oversight

Business Systems Modernization: IRS Has Made Significant Progress in Improving Its Management Controls, but Risks Remain

Published by the Government Accountability Office on 2003-06-27.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

             United States General Accounting Office

GAO          Report to Congressional Committees




June 2003
             BUSINESS SYSTEMS
             MODERNIZATION
             IRS Has Made
             Significant Progress in
             Improving Its
             Management Controls,
             but Risks Remain




GAO-03-768
             a
                                                June 2003


                                                BUSINESS SYSTEMS MODERNIZATION

                                                IRS Has Made Significant Progress in
Highlights of GAO-03-768, a report to           Improving Its Management Controls, but
congressional committees
                                                Risks Remain



As required by law, the Internal                IRS’s initial (November 2002) and revised (March 2003) fiscal year 2003
Revenue Service (IRS), in                       expenditure plans were prepared in accordance with the law. IRS made
November 2002 and March 2003,                   significant progress in improving its modernization management controls
submitted to the congressional                  and capabilities and implementing GAO’s recommendations. For example:
appropriations committees its
initial and revised fiscal year 2003
                                                •   IRS implemented 20 of 23 commitments and is implementing the remaining
expenditure plans, respectively,
requesting about $378 million for                   3 commitments that address previously reported weaknesses and
the Business Systems                                recommendations. Significant among these efforts were IRS’s
Modernization (BSM) program.                        achievements in improving its software acquisition practices.
                                                •   IRS deployed 3 modernized systems that are currently providing benefits
GAO reviewed the plans to                           that (1) improve telecommunications infrastructure, including telephone
(1) determine whether the plans
were prepared in accordance with
                                                    call management, call routing, and customer self-service; (2) provide off-
the law, (2) determine what                         the-shelf software to IRS revenue agents to allow them to accurately
progress IRS had made in                            compute complex corporate transactions; and (3) improve customer self-
implementing modernization                          service by providing instant refund status information and instructions for
management controls and                             resolving refund problems via the Internet.
capabilities, and (3) provide any               •   IRS also took steps to balance the scope and pace of the BSM program
other observations about the plans
and IRS’s BSM program.
                                                    with the management capacity of IRS and its prime contractor. These steps
                                                    included reassessing the portfolio of projects that IRS had planned to
                                                    proceed with during the remainder of fiscal year 2002 and reducing the
                                                    planned scope and pace of the BSM program for fiscal year 2003.
GAO recommends that the
Commissioner of Internal Revenue                Although significant progress has been made, certain controls and
direct the Chief Information Officer            capabilities for modernization have not yet been fully implemented,
(CIO) to continue improvements in               including human capital management and validation of cost and schedule
IRS’s modernization management
                                                estimates. Weaknesses in these controls and capabilities contributed, in part,
controls. GAO also recommends
that the Commissioner direct the                to cost, schedule, and performance shortfalls in the BSM program. For
CIO to promptly update the                      example, in the revised fiscal year 2003 expenditure plan, IRS disclosed that
enterprise transition strategy to               75 percent of program-level initiatives and acquisition project milestones had
conform to other changes in IRS’s               cost increases and/or schedule delays exceeding 10 percent of the estimated
enterprise architecture and                     cost and duration specified in the fiscal year 2002 expenditure plan.
establish and implement a process               Schedule delays affect the delivery of benefits. For example, (1) the
for determining the type of task                opportunity for Form 1040EZ filers to enjoy faster refunds, as promised by
order to be awarded in acquiring                the first release of the project that is to replace IRS’s master files of taxpayer
modernized systems. The                         information, has been delayed for an additional 13 months and (2) schedule
Commissioner agreed with GAO’s                  delays for the first release of the e-Services project will defer the provision
findings and commented on actions
to address the recommendations.
                                                of easy-to-use electronic products and services targeted at tax practitioners
                                                who inform, educate, and provide services to the taxpaying public.



www.gao.gov/cgi-bin/getrpt?GAO-03-768.

To view the full product, including the scope
and methodology, click on the link above.
For more information, contact Robert F.
Dacey at (202) 512-3317 or daceyr@gao.gov.
Contents



Letter                                                                                                                  1
                             Recommendations for Executive Action                                                       4
                             Agency Comments                                                                            5


Appendixes
              Appendix I:    Briefing Slides from the December 18, 2002, Briefing to the
                             Senate and House Appropriations Subcommittee Staffs                                        7
             Appendix II:    Briefing Slides from the April 14, 2003, Briefing to the
                             Senate and House Appropriations Subcommittee Staffs                                    70
             Appendix III:   Comments from the Internal Revenue Service                                            114
             Appendix IV:     GAO Contacts and Staff Acknowledgments                                               117
                             GAO Contact                                                                           117
                             Staff Acknowledgments                                                                 117




                             Abbreviations

                             BSM          Business Systems Modernization
                             CIO          Chief Information Officer
                             IRS          Internal Revenue Service
                             OMB          Office of Management and Budget
                             PRIME        PRIME Systems Integration Support contractor


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                             Page i                                GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
A
United States General Accounting Office
Washington, D.C. 20548



                                    June 27, 2003                                                                                 Lert




                                    The Honorable Richard Shelby
                                    Chairman
                                    The Honorable Patty Murray
                                    Ranking Member
                                    Subcommittee on Transportation, Treasury
                                     and General Government
                                    Committee on Appropriations
                                    United States Senate

                                    The Honorable Ernest J. Istook, Jr.
                                    Chairman
                                    The Honorable John W. Olver
                                    Ranking Minority Member
                                    Subcommittee on Transportation, Treasury
                                     and Independent Agencies
                                    Committee on Appropriations
                                    House of Representatives

                                    As required by law, the Internal Revenue Service (IRS), in November 2002
                                    and March 2003, submitted to the congressional appropriations committees
                                    its initial and revised fiscal year 2003 expenditure plans, respectively,
                                    requesting about $378 million from its Business Systems Modernization
                                    (BSM) fund. Our objectives in reviewing the plans were to (1) determine
                                    whether the plans satisfied the conditions specified in the law,1 (2)
                                    determine what progress IRS had made in implementing modernization
                                    management controls and capabilities, and (3) provide any other
                                    observations about the initial and revised plans and IRS’s BSM program.




                                    1
                                     BSM funds are unavailable until IRS submits to congressional appropriations committees
                                    for approval a modernization expenditure plan that (1) meets the Office of Management and
                                    Budget’s (OMB) capital planning and investment control review requirements; (2) complies
                                    with IRS’s enterprise architecture; (3) conforms with IRS’s enterprise life-cycle
                                    methodology; (4) is approved by IRS, the Department of the Treasury, and OMB; (5) is
                                    reviewed by GAO; and (6) complies with federal acquisition rules, requirements, guidelines,
                                    and systems acquisition management practices. See P.L. 108-7 (Feb. 20, 2003), and
                                    intervening continuing resolutions for fiscal year 2003 funding, and P.L. 107-67 (Nov. 12,
                                    2001), for fiscal year 2002 funding.




                                    Page 1                                 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
On December 18, 2002, and April 14, 2003, we briefed your respective
offices on the results of our reviews. This report transmits the materials
used at those briefings and reiterates the recommendations that we made
to the then–Acting Commissioner of Internal Revenue that we specified in
our December 2002 briefing.2 The full briefing materials, including our
scope and methodology, are reprinted in appendixes I and II.

In summary, we made the following four major points in our December
2002 briefing on the results of our review of IRS’s initial expenditure plan
for fiscal year 2003:

• IRS’s initial expenditure plan satisfied each of the six legislative
  conditions.

• IRS had made significant progress in improving its modernization
  management controls and capabilities and implementing our
  recommendations. For example, IRS had implemented 20 of 23
  commitments and is in the process of implementing the remaining 3
  commitments that address previously reported weaknesses and
  recommendations. Significant among these efforts was IRS’s
  achievements in improving its software acquisition practices.

• IRS also had taken steps to balance the scope and pace of the BSM
  program with the management capacity of IRS and the PRIME Systems
  Integration Support contractor (PRIME). In accordance with our
  recommendation, IRS completed a reassessment of the fiscal year 2002
  BSM program in May 2002 and took actions to better balance the system
  acquisition workload with the management capacity. Specifically, IRS
  (1) deferred the start of five new projects until fiscal years 2003 and
  2004 to reduce IRS/PRIME resource demands, (2) reapplied a portion of
  these deferred financial resources toward PRIME management
  processes and support of the federally funded research and
  development center to accelerate correcting modernization
  management control weaknesses, and (3) increased its own efforts and
  executive focus on management process improvement.




2
 Since the time of our briefings, a new Commissioner of Internal Revenue has been
confirmed.




Page 2                                GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
• Although significant progress had been made, certain modernization
  management controls and capabilities—related to configuration
  management,3 enterprise transition strategy,4 human capital
  management, and cost and schedule estimate validation—had not yet
  been fully implemented. Weaknesses in these controls and capabilities
  increase the risk of cost, schedule, and performance shortfalls in the
  BSM program.

We also made the following five observations related to the BSM program
and the initial fiscal year 2003 expenditure plan:

• The number of project milestones experiencing cost and schedule
  changes was increasing.

• BSM was entering a critical, high-risk phase as the scope and complexity
  of the program continued to grow.

• Opportunities for using performance-based contracts in acquiring
  modernized systems were increasing.

• IRS had improved the format of its expenditure plan.

• Internal IRS costs of the BSM program, paid from other IRS
  appropriations, were expected to increase, but were not tracked or
  known.

In our April 2003 briefing on the results of our review of IRS’s revised fiscal
year 2003 expenditure plan, we reported that IRS had deployed three
modernized systems that provide benefits that (1) improve
telecommunications infrastructure, including telephone call management,
call routing, and customer self-service; (2) provide off-the-shelf software to
IRS revenue agents to allow them to accurately compute complex
corporate transactions; and (3) improve customer self-service by providing



3
 Configuration management is the means for ensuring the integrity and consistency of
system modernization program and project products throughout their life cycles. Through
effective configuration management, for example, integration among related projects and
alignment between projects and the enterprise architecture can be achieved.
4
 An enterprise transition strategy describes how an organization will migrate from its
current operating environment to its future operating environment.




Page 3                                  GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
                      instant refund status information and instructions for resolving refund
                      problems via the Internet.

                      In addition, we made the following four major points in the April 2003
                      briefing:

                      • IRS’s revised plan satisfied the conditions specified under the law.

                      • IRS continued to take steps to balance the pace of the program with
                        management capacity by reducing the planned scope of the BSM
                        program for fiscal year 2003. Between November 2002 and March 2003,
                        IRS deferred four new project releases, discontinued two ongoing
                        project releases, absorbed one new release into an ongoing project
                        release, and transferred one ongoing project to another appropriation.
                        Moreover, IRS reduced the scope of BSM program-level initiatives and
                        core infrastructure projects. As a result, IRS reduced the initial BSM
                        funding request for fiscal year 2003 by about $72 million.

                      • Most initiatives/project milestones continued to experience cost
                        increases and/or schedule delays. In the revised fiscal year 2003
                        expenditure plan, IRS disclosed that 75 percent of program-level
                        initiatives and acquisition project milestones had cost increases and/or
                        schedule delays exceeding 10 percent of the estimated cost and duration
                        specified in the fiscal year 2002 expenditure plan.

                      • Schedule delays affected the delivery of benefits. For example, (1) the
                        opportunity for the first set of taxpayers (single, Form 1040EZ filers) to
                        enjoy faster refunds, as promised by the first release of the project that
                        is to replace IRS’s master files of taxpayer information, has been delayed
                        an additional 13 months; (2) schedule slippages for the first release of
                        the e-Services project will delay the provision of easy-to-use electronic
                        products and services targeted at tax practitioners that inform, educate,
                        and provide services to the taxpaying public; and (3) remediation of
                        material weaknesses may be delayed.



Recommendations for   To improve IRS’s modernization management controls and capabilities, we
                      recommend that the Commissioner of Internal Revenue direct the Chief
Executive Action      Information Officer (CIO) to complete actions to

                      • institutionalize configuration management procedures for the Business
                        Systems Modernization Office;



                      Page 4                           GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
                  • implement plans for obtaining, developing, and retaining requisite
                    human capital resources; and

                  • implement effective procedures for validating contractor-developed
                    cost and schedule estimates.

                  In addition, we recommend that the Commissioner of Internal Revenue
                  direct the CIO to

                  • promptly update the enterprise transition strategy to conform to other
                    changes in IRS’s enterprise architecture and

                  • establish and implement a process for determining the type of task
                    order to be awarded in acquiring modernized systems.



Agency Comments   In providing written comments on a draft of this report, the Commissioner
                  of Internal Revenue agreed with this report’s findings and commented on
                  the actions IRS is taking to implement our recommendations. The
                  Commissioner’s comments are reprinted in appendix III.


                  We are sending copies of this report to the Chairmen and Ranking Minority
                  Members of other Senate and House committees and subcommittees that
                  have appropriations, authorization, and oversight responsibilities for the
                  Internal Revenue Service. We are also sending copies to the Commissioner
                  of Internal Revenue, the Secretary of the Treasury, the Chairman of the IRS
                  Oversight Board, and the Director of the Office of Management and Budget.
                  Copies are also available at no charge on the GAO Web site at
                  http://www.gao.gov.




                  Page 5                          GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
Should you or your offices have questions on matters discussed in this
report, please contact me at (202) 512-3317. I can also be reached by E-mail
at daceyr@gao.gov. Key contributors to this report are listed in appendix IV.




Robert F. Dacey
Director, Information Security Issues




Page 6                           GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
Appendix I

Briefing Slides from the December 18, 2002,                                                 Append
                                                                                                 xeis




Briefing to the Senate and House
Appropriations Subcommittee Staffs                                                           AppenIx
                                                                                                   di




   Results of Review of IRS’s November 2002 Business
         Systems Modernization Expenditure Plan

                          Briefing to the Staffs of
                  the Senate Committee on Appropriations,
             Subcommittee on Treasury and General Government
                                    and
                  the House Committee on Appropriations,
                 Subcommittee on Treasury, Postal Service,
                         and General Government

                            December 18, 2002

                                                                                        1




                           Page 7          GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
                     Appendix I
                     Briefing Slides from the December 18, 2002,
                     Briefing to the Senate and House
                     Appropriations Subcommittee Staffs




                                                                       Briefing Overview


• Introduction

• Objectives

• Scope and Methodology

• Background

• Results in Brief

• Results

• Conclusions

• Recommendations

                                                                                                         2




                     Page 8                                 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
                                                    Appendix I
                                                    Briefing Slides from the December 18, 2002,
                                                    Briefing to the Senate and House
                                                    Appropriations Subcommittee Staffs




                                                                                                                              Introduction

   • As mandated by IRS’s FY 2002 appropriations act,1 and proposed in its
     FY 2003 appropriations bills,2 Business Systems Modernization (BSM)
     funds are unavailable until IRS submits to the congressional
     appropriations committees for approval, a modernization expenditure
     plan that:
        • Meets the Office of Management and Budget’s (OMB) capital
          planning and information technology (IT) investment control review
          requirements;
        • Complies with IRS’s enterprise architecture (EA);3
        • Meets IRS life cycle management requirements;4
        • Is approved by IRS, Treasury, and OMB;
        • Is reviewed by GAO; and
        • Complies with federal acquisition requirements and management
          practices.
1Treasury and General Government Appropriations Act, 2002 (P. L. 107-67).
2Treasury and General Government Appropriations Act, 2003 (H.R.5120 and S.2740). IRS’s FY 2003 funding is provided under a Current Resolution,
Pub. L. No. 107-229, as amended by Pub. L. No. 107-294, that continues IRS’s funding at the “current rate” of operations, subject to the “authority and
conditions” provided in the FY 2002 appropriations act.
3An Enterprise Architecture (EA) is an institutional blueprint defining how an enterprise operates today, in both business and technology terms,

and how it wants to operate at some point in the future. An EA also includes a roadmap for transitioning between these environments.
4IRS   refers to its life cycle management program as the Enterprise Life Cycle (ELC), which is graphically depicted in the Background Section.           3




                                                    Page 9                                        GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
                                                  Appendix I
                                                  Briefing Slides from the December 18, 2002,
                                                  Briefing to the Senate and House
                                                  Appropriations Subcommittee Staffs




                                                                                                                         Introduction

• Since mid-1999, IRS has submitted a series of expenditure or
  “spending” plans requesting release of BSM appropriated funds. To
  date, about $968 million5 has been appropriated and released for BSM.

• IRS requested about $451 million in its November 2002 expenditure
  plan for FY 2003.

• However, OMB only approved $257 million of IRS’s $451 million
  request. OMB is deferring decisions on the remaining $194 million until it
  completes a more thorough review of IRS’s business cases, receives
  the results of Treasury’s analysis on how it plans to proceed with the
  Custodial Accounting Project (CAP/EDW), and more thoroughly reviews
  IRS’s modernization plans in the context of the President’s management
  agenda and the 24 government-wide E-gov initiatives.

• On November 18, 2002, IRS submitted its expenditure plan for $451
  million, seeking release of the $257 million approved by OMB.

5This   does not include the $14 million from IRS’s FY 2002 supplemental appropriation that has not yet been released.
                                                                                                                                             4




                                                  Page 10                                       GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
                        Appendix I
                        Briefing Slides from the December 18, 2002,
                        Briefing to the Senate and House
                        Appropriations Subcommittee Staffs




                                                                                        Objectives


• As agreed with IRS’s appropriations subcommittees, our objectives were
  to
   • determine whether the November 2002 expenditure plan satisfies
     the legislative conditions,
   • determine what progress IRS has made in implementing
     modernization management controls and capabilities, and
   • provide any other observations about the November 2002 plan and
     IRS’s BSM program.




                                                                                                            5




                        Page 11                                GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
                        Appendix I
                        Briefing Slides from the December 18, 2002,
                        Briefing to the Senate and House
                        Appropriations Subcommittee Staffs




                                                             Scope and Methodology


• To accomplish our objectives, we
   • Reviewed the November 2002 expenditure plan submitted by IRS
      in the context of both the amount originally requested by IRS and
      the amount approved by OMB;
   • Analyzed the plan against the legislative conditions to identify any
      variances;
   • Reviewed program and project management reports and briefings
      to assess progress in implementing modernization management
      controls and capabilities;
   • Observed modernization executive steering committee and
      subcommittee meetings to, among other things, document how the
      plan was developed and reviewed;
   • Interviewed IRS program and project management officials to
      corroborate our understanding of the plan and other BSM activities.



