The cost estimates for an Internal Revenue Service program for matching data from tax returns with third-party information returns, which was used to justify the program’s projected budget of $115 million for fiscal years 2012 to 2016, “generally does not meet best practices for reliability,” according to a new report from the Government Accountability Office.

The report noted that the cost estimate for the 2011 Information Reporting and Document Matching only “minimally” meets best practices for a well documented estimate because the IRS did not provide detailed support for staff resources. In addition, the cost estimate documentation only justified about six out of the 86 requested full-time equivalent staff for the IRDM, among other details.

The GAO noted that when documentation does not provide source data or cannot explain the calculations underlying the cost elements, the estimate’s credibility may suffer. While the IRS has an independent office of cost estimators that can develop and update cost estimates using cost modeling software that generally follows the GAO’s best practices, the office did not develop the 2011 IRDM cost estimate for the IRS.

IRS policy does not require project teams to work with the office to update cost estimates, the GAO added. In addition, the 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 IRS began developing the IRDM program in fiscal year 2009 to enhance the agency’s ability to automatically compare different sources of tax information and thereby improve its capacity to identify and address taxpayer noncompliance.

The GAO also said that the IRDM program’s earned value management 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 the IRDM’s EVM system, as required by the Office of Management and Budget and the Treasury Department. 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,” said the GAO. “Until IRS addresses deficiencies in the EVM data, it cannot provide a reliable cost estimate for IRDM.”

The GAO recommended that the IRS ensure that the 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 the IRDM’s EVM data.

The IRS disagreed and said in response to the report that it had a successful record of delivering the program on time, schedule and budget. "The IRS disagrees with the recommendation to spend resources creating additional documentation or following practices that do not directly contribute to the successful implementation of the IRDM program or other IT programs that are meeting all governing requirements," wrote IRS deputy commissioner for operations support Beth Tucker.

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