IT plays a critical role in enabling IRS to carry out its mission and  responsibilities. Of this requested amount, about $2.67 billion is for IT investments. In commenting on a draft of this report, IRS  stated it would review the recommendations and provide a detailed  corrective action plan to address them. IRS has established most of the foundational practices needed to  manage its IT investments. Specifically, the department has executed 30  of the 38 key practices identified by the ITIM as foundational for  successful IT management (Stage 2), including all the practices needed  to provide investment oversight and capture investment information, and  most of those needed to ensure that projects support business needs. Specifically, IRS does not have an  enterprisewide IT investment board with sufficient representation from IT  and business units that is responsible for the entire investment  management process, and the agency has not fully documented its  investment management process. Despite these strengths, IRS has not fully documented its investment  management process. Specifically,  the select phase is primarily carried out by two senior executives (the  Executive Review Team), working with several individuals, rather than a  larger body composed of representatives from IRS’s IT and business  units, and as a result, the perspective and expertise represented are not  as broad as they would be with a larger board. Further, the responsibility  for the select and control phases lies with two different groups rather than  a single body, and it is not clear whether or how these groups are  coordinating to ensure that the results of one phase are used to inform  decisions made in the other, as would happen with a single board  responsible for implementing all phases of the investment management  process. The agency has developed written policies and procedures for  management oversight of its investments. Considering the size of IRS’s IT budget, not  having a process for reselecting ongoing projects could result in  potentially millions of dollars being spent with no assurance that the funds  are being used wisely.   ensure that the investment management guidance that is expected to  be updated by the end of the fiscal year fully documents the preselect  and select phases and the role of the Executive Review Team, and  specifies the manner in which IT investment-related processes will be  coordinated;   assign investment management responsibilities to optimize the  decision-making process by ensuring that (1) selection decisions are  made by a group that includes sufficient representation from business  and IT units to provide broad perspective and expertise, and (2)  investment decisions are fully informed by the results of relevant  phases of the investment management process;   define and implement a process for taking corrective actions when  ongoing projects are not aligned with strategic goals and objectives;  and   define and implement a process, including defined criteria, for  reselecting ongoing projects. Appendix I: Objective, Scope, and Methodology

The objective of our review was to assess the Internal Revenue Service’s  (IRS) capabilities for managing its information technology (IT)  investments. Our analysis was based on practices contained in GAO’s  Information Technology Investment Management (ITIM) framework and  the framework’s associated evaluation methodology, and focused on the  agency’s implementation of critical processes and key practices for  managing its business systems investments.
Why GAO Did This Study

The Internal Revenue Service (IRS) relies extensively on information technology (IT) to carry out its mission. For fiscal year 2012, IRS requested about $2.67 billion for IT. Given the size and significance of these investments, GAO was asked to evaluate IRS's capabilities for managing its IT investments. To address this objective, GAO reviewed IRS policies and procedures and assessed them using GAO's IT investment management (ITIM) framework and associated methodology, focusing on the framework's stage relevant to building a foundation for investment management (Stage 2). GAO also interviewed officials responsible for IRS's investment management process.

What GAO Found

IRS has established most of the foundational practices needed to manage its IT investments. Specifically, the agency has executed 30 of the 38 key practices identified by the ITIM framework as foundational for successful IT investment management, including all the practices needed to provide investment oversight and capture investment information. For example, IRS has defined and implemented a tiered governance structure to oversee its projects and has several mechanisms for the boards to regularly review IT investments' performance. The agency has also established procedures for identifying and collecting information about its investments to inform decision making. Despite these strengths, IRS can improve its investment management process in two key areas. First, IRS does not have an enterprisewide IT investment board with sufficient representation from IT and business units that is responsible for the entire investment management process, and as a result may not be optimizing its decision-making process. Specifically, project selection is carried out by a team of two senior executives representing IRS's deputy commissioners, rather than a larger body composed of representatives from both IT and business units, and as a result, the perspective and expertise represented are not as broad as they would be with a larger board. Further, because the responsibility for the select and control phases lies with different groups rather than a single body, results of one process are not used to inform decisions made in the other, as would happen with a single board responsible for implementing all phases of the investment management process. IRS stated that it plans to address this coordination issue. Second, IRS does not have a process, including defined criteria, for reselecting (i.e., deciding whether to continue funding) ongoing projects. Given the size of its IT budget, IRS could be spending millions of dollars with no assurance that the funds are being used wisely.

What GAO Recommends

GAO is making recommendations to the Commissioner of Internal Revenue, including assigning responsibilities for implementing the investment management process to optimize decision making, and defining and implementing a process for deciding whether to continue funding ongoing projects. In commenting on a draft of this report, IRS concurred with GAO's recommendations.