                                                                                                            6




                        Page 12                                GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
                    Appendix I
                    Briefing Slides from the December 18, 2002,
                    Briefing to the Senate and House
                    Appropriations Subcommittee Staffs




                                                         Scope and Methodology


• Analyzed available evidence on recent efforts to implement
  modernization management controls and capabilities. Specifically,
  we analyzed progress and plans for
   • software acquisition management, as defined by the Software
     Engineering Institute’s (SEI) Software Acquisition Capability
     Maturity Model™(SA-CMM),
   • ELC definition and implementation, including configuration
     management, quality assurance and risk management,
   • enterprise architecture (EA) definition and implementation,
   • human capital management,
   • cost and schedule estimation practices,
   • integrated program schedule development,
   • contract management,
   • transition management, and
   • the Customer Account Data Engine (CADE) project, which is
     intended to replace IRS’s taxpayer master files.

                                                                                                        7




                    Page 13                                GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
                    Appendix I
                    Briefing Slides from the December 18, 2002,
                    Briefing to the Senate and House
                    Appropriations Subcommittee Staffs




                                                         Scope and Methodology


• Collaborated with the Treasury Inspector General for Tax
  Administration (TIGTA) to avoid duplication of effort in reviewing
  BSM initiatives and incorporated TIGTA results in this briefing where
  appropriate.

    • Projects addressed by TIGTA included CADE.

    • Program-level processes addressed by TIGTA included cost and
      schedule estimation, contract management, and transition
      management.




                                                                                                        8




                    Page 14                                GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
                        Appendix I
                        Briefing Slides from the December 18, 2002,
                        Briefing to the Senate and House
                        Appropriations Subcommittee Staffs




                                                             Scope and Methodology


• Consistent with prior reviews, we did not independently validate planned
  initiatives’ cost estimates or confirm, through system and project
  management documentation, the validity of IRS-provided information on
  the initiatives’ content and progress.

• We provided a draft of this briefing on December 16, 2002, to IRS BSM
  program executives, and have incorporated their comments where
  appropriate.

• We performed our work from November through December 2002 in
  accordance with generally accepted government auditing standards.




                                                                                                            9




                        Page 15                                GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
                         Appendix I
                         Briefing Slides from the December 18, 2002,
                         Briefing to the Senate and House
                         Appropriations Subcommittee Staffs




                                                                                      Background

• The November 2002 plan that IRS submitted to OMB is to (1) continue
  ongoing program-level initiatives through mid-November 2003 and 12
  ongoing projects to their next milestones and (2) start 8 new projects or
  new releases of existing projects. See appendix I for a description of
  projects and initiatives. Examples of new projects are Modernized e-file
  and Modernized Data Access.
• The plan reported completion of several projects, including the Internet
  Refund/Fact of Filing, Enhance Call Routing, and Enterprise Systems
  Management applications and the first part of the Security and
  Technology Infrastructure Release (STIR).
• However, OMB has only approved funding for IRS to (1) continue
  ongoing program-level initiatives for 3 months and 9 ongoing projects to
  their next milestones and (2) start 3 new projects or new releases of
  existing projects.
• Like its previous plans, IRS’s November 2002 expenditure plan covers
  contractor costs, such as the Prime Systems Integration Support
  contractor (PRIME) and the systems engineering and technical services
  provided by the Federally Funded Research and Development Center
  (MITRE).
• A summary of the plan follows.
                                                                                                           10




                         Page 16                                GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
                                                    Appendix I
                                                    Briefing Slides from the December 18, 2002,
                                                    Briefing to the Senate and House
                                                    Appropriations Subcommittee Staffs




                                                                                                                   Background

            Summary of IRS’s November 2002 Expenditure Plan ($000)6
                                                                                                                         OMB
            Program-Level Initiatives                                                                  IRS Request     Approved
            Architecture & Integration                                                                   $43,577
            Business Integration                                                                         $11,413
            Management Processes                                                                         $13,828
            Federally Funded Research and Development Center (FFRDC) - MITRE                             $20,750
            Program Management Office                                                                     $9,908
                               Subtotal                                                                  $99,476        $25,000

                       7
            Projects
            Core Infrastructure Projects (e.g. Infrastructure Shared Services)                          $99,261        $99,000
            Data Projects (e.g. Customer Account Data Engine, Integrated Financial Services)            $152,798       $115,000
            Business Projects (e.g. e-Services, HR Connect)                                              $94,800        $18,000
                               Subtotal                                                                 $346,859       $232,000


            Addition to Management Reserve*                                                               $4,342


            Total**                                                                                     $450,677       $257,000
            * - Includes $677 from Remaining FY2001 and FY2002 Appropriated Funds
            ** - Includes $14,000 from FY 2002 Supplemental Appropriation

   Source: IRS
6See   appendix II for a more detailed summary of the plan.
7The   3 categories under this heading include 20 separate projects.                                                                  11




                                                    Page 17                                GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
                                               Appendix I
                                               Briefing Slides from the December 18, 2002,
                                               Briefing to the Senate and House
                                               Appropriations Subcommittee Staffs




                                                                                                                   Background



• To date, GAO has reviewed and reported on seven requests for BSM
  funding releases.8

       • Since mid-1999, we have reported9 on the risks associated with
         IRS’s approach of concurrently building systems while developing
         and implementing program management capabilities such as having
         a fully operational program management office and implementing its
         enterprise life cycle (ELC). IRS’s ELC is a structured method for
         managing system modernization program and project investments
         throughout their life cycles (see next slide for a simplified diagram of
         the life cycle).

       • We reported that attempting to acquire modernized systems before
         having the requisite management capability increases the risk that
         systems will experience cost, schedule, and performance shortfalls.
8Fordetails on our past review results, see appendix III.
9Forexample, see U.S. General Accounting Office, Business Systems Modernization: Results of Review of IRS’ March 2001 Expenditure Plan, GAO-
01-716 (Washington, D.C.: June 29, 2001) and U.S. General Accounting Office, Internal Revenue Service: Progress Continues But Serious        12
Management Challenges Remain, GAO-01-562T (Washington, D.C.: April 2, 2001).




                                               Page 18                                    GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
                                                       Appendix I
                                                       Briefing Slides from the December 18, 2002,
                                                       Briefing to the Senate and House
                                                       Appropriations Subcommittee Staffs




                                                                                                                                            Background


IRS’s Enterprise Life Cycle Phases and Milestones (MS)

  ELC Phases




                                                                                                                                         Operations & Support
               Vision & Strategy




                                                                 Development




                                                                                                       Deployment
                                        Architecture




                                                                                    Integration




               MS                  MS                   MS                                        MS                                        MS
                1                   2                    3                                         4                                         5

  ELC
  Milestones
                                                                                                                                    Post-
     Strategic                      Concept                                    System              Enterprise
                                                                                                                                 Deployment
       Plan                        Definition                                  Design             Deployment
                                                                                                                                 Evaluation




                                                                                                                                                                13




                                                       Page 19                                                      GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
                                               Appendix I
                                               Briefing Slides from the December 18, 2002,
                                               Briefing to the Senate and House
                                               Appropriations Subcommittee Staffs




                                                                                                                    Background

        • We have also reported10 that the risk of cost increases and schedule
          slippages associated with building systems without the requisite
          management controls is not as severe early in projects’ life cycles
          when they are being planned (project definition and preliminary
          system design), but escalates as projects are built (detailed design
          and development) and implemented (enterprise deployment).

        • In the case of IRS and its ELC, this point of risk escalation is
          Milestone 3. From this point through deployment (Milestone 4) to
          operations and support (Milestone 5), risk can increase significantly.

        • In our February 2002 report,11 we identified key IRS projects that
          were approaching or had passed Milestone 3 that were beginning to
          experience cost, schedule, and performance shortfalls, and
          concluded that program risks were increasing.

10Forexample, see U.S. General Accounting Office, Tax Systems Modernization: Results of Review of IRS’ Third Expenditure Plan, GAO-01-
227 (Washington, D.C.: January 22, 2001).
11U.S. General Accounting Office, Business Systems Modernization: IRS Needs to Better Balance Management Capacity with Systems
Acquisition Workload, GAO-02-356 (Washington, D.C.: Feb. 28, 2002).                                                                      14




                                               Page 20                                     GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
                                                      Appendix I
                                                      Briefing Slides from the December 18, 2002,
                                                      Briefing to the Senate and House
                                                      Appropriations Subcommittee Staffs




                                                                                                                    Results in Brief

  • IRS’s November 2002 plan satisfies each of six legislative conditions.

                      Legislative Conditions                                               Satisfies    Does Not Satisfy
                      1. Meets OMB capital planning and investment control review             9
                          requirements.
                      2. Complies with IRS’ enterprise architecture.                          9
                      3.   Meets the requirements of IRS’ life cycle program.                 9
                      4.   Approved by IRS, Treasury, and OMB.                                9
                      5.   Reviewed by GAO.                                                   9
                      6.   Complies with federal acquisition requirements and management      9
                           practices.12




•     IRS has made significant progress in improving its modernization
      management controls and capabilities and implementing our
      recommendations. For example, IRS has implemented 20 of 23
      commitments and is in the process of implementing the remaining
      three commitments that address previously reported weaknesses and
      recommendations. As part of these efforts, IRS was independently
      rated as SA-CMM Level 2. Further, IRS has taken steps to better
      balance the pace of the FY 2002 BSM program with its management
      capability.
12These acquisition requirements and practices are intended to establish acquisition management rigor and discipline, such as those defined in the

Software Engineering Institute’s software acquisition model. Our analysis of the plan focused on satisfaction of this model’s tenets.
                                                                                                                                                     15




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                       Appropriations Subcommittee Staffs




                                                                              Results in Brief


• Although significant progress has been made, certain modernization
  management controls and capabilities, related to configuration
  management, enterprise transition strategy, human capital
  management, and cost and schedule estimate validation, have not yet
  been fully implemented. Weaknesses in these controls and capabilities
  contributed, at least in part, to BSM project cost, schedule, and
  performance shortfalls.

• We also make five observations related to the BSM program and
  November 2002 expenditure plan:
   • The number of project milestones experiencing cost and schedule
     changes is increasing
   • BSM is entering a critical, high-risk phase as the scope and
     complexity of the program continue to grow



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                         Briefing to the Senate and House
                         Appropriations Subcommittee Staffs




                                                                                Results in Brief

    • Opportunities for using performance-based contracts are increasing
    • IRS has improved the format of its expenditure plan
    • Internal costs of the BSM program, expected to increase, are not
      tracked or known

• To assist IRS in improving and expanding their modernization
  management controls and capabilities, we are making
  recommendations to the Acting Commissioner of Internal Revenue.

• In commenting on a draft of this briefing, IRS officials generally agreed
  with our findings, conclusions, and recommendations, and indicated
  that they have plans in place to address these challenges.




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                             Appropriations Subcommittee Staffs




                                                                                                   Results

Objective 1: The November 2002 plan satisfies the conditions
proposed in IRS’s FY 2003 appropriations bills.

          Legislative Conditions       Expenditure Plan Provisions
          1. Meets OMB capital         IRS’s November 2002 expenditure plan provides for
             planning and IT           managing investments as part of a portfolio through
             investment control        its Investment Decision Management process. This
             review requirements.      includes conducting periodic portfolio reviews to
                                       assess changes in business priorities and project
                                       schedules.




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                      Briefing Slides from the December 18, 2002,
                      Briefing to the Senate and House
                      Appropriations Subcommittee Staffs




                                                                                            Results

Legislative Conditions       Expenditure Plan Provisions
2. Complies with IRS’s       The November 2002 plan provides funds to
    enterprise               continue definition and implementation of the
    architecture (EA).       enterprise architecture. For example, it provides
                             for
                             • completing and issuing EA release 2.1
                             • publishing updates to the EA
                             • performing EA compliance certification
                                 activities
                             • issuing the 2003 and 2004 release architectures
                             • operating the systems engineering office
3.   Meets the               The plan provides funds for meeting the
     requirements of IRS’s   requirements in IRS’s enterprise life cycle
     life cycle program.     management program, which IRS refers to as ELC.
                             For example, the plan calls for
                             • maintaining responsibility for coordinating,
                                 tracking, and integrating all program-wide costs,
                                 schedules, releases, issues, and risks
                             • maintaining the ELC




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                                                  Appropriations Subcommittee Staffs




                                                                                                                                Results



                        Legislative Conditions              Expenditure Plan Provisions
                        4. Approved by IRS,                 • IRS – October 8 and 10, 2002
                           Treasury, and OMB.               • Treasury – November 5, 2002
                                                            • OMB – November 14, 2002 (partial approval)
                                                                                                              13


                                                            • Submitted to IRS’s appropriations
                                                                subcommittees – November 18, 2002
                        5. Reviewed by GAO.                 • GAO – December 18, 2002 briefing to IRS’s
                                                                appropriations subcommittees
                        6. Complies with the                As part of the ELC, IRS has defined processes,
                           acquisition rules,               roles, responsibilities, etc. for implementing
                           requirements,                    Software Engineering Institute (SEI) Software
                                                                                                      TM
                           guidelines, and                  Acquisition Capability Maturity Model practices
                                                                                                   14
                           systems acquisition              within the level 2 key process areas. These
                           management practices             practices are consistent with federal acquisition
                           of the federal                   requirements and management practices, and the
                           Government.                      plan calls for implementation of the ELC on all
                                                            projects. Also, all PRIME cost reimbursement task
                                                            orders are subject to a final independent audit by
                                                            the Defense Contract Audit Agency to ensure that
                                                            costs incurred are commensurate with the physical
                                                            completion of the contract.


13OMB   approved only $257 million of the $451 million requested by IRS.
14Theseare Acquisition Planning, Solicitation, Requirements Development and Management, Project Management, Contract Tracking
and Oversight, Evaluation, and Transition to Support.                                                                                20




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                                            Appropriations Subcommittee Staffs




                                                                                                                     Results


Objective 2: IRS has made significant progress
improving controls and capabilities, although some have
not been fully implemented.
• Since we reported on IRS’s last plan,15 IRS has made significant
  progress in improving its modernization controls and capabilities and
  addressing our recommendations. For example, it has implemented 20
  of 23 commitments to address previously reported weaknesses and
  recommendations as the following illustrates:
         IRS Commitments to Address Previously Reported       Completed   In Progress     Revised IRS Commitments as of
         Weaknesses and Recommendations                                                   November 2002 Plan
         Software acquisition management
         ƒ Complete internal SA CMM level 2 capability          9
            compliance assessment by June 2002 for CADE,
            STIR, and e-Services projects.
         ƒ Based on internal assessment, develop plan to        9
            correct identified weaknesses.
         ƒ Have an external evaluation performed by an          9
            independent assessor in December 2002 to ensure
            compliance with SEI’s SA CMM level 2
            requirements.
         ƒ Have all BSMO projects follow SA CMM level 2         9
            processes by FY 2003.

15GAO-02-356.
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                                        Appropriations Subcommittee Staffs




                                                                                                                       Results


IRS Commitments to Address Previously Reported           Completed    In Progress      Revised IRS Commitments as of
Weaknesses and Recommendations                                                         November 2002 Plan
ELC definition and implementation (Configuration
Management, Quality Assurance, Risk Management)
Configuration Management:
ƒ Fully define BSMO standard configuration                 9
    management procedures by early 2002.
ƒ Fully institutionalize BSMO standard configuration                      9           To be completed by September
    management procedures by early 2002.                             (See pp. 26-28)   2003.
ƒ Identify configuration items for current production      9
    environment impacted by 2002 modernization
    project releases by March 2002.
ƒ Establish a centralized CM repository by early           9
    2002.
ƒ Define and implement a program-wide                      9
    configuration status account reporting mechanism
    by March 2002.
Quality Assurance:
ƒ Increase level of IRS oversight, scrutiny, and           9
    quality assurance of PRIME activities.
Risk Management:
ƒ Include all known risks in inventory by Feb. 2002.       9
ƒ Track and update risk plans and their disposition.       9
Enterprise architecture (EA) definition and
implementation
ƒ Approve EA 2.0.                                          9
ƒ Ensure ongoing projects are aligned with EA in           9
    accordance with compliance certification process
    by late-December 2001.




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                                         Appropriations Subcommittee Staffs




                                                                                                                    Results


IRS Commitments to Address Previously Reported           Completed       In Progress      Revised IRS Commitments as of
Weaknesses and Recommendations                                                            November 2002 Plan
Human Capital Management
ƒ Assess knowledge and skills needed to effectively         9
   perform IT.
ƒ Inventory the knowledge and skills of current IT          9
   staff.
ƒ Identify gaps between requirements and current            9
   staffing.
ƒ Develop and implement plans to fill the gaps.                              9
                                                                        (See pp. 31-33)
Cost and Schedule Estimation practices

ƒ Direct PRIME to select an estimating method.              9

ƒ Ensure PRIME develops a plan for implementing             9
    the method by mid-January 2002.
ƒ Ensure PRIME begins implementation of the plan            9
    by the end of February 2002.
ƒ Develop and implement an approach to oversee                               9           To be completed by mid- 2003.
    PRIME estimation practices by February 2002.                        (See pp. 34-36)
Integrated Program Schedule Development

ƒ Finalize the Integrated Master Schedule for               9
   Release 2002 by late-December 2001.




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                                               Appropriations Subcommittee Staffs




                                                                                                                             Results


IRS and PRIME Have Accomplished Notable Achievements
  Related to Their Software Acquisition Practices

• The Clinger-Cohen Act requires the establishment of effective IT
  management processes. SEI’s Software Acquisition Capability Maturity
  Model™ (SA-CMM) defines such processes for managing software
  acquisitions. Since 1995, we have recommended that IRS establish the
  “repeatable” level of SEI’s software acquisition management processes
  (Level 2).16

• In December 2002, after an independent assessment, the IRS BSM
  office was rated SA-CMM Level 2.

• In August 2002, the PRIME systems integration contractor was rated
  SA-CMM Level 3. According to SEI, PRIME is the first organization in
  the world to achieve this rating.
16U.S. General Accounting Office, Tax Systems Modernization: Management and Technical Weaknesses Must Be Corrected If Modernization

Is to Succeed, GAO/AIMD-95-156 (Washington, D.C.: July 26, 1995).                                                                     24




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                       Briefing Slides from the December 18, 2002,
                       Briefing to the Senate and House
                       Appropriations Subcommittee Staffs




                                                                                             Results

IRS Has Taken Steps to Balance Scope and Pace of BSM Program
  with Management Capacity of IRS and PRIME Contractor
• In accordance with our recommendation, IRS completed a reassessment of
  the FY 2002 BSM Program in May 2002 and took the following actions to
  better balance system acquisition project workload with management
  capacity:
    • IRS deferred the start of 5 new projects until FY 2003 and 2004 to
      reduce IRS/PRIME resource demands, including
        • Reporting Compliance,
        • Customer Account Data Engine Release 3, and
        • Enterprise Data Warehouse Release 2.
    • IRS reapplied a portion of these deferred financial resources available
      from these deferred projects towards PRIME management processes
      ($1.1 million) and MITRE management support ($0.75 million) to
      accelerate correction of modernization management control
      weaknesses.
• In addition, IRS has increased its own efforts and executive focus on
  management process improvement (not funded out of the BSM account).


