Business Systems Modernization: Internal Revenue Service's Fiscal
Year 2005 Expenditure Plan (22-JUL-05, GAO-05-774).
The Internal Revenue Service's (IRS) Business Systems
Modernization (BSM) program is a multibillion-dollar, high-risk,
highly complex effort that involves the development and delivery
of a number of modernized information systems intended to replace
the agency's aging business and tax processing systems. As
required by law, IRS submitted its fiscal year 2005 expenditure
plan in April 2005 to congressional appropriations committees,
requesting about $203 million from the BSM account. GAO's
objectives in reviewing the plan were to (1) determine whether it
satisfied the conditions specified in the law, (2) determine what
progress IRS had made in implementing our prior recommendations,
and (3) provide any other observations about the plan and IRS's
BSM program.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-05-774
ACCNO: A30860
TITLE: Business Systems Modernization: Internal Revenue
Service's Fiscal Year 2005 Expenditure Plan
DATE: 07/22/2005
SUBJECT: Cost analysis
Cost overruns
Human capital management
Internal controls
Program evaluation
Risk management
Schedule slippages
Strategic planning
Tax administration
IRS Business Systems Modernization
Program
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GAO-05-774
* Report to Congressional Committees
* July 2005
* BUSINESS SYSTEMS MODERNIZATION
* Internal Revenue Service's Fiscal Year 2005 Expenditure Plan
* Contents
* Recommendation for Executive Action
* Agency Comments
* Briefing Slides from the May 20, 2005, Briefing to the Senate and
House Appropriations Subcommittee Staffs
* Comments from the Internal Revenue Service
* GAO Contact and Staff Acknowledgments
United States Government Accountability Office
Report to Congressional Committees
GAO
July 2005
BUSINESS SYSTEMS MODERNIZATION
Internal Revenue Service's Fiscal Year 2005 Expenditure Plan
a
GAO-05-774
BUSINESS SYSTEMS MODERNIZATION
Internal Revenue Service's Fiscal Year 2005 Expenditure Plan
What GAO Found
IRS's fiscal year 2005 expenditure plan, which requested about $203
million for the BSM program, satisfies the conditions specified in the
law. These conditions include meeting the Office of Management and
Budget's capital planning and investment control review requirements and
complying with federal systems acquisition requirements and management
practices.
IRS has made progress in implementing GAO's recommendations to improve its
modernization management controls and capabilities. However, certain
controls and capabilities related to configuration management, human
capital management, cost and schedule estimating, contract management, and
post-implementation reviews have not yet been fully implemented or
institutionalized. Weaknesses in these controls and capabilities have
contributed, at least in part, to project cost and schedule shortfalls.
GAO's observations on the expenditure plan and BSM program include the
following:
o During the past year, IRS has made progress implementing BSM, but much
work remains. While IRS has deployed initial versions of several
modernized tax processing and business systems, these deliveries only
represent the initial steps toward modernization. For example, initial
deliveries of the Customer Account Data Engine (CADE) project will
process less than 1 percent of all tax returns filed this year.
o IRS has not met long-term cost and schedule estimates, but its new
incremental approach contributed to short-term improvements. In the
second quarter of fiscal year 2004, systems modernization projects
were rebaselined, and IRS adopted a new strategy to develop and deploy
more manageable project segments. Since that time, IRS has met its
short-term cost estimates and delivery dates for the initial releases
of CADE and the Custodial Accounting Project. However, concerns remain
about IRS's ability to continue meeting cost and schedule targets.
o IRS has made progress toward addressing issues raised in independent
BSM assessments and implementing program improvement initiatives, but
high-priority issues and challenges remain in areas such as quality
assurance, the change request process, and integrated schedule and
baseline management.
o The BSM vision and strategy need revision in order to clearly show
what the modernization program will consist of, when it will be
completed, and at what cost. For example, the latest modernization
strategy referenced in an expenditure plan dates back to fiscal year
2002, and its planned delivery dates no longer reflect reality.
United States Government Accountability Office
Contents
Letter 1
Recommendation for Executive Action 4
Agency Comments 4
Appendixes
Appendix I: Briefing Slides from the May 20, 2005,
Briefing to the Senate
and House Appropriations Subcommittee Staffs 6
Appendix II: Comments from the Internal Revenue Service 54
Appendix III: GAO Contact and Staff Acknowledgments 56
Abbreviations
BSM Business Systems Modernization
CIO Chief Information Officer
IRS Internal Revenue Service
OMB Office of Management and Budget
PRIME Prime Systems Integration Support
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A
United States Government Accountability Office Washington, D.C. 20548
July 22, 2005
The Honorable Christopher S. Bond Chairman The Honorable Patty Murray
Ranking Member Subcommittee on Transportation, Treasury,
the Judiciary, Housing and Urban Development,
and Related Agencies Committee on Appropriations United States Senate
The Honorable Joe Knollenberg Chairman The Honorable John W. Olver Ranking
Member Subcommittee on the Departments of Transportation,
Treasury, and Housing and Urban Development, the Judiciary, District of
Columbia, and Independent Agencies
Committee on Appropriations House of Representatives
As required by law, the Internal Revenue Service (IRS) submitted its
fiscal year 2005 expenditure plan in April 2005 to the congressional
appropriations committees, requesting about $203 million from the Business
Systems Modernization (BSM) account. Our objectives in reviewing the plan
were to (1) determine whether the plan satisfied the conditions specified
in the law,1 (2) determine what progress IRS had made in implementing our
prior recommendations, and (3) provide any other observations about the
plan and IRS's BSM program.
1BSM funds are unavailable until the IRS submits to congressional
appropriations committees for approval a modernization expenditure plan
that (1) meets the Office of Management and Budget's (OMB) capital
planning and investment control review requirements; (2) complies with
IRS's enterprise architecture; (3) conforms with IRS's enterprise life
cycle methodology; (4) complies with federal acquisition rules,
requirements, guidelines, and systems acquisition management practices;
(5) is approved by IRS, the Department of the Treasury, and OMB; and (6)
is reviewed by GAO. See P.L. 108-447, Div. H, Title II, Dec. 8, 2004, for
fiscal year 2005 funding.
On May 20, 2005, we briefed your respective offices on the results of our
review. This report transmits the materials we used at the briefing and
provides the recommendation that we made to the Commissioner of Internal
Revenue. The full briefing materials, including our scope and methodology,
are reprinted as appendix I.
In summary, we made the following major points:
o IRS's fiscal year 2005 plan satisfies each of the six legislative
conditions.
o Although IRS has made progress in implementing our recommendations and
improving its modernization management controls and capabilities,
certain controls and capabilities related to configuration management,
human capital management, cost and schedule estimating, contract
management, and post-implementation reviews have not yet been fully
implemented or institutionalized. Weaknesses in these controls and
capabilities have contributed, at least in part, to BSM project cost
and schedule shortfalls.
o IRS has made progress in implementing BSM, but much work remains. IRS
has deployed initial phases of several modernized systems during the
past year, including the Customer Account Data Engine (the new
taxpayer information database), Modernized e-File (a new electronic
filing system), and e-Services (a new Web portal and electronic
services for tax practitioners). The deployment of these systems
provides several benefits to the taxpayer, including faster processing
of tax refunds and more timely response to customer inquiries.
However, these deliveries represent only a beginning, and much more
remains to be done by IRS before the BSM program is complete. For
example, the Customer Account Data Engine will process less than 1
percent of all tax returns filed this year.
* IRS has not met long-term cost and schedule estimates, but its
new incremental approach contributed to short-term improvements.
Historically, BSM has experienced significant cost overruns and
schedule slippages. In the second quarter of fiscal year 2004,
IRS rebaselined its projects and decided to change its BSM
project strategy to enable it to develop and deploy more
manageable project segments. Since making this change, IRS has
met its short-term cost estimates and scheduled delivery dates
for initial releases of the Customer Account Data Engine and the
Custodial Accounting Project. However, concerns remain about
IRS's ability to continue meeting its cost and schedule
* targets because of persistent weaknesses in the agency's
capabilities to deliver modernization initiatives on time and
within budget.
o IRS has made progress toward addressing issues raised in independent
BSM assessments and implementing program improvement initiatives, but
significant issues and challenges remain. IRS has made further
progress in addressing the items in its BSM Challenges Plan,
completing 44 of the 48 action items. In addition, the current IRS
Associate Chief Information Officer (CIO) for BSM developed a new BSM
program improvement framework, which covers all identified issues and
allows the agency to regularly identify, prioritize, and resolve these
issues. Currently, there are 17 high-priority initiatives. These
initiatives address key areas, including quality assurance, cost and
schedule estimation, the change request process, and integrated
schedule management and baseline management. If it is effectively
implemented, this program improvement process should help IRS manage
program risk. However, until the agency has addressed its
high-priority initiatives, BSM remains at risk of further cost
overruns and delays in its delivery of critical functionality.
o IRS is adjusting the BSM program in response to its assessment of the
prime systems integration support (PRIME) contractor's performance and
budget reductions. As a result of its assessment of the PRIME
contractor's performance in 2004, IRS began to transfer program
management operations from the contractor to the agency. Subsequent
budget reductions resulted in further shifting of responsibilities
away from the contractor. IRS has taken over significant
responsibilities for program management, systems engineering, and
business integration. Also, IRS has made adjustments to project
funding allocations and future delivery schedules. Because IRS does
not have all the expertise and processes needed to discharge these
responsibilities effectively, these changes could impact future
modernization budgets and cause further delays in implementing
functionality that is intended to provide benefits to IRS and to
taxpayers.
o The BSM vision and strategy need revision. The BSM program is based on
visions and strategies developed several years ago. The significant
delays experienced by the program over the past few years and the
changes brought about by the shift of significant program
responsibilities from the PRIME contractor to IRS, indicate a need for
IRS to revisit its long-term goals, strategies, and plans for BSM,
Recommendation for Executive Action
including an assessment of when significant future BSM functionality would
be delivered and at what cost.
