Tax Administration: Making IRS' Telephone Systems Easier to Use Should
Help Taxpayers (Letter Report, 03/11/96, GAO/GGD-96-74).

Pursuant to a congressional request, GAO reviewed the Internal Revenue
Service's (IRS) development and use of interactive telephone systems to
improve customer service, focusing on IRS efforts to: (1) make the phone
systems easy to use; (2) protect taxpayer data; and (3) assign owners
that would provide developers with systems requirements information.

GAO found that: (1) successful IRS implementation of interactive
telephone systems is critical to improving IRS customer service, since
IRS expects taxpayer telephone assistance to double as IRS tries moves
towards a paperless system; (2) three new IRS phone systems are not
user-friendly which may cause taxpayers to use the new systems less; (3)
the new phone systems' routing system has too many menu options and does
not permit callers to return to the main menu if necessary; (4) IRS is
aware of the systems' menu problem, but it believes the multiple options
are necessary because tax issues are complex; (5) IRS is considering
providing multiple toll-free numbers to alleviate its menu problem, but
providing advance instructions on the menu options may be more
cost-effective; (6) IRS has complied with Department of the Treasury and
IRS security requirements to protect taxpayer data and is investigating
ways to increase security as taxpayers gain greater access to their tax
accounts; (7) IRS process owners have been designated late and have not
provided all requirements information needed for the phone systems'
development; and (8) an IRS cost-benefit analysis has shown that the
phone systems' benefit-to-cost ratio is three to one.

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

 REPORTNUM:  GGD-96-74
     TITLE:  Tax Administration: Making IRS' Telephone Systems Easier to 
             Use Should Help Taxpayers
      DATE:  03/11/96
   SUBJECT:  Tax administration systems
             Taxpayers
             Telephone communications operations
             Computer security
             Systems conversions
             Customer service
             Information dissemination operations
             Systems design
             Strategic information systems planning
             Cost effectiveness analysis
IDENTIFIER:  IRS Customer Service Vision
             IRS Voice Balance Due System
             IRS Telephone Routing Interactive Systems Project
             IRS Managing Accounts Core Business System
             IRS Location Interactive Telephone System
             IRS Refund Interactive Telephone System
             IRS Inquiry Interactive Telephone System
             IRS Tele-Tax System
             IRS Tax System Modernization Program
             TSM
             Nashville (TN)
             IRS Ensuring Compliance Core Business System
             
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Cover
================================================================ COVER


Report to the Chairman, Subcommittee on Oversight, Committee on Ways
and Means, House of Representatives

March 1996

TAX ADMINISTRATION - MAKING IRS'
TELEPHONE SYSTEMS EASIER TO USE
SHOULD HELP TAXPAYERS

GAO/GGD-96-74

IRS Telephone Systems

(268655)


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

  IRS - Internal Revenue Service
  PIN - personal identification number
  TRIS - Telephone Routing Interactive Systems
  VBD - Voice Balance Due

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


B-259951

March 11, 1996

The Honorable Nancy L.  Johnson
Chairman, Subcommittee on Oversight
Committee on Ways and Means
House of Representatives

Dear Madam Chairman: 

Improving service to taxpayers is one of the goals the Internal
Revenue Service (IRS) hopes to achieve by restructuring its
organization and modernizing its information systems.  Guided by a
broad plan called the "Customer Service Vision," IRS has begun a
long-term process of consolidating work units, retraining employees,
and developing new information systems to enable those employees to
better serve taxpayers. 

The Customer Service Vision calls for eliminating most written
correspondence between taxpayers and IRS, a step that IRS expects to
achieve by substantially increasing the availability of telephone
service.  IRS officials recognize that the success of the Customer
Service Vision depends on taxpayers being able to easily reach IRS by
telephone, but IRS has had a long-standing telephone accessibility
problem.  One of the ways IRS plans to provide better telephone
access is through the use of interactive telephone systems. 

Interactive telephone systems--systems taxpayers can use to call IRS
to get answers to their questions and complete transactions without
talking to a telephone representative--are critical to the success of
IRS' Customer Service Vision.\1 IRS plans for the 30 interactive
systems currently being developed to eventually answer 45 percent of
all taxpayers' telephone calls.  To the extent that many taxpayers
can resolve their problems without talking with IRS telephone
representatives, other taxpayers who do need to talk to telephone
representatives should find it easier to reach them. 

We reviewed IRS' efforts to develop interactive telephone systems
because they are critical to achieving the improved taxpayer service
sought by IRS' Customer Service Vision.  Our review was carried out
and this report was prepared as part of our basic legislative
responsibility for reviewing federal programs and activities. 
Because of the Subcommittee's continuing interest in improving the
quality of IRS' service to taxpayers, you asked that we issue this
report to you.  We evaluated the steps IRS has taken to

  make the interactive telephone systems easy for taxpayers to use,

  meet security requirements for protecting taxpayer data, and

  assign "owners" who would be responsible for providing the
     developers with input about systems' requirements. 


