Annual Assessment of the Internal Revenue Service’s Business
Systems Modernization Program
September 2002
Reference
Number: 2002-20-189
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.
September
27, 2002
MEMORANDUM FOR
DEPUTY COMMISSIONER FOR MODERNIZATION
&
CHIEF INFORMATION OFFICER
FROM: Michael R. Phillips /s/ Michael R.
Phillips
Acting Deputy Inspector
General for Audit
SUBJECT: Final Audit Report - Annual Assessment of
the Internal Revenue Service’s Business Systems Modernization Program (Audit #
200220038)
This
report provides our assessment of the progress of the Business Systems
Modernization (BSM) program. The basis
for our assessment is the audit work we have conducted during the past year, as
well as reports issued by the General Accounting Office. This report also addresses the requirement
in the Internal Revenue Service (IRS) Restructuring and Reform Act of 1998 (RRA
98) that we annually evaluate the adequacy of information technology in the IRS.
In summary, the BSM program
is the IRS’ latest effort to upgrade and modernize its information technology
and business systems. It is expected
that BSM will take up to 15 years and cost at least $5 billion to
complete. To date, the IRS has received
approximately $1 billion for the BSM program.
The BSM program is an
extremely complex effort, since much of the IRS’ current business systems are a
mixture of technology that dates back to the 1960s. While difficult, the BSM program must be successful if the IRS is
to meet its goals and commitments of providing world-class customer service to
taxpayers.
To help ensure the success
of its modernization efforts, the IRS hired the Computer Sciences Corporation
as the PRIME contractor and integrator for the BSM program. In addition, the IRS created the Business
Systems Modernization Office (BSMO) to coordinate and oversee the work of the
PRIME contractor. These two functions
have been working together to design and develop the BSM projects that will be
the foundation for the modernized business systems.
Since 1999, the BSMO and
PRIME contractor have made progress by developing and deploying several projects
and creating an enterprise architecture that serves as the roadmap for the
future. The projects that have been
deployed include an upgraded
toll-free telephone system that provides the capacity to route taxpayers’ calls
to the appropriate IRS employees, an Internet application that allows taxpayers
to check the status of their returns and refunds, an IRS-wide secure technology
environment, and a system designed to improve the availability and performance
of modernized systems.
While the BSMO and PRIME contractor have delivered
several important projects, the progress has been slower and more costly than
expected. For the projects we reviewed,
project dates were delayed from 4 to 9 months, while cost increases ranged from
nearly $700,000 to over $13 million from original estimates included in the
projections submitted to the Congress.
We attribute the delays and cost increases to immature development
processes, along with a steep learning curve caused by the complexity of the
IRS’ operations and environment.
Since the BSM effort began,
the BSMO and PRIME contractor have struggled to implement defined and
repeatable processes that are necessary for effective and efficient systems
development. Because the needed
maturity level has not yet been achieved, the BSMO and PRIME contractor have
had to rely on the heroics of their dedicated employees to deliver the
projects. While it is not unusual for
systems development projects in the government and private sector to experience
delays and cost increases, we believe that the BSMO and PRIME contractor could
improve their performance by enhancing key development and management
processes.
During 2002, the BSMO and
PRIME contractor identified and are aggressively focusing on improving 12 key
processes that will be needed to ensure future success. Although there will be many challenges
ahead, we are guardedly optimistic about the future of the BSM program,
assuming the BSMO and PRIME contractor effectively:
·
Implement planned
improvements in key management processes and commit necessary resources to
enable success.
·
Manage the increasing
complexity and risks of the BSM program.
·
Maintain the continuity
of strategic direction with experienced leadership.
Our concern is that the BSMO
and PRIME contractor are challenged with implementing and integrating mature
processes, while facing increased expectations and scrutiny from the Congress
and other stakeholders. In addition,
BSM projects now being designed and developed will be significantly more
complex as these process improvements are being made. This creates a significant risk that costs will continue to
exceed estimates and benefits to taxpayers will be delayed.
Management’s
Response: The Deputy Commissioner for Modernization
& Chief Information Officer agreed with our assessment and provided
comments on how the IRS is responding to ongoing systems modernization
challenges. Management’s complete
response to the draft report is included as Appendix IV.
