oversight

Tax System Modernization: Status of IRS' Input Processing Initiative

Published by the Government Accountability Office on 1990-12-12.

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

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                          unitedstates
GAO                       General
                          Washi n gton,
                                            Accounti n g
                                                     D.C. 20548
                                                                Offi c e


                          Informati o n              Management                    and
                          Technol o gy              Di v i s i o n

                          B-240837

                          December                12, 1990

                          The Honorabl e      J.J. Pi c kl e
                          Chai r man,    Subcommi t tee      on Oversi g ht
                          Commi t tee    on Ways and Means
                          House of Representati v es

                          Dear Mr. Chai r man:

                             Thi s report responds                              to your May 17, 1990, request                             for i n formati o n                      on
                             the Internal        Revenue                        Servi c e’s              (IRS) progress        wi t h the moderni z ati o n                          of
                            i t s tax processi n g               system. Speci f i c al l y ,                        you asked us to descri b e                              the
                           i n put processi n g            i n i t i a ti v e                    that i s i n tended        to speed the way i n whi c h
                          tax i n formati o n           i s fed i n to computer                                   systems for processi n g.                          Al t hough
                            many of the proj e cts                            i n cl u ded            i n the i n put processi n g            i n i t i a ti v e            have j u st
                          begun, you wanted                             an earl y i n di c ati o n                   of thei r status. You asked us to
                          i d enti f y    each proj e ct’s                           anti c i p ated          costs, expected          benefi t s,                 and progress
                          toward i m pl e mentati o n,                                   and any i s sues requi r i n g               further                   attenti o n       by
                            IRS. Appendi x         I di s cusses                            our obj e cti v es,         scope, and methodol o gy                               in
                          greater detai l .


                          The i n put processi n g                     i n i t i a ti v e              wi l al l o w IRS to drasti c al l y                          reduce the
Resul t s   i n Bri e f    manual             processes          associ a ted                     wi t h handl i n g           paper i n come                 tax returns,
                          tax payments,                    and other tax i n formati o n.                                   The i n i t i a ti v e     has three maj o r
                           components,                or modul e s,                      desi g ned          to automate            the l a bor i n tensi v e
                            aspects of enteri n g                  tax return data and other tax i n formati o n                                                            i n to IRS’
                           computer              system. Each modul e                                   i s made up of proj e cts                   at vari o us                   stages
                           of devel o pment.                   The three modul e s                              are (1) the El e ctroni c                     Fi l i n g          System,
                            where tax returns                     are transmi t ted                           over communi c ati o ns                   l i n es di r ectl y              to
                            one of three servi c e                   centers; (2) the Document                                      Processi n g              System (DPS),
                          whi c h          wi l convert            tax returns,                          correspondence,                    and other tax i n forma-
                          ti o n submi t ted                on paper to el e ctroni c                              i m ages      for subsequent                          processi n g,
                           storage, and retri e val ;                         and (3) the Cash Management                                          System, where IRS
                          i s expl o ri n g          vari o us       opti o ns                   for processi n g             tax payments.

                          Col l e cti v el y ,         the i n put processi n g          modul e s                       are       expected               to cost over
                          $390 mi l i o n              to devel o p.      Al t hough       IRS expects                            to begi n          reduci n g       the cur-
                          rent manual                 processes        i n 1992, real i s ti c al l y ,                     it     wi l be         cl o se to the year
                          2000 before                 al l of IRS’ i n put processi n g                 i n i t i a ti v es             are        ful l y i m pl e mented
                          and i n tegrated                 so as to have a dramati c                          i m pact              on the          current
                          operati o ns.



                          Page      1                                                                    GAWIMTEC-91-9                  IRS’ Input         Processi n g       Mti a ti v e
             B-240827                                                                                                                                  .




             The El e ctroni c            Fi l i n g     System i s now avai l a bl e                                    nati o nwi d e.           It cost about
             $7 mi l i o n         to devel o p          and i s expected                        to handl e                     about 13 mi l i o n                returns,
             about 7 percent                     of al l returns               recei v ed          annual l y .                   El e ctroni c      fi l i n g,      how-
             ever, onl y automates                       the fi r st step i n fi l i n g                        a tax return; much of the
             rest of the tax processi n g                             system i s stil manual                                     and requi r es               paper
             copi e s of tax returns. Conti n ued                                    techni c al            di f fi c ul t i e s            wi t h pri n ti n g
             copi e s of el e ctroni c al l y                 fi l e d tax returns                   coul d l i m i t the system’s                                  useful -
             ness. If not resol v ed,                    thi s probl e m                  wi l be ampl i f i e d                         as the number                 of
             returns       fi l e d el e ctroni c al l y                i n creases.

             Document            Processi n g           System research                         and desi g n              has begun. IRS expects
             to spend $378.8 mi l i o n                    to devel o p              thi s capabi l i t y                and pl a ns to i s sue the
             request    for proposal s                  for thi s system i n Apri l 199 1. The system shoul d
             be ful l y operati o nal             by 1998. IRS bel i e ves                         that nearl y               97 percent             of al l
             paper returns wi l be converted                               to el e ctroni c                    i m ages      by thi s system and
             that the system wi l al s o use character                                          recogni t i o n            to automati c al l y              read
             data from tax returns.                       Techni c al        l i m i t ati o ns               of character           recogni t i o n
             pose a feasi b i l t y           questi o n          for thi s aspect of the proj e ct.                               Currentl y ,         tax
             returns do not arri v e on standard                                  forms wi t h easy-to-read,                            uni f orml y
             pri n ted  characters,              for whi c h          thi s technol o gy                          i s best sui t ed.

             In cash management,                   IRS i n tends      to use el e ctroni c                       funds transfer                technol -
             ogi e s for faster recei p t            of tax payments                   from empl o yers                     and i n di v i d ual
             taxpayers.              The agency      has pl a nned           several         mul t i m i l i o n            dol l a r     proj e cts,
             targeted          pri m ari l y  at empl o yers          maki n g          federal               tax deposi t s,         to achi e ve
             thi s goal . However,              IRS must        stil deal wi t h the fact that there i s cur-
             rentl y l i t tl e or no i n centi v e           for the i n di v i d ual          taxpayer               to pay taxes el e c-
             troni c al l y        as opposed      to payi n g       wi t h a paper check.


             The Tax System Moderni z ati o n                           Program         i s a comprehensi v e,                    $6 bi l i o n
Background   effort managed               by IRS’ Informati o n               Systems Devel o pment                        organi z ati o n,
             and i n tended            to upgrade        IRS’ i n formati o n             systems       so that IRS can provi d e
             a l e vel of servi c e           on par wi t h the best pri v ate-sector                        fi n anci a l          i n sti t u-
             ti o ns. IRS expects             the moderni z ati o n            program          to (1) si m pl i f y           and speed
             the i n put of tax i n formati o n                   wi t h the goal of drasti c al l y                   reduci n g                the
             number        and type of errors encountered                            i n current          manual            processes,                (2)
             provi d e     on-l i n e     access to thi s i n formati o n                  for i t s empl o yees,              and (3)
             establ i s h     tel e communi c ati o ns               networks        connecti n g          IRS offi c es           nati o n-
             wi d e for rapi d transfer                of tax i n formati o n.               The i n put processi n g                         initia-
             ti v e i s a vi t al part of IRS’ moderni z ati o n                     because         it i s expected                to save
             ti m e and money by reduci n g                        the need to process,                store, retri e ve,                    and
             handl e      paper documents.


             Page       2                                                                    GAO/l M TEG91-9                 IRS’ Input         Processi n g        l n l t i a ti v e
                             B.240837




                             To si m pl i f y              the i n put of tax i n formati o n,               IRS i n tends             to use technol o gy                                            to
                             el e ctroni c al l y                capture       tax returns, correspondence,                          and other i n forma-
                             ti o n recei v ed                from taxpayers            and empl o yers                 for subsequent                            processi n g.
                             Currentl y ,                servi c e       centers recei v e       most i n formati o n                 on paper-about                                                 1.7
                             bi l i o n           pages each year, i n cl u di n g             over 200 mi l i o n                 tax returns.
                             Appendi x                  II descri b es         how a servi c e      center currentl y                      handl e s                  tax
                             returns.                In addi t i o n,       each year IRS empl o yees                   respond               to numerous
                             requests                 to retri e ve        returns kept i n storage. Processi n g,                                     stori n g,            and
                             retri e vi n g             these paper documents                  i s becomi n g             more di f fi c ul t ,                    expensi v e,
                             and ti m e-consumi n g                         each year. The i n put processi n g                         i n i t i a ti v e              shoul d
                             reduce l a bor-i n tensi v e                       paper processi n g,         thereby           i n creasi n g                     IRS’ abi l i t y
                             to control                 operati n g         costs and to respond             qui c kl y         to taxpayer                         i n qui r i e s.

                             The proj e cts          that compri s e         i n put processi n g               were i n i t i a ted     as (1)
                             research       proj e cts       to expl o re        new appl i c ati o ns            of automati o n          for IRS, and
                             (2) systems           devel o pment          proj e cts         to meet speci f i c             needs for i m provi n g
                             i n put processi n g.           As di s cussed          i n our recent report on the moderni z a-
                             ti o n, IRS i s proceedi n g           wi t h several             i n dependent            proj e cts   before demon-
                             strati n g    how they wi l compl e ment                            each other i n the moderni z ati 0 n.l               IRS’
                             master pl a n, whi c h wi l provi d e                      i n tegrati o n        requi r ements          for Tax
                             System Moderni z ati o n                 components,                  was i s sued i n draft i n September
                               1990, and wi l be compl e ted                      by 1991.


                             The El e ctroni c        Fi l i n g    System al l o ws       tax                         preparers          to transmi t          tax
El e ctroni c   Fi l i n g   returns over communi c ati o n                    l i n es to one                          of three servi c e          centers. Wi t h
System                       the El e ctroni c      Fi l i n g     System, tax returns                                   are transmi t ted          di r ectl y     to the
                             servi c e     center’s          computer      system where                                 the i n formati o n       i s automati -
                             cal l y edi t ed, processed,              and stored, Thi s                               system bypasses               the manual
                             processes         for handl i n g        paper tax returns.

