The Internal Revenue Service (IRS) is in the process of consolidating the mainframe computer operations used to process tax return data. The consolidation involves moving mainframe processing, currently done at the IRS’ 10 service centers, to new mainframe computers located in 2 facilities referred to as computing centers—the Tennessee Computing Center (TCC) and the Martinsburg Computing Center (MCC).

This is our second audit of the Service Center Mainframe Consolidation (SCMC) Project. The first audit, Readiness for Service Center Mainframe Consolidation (Reference Number 085812, dated September 21, 1998) reported that: (1) testing plans were not adequate, (2) Project Office controls over critical tasks and communications to the field needed improvement, (3) controls over technical aspects of contract administration needed improvement, and (4) critical staffing shortages still existed at the computing centers.

The overall objective of this review was to determine whether SCMC project management controls were adequate to ensure that: (1) problems identified during the Kansas City Service Center (KCSC) consolidation were corrected before additional consolidations occurred, (2) consolidation minimized the impact on taxpayer rights, and (3) budget postings and reports to the Congress on the costs of this initiative were accurate. We also evaluated corrective actions taken as a result of the prior audit, and immediately raised significant issues to the attention of IRS Management and Finance (M&F) and Information Systems (IS) Division management.

When the KCSC mainframe operations were consolidated to the TCC on September 19, 1998, significant problems were encountered. For example, the methods used to transfer data were not efficient, some programming changes were not effective, and detailed standard operating procedures had not been developed for the consolidated environment.

In a November 1998 memorandum, we reported the results of our assessment of the impact of mainframe consolidation on KCSC operations and taxpayers (see Appendix V). We also advised IRS IS management that several risks relating to testing, preparation for consolidation, and staffing were still present prior to the Brookhaven Service Center (BSC) consolidation.

BSC mainframe computer operations were consolidated to the MCC on December 4, 1998, and the results were very encouraging for the SCMC Project. Several problem areas were improved by addressing lessons learned from the KCSC consolidation. As a result, the IRS was able to return to normal processing times at the BSC much faster than it did during the KCSC consolidation. Other reasons for the successful BSC consolidation included the continuous cooperation and communication between the MCC and the BSC, and the fact that the BSC provided on-site support to the MCC during the initial weeks of consolidation.

However, the IRS did experience some problems during the BSC consolidation. For example, some programs did not work, some telecommunication hardware failed, and automated scheduling was cumbersome.

There are still several issues that should be addressed before the remaining service center consolidations.

• Management of Print Operations – Standard operating procedures and training need improvement.
• Workload Management – Controls should be automated or improved for ensuring that complete and accurate input is received by the mainframes and complete and accurate output is produced by the mainframes.
• Preparation for Consolidation – Prior to consolidation, the service centers need to ensure their media storage method is compatible with the newer technology used in the computing centers.
• Staffing Shortages – Critical staffing shortages at the computing centers need to be addressed.

In the prior review, we recommended that IRS management provide additional resources to adequately define and validate SCMC contract requirements, and that the SCMC Project Office coordinate with the Procurement Division during price negotiations. IRS management agreed with the recommendations and established an August 1998 completion date for corrective actions. The IRS had not adequately corrected these conditions by October 1998. As a result, the IRS’ negotiating position has diminished.

The Project Office was not verifying all invoices for the vendor’s services and travel due to a lack of staffing. This could lead to the IRS paying for services not received or for unauthorized travel. In addition, inadequate contract administration has resulted in the contractor performing an estimated $7 million of work without following the proper procurement procedures.

Improvements are needed to ensure that the IRS accurately budgets, captures and reports all SCMC staffing costs to the Congress. Some service center employees who were working on the SCMC Project were not charging their time to the correct project. Without complete and accurate information on the costs of the SCMC, IRS management cannot accurately report to the Congress or estimate the future costs of consolidation. While we could not determine the actual amount unreported, we estimate that for the three sites tested (TCC, KCSC, BSC), there were approximately $1.07 million in unreported labor costs for Fiscal Year (FY) 1998.

The following summarizes the specific recommendations contained in the report:

1. Ensure all critical operational and technical aspects of consolidation at computing centers and service centers are standardized, thoroughly tested, appropriately documented, and included in employee training. Also, ensure that computing centers are adequately staffed.
2. Ensure contract requirements are defined by June 1999 and that proper procurement procedures are followed to obtain goods and services.
3. Ensure that all consolidation costs are accurately budgeted, captured, and reported. Also, review the reasonableness of the FY 1999 and FY 2000 SCMC budget estimates and make adjustments, as appropriate.

Management’s Response: IRS management provided an adequate, detailed response to our first memorandum which addressed the first recommendation (see Appendix VI). Management’s response to the remainder of the issues in this report was not available at the time this final report was issued. We provided the IRS with a draft of this report on June 30, 1999, with a 30-day calendar comment period.