Business Systems Modernization: Internal Revenue Service's Fiscal Year 2007 Expenditure Plan

Business Systems Modernization: Internal Revenue Service's Fiscal
Year 2007 Expenditure Plan (15-FEB-07, GAO-07-247).

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 that are intended
to replace the agency's aging business and tax processing
systems. As required by law, IRS submitted its fiscal year 2007
expenditure plan, in September 2006, to congressional
appropriations committees, requesting $167.3 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 IRS's progress in implementing prior GAO
recommendations, and (3) provide any other observations about the
plan and IRS's BSM program. To address these objectives, GAO
analyzed the plan, reviewed related documentation, and
interviewed IRS officials.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-07-247
ACCNO: A65967
TITLE: Business Systems Modernization: Internal Revenue
Service's Fiscal Year 2007 Expenditure Plan
DATE: 02/15/2007
SUBJECT: Federal law
Information technology
Internal controls
Program evaluation
Program management
Strategic planning
Systems conversions
Technology modernization programs
IRS Business Systems Modernization
Program

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GAO-07-247

* [1]Report to Congressional Committees

* [2]February 2007

* [3]BUSINESS SYSTEMS MODERNIZATION

* [4]Internal Revenue Service's Fiscal Year 2007 Expenditure Plan

* [5]Contents

* [6]Recommendation for Executive Action
* [7]Agency Comments

* [8]Briefing Slides from the November 14, 2006, Briefing to the Senate
and House Appropriations Subcommittee Staffs
* [9]Comments from the Internal Revenue Service
* [10]GAO Contact and Staff Acknowledgments

Report to Congressional Committees

February 2007

BUSINESS SYSTEMS MODERNIZATION

Internal Revenue Service's Fiscal Year 2007 Expenditure Plan

Contents

February 15, 2007
Letter

The Honorable Richard J. Durbin
Chairman
The Honorable Sam Brownback
Ranking Minority Member
Subcommittee on Financial Services and General Government
Committee on Appropriations
United States Senate

The Honorable Jose E. Serrano
Chairman
The Honorable Ralph Regula
Ranking Minority Member
Subcommittee on Financial Services and General Government
Committee on Appropriations
House of Representatives

As required by law, the Internal Revenue Service (IRS) submitted its
fiscal year 2007 expenditure plan in September 2006 to the congressional
appropriations committees, requesting $167.3 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 IRS's progress in implementing our prior
recommendations, and (3) provide any other observations about the plan and
IRS's BSM program.

On November 14, 2006, we briefed the cognizant congressional
appropriations subcommittee staffs 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:

oIRS's fiscal year 2007 plan satisfies each of the six legislative
conditions.

oIRS has made significant progress in implementing our recommendations and
improving its modernization management controls and capabilities,
including efforts to institutionalize configuration management procedures,
develop an updated modernization vision and strategy, and improve the
quality of the program status information provided in the expenditure
plan. However, controls and capabilities related to requirements
development and management and post-implementation reviews have not yet
been fully implemented. In addition, more work remains to be done by the
agency to fully develop a long-term vision and strategy for completing the
BSM program, including establishing time frames for consolidating and
retiring legacy systems. IRS recognizes this and intends to conduct
further analyses and update its vision and strategy to address the full
scope of tax administration functions and provide additional details and
refinements regarding the agency's plans for legacy system dispositions.

oIRS has made additional progress in implementing BSM projects and in
meeting cost and schedule commitments, but two key projects experienced
significant cost overruns. During 2006, IRS deployed additional releases
of the following modernized systems: the Customer Account Data Engine (the
new taxpayer information database), Modernized e-File (a new electronic
filing system), and Filing and Payment Compliance (a tax collection case
analysis support system). Each of the five associated project segments
that were delivered during 2006 were completed on time or within the
targeted 10 percent schedule variance threshold, and two of them were also
completed within the targeted 10 percent variance threshold for cost.
However, two project segments--Modernized e-File Release 3.2, Milestone
4/5 and Customer Account Data Engine Release 2.1, Milestone 4--experienced
cost increases of 36 percent and 15 percent, respectively.

oIRS could improve its reporting of progress in meeting project scope
expectations. Although IRS's expenditure plan provides descriptive
information on changes in project releases' scope (i.e., functionality),
it does not provide a quantitative measure of whether project releases
delivered planned functionality. Such a measure would be helpful in
providing the Congress with more complete information on IRS's performance
in implementing BSM project releases. IRS recognizes the value of having
such a measure and, to its credit, recently held a meeting to address ways
to develop it. Several BSM projects use earned value management,^2 a
proven technique required by the administration^3 for measuring cost,
schedule, and functional performance. However, earned value management
data are not reported in IRS's expenditure plan.

