Summary

On the one-year anniversary of the IRS Restructuring and Reform Act of 1998, this testimony discusses the management challenges confronting IRS as it modernizes its organization and reforms its culture. The IRS Commissioner has painted a compelling picture of what he wants IRS to become--a fully modernized agency providing top-quality service to taxpayers. Given the reforms that are planned, it should surprise no one that IRS--an agency with a long history of stovepipe management and a culture driven by enforcement statistics--will be challenged to accomplish so ambitious an agenda. In GAO's view, the modernization effort has the potential to deliver better service to taxpayers. IRS' agenda, however, is both ambitious and high risk. GAO has been impressed by the Commissioner's leadership and commitment to change as well as IRS' efforts so far. But sustained progress will depend on IRS' managers successfully marshaling the agency's resources, both human and systems, to deal with that challenging agenda.

GAO noted that: (1) the Commissioner and GAO agree that the various components of IRS' modernization must be implemented in an integrated fashion; (2) simply restructuring the organization, for example, without concurrent revisions to work processes and related information systems, will do little to improve the quality of service being provided to taxpayers; (3) however, successfully implementing such a comprehensive modernization strategy, while continuing the business of day-to-day tax administration, will push IRS managers and staff to their limits; (4) particularly important will be the capacity of middle managers to lead and manage comprehensive change; (5) no matter how much IRS changes its organization, work processes, and information systems, its ability to fundamentally change the way it interacts with taxpayers hinges on its ability to ensure that employees demonstrate the desired attitudes and behaviors; (6) a results-oriented approach to managing human capital has the potential to deliver such a result; (7) to fully realize this potential, IRS must finish developing key organizational performance measures, deal with an employee evaluation process that is not aligned with IRS' new mission, and develop and deliver a comprehensive training program for both frontline staff and middle managers; (8) IRS continues to face formidable system modernization challenges; (9) they include: (a) completing the modernization blueprint that IRS issued in May 1997 to define, direct, and control future modernization efforts; (b) establishing the management and engineering capability to build and acquire modernized systems; and (c) investing in small, low-risk, cost-effective modernization increments; (10) the key to effectively addressing these challenges is to ensure that long-standing modernization management and technical weaknesses are corrected before IRS invests large sums of modernization funds; and (11) IRS recently initiated appropriate first steps to address these weaknesses via its initial modernization expenditure plan that represents the first step in a long-term, multi-increment modernization.