                             IRS   began the El e ctroni c                      Fi l i n g          System i n 1986 as a pi l o t system to test
                             i t s techni c al     feasi b i l t y            and publ i c                   acceptance.            Duri n g           the 1990 tax fi l i n g
                              season el e ctroni c                 fi l i n g was avai l a bl e                      to taxpayers              nati o nwi d e.    Through
                              May 1990, about 4.2 mi l i o n                                  el e ctroni c            tax returns were fi l e d. IRS
                             processed         these returns                    and i s sued refunds                          wi t h l i t tl e di f fi c ul t y.      By
                               1998 IRS expects                  to el e ctroni c al l y                   recei v e      and process                 about 13 mi l i o n      of
                              a total of over 200 mi l i o n                               annual           returns.




                             T‘ax       System    Moderni z ati o n:       IRS Chal l e nge        for the 21st        Century       (GAO/IMTEC-90-13,                     Feb.   8, 1990).




                             Page       3                                                                  GAO/IMTEGQl B                  IRS’ Input        Processi n g          Ini t i a ti v e
B-240837                                                                                                                                      ,




IRS        spent     about         $7 mi l i o n   devel o pi n g                   thi s system,                   and proj e cts that the
l i f e-cycl e       costs        of the el e ctroni c            fi l i n g        proj e ct  wi l                be about $198.2
mi l i o n.

IRS       bel i e ves          the El e ctroni c                  Fi l i n g System hol d s substanti a l                             promi s e        for
reduci n g                the costs and ti m e requi r ed                                 to enter i n formati o n                    from tax
returns i n to i t s computer                                  fi l e s. For IRS, el e ctroni c                 fi l i n g   means l e ss paper
to handl e                  and fewer errors on tax returns. In addi t i o n,                                                the system can
benefi t              taxpayers                 by processi n g              refunds             faster than tradi t i o nal                       paper
returns. Accordi n g                              to IRS, taxpayers                      who fi l e tax returns el e ctroni c al l y
can recei v e                  tax refunds                   about 3 weeks sooner than taxpayers                                                who fi l e
paper returns. Currentl y ,                                     the opti o n             of el e ctroni c        fi l i n g   i s l i m i t ed       to tax-
payers recei v i n g                          a refund, but begi n ni n g                         i n 1991, IRS pl a ns to accept
el e ctroni c al l y                 fi l e d returns from taxpayers                                  owi n g taxes, and to expand
the capabi l i t y                   to retri e ve             returns        from 3 servi c e                 centers to 10. However,
techni c al                probl e ms             persi s t          wi t h IRS’ archi v e              and retri e val           software.              As a
resul t , IRS may not be abl e to retri e ve                                               and pri n t these returns                           as fast as
needed                to effi c i e ntl y               (1) perform           exami n ati o ns               to i d enti f y           potenti a l        defi -
ci e nci e s           i n tax returns,                     and (2) i n vesti g ate                  cases of underreporti n g                          to
detect i n correct                           reporti n g        of tax l i a bi l i t y.

The graphi c s           subsystem,       whi c h    archi v es,                             retri e ves,     corrects, and pri n ts
the return, di d not work properl y                     duri n g                            the 1990 fi l i n g            season and
presents       techni c al       management          concerns                               for el e ctroni c       fi l i n g.  We
reported       that the graphi c s           subsystem           was                          a troubl e      spot i n both the
1988 and 1989 fi l i n g            seasons.2

Al t hough           IRS tri e d      to correct probl e ms         wi t h the graphi c s                   subsystem              after
each fi l i n g         season, IRS’ Qual i t y         Assurance          Di v i s i o n       reported           many of the
same or si m i l a r             probl e ms     when it tested the subsystem                            pri o r to the 1990
fi l i n g  season. The Di v i s i o n           reported,       for exampl e ,                (1) the accumul a ti o n
of error messages                    from the graphi c s        operati n g               system that caused the
system to shut down, and (2) del a ys                           i n retri e vi n g            and pri n ti n g            returns.
In January               and February           1990, IRS took steps to l i m i t the effects of these
probl e ms,           The agency was abl e to mi n i m i z e                     the effect of error messages
by restarti n g             the system each day. Al s o, accordi n g                              to IRS offi c i a l s ,      the
agency          avoi d ed        maj o r pri n t del a ys     by schedul i n g                pri n t operati o ns              for
more than one shi f t dai l y .



2Progress     i n Meeti n g       the Chal l e nge      of Moderni z i n g        IRS Tax          Processi n g      System   (GAO/T-IMTEC-90-6,
  aJ-.    , 1990).



Page       4                                                                   GAO/l M TEGBl - 9                  IRS Input    Processi n g        Ini t i a ti v e
                             B-240837




                             Accordi n g          to IRS, the graphi c s                        operati n g         system was modi f i e d                  i n Apri l
                             1990 to correct the error message                                         probl e m.        In addi t i o n,           IRS i s currentl y
                             prepari n g         a statement            of work to have a contractor                                         correct the pri n ti n g
                             probl e ms         by summer              1991. Such techni c al                           probl e ms            coul d hamper             the
                             effecti v eness          of el e ctroni c            fi l i n g        as an al t ernati v e                 for submi t ti n g        tax
                             returns. If IRS does not sol v e these probl e ms                                             before it expands                    the El e c-
                             troni c Fi l i n g      System to al l 10 servi c e                               centers, and before an i n creased
                             work l o ad pl a ces addi t i o nal                          pressures              on the system, the agency                          may
                             face l a rge-scal e             breakdowns                      i n provi d i n g        compl i a nce             functi o ns      wi t h
                             copi e s of el e ctroni c al l y             fi l e d returns.                    Further          detai l s      about the el e ctroni c
                             fi l i n g  process      can be found i n appendi x                                   III.


Paper Input Processed   as   Another          al t ernati v e       for taxpayers               to recei v e           expedi t i o us              refunds                 is
El e ctroni c Returns        cal l e d     the PIPER system, whi c h                 i s an extensi o n                  of the El e ctroni c                    Fi l i n g
                             System. Usi n g commerci a l y                      avai l a bl e         software,                   tax returns           are pre-
(PIPER)                      pared on computers,                     formatted            accordi n g              to PIPER standards,                     pri n ted            on
                             one- and two-page                   answer sheets, and mai l e d                           to a servi c e               center. The
                             center uses scanni n g                  equi p ment             to automati c al l y                    read PIPER tax returns
                              and pass the tax i n formati o n                    to the El e ctroni c                    Fi l i n g      System for
                             processi n g.            IRS expects        that taxpayers                who use PIPER returns wi l recei v e
                             thei r refunds               faster than if they fi l e d a tradi t i o nal                               paper return,
                              al t hough       not as fast as if thei r tax return had been transmi t ted                                                         el e ctron-
                             i c al l y .  IRS bel i e ves       PIPER can be nearl y                 as effecti v e                  for recei v i n g          and
                             processi n g           tax returns         as the El e ctroni c              Fi l i n g      System, even though
                             PIPER now suffers                  from hi g h error rates and i s not wi d el y                                        known                among
                             potenti a l       users.

                             Duri n g        1989 and 1990, PIPER was a research                                             proj e ct     of IRS’ Research
                             Di v i s i o n.    IRS has not devel o ped an esti m ate                                      of PIPER’S l i f e-cycl e     costs,                              but
                             as of Apri l 1990, had spent about $260,000                                                    devel o pi n g     the system.

                               Al t hough               it was cl a ssi f i e d            as a research                   proj e ct        duri n g          the 1990 fi l i n g
                               season, PIPER was avai l a bl e                               nati o nwi d e.              IRS recei v ed              onl y 1,600 PIPER
                               returns             duri n g     the fi l i n g          season-             about 1 percent                       of the l e vel that pro-
                             j e ct offi c i a l s          expected.                IRS proj e ct         offi c i a l s       bel i e ve       PIPER returns            were
                               l o wer than expected                          because            IRS di d           not acti v el y           promote             thi s servi c e.
                               They specul a ted                     that PIPER was not acti v el y                                    promoted              because     of IRS
                               management                    concerns            that PIPER woul d draw busi n ess                                           from preparers
                               who woul d otherwi s e                           fi l e el e ctroni c             returns. Offi c i a l s                  i n the el e ctroni c
                               fi l i n g     proj e ct      offi c e agreed wi t h thi s concern.                                        We bel i e ve,         and proj e ct
                               offi c i a l s        agree, thi s concern                     was prompted                        by the fact that the el e ctroni c



                             Page       6                                                               GAO/l T HTEG91-9              IRS’ Input       Processi n g       Ini t i a ti v e
                         E-240837




                         fi l i n g proj e ct      had not reached        i t s predi c ted           vol u mes.        However         i n pro-
                         vi d i n g     oral comments         on a draft of thi s report, IRS’ Assi s tant                           Chi e f Infor-
                         mati o n         Offi c er for Informati o n          Systems Devel o pment                     sai d that PIPER was
                         not publ i c i z ed         because     the system’s         feasi b i l t y           was stil bei n g assessed.
                         In 199 1, IRS pl a ns to gi v e PIPER more publ i c i t y                           by movi n g       it under the
                         management                of the Offi c e of Input Processi n g                      i n IRS’ Offi c e of Informa-
                         ti o n Systems Devel o pment.                IRS expects            that thi s transfer               wi l i n crease
                         the publ i c           awareness    and use of PIPER.

                         Even at l o w vol u mes                  of returns,                        PIPER has been                       unrel i a bl e .     About one-
                         thi r d of the 1,600 PIPER returns IRS recei v ed                                                       i n 1990 needed                correcti o n.
                         Thi s amount                contrasts      markedl y                         wi t h a 3-percent                             error rate for el e c-
                         troni c al l y      fi l e d returns, and a 16-percent                                              error rate for other paper
                         returns, Accordi n g                  to offi c i a l s                 i n the Research                       Di v i s i o n,    most errors
                         stem from the software                        used to .create the PIPER returns. Thi s software                                                           is
                         produced           by i n dependent                     vendors                 and does not perform                               the edi t s neces-
                         sary to detect and correct errors. Al t hough                                                          PIPER tax return                 preparers
                         must be approved                    by IRS, proj e ct                       management                         does not certi f y or i n any
                         way approve                  the software                that vendors                              market for PIPER. Vendors                         are,
                         therefore,          l e ft to empl o y             thei r own standards                                       for error checki n g.
                         Accordi n g           to IRS Research                    Di v i s i o n           offi c i a l s ,         IRS’ conti n ued           devel o pment
                         and testi n g of PIPER wi l focus on devel o pi n g                                                         error checki n g            standards
                         for certi f yi n g           thi s software.