Copies of this report are also being sent to the IRS
managers affected by the report. 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.
Success of
the Business Systems Modernization Program Requires Attention to Current and
Future Risks
Appendix I – Detailed Objective, Scope, and Methodology
Appendix II – Major Contributors to This Report
Appendix III – Report Distribution List
Appendix IV – Management’s Response to the Draft Report
In accordance with the Internal Revenue Service (IRS) Restructuring and Reform Act of 1998 (RRA 98), the Treasury Inspector General for Tax Administration (TIGTA) is required to annually evaluate the adequacy and security of IRS technology. This report presents our assessment of the status of the IRS’ Business Systems Modernization (BSM) program.
The BSM program is the IRS’ latest effort to upgrade and modernize its information technology and business systems. It is expected that BSM will take up to 15 years and cost at least $5 billion to complete. To date, the IRS has received approximately $1 billion for the BSM program.
The BSM program is an extremely complex effort, since much of the IRS’ current business systems are a mixture of technology that dates back to the 1960s. While difficult, the BSM program must be successful if the IRS is to meet its goals and commitments of providing world-class customer service to taxpayers.
To facilitate success of its modernization efforts, the IRS hired the Computer Sciences Corporation as the PRIME contractor and integrator for the BSM program. In addition, the IRS created the Business Systems Modernization Office (BSMO) to coordinate and oversee the work of the PRIME contractor. These two functions have been working together to design and develop the BSM projects that will be the foundation for the modernized business systems.
The majority of the information presented in this report is derived from TIGTA and General Accounting Office (GAO) audit reports issued during Fiscal Year 2002. Each of these audits was conducted in accordance with Government Auditing Standards. Detailed information on our audit objective, scope, and methodology, including a listing of previously issued reports, is presented in Appendix I. Major contributors to the report are listed in Appendix II.
The BSM program is an extremely
complex effort that is needed to provide top quality service to taxpayers. The BSMO and PRIME contractor have made
significant progress by deploying several projects and creating a roadmap for the
future; however, the progress has been slower and more costly than
expected. Some of the early setbacks
have been due to the steep learning curve that the BSMO and PRIME
contractor have experienced in implementing processes to ensure the success of
future modernization projects. The
challenge for the future will be to improve, while moving forward in an
increasingly complex environment.
The BSM program is
essential to provide quality service to taxpayers
The IRS is burdened with computer systems that were developed over a 35-year period. The IRS has attempted to modernize its systems several times; however, these attempts have been viewed as unsuccessful. The last major modernization attempt, known as Tax Systems Modernization, cost over $3 billion and resulted in minimal improvements and intense scrutiny from the Congress. The Commissioner recently stated that, although behind schedule, the current systems modernization effort is really about 25 years late because prior efforts were unsuccessful.
In the past, the IRS was heavily criticized for not providing top quality taxpayer service. To ensure that improvements were made, the Congress passed the RRA 98. In recent years, the IRS has worked hard to improve service to taxpayers by creating four operating divisions to serve taxpayers of similar interests and initiating the BSM program to modernize its systems and business processes. While the IRS has made progress in reorganizing its structure, the Commissioner has stated that wholesale improvements to taxpayer service will not be possible without the modernization of business systems.
Slow but steady progress has been made
Since 1999, the BSMO and PRIME contractor have made steady
progress in increasing service to taxpayers.
The Commissioner identified 2002 as a critical year for providing
taxpayer benefits through the BSM program.
The two main initiatives were to 1) create an IRS-wide secure technology
environment and 2) move a segment of
individual taxpayer records from a 1960s tape-based system to a modern
database.
The IRS and PRIME contractor have made improvements to
create a secure environment. However,
the initial migration of individual taxpayer records from an old system to a
modern, reliable database has been
postponed until 2003. The IRS is
currently testing the application.
While progress has been slow, several modernization projects have delivered benefits to taxpayers and the IRS. One of these initiatives provided taxpayers access to refund and filing information via the Internet. The BSM program also improved customer service by increasing the capacity of the toll-free telephone system and providing the ability to route taxpayers’ calls to the appropriate IRS employees. These improvements were deployed in time to assist the IRS in answering over 21.8 million phone calls during last year’s advance tax refund period. The IRS and PRIME contractor have also deployed an IRS-wide secure technology environment and a system designed to improve the availability and performance of modernized systems.