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                          Briefing Slides from the December 18, 2002,
                          Briefing to the Senate and House
                          Appropriations Subcommittee Staffs




                                                                                                Results


     Enterprise-wide Configuration Management Processes
      Have Been Established, But Are Not Yet Fully
      Institutionalized

     • Effective configuration management (CM) is an essential control for
       ensuring the integrity and consistency of system modernization
       program and project products throughout their life cycles.

     • In June 2001, we reported17 that BSM CM was ineffective.
       Accordingly, we made recommendations to address this weakness.

     • In February 2002, we reported18 that IRS had made important
       progress in addressing our recommendations, but did not yet have
       effective processes.


17GAO-01-716
18GAO-02-356                                                                                                26




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                     Briefing Slides from the December 18, 2002,
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                     Appropriations Subcommittee Staffs




                                                                                           Results

• Since then, IRS has implemented most of our remaining
  recommendations and strengthened its CM processes. For example,
  it has:
    • developed and implemented directives, plans, and standard
      operating procedures to define and establish an enterprise-wide
      process,
    • established a Modernization Change Control Board (CCB),
      project CCBs, and set approval authorities at all levels, and
    • completed compliance assessments for 5 projects to assess
      alignment with enterprise-wide policies and procedures.

• However, IRS has not yet fully institutionalized these processes. For
  example,
   • IRS has yet to complete or report on CM compliance
     assessments for several key projects, including the Security and
     Technology Infrastructure Release, Enterprise Systems
     Management, and Filing & Payment Compliance.

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                     Briefing Slides from the December 18, 2002,
                     Briefing to the Senate and House
                     Appropriations Subcommittee Staffs




                                                                                           Results

   • Key activities had not been performed on 4 of the 5 projects
     assessed. These activities included preparing complete CM
     plans, clearly identifying configuration items, and resolving
     various configuration status accounting discrepancies.

• IRS acknowledges the importance of expanding and sustaining its
  progress in implementing CM processes and has committed,
  beginning in FY 2003, to conduct semi-annual compliance
  assessments for all BSM projects to verify that proper practices are
  being followed and to ensure that all identified discrepancies are
  corrected.

• Until IRS fully institutionalizes effective CM processes, it cannot
  adequately ensure that systems are being developed in accordance
  with enterprise-wide needs and requirements. Consequently,
  increased risk exists that projects will eventually require expensive
  rework.


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                          Briefing to the Senate and House
                          Appropriations Subcommittee Staffs




                                                                                                Results

    IRS’s Enterprise Transition Strategy Lags Behind its
      Enterprise Architecture

•   An enterprise architecture (EA) is an institutional blueprint defining, in
    both business and technology terms, how an enterprise operates today,
    how it wants to operate at some point in the future, and how it will “get
    there.”

•   The Enterprise Transition Strategy (ETS) is the plan for migrating from
    the current state to the future state. To remain current and to support
    continued coordinated improvements across the enterprise, the ETS
    should be maintained and updated as time and circumstances dictate.




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                       Briefing Slides from the December 18, 2002,
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                       Appropriations Subcommittee Staffs




                                                                                             Results

• However, IRS did not promptly update the transition strategy to conform to
  revisions in other components of the EA. For example,
   • Although IRS revised its enterprise architecture and issued version 2.0
     in March 2002, it does not expect to approve ETS version 2.0 until
     December 2002 (9 months later).

   • IRS is currently revising its architecture and expects to approve EA
     version 2.1 in February 2003. IRS staff indicated that the draft ETS
     version 2.0 does not fully align with the content of the draft EA version
     2.1 and that IRS plans to complete ETS 2.1 by March 2003.

• IRS officials intend to bring the transition strategy into closer
  synchronization with the rest of the architecture. IRS indicated that ETS
  version 2.0 was delayed because it decided to first complete its portfolio
  reassessment in mid-2002. IRS officials believed that close management of
  the 2002-2004 release plans mitigated the risk.

• By not promptly updating its transition strategy to conform to other changes
  in its architecture, IRS increases the risk that the implementation of
  modernized systems will take longer and cost more than currently planned.


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                         Appropriations Subcommittee Staffs




                                                                                              Results

  Although Progress Has Been Made, BSM Human Capital
  Strategy Is Not Yet Fully Implemented

     • To maintain and enhance the capabilities of IT staff, organizations
       should develop and implement a human capital strategy that, among
       other things, includes the following steps
        • assess knowledge and skills needed to effectively perform IT
          operations to support agency mission and goals,
        • inventory the knowledge and skills of current IT staff,
        • identify gaps between requirements and current staffing, and
        • develop and implement plans to fill the gaps.

     • We reported in our February 2002 report19 that IRS had not defined
       or implemented a human capital strategy. Accordingly, we
       recommended that IRS address this weakness.


19GAO-02-356
                                                                                                           31




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                     Briefing Slides from the December 18, 2002,
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                     Appropriations Subcommittee Staffs




                                                                                           Results

• IRS has made important progress in addressing our
  recommendation. For example, it has
   • analyzed its current human capital state and conducted a gap
     assessment,
   • developed a human capital plan to better align human capital
     resources with the organizational business direction,
   • established a Human Factors Life Cycle Office.

• However, IRS has yet to fully implement its plan to ensure that it has
  sufficient human capital resources. IRS has yet to
   • hire, develop, or retain sufficient human capital resources with
     the required competencies, including technical skills, in specific
     mission areas, and
   • develop a comprehensive multiyear workforce plan in place of
     the current annual plan that does not encompass all phases of
     multiyear projects.


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                     Briefing Slides from the December 18, 2002,
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                     Appropriations Subcommittee Staffs




                                                                                           Results


• IRS recognizes the importance of implementing an effective
  strategy, and, for FY 2003, it is committed to
   • carry-out the implementation strategy for the human capital plan,
   • establish and report on measures for the Human Factors Life
     Cycle in support of BSM initiative.

• Until IRS fully implements its strategy, it will not have all of the
  necessary IT knowledge and skills to effectively manage the BSM
  program or to operate modernized systems as they deploy.
  Consequently, the risk of BSM program and project cost, schedule,
  and performance shortfalls is increased.




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                          Appropriations Subcommittee Staffs




                                                                                                Results

          Although Progress Has Been Made, IRS Practices for
          Validating Cost and Schedule Estimates Are Not Yet
          Fully Implemented

     • Organizations require the capability to adequately review and
       validate project cost and schedule estimates so that funding,
       resource allocation, and technical decisions can be made using
       credible information. This capability requires that procedures be
       developed, approved, and used, and that staff are sufficiently trained
       in their use.

     • In February 2002, we reported20 that IRS had not implemented a
       capability to effectively estimate project costs and schedules. The
       cost and schedule estimates in the November 2001 plan were
       contractor-provided, “rough order of magnitude” estimates, that had
       not been subjected to meaningful, reliable validation by IRS. We
       recommended that IRS correct this weakness.

20GAO-02-356
                                                                                                            34




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                     Briefing Slides from the December 18, 2002,
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                     Appropriations Subcommittee Staffs




                                                                                           Results


• Since then, IRS has assumed responsibility for validating contractor-
  provided cost and schedule estimates. To achieve this, IRS has
  developed procedures, including a detailed checklist based on an
  SEI cost and schedule estimation framework, for independently
  reviewing contractor-provided cost and schedule estimates.

• However, these procedures have not been approved or fully
  implemented, and staff have not been trained in their use, because
  IRS underestimated the amount of time and effort required to
  implement these procedures.

• Also, IRS has undertaken an effort to validate the PRIME’s cost and
  schedule estimation methods, and to establish ways to leverage
  these methods in its validation system.




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                     Briefing Slides from the December 18, 2002,
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                     Appropriations Subcommittee Staffs




                                                                                           Results


• These cost validation issues contributed to the fact that BSM
  projects have cost more, taken longer, and delivered less
  functionality than originally estimated. For example,
   • IRS reports that CADE’s (Release 1) Milestone 4 date has
     slipped by an additional 6 months, and the cost would have
     increased, except the contractor has absorbed the associated
     increased cost. The slippage has delayed delivery of CADE
     functionality and related taxpayer benefits for another tax filing
     season.
• IRS recognizes these weaknesses and is committed for FY 2003 to:
   • completing a pilot of the new procedures in January 2003
   • providing training in PRIME cost and schedule processes and
     practices
   • overseeing PRIME’s progress in completing/continually
     improving its estimating system
   • fully implementing its validation approach by mid-2003

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                        Briefing Slides from the December 18, 2002,
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                        Appropriations Subcommittee Staffs




                                                                                              Results

Objective 3: Other Observations About IRS’s BSM
Program and Expenditure Plan
  Observation 1: The Number of Project Milestones
  Experiencing Cost and/or Schedule Changes Is Increasing
   • In its November 2001 plan, IRS disclosed that 18 initiatives or project
     milestones experienced cost and/or schedule shortfalls.
   • In its November 2002 plan, IRS disclosed that 25 of 28 initiatives or
     project milestones have experienced cost and/or schedule shortfalls
     against commitments made in its November 2001 plan. Also, IRS
     reported cost decreases in certain milestones. A summary of cost
     performance follows:
      • 4 program-level initiatives had cost increases ranging from 4% to 20%
        ($288,000 to $6.4 million)
      • 14 project milestones experienced cost increases ranging from 1% to
        117% ($121,000 to $11.7 million)
      • 4 milestones had cost decreases ranging from 1% to 20% ($233,000 to
        $4.8 million)
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                         Briefing Slides from the December 18, 2002,
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                         Appropriations Subcommittee Staffs




                                                                                                  Results

• A summary of schedule performance follows:
   • 12 project milestones experienced schedule delays ranging from 1.5
     months to 8 months, with 9 experiencing delays of 4 months or more
   • one milestone had its schedule shortened by 1 month
   • schedule performance for four project milestones could not be
     determined since their commitment date for completion is listed as
     “to be determined”
• Appendix IV shows the details, including explanations, of the cost
  and schedule changes reported by IRS in its November 2002
  plan. The following table illustrates three of the more significant
  examples:
                 Projects          Commitment Date and     Revised Commitment     Change (%)
                                   Funding as of 10/2001    Date and Funding        ($000)
                                         ($000)                   ($000)
             Internet Refund/            7/31/02                   TBD
              Fact of Filing             $5,000                   $8,304        +$3,304 (+66%)
                (Release 1)
               Milestone 5
                 e-Services              10/31/03               4/18/04           +6 Months
           (Release 1.1 and 1.2)         $40,191                $50,146         +$9,955 (+25%)
              Milestone 4,5
               HR Connect                12/31/02                TBD
                (Release 1)              $10,000                $21,700         +$11,700(+117%)
              Milestone 4,5


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                    Briefing Slides from the December 18, 2002,
                    Briefing to the Senate and House
                    Appropriations Subcommittee Staffs




                                                                                          Results


• IRS has provided a detailed explanation for each cost or schedule
  change in its plan.
• Subsequent to the submission of its November 2002 plan to its
  appropriations subcommittees, IRS reported an additional $15-18
  million cost increase for Release 1 of the Integrated Financial
  Systems project (milestones 4 and 5). Among the reasons given by
  IRS for the cost increase are
       • Additional testing resources and tools
       • Development environment build-out to support training and
         testing
       • Increased requirements,
       • Security enhancements to ensure EA compliance,
       • Additional training for approximately 8000 users, and
       • Prior estimate was made before IFS vendor was selected, and
         license fees were known and design was done.


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                         Appropriations Subcommittee Staffs




                                                                                               Results

Observation 2: IRS’s BSM Program Is Entering a Critical, High-
 Risk Phase

• The scope and complexity of the BSM Program are growing. The number
  of projects underway continues to expand and the tasks associated with
  those projects that are moving beyond design (milestone 3) and into
  development (milestone 4) are by their nature more complex and risky. The
  IRS November 2002 plan calls for 8 new projects or new releases of
  existing projects, and 10 business and data projects that are in milestone 4
  or beyond. OMB has approved funding for only 3 of the new projects or
  releases, and 5 of the projects that are in milestone 4 or beyond.
• Several of these projects, such as CADE and core infrastructure projects,
  will provide the foundational infrastructure upon which later projects will
  depend, and have already experienced cost and schedule delays.
• Continued delays and cost increases in these projects could have a similar,
  cascading effect on other projects.



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                                               Appropriations Subcommittee Staffs




                                                                                                                            Results


        Observation 3: Opportunities For Using Performance-
         Based Contracts Are Increasing

        • Federal Acquisition Regulation indicates that performance-based
          contracting is the preferred method for acquiring services, should be
          used to the maximum extent practicable, and that fixed-price task
          orders are the preferred type of performance-based task order.
        • In September 2002, TIGTA reported21 that the use of fixed-price task
          orders decreased between FY 2000 and FY 2001 from nearly 57
          percent of task orders issued to less than 21 percent, and
          recommended BSMO require the use of fixed-price task orders
          whenever possible and appropriate for projects in development and
          deployment and for any other task orders where requirements are
          clearly identified.
        • OMB has also encouraged IRS to use performance-based, fixed
          price task orders to the maximum extent practicable.

21AdditionalImprovements Are Needed in the Application of Performance-Based Contracting to Business Systems Modernization
Projects (Reference Number 2002-20-170, dated September 2002)                                                                        41




                                               Page 47                                    GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
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                     Briefing Slides from the December 18, 2002,
                     Briefing to the Senate and House
                     Appropriations Subcommittee Staffs




                                                                                           Results

• According to IRS officials, under IRS’s enterprise life cycle, system
  specifications should be reasonably definite at the detailed design
  checkpoint prior to exiting milestone 4. The IRS November 2002
  plan shows that 9 projects will proceed towards milestone 4 or 5 for
  FY 2003. OMB has approved funding for 4 of these projects (e-
  Services, HR Connect, CADE, and Integrated Financial System).
• IRS officials state that the vast majority of development projects
  after detailed design, when specifications are reasonably definite,
  should be under either a fixed-price task order or performance-
  based task order that is not fixed price and stated that they are
  taking steps to implement such task orders, when appropriate. They
  also noted that such task orders may not be appropriate in certain
  circumstances where a type of project involve significant uncertainty
  as to requirements.
• IRS does not have a clearly documented process for determining
  the type of task order to be awarded, but recognizes the need to
  develop such a process.


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                             Briefing Slides from the December 18, 2002,
                             Briefing to the Senate and House
                             Appropriations Subcommittee Staffs




                                                                                                   Results

           Observation 4: IRS Has Improved the Format of Its
            Expenditure Plan

           • In our February 2002 report,22 we observed that the November
             2001 plan did not provide sufficient information on changes to
             project scope and interdependencies with other modernization
             projects. IRS has made improvements in the November 2002
             plan’s format. It more clearly identifies changes in project scope
             and cross-project dependencies.




22GAO-02-356
                                                                                                               43




                             Page 49                                GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
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                                              Briefing Slides from the December 18, 2002,
                                              Briefing to the Senate and House
                                              Appropriations Subcommittee Staffs




                                                                                                                             Results


             Observation 5: Internal Costs of BSM Program,
              Expected to Increase, Are Not Tracked or Known
             • As we previously reported,23 IRS paid its internal modernization
               program costs, such as BSM program office staff costs, and
               certain external BSM costs from Information Systems (IS) and
               other non-BSM appropriations. However, the actual amounts
               related to the program were not tracked or known.
             • IRS officials said they used “order of magnitude” estimates for
               capital planning purposes or developing business cases.
               However, they did not have actual costs to later compare or
               assess the accuracy of their estimates.
             • IRS officials also expect funding for the BSM program from IS
               and other appropriations to significantly increase as more
               systems near deployment.
             • Consequently, as funding increases, risk also increases because
               decision-makers may not have complete information upon which
               to make important decisions, such as cost-benefit analyses,
               developing or assessing business cases, or making funding and
               resource allocations.
23U.S.
     General Accounting Office, Internal Revenue Service: Results of Review of IRS Spending for Business Systems Modernization, GAO-01-920
(Washington, D.C.: August 17, 2001)
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                                              Page 50                                     GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
                        Appendix I
                        Briefing Slides from the December 18, 2002,
                        Briefing to the Senate and House
                        Appropriations Subcommittee Staffs




                                                                                    Conclusions

• IRS’s November 2002 plan satisfies the legislative conditions. Since our
  last report, IRS has made significant progress in implementing
  modernization management controls and capabilities. As a result, it is
  better-prepared to meet the challenges ahead. At the same time, certain
  BSM management capabilities have not been fully implemented.
• IRS faces heightened risks because (1) several key projects are
  entering their later stages of development and deployment, (2) some of
  these projects provide the foundational infrastructure upon which later
  projects depend, (3) an increasing number of project milestones are
  experiencing cost increases and schedule delays, and (4) it plans to
  start more projects.
• Without sustained top management involvement, improved management
  capabilities, and consistent oversight, the successful implementation of
  the BSM program could be jeopardized.




                                                                                                          45




                        Page 51                                GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
                         Appendix I
                         Briefing Slides from the December 18, 2002,
                         Briefing to the Senate and House
                         Appropriations Subcommittee Staffs




                                                                  Recommendations for
                                                                      Executive Action
• To improve IRS’s modernization management controls and capabilities,
  we reiterate our prior recommendations that the Acting Commissioner of
  Internal Revenue direct the Chief Information Officer (CIO) to
   • institutionalize BSMO configuration management procedures;
   • implement plans for obtaining, developing, and retaining requisite
      human capital resources; and
   • implement effective procedures for validating contractor-developed
      cost and schedule estimates

• In addition, we recommend that the Acting Commissioner of Internal
  Revenue direct the CIO to
   • promptly update the enterprise transition strategy to conform to other
      changes in IRS’s enterprise architecture and
   • establish and implement a process for determining the type of task
      order to be awarded




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                         Page 52                                GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
                         Appendix I
                         Briefing Slides from the December 18, 2002,
                         Briefing to the Senate and House
                         Appropriations Subcommittee Staffs




                                                                        Agency Comments

• In providing oral comments on a draft of this briefing, BSM executives,
  including the Associate Commissioner for Business Systems
  Modernization, stated that they generally agree with this briefing and
  that

    • it is a fair characterization of the progress they have made in
      maturing management processes and in indicating areas for further
      growth.
    • they appreciated GAO for their on-going support throughout the
      year.
    • they are making continued progress toward those areas cited in the
      draft briefing as needing further progress.




                                                                                                           47




                         Page 53                                GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
                                      Appendix I
                                      Briefing Slides from the December 18, 2002,
                                      Briefing to the Senate and House
                                      Appropriations Subcommittee Staffs




                                                                                                            Appendix I:
                                                                   BSM Program-Level Initiatives/Projects

Description of BSM Program-Level Initiatives and Projects
 Proposed Modernization Initiatives    Description

 Program-Level Initiatives:
 Architecture & Integration            Ensures that systems solutions meet IRS business needs and that the projects are
                                       effectively integrated.
 Business Integration                  Ensures that IRS BSM program is aligned with the business units’ reengineering
                                       efforts and that business transformation plans are developed and maintained to
                                       support a seamless “transition to support”.
 Management Processes                  Provides sustaining support for program-level management processes, including
                                       quality assurance, process improvement, training, program control, and ELC
                                       maintenance and enhancements.
 FFRDC - MITRE                         Provides program management and systems engineering support to BSMO.
 Program Management Office             Provides overall program management for IRS-PRIME Partnership activities and
                                       deliverables, and is responsible for coordinating, tracking, and integrating all
                                       program-wide costs, schedules, and performance measures.

