IG: IRS needs to verify IT cost estimate processes

The Internal Revenue Service has made better use of information technology funds because it has strengthened processes for making IT investment decisions in its modernization program, the Treasury Inspector General for Tax Administration (TIGTA) said in a report released today. However, the IRS needs to establish more process enhancements to make sure it continues to improve future investment proposal cost estimates and standard reporting of IT performance measures, TIGTA said in its audit of IRS’ Modernization Vision and Strategy Program. The IRS shifted its approach to modernizing its business systems in 2006 to the Modernization Vision and Strategy Program because of major changes in IT and leaner budgets, the report said. The program, based on a five-year plan updated each year, integrates the IRS' strategic and associated business plans to drive IT decisions, targets priorities around modernizing front-line tax administration and supports advanced technical capabilities provided by the IT infrastructure, TIGTA said. The IRS said it updates the plan to reflect changes that affect its business organizations, new requirements and revised strategic goals. For example, IRS in 2007 revised the 2006 plan with updated lists of potential and future IT projects and to include the use of information technology as a common service, the auditors said. The program organization also collaborates with other offices and business units across the service to improve processes, according to the report. Overall, the IRS has effectively implemented the processes and procedures of the Modernization Vision and Strategy Program, said Michael Phillips, TIGTA’s deputy inspector general for audit. Under the program, the IRS delivers more focused and frequent IT project releases and is using an approved estimation model for determining the project’s total cost, he said. TIGTA determined that the cost estimates for a sample of four of 23 projects in the approved investment portfolio appear to be reasonable based on documentation, validation of the estimates by employees with expertise in the area, and reviews by the team working on the proposed IT projects, the report said. However, the IRS does not require comparison of its actual investment costs to the original estimates, he said. “By not comparing initial cost estimates to the actual project costs to validate the cost estimation model, the IRS is increasing the risk that its future investment proposal cost estimates will not be reliable,” Phillips said. Although the IRS is collecting Modernization Vision and Strategy Program performance measures, no standardized procedure for compiling and reporting these measures exist, he said. TIGTA could not determine whether performance measurement and reporting were conducted, and a lack of performance measures and reporting compliance could result in inefficient IT acquisitions and objectives, the report said. TIGTA recommended that IRS’ chief information officer ensure the reliability of the cost estimation process by establishing procedures to compare actual project operations and maintenance costs to initial estimates and revising the estimation process, if necessary. The CIO also should provide guidelines for performance measurement and reporting in the updated Modernization Vision and Strategy Program plan. The IRS will implement the recommendations during 2009, said Arthur Gonzalez, IRS CIO.