                         PIPER      presents     IRS wi t h    two i s sues: (1) the need for a certi f i c ati o n                                  process
                         for commerci a l          software          that i s used to produce                  PIPER returns                   to ensure
                         an acceptabl e         error rate, and (2) the need for proj e ct                                 management                  to
                         promote         and effecti v el y         depl o y   the PIPER system. IRS needs assurance
                         that the software              used to prepare              PIPER tax returns                 contai n s          effecti v e
                         edi t checks to reduce errors on returns to acceptabl e                                         l e vel s .   Wi t hout
                         such control ,        IRS wi l     conti n ue       to i n cur addi t i o nal           costs for correcti n g
                         PIPER errors.        Proj e ct management                  attenti o n        i s essenti a l         to devi s i n g         an
                         appropri a te       promoti o n        and depl o yment                strategy        for PIPER.


                               i s a techni c al l y           aggressi v e              system ai m ed at el e ctroni c al l y              capturi n g
Document  Processi n g   DPS
                         the i n formati o n               on paper documents                         such as tax returns and taxpayer
System (DPS)             correspondence,                    and el i m i n ati n g           the need to handl e ,             store, and retri e ve
                         paper fi l e s. The concept                        i n vol v es      maki n g        el e ctroni c i m ages of tax
                         returns and other i n formati o n,                               and usi n g the i m ages i n stead                of paper
                         documents           for any further processi n g                               and retri e val .      Wi t h DPS, paper tax
                         returns      and taxpayer                   correspondence                     are fi r st scanned          or photographed
                         to produce          a di g i t al      i m age or pi c ture,                  whi c h i s then processed             and saved


                         Page       6                                                                GAO/l M TEC91-9               IRS’ Input        Processi n g       Intti a ti v e
0240837                                                      .




on storage medi a . To process the returns,                                          IRS     pl a ns to read speci f i c                    data
from the tax return i m age and save these                                            data         for tax cal c ul a ti o ns               and
anal y si s .

If DPS i s successful ,              IRS expects        that the maj o ri t y       of the paper returns
wi l be handl e d               by thi s process whi c h shoul d                be faster, have l o wer l a bor
costs, and have fewer errors than the current process. It shoul d                                              al s o
reduce the number                   of paper documents            that cannot be l o cated                  each
year-now                esti m ated      at about two mi l i o n,             However,      questi o nabl e           tech-
ni c al feasi b i l t y         and the absence            of key deci s i o ns      coul d prevent           IRS’ suc-
cessful    compl e ti o n           of thi s proj e ct.

Current pl a ns cal l for DPS to be ful l y i m pl e mented                                              by 1998, at an esti -
  mated cost of $379 mi l i o n                         for system devel o pment.                            Total l i f e-cycl e           costs
 i n cl u di n g     devel o pment                and operati o ns               are expected                to be about $1.7 bil-
l i o n As of June 1990, IRS esti m ated                                  it woul d spend about $5.5 mi l i o n
  and 36 staff years for DPS research                                    proj e cts       and prototypes.                    IRS pl a ns       to
  rel e ase      a request            for proposal s             for DPS i n Apri l 1991 and award a devel -
  opment          contract         i n February               1992. However,                    the DPS proj e ct             manager           is
  concerned            that the schedul e                   for DPS i s opti m i s ti c                because        awardi n g          the
  contract          coul d take more than one year. Al s o, the DPS work hi n ges                                                        on
  several        research            proj e cts       and prototypes                  that IRS i s usi n g to i d enti f y                   and
  refi n e the system requi r ements                              that wi l dri v e the request                         for proposal s .
  As of October               1990, IRS offi c i a l s             tol d us that al l research                       and prototype
  proj e cts       that di r ectl y             affect the request                  for proposal s               have been com-
  pl e ted. They sai d that al t hough                            the proj e cts           conti n ue           to provi d e        test
  resul t s useful for DPS devel o pment,                                 they have revi e wed                      DPS pl a ns        and
   are very opti m i s ti c                that the request                 for proposal s               wi l be rel e ased              as
   schedul e d.          Appendi x              IV contai n s        more detai l e d              i n formati o n           about the
   costs and schedul e                    of DPS, rel a ted            research          proj e cts,         and prototypes.

DPS        presents        IRS wi t h     three si g ni f i c ant      i s sues. Fi r st, the Tax System Mod-
erni z ati o n        desi g n    team needs to make some key proj e ct                                  management
deci s i o ns       that wi l affect DPS as wel l as the overal l                                moderni z ati o n        pro-
gram. For exampl e ,                    IRS needs       to determi n e           the speci f i c      data that it must
capture           from each tax return to sati s fy the subsequent                                       needs of the
processi n g           and compl i a nce          functi o ns.         Wi t hout      thi s determi n ati o n,              IRS
cannot devel o p               the porti o n      of DPS that wi l automati c al l y                           read thi s i n for-
mati o n         from the i m age of the return and save it i n the computer                                             for
further processi n g.                  Another       deci s i o n    that needs to be made i s how DPS
wi l be i n tegrated                wi t h other moderni z ati o n                 components.




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  Offi c i a l s    i n IRS’ Returns Processi n g                           and Accounti n g                 Di v i s i o n           and at the
    DPS Devel o pment                   Si t e expressed                concern          regardi n g        DPS’ devel o pment
    schedul e ,        because             requi r ements               for i n tegrati n g            DPS wi t h             other Tax
    System Moderni z ati o n                        components               have not yet been fi n al i z ed.
    Accordi n g            to IRS’ Chi e f Informati o n                      Offi c er, these i n tegrati o n                          requi r e-
    ments are i n the draft master pl a n rel e ased                                          i n September                     1990. Seni o r
    agency       offi c i a l s       tol d us that as of October                           1990, IRS had begun to make
    many of the key deci s i o ns                            that coul d affect DPS devel o pment.                                      However,
    as we previ o usl y                 reported,             gi v en the absence                  of an approved                       Tax
   System Moderni z ati o n                         master pl a n, IRS ri s ks havi n g                       to make potenti a l y
  di f fi c ul t   and costl y systems modi f i c ati o ns                                  to al l o w data to be easi l y
  exchanged                    wi t h other Tax System Moderni z ati o n                                  systems.3 Our report
  on the Automated                         Underreporter                   System di s cusses                a moderni z ati o n                     pro-
j e ct where 7 out of 10 key functi o ns                                       wi l need modi f i c ati o n                        i n order to
  i n tegrate          wi t h other moderni z ati o n                         proj e cts.4         DPS i s a si g ni f i c ant                compo-
    nent of the Tax System Moderni z ati o n,                                          and any del a ys                    i n maki n g          key
   proj e ct     management                    deci s i o ns         coul d have a noti c eabl e                         i m pact        on the
   l a rger moderni z ati o n                     effort.

The second i s sue rel a tes to the feasi b i l t y                                              of el e ctroni c al l y           readi n g       data
from returns that are pri n ted                                   on nonstandard                          forms. At a May 1990 IRS
Forum on System Moderni z ati o n,                                         parti c i p ants               i n an i n put processi n g
group reported                   that the current                       forms’ structures                          and the l a ck of stan-
dard forms and schedul e s                                compl i c ated                 thi s automati o n                  effort. For
exampl e ,        IRS recentl y          i d enti f i e d              more than 30 di f ferent                              types of the
Form 1040 that ei t her were pri n ted                                         by di f ferent                  vendors          or were pro-
duced by di f ferent                  commerci a l                   software                 packages,                 such as those used by
tax preparers.                These di f ferences                         are further compounded                                  by the added
techni c al       compl e xi t y         of usi n g di f ferent                           type fonts, i n ks, and paper tex-
tures i n pri n ti n g             the forms. Such i s sues mean that IRS may not be abl e to
automati c al l y            read the data from the forms, and may be forced to manu-
al l y enter data from the i m age. IRS has formed a task force to study
forms standardi z ati o n                     and to determi n e                             pri n ti n g      requi r ements                needed     in
the DPS request                  for proposal s .                  Al t hough              thi s study pl a n was not fi n al as
of October           1990, IRS was opti m i s ti c                            that i n dustry                   was devel o pi n g
approaches            to readi n g            data from nonstandard                                         forms.

The thi r d si g ni f i c ant       i s sue faci n g                     IRS   i s managi n g            the i m pl e mentati o n                                of
the emergi n g            character        recogni t i o n                   technol o gy.             Successful         extracti o n                           of

3GAO/IMTEC-90-13,                  Feb.   8, 1990.

4Tax System Moderni z ati o n:            Management         Mi s takes         Caused      Del a ys   i n Automated         Underreporter
System (GAO-                   - 90 - 6 1 , Jul y  10, 1990).




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i n formati o n          usi n g character                     recogni t i o n                technol o gy                 assumes              that char-
  acters conform                 to a parti c ul a r               si z e and shape and that these characters
   are cl e ar enough              for the equi p ment                              to i d enti f y.          Informati o n                  that has
 been typewri t ten                 i s more easi l y                   read than handwri t ten                                   materi a l s .        For
exampl e ,           a contractor                 wi t h experi e nce                     i n di g i t al        i m agi n g         technol o gy           con-
ducted a test for IRS that read typewri t ten                                                      text and achi e ved                          about a 98-
  percent        character             recogni t i o n            accuracy                   rate. Handwri t ten                        text was not
  tested because                current technol o gy                             i s not nearl y               as successful                     wi t h
  readi n g      handwri t ten               i n formati o n.                   Accordi n g                to IRS’ Chi e f Informati o n
  Offi c er, about 60 percent                           of the returns IRS recei v es                                      are handwri t ten.                 IRS
may successful l y                  take an i m age of most paper documents                                                            for storage
and retri e val            of tax i n formati o n;                          however,                 it i s l e ss certai n               that tax data
  from nearl y           hal f of these returns                               can be el e ctroni c al l y                        read for subse-
quent processi n g.                   Gi v en thi s restri c ti o n,                          IRS may             be forced to process
  handwri t ten           returns by manual l y                                 keyi n g         data from the i m age. To
  address        thi s probl e m,                IRS entered                i n to an agreement                            wi t h the Nati o nal
  Insti t ute      of Standards                   and Technol o gy                         to provi d e              support           i n deter-
  mi n i n g    DPS i m age         character                 recogni t i o n                technol o gy               requi r ements.                 As of
October 1990 the Insti t ute                                had successful l y                          demonstrated                    recogni t i o n        of
  handwri t ten           numeri c              characters.                   However,                 thi s technol o gy                  has not been
tested usi n g handwri t ten                            al p ha characters,                            nor was it tested usi n g
 i n come       tax returns.

