Investment Management: IRS Has a Strong Oversight Process but Needs to Improve How It Continues Funding Ongoing Investments
Highlights
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
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Internal Revenue Service | 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. |
Closed – Implemented
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.
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| Internal Revenue Service | 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. |
Closed – Implemented
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.
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| Internal Revenue Service | 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. |
Closed – Implemented
As we reported in June 2016 (in GAO-16-545), IRS established a funding allocation process for its operations support activities which considers alignment with strategic priorities, among other things. Through this process, initiatives determined to be out of alignment with strategic goals and objectives are to be excluded from further funding consideration. For business systems modernization activities, our ongoing reviews of IRS's information technology programs have identified several examples of corrective actions taken to re-direct efforts to ensure they align with strategic priorities. One example is IRS's cancellation of its Information Reporting and Document Matching Case Management project in favor of an enterprise-wide case management solution which leadership determined to be a priority.
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| Internal Revenue Service | The Commissioner of Internal Revenue should direct the appropriate officials to define and implement a process, including defined criteria, for reselecting ongoing projects. |
Closed – Implemented
As of October 2020, IRS had defined and implemented processes for reselecting ongoing both its operations support and modernization projects. Specifically, in March, 2017, IRS issued its Portfolio Investment Plan Process Description Manual for selecting and prioritizing new and ongoing operations support activities. The manual includes criteria for prioritizing selections; and provides for comparing assets against one another to create a prioritized portfolio; and ensuring executives' funding decisions are based upon the process for selecting and prioritizing activities. In March 2018, IRS updated the manual and also issued related detailed procedures. In the course of our annual reviews of IRS's IT investments, we have seen evidence of the agency's implementation of the process for reselecting ongoing operations support activities (see for example, GAO-16-545 in which we examined IRS's process for prioritizing funding for its IT activities). In October 2020, IRS provided evidence that it had defined and implemented a process for reselecting ongoing modernization activities. Specifically, IRS incorporated modernization activities into the Portfolio Investment Planning process for operations support activities. For example, IRS modified the form that it used to submit funding requests for operations support activities to include funding requests for new and ongoing modernization activities. As another example, IRS took steps to align funding requests for modernization activities to fiscal year plans defined by IT leadership and approved through formal governance boards and executive steering committees. IRS officials from the IT organization's Strategy and Planning group told us that they had decided not to use scoring criteria to categorize modernization projects as the selection and re-selection process involves input from multiple stakeholders and opportunities to weigh in on plans. IRS also modified its financial planning process and the reporting and communication of program execution to better support the reselection of ongoing modernization activities. We examined the modifications in greater detail in following up on the recommendation for IRS to establish and implement a process for prioritizing modernization activities that we made in GAO-16-545. IRS officials provided evidence that they had implemented the process for reselecting ongoing modernization activities for two budget cycles. They stated that they expected to fully implement the process for the fiscal year 2022 budget cycle. By taking actions to define and implement processes for reselecting both operations support and modernization activities, IRS has greater assurance that it is objectively continuing to fund the right projects.
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