The Management of Information Systems Maintenance Contracts
Can Be Improved
May
2002
Reference
Number: 2002-20-100
This report has cleared the Treasury
Inspector General for Tax Administration disclosure review process and
information determined to be restricted from public release has been redacted
from this document.
May
30, 2002
MEMORANDUM FOR
DEPUTY COMMISSIONER FOR MODERNIZATION &
CHIEF INFORMATION OFFICER
FROM: Pamela
J. Gardiner
/s/ Pamela J. Gardiner
Deputy Inspector General for
Audit
SUBJECT: Final Audit Report - The Management of
Information Systems Maintenance Contracts Can Be Improved (Audit # 200120011)
This report
presents the results of our review of the effectiveness of the Internal Revenue
Service’s (IRS) management of computer asset maintenance contracts.
In summary, as
of August 2001, the IRS had awarded 606 contracts that included computer asset maintenance
services costing an estimated $157 million in Fiscal Year (FY) 2001. The IRS purchased maintenance contracts for
its mission critical tax processing systems and other computer assets that IRS
employees use in their jobs. IRS management monitors and measures maintenance
contractor performance to protect the Government’s interest from waste and
abuse. In addition, actions have been
taken that will simplify computer asset
maintenance management including consolidating computer systems and purchasing
personal computers with standardized operating systems, baseline software, and
multi-year warranties. Systems consolidations
and personal computer standardization have reduced the number and types of computer assets that must be maintained.
However, the IRS could improve computer maintenance
management in the following areas:
·
The IRS is
unnecessarily paying for maintenance on some computer assets. Maintenance contracts costing an estimated
$451,400 per year cover 5,236 computer monitors, 108 printers, and 206 fax
machines. We estimated 10 percent of
these items would fail and require repairs each year. Canceling the maintenance contracts and allocating approximately
$57,500 for the replacement of the computer monitors, printers, and fax
machines anticipated to fail would save approximately $393,900 per year
($1,141,500 over 3 years).
·
Maintenance contracts
costing an estimated $13,600 per year cover 175 equipment cabinets
and racks. Cabinets and racks typically
do not require periodic maintenance and, therefore, should not be included in
maintenance contract coverage.
Canceling these maintenance contracts would save approximately $13,600
per year ($39,400 over 3 years).
·
Maintenance
contract information in the ITS computer asset management system is incomplete or not
input. The IRS cannot associate specific assets with maintenance contract
information on the procurement and financial management systems to more
effectively manage the systems maintenance program. Therefore, the IRS has no assurance that maintenance coverage for
assets no longer being used has been canceled and that mission critical assets
are covered by maintenance contracts.
The Deputy
Commissioner for Modernization & Chief Information Officer should issue an
overall ITS policy requiring managers to ensure computer asset maintenance
contracts are cost effective; cancel maintenance contracts that are more expensive
than the cost of replacing the computer assets that fail; ensure maintenance contracts do not include items not
requiring maintenance (e.g., cabinets and racks); and establish program
accountability and work with the Procurement organization to ensure maintenance
contract information is available for the asset management program.
Management’s Response: The Deputy
Commissioner for Modernization & Chief Information Officer agreed with our
findings and will issue an ITS-wide overall computer asset maintenance
management policy, which will establish management accountability for the
program, ensure maintenance contracts are cost effective and do not include items that do not require maintenance, and ensure
that ITS management coordinates with the Procurement organization to make
maintenance contract information available to manage the maintenance program. Quarterly,
ITS management will review a sample of contracts to determine the effectiveness
of the policy and, if needed, take corrective action. Management’s complete response to the draft report is included as
Appendix V.
Copies of this
report are also being sent to the IRS managers who are affected by the report
recommendations. Please contact me at
(202) 622-6510 if you have questions or Scott E. Wilson, Assistant Inspector
General for Audit (Information Systems Programs), at (202) 622-8510.
The Internal Revenue Service Pays For Unnecessary Maintenance on Computer Assets
Asset Management System Maintenance
Contract Information Is Incomplete or Not Input
Appendix I – Detailed Objective, Scope, and Methodology
Appendix II – Major Contributors to This Report
Appendix III – Report Distribution List
Appendix IV – Outcome Measures
Appendix V – Management’s Response to the Draft Report
The Internal Revenue Service (IRS) Information Technology Services (ITS) organization is responsible for operating and maintaining all computer assets used by the IRS. The IRS’ computer assets include handheld, laptop, desktop, mid-range, and mainframe computers; telecommunications network equipment; peripheral equipment (e.g., printers, scanners, data storage devices, etc.); and computer software.
