Business Systems Modernization: Results of Review of IRS' March  
2001 Expenditure Plan (29-JUN-01, GAO-01-716).			 
								 
Pursuant to the Department of the Treasury's fiscal year 1999 and
2001 appropriations acts, the Internal Revenue Service (IRS)	 
submitted to Congress in March 2001 its fourth expenditure plan, 
requesting $128 million from its systems modernization		 
appropriations account. This report (1) determines whether the	 
plan satisfied the conditions specified in the acts, (2)	 
determines IRS' progress in implementing modernization management
controls and capabilities, and (3) provides other observations	 
about the plan and IRS' Business Systems Modernization program.  
GAO found that IRS' March 2001 expenditure plan satisfies the	 
conditions specified in the appropriations acts. IRS continues to
make important progress in implementing modernization management 
controls and capabilities, but has not yet implemented a	 
sufficiently defined version of the enterprise architecture to	 
guide and constrain projects or employed rigorous configuration  
management practices. Attempting to acquire modernized systems	 
before having the requisite management capacity increases the	 
risk that systems will experience cost, schedule, and performance
shortfalls.							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-01-716 					        
    ACCNO:   A01205						        
  TITLE:     Business Systems Modernization: Results of Review of IRS'
             March 2001 Expenditure Plan                                      
     DATE:   06/29/2001 
  SUBJECT:   Information technology				 
	     Systems conversions				 
	     Tax administration 				 
	     Tax expenditures budgets				 
	     IRS Business Systems Modernization 		 
	     Program						 
								 
	     IRS Information Technology Investments		 
	     Account						 
								 
	     IRS Security and Technology			 
	     Infrastructure Release				 
								 

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GAO-01-716
     
A

Report to Congressional Committees

June 2001 BUSINESS SYSTEMS MODERNIZATION

Results of Review of IRS? March 2001 Expenditure Plan

GAO- 01- 716

Lett er

June 29, 2001 The Honorable Byron L. Dorgan Chairman The Honorable Ben
Nighthorse Campbell Ranking Minority Member

Subcommittee on Treasury and General Government Committee on Appropriations
United States Senate

The Honorable Ernest J. Istook, Jr. 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 the Treasury?s fiscal year 1999 and 2001
appropriations acts, the Internal Revenue Service (IRS) submitted to the
Congress in March 2001 its fourth expenditure plan, requesting $128 million
from its systems modernization appropriations account, which is referred to
as the Information Technology Investments Account (ITIA). 1 As required by
the acts, we reviewed the plan. Our objectives were to (1) determine whether
the plan satisfied the conditions specified in the acts, 2 (2) determine
IRS? progress in implementing modernization management controls and
capabilities, and (3) provide any other observations about the

plan and IRS? Business Systems Modernization program. 1 The Omnibus
Consolidated and Emergency Supplemental Appropriations Act, 1999 (Public Law
105- 277) and the Department of Transportation and Related Agencies
Appropriations Act, 2001 (Public Law 106- 346).

2 The acts specify that 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.

On April 20, 2001, and April 23, 2001, we briefed your respective offices on
the results of our review. This report transmits this briefing and
reiterates the recommendations to the Commissioner of Internal Revenue that
we specified in the briefing. The full briefing, including our scope and
methodology, is reprinted in appendix I. In summary, we made four major
points:

 IRS? March 2001 expenditure plan satisfied the conditions specified in the
appropriation acts.  IRS continued to make important progress in
implementing

modernization management controls and capabilities. Nevertheless, IRS?
modernization management capacity is still not where it should be, given (1)
the number of system acquisition projects that the March 2001

plan identifies as underway and planned and (2) the fact that several of the
ongoing projects are entering critical stages in their life cycles. Examples
of modernization management controls and capabilities that are not yet
implemented are (1) having a sufficiently defined version of the enterprise
architecture 3 to guide and constrain projects and (2) employing rigorous
configuration management practices. 4  As we have concluded in our past
reports on IRS? expenditure plans, attempting to acquire modernized systems
before having the requisite management capacity increases the risk that
systems will experience

cost, schedule, and performance shortfalls. These risks escalate as projects
move from preliminary design into detailed design and development- a point
in IRS? system life- cycle methodology that is called Milestone 3. Key IRS
projects are beginning to experience these shortfalls against the
commitments IRS made in its third expenditure plan. 5 For example, IRS
reports that for the Customer Communications

