Management of the Information Systems Budget Has Improved,
but Additional Progress Can Be Made
February 2003
Reference
Number: 2003-20-070
This report has cleared the Treasury
Inspector General for Tax Administration disclosure review process and
information determined to be restricted from public release has been redacted
from this document.
February
28, 2003
MEMORANDUM FOR
DEPUTY COMMISSIONER FOR MODERNIZATION
&
CHIEF INFORMATION OFFICER
FROM: Gordon C. Milbourn III /s/ Gordon C.
Milbourn III
Acting Deputy Inspector
General for Audit
SUBJECT: Final Audit Report - Management of
the Information Systems Budget Has Improved, but Additional Progress Can Be
Made
(Audit # 200220036)
This report presents the
results of our review of the management of the Information Systems (ISY)
budget. The overall objective of this
review was to determine whether corrective actions have been implemented in response to a prior
Treasury Inspector General for Tax Administration report related to the information systems budget appropriation
processes performed by the Modernization, Information Technology and
Security (MITS) Services Headquarters organization (formerly the Information
Systems organization). Our current review also included an
evaluation of the processing of ISY budget adjustments by MITS Services field
offices.
The ISY appropriation
includes funding for the Internal Revenue Service’s (IRS) MITS Services
operations, staff for support and management of the Business Systems
Modernization effort, and investments to support the information systems of the
IRS business units. The ISY budget appropriation for each of Fiscal Years 2001 and 2002 was
approximately $1.6 billion. In our prior audit, we concluded
that MITS Services budget processes and controls did not provide adequate control
of the approval and processing of the ISY appropriation budget
adjustments.
In summary, the Deputy Commissioner
for Modernization & Chief Information Officer (CIO) has developed and implemented formal processes to
ensure that only ISY budget adjustments that are clearly documented,
appropriately reviewed, and properly approved are processed. As a result of the new processes, ISY budget
adjustment processing has improved significantly.
However, there were still
instances in which adjustments were not clearly documented, approved, and/or
reviewed. We found this to be true for
ISY budget adjustments processed by both the MITS Services Headquarters office
and the field offices. These problems
occurred primarily because the guidelines for processing ISY budget adjustments
were not complete and always followed.
To further improve the budget adjustment process, we recommended that
the CIO revise guidelines for processing ISY budget adjustments and take steps
to ensure the guidelines are routinely followed.
In our prior audit, we concluded that existing budget processes and controls did not provide adequate
analysis of incoming ISY budget appropriation estimates or reporting of
spending throughout the year. We were unable to follow up on these conditions due
to changes in the MITS Services organizational structure and changes to the
budget process. These changes resulted
in corrective actions being delayed or no longer applicable. Please see Appendix V for further details.
Management’s
Response: The CIO agreed with our recommendations and
responded that guidelines have been or will be clarified to ensure that MITS
Services budget adjustments are processed consistently and timely. The CIO also provided monitoring plans to
ensure that revised guidelines are being followed. Management’s complete response to the draft report is included as
Appendix VI.
Copies of this report are
also being sent to the IRS managers affected by the report
recommendations. Please contact me at
(202) 622-6510 if you have questions or Gary V. Hinkle, Acting Assistant
Inspector General for Audit (Information Systems Programs), at (202) 927-7291.
Information Systems Budget Adjustment Processing Could Be Improved
Appendix I – Detailed Objective, Scope, and Methodology
Appendix II – Major Contributors to This Report
Appendix III – Report Distribution List
Appendix IV – Outcome Measures
Appendix V – Corrective Actions in Process or No Longer
Applicable
Appendix VI – Management’s Response to the Draft Report
The budget cycle
at the Internal Revenue Service (IRS) begins with estimates of funds needed to
operate its programs in a designated fiscal year. The IRS presents these estimates to the Department of the
Treasury, the Office of Management and Budget, and the Congress. The budget cycle continues with processes to
allocate funds to specific IRS functions, organizations, and programs. Actual expenditures are then tracked and
reported against planned expenditures.
The IRS’ budget is divided
into five appropriations, one of which is the Information Systems (ISY)
appropriation. The ISY appropriation includes funding for the Modernization,
Information Technology and Security (MITS) Services operations, staff for
support and management of the Business Systems Modernization effort, and
investments to support the information systems of the IRS business units. The ISY budget appropriation for each of Fiscal Years
(FY) 2001 and 2002 was approximately $1.6 billion.
In 2001, the Treasury Inspector General for Tax Administration reviewed the MITS Services Headquarters’ management of the ISY appropriation. We concluded that the budget processes and controls did not provide adequate analysis of incoming budget appropriation estimates, control of the approval and processing of budget adjustments, and review and reporting of ISY spending throughout the year. IRS management agreed with our recommendations and planned corrective actions to address them.
