Tax Systems Modernization: Results of Review of IRS' Third Expenditure
Plan (Letter Report, 01/22/2001, GAO/GAO-01-227).

This report reviews the Internal Revenue Service's (IRS) third
expenditure plan for its systems modernization project. GAO found that
the plan satisfied the conditions specified in Treasury's 1998 and 1999
appropriations acts and that IRS was making progress towards satisfying
Congress' direction on the Custodial Accounting Project (CAP) and
Security and Technology Infrastructure Release (STIR) Project. Although
IRS has made significant progress in establishing effective
modernization management capability, important and challenging work
remains to ensure that the systems work as intended. GAO also found out
that five modernization initiatives experienced schedule delays or cost
increases, each of which IRS disclosed in the third plan. However, the
third plan did not address whether projects' prior commitments for
delivery of promised systems capabilities and benefit/business value
were being met. IRS used contractor-provided "rough order-of-magnitude"
estimates in preparing its third expenditure plan. However, consistent
with its established practice, IRS planned to validate the third plan's
estimates as part of its negotiating and definitizing contract task
orders. For IRS' second expenditure plan, this process resulted in
finalized contract costs that were $9 million under the "rough
order-of-magnitude" estimates in the plan.

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

 REPORTNUM:  GAO-01-227
     TITLE:  Tax Systems Modernization: Results of Review of IRS' Third
	     Expenditure Plan
      DATE:  01/22/2001
   SUBJECT:  Appropriation accounts
	     Systems conversions
	     Budget outlays
	     Information resources management
	     Tax administration systems
	     Future budget projections
IDENTIFIER:  IRS Information Technology Investments Account
	     IRS Custodial Accounting Project
	     IRS Security and Technology Infrastructure Release Project
	     IRS Tax Modernization Program

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GAO-01-227
A

Report to Congressional Committees

January 2001 TAX SYSTEMS MODERNIZATION

Results of Review of IRS' Third Expenditure Plan

GAO- 01- 227

Lett er

January 22, 2001 The Honorable Ben Nighthorse Campbell Chairman The
Honorable Byron L. Dorgan Ranking Minority Member Subcommittee on Treasury
and General Government Committee on Appropriations United States Senate

The Honorable Jim Kolbe Chairman The Honorable Steny H. Hoyer Ranking
Minority Member Subcommittee on Treasury, Postal Service and General
Government

Committee on Appropriations House of Representatives

Pursuant to the Department of Treasury's fiscal year 1998 and 1999
appropriations acts, 1 the Internal Revenue Service (IRS) submitted to the
Congress in October 2000 its third expenditure plan, requesting $200 million
from its systems modernization appropriations account, referred to as the
Information Technology Investments Account (ITIA). As required by the acts,
we reviewed the plan. Our objectives were to (1) determine

whether the third plan satisfied the conditions specified in the acts; 2 (2)
determine IRS progress in response to the subcommittees' 1 The fiscal year
1998 Treasury and General Government Appropriations Act (Public Law 105- 61)
and the fiscal year 1999 Omnibus Consolidated and Emergency Supplemental
Appropriations Act (Public Law 105- 277). 2 Per the acts, ITIA funds are
unavailable until IRS submits to the Congress for approval a modernization
expenditure plan that (1) implements IRS' Modernization Blueprint (IRS'
enterprise architecture); (2) meets the Office of Management and Budget's
(OMB) system investment guidelines; (3) meets IRS life- cycle management
requirements; (4) is reviewed and approved by IRS, Treasury, and OMB, and is
reviewed by GAO; and (5) meets federal

acquisition requirements and management practices.

September 28, 2000, direction on the Custodial Accounting Project 3 (CAP)
and the Security and Technology Infrastructure Release (STIR) project; 4 and
(3) provide any other observations about the third plan and the systems
modernization program. On November 9, 2000, we briefed your offices on the
results of our review. This report transmits our November 9, 2000, briefing
and reiterates our recommendations to the Commissioner of Internal Revenue
that were

specified in the briefing. The full briefing, including our scope and
methodology, is reprinted in appendix I. In summary, we made four major
points: ? First, IRS' third expenditure plan satisfied the conditions
specified in the appropriation acts, and IRS was making progress towards
satisfying the

subcommittees' direction on the CAP and STIR projects. ? Second, IRS was
still making important progress in establishing

effective modernization management capability, but important and challenging
work remained. For example, IRS had defined its system life- cycle
methodology, which IRS refers to as its Enterprise Life Cycle,

and planned to have it implemented by early 2001. IRS had also created a
modernization management program office and planned to have it fully
functional by early 2001. In addition, IRS had developed a draft enterprise
architecture but still needed to resolve significant issues

concerning its completeness and accuracy. Until these and other
modernization management weaknesses were fully addressed, we concluded, key
modernization controls would be missing, putting IRS at risk of building
systems that might not perform as intended, might cost more, and might take
longer to complete.

? Third, five modernization initiatives experienced schedule delays and/ or
cost increases, each of which IRS disclosed in the third plan. However, the
third plan did not address whether projects' prior commitments for delivery
of promised systems capabilities (requirements) and benefit/ business value
were being met.

