IRS Operations: Significant Challenges in Financial Management and
Systems Modernization (Testimony, 03/06/96, GAO/T-AIMD-96-56).

GAO discussed its: (1) fiscal year 1994 financial audit of the Internal
Revenue Service (IRS); and (2) evaluation of the IRS Tax System
Modernization (TSM) effort. GAO noted that: (1) IRS did not use its
revenue general ledger accounting system or its master files for its
revenue reports, but relied on alternative sources such as Treasury
schedules; (2) there were large discrepancies between information in IRS
master files and Treasury data; (3) IRS did not properly document
transactions or perform adequate analysis to ensure the reliability of
the information it reported; (4) IRS was unable to reconcile its
accounts and could not substantiate some of its expenses; (5) IRS has
initiated actions to correct some previously identified problems
concerning computer security, payroll processing, funds reconciliation
and monitoring, its budgetary and management control systems, and
receipt balance accuracy; and (6) in spite of those actions, IRS lacks
the strategic information management practices, software development
capability, systems architecture, and effective organization structure
to manage and control system modernization.

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

 REPORTNUM:  T-AIMD-96-56
     TITLE:  IRS Operations: Significant Challenges in Financial 
             Management and Systems Modernization
      DATE:  03/06/96
   SUBJECT:  Federal agency accounting systems
             Internal controls
             Financial statement audits
             Strategic information systems planning
             Tax administration systems
             Accounts receivable
             Accounting procedures
             Information resources management
             Systems conversions
             Financial records
IDENTIFIER:  IRS Tax System Modernization Program
             TSM
             
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Cover
================================================================ COVER


Before the Subcommittee on Government Management, Information and
Technology, Committee on Government Reform and Oversight, House of
Representatives

For Release on Delivery
Expected at
1:30 p.m.
Wednesday,
March 6, 1996

IRS OPERATIONS - SIGNIFICANT
CHALLENGES IN FINANCIAL MANAGEMENT
AND SYSTEMS MODERNIZATION

Statement of Gene L.  Dodaro
Assistant Comptroller General
Accounting and Information Management Division

GAO/T-AIMD-96-56

GAO/AIMD-96-56T


(901697)


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

  IRS - x
  TSM - x
  RACS - x

============================================================ Chapter 0

Mr.  Chairman and Members of the Subcommittee: 

I am pleased to be here today to discuss the results of our fiscal
year 1994 financial audit of the Internal Revenue Service (IRS)--our
most recently completed audit--and our reports evaluating IRS' Tax
Systems Modernization (TSM) effort.  Last year, we issued two major
assessments concerning IRS' guardianship of federal revenues and its
ability to function efficiently in an increasingly high technology
environment.  I am submitting these reports for the record: 
Financial Audit:  Examination of IRS' Fiscal Year 1994 Financial
Statements (GAO/AIMD-95-141, August 4, 1995) and Tax Systems
Modernization:  Management and Technical Weaknesses Must Be Corrected
if Modernization Is To Succeed (AIMD-95-156, July 26, 1995). 

These reports

(1)highlighted a number of serious technical and managerial problems
that IRS must directly address to make greater progress in both of
these areas,

(2)discussed actions being taken by IRS to strengthen its operations,
and

(3)presented numerous specific GAO recommendations for needed
additional improvements. 

IRS agreed with all our recommendations and committed itself to
taking the corrective measures necessary to improve its financial
management and information technology capability and operations.  We
currently are in the process of auditing IRS' fiscal year 1995
financial statements and evaluating IRS' response to the
recommendations we made regarding its TSM program.  We discuss each
of these areas in the following sections. 


   FINANCIAL MANAGEMENT WEAKNESSES
   PERSIST
---------------------------------------------------------- Chapter 0:1

For the last 3 fiscal years,\1 we have been unable to express an
opinion on IRS' financial statements because of the pervasive nature
of its financial management problems.  We were unable to express an
opinion on IRS' financial statements for fiscal year 1994 for the
following five primary reasons. 

