[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
IRS EFFORTS TO MODERNIZE ITS COMPUTER SYSTEMS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON OVERSIGHT
of the
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
__________
FEBRUARY 12, 2004
__________
Serial No. 108-34
__________
Printed for the use of the Committee on Ways and Means
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800
Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001
COMMITTEE ON WAYS AND MEANS
BILL THOMAS, California, Chairman
PHILIP M. CRANE, Illinois CHARLES B. RANGEL, New York
E. CLAY SHAW, JR., Florida FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut ROBERT T. MATSUI, California
AMO HOUGHTON, New York SANDER M. LEVIN, Michigan
WALLY HERGER, California BENJAMIN L. CARDIN, Maryland
JIM MCCRERY, Louisiana JIM MCDERMOTT, Washington
DAVE CAMP, Michigan GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota JOHN LEWIS, Georgia
JIM NUSSLE, Iowa RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas MICHAEL R. MCNULTY, New York
JENNIFER DUNN, Washington WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio XAVIER BECERRA, California
PHIL ENGLISH, Pennsylvania LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona EARL POMEROY, North Dakota
JERRY WELLER, Illinois MAX SANDLIN, Texas
KENNY C. HULSHOF, Missouri STEPHANIE TUBBS JONES, Ohio
SCOTT MCINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin
ERIC CANTOR, Virginia
Allison H. Giles, Chief of Staff
Janice Mays, Minority Chief Counsel
______
SUBCOMMITTEE ON OVERSIGHT
AMO HOUGHTON, New York, Chairman
ROB PORTMAN, Ohio EARL POMEROY, North Dakota
JERRY WELLER, Illinois GERALD D. KLECZKA, Wisconsin
SCOTT MCINNIS, Colorado MICHAEL R. MCNULTY, New York
MARK FOLEY, Florida JOHN S. TANNER, Tennessee
SAM JOHNSON, Texas MAX SANDLIN, Texas
PAUL RYAN, Wisconsin
ERIC CANTOR, Virginia
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
hearing records of the Committee on Ways and Means are also published
in electronic form. The printed hearing record remains the official
version. Because electronic submissions are used to prepare both
printed and electronic versions of the hearing record, the process of
converting between various electronic formats may introduce
unintentional errors or omissions. Such occurrences are inherent in the
current publication process and should diminish as the process is
further refined.
C O N T E N T S
__________
Page
Advisories announcing the hearing................................ 2
WITNESSES
Internal Revenue Service, Hon. Mark W. Everson, Commissioner..... 9
Internal Revenue Service Oversight Board, Hon. Larry Levitan,
Member......................................................... 31
U.S. General Accounting Office, Robert F. Dacey, Director,
Information Security Issues.................................... 42
______
Computer Sciences Corporation, Paul Cofoni....................... 51
Software Engineering Institute, Carnegie Mellon University, M.
Steven Palmquist............................................... 37
IRS EFFORTS TO MODERNIZE ITS COMPUTER SYSTEMS
----------
THURSDAY, FEBRUARY 12, 2004
U.S. House of Representatives,
Committee on Ways and Means,
Subcommittee on Oversight,
Washington, DC.
The Subcommittee met, pursuant to notice, at 9:08 a.m., in
room 1100, Longworth House Office Building, Hon. Amo Houghton
(Chairman of the Subcommittee) presiding.
[The advisory, the postponing advisory, and the
rescheduling advisory announcing the hearing follow:]
ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS
SUBCOMMITTEE ON OVERSIGHT
CONTACT: (202) 225-7601
FOR IMMEDIATE RELEASE
October 28, 2003
OV-6
Houghton Announces Hearing on
IRS Efforts to Modernize its Computer Systems
Congressman Amo Houghton (R-NY), Chairman, Subcommittee on
Oversight of the Committee on Ways and Means, today announced that the
Subcommittee will hold a hearing to evaluate the Internal Revenue
Service (IRS) efforts to modernize its computer systems and hear the
outcome of recent independent reviews of the IRS Business Systems
Modernization (BSM) program requested by IRS Commissioner Mark Everson.
The hearing will take place on Tuesday, November 4, 2003, in the main
Committee hearing room, 1100 Longworth House Office Building, beginning
at 3:00 p.m.
In view of the limited time available to hear witnesses, oral
testimony at this hearing will be from invited witnesses only.
Witnesses will include the Honorable Mark Everson, Commissioner of the
Internal Revenue Service (IRS), a representative of Computer Sciences
Corporation, and Larry Levitan, Member, IRS Oversight Board.
BACKGROUND:
United States taxpayers pay more than $2 trillion in taxes each
year to the IRS. The IRS's receipt of tax revenue is dependent on a set
of computer systems that has evolved over the past 35 years. Nearly all
IRS employees depend on these computer systems to do their daily jobs,
including more than 70,000 who use these systems to deliver direct
service to taxpayers. The IRS network of computer systems is comprised
of over 100,000 individual computers, 2,779 vendor supplied software
products, and more than 50 million lines of IRS-maintained computer
code.
The existing IRS computer systems architecture became operational
in 1967. Although significantly upgraded since then, the basic
architecture and processing systems date from the 1960s. Since the
1970s, the IRS has made numerous attempts at technological
modernization. Success of past efforts was limited, due in part to the
IRS's lack of a coordinated, unified plan and approach for fitting all
aspects of modernization together.
The current computer systems used by the IRS inhibit its ability to
effectively carry out the mission of administering the Nation's tax
laws. Maintaining these systems is a major undertaking and gets more
difficult every year as older systems replacement parts and programmers
are harder by which to come. Here are a few examples of problems caused
by the outdated systems:
American taxpayers expect a level of service from the IRS
that rivals the private sector, but IRS systems do not provide the
necessary functionality.
IRS employees must work with taxpayer data that is not
timely, resulting in frustration for both taxpayers and employees.
IRS has trouble accounting for funds and maintaining the
security of critical data and systems.
Addressing these crucial needs, managing the inherent risks of
modernization, and delivering the level of service taxpayers expect are
all goals of the IRS's BSM.
Prior efforts to modernize the IRS's computer systems in the mid-
1990s were not successful. These failures prompted the IRS to enter
into an innovative contract with Computer Sciences Corporation (CSC) in
1998 to launch the BSM program. Under the contract, CSC assists the IRS
to design new systems and helps to identify contractors to perform
software development and other tasks. The CSC is referred to as the
prime contractor, under the principal BSM contract.
Since mid-1999, more than $1.3 billion has been appropriated for
BSM, including $391 million for FY 2002 and $366 million for FY 2003.
The House and Senate have now approved an additional $429 million for
FY 2004. The total cost of BSM is expected to be in the range of $8
billion.
Soon after his appointment, Commissioner Everson requested an
independent review of a critical component of the BSM program to be
conducted by Software Engineering Institute (SEI) of Carnegie Mellon
University. The study focuses on the history of the Customer Account
Data Engine (CADE) project and the feasibility of future plans with
respect to CADE. The SEI has completed its interim review, and a
witness from SEI will appear before the Subcommittee to present its
findings and answer questions. The CSC has also commissioned Bain and
Company to study CADE and other aspects of BSM and they will appear and
be prepared to discuss Bain's findings. Finally, the IRS has conducted
an internal review of the root causes of schedule delays and cost
increases in BSM projects. The Commissioner is expected to discuss the
results of all of the aforementioned studies and to announce changes
that he plans to implement.
In announcing the hearing, Chairman Houghton said, ``The IRS must
bring its systems into the 21st century to provide the high and
efficient level of service that our taxpayers expect. We saw this back
at our 1998 hearing, and it's critical for us to see that this program
is on track.''
FOCUS OF THE HEARING:
The hearing will focus on the IRS efforts to modernize its computer
systems and on independent reviews ordered by IRS Commissioner Mark
Everson to assess the IRS's BSM program.
DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:
Please Note: Due to the change in House mail policy, any person or
organization wishing to submit a written statement for the printed
record of the hearing should send it electronically to
[email protected], along with a fax copy to
(202) 225-2610, by the close of business Tuesday, November 18, 2003.
Those filing written statements who wish to have their statements
distributed to the press and interested public at the hearing should
deliver their 200 copies to the Subcommittee on Oversight in room 1136
Longworth House Office Building, in an open and searchable package 48
hours before the hearing. The U.S. Capitol Police will refuse sealed-
packaged deliveries to all House Office Buildings.
FORMATTING REQUIREMENTS:
Each statement presented for printing to the Committee by a
witness, any written statement or exhibit submitted for the printed
record or any written comments in response to a request for written
comments must conform to the guidelines listed below. Any statement or
exhibit not in compliance with these guidelines will not be printed,
but will be maintained in the Committee files for review and use by the
Committee.
1. Due to the change in House mail policy, all statements and any
accompanying exhibits for printing must be submitted electronically to
[email protected], along with a fax copy to
202/225-2610, in WordPerfect or MS Word format and MUST NOT exceed a
total of 10 pages including attachments. Witnesses are advised that the
Committee will rely on electronic submissions for printing the official
hearing record.
2. Copies of whole documents submitted as exhibit material will not
be accepted for printing. Instead, exhibit material should be
referenced and quoted or paraphrased. All exhibit material not meeting
these specifications will be maintained in the Committee files for
review and use by the Committee.
3. Any statements must include a list of all clients, persons, or
organizations on whose behalf the witness appears. A supplemental sheet
must accompany each statement listing the name, company, address,
telephone and fax numbers of each witness.
The Committee seeks to make its facilities accessible to persons
with disabilities. If you are in need of special accommodations, please
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four
business days notice is requested). Questions with regard to special
accommodation needs in general (including availability of Committee
materials in alternative formats) may be directed to the Committee as
noted above.
* * * NOTICE--HEARING POSTPONEMENT * * *
ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS
SUBCOMMITTEE ON OVERSIGHT
CONTACT: (202) 225-7601
FOR IMMEDIATE RELEASE
October 30, 2003
OV-6-Revised
Postponement of Subcommittee Hearing on
IRS Efforts to Modernize its Computer Systems
Congressman Amo Houghton (R-NY), Chairman of the Subcommittee on
Oversight of the Committee on Ways and Means, today announced that the
Subcommittee hearing on IRS efforts to modernize its computer systems,
previously scheduled for Wednesday, November 4, 2003, at 3:00 p.m., in
the main Committee hearing room, 1100 Longworth House Office Building,
has been postponed and will be rescheduled at a later date.
* * * NOTICE--HEARING RESCHEDULED * * *
ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS
SUBCOMMITTEE ON OVERSIGHT
CONTACT: (202) 225-7601
FOR IMMEDIATE RELEASE
January 26, 2004
OV-10
Houghton Announces Hearing on
IRS Efforts to Modernize its Computer Systems
Congressman Amo Houghton (R-NY), Chairman, Subcommittee on
Oversight of the Committee on Ways and Means, today announced that the
Subcommittee will hold a hearing to evaluate the Internal Revenue
Service (IRS) efforts to modernize its computer systems and hear the
outcome of recent independent reviews of the IRS Business Systems
Modernization (BSM) program requested by IRS Commissioner Mark Everson.
The hearing will take place on Thursday, February 12, 2004, in the main
Committee hearing room, 1100 Longworth House Office Building, beginning
at 9:00 a.m.
In view of the limited time available to hear witnesses, oral
testimony at this hearing will be from invited witnesses only.
Witnesses will include the Honorable Mark Everson, Commissioner of the
IRS, a representative of the Computer Sciences Corporation (CSC), and
Larry Levitan, Member, IRS Oversight Board.
BACKGROUND:
United States taxpayers pay more than $2 trillion in taxes each
year to the IRS. The IRS's receipt of tax revenue is dependent on a set
of computer systems that has evolved over the past 35 years. Nearly all
IRS employees depend on these computer systems to do their daily jobs,
including more than 70,000 who use these systems to deliver direct
service to taxpayers. The IRS network of computer systems is comprised
of over 100,000 individual computers, 2,779 vendor supplied software
products, and more than 50 million lines of IRS-maintained computer
code.
The existing IRS computer systems architecture became operational
in 1967. Although significantly upgraded since then, the basic
architecture and processing systems date from the 1960s. Since the
1970s, the IRS has made numerous attempts at technological
modernization. Success of past efforts was limited, due in part to the
IRS's lack of a coordinated, unified plan and approach for fitting all
aspects of modernization together.
The current computer systems used by the IRS inhibit its ability to
effectively carry out the mission of administering the Nation's tax
laws. Maintaining these systems is a major undertaking and gets more
difficult every year as older systems replacement parts and programmers
are harder by which to come. Here are a few examples of problems caused
by the outdated systems:
American taxpayers expect a level of service from the IRS
that rivals the private sector, but IRS systems do not provide the
necessary functionality.
IRS employees must work with taxpayer data that is not
timely, resulting in frustration for both taxpayers and employees.
IRS has trouble accounting for funds and maintaining the
security of critical data and systems.
Addressing these crucial needs, managing the inherent risks of
modernization, and delivering the level of service taxpayers expect are
all goals of the IRS's BSM.
Prior efforts to modernize the IRS's computer systems in the mid-
1990s were not successful. These failures prompted the IRS to enter
into an innovative contract with CSC in 1998 to launch the BSM program.
Under the contract, CSC assists the IRS to design new systems and helps
to identify contractors to perform software development and other
tasks. The CSC is referred to as the prime contractor, under the
principal BSM contract.
Since mid-1999, more than $1.3 billion has been appropriated for
BSM, including $391 million for FY 2002 and $366 million for FY 2003.
The House and Senate have now approved an additional $390 million for
FY 2004. The total cost of BSM is expected to be in the range of $8
billion.
Soon after his appointment, Commissioner Everson requested an
independent review of a critical component of the BSM program to be
conducted by Software Engineering Institute (SEI) of Carnegie Mellon
University. The study focuses on the history of the Customer Account
Data Engine (CADE) project and the feasibility of future plans with
respect to CADE. The SEI has completed its interim review, and a
witness from SEI will appear before the Subcommittee to present its
findings and answer questions. The CSC has also commissioned Bain and
Company to study CADE and other aspects of BSM and they will appear and
be prepared to discuss Bain's findings. Finally, the IRS has conducted
an internal review of the root causes of schedule delays and cost
increases in BSM projects. The Commissioner is expected to discuss the
results of all of the aforementioned studies and to announce changes
that he plans to implement.
In announcing the hearing, Chairman Houghton said, ``The IRS must
bring its systems into the 21st century to provide the high and
efficient level of service that our taxpayers expect. We saw this back
at our 1998 hearing, and it's critical for us to see that this program
is on track.''
FOCUS OF THE HEARING:
The hearing will focus on the IRS efforts to modernize its computer
systems and on independent reviews ordered by IRS Commissioner Mark
Everson to assess the IRS's BSM program.
DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:
Please Note: Due to the change in House mail policy, any person or
organization wishing to submit a written statement for the printed
record of the hearing should send it electronically to
[email protected], along with a fax copy to
(202) 225-2610, by the close of business Thursday, February 26, 2004.
Those filing written statements who wish to have their statements
distributed to the press and interested public at the hearing should
deliver their 200 copies to the Subcommittee on Oversight in room 1136
Longworth House Office Building, in an open and searchable package 48
hours before the hearing. The U.S. Capitol Police will refuse sealed-
packaged deliveries to all House Office Buildings.
FORMATTING REQUIREMENTS:
Each statement presented for printing to the Committee by a
witness, any written statement or exhibit submitted for the printed
record or any written comments in response to a request for written
comments must conform to the guidelines listed below. Any statement or
exhibit not in compliance with these guidelines will not be printed,
but will be maintained in the Committee files for review and use by the
Committee.
1. Due to the change in House mail policy, all statements and any
accompanying exhibits for printing must be submitted electronically to
[email protected], along with a fax copy to
202/225-2610, in WordPerfect or MS Word format and MUST NOT exceed a
total of 10 pages including attachments. Witnesses are advised that the
Committee will rely on electronic submissions for printing the official
hearing record.
2. Copies of whole documents submitted as exhibit material will not
be accepted for printing. Instead, exhibit material should be
referenced and quoted or paraphrased. All exhibit material not meeting
these specifications will be maintained in the Committee files for
review and use by the Committee.
3. Any statements must include a list of all clients, persons, or
organizations on whose behalf the witness appears. A supplemental sheet
must accompany each statement listing the name, company, address,
telephone and fax numbers of each witness.
Note: All Committee advisories and news releases are available on
the World Wide Web at http://waysandmeans.house.gov.
The Committee seeks to make its facilities accessible to persons
with disabilities. If you are in need of special accommodations, please
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four
business days notice is requested). Questions with regard to special
accommodation needs in general (including availability of Committee
materials in alternative formats) may be directed to the Committee as
noted above.
Chairman HOUGHTON. Good morning everybody. The hearing will
come to order.
The purpose of today's hearing is to examine the Internal
Revenue Service's (IRS's) Business Systems Modernization (BSM)
program. Five years ago, in late 1998, the IRS entered into an
innovative contract with Computer Sciences Corporation (CSC)
and a number of other companies to modernize the IRS's computer
systems that had been designed back in the 1960s. This new
program set out to avoid the pitfalls of an earlier failed
effort, and it has produced results.
Taxpayers for the first time last year were able to check
the status of their refunds on the Internet, and small
businesses could apply for an IRS identification number online.
It is a huge program, and some of the key elements have
experienced significant delays and cost overruns. These
additional costs amount to $290 million, a sizeable percentage
of the $1.7 billion appropriated for computer modernization
through fiscal year 2004.
Recognizing the problem, Commissioner Everson acted quickly
to identify the source of these delays by commissioning several
independent studies and digging into the details. Today, we are
going to hear from the author of one of these studies, Steve
Palmquist of Carnegie Mellon University, and from the U.S.
General Accounting Office (GAO). In addition, we are going to
hear from Larry Levitan, the Chairman of the IRS Oversight
Board Committee that produced the review of the IRS computer
system modernization. Finally, we are going to hear from the
lead contractor, CSC, through the testimony of Paul Cofoni.
Thank you for all being here, and I look forward to your
testimony. Before I turn to my associate here, Mr. Pomeroy, I
would just like to give a word of thanks to the extraordinary
service of a former staff director of this Subcommittee, Mac
McKinney. Mac is going to be leaving my office at the end of
this month and has provided extraordinary service to us all
during his 24 years on the Hill, 6 years with the Committee on
Ways and Means, and 3 years as my chief of staff. Mac, where
are you?
[Laughter.]
Congratulations and thank you so much. Now I would like to
turn to Mr. Pomeroy.
[The opening statement of Chairman Houghton follows:]
Opening Statement of the Honorable Amo Houghton, Chairman, and a
Representative in Congress from the State of New York
Good morning. The purpose of today's hearing is to thoroughly
examine the Internal Revenue Service's Business Systems Modernization.
Five years ago, in late 1998, the IRS entered into an innovative
contract with Computer Sciences Corporation and a number of other
companies to modernize the IRS's computer systems that were designed in
the 1960s.
The current computer modernization program was designed to avoid
the pitfalls of an earlier failed effort, and has produced results.
Taxpayers, for the first time last year, were able to check the status
of their refunds on the internet, and small businesses could apply for
an IRS identification number online.
But, it is troubling that some of the key elements of the
modernization program have experienced significant delays and cost
over-runs. To date, these additional costs amount to $290 million, a
sizable percentage of the $1.7 billion appropriated for computer
modernization through Fiscal Year 2004.
Recognizing the problem, Commissioner Everson has acted quickly to
identify the source of these delays by commissioning several
independent studies. Today we are privileged to hear from the author of
one of these studies, Steve Palmquist of Carnegie-Mellon University and
from the General Accounting Office. In addition, we will hear from
Larry Levitan, the chairman of the IRS Oversight Board committee that
produced a very thoughtful review of the IRS computer modernization.
Finally, we will hear from the lead contractor, Computer Sciences
Corporation, through the testimony of Paul Cafoni. Thank you all for
being here, and I look forward to your testimony.
I am now pleased to yield to our ranking Democrat, Mr. Pomeroy.
Mr. POMEROY. Thank you, Mr. Chairman. First, let me echo
your praise of Mac McKinney, who I have just enjoyed knowing,
working with, and who represents, in my opinion, the finest
dimensions of what the professional staff that keep this place
running really represent. Mac, best wishes to you.
Commissioner, I appreciate very much your leadership. I
think that, speaking as Ranking Member of the Subcommittee on
Oversight, the efforts you have made to reach out and keep me
fully informed with your management initiatives, I have really
appreciated, and I have a lot of respect for what you are
achieving. We have seen, in fact, the role of computer
technology giving a level of service to taxpayers beyond what
they have seen before. I am particularly pleased they can now
track the status of their refunds on the computer.
At the same time, I think we can all acknowledge that the
computerization of the IRS has certainly not necessarily kept
up with computerization of other vast enterprises, public or
private, but I would especially say we have been eclipsed by
what has occurred in the private sector. I think that we all
need to learn by what has happened. We have invested a lot of
money, we have had consultants everywhere, and yet the progress
may be not as far along as we would have hoped.
So, I will look forward in the course of this hearing to
learn from you, Commissioner, as well as some of the
contractors about their thoughts in terms of how this is coming
and how we might do it better. I think this is square in the
strike zone of where the Subcommittee on Oversight has to pay
its attention. We need to understand what the Commissioner's
major initiatives are, how we can improve service of the IRS to
the taxpayers of this Nation, and we need to be prepared to
help the Commissioner, as well, with such focus and maybe
additional funding as may be required. Thank you, Mr. Chairman,
for this hearing.
[The opening statement of Mr. Pomeroy follows:]
Opening Statement of the Honorable Earl Pomeroy, a Representative in
Congress from the State of North Dakota
The 2004 tax return filing season is well underway. Nationwide,
taxpayers are in the process of filling out and filing their federal
income tax returns with the Internal Revenue Service (IRS). IRS's
computer systems have improved dramatically in recent years. Millions
of taxpayers annually now file their tax returns electronically through
E-File or Free File resulting in more error-free returns and quicker
turnarounds for tax refunds. A taxpayer can even track the status of
his or her tax refund check on the Internet to learn exactly when it
will be mailed or deposited directly into a bank account.
Taxpayer services provided to millions of Americans each year have
been greatly improved through upgrades to many of IRS's automated
systems. IRS employees now have the tools and information needed to
resolve a taxpayer's problem while the person is on the telephone with
the IRS. Similarly, the IRS is able to direct tax inquiries quickly to
employees with special expertise which significantly reduces
unnecessary waiting times.
I remain concerned, however, that the IRS has a long way to go
toward modernizing its overall computer systems architecture. With a
system of 100,000 individual computers, nearly 3,000 vendor-supplied
software products, and more than 50 million lines of computer code, it
is obvious that the IRS must have a focused, coordinated, and unified
plan for the 21st Century. I will be interested in exploring the
agency's progress in this regard during today's hearing.
I am particularly interested in learning more about the IRS's
apparent inability to deliver on the ``big computer projects''
involving the master file of IRS records and system-wide infrastructure
systems. I have learned that problems include inadequate performance by
contractors, overly ambitious project portfolios designed by IRS
management, and insufficient direct participation by IRS employees in
the management of technology programs.
I look forward to the Subcommittee's discussion of these issues and
thank Chairman Houghton for scheduling today's important hearing.
Chairman HOUGHTON. Thanks. Again, thank you, Commissioner,
for being here. We are honored by what you are doing and
helping all of us think through this maze of computerization.
We look forward to your testimony.
STATEMENT OF THE HONORABLE MARK W. EVERSON, COMMISSIONER,
INTERNAL REVENUE SERVICE
Mr. EVERSON. Thank you, Mr. Chairman, Mr. Pomeroy. I
appreciate the opportunity to testify this morning on the
status of the BSM program at the IRS. I also want to thank the
Subcommittee for your continuing support of the IRS.
The BSM is a key part of our broader agenda at the IRS.
Before offering more details about the modernization program,
let me set the stage with a few comments on our priorities at
the IRS and the challenges we face.
As you know, I have set three priorities for the IRS during
my 5-year term as Commissioner. First, we must continue to
improve service, making it easier for the taxpayer to
understand and comply with the tax laws. Through focused
implementation of the IRS Restructuring and Reform Act (RRA) of
1998 (P.L. 105-206), the IRS has measurably improved service to
taxpayers and practitioners. We aren't backing away from this
commitment to service.
The second area of emphasis is the subject for today,
information technology. I will talk about that more in a
moment.
The third focus is to strengthen the integrity of the
Nation's tax system through enhanced enforcement activities. As
you know, the President recently transmitted the 2005 budget
request to Congress. It calls for a 5-percent overall increase
for IRS, including a 10-percent boost to our enforcement
activities.
We have four enforcement priorities. They are to discourage
and deter noncompliance, with emphasis on corrosive activity by
corporations, high-income individuals, and other contributors
to the tax gap; assure that attorneys, accountants, and other
tax practitioners adhere to professional standards and follow
the law; detect and deter domestic and offshore-based tax and
financial and criminal activity; and discourage and deter
noncompliance within tax-exempt and government entities and
misuse of such entities by third parties for tax avoidance and
other unintended purposes.
The budget request addresses each of these priorities, with
which you are well familiar from your oversight work, and I am
hopeful that you will be able to actively support our proposal
for this increased funding.
Now, let me turn to information technology modernization.
As you have indicated, the IRS has made progress on major
technology applications that provide enhanced services to
taxpayers and practitioners. Examples include improved
telephone service, electronic filing, and a suite of e-services
to tax practitioners, but we have failed thus far to deliver
big projects on the master files and infrastructure systems,
the focus of our discussion today.
Four studies completed last year consistently identified
the following problems in delivering these large efforts:
insufficient participation in the technology program by IRS
business units, an overly ambitious portfolio, and inadequate
performance by the contractor. The IRS is responding by
increasing business unit ownership of these projects, resizing
the project portfolio, reducing the modernization program from
$388 million in fiscal year 2004 to $285 million in the
President's 2005 request before the Congress now, and revising
our relationships with the contractor and assuring joint
accountability.
