TREASURY
INSPECTOR GENERAL FOR TAX ADMINISTRATION
The
Modernized e-File Project Can Improve the Management of Expected Capabilities
and Associated Costs
This report has cleared the Treasury Inspector General for Tax Administration disclosure review process and information determined to be restricted from public release has been redacted from this document.
Redaction Legend:
1 = Tax
Return/Return Information
3(d) = Identifying Information - Other Identifying Information of an Individual
or Individuals
Phone Number | 202-927-7037
Email Address | Bonnie.Heald@tigta.treas.gov
Web Site |
http://www.tigta.gov
December 27, 2006
MEMORANDUM FOR CHIEF INFORMATION OFFICER
FROM: Michael R. Phillips /s/ Michael R. Phillips
Deputy Inspector General for Audit
SUBJECT: Final Audit Report – The Modernized e-File Project Can Improve the Management of Expected Capabilities and Associated Costs (Audit # 200620013)
This report presents the results of our review of the Modernized e-File (MeF) Project’s[1] development and deployment activities. The overall objective of this review was to determine whether the MeF Project’s release activities are ensuring its electronic filing capabilities are efficiently providing the intended benefits to the Internal Revenue Service (IRS) and taxpayers. This review was part of the Treasury Inspector General for Tax Administration’s Fiscal Year 2006 Information Systems Programs audit plan for reviews of the IRS’ modernization efforts.
Impact on the Taxpayer
The MeF system provides electronic filing capability to businesses and tax exempt organizations that previously had to file paper returns. Improvements in the management of the MeF Project’s capabilities and associated costs can help meet the goal to replace the IRS’ current tax return filing technology with a modernized, Internet-based electronic filing platform. This will serve to streamline filing processes and reduce the costs associated with the paper-based IRS.
Synopsis
MeF Release 3.2 went into production in January 2006. However, 53 of the Project’s requirements were deferred to later releases. The MeF system also experienced problems in its ability to handle the number of returns filed during the March 2006 peak tax return filing period. The MeF Project team reported that tests performed in June 2006 demonstrated the MeF system would be ready to process the projected September 2006 peak tax return volume. On October 5, 2006, IRS management advised us that the MeF system successfully processed the September 2006 anticipated volumes without any issues.
The MeF Project’s plans for processing additional tax forms are uncertain, including plans to schedule development of the U.S. Individual Income Tax Return (Form 1040) family, which are pending approval from the Office of Management and Budget. As a result of the uncertainties, the MeF Project has experienced:
Ÿ The inability to use fixed-price contracts. When release requirements are not defined and releases are not associated with available funding, project management’s ability to use fixed-price contracts is limited and the successful completion of project development may be delayed.
Ÿ Difficulty in managing the Project’s funding and contract accounting. Additional funding was needed to add controls to reduce potential system security threats and to implement unplanned system changes. Funds designated for future release development were used to develop these controls and system changes, although Congress specifically directed the IRS to stop shifting funds between releases and to notify the Congressional committees of any proposed changes to the Modernization program expenditure plans. Further, the MeF Project team has not performed an analysis to assess the cost effect on the current release and the requirements planned for deployment, as well as the effect on funding availability to develop the deferred requirements in future releases.
Ÿ Delays in negotiations and approvals of the Project’s contracting actions. Without achieving timely agreement on contract costs, completion of project development and deployment activities are at risk. Also, without adequate coordination between the Project team and the Procurement Office in all contract changes, the IRS could be paying the contractor for work that has not been authorized. In addition, protracted claim settlement activities with the contractor could occur if the IRS decides to not pay for unauthorized work.
Recommendations
The Chief Information Officer (CIO)
should ensure the MeF Project office involves the Enterprise Service
organization’s Business Rules and Requirements Management office in its efforts
to define release requirements. The
definition of requirements should incorporate the concepts and plans for the
Modernization and Information Technology Services organization’s Information
Technology Modernization Vision and Strategy and should include the content of
each release, the expected deployment dates, and the anticipated funding for
the release work. Upon plan approval,
the MeF Project team should attempt to use fixed-price contracts based on anticipated
funding and the approved release scope in accordance with existing contract
guidance.