  One, the amount of total revenue of $1.3 trillion reported in the
     financial statements could not be verified or reconciled to
     accounting records maintained for individual taxpayers in the
     aggregate. 

  Two, amounts reported for various types of taxes collected, for
     example, social security, income, and excise taxes, could also
     not be substantiated. 

  Three, we could not determine from our testing of IRS' gross and
     net accounts receivable estimates of over $69 billion and $35
     billion, respectively, which include delinquent taxes, whether
     those estimates were reliable. 

  Four, IRS continued to be unable to reconcile its Fund Balance With
     Treasury accounts. 

  Five, we could not substantiate a significant portion of IRS' $2.1
     billion in nonpayroll expenses included in its total operating
     expenses of $7.2 billion, primarily because of lack of
     documentation.  However, we could verify that IRS properly
     accounted for and reported its $5.1 billion of payroll expenses. 

To help IRS resolve these issues, we have made dozens of
recommendations in our financial audit reports dating back to fiscal
year 1992.  In total, we have made 59 recommendations on issues
covering such areas as tax revenue, administrative costs, and
accounts receivable.  While IRS has begun to take action on many of
our recommendations, as of the date of our last report--August 4,
1995--it had fully implemented only 13 of our 59 recommendations. 

IRS has made some progress in responding to the problems we
identified in our previous audits.  However, IRS needs to intensify
its efforts in this area.  IRS needs to develop a detailed plan with
explicit, measurable goals and a set timetable for action, to attain
the level of financial reporting and controls needed to effectively
manage its massive operations and to reliably measure its
performance. 

The sections below discuss these issues in greater detail. 


--------------------
\1 Financial Audit:  Examination of IRS' Fiscal Year 1992 Financial
Statements (GAO/AIMD-93-2, June 30, 1993); Financial Audit: 
Examination of IRS' Fiscal Year 1993 Financial Statements
(GAO/AIMD-94-120, June 15, 1994); and Financial Audit:  Examination
of IRS' Fiscal Year 1994 Financial Statements (GAO/AIMD-95-141,
August 4, 1995). 


      ISSUES WITH REVENUE
-------------------------------------------------------- Chapter 0:1.1

IRS' financial statement amounts for revenue, in total and by type of
tax, were not derived from its revenue general ledger accounting
system (RACS) or its master files of detailed individual taxpayer
records.  This is because RACS did not contain detailed information
by type of tax, such as individual income tax or corporate tax, and
the master file cannot summarize the taxpayer information needed to
support the amounts identified in RACS.  As a result, IRS relied on
alternative sources, such as Treasury schedules, to obtain the
summary total by type of tax needed for its financial statement
presentation. 

IRS asserts that the Treasury amounts were derived from IRS records;
however, neither IRS nor Treasury's records maintained any detailed
information that we could test to verify the accuracy of these
figures.  As a result, to substantiate the Treasury figures, we
attempted to reconcile IRS' master files--the only detailed records
available of tax revenue collected--with the Treasury records.  We
found that IRS' reported total of $1.3 trillion for revenue
collections, which was taken from Treasury schedules, was $10.4
billion more than what was recorded in IRS' master files.  Because
IRS was unable to satisfactorily explain, and we could not determine
the reasons for this difference, the full magnitude of the
discrepancy remains uncertain. 

In addition to the difference in total revenues collected, we also
found large discrepancies between information in IRS' master files
and the Treasury data used for the various types of taxes reported in
IRS' financial statements.  Some of the larger reported amounts for
which IRS had insufficient support were $615 billion in individual
taxes collected--this amount was $10.8 billion more than what was
recorded in IRS' master files; $433 billion in social insurance taxes
(FICA) collected--this amount was $5 billion less than what was
recorded in IRS' master files; and $148 billion in corporate income
taxes--this amount was $6.6 billion more than what was recorded in
IRS' master files.  Thus, IRS did not know and we could not determine
if the reported amounts were correct.  These discrepancies also
further reduce our confidence in the accuracy of the amount of total
revenues collected. 

