Investment Management:

IRS Has a Strong Oversight Process but Needs to Improve How It Continues Funding Ongoing Investments

GAO-11-587: Published: Jul 20, 2011. Publicly Released: Jul 20, 2011.

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The Internal Revenue Service (IRS) relies extensively on information technology (IT) to carry out its mission. For fiscal year 2012, IRS requested about $2.67 billion for IT. Given the size and significance of these investments, GAO was asked to evaluate IRS's capabilities for managing its IT investments. To address this objective, GAO reviewed IRS policies and procedures and assessed them using GAO's IT investment management (ITIM) framework and associated methodology, focusing on the framework's stage relevant to building a foundation for investment management (Stage 2). GAO also interviewed officials responsible for IRS's investment management process.

IRS has established most of the foundational practices needed to manage its IT investments. Specifically, the agency has executed 30 of the 38 key practices identified by the ITIM framework as foundational for successful IT investment management, including all the practices needed to provide investment oversight and capture investment information. For example, IRS has defined and implemented a tiered governance structure to oversee its projects and has several mechanisms for the boards to regularly review IT investments' performance. The agency has also established procedures for identifying and collecting information about its investments to inform decision making. Despite these strengths, IRS can improve its investment management process in two key areas. First, IRS does not have an enterprisewide IT investment board with sufficient representation from IT and business units that is responsible for the entire investment management process, and as a result may not be optimizing its decision-making process. Specifically, project selection is carried out by a team of two senior executives representing IRS's deputy commissioners, rather than a larger body composed of representatives from both IT and business units, and as a result, the perspective and expertise represented are not as broad as they would be with a larger board. Further, because the responsibility for the select and control phases lies with different groups rather than a single body, results of one process are not used to inform decisions made in the other, as would happen with a single board responsible for implementing all phases of the investment management process. IRS stated that it plans to address this coordination issue. Second, IRS does not have a process, including defined criteria, for reselecting (i.e., deciding whether to continue funding) ongoing projects. Given the size of its IT budget, IRS could be spending millions of dollars with no assurance that the funds are being used wisely. GAO is making recommendations to the Commissioner of Internal Revenue, including assigning responsibilities for implementing the investment management process to optimize decision making, and defining and implementing a process for deciding whether to continue funding ongoing projects. In commenting on a draft of this report, IRS concurred with GAO's recommendations.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In November 2011, the Internal Revenue Service updated its Information Technology Investment Planning and Management Guide to include details on the pre-select and select phases. Specifically, the guide discusses the purpose, scope, entry criteria, process, and exit criteria of these two phases. Additionally, the document outlines the role of the Executive Review Team and the Technology Investment Review Board (IRB), and notes that the Investment Planning and Management Division is to work with various stakeholders to identify the key investment analysis considerations and portfolio selection criteria.

    Recommendation: The Commissioner of Internal Revenue should direct the appropriate officials to ensure that the investment management guidance that is expected to be updated by the end of the fiscal year fully documents the preselect and select phases and the role of the Executive Review Team, and specifies the manner in which IT investment-related processes will be coordinated.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Closed - Implemented

    Comments: In July 2011, IRS established a Technology Investment Review Board (IRB) to make executive level decisions for pre-selection, selection, and re-selection of information systems and technology capital investments. The IRB includes sufficient representation from business and IT units to provide a broad perspective and expertise. Specifically, the IRB charter notes that members consist of the Deputy Commissioner for Operations Support, Deputy Commissioner for Services and Enforcement, the Commissioner's Chief of Staff, Chief Financial Officer, and Chief Technology Officer. Further, the charter notes that the IRB will identify individuals, as necessary, to serve as advisors and support the coordination of IRB activities. Lastly, IRS took steps to ensure that investment decisions are fully informed by results of the investment management process. Specifically, the IRB charter states that the IRB will factor investments' prior performance in its decision-making, and notes that integration of investment management with budget and performance management will be ensured.

    Recommendation: The Commissioner of Internal Revenue should direct the appropriate officials to assign investment management responsibilities to optimize the decision-making process by ensuring that (1) selection decisions are made by a group that includes sufficient representation from business and IT units to provide broad perspective and expertise, and (2) investment decisions are fully informed by the results of relevant phases of the investment management process.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  3. Status: Open

    Comments: In September 2015, IRS stated that it was in the midst of redesigning its information technology (IT) investment management framework to ensure an initial alignment of investments to strategic goals and an annual review of alignment as projects are reselected as part of the "enterprise intake process." IRS added that it (1) was redesigning its IT governance process to fit within the new Service-wide governance framework and (2) would have documentation in September 2016 for the redesigned process on identifying projects that no longer align with strategic objectives. We will monitor IRS's progress in redesigning its investment management process to determine whether it addresses our recommendation.

    Recommendation: The Commissioner of Internal Revenue should direct the appropriate officials to define and implement a process for taking corrective actions when ongoing projects are not aligned with strategic goals and objectives.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  4. Status: Open

    Comments: On September 23, 2015, IRS provided documentation describing its Integrated Review Team (IRT) process, which is intended to inform the process for reselecting ongoing initiatives. Our initial review of this documentation indicates that it does not fully address our recommendation. We will follow up with IRS on this.

    Recommendation: The Commissioner of Internal Revenue should direct the appropriate officials to define and implement a process, including defined criteria, for reselecting ongoing projects.

    Agency Affected: Department of the Treasury: Internal Revenue Service

 

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