To appropriately manage MeF Project funding, the CIO should ensure prompt notification to the Congressional committees of any proposed changes to future Modernization program expenditure plans. The CIO also needs to identify the cost effect of deferring significant and material project release requirements or work segments to future releases. This process should help prevent payment for the same work more than once in the event significant and material requirements are deferred to another release.
The CIO should direct the MeF Project team to work with the Procurement Office to complete the negotiations of work previously completed and clarify the policy for escalating failed negotiation attempts. The CIO should ensure the IRS Procurement Office develops additional guidance to work with project development teams to timely monitor contractor progress and ensure work is properly authorized.
Response
IRS management agreed with five
of our six recommendations. The CIO
plans to involve the Business Rules and Requirements Management office in its
efforts to define requirements and incorporate concepts and plans for the Modernization
and Information Technology Services organization’s Information Technology
Modernization Vision and Strategy into the MeF Project. To address the need to complete plans for
future releases, the MeF Project
has a defined sequencing plan,
which includes implementing Release 5 in January 2008. The IRS believes
that the attempt to use fixed-price task orders should occur after the
stabilization of each release’s Logical Design and Physical Design and will
evaluate the appropriateness of using fixed-price contracts for Release 6. The CIO has developed policies and
procedures to ensure prompt notification to the Congressional committees of any
proposed changes to future expenditure plans.
However, the CIO disagreed to implement a process to identify cost
effects of deferring significant and material project release requirements or
work segments to future releases.
The CIO agreed with the recommendation to direct the MeF Project team to work with the Procurement Office to complete negotiations of work previously completed and to clarify the policy for escalating failed negotiation attempts. Additionally, the IRS Procurement Office developed additional guidance to timely monitor contractor progress and ensure work is properly authorized. Management’s complete response to the draft report is included as Appendix VI.
Office of Audit Comment
We appreciate the CIO’s plans to involve the Business Rules and Requirements Management office in its efforts to define requirements and incorporate concepts and plans for the Modernization and Information Technology Services organization’s Information Technology Modernization Vision and Strategy into the MeF Project. However, we are concerned about the rationale provided for not using fixed-priced contracts and the absence of controls to assess the cost effect of deferring requirements to future releases.
The CIO’s response states the MeF Project has been unable to use fixed-priced contracts due to project funding uncertainties, delays in receiving required funding, and that the IRS must enter into fixed-price contracts with appropriated, rather than anticipated funding. During our August 24, 2006, meeting to present our report findings, the MeF Project managers were in attendance when the IRS Director of Procurement stated incremental funding of Business Systems Modernization Projects was not a problem since it had been agreed to by the Office of Management and Budget. This funding agreement should alleviate the concern about the availability of funds to enter into fixed-price contracts.
We also have significant concerns about the absence of controls to assign and track project requirement costs. The CIO responded that it is not an appropriate or productive use of resources to cost deferred requirements and that an impact assessment is performed to determine the best way to leverage deferred requirement efforts in the future. The process of costing deferred requirements is actively performed in the management of other projects such as the Customer Account Data Engine project, the foundation for the IRS’ Business System Modernization. Recent Customer Account Data Engine task order modifications included the associated costs assigned to eight requirements deferred to subsequent releases. We continue to believe the practice used by the Customer Account Data Engine project should be implemented by other projects to help control costs. In addition, we requested but were never provided evidence of any requirement deferral impact assessments on current or future releases.
Copies of this report are also being sent to the IRS managers affected by the report recommendations. Please contact me at (202) 622-6510 if you have questions or Margaret E. Begg, Assistant Inspector General for Audit (Information Systems Programs), at (202) 622-8510.
Appendices
Appendix
I – Detailed Objective, Scope, and Methodology
Appendix
II – Major Contributors to This Report
Appendix III – Report Distribution List
Appendix IV – Enterprise Life Cycle Overview
Appendix
V – Glossary of Terms
Appendix VI
– Management’s Response to the Draft Report
Abbreviations
|
CIO |
Chief Information Officer |
|
ELC |
|
|
FTE |
Full-Time Equivalent |
|
IRS |
Internal Revenue Service |
|
MeF |
Modernized e-File |
The MeF Project aims to increase electronic tax return filing through a system that is efficient and easy to access, use, and maintain.