 Core Infrastructure Projects:
 Development Integration & Testing     Provides oversight for laboratory environments which support development, and
 Environment                           testing: (1) Virtual Development Environment – development environment and
                                       standardized set of tools; (2) Enterprise Integration Testing Environment –
                                       integration testing environment for all projects.
 Infrastructure Shared Services        Provides foundational enabling infrastructure (infrastructure technology components
                                       and strategic infrastructure services for all data and business projects: (1) Enterprise
                                       Systems Management – develops and executes a strategy to provide network and
                                       systems management to improve IT infrastructure availability and performance; (2)
                                       Security and Technology Infrastructure Release – provides infrastructure for secure
                                       telephony and electronic interaction among employees, tax practitioners, and
                                       taxpayers.

Source: IRS
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                                      Page 54                                    GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
                                                  Appendix I
                                                  Briefing Slides from the December 18, 2002,
                                                  Briefing to the Senate and House
                                                  Appropriations Subcommittee Staffs




                                                                                                                             Appendix I:
                                                                                BSM Program-Level Initiatives/Projects
 Data Projects:
 Customer Account Data Engine                            Builds the modernized database foundation to replace the existing master file processing
                                                         systems.
 Integrated Financial Services                           Implements an integrated financial management system using a commercial off-the-shelf
                                                         enterprise resource planning product.
 Custodial Accounting Project / Enterprise Data          Provides integrated, reliable tax operations and internal management information to
 Warehouse                                               support evolving decision analytics, performance measurement, and management
                                                         information needs.
 Modernized Data Access                                  Provides a single integrated approach and software for accessing current processing
                                                         environment (legacy) data across the organization, and builds key infrastructure
                                                         components that all modernization projects can share.
 Information Returns Processing                          Provides modernized information returns repository to link third party data directly to
                                                         customer accounts to efficiently handle customer service and compliance inquiries and
                                                         demands.

 Business Projects:
 Customer Communications 2001                            Improves communications infrastructure, including telephone call management, call
                                                         routing, and customer self-service applications.
 Internet Refund / Fact of Filing                        Improves customer self-service by providing instant refund status information and
                                                         instructions for resolving refund problems to taxpayers with Internet access.
 Customer Account Management                             Delivers an enterprise solution to support access to tax account data, contact
                                                         management, case management, outbound correspondence management, and workflow
                                                         management.
 Customer Contact Modernization                          Provides initial building blocks to transition IRS from current call center environment to
                                                         new customer contact center.
 e-Services                                              Creates a web portal and value-adding e-Services to promote the goal of conducting most
                                                         of the IRS’s transactions with taxpayers and tax practitioners electronically.
 Filing & Payment Compliance                             Provides support for detecting, scoring, and working cases in the area of non-filer (filing
                                                         compliance) and delinquency (payment compliance) cases.
 HR Connect                                              Delivers an enterprise solution to allow IRS employees to access and manage their
                                                         human resources information online.
 Modernized e-file                                       Provides a single standard for filing electronic tax returns.


Source: IRS
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                                                  Page 55                                      GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
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                                                Briefing Slides from the December 18, 2002,
                                                Briefing to the Senate and House
                                                Appropriations Subcommittee Staffs




                                                                                                              Appendix II:
                                                                                                      IRS Expenditure Plan
Detailed Summary of IRS’s November 2002 Expenditure Plan ($000)
Proposed Modernization Initiatives                                                        1               2    Milestone  Amount     OMB
                                                                               Release        Milestone
                                                                                                                 Date    Requested Approved
                                 3
Program Level Initiatives
Architecture & Integration                                                                         FY           Nov. 03    $43,577
Business Integration                                                                               FY           Nov. 03    $11,413
Management Processes                                                                               FY           Nov. 03    $13,828
FFRDC - MITRE                                                                                      FY           Nov. 03    $20,750
Program Management Office                                                                          FY           Nov. 03     $9,908
                                      Subtotal - Prog. Mgmt. and Arch.                                                     $99,476    $25,000
                                      3
Core Infrastructure Projects
Development Integration & Testing Environment                                                 infrastructure    Nov. 03    $13,961
Infrastructure Shared Services                                                                infrastructure    Nov. 03    $85,300
                         Subtotal - Core Infrastructure Projects                                                           $99,261    $99,000
Data Projects
Customer Account Data Engine                                                   R1                    5         June 03      $4,851
Customer Account Data Engine                                                   R1                    6         Dec. 03      $3,638
Customer Account Data Engine                                                   R2             infrastructure     TBD        $6,924
Customer Account Data Engine                                                   R3                    3         Dec. 03     $15,289
Customer Account Data Engine                                                   R3             infrastructure   Dec. 03       $581
Customer Account Data Engine                                                   R4                    3         Aug. 04      $6,756
                                               Subtotal - CADE                                                             $38,039    $38,000

Source: IRS
1Releases   are software versions that provide a subset of the total planned project functionality.
2Milestones  correspond to phases within IRS’s Enterprise Life Cycle, which is graphically depicted in the Background Section.
3Program
                                                                                                                                            50
           Level Initiatives and Core Infrastructure Projects are funded on a fiscal year (FY) basis rather than by milestone.




                                                Page 56                                          GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
                                         Appendix I
                                         Briefing Slides from the December 18, 2002,
                                         Briefing to the Senate and House
                                         Appropriations Subcommittee Staffs




                                                                                                   Appendix II:
                                                                                           IRS Expenditure Plan
Detailed Summary of IRS’s November 2002 Expenditure Plan ($000)
Proposed Modernization Initiatives                                            1               2   Milestone  Amount     OMB
                                                                   Release        Milestone
                                                                                                    Date    Requested Approved
Data Projects (Cont.)
Integrated Financial Services                                      R1                 4           Sept. 03     $67,227
Integrated Financial Services                                      R1                 5           March 04      $6,828
Integrated Financial Services                                      R2               2,3a           TBD          $2,500
                                                  Subtotal - IFS                                               $76,555    $77,000
Custodial Accounting Project /Enterprise Data Warehouse            R1, B1        4,5              May 03        $4,850
Custodial Accounting Project / Enterprise Data Warehouse           R1, B1.1       4,5             Sept. 03     $13,613
Modernized Data Access                                             R1       infrastructure        Nov. 03      $16,741
Information Returns Processing                                     R1              1               TBD          $3,000
                                       Subtotal - Data Projects                                               $152,798   $115,000
Business Projects
Customer Account Management                                        R1                 4             Oct 04     $20,949
Customer Contact Modernization                                     R1                 2              TBD        $2,500
e-Services                                                         R1.1/1.2           5            April 04     $5,846     $6,000
Filing &Payment Compliance                                         R1                 4            April 04    $26,159
HR Connect                                                         R1                4,5             TBD       $11,500    $12,000
Modernized e-file                                                                     4            Nov. 03     $27,846
                                  Subtotal - Business Projects                                                 $94,800    $18,000

Addition to Management Reserve                                                                                  $4,342

Total Business Systems Modernization Program                                                                  $450,677   $257,000

Source: IRS
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                                         Page 57                                     GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
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                                Briefing Slides from the December 18, 2002,
                                Briefing to the Senate and House
                                Appropriations Subcommittee Staffs




                                                                          Appendix III:
                                                         Results of Past GAO Reviews
    Spending Plan                                           Results of GAO Review
   1st Spending Plan        •     The plan satisfied the legislative conditions for the use of ITIA funds and was
       (May 1999)                 consistent with our open recommendations.
 ($35 million request)      •     The plan was an appropriate first step, but the key to success would be
                                  effective implementation of the plan.
                            •     Future plans should specify progress against prior plan commitments, and the
                                  next plan should clarify IRS/contractor roles and responsibilities. (See Tax
                                  Systems Modernization: Results of Review of IRS’ Initial Expenditure Plan,
                                  GAO/AIMD/GGD-99-206, June 15, 1999)
1st Interim Spending Plan   •     The plan raised concerns about projects that were scheduled to begin detailed
        (Dec 1999)                design and software development before, among other things, the enteprise
  ($33 million request)           architecture was completed and the ELC was defined and implemented.
                            •     IRS should expedite completion of the architecture and implementation of the
                                  ELC.
                            •     Future plans should explain how IRS plans to manage the risk of performing
                                  detailed design or development work if the architecture is not sufficiently
                                  completed or the ELC is not sufficiently implemented.




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                               Appropriations Subcommittee Staffs




                                                                         Appendix III:
                                                        Results of Past GAO Reviews
        Spending Plan                                          Results of GAO Review
2nd Spending Plan (Mar 2000)    •   IRS met relatively few commitments in its $35 million first ITIA spending plan,
    ($176 million request)          even though the Service later received an additional $33 million and nearly 5
                                    months of extra time to accomplish the goals set forth in the first plan.
                                •   The plan satisfied the legislative conditions for the use of ITIA funds, and was
                                    generally consistent with recommendations contained in our earlier reports.
                                •   The key to success would be whether IRS effectively implements the plan.
                                •   Until IRS completes its initiated actions to redirect and restructure its
                                    modernization effort, it would continue to lack key modernization and
                                    technical controls. (See Tax Systems Modernization: Results of Review of IRS’
                                    March 7, 2000, Expenditure Plan, GAO/AIMD-00-175, May 24, 2000)
 2nd Interim Spending Plan      •   IRS had not adhered to the approved and funded March 7, 2000, spending plan.
         (Aug 2000)             •   On selected initiatives, IRS had not met cost and schedule commitments made
   ($33 million request)            in its March 7, 2000 spending plan.
                                •   Most modernization initiatives had nevertheless made important progress
                                    since March 2000. IRS fully addressed two of its modernization management
                                    capability weaknesses, and it was making progress in addressing others.
                                •   One project, Custodial Accounting Project (CAP), had been approved for
                                    product development without sufficient definition and without a compelling
                                    business case. Further investment in CAP should be limited until IRS
                                    demonstrates sufficient business value and reports to the House and Senate
                                    committees on risk mitigation.
                                •   Another project, Security and Technology Infrastructure Release (STIR), was
                                    being preliminarily designed without sufficient requirements definition and
                                    economic justification. The STIR project should be directed to complete a
                                    security risk assessment as soon as possible, and ensure that STIR
                                    requirements and the proposed design solution are economically justified
                                    through a business case. (See Tax Systems Modernization: Results of Review
                                    of IRS’ August 2000 Interim Spending Plan, GAO-01-91, November 8, 2000)

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                               Page 59                                GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
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                               Briefing Slides from the December 18, 2002,
                               Briefing to the Senate and House
                               Appropriations Subcommittee Staffs




                                                                           Appendix III:
                                                          Results of Past GAO Reviews
       Spending Plan                                          Results of GAO Review
3rd Spending Plan (Oct 2000)   •   IRS’s plan satisfied the legislative conditions for the use of ITIA funds, and
   ($200 million request)          was making important progress towards satisfying the congressional direction
                                   on two projects – CAP and STIR.
                               •   IRS was making important progress in establishing effective modernization
                                   management capability, but important and challenging work remained. Until
                                   IRS completed its initiated actions to fully implement its system life cycle
                                   methodology and business systems modernization office, and resolve issues
                                   concerning the completeness and accuracy of enterprise architecture, it
                                   continued to lack key modernization and technical controls.
                               •   Five modernization initiatives experienced schedule delays and/or cost
                                   increases. However, the third plan did not address whether projects’ prior
                                   commitments for delivery of promised systems capabilities (requirements)
                                   and benefit/business value were being met.
                               •   IRS used contractor-provided “rough order-of-magnitude” estimates in
                                   preparing the third expenditure plan. IRS planned to validate the third plan’s
                                   estimates as part of its process to negotiate and definitize contract task orders.
                                   Previously, this process resulted in finalized contract costs below the
                                   estimates, totaling $9 million. (See Tax Systems Modernization: Results of
                                   Review of IRS’ Third Expenditure Plan, GAO-01-227, January 22, 2001)




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                               Page 60                                  GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
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                                     Briefing Slides from the December 18, 2002,
                                     Briefing to the Senate and House
                                     Appropriations Subcommittee Staffs




                                                                               Appendix III:
                                                              Results of Past GAO Reviews
         Spending Plan                                              Results of GAO Review
4th Spending Plan (March 2001)   •     IRS’s plan satisfied the conditions specified in the appropriations acts.
     ($128 million request)      •     IRS continued to make important progress in implementing modernization
                                       management controls and capabilities. Nevertheless, IRS’s modernization
                                       management capacity is still not where it should be, given (1) the number of
                                       systems acquisition projects that the March 2001 plan identifies as underway
                                       and planned and (2) the fact that several of the ongoing projects are entering
                                       critical stages in their life cycles. For example, IRS did not have a sufficiently
                                       defined version of the enterprise architecture to guide and constrain projects,
                                       and employing rigorous configuration management practices.
                                 •     Due to missing management capacity, key IRS projects were beginning to
                                       experience cost, schedule, and performance shortfalls against the
                                       commitments the agency made in its third expenditure plan. For example,
                                       deployment of the Customer Communications 2001 project was three months
                                       behind schedule, and promised system capabilities and associated benefits
                                       had been deferred. Also, a critical infrastructure project, STIR, was reported to
                                       be 1.5 months late in trying to complete its preliminary design phase
                                       (Milestone 3); and the agency was still working to finalize 6 of 19 work
                                       products needed to complete the phase. Thus, the project was actually almost
                                       five months late.
                                 •     IRS officials recognized the need to address its modernization management
                                       capacity before key ongoing projects moved into critical life-cycle phases, and
                                       before additional projects were started. Accordingly, IRS planned or had
                                       initiated steps to address these weaknesses. In particular the Commissioner
                                       had decided to slow ongoing and new projects, giving priority to putting in
                                       place missing management capacity. We believed this decision was prudent
                                       and appropriate and made recommendations to ensure IRS followed through
                                       on this decision. (See Business Systems Modernization: Results of Review of
                                       IRS’ March 2001 Expenditure Plan, GAO-01-716, June 29, 2001)

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                                     Page 61                                GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
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                                   Briefing Slides from the December 18, 2002,
                                   Briefing to the Senate and House
                                   Appropriations Subcommittee Staffs




                                                                              Appendix III:
                                                             Results of Past GAO Reviews
        Spending Plan                                          Results of GAO Review
5th Spending Plan (Nov 2001)   •    IRS’s plan satisfied the conditions specified in the appropriations acts.
    ($391 million request)     •    IRS continued to make important progress in implementing modernization
                                    management controls and capabilities. Nevertheless, IRS’s modernization
                                    management capacity is still not where it needs to be, given (1) the number of
                                    systems acquisition projects that the November 2001 plan identifies as being
                                    underway, (2) the fact that several of these ongoing projects have already
                                    entered the critical building stage of their life cycles (milestone 3) and are to
                                    begin deployment (milestone 4) during this year, and (3) IRS’s plan to begin
                                    additional projects. Examples of modernization management controls and
                                    capabilities that are not yet fully implemented include software acquisition
                                    management, configuration management, quality assurance, risk management,
                                    enterprise architecture implementation, human capital management,
                                    integrated program scheduling, and cost and schedule estimating.
                               •    The increased risk of IRS’s proceeding without these controls and capabilities
                                    had contributed to actual project cost, schedule, and performance shortfalls.
                                    For example, deployment of the CADE Release 1 project was 6 months
                                    behind, and its cost had increased by $5 million.
                               •    IRS acknowledged the need to strengthen its modernization management
                                    controls, and recognized that these controls become more critical as the size
                                    and complexity of the BSM program continues to increase. It also had actions
                                    underway to fully implement these controls and, until then, planned to
                                    compensate for their immaturity by applying experienced human capital.
                               •    Reliance on a combination of existing immature processes and individual
                                    expertise and heroic efforts was a short-term solution to a long-term need. We
                                    made recommendations to assist IRS in striking a proper balance between the
                                    need to quickly introduce modernized systems yet prudently manage the risks
                                    inherent in such an undertaking. (See U.S. General Accounting Office,
                                    Business Systems Modernization: IRS Needs to Better Balance Management
                                    Capacity with Systems Acquisition Workload, GAO-02-356 (Washington, D.C.:
                                    Feb. 28, 2002)

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                                   Page 62                                  GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
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                                           Briefing Slides from the December 18, 2002,
                                           Briefing to the Senate and House
                                           Appropriations Subcommittee Staffs




                                                                              Appendix IV:
                                                     IRS Reported Cost / Schedule Changes

  Program/ Project       Commitment Date and     Revised Commitment     Change (%)                           IRS
 Management Initiative   Funding as of 10/2001    Date and Funding        ($000)                    Explanation of Change
                                ($000)                  ($000)
     Customer                  10/31/01                02/26/02          +4 months        A performance award dispute (settled in
 Communications 2001           $45,174                 $44,796          -$378 (-1%)       February 2002) delayed Milestone 5. The
    Milestone 4,5                                                                         IRS paid the PRIME contractor $500K less
                                                                                          in performance awards than the maximum
                                                                                          allowed under the task order. Some of this
                                                                                          extra funding was used to cover higher than
                                                                                          expected transition to support costs.
    Internet Refund/           9/30/01                9/28/01                             Actual costs came in $121K higher than
     Fact of Filing            $10,696                $10,817          +$121 (+1%)        estimated.
       (Release 1)
      Milestone 3
    Internet Refund/            3/31/02                 TBD                               Additional hardware requirements ($250k).
     Fact of Filing             $5,000                 $6,792         +$1, 792 (+36%)     Additional testing, transition to support
       (Release 1)                                                                        needs, increased requirements, and MS4 cost
      Milestone 4                                                                         overrun increase ($1.465M).
                                                                                          Additional FY02 requirements for help desk
                                                                                          ($50,000).
                                                                                          Additional support from ESM project for
                                                                                          performance measurement $27,000.
    Internet Refund/            7/31/02                 TBD                               Maintenance through the remainder of the
     Fact of Filing             $5,000                 $8,304         +$3,304 (+66%)      fiscal year and enhancements for FY03
       (Release 1)                                                                        filing season ($2.304M).
      Milestone 5                                                                         Additional cost due to extension of MS5
                                                                                          from 07/31/02 to 09/30/02 ($1.0M).