In addition, the BSMO has defined and updated its enterprise architecture, a roadmap for the BSM program. This architecture provided details that should help guide current and future modernization initiatives. The Commissioner has stated that the architecture will drive the IRS’ design and development of new business technology projects.
The modernization program is costing more and taking
longer than expected
Despite the accomplishments by the BSMO and PRIME contractor, projects are costing more and taking longer to deliver less than originally anticipated. Some of the early projects experienced setbacks resulting in project delays of from 4 to 9 months, while cost increases ranged from nearly $700,000 to over $13 million from original estimates included in the BSM projections provided to the Congress.
The BSM program, like many systems development efforts in the government and private sector, has experienced setbacks and delays. The BSMO has experienced a steep learning curve in trying to implement the repeatable processes and management capabilities that are necessary for the success of the BSM program. The PRIME contractor was hired to compensate for the IRS’ past management and technical weaknesses; however, it also has experienced a steep learning curve due to the complexity of the IRS’ operations and environment.
Since the BSM effort began, the BSMO and PRIME contractor have struggled to implement defined and repeatable processes that are necessary for effective and efficient systems development. Because the needed maturity level has not yet been achieved, the BSMO and PRIME contractor have had to rely on the dedication and heroics of their employees to deliver the successes that have been achieved to date.
Plans for improving development processes are underway
During 2002, the BSMO and PRIME contractor identified and are aggressively focusing on improving 12 key processes that will be needed to ensure future success. We believe that improving these processes will lead to improved BSM performance.
To improve processes, the BSMO, PRIME contractor, and MITRE have formed a team to evaluate and monitor selected processes, such as cost and schedule estimation, risk management, and compliance with the enterprise architecture. The team has identified process-related goals and milestones. For instance, the BSMO currently has a goal to be independently evaluated against best practice standards by December 2002.
To improve and fully implement process changes, the BSMO and PRIME contractor will have to establish accountability for results. The IRS Chief Information Officer recently stated that one of the biggest achievements within the BSM program has been establishing clearer roles and responsibilities between the IRS and the PRIME contractor. This should help establish greater accountability.
The BSMO and PRIME contractor must improve
current processes as the BSM program becomes more complex
The BSM program involves considerable risk. The BSMO and PRIME contractor must improve
management processes, while the modernization effort becomes more complex. As stated by the Commissioner, “The fact that risk exists does not mean that the
program will fail. It means that the
program could fail if the risks are not adequately identified and appropriate
action taken to address them on a timely basis.”
Significant future risks include committing resources, implementing process changes, managing program complexity, and maintaining a consistent strategic direction.
· Committing Resources and Implementing Process Changes - Success in modernizing the IRS depends to a great degree on resources. The BSMO and PRIME contractor have identified modernization processes that need to be improved. Plans to improve some of these processes have already been developed. However, resources will need to be committed to ensure that process changes are implemented, and the BSMO and PRIME contractor will need to establish and maintain accountability for results. Without effective process change and defined accountability, the BSM program could continue to experience cost increases and schedule delays, while delivering less than expected.
· Managing Program Complexity - Current and future modernization projects will be enormous in size and more complex than earlier efforts. Modernization projects will involve extensive programming and testing, and many projects will have to work together to achieve their goals. The need for projects to be integrated and work together will increase in the future, which will lead to a more complex development environment and increasing risks to the success of the BSM program.
· Maintaining a Consistent Strategic Direction - Success in modernizing the IRS depends upon consistent direction and building on past experience. Changes in the IRS’ strategic direction could have a significant affect on the BSM program. The Commissioner, who will be completing his term in November 2002, has been a key player in the early development of the BSM program. The GAO recently reported that modernization benefits could be delayed if the new Commissioner does not stay on course. Changes in the executive leadership of the BSM program could also affect the success of the modernization efforts. It will be critical for the IRS to “stay the course” even in light of changes in the leadership of the organization. Any changes in strategic direction, such as the business vision or emphasis on modernization, could jeopardize the IRS’ ability to provide needed improvements to customer service.