3 CAP is one of a collection of systems that make up IRS' Integrated
Financial System Project. CAP is designed to provide tax receipt and
receivable analysis and reporting. Standard general ledger and other
financial and administrative reporting as required by federal management
directives are to be provided by other future projects. 4 STIR is the common
integrated infrastructure to support and enable modernized business systems
applications. As designed, it consists of a combination of custom and
commercialoff- the- shelf software, hardware, and security solutions,
integrated to form the technical foundation upon which modernized business
systems applications will operate.

? Last, IRS used contractor- provided “rough order- of-
magnitude” estimates in preparing its third expenditure plan. However,
consistent with its established practice, IRS planned to validate the third
plan's estimates as part of its negotiating and definitizing contract task
orders.

For IRS' second expenditure plan, this process resulted in finalized
contract costs that were $9 million under the “rough order-
ofmagnitude” estimates in the plan.

Recommendations for To ensure that IRS fully responds to congressional
direction and addresses

Executive Action modernization management weaknesses, we recommend that the

Commissioner of Internal Revenue ? follow through on plans to satisfy IRS
appropriations subcommittees' direction on CAP and STIR; ? expedite the
completion of IRS' enterprise architecture releases and

implementation of other missing modernization management controls; ? not
approve and fund detailed design and development activities for any

system before the requisite enterprise architecture definition is completed;
? report immediately to IRS' appropriations subcommittees on any

changes to commitments made in IRS' second plan concerning system
requirements/ capabilities to be delivered and the associated benefits to be
realized, and continue to report such performance measures in future
expenditure plans; and ? report to IRS' appropriations subcommittees on any
variance from cost estimates in its third plan of 10 percent or more that
result from definitization of contract task orders.

Agency Comments In commenting on a draft of this report, the Commissioner of
Internal Revenue agreed with our findings and recommendations. The
Commissioner's comments are reprinted in appendix II.

We are sending copies of this report to Senator Max Baucus, Senator Robert
C. Byrd, Senator Orrin G. Hatch, Senator Joseph I. Lieberman, Senator Ted
Stevens, and Senator Fred Thompson, and to Representative Dan Burton,
Representative William J. Coyne, Representative Amo Houghton, Representative
David R. Obey, Representative Charles B. Rangel, Representative Jim Turner,
Representative Henry A. Waxman, and

Representative C. W. Bill Young, in their capacities as Chairmen or Ranking
Minority Members of Senate and House Committees and Subcommittees. We are
also sending copies to the Commissioner of Internal Revenue; the Secretary
of the Treasury; the Chairman of the IRS Oversight Board; and the Director
of the Office of Management and Budget. Copies will also be made available
to others upon request.

Should you or your staff have any questions on matters discussed in this
report, please contact me at (202) 512- 3439. I can also be reached by e-
mail at hiter@ gao. gov. Key contributors to this report are listed in
appendix III. Randolph C. Hite Director, Information Technology Systems
Issues

Appendi xes Briefing Slides From November 9, 2000, Briefing of Senate and
House Appropriations

Appendi x I

Subcommittee Staff Information Technology Results of Review of IRS' Third
ITIA

Expenditure Plan Briefing to Staffs of the Senate Committee on
Appropriations, Subcommittee on Treasury and General Government

and the House Committee on Appropriations, Subcommittee on Treasury, Postal
Service,

and General Government November 9, 2000

1

Briefing Overview Introduction ? Objectives ? Scope and Methodology ?
Results in Brief ? Background ? Results ? Conclusions ? Recommendations

2

Introduction

? Per IRS' FY 1998 and 1999 appropriations acts, Information Technology
Investment Account (ITIA) funds are unavailable until IRS submits to the
Congress for approval, a modernization expenditure plan that:

? Implements IRS' Modernization Blueprint (IRS' enterprise architecture);

? Meets OMB IT investment guidelines;

? Meets IRS life cycle management requirements; 1

? Is reviewed and approved by IRS, Treasury, and OMB, and is reviewed by
GAO; and

? Meets federal acquisition requirements and management practices.

1 IRS refers to its life cycle management program as the Enterprise Life
Cycle (ELC), which is 3

graphically depicted in appendix I.

Introduction

? To date, about $506 million has been appropriated for ITIA, and $249
million has been released.

? IRS plans to submit a series of expenditure plans over the life of the
modernization requesting release of ITIA appropriated funds. On October 10,
2000, IRS submitted its third expenditure plan. IRS plans to submit another
plan in March 2001.

4

Introduction

3rd Spending

Plan 10/ 00

1st Interim

2nd Interim

4th Spending

Spending Spending

Spending Spending Plan

Plan Plan

Plan Plan 5/ 99

12/ 99 3/ 00

8/ 00 3/ 01

10/ 98 10/ 99 10/ 00 10/ 01 ITIA Funds Requested $35 $33 $176 $33 $200 ? For
Release (millions)

ITIA Funds Released $35 $33 $148 $33 ? ? Per Plan (millions)

Cumulative Release of $35 $68 $216 $249 ? ? ITIA Funds (millions)

5

Objectives

? As agreed, our objectives were to

? determine whether the third plan satisfies the legislative conditions;

? determine IRS progress in response to the subcommittees' September 28,
2000, direction on the Custodial Accounting Project (CAP) and the Security
and Technology Infrastructure Release (STIR) project; and

? provide any other observations about the third plan and the systems
modernization program.

