Poor management of software licenses at the Internal Revenue Service (IRS) has resulted in the agency running pirated software, according to a recent audit by the Treasury Inspector General for Tax Administration (TIGTA ).

"The IRS is not adequately performing software license management and is not adhering to Federal requirements and recommended industry best practices," the Treasury auditors wrote in their report.

The IRS, they noted, "was unable to provide us with essential licensing records for properly managing licenses on 24 of 27 software products reviewed during this audit."

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Products whose licenses were abused by the IRS were not identified by name in the report.

Auditors also discovered over- and under-utilization of software licenses. For example, for three programs, the IRS deployed more licenses than it had purchased. For eight others, it deployed fewer licenses than it bought.

In eight cases, the auditors could not determine under- or over-utilization because there were no record of licenses purchased or deployed for the programs. In a half-dozen other instances, the IRS had conflicting figures on the number of licenses deployed and hadn't done a review to reconcile the numbers.

The lack of an effective program to manage software licenses could land the IRS in hot water in the future, the auditors said. Problems on the horizon could include embarrassing legal problems and financial liabilities and ineffective budget control of its software resources.

A number of recommendations were made by the auditors to tighten up software management, all of them agreed to by the IRS in an appendix to the audit.

In a letter from IRS CTO Terence V. Milholland, the agency said it planned to centralize the responsibility for software licensing. "This central function will focus on the processes and goals of this audit from the enterprise perspective to ensure effective management controls around desktop, laptop, server and other delivery platform software licenses," Milholland wrote.

He added that the agency plans to create an Enterprise Software Governance Board to provide oversight and decision making on managing software licenses.

The agency declined to comment on the audit.

The IRS isn't alone among large organizations with difficulties managing software licenses, said Kevin Morgan, CTO of Arxan, an anti-piracy software maker. "I can tell you from my experience of managing software for the last 30 years or so that it's absolutely a challenge to keep track of all the various software components brought into an organization and used on a daily basis," Morgan said in an interview.

"In an organization the size of the IRS, you could end up with tens or even hundreds of software packages used in different corners of the organization," Morgan said. "Having a centralized management system for all that can be extraordinarily challenging.

"I would say that the vast majority of large organizations face identical issues," he added. "I have yet to see a large organization that has a single, integrated, overarching software license management tracking and control system."

Software licensing in federal agencies has been a long-standing problem, said Keith Kupferschmid, general counsel and senior vice president for intellectual property and enforcement for the Software & Information Industry Association (SIIA). "For many years now, we have been pushing the federal government to make sure it has adequate, effective software compliance procedures in place," he said in an interview.

Although efforts to end software piracy within federal agencies go back to the Clinton years, government action has been slow. "It's just in the beginning of setting up a formal process to make sure it's software and content compliant," Kupferschmid said.

Nevertheless, the TIGTA audit and IRS response show that there's a system in place that's yielding results, argued Matt Reid, senior vice president for external affairs at the Business Software Alliance (BSA).

"The Treasury Inspector General's report is an example of good government in action," he wrote in an email. "There are executive orders and other federal policies in place that require U.S. government agencies to use properly licensed software, so they conduct audits like this to make sure it's happening.

"When they identify a shortfall," he continued, "they ensure corrective action is taken. The Treasury IG's report and the IRS CTO's response make clear that's what is happening here."

One software trend among federal agencies is to use cloud-based services, which could reduce the number and complexity of administering software licenses. Cloud software, though, has its own set of piracy problems.

"Now, we talk about having a license for five copies and using 10," Kupferschmid explained. "In the future, with cloud computing, you don't have that problem. You have a different problem. You have people sharing access, sharing passwords."