--------------------
\1 Taxpayers are to be able to call IRS' telephone assistance program
and, by listening to the system, to be able to make selections of
subjects by pressing numbers on their telephones, thus interacting
with the system to resolve a question or complete a transaction.  For
example, the Voice Balance Due system discussed in this report is
intended to allow taxpayers who owe delinquent taxes to complete
arrangements for an installment payment agreement on the telephone
without talking to a telephone representative. 


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

The successful implementation of interactive telephone systems is key
to IRS' achieving its Customer Service Vision because IRS expects
that the demand for telephone assistance will double as it directs
taxpayers to use the telephone rather than paper correspondence.  As
of July 1995, IRS had developed and pilot-tested three new
interactive telephone systems, but the telephone systems may be
difficult to use.  Consequently, taxpayers may not use the systems to
the extent necessary for IRS to improve its telephone accessibility
and realize the benefits it expects. 

The first three interactive telephone systems may be difficult to use
because IRS' telephone routing system (1) requires taxpayers to
remember up to eight menu options when design contractor guidelines
call for no more than four and (2) does not allow taxpayers to return
to the main menu when they make a mistake or want to resolve other
issues.  IRS was aware of these problems but believed that the range
of questions made it difficult to limit to four the number of options
and that simply condensing the options to a smaller number might not
be the best solution.  While IRS was conducting a cost-benefit
analysis of ways to allow taxpayers to return to the main menu, it
was not planning to conduct a cost-benefit analysis of the use of
multiple toll-free numbers, which IRS officials had recommended to
overcome the problem of too many menu options.  Providing taxpayers
with a written, detailed step-by-step description on how to use the
interactive systems' menu options is another way IRS could make its
telephone systems easier for taxpayers to use.  A cost-benefit
analysis would help IRS identify the most beneficial way to overcome
the problems.  Unless corrected, these problems may cause significant
numbers of taxpayers not to use the interactive telephone systems. 
This would result in the systems' not achieving their goal of
reducing the workload for IRS telephone representatives and thereby
improving taxpayers' access to IRS' assistance. 

IRS complied with Department of the Treasury and IRS security
requirements when developing the first three interactive telephone
systems.  As required, IRS certified that the systems protected
taxpayer data.  According to IRS officials, the first three
interactive telephone systems did not require extensive security
measures.  Future interactive systems are to allow taxpayers who call
greater access to their tax information.  These systems will require
more extensive security measures for ensuring that IRS can identify
the callers.  IRS plans to use various measures, including personal
identification numbers (PIN), to provide this protection.  However,
IRS is still developing the overall security requirements for its
modernization program.  Therefore, the PIN process may have to be
modified or replaced if the security requirements for IRS'
modernization program call for stricter security measures. 

For its interactive telephone systems, IRS officials responsible for
overseeing the tax refund and IRS office locations systems'
development--called owners--in some instances did not provide the
Telephone Routing Interactive Systems (TRIS) Project Office with
timely input during the time that the TRIS Project Office was
developing the systems.  As a result, the TRIS Project Office had to
modify some features of the systems.  For example, after the TRIS
Project Office staff had completed the pilot test for a system to
provide callers with information about the location of IRS offices,
the owner of that system decided to delete information from the
system that told taxpayers the locations they could visit for tax
assistance.  The owner did not want that information included because
IRS wanted taxpayers to telephone for assistance rather than visit
IRS offices.  If the owner had been more involved with the system's
design and informed the TRIS Project Office staff of this decision
earlier, development time and money could have been saved. 

We have previously reported our concerns about the assignment of
process owners and their roles and responsibilities in a report that
reviewed the challenges IRS faces in achieving its Customer Service
Vision.\2 That report included recommendations to IRS for avoiding
further problems in assigning owners and clarifying their
responsibilities.  IRS subsequently took action that if effectively
implemented, should resolve our concerns about the system owners
discussed in this report. 


--------------------
\2 Tax Administration:  IRS Faces Challenges in Reorganizing for
Customer Service (GAO/GGD-96-3, Oct.  10, 1995). 


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

For many years, taxpayers have had difficulty getting through when
they call IRS' toll-free telephone assistance program for help with a
tax law, an account, or other tax questions.  IRS has taken action to
answer more taxpayers' calls, but the number of calls IRS receives
still greatly exceeds the number it is able to answer.  In response
to this problem and others, IRS studied how it could provide
taxpayers with better service.  In 1993, IRS' Service Center
Organization Study included a concept of customer service based on
state-of-the-art technology.  IRS plans to reduce paper
correspondence by directing taxpayers to call IRS for answers to
their questions.  In fiscal year 1994, IRS received about 156 million
calls at its toll-free call sites.  IRS estimated that the volume of
calls to be received when its Customer Service Vision is in place
would almost double the number of calls IRS received in fiscal year
1994. 

