The Parallels of a Taxing Situation

Two Paths Toward Modernization

March 2001

When The MITRE Corporation established its newest Federally Funded Research and Development Center (FFRDC) in October 1998, its staff numbered eight full-time employees. The new FFRDC, sponsored by the Internal Revenue Service (IRS), created an IRS/MITRE partnership focused on modernizing the nation's tax administration system and helping the IRS evolve to a state-of-the-art information technology (IT) enterprise.

Within a year of establishing the IRS FFRDC, more than 150 MITRE staff members had assumed a wide range of roles and responsibilities for the IRS. The high quality of their work came to the attention of other treasury agencies, and, in 1999, the IRS FFRDC entered into a partnership with the U.S. Customs Service to assist the nation's oldest, continually-operating agency to modernize its own operations.

Now, two years after it began, MITRE's IRS FFRDC has become a trusted source of technical, organizational, strategic, and program management expertise for the IRS and for Customs. And, although each agency has its own unique set of requirements and issues, they are traveling similar paths toward their modernization goals.

The well-traveled Road

Both the IRS and Customs have significant investments in old IT systems and business operations. Each agency has spent considerable time, energy, and funding to keep its systems going to meet 21st century requirements. However, brownouts, growing workloads, the increasing scarcity of support and hardware for old systems, and the inability of current systems to keep pace with customer service expectations or new business needs are only some of the issues. In addition, Congress has mandated system modernization, and oversight organizations have developed rules to regulate the process.

Vital National Roles: IRS and Customs

The IRS and Customs are bureaus of the U.S. Treasury Department and each plays an essential role in the nation's business.

The IRS operates one of the largest and most complex information systems in the world.

• Helping 6.3 million taxpayers at walk-in centers
• Assisting 99 million taxpayers over the telephone
• Processing 205 million tax returns
• Collecting $1.5 trillion in taxes

Customs, the guardian of the country's borders since 1789:

• Enforces more than 400 U.S. laws
• Seizes illegal goods (e.g., 4,000 pounds of narcotics in one year alone)
• Processes 550 vessels, 45,000 trucks, 344,000 vehicles, and 1.3 million passengers daily
• Amasses roughly $23 billion in revenue annually—a sum second only to the funds the IRS collects

Moreover, the IRS and Customs have substantial responsibility for dealing with stakeholders outside their respective agencies. The IRS interacts with individual and business taxpayers, as well as with tax practitioners, employers, financial institutions, state tax authorities, and other federal agencies. Customs conducts its business with importers, exporters, brokers, suppliers, carriers, and many government agencies that deal with enforcement and with the import/export process—for example, the Immigration and Naturalization Service, the Drug Enforcement Administration, and the Food and Drug Administration. Both agencies work also with Congress, Treasury, the General Accounting Office, and the Office of Management and Budget. The IT and business systems used today by the IRS and Customs meet neither their internal nor their external needs, or their desire to continue delivering top-quality service.

A Business Perspective

Modernization for both agencies is driven by several factors: the need to update their organizations and their business systems, the demands of laws and regulations, the requirements of customers and other stakeholders, and the advantages offered by technological progress. As former Commissioner of Customs Raymond Kelly said, "We want to build a system that is the dream of every legitimate businessman..., while ...a nightmare to those who would... use it for illegal means." To meet these significant challenges—which apply to the IRS as well as to Customs—MITRE is working with each agency to:

• Improve their business and management processes and enhance operational performance in a way that will continue to mature over time
• Capitalize on advanced technologies in automation, computing, and networking for a set of initial projects that will produce real business results
• Develop an updated systems architecture (a "system of systems") to guide each agency's program over the long term
• Create a set of integrated systems to carry out agency missions and achieve strategic objectives.

The two agencies are at different points on comparable paths. Just after the IRS FFRDC was created in 1998, the tax agency awarded a contract systems modernization to Computer Sciences Corporation (CSC) and its contracting team. In the ensuing two years, MITRE has developed a special relationship with the IRS, becoming an integral part of its management team, and helping its officials determine, monitor, and evaluate the technical and business direction of the modernization effort.