? We agreed to provide our results to the subcommittee by November 9, 2000.

6

Scope and Methodology

? To accomplish our objectives, we

? Reviewed the third expenditure plan and met with IRS program officials to
understand the scope and content of the plan;

? Analyzed the plan against the legislative conditions to identify
variances;

? Assessed IRS' progress and plans for responding to congressional direction
on CAP and STIR;

? Reviewed program and project management reports and briefings;

? Observed modernization executive steering committee and subcommittee
meetings; and

? Interviewed program and project management officials. 7

Scope and Methodology

? Analyzed available evidence on recent efforts to address modernization
management weaknesses. Specifically, we analyzed progress and plans for

? Business Systems Modernization Office (BSMO) implementation,

? enterprise architecture definition,

? ELC definition and implementation,

? investment management definition and implementation, and

? software acquisition maturity, as defined by the Software Engineering
Institute's (SEI) acquisition model. This model was developed by the SEI at
Carnegie Mellon University to evaluate an organization's software
acquisition capability.

8

Scope and Methodology

? Collaborated with the Treasury Inspector General for Tax Administration
(TIGTA) to avoid duplication of effort in reviewing program and project
initiatives and incorporated TIGTA's results in this briefing where
appropriate. Initiatives addressed by TIGTA included the Customer
Communications and e- Services projects, ELC, BSMO, and enterprise
architecture.

? To meet our agreed upon report date, we did not independently validate
planned initiatives' cost estimates or confirm, through system and project
management documentation, the validity of IRS- provided information on the
initiatives' content and progress.

9

Scope and Methodology

? We provided a draft of this briefing on November 8, 2000, to IRS' Chief
Information Officer (CIO), BSMO Director, and other executives and have
incorporated their comments where appropriate.

? We performed our work from October through November 2000 in accordance
with generally accepted government auditing standards.

10

Results in Brief

Objective 1: IRS' third plan satisfies the legislative conditions.

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Objective 2: IRS is making progress in responding to congressional direction
on CAP and STIR.

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2 These acquisition requirements and practices are intended to establish
acquisition management rigor and discipline, such as those defined in the 11

Software Engineering Institute's acquisition model. Our analysis of the plan
focused on satisfaction of this model's tenets.

Results in Brief

? Objective 3: Other Observations

? Observation 1

? IRS continues to make important progress in establishing effective
modernization management capability, but important and challenging work
remains.

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Results in Brief

? One important and challenging task for IRS is completing and implementing
its enterprise architecture (EA).

? IRS is developing its EA in 3 releases (1. 0, 1.1, and 2.0). Each release
is intended to provide incrementally more architectural definition. For
example, 1.0 is to provide infrastructure level definition, and 1.1 is to
provide application level definition, including a sequencing plan for
strategic acquisition of modern business process applications.

? Thus far, IRS has developed a draft of EA 1.0. However, it still needs to
resolve significant issues concerning EA 1.0's completeness and accuracy.
For example, the draft does not include all planned EA products and does not
fully address how security and privacy needs will be met.

13

Results in Brief

? IRS then needs to have EA 1.0 independently verified and validated. IRS
planned to have EA 1.0 completed by September 2000, then slipped the date to
November 2000, and currently plans to approve and issue it in December 2000.
This slippage will also delay completing EA versions 1.1 and 2.0, but
revised issuance dates have not yet been established for either.

? These delays in issuing IRS' EA are significant because IRS' third plan
calls for beginning detailed design and development (ELC Milestone III) on
certain projects before requisite EA definition is completed. For example,
the E- Services projects are scheduled to pass ELC milestone III in November
2000 and February 2001, respectively. However, EA 1.1, which is to provide
the necessary business process application architectural definition, was not
scheduled for completion until March 2001, and this date will slip.

14

Results in Brief

? Observation 2

? Five initiatives have experienced schedule delays and/ or cost increases,
each of which IRS reported in the plan. For example,

? Tax Vision and Strategy (TAVS) project has slipped 3 months and estimated
cost has increased $6.2 million (27 percent).

? E- Services estimated cost increased $1.4 million (26 percent).

? The plan did not, however, address whether these five and other projects'
prior commitments for systems capabilities (requirements) and benefit
delivery have also been delayed or reduced. This is not consistent with our
recommendation for IRS to report progress against all prior commitments in
each plan. 3

3 Tax Systems Modernization: Results of Review of IRS' Initial Expenditure
Plan( GAO/ AIMD- 99- 15

206, June 15, 1999).

Results in Brief

? Observation 3

? Costs in the third plan are contractor- provided “rough

order- of- magnitude” estimates.

