GAO Says IRS Should Expand Approach to Healthcare Reform Implementation

The objectives of the briefing were to (1) describe IRS's PPACA responsibilities and effective dates and (2) assess the extent to which IRS, in planning PPACA implementation, is following leading practices in four areas -- developing an overall management structure (including goals and performance measures), estimating and tracking costs, assuring compliance with the new law while minimizing burden, and managing risk. To conduct this work, we reviewed PPACA, including applicable amendments, IRS documents and data, our past reports and GAO's Cost Estimating Guide, and Office of Management and Budget and IRS guidance. We shared the leading practices with IRS management and interviewed knowledgeable IRS officials about IRS's responsibilities and progress in following the leading practices.

We conducted this performance audit from August 2010 through June 2011 in accordance with generally accepted government auditing standards. These standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. We determined that the IRS data we used were sufficiently reliable for our purposes.

In summary, IRS has responsibilities in the implementation of 47 PPACA provisions with effective dates through 2018.² In planning to implement these provisions, IRS has generally followed leading practices. Top leadership has been involved; cost estimates for information technology projects have specified ground rules and assumptions, data sources, and supporting calculations; work has started on compliance controls; and risks are being identified and analyzed at the individual project level. However, IRS could improve aspects of its planning, particularly at an agencywide or strategic level. IRS defines strategic-level goals and project plans in multiple documents without integrating the goals or plans, IRS has no timeline for developing performance measures and collecting associated data, a cost estimate for all of the PPACA program has not been provided, and the risk management framework does not assure that all risks, especially strategic-level risks, are identified and analyzed. While implementation for some provisions is years away, making improvements to the planning process now would reduce risks and might minimize future problems. Hence, we are recommending that the Commissioner of Internal Revenue take the following four actions: (1) define program goals and develop a project plan in one document that effectively integrates all aspects of the program; (2) document a schedule for developing performance measures that link to program goals; (3) develop a more complete cost estimate that is consistent with the GAO Cost Estimating Guide; and (4) modify and document IRS's risk management approach to have more assurance that all risks, including strategic-level risks for the program, are identified and analyzed, and that mitigation options are assessed. For a further summary of the results of our work, see slides 6 and 7 in appendix I.

Agency Comments and Our Evaluation

In a June 20, 2011, letter responding to a draft of this report (appendix V), the IRS Commissioner provided comments on our findings and recommendations as well as information on additional agency efforts to implement PPACA.

Stating that GAO provided valuable input on best practices in planning and organizing an effort of this scale, the Commissioner's comments indicated general agreement with our recommendations. IRS agreed to further define program goals and consider the best way to develop an overarching program plan that integrates its IT and business planning and lays out requirements at a strategic level. With regard to performance measures, IRS said it is taking steps to develop performance metrics and a corresponding timeline for implementation of those metrics, which involves assistance from the agency's Research, Analysis and Statistics Division and the use of existing performance measures for some provisions. IRS agreed to explore further enhancements to its cost estimating process. We note, however, that our recommendation called for developing a more complete cost estimate, rather than only exploring enhancements. With regard to risk management, IRS stated that it is clarifying its risk management process to ensure transparency in how strategic-level risks are raised, assessed, mitigated, and monitored by top IRS executives.

We are sending copies of this report to the Chairmen and Ranking Members of other Senate and House committees and subcommittees that have appropriation and oversight responsibilities for IRS. We also will be sending copies to the Commissioner of Internal Revenue, the Secretary of the Treasury, the Chairman of the IRS Oversight Board, and the Director of the Office of Management and Budget. Copies also are available at no charge on the GAO Web site at http://www.gao.gov.

If you or your staffs have any questions about this report, please contact me at (202) 512-9110 or whitej@gao.gov. Contact points for our offices of Congressional Relations and Public Affairs are on the last page of this report. GAO staff members who made major contributions to this report are listed in appendix VI.