To improve taxpayers' ability to reach IRS by telephone, IRS
anticipates that 45 percent of all taxpayer calls would be resolved
through new interactive telephone systems.  Taxpayers would use their
Touch-Tone telephones to gain access to the interactive telephone
systems where they would obtain answers to their questions without
talking to IRS telephone representatives.  With these new systems,
the number of available telephone representatives may no longer limit
taxpayers' ability to resolve their questions because many taxpayers
should be able to obtain answers to questions and complete many
transactions without talking to telephone representatives.  For
example, IRS envisions that by 2001 taxpayers who could not pay their
tax debt in full could use their telephones to set up agreements to
pay monthly installments without talking to IRS telephone
representatives. 

To facilitate the transition to its new business vision, IRS
reorganized its management structure around key operating areas
called "core business systems."\3 An integral part of its new
management approach included assigning owners to the underlying
processes that are to support the Customer Service Vision.  Among
other things, owners are expected to provide system designers with
the business requirements for new systems and to make sure that the
systems will meet the needs of the taxpayers that the owners are
responsible for serving. 

The TRIS Project Office is developing the interactive telephone
systems, including preparing menus and scripts to be used at IRS call
sites.  The TRIS Project Office is also working with other IRS
offices, which are responsible for current and future operations, to
obtain requirements for the interactive telephone systems.  IRS
envisions that it could have as many as 30 or more of these systems
available to taxpayers by 2001. 

As of July 1995, the TRIS Project Office had developed and
pilot-tested three of the new interactive telephone systems at the
Nashville Customer Service Site.  These were the Location, Refund
Inquiry, and Voice Balance Due (VBD) systems.  During the pilot test,
taxpayers were able to use the Location system to obtain the mailing
address of the IRS offices.  The Refund Inquiry system let taxpayers
determine the status of their refund and speak to an IRS
representative, if needed.\4 VBD allowed eligible taxpayers access to
their accounts and provided the capability to establish an
installment agreement to pay delinquent taxes without speaking to an
IRS telephone representative. 

IRS' October 1994 business case cost-benefit analysis on all of the
interactive telephone systems showed greater benefits than costs. 
IRS projected the benefits of all of the systems to be about $155
million through 2001.  The benefits included labor savings of almost
$154 million and material savings, due to reduced paper
correspondence, of $1 million.  The projected cost of the systems for
the same time period was about $51 million, thereby making the ratio
between the benefits and projected costs to be about 3 to 1. 


--------------------
\3 IRS has six core business systems.  Each represents a closely
related set of processes, defined in terms of a customer's needs. 
For example, IRS' Managing Accounts Core Business System includes all
of the steps involved in collecting, maintaining, and providing
taxpayer account information to taxpayers and IRS employees who need
it. 

\4 Refund Inquiry is an interactive system similar to Tele-Tax but is
not part of the Tele-Tax system.  Tele-Tax has a separate toll-free
number and provides taxpayers an option to listen to tapes on
different tax topics and check on the status of their refund. 
Taxpayers calling Tele-Tax do not have the option to talk with a
representative.  IRS officials told us that Tele-Tax may be phased
out at a later date. 


   OBJECTIVES, SCOPE, AND
   METHODOLOGY
------------------------------------------------------------ Letter :3

We focused our review on the first three of the new interactive
telephone systems that IRS is developing.  Our objectives were to
evaluate IRS' efforts to (1) make the systems easy for taxpayers to
use, (2) meet security requirements for protecting taxpayer data, and
(3) assign owners who would be responsible for providing the
developers with input about systems' requirements. 

To evaluate IRS' efforts to make the interactive telephone systems
easy for taxpayers to use, we compared the three systems IRS
pilot-tested in Nashville with the contractor--American Institute for
Research--guidelines that were developed for IRS to follow when
designing its interactive systems.  The guidelines provided that the
interactive telephone systems should have no more than four options
and allow taxpayers to return to the main menu.  We also considered
the views of officials from IRS' Information Systems Group, including
the TRIS Project Office, which was responsible for the technical
design of the interactive systems; IRS' Taxpayer Service and
Collection organizations, which were responsible for providing the
TRIS Project Office with design requirements; the American Institute
for Research, which was the research company that developed the
design guidelines; and IRS' Value Tracking Core Business Group, which
provided us with taxpayers' perceptions about interactive telephone
systems.  Finally, we observed a demonstration of the three systems
to assess what taxpayers heard when they used the systems. 

To evaluate IRS' efforts to meet security requirements for protecting
taxpayer information, we compared the security measures for the
interactive systems to Treasury's and IRS' security requirements.  We
also considered the views of officials from the TRIS Project Office,
the IRS Chief Counsel, and the Privacy Advocate's Office on the
issues and problems involved with protecting taxpayer data.  We
interviewed officials from the banking industry and compared how they
provided security for their interactive systems to how IRS provided
security for its systems.  We reviewed IRS' proposal for the use of a
PIN process in later interactive systems and contacted officials from
IRS' Systems Engineering and Program Management Office who were
responsible for determining the security requirements for IRS' Tax
Systems Modernization efforts. 