It is this last subject that I want to speak to now. I
would like to read to the Subcommittee a letter which I sent
yesterday to Mike Laphen, who is the President and Chief
Operating Officer of CSC.
``Dear Mike, I want to express my appreciation for your
personal and active participation in improving CSC's support of
the IRS's modernization effort. I believe that the IRS and CSC
have made progress since we began our monthly meetings last
August in identifying and addressing the challenges that
confront us in modernization. The progress we have made makes
it all the more disappointing that CSC has indicated that it
will be unable to meet its revised delivery date of April 2004
for the Integrated Financial System (IFS) project.''
``While I appreciate CSC's candor and your agreement to
conduct the remaining work on the first release of IFS under a
capped price arrangement at no additional cost to the IRS, I
believe that our joint accountability for advancing
modernization requires me to take action in response to this
unsettling development. Accordingly, I have decided to direct
our upcoming enforcement modernization projects for collection
contract support and filing and payment compliance to other
contracts.''
``As you can understand, I am not taking this step lightly.
While no doubt unwelcome to CSC, I hope that this decision will
lead to a sharpened focus and discipline and will, in fact,
enhance the prospects for successful and timely delivery of
other modernization projects by CSC. I see this approach as
similar to what the IRS has done, as reflected in the
President's 2005 budget request, in limiting the modernization
portfolio in order to allow us to sharpen our focus and move
more expeditiously.''
``In addition to the decision indicated above, we will
carefully assess CSC's performance on current projects and the
results of CSC's overall program management and integration
efforts before awarding any follow-on work for existing
projects. I look for CSC to demonstrate success on existing
projects as it has recently on the important e-services suite
of applications (which is significantly enhancing direct
services to taxpayers and practitioners), in order to
participate in new IRS modernization projects. In short, we
need consistent, high-level performance and service from CSC in
order for both sides to benefit from our partnership.''
``Again, thank you for your personal attention to these
issues and CSC's acceptance of responsibility for this most
recent delay. I look forward to working together to implement
our modernization program successfully. Sincerely, Mark W.
Everson.''
This letter accurately summarizes where we stand. I want to
assure the Subcommittee that the challenges facing the
modernization effort are receiving my full attention. Thank
you, and I would be pleased to take any questions and say good
morning to Mr. Portman.
[The prepared statement of Mr. Everson follows:]
Statement of the Honorable Mark W. Everson, Commissioner, Internal
Revenue Service
Introduction And Summary
Chairman Houghton, Ranking Member Pomeroy, and distinguished
Members of the subcommittee, I appreciate the opportunity to testify
this afternoon on the status of the Business Systems Modernization
(BSM) program of the Internal Revenue Service--and to discuss our
recent review of the program's health. I also want to thank you for
your support in working with the House Appropriations Committee to
ensure that the IRS receives adequate funding to carry out the program.
Business Systems Modernization is a key part of our broader agenda
at the IRS. Before offering more details about the modernization
program, let me set the stage with a few comments on our priorities at
the IRS and the challenges we face.
At the IRS, our working equation is service plus enforcement equals
compliance. The better we serve the taxpayer, and the better we enforce
the law, the more likely the taxpayer will pay the taxes he or she
owes.
To support this philosophy of service plus enforcement equals
compliance, we are guided by three themes.
First we are improving service, making it easier for the taxpayer
to understand and comply with the tax laws. We have divided the IRS
into ``customer segments''--including wages and income, small, medium
and large businesses, non-profits. In the last four years, our toll-
free telephone service has risen sharply. Downloads of IRS forms from
our website has soared. Electronic filing of taxes has jumped from 29
million in 1999 to 52 million last year and nearly half of all
taxpayers are expected to efile this coming year.
Second, we are boosting enforcement, a key emphasis of the
President's 2005 IRS budget request just sent to Congress.
By our best estimates, we lose a quarter trillion dollars each year
because taxpayers do not pay their tax voluntarily or in a timely
fashion. (This is a rough estimate based largely upon 1988 data from
our old Taxpayer Compliance Measurement Program).
Over the last four years, the number of Americans saying it is OK
to cheat on taxes rose from 11 to 17 percent. Sixty percent of
Americans believe that people are more likely to cheat on taxes and
take a chance on being audited.
This drop in compliance coincides with drop in enforcement of the
tax law. Since 1996, the number of IRS revenue agents, officers, and
criminal investigators has dropped by over 25 percent.
At the IRS we have begun to address the tax gap crisis. We have
shifted badly needed resources so we can hire more front-line
enforcement personnel--who will primarily focus on non-compliance among
high income individuals and businesses.
In addition, I am most pleased and grateful that the President's FY
2005 budget submission requests an additional $300 million for
enforcement activities over the FY 2004 consolidated appropriations
level.
What will this extra $300 million do?
It will help to:
Discourage cheating and non-compliance, particularly by
corporations, high income individuals and tax exempt groups.
It will help attorneys, accountants and other tax
professionals adhere to professional standards and obey the law.
It will detect and deter domestic and off-shore tax and
financial criminal activity.
Discourage and deter non-compliance within tax-exempt and
government entities and misuse of such entities by third parties for
tax avoidance and other purposes.
Our third focus is modernization of our information technology,
often referred to as Business Systems Modernization or BSM. Most of our
tax administration systems are very old and difficult to keep current
with today's fast paced environment; they must be modernized.
We are committed to resizing our modernization efforts to allow
greater management capacity and to focus on the most critical projects
and initiatives. We used comprehensive studies over the summer to help
us identify opportunities to improve management, re-engineer business
processes and implement some new systems and technology. The FY2005
budget provides $285 million to continue this effort to replace current
business systems and technology.
However, equally important is the critical role technology
modernization plays in enabling customer service and enforcement goals.
To the IRS, ``modernization'' is broader than just those parts funded
by BSM. To the taxpayer it is the full suite of technology enabled
services that we provide, such as irs.gov website and telephone
technology.
``Modernization'' also includes projects with which taxpayers would
not be directly involved, such as replacing our master file system,
implementing the on-line security features, and building the modernized
technological infrastructure on which all of our future modernization
applications will build and depend.
To date, after five years, we have achieved mixed results with the
modernization program.
Program Challenges
One aspect of BSM on which there was unanimity is that this program
is as complex and challenging as any information technology program in
the world. When nominated last February, I began learning about the
current Modernization program from both IRS executives and others
inside and outside the government. I learned of earlier unsuccessful
attempts to modernize the IRS. But I also learned that staff was
optimistic they were beginning to control the difficulties encountered
in the first four years. We expected to achieve some key milestones in
the summer and fall, such as the initial delivery of the system that
would start to replace our antiquated tax accounting system, called the
Customer Account Data Engine (CADE).
Before the summer was through, it became clear two very significant
modernization projects, CADE and the Integrated Financial System (IFS),
would experience substantial delays. These were two major setbacks.
These delays were clear evidence that significant problems still
existed in the BSM program. Based on both external and internal
assessments, it became apparent to me that we needed to address four
key elements needed in order to turn the program around:
First, the scope of the projects was far too large. After working
very closely with the Treasury Department and the Office of Management
and Budget (OMB), and evaluating recommendations we received from the
Oversight Board and Congress, we narrowed the scope and number of
modernization projects. The IRS management team and the PRIME
contractors had taken on too much and been stretched too thin. We did
not have the capacity to properly manage such a large portfolio. The
result is that we have been unable to devote the resources, energy and
attention to meeting our primary goals.
I am pleased to report that over the last year, we made progress in
this area. We considerably reduced the size and scope of the
modernization program, and have been working with the Department and
OMB to seek more opportunities to better balance management capacity
with the modernization portfolio, without dramatically reducing the
program's effectiveness.
Second, a much greater degree of business ownership and
participation was critical. The modernization program will only be
successful if the most senior and experienced IRS business leaders take
ownership of the program.
While we have a great deal of work to do, we have made some
progress in this area as well. I appointed John Dalrymple, who has
spent over 30 years focused on front-line taxpayer issues, as the
Deputy Commissioner for Operations Support. In addition, I appointed
the former IRS CFO, Todd Grams, to the CIO position to bring better
management and financial discipline to the technology modernization
program.
These management appointments represent a change in the way we have
pursued modernization projects in the past. These appointments are only
the beginning of bringing more management discipline and increased
business involvement to our modernization efforts. Success in this area
will require a willingness on our part to deviate from past practices,
including a change in the allocation of accountability for
modernization projects. We will appoint the appropriate people to these
critical projects, clearly set expectations, and hold these people
accountable for the results.
Third, we needed significant improvements in the performance of our
PRIME contractor. It's no secret that our projects have consistently
run late, delivered less functionality than planned, and cost
significantly more than targeted. While the PRIME has improved its
performance, nevertheless, delays and cost increases persist, as
evidenced by the recent slippages in CADE and IFS deliveries. We need
to have a PRIME contractor that consistently meets its commitments.
Fourth, we needed fresh and independent assessments from outside
experts on the health of the modernization program, as whole, as well
as specific projects, such as CADE.
All of the assessments confirmed that the IRS modernization effort
is a massive, highly complex, high-risk program that is confronting a
number of critical management and technological challenges. These
studies also made it clear that we should not turn back, but rather
make a series of changes to strengthen our current program. While all
of these studies assessed different components of the program, they
clearly suggested consistent improvement opportunities.
Looking beyond the conclusions drawn for the overall program, the
outside assessments concluded we need significant improvements in
execution to put our most critical projects back on track.
I do not intend to understate to the Committee the seriousness of
the current challenges faced by the modernization program or my
awareness of the long history and inconsistent record of success on
modernization. But I do think it is worth noting that we have achieved
some significant accomplishments to date.
Delivering Benefits
First, we have developed a broad strategic plan called the
Enterprise Architecture, encompassing both the functional and
technological dimensions of the BSM program. We recently won the
``Excellence in Enterprise Architecture Leadership'' award for this
Enterprise Architecture from E-Government.
Second, we established a secure, on-line technical infrastructure
to support both new BSM applications as well as other future IRS
applications.
Third, we have delivered applications that provide tangible
benefits to taxpayers and improve the efficiency and effectiveness of
our tax administration system. They include:
Customer Communications, which reduced taxpayer call-
waiting time in half, reduced the number of abandoned calls by 50%, and
doubled the number of refund inquiries from our Spanish speaking
taxpayers.
Where's My Refund?/Where's My Advance Child Tax Credit?,
which gives taxpayers instant updates on the status of their tax
refunds and advance child tax credits. These applications have received
over 40 million requests since the beginning of the year. By shifting a
significant volume of customer demand to the Internet, we have seen a
measurable improvement in service to taxpayers who still choose to
call.
e-Services, which includes preparer tax identification
number (TIN) applications with instant delivery, individual TIN
matching for 3rd party payers, on-line registration for electronic e-
Services, and on-line initiation of the electronic originator
application (currently released to a controlled segment of external
users). I am pleased to announce that we recently made the first part
of e-Services available on our public web site. The remaining parts
will come out over the next several months.
Internet EIN, which allows small businesses to apply for,
and receive, an Employer Identification Number on-line. Since its
launch last May, we have processed over 453,000 EIN applications that
have come in over the Internet.
HR Connect, which allows IRS users to perform many
personnel actions on-line. To date, we have rolled this out to about
73,000 employees, and will complete the rollout by early 2004. This
technological advancement will enable the Service to redirect hundreds
of positions to enforcement activities by the time it is fully
deployed, which we have planned for October 2005.
Now, let me provide a summary of the programmatic reviews, and the
current program status, beginning with CADE.
Carnegie Mellon Software Engineering Institute (SEI) Assessment of CADE
CADE, as most of you already know, is designed to replace the IRS'
current Master Files. The Master Files are the Service's central and
official repository of taxpayer information. As such, it is a
singularly important system to the IRS. The Master Files are
drastically over age in the life cycle of technology, having been in
place since the 1960s. They are considered reliable but are extremely
inflexible and fragile, and therefore difficult to support, in part
because of the old technology they use.
We initially planned CADE to be available for the 2002 filing
season, but we missed several dates. Following the acknowledgment in
August 2003 that we would not meet the latest scheduled release of the
first component of the CADE project, I requested that the Carnegie
Mellon Software Engineering Institute, or SEI, provide an independent
assessment of CADE's history and the feasibility of future plans for
CADE.
SEI advised us to stay the course with this first release of CADE,
which would handle 1040EZ returns for single filers that were either
even balance or which had a refund due. They felt the architecture for
this release was sound.
However, they strongly urged us to start paying more attention to
two areas. One was to get started on building a version that would
utilize the future technology for CADE, which the first release does
not. The other was to accelerate plans to better understand the scope
of future releases to ensure that our approach was sound for the long
term.
We have taken steps to address both of these recommendations and we
plan to have SEI come back periodically to check on our progress.
Let me briefly update you on where we are with CADE.
Status Of The CADE Project
First, we have now passed some critical hurdles with the version of
CADE that would have gone into production last summer, such as the
system integration test, a pilot, and a system acceptance test. PRIME
will address the defects identified during this process in the release
currently under development.
Second, we are well along on implementing the changes needed to
create the 2004 filing season version of CADE so that we can process
actual tax year 2003 returns in 2004. PRIME has developed a detailed
plan to be able to develop this ``working CADE'' by this summer. While
that will clearly be too late to process any significant number of tax
year 2003 1040EZ returns, it will enable us to launch CADE in a low
risk setting and gain valuable operational experience.
Third, we are taking steps to ensure that the future changes needed
to deploy CADE for the full 2005 filing season will be tested and ready
by January 1, 2005.
Let me also note that the vast majority of the work on the first
component of CADE is being conducted under a type of contract which
limits the IRS's PRIME cost to their original proposed costs for the
first release. Additional costs are, however, being incurred for filing
seasons changes that we now need to apply due to the delay.
Other Modernization Assessments
In addition to the assessment of CADE undertaken by SEI, we
commissioned two other outside, independent assessments of various
aspects of Modernization. These studies include the PRIME Review
assessment, conducted by Bain and Company, and Assessment of the IRS
Office of Procurement, conducted by Acquisition Solutions, Inc. The
purpose of the PRIME Review was to identify causes of breakdowns in
business processes and the engagement model and to provide recommended
solutions. This assessment included identification of specific skill
and leadership gaps, an audit of CADE, and finalization of the
requirements definition and validation of the Integrated Master
Schedule.
While the primary purpose of the Assessment of the IRS Office of
Procurement was to determine the efficiency and effectiveness of the
IRS' Procurement organization, it did provide a brief assessment of the
Modernization contracting program.
IRS Responses to Internal and External Assessments
First let me say that we have accepted the recommendations made by
these external reviewers and are moving aggressively to implement them.
I have significantly enhanced the top-level leadership of the
modernization effort. I personally meet with the IRS top team every
other week to discuss the status of critical project goals and other
program improvement initiatives.
I have also expanded my personal interactions with the PRIME
Contractor, Computer Sciences Corporation (CSC), by increasing my
personal engagement with their top-level executives. I meet monthly
with the President/COO of CSC to provide clear direction on performance
expectations and accountability.
In addition to strengthening the top team, I have asked John Duder,
the Deputy Commissioner for the Wage and Investment Division, to
transfer to the modernization program and focus his complete attention
to delivering the CADE project. I have also asked Rich Morgante, the
Deputy Commissioner for the Tax Exempt and Government Entities
Division, to join the modernization program to lead the implementation
of the recommendations made by the external reviews.
Now that I have discussed the Modernization program's
accomplishments and the improvements underway, let me address the
status of our most critical projects.
Status of Other Tax Administration Modernization Projects
I have discussed CADE at some length because, like the new online
infrastructure that we have deployed, it is a key foundational
component of the modernized systems. I will only briefly discuss the
other four systems that we are developing, two of which address tax
administration and two of which address internal financial management.
The two new tax administration systems are e-Services and
Modernized e-file.
e-Services provides an array of services aimed at larger third
party providers, including electronic return originators and
institutions that report 1099's, such as banks and brokerage firms.
The e-Services suite of projects is over a year late and its cost
has increased almost 100% over estimates made several years ago. Given
that these are the first applications to use major components of the
new modernized infrastructure, and given the complexity of linking to
our very old current systems, it is not surprising that we did not meet
our initial estimates for costs and schedule; however, we must adhere
more closely to cost and schedule estimates in the future.
I am very pleased to inform the Subcommittee, therefore, that we
now see sunshine at the end of the e-Services tunnel. We have deployed
the first parts of a multipart release, including online registration,
interactive Taxpayer ID Number Matching, and online Preparer Tax ID
Number application, and made them available on irs.gov for several
months. In addition, on January 28, 2004, we fully deployed the
electronic return originator application on irs.gov. Over the next
couple of months, we will deploy additional functions, like electronic
account resolution, transcript delivery, and online Disclosure
Authorization applications.
Modernized e-file will provide electronic filing for the first time
to large corporations and tax exempt organizations.
The Modernized e-file application achieved a very significant
milestone last November when we began software certification testing on
schedule for dial-up users. This certification is the process by which
we validate that vendor software products work properly with our
systems. On February 4, 2004, we began certification testing over the
Internet.
We had hoped to open Modernized e-file for business at the
beginning of January, but our target date has slipped to mid-February.
Later releases of Modernized e-file will enable the filing of
additional 1120 and 990 schedules. Eventually, this project will
replace our almost 20-year old 1040 e-file system.
Status of Internal Management Modernization Projects
The two internal projects we are developing are the new Integrated
Financial System (IFS) and the Custodial Accounting Project (CAP), both
of which are disappointments at this time.
We are working on internal systems to correct and address a number
of financial material weaknesses that reflect internal management
deficiencies, such as compliance with current federal accounting
standards and the ability to accurately report on tax-related income.
While we are very proud to be able to close our books on the completed
fiscal year by mid-November, and to have received a clean audit opinion
from GAO the last three years, nevertheless, we are operating with
deficient internal management systems that urgently need correction. We
have tried to balance the work on tax administration systems with the
necessary work on internal management projects within the Modernization
program, though, as I noted earlier, there is no doubt that we have
been trying to do too much overall.
In the case of IFS, we believe that we understand the causes that
led us to miss the target production date of October. We initially set
a target for IFS that was, in the end, too aggressive, and we did a
very poor job of setting expectations and communicating our risk. On
January 30th, the CSC executives informed us that their revised target
of April 2004 was not achievable. The new target date is October.
This further delay in IFS delivery is a huge disappointment both to
the IRS and to me personally. While the PRIME has indicated their
willingness to bear the financial burden for this further delay, we
feel that the IRS needs to take some stronger steps. Specifically, we
will expand the competition for the new enforcement projects that we
plan to start later this year and next year. In addition; we will also
expand the competition for the next phase of IFS.
CAP is also a complex project. Whereas, for IFS, we are using a
standard Commercial-off-the-shelf (COTS) product that we are tailoring
to the IRS, CAP is largely custom-developed software tied to the 40-
year old Master Files system. Over the past several months, progress
has slowed significantly as the CAP project drives through hundreds of
millions of records in the Individual Master File.
After intensive analysis of the factors causing the slowdown of
progress on CAP, we have taken a number of steps that I believe will
get CAP on a more predictable track. We now expect to begin loading the
CAP data warehouse in May to ready it for production in August. In
addition, we are currently negotiating an agreement to limit the
government's financial risk with the CAP contractor, Northrop Grumman
Mission Systems, for the first release of CAP.
In order to get a jump on the second release of CAP, we started
some design work last April, but we have now decided to significantly
delay that project, both to ensure total focus on the first release and
to wait until we are certain that the approach to CAP in the first
release is what we want to use in the second release.
Conclusion
While we have much work to do on the modernization to meet all of
the challenges we currently face, I can assure you that it is one of my
top priorities as Commissioner. I also assure you that we have a solid
oversight relationship with Treasury, OMB, Congress, and the IRS
Oversight Board. We are working closely with these stakeholders to
ensure they are well informed of program goals and the status of the
projects against schedule and cost targets. All parties involved in
modernization are keenly aware that our first goal is to ensure we
spend taxpayers' dollars wisely.
The reviews that the PRIME and I commissioned, and the actions we
are now taking, reflect our strong commitment to get Modernization
``right.'' The long-term future of the tax system depends so much upon
our success. While the progress to date has been decidedly mixed, we
need to put in place the foundation upon which the tax system will
build and rely for decades to come.
Mr. Chairman, Ranking Member Pomeroy, and distinguished Members of
the subcommittee, again let me say that I appreciate your leadership
and the continued support of the subcommittee, and would be pleased to
answer any questions you may have.
Chairman HOUGHTON. Would you like to make an opening
statement?
Mr. PORTMAN. No thanks.
Chairman HOUGHTON. Okay. Obviously, this is a critical
issue, critical for everybody, not just the mechanics of the
IRS, and I think it makes a lot of sense having a little
competition. Of course, the question is how long will it take
for enforcement and other things to get up to speed because of
the total package involved.
Let me ask you a question. When you have these contracts,
Commissioner, do you have anybody from the IRS working inside
the contractor's shop as well as having them working inside
your shop to get a feel of timing, meeting deadlines, because
when you take a look at the span of years such as we have had
with this $1.7 billion contract, with its terrific overrun,
about 17 percent overrun, how did they get so off track?
Mr. EVERSON. There are several points you have in there,
Mr. Chairman, and let me take them in order. I agree with you
about the point you make about the action we are taking, the
steps we took yesterday. I have run businesses and had accounts
where you are servicing 100 percent of the supply to the
customer. You work as hard as you can to protect that position,
but when the day comes that it is opened up and there is a
second supplier, it changes everything. In my experience, it
usually makes you a better supplier because you are held to two
standards, not just your own standard of your relationship with
the customer, but you also are being compared constantly
against your competition.
This is not a small step. In the $285 million request that
we have pending before the Congress, only $40 million of it
pertains to the enforcement modules that I mentioned. The CSC
will still participate in a portion of that because they have
the overall integration role, but what we are suggesting is we
will look at other contracting vehicles. So, your first point
is entirely correct. This is a significant step. What we tried
to craft was a balanced approach.
I talked yesterday with Mr. Laphen, who has been terrific
to work with through all of this. He understands. He
characterized the action that we took as balanced and providing
incentives as CSC is able to meet commitments and demonstrate
improvements to gain the future work, without taking an overall
too harsh step at this time, which would be in nobody's
interest given how far we have come. So, that is the first
point I would suggest.
You asked about how this program gets off kilter over a
period of time and we get to these overruns. I think that I
would go back to those three conclusions that the four somewhat
overlapping studies indicated, and you are going to hear from
one of the groups that helped us on this.
Again, I don't think that the IRS had adequate business
unit oversight or ownership of these projects. They were
treated as technical projects driven by the technical staffs
and by the contractor. That means that our business unit people
didn't help set the standards. They weren't in there at an
early enough stage working on the testing, making sure that
things were happening.
As a result, we got a very cumbersome system where just a
simple change request took 30 or 40 weeks to get through. This
adds incredible cost because you are circling back and redoing
work, and you haven't anticipated up front what you need to do.
So, we are looking at all that. We are tightening it up by
having these projects driven out of the business units. As one
example, you are all familiar with our structure that came in
through RRA 1998. We have got this Wage and Investment group
that is for the bread and butter taxpayer, the 100 million-plus
returns that come in each year. Our Deputy Commissioner for
that whole operation is now in charge of the Customer Account
Data Engine (CADE) project because they are going to be the
users. So, CSC and our technical staff work for John Duder, who
is the deputy there. That is a big change. That will help us.
Lastly, on the very specific point of co-location, it is
something that Mike Laphen and I have talked about. As we
started to work together, one of the observations we had was
just what you said, that we have got too much independence
here. We have talked about having a lot more co-location of our
staffs and CSC is doing that, and we are working with them.
Mike and I haven't agreed to have a co-located office, but it
may come to that, you never know.
Chairman HOUGHTON. Thanks very much. I know with your
ability and your background experience, this will work out
well. It really, at some point it has to work----
Mr. EVERSON. Yes.
Chairman HOUGHTON. We have had so many approaches here that
have fallen short, every time, and the whole system is banking
on your success.
Mr. EVERSON. It is, but I do want to reassure you. As you
have indicated, I give the IRS a mixed grade here. A lot has
been done. I don't want people to tar the whole effort here. As
I meet people around the country, they say, boy, some of these
things you are doing with the technology are just great. It is
largely these internal systems that we just haven't been able
to crack the nut on yet.
Chairman HOUGHTON. Thank you very much. Mr. Pomeroy?
Mr. POMEROY. Thank you, Mr. Chairman. Commissioner, I found
your testimony very interesting and typical of what our
relationship has been, very forthright on your part in
identifying problems both with the IRS and with the contractor.
I think that it is a lesson that is learned every day in terms
of the relationship between consultants and the enterprise,
public sector, private sector, wherever. You have to have very
focused relationships and you have to have an awful lot of
involvement or the thing is going to get away from you. It
sounds like it got away from us a bit on especially the main
computer project, is that your assessment?
Mr. EVERSON. I think everybody had the best of intentions
here, absolutely a real desire to be successful. The very scope
and complexity of these projects doesn't give you much of a
choice. You either get into it and understand it, or it is
almost too much for you.
Mr. POMEROY. Yes.
Mr. EVERSON. What I think happened was the people who
needed to understand these projects, meaning the folks that run
our operations, were able to take a pass because of the way we
structured it.
It would be easy for me to sit here and just trash the
contractor. I am not doing that. There was a joint failure to
deliver in which the IRS clearly shares. I don't think we were
correctly configured and managing our efforts. So, it did get
away from us, as you indicated.
Mr. POMEROY. I think that as government looks at a greater
role of outsourcing right across the board, this is something
we need to keep very much in mind, and you have to have on
staff requisite expertise to really know these projects, to be
a part of the projects, to oversee the projects. If we are
going to slash staff internally and outsource and somehow give
the taxpayer a better value, that isn't always going to work,
especially if you are unable to sufficiently be involved in
monitoring the project.
