Objectives, Scope, and Methodology

Our objectives were to (1) determine the primary causes for SCRIPS performance problems in 1995; (2) assess whether those problems were corrected as of September 30, 1996; and (3) provide a status report on IRS’ future plans for SCRIPS. However, as shown in table 1, SCRIPS did not meet IRS’ volume expectations for the three other document types scheduled for processing in 1995—information returns, Form 1040EZ, and Form 941 (IRS did not expect to start processing Form 1040PC on SCRIPS until 1996). Because of performance problems, two of the five service centers stopped using SCRIPS to process Forms 1040EZ in 1995. Instead, they reverted to manual data entry, which required using more staff resources than planned, thus increasing processing costs. Hardware problems contributed to SCRIPS’ performance deficiencies in 1995. Software problems also occurred. According to IRS officials, those problems were corrected before the 1996 filing season. In addition, the processing rates for SCRIPS (i.e., the number of documents processed per hour) improved for two document types—Form 1040EZ and FTD coupons. Despite these improvements, the system, as of September 30, 1996, (1) was not processing all the forms that the October 1994 business case said it would process, (2) was expected to cost more than original estimates, and (3) was not expected to provide the estimated labor savings that were cited in the October 1994 business case. SCRIPS Performance Improved in 1996

According to service center officials, SCRIPS performed “significantly better” in 1996 than it did in 1995 because the system experienced significantly less downtime than in 1995. Many of these enhancements were implemented late in the 1996 filing season, after most of the Forms 1040EZ and information returns had been processed. The results of the test were not available when we completed our audit work. According to IRS’ post-implementation review report, previous cost estimates for SCRIPS have ranged from $133 million to $209 million. In July 1995, IRS decided to terminate all software programming for the 1040PC because of SCRIPS’ instability, a lack of system capacity, and a number of software application problems. In addition to funding constraints, decisions on the use of SCRIPS beyond fiscal year 1997 for Forms 941, according to IRS officials, will hinge on: (1) the results of the September 1996 test of SCRIPS, which we discussed earlier; and (2) Investment Review Board actions on recommendations made by a paper processing task team. We recognize that IRS is now completely reliant on SCRIPS for processing paper FTD coupons. Recommendation to the Commissioner of Internal Revenue

We recommend that before deciding to increase the percentage of Forms 1040EZ or information returns that SCRIPS processes or using SCRIPS to process other tax forms, such as Forms 941, the Commissioner (1) do a cost-benefit analysis that includes examining the costs and benefits of alternative ways for processing those forms, such as those developed by the paper processing task team; and (2) if the analysis shows that it is cost-effective to have SCRIPS process Forms 941, ensure that IRS tests SCRIPS’ ability to process the existing software applications along with any new software applications that may be added using peak volumes or volumes simulating peak workload conditions to ensure that SCRIPS can meet performance expectations.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed the performance of the Internal Revenue Service's (IRS) Service Center Recognition/Image Processing System (SCRIPS) in 1996, focusing on: (1) the primary causes for performance problems that occurred in 1995; (2) whether SCRIPS performance improved in 1996 as of September 30, 1996; and (3) the status of IRS future plans for SCRIPS.

What GAO Found

GAO found that: (1) SCRIPS experienced significant performance problems in 1995; (2) two problems were system downtime and slow processing rates; (3) because of performance problems, two of the five centers stopped processing Forms 1040EZ on SCRIPS and reverted to using manual data entry; (4) SCRIPS performance deficiencies in 1995 stemmed primarily from both hardware and software problems; (5) although IRS had expected that SCRIPS would be processing five document types, forms 1040EZ, 941, and 1040PC, federal tax deposit (FTD) coupons, and information returns, IRS postponed plans to process forms 941 and 1040PC on SCRIPS; (6) of the three remaining document types, the Cincinnati test certified the software application only for FTD coupons, therefore, the software applications for information returns and Form 1040EZ were not thoroughly tested before they were put into production, (7) to improve the performance of SCRIPS for 1996, IRS made hardware and software modifications, some of which were made before the start of the 1996 filing season; (8) as a result of some of these enhancements and more staff familiarity with SCRIPS, according to IRS officials in all five SCRIPS service centers, SCRIPS performed significantly better during the 1996 filing season than it did in 1995; (9) in addition to a slower processing rate for information returns, SCRIPS is not processing all the forms that it was expected to process in 1996, is expected to cost more than originally estimated, and is expected to provide lower labor cost savings than IRS originally anticipated; (10) the latest cost estimate for SCRIPS is $288 million, considerably more than previous cost estimates, which, according to IRS' post-implementation review report on SCRIPS, ranged from $133 million to $209 million; (11) July 1995, IRS decided to terminate all software programming for the 1040PC because of SCRIPS' instability, lack of system capacity, and a number of software application problems; (12) IRS has also decided not to use SCRIPS to process Forms 941 beyond fiscal year (FY) 1997; and (13) in addition to funding constraints, according to IRS officials, a decision on using SCRIPS for Forms 941 will depend on the results of a September 1996 capacity test of SCRIPS, which were not available when GAO completed its audit work, and decisions by IRS' Investment Review Board.