The Modernized e-File (MeF) Project’s[2] goal is to replace the Internal Revenue Service’s (IRS) current tax return filing technology with a modernized, Internet-based electronic filing platform. Providing this capability for filing 330 forms through the MeF system supports and facilitates the IRS’ commitment to achieve the IRS Restructuring and Reform Act of 1998[3] goal of receiving “at least 80 percent of all tax returns in electronic form by the year of 2007.” This Project also serves to streamline filing processes and reduce the costs associated with the paper-based IRS.
The MeF system will be able to accept multiple tax return types and multiple tax returns submitted in the same transmission. Additionally, the MeF system will allow:
· The IRS to reduce costs associated with receiving, processing, manually entering data, and resolving data entry errors from paper returns.
· The IRS to reduce system maintenance costs by using the Internet as the electronic means for filing.
· Taxpayers, tax practitioners, and the IRS to reduce the amount of storage space needed for paper returns.
· Taxpayers and tax practitioners to save time and money associated with copying, assembling, and mailing a return.
· State agencies to electronically receive tax and information return data.
· Taxpayers, tax practitioners, and IRS employees to benefit from the increased amount of data available to customer support personnel.
In
January 2005, the Department of the
Treasury issued Treasury Decision 9175 requiring electronic tax return filing for certain corporations and
exempt organizations. The Decision
requires the following taxpayers filing at least 250 returns during the calendar
year to file tax returns electronically for the taxable years ending on or
after December 31, 2005:
·
Corporations
with assets of $50 million or more that file a U.S. Corporation Income Tax
Return (Form 1120) or U.S. Income Tax Return for an S Corporation (Form 1120S).
· Exempt organizations with assets of $100 million or more that file a Return of Organization Exempt From Income Tax (Form 990).
This Decision lowers the asset amount to $10 million or more for the above returns and adds returns for private foundations with taxable years ending on or after December 31, 2006.
The MeF Project has completed the following releases:
·
Release 1 developed the infrastructure,
application base, and support for 53 forms filed by corporations and 6 forms
filed by exempt organizations. This Release’s
end product provided an option for Internet-based filing of Form 1120, Form 1120S,
and Form 990 returns. The IRS deployed
this Release in February 2004.
·
Release 2 added the remaining 44 forms
associated with corporations and the public disclosure capabilities required by
the Tax Exempt and Government Entities Division. The IRS deployed this Release in August 2004.
· Release 3.1 incorporated the Return for Private Foundation (Form 990-PF) and the ability to file extensions for Form 1120 and Form 1120S. The IRS deployed this Release in January 2005.
·
Release 3.2 added the Federal/State Single Point
Filing System platform and the Federal/State components for Form 1120 and Form
990. This Release also provided
operational functionality and interfaces to enhance the MeF system
internally. The IRS deployed this Release
in January 2006.
In addition, the MeF
platform will be used by the Excise
Tax e-File and Compliance Project. The
Excise Tax e-File and Compliance Project will assist IRS employees who are
auditing the tax paid on diesel fuel.
This review was performed at the Modernization and
Information Technology Services organization’s facilities in New Carrollton,
Maryland, during the period February through August 2006. The audit was conducted in accordance with Government Auditing Standards. Detailed
information on our audit objective, scope, and methodology is presented in
Appendix I. Major contributors to the
report are listed in Appendix II.
The Modernized e-File Project Has Provided Electronic Filing
Capability to
Corporations and Tax
Exempt Organizations and Is Continuing Application Development
Along with its success, the MeF Project has continued to experience challenges in providing all planned capabilities.
The MeF system provides electronic filing capability to businesses and tax exempt organizations that previously had to file paper returns. The number of returns filed through the MeF system has continued to increase.
