TREASURY INSPECTOR GENERAL
FOR TAX ADMINISTRATION
OPPORTUNITIES REMAIN FOR THE INTERNAL REVENUE
SERVICE TO FURTHER MINIMIZE THE RISKS ASSOCIATED WITH
IMPLEMENTING YEAR 2000 COMPLIANCE
FOR EXTERNAL TRADING PARTNERS
Reference No. 095202
Bringing the Internal Revenue Service’s (IRS) systems into Year 2000 (Y2K) compliance requires close coordination with many external organizations that receive data from or provide data to the IRS. External organizations sharing data 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). Implementing Y2K compliance with ETPs is critical to ensure that the IRS can accurately process tax returns and other tax data beyond December 31, 1999.
We have been evaluating the IRS’ progress to implement Y2K compliance with ETPs due to the significant challenge and potential impact to its operations if the IRS is unable to exchange critical information. In a prior report (Evaluation of the IRS’ Efforts to Implement Year 2000 Compliance for External Trading Partners, November 24, 1998), we found that the Century Date Change (CDC) Project Office management had made considerable headway in inventorying external data exchanges and communicating the IRS’ Y2K format changes with ETPs. We also found that continued efforts were needed to ensure that IRS systems met Y2K compliance standards and to correct discrepancies in the inventory of external data exchanges. During this audit, we continued to evaluate the IRS’ progress to ensure Y2K conversion of external data exchanges and to follow up on corrective actions from the previous audit mentioned above.
The IRS continues to make significant progress to effectively implement Y2K compliance with ETPs. The CDC Project Office’s efforts have reduced the possibility that IRS operations will be interrupted due to problems occurring from the exchange of data files with ETPs after December 31, 1999. However, continued emphasis is still needed to improve the accuracy of data on the inventory system used to track and monitor Y2K compliance, the Integrated Network and Operations Management System (INOMS), and to complete two key ETP-related project milestones. Continuing to aggressively manage these areas will help further minimize the risks associated with the conversion of external data exchanges.
Reliable Data is Needed on the External Trading Partner Inventory System for the Century Date Change Project Office to Accurately Track Conversion Progress
The CDC Project Office developed several reports to closely monitor the progress in several key activities, and elevated concerns to the Y2K Executive Steering Committee for senior-level intervention. CDC Project Office management is using the INOMS database as the primary source to track and measure progress in ETP-related activities. For example, three milestones (compatibility testing, technical contact, and production) are used to track the progress of each IRS function in converting their files. Compatibility testing refers to when the receiving agency (ETP or IRS) can successfully process the exchanged data file. However, we identified several inaccuracies in key data fields on INOMS.
Our analysis of 125 data files showed that:
These and other instances of unreliable information input by functional organizations hamper the CDC Project Office’s ability to monitor progress and raise important concerns to the Executive Steering Committee.
Completion of Compatibility Testing and External Trading Partner Certifications Would Further Minimize the Risks Associated with the Conversion of External Data Exchanges
Procedures were implemented to certify the effective date of Y2K format changes with ETPs and to identify external data exchanges requiring the development of contingency plans, including data bridges. Data bridges are programs that enable a Y2K-compliant program to exchange data successfully with programs that are not yet Y2K compliant.
In addition, the CDC Project Office contracted with an outside vendor to reassess key ETPs that represented a potential level of risk to the IRS. While these efforts by the CDC Project Office are significant to ensure Y2K compliance with ETPs, two key project milestones are delayed. They should be closely managed to ensure completion prior to the final phase of end-to-end systems testing beginning in October 1999. End-to-end systems testing is a test of the most mission critical tax processing systems in a simulated Y2K environment.
The CDC Project Office scheduled the completion of all data file compatibility testing with ETPs for August 1998, which was not accomplished. As of March 10, 1999, the IRS had completed compatibility testing for 236 (88 percent) of 269 exchanged data files requiring conversion. Most data files not compatibility tested are scheduled for the latter conversion phases. The higher priority applications (i.e., mainframe applications) were scheduled in the earlier of the phases ranging from January 1997 through January 1999.
External Trading Partner Certifications
The certification of the compliant format and effective dates with ETPs was originally scheduled for April 1998. The CDC Project Office rescheduled the completion of ETP certifications for February 25, 1999. As of March 10, 1999, the IRS had completed 1,069 (89 percent) of the 1,203 certifications with ETPs. This percentage is significant given the volume of externally exchanged data files. However, continued delays in completing this milestone could jeopardize future data file exchanges if the ETP does not clearly communicate to the IRS its intent to convert or not convert to a Y2K-compliant format.
Summary of Recommendations
We recommended implementing an oversight process for ensuring accurate ETP information on INOMS and presenting delayed ETP-related project milestones at the Executive Steering Committee meetings to help further minimize the risks with the Y2K conversion efforts. Delayed project milestones should be completed prior to the final phase of the end-to-end systems testing beginning in October 1999. This will ensure that the IRS can continue accurate and uninterrupted processing beyond December 31, 1999.
IRS management responded to these recommendations and initiated corrective actions. The CDC Project Office is requesting the IRS organizations to validate their ETP file/data exchange mappings and is requesting the business owners of the data exchanges to validate that all their data exchanges and trading partners had been identified, and to notify the CDC Project Office of any additional data exchanges or trading partners. Also, the CDC Project Office will include delayed ETP-related milestones in the Executive Steering Committee "read ahead" material used for meetings. Management’s complete response is included in Appendix IV.
Management’s corrective actions to help improve the accuracy of ETP information on the inventory system were different than what we had recommended. In addition to having IRS organizations and field offices certify the accuracy of information on the inventory system, we believe that periodic sampling and independent validation of the inventory is needed.