To evaluate IRS' assignment of owners, we reviewed documentation on
IRS' core business system structure that provided guidelines
specifying when owners should be designated and what input they
should provide for developing new systems.  We interviewed the TRIS
Project Office staff to determine if owners had been designated, if
so, when and who the owners were, and whether they provided the
information that the TRIS Project Office needed.  We then interviewed
the officials who provided the TRIS Project Office with input,
including officials from Taxpayer Service, the Ensuring Compliance
Core Business System, and the Customer Service Executive Office. 

We did our review from October 1994 to September 1995 in accordance
with generally accepted government auditing standards.  We requested
comments on a draft of this report from the Commissioner of Internal
Revenue or her designee.  On January 24, 1996, several IRS officials,
including the Chief, Customer Service Branch (Taxpayer Services);
Director, Case Division (Information Systems); and Section Chief,
TRIS Project Office, provided us with oral comments.  These comments
were supplemented by a memorandum from the Chief of Taxpayer Services
on January 31, 1996.  Their comments are summarized on pages 17 and
18 and incorporated in this report where appropriate. 


   IRS' TELEPHONE SYSTEMS MAY BE
   DIFFICULT TO USE
------------------------------------------------------------ Letter :4

Taxpayers may find it difficult to use IRS' interactive telephone
systems because IRS' telephone routing system (1) requires taxpayers
to remember too many options to obtain the information they need and
(2) provides no way for taxpayers to correct menu selection mistakes
or resolve more than one issue.  IRS was aware of these problems. 


      TAXPAYERS ARE REQUIRED TO
      REMEMBER TOO MANY OPTIONS
---------------------------------------------------------- Letter :4.1

Taxpayers are required to remember up to eight options when they call
IRS.  The guidelines a contractor prepared for developing IRS'
telephone interactive systems recommended three or four options as
the optimal number on a menu from which a caller may choose. 
According to the contractor, having a larger number of menu options
makes it difficult for taxpayers to remember which option to select
and may cause them to wait for an available telephone representative,
thereby unnecessarily increasing IRS' workload and the time the
taxpayer spends on the telephone.  When taxpayers call IRS' toll-free
interactive telephone assistance program, they are welcomed to the
program and are asked to choose from different options on the main
menu.  Taxpayers select an option by pressing the appropriate number
on their telephone that corresponds to the service they need.  For
example, as shown in figure 1, when taxpayers call the Nashville
Customer Service Site to obtain the status of their refunds, they
hear eight main menu options.\5 After they select the refund option,
they hear another eight options from the refund menu, including the
status option.  After they select the status option, they gain access
to the Refund Inquiry interactive telephone system. 

   Figure 1:  Nashville Prototype
   Menu Selections for Refund
   Inquiry

   (See figure in printed
   edition.)

Source:  TRIS Project Office. 

In a study done on IRS' telephone system, taxpayers said five to six
options were more than they could remember.\6 Because there were more
options than they could remember, taxpayers said they would like to
read the options before calling.  It seems that this could help
taxpayers use the options more effectively and could limit the need
for some taxpayers to wait for an available representative or to call
back. 

IRS has recognized that the large number of menu options causes a
problem for taxpayers, but it has not yet determined the best way to
solve the problem.  In April 1994, IRS set up a team to study how IRS
should respond to future taxpayers' needs.  One of the things the
team examined was the number of options offered by IRS' telephone
routing system.  The team recommended that taxpayers hear no more
than four menu options.  IRS officials told us that the range of
taxpayer' questions makes it difficult to limit the number of options
to four.  Similarly, the team recognized that simply condensing the
options into a smaller number might not be the best solution because
the options may become too broad and taxpayers may not be able to
find their specific topics.  As a result, taxpayers might call and
wait to talk to an available IRS representative rather than choosing
an interactive system. 

To overcome the problem of too many menu options, IRS officials, who
were working toward making the transition to the Customer Service
Vision, recommended using multiple toll-free numbers without
conducting a cost-benefit analysis.  However, a cost-benefit analysis
would help to identify the most beneficial way of overcoming this
problem. 

Several issues are important when considering the cost of ways to
address this problem.  These include (1) the adverse effect on
taxpayers of IRS' long-standing difficulty in providing access to its
telephone assistance program, (2) the cost to taxpayers who are
directly affected by lack of service, and (3) IRS' high cost to solve
taxpayers' problems by correspondence relative to solving them by
telephone. 

By considering all possible alternatives when assessing ways to
overcome the problem of too many menu options, IRS could better
ensure that the best solution is selected.  While using multiple
toll-free numbers is one possibility, providing taxpayers with a
written, detailed step-by-step description of the menus and how to
use them is another way IRS could make it easier for taxpayers to use
its telephone system.  As reported in the study of IRS' telephone
system, taxpayers said that advance information describing the menus
and how to use them would be helpful in gaining access to the
interactive systems, such as the Refund Inquiry, Location, and VBD. 