Both the GAO and TIGTA have recommended that the IRS slow the pace of the BSM program due to some of the risks that have surfaced. Once an appropriate scope and pace is determined that is commensurate with risk, the BSMO and PRIME contractor will have a better chance of attaining the goals and benefits of the BSM program.
Since BSMO executives have recognized current and future areas for improvement, we are guardedly optimistic that the BSMO will be able to effectively manage these risks. If the BSMO and PRIME contractor are successful in managing and controlling the risks, the BSM program should help deliver the improvements in taxpayer service that the IRS, the Congress, and the general public require.
Management’s Response: The Deputy Commissioner for Modernization & Chief Information Officer agreed with our assessment and provided comments on how the IRS is responding to ongoing systems modernization challenges. Management’s complete response to the draft report is included as Appendix IV.
Appendix I
Detailed Objective, Scope, and Methodology
The overall objective of this review was to assess the
progress of the Business Systems Modernization Office (BSMO) and the PRIME
contractor to modernize the Internal Revenue Service’s (IRS) information
technology. To accomplish our
objective, we analyzed the following reports issued by the Treasury Inspector General for Tax Administration and
the General Accounting Office (GAO):
· Modernization Project Teams Need to Follow Key Systems Development Processes (Reference Number 2002-20-025, dated November 2001).
· Business Systems Modernization: IRS Needs To Better Balance Management Capacity with System Acquisition Workload (GAO-02-356, dated February 2002).
· The Business Systems Modernization Office Needs to Strengthen Its Processes for Overseeing the Work of the PRIME Contractor (Reference Number 2002-20-059, dated March 2002).
· The Customer Communications Project 2001 Release Was Deployed, But Testing Processes Did Not Ensure All Applications Were Working As Intended (Reference Number 2002-20-056, dated March 2002).
· Critical Processes and Dependencies Need to Be Addressed to Avoid Further Delays in Deployment of the Enterprise Systems Management Project (Reference Number 2002-20-084, dated May 2002).
· Management Advisory Report: Progress Has Been Made in Establishing a Secure Modernization Infrastructure; However, Continuing Risks Could Impact Timely Deployment of Modernization Projects (Reference Number 2002-20-112, dated June 2002).
· Processes to Effectively Manage the Development of the Custodial Accounting Project Are Improving (Reference Number 2002-20-121, dated June 2002).
· Management Advisory Report: Comprehensive Measures for Interim Business Systems Modernization Status Reporting Are Needed (Reference Number 2002-20-128, dated July 2002).
·
Management Advisory Report: Most Taxpayer Communication Enhancements Planned for 2002 Will Be Delivered, Although
Some Are Later Than Originally Expected (Reference Number 2002-20-122, dated July 2002).
·
The Latest
Update to the Enterprise Architecture Improves on Previous
Versions, But Processes to Develop Future Updates Could Be Improved (Reference Number 2002-20-124, dated July 2002).
·
Management
Advisory Report: Progress Has Been Made in Developing
Transition to Support Guidance For Modernization Projects (Reference Number 2002-20-146, dated August
2002).
·
Additional
Improvements Are Needed in the
Application of Performance-Based
Contracting to Business Systems Modernization Projects (Reference Number 2002-20-170, dated
September 13, 2002).
·
Management
Advisory Report: Analysis of Business
Systems Modernization Cost, Schedule, and Functionality Performance (Audit Number 200220037, Draft Report).
Appendix II
Major Contributors
to This Report
Scott E. Wilson, Assistant Inspector General
for Audit (Information Systems Programs)
Scott Macfarlane, Director
Troy Paterson, Audit Manager
Louis Zullo, Senior Auditor
Charlene Elliston, Auditor
Appendix III
Commissioner N:C
Deputy Commissioner N:DC
Associate Commissioner, Business Systems Modernization M:B
Deputy Associate Commissioner, Program Management M:B:PM
Deputy Associate Commissioner, Systems Integration M:B:SI
Director, Budget Policy, Planning, and Programs M:BP
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 Liaison:
Associate Commissioner, Business Systems Modernization M:B
Appendix IV
The response was removed due to its size. To see the complete response, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.