The Internal Revenue Service (IRS) is moving its Information Systems (IS) Organization to a shared services structure which consolidates all computer technology under the Chief Information Officer (CIO). This move is part of the IRS’ ambitious modernization program to reorganize all aspects of the agency.

IS has started realigning and centralizing its employees and plans to move groups of employees who were performing computer support work from other functions (such as Examination and Collection) into the new IS structure. IS transition teams developed plans to move these non-IS employees into the IS Organization.

The overall objective of this audit was to assess the efficiency and effectiveness of the process to move non-IS employees performing computer support work into the new IS structure.

IS has devoted a great deal of effort to developing designs and plans to implement its shared services structure. To ensure a successful transition, these efforts need to include complete data, coordination and communication between the three IS transition teams, and the cooperation of IRS executives in other divisions to reassign employees to IS.

Plans to consolidate employees into IS began in November 1998. The first transition team efforts involved identifying employee groups for consolidation. Subsequent work by the second transition team involved the development and application of processes to obtain agreements for moving employees and workload to IS. The third transition team is continuing this process, with implementation planned for October 2000.

The transition teams’ efforts need further attention to ensure the success of the employee consolidation. Incomplete or delayed consolidation of employees could affect the delivery of desired customer service levels that IS and the IRS hope to achieve.

Transition teams experienced confusion in determining which non-IS employee groups to consider for consolidation and have not identified all potential candidates. The teams’ estimates of employees for consolidation ranged from 742 to 1,500. Our analysis identified 32 additional employees not considered by any of the transition teams.

The information used to identify potential employees for consolidation was not clearly documented to provide transition team members historical information about the basis for selecting potential employees or the workload associated with the employees.

To effectively manage the IRS’ information technology environment, the CIO needs to have direct control over all employees performing IS work and related support costs. We project that the employees identified for consolidation into IS would represent about 12 percent of the approximately 8,700 IS employee population after consolidation. We also estimate that the employees being consolidated into IS represent approximately $101 million in labor and support costs for Fiscal Year (FY) 2000 and approximately $88 million in labor and support costs for FY 2001.

Transition teams use Memoranda of Understanding (MOU) between IS and other IRS divisions and functions to control the employee transition process. However, the transition teams have not efficiently and effectively developed MOUs to consolidate groups of employees into IS. As of May 2000, only 3 of 32 employee groups had completed the MOU process and moved to IS. Causes for delays in completing MOUs include inadequate staffing of the transition teams, ineffective management communication of transition teams’ accomplishments, and untimely and insufficient executive involvement.

The benefits of a shared services IS structure will not be fully realized until all information technology resources are consolidated under the management control of the CIO. For example, the IRS is moving toward a standardized desktop computer environment. However, because the CIO has not had control over all employees performing IS work, including the purchase of computers and related equipment, IRS-wide standards have not been adequately followed or enforced. This has resulted in the IRS having more computers than needed and not putting related equipment, such as printers, to the best use. By consolidating the purchasing and management of computers and related equipment under the CIO, IS expects to save $31 million by reaching industry ratios for desktop computers and printers and $27 million by controlling purchases and distribution of new equipment.

The second transition team recognized the existence of non-IS employees in district offices who were performing computer support work that did not come under traditional IS job descriptions and who were not previously identified by the first transition team. The CIO chartered a Functional Automation Support Team (FAST) to determine whether to consolidate these employees into IS.

The FAST interviewed 825 district employees for potential transition to IS. Its completed survey estimated almost 400 additional employees will need to be consolidated into the IS Organization. However, the FAST and transition teams have not decided how to consolidate these employees into IS. The MOU process was designed to consolidate established groups with information systems job descriptions and does not lend itself to consolidating individual employees dispersed throughout district offices across the nation.

Delays in achieving the consolidation of the district employees and workload also hinders achieving the benefits of the shared services structure. IS estimates that about 670 non-IS employees, with labor costs of $32 million, perform about 29 percent of the IRS’ desktop support, including local area network management. By consolidating these employees under the CIO, IS estimates potential savings of $16 million in labor costs each year.

The CIO, IS Transition Team Leader, and the Information Systems Organization Modernization Executive Steering Committee need to ensure transition teams define the employee groups to include for consolidation into IS; provide adequate transition team staffing with executive management direction to achieve IS objectives; and adopt a consolidation process for non-IS employees in district offices that considers employee skills and IS workload requirements.

Management's Response: Management's response was due on September 28, 2000. Management requested an extension to respond by October 4, 2000. As of October 5, 2000, management was still in the process of finalizing its action plan.