An IRS experience during the 1994 filing season further illustrates
the benefit of taxpayers' having advance information about the
telephone menus.  IRS was concerned about the length of time
taxpayers took to select their options.  But, at one call site, IRS
found that taxpayers were spending less time selecting their options
than the national average.  IRS learned that the taxpayers took less
time because the call site's telephone representatives were
instructing callers on how to get to their selection the next time
they called for similar assistance.  The result was that taxpayers
spent less time in the menu selecting their options. 

At the time of our review, IRS had not taken action to provide
taxpayers information about the menus.  We identified two
possibilities for providing such information and discussed them with
IRS officials.  One possibility would be for IRS to publish
information on how to use the menus and descriptions of the
options--as they do for Tele-Tax--in taxpayers' tax form instruction
booklets.  Another way to disseminate this information would be for
IRS to use a "stuffer"--a sheet of paper that contains information
about the menus--in correspondence sent to taxpayers about their tax
accounts. 

Taxpayer Service and TRIS Project Office officials said they have not
published information on the menu options in the tax instruction
booklets because (1) multiple menu options would have to be explained
and (2) menus change during the tax filing season--January through
April.  For example, Nashville would have to explain eight different
options.  Also, during the filing season, the menus at all of the
sites are reordered because taxpayers are primarily calling about
earnings statement (W-2) information and tax refund status.  In
addition, call sites have some discretion in changing their menus to
meet local situations. 

The TRIS Project Office officials agreed it would be a good idea to
provide taxpayers with a description of the options if IRS' National
Office instituted a policy that all call-site menus would be the same
and that changes to the menus, including filing season changes, would
be the same.  As part of the Customer Service Vision, IRS plans to
route calls nationwide.  Having standard menus could help taxpayers
use the menus and gain access to interactive systems. 

The evidence--the IRS study cited earlier and IRS' experience at the
call site where IRS provided callers with information about the
menus--indicates that advance information may help taxpayers and
shorten the time they spend on the telephone.  Less time on the
telephone per caller would mean that IRS could serve more taxpayers. 


--------------------
\5 As a prototype site, Nashville chose to use eight main menu
options.  Similar to Nashville, the other toll-free call sites
provide taxpayers with assistance on procedural, tax law, and account
questions.  But, unlike Nashville, they require taxpayers to choose
from five main menu options. 

\6 Evaluation of the TRIS Prototype, Phase 3, Final Report, The
American Institute for Research, Washington, D.C., October 7, 1992. 


      TAXPAYERS ARE UNABLE TO
      CORRECT MENU SELECTION
      MISTAKES OR RESOLVE MORE
      THAN ONE ISSUE
---------------------------------------------------------- Letter :4.2

Taxpayers who select the wrong menu option or want to resolve
multiple issues with one telephone call must wait for an available
telephone representative or hang up and call back because IRS'
interactive telephone systems do not allow taxpayers to return to the
main menu.  IRS' design guidelines call for such a feature, but IRS
officials said they decided against using it to limit the amount of
time taxpayers stay in the system.  The officials believed that by
limiting the taxpayers' time in the system, more taxpayers could be
served. 

Having a feature allowing taxpayers to return to the main menu will
be especially important in the future.  A part of IRS' modernization
effort is to consolidate all of a taxpayer's issues on one notice.\7
Therefore, taxpayers who receive these multiple-purpose notices may
need to return to the main menu to complete their various business
items in one telephone call.  Without this feature, many taxpayers
would have to call back or wait for an available telephone
representative to obtain the information they need and as a result
spend more, not less, time in the system.  The final evaluation
report on the TRIS Project Office prototype said that taxpayers would
more than likely wait for an available telephone representative if
they could not return to the main menu, thereby staying in the system
longer.  Additionally, they could become frustrated and not call
back, resulting in the taxpayer not obtaining the needed information. 

Allowing taxpayers to return to the main menu may reduce taxpayer
frustration and allow them to obtain the information they need more
quickly and in one telephone call, thereby enabling IRS to serve more
taxpayers.  For example, if a taxpayer selected the Collection menu
option after receiving a bill or notice and also needed to know the
mailing address of an IRS office, the taxpayer would have to wait for
an available representative or hang up and call back and select the
Location option.  If callers could return to the main menu, they
could select the Location option and use the interactive system to
obtain the information they need in one telephone call. 


--------------------
\7 Notices are written communications made up of standard paragraphs
put together by IRS staff on the basis of information in IRS'
computerized files of tax returns and related transactions.  A common
situation resulting in notices is mathematical errors made by
taxpayers on returns.  In such cases, the notices IRS sends inform
the taxpayers of the errors and ask for a response. 


