IRS Management: Improvement Needed in High-Risk Areas (Testimony,
04/14/97, GAO/T-GGD-97-79).

GAO discussed the Internal Revenue Service's (IRS) efforts to improve
the management and operation of its high-risk areas, focusing on the:
(1) problems IRS faces in six high-risk areas; (2) progress IRS has made
recently in addressing these problems; and (3) measures IRS must take to
resolve the problems in its high-risk areas.

GAO noted that: (1) solving the problems in the high-risk areas is not
an insurmountable task, but it requires sustained management commitment,
accurate information systems, and reliable performance measures to track
IRS' progress and provide the data necessary to make informed management
decisions; (2) although GAO recognizes IRS' actions to address GAO's
recommendations and respond to congressional direction, GAO remains
concerned because much remains to be done to fully implement essential
improvements; (3) IRS has made progress in addressing problems in
financial management areas and has developed an action plan, with
specific timetables and deliverables, to address the issues GAO's
financial statement audits have identified; (4) to improve IRS'
financial management systems and reporting, especially in accounting for
revenue and the related accounts receivables, IRS will need to institute
long-term solutions involving reprogramming software for IRS' antiquated
systems and developing new systems as required; (5) in the last 2 years,
IRS has undertaken initiatives to correct errors in its masterfile
records of tax receivables, develop profiles of delinquent taxpayers,
and study the effectiveness of various collection techniques; (6) IRS
has also streamlined its collection process, placed additional emphasis
on contacting repeat delinquents, made its collection notices more
readable, and targeted compliance-generated delinquencies for earlier
intervention; (7) IRS needs to implement a comprehensive strategy that
involves all aspects of IRS' operations and that sets priorities,
accelerates the modernization of outdated equipment and processes, and
establishes realistic goals, specific timetables, and a system to
measure progress; (8) IRS has introduced new controls and expanded
existing controls in an attempt to reduce its exposure to filing fraud;
(9) those controls are directed toward either preventing the filing of
fraudulent returns or identifying questionable returns after they have
been filed; (10) IRS' efforts have produced some positive results; (11)
IRS does not have a proactive, independent information security group
that systematically reviews the adequacy and consistency of security
over IRS' computer operations; (12) IRS needs to address its information
security weaknesses on a continuing basis; (13) IRS' Chief Information
Officer has established a year 2000 project office with responsibility *

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

 REPORTNUM:  T-GGD-97-79
     TITLE:  IRS Management: Improvement Needed in High-Risk Areas
      DATE:  04/14/97
   SUBJECT:  Tax administration systems
             Systems conversions
             Computer security
             Electronic forms
             Fraud
             Accounts receivable
             Financial management
             Strategic planning
             Information resources management
             Computer software
IDENTIFIER:  IRS Electronic Fraud Detection System
             GAO High Risk Program
             
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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
10:00a.m.  EDT
Monday, April 14, 1997

IRS MANAGEMENT - IMPROVEMENT
NEEDED IN HIGH-RISK AREAS

Statement of Lynda D.  Willis, Director, Tax Policy and
Administration Issues, General Government Division

GAO/T-GGD-97-79

GAO/GGD-97-79T


(268795)


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


IRS MANAGEMENT:  IMPROVEMENT
NEEDED IN HIGH-RISK AREAS
==================================================== Chapter Statement

Mr.  Chairman and Members of the Subcommittee: 

We are pleased to be here today to assist the Subcommittee in its
review of the Internal Revenue Service's (IRS) efforts to improve the
management and operation of its high-risk areas.  A key factor in
understanding IRS' ongoing difficulties in the high-risk areas is the
realization that its major processes and systems were developed and
implemented decades ago and were not designed to address the critical
needs and vulnerabilities that confront IRS in the 1990s.  In
addition, the problems IRS faces in attempting to eliminate its
high-risk vulnerabilities are compounded by the interdependency of
the high-risk areas.  For example, IRS' success in addressing the
weaknesses in its program areas is clearly linked to its success in
modernizing its business processes and information systems.  However,
without a comprehensive strategy or detailed business plan to guide
its modernization efforts, IRS cannot hope to successfully modernize
its outdated processes and systems or to, ultimately, resolve the
problems in its high-risk areas. 


