TREASURY INSPEcTOR GENERAL

TREASURY INSPEcTOR GENERAL

FOR TAX ADMINISTRATION

EVALUATION OF THE SERVIcE'S EFFORTS TO IMPLEMENT

YEAR 2000 cOMPLIANcE FOR EXTERNAL TRADING PARTNERS

Reference No. 091303

Date: November 24, 1998

Executive Summary

In 1996, the Service established the century Date change (cDc) Project Office with an objective to ensure that all current and future IRS systems are Year 2000 (Y2k) compliant prior to January 1, 2000. Bringing the IRS systems into Y2k compliance also requires close coordination with many external organizations that receive data from or provide data to the Service. External organizations interfacing with the IRS include state and local governments, banks, other Federal agencies, and foreign governments. These external organizations are known as External Trading Partners (ETPs).

We performed our audit to evaluate the Service’s efforts to implement Y2k compliance for externally traded data files with ETPs. The review was part of Internal Audit’s coordinated reviews of the Service’s Year 2000 efforts. We conducted the audit in an on-line environment in accordance with generally accepted government auditing standards. As the audit progressed, we immediately brought issues to management’s attention. Management was responsive to our recommendations and implemented corrective actions. We will continue our on-line auditing of ETP issues as the Service continues to renovate its systems for the Year 2000.

Results

The cDc Project Office has made considerable progress to complete an inventory of external data exchanges and to communicate the Service’s Y2k format changes with ETPs. Ensuring Y2k compliance with the Service’s ETPs has required extensive coordination and effort by several organizations and Service functions. As a result, the cDc Project Office has encountered delays in completing several ETP activities.

Management’s continued efforts are needed to ensure that IRS systems meet Y2k compliant standards and that discrepancies in the inventory of externally exchanged data files and data exchanges are corrected. Additional details on these two critical issues are presented below. During our review, we also recommended that the cDc Project Office downgrade the ETP activity status on management information reports from green to yellow to more accurately reflect the current state of ETP activities. Management subsequently changed the project status and no further corrective action is warranted for this recommendation.

Issues that management is in the process of correcting and should continue to emphasize to minimize risks with the Y2k conversion effort.
Source code for components Supporting External Exchanges of Data Files Did Not Always Meet Year 2000 Standards

As of August 5, 1998, the Service reported 356 externally traded data files. Our analysis of source code for 47 components supporting 72 of the 356 external exchanges showed that 51 percent did not meet Y2k standards and guidelines. Recently, the Service contracted to have an outside vendor inspect all IRS tax processing and administrative system code to identify Y2k non-compliant components. (See Pages 5-7)

Discrepancies in the Service’s Inventory of Externally Exchanged Data Files Impact Effective communication of the Date Standard

Recognizing the importance to effectively communicate the Service’s date standard format, the cDc Project Office developed a communications package and established a three-step process for working with ETPs. However, discrepancies in the Service’s inventory of externally exchanged data files impact effective communication of the date standard. For example, we identified an additional 132 data files that appeared to be externally exchanged, but were not included in the Service’s inventory. Also, we determined that some external exchanges with mass contacts were not included in the project office’s certification process. On June 29, 1998, the cDc Project Office requested that chiefs, Directors, and Regional commissioners certify that all files that their offices maintain have been linked to a data exchange and that the data exchange is correct. Management also agreed to validate the exchanges and complete the mass contact certification by October 1, 1998. (See pages 7-8)

Management’s complete responses are shown as Attachments II-VI.