IRS initiated CADE as part of BSM, to modernize the agency’s outdated  and inefficient data management system. We made a series of recommendations for correcting  these weaknesses and limiting modernization activities until they were  corrected. In fiscal  year 1999, IRS launched the BSM program. Also, a consistent challenge for IRS has been  to make sure that the pace of systems acquisition projects does not exceed  the agency’s ability to manage them. In response to our recommendations, IRS has made important progress. Second, IRS has made progress in establishing the infrastructure systems  on which future business applications will run. Nevertheless, IRS continued to face challenges to fully develop and  implement its modernization management capacity. We made several  recommendations to address those issues. In addition to the  modernization management control deficiencies discussed above, our  work has shown that the increases and delays were caused, in part, by  inadequate definitions of systems requirements. increases in project scope. cost and schedule estimating deficiencies. underestimating project complexity. These schedule delays and cost overruns impair IRS’s ability to make  appropriate decisions about investing in new projects, delay delivery of  benefits to taxpayers, and postpone resolution of material weaknesses  affecting other program areas. In addition, it is critical for  budgeting, management, and oversight. As noted, CADE release 1 has experienced significant reported cost  overruns and schedule delays throughout its life cycle, and has yet to be  delivered. SEI’s independent technical assessment of CADE pointed to  four primary factors that have caused the project to get off track and  resulted in such severe cost and schedule impairments: (1) the complexity  of CADE release 1 was not fully understood; (2) the initial business rules  engine effort stalled; (3) both IRS and PRIME technical and program  management were ineffective in key areas, including significant  breakdowns in developing and managing CADE requirements; and (4) the  initially contentious relationship between IRS and PRIME hindered  communications. IRS has reported making steady progress with implementing the BSM  action plan. According to the IRS BSM program office, as of late January  2004, 27 of the 46 issue action plans have been completed. To successfully address these challenges and risks and to modernize its  systems, IRS needs to continue to strengthen BSM program management  by continuing efforts to    balance the scope and pace of the program with the agency’s capacity  to handle the workload, and institutionalize the management processes and controls necessary to  resolve the deficiencies identified by the reviews and assessments. Commitment of appropriate resources and top management attention are  critical to resolving the identified deficiencies.
Why GAO Did This Study

The Internal Revenue Service (IRS) has been grappling with modernizing its computer systems for many years. IRS's current program, commonly referred to as Business Systems Modernization (BSM), began in fiscal year 1999; about $1.4 billion has been reported spent on it to date. While progress has been made, the program continues to face significant challenges and risks. In recognition of these risks, IRS and a contractor recently completed several comprehensive assessments of BSM, including one of its Customer Account Data Engine (CADE) project, which is to modernize the agency's outdated data management system. At the request of the Subcommittee on Oversight, House Committee on Ways and Means, GAO's testimony will summarize (1) GAO's prior findings and recommendations, along with those of the recent assessments; and (2) actions IRS has taken or plans to take to address these issues.

What GAO Found

Prior GAO reviews have disclosed numerous modernization management control deficiencies that have contributed to reported cost overruns and schedule delays. Costs and completion dates for ongoing projects have grown from their initial estimates. Reasons for such delays include inadequate definition of systems requirements, increases in project scope, and underestimation of project complexity. These impair IRS's ability to make future systems investment decisions and delay delivery of benefits to taxpayers.

What GAO Recommends

GAO has made a series of recommendations focusing on stronger program management--and limiting modernization activities until such management practices were in place. IRS has made important progress in implementing management controls, establishing infrastructure, delivering certain business applications, and balancing the pace of the program with the agency's ability to manage it. Nevertheless, IRS needs to further strengthen BSM program management, including fully implementing modernization management controls in such areas as cost and schedule estimating. The recent BSM assessments identified many weaknesses, consistent with prior GAO findings, that contributed to the cost overruns and schedule delays, and offered recommendations to address them. IRS has responded by identifying 46 discrete issues to be resolved; according to the agency, 27 of these have been completed. Commitment of appropriate resources, top management attention, and continuing oversight by Congress and others are critical to the success of BSM.