   OVERVIEW
-------------------------------------------------- Chapter Statement:1

In February 1997, we issued our third series of reports on the status
of high-risk areas across the government.\1 One report in the series
discussed the four long-standing high-risk areas at IRS:  tax systems
modernization, financial management, accounts receivable, and filing
fraud.\2 Another report in the series designated five new high-risk
areas, two of which have governmentwide implications and directly
affect IRS' operations:  information security and the
computer-related year 2000 problem.\3

Today, we will briefly discuss the problems IRS faces in these six
high-risk areas, the progress IRS has made recently in addressing
these problems, and the measures IRS must take to resolve the
problems in its high-risk areas.  This testimony is based on our
prior reports, which are listed in Appendix I, and recent information
obtained from IRS. 


--------------------
\1 GAO/HR-97-20SET. 

\2 IRS Management (GAO/HR-97-8, Feb.  1997). 

\3 Information Management and Technology (GAO/HR-97-9, Feb.  1997). 


   IRS' HIGH-RISK AREAS
-------------------------------------------------- Chapter Statement:2

For years we have chronicled IRS' struggle to modernize and manage
its operations, especially in the high-risk areas, and have made
scores of recommendations to improve IRS' systems, processes, and
procedures.  It is clear that in order to achieve its business vision
of reducing the volume of paper tax returns, providing better
customer service, and improving compliance with the nation's tax
laws, IRS must successfully modernize its systems and operations.  To
accomplish this modernization, however, IRS needs to develop
comprehensive business strategies to ensure that its new and revised
processes drive systems development and acquisition.  Solving the
problems in the high-risk areas is not an insurmountable task, but it
requires sustained management commitment, accurate information
systems, and reliable performance measures to track IRS' progress and
provide the data necessary to make informed management decisions. 


      TAX SYSTEMS MODERNIZATION
------------------------------------------------ Chapter Statement:2.1

Over the last decade, IRS has been attempting to overhaul its
timeworn, paper-intensive approach to tax return processing.  At
stake is the over $3 billion that IRS has spent or obligated on this
modernization since 1986, as well as any additional funds that IRS
plans to spend on the modernization. 

In July 1995, we reported that IRS (1) did not have a comprehensive
business strategy to cost effectively reduce paper tax return
filings; (2) had not yet fully developed and put in place the
requisite management, software development, and technical
infrastructure necessary to successfully implement its ambitious,
world-class modernization; and (3) lacked an overall systems
architecture, or blueprint, to guide the modernization's development
and evolution.\4 At that time, we made over a dozen recommendations
to the IRS Commissioner to address these weaknesses. 

Pursuant to subsequent congressional direction, we assessed IRS'
actions to correct its management and technical weaknesses.  We
reported in June and September 1996 that IRS had initiated many
activities to improve its modernization efforts but had not yet fully
implemented any of our recommendations.\5 We also suggested to
Congress that it consider limiting modernization funding exclusively
to cost-effective efforts that (1) support ongoing operations and
maintenance; (2) correct IRS' pervasive management and technical
weaknesses; (3) are small, represent low technical risk, and can be
delivered quickly; and (4) involve deploying already developed and
fully tested systems that have proven business value and are not
premature given the lack of a completed systems architecture. 

IRS has taken steps to address our recommendations and respond to
congressional direction.  For example, IRS hired a new Chief
Information Officer.  It also created an investment review board to
select, control, and evaluate its information technology investments. 
Thus far, the board has reevaluated and terminated several major
modernization development projects that were not found to be
cost-effective.  In addition, IRS has developed a plan for shifting
modernization development and deployment to outside contractors.  IRS
reports that the percentage of contractor employees, as opposed to
IRS employees, working on tax systems modernization has increased
from 40 to 64 percent over the last 2 years. 

IRS is also finalizing a comprehensive strategy to maximize
electronic filing.  It is also updating its system development
life-cycle methodology and is working across various IRS
organizations to define disciplined processes for software
requirements management, quality assurance, configuration management,
and project planning and tracking.  Additionally, IRS is developing a
systems architecture and project sequencing plan for the
modernization and intends to provide this to Congress by May 15,
1997. 

