TREASURY INSPECTOR GENERAL
FOR TAX ADMINISTRATION
IMPROVEMENTS ARE NEEDED TO ENSURE CONTROL AND ACCOUNTABILITY OVER AUTOMATED DATA PROCESSING ASSETS
Reference No. 2000-10-145
The Internal Revenue Service (IRS) has had longstanding problems with its systems and controls over property and equipment, including information systems assets. The IRS has taken action to address these problems. The Commissioner designated the Chief Information Officer (CIO) as the executive responsible for controlling and accounting for all Automated Data Processing (ADP) equipment and software. The CIO directed that an all-out effort was needed to bring the accuracy of the inventory up to acceptable levels. A wall-to-wall physical ("floor to system") inventory was conducted for selected sites at a cost of approximately $7.6 million. The CIO also directed that full-time property management staffs be established in all offices using a new set of inventory procedures that employ a Single Point Inventory Function (SPIF) under the exclusive management and control of the Information Systems function.
The overall objective of this review was to determine the effectiveness of IRS efforts to properly control and account for ADP assets.
The IRS Wall-to-Wall Inventory/Reconciliation Process conducted by teams of IRS employees and contractors was a positive initiative to account for ADP equipment and was vital to ensuring that all critical systems were identified and made Year 2000 compliant. The development of the SPIF guidelines and procedures, and their proper implementation and execution, will further rectify weaknesses in the current ADP inventory management system.
While the IRS has made progress in controlling and accounting for ADP assets, additional actions are needed. ADP Property Certifications should be verified to ensure the accuracy and completeness of the inventory and reconciliation process prior to final approval and submission to the CIO and Commissioner. Adequate resources should be dedicated to ensure successful implementation of the SPIF, and SPIF operating procedures should specifically address internal use software developed by the IRS and annual physical inventory issues. Without these actions, the inventory will continue to be inaccurate, and the IRS will be at risk of continued criticism of its financial records. Also, the IRS may, once again, have to incur significant costs for a comprehensive verification of ADP equipment in Fiscal Year (FY) 2000.
Verification of the Automated Data Processing Property Certifications Is Needed to Ensure the Accuracy and Completeness of the Inventory for the Chief Information Officer
The Information Systems Operations Division is not properly verifying the ADP Property Certifications prior to forwarding them to the CIO for final approval and certification to the Commissioner. The IRS deployed teams of employees and contractors to conduct a comprehensive "floor to system" inventory at 46 field sites and several National Headquarters buildings. By December 1999, inventories were completed at 32 sites. Upon completion of the inventory, the teams provided each site with an exception list of equipment that they could not locate. The sites certified to their executive head of office that the exceptions were resolved and that their hardware and software inventory was complete and accurate. However, we reviewed nine sites and found that only three maintained documentation to support their resolution actions. Also, queries of the inventory database for the 9 sites showed that 8,002 inventory records were not updated as required. Quality review was not performed to ensure that the sites properly updated the inventory records. As a result, the site Certifications cannot be relied upon, thus jeopardizing the completeness and accuracy of the inventory database.
Adequate Resources Need to Be Dedicated to Ensure the Successful Implementation of the Single Point Inventory Function
Adequate resources have not been dedicated to the SPIF implementation process. The CIO has directed the establishment of full-time ADP property management units in all offices. The Asset Management Modernization Project Office, which is responsible for nationwide implementation of the SPIF, believes that the unit should consist of six staff at the outset for the SPIF to succeed. However, the SPIF is being implemented with varying configurations at different sites. For example, at one Computing Center five employees and one manager are assigned, while at the District Offices only one person per District is being assigned. Without providing adequate resources to maintain the inventory, the IRS will not be able to sustain the progress made during the inventory and reconciliation processes used to support the accountability and financial reporting of ADP assets.
The Single Point Inventory Function Standard Operating Procedures Should Include Specific Instructions That Address Additional Software and Annual Inventory Issues
The SPIF Standard Operating Procedures (SOP) do not address application programs or systems and internal use software maintained by the IRS. Statement of Federal Financial Accounting Standards (SFFAS) No. 10, effective October 1, 2000, requires identification and capitalization of internal use software. SPIF procedures have not been updated to include how to properly identify and account for internal use software, thus risking the IRSí compliance with SFFAS No. 10. Also, the SOPs do not include specific instructions on the consistent preparation and maintenance of documentation of physical inventories. Although the SPIF SOPs state that documentation plays a major role in control over ADP property management, they do not specify what documentation should be maintained, by whom, where, and for how long. Without adequate documentation for the annual inventory reconciliation of its ADP property, the IRS cannot be assured of the accuracy and completeness of its inventory or the Certifications forwarded to the Commissioner.
Summary of Recommendations
The Director, Enterprise Operations, should verify the ADP Certifications prior to their submission to the CIO for final approval and certification to the Commissioner. The CIO, together with other affected senior executives, should re-evaluate resource commitments needed to successfully implement the SPIF, and oversight of the SPIF should be centralized. The SPIF SOPs need to be updated to ensure that SFFAS No. 10 requirements for the identification and capitalization of internal use software are met. Also, the SOPs need to be updated to include specific requirements for maintaining documentation relating to the annual inventories to ensure that the Certifications forwarded to the Commissioner are accurate.
Managementís Response: The Director, Enterprise Operations, will revise the annual inventory process to include quality reviews of all IRS sites beginning with the FY 2001 Certification. The revised procedures will be piloted and implemented as an update to the Internal Revenue Manual. The Director, Enterprise Operations, will perform a pilot of the District Office SPIF to determine the exact number of employees required to successfully implement the SPIF. The Director, Enterprise Operations, centralized oversight of the SPIF implementation under the Asset Management Modernization Project Office. When it becomes operational, the Enterprise Systems and Asset Management Division will assume oversight responsibility. The Director, Enterprise Operations, will determine the appropriate location for the accountability and identification of internal use software SOPs. The Director, Systems Development, will be accountable for implementing and integrating an action to update the SOPs.
Managementís complete response to the draft report is included as Appendix IV.