² Provisions of the law affect virtually all types of taxpayers. To implement the provisions, IRS's budget for fiscal year 2012 requested $473 million and more than 1,200 full-time equivalent (FTE) staff.

• Implementation of PPACA is a major effort at IRS

• More than 40 provisions of PPACA, as amended by the Health Care and Education Reconciliation Act of 2010, pertain to IRS

• IRS will interact with 3 groups in implementing the law:

• • individuals who have tax reporting responsibilities under the law

  • intermediaries (e.g., employers and insurers who help administer)

  • administrators (e.g., other federal agencies, such as the Department of Health and Human Services (HHS), and states)

• IRS began its initial implementation in 2010

• The fiscal year (FY) 2012 budget request for IRS included $473 million and more than 1,200 full-time equivalent (FTE) staff for PPACA implementation

• Based on prior GAO reports and IRS's internal guidance, including the Internal Revenue Manual, implementation of a program of this size requires:

• • An overall management structure

  • A cost estimation process

  • Plans for assuring compliance with the new law while minimizing the burden on individuals, intermediaries, and administrators

  • A risk management framework

• The Senate Committee on Appropriations, Subcommittee on Financial Services and General Government, asked for an interim report on IRS's actions in these four areas

• Objective 1 -- IRS Responsibilities

• • Reviewed IRS documentation, legislative language, and analysis by Congressional Budget Office, Joint Committee on Taxation, and Congressional Research Service to summarize IRS's responsibilities

  • Interviewed IRS officials and confirmed our summary of IRS's responsibilities

• Objective 2 -- IRS Implementation

• • Reviewed guidance to identify leading practices and related criteria for planning new programs (see Appendix II for specific sources), using:

  • • GAO reports relevant to leading practices for overall management structure, tax compliance, and risk management

    • GAO Cost Estimating Guide

    • Internal Revenue Manual

    • IRS's strategic plan

    • Office of Management and Budget Circular A-123

  • Shared leading practices and criteria with IRS officials

  • Compared IRS's progress to criteria by:

  • • Reviewing IRS documentation and data

    • Interviewing IRS officials

    • Identifying gaps between progress so far and the criteria

    • Looking for IRS's plans to close those gaps, where gaps are identified

• See Appendix III for details on our scope and methodology

• IRS's Responsibilities: IRS has responsibilities in the implementation of 47 provisions with effective dates through 2018, over half of which were statutorily effective in or prior to 2010

• IRS's Planning to Implement PPACA Provisions:

• • Short term implementation and long term strategic planning had to proceed simultaneously

  • IRS has generally followed leading practices in its planning for PPACA implementation, such as:

  • • Top leadership has been actively involved in designing and implementing the management structure, emphasizing communication and coordination across IRS

    • The cost estimate for information technology has specified ground rules and assumptions, data sources, and calculations supporting the cost estimate

    • IRS has been creating upfront compliance assurance controls and filters

    • IRS has established multiple frameworks for identifying and analyzing risks

• However, IRS could improve some aspects of its strategic-level planning

• • IRS's strategic-level goals and project plans are defined in multiple documents, which do not effectively integrate all PPACA efforts

  • IRS has not established a timeline for developing performance measures

  • IRS has not provided a comprehensive, well-documented, accurate, or credible cost estimate for all segments of its PPACA efforts

  • IRS's risk management framework does not assure that all risks, especially strategic-level risks, are identified and analyzed, such as those related to determining milestones for its compliance assurance work

• Without more attention to these issues, IRS is more likely to have units working at cross purposes, problems measuring performance, an incomplete picture of resource needs, and risks that are not mitigated

• PPACA was enacted on March 23, 2010, consisting of provisions that would reform the private insurance market and expand health insurance coverage to the uninsured

• It involves all major health care stakeholders, including federal and state governments, employers, insurers, and health care providers

• IRS is one of several agencies with responsibilities to implement the legislation

• We use the term "program" to refer to IRS's overall implementation effort as the aggregate of the efforts conducted at the "project" level, where teams focus on specific segments of the program