Despite these problems, we were able to verify that IRS' reported
total revenue collections of $1.3 trillion agreed with tax collection
amounts deposited at the Department of the Treasury.  However, we did
find $239 million of tax collections recorded in IRS' RACS general
ledger that were not included in reported tax collections derived
from Treasury data. 

In addition to these problems, we could not determine from our
testing the reliability of IRS' projected estimate for accounts
receivable.  As of September 30, 1994, IRS reported an estimate of
valid receivables of $69.2 billion,\2 of which $35 billion\3 was
deemed collectible.  However, in our random statistical sample of
accounts receivable items IRS tested, we disagreed with IRS on the
validity of 19 percent\4 of the accounts receivable and the
collectibility of 17 percent\5 of them.  Accordingly, we cannot
verify the reasonableness of the accuracy of the reported accounts
receivable. 

Inadequate internal controls, especially the lack of proper
documentation of transactions, resulted in IRS continuing to report
unsupported revenue information.  In some cases, IRS did not maintain
documentation to support reported balances.  In other cases, it did
not perform adequate analysis, such as reconciling taxpayer
transactions to the general ledger, to ensure that reported
information was reliable. 

We found several internal control problems that contributed to our
inability to express an opinion on IRS' financial statements.  To
illustrate,

  IRS was unable to provide adequate documentation for 111 items, or
     68 percent, in our random sample of 163 transactions from IRS'
     nonmaster file.  The nonmaster file is a database of taxpayer
     transactions that cannot be processed by the two main master
     files or are in need of close scrutiny by IRS personnel.  These
     transactions relate to tax years dating as far back as the
     1960s.  During fiscal year 1994, approximately 438,000
     transactions valued at $7.3 billion were processed through the
     nonmaster file.  Because of the age of many of these cases, the
     documentation is believed to have been destroyed or lost. 

  We sampled 4,374 statistically projectable transactions posted to
     taxpayer accounts.  However, IRS was unable to provide adequate
     documentation, such as a tax return, for 524 transactions, or 12
     percent.  Because the documentation was lost, physically
     destroyed, or, by IRS policy, not maintained, some of the
     transactions supporting reported financial balances could not be
     substantiated, impairing IRS' ability to research any
     discrepancies that occur. 

  IRS is authorized to offset taxpayer refunds with certain debts due
     to IRS and other government agencies.  Before refunds are
     generated, IRS policy requires that reviews be performed to
     determine if the taxpayer has any outstanding debts to be
     satisfied.  For expedited refunds, IRS must manually review
     various master files to identify outstanding debts.  However,
     out of 358 expedited refunds tested, we identified 10 expedited
     refunds totaling $173 million where there were outstanding tax
     debts of $10 million, but IRS did not offset the funds.  Thus,
     funds owed could have been collected but were not. 

  IRS could not provide documentation to support $6.5 billion in
     contingent liabilities reported as of September 30, 1994. 
     Contingent liabilities represent taxpayer claims for refunds of
     assessed taxes which IRS management considers probable to be
     paid.  These balances are generated from stand-alone systems,
     other than the master file, that are located in two separate IRS
     divisions.  Because these divisions could not provide a listing
     of transactions for appropriate analysis, IRS did not know, and
     we could not determine, the reliability of these balances. 

