oversight

IRS' Year 2000 Efforts: Status and Remaining Challenges

Published by the Government Accountability Office on 1999-02-24.

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

                    United States General Accounting Office

GAO                 Testimony
                    Before the Committee on Ways and Means, House of
                    Representatives



For Release
on Delivery
Expected at
                    IRS’ YEAR 2000 EFFORTS
9:00 a.m. EST
Wednesday
February 24, 1999
                    Status and Remaining
                    Challenges
                    Statement of James R. White, Director
                    Tax Policy and Administration Issues
                    General Government Division




GAO/T-GGD-99-35
Statement




              Mr. Chairman and Members of the Committee:

              We are pleased to be here today to discuss the status of the Internal
                                                         1
              Revenue Service’s (IRS) Year 2000 efforts and the remaining challenges
              IRS faces in making its information systems Year 2000 compliant. If IRS’
              Year 2000 efforts are unsuccessful, the impacts on taxpayers could include
              millions of erroneous tax notices and delayed or erroneous refunds. IRS
              had established a goal to complete most of its Year 2000 work by January
              31, 1999. IRS established that goal to help ensure that it would (1) have a
              Year 2000 compliant environment implemented for the 1999 filing season
              and (2) provide time for working out problems that surfaced in the 1999
                                                      2
              filing season and its Year 2000 testing.

              Our statement discusses four topics—(1) the extent to which IRS monitors
              the Year 2000 status of its mission-critical systems in their entirety; (2)
              whether IRS met the January 31, 1999, completion goal for the areas that it
              monitors—application software, systems software, hardware, and
              telecommunications networks; (3) the status of two remaining, critical
              Year 2000 tasks—conducting Year 2000 testing and completing 36
              contingency plans; and (4) the fact that other business initiatives are
              creating competing demands on staff needed for Year 2000 efforts.

            • First, we cannot provide a complete picture of the Year 2000 status of IRS’
              133 mission-critical systems because IRS does not report Year 2000 status
              for these systems in their entirety. Instead, IRS monitors the Year 2000
              status of the components of an information system, such as the application
                        3                  4
              software, systems software, and hardware, for each of its three types of
              computers—mainframes, minicomputers/file servers, and personal
              computers. IRS officials acknowledge that their monitoring reports do not
              provide a complete picture on a system-by-system basis. However, these

              1
               IRS’ Year 2000 efforts are necessary because IRS’ information systems, many of which are over 25
              years old, were programmed to read two-digit date fields. Therefore, if unchanged, these systems
              would interpret 2000 as 1900, seriously jeopardizing tax processing and collection operations. IRS’ Year
              2000 efforts include (1) fixing existing systems by correcting application software and data and
              upgrading hardware and systems software, if needed; (2) replacing systems if correcting them is not
              cost-beneficial or technically feasible; and (3) retiring systems if they will not be corrected by 2000.
              2
               The Year 2000 end-to-end test is to ensure that most of IRS’ mission-critical systems can operate
              collectively, with all systems date clocks set forward to simulate the Year 2000.
              3
               Application software is the collection of computer programs that allows a user to perform a specific
              job task.
              4
               Systems software is the collection of computer programs that manage the computer’s system
              hardware components (e.g., operating system, central processing unit, or disk drives) that allow the
              application software to interact with the hardware.




              Page 1                                                                             GAO/T-GGD-99-35
  Statement




  officials believe the costs of doing so outweigh the benefits, particularly
  given the time remaining to complete IRS’ Year 2000 work.

• Second, IRS reports that it met the January 31, 1999, completion goal for
  some of the areas that it monitors but not for others. IRS reports that it
  met the January 1999 completion goal for (1) correcting application
  software, (2) upgrading telecommunications networks, and (3) fully
  implementing one of its two major system replacement projects. Despite
                                                     5
  significant progress since our testimony last May, IRS did not meet the
  goal for (1) upgrading systems software and hardware for its three types of
  computers and (2) fully implementing the other major system replacement
  project. As a result of not meeting the goal for upgrading systems software
  and hardware, some changes will not be tested until late in 1999, reducing
  the time available to make corrections before January 2000. Also, for the
  replacement project, some service center staffs will have no experience
  before 2000 using the new system to process peak filing season volumes of
  remittances.