For example, in 2005, an estimated 3 percent of the corporate and tax exempt organizations tax returns and related applications for extensions were electronically filed (212,900 corporate tax returns and 47,900 related applications for extensions; 4,800 tax exempt organizations returns and 1,900 related applications for extensions), while approximately 6 percent of the corporate and tax exempt organizations tax returns and related applications for extensions were projected to be electronically filed in 2006. As of August 6, 2006, the MeF system had processed 405,151 corporate returns and 381,511 related applications for extensions, and 7,396 tax exempt organizations tax returns and 8,629 related applications for extensions. Corporate and tax exempt organizations tax returns and applications for extensions filings between January 1 and August 6, 2006, showed a 279 percent increase in filings over all of Calendar Year 2005.
The MeF Project will also benefit the IRS and taxpayers by reducing manual processing and storage costs for paper returns. The MeF Project’s Exhibit 300 goals for Fiscal Year 2005 included:
·
Decreasing the number
of Full-Time Equivalents (FTE) needed to conduct return processing of paper
Forms 1120 and 990 returns from 1,044 FTEs to 1,014 FTEs.
·
Decreasing the total
IRS annual storage costs for Forms 1120 and 990 returns from $5,392,000 to
$5,317,000.
While the MeF Project implemented software enabling
additional electronic filing capability, the FTE and storage cost savings have
not been realized yet by the IRS. Labor
redeployments to reduce FTE processing needs may begin to be realized in Fiscal
Year 2007. Although significant
reductions in paper return storage are resulting from filings through the MeF
system, no estimates are available for when related storage cost reductions
will occur.
The MeF system experienced problems in its ability to handle the number of returns filed during the March 2006 peak tax return filing period, and the MeF Project team developed lessons learned to address these problems and to prevent similar occurrences in the September 2006 peak period and future periods. Subsequently, ****1**** In June 2006, a stress test was conducted to determine the extent of the MeF system’s ability to accept and process tax returns and provide concurrent access to users. The MeF Project team reported the June 2006 stress test demonstrated the MeF system would be ready to accept and process the projected September 2006 peak tax return volume. On October 5, 2006, IRS management advised us that the MeF system successfully processed the September 2006 anticipated volumes without any issues.
MeF Project release capabilities have been postponed, and the MeF Project release schedule for processing tax forms is uncertain
Although
MeF Release 3.2 went into production in January 2006,
53 project requirements were deferred to later releases. The deferred requirements include
capabilities to create and store system error messages and capture audit
trails, provide additional system performance measures, monitor infrastructure
transactions and processes, and implement all necessary system security
controls.
One particularly important requirement that was deferred involves
the ability of the MeF system to display return information within stipulated
time periods. This requirement was also
discussed in a prior Treasury Inspector General for
Tax Administration report[4] and has been a deferred requirement for the MeF system
since Release 1. Although tests
performed during this audit showed the largest tax return files could be
displayed for viewing by the IRS, the MeF Project team has deferred completion
of this requirement until deployment of Release 4 because all requirement
criteria could not be met. The ability
to display returns will help ensure the efficiency of IRS personnel who access
returns through the MeF system.
The MeF release structure still is not definite as to which
forms and schedules will be provided after Release 4.
The MeF Project’s plans for
processing additional tax forms (e.g., U.S. Individual Income Tax Return (Form
1040)) are uncertain. The most recent
plans show Release 5 will be completed in January 2008 and will enhance the
processing efficiency of forms currently filed through the MeF system and add the
U.S. Income Tax Return of a Foreign Corporation (Form 1120-F). The IRS has publicly communicated that the
Form 1040 will be available in January 2009 as part of Release 6; however, the
IRS has not decided how the Form 1040 family of returns and related schedules
will be made available for use (in phases or all at once). Also, plans to schedule MeF Project
development of the Form 1040 family are pending approval from the Office of
Management and Budget.
In addition, development plans are not final for the U.S.
Income Tax Return for Estates and Trusts (Form 1041) and the Exempt
Organization Business Income Tax Return (Form 990-T). The MeF Project
release schedule previously planned to include these forms in Release 4, but
these plans were canceled. These forms
are not specifically included in the current plans
for the future releases.
As a result of the changes to project requirements and the tax forms to be included in future releases, the MeF Project has experienced:
Ÿ The inability to use fixed-price contracts.
