IRS Dropped $12M on an Email System That It Couldn’t Use

In its bid to comply with Obama administration requirements for preservation of staff emails, the Internal Revenue Service spent $12 million subscribing to an enterprise-wide cloud-based email system that turned out not to work with the agency’s existing IT setup, a watchdog found.

The tax agency’s on-site email system lacks archival capability, noted the audit released last week by the Treasury Inspector General for Tax Administration, and its hardware is failing and approaching the manufacturer’s end-of-support date. 

To upgrade and modernize the agency’s capability of preserving permanent records by the December 2016 deadline, IRS Information Technology organization executives made a management decision to consider the enterprise cloud-based email project an upgrade to existing software rather than a new development project or program. They authorized the $12 million subscription from June 2014 to June 2016, going against Internal Revenue Manual Enterprise Life Cycle guidance, TIGTA found.

“The purchase was made without first determining project infrastructure needs, integration requirements, business requirements, security and portal bandwidth, and whether the subscriptions were technologically feasible on the IRS enterprise,” the auditors wrote. “The IRS never deployed the software to be used via the purchased subscriptions, and it may have violated the bona fide needs rule when it purchased the subscriptions using fiscal year 2014 and 2015 appropriations and did not deploy the software subscriptions in those years.  In addition, the IRS violated Federal Acquisition Regulation requirements by not using full and open competition to purchase these subscriptions.”

Specifically, TIGA faulted planners for purchasing the cloud subscriptions prior to the establishment of the Microsoft Initiative Program Office in February 2016. “We believe that the IRS should have established the Microsoft Initiative Program Office and followed the Managed Services Path prior to purchasing the software subscriptions," the report stated. "We also believe that the results of the requirements determinations from that process should have been completed prior to the acquisition of the subscriptions.”

TIGTA recommended that the IRS Chief Information Officer ensure that IRS manual guidance is better followed and that its chief counsel review whether the purchased subscriptions violated the bona fide needs rule. Finally, both the IRS CIO and chief procurement officer should make sure future purchases of this nature comply with the FAR, TIGTA said.

The IRS generally agreed, but pushed back on the notion that it had wasted the $12 million. “The assertions in the report stem from differing perspectives on the approach the IRS took in acquiring Microsoft (MS) Office365 Pro Plus and MS Exchange Online Plan 2,” wrote IRS CIO S. Gina Garza. “At the time of the acquisition, the IRS deemed the subscription purchases strictly as an upgrade from our current version of MS products, following the same approach and practices that had been used for prior upgrades. As such, the IRS followed appropriate management processes and developed the acquisition plan in line with FAR regulations for acquiring upgrades to software.”

IRS management went on to say that the enterprisewide strategy for email systems developed in 2010 saved $127 million while providing “flexibility and efficient management of licenses. As our strategy continued to evolve,” officials said, "the IRS determined in 2014 it could save taxpayers an additional $21 million by purchasing subscriptions instead of perpetual licenses for MS Office 365 ProPlus and MS Exchange Online Plan 2.”

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