? Consistent with IRS' recent actions to address prior subcommittee
direction on this issue, IRS plans to validate the third plan's estimates as
part of its contract/ task order definitization process. Under this process,
IRS assesses contractor task order proposals, develops independent cost
estimates for each, and negotiates a task order cost.

? For IRS' second expenditure plan, this process resulted in cumulative
contract costs that were $9 million under estimates in the second plan (5
percent), although individual project variances exceeded 10 percent.

? We are making recommendations to address our observations. In commenting
on a draft of this briefing, IRS' CIO agreed with our recommendations and
plans to implement them.

16

Background

? The third plan seeks approval to obligate about $200 million for both
program- level and project- specific activities. 4

Third ITIA Expenditure Plan ($ 000) Program Level Activities

PRIME Program Management Office $21, 856 Federally Funded Research and
Development Center (MITRE) $18,750 ELC, Quality Assurance, and Configuration
Management $7, 394 Architecture Engineering Office $17, 570 Vision and
Strategy - Tax Administration $6, 200 Management Reserve $15,000 Subtotal
$86,770

Project Level and Infrastructure Activities

Customer Services Capabilities $11,663 Custodial Accounting Project $44,130
Core Financial System $3, 449 Security and Technology Infrastructure Release
$25,185 Other Enabling Infrastructure $28,849 Subtotal $113, 276

Total Requested Release $200, 046

4 See appendix II for a detailed summary of planned activities. 17

Background

? The third plan continues ongoing initiatives and establishes 3 new
efforts:

? BSMO Quality Assurance contractor support;

? Core Financial System; and

? a management reserve.

? Like its previous plans, IRS' third expenditure plan covers contractor
costs such as the Prime Systems Integration Support (PRIME) contractor and
the Federally Funded Research and Development Center (MITRE), and not IRS
internal costs, such as IRS BSMO staff costs.

18

Background

? To date, GAO has reviewed and reported on 2 expenditure plans and 2
“stopgap” spending measures supporting requests for ITIA funding
releases.

Spending Plan Results of GAO Review 1 st Spending Plan

The plan satisfied the legislative conditions for the use of ITIA funds and
was

(May 1999)

consistent with our open recommendations.

($ 35 million request)

The plan was an appropriate first step, but the key to success would be
effective implementation of the plan.

Future plans should specify progress against prior plan commitments, and the
next plan should clarify IRS/ contractor roles and responsibilities.

1 st Interim Spending Plan

The plan raised concerns about projects that were scheduled to begin
detailed

(Dec 1999)

design and software development before, among other things, the enteprise

($ 33 million request)

architecture was completed and the ELC was defined and implemented.

IRS should expedite completion of the architecture and implementation of the
ELC.

Future plans should explain how IRS plans to manage the risk of performing
detailed design or development work if the architecture is not sufficiently
completed or the ELC is not sufficiently implemented.

19

Background

Spending Plan Results of GAO Review 2 nd Spending Plan (Mar 2000)

IRS met relatively few commitments in its $35 million first ITIA spending
plan,

($ 176 million request) even though the Service later received an additional
$33 million and nearly 5 months of extra time to accomplish the goals set
forth in the first plan.

The plan satisfied the legislative conditions for the use of ITIA funds, and
was generally consistent with recommendations contained in our earlier
reports.

The key to success would be whether IRS effectively implements the plan.

Until IRS completes its initiated actions to redirect and restructure its
modernization effort, it would continue to lack key modernization and
technical controls.

2 nd Interim Spending Plan

IRS had not adhered to the approved and funded March 7, 2000, spending plan.

(Aug 2000)

On selected initiatives, IRS had not met cost and schedule commitments made

($ 33 million request)

in its March 7, 2000 spending plan.

Most modernization initiatives had nevertheless made important progress
since March 2000. IRS fully addressed two of its modernization management
capability weaknesses, and it was making progress in addressing others.

One project, Custodial Accounting Project (CAP), had been approved for
product development without sufficient definition and without a compelling
business case. Further investment in CAP should be limited until IRS
demonstrates sufficient business value and reports to the House and Senate
committees on risk mitigation.

Another project, Security and Technology Infrastructure Release (STIR), was
being preliminarily designed without sufficient requirements definition and
economic justification. The STIR project should be directed to complete a
security risk assessment as soon as possible, and ensure that STIR
requirements and the proposed design solution are economically justified
through a business case.

20

Results Objective 1: Determine whether the third plan satisfies

the conditions in IRS' FY 1998 and 1999 appropriations acts.

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Results

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5 These are Acquisition Planning, Solicitation, Requirements Development and
Management, Project Management, 22

Contract Tracking and Oversight, Evaluation, and Transition to Support.

Results Objective 2: Determine IRS progress responding to

congressional direction on CAP and STIR

CAP GAO Findings Congressional Direction IRS Response

In our September 2000 The subcommittees directed

In response, IRS: briefing and subsequent

that no CAP funds be - is revising the business case with the intent of

report, we stated that expended until IRS' CIO and

showing compelling business value benefits IRS had prematurely

CFO certify and report to the that will be derived from developing CAP,

passed milestone III Subcommittees that a

plans to have the business case certified by without a compelling

compelling business case had the CIO and CFO once it is completed, and

business case to justify been established for treating

intends to report to the subcommittees in the decision. .