Ÿ Difficulty in managing MeF Project funding and contract accounting.
Ÿ Delays in negotiations and approvals of MeF Project contracting actions.
The Modernized e-File Project Has Not Completely Defined Its Release Requirements and Release Schedule to Allow Use of Fixed-Price Contracts
The use of fixed-price
contracts should lead to more cost-effective acquisitions, better value, and
greater competition.
The IRS issued contracting guidance on April 30, 2004, entitled Enabling Fixed-Price Contracting for Business Systems Modernization Task Orders, requiring fixed-price contracts and task orders for Business Systems Modernization acquisition projects at the appropriate life cycle development phase, unless the Federal Government’s interest is best served by other contract types. A fixed-price contract is suitable for acquiring supplies or services on the basis of reasonably definite functional or detailed specifications. This contract type can be used when the Contracting Officer can establish fair and reasonable prices at the outset, performance uncertainties can be identified, and reasonable estimates of their cost effect can be made. The contractor has to be willing to accept a fixed price representing assumption of the risks involved. In addition, the Federal Acquisition Regulation[5] specifically states that the extended use of cost-reimbursement or time and materials contracts should be avoided after experience provides a basis for firmer pricing.
The Enterprise Life Cycle (ELC)[6] established Milestone 4 as the business systems development and enterprise deployment decision point. The Milestone 4 activities are separated by two checkpoints. Milestone 4A activities involve further requirements definitions, development of the system’s physical design, and determination of the applicability of fixed-price contracting to complete system development and deployment. Once the requirements are finalized and agreed to by the IRS and the contractor, a fixed-price contract can be used to achieve Milestone 4B.
We have previously reported the IRS is not using fixed-price contracts for modernization contracts despite guidance requiring the use of this contract type when possible.[7] The MeF Project is not using fixed-price contracting agreements and the MeF Release 3.2 and 4 development activities are included in four separate contracts. The following contract types are being used:
· The PRIME contract for developing the technological infrastructure supporting the MeF system is a hybrid cost-plus-fixed-fee term (level of effort) and cost-plus-fixed-fee completion contract.
· The MeF Project used cost-plus-fixed-fee term (level of effort) and cost-plus-incentive-fee contracts for system development.
· The work related to adding new MeF forms and schedules to the Modernized Tax Return Database is being completed under a General Services Administration contract.
· The contract providing engineering and technical support to the MeF Project is a level of effort contract.
Since the MeF Project has already had several releases developed and the foundation of the application is complete, the IRS should have the experience to provide the basis for negotiating fixed-price contracts for future development activities. However, MeF Project management stated funding to support the Project was received incrementally, thereby preventing the use of fixed-priced contracting. Further, management stated the decisions about which tax forms to include in each release have not been finalized and the original release schedule has been revised several times. Therefore, the uncertainty of the release content and schedule has prevented the use of fixed-price contracts.
The Modernization and Information Technology Services organization is trying to better focus the management of the development of modernized systems, such as the MeF system, through its Information Technology Modernization and Vision Strategy. A significant aspect of this 5-year plan is to address the priorities around modernizing tax administration. The MeF system is included in the Information Technology Modernization and Vision Strategy; however, the contents of the MeF releases are not specified.
The Modernization and Information Technology Services organization has also established a Business Rules and Requirements Management office in the Enterprise Services organization. This office’s mission is to provide practices, methodologies, and services supporting IRS projects to achieve desired business goals. Although this office is available to provide services to help in the development and management of project requirements, it has not been asked to participate in the formulation and definition of the MeF Project requirements.
The former Associate Chief Information Officer (CIO),
Applications Development, has suggested the IRS narrow the scope of project
development activities to allow for better management of requirements and
system development. This suggestion
includes dividing releases into smaller segments (e.g., semi-annual deployments
instead of annual). The MeF Project’s
release deployments have generally been scheduled on an annual basis.
The benefits of fixed-price contracting for the management of the MeF Project will be realized only after the project requirements and the release content and schedule are fully developed and agreed to. The absence of the participation and expertise of the Business Rules and Requirements Management office in defining requirements may have contributed to the uncertainty of MeF system tax form deployment plans. When release requirements are not defined and releases are not associated with available funding, project management’s ability to use fixed-price contracts is limited and the successful completion of the project development may be delayed.