• IRS focused its resources on near-term projects in 2010, and then emphasized long-term planning as implementation of near-term projects progressed by 2011

• IRS's implementation expenses for 2010 and 2011 were funded by Department of Health and Human Service's (HHS) Health Insurance Reform Implementation Fund (HIRIF)

• • In the Health Care and Education Reconciliation Act of 2010, Congress appropriated $1 billion to HIRIF for federal spending to implement PPACA

  • IRS provided quarterly spend plans to HHS to justify receipt of HIRIF funds for implementation

  • IRS officials said they would not use HIRIF funds in 2012 if their budget request were fully funded

• IRS has responsibilities in the implementation of 47 PPACA provisions

• IRS's responsibilities can be divided into health care exchange provisions and non-exchange provisions

• • Health care exchanges, to be established by states by 2014, are marketplaces for individuals and certain types of employers to purchase health insurance

  • Although IRS is not responsible for establishing health care exchanges, IRS officials said the health care exchange provisions may be the most challenging for them to administer because they will require:

  • • new definitions (such as household income)

    • new information technology (IT) systems

    • a new scale of interagency coordination, such as with HHS

Number of Provisions Affecting IRS by Statutorily Effective Date

 

 

 

Notes:

• To highlight IRS's responsibilities under the legislation, we selected provisions that affected IRS and that increased revenues, increased or reduced revenue losses, or increased spending by at least $1 billion over 2010-2019¹

• Some provisions affecting IRS are designed to raise revenue and do not otherwise relate to health care (e.g., excluding unprocessed fuels from an existing tax credit on cellulosic biofuel producers)

• A complete list of provisions affecting IRS, with more details, can be found in Appendix IV

• Established tax credits for small business employers providing health insurance

• Extended and increased existing adoption tax credit, also making it refundable

• Authorized tax exemption for start-up nonprofit health insurers providing insurance to individuals or small groups

• Authorized an exclusion from gross income for payments by a temporary government reinsurance program (Early Retiree Reinsurance Program) to health care plans providing retiree health insurance

• Codified requirement that business transactions have economic substance (i.e., benefits other than solely tax benefits), and imposed penalties for underpayments on taxes that would have been owed absent the transaction

• Excluded unprocessed fuels from an existing tax credit for cellulosic biofuel producers

• Established an excise tax on indoor tanning salon services

• Established federal cost-sharing for eligible individuals to reduce annual out-of-pocket deductibles

• Repealed tax exclusion in health flexible spending arrangements in cafeteria plans for over-the-counter medicines

• Increased additional tax on distributions from certain health savings accounts that are not used for qualified medical expenses

• Established annual fee on manufacturers and importers of branded prescription drugs

• Established annual fee through 2019 on health insurance plans of $2 per insured individual to fund research into the comparative effectiveness of health care interventions (Patient-Centered Outcomes Research Trust Fund)

• Reduced maximum amount in health flexible spending arrangements in cafeteria plans to $2,500

• Increased medical expense deduction threshold

• Eliminated employer deduction for retiree drug subsidy

• Established excise tax of 2.3% on medical devices

• Increased Hospital Insurance tax by 0.9% on wages over specified threshold

• Established Medicare contribution of 3.8% on unearned income over specified threshold

• Non-exchange provisions:

• • Established annual fee on health insurers proportional to the insurer's share of total premium revenue

• Exchange provisions:

• • Established refundable premium assistance tax credits for eligible individuals purchasing health insurance coverage on state exchanges

  • Established penalty for individuals without minimum essential health coverage

  • Established penalty on larger employers with at least one employee receiving a premium assistance tax credit or cost-sharing reduction

• Established excise tax on high-cost employer-provided health insurance plans

• IRS involved top leadership and established a network of teams to help with implementation, emphasizing coordination and communication among teams on technical, procedural, and policy issues

• Cost estimating techniques for information technology projects included some leading practices, such as specifying ground rules and assumptions influencing the estimate