To address the many changes associated with the BSM and to clearly
describe what the modernization program is intended to accomplish, when it
will be completed, and at what cost, we recommend that the Commissioner of
Internal Revenue direct the CIO to take the following action:
o fully revisit the vision and strategy for the BSM program and develop a
new set of long-term goals, strategies, and plans that are consistent with
the budgetary outlook and IRS's management capabilities.
In providing written comments on a draft of this report, the Commissioner
Agency Comments
of Internal Revenue agreed with our findings and described the actions
that IRS is taking to implement our recommendation. The Commissioner also
provided additional information on various improvement efforts that IRS
has undertaken. The Commissioner's written comments are reprinted in
appendix II.
We are sending copies of this report to the Chairmen and Ranking Members
of other Senate and House committees and subcommittees that have
appropriation, 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 are also available at no charge on the GAO Web site at
http://www.gao.gov.
Should you or your offices have questions on matters discussed in this
report, please contact me at (202) 512-9286 or [email protected]. Contact
points for our Offices of Congressional Relations and Public Affairs may
be found on the last page of this report. GAO staff who made major
contributions to this report are listed in appendix III.
David A. Powner
Director, Information Technology Management Issues
Appendix I
Briefing Slides from the May 20, 2005, Briefing to the Senate and House
Appropriations Subcommittee Staffs
Review of IRS's Fiscal Year 2005 Business Systems Modernization Expenditure Plan
Briefing for the staffs of the Subcommittee on Transportation, Treasury, the
Judiciary, Housing and Urban Development, and Related Agencies Senate Committee
on Appropriations and Subcommittee on the Departments of Transportation,
Treasury, and Housing and Urban Development, the Judiciary, District of
Columbia, and Independent Agencies House Committee on Appropriations
May 20, 2005
Page 1 of 48
x Introduction and Objectives x Results in Brief x Background x Scope
and Methodology x Results x Conclusions x Recommendation for Executive
Action x Agency Comments x Appendixes
x I - Description of Business Systems Modernization (BSM) Projects and
Program-Level Initiatives x II - Additional Detail on IRS's Fiscal Year
2005 BSM Expenditure Plan x III - IRS Reported Project Cost/Schedule
Changes
Page 2 of 48
The Internal Revenue Service (IRS) has long relied on obsolete automated
systems for key operational and financial management functions, and its
attempts to modernize these computer systems span several decades. IRS's
multibillion-dollar Business Systems Modernization (BSM) program,
initiated in fiscal year 1999, is the agency's latest attempt to modernize
its systems. IRS contracted with Computer Sciences Corporation (CSC) as
the prime systems integration support (PRIME) contractor to assist with
designing, developing, and integrating a new set of information systems
that are intended to replace IRS's aging business and tax processing
systems. BSM is a high-risk, highly complex program that involves the
development and delivery of a number of modernized tax administration,
internal management, and core infrastructure projects that are intended to
provide improved and expanded service to taxpayers as well as IRS internal
business efficiencies.
As mandated by IRS's fiscal year 2005 appropriations act,1 BSM funds are
not available until IRS submits a modernization expenditure plan for
approval to the congressional appropriations committees. This plan must
x meet the capital planning and investment control review requirements
established by the Office of
Management and Budget (OMB);
x comply with IRS's enterprise architecture;2
x conform with IRS's enterprise life cycle methodology;3
x comply with acquisition rules, requirements, guidelines, and
federal systems acquisition management
practices;
x be approved by IRS, Treasury, and OMB; and
x be reviewed by GAO.
1
P.L. 108-447, Div. H, Title II, Dec. 8, 2004.
2
An enterprise architecture (EA) is an institutional blueprint defining how
an enterprise operates today, in both business and technology terms, and
intends to operate in the future. An EA also includes a roadmap for
transitioning between these environments. 3IRS refers to its life cycle
management program as the enterprise life cycle (ELC).
Page 3 of 48
Since mid-1999, IRS has submitted a series of expenditure or "spending"
plans requesting release of BSM appropriated funds. To date, about $1.9
billion has been appropriated for BSM, including about $203 million for
fiscal year 2005.4 Of the $1.9 billion appropriated, about $1.7 billion
has been released.
On April 4, 2005, IRS submitted its fiscal year 2005 expenditure plan to
the relevant House and Senate appropriations subcommittees, seeking
release of $203 million from the BSM account.
As agreed with IRS's appropriations subcommittees, our objectives were to
x determine whether IRS's fiscal year 2005 expenditure plan satisfies the
legislative conditions specified in IRS's appropriations act,
x determine IRS's progress in implementing our prior recommendations, and
x provide any other observations about the plan and IRS's BSM program.
P.L. 108-447, Div. H, Title II, Dec. 8, 2004. IRS uses the appropriated
totals to cover contractor costs related to the BSM program. IRS funds
internal costs for managing BSM with another appropriation. These costs
are not tracked separately for BSM-related activities.
Page 4 of 48
IRS's fiscal year 2005 plan satisfies each of the six legislative
conditions.
Although IRS has made progress in implementing our recommendations and
improving its modernization management controls and capabilities, certain
controls and capabilities related to configuration management, human
capital management, cost and schedule estimating, contract management, and
post-implementation reviews have not yet been fully implemented or
institutionalized. Weaknesses in these controls and capabilities have
contributed, at least in part, to BSM project cost and schedule
shortfalls.
We have five observations related to the BSM program and fiscal year 2005
expenditure plan:
x IRS Has Made Progress in Implementing BSM, but Much Work Remains. IRS
has deployed initial phases of several modernized systems during the past
year, including the Customer Account Data Engine (the new taxpayer
information database), Modernized e-File (a new electronic filing system),
and e-Services (a new Web portal and electronic services for tax
practitioners). The deployment of these systems provided several benefits
to the taxpayer, including faster processing of tax refunds and more
timely response to customer inquiries. However, these deliveries represent
only a beginning, and much more remains to be done by IRS before the BSM
program is complete. For example, the Customer Account Data Engine will
process less than 1 percent of all tax returns filed this year.
x IRS Has Not Met Long-Term Cost and Schedule Estimates, but Incremental
Approach Contributed to Short-Term Improvements. Historically, BSM has
experienced significant cost overruns and schedule slippages. In the
second quarter of fiscal year 2004, IRS rebaselined its projects and
decided to change its BSM project strategy to develop and deploy more
manageable project segments. Since making this change, IRS has met its
short-term cost estimates and scheduled delivery dates for initial
releases of the Customer Account Data Engine and the Custodial Accounting
Project. However, concerns remain about IRS's ability to continue meeting
its cost and schedule targets due to its history of poor cost and schedule
management.
Page 5 of 48
x IRS Has Made Progress Toward Addressing Issues Raised in Independent
BSM Assessments and Implementing Program Improvement Initiatives, but
Significant Issues and Challenges Remain. IRS has made further progress in
addressing the items in its BSM Challenges Plan, completing 44 of the 48
action items. In addition, the current IRS Associate Chief Information
Officer (CIO) for BSM developed a new BSM program improvement framework,
which covers all identified issues and allows the agency to regularly
identify, prioritize, and resolve these issues. Currently, there are 17
high-priority initiatives. These initiatives address key areas, including
quality assurance, cost and schedule estimation, the change request
process, and integrated schedule management and baseline management. If
effectively implemented, this program improvement process should help IRS
manage program risk. However, until the agency has addressed its
high-priority initiatives, BSM remains at risk of further cost overruns
and delays in delivery of critical functionality.
x IRS is Adjusting the BSM Program in Response to its Assessment of the
PRIME Contractor's Performance and Budget Reductions. As a result of its
assessment of the PRIME contractor's performance in 2004, IRS began to
move program management operations from the contractor to the agency.
Subsequent budget reductions resulted in further shifting of
responsibilities from the contractor. IRS has taken over significant
responsibilities for program management, systems engineering, and business
integration. Also, IRS has made adjustments to project funding allocations
and future delivery schedules. While it is too early to tell what effect
these changes will ultimately have on the BSM program, IRS's adjustments
are not without risk, could impact future modernization budgets, and will
cause further delays in implementing functionality that is intended to
provide benefits to IRS and to taxpayers.
x The BSM Vision and Strategy Need Revision. The BSM program is based on
visions and strategies developed several years ago. The significant delays
experienced by the program over the past few years and the changes brought
about by the shift of significant program responsibilities from the PRIME
contractor to IRS, indicate a need for IRS to revisit its long-term goals,
strategies, and plans for BSM, including an assessment of when significant
future BSM functionality would be delivered and at what cost.