Technol o gi c al                  l i m i t ati o ns                 have al r eady                affected           the desi g n                 of DPS. At a
 vendor’s              conference                     on DPS i n May 1990, for exampl e ,                                               IRS presented                      a
 vi s i o n        of DPS that i n cl u ded                             ful l automati o n                of the document                               handl i n g
process              from the poi n t at whi c h mai l i s recei v ed                                                   at a servi c e                      center. Thi s
 desi g n           woul d have i n cl u ded                                 automati o n            of typi c al l y              l a bor-i n tensi v e
processes                 such as extracti n g                                documents              from envel o pes,                          unfol d i n g             and
unstapl i n g              them, and sorti n g                                them by i n tended                      desti n ati o n.                  As of Sep-
tember 1990, proj e ct                                 offi c i a l s            had concl u ded             that very l i t tl e of thi s ini-
ti a l document                   handl i n g                process                coul d be automated                         because                   the types of
documents                   recei v ed                by IRS and thei r uses wi l not be suffi c i e ntl y                                                          stan-
dardi z ed.              Consequentl y ,                            IRS now expects                    that the i n i t i a l                document                  han-
 dl i n g process               wi l conti n ue                         to be l a bor i n tensi v e,                    al t hough                the agency                  is
expl o ri n g             ways to streaml i n e                                it. Accordi n g            to IRS, l a bor savi n gs                               associ -
 ated wi t h i m pl e menti n g                                  DPS di d           not i n cl u de        automati o n                    of i n i t i a l         docu-
ment handl i n g                       because              the agency                    recogni z ed          that technol o gi c al
l i m i t ati o ns          may exi s t.




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                           B.240937




                           Currentl y           IRS processes                 over 170 mi l i o n            tax payments                      amounti n g           to
Cash Management            about $1 tri l i o n.             Despi t e the magni t ude                       of these tax payments,                             IRS cur-
System                     rentl y uses systems that are not ful l y automated                                                     for processi n g              most of
                           the paper-based                  payments                it recei v es.         As a resul t , IRS l o ses i n terest                        on
                           recei p ts        that cannot be qui c kl y                       processed            duri n g         peak peri o ds             of the
                           fi l i n g    season and deposi t ed                       i n to fi n anci a l     i n sti t uti o ns.          IRS envi s i o ns          usi n g
                           el e ctroni c        funds transfer                   and automated                check processi n g                   systems to
                           repl a ce        current     l a bor-i n tensi v e                processes,           thereby            speedi n g         deposi t s,
                           earni n g        more i n terest,              reduci n g          paper, and i m provi n g                      accounti n g            con-
                           trol s . Because many of the proj e cts                                     under thi s system have been started
                           recentl y ,        resul t s     are not yet apparent.

                             IRS i s testi n g and anal y zi n g                  systems for accepti n g                       el e ctroni c             payments                 as
                             wel l as systems that offer faster and more effi c i e nt                                                processi n g                of paper
                             payments.           El e ctroni c       payments             wi l be handl e d                by the El e ctroni c
                             Deposi t        Processi n g        System, whi c h i s bei n g desi g ned                                to i n crease               the use
                            of el e ctroni c           transfers       of payment                 i n formati o n       between                fi n anci a l          i n sti t u-
                            ti o ns and IRS. The Paper Deposi t                              Processi n g           System i s i n tended                         to
                           i m prove          the processi n g            of payments                   that are not transmi t ted                           el e ctroni -
                           cal l y , and i s i n tended               to better address                     IRS’ current             needs for ti m el y                       cash
                             management.                 However,         the Paper Deposi t                      Processi n g           System wi l not be
                             avai l a bl e     nati o nwi d e       unti l 1992 or 1993 because                                the system wi l be pi l o t
                            tested before nati o nwi d e                    i m pl e mentati o n.                 These endeavors                        are di s -
                             cussed i n more detai l                i n appendi x               V, and are summari z ed                             i n the fol -
                            l o wi n g     paragraphs.


El e ctroni c   Deposi t   IRS expects            to use el e ctroni c             funds transfer                        technol o gy                to repl a ce            the
Processi n g    System     paper deposi t                  coupons        that empl o yers                      currentl y                use to make tax pay-
                           ments under the Federal                             Tax Deposi t                   system. Duri n g                    1989, nearl y                60
                           percent       of the payments                       and 80 percent                      of the funds deposi t ed                             fl o wed
                           through        the system as Federal                        Tax Deposi t s-a                                  process          i n whi c h
                           empl o yers           deposi t          taxes through                fi n anci a l         i n sti t uti o ns             to the Treasury.
                           When the Federal                      Tax Deposi t            system i s ful l y automated,                                        i n stead       of sub-
                           mi t ti n g   a coupon               wi t h thei r tax payment,                           deposi t ors                woul d i n struct
                           fi n anci a l   i n sti t uti o ns,          for exampl e ,                to make automati c                             wi t hdrawal s              of
                           tax payments                    from thei r accounts.                     In addi t i o n,                i n stead        of sendi n g            the
                           paper coupons                     to IRS, fi n anci a l     i n sti t uti o ns               woul d el e ctroni c al l y                     transmi t
                           payment          i n formati o n             to IRS, where the i n formati o n                                      woul d be accepted
                           and processed.

                           Accordi n g to the Cash Management        System Proj e ct Manager,    IRS has not
                           made any fi n al deci s i o ns about the automated    system for Federal     Tax


                           Page       10                                                              GAO/IMTEG91-9                 IRS’ Input        Processi n g       Inl t i n ti v e
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Deposi t s.      IRS contracted       for a feasi b i l t y study and cost benefi t         anal y si s
i n November          1989. The study i s due by January                1991. IRS pl a ns to begi n
testi n g   a prototype         system at the Atl a nta       Servi c e Center i n September
  1991. Li f e-cycl e     cost esti m ates    are not yet avai l a bl e      for thi s system.

IRS has another              proj e ct           underway                i n the Research                    Di v i s i o n        to test the
feasi b i l t y       of recei v i n g         i n come           tax payments                  el e ctroni c al l y .                Under thi s
concept,           taxpayers             wi l have the opti o n                          of maki n g           el e ctroni c             payments
to the IRS through                     thei r fi n anci a l          i n sti t uti o ns.         The fi n anci a l                  i n sti t uti o n
wi l send an el e ctroni c                     funds transfer                        credi t record for each payment
through            the automated                  cl e ari n ghouse                  network          to the l o cal Federal
Reserve for di r ect credi t i n g                            to the Treasury.                 After posti n g                     to the Trea-
sury account,              the Federal                  Reserve wi l el e ctroni c al l y                                transmi t            the bal -
anced credi t record to an IRS servi c e                                        center. From here, computers                                             wi l
post the tax data to the taxpayer’s                                          account.         Some of the benefi t s                                  IRS
expects           from thi s approach                         are to (1) speed credi t i n g                              of i n come              tax pay-
ments to the Treasury,                           (2) el i m i n ate             the current             probl e m                of processi n g
bad checks, and (3) save costs of handl i n g                                               paper checks. IRS expects                                         to
real i z e      these benefi t s             even though                    taxpayers           recei v e               no apparent                    fi n an-
ci a l benefi t         from payi n g                taxes el e ctroni c al l y                as opposed                     to usi n g a paper
check.

IRS    began l i m i t ed     testi n g of thi s capabi l i t y       i n January            1990 at the servi c e
center i n Andover,              Massachusetts,           and pl a ns to study the resul t s              for l e s-
sons l e arned.           As a research      proj e ct,       IRS has spent       about $200,000          to
devel o p    and test thi s proj e ct,          but has not devel o ped               l i f e-cycl e cost
esti m ates.

Wi t h el e ctroni c                payments,               IRS faces        the i s sue of convi n ci n g                           taxpayers
who send checks wi t h thei r returns that they shoul d                                                                 send payments
el e ctroni c al l y          i n stead.         Taxpayers                benefi t            from payi n g               thei r taxes by
check because                    of the ti m e it takes IRS to process                                      and cl e ar the check.
Wi t h el e ctroni c                payments,               taxpayers             wi l l o se thi s benefi t                       because        pay-
ments wi l be deducted                             i m medi a tel y           from thei r bank accounts.                                   In addi -
ti o n, el e ctroni c              payment            of i n come           taxes i s a feature avai l a bl e                             to
taxpayers                as a commerci a l y                    provi d ed,           fee-based                servi c e.        Whi l e     tax-
payers               who recei v e        refunds             may see a benefi t                      i n payi n g             a fee i n order to
recei v e            a faster refund, it i s questi o nabl e                                  whether            taxpayers               who owe
taxes wi l see any benefi t                              i n payi n g        a fee i n order to pay taxes sooner.
Consequentl y ,                  IRS’ cash           management                offi c i a l s       bel i e ve          some sort of i n cen-
ti v e, such as al l o wi n g                   taxpayers               to use credi t cards to pay taxes, may be
needed               to encourage           el e ctroni c           tax payments.                    IRS offi c i a l s          i n tend      to
expl o re             the need for i n centi v es                    as part of the research                               effort.