• Third, in addition to completing work on upgrading systems software and
  hardware, IRS faces two remaining, critical Year 2000 tasks. The first task,
  and one most important for gauging IRS’ success in achieving Year 2000
  compliance, is an unprecedented, Year 2000 end-to-end test of most of IRS’
  mission-critical systems. The end-to-end test is to begin in April 1999. The
  need to conduct this test has created an additional new challenge for
  IRS—meeting a compressed schedule for developing and implementing tax
  law changes for the 2000 filing season. The second critical task is to
  develop 36 contingency plans that IRS has determined are needed to
  address various failure scenarios for its core business processes. IRS is
                                                                6
  developing these plans in response to our June 1998 report. IRS has
  delayed the completion dates so that the first set of plans are to be
  completed by March 31, 1999, and the second set of plans by May 31, 1999.
  To the extent that the plans require additional actions, such as those
  associated with testing or preparatory activities needed to implement the
  plans, these delays reduce the time available to complete these activities.

• Fourth, as IRS continues its Year 2000 efforts, it will face the challenge of
  how to address the competing demands on its staff. These competing

  5
      IRS’ Year 2000 Efforts: Status and Risks (GAO/T-GGD-98-123, May 7, 1998).
  6
   IRS’ Year 2000 Efforts: Business Continuity Planning Needed for Potential Year 2000 System Failures
  (GAO/GGD-98-138, June 15, 1998).




  Page 2                                                                           GAO/T-GGD-99-35
                      Statement




                      demands are created by IRS’ other major business initiatives, such as
                      implementing tax law changes and completing the non-Year 2000 portions
                      of one of IRS’ major system replacement projects. To address these
                      competing demands, in the past several months, IRS has (1) transferred
                      staff from other areas, (2) hired additional staff, and (3) delayed some
                      activities.

                      Our statement today is based on our past and ongoing Year 2000 work for
                      this Committee’s Oversight Subcommittee. As a part of this work, we have
                      interviewed officials from the National Office and reviewed IRS’
                      contingency planning documents and IRS’ Year 2000 progress reports for
                      the week ending February 6, 1999. We did not verify the reliability of the
                      data included in the February 6, 1999, reports.

                      IRS’ Year 2000 status reports do not provide a complete picture of the
IRS’ Reports Do Not   status of IRS’ mission-critical systems because IRS does not monitor Year
Provide a Complete    2000 status for its mission-critical systems in their entirety. Instead, IRS
Picture of Mission-   monitors the Year 2000 status of the components of an information system,
                      such as the application software, systems software, and hardware for each
Critical Systems’     of its three types of computers—mainframes, minicomputers/file servers,
Status                and personal computers. IRS also monitors its telecommunications
                      networks separately.
                                                                                       7
                      As part of IRS’ Year 2000 risk mitigation efforts, IRS has hired a contractor
                      to conduct periodic risk assessments. The contractor’s December 1998
                      report recommended exploring the feasibility of tracking status on a
                      system-by-system basis to provide a clear view of IRS’ ability to achieve
                      Year 2000 compliance. The report stated that such a system view would
                      permit IRS to, among other things, help assess the need to target resources
                      to achieve Year 2000 compliance. IRS officials said that IRS’ approach to
                      monitoring Year 2000 compliance corresponds to how IRS’ Information
                      Systems organization is structured to carry out its work. Specifically, IRS
                      officials said that separate organizational units are responsible for
                      application software, systems software and hardware, and
                      telecommunications networks. Therefore, IRS monitors its Year 2000
                      status by these areas. They do not believe the benefits of monitoring status
                      on a system-by-system basis outweigh the costs, given the amount of time
                      remaining to complete IRS’ Year 2000 work.


                      7
                       IRS’ Century Date Change Project Office outlined a risk management process that is to (1) identify
                      risks to the successful completion of Year 2000 goals, (2) coordinate the development of risk mitigation
                      strategies, (3) oversee the execution of the strategies, and (4) elevate unmitigated risks to the
                      Commissioner’s Executive Steering Committee on the 1999 filing season and Year 2000 efforts.




                      Page 3                                                                             GAO/T-GGD-99-35
                               Statement




                               IRS’ reports indicate that it met the January 1999 completion goal for some
Reports Indicate That          areas but not for others. The reports indicate that IRS met the January
IRS Met the January            1999 goal for correcting the application software for its existing systems
1999 Completion Goal           and upgrading telecommunications networks. Since May 1998, when we
                               last testified on this topic, IRS has also made progress in an area that we
for Some Areas but             said was lagging—upgrading systems software and hardware. Despite this
Not for Others                 progress, however, IRS did not achieve its January 1999 completion goal
                               for any of its three types of computer hardware. IRS fully implemented the
                               Year 2000 aspects for one of its major system replacement projects. For
                               the other system replacement project, 6 of the 10 service centers were
                               using the full suite of Year 2000 changes.