According to IRS Commissioner Charles O. Rossotti, "Our initial experience with this program compares favorably with major successful business systems programs undertaken elsewhere in the private and public sectors, few of which approach the scale of IRS' program.

Modernization Legislation In the past several years, Congress has enacted, and regulations have resulted from, several pieces of legislation that require and set out guidelines for modernization including: The IRS Restructuring and Reform Act of 1998 mandates many agency changes, including a congressional policy that at least 80 percent of returns be filed electronically by 2007. The Government Paperwork Elimination Act of 1998 requires that federal agencies allow individuals or entities the option to submit information, conduct transactions, and maintain records electronically. The Customs Modernization Act, enacted as part of the North American Free Trade implementing legislation in December 1993 mandates redesigning the trade compliance process and streamlining the accounting systems that accompany it. The Clinger-Cohen Act (CCA) of 1996 (formerly the Information Technology Management Reform Act or ITMRA) requires that federal programs link IT investments to budget strategies, establish a procedure to select, manage, and evaluate IT investment results, and integrate this procedure with agency budget, financial, and program management processes. Raines' Rules, named after Franklin D. Raines, former director of the Office of Management and Budget (OMB), who developed, as directed by ITMRA, criteria to evaluate and justify funding requests for major IT investments. The Government Performance Results Act (GPRA) of 1993 stresses accountability and requires that Customs be able to measure performance of key processes.

On the other hand, MITRE and Customs began their partnership in 1999, while Customs was still preparing to solicit bids for a prime integration contractor. Because MITRE's participation with Customs began at an earlier stage in the process than it had with the IRS, MITRE has been able to work with Customs personnel to develop a request for proposal (RFP) and award criteria. Seeking and working with a prime integration contractor was new territory for Customs, but familiar turf for MITRE. Thus, the partnership has allowed Customs and MITRE personnel to share information that will help Customs achieve success with its large and complex program.

MITRE is providing strategic guidance. We are able to leverage what we've learned in the past on similar projects, particularly the IRS modernization program. And we're able to draw expertise from across MITRE to provide the customer with the best solutions. Glenn S. Himes Sr. Principal Engineer Customs Modernization Team

Modernizing businesses and underlying systems requires significant knowledge of an organization's operations, the functions of its current systems, and the expectations for its future systems. However, the task is hardly limited to technology. The guiding principle is that the processes, methods, expectations, and participation of the entire organization must be engaged, so that new technology is developed to meet the agency's business needs and not vice versa. By using the intellectual capital and multidisciplinary talents of MITRE staff, the IRS FFRDC supplies effective, integrated solutions for many of the challenges of both agencies—their management and organizational considerations as well as their IT needs.

To this end, FFRDC staff members worked with IRS and Customs personnel to create a Governance structure that would establish and implement Modernization program controls. This included clear definitions of the entities within each agency and how they will work together, the roles and responsibilities of the FFRDC, the management of the prime contractor, and oversight processes for implementing new procedures and systems. In addition, the FFRDC played a vital role in creating modernization management structures. At the IRS, the Business Systems Modernization Office (BSMO), and, at Customs, the Customs Modernization Office (CMO):

• Provide a framework for defining required activities and responsibilities of entities involved in Modernization and for planning the necessary business changes and transitions
• Manage the Modernization programs, support business reengineering, and develop a long-range Modernization vision

The common goal is to change the very nature of the way each agency does business—revamping and streamlining procedures, using technologies that are interoperable and easy to upgrade, and maximizing service to other government agencies, the private sector, the public, and other internal and external stakeholders.

Modernization is a process you apply to the way you do business. If you do it right, you keep current with the expectations of your customers. Things have not evolved this way in most organizations. J. Michel Blom Deputy Director IRS FFRDC

The focus in the private sector today is on flexibility, and the IRS and Customs want to do business the way businesses do business. This means investing in agency reorganization and proven, business-oriented technology that respond to advancements and changing business needs. The IRS FFRDC will continue using lessons learned from each agency—and from MITRE's more-than-40 years of extensive experience—to help its Treasury partners. The result for the IRS and Customs will be an ongoing process, not a conclusion—an approach that aims to institutionalize the concept that the process of Modernization never ends.

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