   IRS HAS CERTIFIED THAT INITIAL
   INTERACTIVE TELEPHONE SYSTEMS
   MEET EXISTING SECURITY
   REQUIREMENTS
------------------------------------------------------------ Letter :5

IRS complied with Treasury's and IRS' security requirements for
protecting taxpayer information when designing the first three
interactive systems.  Generally, the level of security required
depends on the type of data IRS will allow taxpayers to access.  IRS
was required to provide security measures because two of the
interactive systems--Refund and VBD--allow callers to have access to
tax account information.  To meet security requirements for these
systems, IRS must verify the callers' identities so that they are
allowed access only to their own tax information.  The Location
system provides taxpayers with the mailing address of the IRS
offices.  Because the Location system does not disclose taxpayer
data, it does not require any security measures. 

Each of IRS' interactive telephone systems meets the requirement for
validating caller identity in a different way.  For example, Tele-Tax
allows taxpayers to obtain the status of their refunds.  For the
Tele-Tax system, IRS protects taxpayer data by requiring taxpayers to
identify themselves by entering the amount of their refund, their
filing status, and social security number before they can obtain
their tax refund status.  The Refund Inquiry system requires
taxpayers to provide the same identification information as the
current Tele-Tax system requires before obtaining their tax refund
status.  The VBD system requires taxpayers to key in an access code,
which is printed on the notice sent to taxpayers, before they are
allowed access to their accounts.  IRS officials believe these
security measures protect the data being provided. 

In accordance with IRS' security requirements, IRS certified that the
first three systems met its existing security requirements.  However,
changes to these systems could be needed if IRS' modernization
efforts result in the need for stronger security measures to meet
stricter requirements.\8 If the requirements are more strict, IRS may
have to recertify that the systems adequately protect taxpayer data. 

IRS plans to provide more protection for taxpayer data.  IRS plans to
use the PIN process to provide this protection.  Later interactive
telephone systems are to allow taxpayers to access more account data. 
For example, the Account View system that the TRIS Project Office
plans to develop is intended to allow taxpayers to obtain account
information, including the amount of taxes they owe.  According to
IRS officials, use of the PIN process in the Account View system
should help prevent unauthorized access to such information.  The
officials told us not every taxpayer will need a PIN or will use it
frequently, but they said the PIN process will help provide the level
of security currently required to allow taxpayers access to their
account information and to protect the information from unauthorized
users.  However, until IRS defines its security requirement for its
modernization program, it is not possible to determine if the PIN
process would be adequate. 


--------------------
\8 IRS' security requirements call for information systems to provide
reasonable protection of taxpayer data and to ensure that taxpayer
information is disclosed only to authorized parties.  Security
measures, such as passwords, PINs, audit trails, user authorization,
and screening criteria, are the tools used to verify taxpayers'
identities to protect their account data from unauthorized access and
thus meet the security requirements. 


   IRS DEVELOPED THE INITIAL
   INTERACTIVE SYSTEMS WITHOUT
   COMPLETE AND TIMELY INPUT FROM
   OWNERS
------------------------------------------------------------ Letter :6

The initial interactive systems were planned to support work
processes that cut across two IRS Core Business Systems--Managing
Accounts and Ensuring Compliance.  A major part of the Managing
Accounts Core Business System deals with responding to taxpayers' tax
law and account questions on the telephone.  A part of the Ensuring
Compliance Core Business System involves IRS employees' using the
telephone to collect overdue taxes.  These two activities, among
others, are being combined in IRS' customer service call sites. 

An integral part of the core business management structure is IRS'
reliance on owners of the processes that make up IRS' work.  Thus,
process owners are officials who are responsible for ensuring that
new products and services that affect activities within their
process--such as the interactive telephone systems--meet the
requirements of the Customer Service Vision. 

Owners have to be designated early in the design of systems to be
able to ensure that the systems meet the goals of the Customer
Service Vision and to limit any redesign.  IRS allowed the initial
three systems to be developed without certain input being obtained
from owners, such as owners' providing the TRIS Project Office with
requirements to ensure the new systems met the needs of the Customer
Service Vision.  In the case of the VBD system, the owner was
designated after most of the system design had been done.  The other
two systems--Location and Refund Inquiry--were developed without
timely input from the owners.  Consequently, the TRIS Project Office
has had to modify some systems' features after the owners found that
the systems did not fully meet certain aspects of the Customer
Service Vision. 

During our review, there was some confusion within IRS as to who
owners should be and what they should do, especially for the VBD
interactive system, which involved more than one core business
system.  The TRIS Project Office obtained input from two core
business systems in developing the VBD system--Managing Accounts,
which includes Taxpayer Service, and Ensuring Compliance.  However,
the TRIS Project Office officials were not clear who would determine
if the VBD system met the goals of the Customer Service Vision since
both core business systems were involved.  The officials told us that
initially they thought the Customer Service Site Executive was the
owner.  When we talked to Customer Service staff, they said that
Ensuring Compliance Core Business System owned the VBD system, but
the Director of Ensuring Compliance referred us to the Managing
Accounts Core Business System.  The TRIS Project Office officials
said they also looked to the Managing Accounts Core Business System
for staff to help the TRIS Project Office design the VBD system.  The
officials said they completed the design and development of the VBD
system without knowing the owner because, in their view, they
understood what the system should do.  They said a similar system had
been developed and tested in IRS' Laguna Niguel District in 1992 and
this earlier version provided them with enough background to develop
the newer system. 