IRS
management started the Asset Management Modernization Project (AMMP) to correct
identified weaknesses in computer asset property management and control. The AMMP’s goal was to establish IRS-wide
computer asset ownership, management, and control, including maintenance. In support of the goal, the AMMP implemented
the Information Technology Asset Management System (ITAMS) AssetCenter™ in March 2001 as the
IRS’ computer asset inventory tool.
The AMMP was closed
on April 30, 2001, and responsibility for asset management modernization
was transferred to the End User Equipment and Services organization. To further improve
the ITS’ computer asset management capabilities, ITS management will work with
the IRS’ Chief
Financial Officer and Business Systems Modernization Office to develop the
Integrated Financial System (IFS) that will integrate asset inventory
information with procurement and financial information.
The ITS organization purchases maintenance contracts to have vendors repair computer assets when they fail and perform preventive maintenance that ensures computer assets perform reliably. The Procurement organization provides acquisition support to purchase the maintenance contracts. As of August 2001, the IRS had awarded 606 contracts that included computer asset maintenance services costing an estimated $157 million in Fiscal Year (FY) 2001.
Audit work was conducted at the National Headquarters in New Carrollton, Maryland; the Procurement Office in Oxon Hill, Maryland; and the Tennessee Computing Center and Memphis IRS Center in Memphis, Tennessee, from August 2001 through January 2002. This audit was scheduled as part of the Treasury Inspector General for Tax Administration’s FY 2001 Annual Audit Plan and was conducted in accordance with Government Auditing Standards. Detailed information on our audit objective, scope, and methodology is presented in Appendix I. Major contributors to the report are listed in Appendix II.
The IRS purchased maintenance services for its mission
critical tax processing systems and other computer assets that IRS employees
use in their jobs. Also, IRS management
monitors and measures
maintenance contractor performance to protect the Government’s interest from
waste and abuse. In addition, the
ITS organization has been consolidating computer systems over the last several
years. This action will result in
simplified maintenance management because of the reduced number and types of
mainframe and mid-range computer assets that must be maintained. Personal computers are being purchased with
standardized operating systems, security configurations, and baseline software
and include multi-year warranties.
The Office of Management and Budget (OMB) Circular A-123, Management Accountability and Control, requires IRS management to establish policies and procedures to ensure resources are protected from waste. During FY 2001, the ITS End User Equipment and Services organization published guidelines that permit local ITS offices to purchase maintenance contracts for computer assets, such as computer monitors and printers. The guidelines do not require management to ensure that maintenance contracts are cost effective. In addition, these guidelines do not apply to the Enterprise Operations Organization, which does not have written maintenance guidelines for its areas of responsibility. As a result, the IRS has purchased maintenance contracts that are not cost effective.
A review of the Procurement maintenance contract database description fields as of August 11, 2001, identified maintenance contracts costing an estimated $451,400 per year that covered 5,236 computer monitors, 108 printers, and 206 fax machines. We estimated 10 percent of these items would fail and require repairs each year. We also calculated that the IRS could replace the items anticipated to fail for approximately $57,500. Therefore, by canceling the maintenance contracts on the computer monitors, printers, and fax machines and allocating funds to replace the equipment anticipated to fail, the IRS could save approximately $393,900 per year ($1,141,500 over 3 years using a net present value factor that assumes maintenance costs do not change and a federal funds rate of 1.75 percent).
The Procurement maintenance contract database review also identified maintenance provided for 175 computer equipment cabinets and racks costing $13,600 per year. Cabinets and racks typically do not require periodic maintenance and, therefore, should not be included in maintenance contract coverage. Canceling these maintenance contracts would save approximately $13,600 per year ($39,400 over 3 years using a net present value factor that assumes maintenance costs do not change and a federal funds rate of 1.75 percent).
Although the Enterprise Operations organization does not have written maintenance guidelines, starting in FY 2000, it began removing computer monitors, printers, fax machines, equipment cabinets, and racks from maintenance contracts covering mid-range computer systems because the maintenance was not cost effective. While this practice appears to be the correct thing to do, the lack of an overall IRS computer equipment maintenance policy has resulted in inconsistent practices and increased costs. Without a consistent maintenance policy and an effective review of the computer assets to be covered by maintenance contracts, the IRS risks wasting resources on unnecessary maintenance contracts.