In CAP as a near- term priority

November 2000. addition, IRS had not

and that the risks associated - incorporated CAP into the Integrated Master

demonstrated that CAP with post- milestone III

Schedul e; was integrated with

development and the lack of - moved CAP under the Program Management

other modernization program controls were being

Process, with formal participation beginning projects.

effectively mitigated. in November 2000;

According to IRS officials, no CAP funds from the August 2000 funding
release have or will be used for post- milestone III work until it has
fulfilled congressional direction.

23

Results

GAO Findings Congressional Direction IRS Response

In our September 2000 The subcommittees directed

In response, IRS: briefing and subsequent

IRS to complete an SRA, - accelerated development of and completed an

report, we stated that validate STIR project

SRA and identified new risks: IRS did not have

requirements against the - web interface vulnerabilities

adequate assurance that resul ts of the SRA, and have

- outsourcing internet service provider; it was properly

the results certified by the - engaged IRS' security office and Federally

designing STIR because Commi ssi oner. The

Funded Research and Development (FFRDC) it had not assessed the

subcommittees also directed contractor (MITRE) to verify t hat the SRA is

project's security threats that the STIR funds approved

complete and consistent with IRS' ELC and vulnerabilities,

for release should only be guidance, draft EA 1. 0, and its Technology

analyzed the resulting used for the risk assessment

Model View logical design; risks in terms of

until the Commissioner - is currently mapping the results of the SRA to

probability and impact, certifies the assessment is

the STIR project requirements to ensure that and used this security

complete and the results the syst em requirements document is

risk assessment (SRA) appli ed to the project.

complete and the baseline business case is to develop and justify

cost effective; cost effective

- plans to obtain the Commissioner's countermeasures.

certification of the completed SRA in November 2000.

According to IRS officials, no STIR funds from the August2000fundingrelease
have or willbe usedfor post- milestone III work until it has fulfilled
Congressional direction.

24

Results Objective 3: Other observations about IRS' third

plan and its systems modernization program Observation 1: Progress Occurring
on Management Weaknesses, But Important and Challenging Work Remains

? Since our September briefing and subsequent report 6 on IRS' last plan,
IRS has continued to make important progress in addressing its remaining
management weaknesses, and is on schedule for meeting most of its
commitments for correcting these weaknesses by January 2000 (e. g., having a
fully functional BSMO). However, commitments made in this last plan for
addressing lack of an enterprise architecture have slipped.

6 Tax Systems Modernization: Results of Review of IRS' August 2000 Interim
Spending Plan 25

(GAO- 01- 91, November 8, 2000).

Results

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Results

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27

Results

? As noted in the prior table, one important and challenging task that
remains, and for which commitments have slipped, is issuing the EA 1. 0.

? IRS is developing its EA in 3 releases (1. 0, 1.1, and 2.0). Each release
is intended to provide incrementally more architectural definition. As shown
in the following table, EA 1.0 is to provide infrastructure level
definition, and 1.1 is to provide application level definition, including a
sequencing plan for strategic acquisition of modern business process
applications.

28

Results Enterprise Architecture Being Developed in Phases

Enterprise Architecture 1. 0 Enterprise Architecture 1. 1 Enterprise
Architecture 2. 0

? Builds on and updates Blueprint 97

? Builds on Enterprise Architecture 1. 0

? Builds on Enterprise Architecture 1. 1

? Foundation for incrementally defined,

? Rich in business- specific processes

? Includes IMVS migration strategy incrementally delivered enterprise

? Mid- and Long- Term Enterprise Transition transition specificity

? Rich in Technical Infrastructure and Str ategy

? Shared Services at same level as TAVS 1. 0 Applications Infrastructure
(lower pyramid)

? Includes TAVS migration strategy

? Knowl edge Management components

? Lean in business process applications (top of transition specificity

incorporated into architecture, requirements, pyramid)

? Includes IMVS content not included in transition strategy

? Provides structural framework for future Enterprise Architecture 1. 0

? Incorporates other vision and strategy Enterprise Architecture releases

? Complete Data Warehouse strategy results and updates as needed

? Captures and conveys critical high- level

? Key Concept updates requirements

? Business processes fit together fromprefiling

? Knowledge Management to post- filing

? Systems Management

? All systems, applications, data and interfaces

? Software Development derived from business processes

? Networks

? Includes business processes for 2002 projects

? Data

? Subsystemdescriptions from Blueprint 97

? Business Rules Engines are accounted for

? IMVS input limited to custodial accounting

? Business processes around Knowledge Management

? High- level data warehouse strategy

? Deals with Enterprise Architecture 1. 0

? Each project scoped by business systems issues/ conditionals

? Directed by Key Concepts on location, portals, systems framework, TRM,
data

29

Results

? IRS has developed a draft of EA 1. 0 and circulated it internally for
comment (see appendix III for description of framework being used to develop
the EA).