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                                B240887




Paper Deposi t   Processi n g   Whi l e      the l o ng-term           pl a n for cash management               assumes          that taxes wi l
System                          be pai d by el e ctroni c                 funds transfer,       the near-term         real i t y      i s that pay-
                                ments and fi n anci a l              i n formati o n        are recei v ed   as paper transacti o ns.                    The
                                Paper Deposi t             Processi n g           System i s bei n g desi g ned       to i m prove              the
                                processi n g         of paper remi t tances                that are not transmi t ted             el e ctroni c al l y .
                                The system has two subsystems;                              one to automate         remi t tance           processi n g
                                functi o ns      at di s tri c t      offi c es, and one to enhance              the remi t tance
                                processi n g         system at servi c e              centers.

                                Wi t h one subsystem,                          IRS pl a ns      to automate                     the manual              remi t tance
                                 processi n g            functi o ns           for payments                 recei v ed              at the 63 IRS di s tri c t              offi c es.
                                Once thi s process                     i s automated,             di s tri c t         offi c es shoul d              be abl e to process
                                 and post tax recei p ts                       through         a termi n al ,             el i m i n ati n g       the need to for-
                                 ward certai n                payment             data to servi c e               centers for processi n g.                         IRS expects
                                 to award a devel o pment                            contract          for thi s system i n December                                  1990, fol -
                                l o wed by a pi l o t test at the Fort Lauderdal e ,                                                  Fl o ri d a, Di s tri c t     Offi c e.
                                 Nati o nwi d e           i m pl e mentati o n             i s schedul e d               for March 1992. IRS esti m ates
                                initial        devel o pment                costs of about $1 mi l i o n.

                                Wi t h the second subsystem,                           IRS pl a ns          to enhance                    the automated                   system
                                that processes               checks recei v ed                 at the 10 servi c e                       centers. The current
                                system cannot handl e                        15 percent            of al l remi t tances                      because        it has l i m -
                                i t ed el e ctroni c         processi n g          capaci t y.          Therefore,             the checks that cannot be
                                handl e d        by the system are processed                               manual l y .                 Through       thi s enhance-
                                ment proj e ct,            IRS expects           to i n crease            capaci t y       and vi r tual l y               el i m i n ate
                                manual          remi t tance         processi n g.             IRS i s sued          a request               for proposal s                for thi s
                                check handl i n g              system i n September                        1989, and i n tends                      to award a 7-
                                year contract               around          December             1990 for up to 11 systems wi t h contrac-
                                tual provi s i o ns           for technol o gy               upgrades.              The i n i t i a l          system wi l be
                                 i n stal l e d    at the Ogden Servi c e Center begi n ni n g                                        i n May 1992. Nati o n-
                                wi d e i m pl e mentati o n               i s schedul e d            for October 1993. The system i s
                                expected            to cost about $130 mi l i o n                        over i t s l i f e cycl e .


                                We di s cussed              the contents   of thi s report wi t h seni o r IRS offi c i a l s . These
                                offi c i a l s general l y        agreed wi t h the contents        of our report, and we have
                                i n corporated             thei r comments     where appropri a te.

                                As arranged      wi t h your offi c e,                          unl e ss you publ i c l y       announce                         the contents
                                of thi s report earl i e r, we pl a n                           no further   di s tri b uti o n      unti l                    30 days after
                                the date of thi s l e tter. We wi l                             then send copi e s to i n terested                               parti e s,




                                Page      12                                                              GAO/JMTEC-91~9                IRS’ Input       Processi n g       Ini t i a ti v e
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i n cl u di n g the Commi s si o ner               of Internal          Revenue,         and wi l make copi e s
 avai l a bl e  to others upon request. Shoul d                          you have any questi o ns        about
thi s report or requi r e           addi t i o nal      i n formati o n,         pl e ase contact me at (202)
 276-3455.       Maj o r contri b utors              to thi s report are l i s ted i n appendi x          VI.

Si n cerel y    yours,




Howard G. Rhi l e , Jr.
Di r ector,         General     Government
      Informati o n         Systems




Page       13                                          GAO/IMTEGOl - 9       JRS’ Input   Processi n g   Ini t i a ti v e
Contents



Appendi x               I                                                                                                                                                                   16
Obj e cti v es,             Scope, and                            .
Methodol o gy
Appendi x               II
Current           Tax                Return
Process
Appendi x               III                                                                                                                                                                 20
El e ctroni c           Fi l i n g                 Paper         Input     Processed          as El e ctroni c        Returns          (PIPER)                                              22
System
Appendi x     IV                                                                                                                                                                            24
Document      Processi n g                         DPS Subproj e cts
                                                   DPS-Rel a ted     Ini t i a ti v es
                                                                                                                                                                                            28
                                                                                                                                                                                            30
System and Rel a ted
Subproj e cts
Appendi x     V                                                                                                                                                                             32
Cash Management
System and Rel a ted
Subproj e cts
Appendi x      VI                                                                                                                                                                           34
Maj o r Contri b utors                        to
Thi s Report
Tabl e s                                           Tabl e   III. 1: Input Processi n g                  Modul e :      El e ctroni c      Fi l i n g                                        23
                                                          System
                                                   Tabl e   IV. 1: Input Processi n g                   Modul e :      Document                                                             31
                                                          Processi n g   System
                                                   Tabl e   V. 1: Input Processi n g                   Modul e :      Cash       Management                                                 33
                                                          System


                                                   Page     14                                                      GAO/IMTEG91-9            IRS’ Input   Processi n g   Ini t i a ti v e



                                                                                         G\    ,
            Content.4




Fi g ures   Fi g ure       II. 1: The Tax Processi n g            System                                                                              18
            Fi g ure       III. 1: Tax Processi n g        Functi o ns      Repl a ced             by                                                 21
                     El e ctroni c    Fi l i n g  System
            Fi g ure       IV. 1: Tax Processi n g         Functi o ns      Affected              by                                                  25
                     Document         Processi n g       System
            Fi g ure       IV.2: Document           Processi n g       System                                                                         27




            Abbrevi a ti o ns

            ADEPT               Automated            Deposi t         of El e ctroni c         Payments       for Taxes
            CIIEXS              Check Handl i n g              Enhancements                  and Expert System
            COBOL               Common            Busi n ess        Ori e nted        Language
             DPS                Document           Processi n g            System
             F-I-D              Federal         Tax Deposi t
            GAO                 General         Accounti n g           Offi c e
             IBM                Internati o nal           Busi n ess         Machi n es
             IMTEC              Informati o n            Management              and Technol o gy          Di v i s i o n
             JRS                Internal         Revenue          Servi c e
             PDPS               Paper Deposi t               Processi n g        System
             PIPER              Paper Input Processed                        as El e ctroni c      Returns


             Page       15                                                  GAO/l M TEG91-9            IRS’ Input   Processi n g   Ini t i a ti v e
Appendi x   I

Obj e cti v es,   Scope, and Methodol o gy


                        Our obj e cti v es                    were to i d enti f y                                   and descri b e          the vari o us               proj e cts         com-
                        pri s i n g        IRS’ i n put                   processi n g                i n i t i a ti v es;          to provi d e         i n formati o n                on each
                        proj e ct’s            cost, benefi t s,                             and status of i m pl e mentati o n;                                   and to i d enti f y
                         i s sues IRS shoul d                             address               to successful l y                     carry out the i n i t i a ti v es.                     We
                          conducted                  audi t work between                                             October 1989 and October 1990 at IRS’
                        Nati o nal             Offi c e i n Washi n gton,                                           D.C., and the IRS servi c e                        centers i n
                        Andover,                 Massachusetts;                                 Austi n , Texas; and Ci n ci n nati ,                                   Ohi o . We i n ter-
                        vi e wed           offi c i a l s             at these l o cati o ns                               and revi e wed         avai l a bl e            documenta-
                        ti o n i n cl u di n g               proj e ct                  pl a ns, test pl a ns and resul t s, proj e ct                                        staffi n g
                        agreements,                       requi r ements                          anal y si s                packages,         and concept                  documents.
                        We al s o contacted                                    organi z ati o ns                        that had i m pl e mented                      technol o gi e s          IRS
                        i s expl o ri n g,                 and attended                           forums where IRS offi c i a l s                               di s cussed              systems
                        moderni z ati o n                     i n i t i a ti v es               wi t h the busi n ess                      communi t y.                 Our work was
                          done i n accordance                                     wi t h general l y                        accepted        government                   audi t i n g
                        standards.




                        Page      16                                                                         GAO/IMTEC91-9                     IRS’ Input         Processi n g          Ini t i a ti v e
Appendi x   II

Current          Tax Return Process


                         IRS refers to i t s processi n g                      of tax returns i n i t s servi c e              centers as pi p el i n e
                         processi n g.           The system i s pri m ari l y                   paper l a den, l a bor i n tensi v e,           and
                         manual l y         ori e nted.    Desi g ned             i n the 1960s and i m pl e mented                    duri n g    the
                         196Os, it has remai n ed                  vi r tual l y           unchanged       si n ce that ti m e. As shown i n
                         Fi g ure      II. 1, processi n g       begi n s            wi t h mai l openi n g,       conti n ues        through        com-
                         puter entry and processi n g,                           and ends wi t h tax returns bei n g fi l e d and
                         tax refund checks bei n g mai l e d.




                         Page    17                                                     GAO/IMTEC91-9            IRS’ Input    Prowwi n g      Ini t i a ti v e




                                                                                       I
                                                        Appendi x              II
                                                        Current          Tax        l & turn   Process




Fi g ure   11.1: The     lax   Processi n g   Sycatem
                                                                               US. Mai l




                                +
                       Coded   and Edi t ed



                           L             J
                                                               Mai n frame
                         Data Entered                          Computer                                         Errors
                         On Computer                            Checked                                       Corrected




                                                                                               Tax   Refund       Mai l e d       Noti c es,    Bil s,   Correspondence            Issued




                                                        Page        18                                                        GAO/IMTEGSl - 9              IRS’ Input     Processi n g      Ini t i a ti v e
Appendi x              II
Current          Tax        Return   Process




The return i n formati o n           i s processed       and prepared         for posti n g     to the
  master fi l e . As part of thi s process,             erroneous      returns    are sent to the
  Error Resol u ti o n      Uni t for correcti o n.       After returns have compl e ted               pi p e-
 l i n e processi n g,    data from the returns             are stored on computer              tapes and
are sent to the Marti n sburg               Computi n g       Center to update         taxpayer
accounts           on the master fi l e s and to generate           tax refunds         and other
i n formati o n.