Mr. EVERSON. I couldn't agree with you more. When you look
at business processes, whether they are your own people or they
are automated or they are external people or goods or services,
you have to treat them all as if they were in your own shop and
work very closely together. That is a challenge when you have
outside services. That needs to be managed correctly.
Mr. POMEROY. Is there mitigation that the Federal
Government should initiate relative to nonperformance or
violated contracted performance by the contractors?
Mr. EVERSON. No, I don't think so. I think at this stage,
our relationships with the contractor are good. I would suggest
to you that the relationships, in fact, are very strong. It is
just----
Mr. POMEROY. We get our money back.
Mr. EVERSON. If you can--I would love it if you could get
some money back--ask Mr. Cofoni. Maybe he can give you some
back. He will be talking later, but I think what CSC has done
is indicated they are going to cap this IFS release, which is
good news for us, making sure we won't incur additional
overruns, as the Chairman indicated. We are going to be working
very closely in looking at fixed-price alternatives as we go
forward, so----
Mr. POMEROY. I am pleased about that. It just would seem to
me within your kind of fiduciary responsibility as manager,
someone either within IRS or the U.S. Department of Justice
ought to be evaluating whether or not there is a liability
issue that ought to come back.
Mr. EVERSON. We monitor the contracts closely and the
preponderance of them, up to now, have been a cost-plus basis,
so that if you mismanage the process, as we were just chatting,
the costs go up.
Mr. POMEROY. Okay. The final thing I would mention is I
know that you and I have spoken about taxpayer compliance and
how disappointed we have been that some very well established
players in the marketplace have been repeddling tax shelters
that really are not grounded very well under law and fail any
test of ethics, of business ethics. What I am wondering is, as
we try to look at adding structural disincentives for any
enterprise that might consider this kind of conduct, is there
cross-linkage relative to contractual relationships with the
IRS? Now let me point my question.
KPMG is a fine, long-established firm, one of the best in
the world, but they had a renegade arm that somehow was very
involved in peddling tax shelters to prospective clients that
they had gone an awful long way, strayed a long way from the
path of what they usually do in this activity. I am fairly
stunned by it, and I think it is disgraceful. I think that they
had a very bad day in the Senate hearing when this information
was brought into public light.
Is this the kind of thing where if they have a
contractual--if one arm of that massive firm is doing that
activity and another arm is doing legitimate contracting
activity with the IRS, is that something you might evaluate
relative to your continued participation with them as a
contract entity in light of their corporate conduct at large?
Mr. EVERSON. I think that is a question that is really
probably best addressed to the Office of Management and Budget
(OMB) and to the Office of Federal Procurement Policy because
of their overall supervision of procurement practices. It is
clearly legitimate for the government to hold Federal
contractors to higher standards in some instances than would be
the case between normal commercial relationships or parties in
the private sector, and the government does do that. The
government asks for additional information on certain areas--
have there have been Equal Employment Opportunity complaints,
just as an example. There are considerations that enter into
procurement decisions as they are taken.
So, without getting into the real merits of what you are
asking, which would obviously have to be fact-based
considerations and couldn't rely on simply a hearing, no matter
how compelling, you would have to have had some action that
would have taken place administratively or in the courts before
you would consider an action. The OMB does occasionally say, as
it did with some of the big corporations that got into
problems, like Arthur Anderson and others, that they are
disbarred from participating in Federal contracts. So, that is
looked at, but I would suggest to you it is more an OMB action.
Mr. POMEROY. I think that answer--I know I am done, but I
just have a summary point, Mr. Chairman. Your answer is a
little too circumspect for me. In other words, I think that
the----
Mr. EVERSON. I thought you might react that way.
[Laughter.]
Mr. POMEROY. I think you have a role here. I am aware of a
memorandum within this concern that assessed the potential
profit from marketing these activities against the potential
downside in terms of the structural fines, and they said even
if we are fined, it is still a net plus for us. Well, we need
to build in marketplace disincentives for those that don't
respond on businesses' sheer honesty and honesty being the best
policy. If they want to engage in this kind of conduct, we need
to make certain that there is a business consequence that
produces a net loss.
Mr. EVERSON. Yes.
Mr. POMEROY. So, beyond the fine, I would like these
concerns to understand that their ability to do business with
the Federal Government, the Federal Government that on the one
hand they are ripping off, is forever placed--not forever, but
for a period of time placed in great jeopardy.
Mr. EVERSON. Mm-hmm.
Mr. POMEROY. One aspect of their operation that is ripping
off the government may jeopardize the full scope of business--
--
Mr. EVERSON. Right.
Mr. POMEROY. They may otherwise do with the government.
Mr. EVERSON. Let me put a finer point on it. Our job, first
and foremost, is to address the substance of the problems. If
we feel that a professional services firm is violating promoter
regulations or statutes, we have to address that, and we are
addressing that in this area of abusive shelters. We have a
very active set of programs, and where there has been
misconduct, I believe that there will be consequences, and that
is how I would leave it.
Mr. POMEROY. Thank you. Thank you, Mr. Chairman.
Chairman HOUGHTON. Mr. Commissioner, you know that this is
a very bipartisan Committee. We walk in lockstep on many of
these issues. We try not to be partisan. I am sitting between
two of the finest Representatives we have in Congress, and I am
really honored when I say this. I would like to then see if you
can come up to this standard, to introduce Mr. Portman.
[Laughter.]
Mr. PORTMAN. I was looking to my right when he said that to
see who he was talking about.
[Laughter.]
Thank you, Mr. Chairman, and thanks for your willingness to
have this hearing and your continued oversight of the IRS. It
is not something that Congress has done terribly well over the
years, and I think with Mr. Houghton coming on the Subcommittee
on Oversight, we have done a much better job of keeping track
of what is going on and hopefully being a constructive partner.
So, I thank you and your staff for continuing to do that.
Here we are again. If you think about it, back in the mid-
1990s, the reason the Restructuring and Reform Commission was
started was not so much about all the things we ended up
recommending to do with management and policy as it was about
modernization, because it really came out of the frustration
felt by the Appropriations Committees over appropriating more
and more money toward a modernization program at that time
which was alleged to have spent $3 billion. It was to little or
no benefit to the taxpayer or to the government.
We are not at that level yet, but I look at the GAO
recommendations and its analysis, and we are going to hear from
them in a moment, and we are beginning to get to the point
where we are talking about hundreds of millions. This is a
constant frustration. I know it is very complicated. The GAO
says there are $290 million of cost overruns, a cumulative of
83.5 months of delay in major BSM projects.
So, here we are again, and Commissioner, you are relatively
new to this and therefore you have the ability both to look at
it in a more objective manner, I believe, and also to be able
to shake things up a little. It sounds like you are doing that.
I think the recommendation of having the business units take
direct leadership and ownership of the modernization projects
is certainly a step in the right direction. My question is, is
this more a management issue at the IRS or a contractor issue,
and you have answered that earlier by saying you think it is
both.
With regard to the IRS problem, which is where this
Committee has taken a big interest in the past in literally
trying to restructure the IRS, and we have gone through that
over the past few years and there has been a lot of disruption
at the IRS in that process, has that disruption caused some of
these problems? In other words, by changing our structure to
focus in the three areas by literally creating new positions--
now you have two deputies, for instance--has that been part of
the problem, that over this time period, the last 5 years, the
IRS itself has been in somewhat of turmoil because of the
changes. If that is part of the problem, what should we be
doing about it?
Mr. EVERSON. I think that the reforms that you took,
creating business units, were sound. I think that remains the
core of what you did in RRA 1998. I think that was a good
reform.
I do believe that what I did last June when I came in,
which is to consolidate the staff functions under one deputy,
was an important follow-on step to that because it was
important that they cooperate and support each other. As I have
said to many, in the private sector, the staff functions all
work together because they don't have the same juice that the
manufacturing guys or the marketing people do who deliver the
bottom line. In government, they are all fractured and they are
impotent, so that things like common sense controls or good
technology or good human resource practices are lost against
the program managers who are running the businesses.
By pulling them together and bringing them under the
leadership of our Senior Operations Manager, the man who was
running the Wage and Investment Division, the perspective is
that they are accountable to the operators now, which was not
what the going model was.
I don't think that the changes through the reorganization
have contributed to this problem. In fact, I think that Charles
Rossotti and the people in the IRS did a spectacular job of
standing up the new organizations, and I admire everybody for
the tremendous job they did, how relatively pain-free, from my
perspective, that was accomplished, and the great improvements
in service, with which you are familiar, that took place at the
same time. A lot of times, you get a lag effect where service
hasn't gotten better because you are consumed in the
reorganization.
The IRS did both. It reorganized and----
Mr. PORTMAN. Improved service.
Mr. EVERSON. It improved service. That is a phenomenal
accomplishment. Now, as you know, we did it at the expense of
enforcement. We are redirecting resources to that, and we are
working on it, but now we are also bringing in closer these
support functions. One of my obligations, I have talked to all
three of you about it, is to make sure we run the organization
efficiently and economically, and we are doing that as we
restructure elements of the work force, and this technology is
a piece of it.
No, I don't think that there has been anything out of
sequence here. I think it is a good sequence, and it is
working.
Mr. PORTMAN. To what do you attribute the management
failure of this? Now, I am getting to the contractor issue in a
moment, but in the Restructuring and Reform Commission, we
actually found, as I recall, that the IRS was not contracting
too much, and I understand Mr. Pomeroy's point of view on the
outsourcing and the contracting concerns and the oversight
concerns. Our concern, as I recall, was more based on analysis
that the IRS was trying to do too much in-house. For example,
there were some programs that were literally off-the-shelf
programs that could have been used and instead the IRS insisted
on recreating the wheel.
We also found that the management structure, the culture of
the management was risk averse. We found that there was kind of
a consensus-oriented management structure and a style that
diffused leadership and decision making and didn't take
responsibility or accountability, and through that, people down
the line were able to stop progress in its tracks and yet have
no accountability for that.
Part of what we have tried to do these last 5 years in
Congress, as you know, is to improve on that, but my question
to you is, are those problems still there? Is it the stovepipe
problem, which is clearly a problem--literally a problem in
terms of your computer system? It still is, and that is part of
what we are trying to overcome with the modernization program,
but there was also this stovepipe sense of----
Mr. EVERSON. Right.
Mr. PORTMAN. Having the various units from audit to
collection to information not working together toward
modernization. How would you analyze what your management
problems are in terms of the failures to achieve the goals,
forgetting again the contractor side of it----
Mr. EVERSON. Yes.
Mr. PORTMAN. What would you suggest to address those, or
have you already addressed them?
Mr. EVERSON. Let me center my response on these cultural
observations that you have made, which I think are correct and
I think, in fact, were perpetuated by the way we have managed
these projects. We have attempted to achieve consensus in the
management of these projects and I don't think that is a
sensible way to approach this. It is important to achieve buy-
in. It is not best practice to achieve consensus when you are
making difficult decisions like these--the tenets of creating
these vast systems--because that does give everybody the right
to circle back and have yet one more change, and the process
runs 30 or 50 weeks when it should run 5 or 10, and that is
what happened here.
I was rather shocked, and as you know, when I got to the
IRS and we had something like 40 different committees, and
there was one committee on the modernization and I saw the
minutes of it and it had 40 people attending the meeting. You
don't get something done with 40 people trying to discuss a
computer system. That is not correct, because what you do in
that model, in my view, is you dumb it down. The guy from GAO
says, ``Well, we really shouldn't do that.'' The person from
OMB says, ``Well, we can't do that.'' The person from the U.S.
Department of the Treasury says, ``We shouldn't do that.'' The
person from the operating unit says, ``We can't do that.''
Before you know it, you have taken a lot of the meat out of
what you need to do. This is all about making tough decisions,
and standardization, just as you indicated--buying things that
get the job done at a reasonable cost but may not be the
Cadillac, when they are available on the outside, and not
insisting that it needs to be customized and taking forever to
get it done.
So, I do think we had a culture that was, as you indicated,
risk averse. I remember when Todd Grams, who moved over to be
the Chief Information Officer, he was our Chief Financial
Officer. He came and briefed me when I was still at OMB and
said there are no consequences for failure. I would actually
suggest to you that the action we took yesterday is the first
time in the course of this most recent program that there has
been a consequence, a real consequence. So, we are trying to
change those cultures and those behaviors.
Mr. PORTMAN. Again, we are going to hear later from the
contractor and also from the Oversight Board--I see Larry
Levitan is here--and from your consultant. I guess my only
thought is from the experience we had going back to the mid-
1990s is that changes in the IRS side, forgetting the
contractor for a moment, seem to me to be critical if we are
going to make these targets going forward. I hope you will
continue to focus on that. I think your announcement this
morning of the actions you took yesterday is a very positive
step and the competition is important, but we also need to
focus on the accountability, as you talked about, and the buy-
in and not the consensus.
Mr. EVERSON. Absolutely.
Mr. PORTMAN. Thank you, Mr. Commissioner. Thank you, Mr.
Chairman.
Chairman HOUGHTON. Thank you. We have been joined by Mr.
Weller, and we are going to pass him at the moment because he
doesn't have a particular question, but Mr. Pomeroy has got
one. If you think of anything later on, please chime in.
Mr. POMEROY. Thank you, Mr. Chairman. Lately, we have seen
an awful lot of what we would have believed to be service work
of a technical nature performed in this country moved to India
or other places, and I am wondering if one of the things you
monitor in the performance of the contract is whether or not
the work on the IRS is being done within this country.
Mr. EVERSON. I haven't thought of that issue, and I will
have to ask that question, frankly. I don't know whether CSC or
any of the subcontractors that participate with us are doing
anything overseas. I just don't know the answer to that, and we
will find that out.
Mr. POMEROY. I will ask them, as well, but obviously there
are sensitivities about having our tax system performed on with
work by contractors out of the country. We would certainly want
to have this type of project performed in this country, and so
I would put that on your list of things to keep an eye on.
Thank you, Mr. Chairman.
Chairman HOUGHTON. Mr. Portman, have you got any other
questions?
Mr. PORTMAN. No.
Chairman HOUGHTON. Have you got one?
Mr. WELLER. Mr. Chairman?
Chairman HOUGHTON. Yes, please.
Mr. WELLER. Commissioner, thank you for joining us this
morning. I would echo my friend, Mr. Pomeroy's, concerns. I
think that is a legitimate question that all taxpayers would
have if contractors were to send offshore the work. That would
be a great concern to both parties, and I certainly want to
echo the question that he asked.
[Additional information submitted by Mr. Weller follows:]
Washington, DC 20515
February 25, 2004
The Honorable Mark Everson
Commissioner
Internal Revenue Service
1111 Constitution Avenue, NW
Washington, DC 20224
Dear Mr. Commissioner:
I am writing you today regarding the Administrations' competitive
sourcing initiative and the potentially damaging impact it may have on
my district.
As part of the initiative, the Internal Revenue Service's Central
Area Distribution Center in Bloomington is subject to bidding by public
and private contractors. After contacting your Congressional Affairs
staff, I learned that a decision will be made on approximately
Wednesday, April 14, 2004. With over 500 jobs at stake, this is a
disturbing, potentially damaging development.
I support the Administrations goal of bringing more efficient,
lower-cost government to the American people. However, with this many
jobs at stake in an area that has been hard hit by the downturn in
employment of the last few years, these jobs will not likely be
replaced.
The deciding factor the IRS is using to determine how best to
administer the Distribution Centers is cost-effectiveness. To that end,
I offer this resolution. Regardless of whether the Federal Government
or a contractor receives the right to manage the IRS Distribution
Centers, I believe the most effective option would be to consolidate
operations by closing the two facilities in Rancho Cordova, CA and
Richmond, VA and move those facilities duties to the Bloomington
location. By closing the two facilities on the coast, you would reduce
the overall number of employees necessary to operate all three
facilities, with the added advantage of having a Distribution Center
centrally located within the Nation, allowing for equal service ability
nation-wide.
Thank you for your assistance on this issue. I look forward to
working with you on finding a positive resolution to this difficult
situation.
Sincerely,
Jerry Weller
Member of Congress
__________
Washington, DC 20515
March 5, 2004
The Honorable Mark Everson
Commissioner
Internal Revenue Service
1111 Constitution Avenue, N.W.
Washington, DC 20224
Dear Mr. Commissioner:
My letter serves to update you on my findings after visiting the
IRS service center in Bloomington, Illinois, and to seek your
assistance for the center's employees. I am disturbed and disappointed
to learn that employees have been told that employees must make
decisions on buyouts before the future of the center has been decided.
It was brought to my attention that the employees at this facility
were given a letter and a form on February 29, 2004 for a buyout
package to return no later than March 20, 2004. While this option was
taken advantage of by several employees who found it an attractive time
to leave, there are many more who would rather remain employed at the
facility, and would prefer to wait until the announcement has been made
on what will happen to their jobs.
As the deadline to apply for buyout occurs approximately one month
prior to the announcement regarding the fate of this facility and the
people who work there, I ask you to extend the deadline to apply for
buyout, or offer another buyout opportunity after the IRS makes it's
announcement. This will allow employees who have submitted buyout
applications under some duress to rescind them, and reapply later
should they ultimately decide they would like to be bought out.
Additionally, for employees who prefer to wait, but are feeling
pressured to make a decision, this will give them some time and peace
of mind to make a more fully informed choice.
I hope you will agree with me that this is a fundamental issue of
fairness. Please extend the deadline to submit an application for
buyout, or offer another opportunity for buyout after the IRS announces
it's decision whether to keep the facility open.
I look forward to working with you to modernize and streamline the
IRS while ensuring it's employees are treated fairly.
Sincerely,
Jerry Weller
Member of Congress
I think probably the most basic question, which I believe
just from reviewing what has been discussed this morning, is
when will the taxpayers begin to see the benefits? When will
the taxpayers begin to see the results of the computer systems
modernization? I know in the 9 years that I have served in the
Congress, we have been talking about this. When are we actually
going to see the results of the massive investment that
taxpayers have made in modernizing the computer systems for the
IRS?
Mr. EVERSON. I think that it is fair to say that you are
already seeing the results in many, many dimensions. As I was
indicating before you came in, we have been successful, and the
contractor has been successful, in a suite of applications that
help the taxpayer directly and that help practitioners. So,
these projects, like e-services, giving Employment
Identification Numbers, providing transcripts of key data, and
the history of an account to a practitioner, all those things
are happening. We have been successful doing that.
You can see the results in enhanced rate of electronic
filing. If you look at things like the downloading of forms and
regulations that are occurring now, it is almost up to a
billion a year. Think about the savings you are getting there
because you don't have to call to ask someone for a form and
then the form goes to one of our distribution centers and gets
mailed to you. You can just pull it off online. There is a lot
of progress.
The problem we have had here, though, is on these major
systems, the updating of the master file and also the
infrastructure we will start to use. Our expectation is that
this the first module of the CADE project, which is the master
file updating, will actually be working this summer for a
subsection of 1040EZ filers, several million people. Now, it
will be a while before you get the follow on modules that
increasingly pick up other taxpayers. So, this remains, as to
the big projects, the master file update, a multi-year effort,
and that will take a lot of time.
Mr. WELLER. I believe that we have invested about $8
billion so far in modernization. That is the estimated cost of
the overall modernization. Is that figure accurate?
Mr. EVERSON. I presume that in that figure you are going
back to what Mr. Portman was talking about. If you look at the
entire life cycle over----
Mr. WELLER. Right.
Mr. EVERSON. Back into the early 1990s, a lot of that had
no benefit whatsoever.
Mr. WELLER. Yes. Now, you have stated the benefits that you
have been able to identify that taxpayers are now currently
receiving. If we were to compare that to a private sector, say,
a credit card institution or bank or insurance company, how
today would you rate the level of service as a result of the
modernization compared to what a customer would receive from
their bank or financial institution?
Mr. EVERSON. I think it is improving. I don't think we
could say that it is quite yet at the level that I would
consider best practice. A good example would be our telephone
routing and technology. We have got this large center down in
Atlanta that routes telephone calls so that if you have got a
question about charitable contributions, it goes to the right
person in one of our two dozen or so call centers, and to an
individual who knows about that subject, and it is also
sequenced correctly so that you don't have to wait too long
because of a busy signal.
I was in a local shop in Arlington just a week ago and a
fellow who does picture framing for me said, ``You know, I used
to call the IRS and I used to have to always call on my lunch
hour because I knew it would take me the full hour to do the
business. Now when I call, I get right through,'' he said,
``and unfortunately, at the end of the conversation I have
usually concluded that you are right and I am wrong.''
[Laughter.]
So, I think things are getting better. I wouldn't tell you
we are best practice yet, though, but we are going to continue
to work on it.
Mr. WELLER. Just in follow-up and my last question here, we
always establish benchmarks----
Mr. EVERSON. Yes.
Mr. WELLER. That we measure improvement and measure
performance. As we look at the coming year, this fiscal year
that we are currently in, the 2004 fiscal year, between now and
the end of this year, what benchmark do you believe that we in
Congress should use to measure the progress as you continue to
implement and move through the modernization process to
demonstrate the benefits that we will be able to measure
progress?
Mr. EVERSON. In terms of the modernization program itself,
I think that you need to look at a variety of indicators. Some
of them are volumes, as I indicated, the percentage of
electronic filing, or others are more qualitative, like level
of service. We track level of service, which is a concept that
does get to this issue of benchmarking against comparable kinds
of activities where someone is dealing with a reservation
system, those kinds of issues. So, we have a variety of
indicators that we track that are summarized, to which we hold
ourselves accountable.
The problem that you have got here, that we are really
talking about this morning, is hitting delivery dates, and as
the Chairman indicated, controlling costs. I would suggest to
you that in many instances, when we finally get some of these
things online, we are getting the functionality that we have
sought.
Mr. WELLER. Thank you. Thank you, Mr. Chairman.
Chairman HOUGHTON. Mr. Portman?
Mr. PORTMAN. Mr. Chairman, thank you. Just one quick
follow-up. It seems to me one of the ways to follow on Mr.
Weller's question, and I appreciate his backing up and saying,
what is this all about for the taxpayers, because I think that
we have made some progress. We need to acknowledge that, and
now we need to get into the underpinnings and the CADE is the
obvious example there.
Mr. EVERSON. Yes.
Mr. PORTMAN. Our CADE is one of the programs that you have
talked a lot about since coming on last summer, and I think we
all acknowledge the importance of getting that up and going.
In your testimony, written testimony, you mention that as a
milestone. The other one would be the IFS project. Those two
seem to me ones where you believe that we are close to
achieving at least significant progress, and by that, I mean
within the next year. Are those milestones we should hold you
and the IRS accountable for? Are those programs which, instead
of talking about the overall BSM, can we talk about those two
as projects that within the calendar year 2004 we expect to
make significant progress on?
Mr. EVERSON. I think that is entirely correct. Let me say
on the financial system, this is what gave rise to the action
we took yesterday. We had expected to deliver the first big
block of that in April. That was a date that had rolled over
from the beginning of this fiscal year, that is to say October
1st, and that is now going to be delayed until the end of this
fiscal year.
I still believe that there is no reason why that shouldn't
happen. This is just a SAP financial system. The SAP financial
systems have been put in complicated corporations across the
world for a decade or more, so we ought to be able to do this.
What is difficult in that, and also in the first big piece
about CADE, is the linkage back into the legacy systems. The
IRS did a lousy job documenting all the systems changes that it
made over the many decades. Because nothing was really brought
current in terms of new investments over those periods of time,
every time you try to patch back to your human resources system
or your procurement system, if you are talking about the
financial piece, or if you try to go back into the code on CADE
to see what changes were made when the code was revised in 1986
or in the next year or the next year after that, this has been
one huge stumbling block that affects both projects. I am sure
your subsequent panelist, Mr. Cofoni, will address that. It has
been a really difficult area, in large part because the code
was never--this is the software code--was never properly
documented.
So, that is one issue, and I think that is being addressed,
and there has been success in testing on the balance and
control, which was a big issue associated with CADE, and the
contractor and the IRS now feel better about this first module,
which is the 1040EZ, coming through.
The trick will probably not be, I would suggest, achieving
this first piece, which will only be a narrow strip of
taxpayers. It will be the follow on work where there is
something called the business rules engine that will help you
chart a future path to be able to adjust to all the changes
that you gentlemen make to the Tax Code and to keep this a
flexible tool. Setting that up is critical, and you will hear
about that from one of your later witnesses. That is a whole
second area that I would say is very significant, about which
we are concerned. We think we have a good approach here, but we
are going to need to very much follow that.
So, the answer is yes, I think both of those deliveries,
the first piece of CADE and IFS, will happen. We are
accountable for that. We are accountable with the contractor.
If neither of those happen, we will take further actions on
this that would be even more draconian than what was taken
today.
Mr. PORTMAN. Thank you. Given what has happened, again, not
just in the last few years but looking back over the last
decade, it would seem to me that would make sense, Mr.
Chairman, for us to focus on a couple of these deliverables,
including that first module in CADE, within this calendar year
and even before we go into recess, because it sounds like that
is about where the fiscal year ends.
You have a lot of support in this Subcommittee, as you have
seen this morning, on both sides of the aisle, and it is
support that is cautiously optimistic, that with your
leadership, we can get this done. We need some deliverables,
and we are glad that you have rolled up your sleeves and jumped
into this with such intensity. We expect and hope you will
continue that. Thank you, Mr. Chairman.
Mr. EVERSON. Thank you.
Chairman HOUGHTON. Help me here. Boil this down. Computer
systems modernization has got two phases, one, the specific
things you are trying to do now such as the master files
update, and then also the quality and the service and the
documentation and the code changes. What specifically do you
want to get done this year? Just restate that.
Mr. EVERSON. I think, as your colleague, Mr. Portman, just
indicated, the two things that I am really looking to do are
the same two things that I was looking to do when I was at my
confirmation hearing in March 2003. They are, unfortunately, a
year later now. They are the first big block on the financial
system, IFS, because there will be some follow on work in
subsequent periods for that and this first piece of CADE, the
1040EZ filers, that will prove the concept of the new CADE and
the linkage back into the legacy systems. Those two are the big
ticket items.