Although we recognize IRS' actions, we remain concerned because much
remains to be done to fully implement essential improvements. 
Increasing the use of contractors, for example, will not
automatically increase the likelihood of successful modernization
because IRS does not have the technical capability needed to manage
all of its current contractors.  To successfully implement the
essential improvements, IRS must also continue to make a concerted,
sustained effort to fully implement our recommendations and respond
effectively to the requirements outlined by Congress.  It will take
both management commitment and technical discipline for IRS to
accomplish these tasks. 

Furthermore, despite persisting weaknesses in both software
development and acquisition capabilities, IRS continues to request
hundreds of millions of dollars for systems modernization efforts. 
Specifically, in its fiscal year 1998 budget request, IRS is seeking
$131 million for system development initiatives.  However, the
request does not include a credible, verifiable justification and
states that IRS does not know how it plans to spend these funds
because its modernization architecture and deployment plan have not
yet been completed.  In addition, the Administration is proposing to
establish an Information Technology Investments Account to fund
future modernization investments at IRS.  It is seeking $500 million
in each of the next two fiscal years ($1 billion in total) for
"yet-to-be-specified" modernization efforts.  This request is also
not based on analytical data or derived using formal cost estimating
techniques.  Accordingly, Congress should consider not funding either
the $131 million request for system development or the $1 billion
capital account until the management and technical weaknesses in IRS'
modernization program are resolved and justifications completed. 


--------------------
\4 Tax Systems Modernization:  Management and Technical Weaknesses
Must Be Corrected If Modernization Is to Succeed (GAO/AIMD-95-156,
July 26, 1995). 

\5 Tax Systems Modernization:  Actions Underway But IRS Has Not Yet
Corrected Management and Technical Weaknesses (GAO/AIMD-96-106, June
7, 1996); and Tax Systems Modernization:  Actions Underway But
Management and Technical Weaknesses Not Yet Corrected
(GAO/T-AIMD-95-165, Sept.  10, 1996). 


      FINANCIAL MANAGEMENT
------------------------------------------------ Chapter Statement:2.2

Our audits of IRS' financial statements have outlined the substantial
improvements needed in IRS' accounting and reporting in order for IRS
to comply fully with the requirements of the Chief Financial Officers
Act of 1990 (CFO Act).  The audits for fiscal years 1992 through 1995
have described IRS' difficulties in (1) properly accounting for its
tax revenues, in total and by reported type of tax; (2) reliably
determining the amount of accounts receivable owed for unpaid taxes;
(3) regularly reconciling its Fund Balance With Treasury accounts;
and (4) either routinely providing support for receipt of the goods
and services it purchases or, where supported, accurately recording
the purchased item in the proper period. 

IRS has made progress in addressing problems in these areas and has
developed an action plan, with specific timetables and deliverables,
to address the issues our financial statement audits have identified. 
In the administrative accounting area, for example, IRS reported that
it has identified substantially all of the reconciling items for its
Fund Balance With Treasury accounts, except for certain amounts IRS
has deemed not to be cost-beneficial to research further.  It also
has successfully transferred its payroll processing to the Department
of Agriculture's National Finance Center and has begun designing both
a short-term and a long-term strategy to fix the problems that
contribute to its nonpayroll expenses being unsupported or reported
in the wrong period. 

In the revenue accounting area, IRS' problems are especially affected
and complicated by automated data processing systems that were
implemented many years ago and thus not designed to support the new
financial reporting requirements imposed by the CFO Act.  Therefore,
IRS has designed an interim solution to capture the detailed support
for revenue and accounts receivable until longer term solutions can
be identified and implemented.  Some of the longer term actions
include (1) implementing software, hardware, and procedural changes
needed to create reliable subsidiary accounts receivable and revenue
records that are fully integrated with the general ledger; and (2)
implementing software changes that allow the detailed taxes reported
to be maintained separately from the results of compliance efforts
that would not be valid financial reporting transactions in the
masterfile, other related revenue accounting feeder systems, and the
general ledger. 