The Deputy Commissioner for Modernization & Chief
Information Officer should:
1. Issue an overall ITS maintenance policy requiring managers to ensure that maintenance contracts are cost effective.
Management’s Response: The Deputy Commissioner for Modernization & Chief Information Officer will issue an ITS-wide computer asset maintenance policy, which will ensure maintenance contracts are cost effective. Quarterly, ITS management will review a sample of contracts to determine the effectiveness of the policy and, if needed, take corrective action.
2. Cancel existing maintenance contracts that are more expensive than the cost of replacing the assets that fail.
Management’s Response: The Director, End User Equipment and Services will develop a policy for desktop equipment, which establishes management accountability for desktop computer asset maintenance and ensures maintenance is less expensive than the cost of replacing assets that fail. This policy will be incorporated into the ITS-wide maintenance policy, which will ensure that maintenance contracts are cost effective. Quarterly management reviews will determine the effectiveness of the policy.
Office of Audit Comment: In a follow-up discussion, ITS management clarified the response and advised that they will implement the policy, review the existing maintenance contracts, and cancel maintenance coverage that is more expensive than the cost of replacing the assets that fail.
3. Ensure that maintenance contracts do not include items not requiring maintenance (e.g., cabinets and racks).
Management’s Response: The ITS-wide maintenance policy will ensure maintenance contracts do not include items that do not require maintenance. Quarterly management reviews will determine the effectiveness of the policy.
Office of Audit Comment: In a follow-up discussion, ITS management clarified the response and advised that they will implement the policy, review the existing maintenance contracts, and cancel maintenance coverage for computer assets that do not require maintenance.
The OMB Circular A-123 states that IRS management is responsible for controls that reasonably ensure resources are protected from waste and mismanagement, and reliable and timely information is maintained and used for decision making.
The ITAMS was implemented in March 2001 as the IRS’ computer asset management control system and provides for the recording of maintenance contract information that would be associated with procurement and financial information residing in other systems. The associated maintenance information could provide ITS management with the ability to more effectively manage the systems maintenance program. For example, management would be able to determine whether maintenance coverage on retired assets has been canceled and mission critical assets are covered by maintenance contracts. However, ITAMS maintenance information is incomplete or not input.
As of September 5, 2001, the ITAMS database listed 516,256 computer assets, including 384,990 in “In Use” status, 54,918 in “Retired” status (i.e., no longer being used), and 76,348 in other statuses. Our review of 114 randomly selected computer asset ITAMS records in “Retired” status confirmed that incomplete information made it impossible to determine from the inventory records whether maintenance had been inappropriately paid on retired assets. In addition, the lack of information prohibited us from using procurement records to determine whether maintenance had been obtained on individual assets. Of 114 sample records:
· Seventy-five included no maintenance contract information.
· Twenty-three included incomplete maintenance contract information (e.g., contractor name, but no contract number). The information could not be traced to the maintenance contract payment records.
· Sixteen included the phrase ‘not applicable’ where the maintenance contract information should have been recorded, indicating that the retired computer assets had not been covered by a maintenance contract.
The maintenance contract information was incomplete or not input because ITS management does not require the input of the information. Management did not want to duplicate the recording of information that the Procurement organization already maintains for maintenance contract administration (e.g., contract number and contract line item numbers that contract administrators use to track maintenance on computer assets). Also, no one is responsible for ensuring accurate maintenance contract information is available to effectively manage the computer asset maintenance program.
The IRS
plans to continue improving asset management with the IFS, which will include
procurement and property management (i.e., computer assets), scheduled for
implementation in FY 2005. While integration
of the systems will improve asset management in the long-term, in the interim,
the Procurement maintenance information should be entered into or linked with
the ITAMS database to provide the ITS organization information to improve
maintenance management. Although no
instances were identified, without
complete maintenance contract information, IRS management risks paying for
maintenance of retired computer assets and not including mission critical
computer assets in maintenance contracts.
The Deputy Commissioner for
Modernization & Chief Information Officer should:
4.
Establish
management accountability for the computer asset maintenance program.
Management’s Response: The Deputy Commissioner for Modernization & Chief Information Officer will issue an ITS-wide policy, which will establish management accountability for the computer asset maintenance program.
5.
Ensure
maintenance contract information is available for program management by coordinating with the Procurement organization to determine
and implement the best method for accessing the information.
Management’s Response: The ITS-wide maintenance policy will require coordination with the Procurement organization to ensure that maintenance contract information is available to manage the computer asset maintenance program. Quarterly management reviews will determine the effectiveness of the policy.