? IRS obtained about 950 issues (159 of which IRS reports it has resolved).
Some of the remaining issues are significant.

? Once these issues are resolved, IRS still needs to have MITRE assess EA
1.0 completeness and correctness. We reviewed MITRE's planned assessment
method and found it to be reasonable.

? IRS then needs to obtain modernization steering committee approval of EA
1.0.

? IRS' revised date for issuing EA 1.0 is December 18, 2000. According to
IRS, EA 1.0 slippage will delay EA 1.1 and 2.0.

30

Results

Area of Comment Summary of Comments Proposed Resolution

Security Lacks a comprehensive security

Develop a security overview that incorporates key concepts and identifies
overview.

security points throughout the architecture.

Security needs are not fully reflected in

Add security needs to business process definitions. the business process
descriptions. Privacy No explicit privacy principles,

Clarify/ add privacy principles, constraints and assumptions to enterprise
constraints and assumptions.

architecture.

Lacks a comprehensive privacy view.

Create a key concept for privacy.

Map security functions to privacy needs.

Consider adding Enterprise Requirement( s) for privacy. Business Processes
Tax Administration and Vision Strategy

Incorporate TAVS operating models into enterprise architecture concept of
(TAVS) and enterprise architecture use

operations. different process models.

Assess need to incorporate Business Operating Division- specific tailoring.

Excludes differences among Business

Tailor Business Architecture work products where needed. Operating Division
business processes. Data Lack of breadth, depth, and accuracy in

Extend conceptual data model to address scope of near- term projects.
conceptual data model.

Complete mapping of data to business processes.

Mapping ofdata to businessprocesses

Add security details to conceptual data model. incomplete.

Security not reflected in the conceptual data model. Business Systems Lacks
complete definition of business

Complete descriptions of business systems assigned to near- term projects.
systems.

Complete descriptions of all business systems.

Interface definitions are incomplete.

Add interface descriptions for business systems assigned to near- term

Mapping of systems to business projects.

processes incomplete.

Complete mapping of systems to business processes. Enterprise Requirements
Lacks clear traceability to architecture. No action planned because direct
traceability not intended.

EA Consistency Products not consistent with each other,

Rework products to reflect Technical Reference Model structure and intent,
key concepts, and Technical Reference

reflect key concepts, and agree with each other. Model. EA Completeness Many
work products are incomplete. Complete key work products to the extent
necessary to support near- term

projects and to resolve major issues impacting approval. Traceability from
Blueprint 97 Elements of Blueprint 97 are not all

Complete accountability tracing of Blueprint 97 elements into Enterprise
traced to Enterprise Architecture. Architecture.

31

Results

? As shown in the following graphic, IRS' third plan calls for beginning
detailed design and development (i. e., building) on selected projects in
advance of planned EA version releases. It is important that IRS ensure that
the relevant and important architectural definition that is planned for each
version be completed and used on affected systems before IRS begins building
these systems. If it does not, IRS risks building systems that are not
architecturally compliant, which could sub- optimize agencywide mission
performance.

32

Selected Projects

Results Customer Account

Data Engine Customer Communications

e- Services release 1

e- Services release 2

STIR Core Financial System Enterprise Architecture

1.0 1.0 1.1 2.0 ?? Dece

March- June- 01 September- mber- 01

September- 00 00

01

Planned Date For Beginning Detailed Design and Development

33

Results Observation 2: Third Plan Discloses Project Cost and Schedule
Changes, But Does Not Report Any Changes to Promised System Capabilities and
Benefits

? Five projects have experienced cost increases and/ or schedule delays
against commitments made in prior plan. IRS reported such changes in its
third plan.

Program/ Project 8/ 2000 Commitment

Revised Commitment Change (%) Management Initiative Date and Funding

Date and Funding ($ 000)

($ 000)

TAVS Milestone 1 12/ 31/ 00 3/ 31/ 01

+3 months $22,695

$28,895 $6, 200 (27%)

CRM Exam Milestone 3 11/ 07/ 00 12/ 18/ 01

+1.5 months $2, 426

$2, 426 $0

E- Services Milestone 3 2/ 28/ 01 2/ 28/ 01

0 months $5, 480

$6, 918 $1, 438 (26%)

Enterprise Systems 1/ 31/ 01

2/ 28/ 01 +1 month

Management Milestone $5, 431

$6, 894 $1, 463 (27%)

3 Customer

11/ 30/ 00 2/ 28/ 01

+3 months Communications

$3, 509 $3, 509

$0 Milestone 3 (release

2002)

34

Results

? In our June 1999 report on IRS' first plan, 7 we recommended that IRS, in
future expenditure plans, report progress against incremental project
commitments.

? However, the third plan does not address whether program and project
initiatives' scopes (e. g., system requirements sets, benefit expectations)
have changed. Such disclosure is critical to understanding progress against
incremental project commitments.

7 Tax Systems Modernization: Results of Review of IRS' Initial Expenditure
Plan( GAO/ AIMD99- 35

206, June 15, 1999).