Over the past 4 years, we have made numerous recommendations to
improve IRS' financial management systems and reporting, and IRS has
been working to position itself to have more reliable financial
statements for fiscal year 1997 and thereafter.  To accomplish this,
especially in accounting for revenue and the related accounts
receivables, IRS will need to institute long-term solutions involving
reprogramming software for IRS' antiquated systems and developing new
systems as required. 

Follow-through to complete necessary corrective measures is essential
if IRS is to ensure that its corrective actions are carried out and
effectively solve its financial management problems.  Solving these
problems is fundamental to providing reliable financial information
and ensuring taxpayers that the government can properly account for
their federal tax dollars.  The accuracy of IRS' financial statements
is vital to both IRS and Congress for (1) ensuring adequate
accountability for IRS programs; (2) assessing the impact of tax
policies; and (3) measuring IRS' performance and cost effectiveness
in carrying out its numerous tax enforcement, customer service, and
collection activities. 


      ACCOUNTS RECEIVABLE
------------------------------------------------ Chapter Statement:2.3

IRS routinely collects over a trillion dollars annually in taxes, but
many taxpayers are unable or unwilling to pay their taxes when due. 
As a result, IRS estimates that its accounts receivable amounts to
tens of billions of dollars.  Unfortunately, IRS' ability to
effectively address its accounts receivable problems is seriously
hampered by its outdated equipment and processes, a lack of the
complete information needed to better target collection efforts, and
the absence of a comprehensive strategy and detailed plan to address
the systemic nature of the underlying problems. 

IRS' collection efforts have also been hampered by the age of the
delinquent tax accounts.  Because of the outdated equipment and
processes used to match tax returns and related information
documents, it can take IRS several years to identify potential
delinquencies and then initiate collection actions.  In addition,
according to IRS, the 10 year statutory collection period generally
precludes it from writing off uncollectible receivables until that
period has expired.  As a result, the receivables inventory includes
many relatively old accounts that will never be collected because the
taxpayers are deceased or the companies defunct. 

This is not to say, however, that IRS has not been trying to overcome
its deficiencies.  In the last 2 years, IRS has undertaken
initiatives to correct errors in its masterfile records of tax
receivables, develop profiles of delinquent taxpayers, and study the
effectiveness of various collection techniques.  It has also
streamlined its collection process, placed additional emphasis on
contacting repeat delinquents, made its collection notices more
readable, and targeted compliance-generated delinquencies for earlier
intervention. 

IRS reported that as a result of taking these actions, its collection
employees took in more money in 1996 than they classified as
"currently not collectible" and that the amount of money collected
immediately following the revision of its collection notices
increased by almost 25 percent over a comparable period in 1995.  In
addition, IRS reported collecting more in delinquent taxes in fiscal
year 1996 than it ever has, almost $30 billion. 

Despite these positive results, IRS needs to continue the development
of information databases and performance measures to afford its
managers the data needed to determine which actions or improvements
generate the desired changes in IRS' programs and operations.  And,
this should not be looked upon as a short-term commitment.  It will
still take IRS a number of years to identify the root causes of
delinquencies and to develop, test, and implement courses of action
to deal with the causes.  Furthermore, once the analyses and planning
are completed, it will still be some time before full results of the
new initiatives are realized. 

Therefore, IRS must take deliberate action to ensure that its
problem-solving efforts are on the right track.  Specifically, it
needs to implement a comprehensive strategy that involves all aspects
of IRS' operations and that sets priorities; accelerates the
modernization of outdated equipment and processes; and establishes
realistic goals, specific timetables, and a system to measure
progress. 


      FILING FRAUD
------------------------------------------------ Chapter Statement:2.4

When we first identified filing fraud as a high-risk area in February
1995, the amount of filing fraud being detected by IRS was on an
upward spiral.  Since then, IRS has introduced new controls and
expanded existing controls in an attempt to reduce its exposure to
filing fraud.  Those controls are directed toward either (1)
preventing the filing of fraudulent returns or (2) identifying
questionable returns after they have been filed. 

To deter the filing of fraudulent returns, IRS (1) expanded the
number of up-front filters in the electronic filing system designed
to screen electronic submissions for selected problems in order to
prevent returns with those problems from being filed electronically
and (2) strengthened the process for checking the suitability of
persons applying to participate in the electronic filing program as
return preparers or transmitters by requiring fingerprint and credit
checks. 