Chairman HOUGHTON. So, that is what we can look forward to
quizzing you on next year?
Mr. EVERSON. That is correct.
[Laughter.]
I hope it is not quizzing. I hope that we are all saying,
well, good, we have turned some corners here, and that with the
changes you have made and with the improved performance by the
contractor that we have seen some real deliverables.
Chairman HOUGHTON. Okay. I have just got one other
question. The press reports today indicate that the GAO has
found that 27,000 defense contractors owe about $3 billion in
back taxes. Have you got any comments on that?
Mr. EVERSON. In fact, I am heading right over to testify
before Senators Coleman and Levin on just this issue in just a
minute. What has been indicated here is that the IRS and the
U.S. Department of Defense haven't adequately followed up on
potentially leviable debts that contractors to the government
have. They haven't paid their taxes but they are still doing
business with the Department of Defense.
The President's budget request, which will provide over
1,000 new people in collections officers, will help. We are
looking at this issue. I am going to be testifying to the fact
that we are going to make some short-term procedural changes.
They are already underway.
There are statutory concerns here because what you have is
two competing public policy interests. The first is the
protection of taxpayer rights, which there are many procedural
protections written into the law, some through RRA 1998. There
are also privacy concerns. On the other hand, there is a
legitimate expectation that if you are doing business with the
government, you should pay what you owe. Those two intersect,
and they don't intersect in a positive way. So, there may be
some statutory changes at which the Congress needs to look.
Beyond that, I would say we are very anxious to help our
collection efforts. As you know, in the budget we are asking
for the ability to take a strip, just a small strip, of the
moneys due and have private collection agencies help us do
that, but, as you have heard me testify before, with full
taxpayer rights. So, I am hopeful we can make some progress in
this area, Mr. Chairman.
Chairman HOUGHTON. Mr. Commissioner, thank you very much
for being here. We appreciate it. Good luck in your further
testimony.
Mr. EVERSON. Thank you, gentlemen.
[Additional questions submitted by Chairman Houghton to Mr.
Everson, and his responses follow:]
Question: Many state tax agencies have completed successful
modernization programs while the IRS has faced cost overruns and
delays. On the subject of IRS reorganization of its management team
relating to computer modernization, what are the plans to add people
and/or contracts that have been part of a prior successful tax
modernization project?
Answer: The IRS Business Systems Modernization (BSM) program is as
complex and challenging as any information technology program in the
world. When nominated in January 2003, I made it one of my top
priorities to evaluate the BSM program. I spoke with IRS senior
executives and other federal government officials as well as outside
business leaders and executives to learn about the BSM initiative.
Realizing that the modernization program will only be successful if
the most senior and experienced IRS executives take ownership of the
program, I immediately identified the need to strengthen the BSM
executive management team. I appointed John Dalrymple, a 30-year
veteran of the IRS who has spent his career focusing on frontline
taxpayer issues, to become the Deputy Commissioner for Operations
Support. I also appointed the IRS CFO, Todd Grams, to the CIO position
to bring better financial and management discipline to the technology
modernization program.
I expected the IRS would achieve key milestones in the summer and
fall of 2003 by delivering the initial release of the Customer Account
Data Engine (CADE) program in August and the Integrated Financial
System (IFS) in October. By late summer, it became painfully clear that
CADE and IFS would experience substantial cost overruns and delays.
With these two major project setbacks, it was evident that significant
problems still existed with the BSM program.
Even before these further delays became clear, the PRIME
contractor, CSC, and I commissioned three external independent studies
to assess the health of the modernization program and to review
specific projects such as the CADE program. Bain and Co., Carnegie
Mellon Software Engineering Institute (SEI), and GartnerGroup conducted
these comprehensive assessments during the summer of 2003.
The IRS developed a 46-item action plan based on feedback from
these external reviews. The IRS added two more items after reviewing
recommendations the IRS Oversight Board submitted, bringing the total
to 48 action items. These recommendations revolved around strengthening
the BSM executive management team and clearly defining the roles and
responsibilities between the IRS and the PRIME. As a result, I re-
assigned experienced IRS business leaders to the modernization program.
I asked Rich Morgante, the Deputy Commissioner for the Tax Exempt and
Government Entities Division, to join the modernization executive
management team to oversee the implementation of the recommended action
items. I also asked John Duder, the Deputy Commissioner, Wage and
Investment Division, to focus on delivering the CADE project.
The IRS also retained a leading executive search firm to conduct
searches for five key executive positions in the modernization program.
One of these searches is in final negotiations. These external searches
will provide the IRS with candidates who have a wide-range of diverse
experience in systems modernization.
The SEI will also periodically review the CADE program, and we are
hiring a third party firm to regularly assess the overall health of the
BSM program. Furthermore, I decided to direct the new enforcement
projects scheduled for later this year and early next year to other
contracts.
All of these measures--combined with the fact that world-class
firms like IBM, SAP, BearingPoint, Unisys, and Northrop Grumman are
also engaged in the BSM program--should help us gain better control
over future cost overruns and project delays.
Question: I am concerned about taxpayer compliance and debt
collection. Most financial services companies and state tax agencies
have implemented modern compliance systems to ensure delinquent debts
are collected. You have placed an increased emphasis on enforcement and
proposed a new Filing & Payment Compliance (F&PC) initiative that would
bring in billions of dollars of additional revenue each year. What is
currently being done to ensure that this project will move forward,
while the Business Systems Modernization initiative is being
reexamined?
Answer: The BSM initiative is a key part of our broader agenda at
the IRS. Our focus is service + enforcement = compliance. While the IRS
is continually improving service to make it easier for taxpayers to
understand and comply with the tax laws, it is simultaneously boosting
its enforcement initiatives.
Seeing as billions and billions of dollars are lost in tax revenue
each year, President Bush's FY 2005 budget submission requests an
additional $300 million over the FY 2004 consolidated appropriations
level for enforcement activities. The IRS has begun to address this tax
gap crisis by shifting badly needed resources and hiring more frontline
enforcement personnel, who will focus primarily on noncompliance among
high income individuals and businesses.
The Filing & Payment Compliance (F&PC) project is funded to start
in FY 2005. The first steps in implementing the new F&PC series of
projects--which we often call Collection Contract Support--involve
using private collection agencies. It will provide support to enable
private collection agencies to supplement the IRS's internal collection
staff; however, using private collection agencies to resolve delinquent
taxpayer cases requires enabling legislation (for which I ask your
support).
Chairman HOUGHTON. We are now going to have a panel
consisting of Larry Levitan, who is a Member of the IRS
Oversight Board; Steve Palmquist, Chief Engineer for Civil and
Intelligence Agencies at Carnegie Mellon University in
Arlington; Robert Dacey, Director of the Accounting and
Information Management Division of the GAO; and Paul Cofoni,
President of the Federal Sector and Corporate Vice President of
CSC.
Larry, good to see you again, and would you commence with
your testimony.
STATEMENT OF THE HONORABLE LARRY LEVITAN, MEMBER, INTERNAL
REVENUE SERVICE OVERSIGHT BOARD
Mr. LEVITAN. Good morning. Mr. Chairman, Members of the
Subcommittee, my message today is somber, so I will dispense
with any formalities and get right to my testimony.
During this past summer, the modernization program fell
into a ditch, experiencing significant delays and budget
overruns in virtually all of the projects underway. Although we
are convinced that the overall modernization plan is sound and
well designed, the challenge is executing that plan.
Unfortunately, this is not the first ditch that the
modernization program has fallen into. Since its inception 5
years ago, it has had, with few exceptions, a consistent track
record of missed target dates and budget estimates. All seven
major application projects the IRS has undertaken are both
significantly over cost and behind schedule.
Without making excuses, the modernization program is
extremely large and complex with numerous risks. Programs of
this scale, and there are very few, are never completed without
some level of cost and schedule overruns. It is also important
to recognize that the modernization program has had a number of
important successes as described by the Commissioner.
It should also be realized that Commissioner Everson and
his executive teams are new to their responsibilities and to
direction of the modernization program. As soon as the overruns
described previously this summer became apparent, the
Commissioner started a comprehensive review of modernization
and has now initiated an aggressive program to address the
problems.
The Board has been impressed with the speed, thoroughness,
and openness of this effort. The program of improvement
identified by this effort has been started, and we believe that
meaningful progress is being made.
The problems experienced by the modernization program will
not be solved easily or, in many cases, quickly. However, they
can be solved. In its recently released report on the program,
the Board makes nine specific recommendations.
Number one, business unit management must take direct
leadership and ownership of the modernization program, and in
particular this must include defining the scope of each
project, preparing realistic and attainable business cases, and
controlling scope changes.
Number two, create an environment of trust, confidence, and
teamwork between the business units, the BSM and Information
Technology Services organizations, and the PRIME.
Number three, enhance the systems development life cycle
methodology to support more accurate estimating of future work
phases and put into place the necessary processes to ensure
that the methodology is followed religiously.
Number four, enhance the contracting process.
Number five, significantly strengthen the experience and
capabilities of the IRS's BSM team. The capabilities of this
team must be consistent with the scale and complexity of the
modernization program.
Number six, rationalize the oversight of the program to
eliminate duplication and streamline the process.
Number seven, the CADE project requires special attention.
The CADE is the foundation of modernization. It is also by far
the most costly, complex, largest, and longest running project
within modernization. Additional work is necessary to ensure
that the development approach selected for this system will
work effectively.
Number eight, reduce the number of projects being conducted
concurrently. Modernization currently has five major projects
underway. As demonstrated by the program's performance, neither
the IRS nor the PRIME has the capability to manage and conduct
this many projects at the same time. It is the Board's view
that as current work phases are completed, the number of
projects should be reduced. As both the IRS and PRIME
demonstrate they can strengthen their capabilities and improve
their performance, the portfolio of concurrent projects can be
increased.
Number nine, the IRS Oversight Board has lost confidence in
the leadership of the PRIME contracting team. This conclusion
has been reached after observing performance and results for
over 3 years. There have been numerous commitments to enhance
the capabilities of this team, improve its management
processes, and deliver greater thought and management
leadership. Overall results have not changed, however. Target
dates and budgets are consistently missed.
In fact, Mr. Chairman, just last week, the IRS was informed
that the target date for IFS would have to be changed once
again. In our view, this was the final straw. The Board now
strongly recommends that the IRS consider all options for
strengthening the capabilities of the PRIME contracting team.
The time for strong, aggressive action is now.
Mr. Chairman, our judgments may be harsh but are made
because of our firm belief that the modernization program
cannot be allowed to fail. The risk to the country is
unacceptable. The IRS cannot continue to operate with the
outmoded and inefficient systems and processes it uses today.
Over time, the existing systems will become impossible to
maintain, and at that point, the ability to administer our
country's tax system is at risk.
We are convinced that the overall plan is sound and well
designed. The challenge is executing that plan. Meaningful
recommendations have been made by each of the groups involved
in this recent reassessment. The Commissioner and his
management team are committed to the improvement program and
the IRS Oversight Board supports that plan and will continue to
work with the IRS on this important effort.
[The prepared statement of Mr. Levitan follows:]
Statement of the Honorable Larry Levitan, Member, Internal Revenue
Service Oversight Board
Introduction and Summary
Mr. Chairman, and members of the Subcommittee, thank you for
holding this hearing and inviting me to testify. It is an honor for me
to appear before your committee today on behalf of the IRS Oversight
Board. My remarks today will be directed at the IRS' efforts to
modernize its computer systems.
The long-term health and viability of the nation's tax
administration system rest upon the success of the IRS Business Systems
Modernization program (BSM or Modernization). However, during this past
summer, the BSM program suffered a serious setback. Virtually all of
its ongoing projects experienced significant delays and budget
overruns.
Particularly troubling were continuing and unresolved problems with
the Customer Account Data Engine (CADE)--the so-called ``crown jewel''
of Modernization--that will move taxpayers from the current antiquated
tape-based system to a modern reliable data base.
To his credit, IRS Commissioner Mark W. Everson quickly called for
a number of separate independent reviews of not only CADE, but the
entire BSM portfolio of projects. While the assessments' results are
still preliminary, they make it clear that the IRS and its Prime
contractor cannot continue to operate in a business-as-usual manner.
The IRS Oversight Board believes that the stakes are too high and BSM's
problems are too severe to be addressed with half-measures. They must
be squarely addressed in rigorous and open fashion, and as soon as
possible.
Based on the findings and recommendations of the BSM reviews,
Commissioner Everson recently launched an aggressive ``action plan'' to
remedy the problems plaguing Modernization. Through this report, the
Board makes nine specific recommendations for turning around the
critical BSM program.
They include having the IRS business units take greater leadership
and ownership of BSM projects, enhancing the contracting processes,
improving overall program management and focus, and reducing the number
of BSM projects underway at the same time.
Of great significance, the Board also strongly recommends that the
Prime's performance be closely monitored and, if significant
improvements are not quickly demonstrated, a change should be made.
On balance, the IRS Oversight Board is convinced that the overall
Modernization plan is sound and well-designed. No one believes that the
IRS should start over from scratch; a firm foundation and architecture
are in place. However, the challenge for the IRS and the Prime remains
how to execute that plan and successfully implement the new systems and
processes on schedule and within budget.
A Troubled History
The BSM program is crucial to delivering better service to
taxpayers and increasing the Agency's efficiency and productivity. Over
the past few years, some notable BSM projects and benefits were
delivered. Indeed, tangible improvements in call routing, e-Filing and
interactive services produced enhanced service for taxpayers and more
efficient operations at the IRS.
However, last summer, the BSM program appeared at the point of
unraveling. Virtually all of the projects with a major impact on
improving customer service and IRS' internal operations and
productivity were experiencing serious delays and cost overruns.
The Customer Account Data Engine (CADE), which will
replace the IRS Master Files with a modern database management system
and provide the foundation for other modernized applications, missed
its Release 1 August ``go-live'' date. As of this report's publication,
a new target date was not finalized.
Very little work was done to confirm that the ``business
rules engine,'' on which future CADE releases depend, will be able to
handle the complexity and scale of the CADE data base.
The October ``go-live'' target date for the Integrated
Financial System (IFS), which will eventually replace IRS' old core
financial systems, was missed. Release 1 was rescheduled for the spring
of 2004 and work on Release 2 was deferred. Costs increased
proportionately.
Modernized e-File, the platform for all internet tax
return forms, was also delayed, increasing project cost.
The Custodial Accounting Project (CAP) project, which
will provide the IRS with critical control and reporting capabilities,
was also running significantly behind schedule and over budget.
E-Services, which provides a suite of web-based products
to third-party users, is basically on schedule, but significantly over
budget.
Unfortunately, this was not the first time Modernization found
itself in serious trouble. Cost overruns have become an all-too
familiar story. Since its inception, BSM had, with few exceptions, a
consistent track record of missed target dates and budget estimates.
For example, the CADE project is now over two years behind schedule and
has been re-scheduled four times. The only reason it is only $30
million over the original cost estimate is that the IRS converted CADE
to a fixed-price contract shortly after the project first started to
experience problems.
CADE is not the only BSM project that has a track record of
failure. This is a shared BSM problem. Overall, the e-Services project
is 28 months behind schedule and $72 million over the original budget,
due to both scope growth and cost increases. The IFS project is almost
$50 million over the original cost estimate and although it is only two
months behind schedule at present, there is no current firm estimate of
when it will be delivered. In fact, all seven major application
projects the IRS has undertaken are both over cost and behind schedule.
Getting Behind the Problem
Why did this happen? How did BSM end up with a consistent track
record of overruns? Without making excuses, the Modernization program
is extremely large and complex with numerous risks. Programs of this
scale, and there are very few, are never completed without some level
of cost and schedule overruns. However, looking back with 20/20
hindsight, BSM's problems are all too evident and severe. The following
are some of the more prominent deficiencies.
There was inadequate business unit ownership and sponsorship of
projects. This resulted in unrealistic business cases and continuous
project scope ``creep''.
The much desired environment of trust, confidence and teamwork
between the IRS business units, the BSM organization, the Information
Technology Services (ITS) organization, and the Prime simply did not
exist. In fact, the opposite was true, resulting in an inefficient
working environment and, at times, finger pointing when problems arose.
The project life cycle methodology did not fully support
the requirement to estimate future phases of the work. Moreover, the
methodology was not always rigorously followed. At times, inappropriate
shortcuts were taken in order to meet unrealistic target dates, further
exacerbating problems.
The contracting process was highly inefficient. This
caused significant extra overhead for both the Prime and IRS and at
times, resulted in work being done without a contract or inappropriate
contracts being used.
The BSM organization did not have the depth and breadth
of skills and experience to adequately manage the Modernization program
and the Prime contract.
As the program ran into more and more problems,
additional layers of review and auditing were put into place by OMB,
the Treasury Inspector General for Tax Administration (TIGTA), GAO, and
Congress. While this may be understandable, given BSM's history, it
added significant overhead to program management.
Computer Sciences Corporation (CSC), the Prime team's
leader, did not demonstrate that it had the depth of leadership and
experience to successfully carry out its responsibilities. The Prime
team's track record was marred by continuous delays, missed target
dates and budget overruns. CSC did not supply the important thought and
program leadership it was engaged to deliver. Up until the last few
months, CSC was unable to develop a strong working relationship with
the IRS' executive leadership.
Based on all of the above factors, program productivity
levels were extremely low.
The program schedule was too ambitious given the
capabilities of both the IRS and the Prime. There were too many
concurrent projects. More became less.
It should be understood that Commissioner Everson and his executive
team are new to their responsibilities and to the direction of the
Modernization program. However, as soon as delays and overruns
experienced this summer became apparent, the Commissioner launched a
comprehensive review of Modernization.
The Board was impressed with the speed, thoroughness and openness
of this endeavor. It should also be noted that CSC participated fully
with this effort and in fact, hired an independent organization to
assess its own work. The program of improvements identified by the
review process recently began and while a number of difficult decisions
must still be made, the Board believes that meaningful progress is
being made. Commissioner Everson is to be commended for his swift
response. However, more must be done.
The Board's Recommendations
The problems outlined in this report do not yield to quick or easy
solutions. However, this does not mean the IRS is confronting a
hopeless situation. BSM's problems can be managed and solved. To this
end, the Board makes the following nine recommendations which it
believes will help set BSM back on the path to success. In most cases,
they are consistent with those made by the independent experts engaged
by the IRS and the Prime. In some cases, action has already started.
Recommendation 1: The IRS business units must take direct
leadership and ownership of the Modernization program and each of its
projects. In particular, this must include defining the scope of each
project, preparing realistic and attainable business cases and
controlling scope changes throughout each project's life cycle. The
Deputy Commissioner for Operations Support assumed responsibility for
this critical task and has already taken steps to insure that it is put
into place.
Recommendation 2: Create an environment of trust, confidence and
teamwork between the business units, the BSM and ITS organizations, and
the Prime. This is a cultural issue and will take time. The Deputy
Commissioner for Operations Support and the CIO have responsibility for
this action. CSC is also actively involved.
Recommendation 3: Enhance the systems development life cycle
methodology to support more accurate estimates of future work phases
and put into place the necessary processes to insure that the
methodology is followed religiously. Again, this work is under way.
Recommendation 4: Enhance the program's contracting process and
capabilities.
Recommendation 5: Significantly strengthen the experience and
capabilities of the BSM team. Its capabilities must be consistent with
the scale and complexity of the Modernization program. This will
require a meaningful number of outside hires from organizations, such
as the Defense Department, that have experience with large, complex
programs.
Recommendation 6: Try to rationalize the oversight of the program
to streamline the process and eliminate duplication. This will require
a joint effort of the IRS, OMB, TIGTA, GAO, the Oversight Board and
Congress.
Recommendation 7: The CADE project requires special attention. CADE
is the foundation of Modernization. It is also by far the most costly,
complex, largest and longest running project within the BSM portfolio.
As part of the review program initiated by the Commissioner, the
Software Engineering Institute (SEI) was engaged to review CADE, with
special emphasis on the systems architecture, conversion approach and
the planned use of a ``business rules engine'' to make the development
and maintenance of the system more efficient.
SEI's findings were generally supportive of the system design and
the use of the business rules engine. However, SEI could not be sure
that the engine could handle the size and complexity of the CADE system
until the rules were defined and modeled. It recommended that a project
to define and model the rules--a major effort--be conducted as soon as
possible. The Board strongly supports this recommendation.
Recommendation 8: Reduce the number of projects being conducted at
the same time. Modernization currently has five major projects
underway. As demonstrated by the BSM program's performance, neither the
IRS nor the Prime has the capability to manage and conduct this many
projects at the same time.
In addition, defining and modeling CADE's business rules (as
recommended above) will be a significant additional effort. The Board
believes that as current work phases are completed, the number of
projects should be reduced. This must happen carefully and over time,
so that current work efforts are not lost.
Admittedly, this will be a very difficult decision for the IRS to
make. Each of the Modernization projects is important and brings
significant business value. However, the Board strongly believes that
such a step is absolutely necessary for the overall success of
Modernization. As both the IRS and Prime demonstrate that they can
strengthen their capabilities and improve their performance, the
portfolio of concurrent projects can be increased.
Recommendation 9: The IRS Oversight Board has lost confidence in
the leadership of the Prime contracting team. This conclusion has been
reached after observing performance and results for over three years.
There have been numerous commitments to enhance the capability of this
team, improve its management processes and deliver greater thought and
management leadership. Overall results have not changed, target dates
and budgets are consistently missed. In fact Mr. Chairman, just last
week the IRS was informed that the target date for IFS would have to be
changed once again. In our view this was the final straw. The Board now
strongly recommends that the IRS consider all options for strengthening
the capabilities of the Prime contracting team. The time for strong,
aggressive action is now.
The IRS Oversight Board now strongly recommends that the IRS take
meaningful action to correct this problem. The IRS needs to consider
alternative actions to correct this problem.
Conclusion
The IRS Oversight Board firmly believes that the IRS Modernization
program cannot be allowed to fail. The IRS cannot continue to operate
with the outmoded and inefficient systems and processes it uses today.
Over time, the existing systems will become impossible to maintain and
at that point, the ability to administer our country's tax system will
be in grave danger. Such a risk to our nation is unacceptable. We
remain convinced that the overall Modernization plan is sound and well-
designed. The challenge is executing that plan. The IRS and the Prime
must get it right this time.
Meaningful recommendations were made by each of the groups involved
in this recent reassessment to improve the management and execution of
Modernization. In this same vein and spirit, the Board adds its
constructive suggestions today.
The Commissioner and his management team are committed to a
Modernization improvement program. The Oversight Board supports that
plan and will continue to work with the IRS to make sure that this
important effort succeeds.
Chairman HOUGHTON. Thank you, Mr. Levitan. Mr. Palmquist?
STATEMENT OF M. STEVEN PALMQUIST, CHIEF ENGINEER FOR CIVIL AND
INTELLIGENCE AGENCIES, ACQUISITION SUPPORT PROGRAM, SOFTWARE
ENGINEERING INSTITUTE, CARNEGIE MELLON UNIVERSITY, PITTSBURGH,
PENNSYLVANIA
Mr. PALMQUIST. Mr. Chairman and Members of the
Subcommittee, thank you for inviting me here today. My name is
Steven Palmquist. I work for Carnegie Mellon University's
Software Engineering Institute (SEI), a federally funded
research and development center with a mission to help
government and industry improve their software engineering and
acquisition practices.
At the SEI, I am the Chief Engineer for Civil and
Intelligence Agencies within our Acquisition Support Program.
Today, I represent a team of 14 principal and senior members of
our staff who performed an Independent Technical Assessment
(ITA) of the IRS' CADE program during the late summer and early
fall of 2003.
At the SEI, we have performed over 50 ITAs, usually at the
request of senior Department of Defense and civil agency
leaders when they have a program in trouble. For CADE,
Commissioner Everson was our senior sponsor and we appreciated
his candor and support.
In each of the ITAs we have performed, we have been
impressed with the dedication, intelligence, and
resourcefulness of the people involved on both the government
and the industry side. The CADE was no exception. This then
forces a basic question. With all of these good, talented
people, why is CADE failing?
The answer is because CADE, unfortunately, is again not an
exception. The CADE fell into the same traps that have crippled
many other government and industry programs, both large and
small. The CADE's program planning has been deficient, its
execution has been uncoordinated. Measurements and metrics have
not been properly utilized, and risks have not been identified,
profiled, and managed.
In its simplest form, project management has two functions,
plan the work and work the plan. This did not happen.
Requirements in particular were not fully understood or
communicated, and history has shown that budgets and schedules
were unrealistic.
We believe the CADE team needs to adopt a ``back to
basics'' approach. First, they need to restore rigor and
discipline in their management processes, both programmatic and
technical. They must take a long-term total systems view of
CADE through a solid systems engineering effort. They must
begin the expensive but critical task of harvesting the
business rules. They need to strengthen and support their
current software development environment, but continue to
investigate improvements to that environment, such as a
business rules engine. Last, they should continue to seek
outside reviews of their program, a commercial best practice,
and one of the key recommendations of the November 2000 report
of the Defense Science Board on Defense Software.
The CADE by its nature is high risk. We believe the CADE
team can deliver. We believe the talent and the desire is
there. It will not happen, however, until the IRS and its
industry partners improve their management discipline. We did
see evidence of improvements during our ITA. However, many of
these processes are still not effectively executed and many are
not backed by sufficient technical expertise and experience.
In particular, we have significant concerns with the lack
of emphasis on the harvesting of the business rules. There was
also not enough information available to determine if the
architecture is viable in Releases 3, 4, and 5, and we are
especially concerned security is not adequately addressed as
CADE moves from its current once a week batch processing
environment to the more real-time interactive approach of
Releases 3, 4, and 5.
Mr. Chairman, thank you again for the opportunity to be
here today. The SEI is proud of the work we did in supporting
Commissioner Everson and the IRS, and I look forward to
answering any questions you may have.
