IG flags problems with IRS modernization program

The Internal Revenue Service has made some progress but still faces significant security and operational challenges with its 15-year effort to modernize the agency's computer systems, according to a new report from the Treasury Inspector General for Tax Administration.

The IRS's Business System Modernization program began in 1999 as a sweeping overhaul of the agency's computer systems and related accounting practices. The goals were to speed the issuing of tax refunds, enable Web-based services such as electronic filing of tax returns and improve customer service. The project was originally slated to last 15 years and cost $8 billion.

As of this fall the BSM is in its 12th year and has received a total of about $3.7 billion in federal funds. While some aspects of the program, such as the new e-filing system, have been delivered, they have either failed to function as expected or have demonstrated security vulnerabilities in previous audits by the IG.

"While the IRS has demonstrated some promising information technology capabilities in its Business Modernization efforts, our report found that the IRS still needs to resolve some troubling security vulnerabilities with the Modernization Program,” said J. Russell George, the Treasury Inspector General for Tax Administration.

The IG found the IRS has failed to address all of the security vulnerabilities previously identified and has failed to adequately manage the employees tasked with resolving the issues. According to the report, the lingering security issues could not only put taxpayers' personal information at risk, but also leave the IRS unable to detect any attempts to steal it.

"We observed that without proper controls to monitor and resolve the MeF system security vulnerabilities and findings, unauthorized access to taxpayer information would continue to be available and possibly go undetected," the report states.

The report also notes the new e-filing system was expected to process more than 9 million tax returns this tax season, but problems with the application reduced the actual number of returns processed to about 750,000.

“Further, management of the project costs and schedules has improved since our previous report, but the IRS has not always effectively implemented planned processes or delivered all planned system capabilities to achieve the Modernization Program’s expectations,” Mr. George added.

The IG avoiding making additional recommendations in the report, but stressed that effective management would be necessary for the success of BSM.