The Internal Revenue Service’s Business Systems Modernization project showed mixed results in the past year, according to an annual audit report.

The Treasury Department’s inspector general for tax administration found that BSM faces four challenges, according to the June 30 report. The document states that the IRS:

• Needs to commit appropriate resources for management areas dealing with requirements, cost and schedule estimations, and project justifications.
• Must prepare for the added complexity and risks associated with its plans to take over as systems integrator from the prime contractor for the massive BSM program.
• “[C]ontinues to make significant, program-level changes causing difficulties in maintaining continuity or direction with the BSM program.”
• Must make contractors accountable for their performance through effective management, especially as the IRS becomes the systems integrator.

The IG recommended using fixed-price task orders instead of performance-based contracting. Performance-based contracting has produced mixed results as the BSM programs have struggled to set up revised processes.

Major changes come with a cost, especially to employees. Employees are faced with a learning curve when an organization restructures its functions. Focusing on new roles detracts from their attention to the modernization, the report states, making this a constant challenge as the IRS revisits its vision and strategy.

The IRS is concerned about reductions in funding for its overhaul program, the report states.

“The possibility of continued reductions to the BSM program in the coming years will impact our ability to provide the level of service taxpayers expect,” W. Todd Grams, chief information officer at the IRS, wrote in a draft response to the report dated June 19.

The IG has recommended slowing the program’s pace. The IRS and its contractors have performed better and delivered results when it has done so, the report states.

If improvement continues, the IG believes more funding may be considered. It warned, however, against drastic funding increases, because they may exceed the IRS’ ability to manage the program effectively.