To better identify fraudulent returns once they have been filed, IRS
placed an increased emphasis in 1995 on validating Social Security
Numbers (SSN) on filed paper returns and delayed any related refunds
to allow staff time to do those validations and to check for possible
fraud.  IRS also revised the computerized formulas it used to score
all tax returns on their fraud potential and upgraded the research
capabilities of its fraud detection staff. 

IRS' efforts produced some positive results.  For example, the number
of SSN problems identified by the electronic filing filters
quadrupled between 1994 and 1995, and about 350 persons who applied
to participate in the electronic filing program for 1995 were
rejected because they failed the new fingerprint and credit checks. 
IRS' efforts to validate SSNs on paper returns produced over $800
million in reduced refunds or additional taxes.  Unfortunately, IRS
identified many more SSN problems than it was able to deal with and
released about 2 million refunds without resolving the problems. 

IRS identified over 65 percent fewer fraudulent returns in 1996 than
during a comparable period in 1995.  IRS believes this decrease is
attributable to a 31-percent reduction in its fraud detection staff
and the resulting underutilization of its Electronic Fraud Detection
System, which enhances the identification of fraudulent returns and
lessens the probability of improperly deleting accurate refunds. 
However, IRS does not have the information it needs to (1) verify
that the decline was the result of staff reductions or (2) determine
the extent to which the downward trend may have been affected by
changes in the program's operating and reporting procedures or by a
general decline in the incidence of fraud. 

Given the decrease in fraud detection staff, it is critically
important for IRS to (1) optimize the electronic controls that are
intended to prevent the filing of fraudulent returns and (2) maximize
the effectiveness of available staff.  Modernization is the key to
achieving these objectives, and electronic filing is the cornerstone
of that modernization.  Officials at the Department of the Treasury
estimate that 19.2 million Americans will file their returns
electronically in 1997, a 63-percent increase over the number who
filed electronically in 1995.  But even at this rate of increase, IRS
will fall far short of its goal to have 80 million electronically
filed returns in 2001.  To achieve its goal, IRS must first identify
those groups of taxpayers who offer the greatest opportunity to
reduce IRS' paper-processing workload and operating costs if they
were to file electronically.  IRS must then develop strategies that
focus its resources on eliminating or lessening impediments that
inhibit those groups from participating in the program. 


      INFORMATION SECURITY
------------------------------------------------ Chapter Statement:2.5

Malicious attacks on computer systems are an increasing threat to our
national welfare.  The federal government now relies heavily on
interconnected systems to control critical functions that, if
compromised, place billions of dollars worth of assets at risk of
loss and vast amounts of sensitive data at risk of unauthorized
disclosure.  Increasing reliance on networked systems and electronic
records has elevated our concerns about the possibility of serious
disruption to critical federal operations. 

As a result of our recent work at IRS, we believe that the
vulnerabilities of IRS' computer systems may affect the
confidentiality and accuracy of taxpayer data and may allow
unauthorized access, modification, or destruction of taxpayer
information by IRS employees.\6 The overriding problem at IRS is that
information security issues are addressed on a reactive basis.  IRS
does not have a proactive, independent information security group
that systematically reviews the adequacy and consistency of security
over IRS' computer operations.  In addition, computer security
management has not completed a formal risk assessment of its systems
to determine system sensitivity and vulnerability.  As a result, IRS
cannot effectively prevent or detect unauthorized browsing of
taxpayer information by its employees and cannot ensure that taxpayer
data is not being improperly manipulated for personal gain. 

IRS needs to address its information security weaknesses on a
continuing basis.  More specifically, IRS needs to impress upon its
senior managers the need to conduct regular systematic security
reviews and risk assessments of IRS' computer systems and operations. 
The weaknesses identified by these reviews and assessments then need
to be corrected expeditiously by personnel who have the technical
expertise to effectively implement, manage, and monitor the necessary
security controls and measures. 