Reports Indicate That IRS      Since we testified in May 1998, IRS has continued to make progress in
                               correcting the application software for its mission-critical systems. As of
Met its Goal for Application   February 6, 1999, IRS reports indicate that IRS has corrected 88 percent of
Software for Existing                                                                     8
                               these applications, thereby exceeding its 85 percent goal. In addition to
Systems and                    completing this work, IRS has hired a contractor to review all of the
Telecommunications             corrected application software to determine whether IRS made any errors.
                               This effort began in August 1998 and is scheduled to continue through May
Networks                       1999.

                               In addition, IRS reports indicate that it met its goal for completing work on
                               its telecommunications networks. In May 1998, we said that, according to
                               IRS, telecommunications networks presented the most significant
                               correction challenge and were likely the highest risk for not being
                               completed by January 31, 1999. As of February 6, 1999, with the exception
                                                                                                     9
                               of three areas, IRS reported that it met its goal for these networks.

Reports Indicate That IRS      IRS’ reports indicate that IRS made significant progress in an area that in
                               May 1998 we said was lagging—upgrading systems software and hardware
Did Not Meet the Goal for      for its three types of computers: mainframes, minicomputers/file servers,
Systems Software and           and personal computers. Despite this progress, IRS did not meet the
Hardware                       January 31, 1999, completion goal for its three types of computers.

                               For IRS’ mainframe computers, IRS officials said IRS fell short in meeting
                               its goal because of delays in receiving the Year 2000 upgrades for one of its

                               8
                                In assessing progress, IRS determined that it needed to complete 85 percent of its application software
                               work by January 31, 1999. The work for the remaining 15 percent includes the steps needed to certify
                               that IRS has achieved Year 2000 compliance. IRS has deferred correcting about 2 percent of its
                               application software until July 1999 and January 2000 .
                               9
                                The three areas are (1) voice mail for some of IRS’ field locations; (2) telephone routing for IRS’
                               automated collection system; and (3) telecommunications networks for at least 8,000 terminals. Work
                               on these three areas is to be completed by July 31, 1999.




                               Page 4                                                                             GAO/T-GGD-99-35
                              Statement




                              system replacement projects. IRS officials said those upgrades are to be
                              received and implemented by March 1, 1999.

                              For minicomputers/file servers, IRS reports indicate that as of February 6,
                              1999, IRS’ Information Systems organization had completed 60 percent of
                              the work for upgrading systems software and hardware—a significant
                              increase from 13 percent that was done in May 1998, when we last testified
                                                           10
                              on the IRS’ Year 2000 status. According to IRS, systems software and
                              hardware for 13 of the 27 mission-critical systems that use
                              minicomputers/file servers were not upgraded by January 31, 1999. The
                              systems software and hardware for 7 of the 13 systems are not scheduled
                              to be Year 2000 compliant until after March 1999. As a result of the delay,
                              some changes are not to be tested until October 1999, when the second
                              part of the Year 2000 end-to-end test is to begin. This delay reduces the
                              time available to make any needed corrections before January 1, 2000.

                              For personal computers, IRS officials said they plan to replace about
                              35,000 personal computers and the associated systems software between
                              February 1999 and July 1999 to achieve Year 2000 compliance. As a part of
                              this replacement effort, IRS plans to reduce the number of commercial
                              software and hardware products in its inventory from about 4,000 to 60
                              core standard products. According to IRS officials, thus far, IRS has
                              completed testing on 5 of the 60 core products. IRS plans to complete the
                              testing for the remaining 55 products by April 1999. IRS’ goal is to
                              eliminate all nonstandard products by July 1999.

