IRS 2013 Budget: Continuing to Improve Information on Program Costs and Results Could Aid in Resource Decision Making
Highlights
What GAO Found
The results of our work show:
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IRS absorbed the 2.5 percent or $305 million fiscal year 2012 reduction by decreasing FTEs and other costs, primarily in the Enforcement and Operations Support appropriations. Several of our recent reports show that other opportunities exist to increase efficiencies through, for example, automating some services leveraging paid tax return preparers, and conducting more compliance checks before issuing refunds.
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IRS’s fiscal year 2013 budget request represents a $944.5 million (8.0 percent) and about a 4,500 FTEs (5.0 percent) increase over fiscal year 2012.
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Seven of the 12 proposed new program initiatives ($603.1 million) are supported by ROI estimates; the others ($303.9 million) are not supported by ROI information or, for the 2 we reviewed, other similar economic assessments, such as cost effectiveness analyses.
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IRS’s PPACA cost estimate partially meets best practices for reliability, but it has not been updated since October 2010.
- IRS budgets for hiring new staff based on the new staff being onboard for the full fiscal year. But, in recent years, IRS hired most new staff late in the fiscal year, which could have resulted in funding being used for other purposes that are not described or substantiated in the budget justification.
- Fourteen of 20 major IT investments were within 10 percent of cost and schedule estimates between October 2011 and March 2012, but we could not determine whether these investments delivered planned functionality because IRS does not have a quantitative measure of scope for major IT investments.
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We have conducted analyses related to 6 of the 22 legislative proposals included in the budget request for IRS.
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IRS at least partially implemented 5 of our 9 prior recommendations intended to improve information presented in the budget request; in addition, we have 106 other matters for Congress or recommendations to IRS regarding tax administration that remain open and could result in potential financial benefits, either budget savings or increases in tax revenue.
Why GAO Did This Study
This letter transmits several briefings we provided between February 27, 2012 and May 16, 2012, as well as subsequent comments from the Internal Revenue Service (IRS). The President requested $12.8 billion for IRS for fiscal year 2013. This is an 8 percent increase over the enacted appropriation for fiscal year 2012, and follows a 2.5 percent decrease between fiscal year 2011 and fiscal year 2012. Because of the size of IRS’s budget and the importance of its service and compliance programs for all taxpayers, you asked us to review the fiscal year 2013 budget justification for IRS as well as how it absorbed the prior year’s reductions. Based on discussions with your offices, our objectives were to: (1) describe how IRS managed funding reductions in fiscal year 2012; (2) describe the fiscal year 2013 budget request for IRS and budget and staffing trends from fiscal year 2009 through fiscal year 2013; (3) evaluate any new enforcement and infrastructure initiatives in the fiscal year 2013 budget request, including whether return on investment (ROI) estimates are provided; (4) evaluate the reliability of IRS’s cost estimate for implementing its responsibilities nder the Patient Protection and Affordable Care Act (PPACA); (5) evaluate the amount requested for hiring additional staff in fiscal year 2013; (6) evaluate the performance of IRS’s major information technology (IT) investments; (7) list any analyses we have done related to legislative proposals included in the budget request for IRS; and (8) describe IRS’s progress implementing our prior budget presentation recommendations and list our open matters for Congress and recommendations to IRS regarding tax administration with potential budget savings or revenue increases.
Recommendations
To continue to improve information on program cost and results that could aid in resource decision making, we recommend that the Commissioner of Internal Revenue
(1) ensure cost-effectiveness analyses are conducted for future significant investments when there are alternative approaches for achieving a given benefit, such as for any new significant PPACA projects;
(2) ensure that an updated PPACA cost estimate is completed by September 2012 in accordance with best practices in the GAO Cost Guide;
(3) prepare funding requests for new staff based on estimated hiring dates; and
(4) develop a quantitative measure of scope, at a minimum for its major IT investments, to have complete information on the performance of these investments.
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Internal Revenue Service | To continue to improve information on program cost and results that could aid in resource decision making, the Commissioner of Internal Revenue should ensure cost-effectiveness analyses are conducted for future significant investments when there are alternative approaches for achieving a given benefit, such as for any new significant PPACA projects. |
For the fiscal year 2017 budget formulation process, IRS conducted an economic analysis on costs and alternative approaches for the enterprise electronic records management solution initiative. This analysis included obtaining and reviewing information on the cost and the effectiveness of potential different solutions to its record management challenges from an array of software vendors, and integrators. IRS compared these proposed technology solutions to full implementation of its existing technologies. IRS identified some advantages of implementing its existing technologies in the form of cost, time, and compatibility.
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| Internal Revenue Service | To continue to improve information on program cost and results that could aid in resource decision making, the Commissioner of Internal Revenue should ensure that an updated PPACA cost estimate is completed by September 2012 in accordance with best practices in the GAO Cost Guide. |
In September 2013, we reported that IRS made progress in updating its initial October 2010 PPACA cost estimate in accordance with best practices as identified in the GAO Cost Estimating and Assessment Guide.
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| Internal Revenue Service | To continue to improve information on program cost and results that could aid in resource decision making, the Commissioner of Internal Revenue should prepare funding requests for new staff based on estimated hiring dates. |
IRS changed how it requests funding for some new hires in the President's fiscal year 2015, 2016, and 2017 budget requests, resulting in significant in savings. Savings for fiscal year 2015 and fiscal year 2016 were $97 million and $164 million, respectively. However, IRS still assumed a January 1 hiring date for most new initiative hires in 2015 and 2016. In the fiscal year 2017 budget request, however, IRS generally assumed an April 1 hire date, which resulted in $256 million in savings. Aligning funding requests more closely with estimated costs and hiring plans more accurately represents workforce needs and improves transparently.
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| Internal Revenue Service |
Priority Rec.
To continue to improve information on program cost and results that could aid in resource decision making, the Commissioner of Internal Revenue should develop a quantitative measure of scope, at a minimum for its major IT investments, to have complete information on the performance of these investments. |
IRS took several actions to develop a quantitative measure of scope for its major information technology (IT) investments. Specifically, starting in December 2015, the agency included planned "scope elements" for the Return Review Program investment and identified the elements it had delivered to date in its quarterly report on IT to Congress. IRS further enhanced this report in December 2016, by including the percentage of planned scope delivered for selected investments. In December 2015, GAO also learned that IRS had begun implementing a tool to track the cost, schedule, and scope performance of its major investments using quantitative measures, including budgeted cost for work scheduled, actual costs of work performed, and budgeted cost for work performed (i.e., earned value). As of December 2017, IRS had expanded the use of the tool to four investments. GAO believes IRS's actions are sufficient to close the recommendation but will continue to monitor the agency's efforts to improve its quantitative measure of scope for its major investments and expand it to other investments as part of annual reviews of IRS's major IT investments.
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