The Clinger-Cohen Act requires Federal agencies to make sound investment decisions before purchasing information technology systems. In October 2000, the Senate Governmental Affairs Committee stated that the Act was the result of the Committee’s reviews of failed computer system acquisitions, such as the Internal Revenue Service’s (IRS) Tax Systems Modernization project. The Committee further reported that Federal agencies were not using sound business procedures before investing in information technology. If sound business procedures to align information technology acquisitions with business needs are not employed prior to investing in information technology, Federal agencies will not be able to improve operational performance, reduce costs, achieve mission goals, and enhance service responsiveness to the public.

The objective of our review was to determine whether the IRS has implemented the requirements of the Clinger-Cohen Act. Our scope included identifying the processes the IRS has in place to ensure compliance with the provisions of the Act.

Because of the changes to the IRS’ structure and modernization strategy that began in 1998, the IRS is still developing and implementing the information technology investment processes envisioned in the Clinger-Cohen Act. Before 1998, the agency had made some progress in meeting the requirements of the Clinger-Cohen Act. During the audit, we identified that the IRS had recently introduced a new strategic planning process and other related processes, such as the Investment Decision Management process, to better manage its information technology investments. However, the use of these processes, and the integration of the procedures for making information technology investment decisions into the IRS’ overall strategic planning, budgeting, and performance management approach, is still evolving. Because the IRS’ processes are in various stages of being implemented, they do not yet constitute a working structure that fully complies with the provisions of the Clinger-Cohen Act.

Although the Clinger-Cohen Act was enacted in 1996, the IRS is still implementing the processes that will make it compliant with all the major provisions of the Act. A few significant factors have contributed to the IRS’ delay in fully implementing the Clinger-Cohen legislation, such as reorganization efforts begun as a result of the IRS Restructuring and Reform Act of 1998 (RRA 98) and the large amount of resources devoted to Year 2000 compliance efforts.

The IRS still needs to implement repeatable processes in order to be in full compliance with five key requirements of the Clinger-Cohen Act. These requirements include:

• The selection, control, and evaluation of information technology investments.
• Performance and results-based management.
• Accountability and information technology asset management.
• The Chief Information Officer’s (CIO) role in the development of the agency’s information technology architecture and information resources management capability.
• Information systems security policies, procedures, and practices.

Until the IRS has institutionalized many of its recently developed processes for managing its information technology investments, it will not have fully effective methods for prioritizing information technology development projects, detecting cost overruns, achieving performance goals, and meeting its overall mission, in accordance with the requirements of the Clinger-Cohen Act. Therefore, the agency cannot yet fully assure that it is getting maximum value from its $1.6 billion annual Modernization Information Technology Services budget.

We recommend the Deputy Commissioner for Modernization & CIO prepare an overall strategy, plan, and schedule to bring the IRS in full compliance with the Clinger-Cohen Act requirements.

Management’s Response: The Deputy Commissioner for Modernization & CIO agreed to include the IRS’ strategy and plan to bring the agency into full compliance with the Clinger-Cohen Act in its revised Fiscal Year (FY) 2002 and FY 2003 Modernization Information Technology Services Strategy and Program Plan. Management’s complete response is included as Appendix VI.