On August 22, 1996, the Service’s Investment Review Board (IRB) approved the initial Business case to replace the existing Distributed Input System (DIS) and the Remittance Processing System (RPS). The project was later named the Integrated Submission and Remittance Processing (ISRP) system. Replacement of legacy DIS and RPS, the primary data input systems for processing paper submissions, with ISRP is critical. The legacy systems are 13 and 20 years old respectively, and neither is capable of processing dates beyond the year 1999.

On January 30, 1998, we issued a report on the Initial System Development Activities of the ISRP system (Report #082204), identifying the aggressive rollout schedule, the absence of contingency plans, and increased development risk for the Residual Remittance Processing System (RRPS) functionality. In this review, we assessed the decisions and activities regarding the design, development, and installation of the ISRP pilot system to determine if they were complete and reliable.

The ISRP systems development project is one of four critical Information Systems projects monitored monthly by the commissioner’s Year 2000 Executive Steering committee. We initiated our review based on the Service’s mission critical need for a year 2000 compliant system to process the taxpayer's paper submissions. The audit was performed in accordance with generally accepted government auditing standards. We plan to continue to evaluate the system rollout in future audits.

The pilot produced mixed results and risks remain for successful implementation of a nationwide production system. From the start-up of the pilot on February 9, 1998, through June 30, 1998, the pilot processed 4.1 million tax returns and 2.3 million payments. Although not all functionality was delivered, tested, or working at the inception of the pilot, management reported that the Austin Service center (AUSc) did meet both the April deposit program completion date (PcD) and May other-than-full-paid individual tax return PcD. However, the RRPS did not demonstrate consistent reliability as a production system, and neither ISRP subsystem conclusively demonstrated anticipated productivity gains.

Management appropriately elected to mitigate the risk associated with a nationwide rollout by limiting the RRPS rollout for the 1999 processing year to five additional service centers. We concur with management’s actions to control risks associated with the nationwide rollout. However, there are additional system design, project scheduling and resource allocation risks, which management must also continue to monitor and address to ensure successful nationwide implementation before January 1, 2000.

Software development and hardware configuration issues affect the stability of the RRPS and its ability to meet all contractual and operational production requirements. (See page 5 for details.)

As of the Preliminary Pilot Review, the Service had not yet accepted the ISRP pilot system because it had not meet the contract's 99 percent effectiveness requirement and RRPS remittance processing requirements.

• Through June 30, 1998, the Austin Service center (AUSc) was unable to consistently meet the Service’s minimum deposit standards while the RRPS pilot was its primary deposit system.

Work process changes to accommodate incompatible enhancements increase the project's non-technical system design risk. For example:

• RRPS transaction processing changes circumvent legacy RPS Unpostable controls which prevent the issuance of erroneous balance due notices and the release of erroneous refunds. To determine the potential effect of this condition, we reviewed over 90,000 reversed payment transactions not processed through legacy RPS. Our analysis showed that this legacy control would have prevented over 19,000 erroneous refunds and 53,000 erroneous notices from generating. (See page 8 for details.)
• Preliminary data indicates that re-engineered RRPS work processes have affected the productivity of some downstream functions. During pilot operations, downstream units, such as ERS, Rejects, Unpostable and Unidentified Remittances, experienced lower than expected production rates, increases in their overage inventories, and/or increases in their overall inventories. We will continue to evaluate the effects of ISRP re-engineered work processes on these units in future audits. (See page 11 for details.)

Once programming changes for all non-RPS processed remittances are made, we will follow up to quantify the number of taxpayers who would have received erroneous notices and /or refunds. Management plans to implement a partial corrective action for the 1999 processing season. We plan to follow-up and review the effectiveness of this corrective action. 

The project office's strong configuration management controls have proactively identified and/or mitigated many of the project's scheduling risks, such as the effect of contractor delivery delays on system testing activities. However, continued delays in software delivery by the contractor require management to continue its strong executive oversight to ensure that the system is adequately developed and tested prior to the final nationwide implementation. (See page 13 for details.)

Productivity gains established in the project's initial business case were the basis for projected labor savings and comprise approximately 34 percent of the overall benefit of the Service's investment in the ISRP system. Since the projected benefits of major information technology investments are closely integrated into the Service's financial planning and budgeting activities, it is important that the Service evaluate the productivity gains of ISRP operations closely during the 1999 filing season. (See page 16 for details.)

To provide management with assessments of the project's system development risks and recommendations to mitigate those risks, we issued Internal Audit Memorandums on the interim results of our review. While management did not always agree with our assessments and conclusions, they took or initiated appropriate corrective actions to most of our recommendations. As a result, we have not restated all of our recommendations in this report. Instead, we have highlighted the risks which management must continue to mitigate to ensure a successful implementation. Because this was an on-line audit, the recommendations, which were not immediately addressed, were subsequently resolved or acknowledged by management during pilot operations. copies of management’s responses to our memorandums are included as Attachments IV, V, and VI. We will continue to provide audit coverage as the ISRP implementation progresses.