Page 6 of 48
To address the many changes associated with the BSM and clearly describe
what the modernization program is intended to accomplish, when it will be
completed, and at what cost, we are recommending that the Commissioner of
Internal Revenue direct the CIO to fully revisit the vision and strategy
for the BSM program and develop a new set of long-term goals, strategies,
and plans that are consistent with the budgetary outlook and IRS's
management capabilities.
In commenting on a draft of this briefing, the Associate CIO for BSM
generally agreed with it and provided technical comments.
Page 7 of 48
To date, we have reviewed and reported on 11 requests for BSM funding releases:
x Since mid-1999, we have reported5 on the risks associated with IRS's
approach of building systems while
concurrently developing and implementing program management
capabilities-for example, having a fully
operational program management office and implementing its enterprise
life cycle (ELC). IRS's ELC is a
structured method for managing system investments throughout
modernization program and project their
life cycles. We reported that attempting to acquire modernized systems
before having the requisite
management capability increases the risk that systems will experience
cost, schedule, and performance
shortfalls.
We have also that the risk of cost increases and schedule delays
x reported6 associated with building
systems without the requisite management controls is not as severe
early in projects' life cycles when they
are being planned (project definition and preliminary system design),
but escalates as projects are built
(detailed design and development) and implemented (enterprise
deployment).
In the case of IRS and its ELC, a key point of risk escalation is
x milestone 3, at the end of the system
architecture phase. From this point through design and development
(milestone 4) to system deployment
(milestone 5), risk will increase significantly if requisite controls
are not in place. In our June 2003 report,7
we identified key IRS projects that were approaching or had passed
milestone 4 that were experiencing
cost, schedule, and performance shortfalls, and concluded that program
risks were heightened. In our
November 2004 report,8 we stated that key IRS projects were
continuing to incur significant cost
increases
5
For example, see GAO, Business Systems Modernization: Results of Review of
IRS' March 2001 Expenditure Plan, GAO-01-716 (Washington, D.C.: June 29,
2001) and Internal Revenue Service: Progress Continues But Serious
Management Challenges Remain, GAO-01-562T (Washington, D.C.: April 2,
2001).
6
For example, see GAO, Tax Systems Modernization: Results of Review of IRS'
Third Expenditure Plan, GAO-01-227 (Washington, D.C.: January 22, 2001)
and Business Systems Modernization: IRS Needs to Better Balance Management
Capacity with Systems Acquisition Workload, GAO-02-356 (Washington, D.C.:
February 28, 2002).
7
GAO, Business Systems Modernization: IRS Has Made Significant Progress in
Improving Its Management Controls, but Risks Remain, GAO-03-768
(Washington, D.C.: June 27, 2003).
8
GAO, Business Systems Modernization: IRS's Fiscal Year 2004 Expenditure
Plan, GAO-05-46 (Washington, D.C.: November 17, 2004).
Page 8 of 48
and schedule delays, and that independent assessments of the BSM program
had identified significant weaknesses and risks, consistent with our prior
reviews.
x We also reported, in November 2004, that IRS had begun to implement a
risk-adjusted cost estimating methodology. Prior to the fiscal year 2004
expenditure plan, IRS's project cost estimates consisted of "point
estimates" that did not include adjustments for project risk. In the
fiscal year 2004 plan, IRS added a "risk adjustment" amount to the cost
estimate for each BSM project, in order to allow for variance and
uncertainty. These risk-adjusted cost estimates incorporated ranges based
on the uncertainty in the point estimates and adjusted those estimates to
provide a specified level of confidence, given the inherent variability.
IRS's fiscal year 2005 expenditure plan describes the agency's efforts to
x continue ongoing program-level initiatives through the first week of
November 2005 and core infrastructure projects through the end of November
2005,
x continue four ongoing tax administration projects (e-Services,
Modernized e-File Releases 3.1 and 3.2, and Customer Account Data Engine -
Individual Master File Release 1) to their next milestones,
x begin two new releases of tax administration projects (Modernized
e-File Release 4 and Customer Account Data Engine Release 2),
x establish a consolidated program management/transition management
activity for all Customer Account Data Engine project releases, and
x continue its ongoing work on the Filing and Payment Compliance/Private
Debt Collection Release 1 project (formerly known as Collection Contract
Support and allowing the selection of cases that can be handled by private
collection agencies) as well as the Customer Account Data Engine
Requirements Management/Engineering initiative (formerly known as the
Business Rules Management Solution), using funding provided in fiscal year
2004.
Page 9 of 48
However, as a result of current budget constraints, IRS will not be
pursuing any internal management support projects during fiscal year 2005.
Specifically, IRS has decided to terminate the Custodial Accounting
Project and postpone the next release of the Integrated Financial System
indefinitely.
Table 1 shows a financial summary of the plan.
Page 10 of 48
Background
Table 1: Summary of IRS's Fiscal Year 2005 BSM Expenditure Plan (in thousands of
dollars)a
Amount
requested
Project category b
Tax administration projects $90,587
Core infrastructure projects 62,000
Subtotal 152,587
Architecture, integration & management
Architecture & integration 18,506
Business integration 5,909
Management processes 4,763
Federally funded research and development center-MITRE 9,719
Program management 5,199
Architecture, integration & management risk adjustment 904
Subtotal 45,000
Management reserve 5,773
Total $203,360
Source: IRS.
a
See appendix I for a description of each BSM project and program-level
initiative. See appendix II for additional detail on the plan.
b
The two categories under this heading include nine separate projects or
project releases.
Page 11 of 48
To accomplish our objectives, we x reviewed the fiscal year 2005
expenditure plan submitted by IRS in April 2005; x analyzed the plan
against the legislative conditions to identify any variances; x
interviewed IRS program and project management officials to corroborate
our understanding of the plan
and of other BSM activities;
x analyzed available evidence on recent efforts to implement
modernization management controls and capabilities-specifically, progress
on and/or plans for x configuration management,
x human capital management, x cost and schedule estimation, x contract
management, and x post-implementation reviews;
x reviewed program management reports, briefings, and related
documentation to assess the progress IRS has made in completing actions
and implementing program management improvements related to the BSM
Challenges Plan and Highest Priority Initiatives; and
x coordinated with the Treasury Inspector General for Tax Administration
(TIGTA) to avoid duplication of effort in reviewing BSM initiatives.
To assess the reliability of the cost and schedule information contained
in this expenditure plan, we interviewed IRS officials in order to gain an
understanding of the data and discuss our use of the data. In addition, we
checked that information in the plan was consistent with information
contained in IRS internal
Page 12 of 48
briefings. Accordingly, we determined that the data in the plan were
sufficiently reliable for purposes of this briefing.
We performed our work from April through May 2005, in Washington, D.C., in
accordance with generally accepted government auditing standards.
Page 13 of 48
Appendix I Briefing Slides from the May 20, 2005, Briefing to the Senate
and House Appropriations Subcommittee Staffs
Results
Objective 1: The plan satisfies the conditions in IRS's Fiscal Year 2005
appropriations act.
Table 2: Fiscal Year 2005 Expenditure Plan Provisions for Satisfying Legislative
Conditions
2. Complies with The plan identifies funding required to continue
IRS's enterprise definition and implementation of the enterprise
architecture architecture (EA). For example, it identifies funding
Legislative needed for lan identifies funding required for
conditions managing information technology (IT) ngle portfolio
Expenditure plan through its capital planning and investment control
provisions 1. Meets process. This ews to select, control, and evaluate IT
OMB capital planning investments.
and investment
control review
requirements IRS's
fiscal year 2005
expenditure
pinvestments as part
of a siincludes
conducting periodic
revix finalizing
and publishing
updates to the EA
based on change
requests, performing
EA compliance
certification
activities, and
updating the
2005/2006 release
architecture.
maintaining and
enhancing the ELC.
3. Conforms with The plan identifies funding required for meeting the
IRS's enterprise requirements in IRS's enterprise life cycle (ELC)
life cycle x x management program. For example, the plan calls for
methodology onl5. x maintaining responsibility for coordinating,
Approved by IRS, tracking, and integrating all programwide costs,
Treasury, and OMB x schedules, releases, issues, and risks and
x x 6. Reviewed by
GAO x
4. Complies with the As part of the ELC, IRS has defined processes, roles,
acquisition rules, and responsibilities for implementing Carnegie Mellon
x requirements, University's Software Engineering Institute (SEI)
guidelines, and Software Acquisition Capability Maturity ModelTM
systems acquisition practices ithin the repeatable level (level 2) of the
management practices 5-stage model.a These practices are
of the federal
government for the
key process areas
wconsistent with
federal acquisition
requirements and
management
practices, and the
plan calls for
implementation of
the ELC on all
projects. Further,
all PRIME contractor
cost reimbursement
task orders are
subject to a final
independent audit by
the Defense Contract
Audit Agency to
ensure that costs
are incurred y for
tasks actually
completed on the
contract. IRS -
February 18, 2005
Treasury - March 10,
2005 OMB - March 18,
2005 GAO - May 20,
2005, briefing to
IRS's appropriations
subcommittees
Source: IRS's fiscal year 2005 appropriations act and GAO analysis.
a
These are acquisition planning, solicitation, requirements development and
management, project management, contract tracking and oversight,
evaluation, and transition to support.