• IRS has put in place some upfront compliance controls and filters to identify potential fraud for non-exchange provisions

• IRS established multiple frameworks for identifying and analyzing risks at the project level

• IRS's strategic-level program goals and project plans are defined in multiple documents, which do not effectively integrate all aspects of the program

• IRS has not established a timeline for developing performance measures that would indicate whether the program is producing desired results

• IRS has not provided comprehensive, well-documented, accurate, and credible cost estimating activities across all segments of the program

• IRS's multiple risk management frameworks do not ensure that all strategic-level risks are identified and analyzed at the program level

• An agency's implementation team formation should include:

• • Transformation driven by top leadership

  • Establishment of networks to support the implementation team

  • Selection of high-performing team members

• IRS has made progress in dedicating an implementation team

• • IRS assigned top leadership, including the Commissioner's Chief of Staff, two Deputy Commissioners, and high level executives from all operating divisions, to oversee implementation through a PPACA Executive Steering Committee (ESC)

  • PPACA ESC oversees two Program Management Offices (PMOs), Services & Enforcement (S&E) and Modernization and Information Technology Services (MITS), that coordinate with Health Care Counsel to lead daily implementation efforts

  • IRS documents emphasize collaboration between S&E and MITS to coordinate technical, procedural, and policy issues among a network of teams having subject matter experts

• IRS has assigned lead responsibility for implementing PPACA provisions throughout the agency with assistance from MITS

• • Services & Enforcement -- 40 provisions:

  • • Wage & Investment (W&I) Division -- 17 provisions

    • Small Business/Self-Employed (SB/SE) Division -- 10 provisions

    • Large Business & International (LB&I) Division -- 7 provisions

    • Tax Exempt/Government Entities (TE/GE) Division -- 6 provisions

  • Chief Counsel -- 7 provisions

1. Dedicate an Implementation Team -- IRS PPACA

 

Implementation Leadership Structure

 

 

 

• An agency's program goals should:

• • Link to the agency's mission

  • Communicate a clear vision of the outcomes to be achieved

  • Be established by key stakeholders who manage the program

• PPACA ESC has not established overall program goals that apply to S&E, MITS, and Health Care Counsel

• ESC has allowed the PMOs to separately determine program goals, which tend to meet the criteria

• • S&E PMO Goals -- documented goals include effective, accurate, and timely implementation in accordance with the IRS mission, along with objectives that link to the agency's mission

  • MITS PMO Goals -- documented goal is to develop system solutions to support and execute IRS's responsibilities under PPACA

• Multiple sources of program goals at the project level could cause confusion about the overall program's strategic goals

• An agency's alignment of its workforce should:

• • Involve top management and employees in developing and implementing a workforce plan

  • Analyze gaps between the workforce that exist and that will be needed in the future

  • Use appropriate strategies to fill workforce gaps

  • Monitor results and adjust plans as necessary

• IRS generally has met these criteria in that it

• • Developed working teams of executives and subject matter experts

  • Analyzed workforce gaps

  • Drafted hiring plans to fill needed positions at specific times

  • Monitored hiring results and analyzed variances

• An agency's performance measures should:

• • Link to program goals, as well as strategic plan and budgets

  • Be established in time to identify and collect performance data needed for evaluating the program

• S&E and MITS PMOs have not followed these practices yet

• • As stated earlier, overall program goals have not been established

  • According to IRS officials, the Research, Analysis and Statistics unit is advising S&E and MITS on existing IRS data that could be used for measuring performance

  • IRS officials said that the project teams are considering data needs and indicators of performance and workload, and that measures would be developed in time to evaluate results but they did not provide documentation on what is being done or a schedule for completion

• IRS's ability to evaluate its performance may be hindered if:

• • Performance measures do not link to program goals

  • Performance measures are not established in time to collect the necessary performance data

• An agency's internal communications strategy should:

• • Communicate program goals and operational changes before and as changes occur