Results Observation 3: Plan Is Based on Contractor Estimates That Have Not
Been Validated by IRS

? The cost estimates in IRS' third plan are contractorprovided,

“rough order of magnitude” estimates, and are not based on
detailed work breakdown structures of tasks and deliverables.

? Consistent with IRS' recent practice established to address a similar
concern we raised with IRS' second plan, IRS plans to validate these
estimates as part of its task order definitization process with its PRIME
and other contractors. Under this process, the contractor submits task order
proposals that include costs, IRS assesses the proposals and develops
independent cost estimates, and IRS negotiates a final task order cost.

? For IRS' second plan, this process resulted in some project negotiated
costs being more than 10 percent above or below plan estimates. Cumulative
negotiated costs were $9 million less than plan estimates (5 percent).

36

Conclusions

? IRS' third plan satisfies the legislative conditions, and IRS is in the
process of satisfying its appropriations subcommittees' recent direction for
the CAP and STIR projects. By doing so, IRS will be better positioned to
make informed decisions about when or how to move forward with these two
investments.

? IRS continues to make important progress in correcting modernization
management weaknesses, such as implementing the ELC, making the BSMO fully
functional, and developing an EA. However, until these weaknesses are fully
addressed, key modernization controls will continue to be missing, putting
IRS at risk of building systems that may not perform as intended, and/ or
cost more and take longer to complete.

37

Conclusions

? As we have consistently reported, these risks are not as severe early in
projects' life cycles when they are being planned (project definition and
preliminary system design), but escalate as projects are built (detailed
design and development). In the case of IRS and its ELC, this point of risk
escalation is ELC milestone III. Consequently, we will remain concerned
about projects that proceed beyond milestone III before these weaknesses are
fully addressed.

? Given that IRS' third plan calls for several projects to pass ELC
milestone III within the next several months, it is important for IRS to
continue to make implementation of these program management controls a top
priority. In particular, completing the EA releases relevant to these
projects, fully implementing its ELC, and making its BSMO fully functional,
are essential.

38

Conclusions

? While IRS is reporting on performance in meeting project cost and schedule
commitments made in prior years, it is not disclosing whether projects'
scope and expected benefit commitments have changed. Such information is
critical to fully disclosing IRS modernization management performance and
establishing accountability.

? The estimates in IRS' plan are contractor provided estimates that have yet
to be subjected to government validation. IRS' established process for
introducing such validation occurs as part of its contract task order
definitization process. This process control is reasonable, but can result
in project costs that are significantly different from what IRS'
appropriations subcommittees are asked to approve.

39

Recommendations for Executive Action

We recommend that the Commissioner of Internal Revenue:

? follow through on plans to satisfy IRS appropriations subcommittees'
direction on CAP and STIR;

? expedite the completion of IRS' EA releases and implementation of other
missing modernization management controls;

? do not approve and fund post- Milestone III detailed design and
development activities for any system prior to completing requisite EA
definition;

40

Recommendations for Executive Action

? report immediately to IRS' appropriations subcommittees on any changes to
commitments made in IRS' second plan concerning system requirements/
capabilities to be delivered and the associated benefits to be realized, and
continue to report such performance measures in future expenditure plans;
and

? report to IRS' appropriations subcommittees on any variance from cost
estimates in its third plan of 10 percent or more that result from
definitization of contract task orders.

41

Agency Comments

? In commenting on a draft of this briefing, IRS' CIO agreed with our
conclusions and recommendations and stated IRS plans to:

? satisfy the subcommittees' direction on CAP and STIR with reports on these
projects to the subcommittees during November 2000.

? complete the EA 1. 0 and expedite the full implementation of modernization
management controls. EA 1. 0 is to be completed and approved during December
2000. All other recommended management controls will be implemented as
rapidly as possible.

? approve projects to move into detailed design (beyond milestone 3) only
with the requisite EA definition. Project designs will be reviewed for EA
compliance and approved by the Director of Architecture and Engineering
before exiting milestone 3.

? report in November 2000 on any changes to the requirements/ capabilities/
benefits of projects from the baseline of the March 7, 2000, expenditure
plan, and

? report any variance of 10 percent or more due to the definitization of
task orders. These reports will be issued quarterly starting in January
2001.

42

Appendix I: Enterprise Life Cycle

Support &

Operations MS

MS MS

MS MS 1

2 3

4 5 ELC Milestones

Strategy System

Enterprise Post

Concept Deployment

Design Deployment Vision & Strategic

Architecture Definition

Evaluation

43

Development Integration

Deployment Plan

Appendix II: IRS' Expenditure Plan

Business Systems Modernization - ITIA Spending Plan FY 2001 ($ 000)
Milestone

Amount Proposed Modernization Initiatives Milestone

Date Requested

Program Level Activities

BSMO Quality Assurance FY Sep- 01 $1, 800 PRIME Program Management Office FY
Sep- 01 $21,856 ELC Enhancements and Maintenance FY Sep- 01 $3, 686 FFRDC
(MITRE) FY Sep- 01 $18,750 Architecture Engineering Office FY Sep- 01
$17,570 Configuration Management FY Sep- 01 $1, 908 Vision and Strategy -
Tax Administration MS1 Mar- 01 $6, 200 Management Reserve FY Sep- 01 $15,000