  An area that we identified where the lack of controls could
     increase the likelihood of loss of assets and possible fraud was
     in the reversal of refunds.  Refunds are reversed when a check
     is undelivered to a taxpayer, an error is identified, or IRS
     stops the refund for further review.  In many cases, these
     refunds are subsequently reissued.  If the refund was not
     actually stopped by Treasury, the taxpayer may receive two
     refunds.  In fiscal year 1994, IRS stopped 1.2 million refunds
     totaling $3.2 billion.  For 183 of 244, or 75 percent of our
     sample of refund reversals, IRS was unable to provide support
     for who canceled the refund, why it was canceled, and whether
     Treasury stopped the refund check.  Service center personnel
     informed us that they could determine by a code whether the
     refund was canceled by an internal IRS process or by the
     taxpayer, but, as a policy, no authorization support was
     required, nor did procedures exist requiring verification and
     documentation that the related refund was not paid. 

With regard to controls over the processing of returns, we also found
weaknesses.  During fiscal year 1994, IRS processed almost 1 billion
information documents and 200 million returns.  In most cases, IRS
processed these returns correctly.  However, we found instances where
IRS' mishandling of taxpayer information caused additional burden on
the taxpayer and decreased IRS' productivity.  In many cases, the
additional taxpayer burden resulted from IRS' implementation of
certain enforcement programs it uses to ensure taxpayer compliance,
one of which is the matching program.  This program's problems in
timely processing cause additional burden when taxpayers discover 15
months to almost 3 years after the fact that they have misreported
their income and must pay additional taxes plus interest and
penalties. 


--------------------
\2 The range of IRS' confidence interval, at a 95-percent confidence
level, is that the actual amount of valid accounts receivable as of
September 30, 1994, was between $66.1 billion and $72.3 billion. 

\3 The range of IRS' confidence interval, at a 95-percent confidence
level, is that the actual amount of collectible accounts receivable
as of September 30, 1994, was between $34 billion and $36 billion. 

\4 The range for our confidence interval, at a 95-percent confidence
level, is that the actual amount of the validity exceptions as of
September 30, 1994, was between 14.5 percent and 24.2 percent. 

\5 The range for our confidence interval, at a 95-percent confidence
level, is that the actual amount of the collectibility exceptions as
of September 30, 1994, was between 13.1 percent and 22.5 percent. 





      ISSUES WITH ADMINISTRATIVE
      OPERATIONS
-------------------------------------------------------- Chapter 0:1.2

IRS has made progress in accounting for its appropriated funds, but
there were factors in this area that prevented us from being able to
render an opinion.  Specifically, IRS was unable to fully reconcile
its Fund Balance with Treasury accounts, nor could it substantiate a
significant portion of its $2.1 billion in nonpayroll
expenses--included in its $7.2 billion of operating
expenses--primarily because of lack of documentation. 

With regard to its Fund Balance With Treasury, we found that, at the
end of fiscal year 1994, unreconciled cash differences netted to $76
million.  After we brought this difference to the CFO's attention, an
additional $89 million in adjustments were made.  These adjustments
were attributed to accounting errors dating back as far as 1987 on
which no significant action had been taken until our inquiry.  IRS
was researching the remaining $13 million in net differences to
determine the reasons for them.  These net differences, which span an
8-year period, although a large portion date from 1994, consisted of
$661 million of increases and $674 million of decreases.  IRS did not
know and we could not determine the financial statement impact or
what other problems may become evident if these accounts were
properly reconciled. 

To deal with its long-standing problems in reconciling its Fund
Balance with Treasury accounts, during fiscal year 1994, IRS made
over $1.5 billion in unsupported adjustments (it wrote off these
amounts) that increased cash by $784 million and decreased cash by
$754 million, netting to $30 million.  In addition, $44 million of
unidentified cash transactions were cleared from cash suspense
accounts\6 and included in current year expense accounts because IRS
could not determine the cause of the cash differences.  These
differences suggest that IRS did not have proper controls over cash
disbursements as well as cash receipts. 

In addition to its reconciliation problems, we found numerous
unsubstantiated amounts.  These unsubstantiated amounts occurred
because IRS did not have support for when and if certain goods or
services were received and, in other instances, IRS had no support at
all for the reported expense amount.  These unsubstantiated amounts
represented about 18 percent of IRS' $2.1 billion in total nonpayroll
expenses and about 5 percent of IRS' $7.2 billion in total operating
expenses. 