Page 14 of 48
Results
Objective 2: IRS has made further progress in implementing our prior
recommendations to improve its modernization controls and capabilities,
although more remains to be done to fully address them.
Since we reported on IRS's last plan,9 it has made further progress in
addressing our prior recommendations to improve its modernization controls
and capabilities, as the following table illustrates:
Table 3: Status of IRS Progress in Implementing Prior GAO Recommendations
Prior recommendations to improve Status as of
IRS's modernization controls and In fiscal year 2005
capabilities Implemented progress plan
Configuration management
Institutionalize Business Systems - (See pp. 16-17)
Modernization Office (BSMO)
configuration management procedures
Human capital management
Implement plans for obtaining, - (See pp. 18-19)
developing, and retaining requisite
human capital resources
Cost and schedule estimation
practices
Implement effective procedures for - (See pp. 20-21)
validating contractor-developed
cost and schedule estimates
Contract management
Establish and implement a process - (See pp. 22-23)
for determining the type of task
order to be awarded
Post-implementation reviews
Perform analyses of investment data - (See pp. 24-25)
to determine whether completed
projects have achieved expected
benefits
Source: GAO analysis of agency data.
9GAO-05-46.
Page 15 of 48
Configuration Management
Effective configuration management (CM) is an essential control for
ensuring the integrity and consistency of program and project products
created by the system modernization program throughout their life
cycles.10
In June 2001, we reported11 that BSM's CM was ineffective, and we made
recommendations to address this weakness.
In June 2003, we reported12 that IRS had implemented most of our
recommendations and strengthened its CM processes but that it had not yet
fully institutionalized these processes across the BSM program.
In December 2003, TIGTA reported13 that, although IRS had made progress in
defining and establishing an enterprisewide CM process throughout the
Modernization and Information Technology Services organization,14 the
functions (i.e., identification, control, status accounting, and audit)
had not been uniformly implemented within the organization because IRS had
not established executive-level responsibility to ensure that processes
were properly implemented and that deficiencies identified in internal
assessments were appropriately addressed.
10CM is a discipline that applies technical and administrative direction
and surveillance to identify and document the functional and physical
characteristics of hardware or software, control changes to those
characteristics and their related documentation, record and report change
processing and implementation status, and verify compliance with specified
requirements. The purpose of CM is to systematically identify and baseline
the items that make up a system (identification), formally control any
modifications to those items (control), report on the status of the CM
process (status accounting), and ensure that baseline configurations are
implemented (audit). 11GAO-01-716. 12GAO-03-768.
13
Treasury Inspector General for Tax Administration, Additional Actions Are
Needed to Establish and Maintain Controls Over Computer Hardware and
Software Changes, Reference Number 2004-20-026 (Washington, D.C.: December
16, 2003). 14The Modernization and Information Technology Services
organization consists of (1) BSMO, which acquires and delivers new
computer hardware and software for IRS's modernized business processes and
(2) the Information Technology Services organization, which develops,
operates, and maintains computer hardware and software that support the
current production environment.
Page 16 of 48
During fiscal year 2004, IRS reported that it had made further progress
toward establishing mature configuration management processes. Among its
activities were developing and delivering training modules on CM processes
and configuration control boards (CCB) and completing internal compliance
assessments on four BSM projects to evaluate each project's practices to
determine whether they are being followed and support the project's goals.
However, the results of these assessments demonstrated the need for
additional improvements. Several discrepancies were identified in three of
the projects evaluated (Customer Account Data Engine, e-Services, and
Modernized e-File), including processes or documentation that were found
to be noncompliant with Modernization and Information Technology Services
CM processes and procedures and/or were inadequate to perform the intended
function. The assessment reports cited significant deficiencies and areas
of concern related to requirements management, requirements traceability,
and configuration audits. In addition, the Customer Account Data Engine
and e-Services assessment reports noted that many of the discrepancies
identified during prior assessments of these two projects still remained
unresolved or only partially resolved.
In September 2004, the IRS CIO issued a revised Modernization and
Information Technology Services CM Directive to establish organizational
responsibilities for implementing these processes enterprisewide and
addressing deficiencies. The charters for the associated CCBs were
approved by the CIO in December 2004. In January 2005, a new Associate CIO
was hired to head the new Enterprise Services organization within the
enterprise, which includes a new enterprisewide CM policy office. This
office, under the leadership of the Associate CIO for Enterprise Services,
is responsible for implementing the CM Directive and institutionalizing
these processes.
Until IRS fully institutionalizes effective CM processes, it cannot ensure
that systems are being developed in accordance with enterprisewide needs
and requirements and will not require expensive rework resulting in
additional costs and/or schedule delays.
Page 17 of 48
Human Capital Management
To maintain and enhance the capabilities of IT staff, organizations should
develop and implement a human capital strategy that, among other things,
x assesses the knowledge and skills needed to effectively perform IT
operations to support agency mission
and goals,
x inventories the knowledge and skills of current IT staff,
x identifies gaps between requirements and current staffing, and
x develops and implements plans to fill the gaps.
In February 2002, we reported15 that IRS had not yet defined or
implemented an IT human capital strategy, and recommended that IRS address
this weakness.
In June 2003, we reported16 that IRS had made important progress in
addressing our recommendation, but had yet to
x develop a comprehensive multiyear workforce plan to replace the current
annual plan, which did not encompass all phases of multiyear projects, and
x hire, develop, or retain sufficient human capital resources with the
required competencies, including technical skills, in specific mission
areas.
15GAO-02-356. 16GAO-03-768.
Page 18 of 48
In September 2003, TIGTA reported17 that IRS's Modernization and
Information Technology Services organization had made significant progress
in developing its human capital strategy,18 including the development of a
5-year human capital plan; however, the strategy was not complete.
Specifically, IRS had not yet (1) identified and incorporated human
capital asset demands for the modernized organization,
(2) developed detailed hiring and retention plans, or (3) established a
process for reviewing the development of a human capital strategy and
monitoring its implementation.
In August 2004, the current Associate CIO for BSM identified the
completion of a human capital strategy as a high priority. Since then, IRS
has reported that it has developed and utilized a human resources capacity
management model to identify asset demands and determine where skills gaps
exist in the current BSMO organization. IRS is currently in the process of
prioritizing its BSM staffing needs within functional divisions, designing
and establishing a revised organizational structure and staffing
profile/level that meets the needs of the current BSM program, and
developing a detailed recruiting plan to bring necessary personnel on
board. For example, IRS is focusing on hiring additional staff in the
systems engineering area, to provide these skills to various modernization
projects. In providing comments on this briefing, IRS stated that it had
hired 9 of 10 engineers for the new Modernization Program Engineering
Office.
IRS has taken some steps in the right direction. However, until IRS fully
implements its strategy, it will not have all of the necessary IT
knowledge and skills to effectively manage the BSM program or to operate
modernized systems. Consequently, the risk of BSM program and project cost
increases, schedule slippages, and performance problems is increased.
17
Treasury Inspector General for Tax Administration, The Modernization,
Information Technology and Security Services Organization Needs to Take
Further Action to Complete Its Human Capital Strategy, Reference Number
2003-20-209 (Washington, D.C.: September 22, 2003).
18
The BSM human capital strategy is an integral part of the overall strategy
for the Modernization and Information Technology Services organization.
Page 19 of 48
Cost and Schedule Estimation Practices
Producing reliable estimates of expected costs and time frames for the
completion of systems modernization initiatives is essential to
determining a program's cost-effectiveness. Without such information, the
likelihood of making poor investment decisions is increased.
The BSM program has had a history of cost overruns and schedule delays,
and has been criticized for its ineffective cost and schedule estimation
practices and inability to deliver projects within budget and on time.
In February 2002, we reported19 that BSM project cost and schedule
estimates were contractor-provided, "rough order of magnitude" estimates
that had not been validated by IRS, and recommended that IRS adopt
effective cost and schedule estimating practices.
Since that time, IRS directed the PRIME contractor to build a programwide
cost and schedule estimation system that is compliant with best practices
in the IT industry. To improve project cost and schedule estimates, IRS
and the PRIME contractor
x developed a guidebook to provide assistance in developing cost and
schedule estimates,
issued procedures to (1) help IRS staff in validating the PRIME
x contractor's cost and schedule estimating
capabilities and (2) provide guidance for the independent review of
contractor-provided cost and schedule
estimates,
established a database containing historical data from PRIME projects
x to be used to prepare future
estimates, and
developed a methodology for preparing risk-adjusted cost and schedule
x estimates.
19GAO-02-356.
Page 20 of 48
Despite these steps, a September 2004 internal review of the PRIME
contractor's cost and schedule estimation capability concluded that
estimation processes and compliance were still inadequate in some
respects. The report stated that (1) the primary area of weakness was in
the PRIME contractor's execution, since there was little evidence that the
cost and schedule estimating guidance was being followed, and
(2) future efforts will focus on the institutionalization of established
guidance.
As a result of IRS's assessment of the PRIME contractor's performance, IRS
decided to shift primary responsibility for cost and schedule estimation
from the PRIME contractor to IRS staff. Despite the contractor's poor
performance in cost and schedule estimating, there are risks associated
with this change. For example, IRS has indicated that, as a part of this
transition, it must redefine BSM cost and schedule estimation processes
consistent with the current scope of the program and strengthen its
capabilities in this area. However, although the agency hired additional
technical expertise for cost and schedule estimating during fiscal year
2004, it acknowledges that it does not yet have all the expertise
necessary to estimate cost and schedule effectively.