Source : IRS and GAO Analysis
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                                           Page 63                                    GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
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                                           Briefing Slides from the December 18, 2002,
                                           Briefing to the Senate and House
                                           Appropriations Subcommittee Staffs




                                                                               Appendix IV:
                                                      IRS Reported Cost / Schedule Changes

 Program/ Project        Commitment Date and     Revised Commitment    Change (%)                           IRS
Management Initiative    Funding as of 10/2001    Date and Funding       ($000)                    Explanation of Change
                                ($000)                  ($000)
      e-Services               10/31/03                 4/18/04         +6 Months        The delays occurred because infrastructure
 (Release 1.1 and 1.2)         $40,191                 $50,146        +$9,955 (+25%)     was not completed to meet the e-Services
    Milestone 4,5                                                                        date. Did not resolve technical issues timely.
                                                                                         Also schedule delays and cost increases
                                                                                         because of move of Gaithersburg Computing
                                                                                         Center environment to the Martinsburg and
                                                                                         the Tennessee Computing Centers.
                                                                                         Unplanned infrastructure hardware
                                                                                         ($4.255M). Additional STIR Integration
                                                                                         ($4.200M). Increased product assurance
                                                                                         testing costs $1.5M.
  Customer Account             3/31/02                8/30/02           +5 months        New business requirements required update
    Management                 $13,100                $13,300          +$200 (+2%)       to future concept of operations, and to
     (Release 1)                                                                         identify and prioritize their business process
     Milestone 2                                                                         re-engineering opportunities before
                                                                                         proceeding to MS3. Proposal for MS3 cost
                                                                                         overrun due to changes in business
                                                                                         requirements.
  Customer Account             10/31/02               6/30/03           +8 months        New business requirements required update
    Management                 $24,494                $19,694         -$4,800 (-20%)     to future concept of operations, and to
     (Release 1)                                                                         identify and prioritize their business process
    Milestone 3b                                                                         re-engineering opportunities before
                                                                                         proceeding to MS3. Decrease due to
                                                                                         movement of work to MS3a and ITABS.
  Filing and Payment           1/31/03                12/31/02          -1 month         $1.0M variance to include unplanned
      Compliance               $17,117                $18,117         +$1,000 (+6%)      transition to support in MS2,3 activities per
       (Release 1)                                                                       new BSM program guidelines.
     Milestone 2,3


Source: IRS and GAO Analysis
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                                           Page 64                                     GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
                                                 Appendix I
                                                 Briefing Slides from the December 18, 2002,
                                                 Briefing to the Senate and House
                                                 Appropriations Subcommittee Staffs




                                                                                    Appendix IV:
                                                           IRS Reported Cost / Schedule Changes
 Program/ Project        Commitment Date and       Revised Commitment     Change (%)                         IRS
Management Initiative    Funding as of 10/2001      Date and Funding        ($000)                  Explanation of Change
                                ($000)                    ($000)
     HR Connect                12/31/02                    TBD                            CBS ESC approval to exit MS3 was delayed
      (Release 1)              $10,000                   $21,700        +$11,700(+117%)   until February 2002. Given Treasury’s 8-9
     Milestone 4,5                                                                        month estimate to complete development
                                                                                          work, this delayed the start of MS5.
                                                                                          Deployment schedule for remainder of IRS
                                                                                          will be determined following prototype
                                                                                          deployment. Adjustment to previous
                                                                                          estimate ($200k). FY 2003 cost is $11.5M.
 Customer Account Data         6/30/02                     12/31/02        +6 months      Deployment delayed due to contractor
    Engine (CADE)              $45,338                     $45,338                        delays in staffing the project, failure to
       Release 1                                                                          acquire a business rules engine,
      Milestone 4                                                                         underestimating the technical complexity of
                                                                                          a few key software components, and late
                                                                                          attention to critical project elements.
 Customer Account Data         12/31/02                    6/30/03          +6 months     FY 2002 funding for MS5 ($5.795M) was
    Engine (CADE)               $5,795                     $4,851         -$944 (-16%)    returned to management reserve because
       Release 1                                                                          schedule delays moved MS5 to FY 2003.
      Milestone 5                                                                         The net MS5 decrease ($.994M) is due to
                                                                                          revised estimates to do the same work.
 Customer Account Data         12/31/02                     TBD                           In the process of replanning Release 2 due to
    Engine (CADE)              $38,400                     $46,324       +$7,924 (+21%)   delays in Release 1. Begin and end dates will
       Release 2                                                                          be determined when the task order is
      Milestone 4                                                                         definitized in November. Planning for future
                                                                                          functionality due to CAM/CADE
                                                                                          sequencing ($1.0M). FY03 infrastructure
                                                                                          costs ($6.924M)




Source: IRS and GAO Analysis
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                                                 Page 65                                  GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
                                              Appendix I
                                              Briefing Slides from the December 18, 2002,
                                              Briefing to the Senate and House
                                              Appropriations Subcommittee Staffs




                                                                                 Appendix IV:
                                                        IRS Reported Cost / Schedule Changes
 Program/ Project          Commitment Date and     Revised Commitment     Change (%)                          IRS
Management Initiative      Funding as of 10/2001    Date and Funding        ($000)                   Explanation of Change
                                  ($000)                  ($000)
Customer Account Data            6/30/03                 12/31/03         +6 months         Deferred to FY03 to align with CAM and
   Engine (CADE)                 $9,779                  $15,870        +$6,091 (+62%)      CADE Release 2 capabilities, which impact
       Release 3                                                                            Release 3 scope, schedule, and costs.
     Milestone 3
 Custodial Accounting            3/31/03                5/15/03           +1.5 months       Delay due to temporary reassignment of
Project/Enterprise Data          $51,430                $62,924         +$11,494 (+22%)     IMF programmer resources to support tax
Warehouse (CAP/EDW)                                                                         filing season changes. Variance ($6.664M
 Release EDW R1 B1                                                                          FY 2002 and $4.850M FY 2003) due to
     Milestone 4,5                                                                          integration with STIR components, revenue
                                                                                            interface with IFS, CAP-CADE interface,
                                                                                            schedule delays, changes to IMF extract,
                                                                                            MCC operational support, development of
                                                                                            changes to the CAP/CADE interface, and
                                                                                            requirements associated with mid-year IMF
                                                                                            changes and CAP/IFS interface.
   Integrated Financial          11/30/02               11/30/02                            Completed the deliverables originally
 Services/Core Financial         $17,250                $23,000         +$5,750 (+33%)      scheduled for MS2,3. However, certain
   Services (IFS/CFS)                                                                       deliverables needed to exit Milestone 3
        Release 1                                                                           under Milestone Exit criteria were not
    Milestone 4A/3B                                                                         planned using the COTS path through the
                                                                                            ELC until MS4A. Extended Milestone 3 by
                                                                                            establishing Milestone 3B so we could
                                                                                            produce the deliverables needed to obtain
                                                                                            Enterprise Architecture Certification and
                                                                                            other design work and exit Milestone 3. The
                                                                                            net MS4A/3B variance, $5.750M (-$17.250
                                                                                            + $23.000) is due to revised estimates to
                                                                                            complete the work and the ISS DCC
                                                                                            communications infrastructure buildout for
                                                                                            IFS.


Source: IRS and GAO Analysis
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                                            Appendix I
                                            Briefing Slides from the December 18, 2002,
                                            Briefing to the Senate and House
                                            Appropriations Subcommittee Staffs




                                                                               Appendix IV:
                                                      IRS Reported Cost / Schedule Changes

 Program/ Project          Commitment Date and     Revised Commitment     Change (%)                         IRS
Management Initiative      Funding as of 10/2001    Date and Funding        ($000)                  Explanation of Change
                                  ($000)                  ($000)
 Infrastructure Shared           11/30/02                11/30/02                         Started 3 months early to provide support to
        Services                 $39,747                 $48,846         +$9,099 (+23%)   FY 2003 Release. Cost increase due to
       FY 2002                                                                            realignment of projects' schedules, increased
                                                                                          software maintenance, decision to buy rather
                                                                                          than lease equipment, and addition of
                                                                                          Modernized e-file requirements. The
                                                                                          majority of the cost overrun is as a result of
                                                                                          OMB A-11requirements to purchase
                                                                                          HW/SW instead of leasing it as originally
                                                                                          planned. Purchasing the equipment in FY
                                                                                          2002 saves money in the out years.
      Security and               10/30/01                1/31/02           +3 months      Slip in Enterprise Integration and Test
       Technology                $31,287                 $31,287                          Environment (EITE) Ready For Use (RFU)
 Infrastructure Releases                                                                  date caused a slip in the MS4 exit date. Late
          (STIR)                                                                          identification, ordering, and receipt of
       Milestone 4                                                                        equipment caused the slip in EITE.
      Security and               5/31/02                11/30/02           +6 months      Start date slipped 3 months due to slippage
       Technology                $43,973                $55,522         +$11,549 (+26%)   in milestone 4 exit date. End date slipped
 Infrastructure Releases                                                                  because STIR was split into two releases to
          (STIR)                                                                          accommodate projects' schedules.
         FY 2002                                                                          Sub-release 1 supports IR/FoF; Release 2
                                                                                          supports e-Services. Cost change due to
                                                                                          realignment of projects' schedules, increased
                                                                                          software maintenance, additional security
                                                                                          requirements, and OMB A-11 requirement
                                                                                          to purchase rather than lease equipment
                                                                                           (+$11.340M), and application of FY 2001
                                                                                          infrastructure funds to FY 2002.


Source: IRS and GAO Analysis
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                                           Appendix I
                                           Briefing Slides from the December 18, 2002,
                                           Briefing to the Senate and House
                                           Appropriations Subcommittee Staffs




                                                                              Appendix IV:
                                                     IRS Reported Cost / Schedule Changes
   Program/ Project       Commitment Date and     Revised Commitment      Change (%)                        IRS
 M anagement Initiative   Funding as of 10/2001    Date and Funding         ($000)                 Explanation of Change
                                 ($000)                  ($000)
  Enterprise Systems            12/19/01                 2/19/02           +2 months     60-day extension of MS4 exit to realign the
  Management (ESM)               $9,184                  $9,184                          schedule with STIR and EITE RFU, re-
     Milestone 4                                                                         evaluate the system requirements document
                                                                                         relative to the evolving needs of the
                                                                                         modernized projects, specifically IR/FoF,
                                                                                         evaluate the current ITS organization’s
                                                                                         ability to support the existing ESM release
                                                                                         plan.
  Enterprise Systems             7/31/02               11/30/02            +4 months     Start date slipped 3 months due to slippage
  Management (ESM)               $11,323               $11,090            -$233 (-2%)    in milestone 4 exit date. End date slipped to
       FY 2002                                                                           coincide with ESM PM AR release 1.3 to
                                                                                         support IR/FoF. Cost decrease due to revised
                                                                                         period of performance, enhancements in
                                                                                         W eb Hosting facilities, and Security Test &
                                                                                         Evaluation overrun.
      Development               11/15/02               11/15/02                          Increased support for Help Desk, Data
  Integration and Test          $12,916                $17,194          +$4,278 (+33%)   Modeling, Rational Tools, Customer Guide,
  Environment (DITE)                                                                     and increase in maintenance costs. Cost of
        FY 2002                                                                          relocating projects from GCC to MCC. Cost
                                                                                         to move Z900 from GCC to TCC for
                                                                                         Disaster Recovery.
 Program Management             11/10/02               11/10/02                          Savings realized as a result of negotiation of
       FY 2002                   $7,918                 $8,206            +$288 (+4%)    the fee position and reaching agreement on
                                                                                         the price for the full period of performance.
                                                                                         New requirements requests received so late
                                                                                         in the fiscal year are, in some cases, only
                                                                                         achievable by extra costs, such as having
                                                                                         contractors.




Source: IRS and GAO Analysis
                                                                                                                                          62




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                                          Appendix I
                                          Briefing Slides from the December 18, 2002,
                                          Briefing to the Senate and House
                                          Appropriations Subcommittee Staffs




                                                                             Appendix IV:
                                                    IRS Reported Cost / Schedule Changes




  Program/ Project       Commitment Date and     Revised Commitment     Change (%)                        IRS
 Management Initiative   Funding as of 10/2001    Date and Funding        ($000)                 Explanation of Change
                                ($000)                  ($000)
   Architecture and            11/10/02                11/10/02                         Cost increase ($6.409M) transferred from
     Integration               $32,539                 $38,948         +$6,409 (+20%)   Business Integration to cover the cost of
      FY 2002                                                                           Release Management.
 Management Processes          11/10/02               11/10/02                          Cost increase ($1.108M) needed to fund the
      FY 2002                  $10,082                $11,190          +$1,108 (+11%)   PRIME's SA CMM activities to prepare for
                                                                                        and conduct the SA CMM Level 3
                                                                                        assessment.
   FFRDC – MITRE               11/10/02               11/10/02                          Additional work identified to support
      FY 2002                  $18,070                $18,820           +$750 (+4%)     Program Management (acquisition
                                                                                        management), Management Processes
                                                                                        (process improvement, ELC, risk
                                                                                        management) and Architecture &
                                                                                        Engineering (data management).




Source: IRS and GAO Analysis
                                                                                                                                     63




                                          Page 69                                 GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
Appendix II

Briefing Slides from the April 14, 2003,
Briefing to the Senate and House
Appropriations Subcommittee Staffs                                                                    AppenIx
                                                                                                            di




    Results of Review of IRS’s Revised Fiscal Year 2003 Business
               Systems Modernization Expenditure Plan


                         Briefing to the Staffs of
                the Senate Committee on Appropriations,
              Subcommittee on Transportation, Treasury and
                          General Government
                                   and
                 the House Committee on Appropriations,
              Subcommittee on Transportation, Treasury, and
                         Independent Agencies

                                    April 14, 2003
                                                                                                  1




                          Page 70                    GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
                          Appendix II
                          Briefing Slides from the April 14, 2003,
                          Briefing to the Senate and House
                          Appropriations Subcommittee Staffs




                                                                                Briefing Overview


•   Introduction
•   Objectives
•   Scope and Methodology
•   Background
•   Results in Brief
•   Results
•   Conclusions
•   Agency Comments
•   Appendices
      • I – Description of BSM Program-Level Initiatives and Projects
      • II – Detailed Summary of IRS’s March 2003 Expenditure Plan
      • III – Detailed Comparison of IRS’s Initial (November 2002) and
         Revised (March 2003) FY 2003 Expenditure Plans
      • IV – IRS Reported Cost and Schedule Changes

                                                                                                                  2




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                                                   Appendix II
                                                   Briefing Slides from the April 14, 2003,
                                                   Briefing to the Senate and House
                                                   Appropriations Subcommittee Staffs




                                                                                                                              Introduction

   • As mandated by IRS’s FY 2003 appropriations act,1 Business Systems
     Modernization (BSM) funds are unavailable until IRS submits to the
     congressional appropriations committees for approval, a modernization
     expenditure plan that:

           • Meets the Office of Management and Budget’s (OMB) capital
             planning and investment control review requirements;
           • Complies with IRS’s enterprise architecture (EA);2
           • Conforms with IRS’s Enterprise Life Cycle methodology;3
           • Is approved by IRS, Treasury, and OMB;
           • Is reviewed by GAO; and
           • Complies with federal acquisition rules, requirements, guidelines,
             and systems acquisition management practices.


1Consolidated   Appropriations Resolution, 2003 (P. L. 108-7).
2An Enterprise Architecture (EA) is an institutional blueprint defining how an enterprise operates today, in both business and technology terms,
and how it wants to operate at some point in the future. An EA also includes a roadmap for transitioning between these environments.
3IRS refers to its life cycle management program as the Enterprise Life Cycle (ELC).

                                                                                                                                                   3




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                         Appendix II
                         Briefing Slides from the April 14, 2003,
                         Briefing to the Senate and House
                         Appropriations Subcommittee Staffs




                                                                                          Introduction

• Since mid-1999, IRS has submitted a series of expenditure or
  “spending” plans requesting release of BSM appropriated funds. To
  date, about $1.35 billion has been appropriated for BSM, including $366
  million for FY 2003. Of the $1.35 billion appropriated, about $1.2 billion
  has been released.
• On November 18, 2002, IRS submitted its initial FY 2003 expenditure
  plan for about $451 million, seeking release of the $257 million
  approved by OMB at that time.
• On January 9, 2003, IRS reduced its initial release request from $257
  million to $231.7 million to narrow the scope of the BSM program and
  reduce related risks, and to focus on the timely remediation of material
  weaknesses.
• The relevant House and Senate appropriations subcommittees
  subsequently approved the release of the requested $231.7 million on
  January 10 and 22, 2003, respectively.
• On March 14, 2003, IRS submitted a revised FY 2003 expenditure plan
  for about $378 million, seeking release of the remaining $146.6 million
  from the BSM account.

                                                                                                                 4




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                        Appendix II
                        Briefing Slides from the April 14, 2003,
                        Briefing to the Senate and House
                        Appropriations Subcommittee Staffs




                                                                                            Objectives


• As agreed with IRS’s appropriations subcommittees, our objectives were
  to
   • determine whether the March 2003 expenditure plan satisfies the
     legislative conditions,
   • provide any observations about the March 2003 plan and IRS’s BSM
     program.




                                                                                                                5




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                        Appendix II
                        Briefing Slides from the April 14, 2003,
                        Briefing to the Senate and House
                        Appropriations Subcommittee Staffs




                                                              Scope and Methodology


• To accomplish our objectives, we
   • Reviewed the revised FY 2003 expenditure plan submitted by IRS
      in March 2003;
   • Analyzed the plan against the legislative conditions to identify any
      variances;
   • Compared the revised (March 2003) plan to the initial (November
      2002) plan to identify changes in the scope of BSM activities
      planned for FY 2003;
   • Observed modernization executive steering committee and
      subcommittee meetings to, among other things, document how the
      plan was developed and reviewed;
   • Interviewed IRS program and project management officials to
      corroborate our understanding of the plan and other BSM activities.




                                                                                                                6




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                         Appendix II
                         Briefing Slides from the April 14, 2003,
                         Briefing to the Senate and House
                         Appropriations Subcommittee Staffs




                                                               Scope and Methodology


• Consistent with prior reviews, we did not independently validate planned
  initiatives’ cost estimates or confirm, through system and project
  management documentation, the validity of IRS-provided information on
  the initiatives’ content and progress.

• We provided a draft of this briefing on April 11, 2003, to IRS BSM
  program executives, and have incorporated their comments, as
  appropriate.

• We performed our work from March through April 2003 in accordance
  with generally accepted government auditing standards.




                                                                                                                 7




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                       Appendix II
                       Briefing Slides from the April 14, 2003,
                       Briefing to the Senate and House
                       Appropriations Subcommittee Staffs




                                                                                        Background


• IRS BSM program has deployed projects and reported the following
  benefits, including:

   • Customer Communications 2001 – improves telecommunications
     infrastructure, including telephone call management, call routing,
     and customer self-service applications
   • Customer Relationship Management Examination – provides
     commercial off-the-shelf software to IRS revenue agents to allow
     them to accurately compute complex corporate transactions
   • Internet Refund/Fact of Filing – improves customer self-service by
     providing instant refund status information and instructions for
     resolving refund problems to taxpayers with Internet access. IRS
     reports that this application has had over 12 million users.