  • Solicit employee feedback and address concerns

  • Communicate a consistent message using a variety of media (e.g., e-mail, web, meetings)

• S&E Project Management Plan has an internal communication strategy

• • Details frequency and methods of communication in a variety of media

  • Lists internal stakeholders and corresponding responsibilities

  • Does not specify how program goals are communicated to the workforce or how feedback is solicited and addressed

• IRS is developing a formal communications plan that is to be completed in Summer 2011

• Agencies coordinating with one another should:

• • Establish common program goals

  • Agree on roles and responsibilities and leverage resources to maximize efficiency

  • Establish compatible policies, procedures, and other means to operate across agency boundaries

  • Monitor outcomes using performance measures and adjust as appropriate based on performance data

• IRS has made progress on these criteria in working with HHS -- the agency with whom IRS coordinates most often for PPACA implementation -- focusing on IT systems

• • PMO executives coordinate in a working group with HHS and other agencies on technology interface and data needs

  • For example, an April 2011 meeting between HHS and IRS documented common goals for IT development, outlined roles and responsibilities, and established a timeline for major milestones

  • IRS has established "Guiding Principles" for coordination of data and systems with HHS

• An agency tracking and monitoring its progress should:

• • Develop a project plan that includes milestones for completing key activities

  • Articulate a clear system of coordination among project components

  • Track results

• S&E PMO is developing a project plan that considers the tasks and milestones of both S&E and MITS while MITS PMO established its workstream project plans

• IRS has not yet developed a comprehensive project plan for all segments of IRS's PPACA work that states all assumptions, schedules, and deadlines

• • IRS's efforts to monitor progress may be inhibited absent such a comprehensive plan

  • A comprehensive project plan may enhance collaboration among internal segments of IRS and external partners involved in PPACA implementation

• GAO's Cost Guide states that cost estimates should be:

•  

  1. Comprehensive

  2. Well-documented

  3. Accurate

  4. Credible

• An agency that did not meet these criteria would be at risk of not knowing what resources were needed and when the resources would be needed

• Comprehensive cost estimates should:

• • Include all life cycle costs

  • Completely define the program, reflect the current schedule, and capture the complete technical scope of the work to be performed

  • Contain a logical work breakdown structure (documentation detailing the work necessary to accomplish program objectives) that accounts for all performance criteria and requirements

  • Detail all cost-influencing ground rules and assumptions

• According to documentation provided, IRS has partially acted on these practices for developing comprehensive cost estimates for MITS except that they

• • did not include the entire life cycle of the program (estimates include fiscal years 2010-2012)

  • relied on a high level work breakdown structure

  • did not include a dictionary that describes how each of the subprojects relate to one another in the work breakdown structure

• We received some cost estimating documentation for S&E on May 23, 2011, and have not finished reviewing it, but the documentation is missing a work breakdown structure to ensure that all costs are included and nothing is double counted

• Well-documented cost estimates should:

• • Identify data sources and reliability of data

  • Describe all estimating methods for all elements of the work breakdown structure

  • Show step by step calculations of cost

  • Provide evidence that the estimate was reviewed and accepted by management

  • Discuss how the technical description of the program is incorporated into the estimate

• According to documentation provided, IRS has partially acted on these practices for developing well-documented cost estimates for MITS except that

• • the cost model documentation does not discuss the reliability of the underlying data and only minimally discusses the technical description

  • the documentation is missing a technical description of what the estimate is based on

  • some cost calculations were not shown

  • expert opinion was used with no historical data to support the numbers

• We received some cost estimating documentation for S&E on May 23, 2011, and have not finished reviewing it, but it is missing a technical description of what the estimate is based on

• Accurate cost estimates should:

• • Be unbiased and based on assessment of most likely costs

  • Be based on historical costs and adjusted properly for inflation

  • Contain, at most, only a few minor mistakes

  • Be updated regularly

  • Analyze variances between planned and actual costs

• According to documentation provided, IRS has partially acted on these practices for developing accurate cost estimates for MITS except that the estimates