[The prepared statement of Mr. Palmquist follows:]
Statement of M. Steven Palmquist, Chief Engineer For Civil and
Intelligence Agencies, Acquisition Support Program, Software
Engineering Institute, Carnegie Mellon University, Pittsburgh,
Pennsylvania
Introduction
Mr. Chairman and members of the Subcommittee, thank you for
inviting me to speak to you here today. My name is Steven Palmquist. I
work for Carnegie Mellon University's Software Engineering Institute. I
am the Chief Engineer for civil and intelligence agencies in our
Acquisition Support Program. My background includes licensure as a
Professional Engineer and certification as a Project Management
Professional.
Today I represent a team of fourteen principal and senior members
of our technical staff who performed an independent technical
assessment of the IRS's Customer Account Data Engine (CADE) program.
This work was done in the late summer/early fall of 2003.
What is the Software Engineering Institute?
Founded in 1984, the Software Engineering Institute, or SEI as it
is more-commonly known, is a federally funded research and development
center (FFRDC). Sponsored by the U.S. Department of Defense, the SEI's
mission is to help DoD agencies, other government agencies and industry
improve their software engineering and acquisition capabilities.
What is an Independent Technical Assessment (ITA)?
An Independent Technical Assessment, or ITA, is an objective
examination of a project or program conducted by outside experts. As an
FFRDC located at a major university, the SEI is fiercely protective of
its credibility and neutrality in conducting these types of
assessments. Because of our objectivity, senior military and civil
agency executives often request we assess their software-intensive
programs. To do this, we form a team with the appropriate mix of
expertise drawn from across the Institute. We gather information
through interviews, fact-finding visits to facilities, reviews of
designs and software architectures, data reviews, and process reviews.
We analyze this information and present our findings and
recommendations to the senior executive sponsor.
For CADE, IRS Commissioner Everson was our senior executive
sponsor.
Background of the CADE Program and the Critical Role of Business Rules
In his May 20, 2003 testimony to the Annual IRS Restructuring and
Reform Act of 1998 Joint Congressional Review, Commissioner Everson
stated, ``the centerpiece of the modernization effort is the
replacement of the decades-old Master Files . . . (with) a modern,
reliable database, called the Customer Account Data Engine, or CADE.''
IRS modernization thus depends on CADE. CADE, as we discovered, depends
on business rules.
The IRS and their industry partners agreed on a business rules
approach for CADE in a contract awarded in December 1998. Simply put, a
business rule is any statement that defines how a business conducts its
business. For the IRS, business rules are principally representations
of tax laws and tax forms. The potential benefit of a business rules
system is the separation of the business logic from program logic. For
example, a business rules approach would allow the IRS to easily change
the rules to reflect new tax year changes without affecting the
underlying computing environment.
CADE's original timetable called for five yearly software
increments or releases. Release 1, scheduled for January 2002, was
primarily the infrastructure needed for all CADE releases. It also
contained the approximately 1,200 business rules needed to process
1040EZ filers. Subsequent CADE releases significantly increase both the
number and complexity of business rules such that by Release5, all of
CADE's estimated 50,000 business rules are included. With Release 5,
the IRS would process nearly all individual tax filers using CADE.
The Release 1 business rules were originally to be coded using a
business rules engine, a commercial software tool. A business rules
engine interprets a formalized representation of the natural-language
expression of a business rule to generate the software code that
implements the business rule. A rules engine offers the promise of
faster rules coding, which will be critical in CADE's later releases,
where the huge majority of rules reside. In fact, all of CADE's future
cost, schedule, and performance goals depend on the assumed efficiency
of a rules engine.
However, the Release 1 business rules engine effort stalled over
contractual issues. The IRS's industry partners then coded the business
rules using the C++ programming language. This switch was one of the
principal reasons Release 1 missed the original January 2002 delivery
date, which was rescheduled for August 2003. However, the plan remained
to use a business rules engine on subsequent releases, including a
revised Release 1, so that all CADE business rules would still be
implemented and managed by the rules engine.
Background of the SEI's ITA of CADE
Because of the continued focus on a business rules engine, the IRS
requested we perform a ``health check'' on its use on CADE. On July 1,
2003, we began this work.
On July 25, 2003, however, Commissioner Everson announced that CADE
Release 1 would also miss the new August 2003 delivery date. Coincident
with this announcement, Commissioner Everson expanded the scope of the
health check to a full ITA of all of CADE.
We completed the ITA and presented our report to Commissioner
Everson in October 2003. In the four months since, both the IRS and
their industry partners have worked on our findings and
recommendations. We have not been involved in these efforts, so we have
not updated our report. The following findings and recommendations,
therefore, represent CADE as it stood in the late summer and early fall
of 2003.
Principal Findings
Delivery of Release 1
We believe the IRS and its industry partners can deliver CADE
Release 1--with the functionality/design as described to us during the
ITA--by August or September of 2004. This is provided no new
requirements emerge and the IRS and their industry partners agree to
the acceptance criteria. As expressed to Commissioner Everson, our
confidence in this date was approximately sixty percent.
A Business Rules Approach
We agree that a business rules approach offers the IRS a
potentially significant capability to manage and improve their
operations. Reaching that potential with a system as large as CADE,
however, will require a more-disciplined approach and execution by both
the IRS and their industry partners. As an example, at the time of our
ITA there was no definitive evidence that the rules engine would
perform adequately in the IRS's operational environment or in their
industry partners' development, test, and maintenance environment.
Long-term Vision
We believe the current emphasis on Release 1 has been at the
expense of a long-term perspective. Any complex software system
involves balancing competing requirements of performance, security,
interoperability, maintainability, modifiability, etc.--commonly called
the quality attributes. For CADE, those requirements are implemented in
a sequence of coordinated steps in successive releases of the
modernized system. The choices of the step content, and the balancing
of these critical system properties, depend on how the IRS will use the
modernized system at each stage. However, this analysis has not been
adequately addressed for future releases. This is particularly true for
security concerns as the IRS moves from its current ``lock down''
security environment into the interactive environment of later CADE
releases.
Software Capability
While a number of CADE's problems can be attributed lapses in the
industry partners' software development processes, we believe the
industry partners can deliver quality software. Recent improvements in
systems engineering, measurement and metrics, and technical reviews
have resulted in improved performance. However, several key development
processes are still not effectively integrated, and there is no clear
chain of command for technical decision-making.
Management Capability
We saw evidence that both the IRS and their industry partners are
moving toward more effective management discipline. One example of this
is the adoption of the Software Acquisition Capability Maturity Model
(SA-CMM). However, not all their processes are effectively executed,
and many are not backed by sufficient technical expertise and
experience. Risk management, requirements management, staffing and
talent retention, communications management and creating accurate
budgets and schedules all remain areas of concern.
Principal Recommendations
Harvest the IRS Business Rules
We believe that harvesting the business rules, not coding them,
will drive the cost and schedule of future CADE releases. By
harvesting, we mean capturing, adjudicating, and cataloging the rules.
CADE has invested many resources exploring rules engines, but few
resources exploring the rules themselves. The IRS needs to understand
and document their business rules as well as the rules' complicated
interactions. Some of the delays that have already plagued CADE are a
direct result of an imperfect understanding of the business rules. This
situation will only grow as the number and complexity of the
implemented rules increases.
In addition, the IRS does not know the number of business rules in
CADE with any reasonable degree of certainty. Therefore, no one knows
how long rule harvesting will take, how many people will be required,
the background, training and experience of the people required, or how
much it will cost. Based on anecdotal information presented to us, we
believe the time will be measured in years and cost will be measured in
the tens of millions of dollars.
Until sound, supported cost and schedule estimates for rule
harvesting are available, future CADE plans and schedules are only
tentative and likely subject to delays and missed milestones.
Institutionalize Systems Engineering
CADE needs a strong systems engineering approach to identify and
handle programmatic and technical risks. To do this, the IRS's industry
partners need to establish a permanent CADE systems engineering group.
We recommend the IRS and its industry partners use ``model problems''
to help understand the risks and potentially uncover new, critical
unknowns.
The IRS also needs dedicated system engineers to staff the systems
engineering group. These persons would be responsible for understanding
CADE's technical issues, as well as the industry partners' proposed
solutions, for their impact on the IRS. In particular, the IRS should
lead an integrated team to define, monitor, manage, and support
operational security. This effort should be across not only CADE but
also the entire modernization effort and the IRS's legacy computing
environment.
Validate Business Rules Engines
As stated earlier, all of CADE business rules are currently coded
in C++. While this was not the original plan, it is the only design
approach for which CADE has historical data, and the only approach
validated in the CADE environment. Therefore, C++ is the baseline
design approach and should be the basis for future planning.
However, other design approaches--the rules engine, improving the
C++ environment, or other programming options--should be examined. If
they have merit, they should be rigorously validated in the CADE
environment. If any of these alternatives prove superior(in terms of
performance, risk, cost, schedule, etc.), they could then become the
primary design approach. Coding the rules in C++ then becomes the
fallback design approach, but one with known cost, schedule, and
performance data.
Institutionalize Management Discipline
The IRS and its industry partners must both improve their
management discipline. While the following list is in no way complete,
we believe both parties should:
continue to build a collaborative, active management
structure
establish real, supported risk management programs to
aggressively identify and manage risk
improve their ability to jointly create realistic cost
and schedule estimates
coordinate testing activities
create a baseline set of known requirements, and
characterize the ``known unknowns'' for all releases
determine the communication needs of all CADE
stakeholders, and lay out a plan for how needed information will be
distributed, received and used
establish mechanisms to independently monitor these
activities
capture lessons learned and feed the information forward
to future activities
Plan for Independent Oversight
Because large, complex, software-intensive system acquisitions face
a number of challenges, they often can benefit from experienced and
trusted software expertise. For example, the Army's Future Combat
System (FCS) program has a software steering committee to help identify
issues and risks and offer an overall ``sanity check'' one step removed
from day-to-day operations.
In the FCS model, both the government and contractor call on the
members of the software steering committee. The group functions to
advise, and not to critique, senior management. The group is a partner
rather than another oversight body. Recent lessons learned from the
first phase of the FCS program have cited the software steering
committee as an indispensable factor in achieving program goals.
A second type of oversight is an independent expert review, similar
to our ITA. Independent expert reviews are an industry best practice
and one of the key recommendations of the November 2000 Report of the
Defense Science Board Task Force On Defense Software, issued by the
Office of the Under Secretary of Defense For Acquisition and
Technology.
Independent expert reviews last one-to-two days and are held two to
three times a year. The reviews are designed to help program teams
ensure:
disciplined processes and methodologies are in place
the program is adequately resourced
the technical baseline is understood and solid, with
attendant risks and opportunities identified and managed
adequate progress is being achieved
To be effective, the independent expert reviews need to be part of
CADE, with these two defining elements:
the reviews are scheduled parts of, not intrusions into,
CADE's management and development plans, schedules and processes
CADE's program and technical management are robust and
flexible enough to pursue the opportunities and address the weaknesses
uncovered by the reviews
Without these two conditions, the value of the reviews diminishes
exponentially.
Conclusion
We commend the IRS and their industry partners for seeking review
from outside sources. Incorporating insight and recommendations from
other organizations (such as commercial financial organizations, other
government agencies, academia, etc.) will yield a richer set of
recommendations to help put CADE back on track. However, any
recommendation--including our own--must be regularly evaluated for
appropriateness in the CADE environment, as well as for their benefit
to the IRS in terms of cost, schedule, and performance.
Mr. Chairman, thank you again for the opportunity to be here today.
The SEI is proud of the work we did supporting Commissioner Everson and
the IRS. I look forward to answering any questions you may have.
Chairman HOUGHTON. Thanks very much, Mr. Palmquist. Mr.
Dacey?
STATEMENT OF ROBERT F. DACEY, DIRECTOR, INFORMATION SECURITY
ISSUES, U.S. GENERAL ACCOUNTING OFFICE
Mr. DACEY. Mr. Chairman and Members of the Subcommittee, I
am pleased to be here today to discuss IRS' system
modernization efforts. I will briefly summarize my written
statement.
The IRS' attempts to modernize its aging computer system
span many years. A history of continuing delays and design
difficulties led to GAO designating IRS's system modernization
efforts as high-risk in 1995. The IRS' current effort, BSM, was
initiated in fiscal year 1999. To date, about $1.7 billion has
been appropriated, including about $388 million for fiscal year
2004.
To facilitate Congressional oversight of this program,
annual appropriations laws have mandated that modernization
funds not be available until IRS submits to the Appropriations
Committees for approval a modernization expenditure plan that
satisfies certain legislative conditions, including a review by
GAO. We are currently reviewing the fiscal year 2004
expenditure plan.
In prior reviews of these plans, we have identified
numerous deficiencies in the BSM program and provided
recommendations to address them, most importantly, balancing
the pace of systems acquisition projects with the agency's
ability to manage them, and also establishing repeatable
processes for acquiring software and improving modernization
management controls and capabilities, such as those related to
configuration management and cost and schedule estimating.
In response to our recommendations, IRS has made important
progress which the Commissioner discussed earlier this morning.
Nevertheless, as we reported last June, IRS continued to face
challenges to fully develop and implement its management
capabilities.
Our written testimony provides an analysis of the reported
cost overruns and schedule delays that have affected most of
the current BSM projects. In addition to the deficiencies I had
previously discussed, our work has shown that the increases and
delays were caused in part by several factors, including
inadequate definitions of system requirements, increases in
project scope, and underestimating project complexity. These
schedule delays and cost overruns have impaired IRS' ability to
make appropriate decisions about investing in projects, have
delayed the delivery of benefits to taxpayers, and postponed
the resolution of material weaknesses in other IRS program
areas.
Given the continued cost overruns and schedule delays, IRS
and CSC launched internal and independent assessments during
2003 on the health of BSM as a whole and CADE in particular.
These more in-depth and comprehensive assessments provided an
analysis of BSM weaknesses and risks consistent with our prior
findings that contributed to these delays. The assessments also
provided actionable recommendations to address the weaknesses.
Based on these assessments, IRS developed action plans for
46 specific issues that it identified for resolution, 27 of
which they have reported were completed at the end of last
month. Also, IRS has contracted with MITRE to conduct an
independent analysis of the efficacy of these action plans.
Significant further work remains to complete implementation
of the remaining 19 issues. The IRS is also taking other
action, such as planning to have SEI conduct further periodic
reviews of the CADE project. Additionally, IRS is responding to
recommendations from the Oversight Board, which Mr. Levitan
summarized briefly a moment ago, and from the Treasury
Inspector General for Tax Administration. The IRS has reported
they expect to fully implement remaining open actions by the
end of this calendar year.
Commitment of appropriate resources and top management
attention are critical to meeting these challenges and
improving BSM performance. In addition, continuing oversight by
Congress, OMB, and others, as well as ongoing assessments of
the program, can assist IRS in strengthening the program.
Mr. Chairman and Members of the Subcommittee, this
concludes my statement. I will be pleased to answer any
questions that you have.
[The prepared statement of Mr. Dacey follows:]
Statement of Robert F. Dacey, Director, Information Security Issues,
U.S. General Accounting Office
Mr. Chairman and Members of the Subcommittee:
I am pleased to be here today to discuss the Internal Revenue
Service's (IRS) actions to modernize its computer systems. Although
updated through the years, IRS's set of computer systems is based on an
architecture that dates from the 1960s. This architecture has inhibited
IRS's ability to effectively and efficiently perform its mission of
providing service to taxpayers and enforcing the nation's tax laws.
However, IRS's attempts to modernize its computer systems and
underlying architecture now span three decades. Given the long history
of continuing delays and design difficulties, we previously designated
IRS's modernization program as a high-risk area in 1995.\1\ It remains
so today.\2\
---------------------------------------------------------------------------
\1\ U.S. General Accounting Office, High-Risk Series: An Overview,
GAO/HR-95-1 (Washington, D.C.: February 1995).
\2\ U.S. General Accounting Office, High-Risk Series: An Update,
GAO-03-119 (Washington, D.C.: January 2003).
---------------------------------------------------------------------------
IRS's current multibillion-dollar effort, known as the Business
Systems Modernization (BSM) program, was initiated in fiscal year1999.
IRS contracted with Computer Sciences Corporation (CSC) as the prime
contractor to assist with designing, developing, and integrating a new
set of information systems that were intended to replace IRS's aging
business and tax processing systems. To date, about $1.7 billion has
been appropriated for the program, including about $388 million for
fiscal year 2004.\3\
---------------------------------------------------------------------------
\3\ P.L. 108-199, Div. F, Title II, Jan. 23, 2004. IRS uses the
appropriated totals to cover contractor costs related to the BSM
program. IRS funds internal costs for managing BSM with another
appropriation. These costs are not tracked separately for BSM-related
activities.
---------------------------------------------------------------------------
To facilitate congressional oversight of this program, annual
appropriations laws since fiscal year 1998 have mandated that
modernization funds not be available until IRS submits to the
congressional appropriations committees for approval a modernization
expenditure plan that satisfies six legislative conditions, including
that it be reviewed by us.\4\ We are currently reviewing the fiscal
year 2004 BSM expenditure plan. During our past reviews of such plans,
we have noted numerous modernization management control deficiencies
and made recommendations to correct them. Although IRS has made
progress in implementing our recommendations, BSM continues to face
significant challenges and serious risks. Recognizing these risks, IRS
and CSC recently completed several in-depth and more comprehensive
assessments on the health of the BSM program, including an independent
technical assessment of the Customer Account Data Engine (CADE)
project, a project critical to the success of BSM. IRS has developed an
action plan to address the assessments' recommendations, and has begun
to act on it.
---------------------------------------------------------------------------
\4\ The other five legislative conditions are that the expenditure
plan (1) meets Office of Management and Budget's (OMB) capital planning
and investment control review requirements; (2) complies with IRS's
enterprise architecture; (3) conforms with IRS's enterprise life cycle
methodology; (4) is approved by IRS, Treasury, and OMB; and (5)
complies with federal acquisition rules, requirements, guidelines, and
system acquisition management practices.
---------------------------------------------------------------------------
In my testimony today I will summarize our prior findings and
recommendations and those of the recently completed program
assessments. I will also discuss the actions IRS reports it has taken
or plans to take to address issues raised by these assessments.
In preparing this testimony, we relied on our prior reports and
testimony on IRS's systems modernization activities and BSM expenditure
plans. We also reviewed and analyzed information contained in the BSM
expenditure plan for fiscal year 2004; Carnegie Mellon University
Software Engineering Institute's (SEI) independent technical assessment
of CADE; reports on the BSM program by the Treasury Inspector General
for Tax Administration and the IRS Oversight Board; and IRS briefing
materials (1) analyzing the root causes of BSM project cost increases
and schedule delays, (2) independent reviews of CSC's business
processes and IRS's procurement practices, and (3) IRS's action plan to
address issues identified by the reviews. We did not independently
validate planned projects' cost estimates or confirm, through system
and project management documentation, the validity of IRS-provided
information on the projects' content and progress. Our work was
performed during the past month, in accordance with generally accepted
government auditing standards.
Background
The tax administration system that collects about $2 trillion in
revenues each year is critically dependent on a collection of obsolete
computer systems developed by the IRS over the last 40 years. IRS
envisions a future in which its tax processing environment will be
virtually paper-free, and up-to-date taxpayer information will be
readily available to IRS employees to respond to taxpayer inquiries. To
accomplish this, IRS embarked on its ambitious BSM program. BSM
involves the development and delivery of a number of modernized
business, data, and core infrastructure projects that are intended to
provide improved and expanded service to taxpayers as well as IRS
internal business efficiencies. Recognizing the long-term commitment
needed to solve the problem of obsolete computer systems, Congress set
up a special BSM account in fiscal year 1998 to fund IRS's systems
modernization efforts.
IRS initiated CADE as part of BSM, to modernize the agency's
outdated and inefficient data management system.\5\ IRS also sees this
project as the corporate data source enabling future customer service
and financial management applications. CADE is therefore IRS's linchpin
modernization project. In light of the projects that depend on CADE, as
well as the many interrelationships that are to exist among CADE and
IRS's modernized applications and among CADE and current IRS
applications, the agency must manage this critical project effectively.
Without CADE, the business systems modernization program cannot
succeed.
---------------------------------------------------------------------------
\5\ The current system--referred to by IRS as the master files--
contains taxpayer account and return data. There are master files for
individuals, businesses, and employer retirement plans. A nonmaster
file for taxpayer data also exists that cannot be stored in the other
master files due to data format and space limitations.
---------------------------------------------------------------------------
IRS Has Made Improvements, But Systems Modernization Program Remains
High-Risk
IRS's attempts to modernize its aging computer systems span several
decades. This long history of continuing delays and design difficulties
led to our designating IRS's Tax Systems Modernization program, BSM's
predecessor, as a high-risk area in 1995.\6\ During the mid-1990s we
reported on several technical and management weaknesses associated with
Tax Systems Modernization, a program that began in the 1980s. These
weaknesses related to incomplete or inadequate strategic information
management practices; immature software development capability;
incomplete systems architecture, integration planning, system testing,
and test planning practices; and the lack of an effective
organizational structure to consistently manage and control systems
modernization organizationwide. We made a series of recommendations for
correcting these weaknesses and limiting modernization activities until
they were corrected.\7\ IRS subsequently discontinued the program after
the agency had spent about $4 billion without receiving expected
benefits. In fiscal year 1999, IRS launched the BSM program. IRS
contracted with CSC as its prime systems integration services
contractor for systems modernization, helping it design new systems and
identify other contractors to develop software and perform other tasks.
---------------------------------------------------------------------------
\6\ GAO/HR-95-1.
\7\ U.S. General Accounting Office, Tax Systems Modernization:
Management and Technical Weaknesses Must Be Corrected If Modernization
Is to Succeed, GAO/AIMD-95-156 (Washington, D.C.: July 26, 1995) and
Tax Systems Modernization: Blueprint Is a Good Start, But Not Yet
Sufficiently Complete to Build or Acquire Systems, GAO/AIMD/GGD-98-54
(Washington, D.C.: Feb. 24, 1998).
---------------------------------------------------------------------------
In our reviews of IRS's BSM expenditure plans, we have identified
numerous deficiencies in the BSM program, including a continuation of
the weaknesses noted above. Also, a consistent challenge for IRS has
been to make sure that the pace of systems acquisition projects does
not exceed the agency's ability to manage them. In May and November
2000, we reported that projects were in fact getting ahead of the
modernization management capacity that needed to be in place to manage
them effectively.\8\ In February 2002 we reported that such an
imbalance was due to IRS's first priority and emphasis being on getting
the newer, more modern systems--with their anticipated benefits to
taxpayers--up and running.\9\ In so doing, however, management controls
had not been given equal attention and thus had not kept pace. This
emphasis on new systems added significant cost, schedule, and
performance risks that escalate as a program advances. Moreover, these
risks increased as IRS moved forward because of interdependencies among
projects, and the complexity of associated workload activities to be
performed increased dramatically as more systems projects were built
and deployed.
---------------------------------------------------------------------------
\8\ U.S. General Accounting Office, Tax Systems Modernization:
Results of Review of IRS' March 7, 2000, Expenditure Plan, GAO/AIMD-00-
175 (Washington, D.C.: May 24, 2000) and Tax Systems Modernization:
Results of Review of IRS' August 2000 Interim Spending Plan, GAO-01-91
(Washington, D.C.: Nov. 8, 2000).
\9\ U.S. General Accounting Office, Business Systems Modernization:
IRS Needs to Better Balance Management Capacity with Systems
Acquisition Workload, GAO-02-356 (Washington, D.C.: Feb. 28, 2002).
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In addition, we identified other deficiencies in the BSM program,
including the need to establish processes that meet the level 2
requirements of the SEI's Software Acquisition Capability Maturity
ModelTM,\10\ and to improve modernization management
controls and capabilities, such as those related to configuration
management, risk management, enterprise architecture implementation,
human capital strategic management, integrated program scheduling, and
cost and schedule estimating.
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\10\ Carnegie Mellon University's Software Engineering Institute
has developed criteria, known as the Software Acquisition Capability
Maturity ModelTM, for determining organizations' software
acquisition management effectiveness or maturity. A Level 2
organization has established its basic project management processes in
the following key process areas: acquisition planning, solicitation,
requirements development and management, project management, contract
tracking and oversight, evaluation, and transition to support.
---------------------------------------------------------------------------
In response to our recommendations, IRS has made important
progress. First, significant progress has been made in establishing the
modernization management controls needed to effectively acquire and
implement information technology systems. For example, IRS has
invested incrementally in its modernization projects;
defined a systems life cycle management methodology,
which IRS refers to as the Enterprise Life Cycle;
developed and is using a modernization blueprint,
commonly called an enterprise architecture, to guide and constrain its
modernization projects; and
established processes that meet the level 2 requirements
of the SEI's Software Acquisition Capability Maturity
ModelTM.
Second, IRS has made progress in establishing the infrastructure
systems on which future business applications will run. For example,
IRS has delivered elements of the Security and Technology
Infrastructure Release to provide the hardware, software, and security
solutions for modernization projects. IRS has also built an enterprise
integration and test environment that provides the environment and
tools for multiple vendors associated with a release to perform
integration and testing activities.
Third, it has delivered certain business applications that are
producing benefits today. These applications include
Customer Communications 2001, to improve telephone call
management, call routing, and customer self-service applications;
Customer Relationship Management Examination, to provide
off-the-shelf software to IRS revenue agents to allow them to
accurately compute complex corporate transactions; and
Internet Refund/Fact of Filing, to improve customer self-
service by providing to taxpayers via the Internet instant refund
status information and instructions for resolving refund problems.
Fourth, IRS took steps to align the pace of the program with the
maturity of IRS's controls and management capacity, including
reassessing its portfolio of planned projects.
Nevertheless, IRS continued to face challenges to fully develop and
implement its modernization management capacity. Last June we reported
that IRS had not yet fully implemented a strategic approach to ensuring
that it has sufficient human capital resources for implementing BSM,
nor had it fully implemented management controls in such areas as
configuration management, estimating costs and schedules, and employing
performance-based contracting methods.\11\ We made several
recommendations to address those issues. Our analysis has shown that
weak management controls contributed directly to the cost, schedule,
and/or performance shortfalls experienced by most projects. Given that
the tasks associated with those projects that are moving beyond design
and into development are by their nature more complex and risky and
that IRS's fiscal year 2004 BSM expenditure plan supports progress
toward the later phases of key projects and continued development of
other projects, systems modernization projects likely will encounter
additional cost and schedule shortfalls. IRS will need to continue to
assess the balance between the pace of the program and the agency's
ability to manage it.
