.  This facility publicized cases involving employees at
all grade levels to emphasize that browsing taxpayer data is a
serious offense punishable by adverse administrative actions or legal
sanctions, including loss of job and criminal prosecution.  By
inconsistently and incompletely reporting on penalties assessed for
employee browsing, IRS is missing an opportunity to more effectively
deter such activity. 

The EARL Executive Steering Committee noted that during the past 3
years IRS had published numerous documents intended to educate and
sensitize employees to the importance of safeguarding taxpayer
information.  Nonetheless, the committee found that employees do not
perceive the Service as aggressively pursuing browsing violations. 
It recommended that communications be more focused and highlight
actual examples of disciplinary actions that have been taken against
employees who browse. 


   CONCLUSIONS
------------------------------------------------------------ Letter :5

IRS' current approach to computer security is not effective.  Serious
weaknesses persist in security controls intended to safeguard IRS
computer systems, data, and facilities and expose tax processing
operations to the serious risk of disruption and taxpayer data to the
risk of unauthorized use, modification, and destruction.  Further,
although IRS has taken some action to detect and deter browsing, it
is still not effectively addressing this area of continuing concern
because (1) it does not know the full extent of browsing and (2) it
is inconsistently addressing cases of browsing. 


   RECOMMENDATIONS
------------------------------------------------------------ Letter :6

Because of the serious and persistent security problems cited in our
January 30, 1997, "Limited Official Use" version of this report, we
recommended that the Commissioner of Internal Revenue, within 3
months of the date of that report, prepare a plan for (1) correcting
all the weaknesses identified at the five facilities we visited, as
detailed in the January 30, 1997 report, and (2) identifying and
correcting security weaknesses at the other IRS facilities.  We
stated that this plan should be provided to the Chairmen and Ranking
Minority Members of the Subcommittees on Treasury, Postal Service,
and General Government, Senate and House Committees on
Appropriations; Senate Committee on Finance; Senate Committee on
Governmental Affairs; House Committee on Ways and Means; and House
Committee on Government Reform and Oversight.  We also stated that
the Commissioner should report on IRS' progress on these plans in its
fiscal year 1999 budget submission and should identify the computer
security weaknesses discussed in this report as being material in its
Fiscal Year 1996 Federal Managers' Financial Integrity Act report and
subsequent reports until the weaknesses are corrected. 

Also, because long-standing computer security problems continue to
plague IRS operations, we reiterated our prior recommendation that
the Commissioner, through the Deputy Commissioner, strengthen
computer security management.  In doing so, we recommended that the
Commissioner direct the Deputy Commissioner to (1) reevaluate IRS'
current approach to computer security along with plans for
improvement, and (2) report the results of this reevaluation by June
1997, to above cited congressional committees and subcommittees. 

Last, in light of the continuing seriousness of IRS employees'
electronic browsing of taxpayer records, we recommended that the
Commissioner ensure that IRS completely and consistently monitors,
records, and reports the full extent of electronic browsing for all
systems that can be used to access taxpayer data.  We recommended
that the Commissioner report the associated disciplinary actions
taken and that these statistics along with an assessment of its
progress in eliminating browsing, be included in IRS' annual budget
submission. 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :7

In commenting on a draft of this report, IRS agreed with our
conclusions and recommendations and stated that it is working to
correct security weaknesses and implement our recommendations. 
However, it did not commit to doing so for all recommendations within
the time frames specified.  Specifically, we recommended that by
April 30, 1997, IRS develop a plan for (1) correcting all the
weaknesses identified at the five facilities we visited and (2)
identifying and correcting any security weaknesses at the other
facilities.  We specified this time frame because of the seriousness
of the weaknesses we found.  In our view, it is essential that IRS
implement this recommendation expeditiously, and therefore we
reiterate that IRS should complete the above cited plan by April 30,
1997. 

Also concerning the correction of the weaknesses identified at the
five facilities visited, IRS stated in its comments that "each
facility is taking any corrective actions required by the GAO
review." This statement is inconsistent with comments provided by
each facility on its own weaknesses and thus evokes additional
concerns about the need for a more concerted security management
effort to ensure a consistent and effective level of security at all
IRS facilities.  Specifically, while the five facilities agreed with
many of our findings and described appropriate corrective actions,
they disagreed with many.  In some cases, their comments reflected
inconsistent views on the same problems.  For example, some
facilities acknowledged the need for fire suppression trash cans for
disposing of combustible material (including paper) and chemicals in
print rooms, while others disagreed.  It is imperative that IRS
recognize and correct security weaknesses systematically and
consistently across all its facilities. 

IRS also commented that "a recent reevaluation of the weaknesses by
GAO's contractor identified that 41% of the weaknesses originally
identified in the GAO report have already been corrected and closed,
and an additional 12% were being adequately addressed by the
facilities." Our contractor's reevaluation assessment is not yet
complete.  Given the many serious security weaknesses yet to be fully
dealt with or even addressed at this point, any preliminary
assessment of IRS progress should be viewed with caution. 