• • did not properly adjust for inflation

  • did not clearly track where updates had been made

  • did not discuss variances and any lessons learned

• We received some cost estimating documentation for S&E on May 23, 2011, and have not finished reviewing it

• Credible cost estimates should:

• • Include a sensitivity analysis that vary major assumptions and data inputs

  • Conduct a risk and uncertainty analysis

  • Use more than one methodology in calculating major cost elements to determine if the results are similar

  • Compare results to an independent cost estimate

• According to documentation provided, IRS minimally acted on these practices for developing a credible cost estimate for MITS

• • While the IRS identified low, most likely, and high ranges of costs, it did not examine how changing each variable would affect the overall cost

  • IRS did not perform a risk and uncertainty analysis to determine a level of confidence in the estimate

  • IRS did not provide evidence of cross checking multiple methodologies for major cost elements

  • IRS did not compare its estimate to an independent cost estimate to see if the results were similar

• We received some cost estimating documentation for S&E on May 23, 2011, and have not finished reviewing it

• An agency's efforts to foster compliance through taxpayer assistance should include:

• • seeking to minimize burden for all taxpayers

  • gathering and analyzing data on likely impacts on taxpayers before making decisions

  • issuing clear, timely guidance and outreach based on feedback from taxpayers and practitioners

  • working with software developers and paid preparers to minimize taxpayer burden

• IRS has taken some action to foster compliance through taxpayer assistance, including:

• • considering burden in risk assessments

  • developing online calculators to assist individuals with the premium assistance tax credit

  • seeking feedback from taxpayers and practitioners through issuance of draft guidance on the 2014 employer penalty provision

  • distributing guidance and initiating outreach for provisions already implemented

  • creating a workstream team to plan customer and stakeholder engagement for exchange-related provisions

  • creating a workstream team to plan compliance strategy and policy for exchange-related provisions

• An agency's efforts to detect and prevent noncompliance should include:

• • Upfront preventive controls to address fraud or abuse as applicable

  • Aggressive investigation and prosecution of those who commit fraud

• IRS's planning has led to some efforts to include upfront controls and actions

• • Implemented filters to identify potential fraud for nonexchange provisions

  • Identified and assessed risks of noncompliance

  • Met with IRS subject matter experts on compliance risks in exchange provisions

• An agency's efforts to identify barriers to compliance should include:

• • Using research to identify barriers to achieving high rates of voluntary compliance

  • Targeting resources of known or potential noncompliance

• IRS officials said that PPACA working group meetings include IRS research officials

• An agency's efforts to comprehensively identify and analyze risks should include:

• • Establishing a formal risk management procedure

  • Analyzing the consequences and likelihood of occurrence of identified risks

• Each PMO has established a separate risk management process at the project level

• • Each PMO has a formal risk management plan and office

  • S&E PMO uses a standard set of questions to identify, analyze, and assess risks for each provision; MITS PMO uses a template to identify and track risks and mitigations

  • The two PMOs regularly share information on identified risks and mitigations, including risks that cut across projects

• Each PMO is to elevate risks to the PPACA ESC based on judgment, but no formal agency wide process exists to ensure that all external and internal program-level risks have been identified and analyzed

• • Such a program-level process could, for example, look at risks associated with setting common goals for interagency communication and determining milestones for its compliance assurance work

• An agency's efforts to develop and implement mitigation strategies should include:

• • Assessing alternative mitigation options to determine the extent to which risks can be reduced

  • Incorporating risk-based information in the selection process

• Risk logs suggest that mitigation strategies have been adopted to address identified risks, however we have not seen evidence of assessing alternative mitigations or a process for selecting mitigation strategies

• An agency's efforts to build on lessons learned should include:

• • Ongoing monitoring by management to ensure that risks and related mitigation strategies are effective

  • Separate evaluations or different mitigations where problems are identified or mitigation strategies do not function properly