Office of Audit Comment: In a follow-up discussion, ITS management clarified the response and advised that they will coordinate with the Procurement organization to determine the maintenance contract and asset information needed for maintenance management, and they intend to implement the changes needed to make maintenance information available.
Appendix I
Detailed Objective, Scope, and Methodology
The overall objective of this audit was to determine whether the Internal Revenue Service (IRS) effectively manages Information Technology Services (ITS) computer asset maintenance contracts. To accomplish our objective, we:
I. Analyzed Information Technology Asset Management System (ITAMS) inventory records to determine whether maintenance information was accurately maintained.
A. Identified Government-wide and IRS policies and procedures for recording and updating systems maintenance contract information on the ITAMS database, Requisition Tracking System (RTS), Integrated Procurement System (IPS), and for management reviews that ensure the information was consistent and timely recorded.
B. Queried the ITAMS database on September 5, 2001, and identified 516,256 total computer assets, including 384,990 in “In Use” status, 54,918 in “Retired” status (e.g., not being used), and 76,348 in other statuses.
C. From the 54,918 “Retired” status computer asset records, selected and reviewed a random sample of 114 records to determine whether the ITAMS maintenance contract information identified a current systems maintenance contract, and the RTS and the IPS showed that the maintenance contracts on the retired assets had been canceled.
II. Reviewed systems maintenance contracts, system performance reports, and other management reports to determine whether management monitored and measured contractor performance to protect the IRS’ interests from waste and abuse.
A. Identified Federal Government-wide and IRS policies and procedures for systems maintenance contract performance measures and management reviews to ensure the measures were enforced.
B. Reviewed two lists that included 606 systems maintenance contracts (dated April and August 2001) and selected a judgmental sample of 10 maintenance contracts related to major tax processing and tax administration systems. We reviewed the related maintenance contracts and ITS system performance measurement reports to determine whether Procurement employees monitored and measured contractor performance to ensure that contractors met the contract performance requirements.
III. Compared systems maintenance contracts to identify opportunities for management to consolidate or eliminate systems maintenance contracts and determined the potential savings.
A.
Evaluated IRS management
policies and actions that would improve the cost effectiveness of maintenance
contracts.
B.
Reviewed the General Services
Administration Federal Supply Schedule (a primary Government source for
computer equipment) to identify prices for new computer monitors, printers, and
fax machines.
C.
Reviewed a management report
to identify the computer monitor failure rate.
D. Reviewed an August 2001 list of 606 maintenance contracts that included 8,043 line item descriptions to identify contracts that covered computer monitors, printers, fax machines, and equipment cabinets and racks. Compared the contract information to the replacement cost and failure rate information for monitors, printers, and fax machines to determine the cost effectiveness of the contracts. We also selected 14 of 175 equipment cabinets and racks in a judgmental sample and verified at one location that the maintenance coverage described in the maintenance contract list did not include the equipment enclosed in the cabinets and racks.
Appendix II
Major Contributors to This Report
Scott E. Wilson, Assistant Inspector General
for Audit (Information Systems Programs)
Gary Hinkle, Director
Danny Verneuille, Audit Manager
Kevin Burke, Senior Auditor
Frank Greene, Senior Auditor
Steven Gibson, Auditor
Kim McManis, Auditor
Appendix III
Commissioner N:C
Deputy Commissioner
N:DC
Chief, Agency Wide Shared Services A
Chief, Information Technology Services M:I
Director, Enterprise Operations M:I:EO
Director, End User Equipment and Services M:I:EU
Director, Procurement
A:P
Director, Strategic Planning and Client Services M:SP
Chief
Counsel CC
National Taxpayer
Advocate TA
Director, Legislative Affairs CL:LA
Director, Office of
Program Evaluation and Risk Analysis
N:ADC:R:O
Office of
Management Controls N:CFO:F:M
Audit Liaisons:
Chief,
Information Technology Services M:I
Director,
Enterprise Operations M:I:EO
Director, End
User Equipment and Services M:I:EU
Director,
Procurement A:P
Office of Program Oversight and
Coordination M:SP:P:O
Appendix IV
This appendix presents detailed information on the measurable impact that our recommended corrective actions will have on tax administration. These benefits will be incorporated into our Semiannual Report to the Congress.
Type and Value of Outcome Measure:
Cost Savings, Funds Be Put to Better Use – Potential; $1,180,900 (see page 2).