Most of IRS' $2.1 billion in nonpayroll related expenses are derived
from interagency agreements with other federal agencies to provide
goods and services in support of IRS' operations.  For example, IRS
purchases printing services from the Government Printing Office;
phone services, rental space, and motor vehicles from the General
Services Administration; and photocopying and records storage from
the National Archives and Records Administration. 

Not having proper support for if and when goods and services are
received made IRS vulnerable to receiving inappropriate interagency
charges and other misstatements of its reported operating expenses,
without detection.  Not knowing if and/or when these items were
purchased seriously undermines any effort to provide reliable,
consistent cost or performance information on IRS' operations.  As a
result of these unsubstantiated amounts, IRS has no idea and we could
not determine, when and, in some instances, if the goods or services
included in its reported operating expenses were correct or received. 


--------------------
\6 Suspense accounts include those transactions awaiting posting to
the appropriate account or those transactions awaiting resolution of
unresolved questions. 


      SOME IMPROVEMENTS MADE BUT
      OVERALL COMPUTER SYSTEMS
      SECURITY REMAINED WEAK
-------------------------------------------------------- Chapter 0:1.3

In our prior year reports, we stated that IRS' computer security
environment was inadequate.  Our fiscal year 1994 audit found that
IRS had made some progress in addressing and initiating actions to
resolve prior years' computer security issues; however, some of the
fundamental security weaknesses we previously identified continued to
exist in fiscal year 1994. 

These weaknesses were primarily IRS' employees' capacity to make
unauthorized transactions and activities without detection.  IRS has
taken some actions to restrict account access, review and monitor
user profiles, provide an automated tool to analyze computer usage,
and install security resources.  However, we found that IRS still
lacked sufficient safeguards to prevent or detect unauthorized
browsing of taxpayer information and to prevent staff from changing
certain computer programs to make unauthorized transactions without
detection. 


-------------------------------------------------------- Chapter 0:1.4

The deficiencies in financial management and internal controls that I
have discussed throughout this testimony demonstrate the
long-standing, pervasive nature of the weaknesses in IRS' systems and
operations--weaknesses which contributed to our inability to express
a more positive opinion on IRS' financial statements.  The erroneous
amounts discussed would not likely have been identified if IRS'
financial statements had not been subject to audit.  Further, the
errors and unsubstantiated amounts highlighted throughout this
testimony suggest that information IRS provides during the year is
vulnerable to errors and uncertainties as to its completeness and
that reported amounts may not be representative of IRS' actual
operations. 


   IRS HAS TAKEN STEPS TO IMPROVE
   ITS OPERATIONS
---------------------------------------------------------- Chapter 0:2

IRS has made some progress in responding to the problems we have
identified in previous reports.  It has acknowledged these problems,
and the Commissioner has committed to resolving them.  These actions
represent a good start in IRS' efforts to more fully account for its
operating expenses.  For example, IRS has

  successfully implemented a financial management system for its
     appropriated funds to account for its day-to-day operations,
     which should help IRS to correct some of its past transaction
     processing problems that diminished the accuracy and reliability
     of its cost information, and

  successfully transferred its payroll processing to the Department
     of Agriculture's National Finance Center and, as a result,
     properly accounted for and reported its $5.1 billion of payroll
     expenses for fiscal year 1994. 

IRS is working on improving the process of reconciling and monitoring
its funds.  In this regard, it has created a unit whose sole
responsibility is to resolve all cash reconciliation issues and
retained a contractor to help with this process.  In the area of
receipt and acceptance, IRS stated that it is more fully integrating
its budgetary and management control systems.  Also, IRS has
developed a methodology to differentiate between financial
receivables and compliance assessments and has modified current
systems to provide financial management information.  Finally, IRS is
in the process of identifying methods to ensure the accuracy of
balances reported in its custodial receipt accounts.  We are
currently reviewing these actions. 