In addition, IRS stated that time did not permit it to report the
weaknesses identified in our report as material in its fiscal year
1996 Federal Managers' Financial Integrity Act report.  Instead, IRS
has committed to reevaluating the status of material weaknesses that
have and should be reported so that the fiscal year 1997 Federal
Managers' Financial Integrity Act report will provide an accurate
depiction of the agency's material weaknesses and coincide with its
approach and plans for improvement. 

The full text of IRS' comments on a draft of this report is in
appendix II. 


---------------------------------------------------------- Letter :7.1

As agreed with your office, unless you publicly announce the contents
of this report earlier, we will not distribute it until 30 days from
the date of this letter.  At that time, we will send copies to the
Chairman, Senate Committee on Governmental Affairs, and the Chairmen
and Ranking Minority Members of the (1) Subcommittees on Treasury,
Postal Service, and General Government of the Senate and House
Committees on Appropriations, (2) Senate Committee on Finance, (3)
House Committee on Ways and Means, and (4) House Committee on
Government Reform and Oversight.  We will also send copies to the
Secretary of the Treasury, Commissioner of Internal Revenue, and
Director of the Office of Management and Budget.  Copies will be
available to others upon request. 

If you have questions about this report, please contact me at (202)
512-6412.  Major contributors are listed in appendix III. 

Sincerely yours,

Dr.  Rona B.  Stillman
Chief Scientist for Computers
 and Telecommunications


OBJECTIVES, SCOPE, AND METHODOLOGY
=========================================================== Appendix I

The objectives of our review were to (1) determine whether IRS is
effectively managing computer security and (2) determine whether IRS
is effectively addressing employee browsing of electronic taxpayer
data. 

To determine the effectiveness of IRS computer security, we first
reviewed the findings from the computer security evaluation conducted
by the public accounting firm of Ernst & Young in support of our
audit of IRS' fiscal year 1995 financial statements.  Ernst & Young's
evaluation addressed general controls over such areas as physical
security, logical security, communications, risk management, quality
assurance, internal security, and contingency planning.  Ernst &
Young performed its evaluation at five IRS facilities, as well as IRS
headquarters offices where it examined security policies and
procedures. 

Using Ernst & Young's evaluation results as preliminary indicators,
we then evaluated and tested general computer security controls at
the same five facilities in more depth.  The areas we reviewed
included physical security, logical security, data communications
management, risk analysis, quality assurance, internal security and
internal audit, security awareness, and contingency planning.  Our
evaluations included the review of related IRS polices and
procedures; on-site tests and observations of controls in operation
over all the systems in use at these locations; discussions of
security controls with Integrated Data Retrieval System users,
security representatives, and officials at the locations visited. 
Our evaluation did not include computer systems penetration testing. 

We sent a letter reporting our findings to each IRS facility we
visited, requesting comments and the outline of a plan for corrective
actions.  We then analyzed the responses and discussed the results
with responsible IRS headquarters officials.  We did not verify IRS'
statements that certain actions had already been completed, but will
do so as part of our audit of IRS' financial statements for fiscal
year 1996. 

To determine the effectiveness of IRS efforts to reduce employee
browsing of taxpayer data, we reviewed documentation and discussed
issues relating to the development and operation of the Electronic
Audit Retrieval Log, the system IRS implemented to identify potential
cases of employee browsing.  We also reviewed data from the two
systems IRS uses to track identified cases of browsing in order to
determine the ability of these systems to accurately report the
nature and extent of employee browsing.  In addition, we discussed
with IRS Internal Security officials the actions they are taking to
investigate instances of browsing, and we reviewed the Electronic
Audit Research Log (EARL) Executive Steering Committee Report dated
September 30, 1996. 

To evaluate IRS' computer management and security, we assessed
information pertaining to computer controls in place at headquarters
and field locations and held discussions with headquarters officials. 
We did not assess the controls that IRS plans to incorporate into its
long-term Tax Systems Modernization program. 

We requested comments on a draft of this report from IRS and have
reflected them in the report as appropriate.  Our work was performed
at IRS headquarters in Washington, D.C., and at five facilities
located throughout the United States from May 1996 through November
1996.  We performed our work in accordance with generally accepted
government auditing standards. 




(See figure in printed edition.)Appendix II
COMMENTS FROM THE INTERNAL REVENUE
SERVICE
=========================================================== Appendix I



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MAJOR CONTRIBUTORS TO THIS REPORT
========================================================= Appendix III

ACCOUNTING AND INFORMATION
MANAGEMENT DIVISION, WASHINGTON,
D.C. 

Randolph C.  Hite, Senior Assistant Director
Ronald W.  Beers, Assistant Director
Ronald E.  Parker, Senior Information Systems Analyst
Ronald E.  Famous, Senior Information Systems Analyst
Gary N.  Mountjoy, Assistant Director

ATLANTA FIELD OFFICE

Carl L.  Higginbotham, Senior Information Systems Analyst
Glenda C.  Wright, Senior Information Systems Analyst
Teresa F.  Tucker, Information Systems Analyst

*** End of document. ***