Page 21 of 48
Contract Management
The Federal Acquisition Regulation indicates that performance-based
contracting20 is the preferred method for acquiring services, should be
used to the maximum extent practicable, and that fixed-price task orders21
are the preferred type of performance-based task order.
In September 2002, TIGTA recommended22 that BSMO require the use of
fixed-price task orders whenever possible and appropriate for projects in
development and deployment and for any other task orders where
requirements can be clearly identified at the outset.
OMB has also encouraged IRS to use performance-based, fixed-price task
orders to the maximum extent practicable.
In June 2003, we reported23 that IRS did not have a clearly documented
process for determining the type of task order to be awarded for BSM
projects. We recommended that IRS establish and implement a process for
determining the type of task order to be awarded.
During fiscal year 2003, IRS issued BSMO guidance,24 a CIO memorandum,25
and a BSMO directive26 outlining
(1)
IRS's intent to utilize more fixed-price task orders where
appropriate, (2) the new IRS policy stipulating that all contracts
and task orders for BSM development projects in milestones 4 and 5
will be fixed-price, and
(3)
implementation guidance and a strategy to facilitate the use of
performance-based contracting in the
20
The use of performance-based contracting means establishing clear and specific
contract requirements where satisfaction can be objectively measured.
21
A fixed-price task order is one in which the price is agreed upon at the
outset and is not adjusted unless the requirements are changed.
22
Treasury Inspector General for Tax Administration, Additional Improvements
Are Needed in the Application of Performance-Based Contracting to Business
Systems Modernization Projects, Reference Number 2002-20-170 (Washington,
D.C.: September 13, 2002). 23GAO-03-768.
24
Internal Revenue Service, Enabling the Selection of Appropriate Contract
Types for BSM Task Orders, BSMO-Guidance-Contract Types (Washington, D.C.:
August 11, 2003).
25
Internal Revenue Service, Business Systems Modernization Fixed-Price
Policy, CIO Memorandum (Washington, D.C.: September 29, 2003).
26
Internal Revenue Service, Performance-Based Contracting for BSM Task
Orders, BSMO-DIR-PBC (Washington, D.C.: September 30, 2003).
Page 22 of 48
development of BSM task orders. IRS also provided training for more than
100 IRS and contractor staff in the use of newly developed templates and
instructions to facilitate the implementation of performance-based
contracting and compliance monitoring.
During fiscal year 2004, IRS's efforts focused on monitoring compliance
with BSMO directives and templates for implementing performance-based
contracting. IRS developed performance measures for assessing the extent
to which certain performance-based contracting practices were introduced
into the modernization environment. These measures were used to perform an
initial assessment of task orders for modernization projects. Results
indicated that IRS staff is applying the new guidelines for
performance-based contracting, but a larger number of task orders must be
assessed to provide a more reliable basis for evaluating compliance.
In August 2004, IRS issued a revised ELC directive that separated ELC
Milestone 4 into Milestone 4a (system design) and Milestone 4b (system
development). IRS considered this revision to be a necessary condition for
moving toward a firm fixed-price contracting environment for the later
stages of systems development. This established Milestone 4a as a
checkpoint at the end of the design phase where fixed-price task orders
can be negotiated for business system development and deployment.
During fiscal year 2005, IRS plans to improve implementation of
performance-based contracting by revising existing guidance, providing
needed training for new or improved guidance, and performing semiannual
assessments of compliance.
Until IRS fully implements performance-based contracting practices for
managing BSM task orders, it cannot ensure that contractor costs are being
adequately controlled or that the contractor is delivering products that
fully satisfy the requirements and contract specifications.
Page 23 of 48
Post-Implementation Reviews
Conducting post-implementation reviews (PIR) is a process for reviewing IT
projects to identify lessons learned from investments and determine
whether the benefits anticipated in the business case for the investment
have been realized.
OMB Guidance,27 GAO's Information Technology Investment Framework,28 and
IRS's ELC require that post implementation reviews be performed on
deployed information systems. According to our framework, the reviews
should include (1) the collection, evaluation, and analysis of both
quantitative and qualitative investment data and (2) documentation of
lessons learned and recommendations for improving the information
technology investment process.
In November 2004, we reported29 that IRS had performed PIRs on deployed
projects; however, these reviews were incomplete and did not follow IRS's
procedure. Although the PIRs documented lessons learned in implementing
the projects and provided recommendations for future improvements, the
reviews did not
(1) compare and analyze actual versus planned benefits and systems
performance, (2) determine the validity of original business assumptions,
or (3) compare and analyze actual versus planned cost and schedule
estimates. We recommended that future post-implementation reviews of
deployed BSM projects include an analysis of quantitative and qualitative
investment data to determine whether expected benefits were achieved.
IRS has developed a new procedure for conducting post-milestone reviews
and PIRs on BSM projects. The post-milestone reviews are to focus on the
processes used in systems development, while the PIRs are to focus on
outcomes related to expected business benefits, user expectations, and
technical performance
27
Executive Office of the President, Office of Management and Budget,
Evaluating Information Technology Investments: A Practical Guide,
(November 1995) and Circular A-130, Transmittal Memorandum #4, Management
of Federal Information Resources, (November 2000).
28
GAO, Information Technology Investment Management: A Framework for
Assessing and Improving Process Maturity, GAO-04-394G (Washington, D.C.:
March 2004). 29GAO-05-46.
Page 24 of 48
requirements. We have reviewed the procedure and found that it is
compliant with established federal guidance. However, this new procedure
will not prove beneficial unless IRS ensures that it is followed for
conducting all future PIRs. The next BSM project PIR is scheduled for
early 2006.
Page 25 of 48
Objective 3: Observations about IRS's BSM Program and Expenditure Plan
Observation 1: IRS Has Made Progress in Implementing BSM, but Much Work
Remains.
During the past 12 months, IRS's BSM program has deployed initial phases
of several modernized systems and reported benefits to taxpayers and the
agency, including the following:
x Customer Account Data Engine (CADE) - Individual CADE is intended to
Master File30 Release 1. 31
replace IRS's antiquated system that contains the repository of
taxpayer information and, therefore, is the
BSM program's linchpin and highest priority project. In July 2004 and
January 2005, IRS implemented the
initial releases of CADE, which have been used to process filing year
2004 and year 2005 1040EZ returns,
respectively, for single taxpayers with refund or even-balance tax
returns. According to IRS, as of March
31, 2005, CADE had processed over 1 million tax returns so far this
filing season.
e-Services. This project created a Web portal and provided other
x electronic services to promote the goal of
conducting most IRS transactions with taxpayers and tax practitioners
electronically. IRS implemented
e-Services in May 2004, and reported that, as of late March 2005, over
84,000 users have registered with
this Web portal.
Modernized e-File (MeF). This project is intended to provide electronic
x filing for large corporations, small
businesses, and tax-exempt organizations. The initial releases of this
project were implemented in June
and December 2004, and allowed for the electronic filing of forms and
schedules for the Form 1120
30CADE will include the modernized database foundation to replace the
current master files processing systems, which are the agency's repository
of taxpayer information. There are master files for individuals,
businesses, and employer retirement plans. CADE is expected to facilitate
faster refund processing and more timely response to taxpayer inquiries.
31Release 1 includes five segments. Release 1.0, the base release of1040
EZ functionality, was deployed in July 2004. Release 1.1, also deployed in
July 2004 (concurrent with Release 1.0), contained filing season 2003 and
2004 tax law changes. Release 1.2, deployed in January 2005, included
filing season 2005 changes. Release 1.3.1, scheduled to be deployed in
July 2005, will include new functionality to improve performance and allow
address changes on tax returns as well as some filing season 2006 tax law
changes. Release 1.3.2, scheduled to be deployed in January 2006, will
include the remaining filing season 2006 tax law changes and some
additional functionality.
Page 26 of 48
(corporate tax return) and Form 990 (tax-exempt organizations' tax
return). IRS reported that, during the
2004 filing season, over 53,000 of these forms and schedules were accepted
using MeF.
x Integrated Financial System (IFS). This system replaces aspects of
IRS's core financial systems and is ultimately intended to operate as its
new accounting system of record. The first release of this system became
fully operational in January 2005.
Although IRS has delivered important functionality, the BSM program is far
from complete. Future deliveries of additional functionality of deployed
systems and the implementation of other projects are expected to have a
significant impact on IRS's taxpayer services and enforcement capability.
For example,
x IRS has projected that CADE will process about 2 million tax returns in
the 2005 filing season. However, the returns being processed in CADE are
the most basic of all tax returns and constitute less than 1 percent of
the total tax returns expected to be processed during the current filing
season. There is much work to be done before a significant number of
taxpayer returns are processed through the CADE system.
x The Filing and Payment Compliance (F&PC) project is expected to improve
processes and technologies that support IRS's compliance activities,
increase the agency's capacity to treat and resolve the backlog of
delinquent taxpayer cases, and improve voluntary taxpayer compliance.
Furthermore, it is expected to increase the closure of collection cases by
10 million annually by 2014. IRS intends to deliver an initial limited
private debt collection capability in January 2006, with full
implementation of this aspect of the F&PC project to be delivered by
January 2008, and additional functionality to follow in later years.
