Glitches prompt IRS financial review system to fall short of expectations

Budget cuts and hardware and software problems have hampered the deployment of a system the Internal Revenue Service uses to review and track financial data of tax-exempt and government groups, causing a limited return on the multimillion-dollar investment in the project, according to an audit by the Treasury Department's inspector general.

The IRS turned on the Tax Exempt and Government Entities Reporting and Electronic Examination System in April 2008. TREES is a single electronic case and inventory management system that agency employees use to review financial records to determine the tax liability or exempt status of nonprofit and government organizations.

"While some improvements have been made to the system since its release, the [Tax Exempt and Government Entities] division has not realized the expected improvements due to difficulties in deployment and because many planned capabilities were not delivered because of budget cutbacks," said the Treasury inspector general for tax administration in a January audit that was released on Thursday.

"If additional actions are not taken, the federal government will not receive the highest possible return from the $18.7 million of taxpayer funds spent on developing and implementing the system," the report noted.

The review was performed between September 2008 and August 2009, and changes that the IRS has made since the inspector general concluded interviews in July 2009 were not reflected in the report.

Initially, the IRS' computer network could not accommodate changes to TREES during various releases, causing the application to slow and freeze at times, the inspector general found. In October 2008, users were unable to access TREES after a planned software upgrade, forcing the IRS to take it offline for about eight weeks, requiring users "to revert to a paper-intensive process while waiting for the system to come back online," the report said. "Users were frustrated and noted that when the system was down it was very burdensome and in most instances examination cases were not closed until the system came back online."

In January 2009, TREES was updated, revising software, improving communication between users' computers and the central database, and fixing interactions with other IRS computer systems, according to the report. The IRS plans to acquire hardware to allow changes to be reversed so the system can revert to prior versions of the software if an upgrade doesn't work properly.

In addition, problems with how the system functioned made employees reluctant to use the system. Workers continued to use manual processes and multiple computer systems to manage accounts, and create and store documents outside of the system, later copying them into TREES after the account processes were complete. Many employees also maintained paper and electronic copies of case information.

"Until TREES includes critical pieces of functionality, employees receive additional training on how to use the system, and employees accept and use TREES more fully, the TE/GE division will not transform examinations from a paper-intensive process to an automated process and begin realizing more of the expected benefits of TREES," the report noted.

The report also concluded that of the 105 high-level capabilities that the TREES project should have provided in its various releases, 38 were not delivered and 14 were only partially delivered primarily because of budgetary constraints. Capabilities that have yet to be deployed relate to issue management, trend analysis, case building and tax computation.

No development funding for TREES was allocated in fiscal 2009 or fiscal 2010, but funding is anticipated for fiscal 2011 and later years to allow the IRS to deliver capabilities originally planned for the system. In the meantime, the inspector general recommended the division commissioner develop an action plan to address existing technology issues and reeducate and train users to encourage wider acceptance. Management agreed, noting plans to complete a plan by July 2010.