Board: IRS still on hot seat

Officials on the Internal Revenue Service Oversight Board, who are strong proponents of the agency's attempt to modernize its Kennedy-era tax-processing technology, have also become some of its loudest critics.

According to the board's 2004 annual report, issued this month, the $10 billion Business Systems Modernization program is in need of "the highest level of management attention," and "failure is not an option."

Observers of the 5-year-old effort agree the program went through the wringer during the past year. Talk of the program unraveling surfaced when key projects encountered major cost overruns and delays.

Both the IRS and the prime contractor conducted a bout of internal and independent valuation studies last fall. But whether the lessons learned have been fully internalized is subject to debate.

"Given their combined track record, there is ample room for concern," the board's report states.

Officials at Computer Sciences Corp., leader of the seven-company Prime Alliance awarded the BSM contract, said the worst is over.

"In the last six to nine months, we've clearly demonstrated that we can meet schedules and improve our performance," said Jim Sheaffer, CSC's vice president and Prime general manager.

He noted that the first version of the Customer Account Data Engine (CADE), the database replacement for the magnetic tape system still used to process tax returns, was delivered seven weeks before the August deadline.

It was "a more significant achievement than perhaps the Oversight Board realizes," Sheaffer said. The board's report castigated Prime for failing to "meet its primary responsibility of serving as a trusted adviser and partner to the IRS."

Many of the 46 action items collected in the BSM Challenge Plan — a result of all the fall 2003 studies — have been completed, Sheaffer said. Project managers now have 48 hours to solve problems, and if they can't, the issues get pushed up the chain of command. "It's going up the line" to regular "escalation meetings" attended by senior IRS and Prime management, Sheaffer said.

"We've missed deadlines. We've gone over budget," said W. Todd Grams, the IRS' chief information officer, in a recent interview. The arrival of Commissioner Mark Everson — who promised during his March 2003 Senate confirmation hearing to make modernization one of two top priorities — has helped, Grams said.

New budget authority exists for bringing more systems engineers on board. IRS officials also commissioned headhunters three months ago to recruit from the private sector and other agencies for five new executive-level positions that will hold IRS officials and the contractors accountable. A key past mistake was relying "too much on our own people," Grams said.

In addition, the IRS is shouldering less financial risk by switching to set price contracts, Grams said.

But, "if you're looking for a calendar turning point, I don't think we're yet there," he added.

Others find deeper problems. One knowledgeable observer noted Everson changed the IRS' internal organization, having the CIO no longer report to the commissioner but to one of two deputy commissioners — meaning "the guy who runs modernization day-to-day is three layers down from Everson."

John Reece, a former IRS CIO, characterized the change as a "step down for the [information technology] function and the IRS."

Another variable that could affect the program's health is the tenure of senior managers, the observer said. "Nothing will get done if people don't stick around."

The fiscal 2005 budget request of $285 million also is significantly less than the $429 million Congress approved for this year.

But that's a positive sign, Grams said. "We did that because we needed to reduce the number of projects we were working on and get more focused."

The agency will scale down the implementation schedule of CADE and the Integrated Financial System, cutting "the number of releases that we're working on at any one time," Grams said.

The deceleration will slow some project releases but won't necessarily delay the effort's overall schedule, according to Grams.

But Reece said the agency has additional hurdles to clear. "There [are] lots and lots of hands in the soup, lots and lots of levels of control and authority. At the end of the day, it's all got to fit together — it's all got to be managed. It's all very complicated."

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The state of IRS modernization

The Internal Revenue Service Oversight Board's annual report, issued this month, is critical of how tax officials have implemented the agency's modernization effort.

According to the IRS Oversight Board's 2004 annual report:

"Time will tell if the IRS and the Prime [Alliance] will be successful in meeting these challenges. Given their combined track record, there is ample room for concern. At this critical point in modernization's life cycle, too much still hangs in the balance."