Page        19                                        GAO/IMTEGOl - 9       IRS’ Input   Processi n g   Ini t i a ti v e
Appendi x   III

El e ctroni c     Filin g     System


                              El e ctroni c         fi l i n g       of tax returns i n vol v es                        qual i f i e d                tax preparers                         usi n g
                            speci a l - purpose                     computer                  software        to compl e te                  and el e ctroni c al l y
                            transmi t            tax return i n formati o n                            to one of three IRS Servi c e Centers
                             l o cated        i n Ci n ci n nati ,             Ohi o ; Ogden, Utah; and Andover,                                                           Massachusetts,
                              Begun as a pi l o t system i n 1986, the El e ctroni c                                                       Fi l i n g                  System i s the most
                            devel o ped             of the three maj o r IRS i n put processi n g                                                     i n i t i a ti v es.               In 1990, IRS
                            made el e ctroni c                      fi l i n g  avai l a bl e         nati o nwi d e.                  Currentl y ,                        el e ctroni c        fi l i n g
                            i s l i m i t ed      to those tax returns that show a refund. The El e ctroni c                                                                                     Fi l i n g
                            System at each of the three servi c e                                             centers i n vol v es                                 the el e ctroni c                   col l e c-
                            ti o n, processi n g,                    and storage and retri e val                                of the data. The system con-
                            si s ts of three subsystems                                   that perform                the tax return fi l i n g                                      process: the
                            data communi c ati o ns                            subsystem,                the returns processi n g                                              subsystem,                     and
                            the graphi c s                     subsystem.

                            The el e ctroni c       fi l i n g     process begi n s       when tax return data are trans-
                            mi t ted to one of three servi c e                   centers and recei v ed        by the IBM Seri e s I
                            data communi c ati o ns                  subsystem.        The Seri e s I subsystem        passes tax
                            return data to a mai n frame                      computer,       whi c h processes     both i n di v i d ual
                            and busi n ess        returns usi n g COBOL programs.                     The programs          that are run
                            on the mai n frame                 perform       many functi o ns        that were previ o usl y              done
                            manual l y .

                            Fi g ure         III. 1 i l u strates those processes        i n the current                                                         tax processi n g
                            system            that are automated        through   el e ctroni c    fi l i n g.




                            Page      20                                                                            GAO/IMTEG91-9                     IRS’ Input           Processi n g          Ini t i a ti v e
                                                                         Appedi x             III
                                                                         El e ctroni c         Fi l i u g   System




Fl q ure   111.1: Tax   Processi n g          Functi o ns   Repl a ced               by El e ctroni c           Fi l i n g   System




                                                                                     Mai n frame
                                                                                     Computer                                         Errors
                                                                                      Checked                                       Corrected




               Data Storage        Devi c e                                                                                   Tax     Refund    Mai l e d             Noti c es,   Bil s,   Correspondence           Issued



                        e




                                                                           Page          21                                                                 GAO/IMTEG91-9             IRS’ Input      Processi n g     Ini t i a ti v e
                               Appendi x           III
                               El e droni c         Fi l i n g   System




                               Once data are processed                  by the el e ctroni c         fi l i n g            programs,      the output
                               then goes i n to the current               pi p el i n e  system-known                            as the General i z ed
                               Mai n l i n e       Framework-i n to              whi c h manual        and el e ctroni c                data from al l
                               the i n put systems are fed. The General i z ed                               Mai n l i n e        Framework           veri f i e s
                               cal c ul a ti o ns,      bal a nces  transacti o ns,        and pl a ces sel e ct i n formati o n                        on
                               tape that i s sent to the Marti n sburg                     Computi n g                     Center to update            the
                               master fi l e . El e ctroni c al l y        fi l e d returns are wri t ten                       on tape and sent to
                               the graphi c s           subsystem      at the servi c e       center for archi v i n g.

                               To archi v e    el e ctroni c al l y     fi l e d returns, the graphi c s            subsystem            stores
                               them on opti c al           di s ks at the three servi c e              centers for subsequent
                               retri e val .  Usi n g thi s subsystem,                IRS’ staff corrects        errors and then sends
                               the corrected          tax return i n formati o n             to the Marti n sburg            Computi n g
                               Center. IRS staff al s o use the graphi c s                    subsystem        to retri e ve     returns,
                               pri n t returns, and resol v e                preparer      probl e ms.

                               By 1991, al l IRS servi c e        centers wi l have opti c al        di s ks to store el e ctroni -
                               cal l y fi l e d returns. These si t es wi l then handl e            any transacti o ns       that
                               occur after the return i s posted to Marti n sburg’s                   master fi l e , such as
                               retri e vi n g   speci a l return requests,      pri n ti n g returns, resol v i n g    unpost-
                               abl e s, and deal i n g     wi t h preparer    probl e ms.

                               Paper Input Processed        as El e ctroni c Returns (PIPER) i n vol v es            the tax
Paper Input        Processed   preparer    putti n g tax return data on a formatted          answer sheet and
as El e ctroni c    Returns    sendi n g it by mai l to the IRS for i n put i n to the El e ctroni c      Fi l i n g    System.
(PIPER)                        PIPER         returns        are scanned               usi n g opti c al                  character             recogni t i o n                equi p ment,
                               converted             to el e ctroni c      fi l i n g               format, and processed                            through                 the El e c-
                               troni c Fi l i n g         System. PIPER i s targeted                                   at smal l e r        tax preparers-those
                               servi c i n g        500 or fewer cl i e nts                             a year-who                may not be abl e to afford the
                               cost of the equi p ment                  needed                       to parti c i p ate            i n the El e ctroni c                      Fi l i n g
                               System program.                    PIPER i s a new IRS i n put                              processi n g              i n i t i a ti v e          that was
                               pi l o ted       by the IRS Research                       Di v i s i o n           i n 1989 at the Ci n ci n nati                              and
                               Andover             Servi c e Centers. PIPER was expanded                                               nati o nwi d e                   i n 1990, and
                               1,600 returns were processed                                           i n that year. Except for the i n i t i a l
                               batchi n g          and scanni n g        process, PIPER i s al m ost as effi c i e nt                                                     for data
                               processi n g           as the El e ctroni c                   Fi l i n g       System.

                               Tabl e III. 1 provi d es    i n formati o n                            on costs,           i m pl e mentati o n,                and expected
                               benefi t s of both proj e cts.




                               Page           22                                                          GAO/IMTEG919                   IRS’ Input       Processi n g       i n i t i a ti v e
                                                                                             Appendi x               lII
                                                                                             El e ctroni c             Pl l n g    System




Tabl e           111.1: Input               Processi n g        Modul e :   El e ctroni c              Fi l n a       System
Dol
_-_-l a rs _.-.-__-_.--.-
                 i n mi l i o ns            .._. --
                                                                 Devel o   ment coat                                                               Nati o nwi d e
Svatem               name                                           as o P June 1990                               Li f e-cycl e        cost       i m pl e mentati o n                       Expected            benefi t s
El e ctroni c             Fi l i n g    System                                              $7.0                                     $198.2        ,January           1990                    Faster refunds
                                                                                                                                                                                              Reduced       l a bor and storage
                                                                                                                                                                                              costs
                                                                                                                                                                                              Faster processi n g          and
.               .-      ~~...          _-       . . -~-._--                                                                                                                                   retri e val of returns
                                                                                                                                                                                              Reduced        processi n g       errors
                                                                                                                                                                                              Reduced         i n terest  pai d on
                                                                                                                                                                                              refunds
Pa er Input                       Processed              as
  I! l e ctroni c                  Returns            (PIPER1                                 0.5                                              a   January            1990                    Same       as el e ctroni c      fi l i n g
                                                                                            BNot avai l a bl e .




                                                                                            Page             23                                                              GAO/IMTEG91-9   IRS’ Input        Pracessi n g         Ini t i a ti v e
Appendi x   IV

Document            Processi n g                     Syskm                              and
Rel a ted        Subproj e cts

                             The Document                     Processi n g      System          (DPS) wi l       convert       paper tax returns to
                             di g i t al  i m ages pri o r to processi n g                     and wi l use the i m ages i n stead              of
                             paper documents                       for any further             processi n g.       IRS consi d ers      DPS to be i t s
                             l o ng-term         sol u ti o n        to the di f fi c ul t y        the agency       has i n processi n g,     stori n g,
                              and retri e vi n g              paper tax returns.               Fi g ure      IV. 1 shows the current
                             processi n g          functi o ns           that may be           affected        by DPS.




                             Page    24                                                          GAO/IMTEGBl - 9      IRS’ Input   Processi n g   Iui t i a tl v e
                                                                   Appendi x           IV
                                                                   Document             Processi n g       System           and
                                                                   Rel a ted        Subproj e cts




Fi g ure       IV.l: Tax   Processi n g   Functi o ns   Affected          by Document                  Processi n g               System

                                                                                         U.S. Mai l




                                                                          Mai n frame
                                                                          Computer                                            Errors
                                                                           Checked                                          Corrected
                                                                                                                            A




           b



                                                                                                                                                                                          +
                                                                                                                      Tax    Refund        Mai l e d               Noti c es,   Bil s,        Correspondence            Issued




                                                                                                                                                                                                                                               J


                                                                   Page        26                                                                      GAO/l M TEGBl - 9                 IRS’ Input      Processi n g       Ini t i a ti v e
Appendi x           IV
Document             Processi n g   System   and
Rel a ted        Subproj e cts




DPS,           as envi s i o ned,        i n cl u des         several    subproj e cts           i n tended          to automate       the
 processi n g                 of maj o r tax returns recei v ed                     by IRS, such as the Forms 1040,
  1040A, and 1040EZ. DF% wi l ul t i m atel y                                    be a total l y           i n tegrated       system
i n stal l e d         at each servi c e                 center, and wi l process                     about 97 percent            of the
paper tax returns                       and correspondence                    recei v ed           at each si t e. As mai l i s
 recei v ed            at a servi c e            center, envel o pes           wi l be automati c al l y                  opened     and
empl o yees                   wi l extract and sort the documents                               recei v ed,          and prepare
them for further processi n g.                                  Al l documents           to be i m aged              wi l be for-
warded              to a scanner,                 whi c h wi l be equi p ped               wi t h an automati c                docu-
ment feeder, for i m agi n g.

