Management  reviews the templates and identifies a preliminary list of approved  initiatives. process. IRS Significantly Improved Its PPACA Cost Estimate, but Did Not Publicly Report Investment Information for the Fiscal Year 2014 Budget Request

		Updated PPACA Cost Estimate Shows Significant Progress, but a Few Areas for Improvement Remain

In December 2012, IRS updated the PPACA cost estimate as part of its  on-going practice to refine the cost estimate and address our prior  recommendation. Unlike previous versions, the  updated cost estimate shows significant progress, as it reflects the full- cycle cost of the program, which will total $1.89 billion from fiscal year  2010 through 2026. Third, IRS  did not obtain a second cost estimate. IRS Did Not Report PPACA Investment Information on the OMB Dashboard Website

Although the IT systems used to implement PPACA (which IRS refers to  as the ACA IT investment) meet the Department of Treasury’s (Treasury)  definition of a major investment, IRS reported the investment as a non- major investment in fiscal year 2014. According to agency officials, IRS  did not have time to prepare the information that is typically reported for  major investments in the President’s fiscal year 2014 budget request. IRS Expanded Information Reported on Its Major IT Investments in the Fiscal Year 2014 Budget Justification, but Additional Information Would Be Useful

In the fiscal year 2014 budget justification, IRS included new, useful  information on its major IT investments that was not included in prior  budget justifications, such as life-cycle costs, projected useful life of the  current asset, anticipated benefits, and how performance will be  measured. Likewise, the decision maker would see that the fiscal year  2014 budget justification shows the estimated life-cycle costs for MeF to  be $575 million, however, to know how much has been obligated for the  investment from the start date through fiscal year 2012—$304 million— the decision maker would have to access the Exhibit 300 and calculate  the amount of funding obligated across prior fiscal years. IRS officials said they can consolidate this information for  ease of review. Three of the  implemented recommendations resulted in additional information in the  budget request, such as actual ROI and linking funding requests for new  initiatives to strategic goals and objectives. We also identified some other  actions that could improve the budget request and aid Congress in  decision making, including (1) improving the accuracy and credibility of  the PPACA cost estimate in future updates because it provides the basis  for informed investment decision making, realistic budget formulation, and  accountability for results, (2) ensuring the ACA IT investment is publicly  reported to increase transparency and (3) reporting consolidated  information on major IT investments to make the information more  accessible. Improve the accuracy and credibility of future updates to the PPACA  cost estimate by taking the following actions to more closely follow  best practices outlined in the GAO Cost Guide:
Use earned value management to capture actual costs and use  them as a basis for future updates. IRS agreed with the majority of the actions  associated with our fourth recommendation on improving the accuracy  and credibility of future updates of the PPACA cost estimate. Appendix I: Objectives, Scope, and Methodology

We were asked to review the President’s fiscal year 2014 budget request  for the Internal Revenue Service (IRS). The objectives of this report were  to (1) describe IRS’s capacity to report fiscal year 2012 obligations and  full-time equivalent (FTE) data for program activities, organizational  entities, and other efforts of interest; (2) assess IRS’s process and the  type of information used to prioritize and select new program initiatives;  (3) describe proposed base budget savings; (4) describe IRS’s new  projected return on investment (ROI) methodologies; (5) evaluate steps  IRS took to improve the cost estimate for the Patient Protection and  Affordable Care Act (PPACA) in accordance with GAO’s Cost Estimating  and Assessment Guide and determine the extent to which IRS is  transparently reporting on the Affordable Care Act (ACA) information  technology (IT) investment; (6) summarize IRS’s major IT investments  and assess the type of information available in the congressional  justification; and (7) describe IRS’s progress in implementing our prior  budget-related recommendations. Documents  included guidance from the IRS Corporate Budget Office and pre- selection templates submitted for review by the taxpayer services and  enforcement business units to senior leadership between November 2011  and May 2012. We analyzed these submissions for completeness against  criteria for budget formulation outlined in OMB Circulars A-94.
Why GAO Did This Study

The financing of the federal government depends largely on IRS's ability to administer the tax laws, which includes providing service to taxpayers and enforcing the law to ensure everyone pays the taxes they owe. For fiscal year 2014, the President requested $12.9 billion for IRS, an increase of 9 percent over fiscal year 2012 actual levels.
Because of the size of IRS's budget and the importance of its programs, GAO was asked to review the fiscal year 2014 budget request. In April and May 2013, GAO reported preliminary observations on IRS's budget. Among other things, this report assesses how IRS prioritizes new initiatives; steps IRS has taken to improve the PPACA cost estimate and the reporting transparency of the related IT investment; and the type of information available in the budget justification about major IT systems. To address these objectives, GAO reviewed the fiscal year 2014 budget justification, compared the updated PPACA cost estimate to GAO's Cost Estimating and Assessment Guide, and interviewed IRS Corporate Budget officials.

What GAO Found

For the fiscal year 2014 budget formulation process, the Internal Revenue Service (IRS) implemented a new process that uses templates to help screen, prioritize, and select new initiatives before detailed business cases are developed to support funding requests. The template information that GAO reviewed varied in detail and scope; for some, IRS guidance may have contributed to incomplete submissions to senior leadership. According to Office of Management and Budget Circular A-94, in order to evaluate and compare funding initiatives, decision-makers need to be aware of benefits, costs, and strategies related to achieving program goals. By improving guidance on the type of data to include, IRS could help ensure the templates are fully completed.
IRS significantly improved its Patient Protection and Affordable Care Act (PPACA) cost estimate. In particular, the December 2012 estimate is more comprehensive, reflecting the full life-cycle cost of the program--estimated at $1.89 billion for fiscal year 2010 through 2026. A few areas of improvement remain, primarily regarding the accuracy and credibility of the cost estimate. For example, IRS showed how the December 2012 estimate differed from the previous estimate, but did not explain the factors that resulted in the variances. In addition, IRS did not obtain a second cost estimate that could be used to assess the reasonableness of the $1.89 billion estimated program costs.
Although the information technology (IT) systems for PPACA met dollar thresholds (as outlined in the Department of Treasury's guidance) as a major investment for public reporting, IRS did not report this as such. Officials told GAO they did not have time to prepare the information for the fiscal year 2014 budget justification, but plan to do so for fiscal year 2015. Until IRS publicly reports the IT systems for PPACA as a major investment, transparency about these systems' implementation and administration is limited.
Although IRS included new and useful information on its major IT investments in the budget justification (such as life-cycle costs) other important information (such as the start date and percent of life-cycle costs obligated) is reported elsewhere or must be calculated. IRS officials said they could consolidate this information for ease of review. Consolidating key budget and performance data would ensure Congress has comprehensive, easily accessible information on major IT investments to guide decisions.

What GAO Recommends

GAO recommends that IRS improve budget formulation guidance for new initiatives; improve the accuracy and credibility of future updates to the PPACA cost estimate as well as report the related IT investment publicly; and consolidate major IT investment reporting. IRS agreed with three of GAO's four recommendations and agreed with the majority of the actions associated with improving the accuracy and credibility of the PPACA cost estimate.