Page 27 of 48
Observation 2: IRS Has Not Met Long-Term Cost and Schedule Estimates, but
Incremental Approach Contributed to Short-Term Improvements.
The BSM program has a long history of significant cost increases and
schedule delays, which, in part, has led us to report the program as high
risk since 1995.32 Among the reasons for IRS's poor performance are the
inability to resolve key system design, integration, and performance
issues in a timely manner, unanticipated testing difficulties, and
insufficient requirements development.
In addition, IRS has overstated its cost and schedule estimating
performance in fiscal year 2004. IRS claims to have delivered all projects
(with the exception of IFS) on time and within budget and that the
variance between estimated and actual costs had been reduced from 33
percent in fiscal year 2002 to 4 percent in fiscal year 2004. However, we
do not agree with the methodology used in the analysis supporting this
claim. Specifically,
(1) the analysis did not reflect actual costs, instead it reflected
changes in cost estimates (i.e., budget allocations) for various BSM
projects; (2) IRS aggregated all of the changes in the estimates
associated with the major activities for some projects, such as CADE,
which masked that monies were shifted from future activities to cover
increased costs of current activities (e.g., $39.8 million in fiscal year
2004 funding originally allocated for the CADE Release 2 project was moved
to cover cost overruns in the CADE Release 1 and Business Rules
initiatives, but was not included in the 4 percent variance indicated
above); and (3) the calculations were based on a percentage of specific
fiscal year appropriations, which does not reflect that these are
multiyear projects.
A new strategy to develop and deploy more manageable program segments
contributed to recent improvements in meeting some short-term cost and
schedule estimates. In the second quarter of fiscal year 2004, IRS
rebaselined its projects and decided to change its BSM program strategy to
develop and deploy more manageable project segments. Our comparison of
IRS's reported project costs and ELC milestone completion dates presented
in the July 2004 and April 2005 expenditure plans shows that two BSM
projects, CADE Releases 1.1 and 1.2, were delivered at the estimated cost
and on or before the scheduled completion
32For our latest high-risk report, please see GAO, High-Risk Series: An
Update, GAO-05-207 (Washington, D.C., January 2005).
Page 28 of 48
dates projected in the July 2004 plan. In addition, it shows that Release
1 of the Custodial Accounting Project was delivered on time and within its
risk-adjusted cost estimate.
Concerns remain about IRS's ability to consistently deliver on time and
within budget in the future. As mentioned earlier, IRS has had a history
of cost increases and schedule delays. In addition, our comparison of the
July 2004 and April 2005 plans shows that 12 BSM project segments have
experienced cost increases and/or schedule delays against short-term and
long-term commitments shown in the July 2004 plan. Five of the 12
initiatives reported cost increases (4 were within the allocated project
risk adjustments and 1 was not). Also, 9 of the 12 initiatives reported
schedule delays. See appendix III for details. Based on our analysis, it
remains to be seen whether the IRS can continue to deliver modernization
initiatives on time and within budget through the life cycle of current
projects and into the future.
Page 29 of 48
Observation 3: IRS Has Made Progress Toward Addressing Issues Raised in
Independent BSM Assessments and Implementing Program Improvement
Initiatives, but Significant Issues and Challenges Remain.
As a result of continued cost overruns and schedule delays in the BSM
program, during the summer of 2003, IRS and the PRIME contractor, CSC,
initiated three external independent studies and one IRS internal analysis
to assess the effectiveness of the BSM program and to review the CADE
project.
These assessments and a subsequent report by the IRS Oversight Board33
resulted in 48 action issues to address weaknesses in and reduce risks to
the BSM program. In October 2003, IRS established a BSM Challenges Plan to
address the 48 action issues and assigned a senior executive to coordinate
the development of goals, management plans, and closure criteria.
In May 2004, IRS reported34 that 44 of the 48 action issues were closed
and that the plan had accomplished its mission to help put the necessary
policies and procedures in place to improve the delivery of modernized
systems. However, our review of this report found examples of important
issues that were closed even though required activities were incomplete.35
Subsequent to the May 2004 report, the current IRS Associate CIO for BSM
determined that many of the action issues had been prematurely closed in
the BSM Challenges Plan report. As a result, he began internally tracking
the progress of the original action issues, including those that had been
closed. Also, after interviewing a number of individuals associated with
the BSM program and reviewing the four BSM studies as well as various GAO
and TIGTA reports, the Associate CIO determined what he believed to be the
key barriers to success in the BSM program and created a plan to address
these barriers.
33IRS Oversight Board, Independent Analysis of IRS Business Systems
Modernization, Special Report (December 2003). Internal Revenue Service,
BSM Challenges Plan Close-Out Report (May 2004). 35See GAO-05-46 for
additional details.
Page 30 of 48
The Associate CIO established the following seven key focus areas for
improving IRS's capability to design, develop, and deliver modernized IT
systems:
x Staffing and Skill Sets,
x Contractor Management,
x Requirements and Demand Management,
x Systems Engineering,
x Project Management Disciplines,
x Communication and Collaboration, and
x Empowerment/Accountability.
He then mapped (1) the BSM Challenges Plan action issues, (2) GAO/TIGTA
recommended corrective actions for improving modernization management
controls and processes, and (3) several additional IRS-defined improvement
initiatives to these key focus areas to form a BSM program improvement
framework.
In August 2004, the Associate CIO identified 16 "highest priority
initiatives" from the program improvement framework that were to be
completed by the end of January 2005. This initial set of initiatives
contained improvement efforts linked to six of the seven key focus areas,
and consisted of three action issues from the BSM Challenges Plan, four
corrective actions recommended by GAO and TIGTA, and nine additional
improvement efforts identified by the Associate CIO.
Page 31 of 48
As of late April 2005, IRS reported that 44 of the 48 BSM Challenges Plan
action issues have been closed, including 10 which were merged with other
action issues. Of the remaining 4 open action issues, 2 of these issues
(related to hiring additional systems engineering staff and conducting key
technical reviews throughout the system life cycle) are nearing
completion, while the other 2 issues, (implementing recommendations from
an external study of the BSM contracting process and testing a business
rules engine36 in the CADE environment), require significant additional
work.
Also, IRS reported that 12 of the 16 initial highest priority initiatives
had been completed and closed, including efforts to fill four key critical
pay project manager positions, assess and modify the PRIME contractor's
role on the program, create a requirements management office, begin
revalidation of the CADE project approach and architecture, and
institutionalize monthly program reviews. The remaining 4 ongoing
initiatives, related to
(1) strengthening IRS's systems engineering capability, (2) completing the
BSM human capital strategy and recruiting plan, (3) hiring a leader and
establishing a requirements management office operation, and (4) hiring a
technical lead for the BSM program, have been carried over to the next
6-month cycle.
In addition to the 4 initiatives carried forward from the initial list,
IRS is focusing on 13 newly selected highest priority improvement
initiatives for a total of 17, which are planned to be completed by early
September 2005. Several of these initiatives relate to challenges from the
recent switch in responsibility for systems integration from the
contractor to IRS, and involve the transition of primary responsibility
for critical BSM program management operations to IRS, including
x contract management,
x quality assurance,
x cost and schedule estimation,
x the change request process,
36A business rules engine translates business rules, or processing
criteria (e.g., income tax refunds of $x or more are held for
administrative review) into executable computer code that processes
transactions related to a tax form, and selects and executes correct rules
based on the tax year and tax form.
Page 32 of 48
x integrated schedule management and baseline management, and
x project deployment transition support.
Other initiatives currently being implemented by IRS include ensuring BSM
staff are trained in required project management skills (e.g., schedule
analysis, earned value management, and testing monitoring) and
establishing a business rules management operation to establish and
support business rules harvesting37 as a method to define
modernization-related business requirements for projects such as CADE.
When effectively implemented, this program improvement process will allow
IRS to regularly assess and prioritize its issues and challenges. However,
until the agency has addressed its high priority initiatives, BSM remains
at risk of further cost overruns and delays in delivery of critical
functionality.
Business rules harvesting refers to the process of extracting, defining,
and documenting tax processing criteria from a variety of sources,
including IRS subject matter experts, legacy system source code, the tax
code, and various other paper documents.
Page 33 of 48
Observation 4: IRS is Adjusting the BSM Program in Response to Its
Assessment of the PRIME Contractor's Performance and Budget Reductions.
The BSM program is undergoing significant changes as it adjusts to the
recent change in the PRIME contractor's role as well as reductions in its
budget. As noted previously, IRS completed an assessment of the PRIME
contractor's performance during fiscal year 2004. As a result, IRS began
to transition program management responsibilities from the contractor to
the agency in the fall of 2004. Subsequent funding reductions increased
the shifting of areas of responsibility from the contractor. For fiscal
year 2005, IRS received about 29 percent less funding than it requested
(from $285 million to $203.4 million). According to the Senate report for
the fiscal year 2005 Transportation, Treasury, and General Government
appropriations bill, in making its recommendation to reduce BSM funding,
the Senate Appropriations Committee was concerned about the program's cost
overruns and schedule delays and wanted IRS to focus on its highest
priority projects, particularly CADE.38 In addition, IRS's fiscal year
2006 budget request reflects an additional reduction of about 2 percent,
or about $4.4 million, from the fiscal year 2005 appropriation. In
response, IRS has made adjustments to project funding allocations and
future delivery schedules.
