Internal Revenue Service Business Systems Modernization
Why It's High Risk
The Internal Revenue Service’s (IRS) multi-billion-dollar Business Systems Modernization (BSM) program is critical to providing improved and expanded service to taxpayers and internal business efficiencies for IRS and providing the reliable and timely financial management information needed to better enable IRS to justify its resource allocation decisions and congressional budgetary requests. A long history of continuing delays and design difficulties and their impact on IRS’s operations led GAO to designate IRS’s systems modernization and its financial management as separate high-risk areas in 1995. Since resolution of IRS’s most serious remaining financial management problems depended largely on the success of BSM, GAO combined the two issues into one high-risk area in 2005. Because challenges remain and IRS has not yet implemented its new strategy for managing individual taxpayer accounts, the area has remained high risk.
^ Back to topWhat We Found
Since GAO designated this area as high risk, it has reported on a number of management controls and capabilities and financial management controls that are critical to the effective management of BSM and IRS’s ability to provide reliable and timely financial management information and has made numerous recommendations aimed at improving these areas.
IRS has taken action to address GAO’s recommendations. For example, in 2008, IRS began working on a new strategy that is expected to result in faster refunds, improved customer service, elimination of notices based on out-of-date information, faster resolution of taxpayer account issues, and better online tools and services for taxpayers several years sooner than the previous approach. In the initial phase intended to be delivered by the January 2012 filing season, IRS plans to create a modernized taxpayer account database and to move the processing of individual taxpayer accounts from a weekly processing cycle to a daily processing cycle. IRS also addressed several deficiencies that GAO identified in prior financial statement audits, including resolving a material weakness in internal controls over financial reporting and improving the availability of cost information to support informed decision making. IRS also made significant enhancements to its general ledger system for tax transactions and brought it into compliance with the United States Standard General Ledger.
While progress has been made, GAO recently recommended that IRS needed to further define the second phase of its new strategy for managing individual taxpayer accounts which it expects to deliver in January 2014. GAO also reported in May 2010, that IRS had not yet developed a quantitative measure of work accomplished for its projects, a recommendation made to IRS in 2007. GAO further reported in November 2010 that significant financial management weaknesses remain. Specifically, the legacy automated financial management systems IRS continues to rely on (1) do not provide adequate information to support day-to-day decision making or to report reliable financial statement balances without reliance on significant compensating procedures, and (2) continue to exhibit serious deficiencies in information security that jeopardize the integrity and confidentiality of the financial and taxpayer information they process and the accuracy of the financial information they report.
^ Back to topWhat Needs to Be Done
For BSM, IRS needs to leverage its management controls and capabilities to successfully deliver its projects. Specifically, IRS needs to
- deliver a modernized taxpayer account database and move the processing of individual taxpayer accounts from a weekly processing cycle to a daily processing cycle by 2012;
- continue its efforts to achieve expected benefits including faster refunds, improved customer service, and faster resolution of taxpayer account issues through 2014.
For financial management issues, IRS needs to
- address outstanding GAO recommendations;
- ensure corrective action plans address all issues and define root causes;
- strengthen its program for monitoring the effectiveness of corrective actions taken in response to GAO’s information security recommendations.
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