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GAO-02-234R 1 (2002-05-09)

handle is hein.gao/gaobaalyv0001 and id is 1 raw text is: £ Accountability * Integrity * Reliability United States General Accounting Office Washington, DC 20548 May 9, 2002 The Honorable Charles 0. Rossotti Commissioner of Internal Revenue Subject: IRS Guidance on Economic Analyses in Investment Business Cases Dear Mr. Rossotti: Because IRS plans to spend $2.9 billion over the next 6 years to modernize its information systems, we have reviewed, at our own initiative, the latest draft of the Investment Decision Management Business Case Procedure. That document contains guidance for the Integrated Project Teams that prepare business cases to justify information technology (IT) investments. This letter presents our observations on certain aspects of the guidance where modifications or additions would help to ensure that the economic analyses contained in IRS business cases are consistent with commonly accepted principles. The observations in this letter are based on our review of the draft business case procedure, as it stood on November 1, 2001; relevant guidance issued by the Office of Management and Budget (OMB); relevant economic literature, and discussions with IRS officials from the Office of Economic Analysis under the Chief Financial Officer and from the Office of Financial Policy, Planning, and Programs under the Chief Information Officer. Our review was limited to the sections of the guidance that pertain to fundamental economic analysis. Some of our observations have particular significance for IRS, given its specific mission; the significance of these observations for other government agencies will depend on their specific missions. We did not evaluate individual business cases prepared under this guidance; therefore, we draw no conclusions with respect to any actual investment decisions. We did our work from December 2000 through November 2001 in accordance with generally accepted government auditing standards. Results in Brief IRS' draft guidance relating to the preparation of business case documents represents an important step toward ensuring that IRS management has the most relevant available information on which to base its critical IT investment decisions. However, some aspects of IRS' guidance are inconsistent with commonly held principles of public sector cost-benefit analysis. Most important, the guidance does not require the computation of a comprehensive social net present value (NPV), which is the GAO-02-234R IRS Guidance on Economic Analyses

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