Summary

The Internal Revenue Service (IRS) has been the subject of much criticism and congressional scrutiny in recent years because of its perceived inability to serve taxpayers and its failed attempts to replace its antiquated computer systems. GAO has included several key IRS programs on its list of government operations that are particularly vulnerable to waste, fraud, abuse, and mismanagement. (See GAO/HR-99-1, Jan. 1999.) The IRS Restructuring and Reform Act of 1998 provides the agency with clear guidance on serving taxpayers and helping them to voluntarily comply with the tax laws. In response, IRS has developed a restructuring initiative to modernize its business and information systems. The goal is to (1) make IRS' management and operations results oriented and (2) acquire information systems that would, among other things, allow IRS to provide employees and taxpayers with up-to-date account information. This testimony evaluates IRS' progress in implementing its new restructuring initiatives.

GAO noted that: (1) IRS' business modernization encompasses changing IRS' organizational structure, adopting new business practices, and managing for results; (2) a key challenge for IRS' business and modernization will be developing a balanced measurement system and incorporating that measurement system into reward and employee-evaluation systems; (3) IRS will have little assurance that employees will be motivated to change their behavior unless its reward and evaluation systems are aligned with its new measures; (4) IRS' systems modernization is intended to implement IRS' modernized business practices; (5) IRS developed the first two levels of a four-level modernization blueprint in May 1997, which was a good first step in defining the level of detail and precision needed to effectively and efficiently build modernized systems; (6) however, because the blueprint was developed before the Commissioner's restructuring initiative, questions exist about its validity; (7) IRS acknowledges these questions and, in addition to completing the blueprint, plans to validate it in light of the restructuring initiative; (8) further, IRS is working as a partner with a systems integration services contractor to complete the final aspects of the blueprint; (9) the success of systems modernization will depend on whether IRS can effectively partner with and manage its contractors; (10) the sheer magnitude of undertaking both business and systems modernization will strain IRS' management and staff; (11) such an ambitious undertaking, along with the need to stay in business, makes the restructuring initiative a high-risk venture that will take years to fully implement; and (12) the Commissioner acknowledges that the restructuring initiative is a high-risk venture and plans to manage it accordingly.