One of the most critical issues the Internal Revenue Service (IRS) faces this year is the need to make its computer systems Year 2000 (Y2K) compliant. The IRS depends on its automated systems to process tax returns, issue refunds, deposit payments, and provide employee access to taxpayer account data.

The objective of our review was to provide the IRS information on the status of critical Y2K corrective actions taken in response to the recommendations made in our report entitled The Internal Revenue Service Needs Additional Emphasis on Computer Component Retirement Decisions To Be Ready For the Year 2000 (Reference Number 093506, dated September 16, 1999). Our review covered only three of the six corrective actions included in the prior audit. These corrective actions involved:

• Assuring that decisions to retire computer components in the IRS’ Systems Support Division (SSD) were accurately reflected on the inventory system.
• Issuing guidance for service centers scheduled to transfer retired computer components to the computing centers.
• Requiring that service centers issue letters certifying that retired computer components were placed in archived or obsolete directories prior to their transfer to the computing centers.

The remaining three corrective actions were referred to another audit team for follow-up and will be reported on separately.

Our review showed that IRS management has completed corrective actions to address the three concerns we followed up on from the previous report. The completed corrective actions are designed to assure that computer components are properly retired.

Through interviews with IRS personnel and reviews of documentation, we confirmed that the SSD had conducted a complete review of the status of all its computer components, including the retired computer components, and updated the inventory system.

The IRS’ Information Systems function had also issued instructions for transferring retired computer components from the service centers to the computing centers. All seven service centers scheduled to transfer retired components to the computing centers had issued certification memoranda stating that the retired components had been removed from the IRS systems currently in use.

Management's Response: Although the IRS’ official comments were not available as of the date of this report, we incorporated comments provided by the Century Date Change Project Director. He outlined additional actions the IRS has taken to assure that components are retired timely and properly. These actions included developing several weekly reports for identifying and monitoring component retirements, and conducting independent visits to IRS offices to confirm Y2K compliance, including the retirement of components.