Methodology Used to Measure the Reported Benefit:
Review of the descriptions for the 606 maintenance contracts in the Procurement maintenance contract database as of August 11, 2001, identified the maintenance cost paid in Fiscal Year (FY) 2001 for 5,236 computer monitors, 108 printers, 206 fax machines, and 175 computer equipment cabinets and racks. In some instances, the FY 2001 contracts covered only part of the year; therefore, the part year cost was projected to determine the annual cost. Details are shown in the following table:
Estimated Maintenance Contract Costs for Equipment
|
Type |
Number Being Maintained |
Annual Maintenance Cost |
|---|---|---|
|
Computer Monitor |
5,236 |
$394,100 |
|
Printer |
108 |
$13,600 |
|
Fax Machine |
206 |
$43,700 |
|
Totals |
5,550 |
$451,400 |
Source: Integrated
Procurement System
We estimated approximately 10 percent of the computer assets would be expected to require repairs each year based on a Procurement organization report that showed 7.2 percent of the 4,918 monitors covered by one contract required repairs in FY 2001. We rounded the estimate to 10 percent because printers and fax machines may require more frequent repairs of their mechanical parts. The replacement cost for the computer monitors, printers, and fax machines (or comparable items) anticipated to fail was determined by researching the General Services Administration’s Federal Supply Schedule (FSS), a primary Government source for off-the-shelf computer equipment. The identified cost was then multiplied by the number of items anticipated to fail each year. Details are shown in the following table:
Estimated
Cost to Replace Equipment Anticipated to Fail
|
Type |
Number Being Maintained |
Number of Assets
Expected to Fail Each Year |
FSS Price for
Comparable Equipment |
Cost to Replace
Failed Equipment |
|---|---|---|---|---|
|
15” Computer Monitors |
5,052 |
505 |
$93 |
$46,965 |
|
17” Monitors |
85 |
9 |
$142 |
$1,278 |
|
21” Monitors |
99 |
10 |
$479 |
$4,790 |
|
Total Monitors |
5,236 |
524 |
|
$53,033 |
|
Inkjet Printers |
17 |
2 |
$71 |
$142 |
|
Laser Printers |
91 |
9 |
$185 |
$1,665 |
|
Total Printers |
108 |
11 |
|
$1,807 |
|
Fax Machines |
206 |
21 |
$129 |
$2,709 |
|
Totals |
5,550 |
556 |
|
$57,549 (Rounded to
$57,500) |
Source: Integrated
Procurement System and General Services Administration’s Federal Supply Schedule
Estimated one year savings from the cancellation of maintenance contracts on equipment: $451,400 - $57,500 = $393,900
We could not determine the actual age of the assets because the contract information could not be traced to the asset management system (see the finding “Asset Management System Maintenance Contract Information Is Incomplete or Not Input,” on page 4). Therefore, we estimated that each asset had an average remaining lifespan of 3 years and the net present value of future savings (calculated using the estimated one year savings and the current Federal Funds Rate of 1.75 percent for 3 years) would be $1,141,500.
The estimated cost
for the maintenance on cabinets and racks is provided in the table below. We did not estimate a replacement cost for
equipment cabinets and racks because the likelihood of a cabinet or rack
failing is minimal.
Estimated Maintenance Contract Costs for Cabinets and
Racks
|
Type |
Number Being Maintained |
Annual Maintenance Cost |
|---|---|---|
|
Equipment Cabinet &
Racks |
175 |
$13,600 |
|
Totals |
175 |
$13,600 |
Source: Integrated Procurement System
Since cabinets and racks
typically do not require periodic maintenance, cancellation of the maintenance
contracts would result in an estimated one year saving of $13,600. We estimated that each asset
had an average remaining lifespan of 3 years and the net present value of
future savings (calculated using the estimated one year savings and the current
Federal Funds Rate of 1.75 percent for 3 years) would be $39,400.
Total costs savings resulting from the cancellation of maintenance contracts:
One year
savings: $393,900 + 13,600 = $407,500
Net present value of future savings (over 3 years): $1,141,500 + 39,400 = $1,180,900
Type and Value of Outcome Measure:
Reliability of Information – Potential; 606 maintenance contracts costing an estimated $157 million (see page 5).
Methodology Used to Measure the Reported Benefit:
A query on the Procurement maintenance contract database, as of August 11, 2001, identified all open Information Technology systems maintenance contracts (including delivery orders and modifications). The query results were quantified to determine the amounts awarded for the contracts.
Appendix V