   MANAGEMENT AND TECHNICAL
   WEAKNESSES MUST BE CORRECTED IF
   MODERNIZATION IS TO SUCCEED
---------------------------------------------------------- Chapter 0:3

Over the past decade, GAO has issued several reports and testified
before congressional committees on IRS' costs and difficulties in
modernizing its information systems.  As a critical information
systems project that is vulnerable to schedule delays, cost
over-runs, and potential failure to meet mission goals, in February
1995, tax systems modernization (TSM) was added to our list of
high-risk areas.\7

In July 1995,\8 we reported that one of IRS' most pressing problems
is efficiently and effectively processing the over 200 million tax
returns it receives annually; handling about 1 billion information
documents, such as W2s and 1099s; and, when needed, retrieving tax
returns from the over 1.2 billion tax returns in storage.  IRS'
labor-intensive tax return processing, which uses concepts instituted
in the late 1950s, intensifies the need to meet this enormous
information processing demand by reengineering processes and using
modern technology effectively. 

Since 1986, IRS has invested over $2.5 billion in TSM.  It plans to
spend an additional $695 million in fiscal year 1996 for this effort,
and through 2001, it is expected to spend up to $8 billion on TSM. 
By any measure, this is a world-class information systems development
effort, much larger than most other organizations will ever
undertake.  TSM is key to IRS' vision of a virtually paper-free work
environment where taxpayer account updates are rapid, and taxpayer
information is readily available to IRS employees to respond to
taxpayer inquiries. 

IRS recognizes the criticality to future efficient and effective
operations of attaining its vision of modernized tax processing, and
has worked for almost a decade, with substantial investment, to reach
this goal.  In doing so, IRS has progressed in many actions that were
initiated to improve management of information systems; enhance its
software development capability; and better define, perform, and
manage TSM's technical activities. 

However, our July report noted that the government's investment and
IRS' efforts to modernize tax processing were at serious risk due to
pervasive management and technical weaknesses that were impeding
modernization efforts.  In this regard, IRS did not have a
comprehensive business strategy to cost-effectively reduce paper
submissions, and it had not yet fully developed and put in place the
requisite management, software development, and technical
infrastructures necessary to successfully implement an ambitious
world-class modernization effort like TSM.  Many management and
technical issues were unresolved, and promptly addressing them was
crucial to mitigate risks and better position IRS to achieve a
successful information systems modernization. 

First, IRS' business strategy did not maximize electronic filings
because it primarily targeted taxpayers who use a third party to
prepare and/or transmit simple returns, were willing to pay a fee to
file their returns electronically, and were expecting refunds. 
Focusing on this limited taxpaying population overlooked most
taxpayers, including those who prepared their own tax returns using
personal computers, had more complicated returns, owed tax balances,
and/or were not willing to pay a fee to a third party to file a
return electronically.  Without having a strategy that also targeted
these taxpayers, we reported that IRS would not meet its electronic
filing goals or realize its paperless tax processing vision.  In
addition, if, in the future, taxpayers file more paper returns than
IRS expects, added stress will be placed on IRS' paper-based systems. 

Next, IRS did not have the full range of management and technical
foundations in place to realize TSM objectives.  In analyzing IRS'
strategic information management practices, we drew heavily from our
research on the best practices of private and public sector
organizations that have been successful in improving their
performance through strategic information management and technology. 
These fundamental best practices are discussed in our report,
Executive Guide:  Improving Mission Performance Through Strategic
Information Management and Technology (GAO/AIMD-94-115, May 1994),
and our Strategic Information Management (SIM) Self-Assessment
Toolkit (GAO/Version 1.0, October 28, 1994, exposure draft).  To
evaluate IRS' software development capability, we validated IRS'
August 1993 assessment of its software development maturity based on
the Capability Maturity Model (CMM) developed in 1984 by the Software
Engineering Institute at Carnegie Mellon University.  CMM establishes
standards in key software development processing areas and provides a
framework to evaluate a software organization's capability to
consistently and predictably produce high-quality products. 