It is too early to tell what effect these changes will ultimately have on
the BSM program. However, the adjustments IRS is making are not without
risk, could potentially impact future budget requests, and will delay the
implementation of certain functionality that was intended to provide
benefit to IRS operations and the taxpayer. For example,
x Shifts of BSM management responsibility from the PRIME contractor to
IRS. Due to IRS's assessment of the PRIME contractor's performance and
budget reductions, IRS decided to shift significant BSM responsibilities
for program management, systems engineering, and business integration from
the contractor to IRS staff. For example, IRS is assuming responsibility
for cost and schedule estimation and measurement, risk management,
integration test and deployment, and transition management. There are
risks associated with this decision. It is important to recognize that in
the late 1990's, IRS moved
U.S. Senate, Senate Report 108-342.
Page 34 of 48
management functions to contractors because of the agency's management
weaknesses and past difficulties managing large IT projects. To
successfully accomplish this transfer, IRS must have the management
capability to perform this role. Although the BSM program office has been
attempting to improve this capability through, for example, implementation
of a new governance structure and hiring staff with specific technical and
management expertise, IRS has had significant problems in the past
managing large development projects, and acknowledges that it currently
does not have all the expertise and processes needed to discharge these
additional responsibilities effectively.
x Reductions in management reserve/project risk adjustments. In response
to the fiscal year 2005 budget reduction, IRS reduced the amount that it
had allotted to program management reserve and project risk adjustments by
about 62 percent (from about $49.1 million to about $18.6 million).39 If
BSM projects have future cost overruns that cannot be covered by the
depleted reserve, this reduction could result in
(1) increased budget requests in future years or (2) delays in planned
future activities (e.g., delays in delivering promised functionality) to
use those allocated funds to cover the overruns. During fiscal year 2004,
IRS expended about 46 percent of its BSM management reserve/project risk
adjustments.
x Suspension of the Custodial Accounting Project (CAP). Although the
initial release of CAP went into production in September 2004, IRS has
decided not to use this system and to stop work on planned improvements
due to budget constraints. According to IRS, it made this decision after
it evaluated the business benefits and costs to develop and maintain CAP
versus the benefits expected to be provided by other projects, such as
CADE. Among the functionality that the initial releases of CAP were
expected to provide were (1) critical control and reporting capabilities
mandated by federal financial management laws;
(2) a traceable audit trail to support financial reporting; and (3) a
subsidiary ledger to accurately and promptly identify, classify, track,
and report custodial revenue transactions and unpaid assessments. With the
suspension of CAP, it is now unclear how IRS plans to replace the
functionality this system was expected to provide, which was intended to
allow the agency to make meaningful progress toward
39We did not include in our calculations, reductions to specific project
risk adjustment amounts that were made for reasons other than the fiscal
year 2005 budget reduction.
Page 35 of 48
addressing long-standing financial management weaknesses. IRS is currently
evaluating alternative
approaches to addressing these weaknesses.
x Reductions in planned functionality. According to IRS, planned
functionality for some of its BSM projects will be delayed. For example,
IRS no longer plans to include Form 1041 (the income tax return for
estates and trusts) in the fourth release of Modernized e-File, which is
expected to be implemented in fiscal year 2007. In addition, future
releases of the Integrated Financial System, planned to provide additional
functionality necessary to fully address financial management weaknesses,
have been postponed indefinitely.
Page 36 of 48
Observation 5: The BSM Vision and Strategy Need Revision.
The BSM program is based on visions and strategies developed in 2000 and
2001. The significant delays experienced by the program and the
substantive changes brought on by recent events such as IRS's assessment
of its contractor and budget reductions, indicate a need for IRS to
revisit its long-term goals, strategies, and plans for BSM. For example,
the latest modernization roadmap referenced in an expenditure plan dates
back to fiscal year 2002 and showed the first five releases of CADE were
to be completed by 2006-currently CADE Release 2 is not scheduled to be
delivered until 2007.
Such an assessment would include an evaluation of when significant future
BSM functionality would be delivered and at what cost. For example, CADE
is currently scheduled to complete Release 2 and be able to process an
estimated 33 million tax returns by 2007, but no detailed plans or
schedules are available for the remaining phases of this project. Although
the ability to process 33 million tax returns will be a significant
accomplishment, it is a long way from handling the over 200 million tax
returns received by IRS each filing season. For CADE, IRS still needs to
determine (1) what additional functionality needs to be developed to cover
the remaining tax returns, (2) how much it will cost IRS to develop this
functionality, and (3) when this functionality will be made available. A
similar analysis should be made for each of its major modernization
projects.
IRS's Associate CIO for BSM has recognized that it is time to recast the
agency's BSM strategy because of changes that have occurred subsequent to
the development of the program's initial plans. According to this
official, IRS is in the process of redefining and refocusing the BSM
program, and he expects this effort to be completed by the end of this
fiscal year; however, definite milestones for completing an updated
strategy do not exist.
It is important for IRS to fully revisit its vision and strategy for the
BSM program and develop a new set of long-term goals, strategies, and
plans that are consistent with the budgetary outlook and IRS's management
capabilities.
Page 37 of 48
IRS's fiscal year 2005 plan satisfies the legislative conditions.
IRS has made progress in implementing our recommendations to improve its
modernization management controls and capabilities. However, our reviews
and those of the Treasury inspector general clearly demonstrate that
significant challenges and serious risks remain. IRS acknowledges this and
is acting to address them.
IRS has deployed initial phases of several modernized systems recently and
has met short-term cost and schedule estimates. However, much more work
remains to be done to complete the modernization, and challenges confront
the IRS in meeting its longer-term cost and schedule estimates. In
addition, many high priority risks confront the BSM, including contract
management, program management, and bolstering its human capital, as
greater responsibility and accountability is transitioned from the
contractor to the IRS. Finally, the BSM long-term vision and strategy is
no longer current given project delays, and requires a major revision that
is consistent with the budgetary outlook and its management capabilities.
Page 38 of 48
To address the many changes associated with the BSM and clearly describe
what the modernization program is intended to accomplish, when it will be
completed, and at what cost, we recommend that the Commissioner of
Internal Revenue direct the CIO to take the following action:
x fully revisit the vision and strategy for the BSM program and develop a
new set of long-term goals, strategies, and plans that are consistent with
the budgetary outlook and IRS's management capabilities.
Page 39 of 48
In providing oral comments on a draft of this briefing, the Associate CIO
for BSM concurred with our findings and conclusions, and stated that it is
a fair representation of the BSM program. He also provided specific
technical comments that we have incorporated into the briefing, as
appropriate.
Page 40 of 48
Appendix I: Description of Business Systems Modernization (BSM) Projects
and Program-Level Initiatives
Proposed modernization Description
initiative
Tax administration projects
Is to create a Web portal and other
e-Services e-Services to promote the goal of
conducting
most IRS transactions with taxpayers and
tax practitioners electronically.
Filing and Payment Is a series of projects providing support
Compliance(F&PC)/ Private for detecting, scoring, and working
Data Collection (formerly nonfiler (filing compliance) and
referred to as Collection delinquency (payment compliance) cases. The
Contract Support (CCS)) first phase of F&PC is Private Debt
Collection, which will use advanced
software to analyze tax collection cases
and divide them into the complex cases
requiring
IRS involvement from the simpler ("balance
due") cases that can be handled by private
collection agencies.
Is to provide a single standard for filing
Modernized e-File electronic tax returns. Initial releases
will
address large corporations, small
businesses, and tax-exempt organizations.
Its
ultimate goal is the conversion of IRS's
1040 e-file program.
Customer Account Data Engine - Is to build the modernized database
Individual foundation to replace the existing master
Master File (CADE IMF) file processing systems that contain a
repository of information on individual
taxpayers.
Internal management projects
Custodial Accounting Project Is to provide integrated tax operations and
(CAP) internal management information to
support evolving decision analytics,
performance measurement, and
management information needs.
Integrated Financial System Is to provide a single ledger for custodial
(IFS) and financial data and a platform to
integrate core financial data with budget,
performance, and cost accounting
data.
Page 41 of 48
(continued from previous page)
Appendix I: Description of Business Systems Modernization (BSM) Projects
and Program-Level Initiatives
Proposed modernization Description
initiative
Core infrastructure projects
Development, Integration, & Is to provide oversight for laboratory
Testing Environment environments that support evaluation,
development, and testing of components from
multiple projects: (1) Virtual
Development Environment provides a
development environment and a standardized
set of tools; (2) Enterprise Integration
Testing Environment provides an integration
testing environment for all projects.
Infrastructure Shared Services Is to establish a program to build and
deliver an infrastructure that is scalable,
interoperable, flexible, manageable, and
features standardized operations and a
single
security and enterprise systems management
framework.
Architecture, integration &
management
Architecture & Integration Is to ensure that systems solutions meet
IRS business needs and that the projects
are
effectively integrated.
Business Integration Is to ensure that IRS's BSM program is
aligned with the business units' vision and
delivers the desired business results. It
provides support to the business owners
with key activities such as transition
management, business rules enterprise
management,
and business transformation.