Recommendations
Recommendation 1: The CIO should ensure the MeF Project office involves the Enterprise Service organization’s Business Rules and Requirements Management office in its efforts to define requirements. The definition of requirements should incorporate the concepts and plans for the Modernization and Information Technology Services organization’s Information Technology Modernization Vision and Strategy. Incorporating this 5-year plan into the MeF Project should help stabilize the Project’s release schedule and improve the Project team’s ability to establish fixed-price contracts for future release development and deployment.
Management’s Response: The CIO agreed
with this recommendation. Business Rules
and Requirements Management office
representatives attended MeF Release 5 requirements meetings. The MeF Project is in compliance with the IRS
Enterprise Transition Plan, Volume 1: Enterprise
Transition Strategy, dated September 30, 2006, which reflects MeF Releases 4,
5, and 6. During the next revision of
this document, the MeF Project team will work with the Enterprise Architecture
organization to reflect the full MeF Sequencing Strategy, as approved. The Project team has incorporated the 5-year
plan into the Release Sequencing Strategy and will incorporate the Information
Technology Modernization Vision and Strategy into future release processes.
This will commence with Release 6 actions. The IRS believes the attempt to use
fixed-price task orders should occur in Milestones 4B and 5, after the
stabilization of each release’s Logical Design (Milestone 3) and Physical
Design (Milestone 4A). The MeF Project
has been unable to use fixed-price contracts due to project funding
uncertainties and delays in receiving required funding. The IRS understands the Treasury Inspector
General for Tax Administration has discussed the issue of incremental funding
with the Procurement Office; however, the MeF Project cannot enter into
fixed-price arrangements until it receives all required funding. The IRS must enter into fixed-price contracts
with appropriated, rather than anticipated, funding.
Office of Audit Comment: We appreciate the CIO’s plans to involve the Business Rules and Requirements Management office in its efforts to define requirements and incorporate concepts and plans for the Modernization and Information Technology Services organization’s Information Technology Modernization Vision and Strategy into the MeF Project. The CIO states the MeF Project has a defined sequencing plan that has been communicated to all levels of the IRS, the Department of the Treasury, and the Office of Management and Budget. However, its content and schedule were not approved by the Department of the Treasury or the Office of Management and Budget at the time this audit was conducted. Defined requirements and an approved release schedule will enable the IRS to enter into reasonable fixed-price contracts.
The CIO’s response states the MeF Project has been unable to use fixed-priced contracts due to project funding uncertainties and delays in receiving required funding, and that the IRS must enter into fixed-price contracts with appropriated, rather than anticipated, funding. During our August 24, 2006, meeting to present our report findings, a discussion occurred about fixed-price contracting and project funding. The MeF Project managers were in attendance at this meeting when the IRS Director of Procurement stated incremental funding of Business Systems Modernization Projects was not a problem since it had been agreed to by the Office of Management and Budget. This funding agreement should alleviate the concern about the availability of funds to enter into fixed-price contracts and allow the MeF Project to comply with IRS guidance requiring fixed-price contracts and task orders for Business Systems Modernization acquisition projects at the appropriate life cycle development phase. In addition, implementation of Recommendation 2 below by including plans for reduced scope releases should also help alleviate the funding concerns.
Recommendation 2:
The CIO should ensure the MeF Project team completes its plans for
future MeF Project releases, including its plans for reduced scope releases. These plans should include the content of
each release, the expected deployment dates, and the anticipated funding for
the release work. Upon plan approval,
the MeF Project team should attempt to use fixed-price contracts based on anticipated
funding and the approved release scope in accordance with existing contract
guidance.
Management’s Response: The CIO agreed
with this recommendation. The MeF Project has a defined sequencing plan that was developed
in collaboration with IRS business partners.
