Summary

The Internal Revenue Service (IRS), acknowledging its serious, long-standing management problems and its history of ineffective attempts to deal with them, has revised its mission statement to more fully embrace customer service and fairness to taxpayers as core organizational values. IRS has also launched a modernization strategy that encompasses major changes in the agency's organizational structure, business practices, human capital and performance management systems, and information systems. The magnitude of this modernization effort makes it a high-risk venture that will take years to fully implement. Although IRS has taken important steps during the last year, some of its most important and difficult work lies ahead. This testimony discusses the business practice, performance management, and information technology challenges facing IRS.

GAO noted that: (1) IRS acknowledges that it will need to do more than make marginal improvements in the efficiency and effectiveness of its current business practices; (2) accordingly, IRS is planning to implement breakthrough changes to those practices; (3) only when these changes are implemented will taxpayers see any appreciable benefits from IRS' multiyear modernization; (4) IRS has some initiatives of this type underway, but they, and other business practice changes, will not be easy to implement; (5) this type of reengineering requires not only a new way of thinking, but also investments in human capital, data collection, and technology; (6) no matter what organizational structure or business practices IRS establishes, successful modernization ultimately depends on whether the employees who are to lead, manage, and carry out agency programs and services can deliver IRS' new mission of top-quality customer service and improved overall compliance; (7) historically, IRS' performance management system emphasized revenue production at the expense of customer service; (8) IRS is developing a new system and has taken the important first step of developing a balanced set of performance measures that is to capture both the customer service and compliance aspects of its new mission; (9) given the difficulties that attend so substantial an effort, it is not surprising that GAO has identified problems; (10) at a fundamental level, it is not clear to GAO that IRS employees fully understand that customer service and compliance can be mutually supporting; (11) such an understanding would be fostered by a coherent set of performance measures, but IRS does not yet have a key measure for voluntary compliance; (12) not only is such a measure important in its own right to track performance on a key aspect of IRS' mission, but it would also provide important data for designing the kinds of products and services taxpayers need and for targeting compliance activities; (13) revamping its time-worn tax processing systems is a critical aspect of modernization; (14) however, IRS must overcome several serious management challenges in its current systems modernization effort before it will be ready to build modernized systems; and (15) in particular, IRS must: (a) complete, enforce, and maintain an enterprise systems architecture; (b) establish and implement sound investment management processes to ensure only incremental, cost-effective system investments are made; and (c) impose software acquisition and life cycle management discipline on each system investment it undertakes.