Faulty data slowed IRS rollout of personnel system, audit finds

The Treasury Department did not adequately manage implementation of a new human resources system at the IRS, pushing the price much higher than at other federal agencies, according to a new inspector general report.

Treasury designed HR Connect to replace its disparate and expensive HR systems. Treasury began moving its bureaus to the system in 1997, planning to finish in 10 years. It has since pushed the completion out five years to 2012.

The system provides a single data collection system and front end to the Agriculture Department's National Finance Center mainframe systems that process personnel and payroll for Treasury. HR Connect provides internal recruitment, online position descriptions, and services for managers and employees. It will ultimately integrate 90 payroll and personnel systems across Treasury.

So far, 11 Treasury bureaus have cut over to the integrated system. Additionally, HR Connect is used by some agencies in Agriculture and the departments of Homeland Security, Housing and Urban Development, and Justice.


But the rollout at the IRS has suffered fits and starts, according to the IG reportfrom the Treasury IG for tax administration.

A chief problem was poor planning, the IG said. For the past few years, Treasury has submitted inconsistent and incomplete business case analyses to the Office of Management and Budget, the report noted.

"As a result, the Treasury Department and the IRS have incurred unexpected costs for maintaining software and systems that were to be replaced, incurred additional costs for modifying the HR Connect system, and scaled back the expectations for system capabilities," said Gordon Milbourn II, Treasury's assistant IG.

The IRS in May began processing all its employee records and transactions through HR Connect, said Treasury CIO Ira Hobbs.

Treasury has spent $173 million to install the HR Connect system, a custom version of the Human Resource Management System from PeopleSoft Inc. of Pleasanton, Calif. Northrop Grumman Corp. of Los Angeles has served as the systems integrator on the project.

By comparison, the Coast Guard spent $24 million and Agriculture spent $15 million, the report said.

Treasury lagged in its oversight of contractors, with the project experiencing significant delays and poor initial coordination between the IRS and the HR Connect Program Office, the IG said. The department subsequently transferred oversight of the program office to the CIO from the chief financial officer last fall.

In its fiscal 2005 business case, Treasury said HR Connect would produce a net savings of $484 million over 15 years. "However, the HR Connect Program Office does not have the data and calculations needed to support these estimated costs, benefits and savings," the IG countered.

The IG recommended that the CIO explain to OMB in its business cases how it has revised system functions and how these changes will affect the expected return on investment, schedule, costs and benefits. Also, the CIO should evaluate the duties the program office has delegated to the contractor to ensure that the program office has the information necessary to oversee the project.

Hobbs agreed with the IG and said in response that his office reviewed HR Connect's actual and estimated costs and benefits for Treasury's fiscal 2006 business case. The CIO's office has also put in place a governance structure to provide direction and review changes to HR Connect and a tracking system to monitor and account for retirement of legacy systems.

And though Treasury will study the strategies of other agencies that had lower conversion costs, Hobbs said the department disagrees with the IG's contention that the projected $454 million savings is unsubstantiated.

Treasury plans to hire a consultant to create a cost-accounting method for tracking costs and quantifying benefits. The audit said the CIO should first seek the assistance of accounting experts in the Treasury CFO's office.