DPS      wi l i m age al l forms and attachments                   recei v ed        wi t h a tax return.
 These i m ages wi l be passed to a computer,                         whi c h wi l number                        the
 return, recogni z e           the type of form, and el e ctroni c al l y                  sort the docu-
 ments. A qual i t y           assurance      process wi l then veri f y                 the readabi l i t y              and
 accuracy         of the i m ages. Data from the returns wi l be extracted                                          and
 compressed           and then coded, val i d ated,          edi t ed, reformatted,                     merged wi t h
other data from other i n put and correcti o n                        systems,            and passed to the
 next step. After the i n i t i a l         scanni n g  operati o n,          i m ages       of documents,
i n stead     of the paper returns             and attachments,               wi l be used as source and
 reference         materi a l     by al l subsequent     users. A request                   for proposal s                is
 schedul e d        to be i s sued for DPS i n Apri l 1991 for the scanni n g,                               i m agi n g,
 and storage porti o ns              of DPS. Fi g ure  IV.2 di a grams              the fl o w of documents
 through        DPS




Page        26                                                     GAO/IMTEGBl - 9            IRS’ Input      Processi n g     Mti a ti v e
                                                           Appandl x           N
                                                           Document             Processi n g             System   and
                                                           Rel a ted        Subproj e cts




Fi g ure   IV.2: Document          Processi n g   System




                                                                                   -L..-.-
                                                                                   .-
                                                                                  --I_
                                                                                  ---
                                                                                mw__-
                                                                                  -__
                                                                                     Paper
                                                                                  Documents




                                                                                                                        Paper   Destructi o n
                                                                                       Paper




                                                                               Image           Capture
                      Image       Enhanced

                                                                                 Hi g h Speed                                             Image        Storage
                                                                                Data Capture                                                      Devi c e




                                                                                Data Storage                                    Image       Update/Correcti o n
                                                                                    Devi c e




                              Y




                                                           Page        27                                                 GAO/IMTEGBl - 9               IRS’ Input   Processi n g   Ini t i a ti v e
                                 Appendi x           IV
                                 Document             Processi n g   System   and
                                 Rel a ted        Subproj e cts




DPS Subproj e cts

Auto-Pi p el i n e   Prototype    The Auto-pi p el i n e              Prototype      wi l test the feasi b i l t y           of               worki n g     wi t h
                                 i m ages to process                 IRS' returns     and documents.              Informati o n                       from thi s pro-
                                  totype wi l be used to determi n e                      the type of hardware                               and software              that
                                  wi l be requi r ed             i n DPS, and wi l be used as i n put to the                                  DPS request            for
                                  proposal s         schedul e d         for Apri l 1991. The Auto-pi p el i n e                              Prototype         wi l
                                  al s o determi n e           the effects on personnel           of an i m age-based                                work envi r on-
                                  ment. The test was del a yed                     about 6 months       because              of               probl e ms     wi t h a
                                  data base management                       system. Tests are bei n g conducted                                     at the Austi n ,
                                  Texas, Servi c e Center and are schedul e d                       to run through                              December             1990.


Automated     Document           The Automated                 Document                  Handl i n g           Prototype          wi l expl o re         and test
Handl i n g Prototype            automati n g        returns processi n g                           from the ti m e returns                 are del i v ered            to the
                                 servi c e    centers to the ti m e they are actual l y                                   ready to be scanned                      under
                                 the Document              Processi n g                System. Thi s prototype                        wi l be l o oki n g         at ways
                                 to automate          the extracti o n,                     sorti n g,        batchi n g,     and numberi n g               functi o ns
                                 currentl y      performed              manual l y                  when returns are recei v ed.                    As of Sep-
                                 tember 1990, proj e ct                 offi c i a l s         had concl u ded              that very l i t tl e of thi s ini-
                                 ti a l document          handl i n g         process                coul d be automated,                  because         the types of
                                 documents          recei v ed        by IRS and thei r uses wi l not be suffi c i e ntl y                                       stan-
                                 dardi z ed.     Therefore,             the prototype                      i s bei n g di r ected         towards          further
                                 automati n g        the l e tter openi n g                      process          and eval u ati n g         ways to streaml i n e
                                 other rel a ted        document                 handl i n g           processes.

                                 The prototype            wi l not be devel o ped          pri o r to i s sui n g     DPS' request     for pro-
                                 posal s i n Apri l       1991. Accordi n g         to the proj e ct      manager,        the prototype
                                 wi l be ready i n ti m e to connect                wi t h systems that vendors                propose     for
                                 automati n g         DPS. The prototype         i s schedul e d     to be i n stal l e d     at the Kansas
                                 Ci t y, Mi s souri ,     Servi c e Center by September               1991.


Hi g h      Speed Data Capture   The Hi g h Speed Data Capture                     capabi l i t y        was prototyped               at the Austi n
                                 Servi c e Center and demonstrated                           the capabi l i t y       to extract typewri t ten
                                 data from i m ages of tax returns wi t h hi g h speed and accuracy.                                             The test
                                 was conducted               by a contractor         usi n g opti c al          character        recogni t i o n      to
                     Y           capture     i n formati o n       for processi n g.              The prototype,          usi n g form 1040 tax
                                 returns, demonstrated                 that forms coul d be processed                          at hi g h speeds and
                                 al s o demonstrated             an accuracy          rate of 99.2 percent                 for numeri c           charac-
                                 ters and 97.6 percent               for al p ha characters.


                                 Page        28                                                      GAO/IMTEl G Bl - 9         IRS’ Input       Processi n g    Iui t i a tl v e
                                           Appendi x           IV
                                           Document             Procedng      System      and
                                           Rel a ted        Subproj e cts




Input Processi n g         Control         The Input Processi n g                    Control            System wi l ensure that al l the i n put func-
System                                     ti o ns currentl y            performed            by        IRS   wi l be performed       i n the Document
                                           Processi n g        System. Currentl y                        there are 19 functi o ns         that are performed
                                           on the servi c e            center pi p el i n e             processi n g     system. For exampl e ,          one of
                                           these functi o ns              i s to account               for al l documents       processed       through         the
                                           system. The Input Processi n g                                Control     System wi l ti e together          al l i n put
                                           processi n g        systems i n cl u di n g                  cash management,          document        processi n g,
                                           and el e ctroni c            data i n terchange.                  As of October 1990, the i n put
                                           processi n g        control         requi r ements                for the DPS request         for proposal s         were
                                           compl e te        accordi n g         to IRS.


Mi x ed   Medi a     Workstati o n           The Mi x ed           Medi a Workstati o n                          proj e ct         i s studyi n g            user needs for i n ter-
                                               faces wi t h DPS. It focuses on compl i a nce                                           acti v i t i e s      such as exami n ati o n
                                             and col l e cti o n               functi o ns           that wi l be usi n g the i m ages                             produced           by DPS. It
                                             i s l o oki n g     at standard                     menus and formats for di s pl a yi n g                                    returns on the
                                              screen for users regardl e ss                               of thei r functi o nal                        work area. These features
                                              coul d gi v e empl o yees                       the abi l i t y          to perform                    more than one functi o n.                IRS
                                               wi l obtai n        data from users to determi n e                                       the type of i n formati o n                     needed
                                             by vari o us          IRS functi o ns.                   IRS al s o       has a User Work Stati o n Interface                                  pro-
                                           j e ct that expandson                             some of the i s sues covered                                 by the Mi x ed Medi a
                                             Workstati o n            i n i t i a ti v e          and exami n es                 the possi b i l t y            of havi n g        one type
                                             of workstati o n                     that coul d perform                      al l the functi o ns                 requi r ed       by IRS
                                             users. Thi s feature woul d el i m i n ate                                        the current                need for mul t i p l e         work-
                                             stati o ns        to perform                  vari o us         functi o ns.

                                           The Mi x ed    Medi a proj e ct                      i s bei n g done under contract.            As of Apri l                                1990,
                                           the contractor       had made                        two presentati o ns   of i t s fi n di n gs    to IRS.


Facsi m i l e Assi s ted       Servi c e   Thi s proj e ct     addresses          ways that facsi m i l e s                can be used wi t h DPS to gi v e
for Taxpayers                              more servi c es       to taxpayers,            si n ce facsi m i l e        transmi s si o n      i s readi l y avai l -
                                           abl e and wi d el y         used. Thi s proj e ct           i s bei n g done i n two phases. The fi r st
                                           phase consi s ts        of determi n i n g           the types and vol u mes                 of tax documents
                                           requested       by di s tri c t     offi c es. Thi s i n formati o n               wi l be used to determi n e
                                           DPS capaci t y      requi r ements,           communi c ati o ns                networks,      and system ter-
                                           mi n al   needs. Thi s phase was compl e ted                           i n Jul y 1990.

                                           The second phase of thi s proj e ct       i n cl u des devel o pi n g           a prototype         usi n g a
                                           facsi m i l e machi n e to transmi t   tax returns to IRS. Proj e ct offi c i a l s                are cur-
                                           rentl y consi d eri n g measures     to ensure securi t y             of facsi m i l e   transmi t ted
                                           tax data. Thi s phase began i n September              1990.



                                           Page        29                                                           GAO/IMTEG91-9               IRS’ Input       Processi n g      Ini t i a ti v e
                                                                                                                                                                        ,
                                    Appendi x       IV
                                    Document         Proce&ng          Syntem       and
                                    Rel a tad    Subproj e cts




DPS-Rel a ted
Ini t i a ti v es

Document        Image   Data Base     The scope of thi s proj e ct                     i n cl u des          provi d i n g              l o ng-term                storage and
                                       retri e val    of tax return i m ages. The system devel o ped                                                             wi l store, i n dex,
                                       and retri e ve              al l of IRS’ i m aged             documents.                 In addi t i o n,                  the system wi l
                                       access i m ages                 stored through               the El e ctroni c                     Fi l i n g      System and the El e c-
                                      troni c Deposi t                 Processi n g        System. Eventual l y ,                                    the system wi l store el e c-
                                    troni c al l y        fi l e d returns, wi l provi d e                         i m ages of tax returns to users
                                    throughout                   IRS, and wi l       al s o i n dex and store other data for retri e val .
                                    Accordi n g            to the proj e ct           manager,                the system IRS envi s i o ns                                wi l have
                                      i n formati o n             on whether         the document                          was i m aged                    or not, and where it
                                    i s l o cated        if it was not i m aged.                      Al t hough              speci f i c               requi r ements           have not
                                     been set, IRS i s consi d eri n g                        an opti c al - storage                            medi u m.         Thi s proj e ct     is
                                    currentl y         i n the concept-defi n i t i o n                        phase.