---------------------------------------------------------------------------
\11\ U.S. General Accounting Office, Business Systems
Modernization: IRS Has Made Significant Progress in Improving Its
Management Controls, but Risks Remain, GAO-03-768 (Washington, D.C.:
June 27, 2003)
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Projects Continue to Incur Cost Increases and Schedule Delays
Based on IRS's expenditure plans, BSM projects have consistently
cost more and taken longer to complete than originally estimated. Table
1 shows the life cycle variance in cost and schedule estimates for
completed and ongoing BSM projects. These variances are based on a
comparison of IRS's initial and revised cost and schedule estimates to
complete initial operation \12\ or full deployment \13\ of the
projects.
---------------------------------------------------------------------------
\12\ Initial operation refers to the point at which a project is
authorized to begin enterprisewide deployment.
\13\ Full deployment refers to the point at which enterprisewide
deployment has been completed and a project is transitioned to
operations and support.
Table 1: IRS BSM Project Cost/Schedule Variance Summary
------------------------------------------------------------------------
Reported/
Cost revised Schedule Reported/revised
Project variance estimated variance estimated
(in cost (in (in completion date
thousands) thousands) months)
------------------------------------------------------------------------
Completed Projects
------------------------------------------------------------------------
Security and
Technology
Infrastructure
Release 1
------------------------+$7,553-----$41,287--------+5------------1/31/02
(initial
operation)
------------------------------------------------------------------------
Customer +5,310 46,420 +9 2/26/02
Communications (full deployment)
2001
------------------------------------------------------------------------
Customer -1,938 7,375 +3 9/30/02
Relationship (full deployment)
Management Exam
------------------------------------------------------------------------
Human Resources +200 10,200 0 12/31/02
Connect Release 1 (initial
operation)
------------------------------------------------------------------------
Internet Refund/ +12,923 26,432 +14 9/26/03
Fact of Filing (full deployment)
------------------------------------------------------------------------
Ongoing Projects a
------------------------------------------------------------------------
Modernized e-File +17,057 46,303 +4.5 3/31/04
Release 1 (initial
operation)
------------------------------------------------------------------------
e-Services +86,236 130,281 +18 4/30/05
(full deployment)
------------------------------------------------------------------------
CADE Release 1 +36,760 97,905 +30b 6/30/05 b
(full deployment)
------------------------------------------------------------------------
Integrated +53,916 153,786 TBD b TBD b
Financial System (full deployment)
Release 1
------------------------------------------------------------------------
Custodial +72,058 119,219 TBD b TBD b
Accounting Project (full deployment)
Release 1
------------------------------------------------------------------------
Customer Account TBD c TBD c TBD c TBD c
Management Release
1
------------------------------------------------------------------------
Source: GAO analysis of data contained in IRS's BSM expenditure plans.
a Projects ongoing as of 9/30/03.
b Project schedules for CADE, the Integrated Financial System, and the
Custodial Accounting Project are currently under review.
c To be determined. Work on the Customer Account Management project was
suspended following the completion of preliminary design activities.
No further work is planned until at least fiscal year 2005.
As the table indicates, the cost and schedule estimates for full
deployment of the e-Services project have increased by just over $86
million and 18 months, respectively. In addition, the estimated cost
for the full deployment of CADE release 1 has increased by almost $37
million, and project completion has been delayed by 30 months. In
addition to the modernization management control deficiencies discussed
above, our work has shown that the increases and delays were caused, in
part, by
inadequate definitions of systems requirements. As a
result, additional requirements have been incorporated into ongoing
projects.
increases in project scope. For example, the e-Services
project has changed significantly since the original design. The scope
was broadened by IRS to provide additional benefits to internal and
external customers.
cost and schedule estimating deficiencies. IRS has lacked
the capability to effectively develop reliable cost and schedule
estimates.
underestimating project complexity. This factor has
contributed directly to the significant delays in the CADE release 1
schedule.
competing demands of projects for test facilities.
Testing infrastructure capacity is insufficient to accommodate multiple
projects when testing schedules overlap.
project interdependencies. Delays with one project have
had a cascading effect and have caused delays in related projects.
These schedule delays and cost overruns impair IRS's ability to
make appropriate decisions about investing in new projects, delay
delivery of benefits to taxpayers, and postpone resolution of material
weaknesses affecting other program areas.
Producing reliable estimates of expected costs and schedules is
essential to determining a project's cost-effectiveness. In addition,
it is critical for budgeting, management, and oversight. Without this
information, the likelihood of poor investment decisions is increased.
Schedule slippages delay the provision of modernized systems'
direct benefits to the public. For example, slippages in CADE will
delay IRS's ability to provide faster refunds and respond to taxpayer
inquiries on a timely basis.
Delays in the delivery of modernized systems also affect the
remediation of material internal management weaknesses. For example,
IRS has reported a material weakness associated with the design of the
master files. CADE is to build the modernized database foundation that
will replace the master files. Continuing schedule delays will place
resolution of this material weakness further out into the future. In
addition, the Custodial Accounting Project is intended to address a
financial material weakness and permit the tracking from submission to
disbursement of all revenues received from individual taxpayers. This
release has yet to be implemented, and a revised schedule has not yet
been determined. Finally, the Integrated Financial System is intended
to address financial management weaknesses. When IRS submitted its
fiscal year 2003 BSM expenditure plan, release 1 of the Integrated
Financial System was scheduled for delivery on October 1, 2003.
However, it has yet to be implemented, and additional cost increases
are expected.
Internal and Independent Assessments of BSM Have Identified Significant
Weaknesses and Risks
Given the continued cost overruns and schedule delays experienced
by these BSM projects, IRS and CSC launched internal and independent
assessments during 2003 of the health of BSM as whole, as well as CADE.
Table 2 describes these assessments.
Table 2: BSM Assessments Undertaken During 2003
------------------------------------------------------------------------
Organization conducting
Subject assessment Purpose
------------------------------------------------------------------------
Root cause analysis IRS To review data from
historical documents
andinterviews to
determine root causes
for schedule delays
and cost increases
------------------------------------------------------------------------
PRIME review Bain and Company To identify root
causes of breakdown
in CSC'sbusiness
processes and
engagement model and
provide recommended
solutions
------------------------------------------------------------------------
IRS Office of Acquisition Solutions, To assess the
Procurement Assessment Inc. efficiency and
effectiveness of the
IRSprocurement
organization
structure, employment
of best practices,
managementand
administration,
staffing, and to
briefly review BSM
contracting
------------------------------------------------------------------------
CADE assessment SEI To provide an
independent technical
assessment ofCADE
program history and
the feasibility of
future plans
------------------------------------------------------------------------
Source: IRS
The IRS root cause analysis, PRIME review, and the Office of
Procurement assessment revealed several significant weaknesses that
have driven project cost overruns and schedule delays, and also
provided a number of actionable recommendations for IRS and CSC to
address the identified weaknesses and reduce the risk to BSM.
Deficiencies identified are consistent with our prior findings and
include
poorly defined requirements,
low program productivity levels,
project scope creep,
IRS/PRIME role confusion,
immature management processes,
ineffective integration across IRS, and
insufficient applications and technology engineering.
As noted, CADE release 1 has experienced significant reported cost
overruns and schedule delays throughout its life cycle, and has yet to
be delivered. SEI's independent technical assessment of CADE pointed to
four primary factors that have caused the project to get off track and
resulted in such severe cost and schedule impairments: (1) the
complexity of CADE release 1 was not fully understood; (2) the initial
business rules engine effort stalled; (3) both IRS and PRIME technical
and program management were ineffective in key areas, including
significant breakdowns in developing and managing CADE requirements;
and (4) the initially contentious relationship between IRS and PRIME
hindered communications. SEI also warned that CADE runs the risk of
further trouble with later releases due to unexplored/unknown
requirements; security and privacy issues that have not been properly
evaluated (e.g., online transactions are different from the way IRS
does business today); dependence on an unproven business rules engine
\14\ software product; and the critical, expensive, and lengthy
business rules harvesting \15\ effort that has not yet been started.
SEI offered several recommendations to address current CADE issues and
reduce project risk in the future.
---------------------------------------------------------------------------
\14\ A business rules engine translates business rules, or
processing criteria (e.g., income tax refunds of $x or more are held
for administrative review), into executable computer code which
processes transactions related to a tax form, and selects and executes
correct rules based on the tax year and tax form.
\15\ Business rules harvesting refers to the process of extracting,
defining, and documenting tax processing criteria from a variety of
sources, including IRS subject matter experts, legacy system source
code, the tax code, and various other paper documents.
---------------------------------------------------------------------------
IRS Is Acting to Resolve Issues Identified in the BSM Assessments
Based on these assessments, IRS identified a total of 46 specific
issues for resolution in the following six areas, and developed a BSM
action plan comprising individual action plans to address each issue:
Organization and Roles. Immediate steps are needed to
clarify IRS/PRIME roles and responsibilities and clearly define
decision-making authorities.
Key Skills & Strengthening the Team. Strengthened skills
and capabilities are needed in such key areas as project management and
systems engineering.
Technology--Architecture & Engineering. More focus is
needed to improve current systems architecture integration.
Technology--Software Development Productivity & Quality.
Improvements in product quality and productivity are essential to
strengthening software delivery performance.
Acquisition. Contracting and procurement practices
require major streamlining to improve overall contract management.
CADE. Delivery of CADE release 1 will require aggressive
focus and attention, and a business rules engine solution requires
additional evaluation.
These 46 issue action plans were assigned completion dates and an
IRS or PRIME owner was assigned to take the lead in implementing each
plan. IRS and PRIME each also assigned a senior-level executive to
drive the execution of the issue action plans, identify and help
mitigate implementation hindrances or roadblocks, and ensure successful
completion of all planned actions. To assess the efficacy of the BSM
action plan, MITRE was tasked with conducting an independent analysis
and provided feedback to IRS on the effectiveness of the specific issue
action plans to address the associated findings/recommendations and
correct any problems found.
IRS has reported making steady progress with implementing the BSM
action plan. According to the IRS BSM program office, as of late
January 2004, 27 of the 46 issue action plans have been completed.
Examples of completed actions include (1) making business owners and
program directors accountable for project success; (2) assigning teams
to investigate and resolve problem areas on key projects such as CADE,
the Integrated Financial System, and e-Services; (3) aligning critical
engineering talent to the most critical projects; (4) increasing the
frequency of CADE program reviews; and (5) issuing a firm fixed-price
contracting policy.
Significant further work remains to complete implementation of the
remaining 19 open issue action tasks. Bain & Company--which conducted
the independent review of PRIME--has been hired to facilitate the
implementation of various issue action plans within the Organization
and Roles challenge area, while IRS has also contracted with SEI to
conduct further periodic reviews of the CADE project.
Additionally, the IRS Oversight Board recently issued a report \16\
on its own independent analysis of the BSM program, which made several
observations and recommendations that are consistent with those
discussed here. IRS has conducted an analysis of this report to
reconcile the board's recommendations with those that are currently
being addressed in the BSM action plan. As a result, IRS plans to open
two additional issues and action plans to address (1) rationalizing and
streamlining oversight of the BSM program, and(2) determining and
maintaining a manageable portfolio of projects. IRS expects to complete
the majority of the BSM action plan by end of April of this year, and
fully implement any remaining open actions by the end of the calendar
year.
---------------------------------------------------------------------------
\16\ IRS Oversight Board Special Report, Independent Analysis of
IRS Business Systems Modernization, December 2003.
---------------------------------------------------------------------------
Further, during 2003, the Treasury Inspector General for Tax
Administration performed several reviews related to management of the
BSM program and for specific BSM projects. These reviews identified
several issues, including those related to compliance with the defined
management and project development processes, full implementation of
disciplined project testing processes and procedures, IRS's cost and
schedule estimation process, and contract management. IRS management
reaffirmed their commitment to fully implement key management and
project development processes.
Concluding Observations
IRS's multibillion-dollar BSM program is critical to agency's
successful transformation of its manual, paper-intensive business
operations and fulfilling its restructuring activities. The agency has
made important progress in establishing long-overdue modernization
management capabilities and in acquiring foundational system
infrastructure and some applications that have benefited the agency and
the public. However, our reviews, those of the Treasury inspector
general, and the recently completed internal and independent
assessments of the BSM program clearly demonstrate that significant
challenges and serious risks remain. IRS acknowledges this and is
acting to address them.
To successfully address these challenges and risks and to modernize
its systems, IRS needs to continue to strengthen BSM program management
by continuing efforts to
balance the scope and pace of the program with the
agency's capacity to handle the workload, and
institutionalize the management processes and controls
necessary to resolve the deficiencies identified by the reviews and
assessments.
Commitment of appropriate resources and top management attention
are critical to resolving the identified deficiencies. In addition,
continuing oversight by the Congress, OMB, and others, as well as
ongoing independent assessments of the program, can assist IRS in
strengthening the BSM program.
Meeting these challenges and improving performance are essential if
IRS and the PRIME contractor are to successfully deliver the BSM
program and ensure that BSM does not suffer the same fate as previous
IRS modernization efforts.
Mr. Chairman, this concludes my statement. I would be pleased to
respond to any questions that you or other members of the subcommittee
may have at this time.
Chairman HOUGHTON. Thank you very much. Well, Mr. Cofoni,
you are on the hot seat.
Mr. COFONI. Yes, I am, sir.
[Laughter.]
Chairman HOUGHTON. Delighted to have you here.
Mr. COFONI. Thank you.
Chairman HOUGHTON. Please give your testimony.
STATEMENT OF PAUL COFONI, PRESIDENT FEDERAL SECTOR, AND
CORPORATE VICE PRESIDENT, COMPUTER SCIENCES CORPORATION, EL
SEGUNDO, CALIFORNIA
Mr. COFONI. Mr. Chairman, Mr. Pomeroy, Mr. Portman, I
welcome this opportunity to testify today. I am Paul Cofoni,
President of the Federal Sector and Corporate Vice President of
CSC.
Since December 1998, we have led the PRIME Alliance for the
IRS. The PRIME Alliance includes some of the best names in the
technology and business modernization world, SAIC, IBM, Unisys,
Northrop-Grumman, and BearingPoint. In addition to our alliance
partners, there are about 809 small business subcontractors
performing work on the program, all of which, by the way, are
doing that work in this country and principally in Maryland and
New Carrollton, across the street from the IRS large building
complex.
While there have been difficulties with the BSM program, in
partnership with the IRS, we have created, in fact, a strong
program with a sound architecture and a technology foundation
for future success. The IRS's past difficulties in modernizing
its technology are well documented. Past attempts lacked the
central vision and architecture, and most of all, failed to
achieve business objectives that would benefit taxpayers or
provide significant efficiencies to the government.
In 1998, after 2 years of competitive bidding, the IRS
awarded the CSC PRIME Alliance team a contract for up to 15
years with an original estimated value of up to $7 billion.
Under the contract, work is identified by task order and
separately procured, competitively separately procured.
Through December 2003, Congress has appropriated
approximately $1.35 billion, and the IRS has funded CSC for
approximately $927 million of that $1.35 billion. That has been
done through 114 task orders and approximately 1,100 task order
modifications.
Since beginning the program, the PRIME Alliance and the IRS
have delivered key program and technology foundational elements
and business applications for the BSM program. These include an
enterprise architecture and transition strategy that has been
awarded best in class this past year within government; an
enterprise life cycle process tailored to the IRS's specific
needs that creates a methodology for implementing the
enterprise architecture; and a software acquisition model that
has been evaluated by Carnegie Mellon's SEI at Level 3. I would
add, CSC is the first company in the world to receive Level 3
accreditation for software acquisition. We also assisted the
IRS in achieving a Level 2, and the IRS is the first civilian
agency to receive this accreditation.
We delivered a secure technology infrastructure that allows
citizens and tax professionals to interact with the IRS in real
time and to conduct day-to-day business and solve tax problems
on the Internet. The infrastructure is in place today. It is
stable, it is secure, and it will serve as the cornerstone for
successful deliveries of improved services in the future.
An enterprise management system was also delivered that
allows IRS information technology professionals the ability to
monitor this new infrastructure in real time and make
corrections or preempt problems in real time.
We also implemented a bilingual customer communication
technology upgrade which doubles the capacity of the IRS's
ability to handle telephone calls at its call centers. It
reduces wait times and helps taxpayers who are seeking
assistance, as the Commissioner pointed out in his testimony.
We implemented the Internet Refund Fact of Filing, or
``Where is my refund?'' web-based application which provides
taxpayers instantaneous status of a refund versus driving a
large volume of inquiries into the phone system, causing delay
and frustration for taxpayers. I would add here that the IRS
website in the last week in July was 1 of the top 10 websites
in terms of popularity or hits, and it was primarily this
application that did that.
Added to this application in a very short 2-month period
was the Advanced Child Tax Credit Initiative, which allows
taxpayers to ascertain whether their tax credit is available to
them. Taken together, these two applications since
implementation have avoided over 24 million taxpayers from
having to make a call to the IRS call center.
We implemented a laptop software tool that allows IRS
agents to use modernized and sophisticated technology for the
first time to do their work. This has resulted in faster
resolution of cases and consistent treatment across all
business taxpayers.
We implemented the Internet Employer Identification Number.
This allowed over 450,000 applications to be processed over the
Internet for new small business owners. As the Commissioner
pointed out, we implemented seven e-services, web-based
applications that have allowed 55,000 applications for Tax
Identification Numbers (TIN) by tax preparers, 40,000
electronic return originators, 40,000 of them to register with
the IRS, and in the first 24-hour period of an application for
bulk TIN matching, over 425,000 transactions were completed.
This being said, there is more to do. We have near-term
deliveries. The IFS, we have talked about here. We were
enormously disappointed that we had to miss our commitment
which we made to the Commissioner. We promised April and we
will not be able to do that. The reason is that during final
testing of this application, we encountered data conditions
that were unknown to ourselves and to the IRS in the legacy
systems. This makes--these data conditions, which had not been
defined in our requirements or in the system design, require us
to go back and do redesign and rebuild and retest the system,
which will delay implementation until the end of the government
fiscal year.
While I am not satisfied with having to delay IFS, we
understand what caused these problems and we understand what we
need to do to prevent them going forward. Additionally, I would
add that CSC has stepped forward and offered to incur all the
additional costs between April and October for IFS.
Modernized e-file is a contract that is outside of our
PRIME contract but for which we do have responsibility for
integrating that application onto the secure infrastructure and
CADE Release 1. This is the all-important first step toward
replacing the master file. We have had great recent progress
and recently we have passed system integration testing, IRS
user acceptance testing, and we have conducted a pilot for the
1040EZ release. We have added 2003 tax law changes to that
system. Those changes are now undergoing testing, and we are
planning any necessary 2004 changes so that we will be ready
for the 2005 filing system to do a complete processing of
1040EZ.
Notwithstanding these accomplishments and imminent
accomplishments and progress, we are not satisfied with our
performance nor that of our alliance partners. Together with
the Commissioner, we conducted several studies, as has been
mentioned. One of those studies we commissioned ourselves and
we asked Bain and Co. to perform that study to look at where we
are having difficulties, and here is what Bain concluded.
First, that the IRS and CSC need to improve significantly
the business requirements definition process. As the
Commissioner pointed out, we can no longer allow new business
requirements to be identified during the testing phases of a
project. They must be identified at the front end of a project.
Second, both parties need to streamline the decisionmaking
process. We must have a single source of decision making
throughout the program. Consensus decisionmaking among many is
not feasible for a program of this complexity.
Third, there must be an increased focus on business
transformation, more business representation on project teams,
and an increased role by the business in the requirements
definition process and transition planning.
Last, we need to improve the accountability for ourselves
and our PRIME Alliance partners. We have to hold ourselves
accountable for our performance, and we do.
The CSC from the very top of our organization is committed
to program success, and we will do whatever it takes to
deliver. The SEI study stated, ``Stay the course.'' I cannot
agree more. While challenges lie ahead, I know the CSC team in
place today can face those challenges. The IRS and CSC must
leverage our past lessons learned and take advantage of our
successes to improve the overall delivery, performance, and
eliminate on-time, on-budget issues that persist.
The goal of CSC as the integrator for this important
program is to deliver the best tax administration system to the
American taxpayers. I am personally committed to achieve this
goal in partnership with the IRS, Congress, and the various
stakeholders. Thank you.
[The prepared statement of Mr. Cofoni follows:]
Statement of Paul Cofoni, President Federal Sector, and Corporate Vice
President, Computer Sciences Corporation, El Segundo, California
Mr. Chairman, thank you for this opportunity to testify before the
Ways and Means Subcommittee on Oversight. Over the past few years, the
management and employees of Computer Science Corporation have
appreciated the opportunity to work with the members of this committee
and your staffs to advance the effort to modernize the Internal Revenue
Service.
I am Paul Cofoni, President Federal Sector, and Corporate Vice
President for Computer Sciences Corporation(CSC) headquartered in El
Segundo, California. With approximately92,000 employees worldwide, CSC
is a world leader in helping our clients, both government and large
business, use information technologies to achieve business objectives.
These services include systems integration, consulting, and change
management.
I am here today to provide you a status of the Business Systems
Modernization Program at the Internal Revenue Service. Since December
of 1998, we have led the PRIME Alliance for the Internal Revenue
Service. The PRIME Alliance includes some of the best names in the
technology and business modernization world: SAIC, IBM, Unisys,
Northrop-Grumman and BearingPoint. While there have been some
difficulties with Business Systems Modernization or BSM as it is
referred to, the PRIME Alliance, in partnership with the IRS, have
created a strong program, architecture, and technology foundation for
future success. But, before I talk about both the successes and
difficulties at the program, I would like to touch briefly on the
history of how we got to where we are today.
Past Attempts at Modernization--The IRS originally developed its
database systems in the late 1950s and 1960s to capture, store, and
process tax return and payment information. These systems, known as the
``Master Files'', were developed largely on mainframe platforms that
provided the requisite performance, capacity, and security. At the
time, the IRS computer system was widely viewed as leading the world in
the automation of tax collection. As the volume of data mushroomed over
the succeeding decades and as federal statutes evolved concerning the
privacy and nondisclosure of confidential taxpayer information, the IRS
experienced greater difficulty in managing the data. The difficulty has
intensified with the increased demand for online data to resolve
taxpayer account issues, facilitate examination and collection, as well
as provide for improved taxpayer service.
Two attempts to modernize the IRS technology base failed. During
the 1970s, the IRS, limited by funding constraints, was only able to
replace worn out computers. Because of the underlying architecture was
so antiquated, it limited the IRS's ability to access taxpayer account
information. To overcome this shortcoming and to augment the delivery
of taxpayer services and compliance functionality, the IRS developed
stand-alone ``stovepipe'' systems with separate databases. While these
systems provided some access to limited taxpayer account information,
as the system evolved and more demands were made, the IRS experienced
increasing difficulties synchronizing disparate stand-alone systems and
databases. The IRS computing environment evolved into an
extraordinarily complex array of legacy and stand-alone systems with
respect to both connectivity and interoperability between the mainframe
platforms and the plethora of distributed systems. Additionally,
maintenance and annual updating of tax changes became increasingly more
expensive and risky.
In 1983, Congress approved a comprehensive technology improvement
plan, called Tax Systems Redesign (TSR). IRS haste to introduce new
technology for the 1985 tax season was in large measure responsible for
the first-ever filing season failure at a cost of $15.5M in interest on
delayed refunds. In response, Congress approved a sweeping Tax System
Modernization (TSM) program that was projected to cost $4B and was
slated to be operational by 2000. The Treasury Department dismantled
TSM in 1996 after repeated reviews by GAO and this committee pointed
out that the program was not delivering any significant business and
processing improvements.
The PRIME Contract--The 1998 Restructuring and Reform Act mandated
that the IRS focus on serving the public and meeting taxpayer needs and
paved the way for Business Systems Modernization (BSM). BSM is one of
the largest civilian technology renovation programs ever to be
undertaken. This modernization effort involves massive, long-term
change for all IRS organizations and for taxpayers.
Shortly after passage of the Restructuring Act and after almost two
years of competition, the IRS awarded the CSC PRIME Alliance team the
Prime Systems Integration Services Contract (IRS PRIME) in December
1998. It is a 15-year, $5B to $7B, Indefinite Deliver, Indefinite
Quantity (IDIQ) contract, where work to be performed is identified by
task order and separately procured. Through December 2003, Congress has
appropriated approximately $1.35B for the BSM program. Of the $1.35B,
the IRS has funded CSC for approximately $927M through 114 task orders
and 1100 task order modifications.
CSC, in its role as the prime integrator (The PRIME) for
Modernization:
Provides program management, technical, and process
infrastructure necessary to acquire and integrate business solutions
into the evolving IRS operational environment;
Assumes lead responsibility for maintaining the
architecture and standards for Modernization, validating business
requirements, reengineering business processes, preparing business
cases, and developing alternative engineering solutions;
Acquires, integrates, tests and deploys modernized
systems together with organizational change activities, business user
training and other support functions;
Competitively selects best-value technology solutions
that are derived from commercial best practices and custom-off-the
shelf (COTS) products developed by our PRIME Alliance partners and
other contractors;
Uses its established commercial methodologies and best
practices (CatalystSM) and those of our partners to manage
the contract and modernization efforts; and
Also may provide post-production systems operation and
maintenance (O&M) support to enable the IRS to leverage PRIME's
expertise and procurement flexibility with the aim of enhancing the
post-production Modernized environment.