--------------------
\6 IRS Systems Security:  Tax Processing Operations and Data Still at
Risk Due to Serious Weaknesses, (GAO/T-AIMD-97-76, Apr.  10, 1997);
and IRS Systems Security:  Tax Processing Operations and Data Still
at Risk Due to Serious Weaknesses, (GAO/AIMD-97-49, Apr.  8, 1997). 


      THE YEAR 2000 PROBLEM
------------------------------------------------ Chapter Statement:2.6

For the past several decades, computer systems have used two digits
to represent the year, such as "97" for 1997, in order to conserve
electronic data storage and reduce operating costs.  In this format,
however, the year 2000 is indistinguishable from the year 1900
because both are represented as "00." As a result, if not modified,
computer systems and applications that use dates or perform date- or
time-sensitive calculations may generate incorrect results beyond
1999. 

For IRS, such a disruption of functions and services could jeopardize
all of its tax processing systems and administration and could result
in millions of erroneous tax notices, refunds, and bills.  It could
effectively halt the processing of tax return and return-related
information, the maintenance of taxpayer account information, the
assessment and collection of taxes, the recording of obligations and
expenditures, and the disbursement of refunds.  At the very least,
IRS' core business functions and mission-critical processes are at
risk of failure, as are numerous other administrative and management
processes. 

To avoid the crippling effects of a multitude of computer systems
simultaneously producing inaccurate and unreliable information, IRS'
Chief Information Officer has established a year 2000 project office
with responsibility for assessing, converting, and testing IRS'
computer systems.  The project office is analyzing the potential
impact of such a systems failure and is developing appropriate
renovation strategies and contingency plans for its critical systems. 
However, at this point most of the project office's efforts are being
directed at IRS' large, mainframe computer systems while greater
numbers of personal and portable computers are being largely ignored. 
Modifying IRS' critical computer systems, converting and testing
software applications, and acquiring additional hardware for expected
capacity increases are massive undertakings whose success or failure
will, in large part, be determined by the quality of IRS' executive
leadership and program management. 


   A COMPREHENSIVE IMPLEMENTATION
   STRATEGY
-------------------------------------------------- Chapter Statement:3

IRS cannot hope to resolve the problems in its high-risk areas
without a detailed business plan and a comprehensive implementation
strategy.  For example, a principal goal of IRS' business vision is
to reduce the number of paper tax returns it must process by
significantly increasing, by 2001, the number of electronically filed
tax returns.  Our analysis of recent filing trends indicates that IRS
will fall far short of its goal because its electronic filing
strategy has targeted a limited portion of the taxpaying
population--those who use a third party to prepare and/or transmit
simple returns, are willing to pay a fee to file their returns
electronically, and are expecting refunds.  Taxpayers who prepare
their own tax returns using personal computers, have more complicated
returns, and/or owe tax balances have been largely overlooked.  IRS
needs to better target its efforts on reducing the cost to taxpayers
of filing electronically and on eliminating the impediments that
discourage electronic filing by those taxpayers who offer the
greatest opportunity to reduce IRS' paper processing workload and
processing costs. 

In addition, IRS' efforts to improve customer service and increase
taxpayer compliance depend in large measure on increasing the use of
its information systems.  Not only do customer representatives need
easy access to the information necessary to answer taxpayers'
questions, but enforcement staff also need timely access to reliable
information to do their jobs.  However, IRS has not identified all
the data elements that customer service and enforcement staff need,
nor has it fully defined the business requirements for the systems
that will provide this timely access to greater amounts of on-line
taxpayer data.  It also does not have a cost-effective strategy for
accessing the needed data. 


   SUMMARY OUTLOOK
-------------------------------------------------- Chapter Statement:4

For years, IRS has struggled to collect the nation's tax revenue
using outdated processes and technology.  The result has often been
inefficient and ineffective programs and operations that are
vulnerable to waste, fraud, abuse, and mismanagement.  Of particular
concern to us have been IRS' efforts to modernize its tax systems,
manage its administrative and revenue accounting systems, identify
and collect taxes owed the government, detect and prevent the filing
of fraudulent tax returns, protect the confidentiality of taxpayer
information, and prevent the future disruption of tax services due to
the year 2000 computer problem. 