IRS did not designate an owner until late in the development of the
VBD system.  Near the end of the pilot test for the new system, IRS
designated the Assistant Commissioner for Taxpayer Services as the
owner for all of the interactive systems and an executive in Taxpayer
Service was designated as the person the TRIS Project Office
officials could contact for support.\9 The VBD system has recently
been approved for rollout to several call sites, and IRS officials
told us the system was meeting their needs.  However, IRS risked
having to make modifications to the system, because an owner was not
designated earlier in its development. 

While officials in the Managing Accounts Core Business System assumed
the role of owner for the Location and Refund Inquiry systems, the
TRIS Project Office officials told us that they were not provided
timely input on the quality measures.  These measures are important
because they gauge whether the system was designed as needed to meet
the Customer Service Vision.  The TRIS Project Office developed the
quality measures without the owners' input and began the pilot
testing of the systems.  Near the end of the 30-day test period the
owners wanted additional measures included.  The TRIS Project Office
extended the test period by 30 days to test the additional measures. 
Managing Accounts officials working on the quality measures said that
they wanted to be involved with the TRIS Project Office earlier, but
that their ongoing workload prevented them from doing so. 

After the pilot tests, the owners decided to make changes in the
systems because the systems were not going to support the Customer
Service Vision.  For example, in the Location system, the owners
decided to take out information that told taxpayers the locations
they could visit for tax assistance because the Customer Service
Vision calls for taxpayers to use the telephone rather than visit IRS
offices to resolve their issues.  According to a TRIS Project Office
official, had the owners told them this earlier, they would not have
included the location information in the system and development time
and cost could have been saved.  The official said the TRIS Project
Office also will have to modify the system to meet this new
requirement of not telling taxpayers the locations for receiving tax
assistance. 

The TRIS Project Office encountered a similar problem after the pilot
test of the Refund Inquiry system.  After developing the system, the
TRIS Project Office discovered that the system's security mechanism
would not allow some authorized taxpayers to use the system. 
Specifically, taxpayers entered the amount of the tax refund they
expected, but IRS matched this amount to the amount that IRS was
sending to the taxpayer.  In cases where IRS had adjusted the
taxpayers' return, which resulted in changes to the refund amount,
the amounts would not match.  Consequently, when the two refund
amounts differed, taxpayers could not proceed in the system.  At the
time of our review, the TRIS Project Office was planning to modify
the Refund Inquiry system to match the anticipated refund amount as
stated on taxpayers' returns.  A TRIS Project Office official said
that this problem could have been avoided with more owner input into
the design of the system. 

The problems with assigning owners and making sure that owners who
are assigned provide critical input into the development of new
systems was addressed in our October 1995 report\10 that reviewed the
challenges IRS faces in achieving its Customer Service Vision.  In
that report we recommended that IRS clarify the criteria for
designating owners and define their roles and responsibilities for
Tax Systems Modernization projects involving more than one core
business system.  The report also recommended that IRS emphasize to
owners the need for them to provide the input necessary to develop,
test, and implement new customer service products and services. 

In comments on our October 1995 report, IRS agreed with our
recommendations and said that the Modernization Executive, a senior
executive who reports to the IRS Commissioner, had been charged with
directing, prioritizing, and coordinating any projects dealing with
modernization.  The Modernization Executive was also charged with
ensuring that owners were identified early in the development of
projects that involve more than one core business system.  We believe
the actions IRS identified, if properly carried out, should avoid
further confusion in this area. 


--------------------
\9 IRS' traditional functional organization continues to exist along
with the structure resulting from the core business systems approach. 
For example, the functional organization called Taxpayer Services is
synonymous with the Managing Accounts Core Business System and their
organizational boundaries are identical.  Compliance, the other
functional organization involved in customer service, is synonymous
with the core business system called Ensuring Compliance and this
functional and core business system pair also have identical
boundaries. 

\10 GAO/GGD-96-3. 


   CONCLUSIONS
------------------------------------------------------------ Letter :7

The success of the interactive telephone systems is critical to IRS'
reaching the goals of its Customer Service Vision.  As IRS directs
taxpayers to use the telephone more, it expects that the volume of
calls will increase dramatically.  To achieve the Customer Service
Vision, the interactive telephone systems must be easy to use;
otherwise, taxpayers may not use the systems to the degree IRS
expects, thus jeopardizing (1) the $104 million in net benefits IRS
estimated the systems could provide and (2) the better service
taxpayers need and deserve. 