                                                                                                               8




                       Page 77                                    GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
                          Appendix II
                          Briefing Slides from the April 14, 2003,
                          Briefing to the Senate and House
                          Appropriations Subcommittee Staffs




                                                                                           Background


• In our December 2002 briefing on the results of our review of IRS’s initial
  FY 2003 (November 2002) BSM Expenditure Plan, we reported, among
  other things, that:

    • IRS had made significant progress in improving its modernization
      management controls and capabilities and implementing our
      recommendations. Further, IRS had taken steps to better balance the pace
      of the FY 2002 BSM program with its management capability.

    • Although significant progress had been made, certain modernization
      management controls and capabilities, related to configuration
      management, enterprise transition strategy, human capital management,
      and cost and schedule estimate validation, had not yet been fully
      implemented. Weaknesses in these controls and capabilities contributed, at
      least in part, to BSM project cost, schedule, and performance shortfalls.



                                                                                                                  9




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                        Appendix II
                        Briefing Slides from the April 14, 2003,
                        Briefing to the Senate and House
                        Appropriations Subcommittee Staffs




                                                                                         Background


• We also made five observations in our December 2002 briefing related
  to the BSM program and IRS’s initial (November 2002) FY 2003 BSM
  Expenditure Plan:
    • The number of project milestones experiencing cost and schedule
       changes was increasing
    • BSM was entering a critical, high-risk phase as the scope and
       complexity of the program continued to grow
    • Opportunities for using performance-based contracts were
       increasing
    • IRS had improved the format of its expenditure plan
    • Internal costs of the BSM program, expected to increase, were not
       tracked or known
• To assist IRS in improving and expanding its modernization
  management controls and capabilities, we made several
  recommendations to the Acting Commissioner of Internal Revenue.

                                                                                                              10




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                         Appendix II
                         Briefing Slides from the April 14, 2003,
                         Briefing to the Senate and House
                         Appropriations Subcommittee Staffs




                                                                                          Background


• We also reported in our December 2002 briefing that sustained top
  management involvement, improved management capabilities, and
  consistent oversight are critical to the successful implementation of the
  BSM program.

• Like its previous plans, IRS’s March 2003 expenditure plan covers
  contractor costs, such as the Prime Systems Integration Support
  contractor (PRIME) and the systems engineering and technical services
  provided by the Federally Funded Research and Development Center
  (MITRE).

• A summary of the revised plan follows.




                                                                                                               11




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                                                     Appendix II
                                                     Briefing Slides from the April 14, 2003,
                                                     Briefing to the Senate and House
                                                     Appropriations Subcommittee Staffs




                                                                                                                               Background

   Summary                                                       4
                      of IRS’s March 2003 Expenditure Plan ($000)IRS
   Program-Level Initiatives                                         Request
   Architecture & Integration                                                                                            $34,000
   Business Integration                                                                                                  $8,000
   Management Processes                                                                                                  $11,476
   Federally Funded Research and Development Center (FFRDC) - MITRE                                                      $16,688
   Program Management                                                                                                    $10,000
              Subtotal                                                                                                   $80,164

               5
   Projects
   Core Infrastructure Projects (e.g. Infrastructure Shared Services)                                                    $89,261
   Data Projects (e.g. Customer Account Data Engine, Integrated Financial Systems)                                       $168,251
   Business Projects (e.g. e-Services, Modernized e-file)                                                                $59,342
              Subtotal                                                                                                   $316,854


   FY 2003 Management Reserve Request*                                                                                   $11,120
   FY 2002 Management Reserve Carryover                                                                                 ($10,146)
   FY 2002 CAM MS3b Unused Funds                                                                                        ($19,694)


   Total                                                                                                                 $378,298
   * - Includes $677 from Remaining FY2001 and FY2002 Appropriated Funds.




   Source: IRS
4See   appendix I for a description of each program-level initiative and project, and see appendix II for a more detailed summary of the plan.
5The   3 categories under this heading include several separate projects.                                                                        12




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                                                       Appendix II
                                                       Briefing Slides from the April 14, 2003,
                                                       Briefing to the Senate and House
                                                       Appropriations Subcommittee Staffs




                                                                                                                          Results in Brief

  • IRS’s March 2003 plan satisfies each of six legislative conditions.

                      Legislative Conditions                                                    Satisfies    Does Not Satisfy
                      1. Meets OMB capital planning and investment control review                  9
                          requirements.
                      2. Complies with IRS’ enterprise architecture.                               9
                      3.   Conforms with IRS’s Enterprise Life Cycle methodology                   9
                      4.   Approved by IRS, Treasury, and OMB.                                     9
                      5.   Reviewed by GAO.                                                        9
                      6.   Complies with federal acquisition rules, requirements, guidelines,      9
                           and systems acquisition management practices.6




•     The revised March 2003 expenditure plan:
       • Slows the pace of BSM program
       • Shows that most initiatives/project milestones continue to
       experience cost increases and/or schedule delays
       • Demonstrates the impact of schedule delays on delivery of
       benefits

•     In commenting on a draft of this briefing, the Associate Commissioner
      for BSM generally agreed with it and provided other comments.
6These acquisition requirements and practices are intended to establish acquisition management rigor and discipline, such as those defined in the

Software Engineering Institute’s software acquisition model. Our analysis of the plan focused on satisfaction of this model’s tenets.               13




                                                       Page 82                                          GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
                             Appendix II
                             Briefing Slides from the April 14, 2003,
                             Briefing to the Senate and House
                             Appropriations Subcommittee Staffs




                                                                                                       Results

Objective 1: The March 2003 plan satisfies the conditions in
IRS’s FY 2003 appropriations act.

          Legislative Conditions       Expenditure Plan Provisions
          1. Meets OMB capital         IRS’s March 2003 expenditure plan provides for
             planning and              managing investments as part of a portfolio through
             investment control        its Investment Decision Management process. This
             review requirements.      includes conducting periodic portfolio reviews to
                                       assess changes in business priorities and project
                                       schedules.




                                                                                                                   14




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                      Appendix II
                      Briefing Slides from the April 14, 2003,
                      Briefing to the Senate and House
                      Appropriations Subcommittee Staffs




                                                                                                Results

Legislative Conditions       Expenditure Plan Provisions
2. Complies with IRS’s       The March 2003 plan provides funds to continue
    enterprise               definition and implementation of the enterprise
    architecture (EA).       architecture. For example, it provides for
                             • completing and issuing EA release 2.1
                             • publishing updates to the EA
                             • performing EA compliance certification
                                activities
                             • issuing the 2003 and 2004 release architectures
                             • operating the systems engineering office
3.   Conforms with IRS’s     The plan provides funds for meeting the
     Enterprise Life Cycle   requirements in IRS’s enterprise life cycle
     methodology.            management program, which IRS’s refers to as
                             ELC. For example, the plan calls for
                             • maintaining responsibility for coordinating,
                                tracking, and integrating all program-wide costs,
                                schedules, releases, issues, and risks
                             • maintaining the ELC




                                                                                                            15




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                                                Appendix II
                                                Briefing Slides from the April 14, 2003,
                                                Briefing to the Senate and House
                                                Appropriations Subcommittee Staffs




                                                                                                                                Results

                       Legislative Conditions            Expenditure Plan Provisions
                       4. Approved by IRS,               • IRS – January 15, 2003
                          Treasury, and OMB.             • Treasury – January 16, 2003
                                                         • OMB – February 25, 2003
                                                         • Submitted to IRS’s appropriations
                                                             subcommittees – March 14, 2003
                       5. Reviewed by GAO.               • GAO – April 14, 2003 briefing to IRS’s
                                                             appropriations subcommittees
                       6. Complies with the              As part of the ELC, IRS has defined processes,
                          acquisition rules,             roles, responsibilities, etc. for implementing
                          requirements,                  Software Engineering Institute (SEI) Software
                          guidelines, and                Acquisition Capability Maturity ModelTM practices
                          systems acquisition            within the level 2 key process areas.7 These
                          management practices           practices are consistent with federal acquisition
                          of the federal                 requirements and management practices, and the
                          government.                    plan calls for implementation of the ELC on all
                                                         projects. Also, all PRIME cost reimbursement task
                                                         orders are subject to a final independent audit by
                                                         the Defense Contract Audit Agency to ensure that
                                                         costs incurred are commensurate with the physical
                                                         completion of the contract.




7These are acquisition planning, solicitation, requirements development and management, project management, contract tracking
and oversight, evaluation, and transition to support.                                                                                   16




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                      Appendix II
                      Briefing Slides from the April 14, 2003,
                      Briefing to the Senate and House
                      Appropriations Subcommittee Staffs




                                                                                                Results

Objective 2: Observations About IRS’s BSM Program and
Revised Expenditure Plan

  Observation 1:Revised Plan Reduces the Scope of
  BSM Program
  •IRS’s initial (November 2002) FY 2003 plan was to (1) continue
  ongoing program-level initiatives through mid-November 2003
  and 12 ongoing projects to their next milestones and (2) start 8
  new projects or new releases of existing projects.
  •However, IRS’s revised (March 2003) FY 2003 plan is to (1)
  continue ongoing program-level initiatives at a reduced funding
  level through mid-November 2003 and 9 ongoing projects to their
  next milestones and (2) start 5 new projects or new releases of
  existing projects.
  •See appendix I for a description of projects and initiatives.


                                                                                                            17




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                         Appendix II
                         Briefing Slides from the April 14, 2003,
                         Briefing to the Senate and House
                         Appropriations Subcommittee Staffs




                                                                                                   Results

• Since the November 2002 Plan, IRS has:
    • Reduced the funding request for BSM program by about $72 million
    • Deferred 4 new project releases, discontinued 2 ongoing project
      releases, absorbed 1 new release into an ongoing project release,
      and transferred 1 ongoing project to another appropriation
    • Started a new project release-CAP Release 2 and funded a
      business case study for the Work Management project
    • Reduced funding for program-level initiatives by 19 percent and core
      infrastructure projects by 10 percent
• The changes in scope reduced the number of projects in the more
  complex and risky later stages of development. The March 2003 plan
  calls for 7 business and data projects that are in milestone 4 or beyond.



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                          Briefing Slides from the April 14, 2003,
                          Briefing to the Senate and House
                          Appropriations Subcommittee Staffs




                                                                                                    Results


• IRS reduced funding for the core infrastructure projects, in part, to reflect
  reduced BSM scope. IRS asserts that it has taken steps to mitigate
  project impacts resulting from these reductions. Core infrastructure
  projects provide oversight for laboratory environments, which support
  development and testing, as well as the foundational enabling
  infrastructure and strategic services for all data and business projects. If
  core infrastructure is not sufficient or available, the risk of schedule
  delays for other projects increases.
• The following slide shows a comparison between the funding levels
  requested by the initial and revised FY 2003 plans.




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                                                      Briefing Slides from the April 14, 2003,
                                                      Briefing to the Senate and House
                                                      Appropriations Subcommittee Staffs




                                                                                                                                   Results

   Comparison of IRS’s Initial (November 2002) and Revised
   (March 2003) FY 2003 Expenditure Plans ($000)8
                                                                                      Nov. 2002      Mar. 2003
   Program-Level Initiatives                                                         IRS Request   IRS Request     Change (%)
   Architecture & Integration                                                          $43,577       $34,000      -$9,577 (-22%)
   Business Integration                                                                $11,413        $8,000      -$3,413 (-30%)
   Management Processes                                                                $13,828       $11,476      -$2,352 (-17%)
   Federally Funded Research and Development Center (FFRDC) - MITRE                    $20,750       $16,688      -$4,062 (-20%)
   Program Management                                                                   $9,908       $10,000       +$92 (+1%)
             Subtotal                                                                  $99,476       $80,164     -$19,312 (-19%)

              9
   Projects
   Core Infrastructure Projects (e.g. Infrastructure Shared Services)                  $99,261       $89,261     -$10,000 (-10%)
   Data Projects (e.g. Customer Account Data Engine, Integrated Financial System)     $152,798      $168,251     +$15,453 (+10%)
   Business Projects (e.g. e-Services, Modernized e-file)                              $94,800       $59,342     -$35,458 (-37%)
             Subtotal                                                                 $346,859      $316,854      -$30,005 (-9%)


   FY 2003 Management Reserve Request*                                                  $4,342       $11,120     +$6,778 (+156%)
   FY 2002 Management Reserve Carryover                                                             ($10,146)     - $10,146
   FY 2002 CAM MS3b Unused Funds                                                                    ($19,694)    - $19,694


   Total                                                                              $450,677      $378,298     -$72,379 (-16%)
   * - Includes $677 from Remaining FY2001 and FY2002 Appropriated Funds




   Source: IRS
8See   appendix III for a more detailed comparison of IRS’s initial and revised FY 2003 expenditure plans.
9The   3 categories under this heading include several separate projects.                                                                     20




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                        Briefing Slides from the April 14, 2003,
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                        Appropriations Subcommittee Staffs




                                                                                                  Results

• Observation 2: Most Initiatives/Project Milestones Continue to
  Experience Cost Increases and/or Schedule Delays

• In its March 2003 plan, IRS disclosed that 25 of 28 initiatives or project
  milestones have experienced cost increases and/or schedule delays
  against commitments made in the November 2001 plan. Of the 25, 15 were
  acquisition projects and 10 were program-level initiatives.

• 21 of 28 (or 75 percent) initiatives/project milestones experienced cost
  increases and/or schedule delays exceeding 10 percent of the estimated
  cost and duration stated in the November 2001 plan:
    • 12 experienced cost increases
    • 14 experienced schedule delays

• See Appendix IV for details.



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                        Briefing Slides from the April 14, 2003,
                        Briefing to the Senate and House
                        Appropriations Subcommittee Staffs




                                                                                                  Results

• The cost increases and schedule delays were caused, in part, by:
   • Cost and schedule estimating deficiencies
   • Under-estimating the complexity of projects
   • Competing demands of projects for facilities used to test project
     releases
   • Project interdependencies, whereby delays with one project had a
     cascading effect and caused delays in another project

• In response to one of our previous recommendations, IRS and PRIME
  have developed new cost and schedule estimating and validation
  procedures. However, current variances were the result of estimates made
  before or during the implementation of new procedures.




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                          Appropriations Subcommittee Staffs




                                                                                                    Results


Observation 3: Schedule Delays Affect Delivery of Benefits

• Schedule slippages delay direct benefits to the public:
   • According to IRS, taxpayers covered under CADE will receive their
     refunds much faster than under Master File processing. However,
     continuing delays in deploying the first and subsequent releases of
     CADE will postpone delivery of this benefit to taxpayers. For
     example, the opportunity for the first set of taxpayers (single 1040EZ
     filers) to enjoy faster refunds has been delayed 13 months.

    • The e-Services project is to provide easy-to-use electronic products
      and services targeted at tax practitioners that inform, educate, and
      provide services to the taxpaying public. Schedule slippages with
      the first release of e-Services will delay deployment of services such
      as registration of electronic return originators, taxpayer identification
      number matching, and secure e-mail.

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                        Briefing Slides from the April 14, 2003,
                        Briefing to the Senate and House
                        Appropriations Subcommittee Staffs




                                                                                                  Results


• Remediation of material weaknesses may be delayed:
   • IRS has reported a material weakness associated with the design of
     the Master Files. CADE is to build the modernized database
     foundation that will replace Master Files. Continuing schedule
     slippages will delay resolution of this material weakness.
   • CAP will address a financial material weakness and permit the
     tracking from submissions to disbursement of all revenues received
     from individual taxpayers. The first release of CAP is several months
     behind its May 2003 initial operating capability, primarily due to
     delays in availability of necessary infrastructure support
     functionality, delay in developing the interface to CADE, and
     diversion of critical staff to support filing season 2002.
   • Acceleration of the second release of CAP (milestone 4) is an
     attempt to resolve the financial material weakness in accordance
     with the IRS Financial Remediation Plan.
   • Also, IFS Release 1 is currently on schedule for October 2003.


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                        Appendix II
                        Briefing Slides from the April 14, 2003,
                        Briefing to the Senate and House
                        Appropriations Subcommittee Staffs




                                                                                        Conclusions

• IRS’s revised (March 2003) expenditure plan satisfies the legislative
  conditions. Since our last briefing, IRS has reduced the scope of the
  BSM program.
• Despite the reduced scope of the IRS BSM program for FY 2003, it
  continues to face heightened risks because (1) several key projects are
  in or entering their later stages of development and deployment, (2)
  some of these projects provide the foundational infrastructure upon
  which later projects depend, and (3) project milestones continue to
  experience cost increases and schedule delays.
• Continued management attention and effort toward implementing our
  prior recommendations are necessary to manage these risks and
  sustain improvements in IRS’s BSM management capabilities.




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                         Appendix II
                         Briefing Slides from the April 14, 2003,
                         Briefing to the Senate and House
                         Appropriations Subcommittee Staffs




                                                                            Agency Comments


• In providing comments via e-mail on a draft of this briefing, the
  Associate Commissioner for Business Systems Modernization, stated
  that it is a fair and accurate representation of the BSM program. He also
  stated that
    • IRS achievements demonstrate its program-wide commitment to
      reach the degree of management capability to effectively run such a
      large, complex program
    • IRS has established a stable management team
    • IRS’s major concern is the impact of inconsistent funding of the
      program
    • IRS appreciates GAO’s continued support for the BSM program

• In addition, the Associate Commissioner for BSM provided specific
  comments which we have incorporated into the briefing, as appropriate.



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                                       Briefing Slides from the April 14, 2003,
                                       Briefing to the Senate and House
                                       Appropriations Subcommittee Staffs




                                                                                                              Appendix I:
                                                                    BSM Program-Level Initiatives/Projects

Description of BSM Program-Level Initiatives and Projects
Proposed Modernization Initiatives       Description

Program-Level Initiatives:
Architecture & Integration              Ensures that systems solutions meet IRS business needs and that the projects are
                                        effectively integrated.
Business Integration                    Ensures that IRS BSM program is aligned with the business units’ reengineering
                                        efforts and that business transformation plans are developed and maintained to
                                        support a seamless “transition to support”.
Management Processes                    Provides sustaining support for program-level management processes, including
                                        quality assurance, process improvement, training, program control, and ELC
                                        maintenance and enhancements.
FFRDC - MITRE                           Provides program management and systems engineering support to BSMO.
Program Management                      Provides overall program management for IRS-PRIME Partnership activities and
                                        deliverables, and is responsible for coordinating, tracking, and integrating all
                                        program-wide costs, schedules, and performance measures.