In recent years, Congress has put into place a statutory framework
that can assist IRS in resolving the operational and technological
problems it faces.  This framework includes the Chief Financial
Officers Act of 1990, the Government Performance and Results Act of
1993 (GPRA), and the Clinger-Cohen Act of 1996.  These acts require
congressional and executive branch decisionmakers to (1) clearly
articulate their agencies' missions and the results-oriented
performance goals that measure their success in carrying their
missions; (2) establish a detailed business plan or comprehensive
implementation strategy to meet their performance goals; and (3)
develop and use accurate, reliable, and timely program performance
and cost data to evaluate their progress in achieving their
performance goals. 

In addition, GPRA requires each agency to consult with Congress and
to consider Congress' views and the views of other stakeholders when
developing its strategic plan.  For IRS, these consultations provide
an important opportunity for Congress, IRS, and the Department of the
Treasury to work together to ensure that IRS' mission is focused, its
goals are specific and results oriented, and its implementation
strategies and funding expectations are appropriate and reasonable. 

In order to resolve the problems in its high-risk areas, IRS needs,
at a minimum, an implementation strategy that includes both
performing cost-benefit analyses and developing reasonable estimates
of the extent, time frames, and resources required to correct its
high-risk vulnerabilities.  IRS also needs to develop performance
measures that will allow its managers, Congress, and us to track its
progress.  And, above all, IRS management needs to sustain an
agencywide commitment to solving the agency's high-risk problems. 


------------------------------------------------ Chapter Statement:4.1

Mr.  Chairman, this concludes my prepared statement.  We will be glad
to answer any questions that you or the Members of the Subcommittee
may have. 


RELATED GAO PRODUCTS
=========================================================== Appendix I


      TAX SYSTEMS MODERNIZATION
------------------------------------------------------- Appendix I:0.1

Tax Systems Modernization:  Actions Underway But Management and
Technical Weaknesses Not Yet Corrected (GAO/T-AIMD-96-165, Sept.  10,
1996). 

IRS Operations:  Critical Need to Continue Improving Core Business
Practices (GAO/T-AIMD-96-188, Sept.  10, 1996). 

Internal Revenue Service:  Business Operations Need Continued
Improvement (GAO/AIMD/GGD-96-152, Sept.  9, 1996). 

Tax Systems Modernization:  Cyberfile Project Was Poorly Planned and
Managed (GAO/AIMD-96-140, Aug.  29, 1996). 

Tax Systems Modernization:  Actions Underway But IRS Has Not Yet
Corrected Management and Technical Weaknesses (GAO/AIMD-96-106, June
7, 1996). 

Security Weaknesses at IRS' Cyberfile Data Center (GAO/AIMD-96-85R,
May 9, 1996). 

Tax Systems Modernization:  Management and Technical Weaknesses Must
Be Overcome to Achieve Success (GAO/T-AIMD-96-75, Mar.  26, 1996). 

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


      FINANCIAL MANAGEMENT
------------------------------------------------------- Appendix I:0.2

Financial Management:  Challenges Facing the IRS (GAO/T-AIMD-97-34,
Jan.  9, 1997). 

IRS Financial Audits:  Status of Efforts to Resolve Financial
Management Weaknesses (GAO/T-AIMD-96-170, Sept.  19, 1996). 

Financial Audit:  Examination of IRS' Fiscal Year 1995 Financial
Statements (GAO/AIMD-96-101, July 11, 1996). 

Financial Audit:  Actions Needed to Improve IRS Financial Management
(GAO/T-AIMD-96-96, June 6, 1996). 

IRS Operations:  Significant Challenges in Financial Management and
Systems Modernization (GAO/T-AIMD-96-56, Mar.  6, 1996). 

Financial Audit:  Examination of IRS' Fiscal Year 1994 Financial
Statements (GAO/AIMD-95-141, Aug.  4, 1995). 

Financial Audit:  Examination of IRS' Fiscal Year 1993 Financial
Statements (GAO/AIMD-94-120, June 15, 1994). 

Financial Audit:  Examination of IRS' Fiscal Year 1992 Financial
Statements (GAO/AIMD-93-2, June 30, 1993). 