Full Implementation of Year   For one of IRS’ two major system replacement projects, IRS implemented
                              the Year 2000 changes at all 10 service centers by January 31, 1999; for the
2000 Changes Achieved for     other system replacement project, 6 of the 10 service centers were using
One of the Two                the full suite of Year 2000 changes for the system by January 31, 1999. IRS’
Replacement Projects; Less    two major system replacement projects are Service Center Mainframe
Than Full Implementation      Consolidation (SCMC) and the Integrated Submission and Remittance
                              Processing (ISRP) System. SCMC is to consolidate the mainframe
Achieved for the Other        computer tax processing activities from the 10 service centers to 2
                              computing centers—thereby reducing the total number of tax processing
                              mainframe computers from 67 to 12. Specifically, SCMC is to (1) replace
                              and/or upgrade mainframe hardware, systems software, and
                              telecommunications networks; (2) replace about 16,000 terminals that
                              support frontline customer service and compliance activities; and (3)
                              replace the system that provides security functions for on-line taxpayer

                              10
                               IRS’ goal for systems software and hardware was to complete 80 percent of the work by January 31,
                              1999.




                              Page 5                                                                          GAO/T-GGD-99-35
       Statement




       account databases with a new system known as the Security and
       Communications System (SACS). Replacement of the terminals and the
       implementation of SACS are critical to IRS’ achieving Year 2000
       compliance. The other replacement project is ISRP. ISRP is a single,
       integrated system that is to perform the functions of two systems that are
       not Year 2000 compliant—the Distributed Input System that IRS uses to
       process tax returns and the Remittance Processing System that IRS uses to
       process tax payments.

SCMC   IRS completed the Year 2000 critical portions of SCMC by January 31,
       1999. Specifically, in early October 1998, IRS completed its implementation
       of the 16,000 terminals that are needed for frontline customer service and
       compliance activities. Also, as of January 31, 1999, all 10 service centers
       were using SACS.

       Originally, IRS had planned to have the other aspects of SCMC besides
       SACS—that is, the tax processing activities of the 10 service centers—
       moved to the 2 computing centers by December 1998. As of January 31,
       1999, the tax processing activities for three service centers had been
       moved to the computing centers. IRS is determining the number of
       additional service centers that are to be moved in 1999. SCMC officials
       have developed several different schedule options for moving the tax
       processing activities of the remaining seven service centers. At the time we
       prepared this statement, IRS officials had not yet selected a schedule
       option.

       According to IRS officials, the tax processing activities of all 10 service
       centers do not need to be moved before 2000 because the existing
       mainframes in each of the 10 service centers have been made Year 2000
       compliant. Thus, in all likelihood, at the start of the 2000 filing season,
       some service centers will be processing their data locally, whereas others
       will have their data processed at the computing centers. IRS’ Year 2000
       end-to-end test is designed to include both processing scenarios.

ISRP   Both functions of ISRP—tax return processing and remittance
       processing—were to be implemented in November 1998. However, as a
       result of problems that occurred during the pilot test of ISRP and the
       contingency option IRS implemented for the 1999 filing season to address
       those problems, 4 of the 10 service centers are not to begin using the
       remittance processing portion of ISRP until August 1999.

       For the 1999 filing season, the contingency option for ISRP is to retain
       enough of the old tax processing and remittance processing equipment in



       Page 6                                                       GAO/T-GGD-99-35
                            Statement




                            the service centers so that IRS could revert to the old systems if ISRP
                            experiences problems. However, four of the service centers did not have
                            enough floor space to accommodate both the old tax processing and
                            remittance processing systems and the ISRP equipment. As a result, these
                            four service centers are to continue using the old remittance processing
                            equipment during the 1999 filing season and convert to ISRP in August
                            1999. These four service centers were among the top five remittance
                            processing centers during the peak of the 1998 filing season. We recognize
                            that this contingency option may have been the only feasible one for IRS.
                            However, as we reported in December 1998, these four service centers are
                            to receive their equipment so late in 1999 that their staffs will have no
                            experience with the new equipment before the 2000 filing season in
                            processing the large volume of remittances that occur in the peak of the
                                          11
                            filing season.

SCMC                        In addition to fixing its existing systems, IRS still needs to complete two
Two Remaining,              critical activities for its Year 2000 efforts, and one of these activities is
Critical Year 2000          behind schedule. The two critical activities are the completion of (1) an
Activities Still Remain;    unprecedented Year 2000 end-to-end test of 97 of IRS’ 133 mission-critical
                            systems and (2) 36 contingency plans for IRS’ core business processes.
One of Which Is
Behind Schedule

Unprecedented End-to-End    Using thousands of test cases, IRS’ Year 2000 end-to-end test is to assess
                            the ability of IRS’ mission-critical systems to function collectively in a Year
Test Is to Begin in April   2000 compliant environment. These cases are intended to replicate the
1999                        many different kinds of transactions that IRS’ information systems process
                            on any given day to help assess whether IRS’ systems can perform all date
                            computations using data and systems date clocks with January 1, 2000, or
                                                                                                 12
                            later. The test will involve 97 of IRS’ 133 mission-critical systems. Most of
                            IRS’ mission-critical system application software has been tested
                            individually; however, the ability of the application software to operate
                            collectively, using Year 2000 compliant systems software and hardware,
                            with all systems date clocks set forward to simulate the Year 2000, has not
                            been fully tested.