Is to provide sustaining support for
Management Processes program-level management processes,
including
quality assurance, process improvement,
training, program control, and ELC
maintenance and enhancements.
Federally Funded Research and Is to provide program management and
systems engineering support to BSMO.
Development Center-MITRE
Program Management Is to ensure that projects achieve their
objectives; provide the management
information and IT infrastructure that
supports risk management, project cost and
schedule estimating, and financial
management; and provide procurement
management for the
CSC contract and associated task orders.
Source: IRS.
Page 42 of 48
Appendix II: Additional Detail on IRS's Fiscal Year 2005 BSM Expenditure
Plan (in thousands of dollars)
Proposed modernization Release a Milestone Milestone Amount
initiative b date requested
Tax administration projects
e-Services R1.1, 1.2, 2.0 5 Aug. 05 $8,000
e-Services PeopleSoft N/A Aug. 05 600
Upgrade
e-Services Risk Adjustment 1,000
Subtotal - e-Services project 9,600
Modernized e-File (MeF) R3.1 4 March 05 2,400
MeF R3.2 4 March 06 13,700
MeF R4 3 Oct. 05 8,000
MeF Risk Adjustment 2,650
Subtotal - MeF project 26,750
Customer Account Data Engine
- Individual Master File R1 5 Dec. 05 7,000
(CADE IMF)
Filing
CADE IMF R1 Season 06 Dec. 05 27,000
CADE IMF R2 4a June 06 7,000
Program Mgmt.
and Transition
CADE IMF Mgmt. N/A Dec. 05 8,000
CADE IMF Risk Adjustment 5,237
Subtotal - CADE IMF project 54,237
Subtotal - tax administration 90,587
projects
Core infrastructure projects
Development, Integration & FY 05c Nov. 05 15,574
Testing Environment (DITE)
Infrastructure Shared FY 05c Nov. 05 42,426
Services (ISS)
DITE/ISS Risk Adjustment 4,000
Subtotal - core 62,000
infrastructure projects
Page 43 of 48
Appendix II: Additional Detail on IRS's Fiscal Year 2005 BSM Expenditure
Plan (in thousands of dollars)
(continued from previous page)
Proposed modernization initiative Releasea Milestoneb Milestone Amount
date requested
Architecture, integration, &
management
Architecture & Integration FY 05 c Nov. 05 $18,506
Business Integration FY 05 c Nov. 05 5,909
Management Processes FY 05 c Nov. 05 4,763
FFRDC - MITRE FY 05 c Nov. 05 9,719
Program Management FY 05 c Nov. 05 5,199
Architecture, Integration & 904
Management Risk Adjustment
Subtotal - architecture, 45,000
integration, & management
Management reserve 5,773
Total fiscal year 2005 BSM program $203,360
Source: IRS.
a
Releases are software versions that provide a subset of the total planned
project functionality.
b
Milestones correspond to phases within IRS's ELC (1 - Enterprise
Architecture, 2 - Domain Architecture, 3 - System Architecture, 4a -
System Design, 4b - System Development, 5 - System Deployment). Core
infrastructure projects and management initiatives are funded on a fiscal
year (FY) basis rather than by milestone.
Page 44 of 48
Page 45 of 48
Commitment date Revised
commitment
and funding as date and
Project of 7/2004 funding as of IRS explanation
segment ($000) 4/2005 ($000) Change of change
e-Services 4/30/05 8/31/05 +4 months Significant scope
was added to the
Milestone 5 $32,500 $32,500 project that
resulted in
additional time
to the project
schedule.
Significant
additions were a
PeopleSoft
upgrade,
the expansion of
the application
process to
include
Modernized e-File
(MeF) roles to
grant
accessibility to
those users, and
the Electronic
Data
Accessing
Solution (EDAS).
The government
and contractor
executed a
replan to address
schedule
increases.
e-Services 4/30/05 $7,400 8/31/05 +4 months $600K transferred
PeopleSoft $12,100 +$4,700 from FY 2005
Upgrade (LOE) project Risk
Adjustment to
cover estimated
cost to complete
the PeopleSoft
upgrade prior to
e-Services'
transition to IRS
operations and
maintenance. In
addition, $4.1
million
transferred from
FY 2004
project Risk
Adjustment to
cover increased
cost of the
PeopleSoft
upgrade. Thus,
the Total Segment
Cost is $12,100K
(7,400 + 4,100 +
600).
Page 46 of 48
Commitment date Revised
commitment
and funding as date and
Project of 7/2004 funding as of IRS explanation
segment ($000) 4/2005 ($000) Change of change
Filing & Congress passed
Payment 1/31/05 3/31/06 +14 months legislation
allowing
Compliance/ $7,250 $13,250 +$6,000 the use of
Private
Collection
Agencies
Private Debt (PCA) late in
Collection 2004, forcing
delay of most
F&PC/PDC
activities
originally
(F&PC/PDC) planned for FY
2004. IRS is in
the
Release 1 process of
Milestone 3, developing a new
4a schedule for
Release 1 and
will provide a
full
update in the
upcoming FY 2005
and
2006 Expenditure
Plan. $6 million
transferred from
FY 2004
Management
Reserve to fully
fund original
plan activities,
including
validation and
planning of the
long-
term business
strategy (which
may
include
subreleases).
Modernized +2.5 Milestone 4 exit
e-File 9/30/04 12/16/04 months delayed to
complete
Release 2 $15,325 $15,325 noncritical, post
Initial Operating
Milestone 4 Capability (IOC)
testing.
Modernized 3/31/05 $7,539 3/24/05 -0.25 $2.4 million
e-File Release $10,139 month transferred from
3.1 Milestone +$2,600 the FY 2005 Risk
4 Adjustment to
fund $2+ million
in Tax Year
changes and
associated
testing costs. An
additional $.200
million
transferred from
the FY
2004 Risk
Adjustment to
test and
implement tax law
changes. Total
Segment Cost is
$10,139K (7,539 +
200 + 2,400).
Page 47 of 48
Commitment Revised
date commitment
and funding as date and
Project of 7/2004 funding as of IRS explanation of
segment ($000) 4/2005 ($000) Change change
Modernized +3.5 Release 3.2
e-File 10/15/04 2/04/05 months Milestone 3
completion
Release 3.2 $3,633 $3,633 delayed by
negotiations
required to
Milestone 3 obtain additional
funding for
Fed/State
component. This in
turn delayed the
start date for
Milestone 4.
Modernized Start date for
e-File 6/30/05 10/31/05 +4 months Release 4 Milestone
3
Release 4 $8,000 $8,000 delayed until FY
2005 funding is
Milestone 3 approved and
received. Release 4
Milestone 3 will
now begin after
Release 3.1 exits
Milestone 4.
Customer Milestone 5 was
Account 6/30/05 12/31/05 +6 months extended to the end
of
Data Engine $17,450 $17,450 December 2005 to
include changes for
(CADE) Filing Seasons 2005
(Release 1.2) and
Release 1 2006 (Release 1.3).
Milestone 5
Customer 12/31/05 12/31/05 +$1,300 Funding covers
Account Data $27,000 $28,300 software
Engine (CADE) development, a
Release 1.3 suite of testing,
and implementation
of the July 2005
Release (R1.3.1)
and the January
2006 Release
(R1.3.2). $1.3
million transferred
from FY 2004
Risk Adjustment to
fund start-up work
on the filing
season 2006 changes
and ensure the
effort stayed on
schedule. Total
Segment Cost is now
$28,300K (27,000 +
1,300).
Page 48 of 48
Commitment date Revised
commitment
and funding as date and
Project of 7/2004 funding as of IRS explanation
segment ($000) 4/2005 ($000) Change of change
Customer 11/30/05 6/30/06 $7,000 +7 months The project will
Account Data $15,000 -$8,000 not formally exit
Engine (CADE) Milestone 4a
Release 2 until June 2006
Milestone 4a so the logical
and physical
design may
include filing
season 2007 tax
law changes. This
activity is being
subdivided into
two pieces for FY
2005. IRS will
use $7 million of
the $15 million
in FY 2005 to
fund traditional
Milestone 4a
activities,
and $8 million to
fund Program
Management and
Transition
Management
activities. The
net increase to
the overall CADE
fiscal
year 2005 budget
is zero.
Custodial 10/29/04 9/30/04 -1 month Milestone 4 exit
accelerated by
Accounting $105,318 $107,118 +$1,800 changes to
initial load
approach. $1.8
Project (CAP) million was
transferred from
FY 2004
Release 1 risk adjustment
to cover costs of
Milestone 4 additional
testing and
resolving data
quality issues.
Integrated 6/30/05 11/30/05 +5 months BSMO recognized
the need for
Financial $15,000 $15,000 Milestone 5 to
System include a full
accounting
(IFS) cycle (year-end
close) as part of
the
Release 1 measurement and
acceptance of the
Milestone 5 system, based on
rationale
provided by
the Chief
Financial
Officer.
Source: IRS.
Appendix II
Comments from the Internal Revenue Service
Appendix II Comments from the Internal Revenue Service
Appendix III
GAO Contact and Staff Acknowledgments
David A. Powner, (202) 512-9286
GAO Contact
In addition to the contact named above, Bernard R. Anderson, John L. Dale,
Staff
Joanne L. Fiorino, Timothy D. Hopkins, and Tonia L. Johnson made key
contributions to this report.
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