In this review, we
determined the status of corrective actions recommended in our 2001 review. To provide a
more comprehensive assessment, we also evaluated the processing of ISY budget adjustments
by MITS Services field offices.
We were unable to follow up on two previous recommendations due to changes in the MITS Services organizational structure and budget processes. These changes resulted in the corrective actions being delayed or no longer applicable. See Appendix V for further details on this topic.
We
primarily conducted our audit work in the MITS Services Headquarters office in
New Carrollton, Maryland, between June and November 2002. We also
reviewed documentation from various MITS Services field offices during the same
time period. The audit was conducted in accordance with Government Auditing Standards.
Detailed information on our audit objective, scope, and methodology is presented in Appendix I. Major contributors to the report are listed in Appendix II.
The MITS Services organization develops estimates for the ISY appropriation approximately 2 years before the funds are needed for MITS Services operations. Once the budget is enacted, MITS Services officials may transfer funds in the ISY appropriation to cover budget shortages or surpluses caused by changes in program direction, changes in divisional priorities, or inadequate planning.
MITS Services officials can transfer funds in two ways.
·
Intra-appropriation Transfers –
An intra-appropriation transfer occurs when funds are moved between different
categories within the ISY appropriation.
·
Inter-appropriation Transfers –
An inter-appropriation transfer occurs when funds are moved between the ISY
appropriation and a different IRS appropriation.
During the first 10 months of FY 2002, the MITS Services organization processed about 800 ISY intra-appropriation transfers totaling approximately $450 million (28 percent of the total ISY budget). Also, the MITS Services Headquarters office processed 24 inter-appropriation transfers totaling approximately $43 million.
Since the previous review, the Deputy Commissioner for Modernization & Chief Information Officer (CIO) has developed and implemented formal processes to ensure that only ISY budget adjustments that are clearly documented, appropriately reviewed, and properly approved are processed. As a result, we determined that the MITS Services Headquarters office has made significant improvements in processing ISY budget adjustments. However, about 15 percent of the budget adjustments we reviewed were processed without evidence of appropriate managerial review, approval, and/or documentation. We also found that the MITS Services organization needed to develop a more reliable standard for processing timeliness. For the field offices, budget adjustments were not always processed using established guidelines.
The
MITS Services organization did not always process ISY budget adjustments in
accordance with established guidelines
Our previous review found that ISY intra-appropriation transfers were processed without evidence of managerial review, approval, and/or sufficient documentation. More specifically, we found processing problems in every case we reviewed. Since that review, the MITS Services organization has significantly improved its controls over processing intra-appropriation transfers. Additionally, we found that controls over processing inter-appropriation transfers were adequate. However, there were some processing problems in both intra-appropriation and inter-appropriation transfers.
We reviewed a judgmental sample of 32 intra-appropriation transfers and 24 inter-appropriation transfers that were processed by the MITS Services Headquarters office during the first 10 months of FY 2002. The MITS Services organization provided adequate support and evidence of managerial approval for about 85 percent of these transfers. However, 8 transfers totaling about $12 million were processed without evidence of managerial review, approval, and/or sufficient documentation.
The MITS Services guidelines for processing adjustments to the ISY appropriation indicate that all adjustments should be reviewed, approved, and documented. However, the guidelines for processing adjustments to the ISY budget were not always followed.
Inadequate controls over the
processing of ISY budget adjustments may affect the accuracy of the amounts
budgeted for program initiatives and can affect decisions involving the
development of future year budget estimates.
Considering that approximately $450 million was transferred during the
first 10 months of FY 2002 between the various categories within the ISY
appropriation, and $43 million was transferred between appropriations,
inappropriate or inaccurate transfers can have a significant impact on the
future year budget estimates.
The MITS Services Headquarters office
needs to develop a more reliable standard for processing timeliness
ISY budget adjustments should be timely posted to the budget system. Although the guidelines for processing adjustments to the ISY budget do not specifically define “timely” in terms of an acceptable number of days for processing adjustments, MITS Services officials set an informal standard of 5 business days. To measure timeliness, MITS Services officials stated that they reviewed a budget adjustment log set up for this purpose.
We reviewed a judgmental sample of 32 adjustments to the ISY appropriation to determine whether the adjustments were processed within the time period set by the MITS Services Headquarters office. Only 8 (25 percent) of the transactions met the informal standard, while the remainder either exceeded the informal standard or could not be evaluated due to insufficient documentation.
MITS Services officials indicated that the informal standard for processing adjustments could be unreliable because the MITS Services organization did not use empirical data to develop the standard. Also, some adjustments could not be measured for timeliness because they were not tracked on the budget adjustment log.