oFuture BSM project releases continue to face significant risks and
issues, which IRS is addressing. IRS has identified significant risks and
issues with its future planned system deliveries. For example, IRS has
reported that there is no slack in the schedule for Release 2.2 of the
Customer Account Data Engine, and that late-breaking tax law legislation
or other mandatory filing season changes will have an adverse effect on
the development and testing schedules. Maintaining alignment between the
Customer Account Data Engine and Accounts Management Services^4 projects
is also a key area of concern. The agency, however, recognizes the
potential impact of these project risks and issues on its ability to
deliver planned functionality within cost and schedule estimates, and has
developed mitigation strategies to address them.

oIRS has made further progress in addressing high-priority BSM program
improvement initiatives. Its high-priority improvement initiatives
continue to be an effective means of assessing, prioritizing, and
incrementally addressing BSM issues and challenges. IRS is currently
focusing on 13 high-priority initiatives, which it plans to complete by
the end of March 2007. These initiatives include establishing requirements
development/management processes and guidance as well as defining
governance structures and processes across all projects.

Recommendation for Executive Action

To allow for more effective congressional oversight of the BSM program, we
recommend that the Commissioner of Internal Revenue direct the Chief
Information Officer to take the following action:

oEnsure that future expenditure plans include a quantitative measure of
progress in meeting project scope expectations. In developing this
measure, IRS should consider using earned value management, since this is
a proven technique required by the administration for measuring cost,
schedule, and functional performance against plans.

Agency Comments

In providing written comments on a draft of this report, the Commissioner
of Internal Revenue agreed with our recommendation. In responding to the
recommendation, the Commissioner outlined the actions that IRS is planning
to take to address it, including evaluating available options and working
with GAO and the Treasury Inspector General for Tax Administration to
define quantitative measures of project scope. 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
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 at [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
key contributions to this report are listed in appendix III.

David A. Powner
Director, Information Technology Management Issues

Appendix I
Briefing Slides from the November 14, 2006, Briefing to the Senate and
House Appropriations Subcommittee Staffs

Appendix II
Comments from the Internal Revenue Service

Appendix III
GAO Contact and Staff Acknowledgments

GAO Contact

David A. Powner, (202) 512-9286

Staff Acknowledgments

In addition to the contact person named above, Timothy D. Hopkins, Paul B.
Middleton, and Sabine R. Paul made key contributions to this report.

(310835)

www.gao.gov/cgi-bin/getrpt?GAO-07-247 .

To view the full product, including the scope
and methodology, click on the link above.

For more information, contact David A. Powner at (202) 512-9286 or at
[email protected].

Highlights of [14]GAO-07-247 , a report to congressional committees

February 2007

BUSINESS SYSTEMS MODERNIZATION

Internal Revenue Service's Fiscal Year 2007 Expenditure Plan

GAO's objectives in reviewing the plan were to (1) determine whether it
satisfied the conditions specified in the law, (2) determine IRS's
progress in implementing prior GAO recommendations, and

(3) provide any other observations about the plan and IRS's BSM program.
To address these objectives, GAO analyzed the plan, reviewed related
documentation, and interviewed IRS officials.

[15]What GAO Recommends

GAO recommends that the Commissioner of Internal Revenue direct the Chief
Information Officer to ensure that future expenditure plans include a
quantitative measure of progress in meeting project scope expectations. In
providing comments on a draft of this report, the Commissioner agreed with
the recommendation and outlined the actions that IRS is planning to take
to address it.

IRS's fiscal year 2007 expenditure plan 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 significant progress in implementing GAO's recommendations
and improving its modernization management controls and capabilities.
However, controls and capabilities related to requirements development and
management and post-implementation reviews have not yet been fully
implemented. In addition, more work remains to be done to fully develop a
long-term vision and strategy for completing the BSM program.

GAO has the following four observations on the expenditure plan and the
BSM program:

o During 2006, IRS made additional progress in implementing BSM
projects and in meeting cost and schedule commitments, but two key
projects experienced significant cost overruns. IRS deployed
additional releases of the following modernized systems: the
Customer Account Data Engine (the new taxpayer information
database), Modernized e-File (a new electronic filing system), and
Filing and Payment Compliance (a tax collection case analysis
support system). While each of the five associated project
segments delivered during 2006 were completed within the targeted
10 percent schedule variance threshold, two project segments
associated with Modernized e-File and the Customer Account Data
Engine experienced cost increases of 36 percent and 15 percent,
respectively.

o Future BSM project releases continue to face significant risks
and issues. The agency, however, recognizes the potential impact
of these project risks and issues on its ability to deliver
planned functionality within cost and schedule estimates, and has
developed mitigation strategies to address them.

References

Visible links
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