Originally created 03/05/97

Success of IRS computer upgrade key to agency's broad reforms



WASHINGTON - Critical IRS reforms, including improved collections of $216 billion in outstanding tax debt, depend on straightening out the agency's troubled computer upgrade, congressional auditors said Tuesday.

General Accounting Office officials vividly described the stakes involved in the Internal Revenue Service computer upgrade, which has cost the agency $4 billion over the last decade but hasn't achieved its goal of integrating databases and paper-less tax return processing.

In the past year, the Treasury Department has canceled contracts relating to 26 IRS computer modernization projects, worth more than $1 billion, as the tax collector revamps its computer upgrade plans, Deputy Treasury Secretary Lawrence Summers has said.

Lynda D. Willis, the GAO's tax policy director, told a House Ways and Means oversight subcommittee that four "high risk" problems areas for the tax collection agency hinge on computer enhancements:

- Modernizing the IRS tax systems to process tax filings and issue refunds.

- Improving IRS' accounting of its tax revenues, obligations and disbursements.

- Bolstering tax debt collections by obtaining better information on delinquent accounts and devising more effective collection strategies. The IRS has $216 billion in uncollected taxes and penalties at the end of 1996, the GAO has said.

- Fighting tax filing fraud.

In addition, the IRS faces two high-risk areas that other government agencies face as well, such as the so-called year 2000 computer problem and computer security.

"IRS' success in addressing the weaknesses in its program areas is clearly linked to its success in modernizing its information systems," Willis told the panel. The GAO is the watchdog arm of Congress.

Despite these concerns, GAO Assistant Comptroller General Gene L. Dodaro credited the IRS for finally heeding his agency's warnings about lax management on the computer systems project over the past several years. One example is the hiring of a new chief information officer, Arthur Gross, a former New York state deputy tax commissioner who successfully handled that state's tax systems upgrade.

"They are doing or planning to do many of the right things," Dodaro said. "Unfortunately, some of the areas ... will take many years to see improvement."

One example of technology upgrades hampering reforms is in the area of accounting. The GAO has criticized the IRS' ability to properly account for tax revenues, in total and by specific type of tax, since the 1992 fiscal year.

Willis said that while the agency is making progress on this point, "IRS' problems are especially affected and complicated by automated data processing systems that were implemented many years ago" and not designed to support new financial reporting requirements.

The hearing was replete with criticism of IRS' poor management of a project to upgrade computer systems that collect $1.4 trillion in taxes a year and send out $122 billion in refunds.

"IRS has lacked the technical discipline" to carry out such a major modernization project, said Rona B. Stillman, the GAO's chief scientist. "Until very recently, there has been no direct linkage between the IRS budget and the results they achieve."

"Until they are held responsible to consistently produce results, it's unclear how optimistic we can be," Stillman said.