                            In July 1998, IRS began the preliminary activities associated with
                            conducting the end-to-end test. These activities included, but were not

                            11
                                 Tax Administration: IRS’ 1998 Tax Filing Season (GAO/GGD-99-21, Dec. 31, 1998).
                            12
                               According to IRS’ Product Assurance officials, 97 systems represent the maximum number of systems
                            Product Assurance could effectively manage. Testing for the remaining systems is to be done by those
                            organizations that have responsibility for maintaining them.




                            Page 7                                                                             GAO/T-GGD-99-35
                                           Statement




                                           limited to, establishing a dedicated test environment to replicate IRS’ tax
                                           processing environment, developing test plans and procedures, and doing
                                           some preliminary testing of some systems with the systems date clock set
                                           forward to 2000. Currently, IRS is developing baseline data from the 1999
                                           filing season that will be ultimately used for the Year 2000 end-to-end test.
                                           The end-to-end test is to have two parts. The first part is scheduled to
                                           begin in April and end in July 1999. The second part is to begin in October
                                           and end in December 1999. The April test is to include the application
                                           software that is currently being used for the 1999 filing season. The
                                           October test is to include the application software changes that are needed
                                           for the tax law changes that are to be implemented for the 2000 filing
                                           season.

                                           The need to conduct this test has in turn created an additional challenge in
                                           completing the work necessary for the 2000 filing season. As shown in
                                           table 1, to accommodate the Year 2000 end-to-end test, IRS revised its
                                           traditional milestones for implementing tax law changes for the 2000 filing
                                           season, thereby compressing the amount of time available to develop and
                                           test these changes. Under this compressed schedule, instead of having
                                           until January 2000, IRS must program and test all tax law changes that are
                                           to take effect in the 2000 filing season before September 30, 1999.

Table 1: Key Activities Associated With
Implementing Tax Law Changes,                                                                                Revised milestone as a
Traditional Milestones, and Revised                                                                          result of Year 2000 testing
Milestones as a Result of Year 2000 Test   Key activity                     Traditional milestone            requirements
Schedule                                   Business requirements            Summer to January                Summer of 1998 to January
                                           developed                                                         1999
                                           Business requirements            February to June
                                           transmitted to Information
                                           Systems organization                                              February 1999
                                           Development of application       March to October
                                           software                                                          March to Mid-June, 1999
                                           Systems acceptance testinga      Late August to mid-January       Mid-June to September, 1999
                                           Final phase of the Year 2000     N/Ab                             October to December, 1999
                                           end-to-end test
                                           Implementation                   January                          January 2000
                                           a
                                            IRS’ systems acceptance testing assesses whether an application meets the specified user
                                           requirements.
                                           b
                                           Not applicable.
                                           Source: IRS data.

                                           Under the compressed schedule, business requirements are to be delivered
                                           to IRS’ Information Systems organization by February 28, 1999; the
                                           Information Systems organization is scheduled to complete the application
                                           software changes by June 15, 1999; and testing of these application
                                           software changes is be completed by September 30, 1999.




                                           Page 8                                                                         GAO/T-GGD-99-35
                           Statement




Staggered Milestones       In 1999, IRS is to complete the development of 36 contingency plans that
                           IRS determined are needed to address various Year 2000 failure scenarios
Developed for Completing   for its core business processes. IRS’ initial goal was to have these plans
IRS’ Contingency Plans     completed by December 1998; however, IRS’ revised goal is to complete 18
                           submissions processing contingency plans, 2 customer service
                                                                            13
                           contingency plans, and 3 key support services plans by no later than
                           March 31, 1999. One key support services contingency plan and 12
                           compliance contingency plans are to be completed by May 31, 1999.