Taxpayers may find it difficult to use IRS' interactive telephone
systems as currently designed because IRS' telephone routing system
(1) requires taxpayers to remember too many menu options and (2) does
not allow taxpayers to return to the main menu when they make a
mistake or want to resolve other issues. 

While IRS was conducting a cost-benefit analysis of ways to allow
taxpayers to return to the main menu and considering how to overcome
the problem of too many menu options, it was not planning to conduct
a cost-benefit analysis of possible solutions to this problem.  An
analysis of the costs and benefits of using multiple toll-free
numbers as well as other possible options, such as providing
taxpayers with a written, detailed step-by-step description on how to
use the interactive systems' menu options, would help IRS determine
the most cost-beneficial solution to this problem. 

IRS complied with Treasury's and IRS' security requirements for
protecting taxpayer data when it designed the first three interactive
systems.  IRS also has developed a PIN process for use with future
systems requiring more protection.  However, IRS may have to make
some modifications to the PIN process and the systems because they
were designed before IRS defined the security requirements for its
modernization program. 

Since the interactive telephone systems are so critical to its
Customer Service Vision, IRS owners need to be involved early in the
design of the interactive systems.  Early involvement can aid in
reducing system modifications.  We found that modifications were
required in two of the three interactive systems and that IRS risked
the need for modifications in the third interactive system because of
confusion about who should own the systems and what such owners
should do.  We recommended steps IRS could take to avoid repetition
of this situation in our October 1995 report, and IRS agreed to
actions we believe should resolve the problems. 


   RECOMMENDATION
------------------------------------------------------------ Letter :8

We recommend that the Commissioner of Internal Revenue direct the
appropriate officials to conduct a cost-benefit analysis of the
actions needed to overcome the problems caused by too many menu
options, including using multiple toll-free numbers and providing
taxpayers with a written, detailed step-by-step description on how to
use the interactive systems' menu options. 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :9

We requested comments on a draft of this report from the Commissioner
of Internal Revenue or her designated representative.  Responsible
IRS officials, including the Chief, Customer Service Branch (Taxpayer
Services); Director, Case Division (Information Systems); and Section
Chief, TRIS Project Office, provided IRS' comments in a January 24,
1996, meeting.  These comments were supplemented by a January 31,
1996, memorandum from the Chief of Taxpayer Services clarifying
remarks made during our discussion.  We have incorporated
modifications in response to their comments in this report where
appropriate.  IRS officials agreed with our recommendation and said
they would conduct a cost-benefit analysis of using multiple
toll-free numbers by December 1997.  While this analysis will address
one option for overcoming the problem, we believe the analysis should
also evaluate other alternatives.  This would help IRS determine the
most cost-beneficial solution to the problem. 

IRS' written memorandum said that this year's 1040 forms and
instructions booklet to taxpayers provides information on how to call
IRS' automated telephone systems.  The 1040 instructions explain to
taxpayers who have a Touch-Tone telephone how to enter the automated
telephone systems.  It then provides an explanation about selecting
certain topics as shown on the main menu line in figure 1.  However,
the 1040 instructions do not provide the detailed step-by-step
guidance we believe is necessary for taxpayers to easily use the
systems. 

IRS officials said that in a pilot test of their telephone routing
system conducted in the Cleveland District in 1993, most taxpayers
were satisfied with the system.  IRS officials also said that the
customer satisfaction surveys conducted after the pilot on the VBD
and Location interactive telephone systems show that most taxpayers
found them easy to use.  However, IRS officials recognize that some
taxpayers may have difficulty with the telephone systems because of
too many menu options and that design contractor guidelines call for
no more than four menu options.  IRS plans to do further tests of the
telephone menu options and interactive telephone systems to determine
customer needs and the ability of customers to use the systems
easily.  IRS also plans to conduct an evaluation of the menu options
by December 1996. 


---------------------------------------------------------- Letter :9.1

We are sending copies of this report to other congressional
committees, the Secretary of the Treasury, the Commissioner of
Internal Revenue, and other interested parties. 

Major contributors to this report are listed in the appendix.  If you
or your staff have any questions concerning this report, please call
me on (202) 512-9110. 

Sincerely yours,

Lynda D.  Willis
Director, Tax Policy and
 Administration Issues


MAJOR CONTRIBUTORS TO THIS REPORT
=========================================================== Appendix 0

GENERAL GOVERNMENT DIVISION,
WASHINGTON, D.C. 

John Lovelady, Assistant Director, Tax Policy and Administration
Issues
Robert L.  Giusti, Assignment Manager
Judy Lanham, Secretary

ATLANTA FIELD OFFICE

A.  Carl Harris, Issue Area Manager
Lorelei H.  Hill, Evaluator-in-Charge
Karen B.  Thompson, Evaluator
Teresa Tucker, Computer Specialist
Sara Bingham, Reports Analyst


*** End of document. ***