Business Systems Modernization Account--To manage funding for
modernization, Congress established the Business System Modernization
Account and created several strong pre-conditions for the release of
funds from the account. IRS was and continues to be required to
undertake the following:
Create and continuously implement an Enterprise
Architecture (EA) that is an institutional blueprint defining how the
IRS operates today, in both business and technology terms, and how it
wants to operate in the future;
Develop and follow a lifecycle management program;
Acquire the services of a prime contractor to lead the
system integration effort; and
Submit to frequent, in-depth audits and reviews by the
GAO, the Treasury Inspector General for Tax Administration (TIGTA), and
the Office of Management and Budget (OMB).
As a consequence, unlike past efforts, every dollar expended under
the BSM program must undergo one of the toughest oversight and
compliance process in the Federal Government. These include stringent
business case development, compliance with the program architecture,
and the meeting of specific and defined milestones for each module of
the overall program, before additional funds can be released from the
account. While at times a burdensome and time-consuming process, it is
the government's insurance policy that its investment will be spent
wisely on technology solutions that deliver value to both the
government and the American taxpayer.
Significant Accomplishments--As stated earlier, the PRIME Alliance
and the IRS have delivered key program and technology foundational
elements for the BSM program. Additionally, a number of business
applications have provided significant business value to IRS employees
and more importantly, the American taxpayer. I want to take a moment to
summarize the joint accomplishments of the PRIME Alliance and the IRS
since the inception of the program. Let me begin with the program
foundational successes.
Enterprise Architecture/Transition Strategy. Building on the IRS-
developed Blueprint for Technology Modernization, published in May
1997, CSC and the IRS jointly developed the Enterprise Architecture
(EA)in January 2001. The EA is a business and technology blueprint that
defines both the IRS future state and the approach to achieving it.
This joint effort by CSC and the IRS has resulted in recent
recognition. The EA received the Excellence in Architecture Award from
the E-Gov, FCW Media Group and Federal Enterprise Architecture
Certification Institute on 14 September 2003. Its companion document,
the Enterprise Transition Strategy (ETS) provides the roadmap and
schedule for implementing the components defined in the EA. The ETS is
updated yearly in response to changing priorities and budgetary
constraints, and provides CSC and the IRS with critical information for
use in making business investment decisions.
Enterprise Lifecycle Process. A key foundation element for program
success is the creation of a methodology, tailored to the environment
and needs of the IRS, for implementing the EA. Using our own
proprietary methodology, CatalystSM, as the foundation, we
worked with the IRS to create the Enterprise Lifecycle (ELC), an
approach that integrates business and technical change in the IRS and
is responsive to the IRS effort to simultaneously change its business
enterprise and its IT systems. The ELC is mandated for all
modernization projects.
Software Acquisition Capability Maturity Model. CSC adopted the
Software Engineering Institute's (SEI)Software Acquisition Capability
Maturity Model (SA CMM) as a program management model. Following
deployment and internal benchmarking, CSC became the first organization
in the world to be evaluated at Level 3 of the SA CMM. Leveraging this
success, CSC assisted the IRS in preparing for its SA CMM evaluation.
In December 2002, the IRS was evaluated at a Level 2, the first Federal
civilian agency to achieve this level. All PRIME Alliance partners are
required to be rated at Level 3 or higher of the SEI Software
Development (SW) CMM.
Security and Technology Infrastructure. In May 2002, CSC deployed
the Security and Technology Infrastructure Release (STIR) that provides
a common, modernized IT infrastructure for secure interaction between
employees, tax practitioners, and taxpayers. With the need for an
extraordinarily high level of security to protect the integrity of
financial and taxpayer information, deploying modernized applications
today and in the future is not possible without the STIR in place. This
hugely complex firewall will enable the IRS to fulfill the
congressional vision of ``a customer focused IRS,'' that can provide
taxpayers with many self-help, Internet based options for dealing with
a complicated tax system, while at the same time providing the highest
level of security of confidential taxpayer information.
Enterprise Systems Management. Additionally, the PRIME has
delivered a modern tool to assist the IRS in managing the health and
security of the entire technology system. Enterprise Systems Management
(ESM)capabilities provide an around-the-clock systems monitoring to the
e-Business Modernization applications. The ESM foundation was laid for
a centralized enterprise-wide management system that will identify in
real time lapses in systems performance enabling the IRS to act
immediately to provide high-availability of critical IRS taxpayer
applications.
Let me now turn to the business solutions that have been
implemented over the last three years that have provided real business
value to the IRS and to taxpayers and third parties who interact with
the IRS by telephone or through the Internet. These solutions not only
provide improved services levels to taxpayers as desired by Congress
but the solutions in place today can be leveraged in the future to
continuously provide improvements to service levels faster and less
costly. A clear example of how one application was leveraged to
implement a program quickly and less costly was the Advanced Child Tax
Credit legislation passed by Congress last summer. I will touch on this
successful implementation later in my remarks.
Customer Communications 2001. This project improved the IRS'
telephony architecture by implementing intelligent call routing
technologies. CC01 increased the number of taxpayers serviced through
efficient call routing and shorter wait times to reach the appropriate
customer service representatives (CSRs). CC01 also implemented voice
recognition for English and Spanish callers and delivered telephony
improvements that nearly double the capacity at the 25 IRS Call Centers
from 800 to 1500 calls per hour. This improved capacity allowed the IRS
to handle 46 million calls in four months during the 2003 tax-filing
season. Approximately 84 million calls were routed in fiscal year 2003.
Today, the IRS is experiencing a 50 percent reduction in abandoned
calls and wait time and the number of Spanish calls has doubled.
Internet Refund Fact of Filing. In 2002, we expanded the IRS's
customer communications capability when we deployed Internet Refund
Fact of Filing, (IRFOF), a Web-based application that allows all
taxpayers online access to account information and the ability to track
the progress of their tax returns, including refunds. Performance of
IRFOF has far surpassed original expectations. Two million hits per
year were projected; IRFOF handled more than 15 million requests in its
first tax-filing season, and 17.9 million requests in 2003. 32% of all
refund inquires came through the IRFOF Web page. As I stated earlier as
an example of how current applications can be leveraged, in July 2003,
we leveraged the IRFOF application by implementing the Advance Child
Tax Credit (ACTC) application. Built in 2.5 months, ACTC provided
online access to tax creditpayment status to about 26 million taxpayers
and about 15.5 million inquiries have been received to date. This is a
success story that received media attention on August 8, 2003 in
Government Computer News. The Headline read . . . Taxpayers rushing to
IRS.gov . . . Let me quote from the article because I really believe
the article best describest the business value of the solutions that
CSC is delivering to the IRS and taxpayers.
One of the most popular Web sites last week was not a sports
or entertainment site, but--www.irs.gov. Eager taxpayers trying
to determine how much and when they would receive their child
tax credit checks swamped the site. The spike in traffic made
the IRS one of the top 10 Internet sites for the week ending
July 27, said Max Heineman, a spokesman for Internet traffic
researcher Nielsen/NetRatings.
. . . About 9 million visitors used the IRS' ``Where's my
advance child tax credit'' feature between July 14, when it
went live, through yesterday, said IRS spokesman Tim Harms.
``It's as successful as the `Where's my refund' feature was
last filing season,'' he said
Customer Relationship Management Exam. This project modernized
policies, processes, and technology to enable faster case resolution
and higher customer satisfaction. CRM Exam deployed an off-the-shelf
case management and resolution tool, Bureau of National Affairs (BNA)
Corporate Tax Audit Analyzer (CTAA). CRM Exam allows for highly complex
tax computation automatically, thus increasing confidence in revenue
agents' data, while reducing exam time. The average time spent on tax
computation was reduced from 53 to 17 hours, a 68% reduction. The
project team trained nearly 4,000 agents in the Large and Mid-Size
Business (LMSB) operation in use of the application with a training
approval rating from agents of 82%.
Internet Employer Identification Numbers (I-EIN). Deployed in April
2003,this project enables employers and tax practitioners to apply for
and receive employer identification number online quickly and securely,
and with less direct involvement by the IRS. I-EIN decreases taxpayer
burden through 24-hour availability and elimination of paper forms.
About 453,000 EIN applications have been processed since this
functionality was implemented.
e-services. Delivered over the last 7 months, the e-services
project offers a suite of Internet-based applications providing 7
distinct business capabilities to electronic return originators and
third party practitioners. These capabilities will answer the needs of
Electronic Return Originators (EROs) and third parties who interact
with the IRS almost daily and who have demanded these real time
paperless services for some time. Here are the new services that are
now available. EROs can now register electronically to do business with
the IRS as an ERO; they can now submit Power of Attorney applications
electronically reducing the time to represent their clients before the
IRS. The Transcript Delivery Service will provide real time electronic
delivery of tax return and account information to tax practitioners and
other third party users such as State and Federal agencies. e-services
solutions also address recurring operational issues within the IRS,
including lengthy cycle times and high percentage of rework, by making
it easier for taxpayers and other entities to transact business with
the IRS and by providing faster responses. Here is an example of how
the new e-services functionality will streamline one area of operation
of the IRS. Currently the IRS receives 1.4 Billion transactions each
year with individual names linked to taxpayer identification numbers.
Approximately 70 Million have errors. e-services will allow submitters
to validate the tax ID number before submission, dramatically improving
data quality.
Near Term Deliverables--During 2004, the PRIME Alliance and the IRS
are going to deliver a number of important projects providing
significant benefits to taxpayers and to the IRS in improving overall
management of the financial area of the agency.
Integrated Financial Systems. When deployed, this project will be a
key enabler to ensure that the IRS meets all internal and external
requirements for management controls, performance measures, and
financial reporting. The IFS will correct material deficiencies in
current financial processes identified by GAO and will help the IRS to
sustain an unqualified audit opinion on its consolidated financial
statements and comply with legislative directives. The IFS provides for
a single, integrated source for budget management, core accounting, and
cost management data and provides a general ledger for custodial and
administrative accounting. The IFS is based on an industry-standard
COTS financial package (SAP) with tailoring (configuring of the
package) to address unique Chief Financial Office (CFO) requirements.
The initial release, including core financial and budgeting
functionality is scheduled for delivery before October 2004.
Modernized e-file. Within the next few months, the IRS will be able
to receive corporate tax returns and information returns
electronically. This important step will help move the IRS closer to
the 80 percent goal for electronically filed returns while promoting
error-free filing and immediate access to return information for use by
taxpayers and the IRS. While CSC was not the integrator for this
project, this solution will run on the infrastructure platform built by
CSC and the functionality from one of the e-services applications
delivered by CSC will became a key component of this project.
Customer Accounts Data Engine--The Customer Account Data Engine
(CADE) is regarded as the most critical building blocks in the entire
BSM program. CADE will replace the 35 year-old master file system that
contains the authoritative record of all taxpayer accounts. The current
system is extremely large and in constant use. It requires
approximately 13 terabytes of mass storage and during a peak week
performs 28 million transactions. CADE will replace the existing system
with new technology, new applications, and new databases to provide IRS
employees with real-time, electronic access to all aspects of a
taxpayer record within mandated requirements for the security and
privacy of taxpayer data. Once fully operational, taxpayers will see
real benefits as well. Today's system is designed to process return
data in a weekly cycle; the new system will reduce the cycle time from
one week to one day, thus allowing faster refunds to taxpayers and also
making taxpayer return information available sooner. This will be
extremely important as the IRS moves closer to a self service strategy
for taxpayers, tax practitioners and other third parties.
Where are we today with CADE implementation? That first release of
CADE was completed in early January 2004, which I consider a major
milestone for this program. This milestone represents a lot of hard
work and dedication by the joint IRS/CSC PRIME team to make this event
a reality.
Many of you, I know, have read press accounts around the delays in
delivering CADE. As I have said before, CSC takes full responsibility
for its share of the delay in completing the first release of CADE. We
at CSC did not understand the complexity of the current systems
environment; nor did we understand what it would take to build a new
data base platform for the IRS. But let me say now, however, that in my
30 years of working in the technology field, I have never encountered
any program of the size and complexity as the business systems
modernization program at the IRS.
To put this program in its proper perspective: a 60's system,
largest data base of its kind (150 million taxpayers), $2 trillion
payments processed annually, about 250,000 business rules (about 50,000
business rules around the first release of CADE), intense security
requirements, 60 million phone calls received annually during the
filing season, and added complexity of writing software that will allow
the IRS to operate both systems simultaneously during the transition
period.
Can you think of any organization in the world that would match the
size and complexity of the IRS? I cannot.
With the first release of CADE complete, we are now on a path to
complete the next release by mid 2004 and during the 2005 filing
season, the Customer Account Data Engine will process the first 1040EZ
returns filed by over 6 to 7 million taxpayers.
Schedule and Budget Problems
While the program has experienced delivery issues with schedule and
cost, I believe that the program is on a path that will demonstrate
substantial improvement in delivery performance in the near future. Let
me tell you why I believe this to be true. The top leadership at CSC
and the IRS are committed and focused on building a business systems
program second to none. Over the last several months, CSC and IRS
senior executive leadership now meet regularly to discuss program
performance. Mike Laphen, our COO and Commissioner Everson meet monthly
and those meetings have resulted in discussions around the issues that
impede progress on the program and reaching agreement on the steps
needed to continue the momentum that the program has experienced. And
every two weeks I, along with the CSC General Manager of the Program,
Jim Sheaffer, meet with John Dalrymple the Deputy Commissioner for
Operations Support, Todd Grams, the CIO and Fred Forman, Associate
Commissioner, Business Systems Modernization, to discuss project status
along with other critical issues around the program. Additionally, we
have begun a process of co-locating CSC and IRS executives to improve
communications and to create a closer working relationship,
characteristics so important to successful implementation of a program
of this size and complexity.
Since July 2003 a number of external studies of the program have
been conducted at the request of Commissioner Everson and our COO, Mike
Laphen. Soon after his appointment, Commissioner Everson engaged
Carnegie Mellon University, Software Engineering Institute (SEI) to
perform a ``health check'' on the proposed use of the Sapiens eMerge
business rules engine for the CADE project as well as to conduct a full
Independent Technical Assessment of the CADE program. Such assessments
are conducted in response to cost, schedule and performance problems.
Principal findings of the SEI report concluded that the PRIME now
has the technical and management talent to deliver the first release of
CADE. That finding has become a reality as the first release was
completed in early January, as I stated in my earlier remarks around
the CADE project. Another principal finding was that the business rules
approach executed by CSC PRIME is conceptually sound but that the
technology needs further evaluation. The evaluation process for
business rules has already begun.
To put the accounts of schedule and cost slippages into
perspective, I want to take a moment to make you aware of a key point
made in the SEI report around the complexity of the first release of
CADE. The report observed that CADE was ``in uncharted waters'' for the
IRS/PRIME team. Moreover, the report stated that:
``Early in the assessment, both the PRIME and the IRS asserted
that Release 1 was the ``simplest of releases--just the 1040EZ
. . . the `it's the easy release' public face undermined the
ability of stakeholders, including Congress, to grasp the
complexity of the release, where approximately 85% of the code
is CADE infrastructure, with the remaining 15% related to the
1040EZ business rules. A better approach would have been to
publicize Release 1 as the foundation for CADE to better set
stakeholder expectations.''
I think this independent observation by SEI is an important lesson
for both CSC and the IRS. The lesson for me is that all of us connected
with the program must convey the``right'' message to our stakeholders
about the business of modernizing the IRS. We obviously have not done
that in the case of the CADE project.
At the same time as the SEI assessment was underway, my COO made
the decision to invest in an outside study to evaluate the program with
a focus on the significant inhibitors to on-time and on-budget
performances, and to make recommendations on what we can do to improve
overall delivery performance. Bain and Company was selected to perform
this analysis.
Bain and Company identified two primary drivers for the problems
around on-time and on-budget performance: loosely defined requirements
and under performing execution of the projects. Their review concluded
that significant changes are needed to successfully deliver business
systems modernization to the IRS. First, we must improve significantly
the business requirements definition process. We can no longer wait
until a project is in the testing phases of a project to identify a new
business requirement. Second, both CSC and the IRS must streamline the
decision-making process and authority. The program needs a single
source for decision-making; concenus decision-making among many is not
feasible for a program of this complexity. Third, both parties must
have an increased focus on business transformation, including more
business representation on project teams, and an increased role by the
business in requirements definition and transition planning. Lastly,
improvement in subcontractor accountability and delivery is essential
for success. We must hold our subcontractors accountable for excellent
performance.
In late October 2003, Commissioner Everson and COO Mike Laphen
initiated 46 action plans to address the findings of these studies over
a period of six months. Senior executives from the IRS and CSC are
leading the work around these action plans and as of today, work has
been completed on almost two-thirds of the actions. The IRS Oversight
Board issued an independent report in late December and the principal
recommendations in that report are covered by the joint IRS/CSC action
plan work.
Closing Remarks
In closing, the IRS Modernization Program is at the top of my
company's watch list of projects. Our CEO is briefed periodically on
the progress we make in modernizing the IRS as well as the challenges
we face in delivery performance. COO Mike Laphen, Jim Sheaffer, the
General Manager, and myself are personally committed to program success
and we will do what it takes to deliver. One study, SEI, stated, ``stay
the course.'' I cannot agree more. We have made significant progress
over the last 6 months. The fact is we have delivered significant
business value to our American taxpayers and to the IRS. The
infrastructure that we have built is stable and secure and will serve
as a cornerstone for future successful deliveries of improved services.
We have created a solid management process foundation, and we have
delivered a number of applications that ease the burden of taxpayers
and third parties who interact with the IRS by telephone and through
the Internet. While I know that more challenges lie ahead, I also know
that the CSC team in place can successfully meet those challenges. The
IRS and CSC must now leverage our past experiences with modernization
and continue the commitment to work together in partnership and trust
(and I cannot emphasize enough the importance of partnership and trust)
to improve overall delivery performance and to eliminate on-time and
on-budget issues. The goal of CSC, as the integrator for this important
program, is to deliver the best tax administration system to the
American taxpayers. I am committed to achieve this goal in partnership
with the IRS and Congress and our various external stakeholders.
Mr. Chairman, I thank you for the opportunity to appear today
before you and your subcommittee and I will be happy to answer any
questions.
Chairman HOUGHTON. Thank you very much, Mr. Cofoni. I am
just going to ask a question, and then I will turn it over to
you, Earl and Rob.
I thank you very much for your testimony. Let me just
direct this to you, Mr. Cofoni. You have got a great company,
and you have done a lot of things right. At the same time, we
are responsible for people and their money and the investment
of the tax dollars. The bottom line is that we haven't met the
mark. We can't manage this. We are the distributors of funds to
the IRS, but we have got to have oversight and confidence that
this is going well.
It seems to me that there is such a difference between your
testimony and that of some of the others. Tell me, why is this
difference there?
Mr. COFONI. I don't think there is a fundamental
difference. I think we are proud of the accomplishments that
our people have made and our alliance partners have made, and I
wanted to make sure that we articulated those for you today to
make sure you had a balanced view. We accept responsibility and
accountability for the slippages in the case of both CADE and
now IFS. By the way, of all the five projects that are being
discussed, three of those fall under my contract, our contract.
For the two, CADE and IFS, we have stepped up and we have
taken the responsibility for cost overruns. We did that for
CADE a year and a half ago and we did that just recently when
we announced the IFS overrun. So, we recognize that these are
problems, we have taken aggressive action based on the studies
that have been done, and we will continue to take actions to
improve.
There is no escaping the fact that we are not proud of our
performance on the program in terms of cost and schedule. We
are quite proud of the deliveries, the quality of those
deliveries, the acceptance within the IRS and by taxpayers of
those deliveries.
Chairman HOUGHTON. I think when a contractor takes on a
job, it writes its name in blood on this thing.
Mr. COFONI. That is true.
Chairman HOUGHTON. This is what we are going to do, and if
we don't do it, it is our fault. If we don't do it, you have
got to have an interaction between the people who you are
working for and you have got to anticipate and make tough
demands. If this isn't working, we are going to do this, and if
that isn't right, we can't do the work at all.
I don't see that. I see it has been bubbling and bubbling
and bubbling along, and all of a sudden, there is
disenchantment within the system and it is laid on your
doorstep and really, in effect, you are the fellow that is
responsible.
Mr. COFONI. Yes, sir. I accept that criticism, and we have
put some new stakes in the ground. We are not going to start
new work before the requirements are fully defined in detail.
That has been at the heart of our problems. The core problems
underlying these overruns have to do with unknown requirements
and unknown data conditions. There are other contributors, as
well. I don't mean to single only those, but those are the
core.
We have rededicated ourselves to not go forward. We will
not take work if we don't have requirements defined well in
advance. We will walk away from that work.
Chairman HOUGHTON. That is ex post facto. What about a year
ago?
Mr. COFONI. I think a year ago, our people were trying to
do what they believe was in the best interests of the IRS. If
we didn't feel we understood all of the requirements, we moved
forward in any--we moved forward. We moved forward with the
feeling that we were doing the right thing for the IRS. As it
has turned out, this was not the right thing. The right thing
would have been to have stopped work at that point, not be so
accommodating, and demand that we had a detailed sense of
requirements, that we put our absolute best people into the
requirements process collectively and drove those out.
I will add, however, even after doing that, these are 40-
year-old systems. When I ask my people about the documentation,
they laugh. The documentation is not there on these systems.
So, in many cases, our requirements, defining the requirements
that are embedded in the existing systems is like an
archaeological dig. We have to strengthen our interrogation
processes and our research processes to get at a great
percentage. I think we will always need a reserve against those
unknown conditions that no one seems to have----
Chairman HOUGHTON. Rather than laughing, did you point this
thing out to the people in the system?
Mr. COFONI. Oh, of course. They take this seriously. This
reflects on their personal performance, their careers. They are
in most cases working 6 and 7 days a week, 60 hours or more,
100 percent committed to the effort, but we have them in a very
difficult----
Chairman HOUGHTON. Well, look, we will have a chance to
kick this around and get the opinions of other people on the
panel. I would like to ask Mr. Pomeroy to take over here.
Mr. POMEROY. Mr. Dacey, I think I will ask my first
question to you. In looking at a table of cost overruns, it
appears that the magnitude of what we are talking about is cost
overruns of $290 million, a cumulative delay in terms of
deadlines blown of 83.5 months. Now, that is taking specific
programs and adding them together, but does that sound about
right in terms of what you have been able to see with this
project?
Mr. DACEY. Yes. The table in our testimony is two parts,
first of all, the completed projects, which we talked about
earlier today, as well as the ongoing projects. It doesn't
count some of the other efforts that were taking place in prior
years for which those projects have been deferred or delayed
for the future.
So, with respect to our table, this does represent the
overruns for those projects, but again, there are other
projects that aren't on this table that have been part of the
earlier parts of BSM.
Mr. POMEROY. So, as bad as this is, if you go back in time
just a bit, it gets worse?
Mr. DACEY. Well, there are other costs in there and we
haven't analyzed the overruns, but in going through this
process, we had made recommendations consistently that they
needed to balance the pace of these projects with their
capability to manage them. As part----
Mr. POMEROY. Thank you. I am sorry, I didn't mean to cut
you off, I just have--I want to use my time as well as I can
here.
Mr. Levitan, you have brought a career's worth of
experience in consulting, looking at relationships between
enterprises and their consultants, looking at consultant
contributions to major project upgrades within enterprises.
Based upon the wealth of experience you bring to the Oversight
Board, how would you describe this particular project, as way
off, really horrible, missed the mark a bit? Where in the
spectrum are we?
Mr. LEVITAN. First of all, it is a very, very difficult
program, but that doesn't make excuses. We have missed the mark
significantly. The IRS has missed the mark in managing the
program. The PRIME contractors have missed the mark both in
delivering results based on commitments for target dates and
costs and also in their responsibilities to be a trusted
partner and advisor to the IRS and help the IRS in an effective
way in managing the programs. It has been a significant miss on
all accounts.
Mr. POMEROY. I appreciate that comment. I do think it is
important that we underscore the scale of what we are talking
about. Some of the discussion sounds like an unsatisfactory
performance review that might be conducted within the norms of
business operations, but I believe missing the mark by $290
million, the delays, the insufficiency of meeting the deadlines
is really of a stunning magnitude. If this does not provide
some breach in the trusted relationship between contractor and
the IRS, I wouldn't know what was. Certainly looking at it from
the generalist perspective of a Subcommittee on Oversight
Member, I am stunned by what I am seeing here, and I am deeply
alarmed about it.
Mr. Palmquist, some of your evaluation is that the
technical expertise with the contractor wasn't quite where it
needed to be to get this job done, if I understand your
testimony correctly.
Mr. PALMQUIST. Yes. We had questions about, say, things
like the testing process which the Department of Treasury
Inspector General also had questions with. Frequently, testing
was not coordinated, say, between CSC and IBM, where they may
both be looking at the same defect, both approaching a
solution, but not in a coordinated fashion. So, they may both,
in fact, be correcting the same thing, and then those
corrections may not sync up later on. So, in many cases, it was
not coordinated on a technical side.
Mr. POMEROY. If I understand correctly, in order to make
certain that you have got sufficient horsepower in your
contract, in this case, there is a benchmark that they need to
make, a capability maturity model (CMM) certification. Is that
correct? Is that what this is geared toward?
Mr. PALMQUIST. We have several CMMs, the software
acquisition CMM that Mr. Cofoni spoke about, as well as the
software development CMM. The CMM is only part of the solution,
to take the SEI itself as an example. The SEI has four
initiatives--process is one of them. The other ones are
architecture, security, and performance critical systems.
Processes in and of themselves don't result in a defined
product, as I stated in my testimony. Sometimes these processes
were not backed up by sufficient technical experience or
expertise, and that was one of the areas where we found some
lacking.
Mr. POMEROY. So, is CMM a process evaluation or does it
also include personnel and their competence?
Mr. PALMQUIST. It is an evaluation of processes.
Mr. POMEROY. Although Mr. Cofoni notes that they are the
first to obtain the Level 3 certification for processes under
the CMM, I would note that you just got it last August when
under the contract you were supposed to have it July 1, 1999, 4
years earlier. To this point, Mr. Cofoni, did you receive any
financial penalty for being 4 years late in having your system
certified as required under the contract?