$86,770 Business Systems Projects

CRM Exam (1120 Replacement) FS2001 MS4 Sep- 01 $9, 917 e- Services (Window
A) MS4 Oct- 01 $1, 746 Custodial Accounting Project / Taxpayer Account
Subledger MS4 Jan- 03 $44,130 Core Financial System (CFS) MS2 Dec- 00 $2,829

MS3 Mar- 01 $620

$59,242

44

Appendix II: IRS' Expenditure Plan

Infrastructure Projects

Security and Technology Infrastructure Release (STIR) MS4 Aug- 01 $25,185
Enterprise Systems Management (ESM) MS3 Feb- 01 $6,894

MS4 Nov- 01 $9,184 Solutions Demonstration Lab (SDL) FY Sep- 01 $1,759
Virtual Development Environment (VDE) FY Sep- 01 $6,310 Enterprise
Integration and Test Environment (EITE) FY Sep- 01 $4,702

$54,034 Total Business Systems Modernization Program $200, 046

45

Appendix III: EA Work Products

Enterprise Business Direction Model View Location Model View

Organization Model View

01- Enterprise 02- Enterprise

03- Enterprise 12- Location

13- Location- Type 14- Process Location 09- Organization

10- Role Definitions 11- Process Role Business Direction

Context Business Concept

PCAs Definitions Type Matrix Direction Model Matrix Model

Diagrams of Operations

System Engineering Model View Applications Model View

32- Application 33- Taxonomy of 34- Enterprise 35- Process/ 36- Enterprise
15- Systems 16- Taxonomy 17- Taxonomy of 18- Enterprise

PCAs Application Types Application Application API Definitions Development
of Tools Enterprise Standards

Matrix Matrix PCAs Standards and

Conventions

Data Model View

19- Enterprise 20- Service 21- Taxonomy of 22- Taxonomy of Conventions Level
PCAs Service Levels Interface Types

27- Data PCAs 28- Taxonomy of Data 29- Data Management 30- Enterprise 23-
Reuse 24- Definition of 25- Solution 26- Process/ Systems

Approach Conceptual Strategy Business Design Matrix

31- Process Data Model Systems Patterns

Data Matrix

Business Process Model View Infrastructure Model

04- Business Process 05- Enterprise

06- Business 07- Business

08- Process Thread Principles, Constraints,

Process Hierarchy Process Flows Process Definitions Performance Models 45-
Infrastructure 46- Taxonomy of 47- Infrastructure and Assumptions (PCAs)

PCAs Infrastructure Strategy Elements

Technology Model View

48- Infrastructure Concept of 37- Technology PCAs 38- Taxonomy of Technology
39- Technology Insertion 40- Process/ Technology

Operations Capabilities Strategy Capability Matrix

Enterprise Enterprise Requirements Requirements Security and Privacy Model
View

53- Taxonomy of Requirements 54- Requirements Statements and Traceability
Linkage

41- Security and 42- Taxonomy of Security 43- Verification and 44- Security
Function Privacy PCAs and Privacy Functions Compliance Matrix

Enterprise Transition Strategy Management and Other Work Products 55- System
56- Interface 57- Current 58- Near- Term 59- Medium- Term 60- Long- Term 49-
Completeness 50- Completeness 51- Taxonomy 52- Enterprise Assignments
Assignments Production Sequencing and Sequencing and Sequencing and

and Adequacy and Adequacy of Baseline Architecture to Projects to Projects
Environment Release Plan Release Plan Release Plan

Assessment Assessment Content Risk Management Description (1 - 3 years) (4 -
6 years) (7+ years)

Approach Plan 46

Appendi x II Comments From the Internal Revenue Service

Appendi x I II

GAO Contacts and Staff Acknowledgments GAO Contacts Gary Mountjoy, (202)
512- 6367 Steve Sebastian, (202) 512- 9521 Acknowledgments In addition to
those named above, other key contributors were Bernard

Anderson, Nancy DeFrancesco, Timothy Hopkins, Larry Korb, Sabine Paul, Jay
Pelkofer, Karlin Richardson, Sherrie Russ, Tuyet Quan Thai, Aaron Thorne,
and Teresa Tucker.

(310205) Lett er

GAO United States General Accounting Office

Page 1 GAO- 01- 227 IRS' Third Expenditure Plan

Contents Letter 3 Appendixes Appendix I: Briefing Slides From November 9,
2000, Briefing

of Senate and House Appropriations Subcommittee Staff 8

Appendix II: Comments From the Internal Revenue Service 54 Appendix III: GAO
Contacts and Staff Acknowledgments 56

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Appendix I Briefing Slides From November 9, 2000, Briefing of Senate and
House Appropriations Subcommittee Staff

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Appendix II

Appendix II Comments From the Internal Revenue Service

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Appendix III

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