To its credit, IRS had (1) developed several types of plans to carry
out its current and future operations, (2) drafted criteria to review
TSM projects, (3) assessed its software development capability and
initiated projects to improve its ability to effectively develop
software, and (4) started to develop an integrated systems
architecture\9 and made progress in defining its security
requirements and identifying current systems data weaknesses. 
However, despite activities such as these, pervasive weaknesses
remained to be addressed: 

  IRS' strategic information management practices were not fully in
     place to guide systems modernization.  For example, (1)
     strategic planning was neither complete nor consistent, (2)
     information systems were not managed as investments, (3) cost
     and benefit analyses were inadequate, and (4) reengineering
     efforts were not tied to systems development projects. 

  IRS' software development capability was immature and weak in key
     process areas.  For instance, (1) a disciplined process to
     manage system requirements was not applied to TSM systems, (2) a
     software tool for planning and tracking development projects was
     inconsistently used, (3) software quality assurance functions
     were not well-defined or consistently implemented, (4) systems
     and acceptance testing were neither well-defined nor required,
     and (5) software configuration management\10 was incomplete. 

  IRS' systems architecture (including its security architecture and
     data architecture), integration planning, and system testing and
     test planning were incomplete.  For example, (1) effective
     systems configuration management practices were not established,
     (2) integration plans were not developed and systems testing was
     uncoordinated, and (3) standard software interfaces were not
     defined. 

Finally, IRS had not established an effective organizational
structure to consistently manage and control system modernization
organizationwide.  The accountability and responsibility for IRS'
systems development was spread among IRS' Modernization Executive,
Chief Information Officer, and research and development division.  To
help address this concern, in May 1995, the Modernization Executive
was named Associate Commissioner.  The Associate Commissioner was
assigned responsibility to manage and control modernization efforts
previously conducted by the Modernization Executive and the Chief
Information Officer, but not those of the research and development
division.  However, the research and development division still did
not report to the Associate Commissioner. 

We made over a dozen specific recommendations to the IRS Commissioner
in our report to enable IRS to overcome its management and technical
weaknesses by December 1995.  Our recommendations were intended to
improve IRS' ability to successfully develop and implement TSM
efforts in fiscal year 1996.  The House Conference Report on IRS'
fiscal year 1996 appropriation notes that legislative language
"fences" $100 million in TSM funding and requires that the Secretary
of the Treasury report to the Senate and House Appropriations
Committees on the progress IRS has made in responding to our
recommendations with a schedule for successfully mitigating
deficiencies we reported.\11 As of March 4, 1996, the Secretary of
the Treasury had not reported to the Committees on TSM.  We are
assessing IRS' actions and will provide a status report to the
Committees by March 14, 1996. 


--------------------
\7 High-Risk Series:  An Overview (GAO/HR-95-1, February 1995). 

\8 Tax Systems Modernization:  Management and Technical Weaknesses
Must Be Corrected if Modernization Is To Succeed (GAO/AIMD-95-156,
July 26, 1995). 

\9 A system architecture is an evolving description of an approach to
achieving a desired mission.  It describes (1) all functional
activities to be performed to achieve the desired mission, (2) the
system elements needed to perform the functions, (3) the designation
of performance levels of those system elements, and (4) the
technologic interfaces and location of functions. 

\10 Configuration management involves selecting project baseline
items (for example, specifications), systematically controlling these
items and changes to them, and recording their status and changes. 

\11 House of Representatives Report 104-291, October 25, 1995. 


-------------------------------------------------------- Chapter 0:3.1

Mr.  Chairman, that concludes my statement.  I would be happy to
answer any questions you or Members of the Subcommittee might have. 


*** End of document. ***