Without
a more reliable timeliness standard and complete tracking of all adjustments,
the MITS Services organization cannot determine whether budget adjustments are
processed as efficiently as possible.
In addition, untimely processing of budget adjustments reduces the
accuracy and reliability of information contained in the IRS budget system. IRS senior officials rely on information
contained in the budget system to make critical funding decisions, thus
accurate and reliable budget information is essential.
MITS Services field offices did not always
process ISY budget adjustments in accordance with established guidelines
We reviewed a
judgmental sample of 43 intra-appropriation transfers that were processed by
the MITS Services field offices and found that 19 (44 percent) totaling about
$500,000 did not have adequate support or evidence that management approved the
transfers. The
budget adjustment processing guidelines
indicate that all adjustments should be reviewed, approved, and documented. Not adhering to controls over ISY budget adjustments may
affect the accuracy of the amounts budgeted for program initiatives and can
affect decisions involving the development of future year budget estimates.
MITS
Services officials in the field offices indicated that not all guidelines for
processing ISY budget adjustments apply to the field offices because the field
offices are organized differently than the Headquarters office. While we acknowledge these differences, the
budget adjustment processing guidelines do not allow for any exemptions for
documenting and approving budget adjustments.
To ensure that
adjustments to the ISY appropriation are appropriate and processed
consistently, the Deputy Commissioner for Modernization & CIO should:
1.
Ensure that
guidelines for processing ISY budget adjustments are complete and always
followed. The guidelines should be
revised to separately address controls for processing adjustments in the field
offices, if necessary.
Management’s Response: The CIO agreed with the recommendation and responded that guidelines have been clarified to ensure that all MITS Services budget adjustments are processed consistently. The CIO also provided a plan for monitoring whether the updated guidance is being followed.
2.
Require that all MITS Services Headquarters office budget
adjustments be posted to the budget adjustment log to track and improve
processing timeliness. Once sufficient
data on time periods needed to process adjustments are captured, the CIO should
incorporate more reliable timeliness standards into the guidelines.
Management’s Response: The CIO agreed with the recommendation and responded that the budget adjustment log has been improved to minimize input and more accurately capture data for analysis. The Financial Management Services organization will post all budget adjustments to the budget adjustment log, update procedures for maintaining the log, and ensure that the field offices maintain a similar log. Once sufficient information is captured, timeliness standards will be incorporated into the guidelines. The CIO also provided a plan for monitoring whether the updated guidance is being followed.
Appendix I
Detailed Objective, Scope, and Methodology
The overall objective of this review was to
determine whether the Modernization,
Information Technology and Security (MITS)
Services has implemented corrective actions in response to the prior audit of
Information Systems (ISY) budget appropriation processes. To provide a more comprehensive assessment,
we also evaluated the processing of ISY budget adjustments by MITS Services
field offices. To accomplish the audit
objective, we:
I.
Determined
whether the MITS Services organization had developed a formal process to review and
report problems and discrepancies with the ISY budget estimates submitted by
both MITS Services and Internal Revenue Service (IRS) operations budget
analysts.
II.
Determined if
the MITS Services organization had implemented corrective actions to ensure
that financial plan changes (FPC) were processed with appropriate supporting
documentation and managerial approvals.
A. Determined whether the Deputy
Commissioner for Modernization & Chief Information Officer had
issued financial operating guidelines to ensure that FPCs were processed only
when they had been appropriately reviewed and approved.
B.
Determined whether MITS Services officials in
the Headquarters office effectively ensured that all ISY FPCs submitted were
properly approved and adequately supported (see the following sampling
methodology).
C.
Determined whether FPCs submitted by the MITS
Services field offices were properly approved and adequately supported (see the
following sampling methodology).
III.
Determined whether detailed procedures for spending reviews had been
developed.
We selected a
judgmental sample from an Automated Financial System report. The MITS Services organization provided a
report of all FPCs posted to the Automated Financial System between October 1,
2001, and July 19, 2002. The report
contained 1,099 unique FPC transactions for both MITS Services Headquarters and
field offices. We eliminated all FPCs that were not part
of the ISY appropriation and all FPCs that resulted from the MITS Services
reorganization. We identified 796
unique FPC transactions based on the procedures outlined above. We used a computer application to randomly
select 75 transactions for review. The
resulting sample contained 32 FPCs that were processed by MITS Services
Headquarters office and 43 processed by various MITS Services field
offices. To complete the sample, we
selected all 24 inter-appropriation transactions executed between October 1,
2001, and May 23, 2002.
