The century Date change (cDc) Project Office established a Budget Office to obtain, distribute and manage Year 2000 (Y2K) appropriated funds. The Office’s responsibilities include managing Information Systems (IS) and non-IS funds identified for the cDc project and tracking budgetary information for the cDc Project Office, Internal Revenue Service (IRS) executives, and other internal and external stakeholders. The cDc Budget Office is also responsible for monitoring and reporting the availability and use of congressionally mandated funds; unobligated funds transferred from expired IRS accounts; and, supplemental full time equivalents (FTE) from within the IRS’s operational budget.

The overall objective of our audit was to determine whether the Service was effectively budgeting and accounting for all Y2K conversion efforts.

Overall, the Service has been effective in accounting for Y2K funds. However, more attention is needed in the identification of decreased funding requirements and the recording of payroll expenditures related to Y2K efforts. While the cDc Budget Office uses a Working Budget report and Bi-Weekly Budget meetings to monitor the availability of budgeted Y2K funds and assess additional budget needs, management must become more proactive in identifying unused funds. In addition, management needs to ensure that complete and accurate information is recorded and reported for IS FTEs expended on Y2K efforts.

The cDc Budget Office is not being informed of all decreases in funding requirements resulting from procurement activities, which increase the availability of funds to be allocated to other Y2K projects. Though the identified funding decreases represented minimal amounts, this ineffective process creates the potential that large amounts of available funds will not be identified. If available funds are not identified, the cDc Budget Office may unnecessarily request supplemental funds from the congress or request that funds be reprogrammed from other areas. This could delay the initiation of essential Y2K projects.

Information Systems’ employees are expending time on Y2K efforts but not always recording their time using the Y2K Project cost Accounting Subsystem (PcAS) codes. Further, time charges to the Y2K PcAS codes are not complete, accurate or properly classified. Additionally, time may not be accurately reported for work performed on non-Y2K projects that have Y2K implications. Without complete and accurate information, the Service cannot monitor FTEs expended on Y2K efforts or justify requests for additional funding.

In addition to the issues identified in this report, we issued an Audit Memorandum on June 9, 1998, to advise management of needed improvements in the Service’s monitoring and reporting of Y2K funds. The memorandum is included as Attachment III to this report. Specifically, the Quarterly congressional Report on IRS’s Year 2000 conversion program was not comprehensive or consistent and did not reflect information on the expenditure of funds as required by the conference Report. The conference Report that accompanies the appropriation legislation required the reporting of expenditures related to cDc efforts. The conference Report does not establish mandated activities; however, following its requirements is advisable for sound financial management. Additionally, we noted that several non-Information Systems offices, contributing to the Y2K effort, were not reporting their time using the Y2K PcAS codes.

Management responded positively to these issues. The June 1998 Quarterly Report was modified to incorporate our recommendations and management indicated that steps would be taken to ensure that non-IS cDc work is accurately recorded. Management’s response is included as Attachment IV to this report.

To improve procedures for monitoring available funds and for reporting accurate and complete payroll expenses related to Year 2000 conversion costs, we recommend that Information Systems management:

• Monitor Y2K funds past the commitment level to ensure available funds can be identified for Y2K project needs.
• Ensure that employees are recording their time to the appropriate PcAS codes and that time charges are complete and accurate.

In addition, our June 9, 1998, memorandum recommended that the information in the Quarterly congressional Report comply with the requirements of the conference Report and that the cDc project office address the concerns of those offices not charging Y2K efforts to the Y2K PcAS codes.

Management Response: Management agreed with the facts cited in the report and is taking the appropriate corrective actions. Portions of the management response related to each recommendation are included in the report.