The Treasury Inspector General for Tax Administration has concluded that cost overruns and schedule delays with the Internal Revenue Service’s Business Systems Modernization Program have increased during 2009.

An annual report on TIGTA’s review of the program stated that the modernization program has not achieved the same level of success with meeting cost estimates as in the prior year, nor has the trend of improvement it demonstrated in each of the prior three years continued.

From May 2008 to May 2009, five of the 17 project milestones scheduled for completion were between 30 and 375 percent over budget. In the previous year, 19 of the 20 scheduled project milestones were completed within the 10 percent cost estimate. In addition, 82 percent of the project milestones were completed on schedule in the current year compared with 90 percent in the previous year.

The IRS has recognized that it faces significant challenges. The immediate challenge in meeting the requirements of the next phase of project development and systems integration is the future of its Customer Account Data Engine. The data engine is intended to replace the Individual Master File as the IRS’s tax account database.

The TIGTA review also concluded that the IRS is continuing to develop and deploy modernized applications. The modernization program involves integrating thousands of hardware and software components, and replacing outdated technology.

The IRS plans to implement a process improvement strategy and is considering using elements from the Individual Master File and the current Customer Account Data Engine to reengineer the IRS tax account management process. The review concluded that until the reengineered database’s use is implemented and made available for integration with other systems and applications, continued improvement to taxpayer account management will be curtailed.

TIGTA also noted that the IRS has yet to consider the challenge in modernizing the management of business taxpayer accounts. “They have not set forth a definitive plan as it relates to business tax accounts,” said Alan Duncan, TIGTA assistant inspector general for audit (Security and Information Technology Services). “It has yet to be considered.”

IRS chief technology officer Terence V. Milholland said in a response letter to TIGTA that while the modernization continues to mature and may not have been funded “on plan,” based on the Office of Management and Budget’s Capital Programming Guide, initial estimates for large-scale programs are on average 60-70 percent accurate. The modernization program is performing above that level, Milholland added.

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