Core Infrastructure Projects:
Development Integration & Testing        Provides oversight for laboratory environments which support development, and
Environment (DITE)                       testing: (1) Virtual Development Environment – development environment and
                                         standardized set of tools; (2) Enterprise Integration Testing Environment –
                                         integration testing environment for all projects.
Infrastructure Shared Services (ISS)     Provides foundational enabling infrastructure (infrastructure technology components
                                         and strategic infrastructure services for all data and business projects: (1) Enterprise
                                         Systems Management (ESM) – develops and executes a strategy to provide network
                                         and systems management to improve IT infrastructure availability and performance;
                                         (2) Security and Technology Infrastructure Release (STIR) – provides infrastructure
                                         for secure telephony and electronic interaction among employees, tax practitioners,
                                         and taxpayers.


Source: IRS
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                                                 Appropriations Subcommittee Staffs




                                                                                                                                     Appendix I:
                                                                                  BSM Program-Level Initiatives/Projects

Description of BSM Program-Level Initiatives and Projects (Cont.)
Proposed Modernization Initiatives                  Description

Data Projects:
Customer Account Data Engine (CADE)                 Builds the modernized database foundation to replace the existing master file processing
                                                    systems.
Integrated Financial Systems (IFS)                  Implements an integrated financial management system using a commercial off-the-shelf
                                                    enterprise resource planning product.
Custodial Accounting Project / Enterprise Data      Provides integrated, reliable tax operations and internal management information to
Warehouse (CAP/EDW)                                 support evolving decision analytics, performance measurement, and management
                                                    information needs.
Modernized Data Access (MDA)                        Provides a single integrated approach and software for accessing current processing
                                                    environment (legacy) data across the organization, and builds key infrastructure
                                                    components that all modernization projects can share.
Information Returns Processing (IRP)                Provides modernized information returns repository to link third party data directly to
                                                    customer accounts to efficiently handle customer service and compliance inquiries and
                                                    demands.

Business Projects:
Customer Communications 2001                        Improves communications infrastructure, including telephone call management, call
                                                    routing, and customer self-service applications.
Internet Refund / Fact of Filing (IR/FoF)           Improves customer self-service by providing instant refund status information and
                                                    instructions for resolving refund problems to taxpayers with Internet access.
Customer Account Management (CAM)                   Delivers an enterprise solution to support access to tax account data, contact
                                                    management, case management, outbound correspondence management, and workflow
                                                    management.
Customer Contact Modernization (CCM)                Provides initial building blocks to transition IRS from current call center environment to
                                                    new customer contact center.
e-Services                                          Creates a web portal and value-adding e-Services to promote the goal of conducting most
                                                    of the IRS’s transactions with taxpayers and tax practitioners electronically.
Filing & Payment Compliance (F&PC)                  Provides support for detecting, scoring, and working cases in the area of non-filer (filing
                                                    compliance) and delinquency (payment compliance) cases.
HR Connect                                          Delivers an enterprise solution to allow IRS employees to access and manage their
                                                    human resources information online.
Modernized e-file                                   Provides a single standard for filing electronic tax returns.
Work Management                                     Selects and integrates software applications to improve IRS’s ability to manage and
                                                    allocate staffing resources and track workload more effectively.
Source: IRS
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                                                 Briefing Slides from the April 14, 2003,
                                                 Briefing to the Senate and House
                                                 Appropriations Subcommittee Staffs




                                                                                                                   Appendix II:
                                                                                                           IRS Expenditure Plan
Detailed Summary of IRS’s March 2003 Expenditure Plan ($000)
Proposed Modernization Initiatives                                                    a               b    Milestone Amount
                                                                            Release       Milestone
                                                                                                             Date   Requested
                             c
Program-Level Initiatives
Architecture & Integration                                                                     FY          Nov. 03     $34,000
Business Integration                                                                           FY          Nov. 03      $8,000
Management Processes                                                                           FY          Nov. 03     $11,476
FFRDC - MITRE                                                                                  FY          Nov. 03     $16,688
Program Management                                                                             FY          Nov. 03     $10,000
                                     Subtotal - Program-Level Initiatives                                              $80,164
                                 c
Core Infrastructure Projects
Development Integration & Testing Environment                                             infrastructure    Nov. 03    $13,961
Infrastructure Shared Services                                                            infrastructure    Nov. 03    $75,300
                              Subtotal - Core Infrastructure Projects                                                  $89,261
Data Projects
Customer Account Data Engine (CADE)                                     R1                      5           Dec. 03     $4,889
Customer Account Data Engine (CADE)                                     R2                      4            TBD        $6,924
Customer Account Data Engine (CADE)                                     R3                      3           Jun. 04    $15,870
                                                      Subtotal - CADE                                                  $27,683
Integrated Financial Systems (IFS)                                      R1                     3c           Feb. 03    $29,700
Integrated Financial Systems (IFS)                                      R1                      4           Sep. 03    $53,655
Integrated Financial Systems (IFS)                                      R1                      5           Mar. 04    $10,700
Integrated Financial Systems (IFS)                                      R2                    2,3a           TBD        $2,500
                                                         Subtotal - IFS                                                $96,555
Custodial Accounting Project / Enterprise Data Warehouse (CAP/EDW) R1                          4,5          Feb. 04    $29,013
Custodial Accounting Project / Enterprise Data Warehouse (CAP/EDW) R2                           4           Dec. 03    $15,000
                                                       Subtotal - CAP                                                  $44,013
                                             Subtotal - Data Projects                                                 $168,251
Source: IRS
aReleases are software versions that provide a subset of the total planned project functionality.
bMilestonescorrespond to phases within IRS’s Enterprise Life Cycle.                                                                             29
cProgram Level Initiatives and Core Infrastructure Projects are funded on a fiscal year (FY) basis rather than by milestone.




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                                                 Briefing to the Senate and House
                                                 Appropriations Subcommittee Staffs




                                                                                                           Appendix II:
                                                                                                   IRS Expenditure Plan
Detailed Summary of IRS’s March 2003 Expenditure Plan ($000) (Cont.)
Proposed Modernization Initiatives                                             Release      Milestone     Milestone Amount
                                                                                                            Date   Requested
Business Projects
e-Services                                                                     R1 & R2          4,5         Sep. 04       $18,846
Modernized e-file                                                              R1                4          Nov. 03       $39,846
Work Managementd                                                                                FY          Jun. 03         $650
                                             Subtotal - Business Projects                                                 $59,342

FY 2003 Management Reserve Request*                                                                                        $11,120
FY 2002 Management Reserve Carryover                                                                                     ($10,146)
FY 2002 CAM MS3b Unused Funds                                                                                            ($19,694)

Total FY 2003 Release Request                                                                                            $378,298

FY 2003 Partial Release of Funds                                                                                        $231,700

Remaining Unreleased Request                                                                                            $146,598

* - Includes $677 from Remaining FY 2001 and FY 2002 Appropriated Funds




Source: IRS
dThe   Work Management project is being funded on a level of effort or fiscal year (FY) basis rather than by milestone for FY 2003.
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                                                                  Briefing to the Senate and House
                                                                  Appropriations Subcommittee Staffs




                                                                                                           Appendix III:
                                                                                       IRS Expenditure Plan Comparison
Detailed Comparison of IRS’s Initial (November 2002) and Revised (March 2003) FY
2003 Expenditure Plans ($000)

Proposed Modernization Initiatives            Nov. 02   Mar. 03 Schedule   Nov. 02   Mar. 03 Cost Variance (%)                             IRS Explanation of Changes
                                             Milestone Milestone Variance  Amount Amount
                                               Date       Date            Requested Requeste
Program Level Initiatives
Architecture & Integration                    Nov. 03   Nov. 03       -      $43,577   $34,000    -$9,577 (-22%)   Target funding level based on reduced budget/fewer projects.
Business Integration                          Nov. 03   Nov. 03       -      $11,413    $8,000    -$3,413 (-30%)   Target funding level based on reduced budget/fewer projects.
Management Processes                          Nov. 03   Nov. 03       -      $13,828   $11,476    -$2,352 (-17%)   Target funding level based on reduced budget/fewer projects.
FFRDC - MITRE                                 Nov. 03   Nov. 03       -      $20,750   $16,688    -$4,062 (-20%)   Target funding level based on reduced budget/fewer projects.
Program Management                            Nov. 03   Nov. 03       -       $9,908   $10,000       +$92 (+1%)    Refined estimate of required funding for FY 2003 initiatives.
      Subtotal - Program-Level Initiatives                                   $99,476   $80,164    -19,312 (-19%)

Core Infrastructure Projects
DITE                                          Nov. 03   Nov. 03       -      $13,961   $13,961        -
Infrastructure Shared Services                Nov. 03   Nov. 03       -      $85,300   $75,300   -$10,000 (-12%) Target funding level based on reduced budget/fewer projects.
  Subtotal - Core Infrastructure Projects                                    $99,261   $89,261   -$10,000 (-10%)

Data Projects
CADE R1, Milestone 5                          Jun. 03   Dec. 03 + 6 months    $4,851    $4,889       +$38 (+1%)    Refined funding estimate to support FY 2003 initiatives. (See Note 1)
CADE R1, Milestone 6                          Dec. 03      -         -        $3,638        $0   -$3,638 (-100%)   Policy change. Milestone 6 will be funded by ISY Appropriation.
CADE R2, Milestone 4                           TBD       TBD         -        $6,924    $6,924        -
CADE R3, Milestone 3                          Dec. 03   Jun. 04 + 6 months   $15,289   $15,870      +$581 (+4%)    Schedule delayed due to CADE R1 delays. Incorporated infrastructure costs.
CADE R3, Infrastructure                       Dec. 03      -         -          $581        $0     -$581 (-100%)   Infrastructure costs combined with CADE R3 Milestone 3 costs above.
CADE R4, Milestone 3                          Aug. 04    TBD         -        $6,756        $0   -$6,756 (-100%)   Deferred due to CADE program slippage.
                          Subtotal - CADE                                    $38,039   $27,683   -$10,356 (-27%)




   Source: IRS
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                                                                   Briefing to the Senate and House
                                                                   Appropriations Subcommittee Staffs




                                                                                                             Appendix III:
                                                                                         IRS Expenditure Plan Comparison
Detailed Comparison of IRS’s Initial (November 2002) and Revised (March 2003) FY
2003 Expenditure Plans ($000) (Cont.)

Proposed Modernization Initiatives             Nov. 02   Mar. 03 Schedule   Nov. 02   Mar. 03 Cost Variance (%)                                IRS Explanation of Changes
                                              Milestone Milestone Variance  Amount   Amount
                                                 Date     Date             Requested Requeste
Data Projects (Cont.)
IFS R1, Milestone 3c                              -      Feb. 03      -            $0   $29,700     +$29,700 (+100%)    (See Note 2)
IFS R1, Milestone 4                            Sep. 03   Sep. 03      -       $67,227   $53,655       -$13,572 (-20%)   (See Note 2)
IFS R1, Milestone 5                            Mar. 04   Mar. 04      -        $6,828   $10,700        +$3872 (+57%)    (See Note 2)
IFS R2, Milestone 2/3a                          TBD       TBD         -        $2,500    $2,500            -
                             Subtotal - IFS                                   $76,555   $96,555      +$20,000 (+26%)
CAP/EDW R1B1, Milestone 4/5                    May 03       -         -        $4,850        $0       -$4,850 (-100%)   Incorporated into CAP R1 Milestone 4/5 project below.
CAP/EDW R1B1.1, Milestone 4/5                  Sep. 03      -         -       $13,613        $0      -$13,613 (-100%)   Incorporated into CAP R1 Milestone 4/5 project below.
CAP R1, Milestone 4/5                             -      Feb. 04 + 9 months        $0   $29,013     +$29,013 (+100%)    (See Note 3)
CAP R2, Milestone 4                               -      Dec. 03      -            $0   $15,000     +$15,000 (+100%)    (See Note 4)
                            Subtotal - CAP                                    $18,463   $44,013     +$25,550 (+138%)
MDA R1, Infrastructure                         Nov. 03    TBD         -       $16,741        $0      -$16,741 (-100%)   Deferred pending funding.
IRP R1, Milestone 1                             TBD        -          -        $3,000        $0       -$3,000 (-100%)   Deferred pending funding.
                 Subtotal - Data Projects                                     $152,798 $168,251      +$15,453 (+10%)

Business Projects
CAM R1, Milestone 4                            Oct. 04    TBD         -        $20,949         $0   -$20, 949 (-100%)   Deferred pending funding.
CCM R1, Milestone 2                             TBD         -         -         $2,500         $0     -$2,500 (-100%)   Deferred pending funding.
e-Services R1 & R2, Milestone 4/5              Apr. 04   Sep. 04 + 5 months     $5,846    $18,846    +13,000 (+222%)    (See Note 5)
F&PC R1, Milestone 4                           Apr. 04    TBD         -        $26,159         $0    -$26,159 (-100%)   Deferred pending funding.
HR Connect R1, Milestone 4/5                    TBD         -         -        $11,500         $0    -$11,500 (-100%)   Decision made to fund HR Connect from ISY Appropriation.
Modernized e-File R1, Milestone 4              Nov. 03   Nov. 03      -        $27,846    $39,846    +$12,000 (+43%)    (See Note 6)
Work Management                                   -      Jun. 03      -             $0       $650      +$650 (+100%)    Follow-on to FY 2002 study to develop implementation strategy/business case.
            Subtotal - Business Projects                                       $94,800    $59,342     -$35,458 (-37%)

FY 2003 Management Reserve Request                                              $4,342    $11,120    +$6,778 (+156%) Increase to management reserve based on OMB guidance.
FY 2002 Management Reserve Carryover                                                $0    -10,146    -$10,146 (-100%) Management Reserve remaining at end of FY 2002 to carryover to FY 2003
FY 2002 CAM MS3b Unused Funds                                                       $0    -19,694    -$19,694 (-100%) CAM project discontinued in FY 03. FY 2002 funds go to management reserve.

Total FY 2003 Release Request                                                 $450,677   $378,298     -$72,379 (-16%)




   Source: IRS
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                                Briefing Slides from the April 14, 2003,
                                Briefing to the Senate and House
                                Appropriations Subcommittee Staffs




                                                                    Appendix III:
                                                IRS Expenditure Plan Comparison
Detailed Comparison of IRS’s Initial (November 2002) and Revised (March 2003) FY
2003 Expenditure Plans ($000) (Cont.)
IRS Explanation of Changes:
Note 1: Deployment was delayed due to contractor delays in staffing the project, failure to
acquire a business rules engine, underestimating the technical complexity of a few key
software components, and late attention to critical project elements. Additional slippage was
due to mandatory relocation of development site to satisfy security certification concerns.
Note 2: Infrastructure hardware and software procurements and labor to conduct IFS
preliminary development activities originally planned to begin in Milestone 4 have been moved
forward into a new Milestone 3c segment. This allows the project to continue to move forward
on schedule for an October 1, 2003, “go live” while incomplete Milestone 3 activities are being
satisfied. The net budget increase of $20 million for Milestones 3c, 4, and 5 reflects a revised
estimate of actual labor costs and an increase in infrastructure costs.
Note 3: CAP/EDW R1B1 and R1B1.1 have been combined and renamed CAP R1 as a result
of a major CAP replan effort. Delays in obtaining the Infrastructure Shared Services (ISS)
schedule, and other additional activities impacting the schedule, necessitated the major
schedule replan. This ultimately resulted in a 9 month delay (from May 2003 to Feb. 2004) in
the scheduled completion of Milestone 5. The revised total CAP R1 cost ($29,013) consists
of CAP EDW R1B1 ($4,850), CAP EDW R1B1.1 ($13,613), and a cost increase of $10,550.
The cost increase was due in large part to the schedule delays discussed above.



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                            Briefing Slides from the April 14, 2003,
                            Briefing to the Senate and House
                            Appropriations Subcommittee Staffs




                                                                Appendix III:
                                            IRS Expenditure Plan Comparison
Detailed Comparison of IRS’s Initial (November 2002) and Revised (March
2003) FY 2003 Expenditure Plans ($000) (Cont.)
IRS Explanation of Changes (cont.):
Note 4: CAP R2 Milestone 4 was moved up from FY 2004 to FY 2003, in an
attempt to resolve the custodial accounting material weakness as soon as possible
and comply with the current remediation plan dates.
Note 5: Schedule delays occurred due to late completion of infrastructure,
competing demand for testing resources, and additional scope of new e-Services
R2. E-Services R2 will provide Modernized e-file participants access to the e-
services registration and application process, tax year updates, and an enhanced
Transcript Delivery System. Cost increases were due to delays in and
enhancements to E-Services subreleases R1.1 and R1.2, as well as the additional
scope of R2.
Note 6: Prior to being funded by BSM, Modernized e-File was made up of two Tier
B projects. Many of the management and infrastructure estimates for these former
Tier B projects were either inaccurate or did not reflect the additional capacity of
integrating with the modernized environment. The revised cost includes increases
for PRIME integration and infrastructure support, and changes to the customer
database.


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                                         Briefing Slides from the April 14, 2003,
                                         Briefing to the Senate and House
                                         Appropriations Subcommittee Staffs




                                                                          Appendix IV:
                                                 IRS Reported Cost / Schedule Changes
 Program/ Project       Commitment Date and     Revised Commitment      Change (%)                  IRS Explanation of
Management Initiative   Funding as of 10/2001    Date and Funding                                        Change
                               ($000)                  ($000)
     Customer                 10/31/01                02/26/02       +4 months (+22%)    CC01 went live on 07/27/01. However, a
 Communications 2001          $45,174                 $44,796           -$378 (-1%)      performance award dispute (settled in
    Milestone 4,5                                                                        February 2002) delayed Milestone 5. The
                                                                                         IRS paid the PRIME contractor $500K less
                                                                                         in performance awards than the maximum
                                                                                         allowed under the Task Order. Some of this
                                                                                         extra funding was used to cover higher than
                                                                                         expected Transition to Support costs.
   Internet Refund/           9/30/01                 9/28/01                            Actual costs came in $261K higher than
    Fact of Filing            $10,696                 $10,957           +$261 (+2%)      estimated to complete MS4,5 proposal.
      (Release 1)
     Milestone 3
   Internet Refund/            3/31/02                11/7/02        +7 months(+117%)    Definitization of this Task Order occurred
    Fact of Filing             $5,000                 $13,193         +$8,193 (+164%)    after submission of the October 2001
      (Release 1)                                                                        Expenditure Plan. Final negotiations placed
     Milestone 4                                                                         the MS 4 exit date at 05/03/02. However,
                                                                                         the PRIME contractor experienced
                                                                                         difficulties due to significant delays in
                                                                                         completing release level system integration
                                                                                         and testing (RSIT) and meeting performance
                                                                                         requirements. MS 4 completion was
                                                                                         delayed until the PRIME demonstrated
                                                                                         resolution of performance problems and
                                                                                         corrected outstanding items in the Defects
                                                                                         Report (DR).
                                                                                         Additional costs include $1.465M due to
                                                                                         Product Assurance need for contractors to
                                                                                         perform testing, identified transition to
                                                                                         support needs, increased RIS costs, and MS4
                                                                                         cost overrun, $2.304M to cover maintenance
                                                                                         through the end of the fiscal year and
                                                                                         enhancements for FY03 filing season, and
                                                                                         $4.683M required to extend MS4 to 11/7/02.