                           In June 1998, we reported that IRS’ Year 2000 contingency planning efforts
                           fell short of meeting the guidelines included in our Year 2000 Business
                                                                          14
                           Continuity and Contingency planning guide. Accordingly, we
                           recommended that the Commissioner of Internal Revenue take a series of
                           steps to broaden IRS’ contingency planning effort to help ensure that IRS
                           adequately assesses the vulnerabilities of its core business processes to
                           potential Year 2000 induced system failures. Specifically, we
                           recommended that the Commissioner take the following steps: (1) solicit
                           the input of business functional areas to identify core business processes
                           and identify those processes that must continue in the event of a Year 2000
                           failure; (2) map IRS’ mission-critical systems to those core business
                           processes; (3) determine the impact of information systems failures on
                           each core business process; (4) assess existing contingency plans for their
                           applicability to potential Year 2000 failures; and (5) develop and test
                           contingency plans for core business processes if existing plans are not
                           appropriate.

                           Since we issued our report, IRS has been taking actions to address our
                           recommendations. IRS has solicited the input of its business officials and
                           established working groups to identify failure scenarios and to develop the
                           contingency plans. The working groups determined IRS should develop 36
                           contingency plans that cover various aspects of its core business areas of
                           submissions processing, customer service, compliance, and key support
                           services. One factor influencing the staggered schedule for completing
                           contingency plans was that the staff assigned to develop plans have
                           competing responsibilities, such as the development of business
                           requirements to implement tax law changes as well as other business
                           improvement initiatives. Under the staggered schedule, with the exception
                           of the key support services area, earlier completion milestones were

                           13
                            Key support services include internal business processes, such as maintaining buildings and
                           executing budget functions and payroll activities.
                           14
                            IRS’ Year 2000 Efforts: Business Continuity Planning Needed for Potential Year 2000 System Failures
                           (GAO/GGD-98-138, June 15, 1998).




                           Page 9                                                                           GAO/T-GGD-99-35
                           Statement




                           established for those aspects of three other core business areas that,
                           according to IRS officials, were likely to experience a Year 2000 before the
                           other areas. To the extent that the plans require additional actions, such
                           as those associated with testing or preparatory activities, these delays
                           reduce the time available to complete these activities.

                           According to IRS officials, the completion milestones of March and May
                           1999 reflect when the technical work for the plans is to be completed.
                           Once that work is completed, the plans are to be approved by the official
                           responsible for the core business process and tested. According to IRS
                           officials, a contractor is still developing the testing approach. As a result,
                           these officials could not provide us with the completion milestones and
                           staff requirements for testing the contingency plans.


                           In addition to Year 2000 efforts, IRS has other ongoing business initiatives
Other Business             that are placing competing demands on its information systems and
Initiatives Are Creating   business staff. The Commissioner’s Executive Steering Committee (ESC)
Competing Demands          and IRS’ risk mitigation efforts have provided a forum for addressing these
                           issues.
on Certain Staff
Needed for Year 2000       Concurrent with its Year 2000 efforts, IRS is continuing to make changes to
Efforts                    its information systems to accommodate changes resulting from various
                           business initiatives. These initiatives include the SCMC project that we
                           discussed previously, implementation of the IRS Restructuring and Reform
                                                                                        15
                           Act provisions, and of various taxpayer service initiatives. While we do
                           not question the importance of these initiatives, as we have said before,
                           the need to make a significant number of tax law changes for the 2000
                           filing season introduces an additional risk, albeit one that we could not
                                                               16
                           quantify, to IRS’ Year 2000 effort.

                           In November 1997, the Commissioner established the ESC Steering
                           Committee (ESC) to identify risks to the 1999 filing season and the entire
                           Year 2000 effort and to take actions to mitigate those risks. In addition, IRS
                           hired a contractor to conduct periodic risk assessments. The contractor’s
                           most recent report was issued in December 1998.

                           15
                              The Commissioner of Internal Revenue established the Taxpayer Treatment and Service Improvement
                           Program in November 1997 to plan, coordinate, and manage hundreds of commitments for
                           improvements in service to taxpayers that have emanated from various sources. These sources include
                           the National Performance Review, Senate Finance Committee hearings, and the IRS Restructuring and
                           Reform Act.
                           16
                            Internal Revenue Service: Impact of the IRS Restructuring and Reform Act on Year 2000 Efforts
                           (GAO/GGD-98-158R, Aug. 4, 1998).