This plan, communicated to all levels of the IRS and to the Department
of the Treasury and the Office of Management and Budget, is in the execution
stage. The scheduled implementation date
for Release 5 is January 2008, as documented in the plan. The IRS must enter
into fixed-price contracts with appropriated, rather than anticipated,
funding. The IRS believes the use of
fixed-price task orders should occur in Milestones 4B and 5, after
stabilization of each release’s Logical Design (Milestone 3) and Physical
Design (Milestone 4A) and development begins.
As Release 6 activities begin, the MeF Project team will evaluate the
appropriateness of using fixed-price contracts.
Office of Audit Comment: As previously stated, the CIO’s response indicates the MeF Project has a defined sequencing plan that has been communicated to all levels of the IRS, the Department of the Treasury, and the Office of Management and Budget. However, its content and schedule were not approved by the Department of the Treasury or the Office of Management and Budget at the time this audit was conducted.
The CIO’s response does not address the portion of the recommendation dealing with reduced scope releases. We continue to believe the MeF Project release schedule could benefit from dividing releases into smaller segments (e.g., semi-annual deployments instead of annual). The smaller releases would not only allow for a more manageable scope, but also enable the IRS to align the Project’s release scope with available funding.
Extended Development, Deferral, and Additions to Requirements Have Made Modernized e-File Project Funding and Contract Accounting Difficult
In November 2005, MeF Project
management identified the need to obtain additional funds to complete
development and deployment of MeF Release 3.2.
According to the MeF Project Release Manager, additional funding
was needed to add controls to reduce potential system
security threats. In addition, MeF Release
3.2 had to implement unplanned system changes enabling the processing of
returns received due to the Treasury Decision 9175 electronic filing
mandate. MeF Project management took the
following actions:
Ÿ On September 28, 2005, the MeF Project team requested the use of $2.65 million of reserve funds to complete MeF Release 3.2. The Filing and Processing Management Executive Steering Committee approved the request on October 20, 2005.
MeF Project management needs to ensure funds are used for the authorized and approved purposes and are tracked to ensure their accountability.
Ÿ
On November 14, 2005, the Modernization and Information
Technology Services organization’s Enterprise Governance Committee approved the
transfer of $4.2 million from Release 4 to complete the development, testing,
and implementation of Release 3.2. The
minutes from the meeting noted that moving
funds from Release 4 would not jeopardize the cost, schedule, or scope of that Release. The MeF Project’s Cost Variance Statement
describes the basis for the shifting of funds from Release 4 to Release 3.2 as
follows, “As originally envisioned, Release 4 would include U.S. Partnership
Return of Income (Form 1065), Form1041, and Form 990-T. However, once the Fiscal Year 2005 budget was
finalized it was clear that not enough Release 4 funding was received to cover
all 3 forms so Forms 1041 and
990-T were removed from the Release.
Removing those 2 forms freed up $4.2 million for use.”
Ÿ On May 15, 2006, the IRS Infrastructure Shared Services organization agreed to fund the security requirements that were deferred from Release 3.2 to Release 4.
As part of the approval of the IRS Fiscal Years 2005 and 2006 Business Systems Modernization expenditure plans, Congress specifically directed the IRS to stop shifting funds between releases. In May 2005, Congress reminded the IRS it should promptly notify the Congressional committees of any proposed changes to the expenditure plans. It added that this is consistent with previous Congressional efforts to be informed of project variances. Again in January 2006, Congress directed the IRS to disclose fully and timely the shifting of funds between Modernization projects and the associated effect.
In a May 26, 2006, email, the IRS Legislative Affairs office forwarded a message from the Associate CIO, Applications Development, notifying Congressional committee members about plans to make funding changes affecting the Business Systems Modernization Program across Fiscal Years 2004, 2005, and 2006. The email does not specify that $4.2 million was shifted between MeF Project releases in November 2005. The MeF Project team could not provide any documentation about notifying the Congressional committees prior to shifting the funds.
As reported above, the MeF Project team could not complete development of all requirements planned for Release 3.2 and deferred them to Release 4 and later releases. Further, the Project team could not identify the costs associated with the deferred requirements. The Project team does not track the costs charged to requirements to ensure the IRS is not paying again in later releases for work already performed in Release 3.2.
Documentation was not available to show what payments were made for the