Source : IRS and GAO Analysis                                                                                                          35




                                         Page 104                                   GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
                                        Appendix II
                                        Briefing Slides from the April 14, 2003,
                                        Briefing to the Senate and House
                                        Appropriations Subcommittee Staffs




                                                                          Appendix IV:
                                                 IRS Reported Cost / Schedule Changes

 Program/ Project       Commitment Date and     Revised Commitment      Change (%)                   IRS Explanation of
Management Initiative   Funding as of 10/2001    Date and Funding                                         Change
                               ($000)                  ($000)
   Internet Refund/           7/31/02                  3/12/03       +7 months (+175%)   The PRIME contractor experienced
    Fact of Filing            $5,000                   $3,049          -$1,951 (-39%)    difficulties due to delays in completing
      (Release 1)                                                                        release level system integration and testing
     Milestone 5                                                                         (RSIT) and in meeting performance
                                                                                         requirements. Milestone 5 exit moved to
                                                                                         3/12/03 at the request of the Business owner
                                                                                         so that the application can be monitored
                                                                                         during the 2003 Filing Season.
                                                                                         IRS planned to spend $2.304M in MS 5 to
                                                                                         cover maintenance through the remainder of
                                                                                         the fiscal year and enhancements for FY03
                                                                                         filing season. However, those funds were
                                                                                         used in MS 4 because of the delay in exiting
                                                                                         that Milestone.
                                                                                         The IRS estimated the non M&E MS 5 work
                                                                                         would cost $6M (the original $5M estimated
                                                                                         plus an additional $1.0M to extend MS 5
                                                                                         from 07/31/02 to 09/30/02. However, due to
                                                                                         the late exit of MS 4, MS 5 did not begin
                                                                                         until11/8/02. The cost of all MS 5 activities
                                                                                         through 3/12/03 is now estimated at
                                                                                         $3.049M.




Source: IRS and GAO Analysis                                                                                                             36




                                        Page 105                                   GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
                                         Appendix II
                                         Briefing Slides from the April 14, 2003,
                                         Briefing to the Senate and House
                                         Appropriations Subcommittee Staffs




                                                                           Appendix IV:
                                                  IRS Reported Cost / Schedule Changes
 Program/ Project        Commitment Date and     Revised Commitment      Change (%)                   IRS Explanation of
Management Initiative    Funding as of 10/2001    Date and Funding                                         Change
                                ($000)                  ($000)
      e-Services               10/31/03                 9/30/04       +11 Months (+41%)   The delays occurred because infrastructures
 (Release 1.1 and 1.2)         $40,191                 $68,992         +$28,801 (+72%)    were not completed to meet the e-Services
    Milestone 4,5                                                                         date for PSIT. IR/FoF did not exit test
                                                                                          environment on schedule, delaying e-
                                                                                          Services. Also schedule delays and cost
                                                                                          increases because of move of Gaithersburg
                                                                                          Computing Center environment to the
                                                                                          Martinsburg and the Tennessee Computing
                                                                                          Centers. FY 2002 cost increases for
                                                                                          unplanned infrastructure hardware
                                                                                          ($4,255M), additional STIR Integration
                                                                                          ($4.200M), and increased product assurance
                                                                                          testing ($1,500M).
                                                                                          Additional costs include continued support
                                                                                          of PRIME ISS contractors to e-services,
                                                                                          non-prime costs for MCC support in FY
                                                                                          2003, and ITS and Business training for
                                                                                          knowledge transfer needed for transitioning
                                                                                          e-services.
  Customer Account             3/31/02                8/30/02         +5 months (+56%)    New business requirements required update
    Management                 $13,100                $13,300           +$200 (+2%)       to future concept of operations, and to
     (Release 1)                                                                          identify and prioritize their business process
     Milestone 2                                                                          re-engineering opportunities before
                                                                                          proceeding to MS3. Proposal for MS3 cost
                                                                                          overrun ($200K) due to changes in business
                                                                                          requirements.




Source: IRS and GAO Analysis                                                                                                               37




                                         Page 106                                   GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
                                         Appendix II
                                         Briefing Slides from the April 14, 2003,
                                         Briefing to the Senate and House
                                         Appropriations Subcommittee Staffs




                                                                          Appendix IV:
                                                 IRS Reported Cost / Schedule Changes
 Program/ Project       Commitment Date and     Revised Commitment      Change (%)                   IRS Explanation of
Management Initiative   Funding as of 10/2001    Date and Funding                                         Change
                               ($000)                  ($000)
  Filing and Payment          1/31/03                 12/31/02         -1 month (-6%)    $1.0M variance to include unplanned
      Compliance              $17,117                 $18,117          +$1,000 (+6%)     transition to support in MS2,3 activities per
       (Release 1)                                                                       new BSM program guidelines.
     Milestone 2,3
      HR Connect              12/31/02               12/31/02                            The initial FY 2002 amount for MS4 and 5
       (Release 1)            $10,000                $10,200            +$200(+2%)       was based on available funds instead of
     Milestone 4,5                                                                       usable segment cost. This was done to cover
                                                                                         Treasury's anticipated activity in FY 2002
                                                                                         and not the entire MS4 and MS5 cost (i.e.,
                                                                                         MS5 work was never planned to be
                                                                                         completed in FY 2002). The project is now
                                                                                         broken into MS4 and MS5 usable segments.
                                                                                         The estimate for MS4 is $10.2M and is
                                                                                         compared with the original plan amount of
                                                                                         $10M. The BSM account will no longer
                                                                                         fund MS5 work.
Customer Account Data         6/30/02                 7/13/03           +13 months       Deployment delayed due to contractor
   Engine (CADE)              $45,338                 $45,338            (+108%)         delays in staffing the project, failure to
      Release 1                                                                          acquire a business rules engine,
     Milestone 4                                                                         underestimating the technical complexity of
                                                                                         a few key software components, late
                                                                                         attention to critical project elements, and re-
                                                                                         location of the development site to satisfy
                                                                                         security certification concerns.
Customer Account Data         12/31/02               12/31/03           +12 months       FY 2002 funding for MS5 ($5.795M) was
   Engine (CADE)               $5,795                 $4,889             (+200%)         returned to management reserve because
      Release 1                                                        -$906 (-16%)      schedule delays moved MS5 to FY 2003.
     Milestone 5                                                                         The net MS5 decrease ($.906M) is due to
                                                                                         revised estimates to do the same work.




Source: IRS and GAO Analysis                                                                                                               38




                                         Page 107                                   GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
                                         Appendix II
                                         Briefing Slides from the April 14, 2003,
                                         Briefing to the Senate and House
                                         Appropriations Subcommittee Staffs




                                                                          Appendix IV:
                                                 IRS Reported Cost / Schedule Changes



 Program/ Project       Commitment Date and     Revised Commitment      Change (%)                   IRS Explanation of
Management Initiative   Funding as of 10/2001    Date and Funding                                         Change
                               ($000)                  ($000)
Customer Account Data         12/31/02                  TBD                              In the process of replanning Release 2 and
   Engine (CADE)              $38,400                 $46,324         +$7,924 (+21%)     beyond due to delays in Release 1. Cost
      Release 2                                                                          increases are for planning for future
     Milestone 4                                                                         functionality due to CAM/CADE
                                                                                         sequencing ($1.0M) and FY03 infrastructure
                                                                                         costs ($6.924M).
Customer Account Data          6/30/03                6/30/04           +12 months       Focus redirected to build foundation for
   Engine (CADE)               $9,779                 $15,870            (+100%)         requirements. Deferred to FY03 to align
      Release 3                                                       +$6,091 (+62%)     with CADE Release 2 capabilities, which
     Milestone 3                                                                         impact Release 3 scope, schedule, and costs.




Source: IRS and GAO Analysis                                                                                                            39




                                         Page 108                                   GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
                                           Appendix II
                                           Briefing Slides from the April 14, 2003,
                                           Briefing to the Senate and House
                                           Appropriations Subcommittee Staffs




                                                                             Appendix IV:
                                                    IRS Reported Cost / Schedule Changes
    Program/ Project       Commitment Date and     Revised Commitment      Change (%)                  IRS Explanation of
   Management Initiative   Funding as of 10/2001    Date and Funding                                        Change
                                  ($000)                  ($000)
    Custodial Accounting         3/31/03                  2/16/04       +11 months (+39%)   The first schedule variance resulted from
       Project (CAP)             $51,430                 $87,087         +$35,657 (+69%)    temporary reassignment of IMF programmer
         Release 1                                                                          resources to support 2002 tax filing season
       Milestone 4,5                                                                        changes, thus delaying MS5 from 03/31/03
                                                                                            to 05/15/03. The next major change in the
                                                                                            CAP schedule delayed M5 from 5/15/03 to
                                                                                            11/3/03. A delay in obtaining the ISS
                                                                                            schedule, and other additional activities
                                                                                            impacting the schedule, necessitated the
                                                                                            major schedule replan. As a result, 11/3/03
                                                                                            transition to Production Environment was
                                                                                            redesignated as Initial Operational
                                                                                            Capability (IOC) and established MS5 as
                                                                                            2/16/04.
                                                                                            FY 2002 variance ($6.664M) due to
                                                                                            integration with STIR components, revenue
                                                                                            interface with IFS, CAP-CADE interface,
                                                                                            schedule delays, mid-year IMF changes.
                                                                                            FY03 request of $29,013 is comprised of
                                                                                            CY03 format changes, ISS/STIR and other
                                                                                            schedule delays, IFS/PACER modernized
                                                                                            interface development, ISS hardware and
                                                                                            software to upgrade processing capacity,
                                                                                            implementation of modernized standards to
                                                                                            CAP in-process development.




Source: IRS and GAO Analysis                                                                                                              40




                                           Page 109                                   GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
                                          Appendix II
                                          Briefing Slides from the April 14, 2003,
                                          Briefing to the Senate and House
                                          Appropriations Subcommittee Staffs




                                                                           Appendix IV:
                                                  IRS Reported Cost / Schedule Changes

  Program/ Project       Commitment Date and     Revised Commitment      Change (%)                   IRS Explanation of
 Management Initiative   Funding as of 10/2001    Date and Funding                                         Change
                                ($000)                  ($000)
    Enterprise Data            5/31/02                 12/19/02       +7 months (+78%)    Requirements expanded to include
   Warehouse (EDW)             $6,700                   $6,950          +$250 (+4%)       additional data sets for analysis and
     Milestone 2,3                                                                        additional time needed to establish Business
                                                                                          User priorities. Upon completion and formal
                                                                                          exit of MS3 work for EDW, the IRS decided
                                                                                          to rescope EDW to focus on the original
                                                                                          CAP requirements. Meeting these original
                                                                                          requirements will provide a resolution to
                                                                                          material weaknesses that currently exist in
                                                                                          Custodial Accounting.
  Integrated Financial         11/30/02               11/30/02                            Completed the deliverables originally
 System/Core Financial         $17,250                $23,000          +$5,750 (+33%)     scheduled for MS2,3. However, certain
   System (IFS/CFS)                                                                       deliverables needed to exit Milestone 3
       Release 1                                                                          under Milestone Exit criteria were not
   Milestone 4A/3B                                                                        planned using the COTS path through the
                                                                                          ELC. Extended Milestone 3 by establishing
                                                                                          Milestone 3B to produce the deliverables
                                                                                          needed to obtain Enterprise Architecture
                                                                                          Certification and other design work and exit
                                                                                          Milestone 3. The net MS4A/3B variance,
                                                                                          $5.750M (-$17.250 + $23.000) is due to
                                                                                          revised estimates to complete the work and
                                                                                          the ISS DCC communications infrastructure
                                                                                          buildout for IFS.




Source: IRS and GAO Analysis                                                                                                             41




                                          Page 110                                   GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
                                            Appendix II
                                            Briefing Slides from the April 14, 2003,
                                            Briefing to the Senate and House
                                            Appropriations Subcommittee Staffs




                                                                             Appendix IV:
                                                    IRS Reported Cost / Schedule Changes
  Program/ Project         Commitment Date and     Revised Commitment      Change (%)                   IRS Explanation of
 Management Initiative     Funding as of 10/2001    Date and Funding                                         Change
                                  ($000)                  ($000)
  Infrastructure Shared          11/30/02                11/30/02                           Started 3 months early to provide support to
         Services                $39,747                 $48,846         +$9,099 (+23%)     FY 2003 Release. Cost increase due to
        FY 2002                                                                             realignment of projects' schedules, increased
                                                                                            software maintenance, decision to buy rather
                                                                                            than lease equipment, and addition of
                                                                                            Modernized e-file requirements. The
                                                                                            majority of the cost overrun is as a result of
                                                                                            OMB A-11requirements to purchase
                                                                                            HW/SW instead of leasing it as originally
                                                                                            planned. Purchasing the equipment in FY
                                                                                            2002 saves money in the out years.
      Security and               10/30/01                1/31/02        +3 months (+25%)    Slip in Enterprise Integration and Test
       Technology                $31,287                 $31,287                            Environment (EITE) Ready For Use (RFU)
 Infrastructure Releases                                                                    date caused a slip in the MS4 exit date. Late
          (STIR)                                                                            identification, ordering, and receipt of
       Milestone 4                                                                          equipment caused the slip in EITE.
      Security and               5/31/02                11/30/02        +6 months (+86%)    Start date slipped 3 months due to MS4 exit
       Technology                $43,973                $56,041         +$12,068 (+27%)     delay. End date slipped because STIR was
 Infrastructure Releases                                                                    split into two releases to accommodate
          (STIR)                                                                            projects' schedules. Sub-release 1 supports
         FY 2002                                                                            IR/FoF; Release 2 supports e-Services,
                                                                                            which will be completed under ISS. Cost
                                                                                            change due to realignment of projects'
                                                                                            schedules, increased software maintenance,
                                                                                            additional security requirements, and OMB
                                                                                            A-11 requirement to purchase rather than
                                                                                            lease equipment (+$11.340M), and
                                                                                            application of FY 2001 infrastructure funds
                                                                                            to FY 2002.




Source: IRS and GAO Analysis                                                                                                                 42




                                            Page 111                                   GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
                                         Appendix II
                                         Briefing Slides from the April 14, 2003,
                                         Briefing to the Senate and House
                                         Appropriations Subcommittee Staffs




                                                                          Appendix IV:
                                                 IRS Reported Cost / Schedule Changes


 Program/ Project       Commitment Date and     Revised Commitment      Change (%)                   IRS Explanation of
Management Initiative   Funding as of 10/2001    Date and Funding                                         Change
                               ($000)                  ($000)
 Enterprise Systems           12/19/01                 2/19/02       +2 months (+40%)    60-day extension of MS4 exit to realign the
 Management (ESM)              $9,184                  $9,184                            schedule with STIR and EITE RFU, re-
    Milestone 4                                                                          evaluate the system requirements document
                                                                                         for the evolving needs of the modernized
                                                                                         projects, specifically IR/FoF, evaluate the
                                                                                         current ITS organization’s ability to support
                                                                                         the existing ESM release plan.
 Enterprise Systems           7/31/02                 1/31/03        +6 months (+75%)    Start date slipped 3 months due to slippage
 Management (ESM)             $11,323                 $11,090           -$233 (-2%)      in milestone 4 exit date. End date slipped to
      FY 2002                                                                            coincide with ESM PMAR release 1.3 to
                                                                                         support IR/FoF. Cost decrease due to revised
                                                                                         period of performance, enhancements in
                                                                                         Web Hosting facilities, and Security Test &
                                                                                         Evaluation overrun.
     Development              11/15/02               11/15/02                            Increased support for Help Desk, Data
 Integration and Test         $12,916                $17,194          +$4,278 (+33%)     Modeling, Rational Tools, Customer Guide,
 Environment (DITE)                                                                      and increase in maintenance costs. Cost of
       FY 2002                                                                           relocating projects from GCC to MCC. Cost
                                                                                         to move Z900 from GCC to TCC for
                                                                                         Disaster Recovery.




Source: IRS and GAO Analysis                                                                                                             43




                                         Page 112                                   GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
                                         Appendix II
                                         Briefing Slides from the April 14, 2003,
                                         Briefing to the Senate and House
                                         Appropriations Subcommittee Staffs




                                                                          Appendix IV:
                                                 IRS Reported Cost / Schedule Changes
 Program/ Project       Commitment Date and     Revised Commitment     Change (%)                           IRS
Management Initiative   Funding as of 10/2001    Date and Funding                                  Explanation of Change
                               ($000)                  ($000)
 Program Management           11/10/02                 11/9/02                           Savings ($14K) were realized as a result of
       FY 2002                 $7,918                  $9,260         +$1,342 (+17%)     negotiation of the fee position and reaching
                                                                                         agreement on the price for the full period of
                                                                                         performance and refined cost estimates. Cost
                                                                                         increases ($1.026M) are to fund the
                                                                                         Executive Support Council. Unplanned
                                                                                         requests for information services (RIS) are
                                                                                         estimated at $330K.
   Architecture and           11/10/02               11/10/02                            Cost increase ($6.409M) transferred from
     Integration              $32,539                $38,910          +$6,371 (+20%)     Business Integration to cover the cost of
      FY 2002                                                                            Release Management. Cost decrease ($38K)
                                                                                         to complete Case for Action and Project
                                                                                         Management Plan transferred to Customer
                                                                                         Contact Engineering Study.
 Management Processes         11/10/02               11/9/02                             Cost increase ($1,108,000) needed to fund
      FY 2002                 $10,082                $11,190          +$1,108 (+11%)     the PRIME's SA-CMM activities to prepare
                                                                                         for and conduct the SA-CMM Level 3
                                                                                         assessment.
   FFRDC – MITRE              11/10/02               11/10/02                            Additional work identified to support
      FY 2002                 $18,070                $18,820           +$750 (+4%)       Program Management (acquisition
                                                                                         management), Management Processes
                                                                                         (process improvement, ELC, risk
                                                                                         management) and Architecture &
                                                                                         Engineering (data management).




Source: IRS and GAO Analysis                                                                                                             44




                                         Page 113                                   GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
Appendix III

Comments from the Internal Revenue Service                                 Appen
                                                                               Ix
                                                                                di




               Page 114   GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
Appendix III
Comments from the Internal Revenue Service




Page 115                             GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
Appendix III
Comments from the Internal Revenue Service




Page 116                             GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
Appendix IV

 GAO Contacts and Staff Acknowledgments                                                            Appen
                                                                                                       V
                                                                                                       Id
                                                                                                        xi




GAO Contact       Gregory C. Wilshusen (202) 512-6244



Staff             In addition to the individual named above, other key contributors were
                  Bernard R. Anderson, Timothy D. Hopkins, and Chetna Lal.
Acknowledgments




(310190)          Page 117                        GAO-03-768 IRS's Fiscal Year 2003 Expenditure Plan
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