2001 project, deployment of the system is 3 months behind schedule, and
promised system capabilities and associated benefits have been deferred.
Also, IRS reports that a critical infrastructure project (called

the Security and Technology Infrastructure Release- STIR) was 1.5 3 An
enterprise architecture defines the critical attributes of an agency?s
collection of information systems in both business/ functional and
technical/ physical terms. 4 Configuration management is the means for
ensuring the integrity and consistency of system modernization program and
project products throughout their life cycles. Through effective
configuration management, for example, integration among related projects
and alignment between projects and the enterprise architecture can be
achieved. 5 IRS submitted its third plan on October 10, 2000, and it was
approved on November 20, 2000.

months late in attempting to complete its preliminary design phase
(Milestone 3), and, as of mid- April 2001, IRS was still working to finalize
6 of 19 work products needed to complete this phase; thus, the project is
actually almost 5 months late.  IRS officials recognized the need to
address its modernization

management capacity before key ongoing projects move into critical life-
cycle phases, and before additional projects are started. Accordingly, IRS
planned or had initiated steps to address these weaknesses. For example, in
response to our findings, the Commissioner decided in April 2001 to slow
ongoing and new projects, giving priority to putting in place missing
management capacity. We believed that these decisions were prudent and
appropriate, and we

made the following recommendations to ensure that IRS followed through on
each decision.

Recommendations for Our open recommendations to the Commissioner of Internal
Revenue

Executive Action remain operative and applicable until IRS completes and
implements its

enterprise architecture and other missing modernization management controls
and capabilities.

We further recommend that the Commissioner, consistent with his commitments,

 slow ongoing projects and delay and stagger new project starts until the
requisite controls and capabilities are fully implemented and  not approve
projects exiting Milestone 3 until IRS

 demonstrates, through the use of traceability matrices, that projects
align with a sufficiently defined enterprise architecture version and  has
fully implemented rigorous configuration management practices

across its portfolio of modernization projects. Agency Comments In
commenting on a draft of this report, the Commissioner of Internal Revenue
agreed with our recommendations and stated that IRS would

continue working to implement key management controls needed to ensure the
success of the Business Systems Modernization program. The Commissioner?s
written comments are reprinted in appendix II.

We are sending copies of this report to the Chairmen and Ranking Minority
Members of other Senate and House Committees and Subcommittees that have
appropriations, authorization, and oversight responsibilities for the
Internal Revenue Service. 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 April 20, 2001, and April 23, 2001,
Briefings of the Senate and

Appendi x I

House Appropriations Subcommittee Staffs Information Technology

Results of Review of IRS? March 2001 ITIA Expenditure Plan

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

(on April 23, 2001) and the House Committee on Appropriations, Subcommittee
on Treasury, Postal Service,

and General Government (on April 20, 2001)

1

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

2

Introduction

 Per IRS? FY 1999 and 2001 appropriations acts, Information Technology
Investments 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 information technology (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.

 Since mid- 1999, IRS has submitted a series of expenditure or

?spending? plans requesting release of ITIA appropriated funds. 1 IRS refers
to its life cycle management program as the Enterprise Life Cycle (ELC),
which is graphically depicted in the Background Section.

3

Introduction

 To date, about $578 million has been appropriated for ITIA, and $449
million has been released, leaving approximately $128 million, as shown on
the following page.

 On March 16, 2001, IRS submitted for approval, its fourth plan for
obligation of about $143 million from the following sources

$8.9 million from existing $128 million

management reserve and from ITIA

$6.5 million from unobligated, previously released funds

 If the plan is approved, ITIA will have a zero balance. To replenish the
fund, IRS has requested $397 million for its ITIA via its fiscal year 2002
budget request.

 In anticipation of the 2002 request being approved, IRS plans to submit
another expenditure plan by October 2001.

4

Introduction Introduction