                           Page 10                                                                         GAO/T-GGD-99-35
  Statement




  Recent ESC documents, the contractor’s December 1998 risk assessment
  report, and our interviews with SCMC officials have identified the
  following examples of competing demands on staff in IRS’ Information
  Systems organization and business organizations:

• Documents prepared for the September 1998 ESC meeting stated that IRS’
  Information Systems organization that is responsible for systems software
  issues was “overextended” because of Year 2000 demands, SCMC, and
  support for the Year 2000 end-to-end test.

• The contractor’s December 1998 risk assessment report indicated that
  some of IRS’ core business area staff face competing demands from the
  need to (1) identify business requirements for the 2000 filing season and
  (2) complete Year 2000 contingency plans. As we said previously, IRS’ goal
  is to have business requirements completed by the end of February.

• According to the minutes from the January 1999 ESC meeting, IRS’
  Internal Audit has also raised a concern about the availability of sufficient
  staff to support the Year 2000 end-to-end test given the other Year 2000
  demands. According to IRS officials, Internal Audit has not released a
  formal report on this matter.

• IRS’ draft paper on the SCMC schedule options states that one of the risks
  for each of the schedule options is the resource drain on IRS staff and
  contractors from the filing season, the Year 2000 end-to-end test, and
  critical staff being used to train any new SCMC staff. The draft option
  paper notes that the extent of the drain varies somewhat depending on
  how many service centers are to have their tax processing activities moved
  to the computing centers in 1999.

  Over the last several months, IRS has taken various actions to address
  these competing demands. For example:

• To address the “overextension” of the Information Systems organization
  that is responsible for systems software, the Chief of that organization said
  that he obtained contractor support and transferred staff from other areas.
  He said the additional staff, coupled with the delays in moving the tax
  processing activities of the service centers to the computing centers,
  helped alleviate this overextension.

• To address the competing demands on the business staff to develop Year
  2000 contingency plans and finalize business requirements for the 2000
  filing season, IRS officials decided to stagger the completion milestones



  Page 11                                                       GAO/T-GGD-99-35
                 Statement




                 for contingency plans.

               • To help prioritize the work within the Information Systems organization
                 IRS officials told us they have established another executive steering
                 committee. In addition, the minutes from the January 1999 ESC meeting
                 said that the Commissioner has asked the cognizant staff to identify the
                 source of each of the 2000 filing season requirements—(i.e., IRS
                 Restructuring and Reform Act, Taxpayer Service Improvement Initiative,
                 etc.). This identification is the first step for providing the additional
                 information that would be useful for establishing priorities for IRS’
                 Information Systems staff.

                 Since our testimony in May 1998, IRS has made considerable progress in
Concluding       completing its Year 2000 work. However, IRS did not complete all the
Observations     work that it had planned to do by January 1999. This unfinished work and
                 upcoming critical tasks are to be completed in the remainder of 1999. At
                 the same time IRS is addressing its Year 2000 challenge, it is undertaking
                 other important business initiatives, such as preparing for the 2000 filing
                 season and implementing SCMC. These various initiatives place competing
                 demands on IRS’ business and Information Systems staff. To date, IRS has
                 taken actions to address these competing demands, including delaying the
                 completion milestones for some Year 2000 activities.

                 In the next 5 months, IRS will pass several key milestones. As IRS passes
                 each one, it will have more information on the status of its Year 2000 effort
                 and the amount of remaining work. This information should help IRS and
                 Congress assess the level of risk to IRS’ core business processes in 2000.
                 For example:

               • By the end of February 1999, the business organizations are to submit their
                 requirements to IRS’ Information Systems organization for the 2000 filing
                 season. In the event that business requirements for the 2000 filing season
                 are not submitted on time, IRS increases the risk that some tax law
                 changes may not be thoroughly tested before they are implemented.

               • From April to July 1999, IRS is to conduct its Year 2000 end-to-end test.
                 The results of this test will be an indicator of the extent to which, for the
                 work completed thus far, IRS has been successful in making its systems
                 Year 2000 compliant. The results of this test should also provide
                 information on how many Information Systems staff will be needed for
                 correcting any problems that are identified.




                 Page 12                                                        GAO/T-GGD-99-35
  Statement




• By the end May 1999, IRS is to complete its contingency plans. These plans
  should provide information on any additional steps needed to implement
  the plans.
  We plan to continue to monitor IRS’ progress in meeting these key
  milestones.

  Mr. Chairman, this concludes my prepared statement. I welcome any
  questions that you may have.




  (268840)




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