• IRS's risk management process at the project level requires that

• • Risks for each provision be assessed before implementation and every 6 months thereafter using a standard set of questions

  • Risks and mitigations at the project level are to be monitored by management through team meetings, review of risk logs, and periodic reassessment

• PPACA implementation is a massive undertaking for IRS

• • IRS actions will affect individuals with tax reporting responsibilities, intermediaries, and other federal agencies

  • IRS has to manage its usual tax administration responsibilities as well as PPACA

• IRS necessarily focused on implementing provisions effective in 2010 and 2011

• • Short term implementation and long term strategic planning had to proceed simultaneously

• Overall, IRS is following many leading practices for implementing such a large program, particularly at the project level and within the 2 PMOs, such as the risk management plans established by the PMOs for use by project teams

• While effective dates for many provisions are still years away, additional attention now in several areas might prevent future problems

• • Much of this is at the program or strategic level, such as the absence of a formal, agency-wide process for identifying and analyzing strategic-level risks for the program

• If IRS management at the strategic, or program, level does not clearly communicate a clear vision or goals for the program and also communicate an IRS-wide project plan, IRS may have lower level units working at cross purposes

• Not having performance measures defined in a timely manner risks not being able to collect the data to track performance

• Without cost estimates that are comprehensive, well-documented, accurate, and credible, IRS management and Congress may not have a complete picture of the resources needed for the program

• If risks identified at various levels in the agency and mitigation options are not also systematically assessed at the strategic, program level, key risks could be overlooked and not mitigated

• Dealing with these issues will not guarantee smooth implementation of the program but could make it more likely

• IRS should define program goals and develop a project plan in one document that effectively integrates all aspects of the program

• IRS should document a schedule for developing performance measures that link to program goals

• IRS should develop a more complete cost estimate that is consistent with the GAO Cost Estimating Guide

• IRS should modify and document its risk management approach in order to have more assurance that all risks, including strategic-level risks for the program, are identified and analyzed and that mitigation options are assessed

• Issue interim report by June 29, 2011

• Continue our assessment of IRS for the work to be done to develop our final report by a date to be negotiated

To establish a set of leading practices for assessing IRS's implementation of PPACA, we reviewed our products on planning and implementing new tax administration and other types of programs as well as on IRS compliance efforts. A listing of these products can be found in appendix II. We identified four areas of leading practices, as described below.

• Developing an Overall Management Structure: dedicating an implementation team, establishing program goals, aligning resources and workforce, establishing performance measures, communicating internally, coordinating with other federal agencies and departments, and tracking and monitoring progress.

• Estimating and Tracking Costs: estimating and tracking costs, including assessing the adequacy of any completed estimates of the life-cycle costs of implementation.

• Assuring Compliance while Minimizing Burden: balancing service and enforcement, to both assure compliance and minimize the overall burden of compliance on society, such as the beneficiaries and intermediaries.

• Establishing a Risk Management Framework: developing a framework to analyze risks, trade-offs, and results.

To develop criteria for these four areas, we analyzed our products including reports relevant to leading practices for overall management structure, tax compliance, and risk management; the GAO Cost Estimating and Assessment Guide; Office of Management and Budget Circular A-123; the Internal Revenue Manual; and IRS's strategic plan. We discussed our draft criteria with GAO staff knowledgeable in related areas, IRS officials to obtain input and concurrence, and staff from Massachusetts Department of Revenue who helped implement state-level health care reform legislation that included similarities to aspects of PPACA.