Appendix II
Major Contributors to This Report
Gary V. Hinkle, Acting Assistant Inspector General for Audit (Information Systems Programs)
James A. Douglas,
Senior Auditor
Deadra M. English,
Senior Auditor
Perrin T. Gleaton, Auditor
Appendix III
Acting Commissioner N:C
Chief, Information Technology Services M:I
Director, Financial Management Services M:FM
Director, End User Equipment and Services M:I:EU
Director, Enterprise Operations M:I:EO
Chief Counsel CC
National Taxpayer Advocate TA
Director, Legislative Affairs CL:LA
Director, Office of Program Evaluation and
Risk Analysis N:ADC:R:O
Office of Management Controls N:CFO:F:M
Audit Liaisons:
Director, Financial Management Services M:FM
Manager, Program Oversight and Coordination Office M:R:PM:PO
Appendix IV
This appendix presents detailed information on the measurable impact that our recommended corrective actions will have on tax administration. These benefits will be incorporated into our Semiannual Report to the Congress.
Type and Value of Outcome Measure:
· Reliability of Information – Potential; 8 budget transfers totaling $12,146,484 were processed by the Modernization, Information Technology and Security (MITS) Services Headquarters office without evidence of managerial review, approval, and/or sufficient documentation (see page 2).
· Reliability of Information – Potential; 19 budget transfers totaling $565,182 were processed by the MITS Services field offices without adequate support or evidence that management approved the transfers (see page 2).
Methodology Used to Measure the Reported Benefit:
We selected a judgmental sample from an Automated Financial System report. The MITS Services organization provided a report of all financial plan changes (FPC) posted to the Automated Financial System between October 1, 2001, and July 19, 2002. The report contained 1,099 unique FPC transactions for both MITS Services Headquarters and field offices. We eliminated all FPCs that were not part of the Information Systems appropriation and all FPCs that resulted from the MITS Services reorganization. We identified 796 unique FPC transactions based on the procedures outlined above. We used a computer application to randomly select 75 transactions for review. To complete the sample, we selected all inter-appropriation transactions executed between October 1, 2001, and May 23, 2002. The resulting sample consisted of 32 intra-appropriation transfers and 24 inter-appropriation transfers that were processed by the MITS Services Headquarters office, and 43 intra-appropriation transfers that were processed by the MITS Services field offices.
· The MITS Services Headquarters office processed 6 intra-appropriation transfers, totaling $9,773,171, without evidence of managerial review, approval, and/or sufficient documentation.
· The MITS Services Headquarters office also processed 2 inter-appropriation transfers, totaling $2,373,313, without evidence of approval.
· The MITS Services field offices processed 19 intra-appropriation transfers, totaling $565,182, without adequate support or evidence that management approved the transfers.
Appendix V
Budget Estimation Processes
In Fiscal Year (FY) 2001, the
Treasury Inspector General for Tax Administration (TIGTA) reviewed the
management of the Information Systems (ISY) budget appropriation and concluded that
the budget processes and controls did not provide
adequate analysis of incoming budget appropriation estimates. As a result, the
TIGTA recommended that the Deputy Commissioner for Modernization &
Chief Information Officer (CIO) develop and implement formal processes to review and
report problems and discrepancies with ISY budget estimate submissions to CIO
and Internal Revenue Service (IRS) operations budget analysts.
In FY 2002, the General Accounting Office concluded that the IRS did not adequately justify over 76 percent of the ISY budget request. Furthermore, IRS officials indicated the budget request was developed based on spending from the previous year plus an adjustment for cost-of-living and salary increases. The IRS agreed to address the weaknesses in the IRS budget formulation process for the ISY appropriation.
To improve the budget estimation process, the IRS significantly revised the budget process. The previous TIGTA recommendation was aimed at improving the process followed by the Modernization, Information Technology and Security (MITS) Services Budget Policy, Planning, and Performance office. The role of this office in determining the validity and completeness of budget estimates has been significantly reduced. As a result of this change, our previous recommendation is no longer applicable.
MITS Services Spending Review Process
In FY
2001, the TIGTA also concluded that the ISY budget processes and controls did not provide for adequate review and reporting of
ISY spending throughout the year. As a result, the TIGTA recommended that the IRS develop
procedures to conduct spending reviews.
According to the IRS, spending review guidance was created in FY 2001 as recommended. However, no guidance was issued in FY 2002 due to changes in the budget process. Instead, the IRS relied on the spending reviews conducted at the program level to assess the execution of budget plans. In addition, MITS Services officials indicated that modified spending reviews were conducted as part of the effort to revise the ISY budget estimates for FY 2002. MITS Services officials stated that spending review guidance would be created to coincide with the new budget process in FY 2003. At the end of our audit work, the new guidance was not available for review.
Appendix VI
The response was removed due to its size. To see the complete response, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.