IRS Management:

Cost Estimate for New Information Reporting System Needs to be Made More Reliable

GAO-12-59: Published: Jan 31, 2012. Publicly Released: Jan 31, 2012.

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What GAO Found

The 2011 Information Reporting and Document Matching (IRDM) cost estimate, used to justify the program’s projected budgets of $115 million for fiscal years 2012 through 2016, generally does not meet best practices for reliability. The cost estimate did not fully meet any of the four best practices for a reliable cost estimate.

For example, the cost estimate minimally meets best practices for a well documented estimate because the Internal Revenue Service (IRS) did not provide detailed support for staff resources, and the cost estimate documentation only justified about 6 out of the 86 requested full time equivalent staff for IRDM, among other things. If documentation does not provide source data or cannotexplain the calculations underlying the cost elements, the estimate’s credibility may suffer. Although IRS has an independent office of cost estimators that can develop and update cost estimates using cost modeling software that generally follows GAO’s best practices, this office did not develop the 2011 IRDM cost estimate. IRS policy does not require project teams to work with the office to update cost estimates. Additionally, IRS’s cost estimation guidance for project managers is inconsistent regarding how cost estimates should be related to a budget, an inconsistency that could lead to budget requests that do not accurately estimate program funding needs.

The IRDM program’s earned value management (EVM) data did not meet data reliability criteria in the areas GAO reviewed. For example, the IRDM project schedule was not properly sequenced—meaning activities were not properly linked in the order in which they are to be carried out. In addition, surveillance was not conducted on IRDM’s EVM system, as required by the Office of Management and Budget and the Department of the Treasury. Surveillance involves having qualified staff review an EVM system. Because IRDM’s 2011 cost estimate is based on unreliable EVM data, it does not provide adequate support for IRDM’s budget requests. Until IRS addresses deficiencies in the EVM data, it cannot provide a reliable cost estimate for IRDM.

Why GAO Did This Study

The Internal Revenue Service (IRS) began developing the Information Reporting and Document Matching (IRDM) program in fiscal year 2009 to enhance IRS’s ability to automatically compare different sources of tax information and thus improve its capacity to identify and address taxpayer noncompliance. GAO’s May 2011 report recommended that IRS follow best practices from the GAO’s Cost Estimating and Assessment Guide if IRS updated the cost estimate for building IRDM systems. IRS provided a new cost estimate for IRDM in August 2011. In this report, GAO assessed the extent to which (1) the IRDM funding request is supported by a reliable cost estimate and, if not reliably supported, why not; and (2) IRS’s practices for capturing data on IRDM’s actual costs and comparing them to estimated costs—known as earned value management (EVM)—generate reliable performance data. GAO compared IRS’s 2011 IRDM cost estimate to criteria in GAO’s cost guide and analyzed IRDM’s earned value management data.

What GAO Recommends

GAO recommends that IRS ensure that IRDM has a reliable cost estimate, require certain project teams to work with its Estimation Program Office, improve cost estimation guidance, and improve the reliability of IRDM’s EVM data. IRS agreed with one, partially agreed with one, and disagreed with two of GAO’s recommendations. GAO generally disagrees with IRS’s concerns, and still believes the recommendations have merit.

For more information, contact Michael Brostek at (202) 512-9110 or brostekm@gao.gov.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: To improve the quality of cost and budget information for IRS IT projects, the Commissioner of Internal Revenue should ensure that the IRDM life-cycle cost estimate is reliable and that budget requests are justified by a reliable cost estimate that follows best practices.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Open

    Comments: Internal Revenue Service (IRS) officials said that the Information Reporting Document Matching (IRDM) cost estimate was not updated because the program was scheduled to exit the development phase shortly after of the issuance GAO's recommendation. However, IRS did take steps to improve its estimation process to help ensure the reliability of future estimates for other programs.

    Recommendation: To improve the quality of cost and budget information for IRS IT projects, the Commissioner of Internal Revenue should require project managers to consult with Estimation Program Office (EPO) to determine if projects could benefit from EPO assistance in updating cost estimates for programs that exceed thresholds recommended by IRS's Modernization and Information Technology Services' (MITS) "Estimation Procedures" document. For those projects where EPO does not update the cost estimate, IRS should require that the decision and rationale be documented. EPO should use the information from updated cost estimates to develop a historical repository of cost estimation data.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Open

    Comments: The Estimation Procedures document has been updated, according to IRS officials. However, as of spring 2013, the document is still awaiting approval within IRS, and we could not review it. IRS did not provide any other updated guidance to reflect our recommendation. In fiscal year 2012, IRS began collecting actual cost information for 13 projects, and developed a process and template to collect, analyze, and report actual project information. As of December 2012, information on the initial 13 projects is being compiled by IRS's Estimation Program Office; they will develop a compendium of the information for project managers to use in developing and cross-checking cost estimates.

    Recommendation: To improve the quality of cost and budget information for IRS IT projects, the Commissioner of Internal Revenue should review all guidance applicable to cost estimates and take steps to ensure that they are consistent. As a first step, IRS guidance should require the use of current and reliable project cost estimates to inform budget requests, in accordance with the "Estimator's Reference Guide."

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Open

    Comments: The Internal Revenue Service (IRS) had not provided updates to guidance to ensure consistency with the Estimator's Reference Guide through the second quarter of fiscal year 2013. However, IRS officials said they developed a new cost estimation procedure document, although it was not yet finalized and available for our review. In fiscal year 2012, IRS developed training, for 245 project staff, on the new procedures, which included clarifying the role of project managers in updating cost estimates, and directing them to include updated cost information in budget requests.

    Recommendation: To improve the quality of cost and budget information for IRS IT projects, the Commissioner of Internal Revenue should improve the reliability of IRDM's EVM data, specifically: (1) address work breakdown structures (WBS) issues by developing an EVM baseline for IRDM that reflects the same WBS as the detailed schedule and IRDM cost estimate; (2) address sequencing issues and enable the development of a time-phased budget baseline by creating a single integrated master schedule for IRDM that is properly sequenced and resource-loaded so that effective and meaningful EVM data can be obtained to better manage the program; (3) conduct an independent baseline validation for the IRDM EVM baseline; and (4) conduct independent surveillance of EVM systems to ensure that data are reliable.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Open

    Comments: The Internal Revenue Service (IRS) has not implemented this recommendation, as of June 2013. IRS officials stated that until the Department of the Treasury updates its Earned Value Management policy, IRS cannot implement GAO's recommendations at the Information Reporting and Document Management project level.

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