Tax agency blasted for slow pace of computer upgrades

Efforts by the Internal Revenue Service to modernize its computer system have "woefully under performed," the chairman of a Senate Appropriations subcommittee said Wednesday.

"Schedule slippages and cost overruns have been epidemic," said Alabama Republican Richard Shelby, chairman of the spending subcommittee that oversees the IRS. "Now is an appropriate time to focus on reengineering efforts."

The agency's business-systems modernization (BSM) plan is in its sixth year of a 15-year upgrade, said Pamela Gardiner, acting inspector general for the Treasury Department's Tax Administration. "The modernization program is an extremely complex effort since many of the IRS' current business systems are a mixture of technologies that date back to the 1960s."

"I am very concerned that BSM is becoming the 21st-century version of the tax-systems modernization program, which was the IRS' prior modernization effort that was abandoned [after] two years and $4 billion in federal tax dollars," Shelby said. "That effort was a complete loss."

To avoid a repeat situation, the IRS hired Computer Sciences Corp. (CSC) as its main contractor and vowed to focus for the time being on only its most critical projects, Gardiner said.

CSC has missed several key deadlines, however, and the IRS has warned the company that future failures will force a reopening of the contract, IRS Commissioner Mark Everson said. "We have held contractors accountable in a way that's fairly [unusual] for the government," he said.

The IRS' most crucial project is its customer-account data engine (CADE), Everson said. "CADE will eventually replace the existing master file of taxpayer accounts and will enable the implementation of other modernized systems that will ... allow the online posting and updating of taxpayer account and return data."

Everson could not give Shelby an exact date for implementing CADE. The IRS will "get a better idea" of a timetable as it adjusts to its more streamlined focus. "In a year, we'll be better capable of a long-term projection," he said.

"There are 60 to 70 percent odds that the first part [of CADE] will be rolled out in August," Gardiner said. "It does appear that testing [is] going well. Contractors have been put on notice that they need to do this."

Gardiner estimated that the entire modernization effort would cost about $7 billion. The cost overruns are bothersome, she said, but many of those additional costs were the result of changes in requirements. "The problem is that you have to interface and talk to old systems," and upgrades to equipment are made every day, she said.

"The IRS did a lousy job of keeping track of multiple changes to its system each year when the tax code would change," Everson said.

While he said the agency has "failed on big-ticket projects" like CADE, he still would give the modernization effort a "mixed grade." It is "not all bad news" because the agency has made "dramatic leaps largely through technology," he added.