Image Character                     On August 30,1989,                     IRS establ i s hed                an i n teragency           agreement       wi t h the
Recogni t i o n Support             Nati o nal       Insti t ute        of Standards                  and Technol o gy           to provi d e      support       for
                                    speci f i c    IRS requi r ements              for the              procurement           of i m age character            recog-
                                    ni t i o n  technol o gy            and equi p ment                  for DPS. The Insti t ute             was requested          to
                                    devel o p      tool s and stati s ti c s,             and          test data that wi l assi s t IRS i n acqui r i n g
                                    the appropri a te              i m age character                    recogni t i o n    technol o gy        for automati -
                                    cal l y readi n g          data from i m aged                     documents.

                                     Tabl e IV. 1 provi d es      i n formati o n                         on costs, i m pl e mentati o n,                         and expected
                                     benefi t s     for DPS, and research                          proj e cts     and prototypes                       bei n g      conducted
                                    i n preparati o n      for devel o pi n g                      DPS.




                                    Page    30                                                               GAO/IMTEC91-9                IRS’ Input         Processi n g     Ini t i a ti v e
                                                                                                                Appendi x                 IV
                                                                                                                Document                   Procewdng                   System    and
                                                                                                                Rel a ted              Subproj e cts




Tabl e         IV.l: l n out                     Procesri n o             Modul e :               Document                 Processl n a                         Svstem
Dol
_....l a rs-“. .._-
                 i n mi l i o ns ._.__... .._ ._.._--
                                                                           Devel o   ment cost                                                                                         Nati o nwi d e
System               name                                                     as o P June 1990                                               Li f e-cycl e            cost             i m pl e mentati o n                       Expected         benefi t s
Document                    Processi n g                                                                                                                                                                                          i m proved     servi c e    to
.__.System
    -.---                      ..-._--.               . .._-.----                                      $378.8                                                   $1,732.0               January            1998                     taxpayers
                                                                                                                                                                                                                                  Labor savi n gs
                       _.         _.-                       ~-~~.~--                                                                                 --                                                                            Reduced      storage       costs
                                                                                                                                                                                                                                  Faster retri e val       of tax returns
Research
    .____ -_-.. proj e cts_ _..-...-.-._.
                                   and __-..--
                                          prototypes
                                               _-                                           supporti n g             DPS devel o pment
Automated                 Document
                                                                                                                                                                             b         b
      Handl i n g _..             ..   .-.~               ..~ _._...... ---___--
                                                                                                             0.02
                                                                                                                                                                             b         b
Auto-Pi p el i n e               Prototype                                                                   0.79
                                                                                                                                                                             b         b
Hi g hSpeed                  Data Capture                                                                    2.3                                      -___-
Input Processi n g                    Control
      System                                                                                                           a                                                     b         b
                                                     .._...         _ _.       . ..-.-.._    --                                                           ---
Mi x ed          Medi a         Workstati o n                                                                                                                                b         b
                                                                                                             0.90-
Facsi m i l e           Assi s ted         Servi c e
                                                                                                                                                                             b         b
--.
      for.._ Taxpayers
              ..__ -..          _-               ..-...       ~~._.              .-
                                                                                                             0.01                -____--_                                                                                                                                           -
DPS-rel a ted                   i n i t i a ti v es                                                  --                    --
Document                                                                                                               a                                                     a         a
I,.I__ _ ..,_ “. “. Image
                     __. _._ . Data
                               - . _.___..  Base -_                     ..--- -._. --__~-
Im;;eCoh~racter               Recogni t i o n
                                                                                                                                                                             b
                                                                                                             1.5
                                                                                                             N‘ ot         avai l a bl e .
                                                                                                                bNot appl i c abl e




                                                                                                                Page            31                                                                               GAO/IMTEG91-9   IRS’ Input     Processi n g     Ini t i a ti v e
Appendi x   V

 Cash Mmagement                              System and
l 3 el a ted Subproj e cts

                                In 1989,           the Internal        Revenue      Servi c e accounted                         for about $1 tri l i o n
                                through          i t s cash management              operati o ns.              Potenti a l y ,             more than 80 per-
                                cent of        these dol l a rs       can be recei v ed           el e ctroni c al l y .            IRS' prel i m i n ary
                                desi g n     concept            for moderni z i n g    i t s cash management                              systems i n tegrates
                                al l cash       management               processes.       The overal l                   goal i s to reduce the number
                                of paper            checks by usi n g el e ctroni c            funds transfer                      technol o gi e s,      whi c h
                                wi l be      i m pl e mented          by the El e ctroni c             Deposi t              Processi n g          System. Thi s
                                system’s            subproj e cts      i n cl u de

                            l   ADEPT         (Automated          Deposi t                of El e ctroni c     Payments                   for Taxes), whi c h
                                tests the abi l i t y        of   the El e ctroni c                 Deposi t    Processi n g                 System to recei v e
                                and process vari o us                types of tax payments                         el e ctroni c al l y ,           and
                            l   El e ctroni c      Federal        Tax Deposi t s,                   whi c h tests the abi l i t y                of the El e ctroni c
                                Deposi t        Processi n g       System to recei v e                      and process                federal     tax deposi t s
                                made by empl o yers                 el e ctroni c al l y .

                                Any resi d ual         paper        remi t tances           wi l be processed                   by the Paper                 Deposi t
                                Processi n g        System         (PDPS).      PDPS      subproj e cts  i n cl u de

                        l       CHEXS        (Check Handl i n g          Enhancements                 and Expert System), whi c h
                                repl a ces       the current        Remi t tance           Processi n g      System and wi l process       100
                                percent         of al l paper remi t tances                and payment          documents    recei v ed at
                                servi c e      centers, and
                        l       Di s tri c t    Remi t tance     Processi n g          System, whi c h automates            paper remi t -
                                tance processi n g           functi o ns       at di s tri c t    offi c es,

                                Tabl e V. 1 provi d es i n formati o n                      on costs, i m pl e mentati o n,                     and expected
                                benefi t s for the cash management                             proj e cts.




                                Page    32                                                        GAO/JMTEC-91-9             IRS Input        Processi n g      Ini t i a ti v e
                                                                                 APP@WX V
                                                                                  hah       hfanagement                  System        and
                                                                                  Rel a ted      Subproj e cts




Tabl e        V.l : Input            Procerrl n g           Modul e :   Carh   Management                       System
Dol l a rs      i n mi l i o ns
                                                              Devel o    ment coat                                                           Nati o nwi d e
System             name                                          as o P June 1890                       Li f e-cycl e       cost             i m pl e mentati o n                       Expected                 benefi t 3
El e ctroni c        Deposi t
      Processi n g        System               (two
                                                                                         b                                         b         b                                          Speeds               processi n g
      subproj e cts)
                                                                                                                                                                                        ;Jods             qui c ker       access                to

                                                                                                                                                                                        Reduces               operati n g  costs
                                                                                                                                                                                        El i m i n ates         bad checks
                                                                                                                                                                                        Produces               fewer          processi n g
                                                                                                                                                                                        errors
(1) Automated                         Deposi t       of
     El e ctroni c              Payments              for
                                                                                                                                   b         b
     Taxes (ADEPT)                                                             $0.20
(2) El e ctroni c                 Federal          Tax
                                                                                                                                   b         b
     Deposi t               System --_--.
.-.-_ 1-” .-l l . -.-...l _ _
         er Deposi t                  Processi n g
                                                                                                                                   b         b
                           (two subproj e cts)
(1) Di s tri c t              Remi t tance
                                                                                                                                   b
     Processi n a                  Svstem                                        1 .o                                                        March          1992
(2) Check                 Handl i n g
     E;;;;;rnents                          and Expert
                                                                                         b                               $130.0              October            1993
                                                                                 Venefi t s         for the enti r e        Cash Management                System.
                                                                                 bNot avai l a bl e .




                                                                                 Page         33                                                                       GAO/IMTEC91-9   IRS’ Input             Processi n g             Ini t i a ti v e
Appendi x        VI

Maj o r               Contri b utors                   to Thi s                Report


                                           Hazel E. Edwards,        Assi s tant    Di r ector
Informati o n                              Bri a n C. Spencer, Techni c al       Advi s er
Management                and              Gregory    P. Carrol l ,  Staff Eval u ator
Technol o gy             Di v i s i o n,
Washi n gton,             D.C.

                                           Kenneth B. Bi b b, Eval u ator-i n -Charge
Ci n ci n nati         Regi o nal          Wenona  U. Johnson,       Staff Eval u ator
Offi c e                                   Mary Jo Gri e senauer,      Staff Eval u ator




(610484)                                   Page   34                                            GAO/IMl W GBl - 9   IRS’ Input   Processi n g   Ini t i a ti v e
Orderi n g     Informati o n

The fi r st fi v e copi e s       of each GAO report are free, Addi t i o nal        copi e s
are $2 each. Orders shoul d                be sent to the fol l o wi n g address,   accom-
pani e d   by a check or money               order made out to the Superi n tendent
of IIocuments,            when necessary.          Orders for 100 or more copi e s     to be
mai l e d  to a si n gl e     address     are di s counted   25 percent.

ITS. General    Accounti n g                 Offi c e
I’.(). Hox 6016
Gai t hersburg,   MI) 20877

Orders       may    al s o     be pl a ced       by cal l i n g   (202)   2756241.
                                                                             I
~__.II,.-._..^-__       ----._                   __~_---..-___.--.---.---.




Of’li’c *i ; tl     l t usi r wss
Pt~nal t          y for I’ri v ;i t   tb 1 l s t* !b:IOO