Mr. COFONI. No, sir.
Mr. POMEROY. I am interested in what is the manner of
financial penalties you have received for failing to meet
performance, for contractual commitments.
Mr. COFONI. We have, since 18 months ago, some 18 months
ago, been paying for all of the work being done on CADE. All of
our costs and our PRIME Alliance partners' costs have been paid
for by our company.
Mr. POMEROY. What have you been compensated in cost
overruns under your contractual relationship with IRS, do you
know?
Mr. COFONI. I don't have that. About four----
Mr. POMEROY. It was cost overruns of $290 million, and you
having the, certainly the lion's share of the relationship, I
would expect most of the compensation under the cost overruns
has come to your firm, correct?
Mr. COFONI. That is correct for those projects on the list
that are within the scope of the PRIME contract, which are the
ones--I don't have the list in front of me--so the ones that
are active projects today are e-services, which we just
concluded, IFS, and CADE. The others, I don't have the table
that you are referring to so I am a little disadvantaged, but--
--
Mr. POMEROY. While your people review that, I have got
another question that actually you may find more agreeable. You
indicate that under this contract, you have discharged 114 task
orders and 1,100 task order modifications. Now, are those
essentially change orders?
Mr. COFONI. Yes.
Mr. POMEROY. That you are getting from IRS?
Mr. COFONI. Yes.
Mr. POMEROY. The IRS is not represented here, but someone
looking over this, either Mr. Dacey or any of the other three
of you, are these change orders driven by legislative changes
that Congress keeps passing so that the target keeps moving of
what we are trying to get the system to do, or is it simply a
very, very poorly commenced project?
Mr. LEVITAN. Mr. Pomeroy, let me respond to that. The
change orders are many different things. Some of them are
legislative in nature. Others are that the IRS did a poor job
in defining their requirements in the beginning and then their
processes of controlling the change orders was not very
effective. They are trying to address that now by the
organizational changes that the Commissioner described
previously, putting Mr. Dalrymple in charge of managing that
process.
Again, many of those change orders, I would say the
majority of them were initiated by the IRS. Some of them were
absolutely necessary. Some should have been caught much
earlier. I would say that the issue there rests primarily with
the IRS, not with the contractor.
Mr. POMEROY. Is there a broader lesson to be drawn from
this? As we outsource, we absolutely must retain within the
staff structure of the government agency doing the outsourcing
sufficient technical competence to adequately engage and
oversee the contractor?
Mr. LEVITAN. You are absolutely correct. It is not just
technical competence. Even more importantly than that, it is
the project management competence. Quite honestly, the Board
has been telling the IRS that its own capabilities to manage
the program and oversee the contractors has been inadequate.
They have been very slow to move on that and make the necessary
improvements. Again, steps are underway at the present time to
bring in additional resources to help accomplish that.
Mr. POMEROY. A final focused question, Mr. Chairman. Thank
you for your leave here. Mr. Cofoni, you indicate in your
testimony you have 92,000 employees worldwide. Is this work
being done in-country?
Mr. COFONI. All of the work for the IRS is being done in-
country, principally done in Maryland in our New Carrollton
facility across the street from the IRS facility.
Mr. POMEROY. Thank you.
Chairman HOUGHTON. Thank you. Mr. Portman?
Mr. PORTMAN. Thank you, Mr. Chairman, and thank you,
gentlemen, for your testimony this morning. I started off my
last comments saying here we are again, and it really is
frustrating for all of us to once again be in a situation where
we are partway through a business modernization process, in the
case of the important work on CADE and important work on the
IFS. We were hoping to get IFS done early this spring, hoping
to get CADE done back in year-end 2002, I believe, and yet we
are reaching to try to get those done this year. So, the
question is, how do we keep the momentum going toward a
deliverable here, at the same time being sure that the problems
we have encountered are handled properly.
The first question I am going to ask is to the entire panel
except for Mr. Cofoni, which is should we change PRIMEs at this
point? Are we at the point where, again, despite the fact that
at least in a couple of these deliverables we are close, we
hope, to accomplishment, have we had enough problems here in
terms of the cost overruns, in terms of the delays, that we
should change the PRIME? Mr. Levitan, I will put you on the
spot.
Mr. LEVITAN. Mr. Portman, I am going to have to come back
at you. The RRA 1998 specifically precluded the Board from
getting involved in procurement activities. Our legal counsel
has told us that advising the IRS to fire a contractor would be
getting ourselves involved in that.
We have been very strong in saying that the IRS needs to
look at all options in strengthening the team to get done what
needs to get done, and we feel very strongly about that. We are
precluded from making a recommendation to fire anybody.
Mr. PORTMAN. I have to respect your inability to get
involved in procurement, since those of us on this panel were
part of establishing that and I think that was appropriate. I
am not sure that it is fair to say that we didn't view the
Board's authority to include looking at a big picture issue
like this and telling us what direction we ought to take, so
perhaps we could differ on whether this is a procurement issue
or whether it is a recommendation of the Board on a major
modernization project, but I won't put you on the spot any
further, at least not in public testimony.
Mr. LEVITAN. Just let me go one step further. I think that
looking at this issue is not a black and white issue.
Mr. PORTMAN. I couldn't agree more.
Mr. LEVITAN. It is not a ``keep going with everybody doing
what they have been doing,'' or ``fire the contractors and
start all over again.''
Mr. PORTMAN. Yes. There is plenty of blame to go around.
Mr. LEVITAN. There are a myriad of options.
Mr. PORTMAN. Part of the blame rests right here, I believe,
in Congress, because we have not been perhaps as good at
oversight as we should have been over the last few years in
following this, being sure the requirements were appropriate,
being sure there weren't over-promises, being sure that the IRS
had the management systems. There is certainly blame at the IRS
and I think you, Mr. Palmquist and Mr. Dacey, have all outlined
that. I think Mr. Pomeroy just referenced one, which is lack of
expertise both on management and with regard to technical
expertise.
I still pose that question. I am not suggesting it is black
or white, but I do think that is something that as a fiduciary,
being a Member of Congress representing a lot of people who pay
taxes, some of which have now been used for a program that has
had huge cost overruns, I think it is an appropriate question
to ask. Mr. Palmquist, could you answer my question?
Mr. PALMQUIST. Congressman, we, as a federally funded
research and development center, are also prohibited from
making direct source selection decisions, but we do, in fact
provide counsel. We did provide Commissioner Everson our
thoughts in general on a replacement of a PRIME contractor on a
contract of this nature and magnitude. The fact is,
unfortunately in the state of affairs today, many programs,
with many different PRIMEs, are experiencing similar problems.
In other words, a new PRIME is not necessarily going to change
a program radically. Also, a change in PRIME at this juncture
would result in a tremendous loss of experience that has been
gained, some good experience, some bad experience.
So, while we did not and cannot directly advise that, we
did tell Commissioner Everson that there are a good number of
issues that would come up in the change of the PRIME. We felt
it would be a setback in the program of several years.
Mr. PORTMAN. I won't attempt to paraphrase what you just
said, but it sounds like what you are saying is you identified
problems, again, that can be shared, but certainly with the
contractor, and yet you believe from your experience with other
agencies and departments that these problems are not unique to
the IRS. You are not sure there is another PRIME out there that
has done much better, and that you believe that given their
experience, it would be a mistake at this point for them to
pull this contractor.
Mr. PALMQUIST. Again, sir, without directly making a
comment that would directly affect the source selection
decision that this would be, we see a lot of benefit in staying
the course. We also do see benefit in a change. We see a lot of
evidence indicating that the team that is in place is a capable
team, and if corrections are made, can, in fact, deliver for
the IRS.
Mr. PORTMAN. Mr. Dacey?
Mr. DACEY. In terms of----
Mr. PORTMAN. You are not constrained by any of these
procurement issues, I know.
[Laughter.]
Mr. DACEY. No, but I won't be making a recommendation today
either on that account. I think the issues raised are valid,
and certainly SEI in their report raised a number of the issues
that would have to be considered. Certainly Commissioner
Everson this morning had indicated an approach to moving some
of the other contracts away to potentially other contractors
until it can be demonstrated that CSC can carry out the current
contracts, and I think those are all valid considerations.
I think the other issue, too, which hasn't been highlighted
yet is that a lot of the issues are going to need to be
resolved by IRS itself and switching contractors isn't going to
fix that. So, there is a heavy amount of effort that I think
IRS needs to accomplish, and they have set about doing that
would have to be done regardless of the PRIME.
So, I think there are just a lot of issues there. Again, I
don't have a bottom-line analysis. I won't give one today. We
haven't studied it in any great detail, but there are
substantial issues that would need to be addressed and
considered before any consideration like that were made.
I would highlight, too, that the Commissioner's
announcement of looking to other contractors is, from a
personal standpoint, a little bit of competition, which is
healthy in that regard. I would, however, warn that it would be
important to make sure that those efforts, to the extent that
they interact with the systems that are being developed by CSC,
are well coordinated and also reiterate our concern which we
have made for several years that IRS needs to have the internal
capacities and management capabilities to manage the contracts,
whether it be by PRIME or someone else.
So, simply taking that to another contractor may not be the
full solution. The IRS really needs to make sure they have got
their house in order and don't take on too many projects that
exceed their capabilities.
Mr. PORTMAN. My time is ending and I wish I had much more
time, but let me just, if I could, ask another general
question, Mr. Chairman, with your leave. Mr. Cofoni, would you
like to comment on any of the other three comments?
Mr. COFONI. No, thank you.
Mr. PORTMAN. I don't want to put you in that position if
you are not comfortable.
Mr. COFONI. We do feel that the right thing for the
government and the IRS, and this will sound self-serving, but
we honestly believe that the body of knowledge we have
accumulated in the last 4 years has enormous value to us going
forward, so we would obviously--we would like to continue.
Mr. PORTMAN. It seems to me that, Mr. Levitan, you are
somewhat optimistic about IRS making some of the changes that
Mr. Dacey just outlined and that, in fact, you think some of
those changes have been made even in the short term. Certainly
the announcement today that the Commissioner is looking to
other contractors for some of the other projects would be
consistent with the general advice that the Oversight Board has
given. You have also, though, given some very specific advice
on limiting these projects, in fact, even postponing some,
focusing on, it seems to me, some of the more important ones.
Do you think the IRS is making progress, and then let me ask a
general question of the whole panel.
One of my concerns about this process of contracting on
information technology is that it seems to me when you go
through the request for proposal process, which is where these
companies are competing for this business, that there is often
an issue with requirements. As we have said, the IRS did not
perhaps spell out the requirements and some of the data
surprises may relate to that. Also in the nature of
competition, there is over-promising.
I would just like to get, once Mr. Levitan has a chance to
answer that earlier question, just a general sense, because
this is important going forward, how much of it is due to the
requirements not being spelled out properly and true surprises,
to the extent those can be identified as separate from what
should have been in the requirements, and how much of it is
just contractors want this business so they make promises they
can't keep. Once they get halfway or two-thirds of the way
through the project, it is their project, understanding that on
IFS, Mr. Cofoni, you are willing to pick up some of these costs
yourself. That is just a general question that I have about
this that I think is relevant going forward. Mr. Levitan?
Mr. LEVITAN. As I mentioned, the project fell in a ditch
this summer. I was very impressed with the way the Commissioner
reacted to that and the way he stepped back and said we have
got to do a thorough study, we have got to put in a plan of
improvement.
Going back to our nine specific recommendations, eight of
which had nothing really to do with the PRIME, we have seen
some significant progress on that. Business unit management of
the program is well underway. Putting John Dalrymple in charge
of that for the IRS is a very positive step.
Creating an environment of trust and confidence and
teamwork is another responsibility of the Deputy Commissioner.
That is going to take time because it is a cultural issue, and
even the very--and what I am talking about here is the various
units of the IRS working together in an effective and trusting
way. That, I think, is starting to happen. It needs a lot more
work.
They have made changes to the systems development life
cycle to make it more effective and putting in place steps to
make sure that they are following that, which they didn't
always do in the past. The contracting process continues to be
an issue and needs a lot more work.
The experience of the IRS management team is very
important. They have started searches for people to bring in
and strengthen that team. They are doing the right thing, but
that effort is moving glacially slow and needs to be moved
ahead much more quickly.
So, I think a lot of the right steps are underway. They are
just underway and will require a lot more work to really put
them in the position that they need to be in to manage the
program and work with the PRIME in an effective manner.
Mr. PORTMAN. I know you will continue your oversight to
make sure that happens, Mr. Levitan. We appreciate what the
Board does and your expertise.
On that general question, are there any comments? My time
is ending here, so you will have to be brief. Mr. Dacey, you
have got some experience with this.
Mr. DACEY. In terms of the issues in going forward, again,
there are a number of challenges. I think that the
recommendations that were contained in this number of studies
were good things, and I think IRS's intent to continue to use
outside folks with expertise to help look at their processes in
carrying those forward is another important element. These
studies, which were commissioned in 2003, were fairly extensive
relative to the work that had been done before from an outside
viewpoint, and I think continuing that is a very positive
thing, to keep watching the process as it goes forward and keep
seeing if it is progressing as IRS plans.
Mr. PORTMAN. Mr. Palmquist?
Mr. PALMQUIST. Yes, just to echo, the improvement effort
itself needs to be treated as a project. It needs to be
planned. It needs to be budgeted quite honestly and monitored.
It can't be assumed to happen just by good intent. It needs to
be its own separate effort.
Mr. PORTMAN. I thank my colleagues for their deference.
Chairman HOUGHTON. Thank you. Mr. Weller?
Mr. WELLER. Thank you, Mr. Chairman. I appreciate this
opportunity. I direct my question to Mr. Palmquist, Mr.
Levitan, and Mr. Dacey, if each of you would respond. In its
report, the SEI identified two cases where the primary
contractor, Mr. Cofoni's company, attempted to develop software
in-house instead of acquiring it from companies with expertise.
These decisions later proved to be costly. I was wondering,
what would you recommend to avoid a recurrence of this kind of
decision making?
Mr. PALMQUIST. Congressman Weller, I assume you are talking
about TRW and also to the first attempt at a business rules
engine. The business rules engine effort that failed in early
2001 turned out to be--we did not investigate this
extensively--but turned out to be a combination of business
factors that simply weren't understood at the time and, also I
think, requirements. The effort to use TRW to do the legacy to
the computer--excuse me, the interface to the legacy
environment--we understand that the proposal that was delivered
did not meet the schedule as envisioned and, therefore, was not
accepted. In retrospect, that appears to have been a decision
that cost the program.
The CSC has worked to invigorate their development
environment. The use of the business rules engine is part of
that, but the development environment does need to--is
improving, but does have some issues still remaining, again,
with respect to the testing element, and contract and
requirements management.
Mr. WELLER. Mr. Dacey or Mr. Levitan, do you have a
comment, please?
Mr. DACEY. Again, we haven't done a significant analysis of
those particular issues that were just discussed, but I would
like to say that it is important to have appropriate amounts of
information when these decisions are made, as the TRW example,
I believe, was a situation where there was, I think, an overly
optimistic expectation of when this software would be delivered
and the decision was made, well, TRW can't deliver in that
timeframe. As it turns out, it has taken much longer to develop
the product, and as was just mentioned, had that been known in
the beginning, it could have been factored in most likely.
So, I think the key gets back to fixing some of these
fundamental issues of understanding the projects and coming up
with reasonable cost estimates and processes that will yield
those. I do think, as said before and we have said before,
there have been overly optimistic expectations, too, in setting
these up, as well as the issues having to do with some of the
other problems that have delayed it, like system requirement
understanding and things of that nature.
Mr. WELLER. Thank you. Mr. Levitan?
Mr. LEVITAN. Systems projects fail or have significant
overruns for one or a combination of three reasons. Number one
is we don't have the appropriate methodology. In this
particular case, we had a pretty good methodology, but it
needed some improvements. Those improvements have now been
made, positive factor.
The second reason projects run into trouble is the project
teams just don't follow the methodology. They try to take
shortcuts. That was done over and over again in this particular
case. We now have a commitment that that will not happen again,
that we will have the appropriate discipline and management.
That is yet to be proven, needs to be monitored very carefully.
The third factor is the skills, capability, and experience
of the people who are actually doing the work. We think that
that has been demonstrated, that that has been inadequate and
has not been fulfilled and that is still to be proven going
forward, and we are very concerned about that.
Mr. WELLER. Thank you. Mr. Cofoni, I hope you respect my
questioning. I am one of those who believes in giving the
private sector the opportunity to participate and contribute
because I believe there are efficiencies in the private sector,
so I hope you realize my questioning was friendly regarding
that particular issue.
The other question I would like to direct to you, Mr.
Cofoni, and you have already addressed part of it, you
indicated the earlier issue of off-shoring of various types of
government contracting jobs, that potential, and I know you
answered earlier that you have no workers outside the United
States performing any work for this IRS contract. Are you aware
of any subcontractors or any other contractors to the IRS that
have that work performed offshore?
Mr. COFONI. No, sir. All of the work we are doing and our
PRIME Alliance team members are doing under this contract is
being performed within the United States.
Mr. WELLER. Okay. Mr. Levitan and Mr. Dacey, from your
perspective, there has been some concern that I have heard from
constituents that I have that there is potential that tax
preparers may be using workers outside of the United States to
do tax preparation work and their concern is there is personal
security, their privacy regarding someone who may have access
to their personal data when it comes to tax preparation.
Number one, are you aware of any tax preparation firms that
today are using workers outside of the United States to do tax
preparation work, and then from your perspective, are there any
personal security concerns that we should be aware of or
sensitive to?
Mr. LEVITAN. Mr. Weller, the Board has not looked into that
issue so we really don't know the answer to that. It obviously
is a concern and could be a concern and deserves looking into,
but we have no knowledge of this at the present time.
Mr. WELLER. Okay. Mr. Dacey?
Mr. DACEY. I would echo Mr. Levitan's comments. We also
have not done any work in that area to look at it. I am not
familiar with those tax practices necessarily, but it is an
issue that does need to be considered, I think, as well.
Mr. WELLER. Thank you. Thank you, Mr. Chairman.
Chairman HOUGHTON. One of the things that I guess baffles
me is that here we are. We are the Subcommittee on Oversight,
and we can't get into the management here. We can ask
questions. We can make suggestions. We can, I suppose, hold up
money for the IRS, but that is a tough issue because it is such
a vast operation, and in general, they are doing a great job.
The Oversight Board that you are in charge of, isn't that
part of management? You can make some recommendations, but you
don't really get into the works. Carnegie Mellon and Mr. Dacey,
you can do analysis. You can help, but you are not really in
there.
I would like to ask you, Mr. Cofoni, not trying to pin the
tail on you or your excellent organization, at what time do you
cancel the contract with a PRIME contractor? What prompts you
to do that?
Mr. COFONI. I would say certainly if we don't take the
recommendations that have come from these studies that are root
cause analysis and corrective actions, if we don't implement
those actions and see improvement, then that would be a cause.
If we don't deliver the end products of CADE and IFS, it seems
to me those would be indicators. We are committed to doing all
those things.
Chairman HOUGHTON. At what point would you go to the
Commissioner and say, it is impossible for us to operate here.
The conditions are such that we cannot do the work which you
expect of us and therefore we want to resign our contract.
Mr. COFONI. We have begun to take positions--in the past--I
want to correct a possible perception that we might take,
continue doing work for revenue purposes. In all cases where we
continued doing work before having a good set of requirements,
it was with the best interests of the IRS at heart, people
trying to be accommodating, trying to meet commitments,
schedules that were necessary for internal performance or
commitments externally.
So--but we have had a bit of an epiphany. We really
understand we can no longer do that, and we have put a stake in
the ground and we have stopped work on projects when we thought
we didn't have the right prerequisites to do a quality job.
That is going to be the new pattern and that will be our
behavior going forward.
So, at what point, it is going to be at the point where we
don't have clearly defined, detailed requirements, and it is
okay. If we together don't understand what they are, then we
should continue to explore, and if at the end of exploring we
are still not convinced we know what they are, then we need to
provide adequate reserve to deal with the unknown unknowns. So,
I would say if we don't have detailed requirements, we are not
going to go forward on any new work.
Chairman HOUGHTON. When you deal with a consultant or with
anyone from outside your shop and you buildup a body of
knowledge, it is very difficult to cut the string because it is
expensive, there is lack of education and personal contacts and
things like that. Yet at the same time, it is important to look
very firmly at whether people are doing the right job.
Equally important as what a contractor has done, and we
have touched on this all along, is what happens inside the
shop. Mr. Levitan, you said that there is glacial progress as
far as management getting a hold of this thing and squeezing
it. Break it down a little bit, will you?
Mr. LEVITAN. The specific area that I mentioned was
improving the capability of the IRS to manage this program, and
they just do not have people--the numbers of people or people
with the depth of experience of managing programs of this scale
to be able to do that. They are not capable of doing that at
the present time. They have recognized it. They have initiated
some searches. They have search firms working for them, trying
to identify and then hire people that can bring that added
competence. It has been moving very slowly and we have been
urging them to make that move as quickly as possible.
Chairman HOUGHTON. Let me just cut in here a minute. I see
an almost impossible situation out there. If you are right and
there is a lack of management ability to direct and enforce and
monitor what is going on in terms of the PRIME contractor, and
yet on the other hand in terms of the IRS internally there is a
lack of confidence in what the PRIME contractor is doing, how
do we get out of this mess?
Mr. LEVITAN. That is the crux of the issue. Again, we get
out of the mess by improving the capabilities of the IRS
through process improvement and people and experience
improvement, by working with the PRIME team, trying to make
sure that we get the right people doing the right work that
have the right skills, and that needs a lot more attention. It
is going to take time, it is going to take a lot of work, and
there will continue to be significant risks in that.
Chairman HOUGHTON. We all know it ought to be done. The
question is, will it be done and who does it and what part does
this group play in this thing? We can ask questions. We can sit
here, and we can be interested in your particular expertise. Is
there a confidence that the next step will be taken so we are
really going to get our hands around this thing so that next
year when we have a session like this, a hearing, we are not
going to be talking about the same issues? This has been going
on a long, long time.
Would any of the rest of you have any comments on that, Mr.
Palmquist, Mr. Dacey?
Mr. PALMQUIST. Mr. Chairman, one of the recommendations--
the fundamental recommendations we made in our report--was that
at this point, there is no coherent systems engineering process
on CADE which takes care of looking at CADE long term. The CADE
has been allowed to focus on the short term because of the
problems. To echo Mr. Levitan, the IRS itself does not have a
dedicated systems engineer. They don't have a dedicated
software architect or software engineer. They don't at this
point have the technical staff to work with the program.
The recommendation that we would have is to treat this
improvement itself as a project along with the delivering of
the deliverables. It needs to be measured, it needs to be
agreed to by all stakeholders, so as you said, we don't arrive
here a year from now. There have to be points along the way
where you are looking and say, where are we? If this is not
working, to have the defined actions in place that I will take
step A or step B at this point, which, as you said, could
include a change, could include a continuation.
Chairman HOUGHTON. What chance would you have, before we
move back to Mr. Dacey, what are the odds you would give to
this thing working and getting back on track, 1 out of 10?
Mr. PALMQUIST. As we told Commissioner Everson, we gave a
60 percent chance that Release 1 would be delivered by the end
of this year. That was Release 1 as defined to us back in the
fall. I don't know if that functionality or design has changed.
I understand that there are elements that have. I would
probably -as an engineer, I am going to have to pick a
deliverable--and so I will go with that. We predicted a 60
percent chance of delivering CADE Release 1, which is
fundamentally the infrastructure.
The CADE Release 1 is actually viewed, in our opinion,
incorrectly. It is far more complex than simply the small group
of 1040EZs. When Release 1 is there, the infrastructure is
there for the rest of the releases, but we went with 60
percent, Mr. Chairman.
Chairman HOUGHTON. How about you, Mr. Dacey?
Mr. DACEY. In terms of the issues that we started to talk
about, Mr. Levitan and Mr. Palmquist, there certainly is the
human capital element of this which needs to go on. I think an
important point that Mr. Palmquist made was you need to manage
the process of fixing these issues almost as a separate
project, and I think that is important. Again, one of the
concerns we have had all along has been that the projects
continue to roll on in the hope that some of these other things
will get resolved, but there wasn't a separate process there to
make sure they all got fixed.
I would also like to say that in looking at this
modernization process at IRS for quite a number of years now,
it was only in the recent couple of years that some of the very
foundational elements of system development were in place in
enterprise architecture, a life cycle which specified how these
processes were to take place and implementation of some of
these improvements in the management practices. That is, again,
a relatively short period of time.
So, I think that those have been very positive steps in
getting some of these foundational elements in place, but
again, as we are finding in some of the testing, there are
still risks that some of the things that weren't dealt with
very early on in the program project development are creeping
back in and causing problems today.
I would like also to say that our relationship with the IRS
has been positive. They have been open and candid and sharing
very openly in our experience with these processes, which is a
very positive step in my mind. They haven't tried to, in our
mind, hide anything or do anything that would obfuscate our
efforts. So, I think that is a very positive step in their
acceptance of that. I don't know what the experience is of the
other folks, but I assume it is similar.
Chairman HOUGHTON. Okay. Mr. Pomeroy, do you have any
further questions?
Mr. POMEROY. I want to thank the panel. It has been a very
interesting hearing, Mr. Chairman. I particularly have enjoyed
Mr. Levitan's laying it right out there very straight. Having
heard a lot of witnesses, I found your take on all of this to
be very helpful.
I also thought Mr. Palmquist's comments on managing the
improvements as a separate project has an ongoing role for this
Committee, Mr. Chairman. I would think we would probably want
to reconvene this forum in a number of months, to be discussed
in terms of what would be an appropriate time frame, but if we
manage it as a separate project, I think there is an ongoing
oversight role in seeing how we are coming. Thank you.
Chairman HOUGHTON. Thank you. Gentlemen, thank you very
much for your time and your wisdom and your advice. Thank you.
Meeting adjourned.
[Whereupon, at 11:20 a.m., the hearing was adjourned.]