To apply our criteria to IRS's planning for PPACA implementation, we analyzed IRS documentation and data, including planning documents, meeting minutes of implementation teams, risk logs, charters, project plans, IRS's database of implementation actions planned and taken, and presentations given by IRS staff responsible for implementation planning. Our analysis is limited by the extent to which IRS documentation is not yet developed or available, such as a communications plan that will be completed in the summer of 2011. We interviewed IRS officials and staff at IRS's National Office, including those in the Office of the Chief Financial Officer; Office of the Commissioner; the Executive Steering Committee for PPACA; and the Services & Enforcement (S&E) and Modernization and Information Technology Services (MITS) Program Management Offices (PMO) to clarify our understanding of the documentation provided and their views on how their actions taken and planned compared to our criteria. We identified gaps between progress so far and the criteria and looked for IRS's plans to close those gaps.

As agreed with your offices, our assessment focused on IRS's planning for implementing PPACA provisions that were effective after 2011. First, provisions taking effect retroactively, on enactment, or in 2010 after enactment included types of changes in the tax code that were relatively familiar to IRS (such as new or modified tax credits) compared to provisions effective after 2011 such as those involving state exchanges.

Second, we sought to avoid duplicating efforts with the Treasury Inspector General for Tax Administration, which has been evaluating IRS's implementation of several provisions with effective dates in 2010. As agreed, we focused on IRS's ongoing planning and implementation efforts rather than on IRS's implementation of provisions whose effective dates had passed. Similarly, our assessment focused on IRS. As a result, we did not contact other federal agencies -- such as the Department of Health and Human Services -- the states, or other organizations about coordinating with IRS in implementing PPACA.

This briefing provides a summary of our findings-to-date. We summarized the status of IRS's progress in each of the four areas of leading practices rather than rating progress against a scale. This summary of our work will be updated and included in any associated future reports along with our overall findings, conclusions, and recommendations.

² Pub. L. No. 111-152.

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We appreciate GAO's assessment of our ongoing efforts to implement the tax law changes included in the Affordable Care Act (ACA). Both short-term implementation and long-term planning began immediately upon passage of the legislation. Our efforts focused on ensuring tax law changes which were retroactive or immediately effective were implemented in a timely fashion and a structure and process was in place to begin planning for provisions with effective dates in future years.

Your team provided valuable input on best practices in planning and organizing an effort of this scale, which we will consider as we move forward in the implementation process. Our comments to your specific recommendations are outlined in the enclosure. Our efforts, including those we have taken or are planning to take in response to your recommendations, will position us well for successful implementation of the tax law provisions of the ACA.

IRS should define program goals and develop a project plan in one document that effectively integrates all aspects of the program.

Comments:

We agree, and will consider the best way to capture an overarching program plan that integrates our IT and business planning to date and lays out the needs and requirements for implementing tax law provisions of ACA from a corporate and strategic level. Further definition around our overall program goals will be provided.

Recommendation:

IRS should document a schedule for developing performance measures that link to program goals.

Comments:

Development of performance metrics, including an appropriate timeline, will be a mandatory element of the implementation plan for each provision. We are already working with our Research, Analysis and Statistics Division to obtain and develop comprehensive metrics for exchange and non-exchange provisions. In addition, existing program performance measures, such as telephone level of service, will be useful for some provisions.

Recommendation:

IRS should develop a more complete cost estimate that is consistent with the GAO Cost Estimating Guide.

Comments:

We appreciate GAO's thorough review of the cost estimates, and while we believe that they are sound and supported by substantial data and analysis, we agree with your recommendation to further explore enhancements, particularly those that extend beyond FY 2012.

Recommendation:

IRS should modify and document its risk management approach in order to have more assurance that all risks, including strategic-level risks for the program, are identified and analyzed and that mitigation options are assessed.

Comments:

We are clarifying our risk management process to ensure transparency in our process of having strategic-level corporate risks raised and assessed by top IRS executives and the development and monitoring of appropriate mitigation strategies.

In addition to the individual named above, Thomas Short, Assistant Director; Linda Baker; Amy Bowser; Dean Campbell; Jennifer Echard; Meredith Graves; Sairah Ijaz; Paul Middleton; Donna Miller; Edward Nannenhorn; Melanie Papasian; Sabine Paul; Marylynn Sergent; and Cynthia Saunders made key contributions to this report.

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