      ACCOUNTS RECEIVABLE
------------------------------------------------------- Appendix I:0.3

IRS Tax Collection Reengineering (GAO/GGD-96-161R, Sept.  24, 1996). 

Tax Administration:  Tax Compliance of Nonwage Earners
(GAO/GGD-96-165, Aug.  28, 1996). 

Managing IRS:  IRS Needs to Continue Improving Operations and Service
(GAO/T-GGD/AIMD-96-170, July 29, 1996). 

Financial Audit:  Examination of IRS' Fiscal Year 1995 Financial
Statements (GAO/AIMD-96-101, July 11, 1996). 

Tax Research:  IRS Has Made Progress But Major Challenges Remain
(GAO/GGD-96-109, June 5, 1996). 

Tax Administration:  IRS Tax Debt Collection Practices
(GAO/T-GGD-96-112, Apr.  25, 1996). 

Tax Administration:  IRS' Fiscal Year 1996 and 1997 Budget Issues and
the 1996 Filing Season (GAO/T-GGD-96-99, Mar.  28, 1996). 

Status of Tax Systems Modernization, Tax Delinquencies, and the
Potential for Return-Free Filing (GAO/T-GGD/AIMD-96-88, Mar.  14,
1996). 

Financial Audit:  Examination of IRS' Fiscal Year 1994 Financial
Statements (GAO/AIMD-95-141, Aug.  4, 1995). 

Taxpayer Compliance:  Reducing the Income Tax Gap (GAO/T-GGD-95-176,
June 6, 1995). 

Reducing the Tax Gap:  Results of a GAO-Sponsored Symposium
(GAO/GGD-95-157, June 2, 1995). 

Tax Administration:  Administrative Improvements Possible in IRS'
Installment Agreement Program (GAO/GGD-95-137, May 2, 1995). 

High-Risk Series:  Internal Revenue Service Receivables (GAO/HR-95-6,
Feb.  1995). 

Tax Administration:  Tax Compliance Initiatives and Delinquent Taxes
(GAO/T-GGD-95-74, Feb.  1, 1995). 

Tax Administration:  Changes Needed to Reduce Volume and Improve
Processing of Undeliverable Mail (GAO/GGD-95-44, Dec.  7, 1994). 

Financial Audit:  Examination of IRS' Fiscal Year 1993 Financial
Statements (GAO/AIMD-94-120, June 15, 1994). 


      FILING FRAUD
------------------------------------------------------- Appendix I:0.4

Earned Income Credit:  IRS' 1995 Controls Stopped Some Noncompliance,
But Not Without Problems (GAO/GGD-96-172, Sept.  18, 1996). 

IRS Efforts to Control Fraud (GAO/GGD-96-96R, Mar.  25, 1996). 

The 1995 Tax Filing Season:  IRS Performance Indicators Provide
Incomplete Information About Some Problems (GAO/GGD-96-48, Dec.  29,
1995). 

Tax Administration:  Electronic Filing Falling Short of Expectations
(GAO/GGD-96-12, Oct.  31, 1995). 

Tax Administration:  Continuing Problems Affect Otherwise Successful
1994 Filing Season (GAO/GGD-95-5, Oct.  7, 1994). 

Tax Administration:  Electronic Filing Fraud (GAO/T-GGD-94-89, Feb. 
10, 1994). 

Tax Administration:  Increased Fraud and Poor Taxpayer Access to IRS
Cloud 1993 Filing Season (GAO/GGD-94-65, Dec.  22, 1993). 

Tax Administration:  IRS Can Improve Controls Over Electronic Filing
Fraud (GAO/GGD-93-27, Dec.  30, 1992). 


      INFORMATION SECURITY
------------------------------------------------------- Appendix I:0.5

Financial Audit:  Examination of IRS' Fiscal Year 1995 Financial
Statements (GAO/AIMD-96-101, July 11, 1996). 

Security Weaknesses at IRS' Cyberfile Data Center (GAO/AIMD-96-85R,
May 9, 1996). 

IRS Information Systems:  Weaknesses Increase Risk of Fraud and
Impair Reliability of Management Information (GAO/AIMD-93-34, Sept. 
22, 1993). 


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